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More Pain for Facebook and Nvidia

The two tech groups lost tens of billions of dollars in a week and it may not be over.

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The two tech groups lost tens of billions of dollars in a week and it may not be over.

Facebook  (META) - Get Meta Platforms Inc. Report and Nvidia  (NVDA) - Get NVIDIA Corporation Report, two of the flagships of tech, seem to be going through a real ordeal. 

Both companies lost tens of billions of dollars in market cap during the trading week ending Sept. 16. 

The repercussions are enormous for these two companies which have just been ejected from the Top 10 most valued companies in the world.

The network giant Facebook, which is now called Meta Platforms, is only a shadow of what it was a year ago. Indeed, on Sept. 7, 2021, Facebook joined the prestigious club of companies worth at least $1 trillion with a market cap of $1.078 trillion set that day.

Getty/TS

 

Out of the Top 10

The $1 trillion dollar club has only five members: Apple  (AAPL) - Get Apple Inc. Report, the Saudi oil giant Saudi Aramco, Microsoft  (MSFT) - Get Microsoft Corporation Report, Alphabet  (GOOGL) - Get Alphabet Inc. Report and Amazon  (AMZN) - Get Amazon.com Inc. Report, according to companiesmarketcap.com. The electric vehicle manufacturer Tesla  (TSLA) - Get Tesla Inc. Report, which was briefly part of this club, is knocking on the door again with a market capitalization of $944 billion as of Sept. 16.

A year later, Facebook's market capitalization has been reduced by nearly two-thirds. The company weighs only $393.2 billion, down 63.5%. This level of market cap is the lowest level ever reached by Mark Zuckerberg's empire since Jan. 7, 2019. At the time, Facebook was mired in the Cambridge Analytica scandal. The social network allowed the consulting firm, which partnered with the Donald Trump campaign team ahead of the 2016 presidential election, to harvest private data from tens of millions of its users that allowed it to profile voters.

On Sept. 16, Facebook shares ended the trading week with a total drop of 13.5% to $146.29, close to their lowest price of $146.01 on March 16, 2020, when restrictions imposed in the early days of the covid-19 pandemic caused panic among investors.

Last week, Facebook lost some $62 billion in market value, pushing it out of the Top 10 in terms of market capitalization. The group is now the world's 12th most valuable company.

In July, Facebook announced its first quarterly revenue decline since going public in 2012.

Many Issues

It is true that the economic slowdown and a probable recession threaten the revenues generated by advertising, which is the bread and butter of Facebook. But the owner of Instagram and WhatsApp also sees the competition stealing market share from the company. 

TikTok, the short video platform, has become one of the favorite avenues for advertisers targeting Gen Z and millennials in recent months. In addition, the change in policy on the protection of privacy by Apple now prevents Facebook from tracking the online habits of its users and then displaying ads corresponding to their history of online interactions.

Last year, Apple gave the users more control on their privacy settings when they downloaded apps. The new feature is called App Tracking Transparency (ATT) and all third party apps need to receive permission from users before the companies can track their movements online for ad targeting.

The year 2022 looks like a path of suffering for Nvidia as well. 

There are big numbers to worry about: Nvidia shares fell 8.3% to $131.98 in the trading week ending Sept. 16. The company thus lost an additional $30 billion in market value that week. 

Since an all-time high of $823.31 billion in market value reached on Nov. 15, 2021, Nvidia has seen this market cap -- currently at $328.9 billion -- melt by more than 60% in 10 months. Basically, nearly $500 billion in market capitalization has melted away in less than a year.

Bulky Inventories

Nvidia is now only the world's 19th most valuable company and could be out of the Top 20 if its decline continues.

As with Facebook, the current economic climate is not good for Nvidia's sales, which finds itself with large inventories. The company itself admitted that it has too many graphics-processing units, RTX 3000 graphics cards, left in stock. The surplus stems from the drop in demand from consumers, especially gamers, in the past few months.

It will therefore drastically lower its prices to get rid of these bulky inventories before it launches the next generation.

"We implemented programs with our gaming-channel partners to adjust pricing in the channel and to price-position current high-end desktop GPUs as we prepare for a new architecture launch," Chief Financial Officer Colette Kress told analysts on Aug. 24. "As noted last quarter, we had expected cryptocurrency money to make a diminishing contribution to gaming demand."

