The Real ‘Tragicomedy’ – Who’s Ready To Buy The ‘Dip’ Again Now?

The Real ‘Tragicomedy’ – Who’s Ready To Buy The ‘Dip’ Again Now?

Authored by Sven Henrich via NorthmanTrader.com,

We’re all frogs getting our perception of reality boiled in the pot of price perversion central banks have unleashed on the world.

A tragicomedy of epic proportions continues to unfold in front of our own eyes. On Friday global markets again closed at record highs and this week everybody is already crying again for more stimulus and central bankers across the world are too eager to oblige.

Having jammed markets already to a record 158% market cap to GDP by Friday on non stop interventions since the December 2018 lows, all in the name of preventing the next recession, central bankers self admittedly have precious little new ammunition left should a global recession unfold.

It looked like the can had successfully been kicked down the road just looking at equity prices, but the bond market has been screaming caution all along.

Along comes the coronavirus and everybody ignores it as well. Let’s go fully long and chase stocks into record highs while the 2nd largest economy with 330% debt to GDP goes into a standstill. What could possibly go wrong?

Central banks always have our backs right?

And so last night came the obvious news: $AAPL issued a revenue warning and surely won’t be the only company to do so. The great irony of course would be if the greatest market cap expansion in any stock’s history that was sparked by a revenue warning in January 2019 would end with another revenue warning in February 2020 right at the time when the stock is showing some of the most technically extended readings in its history.

Price movements have become so distorted as a result of constant central bank intervention that everybody gets the joke:

As I said yesterday:

Now I don’t know if the $AAPL warning will trigger the larger correction that is suggested by the larger technical picture in indices such as $NDX or not, but it may well lead to it.

It may be worth pointing out that this market continues to be held up by 5 stocks and one of these 5 stocks just got dinged:

The larger market of stocks is in a much larger earnings recession already and 5 stocks have been masking it all.

5 stocks are the safe haven in a market that’s been forced to chase yield and growth where it can find it. The stubborn approach to keep rates artificially suppressed has resulted in a perversion of price discovery.

And so global markets are at all time highs with Japan in a recession, Germany at 0% GDP growth and the second largest economy in the world with 330% debt to GDP at a virtual standstill. In the meantime the ECB is financing’s France’s richest man’s latest M&A acquisition:

France’s Richest Man Gets a Free Lunch From the ECB

The real continued unspoken tragedy of all this is that central banks with their policies keep exacerbating wealth inequality by their continued propping of assets disproportionally owned by the top 1%. This leads to political divisions, tensions and a sense of economic unfairness that some of the very richest fully recognize. Low taxes for the top 1% and a permeant central bank put on top of it. Bill Gates recognizes the unfairness perception:

Keep believing that nothing matters because of central banks if you so choose. No, a tragicomedy is unfolding before our eyes and the ultimate ending of the perversion may well be written such as this:

I can’t say if Coronavirus is the trigger that sparks the global recession that central bankers in 2019 and 2020 sought to avoid. All I can say at this moment is that the impact of the virus continues to be underestimated by market participants and $AAPL’s revenue last night serves as a warning piece of evidence.

What I can say is that central bankers just threw their ammunition in the fire last year and the reflation evidence remains very much in doubt especially as yields continue to drop:

The real tragicomedy would be if central bankers went all in to prevent a global recession in 2019 and, as a result, got everyone to chase stocks into the highest valuations ever on many measures and now a global recession were to unfold anyways leaving long chasers trapped at extreme valuations and central banks with precious little ammunition left.

An already overstimulated world may find that any renewed stimulus will lack in efficacy. And perhaps it already does. After all why is the 10 year at 1.5%?

Who’s ready to buy the “dip”?

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Tyler Durden

Tue, 02/18/2020 – 09:55

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George Soros: “Remove Zuckerberg From Facebook Now… He’ll Get Trump Re-elected”

George Soros: “Remove Zuckerberg From Facebook Now… He’ll Get Trump Re-elected”

In a brief but scathing letter to The Financial Times, billionaire George Soros demands that both Mark Zuckerberg and Sheryl Sandberg should be removed from their leadership roles at Facebook or else President Trump will get re-elected.

The two Facebook leaders are, according to the leftist puppet-master, allegedly “engaged in some kind of mutual assistance arrangement with Donald Trump that will help him to get re-elected.”

Full letter below:

Mark Zuckerberg should stop obfuscating the facts by piously arguing for government regulation (“We need more regulation of Big Tech”, February 17).

Mr Zuckerberg appears to be engaged in some kind of mutual assistance arrangement with Donald Trump that will help him to get re-elected. Facebook does not need to wait for government regulations to stop accepting any political advertising in 2020 until after the elections on November 4. If there is any doubt whether an ad is political, it should err on the side of caution and refuse to publish. It is unlikely that Facebook will follow this course.

Therefore, I repeat my proposal, Mark Zuckerberg and Sheryl Sandberg should be removed from control of Facebook. (It goes without saying that I support government regulation of social media platforms.)

George Soros

Paris, France

Soros’ exultations follow his late January NYTimes op-ed also saying that Mark Zuckerberg should not be control of Facebook, claiming that the social media company is going to get Trump re-elected – because it’s good for business.

“I repeat and reaffirm my accusation against Facebook under the leadership of Mr. Zuckerberg and Ms. Sandberg. They follow only one guiding principle: maximize profits irrespective of the consequences. One way or another, they should not be left in control of Facebook.

One can’t help but think that Soros’ feathers are ruffled here for him to come so hard after Zuck – does he think it’s all over for Dems in November?


Tyler Durden

Tue, 02/18/2020 – 09:25

via ZeroHedge News https://ift.tt/2V47Eh0 Tyler Durden

Apple’s Downgrade Is Just The Tip Of The Iceberg When It Comes To Earnings Downgrades

Apple’s Downgrade Is Just The Tip Of The Iceberg When It Comes To Earnings Downgrades

Submitted by Eleanor Creagh of Saxo Bank,

Risk aversion is dialing up today and Asian stocks are falling along with US futures and bond yields across the curve with 30-year Treasury yields have dropping below 2% again. Anxieties are being stoked by a warning from Apple that quarterly revenue would fall short of the $63 billion to $67 billion guidance it provided a few weeks ago because of production and sales disruptions in China and operations resuming more slowly than expected.

Despite many a warning of complacency rife across equities, China mainland equities had recovered all of the losses seen following the Lunar New Year holidays and global stocks continued to climb with US stocks making a run of fresh all-time highs. This as investors are banking that ample global liquidity and supportive central banks will backstop equity prices in the face of weaker economic growth and supply chain disruptions. Commodities and haven treasuries painted a different picture, where the scale of demand destruction and caution is more visible. And in terms of pricing the eventual economic impact these markets do a better job.

