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SunEdison: An Autopsy - Bezek's Daily Briefing


Stocks slid Tuesday as pressures mount.

What went wrong at SunEdison?

We discuss the broad lessons to take away from the failure.

Markets trembled on Tuesday. The day ahead of what is likely to be an eventful Fed minutes release, US markets all dropped pretty strongly. The Dow (NYSEARCA:DIA) was least affected on a percentage basis, but it still shed 133 points. The Nasdaq (NASDAQ:QQQ) and S&P 500 (NYSEARCA:SPY) both dropped 1%.

Oil didn't appear to be the culprit, as crude (NYSEARCA:USO) was actually higher on the day. Oil ended the pit session at 2:30 ET with a large unexplained jump. Then the API inventory numbers came out and juiced oil further. Perhaps inside info leaked. Regardless, after a long unrelenting selloff, oil bulls can finally enjoy a day of relief.

The selloff was broad. Healthcare was the only sector that bucked the trend in any meaningful way. From technology to financials, it was a pretty red affair. If I had to pin the selloff to any one thing, it would probably be European concerns.

European stocks sold off sharply, and there seems to be a general level of rising concern. Perhaps the best risk barometer there - Deutsche Bank (NYSE:DB) - is getting pounded:

DB Chart

DB data by YCharts

It's fair to say that things could get ugly in a hurry if that February low doesn't hold. Initially, the take on Brexit was that the UK might hurt itself but it wouldn't have much broader impact. Now people are reconsidering.

The initial trade - long Euro (NYSEARCA:FXE), short British Pound (NYSEARCA:FXB) - was logical. But on further reflection, some traders are taking the further step of reducing overall European exposure rather than just hedging off England. Needless to say, the UK leaving could trigger a number of similar actions from similarly Euro-skeptic member states. As US investors, this may not seem like a big deal. However, given the generally weak state of much of Europe's banking system, any widespread political risk will almost certainly cause financial consequences.

One final note before we get to today's main event. The Briefing has been Brazil (NYSEARCA:EWZ) focused lately, so I'm trying to avoid the subject. That said, Tuesday's court decision that the nation's VP must also face impeachment proceedings is a dark turn.

The VP's party had split from Rousseff and was preparing to assume power. That's seemingly off the table now. The danger of impeaching Rousseff just went up greatly, as the country now faces a power vacuum right as the Olympics arrive. There's a good chance Rousseff will survive until the summer if this decision holds, which will be strongly negative for Brazilian equities.

SunEdison: What Went Wrong? What Can We Do In The Future?

It's easy in the day-to-day investing grind to lose track of the bigger picture. When I first started closely watching the markets, Enron was in the news very frequently, as its financial condition progressively weakened and then it eventually blew up.

It wasn't until 2008, when watching the financial system of Enron itself, that the broader impact of that catastrophe revealed itself to me.

We're going to get a bunch of scintillating business books about the collapse of SunEdison (NYSE:SUNE). It's one of those larger-than-life happenings. Along with Valeant, if a...