• MoviePass' owner is trading at an all-time low of $0.07, days after a drastic 1-for-250 reverse stock split (HMNY)
    MoviePass owner Helios and Matheson Analytics was trading below $0.07 on Friday, an all-time low for the company. Last Wednesday it was at $14 following a 1-for-250 reverse stock split. A lot has happened since then. Though MoviePass and its parent company, Helios and Matheson Analytics (HMNY), claim everything is fine, the market begs to differ. On Friday, stock for HMNY was trading below $0.07, an all-time low for the company that acquired the movie-theater subscription service last August.  The crash by the HMNY stock follows an awful week and a half for the company. In late July, HMNY CEO Ted Farnsworth expressed optimism to Business Insider that the stock price would stabilize after a reverse split. That didn't happen. The 1-for-250 reverse stock split got the stock from $0.09 to around $14 last Wednesday. But it has been falling since.  With the stock trading above a dollar last week, it only had to stay at $1 or above for 10 days (and have a market cap of at least $50 million) to stave off the possibility of being delisted from the Nasdaq in mid-December. But HMNY was below a dollar days later as a string of misfortune hit MoviePass. By the end of last week, the app temporarily shut down, leading to HMNY having to borrow $5 million cash to get it back up and running. Customers also complained that the biggest movie of the weekend, "Mission: Impossible - Fallout," was not available on the app and that there was across-the-board surge pricing for most of the screening times for available movies. Following another service interruption to the app over the weekend, this Monday MoviePass CEO, Mitch Lowe, announced in an all-hands meeting that the company was drastically changing how subscribers could use the app as no major blockbusters would be available on the service going forward. On Tuesday, the company revealed that it would be changing its monthly subscription price from $9.95 a month to $14.95. Throughout, MoviePass has tried to put on a brave face. On Thursday it released a press release with the header "We're Still Standing," boasting how important it had been to this year's impressive domestic box office (which is up around 8% from last year).  But you only have to glance at what Wall Street is saying Friday to realize the situation is dire. SEE ALSO: 7 great movies you can watch on Netflix this weekend Join the conversation about this story » NOW WATCH: Why the World Cup soccer ball looks so different Read more Derivative Valuation
  • Overnight Index Swap Discounting
    The overnight index swap (OIS) has come into the spotlight recently, due to the widening of the Libor-OIS spread. For example, the Economist recently reported: WATCHING financial markets can be like watching a horror film. A character walks into the darkness alone. A floorboard creaks. The latest spooky sign is the spread between the three-month dollar London interbank offered rate (LIBOR) and the overnight index swap (OIS) rate. It usually hovers at around 0.1%, but has recently climbed to 0.6% (see chart). As it widens, bankers are bracing for a jump scare. To see why, consider what each rate represents. LIBOR is the rate that banks charge other banks for unsecured loans. The OIS rate measures expectations for the federal funds rate, which is set by the central bank. As LIBOR rises above the OIS rate, that suggests banks fear it is getting riskier to lend to each other. (The gap was 3.65 percentage points in the depths of the crisis, after Lehman Brothers filed for bankruptcy.) Read more [caption id="attachment_459" align="aligncenter" width="628"] Libor-OIS spread as at May 2, 2018. Source: Bloomberg[/caption] What exactly is an overnight index swap? An overnight index swap is a fixed/floating interest rate swap that involves the exchange of the overnight rate compounded over a specified term and a fixed rate. The floating leg of the swap is related to an index of an overnight reference rate, for example Canadian Overnight Repo Rate Average (CORRA) in Canada or Fed Funds rate in the US. Usually, for swaps with maturities of 1 year or less there is only one payment. Beyond the tenor of 1 year, there are multiple payments at regular intervals. At the inception of the swap, the par swap rate makes the value of swap zero. That is, the net present value (NPV) of the fixed leg equals the NPV of the floating leg, where N denotes the notional amount of the swap, Ri-1,i is the forward OIS rate, Zi is the discount factor at time ti is the daily accrual factor, and  sK is the par swap rate of a swap with maturity tK. The OIS discount factors (DF) are often used to value interest rate derivatives that require a posting of collateral.  The OIS discount factor curve is built by bootstrapping from the short maturity and long maturity overnight index swap rates in order of increasing maturity.  