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Two weeks ago we previewed how, in the aftermath of the ECB’s stunning announcement the hedge fund masking as a central bank would start buying investment grade corporate debt, it is only a matter of time before the ECB is forced to buy junk bonds too.

there’s no reason to believe Draghi will stop at IG debt going forward. There’s a kind of one-upmanship going on among DM central bankers and with his massive book full of Japanese ETFs not to mention his monetization of the entirety of JGB gross issuance, Kuroda is still the archetype against which all Keynesian craziness is measured. When judged against the BoJ, the ECB probably still has a ways to go before hitting the limits of central banker insanity and so, we think it’s entirely possible that Draghi moves into HY next.

We then cited an analysis by BoA’s Barbany Martin according to which if the ECB wants to avoid getting caught up in having to potentially make decisions on corporate tenders, then it may focus on buying bonds with maturities of 5yrs and higher. “But if we exclude 1-4yr bonds…

… then this shrinks the ECB eligible universe from €550bn to only €361bn – just 22% of the true European IG credit market size.”

Barnaby’s conclusion when looking at the rapidly shrinking universe of eligible bonds: “[this] potentially means that the ECB might have to consider buying BBs down the line.” And after BBs come Bs, CCCs, CCs and so on.

* * *

This was not lost on the market, which is now frontrunning not just what the ECB has announced it will buy but what it may buy, just led to a record European junk bond issuance when French cable and telecom operator Numericable “stunned the market” (as Reuters put it), when it upsized what was originally supposed to be a $2.25 deal by more than 100% to a whopping $5.2 billion bond deal on Wednesday. This was the largest single high-yield bond tranche ever issued.

As Reuters reports, Numericable first upsized the deal to US$3bn one day after the launch. “Investors had expected the first upsize as it allowed Numericable to fully refinance an outstanding 2019 issue, but several said they were caught completely off guard by the final increase to US$5.2bn.“

“I can only think that there were some massive late orders, or perhaps the bank debt guys offered to roll into the bond,” said one trader, referring to the US$1.9bn of term loans Numericable said it would repay with the additional debt.

According to IFR, the US$5.2bn print makes it the largest junk bond issue ever. The previous largest bond sale was Sprint’s US$4.25bn 7.875% 2023 note issued in September 2013.

There is one junk bond outstanding that is larger, and that is the Petrobras US$5.25bn 5.375% of 2021, but that one is a fallen angel, and was issued in 2011 when the parent company still had an investment-grade rating.

As was to be expected, the bonds promptly traded above par on break in the secondary market, and were bid up a point at a 101 cash price.

But for a true perspective of how insane the ECB inspire frenzy is, Reuters says that the deal ended up three times oversubscribed, translating to a US$15bn final book. What junk bond drought?

Regarding the use of funds, Reuters notes that company owner Altice’s billionaire founder Patrick Drahi has built his cable and telecommunications empire through a string of aggressive debt-backed acquisitions, but the company is now indicating that its focus has shifted to fine-tuning its operations and pushing out debt maturities. While the new issue came at a relatively high 7.375% coupon, Altice said on Thursday that it would equate to 5.7% when swapped back into euros. The refinancing exercise also leaves Numericable with “no material debt repayments due until 2022”.

We doubt that, and are fairly confident that with so much dry powder, the cable company will promptly rush out with an acquisition spree, purchasing shady “growthy” companies.

That, or company owner Patrick Draghi smells a shutdown of the bond market and is scrambling to raise as much cash as he can while the window is open:

“My takeaway from this is that Patrick Drahi is very bearish on funding markets over the next few years,” said a high-yield fund manager. “With the swap, they’re getting a decent price to massively term out their debt. This means that Numericable can ignore the capital markets for years now if it has to.”

It was not immediately clear what if any covenants the bond deal had, but we somehow doubt the bondholders will be able to ignore the company’s financials for years, especially if Europe slides back into recession and the cash flow dries up.

In any case, congratulations to the underwriters, of which JP Morgan was lead with BNP Paribas, Deutsche Bank, Barclays, Bank of America Merrill Lynch, Credit Agricole, Goldman Sachs and Morgan Stanley bookrunners.

