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Xebec update and global brief ?3

10:41 30-Nov-22

As predicted below, the Xebec stay extension has been granted and any real consideration for expanding the reorganization process beyond Deloitte has been denied.

Other than that, today is mostly about minor economic data, and I've waited on the just released JOLTS numbers.  Job openings came in at 10.3M vs 10.5M expected, and quits were at 4.0M, showing very slight but continuing progress in stabilizing a very tight that labor market.  The latest GDP estimate came in moderately better than expected at 2.9% growth versus average predictions for 2.7%.  However, the ADP report indicates that progress is very patchy, focused in travel and other services, particularly in the mid-Atlantic region.  The headline number of +127K was well below predictions for +190K.  Pending home sales also declined, but almost a full percent less than forecast, at -4.6%.  I see all this as somewhat supportive to a Fed tap on the breaks, while maintaining the danger of long term stagflation.  That's still better than the prospects for Europe.

Elsewhere on the global stage, China is going all out in its crackdown on protests, even as the primary architect of its current economic clout has passed away.  I see Xi's economic management as inferior, and have always avoided investment in the country due to the long term risks.

More interesting is the ECB calling out Bitcoin's recent rise above $16.8K as a "last stand" and said that regulation would only serve to improperly legitimize the speculation.  It echoes my main criticisms:

Bitcoin's conceptual design and technological shortcomings make it questionable as a means of payment: real Bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legal real-world transactions.

and estimates VC investments in the crypto and blockchain industry at $17.9b, which I reiterate as trivial.

Also trivial compared to debt concerns is EbixCash announcing another 5-year ticketing contract.

The only stock-specific development that I might have written about today was Shell shelling out €1.9b for Europe's largest RNG producer.  Perhaps this helped SHEL resist the downward trend exhibited by other hydrocarbon majors as oil plumbed new lows, but it's still a hefty sum for 13 biogas plants.  Paying a premium for these sorts of businesses has been a trend of late, though; bp coughed up $4.1b for Archea Energy, which almost quadruple what private equity valued it at just a year earlier.

All this led me to spend my time today delving through the latest document on Xebec, whose stay of reorganization proceedings was scheduled to expire today.   The main point is a proposal to extend the stay until February 3rd.  I further note that Xebec performed 24% better than budgeted, and was nearly cash flow neutral over the past month.  Running down company finances could be the main reason for extending the stay.  My own experience with the monitor, Deloitte, gives me no reason to see them as anything other than a purveyor of red tape for Big Money that may wish to obfuscate and delay more immediate and expedient resolutions.  Deloitte interjecting itself between the court and a petitioner for independent investigation and management while expressing

the opinion that such relief appears disruptive to the Restructuring Process and to the ongoing SISP

only reinforces my impression.  I expect to hear official approval for the extension of the stay soon, and that the best case scenario for XBC/XEBEF shareholders is to event get some trivial equity in an acquirer after private equity and lawyers have siphoned off most of the value.

Some global developments also deserve quick notes before this week's economic data gets rolling:
Another surprising election result, this time in Taiwan, could be a short term positive for HIMX in that seems likely to diminish the sabre rattling from China.  Protests at home will help with that as well, though they didn't do the market any good today.

I warned two weeks ago about the risk of crypto contagion, and BlockFi filed or bankruptcy today.  However, Bitcoin remained steady just above its $16K recent lows and the single digit billions of dollars that are estimated to be involved in these cases aren't really enough to rile equity markets.

Finally, ABB's impending settlement is trivial, and I will ignore or only update briefly on tomorrow's real estate data.  The whole world knows about the downturn now, and trailing data isn't really going to help answer questions about how it proceeds.  As already foreshadowed, the main economic data are PCE and the jobs reports at the end of the week.  I will also be particularly looking forward to PPI on the 9th.  Mixed messages from Fed officials ahead of Powell's speech on Wednesday are hardly surprising in the meantime.

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