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Hedge Fund Managers Lose Their Swagger - (www.bloomberg.com) In
six months, investors have withdrawn $16 billion. Doug Dillard followed the
path that once almost guaranteed entrance into the 1 Percent: Good college
(Georgetown), investment bank (Morgan Stanley), MBA (Harvard). Then a hedge
fund. A decade out of business school, he was heading Standard Pacific Capital,
a multibillion-dollar San Francisco firm that traded global stocks. It did well
by its clients, making money in 2008 as markets plummeted. But Dillard’s
returns—like most other hedge fund managers’—failed to keep pace in the
post-Great Recession bull market. Investors exited. In February, when assets
slid below $500 million, Dillard pulled the plug. “It has recently become clear
to both of us that sometimes there is a logical conclusion to even a good
thing,” he and his partner, Raj Venkatesan, wrote to clients.
Treasury’s Fannie and Freddie rip-off - (www.washingtonpost.com) The two federally chartered but privately owned
GSEs, which guarantee 80 percent of
American mortgages,
were created because Washington wanted to engineer — what could go wrong? —
more homeownership than market forces would produce. What could go wrong did,
and in 2008 the two GSEs floundered. In September 2008, the government rescued them with $187.5
billion and placed them in conservatorship, which is supposed to be temporary
and rehabilitative. A conserved entity should be returned to normal business in
private ownership.
Freight
Rail Traffic Plunges: Haunting Pictures of Transportation Recession - (www.wolfstreet.com) Total US rail traffic in April plunged 11.8%
from a year ago, the Association of American Railroads reported today. Carloads
of bulk commodities such as coal, oil, grains, and chemicals plummeted 16.1% to
944,339 units. The coal industry is in a horrible condition and cannot compete with US natural gas at
current prices. Coal-fired power plants are being retired. Demand for steam
coal is plunging. Major US coal miners – even the largest one – are now
bankrupt. So in April, carloads of coal plummeted 40% from the already
beaten-down levels a year ago. The AAR report:
Rail coal traffic continues to suffer due to low natural gas prices and high
coal stockpiles at power plants. Coal accounted for just 26% of non-intermodal
rail traffic for US railroads in April 2016, down from 36% in April 2015 and
45% as recently as late 2011.
Negative yielding bonds total near $10 trln,
Japan leads -Fitch - (www.reuters.com) The
sum of government bonds worldwide that carry negative yields was $9.9 trillion
in late April, with Japan accounting for two-thirds of the total and the rest
in Europe, Fitch Ratings said on Wednesday. Of that total on April 25, $6.8
trillion were in long-term bonds and $3.1 trillion short-dated maturities. Negative
yielding government debt was almost non-existent before central banks adopted
extraordinary policies such as massive bond purchases in the wake of the
2008-2009 global financial crisis. The hefty amount of negative-yielding
sovereign bonds in late April, due to unconventional policies adopted by the
Bank of Japan and the European Central Bank, has complicated the task of banks,
insurance companies, money market mutual funds and other investors, the rating
agency said in a report.
China Fertilizer Maker to Default on Bonds Amid
Rising Debt Woes - (www.bloomberg.com) A Chinese fertilizer maker said it
will default on bonds Thursday, becoming at least the eighth company to renege
on debt obligations in the nation this year as debt woes spread amid a
weakening economy. Inner Mongolia Nailun Group Inc. on Wednesday said that it
wouldn’t be able to meet demands of investors exercising an option for the
early repayment of notes on Thursday, according to a statement to the
Shanghai Stock Exchange. Chinese firms are struggling with record debt repayments
as Premier Li Keqiang seeks to wipe out zombie companies amid the weakest
economic growth in a quarter-century. Total defaults on local note payments
this year already exceed the tally for the whole of 2015, and there are
indications the number may increase further. Baoding Tianwei Yingli New Energy
Resources Co., which missed a note payment last year, said Thursday it is
uncertain if it can repay securities due May 12.
Google
Growing on Fumes: Something Is Rotten in the State of Online Advertising - (www.wolfstreet.com) A couple of months ago, I was going through
Google’s newly released 10-K filing. The night before, we had had an argument
with Philippe, the other co-founder of our start-up, about how ad dollars were
fueling a new kind of economy. We realized we had no clue of who was making
money, by what means, or how much. I just wanted to understand. What mesmerized
me were the sheer amounts of cash Google (ehm, Alphabet) was raking in: $75
billion dollars in revenue for 2015. For 2016, they’re set to generate as much as
the GDPs of Lithuania, Latvia and Estonia put together. That’s six million
people. Another thing that was weird: how vague Google was about how they
actually made all this money.