Ultimately Drahi may be right and the “Dragi frontrunning” window will close, but for now, Europe is accepting junk debt with open  arms. Now if only all those junk debt starved US shale companies could figure out a way to be redomiciled in Europe with hopes that the Frankfurt-based hedge fund will backstop their future junk bond issuance, then oil would promptly go below $20 in no time.

via Zero Hedge http://ift.tt/1PZ33P4 Tyler Durden

Submitted by Louis Rouanet via The Mises Institute,

To my British and American friends who must deal with the socialist nonsense of Bernie Sanders and Jeremy Corbyn, I found this poem. It was written by Rudyard Kipling, the writer most hated by English Socialists in the 40s and an opponent to the interventionist policies implemented by the Labour Party after the second world war:

In the Carboniferous Epoch we were promised abundance for all,

 

By robbing selected Peter to pay for collective Paul;

 

But, though we had plenty of money, there was nothing our money could buy,

 

And the Gods of the Copybook Headings said: "iƒ you don’t work you die."

This poem is not an exaggeration. At the time, it was decreed by the Control of Engagement Order that “no man between the ages of 18 and 50, or woman between the ages of 18 and 40, can change occupations at will. The Minister of Labor has the power to direct such workers to the employment he considers best for the national interest.” This Order was abolished only in March 1950.

At the time, the consequences of "democratic socialism" were disastrous: no food, no housing, no clothing, no fuel. By 1948, rations had fallen well below the wartime average. At the same date, one could read in The New Statesman, which was by no means a virulent opponent of Planning: "You may have social security, but you cannot go into a store and buy two quarts of milk." To which an English commentator replied: "You not only cannot buy two quarts of milk. You cannot buy one. You can only get two quarts of milk on your doorstep a week. If you try to get more you are apt to land in jail."

Planned chaos was the logical outcome of the foolish socialist policies implemented by the British government. John T. Flynn, the great libertarian journalist, in his book The Road Ahead (1949) noticed the devastating effects of government intervention in housing. He wrote:

The bombs and guided missiles that destroyed 300,000 British dwellings in World War II were not the worst enemies of British home ownership. That honor is reserved for the persons who advocated laws for "low-cost public housing" and for "cooperation" between government and private enterprise in housing for low income groups.

 

Great Britain is spending as large a proportion of its income on housing as it did before the war, but it is getting barely half the number of homes. During 4 years after World War II, only 367,761 permanent houses were built, compared with a total of 2,500,000 in the 8 years before the war, of which 1,888,000 were built by private enterprise. Owing to the greater need for housing, and 300,000 dwellings having been made uninhabitable by the war, various types of housing and control acts were passed. But, inevitably, the more control, the less housing.

In January, 1947, a great plan for affordable/free housing was announced by the government. It was supposed to furnish 250,000 houses in the year. The government went on with the plans and mobilized all sorts of resources: plaster, cement, plumbing, nails, brick and other materials necessary were ordered and produced. But after some time, it was discovered that lumber could not be supplied for more than 60,000 houses. The great plan failed miserably, falling short by 190,000 houses. In the meantime, all the other materials were being furiously produced and it was also discovered that there was not enough labor to produce them. Bricks, plaster, and other things produced were pilling up, wasted for lack of buyers. The plan was a pathetic fiasco. Whether it is Sanders or Corbyn, the policies they support will fail for the same reason socialism failed in the post-WWII United Kingdom. One does not have to think much to understand the parallel between the “affordable housing” policies of the English Labour Party and the request for “free” education or health care. It will fail because governments cannot operate rational allocation of resources, because markets are necessary to the good functioning of an economy.

In fact, "democratic socialism" was such a failure in post-WWII England that a long-time member of the Labour Party, Alfred Edwards, had to admit:

I have spent years discoursing on the defects of the Capitalist system. I do not withdraw those criticisms. But we have seen the two systems side by side. And the man who would still argue for socialism as the means of ridding our society of the defects of capitalism is blind indeed. Socialism just does not work.

Bernie Sanders and Jeremy Corbyn may like post-WWII England and its so-called “social policies.” The truth however is that no one really wants to go back to a time were government was running every aspect of your life, to a time were shortages, rather than prosperity, was the rule.

via Zero Hedge http://ift.tt/1PZ1PU7 Tyler Durden

Do not panic: there’s plenty of time to rig these markets back into the green for year yet.

