We live in increasingly gender fluid times, yet events to announce the sex of an unborn baby – with pink and blue smoke or sickly cupcakes – are on the rise. How did we get here?A couple recently set fire to 47,000 acres of southern Arizona, at a cost of $8m (£6.3m), what with firefighting and whatnot, but it wasn’t with a barbecue gone wrong or a candle, or any of those things that could happen to any of us. They razed their environs to the ground by shooting at a target full of coloured explosive as a means of announcing the gender of their forthcoming baby. This is exactly the kind of thing – recklessness and pointlessness vying to define it – you would expect a gender-revealing parent-to-be to do.In Australia, the main high-risk behaviour associated with the gender-reveal event is called the “burnout”, where you somehow – the technicalities escape me – send plumes of blue or pink smoke out of the back of your vehicle. Here in the UK, we have adapted to the new normal with cake: blue and pink iced muffins with swirling question marks, which all solidifies at some point into the answer, sometimes via a larger cake. Like the baby shower at which it typically occurs, this practice is deeply alien to the British; we have only adopted it because we heard there were baked goods involved. Continue reading...
Nearly $2bn allocated to swindler’s 27,000 victims to dateFunds recovered from Madoff’s friend, family and bankVictims of the fraudster Bernard Madoff are set to receive another $695.3m from a government compensation fund, the Department of Justice announced on Thursday.The payout – the third made by the Madoff Victim Fund – will be distributed starting Thursday to 27,000 victims of the infamous scammer around the world. It will bring the total paid out to victims so far to nearly $2bn, out of more than a total of $4bn that will eventually be paid. Continue reading...
3M‘s (NYSE: MMM) adjusted EBITDA margins have improved from 29.8% in FY 2013 to 33.1% in FY 2017, with growth reported in each of the years. While many conglomerates are having a tough time realizing incremental improvements, the same hasn’t been the case with 3M. Despite entering into new markets..
While stocks, and with a notable delay bonds, were happy to run with Powell's dovish reversal on Wednesday, one key market - arguably the most important one for financial conditions when it comes to the broader economy - has refused to respond. Earlier today, instead of reacting to what has been interpreted as the Fed Chair's "dovish repricing" of future rate hike expectations, 3 month USD Libor jumped over 3 basis points to 2.73813%, the highest level in more than ten years. About that easing: 3-month dollar Libor jumps 3.15bp to 2.73813% — zerohedge (@zerohedge) November 29, 2018 This was biggest daily jump in 3M Libor since March, and the second highest Libor increase of 2018. As a result, dollar funding conditions as measured by Libor-OIS have also tightened notably, as the spread widened to 36bp from 33.8bp prior session, and is once again approaching the levels seen during the spike earlier this year. The reason why rising Libor remains a major risk to financial conditions, is because as the table below shows, its footprint can be found everywhere, from OTC interest rate swaps, to leveraged loans - considered by many as the locus of the next credit crisis - to retail mortgages, to complex securitizations. According to the TBAC, just about $200 trillion in instruments are exposed to Libor's interest rate footprint. Most affected by this ongoing rise may be the bond market, which has also been hit with the double whammy of tumbling oil, which earlier today dipped below $50/barrel, a price widely seen as a "red-line" for junk bond investors, below which some may sell their exposure indiscriminately. And since energy is one of the largest components of the junk bond index, it is only a matter of time before contagion spread from oil, through highly leveraged energy producers to the rest of the market. In any case, the ongoing rise in Libor which absent a reversal soon will result in even tighter financial conditions and higher interest expense on trillions in floating rate debt, Bloomberg's Alex Harris notes that those traders who took the "dovish" Powell at his word, and pared Fed 2019 rate-hike bets to just barely one "may be getting way ahead of themselves." The reason: "apart from inflationary pressures and a strong jobs market, the need for extra policy firepower is another compelling reason for the U.S. central bank to stay the course. As such, expect the Dec 18-19 Eurodollar spread to fade some of the overnight narrowing that has taken it to a 10-month low." As Harris notes, the key event here was the central bankers' meeting at Sintra over the summer where Powell acknowledged that central banks would have less ammunition to fight the next downturn with rates still so close to zero. So will 2.5%-2.75% be enough of a springboard from which to cut rates during the next downturn? The market seems to think so; whether Powell agrees will be revealed in the Fed's next projection materials in December where unless the "dots" are slashed, the market will be in for a very painful hangover going into the holiday week.
3M (MMM) closed at $204.34 in the latest trading session, marking a +1.82% move from the prior day.