The processes for backing out the discount factors from the short and long maturity swap rates are, however, different. In the short end of the curve, given that there is only 1 payment, the discount factor is calculated based on the spot rates. At the long end of the curve, the DF curve is determined as follows, Payment dates are generated at each 6 months (or a year, depending on the currency) from the time zero up to 30 years, Par swap rates are determined at each payment date. To obtain the par swap rates for the payment dates where there are no swap quotes, one linearly interpolates the par swap rates in order to complete the long end of the swap curve, Using the par swap rates at each payment date, discount factors are obtained by solving a recursive equation. This is just an introduction to OIS discounting. The process for building an OIS discount curve involves many technical details. We are happy to answer your questions. Post Source Here: Overnight Index Swap Discounting Read more Derivative Valuation
  • A 'Star Wars' actor explains why the movies keep flopping in China (DIS)
    "Rogue One: A Star Wars Story" star Donnie Yen explains why the franchise can't do big box office in China. Yen, who is a huge star in China, has similar thoughts to what analysts believe is the reason why "Star Wars" box office falls flat in the Middle Kingdom. Disney can never seem to get any of its "Star Wars" movies to do well in China, and an actor from one of its movies knows why.  In a recent interview with JoBlo, Hong Kong action star Donnie Yen, who played Chirrut Îmwe in "Rogue One: A Star Wars Story," gave his take on why it seems that the Middle Kingdom is the only region in the world that doesn't have "Star Wars" fever, and it matches with what some analysts have posited. "Chinese audiences didn’t grow up with 'Star Wars' culture so unfortunately it didn’t work," Yen said of the poor "Rogue One" performance there. "Marvel is a lot easier to understand. 'Star Wars,' there’s a whole universe out there. Marvel, from the costumes, to the music, to the idols, to the stars, it's much easier to close the gap between the film itself and the audience." "Rogue One" earned $1 billion worldwide at the box office, but in China, the second-largest movie market behind the US, the movie only took in $69.4 million in its five-week run.    But at least that movie had a name in the cast recognizable to audiences in China. "Star Wars: The Last Jedi" did even worse in China. Its five-week run there only took in $42.5 million. However, that movie went on to earn over $1.3 billion worldwide. And forget about "Solo." The standalone Han Solo movie, which made a flat (for "Star Wars" standards) $390.1 million worldwide, only made $16.4 million in China and was pulled after four weeks. Yen's thoughts mirror what analysts have been telling us for the last year. "The characters that have become iconic in other countries — in the United States Princess Leia, Luke Skywalker and Han Solo have been elevated to revered cult status — there is no such feeling in China and that has impacted the box office prospects there," comScore box-office analyst Paul Dergarabedian told Business Insider after the release of "The Last Jedi." "The Middle Kingdom treats 'Star Wars' like a second-class cinematic citizen," Jeff Bock, a senior analyst for Exhibitor Relations, said after the release of "Solo." But Disney doesn't have that problem with its Marvel properties.  "Avengers: Infinity War" earned over $359.5 million in China to go on and make $2 billion worldwide. SEE ALSO: "Christopher Robin" is surprisingly dark but captures the beloved Winnie the Pooh characters perfectly — and will make you cry Join the conversation about this story » NOW WATCH: Why the World Cup soccer ball looks so different Read more Derivative Valuation
  • There's a big problem with the way Silicon Valley values billion-dollar companies, says longtime tech investor
    Former Twitter vice president and longtime Silicon Valley investor Elad Gil has recently written a book about late-growth companies called High Growth Handbook. Gil suggests company founders should approach high company valuations with caution, and says Wall Street thinks about value very differently from venture capitalists.  Former Twitter vice president and longtime Silicon Valley investor Elad Gil has spent a lot of time considering what drives a company's value. He's recently written a book dedicated to the subject of company growth, called "High Growth Handbook," which details how a growing company can retain great leaders, manage its resources effectively, and maintain its value longterm.  One of his key pieces of advice deals with how leaders of growing companies think about their business's value. According to Gil, it's typically not in a company's best interest to over-optimize value. He writes, "When a founder has a multi-billion-dollar valuation two challenges arise: 1) the founder may push unsustainable growth at all costs to hit the valuation and 2) a lot of distractions arise that may not help the business (e.g., press, speaking opportunities, investments, etc.)." Silicon Valley's up-and-coming CEOs might be too distracted seeking coveted unicorn status to realize that a billion-dollar valuation presents a mire of potential pitfalls.  