U.S. Dollar = Putting In A Top?

Headline:
Dollar Traders Overly Focused On Central Bank Policy Differentials.

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The Above Weekly Chart Of The US Dollar Does Not Not Appear To Be Particularly Excessive.

A Nice Advance Off Of The May ’21 Lows & The Bullish Trend Seems Well Entrenched…And There Are Many Valid Reasons For That:

1. Inflation Is Running “Hot” In The U.S.
2. The Federal Reserve Has Pivoted Toward Reducing Balance Sheet Liquidity…For At Least…The Next 12 Months…Well In Advance Of The ECB.
3. U.S. Interest Rates…On A Relative Basis…Currently Offer Attractive Yields To Global Investors i.e. 10 Year Bunds In Germany Are STILL Negative Yielding.
4. Foreign Sovereigns Welcome A Strong Dollar…Supporting Export Growth.

Seems Like A Slam Dunk “Long” Position…But You Might Want To Think Again.

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First Of All…Points 1-4 Above Are Very Well Understood…And Potentially Already Discounted In The Dollar’s Current Value.

Secondly…Inflation Is Running “Hot” Globally…Not Just In The U.S…Which Will Eventually Force Most Central Banker’s To Tighten Their Ultra-Loose Policy Grips.

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And With Headline Inflation…Currently In Excess Of 7%…Interest Rates Are Substantially Below Where They Ought To Be.

Historically…Short Term Sovereign Yields Approximate…And Typically Exceed…The Rate Of Inflation.

But For Now…The Federal Funds Rate In The U.S. Is ZERO…Country Miles From 7%…Of Which…Central Bankers Are Well Aware.

So Why Not Forcefully Act To Raise Interest Rates…Pronto…In Order To Quickly Defeat The Acute Inflationary Impulse?

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Primarily Because Of The Negative Price Impact To Global Assets…Especially Equities.

Future Cash Flow Discounting Mechanisms Are Slowly Gaining Traction…After Years Of No Discounting…Due To ZIRP…

And The Price Action Of Many Extremely Over Valued Equities …Bereft Of FCF…Are Already Treacherously Down.

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Important Too…The Impact On Sovereign + Private Debt…Ought To Be Especially Sharp…As…

Fundamentally…Sovereign Bonds Are Significantly Over-Valued

Considering U.S. Bond Prices Have…Generally…Been In A Bull Market Since The ’80’s…And Squeezed Especially Higher…Over The Past Decade…By The Federal Reserve’s Price Insensitive QE Binge [as demonstarted in the below chart]…

Thereby Creating Excess Demand For Alternative Fixed Income Securities…Compressing Any Rational Risk Premium…Which Therefore Translates Into Their Own Dramatic Over-Valuation.

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Moreover…Rock Bottom Interest Rates Have Swelled Sovereign Debt Issuance Into The Stratosphere.

And This Tidal Wave Of Supply…In A “Hot” Inflation Market…Likely Results In Further Problems.

For Instance…Despite Short Term Interest Rates Being Suppressed At Zero For Over A Decade…Interest Payments On Debt At The U.S. Treasury Are At Record Highs…Almost $500B/Year…Just Below The Annual Medicare Spend.

Amazingly…This Data Point Is Suppressed…As The Interest Payments On The Fixed Income Securities…Held At The Federal Reserve [30% of National Debt]…Are Rebated To The U.S. Treasury…For Now…

Thereby Reducing The Actual “Hard Dollar” Interest Costs To The Federal Government.

Thus…The Current $500B Interest Expense Line Item In The Treasury Statement…Catapults Much Higher In A Tightening Monetary Environment…

For 2 Primary Reasons:

1. Absolute Interest Payments Naturally Increase In A Rising Interest Rate Environment…As Debt Is Refinanced.
2. As The Federal Reserve Contracts It’s Balance Sheet The Aforementioned Rebates Back To The U.S. Treasury…Naturally Reduce.

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So…It Is Almost Certain That Interest Costs On U.S. Sovereign Debt…At The Very Least…Become A Top 4-5 Federal Budget Item In The Not Too Distant Future…

Quickly Approaching The $750B Federal Defense Budget.

And Since…On A 12 Month Rolling Basis…The U.S. Has Produced Uninterrupted Fiscal Operating Deficits Since 2001…

National Debt Endlessly Grows…And Critically…Well Beyond GDP Growth Too.

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So Then…Given All…What Price Direction For The US Dollar?

Typically…Serial Budget Deficits Combined With Mountains Of Ever Accumulating National Debt Are Not Currency Supportive.

