news – Page 27505

Blackstone Slams "Broken Bond Market" Despite Record Bond-Issuance Driven Stock Buybacks

Just over a year ago, we warned on the very real concerns about corporate bond liquidity drying up and the potentially huge problems associated with that, if and when the Fed ever pulls the rug out from the one-way street of free-money injections. It appears, as Bloomberg reports, having realized, we suspect, that they can't get out of their positions, the world’s largest money manager, Blackrock, believes the corporate bond market is "broken" and in need of fixes to improve liquidity "before market stress returns." Ironically, as we have also explained in great detail, it is this 'broken' market that has enabled corporations to borrow cheap enough to buyback half a trillion dollars of their stock in 2014.

As we discussed in great detail here, Federal Reserve intervention has had dramatic unintended consequences in the bond markets…

First, how does one define liquidity? Here is how the smartest guys in the room (and Matt King truly is one of the smartest guy) do:

As the chart points out, the biggest falacy constantly perpetuated by market naivists, that liquidity and volume (in this case in fixed income) are one and the same, is absolutely wrong.

…

The TBAC's conclusion: the longer central planning goes on, the less the actual large "block" trades, and even those are getting smaller.

The blue text above is self-explanatory: the slightest gust of wind, or rather volatility, threatens to shut down the secondary corporate bond market, which already is running on fumes.This can be seen in the final chart of this post which confirms that the Fed is succeeding… to its paradoxical chagrin! Because the more pure liquidity moves to the (Fed-backstopped) Treasury market, the more investors are moving away from the most liquid instruments.

In other words, while the Fed, and the TBAC, both lament the scarcity of quality collateral and liquidity in non-Fed backstopped security markets, it is the Fed's continued presence in the (TSY) market in the first place, that is making a mockery of bond market liquidity and quality collateral procurement.

And without faith in a stable credit marketplace, there is no way that a credit-based instrument can ever truly become the much needed "high quality collateral" to displace the Fed's monthly injection of infinitely funigble and repoable reserves (most benefiting foreign banks).

And now – as Blackrock realizes that its massive (and likely levered) positions face a dramatic liquity risk cost if they are ever to 'realize' any gains from the Fed's handouts (by actually selling), they cry foul and proclaim the bond markets "broken" and in need of government fixes…

BlackRock, the world’s biggest money manager, said the marketplace for corporate bonds is “broken” and in need of fixes to improve liquidity.

BlackRock, a major competitor in the bond market with $4.3 trillion in client assets, urged changes including unseating banks as the primary middlemen in the market and shifting transactions to electronic markets. Another solution BlackRock proposed: reducing the complexity of the bond market by encouraging corporations to issue debt with more standardized terms.

Banks have retained their stranglehold on corporate debt trading despite years of effort by BlackRock and other large investors to eliminate their oligopoly. The top 10 dealers control more than 90 percent of trading, according to a Sept. 15 report from research firm Greenwich Associates. To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns.

“These reforms would hasten the evolution from today’s outdated market structure to a modernized, ‘fit for purpose’ corporate bond market,’” according to the research paper by a group of six BlackRock managers,

…

Standardization would allow more trading to occur on exchanges and other electronic venues, and would help stabilize markets in periods when investors rush to sell bonds, Gallagher said. The risk posed by investors trying to dump bonds after the Federal Reserve raises interest rates is “percolating right under” the noses of regulators, he said.

* * *
So there it is – the truth carefully hidden – Blackrock is in full panic mode knowing that the game-theoretical first-mover advantage does not apply to their selling down their positions since they are simply too large… so we need to "fix" liquidity and standardize markets (to enable easy risk transfer to retail pension funds) or the Mutually-Assured-Destruction card will be played once again.

* * *
Of course, while they are correct in terms of liquidity (for a concerted exit of bond positions), we did not hear them complaining as cheap primary borrowing enabled half a trillion dollars of buybacks in 2014…

to sustain the mirage of economic growth via the stock 'market'…

* * *

This is of course just another canary in the coalmine that confirms trouble ahead in the corporate bond market – as we have discussed at length…

High-Yield Credit Crashes To 6-Month Lows As Outflows Continue

High-Yield Bonds "Extremely Overvalued" For Longest Period Ever

High Yield Credit Market Flashing Red As Outflows Surge

Is This The Chart That Has High-Yield Investors Running For The Hills?

