May 23, 2017: The Container Store reports Q4 (Feb) EPS of $0.17 versus the $0.09 estimate. Revenues also beat rising 5.3% YoY to $221 million versus the $212.98 million estimate.
Melissa Reiff, Chief Executive Officer, said, “We are very pleased to have completed fiscal 2016 with strong fourth quarter performance that exceeded our expectations across all financial metrics. Our Custom Closets business continues to positively contribute to comparable store sales and we’ve seen sales trends improve in our other product categories driven by new and more targeted marketing campaigns, as well as merchandising improvements.
In fiscal 2016 we implemented our SG&A savings and efficiency program, which drove a substantial improvement in profitability with a full year operating income increase of 67% compared to fiscal 2015 and a three-fold increase in earnings per share to $0.31.
As we begin fiscal 2017, we remain committed to consistently driving top and bottom line performance that we believe The Container Store is capable of delivering. We have initiatives in progress to drive sales productivity improvements, including a complete re-design of our flagship store in Dallas, which we believe will provide us insight for the development of new store formats and the evolution of our existing stores’ layout and customer experience. In addition, today we are announcing a four-part plan to optimize our consolidated business and drive improved sales and profitability.”
February 12, 2017: Insider buying was detected in The Container Store last week. The Container Store is in oversold territory after reporting an earnings and revenue miss on February 7, 2017. The company reported Q3 EPS of $0.11 versus the $0.13 estimate. Revenue also missed coming in at $216.4 million versus the $224 million estimate. The company said, “Our custom closets business, specifically elfa(R) and TCS Closets(R), drove incremental sales and profit; however, holiday department sales were disappointing during the quarter and, as we expected, our annual elfa(R) sale was impacted by fewer selling days combined with Christmas and New Year’s Eve holidays falling on weekends. We’re nearing completion of our new long-term strategic plan that outlines our goals and priorities and our roadmap to achieving them. We look forward to sharing its central elements by June. Fundamental to this plan is leveraging our key differentiators and implementing new strategies to achieve top-line sales growth and maximizing the productivity of our stores by aligning our marketing, merchandising, in-store and online experience with the evolving expectations of today’s consumer.”
January 17, 2017: Morgan Stanley cuts the The Container Store to Underweight from Equal Weight and sets a price target of $5. Morgan Stanley does not expect the business to inflect over the next 12 months and the stock trades at an elevated multiple relative to other home furnishing retailers.
Originally established with one store in 1978, The Container Store has grown to be the leading specialty retailer of storage and organization products in the United States and the only national retailer solely devoted to the category. Our goal is to help provide order to an increasingly busy and chaotic world. We provide creative, multifunctional, customizable storage and organization solutions that help our customers save time, save space and improve the quality of their lives. We believe our commitment to the category, breadth of product assortment, passionate employees and focus on solutions-based selling create a long-lasting bond with our customers and foster devotion to The Container Store brand. As a result, we continue to expand our base of passionate, enthusiastic and loyal customers, which we believe will further drive our growth and profitability.
Deutsche Bank may be on the verge of collapse. Last week Deutsche Bank reported Q2 2016 earnings of 20 million euros which is a 98% drop in earnings year-over-year.
In 2015, Deutsche Bank announced its first full year of loss since the 2008 recession.
Deutsche Bank’s stock is down -60% over the last year meaning that the bank is close to collapse.
Deutsche Bank’s shares now trade for two-thirds less than their tangible book value, a steeper discount than even during the depths of the financial crisis.
Beyond Germany, few stock traders care if Deutsche Bank collapses. The problem with Deutsche Bank collapsing is its enormous derivatives portfolio valued at 42 trillion euros! To put in perspective, the entire EU (all 28 member states) has an estimated GDP value of 14.3 trillion. Deutsche Bank’s 42 trillion euro derivatives portfolio is about three times the size of the entire EU!
