Credit-Equity Disconnect 101: Sears Distress Rises As CDS Soars By 700 bps To Over 2400.... While Stock Closes HigherSubmitted by Tyler Durden on 01/13/2012 08:41 -0500
Yesterday when we discussed the imminent demise of Sears following the CIT liquidity withdrawal we said "ignore the stock price which is now purely a function of momo chasers in either direction, and just focus on the CDS." Sure enough, nowhere could we see a better example of just how unprecedented the disconnect between stocks and credit is than in Sears, which unfathomably saw its stock close higher on the day, following a grotesquely stupid market reaction to an announcement that Tepper was forced to buy SHLD stock (which as DealBook explained was an indication of liquidation, confirming that stocks are now purely traded on headline reaction without absolutely any insight into what is going on). Yet the real question is what is going on in CDS land, and what is going on is basically a confirmation that it is game over for the company: as the chart below shows, default swaps in the name are over 700 bps wider today, and have doubled in the past two days, closing the 11th at 1275 bps, and 48 hours later trading double, at 2432 bps. Expect the stock, once it can be shorted again when Tepper has no choice but to release it from HTB state, to plummet quite shortly as the reality dawns for even the momos.
- China’s Forex Reserves Drop for First Quarter Since 1998 (Bloomberg) - explains the sell off in USTs in the Custody Account
- Greek Euro Exit Weighed By German Lawmakers, Seen as Manageable (Bloomberg)
- Greek bondholders say time running out (FT)
- Housing policy to continue (China Daily)
- Switzerland’s Central Bank Returns to Profit (Reuters)
- US sanctions Chinese oil trader (FT)
- Obama Starts Clock for Congress to Vote on Raising Federal Debt Ceiling (Bloomberg)
- Turkey defiant on Iran sanctions (FT)
- ECB’s Draghi Says Weapons Working in Debt Crisis (Bloomberg)
- Greece to pass law that could force creditors in bond swap (Reuters)
This is very likely the time to be fearful when others are greedy.
Following today's increasingly more adverse news for Sears, which saw primary vendor funder CIT cut ties with the Eddie Lampert mega investment, it was only a matter of time before the market realized that the jig for the once bankrupt retailer may be up, and a Chapter 22 is the only possible option. Sure enough, the first to respond to this is the rating agency that not only is capable of forward looking activity, unlike all the other NRSROs, and also managed to get Jefferies to admit it had a far greater European exposure than the market was comfortable with (resulting in a major cut in gross and net, and a far greater transparency into its balance sheet). As of minutes ago, Egan Jones just downgraded Sears Holdings to the lowest rating just above default: C, from CC.
Houston, We Have Recoupling - Initial Claims Back Over 400,000 (Post Next Week's Revision), Retail Sales Ex Autos Worst Since Early 2010Submitted by Tyler Durden on 01/12/2012 09:04 -0500
Remember that whole "US is decoupling" theme so pathologically spread around by two-bit propaganda media outfits staffed by journalism B.A. majors? Time to put it in the trash where it belongs. As long expected, the temp hire surge, so effectively used by retailers to dump inventory below cost (just ask Sears), is over, and in the first week of 2012, Seasonally Adjusted claims soared to 399,000, the highest since November and a number which next week will be revised over 400,000, a decimation of expectations of 375,000 (naturally last week's number was revised upward from 372K to 375K - a long-lasting BLS tradition of fudging data that everyone knows about now). The Non-Seasonally adjusted number was +102,314 claims in the first week of the year. And the real question is how many of these real departures were of the banker type, where the impact on lost withholding taxes going forward, and thus government revenues, will be quite dire. Continuing claims also missed expectations, rising to 3628K from a revised 3609K (expectation was for an unchanged print, pre revision, of 3595K). And the worst news is that the 99-week cliff continues to grab more and more, with 48k people dropping off all rolls, and thus from the labor force completely, meaning the labor force participation rate in January will likely drop to another fresh 30 year low. But the horrendous jobs update was only one part. The other one focuses on actual consumer spending, as confirmed by the major miss in retail sales which were up 0.1% on expectations of 0.3%, but the entire gain was due to car purchases primarily driven by cheap govt-funded subprime credit for GM vehicles. Sales ex-autos actually declined by 0.2%, on an expectation of 0.3% rise: this was the first decline and worst print since early 2010. So much for the consumer-led recovery. And so much for the unemployment pick up. And so much for the decoupling. The chart below shows what will happen as the world finally reconverges, as was posted yesterday.
Two weeks ago, when we first announced the catastrophic earnings preannouncement by Sears we noted that we were stunned "that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3..." Subsequently, when the company was downgraded to triple hooks S&P we said that "Accounts Receivable about to become one big perpetition charge off", the implication naturally being that the company is about to lose its vendor financing - which for retailers is the last step before outright default. Sure enough, the WSJ reports that this is precisely what happened. "Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company. Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors, saying the payables the firm had financed amounted to only about 5% of the retailer's inventory." Basically this means that the company Net Working Capital is about to go poof, as there will be nobody to finance the Receivable-Payable spread, SHLD will have to demand COD or even cash upfront, vendors will balk and switch to other, and slowly Sears will suffer an inventory liquidation stranglehold which will culminate with the company's bankruptcy unless Lampert provides a massive liquidity injection, which also however will have a brief impact, as the company is now perceived by all as Dead Man Walking. In other news, we are hearing that several bankruptcy advisors are already preparing the K-Mart pre-pack/freefall pitchbooks... all over again.
