Comment by phil

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phil
April 5th, 2016 at 6:52 am

Good morning!  

What a start, Europe is down at the 2.5% line already and our Futures are off about 1% but those should hold so we can play for bounces at 15,500 (/YM), 2,040 (/ES), 4,470 (/NQ) and 1,090 (/TF) but tight stops if ANY of them fail.  Nikkei in free-fall at 15,600 and that's a fun spot to play as well (/NKD) – same rules.  





What's killing the Nikkei is the rest of Asia is panicking into the relative safety of the Yen and Kuroda already made his weekly announcement that he would "act quickly to boost stimulus measures if needed to stoke inflation," on top of the negative interest rates introduced in January.  In other words "wolf, wolf, wolf."  



Aside from the Panama papers causing a lot of Top 1%'ers to scramble to move cash around, the trigger for today's sell-off was the Treasury Department moving to shut down Tax Inversions – this will affect a lot of companies and a lot of pending deals (and a lot of M&A fees), including PFE/AGN's $150Bn merger:

New Rules on Tax Inversions Threaten Pfizer-Allergan Deal


The Treasury Department imposed tough new curbs on corporate inversions, shocking Wall Street and throwing into doubt the $150 billion merger between Pfizer and Allergan, which was on track to be the biggest deal of its kind. 168

Allergan -19% following Secretary Lew’s remarks on corporate tax inversions


• Ireland-based Allergan (NYSE:AGN), which plans to merge with Pfizer (NYSE:PFE), is plunging in AH trading after the Treasury Department says it has issued new rules to curb so-called tax inversions.
• Treasury Secretary Jacob Lew: “Some companies are serial inverters. They acquire multiple U.S. firms in stock-based transactions over a short period of time. This increases their size and reduces the negative tax consequences of a subsequent inversion. Today’s action takes away a significant amount of the tax benefits of these serial inversions.”
• “We are also taking action to curb the use of earnings-stripping,” continues Lew, “by focusing on transactions that generate large interest deductions by simply transferring debt between subsidiaries without financing new investment in the United States.”
• Pfizer is up 1.9% in AH trading.
• Now read Pfizer-Allergan Merger Arbs Have Arrived

Panama Papers: Big Banks Are Top Users of Offshore Services




According to the International Consortium of Investigative Journalists, some of the world’s biggest banks were the heaviest users of services provided by Mossack Fonseca.

• Shedding Light on Secret Offshore Accounts
• Accounts Opened for Officials World-Wide
• Credit Suisse CEO Distances Bank From ‘Panama Papers’??

Corporate names in 'Panama Papers' will soon be unveiled


• The 'Panama Papers' have been causing a stir across the globe for the last 36 hours, with many demanding resignations ranging from Iceland's Prime Minister Sigmundur Gunnlaugsson to Ukrainian President Petro Poroshenko.
• For more than a year, Frederik Obermaier, investigative journalist at Suddeutsche Zeitung has being piling through the 11.5M documents leaked from Panama-based law firm Mossack Fonseca.
• Speaking on the phone from Munich, he said in the coming days, names of corporations rather than individuals will start to appear.

HSBC, UBS, and Credit Suisse among those touched in Panama Papers leak


• HSBC and its affiliates accounted for 2.3K of the 15.6K shell companies set up by Panama law firm Mossack Fonseca, according to the ICIJ.
• There's nothing wrong with shell companies, of course, but when they're used as vehicles for hiding assets, laundering money, or evading taxes, we've got a problem.
• So far, no bank has been accused of wrongdoing, but HSBC a couple of years back paid $1.9B and admitted to violating U.S. sanctions and anti-money laundering rules.
• Also among the hundreds of banks using Mossack Fonseca to create shell companies for clients were Royal Bank of Canada, UBS, and Credit Suisse (NYSE:CS).
• Now read: The United States Once Again The World's Banker (April 4)

In the US, our Corporate Media is barely talking about the Panama Papers but, in the rest of the World, people are outraged and this is going to be a huge deal, no matter how much the MSM tries to ignore it.  This is WikiLeaks for the Financial Sector and the Top 0.01% but they can take heart in the fact that our NSA still collects data and listens to our phone calls without warrants and nothing has actually changed, despite all the late-night TV jokes…

