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SEC
Goes Unicorn Hunting: Regulator To Scrutinize How Funds Value Tech Startups - (www.zerohedge.com) Back in March, we brought you “Tech Startup Bubble Has America's Retirement Funds Chasing
Unicorns.”
In it, we revisited the “highly scientific” process by which tech startup
founders and their VC backers determine “valuations.” As anyone who
follows such things knows, the valuations are all but completely made up. But
that’s perfectly ok, because as the VCs who fund these companies will patiently
explain to you, the problem is not that Snapchat isn’t worth more than Clorox
(and yes that’s a double negative), but rather that us simple folk don’t really
understand what the word “valuation” means. You see, things like cash
flow and operating costs are “less important than you might think”, as long as
you’ve got “hockey stick” growth in some metric that you arbitrarily decided
matters most for your company. As we went on to note, this is all part and
parcel of the startup mentality, wherein VCs and founders are more focused on
whatever Mark Zuckerberg or Jack Dorsey or Marc Andreessen or [fill in famous
tech guru] said recently about how to grow your startup from 10 users to 10
billion rather than on how to generate revenue and profits. The problem with
this is that while the Cloroxs of the world generate hundreds of millions in
profits every three months, the Snapchats of the world.. well… don’t, and in
the final analysis, it doesn’t matter if you have 10 trillion users if you
can’t make any money.
Veritas's $5.5 Billion Debt Funding Carlyle LBO
Said Pulled - (www.bloomberg.com) After
two weeks of trying to peddle debt backing the largest private-equity buyout of
2015 Wall Street’s biggest banks have given up -- at least for now. Lenders led
by Bank of America Corp. and Morgan Stanley postponed marketing $5.5 billion of
loans and bonds they underwrote to finance Carlyle Group LP’s takeover of
Symantec Corp.’s data-storage business as investors shy away from riskier
corporate debt, according to two people with knowledge of the matter, who asked
not to be identified because the information isn’t public. If the lenders can’t
sell the debt by the deal’s scheduled close on Jan.1, they may be on the hook
for the entire financing. The banks had tried to sweeten terms over
the past week but failed to convince lenders wary about the amount of debt
being piled onto Veritas, the unit being purchased.
LinkedIn’s Hoffman: Half of Tech ‘Unicorns’ May
Not Succeed - (www.bloomberg.com) Reid
Hoffman, the venture capitalist who co-founded LinkedIn Corp., said many
private companies with multibillion-dollar valuations are unlikely to see those
values recognized in the public markets. There are currently more than 140 closely held startups with valuations
topping $1 billion, a designation that used to be so rare any company reaching
it was known as a “unicorn,” according to a database by CB Insights. Hoffman
expects that only a third to a half of these companies will actually “survive
and thrive.” “Valuations are much higher than when companies go public,”
Hoffman said in an interview with Bloomberg Television’s Emily Chang. “Public
markets have a lot of interdependent feedback,” whereas private markets have
big investors willing to do what they can to get in a deal -- meaning “it’s
very easy” to get a high valuation, he said.
Expect a market meltdown before the 2016 election:
Stockman - (www.cnbc.com) The
markets are in for a "rough patch of time," at least according to
market contrarian David Stockman. The Federal Reserve has
reached a "ridiculous point" keeping interest rates this low for this
long and it’s those policies that could spark a massive correction between now
and the 2016 election, the former director of the OMB said Tuesday on CNBC's
"Futures Now."
"To be with emergency zero interest rates this late in the cycle has
simply left the Fed between the biggest rock and hard place that I think is
known in monetary history," he said. We're currently in month 83 of zero
interest rates. "I suspect unless the market crashes between now and
[December], they will have to raise interest rates by 25 basis points,"
added Stockman. "[But] they will try to say one and done and wrap it in
incoherent Fed speech."
