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Panic Below The Surface: “Banks Are Selling Energy Loans At Cents On The Dollar To Ensure Their Own Survival”
Panic Below The Surface: “Banks Are Selling Energy Loans At Cents On The Dollar To Ensure Their Own Survival”
In his latest note, Wicklund takes the gloom level up a notch and shows that for all the bank posturing and attempts to preserve calm among the market, what is really happening below the surface can be summarized with one word: panic, and not just for the banks who are stuck holding on to energy exposure, or the energy companies who are facing bankruptcy if oil doesn’t rebound, but also for their (now former) employees. Curious why average hourly earnings refuse to go up except for those getting minimum wage boosts? Because according to CS “It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months.”
Which is bad news: as we reported late last week, the restaurant “recovery” is now over, so as these formerly very well-paid and highly skilled workers scramble to find a job, any job, they’ll find that even the “backup plan” has failed, with not even the local McDonalds suddenly hiring.
From the latest Things we’ve learned this week
One Last Cigarette? Some comments that stood out to us during earnings include, “We are in a period of unprecedented uncertainty.” “We are managing our business week-by-week, crew-by-crew and unit-by-unit.” “We are in a generational downturn.”
…click on the above link to read the rest of the article…
Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”
Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”
According to the company’s announcement, equipment sales are projected to decrease about 10% for fiscal 2016 and to be down about 8 percent for the second quarter compared with the same period a year ago.
Here is how CEO Samuel Allen tried to spin the cut in guidance which DE had previously seen at just -7%: “Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns,” Allen said.
Downturn? We thought the Fed was hiking because of the “strong recovery.”
Some more details: Deere cuts 2016 U.S. farm cash receipts forecast to $381.3b, had seen $394.4b (Nov. 25)
- Cuts 2016 U.S. farm net cash income to $90.8b, had seen $106.9b (Nov. 25)
- Sees yr U.S. farm commodity price:
- Corn 2015/16 $3.60/bushel vs prior $3.65
- Wheat 2015/16 $5.00/bushel, unchanged
- Soybeans 2015/16 $8.80/bushel vs prior $8.90
- Cotton 2015/16 60c/pound vs prior 59c
- Cuts DE 2016 capex outlook to ~$775m from ~$800m
“This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources.”
Alas, a 10% drop in revenue does not validate the “durable business model” with more revenue sources.
…click on the above link to read the rest of the article…
The US Economy Has Not Recovered And Will Not Recover
The US Economy Has Not Recovered And Will Not Recover
The US economy died when middle class jobs were offshored and when the financial system was deregulated.
Jobs offshoring benefitted corporate executives and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.
However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.
The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.
Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible. Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.
The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.
…click on the above link to read the rest of the article…
Japanese Trade Data Collapses, Crushes “Devalue Our Way To Prosperity” Dreams
Japanese Trade Data Collapses, Crushes “Devalue Our Way To Prosperity” Dreams
Japanese trade data was just unleashed on the world… and it is abysmal.
- *JAPAN JAN. EXPORTS FALL 12.9% Y/Y
Notably worse than the expected 10.9% drop and the biggest YoY plunge since October 2009.
Proving once and for all that the devaluation of the JPY did less-than-nothing to improve Japan’s competitiveness…
And then there is Imports – reflecting the “modest” improvement in the domestic economy…
- *JAPAN JAN. IMPORTS FALL 18.0% Y/Y
Nope – complete carnage!! The biggest YoY drop since october 2009…
Is it any wonder Abe says no more stimulus and Kuroda did not unleash anymore QE – they know it’s over and now it’s desperation.
We leave it to Alhambra’s Jeff Snider to sum up… Japan is the very definition of insanity…
GDP fell 1.4% in Q4 2015, marking the fifth contraction out of the past nine quarters and yet the word “stimulus” remains attached to QQE, the Bank of Japan and Abenomics in general. At this point, how much more time and sample size is necessary before calling it a failure? In about six weeks, Kuroda’s massive “stimulus” will mark its third anniversary and the best that can be said of it is that GDP has gone nowhere. Two and three quarters years later, real GDP (SAAR) in the last three months of 2015 was the slightest bit higher than Q2 2013 when everyone was so sure “stimulus” was all so sure.
The media provides all the evidence necessary as to why everything is so “unexpected.”
The data suggest Japan’s economy is still plagued by the weakness of domestic demand as it enters a fourth year of record monetary stimulus, with wages not rising fast enough to persuade consumers to spend.