In an interview with Business Insider, Gil suggested there's an inherent disconnect with the way Silicon Valley considers worth. "Fundamentally, when all is said and done, the way that businesses work best in the long run, is in the cashflow they bring in," Gil said. "In the really early days, it's about the startup, the team, and the potential. As you grow the company, you start hitting different milestones, in terms of revenue." With more and more companies achieving unicorn status all the time (already in 2018, more than 15 growing companies are estimated to be worth $1 billion or more), Gil says they should consider the way traditional financial institutions define worth.  "Look at the way Wall Street looks at a company," said Gil. "They should think about cashflow and leave it at that." Of the companies that have achieved billion-dollar status in recent months, Gil suggests their 7-figure estimations might not be entirely accurate.  "Maybe only half should be valued that high," said Gil. "Not all are over-valued, though. The most valuable companies might look overvalued at the time, but sometimes they look cheap in hindsight." "Some people say that running a startup is like going to war. It's hard to see what the future really holds if you have a smart investor telling you that your company is worth a lot. You might think that it's a good idea to raise at a high valuation." When considering company value, however, Gil says that it's best to back it up with hard numbers. "Public investors approach value very differently," he said. "They’ll assess you on different metrics. Your valuation might be true until there's public scrutiny, and you don't know what you'll be valued in a public market." Join the conversation about this story » NOW WATCH: Everything wrong with Android Read more Derivative Valuation
  • Are Collateralized Loan Obligations the New Debt Bombs?
    Last year, in a post entitled Credit Derivatives-Is This Time Different we wrote about credit derivatives and their potential impact on the markets. Since then, they have started attracting more and more attention. For example, Bloomberg recently reported that collateralized loan obligations (CLO), a type of complex credit derivatives, are becoming a favorite financing vehicle for corporate America. ...Investors haven’t been able to get enough of the repackaged corporate loans known as collateralized loan obligations. That intense demand, is allowing the managers that put these securities together to sell off pieces of CLOs that by law they previously had to hang on to. These sales are the crest of what could be a $7 billion wave of such deals. Read more As reported by the Washington Post, money raised from these CLOs is used to finance corporate stock buybacks and dividend payouts. The most significant and troubling aspect of this buyback boom, however, is that despite record corporate profits and cash flow, at least a third of the shares are being repurchased with borrowed money, bringing the corporate debt to an all-time high, not only in an absolute sense but also in relation to profits, assets and the overall size of the economy. In recent years, moreover, a greater part of corporate borrowing has come in the form of bank loans that are quickly packaged into securities known as CLOs, or collateralized loan obligations, which are sliced and diced and sold off to sophisticated investors just as home loans were during the mortgage bubble. Bloomberg News recently reported that pension funds and insurance companies, particularly those in Japan, can’t get enough of the CLOs because of the higher yields that they offer. Wells Fargo estimates that a record $150 billion will be issued this year, roughly double last year’s issuance. And as happened with the late-cycle home mortgages in 2007 and 2008, analysts are noticing a marked decline in the quality of loans in the CLO packages, with three-quarters of them now without the standard covenants designed to reduce the chance of default. Read more But how risky are these collateralized loan obligations? In the current market environment, it’s difficult to evaluate the riskiness of these CLOs. First of all, Value at Risk (VaR), a popular risk measure used by many financial institutions to quantify the risks and manage economic capital, has been developed and tested in a low-interest rate and low-volatility environment. This makes the VaR  vulnerable to future change in the market environment. Second, in the calculation of VaR for a credit derivative portfolio, we would have to determine the probabilities of default (PD) and loss given default (LGD) of the borrowers. Both of these quantities are difficult to estimate. Furthermore, the correlation between PD and LGD is not constant and will likely increase during a market stress. All of these factors make the VaR less accurate.  Consequently, managing the risks of a CLO portfolio is a non-trivial task. A slight change in the market environment can lead to damaging consequences. Originally Published Here: Are Collateralized Loan Obligations the New Debt Bombs? Read more Derivative Valuation
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  • Charts That Matter – EM Outflows Stabilizing?
