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The
Rent Crisis Is About to Get a Lot Worse - (www.bloomberg.com) How
bad can rental affordability in the U.S. get? Even worse. That's pretty bad. The
number of U.S. households that spend at least half their income on
rent—the "severely cost-burdened," in the lingo of housing
experts—could increase 25 percent to 14.8 million over the next decade. More
than 1 million households headed by Hispanics and more than 1 million headed by
the elderly could pass into those ranks. Households shouldn't spend more
than 30 percent of income on housing, by the general rule of thumb. The grim
figures come from a report out today from Enterprise Community Partners, an
affordable-housing nonprofit group, and Harvard’s Joint Center on Housing
Studies. To reach their conclusions, the researchers considered various
scenarios for wage and rent growth over the next decade.
[Bloomberg] Hedge Funds Burned by Fed Set
to Unwind Bearish Rate Positions - (www.bloomberg.com) Hedge funds and other speculators were ready to
profit last week if the Federal Reserve lifted interest rates. Their bets
proved wrong-footed, leaving traders poised to reverse course, according to TD
Securities. The net aggregate short position in all interest-rate
contracts traded through CME Group Inc. was the largest since February as of
Sept. 15. The wagers would’ve proven prescient if yields had spiked following
the Fed’s Sept. 17 announcement. Yet the positions went awry when the bond
market rallied after the Federal Open Market Committee decided to keep its
benchmark rate near zero and released a statement that put an unexpected
emphasis on low inflation and an uncertain outlook for global growth.
Bankers
Threaten Fed with Layoffs if it Doesn’t Raise Rates - (www.wolfstreet.com) “Let
me assure you, if the revenue environment weakens or interest-rate structures
don’t move up and the economy slows down, we’ll have to take out more costs,”
Bank of America CEO Brian Moynihan said on Thursday at the Barclays Global
Financial Services Conference. And that would mean more job cuts. BofA is
famous for whittling down its headcount in recent years. In Moynihan’s 25-slide presentation, there was this chart that shows just how
skillfully he has trimmed down his workforce, chopping it by 25% overall since
the second quarter of 2011: So if, as he said, “interest-rate structures don’t
move up,” there would be more of the same. These interest-rate structures are
the result of the Fed’s zero-interest-rate policy. The purpose of this policy
suddenly isn’t the wealth effect any longer – Bernanke’s stated purpose – but
ironically, as Chair Yellen claimed today somewhat defensively, to “put people
back to work.”
Low
oil prices put $1.5 trillion worth of projects at risk - (money.cnn.com) New oil and gas production projects worth $1.5
trillion are at risk because of plunging prices. Research firm Wood Mackenzie
said the planned projects are unlikely to go ahead because they're uneconomic
at current prices of less than $50 a barrel. "In addition to reduced
activity onshore North America, a total of 46 projects have been deferred as a
result of the oil price fall," said James Webb, the firm's research
manager for oil and gas exploration and production. Oil and gas groups have
already cut investment for this year and next by $220 billion, compared to the
firm's forecasts before prices started collapsing in 2014. But Wood Mackenzie
warned the cuts do not go far enough, and many more investment plans will have
to be scrapped.
Saudi Stocks Drop Most in Mideast as Fed Stirs
Growth Concerns - (www.bloomberg.com) Saudi
Arabian equities fell the most in the Arab world after the Federal Reserve’s
decision to keep interest rates unchanged sparked concern over global growth
and the price of oil capped its third week of losses. The Tadawul All Share
Index fell 1.4 percent to 7,365.98 at the close in Riyadh to the lowest in
almost a month, marking a seventh day of losses. Banks made up four out of the
top five contributors to the decline. Abu Dhabi’s ADX General Index advanced
0.6 percent. The Bloomberg GCC 200 Index, made up of the biggest and most
liquid shares in the six-nation Gulf Cooperation Council, slipped 0.6 percent.
That sent the premium it commands over MSCI Inc.’s emerging markets index on a
future price-to-earnings basis to the lowest in almost five months.
