Sunday, August 30, 2015

Monday August 31 Housing and Economic stories

China shadow banks appeal for government bailout - (  As China’s economy slows, concerns are mounting over rising defaults, especially on loans from non-bank lenders, which provide credit to risky borrowers at high interest rates. Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs). Analysts worry that a series of bailouts in recent years has encouraged irresponsible lending by fuelling the perception the government will not tolerate default. The latest appeal for a bailout will again force officials to choose between ensuring short-term financial stability or imposing market discipline on investors, which should improve lending practices in the long term.

Carlyle's Sequa Said to Burn Through 44% of Cash; Loans Plunge - ( Sequa Corp., an aerospace parts servicer controlled by Carlyle Group LP, burned through nearly half of its cash in the second quarter as earnings tumbled and a recently acquired unit ran into trouble, according to three people with knowledge of the company’s performance. The company, which doesn’t publicly disclose its financials, told holders of its nearly $1.9 billion of debt last week that it used up nearly $36 million of its cash and had just under $45 million left on June 30, said the people, who asked not to be identified discussing the private report. Prices of Sequa’s debt plunged. Its $1.3 billion of term loans dropped more than 1.8 cents on the dollar last week to 86.43 cents, according to data compiled by Bloomberg. The debt was trading as high at 98.1 cents in March.

Noble Group's Kurtosis Awakening Moment For The Commodity Markets - ( Trust is everything in commodity trading, it is also what is maintaining a constant risk premia in this market. Noble Group is Asia’s largest commodities trader. According to GMT research, Noble Group took what they have estimated as between $4 to $6 Billion worth of fair value gains on asset valuation over the last 5 years. Just prior their Q2 earnings release, we published the reasons outlining why we believe that the trader is an accounting hocus-pocus. Since we are exactly one week after their Q2 results, in theory Standard and Poor’s had time to do their homework. We expect a big announcement of S&P on Noble Group later this week. UK insurers (who have also a foot in the cargo insurance market) have dumped Noble Group bonds overnight.

The Commodity Currency Plunge Is Making the Oil Crash Even Worse - (  Crude bulls, stung by the worst July on record, should expect further pain as slumping commodity currencies cut production costs. Drillers from Russia to Canada, the world’s second- and fourth-biggest oil producers, sell crude in U.S. dollars while paying most operating costs in local currencies. The Canadian dollar dropped to an 11-year low against its U.S. counterpart this month while the Russian ruble trades near a six-month low. Global oil supply has proven resilient. A 60 percent decline in U.S. dollar prices since June 2014 hasn’t curbed U.S. production, which is near the highest level in four decades. Iraq is producing at a record pace and Russian oil output reached a post-Soviet high this year. The world’s oil glut will last through 2016, the International Energy Agency said in an Aug. 12 report. “The cross-commodity downdraft led by oil, gold and copper has hit producer currencies hard,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by phone. “The weaker their currencies get versus the dollar, the lower their costs. This further weighs on commodity prices and just adds to the negative spiral.”

China's Richest Traders Are Rushing To Dump Their Stocks To The Retail Masses, Just Like In The US - ( As it turns out it is not just in the US that the "smart money" is bailing out as fast as it can: according to Bloomberg, the wealthiest investors in China’s stock market are also scrambling for the exits. To wit: "The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June."

Thursday, August 27, 2015

Friday August 28 Housing and Economic stories

Low Oil Prices Pose Threat to Texas Fracking Bonanza - ( No place in Texas produces more oil than Karnes County, but suddenly the roaring economy here is cooling fast, chilled by the plunging price of crude. Workers who migrated from far and wide to find work here, chasing newfound oil riches, are being laid off, deserting their recreational vehicle parks and going home. Hay farmers who became instant millionaires on royalty checks for their land have suddenly fallen behind on payments for new tractors they bought when cash was flowing. Scores of mobile steel tanks and portable toilets used at the ubiquitous wells are stacked, unused, along county roads. “Everybody is waiting for doomsday,” said Vi Malone, the Karnes County treasurer. “Everything was good, and everybody was getting these big checks, and everybody waited for their land to be leased, and then it all came to a screeching halt around the beginning of the year.”

