Saturday, 2 April 2016

Weekend Update 02/04/2016 – An Election Year Recession?

Brexit Countdown Clock.

Brexit Quote of the Day.
"On the whole Dave wants to be good, but not too good, and not quite all the time.”

With apologies to George Orwell.

This weekend we focus on the USA, where the early signs of a new recession arriving, continue to mount. I know, conventional wisdom says that you can’t have a US recession in a US presidential election year, because the Fedster’s in Washington will go all out to prevent it. But this time, for once, it really might be different. The Fedster’s themselves are out of ammo, and already deep into voodoo economics. But it doesn’t look likely there’s any relief coming from the global economy.
China keeps stumbling forward towards its own hard landing. The EU is all but dead in the water, mired in dangerous migrants on the continent, facing a Brexit vote in GB that could go either way, with rising banking and political difficulty, in Germany, France, Spain and Italy. The emerging market economies ex-India, are all on the ropes, with Brazil, South Africa and Turkey, also mired deep into severe local recessions and political scandal. Most industrial commodities are buried in a depression following the bursting of the Chinese Ponzi economy that fuelled the Great Commodity Supercycle.
Below, the realistic, not rosy, view of the world. Just don’t let on to main stream media and their Muppet business news presenters.

Consumer Sentiment in U.S. Edges Down Amid Economic Concerns

April 1, 2016 — 3:00 PM BST
Consumer confidence in the U.S. dipped slightly in March as concerns persisted that the world’s largest economy will cool.

The University of Michigan final sentiment index for last month eased to 91 from 91.7 in February. The median projection in a Bloomberg survey of economists called for a reading of
90.5. The gauge was up from a preliminary reading of 90 as Americans grew more upbeat about their own finances, offsetting less favorable views in economic growth.

Consumers’ views on the outlook for the economy deteriorated as prices at the pump climbed higher and wage gains remained modest. Continued improvement in the labor market will be needed to reassure consumers, whose spending is the primary driver of economic growth.

“We saw some fairly rapid increases in gasoline prices over the course of late February to the end March,” Terry Sheehan, an economic analyst at Stone & McCarthy in Princeton, New Jersey, said before the report. “Changes in gas prices always make consumers uncomfortable. It’s kind of a wake-up call to consumers that those exceptionally low prices aren’t going to be holding on forever.”

Estimates for the Michigan survey in the Bloomberg survey of 53 economists ranged from 89 to 92.
The sentiment survey’s current conditions index fell to 105.6 in March from 106.8 the prior month. The measure of expectations six months from now decreased to 81.5 from 81.9.

Condo Bust 2.0—-Miami Sales Down 20% And Dropping Fast

by Wall Street Journal • 
Miami is facing a condo bust—again.

Developers have started canceling projects, slashing prices and offering incentives such as private-jet access to spur sales, an ominous echo of the housing crash that pounded South Florida especially hard.

Easy financing and rising prices prompted developers to build about 21,000 condos in the downtown Miami area from 2004 to 2008. Many of those units sat empty for years.

Developers say this time they have insulated themselves by requiring buyers to put down 50% deposits by the time buildings break ground and by canceling projects instead of moving forward as the market slows.

Still, it may not be easy for some to sidestep the damage. In the fourth quarter of 2015, the number of Miami Beach condo transactions declined nearly 20% from a year earlier, while inventory jumped by nearly a third, according to a report from appraisal firm Miller Samuel Inc. The median sales price slipped 6.6%, according to the report.

“The condo market has peaked,” said Neisen Kasdin, a real-estate development lawyer at Akerman LLP in Miami. “Sales velocity has slowed down considerably.”

Many of the forces buffeting the Miami market are also hitting luxury markets in New York, Southern California, Australia and London. A strong U.S. dollar and weakening local currencies, dropping oil prices and global economic turbulence have crimped the buying power of foreign investors.

At the same time, stock-market turbulence has made wealthy locals hesitant to undertake big purchases. Luxury-home prices in 10 global cities analyzed by broker Knight Frank LLP are expected to increase by 1.7% this year, down from 3% growth in 2015.

----Other Miami developers have put on hold or canceled more than half a dozen projects planned earlier in the cycle, from the Ion East Edgewater, a 35-story tower planned by a local Florida development firm, to Krystal Tower, a downtown tower planned by a Brazilian developer, according to consulting firm Integra Realty Resources Miami. Overall, the pipeline of units in active projects in Miami has shriveled by 42%, according to a report released a month ago by Integra.

At the Aurora, a new 61-unit building off the Miami waterfront, the developer is offering buyers a free membership to JetSmarter, a service that allows members to use shared private jets for free.
Tim Lobanov, managing director of Verzasca Group, which is developing the building, said the perk has a retail value of about $12,000 and is part of the project’s pitch to appeal to New Yorkers. JetSmarter offers flights several times a week from New York to southern Florida.