FBI launches investigation into Malaysian state
fund 1MDB: WSJ - (www.channelnewsasia.com) The
U.S. Federal Bureau of Investigation (FBI) has launched an investigation into
allegations of money-laundering at troubled Malaysian state fund 1MDB, the Wall
Street Journal reported on Sunday citing an unidentified source. The scope of
the investigation into the debt-laden 1Malaysia Development Berhad (1MDB) was
not clear, said the newspaper, which cited "a person familiar with the
matter". Neither the FBI nor 1MDB responded to a request for comment. The
reported FBI investigation comes shortly after a former member of Malaysia's
ruling party was arrested just before travelling to the United States where he
planned to make a police complaint and urge U.S. authorities to look into the
allegations of money-laundering at 1MDB.
One
energy company is on the verge of a 'liquidity death spiral' – (www.businessinsider.com) Occidental
Petroleum made a sweet deal on November 30, a masterpiece of Wall Street
engineering. And just about every investor that touched it is now getting their
hands burned off. That day, Oxy spun off California Resources. It held Oxy’s
oil-and-gas exploration-and-production assets in California. It’s the state’s
largest natural gas producer and its largest oil-and-gas acreage holder
with operations in the basins of Los Angeles, San Joaquin, Ventura, and
Sacramento. The EIA finally conceded that point in May 2014 and slashed the
delusional estimates of the reserves by 96%. California isn’t exactly the
easiest place for fracking in the US. When the EIA finally acknowledged
reality, Oxy was the biggest loser…. Bondholders and stockholders have serious
doubts. Its stock is currently trading at $3.35 a share, down 66% from its
52-week high, as bottom-fishers have jumped in after the low of $2.67 in
August. And its bonds are getting killed. S&P Capital IQ’s LCD reported that all three bond issues hit record
lows yesterday after the Moody’s whack-down the day before:
FBI
Ramps Up Biometrics Programs to Catalogue Information on Everyone in America - (www.wolfstreet.com) In
the last few years, FBI has been dramatically expanding its biometrics
programs, whether by adding face recognition to its vast Next Generation Identification (NGI) database or pushing out mobile
biometrics capabilities for “time-critical situations” through its Repository for Individuals of Special Concern (RISC). But two new developments—both
introduced with next to no media attention—will impact far more every-day
Americans than anything the FBI has done on biometrics in the past. FBI
Combines Civil and Criminal Fingerprints into One Fully Searchable Database: Being
a job seeker isn’t a crime. But the FBI has made a big change in how it deals
with fingerprints that might make it seem that way. For the first time,
fingerprints and biographical information sent to the FBI for a background
check will be stored and searched right along with fingerprints taken for
criminal purposes.
KKR’s Samson Resources Files Bankruptcy as
Shale Bet Sours – (www.bloomberg.com) Oil
and gas driller Samson Resources Corp. filed for bankruptcy in Delaware
Wednesday night, undone by a collapse in energy prices and billions in debt
that KKR & Co. and other investors piled on to fund a 2011 takeover. Tulsa,
Oklahoma-based Samson and its owners were stung by the price drop that put
money into the pockets of consumers through lower gasoline and heating costs,
while driving other producers, such as Sabine Oil & Gas Corp. and
Quicksilver Resources Inc., into Chapter 11. Samson’s filing is among the
biggest energy bankruptcies in the U.S. this year, but it probably won’t
be the last. The shale-oil driller is, in a way, a victim of its
own success. Samson and other producers have rushed to use
hydraulic fracturing and horizontal drilling to tap previously
hard-to-reach oil and gas deposits in shale formations, triggering a
production boom that helped send prices tumbling.
Watch
for Junk-Bond Air Pockets as Sprint Spirals Downward - (www.bloomberg.com)
Sprint Corp. is a cautionary tale for investors
who think they’re immune to carnage in the $1.3 trillion junk-bond market as
long as they steer clear of energy debt. Moody’s Investors Service on Tuesday
downgraded the wireless company, which has more than $30 billion of debt
outstanding, as it struggles to compete with better capitalized competitors
such as AT&T Inc. and T-Mobile USA. Much of the company’s debt was downgraded
several steps to Caa1, which is considered close to default. The market
response was fierce. Sprint’s $2.5 billion of bonds maturing in 2028 plunged as
low as 80.8 cents on the dollar from 88.4 cents on Monday. Its $4.2 billion of
notes maturing in 2023 fell as low as 90.1 cents from 98.6 cents two days
earlier. Many big high-yield bond-fund managers, including Pacific Investment
Management Co., Franklin Advisors Inc. and BlackRock Inc., hold Sprint debt.
