MorningWord 2/12/16: It’s Hard Out There for a Billionaire

by Dan February 12, 2016 9:14 am • Commentary

Let’s check in with some billionaires.  First things first, JP Morgan CEO Jamie Dimon bought 500,000 shares of his stock, worth about $27.5 million. We discussed it last night on CNBC’s Fast Money:

That’s a lot of money. But remember, Dimon’s estimated net worth is more than a billion dollars and he made $27 million last year alone.  So in the face of a yet disclosed crisis in his industry, or at least a crisis in confidence in bank stocks, Mr. Dimon is merely taking a page out of the financial crisis playbook. He’s providing the ultimate vote of confidence by buying his own shares in the open market.

Mr. Dimon is not going anywhere, he knows that barring some sort of fraud or massive mismanagement he will be the CEO of JPM for as long as he wants.  JPM’s stock will be worth more than it is now at some point in the future, so he might as well buy his own stock. What else is he gonna do with all that money? Leave it in his account at Chase and earn nothing?  I don’t want to be too dismissive, that is clearly a fairly hefty vote of confidence by Mr. Dimon, but it should not give you the false confidence that there is suddenly a floor in the stock.

The stock has shown very healthy relative strength to many of its peers since its 52 week highs, as of yesterday’s close down about 25%, and the only mega-cap bank stock on the planet that is not below its August 24th flash crash  low, I suspect the stock trades at that level, $50 before this is all said an done:

JPM 3 year chart from Bloomberg
JPM 3 year chart from Bloomberg


Moving on to a different billionaire, last night on CNBC’s Fast Money we had did a segment on Hedge Fund manager John Paulson, who famously made a ton of cash on shorting the U.S. subprime market last decade. In an interview with CNBC Paulson said that he thinks there is a “disconnect between whats going on in the U.S. economy and the financial markets” and that “stocks are getting hit regardless of fundamentals”, but he is not “diving in head first”. Watch here:

Obviously he’s highlighting the big risk to the global economy, a slowdown in China and the potential for a credit crisis there.  It shocks me a little that a guy like Paulson does not see the need for a massive deleveraging in China, that has the potential to turn into a systemic crisis, like the one that we saw here in the U.S. last decade that helped him become a billionaire.  I would also add that Paulson’s performance since his killing in the financial crisis has been spotty. In 2011, off of peak assets of $38 billion, making it one of the largest hedge funds in the world, his flagship fund lost 50% of its value, and after redemption dropped to $18 billion at year end and a couple down years followed. Then in 2014 in his event driven fund he lost 36%.  Why do we give a crap what this guy has to say?

And now a third billionaire, Steve Wynn, CEO of WYNN resorts had some choice words (as usual) on his casino company’s Q4 earnings call.  Like Dimon, he also likes his stock, down nearly 80% from its all time highs made in early 2014, here was his commentary from last night’s call, per Las Vegas Journal:

“I like Wynn Resorts because I think the management is great,” Wynn said. “I like the stock a lot and I bought on what I thought was extreme weakness in price. That’s my own personal opinion.”

On Wednesday, Wynn spent $15 million to acquire 258,523 shares. Wynn paid between $56.98 and $59.77 for the stock over seven different trades.

Wynn has bought nearly 1.6 million shares in Wynn Resorts, giving him more than 12 million shares, or 11.8 percent of the outstanding shares. Wynn paid roughly $63 a share in December and he paid between $53.21 and $59.19 a share in January.

“When it’s trading at low levels, I’m always prepared to step in and buy the stock on weakness,” Wynn said.

This is one insider buying scenario that I can get behind (as discussed in a post yesterday here):

In 2009 when the stock traded as low as $16, WYNN saw its earnings decline 90% year over year, from $2.51 to 26 cents, despite sales actually increasing 2% from 2008 to 2009 to $3.05 billion. Since 2009 WYNN saw a dramatic ramp in earnings to $7.58 a share in 2014, but now has an expected 59% decrease in 2015 (to be reported tonight). The stock trades as if investors think that consensus eps estimates calling for a 2% increase in 2016 is too aggressive on a 13% yoy sales increase. If things were to stabilize in Macau, and high rollers were to come back, corruption crackdown to slow, adverse effects of smoking bans to abate, then WYNN will be one of the first U.S. multinationals doing biz in China to absolutely rip. But those are some big ifs. And no one is going to ring the bell at the bottom, so I suspect the turn comes when results merely get less bad. The company’s balance sheet is still ok, but a sustained downturn will put their leverage ratio in focus as the company is bringing MORE capacity online in Macau in 2016.

With 20% short interest, and the stock being unloved by Wall Street Analysts (9 Buys, and 13 Holds) the stock could act like a coiled spring on the slightest bit of good news.

Non Billionaire OUT!