As chances of a Fed rate hike in December are pretty high and can cause some turmoil in the markets, these ETF areas could provide cushion to investors.
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The Market: “Good morning!! How was the long weekend?”Trader: “Great I guess, party at the in-laws. How ‘bout you?” The Market: “I spent the last 72 hours furthering my plans to cause you more pain.” Trader: “Really...Why?” The Market: “Bwaahhhhhhaaaaa….assume the position!!”We can get into the cycle of looking for where the next bounce is going to come from, or if this is the second inning of a larger market collapse. What seems clear to me is that this is what we can expect from the market--far greater swings and moves on lesser news. That is an indication that liquidity is drying up and there isn’t new money coming in to chase valuations higher. The high valuations and tight credit spreads that practically every market commentator highlighted in 2017 are finally taking their toll. Don’t take my word for it, take a look at the 5yr chat on the VIX. I can name from memory each of the events that are north of current levels. That’s not showing off my grasp on market history--it is an illustration of the fact that they were all *big* events. Or just *events”. They had a name. They had a story. This market seems like just the opposite. It is a selloff looking for a story. Is it anxiety over tech? Is it fear about the impact of a trade war? Or...is there just nobody on the bid anymore? My money is on the latter….yet what continues to befuddle me is the lack of movement or realized volatility in other asset classes. This is a regression of the vix against 3m/10yr swaption volatility. Quite frankly it is a pretty worthless regression analysis but I wanted to pull up a chart that illustrates just how low interest rate volatility is compared to equity volatility. There are also those that are looking for a USD to move higher as market stress increases. These two factors are probably two sides of the same coin. I went over some of the factors driving CAD and AUD last week. JPY has also traded by its own twisted logic...strengthening earlier this year on the back of of optimism about global manufacturing demand, local growth, and BoJ stealth tapering--and then as market stress increases, which has usually put a bid into the yen, it simply does nothing. What about the spicy stuff...high-beta EMFX? Surely the high risk/high carry currencies have sold off? Meh….not really. TRY has its own problems...if we throw that one out, the big “loser” in this chart is BRL at -1.5% YTD….a loss in the spot price you made up in carry!FTQ assets like treasuries aren’t rallying...rate vol isn’t moving much...and EMFX is showing unseasonable warmth. The rest of the picture isn’t quite adding up to me--at these levels I’d lean towards some combination of these assets--like buying receiver swaptions and selling EMFX as a better expression of a bearish view than simply selling stocks. On a more philosophical note, over the weekend I came across the excellent “Behavioural Investment” blog. It is a succinct, well-written set of posts on various investing issues that animate me--like cognitive biases, misplaced incentives, and the perils of generating alpha. The most recent post was entitled, “Things That Fund Managers Don’t Say Enough.” Here are a few of my favorites, with my editorial comments in italics: “It was a genuine mistake – our analysis was incorrect, but I will make sure I learn from this for future decisions.” CIOs don’t appreciate this level of humility from the PMs. Most would respond with “And next time I’ll make sure to hire someone that isn’t learning on my dime.” “Although the trade was profitable, the situation did not develop as I had imagined and its success was actually just a dose of good fortune” I always appreciated the bloomberg header of a good friend…”Better lucky than good!” There’s a guy that fears nothing. “I appreciate that recent market volatility feels significant, but I don’t want to focus on it because, on a ten year view, it is likely to seem meaningless”. More PMs would be willing to say this if they had a ten year lockup on their investors’ money. “I appreciate that I previously held a high level of confidence in this view, but, after careful analysis of new evidence, I realised that I was wrong”. There are dissertations to be written about this one...if you’re hired to manage money you’re self-selecting as smarter than the market--so when the market shows you that you’re wrong, it is hard to admit….because some important people think you’re smarter than the market!! How often do you see a professional athletes publicly admit they got worked by the competition? Pedro Martinez once said the Yankees treated him like they were “his Daddy,” and he literally never heard the end it. The lesson: know what you’re good at, stick to it. Stay humble, and don’t be afraid to admit mistakes within that circle of competence. And while there is good reason to stray outside of that circle from time to time--don’t allow you’re mistakes (and thus by definition, you’re successes) there to be big enough to have to be explained to someone more important that you.