German Factory Orders were also a disaster:

German factory orders fall in February


• Factory orders in Germany unexpectedly fell to a six-month low in February because of lower foreign demand and a below-average number of bulk purchases.
• Orders, adjusted for seasonal swings and inflation, dropped 1.2% from the prior month, when they rose a revised 0.5%, according to data from the Economy Ministry in Berlin.
• Bundesbank warned last month that the nation’s growth momentum could slow in Q2 as weakening exports prompt companies to curb output and hiring.
• DAX -2.3% to 9,595.













Oil hit $35.24 and now $35.50 and NOW it's a good time to press USO since $32.50 is silly (could happen, but silly), so worth a chance here.  Not too keen on risking it on /CL, though, closer to $35, but certainly not under the $35.50 line. 





Watch that $37.50 line on Brent (/BZ) – if that goes back over, then you can follow long on /CL over the $35.50 line but it's Europe that's dragging us down at the moment.









IFF Silver (/SI) holds $15.05 (now $15.06) AND Gold (/YG) holds $1,230, THEN I like /SI long as gold has taken back the losses and silver is lagging behind.  Copper shows there's no industrial demand, so be very careful with Silver! 



None of this has anything to do with the Dollar, still weak at 94.78.



We're well-prepared for this after pressing our shorts last week so mostly it's a watch and wait day to see how weak things look.  Hopefully we can do a bit of bargain-hunting but too soon to call.  Don't forget, Fed Minutes tomorrow so all can reverse (or get worse), so it's just nice to be well-protected so we can gather more data and look for the right move.  Evans was already no help at 1pm, calling for less aggressive tightening but cited a weak economy as his reason, which didn't make anyone feel better.   

 Fed's Evans: Rate hikes should follow 'very shallow path'

• Chicago Fed President Charles Evans has repeated his call for just two U.S. interest-rate hikes this year, stating that the risks to his forecast for economic growth are weighted to the downside.
• "A very shallow funds rate path, such as the one envisioned by the median FOMC participantin March, is the most appropriate."
• Evans, who does not vote on monetary policy this year, also said he expects the U.S. economy to expand by 2%-2.5% in 2016.

Tuesday's economic calendar


• 1:00 Fed's Evans: Monetary Policy
• 8:30 International Trade
• 8:30 Gallup US ECI
• 8:55 Redbook Chain Store Sales
• 9:45 PMI Services Index
• 10:00 Job Openings and Labor Turnover Survey
• 10:00 ISM Non-Manufacturing Index

Asian Stocks Fall With Oil as China Markets Reopen; Yen Climbs. Asian stocks slumped to a four-week low and emerging-market currencies weakened as investors reassessed last month’s rally in riskier assets. Oil declined for a third day, while the yen and Treasuries gained.Energy producers led losses in the MSCI Asia Pacific Index, while the yen’s three-day surge weighed on Japanese exporters. Chinese equities slipped after a local holiday on Monday as Standard & Poor’s 500 Index futures signaled a second day of losses in U.S. shares. South Korea’s won dropped 0.9 percent, while Australia’s dollar fell before a central bank policy meeting. U.S. crude slid a third day before U.S. government data forecast to show increasing stockpiles. Thirty-year Treasury yields declined to their lowest level since Feb. 25. The MSCI Asia Pacific gauge lost 1.3 percent at 10:01 a.m. in Hong Kong, set for its lowest close since March 2. Japan’s Topix slumped 2 percent, while Australia’s S&P/ASX 200 Index dropped 0.7 percent and Hong Kong’s Hang Seng Index slipped 1.3 percent. The Shanghai Composite Index retreated 0.3 percent.