But Many Of The Developed + Emerging Economies Balance Sheets + Treasury Statements Are Similarly Positioned. 

Therefore…On A Relative Basis…This Concern Is Neutralized.

Plus The US Dollar Is Still…UNDENIABLY…The World’s Reserve Currency…And That Is Not Changing Anytime Soon…Regardless Of The Protestations From The “Crypto Currency Crowd.”

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Even So…The U.S. Dollar Is Vulnerable…

Despite Dollar Liquidity Almost Certainly Being Reduced In The Forthcoming Year…For The Following 5 Reasons:

1. U.S. Monetary Stimulus Is Cresting…Leading To…
2. U.S. Economic Growth Peaking.
3. U.S. Economy Peaking = Deficits + Debt Will Bulge Higher.
4. Foreign Central Banks Will Eventually Mirror Federal Reserve Tightening Policy.
5. Bullish Dollar Sentiment Overly Focused On Current Central Bank Policy Differential = Too Excessive + Obvious…Presuming Economic Status Quo Persists.

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Contact The Author: Dominate@GlobalSlant.com

EVERY EQUITY MARKET HOUR…$878M OF BONDS = PURCHASED BY THE FEDERAL RESERVE

Headline:
Equity Markets Are Comfortably Numb With QE “Forever.

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The Federal Reserve’s CURRENT Buying Binge =

$120B Bonds Bought [$80B Treasuries + $40B Mortgages] EVERY Month…Perfectly Translating To:

$5.7B Bonds Bought/EVERY Trading Day
$878M Bonds Bought/EVERY Trading Hour
$14.3M Bonds Bought/EVERY Trading Minute
$239.3K Bonds Bought/EVERY Trading Second

[Presumes…252 Trading Days/Year]

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The Balance Sheet Of The Federal Reserve [graphically represented below]…While Strategically Dramatic…

Tremendously Understates Tactical Equity Market Impact…Since The Spring Of ’09…

As Equity Price Elasticity [see below] To QE’s [Flow + Stock]…Over The Same 12+ Year Time Frame = Quite SUBSTANTIAL.

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Contact The Author: Dominate@GlobalSlant.com

C3.ai: ABSURD + EGREGIOUS INSIDER SELLING



Headlines:
1. Executives Focused On Selling Stock…Rather Than Software.
2. No Stock Sales Price Is Too Low.
3. Insiders Take NO Risk….Why Should Investors?

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AI = Both An Acronym For “Artificial Intelligence” And The Stock Symbol For Software Company C3.ai…Which Despite Its Brief History…Already Fascinates.

However, The Fascination Is NOT C3.ai’s Business Model…Which
1. Burns Cash
2. TTM Revenues = $183.2M
3. TTM Revenue Growth Rate = 17%
4. Equity Cap = $5.891B = 32.20x TTM Revenue

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So For Now…C3.ai Seems To Be Just Another Richly Valued Technology Stock…With Excellent CEO Pedigree [Tom Siebel]…A Sexy Corporate Name…And A Well Stocked Board of Directors…Featuring Condoleezza Rice.

The Post IPO Price Launch Has Reversed Quite Substantially [Peak to Trough = 74.32%]…And Seems To Be Deserved…As Company Fundamentals…While Decent…Are Not Extremely Compelling…

At Least According To Deutsche Bank’s Research Analyst…Who Recently Commented…

The artificial intelligence market in the enterprise remains nascent, with companies slow to expand AI use beyond initial pilots and science projects.

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Anyway…The Fundamentals At C3.ai Are Really Just A Sideshow.

Because What C3.ai Really Seems To Be…Rather Than A Software Company…Is A Publicly Traded Entity Providing Extreme Affluence [via aggressive insider share liquidations] To It’s Board Of Directors And Senior Executives…Despite…To Date…Not Much Commercial Market Success.

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Of Course…It Is No Secret…That Serving On A Board Of Directors = Akin To Getting Paid For Not Doing Too Much…Other Than Typically “Rubber Stamping” Mundane Corporate Administrative Matters.

Frankly…It’s An Exclusive Club That We’d All Like To Join.

Especially Because The Compensation…For Participating In A Handful Of Quarterly/Annual Meetings…Is Very Handsome…$250K/Year = Not Unusual…As Well As…In Most Cases…Very Attractively Priced Stock Options.

And This Is Where The Story At C3.ai Becomes Increasingly FASCINATING.

