Baltic Dry Index. 1167 +21 Brent Crude 66.27
J. K. Galbraith. The Great Crash: 1929.
It’s up, it’s down,
it’s up, it’s down, more on our yoyo stock markets, and all for no reason
except algo traders desperately trying to steal each other’s lunch. Below today’s
instalment in algo computerised trading insanity. What could possibly go wrong?
Plenty. We seem to have entered the age
of the everywhere fraud and scandal. Is there an honest man left anywhere on
any continent?
I could see that,
if not actually disgruntled, the market was far from being gruntled.
With
apologies to P. G. Wodehouse.
Asian Stocks Rise as Traders Weather Higher Yields: Markets Wrap
By Cormac Mullen
Updated on 23 February 2018, 04:49 GMT
Asian stocks look set to close out a lackluster week on a positive note
on Friday as investors continue to debate the outlook for central bank policy
normalization and the impact of higher bond yields.
The MSCI Asia Pacific Index rose as equities climbed in Tokyo, Hong
Kong, Sydney and Seoul. The U.S. offered little fresh direction overnight, with
the S&P 500 Index closing just in the green, after losing most gains for a
fourth straight day in afternoon trading. The dollar, which has got some
support this week from higher Treasury yields, dropped on Thursday and is little
changed Friday. Ten-year U.S. yields remain near their highest since 2014.
Interest-rate-hike jitters returned to markets after minutes of the Federal Reserve’s January meeting indicated the central bank is confident the economy is strengthening. Subsequent data confirmed that view, but also brought signs of rising inflation, cutting against the long-held view that it will remain short of policy makers’ targets.
“Investors are just nervous about interest rates,” said Paul Nolte, a portfolio manager at Kingsview Asset Management in Chicago. “Everybody is waiting for more economic data to confirm or deny whatever the Fed position is. It’s a big case of the nerves.”
Elsewhere, the euro slipped after minutes from the European Central Bank showed officials continue to lay the ground for a shift in policy language in the first half of the year. Bitcoin fell below $10,000.
More
Next in another sign that everyone is twitchy and gun
shy, a long term bull talks up his trading book, but gets some caution on the
record in case he’s wrong. There is nothing new under the sun.
“Those
who know don't tell, and those who tell don't know.”
Michael Lewis
Head of world’s largest hedge fund says U.S. in a ‘pre-bubble phase’ with a 70% chance of recession
Published: Feb 22, 2018 4:49 p.m. ET
Bridgewater Associates founder Ray Dalio recently said he sees a growing
chance of a recession as the U.S. enters a “pre-bubble stage.”“I think we are in a pre-bubble stage that could go into a bubble stage,” the hedge-fund manager said during a Harvard Kennedy School’s Institute of Politics on Wednesday, according to a Reuters report.
Dalio, whose hedge fund manages some $160 billion, making it the world’s largest fund, pegged the probability of a recession at 70%. A recession is sometimes technically defined as two consecutive quarters of economic contraction, however, many economists define such a pullback in growth as a significant fall in activity across the economy that lasts more than a few months.
Last month, Dalio suggested that investors would “feel pretty stupid,” if they were holding cash as the stock market was rocketing to fresh heights. However, the Dow Jones Industrial Average DJIA, +0.66% the S&P 500 index SPX, +0.10% and the Nasdaq Composite Index COMP, -0.11% all slipped into correction territory, characterized as a drop of at least 10% from a recent peak earlier this month. Stocks have recovered since that downdraft but are still sharply off their recent peaks.
Dalio’s recession comments echo remarks he has made over in a LinkedIn post, where he wrote that “the risks of a recession in the next 18-24 months are rising.”
He also offered a similar warning in July, citing the potential for a policy mistake by the Federal Reserve as it looks to normalize interest rates from ultralow levels in the wake of the 2007-09 financial crisis.
More
In Asia news, is the giant China Ponzi scheme finally
cracking? How many more shoes are yet to drop? Is India the new China?
