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Earnings Growth Based On Debt And Buybacks? Totally Unsustainable

My grandfather was never rich. He did have some money in the 1920s, but he lost most of it at the tail end of the decade. Some of it disappeared in the stock market crash in October of 1929. The rest of his deposits fell victim to the collapse of New York’s Bank of the United States in December of 1931. I wish I could say that my grandfather recovered from the wrath of the stock market disaster and subsequent bank failures. For the most part, however, living above the poverty line was about the best that he could do financially, as he buckled down to raise two children in Queens. There was one financial feature of my grandfather’s life that provided him with greater self-worth. Specifically, he refused to take on significant debt because he remained skeptical of credit. And with good reason. The siren’s song of “you-can-pay-me-Tuesday-for-a-hamburger-today” only created an illusion of wealth in the Roaring Twenties; in fact, unchecked access to favorable borrowing terms as well as speculative excess in the use of debt contributed mightily to the country’s eventual descent into the Great Depression. G-Pops wanted no part of the next debt-fueled crisis. Here’s something few people know about the past: Consumer debt more than doubled during the ten year-period of the Roaring 1920s (1/1/1920-12/31/1929). And while you may often hear the debt apologist explain how the only thing that matters about debt is the ability to service it, the reckless dismissal ignores the reality of virtually all financial catastrophes. During the Asian Currency Crisis and the bailout of Long-Term Capital Management (1997-1998), fast-growing emerging economies (e.g., South Korea, Malaysia, Thailand, etc.) experienced extraordinary capital inflows. Most of the inflows? Speculative borrowed dollars. When those economies showed signs of strain, “hot money” quickly shifted to outflows, depreciating local currencies and leaving over-leveraged hedge funds on the wrong side of currency trades. The Fed-orchestrated bailout of Long-Term Capital coupled with rate cutting activity prevented the 19% S&P 500 declines and 35% NASDAQ depreciation from charting a full-fledged stock bear. Did we see similar debt-fueled excess leading into the 2000-2002 S&P 500 bear (50%-plus)? Absolutely. How long could margin debt extremes prosper in the so-called New-Economy? How many dot-com day-traders would find themselves destitute toward the end of the tech bubble? Bring it forward to 2007-2009 when housing prices began to plummet in earnest. How many “no-doc” loans and “negative am” mortgages came with a promise of real estate riches? Instead, subprime credit abuse brought down the households that lied to get their loans, destroyed the financial institutions that had these “toxic assets” on their books, and overwhelmed the government’s ability to manage the inevitable reversal of fortune in stocks and the overall economy. Just like 1929-1932. Just like 1997-1998. Just like 2000-2002. Maybe investors have already forgotten the sovereign debt crisis from the summer of 2011. They were called the “PIGS” – Portugal, Italy, Greece and Spain had borrowed insane amounts to prop up their respective economies. The easy access to debt combined with the remarkably favorable terms – a benefit of being a member of the euro zone – started to come undone. Investors rightly doubted the ability of the PIGS to repay their respective government obligations. Yields soared. Global stocks plunged. And central banks around the world had to come to rescue to head off the disastrous declines in global stock assets. Throughout history, when financing is cheap and when debt is ubiquitous, someone or something will over-indulge. Today? Households may be stretched in their use of cheap credit, and they have not truly deleveraged form the Great Recession. Yet the average Joe and Josephine have not acted as recklessly as governments around the globe. In the last few weeks alone, the European Central Bank (ECB) announced an increase in its bond-buying activity as well as the type of bonds it is going to acquire, Japan has sold nearly $20 billion in negatively-yielding bonds and the U.S. has downgraded its rate hike path from four in 2016 to two in 2016. Add it up? The world is going to keep right on going with its debt binge. Are we really that bad here in the U.S.? Over the last seven years, the national debt has jumped from $10.6 trillion to $19 trillion. In 7 years! If interest rates ever meaningfully moved higher, there would be no chance of servicing our country obligations. We would likely be facing the kind of doubt that occurred with the PIGS in 2011, as we looked for bailouts, write-downs, dollar printing and/or methods to push borrowing costs even lower than they are today. That’s not the end of it either. The biggest abusers of leverage and credit since the end of the Great Recession? Corporations. There are several indications that companies are already seeing less bang for the borrowed buck. For instance, low financial leverage companies in the iShares MSCI Quality Factor ETF (NYSEARCA: QUAL ) have noticeably outperformed high financial leverage companies in the PowerShares Buyback Achievers Portfolio ETF (NYSEARCA: PKW ) since the May 21, 2015 bull market peak. It gets more ominous. The enormous influence of stock buybacks by corporations – where companies borrow on the ultra-cheap and acquire shares of their own stock to boost profitability perceptions as well as decrease share availability – may be fading. For one thing, buyback activity has not stopped profits-per-share declines across S&P 500 companies for 4 consecutive quarters (Q2 2015, Q3 2015, Q4 2015, Q1 2016 est). Equally worthy of note, when the bottom line net income of S&P 500 corporations began to decline in earnest in 2007, buybacks began to decline in earnest in 2008. Bottom-line net income has been deteriorating since 2014, but favorable corporate credit borrowing terms has kept buybacks at a