Tag: news

Whether it is explicitly US sanctions or the implicit uncertainty injected into global markets by a dollar-squeezing Fed, the latest impact of global tightening has hit Russia head on as it has been forced to abandon its planned weekly bond auction tomorrow.

According to the Russian Finance Ministry’s website, it has decided not to hold primary debt auctions, scheduled for Aug. 22, due to sharp increase in market volatility.

The halt is the first since April.

Who can blame them with 10Y Russia OFZ (ruble-denominated) bond yields now above 8.5% (back above pre-Trump levels)…

Local Russian yields are now higher than Mexico’s and just lower than South Africa’s…

With stress leaking to its banking system…

And the Ruble sliding back to its weakest since April 2016…

The Russian Finance Ministry also confirmed it will resume auctions on regular basis once the debt market situation stabilizes.

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In the latest perplexing decision by Elon Musk, the Tesla CEO appears to have deleted his Instagram account, leaving some 8.2 million followers guessing what prompted the abrupt move. Business Insider first reported the story, suggesting that the ongoing bizarre online “hate triangle” spat between Musk, his (ex) girlfriend Grimes, and rapper Azealia Bank is responsible.

As we reported over the weekend, on August 12, Banks said on Instagram that she had been at Musk’s house and seen singer Grimes “coddling” Musk after the “going private” twitter fiasco. She then told Business Insider that she saw him in the kitchen “scrounging for investors” after tweeting that Tesla had “funding secured.” A few days later, Musk confirmed to the NYT that he had seen Banks after initially denying that he had every met her before. Banks also alleged that Musk was “on acid” when he sent out his now infamous “funding secured” tweet.

It did not end there, and on Monday, Banks tagged Musk in her Instagram story, writing “you need to contact me. ASAP.” followed by “I need my phone back now.”

According to Cheddar reporter Hope King, snapshotting a now deleted Instagram story, Banks claimed that Musk’s attorney paid off Banks’ attorney to take her phone and delete evidence from it.

You up?

Latest from Ms. Banks pic.twitter.com/PA92P8h512

— Hope King (@lisahopeking) August 21, 2018

In a separate story, Elon Musk and his girlfriend Grimes also recently unfollowed each other on Instagram, and Musk unfollowed Grimes on Twitter, prompting rumours that their relationship may be over.

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Authored by Nick Cunningham via Oilprice.com,

PDVSA settled with ConocoPhillips on Monday over an outstanding debt issue, a move that the Venezuelan oil company surely hopes will give it some breathing room even as the nation continues to crumble.

Earlier this year, Conoco won an international arbitration award resulting from the 2007 assets seizure by Venezuela. Conoco quickly moved to lay claim to PDVSA’s refining assets in the Dutch Caribbean, a devastating blow to Venezuela that compounded fiscal and operational problems. Without the processing facilities on the islands of Curacao and Aruba, PDVSA’s oil exports plunged deeper in the second quarter.

Venezuela’s revolutionary government has made it a point of pride to resist outside pressure, which makes the latest settlement all the more remarkable. PDVSA has agreed to pay ConocoPhillips an initial $500 million within 90 days, which will then be followed by quarterly payments over the next four and a half years.

The fact that PDVSA agreed to the settlement is a testament to how much of a crisis the company (and ultimately the Venezuelan government) finds itself in, and how important those Caribbean assets are to ongoing operations. Venezuela’s oil production continues to decline. In July, output fell to just 1.278 million barrels per day (mb/d), down 500,000 bpd from the fourth quarter of last year and down nearly 1 mb/d from two years ago. A growing number of analysts see output dipping below the 1-million-barrel-per-day mark by the end of 2018.

The deal comes as the U.S.-based subsidiary of PDVSA, Citgo, is also in the spotlight. A recent court ruling in a separate case exposed Citgo to asset seizure. Canadian miner Crystallex won a case just this month against PDVSA, arguing that Citgo, as a subsidiary of PDVSA, was essentially the same company as PDVSA, which means that Citgo was eligible for asset seizure. A U.S. federal judge agreed, putting Citgo in jeopardy. Citgo is appealing the decision.

PDVSA’s settlement with Conoco could get the American oil company off its back, so long as payments are forthcoming. That could potentially relieve some operational pressure. Presumably, PDVSA could regain control of the facilities on the Caribbean, which should allow for oil exports to resume at higher levels.

But the settlement does not mean that PDVSA is out of the woods, by any means.

