• Investing.com

    3 Things Under the Radar This Week

    Investing.com -- Here are three things that went under the radar this week.

  • India Has People. It Needs Consumers

    India Has People. It Needs Consumers

    (Bloomberg Opinion) -- A long-held belief of analysts in India is that the economy is supply-constrained. Demand isn’t even worth a footnote, while a temporary squeeze in the onion market deserves obsession because it could be inflationary. It’s increasingly obvious that this view is outdated. In October, inflation quickened more than expected to 4.62% because of, yes, an onion shortage. Yet core inflation, which strips out volatile commodity prices, slumped to 3.4%, the lowest since the current price series began in 2012. One explanation is that people have less money to spend on other things after buying vegetables. Yet, as Mark Williams, chief Asia economist at Capital Economics puts it, a 1.1 percentage point drop in core inflation over three months is rare. “This weakness isn’t solely due to spending being diverted,” he says in a research note.It’s a demand funk. Until about 2012, temporary supply shocks dominated. The starting point of production and transport is hydrocarbons, and India needs to import most of its crude oil. The government also has to pay farmers to feed 1.3 billion people. Because of the outsize dominance of food and fuel in consumption, price stability is ephemeral: A few months of high inflation could drastically impact consumers’ expectations.  Any gap between (runaway) headline and (soft) core inflation would typically close with the core moving toward the main indicator. But something has changed. The supply-dominated headline number is now more likely to shift toward the demand-led core figure, JPMorgan Chase & Co. research has shown. Slack in the economy — of which there’s plenty — has become much more important than a transient disruption in commodity supplies. Therefore, despite consumer prices rising more than the central bank’s 4% target for the first time since mid-2018, the new consensus is that the economy is deflation-bound. That’s the reason most observers are shrugging off the October inflation rate as any kind of a speed limit on the central bank’s rate cuts. Whether the five rate reductions this year will lift demand is a different story. Banks aren’t passing lower borrowing costs down the line. As of August, their weighted average lending charge was almost double the Reserve Bank of India’s repurchase rate. This record spread is a crisis-like situation, Credit Suisse AG strategist Neelkanth Mishra says.It’s also a supply-side bottleneck, except more durable. The input missing from the production process is trust. In September last year, when I termed the collapse of infrastructure financier IL&FS Group as India’s mini-Lehman moment, lending by shadow banks was growing by 24%. It’s now collapsed to 7% because everyone’s worried about who will go bust next. Nonbank financiers’ funding sources have dried up. Meanwhile, state-run banks are dogged by $200 billion-plus in bad corporate loans, no matter how generously a cash-strapped government tries to recapitalize them.Nomura’s Sonal Varma calls it a “triple balance sheet problem” shared by banks, shadow lenders and India Inc. In her estimate, GDP expansion may have slowed further to 4.2% in the September quarter from a six-year low of 5% in the previous three months. The potential growth rate, she says, is around 6.5%. The longer the deleveraging cycle lasts, the bigger the risk that this potential could ebb further. How fast an economy can grow is measured from the supply side — by slapping together labor and capital inputs as well as productivity growth. But it’s here that demand is emerging as a constraint. Consumer spending fell in real terms in 2017-18, its first decline in four decades, the Business Standard reported Friday, citing an unreleased official survey. As Rathin Roy of the New Delhi-based National Institute of Public Finance and Policy has been arguing, the economy grows by producing what 150 million of the top income earners consume. When it comes to an inexpensive shirt that India’s workers can make for their billion-plus fellow citizens, Bangladesh does a better job. India balked at the last minute from joining the 16-nation Regional Comprehensive Economic Partnership trade agreement because it can’t compete against China in making everyday things. Roy’s call for a meaningful minimum wage for workers in all Indian states rich and poor shows a sensible way to create sustainable demand. Make things well enough for a swelling home market, and eventually India will supply them to the world. Satisfying the needs at the vast bottom of the socioeconomic pyramid will reduce slack. In an emerging market, confidence of entrepreneurs comes not from killer innovation but from knowing that producers can sell what they make. An undemanding India hurts everyone. To contact the author of this story: Andy Mukherjee at amukherjee@bloomberg.netTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • EnLink's 20% Yield Is Everything Wrong With America's Pipelines

