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Alarm
over corporate debt and stalled earnings – (www.ft.com) Such
popularity for companies that pay out dividends is generally sign of
bearishness and lack of trust. If investors want to be shown the money in this
way, it suggests very low confidence in companies' ability to use the cash
wisely. At this point, according to Mr Santschi, investors are eschewing
buyback stocks because they fear that the buybacks will only be funded with further
debt. Companies can of course afford to stay highly levered without too much
difficulty, while they enjoy fixed low rates. The problem, and the reason that
investors have now started to focus on the problem, is producing the earnings
and cash flows needed to pay their debt. That is why earnings are being watched
with such anxiety.
China imposes fresh curbs on commodities as
iron ore, steel slide - (www.reuters.com) Chinese
commodities exchanges stepped up efforts on Tuesday to curb surging prices that
some say have been driven by speculators, raising fears of another derivatives
bubble after last year's stock market collapse. Transaction fees for iron ore
futures were hiked for a second time in as many days, after the original
increase led to a sharp drop in iron ore and steel futures in China that helped
cool a week-long surge in local commodities markets. Base metals futures also
fell on Tuesday, while other commodities, including coking coal and cotton,
surrendered most of their early gains to end nearly flat. China's top commodity
exchanges in Dalian, Shanghai and Zhengzhou increased trading margins and fees
in response to last week's spike in prices and volumes, which some analysts
said were not matched by fundamentals for the underlying commodities.
Consumers,
Small-Business Owners Souring on This Economy - (www.wolfstreet.com) Consumer
optimism about the economy is waning, and small-business-owner sentiment
is giving off recession vibes. That’s how different surveys are now
mucking up the rosy scenario. Gallup’s Economic Confidence Index, released today, added another dimension. It
dropped four points in the week ending April 24, to -16, the lowest since
August 2015, and down from positive territory in January 2015. It left Gallup
groping for answers: Pessimism has increased despite a strong stock market in
recent weeks and a persistent low unemployment rate. However, there have been
reports of weak retail sales and expectations of low first quarter economic
growth. Gas prices have also started to rise, although they remain well below
where they were for most of the past decade.
Business
"Subsidies" Plummet 70% As Government Support Evaporates - (www.zerohedge.com) In order to attract and retain
small and big business alike, it has long been a tactic by states and local
governments to offer tax breaks - just ask Elon Musk who has been a happy
recipient of taxpayer generosity over the years. However, as times have got
touch in Obama's "recovery", government subsidies of at least $50
million have plummeted by 70% Bloomberg reports. As an example, tax breaks for
companies such as Boeing, IBM, and Toyota were part of $17 billion from state
and local governments in 2013. In 2014 that number dropped to $7 billion, and
last year plummeted to just $4.8 billion. The reasoning may be twofold. The
first, is that new accounting rules will force state and local
budgets to account for tax incentives given to business as lost income in
order to stay compliant with GAAP. This could upset the public, knowing just
how much each business in their area didn't have to pay in taxes, and thus
potentially increasing property taxes.
The
Canary In Canada's Real Estate Mine Just Died: Toronto's Urbancorp Files For
Bankruptcy - (www.zerohedge.com) Less
than two weeks ago we documented that Toronto based Urbancorp, one of Canada's
largest residential developers, was having significant issues. Its attorney's had taken the highly unusual
step of terminating their contract, it hadn't released 2015 financials due to
the audit committee having "open issues and questions", and most
intriguing, a board member quit just two weeks after being appointed
specifically to provide expertise in accounting. For those unfamiliar with the
company, Urbancorp was launched in 1993 by Alan Saskin, a former Cadillac
Fairview executive, and has built dozens of condos and other housing developments
in the Greater Toronto Area. This is how it describes
itself on its website:
Urbancorp is proud to have created some of the most visionary home and
condominium communities in the GTA.
1MDB Says It's in Default After Missing
Interest Payment - (www.bloomberg.com) The
Malaysian government’s reputation took another hit on Tuesday after state-owned
1Malaysia Development Bhd. defaulted on a $1.75 billion bond. The ringgit fell
and 1MDB’s dollar debt slumped. The development fund withheld a $50
million coupon payment amid a wider dispute with Abu Dhabi’s International
Petroleum Investment Co., the co-guarantor of the bonds. The missed payment
triggered cross defaults on 7.4 billion ringgit ($1.9 billion) of 1MDB debt,
including borrowings that are guaranteed by the Malaysian government, the fund
said in a statement on Tuesday. The default is the latest episode in
financial scandals that have rocked 1MDB, whose advisory board is headed by
Malaysian Prime Minister Najib Razak.
