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Contagion
from Italy’s Bank Meltdown Spreads - (www.wolfstreet.com) Without
a taxpayer-funded bailout that directly contravenes the Eurozone’s new bail-in
rules, the world’s oldest surviving bank, Monte Dei Paschi, could soon be out
of business. Shares of the decrepit financial entity have long been reduced to
a penny stock. So far this year, they’ve lost 78% to close on Tuesday at an
inconsequential €0.28. The closer it comes to its end, the louder the
calls for its rescue. Last week saw two out of three of the members of the
institutional triad formerly known as the Troika — the ECB and the IMF — lend
their support to a taxpayer funded bailout of Italy’s banking system. So, too,
did the biggest U.S. bank by assets, JP Morgan Chase. All that was needed was
for Europe’s most influential bank, New York-based Goldman Sachs, to give its
blessing. That came on Monday in a report whose conclusion is fittingly
Goldman-esque: saving Italy’s banks is not just necessary; it would be a
bargain for all concerned.
IRS
Launches Investigation Of Clinton Foundation – (www.zerohedge.com) IRS
Commissioner John Koskinen referred congressional charges of corrupt Clinton Foundation
“pay-to-play” activities to his tax agency’s exempt operations office for
investigation, The Daily Caller News Foundation has learned. The request
to investigate the Bill, Hillary and Chelsea Clinton Foundation on charges of
“public corruption” was made in a July 15 letter by 64 House Republicans to the IRS, FBI
and Federal Trade Commission (FTC). They charged the foundation is “lawless.” The initiative is being led by Rep. Marsha
Blackburn, a Tennessee Republican who serves as the vice chairwoman of the
House Committee on Energy and Commerce, which oversees FTC. The FTC
regulates public charities alongside the IRS. The lawmakers charged the
Clinton Foundation is a “lawless ‘pay-to-play’ enterprise that has been
operating under a cloak of philanthropy for years and should be investigated.”
Hedge funds suffer $20.7bn net outflows in June - (www.ft.com) Global
hedge funds suffered net outflows of $20.7bn in June, as investors pulled more
of their money out despite improved performance from most managers. After
inflows in April and May, the withdrawals took total aggregate net redemptions
for the second quarter to $10.7bn, according to data from eVestment, marking
the third consecutive quarter in which money has left the sector. This
represents the longest sequence of quarterly outflows since the second quarter
of 2009, suggesting that investor dissatisfaction with managers’ performance and fees may
be intensifying. In the first three months of 2016, hedge fund redemptions
were the worst seen in any quarter for seven years, as investors withdrew more
than $15bn, according to data from Hedge Fund Research. Large insurers such as AIG and MetLife and pension funds including
the New York City Employees’ Retirement System have all recently cut or reduced
their hedge fund allocations.
Japan to double fiscal stimulus to 6tn yen - (www.nikkei.com) Japan
looks to inject 6 trillion yen ($56.7 billion) in direct fiscal outlays into
the economy over the next few years, double the amount initially planned. The
fiscal stimulus package, to be funded through a supplementary budget, the
fiscal 2017 spending plan and other lending facilities, will be announced as
early as Aug. 2. The Ministry of Finance firmed up the plan on Monday. An
earlier draft presented to Prime Minister Shinzo Abe included 3 trillion yen in
central and local government spending, but the amount was doubled in light of
calls for more generous spending from the government and ruling party lawmakers.
Funding will come in several stages. The supplementary budget for fiscal 2016
will likely provide around 2 trillion yen, including 1.3 trillion yen or so for
public works. The fiscal 2017 national budget will set aside more. The overall
package, including loans to businesses, could exceed 20 trillion yen.