    EnLink's 20% Yield Is Everything Wrong With America's Pipelines

    (Bloomberg Opinion) -- When a stock goes into free fall, one hope is that some acquirer out there will catch it. Sometimes, though, suitors come with their own complications. That brings us to EnLink Midstream LLC.EnLink operates gathering and processing pipelines and other oil and gas infrastructure across several onshore U.S. basins. In the summer of 2018, Devon Energy Corp., an exploration and production company, sold its stakes in various EnLink entities to Global Infrastructure Partners for just over $3.1 billion. After a subsequent simplification of EnLink, GIP owns 46% of the common units, now worth $1.2 billion.EnLink has been undone by weaker commodity prices. Earlier this month, Devon announced it had dropped the number of rigs operating in one of Oklahoma’s shale basins to precisely zero (how’s that for a coda to last year’s deal?). This confirmed a trend evident already in permitting and drilling data for the Anadarko basin, where just four companies account for the majority of activity; and, crucially, they have operations in other basins that are more competitive in terms of breakeven costs.The distribution yield on EnLink’s stock now scrapes 20% — on a par with the current yield on long-dated bonds of Chesapeake Energy Corp., which just issued a going-concern notice. There’s being paid to wait, as they say, and then there’s being paid to wait in that trash compactor from Star Wars.EnLink’s cash flow math is tight. Consensus forecasts — which have now had time to digest cost savings pledged on the latest earnings call — put Ebitda at $1.1 billion in 2020. Take off around $500-$550 million for cash interest and (much-reduced) capital expenditure, and that leaves about $550-$600 million versus current distributions of about $550 million. With Ebitda forecast to grow at just 1% a year through 2022, that tight squeeze won’t ease up. Wells Fargo & Co.’s analysts estimated in a recent report that, absent a change in distribution policy, current leverage of 4.2 times adjusted Ebitda could reach almost 6 times by 2025. By any rational measure, the distribution should be cut.The complicating issue is that EnLink’s leverage is compounded by more leverage at the GIP level in the form of a $1 billion term loan. Technically, it is separate from EnLink’s own finances. But as the company acknowledges in its own 10K filing, debt owed by an entity owning almost half the company plus its managing partner, and which is serviced by EnLink’s own distributions, is very much a risk factor. By my calculations, the loan requires roughly $80 million a year of EnLink distributions (GIP didn’t respond to requests for comment)(1). As of now, distributions amount to about $255 million. So, in theory, EnLink could slash its payout by about two-thirds and GIP could still service the loan.In practice, that would be a bitter pill to swallow. As it is, GIP’s common units in EnLink are now worth not much more than the value of the loan and way below the original investment. Cutting distributions would certainly help EnLink’s balance sheet; all else equal, a 67% cut would save enough cash to take leverage below 4 times adjusted Ebitda, in line with long-term targets. But this would almost certainly push the value of GIP’s stake even lower, at least in the near term. As Ethan Bellamy, analyst at Robert W. Baird & Co. Inc., put it to me:Does GIP leverage prevent EnLink from cutting the distribution and right sizing the ship? It wouldn’t be the first time we’ve seen parental leverage from a private equity sponsor lead to sub-optimal outcomes for the subsidiary public entity.On the other hand, if EnLink cuts and its price falls further, then GIP might be tempted to make an offer for the rest of the company in an effort to salvage things out of the public eye. Needless to say, a takeover premium on an even lower EnLink price would do very little to make up for the losses suffered to date. We are seeing this play out with Blackstone Group Inc.’s offer for another midstream company, Tallgrass Energy LP, although the pain there is compounded by an agreement between the buyer and Tallgrass’s executives that effectively shields the latter from losses (see this).EnLink captures so much of what has gone wrong in America’s pipelines business. There’s the misalignment of interest between ordinary investors and the sponsors steering the company’s destiny. There’s the exposure to commodity markets from which, in theory, midstream companies were supposed to be insulated. Above all, there’s the overcapitalization of this sector, with obligations piled onto assets (largely to fund outsize payouts to controlling sponsors) that ultimately couldn’t generate the profits to service them (largely because too much stuff got built).Almost exactly four years ago, Kinder Morgan Inc. presaged the midstream reckoning to come by slashing its dividend. The stock has been listless for much of the period since then; even with the cut, chipping away at debts in a post-boom environment is a laborious process. As this decade of nominal success for America’s shale boom draws to a close, EnLink’s predicament shows the hangover remains very much a work in progress.(1) This assumes the full $1 billion remains outstanding. Interest is charged at Libor plus 4.25%, equating to 6.15%, or about $62 million. A debt-service covenant ratio of 1.1 times takes this to $68 million. Mandatory annual amortization of 1% of the loan plus assumed G&A costs results in an estimated minimum requirement of about $80 million to service the debt. Details derived from Moody's Corp.'s initial rating report from July 2018.To contact the author of this story: Liam Denning at ldenning1@bloomberg.netTo contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • What Kind Of Investor Owns Most Of Flowers Foods, Inc. (NYSE:FLO)?
    Simply Wall St.

    What Kind Of Investor Owns Most Of Flowers Foods, Inc. (NYSE:FLO)?

    The big shareholder groups in Flowers Foods, Inc. (NYSE:FLO) have power over the company. Large companies usually have...

  • MDU Resources (MDU) To Reward Shareholders With Dividend Hike

    MDU Resources (MDU) To Reward Shareholders With Dividend Hike

    MDU Resources (MDU) declares dividend increase for the 29th consecutive year.