One might think that with such a high exposure to the derivatives market, Deutsche Bank would have already collapsed. The reason Deutsche Bank has not collapsed is because of something called netting. For every derivative position Deutsche Bank holds, they hold another position in the opposite direction, so they roughly cancel each other out. At least that’s what Deutsche Bank is reporting that they are doing. Whether that is true or not remains to be seen. Why would anyone hedge their longs with shorts in a 1:1 ratio? You would never make any money from trading, and you would slowly lose on slippage. The OCC tracks netting on U.S. banks and does, in fact, show that even with netting, net current credit exposure (NCCE) has been rising rapidly since 2014.
When Deutsche Bank collapses, it is going to be the explosion heard around the world, and it will be a disaster many times greater than the collapse of Lehman Brothers in 2008.
US Derivatives Exposure
The big U.S. banks have higher exposures to derivatives than Deutsche Bank. As of June 30, 2016, below are U.S. banks with the largest derivative exposures.
Citigroup has amassed the largest stockpile of interest-rate swaps as they bet on central bank rate changes.
Five U.S. banks hold 93% of all derivatives: Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley. The total value of these derivatives is $247 trillion (notional).
Morgan Stanley has $31 trillion in derivatives with $1.6 trillion (notional) in credit derivatives. What is scary is that Morgan Stanley is back to speculating in the same credit derivatives market that took down AIG in 2008. I don’t think Morgan Stanley necessarily wants to speculate in credit derivatives but with revenue flat the last few years, they may be getting more desperate to prop up their stock price. Morgan Stanley’s stock is down more than -25% over the last year.
Most traders in the U.S. don’t care about Morgan Stanley’s risky credit derivatives portfolio, but they should. Morgan Stanley has more than 15,770 retail brokers managing $404 billion of other people’s money (mom and pop savings, retirees, pensions, retirement accounts, etc.cause). Morgan Stanley’s risky credit derivatives position poses a huge threat to the investing community in my opinion.
Banks and Financial Firms Will Not Disclose Information Until It’s Too Late
If you are waiting for banks and financial firms to disclose risks and even how much they were bailed out from the last time they made risky credit derivative bets, don’t.
To survive the 2007-2009 Wall Street crash, Morgan Stanley received an injection of $9 billion from the Japanese bank, Mitsubishi UFJ Financial Group; a $10 billion injection from the U.S. government and over $2 trillion in secret, cumulative, below-market-rate loans from the Federal Reserve. According to data obtained by Bloomberg News following a multi-year court battle to obtain the information from the Federal Reserve, Morgan Stanley’s one-day secret outstanding loans from the Fed peaked at $107.3 billion on September 29, 2008.
The public would have never known about these secret loans shoring up Wall Street’s reckless conduct and hubris and obscene bonuses except for the court battle of Bloomberg News and legislation secured by Senator Bernie Sanders of Vermont requiring a Fed accounting.
Credit Derivatives Exposure On the Rise In the US
The Office of the Comptroller of the Currency reports some scary facts in their most recent quarterly OCC report.
– Insured U.S. commercial banks and savings associations reported trading revenue of $5.8 billion in the first quarter of 2016… $1.9 billion lower (24.9 percent) than a year earlier. [In my opinion, when trading revenues are down, trading divisions take on more risks in a desperate attempt to meet quotas like buying riskier credit derivatives as the data points below confirm].
– Credit exposure from derivatives increased in the first quarter of 2016. Net current credit exposure (NCCE) increased $65.1 billion, or 16.5 percent, to $460.1 billion.
– Notional derivatives increased $12.0 trillion, or 6.6 percent, to $192.9 trillion.
– Derivative contracts remained concentrated in interest rate products, which represented 76.3 percent of total derivative notional amounts.
Measuring credit exposure in derivative contracts involves identifying those contracts where a bank would lose value if the counterparty to a contract defaulted. The total of all contracts with positive value (i.e., derivative receivables) to the bank is the gross positive fair value (GPFV) and represents an initial measurement of credit exposure. The total of all contracts with negative value (i.e., derivative payables) to the bank is the gross negative fair value (GNFV) and represents a measurement of the exposure the bank poses to its counterparties.
