Welcome back from the weekend, folks, though I suppose those of you who were hoping SunEdison (SUNE) still had a prayer of digging its way out of its financial quicksand wish the weekend has lasted at least one more day. Geez. With today's post-bankruptcy-rumor 50% pullback, SUNE is now down 99.3% from its July peak. Let's just call it a 100% meltdown, shall we? In any case, in light of what looks to be the official end of SunEdison as we know it, we want to take some time today and serve up some perspective on the whole idea of yieldco, and talk about what went wrong for SunEdison. Our goal is to restore some faith in the yieldco model itself, even if SunEdison botched it. In fact, let's just start there today before we get to our usual fare. Lesson Learned From SunEdison I'm not going to be able to start from square one here and give you the full-Monty on how SUNE went from here to zero in just nine months. But, I think I'll be able to give you enough. For those who are intimately familiar with the idea of a yieldco, bear with me for just one minute. I need to get everyone on the same page. In short, a yieldco is like a REIT or an MLP, built to buy rental properties or pipelines and rent those properties or deliver oil through pipelines at a slight markup. The upside of rental real estate is, of course, pocketing the difference between the buyers mortgage payment and the rent that real estate's owner collects. MLP's more or less do the same thing. A solar yieldco is based on the same premise of selling solar power at rates slightly higher (or maybe a lot higher) than the cost of producing that electricity. That cost, of course, is the purchase of solar power-producing facilities. So far so good? Great. Like any REIT or MLP, it takes money to buy pipelines or oil or real estate or whatever. Sometimes that money is provided by investors, and sometimes it's provided by private equity firms. TerraForm Global (GLBL) and TerraForm Power (TERP) - both spinoffs of, and largely sponsored by, SunEdison - were no different. In fact, both TERP and GLBL had just recently been through IPOs to facilitate their initial purchases of solar power plants. This is where things start to get squirrely. For a yield to make any money, it has to buy solar power sites. For SunEdison to make any money, it has to buy, start, and cultivate solar power sites and sell them for a profit. Not wanting to be in the yieldco business itself, however, it created the two TerraForm companies to buy SunEdison's projects. Though not necessarily, absolutely required, it was strongly expected that SunEdison and the two TerraForms would only deal with one another. It took about two nano-seconds for the conflicts of interest to surface. The three different publicly-traded entities were supposed to operate independently of one another. As Appaloosa's David Tepper has been saying for weeks now, SunEdison CEO Ahmad Chatila had too much undue influence over the decisions the TerraForms were making. He could make TerraForm spend more money than it should have buying SunEdison's projects. That wasn't the reason SunEdison failed. But, it did accelerate the implosion. Where SunEdison got up-ended was much simpler, yet more difficult to pinpoint. Ever heard of Jigar Shah? The name probably doesn't ring a bell, but it should. See, Jigar Shah was the guy who started SunEdison in 2003, and was its first CEO, leading the company to pretty reasonable success all the way through 2008. Since then he's continued to do lots of entrepreneurial stuff in the clean-energy arena. That's the long way of saying if anyone is qualified to critique what went wrong with SunEdison, it's Shah. And, here's what he said at yes.no a couple of months ago. "In short, SunEdison's main job is to find quality projects and to manage their cash flows between development and construction. They didn't do that well and still don't do that well. They should be turning that working capital at least 6 times a year and they probably turn it once to twice a year requiring them to fill the gap with short-term loans from others at expensive interest rates. On the yieldco, they tried to violate the laws of finance. If you look at other yield vehicles like REITs, MLPs, BDCs, etc they assume that projects are purchased with a 7-11% unlevered return profile. Terraform routinely bought projects with lower returns than that trying to convince investors that high growth deserved a low stock price and therefore a presumed lower cost of capital. They failed to show the discipline of buying assets within the 7-11% unlevered range. Worse, they forces SunEdison to sell projects below their maximum price to prop up Terraform." I don't want to speak for Jigar Shah (much), but what he's basically saying is, the financial math never really made sense. It possibly could have, but - bluntly - Chatila got sloppy and desperate with capital deployment, and even so-called "cheap money" wasn't enough. Bankruptcy was only a matter of time. Since I'm being blunt, can I be blunt for just a little bit longer? I'm willing to bet most of you didn't fall into the SUNE trap, and if you did, you got out long ago when trouble brewed up. Hopefully nobody got burned too bad, if at all. You know what the best way of sidestepping this kind of trouble is though? Never putting yourself in a position where you have to make a tough decision, and where you have to choose between two evils. This is exactly what John Monroe over at the Elite Opportunity preaches as well as practices. In short, he spots the kind of unsustainable nonsense like SunEdison dished out a mile away, and doesn't get roped into it in the first place. That's only half the story though. For almost each and every trade the Elite Opportunity issues, it also lays out a target and stop-loss level. That kind of built-in discipline makes a world of difference to a portfolio's bottom line. It's the kind of discipline that only comes with years of experience. It's the kind trading discipline EO members love. I say "almost" every trade because there are some trades John doesn't peg stop-levels for... the ones that don't need 'em. I'm talking about the high-quality long-term positions you'd want to own for the long haul regardless of near-term price swings. I'm talking about stocks NOT like SunEdison. Look, if you got burned by SUNE or a stock like SUNE with a similar ugly ending, do yourself a favor and invest in a service that isn't lured into those kinds of traps. Here's how, or just cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/ OK, movin' on. Ugh Well, shoot. Despite finishing last week on a high (bullish) note and getting within reach of a major technical ceiling, the buyers retreated today. It's not necessarily an omen of a major pullback, but it's sure not the sign of robust bullishness we were hoping to see today after such a big bullish swing last week. The daily chart of the S&P 500 below tells the story. The index couldn't even quite test the resistance line at 2078, and the VIX couldn't push below the floor at 13.3. Here's the weekly chart. That falling resistance line that tags all the major opens and closes since the mid-2015 peak is really coming back to haunt us now. After a 13% runup from the mid-February bottom, it can't be too surprising the profit-takers are starting to dig in. I'll just say this... given the market's hot and cold nature for the past few months, if stocks are allowed to linger here for a few days without moving above that key ceiling, the odds of a pretty deep-cutting rollover rise quite a bit. We'll just close things there today, since we've already gone a little long. Be sure to keep reading though. Things are getting real interesting.