George Soros made billions from savvy currency and equity trades over the last few decades, and his Soros Fund Management firm just disclosed some fascinating details about what it owns. Specifically, the company revealed it now owns a put option covering 2.1 million shares of the SPDR S&P 500 Exchange Traded Fund (SPY). That was more than double the 1-million-share option position his firm held in the fourth quarter.
Put options give you the right, but not the obligation, to sell an underlying asset at a specified price. The value of that right goes up if the asset falls. Or stated another way, Soros is betting big that the S&P 500 will tank.
What’s more, the fund also slashed its other investments in U.S. stocks by 37%. And it started snapping up gold again, via a large call option position covering 1.05 million shares of the SPDR Gold Trust (GLD).
|Another super-wealthy investor believes bullion is a much better bet than shares.|
Calls are the opposite of puts. They make you money when the underlying asset rises. Plus, Soros bought $264 million shares of leading gold producer Barrick Gold (ABX). Those moves signal that yet another super-wealthy investor believes bullion is a much better bet than shares.
Frankly, I’m betting with the billionaires – maintaining a very cautious stance in stocks, fixed income, and other markets, and I’m staying bullish gold. If I’m going to own a stock, it better have a strong Weiss Rating, generous yield, solid underlying fundamentals, and/or relatively low volatility. Those are the kinds of names that have been leading this market all year, and I don’t expect that trend to change.
If you’re looking for more details about my views and investment ideas, by the way, I would definitely check out the Money, Metals, & Mining Cruise. It’s only two months away now, but there’s still time to grab your spot.
|“Frankly, I’m betting with the billionaires.”|
To recap: The cruise is sailing from Anchorage to Vancouver on July 10-17, 2016 aboard the Crystal Serenity. We’re also going to have a one-day investment seminar in the city of Vancouver after we dock. You can get more details here. Or call 800-797-9519 and ask for the special rates that apply to the Money, Metals, & Mining cruise.
Meanwhile, you had plenty to say on the subject of stock buybacks, and on what declining buyback activity could do to the stock market.
Reader Richard K. focused on the negatives of the recent buyback wave, saying: “What is the rationale of share buybacks in today’s market? Is there any long-term value for the shareholders when a cash-rich company issues billions in new long-term debt? Just because it’s more cost-effective to issue new debt at current record low interest rates than it is to bring in the equivalent in cash from overseas accounts and be forced to pay a significant premium in taxes?
“Does it help a company to be more productive and innovative when billions are redirected to buy back stock rather than investing in new plants, equipment, R&D, etc. for the sole purpose of reducing the number of shares to improve EPS and other Wall Street metrics that are based on the number of shares outstanding?
“Seems to me that the purpose of share buybacks is to get the short-term approval from the Street, while ignoring the longer-term impacts that may arise from misdirecting capital from productive investments to unproductive expenditures.”
But Reader Thomas countered by saying: “Some of the best minds are running these corporations that are buying back their own stock. These captains of industry have insight, experience, and know-how. The best place to put your money today is to buy back your own shares.
“In doing so, you take the capital out of the crooked hands of the banking cartel (think bail-in), and your own company acts as your own bank. Plus, if there is no demand, why invest in more plants and equipment?”
Of course, purchasing shares when they’re pricey is dangerous no matter who’s doing the buying. Reader Aaron highlighted that risk by saying: “Stocks are trading at very high P/E ratios. If buybacks continue to fall, EPS will also fall. Looks to be a good time to hold cash or go short.”
Reader Nick also weighed in on the direction of the stock market, sharing these comments: “If buybacks are $2 trillion since 2009, and unicorns and trash stocks have taken pretty big hits, then who is left to sell? I would offer that this at least gives some idea of why it’s so quiet (before a storm).
“So, I say the next rout of selling is going to be panic based. What goes up soooo fast must come down just as fast. I would also offer that there are plenty of Swans – pick your shade – to get that ball rolling. It could be ugly now through October.”
Lastly, Reader Tom admitted he is essentially throwing up his hands: “With so many opinions out there, I really do not have a clue where any of these markets are headed.”
To Tom (and everyone else), I hope I’ve been as clear as I can about where I stand. The “nutshell” version is: Stocks look vulnerable because the credit cycle has definitely turned for the worse. The economy increasingly looks to be slumping toward recession. And all the happy talk and funny money that helped artificially prop up markets for the last 6.5 years is no longer working the way it used to.
Whether you agree or disagree, I encourage you to take a few moments to post your comments at the website below.
Housing starts bounced back somewhat in April, rising 6.6% to a seasonally adjusted annual rate of 1.17 million. But building permits climbed only 3.6% to 1.12 million, missing expectations.
At the same time as the government released those underwhelming construction figures, it said the Consumer Price Index jumped 0.4% last month. That was the biggest increase in more than three years. The “core” CPI gained 0.2%, in line with forecasts.
I’ve been warning about banking sector woes for a while, and I’ve been singling out the European banks as particularly vulnerable. Now, even the European Central Bank admits they’re in trouble. The ECB’s Chief Economist Peter Praet just warned that European financial institutions face a “severe profitability shock” and that they’re suffering from a “lack of consolidation, overcapacity, and legacy problems.”
While many retailers have been struggling, Home Depot (HD) managed to buck the trend in the first quarter. The home improvement retailer reported $1.44 per share in earnings, above the average forecast of $1.35 per share. Revenue rose 9% to $22.8 billion. But the stock tanked anyway amid worries that HD’s best days are behind it.
So what do you think about the crop of economic data today? How about the troubled European banks? And do you think the latest earnings figures make Home Depot a better buy or sell? Hit up the comment section and let me know.
Until next time,