Nvidia is also affected by an expected drop in demand for its graphic cards in the crypto industry, after Ethereum, one of the most active crypto platforms, has just abandoned the transaction validation mechanism which required significant use of computing power.

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Government

Biden’s Secret Promise To OPEC Backfires: Shellenberger

Biden’s Secret Promise To OPEC Backfires: Shellenberger

Submitted by Michael Shellenberger,

In early September, United States Secretary of…

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Biden's Secret Promise To OPEC Backfires: Shellenberger

Submitted by Michael Shellenberger,

In early September, United States Secretary of Energy, Jennifer Granholm, told Reuters that President Joe Biden was considering extending the release of oil from America’s emergency stockpiles, the Strategic Petroleum Reserve (SPR), through October, and thus beyond the date when the program had been set to end. But then, a few hours later, an official with the Department of Energy called Reuters and contradicted Granholm, saying that the White House was not, in fact, considering more SPR releases. Five days later, the White House said it was considering refilling the SPR, thereby proposing to do the exact opposite of what Granholm had proposed.

The hand of Russia's President Vladimir Putin (right) is now strengthened within the OPEC+ cartel controlled by Saudi Arabia's Crown Prince Mohammed bin Salman (left), which today decided to cut production by 2 million barrels.

The confusion around the Biden administration’s petroleum policy was cleared up yesterday after a senior official revealed that the White House had made a secret offer to buy up to 200 million barrels of OPEC+ oil to replenish the SPR in exchange for OPEC+ not cutting oil production. The official said the White House wanted to reassure OPEC+ that the US “won’t leave them hanging dry.” The fact that this offer was made through the White House, not the Department of Energy, may explain why a representative of the Department called Reuters to take back the remarks of Granholm, who has shown herself to be out-of-the-loop, and at a loss for words, relating to key administration decisions relating to oil and gas production.

The revelation poses political risks for Democrats who, in the spring of 2020, killed a proposal by President Donald Trump to replenish the SPR with oil from American producers, not OPEC+ ones, and at a price of $24 a barrel, not the $80 a barrel that the Biden White House promised to OPEC+. At the time, Trump was seeking to stabilize the American oil industry after the Covid-19 pandemic massively reduced oil demand. Trump and Congressional Republicans proposed spending $3 billion to fill the SPR. Senate Democratic Leader Chuck Schumer successfully defeated the proposal, and later bragged that his party had blocked a “bailout for big oil.”

Even normally strong boosters of the Biden White House viewed the Democrats’ opposition to refilling the SPR as a major blunder. “That decision,” noted Bloomberg, “effectively cost the US billions in potential profits and meant Biden had tens of millions of fewer barrels at his disposal with which to counter price surges.” Moreover, observed Bloomberg, it will take significantly more oil today to fill the SPR than it would have two years ago. In spring 2020, the SPR contained 634 million barrels out of a capacity of 727 million. Now, the reserve is below 442 million barrels, its lowest level in 38 years.

The decision looks even worse in light of the decision by OPEC+ today to cut production, which will increase oil prices. The Biden administration in recent days has been pulling out the stops trying to persuade Saudi Arabia and other OPEC+ members, a group that includes Russia, to maintain today’s levels of oil production. Last Friday, the Biden administration sought a 45-day delay in a civil court proceeding over whether Saudi Arabia’s Crown Prince Mohammed bin Salman should have sovereign immunity for the murder of Washington Post columnist Jamal Khashoggi, for which bin Salman has taken responsibility.

The behavior by the Biden White House displays a willingness to sacrifice America’s commitment to human rights for the president’s short-term political needs. Instead of pleading with OPEC+ to maintain or increase high levels of oil production, the Biden administration could have simply allowed for expanded domestic oil production. Instead, Biden has issued fewer leases for on-shore and off-shore oil production than any president since World War II. As such, the pleadings by Biden and administration officials have backfired. The perception of the U.S. in the minds of OPEC+ members has weakened while the influence of Russian President Vladimir Putin has strengthened.

Why is that? Why did the Biden administration decide to spend so much political capital trying, and failing, to get Saudi Arabia and other OPEC+ members to expand production when it could have simply expanded oil production domestically? What, exactly, is going on?

President Joe Biden greets the Saudi Crown Prince on July 15, 2022.

Substack subscribers can click here to read more...