 

Time for the 3:30pm ramp to show what it can really do…

via Zero Hedge http://ift.tt/1qyGts6 Tyler Durden

‘Higher’ is always better, right?

 

 

Source: Investors.com

via Zero Hedge http://ift.tt/1RJjzbG Tyler Durden

Authored by Darrel Delamaide via MarketWatch.com,

The mainstream media is misleading the public by adopting a “fuzzy math” in treating the delegate counts for the Democratic nominating convention as carved in stone.

Given its bias against Donald Trump, the media are happy to parrot the Republican establishment’s prediction that their convention in Cleveland will be an “open convention” — that is, open to manipulation by the apparatchiks and the rules they set.

By the same token, given its pronounced bias in favor of Hillary Clinton, the media gladly repeat the spin of the Clinton campaign and the Democratic establishment by portraying that party’s contest as essentially over.

Not only compromised television anchors like MSNBC’s Chris Matthews, whose wife is drawing support from various Clintonites in her bid for a congressional seat in Maryland, are implying that the Democratic frontrunner’s lead in delegates is insurmountable. As a rule, pundits and even print reporters glibly adopt the inevitability spin.

So when campaign strategists for Bernie Sanders hint at a contested convention, the Clinton campaign is quick to tweet “delusional,” and the press is happy to fall in line.

Even the redoubtable Nate Silver, whose FiveThirtyEight team so brilliantly charted Barack Obama’s electoral victories in 2008 and 2012, has gone along with the presumptions and polls that make a Clinton nomination all but certain.

Even so, Silver and his team have enough sense to leave the superdelegates out of the equation for the present.

Having set a target of how many delegates the two candidates must get in each primary to reach the 2,026 needed for a majority of pledged delegates, the FiveThirtyEight tracking currently has Clinton at 107% of her target and Sanders at 93%.

However, Sanders has met or exceeded his targets in seven of the last eight contests, while Clinton has fallen short six out of eight, so the momentum suggests Sanders will continue to narrow that gap.

The delegate math that considers Clinton the inevitable winner, then, is based on the presumption that the 469 superdelegates — elected officials and party leaders — who have previously declared their support for Clinton will in fact vote for her.

Yes, they may, but the fact is they are not “bound” in the same way pledged delegates in the primary contests are. They can change their minds at will.

The objective of Sanders campaign is to create sufficient political pressure for them to do so in large numbers.

The strategy depends on Clinton not winning enough pledged delegates in the primaries to clinch the nomination before the convention.

Even though Clinton currently has a lead of 211 among pledged delegates, 1,301 to 1,089 for Sanders, she would need to win more than 60% of the remaining primary delegates to reach the 2,383 needed to clinch the nomination, according to Slate’s Josh Vorhees.

That’s a steep hill to climb for a candidate who has lost seven of the last eight primary contests. If Sanders can win or keep the margins narrow in the big-state contests of New York, Pennsylvania and California, he will certainly succeed in keeping Clinton from clinching the nomination with pledged delegates.

Then the choice at the convention in Philadelphia comes down to the superdelegates.

There is little reason at present to presume they would abandon their support for Clinton but any number of things could change their minds between now and July — a Sanders victory in New York or another big state, further damaging news on the FBI’s investigation of Clinton’s email practices, a major gaffe or embarrassing video by the frontrunner, among others.

For the sake of argument, a graphic in Thursday’s Wall Street Journal showed that if superdelegates switched their endorsements in proportion to how their states voted, Sanders’s deficit would shrink to 19 (202 for Clinton vs. 183 for Sanders) from the current lopsided 438 (469 vs. 31). Note there are 712 superdelegates altogether.

Of course, if Clinton is ahead in pledged delegates at the convention and superdelegates were to vote in the same proportion, the former secretary of state would get the nomination.

But the superdelegates are there precisely to use their seasoned judgment about which candidate in a contested primary is better suited to win the general election.

Clearly the Democratic establishment at least for now feels that would be Clinton.