* * *

While the 'market' impact of these facts is potentially economically devastating in its reality-endgame of bursting over-inflated buy-back-driven asset-bubbles, the traders and bankers themselves have also been crushed (schadenfreude-istically for many), as Bloomberg reports,

As trading in dollar-denominated bonds declined 22 percent in the past five years to an average daily $809 billion, so have the jobs, leaving even some of the most senior traders and salesmen moving from firm to firm. Dozens of journeymen are populating an industry that used to attract the young in throngs, lured by money and prestige
, according to Michael Maloney, president of fixed-income recruiting firm Michael P. Maloney Inc.

“The business model is broken and 50 percent of the people in our world who are in trading are stuck right now,” Maloney said in an interview in his New York office.

For every 10 of them there’s going to be three or four left,” he said. “What’s the timeframe? Well, everybody I know is looking for a job — not looking for a job, looking for a career.”

“It’s surprising how quiet a place could be compared to what I had known,” said Stein, who began trading bonds in 1985.

* * *
See what happens, Janet, when you screw with the 'market'?

via Zero Hedge http://ift.tt/1vd4JfT Tyler Durden

Blackstone Slams “Broken Bond Market” Despite Record Bond-Issuance Driven Stock Buybacks

As we discussed in great detail here, Federal Reserve intervention has had dramatic unintended consequences in the bond markets…

First, how does one define liquidity? Here is how the smartest guys in the room (and Matt King truly is one of the smartest guy) do:

As the chart points out, the biggest falacy constantly perpetuated by market naivists, that liquidity and volume (in this case in fixed income) are one and the same, is absolutely wrong.

…

The TBAC's conclusion: the longer central planning goes on, the less the actual large "block" trades, and even those are getting smaller.

The blue text above is self-explanatory: the slightest gust of wind, or rather volatility, threatens to shut down the secondary corporate bond market, which already is running on fumes.This can be seen in the final chart of this post which confirms that the Fed is succeeding… to its paradoxical chagrin! Because the more pure liquidity moves to the (Fed-backstopped) Treasury market, the more investors are moving away from the most liquid instruments.

In other words, while the Fed, and the TBAC, both lament the scarcity of quality collateral and liquidity in non-Fed backstopped security markets, it is the Fed's continued presence in the (TSY) market in the first place, that is making a mockery of bond market liquidity and quality collateral procurement.

And without faith in a stable credit marketplace, there is no way that a credit-based instrument can ever truly become the much needed "high quality collateral" to displace the Fed's monthly injection of infinitely funigble and repoable reserves (most benefiting foreign banks).

BlackRock, the world’s biggest money manager, said the marketplace for corporate bonds is “broken” and in need of fixes to improve liquidity.

BlackRock, a major competitor in the bond market with $4.3 trillion in client assets, urged changes including unseating banks as the primary middlemen in the market and shifting transactions to electronic markets. Another solution BlackRock proposed: reducing the complexity of the bond market by encouraging corporations to issue debt with more standardized terms.

Banks have retained their stranglehold on corporate debt trading despite years of effort by BlackRock and other large investors to eliminate their oligopoly. The top 10 dealers control more than 90 percent of trading, according to a Sept. 15 report from research firm Greenwich Associates. To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns.

“These reforms would hasten the evolution from today’s outdated market structure to a modernized, ‘fit for purpose’ corporate bond market,’” according to the research paper by a group of six BlackRock managers,

…

Standardization would allow more trading to occur on exchanges and other electronic venues, and would help stabilize markets in periods when investors rush to sell bonds, Gallagher said. The risk posed by investors trying to dump bonds after the Federal Reserve raises interest rates is “percolating right under” the noses of regulators, he said.

to sustain the mirage of economic growth via the stock 'market'…

* * *

This is of course just another canary in the coalmine that confirms trouble ahead in the corporate bond market – as we have discussed at length…

High-Yield Credit Crashes To 6-Month Lows As Outflows Continue

High-Yield Bonds "Extremely Overvalued" For Longest Period Ever

High Yield Credit Market Flashing Red As Outflows Surge

Is This The Chart That Has High-Yield Investors Running For The Hills?

