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TOP STORIES:
Brazil Posts Largest Budget Deficit for February Ever - (www.bloomberg.com) Brazil recorded the largest-ever primary budget
gap in 12 months through February as a two-year economic recession sapped tax
collection while expenses grew further. The deficit before interest payments,
which includes results of states, municipalities and government-owned
companies, reached 125.14 billion reais ($35 billion) in the 12-month
period, or a record 2.11 percent of gross domestic product, the central bank
said Wednesday. The result shows a growing mismatch between government revenue
and expense over the past year, said Tulio Maciel, head of the central bank’s
economic research department. “While revenues are falling sharply due to the
economic situation, at a rate of 12 to 13 percent (a year), expenses continue
to grow,” he told reporters in Brasilia.
Illinois' epic budget fail sets a dubious record - (www.cnbc.com) OK, Illinois, it's your turn. Following this
week's $30 billion budget deal in Pennsylvania, Illinois
became the last state without a tax and spending plan for the fiscal year that
began last July. While most states are busy planning next year's budget,
Illinois now holds the dubious record for the longest budgetary foot-dragging
in recent memory, according the National Conference of State Legislatures.
(Until this week, Pennsylvania had tied with Kentucky, which didn't get around
to approving its fiscal 2003 budget until late March of that year, according to
the organization.) Despite their spectacular fiscal fail, lawmakers in the Land
of Lincoln are showing little sign of progress in breaking the deadlock, now
dragging on nine months past the deadline. Since then, Republican Gov. Bruce
Rauner has been holding out for a package of business incentives and changes in
collective bargaining laws that a Democratic-controlled legislature wants no
part of.
Families of U.S. personnel ordered to leave parts of Turkey
amid security concerns - (www.reuters.com)
The Obama administration
ordered the families of U.S. military and diplomatic personnel to leave parts
of southern Turkey on Tuesday and warned U.S. citizens against travel to the
region amid mounting security concerns. The Pentagon said 670 dependents of
U.S. military personnel would be affected by the order to depart areas of
southern Turkey, including Incirlik air base, which is used heavily in the
fight against Islamic State militants. The U.S. State Department said a small
number of diplomatic families would be affected but did not give numbers. The
Pentagon said 100 military dependents in Ankara and Istanbul were not affected
by the departure orders because of security measures in place there.
Another Condo Bust Looms in Miami - (online.wsj.com) Miami is facing a condo bust—again. Developers
have started canceling projects, slashing prices and offering incentives such
as private-jet access to spur sales, an ominous echo of the housing crash that
pounded South Florida especially hard. Easy financing and rising prices
prompted developers to build about 21,000 condos in the downtown Miami area
from 2004 to 2008. Many of those units sat empty for years. Developers say this
time they have insulated themselves by requiring buyers to put down 50%
deposits by the time buildings break ground and by canceling projects instead
of moving forward as the market slows.
Energy woes crush lending pipeline - (www.cnbc.com) Private equity's lifeline was cut off to start
2016. And it's hurting Wall Street banks, too, which are losing lending
business to European competitors. For U.S. private equity firms, it means fewer
deals, and at a higher cost. For investors, it cuts the likelihood that they'll
be able to reap returns on deals where companies are taken private. And for
banks, many of which forecast disappointing earnings reports next month, it's
one more factor going against them in what has been a painful 2016. Instead of assigning
the blame to busted deals and bankruptcies, several Wall Street sources pointed
toward plunging commodity prices as a source of falling high-yield deals. Some
noted that pessimistic economic growth expectations have continued to spook
investors in riskier debt.
Oil and gas: Debt fears flare up - (www.ft.com) The
$3tn debt mountain following the sector’s borrowing binge threatens further destabilization.
About 600 people packed on to the Machinery Auctioneers lot on the outskirts of
San Antonio, Texas, last week to pick up some of the pieces shaken loose by the oil crash. Trucks, trailers, earth movers and other
machines used in the nearby Eagle Ford shale
formation were
sold at rock-bottom prices. One lucky bargain hunter was able to pick up a
flatbed truck for moving drilling rigs — worth about $400,000 new — for just
$65,000. Since the decline in oil prices began in mid-2014, activity in the
Eagle Ford, one of the heartlands of the shale revolution, has slowed sharply.
