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What's happening with ViacomCBS and why did shares tank Friday?

davideduardo

davideduardo

Moderator/Administrator
Staff member
"Stock-market traders fixated on what ‘unprecedented’ Discovery, ViacomCBS selloff means for Wall Street "

www.marketwatch.com

Stock-market traders fixated on what 'unprecedented' Discovery, ViacomCBS selloff means for Wall Street

Despite the upbeat note that the final full week in March delivered, strategists and market participants are concerned about a major block trade in the final...
www.marketwatch.com www.marketwatch.com

Media stocks were hammered on Friday, with shares of ViacomCBS and Discovery part of what Bloomberg News reported as an “unprecedented” $35 billion in block trades... as well as the U.S. media conglomerates.

Both shares ended the week down more than 27%, capping a period that saw ViacomCBS’s Class B shares VIAC, -27.31% finishing at their lowest level since Jan. 25 and booking its steepest daily percentage drop in its history.

On investor newsgroups, there is unverified speculation that the major seller was under orders from the Chinese government to "demonstrate" that China can "destroy" the US equities market if it wishes to. But the focus on Viacom and Discovery are puzzling as neither represents a core or strategic US business or industry.
 
DavidEduardo said:
"Stock-market traders fixated on what ‘unprecedented’ Discovery, ViacomCBS selloff means for Wall Street "
Click to expand...

Both stocks were overpriced with no reason. My take is it's a media version of GameStop.

It's a great time to back the truck up, and do some profit taking, as Cramer says.

Since neither company owns radio, why is this in National Radio?
 
TheBigA said:
Both stocks were overpriced with no reason. My take is it's a media version of GameStop.
Click to expand...
Lots of stocks are priced at high multiples, often based on projections. Tesla is a good example; the bet is on the future.
TheBigA said:
It's a great time to back the truck up, and do some profit taking, as Cramer says.
Click to expand...
This was not profit taking as it was done in a fell swoop in the last minutes of trading by a huge Chinese investment "firm" that is well linked to the Chinese government. Profit taking is done by selling in accordance with market demands, generally over a number of weeks or even months.

When an investment firm with a large stake pulls out of individual companies all at once, they create more offer than demand and the share prices drop. This certainly looks like a demonstration by the Chinese that they can tank the market in this way if they want. And the attitude mirrors the offensive ("offense" as in "attack", not as in "disgusting") actions at the meeting last week in Alaska.
TheBigA said:
Since neither company owns radio, why is this in National Radio?
Click to expand...
Because any media company trend set in the production, cable and TV sectors tends to be mirrored with even greater effect in radio. This has been true since I first bought Storer Broadcasting shares in 1958.
 
DavidEduardo said:
This certainly looks like a demonstration by the Chinese that they can tank the market in this way if they want.
Click to expand...

Maybe. I'd want to know more about how the prices got to where they were before I say anything. But yes, as I've said many times, the Chinese have more to say about US economy then we give them credit for. They own $1 trillion of US treasuries. Imagine if they sold that off the way they sold off these two companies.
 
Whatever the truth is, we'd better be damn certain we're reading it right and make the right moves to ease the tension, or this war of words (that has, so far, been notable far more for what isn't being said than what is) could lead to unthinkable horrors.
 
The analysis today seems to confirm what I was saying earlier: The shares were overpriced:


Viacom is not a $100 stock. Paramount + has nowhere near the potential of Disney + or ESPN+ They need to create value before they can expect to command that kind of stock price. Just combining the companies hasn't created that value yet.
 
A lot of stocks may be overvalued. I keep hearing about companies buying their own stock to prop up prices. Which suggests that whatever price they're at is inflated. I don't know how common this is, or even if it's true. I recall that it was brought up at one of the Trump press conferences when the first corona stimulus package was discussed, February or March of last year.
 
boombox4 said:
A lot of stocks may be overvalued. I keep hearing about companies buying their own stock to prop up prices. Which suggests that whatever price they're at is inflated. I don't know how common this is, or even if it's true. I recall that it was brought up at one of the Trump press conferences when the first corona stimulus package was discussed, February or March of last year.
Click to expand...
The usual reason for purchasing and retiring a company's own shares is to use available capital to enhance the value of the remaining shares. This is seen by the remaining investors as an increase in value even if the share price does not increase as the earnings per share will increase in proportion to the retirement of shares.
 