Ukraine fears 'big war' as Russia sends in more troops - ( Military authorities in Ukraine believe the number of Russian troops within and close to its borders has risen to more than 50,000, raising fears of a substantial escalation in the conflict raging in Ukraine's eastern regions. Almost 9,000 Russian Federation Armed Forces personnel are believed to be based inside Ukraine, according to reports from the country’s National Security and Defense Council (NSDC) seen by The Independent on Sunday. The rest are based in the neighbouring Rostov region of Russia, including mechanised assault units and communications command systems. This is in addition to 33,400 so-called “illegal armed formations” of Russian-backed separatist soldiers inside eastern Ukraine, with 400 main battle tanks and close to 2,000 armoured troop carriers reported to be at “full combat readiness”. Western countries have repeatedly accused Russia of becoming involved in the conflict, a claim Moscow has denied – despite what Ukraine and other observers see as evidence of troop build-up.

China Tianjin blasts: Evacuations as sodium cyanide found - ( Chinese authorities have ordered the evacuation of residents within a 3km radius of the Tianjin blast site over fears of chemical contamination. The evacuations came after an apparent change in wind direction, and as police confirmed the highly toxic chemical sodium cyanide was found near the site. At least 112 people died in the blasts, officials said on Sunday, and more than 700 have been hospitalised. Officials have identified 24 of the dead, with 88 still to be identified. Remarkably, a man was found alive just 50m from the blast core, Chinese state news agency Xinhua reported. The man was able to talk when he was found and is now in hospital, according to the report.

Doomsday clock for global market crash strikes one minute to midnight as central banks lose control - (  Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations. ... The great props to the world economy are now beginning to fall. China is going into reverse. And the emerging markets that consumed so many of our products are crippled by currency devaluation. The famed Brics of Brazil, Russia, India, China and South Africa, to whom the West was supposed to pass on the torch of economic growth, are in varying states of disarray. As central banks run out of silver bullets then, credit markets are desperately seeking to reprice risk. The London Interbank Offered Rate (Libor), a guide to how worried UK banks are about lending to each other, has been steadily rising during the past 12 months. Part of this process is a healthy return to normal pricing of risk after six years of extraordinary monetary stimulus. However, as the essential transmission systems of lending between banks begin to take the strain, it is quite possible that six years of reliance on central banks for funds has left the credit system unable to cope.

Funds For Fracking Finally Dry Up: One Last Hail Mary Pass Remains – ( Is Saudi Arabia on the verge of winning the war on US Shale firms? It appears the spigot of malinvestment-subsidizing liquidity that kept numerous zombie energy firms alive has been shut off almost entirely. As oil prices return to cycle lows, so credit risk has spiked to record highs and issuance of life-giving bonds has collapsed. As Reuters reports, this has opened up opportunities for deep-pocketed private equity firms to push for restructuring or buy assets as many oil companies need cash to replenish banks' slimmed-down lending facilities, service their bonds and finance drilling of new wells to keep pumping oil and sustain cash flow. But hope is fading as one private equity form CEO warns "I would say, this is a good time to be careful when it comes to investing in energy."

Russia recession poses financial dilemma for companies - (
Doubt Starts Chipping Away at the Market’s Mind-Set
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Russia and China to stage naval drills in Sea of Japan, train for beach landing
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South China Sea Watch: China rejects island building freeze
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Germany says situation in eastern Ukraine 'explosive'  
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Wednesday, August 26, 2015

