Monday, August 22, 2016

Today's Headlines

Posted by Gary .....at 2:58 PM
Bloomberg:
  • Opaque Assets at Europe Investment Banks Fuel Capital Doubts. Eight years after the financial crisis, Europe’s biggest investment banks are holding illiquid assets amounting to more than half their combined shareholders’ equity, underlining concerns about capital. Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc say their hardest-to-value securities -- known as Level 3 assets -- were worth $102.5 billion at the end of June. These include investments that gained notoriety in the financial crisis, from bespoke credit derivatives to mortgage-backed bonds. “The scale of Level 3 assets is material in terms of the banks’ capital levels,” said Simon Chester, who helps manage $39 billion of fixed-income securities at American Century Investment Management in London. “If there were to be a significant mistake or miscalculation where they have got the valuations wrong, that could be problematic.”
  • China Power Glut Seen Lingering Five Years on Slower Growth. China’s electricity overcapacity will continue for another five years as demand growth slows and new projects come online, according to IHS Market Inc. China started showing signs of “bad overcapacity” in 2013 and 2014, and hit a high in 2015 due to new plants coming online, according to Xizhou Zhou, head of China energy research at IHS Markit. The overcapacity will likely remain as it would be too difficult to reverse construction plans for new power plants, he said in a phone interview on Friday. “That doesn’t bode well for anybody,” including power generators or fuel suppliers, Zhou said. “Power demand is still growing, but a lot of the plants are going to be much less utilized than what they had planned for.” 
  • China Stocks Fall Most in Three Weeks on Bets Yuan Will Weaken. (video) Chinese stocks dropped the most in three weeks, led by industrial companies and small-cap shares, amid concern that a weaker yuan will limit prospects for further stimulus and state-backed funds will sell shares. The Shanghai Composite Index declined 0.8 percent at the close. Beijing Originwater Technology Co. posted its biggest loss since February. Hong Kong’s Hang Seng Index rose 0.3 percent, reversing a loss of as much as 0.6 percent. The ChiNext gauge of small-cap companies slid the most since July 27.
  • Merkel Tells Renzi He Can’t Bend Euro Rules to Boost Growth. German Chancellor Angela Merkel lauded Italian Premier Matteo Renzi’s economic policy as “courageous,” while signaling that European Union budget rules can’t be bent to help Italy boost growth. Merkel’s comments alongside Renzi and French President Francois Hollande hinted at one of the divisions between the leaders of the euro area’s three biggest economies as they met on Monday to plan the European Union’s way forward after Britons voted to leave the bloc. Italy’s economy stagnated in the second quarter, pushing off budget forecasts, and Renzi is pressing for greater flexibility by the European Commission.
  • Europe Stocks Little Changed, While Miners Drop for Second Day. A slide in commodity producers weighed on European equities, which pared earlier gains amid speculation over a potential increase in U.S. borrowing costs this year. While a weaker euro initially helped the Stoxx Europe 600 Index rise as much as 0.9 percent, the gains were short-lived. The gauge fell 0.3 percent before ending the day up 0.1 percent. Miners dropped the most, as commodities declined on a stronger dollar after Federal Reserve Vice Chairman Stanley Fischer signaled a hike is still possible this year.
  • Yield Hunt Emboldens Companies to Chip Away Loan Safeguards. Riskier companies are increasingly getting credit agreements that allow them to raise the amount of future cost savings to appear more creditworthy, boosting potential losses for investors. The tweaks make it easier for borrowers to stay in compliance with their loan terms and add more debt, according to Charles Tricomi, a senior analyst at covenant research firm Xtract Research. “There is too much money chasing too few loans,” Tricomi said. “Lenders are really at a disadvantage and have to agree to these terms significantly against their own interest, terms that they should be fighting off.” “The market is so much leveraged on the side of the borrower at this point and they are forcing lenders to swallow a lot of things that they wouldn’t otherwise take,” Tricomi said. “In the event there is a default, there is a greater likelihood of lower recoveries.”
  • El-Erian Says Fed Risks Instability, Excess by Keeping Rates Low. (video) Allianz SE’s Mohamed El-Erian said that Federal Reserve officials need to consider the costs of keeping interest rates low, even as the U.S. economy is pressured by diminished worker productivity. “There is also the risk of financial instability down the road” because of extraordinary monetary policy, El-Erian, Allianz’s chief economic adviser, said Monday in an interview on Bloomberg Radio. “And that, I think, is the strongest argument for trying to slowly normalize rates, because otherwise you contribute to excessive risk taking.”
  • Biotechs Rise on Bet Medivation Losers Will Look to Next Deal. (video)
  • Michael Kors(KORS), Ralph Lauren(RL) Hit Hard by Stores’ Discounting Binge. As retailers rely more heavily on promotions to drive traffic, Michael Kors Holdings Ltd. and Ralph Lauren Corp. have been two of the biggest victims. The brands were among the most heavily discounted at upscale U.S. retailers in recent months, according to Edited, a company that crunches data for the fashion industry. That supports the view of Michael Kors Chief Executive Officer John Idol, who said promotions reached an all-time high last quarter. Fashion brands and retailers slashed prices on products by as much as 80 percent in May, June and July, Edited found.
Fox News:
CNBC:
  • Here's another stock market measure that looks like the tech bubble era. A key stock market valuation metric has risen to a level it's only ever been at once before in recent history — and that was during the giant tech bubble of 2000. S&P Global Market Intelligence provided data which show that the current price-earnings ratio on trailing GAAP earnings per share is at 25.3 times, second only to the trailing P/E which peaked at 31.7 times during the overheated bull market of 2000. S&P studied P/E data from bull markets going back to World War II.
  • Don't be tricked by high dividend yields.
Business Insider:

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