As we wrote yesterday, it is our sense that the Japan 4Q GDP data miss, which is pre virus outbreak, is just a taste of what is to come in terms of downside surprises to growth. The warning from a member of the $1 trillion dollar tech club is as big a red flag as any for a market priced for perfection. Although in the current market environment where investors are expecting the hit to growth and earnings only to delay the forecast recovery and for policymakers to offset any jitters, the tendency will likely be to look through Apple’s 1Q downgrade post the initial reaction. But, Apple’s downgrade is likely just the tip of the iceberg when it comes to earnings downgrades.

Over the coming weeks, there is increased risk of continued downgrades to growth and earnings, and hard data catching down to the stark realities of the present disruptions to economic activity, travel and supply chains which could see volatility pick up. We also continue to monitor very closely the spread of COVID-19 outside of China. Today’s German ZEW survey will be a good bellwether to gauge recent sentiment shifts relating to the virus outbreak.

Shutdowns in China are now more protracted than many original expectations, many factories have not resumed production and cities are still on lockdown as measures are taken to limit the virus spread. The dashboard from capital economics shows the rate of people returning to work is a fraction of the return post 2019 LNY holiday, new home sales have completely collapsed along with coal consumption and average traffic congestion. In addition, research from Macquarie shows steel inventories at Chinese mills are now reaching the highest level on record for this period of the year, sending a warning on the near-term outlook for Chinese construction activity and demand for bulk commodities like iron ore and coking coal.

These developments and shutdowns are particularly concerning not just in terms of the direct effects but also the capacity for non-linear secondary effects to cascade as shutdowns become more protracted, this is not priced into equities. Disruptions to supply chains, travel and spending decisions will take time to stabilise and the pace of normalisation will be key to gauging the longer term effect on the global economy. China’s importance within intertwined global supply chains and interdependencies between component makers mean one missing part or stalled factory can create bottlenecks down a whole production line. Fiat Chrysler are a textbook example of this dynamic, as we wrote Friday. Fiat Chrysler will be halting their operations at a factory in Serbia due to lack of parts from China. This is a key read on how heavily intertwined global supply chains are being disrupted as the shutdowns in China trickle down production lines. Can the Eurozone’s languishing manufacturing sector afford to have nascent green shoots trampled by production bottlenecks?

These non-linear effects are the real wildcard for downgrades to economic growth and production bottlenecks and are difficult to model. This means that within any forecast outcomes an enormous degree of variability is inherent, made worse by the lack of reliable data.

For equity markets, any pickup in volatility will of course be countered by the ensuing reaction from central bankers. And in the current investing paradigm, policymakers have already exhibited their willingness to intervene with added stimulus measures in an attempt to extend the cycle, so, for as long as investors feel like central banks have their back and policy rates remain low the longer term tailwinds for equities remain. With liquidity being pumped and low yields forcing risk seeking behaviour, dip buyers are there on the sidelines ready to step in as valuations correct. And, as investors recalibrate long term interest rate expectations at current levels, large amounts of capital is enticed up the risk spectrum into equities. The next step for the market is then dependant on how reactive central banks will be in countering, any hit to growth. If the expectations of continued liquidity injections and fiscal and monetary stimulus aimed at mitigating any hit to growth are not met then market dynamics could become a lot uglier very quickly.

Although we do not want to fight liquidity we want to maintain optionality and hedge against tail risks. Namely, the impact of the virus outbreak being far greater than is currently discounted across equity markets.


Tyler Durden

Tue, 02/18/2020 – 09:10

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Tesla Pops After Morgan Stanley Doubles Bull Case Target To $1200 One Month After Setting It At $650

Tesla Pops After Morgan Stanley Doubles Bull Case Target To $1200 One Month After Setting It At $650

Morgan Stanley is looking more and more like a dog chasing its tail in its “analysis” of Tesla. Recall, about one month ago, Tesla was downgraded to “Sell” by Morgan Stanley after the stock’s run up to about $520 per share. 

And it was less than 2 months ago, in December, when Morgan Stanley’s Adam Jonas reminded the investing public that he was “not bullish on Tesla longer term” – and that was with the stock at $420 per share.

But now that dilution has taken place and the stock has blown past Jonas’ target, it’s back to the drawing board yet again for Jonas and his team. This morning, Jonas has outdone himself once again – raising his bull target case to $1200 per share (from $650 per share in mid-January).

In addition to almost doubling the bull case, Jonas raised his mid-point price target on the stock from $360 to $500 per share. His bull case would give Tesla a market cap of about $220 billion. And ostensibly just to make sure he has an out, Jonas kept the stock rated at “underweight”. 

Jonas has cited Tesla’s potential to become a battery supplier as his reasoning for adjusting his price target. He also reiterated his aggressive assumption that Tesla could own 30% of the global EV market down the road. This is inclusive of 4 million deliveries by 2030 plus Tesla potentially becoming a powertrain and battery supplier. 

He also casually includes $100 per share of “mobility services and energy SCTY/value”.

Our new bull case reflects 4 million units of auto volume by 2030 with a 12% operating margin. This compares with our base case forecast of 2.2 million units and a 10% OP margin by 2030. Additionally, we have included $168/share of value for the company’s potential to supply EV powertrains (battery + e-motors and supporting ‘skateboard’ architecture) to other OEMs on a 3rd party supply basis. The combined 6 million units of EVs we assume in our Tesla bull case accounts for roughly 30% of the global EV market (on Morgan Stanley forecasts), which we believe is an aggressive assumption. Our bull case also includes just over $100/share of mobility services and energy/SCTY value. The shares offer roughly 50% potential upside to our bull case.

Jonas justified changing his base case scenario for shares by “adjusting” the WACC in his DCF model, which added $80 per share, in addition to raising his forecast in auto – which is an industry we have been constantly reminding readers – is in the midst of a global recession.  

The price target change is driven by two factors: (1) our higher forecast for the auto business, which adds $60/share,and (2) lowered WACC in our DCF to 11% from 13% previously, which adds $80/share. We believe the lowered WACC, while still higher than most other companies under our coverage, is justified given the company’s proven track record of attracting new capital under
favorable conditions and a significantly reduced level of balance sheet stress over the past year. The 5-year CDS (150 to 175bps) sits in line with auto companies such as Ford. The stock offers 38% potential downside to our new price target.

Tesla shares are trading higher in the pre-market session on the news.