stable level into 2016. Nevertheless, once corporations begin recognizing that the buyback game no longer produces enhanced returns (per the chart above) – that stock prices falter in spite of the buyback manipulation efforts, they could begin to reduce their buyback activity. When that happened in 2008, the lack of support went hand in hand with a 50%-plus decimation of the S&P 500. The ratio of buybacks to net income in the above chart can become problematic when companies spend a whole lot more of their bottom-line net income on share acquisition. Maybe it’s a positive thing as long as stock prices are going higher. Yet FactSet already reports that 130 of the 500 S&P corporations had a buyback-to-net-income ratio higher than 100%. Spending more than you earn on acquiring shares of stock? That means very few dollars are going toward productive use, including human resources, research/development, roll-out of new products and services, equipment, plants and so forth. Maybe it wouldn’t be so bad if one could forever count on the notion that interest expense would be negligible. Unfortunately, when total debt continues to rise, even rates that stay the same become problematic. Consider the evidence via “interest coverage.” In essence, the higher the interest coverage ratio, the more capable a corporation is at paying down the interest on its debt. Yet if the debt is rising and the interest rates are roughly the same, interest expense increases and the interest coverage ratio decreases. Here’s a chart that shows challenges in the investment grade, top-credit rated universe. You decide. There are still other signs that show a potential “tapping out” for corporations. Corporate leverage around the globe via the debt-to-earnings ratio has hit a 12-year high. Aggressive financing in the expansion of debt alongside additional interest expense is rarely a net positive. On the contrary. Aggressive leveraging typically means a high level of risk. Granted, if corporations were taking on more debt to increase their value via new projects, expansion, new products, growth and so forth, it might represent high risk-high reward. In reality, however, everyone recognizes that the game has been about loading up on debt at ultra-low terms to acquire stock shares – a short-sighted practice of enhancing earnings-per-share numbers for shareholders. Click to enlarge In sum, low rates alone won’t make it easier for corporations to pay off their substantial obligations. Paying down debt is more challenging in low growth environments – 1.0% GDP in Q4 2015 and 1.4% GDP estimate for Q1 2016. Why might that be so? Corporations did not choose to put borrowed money into capital investments that might ultimately help service interest expense. Stock buybacks? Additional stock shares cannot provide the cash flow necessary for debt servicing the way that capital investments can. To the extent one has equity exposure, he/she would be wise to limit highly indebted, highly leveraged companies. The steadily rising price ratio between QUAL and the S&P 500 SPDR Trust ETF (NYSEARCA: SPY ) tells me that investors are wising up. In particular, they’re more concerned by poor credit risks across the stock spectrum. And while QUAL certainly won’t provide bear market protection on its own, it will likely lose less in downturns; it will likely hold its own during rallies. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Alterra Power’s (MGMXF) CEO John Carson on Q4 2015 Results – Earnings Call Transcript

Alterra Power Corp ( OTCPK:MGMXF ) Q4 2015 Earnings Conference Call March 16, 2016 11:30 AM ET Executives Ross Beaty – Executive Chairman John Carson – CEO Lynda Freeman – CFO Lindsay Murray – Interim CFO Jay Sutton – Head of Hydro Paul Rapp – Head of Geothermal and Wind Operations Murray Kroeker – Head of Engineering and Solar Jon Schintler – Head Project Finance Analysts Marin Katusa – KCR Fund Steven Hong – National Bank Operator Good morning, ladies and gentlemen and welcome to the Alterra Power Corp Fourth Quarter Results Conference Call. At this time all lines are in a listen-only mode. But following the presentation we will conduct a question-and-answer session. [Operator Instructions] Note that this call is being recorded on Wednesday March 16, 2016. And I would like to turn the conference over to Ross Beaty. Please go ahead sir. Ross Beaty Thank you very much operator and good morning ladies and gentlemen, I’d like to extend my own welcome to you for joining us at Alterra’s fourth quarter and year-end results 2015 conference call. Before I get going, I want to point out that we have a lot, we’ll be making some forward looking statements today and I’ll point you to the discloser statement in our MD&A financial results materials for this call and news release. We certainly seek Safe Harbor under forward looking statements. So I’m going to start by saying that our 2015 results were heavily affected by foreign exchange losses due to the strength of U.S. dollars against the Canadian Dollar and the Icelandic ISK. These results mask what was really our best year ever, in revenue growth, production results and operational growth. As we financed and completed construction of Shannon Winter Farm in Texas and continue to do successful development of our Jimmie Creek, the hydro project in British Columbia and made big investment in Iceland, that will collectively result in continuing growth across the board in 2016 and future years. So I’m now going to let our great management team in Vancouver tell you more about our 2015 results and outlook. Starting with Alterra’s CEO, John Carson. John over to you. John Carson Thanks Ross, and I echo your thoughts about this being a successful quarter for us. I’d like to introduce the management team that will be joining me on the call here as well. First our CFO, Lynda Freeman, who is back with us full-time. Secondly though our recently moved, Interim CFO, Lindsay Murray who did a great job in Linda’s absence, so both of them are here with us and we are very fortunate to have both of them on our team. Over on the