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phil
August 10th, 2016 at 6:03 am

Meanwhile, in other stuff:

Futures recovering off the lows since 3am (EU open) and it seemed to be them doing the buying yesterday too.  Europe is flattish though and Asia was flattish too but Europe had a bad open and is much improved from that:



RBA Governor Stevens didn't help into Asia's close:



Dollar is still diving, testing 95.50 and the indexes are up a lot less than the Dollar is down so huge grain of salt to be taken on the Futures, which are at 18,500 (short on /YM there), 2,180 (good on /ES too), 4,800 (good short for /NQ), 1,232.50 on /TF (also a good short) and 16,800 on /NKD (yet another good short).  Well – I guess I still like the shorts here!  

Wednesday's economic calendar


• 7:00 MBA Mortgage Applications
• 10:00 Job Openings and Labor Turnover Survey
• 10:30 EIA Petroleum Inventories
• 1:00 PM Results of $23B, 10-Year Note Auction
• 2:00 PM Treasury Budget

Worst Productivity Data In 37 Years Sends S&P, Nasdaq To Record Highs

Soaring Debt Has U.S. Companies as Vulnerable to Default as 2008. U.S. companies have taken on so much debt that they’re at least as vulnerable to defaults and downgrades as they were leading up to the 2008 financial crisis, according to a report by S&P Global Ratings Tuesday. Corporate leverage in the U.S., excluding financial firms, is at the highest level in 10 years, driven by a combination of low interest rates and slowing profits, S&P analysts Jacob Crooks and David Tesher wrote. This has resulted in record leverage ratios across a universe of 2,200 companies, they wrote. Junk-rated firms are particularly at risk because the credit cycle may have peaked and future tightening in interest rates could shut the spigot on new borrowings right when the companies would want to refinance their debt. “With the level of leverage that we’re seeing, some of these more-peripheral stressed sectors are going to experience some challenges to obtain new financing as well as refinancing,” Tesher said in an interview. “It’s not a question of if, it’s a question of when.” ?

Junk bond default rate continues to climb


• The global default rate for bonds rated below investment-grade rose to 4.7% in July,according to Moody's. That's up from 4.6% in June and compares to the long-term default rate of 4.2%.
• The year-to-date tally of default hit 102 after 11 defaults in July – the highest monthly amount since 2009.
• Moody's expects the default rate to peak at 5.1% in November, before sliding back to 3.9% by next July. For the U.S., the junk bond default rate was 5.5% at July's end, up from 5.2% in June. It's expected to peak at 6.3% by year-end.
• In no surprise, it's the commodity sectors leading the way, with a 10% default rate forecast for metals & mining, and 7.2% for oil & gas issuers over the coming year.

Forget The Fed’s 0.25%, Short-Term Rates Have Already Risen By 1% For The Real World

Four states most at risk for 'significant fiscal stress' in a US downturn

A toxic combination of free trade and free money has led to debt and stagnant wages

An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion

Chinese Bond Yields Tumble To 2009 Lows As Spooked Investors Rush Out Of Potential Defaults

China 10-year bonds hit new lows


• Purchasing in China's onshore bond markets drove the yield on 10-year government bonds to historic lows overnight, falling below 2.7%.
• While that may come nowhere close to the negative yields of say, Japanese bonds, further easing now looks to be on the cards.
• More records are also being set with dropping U.K. gilt yields and eurozone bond benchmarks, as the race to zero expands across the globe.

China Food Inflation Looms As Ag Output Set To Plunge Most In 50 Years Amid Historic 'La Nina'

Bank of England bond buying hits trouble?

• The Bank of England's new bond-buying program ran into trouble on its second day of operations, as yield-hungry pension funds and insurers refused offers to sell gilts to the central bank.
• The BoE said it would make up for the £52M it didn't buy in the second half of its six-month purchase program, but others feel the auction shortfall underscores problems the bank may hit going forward.

Bank Of England Suffers Stunning Failure On Second Day Of QE: "Goodness Knows What Happens Next Week"

Hedge Funds All In on VIX Plunge as S&P 500 Hovers Near Record. Professional speculators are making record bets in volatility markets that U.S. stocks will keep rallying. Hedge funds and other big traders tracked by the Commodity Futures Trading Commission have pushed net short positions on CBOE Volatility Index futures to 115,000 contracts, the most since 2013, data compiled by Bloomberg show. Shorting volatility is effectively a bet equity prices will rise since the VIX and stocks move in opposite directions 80 percent of the time. 

