SoftBank Says It Won’t Buy WeWork Co-Founder Neumann’s Shares

As I predicted some time ago this will be the death knell of WeWork.... Aivars Lode

SoftBank Group Corp. terminated an offer to pay up to $3 billion for shares in office-space provider WeWork, depriving co-founder Adam Neumann of a potential windfall of nearly a billion dollars.

Tokyo-based SoftBank said Thursday its move wouldn’t affect operations of the troubled shared-office company. SoftBank said it has committed $5.45 billion in capital to WeWork since October 2019.

Mr. Neumann, former chief executive of WeWork parent We Co., had the right to sell up to $970 million in stock to SoftBank as part of the October deal that led to his ouster from the company’s board.

But SoftBank said conditions for completing the stock sale weren’t met by the April 1 deadline. It cited “multiple, new and significant pending criminal and civil investigations” that began after the October deal in which authorities requested information about WeWork’s financing activities and its business dealings with Mr. Neumann. SoftBank didn’t say which authorities were investigating.

Invesco Mortgage Capital unable to fund margin calls

Major money manager cannot make margin calls. Who will be next? The financial markets have not yet seen the complete fall out of the Corona virus....Aivars Lode

Invesco Mortgage Capital will not be able to fund margin calls on previously scheduled dates because of coronavirus-related turmoil in the financial markets, it said Tuesday.

As a result of the global pandemic, the firm has "received an unusually high number of margin calls from financing counterparties," a news release said. 

While margin calls had been timely met through March 20, as of Monday afternoon, Invesco Mortgage Capital notified its financing counterparties that it was not in a position to fund the margin calls that it received that day, the release said. 

Additionally, the firm does "not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic," the release said.

Invesco Mortgage Capital, a subsidiary of Atlanta-based Invesco, is a real estate investment trust that focuses on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans.

On Tuesday, a spokeswoman at parent company Invesco said that is still being determined what "near term" will mean for the subsidiary as "there's no definitive time frame" and funding future margin calls will be determined by what Invesco Mortgage Capital sees in the next days and weeks regarding market volatility. 

The firm is "engaging in discussions with the financing counterparties to try to work out forbearance agreements," the spokeswoman added. 

Invesco Mortgage Capital will also delay payment of its previously announced quarterly cash dividends and provide updates as it continues to evaluate its liquidity situation, the news release said. 

By Danielle Walker - Pensions & Investments

Here’s Why Your Brokerage Statement Is About To Surprise You

A great assessment of the markets over the last three years...AIVARS LODE

BY ROB ISBITTS - Sungarden Investment Management

Aggressive investing is not necessary. Aggressive Capital Preservation is. Especially now.

I will start with a little of what they call “inside baseball.” Might as well, since it will be a little while until we have actual baseball again. I wrote much of this article over a month ago. It stayed on the shelf in favor of other stories I deemed to be of higher priority to get out to you. As it turns out, the past month has made this topic much more relevant to anyone with money in the stock market.

You can’t put the performance genie back in the bottle

Now, I am always quick to point out that judging investment performance based on the past is of limited value anyway. Just ask someone who made an investment decision this year, based on last year’s strong return in the S&P 500 Index.

But, if you are going to focus a lot of energy on past performance, you need to avoid getting biased by snapshots. That is, your 3-year return today can be very different from your 3-year return in 6 months, or as of 6 months ago.

But this is not how much of the financial industry rolls. For decades, investors have been trained to focus on those 1/3/5-year figures, or look at their performance on a calendar year basis. None of this helps the investor evaluate how they are doing! It’s a smokescreen, that has helped to sell lots of investment product for the past decade. That game is about to be exposed. 

Aggressive Investing vs. Aggressive Capital Preservation

The “stock market” has now gone nowhere for at least a few years. 2019’s performance was dominated by a small number of big tech stocks, just as in the Dot-Com Bubble era. Now that we have had a massive, sudden selloff in stocks, those longer-term “trailing” performance numbers won’t look so good for aggressive investors. And, as many are finding out the hard way, they thought they were a “moderate risk” investor or something like that. But then, as real risk showed up, all of that turned out to be a mirage.

Lessons from recent history

This is what several parts of the global stock market looked like from late January, 2018, until February 18 of this year. The S&P 500 was up over 20% during that 2-year stretch, despite a sharp 20% pullback during 2018’s 4th quarter.

However, as you can see, a wide variety of other approaches to growing wealth had produced very mild returns, or even negative returns over that same time frame. Emerging Markets pulled up the rear with a loss of more than 11%. Value stocks, Growth Allocation strategies and Value stocks all produced returns in the neighborhood of 10% in total over more than 2 years.

The S&P 500 was part real, part mirage

These are certainly respectable. However, as I have written frequently in this space, the S&P 500 was dominating the performance tables. It has for some time. That is classic, late-bull market behavior. And, while a global health crisis ultimately popped the stock bubble, it was vulnerable to being popped anyway. History may not remember that, but you should, for your own evaluation of reward and risk in the future.

Now, fast-forward to 5 weeks later. A rigorous, volatile, confidence-shaking month later for many investors. The S&P 500 is still close to the top of the chart, though the “allocation” indexes shown here were boosted by the historic rise in Treasury securities as interest rates plunged toward zero.

The limits of “trailing returns”

The key point here is that Wall Street likes to show tables with glitzy 1-year and 3-year returns. Those performance snapshots have become standard across the financial advisory industry.

