skip to main |
skip to sidebar
High-Risk Deals on Shabby Homes Ensnare Buyers – (www.cnbc.com)
Hundreds of broken-down houses still dot the
streets of this onetime tire capital of the world, a scar from the financial
crisis and housing bust. The wood has rotted in some; others have black mold,
broken windows or failing foundations. Many lack working electrical systems or
are missing water pipes and furnaces. The unpaid property taxes mount. Dozens
of these houses were scooped up after the financial crisis by investors, who
then make deals with low-income home buyers unable to get traditional
mortgages. The arrangement is something like buying a home on an installment
plan, with a high-interest, long-term loan called a contract for deed, or land
contract.
‘Brexit’ Fears Fuel U.K. Credit Premium to
Historic Highs: Chart - (www.bloomberg.com) U.K
investment grade corporate bonds have been trading at the widest ever spread to
their European peers. This premium has been increasing since the beginning of
January, rising above 100 basis points for the first time. These relative price
moves appear to underscore the potential impact on corporate risk appetite of a
U.K. exit from the European Union.
Fannie Mae at risk of needing a bailout - (www.cnbc.com) Fannie Mae, the state-sponsored U.S. mortgage
backer, is at risk of needing a government bailout that could shake confidence
in the housing finance market, senior officials have warned. Fannie Mae's chief
executive and its regulator are sounding the alarm on a decline in the
institution's capital cushion, which is on course to vanish in 2018, when it
would have to ask the US Treasury for emergency funds. Their warnings highlight
Washington's inaction on housing policy and its failure to reform the institution,
which guarantees nearly $3 trillion of securities and enables 30-year fixed
rate loans, following the last financial crisis.
Biggest Banks' Commodity Revenue Slid to Lowest
in Over a Decade - (www.bloomberg.com) Revenue from commodities at the largest
investment banks sank to the weakest in more than a decade last year, laid low
by a rout in prices for everything from metals to gas. Income at Goldman Sachs
Group Inc., Morgan Stanley and the 10 other top banks slid by a combined 18
percent to $4.6 billion, according to analytics firm Coalition Ltd. That was
the worst performance since the London-based company began tracking the
data 11 years ago, and a slump of about two-thirds from the banks’ moneymaking
peak in 2008. Revenues are unlikely to return to the heights of $14.1 billion
seen at the top of the market, according to George Kuznetsov, head of research
at Coalition.
Iraq
On The Brink Of Chaos As Oil Revenues Fall - (www.zerohedge.com) During
a sombre visit to Germany last
week, Iraqi Prime Minister Haider al-Abadi urged the international
community to help boost his country's crisis economy in
the face of plummeting crude oil prices, underscoring a desperate
situation in which Iraq has lost 85 percent of its oil revenues. Iraqi oil
revenues have fallen to just 15 percent of what they used to be, the
embattled prime minister said, despite a boost in production ordered last
year. The surge in production has failed to compensate for the collapse of oil
prices, and the situation is dire when oil revenues constitute around 43 percent
of Iraq’s gross domestic product (GDP), 99 percent of its exports and 90
percent of all federal revenues. All told for this year, the Iraqi government
expects to export 3.6 million barrels of oil per day (bopd).
TOP STORIES:
Five-Year Retail Boom in Texas Implodes - (www.wolfstreet.com) Retail
sales in Texas were a boom machine after March 2010, their low point during the
Great Recession. It lasted over five years. Sales tax collections, reported by
the Texas Comptroller of Public Accounts, jumped 46% from the first half of
2010 to the first half of 2015. Blinding growth for a mature market! Given
the size of the Texas economy, it helped prop up overall retail sales in the
US. But by mid-2015, the retail sales boom came to a screeching halt. In the
second half, sharp year-over-year declines set in. And in December, over the
crucial holiday period, retail sales sagged.
Federal Reserve Staffers Say Mutual Funds Vulnerable to Runs
- (www.bloomberg.com) Mutual funds are vulnerable to runs that can
spill over and cause problems in the broader financial system, according to a
blog post published
today on Liberty Street Economics by staffers at the Federal Reserve Bank of
New York. The authors, Nicola Cetorelli, Fernando Duarte and Thomas Eisenbach,
argue that a run can occur when heavy withdrawals from a mutual fund cause the
fund company to sell illiquid assets at fire sale prices. In that situation,
the post said, investors will have an incentive to get their money out early,
triggering a race for the door that can have a ripple effect beyond the
original fund. “Redemption runs at the fund level trigger fire sales that
depress market prices and spread losses to the broader financial system,” the
authors wrote.