Italian banks extend share price rout - (www.ft.com) Italian
bank shares suffered another punishing day of trading on Tuesday, as a poorly
received capital raising prompted investor doubt over official efforts to
bolster the sector. The FTSE Italia All-Share banks index fell 3.7 per cent,
and has lost 6.6 per cent so far this week. UniCredit,
Italy’s largest bank by assets, fell 4.7 per cent. Falling share prices come
after a period in which Italian bank shares recovered some of their previous
losses. Atlante, a private fund designed to support the country’s banks, had
provided some reassurance that the ailing sector would be supported. “Markets
hate uncertainty and what we have right now is uncertainty,” said Anis
Lahlou-Abid, European equities portfolio manager at JPMorgan Asset Management.
“As long as there is a lack of clarity on how the situation is going to be
resolved, you’re unlikely to see any new re-rating [valuation]”.
The $571 Billion Debt Wall That Points to More
Defaults in China - (www.bloomberg.com) Chinese
debt investors are turning bearish at just the wrong time for the nation’s
corporate borrowers, which face a record 3.7 trillion yuan ($571 billion) of
local bond maturities through year-end. With this year’s biggest note payments
concentrated in some of the country’s most-cash strapped industries, China
needs buoyant markets to help its companies refinance. Instead, yields in April
rose at the fastest pace in more than a year and issuance tumbled 43 percent as
borrowers canceled 143 billion yuan of planned debt sales. Deteriorating
investor sentiment has heightened the risk of defaults in a market that’s
already seen at least seven companies renege on obligations this year, matching
the total for all of 2015. While government-run banks may step in to help
weaker borrowers, missed debt payments by three state-owned firms in the past
three months suggest policy makers are becoming more tolerant of corporate
failures as the economy slows.
Petrobras Boomtown Turns Desolate as Refinery's
Billions Vanish - (www.bloomberg.com) Located
just 30 miles east of Rio de Janeiro’s bustling Copacabana beach, Itaborai looks
like many oil boomtowns after the bust -- except the deserted stores and empty
glass towers that loom over this town of 220,000 speak of some bigger cataclysm
than the collapse of crude prices. “They said this would be the new oil
city,” says Jefferson Costa, one of scores of migrants from Brazil’s
impoverished north lured here by a multibillion-dollar petrochemical project
that was supposed to create more than 100,000 jobs. Work on the complex, known
as Comperj, has stopped, and unless new investors materialize, the single
refinery now standing may never produce a single drop of fuel. “It’s empty
inside,” says Costa, a plumber who lost his job six months ago when
construction came to a halt. “People say it will become a large warehouse.”
Puerto Rico Warns of More Defaults After
Missing May Payment - (www.bloomberg.com) Governor
Alejandro Garcia Padilla warned that Puerto Rico bond investors face a cascade
of defaults starting in July unless Congress passes legislation that
facilitates a restructuring of the commonwealth’s debt. The exhortation made
Monday in San Juan came a day after Garcia Padilla announced a moratorium on
the payment of $400 million in Government Development Bank debt that matured
Sunday. The governor said he was choosing to focus on providing essential
services as the commonwealth’s financial crisis worsens, rather than to pay
creditors. The default is the biggest yet by the island. The missed payment
opens the door to larger and more consequential defaults on general-obligation
bonds, which are protected by the island’s constitution.
Houston
Office Market Melts Down - (www.wolfstreet.com) Office leasing activity in Houston in the first
quarter plunged 25% from the already beaten-down levels a year ago, to 1.56
million square feet (msf), worse even than during the Financial Crisis,
according to commercial real estate services firm Savills
Studley.
That’s down 59% from the 3.8 msf of signed deals in the fourth quarter 2014,
back when the oil bust was still considered a blip and hadn’t yet impacted the
office market. The availability rate rose by 4 percentage points from a year
ago to 24.5%, or 47.4 msf for Greater Houston. A horrendous office glut! The
availability for Class A buildings jumped by 5.3 percentage points to 26.5%,
the “highest mark in more than a decade as sublease space continues to hit the
market.”
