by Zero Hedge - October 5th, 2015 3:25 pm
Submitted by Tyler Durden.
It has been a long way up and quick ride down for SunEdison but bad news keeps piling up for the hedge fund hotel even as it dead-cat-bounces again. As the stock bounces, just as it bounced in September after Steve Cohen's Point72 exposed their stake and JPM jumped to the rescue, uncertainty remains extreme. Amid a surge in debt and increasingly negative operating cash-flow, the plunge in stock (asset) price may have triggered a cross-collateral margin call of around $315 million. Furthermore, mass layoffs are on the cards as the CEO attempts to "optimize" the business.
Some investors have dumped the stock due to low oil prices and turmoil in commodity markets — a problem for other public solar companies as well. However, short sellers have targeted SunEdison more than its competitors.
Recent acquisitions have nearly doubled SunEdison's debt load and increased negative operating cash flow. The Vivint acquisition, which wasn't an obvious fit with SunEdison's culture and traditional business of building large solar-power plants, added to investor skepticism.
The stock has become a playground for hedge funds.
But uncertainty remains extreme…
SunEdison may have triggered a collateral call on its $410 million margin loan, a report from CreditSights says, citing a decline in the financially-linked TerraForm Power Inc (known as a "yieldco," the spin-off of a related business venture), which fell 36% in September and continued to slide, down 49% year to date.
After sifting through four different SEC documents – a 10Q at SunEdison, an equity prospectus at TerraForm, a convertible bond 8K from SunEdison and a margin loan agreement at SunEdison… the report concludes it is possible SunEdison to be dragged down by TerraForm and the added burden of posting cash collateral for the margin loan that was backed by stock.
CreditSights says the margin loan is yet another example of lack of disclosure but they reiterate their our conclusion on the collateral call.
As Creditsights concludes…
there are a lot of moving parts to SunEdison and the more we find the more negative we get on the sponsor company of TerraForm Power.
And now, as GreenTechMedia.com's Stephen Lacey reports, SunEdison is now culling its workforce.
According to a company-wide memo from CEO Ahmad Chatila released on September 30, SunEdison
by ilene - October 5th, 2015 3:20 pm
Courtesy of Mish.
Here is an amusing video that reader Curt shared with me moments ago. It's about tax plans of Hillary Clinton vs. Donald Trump.
Link if video does not play: Hillary Supporters Like Trump's Tax Plan.
Mike "Mish" Shedlock
by Zero Hedge - October 5th, 2015 3:10 pm
Submitted by Tyler Durden.
With the third quarter earnings season on deck, in which S&P500 EPS are now expected to post a 5.1% decline (versus a forecast -1.0% decline as of three months ago), it is common knowledge that the biggest culprit will be Energy companies, currently expected to suffer a 65% Y/Y collapse in EPS.
What is less known is that the earnings weakness is far more widespread than just the Energy sector, touching on more than half of all sectors with Materials, Industrials, Staples, Utilities and even Info Tech all expected to see EPS declines: this despite what will likely be a record high in stock buyback activity.
However, of all sectors the one which may pose the biggest surprise to investors is financials: it is here that Q3 (and Q4) earnings estimates have hardly budged, and as of September 30 are expected to rise by 10% compared to Q3 2014.
This may prove to be a stretch according to Morgan Stanley whose Huw van Steenis is seeing nothing short of a bloodbath in banking revenues, with the traditionally strongest performer, Fixed Income, Currency and Commodity set for a tumble as much as 25%, to wit: “we think FICC may be down 10- 25% YoY (FX up, Rates sluggish, Credit soft), Equities marginally up but IBD also down 10-20%.“
The reason for this: the double whammy of the ongoing commodity crunch as well as the collapse in fixed income trading, coupled with the lack of major moves across the FX space where the biggest beneficiary, now that bank manipulation cartels have been put out of business, are Virtu’s algos.
