Thunderhawk » July 31st, 2015, 9:16 pm Backdoc Alert
VIDEO: Puerto Rico Doesn’t Say Whether Agency Debt Payment Will Be Made
Puerto Rico officials left investors guessing by failing to say whether they’ll make a bond payment due Saturday that risks pushing the securities into default.
Government Development Bank President Melba Acosta said in statement that a $169 million debt service payment for the bank will be paid. She didn’t mention a $58 million payment due the same day by the Public Finance Corp.
A default would mark an escalation in the debt crisis that’s been racking the island, where officials are pushing for what may be the biggest restructuring ever in the municipal market. Puerto Rico bond prices have slipped amid speculation that the island won’t pay be able to repay what it owes as its economy stagnates and residents leave for the U.S. mainland.
“It sends a message to bondholders and the market that we said we don’t have the money to pay our debt and see -- we don’t,” said Emily Raimes, an analyst in New York at Moody’s Investors Service.
Island officials have said that Puerto Rico may skip the payment on the Finance Corp. bonds, which have some of the weakest protections for investors.
The debt is only paid for with money appropriated by the legislature, instead of a general claim on the commonwealth’s tax money. Faced with a budget shortfall, lawmakers didn’t provide the money when they passed the annual spending plan in June.
Island officials said that Puerto Rico’s available cash was limited to funding essential services such as health and safety.
Governor Alejandro Garcia Padilla said in June that the commonwealth cannot pay all of its obligations, following years of borrowing to paper over budget shortfalls. Officials plan to draft a debt-restructuring plan by Sept. 1.
Thunderhawk » July 31st, 2015, 9:18 pm Backdoc Alert
Pacific Rim free trade talks go down to the wire
Talks on a Pacific Rim free-trade pact faced a fast-approaching deadline on Friday as trading partners aimed to wrap up a deal within hours, with New Zealand digging in over trade in dairy products and ministers tussling over monopoly periods for next-generation drugs.
Trade ministers from the 12 nations negotiating the Trans-Pacific Partnership, which would stretch from Japan to Chile and cover 40 percent of the world economy, delayed until 4 p.m. local time (10 p.m. ET) a news conference originally scheduled for 1:30 p.m. on the Hawaiian island of Maui.
"We are still aiming to conclude the negotiations by the time of the news conference," Japanese Economy Minister Akira Amari said before heading into the morning plenary session.
"Some countries are insisting on enormous demands and that's the cause of the impasse."
A Japanese industry source briefed on the talks said New Zealand's demands over dairy and the monopoly periods for biologics, drugs made from living cells, were the two remaining stumbling blocks.
New Zealand has said it will not back a deal that does not significantly open dairy markets, with an eye to the United States, Japan and Canada.
John Wilson, chairman of the world's largest dairy exporter, New Zealand dairy cooperative Fonterra (FCG.NZ), arrived to attend the talks late on Thursday to press home the case.
"It's still dire. This thing is now on a knife edge. There is still not enough in this for New Zealand at all," said Mike Petersen, who represents New Zealand's farm sector.
Ministers have also yet to agree on how long to protect data used to develop biologic drugs. U.S. drugmakers want 12 years, but Australia wants five. People briefed on the talks say a compromise on seven or eight years seems likely, but Mexican Trade Minister Ildefonso Guajardo stressed no deal was done.
"That is exactly what we are trying to negotiate," he told reporters on his way into the meeting.
As the talks entered their final hours, U.S. Senate Majority Leader Mitch McConnell, a Republican from the tobacco-growing state of Kentucky who will be influential in garnering votes in Congress for the deal, added his weight to warnings against excluding tobacco from rules allowing foreign companies to sue host governments over policies that harm their business.
Marlboro maker Philip Morris (PM.N) is suing Australia over its plain packaging tobacco laws. Australia is seeking a general exception from the rules for health and environment policy.