asset side we have Jay Sutton, our Head of Hydro, and Paul Rapp our Head of Geothermal and Wind Operations. As well as Murray Kroeker who is our Head of Engineering and Solar. And then also Jon Schintler who heads our project finance teams. To start the presentation I’d first like to call your attention to the cover of the presentation which you found on our Web site, just to see the asset, the Jimmie Creek asset under construction. It’s a very exciting time for our company as this asset is under construction and there you see the intake at the top of the asset and this is just an early stage of construction still, but you can see that it’s really quite developed already and we are on target to deliver this project ahead of schedule and on budget or ahead of budget by the summer of 2016, so very exciting time for the company. With that I’d like to turn to a review of our 2015 year-end financials and Lynda Freeman is going to provide that. Lynda, over to you. Lynda Freeman Thanks John and good morning everyone. 2015 was a busy but exciting year for Alterra. You’ll hear throughout presentation about the successful completion of construction of Shannon, the ongoing construction of Jimmie Creek, which is on time and on budget and about the strong performance of our operating assets. All of these factors had a significant impact on the annual results of the company as released yesterday. Before I go into more detail on these topics, I’ll start my presentation with the discussion on the operating results of the company on a consolidated basis. To those of you following on the presentation, Slide 4. The company’s consolidated revenue growth profit and adjusted EBITDA rolled down against 2014. However, I must highlight that this decline is almost entirely driven by unfavorable foreign exchange movements, with the Canadian Dollar and Icelandic krona weakening 19% and 13% respectively against the U.S. dollar. Other income and expenses remained consistent year-on-year, despite the significant movement to balances that within that cash. Specifically, non-cash movements in the embedded derivative, foreign exchange and non-recurring write-offs in the prior year. The company continues to record results from operating projects Toba Montrose and Dokie 1 as equity investments and in 2015 included the results of Shannon from commencement of operations on December 10th to the end of the year. That brings me on to talk about Shannon. During the year the Company went from owning 100% of a construction asset on January 1st to owning 50% equity interest in a fully operating project in December. To get to that point the Company completed construction financing, tax equity investment and incidental power hedge during the year. With commencement of commercial operation in December, this was shortly followed by full funding of tax equity on December 14th and resulted in a return of capital to Alterra of $3.5 million for unused construction contingency. Including this return of capital, the Company has invested $59 million in Shannon for our 50% fund-to-equity. Consistent with the previous period the Company believes the clearest view of our operating results is by looking at the net interest results by reflecting our ownership interest to Toba Montrose of 40%, HS Orka 66.6%, Dokie 1 25.5%, and now Shannon at 50%, reflecting our 50% sponsor equity in the project, as demonstrated on Slide 6 and 7 for those of you following our presentation. Fleet wide performance was 99.6% budgeted generation with record high generation at both Toba Montrose and Dokie 1. Once again the effect of the strong U.S. dollar can be seen in our results with revenue and adjusted EBITDA down year-on-year. Net interest in revenue was down 16% to $71.6 million and we recorded adjusted EBITDA of $37 million down 10% against 2014. I would like to highlight that in originating our functional currency, the operating results of Toba Montrose, Dokie 1, and HS Orka were all up year-on-year as presented in Slide 8, with increased generation at Toba Montrose and Dokie 1 and greater retail sales at HS Orka driving the increase. Moving away from our strong operating results to our balance sheet and Slide 9 in the presentation, we recorded net assets of $199 million at December 31st against $214 million in the prior year with foreign exchange and the fair value of the embedded derivatives the key drivers for the reduction in value. Looking at our cash and working capital, you will note that our cash position declined significantly. This was due to the investment in Shannon, repayment of loan to HS Orka and capital spent. At December 31st the Company is showing a negative working capital of $123 million due to the inclusion of the Company’s holding Company bonus held by Magma Energy Sweden of $180 million being classified as a current liability. These bonus were issued in conjunction with the acquisition of HS Orka back in 2010 and they’ve become due in July and December of this year. The bonds are non-recourse for the Company and are secured on a portion of our shares held of HS Orka. The Company is in the process of refinancing the bonds. However if the Company is not able to or elects to not refinancing the ISK bond which becomes due in July, the Company would lose 1 billion shares of HS Orka and our interest would fall to 53.9% we would continue to consolidate the results of HS Orka in this instance. Should the Company be unable to or elect to not finance either of the bonds then our share in HS Orka would be reduced to 21.8% and we would no longer consolidate their results. We do not see this as a likely outcome. Excluding the bonds in HS Orka from working capital, the Company has a positive working capital of just over $2 million. In addition, the Company received project dividends from Toba Montrose and Dokie 1 of over CAD5 million in early 2016. The Company has access to additional funds to finance further development including additional holding Company level debt and use of the revolving line of credit which has a current unused capacity of CAD20 million. Moving on