The number of rigs drilling for oil has dropped from a peak of 214 to 37, and
businesses, from small “mom and pop” service providers to venture capital
companies, are trying to offload unused equipment.
Exclusive: Hedge fund Luxor Capital alters
terms of withdrawal plan - (www.reuters.com) Luxor Capital, a $3.8 billion hedge fund that
has been losing money for months, said on Monday it will not be returning
exiting investors cash in full, keeping a portion locked up until some illiquid
investments can be sold. Instead of returning all exiting clients' assets in
cash, investors will receive 88 percent of their money back while 12 percent of
the investments will be held in a so-called special purpose vehicle, Luxor's
founder, Christian Leone, wrote in a letter seen by Reuters. The announcement
comes before a critical March 31 redemption deadline and aims to treat all
investors "fairly," the letter said. "For those investors in the
Fund that have submitted withdrawal requests for March 31, 2016 and for
subsequent withdrawal dates, we will transfer a pro rata share of the
applicable assets into a special purpose vehicle (SPV)," Leone wrote.
Chicago's Rating Cut by Fitch After Pension
Overhaul Dashed - (www.bloomberg.com) Chicago
had its credit rating cut to the lowest investment grade by Fitch Ratings after
the Illinois Supreme Court tossed out Mayor Rahm Emanuel’s plan for dealing
with the mounting debt to its workers’ pension plans. The two-step downgrade on
Monday to BBB-, one rank above junk, affected $9.8 billion of
general-obligation bonds and $486 million of debt backed by sales taxes. The
company said the outlook is negative, indicating that the rating could be
lowered further. The step follows the March 24 decision by
the state’s top court to strike down Emanuel’s plan, which required the city
and employees to boost contributions to the municipal and laborers retirement
funds and cut future cost-of-living increases.
Barclays Warns Commodities May Slump on `Rush
for the Exits' - (www.bloomberg.com) Commodities
including oil and copper are at risk of steep declines as recent advances
aren’t fully grounded in improved fundamentals, according to Barclays Plc,
which warned that prices may tumble as investors rush for the exits. Copper may
slump to the low $4,000s a metric ton, from $4,945 in London last week, while
oil could fall back to the low $30s a barrel, analyst Kevin Norrish said in a
note. The risk for raw materials is that investors seek to liquidate bets on
gains quickly and in unison, with potentially highly negative consequences,
Norrish wrote in the note entitled “Buffalo Jump,” a term that describes a
cliff where Native Americans herded bison to their death.
Lenders ‘Freaking Out’ Over London Luxury Home
Woes - (www.bloomberg.com) Lenders are charging higher interest rates for
development loans for London luxury homes as slumping commodity prices and
increased taxes deter overseas buyers, fueling concern the market is
oversupplied. Debt funding construction of the costliest homes has increased by
about 75 basis points to 3.75 percentage points over benchmarks since January,
said Randeesh Sandhu, chief executive officer of residential development lender
Urban Exposure Real Estate Plc. For large projects in central London, financing
costs have risen the most since 2012 over the past six months, said William
Newsom, a senior director at broker Savills Plc. A basis point is 0.01 of a
percentage point. “Everyone is freaking out,” Sandhu, whose firm has loaned
close to 1 billion pounds ($1.4 billion) to developers, said in an interview.
“There has been nervousness for a while in the super prime market and there is
also now nervousness in prime."
Steelmaker Becomes Latest Chinese Company to Miss Bond Payment
- (www.bloomberg.com)
- (www.bloomberg.com)
Brazil Analysts Forecast Slower Inflation and Deeper Recession
- (www.bloomberg.com)
China bank profits flat-line as bad debts continue to soar - (www.reuters.com)
Saudi Economy Shows Deepening Signs of Strain as Spending Drops
- (www.bloomberg.com)
First
Ocean Freight Rates Collapse to “Zero,” China Freight Index Plunges to Record
Low, Bailouts Loom - (www.wolfstreet.com)
The amount it costs to ship containers from China to ports around the
world has plunged to historic lows. As container carriers are sinking deeper
into trouble, whipped by lackluster global demand and rampant oversupply
of container ships, they’re escalating a brutal price war with absurd
consequences. Maritime research and advisory firm Drewry (emphasis mine): Recent news stories,
backed up by anecdotal stories told to Drewry, report that carriers have quoted zero
dollar freight rates to some forwarders on certain lanes out of Asia.