Overproduction Swamps Smaller Chinese Cities, Revealing Depth
of Crisis - (online.wsj.com) Even in China’s remotest places, relentless
overproduction—here it is mushrooms and cement trucks—is clouding the country’s
path to prosperity and jolting the global economy. When 48-year-old farmer Yang
Qun began trading at Suizhou’s bustling morning mushroom market a half decade
ago, the fungus industry was expanding, even attracting a rural lending arm of
British financial giant HSBC Holdings PLC. Ms. Yang saved
enough to buy a minivan. When wet snow fell last month, she was settling for
closeout prices to unload six bags of dried mushrooms that took a half year to
cultivate.
Tough road for Venezuela after dire data, lacking measures -
(www.reuters.com) Venezuela's central bank on Thursday released
long-awaited data showing the depth of the OPEC country's recession, a day
after President Nicolas Maduro announced a package of measures seen as
insufficient to salvage the unraveling economy. The bank reported that
Venezuelan inflation hit 180.9 percent in 2015, one of the highest rates in the
world, while the economy contracted 5.7 percent. The data showed the depth of
Venezuela's crisis and raised the prospect new measures may hurt Venezuelans
without significantly improving finances in a country already facing shortages
of basics like milk and medicines.
Citadel Said to Cut Staff as Main Funds Drop 6.5% to Start 2016
- (www.bloomberg.com) Ken Griffin’s $26 billion firm cut about 15
investment professionals from one of its stock-trading units as its main hedge
funds lost 6.5 percent in the first six weeks of the year, according to a
person familiar with the firm. Citadel trimmed portfolio managers, analysts and
junior analysts from its Surveyor arm that was formed in 2009, said the
person, who asked not to be identified because the information is private.
The group currently has about 200 employees across 25 teams. Surveyor’s
previous head, Jon Venetos, left the firm last month after 10 years. He was
replaced by Todd Barker, who has been at Citadel for 12 years and was most
recently co-head of equities in San Francisco. Surveyor is one of three units
that trade equities at Citadel, each feeding into the firm’s main Kensington
and Wellington funds.
TOP STORIES:
Fortress Hedge Fund Seeing 'More Cracks' in Credit Markets - (www.bloomberg.com)
The Fortress Investment Group
LLC fund that has predicted an Asia credit meltdown to rival 1997 says it is
seeing more warning signs. “Returning to the creaking ship analogy that we have
used previously, more cracks are appearing in the hull of the good ship
‘Credit,’” David Dredge, Singapore-based chief investment officer for the
Fortress Convex Asia Fund, wrote in a December letter to investors. “Two such
problems in our view are the unrelenting fall in oil and commodity prices and
the depreciation of onshore and offshore renminbi.” Fortress Convex, which lost
3.1 percent last year, said that plunging oil and commodity prices and the depreciation
of the yuan are warning signs that a credit crisis is looming, a view that the
firm first expressed in a letter to investors in September. Anxiety over
China’s ability to manage a slowing economy and slumping oil prices have
clouded the outlook for global growth and put pressure on the yuan.
Larry
Summers: Time to scrap $100 bill - (www.cnbc.com) The war on cash continues. Veteran U.S. economist Larry Summers says that
"it's time to go after big money," in his latest column for The
Washington Post. But rather than going after the top 1 percent, the
former chief economist of the World Bank is backing calls for removing the 500
euro and $100 bills from circulation. Summers argues that the fact that
"in certain circles the 500 euro note is known as the 'Bin Laden,'"
is exactly the reason why it should no longer be printed; pointing to the
illicit activities associated with the bill to give it such a nickname.