Thunderhawk » July 31st, 2015, 9:22 pm Backdoc Alert
Puerto Rico nears default as debt restructuring beckons
Puerto Rico on Friday made a payment on debt owed by its Government Development Bank, but the U.S. territory may still be short of the funds needed to pay all of its imminent obligations.
"The GDB will make the $169 million payment for the debt service on its bonds today," GDB President Melba Acosta said in a statement released Friday. A payment on that debt was due to be made Saturday Aug. 1.
Puerto Rico, however, is expected to default on a $58 million payment on Public Finance Corporation (PFC) bonds also due Saturday in what is seen as possibly just the first step in the largest U.S. municipal debt restructuring in history.
Whether Puerto Rico defaults may not be known until Monday. According to PFC documents, a payment falling on a weekend can be made on the next business day, which would be Monday, Aug. 3.
"What could surprise investors is when they actually hear the word 'default,' and that a default occurred," said Lyle Fitterer, head of tax-exempt fixed income at Wells Capital Management, which holds mostly insured Puerto Rico debt.
"The immediate reaction might be a slight sell-off in the marketplace because I think people will start to anticipate, 'OK, what's the next series of debt they're going to default on?'"
Puerto Rico Governor Alejandro Garcia Padilla shocked investors in June when he said the island's debt, totaling $72 billion, was unpayable and required restructuring.
The possible default on debt due this weekend would mark the first missed debt payment. According to a 2014 bond offering statement, Puerto Rico has never defaulted on the payment of principal or interest of debt.
A non-payment by Puerto Rico would be the most notable since Detroit, which had about $8 billion of bonds, defaulted on $1.45 billion of insured pension bonds before it filed for bankruptcy in 2013.
Victor Suarez, Puerto Rico's chief of staff, has said the island will do "everything that is possible" to ensure that the $169.6 million Government Development Bank (GDB) debt payment due Aug. 1 is paid.
The commonwealth is expected to send that payment to the trustee on Friday for payment on Monday, a source familiar with the situation said on Friday.
John Miller, co-head of fixed income for Nuveen Asset Management, had said it would be positive for the short term if Puerto Rico made the GDB payment. But he said if it failed to pay, it could be a negative sign for debt such as its general obligation debt.
Suarez said on Monday that the commonwealth did not have the current cash flow to pay the PFC bonds.
"I bought my (PFC) bonds with the anticipation of them defaulting," said Ben Eiler, managing partner at First Southern Securities in Puerto Rico. "They're going to restructure in some form or fashion, and I believe that restructure is going to be higher than that level."
The likelihood of a restructuring is leading investors to wonder how Puerto Rico will prioritize debt payments versus citizens' needs.
"We're beginning to discern a ... mindset on the island that the government is weighing the interest of investors against the economic interest of the island," said Thomas McLoughlin, UBS chief investment officer wealth management research.
Suarez told reporters in San Juan on Wednesday that a missed payment would not constitute default. Bond documents state that Puerto Rico's legislature is not legally bound to appropriate the funds for payment.
However, credit rating agency Standard & Poor's said it would view non-payment of rated PFC bonds on their due date as a default. Moody's said it would also consider it a default.
"It (would be) the first failure by the government to pay on a debt to public investors and indicates the weakness of the government's ability and willingness to pay," said Timothy Blake, managing director of Moody's Public Finance Group.
A default could open the door to a fight with investors, although that may be an uphill battle.
"Our reading of the legal documents is that bondholders have very limited remedies," said David Hitchcock, an analyst at S&P. "Puerto Rico could potentially just ignore the bondholders."
Officials may give information after a scheduled meeting by a working group created by the governor which was ongoing.
"It's going to be a long process, a very long, drawn-out process," said Michael Comes, portfolio manager and vice president of research at Cumberland Advisors in Florida, which holds insured Puerto Rico debt. "It's kind of like watching the Titanic sink."
