Tag: news

Esoteric credit products like CDOs and CLOs gained mainstream notoriety ten years ago as politicians, pundits and a deeply humbled Wall Street accused them of helping to nearly destroy the global economy. But a few years ago, banks started looking for new ways to package and sell “safe” high-rated CLOs and other products based on the newly ascendant leveraged loans.

Now, it seems, lenders are facing a perfect storm: With the Fed making a foray into the corporate credit market, part of the central bank’s quest to make investing losses a thing of the past (at least for now – or for as long as it can) and Robinhood-enabled retail traders buy up tech stocks, bitcoin, gold (or at least the precious metals ETFs that offer ‘easy exposure’ to gold and silver), ETF sponsors are quickly dreaming up new products to hawk to this newly invigorated generation of retail bagholders traders who understand only one thing about market dynamics: Prices simply don’t go down.

And with brokerages now relying on bundling retail trades and selling ‘order flow’ to the big HFT firms – all of Robinhood’s established competitors have now adopted this business model as commissions have gone out of fashion – there’s a new perverse incentive to create products that will encourage mom-and-pop traders to play in markets previously reserved for institutional traders. And the latest example of this comes via Janus Henderson, the $337 billion asset manager that just filed to launch a new ETF that will allow Robinhood traders to buy into the highest-quality AAA-rated CLOs.

At this rate, retail traders will pile in to this new and exciting market just as the wheels are coming off.

At a time of mounting corporate defaults and deepening economic gloom, a new fund may be about to bring collateralized loan obligations to the masses.

Janus Henderson is planning a U.S. exchange-traded fund that will seek floating-rate exposure to the highest-quality CLOs, according to a filing with the Securities and Exchange Commission this week. While many loan ETFs exist, there are currently none dedicated to CLOs.

CLOs, which package and sell leveraged loans into chunks of varying risk and return, have drawn scrutiny in recent months as the coronavirus pandemic spurs a wave of corporate distress. They typically don’t attract retail investors, though an ETF would in theory make them far more accessible.

Wary day traders can rest assured: because the loans comprising these CLOs are among the safest and most highly rated on the market.

The riskiest corners of the $700 billion CLO market may be signaling trouble, but the highest-rated tier tends to be a safe space, he said.

“In the case of AAA CLOs, it’s a safe and low-risk asset class,” said the chief investment officer. “Yields are fairly low on AAA CLOs in the first place, but if investors can earn 150 to 175 basis points of spread on a short duration asset, it can be attractive.”

And with the Fed bent on keeping rates low until things get “back to normal”, this might be only the beginning.

The central bank’s intent to keep them low for the foreseeable future could mean the more-than $4 trillion U.S. ETF market sees a spate of launches like the fund planned by Janus Henderson, according to Ken Monahan at Greenwich Associates.

“Given that yield suppression is here to stay it would seem, you’ll probably see a lot more of this,” said the senior analyst covering market structure and technology. “RMBS and CMBS are probably not far off.”

CLOs are a cousin of collateralized debt obligations, which became notorious for their starring role in the 2008 financial crisis.

There are several major differences, however, not least that CDOs bundle loans to consumers rather than businesses.

But once the Fed backstop is removed – if that ever happens – the only real beneficiaries of this product will be the fund sponsors who collect the management fees, and the HFT firms who front-run the order flow in the underlying CLOs.

By Greg Miller of FreightWaves,

Pre-COVID, the bull case for shipping rates was all about plunging newbuild orders. A drop in orders in 2019 pointed to rising freight rates in 2021, given the lag between contract signing and delivery. Mid-COVID, the bull case for rates is even more about plunging newbuild orders than before. There will be a lot fewer vessels on the water in 2021, 2022 and beyond than previously thought.

New data provided to FreightWaves by U.K.-based VesselsValue confirms that 2020 is shaping up to be an exceptionally weak year for tanker, bulker and container-ship orders.

New data from Alphaliner shows that container-ship newbuild capacity is down to just 9.4% of capacity on the water. “For the first time in more than 20 years, the global newbuilding pipeline fell below the 10% threshold,” reported Alphaliner on Wednesday, calling it a “historic low.”

Tanker and bulker orderbooks

According to VesselsValue, the tanker orderbook has fallen to 9% of the operating fleet in terms of capacity (measured in deadweight tons or DWT) as of July. This is down sharply from a high of 23% in January 2016.

The dry bulk orderbook is only 7% of the on-the-water fleet. This is down from 24% in January 2015 and an even higher peak — 27% — in January 2010.

The number of ship orders year-to-date is extremely low. VesselsValue data shows just 134 tanker orders through July, 28% below last year’s pace, despite historically high spot rates. Only 88 bulkers are on order, 31% below last year’s pace.

Clarksons Platou Securities has released data for specific tanker and bulker segments. For very large crude carriers (VLCCs, 200,000-plus DWT), the orderbook is only 7.4% of the on-the-water fleet. For Suezmaxes (120,000-199,999 DWT), it’s 11.3%.