The War On Paper Currency Begins: ECB Votes To
"Scrap" 500 Euro Bill - (www.zerohedge.com) Update: in case there was any doubt about the ECB's true intentions, we
just got the official "denial": DRAGHI: ANY ECB ACTION ON EU500 NOTE IS NOT ABOUT REDUCING CASH. Translation: the ECB action is only about
reducing physical cash, some 30% of it to be specific. The first shot in the
global war on cash was just fired, by none other than the ECB, which moments
ago Handelsblatt reported... ... and Bloomberg confirmed - ECB COUNCIL
VOTES TO SCRAP EU500 NOTE: HANDELSBLATT - has voted to scrap the
second highest denominated European bank note in circulation:
Hedge Funds in Asia Had Nowhere to Hide in January ‘Bloodbath’
- (www.bloomberg.com) As global stocks, currencies, commodities and
risky bonds were roiled in a renewed frenzy of selling in January, hedge funds
including those from Quam Asset Management Ltd. and Greenwoods Asset Management
Ltd. fell more than 10 percent last month, while one from Springs Capital fell
more than 20 percent. As a group, Asia-focused hedge funds declined 3.1
percent, their worst start to a year since 2008, according to Singapore-based
Eurekahedge Pte. About 81 percent of hedge funds actively reporting to the Asia
Long-Short Equities category had negative returns last month, the data show. "January
was a bloodbath to the whole world,” Chris Choy, chief investment officer for
the Quam China Focus Segregated Portfolio, said in an e-mail. Unless one had a
“crystal ball,” it was very difficult to avoid losses, said Choy, whose $126
million Quam China Focus fund fell 16.7 percent in January.
Fed's Kashkari Floats Breaking Up Big Banks to Avert Meltdown
- (www.bloomberg.com) The former U.S. Treasury official who led the
2008 bailout program for the nation’s biggest banks says in his new role at the
Federal Reserve that Congress and regulators should consider breaking them up
to protect the financial system from another crisis. Federal Reserve Bank of
Minneapolis President Neel Kashkari, speaking Tuesday in Washington, said his
regional Fed bank will study ways to toughen U.S. banking laws to prevent
another financial crisis. Regulators should consider options including breaking
up the nation’s largest financial institutions, loading them up with “so much
capital that they virtually can’t fail” and taxing leverage to make the system
safer, he said. Tougher oversight will require new legislation, he added.
5,525
Companies Went Bankrupt In Brazil Last Year: "It's A Legitimate Credit
Crisis" - (www.zerohedge.com) Well another day, another horrible piece of
economic data out of Brazil. Core retail sales in South America’s most
important economy slid 2.7% M/M in December, erasing a meager gain the country
eked out in November when the numbers got a boost from promotions. Broad retail
sales, meanwhile, declined 0.9% marking the eleventh decline in thirteen
months. They’re now off more than 16% since peaking in August of
2012. The breakdown is a veritable disaster, with sales of office and
telecommunications equipment down 9.1%, furniture and appliances down 8.7%, and
clothing and footwear lower by 2.1%. Goldman sums it up: “The near-term outlook
for private consumption and retail sales remains challenging owing to the
continuing deceleration of credit flows from both private and public banks,
high levels of household indebtedness, declining employment and real wages,
higher interest rates, rising local and federal taxes (including via
inflation), higher utility and transportation tariffs, heightened economic and
political uncertainty and depressed consumer confidence.” Oh, is that all?
Deloitte
About to Pay for its Spanish Sins? - (www.wolfstreet.com) Spain’s
two biggest bankruptcies ever, Bankia (2011-2012) and Abengoa (2015-?), share
one thing in common: their auditor. In both cases, the New York-based big-four
firm Deloitte was responsible for making sure the financial statements fairly
represent the financial position and performance of the companies, and that
they conform to the accounting standards. Turns out, the accounts were as
crooked as they come. Both companies ran aground. Investors in the US and
Spain got bilked. The US government got stiffed. And now it seems the auditor
may actually end up paying a hefty price for having “seriously” infringed
Spain’s account auditing laws.
Turkey seeks allies' support for ground
operation as Syria war nears border
- (www.reuters.com) Turkey
is asking allies including the United States to take part in a joint ground
operation in Syria, as a Moscow-backed government advance nears its borders,
raising the possibility of direct confrontation between the NATO member and
Russia. A large-scale joint ground operation is still unlikely: Washington has
ruled out a major offensive. But the request shows how swiftly a Russian-backed
advance in recent weeks has transformed a conflict that has drawn in most
regional and global powers. Syrian government forces made fresh advances on
Tuesday, as did Kurdish militia, both at the expense of rebels whose positions
have been collapsing in recent weeks in the face of the Russian-backed
onslaught.
