Friday, November 28, 2008

Sharp plans $2.6 Billion joint solar venture with Enel

We last mentioned Enel in "Trina, Suntech in supply deals with Italy's Enel (STP; TSL; ENEI.MI)":
...Enel is a big dog*.
From Reuters:
Chinese solar companies Trina Solar Ltd (TSL.N: Quote) and Suntech Power Holdings Co Ltd (STP.N: Quote) have signed separate supply agreements with a unit of Italy's biggest power company, Enel SpA (ENEI.MI: Quote, Profile, Research, Stock Buzz), the companies said on Tuesday.

Suntech said it would supply with 30 megawatts of photovoltaic solar modules later this year and in 2009.

Trina said it would supply the company with 17 MW of modules starting this year.

Enel is a world leader in generating electricity from renewable sources. It plans to spend 7.4 billion euros on such investments by the end of 2012.

*From ENEL's homepage:
Enel is Italy's largest power company and Europe’s second listed utility by installed capacity. It produces and sells electricity and gas across Europe, North and Latin America. Further to the acquisition of the Spanish utility Endesa, together with partner Acciona, Enel has now a presence in 21 countries with 75,500 MW of generating capacity (on 31st December 2007) and serves more than 50 million power and gas customers....
From the International Herald Tribune:
Sharp of Japan, Enel of Italy and a third manufacturer will invest more than $2.6 billion in Italian solar power ventures to tap growing demand for cleaner energy.

Top solar power firms are hurrying to expand capacity even as the sector smarts from a worsening global economy, which is drying up financing for new ventures and forcing smaller solar power firms to push back investment.

Sharp, the world's No.2 maker of solar cells after the German company Q-Cells, said it and Enel planned to spend about ¥100 billion, or $1.05 billion, to set up solar power generating plants in Italy with a total generating capacity of 189 megawatts by the end of 2012....MORE

Things You Don't See Every Day: Thanksgiving Edition

Update below.
This Thanksgiving Day message was in the inbox when I arrived this morning.

Happy Thanksgiving everyone!
That was quick! A reader emails that the video is faked.

Wednesday, November 26, 2008

Happy Thanksgiving Everyone!

Half day on Friday. A couple pictures at other websites.
From Environmental Capital:

Serve yourself (AP)
From Dealbreaker:


(I was creeped me out the
first time I saw it on the show,
now it's kinda grown on me)

Pension Finance: State of New Jersey Is Insolvent

From Mish's Global Economic Trend Analysis:
The state of New Jersey is insolvent. Bankrupt might be a better word. New Jersey is $60 billion in the hole on pension funding and the Governor is planning on skipping payments in a "pension payment holiday" until 2012 so as to not increase property taxes. To top it off, the ongoing plan assumptions are 8.25%. Sorry NJ, that simply is not going to happen.

The Star Ledger is reporting New Jersey pension funds lost $23B so far this year....
...While Clark delivered his report to the State Investment Council in Trenton, Gov. Jon Corzine was in Atlantic City promising a convention of local government officials that he would let them postpone about a half-billion in payments they are scheduled to make to the pension funds in April.

Specifically, Corzine proposed letting local governments skip paying $541 million of the $1.1 billion due. They would gradually work their way back to full payments by 2012 under his plan....

Mish continues:
What Happens Now?

New Jersey is burning $5.2 billion a year. If the market is flat over the next 5 years, New Jersey will have a minimum of $118 billion in obligations and will be sitting on $31.8 billion. But what happens if the S&P falls to 450 or 600?

S&P 500 at 600 would be a drop of 24% from here. Assuming the pension plan assets dropped the same, plan assets would fall to $44 billion. On a drop to 450 on the S&P, plan assets would fall 43% from here to approximately $33 billion.

At $5.2 billion a year, New Jersey's pension plan would be completely out of cash in about 6 years in my worst-case scenario of a drop to 450 on the S&P.

However, even on a drop to 600 or 700 on the S&P (highly likely in my estimation), New Jersey, would run out of cash rather quickly putting in $1 billion a year and taking out $5.2 billion a year while assuming growth rates of 8.5% that are totally unrealistic.

Can The Market Recover?

Many expect the stock market to be blasting back to new highs once the bottom is in. This too is an unrealistic expectation. It's all about earnings and risk taking, and both earning and risk taking have peaked. Please consider a snip from Peak Earnings.
One of the implications of Peak Credit is that financial earnings have peaked. And because of reduced leverage, earnings in the financial sector are not coming back for decades. Those earnings were all a mirage in the first place.

Next consider homebuilders given that lending standards have dramatically tightened at banks. Those profits are never coming back. What happenes to profits at major pharmaceuticals if and when the Obama administration allows drug imports from Canada and other places?

One must also factor into the earnings equation boomers facing retirement in the wake of falling home prices and retirement accounts taking a cliff dive. Trillions in potential spending power has been wiped off the books.

Expect boomers to travel less than expected, buy fewer toys (boats, cars etc) than expected, gamble less than expected, and downsize much more than expected in every aspect. This in turn will reduce the earnings potential of non-financial corporations for decades to come. Thus expectations that a new rip roaring bull market will commence once the market bottoms is sadly misplaced.

In the meantime, remember that rising unemployment, rising credit card defaults, rising foreclosures, rising numbers of walk aways, and declining earnings of non-financials means we have not even bottomed yet.

This secular bear market will last a lot longer and be much deeper than anyone thinks. Sadly, very few are prepared for it....

Somebody I've Never Heard of Says Solar Panel Growth Will Slow in '09

Note: the EE Times headline is at odds* with the body, so I used my own.
From EE Times Deutschland:

Solar panel sales to contract in 2009, says forecast
The economic crisis will impact significantly solar panel sales, starting with weakened average selling prices and order delays or cancellations, according to market research group The Information Network (New Tripoli, PA.)

The solar panel market is set to contract in 2009 because of the slowdown in economic growth and the credit crunch, stated Dr. Castellano, president of The Information Network. "Newly installed solar capacity will reach only 7.1 GWatts in 2009, equivalent to a global growth rate of 26 percent, down from our forecast of 49-percent growth earlier this year."