China Regulator Seizes Anbang, Chairman Faces Fraud Prosecution
Bloomberg News
Updated on 23 February 2018, 04:29 GMT
China’s government will take temporary control of Anbang Insurance Group Co.
and prosecute founder Wu Xiaohui for alleged fraud, cementing the downfall of a
politically-connected dealmaker whose aggressive global expansion came to
symbolize the financial overreach of China’s debt-laden conglomerates.The move adds a high-profile scalp to President Xi Jinping’s anti-corruption drive and allows the government to protect thousands of Chinese citizens who funded Anbang’s meteoric rise by piling into its high-yield investment products. It suggests that after months of clamping down on acquisitive non-state companies, China is increasingly acting to insulate the economy from their shaky finances.
It’s a remarkable turn for Anbang, which burst onto the global scene with the purchase of New York’s iconic Waldorf Astoria hotel in 2014 and only a year ago was in talks to invest in a company owned by the family of Jared Kushner, U.S. President Donald Trump’s son-in-law and senior adviser.
Chinese regulators announced on Friday that they would take over Anbang for at least a year and remove Wu from his role as chairman. Wu, who was detained by authorities in June, was charged with alleged fundraising fraud and embezzlement by Shanghai prosecutors.
Under Wu, Anbang came to epitomize the voracious Chinese appetite for overseas acquisitions that saw trophy assets snapped up around the world -- sometimes at prices that left observers scratching their heads. The full cost of that headlong spree started becoming clear last year as Chinese authorities, alarmed by mounting financial risks, slammed the brakes on Anbang and peers including HNA Group.
Wu’s links to the Chinese political elite became fodder for media scrutiny as his ambitions grew, with acquisitions ranging from the Waldorf to insurers in Korea and the Netherlands. Wu established ties with the family of reform leader Deng Xiaoping after marrying Deng’s granddaughter Zhuo Ran.
More
Bank Fraud Adds to Rupee's Woes as Lenders May Curb Trade Credit
By Subhadip Sircar and Abhishek VishnoiThere’s concern that banks won’t roll-over existing trade credit as they increase scrutiny of short-term borrowing facilities linked to imports or exports in the wake of the fraudulent transactions at Punjab National Bank. Fewer rollovers have hurt the rupee in the past two weeks, Credit Suisse analysts including Neelkanth Mishra wrote in a note Friday.
The scam involved jeweler Nirav Modi, in connivance with rogue bank employees, using fake PNB guarantees worth about $2 billion to obtain loans from the overseas branches of Indian banks, according to documents made public or seen by Bloomberg.
The $2 billion fraud unearthed at Indian lender is casting its shadow over the rupee, already the second-worst performer in Asia this month, as banks tighten the availability of trade finance.
There’s concern that banks won’t roll-over existing trade credit as they increase scrutiny of short-term borrowing facilities linked to imports or exports in the wake of the fraudulent transactions at Punjab National Bank. Fewer rollovers have hurt the rupee in the past two weeks, Credit Suisse analysts including Neelkanth Mishra wrote in a note Friday.
The scam involved jeweler Nirav Modi, in connivance with rogue bank employees, using fake PNB guarantees worth about $2 billion to obtain loans from the overseas branches of Indian banks, according to documents made public or seen by Bloomberg.
More
Finally, do you feel
lucky gambler, do you? Do you fancy
picking up a few pennies in front of the Fed’s steamroller?
Bondageddon Is Closer Than You Think. Watch the 30-Year
Yields are approaching
an important line in the sand.
By Marcus Ashworth
22 February 2018, 10:23 GMT
Bond traders have been absolutely riveted to the U.S. 10-year and it's
hair-raising creep to 3 percent.
While that note's not exactly a sideshow, they should really be
diverting some of their focus to the 30 year.
While both securities have risen 50 basis points this year, the 30-year
is now within touching distance of highs reached in 2015, 2016 and 2017. This
3.24 percent level is the dividing line between a fairly orderly bond sell-off
and a proper rout -- the latter has the capacity to spill over into stocks and
even potentially signal a credit crunch.
But before we get to bondageddon there are some reasons to hope that, at
least initially, the march higher in yields might take a breather.