Tyler Durden Thu, 10/06/2022 - 22:20

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Economics

Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now ‘Selling The Rally’

Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now ‘Selling The Rally’

When it comes to the stock purchasing (and…

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Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now 'Selling The Rally'

When it comes to the stock purchasing (and selling) habits of institutional and retail investors, even as the former had aggressively unwound their exposure throughout 2022 with both gross and net leverage at multi-year lows, retail investors showed remarkable stoicism, patience and resiliency. But all that changed in recent weeks, and according to JPMorgan's Peng Cheng, retail traders have now capitulated, not only selling stocks for the second week in a row, but in a stark reversal from their momentum-chasing ways, retail investors sold both the Monday and Tuesday rallies.

  • Specifically, in the past week they net sold - $1.1B (1.9-SD  below 12M average), and more notably they sold the rally on both Monday (SPX +2.59%) and Tuesday (+3.06%). Curiously, they remain buyers in ETFs (+$1.4B) and net bought S&P 500 (+0.7z leverage adjusted) but sold Russell 2000 ETFs (- 2.0z).
  • Retail traders net sold -$2.4B of single stocks. Large cap tech names including AAPL (-$470MM), META (-$134MM), and GOOG (-$128MM), in particular, suffered from heavy selling.

As both retail and gross flows and social media posts show, we are well beyond peak retail enthusiasm and we can now conclude that the distribution phase where institutions sell to retail - which defined markets for much of the past two years - is truly over.

Even more notable is that as the chart below shows, the last two weeks represented the worst selling in single stocks since March 2020 (on the other hand, inflows into ETFs, although showing signs of slowdown, remained positive).

Some more details broken down by industry group and thematic:

  • Large-cap: At the industry group level, volumes were slightly higher, driven by Autos and Consumer Services, partially offset by Tech Hardware. Looking at Large-cap single-stock, retail pared down exposure again this past week (-$2.0B) across most industry groups. We again observed some of the strongest retail selling across Technology, especially Tech Hardware (e.g. AAPL, CSCO). This was partially offset by buying within Autos (e.g. TSLA, RIVN, QS).
  • Thematic: Retail investors again shed exposure this past week across themes, though Green / EV Infrastructure (JPAMIGRN) and Long Rising Oil Beneficiaries (JPAMNRGY) were marginal bright spots. We observed heavier selling across Domestic (JPAMDOME) and Covid-19 Domestic Recovery (JPAMCRDB). On the wage side, we also saw Retail cut exposure to US Wage Growth Sensitive Basket (JPAMWAGG)

Bearish sentiment was also evident in the options market. According to JPM, retail traders sold -$1.0B of delta and bought $520MM of gamma this past week. They supplied -$1.3B of delta on SPX/SPY, QQQ, and IWM, mostly via put option buying.

Finally, just to make things "interesting", here is the latest confirmation that anyone trying to make even a little sense of the market is destined for catastrophic failure: as noted above, JPM said that "retail investors sold the rally on both Monday and Tuesday."

Well, one look at VandaTrack's latest weekly research shows that "retail investors have been chasing the last two days rebound by buying US$ 860 mn worth of US securities on Monday and US$ 960 mn on Tuesday. A considerable amount given that they are usually contrarian and reduce their purchases during rallies. We expect this trend to continue and foresee a slowdown in inflows if the rebound will fade; however, we could see a ramp up in purchases if the rally gains traction."

And while retail investors may have bought... or sold... stock in during the latest meltup, depending on whose "research" one reads, one thing is clear: the recent sell-off in retail favorites such as AAPL and TSLA has had a large impact on retail portfolios’ performance and as of yesterday, the average retail portfolio’s relative drawdown is again close to -32% and has started to underperform the S&P 500 again.

As Vanda notes, "additional losses will be both financially and psychologically hard to handle for the average retail trader", and the greater the eventual drawdown, the less likely retail will be to rush into the next dip and buy it.

Tyler Durden Thu, 10/06/2022 - 15:39

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Bonds

What Is the New York Stock Exchange and What Does It Do?

What Is the New York Stock Exchange in Simple Terms?With more than 2 billion shares trading hands each day, the New York Stock Exchange (NYSE) is the world’s…

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The New York Stock Exchange is located on Wall Street in New York City.

wdstock from Getty Images Signature; Canva

What Is the New York Stock Exchange in Simple Terms?