But in addition to keep his “underweight” rating, Jonas also offers up additional caveats at the end of his note, stating he thinks there is an “unfavorable risk-reward skew” on the name:

Taken together, while we have raised our fair value for the company, we believe the shares offer an unfavorable risk-reward skew vs. other stocks under our coverage and reiterate our Underweight.

Remember this valuation cone, from January, with a spread of about $535 between Jonas’ bear and bull cases?

Apparently, that wasn’t enough breathing room for Jonas’ “analysis” and so now that chart looks like this (yes, that is now a $980 spread between Jonas’ bear case and his bull case):


Tyler Durden

Tue, 02/18/2020 – 08:56

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Covid-19 Pandemic: The Complacent Are Clueless

Covid-19 Pandemic: The Complacent Are Clueless

Authored by Charles Hugh Smith via OfTwoMinds blog,

The eventual price of substituting magical thinking and survivorship bias for actual evidence will be far higher than the complacent realize.

Here’s a sampling of complacent assertions being made about the COVID-19 virus as if they were certitudes:

  • It’s no worse than a bad cold.

  • It’s less deadly than a normal flu.

  • You can’t catch it unless you’re in sustained close contact with a carrier.

  • Carriers are only contagious for 14 days. After that, you’re home free.

  • A vaccine is just around the corner.

  • The Chinese government has it under control.

  • Only 2,000 people have died, it’s no big deal.

  • The few cases in other countries are being managed, and it will soon disappear.

  • The pandemic will fade away by April due to rising temperatures.

  • China’s GDP will only take a 1% hit, and global growth will only drop 0.25%.

Interestingly, there is no large-scale, credible data to support any of these claims. But the complacent are not just falling for false claims being passed off as “facts” rather than what they really are–magical thinking–they’re making a much larger error known as Survivorship Bias.

The complacent are focusing on the few who have been tested for the virus, not the millions who haven’t been tested.

The complacent are focusing on the accurate tests, not the many carriers who tested negative or the healthy people incorrectly tagged by false positive tests. The complacent are overlooking the fact that multiple tests are needed to confirm and even multiple tests can fail.

The complacent are focusing on the few who went to the hospital to get tested and treated, not the multitudes who did not go to a doctor or hospital (for a variety of reasons).

The complacent are focusing on the few carriers who have been forcibly hauled off by Chinese police and not the many who have wisely hidden away from prying eyes.

The complacent are focusing on the few facilities with test kits, not on the multitude of clinics which do not have test kits.

The complacent are focusing on the few who have been identified as carriers in other nations, not the asymptomatic carriers who have not been identified because 1) they have no symptoms and thus no reason to get tested and 2) they chose not to go to a doctor or hospital despite having symptoms.

In effect, the complacent are focusing solely on the few carriers who are symptomatic and have been tested, not on the much larger number of asymptomatic carriers who have not been tested. The complacent are ignoring the highly contagious nature of COVID-19, and the impossibility of controlling a virus that can be spread by asymptomatic carriers for up to 24 days.

The complacent are assuming 100% of all carriers outside China have come forward and been identified as carriers via tests, when the reality is asymptomatic carriers don’t even know they are infected and contagious.

The complacent are assuming every healthcare facility in China has test kits in such abundance that they can test suspected carriers three times to confirm the diagnosis, when the reality is test kits are scarce and one test is not enough to make a reliable assessment. Carriers can test negative, positive and then negative.

The complacent are assuming casual contact isn’t enough to catch the virus while a rising tide of cases confirm that brief, casual contact is enough to get the virus.

The complacent are assuming 100% of symptomatic carriers will go to the hospital to be tested and treated, when an unknown but consequential number of symptomatic carriers are fearful of what will be done to them and their families by authorities, so they hide from prying neighbors and authorities.

The complacent are assuming that asking people if they recently visited China or hosted a visitor from China will identify 100% of the asymptomatic carriers, when there is already proof that asymptomatic carriers have caught the virus from others: they did not visit China or have any known contact with anyone who came from China. They caught the virus from an intermediary who didn’t even know they were infected.

The complacent are looking at cases and carriers that are known, not the cases and carriers which are unknown. Since asymptomatic carriers can spread the pathogen, the majority of carriers remain unknown. Since not every symptomatic carrier chooses to go to the hospital, many cases remain unknown.

In sum, the complacent are clueless. The eventual price of substituting magical thinking and survivorship bias for actual evidence will be far higher than the complacent realize. Playing games with statistics and high finance will not limit the spread of the virus or limit its profound economic impact.

My COVID-19 Pandemic Posts

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My recent books:

Audiobook edition now available:
Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World ($13)
(Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

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Tyler Durden

Tue, 02/18/2020 – 08:40

via ZeroHedge News https://ift.tt/2HyhK1R Tyler Durden

Walmart Misses Across The Board As Guidance Disappoints, Online Sales Slow

Walmart Misses Across The Board As Guidance Disappoints, Online Sales Slow

One quarter after after Walmart shares jumped when the company reported a solid beat in its Q3 earnings report and boosted the full year outlook, it’s a complete mirror image, as Walmart not only couldn’t deliver on its guidance boost from just three months ago, but also delivered 2021 EPS guidance that was well below Wall Street expectations.

“We started and finished the quarter with momentum, while sales leading up to Christmas in our U.S. stores were a little softer than expected,” Chief Executive Officer Doug McMillon said in a (under)statement. He’s right: this is just how ugly the company’s current quarter was:

  • Q4 revenue $141.61 billion, missing the consensus estimate of $142.55 billion
  • Q4 EPS $1.38, missing estimates of $1.44
  • Q4 Walmart-only U.S. stores comparable sales ex-gas +1.9%, missing estimates +2.4%
  • Q4 Sam’s Club U.S. comparable sales ex-gas +0.8%, missing estimates +1.2%

The company also reported that free cash flow for 2020 was $14.55BN, down from $17.4BN a year earlier; most of this cash was sent back to shareholders in the form of dividends ($6BN) and repurchases ($5.7BN):

More ominous was Walmart’s far gloomier outlook for the coming year (at least compared to the jolly outlook published just 3 months ago):

  • Sees 2021 EPS $5.00 to $5.15, missing the estimate $5.22 (range $5.10 to $5.34) (Bloomberg Consensus)
  • Sees 2021 comp sales of 2.5%, missing the estimate 2.7%
  • Sees 2021 Sam’s Club U.S. stores comparable sales ex-gas at least +3%

So what happened? First, looking at the current quarter, Walmart’s holiday sales suffered the same fate as other retailers who were hurt by a shorter selling season, warmer weather in some regions and a lack of must-have items in key categories like toys and electronics. This prompted many analysts to ratchet down their expectations for Walmart in recent weeks.