Thursday August 27 Housing and Economic stories

CalPERS, CalSTRS took big losses on energy investments, report says - ( California's two major public pension funds, the biggest in the nation, lost a total of more than $5 billion on energy-related investments for their fiscal years, ended June 30, according to a new report. The California Public Employees' Retirement System posted losses on its oil and gas portfolio of about $3 billion, a 28% decline, and similar set of investments at the California State Teachers' Retirement System was down 27%, or about $2.2 billion, the report said. Both systems, though, posted overall annual gains for the year. CalPERS, with $300 billion in assets under management, reported an overall gain of 2.4%. CalSTRS, with about $190 billion in assets, had a total return of 4.8%. The report covering the funds’ largest oil and gas investments was prepared by Trillium Asset Management, a Boston investment firm specializing in what it calls “socially responsible” investments. Trillium produced the report on behalf of, an environmental group backing a pending state Assembly bill that calls for California's big pension funds to divest from coal-related holdings.

Puerto Rico Staring at $400 Million Short-Term Funding Squeeze - ( Puerto Rico is approaching an inflection point that may prove to be more challenging than the commonwealth’s decision this month to skip a bond payment for the first time. After borrowing internally, omitting debt-service payments and slowing tax rebates, the island is at risk of running out of cash to fund day-to-day operations. Puerto Rico must raise $400 million through a bank loan or a sale of short-term securities by November, Victor Suarez, Governor Alejandro Garcia Padilla’s chief of staff, said Aug. 10 in San Juan. Garcia Padilla’s administration had already alienated creditors before defaulting on $58 million of bonds Aug. 3 by saying they need to restructure a $72 billion debt burden that it can no longer sustain. Puerto Rico appears to be betting that investors will provide access to capital markets again once the commonwealth unveils a debt-restructuring proposal Sept. 1. “They’re going to have some severe liquidity issues,” said David Hitchcock, a Standard & Poor’s analyst in New York. “Without cash-flow financing, they’re going to have a very difficult time trying to just pay for ongoing operations as well as their upcoming debt payments in the next six months.”

Jack Ma Website With Junk Debt a Click Away Raises Risk in China - ( Billionaire Jack Ma has faced criticism about the quality of goods on his e-commerce sites. Now his push into Internet finance is raising red flags as he puts risky bonds a few clicks away from China’s 668 million netizens. Ma’s Zhao Cai Bao, a platform that lets small businesses and individuals borrow from investors, has overseen 252 billion yuan ($39.4 billion) of financial product sales since starting last year. Recent offerings: unrated bonds from a hotel operator in Anhui province and investment firms set up last year in a Shenzhen financial zone still under construction. None of the prospectuses online provide revenues, profit, assets or debt. “The risks of such financial products are high,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. “You shouldn’t sell bonds issued by small companies with no ratings to just any individual investor.”

AEP: China denies currency war as global steel industry cries foul – (  Chinese steelmakers are preparing to flood the global market with cut-price exports as they take advantage of this week’s shock devaluation of the yuan, setting off furious protests from struggling competitors in Europe and the US. It is the first warning sign of a deflationary wave of cheap products from China after the central bank, the People's Bank of China, abandoned its exchange rate regime, letting the currency fall in the steepest three-day drop since the country emerged as an economic powerhouse. The yuan has fallen 3.3pc against the dollar, closing at 6.3989 on Thursday. Steel mills in the Chinese industrial hub of Hebei have already begun to trim prices of rebar mesh-wires used for building by between roughly $5 and $10 to $295, citing the devaluation as a fresh chance to offload excess stocks of steel. Europe’s steel lobby Eurofer warned that there would be “very real competitiveness impacts” for European steel firms, already battling for their lives with wafer-thin margins.

Spain's New "Employed Poor"-  ( The desperation among job seekers is now so acute that many accept work contracts that pay less than the country's reduced minimum wage -- often by agreeing on paper to work two days a week, but actually working many more unpaid hours, experts say. And some, returning to their old jobs, are finding that they must take huge pay cuts. Campaigning for his center-right party recently, Prime Minister Mariano Rajoy talked of Spain's recovery in glowing terms, at one point saying that no one was even "talking about unemployment anymore." But local and regional elections this spring were humbling for his Popular Party and for the center-left Socialist party, which lost control of cities throughout Spain, including Zaragoza and the capital, Madrid... And in the long run, the recovery faces many challenges, including a growing group of aging unemployed who may never work again and a middle-aged work force that left school early for high-paying construction jobs, which disappeared when Spain's real estate bubble burst in 2008. Such work is unlikely to return soon, but that part of the labor force is trained for little else.