…click on the above link to read the rest of the article…
The Age Of Stagnation (Or Something Much Worse)
The Age Of Stagnation (Or Something Much Worse)
Excerpted from Satyajit Das’ new book “The Age Of Stagnation”,
If you look for truth, you may find comfort in the end; if you look for comfort you will not get either comfort or truth, only . . . wishful thinking to begin, and in the end, despair. C.S. Lewis
The world is entering a period of stagnation, the new mediocre. The end of growth and fragile, volatile economic conditions are now the sometimes silent background to all social and political debates. For individuals, this is about the destruction of human hopes and dreams.
One Offs
For most of human history, as Thomas Hobbes recognised, life has been ‘solitary, poor, nasty, brutish, and short’. The fortunate coincidence of factors that drove the unprecedented improvement in living standards following the Industrial Revolution, and especially in the period after World War II, may have been unique, an historical aberration. Now, different influences threaten to halt further increases, and even reverse the gains.
Since the early 1980s, economic activity and growth have been increasingly driven by financialisation – the replacement of industrial activity with financial trading and increased levels of borrowing to finance consumption and investment. By 2007, US$5 of new debt was necessary to create an additional US$1 of American economic activity, a fivefold increase from the 1950s. Debt levels had risen beyond the repayment capacity of borrowers, triggering the 2008 crisis and the Great Recession that followed. But the world shows little sign of shaking off its addiction to borrowing. Ever-increasing amounts of debt now act as a brake on growth.
Growth in international trade and capital flows is slowing. Emerging markets that have benefited from and, in recent times, supported growth are slowing.
Rising inequality and economic exclusion also impacts negatively upon activity.
…click on the above link to read the rest of the article…
After The European Bank Bloodbath, Is Canada Next?
After The European Bank Bloodbath, Is Canada Next?
… the highest Canadian media instance, the Globe and Mail decided to take us to task. To wit:
Were the folks at Zerohedge.com looking at the best numbers when they argued that Canadian banks were just as levered as troubled European banks?In a simple analysis that generated a great deal of commentary, a blogger at Zerohedge.com, an oddball but widely followed financial site, suggested that Canadian banks were as leveraged as European banks because they have low ratios of tangible common equity to total assets.
But there’s an argument that looking at that ratio is the wrong way to judge a bank’s strength because it ignores the composition of the assets.
Sadly, the folks at Zerohedge.com were looking at the best numbers, and even more sadly, in the interim nearly 5 years, Canada’s banks took absolutely no action to bolster their capital ratios; in fact, these have only deteriorated.
The Globe and Mail, however, was right about one thing: the TC ratio did not capture the full risk embedded in Canadian bank balance sheets: it was merely a shorthand as to how much capital said banks have in case of a rainy day.
Sadly for Canada, it’s not only raining, it’s pouring for the country’s energy industry, a downpour which is about to migrate into its banking sector. Which is why it is indeed time to take a somewhat deeper dive into the Canadian banks’ balance sheets, where we find something very troubling, and something which prompts us to wonder if the time of freaking out about European banks is about to be replaced with comparable panic about Canadian banks.
The following chart from an analysis by RBC shows that when compared to US banks’ (artificially low) reserves for oil and gas exposure, Canadian banks are…not.
…click on the above link to read the rest of the article…
North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse
North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse
Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.
Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market. As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”
“The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state,” Goldman wrote recently, recalling a previous period of low oil prices in a note entitled “How Bad Can Texas Get?”
“Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986,” the bank added.
North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes.
“Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.
Take Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit.
…click on the above link to read the rest of the article…
Italian Banks Sink As “Bad Bank” Plan Underwhelms
Italian Banks Sink As “Bad Bank” Plan Underwhelms
“Italian banks’ share prices have been volatile YTD, given the market’s renewed fears over asset quality and potential developments on a possible bad bank creation,” Citi wrote, in a note analyzing which Italian banks are most exposed. “Total gross NPLs in Italy have increased by c160% since 2009 and now represents c18% of loans (vs c8% in 2009).”
Essentially, Italy was slow to tackle its NPL problem relative to other countries and the chickens have now come home to roost.
The idea was to create a “bad bank” for the “assets” (because that’s worked so well in other countries), but the plan was stalled by the European Commission due to concerns about whether Italy was set to run afoul of restrictions around when countries can provide state aid to the financial sector.
In short, creditors at Italy’s banks would need to take a hit before PM Matteo Renzi’s government would be allowed to extend state aid. That is unless Italy could devise some kind of end-around, which is precisely what Renzi was attempting to do last week.
As a reminder, this would have been easier had it been negotiated last year before new rules on bank resolutions came into effect in 2016. That’s why Portugal pushed through the Novo Banco bail-in and the Banif rescue in December.
In any event, Italy has indeed managed to strike a deal with Brussels to help alleviate banks’ NPL burden.
