Solar at Support

More on the Line

Since the market focuses on DXY, a move through resistance will accompany clear breakouts in many commodity, emerging markets and value assets. Failure will be pullbacks and corrections galore. Is this time different or is it a repeat of every reflation since 2008? We'll soon find out. Stay nimble.

Small Chinese Exporters Predict Trump Win

VoxPopoli: Chinese index predicts Trumpslide

Experts can analyze the trend of the international market through the changes in Yiwu order data, and make predictions on international events based on this. For example, the BLM movement broke out in the United States and people demonstrated for equal rights. At the same time, Yiwu also received a large number of orders for propaganda materials, which determined that this protest would not end in a short time. This was indeed the case. The United States is about to begin the general election campaign, in which candidates will inevitably need a large number of campaign items, and Yiwu, as the world's small commodity distribution center, can use the data displayed by orders as a basis for judging the situation. In the eyes of small businesses in Yiwu, the results of mainstream American polling agencies are false, as only "orders will not be faked", because more orders for aid materials mean that the campaign team’s funds are richer and there are more supporters. For example, in the past few months, Yiwu merchant Li Qingxiang has received more than 100,000 orders for Trump’s support flags, support hats, and even support masks and face towels. However, Biden’s support flags have only sold few thousand copies. From this perspective, Trump's true approval rate may be much higher than Biden. Although there is not much rigorous scientific basis for using the Yiwu Index to infer the results of the U.S. general election, Yiwu, as the world's largest distribution center for small commodities, tends to be reliable in election politics in Europe and the United States. In today's world, the Yiwu Index can indeed become a "barometer" of many political hot events.

How are marijuana, solar and gun stocks doing? On the whole, they are pointing to a Trump win (gun sales soar under threat of gun control). As I said in the prior post, it's difficult to disentangle broader events from individual sectors. Marijuana and gun stocks looks cleanest to me for signals. Both should spike on Biden win and sink on a Trump win, particularly if the GOP keeps the Senate or flips the House. Note that solar has based and could be ready for a breakout no matter who wins.

Given the run-up since March, the signals are even more distorted. Taken together with other signals such as the one above, it seems like the odds are shifting in Trump's favor.

China Solar Shift Hammers Stocks

SCMP: Chinese solar power stocks plunge as government moves to contain industry size

Shares in Sungrow Power Supply and GCL-Poly Energy Holdings led Chinese solar power stocks lower in mainland China and Hong Kong on Monday, after the government moved to rein in the expansion of the industry, by suspending the construction of new farms and cutting subsidies in a surprising decision.

Looks like China finally took the cost-benefit analysis seriously. Another factor in play may be interest rates. Rising interest rates and tight credit conditions led to solar defaults last go around. Officials may be hoping to avoid a repeat in the next 12 to 24 months.

iFeng: 光伏龙头今天集体拜会国家能源局 能源局官员表态

According to the China Photovoltaic Industry Association, the deputy director of the National Energy Administration, Mr. Ruancheng Cheng, entrusted the Deputy Director of New Energy and Renewable Energy Division Li Chuangjun to hold talks with entrepreneurial representatives and introduced relevant backgrounds of the document and the future energy bureau in the photovoltaic industry. The work to be carried out.

Deputy Director Li Chuangjun stated that PV is the main force of future energy reforms, and the Energy Bureau's determination to develop China's photovoltaic industry has not wavered. It is willing to work with companies to jointly promote the healthy and sustainable development of the Chinese PV industry.

According to a report from the Securities Times, 11 photovoltaic industry leaders including Tongwei Group Liu Hanyuan and Sunshine Power Cao Renxian recently issued the “Emergency Appeals of Entrepreneurs on the introduction of the 531 Photovoltaic New Deal by three ministries and commissions”, and it is strongly recommended that they be legally approved. The built-in photovoltaic project has a certain buffer period and petitions the relevant government departments to listen to the opinions of the industry.

2017 Picks: A Mixed Bag

At the end of 2016 I made a few predictions for 2017.