“In the few weeks before Christmas, we experienced some softness in a few general merchandise categories in our U.S. stores,” Chief Financial Officer Brett Biggs said in the statement. Sales volumes were lower than expected and the company said it experienced margin pressure because of higher employee wages; and to think how eager WMT and its shareholders were to virtue signal by raising minimum wages ahead of time; we wonder if they feel the same way now.

Walmart’s lackluster results, following a similarly dour performance from Target Corp., heap more gloom on a U.S. retail sector that’s already grappling with store closures, bankruptcies and increasing uncertainty from China’s coronavirus. In its home market, where Walmart generates the lion’s share of its sales and profits, Walmart’s subpar holiday was due to softness in apparel, toys and gaming, Biggs told Bloomberg, echoing the reasons also cited by Target. In apparel, it carried too much seasonal merchandise, he said. Gross profit margins also declined in the quarter due in part to changes in employee pay incentives that were a bigger factor than anticipated as fewer workers skipped shifts during the season.

“There were a number of things that were market-related but some of it was on us,” Biggs said, adding that there was “not a lot of newness” in departments like toys and video games.

Additionally, as Bloomberg notes, 2020 is a key year for the world’s largest retailer, which has made massive investments in recent years to lower prices, expand its e-commerce operations and enhance employee wages and benefits. Now, shareholders want to see a return from all that spending, particularly at its U.S. online division, which needs to find a path to profitability as it battles Amazon.com Inc.

Well, that may be a major problem as Walmart forecast slowing online sales growth for the year (in addition to missing Wall Street expectations for quarterly sales and profit) hurt by a shorter holiday season and lower demand for apparel, toys and electronics. Specifically, Walmart said it expects online sales to grow about 30% for fiscal 2021, down from last year’s growth of 37%. For the holiday quarter, the company reported a 35% rise, its slowest in nearly two years. Biggs said domestic e-commerce losses were “higher than expected” last year, but will level off or decline in 2020, with details coming during presentationsto investors in New York.

Walmart’s curbside grocery pickup service has fueled most of the gains, but the company now needs to find a new pillar of growth online as the click-and-collect service is now available at 3,200 stores, more than half of its U.S. locations.

And the big wildcard: the full-year forecast excludes any potential financial effect from the coronavirus outbreak in China, the company said; that will prove problematic because as AAPL demonstrate, it is only a matter of time before the coronavirus impacts virtually every supply chain, including those of Walmart. The outbreak’s impact hasn’t been included the retailer’s full-year guidance but could lower first-quarter earnings by a couple of cents per share, Walmart Chief Financial Officer Brett Biggs said.

What may be the biggest surprise is that the market’s unprecedented complacency and kneejerk response to BTFD no matter what, saw WMT stock dip initially, only to rebound back in the green… perhaps because algos are convinced that even dumber algos will buy tomorrow.


Tyler Durden

Tue, 02/18/2020 – 08:28

via ZeroHedge News https://ift.tt/2vI4vcc Tyler Durden

Bloomberg Qualifies For Nevada Democratic Debate, Releases ‘AOC-Lite’ Tax Plan

Bloomberg Qualifies For Nevada Democratic Debate, Releases ‘AOC-Lite’ Tax Plan

Former New York Mayor Michael Bloomberg qualified on Tuesday to participate in this week’s Democratic presidential debate in Nevada, which will take place in Las Vegas Wednesday night. 

Bloomberg has vowed to leverage his fortune to defeat President Donald Trump, who has already raised a campaign war chest that dwarfs the money raised by the other Democratic rivals.

As Tom Steyer demonstrated during the pre-Iowa debate, it seems that money can buy you anything in America: even a spot on the debate stage.

It also rendered this SNL sketch eerily prophetic:

The media mogul has a net worth of $64 billion, and has openly said he will spend $1 billion or more to defeat President Trump.

Bloomberg received 19% of the support from an NPR/PBS NewsHour/Marist poll, which guaranteed him a spot on the debate stage in Las Vegas on Wednesday. 

His campaign said he’s ‘looking forward’ to joining the other Democrats on stage.

“Mike is looking forward to joining the other Democratic candidates on stage and making a case for why he’s the best candidate to defeat Donald Trump and unite the country,” a statement read, published by campaign manager Kevin Sheekey.

And based on the latest PredictIt odds, it looks like Bloomberg could be the new Democratic frontrunner after Joe Biden’s odds have plunged. 

How did Bloomberg, with his cardboard charisma and ‘Mr. Burns’ mannerisms, stage such a sudden and meteoric rise in the polls? Well, he’s definitely been helped by Biden’s implosion. But the difference-maker was definitely the $386 million+ he’s plowed into advertising and hiring massive, well-paid campaign operations, with campaign workers expecting to be employed into the fall.

In a shocking sign of just how far left Democratic candidates feel they need to go to succeed in the primary, the Bloomberg campaign leaked the candidate’s new ‘progressive’ tax plan to the New York Times: Highlights include a 0.1% transaction tax that many have warned would upend traditional Wall Street business models, tightening Volcker rule regulations (i.e. making it even more difficult for banks to hold large stockpiles of securities on their books), reviving the CFPB and expanding its jurisdiction, while requiring ‘too-big-to-fail’ banks to hold even more capital in reserve.

Instead of forgiving student loans, Bloomberg promises to enroll borrowers automatically in income-based repayment schemes that would cap payments at manageable levels, effectively promising to create a raft of student-loan ‘century bonds’ which we suspect will be very popular among yield-starved investors.

As the NYT points out, Bloomberg’s proposed Wall Street transaction tax is eerily similar to a proposal embraced by AOC.

Bloomberg is expected to officially announce the plan on Tuesday. Here’s a quick breakdown courtesy of the NYT:

  • A financial transactions tax of 0.1 percent
  • Toughening banking regulations like the Volcker Rule and forcing lenders to hold more in reserve against losses
  • Having the Justice Department create a dedicated team to fight corporate crime and “encouraging prosecutors to pursue individuals, not only corporations, for infractions”
  • Merging Fannie Mae and Freddie Mac
  • Strengthening the Consumer Financial Protection Bureau and “expanding its jurisdiction to include auto lending and credit reporting”
  • Automatically enrolling borrowers of student loans into income-based repayment schemes and capping payments

Apparently, even a billionaire can’t win the Democratic Primary without pandering to the left.