to long-term debt on Slide 11. The Company through HS Orka has continued to lay down debt with over $17 million paid off in 2015. I just like to remind everyone that HS Orka is quickly paying off its outstanding debt with repayments falling significantly over the next few years. I refer you to Appendix 1 for details of repayments. HS Orka has significant leverage to support additional financing due to the reduction in the debt over the years. All other long-term debt both at hold current and project level have met all required debt service and covenant requirements. The last Slide and item that I am going to talk to is the inclusion of forecasted results to 2016 and ’17 in our MD&A. This is the first time we’ve included the outlook and we hope our investors find the information useful. The Company is forecasting net interest and generation of 1,610 gigawatt hours and 1,706 gigawatt hours in 2017, up 29% and 37% for 2016 and ’17 respectively largely due to the recognition of 12 months generation from Shannon and the inclusion of Jimmie Creek which is expected to come online in the summer of 2016. In addition, generation forecast reflects successful reinjection at Reykjanes and new production wells at Svartsengi. Based on internal budgets and forecast management expect the adjusted EBITDA on a net interest basis to grow 10% in 2016 and 30% in 2017 due to inclusion of Shannon and Jimmie Creek and an expected margin increase at HS Orka due to lower forecast power purchases following the increase in forecast generation. Regarding all other assumptions I refer you to our management discussion and analysis for full details. That concludes my update I now hand it up to John. John Carson Thanks Lindsay, Great. Thanks very much for that and now we’re going to move on to the operating section. I’m going to turn over to Jay Sutton to let us know what’s happening on the hydro side starting with Toba Montrose. Jay? Jay Sutton Thanks John. Referring to Slide 13, TMGP had a successful fourth quarter of 2015 producing 81 gigawatt hours of energy versus our forecast of 83 gigawatt hours and achieving our annual generation target on 8th of October which was 10 days ahead of the record set in 2014. The fourth quarter capped off an exceptional year with the plants generating a 111% of our 2015 forecast and establishing a new generation record of 792 gigawatt hours. We continue to make improvements for the plant, increase efficiency and generation, we spent the last two months performing annual maintenance in preparation for the higher inflows that will start in April. Our flow utilization and availability which are key measures of the plant performance both remain above 95%. For 2016 we’re at 91% of our forecast generation through the end of February and the snow packs above the long term average for this time of year. So we’re looking forward to a good generation through the spring and summer. Our crews continue to operate and maintain the plant safely and within our environmental commitments and we are now well over two years without a recordable incident for our employees or our contractors. That’s it for Toba Montrose, John. Back over to you. John Carson Great, with that let’s turn over to look at the Wind and Geothermal operation side, Paul Rapp. Paul Rapp Thanks John. I direct everyone to Slide 14 for our Shannon project. Shannon was a huge highlight for the company as Ross said in the introduction. In 2015 we completed construction on schedule and on budget and commenced commercial operations at Shannon on December 10th, 2015. This facility is operating very well. We’ve contracted with GE to provide wind turbine and balance plant maintenance at Shannon and the GE team onsite is doing a great job. Generation has tracked very close to plan for the first three months of operation and we were at 97% of plan year to date at the end of February. Turbine availability has also been high averaging over 97% year to date. We’ve had very few break in issues with the turbines or with the balance of plant. We are currently selling our power into the merchant market in Texas until the start of our hedge in June. Current merchant pricing is lower than forecasted historically low gas prices, but we expect this impact will largely go away upon commencement of our hedge in June. I’ll move on to our DC operations here. Dokie 1 on Slide 15. So the Dokie wind farm had a great year, performed exceptionally well in 2015 and achieved 339.8 gigawatts hours of generation or a 103% of the annual planned generation. This is the highest annual generation for Dokie since COD. Because of this Alterra receives an additional earn out payment of $750,000 from Axiom Infrastructure which was associated with the sale of 50% of our interest in Dokie two years ago. That sales agreement allowed for an additional payment of $750,000 per year for the three years following the sale when Dokie wind farm achieved greater than planned generation. So that was a nice little bonus for us. Strong production continues in 2016 and year to date production is 98% of plan through the end of February. Our assets [ph] continue to do a good job of maintaining our turbines at Dokie and at 2015 availability averaged 96%. Overall the Dokie facility continues to operate well with no safety or environmental issues and no significant equipment issues. I’ll switch over to highlights of our geothermal operations in Iceland now. Please refer to Slide 16. So both Svartsengi and Reykjanes plants performed well in 2015 and the overall production was 95.5% of plan for the year. Year to date we’re 101% of plan. Highlights at the Svartsengi plant for the year included drilling of two new wells, Svartsengi 25 and 26, both of which are showing very promising indications for production. The holes were just recently completed and down haul logging and flow testing is underway in these holes and we expect at least one of these holes will be connected to the plant in 2016. There’s ongoing construction at Svartsengi of a new discharge facility which will dispose of brine from the plant and this will