Next Greater China Default Looms as Produce Supplier Flags Gap. China Green Holdings Ltd., a supplier of fresh produce that has lost money in the past two financial years, said it doesn’t have enough cash offshore to repay two bonds maturing April 12. The Hong Kong-listed firm has hired a financial adviser to ask noteholders to extend the interest and principal repayment on the two convertible securities beyond the maturity date, it said in an exchange filing dated April 4. It sold the two notes in 2013, each with a face value of 515.28 million yuan ($79.7 million) and an annual coupon of 7 percent and 10 percent. The bonds, which data compiled by Bloomberg show have a combined total 568.8 million yuan outstanding, are repayable in U.S. dollars.

China Inc.'s Record Foreign Deal Spree Shows Fear of Weaker Yuan

IMF Warns of China Shock Spillovers

IMF chief emphasizes global growth as risks increase

• In a speech at Frankfurt's Goethe University, IMF Managing Director Christine Lagarde turned up the volume for stronger action by the world's economies to boost growth, warning that downside risks were increasing without decisive action.
• "Let me be clear: we are on alert, not alarm. There has been a loss of growth momentum."
• She also prescribed specific moves, including for the U.S. to raise its minimum wage, for Europe to improve job training and for emerging economies to cut fuel subsidies and boost social spending.

 

Basel Warns Against `Myopic' Calls to Ease Bank Capital Demands. Global regulators on the Basel Committee on Banking Supervision are pushing back against calls for them to ease capital requirements on lenders to stimulate lending. The job of the committee, which brings together regulators from Australia and China to Italy and the U.S., is to define minimum standards rather than to set out the “optimal level” of capital, Secretary General William Coen said in the text of a speech to be delivered Tuesday in Sydney. That approach doesn’t preclude individual jurisdictions from making tougher demands, if that is what they wish to do, he said.

A third of Indian firms' borrowing is currently stressed, India Ratings says. India has a big debt problem. A third of the country's 500 largest listed non-financial companies failed to earn enough to make interest payments in the financial year that ended March 2015, according to a new report from local ratings agency India Ratings and Research. The report, published last week, said in fiscal 2015, 178 out of the largest listed 500 corporate borrowers had an interest coverage ratio below 1. India calculates its fiscal year from April to March; fiscal 2015 ended Mar. 31, 2015, while FY17 began Apr. 1, 2016. 

A Quarter Century Of Monetary Voodoo

Goldman Questions Rally, Fears Looming Event Risk Amid Record VIX Longs

BAML: Large-cap stock funds had worst quarter since 1998

• Just 19% of large-cap U.S. stock funds topped the S&P 500 in Q1, according to BAML's Savita Subramanian. It's the worst performance on that metric since the data started being tracked in 1998.
• The average large-cap fund trailed the S&P by 190 basis points, "a record spread of underperformance."
• It was the March rally that helped do managers in, says Subramanian, noting one-third of them beat the market in January, and 27% in February.
• "The lit match taken to active returns last quarter was likely the massive reversal – by the market, by sectors, by styles and by stocks – occurring within the quarter … Crowded positions proved particularly damning in the Q1, with the 10 most crowded stocks underperforming the 10 most neglected stocks by almost 7 percentage points, an atypically high spread.”
• It's another rough session for traditional asset managers today: Franklin Resources (BEN -1.8%), Legg Mason (LM -4.1%), Gamco (GBL -1.3%), Janus (JNS -1.6%), Invesco (IVZ -1.1%), Affiliated Managers (AMG -2.2%), Waddell & Reed (WDR -3.3%)
• Now read: It's Official: The Good Times Are Over (April 4)

 

Yelling "Stay" In A Burning Theater – 'Simple' Janet Does It Again

One Junk Bond Analyst's Catastrophic Forecast For What Is Coming

BlackRock drops bullish outlook on U.S. corporate credit

• The strong rally in high-yield paper since February 11 has left the sector pricier even as the risk of rising defaults remains, says BlackRock, cutting the U.S. corporate bond market to neutral from overweight.
• BlackRock's move is especially notable as SocGen today upgraded its outlook on corporate credit – though this could be more with an eye to European action, rather than the States.
• ETFs: HYG, JNK, HIX, DHY, HYLD, PHT, EAD, HYT, JQC, CIK, DSU, HHY
• Now read: What Can We Learn From Economically-Sensitive ETFs? (April 4)

 

Dismal Data Deluge Deletes Dow Dead-Cat-Bounce

The global manufacturing sector just posted its weakest quarterly performance in years

Kicking the Oil Business When It’s Down. Rising regulatory scrutiny of banks that lend to energy companies is tightening the screws on fossil fuels. Crude oil prices have dropped precipitously over the past 18 months, and while there has been a recent uptick, the energy industry is struggling. Despite laying off workers, cutting capital budgets and refinancing debt, 45 U.S. oil and gas companies have filed for bankruptcy since the beginning of 2015, with more expected to follow.

