Anti-Tilson ETF Goes Ballistic: Netflix Plunges After Company Announces Equity Raise In Sheep's ClothingSubmitted by Tyler Durden on 11/21/2011 - 18:34
When we discussed the slow motion trainwreck that is the implosion of Netflix back on October 11, our only outstanding question was "when is the inevitable follow on equity offering coming?" We have the answer, and it is now. Netflix just announced in an 8-K filing that it has raised $200 million in convertible notes. The conversion price is a laughable $85.80 or just 16% above the closing price translating into 2.3 million shares of additional dilution, confirming that this is nothing short of an equity raise in sheep's clothing (on the buyer's terms at that), and indicates that the firm may have well entered a liquidity death spiral courtesy of a business model that still has to generate any substantial free cash flow. Naturally, the second investors realize this they will dump the stock in droves, which is horrendous news for Whitney Tilson, but amazing news for everyone long the Anti-Tilson ETF. In other news, it may just be time for Tilson to call it a career.
Remember the massive market ramp that came in on "news" that the Stupor committee would actually have a resolution? It is now time to fade it. Reuters reports that "The co-chairs of the U.S. Congress "super committee" will announce that their panel has failed to reach a deal on at least $1.2 trillion in deficit reductions, a senior congressional aide said on Monday. The co-chairs, Republican Representative Jeb Hensarling and Democratic Senator Patty Murray, are expected to release their written statement soon, aides said." Now this is not any news, but the "faux" catalyst that was used by the FRBNY to send a massive market buy to Citadel was there, and was sufficiently credible to get the vacuum tubes to jump in the buying frenzy. Now let's see the reversal, or not. After all that would make too much sense for this busted market.
ES tumbled back down to its VWAP at the close of the day session after mounting a run back towards 1200 in the afternoon. This equity move was the second total disconnect from credit markets of the afternoon and reverted back to credit's sanity though HYG was clearly the instrument of choice (once again) for credit hedgers looking for lower cost shorts or liquid hedges. The USD was modestly higher from Friday's close and Oil rallied back this afternoon to almost perfectly match the USD shift. Gold, Silver, and Copper all lost significant ground (around 2.5%) though all were well off their early European-close-liquidation lows. TSYs rather interestingly closed near the high yields of the US day-session - though well down on the day - as 2s10s30s and Oil were the main drivers of broad risk-asset strength. CONTEXT remained notably below ES all day - maintained by the weakness in Gold, 10Y, and AUDJPY as the EURJPY ripfest into the EU close helped the risk-on crowd modestly. It was a muddled day with correlations breaking down and dramatically illiquid-looking moves as the late-day drop on very large volume suggests some sense of sanity with the uncertainty we face was priced in.
Listening to all the mouth foaming commentary out of assorted TV channels and economics professors which have apparently suddenly woken up from their deep hibernation regarding the imminent death of the gold market, one could be left with the impression that gold was wiped out, collapsed, imploded and will never rise again. After all: what does it really bring to the table aside from complete lack of monetary dilutability and a safe haven to hundreds of trillions in derivative counterparty risk (in its physical form that is, as Celente recently found out), not to mention a hedge to human idiocy as Kyle Bass said a few days ago? Well nothing really... So we were shocked, shocked, when we ran a simple chart comparing the performance of gold and the S&P Year to Date to discover that outperforming by a margin of about 23% is... gold? Huh. But wait, the real safe haven are bonds many would say. After all, the US has no counterparty risk and it has prudent fiscal and monetary authorities. So how do they compare? Well, as of today: flat, with gold actually outperforming modestly. That's right - gold and the US long bond, even following the recent "drubbing" in gold have generated the same price return. So... what were we talking about again?
Less than two weeks ago, when reporting on the news that Fitch has finally woken up to the reality that European insurers, already massively pregnant with European bonds, are the next shoe to drop, something we have been saying since 2010, we said, "For once, Fitch took the words right out of our mouth, and in the process reminded us that the time of the stupendously named ASSGEN CDS (357 bps, +41 today) is here (for our previous coverage on Generali, read here, here and here)." We also added: "And just because we like to live dangerously, we believe the time has come to knock on the door of the grand daddy of all: Pimco parent, German uber-insurer Allianz, where the crisis will eventually hit like a ton of anvils if and when things really get out of control." Here is the first trade update, 12 days later: Generali is 100 bps wider, Allianz is 40 bps. So as traders stock up on even more default protection to the companies which are certainly not too big to fail (ALZ used its trump card with the EFSF as CDO squared idea... and failed), we urge them whatever they do, to not tell Bill Gross to look at the soaring default risk of his parent company.