Bloomberg entered the presidential race two months ago, and has surged in the polls after skipping the first few contests (of course, he didn’t miss much in Iowa).

So will the 2020 race become a ‘battle of the billionaires’?


Tyler Durden

Tue, 02/18/2020 – 08:06

via ZeroHedge News https://ift.tt/37J3Rsk Tyler Durden

Global Stocks Slide After Apple Guidance Cut Is “Wake Up Call” To Zombified Investors

Global Stocks Slide After Apple Guidance Cut Is “Wake Up Call” To Zombified Investors

Two weeks ago, when looking at the supply-chain crippling consequences of the Coronavirus epidemic, we asked “Is Tech About To Suffer A “Dot Com” Bubble Collapse?” and concluded that “It’s now all in China’s hands” noting that “…while the market leaders did not disappoint in the last quarter of 2019 when stocks exploded higher with the blessing of the Fed’s QE4, what about the current quarter and the future? What happens to revenues and demand, to established supply chains, to profit margins, if the Coronavirus epidemic keep spreading and tens of millions of Chinese remain under quarantine? What happens to Apple’s iPhone sales in China if the Cupertino company is unable to reopen its store for a month, or two, or three?”

Then, a week later, just in case algos were still unclear who is most at risk to the coronavirus pandemic, we showed that “the one sector with the greatest exposure to Greater China and Asia Pacific in general, is also the sector that has outperformed the most in recent months. Tech.”

As such, while we were certainly not surprised to learn that AAPL took advantage of the quiet President’s Day Holiday to cut revenue guidance for the current quarter – guidance which it laid out just three weeks ago on Jan 28 – warning that production and retail store closures have lasted longer than “anticipated” just a month ago (despite our warning that AAPL would cut guidance just days after the company’s earnings release due to the coronavirus), judging by the plunge in AAPL stock which tumbled as much as 4% this morning, the AAPL news sure came as a surprise to all the millennials and algos that set marginal prices in this “market.”

“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.

The first is that worldwide iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated. The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues. These iPhone supply shortages will temporarily affect revenues worldwide.”

And to be fair, while many companies have by now issued warnings it seems it had to take Apple for the market to wake up, spooked amid hopes for a limited economic impact from the deadly coronavirus.

It wasn’t just AAPL however: HSBC – Europe’s largest bank – announced a massive restructuring that involved shedding $100 billion of assets and slashing 35,000 jobs over three years. It also warned about the impact of the coronavirus on its Asia business. The stock fell more than 2% in Hong Kong trade.

And as two of the world’s mega companies reported damage from the coronavirus outbreak, world stocks markets were knocked off record highs on Tuesday, with equities around the globe a sea of red, while Treasuries rose and the dollar edged higher.

The warning from Apple sobered investors who had hoped fiscal stimulus from China (which we reported over the weekend is not coming after the Global Times warned to brace for austerity) and other countries would protect the global economy from the effects of the epidemic, sending contracts on the three major U.S. equity benchmarks sharply lower, with Apple shares slumping as much as 4.2% in pre-market trading. We know, shocking, right: you can’t print your way out of a global viral pandemic.

“We have been pointing out that the market reaction in past weeks was excessively constructive and this could be a wake-up call to all investors that ignored so far potential negative impact,” analysts at UniCredit said.

“Apple is saying its recovery could be delayed, which could mean the impact of the virus may go beyond the current quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “If Apple shares were traded cheaply, that might not matter much. But when they are trading at a record high, investors will be surely tempted to sell.”

In Europe, tech stocks were the biggest laggards in the Stoxx 600 index as Apple suppliers including Dialog Semiconductor Plc and AMS AG slid. HSBC Plc tumbled the most in more than a decade after saying it will slash jobs in a “fundamental restructuring,” while also flagging risks due to the virus. Europe’s 0.4% to 0.5% declines came after Tokyo’s Nikkei dropped 1.4% as tech stocks globally reacted to Apple’s warning.  There was more bad news in Europe after Germany’s latest ZEW Economic Sentiment printed at a dismal 8.7, far below the 26.7 in January and a huge miss to the 21.5 expected, confirming that Germany’s economy is set for another slump and this time recession may be unavoidable.

Earlier in the session, Asian stocks fell as semiconductor equities took a hit on the Apple news, and as investors finally realized the virus outbreak in China is taking a bigger-than-predicted toll on one of the world’s most-valuable companies. The MSCI Asia Pacific Index dropped 1.1%, led by declines in technology and communication services shares. Most markets in the region were down, with South Korea’s Kospi index, Hong Kong’s Hang Seng Index and Japan’s Topix index sliding more than 1%. India’s Sensex index declined to two-week low. China’s CSI300 gave up 0.5% after gaining on Monday, encouraged by a central bank rate cut and government stimulus hopes. TSMC lost 2.9%. Samsung Electronics dropped 2.9% and Sony Corp shed 2.5% after the Apple coronavirus warning.

Meanwhile, as China’s authorities try to prevent the spread of the disease or at least fabricate data suggesting Beijing is winning the war on the coronavirus, the economy is paying a heavy price. Some cities remain locked down, streets are deserted, and travel bans and quarantine orders are preventing migrant workers from getting back to their jobs. In short, as we showed on Friday, China’s economy is “disintegrating” and frankly it is shocking it took the market as long as it did to finally realize it. As Reuters finally admits, “many factories have yet to re-open, disrupting supply chains in China and beyond, as highlighted by Apple.”

As investors dumped risk assets, bonds were in demand, with the 10-year U.S. Treasuries yield falling 4 basis point to just above 1.5%, while safe-haven gold rose to its highest in two weeks and oil prices fell nearly 2% after five days of gains. China’s 10-year government bond yield declined following a two-day rise, amid risk-off sentiment in Asia after Apple warned. Futures contracts on notes of the same tenor also rose for the first time in three days. That came despite the People’s Bank of China’s net withdrawal of 220 billion yuan worth of cash from the financial system on Tuesday. The central bank drained another 700 billion yuan Monday, even though it provided medium-term loans to commercial banks and cut the rate its charges for the money by 10 basis points.

“Sentiment toward global risk turned sour today,” said Dariusz Kowalczyk, an EM strategist at Credit Agricole. “We continue to believe that markets have not yet fully priced in the magnitude of the hit to China’s economy as a result of the Covid-19 outbreak.”