To be sure, if Jefferies – which as we previously reported suffered one of its worst FICC quarters in history, and actually posted negative revenues after massive writedown on energy holdings in its prop book – is any indication, Morgan Stanley’s Q3 forecast may be overly optimistic.
For the full 2015, the picture hardly gets any better: “In 2015, we see industry revenues going sideways – slowing after a strong Q1. Overall we see FICC down ~3% on 2014, Equities up ~8% and IBD down ~6%. Overall we expect top line revenues to be flattish in 2015. In constant currency, it would be a little better for Europeans. But below this, there is…
by Zero Hedge - October 5th, 2015 2:35 pm
Submitted by Tyler Durden.
Stairways.. and Elevators…
by Zero Hedge - October 5th, 2015 2:10 pm
Submitted by Tyler Durden.
The available information on China’s Strategic Petroleum Reserve is a mess. The data is sparse, infrequent, and contradictory, which is something one might expect from a strategic sector originating in China. In an apparent attempt to rectify this lack of transparency, in November of 2014 the Chinese government actually stated it would begin regularly releasing official data on its Strategic Petroleum Reserve; however, the data has not been particularly forthcoming, and has been erratic. So, there is still a need to fill information gaps regarding China’s SPR.
The SPR is supposed to eventually hold 500 million barrels, although some are now estimating that figure is meant to rise to 600 million by 2020, based on new demand assumptions and added facilities brought online this year. China has been building its reserve capacity for about a decade, and has been tackling this massive task in three phases, all of which are set to be complete by 2020.
Phase 1, which saw four storage facilities constructed, is widely accepted to be complete, and currently holds around 90 percent of capacity, with 91 million barrels of crude stored, out of a capacity of 103 million, covering 9 days of Chinese consumption.
China is currently in the middle of phase 2 construction, along with all the complexity and confusion that entails. Several of these facilities came online in 2011 and 2014, with others that have been completed earlier this year, and a couple slated to be completed in Q4 of this year. Originally, phase 2 was supposed to have 8 storage sites, but it is now believed that figure has been increased to 10, which will hold approximately 260 million barrels of crude.
Phase 3 is still not yet being constructed according to some sources, but according to others, several phase 3 facilities may be online this year (one already completed, the other potentially completed in Q4 2015), ahead of schedule, possibly adding an extra 50 million barrels of storage capacity by the end of the year.
It is also estimated China has been importing approximately half a million barrels per day over its required import amount. However, the problem with these figures is that it remains unclear how much of that amount is actually going to the SPR…
by Zero Hedge - October 5th, 2015 2:00 pm
Submitted by Phoenix Capital Research.
The Fed missed its chance.
Truth be told, the Fed should have raised rates in 2011 or 2012. Even if the Fed had an excuse not to at those times, it should have hiked them in April 2014, when the US economy hit its unemployment rate target of 6.5% (assuming this number is correct).
Instead the Fed opted to keep rates at zero, as it also did in April of 2015, June of 2015, and now September of 2015.
Indeed, a whopping 82% of economists thought the Fed would hike rates in September. The whole market believed it too. So why didn’t the Fed do it? Just how much prepping do we need for a measly 0.10%-0.25% increase in rates after six years of ZIRP?
So now we’re well into 2015 and the US is moving back into recession at a time when rates are at zero.
The Fed’s own GDPNow measure shows that GDP grew at a measly 0.9 in 3Q15.
As Not Jim Cramer recently noted, all of the September Manufacturing data suggested a collapse in GDP.
H/T Not Jim Cramer
Indeed, by some data, it's possible we're already IN a recession. Bill Hester recently noted, all four of the Fed’s September Purchasing Manager Index (PMI) readings (Philadelphia, New York, Richmond, and Kansas City) came in at readings of sub-zero. This ONLY happens when you are already 4-5 months into a recession.
H/T Bill Hester
In short, the economic data is a disaster, suggesting the US is entering if not already in a recession. Moreover, stocks have taken out critical support at the 50-week moving average.