Whether these are merely isolated cases or something more widespread is
difficult to judge at the present time, but whatever the exact quantum, there
is no denying the container rates are now close to the historic lows as seen in
2009.
Japan Seen Stuck With Negative Yields on 70% of
Bonds for 2016 - (www.bloomberg.com) Japanese
primary dealers say negative bond yields are here to stay in 2016, and room for
capital gains has run out. Nine of 13 respondents to a poll conducted last week
predict the benchmark 10-year Japanese government bond yield will end the year
below zero, after sinking to a record minus 0.135 percent on March 18. The
lowest forecast of minus 0.2 percent comes from Morgan Stanley MUFG Securities
Co., while the median of minus 0.1 percent is in line with analyst estimates
for Switzerland.
The big bust in the oil fields - (www.washingtonpost.com) He’d
borrowed from banks and investors and retirement funds, all in a frenzied
mission to drill for oil and gas, and by the time Terry Swift realized he’d
gone too far, this was his debt: $1.349 billion. His company, founded by his
father almost 40 years earlier, had plunged into bankruptcy and laid off 25
percent of its staff. Its shares had been pulled from the New York Stock
Exchange. And now Swift was in a company Chevrolet Tahoe, driving back to the
flat and dusty place where his bets had gone bust. Swift was coming to this
energy-rich strip of South Texas trying to grapple with how much blame he
shouldered for the failure of his company. A low-key and historically cautious
oil chief executive who eschews private jets and orders low-fat salads for lunch,
he had made what he thought was the best financial move of the past decade — a
gamble on rising oil prices — and yet was ensnared in an industry-wide craze of
dangerous debt.
America
Hits Rock Bottom: Cities Are Paying Criminals $1000 Per Month "Not To
Kill" - (www.zerohedge.com) It is widely known that in the past 6 months
there has been a loud debate about helicopter money, i.e., giving out ordinary
people (bypassing the banks) money directly printed by the Fed. What is less
known is that when it comes to the most despicable underbelly of American
society, cash to the tune of $1000 per month is already being "helicoptered"
to some of the most brazen criminals living in the US today with one simple
condition: "don't kill people." Take the case of Lonnie Holmes, 21,
who lives in Richmond, a working-class suburb north of San Francisco and whose
four his cousins had died in shootings. He was a passenger in a car involved in
a drive-by shooting, police said. And he was arrested for carrying a loaded
gun. When Holmes was released from prison last year, officials in this city
offered something unusual to try to keep him alive: money. They began
paying Holmes as much as $1,000 a month not to commit another gun crime.
Bond Offering Tied to Prosper Marketplace Loans
Gets Chilly Reception - (online.wsj.com) A
bond offering based on a batch of personal loans made by Prosper Marketplace
Inc. got a cold reception late Thursday, the latest sign of investor
skittishness toward fast-growing online lenders. Investors who bought the
securities demanded yields as much as 5 percentage points higher than for a
similar deal late last year. The response to the Prosper loans was comparable
to other recent sales of online loans, and is further evidence that the firms
are facing a big hurdle in their explosive growth. It is also notable because
investor fears about other parts of the credit markets, such as corporate junk
bonds, have receded in recent weeks.
SunEdison May Face $1.4 Billion Default If
Earnings Delayed More - (www.bloomberg.com) The
clock is ticking for SunEdison Inc. The world’s biggest clean-energy
developer has already postponed the
release of its 2015 annual report, twice. If SunEdison fails to file the report
by March 30, it must reach accommodations with lenders on at least $1.4 billion
in loans and credit facilities or face a potential technical default. SunEdison
reported total debt of $11.7 billion at the end of September, more than double
the amount a year earlier, as it bought up wind and solar developers and
projects on six continents. That’s prompted questions about whether it borrowed
too much, too fast, and has helped make it the worst-performer on the
104-member WilderHill New Energy Global Innovation Index in the past year.