Over the weekend, we looked at the notional amount of non-financial Libor-linked debt (so excluding the roughly $200 trillion in floating-rate derivatives which have little practical impact on the real world until there is a Lehman-like collateral chain break, of course at which point everyone is on the hook), to see what the real-world impact of the recent blow out in 3M USD Libor is on the business and household sector. To this end, JPM calculated that based on Fed data, there is a little under $8 trillion in pure Libor-related debt... ... and that a 35bps widening in the LIBOR-OIS spread could raise the business sector interest burden by $21 billion. As we wondered previously, "whether or not that modest amount in monetary tightening is enough to "break" the market remains to be seen." In other words, unless the Fed - and JPMorgan - have massively miscalculated how much floating-rate debt is outstanding, and how much more interest expense the rising LIBOR will prompt, the ongoing surge in Libor and Libor-OIS, should not have a systemic impact on the financial system, or economy. What about at the corporate borrower level? In an analysis released on Monday afternoon, Goldman's Ben Snider writes that while for equities in aggregate, rising borrowing costs pose only a modest headwind, "stocks with high variable rate debt have recently lagged in response to the move in borrowing costs." Goldman cautions that these stocks should struggle if borrowing costs continue to climb - which they will unless the Fed completely reverses course on its tightening strategy - amid a backdrop of elevated corporate leverage and tightening financial conditions. Indeed, while various macro Polyannas have said to ignore the blowout in both Libor and Libor-OIS because, drumroll, they are based on "technicals" and thus not a system risk to the banking sector (former Fed Chair Alan Greenspan once called the Libor-OIS "a barometer of fears of bank insolvency"), what they forget, and what Goldman demonstrates is what many traders already know well: the share prices of companies with high floating rate debt has mirrored the sharp fluctuation in short-term borrowing costs. This is shown below in the chart of 50 S&P 500 companies with floating rate bond debt (i.e. linked to Libor) amounting to more than 5% of total. Here are some details on how Goldman constructed the screen: We exclude Financials and Real Estate, and the screen captures stocks from every remaining sector except for Telecommunication Services. So far in 2018, as short-term rates have climbed, these stocks have lagged the S&P 500 by 320 bp (-4% vs. -1%). The group now trades at a 10% P/E multiple discount to the median S&P 500 stock (16.0x vs. 17.6x). These stocks should struggle if borrowing costs continue to climb, but may present a tactical value opportunity for investors who expect a reversion in spreads. The tightening in late March of the forward-looking FRA/OIS spread has been accompanied by a rebound of floating rate debt stocks and suggests investors expect some mean-reversion in borrowing costs. Goldman also notes that small-caps generally carry a larger share of floating rate debt than do large-caps, which may lead to a higher beta for the data set due to size considerations. In any event, the inverse correlation between tighter funding conditions (higher Libor spreads) and the stock underperformance of floating debt-heavy companies is unmistakable. Finally, traders who wish to hedge rising Libor by shorting those companies whose interest expense will keep rising alongside 3M USD Libor, in the process impairing their equity value, here is a list of the most vulnerable names.
Submitted by Shant Movsesian and Rajan Dhall MSTA FXDailyterminal.com Over the past week or so, the USD has been showing a little more resilience against the persistent selling, which in fairness seems to have little behind it as intra day traders push the greenback around in established ranges. Once we hit the extremes, it is a different story, and the DXY is back testing 90.00 again with a view to challenging stronger levels from 90.40, with the sub 89.00 move last Monday proving short lived. While the FOMC rate hike last month was priced in, the overreaction to the lack of a material movement in the dot plot from 3 to 4 rate hikes this year was reversed pretty quickly, and also highlighted the short term opportunism in the market at present. That said, the median dots have actually moved higher, but at this stage and with the data at hand, the market consensus remains at 3 for this year, which in itself should see some adjustment higher in the USD given median forecasts were for 2 hikes in the very early part of this year. We have however, seen correlations with rate differentials breaking down with currencies, but this could improve if next week's data out of the US can help longer end rates retain better levels in the face of the steepening rate path which should see the Fed Funds rate at 2.0% (at least) but the end of the year. At this point it is also worth noting the USD/JPY move away from the sub 105.00 lows seen last week, with the benchmark 10yr Note relinquishing support at the 2.80% mark. Technically, 3.0% was