Month: July 2011

July 25 (Bloomberg) — Allen Sinai, chief global economist at Decision Economics Inc., talks about the outlook for President Barack Obama and congressional leaders to reach an agreement on raising the debt limit before the Aug. 2 deadline and the impact of a possible downgrade of the U.S.’s credit rating. Sinai speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

This morning, the Bank of Hawaii (BOH) declared its quarterly dividend of 45 cents per share, maintaining the amount paid to shareholders last quarter. Based on the current stock price, investors can expect a yield of about 3.9% going forward.

The Reserve Bank of India [RBI] increased its repo rate by 50 basis points to 8.00% from 7.50% and raised the reverse repo rate to 7.00% from 6.50% by the same margin; trouncing market expectations for a 25bp increase.  RBI governor, Duvvuri Subbarao, noted: “Considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance,”.  The RBI also commented on a desire to “maintain the credibility of the commitment of monetary policy to controlling inflation” and to “reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required,”.

The Reserve Bank of India increased the repo rate by 25 basis points at its previous meeting to 7.50%, having increased 50bps during the May meeting.  India’s key inflation measure, the wholesale price index, increased 9.44% in June, up from 9.06% in May, after rising 8.66% in April, and 8.98% year on year in March, exceeding the Bank’s previous estimate of 8%.  India reported annual GDP growth of 7.8% in the March quarter this year, compared to 8.3% in the previous quarter.

TD Ameritrade (AMTD) is reportedly considering the possibility of acquiring E*Trade Financial (EFTC). The Wall Street Journal reported that TD Ameritrades directors plan to discuss the possibility at a meeting Tuesday.

July 25 (Bloomberg) — Thomas Winmill, president of Winmill & Co. and portfolio manager of the Midas Fund, talks about the outlook for gold, silver and platinum prices. He speaks with Carol Massar and Matt Miller on Bloomberg Televison’s “Street Smart.” (Source: Bloomberg)

Research in Motion (RIMM) said today it is planning to cut 2,000 jobs as part of a cost optimization program. The company gave other additional details on the program as well, which it first announced in June.

The markets opened lower on Wall Street, and remained under pressure, reacting to the political fight over the debt ceiling that went unresolved over the weekend. Baker Hughes (BHI) posted second quarter earnings today that were more than triple last year’s figure.

The Bank of Israel maintained its benchmark interest rate steady at 3.25%.  The Bank noted: “Forecasters’ inflation expectations for the next twelve months remained steady at slightly below the upper limit of the target range.  Forecasters’ inflation expectations and those derived from the capital market go together with the assessment that the Bank of Israel will continue to increase the interest rate, but at a slower pace than in the first half of the year.”  The Bank also maintained the view that: “at the current level of the interest rate, monetary policy continues to be expansionary.”

The Central Bank of the Republic of Turkey dropped the required reserve ratio on 1-year foreign exchange deposits -100bps to 10% from 11%, and for deposits of up to 3-years -150bps to 10% from 11.5%, and for foreign exchange deposits longer than 3 years -200bps to 9% from 11%.  The moves come into effect from the 5th of August; the bank said the move would add liquidity of approximately 590 million to the market.  The Bank also suspended daily foreign exchange buying auctions of $30 million.

The Turkish central bank held its benchmark interest rate unchanged recently during its July meeting this year.  Turkey reported annual consumer price inflation of 6.2% in June, off from 7.2% in May, but up from 4.26% in April, and 3.99% in March, and above the Bank’s full year inflation target of 5.5%.  On inflation the Bank said: “Although core inflation is likely display some upward movement over the short term, the increase is expected to be limited due to the slowdown in economic activity”.

Why solar stocks are down in the dumps – and why they are worth keeping an eye on.

Solar energy stocks are going to make a handful of investors very rich one day. The question is when.

Over the long term, the basic appeal of solar is not hard to figure out. In spite of global slowdown concerns, the possibility of deflation, and even the odds of a flat-out China crash, we still live in a peak oil world.

As you have heard before, all the “easy” crude oil is gone. What untapped crude oil remains is often in the hands of poorly run NOCs, or national oil companies. Or else it exists in a form that is expensive to extract, like oil sands or shale.