In the products sector, the ratio is just 6.5% for medium-range (MR) tankers (30,000-59,999 DWT). It is 0.8% for long-range 1 (LR1) tankers (60,000-79,999 DWT) and 9.6% for LR2s (80,000-119,999 DWT).

In the dry bulk sector, Clarksons puts the orderbook-to-fleet ratio at 10% for Capesizes (120,000-plus DWT). It is 8% for Post-Panamaxes (85,000-119,999 DWT) and 6.8% for Panamaxes/Kamsarmaxes (65,000-84,999 DWT).

Container-ship orderbook

According to Alphaliner, the container-ship orderbook is down to just 2.21 million twenty-foot equivalent units (TEUs). This contrasts to a high of around 7 million TEUs in 2008. In that year, orderbook capacity was more than 60% of on-the-water capacity.

Of ships on order, virtually all are in the 10,000-plus TEU category or the 3,999-TEU-or-less category. There are effectively no orders in the midsized 4,000-9,999 TEU category.

Fear of premature obsolescence

Orderbooks are evaporating for two main reasons. The first is regulation. The International Maritime Organization (IMO) has vowed to create rules to compel shipping to cut greenhouse gas (GHG) emissions by 50% by 2050, a regulatory target known as IMO 2050. Owners don’t want to order until they know the rules, lest their assets suffer premature obsolescence.

As Star Bulk (NASDAQ: SBLK) President Hamish Norton explained during a Marine Money virtual forum in June, “What may be legal today may not be legal in five years. In the old days, ships were grandfathered in until the end of their useful life. Given the political situation, people are afraid — I think with good reason — that a ship they order today will not be grandfathered in, and will become obsolete.”

Coronavirus effects

The second reason for the orderbook shortfall is COVID-19. Travel restrictions in the first half of the year made newbuild contracting extremely impractical. Furthermore, current and future economic fallout make it much tougher to pull the trigger on orders and get financing. “If economic uncertainty can be measured by ship-ordering activity, then shipowners must be feeling completely lost at the moment,” wrote Stifel analyst Ben Nolan in a recent research note.

The pricing of secondhand ships is also undercutting the case for newbuilds. Newbuild prices are at too high a premium to secondhand prices for most orders to make sense.

Stamatis Tsantanis, CEO of Seanergy (NASDAQ: SHIP), explained during a Capital Link webinar last week that a secondhand 5-year-old Capesize costs around $30 million, whereas a newbuild costs $50 million. “The price differential is not justified by the incremental earnings [of the newbuild],” he pointed out.

Risks to rate upside

The IMO 2050-coronavirus one-two punch sounds like a guaranteed recipe for future freight-rate strength. But there are no guarantees in ocean shipping. Following is a devil’s advocate list of things that could go wrong:

Cargo demand could slump — A multiyear virus-induced recession or depression could cut cargo demand as much or more than vessel capacity. This would erase owners’ future rate-negotiation advantage.

Another demand risk relates to GHG emissions. If the world’s governments are serious about forcing GHG cuts by shipowners, wouldn’t they also force cuts of fossil-fuel consumption? And if so, wouldn’t this reduce future demand for tankers, bulkers and gas carriers?

Shipping regulations are not a sure thing — The IMO has no power to enforce regulations. Only IMO member nations do. GHG regulations for shipping can only move forward if they’re supported by countries with the most to gain from ocean trade, and by the world’s largest charterers.

The coronavirus changes the equation. One theory is that the cleaner post-lockdown skies and waters will drive momentum for environmentalism and GHG regulation. In this scenario, shipping decarbonization is more likely.

Another theory is that the outbreak will spur an extended period of economic pain and geopolitical unrest. In this scenario, countries would focus on rescuing economies and keeping transport costs cheap, making shipping decarbonization less likely.

If owners believe GHG regulations face significant delays, or may not happen at all, they could lose their fear of ordering.

Orders may go forward regardless of IMO 2050 and COVID headwinds — If rates jump in 2021-22 due to lower vessel supply, owners could decide to order regardless of the premature-obsolescence risk, on the belief that they’ll earn sufficient returns before obsolescence strikes. This would limit the duration of the upcycle.

Alternatively, if there is a deep economic slump due to the coronavirus and owners do not order ships, there could still be newbuilds — a lot of newbuilds.

Commercial shipbuilding is almost entirely based in China, South Korea and Japan. Asian governments could fill yard slots with orders by state-controlled shipowners tapping state-backed financing.

This would not only preserve Asian shipbuilding jobs, it would also depress freight rates — a plus for economies that benefit from cheap transport of raw-material imports and finished-goods exports. Economies like China’s.

Talk to a shipping veteran who has been around since the 1980s and the conversation will often turn to the infamous Sanko orders. In 1983, Japan’s Sanko Steamship Co. placed a $1.25 billion order at Japanese yards for 103 dry bulk newbuilds totaling 4 million DWT. The order helped Japanese yards but crippled rates for years.

The fear, if orders don’t pick up, is that an Asian shipbuilding nation will “pull a Sanko.” Most likely, China.

Judging by recent statements out of Russian media, the Kremlin has been closely monitoring just where the Pentagon intends to send the some 12,000 troops ordered to permanently depart Germany, after the Trump administration slammed Berlin for not shouldering its fair share of NATO defense spending.

