Sunday, July 24, 2016
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GoPro Misses Earnings, Issues Clownish Guidance, Sticks With Absurd Buyback Program

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Nick Woodman is a ridiculous caricature of a person. As CEO of GPRO, he’s done nothing but sell out of his stock and live high off the hog, as his companies shares plunged 90% from its highs. After the bell, the retarded camera maker, announced sales and guidance that were so bad; they were funny.

GoPro prelim Q4 ($0.08) vs $0.03 Capital IQ Consensus Estimate; revs $436.6 mln vs $448.56 mln Capital IQ Consensus Estimate

GoPro sees Q1 revs $160-180 mln vs $300.67 mln Capital IQ Consensus; FY16 rev $1.35-1.50 bln vs. $1.63 bln consensus

Woodman

“In 2015, we recorded 16% year-over-year revenue growth and the fourth quarter represented the second highest revenue quarter in the company’s history,” said GoPro Founder and CEO, Nicholas Woodman. “However, growth slowed in the second half of the year and we recognize the need to develop software solutions that make it easier for our customers to offload, access and edit their GoPro content.”

So they admit that their strategy sucked. Maybe Nick Woodman, son of the founder of Robertson Stephens, was too busy on his new yacht, than to hatch up some new growth strategies.

Nevertheless, the company forges ahead with its meaningless share buyback program. For the love of Christ, the company is barely out of the IPO gates. There shouldn’t be a need to buy back shares so soon. They are admitting failure. They’re unable to grow and have resorted to smoke and mirrors as a way to buoy the earnings and stock. Well guess what, fucked faces, your guidance represents a 45% decline in sales. Therefore, you just bought back $35 million worth of stock into a maelstrom of earnings decline. In other words, not only are you down $10-20 million on your share buybacks; but your operating losses will now look worse with less shares outstanding.

Commencing in the fourth quarter of 2015, GoPro has acquired approximately 1.5 million shares of its Class A capital stock at an average price per share of approximately $23.05, representing a total share repurchase of approximately $35.6 million through December 31, 2015. The Company has a remaining share repurchase authorization of $264.4 million. GoPro ended 2015 with cash, cash equivalents & marketable securities totaling $474 million, an increase of approximately $52 million from year end 2014.

Nick Woodman doesn’t deserve a job.

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Chesapeake Energy Credit Downgraded to CCC+ at S&P; Outlook Negative

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How will the market respond to a Chesapeake bankruptcy? We might soon find out.

With nearly $12 billion in debt, CHK looks like a goner. Debt is trading at bankruptcy levels. Their credit is junk and the stock price is cornered into a ‘fag box.”

From S&P:

Standard & Poor’s Ratings Services today lowered its corporate credit rating on Oklahoma City-based exploration and production company Chesapeake Energy Corp. to ‘CCC+’ from ‘B’. The outlook is negative.

At the same time, we lowered the senior unsecured debt ratings to ‘CCC-‘ from ‘CCC+’. The ‘6’ recovery rating is unchanged, reflecting our expectation for negligible recovery (0% to 10%) in the event of a payment default.

In addition, we lowered the rating on the company’s first-lien senior secured debt to ‘B’ from ‘BB-‘. The recovery rating on this debt remains ‘1’, indicating our expectation for very high (90% to 100%) recovery in the event of a payment default. We also lowered the issue-level rating on the company’s second-lien notes to ‘B’ from ‘BB-‘ and placed them on CreditWatch with
negative implications, reflecting the potential for lower ratings if a revised PV-10 results in lower recovery expectations.

We also lowered our rating on the company’s preferred stock to ‘D’ from ‘CCC’ based on Chesapeake’s decision to suspend dividends, which we view as a default on the securities.

“The downgrade reflects the implementation of the recent change in our base case oil and natural gas price assumptions,” said Standard & Poor’s credit analyst Paul Harvey. We lowered our 2016, 2017, and long-term price assumptions for Henry Hub natural gas by over 15% and West Texas Intermediate (WTI) crude oil by about 20%%, which resulted in significantly weaker financial measures for Chesapeake, with funds from operations (FFO)/debt under 5% and debt/EBITDA well over 10x for the next two years. At such levels, we assess debt leverage as unsustainable. Based on our price assumptions, we expect only limited improvement in the near-term and that Chesapeake will face both a challenging operating environment and weak capital markets as about $2 billion of debt comes due in 2017. The downgrade of the preferred stock to ‘D’ reflects the suspension of dividends on that security, which we view as a default.

