Investors go bonkers for Alibaba. The stock finally opened just before noon as buy and sell orders were getting matched.» Read More
Will Lennar finally turn around the negative sentiment dogging the home building sector?
The company reported a strong beat 78 cents per share on Wednesday, well above consensus of 67 cents per share. Orders were up 23 percent year over year, also above expectations. Average sales price, at $330,000, was up 14 percent from a year ago.
We will get a modest test of whether there is an "Alibaba effect" on initial public offerings (IPO) late Thursday when ReWalk Robotics prices its IPO. I say "modest" because it is a small offering: 3.4 million shares at $14–$16. ReWalk develops exoskeletons for wheelchair-bound individuals that allow them to stand and walk again.
The theory, still much debated, is whether Alibaba is such a gigantic offering that it is reducing interest in other IPOs anywhere on or near the horizon.
Energy: Lower demand and plentiful supply a perfect nightmare for energy bulls.
Today's weekly oil inventory numbers showed a huge build in oil inventories. Oil promptly dropped. Brent crude dropped below $100 and is now at a 17-month low.
We have a perfect nightmare for energy bulls: Lower demand and plentiful supply. This, despite the fact that we are only one day away from some potentially crazy development in the Mideast.
Watch shale plays. Companies like Whiting Petroleum (WLL) or Diamondback Energy (FANG) are getting hit hard this month...WLL down 10 percent, FANG down 12 percent. Why? Because oil prices matter. West Texas Intermediate is at $92, the lowest in eight months. As you start getting into the $80 range some of these shale plays don't work. These shale plays involve deep drilling, they're complicated, and they're still very expensive to drill, though less expensive than they used to be.
In addition, refiners are getting hit hard...yesterday the Brookings Institute yesterday came out in favor of removing the ban on export of oil. They noted the refiners will get hurt because West Texas Crude (WTI), currently at $91 and change, will then rise to the price of the global benchmark Brent Crude, currently at $98. Long-term, U.S. refiners will lose their cost advantages...they can buy oil at a lower price right now than, say, their European counterparts. That advantage will shrink if exports are allowed.
There's a larger problem for energy: There is not a lot of visibility on demand growth. If you can project how much economic growth there will be...if you have some certainty on what you think global GDP will be...you can create a model that will project oil demand. But without a clear viewpoint on global growth, you are a bit lost trying to figure out where oil should be.
And most investors are completely clueless about what global growth will look like.
Is there any good news? Sure. Lower oil prices is hugely supportive for an improving economy.
And it may not be such bad news for energy investors if prices stabilize. They are drilling like mad everywhere in the U.S., and I doubt that will stop any time soon. If oil prices stabilize, traders will quickly start sniffing around some of these shale plays that have dropped. Diamondback, for example, trades at a relatively reasonable 4.5 times EBITDA, according to traders. Same with Whiting Petroleum.
Reports indicate Alibaba has received enough orders to cover its entire IPO after just two days of its roadshow in New York and Boston. Given there are several more days left and other cities to visit, this would indicate enthusiasm is very high.
However, there are a few reasons to be very cautious about this. First off, with all high-demand IPOs, institutions routinely put in much more than they expect to get. And underwriters only give clients a part of the shares they ask for.
Second, covering the "book" only one time means very little. It is routine to hear about a book that is five, six, seven times oversubscribed.
Finally, there is still additional stock available. Alibaba is seeking to sell 320 million shares at $60-$66. At the high end, that would be $21.3 billion. However, as with most IPOs, there is an option to sell an additional 15 percent, known as the "greenshoe" which would boost the total sales to roughly $24.5 billion, which would be the biggest IPO of all time, outpacing the former record holder, Agricultural Bank of China, which raised $22.1 billion in 2010.
Will Alibaba increase the price or deal size? Still not clear.
Bottom line: It's a good start, but there's a long way to go.
1) Bonds are weaker, yields higher. Yesterday our Steve Liesman noted worry about the possibility the Fed may change the language promising to keep rates low for an extended period; this has again created what Greg Valliere at Potomac Research called "stock market paranoia over Fed tightening."
The same in Europe, where bond yields are up again today on concerns that the Scottish independence referendum might loosen ties in the EU and encourage similar secession movements.
We have not had a double-digit correction in the stock market since April-June of 2012. On the other hand, we are not seeing particularly robust advances. Jeff Saut at Raymond James notes that a screen of Raymond James's research universe of 1,025 stocks shows the average stock has declined by roughly 23 percent from its respective 52-week high. Many stocks which the firm rates Underperform have declined by over 40 percent.
2) RadioShack (RSH): Sinking ship? RSH will report earning tomorrow...Wedbush says bankruptcy is "imminent". They believe earnings will disappoint big time: They have a EPS loss of $0.66, versus consensus of a loss of $0.36.
"[B]rick and mortar electronics retailers will see persistent structural decline as Internet sales continue to take share," the analysts at Wedbush say.
Everyone is waiting to see what Apple will unveil at its media event on Tuesday. I say it's more about the rumored iWatch and mobile payments application than about iPhone 6. Here are a few reasons why:
a) Mobile payments are key to Apple's future. What can you do to get consumers to part with their credit cards? Digital wallet seem to have been a disappointment, but the merchant processor market is a $10 billion business.
Apple could take a big chunk of this, not directly eliminating card companies but acting as the merchant processor. That's the heart of the mobile payment process.
Scottish independence: The new worry for equities. It always amazes me that equity traders tend not to pay attention to events until they are staring them in the face.