It’s one of the most frequently traded names in the junk-bond universe. The
company’s challenges are no surprise, of course. It’s why it has a
speculative-grade rating in the first place.
China takes aim at automated trading in
commodities futures - (www.cnbc.com) China is extending its control of onshore
markets to commodities exchanges, spooked by signs that speculators have
shifted from China's volatile stock markets to commodities futures. The
country's top commodities exchanges - the Dalian Commodity Exchange (DCE),
Shanghai Futures Exchange (SHFE) and Zhengzhou Commodity Exchange (ZCE) - were
asked recently by China's exchange regulator to draft rules designed to
"regulate the behavior of program trading" in futures markets,
according to people familiar with the matter. The move comes on the back of a
slew of new regulations aimed at curbing what Chinese authorities call
"malicious" trading in stock futures, blamed in part for stoking the
turmoil that saw stocks slide over 40 percent since June.
Abengoa Loans Said to Fail to Draw Buyers Even
at 60% Discount - (www.bloomberg.com) Banks are struggling to sell Abengoa SA’s
loans even at a 60 percent discount to face value, according to two people
familiar with the matter. Lenders including Bank of America Corp. and
Citigroup Inc. have sought to sell parts of the Spanish renewable energy
company’s 1.4 billion-euro credit facility since the beginning of August,
said the people, who asked not to be identified because they’re not authorized
to speak about it. A portion of the facility offered at 40 cents on the euro
failed to sell at an auction last week, they said. Abengoa plans a 650
million-euro ($735 million) capital increase and to dispose of 500 million
euros of assets after reporting that free cash flow would be lower than
previously forecast. Moody’s Investors Service said the risk of a rating
downgrade has increased because Abengoa hasn’t yet achieved its capital
increase, according to a report on Wednesday.
Fixed
Income Bloodbath: Jefferies Reports Negative Revenue On Junk Bond Prop-Trading
Fiasco - (www.zerohedge.com) Earlier
today, Jefferies which is now a part of Leucadia, provided this
much anticipated glimpse into how the rest of Wall Street is doing. The answer,
if Jefferies is any indication, is "quote horribly" because just like
two of the past four quarters, Q3 was also a disaster and indicative of nothing
short of a trading bloodbath on Wall Street in the past three months of trading
and especially August. In fact, it was so bad for Jefferies, it reported a
massive 31% plunge in total revenues down to $579 million resulting in net
income of a tiny $2.5 million as a result of what may be only its first negative fixed
income revenue print since the financial crisis.
“There’s
Just No Cash”: Oil Bust in Canada Hits Creditors – (www.wolfstreet.com) “There’s
just no cash.” That’s the Coles Notes from a senior banker describing the book
of oil service loans he manages for one of Alberta’s leading lenders. There’s
simply not enough cash flow to support current levels of debt. Bankers and
borrowers have kicked the can down the road about as far as they can as more
oilfield service (OFS) and exploration and production (E&P) companies
default on their loans and seek more relief on lending covenants. While a
significant oil price increase to lift all the sinking boats will surely come,
it won’t happen soon enough. More of the same won’t work. Oil industry debt is
everyday news. But the discussion is about the symptoms, not the ailment. Companies
cannot borrow their way out of debt. Equity capital is only available at
distressed valuations. Specialized OFS assets will fetch only a fraction of
replacement cost—if somebody actually wants them. Although oil and gas reserve
valuations are down by half, borrowers are being forced to sell them anyway to
repair balance sheets. The last four months of 2015 will be very difficult for
any company with meaningful amounts of debt. Same for their lenders, the other
signatories to the loan agreement.
No Escape for China Hedge Funds Overwhelmed by
Stocks Collapse - (www.bloomberg.com) It’s
about to get even uglier for China’s hedge funds. The newfangled industry,
short on expertise and ways to protect itself from market declines, has seen
almost 1,300 funds liquidate amid China’s $5 trillion stocks selloff, and
a similar number may be at risk, according to Howbuy Investment Management Co.
