Friday August 26 2016 Housing and Economic stories

TOP STORIES:

Yield Hunt Emboldens Companies to Whittle Away Loan Safeguards - (www.bloomberg.com) Riskier companies are increasingly getting credit agreements that allow them to raise the amount of future cost savings to appear more creditworthy, boosting potential losses for investors. The tweaks make it easier for borrowers to stay in compliance with their loan terms and add more debt, according to Charles Tricomi, a senior analyst at covenant research firm Xtract Research. “There is too much money chasing too few loans,” Tricomi said. “Lenders are really at a disadvantage and have to agree to these terms significantly against their own interest, terms that they should be fighting off.” Whittling away standards that keep a lid on leverage levels may leave investors with soured assets, according to Tricomi. This is happening just as the credit cycle is peaking, prompting warnings from S&P Global Ratings that companies in the U.S. have taken on so much debt that they’re at least as vulnerable to defaults and downgrades as they were leading up to the 2008 financial crisis.

Former China boom town learns hard lessons about service economy - (www.reuters.com) At the section of the Great Wall of China that runs through Yulin, tour guide Gao Jing says she tried to learn English in expectation of the increased number of overseas visitors the city planned to attract as part of its economic transformation. But the international tourists haven't come to Yulin, once a coal, oil and natural gas boom town in the northwestern province of Shaanxi, and in their absence she has forgotten her English. "Sure, there's lots of talk about developing our tourism industry but walking the talk is a different matter," said Gao, who's been a tour guide there for 10 years. "There's an immediate return on investment if you invest in energy. But you may need to wait 10, or even 100 years, if you want to see a return on investment in tourism." The experience of Yulin carries a lesson for other Chinese cities trying to re-tool their economies – establishing a vibrant services sector takes time, and in the meantime you cannot afford to abandon your industrial strengths.

It’s Getting Scarily Quiet in the Stock Market - (www.wsj.com) It’s quiet. Too quiet. Even by the standards of August, the S&P 500 has been remarkably tranquil, moving by less than in any other 30-day period in more than two decades. Multiple measures show the calm. Realized volatility has collapsed to levels last seen in September 1995, when a painful series of rate increases had been replaced by a pause between Federal Reserve cuts. With the S&P 500 down slightly on Monday, the index has had only five daily moves of more than 0.5% in either direction in the past 30 trading sessions, equaling the lowest since October 1995. And trading volumes have dropped far more than is usual for the summer break. This lull in activity looks to many like yet another symptom of central banks pouring money on troubled markets. Why worry when you can sit back, collect the dividend and be sure the policy makers have your back? Yet a lack of worry itself is often a reason for concern.

Revealed: ECB Secretly Hands Cash to Select Corporations - (www.wolfstreet.com) In June, the ECB began buying the bonds of some of the most powerful companies in Europe as well as the European subsidiaries of foreign multinationals. This pushed the average yield on euro investment-grade corporate debt to 0.65%. Large quantities of highly rated corporate debt with shorter maturities are trading at negative yields, where brainwashed investors engage in the absurdity of paying for the privilege of lending money to corporations. By August 12, the ECB had handed out over €16 billion in freshly printed money in exchange for corporate bonds. Throughout, the public was given to understand that the ECB was buying already-issued bonds trading in secondary markets. But the public has been fooled. Now it has been revealed by The Wall Street Journal that the ECB has also secretly been buying bonds directly from companies, thus handing them directly its freshly printed money.

Why No One Trusts China's Markets - (www.bloomberg.com) When China's top securities regulator said recently that it plans to delist Dandong Xintai Electric Co. for falsifying initial public offering documents, it didn't grab many headlines. But it suggested some far-reaching changes may be afoot. Xintai is the first company to be expelled from Shenzhen's ChiNext board for such an offense, and one of only a handful that have ever been delisted in China. Its expulsion suggests that regulators are facing up to some unfortunate truths about China's capital markets. Those markets are, in important ways, only superficially market-like. In the stock market, the government has intervened on a huge scale to prop up prices. Investment in the bond market is overwhelmingly directed to state-owned enterprises. There's no derivatives market to speak of. Financial disclosures are often implausible, suspicions of insider trading are rife and doubts about corporate governance are widespread.

OTHER STORIES:

Dollar Gains, Stocks Fall as Fischer Signals Fed Hike; Oil Sinks - (www.bloomberg.com)
Asian shares slip, dollar stands tall on Fed hike bets - (www.reuters.com)
Emerging Assets Fall for Second Day After Hawkish Fed Comments - (www.bloomberg.com)
Mexico GDP Falls for First Time in 3 Years on Slower Services - (www.bloomberg.com)

Why No One Trusts China's Markets - (www.bloomberg.com)
China to strengthen Communist Party's role in non-govt bodies - (www.reuters.com)
To Crack Down on Securities Fraud, States Reward Whistle-Blowers - (www.nytimes.com)