While its believed the majority will be returning home, with a little less than half to return be redeployed around Europe, on Friday Poland indicated some will be deployed right near Russia’s doorstep. As the Defense Post reported:

Washington will deploy at least 1,000 soldiers in Poland and oversee forces on NATO’s eastern flank, Defense Minister Mariusz Blaszczak said Friday after the US announced a massive troop pullout from Germany.

Blaszczak told a Polish public radio broadcaster, “At least 1,000 new soldiers will be deployed in our country,”

“We will have an American command in Poland. This command will manage the troops deployed along NATO’s eastern flank,” he said.

“It will be the most important center for ground forces in our region,” he said. “We will soon sign the final pact with the Americans.” The Trump administration has long been in negotiations as part of an ongoing deal with Warsaw which cements closer defense ties, something which has riled Moscow.

Further angering the Kremlin is that Secretary of Defense Mark Esper last week said the Germany withdrawal will reinforce NATO’s south-eastern flank near the Black Sea, due to the redistribution of American forces. It’s expected that many could go to Baltic countries as well as Italy.

Meanwhile, last month it was reported that the Polish proposal to rename a base “Fort Trump” – which would host US troops in the East European country – has crumbled over disagreements over funding and precisely where the soldiers would be garrisoned.

Authored by Elias Marat via TheMindUnleashed.com,

Workers at a popular safari park are on edge after baboons were spotted wielding tools like knives, screwdrivers, and even a chainsaw. And to make matters worse, the primates are having a blast using the tools to terrorize visitors’ cars.

The baboons at Knowsley Safari Park in Merseyside, England, have long enjoyed the ignominious reputation of being extremely destructive mischief-makers who were previously infamous for nabbing objects from the cars of visitors, including side-view mirrors and windshield wipers.

One mechanic in nearby Sale said that he’s had two customers this year alone who needed work done after the monkeys went to town on their cars.

“The kids start chirping up saying they want monkeys all over the car, and the next thing you know, you’re driving home with no registration plate,” the mechanic said.

However, some local workers worry that the creatures are possibly being given the weapons and power-tools “for a laugh” by equally mischievous park-goers, reports the Sunday Times.

“We’re not sure if they are being given weapons by some of the guests who want to see them attack cars, or if they’re fishing them out of pick-up trucks and vans,” one worker said.

Given the primates’ history of thievery, it would make sense that the baboons themselves are taing it upon themselves to find goods hidden in toolboxes scattered across the 550-acre safari park.

“One of the baboons was seen lugging around a chainsaw,” the worker added.

However, given the frequency with which the baboons have been sighted walking about with knives or screwdrivers in-hand, suspicion has been raised about how they are suddenly so well-supplied to wreak havoc.

“The baboons have been found with knives and screwdrivers. I do wonder if it’s some of the guests handing them out,” a source told Daily Record.

The safari park, which hosts a range of individual creatures including rhinos, lions and tigers, reopened last month after being closed due to the coronavirus pandemic. Aquariums and other zoos were also given the green light by the U.K. government to resume operations following the lockdown.

On the park’s website, potential visitors are assured that while proper public health measures are in place and people are restricted to their cars, a similar guarantee can’t be made about the problems caused by the baboobs.

“If you take a drive through our Baboon Jungle, we’re unable to return any car parts that our cheeky baboons may take,” the website noted, adding that a “car friendly route” is also an option.

Managers at the safari park are skeptical about whether the tales of knife-wielding baboons stalking park grounds is true, shrugging it off as an urban myth.

“We believe many of these stories have grown in exaggeration as they’ve been retold, with embellishment to make the objects that are sometimes found in the enclosure seem more exciting and unbelievable,” the park said.

France is getting greener.

A series of measures have been announced aimed at making the economy more environmentally friendly such as a ban on outdoor heaters at bars and restaurants, more efficient domestic heating systems and two regional parks. Most importantly though, as Statista’s Niall McCarthy notes, the country has set a goal to reduce nuclear’s share of electricity generation from its current 70 percent to 50 percent by 2035.

The change in direction comes amid the controversial construction of the Flamanville EPR nuclear reactor by state-utility EDF which is more than a decade over schedule and is expected to cost €12.4 billion compared to an initial budget of €3.5 billion. It is finally expected to start operation in 2023. France also appointed former green politician and nuclear critic Barbara Pompili minister for the environment earlier this month.

As this infographic, based on the 2019 World Nuclear Industry Status Report, shows, no country is as reliant on nuclear energy as France.

You will find more infographics at Statista

It operated 58 reactors last year, second only to the United States’ 97, and they accounted for 71.7 percent of total electricity generation. The U.S. reactors had a 19.3 percent share of total electricity generation.

After France, the countries most reliant on nuclear power are all concentrated in Eastern Europe. Reactors generate between 50 and 55 percent of all electricity in Slovakia, Ukraine and Hungary. Sweden is also high up on the list with just over 40 percent, with Belgium (39 percent) and Switzerland (37.7 percent) close behind.