GPFV increased by $0.8 trillion (26.6 percent) in the first quarter of 2016 to $3.8 trillion, driven by a 29.9 percent increase in receivables from interest rate and FX contracts. Because interest rate contracts make up 76.2 percent of total notional derivative contracts, changes in interest rates drive credit exposure in derivative portfolios. Declines in interest rates tend to increase exposure. This effect has increased in recent years, as the maturity profile of interest rate derivatives has increased, making credit exposure more sensitive to changes in longer-term rates.
Credit risk exposure increased a whopping 26.6% in Q1 2016. Much of that increased credit risk exposure is coming from bets on Federal Reserve rate hikes. If interest rates go up, credit risk exposure in derivative positions goes down. If interest rates go down, credit risk exposure goes up. In other words, most of the bets in the derivatives market are on interest rates rising. Better hope Janet Yellen doesn’t have to lower interest rates!
Credit Default Swaps Dwarf All Other Forms of Derivatives
Credit default swaps dwarf any other form of credit derivative trading.
The notional amount for the 54 insured U.S. commercial banks and savings associations that sold credit protection (i.e., assumed credit risk) was $3.6 trillion, up $206.4 billion (6.0 percent) from the fourth quarter of 2015. The notional amount for the 50 banks that purchased credit protection (i.e., hedged credit risk) was $3.8 trillion, $224.9 billion higher (6.3 percent) than in
the fourth quarter of 2015.
It is interesting that many people are reporting having received a letter from their credit card company informing them that their interest rate is going up from 19.9% to 25% in August 2016. Some people have even reported receiving credit limit increase letters too. How kind of these bankers to go long credit default swaps while raising your credit limit and interest rate to insane levels at the same time.
Folks derivatives are dark financial products that cause excessive risk taking that ultimately leads to disaster. I have little doubt that the next global financial crisis will, at its core, once again involve speculative derivatives betting.
June 17, 2016: Reportedly Apple iPhones were found to have violated Chinese rival’s parent LOL. That’s rich folks. The king of patent rip-offs China, who allowed fake iPhones to be sold for years, is now accusing Apple of violating China patents. So much for big-cheese Tim Cook’s visit to China recently.
iPhone 6 and 6-plus models infringe on patent rights owned by Shenzhen Baili because of similarities to its 100c phone, the Beijing intellectual property office wrote in its decision.
Apple can appeal the ruling and could be allowed to continue selling its phones during the process.
June 13, 2016: Apple Inc’s annual rate of iPhones sales said to decline for the first time in 2016. iPhone annual shipments to fall for first time since 2007 this year due to lukewarm demand for a new model with shipments seen between 210-220 million.
Reminder: At the beginning of the year, Nikkei reported that Apple could lower its production of iPhone 6 by more than expected in the Jan-Mar quarter. In mid-April, Nikkei reported Apple would sustain its lower rate of production in the April-June quarter. On May 11th, Nikkei reported that Taiwan tech suppliers expected significantly fewer orders from Apple in the second half of 2016.
May 22, 2016: Apple Inc rumored to have requested up to 78 million units of iPhone 7 production from suppliers according to the Taiwan press. This is the highest in 2 years.
Apple Inc Industry sources indicating that chip orders from Apple in Q2 have been disappointing on year over year basis according to a report in the DigiTimes. Report adding there is no sign of a substantial rise in chip orders in Q3 despite the expected launch of the new iPhone.
Apple CEO Cook has met with India PM Modi. The talks addressed cybersecurity and data encryption, along with Apple’s plans for possibilities of manufacturing in India. This was CEO Cook’s first trip to India.
May 16, 2016: Berkshire Hathaway discloses latest quarterly holdings; new stake in Apple of 9.8 million shares according to a new 13 F-HR filing. CNBC reports the Apple stake was not taken by Warren Buffet himself, but by one of his lieutenants.