  • A 24-Year-Old Is Suing His Pension Fund for Not Being Green Enough

    A 24-Year-Old Is Suing His Pension Fund for Not Being Green Enough

    (Bloomberg) -- Mark McVeigh, a 24-year-old environmental scientist from Australia, won’t be able to access his retirement savings until 2055. But, concerned about what the world may look like then, he’s taking action now, suing his A$57 billion ($39 billion) pension fund for not adequately disclosing or assessing the impact of climate change on its investments.The Federal Court battle is shaping up to be a unique test case. Are pension funds in breach of their fiduciary duties by failing to mitigate the financial ravages of a warmer planet?Before launching the legal action, McVeigh asked Retail Employees Superannuation Trust, or Rest, how it was ensuring his savings were future proofed against rising world temperatures. Its response didn’t satisfy him and he ended up engaging specialist climate change law firm, Equity Generation Lawyers.“I see climate change as a huge risk that dwarfs a lot of other things -- it’s such a big physical impact on the planet, and the economy,” McVeigh said in a phone interview from Brisbane, where he works as an ecologist for a local government. He said other people had contacted him on learning of the case and also wanted such information from their funds.Rest says climate change is just one of a variety of factors it must consider when investing the savings of its around 2 million members, which include grocery-store clerks and shop keepers, according to court filings.Australia’s pension industry -- home to the world’s fourth-largest retirement-savings pool at A$2.9 trillion -- is watching the case closely, particularly because many funds must also meet legislated minimum return targets. While investing in renewable-energy projects and pressuring miners to be better corporate citizens is all well and good, this requirement makes it more complicated than simply dumping fossil-fuel emitters from a portfolio.Interests of Members“Looking after the best financial interests of our members requires us to be conscious of the risks, but not exclude a whole segment of the economy that’s going to be very meaningful for a period of time,” said Ian Patrick, chief investment officer at Sunsuper Pty, which manages A$70 billion. “Right now, the interests of our members -- the sole purpose of super -- is what wins out.”Australia’s mandatory retirement savings system, known as superannuation, is meant to relieve pressure on the public purse as the nation’s population ages, lives longer and requires a steady income stream to survive. Much of the industry must strive to return 3.5% above inflation over a decade.But returns aside, members like McVeigh want to see their savings last as long as possible in an uncertain environment, with polls showing increasing public concern about climate change.“Investors may not be sufficiently factoring in the impact of climate-change risk on future economic growth,” said Jennifer Wu, global head of sustainable investing at JPMorgan Asset Management.Firms are beginning to act, with a study by State Street Global Advisors released Wednesday finding that fiduciary duty is one of the main ‘push factors’ for financial institutions to adopt environmental, social and governance principles.Sunsuper, AustralianSuper Pty, Construction & Building Unions Superannuation, Health Employees Superannuation Trust Australia and others have employed responsible investment teams to integrate ESG factors into their portfolios. They’ve joined global investor initiatives such as the United Nations-backed Principles for Responsible Investment and they’ve used their sizable holdings in companies like BHP Group Ltd. and Glencore Plc to agitate for change.Conversations around engagement versus divestment are frequent when five or so years ago, they pretty much didn’t exist.Mary Delahunty, who as head of impact at HESTA is responsible for improving the A$50 billion fund’s responsible investment practices, says selling out isn’t always a prudent option.“As soon as you remove capital, they don’t have to have a conversation with you anymore,” she said.Debt is another way pension funds are trying to manage climate risk in their portfolios.Sunsuper has written loans to gas companies in the Permian Basin in the U.S., rather than taking equity stakes and running the risk of being left with a stranded asset. Those loans deliver double-digit returns over periods of up to 10 years while the world shifts to a cleaner energy mix, Patrick said.“It’s why we prefer debt and why we think about the tenor of that debt quite deeply,” Patrick said. “Relative to holding long-term equity in an energy asset, that addresses the risk quite substantially.”While activism is rising and investors and banks are shying away from financing environmentally damaging projects, the Australian government is going the other way. Prime Minister Scott Morrison, a staunch supporter of the coal-mining industry, is considering new laws to prevent activists like environmental lobby group Market Forces from stymieing commercial decisions and threatening economic growth.Will Judges Have the Last Word on Climate Change?: QuickTakeThe McVeigh case, which is back in court Nov. 22 for a preliminary hearing, has also gained international attention, even though climate change litigation isn’t new (oil companies in the U.S., for example, have been sued to recover the cost of rebuilding to protect against rising sea levels).As well as improving its environmental disclosures, Rest recently appointed a responsible investment manager and in June, took control of a wind farm in Western Australia from a UBS Group AG unit.The fund also said it had sought to meet with McVeigh to discuss his concerns. “Specific climate-related issues which we engage with our investment managers on include carbon foot printing, stranded assets, climate-related scenario analysis and exposure to lower carbon assets,” a spokesperson said in an emailed statement.Michael Gerrard, a professor of environmental, climate change and energy law at Columbia University, said that “success in litigation breeds imitation, so if McVeigh wins, people will take a close look.”“People are so desperate at the failure of governments to act adequately on climate change that they’re looking for litigation targets.”(Adds JPMorgan Asset Management comment in 10th paragraph. An earlier version corrected the spelling of Columbia University in penultimate paragraph.)To contact the reporter on this story: Matthew Burgess in Melbourne at mburgess46@bloomberg.netTo contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, Katrina NicholasFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bonds Aren’t Believers in a Synchronized Upswing