Fed Chair Yellen has a mini revolt on her hands - (www.cnbc.com) Fed
Chair Janet Yellen has something of a mini revolt on her
hands. Four of the 17 members of the Federal Open Market Committee have now
publicly indicated their disagreement with the dovish guidance in last week's
policy statement and in comments from Fed Chair Janet Yellen at her press
conference. The latest dissenter is Patrick Harker, the new president of the
Philadelphia Fed, who said in a speech Tuesday night that the Fed should
"get on with" rate hikes and consider another move in April.
The
Big Unwind Hits Investment Banking - (www.wolfstreet.com) The meme has been that central-bank-imposed low
interest rates and negative interest rates are killing bank earnings, and that
oil-and-gas loan loss reserves maul what’s left of these earnings. But it’s
tough for banking all around, as the global QE bonanza is bumping into
real-world limits. And the Big Unwind has started. For investment banking
revenues, a key income source for “systemically important” banks, it
has been one heck of a terrible first quarter, according to Dealogic’s
preliminary Global IB Strategy Review. And the damage will show up in earnings
reports soon. If, in the list of fee mayhem below, you frequently stumble
across phrases like “plunged,” “plummeted,” “lowest since Q1 2009” when the
bond market imploded during the Financial Crisis, or “lowest since Q1 2001”
when the dotcom and IPO bubble imploded, it’s because that’s the kind of
quarter it has been for investment banks and their lifeblood: extracting
big-fat fees coming and going.
Thanks
Obamacare: This Is What Americans Spent Most Money On In 2015 – (www.zerohedge.com) We
have been covering the consumption tax, pardon, endless spending black hole that is Obamacare for over a year,
so we doubt it will come as a surprise to anyone that in 2015 healthcare was
the second biggest use of US consumer funds, soaking up a record $1.9 trillion
in real dollars, and more importantly for US economic "growth", the
single biggest source of incremental spending by nearly a factor of two. Incidentally,
with spending on healthcare (courtesy of the Supreme Court's Obamacare tax)
soaring, while outlays on the traditionally most consumption-intensive
category, housing and utilities, going nowhere for the past several
years, it is only a matter of 2-3 quarters before Healthcare surpasses Housing
as the biggest use of American cash. Putting this in context, a recent report from Freedom Partners Health found that health insurance premiums
have increased faster than wages and inflation in recent years, rising an
average of 28 percent from 2009 to 2014 despite the enactment of Obamacare, or
rather "because of." Obama signed the Affordable Care Act into law on
March 23, 2010, and Wednesday is the law’s sixth anniversary.
Negative Rates Make Corporate America's Bonds
Only Game in Town - (www.bloomberg.com) Mario
Draghi and Haruhiko Kuroda have handed a big gift to U.S. companies like
Coca-Cola Co. and General Electric Co.: piles of money from European and
Japanese investors. Nearly $8 trillion of bonds globally have negative yields
now, which has spurred fund managers from around the world to buy corporate
debt in the U.S., where interest rates are positive. “Draghi has forced me as a
European investor to look at overseas holdings that aren’t
euro-denominated,” said James Tomlins, a London-based high-yield money
manager at M&G Investments, which oversees about 250 billion
pounds ($352 billion) of assets. “The potential for returns is much better
in the U.S.”
TOP STORIES:
New Jersey's Credit Rating Outlook Revised to Negative by
S&P - (www.bloomberg.com) New Jersey’s credit-rating outlook was revised
to negative from stable by Standard & Poor’s, which cited the “significant
long-term pressures” the state is under from employee benefit liabilities and
the risk the situation will worsen. At the same time, S&P affirmed its A
rating on New Jersey’s general-obligation bonds, its A- rating on the state’s
appropriation-backed debt, and its BBB rating on the state’s moral obligation
debt. The state plans to sell $142 million in general-obligation bonds and $97
million in appropriation debt on Wednesday to refinance existing securities. "The
outlook revision reflects our view of the significant long-term pressures the
state is under related to its post-employment benefits and the potential for
New Jersey’s situation to worsen over the next year or two based on current
litigation and proposed legislation," John Sugden, an S&P analyst,
said in a statement. "It also reflects weakened pension funded levels due
to pension underfunding and lower-than-assumed rates of return," he added.