Three
Years After Going Public, Fairway Files Chapter 11 - (www.zerohedge.com) Back
in April 2013, during the height of the IPO scramble, the NYT gushed about
Fairway's just concluded IPO: "Until recently, Fairway was not much more
than a popular market on Manhattan’s Upper West Side, where residents went for
goods like smoked salmon, medjool dates and cheeses. Today, it is a
fast-growing 12-store grocery chain with ambitions of opening 300 outlets
across the country." Just over three years later, the once successful
IPO is now a distant memory and soon enough, so will the company behind it
because overnight Fairway Group Holdings filed for Chapter 11 bankruptcy
protection,
Freddie Mac Won't Pay Treasury Dividend After
$354 Million Loss – (www.bloomberg.com) Freddie Mac won’t make a dividend payment to
the U.S. Treasury Department after declining interest rates and widening
spreads on investments triggered a $354 million first-quarter loss for the
mortgage finance giant. Because the company’s net worth stood at $1 billion as
of March 31, it will escape having to draw on its government line of credit,
according to a regulatory filing Tuesday. Analysts forecasting the quarterly
loss had speculated that it might lead to a request for U.S. aid for the first
time since 2012 and rekindle calls to speed reform of the housing finance
market. While Freddie Mac reported $3.4 billion of net interest income in the
first quarter, that figure was overshadowed by a $4.6 billion decline in the
value of derivatives.
China statistics bureau halts some commodities
data amid probe - (www.reuters.com) China has
suspended the release of output data for several key commodities amid a
crackdown on the illegal sale of state statistics by government officials,
raising further concerns about transparency in the world's second-largest
economy. With Chinese economic growth at a 25-year low, the lack of such data
makes it increasingly difficult for economists to gauge the strength of local
demand as Beijing tries to avert a faster slowdown. Key monthly output numbers
for several oil and metal products over the first quarter have still not been
published, and the National Bureau of Statistics (NBS) has also failed to
release regional data for products like coal, steel and electricity since the
turn of the year.
Puerto Rico Will Default on Bank Debt as Crisis
Intensifies - (www.bloomberg.com) Puerto
Rico will default on a $422 million bond payment for its Government Development
Bank, escalating the pressure on investors to negotiate a broad debt
restructuring and on Congress to act on legislation to help lessen the island’s
financial crisis. Governor Alejandro Garcia Padilla invoked a debt moratorium
law approved last month, saying during a televised address Sunday that the
commonwealth needs to focus on providing essential services. The bank, already
operating under an emergency period, has until the end of Monday to make the
payment. “Faced with the inability to meet the demands of our creditors and the
needs of our people, I had to make a choice,” Garcia Padilla said during his
10-minute speech. “I decided that essential services for the 3.5 million
American citizens in Puerto Rico came first.”
Iraq declares state of emergency as protesters
storm Green Zone, parliament - (www.usatoday.com) Iraqi
Prime Minister Haider Al-Abadi said Saturday that security had been
restored in Baghdad but called on demonstrators who stormed the
capital's heavily fortified Green Zone and broke into parliament to return
to "designated protest areas." The prime
minister issued the appeal on Twitter after hours of rowdy protests
by hundreds of people chanting and waving Iraqi flags in the highly protected
zone that houses government ministries, parliament and foreign embassies,
including the U.S. embassy. Security forces generally appeared to maintain
restraint amid the chaos, but did use tear gas against crowds at one
entrance to the Green Zone, according to the Associated Press.
Former Goldman Sachs president says our
economic situation 'will end in tears' - (finance.yahoo.com) Taking
the long view is one of those easier-said-than-done propositions, right? For
instance, while you might think that the economy has pretty much recovered from
the Great Recession of 2008, one prominent financier thinks the problems that
caused that big meltdown have been papered over and will come back to hurt us
again. And then there’s the little issue of China’s economy surpassing ours
soon. John Thornton, the former president of Goldman Sachs (GS), who likes to take the long view, says he’s
“feeling uneasy” about the global economy right now and thinks we’re living on
borrowed time. “After the events of 2008, really since then, the central banks
either collectively or individually have tried to implement policies which
would, in effect, buy time for individual governments to take the actions they
should take to put their houses in order,” Thornton says.
Saudis Heed an Oil Warning From History - (www.bloomberg.com) After
the failure of the Doha deal to freeze oil production, Saudi Arabia's output is
now almost certain to rise in the coming months. It wants to regain market
share in China and meet the summer peak in its own domestic demand without
cutting exports. As I wrote a couple of weeks ago, it's no surprise that Saudi
Arabia refused to join the output freeze championed by Venezuela and Russia. It
has little interest in seeing oil prices rise far enough to throw a lifeline to
high-cost producers, who are beginning to buckle. With the failure
in Doha, the kingdom will probably lift production over the
summer, helping prolong the oil glut. The use of crude for Saudi's
domestic power generation usually rises more than 400,000 barrels per day
between winter and summer, and we can expect oil production to follow a similar
path this year to preserve the volume available to export.