allow for extraction of more geothermal fluid from the field and potential increase in power production from the plant as well. Over at Reykjanes we completed just in the last few weeks the reinjection pipeline that’s been under construction for a while there and this connects the plant to the previously completed RN 33 and RN 34 well area. Reinjection has commenced into those wells and will be ramped up over the next short while to provide pressure support to the Reykjanes field. That’s it from me. John I’ll hand it back to you. John Carson Great. Over to you Jay for a construction update at Jimmy Creek. Jay Sutton Thanks John. Referring to page 17, contractors working at Jimmy Creek made great progress in Q4 of 2015 and the civil portion of the project is now nearly complete. So the contractors have started to demobilize from the site and we are starting to reduce the size of the camp as the number of workers onsite decreases. We completed construction of the intake in January and filled the head pond in early March. We are currently performing final commissioning tests on the gates and the contractors are cleaning up the intake and demobilizing. On the Penstock, construction and remediation are both complete. We’ll perform a final lock through of the Penstock actually next week and are scheduled to fill and pressure test the Penstock by the end of March. In February we completed construction of the switch yard and performed final testing and commissioning of all the switch yard and transmission line equipment. The Jimmy Creek plant was connected to the Toba Montrose transmission line on the 1st of March and then at the powerhouse installation of the turbine generation of about 75% complete and you can see in the photo there the insulation of the starter over top of running of Jimmie Creek 2 and the contractors are now performing final electrical insulations and mechanical piping to prepare the units for testing and commissioning which we expect to start in April. As John mentioned, the project remains on budget and schedule and we’re looking forward to generating electricity in the second quarter of 2016. Over to you John. John Carson Thanks Jay. And now I’m going get to the section of looking ahead and where our energy to focus here in 2016. Before I do that, we need to make one correction in the presentation that was posted this morning. On Slide 12 in the outlook table we had a defunked table actually and I just like to clarify the numbers and these are the numbers that are identical with what we have in our news release and our MD&A generation for 2016 is 17, at 1,600 gigawatt hours and 1,700 gigawatt hours respectively. Total revenue is 92 million and 100 million respectively and adjusted EBITDA is 41 million and 48 million respectively. The presentation is being uploaded or re-updated as we speak and the correct numbers will be in that table. Apologies for that inconvenience there. Now looking to Slide 18, looking ahead. As most of you may have heard, there has been an extension of two renewable generation incentives in the United States which plays right into what we like to do which is to displace carbon generating activities with our clean renewable power projects. It was a two year plus tail extension of both the production tax credit which is typically used for wind projects and the investment tax credit which is typically used for solar projects. This really opens up the playing field for Alterra and plays right into our expertise of having a deep understanding of tax focused transactions such as the one we used at Shannon. And so we are directing our energies there and we’re working on several projects in the USA. First on the Greenfield side, we did lock up two projects with land leases very recently and we projected these two projects can have a capacity of up to 350 megawatts and we’re looking at other Greenfield projects currently as well. So this has been a major boon for us and we’ve decided to take advantage of it by ramping up on the Greenfield side. Also we’re analyzing several development stage acquisition opportunities in the states some of these are wind in fact most of them are, some of them are solar, but most all of these projects that we’re currently analyzing for acquisition are in the USA. Our teams are very busy working on this right now and really crystallizing what our next near term growth pipeline is going to look like. And finally in both Canada and Iceland we are advancing multiple hydro development projects such as Tahumming in British Columbia and Breuer, Verkin and Cavallo [ph] in Iceland. We’re very excited about these opportunities and looking forward to where we can really find the most opportunistic advancements for our development pipeline and we’ll also look at expansion on to our geothermal project we’ve long been discussing our Reykjanes plant and potential expansions there. There is one potential expansion the first portion of it which doesn’t involve drilling any new wells it’s basically just adding on a binary power unit to the existing facility there and we’re currently working that one as well. So what we see here at Alterra is really a good platform for growth in North America especially in the United States and we are fully exploring it, taking advantage of it and working to maximize our opportunities there for our shareholders to grow new and profitable projects that are generating clean renewable energy. With that we’re through with the core of our comments. Ross, I’ll turn it back over to you. Ross Beaty Okay. Thank you very much John. And I think I’ll just wind it up as John [technical difficulty], a good year operations last year and those results trying to somewhat by the flows on foreign exchange fluctuations to the U.S. dollar but certainly are setting ourselves a great year in 2016 and ’17 and beyond. So with that operator I think I’ll close the call presentation and open it to questions now. Question-and-Answer Session Operator Thank you, Sir [Operator Instructions]. Please stand by for your first question, which will be coming from