The market research firm said it expects panel prices will fall between 20 to 30 percent in 2009 as global supply of polysilicon doubles. The solar panel market is due to recover in 2010, with a 48-percent growth to 10.5 GWatts of newly-installed PV systems.

*Deceleration in growth rate is not contraction.

A couple other EE Times headlines:

3X ETF's On Fire

We mentioned the introduction of these beasties in our Nov. 4 post "Action Baby, Action: "Leveraged ETFs With 300% Exposures Set To Launch"'.

Today Bespoke looks at their first three weeks of trading. Our Nov. 4 headline was too subdued.
From Bespoke Investment Group:
Since 2x ETFs, which give investors twice the returns of the underlying index, weren't enough for profit-hungry traders, Direxion released 3x ETFs earlier this month that track the Russell 1,000, Russell 2,000, and Energy and Financial sectors. These ETFs try their hardest to achieve 3 times the daily change (straight up and inverse) of the indices they track. Below we highlight the eight 3x ETFs that have been released by Direxion so far....

...Although they've been trading for less than a month, the 3x ETFs have already become very popular trading vehicles. And with a market that is averaging a daily change of nearly 4%, these ETFs have already taken traders for a wild ride. Below we highlight price and volume charts of the 3x long and inverse Russell 1,000 and Financial ETFs. As shown, volume has picked up significantly in recent days for all of these 3x ETFs, reaching 10,000,000+ shares per day in some instances.

But the percentage change in these ETFs is what is really crazy. The inverse 3x Russell 1,000 ETF (BGZ) has already had a rally of 114% and a decline of 42% since trading began on November 5th! The Financial ETFs have been even crazier. The 3x long Financial ETF (FAS) declined 80% from its high on 11/10 to its low last Friday. Since then, it's already up 127%! The inverse one has been even crazier. From 11/6 to its high last Friday, FAZ went from $60 to $200 (235%). Since then, it has gone from $200 back down to $70 (-67%)....

Read the whole thing and check out B.I.G's always wonderful charts.

IBM Reveals Five Innovations That Will Change Our Lives in the Next Five Years: Solar technology will be built into asphalt, paint and windows

From the press release:

ARMONK, NY - 25 Nov 2008: Unveiled today, the third annual "IBM Next Five in Five" is a list of innovations that have the potential to change the way people work, live and play over the next five years:

  • Energy saving solar technology will be built into asphalt, paint and windows
  • You will have a crystal ball for your health
  • You will talk to the Web . . . and the Web will talk back
  • You will have your own digital shopping assistants
  • Forgetting will become a distant memory
The Next Five in Five is based on market and societal trends expected to transform our lives, as well as emerging technologies from IBM’s Labs around the world that can make these innovations possible.

In the next five years, technology innovations will change our lives in the following ways:

Energy saving solar technology will be built into asphalt, paint and windows
Ever wonder how much energy could be created by having solar technology embedded in our sidewalks, driveways, siding, paint, rooftops, and windows? In the next five years, solar energy will be an affordable option for you and your neighbors. Until now, the materials and the process of producing solar cells to convert into solar energy have been too costly for widespread adoption. But now this is changing with the creation of “thin-film” solar cells, a new type of cost-efficient solar cell that can be 100 times thinner than silicon-wafer cells and produced at a lower cost. These new thin-film solar cells can be “printed” and arranged on a flexible backing, suitable for not only the tops, but also the sides of buildings, tinted windows, cell phones, notebook computers, cars, and even clothing.

You will have a crystal ball for your health

HT: Next Big Future who also link to
Georgia Institute of Technology has developed a new structural material based on leftovers (fly ash, bottom ash) from coal burning. Known as Cenocell, the material offers attributes that include high strength and light weight – without the use of cement, an essential ingredient of conventional concrete....

After the Crash: How Software Models Doomed the Markets

From a March '08 post*:
Short version on modeling errors? As
Alfred Korzybski said
"The map is not the territory"...

From Scientific American:

Overreliance on financial software crafted by physics and math PhDs helped to precipitate the Wall Street collapse

If Hollywood makes a movie about the worst financial crisis since the Great De­­pres­­sion, a basement room in a government building in Washington will serve as the setting for a key scene. There investment bankers from the largest institutions pleaded successfully with Securities and Ex­­change Commission (SEC) officials during a short meeting in 2004 to lift a rule specifying debt limits and capital reserves needed for a rainy day. This decision, a real event described in the New York Times, freed billions to invest in complex mortgage-backed securities and derivatives that helped to bring about the financial meltdown in September.

In the script, the next scene will be the one in which number-savvy specialists that Wall Street has come to know as quants consult with their superiors about implementing the regulatory change. These lapsed physicists and mathematical virtuosos were the ones who both invented these oblique securities and created software models that supposedly measured the risk a firm would incur by holding them in its portfolio. Without the formal requirement to maintain debt ceilings and capital reserves, the commission had freed these firms to police themselves using risk tools crafted by cadres of quants.

The software models in question estimate the level of financial risk of a portfolio for a set period at a certain confidence level. As Benoit Mandelbrot, the fractal pioneer who is a longtime critic of mainstream financial theory, wrote in Scientific American in 1999, established modeling techniques presume falsely that radically large market shifts are unlikely and that all price changes are statistically independent; today’s fluctuations have nothing to do with tomorrow’s—and one bank’s portfolio is unrelated to the next’s. Here is where reality and rocket science diverge. Try Googling “financial meltdown,” “contagion” and “2008,” a search that reveals just how wrongheaded these assumptions were....MORE

HT: the WSJ's Deal Journal

*This is a topic near and dear to our hearts:

Some of our recent posts on models and modeling, climate and financial:
How Models Caused the Credit Crisis
Quants Lose that Old Black (Box) Magic
Finance: "Blame the models"
Climate Models Overheat Antarctica, New Study Finds
Climate modeling to require new breed of supercomputer
Computer Models: Climate scientists call for their own 'Manhattan Project'
Computer Models: " Misuse of Models" and "No model for policymaking"
Climate prediction: No model for success
Climate Models and Modeling
Based on Our Proprietary "What's on T.V." Timing Model...
How many Nobel Laureates Does it Take to Make Change...And: End of the Universe Puts
The New Math (Quant Funds)
Modeling*: The Map is Not the Territory
Inside Wall Street's Black Hole
That gets you back to the end of February. Here's another type of modeling error:

Friday night, however, I got to thinking. What if I really was God’s gift to modeling? What if I really was meant to be the next top model? What if I didn’t go and I would never know how my life could change? I mean, really, who passes up the opportunity to be famous, well-liked, and have the potential to make enough money to pay off student loans? I finally decided that “you live once” and printed out the application online....