First, the payments will be painful and hard to meet. The $2 billion that PDVSA owes ConocoPhillips amounts to about a quarter of the cash reserves that Venezuela’s central bank still has left. If the Venezuelan oil company fails to meet the terms of the settlement, Conoco “can resume global enforcement actions,” Daren Beaudo, a Conoco spokesman, told Bloomberg in an email.

Second, it does little to assuage the long line of creditors who are not part of the deal. Indeed, they could begin to fight for the remaining crumbs as the country falls apart.

“Venezuela’s (President Nicolas) Maduro has short-term, patchwork approach to fixing problems. This means that whomever pressures or checkmates the government early enough, will get some cash as country spirals downward,” Raul Gallegos, associate director with consultancy Control Risks and author of Crude Nation, said in a tweet. In other words, the incentive for creditors could be to start grabbing as much as they can as they run the risk of getting nothing by hanging back.

Meanwhile, Venezuela is tearing apart at the seams. Over the weekend, President Nicolas Maduro introduced a raft of economic reforms that will almost certainly do little to solve the crisis, and could potentially increase hardship. He introduced a higher minimum wage, announced a plan to hike gasoline prices and devalued the currency by about 95 percent, one of the most painful devaluations in history. Inflation could top 1 million percent this year. Millions of people have fled the country.

The end result for the oil sector is the same as before: More losses. If PDVSA manages to regain control of its assets in the Caribbean, it could slow the decline. But it won’t be enough to pull the company or the country back from the brink.

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One month ago we discussed why according to the recent data, the “Housing Market Headed For “Broadest Slowdown In Years.” Fast forward to today, when we received the latest confirmation that the US housing market appears to have recently hit a downward inflection point: according to the just released July 2018 U.S. Foreclosure Market Report released by ATTOM Data Solutions, foreclosure starts in July increased by 1% from a year ago — the first year-over-year increase following 36 consecutive months of decreases.

Foreclosures rose from a year ago in 96 of the 219 metropolitan statistical areas, or 44% of the markets analyzed in the report; 33 of those areas posted their third straight monthly increase. A total of 30,187 U.S. properties started the foreclosure process for the first time in July, up 1 percent from the previous month and while the increase was less than 1% from a year ago, it marked the first annual increase in exactly 3 years.

21 states posted a year-over-year increase in foreclosure starts in July, including Florida (up 35 percent); California (up 3 percent); Texas (up 7 percent); Illinois (up 7 percent); and Ohio (up 2 percent).

Metro areas posting year-over-year increases in foreclosure starts in July included Los Angeles, California (up 20 percent); Houston, Texas (up 76 percent); Philadelphia, Pennsylvania (up 10 percent); Miami, Florida (up 29 percent); and San Francisco, California (up 10 percent).

“The increase in foreclosure starts is not just a one-month anomaly in many local markets given that July represented the third consecutive month with a year-over-year increase in 33 metro areas, including Los Angeles, Miami, Houston, Detroit, San Diego and Austin,” said Daren Blomquist, senior vice president with ATTOM Data Solutions.

“Gradually loosening lending standards over the past few years have introduced a modicum of risk back into the housing market, and that additional risk is resulting in rising foreclosure starts in a diverse set of markets across the country. Most susceptible to rising foreclosure starts are affordability-challenged markets where homebuyers are more financially stretched and markets with some type of trigger event such as a natural disaster or large-scale layoffs.”

The data comes shortly after a separate report found that there has been a plunge of sales in ultra-luxury real estate in New York City, where apartments that cost $5 million or more have seen their sale plunge more than 31% in the first 6 months of the year.

The surprising reversal in the US housing sector comes at a time when the US economy is reportedly firing on all four cylinders, with the stock market at all time highs and not long after the Department of Commerce revised income and spending data to “discover” that US households had actually saved twice as much as previously expected. Which begs the question: is the rise in interest rates a sufficiently adverse development to offset all the other favorable trends in the economy, or is something more sinister – and unknown – taking place in the US economy.

As a reminder it is housing – and not financial markets or stocks – that has traditionally been the most relevant, and aspirational, asset for the US middle class and as such is the best indicator of economic prosperity (or lack thereof) for a majority of the US population. And recent trends are anything but optimistic.

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Authored by George Will via NationalReview.com,

Underneath the current economic boom, there are some truly worrying signs…

Eric Sevareid (1912–1992), the author and broadcaster, said he was a pessimist about tomorrow but an optimist about the day after tomorrow. Regarding America’s economy, prudent people should reverse that.

This Wednesday, according to the Financial Times‘ Robin Wigglesworth and Nicole Bullock, “the U.S. stock market will officially have enjoyed its longest-ever bull run” — one that rises 20 percent from its low, until it drops 20 percent from its peak. And September 15 will be the tenth anniversary of the collapse of Lehman Bros., the fourth-largest U.S. investment bank. History’s largest bankruptcy filing presaged the October 2008 evaporation of almost $10 trillion in global market capitalization.

