BEARNOBULL’S WEEKENDER

Did you miss Certain Uncertainties?

Would a Trump Victory Cause a Bear Market?

(…) Mark Cuban, the billionaire entrepreneur and owner of the NBA’s Dallas Mavericks, has taken the discussion to the next step. On Monday night, he told CNN’s Erin Burnett that a victory by Trump could send stocks tumbling by 20% or more.

“I can say with 100% certainty that there is a really good chance we could see a huge, huge correction,” Cuban said on CNN. What Cuban finds troubling is Trump’s “flip-flopping” on major issues and unpredictability in general. “That uncertainty potentially as the president of the United States, that’s the last thing Wall Street wants to hear,” added Cuban, who said recently that he currently was planning to vote for Clinton but isn’t beyond changing his mind. (…)

And while Trump may not be able to get Congress to sign on to a set of controversial protectionist policies for U.S. industries, there are many steps he can take through executive action to turn his ideas into action.

(…) So to the extent that Trump’s views are troubling to investors, those investors could launch some sort of modest selloff if it becomes apparent that Trump, the presumptive GOP nominee, has erased Clinton’s current advantage in the national polls. (…)

As a column on the Barrons.com Website by political handicapper Greg Valliere points out, Trump has already started to soften some of his harsher stands and language that may have turned off the investment crowd and Wall Street professionals.

“We still think that the markets have to worry about the uncertainty factor – Trump shifts positions daily – but Wall Street’s anxiety over him may begin to recede,” writes Valliere. “For months, we have listed four economic worries that Trump would bring – but suddenly three of those worries have lessened.”

For example, Trump lately is taking a more conciliatory tone in his discussions about Federal Reserve Chair Janet Yellen. And he is backing up a bit on the size of a tax-cutting plan that could sharply drive up the annual U.S. budget deficit and the nation’s debt.

In his fearful talk about a Trump presidency, Cuban may not be fully appreciating the candidate’s ability to change his stripes at least enough to win centrist votes.

Price Increases from Earnings Beats Grow with Time

Looking back five years, companies in the S&P Composite 1500 that reported positive earnings surprises have seen average price increases as more days pass after the earnings release date. The 5-year average price increase was up +1.6% one day prior to the earnings release through the close on the earnings release date. This percentage grew to +2.0% fifteen days post-earnings, and then to +2.6% thirty days post-earnings. However, companies in the index that reported negative earnings surprises have seen average price decreases generally wane as more days pass after the earnings release date.

LIFE IS SHORT

I stumbled on this essay by Paul Graham, founder of YCombinator. Full of wisdom. A true bearnobull!

MEMO TO CENTRAL BANKERS

Charlie Munger answering a question on NIRP:

Yea but I don’t think anybody really knows much about negative interest rates. We’ve never had them before and we never had periods of stasis, like, 20…except for the Great Depression. We didn’t have things like happened in Japan…a great, modern nation playing all monetary tricks, Keynesian tricks, stimulus tricks, and mired in stasis for 25 years. And none of the great economists who studied this stuff and taught it to our children understand it either, so we just do the best we can

No, and our advantage is that we know we don’t understand it. If you’re not confused then you haven’t thought about it correctly.

5 Books to Read This Summer By Bill Gates

YAHOO!!

Speaking of Bill Gates, remember when Microsoft made a $44.6 billion bid for Yahoo! in 2008? Current market cap is $34.4B, eight years after. Talk about a visionary board and management team!

• They sold half their Alibaba stake in 2012 for $7.1B. The remaining half is currently worth $26B.
• YHOO has made 21 acquisitions since 2008, including 16 since Marissa Mayer’s appointment in 2012.
• YHOO! totally outspends its rivals on R&D with $885M (18% of revenues) in 2014 compared with $9.8B (15%) for GOOG and $6B (3%) for AAPL.
• Revenues were $7.2B in 2008, $6.3B in 2010, $5.0B in 2012 and $5.0B in 2015. First quarter 2016 revenues cratered 18% to $859M, a $3.4B annual run rate.
• True operating income is almost impossible to decipher amid YHOO!’s convoluted accounting. But according to a hedge fund manager, EBITDA peaked at $1.5B in 2011 and tumbled to $638M in 2015.
• Suffice to say that “restructuring/transition/other” charges totalled $495M between 2012 and 2014 and a yahooing $4.6B in 2015.
• Yet, stock compensation expense totalled $1.4B between 2012 and 2015, including $877M in 2014-2015 as Yahoo!’s core business totally tanked and as it took its huge “restructuring/transition” charges. The vast majority of the comp is based on YHOO!’s stock price which is essentially a proxy on BABA.
• By some account, Mayer could end up earning $365M for her 5-year tenure, only to have hung on the BABA shares. Her own operating prowess has been an absolute disaster.
• Yahoo! is currently seeking bids for its core biz and the WSJ says that the bids are currently in the $2-3B range. “As recently as April, people close to the process said Yahoo’s core business would likely go for between $4 billion and $8 billion. (…) Bidders have lowered their expected prices following weeks of sale presentations by Yahoo Chief Executive Marissa Mayer at the company’s Sunnyvale, Calif., headquarters and its disclosure of data that detailed the company’s flagging prospects.”

The WSJ concludes:

In meetings with potential suitors, Ms. Mayer has acknowledged that the company is still in the middle of a turnaround, according to one person who attended a meeting.

Should bids come in much lower than expected, Yahoo could abandon the sale and proceed with her turnaround effort.

Yahoo! shareholders should be relieved. She’s only in the middle of the turnaround!