Tuesday, November 25, 2008

Japan aims to limit speculation in emissions trade (or we could just tar-and-feather carbon traders)

There is no reason to believe that the same people who brought us the sub-prime mess, the asset-based commercial paper mess, $147 per barrel oil and everything else we've gone through this year, will do any better running the carbon trade as mercenary tax collectors.

Thinking of private tax collectors reminds me of an old American tradition:
Threaten to Tar-and-Feather 'em.
As far as I can tell, no British tax collector was actually tarred and feathered in the run-up to the stamp tax:
...The intent was clearly to intimidate. Dabbing hot tar on bare skin could cause painful blistering and efforts to remove it usually resulted in pulling out hairs. The use of solvents to loosen the tar was also unpleasant in the extreme, especially when a substance like turpentine came in contact with burned skin....source
From HistoryWiz:
...After the enactment of the Stamp Act, it was common to threaten or attack British government employees in the colonies. No stamp commissioner or tax collector was actually tarred and feathered but by November 1, 1765, the day the Stamp Act tax went into effect, there were no stamp commissioners left in the colonies to collect it....
This changed the next year.
From U. of Arizona Professor Benjamin Irvin for
...Throughout New England, tar and feathers soon became the "popular Punishment for modern delinquents." By March, 1770, at least thirteen individuals had been feathered in the American colonies: eight in Massachusetts, two in New York, one in Virginia, one in Pennsylvania, and one in Connecticut. In all of these instances, the tar brush was reserved exclusively for customs inspectors and informers, those persons responsible for enforcing the Townshend duties on certain imported goods. Indeed, American patriots used tar and feathers to wage a war of intimidation against British tax collectors....
Well, enough history. Here's the carbon story from Reuters:
Japan's prime minister wants to limit speculative trading in his country's carbon emissions trading scheme, a senior policy negotiator said on Tuesday.

Kunihiko Shimada, principal international policy coordinator for the Ministry of the Environment, said Japanese Prime Minister Taro Aso said he wants to examine ways of curbing speculative trading in Japan's emissions trading trial scheme.

"This is a directive coming from the top...they have issues with speculative trading," Shimada told Reuters on the sidelines of a carbon markets conference.

"Transparency and avoiding speculative trading are key issues in the development of our emissions trading scheme," Shimada said, adding that strategy is still a work in progress....MORE

Wind vs. Solar: Performance of the ISE Global Wind Energy ETF vs. the Claymore/MAC Global Solar Energy Index ETF (FAN; TAN)

Just a snapshot, six months, via Yahoo Finance:

Chart for First Trust Global Wind Energy (FAN)

China: Solar energy development still faces setbacks

From China Daily via

One of the universal problems with solar power is that it costs more than electricity generated by conventional means. And the absence of a preferential governmental policy is another factor further holding back its development in China.

A group of Chinese solar power experts and scholars, attending a recent US-China Green Energy Conference in Beijing, have called for the government to issue a set of policy incentives to boost the country's solar power industry, just as it did for the wind power sector.

The Chinese government detailed its incentive policies for the wind industry in its new Renewable Energy Law and it also set an ambitious target to have 30GW of wind power by 2020.

"The government has showed their support for the wind industry, but it never did so for the solar industry," says State Council counselor, Shi Dinghuan. "Without an articulate and practical pricing mechanism for on-grid solar electricity or government subsidies, solar electricity will not have a market here in China.

"The Renewable Energy Law has been effective for two years, but it has not really benefited tohesolar power industry," he added.

Statistics shows that there are more than 70 grid-connected PV projects in China, but only two of them received feed-in tariffs, and most of them have not benefited through the Renewable Energy Law....

...His voice was echoed by many other scholars at the meeting, who also think government subsidies would give the solar industry the ability to invest in research and development so that it can further cut costs.

"China is a giant in solar PV production, but it is definitely a dwarf in putting them in use," he says....MORE

23-billion ton ultra large coal field discovered in China's Turfan Basin

I'm betting this coal will will be burned. On the other hand, 'avoided oxidation' might bring China a couple trillion dollars from Western taxpayers/ratepayers for Kyoto credits.
From Peoples Daily:
After efforts by geological exploration teams for over a year, an ultra large coal field with a forecasted 23 billion tons of total reserve was found in the famous Turfan Basin in China.

Reporters learnt from the Department of Land and Resources of the Xinjiang Uygur Autonomous Region that, the newly-discovered coal field is located in the Sha'er Lake in Piqan County of Turfan Region in Xinjiang.

The coal mine occupies an area of over 300 square kilometers with a gross minable thickness of 169.69 meters, and a coal bearing ratio of 29%, with the largest coal bed being 141.91 meters thick in a single layer....MORE

Sometimes You Just have to Laugh. And: The 100 Year Bear market

Okay, We've given up any pretense to sanity. It struck me last night as the CNBC talking heads were chattering about the "reason" the DJIA was up 11.8% in two days. They seemed to agree that the combination of a Treasury Secretary designate with experience putting out fires and the bailout of the country's former 'largest bank' justified this move and more.
Good Grief.
From MarketWatch:
After 'Great Depression 2' in 2011, a 100-year bear market?

What is next? If the "Great Depression 2" scenario plays out, what's after 2011? Recovery? A new bull? How can you protect your money? Or are we all helpless victims of the raging winds of fate and Wall Street's self-serving brand of capitalism.