Marin Katusa at KCR Fund. Please go ahead. Marin Katusa Ross and John great work guys, couple of quick questions. No mentioned of the dividends where we’re at with that? Ross Beaty So Marin we’re still debating that at our board level, we had more business of course had extensive discussion on that and we haven’t resolved yet what we’re going to do. Of course we’re disappointed that the foreign exchange strengths in the dollar our initial strength in the U.S. dollar has turned our free cash flow when described in U.S. dollar terms and to some repayouts impacting our deliberations on dividend. So right now, it’s a, watch this space kind of thing and we’ll have to report later on that. Marin Katusa Any hedging strategy that you guys are looking at, for the FX? John Carson Currently no hedging plans in effect as of today. You know it’s something that we monitor closely but I think you know that we don’t see or project any substantial currency movements in the near term. Lynda anything else to add there? Lynda Freeman The only thing I’d add is that currency fluctuations we’re seeing, mainly in our reporting currency, that’s a big impact that we say [Multiple Speakers]. John Carson That’s right and originating currencies as Lynda explained, we’re quite profitable in fact doing better. Marin Katusa Got you. Now the second quarter I got John, specifically to you. This really spit out the green field wind development the least for two U.S. projects up to 350. That’s very significant but what else can you tell us about it. Where, what and knowing Ross I’m sure he’s got a plan to how to finance that. Is Berkshire in the works or Starwood, like what’s the plan there, that’s pretty significant? John Carson Sure, it’s this two new projects we know purposely waiting to release more details, just a little bit later. We’re looking at multiple locations in the USA, for those more information to come on the precise locations. With respect to financing you mentioned Berkshire Hathaway which was a substantial participant in our Shannon project. Great relationship there. It would be you know not a surprise at all to me if they were participating in our next USA wind project, although you know there’s no commitments or anything else. I’d say that even if it weren’t you know the participants we had at Shannon, if it weren’t Berkshire, if it weren’t Citi there are plenty of other viable financiers for our next renewable energy projects. We have here at Alterra strong relationships with almost all USA tax equity providers and major project lenders. So could be any number of those providers Marin, but I do expect that there’s no shortage of capital for good projects today, so not a concern at all there as far as raising the debt or tax equity capital. Marin Katusa That’s great news. Jay this one would be for you. The Q4 on Toba generation was significantly lower than 2014 Q4. Was it just a — was there anything particular relating to the flow or was it in a capital issue or what was the reason of about 30% lower quarter-over-quarter. Jay Sutton No, just last year we had really high, we had a mild winter so we had much higher flows at the end of the year and at the beginning of 2015 so it was strictly related to just a water flows. Marin Katusa Lynda the last question from me, sorry for hogging so much time here, but when we look at the lump sum payments for the HS Orka loans over the next four or five years looking you know 17, 15, couple of 12s and a eight and I get that point how we’re dumping the — decrease that significantly but in this market with this project would be this is what I’d call like hot green debt you could refinance the 75 million HS Orka loan quite quickly. Is the company looking at doing the HS Orka loans at the same time as the Swedish debt or is the plan, no we’re just going to pay down the debt. John Carson Lynda and I are looking at each other here Marin, but let me speak up first on that one. It’s always a consideration and there is as you recognized there is a great deal of financing capacity at the HS Orka corporate level. So we have had some preliminary discussions around that and that is a possible outcome in the future. That said our first priority is to really finance the holdco loans, the Sweden House holding company loans. Those term out at the end of the year and that’s why our efforts are put there first and foremost and those activities are well under way. We have an advisor working for us, we’re really just kind of getting everything in line to get that done in a good way. So that’s where the focus is but yes there would be plenty of financing capacity at the HS Orka level. We’ll be looking at that in the future. My last statement about that is if and as we develop the Breuer [ph] and hydro project which I mentioned, or the Reykjanes 4 expansion, which I also referred to in the growth section, we may do a project related refinancing or new financing as well to supplement or complement the existing HS Orka loans. So a lot of interesting backdrop for Icelandic related financing, but to reiterate first and foremost we’ll be refinancing these holdco loans. Marin Katusa Very exciting, thanks all. Operator Thank you, your next question will be coming from Steven Hong at National Bank, please go ahead. Steven Hong Hi, this is Steven filling on behalf of Rupert. Just had one question with regards to Mariposa, Chile project, also maybe you could give us more additional color, just the fact that it was postponed in October 2015. John Carson Okay sure, that was a disappointment for us, we referred to I believe on our last call. We had originally planned to commence this drilling in late 2015 October and we announced you know upon postponement at the elections of the management partner of the project, our partner EDC Energy Development Corporation. They chose to defer this drilling for a year based on certain factors that were occurring in Chile, primarily a reduction in commodity prices which gets reflected in reduced forward power prices which affects the level of contracting that this project could get in