Historically this has been THE line for bull markets. We sliced through it like a hot knife through butter last month. The market has done this twice in the last six years. Both times it was saved by a new Fed policy: QE 2 and Operation Twist, respectively.
However, this time around, the Fed's hands are tied by the fact that it is in the political cross hairs: ample research has shown that QE increases wealth inequality… and we're approaching a Presidential election in the US.
In short, the only thing holding the market up is hype and hope of more QE. But this is missing the point…
Milton Friedman Accurately Explains the Immigration Problem in US and Europe, Government, Taxes, and Economic Freedoms in General
by ilene - October 5th, 2015 1:52 pm
Courtesy of Mish.
In previous articles I summed up the immigration problems in Europe and the US as the direct result of an “unlimited demand for free services, free shelter, and free food”.
Let’s tune into what Economist Milton Friedman has to say about Illegal Immigration.
Also consider Milton Friedman Quotes.
Friedman on Governments
- Governments never learn. Only people learn.
- If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.
- A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.
- One of the great mistakes is to judge policies and programs by their intentions rather than their results.
- Nothing is so permanent as a temporary government program.
- I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.
- Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.
Friedman on Free Trade
- Underlying most arguments against the free market is a lack of belief in freedom itself.
- Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the
by Zero Hedge - October 5th, 2015 1:44 pm
Submitted by Tyler Durden.
While the ongoing cruciVIXion unleashed by the renewal of hopes for more easing by the ECB and BOJ as a result of the latest global economic swoon, coupled with the confirmation of a US slowdown which has pushed the Fed’s rate hike into 2016 (if not 2017 as Goldman argues) has unleashed a bigger USDJPY-driven stock surge than the aftermath of Bullard’s infamous October 2014 “QE4″ speech, there are numerous instances where the far more rational credit market is simply not buying it.
Here are ten such instances.
As BMO’s technician Mark Steele points out, “the divergences that have built up recently, with equities priced optimistically, and CDS priced pessimistically, are dramatic both in magnitude and breadth.”
- While equities were rebounding last Friday, the CDS market kept pricing credit insurance higher. The equity rebound was not confirmed by credit risk improvement.
- Credit risk is still low, and as such, has yet to demand attention to the point where equity markets swing tightly with CDS contracts on an intraday basis. It does however need to be heeded.
BMO next looks at representative companies from each sector where it thinks equity investors need to be cognizant of where the CDS market prices risk. It finds the following:
- Large short-term divergences, where equity is priced optimistically, relative to CDS are found with Kinder Morgan, GM, Tesco, Ally Financial, Hewlett-Packard, Sprint and AES.
- Glencore sports an inverted curve
- Bombardier remains a member of the Mile High Club, where CDS is over 1000bps
- In the 14 days since Biogen CDS started trading, its quote went from 50 to 140bps. This contract is as liquid as a truck, yet that’s quite a downgrade.
And the evidence:
by ilene - October 5th, 2015 1:20 pm
Courtesy of David Stockman at Contra Corner
by Zero Hedge - October 5th, 2015 1:14 pm
Submitted by Tyler Durden.
When stocks absolutely and completely have to go up, there is only one thing for it: the spurious headline from Nikkei (aka the new owner of the Financial Times). It is 2am in Japan but still, after Thursday’s headline that:
- BOJ IS SAID TO SEE LITTLE IMMEDIATE NEED FOR ADDING STIMULUS
It is now time for the diametrically opposite:
- BOJ MAY NEED TO EASE AGAIN WITH FED DELAY, NIKKEI SAYS
and sure enough, USDJPY jerks higher and US equities hit the day’s highs.
The supreme irony here is in the justification: according to Bloomberg, the possibility of stronger yen, prompted by lower expectations of Fed rate increase this year, may prompt further easing, Nikkei reports, citing unidentified BOJ watchers.
What everyone seems to have missed, is that by being the global funding currency, the Yen has actually plunged on lower expectations of a Fed rate hike. In other words, what we are supposed to believe is that the lower Yen has prompted the BOJ to seek… a lower Yen.