Hong Kong Land Price Plunges Nearly 70% in
Government Tender - (www.bloomberg.com) In
the latest sign that Hong Kong’s property correction is deepening, a parcel of
land sold by the government in the New Territories went for nearly 70 percent
less per square foot than a similar transaction in September. The 405,756
square foot (37,696 square meter) site in Tai Po sold for HK$2.13 billion ($274
million) or HK$1,904 per square foot, in a tender that closed on Feb. 12,
according to the Hong Kong Lands Department website. The buyer was Asia Metro
Investment Ltd., a subsidiary of China Overseas Land & Investment Ltd. The
plunge in the price of land comes amid weaker appetite from Hong Kong
developers against the backdrop of a nearly 11 percent drop in housing prices
since their September high, according to the Centaline Property Centa-City
Leading Index. In January, sales of new and secondary homes reached their lowest monthly level
since Centaline started tracking data in January 1991.
Italy’s
Banking Crisis Spirals Elegantly out of Control - (www.wolfstreet.com) Italy,
the Eurozone’s third largest economy, is in a full-blown banking crisis. Four
small banks were rescued late last year. The big ones are teetering. Their
stocks have crashed. They’re saddled with non-performing loans (defined as in
default or approaching default). We’re not sure that the full extent of these
NPLs is even known. The number officially tossed around is €201 billion. But
even the ECB seems to doubt that number. Its new bank regulator, the Single
Supervisory Mechanism, is now seeking additional information about NPLs to get
a handle on them. Other numbers tossed around are
over €300 billion, or 18% of total loans outstanding.
Market turmoil causes sharp losses at US hedge
funds - (www.ft.com) Some
of the largest and well known US hedge funds have suffered further sharp losses
from this year’s rout in
equities and commodities, raising the prospect that investors pull more money
from the industry. Popular bets in equities, currencies and commodities have
backfired on a number of hedge funds this year, confounding some of the
industry’s highest profile investors such as Bill Ackman’s Pershing Square,
Glenview Capital run by Larry Robbins, while Carl Icahn has been hit hard by
the slumping energy sector. The current market turmoil follows poor results for
many hedge funds during 2015, increasing worries for managers about rising
redemptions, a process that intensifies further selling of assets like
equities. “It has been a challenging short-term period for many hedge fund
managers,” said Adam Blitz, chief executive of Evanston Capital Management.
“High levels of market volatility, and in some cases illiquidity, have caused the
prices of many individual securities to become divorced from their fundamental
value.”
Italian Banks Are All In It Together—and That’s
the Problem - (online.wsj.com) There
is an old saying: if you can’t pay a bank back $1,000, you have a problem; if
you can’t pay back $1 million, the bank has a problem. In Italy, everyone has a
problem. The point isn't that every bank has bad loans: They do, but these have at least stopped
growing. The point is that the bad loans of the weakest banks may ultimately
have to be partly paid for by the rest. This is a worry even for banks like Intesa Sanpaolo or Mediobanca, which have strong capital ratios and
improving or already low bad loan positions. The poster child for this concern
is still the world’s oldest bank and Italy’s third biggest by assets, Monte
dei Paschi di Siena.
Brazil's 5,500 Bankruptcies in 2015 Signal
Deeper Credit Crisis - (www.bloomberg.com) In his two decades covering Brazil, Fitch
Ratings’s Joe Bormann says he’s never seen the nation’s companies in such
a dire state. To appreciate just how bad things are, consider
this: Brazilian courts granted more than 5,500 bankruptcy filings in
2015, the most since 2008, according to Sao Paulo-based credit rater
Serasa Experian. Brazil’s deepest two-year recession in more than a century and
plummeting commodity prices are leaving businesses in industries from steel to
air travel among the most at risk of default, according to Fitch. And more pain
is looming in Latin America’s biggest economy as borrowing costs soar, predicts
Bormann, who oversees a team of 60 analysts responsible for rating more
than 500 companies in the region.
Five Countries Being Squeezed by Currency Pegs
- (www.bloomberg.com) Only
on the streets of cities like Cairo, Abuja or Tashkent can you gauge just
how much pressure developing countries are under to ease controls on their
currencies. Individuals and businesses in five nations across central Asia, the
Middle East and Africa are paying anywhere from 4 percent to 136 percent more
than official exchange rates to get their hands on dollars, according to a
Bloomberg survey. So-called black markets flourish at times when there’s a
shortage of greenbacks and are one indicator of how much a currency should be
allowed to depreciate to reach its fair value. Central banks that uphold pegs
have been under strain after tumbling commodity prices and slowing global
growth weakened currencies from Brazil to Russia by at least 18 percent in the
past year. In the four months that followed China’s shock devaluation of the
yuan in August, Kazakhstan, Argentina and Azerbaijan abandoned control of their
exchange rates to boost competitiveness and avoid draining reserves.