Thunderhawk » July 31st, 2015, 9:27 pm Backdoc Alert
VIDEO: Cramer game plan: Prep for sharp selloff next week
As much as Jim Cramer wishes earnings season were over already, he knows this is no time to sit back and put his feet up. Investors are still in the thick of it, which is why he has shared his rigorous game plan of stocks he will be watching next week.
"Yes, it is another minefield of earnings reports, made even more difficult by the sheer number of new companies that have come public in the last few years," the "Mad Money" host said.
With China and earnings on the mind, here are the stocks that Cramer will have on his radar next week:
Monday: Clorox, Denny's, BioMarin
Clorox: This is the quintessential consumer packaged goods play. Cramer expects solid numbers, to reiterate his opinion that this is a core portfolio holding.
Denny's: Last quarter, Denny's reported a dramatic upside surprise thanks to the price of oil dropping. Cramer wouldn't be surprised to see some positive moves from Denny's.
BioMarin: This isn't an earnings story for Cramer; it's a new product pipeline story. The quarterly report will show how its recently approved products are doing. And while Cramer doesn't expect a slip-up, he warned investors to be aware that the stock is up more than 50 percent for the year.
Tuesday: Chinese PMI, CVS Health, Regeneron, Disney, Pioneer Natural Resources
Cramer wants investors to be prepared for disappointment, as China PMI is an important gauge for how the Chinese economy is doing. Just be aware that China can lurk like a hidden dragon and breathe fire on U.S. stocks with an intense level of force.
"I need you to be ready for a sharp Chinese market selloff that can then impact our market," he said. (Tweet This)
CVS Health: If the PMI is poor, then there could be a buying opportunity for US-based CVS. Cramer expects yet another excellent quarter, which could be overshadowed by a China selloff and create an opportunity.
Regeneron: The tie-up between Regeneron and Sanofi, which owns 22.6 percent of Regeneron. The two are collaborating on an anti-cholesterol drug, and the news has overshadowed their new partnership to develop cancer drugs.
Cramer likes Regeneron for a long-term play, but if the market fails to recognize its new developments on Tuesday this could be an opportunity to buy the stock. Cramer wants investors to take advantage of this opportunity that could go unnoticed because it is a chance to buy Sanofi, too.
Wednesday: Ralph Lauren, Jack in the Box, Tesla, FitBit
Ralph Lauren: This company has been disappointing lately, and Cramer wonders if it will break out of its funk finally.
Tesla: This is a cult stock that has defied reality for Cramer for years, and he thinks it will continue to do so. If you love the car, then Cramer says to feel free to buy the stock.
FitBit: Cramer doesn't think the marketplace fully understands the power of the ecosystem that has been created by FitBit. Maybe they will get it when it reports.
Thursday: Allergan, Molson Coors
Allergan: Cramer admits the expectations for this stock have gotten very high. Cramer has the stock in his charitable trust, and is someone concerned about the run up.
Friday: Labor Department's non-farm payroll report, WhiteWave Foods
"I think it is safe to say that there will be a massive second guessing of the Fed's decision to not signal a rate hike earlier this week if that payroll number is strong," Cramer said.
A strong number and a quiet Chinese stock market could translate to more calls for the Fed to tighten in September, so expect a selloff if there is a strong number.
So while there is still an abundant amount of earnings to get through next week, the Fed chatter and potential Chinese breakdown will take center stage again. So keep an eye on earnings and remember the big picture to buy stocks at cheap prices when the opportunity arises. LINK
Thunderhawk » July 31st, 2015, 9:32 pm Backdoc Alert
Exxon, Chevron Brace for Dark Times Ahead
Exxon Mobil Corp. and Chevron Corp., the biggest U.S. energy producers, hunkered down for a prolonged stretch of weak prices after posting their worst quarterly performances in several years.
Exxon reported its lowest profit since 2009 as crude prices fell twice as fast as the world’s largest crude producer by market value could slash expenses. Chevron recorded its lowest profit in more than 12 years after the market rout forced $2.6 billion in asset writedowns and related charges. The companies’ shares fell to multi-year lows.