Used car prices are falling for the first time
since 2008 - (www.cnbc.com) Used
car prices look set to suffer their first meaningful decline since 2008. And
the likely culprit is the strong number of new vehicle sales. According to
"NADA Used Car Guide," used car prices will fall 5 to 6 percent this
year. And while some may be tempted to draw from that negative conclusions
about the U.S. economy, NADA executive analyst Jonathan Banks explains that the
drop is reflective of rising supply, rather than falling demand. "2016
marks the first year where we have a material increase in used supply,"
Banks said Friday on CNBC's "Trading Nation."
He explains that recently, record-high used car prices have been spurred by a
lack of used car supply, which in turn was caused by low new vehicle sales as a
result of the recession. That trend is now reversing.
Iconic
Hedge Fund Brevan Howard Slammed With $1.4 Billion In Redemption Requests - (www.zerohedge.com) It
has already been a very bad several years for hedge funds with 2016 starting
off especially brutally, when moments ago we learned that it is about to get
even worse for one of the most iconic names in the macro hedge fund space,
Brevan Howard, which according to Bloomberg has been served with $1.4 billion
in cash redemption requests. As Bloomberg writes, investors in Brevan Howard
Asset Management have asked to pull about $1.4 billion from the firm’s main
hedge fund after successive annual declines followed by losses during the first
quarter, according to two people with knowledge of the matter.
China’s bond market is on edge - (www.ft.com) Stand
easy — or easier, at least. Ten basis points might not be the biggest one-day
change for borrowing costs in China’s vast $7tn bond markets,
but it was enough on Monday to push the country’s closely watched onshore repo
rate back from an eight-month high. That offers a little breathing space for
investors to ponder what next for the rising tensions in onshore bond markets.
One point to look at is their own leverage as well as their fears for
companies. Bond yields in China have jumped. This month, China’s five-year
government bond yields have risen 25 basis points to 2.75 per cent — their
worst monthly performance in a year. Defaults by two state-owned groups have raised fears that others could
follow suit. All this has added roughly half a percentage point this month
alone for high-quality borrowers onshore. Spooked by this, companies have so
far suspended plans for an estimated $10bn in expected bond issuance. Amid all
the furore about the pain of rising rates, one so-far overlooked factor is that
investors, as well as companies, appear precariously balanced.
Amid oil price plunge, Alaska's economy braces
for losers and survivors - (www.cnbc.com) Alaska's $3.5 billion deficit — roughly
two-thirds of its budget — reads like a classic boom-bust tale. With the
collapse in crude prices, lower oil revenues are hitting Alaska hard. Roughly
90 percent of the state government and one-third of all state jobs comes from
oil money. But weaning Alaska off oil revenues won't be a straight shot. And
the pain won't be uniform. The effects of budget solutions will vary among
Alaska's diverse population. In many ways, the Last Frontier State is a
collection of regions and micro economies — each with its own constellation of
employers and local price swings for everything, from a gallon a milk to a
gallon of fuel.
Germans flock to property as interest rates
fall and rents rise - (www.reuters.com) Unlike
his parents who rented their whole life, Berlin resident Sebastian lives in his
own apartment and is considering buying a second property in the German capital
as an investment to top up his pension one day. For decades a nation largely of
tenants and prudent savers, growing numbers of Germans are buying property, not
just to own their homes but also in search of investment returns they can no
longer earn on their bank savings. This shift to a more U.S. or British
approach to property is being encouraged by the European Central Bank's cheap
money policies and rising rents, especially in German cities.
China debt load reaches record high as risk to
economy mounts - (www.cnbc.com) China’s
total debt rose to a record 237 percent of gross domestic product in the first
quarter, far above emerging-market counterparts, raising the risk of a
financial crisis or a prolonged slowdown in growth, economists warn. Beijing
has turned to massive lending to boost economic growth, bringing total net debt
to Rmb163 trillion ($25 trillion) at the end of March, including both domestic
and foreign borrowing, according to Financial Times calculations. Such levels
of debt are much higher as a proportion of national income than in other
developing economies, although they are comparable to levels in the U.S. and
the eurozone.
