The battle between Elon Musk and Jim Chanos continues in the pre-market as non-GAAP exuberance is trumped by epic cash burns and reality-checks from hedge fund managers. The after-hours panic-buying algos appear to have enabled more than a few to exit in a hurry…
Even with near record short-interest…
The squeeze couldn't hold…
We assume the reality of another equity raise to keep the ponzi dream alive is weighing on the hype of total world domination by 2020…
So what is the fundamental case math: with a market capitalization of $31 billion, Tesla is valued at about $620,000 for every car it delivered last year, and about $63,000 for every car it hopes to produce in four years, in 2020. By comparison, General Motors, with its 5x PE and $48 billion market value is equivalent to about $4,800 for every vehicle it sold last year: a 130x growth premium [for Tesla].
Some more math: if Tesla shares were to grow 10% a year for the next decade it would have to reach annual sales of 1.5 million cars at triple GM's typical $1,000-per-car profit to justify a more moderate price-earnings ratio of 20. Last year GM sold 10 million cars and Ford sold 6.6 million. Tesla delivered 50,000.
On April 12, in one of the easiest financial predictions in history, I challenged the notion that a €5 billion slush fund dubbed “Atlas” could possibly prop up €360 Billion of non-performing loans in Italian banks.
Less than a month later, “Atlas” is already a notable failure.
I seek no credit for my call, and none is due. Failure was a certainty from the start.
Instead, I question the sanity of anyone who thought such a preposterous scheme could work in the first place.
A government-orchestrated, privately backed €4.25bn fund — rushed into place last month as investors fretted about Italy’s vast pile of bad loans run up during a long recession — has not proved the silver bullet Italian bankers and officials had hoped.
Italian bank shares plunged again this week, alongside a wider fall in banking stocks, taking their losses since the start of the year to more than 30 per cent. This wiped out hopes of bank bosses that the fund — dubbed Atlante or Atlas, the mythological titan who held up the sky — would swiftly cause a re-rating of their stocks.
Rattling investors, Atlante made its first rescue mission at the weekend taking ownership of scandal-hit regional bank Popolare di Vicenza after the failure of its €1.5bn capital increase — seen as a bellwether of investor sentiment about Italian banks — failed to attract investors.
Italian banks are already saddled with the highest proportion of bad loans, the most branches per capita and the lowest profitability of any G20 country. As their revenues are squeezed by low interest rates and weak economic growth, the situation could deteriorate further. Citigroup analysts described Italy’s banks as “fundamentally challenged” in a report this week predicting they could require €10bn-€30bn of extra provisions to deal with their bad loans.
Matteo Renzi, Italy’s 41-year-old reformist prime minister, on Wednesday sought to rally markets.
“Thanks to Atlante, Vicenza is saved. To the investors I say that finally the market rules in Italy,” he told reporters in Rome.
Others disagree. For example “If it were me I would ask for my money back,” said one senior banker.
Via this morning’s Jefferies Global Equity Strategy note:
Although US economic surprises have cooled somewhat, 62% of S&P companies reported Q1 earnings above estimates while 55% reported sales above mean. This is the best ‘earnings beat rate’ since mid-2010. While 1Q16 (-7.6% to date) results will be the first time the index has seen four consecutive quarters of y-y declines since 4Q08 to 3Q09, forward guidance has improved significantly. The dollar is set to become a tailwind for the US from 2Q16.
So maybe more like an earnings valley than an earnings recession.
There might be something to that if dollar weakness is to continue. Here’s their chart showing a long-term trendline breakdown. If the strong dollar, weak commodities situation put us here in the valley, perhaps the reverse pulls us out.
Rotation, Uncorrelated Returns and Andy Rooney Quotes
Jefferies – May 4th 2016
US researchers have developed what they say is the world’s first surgical robot that can outperform human surgeons when operating autonomously on soft tissues such as intestines, paving the way for clinical trials.
The “patients” were pigs, animals favoured for surgical research because of their internal similarity to people, and the operation involved intestinal anastomosis (reconnecting a severed bowel) — which is a common surgical procedure, for example when removing a colon tumour.
“The outcomes were surprising to us in that [Star’s] performance was consistently better than surgeons’,” said Peter Kim, project leader. Soft tissue, moving in a dynamic living environment, is a more difficult target for a robot to track and manipulate than hard cartilage or bone.
Common operations that might be suitable for the system include removal of the gall bladder and appendix. “If we put in the effort, I think within a relatively short time we will be able to do a complete appendectomy,” Dr Kim added.
Children’s National Health System has patented several features of Star, which will be commercialised by a spinout company, Omniborus.