Four things you better worry about this earnings season

Published: Apr 1, 2016 2:49 p.m. ET
If you thought the fourth-quarter earnings season that just ended was miserable, brace yourself: the next one will be a real doozy.

S&P 500 companies are expected to post their fourth straight quarter of earnings declines and fifth straight quarter of sales declines, according to FactSet. The last time earnings fell for such a long stretch was the period between the fourth quarter of 2008 and the third quarter of 2009, right after the financial crisis.

And stop blaming energy. This time, the pain is more evenly spread across sectors.

 “While much of the softness is attributable to the energy sector, it is worth noting only three of the S&P’s 10 macro sectors are expected to show an increase in earnings,” said Jeffrey Saut, chief investment strategist at Wells Fargo. “ Those are consumer discretionary, telecoms and health care.”

The season unofficially kicks off on April 11, when aluminum giant Alcoa Inc. AA, +0.52%  reports after the bell.

S&P 500 companies are expected to show an overall earnings decline of 8.5%, and a sales decline of 1.1% for the quarter, compared to the same quarter a year earlier, according to FactSet.

And now a new financial scandal emerges in America. Whatever next? How many more will come pouring out in 2016, as the USA seems to be heading into a new recession, and not just in the energy sector?

SunEdison falls more than 50% after report of bankruptcy plans

Published: Apr 1, 2016 6:16 p.m. ET
SunEdison Inc. SUNE, -20.40% stock, which has been plunging amid an investigation by the Securities and Exchange Commission, was cut in half in late trading Friday after a report that the company is preparing to declare bankruptcy. The Wall Street Journal reported Friday afternoon that SunEdison plans to to file for bankruptcy in the coming weeks, and is in talks with creditor groups about bankruptcy financing. The report follows the solar-power company's announcement earlier this week of an SEC investigation into its public disclosures about the amount of cash it had available. Shares fell more than 50% in after-hours action following the report, hitting 22 cents after closing with a 14.9% decrease at 46 cents. Before the late decline, SunEdison stock had declined 91% so far this year and more than 98% in the past 52 weeks.

From $10 Billion to Worthless in 8 Months: Solar Hype Financial Engineering at Its Finest

Posted by mishgea | April 1, 2016 8:10:12
In one of the largest financial collapses in recent years, Sun Edison, valued at $10 billion in July, now prepares for bankruptcy.

How do you do that?

Cheap money (thank the Fed) and financial engineering (thanks to company wizards who no doubt saw this coming and cashed out long ago).

The Wall Street Journal notes SunEdison Preparing to File for Bankruptcy.

Solar-energy company SunEdison Inc. plans to file for bankruptcy protection in coming weeks, a dramatic about-face for a company whose market value stood at nearly $10 billion in July.

The company is preparing a chapter 11 filing and is in talks with two creditor groups to obtain a loan to fund its operations during the process, according to people familiar with the matter. Creditors are likely to take control of the company and its portfolio of power projects, the people said.

SunEdison, whose stock has plunged in recent months, would rank among the largest financial collapses in recent years.

SunEdison’s stock fell to fresh lows this past week on bankruptcy fears and news that the company is facing Securities and Exchange Commission and Justice Department investigations.

Its market capitalization is now about $150 million, and it had long-term debt of about $7.9 billion as of Sept. 30, according to a regulatory filing.

A SunEdison bankruptcy filing would be problematic for its two yieldcos, TerraForm Power Inc. and TerraForm Global Inc. The two entities, which own power plants and sell energy to utilities under long-term contracts, are in far better financial shape than SunEdison but depend on it for many services.

----SunEdison’s collapse is a setback for the yieldco corporate structure, which was once seen as a breakthrough for energy financing. SunEdison and peers such as NextEra Energy Inc. floated vehicles that raised public funds to buy power projects from their sponsors. Investors initially rewarded the structure, attracted by yieldcos’ high dividend payouts during a time of ultralow interest rates, but expectations of rising rates damped their enthusiasm.

----Here is is a nice article I discovered right on the Sun Edison home website: Will Obama Be Remembered As The Renewable Energy President?

Nothing like using Obama to hype up your worthless company. That coupled with financial engineering is how you get a $10 billion valuation.

Sun Edison will soon be bankrupt. President Obama’s ideas have been bankrupt for a long time.
Mike “Mish” Shedlock

“We all know what to do, but we don’t know how to get re-elected once we have done it.”

Jean-Claude Juncker. Failed Luxembourg Prime Minister and ex-president of the Euro Group of Finance Ministers. Confessed liar. EC President.

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