The negative CreditWatch placement of the second-lien notes reflects the potential that we could lower ratings on that debt class if a revised PV-10 results in lower recovery expectations.

The negative outlook reflects our expectation that financial measures will remain very weak over the next 24 months based on our natural gas and crude oil prices assumptions. Under these challenging conditions, we expect debt leverage to exceed 12x on average. Additionally, liquidity is likely to be challenged under these low prices, both from diminished cash flows and
potential reductions in the company’s borrowing base. Also, the negative outlook reflects the potential that Chesapeake could launch an exchange offer or other refinancing we would view as distressed, resulting in a selective default.

We could lower ratings if we expected liquidity to materially weaken in the face of the 2017 debt maturities and expected puts, such that we assessed liquidity as weak. Additionally, we could lower ratings if Chesapeake pursued a distressed refinancing of its debt, which we would view as a selective default.

We could revise the rating outlook to stable if Chesapeake can address upcoming maturities and putable debt such that we assessed liquidity as adequate, and at the same time financial measures improved on a sustained basis such that FFO to debt was 5% or better and debt/EBITDA was below 10x. Both events are likely in conjunction with improving hydrocarbon prices, such that our natural gas price assumption exceeded $3.00 on a sustained basis.

Other commodity companies with similar or worse debt profiles include: PBR, SDRL, ETE, FCX, LNG, ESV, WLL, SM, OAS, NOG, BBG and more. In all, we’re talking about $800 billion in debt.

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Banks with Oil Ties Continue to Deteriorate

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Regional southwest banks were the darling of regional bank stocks for the past 5 years, until now. As the entire state of Texas descends into a Saudi induced hell, so are its banks.

For the year, the regional southwest bank sector is down 14.2%, with gargantuan losses in TCBI (-34%), CFR (-27%), PB (-27%), BOKF (-23%) and IBOC (-15%).

Both TCBI and CFR are paying big dividends, with yields edging towards 5%. Back in 2013, TCBI was trading at 2.2 book value, now just 1.05.

CFR, which is the poster child in all of this, is now trading under book value (0.98)–something not even seen during the financial crisis of 2008.

As a group, the sector is trading 1.09x book, a discount to the financial sector. Since 2005, southwest banks have consistently traded at a steep premium to the rest of the sector.

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Does this look normal to you?
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But don’t worry, CEO of CFR, Dick Evans, former Fed head at the Dallas Fed, says “The economy in the state of Texas is strong.” And, they can handle $37 crude.

Let’s see how Dick’s stress tests work out with $25 crude.

UPDATE: The Dallas Fed just came out with some really bad economic stats for the state of Texas. The worst general business activity since 2009.

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Texas factory activity fell sharply in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index—a key measure of state manufacturing conditions—dropped 23 points, from 12.7 to -10.2, suggesting output declined this month after growing throughout fourth quarter 2015.

Other indexes of current manufacturing activity also indicated contraction in January. The survey’s demand measures—the new orders index and the growth rate of orders index—led the falloff in production with negative readings last month, and these indexes pushed further negative in January. The new orders index edged down to -9.2, and the growth rate of orders index fell to -17.5, its lowest level in a year. The capacity utilization index fell 15 points from 8.1 to -7, and the shipments index also posted a double-digit decline into negative territory, coming in at -11.

Perceptions of broader business conditions weakened markedly in January. The general business activity and company outlook indexes fell to their lowest readings since April 2009, when Texas was in recession. The general business activity index fell 13 points to -34.6, and the company outlook index slipped to -19.5.

Labor market indicators reflected a decline in January after exhibiting strength in November and December 2015. The employment index dropped from 10.9 to -4.2, with 17 percent of firms noting net hiring and 21 percent noting net layoffs. The hours worked index plummeted 23 points to -9.2, suggesting a sharp pullback in employee hours.