Add in the Middle East instability factor — a recent NYT Magazine headline read “Yemen on the Brink of Hell” — alongside paper currency debasement and emerging market demand, and you get a guaranteed recipe for long-run expensive crude oil. This naturally makes solar energy stocks competitive — even highly competitive — as an alternative energy source.

Right now, though, solar energy stocks are cheap and looking cheaper. From 2008 highs above $30 per share, the Guggenheim Solar ETF (TAN:NYSE) has fallen below $7, shedding more than 75% (three quarters of its value). What is going on there?

At moment there are at least three heavy weights pressing down on solar: Fears of government cutback, fears of panel glut and worries over China fraud.

Will Austerity Short-Circuit the Cleantech Boom?

Earlier this month, Fortune magazine wrote:

“As federal stimulus spending dries up, the clean tech industry faces a “funding cliff” at the end of this year that could jeopardize one of the few economic sectors that is producing job growth, according to a report issued by the Brookings Institution.

Such is the peril when an industry is supported by fickle government financing (as opposed to the more reliable, if far less needed, government financing enjoyed by industries like agriculture and petroleum).”

The basic fear is that Western governments, in their drive to save money, will put green energy budgets under the knife more quickly than other areas of spending. This is also a threat in European countries like Germany, Spain and the U.K., where subsidized solar products are at risk.

In balance to this threat, there is hope that China can keep the solar industry afloat. In June of this year, two Chinese banks committed to $10 billion in funding for solar projects in Europe. Tim Yiu, executive director of a China-based solar cell maker, reported, “We feel confident that we will be leading the next golden decade of solar energy development.”

In addition to China financing, the political fallout in the nuclear industry is good for solar. The German government, for example, is committed to phasing out nuclear power use by the year 2022. Whether that plan is feasible or not, solar usage should get a boost from it.

Questions abound, though, as to whether China’s deep pockets will be enough to support the solar industry in the near term. When China goes through its own internal crisis, will there still be the funding and political will to aggressively support solar expansion in countries abroad?

China Fraud Bleeds Into Solar

Another, more serious short-term problem for solar is a fear of bogus numbers. As Bloomberg reports via “Solar Brings Muddy Waters Concerns to Panel Makers”:

“Investors are starting to doubt profit estimates for China’s solar manufacturers as concerns about accounting practices first spotted at a forestry company spread nationwide.

Directors leading audit committees quit LDK Solar Co. on July 18 and at its rival Trina Solar Ltd. (TSL) on July 12. Moody’s Investors Service on July 11 cited “accounting risks” at five Chinese companies including LDK. Muddy Waters LLC, a Hong Kong researcher, on June 2 accused Sino-Forest Corp. (TRE) of inflating its timber production.”

Muddy Waters is the name of a research firm specializing in fraud investigation. John Paulson, who runs one of the largest hedge funds on the planet, lost hundreds of millions in Sino-Forest Corp. as a result of a Muddy Waters report.

With audit committee directors walking out the door, there are clearly fears that one or more Chinese solar names could suffer the same fate as Sino-Forest. Adds Bloomberg: “Eight Chinese companies in the 17-member Bloomberg Large Solar Index have declined 13 percent since the Muddy Waters note…”

But what about the incredibly low multiples? “Some multiples are low because they are mirages,” Shawn Kravetz of Esplanade Capital tells Bloomberg. “If you get up close, the reason the earnings look so cheap is because the earnings won’t be there.”

Opportunity in the Bargain Bin

On top of all the above, short sellers have been piling on various solar names in expectation of a “panel glut” as oversupply hits Western markets.

What you get, in sum total, is an industry that is feared and loathed for the moment. But solar remains an intriguing area to watch because (1) not all solar companies are frauds (though tarred with the same brush) and (2) the long-term solar case remains compelling.

At some point, the challenging economics of crude oil — and, let’s face it, Wall Street’s need for another boom, possibly a “cleantech” boom — will light a fire under solar names. Keep an eye on the space.

Written by Justice Litle for Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.