Wall Street Breakfast: Planet Of The APEs

Planet of the APEs

Shares of AMC Entertainment (AMC) plunged on Monday as a dividend in the form of one AMC Preferred Equity (APE) unit per AMC share arrived in holders’ accounts. While the company vowed that it wasn’t a dilution, and technically it wasn’t a stock split, when taken as a whole, it seemed to weigh on investor holdings. At the close, core theater chain AMC tumbled 42% to $10.46, while APE fell to $5.86, down 12% from premarket quotes. That adds up to around $16 when combined, compared to the $18.02 Friday close for AMC alone (but anything can change in the coming sessions).

Bigger picture: The special dividend is in line with CEO Adam Aron’s marketing strategy of catering to the retail crowd who call themselves “Apes” (previous benefits included free popcorn and exclusive screenings). The new stock also creates a sort of backdoor to issue more APE shares whenever AMC desires, which could fund acquisitions, raise capital or pay down debt. As a result, whatever price fundamentals were left have gone out the window, making the stock even more subject to the whims of retail investors or bigger players that want to join the party. A similar dynamic played out with Bed Bath & Beyond (BBBY) last week, as meme mania sent the retail favorite on a wild ride before activist investor Ryan Cohen dumped his entire stake.

Some are suggesting that rapid sentiment shifts have also been behind the market rally this summer. The benchmark S&P 500 (SP500) soared 15% over two months, only to snap the winning streak last week and slump over 2% on Monday. Many have pegged the jitters on a fresh hawkish tone that may come at Jackson Hole, but renewed bearish bets that come after a serious short covering streak (and over $2T worth of options that expired on Friday) could make up a bigger part of the equation. “That’s been the problem the last several months in this market,” said Benjamin Dunn, president of Alpha Theory Advisors. “It’s nothing but positioning, almost nothing fundamental.”

By the numbers: According to calculations by Greg Boutle, head of U.S. equity and derivatives strategy at BNP Paribas, net short positions against S&P 500 futures by hedge funds even reached a record $107B last week. In another example, short sales by Goldman Sachs’ hedge fund clients overtook long buys by a ratio of 3-to-1, leading to the largest increase in gross trading activity since the market low on June 16. (4 comments)

OPEC+ action

Speaking of disconnected fundamentals, Saudi Oil Minister Prince Abdulaziz bin Salman thinks similar dynamics may be happening in the crude industry. “Thin liquidity and extreme volatility” in the futures market are moving prices in ways that do not conform to normal supply and demand factors, which may spark OPEC+ to take action. The Saudi-led group could tighten production when it meets next month, doing a U-turn after reversing all of the cuts made during the COVID-19 pandemic.

On the move: Crude oil futures have slumped 27% since mid-June amid concerns about the global economy, surging shipments from Russia and the possibility of more Iranian oil coming back online in the event of a nuclear deal. The WTI benchmark even recently fell under $90 per barrel, but pared losses following the Saudi prince’s comments.

“The paper and physical markets have become increasingly more disconnected,” Abdulaziz bin Salman declared, adding that forces which “undermine the stability of oil markets will only strengthen our resolve.” Efficient price discovery is absent without sufficient liquidity, making it challenging for physical users to handle the costs of hedging or deal with fundamental risk. “Soon we will start working on a new agreement beyond 2022,” he continued, without giving further details.

At issue: “This vicious circle is amplified by the flow of unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and ambiguity and uncertainty about the potential impacts of price caps, embargoes, and sanctions. In a way, the market is in a state of schizophrenia, and this is creating a type of a yo-yo market and sending erroneous signals at times when greater visibility and clarity and well-functioning markets are needed more than ever to allow market participants to efficiently hedge and manage the huge risks and uncertainties they face.” (94 comments)

More flexibility

It’s not looking that easy to ditch working from home. Employees at Apple (AAPL) are pushing back against the company’s return-to-office mandate, which requires staff to come in for a few days per week starting Sept. 5. A petition launched by a group of workers calling itself “Apple Together” demands that the tech titan continue with its flexible work arrangement that began during the pandemic, but was extended several times for a variety of reasons, including rising COVID-19 cases.

The petition: Workers have asked that each employee should speak directly with their immediate manager to determine what kind of flexible arrangement is best for the employee and Apple, and that these arrangements should not require higher approval, complex procedures or providing private information.

On the other side of the fence stands Apple CEO Tim Cook, who wants to preserve the “in-person collaboration that is so essential to our culture.” He has also voiced concerns about remote work, calling it the “mother of all experiments,” and has previously related his preference to the “serendipity” of in-person meetings. Meanwhile, more than 10,000 Apple employees have joined the group “Remote Work Advocacy” on Slack, the internal messaging platform used by the tech giant and many other companies.

Statistic: According to the U.S. Labor Department, 7.1% of employed persons teleworked because of the coronavirus pandemic in July, unchanged from the prior month. (262 comments)

The Dragon roars

Highly promoted Game of Thrones prequel series House of the Dragon has set a launch viewership record for HBO (WBD), drawing 9.986M viewers on its traditional TV distribution and HBO Max platforms on Sunday. That’s the biggest audience for a new original series in HBO’s history. It was also the biggest series launch on HBO Max across the U.S., Latin America, and Europe/Middle East/Africa, with a typical Sunday night viewership representing just 20-40% of a show’s total gross audience.

Quote: “It was wonderful to see millions of Game of Thrones fans return with us to Westeros,” said Casey Bloys, chief content officer for HBO and HBO Max. “House of the Dragon features an incredibly talented cast and crew who poured their heart and soul into the production, and we’re ecstatic with viewers’ positive response.”

The expensive series has gotten HBO’s biggest-ever marketing push, according to Warner Bros. Discovery CEO David Zaslav, and the stakes couldn’t be higher. Cost-cutting measures have been implemented since the April merger between Discovery and WarnerMedia (the latter was spun out of AT&T). In the meantime, analysts and investors will be closely watching House of the Dragon for viewership metrics to see if momentum will continue over the 10-episode series.

Latest measures: As Warner Bros. Discovery aims to save money, it has been looking to consolidate its streaming services and recently went forward with a round of content eliminations. That included pulling the plug on the nearly completed movie Batgirl, and hundreds of episodes of Sesame Street, as well as shelving CNN+ just weeks after its launch. Last week, HBO also reportedly laid off 70 people, or around 14% of its workforce, with the majority of cuts coming at HBO Max. (27 comments)

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