May 12, 2016: Apple Inc to invest $1 billion in China’s Didi Chuxing (direct competitor of Uber). Didi Chuxing announced today important progress in its latest fundraising round. Among a group of prestigious Chinese and international institutions, Apple has invested USD$1 billion in DiDi, creating the single largest investment the Company has ever received. Through this investment, Apple becomes a strategic investor of DiDi, and joins Tencent, Alibaba and other key supporters to help further DiDi’s mission of building a data-driven rideshare platform to serve hundreds of millions of Chinese drivers and passengers. Building on its data mining and analysis capabilities, DiDi now completes over 11 million rides a day on its platform, serving close to 300 million users across over 400 Chinese cities with a diverse range of mobile technology-based transportation options. DiDi works with over 14 million Chinese car-owners and drivers, holding over 87% market share in private car-hailing and over 99% market share in taxi-hailing.
– Follow Up: Apple investment said to boost Didi fundraising to $3.0B – financial press
May 06, 2016: Apple CEO Tim Cook is planning a visit to China this month to meet with Senior Chinese government officials in Beijing. On April 26th Apple Q2 earnings had a -26% decline in Greater China (steepest drop among the five regions). Apple is expected to take its latest trademark dispute over the iPhone name to China’s Supreme Court. Currently Xintong is allowed to use iPhone mark on goods.
China is trying to copy popular products in the US by ripping off their trademarks and technology. This is why the story of China’s economic power is a joke. China is a copycat, a poser if you will and that means their economy is built on a deck of cards. Their communism form of government does not foster an environment that allows the people of China to be able to intellectually compete with people from the US. This is why I seldom, if ever, invest in China. China’s economy has gotten where it’s at today by intellectual property and technology theft. That, my friends, is a house of cards waiting to collapse.
CEO Tim Cook should tell China that if they don’t enforce international trademark and IP laws, Apple will no longer make iPhone parts in China which will put thousands of Chinese people out of work.
May 03, 2016: In an earnings conference call, Greenlight’s Einhorn says he continues to hold stake in Apple Inc. and sees great value in the Apple brand.
May 1, 2016: It’s a good time to take a position in Apple imo. With the earnings and revenue miss last week, the stock has overreacted to the downside.
Folks, Apple is a buy while there’s blood-in-the-streets play. Check out the recent carnage:
– Goldman Sachs removed Apple from its Conviction Buy list
– Carl Icahn dumped the stock
– Barclay’s cut its price target
– Morgan Stanley cut its price target
– Oppenheimer cuts Apple stock to a Perform rating, from Outperform
– Nomura cut its price target
– Drexel Hamilton cut its price target
What caused all this ruckus?
Last Tuesday, Aprill 26, 2016, Apple reported Q2 2016 EPS of $1.90 versus the $1.97 estimate. Revenue also missed coming in at $50.6 billion versus the $52.2 billion estimate. Apple also lowered its Q3 revenue guidance to $41 – $43 billion versus the previous guidance of $45.8 billion.
iPhone shipments came in at 51.2 million versus 61.2 million from the previous year. iPad shipments also fell, coming in at 10.3 million versus the 12.6 million from the previous year. Mac shipments fell to 4 million versus the 4.6 million from the previous year.
Not only do I think that traders overreacted to the earnings report, there are two catalysts in-play.
The first catalyst is Apple’s dividend payable on May 12, 2016 to shareholders of record as of the close of business on May 9, 2016. Why not capture that dividend if you can?
The second catalyst is the iPhone 7. Apple releases its new phone every year, in the second half of the year. Apple’s stock usually runs up in anticipation of the new release. We may have an opportunity to position early ahead of the seasonal new iPhone run up. There are also rumors that Apple will release more than one phone model this year which may help boost revenue.
Finally, as seen in the chart of Apple below, the stock is oversold and at horizontal support which could make for the last oversold RSI entry we will get before the seasonal iPhone 7 run-up. Just remember, don’t try and catch a falling knife. Look for a candle over candle entry.
