Friday March 11 2016 Housing and Economic stories

TOP STORIES:

Another Private-Equity LBO Queen Bites the Dust - (www.wolfstreet.com) Ten of the top 20 LBOs of that time eventually managed to go public. And now, like Caesar’s and Hilton Hotels, they’re struggling to keep their shares from falling below the IPO price. By comparison, Sports Authority was a minor deal. Other LBO queens among the retailers are also popping up in the news with disappointing sales, plunging stock prices for those that are now publicly traded like the Container Store, distressed bonds and leveraged loans, layoffs, and store closings. And PE firms have trouble exiting. The IPO market has dried up, “valuations” have plummeted, and no one has any appetite for buying the shares of troubled brick-and-mortar retailers.

Emerging Markets Need Cathartic Crisis to Weed Out Bad Stocks - (www.bloomberg.com) Add J O Hambro Capital Management Ltd.’s Samir Mehta to the bear camp in the debate over whether it’s time to buy emerging-market stocks. Mehta, whose Asia ex-Japan equity fund has outperformed 89 percent of peers this year, joins Societe Generale SA and UBS Group AG in forecasting more declines as an unsustainable corporate debt burden offsets attractive valuations. Overly-indebted companies need to be weeded out by a more severe downturn such as the Asian financial crisis, which roiled global markets in 1997, and the Swedish banking crash in the early 1990s. “Most stocks look cheap optically, but debt is a serious issue for several of these cyclical companies,” Mehta, who helps oversee about $1.2 billion at J O Hambro, said in an interview in New York. “We need to have that same kind of cathartic crisis like in 1997-98, or in Sweden back in the ‘90s. We need a crisis that leads to irrational players being put out of business.”

"It Hasn't Been This Bad Since The Viking Age": Dry Bulk CEO Warns Of Bankruptcy Tsunami, Counterparty Risk - (www.zerohedge.com) He warned that "in the coming months there will be a lot of bankruptcies, counterparty risk will be on everybody's lips." Useful tip: any time a CEO is warning about counterparty risk, it's probably a good idea to listen. Just to emphasize his point to the local audience he said that "The market has never been this bad before in modern history. We haven't seen a market this bad since the Viking age. This is not sustainable for anybody and will lead to dramatic changes." Yes, it's that bad. And what's worse, is that once Billung is proven to be right and the dry bulk bankruptcy tsunami is unleashed sweeping away hundreds of ships with it, the next question will be just which  (mostly European) banks, have the greatest "secured" loan exposure to the dry bulk industry, a sector where we fully expect recoveries on secured loans to be in the pennies on the dollar.

Negative Rates Strain Financial System - (www.bloomberg.com)  For those who doubt that negative interest rates are bad for banks, take a look at what's going on in Japan. The nation's commercial lenders are loading up on bonds that don't come due for decades to get some yield, any kind at all. They bought a net 197.4 billion yen ($1.7 billion) of superlong Japanese government bonds in January, up from 7 billion yen the month before, according to a Bloomberg News article by Chikako Mogi and Shigeki Nozawa. The banks are in a bind because bonds with maturities extending out a decade all carry negative yields as a result of the Bank of Japan's attempts to suppress borrowing costs, including its January announcement to charge interest on some bank reserves. 

Chinese State Firms' Debt Stress Flagged by Moody's Outlook Cut - (www.bloomberg.com) Debt strains at China’s state-owned enterprises are adding to concerns about the nation’s creditworthiness as leaders prepare for an annual parliamentary meeting. Moody’s Investors Service cited risks posed by state firms in lowering the country’s credit-rating outlook to negative from stable Wednesday. “The ongoing increase in leverage across the economy and financial system and the stress in the SOE sector imply a rising probability that some of the contingent liabilities will crystallize on the government’s balance sheet,” it said in a report. The National People’s Congress meets from March 5 to lay out economic development targets, after authorities said in September they would reform “zombie enterprises,” while encouraging a “blending” between state and private capital. 

OTHER STORIES:

Sub-zero central banks may just chase inflation expectations lower - (www.reuters.com)
China's Real Estate Frenzy Is Back as Shenzhen Prices Surge 50% - (www.bloomberg.com)
Chinese State Firms' Debt Stress Flagged by Moody's Outlook Cut - (www.bloomberg.com)
China Blocks Philippine Fishermen in Disputed Waters, Mayor Sa - (www.bloomberg.com)

China Rating Outlook Cut to Negative by Moody’s - (www.bloomberg.com)
China's Yuan Weakens After Central Bank Cuts Reference Rate - (www.bloomberg.com)
Europe seen on cusp of new humanitarian crisis at Greece-Macedonia border - (www.reuters.com)
U.S. warns China on militarization of South China Sea - (www.reuters.com)