The durable market rise that began March 6, 2009, is as intoxicating as the Lehman anniversary should be sobering: Nothing lasts. Those who see no Lehman-like episode on the horizon did not see the last one.

Economists debate, inconclusively, this question: Do economic expansions die of old age (the current one began in June 2009) or are they slain by big events or bad policies? What is known is that all expansions end. God, a wit has warned, is going to come down and pull civilization over for speeding. When He, or something, decides that today’s expansion, currently in its 111th month (approaching twice the 58-month average length of post-1945 expansions), has gone on long enough, the contraction probably will begin with the annual budget deficit exceeding $1 trillion.

The president’s Office of Management and Budget – not that there really is a meaningful budget getting actual management – projects that the deficit for fiscal year 2019, which begins in six weeks, will be $1.085 trillion. This is while the economy is, according to the economic historian in the Oval Office, “as good as it’s ever been, ever.”

Leavening administration euphoria with facts, Yale’s Robert Shiller, writing in the New York Times, notes that since quarterly GDP enumeration began in 1947, there have been 101 quarters with growth at least equal to the 4.1 percent of this year’s second quarter. The fastest – 13.4 percent – was 1950’s fourth quarter, perhaps produced largely by bad news: The Cold War was on, the Korean War had begun in June, fear of the atomic bomb was rising (New York City installed its first air-raid siren in October), as was (consequently) a home-building boom outside cities and “scare buying” of products that might become scarce during World War III. Today, Shiller says, “it seems likely that people in many countries may be accelerating their purchases — of soybeans, steel, and many other commodities — fearing future government intervention in the form of a trade war.” And fearing the probable: higher interest rates.

Another hardy perennial among economic debates concerns the point at which the ratio of debt to GDP suppresses growth. The (sort of) good news — in that it will satisfy intellectual curiosity — is that we are going to find out where that point is: Within a decade the national debt probably will be 100 percent of GDP and rising. As Irwin Stelzer of the Hudson Institute says, “If unlimited borrowing, financed by printing money, were a path to prosperity, then Venezuela and Zimbabwe would be top of the growth tables.”

Jay Powell, chairman of the Federal Reserve, says fiscal policy is on an “unsustainable path,” but such warnings are audible wallpaper, there but not noticed. The word “unsustainable” in fiscal rhetoric is akin to “unacceptable” in diplomatic parlance, where it usually refers to a situation soon to be accepted.

A recent IMF analysis noted that among advanced economies “only the United States expects an increase in the debt-to-GDP ratio over the next five years.” America’s complacency caucus will respond: But among those economies, ours is performing especially well. What, however, if this is significantly an effect of exploding debt? Publicly held U.S. government debt has tripled in a decade.

Despite today’s shrill discord between the parties, the political class is more united by class interest than it is divided by ideology. From left to right, this class has a permanent incentive to run enormous deficits — to charge, through taxation, current voters significantly less than the cost of the government goods and services they consume, and saddle future voters with the cost of servicing the resulting debt after the current crop of politicians has left the scene.

This crop derives its political philosophy from the musical Annie: Tomorrow is always a day away. For normal people, however, the day after tomorrow always arrives.

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Amidst a tightening economic noose and now nearly weekly war of words with the Trump administration, Iran has just rolled out with its first 100% domestically-produced fighter jet.

Iranian state television aired footage of President Hassan Rouhani sitting in the ‘Kowsar’ fighter aircraft, according to Tasnim News Agency, in an unveiling ceremony held after the jet completed a successful test flight in Tehran on Tuesday, which is National Defense Industry Day in the country. 

Nearly all of Iran’s weaponry has been produced in country due to a history of international sanctions against it, which especially have targeted defense related materials. 

Iranian state sources claim the domestically produced aircraft is capable of flying at an altitude of 45,000 feet and at a speed of Mach 1.2 — just over the speed of sound, thought these claims couldn’t be independently verified. 
 
In its current air force arsenal, Iran possess the U.S.-made F-4, F-5 as well as F-14 Tomcats, and further the Russian-made Sukhoi aircraft in service. Most of the American jets were obtained by Iran during the years of the Western-backed Shah, who brokered a wide-ranging deal with then President Richard Nixon and his national security advisor Henry Kissinger. 

As Al Masdar News reports the jet, which was first unveiled back in 2017 at the MAKS international air show in Moscow, was developed by Iran’s Aviation Industries Organization.