Stung by the worst market collapse since the financial crisis of 2008, oil explorers from The Hague to Calgary to Houston are firing staff, scaling back drilling, canceling rig contracts and reducing share buybacks to conserve cash. Chevron said the slump convinced it to lower its long-term outlook for crude prices.
More from Bloomberg.com: China's Great Short Seller Is Now a Bull Predicting Big Gain
“This is the beginning, not the end, of the writedown process,” Paul Sankey, an energy analyst at Wolfe Research LLC, said on Bloomberg TV. “The biggest concern is that we’ll see weaker demand over the second half of the year.”
Oil entered its second bear market since mid-2014 this month as a flood of output from North American shale regions, the Persian Gulf and deepwater fields overwhelmed consumption by refiners and chemical producers.
Avalanche of Crude
Exxon and Chevron contributed to the avalanche of supply by increasing second-quarter crude output by 12 percent and 1.7 percent, respectively. Exxon expanded oil production in every region where it operates except Australia/Oceania. All of Chevron’s growth occurred in the U.S.
“Oil prices will be under downward pressure until there is evidence the glut is shrinking,” analysts at IHS Energy said in a note to clients. “This will not happen quickly unless prices fall even further from recent levels,” discouraging new drilling.
Exxon shares fell 4.6 percent to $79.21 in New York, the lowest closing price since June 2012. Chevron dropped 4.9 percent to $88.48, the lowest close since December 2010. The companies were the day’s worst performers in the Dow Jones Industrial Average index.
Exxon cut share repurchases for the current quarter in half to $500 million after net income fell to $4.19 billion, or $1 a share, from $8.78 billion, or $2.05, a year earlier, the Irving, Texas-based company said in a statement. The per-share result was 11 cents lower than the average estimate of 20 analysts in a Bloomberg survey.
Refinery profits fattened by lower crude costs were more than offset by weaker results in the company’s primary business, oil and natural gas production, Exxon said. The company’s U.S. wells lost $47 million.
Exxon reduced spending on major projects like floating crude platforms and gas-export terminals by 20 percent to $6.746 billion during the quarter, according to the statement. International crude prices fell 42 percent from the previous year to average $63.50 a barrel.
Chevron’s profit dropped to $571 million, or 30 cents a share, from $5.67 billion, or $2.98, a year earlier, the San Ramon, California-based company said in a statement. The per-share result was well below the $1.16 average estimate.
Chevron’s biggest business unit -- oil and gas production - - posted a loss as the second-largest U.S. energy company recorded a $1.96 billion writedown on assets and another $670 million charge for taxes and projects suspended because they no longer make economic sense.
“The writedowns will get worse into the end of the year as companies complete their end-of-the-year SEC filings,” Sankey said. “The market still looks very oversupplied with oil and we’re in peak demand season.”
Exxon Chairman and Chief Executive Officer Rex Tillerson was among the first to shrink spending as the crude rout began more than a year ago. After cutting the budget by 9.3 percent in 2014, this year’s reduction may exceed the original 12 percent target, Jeff Woodbury, vice president of investor relations, said during a conference call with analysts.
Tillerson, an Exxon lifer whose 10th year as CEO began in January, has been pessimistic about the prospects for an imminent oil-market rebound. On April 21, he told a Houston energy conference that the supply glut and low prices will persist “for the next couple of years” at least.
Those remarks proved prophetic: international crude prices that rose 45 percent between Jan. 13 and May 6 have since tumbled 22 percent, inaugurating the second oil bear market in 14 months.
“Chevron was a disaster; Exxon was a disappointment,” Fadel Gheit, an analyst at Oppenheimer & Co. In New York who rates the shares of both the equivalent of a hold and owns each. “A rising tide lifts all ships, but when the tide goes down, all ships go down.”