The survey’s price measures remained negative in January, but wages continued to rise. The raw materials prices index has been negative for seven months and held fairly steady at -8.6. The finished goods prices index has been below zero for more than a year and moved up from -15.5 to -9.6 this month. Meanwhile, the wages and benefits index stayed strongly positive but dipped from 20.2 to 16.5, suggesting a smaller rise in compensation.

Expectations regarding future business conditions weakened notably in January. The index of future general business activity fell 22 points to -24, and the index of future company outlook fell to -1.3, its first negative reading in nearly seven years. Indexes for future manufacturing activity generally declined but remained solidly positive.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected Jan. 12–20, and 118 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

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WHAT A RELIEF, MAN!

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Markets surged higher today, with almost 90% of stocks participating in the rally.

Oil traders rejoiced in the splendor of a 9% surge in WTI, popping champagne bottles filled with light sweet crude and spraying it in each other’s faces at the close of trade. It was a relief rally, the very definition of the term.

Markets are still lower by 7.5% for the year and the vast majority of stocks are still lower double digits.

Where do we go from here?

With my money, I am levered long SPY. I sold out of some yesterday and a little more today–but still have a margin balance–due to my 25% weighting in TLT. I will be unwinding the entire SPY position, methodically, until 2/2. Details of the plan are in the blog section of Exodus.

Year to date, my losses are less than 3%. I’ve managed the rout with exemplary precision and will work towards moving from red to black over the next few weeks, maybe less.

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Depleted Credit Lines Might Leave Banks Holding the Oil Wells

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A bloomberg analyst broached this discussion today. She was a little naive in thinking the silly little bankers, who’ve been bending everyone and everything over a barrel for the past 17,000 years, were just going to cede to the oil companies and give them all sorts of money–that would be flushed directly down and into a toilet bowl.

That’s not exactly how it works.

The credit lines are tied to the value of the property. If the properties are some backwards wells in the Bakken and they depreciate: banks will decrease the line of credit. Right now, as is the case with CHK cutting their divvy payments for their preferred stock–saving $170 mill in the process to be earmarked for buying back distressed debt–energy companies are deciding whether to draw down credit lines to buy back debt –trading at bankruptcy prices–or draw it down to extend their lives.

In other words, do you buy back the debt and hope for higher crude, or keep cash in the bank and wait it out–perhaps missing an opportunity to retire debt at 50 cents on the dollar?

She seems to think the banks are morons, beholden to collateral values when crude was $100. If oil companies draw down their lines of credit and go bust, banks have first claim to assets and will own the wells–just like they owned the houses in 2008.

Is that a good thing for banks? Probably not. But they’ll make it through the other side.

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THE RALLY MUST HOLD

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The market needs to hold these gains, else margin calls will crush any hope by the end of day. The rally in crude, albeit tepid, is encouraging. However, I wouldn’t be surprised to see oil lower and stocks higher, decoupling from the commodity.

Bearishness is at record highs and we all have reasons to sell our stocks. For the year, I am down about 5%, fully invested in SPY and TLT. I did sell 1/6th of my SPY position this morning and I detailed my plans inside Exodus for members to take in.

News is meaningless right now. All the matters are animal spirits. Do investors want it or will they cower into the afternoon trading hours again?

Breadth is only at 73%, so that’s not encouraging. But we are so oversold, people are so desperate for a rally, I’d be surprised if the muppet masters didn’t throw everything but the kitchen sink at this market–trying to light a fire under this market.

Longer term, banks, tech and energy are impaired, all for different reasons. Take the rally and use it to reduce your exposure.

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Gundlach: ‘The Market is Going to Humiliate the Fed’

Jeffrey Gundlach, CEO of DoubleLine, speaks at the 16th annual Sohn Investment Conference in New York

Jeff Gundlach aka ‘the new Bill Gross’ is giving it to the Fed for prematurely hiking rates, as he was one of their most vocal critiques. He suggested the recent sell off as having the trappings of liquidation or margin call selling and then pointed to oil as a result of a ZIRP policy gone awry, coupled with global weakness.