Essentially, Italian banks will securitize their souring loans, sell them to investors, and the government will guarantee the senior tranches of the new paper.
…click on the above link to read the rest of the article…
“Zombie Ships” – Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
“Zombie Ships” – Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
It looks bad…
And it’s not just over-supply… (trade is slowing rapidly)…World trade volume rose by only 0.5% YoY in October and was up 2.4% YoY in the first 10 months of 2015, while world trade value in USdollar terms declined by 12.2% YoY in October and was down 11.8% YoY in the first 10 months of 2015.
But, as gCaptain details, reality is even worse for the world’s shipping industry:
Analysts agree there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.
However, unlike that bleak period for shipping, which ultimately resulted in a strong recovery for charter rates, this time the fundamentals are quite different.
Overcapacity, stemming from the ordering strategy of carriers has been exacerbated by a growth slowdown in China and ultra-low oil prices. And according to the latest report from Alphaliner, with the possible exception of very small feeders, all containership sectors are struggling badly, with owners obliged to accept sub-economic charter rates and pay for positioning costs just to keep their ships busy.
The revenue earned in charter hire is seen by owners as a “contribution” to vessel overheads, but is often insufficient to cover mortgage payments on the ship.
Thus “zombie ships”, as they have become known in shipbroking circles, are masking the perilous state of container shipping.
…click on the above link to read the rest of the article…
Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy
Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy
Today, none other than railroad titan Canadian Pacific (whose stock is down 4% despite the torrid surge higher in risk assets) confirmed that not only are things “worse”, but the bottom may have fallen out from what until recently was one of Warren Buffett’s favorite industries, after missing on both the top and bottom line, but especially during its conference call in which CEO Hunter Harrison admitted that he see “tremendous pressure” on the top line, and expects “challenging times” for revenue growth.
Then COO Keith Creel said that he expected volume in 2016 to be notably down from 2015, warns of strong headwinds for the US economy in the first half of 2016 and says CP is storing at least 600 locomotives in anticipation of better times.
Then the CFO also warned that compensation and benefit costs would be lower in the coming year.
Finally, the CEO warned that in addition to the already cut 7,000 jobs another 1,000 workers are about to “potentially” get pink slips.
Finally, and most ominously, CP warned that it sees delay in the Norfolk Southern deal timeline, and may change its strategy regarding the Norfolk Southern transaction.
We conclude with the warning issued by Bank of America one week ago:
…click on the above link to read the rest of the article…
Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount
Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount
Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk).
Italy’s banking index was down over 4 percent with shares in several lenders, including the country’s biggest retail bank Intesa Sanpaolo and the third biggest lender Banca Monte dei Paschi di Siena, suspended from trading after heavy losses.
Bloodbath for Italian financials in 2016…
But don’t worry:
- *MONTE PASCHI CEO CONFIRMS FINANCIAL STABILITY OF BANK
- *MONTE PASCHI CEO: STOCK DECLINE NOT JUSTIFIED BY FUNDAMENTALS
Investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid.Those concerns are trumping expectations about a wave of consolidation set to sweep the sector, with cooperative banks under pressure to merge following a government reform to reduce the number of lenders.
JP Morgan said this month Italian banks should be avoided because low rates are expected to put pressure on revenues more than in other countries and credit problems limit a recovery in provisions.
Traders have suggested exiting investments that have been particularly favoured, such as Popolare di Milano and Intesa, as the stocks have reached key supports.
“I think upside on cooperative banks this year is much more limited,” said a London-based equity sales person.
…click on the above link to read the rest of the article…
The Fed’s Stunning Admission Of What Happens Next
The Fed’s Stunning Admission Of What Happens Next
All of this happened before JPM cut its Q4 GDP estimate from 1.0% to 0.1% in the quarter in which Yellen hiked.
To be sure, the dramatic reaction and outcome following the Fed’s “error” rate hike was predicted on this website on many occasions, most recently two weeks prior to the rate hike in “This Is What Happened The Last Time The Fed Hiked While The U.S. Was In Recession” when we demonstrated what would happen once the Fed unleashed the “Ghost of 1937.”
As we pointed out in early December, conveniently we have a great historical primer of what happened the last time the Fed hiked at a time when it misread the US economy, which was also at or below stall speed, and the Fed incorrectly assumed it was growing.
We are talking of course, about the infamous RRR-hike of 1936-1937, which took place smack in the middle of the Great Recession.
Here is what happened then, as we described previously in June.
[No episode is more comparable to what is about to happen] than what happened in the US in 1937, smack in the middle of the Great Depression.
…click on the above link to read the rest of the article…