Carlyle's Unwanted Debt Exposes Growing Problem
on Wall Street - (www.bloomberg.com) Investors
who piled into anything and everything in the junk-debt market in recent years
have begun to run in the other direction at the first sign of trouble. The
turnabout has caught Wall Street’s biggest banks off guard and is increasingly
leaving them on the hook for funding takeovers that investors want little part
of. On Tuesday, Bank of America Corp. and Morgan Stanley were forced to shelve the
debt package backing the year’s largest leveraged buyout -- $5.5 billion meant
to fund Carlyle Group LP’s purchase of Veritas, Symantec Corp.’s data-storage
business, according to two people familiar with the matter. “It’s very much a
whipsaw market,” said Martin Fridson, chief investment officer at Lehmann
Livian Fridson Advisors LLC. “Outside of a recessionary period, this has been
pretty brutal.”
Steel Is the Poster
Child For Oversupplied Commodity Markets, and It's in Shambles - (www.bloomberg.com) The collapse
in oil prices following the shale revolution has stolen the
limelight for investors mulling the end of the commodities supercycle. But the real
"poster child for problems in commodities markets is perhaps the global
steel industry," according to Macquarie analysts led by Colin Hamilton,
the firm's global head of commodities research. The front-month contract for
U.S. hot-rolled coil steel futures traded on the New York Mercantile Exchange
is down nearly 40 percent year-over-year: Forecasts for a boom in Chinese
consumption helped spur a rise in production that left the segment with a
massive glut. The successful realization of economic
rebalancing in China, meanwhile, necessarily entails a material slowdown in
that nation's demand for steel. Macquarie observes that global steel
consumption has contracted on an annual basis throughout 2015. "With 1.6
billion tonnes of consumption globally, steel remains the lynchpin of
industrial growth," wrote Hamilton. "However, the growth part of this
equation is an increasing problem, and not only in China."
Copper Reaches
Six-Year Low as All Efforts to Revive Metals Fail
- (www.bloomberg.com) Copper traded little changed after touching a
six-year low as investors added to bearish positions amid expectations for a
global supply glut and slowing demand in China, the world’s biggest consumer.
Short positions in the metal increased 39 percent, the most since January 2014,
according to U.S. Commodity Futures Trading Commission data released Monday. A
rally for Chinese stocks fizzled Tuesday after technology and small-company
shares plunged, as the Asian nation heads for the slowest economic growth in 25
years. The metal has lost 25 percent this year. “The copper market has been one
of the worst markets I’ve ever seen, copper demand is basically non-existent
right now, and all this started when there was a downturn in the Chinese stock
market this summer,” Phil Streible, a senior market strategist at RJO Futures
in Chicago, said in a telephone interview. “Copper prices are going to continue
to travel down to historical levels.”
Junk-Bond Buyers Said
Seeking Bounty to Fund Carlyle Deal - (www.bloomberg.com)
The banks backing Carlyle Group LP’s
$8 billion buyout of Symantec Corp.’s data-storage business are facing one of
the costliest debt deals of the year to offload part of the financing in the
corporate-bond market. As investors squirm at the amount of debt being piled
onto the unit, known as Veritas, underwriters are discussing yields of 11.5
percent to 12.5 percent to lure potential buyers to a $1.775 billion junk-rated
portion of the debt, according to people with knowledge of the talks. That
would be one of the highest bond yields of 2015 and shows just how risk-averse
fixed-income investors have become as the global economy cools and the U.S.
Federal Reserve moves to raise interest rates for the first time in almost a
decade. Borrowing costs on junk bonds are soaring back toward a three-year high
set last month as investors grow wary of increasing their exposure to risky
assets in the credit markets. That is beginning to impact banks that have
committed to finance buyouts in the last few months and are now finding it
difficult to syndicate the debt.
Commodities Rout
Weighs on U.S. Stocks as Bonds Fall on Fed Bets - (www.bloomberg.com) Firming inflation in the U.S. reinforced speculation the
Federal Reserve will raise rates next month, triggering a selloff in Treasuries
and boosting the dollar. U.S. stocks added to a rebound from the worst week
since August. Yields on 10-year Treasury notes rose to 2.30 percent as price data pushed
the odds for a Fed rate increase to 68 percent. The Standard & Poor’s
500 Index extended its best rally in three weeks, as retailers gained on
earnings from Wal-Mart Stores Inc. and Home Depot Inc. The stronger dollar hurt
commodities, while a weak euro boosted exporters and sent European shares to
their biggest gain in six weeks.