US banks sound caution on commercial property
loans - (www.ft.com) Top
US bankers have sounded caution over commercial real estate lending as concerns
rise that bubbles are forming in parts of the country’s property market. Lenders
have helped fund a boom in recent years in cities such as New York and Miami,
where luxury high rises have sprung up across the skyline. But
executives at several banks signalled during results season that they were
tightening up standards for CRE lending, which includes mortgages secured
against big apartment and office developments. “We want to be careful on CRE,”
said Brian Moynihan, chief executive of Bank of America,
which has a $58bn commercial real estate portfolio. Richard Davis, chief
executive of US Bancorp,
told investors that the country’s fifth-largest lender by assets was being
“very watchful”. “We’re protecting what we have, and probably being more
careful,” he added. “A lot of the banks are growing that [CRE] a lot. It’s been
flat for us.”
New York Luxury-Apartment Glut Hits Landlord
Equity Residential - (www.bloomberg.com) A
cool-down in Manhattan’s apartment-rental market is hitting the bottom line
of Equity Residential as the landlord is forced to offer concessions to
tenants who suddenly have a lot of competition to choose from. “New York City
just turned very quickly and more deeply than we expected,” Chief Operating
Officer David Santee said on a conference call Wednesday to discuss
first-quarter earnings. With the city accounting for about 20 percent of the
firm’s revenue, “if you can’t achieve 3 or 4 percent rate growth there, then
it’s going to impact your full-year growth.” Equity Residential is among the
landlords having to work harder to
secure tenants in Manhattan as a glut of new apartments gives residents more
bargaining power.
China's $1 Trillion Bond Leverage Unwinds as
Pimco Senses Panic - (www.bloomberg.com) China’s
bond traders are getting a painful lesson on the dangers of leverage. After
years of racking up profits by borrowing cheaply and plowing the proceeds into
higher-yielding debt, investors are now rushing to unwind those wagers amid the
deepest selloff in 13 months. The bets are getting squeezed from both sides as
bond prices sink and borrowing costs rise to one-year highs in the 8 trillion
yuan ($1.2 trillion) market for repurchase agreements, used by traders to
amplify their buying power. While a reduction in leveraged wagers is arguably
good for China’s long-term financial stability, it risks fueling a downward
spiral in a market that Pacific Investment Management Co. says already shows
signs of panic amid mounting default concerns. The pullback
challenges government efforts to revive economic growth with cheap credit and
could hardly come at a worse time for Chinese companies on the hook for a
record 547 billion yuan of maturing onshore notes in May.
Currency Trading's 20% Drop Raises Specter of
Flash-Crash Future - (www.bloomberg.com) The
world’s biggest financial market has shrunk by 20 percent during the past year
and a half. Currency trading via CME Group Inc., ICAP Plc and Thomson
Reuters Corp. -- three of the largest trading platforms -- fell to $538
billion per day last month, from more than $669 billion in September
2014, according to data compiled by Bloomberg. The figures show the extent
of the slump in a market that this month saw some banks report less client
activity, just as the Bank of International Settlements prepares its definitive
triennial survey of global volumes. All of this is making bouts of extreme
volatility more commonplace as traders find it harder to enter or exit
positions without affecting prices. As recently as January, the South African
rand tumbled 9
percent in 15 minutes before rebounding; New Zealand’s dollar had its own flash
crash in August; while the Reserve Bank of Australia concluded that illiquidity caused exchange-rate
jolts before three interest-rate decisions last year.
Asia's Market Giants Turn Into $11 Trillion
Headache for Traders - (www.bloomberg.com) Asia’s
two biggest stock markets are jostling for an ignominious prize. Japan’s Topix
index and China’s Shanghai Composite Index have tumbled more than 13 percent in
2016 to rank along Nigerian and Mongolian shares as the world’s worst
performers. In the two years through the end of December, the Asian gauges
outperformed MSCI’s global measure by at least 20 percentage points. The Bank
of Japan stood pat on monetary policy Thursday, sending Tokyo stocks tumbling,
while the Shanghai measure fell to a one-month low. The benchmark
gauges in two of the world’s largest stock markets, which have a combined
value of almost $11 trillion, are declining as investors detect a reduced
appetite from policy makers to boost monetary stimulus. Thursday’s BOJ decision
was the first under Governor Haruhiko Kuroda where a majority of economists expected
easing that didn’t materialize,
while strategists now see China’s central bank keeping its main interest rate
on hold until the fourth quarter.