This has nothing to do with content or streaming. The dip with some media stocks was because of the flap over a Hedge Fund run by Archegos Capital Management. Essentially, Archegos defaulted on loans with several banks who allowed Archegos to do a whole bunch of risky derivative trading using borrowed money. Archegos hedge fund just happened to have a lot of media stocks in their portfolio, which included Viacom/CBS and Discovery:

Why Archegos was allowed to operate in the shadows

www.karvyonline.com

What is Derivative Trading - Futures & Options Trading | Karvy Online

Know what is a Derivative & also learn about the various features of trading in futures & options. Visit Karvy Online, to read about the multiple benefits of trading in Derivatives!
www.karvyonline.com www.karvyonline.com
 
Kelly A said:
This has nothing to do with content or streaming. The dip with some media stocks was because of the flap over a Hedge Fund run by Archegos Capital Management.
Click to expand...

Yes all of that is in the OP.

A Sunday report by Bloomberg News, citing people familiar with the matter, pointed to Archegos Capital Management LLC — the family office of trader Bill Hwang — as an institution that sold a major block of Viacom and Discovery as well as dumping shares of Chinese technology companies and other U.S. media conglomerates. The Wall Street Journal later reported the same.
Click to expand...

Here is more about Bill Hwang:

www.foxbusiness.com

Who is Archegos fund manager Bill Hwang?

Losses at Archegos Capital Management have triggered the liquidation of positions approaching $30 billion in value, The Wall Street Journal has reported, and sent the shares of two major investment banks tumbling. Archegos is run by former Tiger Asia manager Bill Hwang. What do we know about Mr...
www.foxbusiness.com www.foxbusiness.com
 
TheBigA said:
Maybe. I'd want to know more about how the prices got to where they were before I say anything. But yes, as I've said many times, the Chinese have more to say about US economy then we give them credit for. They own $1 trillion of US treasuries. Imagine if they sold that off the way they sold off these two companies.
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They own way over that level you name. So much of the market ownership is done in "street names" that it's hard to tell who the owner is.

"When you buy securities through a brokerage firm, most firms will automatically put your securities into "street name." This means your brokerage firm will hold your securities in its name or another nominee and not in your name, but your firm will keep records showing you as the real or "beneficial owner."

In fact, the ghost nature of street names is what has motivated a number of public corporations to file for greater foreign ownership "just in case" as they have no way of knowing who owns them.

So the Chinese can do market plays without revealing their identity. This can be used as a tool to castigate a company or a sector that they are having a disagreement with on policy or practice.

The share prices have been based on projections for future earnings as well as current and recent historical performance. The share prices were reasonable for the sector. I looked in my Morningstar account for those issues as well as other issues in the sector and the sector analysis. Neither seemed out of line.

Many sources, such as Bloomberg and the WSJ / Barrons are attributing this to a chain reaction to sales by Bill Hwang. Private newsletters believe that Hwang heard from Asian sources about a Chinese "show of power" and acted first. The theorists, not necessarily chaps I march in lockstep with, believe that a "non-vital" sector was picked so as not to put other investments in peril.
 
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TheBigA said:
Not the case here, though.
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How do we know it is not? The first sale by the Hwang-led group was a trigger, but the volume of sales following it was immense. That is why investment newsletters I get are using it as a caution to conservative investors to show that China can disrupt the market and create lack of confidence situations and that this may have been one of them as the bulk of sold shares in the late Friday selloff were done under street names.
 
TheBigA said:
Now the politicians are getting into the act. Of course the Repubs loosened the regulations on financial groups, and so now the Dems want to bring back more regulation:

www.cnn.com

Hedge fund meltdown: Elizabeth Warren suggests regulators should've seen it coming | CNN Business

Senator Elizabeth Warren is calling out regulators after little-known hedge fund Archegos Capital Management was able to borrow so much money that its implosion last week sent shockwaves across Wall Street.
www.cnn.com www.cnn.com
Click to expand...
But that is not a “financial group” but a private agent for high net worth individuals. Those were never regulated as they are not public.
 
DavidEduardo said:
But that is not a “financial group” but a private agent for high net worth individuals. Those were never regulated as they are not public.
Click to expand...
And some of these are foreign banks that got defaulted-on too. Trading derivatives have been around a long time. What happened here is just another loophole that turned into a bear trap.
 
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