SunPower Will Fire 1,200
SunPower Corp. (NASDAQ: SPWR) reported second-quarter 2016 results after markets closed Tuesday afternoon. For the quarter, the solar panel maker reported an adjusted diluted net loss of $0.22 per share on adjusted revenue of $401.8 million. In the same period a year ago, SunPower reported earnings per share (EPS) of $0.18 on revenue of $376.71 million. Second-quarter results compare to the Thomson Reuters consensus estimates for a net loss per share of $0.24 and $345.08 million in revenue.
On a GAAP basis revenues totaled $420.5 and the per-share net loss came to $0.51. Adjustments to revenues included a loss of $1.4 million on yieldco 8point3 Energy Partners LP (NASDAQ: CAFD) and a loss of $40.1 million on utility and power plant projects. Positive adjustments to net income included $18.04 million on the yieldco and $16.5 million on stock-based compensation expense, among other things.
The big news from SunPower this afternoon is a restructuring that will include a workforce reduction of about 1,200 employees and charges totaling $30 to $45 million. The company said a “substantial” portion of the charges will be incurred in the third quarter and more than half the charges will be in cash. Operating expenses are expected to drop by about 10% following the layoffs.
SunPower revised its guidance as a result of the restructuring. The company now expects full-year adjusted revenue of $3 to $3.2 billion and gross margin of 10.5% to 12.5%. Prior guidance called for adjusted revenue of $3.2 to $3.4 million and gross margin of 14% to 16%.
Survey: Americans Remain Gloomy About Economy, Chinese Sunny
Americans, Japanese and many Europeans are glum about their national economies. By contrast, Chinese, Indians and Australians feel positive about theirs.
Those are among the findings from a survey released Tuesday of 20,132 people in 16 countries by the Pew Research Center. Just 44 percent of Americans rated the U.S. economy as "good," although that proportion has risen steadily from 18 percent in 2011. Since that year, the U.S. unemployment rate has tumbled from 9 percent to 4.9 percent.
Politics plays a role in how Americans assess their economy: Just 37 percent of U.S. conservatives give the economy high marks, versus 45 percent of moderates and 55 percent of liberals. China's economic growth has been decelerating for five years, but 87 percent of Chinese still describe their economy as good. So do 80 percent of Indians and 57 percent of Australians.
People in Japan and in many European countries regard their economies as poor. No one was more miserable than the Greeks: Just 2 percent rated Greece's economy as good, versus 97 percent who saw it as bad. No surprise: The Greek economy has shrunk 26 percent since 2007, and unemployment is 23.5 percent.
Alibaba all over the world
America's Worst Borrowers Are Grabbing Credit Cards Like It's 2006
The Liberty Street Economics blog at the Federal Reserve Bank of New York just published a study on recent developments in consumer credit card borrowing.
The study has a bunch of interesting information, but there is one key takeaway: Subprime borrowers are gaining access to credit cards at an accelerating rate.
"New card issuance ... has been expanding since 2009, and especially so for those with lower credit scores," the researchers wrote.
A part of this increase is a result of the closure of accounts in the preceding years. This group was heavily affected by the recession, with nearly half of all credit card closures in 2010 and 2011 belonging to those with credit scores of 660 or less. Here's the key line: "Reversing the sharp net decline in the number of credit cards during 2008-10 ... in recent years, the level of new card issuance to this group has been strong and is now approaching pre-recession levels." There are important differences between this increase and the increase in subprime credit card borrowing in the boom years.
Luxury Retail Brand Coach Will Close 250 Of Its North American Department Store Locations
Much like its fellow luxury retail brands, Coach has been trying to turn around its struggling business in recent years. Today, the company said its efforts have actually paid off, and that sales are picking up. But despite that, Coach says it’s time to cut loose about 25% of its department store locations in North America, so it can continue to climb its way back up the retail ladder.
Coach said sales at its existing North American stores went up at the best rate in the four years during its latest quarter, The Wall Street Journal reports: sales at North American stores last year — not including newly opened or recently closed locations — rose 2%. However, total sales still fell short of expectations.
A few months ago CEO Victor Luis said the company’s efforts to revamp its image, upgrade stores, and cut down on promotions were producing results. The company has also announced layoffs recently.