    Bonds Aren’t Believers in a Synchronized Upswing

    (Bloomberg Opinion) -- The global bond market rallied for a second consecutive day on Thursday in an awkward development for the growing chorus of voices that have cropped up the last few weeks contending that the synchronized global slowdown was over. From China to Germany, and from Cisco Systems Inc. to freight shipments, the latest data show  it’s too soon to turn optimistic.In China, industrial output rose 4.7% in October from a year earlier, below the median estimate of 5.4%. Germany did post a surprise expansion in its gross domestic product for the third quarter, but that came with plenty of caveats. For one, the increase was only 0.1%, and the contraction for the second quarter was deeper than initially reported — negative 0.2% versus negative 0.1%. In the U.S., economists were passing around the latest Cass Freight Index for October, which fell 5.9% to mark its 11th consecutive year-over-year decline. This gauge has been around since 1995 and tracks freight volumes and expenditures by hundreds of companies in North America conducting $28 billion of transactions annually. More important, the compilers of the index noted in the latest survey that the index “has gone from ‘warning of a potential slowdown’ to ‘signaling an economic contraction.’” Cisco is not in the freight business, but comments by Chief Executive Officer Chuck Robbins late Wednesday after the computer company released fiscal second-quarter results echoed the sentiment in the freight industry. “Just go around the world and you see what’s happening in Hong Kong, you look at China, what’s happening in D.C., you’ve got Brexit, uncertainty in Latin America,” he said on a conference call with investors and analysts. “Business confidence suffers when there’s a lack of clarity, and there’s been a lack of clarity for so long that it’s finally come into play.”Maybe the global economy isn’t worsening, but it’s too soon to say an upswing is underway. Despite the sell-off in the bond market since September, yields are still showing caution. Yields on bonds worldwide as measured by the Bloomberg Barclays Global Aggregate Index stand at 1.45%, which is closer to its all-time low of 1.07% in 2016 than last year’s high of 2.27% in November.AWASH IN MORE DEBTThe Institute of International Finance came out with its quarterly look at the mountain of global debt, concluding that it rose by about $7 trillion in the first half of the year to a record of just more than $250 trillion. That increase is more double the $3.3 trillion expansion for all of last year. It pegs global debt, which it sees expanding to $255 trillion by the end of the year, at a lofty 320% of global GDP. It’s no surprise that the world is awash in debt, but yields show there seems to be a dearth of it for the public because of massive purchases by central banks. As of October, the collective balance-sheet assets of the Federal Reserve, European Central Bank, Bank of Japan and Bank of England stood at 35.7% of their countries’ total GDP, up from about 10% in 2008. Still, this is no time to be complacent. The IIF points out that much of the growth in debt has come in emerging markets, which is generally considered riskier than that of developed economies and where central banks are not doing things like quantitative easing. This could become an issue relatively quickly; the IIF pointed out that $9.4 trillion of bonds and syndicated loans from emerging markets come due by the end of 2021.CORPORATE CASH SHRINKSThe latest doubts about the strength of the economy kept the S&P 500 Index little changed for a second consecutive day. Perhaps that’s for the better because falling interest rates and bond yields are perhaps the single-biggest reason equities are up 23.4% this year in the absence of earnings growth. The second is probably share repurchases. But a new report from Societe General SA raises concern that the cash companies use to fund those buybacks is being depleted. “A boon for U.S. share buybacks” has left companies with less cash in their coffers, Societe Generale strategists Sophie Huynh and Alain Bokobza wrote in a report. Cash and money-market investments held by companies in the S&P 500 peaked in 2018’s first quarter on a per-share basis before falling 5.3% through the third quarter of this year, according to Bloomberg News’s David Wilson. S&P 500 companies have bought back the equivalent of 22% of their market value since 2010, the Societe Generale strategists noted in their report.CHILEAN CRISIS ENTERS NEW PHASEThe chaos in Chile, long known as the safest bet in Latin America, has become so bad that not even direct intervention by the nation’s central bank was able to reverse the slide in the peso. The currency fell about 1% Thursday, bringing its slide to 11.4% since mid-October. That’s the worst of the 31 major currencies tracked by Bloomberg and more than five times the next biggest loser, the Hungarian forint. What should have investors worried is that the peso depreciated even after the central bank announced a $4 billion currency swap program to ease liquidity in the market amid the worst civil unrest in a generation. “I don’t think it will help stop the sell-off in any way,” Brendan McKenna, a currency strategist at Wells Fargo, told Bloomberg News in reference to the swaps program. “There has to be some breakthrough on the political front for the currency to stabilize.” Foreign investors have been especially rattled since the government said Sunday that it backed plans to rewrite the constitution in response to four weeks of riots and protests in support of better pensions, wages, education and health care. If that were to happen, it’s possible the government would swing too far to the populist left to the detriment of the economy. FOLLOW THE CLIMATE CHANGE MONEYDespite the overwhelming evidence about climate change, there is still an alarming number of deniers. But if it was really all a big hoax or overblown, then why are the world’s biggest, most influential investment firms steering away from areas that are likely to be hit the hardest, such as the coasts? Goldman Sachs Group Inc. is considering real estate markets including Denver; Austin, Texas; and Nashville, Jeffrey Fine, a managing director at the firm’s merchant-banking division, said Thursday at a conference hosted by the NYU School of Professional Studies. Fine may not have specifically cited climate change, but according to Bloomberg News’s Gillian Tan, he did note that more companies and young people are moving away from the coasts. The Fed held its first conference on climate change last week in San Francisco, with one central bank official saying it has the potential to “displace people permanently” amid damaging wildfires in California and storms punishing the Eastern Seaboard. About 3 billion people — or some 40 percent of the world’s population — live within 200 kilometers (124 miles) of a coastline, according to Bloomberg News. It’s projected that by 2050 more than 1 billion will live directly at the water’s edge.TEA LEAVESThe idea that the U.S. consumer was strong and carrying the economy took a hit a month ago when Commerce Department data showed that retail sales in September fell unexpectedly. The 0.3% decline from August was directly opposite the 0.3% advance expected based on the median estimate of economists surveyed by Bloomberg. That’s why Friday’s update from the government on October retail sales is so critical, especially heading into the holiday sales season. Economists are calling for a 0.2% rebound. Bloomberg Economics isn’t so optimistic, saying that decelerating wage growth suggests household demand will moderate. It is forecasting no change in spending. Although the headline number will get the attention, the smart money will be looking at sales among a control group that are used to calculate GDP and exclude food services, auto dealers, building-material stores and gas stations. By that measure, sales are seen rising 0.3% from no change in September.DON’T MISS Stock Investors Could Use a Refresher on the Basics: Nir Kaissar You Care About Earnings? The Stock Market Doesn’t: John Authers Too Many Young American Men Still Aren’t Working: Justin Fox Brazil’s Politics and Economics Are Growing Apart: Mac Margolis Matt Levine's Money Stuff: You Can Buy Almost All the StocksTo contact the author of this story: Robert Burgess at bburgess@bloomberg.netTo contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Warren Buffett trims Wells Fargo stake, adds RH
    Yahoo Finance