Yesterday, the Federal Reserve held a public board meeting to propose two new Byzantine rules to prevent another 2008-style financial contagion on Wall Street and potential crash of the U.S. economy. Unfortunately, the details brought images of the curtain scene from the Wizard of Oz. If you looked beyond the copious verbiage, there didn’t seem to be much there, there.
Both plans appeared to target concerns over derivatives. Coincidentally, Freddie Mac, already a ward of the government as a result of the 2008 crash and a derivatives counterparty to some of Wall Street’s largest banks, reported yesterday that it had lost $4.56 billion in its derivatives portfolio in just the first three months of this year. Derivative losses were an early precursor to the 2008 crash.
The first proposal mapped out by the Fed is called the Net Stable Funding Ratio and would require the largest banking organizations “to maintain a stable funding structure in relation to the composition of their assets, derivative exposures, and commitments.” The Fed doesn’t want a bank run or a demand for derivatives collateral to drain the bank of its liquidity. (Read the details of the proposed rule here.)
The second plan would establish restrictions within derivative and repo contracts of U.S. Global Systemically Important Banks (GSIBs) and the U.S. operations of foreign GSIBs. The idea is to prevent derivative or repo counterparties from cancelling the contracts if the GSIB failed and was put into resolution under the terms of the Dodd-Frank legislation. That could trigger a disorderly resolution and contagion at other banks (otherwise known as a repeat of 2008). The details of that rule proposal are here.
One of the Fed speakers described this second plan as follows: “…this proposal would not apply to subsidiary national banks of GSIBs or to federal branches of foreign GSIBs. The Office of the Comptroller of the Currency [OCC] is expected to propose a similar set of restrictions to cover those entities…”
The “subsidiary national banks” of the GSIBs are where the vast majority of the obscene amounts of risky derivatives reside. According to the OCC, as of December 31, 2015, there were $237 trillion in notional derivatives (face amount) at the 25 largest bank holding companies with the bulk of…
Infinera Corporation (INFN) — an optical transport networking equipment, software and services company — experienced one of those brutal selloffs last week, with the stock falling from over $15 down to $12. For perspective, that's a 20% decline in market capitalization in response to a weak outlook for this quarter's revenue, which was reduced from expectations of $272 million to $250 – $260 million — a drop of around 6% at the midpoint.
Yesterday, both the CEO and the CFO of the company bought significant numbers of shares (May 3). Their buys were filed after hours, and the stock gapped higher this morning from its close on Tuesday of $11.52 back to $12.02 today.
[From Insider Cow - type INFN in Insider Cow's search bar.]
The reason for the reduced revenue guidance: CEO Tom Fallon reported that a customer of Transmode (acquired last year) was holding off on purchases. Fallon noted,
“We picked up several new smaller customers but we have one significant Metro customer who has historically been part of the Transmode customer base, who hasn't bought for about two quarters and there's nothing, I don't believe, that's structural there around the relationship. We believe that there is a big opportunity for us in the next quarter or so. There is an opportunity that's been driven to them by one of their customers and I think they get back on track soon. Having said that, it's a big enough customer that it's a really tough to backfill that in the short term.”
Although INFN reported revenue at the midpoint of its guidance and EPS above analyst expectations, it spooked the after-hours markets with its guidance for 2Q-16 coupled with its reluctance to say that this issue is limited only to the current quarter.
“Net-net, while we are experiencing a convergence of local and macro issues, though we do not see as indicative of any longer-term
Saxo Bank CIO and chief economist Steen Jakobsen pinged me via email with some of his thoughts on who to believe and which assets to hold.
Steen says “gold long, weak US growth, FED is lost, and negative interest rates make no sense”.
Email from Steen
I have been doing this job for close to 30 years now. Through that time I have worked with some of the best talents in trading in the world, I have also had the pleasure of meeting many great business people, but in my world there is two or three people who I:
ALWAYS listen to
ALWAYS need to check my world view against
Some of these are private, but the most public one, and the only person I am a “fan” of is Stanley Druckenmiller.
He is not only is he one of modern history’s best fund managers, but he analysis is crisp, clear and open minded. He is far more diplomatic than me – and better – in expressing those views, but tonight’s speech by Druckenmiller at Sohn Conference confirms to me long held view:
Gold is the superior asset in present part of cycle
Fed is lost – totally lost and nothing they say match their action
Negative interest is worst policy mistake ever
Debt is and remains the elephant in the room
Here is quick note from Druckenmiller’s speech:
Stanley Druckenmiller warned on Wednesday that the Federal Reserve’s low-rate policy is creating vast long-run risks for the US economy.
Mr Druckenmiller, a billionaire former hedge fund manager, said at the Sohn Conference in New York that Fed policymakers are “raising the odds of the economic tail risk they are trying to avoid”, such as spurring credit bubbles, by keeping interest rates near historic lows.