 

Petrobras -10% on report it could lower gasoline, diesel prices


• Petrobras (PBR -10.4%) plunges following a weekend report that it could cut gasoline and diesel prices as soon as today, reversing hikes last year meant to help make up for years of artificially low prices.
• A decrease, reported by the O Globo newspaper without citing any sources and without specifying how much PBR could raise pirces, would seek to make pump prices reflect the drop in global oil prices and lower demand for fuel in Brazil, which is suffering a sharp recession.
• "With the entire investment community avidly monitoring Brazil's political agenda, the timing of such a decision could be heavily misinterpreted, negating some of the hard work done in regaining investor confidence," say analysts at BTG Pactual.
• No word yet from the company, as Reuters reports two company officials denied a decision was imminent but that such measures are always under analysis.
• Now read Petrobras eyes up to 12K job cuts through voluntary layoffs

That's the EXACT number I predicted 7 years ago!  Judge approves $20B settlement in 2010 BP oil spill


• A federal judge in New Orleans grants final approval to the ~$20B settlement from the 2010 BP (BP +0.1%) oil spill in the Gulf of Mexico, as expected, resolving years of litigation over the incident.
• The settlement, first announced in July, includes $5.5B in civil Clean Water Act penalties and billions more to cover environmental damage and other claims by the five states along the Gulf and local governments; the money will be paid over a 16-year period.
• Now read Is BP set for more upside?

TerraForm Global's lawsuit against SunEdison – the filing


• TerraForm Global (NASDAQ:GLBL) just filed a copy of its lawsuit against SunEdison (NYSE:SUNE) with the SEC.
• LINK
• Now read SunEdison Is The Canary In The Coal Mine For Solar Energy »

 

Southwestern Energy takes advantage of accounting trick, jumps 9%


• Southwestern Energy (SWN +8.8%) rebounds after disclosing it repaid a $1.55B loan borrowed on March 30 through its bank credit facility just two days later on April 1.
• SWN says that maxing out the short-term loan and applying the funds as an asset on its consolidated balance sheet on the final day of Q1 worked to expand the company's flexibility by ~$232M by increasing the maximum amount of secured debt or subsidiaries debt it can take on during Q2.

Tesla (TSLA) Deliveries Miss Forecast as `Hubris' Hurts SUV Supply. Tesla Motors Inc. shipped fewer electric cars than it forecast in the first quarter, hurt by a new line of sport utility vehicles that was both short on parts and long on technology “hubris.” The automaker said it sold 14,820 Model S cars and Model X SUVs in the first quarter, short of the 16,000 it had predicted in February. Shares fell in late trading, giving back some of the gains Tesla had made since Thursday by exceeding all expectations on orders for a new, lower-cost car that will be available next year.

Tesla Motors misses Q1 delivery forecast


• Tesla Motors (NASDAQ:TSLA) announces it delivered 14,820 vehicles in Q1 to miss the forecast of 16K. A shortage of key parts for the tech-heavy Model X played a factor in the output number.
• The build rate for the last full week in March moved up to 750 Model X vehicles.
• Despite the light quarter, the company still expects to delivery 80K to 90K during the year.
• TSLA -2.4% in a volatile after-hours session.
• Now read Tesla Model 3 Reservations To Disrupt Auto, Battery Markets 

 