With more than 2 billion shares trading hands each day, the New York Stock Exchange (NYSE) is the world’s largest exchange for securities trading, which is the buying and selling of debt or equity, such as stocks and bonds. The NYSE is located in a historic building in the heart of New York City’s financial district at 11 Wall Street.

The NYSE was known for centuries as the "Big Board" because brokers would use an auction-based system to buy or sell shares of stock from its trading floor, and share prices were updated throughout the day on a large board that traders could see from the trading pit. 

A ringing bell signaled the beginning and the end of the trading day. The opening bell signaled the start of the trading day at 9:30 AM, and the closing bell happened at 4:00 PM, marking the end of the trading day. Trades at the NYSE took place on an actual trading floor up until the onset of the COVID-19 pandemic, when everything moved online; floor trading resumed for vaccinated brokers in May 2021.

Is the NYSE a Stock Exchange or a Stock Index?

The NYSE was a privately-owned exchange, or a place for trading, from its inception in the late 1700s until 2006, when it was bought by Intercontinental Exchange, which took shares public. Its ticker symbol is ICE.

However, since the New York Stock Exchange is the world’s largest trading exchange, with over 80% of the S&P 500 companies trading on it, the NYSE Composite, made up of 2,000 stocks listed on the NYSE, has come to be known as a benchmark stock market index. Glancing at how it’s doing gives investors a sense of the overall health of the financial markets. An exchange-traded fund (ETF) based on the NYSE Composite was introduced in 2004; its ticker symbol is NYA.

In addition, the New York Stock Exchange owns a smaller stock exchange, the American Stock Exchange, which it acquired in 2008. Now known as the NYSE American, it is where small-cap companies trade on lower volumes.

What Does the New York Stock Exchange Do? Who Works There? How Does It Make Money?

The NYSE has two purposes:

1. It facilitates buy-and-sell trades of securities.

2. It enables companies to raise capital by selling stock.

The NYSE was originally founded as a space exclusively for securities trading under the Buttonwood agreement in 1792. Prior to that, traders had to sell securities alongside commodities like coffee and tobacco and often had to do so outside, in rain and snow, which is how they got the nickname curbstone brokers.

The Buttonwood Agreement also established regulations and set standard commission fees that brokers could charge clients. Now, with a roof above their heads, traders could call out buy and sell orders from the trading floor; those transactions would be recorded, which provided a level of transparency as well as liquidity that before had not been possible. It was the beginning of efficient market operations as we know them.

Today, computers do most of the buying and selling at the NYSE, although there are still several hundred brokers and traders who shout their orders from the trading pit each day. The scene plays host to dozens of media outlets as well as executives and celebrities who ring the opening bell.

The NYSE makes money through revenues from transaction fees it charges to brokerages, asset-management companies, and market makers. In addition, all members of the NYSE are required to pay yearly membership fees as well as an additional fee to apply.

What Are the New York Stock Exchange’s Hours? Can I visit the NYSE?

The NYSE operates Monday–Friday from 9:30 AM–4:00 PM eastern time. It is closed in observance of the following holidays; when the holiday falls on a Saturday, it closes the Friday before.

  • New Year’s Day
  • Martin Luther King, Jr. Day
  • Washington’s Birthday
  • Good Friday
  • Memorial Day
  • Juneteenth
  • Independence Day
  • Labor Day
  • Thanksgiving Day
  • Christmas Day

The NYSE was open for tours up until the September 11, 2001 attacks; it is no longer accessible to the public.

Which Companies Are Listed in the New York Stock Exchange? How Does a Company Get Listed?

The NYSE lists over 2,000 U.S. and international stocks—for the current lineup, check the directory on its website.

What Is the Difference Between the NYSE and the Nasdaq?

The NYSE and the Nasdaq are both stock exchanges, but the NYSE is much larger. It has a market capitalization of $26 trillion as of 2021, compared with the Nasdaq, which has a market cap of $19 trillion.

In addition, there are several other key differences:

Differences between NYSE and Nasdaq Exchanges

The NYSE sets prices through an auction market, which means that shares are bought directly by buyers from sellers, and share prices are set based on the highest price a bidder is willing to pay and the lowest price a seller will accept.

The Nasdaq uses a dealer market, which means that buyers and sellers do not interact directly; rather, the trades are handled by a dealer, often a larger brokerage known as a market maker, which maintains inventories of stocks and facilitates trades from its own accounts.

Where Is the New York Stock Exchange at Right Now?

For a live feed of NYSE prices, check out its website.

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