    1. One reason for increased clamor for reservations is that govt pays 2-3 times more than private sector for most jobs, from drivers to peons to electricians… & there is no compulsion to work either. But as Vivek Kaul writes …. Govt is not adding any more new jobs . So what are these people fighting for? Get The Timeless Reading eBook in PDF Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. Q2 hedge fund letters, conference, scoops etc 2. More than half the respondents in the RBI consumer confidence survey do not expect any improvement in their income, their employment prospects and general economic conditions in the next one year.The household consumption is too strong for this kind of confidence in economy. So you don't expect conditions to improve but you are still spending, by borrowing…Hmmm 3. Is US economy strong? Well the Fed described the economy as ‘strong’ for the first time since 2006 and that means more rate hikes are coming 4. Emerging market flows have stabilized and are positive . Some analysts would say EM have become quite cheap and this is possibly the start of return of flows, I would use this opportunity to reduce risk assets. Article by Ritesh Jain, World Out Of Whack Read more Derivative Valuation
  • The card rewards strategies issuers can use to win top-of-wallet status while maximizing returns
    This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here. The average US consumer holds about three nonretail credit cards with a balance over $6,000, according to Experian. As confidence rises, spending is hitting prerecession levels. For banks, that should be a good thing, since credit cards are profitable. But the push to attract a particularly interested and engaged customer base through sign-up bonuses and lucrative rewards offerings has led banks into a rat race, with surging expenses and rising delinquencies that are hurting returns. To make credit cards as valuable as they could be, and to bring returns back up, issuers need to direct their efforts not just toward becoming one of consumers’ three cards, but also toward becoming their favorite card. Rewards are more important than ever — three of the top four primary card determinants cited by respondents to a Business Insider Intelligence survey were rewards-related — so abandoning them isn’t effective. Instead, issuers need to be more resourceful with their rewards offerings, focusing on areas that encourage habit formation, promote high-volume spending, and help to offset some of the rewards costs while building engagement and loyalty. In this report, Business Insider Intelligence sizes the US consumer credit card market, explains why return on assets (ROA) is on the decline, highlights the importance of rewards in attracting customers, and lays out three next-generation rewards strategies that are popular among certain demographics, which issuers can implement to return their card business to profitability. To drive this analysis, we conducted a survey centered on users’ card preferences to over 700 US members of our proprietary panel in May 2018. Here are some key takeaways from the report:  Competition driven by consumer card appetite in the US is hurting issuer returns. Consumer confidence and regulatory policy that favors credit cards should be a boon to issuers. But the competition has surged expenses to unattainable levels and increased delinquencies, which are causing returns to trend down. Consumers still value rewards above all when it comes to cards. Two-thirds of respondents to our survey cited rewards-related offerings as the leading driver of primary card status, but they can be pricey for issuers. Using resources strategically and offering rewards types that encourage high-volume spending and drive engagement through habit formation, like flexible offerings, rewards for e-commerce, and local bonuses, could be the path to success in the future. In full, the report: Identifies the factors that are causing high credit appetite to hurt issuer returns. Explains the value of top-of-wallet status, and evaluates the factors that drive it based on proprietary consumer data. Defines three popular next-generation rewards options that issuers can use to drive up spending and engagement without breaking the bank. Issues recommendations about how to offer these rewards and what demographic groups could be most receptive to them. Get The Consumer Cards Report Join the conversation about this story » Read more Derivative Valuation
  • Derivative Valuation-How to Price a Convertible Bond
  • Wall Street bonuses are set to soar as volatility breathes new life into trading desks once left for dead
    "Substantial growth" in trading and equity underwriting across Wall Street points to good news come yearend, when employees learn what they will get for bonus pay, according to a new report from Johnson Associates.  