Nightmare scenario No. 1
: No exit, a never-ending disaster Remember former Goldman Chairman John Whitehead? He "sees" a tragic ending: This Reagan Deputy Secretary of State and former New York Fed chairman "sees" America burning through trillions, over many years: "Nothing but large increases in the deficit ... worse than the Depression."...

...Nightmare scenario No. 3: The endless 100-year bear market
Robert Prechter's a brilliant market forecaster and editor of the Elliott Wave Theorist newsletter. As early as 1978 he predicted the "raging bull market of the 1980s." Many laughed. Then tech roared and he became "Guru of the Decade."
In the "Rashomon" cast he's credible. And ahead again: He "saw" the future in his "At the Crest of the Wave: A Forecast of the Great Bear Market." Today's darkening markets ride his "wave" theories: Rapidly unfolding, accelerating and intensifying economic cycles. First the dot-com crash, then the subprime housing bull, the credit meltdown, now the coming "Great Depression 2."

In the '90s, Prechter had another vision from deep in the forest. Again we ignored him. No more. The same wisdom that let him "see" the 1980's bull years before it took off, may accurately predict the coming 100-year bear market well ahead of time....MUCH MORE.
Here's Mr. Farrell's
"A 100-year bear market?"
Today's headlines confirm Prechter's dark predictions

Monday, November 24, 2008

Of Bulls, Bears and Rallies

Henry Blodget at Silicon Alley Insider put up a post this afternoon, "Did You Just Miss The Bottom?":
...Allow us to make a prediction: Optimism that the rally is "real" will increase every day that the market goes up. And, every day that that happens, you will get more and more worried that you missed the bottom. And then one day, when you just can't take it anymore, you'll pull the trigger.

Meanwhile: For long-term investors, stocks are still undervalued--even now. Buy now, and you have a good chance of earning a better-than-average return over the next ten years. Sure, if the rally isn't real, you will temporarily lose your shirt. But fund manager John Hussman argues that valuations going into the weekend were as low as they were in late 1931. And the market did pretty well from there....MORE

Which has a bit of spaghetti-chart-porn worth taking a look at.

I couldn't resist leaving a comment:

Climateer (URL) said:

Mr. B,
What does that headline mean?
Are you calling the bottom?
I've had my copy of the Cowles Commission's Common Stock Indexes 1871-1937 open on the desk for pretty much the past year.
I am struck by two things:
1) In the U.S. markets we've got one data-set, with a total of 1642 (Oct. '08) monthly points. Anyone trying to forecast off that had better have HUGE error bars. Or, fess up to the fact that no one really knows and acknowledge that this year a portfolio had a better chance if directed by an astrologer. (Arch Crawford is Hulbert's #1 market letter YTD)
2) Folks had better come to grips with the fact that coming out of a cyclical bear still leaves us in the secular variety.
To quote Warren Buffett:

"Now I'm known as a long-term investor and a patient guy, but that is not my idea of a big move."
-Warren Buffett
December 31, 1964: DJIA 874.12
December 31, 1981: DJIA 875.00
That's a secular bear market.

US Dollar Index Has 5th Biggest Decline Ever

It is, of course, related to the size of the rise.
From Bespoke Investment Group:

...Falls in the Dollar are coinciding with gains in equity markets and economic stability worldwide, since the US currency is now being treated as a safe haven. Go figure....MORE


If you go to Bespoke, they have a table showing the second largest daily decline in the buck came the day after the 1985 Plaza Accord, with declines #3 and 4 coming earlier in that year.
The Plaza Accord was a deliberate decision to depreciate the dollar, with #3 and 4 being a kind of early warning of the plan. We had a strong stock market for the next two years.

In February '87, the Louvre Accord was signed, to halt the decline of the dollar. This was one of the backdrops for the crash of '87. It didn't precipitate the market downturn that began six months, almost to the day, later but there is a correlation.
Correlation is not causation but the end of a dollar decline in July of 2008 got me thinking of these things. I'm guessing we will return to this idea, in the meantime watch the (formerly) almighty buck.

China to boost wages, cuts taxes to stimulate economy

From BloggingStocks:
There's perhaps no more-telling policy implementation difference between a democracy and a one-party state than a plan expected to be announced by China soon.

China is shortly expected to implement both wage increases and tax cuts to promote consumer spending and economic growth.

The National Development and Reform Commission is considering the measure, which would affect about 6.5% of China's employees. The policy will help keep the nation's economy growing at an adequate rate, so says economist David H. Wang.

"In a classic development trend, China is incorporating more and more people from the countryside into its cities, and therefore needs a high rate of growth, just to absorb these additional workers and maintain social stability. That means a GDP growth rate of a least 6-7%," Wang said....MORE

Sector Snap: Solar stocks rise with broader market

From the AP via Yahoo Finance:

Solar stocks lift with market; analysts highly rate industry on strong US demand outlook
Shares of solar companies rose on Monday along with the broader market and after analysts predicted strong future demand for the industry in the U.S.

Shares of SunPower Corp. rose $7.45, or 36.2 percent, to $28.04. Raymond James analyst Pavel Molchanov said the solar cell and panel maker is well positioned to capitalize on strong long-term demand for photovoltaic modules in the U.S. utility market....MORE

George Soros: Green Schmeen, I'm Buying Arch Coal (ACI)

From MarketWatch:

Coal producers rally as investors wade in

...Public filings disclosed investments in these and other coal producers. Soros Fund Management LLC, the investment arm of billionaire George Soros, bought 2.9 million Arch Coal Inc. shares in the last quarter, according to a 13F filing.
From Bloomberg:

Arch Coal Attracts Soros as Peabody Lures Citadel
Billionaire investor George Soros, Citadel Investment Group LLC and T. Rowe Price Group Inc. are snapping up coal mining shares, taking advantage of the cheapest valuations in five years as demand for electricity rises.

