TOP STORIES:
Student-Loan Defaulters in a Standoff With Federal Government
- (www.wsj.com) The letters keep coming, as do the emails. They
head, unopened, straight into Jason Osborne’s trash and deleted folder. The
U.S. government desperately wants Mr. Osborne and his wife to start
repaying their combined $46,500 in federal student debt. But they are among the
more than seven million Americans in default on their loans, many of them
effectively in a standoff with the government. These borrowers have gone at
least a year without making a payment—ignoring hundreds of phone calls, emails,
text messages and letters from federally hired debt collectors. Borrowers in
long-term default represent about 16% of the roughly 43 million Americans with
student debt, now totaling $1.3 trillion across the U.S., and their numbers
have continued to climb despite the expanding labor market.
Despite Shady Accounting, Construction Giant Suffers Rout - (www.wolfstreet.com) Spain’s shrunken construction giant OHL began
this week in spectacular fashion, as its shares plunged over 11% in the first
two hours of trading on Monday, to plumb depths that hadn’t been seen in
decades. By the end of the day, shares settled at €3.00, down 9.9% for the
day, and down over 40% year-to-date. The market was reacting to the company’s worst half-year results ever.
The headline-grabber was that OHL’s profits had shrunk 94%
during the six-month period. According to analysts at Spanish lender Bank
Inter, one of the biggest causes for concern is the company’s steady loss of
international contracts. Since the collapse of Spain’s real estate sector in
2008-09, opportunities for large construction firms in the once-abundant home
market have run dry. The ability to survive the new reality hinged on firms’
ability to carve out new opportunities abroad. OHL was particularly adept at
that, winning prestigious construction and infrastructure projects all over the
world, from Montreal to Mecca, from Mexico to Manila.
Stress-Tests Results Fail to Revive Faith as Europe Banks Fall
- (www.bloomberg.com) While the stress tests showed most of the
region’s banks would keep an adequate level of capital in a crisis, investors
remained skeptical about the results. Lenders in the benchmark Stoxx Europe 600
Index slipped 1.8 percent, reversing a gain of as much as 1.3 percent.
UniCredit SpA sank 9.4 percent, while Britain’s Barclays Plc dropped 2 percent
as it fared worse than Deutsche Bank AG, down 1.8 percent. Italy’s Banca Monte
dei Paschi di Siena SpA, the worst performer in the regulators’ exam, rallied
as much as 11 percent as it said it’s working on a plan involving private investors to
help bolster its finances. By the end of the day, it had pared most of its
gain. The stress-test results come at a time of growing pessimism about the
industry, whose shares have already slumped the most among sectors this year. Not
even near record-low valuations relative to the broader market are enough to
lure investors, with an sector hit by worries about profitability amid low
interest rates, a weakening economy and a potential banking crisis in Italy.
Junk Bond Issuance Collapses in the US and Europe - (www.wolfstreet.com) Standard and Poor’s default rate of US
high-yield corporate bonds – the more appealing moniker for junk bonds – jumped
to 4.5% in July, the worst since August 2010. But no problem. The S&P
Distressed High-Yield Corporate Bond Index – comprised of 470 bond issues
so troubled that they’re trading at a yield that is at least 10 percentage
points higher than the Treasury yield – has rallied 48% since February 12. This
includes the 2.5% swoon on Friday, when some of the hot air was let out. Default
rates blowing out to crisis proportions while institutional investors are
piling into distressed junk bonds and drive up prices despite soaring defaults
– these are the kinds of out-of-sync movements that our era of interest rate
repression, QE, and the relentless search for yield is becoming famous for.
European
Bank Bloodbath Destroys Stress Test Credibility - (www.zerohedge.com) If the goal of the EBA Stress Tests was to
reassure investors and regain confidence that 'all is well' in Europe's
increasingly fragile and systemically interconnected banking system, then it
has utterly failed. The broadest European bank stock index is now
down 7% from the post-stress-test spike highs, Italian banks are at record lows
and being halted (despite Renzi's promises), Commerzbank is struggling with
capital raise chatter, and Deutsche Bank and Credit Suisse are tumbling after
being booted from the Stoxx 50.
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