Struggling U.S. oil producers get credit
lifeline amid downturn - (www.reuters.com) An
autumn credit crunch was expected to hit many independent U.S. oil producers,
starving the industry of billions of dollars and further denting company
budgets and drilling plans. But banks that adjust their loans to energy
companies every six months based on the oil price and volumes of reserves were
more lenient than many expected this time, leaving producers with more cash for
drilling and allowing them to supply more oil to a market already flush with
excess crude. The biannual process, known in the industry as redetermination,
shaved only 4 percent off bank loans to oil and gas companies, according to a
Reuters analysis of loan data, surprising experts who had expected deeper cuts
because of a protracted oil price rout.
Why Fannie Mae and Freddie Mac survived - (www.washingtonpost.com) One
of the most interesting and uncovered stories these days is the survival of
Fannie Mae and Freddie Mac — the giant housing entities created by the
government and known collectively as the GSEs (government-sponsored
enterprises). On Sept. 6, 2008, nine days before the Lehman Brothers
bankruptcy, Treasury Secretary Henry Paulson put the GSEs into
“conservatorship.” This
meant that the government would cover their costs because they were bankrupt.
The government’s aid ultimately totaled$187 billion. Even in Washington, that’s serious money, and
it fostered an informal consensus: Fannie and Freddie had to go; taxpayers’
exposure was too great. “This is an opportunity to get rid of institutions that
shouldn’t exist,” former Federal Reserve chairman Paul Volcker said. The GSEs had been — it was widely assumed —
“consigned to the dustbin of history,” as financial writer Bethany McLean says
in her new book, “Shaky Ground: The Strange Saga
of the U.S. Mortgage Giants.”
Well, not yet — and possibly never. Remarkably, their importance today is
unparalleled. In 2013, President Obama said that “our housing system
should operate where there’s a limited government role and private lending
should be the backbone.” Just the opposite applies now: Government dominates
housing finance.
Black
Market For Black Gold Ignites As Jobless Roughnecks Resort To Oil Theft – (www.zerohedge.com) The
allure of ill-gotten oil money remains strong. The lull in drilling has
given oil companies more time to scrutinize their operations -- and their
losses. As Bloomberg reports, during booms "they are moving at
such a rapid pace there’s not a lot of auditing and inventorying going
on," said Gary Painter, sheriff in Midland County, Texas, in the oil-rich
Permian Basin; but "whenever it slows down, they start looking for stuff
and find out it never got delivered or it got delivered and it’s gone." From
raw crude sucked from wells to expensive machinery that disappears out the back
door, drillers from Texas to Colorado are struggling to stop theft that has
only worsened amid tens of thousands of lost roughneck jobs.
Debt Market Distortions Go Global as Nothing
Makes Sense Anymore - (www.bloomberg.com) Something
very strange is happening in the world of fixed income. Across developed
markets, the conventional relationship between government debt -- long
considered the risk-free benchmark -- and other assets has been turned
upside-down. Nowhere is that more evident than in the U.S., where lending to
the government should be far safer than speculating on the direction of
interest rates with Wall Street banks. But these days, it’s just the opposite
as a growing number of Treasuries yield more than interest-rate swaps. The same
phenomenon has emerged in the U.K., while the “swap spread” as it’s known among
bond-market types, has shrunk to the smallest on record in Australia.