Equity sales and trading personnel may see incentive pay surge 15% to 20%, while fixed-income colleagues may see a 5% to 10% bump. Wall Street workers who trade stocks or derivatives linked to equity markets may see annual bonuses surge as much as 20% as market volatility picks up and more startups head to the public markets to sell shares, according to a new report. People who work in sales and trading, regardless of their product area, are in line for a strong year, compensation consultant Johnson Associates said in its second-quarter report. At this rate, equities personnel will see incentive compensation climb 15% to 20% compared to last year, while fixed income sales and trading staff will likely see a 5% to 10% increase, the report said. These bonuses are likely to be paid in 2019 for work done this year. Incentives for equities salespeople and traders are up "significantly" thanks to an uptick in volatility and client activity, even after a strong first quarter, Johnson wrote. Incentive compensation for fixed income trading is "gaining momentum."The report is good news for Wall Streeters who have endured years of compensation declines and shrinking bonuses after the financial crisis and technology improvements reduced demand and left hundreds of longtime traders looking for work. The return of market volatility — which was absent for much of 2016 and almost all of 2017 — has revived banks' stock-trading businesses across Wall Street, and even given a boost to long moribund fixed-income trading desks. Johnson Associates' estimate for the top end of the range for equity traders is 33% higher than it was in the firm's  first quarter report. Despite a record year thus far in mergers and acquisitions activity, Johnson doesn't expect the pace to continue and projects bonuses to fall by 5% to 10% compared with the strong performance in the industry last year. Compensation for those bankers who help companies sell equity or debt issues will be flat to up 5%, Johnson estimates. Here's how the bonus pool for every other business is expected to fare this year, according to the Johnson Associates report:And here's how bonus compensation has changed across the major Wall Street industries since the financial crisis, a period in which private equity and traditional asset management have far outpaced banks and hedge funds: See also: JPMorgan's US M&A chief shares the secret sauce for getting deals to pop by flouting an old-school rule of dealmaking INTERNAL MEMO: Bank of America has filled one of its most senior investment banking roles with a 25-year vet from Barclays 'I've never seen it like this in 10 years': How the VIX blow-up led to a talent raid on Wall Street trading floors Join the conversation about this story » NOW WATCH: Expanding Warren Buffett’s value investing approach to the socially responsible sector Read more Derivative Valuation
  • Jamba Juice Announces It Is Selling Itself After Fours Years of Activism
    2018 has been a good year for Engaged Capital to clear some room in its portfolio. Get Our Activist Investing Case Study! Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below! Q2 hedge fund letters, conference, scoops etc The circa $900 million West Coast activist, led by Glenn Welling, had already made hay earlier in the summer from the sale of Rent-A-Center and now, after four years of activism, Jamba Juice has announced that it is selling itself. Engaged already had a couple of settlements to its name when it announced a position in Texas-based Jamba Juice in mid-2014. At the time, the stock was trading at around $11 and owned 258 stores outright, alongside nearly 600 franchised stores. What happened next is a good case study for an activist turnaround, particularly in the fast food industry. Welling and another activist, JCP Investment Management’s James Pappas, settled for a board seat each the following January and set to work divesting company-owned stores with the proceeds going to share repurchases. CEO change followed soon after. The immediate impact of those reforms wasn’t great. Revenues halved as the number of owned stores declined but costs took until last year to come under control. Even though the share count has fallen nearly 9%, continued losses meant a smaller coterie of shareholders shouldering the burden. The stock bottomed out at nearly $7 in mid-2017. That makes Roark Capital’s $200 million buyout a godsend, although Engaged Capital’s approximately 18% stake suggested it was unlikely to rely on the liquidity of the market to exit the stock. At $13 per share, it gives Engaged and JCP a profit to show for their years in the boardroom and a decent premium for recent investors. Nor is it a million miles from the stock’s short-lived all-time high of $18 in 2010. Buybacks probably helped boost the price for longstanding shareholders, while a private equity sponsor will help Jamba Juice strip out head office and listing costs. Roark, which bought Buffalo Wild Wings last year after a proxy fight with Marcato Capital Management, is combining Jamba Juice with Focus Brands, owner of some of the most pervasive airport food options. Hopefully good news for the health-conscious traveler. ValueAct Capital Partners’ Spring Master Fund notched another board seat this week, with Unifi appointing former investment banker and current ValueAct employee Eva Zlotnicka to the board. With the textile manufacturer citing Zlotnicka’s experience in sustainable investment, expect to see her name connected with more of the activist’s environmentally or socially charged positions. Quote of the week comes from Cevian Capital’s founding partner Lars Förberg, who ramped up the activist’s demand for ThyssenKrupp to consider a radical restructuring of its operating divisions and in doing so plant a big flag for activism in Germany, following another profit warning from the industrial behemoth. "Other German companies such as Bayer, Siemens, Continental and Daimler are adjusting their way to manage and operate their businesses and become more focused, entrepreneurial and nimble," Forberg told the Financial Times. "We see no reason why ThyssenKrupp should not explore the same opportunities to strengthen its business." Article by Activist Insight Read more Derivative Valuation