In a move similar to fellow handbag company Kate Spade, Coach wants to focus less on promotional sales at departments stores, also known as wholesale locations, and more on selling items at full price. As part of that plan to polish its upscale image, Coach says it will close about 250 of its 1,000 North American department store locations, TheStreet reports.
Kuwait Is Hiking Gas Prices By Up To 83%
Drivers in Kuwait may be in for a serious case of 'sticker shock' as gas prices soar next month. The price of premium gas is due to rise by 83% after the Kuwaiti government decided to scrap generous fuel subsidies. Prices for mid-grade and regular gas will rise by 62% and 42%, respectively.
Kuwait was forced to act after the slump in crude prices slashed government revenues across the oil-rich Gulf. Fuel and food subsidies have been cut across the region, and new taxes have been introduced.
The United Arab Emirates was the first Gulf state to target fuel when it introduced market prices for gas last year. Kuwait -- which makes the vast majority of its revenue from the oil and gas sector -- approved a package of economic and financial reforms in March, including a 10% tax on company profits. The fuel price rise was approved by the government this month.
According to Moody's, regular gas will cost 28 cents per liter -- or about $1.06 per gallon -- after the subsidies are removed.
Evidence proves owning a gun is the best way to protect your family
Everyone's Bracing For Bad News From America's Brick-and-Mortar Retailers
Investors are set to get a good look at how brick-and-mortar apparel is doing this week. Not only are the big department stores, such as J.C. Penney (JCP), Macy’s (M), Kohl’s (KSS) and Nordstrom (JWN), all set to report this week, but so are many big retail brands, such as Ralph Lauren (RL), and Michael Kors (KORS).
Most of these companies have been suffering over the past few quarters and are all significantly down from their 52-week highs. Department stores have been especially hard hit, with e-commerce companies, particularly Amazon (AMZN), eating their lunch. The most recent series of retail sales reports have shown department store sales slipping year over year, while non-store (online) retail soars. There’s more to it than just online apparel growing though; weak tourism was cited as a negative by retail brand Kate Spade (KATE) in Q2, and discounting has been hitting these companies hard.
There are also shorter-term trends hurting retail. The strong dollar is mostly to blame for tourists spending less at these department stores, while consumers have started to get used to buying apparel at a discounted price, thanks to outlets like TJ Maxx (TJX). Discounting has also risen in popularity due to unfavorable/unpredictable weather, which has caused inventory to build up for many retailers. This is especially problematic for luxury brands, such as Ralph Lauren and Michael Kors.
Don’t expect second-quarter results to be much better than previous periods. Most department stores (with the exception of JCPenney) are still expected to see the all-important same-store sales metric decline year over year. The luxury retail brands will also see margins continue to slip; on Tuesday, Coach (COH) reported a 1.2% slip in gross margins. RBC analysts even note that there will be an additional cost headwind this quarter as cotton prices have risen by 10 cents/bale since Brexit.
The Big Obamacare Bubble Is About To Explode
"No one can see a bubble. That's what makes it a bubble." That was Christian Bale's character's summation of a market bubble in last year's hit movie "The Big Short," which chronicled the few investors who saw the signs pointing to the mortgage market collapse. With terrorism, email scandals and race relations dominating the headlines, has a healthcare bubble been filling up quietly behind the scenes?
Since the 2010 passage of the Patient Protection and Affordable Care Act (ACA or Obamacare), the health-care industry has seen record growth and increased revenues. Why? Illness, especially chronic, sadly is a moneymaking business. Illness requires more office visits, more hospitalizations and inevitably more bills. Obamacare halted insurance companies' practice of rating premiums based on a customers illness history, or as more commonly known, preexisting conditions.
In the 2013 roll out of the Obamacare exchanges, the promised result was that more people would have insurance coverage. Undoubtedly, this part of the law worked. By Jan. 7, 2016, more than 11.3 million Americans had signed up for Obamacare; by March, 20.3 million were covered. A large percentage of these new insureds were high-risk. As NBC reported in April, "Last month, an analysis of medical claims from the Blue Cross Blue Shield Association concluded that insurers gained a sicker, more expensive patient population as a result of the law."
While bad for insurance companies, this was very good for the bottom lines of the merging large healthcare systems and newly formed physician monolith groups. A drafter of the law admitted the law was founded on the belief that the "consolidation of doctors into larger physician groups was inevitable and desirable." With consolidation, the dollars have racked up. According to U.S. News & World Report, "from June 3, 2010, to June 30, 2015, the Russell 3000 Healthcare benchmark (an all capitalization index) posted a gain of 176.8 percent."
