The Business Of Finance Thread!

How Billion-Dollar Tech Startups Get Valued With Phoney Math


Not too long ago, we documented how Uber was "worth" $40bn. Soon after, Chinese tech startup XiaoMi shattered Uber's eye-gorging valuation by becoming the world's most "valuable" startup, on top of being the world's 4th largest smartphone maker.
“Zero to negative bottom lines, check. Backroom agreements and opacity, check. Hockey stick extrapolations on just about every favorable thing, check. Unicorns and faeries, mostly checked.
What we didn't however touch on was how these private tech startups, a great majority of them in Europe and America, get their preposterous valuations. Specifically, we said: "Of course, because Uber is still privately held, valuations are always going to be a fishy affair."
It doesn't make an iota of sense that a ride-sharing tech startup such as Uber would have a $41.2bn price tag stuck to it; close to double what Twitter is currently worth, and on par with some of America's big names including the likes of Delta Airlines, Time Warner Cable, and just $10bn shy of General Motors.

READ MORE:
http://www.businessoffinance.com/bus...on-phoney-math

Bill Gross: QE Has Failed Terribly

Businesses lose foresight they used to have. Savers and pensions suffer the most because savings cannot earn a high enough return to justify the value of time and opportunity costs. It's all about the yield curve, which has never been as flat as it is today.

So when Bill Gross speaks, we listen, and so should central bankers all across the world. After correctly calling for a period of "nightmare panic selling", the bond king has once again raised the specter of an era ridden with monetary policy mistakes. Gross never does shy away from lambasting artificially low policy rates developed economies.

In fact, it was Gross who proposed raising the fed funds rate back in January this year, calling Yellen's failure to do so a blunder of the decade. Zero interest rates have become totally prevalent throughout the world. More recently though, things have been stepped a notch higher with negative interest rates seem to be the cool thing for ivory-cladded central bankers.

READ MORE:
http://www.businessoffinance.com/dai...ailed-terribly

At the beginning of the year, we penned a piece documenting our thoughts on the markets and what lay ahead, and this is the result: Dump risk, buy cash.

So far, all so good.

While we are hard pressed for time, we feel we need to put this piece out to give readers a first glance of what 2016 might be like for the markets all across the world. We have a feeling 2016 may be markedly different from the past 5 years where cash might actually be the best performing asset. Yes, being in cash is a position in and of itself.

In layman's speak, you ether go big or go home in 2016. At least that's what we think. You could make a hack a lot of profits or loose your shirt in the kind of markets we've been greeted with so far. So buckle up, sit tight, sell risk and buy cash.

So without much further ado, we'll give readers a glimps of some of 2016's themes through the lens of the institutional players, while we buy time to pen down our own thoughts going forward.

READ MORE:
http://www.businessoffinance.com/dai...move-this-year

Post April NFP...No More Rate Hikes?

http://www.businessoffinance.com/sni...-open-for-hike

Here are some bulletin headlines from the April FOMC event immediately after the statement's release:

1. FED REMOVES REFERENCE TO GLOBAL EVENTS POSING RISKS TO OUTLOOK
2. FED SAYS LABOR MARKET IMPROVED EVEN AMID SIGNS OF SLOWER GROWTH
3. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES
4. FED SAYS HOUSING SECTOR IMPROVED FURTHER SINCE START OF YEAR
5. FED TO WATCH INFLATION, GLOBAL, FINANCIAL DEVELOPMENTS CLOSELY
6. FED: INFLATION BELOW TARGET DUE TO CHEAPER NON-ENERGY IMPORTS
7. FED SEES MODERATE GROWTH, STRENGTHENING LABOR MARKET AHEAD
8. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES

This is precisely what we talked about in out last snippet, that the Fed will rather err on the side of caution than to tighten prematurely and risk having to reverse its path of policy actions — which would not only deal great harm to both the actual economy and global financial markets, but also eviscerate the last remaining bits of credibility the Washington-based entity has left.

http://static1.squarespace.com/stati...5986/image.jpg
"The reaction across stocks, USD, gold, and U.S. treasuries post a quasi-dovish FOMC, or what we call a "hawkishly-dovish" statement.

Equities are higher post event as risk flows turn positive after the initial knee jerk lower. SPX is attacking the week's highs as we go to print.

