Stockman: The Fed is Lost in its Keynesian Puzzle Palace

Bear pornographer, David Stockman, lays out the bear agenda, rather abruptly, before an awe shocked Bloomberg hostess, followed up by some other Bloomberg man-co anchor wearing lipstick and talking in very loud and incorrigible tones. If you’re curious to learn what life is like being an ardent and dedicated bear, look no further than this video.

Clearly, David Stockman is a man with exceedingly poor dental hygiene and doesn’t bother to take a handkerchief to his greasy eye glasses. There is nothing at all noteworthy about Mr. Stockman’s ursine dissertation, other than his extreme belligerence for hearing arguments to the contrary.

The Devil Dog/Zerohedged crowd cannot and will not be negotiated with. It’s zero dark thirty all day every day for these folks. Eventually, one day, the world will end for them, which will be a custom tailored apocalypse onto itself. I imagine this eventuality might be greeted with a faint smile, as their ephemeral existence is met with an everlasting rest– the ultimate elixir for all things good and pervasively living.

BEHOLD:

In an otherwise uneventful morning, oil is certainly exacting punishment to the faithful residents of this obstreperous trade. WTI is off by more than 4% and crude stocks are being smashed into little pieces, much to the chagrin to all of those who were hopeful for a continuation of the brainless surge we’ve recently been entreated to.

Harrowing losses are presently menacing longs in the ‘oil patch’ today.

Overall, markets lack energy (extra Jeb!) and are mired in a slothful, rudderless condition, whereby investors are reticent to bet big ahead of the Fed and afraid to sell for fear of missing out on strong seasonal trends.

Markets have a weak bias to it, bucking the recent upward surge in equities. This is a week that is besieged by the Federal Reserve, with market participants hoping and praying to hear dovish news. The most recent data indicates a Fed hike is unlikely to occur until June. This eventuality is not being taken seriously. Once the moment of truth arrives, markets will likely throw a tantrum and run prices lower. For now, however, the indices rudely beat short sellers into submission.

Crude is off by 3.2%, contributing to a general malaise in equity prices.

Bonds are higher by 0.6% and gold stocks are lower. It is a rudderless tape, thus far, with nothing noteworthy to discuss.

Starwood had agreed to a buyout from Marriott for $72, until the Chinese entered the fray this weekend with a superior offer. Anbang Insurance Group is one of China’s largest insurance companies and they don’t give a shit about Marriot’s plans for Starwood. They are leading a group of savage investors to acquire it and kick Marriott to the side.

The proposal is $76 in cash for all of the company’s outstanding shares, Starwood said in a statement on Monday. That values Stamford, Connecticut-based Starwood at about $12.9 billion, based on its estimate of 170 million shares.

While Starwood didn’t identify the bidder in its statement, Marriott said Anbang led the group’s offer in a separate announcement in which it confirmed its plan to buy Starwood.

Starwood “will carefully consider the outcome of its discussions with the consortium in order to determine the course of action that is in the best interest of Starwood and its stockholders,” the hotel operator said. Starwood said it still supports Marriott’s offer.

Under both offers, Starwood shareholders would also get Interval Leisure Group stock from a previously announced spin off of vacation ownership business, Vistana Signature Experiences, and subsequent merger with ILG.

Marriott’s offer for Starwood valued the company at $72.08 per share when it was made. Starwood would have to pay Marriott a $400 million termination fee in cash if it decided to enter into another deal or changes or withdraw its recommendation to its stockholders to vote in favor of the Marriott deal.

This should be interesting.

This is an interesting premium deal, enacting by a shitty private equity firm. Apollo Global is buying TFM for as 24% premium to Friday’s close. The supermarket industry has been racked with underperformance. Perhaps the morons at Apollo feel they can lose a little bit of money on this deal, as opposed to gargantuan losses.

Nevertheless, it might put a bid under other grocers, like WFM and SFM.

Apollo Global Management LLC agreed to buy grocer The Fresh Market Inc. for about $1.4 billion in cash in the buyout firm’s third announced acquisition of more than $1 billion since the start of February.

Shareholders will receive $28.50 a share in a tender offer, the companies said in a statement Monday. The price is 24 percent above Fresh Market’s closing level on Friday.

Fresh Market’s board conducted an “open and thorough review” of strategic alternatives before agreeing to the sale, according to the statement. Still, the Greensboro, North Carolina-based company can solicit better offers for 21 days after signing a definitive deal, the companies said.

Shares of TFM are down 45% over the past year.