Is the China Corporate Debt Bubble Finally Popping?
One year after the mini-devaluation of the Chinese currency, China is getting desperate about its corporate debt situation and has given directions to evergreen loans. According to an Aug. 8 Caixin report, the banking regulator is now telling banks to get rid of bad bank debt by swapping it for equity.
The Beijing-based financial magazine Caixin reports that the China Banking Regulatory Commission (CBRC) issued a directive to encourage government owned so-called Asset Management Companies (AMC) to buy bad loans from banks. This exercise worked well during the last banking bail-out at the beginning of the millennium and China has prepared itself for another round since 2012, when local governments started to set up 27 new AMCs.
Instead of keeping a loan that a company can’t repay and writing it down, the bank would get an equity stake in the company. Because banks aren’t allowed to hold equity in companies, they would sell the equity stake to an AMC at a price the bank can afford without hurting bank equity too much. AMCs would get the money from the local or central government or the central bank.
The directive says that firms in the troubled steel and coal sectors will be the first to try the arrangement. However, only companies that have made efforts to cut overcapacity and improve profitability and whose problems are temporary should be supported. These restrictions are similar to another directive by the CBRC about rolling over defaulted loans that was first reported by China’s National Business Daily.
After resuming QE, Bank of England fails for first time to meet bond-purchase target
The Bank of England fell 52 million pounds (US$68 million) short of its target to buy more than a billion pounds of long-dated government debt on Tuesday, an early slip-up for one of its latest measures to stimulate Britain's economy.
For the first time since it started buying government bonds to boost Britain's economy in 2009, the central bank failed to find enough willing sellers to meet its purchase target, pushing bond yields to record lows.
Investors offered the BoE 1.118 billion pounds worth of gilts with maturities over 15 years, compared with a goal of 1.170 billion - a sharp contrast to the hefty amount of short-dated debt offered to the BoE at a buy-back on Monday.
Tuesday's reverse auction was the BoE's first attempt to buy long-dated debt since it announced on Thursday it was cutting interest rates and resuming its quantitative easing program to cope with the effects of Britain's vote to quit the European Union. The central bank last bought significant volumes of gilts in 2012, and now aims to buy 60 billion pounds of government debt over the next six months.
Study: Obama issued billions in regulations
AIG CEO Says Too-Big-to-Fail Exit Not Among Top Priorities
American International Group Inc. Chief Executive Officer Peter Hancock said he’s more focused on boosting returns than worrying about the government’s classification of his company as too big to fail.
“Of all of the strategic issues that we face as a leadership team, this doesn’t even make the top 10,” Hancock said Tuesday at a conference, when asked about the company’s status as a non-bank systemically important financial institution, a tag that can bring tighter capital rules. Seeking to reverse that label would be “hugely distracting to management and is based on a flawed premise that the binding constraint holding us back from returning more capital to shareholders is the regulatory framework that we have from the Federal Reserve.”
Hancock’s view differs with the approach of MetLife Inc. CEO Steve Kandarian who won a court battle in March to overturn the SIFI designation. MetLife has dropped 15 percent since Dec. 31 in New York trading, with the slump worsening after the company reported second-quarter results last week. AIG rallied after posting earnings last week, and its decline for the year was 4.5 percent as of 1:45 p.m. in New York.
“Without naming names, the most recent court challenges and events have demonstrated staying focused on the fundamentals is perhaps the right thing to do,” Hancock said Tuesday at the conference, which was held by UBS Group AG in Chicago. “So we’re going to stick to our guns.”
Several U.S. states unprepared for a recession: S&P
Several U.S. states studied by S&P Global Ratings are ill-equipped to deal with an economic recession, hampered by the slow rebound in U.S. economic growth after the damage wrought by the Great Recession.
Fiscal imbalances, slower state tax revenue growth and increased spending on social services have contributed to a challenging economic landscape, as real GDP has only increased at 2.1 percent per year since 2009, S&P said in a report issued on Tuesday. Real U.S. GDP growth of 2.43 percent in 2014 and 2015 compared to pre-recession rates of 3.79 percent in 2004 and 3.35 percent in 2005, according to data from the World Bank.