Oil Majors Lost One Engine; Now the Second One
Is Sputtering - (www.bloomberg.com) If
Big Oil was a two-engine airplane, you could say it’s been flying on a single
engine since energy prices crashed in 2014. Now, the second motor is
sputtering. The major integrated oil companies, including Exxon Mobil Corp.,
Total SA and BP Plc, have relied on their so-called downstream businesses,
which include refining crude into gasoline, oil trading and gas stations, to
cushion the losses on their upstream units, which pump crude and natural gas. “The
crash in oil prices in late 2014 brought refineries worldwide a pleasant
surprise: booming margins,” said Amrita Sen, chief oil analyst at consulting
firm Energy Aspects Ltd. in London. “But now, the market is changing.” BP, the
first major to report second-quarter
results, showed the impact on Tuesday. The British company said its downstream
earnings fell to $1.51 billion from $1.81 billion in the first quarter
and $1.87 billion a year ago. Refining margins were the weakest for the
April-to-June period in six years, BP said.
Stocks
Were Already Crashing the Last Two Times this Happened. So What Gives? - (www.wolfstreet.com) Over
the last 20 years, margin debt – when investors buy stocks with borrowed money
– went through three multi-year run-ups, each topped off with a spike, followed
by a reversal and decline: during the final throes of the bubbles in 2000 and
2007, each followed by an epic stock market crash – and now. That pattern of
jointly soaring and then declining margin debt and stocks even occurred during
the run-up and near-20% swoon in 2011. The grand cycle began in February 2009,
at the trough of the Financial Crisis, when margin debt had dropped to $200
billion. It was followed by a multi-year record-breaking run-up, topped off
with a spike that culminated in an all-time peak of $507.2 billion in April
2015. Then margin debt reversed and began to decline. On cue, the stock market
began to decline a month later. Margin debt zigzagged lower, and stocks did
too. But in February this year, stocks suddenly bounced off sharply – without
margin debt.
Twitter
Plummets After Slashing Q3 Outlook – (www.zerohedge.com) Miraculously
managing to beat user growth expectations (313mm MAUs vs 312mm MAUs exp) and
EPS (+13c vs +9c exp), Twitter stock is plummeting after-hours after slashing
Q3 revenue (and EBITDA) guidance drastically (from $681.4m to between $590
and $610mm). TWTR is trading down 11% after-hours... As Bloomberg reports,
Twitter said third-quarter revenue will be less than analysts expected Tuesday, a
sign it’s struggling to win more advertising dollars as user growth stagnates. The
company forecast third-quarter revenue of $590 million to $610 million.
Analysts were looking for $681.4 million. Monthly active users were 313 million
in the second quarter, up from 310 million during the prior quarter. That beat
the average analyst estimate for 312 million, according to data compiled by
Bloomberg.
Active fund managers face more pain — Moody’s - (www.ft.com) The
investor shift from active asset
management to
cheaper passive strategies will accelerate in the coming years and weigh on the
earnings and credit ratings of investment groups unable to adapt to the new
realities of the money management industry, according to Moody’s. The worsening
ability of many fund managers to beat their benchmarks, coupled with their
costs, has led to an investor exodus in favour of cheaper investment strategies
such as exchange-traded funds, that seek to merely mimic the performance of a
market at the cheapest possible cost. Ongoing for over a decade, the trend has accelerated and broadened recently, and badly rattled the traditional
asset management industry that controls trillions of dollars’ worth of savings
globally. As a result many have sought to build or buy their own passive investment operations, but
those that fail to adjust will increasingly struggle, Moody’s warned in a
report published on Monday.
It's Not a Search for Yield but a Scramble for
Safety - (www.bloomberg.com) Some
eight years after the financial crisis, investors are still petrified of risk
assets. That statement might not ring true for anyone familiar with the
'reach for yield' that is said to have sent investors scurrying into
riskier securities in recent times. But a new note from Bank of
America Merrill Lynch turns that narrative on its head arguing that
the "search for safety" has trumped the search for
yield — at least, in terms of returns. At issue is the degree to which
lower yields on benchmark government debt have actually pushed investors into
riskier assets — a key goal of central bank bond-buying programs known as
quantitative easing. Faced with lower yields, investors must shift
into riskier, higher-yielding assets to generate their required returns, or so
the thinking goes.