We have known about the Scottish independence referendum for over a year, but no one has paid any attention to it.
Until now. With 10 days to the vote on independence in Scotland, my email has filled up over the weekend about the new worry over Scottish independence.
What's the problem? To be fair, traders didn't pay attention because it looked like Scottish voters would vote to stay with the UK. But over the weekend, a respected poll (YouGov) showed a slim 51 to 49 percent "Yes" vote, with those saying they were undecided excluded.
This has driven the pound down against the dollar, with UK stocks weaker.
Why the worry? There is a lot of uncertainty here:
See what I mean? Uncertainty.
At last, Alibaba has announced its initial public offering (IPO) terms. I was puzzled that Alibaba waited until after the close of trading on Friday, particularly since they want to begin trading just two weeks later.
Here are the big questions that were batted around over the weekend:
a) how will investors fund their purchases of Alibaba? Will there be selling in other Chinese tech IPOs? What's the trade? Several investors tell me that, given all the advance warning about this, there is already ample cash in place for the purchase.
Venice, the historic Renaissance Italian hub, is sinking in more ways than one.
The city's Osteria Do Mori is one of the oldest drinking establishments in the world. Founded in 1462, and said to be a favorite haunt of the legendary lover Giacomo Casanova, this tiny wine bar has been a center for Venetian gossip ever since. The gossip on the morning I visited, however, was decidedly gloomy.
A 30-something attorney who had grown up in this neighborhood just a stone's throw from the Rialto Bridge told me he had left his home town and moved to Stockholm. What was the problem?
"There is no work for a lawyer in Venice," the attorney said. "No work for anyone unless you are in the tourist business."
If you want to see how dysfunctional Italy has become, look no further than Venice, the original Disney World, where tourists have come to gape ever since two ambitious Venetians stole the body of St. Mark from a church in Alexandria in 828 AD.
He's still here, in the church that bears his name, but if he could get up, walk out, have an espresso at the historic Caffe Florian and read the local paper, he would probably demand to be deported.
Venice, which stole not only St. Mark but also a good part of the wealth of the eastern Mediterranean during its thousand-year reign, is currently the object of great amusement in Italy.
Last year the port of Venice proposed banning the largest cruise ships from the area around St. Mark, and with good reason: Not only was there concern about damage to the buildings, but the Costa Concordia disaster of 2012, in which 32 people died when the cruise ship ran aground off the coast of Tuscany, highlighted the potential for grand-scale havoc when these giant cruise ships try to maneuver in tiny spaces surrounded by thousands of tourists.
The port authority said a deeper canal would be dredged to accommodate these large ships away from the city center.
All well and good, but in Italy nothing is ever settled permanently. The regional government overturned the ban. Several weeks ago, the national government stepped in, overturned the regional government's overturning of the ban (you following this?), and decreed that the biggest ships would indeed be banned by 2015.
There's one problem: They forgot to dredge a new canal. The head of the port authority announced last week that he was hopeful it would only take two years to finish, but the work hasn't even started.
So they are banning big cruise ships beginning next year with no place to put them.
Picture this: Tens of thousands of cruise ship refugees rowing to St. Marks in tiny boats from several miles offshore. The gondoliers will make a fortune.
This is nothing: I'm just scratching the surface of the comedy that is Italy. You would think that the mayor of Venice Giorgio Orsoni would play a major role in this farce, but he's gone. He was forced to resign in June and was put under house arrest.
There hasn't been a new mayor since, and there won't be for a while.
Orsoni was deeply involved in one of the grandest boondoggles in Italian history, a massive five-billion euro project to construct underwater barriers to prevent the city from flooding. Dubbed the Moses project (as in "parting the sea"...get it?), it was inaugurated in 2003 under Silvio Berlusconi.
The consortium building the project immediately set about taking care of everyone, Italian-style. The head of he consortium allegedly created a 25 million euro slush fund to secure the cooperation of Orsoni and other officials.
Orsoni said he was shocked--shocked! to discover that large contributions made to his 2010 campaign were illegal.
And the Moses project? It was supposed to be finished in 2012. Now the projected completion date is 2016, with five billion euros and counting.
Berlusconi's former culture minister is accused of taking 200,000 euros to fast-track the project. The former president of the Veneto region is also being investigated. There are secret accounts. In Italy. In Switzerland.
Think about this: Even with all major officials apparently on the take, the project is still years away and billions of euros over budget.
This is fast-tracking in Italy!
This comedy highlights one of the major problems that is sinking Venice (literally and figuratively) and the rest of the country: It's impossible to get anything done, and what does get done usually involves kickbacks. It's all part of what is sometimes called the "legal Mafia," the incomprehensible Italian political system.
At least in the United States, there are only two major political parties you have to bribe (Sorry: contribute campaign funds to).
In Italy, there are about ten political parties just on the national level. Can you imagine what happens when you start dealing with local, regional and national governments all at once, with that many parties?
The permutations are mind-boggling. The kickbacks multiply. Exponentially. It's no wonder the Moses consortium had a slush fund.
With this many parties, this many hands out, you need more than a slush fund. You need artificial intelligence. You need Big Data just to sort out who you're giving all the money to.
Tomorrow: What the Venetians think of this farce, and more on why Venice is a microcosm for what ails Italy.
Even after the Dow and the S&P 500 closed at new all-time highs, closely followed contrarian Marc Faber keeps sounding the alarm.
Eugene Fama, the University of Chicago investing researcher, once again warned investors against the lure of active management.
Fares Noujaim, an executive vice chairman at Bank of America has left the company abruptly.