The
Next Chicago? Houston Faces Pension Crisis In Latest Example Of Local
Government Fiscal Folly - (www.zerohedge.com) When
it comes to state and local government crises, Illinois and Chicago,
respectively, have become the poster children for what not to do if
you want to be considered fiscally responsible. Illinois’ budget crisis
was thrust into the national spotlight earlier this year when a State Supreme
Court struck down a pension reform bid, setting off a series of events which
culminated in Moody’s downgrading the city of Chicago to junk. From
there, the nation media picked up on the story, leading to all sorts of amusing
coverage including several pieces documenting the plight of Illinois lottery
“winners” who the state began paying in IOUs thanks to the fact that
Springfield couldn’t pass a budget even with the help of $30,000/month
“guru” and Laffer disciple Donna Arduin. The fiasco culminated in the October announcement by Comptroller Leslie Geissler Munger
that the state would miss a $560 million pension payment in November. As a
reminder, here’s a look at Illinois pension problem:
The
FDA asked this company for some data and now its stock is down 72% - (www.businessinsider.com) Shares
of biotech company Clovis Oncology got decimated on Monday. Its stock fell
by as much as 72% after it said the Food and Drug Administration (FDA) asked
for more clinical data on its lung cancer treatment rociletinib. Tests
showed that a lower number of patients were responsive to the drug than
previously submitted to the FDA for approval. In a statement,
the company said it would provide the requested information by the close of
business on Monday. The plunge in shares to as low as $26.05 from around $99 on
Friday erased nearly $3 billion of the company's value. Earlier this
month, Stifel analysts raised their target price to $140 from around $99.22,
writing in a note that everything was moving in a positive direction for
Clovis.
Dubai Stocks Slump Most Since August as Mideast
Markets Recoil - (www.bloomberg.com) Disappointing
company earnings, falling oil prices and a wave of terrorism culminating
in Friday’s attacks in Paris unsettled
investors, leading to losses in almost every Middle Eastern market. Dubai’s DFM
General Index dropped 3.7 percent, the most in almost three months, after Drake
& Scull International PJSC became the latest United Arab Emirates
construction company to report losses. Egypt’s EGX30 Index tumbled 4.2 percent
to the lowest since December 2013 and Saudi Arabia’s Tadawul All Share Index
sank the most in almost three weeks. The Bloomberg GCC 200 Index, which tracks
the top 200 companies in the six-nation Gulf Cooperation Council, closed at the
lowest since May 2013.
Angela Merkel’s cabinet revolt - (www.politico.eu) Some
of the strongest opposition to Angela Merkel’s refugee policy has started to
emerge from an unexpected quarter: her own cabinet. In recent days, two
longtime Merkel allies — Finance Minister Wolfgang Schäuble and Interior
Minister Thomas de Maizière — publicly questioned the government’s strategy and
called for tougher policies to slow the refugee influx. Schäuble, speaking in
Berlin late Wednesday, warned that Germany faced a potentially destructive
“avalanche” of refugees. “Avalanches can be triggered when a somewhat careless
skier heads down the hill, shifting just a little bit of snow,” Schäuble said,
drawing what many viewed as a not-so-subtle analogy to Merkel’s September decision to welcome thousands of refugees stranded
in Hungary.
College
accused of being a 'high-pressure recruitment mill' agrees to a record $95.5
million settlement - (www.businessinsider.com) Education
Management Corporation (EDMC) is paying $95.5 million to settle a case alleging
it falsely obtained federal and state education funds. The nearly $100
million settlement is the largest false claims settlement with a
for-profit educational institute in history, US Attorney General
Loretta E. Lynch said during a press conference Monday announcing the
resolution. The college operated as a "high-pressure recruitment
mill" and illegally paid recruiters based on how many students they
enrolled, according to Lynch. EDMC is the nation's second-largest for-profit
college system and the parent company of four higher education systems: Argosy
University, The Art Institutes, Brown Mackie College, and South
University. It was acquired by Goldman Sachs in 2006, which retains 40%
ownership in the company today.
China's Copper Imports Face Unprecedented Drop
on Slowdown - (www.bloomberg.com) China
is facing an unprecedented decline in refined copper imports as a slowing
economy erodes demand in the world’s biggest consumer, according to the chief
executive of one of the country’s largest buyers. Shipments will shrink 10
percent in 2016 as consumption weakens, domestic supplies increase and less
metal is used for collateral in financing, Stephen Huang, chief executive
officer of trading house Arc Resources Co., said in an interview in Shanghai.
Purchases have already dropped almost 4 percent to 2.55 million metric tons in
the first nine months of 2015 from a year earlier, customs data show. “We’ll
see a substantial change in sourcing structure next year as users buy more from
domestic producers and less from foreign suppliers,” said Huang from
his office in Lujiazui, the city’s financial hub, on Nov. 11. The company
handles about one tenth of the country’s copper imports, he said.