The U.S. dollar is weaker post event after initially ramping, again on a knee jerk. It seems market participants view the April statement as more bearish the dollar than bullish, despite FOMC having removed the emphasis on negative global risks, and reasserting that the labor market is on track to reaching full employment.
Bonds are higher (yields lower) post event, and are perhaps the single most dire
ctional asset class here other than equities. Markets clearly view the statement as dovish — Bullish for equites and bonds, bearish for dollar.
And lastly, Gold remains confused after dumping on a knee jerk, then rallying to unchanged, then dumping again before somewhat stabilizing slightly lower pre-FOMC. We note that silver is trading much stronger than gold is."

Business Of Finance on Facebook, 28 April 2016

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Sell In May & Play It Safe?

We are not usually pessimists but when we see the writing on the wall getting bold redder each week that passes, we can't help but to take serious note.

Just last week, we warned readers that markets might be about to get nastily volatile during the summer. So far so bad. May hasn't started well at all. The S&P 500, as of the week ending this past Friday, posted its first 3-week losing streak since January. The VIX has finally gone above 15, and the U.S. dollar index has been breaking the chain of shorts in the past 2 weeks, wiping out many bears in the process.

READ MORE:
http://www.businessoffinance.com/ins...d-play-it-safe

"Is the Fed right to say that markets have misjudged its ability to raise interest rates both higher and quicker than expected? Well, the markets say the Fed is wrong on that. The gap between the market implied FF rate and that implied by the FOMC's "dot plot" is widening. For instance, the dots say FOMC officials see on average 2 more rate hikes this year while the market only expects 1. This discrepancy only widens the farther out we go.

Also, stocks have deviated far away from GDP growth expectations, likely because the transmission that are interest rates and monetary policy have become so broken, the market refuses to trade on fundamentals and are rather technical driven.
Lastly, whatever happened in March threw the balance between yields, stocks, and macro data totally off. All 3 have been divergent since and only one will ultimately be proven correct. So which is it?"

The sad reality of life in the 21st century — We are forced (with little choice) to work longer hour and further on into our golden years. While this infographic serves as a reference for Americans, the same can be said for most of us around the world.

The so called "retirement" age is constantly being pushed back for the average working adult. This is not because workers want to work till their death (literally and figuratively), but because they have little choice. The combination of rising costs of living (wage inflation failing to keep up with inflation of practical living prices), poor financial and strategic planning for retirement, poor investment and financial decisions, rising indebtedness, skill gaps, and the like.

It's a potent combination that has seen not only increased willingness of workers to work longer, but also governments raising their respective recommended retirement ages from the 50s, and now to the 60s. Hopefully, with advancements in life-prolonging technologies, workers are able to live longer and therefore work more years (a cyclical plot that can be likened to a conspiracy).

The charts below show just how bad the situation in the U.S. really is. 55% of working Americans polled effectively say they do not plan to retire at all.

The top 25% of income earners have retirement nests that are on average, 20 times that of what the bottom 25% of income earners have. Talk about inequality in all parts of life!

The BIGGEST Event Risks In June

We have been away from this thread awhile now, busy with new material, content and of course, trading signals.

So far, all so good. The first half of 2016 has sailed on by, and the markets remain generally trendless, yet dangerously volatile. To combat this, we have had to switch strategies to ensure that we are not exposed on any particular trade for too long. Long-term trades are simply not worth the drawdown in markets like this.

Near the end of the month, the UK will decide whether she remains a part of the European Union (UK). In other words, Brexit, or Bremain?

This is just one of many crucial, key market events that will take place in June. Given that this month concludes the first half of the year, we thought it'd be fitting we bring you some of the biggest event risks June will bring.

Get ready and mark your calendars.

From the article:

'The biggest risks in June (in our opinion) will be the EU referendum by the UK in the later part of the month, the June ECB monetary policy decision and press conference, the June FOMC statement and interest rate decision, and lastly the BoJ's monetary policy decision.'

We do the analysis and commentary for you, all in today's Daily Grail.
The Biggest Event Risks In June

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Image captions:

New opinion poll results surfaced in Britain Tuesday showing a 47% vote for leaving the EU (Brexit), and a 44% vote for remaining in the EU (Bremain). The news sent GBP crashing 130 pips against the USD and shockwaves across risk markets will global indices all down on the day and for the week. While such poll results are questionable, the consensus is that the Brexit vote is quickly catching up to the conservative.