Apple Inc. makes mobile communication and media devices, personal computers, and portable digital music players. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications.
It offers iPhone, a line of smartphones that comprise a phone, music player, and Internet device; iPad, a line of multi-purpose tablets; Mac, a line of desktop and portable personal computers; iPod, a line of portable digital music and media players, such as iPod touch, iPod nano, and iPod shuffle; and Apple Watches, personal electronic devices that combine watch technology with an iOS-based user interface.
The company also provides iTunes app and the iTunes Store; Mac App Store that allows customers to discover, download, and install Mac applications; iCloud, a cloud service; Apple Pay for making mobile payments; Apple TV, a portfolio of consumer and professional software applications; iOS and OS X operating systems software; iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite designed to help users create, present, and publish documents, presentations, and spreadsheets; and other application software, including Final Cut Pro, Logic Pro X, and its FileMaker Pro database software.
In addition, Apple offers various Apple-branded and third-party Mac-compatible and iOS-compatible accessories, including headphones, cases, displays, storage devices, and various other connectivity and computing products and supplies. The company sells and delivers digital content and applications through the iTunes Store, App Store, iBooks Store, and Mac App Store; and sells its products through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers.
June 06, 2016: Air Lease announces the sale of 25 Embraer aircraft to Nordic Aviation Capital. Announced an agreement to sell 25 of its Embraer E190 and E175 aircraft in its fleet to…
June 06, 2016: Air Lease announces the sale of 25 Embraer aircraft to Nordic Aviation Capital. Announced an agreement to sell 25 of its Embraer E190 and E175 aircraft in its fleet to Nordic Aviation Capital A/S (NAC). These Embraer aircraft have served ALCs customers well, fulfilling regional passenger traffic demand. Over the past six years, ALCs business has matured and has focused on mainline jet aircraft operations for its airline customers. NAC is a global leader specializing in meeting the needs of regional aircraft operators and this transaction adds further scale to its business. These 25 Embraer aircraft account for less than 10% of ALCs current fleet. Transfers of these aircraft to NAC will begin this quarter and are expected to conclude in Q1 of 2017. As the aircraft are moved, ALC expects to use some of this capital to add incremental aircraft acquisitions as market conditions permit.
More Air Lease Corporation News
May 23, 2016: Air Lease Corporation has received three buy ratings in the last week. The analysts with Buy ratings are: Rajeev Lalwani of Morgan Stanley, Christopher Nolan of FBR Capital, and Moshe Orenbuch of Credit Suisse. There have been a total of 7 Buy ratings on the stock in the last 6 months with no Sell ratings.
Most notable analyst with a Buy rating is Helane Becker of Cowen & Co. Helane Becker has an incredible win ratio of 70%, with an eye-popping average gain of +23.4%.
May 17, 2016: Air Lease announced today the placement of two new Boeing 787-9s on long-term lease to Oman Air. The aircraft are scheduled to deliver in 2018 and 2020, both from ALCs order book with Boeing. This new agreement follows Oman Airs August 2015 announcement of lease agreements covering 14 additional jet aircraft on lease from ALC, including three new Boeing 737-800s, seven new Boeing 737-8MAXs, one new Boeing 787-9, one used Boeing 737-700 and two used Boeing 737-800 aircraft.
May 12, 2016: Air Lease delivers first of two new Airbus A320-200 aircraft to Frontier Airlines. Air Lease Corporation announced the delivery of one new Airbus A320-200 to Frontier Airlines, the first of two new Airbus A320-200 aircraft deliveries on long-term lease from ALCs order book with Airbus. The second A320-200 is scheduled to deliver in fall 2016.
Air Lease Corporation, an aircraft leasing company, engages in the purchase and leasing of commercial jet transport aircraft to airlines in Asia, the Pacific Rim, Latin America, the Middle East, Europe, Africa, and North America. Air Lease Corporation is a leading aircraft leasing company based in Los Angeles, California that has airline customers throughout the world.