Brazil's Rousseff to face impeachment trial

• The real closed at more than a one-year high after Brazil's Senate voted 59 to 21 to put suspended President Dilma Rousseff on an impeachment trial for illegally financing government spending.
• The decision could seal her downfall and cement the power of her successor, Michel Temer, as early as this month.

Oil Falls as Supply Glut Seen Shrinking Slower Than Expected. (video) Oil fell as U.S. production was seen stronger than expected through 2017. Futures fell 0.6% percent in New York after rising to a two-week high Monday. The Energy Information Administration raised its U.S. crude production forecast through 2017 in a monthly short-term energy outlook. While crude and gasoline inventories are expected to have declined last week, they will remain at the highest seasonal level in at least two decades.

WTI Slides After Unexpected Large Crude Build

Chevron upgraded at Piper Jaffray on valuation, dividend outlook


• Chevron (CVX +0.5%) is upgraded to Overweight from Neutral with a $117 price target, raised from $110, at Piper Jaffray ahead of what the firm sees as a long-term oil price recovery.
• CVX is "an attractive name to own" at this point in the commodities cycle, the firm writes, as the stock "fulfills our criteria of offering impressive financial resilience and dividend sustainability alongside leading operational leverage to eventual oil price normalization and a seemingly more sustainable business model (among super majors)."
• Jaffray likes Suncor Energy (SU +1%) as its top overall pick, believing SU’s ability to generate free cash flow and the stock's relative YTD underperformance has it set up best headed into 2017.

U.S. Steel benefit from tariffs already starting to fade, analyst says

• U.S. Steel (NYSE:X) fell 6% in today's trading following its 17M-share offering; Axiom Capital’s Gordon Johnson, who has been bearish on the stock, then piled on by saying the impact of tariffs on steel prices already is starting to fade.
• Johnson believes few realize – judging by the strength in U.S. steel stocks during recent months – that the resurgence in hot rolled coil steel imports into the U.S. began before the final U.S. action was rendered.
• Sheet/strip/bar HRC imports into the U.S. from the seven countries targeted in March 2016, when the preliminary decision was rendered, totaled 275.7K metric tons, falling to 174.8K tons in April following the preliminary tariffs, rebounding to 292.4K tons in May and exiting July at 311.6K tons, significantly above pre-preliminary levels.
• Other steel and iron ore producers also fell today: AKS -6.4%, NUE -1.3%, STLD -1.4%,CLF -4.5%, MT -0.7%.

Cliffs Natural Resources to launch $300M share offering


• Cliffs Natural Resources (NYSE:CLF) -1.8% AH after announcing a public offering of of $300M common shares, or as much as $345M if the underwriters exercise their option to purchase additional shares.
• CLF says it plans to use the proceeds for general corporate purposes, including the repayment of debt, in particular its senior notes due January 2018.

SolarCity posts smaller than expected Q2 loss but issues weak guidance


• SolarCity (NASDAQ:SCTY) +0.2% AH after reporting a smaller than expected Q2 loss on an 81% Y/Y revenue increase to $185.8M, far above analyst expectations of $146M, including more than double the revenue from periodic billings to $141M.
• However, total operating expenses, which includes ~$29M linked to restructuring expenses, rose to $265M from $176M during the same period a year ago.
• SCTY issues downside guidance for Q3, seeing a loss of $2.55-$2.65/share vs. an analyst consensus estimate of a $2.34 loss, on revenues of $155M-$168M vs. $173M consensus; SCTY expects to install 170 MW during Q3, as softer Q1 2016 bookings feed their way into installation throughput, but foresees 315-415 MW in installations in Q4.
• SCTY says it had $215M cash in the bank as of Aug. 8, to show it was higher than the quarter-end figure; it says Tesla's (NASDAQ:TSLA) initial takeover announcement caused greater than usual delays in closing new project financing commitments.
• Bloomberg's Liam Denning – no fan of SCTY – warns TSLA shareholders who will vote on the SCTY deal, that "the lack of growth, stubborn costs and swollen net debt evident in the target's latest numbers are stark evidence of the risk they are taking on."