Regardless of results, the UK referendum is surely one of (if not the most) the nuggets event risks in June and markets will likely continue to trade wildly on every ebb on this event."

Business Of Finance on Facebook, 1 June 2016


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Caption 2:

"The best and worst performing global financial assets in May and YTD (in both local currency and USD terms) as analyzed by DB:

May was a month of decoupling: oil decoupled from the dollar, and global risk decoupled from the once again sharply devaluing Yuan, but most notably May was a month where Fed rate hike expectations repriced midway through the month.
Markets largely took the move in their stride and reversed a difficult start to the month. Having said that we saw evidence of the repricing with dollar strength and EM/Gold weakness a theme. In fact for equity markets in particular the old adage sell in May and go away was looking relatively apt for the first week or so into the month before sentiment turned positive, seemingly supported by a combination of increasing comfort that the market can accommodate Fed tightening, higher oil prices, positive news from Greece and another decent performance for European Banks.

Looking at the winners and losers for the month one thing which stands out is the relative performance between local currency performance and US Dollar hedged performance during the month such was the strength of the Greenback. That was certainly the case with equity markets where in Europe in particular markets were generally up between 1-3% in local terms with banks in the middle of that range. With the Euro weakening 3% during the month however, on a USD return basis we see most European equity markets finish flat to slightly negative. It was a similar story in credit markets too where following two decent months of performance (on the back of the ECB CSPP announcement) May saw Euro indices eking out more modest gains of less than a percent in local terms in May with financials the relative outperformer. Looking at these in USD terms though results in most European credit indices down 2-3%. Performance was more impressive then for the S&P 500 (+2%) and higher beta US credit indices (+0.5%).

Further afield the top of our May leaderboard is headed by the performance for Greek equities (+11% local, +8% in USD terms) which rallied following the latest positive developments with regards to the bailout. Thereafter its WTI (+7%) and Brent (+5%) which rank second and third, extending what has essentially being an ongoing rally since mid-February now. Corn (+6%) also had a strong month. Developed sovereign bond markets sit in the middle of the pack although with concerns about Brexit starting to abate, it was Gilts (+2% local, +1% in USD terms) which outperformed. Finally the bottom of the leaderboard sees Brazilian equities (-10% local, -15% USD terms) prop up the rest as the political situation came to a head. Elsewhere Gold (-6%), Silver (-10%) and Copper (-8%) all suffered with the Fed repricing. EM equities and bonds (-4% and -5% respectively) also succumbed for the same reason.

Taking a look at year-to-date performance, its still commodity markets which are dominating the top of the leaderboard. Indeed in local currency terms the top five has WTI (+33%), Brent (+19%), Silver (+15%), Gold (+15%) and Corn (+13%) hogging the limelight, although if we flip to USD terms then Brazilian equities (+23%) and Russian equities (+19%) jump to second and fourth respectively. The impressive rally for the Yen (+9%) is still a standout while the overall performance for credit continues to be strong. Indeed in local currency terms we see US indices up between 3-7% this year, led by HY while European indices are up between 2-4%. Theres a familiar look to the bottom of the leaderboard with the Shanghai Comp (-17% local, -19% USD terms) the biggest outlier. Italian equities (-14% local, -12% USD terms) and European banks (-14% local, -12% USD terms) are still down double digits although have bounced back from how they ended Q1."

Business Of Finance on Facebook, 1 June 2016

Largest NFP Miss Ever Kills June Fed Hike

When we first saw the 38,000 print, we thought it was an error with our news feed. But no, the U.S. economy added only 38,000 non-farm jobs in May, the lowest since September 2010, and the biggest miss on record. It's really hard to overstate how morbidly bad May's payrolls were. It is, however, commensurately easy to kiss a June rate hike by the Fed a sweet goodbye.

Everyone was shocked. We were definitely shell shocked, because we couldn't believe just how bad the numbers were. Neither could the markets.

Flash crashes and surges sprouted the instant the first HFT algos recognized that it was really an epic disaster. Yes, here we are 5 days late to reporting on this monumental event; but you see, we have more to bring to the table, now that 3 trading days have already passed for the dust to settle.

READ ALL HERE:
http://www.businessoffinance.com/sni...-june-fed-hike