Chile. In other words there seemed to be a negative spike in commodity prices and we’re going to you know they wanted to wait that out a little bit or to reassess. That was their decision to make, and we announced at that time that it would be deferred until late this year. So that’s currently the plan and who knows ultimately whether they will do it this year or defer further. We hope that certainly it occurs this year, sooner the better in our view. But in the end that particular decision is reserved for our partner. Steven Hong Okay, that’s all I have for today, thank you. Operator Thank you, [Operator Instructions], and currently Mr. Beaty, Mr. Carson we have no other questions registered. Ross Beaty Okay, thank you operator. We’re getting off lightly today. In that case we’ll end the call and thank again everyone for participating today. If you have any further questions you can certainly call our office in Vancouver and speak to any of the participants that have been talking today for any further details. Any comments John? John Carson No Ross, other than to say that I’d call everybody’s attention to the revised presentation on the website it has been revised the proper table on slide 12 is now there. Ross Beaty Okay, thanks very much and thanks again everyone for joining us, we’ll end the call now, thank you operator. Operator Thank you sir, ladies and gentlemen this does indeed conclude your conference call for today. Once again thank you for participating and at this time we do ask that you please disconnect your lines, enjoy the rest of your day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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5 Economic Charts Help Investors Understand Trump And Sanders

Investors should be capable of asking a very simple question: If the domestic economy is performing admirably, why are Americans fed up with established politicians on both sides of the aisle? On the Democrat side, a 74-year old white male who admires socialism has inspired more voters than the prospect of the first female president in the country’s history. In the Republican corner, an unconventional billionaire and self-proclaimed wave maker has promised to restore America to greatness – he is trouncing competition on the nationalistic notion that America has lost its five-star status. Along these lines, Real Clear Politics reports that two-thirds (66%) of the electorate believe the country is on the wrong track. Only 28% believe the country is moving in the right direction. It follows that the anti-establishment allure of socialism and nationalism tends to thrive when a country’s economy is frail. Of course, many insist that the U.S. economy is in fine shape with admirable job gains, a vibrant consumer and a healthy business segment. The problem with the assertion? The last 15 years of data portray a very different picture. For example, since 2000, fewer and fewer Americans enjoy home ownership – therefore, fewer and fewer benefited from surging real estate prices on ever-decreasing borrowing costs. Similarly, fewer Americans in the prime age demographic (25-54) are participating in the labor force. For all the “pleasant chatter” about low unemployment, millions and millions of working-aged citizens are no longer being counted or compensated. Along these lines, here are five economic charts that investors might want to consider when deciding upon their asset allocation in a contentious election year: 1. American Households Owe… Big Time . Total household debt hit $12.1 trillion in the fourth quarter of 2015. That’s only a fraction below the all-time record of $12.7 trillion reached in the third quarter of 2008. Between the first quarter of 2003 and the third quarter of 2008, debt grew at an astonishing pace of roughly 74%. That bears repeating. Total household debt rocketed 74% in just five-and-a-half years. Since the debt surge occurred at a time when the Federal Reserve was raising its overnight lending rate – since it occurred when the 30-year mortgage remained in a relatively stable range of 5.75%-6.75% – debt servicing became increasingly difficult. Debt servicing became near impossible when wages did not rise as quickly and when home prices stopped appreciating. It killed the “cash-out refi” game. And the Great Recession wasn’t far behind. One would think that a lesson had been learned about the insidious nature of debt. And yet, instead of deleveraging to reduce overall debt obligations, households have taken the Federal Reserve’s ultra-low interest rate bait. Can households service their debts better when a 30-year mortgage is closer to 4% than when its closer to 6%? All things being equal… yes. Sadly, the capacity to service mortgages and other debts is not merely a function of current rates, but also a function of future rates, household income and cost of living adjustments. It follows that when household income growth only amounts to 26% since 2003 – when real income adjusted for inflation actually declines (e.g., soaring medical costs, rising food prices, etc.) – the 66% surge in total debt since 2003 takes on unsavory dimensions. Why? The Federal Reserve may once again create circumstances where borrowing costs either rise or remain range-bound at a time when inflation-adjusted wages stagnate and home prices cease to climb. Once again, households would struggle to service their debts. 2. Americans Earn Less Than They Did In 2000 . Imagine working your tail off for the last 15 years. Your household income on a nominal basis is higher than it was back then, but your money does not buy what it did at the start of the 21st century. Are you going to feel that the country is on the right path? Are you going to believe those who trumpet 2% annualized gross domestic product (NYSE: GDP )? On an inflation-adjusted basis, middle class households today are taking home somewhere in the neighborhood of $56,746 per year. That is less than it was at the inception of the financial collapse ($57,798). Even more disturbing? Households are bringing home less real income than they did after the recession in 2001-2002 ($57,905). No growth in household income since 2000 and a whole lot of growth in household debt. Thank the powers that be for ultra-low interest rates, right? 