SunPower -25% after cutting full-year revenue outlook, shedding 1,200 jobs


• SunPower (NASDAQ:SPWR) -25.5% AH following a smaller than forecast Q2 loss and better than expected revenues, but the company also lowered its full-year revenue forecast, saying aggressive pricing by new market entrants has hurt near-term economic returns.
• SPWR issues downside guidance for FY 2016, now seeing revenues of $3B-$3.2B, vs. $3.28B analyst consensus estimate and below its earlier outlook for $3.2B-$3.4B, and expecting to deploy 1.45-1.65 GW in 2016, vs. its earlier forecast of 1.6-1.9 GW.
• SPWR says the extension of the Investment Tax Credit, as well as the bonus depreciation credit, while beneficial to the long-term health of the industry, has reduced the urgency to complete new solar projects by the end of 2016, with many customers adopting a longer-term timeline for project completion.
• SPWR also says it will cut ~1,200 employees, or 15% of its workforce, mostly associated with closing a facility in the Philippines, and take $30M-$45M in restructuring charges.

World's top container shipper quits 10 Chinese ports


• Maersk Line (OTCPK:AMKAF, OTCPK:AMKBF) says it will stop services to and from 10 ports in China and instead focus on ports that offer the best growth prospects, as part of an attempt to reduce costs.
• Like other container shipping companies, Maersk has been hurt by historically low freight rates in H1 of this year because of slower global growth and many new, larger vessels being added to the market.
• The A.P. Moller-Maersk conglomerate will publish Q2 results on Friday, and the consensus forecast is for Maersk Line to post a loss of $67M.

Berkshire still a buy post-earnings

• Operating earnings may have disappointed a few on the Street, but Berkshire Hathaway (BRK.A, BRK.B) still trades for just 1.36x book value, writes Andrew Bary inBarron's.
• Barclays' Jay Gelb maintains his Overweight rating and $249K per class A share price target (vs. current $220K), as he expects book value will rise to $183K per share by the end of next year while the valuation will remain close to that 1.36x.
• The bull case for those who have been sleeping for a few decades: With no dividend, after-tax operating earnings of about $11K per share per year, or $18B, accrue to book value and replenish Berkshire's cash balance, enabling The Oracle of Omaha to make more accretive acquisitions – a virtuous cycle which doesn't appear to be reflected in BRK's valuation.
• There's also downside protection in Buffett's willingness to be a buyer of Berkshire at 1.2x book value.
• Risks? The obvious one is the possibly impossible shoes to fill of Warren Buffett.

Retail sector takes a bruising after Gap dials up the caution

• There's a dark mood in the apparel store sector after Gap (GPS -6.4%) spilled its July sales numbers.
• The retailer's 4% drop in comparable store sales for the month missed the -1% mark expected by analysts by a wide margin. Gap had raised hopes for a retail sector comeback with a return to a positive comp in June before the July disappointment.
• On a prerecorded sales call (855-500-0477 participant code 7405599), Gap management dropped a discouraging nugget: "We’re maintaining a cautious view of the retail environment in the second half."
• As a bit of a bellwether, the outlook from Gap is resonating across the retail sector. There's also a cut on same-store estimates for Target from Cleveland Research which could be drawing some attention.
• Retail decliners: Tailored Brands (TLRD -5.5%), Ascena Retail Group (ASNA -4.7%), Express (EXPR -4.4%), Citi Trends (CTRN -3.3%), Buckle (BKE -3.4%), Cato (CATO-3.3%), American Eagles Outfitters AEO, Abercrombie & Fitch ANF, Chico's FAS (CHS-2.6%), Kohl's (KSS -3.7%), Dillard's (DDS -2.9%), Macy's (M -2.4%), Fred's (FRED-3.3%), Target (TGT -3.1%), Tuesday Morning (TUES -1.5%), L Brands (LB -1.9%), Christopher & Banks (CBK -2.6%).