TOP STORIES:
Bye Bye Merkel Doctrine: German Foreign Policy Shifts Focus to
Refugees - (www.spiegel.de) With
the refugee crisis showing no signs of abating, Germany is rapidly changing its
foreign and security policy focus. Gone are the days of democracy promotion.
Now the primary goal is that of preventing people from migrating to Europe. On
the last Friday in October, German Defense Minister Ursula von der Leyen found
herself in a government jet flying just outside of Syrian airspace. She was on
the way to an international security conference in Bahrain for several
meetings. Her mission: crisis diplomacy. Meanwhile, diplomats from around the
world were gathered in Vienna to discuss possible ways in which the Syrian
civil war could be brought to an end -- a conflict that is the primary cause
for the enormous wave of refugees currently crashing over Germany and the rest
of Europe. While still in the air, Von der Leyen was receiving hourly updates
from the Vienna gathering. She was hopeful that a breakthrough could be reached
so that she could continue the search for a solution in Bahrain.
Emerging-Market Rout Worsens as China Lending Signals Slowdown
- (www.bloomberg.com) Emerging-market stocks posted the biggest
weekly drop since September and currencies slid as the worsening commodities
rout and slowing credit growth in China undermined the outlook for global
economic expansion and trade. The Colombian peso slumped to a six-week low,
leading currencies lower. Equity gauges in Taiwan, South Africa and Colombia
led losses this week as the MSCI Emerging Markets Index pierced through the
50-day moving average for the first time since May. Energy companies paced
weekly declines among 10 industry groups as Brent crude traded below $45 a
barrel amid a bigger-than-expected U.S. glut. Russia’s ruble had its worst
weekly drop in more than two months, while the currency of net-oil-importer
Turkey advanced the most among peers. China stock-index futures slid after the
country doubled margin requirements for stocks
trading.
IEA Says Record 3 Billion-Barrel Oil Stocks May Deepen Rout - (www.bloomberg.com)
Oil stockpiles have swollen
to a record of almost 3 billion barrels because of strong production in OPEC
and elsewhere, potentially deepening the rout in prices, according to the
International Energy Agency. This “massive cushion has inflated” on record
supplies from Iraq, Russia and Saudi Arabia, even as world fuel demand grows at
the fastest pace in five years, the agency said. Still, the IEA predicts that
supplies outside the Organization of Petroleum Exporting Countries will decline
next year by the most since 1992 as low crude prices take their toll on the
U.S. shale oil industry. “Brimming crude oil stocks” offer “an unprecedented
buffer against geopolitical shocks or unexpected supply disruptions,” the
Paris-based agency said in its monthly market report. With supplies of winter
fuels also plentiful, “oil-market bears may choose not to hibernate.”
Money Managers Are Stuffed With Corporate Bonds - (www.bloomberg.com) Money managers' allocation to corporate
bonds is close to reaching a record, according to fresh survey data. The
latest Stone McCarthy survey of senior money managers showed allocations
to corporate debt rose to 35.3 percent this week. That's not far from a
record 35.4 percent level reached in early March, 2014. Higher allocations of
bonds in buy-side portfolios could be a byproduct of the corporate
push to sell new debt before the Federal Reserve is expected to raise interest
rates next month, according to Bloomberg strategist Robert Elson. Some $33
billion worth of new investment-grade bonds were sold into the market just
last week by companies seeking to lock-in lower interest rates or finance a
bevy of big M&A deals. Another $24 billion worth of the debt has been
sold in the past couple of days.
Young
women are now living at home more than they were in the 1940s – (www.businessinsider.com) So
much for an empty nest. According to a new analysis by the Pew Research
Center, a larger share of young women are now living at home with
their parents or relatives than at any time in the past 70 years. Looking
at new data from the US Census Bureau, Pew researcher Richard
Fry found a sharp rise in the percentage of young adults aged 18-34 moving
back in with their parents in 2000, after decades of a slow rise. But it
was highest among one group in particular: Women. The rate of men moving back
in with parents and other relatives is also on an upward trend, with
about 42.8% of men ages 18-34 moving home as of 2014 (compared with 47.5% in
1940), but only the rate for women (36.4% in 2014) has eclipsed its 1940s
figure of 36.2%.