a strong obstacle, but with recent volatility returning to the equity markets, fixed income was set to benefit to some degree, so this is more to do with the risk relationship between the JPY and stocks, with the cross rates also holding up to a larger degree. Consequently, we are looking for greater re-evaluation of the EUR and GBP against the USD in coming weeks, where we see the overstretch clearly having run its course, as we highlighted in our EUR outlook last week. Some are pointing to widening USD funding spreads (LIBOR/OIS) as a source of recent USD strength, but this relationship has been anything but consistent when looking at 3m USD LIBOR vs OIS over bot the the short and longer term horizon, and we put much of this year's USD weakness down to the heavy selling of US Treasuries out of Japan - to the tune of $22.5bln over Dec-Jan according to recent TICS data. USD strength(ening) should also see some impact on the commodity markets, but at the present time, and due more to the US-China trade spat, is only having noticeable influence on industrial metals to the chagrin of the AUD. Here we have seen better performance in the USD over recent weeks, so its seems the weightings in the USD index are more reflective of more recent weakness - a departure from the overstated view that EUR gains are significantly down to a lack of confidence in the USD. Off the back of a (seemingly) revolving door at the White House, impulsive policy decisions and limited restraint in public spending, which naturally exacerbates the view/perception on the budget deficit, any material appreciation in the USD seems hard to envisage, and to that end, the best we can expect is a staggered recovery or as we continue to see more as a correction. Even so, with a little more relative (or comparative) sense of perspective, the domestic data argues for further adjustment against the EUR, CHF and the CHF, while we can also see gains vs the SEK and NZD, but less so the AUD (as already alluded to) and the CAD. Once markets return to full strength after the Easter break, we will have received the Mar ISM manufacturing PMI data, with the non manufacturing index due midweek - both serving as a taster to the main event at the end of the week which is the Mar payrolls report. Earnings growth is expected to fluctuate inside the 0.1-0.3% range, but if we see the unemployment rate slipping towards 4.0%, if not a little lower, it should ease the conscience of the Fed to keep the normalisation path on track, if not a touch steeper. Irrespective of this, our (long awaited) view is that whether we get 3 or 4 rate hikes, the USD valuations look out of kilter based on current econometrics (relatively speaking). Sentiment can outstretch these differentials for so long, and it now looks as though the greenback has a little more fight in its belly.
Когда трейдеры с трепетом смотрят на продолжающееся сглаживание кривой доходности, так как 2s10s падает ниже 50 б.п. … с доходностью десятилеток США, упавшей до 7-недельного минимума под 2,74% и сообщением, что, если ФРС не проведет параллельный сдвиг в кривой, то ФРС Пауэлла создаст рецессию еще двумя повышениями ставки, поскольку кривая инвертирует, снова остается в центре внимания рынок непокрытого фондирования в долларах, где 3M USD Libor только что сделал то, чего он не делал 13 лет. В 8am ET Libor увеличился с 2.3080% до 2.3118%, поднявшись 37-й день подряд и показал самую длинную полосу роста с 50-дневной полосы, которая закончилась в ноябре 2005 года. Libor вырос на 62 б.п. с конца 2017 года, шаг, который намного более острый, чем сдвиг фьючерсов на федеральные фонды или двухлетних трежерей. Кроме того, неумолимый рост в спреде Libor-OIS продолжает сигнализировать о том, что обычные пути финансирования по-прежнему частично блокируются — по техническим или системным причинам — даже при том, что overnight Libor-OIS снизилась до 59 б.п. с 59,3 б.п. днем раньше. В последней попытке объяснить рост в Libor, Goldman сегодня утром отметил, что всплеск ставки межбанковского кредитования был обусловлен падением спроса или озабоченностью потенциальным снижением «для краткосрочных активов банками-богатыми компаниями после принятия законодательства о налоговой реформе в декабре, «то, что мы говорили с октября прошлого года, и именно поэтому мы больше не считаем, что это объяснение достаточно, поскольку на рынке будет более чем достаточно времени, чтобы не только оценить влияние налоговой реформы, но и воспользоваться очевидным арбитражем; кроме того, как показано в приведенной ниже таблице, недавний поток выпуска T-Bill — еще одна причина, широко цитируемая для объяснения роста в Libor-OIS — вот-вот исчезнет.Другими словами, если Libor не сможет начать снижаться в апреле, можно с уверенностью предположить, что есть дополнительные факторы, которые определяют этот рынок. Между тем, еще одна потрясающая инверсия наблюдается на рынках, где на прошлой неделе 3-месячный Libor поднялся выше доходности двухлетних трежерей ...… инверсия, которая редко бывает когда-либо ...… и который предполагает, что, возможно, следует больше сосредоточиться на кривой Libor-10Y, чем крутизне / инверсии 2Y-10Y в качестве предвестника следующей рецессии.