---- Investors are digesting $258 billion of Treasury bill and bond supply this week, culminating in Thursday's $29 billion seven-year auction. Normally, once a hefty belt of issuance is out of the way the market often retraces to lower yields.
Month-end is approaching, when many funds rejig their asset allocation between stocks and bonds. This should benefit fixed income this month as it has been the clear underperformer. Barclays Bank analysts point out there is a large duration jump in most key U.S. Treasury indexes at the end of the month, which should spur more buying than usual at the long end to make sure funds maintain their maturity targets.
Japanese politics are also an important force. Koichi Hamada, policy adviser to Prime Minister Shinzo Abe, said Thursday the Bank of Japan should consider buying foreign bonds, according to Reuters. While this idea has been kicking around for some time, that it's even reached the proposal stage is a clear sign that the stronger yen is worrying Japanese officials.
----
All these factors may not be enough to stop a powerful trend towards higher
yields as the Federal Reserve maintains its hiking policy, but it might prompt
a brief respite from the one-way traffic.
“The
voice of finance seemed to call to me, but it was a wrong number.”
With apologies to P. G. Wodehouse.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Today, what if Carillion is just one among many?
Did Spain start the ball rolling last year? Which construction company is next
in the daisy chain? And with interest rates “normalising” everywhere except
Japan, that “which” is not “if” but “when.”
The
ideas of debtor and creditor as to what constitutes a good time never coincide.
P. G.
Wodehouse.
On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold
by Don Quijones • Feb 17, 2018
What happens if cases like this prove to be the rule rather than the exception?
Spain appears to have a brand-new Abengoa — the imploded energy giant whose fabulous accounting tricks pushed creditors into a black hole — on its hands: Isolux was until recently a fairly large privately owned infrastructure company with operations spanning the globe.When the group declared bankruptcy last July, its cash flow in Spain was barely enough to cover a month’s operating costs. The group had a a total workforce of 3,884 and 119 infrastructure projects under development of which 39 were still operational and the remaining 90 had been halted.
The company tried to reduce its debt addiction through agreements with investment funds but they fell through. It also made two attempts to go public, in Brazil and Spain. Both failed.
The bankruptcy proceedings affected seven subsidiaries. At the time, the company stated that it owed €405 million to suppliers, that its total financial debt — including those companies not included under the Spanish Insolvency Act filing — was €1.3 billion, of which €557 million was associated with project financing, and that the total deficit on the group’s balance sheet was about €800 million.
Turns out, according to the bankruptcy receivers, the shortfall is actually €3.8 billion — four-and-a-half times the company’s original estimate — and the group’s total debt, at €5.7 billion, is over €4 billion more than the amount stated by the company 10 months ago.
This amount does not include the group’s dual or contingent liabilities. The receiver’s report concludes that the current situation will probably culminate in the liquidation of the entire group.
How did all this come to pass? According to the receiver’s report, the collapse of the real estate bubble in Spain and the drastic reduction in public work tenders during the crisis led Isolux to massively expand its international operations, as many large Spanish companies did in the aftermath of the housing bubble collapse.
The one problem with this plan was that Spain’s public tender model for large infrastructure projects — in which bidding companies habitually underestimate total costs when submitting bids and then ask (and are invariably given) more money later — is not endorsed in many other counties, as Spanish-led consortiums discovered in places as far flung as Panama and Saudi Arabia, where Isolux was, until recently, leading a consortium to build two of Mecca’s metro lines.
Inevitably, many of the international projects failed to provide the sort of margins that companies like Isolux were traditionally accustomed to. This, together with the high financing needed for the development of concessions, led the group to take on unwieldy levels of debt.
---- Now, what’s left of Isolux will be auctioned off to recompense its more than 2,000 creditors. At the front of the line will be the group’s lenders. The banks with the biggest exposure are Santander (€640 million), Caixabank (€350 million), and Bankia (€335 million) with a 28% stake in the company. Those figures are based on the original estimate of the group’s debt, but that debt has since grown four-fold and it’s still not clear who is exactly owed what.