I haven’t the slightest idea of how their medicine works. In my head, this company is smoking joints all day, discussing the virtues of cannabis. In reality, they’re probably smoking joints and also developing some kick ass treatments.

At any rate, this stock is up 126% in the pre-market, making it must-read news for today’s session. Whether this creates a halo-effect around biotech remains to be seen. But this data looks incredible.

“The results of this Epidiolex pivotal trial are important and exciting as they represent the first placebo-controlled evidence to support the safety and efficacy of pharmaceutical cannabidiol in children with Dravet syndrome, one of the most severe and difficult-to-treat types of epilepsy,” said Orrin Devinsky, M.D., of New York University Langone Medical Center’s Comprehensive Epilepsy Center. “These data demonstrate that Epidiolex delivers clinically important reductions in seizure frequency together with an acceptable safety and tolerability profile, providing the epilepsy community with the prospect of an appropriately standardized and tested pharmaceutical formulation of cannabidiol being made available by prescription in the future.”

“The positive outcome of this Phase 3 trial is a significant milestone in the development of Epidiolex as a potential new treatment for patients suffering from Dravet syndrome. We are excited about the potential for Epidiolex to become the first FDA approved treatment option specifically for Dravet syndrome patients and their families,” stated Justin Gover, GW’s Chief Executive Officer. “In light of this positive data, we will now request a pre-NDA meeting with the FDA to discuss our proposed regulatory submission. We also look forward with excitement to the upcoming results from the two Phase 3 trials in Lennox-Gastaut syndrome and the second pivotal trial in Dravet syndrome.”

“Dravet syndrome is one of the most catastrophic types of epilepsy in children and safe and effective treatments are desperately needed. We are thrilled to learn of these positive results, which bring much needed hope to the children and families who have been living with these debilitating seizures,” said Mary Anne Meskis, Executive Director of the Dravet Syndrome Foundation.

• In this study, Epidiolex achieved the primary endpoint of a significant reduction in convulsive seizures assessed over the entire treatment period compared with placebo (p=0.01).
• Co will now request a pre-NDA meeting with the FDA to discuss its proposed regulatory submission.
• In this study, patients taking Epidiolex achieved a median reduction in monthly convulsive seizures of 39 percent compared with a reduction on placebo of 13 percent, which was highly statistically significant (p=0.01). Results from secondary efficacy endpoints reinforced the overall effectiveness observed with Epidiolex.
• Epidiolex was generally well tolerated in this study.
• The most common adverse events (occurring in greater than 10 percent of Epidiolex-treated patients) were: somnolence, diarrhea, decreased appetite, fatigue, pyrexia, vomiting, lethargy, upper respiratory tract infection and convulsion.
  • Of those patients on Epidiolex that reported an adverse event, 84 percent reported it to be mild or moderate. Ten patients on Epidiolex experienced a serious adverse event compared with three patients on placebo.
  • Eight patients on Epidiolex discontinued treatment due to adverse events compared with one patient on placebo.
• The first Phase 3 trial is a placebo-controlled trial of Epidiolex (at a dose of 20 mg/kg) over a 14-week treatment period and has randomized 171 patients.
  • This trial is expected to report top-line results in the second quarter of 2016.
• The second placebo-controlled trial has randomized a total of 225 patients and is expected to report top-line results mid-2016.

The big lie, or the narrative that is being promoted by China and their apologists, is that the Chinese economy is slowing because it is transitioning away from slave factories to a decadent American styled consumption based economy. This, of course, is complete horseshit, as the farmers in the countryside make like $6 per day, unable to afford anything for sale inside of the luxury outposts being built across the country.

This is disastrous news of the first magnitude. It debunks all theories that state the Chinese economy isn’t slipping into a well greased hell hole.

Markets probably won’t reel from this news because we’re in bull mode. But it should dive lower, if the news were truly ingested for what it is: toxic for growth and equity valuations.

Kiss the 6.5% Chinese GDP numbers goodbye.

This is something to keep a watchful glance on, every so often, as “The Donald” continues up the ladder towards the Presidency. The EPA, under Obama, has laid waste to the lads in W. Virginia–enacting very harsh laws that made business impossible. With the GOP on the rise in popularity, under Trump, there is a better than average chance King Coal might enjoy a resurgence, if only during the time from now until the general elections. Perception is everything in stocks, sometimes more so than the actual facts.

Year to date, coal is higher by 23%, beating out gold for the number one performing commodity for 2016.