Potash downgraded at CIBC, which sees lower 2016 EPS guidance


• Potash (POT -3.9%) and Mosaic (MOS -4.1%) are downgraded to Sector Perform from Sector Outperform at CIBC, which says potash markets could remain soft for the foreseeable future due to price competition among the producers.
• Potash prices have continued to decline in recent weeks, meaning POT's 2016 earnings guidance announced barely two months ago already looks shaky, the firm says, adding that it believes the company will reduce the low end of its $0.90-$1.20 EPS outlook.
• CIBC also is concerned about POT's dividend, even though it already has been lowered this year; the firm calculates the payout ratio at 131% in 2016 and 78% in 2017.
• Now read How Potash can fertilize future profits in your portfolio

 

Australian Domino's Pizza franchisee aims for crazy fast pizza bake times


• The CEO of the largest Domino's Pizza franchisee in Australia tells Bloomberg that the company's new 3-10 project is aimed at cutting pizza bake times to three minutes and delivery to just ten.
• The ambitious Don Meij says that Domino's Pizza Enterprises (OTCPK:DPZUF) plans to use robots and new cooking technology to achieve the lofty goals.
• The Domino's brand has been very successful in Australia which helps Domino's Pizza (NYSE:DPZ) through master franchise payments paid by the Australian pizza operator.
• Shares of Domino's Pizza Enterprises (OTCPK:DPZUF) are up more 2000% over the last ten years, while U.S.-based Domino's Pizza is up about 366%.

Valeant(VRX) Tumbles As Lenders Demand Two Pounds Of Flesh For Covenant Waivers

Bloomberg: Valeant Pharma terminates sales team for female libido pill


• Valeant Pharmaceuticals (NYSE:VRX) has terminated the sales force for the female libido pill Addyi it acquired for $1B and introduced last fall, after the drug failed to gain traction in the first six months on the market, Bloomberg reports.
• VRX is firing the 140 contract workers that make up the Addyi sales force, plus another ~140 employees across its dermatology, gastrointestinal and women’s health divisions, according to the report.
• VRX reportedly plans to relaunch its Addyi sales effort with an internal team it will build in the coming months.
• Now read Valeant: The way home

 

Windstream launches gigabit Internet in four areas


• Windstream (NASDAQ:WIN) says it's launched its gigabit Internet service in four market areas across four states.
• The company has made the ultra-fast service available in Lincoln, Neb.; Lexington, Ky.; Sugar Land, Texas; and seven small communities in North Carolina.
• The move follows on Windstream's investments to speed up networks in Georgia and Texas earlier this month.
• Now read Windstream: Low Margin Of Safety »

'Batman v Superman' holds on to top box-office slot


• Batman v Superman: Dawn of Justice (TWX +0.8%) easily prevailed at the box office for its second weekend despite a falloff of near 70% in grosses from its debut.
• Of course, a dropoff like that hurts less when you log a historic opening. The film grossed $52.4M for the weekend (down from $166M) to top Zootopia (DIS -0.4%), still going strong in its fifth week with $20M.
• Batman v Superman now has $261.5M domestically and $682.9M worldwide. For its part, Zootopia has totaled $276M domsestically and $787.6M worldwide.
• My Big Fat Greek Wedding 2 (CMCSA -0.3%) fell off 38% from its opening week to draw $11.1M, slotting in just ahead of the week's biggest new film, God's Not Dead 2.
• Now read Disney's Character-Driven Ecosystem Will Reverse Its Recent Lull And Start Disney Moving Back To New Highs »

EU ‘advances’ probes into Google parent Alphabet; Nest veterans to depart


• The European Union is “advancing” probes into whether Google parent Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is abusing its dominance with its Adsense ad service and Android mobile-operating system, said bloc competition chief Margrethe Vestager in an interview Monday.
• Vestager's comments suggest the regulator could initiate additional charges against the search gorilla, WSJ says.
• Separately, Re/code reports Shige Honjo, a veteran hardware chief at Nest, and Scott Mullins, a senior engineering manager, are leaving the company. Honjo will depart at the end of May, and Mullins will pivot over to Google to work on the next iteration of its Glass wearable.
• The departures come amid increasing pressure on Nest to improve sales under parent Alphabet.
• Google is unchanged in AH trading.
• Now read Troubles Grow For Organic Google