To determine states' fiscal capacity to withstand the first year of a hypothetical recession, S&P sampled 10 states, the report said. The study found that a collective revenue shortfall would eclipse the states' combined budget reserves by $5.4 billion. Of the 10 states studied, several have budget reserves that equal less than half of "potential revenue underperformance" in the first year of a moderate-intensity recession. These include Illinois, Pennsylvania, New Jersey and Connecticut.
Washington, Florida and New York would fare best, with reserve balances that exceed potential shortfalls. The remaining states sampled, California, Massachusetts and Wisconsin, fall between those two groups. "Fiscal alignment" is an important indicator of a state's ability to recapitalize budget reserves, the report said.
The U.S. Economy Is Suffering From the Same Old Problem
A pair of better than expected non-farm payrolls reports affirms that the U.S. economy doesn't have a new problem, that is, a rapid slowdown in job growth — just the same old one: sluggish productivity.
And monetary policymakers will be aiming to ensure that this blight on the U.S. economy disappears as labor slack continues to diminish, according to a Deutsche Bank AG team led by Dominic Konstam. That's because continued low productivity growth likely entails that businesses aren't boosting capital spending to increase output at a time when another input to the production process — labor — is becoming more scarce and more expensive.
One "implication of stubbornly low productivity is that it is critically important for the Fed[eral Reserve] to protect aggregate demand, particularly as the pace of payroll expansion slows with full employment looming," he writes.
Heading into the second quarter of 2016, quarter-on-quarter productivity growth, a measure of the change in output per hour worked, has averaged just 0.7 percent over the past four readings, well shy of its long-run average of 2.2 percent.
20 Months, 90 Bankruptcies In North-American Oil & Gas
A report published earlier this month by Haynes and Boone found that ninety gas and oil producers in the United States (US) and Canada have filed for bankruptcy from 3 January, 2015 to 1 August, 2016.
Approximately US$66.5 billion in aggregate debt has been declared in dozens of bankruptcy cases including Chapter 7, Chapter 11 and Chapter 15, based on the analysis from the international corporate law firm.
Texas leads the number of bankruptcy filings with 44 during the time period measured by Haynes and Boone, and also has the largest number of debt declared in courts with around US$29.5 billion.
Forty-two energy companies filed bankruptcy in 2015 and declared approximately US$17.85 billion in defaulted debt. The costliest bankruptcy filing last year occurred in September when Samson Resources filed for Chapter 11 protection with an accumulated debt of roughly US$4.2 billion. The study noted an acceleration in bankruptcy filings in 2016 with forty-eight filings in the first seven months alone including at least twelve cases with defaulted debts of at least US$1.2 billion. Oklahoma-based SandRidge Energy reported a US$8.2 billion deficit for during a one-week span in May where seven firms declared bankruptcy on debts of at least US$26.7 billion.
James Grant: Negative Interest Rates Will End — Badly
Negative interest rates are unsustainable and once investors decide to stop paying for the privilege of holding government debt, a banking crisis could result, says James Grant. The founder of Grant’s Interest Rate Observer was one of several speakers at the New York Society of Security Analysts (NYSSA)’ Annual Benjamin Graham Conference to remark on the ramifications of unprecedented loose monetary policy.
Central banks are treading in uncharted waters. Sidney Homer and Richard Sylla, the authors of A History of Interest Rates, found no instance of negative rates in 5,000 years. Now there are $11.7 trillion invested in negative-yield sovereign debt, including $7.9 trillion in Japanese government bonds and over $1 trillion in both French and German sovereign debt.
Grant posed a tongue-in-cheek question: “If these are the first sub-zero interest rates in 5,000 years, is this not the worst economy since 3,000 BC?” This is not a bad economy by most measures. Household wealth in the United States has grown steadily since the Great Recession. If these gains were the result of greater productivity, interest rates would not need to stay at historic lows. Grant says they are “a sign of someone’s thumb on the currency.” Negative rates are propping up risk assets. He critiqued US Federal Reserve chair Janet Yellen’s touting of the bull market in equities as a sign of prosperity by alluding to Brexit voters. “Asset prices have failed to pacify the world’s unprofitable voters,” Grant said.
Investors have fallen into the trap of thinking that the future will be like the past, Grant says. The period of falling yields and rising bond prices that began in 1981 is entering its 35th year. He noted that a 35-year bear market preceded this. Yet the yield curve for Swiss bonds is sub-zero for the next 30 years, thereby implying that investors expect negative rates to persist for a long time.