International Exposure to Turkey Is Showing Up
in the Wrong Places - (www.bloomberg.com) Europe's
credit markets are relatively insulated from the turmoil in Turkey. Unfortunately,
according to analysts at JPMorgan Chase & Co., where exposure exists
it's in all the wrong places. Start your day with what’s moving markets. Get
our markets daily newsletter. Following an unsuccessful coup attempt earlier
this month, Turkey's markets have been rocked by both political unrest
and the threat of downgrade. From UniCredit SpA to Thomas Cook Group
Plc, the risk is being shouldered by companies already battling problems
at home. "In general, European credit does not carry much exposure to
Turkey," the analysts led by Matthew Bailey said in the note to
clients. Yet in almost all cases, the "names which are affected by
the political situation were already facing other risks."
Crude
Oil Markets Smell a Rat - (www.wolfstreet.com) Oil
dropped again today, with WTI skidding 2.4%, settling at $43.13 a barrel on the
Nymex, the lowest close since April. It is now down 16% from its oil-bust
recovery peak of $51.23 on June 8. In the US, the bloodletting continues.
Today, Standard & Poor’s reported that another four US companies that it
rates defaulted on their debt payments last week – including two oil and gas
companies, Atlas Resource Partners and Forbes Energy services. It brought the
total defaults on debt rated by S&P to 71 so far this year, over twice the
34 defaults at the same time last year. The default rate in the oil & gas
sector has spiked to higher levels than even during the Financial Crisis, while
it has been ticking up at a more leisurely pace in other sectors.
ECB
Mulls Legal Steps as Slovenia Raids Bank in Bailout Case - (www.bloomberg.com) European
Central Bank President Mario Draghi warned of potential legal steps after
Slovenian police raided the country’s central bank in connection with a probe
into a 2013 bank bailout. Wednesday’s search of the bank’s premises and the
seizure of ECB information stored on the Bank of Slovenia’s internal network
and hardware used by its staff “infringes the Protocol on the Privileges and
Immunities of the European Union,” Draghi wrote in letters to Slovenia’s
prosecutor general and European Commission President Jean-Claude Juncker. “I
formally protest against such unlawful seizure of ECB information and call upon
the Slovenian authorities to remedy this infringement,” Draghi wrote. “In
addition, the ECB will also explore possible appropriate legal remedies under
Slovenian law.”
Turkey detains 42 journalists in crackdown as
Europe sounds alarm - (www.reuters.com) Turkey
ordered the detention of 42 journalists on Monday, broadcaster NTV reported,
under a crackdown following a failed coup that has targeted more than 60,000
people and drawn fire from the European Union. The arrests or suspensions of
soldiers, police, judges and civil servants in response to the July 15-16
putsch have raised concerns among rights groups and Western countries, who fear
President Tayyip Erdogan is capitalizing on it to tighten his grip on power. EU
Commission President Jean-Claude Juncker questioned Ankara's long-standing
aspiration to join the EU. "I believe that Turkey, in its current state,
is not in a position to become a member any time soon and not even over a
longer period," Juncker said on French television France 2.
Vancouver
Finally Cracks Down On Chinese Home Buyers With 15% Real Estate Tax - (www.zerohedge.com) The
British Columbia government finally took our advice to
stem hot money inflows into real estate by announcing a 15% transfer tax
on foreign nationals who buy real estate in Metro Vancouver. Finance
Minister Mike de Jong unveiled the tax, which will take effect on August 2nd,
after recent housing data revealed that foreign nationals spent more than
$1 billion on British Columbia property between June 10 and July 14, or a mere $28.6mm
per day.