But if Sanders continues to win primaries, rack up delegates, raise tens of millions of dollars a month in campaign contributions, draw massive crowds to his rallies, and score double-digit leads against Clinton in demographics the party needs to win the general election – they will have to ask themselves some hard questions if the final count is close.

Who will lead the Democratic Party in the general election is a political question, not a mathematical one. If Sanders’s momentum continues to grow, the superdelegates would ignore that fact at their peril.

via Zero Hedge http://ift.tt/1qAV1rm Tyler Durden

Several days ago, following the latest M&A deal to blow up and rock the hedge fund world when the US Treasury ended the Pfizer-Allergan deal, we were wondering with event/arb funds would be most impacted. We now of know at least one, and it’s a name that has been hit not only on M&A arbs blowing up, but also on some core hedge fund hotel names such as Allergan getting crushed in the 2016.

We are talking about John Paulson, whose performance in the past few years has been rather deplorable (in the past five years, he only made money in 2013, when the offshore Advantage Plus made 32.4%).

According to Bloomberg, Paulson had another abysmal month in March when his Advantage funds both dropped 7%, bringing their YTD loss to -15%, and making Paulson one of the worst performers YTD, in the company of such former HF luminaries as Chase Coleman, Bill Ackman and Larry Robbins. His return since then is likely even worse, considering his substantial stake in Allergen which earlier this week plunged 20% after the Pfizer deal was called off.

Then again, considering his historical returns (-51% in 2011; -19% in 2012; +32 in 2013; -36% in 2014), this is probably not too surprising.

Paulson is just one of many hedge fund managers having a bad year. As the following, which table breaks down the marquee hedge fund names, shows merely beating the S&P500 continues to remain an elusive goal for more than half of the “smart money” out there.

 

Here, courtesy of HSBC, are the top 20 best and worst hedge funds through the first week of April. And yes, the aptly named Tulip Trend Fund continues to crush everyone else into submission for another month running.

via Zero Hedge http://ift.tt/25PLX1V Tyler Durden

Via Dana Lyons' Tumblr,

High beta stocks recently hit a wall of resistance – and lost.

The theme of many of our equity posts over the past 2-3 weeks has focused on the approaching (or present) considerable price resistance on the charts of most major, and minor, indices. Not surprisingly, the post-February rally has shown signs of slowing down recently as this resistance has come into play. Even if the market is in the early stages of a longer-term rally, a pause here would not be unexpected. The nature of the price reaction here, however, should tell us whether it is merely that – a pause – or the end of the line for this rally.

One development that would go a long way toward the “merely a pause” scenario, would be a breakthrough of these resistance levels among some of the more beaten-down and speculative areas of the market. Such a development would suggest the potential of a rotation of new leadership from the more defensive areas to the more “risk-on” areas of the market. This could give the rally the jolt of energy needed to propel it on to a new, durable leg of advance.

But while we have seen several examples of indices poking their heads above these resistance levels, they have not been of the “risk-on” variety. On the contrary, these more speculative areas of the market have been soundly rejected by their respective lines of resistance. Included among them is the “high beta” area, as represented by the PowerShares S&P 500 High Beta ETF, ticker SPHB.

 

 

As the chart indicates, the last few weeks have seen the SPHB encountering several levels of meaningful potential resistance on its chart, including the:

1. Post-2011 UP Trendline
2. 200-Day Simple Moving Average
3. 50% Retracement of the April-February Decline
4. 12/31/2015 & 1/5/2016  Breakdown Gaps (now filled)
5. 12-Month Down Trendline

Again, the SPHB was soundly rejected at the resistance levels listed. Furthermore, instead of hanging close to those levels, the ETF has continued to sell off in recent days, now sitting some 5% below the upper levels of resistance.

This does not necessarily spell the end of the line for high beta stocks or the post-February stock market rally, in general. Perhaps they will get a dose of “risk-on” cortizone yet that will propel these stocks to new rally highs above the listed resistance. However, the first attempt was a feeble one and the reaction since has been uninspiring as well.

If the post-February rally is to include another leg higher, it would be a great help if these higher beta areas would step up and pull their weight. A good start toward that effort would be overcoming the aforementioned area of resistance – and doing so before leaking too much more fuel.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

via Zero Hedge http://ift.tt/22io8Lu Tyler Durden