- Hedge Funds Try to Profit From Greece as Banks Face Losses (Bloomberg)
- Spain Doubles Target in Debt Auction, Yields Down (Reuters)
- Italy 1-Year Debt Costs More Than Halve at Auction (Reuters)
- Obama to Propose Tax Breaks to Get Jobs (WSJ)
- GOP Seeks to Pass Keystone Pipeline Without Obama (Reuters)
- Debt Downgrades to Rise ‘Substantially’ in 2012, Moody’s Says (Bloomberg)
- Petroplus wins last-minute reprieve (FT)
- Geithner gets China snub on Iranian oil as Japan plans cut (Bloomberg)
- Fed officials split over easing as they prepare interest rate forecasts (Bloomberg)
- Draft eurozone treaty pleases UK (FT)
- Premier Wen looks at the big picture (China Daily)
- US Foreclosure Filings Hit 4-Year Low in 2011 (Reuters)
We have now entered the fifth year of this Fourth Turning Crisis. George Washington and his troops were barely holding on at Valley Forge during the fifth year of the American Revolution Fourth Turning. By year five of the Civil War Fourth Turning 700,000 Americans were dead, the South left in ruins, a President assassinated and a military victory attained that felt like defeat. By the fifth year of the Great Depression/World War II Fourth Turning, FDR’s New Deal was in place and Adolf Hitler had been democratically elected and was formulating big plans for his Third Reich. The insight from prior Fourth Turnings that applies to 2012 is that things will not improve. They call it a Crisis because the risk of calamity is constant. There is zero percent chance that 2012 will result in a recovery and return to normalcy. Not one of the issues that caused our economic collapse has been solved. The “solutions” implemented since 2008 have exacerbated the problems of debt, civic decay and global disorder. The choices we make as a nation in 2012 will determine the future course of this Fourth Turning. If we fail in our duty, this Fourth Turning could go catastrophically wrong. I pray we choose wisely. Have a great 2012.
The iconoclastic outcast being called in to shake things up a little. I'll appear on CNBC @2:30 with my outlook for 2012. I'm not shy about my track record & here's what I'll have to say.
As we said yesterday when Sears decided to very unprudently (if very conveniently) post an update of its revolver in its horrendous preannouncement, the company is about to experience some MF Global style "death shorting" having invited every short from miles around to sniff at just how (un)stable its liquidity is. Judging by the action in the pre-market session, where the stock is another 4% lower, we may have been correct. And just to make the lives of key shareholders Eddie Lampert and Bruce Berkowitz even worse, here is Goldman cutting its price target from $43 to $30, while still maintaining a Sell. Alas, this name is going far lower.
I was a little early, but I was right about the department store chain ran by a hedge fund manager...
Thanksgiving Day Massacre: Sears Slaughtered On Collapsing Margins, To Shutter Hundreds Of Stores, Provides Revolver UpdateSubmitted by Tyler Durden on 12/27/2011 06:24 -0500
That retailer Sears, aka K-Mart, just preannounced what can only be described as catastrophic Q4 results should not be a surprise to anyone: after all we have been warning ever since the "record" thanksgiving holiday that when you literally dump merchandize at stunning losses, losses will, stunningly, follow. Sure enough enter Sears. What we, however, are ourselves stunned by is that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status... and availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3...
When at first you cover a soaring knife near its all time high, try, try again to catch it on the way down. And if you are Whitney Tilson, this is precisely what you do. The fund which is now down 25% YTD has lost 21.4% on its second round Netflix investment, something which Zero Hedge readers were on the other side of for the entire 50% pick in one month. But heaven forbid you learn a lesson: "A couple of weeks ago we sent you an article we published entitled “Why We’re Long Netflix and Short Green Mountain Coffee Roasters,” which is attached in Appendix B. Since then, both stocks have moved against us, making them even more attractive in our opinion." Lordy...
- Bernanke Public Approval Falls to Lowest (Bloomberg)
- On Governments as Portfolio Managers (El-Erian) - good read on the distinction between good and bad inflation
- Of Wealth and Incomes: Why Americans are so unhappy with this economic recovery (WSJ Editorial)
- Wen Says China Succeeding in Inflation Battle with Price Gains Set to Slow (Bloomberg)
- EU Halts New Greek Backtrack (WSJ)
- Greek Austerity Measures Still Unclear (Market News)
- Greek Default Insurance Costs Drop (WSJ).... yes, sub 1 point profit taking in 20 pts up CDS is now headline worthy
- Feds to Launch Probe of Google (WSJ)
- Italy’s Draghi Appointed to Succeed Trichet as ECB President (Bloomberg)
- PBOC Reiterates Inflation Control Is Its Top Priority (Shanghai Daily)
- Portugal Reaches Deal on €78bn Bail-Out (FT)
- China Allows Firms to Sell Bonds via Private Placement (WSJ)
- Demand for Bank Loans Mounts in Emerging World, Survey Says (WSJ)
- China 2011 Growth Seen Solid, Inflation to Quicken: Reuters Poll (Reuters)
- Yemen-based Jihadist Has Potential to Fill Role (FT)
- Netflix Said to Seek TV, Film Rights for Latin America Service (Bloomberg)
- Palestinian Factions Prepare to Sign Deal (FT)
- Outcry Over Syria Rises Amid Wider Crackdown (FT)
- Waiting for Dollars in Belarus Puts Lukashenko on Unrest Alert (Bloomberg)
- U.K. Regulator Expands Its Reach (WSJ)