What is becoming clear is that more and more highly leveraged companies, in particular in high-cost sectors such as construction and infrastructure, are concealing the true extent of their debt exposure. It’s only when these companies collapse under the unbearable weight of that debt that a true picture of their financial health begins to emerge.
That’s what happened with Abengoa two years ago. More recently, the same happened with the UK infrastructure giant Carillion, which collapsed in free-fall fashion last month. And now it appears to be happening with Isolux, too.
The question is what happens if cases like these turn out to be the rule rather than the exception? In the wake of Carillion’s demise, banks are beginning to sit up and pay attention, meaning that credit could become a lot harder to come by for large construction firms. If many of these companies are indeed following the Carillion rule book, overestimating revenues, cash and assets and under-reporting debt, a tightening credit environment is likely to make life even more difficult.
More
"We finished the
year, and we reported that we had $17 billion of cash sitting at the bank's
parent company as a liquidity cushion. As the year has gone on, that liquidity
cushion has been virtually unchanged."
Alan Schwartz, CEO Bear Stearns,
March 12, 2008. Bust March 16, 2008.
Technology Update.
With events happening fast in the
development of solar power and graphene, I’ve added this section. Updates as
they get reported. Is converting sunlight to usable cheap AC or DC energy
mankind’s future from the 21st century onwards?
Splitting crystals for 2-D metallic conductivity
Adding oxygen atoms to a perovskite-like crystal material splits it into layers, giving it unique electrical properties
Date:
February 20, 2018
Source:
Tohoku University
Summary:
Adding oxygen atoms to a perovskite-like crystal material splits it into
layers, giving it unique electrical properties.
Sheets of electrons that are highly mobile in only two dimensions, known
as 2D electron gas, have unique properties that can be leveraged for faster and
novel electronic devices. Researchers have been exploring 2D electron gas,
which was only discovered in 2004, to see how it can be used in
superconductors, actuators, and electronic memory devices, among others.
Researchers at Japan's Tohoku University, with an international team of
colleagues, recently identified the atomic structure of a group of
perovskite-related materials showing interesting 2D conductive properties.
The materials are made of strontium, niobium and oxygen atoms, with a
layered structure derived from perovskite. These strontium niobate compounds
show promise for developing advanced electronics because of their
'quasi-one-dimensional' metallic conductivity.
Yuichi Ikuhara of Tohoku University's Advanced Institute for Materials
Research with Johannes Georg Bednorz of Zürich Research Laboratory and
colleagues used atom-resolved scanning transmission electron microscopy
combined with theoretical calculations to learn how adding oxygen atoms to
strontium niobates affects their conductivity. Four different materials formed
depending on the concentration of oxygen atoms.
The researchers found that three of the materials were conductors of
electricity while the fourth was an insulator.
----
2D conducting layers are commonly formed by creating an interface between two
insulators. It should now be possible to achieve the same goal by segmenting 3D
conducting materials into stacks of 2D conducting layers separated by
insulating layers, the researchers say in their study published in the journal ACS
Nano. This could lead to applications in the development of 2D electrical
conducting materials and devices.
More
Another weekend and rising
scandals everywhere. From Latvia to India, From America to China and Australia.
What does that foretell of the future?
Have a great weekend everyone.
In more polite
circles, John Jerk and his brother are called “the little fellows” or “the
odd-lotters” or “the small investors.” I wish I knew Mr. Jerk and his brother.
They live in some place called the Hinterlands, and everything they do is
wrong. They buy when the smart people sell, they sell when the smart people
buy, and they panic at exactly the wrong time. There are services that make a
very good living out of charting the activity of Mr. J. and his poor brother.
If I knew them I would give them room and board and consult them…. I would push
the pheasant and champagne through the little hatch of his cell and ask Mr. J.
what he was going to do that morning, and if he said, “buy,” I would know to
sell, and so on.
“George J. W.
Goodman aka Adam Smith. The Day They Red-Dogged Motorola.” The New York World Journal Tribune, Oct. 30,
1966
The monthly Coppock Indicators finished January
DJIA: 26,149 +282 Up. NASDAQ: 7,411 +310 Up. SP500: 2,824 +212 Up.
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