Soros bought 2.9 million Arch Coal Inc. shares last quarter for a 2 percent stake in the second-largest U.S. coal producer, filings with the Securities and Exchange Commission show. Citadel, the Chicago-based hedge fund, and Invesco Ltd. in Atlanta bought 3.5 million shares of Peabody Energy Corp., the biggest miner. T. Rowe reported purchasing stock in Peabody, Arch, Consol Energy Inc. and Indonesia’s PT Bumi Resources.

While coal, the cheapest fuel for power, is up 88 percent in Pennsylvania, shares of the companies that mine the mineral have slumped along with the rest of the commodities industry. Now, investors are betting that Peabody, which traded at 3.7 times projected 2009 earnings as of Nov. 21, and Arch at 2.5 times are cheap because coal use will increase. The valuations were at more than a 54 percent discount to the MSCI World/Energy Index...MUCH MORE

Barton Biggs: ‘The mother of all bear market rallies’

From FT Alphaville:

At the bottom of a panic, the news doesn’t have to be good for stocks to rally, it just has to be less bad than what has already been discounted. I want the markets to stop going down on bad corporate and macro-economic news. The fact that it still does shows the bad news has not yet been fully discounted. I have no idea when the next bull market starts, but I do think we are setting up for the mother of all bear market rallies.

So declares the managing partner at Traxis Partners.

Read Biggs’ full Market Insight column here

MarketBeat gives us some backround:

The Standard & Poor’s 49ers

The jury is still out on whether the equity market has reached a level that warrants buying shares — plenty of pessimists abound — but the declines in the S&P, by one measure, are best compared against the post-World War II period.

According to Bianco Research, the Standard & Poor’s 500-stock index, as of Thursday, was nearly 52% from its all-time high, the furthest the S&P has been from its all-time high since 1949 — when, at its nadir in June of that year, it stood at 57.43% from its all-time closing high. The vicious decline in the equity market in the last few weeks has caused a few long-time bears to come out of the cave, including Bennet Sedacca of Atlantic Advisors LLC, who noted Friday that his firm went “half-long” for a rally that “could last longer than some think.” He says he’s sticking to large-cap companies with strong balance sheets and “a little tech and financials thrown in.”>>>MORE

We've dropped further without a twenty percent rally than I can remember.
(too busy to dig up the stats right now, sorry)

Buffett Will Give More Information on Derivatives (BRK.A)

There were a flurry of stories about Berkshire Hathaway and Mr. Buffett last week:
From Bloomberg, Nov. 18:

Berkshire's Credit Risk Soars on $37 Billion Bet
The cost of protecting against default by Warren Buffett's AAA rated Berkshire Hathaway Inc. has almost tripled in two months, a sign of just how skittish investors have become amid the global financial crisis.

The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody's Investors Service, one level above junk. The price may have risen on concern that the billionaire's firm could lose a $37 billion bet on world stock market values more than a decade from now.

``That's just so stupid,'' said Mohnish Pabrai, head of Pabrai Investment Funds and a Berkshire shareholder. The swap buyers are projecting ``present circumstances into infinity'' and concluding Buffett's bet will cost the company $40 billion, Pabrai said. ``It will never happen,'' he said....MORE

Bespoke Investment Group, Nov. 20:
Berkshire Hathaway Down Nine Days in a Row
...Since November 7th, which was the last day Berkshire finished up on the day, the stock has declined by 29%. This is by far its largest percentage decline over a nine day period.


Nov. 21, The Big Picture:
Jon Markman: Buffett in Trouble?

I’m not so sure I believe the wild speculation part of this (last para), but I know Jon Markman, and he is a thoughtful and sober guy.

He writes:

Shares of Warren Buffett’s insurance holding company are on the ropes this month, plunging 30% in part because the famed investor dabbled in an area of the market he has long publicly derided: derivatives. And due to a tangled web of financial relationships, they may be taking Goldman Sachs shares down with them....

And from Market Movers, Nov. 20:
What's Happening to Berkshire Hathaway?

Jonathan Stempel of Reuters has a very useful look at what's going on at Berkshire Hathaway, which fell $6,500 per share today to close at its lowest level in over five years. After reading his article, I think we might be one step closer to understanding why Berkshire's CDS are trading so very wide right now. But first, here's David Gaffen:

In recent weeks, the credit-default swaps has seen a marked decline in liquidity and trading, so a smaller amount of insurance contracts purchased can still cause large shifts in prices of a particular credit-default swap...MORE
Today, Market Movers adds:

Berkshire's CDS and Counterparty Hedging

In Barron's this weekend, Andrew Bary brought up the subject of Berkshire's credit default swaps, and why they're trading at such a wide level:

The Street talk is that Berkshire's counterparties, believed to include Goldman, are worried about their Berkshire financial exposure and are trying to hedge that by buying protection in the credit-default swap market....MORE
While Bloomberg tells us:

Buffett Will Give More Information on Derivatives
Billionaire investor Warren Buffett will provide more information to investors on how he calculates losses on his Berkshire Hathaway Inc.’s derivative bets in the firm’s annual report early next year.

The report will disclose “all aspects of valuation” and cover “deficiencies in the formula” for pricing the derivatives, “which we nevertheless use,” Buffett said in an e- mail sent by his assistant, Debbie Bosanek.

The information may calm investors concerned about losses and potential ratings downgrades tied to Berkshire’s sale of derivative contracts. Buyers of the derivatives would be entitled to billions of dollars from Omaha, Nebraska-based Berkshire if four stock indexes drop below agreed-upon levels on dates beginning in 2019. Berkshire shares have fallen about 18 percent since Nov. 7, when the insurer said writedowns on the contracts totaled $6.73 billion at the end of the third quarter.

Buffett’s e-mail said the four stock indexes, including the Standard & Poor’s 500, would all have to fall to zero for Berkshire to be liable for the entire $35.5 billion that’s at risk. The sum was last estimated at $37 billion in a Sept. 30 filing and shrank because of fluctuations in currency exchange rates, he said....MORE

The stock was recently trading up 7.7%, giving it a market cap just $1.5 billion lower than G.E.'s.