Its most notable features include indigenous avionics and a fire-control system, making Iran one of few countries to possess the know-how necessary to develop such systems.

While the prototype currently has two seats, future variations will also come with one seat only and will serve both fighting and training purposes.

Meanwhile, during the Kowsar jet’s inaugural ceremony , Iranian President Rouhani said Iran’s defense program is aimed fundamentally at “deterrence” against the United States and its allies. 
 
“The enemy should see how expensive an invasion of Iran would be,” he said. “Why does not the U.S wage a military attack on us? Because of our power.”

“We should make ourselves ready to fight against the military powers who want to take over our territory and our resources,” the Iranian president said further. 

The aircraft’s name, Kowsar, is a Koranic reference to a river in the Islamic concept of paradise, and also reflects the title of a chapter in the Muslim holy book.

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Norway’s $1 trillion wealth fund – the largest in the world – reported earnings for Q2 on Tuesday, a quarter in which it made $20 billion but mostly thanks to the oil and gas stocks that it looking to divest as part of its clean mandate. However, its overall return was hurt due to its massive exposure to global stocks which suffered in the quarter due to trade war fears: in the second quarter, the fund posted a 1.8% return following a loss in the first quarter, resulting in a paltry 0.24% return in the first half, its worst performance in 8 years.

The fund, which owns 1.4% of global stocks, saw its total stock holdings rise 2.7%, while bonds were unchanged and real estate provided a 1.9% return.  The fund, also known as Norges Bank Investment Management, is a major shareholder in the U.S. tech giants. Its largest stock holdings at the end of the quarter were Apple Inc., Amazon.com Inc. and Microsoft Corp. Its largest bond holdings were in U.S. Treasuries, followed by Japanese and German government debt.

As shown below, at June 30, the fund held 66.8% in stocks, 30.6% in bonds and 2.6% in real estate. The return missed the benchmark index by 0.2% point.

And while the world’s biggest wealth fund benefited in the first six months from a rally in U.S. markets, fueled by tax cuts, it warned about the impact on the world economy of rising protectionism after U.S. President Donald Trump imposed tariffs on key trading partners.

“The prospect of increased trade barriers is something that is high on everybody’s agenda,” Trond Grande, the fund’s deputy chief executive officer, said on Tuesday. “It’s fair to say that increased trade barriers, or even trade wars, will not be beneficial for the fund as a long-term global investor.”

Sure enough, the fund lost 5.7% in emerging market stocks and 4% on Chinese equities. Ironically, as Bloomberg notes, the biggest sector driver for its returns were oil and gas stocks, which it has proposed divesting. Financial stocks were the weakest performers, led by Banco Santander SA.

“In the second half of the period, the prospect of increased trade barriers and a weaker growth outlook in Europe, China and emerging markets had an adverse effect,” the fund said. “Political uncertainty in Italy impacted negatively on European financial markets.”

* * *

Yet while one can draw many lessons from the performance of Norwegian Wealth fund, what the investing community appears to be most interested in was its view on Tesla and whether it would – hypothetically – be part of a syndicate to take the company private. It doesn’t look like it.

Asked about his view on Tesla’s proposed going private deal, Trond Grande, the fund’s deputy CEO said that “we don’t have a view on that” and added: “We want to be invested in companies that make money.“

And while the world’s largest wealth fund owned 0.48% of Tesla at the end of 2017, it did not appear to be in a hurry to add any more.

Asked whether the fund, which has a much longer horizon than most investors, views that particular holding as more challenging than others or whether it could be an opportunity, given its ability to sit through large fluctuations, Grande said it was neither.

“We’ve said several times what we view as good corporate governance, in terms of role distribution between CEO and chairman, the possibility to vote at general assemblies, that type of thing,” Grande said. “Some companies are in an early development phase and won’t have matured as much on all these questions.“

While he didn’t name names, it was clear who the “immature” company was.

Finally, with Saudi Arabia out of the MBO deal, one can also scratch out the Norwegians: the fund could not play a part in a taking-private deal, Bloomberg notes, since it’s barred from investing in private equity.

There was a silver lining:  Grande said that although the fund’s main practice is to sell its stake when a company leaves an exchange, or soon after, rules regulating the fund set by the Norwegian Finance Ministry and parliament do allow it to stay on in a listed company that goes private.

“The priority is to try to preserve the value for the fund. That is the priority,” Grande told Reuters on the sidelines of an earnings presentation. “If that means that the fund will be invested in a company that has been delisted for a period of time, that could happen.”

“But as a main rule, we will exit the investments as and when, or soon after, it has been taken off an exchange,” he said.

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