In FX, the yen rose 0.15% to 109.69 yen per dollar while the risk- and China-sensitive Australian dollar lost 0.4% to $0.6686. The yuan was steadier, trading at 6.9950 per dollar. The euro was near a three-year low versus the dollar at $1.0830 before Germany’s ZEW survey, which is expected to fuel growing pessimism about Europe’s largest economy. [/FRX]

Expected data include U.S. Empire State Manufacturing Survey. PG&E, Walmart, Air Canada, and Agilent are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 0.5% to 3,363.50
  • STOXX Europe 600 down 0.6% to 429.56
  • MXAP down 1.1% to 168.17
  • MXAPJ down 1.1% to 550.53
  • Nikkei down 1.4% to 23,193.80
  • Topix down 1.3% to 1,665.71
  • Hang Seng Index down 1.5% to 27,530.20
  • Shanghai Composite up 0.05% to 2,984.97
  • Sensex down 0.6% to 40,806.11
  • Australia S&P/ASX 200 down 0.2% to 7,113.70
  • Kospi down 1.5% to 2,208.88
  • German 10Y yield fell 2.1 bps to -0.422%
  • Euro down 0.06% to $1.0829
  • Italian 10Y yield fell 1.5 bps to 0.74%
  • Spanish 10Y yield fell 2.4 bps to 0.265%
  • Brent futures down 1.9% to $56.60/bbl
  • Gold spot up 0.5% to $1,588.52
  • U.S. Dollar Index up 0.2% to 99.22

Top Overnight News from Bloomberg

  • Apple Inc.’s shares fell 4.1% in pre-market trading after the company said the fallout from the coronavirus will cause it to miss its sales targets this quarter, sending shockwaves across tech stocks globally
  • Intesa Sanpaolo SpA launched one of the biggest European banking deals since the financial crisis with an unsolicited 4.9 billion-euro ($5.3 billion) bid for smaller rival Unione di Banche Italiane SpA
  • Investors have been plunged back into a gloomy mood over the German economy on concern the coronavirus outbreak in China will disrupt global trade, with expectations for the next six months falling below even the most pessimistic estimate in a Bloomberg survey
  • The U.K. economy created jobs at an impressive pace in the fourth quarter, defying the political turmoil over Brexit, with the jobless rate at a four-decade low of 3.8%

Asia-Pac equities traded with losses across the board following a non-existent lead from Wall Street, but as sentiment was dented following a profit warning by Apple, citing the coronavirus outbreak. At the electronic open, major US equity futures experienced downside, with Nasdaq Mar’20 futures immediately giving up the 9600 mark as Apple carries an 11%+ weighting in the index. ASX 200 (-0.2%) was led lower by broad losses across the majority of its stocks in the index, and with material names pressured amid a pullback in base metal prices and as mining-giant BHP traded lower despite topping Adj. EBITDA and underlying profit forecasts, as the miner anticipates net demand losses in the near term amid the virus outbreak. Nikkei 225 (-1.4%) conformed to the overall risk tone but underperformed the region throughout a bulk of the session amid currency dynamics, and with Nissan shares under renewed pressure after its CEO foresees challenges to earnings and cashflow for the remainder of the FY. Other notable movers from the Apple fallout included Samsung Electronics, Taiwan Semiconductor, SK Hynix and Pegatron whose shares all traded lower by 1.5-3.0%. Elsewhere, Hang Seng (-1.5%) and Shanghai Comp (U/C) joined the downbeat performance across the region, with the former weighed on by its heavyweight financials and oil-giants, whilst the latter fared slightly better following yesterday’s PBoC stimulus injection.

Top Asian News

  • How Fast Can China’s Economy Bounce Back from Virus Lockdown
  • Apple’s Outlook Cut Revives Questions About China Over- Reliance
  • Singapore Aims to Phase Out Internal Combustion Vehicles By 2040
  • AXA-Affin Insurer Said to Draw Great Eastern, Generali Interest

European equities (Eurostoxx 50 -0.4%) mostly reside in negative territory as the fallout from Apple’s (pre-market -3.3%), revenue warning reverberates across the marketplace. Apple ‘s warning for Q1 revenue guidance was attributed to the coronavirus with the Co. noting it is experiencing a slower return to normal conditions than had anticipated and noted slower demand in products in China alongside iPhone supply constraints. Given that rival peers will likely be subject to similar supply-chain disruptions, IT names lag this morning with ASML International (-2.0%), Dialog Semiconductor (-4.5%), STMicroelectronics (-3%) and Infineon (-1.5%) all enduring losses. From a more medium-term perspective (referring to the US semiconductor sector), Credit Suisse notes “while we expect Semis to trade lower – we would recommend investors who can look into 2H and beyond should use weakness to accumulate best in class companies with a solid structural outlook”. Elsewhere, given the broader macro implications of Apple’s warning, material names are also softer thus far with uninspiring updates from Glencore (-3.9%) and BHP (-2.6%) pressuring the sector. Financials are falling victim to lower yields and a lacklustre update from HSBC (-5.7%) with the Co. unveiling a 33% decline in profits and a restructuring plan that will lead to a job cull of around 35k. Bucking the trend of the pessimism in Europe is the FTSE MIB (+0.3%), in the wake of Intesa Sanpaolo’s (+2.0%) takeover approach for UBI Banca (+22%), which has also stoked optimism around the prospect of further sector consolidation in Italy.

Top European News

  • InterContinental Hotels Full Year Revenue Meets Estimates
  • U.K. Employment Surges as Labor Market Shrugs Off Weak Economy
  • Emissions Clampdown Sends Europe Car Sales to January Slide
  • German Investor Confidence Plunges Amid Coronavirus Risks

In FX, although daily updates from China continue to signal that the worst may be over in terms of coronavirus cases and casualties, Apple has joined others issuing warnings about the fallout hitting Q1 production and sales targets with wider repercussions for the tech sector and risk sentiment in general. Hence, the traditional safe haven currencies (and assets) have regained a firm bid after losing some appeal at the start of the week and the DXY is back on track to post higher 2020 peaks as it edges further above 99.000 with only the likes of the Yen, Franc and Gold managing to keep pace or stay ahead of the Greenback. Indeed, Usd/Jpy has eased back a bit further from recent 110.00+ levels, while Usd/Chf is gravitating back towards 0.9800 alongside Eur/Chf on the 1.0600 handle and Usd/Xau is just below Usd1590/oz compared to a low of Usd1579 yesterday. Back to the index, 99.249 resistance has been eclipsed and 99.500 is the obvious next target for bulls ahead of last year’s 99.667 best.