I thought Turkey and Mexico (TUR and EWW) would decline. I missed the broader emerging market trend and the extent to which the U.S. dollar would correct, although in Turkey's case, the rally is almost entirely driven by equities, not currency.

I thought FCG was a good speculation at the end of 2016 considering it was very cheap relative to the energy sector. I thought it would at least perform no worse than energy, but it underperformed again. Still, it did not hit a new relative low versus SPDR Energy (XLE). FCG's relative low was achieved in early 2016. I still like it as a relative bet on energy for anyone who is bullish on energy. I make no call on the overall energy sector; I currently own November puts on SPDR Energy Exploration & Production (XOP).

I was right on the solar (TAN) call. And the Chinese yuan.

In the near term, the Chinese yuan looks a little oversold. I expect a bit of a rally after it cracks 7, even better if it rallies before since it will catch the bears. A 3 percent rally takes USDCNY to about 6.75, a 5 percent rally to 6.60. The PBoC has given bears nice entry points before, hopefully they provide another one. I don't think USDCNY will be the best currency play.

It ran all the way to USDCNY 6.48 on September 8. On September 10, I wrote: Time to Short the Yuan? USDCNY hit 6.62 today.

2017 Picks

I think I had only one pick for 2016 now that I go back over my posts: Turkey down.

2016 Forecast: Turkey Collapses

TUR was $36.07 in that post and closed at $32.07 today, not exactly what I expected. I'm sticking with this pick for 2017 though. Turkey had a lot of geopolitical problems in 2016 and I expect they will turn into financial troubles in 2017. The chart alone points to it. A different take on Turkish politics from FPRI: What the Assassination of the Russian Ambassador May Be Telling Us about Erdoğan’s Turkey

Another country with a similar chart is Mexico. (EWW) I'm not sure if this is a "Trump" formation caused by investors anticipating bad news for Mexico or not. But I will look for a downturn in 2017.

In the near term, the Chinese yuan looks a little oversold. I expect a bit of a rally after it cracks 7, even better if it rallies before since it will catch the bears. A 3 percent rally takes USDCNY to about 6.75, a 5 percent rally to 6.60. The PBoC has given bears nice entry points before, hopefully they provide another one. I don't think USDCNY will be the best currency play.

Speculative long picks: natural gas (FCG) and solar (TAN). I will pick out some higher volatility components within those funds.

Hanergy Implodes, TAN Takes A Hit, Chinese Solar's Austrian Moment

Hanergy is a solar power company whose stock advanced to new highs on nothing. Then: Chinese Solar Maker Plunges, Losing Nearly $19 Billion in 24 Minutes

Just 24 minutes of Hong Kong trading erased $18.6 billion of market value and wiped out almost four months of gains that made it more valuable than Sony Corp. of Japan. Those increases came as analysts and investors questioned why, exactly, this stock was increasing in the first place.

Barron's: Is Hanergy’s Stock Manipulated? FT Investigates

Hanergy Thin Film (566.Hong Kong), a little-known thin-film solar company with only one customer – its parent – is now the world’s largest publicly listed solar firm. Having risen 430% in the last year, Hanergy now boasts $35 billion market cap and is the largest component of the Guggenheim Solar ETF (TAN) with more weight than SunEdison (SUNE) and First Solar (FSLR) combined. It now has more market cap than Tesla (TSLA).

...Between January 2, 2013 and February 9, 2015, Hanergy’s shares consistently surged late in the day, with buying 10-minutes before the close. If an investor bought Hanergy’s stocks at the start of trading at 9AM and sold at 3.30PM, he would have lost money and missed the ride.

This is not a normal trading practice in Hong Kong. Financial Times looked at other large-cap stocks and did not find a similar trading pattern.

Barron's again: Hanergy Profit Surges On Sales To Parent, Asset Disposal, But Chinese Love It Anyhow

But if you look at the incremental profit breakdown, Hanergy becomes less impressive. Bloomberg estimates that about 61% of Hanergy’s revenue came from its parent Hanergy Group and its affiliates. In Hanergy’s financing filings, it talked about doing business with IKEA and Telsa (TSLA), but an overwhelming majority of its business – 9.48 billion out of 9.62 billion revenue – came from mainland China. So Hanergy’s business is by no means diversified.

