This Junk Bond Derivative Index Is Saying Something
Scary About Defaults - (www.bloomberg.com) Citigroup
analysts led by Anindya Basu point out that spreads on the CDX HY,
as the index is known, are currently pricing in an expected loss of 21.2
percent, which translates into something like 22 defaults over the next five
years if one assumes zero recovery for investors. That is a pretty big
number once you consider that a total of 41 CDX HY constituents have defaulted
since the index really began trading in 2005, equating to about 3.72
defaults per year. A big chunk of those defaults (17) occurred in 2009 in the
aftermath of the financial crisis. What to make of it all? Actual recoveries
during corporate default cycles tend to be higher than the worst-case scenario
of zero percent. In fact, they average somewhere in the 26 percent range,
which would imply 29 defaults over the next five years instead of 41.
BlackRock's
$32 Billion Hedge-Fund Business Has a Little Problem - (www.bloomberg.com) Yes,
he runs the biggest asset management firm the world has ever seen. But right
now, Laurence D. Fink has a little hedge-fund problem. Fink’s BlackRock Inc.,
the $4.5 trillion behemoth known for its mutual funds and ETFs, threw in the
towel on a macro hedge fund last month in a setback that
one of the company’s executives described as a “huge disappointment.” While
hedge funds represent only a tiny fraction of BlackRock’s total assets under
management, the stumble nonetheless underscores the upheaval convulsing the
broader hedge-fund industry, as well as the particular challenges facing
BlackRock as Fink tries to attract hedge-fund money -- and the hefty fees that
come with it.
Governor of Puerto Rico Warns of Looming
Default Without Bankruptcy Plan - (www.nytimes.com) The governor of Puerto Rico redoubled threats
on Wednesday of a major bond default, as an effort to help the struggling
commonwealth use bankruptcy to shed debt headed for defeat in Congress. Gov.
Alejandro García Padilla warned in a speech at the National Press Club in Washington
that Puerto Rico would probably miss debt payments in January or May because
its government had run out of cash. “There is no money,” he said. “I don’t have
a printing machine.” The governor’s comments came as Congress omitted from a
federal spending bill any measures to allow Puerto Rico to restructure its
roughly $72 billion of debt in Federal Bankruptcy Court. Mr. García Padilla and
his Democratic Party allies in Washington have been pushing for months to allow
the island to take shelter from its creditors through bankruptcy. Chapter 9
bankruptcy, which is available to cities, counties and other local governments
on the mainland, specifically excludes Puerto Rico as well as states.
Behind
Puerto Rico's Woes, a Broadly Powerful Development Bank - (www.nytimes.com) If anything stands as a symbol of how Puerto
Rico ended up mired in billions of dollars of debt, it is an oceanside golf
resort going to seed some 15 miles east of San Juan. Known until this month as
the Trump International Golf Club Puerto Rico, it was built as a for-profit
venture, subsidized by federal taxpayers and backed by the island’s powerful
Government Development Bank, which sold to investors and guaranteed repayment
of more than $50 million in tax-exempt bonds. Despite the Trump name, which the
former owners licensed from the billionaire investor and now presidential
candidate Donald J. Trump, the resort failed to attract enough golfers since
the first tee-off in 2004. This year, it went bankrupt. (Mr. Trump was not
involved in the financing or operation of the club, but he is a creditor.)
Then, about a week ago, a buyer scooped up the property, wine cellar and all,
for a mere $2.2 million and is rushing to get it ready for a Professional
Golfers Association tournament in March, a nationally televised event and a
point of pride for Puerto Rico.
Peso Slumps 29% as Macri Propels Argentina Into
New Currency Era - (www.bloomberg.com) Argentina’s
peso tumbled as much as 30 percent as newly inaugurated President Mauricio
Macri fulfilled his campaign promise of letting the currency float freely. Macri’s
push for a devaluation was a key part of the economic overhaul he says is
needed to lure investment and jump-start an economy suffering from lackluster
growth, inflation estimated at 25 percent and a shortage of dollars. The
decline brought the official rate closer in line with where the peso had been
trading in unregulated markets. The free float also carries risks, with the
currency’s plunge potentially exacerbating inflation and spurring a backlash
from Argentines who see the value of their savings sink in dollar terms.
Era of Easy Money Lives on in World Economy Even After Fed
Shift - (www.bloomberg.com)
Brazil judge drops objection to Rousseff impeachment proceedings - (www.reuters.com)
Asia Won't Have a Yuan Anchor This Time, Unlike 1990s Crisis - (www.bloomberg.com)
Brazil judge drops objection to Rousseff impeachment proceedings - (www.reuters.com)
Asia Won't Have a Yuan Anchor This Time, Unlike 1990s Crisis - (www.bloomberg.com)
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