Tag Archives: What Could Possibly Go Wrong

Corporate-Credit Outlook at Worst Since Crisis, S&P Says

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“Potential downgrades at the ratings company exceed possible upgrades by the most since 2009, in percentage terms, according to a Jan. 11 report. The difference widened the most since the financial crisis in the past six months, S&P said.  The corporate-debt outlook has darkened, particularly in Latin America, because of slower growth in China and a commodity rout that’s cut prices to the lowest since at least 1991. Company defaults have already risen to the highest since 2009 and investors are demanding the biggest yield in four years to hold junk bonds. On a regional basis, Latin America had the biggest gap, with possible downgrades exceeding potential upgrades by about 35%.”

http://www.bloomberg.com/news/articles/2016-01-12/corporate-credit-outlook-weakens-to-worst-since-crisis-s-p-says

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AB InBev’s Mega Bonds Just the Start of a Corporate-Debt Deluge

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“Companies will probably sell $280 billion of investment-grade corporate debt in 2016 to fund acquisitions globally, up from a record $258 billion last year, according to an estimate from Barclays Plc which excludes financial companies. After the beer deal, some of the year’s biggest debt offerings could come from Dell Inc., Anthem Inc. or Newell Rubbermaid Inc. to fund recently announced buyouts.  The flood of issuance could push up borrowing costs for companies that are issuing debt to finance takeovers. Other companies could also see their borrowing costs rise, as investors sell their current holdings to make room for new, higher-yielding bonds that are hitting the market.”

http://www.bloomberg.com/news/articles/2016-01-12/after-ab-inbev-a-flood-that-could-soak-corporate-bond-issuers

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10 Charts on Emerging Market Corporate Debt

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“Corporate debt levels in emerging markets are spooking both economists and investors. Not that this debt burden came out of nowhere, of course. But, admittedly, there are a couple of catalysts to explain why the EM debt pile is causing some headaches just now. First, the growth of emerging corporate debt is accelerating, and, second, the massive depreciation of EM currencies is exaggerating elevated debt levels. This blog contains 10 (familiar) graphs (taken from familiar institutions like BIS and IMF) to portray these trends.”

http://jeroenbloklandblog.com/2015/10/14/10-charts-on-emerging-market-corporate-debt/

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Gold Is Back in Fashion After a $15 Trillion Global Selloff

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“The $15 trillion rout in global equity markets since May is reawakening the lure of gold for investors seeking safety.  Hedge funds more than doubled their net-long position in bullion last week, just three weeks after they were the most-bearish ever. Investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETPs has jumped by $3 billion in 2016.  Fed Bank of Boston President Eric Rosengren said this month that the central bank’s projected path for more policy tightening is at risk, citing falling estimates for U.S. economic growth. Gold reached a five-year low in December as the dollar strengthened and U.S. inflation stayed stagnant.”

http://www.bloomberg.com/news/articles/2016-01-24/gold-is-back-in-fashion-after-15-trillion-global-equity-decline

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Social Security Trust Fund’s Fall Is First Since 1983

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“The Social Security Trust Fund just suffered its first annual decline since Congress shored up the retirement program in 1983.  The unexpected $3 billion decline is an indication of the precarious state of Social Security’s finances. Since 2010, the program has been paying out more in benefits than it gets in tax revenue, but the trust fund, which earns about $95 billion a year in interest, had kept growing, though a little less each year. Social Security’s cash shortfall is expected to rapidly escalate from $74 billion a year to $361 billion in 2025 alone, the Congressional Budget Office projects. Under current policies, the CBO says the trust fund will be gone by 2029.”

http://www.investors.com/social-security-trust-fund-ends-32-year-streak/

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Mexican Peso’s Surprising Drop Spurs Speculation Banxico to Act

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“The peso is this year’s second-worst performing major currency, as investors use Mexico’s highly liquid peso as a proxy for global emerging markets. Investors are also concerned that the outlook for higher interest rates in the U.S. will lessen Mexico’s appeal for bondholders chasing the country’s steeper yields. The currency slipped 0.4 percent Tuesday after touching a record-low.  Since November, the central bank has been selling $200 million on days the peso weakens at least 1% and an additional $200 million if the drop is more than 1.5%. The policies to support the peso have contributed to an erosion in the country’s foreign reserves, which are near a one-year low at about $175 billion.”

http://www.bloomberg.com/news/articles/2016-01-19/mexican-peso-s-surprising-drop-spurs-speculation-banxico-to-act

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Canadians Panic As Food Prices Soar On Collapsing Currency

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“As Bloomberg reminds us, Canada imports around 80% of its fresh fruits and vegetables. When the loonie slides, prices for those goods soar. ‘With lower-income households tending to spend a larger portion of income on food, this side effect of a soft currency brings them the most acute stress’ Bloomberg continues.  Of course with the layoffs piling up, you can expect more households to fall into the ‘lower-income’ category where they will have to fight to afford things like $3 cucumbers, $8 cauliflower, and $15 Frosted Flakes.  Some now fear that the hardest hit parts of the country may experience a spike in obesity rates as Canadians resort to cheap, unhealthy foods.”

http://www.zerohedge.com/news/2016-01-13/canadians-panic-food-prices-soar-collapsing-currency

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Hedge Fund That Called Subprime Crisis Urges 50% Yuan Drop

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“Mark Hart, the hedge fund manager whose bets against U.S. subprime mortgages and European sovereign debt proved prescient, said China should weaken its currency by more than 50 percent this year. Hart, whose prescription clashes with consensus forecasts for the yuan and recent comments from senior government officials, said China would be justified in weakening the currency after central banks in Europe and Japan fueled declines in their exchange rates to stoke economic growth in recent years. Such a move would likely come as a surprise to global investors, who were rattled by a drop of less than 3 percent in the yuan last August.”

http://www.bloomberg.com/news/articles/2016-01-19/hedge-fund-that-called-subprime-crisis-says-yuan-should-fall-50-

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As China Dumps Treasuries, World Sees No Better Place for Refuge

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“As the biggest overseas creditor to the U.S., China has bankrolled hundreds of billions of dollars in deficit spending, particularly since the financial crisis. And that voracious appetite for Treasuries in recent years has been key in keeping America’s funding costs in check, even as the market for U.S. government debt ballooned to a record $13.2 trillion.  Yet for many debt investors, there’s little reason for alarm. While there’s no denying that China’s selling may dent demand for Treasuries in the near term, the fact the nation is raising hundreds of billions of dollars to support its flagging economy and stem capital flight is raising deeper questions about whether global growth itself is at risk.”

http://www.bloomberg.com/news/articles/2016-01-10/china-retreat-from-u-s-bonds-prompts-shrugs-where-fear-reigned

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Saudi Arabia Said to Ban Betting Against Its Currency

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“Authorities this week ordered banks to limit traders’ ability to bet against the riyal, whose peg to the dollar has been a bulwark of the kingdom’s economic and financial stability since its introduction three decades ago. Countries with currencies pegged to the dollar, such as Saudi Arabia and Hong Kong, are coming under increasing pressure from traders speculating that it’s become too expensive for policy makers to continue defending exchange rates as the U.S. currency soars. Bets for a devaluation of the riyal reached their highest in about two decades in January, even after the Saudi Arabian Monetary Agency said for a second time in four months it will stick with its currency peg.”

http://www.bloomberg.com/news/articles/2016-01-20/saudi-arabia-said-to-order-halt-of-local-riyal-forward-options

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