    Warren Buffett trims Wells Fargo stake, adds RH

    The Oracle of Omaha's latest stock moves are out.

  • The Only Chart You Need to Understand 2019's Global Markets

    The Only Chart You Need to Understand 2019's Global Markets

    (Bloomberg Opinion) -- It’s still all about the central banks. If you care about allocating money between global assets, everything else remains ancillary, and all 2019’s biggest trends — from negative interest rates in Germany through the inverted U.S. yield curve to the impressive global rebound in share prices — can be explained by the actions of central bankers.Many will find this rather depressing. Approaching the end of an exciting year for world markets, it is tempting to rely on a narrative of geopolitical intrigue and trade wars. But it is far simpler and more accurate to explain 2019’s events in terms of the liquidity that the developed world’s central banks have unleashed — while China and the bigger emerging markets have prominently refused to follow the same. CrossBorder Capital, a London-based investment group, maintains indexes of global liquidity, covering central banks, international financial flows and domestic private-sector liquidity. Numbers above 50 show expansion, and a rising number shows acceleration. They show a dramatic shift in 2019.The year started with the developed world’s central banks trying to dry up liquidity and return to normality after the crisis years, while their counterparts in the emerging world pumped money into their economies. Since then, there has been a 180-degree turn:Jerome Powell, chairman of the Federal Reserve, protests that nobody should put the label “QE” on the U.S. central bank’s decision to expand its balance sheet in the last two months to address disruptions in the repo market for short-term bank funding. But the financial markets don’t recognize this distinction. In conjunction with asset purchases from the European Central Bank (which does describe what it is doing as QE) and the Bank of Japan, provision of liquidity has accelerated faster in the past few months than at any time since the first desperate days after the 2008 Lehman Brothers bankruptcy. The story in the emerging markets, which these days are dominated by China, is the polar opposite. At the beginning of the year, liquidity was expanding, and the People’s Bank of China appeared to be trying to repeat its trick from 2016, when a big expansion in credit averted a slowdown. Since then, however, emerging-market central bank liquidity has dried up, and is now as tight as it has been since the series started in 2005. Contrary to the hopes of a year ago, it appears that the PBoC has been engaged in cleaning up balance sheets and helping local governments to cut back their debts in the Chinese shadow banking system, rather than making any concerted attempt to stimulate the macro economy. This dynamic helps to explain the anomalous poor performance of emerging-market currencies. Normally, EM foreign exchange is regarded as a “risk-on” asset. If investors are feeling confident, as is typically the case when the Fed is making money plentiful, that tends to mean flows into emerging markets. But JPMorgan Chase & Co.’s emerging-markets foreign exchange index is close to its post-crisis low.Weak emerging-market currencies open the risk of debt crises as their dollar-denominated debt grows harder to service. The emerging world remains under pressure. This isn’t just from the U.S.-China trade conflict but also, as the liquidity figures make clear, from China’s efforts to avert a financial crisis at home. The fresh flow of money from the developed world’s central banks has allowed U.S. stock markets to set fresh highs, and spurred optimism. The greatest risk remains, as it has been for years, that China succeeds in averting a Lehman-style credit crisis at home, but at the cost of an economic slowdown that would affect the rest of the world. To contact the author of this story: John Authers at jauthers@bloomberg.netTo contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Warren Says Honest Businesses Shouldn’t Worry If She Wins 2020