WTF?  Fall in traffic impacts results at Red Robin Gourmet Burgers

• Red Robin Gourmet Burgers (RRGB +12.5%) lowers FY16 revenue guidance to an expectation of 5% growth, from a prior view for an 8% gain.
• The company expects adjusted EBITDA of $145M to $150M vs. $150M to $155M prior.
• Comparable restaurant revenue was down 3.2% in Q2. Traffic was reported to be 4% lower during the quarter.
• Restaurant-level operating profit margin rate fell 160 bps to 20.9%, due in part to sales deleverage.
• Previously: Red Robin Gourmet Burgers misses by $0.05, misses on revenue (Aug. 8)

Yelp +10.5% on Q2 beat, raised 2016 guidance

• After busting a new 52-week high during market hours, Yelp (YELP +3%) is up 10.5%after hours following a Q2 earnings beat that featured upbeat guidance for the out quarter and a raised outlook for the full year.
• Local revenue grew 41% to $151.9M; Transactions revenue gained 37% to $15.5M. (Other revenue of $6M was down 6%).
• In operations: Cumulative reviews grew 30% Y/Y to about 108M. App unique devices were up 27% to about 23M on monthly average basis, and local ad accounts grew 32% to about 128,000.
• For Q3 Yelp expects revenue of $180M-$184M (27% growth at the midpoint, and above consensus for $179.6M), and adjusted EBITDA of $24M-$28M (vs. consensus for $28.2M).
• It's raising its full-year outlook, forecasting revenue of $700M-$708M (28% growth at midpoint, and vs. consensus for $699.7M) and EBITDA of $100M-$108M (vs. $99.8M expected).
• Press Release

Disney call: ESPN streaming service; strong Shanghai park launch

• Walt Disney (NYSE:DIS) is off 0.9% in early after-hours trading after it beat on top and bottom lines in its fiscal Q3, lifted by strong studio results.
• The media giant earned $2.6B (up $114M Y/Y) and $1.62/share, up 12%.
• Revenue by segment: Media Networks, $5.91B (up 2%); Parks and Resorts, $4.38B (up 6%); Studio Entertainment, $2.85B (up 40%); Consumer Products and Interactive Media, $1.15B (down 1%).
• Disney's buying a 33% stake in video streaming firm BAMTech for $1B. BAMTech had been formed by Major League Baseball and as part of the transaction has been separated from MLB Advanced Media. That will form the basis for an ESPN direct-to-consumer service. Disney will pay in two installments and could take majority control in the future.
• Cash provided by operations was up 29% to $3.6B, and free cash flow rose 51%, to $2.49B.
• Conference call to come at 5 p.m. ET.
• Press release
• While a direct-to-consumer ESPN (or "ESPN-branded product") is coming via Walt Disney's (NYSE:DIS) $1B investment into streaming tech firm BAMTech, it doesn't mean it will be a clone of linear-TV ESPN or its products will be coming off the channel, CEO Bob Iger says on Disney's fiscal Q3 earnings call (ongoing).
• The goal is to launch the service by the end of the year, including content BAMTech has already licensed from MLB and NHL; "We will add content that ESPN has licensed, college sports, football, basketball, tennis, rugby, cricket," but it will be content ESPN licensed that isn't already on the existing channels.
• Meanwhile, the Disney bundle in full will be part of all packages in DirecTV Now (NYSE:T), AT&T's streaming service coming in Q4, Iger says. That includes ESPN, ESPN 2, ABC, Freeform, Disney Channel, Disney XD, and Disney Junior.
• The June 16 grand opening of the park in Shanghai was "a spectacular success by any measure," Iger says. "We built something that was very complex and very large and it opened flawlessly." Early days, but more than 1M have visited, people are staying far longer than Disney expected, and the hotel occupancy has been steady at 95%. There's "plenty of room for new lands and attractions."
• He took a moment to call out "phenomenal" studio success after the Studio Entertainment division grew revenues 40% to $2.85B. Since the 2006 acquisition of Pixar, he notes, 29 films have come out under the Pixar, Marvel, Lucasfilm and Disney Animation banners, averaging $800M worldwide box office each, "an astonishing achievement." It's not just box office, Iger says, but substantial added value across consumer products, TV, and Parks and Resorts.
• Iger had nothing to add on succession and his planned 2018 departure: "The board is focused on their ongoing process."
• DIS is now down 1.6% after hours.

Disney(DIS) Reshapes TV With $1 Billion Streaming Deal, ESPN Online

New Jersey loses appeal to legalize sports betting


• The Third Circuit Court of Appeals has denied an appeal by New Jersey to offer legal sports betting.
• The development is seen as positive for DraftKings (Private:DRAFT) and FanDuel (Private:DUEL), while negative for local casinos (MGM, MGP, CZR, OTCPK:EIHDF). The precedent could help Las Vegas operators if other states give up on setting up a sports betting framework.
• Related stocks: WYNN, LVS, FLL, BYD, OTCQB:TPCA.
• Related ETF: BJK.




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