* * *

As trading in dollar-denominated bonds declined 22 percent in the past five years to an average daily $809 billion, so have the jobs, leaving even some of the most senior traders and salesmen moving from firm to firm. Dozens of journeymen are populating an industry that used to attract the young in throngs, lured by money and prestige, according to Michael Maloney, president of fixed-income recruiting firm Michael P. Maloney Inc.

“The business model is broken and 50 percent of the people in our world who are in trading are stuck right now,” Maloney said in an interview in his New York office.

For every 10 of them there’s going to be three or four left,” he said. “What’s the timeframe? Well, everybody I know is looking for a job — not looking for a job, looking for a career.”

“It’s surprising how quiet a place could be compared to what I had known,” said Stein, who began trading bonds in 1985.

* * *
See what happens, Janet, when you screw with the 'market'?

via Zero Hedge http://ift.tt/1vd4JfT Tyler Durden

Corporate Inversions: The Latest Target of Unilateral Executive Action

Sometimes,
pens and phones are mightier than swords. Having put aside
its legal
qualms, the Obama administration
will move ahead with plans to take unilateral regulatory action
against corporate inversions, seeking to make them more
expensive and more difficult to finagle.

The president explained his decision yesterday in a statement
loaded with enough buzzwords to make even
a climate change activist blush:

We’ve recently seen a few large corporations announce plans to
exploit this loophole, undercutting businesses that act responsibly
and leaving the middle class to pay the bill, and I’m glad that
[Treasury] Secretary [Jack] Lew is exploring additional actions to
help reverse this trend.

The “loophole” allows companies to take shelter overseas from
America’s byzantine
corporate tax structure. Under the current system,
American-domiciled companies are not only taxed at the highest rate
in the world, they also owe Uncle Sam taxes on income earned
outside U.S. territory. American companies can avoid these taxes by
merging—”inverting”—with foreign companies.

But the economics of his proposed solution aside, the proposal
is just the latest in a long Obama administration tradition of
taking unilateral action, often with the briefest perfunctory nod
at Congress: Congress duly passed Obamacare, but the
president’s administration has made a habit of selectively
enforcing provisions and unilaterally changing parts of the
law. The president
dubiously claimed he didn‘t
need congressional approval for military action in
Libya. Obama is also
hoping to bypass Senate approval for a new international
climate change accord.

If Libya wasn’t proof enough of a reversal of Obama’s
2007 position on executive power, he now claims he doesn’t need
approval to attack ISIS in Syria and Iraq. This despite
the patent illegality of the whole affair—John
Yoo notwithstanding. The president has instead been content
with paying
lip-service to congressional approval for military action in
the Middle East, saying that “he would welcome congressional action
that demonstrates a unified front,” but denying he actually needs
it.

And so too with his executive action cracking down on corporate
inversions: “Both Lew and Obama have said that they would prefer to
see Congress take action to prevent inversions, but lawmakers have
been deadlocked.”

President Obama
has claimed that “we are strongest as a nation when the
president and Congress work together.” Yet it is becoming
increasingly clear that Obama thinks the nation strongest when
Congress agrees to whatever he wants. And should there be
disagreement, well, he’ll forge ahead anyway.

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Vid – Global Warming's Real and Capitalism's the Best Antidote: Ron Bailey at Flood Wall Street

“Human additions to greenhouse gasses are increasing the average
temperature of the globe,” Reason’s Science Correspondent Ron
Bailey told Kmele Foster (who was reporting for Reason TV) at
yesterday’s Flood Wall Street Protest. There’s a “scientific
consensus” on that point. “The question is,” says Bailey, “how long
do we have before things become catastrophic, and there’s not a
consensus about that.”

View this article.

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Vid – Global Warming’s Real and Capitalism’s the Best Antidote: Ron Bailey at Flood Wall Street

View this article.

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Mich. Unions to Ex-Members: How Dare You Leave, Freeloaders

Freddie the Freeloader Michigan lawmakers are considering bills that
would make it illegal for union officials to release the names of
members who left under the state’s Right to Work law. Republican
Rep. Kevin Daley’s bill has not yet been released, but according to

The Lansing State Journal, it would allow both public and
private employers to decide whether the unions representing their
employees have the right to publish names of defectors.

Why is such legislation necessary? Well, ever since Right to
Work gave employees the right to opt-out, some unions have been
publishing their names on public “freeloaders” lists. The Mackinac
Center for Public Policy first reported that story last year;
since
then, the union that made the list has continued to lose
members. Bullying ex-members who don’t think the union was
committed to their needs isn’t the best way to win them back, it
seems.