But now, 26 months into a pretty rough period for most areas of the stock market, we are nearing the point where those 3-year returns will look quite weak. See the bottom part of the chart, with losses of 20% or more in most segments. Even the mighty S&P 500 has now lost over 6% including dividends since that “Stormy” peak back in January, 2018.

I have always been a proponent of judging any investment performance in a holistic manner. When you do, you might be surprised to find that losing a lot less during market routs like the recent one just might be a better path to successful long-term outcomes. I call that, “Aggressive Capital Preservation.” Review some of my recent articles for more on that investing concept.

SoftBank’s Satellite Startup OneWeb Seeks Bankruptcy Protection

Yup another one bites the dust and another ones gone.... Aivars Lode

Satellite venture OneWeb Global Ltd. has filed for bankruptcy after raising more than $3.4 billion from SoftBank Group Corp., Airbus SE and other investors to build a satellite network that would beam cheap internet connectivity from space.

London-based OneWeb filed for chapter 11 protection to wait out the current instability in financial markets while marketing the company for sale, according to papers filed in the U.S. Bankruptcy Court in White Plains, N.Y.

Bolstered by a group of formidable financial and technical backers from Japan to Europe and championed by satellite entrepreneur Greg Wyler, OneWeb has been touted as a leader in seeking to provide global internet connectivity via a large constellation of low-earth orbit satellites.

The company pioneered low-cost, automated production of such satellites, fueled by funding from Japan’s SoftBank and other investors, including aerospace giant Airbus, Qualcomm Technologies Inc. and the government of Rwanda.

The bankruptcy filing raises new questions about the financial viability of such broadband-via-satellite projects largely targeting developing regions. Entrepreneur Elon Musk and Jeff Bezos, founder of Amazon.com Inc. are among those pursuing the same markets.

Why The Market Tanked, Where It’s Going And How You Can Thrive

I agree with Rob as the pattern repeats itself from the dot.com and 2008, however it would appear that this time it may be even worse.... Aivars Lode

TO INVEST IN THE FUTURE, YOU HAVE TO UNDERSTAND WHAT JUST HAPPENED

By Rob Isbitts - Sungarden Investment Management

Perhaps I am the only professional investor who will tell you this: the Coronavirus is not the cause of the recent market plunge. While the human threat, the day-to-day tragedy and the historic uncertainty that it has caused are undeniable, I want you to think about something. The reason the market fell so far, and could well fall much further, is because it was on thin ice to begin with.

In other words, if unemployment had been 7% instead of 3.5%, if the stock market had been 10% from its 5-year low instead of at its all-time high, and if global central banks had kept interest rates above zilch the past several years, the past month would have been different. Would the S&P 500 have fallen hard? Probably. But would it have resembled this rampant de-risking of investors’ portfolios? I doubt it.

KEY MARKET STRESS POINTS (circa February, 2020)

I maintain a running list of what I consider to be the 10 biggest investor worries, ranked in order of significance. As of early February of this year, here is what it looked like. I added brief updated comments (italicized) below each one.

Sentiment

Still too complacent, selloff will be a shocker, as in past bear markets. Cycle of investor speculation and excess could soon be snuffed out.

THIS was the biggest “bubble” Coronavirus popped

Global Economic Growth

Many leading indicators showing persistent weakness

Sure, now they are crashing. But it doesn’t mean they were not way overdue.

Geopolitical

Coronavirus, U.S. Election, Oil War, North Korea

Remember when North Korea was our big issue? The global health crisis has made the rest of those items seem relatively meaningless for the time being.

Corporate bond tipping point

Many corporate bonds have borderline “junk” ratings

This is the part of the new bear market that has only begun to growl

U.S. Treasury Bond Bubble?

60/40 plans are sitting ducks, as bonds yield less than advisory fees

Finally, after years of my barking about this, it is moving front-and-center

Credit

Consumers, government and many corporations all over-leveraged

Bailouts will push out the inevitable. There’s a ton of money owed, and it will not soon be resolved.

S&P 500 index Mania

Passive investing has become too popular, convinced people its easy

Nailed it. Now, will investors “double-down” on that sentiment, and risk getting clobbered by a second, potentially more spirit-busting decline? That’s the story of most bear markets, ultimately. Panic is NOT the final stage. Despondency is.

Valuation

Corporate earnings stagnant, prices elevated. Something has to give.

Something gave, but not in the usual way. Not only are earnings going to be knocked down for a while, many dividend payments could be suspended. That is way beyond even the impact of the Global Financial Crisis on corporations.

Inflation

Governments could inflate to facilitate massive debt re-payments

In an uncanny and unfortunate turn of events, that inflation will end up resulting from the record U.S. Government stimulus just announced, to tide consumers and businesses over until we can freely move about again.

Fed rate decisions

Central banks may be powerless at this point

Apparently, they are powerful in their ability to backstop jittery markets with liquidity issues. However, recent Fed moves have only been another sugar-high for the stock market.

The way forward

So, while you are devising your strategy to get through this bear market and eventually, into the next bull market (whenever that arrives), remember this list. Taken together, these points remind us that things are never as good as they seem, and sometimes it takes a crisis “out of left field” to correct massive overvaluation, leverage, fiscal irresponsibility, etc.

The good news: the bottom will be in many ways a mirror image of the recent top in the stock market and economies of the globe. That is, it will seem dire, unending and entirely uncomfortable. And that will tell you that the transition back to more fruitful, traditional investing ways is upon us. In the meantime, think differently, buckle down, and stay safe, both in your health and wealth.