Friday, November 21, 2008

Solar Sector: Analysts See More Trouble Ahead (CSIQ; STP; TSL)

From Tech Trader Daily:

The remarkable swoon of the solar sector continues unabated.

While there remains widespread anticipation that an Obama Administration will push for an expansion of the use of alternative energy generally and solar in particular, those hopes have been overwhelmed by collapsing fundamentals in the industry. Several companies this week - including Canadian Solar (CSIQ), Suntech (STP) and Trina Solar (TSL) provided distressing guidance for the fourth quarter. The industry is being plagued by a combination of slowing demand in Europe, tight credit, collapsing prices and the strengthening dollar. Will the world eventually adopt solar power as a major source of electricity? Indeed it might. But in the short-run, the focus on the Street is on mundane issues like the near-term trend in revenue, profits and margins. And the indications are not good.

A number of analysts weighed in this morning on the solar stocks; here’s a rundown:

  • Oppenheimer’s Sam Dubinsky today cut his ratings on Suntech, Canadian Solar and JA Solar (JASO) to Perform from Outperform. While conceding that his rating changes are “late,” given the “considerable pessimism” already priced into the stocks, he adds that “fundamentals for the sector remain murky, given a volatile Euro, tight credit markets and sub-$50 oil.” He says the long-term prospects remain promising, but that “a quick recoveyr in 2009 is predcated on too many moving parts to warrant a positive near-term stance.”>>>MORE

I should post Trina's conference call transcript, there were some company specific positives that (re-) assured me that although the stock, like every one in the group, is priced for bankruptcy, this is one that will be around next year. We have looked under this hood before, from a Sept. 29 post, "Solar Stocks Clobbered; No ITC Extension Before Election":
One point that Mr. Savitz's interviewee doesn't mention is that among the Chinese solars are some that are not cash flow positive. Raising capital in this environment is going to be tough, a couple may become insolvent, be forced into an inopportune merger or have to scale back expansion plans. Trina won't be among the first or second groups* but may be in the third....

Hedge Funds: Halfway Through with Deleveraging, Halfway Through with Redemptions

From FT Alphaville:

Tired of these volatile and unpredictable markets? Fear not, we are — apparently — halfway through the deleveraging process.

Global wealth management company Bernstein has surveyed its hedge fund clients to produce a snapshot of where they stand. Or think they stand, at least.

For a start, average gross leverage has fallen to 142 per cent of assets under management from about 175 per cent in 2006 and 2007. Most respondents, 63 per cent, think the hedge fund deleveraging process is at least halfway over.

Bernstein - Leverage

As for redemptions, we’re halfway through there too....MORE

Dow Jones Industrial Average 1920-1940: Wheee!

DJIA chart
| 1920 - 1940 Daily

Climateer Investing on Gold: Sometimes You Get Lucky

Yesterday we posted "Gold and Currency" which ended with this thought:
...Chartmeisters have a general rule "The longer the base, the bigger the move". I have to be careful here, I am predisposed to be short but I've gotta say, this chart is looking more and more like a pop to the upside.
From Kitco:

click to enlarge
I followed-up with a comment at MarketBeat:

...Mr. OZ sir,
I said yesterday that I thought your Doppelgänger, The Undertaker, was early on scaling back into gold.
I’m going to qualify that with the classic economist “on the other hand”.

Looking at a Kitco 30 day chart this morning, it struck me that we were forming a flatline base, if it continues for any length of time we should get a short-term upside pop.
The pop wouldn’t alter the “Behavior of Gold Under Deflation” thesis but would be profitable for a while, eventually though, probably a bull trap.
Long ruby slippers.

Comment by Climateer - November 20, 2008 at 1:37 pm
A few minutes ago gold was trading at $790.90 up $42.20.
Sometimes you get lucky.

The Funniest Thing I've Read this Morning

A reader emailed this and I can't stop laughing. Readers, is this guy a knave, fool, charlatan or varlet? Here's the American Heritage Dictionary's definition of charlatan:
A person who makes elaborate, fraudulent, and often voluble claims to skill or knowledge; a quack or fraud.
Via Yahoo Finance:

How To Embrace The Bear With Killer Strategies

The U.S. stock market has gone from a roller coaster performance to a free fall. Here's the parachute! A few simple, hands-on tips that will help you make the best of what we've been dealt.

It would be easier to just say: 'I told you so'. In our ETF Profit Strategy Newsletter we've been warning subscribers of this financial unraveling all along, but 'Success consists of going from failure to failure without loss of enthusiasm' (Winston Churchill). So, if you are one of the poor souls that hasn't been warned in time, here's your second chance....

...What drives the market?

News drives the market, right? The day Obama was announced as the new President, the S&P 500 (AMEX: SPY - News) rallied sharply. The two days that followed were marked by steep losses, even though China announced a $586 billion bailout package...

...How low will it go?

What if somebody would have told you a year ago that the Dow Jones will drop from 14,000 to below 8,000? What if someone were to tell you the Dow will drop to below 2,000?

The aftermath of bubbles often results in a complete eradication of all gains. This bubble started in the mid-80s with the Dow at around 1,000....

I'll stop there. The Big Bull started the day after the DJIA bottomed at 776.92 on Aug. 12, 1982.

The initial run topped out at 2722 on Aug. 25, 1987.

The Black Monday bottom for the Industrials was 1738.

This recitation of market history is a cautionary tale to future fraudsters: If you're going to "baffle 'em with bullshit" at least get the numbers right.

Jeez, don't they teach kids anything these days? Oh that's right. From San Diego State University:

Teens More Confident, Less Competent

...Two-thirds of recent high school students believe they will be "very good" workers, roughly equivalent to the top 20 percent of performance....
Alrighty then. 2/3 of ya think you're in the top 20%.

