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CVA dividend, trade and AES debt +2

20:36 01-Mar-18


Covanta has announced its latest 25 cent dividend with an ex-date of March 28th.  The chances of a cut may not have been quite as high as I originally made them out to be, but I still see this as significantly improving certainty for the year.  Another positive, for CVA at least, is news that steel and aluminum tariffs will be announced next week.

How that plays out for the rest of the market is another matter.  Aside from the chance of significant backlash, this is likely to skewer any chance of yet another about-face on the TPP (Trans-Pacific Partnership) from America.  That's not to say there was much credibility in such talk to begin with.  To quote a trade expert from the Caito Institute:

The president says a lot of things, and the seriousness of those things varies dramatically.  Experienced trade watchers have taken an essentially ‘believe it when we see it’ attitude.
However, I think that's as much the point as the trade itself.  Allowing China to dominate trade talks is bad enough, but with Xi moving to eliminate term limits there, the gap in predictability continues to grow wider than ever.  Most think that it will take many years for China to roll that up to real influence in oil markets.  They're probably right, but moves like these don't help, and I think March 26, 2018 will be the start of another phase in the bigger long-term shift.

Note that study was on a 17 year period.  So, none of this should be taken as a prediction for immediate trouble.  Again, while everyone else is watching treasuries, I'm watching the U.S. dollar strengthen slightly.  That tells me that Powell's Goldilocks hawk performance is going over well enough to keep selling record levels of government debt on March 13.  Perhaps he will be helped in that effort by a political surprise from Italy or Germany over the weekend.  I'm less optimistic about the jobs report on the 9th, though.  No matter what, I don't for second believe we'll actually see 3 more rate hikes after the one coming on the 21st.  I think the talk will continue effectively, but there will be an excuse to hold off at one of the major meetings, and the market will continue to chop along.  I've seen two data points today that seem in concurrence with that opinion.

The first was a comment on the NRG Yield call, where management noted that although treasury yields have been chopping higher, the price of long-term corporate financing isn't really following.  Even in the shorter term, we've just witnessed AES Corp price $1b of 3 and 5 year notes at 4% and 4.5%.  That indicates that AES is already being considered more or less investment-grade, which is great for the balance sheet and shareholders.  Just maybe it also says something not so flattering about the depth of appetite for U.S. debt.  Japan has already been a net seller of late and if that spreads, you'll start seeing some REAL market volatility.  So far, though, it's looking like that moment is not yet upon us.

I don't really have any good way of knowing whether or not the buying opportunity for long-term CVA and AES investors will end in response to this new data, but I'm confident that recent pricing has been an opportunity, regardless of what either stock does in the days or weeks to come.