Oil is in massive oversupply due to ZIRP (zero interest-rate policy) induced over-investment,” he said. “And crashing oil is not the cause of all this chaos, it is a symptom of global economic weakness. As are all the tumbling risk markets. We have insufficient and dwindling global growth.”

Gundlach, who had repeatedly warned that the Fed prematurely raised rates in December, said: “The market is going to humiliate the Fed.”

Gundlach said Fed officials need to soften their rhetoric on hiking rates further. He said he does not think the Fed will be able to raise interest rates eight times over the next two years, as reflected in its ‘dot plot.’

For those unfamiliar with the inane ‘dot plot’: it is a psychotic plan by Janet Yellen, probably conjured up in a NYC deli, where the Fed would hike interest rates 16 times over the next 3 years. Really, it’s clownishly funny, especially when considering how the market faired with just 1 hike.

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PBOC Makes Massive Cash Injection–Biggest in Three Years

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Last year, the great walled nation of China had over $4 trill in fx reserves aka cash for a rainy day. Due to their economic slow-down and capital flight, they’ve been spending it like drunken sailors. By next year, that number is predicted to be as low as $2.6 trillion.

News is out tonight that the PBOC injected an astounding $315 billion–which qualifies as the largest open market cash injection in three years.

Before you know it, all of their money will be gone. Poof. Easy come, easy go.

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At least they got to spend a whole bunch of money on ghost cities and expensive as fuck oil for their strategic reserves.

Asshats.

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Bank of America: Derivative Triggers Might Annihilate the Hang Seng, Very Soon

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This is a research note that was circulating today–that I didn’t get around to discussing–due to the face ripping market I was enjoying throughout the day.

The banks sold their clients structured products (God I hate that phrase) that gave them exposure to Chinese stocks traded in Hong Kong, aka “H-shares.” If you recall, everyone was sucking the skin off China’s knee caps just 1 year ago. Boy have circumstances changed.

Apparently, there is a “knock-in” feature that triggers if the H-shares fall below 8,000, with a notional value of $13.6 billion and another $16.8 billion between 6,000-7,000.

Banks have purchased futures on the gauge of so-called H shares to hedge exposure to structured products that they’ve sold to clients, according to Chan. Many of those products have a “knock-in” feature at the 8,000 level that will spur banks to cut futures positions to maintain the effectiveness of their hedges, he said. Additional pressure points may also come at lower levels, Chan said.

“As the market goes lower from here, the downward move may accelerate,” he said. “There will be a large amount of hedging in futures which dealers need to unwind.”

Guess where the H-shares are trading now?

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Pray for a rally.

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Dick Bove: Banks Have Massive Exposure to Energy (but he doesn’t care)

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Aside from giving you my point of view, I feel it’s important to provide readers of the site with all sorts of views from a wide array of people. Information is power and iBankCoin is a powerhouse in financial content. That being said, I am about to pull out a relic from the banking crisis era: Dick Bove.

This is a guy who was widely derided by me back in 2008-2009 for apologizing for the banks, recommending purchase of them, JUST PRIOR TO THEIR COLLAPSE. He literally had no idea, whatsoever, of what he was doing back then, despite having all of the facts and information in front of his face. In other words, he’s a fucking moron.

Watch this video and you will hear him say the banks probably have DOUBLE the amount of energy exposure that is being reported. Off the back of this envelope I have in front of me now, the numbers get deep into the $100’s of billions in basic resource loan exposure. He then says investment banking will thrive, for reasons that escape me and that asset management will suck eggs. Despite all that, he likes banks and I don’t think he even knows why.

He did, however, draw a line when it came to Citigroup, pointing to the sheer fuckery on their balance sheet, from mining to China to energy. There are all sorts of splendid ways the sages at Citi have positioned the bank, since 2008, to lose. Funny thing, as evidenced by the CNBC caption under Bove’s face, they put “Bove: Citi is Severely Undervalued.” However, nowhere during this interview did he say that. As a matter of fact, he was somewhat sanguine over their prospects. More CNBC tomfoolery, I suppose.

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