Exorbitant privilege and the cost of renting America’s balance
sheet - (www.ft.com) Bankers are blaming tensions in the repo world on the increasing cost of
renting out their balance sheets. As we’ve broken down already, leverage and liquidity requirements
make it harder than in the past for banks to borrow cheaply to buy (mostly)
riskless and lend those same assets on at higher rates than they have to pay to
their own creditors. Which is another way of saying…new guys in the investment
scheme don’t get to accrue the same rate of return from new asset purchases the
early guys do unless the assets massively outperform, and hence are much more
likely to run if and when these assets are priced below par value or start to
outperform. Bitcoiners will, of course, know this as “early adopter syndrome”.
For everyone else it amounts to the dynamics which drive debt
overhang constraints.
Moody’s warns bond managers over Valeant - (www.ft.com) Investors
in bonds backed by risky loans remain broadly positive on deals that include
the debt of pharmaceutical company Valeant, despite this week’s warning from
Moody’s. The New York rating agency cautioned that roughly a third of the
group’s loans had been packaged into collateralised loan obligations, securities
in which loans are pooled together into bonds and sold to investors. Moody’s
estimated $3.4bn worth of loans had been purchased by CLOs, including those
managed by hedge funds Anchorage and Apollo, as well as Oak Hill Advisors and
Silvermine, which are among the largest exposed. “In aggregate, there is a risk
because it is such a widely held name,” said Chris Acito, chief executive of
Gapstow Capital Partners. “That said, the most recent loan pricing I’ve seen
indicates that the market doesn’t view this loan as a distressed name.” Moody’s
said that 696 of the roughly 800 CLOs it rates contain Valeant debt.
Brexit Meltdown at the Bank of England - (www.wolfstreet.com) Project Fear — the massive PR campaign aimed at
sowing and watering the seeds of dread about the potential consequences of a
YES vote in the upcoming referendum on a British exit from the EU — is in full
bloom. In the event of a wrong answer, all manner of biblical disasters can be
expected to befall the nation, the British public is constantly being warned. The
country’s national income will shrink, hundreds of thousands if not millions of
jobs will vanish, the City of London’s core industry — financial engineering —
will migrate across the channel, the currency will collapse, house prices will
plummet, European firms will stop selling products to Brits, the U.S.
government will impose massive tariffs on British imports, and even Britain’s
already dismal climate will get worse.
Credit Suisse CEO Blindsided as Bank Added to Risky Positions
- (www.bloomberg.com) Credit Suisse Group AG Chief Executive Officer
Tidjane Thiam said the firm’s traders had ramped up holdings of distressed debt
and other illiquid positions without many senior leaders’ knowledge, helping
lead to a first-quarter loss in the markets business. “This wasn’t clear to me,
it wasn’t clear to my CFO and to many people inside the bank” when the firm
laid out a strategy in October, Thiam, 53, said Wednesday in a Bloomberg
Television interview. “There needs to be a cultural change because it’s
completely unacceptable,” adding that there had been “consequences” for some
employees. The Zurich-based lender’s holdings of distressed debts, leveraged
loans and securitized products, including collateralized loan obligations,
triggered $258 million of writedowns this
year through March 11, after $495 million of losses in the fourth quarter,
according to a presentation.