Tuesday, August 25, 2015

Wednesday August 26 Housing and Economic stories

Chicago Schools Demand $500 Million Bailout From State – ( Chicago’s public schools have released a budget that relies on nearly $500 million in funding the state has not yet voted to provide. The official budget essentially demands that the state hand over money or risk throwing the school district into chaos. Even Chicago’s teacher union is critical of the move. With a total budget of $5.7 billion, the $480 million Chicago Public Schools (CPS) expects the state to provide is more than 8 percent of their budget. The money is needed to fulfill pension obligations the city has to current and retired teachers. If the money isn’t forthcoming by the end of the year, the district says it will have to lay off thousands of current teachers to meet those pension obligations. The district is already preparing itself for the blow, as Monday’s budget also came with an announcement of over 400 layoffs. Chicago’s schools have repeatedly had to shed jobs the last few years as they descend further and further into a pension-induced budget crisis.

Renting in America Has Never Been This Expensive - ( Americans living in rentals spent almost a third of their incomes on housing in the second quarter, the highest share in recent history. Rental affordability has steadily worsened, according to a new report from Zillow Group Inc., which tracked data going back to 1979. A renter making the median income in the U.S. spent 30.2 percent of her income on a median-priced apartment in the second quarter, compared with 29.5 percent a year earlier. The long-term average, from 1985 to 1999, was 24.4 percent. While mortgages remain relatively affordable, landlords have been able to increase rents because demand for apartments remains strong. The U.S. homeownership rate fell to the lowest level in almost five decades in the second quarter, as strict lending standards and tight inventories keep many families in the rental market.

Oil Majors’ $60 Billion Cuts Don’t Go Far Enough as Crude Slides - ( The $60 billion of oil-industry spending cuts this year aren't likely to be enough to meet sacrosanct dividend commitments as crude languishes near a six-year low.  The world’s biggest producers will need to trim investments by a further $26 billion, according to Jefferies Group LLC. Capital spending will have to fall 10 percent next year, Banco Santander SA says.  Oil companies are bracing for “lower for longer” prices as a global supply glut persists, dragging crude to the lowest close since March 2009 in New York on Tuesday. Royal Dutch Shell Plc, which has reduced spending 20 percent this year, has “more levers to pull” should the market weaken further, according to Chief Executive Officer Ben Van Beurden.
The tightening means international producers such as Shell and Chevron Corp. can break even at a lower crude price -- about $10 lower than before they started cuts last year, according to Jefferies analyst Jason Gammel.

Wall Street Sees Junk Bond Collapse, Prepares to Profit from it - (  When something collapses, new opportunities open up. Hedge funds, private equity firms, and other asset managers specialize in this. And now there are signs of hope for these folks, that opportunities are approaching, that the credit bubble is about to implode, offering untold riches to those able to pick up the right scraps. How do we know? Wall Street firms are staffing up for the coming era of “distressed debt.” This is an ad I ran into on S&P Capital IQ LCD’s Taplin, Canida & Habacht is looking for a High Yield/Distressed Debt Corporate Analyst. The analyst will be a generalist, looking for opportunities across sectors and issuer capital structures. And the first of the “Key Accountabilities” is this: Monitor and analyze credit risk and recovery value of high yield and distressed debt sectors through sector analysis, bottom-up fundamental research and bond covenant analysis.