Why We Expanded our Focus to the Broader Market and Where/What We'll be Looking at Next

Quick answer via Yahoo Finance (comparing the PowerShares WilderHill Clean Energy ETF [PBW] and the S&P 500):

Chart for S&P 500 INDEX,RTH (^GSPC)

That's the six-month snapshot, it's the same story at 9, 12 and 15 months.
On August 28, 2007 we posted "
James Grant on the Fed's Sub-prime Solution-Socialism for the Rich" which managed to combine credit analysis, Chairman Mao, climate history and the 56th stanza of Tennyson's "In Memoriam" in 260 words (must have been really strong coffee that morning):

I know Climateer Investing has gone off-topic more than usual the last few weeks. The reason, to paraphrase Chairman Mao's statement "The guerilla must move amongst the people as a fish swims in the sea" is that climate/energy investments swim in the larger sea of the markets.

Here's one of the sharpest credit analysts combining some climate history with economics "red in tooth and claw".*

...Significantly, such cycles have occurred in every institutional, monetary and regulatory setting. No need for a central bank or for the proliferation of hedge funds to foment a panic - there have been plenty of dislocations without any of the modern-day improvements.

Late in the 1880s, long before the institution of the Federal Reserve, Eastern savers and Western borrowers teamed up to inflate the value of cropland in America's Great Plains. Gimmicky mortgages and loose talk of a new era in rainfall beguiled the borrowers. High yields on Western mortgages enticed the lenders. But the climate of Kansas and Nebraska reverted to parched, and the drought-stricken debtors trudged back East or to the West Coast in wagons emblazoned, "In God we trusted, in Kansas we busted." To the creditors went the farms.

Full Op-Ed at the International Herald Tribune

*Fifty-sixth stanza of Tennyson's "In Memoriam":

Man her last work, who seem'd so fair,
Such splendid purpose in his eyes,
Who roll'd the psalm to wintry skies,
Who built him fanes of fruitless prayer,

Who trusted God was love indeed
And love Creation's final law -
Tho' nature, red in tooth and claw
With ravine, shriek'd against his creed -

Going forward I'm guessing we'll be revisiting the concepts in:

Global Warming, Politics, Laws and Opportunity


Global Warming, Politics, Laws and Opportunity--Part II

Rallying Back From The Depths Of Hell

From 24/7 Wall Street:
The market has to rally something, and this is as good as any. The DJIA has fallen from 13,850 less than a year ago to 7,552. The idea that Citigroup (C) may be for sale could take its potential failure off the table. Congress appears ready to capitulate and give car companies money that they can pile up in the streets of Detroit and burn.

If the market takes off for a few days, it will do so in a haze of amnesia. Buyers can leave behind memories that economists are predicting 8% or 9% unemployment and contracting GDP. The government has still not found a key to the lock of falling home prices. Marrying joblessness with housing value deflation and next year could be the worst the economy has seen in five decades. Or, it could be worse....

...Rallies usually feed upon themselves, at least short-term. Short covering and the resulting centrifugal energy of buying gets a temporary boost. That can last a week or so and then it blows itself out.

Looking with an empirical eye, there is no reason for a rally at all. The market made a vicious correction in 1973 and 1974. Many indicators say this recession will be worse than that one.

Rally on. It won't even last until Christmas.

Thursday, November 20, 2008

Stocks and Earnings: Racing to the Bottom

We have similar thoughts. From our Oct. 23 post "Remember the "E" in P/E":

Some market cheerleaders are pointing to price-to-earnings multiples as an indicator that stocks are cheap. At the very least they should mention that earnings expectations are still higher than the reality will deliver. If you look at the guidance given in many of the earnings reports we've seen this season, especially in the tech sector, forward multiples are not low enough to overcome investor skepticism. That means we have not seen the final lows of this bear market.
The trick, of course, is to anticipate the inflection point. Right now, I don't see it. But what do I know, I'd have bet on the Germans in 1940 (based on a tip from Joe Kennedy). Here's FT Alphaville:

It Can Get Worse

Granted, this was written by UBS’s Jeffrey Palma on Oct. 21, and things have deteriorated since then....

From Economix:

One problem for the stock market right now is that estimates of corporate earnings are falling almost as fast as share prices.

That means that even as stocks lose value, they are not really getting cheaper — at least in the way that their valuation is most commonly measured (which is relative to the earnings of the underlying companies). Just to keep from getting more expensive, stocks have had to fall.

After today’s drop, the Standard & Poor 500-stock index has dropped 14.2 percent since Oct. 24, for instance. But S.&P.’s estimates for the net earnings of the 500 companies in its index has dropped 13.9 percent over that same four-week span. (Thanks to Howard Silverblatt of S.&P. for these numbers. They are for the year ending June 30, 2009.) S.&P. has had to lower its earnings estimates because the deteriorating economy is causing companies to lower their own estimates....MORE

A couple other posts that touch on the same issue:

Oct. 24: How low are P/E ratios?

Oct 25: The Mathematics of Losing Money

It’s official, Goldman capitulates on oil

Oil is below $49/Bbl, $48.70 down $4.00 last I saw.
From FT Alphaville:

Goldman’s latest commodities note is out, and this is all you need to know:

Closing our oil trading recommendations
Although we have emphasized in the past few weeks that continued weak oil demand exacerbated by constrained credit conditions will contribute to soften near-term fundamentals keeping WTI prices, timespreads and gasoline cracks under pressure, we have left our oil trading recommendations open, expecting that high volatility would provide a better exit point to our trades. The volatility in the past few weeks has mostly been to the downside and the pressure on the oil complex has increased. In the near term, we do not expect significant upside potential and as a consequence we are closing all of our oil trading recommendations.

Translation: We were wrong and we’re sorry. Ouch.

From Barron's:

Goldman Backs Off Its Oil ‘Super Spike’ Theory


That ‘’super spike” in oil prices that Goldman insisted would lift crude to $200 a barrel ….? Turned out to be a dagger that has pierced Goldman itself. It never really turned out to be that prescient: instead of the 50% jump in oil that Goldman anticipated back in May, when it made the call with crude trading at $132, the price of a barrel never got more than 11% higher. And has since, of course, lost fully two-thirds of that price in the intervening four months.