3. Millions Priced Out Of The Home Ownership Dream . Twenty years ago, extraordinary stock market gains and genuine labor force participation growth in high quality, high paying jobs made Americans feel more wealthy. Households began trading up, while first time home-buyers flush with cash entered the real estate market. There was more. In 1995, government regulators created new rules for determining whether a bank was meeting the standards of the Community Reinvestment Act (NASDAQ: CRA ). Banks now had to prove that they were making enough loans to low- and moderate-income borrowers. Suddenly, home-ownership rates began skyrocketing. There was a minor flattening out period during the tech wreck of 2000 and the 2001-2002 recession. However, with the Fed slashing overnight lending rates to 50-year lows, the precipitous drops in mortgage rates, as well as the existence of “no documentation”/”negative amortization” loans, home-ownership rates kept right on ascending. Click to enlarge Real estate sales peaked near 2005, prices peaked by the end of 2006. And the “fit hit the ceiling fan” by 2007. Since June of 2009, however, the U.S. economy has been expanding. One might have expected home-ownership rates to rise or level out. Instead, fewer Americans own homes (on a percentage basis), whether it is attributable to stagnant inflation-adjusted income or higher property prices or unfavorable debt-to-income ratios. Keep in mind, this trend is happening alongside record-low mortgage rates. It does not require a leap of faith to suggest that millions of additional renters contribute to economic angst and a dissatisfied electorate. 4. Employment Growth Is Slower Than Population Growth . U-6 Unemployment at 9.9% is far higher than the 8.5% U-6 Unemployment at the onset of the Great Recession in November of 2007 – the 9.9% unemployment rate is actually on par with how Americans felt AFTER the 2001-2002 recession, when U-6 lingered around 10%. In essence, the jobs picture has only recovered to a place that is similar to recessionary times (10%), as opposed to non-recessionary times (8.0%-8.5%). On the one hand, there’s reason to be pleased with the progress of bringing U-6 Unemployment back from 17% at the worst of the Great Recession. On the surface, then, progress is certainly progress. The difficulty in declaring victory in the jobs arena is the fact that nearly one out of five 25-54 year-olds who are actively looking for work remain unemployed. Specifically, we have an 81% participation rate in the key 25-54 demographic. This participation rate is far more dismal than it was during the 2001-2002 recession – it is not even as strong as the 83%-83.5% participation during the Great Recession. In sum, payroll growth that averages 200,000 per month can pull down an unemployment rate. Yet it is insufficient with respect to a population that is growing at a faster clip. That is, companies hire only enough to keep up with modest demand whereas discouraged workers in the labor force are stuck as “extras” in the growth of the population. They’re missing, they are not counted. Can you blame Americans for feeling that there aren’t enough job opportunities for them? 5. The Government’s Debt Is Our Burden . The national debt recently surpassed $19 trillion. Implicitly, Americans understand that there is something very wrong with the number. If it was $6 trillion at the start of the century, and it was $9 trillion near the end of 2007 when the Great Recession began, then how can the country’s economy be humming if it needed $10 trillion of stimulus to get it humming? According to U.S. Debt Clock at USdebtclock.org , the debt each citizen owes is close to $59,000. The average household – not the average person – brings in approximately $57,000. Try to imagine having a credit card balance that is larger than your income stream. (And that’s for a family of 1!) A four-person household might bring in $57,000, yet owe $236,000. Crazy, right? Well, some estimates may be a little more friendly by removing the Federal Reserve’s ownership of U.S. Treasuries from the equation. The way the graphic below presents it, each child born today has an obligation of $42,759. Straight Outta Nutsville. Naturally, you’re free to believe that the federal debt simply does not matter because low interest rates make it possible for the Federal government to service its debt obligations. And you’re free to decide that America just needs to keep paying the interest – we don’t actually have to pay the debt back in its entirety. In fact, worse case scenario, the Federal government can just print money like the Federal Reserve did with its electronic credits in quantitative easing (QE). Fair enough. Still, there comes a point when rates cannot truly be lowered much further. Even negative interest rates would have a lower bound. The implication? Lower percentages of participation in the labor force, record debt levels at the household level as well as the federal level, stagnant wages and declining home-ownership are tell-tale signs of economic trouble. Americans feel it… that’s why many have chosen to support Bernie Sanders or Donald Trump. The stock market has been feeling it too. On the one hand, investors have been breathing a sigh of relief that the S&P 500 SPDR Trust (NYSEARCA: SPY ) has come back out of correction territory. How bad can things really be if SPY is a stone’s throw from record highs? Yet most investors recognize that a pragmatic fear of higher borrowing costs, a realistic concern about the potentially toxic debts of commodity companies, a lack of wage growth for consumers and the potential for the world economy to drag on the domestic scene have combined to create volatile price swings. What’s more, these things provide perspective on the popularity of political outsiders like Sanders and Trump. Disclosure : Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.