First
Italy, Now Portuguese Banks "Unexpectedly" Need A Taxpayer Bailout - (www.zerohedge.com) According
to the FT, Portuguese banks, already undercapitalised and
loaded with bad debt, are bracing for even more heavy losses from Lisbon’s
so far unsuccessful attempts to sell Novo Banco. Estimates of the potential
bill facing banks, which finance the resolution fund that bailed out Novo Banco
in 2014, range from €2.9bn to €3.9bn. Some bankers are even doubtful that
the rescued lender will attract any acceptable offers, leading to its possible
break-up or liquidation. Maybe. Or maybe we we will the first case of a
"bad bank squared" - it would be hardly surprising considering Italy
is about to bail out its already repeatedly bailed out banking sector... again.
According to the FT, the sale of Novo Banco is among critical decisions that
will shortly determine the future shape of Portugal’s banking industry, which
the International Monetary Fund has linked with the problems facing Italian
lenders as among potential risks to global growth.
Turkey's Erdogan, using
emergency decree, shuts private schools, charities, unions - (www.reuters.com) President Tayyip Erdogan tightened his grip
on Turkey on Saturday, ordering the closure of thousands of private schools,
charities and other institutions in his first decree since imposing a state of
emergency after the failed military coup. Turkish authorities also detained a
nephew of Fethullah Gulen, the U.S.-based Muslim cleric accused by Ankara of
orchestrating the July 15 coup attempt, the Anadolu state news agency reported.
A restructuring of Turkey's once untouchable military also drew closer, with a
planned meeting between Erdogan and the already purged top brass brought
forward by several days. The schools and other institutions are suspected by
Turkish authorities of having links to Gulen, who has many followers in Turkey.
Gulen denies any involvement in the coup attempt in which at least 246 people
were killed.
China Bans Internet News Reporting as Media
Crackdown Widens - (www.bloomberg.com) China’s
top internet regulator ordered major online companies including Sina Corp. and
Tencent Holdings Ltd. to stop original news reporting, the latest effort
by the government to tighten its grip over the country’s web and information
industries. The Cyberspace Administration of China imposed the ban on
several major news portals, including Sohu.com Inc. and NetEase
Inc., Chinese media reported in identically worded articles citing an
unidentified official from the agency’s Beijing office. The companies have
“seriously violated” internet regulations by carrying plenty of news
content obtained through original reporting, causing “huge negative effects,”
according to a report that appeared in The Paper on Sunday.
Subprime
Snaps: Largest US Subprime Auto Lender Delays Earnings Due To "Accounting
Matters" - (www.zerohedge.com) We
first introduced readers to Skopos Financial, a company which we dubbed
"The new king of deepsubprime" which we have long expected to
become ground zero for the upcoming subprime auto crisis, and which is run
by Santander Consumer USA veterans, last April.
This is what we said about the company that has become increasingly more prominent:
"Skopos Financial, a four-year-old auto finance company based in Irving,
Tex., sold a $149 million bond deal consisting of car loans made to borrowers
considered so subprime you might call them—we dunno—sub-subprime?" As
Bloomberg noted at the time, the details from the prospectus showed a whopping 20
percent of the loans bundled into the bond deal were made to borrowers with a
credit score ranging from 351 to 500—the bottom 6 percent of U.S. borrowers,
according to FICO. As a reminder, the cut-off for "prime" borrowers
is generally considered to be a credit score of around 620. More than 14
percent of the loans in the Skopos deal were made to borrowers with no score at
all.
Based On This Measure, China May Be Caught in a
Liquidity Trap - (www.bloomberg.com) Markets
might get concerned about China again. Supportive credit conditions and growth
that's beat economists' expectations have buoyed investors and
turned January's concerns into a distant memory, in part thanks to a
commitment to unleash credit even at the cost of adding to the
country's debt load. But based on a broader measure of money supply, the
People's Bank of China is failing to keep liquidity
conditions loose, according to Lombard Street Research Ltd. Welcome
to the liquidity trap. While markets are all-too aware of Beijing's challenge
to pump up the money supply to spur private investment, the scale of the
mission is put into stark distinction by Michelle Lam, analyst at Lombard.