In addition, Hanergy sold five PV power plants in China last year for a total 1.4 billion yuan and recorded a net gain of about 777.6 million yuan. That is more than half of the incremental profit gain.

Not to mention Hanergy is by no means cheap. It is a company with 398 billion market cap, earning only 3.3 billion trailing profit.

But mainland Chinese investors love it anyhow.

Baofeng tells you everything you need to know about the stock rally, and if you want to avoid the next Hanergy, pay heed. This is a gold rush where prospectors aren't concerned if there's gold in them thar hills, what's important is that the price of the land is going up and it can be sold at a higher price to someone else, and if everyone's buying that land, there must be gold! Price doesn't reflect value; the market is the herd.

Barron's again, with a lot of updates on Hanergy: Is Hanergy The Next Yingli Green Energy?

UPDATE 4: I apologize for so many updates…

Well-respected Chinese financial magazine Caixin just had a piece out saying today’s selling was mostly done by Chinese institutions.

Close to 175 million shares eased hands today before Hanergy was placed to a trading halt at 10.40AM, well above the average daily trading volume of just over 100 million. There were 8 block trades with over 6 million shares each and 19 large trades with over 1 million shares.

Caixin said that Hanergy has been using its stocks as collateral for loans from banks and other financial institutions. Chairman Li Hejun personally owns somewhere between 73% and 75% of Hanergy’s shares, according to his own public statements in April.

Caixin found that Hanergy has been unable to repay some of its loans, causing Chinese financial institutions to sell and getting the snowball rolling. Unless Hanergy continues with share buybacks to prop up the value of its shares, which it has been (check out its filing with the HKEx on May 15), Hanergy is in financial trouble. First Financial‘s investigative report on Hanergy’s debt pile (see link to my blog above) is worth re-reading.

UPDATE 5: Chinese social media has been rumoring that Hanergy is being investigated for stock manipulation. Reuters just confirmed this:

Investors in Guggenheim Solar ETF (TAN) will take a hit on Hanergy; the fund held 12% of assets in the stock. Shares are down about 7% heading into the open.

Another solar maker in trouble is Yingli: Yingli Moves to Calm Investors After Going-Concern Warning

Yingli Green Energy Holding Co. Ltd. on Wednesday moved to calm investors, saying it will be able to repay its debt on time after issuing a going-concern warning in a regulatory filing last week.

Shares gained 7.5% in premarket trading after falling 44.7% so far this week.

Yingli, a Chinese solar-panel company, said in last week’s filing that “there is substantial doubt as to our ability to continue as a going concern.”

Yingli said Wednesday that the statement has been taken out of context, adding that it has plans to mitigate future risks and challenges.

I don't think the Austrian Business Cycle Theory fully explains the business cycle, but I believe they have it exactly right on interest rates. Interest rates are a crucial market signal, perhaps the single most important piece of information in an economy, and distorting them leads to malinvestment. Steel is going through a multi-year adjustment (Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee), real estate's troubles are well known, and now solar may be hitting the toughest phase. Back in 2012, there was talk of trouble for solar:

Maxim Group

Amidst growing complacency that China's solar sector's political support is perpetual, we believe a new national government and gaping capital requirements will bring this dynamic to a tipping point.

With cash draining and capital-expenditures needs high, we believe the sectors' balance sheets are cracking at the seams with equity at risk of succumbing to insolvencies, recapitalizations, and take-unders.

Despite a wave of insolvencies striking solar manufacturing in Europe and the U.S., Chinese solar has largely sidestepped a major failure to date, in our view, from deep support from the government and banks. However, after accumulating $4 billion in free-cash-flow losses and straining under $17.5 billion in debt, we believe the balance sheets of Chinese solar's Top 10 are near the breaking point.

More at Barron's.

Solar stocks flirt with major support

FSLR is dragging the funds lower, but is it the leader or laggard? The Chinese solar firms don't look as bad yet.