Dollar Fragile to China Return as Hedge Funds
Sour on Greenback - (www.bloomberg.com) The
dollar rose against the euro and yen after China boosted the yuan
following a week-long holiday, helping ease global financial turmoil that had
spurred investors to bet the Federal Reserve will delay raising U.S. interest
rates. The euro extended losses to fall the most in two weeks after European
Central Bank President Mario Draghi said policy
makers wouldn’t hesitate to act if price stability is threatened. The greenback
advanced for a second day versus the currencies often perceived as haven assets
after a report Friday showed U.S. retail sales increased more in January than
economists forecast. Large hedge funds and speculators cut their bets on the
dollar’s gains last week by the most since June.
Portugal's 10-Year Yield Reaches Highest Since
End of Bailout - (www.bloomberg.com) Portugal’s 10-year bonds plunged, pushing the
yield to the highest level since the country exited its bailout program in May
2014 and adding pressure on Prime Minister Antonio Costa less than three months
after his minority Socialist government took office. The security fell for a
sixth day Thursday, pushing the yield up to 4.53 percent, the highest since
March 2014. It was at 2.30 percent just before an inconclusive Oct. 4 general
election and peaked at 18 percent in 2012 at the height of the euro region’s debt
crisis.
PJT's Taubman Sees Investors Exiting Hedge
Funds in Market Rout - (www.bloomberg.com) Paul
Taubman, whose PJT Partners Inc.’s advisory business has helped hedge funds
raise $25 billion over the past decade, said market turbulence may spur
investors to flee such bets. “In the hedge fund world there’s no doubt that
with all this volatility, you’re seeing either a slowing of net inflows or
outright outflows,” Taubman said Thursday on a fourth-quarter conference
call. “What that does, it creates more of a flight to quality.” Hedge funds
recorded net investor capital outflows for the first time since 2011 in the
fourth quarter amid market volatility even though industry assets rose during
2015 to $2.9 trillion, according to data provider Hedge Fund Research Inc.
Those outflows may represent only a fraction of investor activity since some
redemption requests submitted in the fourth quarter haven’t yet shown up in the
data.
Music stops for buyers of Bank Coco debt - (www.ft.com) Last year, investors who braved the riskiest
class of bank debt were rewarded. So-called coco bonds, which convert to equity
or are written down when banks run into trouble, returned almost 7 per cent
over 2015. Already this year, the music has
stopped.
A Bank of America index for the asset class is down 8 per cent so far. More
startling moves have occurred for specific European banks. A €1.75bn Deutsche
coco fell below 71 cents on the euro on Thursday, an all-time low after weeks
of declines, while securities sold by UniCredit and Banco Popular are trading
below 75 cents.
Credit Suisse Slides to 27-Year Low Amid Selloff - (www.bloomberg.com) Credit Suisse Group AG plunged to a 27-year low
as a selloff across the industry compounded doubts about Chief Executive
Officer Tidjane Thiam’s restructuring plans. A rout in bank stocks deepened on
Thursday after France’s Societe Generale SA missed fourth-quarter profit
estimates, with earnings declining 35 percent at the investment bank. Credit
Suisse shares closed at 12.31 Swiss francs, down 8.4 percent, bringing losses
to about 43 percent this year. That’s more than the 41 percent drop in 2011, at
the height of Europe’s fiscal crisis. “It’s a lack in trust in the ability of
banks to earn as much as they once did,” said Benno Galliker, a trader at
Luzerner Kantonalbank AG. “There’s still decent money but not as much as they
once did. They can’t take as much risk as they once did.”
Europe Bank Selloff Deepens as Traders Locked
in `No Man's Land' - (www.bloomberg.com) It’s been a bad seven weeks for European banks
-- worse even than during the 2008 financial crisis, by one measure. Societe
Generale SA was the latest on Thursday to report earnings that missed
estimates, tumbling the most since 2011 and dragging the whole sector down.
Credit Suisse Group AG joined Deutsche Bank AG and Italian and Greek
counterparts trading at or near record lows. A technical measure of market
momentum has shown market stress more times than even during the latter part of
2008.