  • NZD/AUD/SEK/NOK – The Antipodes are vying with their Scandi peers for the unenviable, though largely unavoidable tag of biggest G10 lower, and the Kiwi is shading it as Nzd/Usd slips under 0.6400 and Aud/Nzd holds near 1.0450 even though Aud/Usd has lost grip of the 0.6700 handle in wake of RBA minutes also flagging the Chinese nCoV outbreak as the biggest near term threat and keeping a rate cut on the table. Meanwhile, the Swedish Crown has been undermined by a rebound in jobless rates and its Norwegian counterpart by a sharp retreat in crude prices amidst the broad deterioration in risk appetite, with Eur/Sek up over 10.5600 at one stage and Eur/Nok near the top of a 10.0220-10.1100 range.
  • GBP – Bucking the overall trend, and seemingly gleaning a belated fillip from encouraging UK jobs data (claimant count and employment change) Cable has recouped all and more of its losses around 1.3000 after testing major technical support at 1.2971 (where the 10 DMA aligns with a 50% Fib retracement), while Eur/Gbp has reversed from circa 0.8350 to just above 0.8300. Note, some selling subsequently noted in the headline pair around the 200 WMA (1.3038).
  • EUR/CAD – Both succumbing to widespread Usd strength, with the single currency also weighing up divergent independent factors in the form of a worrying ZEW survey in contrast to reports that all Eurogroup Finance Ministers are on board with apportioning some budget finances in the event of an economic downturn, whatever that is deemed to be in terms of severity and how much cash will be allocated. Eur/Usd skirting last week’s 1.0821 base vs around 1.0837 at one stage, while Usd/Cad straddles 1.3250 ahead of Canadian manufacturing sales and with the Loonie also hampered by the aforementioned recoil in oil.
  • EM – Further depreciation vs the Dollar across the board, but the Rand also wary about more Eskom load-shedding, while the Lira and Rouble are still embroiled in Syria-related issues, and the latter also undermined by heightened conflict in the Ukraine.

In commodities, WTI and Brent front month futures are subdued this morning with losses just shy of USD 1/bbl at present in-line with the general risk sentiment. Newsflow has picked up on the geopolitical front, although not enough to dictate price action at present; with focus returning to the ongoing dispute between Russia and Ukraine which has flamed up once more on reports of heavy fighting in the Lugansk province. Ukraine has one of the largest gas transmission systems in the world, which is heavily linked to Russian, Belarus, Poland and other surrounding nations; the region in question does contain a number of gas pipelines but it is unclear as to whether they are currently in use as a bypass has been constructed. Focus will remain on how this escalates, and if it leads to disruptions to gas supply. Sticking with Russia, the Kremlin this morning noted that Energy Minister Novak is still considering his position with reference to the recommended JTC production cuts. In terms of outlook, given the coronavirus ING have revised down their price forecasts as the virus causes consumption to drop; with cuts of USD 5/bbl for Q1 Brent (from USD 60/bbl to USD 55/bbl), although their forecasts are unchanged by 2021. Note, given the US holiday the weekly API and EIA metrics will be released one day late on Wednesday and Thursday respectfully. Turning to metals, where spot gold is firmer this morning on the aforementioned geo-political tensions and as the coronavirus begins to impact US tech giants; albeit, the metal has dipped marginally from session highs in recent trade ahead of the US’ entrance to market. Elsewhere, copper prices are little changed but were hit overnight in-line with general risk sentiment.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 5, prior 4.8
  • 10am: NAHB Housing Market Index, est. 75, prior 75
  • 4pm: Net Long-term TIC Flows, prior $22.9b
  • 4pm: Total Net TIC Flows, prior $73.1b

DB’s Jim Reid concludes the overnight wrap

In the same way a solar eclipse requires the sun and earth’s orbit to be completely in synch, tonight the orbits of my work travel and my favourite football team’s all conquering path through world football are perfectly aligned. After a busy day of meetings in Madrid (I had to say that) I’m off to the Wanda Metropolitan stadium to watch Liverpool take on Athletico Madrid in the Champions League. I’ve got a feeling I’m in the home end so if you’re watching it on the telly and see one guy with the opposite reaction to the rest of the surrounding crowd then you’ll know it’s me.

If you had to describe yesterday in football parlance it would be a dull 0-0 with no shots on target for either side. The US holiday and half term drove down activity to a crawl. However after the time that the US market would have closed had it not been on holiday Apple issued a revenue warning for Q1 and became the highest profile market victim of the virus impact so far.

The company said in a statement that while work is starting to resume in China, “we are experiencing a slower return to normal conditions than we had anticipated,” and global iPhone supply will be “temporarily constrained.” Apple suppliers including TDK Corp. (-3.87%) and Tokyo Electron Ltd. (-5.06%) slumped after the warning. Comments from Apple came after similar comments by the American Chamber of Commerce in Shanghai. They said that most US factories in China’s manufacturing hub around Shanghai will be back at work this week, but the “severe” shortage of workers due to the coronavirus will hit production and global supply chains. Our FX Analysts updated a piece yesterday that shows that our proprietary shipping data still hasn’t recovered yet post the NY holidays and virus shutdowns (link here). We’ll continue to watch this data for signs of economic activity picking back up.

Also impacting sentiment overnight is news from Bloomberg that the White House is considering new restrictions on exports of cutting-edge technology to China in a push aimed at limiting Chinese progress in developing its own passenger jets and also on clamping down further on Huawei’s access to vital semiconductors. The report added that senior officials are expected to decide by the end of this month whether to block exports of jet engines made by a JV of General Electric and France’s Safran to China. Further, the administration is also considering separate measures to broaden export controls related to the existing restrictions on Huawei by blocking foreign chipmakers, such as Taiwan’s TSMC and US suppliers, from selling components made overseas to Huawei.

Markets are heading lower in Asia this morning on the back off these stories with the Nikkei (-1.46%), Hang Seng (-1.45%), Shanghai Comp (-0.37%) and Kospi (-1.47%) all down. As for Fx, the onshore Chinese yuan is down -0.21% to 6.9958 and the Australian dollar is down -0.36% as the RBA said that it considered a rate cut at its last meeting but shied away from it to avoid extra borrowing as house prices rise. Elsewhere, futures on the S&P 500 are down -0.30% while yields on 10yr USTs are down -3.7bps as they reopened post a holiday with 30yrs back below 2% again. Brent crude oil prices are down -1.04% and spot gold prices are up +0.29%.

The latest on the virus is that in China the total confirmed cases now stand at 72,436 with the death toll at 1,868. Japan also said overnight that it will remove all passengers from the quarantined cruise liner by Friday. There were 454 confirmed cases of the virus on the ship by yesterday. Also worth flagging was the news yesterday that Macau casinos will reopen this Thursday, albeit conditional based on unspecified criteria according to the secretary for economy and finance in Macau.