Наконец, возвращаясь к нынешнему уровню Libor, является ли причина его резкого движения системной или технической, остается нерелевантным в контексте общей картины: что имеет значение, как мы говорили более месяца назад, заключается в том, что более 300 триллионов долларов долговых инструменты, которые ссылаются на Libor, теперь платят гораздо больший процент, чем раньше, при этом двойным ударом стал резкий всплеск, что добавляет боли от движения. Более того, тот факт, что этот рост в Libor и Libor-OIS был намного длиннее, чем прогнозировали все так называемые эксперты, свидетельствует о том, что ужесточение денежно-кредитных условий намного больше, чем предполагает текущий уровень S&P. Действительно, один взгляд на цену акций Deutsche Bank, или рост в банковских CDS подтверждает это. Что вызывает вопрос: какой ещё рост Libor смогут переварить банки, рынки и ФРС, прежде чем что-то щелкнет, и ФРС вынуждена будет снизить ставки или возобновить QE? И, что еще более важно, должен ли Libor продолжать расти в апреле (или ускоряться), чтобы Уолл-стрит был вынужден признать, он действительно не знает, что стоит за ростом Libor (и Libor-OIS aka «межбанковский стресс»). перевод отсюда
Former Lloyds chief secures share of £2.3m bonus withheld in 2012
With traders looking in awe at the ongoing flattening in the yield curve, as the 2s10s drops below 50bps... ... with the 10Y sliding to a 7 week low under 2.74% and telegraphing that unless the Fed manages a parallel shift in the curve, that Powell Fed will create a recession with just 2 more rate hikes as the curve inverts, the action again remains squarely focused on the unsecured dollar funding market, where 3M USD Libor just did something it hasn't done in 13 years. At its 8am ET fixing, Libor increased from 2.3080% to 2.3118%, rising for the 37th straight day, and marking the longest consecutive string of advances since a 50-day streak that ended in November 2005. Libor is now up a whopping 62 bps since the end of 2017, a move that is far more acute than the shift in either Fed Fund futures or 2Y TSYs. Additionally, and as shown on this website, the relentless blowout in the Libor-OIS spread continues to signal that conventional funding pathways remain at least partially blocked - for either technical or systemic reasons - even if overnight Libor-OIS narrowed fractionally to 59bp from 59.3bp a day earlier. In the latest attempt to explain the move in Libor, Goldman this morning noted that the surge in the interbank lending rate has been driven by a drop in demand, or concern over a potential decline, "for short-duration assets by cash-rich companies following the passage of the tax reform legislation in December," something we have said since last October, which is also why we no longer believe this explanation is sufficient as the market will have had more than enough time to not only price the impact of tax reform, but also to take advantage of the gaping arb; furthermore, as shown in the chart below, the recent flood of T-Bill issuance - another reason widely cited for the blow out in Libor-OIS - is about to disappear. In other words, should Libor fail to tighten in April, one can safely assume that there are additional factors involved, which are also beyond the Base Erosion Anti-Abuse Tax or BEAT considerations, proposed recently by Zoltan Pozsar, which also will have been priced in by now. Meanwhile, another stunning inversion is being observed in the markets, where in the past week, 3-Month Libor has now also blown wide of 2Y Treasurys... ... an inversion that rarely if ever happens... ... and which suggests that one should perhaps be more focused on the Libor-10Y curve, than the steepness/inversion of the 2Y-10Y as a harbinger of the next recession. Finally, going back to the current level of Libor, whether the reason for its sharp move is systemic or technical remains irrelevant in the context of the big picture: what is relevant as we said over a month ago, is that over $300 trillion in debt instruments which reference Libor, are now paying far more in interest than they used to, with the double whammy being the sharp spike higher, which adds to the pain from the move. Furthermore, the fact that the move wider in both Libor and Libor-OIS has been far longer than all of the so-called experts predicted, suggests that the tightening in monetary conditions is far greater than the prevailing level of the S&P suggests. Indeed, one look at the stock price of Deutsche Bank, or the blow out in bank CDS confirms this. Which begs the question: how much more upside in Libor can banks, markets and the Fed stomach, before something snaps, and the Fed is forced to cut rates or proceed with more QE? And, even more importantly, should Libor continue to drift wider (or accelerate) in April, which is just around the corner, something which Forward Rate Agreement say will not happen, then the entire "technical" justification for the move in Libor can be thrown out, as Wall Street is forced to admit - once again - that aside from sounding confident and wearing an expensive suit to give the impression it knows what's going on, it really has no clue what is behind the Libor (and Libor-OIS aka "interbank stress") blow out.