Mr Druckenmiller reckons current economic conditions suggest the Fed’s benchmark interest rate should be closer to 3 per cent. “This is the least data-dependent Fed in history,” he said.
Mr Druckenmiller said the “longest period ever of easy monetary policies” has caused groups to borrow at a quick clip and then use the funds in ways that are not economically productive. For instance, he noted that “most of the debt today has been used for financial engineering,” in the form of stock buybacks and other
There was a slew of economic reports out today, and despite the fact that on the surface the reports seemed mildly positive for GDP, the GDPNow Model sees things otherwise.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 1.7 percent on May 4, down 0.1 percentage point from May 2. The forecasts for second-quarter real nonresidential equipment investment growth and the change in private inventory investment declined following this morning’s M3 report on manufacturers’ shipments, inventories, and orders from the U.S. Census Bureau. While the forecasts for second-quarter real exports and real imports growth increased following the international trade report from the U.S. Census Bureau, the expected contribution of net exports to real GDP growth in the second quarter was virtually unchanged.
GDPNow Forecast May 4
I expected the decline in the trade deficit would add a tick or two to GDP, but instead it added nothing.
One year ago, SunEdison was the darling of the hedge fund world. It is now bankrupt. Moments ago, Jim Chanos revealed that (in addition to Tesla) he is also short Elon Musk's SolarCity, sending the stock sliding.
But what is the bear case?
Well, courtesy of Axiom's Gordon Johnson, here are some very specific reasons why Chanos may once again have a home run on his "short" hands. Below is his "big picture" summary:
SOLARCITY CORP. (SCTY – $26.45 – SELL)
Is The Entire Sell-Side Incorrectly Giving SCTY Credit For Cash It Can’t Access?
The Good, the Bad, & the Ugly. In a widely anticipated move (evidenced by the recent outperformance of SCTY’s shrs), yesterday SCTY announced its first-ever cash equity deal w/ John Hancock Financial (“JHF”). Under the terms of the deal, SCTY will sell 95% of the cash flows generated from a portfolio of 201MW of residential & commercial solar projects to JHF over the next 20yrs.
The Good: in return for the cash flows, SCTY will receive $227mn in upfront equity, while retaining a 5% minority interest over 20yrs; including tax equity investments + upfront rebates/prepayments, this transaction will raise $3.00/W in total financing (or ~$603mn), & reflects a blend of $2.35/W for commercial projects & $3.24/W for residential projects; the IRR is ~8.2%; the majority of the installations were completed in ’15; the projects are spread over 18 states, w/ no single state comprising >35% of the portfolio; & the avg. FICO score for the residential customers is 744.
The Bad: when looking at just the cash equity proceeds from this deal ($227mn) – while we recognize an additional $376mn in cash, ~$346mn of which is tax-equity (“TE”), has already been received, while, technically, TE is available for general corp. purposes, given it’s largely been spent to offset the CAPEX of the systems themselves (meaning, in reality, it is not available), we feel the relevant metric to analyze is the cash equity received, or the cash available for new project investment/debt retirement – adjusting for SCTY’s 5% ownership, a more normalized ?50% mix of SREC’s from CA, and then applying these metrics to SCTY’s existing installed base of 1.67GW (i.e., 1.8GW
GDP growth has only two basic components: growth in productivity and growth in the workforce size. That’s it. There are two and only two ways you can grow an economy: increase the (working-age) population or productivity.
There is no magic fairy dust you can sprinkle on an economy to make it grow. To inc...
Total nonfarm payroll employment increased by 160,000 in April, and the unemployment rate was unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, and financial activities. Job losses continued in mining.
Today's report of 160K new nonfarm jobs in April was lower than the Investing.com forecast of 202K. March's nonfarm payrolls was revised downward by 7K. The unemployment rate was unchanged...
Two years after Newsweek wrote an inaugural article upon returning to print in which it "unmasked" bitcoin creator Satoshi Nakamoto and which turned out be a hoax (the author "found" Nakamoto using a white pages search), earlier this week the world was fixated on the story of another self-professed bitcoin "creator", this time Australian entrepreneuer Craig Wright, who &quo...
Relypsa Inc (NASDAQ: RLYP) shares have plummeted 51 percent year-to-date, under pressure from debt-financing related concerns. Cantor Fitzgerald’s Mara Goldstein reiterated a Buy rating for the company, while reducing the price target from $42 to $41. The analyst believes the 1Q16 results would be “a stabilizing force for the shares.”
Positive Data Points For Veltassa Launch
Veltassa metrics look favorable so far, including a low payer rejecti...
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Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,
The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now.
And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now.
Phil writes back,
I was expecting them to start throwing poop at each other &n...
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