EARNINGS WATCH
Today’s WSJ:
Global Stocks Muted Amid Mixed Earnings Reports European stocks and U.S. equity futures ticked higher after a bumper day for first-quarter earnings reports.
Mixed earnings reports?
We have 154 companies in and the beat rate is a huge 81% with a surprise factor of +7.0% (+1.7% on revenues). Half of Industrials have reported: 83% beat with +15.9% surprise factor (+3.2% on revenues)! Amazing!
Q1’18 earnings are now seen up 22.0%. It was 18.5% on April 1st, and 19.9% on April 23rd.
Nothing mixed there.
HOUSING
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Half of Case Shiller Home Price Cities Now at All-Time Highs
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NMHC: Apartment Market Tightness Index remained negative for Tenth Consecutive Quarter
This CalculatedRisk chart suggests that rent growth will keep slowing for a while.
Fed at Odds With Itself as It Eases Bank Rules and Raises Rates
In laying out plans to ease some constraints imposed on banks after the financial crisis, the Fed is moving to free up tens of billions of dollars for financial institutions to lend to promote faster economic growth.
At the same time it is reducing its balance sheet and gradually raising interest rates to restrain credit creation and keep the economy in check. (…)
Those steps will complicate the Fed’s effort to engineer the soft landing of an economy that is already being juiced by tax cuts and government spending increases. (…)
In unveiling a proposal on April 11 to ease leverage limits on Wall Street banks, the Fed and the Office of the Comptroller of the Currency said the step might lower the amount of capital lenders are required to hold in their main subsidiaries by $121 billion. The move would give banks added flexibility to extend credit.
It came on the heels on an announcement by the Fed of plans to revise its bank stress tests and risk-based capital rules. The agency estimated that the action would cut the total cushion that the banking industry has to maintain by $30 billion, though some Wall Street analysts reckon it could free up more than $50 billion in capital. (…)
NAFTA talks reaching ‘crucial moment,’ Freeland says
Toronto foreign-buyer home sales drop to 2.5 per cent of real-estate purchases The drop in sales to foreign buyers in Toronto is mirrored by a similar slump in the Greater Golden Horseshoe
TECHNICALS WATCH
Quite a day yesterday as the S&P 500 dropped early to its 200d m.a. and bounced 1.1% by the close. Getting near the end of the wedge…
Even though volume has recovered somewhat, Lowry’s says that yesterday’s demand was marginal with Up Volume at 50.6% of total Up/Down Volume and breadth was even weaker as Advancing Issues only made up 44% of Adv-Dec Issues.
WeWork’s first bond raises more than expected Shared office space provider sells $702m of seven-year notes at 7.875 per cent yield
(…) The company’s net loss more than doubled to $933m in 2017, according to bond offering documents, outpacing the group’s 98 per cent annual increase in revenue to $886m. (…)
WeWork began business in 2010 by leasing office space and renting desks to New York’s creative set, touting unusual perks like microbrews on tap and allowing workers to bring pets to the office. It now has 234 locations locations across 22 countries, company documents show, with a portfolio of short-term co-working spaces, mainly leased from landlords on long-term rental agreements.
The size of the issue was boosted by 40% to meet demand which totaled $2.5B according to Bloomberg as nobody seems to care much That WeWork is totally mismatched signing long-term leases which it then sub-leases monthly. Those leases add up to an $18 billion rent bill due through 2023 and beyond, according to bond documents seen by Bloomberg.
“We cannot get comfortable with the company’s financial and operating position, which includes a massive asset/liability mismatch that is usually a recipe for disaster, significant cash burn, cyclically untested real estate business model, and uncertain path to profitability,” Rosenthal said in a report Wednesday entitled “WePass.”
The always sharp Grant’s Interest Rate Observer notes that WeWork, “rated firmly in junk territory (single-B-plus at S&P Global and double-B-minus at Fitch Ratings)” is no les creative in its accounting.
(…) high-yield investor Xavier MacDuff noted on Twitter that 2017 stock based compensation expense of $261 million represented nearly 30% of last year’s $886 million in revenues. Perhaps unsurprisingly, profitability is currently elusive for WeWork. Instead, the company has provided some alternative metrics to consult. For instance, adjusted EBITDA for 2017 footed to negative $193 million. However, “adjusted EBITDA before growth investments” (a.k.a. adjusted adjusted EBITDA) came in at positive $49 million. Then there’s “Community adjusted EBITDA,” (or, adjusted adjusted adjusted EBITDA) at positive $233 million in 2017. (…)
The FT adds that ““adjusted ebitda” was used to set some leverage requirements under the bond’s covenants” without explaining the usefulness of “adjusted adjusted EBITDA” let alone “Community adjusted EBITDA” which ignores basic expenses like general and administrative, marketing and development costs.
WeRemember…