Borrowers Face Crunch as Fed Supercharges
Dollar Funding Costs - (www.bloomberg.com) A
crunch is developing in international funding markets. The cost to convert
local currency payments in the euro area, U.K. and Japan into dollars has
jumped amid speculation the Federal Reserve will raise interest rates in
December. With other major central banks set to hold, or even loosen, monetary
policy, the projected policy divergence is supercharging the usual year-end
uptick in demand for dollar funding. “Now that for once this year the Fed is
all on the same page, it is giving investors confidence that the Fed really is
going to be moving rates,” said Paresh Upadhyaya, director of currency strategy
in Boston at Pioneer Investments, which oversaw about $250 billion as of June
30. “This theme -- that everyone latched on to at the start of the year,
monetary policy divergence, is giving people greater confidence that this time
we are actually seeing it. Therefore it’s not surprising to see the demand for
dollar funding is increasing.”
Negative Interest Rates the New Normal Next Time
Economies Slump - (www.bloomberg.com) The
report from once-uncharted monetary territory: there’s little to be scared of. Now
that Sweden and Switzerland have shown that negative benchmark interest rates
don’t necessarily result in flights to cash, asset bubbles or banking strains,
the global giants of central banking may be more willing to embrace sub-zero
borrowing costs the next time their economies slide. “There’s a very real
chance unorthodoxy becomes the new orthodoxy,” said Alan Ruskin, global head of
Group-of-10 currency strategy at Deutsche Bank AG in New York. While financial
markets are focused on the Federal Reserve’s looming rate increase, policy
makers and economists are already changing their attitude toward negative
rates.
Puerto Rico Likely to Default on Some GDB Debt,
Moody's Says Puerto Rico is likely to default on at least a
portion of Government Development Bank bond payments due Dec. 1 with the
commonwealth’s cash crunch worsening, according to Moody’s Investors Service. The
GDB, which lends to the island and its localities, faces a $354 million
principal and interest payment at the start of the month, just as the bank
projects it may run out of available cash, according to Puerto Rico’s Nov. 6
financial report. The commonwealth expects to post a negative cash balance this
month and next. A default “would be consistent with our expectation that the
commonwealth will be forced to miss debt service payments in favor of providing
essential government services because of its increasingly weak liquidity
position,” Genevieve Nolan, a Moody’s analyst, wrote in a Nov. 11 report.
Greece Comes to a Standstill as Unions Turn
Against Tsipras- (www.bloomberg.com) As
Greek workers took to the streets in protest on Thursday, Alexis Tsipras was
for the first time on the other side of the divide. Unions -- a key support
base for the prime minister’s Syriza party -- chanted in rallies held in
Athens the same slogans Tsipras once used against opponents. Doctors and
pharmacists joined port workers, civil servants and Athens metro staff in
Greece’s first general strike since he took office in January, bringing the
country to a standstill for 24 hours. As many as 20,000 protesters
gathered in central Athens while a small group of anarchists at the tail
of the demonstration threw petrol bombs at police officers at around 1:30 pm
local time, a police spokesman said, requesting anonymity in line with policy.
The police responded with tear gas and stun grenades.
Commodities Rout Resumes as Dollar Gains; U.S.
Stocks Retreat - (www.bloomberg.com) The
stronger dollar and a persistent slump in demand from China rekindled a selloff
in commodities, while Mario Draghi’s signal that he’s concerned about
global growth weighed on equities from Europe to America. Copper fell to the
lowest level since 2009 and oil slid through $42 a barrel as the Bloomberg
Commodity Index sank to the lowest since 1999. The dollar approached a
six-month high versus the euro, while the Standard & Poor’s 500 Index
headed for its sixth loss in seven days as resource producers tumbled. European
equities slid as the outlook for earnings worsened. Divergent signals on
monetary policy continued to dominate financial markets, as the European
Central Bank president’s comments that
he may step up stimulus measures boosted bonds and weakened the euro. Federal
Reserve Bank of St. Louis President James Bullard said near-zero
rates are no longer needed. A mixed picture on China’seconomy
did little to alleviate concern that demand for resources would continue to
wane.