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As The Above Weekly Price Chart Indicates…The Dollar Value Of Recent Insider Selling [the first since the IPO] = MASSIVE...As Insiders Have Already Reaped 46% More Dollars For Their Accounts Than The Company Raised In Its IPO.

To Be Precise…$567M For ALL Directors + Senior Executives…As Well As A Combined $333M For Client/Investor BKR [Oil Service Giant Baker Hughes] And Investor/Board Represented TPG [Texas Pacific Group].

And All This Selling Occurred In Just Two 2 Brief /Legitimate Time Windows Within The Past 4 Months [3.10.21 – 4.23.21 & 6.10.21 – 6.22.21].

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For Perspective…The Combined Dollar Value Of Insider Stock Sales Equates To 4.91x C3.ai’s TTM Revenues…And These Revenues…As A Reminder… Generate No Free Cash Flow.

That A Cash Burning + Relatively Slow Growing “Growth” Company…Such As C3.ai…Can Generate Almost $1B Of Income/Wealth For Insiders = Very Good For Them…But Very Bad For Public Market Investors Of C3.ai…As The Insider Selling…No Doubt…Has Further Weighed On The Share Price of C3.ai.

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Naturally…There Is Even More Intrigue To This…Primarily…INSIDER SELLING MACHINE.

#1. No Sales Price Is Too Low.

Insider Selling Was Initiated In March ’21 With The Share Price Already Down 53.77% From It’s All Time Price High And Near Its Lowest Trading Level…Since The IPO.

But Those Low Prices Did Not Deter…As Insider Sales Were Boldly Executed…Until Pausing…At A Further Depressed Level In Late April.

The Insider Selling Window Opened Again In Early June…With The Stock Down Even Further From Late April…And Another Torrent Of Shares Hit The Market.

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In All…Over 12.5M Shares Were Aggressively Dumped Into The Market… Generating Roughly $951M Of Proceeds For Insiders.

#2. Insiders Take NO Risk.

That Old Cliche…No Risk = No Reward…Certainly Does Not Apply At C3.ai…

As The Cost Basis For Most Of These Share Sales = Effectively Zero …According To SEC Form 4 Filings.

Thus…With A Cost Basis Of Zero…There Is No True Risk…As You Can Effectively Lose Nothing?

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#3. No Optimism.

A Captivating Feature Of These Share Sales Too = Most Insider Stock Was Sold On The Same Day That It Vested…Even With The Price Down Significantly From It’s December ’20/February ’21 Price Peaks.

So…The Urgency To Sell…While Not Unusual For Somebody With Much At Risk…Is Peculiar For “Insiders” Without Much Financial Risk…Given The Cost Basis Of Their Shares Was Close To Zero.

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Plus…With The Share Price Down So Dramatically…In A Very Short Period Of Time [see above price chart]…It Seems That None Of These Directors/Insiders So Much As Even Paused…For A Nano-Second…To Think…

Perhaps I Should Just Hold On To My Stock For A While And Then Liquidate If The Shares Bounce Back Up A Bit“…

Especially Since The Company Does Position Itself As A Pure-Play In A Hyper-Growth Technology Sub-Sector…And Who Would Know That Better Than Top Insiders At The Company?

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#4. Institutional Shareholders Are The Current “Bag-Holders.”

While Insiders [including EVERY MEMBER OF THE BOARD OF DIRECTORS] Liquidated Large Share Positions…Resulting In Ridiculously Risk-less Profits + A Tanking Stock…

They Sold To Institutional Investors…Who Paradoxically…Have Much At Risk.

Thus…The Perceived Alignment Of Interests That Most Institutional Investors Seek…Between Company Executives/Insiders + Public Shareholders…Certainly Does Not Exist At C3.ai.

Actually…There Appears To Be Quite A Bit Of Market Conflict…Especially With Shares Continuing To Move Down And To The Right…

As Almost All Investors That Acquired Shares Of C3.ai…AFTER The IPO Started Trading…Have Lost Money…Other Than Short-Sellers “Covering” Their Positions.

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The Insider Selling Will Likely Continue At C3.ai…Without Pause…No Matter The Conflicting Optics Between Company Cash Burn + Insider Cash Build.

However…As The Size-Able Insider Selling Continues At It’s Current Pace…

C3.ai’s “Totally Cool” Corporate Name…Might Take On An Entirely New Meaning…As In…

C3 = “See” You In “3” Weeks/Months For More Insider Selling.
ai = “a”dios “i”nvestors…As Lopsided Insider Compensation Agitates.

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Contact The Author: Dominate@GlobalSlant.com