    Warren Says Honest Businesses Shouldn’t Worry If She Wins 2020

    (Bloomberg) -- Democratic presidential candidate Elizabeth Warren sought to reassure business leaders and investors they have nothing to worry about if she is elected -- as long as they obey the law.“I believe in markets. Markets with rules that are consistently enforced,” she said in an interview in Concord, New Hampshire. “If someone has built a business on cheating people, then they should be very worried about a Warren administration, but if that’s not the case, then there’s no reason for them to worry.”Warren’s progressive proposals for reducing inequality, including a wealth tax, breaking up big technology and agriculture companies, as well as her $21 trillion plan to replace private health insurance with a government-run system, have raised concerns on Wall Street that her policies would be ruinous and push the U.S. too far to the left.As she has gained in the polls, she’s come in for criticism from Wall Street executives and billionaires, including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, hedge fund billionaire Leon Cooperman and Microsoft Corp. founder Bill Gates.She attacked Cooperman in a new campaign commercial, and on Wednesday he fired back in a profanity-laced tirade on CNBC.The Massachusetts senator, who has pledged not to take big-donor money to fuel her campaign, said the criticism reminded her of the opposition she faced when she proposed establishing the Consumer Financial Protection Bureau.“A lot of financial institutions were saying in effect, ‘if there’s a cop on the beat, that’s going to destroy my business,’” Warren said. “My answer was: ‘Really? What are you doing that a cop is going to catch you out and make you shut down? Do you not have a business model that works and the cop could glance over your shoulder once in a while and say yeah, that’s fine.’”Warren is gaining on Democratic front-runner Joe Biden in polls with a campaign message that corporate and government wrongdoing have broken American democracy. She’s presented plans to tackle corruption, including increasing oversight of lobbying and imposing restrictions and large fines on some of the largest U.S. corporations.“If you’re running a straight-up honest business, you want a cop on the beat, because you don’t want to have to compete against the cheaters,” Warren said. “That’s what a Warren administration will be all about.”She has vowed to make the richest Americans bear the cost of her plans through higher taxes, including levies on wealth and financial transactions. In a research note this month, Goldman Sachs Group Inc. said her plan to return the corporate tax rate to 26% from 18% would drive down earnings for S&P 500 companies.“This country is broken and the way we will repair it is together,” she said. “Not by depending on the billionaires, not by depending on corporate PACs, but by building a movement across this nation.”On the campaign trail, Warren tells potential voters that while she doesn’t have a “beef with billionaires,” she wants to ensure that they pay their fair share.(Adds new quote in eleventh paragraph.)To contact the reporter on this story: Misyrlena Egkolfopoulou in Washington at megkolfopoul@bloomberg.netTo contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Gregory MottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Zacks Earnings Trends Highlights: Fastenal, United Rentals, Caterpillar, Texas Instruments and Hasbro

    Zacks Earnings Trends Highlights: Fastenal, United Rentals, Caterpillar, Texas Instruments and Hasbro

    Zacks Earnings Trends Highlights: Fastenal, United Rentals, Caterpillar, Texas Instruments and Hasbro

  • Ericsson to Modernize MTN South Africa's Network for 5G Era

    Ericsson to Modernize MTN South Africa's Network for 5G Era

    Ericsson (ERIC) and MTN South Africa intend to work together to develop 5G use cases and applications that will contribute to the digital transformation of industry verticals.

  • Soap & Cleaning Materials Stock Outlook Buoyant on Innovation

    Soap & Cleaning Materials Stock Outlook Buoyant on Innovation

    Soap & Cleaning Materials Stock Outlook Buoyant on Innovation

  • JAKKS Pacific (JAKK) Benefits From Innovation and Expansion

    JAKKS Pacific (JAKK) Benefits From Innovation and Expansion

    JAKKS Pacific's (JAKK) robust strategic efforts to revive dismal sales trend in third-quarter 2019.

  • NRG Energy's (NRG) Focus to Increase Cost Savings Bodes Well

    NRG Energy's (NRG) Focus to Increase Cost Savings Bodes Well

    NRG Energy (NRG) is poised to benefit from its Transformation Plan and debt-reduction initiatives.

  • PCTEL Augments Product Portfolio for Wireless Communication

    PCTEL Augments Product Portfolio for Wireless Communication

    PCTEL's (PCTI) expanded capabilities enable it to combine sensors, edge computing, antennas and transceivers into ruggedized solutions for the industrial IoT market.

