General Electric Caution Signs Are Flashing in Credit Markets

By Anthony B. Sanders

5Y CDS Rises To Near 200 As Earnings Continue To Sag

Too much debt?  Declining earnings per share? All of the above??

(Bloomberg) — General Electric Co. may still have a relatively solid investment-grade rating, but investors aren’t taking their chances. They’re snapping up derivatives that protect against losses on the company’s debt.

The cost to insure against a default by GE for five years climbed to as high as 211 basis points in early trading, credit-default swaps prices from CMA show. That’s almost double what it cost just two weeks ago, and it’s the kind of level that hasn’t been seen for the company since the waning days of the global financial crisis.

That’s still well below the peak crisis levels for GE’s finance unit back then (GE Capital CDS surged to more than 1,000 basis points in March 2009). But the pace of the increase has been rapid, particularly when compared with the broader investment-grade market. Yields on some of GE’s bonds have also reached levels that are in line with junk-rated bonds, Bloomberg Barclays index data show.

gecds

This is not surprising given the performance of GE’s equity and 5% perpetual bonds.

Continue reading General Electric Caution Signs Are Flashing in Credit Markets

Oil’s Drop Bigger Than Called For, But Right On Schedule

By Tom McClellan

Gold prices lead crude oil

Crude oil prices reached a new multi-year high on October 3, and then started a dramatic drop.  It has just now fallen for 12 straight trading days to reach the lowest close since December 2017.  There are various theories about why this has happened, attributing it to comments from President Trump, OPEC chicanery, Iranian oil exports, falling demand, fracking overproduction, and all manner of other explanations.  But few of those explanations address the “when” question, concerning why this is happening now.

Continue reading Oil’s Drop Bigger Than Called For, But Right On Schedule

The Final Blow

By Tim Knight

[biiwii comment: per my comment to this post at Slope of Hope…]

I once asked Bruno if I could publish his posts @ biiwii.com and he responded in such a humble way. As if it were an honor for HIM that I would consider publishing him. It was actually the other way around. He was an idealist and as honest as the day is long. But the humility; that is a thing I respected most. Thank you Tim for this post. I am very sad to hear this.

I have sad news to share with everyone. Our beloved brother-in-arms, Bruno de Landevoisin, has passed to the eternal realm. For those of you who don’t know to whom I’m referring, Bruno was a very long-time member of the Slope community, writing more posts here than anyone except myself, and doing so with a fastidious attention to detail. He went by many names – – Idiot Wind, BDI (which meant “Bob Dylan Idiot”, since he was a huge fan) – -but we all knew him as the loveable Frenchman, descended from royalty, who was a tireless and lovingly combative member of this community.

Continue reading The Final Blow

The History of Russell 2000 Death Crosses & SPX Performance Following Them

By Rob Hanna

I have seen a fair amount of hubbub about the Russell “Death Cross” that is happening today and the potential bearish implications for the market. A “Death Cross” is a catchy (though perhaps not terribly accurate) term for when the 50-day moving average of a security cross below its 200-day moving average. It is being promoted as a warning of a potential bear market. Of course all bear markets will see this happen at some point, because a bear market is an extended decline. But the real question when considering the implications of the Death Cross are whether it serves any value in predicting a bear market. To answer this I did an examination of past Russell Death Crosses, and what they meant for the S&P 500.

Both of my data sources show Russell data back to late 1987. And since I need 200 days to calculate a 200-day moving average, the earliest the study could look back to was 1988.

Continue reading The History of Russell 2000 Death Crosses & SPX Performance Following Them

The Failure of a Gold Refinery, Report

By Keith Weiner

So this happened: Republic Metals, a gold refiner, filed bankruptcy on November 2. The company had found a discrepancy in its inventory of around $90 million, while preparing its financial statements.

We are not going to point the Finger of Blame at Republic or its management, as we do not know if this was honest error or theft. If it was theft, then we would not expect it to be a simple matter of employees or management walking out the door with the gold. $90 million is about 2.6 tons. Unless it happened very slowly, over many years, that seems like a lot of gold to disappear. And if it occurred over years, why didn’t regular audits and other internal controls catch the discrepancy until now?

We want to make a different point altogether. We define inflation as the counterfeiting of credit. Legitimate credit has four criteria. Most of the focus is on the latter two: the borrower has both the means and intent to repay. Did Republic have the means to repay? They had a good business for 38 years, so we will assume yes. Did they have the intent? Well, unless this was a simple theft and theft by the owners, then we have to answer yes again (with one quibble which we will get to, in a moment).

The other two criteria are often overlooked. Does the lender know he is extending credit, and does the lender agree to do so?

Continue reading The Failure of a Gold Refinery, Report

Approaching the Point of No Return?

By Jeffrey Snider

At the end of June, the crude curve really got out of hand. WTI futures had returned to backwardation many months before, and then the eurodollar/collateral explosion May 29 sapped some crude strength. Over the following month, curve backwardation would become extreme as the benchmark price seemed ready to skyrocket.

After getting up near $80 a barrel, the price reversed. During the several weeks of weakness, the futures curve remained in steep backwardation – the expectation that the recovery (narrative) would continue whatever any short-term profit taking.

But as prices did rebound through September, there was already trouble underlying. The curve was changing shape, flattening out even beyond normalizing that pretty ridiculous backwardation spike late June/early July.

Continue reading Approaching the Point of No Return?

McEwen Mining (MUX): Why so quiet about your news, Rob?

By Otto Rock

[biiwii comment: thanks Mark, I was just reviewing this one for the possibility of a future buy and this is surely a consideration]

I mean, normally Rob McEwen is bouncing off the rooftops and shouting to the world about McEwen Mining (MUX) any time it has news to offer the market, but for some strange reason he seems to want to keep this one quiet.

  • MUX filed the news late on Friday evening to SEDAR
  • There was no news release to accompany the Reg Fs
  • And today, still nothing from the company

Why would that be? Hmmm…perhaps if we look at the news it might help:

Continue reading McEwen Mining (MUX): Why so quiet about your news, Rob?