Brazil
Real Drops as Central Bank Moves to Weaken Currency - (www.bloomberg.com)
Energy slide drags down indexes - (www.reuters.com)
Bullard Sees Case for April Hike as Inflation Set to Overshoot
- (www.bloomberg.com)
Fed Chair Yellen has a mini revolt on her hands - (www.cnbc.com)
As ECB ramps up QE, its stake in government bond markets may
double - (www.reuters.com)
Mounting debts could derail China plans to cut steel, coal glut
- (www.reuters.com)
China Inc. `Bleeding' From Yuan Devaluation Seeks Hedging Help
- (www.bloomberg.com)
Investors Dump Bohai Bonds on 192 Billion Yuan Debt Report - (www.bloomberg.com)
Russia, Light on Cash, Weighs Risks of a Heavy Tax on Oil
Giants - (www.nytimes.com)
TOP STORIES:
Valeant CEO Pearson Will Step Down, Ackman Added to Board -
(www.bloomberg.com) Open warfare has broken out at Valeant
Pharmaceuticals International Inc. After a series of conference calls
over the weekend, the drugmaker’s directors came out swinging. They
blamed former Chief Financial Officer Howard Schiller for “improper conduct”
that contributed to financial misstatements and asked him to resign his seat on
the board. He refused, saying he did nothing wrong. Chief Executive Officer
Mike Pearson will step down and Bill Ackman, the billionaire investor whose
hedge fund has lost hundreds of millions betting on Valeant, will join the
board.
This Is What's Going On Beneath the Subprime Auto-Loan Turmoil
- (www.bloomberg.com) Never underestimate the creativity of business
people in need of new business and investors in need of something in which
to invest. After the financial crisis decimated the market for bundled home
loans that weren't backed by the U.S. government, bankers and lenders seized on
a host of alternative assets that could be sliced and diced and served up to
investors. Sales of commercial mortgage-backed securities (CMBS), along with
collateralized loan obligations (CLOs) consisting of loans made to junk-rated companies,
subsequently surged past their precrisis highs. Bonds backed by auto loans
made to riskier borrowers also proved to be a sweet spot for yield-seeking
investors and the companies and bankers that sold such debt to them.
People might walk away from their homes, so the bull case went, but
in the driving culture that is America, very few would ever willingly
choose to fall behind on their car payments.
Desperate Chinese Investors Flood US, Canadian Housing Markets, But
Real Numbers Are Taboo – (www.wolfstreet.com)
Buying
a home in the US or Canada has been an effective way for foreign residents to
launder some money and get their wealth out of harm’s way. In the trophy
markets on the US West Coast and in the Canadian cities of Vancouver and
Toronto, rumors of a massive influx of Chinese money have swirled with growing
intensity for years. The Chinese economic elite are worried about a devaluation
of the yuan. They’re worried about getting rolled up by their own government.
They’re worried about markets collapsing. They’re worried about pollution.
They’re worried about a million things. They have one foot out the door. If
push comes to shove, they’re ready to make the move. So capital flight from
China has turned into a tsunami. And this money has to go somewhere.
Wall
Street's Pile of Unwanted Treasuries Exposes Market Cracks - (www.bloomberg.com) The world’s biggest bond dealers are getting
saddled with Treasuries they can’t seem to easily get rid of, adding to
evidence of cracks in the $13.3 trillion market for U.S. government debt. The
22 primary dealers held more Treasuries last month than any time in the last
two years, Federal Reserve Bank of New York data show. While at first glance
that may suggest a bullish stance, the surge in holdings is more likely the
result of investors including central banks dumping the debt on the firms, said
JPMorgan Chase & Co. strategist Jay Barry. Foreign official accounts sold a
net $105 billion of the securities in December and January, an unprecedented
liquidation, Treasury Department data show.
Petrobras Posts Surprise Loss on Writedowns Amid Oil Rout -
(www.bloomberg.com) Petroleo Brasileiro SA, the oil producer at the
center of Brazil’s largest corruption scandal, reported a record loss that
surprised analysts and sent shares lower. The fourth quarter net loss of 36.9
billion reais ($10.2 billion), caused by unprecedented asset writedowns linked
to falling oil prices, compared with an average profit forecast of 3.48 billion
reais from six analysts surveyed by Bloomberg. At 46.4 billion reais, the
impairments equated to more than a third of Petrobras’s market capitalization
and exceeded the equity value of 97 percent of publicly-traded firms in Brazil.