  • A Favorable Earnings Picture

    A Favorable Earnings Picture

    A Favorable Earnings Picture

  • Bond Traders Clear the Tourists From the Room

    Bond Traders Clear the Tourists From the Room

    (Bloomberg Opinion) -- The bond market isn’t ready to concede that the economy is on a sustained upturn that will allow it to skirt a severe slowdown or even a recession. U.S. Treasuries followed most of the rest of the global government debt market higher Wednesday, providing a welcome respite from a sell-off that’s looking more like an adjustment of overextended positions than a referendum on faster growth.Sure, some of the gains in the bond market may be related to doubts about the U.S. and China actually agreeing to the first phase of a trade deal after some downbeat comments by President Donald Trump on Tuesday and subsequent reports of a “snag” on Wednesday. But what hasn’t been discussed as much is evidence that the recent slump in bonds had much to do with the reversal of positions by general investors who bought government debt in August, September and early October as recession speculation peaked. That was borne out in the latest monthly survey of global fund managers by Bank of America released on Tuesday. It showed being long Treasuries is no longer the world’s “most crowded trade,” with 21% of respondents saying so, down from a massive 41% in October. The new “most crowded trade” is long U.S. technology and growth stocks at 39%. And with yields on benchmark 10-year Treasuries having risen from 1.43% in early September to 1.87% on Wednesday, there’s reason to believe that bonds are more fairly valued. In fact, the latest yield is higher than the 1.71% that economists expect it to be at the end of the year and the 1.78% they estimate at the end of the first quarter 2020, according to data compiled by Bloomberg.Although the data show that the economy both in the U.S and globally may not be getting any worse, that’s far different from showing it’s getting much better and causing central banks to turn hawkish again. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” Federal Reserve Chair Jerome Powell told the Congressional Joint Economic Committee on Wednesday in Washington. “However, noteworthy risks to this outlook remain.”STOCKS HIT A TRADE SNAGThanks in part to Powell’s dovish comments, everything was going swimmingly in the stock market until the Wall Street Journal reported that trade talks between the U.S. and China had hit a snag, briefly causing equities to erase their gains. Citing people familiar with the matter, the paper said China is leery of putting a numerical commitment on agriculture purchases in the text of a potential agreement. The development seems to explain why Trump only a day earlier sounded unusually cautious about a trade agreement, saying only that it “could happen soon” and adding that if it didn’t, then he would just increase tariffs on Chinese goods. This is no small matter for the stock market, which has rallied to new highs largely on the notion that a “phase one” deal would be reached, eliminating a significant drag on the global economy. “A couple of weeks ago, it looked like that phase one deal looked all but certain. I think the market started to price in a really positive outcome on the trade side,” Jeff Mills, chief investment officer at Bryn Mawr Trust, told Bloomberg News. “Although I do think that progress is moving in a positive direction, I think it would be foolish for us to assume that we’re going to move completely in a positive direction in trade without any type of intermittent setbacks.” Although equities recovered in late trading, buying stocks in the hopes of a trade deal is proving to be a perilous strategy.DEFICITS (SOMETIMES) DON’T MATTERThe Bloomberg Dollar Spot Index rose for the seventh time in eight days on Wednesday to its highest in a month even though the U.S. government said its budget deficit widened in October, the first month of the fiscal year, as government spending increased and receipts declined. The shortfall grew about $34 billion, or almost 34%, from the same month last year, to $134.5 billion. This comes after the budget deficit for fiscal 2019 clocked in at just shy of $1 trillion at $984.4 billion. One benefit to having the world’s primary reserve currency is that such deficits don’t exactly matter as much as they would in a place such as Greece. Still, an out-of-control deficit and borrowing could reduce demand for the greenback and U.S. debt at the margins. The upshot is it looks as if the U.S. may not borrow as much as previously estimated to finance the deficit, thanks to recent moves by the Fed to buy Treasury bills to ensure reserves remain abundant. As a result, the strategists at JPMorgan Chase wrote in a report this week that net debt issuance to the public by the U.S. Treasury will be just $720 billion, down from a projected $1.27 trillion in fiscal 2019. That should provide some support to the dollar and, by extension, the U.S. government.ITALY GETS BYPASSEDOne place where the bond rally failed to make an appearance was Italy. Demand slumped to the lowest in 14 months at an auction Wednesday of seven-year notes, even with yields near the highest in three months. That suggests investors prefer countries with slimmer returns but lower credit risk and comes after a recent rise in yields in markets such as Germany and France, weakening Italy’s relative appeal, according to Bloomberg News’s James Hirai. Investors have been cooling toward Italy after political uncertainty and a recent revival in the fortunes of euro-skeptic politician Matteo Salvini. “Peripheral spreads become more vulnerable the higher core yields go as investors switch demand to safer core, semi-core bonds,” Peter Chatwell, head of European rates strategy at Mizuho International, told Bloomberg News. “Higher yields, without a broad based and structural rise in nominal growth, will pose a sustainability risk to Italy’s debt.” With $2.26 trillion of government debt, Italy has more bonds outstanding than all but the U.S., China and Japan, data compiled by Bloomberg show. Italy also has one of the highest debt-to-gross domestic product ratios at 131.5%, compared with 82.3% in the U.S. So when Italy has a poor debt auction, it’s worth paying attention.HOT COCOAChocolate lovers may soon have to dig a little deeper in their pockets to afford their favorite indulgence. Cocoa prices have staged an impressive rally in recent months, approaching an almost 18-month high in New York on Wednesday. The gains come amid speculation that near-term supplies are getting tighter, according to Bloomberg News’s Agnieszka de Sousa. The clearest sign that traders expect tighter supplies can be seen in the prices of so-called nearby contracts, which have moved into a premium compared with later deliveries in a market structure known as backwardation and a sign of tightening supplies. “Traders are blaming the upsurge on concerns about a shortage in the short-term availability of cocoa beans,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. Still, it’s not clear why short-term supplies should be so tight as shipments in top grower Ivory Coast are still in full swing and higher than a year earlier, he said. There are also some concerns that a new $400-a-ton premium for supplies from West Africa, the world’s top producing region, may affect the way cocoa is traded on the exchanges. The new pricing system could mean that fewer supplies end up getting delivered to warehouses monitored by ICE Futures U.S., driving a rally in the market, according to NickJen Capital Management.TEA LEAVESThere is a good chance that talk of a global recession could heat up again as soon as Thursday. That’s when Germany — Europe’s largest economy — reports on GDP for the third quarter. The median estimate of economists surveyed by Bloomberg is for a contraction of 0.1%, which would mark a technical recession because the economy shrank by the same amount in the second quarter. But as Bloomberg Economics points out, whether the German economy records the shallowest of recessions or escapes one by the narrowest of margins isn’t important; what’s important is how long the dip will persist.DON’T MISS FOMO Doesn’t Cut It as a Buy Signal for Stocks: John Authers The World Is Being Inundated With Financial Capital: Noah Smith Jamie Dimon Is Wrong About Negative Rates: Ferdinando Giugliano The IEA’s New Energy Outlook Comforts No One: Liam Denning Trump’s Economy Complicates Democrats’ Message: Karl W. SmithTo contact the author of this story: Robert Burgess at bburgess@bloomberg.netTo contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Syneos Health Collaborates with AiCure for Patient Engagement