Nancy Strachan, vice president of the Michigan Education
Association—the state’s main teachers union—told
WILX that her organization doesn’t label ex-members as
freeloaders. But as the Mackinac Center points out, her boss MEA
President Steven Cook,
used the term repeatedly in a warning to members.

According to Mackinac spokesperson Ted O’Neil:

Now that employees are not forced to financially support a
union as a condition of employment, unions will have to realize
that they need to convince members of their value, rather than
attacking and bullying those who simply choose to exercise their
rights under Michigan law.

As for Daley’s bill to ban union bullying, it’s tricky to
separate the privacy concerns from the free speech issues at
play—especially since the actual text of the bill isn’t public yet.
Private unions should be allowed to say whatever nasty things they
want about ex-members, and private companies should be within their
rights to retaliate. But public unions are a different matter, and
it seems to me the legislature has the right to shut them up if it
wants.

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FDA Backtracks on Plan to Stop Small Breweries From Sharing Spent Grain With Farmers

The Food and Drug Administration (FDA) is
backtracking
on a proposed rule regulating the sharing of “spent
grains” between beer makers and farmers. At present, many
donate grains leftover from the brewing process to farms, providing
brewers with an efficient and sustainable way to dispose of waste
and farmers a cheap way to feed their livestock.

This has been going on absent FDA regulation for a long time
(and with no major catastrophes), but in March the
agency announced
a proposed rule change that may have effectively ended the
practice. Under the new rule, brewers sharing with farmers would
have to process and package spent grain in such a way that it would
no longer be cost-efficient to do so. The proposal was met with
ample
outcry from brewers, farmers,
lawmakers, and food-freedom advocates.

“Based on valuable input from farmers, consumers, the
food-industry and academic experts,” the
FDA has now revised its proposed rule on spent grains. Under
the new rule, processing and packaging requirements will only apply
to brewers with annual sales of $2.5 million or more. The FDA
hasn’t yet specified what particular processing regulations will
apply to these larger brewers.

Not a perfect solution, nor a terribly sensible one (more beer
sales mean more spent grains for brewers, but they do not make
those grains somehow suddenly more dangerous for local pigs to nosh
on). But it’s something.

Jim McGreevy, president and
CEO of the Beer Institute, said his association is “gratified
that the Food and Drug Administration listened to our concerns
about their proposed rule (and) made the changes necessary for U.S.
brewers to continue to market our spent grains as we always
have—safely, with industry-best standards for testing, monitoring
and management of the grains from the start of the brewing
process.”

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This is truly a wide-open multi-billion dollar opportunity

September 23, 2014
Sovereign Valley Farm, Chile

When I landed at Addis Ababa airport in Ethiopia again last month, the first thing that struck me was how much everything was… Chinese.

Far and away, most of the passengers at the airport arriving from various destinations were Chinese. Many of the signs were in Chinese. There were even some Mandarin-speaking hotel operators standing by to assist travelers.

Granted, Chinese investment plays a very dominant role in Africa, and those countries are adapting.

But more importantly, it’s a sign of the times. China’s growing influence cannot be ignored.

The country is coming to dominate international finance. Geopolitics. Oil. Consumer items. And now travel.

Years back I remember the first time I came across the stereotypical busload of Chinese tourists.

It was in Paris, and I was somewhere near the obelisk, when a bus pulled up and out popped a Chinese tour guide leading the charge with a flag and loud speaker, and closely followed by a stream of very conspicuous tourists.

They bustled past me with their matching yellow hats and cameras in ready position to make their way to where the guide pointed out as a good place to take their pictures. Shuffling around each other, taking turns with the photo-op, they were as oblivious about their surroundings as could be.

Then, no more than five minutes later they were back on the bus and off again.

This was just how Chinese tourists were. They were known for coming in by the busload, clinging to the group, and eating at Chinese restaurants rather than local ones.

If it weren’t for their compulsory picture with each monument, it was almost as if they weren’t really there in the country.

But, I’ve noticed that I rarely see that anymore.

Now I’m seeing Chinese travelers in pairs or with their families. I’ve come across them in places I wouldn’t have expected, like Nairobi and Riga, and they are wandering around exploring on their own like most tourists.