Now, a government crackdown on short selling and other hedging strategies have
made prospering in a bear market difficult. It’s an inglorious turn for China’s
on-again, off-again love affair with stocks, which saw the number of
hedge-fund-like vehicles explode in past years as the government made it easier
to register funds and introduced new financial instruments. The market rout --
and the regulatory response to it -- has revealed cracks in the industry that
suggest it may need years to recover. In the most devastating blow to domestic
hedge funds, China has imposed new restrictions on trading in stock-index
futures, a key investment strategy to dampen volatility and avoid big losses.
Puerto Rico Water Agency Pays Premium to
Refinance Bank Loan - (www.bloomberg.com) Puerto
Rico’s main water utility paid a significant premium while selling $75 million
of short-term notes that extend a bank loan through November and said it
remains optimistic that the agency can issue $750 million in bonds in the next
few weeks. The Puerto Rico Aqueduct and Sewer Authority revenue note sale
transfers most of a $90 million loan with Banco Popular to Bank of America
Merrill Lynch, the lead underwriter of the deal, according to Norma
Munoz, a spokeswoman in San Juan for the utility. The notes, which mature Nov.
30, were privately placed with an 8.75 percent coupon priced at par.
Top-rated three-month tax-exempt securities yield about 0.09 percent,
according to data compiled by Bloomberg. The utility, called Prasa, plans to
sell the revenue bonds after delaying the deal last month. The agency is
reviewing and updating its bond documents and “should be back in the market in
the next few weeks,” Munoz said. Bank of America is also the underwriter for
the proposed bond offering.
ACKMAN:
The US government is perpetrating 'the most illegal act of scale' with Fannie
and Freddie - (www.businessinsider.com) Hedge fund titan Bill Ackman, the founder of
$19 billion Pershing Square Capital Management, slammed the US government on
Tuesday night for keeping all of the profits from mortgage
guarantors Fannie Mae and Freddie Mac. Ackman called it
"the most illegal act of scale" he has ever seen the US
government do. Ackman spoke on Tuesday evening during a panel at Columbia
University for the launch of Bethany McLean's new book "Shaky Ground." McLean and former Fannie Mae CEO Frank
Raines were also panelists. Ackman, however, did most of the talking. During
the financial crisis, Fannie and Freddie needed massive bailouts and were
taken over by the government. It's been seven years since the financial
crisis and the companies are still in a state of
conservatorship. Today, the government-sponsored enterprises
(GSEs) make billions in profits, all of which goes directly to the
Treasury.
Record
46.7 Million Americans Live In Poverty; Household Income Back To 1989 Levels - (www.zerohedge.com) That
said, here are some things Obama will not discuss. According to the just
released Census Bureau annual report on Income and Poverty, in 2014 the official poverty rate was 14.8%
as a result of a record 46.7 million Americans living in poverty. This is the
fifth consecutive year since the end of the recession that the number of
impoverished Americans has barely not budged. What recovery? Worse, while there
was no material change for the percentage of Americans in poverty, there was a
statistical increase in the number of people in poverty who had at least a
bachelor’s degree (rising from 3 million to 3.4 million in one year) and
married-couple families. Because through higher education and debt, to
poverty. The people living in extreme poverty, i.e. below 50% of the poverty
minimum, also rose to an all-time high of 20.8 million.
Yellen's Former Aide Says a Rate Hike Would Be a Serious Error
- (www.bloomberg.com)
U.S. 2-Year Yields Reach Highest Since 2011 as Fed Meeting
Looms - (www.bloomberg.com)
Puerto Rico Needs Treasury’s Help, Secretary
Lew Is Told - (www.nytimes.com) A
group of Hispanic members of Congress called on the Treasury secretary,
Jacob J. Lew, to take a more muscular role in Puerto Rico’s
debt crisis and prevent what they said could become “an economic catastrophe”
on the island. The eight lawmakers, all Democrats, said bankruptcy was the
“best hope” both for Puerto Rico and its many creditors on the United States
mainland. They urged Mr. Lew to work with Congress to move two pending
bankruptcy bills forward, and to intervene in other ways, as Treasury
secretaries did during the financial crisis of 2008. “Treasury was instrumental
to helping auto manufacturers weather tough times and stabilizing Wall Street
during the 2008 crisis,” said Nydia M. Velázquez, a New York Democrat, who wrote
the letter. “There’s no reason they can’t play a similar role here.” General
Motors and Chrysler were able to restructure their debts under Chapter 11
bankruptcy protection because the Treasury provided interim financing at a time
when no private lender could be found. The auto restructurings also were
handled by a special task force working out of the Treasury Department. Without
the Treasury’s help, many experts said at the time, G.M. in particular would
have had to liquidate, with devastating effects on jobs and the economy.