While pervasive asset liquidations are dragging everything lower, stocks and gold included, one thing is doing amazingly well and is up over 7% intraday and nearly 36% in the past 5 days. The "thing" is, naturally, the Anti-Tilson ETF: the pair trade of being long GMCR (Tilson's vocal short) and short NFLX (Tilson's legendary flip flop). Just like theStreet did an amazing job of being the contrarian indicator du jour, so Tilson continues to be the market's most valuable (counter) indicator.
One could be forgiven for suspecting a hint of self-preservation in a research note by the firm that faces the most intense pressure given its apparent European sovereign exposure but Jefferies' strategist David Zervos' note today seems extreme in many ways. With the sanctity of the known world at risk, Zervos describes the group-think of sado-fiscalism that has invaded German minds and how the Fed is the only one left with the 'bazookas' big enough to get the job done. Besides, he notes, we did not spend all that money on the Marshall plan just to have Europe blow up the world again!
Luckily the market is all stable and stuff and can handle the prospect of a potential Iran war.
- SARKOZY WRITES LETTERS CONCERNING IRAN'S NUCLEAR PROGRAM
- SARKOZY SAYS IRAN'S PROGRAM IS A 'SERIOUS AND URGENT' THREAT
- SARKOZY SAYS NEW SANCTIONS WOULD FORCE IRAN TO NEGOTIATE
Now where is that weekly US naval update...
This has to be an almost as epic call as Dick Bove's upgrade of Lehman days before its bankruptcy.
While we spend a lot of our time pointing out critical factors driving the reality of our markets and economies, today's note from David Rosenberg, of Gluskin Sheff, provides a spot-on and unarguable description of what every one of your favorite long-only strategist, sell-side economist, and hope-heavy CNBC anchor told you would happen - and hasn't! Then Rosie goes on to compare Italy to Lehman in a not so flattering light.
Update 2: FMCN has now been halted 3 times. Dick Bove does NOT have a buy recommendation on the name
Update: Trading has resumed: modest dead cat bounce on short covering
It took the market only an hour or so to realize what is going on with FMCN. To those who shorted the stock outright - congratulations. To those who are long puts - you may be out of luck. The stock may reopen some time in 2012, long after puts have expired.
Little to be said about today's $35 Billion 2 Year auction: it was nothing short of a complete scramble for cover in a piece of paper that comes due just around the time of the Fed's guaranteed ZIRP interval of mid-2013 (which will likely be extended). The result: an all time record high Bid To Cover of 4.07, the highest since records started being kept back in 1993. The yield was 0.28%, inside of the 0.285% When Issued level trading at 1pm. Yet notably, Dealers took down just 46.53% of the auction, the lowest since October 2010: this compares to 54.16% for the LTM period, and 52.57% for the prior auction. This is not unexpected considering the Primary Dealer issues in the aftermath of MF Global. Indirects stepped up and took home 42.24% of the final allocation - the highest since February 2010. Directs were in line at 11.24%, just below the LTM average of 14.30%. Overall, nothing says price stability like 0.28% on 2 Year paper. And so much for the Fed's attempts to sell the short end of the curve via Twist.
We were one of the earliest to raise concerns about the future impact of the maturing TLGP debt that was 'given' to the bank-holding-companies in the middle of the crisis three years ago. December is the first month with very significant maturities as more than $52bn comes due, with $14.9bn next week alone. The banks face at least two major problems from this debt maturing: 1) It is sizable and primary markets seem unlikely to be able or willing to soak up such large issuance without significant concessions, and 2) The extremely low cost of funds for this debt means that rolling into market rates will drastically impact earnings (as interest expenses jump - should fundamentals matter again). BAC faces $3.6bn maturing, MS $3.75bn, and JPM $7.55bn next week alone.
Muddy Waters Releases 80 Page Report Disclosing Latest "Strong Sell" Target: Focus Media (Nasdaq: FMCN)Submitted by Tyler Durden on 11/21/2011 - 13:37
If Sino Forest is any indication, the $3 billion market cap company is about to have a B -> M market cap transition. The reason: Muddy Waters just said FMCN could be the next Olympus: "FMCN has been fraudulently overstating the number of screens in its LCD network by approximately 50%. This is similar to China MediaExpress Holdings, Inc. (OTC: CCME), which we reported is a fraud on February 3, 2011. We therefore question whether FMCN’s core LCD business is viable." From the report: "Muddy Waters rates Focus Media Holding Ltd. (NASDAQ: FMCN) shares a Strong Sell because of significant overstatement of the number of screens in its LCD network and its Olympus-style acquisition overpayments. The $1.1 billion in write-downs from its acquisitions exceed one-third of FMCN’s enterprise value, making FMCN’s acquisitive behavior more destructive than Olympus’s to shareholder value. FMCN insiders have sold at least $1.7 billion worth of stock (two-thirds of FMCN’s enterprise value) since FMCN’s IPO. At the same time, the insiders and their business associates further enrich themselves by trading in FMCN assets, while costing FMCN shareholders substantial sums of money."