Corporate debt seen ballooning to $75 trillion:
S&P - (www.cnbc.com) Corporate
debt is projected to swell over the next several years, thanks to cheap money
from global central banks, according to a report Wednesday that warns of a
potential crisis from all that new, borrowed cash floating around. By 2020,
business debt likely will climb to $75 trillion from its current $51 trillion
level, according to S&P Global Ratings. Under normal conditions, that
wouldn't be a major problem so long as credit quality stays high, interest
rates and inflation remain low, and there are economic growth persists. However,
the alternative is less pleasant should those conditions not persist. Should
interest rates rise and economic conditions worsen, corporate America could be
facing a major problem as it seeks to manage that debt. Rolling over bonds
would become more difficult should inflation gain and rates raise, while a
slowing economy would worsen business conditions and make paying off the debt
more difficult.
Why Italy’s housing crisis matters - (www.ft.com) In
2014 there were approximately 100,000 fewer construction companies in Italy
compared with 2008, a fall of 16 per cent. This ran in parallel to a fall in
employment of almost 30 per cent. The thousands of property-related businesses
that folded as a result brought the already fragile banking system to its knees. Real estate
and construction companies account for more than 40 per cent of corporate bad
debts, up from 24 per cent in 2014 – a figure which is still rising. In the 12
months to May more than 70 per cent of the rise in gross corporate bad debt was
accounted for by the construction and real estate sector.
Hamptons Mansion Buyers Have More Choices as
Luxury Sales Slump - (www.bloomberg.com) It’s
a good time to buy a home in New York’s Hamptons, especially for shoppers with
more than $3 million to spend. Sales of
luxury homes in the area, known as Wall Street’s beachside retreat, fell 20
percent in the second quarter from a year earlier to 57 deals, while the number
of high-end listings climbed, according to a report Thursday
by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The
median price of transactions in the top 10 percent of the Hamptons market --
defined for the quarter as $3.55 million or more -- slipped 0.9 percent. Values
rose for the lowest-priced properties. “The global phenomenon that emphasized
luxury development, luxury sales and luxury purchases almost exclusively -- that’s
been played out,” said Jonathan Miller, president of Miller Samuel. “That
market is taking a breather.”
How
the Oil Bust is Crushing a Downtown of Office Towers - (www.wolfstreet.com)
Commercial real estate, particularly office space, in Calgary, Alberta, the
epicenter of the Canadian oil bust with 1.2 million people, is collapsing at a
breath-taking rate. As companies in the oil & gas sector have downsized or
gone out of business, 25,000 people who used to work downtown have lost their
jobs. Office vacancy rates have soared to 22%, the highest on record, according
to the second quarter report by
commercial real estate services firm CBRE. Vacancy for Class AA office space
reached 17.6%, and for Class A space 18.9%. Older buildings are getting
clocked: Vacancy rates for Class B buildings soared to 32% and for Class C
buildings to 28%. It’s going to get worse: three towers with 2.3 million sq.
ft. of office space are under construction in downtown and will be completed by
2018. Of this space, about 1 million sq. ft. is not leased. And even some of
the pre-leased space may end up on the sublease market.
Amazon
To Issue Student Loans To New "Prime" Shoppers - (www.zerohedge.com) On
the off chance the US didn't already have a big enough problem thanks to a
staggering $1.3 trillion in student loans which contrary to White House' claims, are crushing an entire generation under their
interest expense weight, earlier today none other than billionaire Jeff Bezos
announced he was entering the student loan business, when Amazon unveiled a
partnership with Wells Fargo in which the bank’s student-lending arm would
offer interest-rate discounts to select Amazon shoppers. In Amazon's latest
attempt to entice shoppers into its premium Prime program, Wells Fargo will cut
half a percentage point from its interest rate on student loans to Amazon
customers who pay for a "Prime Student" subscription, which provides
the traditional Prime benefits such as free two-day shipping and access to
movies, television shows and photo storage.