With
Impeccable Timing, ‘Economic Miracle’ in Spain Unravels - (www.wolfstreet.com) Since the granddaddy of all housing bubbles
popped in Spain between 2008 and 2009, unleashing one of the deepest recessions
in living memory, the nation’s public debt has more than doubled, from just
over 40% of GDP to almost exactly 100% today. Last year, despite the fact that
Spain grew faster than almost any other European economy, the government
managed to rack up a deficit of 5.2%, one full percentage point above the
target that it had set itself a year earlier and over three percentage points
above the Eurozone average. It’s the third-highest deficit-to-GDP ratio
in the Eurozone after Greece and Portugal. That’s some claim for Europe’s
supposed economic success story. This is the eighth consecutive year that Spain has overshot its fiscal
target.
In
Shocking Finding, The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese
Stocks – (www.zerohedge.com) The
latest shocking example of just how intertwined central banks have become in
all capital markets, comes courtesy of the Bank of Japan which days ahead of a
move which may see it double its ETF purchases from the current run rate of
JPY3.3 trillion to JPY7 trillion or more (if Goldman is correct), is
revealed to be a top 10 holder in about 90% of all Japanese stocks. Crazier
still, if as Goldman predicts the BOJ doubles its purchases of ETFs, the
central bank could become the No. 1 shareholder in about 40 of the Nikkei 225’s
companies by the end of 2017,
Make No Mistake: Puerto Rico Will Default on
May 2, Moody's Says - (www.bloomberg.com) Make
no mistake about it: Puerto Rico will default in May on some of the $470
million it owes, according to Moody’s Investors Service. The cash-strapped
commonwealth is expected to fall short of paying $422 million to holders
of bonds from the Government Development Bank, the credit rater said
Friday in a report. It may also default on debt from the Employees Retirement
System, Industrial Development Co. and Highways and Transportation Authority
because the GDB has just $562 million in liquidity as of April 1, Moody’s said.
“These impending defaults would follow the government’s efforts to emphasize
its severe cash depletion during the past year,” Moody’s analysts led by Ted
Hampton and Emily Raimes wrote. “Even if federal oversight legislation is
passed by the end of next week, Puerto Rico will still default because the
commonwealth treasury and the GDB, which has long been the government’s fiscal
agent, have insufficient liquidity for upcoming debt payments.”
Topless
dancers, champagne, and David Bowie: Inside the crash of a $2.7 billion unicorn - (www.businessinsider.com)
Powa Technologies collapsed in February after blowing through more than $200
million of investor money. Insiders claim its flagship product was a
"basket case" and company was plagued with management dysfunction. Former
staff recall wild Christmas parties with bottomless champagne and topless
dancers. Deal that valued Powa at $2.7 billion was a "dud" according
to insiders. CEO surrounded himself with "yes men" and allegedly
wouldn’t listen to criticism. Rumours that CEO could have saved the company if
he’d stepped aside, but refused.
Oil
is heading toward another crash - (www.businessinsider.com) Some
analysts are betting that the recent jump in oil prices will be
short-lived. A big meeting of producers in Doha, Qatar last Sunday
ended without an agreement to cap output. Christopher Wood, author
of CLSA's weekly GREED & fear letter, said Thursday that this
proves oil will drop to $20 a barrel — one of the most bearish calls out
there. West Texas Intermediate crude, the US benchmark, traded as high as
$44.45 a barrel Friday. Brent crude, the international benchmark, rose to
$45.89. To recap Doha, members of the oil cartel OPEC and nonmembers
met to try and agree on output ceilings in an effort to help lift
prices. Many economies, including OPEC's de facto leader Saudi Arabia, have
been strained by the price collapse.
Junk downgrades already outpace 2015 - (www.ft.com) The
debt doghouse is filling up fast. More companies were downgraded to junk status
by Moody’s in the first three months of the year than in the whole of 2015. In
total, 51 companies were pushed into junk territory, up from eight in the
fourth quarter and 45 in 2015. The sharp increase in number of so-called
“fallen angels” — as those companies stripped of their investment grade status
are known — comes as focus intensifies on whether the current credit cycle,
which began after the 2008-2009 financial crisis, is turning. Pressure on
borrowers’ balance sheets has been particularly acute among those exposed to the
falling price of commodities. Moody’s also blamed the travails of the
commodities market on the significant swelling in the number of “potential
angels”, or those companies at risk of being cut to junk.