    Syneos Health Collaborates with AiCure for Patient Engagement

    Syneos Health (SYNH) aims to optimize patient engagement and trial success by partnering with AiCure.

  • JPMorgan Leads ‘Next Little Big Thing’ in Mortgage-Risk Market

    JPMorgan Leads ‘Next Little Big Thing’ in Mortgage-Risk Market

    (Bloomberg) -- JPMorgan Chase & Co. may be leading the next trend for banks seeking to shift risk away from their mortgage portfolios -- if regulators give Wall Street the green light.The deal last month mimics the credit-risk transfer operations of Fannie Mae and Freddie Mac, using the form of a credit-linked note with payments dependent on those from mortgage loans held on the bank’s balance sheet. It offloaded a portion of the credit risk on about $750 million worth of mortgages and could “prove to be the next little big thing” if regulators allow such deals to continue, according to Amherst Pierpont Managing Director Chris Helwig.The Fannie and Freddie credit risk transfers began in 2013 to reduce taxpayer exposure to their operations. By the end of June they had such transactions on $3.1 trillion worth of mortgages, according to a recent Federal Housing Finance Agency report.Each transaction was structured into multiple amortizing, sequential-paying, floating-rate securities indexed to 1-month Libor, according to Mark Fontanilla, whose eponymous company created the CRTx Credit Risk Transfer Return Tracking Index. The credit ratings for each security vary depending upon its position within the structure.Payments and losses are based on the performance of a reference pool of mortgage loans. All classes accrue and pay interest monthly, with principal payments allocated first to the highest priority class (usually designated “M1”) and credit losses are applied first to the lowest priority class (typically designated with a “B” prefix).JPMorgan’s private CRT transaction has a similar structure, yet it has a few nuances that make it more “a hybrid of both mortgages and unsecured corporate credit risk,” according to Helwig. Both principal and interest payments are unsecured general obligations of the bank itself, opening up investors to counterparty risk. Investors also need to be compensated for liquidity risk because the deal that may turn out to be “little more than a thought experiment” if it fails to get regulatory blessing, he added.Moreover, JPMorgan is transferring the first 8% of losses, about twice the average seen in Fannie and Freddie CRT deals. The bank is playing it safe in terms of the underlying collateral, so while they are not “qualified mortgages” they are arguably by any measure high-quality loans, with an average size of $775,000, high credit scores, low loan-to-values ratios and about four years of seasoning. Fitch’s base case expected pool loss is 0.20%.Most importantly, the bank reserves the right to collapse the deal if regulatory approval from the Office of the Comptroller of the Currency fails to materialize.“Depending on how it is structured, banks may find a private CRT attractive for capital relief, better return on capital and improved capital velocity,” said Fontanilla. In other words, this could be a way for a bank to sell the credit risk (or at least a portion of it) from a pool of loans, thereby lowering any capital buffer required to be held against it.So market participants are watching to see whether this deal floats past the regulators or they sink it. Should it pass muster, it could open the door to a new era in mortgage investing.“For a small deal, it’s garnered a lot of attention,” said Helwig.To contact the reporter on this story: Christopher Maloney in New York at cmaloney16@bloomberg.netTo contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, William Selway, Christopher DeRezaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Is ONE Gas's (NYSE:OGS) 123% Share Price Increase Well Justified?
    Simply Wall St.

    Is ONE Gas's (NYSE:OGS) 123% Share Price Increase Well Justified?

    The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put...

  • Fortis Enters Oversold Territory

    Fortis Enters Oversold Territory

    Fortis Inc. (FTS) has been on a bit of a cold streak lately, but there might be light at the end of the tunnel for this overlooked stock.

  • Fortis Sees Hammer Chart Pattern: Time to Buy?

    Fortis Sees Hammer Chart Pattern: Time to Buy?

    Fortis Inc. (FTS) has been struggling lately, but the selling pressure may be coming to an end soon.

  • NiSource Inc. (NYSE:NI) Might Not Be A Great Investment
    Simply Wall St.

    NiSource Inc. (NYSE:NI) Might Not Be A Great Investment

    Today we'll look at NiSource Inc. (NYSE:NI) and reflect on its potential as an investment. To be precise, we'll...