The Quiet Death of the American Dream
American per capita GDP rose an average 2.2% a year between 1947 and 2000. But it’s only averaged 0.9% since 2001, says The New York Times. 1.3% doesn’t sound like much. And from one year to the next, it isn’t. But repeat it every year for 50 years and…
U.S. per capita GDP was about $45,000 at the turn of this century. But as the Times shows, if the economy grew an annual 0.9% between 1947 and 2000 instead of 2.2%, U.S. per capita GDP would have only been about $20,000 — 2.25 times less than it was. Some countries with per capita GDP 2.25 times less than the U.S.: Greece… Kazakhstan… Latvia… Chile.
Post-2001 America is Greece compared with 1947–2000 America. Where have you gone, Joe DiMaggio? Heaping Pelion upon Ossa (Greece again), the McKinsey Global Institute turned up this bitter morsel: Cited in the Times article, it says, “81% of Americans are trapped in an income bracket with flat or declining income over the last decade.”
Yet the money supply has roughly tripled since 2001. Explanation, Janet Yellen? How about you, Ben Bernanke? We’re not sure either could tell A from B at the price of their souls. And even the Fed’s most dedicated apologists are beginning to cough sadly behind their hands. So if the Fed can’t breathe life into the corpse, what can?
There’s Still REAL Value in Gold in Today’s Market
Bank of England: More QE For The World?
As part of its post-Brexit monetary policy reaction plan, the Bank of England will begin buying up to £10 billion of sterling investment grade corporate bonds from mid-September.
Bank of America, Merrill Lynch’s credit strategist Barnaby Martin, believes that the bank’s aim here is clear, governor Mark Carney and the rest of the monetary policy committee is looking to tighten corporate bond spreads, promote issuance and ultimately revitalize a moribund funding market for British companies.
Barnaby Martin and team have touched on this topic before. Indeed, at the beginning of July after the dust from the UK’s EU referendum had started to settle, the team published a research note claiming that the BoE had to restart corporate bond purchases to oil the wheels of the UK’s debt market. As I wrote at the time:
“If the UK is to thrive in the post-Brexit world, the country needs a vibrant and deep credit market underlying it…Building a “super-competitive economy” as many pro-Brexit voters desire, requires a strong Sterling credit market with the ability to issue bonds and raise capital with ease. Unfortunately, in its current state, the Sterling credit market is anything but strong. The issuance of £ corporate bonds has been dwindling since 2013 and this year there has only been £4 billion of non-financial investment-grade issuance in the Sterling Credit market — that’s only slightly more than 10% of the 2012 total of £33 billion. The ECB’s extraordinary monetary policies of the last few years have pulled UK funding capital into the Euro credit market. In 2009, 53% of UK corporates’ liabilities were denominated in Sterling. Today, the figure is just 29%.”
Imperial Bank of Kenya depositors can now access money after ruling
Thousands of Imperial Bank customers have been granted access to their money after a court threw out a petition blocking the payout on Friday. The High Court in Mombasa allowed the Central Bank of Kenya to continue paying depositors of the collapsed lender through KCB and DTB after lifting temporary freeze given three months ago. The High Court in Mombasa allowed the Central Bank of Kenya to continue paying depositors of the collapsed lender through KCB and DTB after lifting temporary freeze given three months ago.
Judge PJ Otieno lifted the orders barring withdrawals to the relief of Imperial Bank depositors, some of who had joined the session in court. “The interim orders issued on April 19, 2016 and extended to date has been discharged to allow the payment scheme to be implemented by Imperial Bank,” said Otieno. Billionaire Ashok L Doshi and his wife Amit A Doshi, who were also depositors in Imperial, had successfully petitioned the court to stop the payments in April, albeit temporarily, pending further determination.
The couple said the Sh1 billion they had in Imperial Bank was part of their retirement package, hence the court’s intervention in preserving it. At the end of April, CBK, KCB and DTB were barred from facilitating further withdrawals.
CBK allowed depositors on December 2 last year to withdraw a maximum of Sh1 million, meaning most small depositors were able to get out all their money. Imperial Bank lawyer Philip Murgor, CBK lawyer Paul Chege and counsel Rajab Mwanamasha representing Mr and Mrs Doshi agreed that the payment scheme should proceed as the suit to compensate the businessman his Sh1 billion was a separate matter.