Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

A Really Big Earnings Season

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The current earnings reports that begin rolling out this week will be among the most important since the financial crisis, if not even before that.  To explain why, let us start with some background data.  Exhibit 1 plots the three major stock market indexes from the start of the year through the close on July 10, 2020.  Although all three indexes have bounced back from the depths of the Covid crash, there is a marked discrepancy between them.  That discrepancy is due to the fact much of the recovery from the low point can be attributed to a relatively few big tech stocks that rose dramatically.  Although the great majority of stocks have fallen year to date, some of the biggest tech companies have risen enough to pull up the indexes.  The Dow lags because it contains fewer tech companies and because it weights them less than their market value.

season earnings
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Top Shorts over Eight Years

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It’s incredibly difficult to make big money shorting stocks. You need a strong conviction in your bets. You need to have a firm belief that something is cooking in the company that most people overlook or choose to ignore. Those shorting stocks during the COVID-19 pandemic have made more than $50 billion in profits.

Here we take a look at the top shorts of each year between 2013 and 2020. The list is based on data from Activist Insight Shorts. Josh Black of Activist Insight has given double credit where two short sellers were first and second on the same idea, though their campaign returns might be slightly different.

Short selling is when you bet against a stock and profit when it falls. Short sellers borrow shares from investors and then sell them at market price. They expect the stock to decline by a specified future date (the expiration date). If/when the stock tumbles, the short seller buys it back at ridiculously low prices to return to the investor from whom they had borrowed. The short seller pockets the difference. But sometimes shorting backfires when the stock in question skyrockets.

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Cooking the Books

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This month’s blog is a little different — it’s co-written with my friend Marc Rubinstein. Marc is a highly talented analyst, ex Lansdowne Partners anmd writes a terrific blog on banks and financials which you should definitely subscribe to. Marc also is the tutor on our Banks Sector Course. In this blog, where he did all the hard work and write some more elegant prose than is customary in tehse pages, we take a look at Greensill, on paper one of the most valuable fintechs in Europe. What a story! It’s got it all: a Softbank angle, a BaFin angle (remember Wirecard last week?), a human interest angle (farmer turns billionaire) an element of financial engineering, and of course an accounting red flag issue.

New asset classes pop up all the time. Some, like common stocks, hit the big time; others fizzle out. What makes some asset classes durable and others a flash-in-the-pan is an interesting question.

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GSE Developments

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Three major GSE developments over the last 10 days will greatly impact the future of Fannie Mae and Freddie Mac. Dick Bove of Odeon Capital outlined the three GSE developments in a recent note.

The biggest GSE development is the Seila Law case, although the ruling was directly aimed at the Consumer Finance Protection Bureau. The Supreme Court ruled that although the CFPB might be legal, the position of its director is not.

Bove explained that the Supreme Court justices believe the Constitution should be interpreted as it is written and amended and that the laws of Congress should be followed as written. He also said that they fear bureaucrats aren’t following the Constitution and the laws passed by Congress.

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Asset Managers and the SBA

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The Small Business Association’s (SBA)’s Payroll Protection Program (PPP) handed out loans to small businesses, but it isn’t just small businesses getting the loans. Criticism of the program continues as officials released details on hundreds of thousands of businesses that received PPP loans from the SBA, many of which will be forgivable.
The Payroll Protection Program was designed to bail out small businesses impacted by the pandemic, but many firms that took the bailout money weren’t impacted by the pandemic.

The SBA’s PPP loans were supposed to be for small businesses that had to shut down during the pandemic. However, many large businesses, including asset management firms that didn’t actually shut down, are taking the loans.

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