In 2013, the number of outbound Chinese tourists rose to 98.13 million, which is more than 150% the number of American tourists. It’s expected to exceed 100 million this year.

Remember, this figure is despite lower average incomes and the fact that Chinese need visas to go pretty much anywhere except small island nations such as Palau and Vanuatu. So their desire to travel is undoubtedly fierce.

However, what’s amazing is not so much the rise of Chinese outbound tourism itself, because that was to be expected as the country became more open to the world and living standards improved.

What I find remarkable are the people positioning themselves to take advantage of this huge new market.

You don’t see it as much in the US and Europe, perhaps from stubbornness or some false sense of superiority. But elsewhere people are rapidly adjusting to accommodate the needs of this new wave of customers.

Even as far back as 2003, I recall visiting Cairo with a Chinese friend of mine and Egyptian shopkeepers calling out to him from tiny shops in the bazaar in Mandarin.

And it’s not just that they knew how to say “ni hao”, but they could actually bargain in Mandarin. And bargain hard. My friend was stunned.

These shopkeepers didn’t have to major in Chinese, or even business for that matter, but they knew an opportunity when they saw it, and positioned themselves to take advantage of it.

They didn’t complain that the market is changing so they need government funding to re-train them. They just did it.

That was over ten years ago. Chinese tourism has grown nearly 400% since, and is just starting to pick up speed.

As of 2012, the overseas consumption of Chinese travelers has reached a record $102 billion and Chinese have thus overtook the Germans to become the world’s biggest spending tourists.

This is a massive trend that few people are really paying attention to. Those that do and focus their business on catering the Chinese traveler are going to make an extraordinary amount of money.

from SOVEREIGN MAN http://www.sovereignman.com/trends/this-is-truly-a-wide-open-multi-billion-dollar-opportunity-15053/
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Afghan President Hamid Karzai Slams U.S. Foreign Policy in Farewell Speech

Screen Shot 2014-09-23 at 10.52.56 AM You’ve got to hand it to the brain surgeons running America’s foreign policy. They possess an uncanny ability to seamlessly forge alliances, break alliances and turn former allies into existential enemies, while simultaneously demonizing regimes, making amends with demonized regimes, and then quickly forming alliances with the same bitter enemies.

Friends become enemies and enemies become friends in the blink of an eye. This is what happens when a global empire possesses no real foreign policy other than the pursuit of economic opportunities for mega corporations and the military-industrial complex. The result is perpetual war, countless dead and injured young men and women, and billions of riches for a small and ruthless cadre of oligarchs. This is American foreign policy and those are its results.

Protect your wealth – Buy Gold and Silver Bullion with Goldbroker.com

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Why Institutions Are So Desperate For The Retail Investor To Come Back

As the S&P 500 levitates ever higher on the back of what even JPM and Citigroup now both admit is nothing but a global central-bank reflated bubble which, hardly a spoiler alert here, will burst sooner or later leaving those who are holding the bag with unprecedented losses, one thing is clear: the retail investor is not coming back. Whether it is a complete lack of trust in a market that has been revealed to be more rigged than any casino, or because every risk asset is artificially propped up by a few Princeton economists, or simply because the “retail” investor does not have the disposable income to come back, is irrelevant: retail is done.

There is, however, a problem.

As the exuberant talking-heads proclaim, day after day, that “this is the moment of clarity for retail to come storming back off the sidelines”, the question arises who exactly would retail be buying from?

The answer: the same institutions whose proximity to the Fed has allowed them to lever up at near zero cost of debt rates, and who have bid up risk to unprecedented levels, pushing the S&P over 2000 in recent weeks. Of course, those are all paper gains, as institutions know all too well. Which is why the time to monetize paper profits is now, and why with every day that retail refuses to come back and buy what institutions are increasingly desperate to sell, is one day more in which the day of “paper profits into very real losses” reckoning approaches.

This epic divergence between institutions and retail is shown in the JPM chart below.

Needless to say, it won’t take much is for the rickety game theory equilibrium in which not one institution has dared to sell, over fears what would happen if every other institutions rushes in, finally breaks.

It is also why every media outlet, newspaper, ant TV channel has a simple message for you, dear retail investor: please come back already, and buy, buy, buy… what every bank, prop desk, hedge fund, mutual fund, pension fund, and central bank, is so desperate to sell.

via Zero Hedge http://ift.tt/1mKn4Sj Tyler Durden