As Valeant Tumbles, So Does Bill Ackman’s Hedge
Fund Herd - (www.nytimes.com) The billionaire investor William A. Ackman has
become the unofficial leader of a thundering herd that has lost billions of
dollars betting on Valeant Pharmaceuticals over the past year. The 49-year-old
founder of Pershing Square Capital Management, the $12.5 billion hedge fund,
found himself going to bat again for Valeant on Wednesday when he testified before
Congress about Valeant’s controversial drug pricing policies, which have
included inflating the prices of vital heart medicines right before learning
that generic equivalents were coming to the market. Mr. Ackman’s firm has lost
billions of dollars on Valeant. Shares of the Canadian drug maker have
plummeted 85 percent since he first pitched the company as one of his best
investment ideas at a hedge fund charity event last year.
Canary
in the US Housing Market: Canadian Snowbirds Cash Out - (www.wolfstreet.com) Naples,
Florida, a wealthy beach town on the Gulf of Mexico, known for its golf courses
and high-end shopping, and a favorite hangout for Canadian snowbirds trying to
escape their cold winters, has a problem: Pending home sales in the first
quarter plunged 23% from a year ago, according to the Naples Area Board of Realtors. Closed sales plunged 19%. Overall inventory
soared 33%. In the two mid-price ranges from $300,000 to $1 million, inventory
soared about 42%! But sellers haven’t gotten the memo yet: even as sales crash
and as unsold inventories pile up, the median closing price rose 8%. That’s how
housing busts start out. Buyers lose interest at these prices and evaporate,
while sellers go into denial. As prices still rise, volume collapses. When
sellers begin accepting the new reality, or when they’re forced to sell, then
prices are getting slashed until enough buyers materialize.
It's the part of incoming Valeant
Pharmaceuticals CEO Joe Papa's pay package that makes it a dangerous deal. Bloomberg reported Wednesday that Papa agreed to a $67
million pay package. But that's not the most important part here. If
Valeant's shares reach a price of $270, Papa will get stock
equaling $500 million. That's right. If Papa manages to get the embattled
company's stock up by eight times its current level, he'll take
home a staggering amount of money. This news broke at the end
of Wednesday's Senate hearing for Valeant, the former Wall Street darling
under fire for buying up drugs and then jacking up their prices by (sometimes)
triple digit percentages.
The
European Union always was a CIA project, as Brexiteers discover - (www.telegraph.co.uk) Brexiteers
should have been prepared for the shattering intervention of the US. The
European Union always was an American project... Nor are many aware of
declassified documents from the State Department archives showing that US
intelligence funded the European movement secretly for decades, and worked
aggressively behind the scenes to push Britain into the project. As this
newspaper first reported when the treasure became available, one memorandum
dated July 26, 1950, reveals a campaign to promote a full-fledged European
parliament. It is signed by Gen William J Donovan, head of the American wartime
Office of Strategic Services, precursor of the Central Inteligence Agency.
Laid-Off Oil Workers Struggle to Pay Loans,
Credit Cards - (online.wsj.com) Rising unemployment in the energy sector is pushing
up loan delinquencies and raising the risk of new losses for banks. The slump
in crude prices is starting to show up as missed payments by consumers in the
oil patch. In states from Oklahoma and Texas to North Dakota and Wyoming,
rising unemployment in the energy sector is pushing up loan delinquencies and
raising the risk of new losses for banks. Wells Fargo & Co. this month reported an increase
in borrowers falling behind on payments in areas including Houston and
parts of Alaska. J.P. Morgan Chase & Co. said auto-loan delinquency
rates picked up in some energy-related markets. Overall, energy-dependent
states are posting delinquency rates that in many cases exceed the
national average, according to data prepared for The Wall Street Journal by
credit bureau TransUnion.
Fed Leaves Door Open for June Increase, Monitors Global Outlook
- (www.bloomberg.com)
Fed
signals no rush to raise rates as pace of U.S. recovery moderates - (www.reuters.com)
Oil Climbs Above $45 Amid U.S. Crude Output Drop, Fed Statement- (www.bloomberg.com)
U.S. Stocks Rise as Fed Reassures on Gradual Rate Path, Economy
- (www.bloomberg.com)