Now Goldman is left with the ignomy of summarily abandoning the investors who listen to its research calls, telling them effectively that they’re on their own. On Thursday, Goldman said it was ”closing” its recommendations for oil trades. Meaning that in a perilous time when the traders who pay attention to Goldman’s recommendations could use some guidance the most, Goldman has opted to give them the least. And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.

Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened....MORE

And from Bespoke Investment Group:


Equity Decline Accelerating

From EconomPic:

Russia close to economic collapse as oil price falls, experts predict

From The Guardian:

Russia faces possible devaluation of the rouble and a severe drop in living standards next year

Russia is now lurching towards a major economic crisis, experts predicted today, following news that the price of oil had slumped to under $50 a barrel.

The collapse in the value of oil was likely to have several catastrophic consequences for Russia including a possible devaluation of the rouble and a severe drop in living standards next year, they warned.

With oil prices tumbling, and his own credibility at stake, Russia's prime minister Vladimir Putin today insisted that the country's economy was still robust.

Speaking at a meeting of the pro-Kremlin United Russia party, Putin told delegates in Moscow the country would survive the current global financial turmoil - which he blamed on the US....

...The fall in oil prices from $147 this July to below $50 today has blown a gaping hole in the government's budget calculations. It is now facing a $150bn shortfall in its spending plans - and will have to slash expenditure in 2009.

Today Putin sought to assure hard-up Russians that their social benefits would not be affected, promising a $20bn assistance package. "We will do everything, everything in our power ... so that the collapses of the past years should never be repeated," he said.

The oil slump, however, exacerbates Russia's already severe economic problems. Since May Russian markets have lost 70% of their value. Russia's central bank, meanwhile, has been spent $57.5bn in two months trying to prop up the country's ailing currency....MORE

Solar Industry Bursts Into Flames. And: Solar Stocks Comparison Table

Well that's a headline to make a contrarian's heart skip a beat. And better analysis than the "oh isn't it just proof of what we should be doing" crowd.
From Motley Fool:

Solar is so over.

The news broke early this morning, and on the other side of the ocean: Germany's No. 3 solar panel maker is bidding to enter the lucrative business of ... car manufacturing. Now, you're going to think I'm making this up, but I assure you that what follows is a true speculative deal Bloomberg reported on (with thanks to CAPS newcomer and solar skeptic Hapoalim Securities for bringing it to my attention):...

...Dig a little deeper
And yet, the tenuous logic of the deal aside, the idea as a whole sounds utterly crazy. I mean, solar power is the next big thing, right? Isn't that why Suntech (NYSE: STP) and First Solar (Nasdaq: FSLR) gained like a billion percent in their first couple years post-IPO? So why would Germany's third biggest solar player diworsify away from this profit monster, and plunge into the (pardon the mixed metaphor) trainwreck that is auto manufacturing?

The answer isn't obvious, but if you think on it a bit, I suspect it will come to you: Solar power ain't what it used to be. Previously considered an industry at the front end of a capital J-curve, we're now beginning to remember that j's can be downgraded into the lower case as well.

And now, Solarworld thinks it can get better returns on its capital by building green Buicks than by manufacturing solar panels....MORE

And from China Analyst, yesterday's bloodbath:

Company (Ticker) Mkt Price Daily YTD Rev Rev Chg EPS EPS Chg

Chg Chg 08E 09E % 08E 09E %
First Solar (NASDAQ:FSLR) 8293 101.13 -8.5% -62% 1224 2049 67% 3.92 7.35 88%
Suntech Power (NYSE:STP) 1654 8.93 -11.6% -89% 2123 2891 36% 1.60 1.88 18%
SunPower (NASDAQ:SPWRA) 2037 24.24 -10.2% -81% 1440 2030 41% 2.26 3.20 42%
MEMC (NYSE:WFR) 2815 12.20 -10.8% -86% 2107 2245 7% 3.48 3.56 2%
LDK Solar (NYSE:LDK) 1503 12.97 -12.9% -72% 1645 2565 56% 3.27 4.29 31%
Energy Conv. (NASDAQ:ENER) 973 23.42 -11.0% -30% 460 700 52% 1.64 2.96 80%
JA Solar (NASDAQ:JASO) 312 2.02 -18.5% -91% 889 1461 64% 0.66 0.83 26%
Yingli Green Energy (NYSE:YGE) 421 3.25 -7.9% -92% 1110 1600 44% 0.96 1.18 23%
ReneSola Ltd. (NYSE:SOL) 165 2.52 -24.8% -81% 689 887 29% 1.32 1.52 16%
Solarfun Power (NASDAQ:SOLF) 234 4.07 -14.7% -88% 758 939 24% 0.83 0.89 7%
Trina Solar (NYSE:TSL) 170 6.73 -6.8% -87% 865 1191 38% 3.42 3.55 4%
Evergreen Solar (NASDAQ:ESLR) 267 2.26 -22.3% -87% 116 400 245% -0.36 0.27 N/M
Canadian Solar (NASDAQ:CSIQ) 135 4.61 -14.8% -84% 910 1532 68% 2.33 2.23 -4%
China Sunergy (NASDAQ:CSUN) 89 2.24 -12.8% -86% 443 567 28% 0.26 0.89 245%
Akeena Solar (NASDAQ:AKNS) 62 2.19 -2.7% -72% 42 59 40% -0.69 -0.54 N/M
Hoku Scientific (NASDAQ:HOKU) 58 2.87 -17.5% -75% 17 100 484% -0.18 0.26 N/M
Ascent Solar (NASDAQ:ASTI) 53 3.28 -11.1% -87% 1 3 88% -0.75 -0.77 N/M
Spire Corporation (NASDAQ:SPIR) 28 3.38 10.8% -86% 78 129 65% 0.02 0.87 N/M
DayStar Tech. (NASDAQ:DSTI) 43 1.30 -9.7% -79% 0 9 N/M -0.79 -0.97 N/M
BTU Int'l (NASDAQ:BTUI) 33 3.51 -1.4% -74% 74 93 25% 0.04 0.43 900%

Note: I've cut off the three columns on the right side of the table. For the whole shebang go to China Analyst.