Investors haven’t been this worried about a
stock-market bubble since 2000 - (www.marketwatch.com) Investor fears that the stock market is
overvalued have hit their highest level since the dot-com bubble’s peak in
2000, and that could lead to a bear market, warns Nobel-winning economist
Robert Shiller. “It looks to me a bit like a bubble again with essentially a
tripling of stock prices since 2009 in just six years and at the same time
people losing confidence in the valuation of the market,” the Yale University
professor told the Financial Times in an story published Sunday. “When we see a correction and an increase in
the VIX, the problem is the short-run thing of when will it turn?” Shiller said
those investor fears are showing up in his valuation confidence indexes, which
are based on his surveys of investor sentiment. These indexes indicate that
worries are at their greatest level since 2000. Shiller expressed concerns
around a valuation confidence index in an interview with MarketWatch in the spring, when he noted confidence had been dropping
for the past year.
Glencore Slumps to Record Low, Erasing Gains
Since Debt Plan - (www.bloomberg.com)
Shares of Glencore Plc slumped to a record
low, erasing gains since announcing a $10 billion debt-reduction plan designed
to reassure investors amid mounting concern about the commodity trader and
miner’s borrowing load. The stock slumped as much as 7.7 percent to 118.1 pence
in London trading and was 4 percent lower at 122.75 pence by 12:38 p.m. That’s
lower than the 123.15 pence closing price of Sept. 4, the trading day prior to
Glencore’s announcement of the debt-reduction plan. The stock advanced 8.7
percent last week, its biggest weekly gain in more than three years. Glencore
plans to scrap its dividend, sell assets and is working on a share sale of
as much as $2.5 billion to help trim its borrowings. A rout in commodity prices
has eroded profits, raising concern that credit agencies may cut their rating
on Glencore’s debt.
China Braces for Second Onshore Bond Default by
State Firm - (www.bloomberg.com) China
National Erzhong Group Co. may miss an interest payment later this month after
one of its creditors filed a restructuring request, putting it at risk of
becoming the second state-owned company to default in the nation’s onshore bond
market. The smelting-equipment maker might not be able to pay a coupon that’s
due Sept. 28 on its 1 billion yuan ($157 million) of 5.65 percent 2017
notes if a local court accepts the creditor’s restructuring application before
that date, according to a statement posted on Chinamoney.com.cn. China
National Erzhong, based in China’s western Sichuan province, issued the
five-year securities in 2012 at par and the debentures are currently trading at
67.72 percent of that. Uncertainty over the payment comes as deflation risks,
overcapacity and spiraling corporate debt cloud the outlook for China’s economy,
forecast to expand at the slowest pace since 1990 this year. Baoding Tianwei
Group Co. failed to pay interest of 85.5 million yuan on one of its bonds in
April, becoming the first state-owned enterprise to default in the onshore
market.
Citic Securities Draws Beijing’s Ire After
Meltdown - (online.wsj.com) But
the stock market selloff prompted a ham-fisted government bailout that raised
doubts globally about the Communist Party’s reputation for sound economic
stewardship has put the firm’s accomplishments in a new light. The equity swaps
and other trading strategies Citic Securities promoted now appear to trouble
regulators who are struggling to get a grip on the stock market decline and
probing the industry for signs of what they term “abnormal” trading. Within
hours of convening a meeting of shareholders and his board on Aug. 25, Mr. Wang
learned at least eight of his senior executives were being questioned by police
investigators about what had gone wrong in Chinese markets, according to
statements from Mr. Wang, the Ministry of Public Security and a report from the
official Xinhua News Agency.