Coincidentally, natural gas, coal’s main competition, is at the bottom of the barrel, off by 25%.

Some coal stocks to consider, should the trend continue.

CNX

WLB (7.4x debt/eq)

FELP (5.6x debt/eq)

CLD (3.77 debt/eq)

I have no interest in BTU or ACI, due to an insurmountable debt burden.

The popular trade to bet against the Chinese currency has gone awry, laying waste to scores of hedge funds who bet against the command economy. There was nothing short of tumult about a month ago, as capital fled the country at a record pace, forcing the government to use its forex reserves to defend the currency.

Over the past month, they’ve been largely successful in reversing the trend, sending the yuan to 4 month highs. The net result, for hedge funds like Pershing Square?

Hundreds of millions in losses.

Seven months after a shock devaluation spurred hedge funds and other speculators to wager on further declines, the yuan’s unexpected resilience has turned many of those bets into losers. At least $562 million of options that pay out if the currency drops below 6.6 per dollar — its weakest point since the devaluation — have expired worthless since August. Another $807 million will lapse within three months.

While those figures provide just a glimpse into the potential losses for pessimistic speculators, what’s clear is that the Chinese government has proven a stronger adversary than many traders anticipated. Policy makers have gone to extreme lengths to prop up the yuan — ramping up intervention, clamping down on capital outflows and waging a rare verbal campaign to restore confidence in the currency. Bears now face a difficult choice: They can abandon the trade, or hunker down for what could become a costly waiting game.

“China wants to have control over the yuan and will do whatever it can to ensure that no one else decides what direction it goes in,” said Hilmi Unver, the head of alternative investments at Notz Stucki & Cie, a Swiss money manager that allocates $3 billion to hedge funds on behalf of clients. “Is it worth fighting against a huge economy and policy maker that could take you out? No.”

Betting against first world governments is a hard trade, one that should be considered a black swan event. For those who lost money in betting against the yuan, hoping the Chinese would capitulate, you deserve everything you’ve received, and more.

I’d like to take a break from dividing and conquering the readers of iBankCoin by moving away from the political jargon to remind you that doom is just around the bend.

In spite of the fact that oil has been on an effervescent run higher, the balance sheets of scores of high cost producers are racked with an unsustainable amount of debt.

Crude oil at $28 or $40 isn’t enough to stop the inevitable.

Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than $17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd. predicts $70 billion of energy, metal and mining defaults this year, and notes that $77 billion of energy bonds are bid below 50 cents, according to a note Thursday.

A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich didn’t respond to requests seeking comment.

“Absent a material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection,” Energy XXI said in a March 7 public filing.

Restructuring Plan

Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that would convert its unsecured debt and preferred shares into common stock. For the plan to work, shareholders must approve it at a March 14 meeting and enough bondholders need to participate by the March 16 exchange deadline.

“Absent a successful completion of the recapitalization plan, the company will have no alternatives other than to seek protection through the bankruptcy courts,” Walter Goodrich, chairman and chief executive officer, said on a March 9 conference call.

Missed interest payments and potential defaults include:

Energy XXI, with $2.875 billion in debt, and SandRidge Energy, which owes $4.131 billion, both failed to pay interest due Feb. 16 and will default unless they reach agreements with their creditors by March 17.

Ultra Petroleum, which owes $3.197 billion, said last week it has until April 30 to hammer out a deal with its lenders.

Goodrich Petroleum, which owes $455 million, said this week that it won’t pay interest due March 15 and April 1, and that it’s asking bondholders and shareholders to participate in a restructuring plan.

Chaparral Energy Inc., with $1.798 billion in debt, missed a payment on March 1, starting the clock on a 30-day grace period.

Pacific Exploration & Production Corp., with $5.428 billion in debt, likewise has until the end of the month under an extension granted by its creditors.

Venoco Inc., facing $708 million in debt, skipped an interest payment last month. The company must cut a deal with creditors by March 17.

Warren Resources Inc., which owes $453 million, said last month that it may file bankruptcy without a creditor deal. The company faced a default on March 2, when a 30-day grace period for a missed interest period had been set to expire.

A representative at Pacific declined to comment, and one at Warren Resources said the company would release more information about its restructuring at a later time. Representatives for Ultra Petroleum, Chaparral and Venoco didn’t return calls and e-mails requesting comment.

“Asset managers bought the story that we’d have $100 oil forever,” said Tim Gramatovich, chief investment officer with Peritus Asset Management in Santa Barbara. “Bondholders are left holding the bag.”