This all followed a very uneventful session in Europe yesterday. The STOXX 600 closed up +0.34%, bucking two consecutive down days and traded in a range of less than half a percent as sentiment got a boost from the China stimulus announcement which came before Europe had walked in. There were similar gains also for the DAX (+0.29%) and CAC (+0.27%) while the FTSE MIB outperformed with a +1.02% gain. BTPs also had a better day than their counterparts, with yields down -1.6bps versus +0.1bps for Bunds although there didn’t appear to be any specific Italy-related news which helped the outperformance so it’s probably more the high beta element driving the price action.

Elsewhere, the euro was little changed after losing ground almost every day in February so far, while in commodities there wasn’t much to talk about in Oil or Gold either, with both also trading fairly flattish through the last 24 hours. Meanwhile in credit, HY spreads in Europe were -1.8bps tighter. Speaking of credit its worth seeing how Kraft Heinz bonds trade today following their downgrade to HY by Fitch and then later S&P on Friday. Given that the S&P move came very late in the day we haven’t really seen the full reaction yet. Craig and Nick put out a note yesterday which looked at the technical impact the downgrade will have on the HY market. It also looks at other potential fallen angel candidates and where their bonds trade relative to the average BBB- and BB+ bonds. See the US note here and the Euro one here. As we said yesterday this is a real glimpse into the future problems in credit markets. When the economy turns there will likely be a huge problem given the weight of weaker BBBs out there. For now though this is likely idiosyncratic.

BBB used to mean Brexit, Brexit and more Brexit until the recent lull in newsflow. In another glimpse of problems down the line, the U.K. chief Brexit negotiator David Frost last night aggressively pushed back on the EU’s insistence on a level playing field provision in trade talks saying that “We must have the ability to set laws that suit us” and that having to abide by EU rules “simply fails to see the point of what we are doing”. Not a surprise but confirms the expected likely high tensions ahead.

In other news, Bloomberg ran a story yesterday looking at the political frictions impeding another ECB rate cut. On a similar vein it’s worth highlighting a report our economists in Europe published on asking whether the ECB was heading for another showdown between the monetary policy technicians on the one side and the monetary policy politicians on the other. The team discuss the rising risks to their baseline assumption that ECB policy will remain unchanged this year. These are: First, the coronavirus. Second, the weakness of the euro area economy just before the virus. Some on the ECB see space for further easing, if needed. Others would find it more difficult to ease. There are arguments supporting a more patient attitude, that is, a less reactive policy stance. One main reason is that the more the ECB reacts to events the more it delays fiscal policy which is ultimately what the ECB wants. We suspect patience is also what Lagarde would prefer, as long as the euro area is not facing a substantial downgrading of the outlook.

Looking at the day ahead, this morning it’ll be worth keeping an eye on the December and January labour market data in the UK before we get the February ZEW survey in Germany. With the US returning, data releases will include the February empire manufacturing print and February NAHB housing market index reading.


Tyler Durden

Tue, 02/18/2020 – 07:51

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Franklin Resources To Purchase Legg Mason, Forming $1.5 Trillion AUM Giant

Franklin Resources To Purchase Legg Mason, Forming $1.5 Trillion AUM Giant

Franklin Resources Inc. announced Tuesday that it plans to buy rival asset manager Legg Mason in a deal for $50 per share, according to Bloomberg.

San Mateo, California-based Franklin, has $698 billion in assets, and Baltimore-based Legg Mason manages about $804 billion, would boost assets under management for Franklin Resources, owner of investment manager Franklin Templeton, to $1.5 trillion after the deal closes.

The story is developing… 


Tyler Durden

Tue, 02/18/2020 – 07:46

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HSBC To Cut 35,000 Jobs, Shed $100 Billion In Assets As Profits Plunge

HSBC To Cut 35,000 Jobs, Shed $100 Billion In Assets As Profits Plunge

Banks around the world are supposed to benefit the most from central banks inflating assets, and hyperinflating stock markets, but over the past few years, central banks have instead caused some of the biggest bank job cuts in half a decade. 

HSBC, Europe’s largest bank and troubled lender, although not nearly as troubled as Deutsche Bank, said it would cut upwards of 35,000 jobs, shed $100 billion in assets, and take a massive $7.3 billion hit to goodwill as part of a major overhaul under Chairman Mark Tucker, the company said in a press release on Tuesday morning.

This comes months after HSBC’s interim CEO Noel Quinn unveiled plans to “remodel” large parts of the bank. The restructuring of the London-based bank is being led by Quinn, who replaced John Flint in August on an interim basis. Quinn is vying for the permanent role of CEO, which the bank said will be decided this year.

Europe’s biggest bank by assets is expected to focus more on Asia and the Middle East, while it winds down operations in Europe and the US; HSBC derives at least 50% of its revenue in Asia. The bank said net profit plunged 53% to $5.97 billion last year, due to the $7.3BN goodwill hit and also thanks to the record low interest rates and NIRP unleashed by central banks.

Tucker said the bank faces substantial challenges in the UK, Hong Kong, and mainland China. He also issued a warning over the Covid-19 outbreak in China and quickly spreading across Asia to Europe, indicating that the virus could impact the bank’s performance this year.

Quinn confirmed the bank would cut 15% of its workforce over the next two-three years. This is on top of the 10,000 jobs it axed in Oct.

“The totality of this program is that our headcount is likely to go from 235,000 to closer to 200,000 over the next three years,” Quinn told Reuters. adding that “HSBC will be “exiting businesses where necessary.”

“Around 30% of our capital is currently allocated to businesses that are delivering returns below their cost of equity, largely in global banking and markets in Europe and the U.S.,” he noted.

In its long-struggling U.S. arm, Quinn said HSBC will cut assets in investment banking and markets by almost half, and shut around 70 of its 229 branches. As of September, HSBC was the U.S.’s 14th largest commercial bank according to Federal Reserve data, with around $181 billion assets. Mr. Quinn said he had considered putting the unit up for sale but decided against it because the U.S. is a crucial part of the bank’s global network.

HSBC shares slid 6% on the restructuring news on Tuesday morning:

The benefits of the restructuring will be evident largely from 2023 onward, said Citigroup analyst Ronit Ghose, who recommended investors sell HSBC shares.

And to think it was only last year when 50 banks laid off 77,780 jobs, the most since 91,448 in 2015. 

With the global economy quickly decelerating, and a virus shock that could tilt the world into recession, if we had to guess, tens of thousands of more banking jobs will be slashed this year.


Tyler Durden

Tue, 02/18/2020 – 07:04

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