Half
of Middle-Class Americans Are Living Paycheck to Paycheck – (www.theatlantic.com) Since
2013, the federal reserve board has conducted a survey to “monitor
the financial and economic status of American consumers.” Most of the data in
the latest survey, frankly, are less than earth-shattering: 49 percent of
part-time workers would prefer to work more hours at their current wage; 29
percent of Americans expect to earn a higher income in the coming year; 43
percent of homeowners who have owned their home for at least a year believe its
value has increased. But the answer to one question was astonishing. The Fed
asked respondents how they would pay for a $400 emergency. The answer: 47
percent of respondents said that either they would cover the expense by
borrowing or selling something, or they would not be able to come up with the
$400 at all. Four hundred dollars! Who knew?
SunEdison Joins Crowded List of Commodity
Bankruptcies This Year - (www.bloomberg.com) SunEdison Inc.’s liabilities of $16.1 billion
makes the world’s biggest renewable energy developer the biggest bankruptcy of
2016. Here’s a review of the almost $35 billion in previous U.S. restructurings
this year, according to data compiled by Bloomberg. The list is dominated by
energy and commodity companies, including Peabody Energy Corp., the world’s
largest independent coal company, which filed for bankruptcy April 13 listing
$10.1 billion in liabilities.
Hedge Funds Endure Biggest Outflows Since 2009
in First Quarter - (www.bloomberg.com)
Hedge funds suffered the worst withdrawals last
quarter since the tail-end of the financial crisis as wild swings in stocks and
commodities caused losses at
some of the best-known firms. Investors pulled a net $15 billion between
January and March, reducing assets under management to $2.86 trillion from $2.9
trillion, Chicago-based Hedge Fund Research Inc. said Wednesday. The last time
outflows were higher was in the second quarter of 2009, when $43 billion was
redeemed. Clients are redeeming after many hedge funds failed to protect them
during market turmoil in the second half of last year and again at the start of
2016. Managers including John Paulson, Chase Coleman, Andreas Halvorsen, Ray
Dalio and Bill Ackman posted losses in some of their funds last quarter, even
as global stocks edged out a small gain with dividends reinvested.
China's Stocks Tumble Most in Seven Weeks to
End Trading Calm – (www.bloomberg.com) China’s stocks sank the most in almost two
months, pushing a gauge of volatility up from its lowest level this year as
turnover surged. The Shanghai Composite Index dropped as much as 4.5 percent,
the biggest loss since Feb. 29, before paring declines to 2.3 percent at the
close. Industrial and technology companies led losses, while 13 stocks
fell for each that rose. The Hang Seng China Enterprises Index retreated from a
three-month high in Hong Kong. Traders struggled to explain the reason behind
the sudden selloff, which isn’t an unusual occurrence in a market dominated by
individual investors. Interest in mainland equities has been fading this month
after March’s 12 percent surge amid concern that improving economic data will
prevent the government from adding stimulus. Wei Wei, an analyst at Huaxi
Securities Co. in Shanghai, says the slump is triggering concern that the panic
seen at the start of the year, when the equity gauge sank 23 percent in the
space of a month, could return.
China Default Chain Reaction Looms Amid 192 Day
Cash Turnaround - (www.bloomberg.com) Chinese
companies have never had to wait so long to get paid, as stockpiles build and
customers delay sending funds. Firms now take a record 192 days to collect
payment for their goods or services from when they pay for the
inputs, according to data compiled by Bloomberg on non-financial
corporations traded in Shanghai and Shenzhen. The cash conversion ratio is up
from 125 days five years ago. Liquidity is tightening in China after company
profits declined for the first time in three years and as debtors face their hardest time
ever paying interest. “The longer the cash conversion cycle, the higher the risk of corporates not having
enough cash to repay their debts,” said Iris Pang, senior economist
for greater China at Natixis SA in Hong Kong. “That creates a chain reaction.”
Fallen Angels Tumble at Fastest Rate Since
Crisis, Moody's Says - (www.bloomberg.com) More
companies lost their investment-grade ratings in the first three months of 2016
than in any full year going back to at least 2009, according to Moody’s
Investors Service, and the number is only expected to increase. Of the 51
global non-financials that tumbled into junk during in the first three months
of the year, 28 of the so-called fallen angels were Brazilian companies
that got downgraded after the nation lost its investment-grade rating in February, according to a Wednesday
note from Moody’s. In 2015, there were a total of 45 fallen angels. And, thanks
to the lingering commodities rout, the ratings company expects the number of
fallen angels to keep growing this year.
ECB's Draghi Defiant After Central Bank Keeps Rates on Hold
- (www.bloomberg.com)
Draghi Says Stimulus Is Working as ECB Defends Independence
- (www.bloomberg.com)