Goldman Buyback Desk Saw Record Volume in Wednesday Rebound - ( Who did the buying as U.S. stocks staged the biggest turnaround in three years? The companies that issued them. The Goldman Sachs Group Inc. unit that executes share buybacks for clients had its busiest day since 2011 on Wednesday, according to a note from the firm’s corporate agency desk. Based on the value of equities repurchased, volume handled by the bank set a record. The note was confirmed by spokeswoman Tiffany Galvin. Corporations have emerged as one of the biggest sources of fresh cash in the stock market, eclipsing even mutual funds with more than half a trillion dollars spent last year, according to data compiled by S&P Dow Jones Indices. They swooped in and bought again on Wednesday as the Standard & Poor’s 500 Index flirted with its largest two-day selloff since January.

Monday, August 24, 2015

Tuesday August 25 Housing and Economic stories

Big Natural Gas Driller Bites Dust, ‘Smart Money’ Gets Crushed - (  Natural gas driller Samson Resources is planning to file for Chapter 11 bankruptcy by August 15, when a $110 million interest payment comes due on $2.25 billion of senior unsecured junk bonds, Bloomberg reported, citing “two people with knowledge of the matter.” Samson doesn’t have the money, can’t pay, and won’t pay. The 9.75% bonds maturing February 2020 aren’t traded anymore. The last trade was on July 29 for a quarter of a cent on the dollar. They’re part of the vast high-yield bond pile, and they have become worthless. These kinds of bonds are nicknamed “junk” for a reason. Stockholders – private equity firms, the ultimate “smart money” – are getting wiped out too. Samson was acquired in 2011 by a KKR-led group of private equity firms for $7.2 billion. They invested $4.1 billion of equity in the deal. Debt piled on the company made up the rest. Then Samson went on to drill this cash into the ground to produce lots of natural gas and sell it below cost, losing money all along. Now its cash is running out, and new cash to drill into the ground isn’t readily forthcoming.

Germany Views Third Greek Bailout Package as Insufficient-Bild - ( Germany's government believes an agreement between Greece and its international lenders on a third bailout package is insufficient, Bild daily reported on Wednesday, citing EU sources. Several open questions remained, the paper said, including the role of the International Monetary Fund (IMF), debt sustainability and privatisation plans. "Some very important measures are still not yet implemented and are not specified," Bild quoted an analysis from Germany's finance ministry as saying.

Brazil’s Credit Rating Cut One Level by Moody’s to Cusp of Junk - ( Moody’s Investors Service cut Brazil to the cusp of junk on Tuesday, and it was the first piece of good news investors had heard in a while. The company’s decision to assign a stable outlook to Brazil’s rating, now at the lowest level of investment grade, was welcomed by traders who had been widely anticipating a negative outlook. The real pared losses, futures on the Ibovespa stock gauge jumped higher, and local bonds gained. Brazilian assets sold off in recent weeks on speculation the country was veering closer to a junk rating after the government lowered its fiscal target amid the country’s worst recession in 25 years and a growing political crisis. While Moody’s says debt levels will keep rising to about 70 percent of gross domestic product by the end of President Dilma Rousseff’s term, a flexible exchange rate and plenty of reserves mean a cut to below investment grade isn’t imminent.

Currency Rout Goes Global as Jen Sees Risk of 50% Loss on China - ( As bad as things are for emerging-market currencies, China is about to make them a whole lot worse. Its devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen. Volatility measures were already signaling rising distress in emerging markets even before China's shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months. "If this is the beginning of a new phase in Beijing's currency policy, it would be the biggest development in the currency world this year,'' said Jen, founder of London-based hedge fund SLJ Macro Partners LLP. "The emerging-market currency weakening trend is now going global.''

Energy Junk-Bond Defaults Are Coming - (  High yield bonds are signaling concerns about energy companies’ ability to pay back debt (since bonds lead stocks, we have to pay extra attention to them!). So far, defaults have been contained, and they need to stay that way for the US economic recovery to continue. The problem is debt issued by energy companies when oil prices were high and interest rates were super-low are coming due (Bloomberg wrote an interesting article about this back in December which you can read here). If oil prices remain low the weaker energy companies will most likely start to default. The fear is this could spread to other areas of the economy. And this is what energy junk bonds are doing now – they’re rolling over again, after the brief recovery from the crash late last year: