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London displaces New York as top global financial centre
Capital Markets
<p>The British capital has swooped into first place in a new ranking of global financial centres, reclaiming the top spot from New York, reports FinBuzz.</p> <p>The general election in May 2015 helped boost London ahead of New York in the rankings, according to a new September 2015 report by Z/Yen Group, a London-based commercial think tank which has been publishing the Global Financial Centres Index (GCFI) since March 2007 on a bi-annual basis.</p> <p>London climbed 12 points in the ratings to lead New York by eight points. The survey is based on a scale of 1,000 points and a ‘leader’ is only named if there is a 20-point gap between rankings.</p> <p>The City’s most recent score out of 1,000 points is 796, with New York in second place with 788 points, followed by Hong Kong at 755, and Singapore with 750 points.</p> <p>“London and New York are often as much complementary as competitive,” the study says.</p> <p>None of China’s mainland cities broke into the top 20 in the most recent report. China’s biggest city by population, Shanghai was ranked 21, and Shenzhen, which is just north of Hong Kong, came in 23rd place. Doha, Qatar’s largest city, placed 22nd. The study is sponsored by Qatar Financial Centre (QFC).</p> <p>The main goal of the GFCI index is to rank the major global financial centres by their competitiveness. The survey is published every six months, and it rates a total of 82 financial centres using instrumental factors as well as an online questionnaire.</p> <p>This story first appeared in FinBuzz.<br /> Photo: Julian Mason</p>
Balancing risks and opportunities in the multi-speed world
Asset Management
<p>SUMMARY</p> <p> At the Cyclical Forum in September, PIMCO investment professionals from around the world gathered in Newport Beach to discuss and debate the state of the global economy and markets and identify the trends that we believe will have important investment implications over the next 12 months.<br /> While our baseline view for global economic prospects over the near term remains broadly unchanged since our previous Cyclical Forum in March, we see significant and in some cases widening divergences among the world’s major economies. Also, we see the balance of risks to the global economy tilted somewhat to the downside, in part because of diminishing returns of unconventional monetary policy and also the market volatility stemming from developments in China.<br /> Our cyclical outlook has key implications for investors. In broad terms, we see global fixed income markets as anchored by our New Neutral secular framework for interest rates. Our cyclical views inform portfolio strategies across regions and asset classes.</p> <p>The past several months have investors and policymakers reassessing global economic prospects amid elevated concerns over emerging market growth models and policy effectiveness. In the midst of these global uncertainties, PIMCO investment professionals gathered recently for our September Cyclical Forum.At our previous Cyclical Forum in March 2015, we concluded (as detailed in our post-forum essay) that the global economy was “Riding a Wave of Accommodation – Carefully.” Since then, while the “wave” of global monetary accommodation has if anything expanded in scale and in scope – and may well deepen further over our cyclical horizon – to date it has been insufficient to stave off a decline in commodity and equity prices or to discourage renewed fears of disinflation amid concerns that China will not be able to navigate the New Normal trajectory for growth and global financial integration they have set for themselves.Although the turbulence in global markets that followed the bursting of the Chinese equity bubble in June and the fallout from the devaluation of the Chinese yuan in August was the major financial event that has occurred since our March forum, our goal at the September forum – as at every forum – was to look ahead from initial conditions so as to formulate a baseline view for the global economy as well as to identify and assess the balance of risks to that baseline view. Our forum discussions benefited enormously from the active participation of and valuable contributions from PIMCO senior advisors Ben Bernanke, Mike Spence and Gene Sperling. Drawing on superb presentations from our Americas, European, and Asia-Pacific portfolio committees, as well as from our emerging market (EM) team, and following a very robust and wide-ranging internal discussion, we coalesced on a baseline view thatglobal economic prospects over the next 12 months remain broadly unchanged from where we saw them in March and are consistent with global GDP growth in the range of 2.5% to 3% and global inflation of 2% to 2.5%.</p> <p>While this is our baseline cyclical view, the averages it represents mask significant and in some cases widening divergences among the world’s major economies. As we shall discuss further below, our baseline view for GDP growth in the U.S., eurozone, U.K. and Japan over the next year is actually consistent with a modest increasein the pace of growth for this group of countries versus the past year. On the other side of the ledger, we concluded that prospects for growth in China are clearly deteriorating, though we note the market consensus view is converging toward PIMCO’s more bearish forec</p>
Daily Scan: Japanese shares freefall; Brazilian real hits record low
Capital Markets
<p>Updated throughout the day</p> <p>September 24</p> <p>Good evening everyone. While all hell was breaking loose in Hong Kong and Japan, Chinese shares traded in an oddly calm band today with the SHCOMP eventually finishing up 0.86% and the SZCOMP climbing 1.21%. Here’s what went on with the rest:</p> <p> Nikkei 225: -2.76%<br /> Topix: -2.42%<br /> Hang Seng Index: -0.97%<br /> Hang Seng China Enterprises Index: -1.05%</p> <p>Meanwhile in the currency market, EM currencies were still crazy weak against the greenback with the Brazilian real finally hitting an all-time low of 4.1795 to the dollar. Also of note was the rapid depreciation of the Norwegian Krone, though that’s because the Norges bank surprised the world with a 25 bps rate cut. Here’s what else you need to know:</p> <p>Russia to hold drills in the Med. The Russian defense ministry says a guided missile cruiser will take part in drills in the eastern Mediterranean — near the Syrian coast. Russia recently ferried weapons and troops to an airport near the Syrian coastal city of Latakia. Washington Post</p> <p>Scores killed in Mecca stampede. At least 150 people taking part in the Hajj pilgrimage have been killed in a stampede near the Islamic holy city of Mecca, officials in Saudi Arabia say. BBC</p> <p>Boeing to open assembly plant in China.  Boeing will open a plant in China in partnership with state-owned Commercial Aircraft Corporation of China.The factory will focus on painting and assembling twin-engine 737 aircraft manufactured in the US. BBC</p> <p>Japan PMI falls. The Nikkei “flash” manufacturing PMI slowed to 50.9 this month from a 51.7 reading in August, largely thanks to China’s current downturn. The number was also below expectations.</p> <p>Yuan fixed at month-long low. There may be “no basis” for a continuous depreciation of the renminbi, but the PBOC sure seems to want it to go that way. Well, this week at least. The People’s Bank of China fixed the yuan at Rmb6.3791 today, just 0.03% weaker than yesterday’s fix but low enough to hit this month’s low. It has also fallen 0.29% in the past four sessions. Hmmm. Financial Times (paywall)</p> <p>Mexican drug cartels set their sights on Asia. Despite the severe drug penalties in the region, soaring cocaine prices in Hong Kong, Japan, and Australia have lead Mexican drug cartels – including “El Chapo’s” Sinaloa and the notorious Jalisco – to set their sights on the Asia-Pacific markets. Financial Times (paywall)</p> <p>ECB ready to boost bond-buying program. ECB President Mario Draghi says the bank is ready if inflation weakens any more than expected. The bond buying is scheduled through September 2016, but could last longer if needed. Wall Street Journal (paywall)<br /> Volkswagen CEO steps down. Martin Winterkorn is leaving the firm in the wake of the Volkswagen emissions scandal. Winterkorn says he isn’t “aware of any wrongdoing on [his] part,” but that the company needs a fresh start. A successor has not been named. </p>
Jim Chanos says China is starting to look like the next Japan
Hedge Funds
<p>It looks like China is going to be able to avoid the dreaded "hard landing", but according to Jim Chanos, that is not necessarily a good thing. Hedge fund short king Chanos says that China's ongoing economic slowdown is starting to look more and more like the pattern we saw with Japan, a major boom in the 1980s followed by more than a decade of economic stagnation.</p> <p>As part of a panel discussion earlier this week, Chanos said that it seems China may be on a path very much like the one that led to Japan’s lost decade in the 1990s as the debt level grew more twice as fast as its economy.</p> <p>“We have an economy addicted to credit,” Chanos, founder of hedge fund Kynikos Associates, noted while participating in a panel discussion on China in New York Tuesday. While the country doesn’t appear to be facing an “imminent collapse,” it is on a trajectory similar to the one Japan was on before its asset-price collapse in 1991 “but on steroids,” he noted.<br /> He went on to point out that Chinese annual loan growth has slowed down to around 15% from over 30% in 2009, but even a 15% loan growth rate is more than double the growth in the gross domestic product. Total household and corporate debt was up to a worrisome 207% of GDP in June of this year, up from 125% at the end of 2008 when China began borrowing.</p> <p>For comparison purposes, Japan’s total debt mushroomed to 176% of GDP in 1990, when it was a mere 127% a decade earlier in 1980. Japan has seen weak economic growth for more than 20 years now despite various efforts by the government to get the economy jumpstarted.</p> <p>China, reported a 6.64% increase in GDP last month, a bit below the government’s target of 7 percent this year. Economists note that the Middle Kingdom has been growing at the slowest pace since 1990. Jim Chanos says that growth in nominal GDP is down to a mere 5% in China today, a huge decline from 15% in 2010, with the economy clearly deflating.</p> <p>“It takes time to sort out” the debt overhang, Chanos commented. The short king hedge fund manager has been saying February 2010 that the China’s real estate market will melt down, and that "China is Dubai times a thousand" and on a “treadmill to hell” because it currently depends almost solely on real estate for economic growth.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Mark Johnson </p>
Daily Scan: Stocks bounce; Pope takes on climate change in DC
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>September 23</p> <p>Good afternoon. U.S. stocks had an up and down day Wednesday. The Dow closed with a 0.3% loss, slightly better than the 0.66% dip it took around noon. The Nasdaq lost 0.1% and the S&amp;P 500 fell 0.2%. Oil dropped more than 3%, closing below $45/barrel. News that manufacturing activity in China has collapsed to a six-and-a-half year low has added fuel to concerns that the Asian giant's economic growth is shuddering to a crawl. The heavy sell-off seen yesterday in anticipation of this result and meant a lot the initial damage has been done. But buckle up because fears of a global slowdown are going nowhere.</p> <p>Here is what else you need to know:<br /> Pope kicks off U.S. visit in D.C. The pope has a packed schedule, chatting with the president and Congress about climate change before heading up the East Coast. Wall Street should be thrilled. When three previous popes have made four addresses to the U.N., as Pope Francis will do Friday, the Dow has gained an average of 1.23%. When Pope Benedict XVI visited in April 2008, the Dow gained 1.8% the day he spoke to the U.N. New York Post<br /> Mike Huckabee says President Obama "pretends to be" a Christian. GOP presidential candidate Huckabee says he's more concerned about the "authenticity" of a politician's faith and how it "plays out in their politics" than what they say they are. Huckabee was also critical of Obama not being welcoming enough to Pope Francis during his U.S. visit. CNN<br /> Serial may look at military disappearance in next season. The podcast became popular for its in depth reporting on the murder case of Adnan Syed. This time, Serial is looking at Sgt. Bow Bergdahl's disappearance from his base in Afghanistan in 2009, and subsequent captivity by a Taliban ally. BuzzFeed<br /> ECB ready to boost bond-buying program. ECB President Mario Draghi says the bank is ready if inflation weakens any more than expected. The bond buying is scheduled through September 2016, but could last longer if needed. Wall Street Journal<br /> Volkswagen CEO steps down. Martin Winterkorn is leaving the firm in the wake of the Volkswagen emissions scandal. Winterkorn says he isn't "aware of any wrongdoing on [his] part," but that the company needs a fresh start. A successor has not been named. Talking Points Memo<br /> Died: Baseball great Yogi Berra. Berra, a Hall of Famer and arguably one of the best catchers of all time, passed away Tuesday evening at age 90. Berra, who spent most of his career with the Yankees, was known for his Yogi-isms and larger than life personality. As he once said, it ain't over til it's over. USA Today<br /> Spending bill on track, but shutdown threat persists. The Senate took the first steps Tuesda</p>
Twitter rips on ex-hedgie over drug price surge
Lifestyle, 4:01
<p>Martin Shkreli may be the most hated man in America this month. The CEO of Turing Pharmaceuticals and former hedge funder, Shkreli raised the price of cancer and AIDS drug Daraprim by more than 5,000%. The world reacted with the anger maybe only Bernie Madoff can relate to.</p> <p>There is a reason for Twitter shaming - example #MartinShkreli pic.twitter.com/gRvCbxcpGB<br /> — cheryl (@ehcsztin) September 22, 2015</p> <p>I hear @MartinShkreli is using all that money to fund research on how to get AIDS airborne. — Kumail Nanjiani (@kumailn) September 22, 2015</p> <p>Shkreli, frankly, doesn't give a damn. He openly admits that the pills cost him less than a dollar to manufacture. But the $13.50 a tablet price wasn't enough. He wanted $750 per tablet. </p> <p>I've purchased the rights to the world's orange supply. Oranges are now $10,000 each. Also, turns out you need them to live. #martinshkreli<br /> — Andrew Hibbard (@andrewhibbard) September 22, 2015<br /> Shkreli, whose tweets are protected, has responded to the haters with witty quips like "uh f u." "Protect ya goddamn neck." And "lots of paradoxes in life," reports Fusion.  </p> <p>After raising AIDS drug price from $13.50 to $750/tablet, Martin Shkreli announces he and his dog, Max, will steal XMas from Whoville. — Mark Campbell (@MrWordsWorth) September 21, 2015</p> <p>I have dealt with sociopaths in my life. Like @MartinShkreli, theyre good a putting on a mask of charm while engaged in self-centered evil.<br /> — Kurt Eichenwald (@kurteichenwald) September 21, 2015</p> <p>Martin Shkreli is the most punchable man in America. If you see him, please punch him. Thank you. https://t.co/gUxFmbpt8o — Craig Schaefer (@craig_schaefer) September 21, 2015</p> <p>After the outcry, Shkreli has finally decided to lower the price to something "more affordable." But, he also said the price will be at a level that “is able to allow the company to make a profit, but a very small profit, and we think these changes will be welcomed," reports Forbes. We're guessing he'll still be making a hefty profit in there.</p>
Schwarzmans give $40M to inner-city student scholarship
Lifestyle, 4:01
<p>Blackstone CEO Stephen Schwarzman and his wife Christine have donated $40 million to the "Kids Are Our Capital" program in New York City.</p> <p>The record gift will make up a chunk of the Roman Catholic Archdiocese of New York's $125 million scholarship program for inner-city kids, reports the New York Daily News. The scholarship fund was founded in 1971 to provide financial assistance for Catholic school students in low-income neighborhoods. Most to the 7,000 students in the program are minorities. The majority are able to graduate from high school and attend college, the diocese reports.</p> <p>The Schwarzman donation is thought to be the largest of its kind in the U.S., Cardinal Timothy Dolan says.<br /> Photo: Heather Paul</p>
Wall Street-worthy Yogisms
Lifestyle, 4:01
<p>Yogi Berra, Hall of Fame Yankee's catcher, died Tuesday at age 90. Through his career and until his death, Berra was known for his "Yogisms," or witty, disjointed one-liners he'd come up with in seconds. In honor of the great Yogi, here are some of the top Yogisms Wall Streeters can use at work:</p> <p> It ain't over 'til it's over.<br /> If you don't know where you're going, you'll end up somewhere else.<br /> You can observe a lot just watching.<br /> The future ain't what it used to be.<br /> Nobody goes there anymore. It's too crowded.<br /> We made too many wrong mistakes.<br /> If you can't imitate him, don't copy him.<br /> If the world were perfect, it wouldn't be.<br /> I really didn't say everything I said.<br /> It's deja vu all over again!</p> <p>Photo: Baseball Collection</p>
Who invented the term EBITDA? Was it KKR? Milken?
Capital Markets
<p>Contrary to popular belief, the term EBITDA as a measure of a company’s cash flow was not invented by the early buyout shops. Neither KKR &amp; Co. L.P. (NYSE:KKR) nor any of the other pioneers of the 80’s-style mega LBOs introduced EBITDA into the financial lexicon. Junk bond pioneer Michael Milken wasn’t the inventor either.</p> <p>EBITDA was introduced into the vocabulary by John Malone. He is currently the largest landowner in America. But he’s more well-known as the billionaire who earned his fortune by becoming the “King of Cable.” Malone started working in the mid-70’s at a cable TV provider called TCI which was purchased by AT&amp;T Corporation in 1999. AT&amp;T kept TCI’s broadband internet services, and TCI’s cable TV systems were sold to Cablevision Systems Corporation (NYSE:CVC) and then to Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK). Malone is likely to have something to do with your current internet connection and what you’re watching on TV today.</p> <p>Regarding Malone’s introduction of “EBITDA” into the financial lexicon here is an excerpt from The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success discussing Malone’s role in the birth of EBITDA:</p> <p> In lieu of EPS, Malone emphasized cash flow to lenders and investors, and in the process, invented a new vocabulary, one that today’s managers and investors take for granted. Terms and concepts such as EBITDA (earnings before interest, taxes, depreciation, and amortization) were first introduced into the business lexicon by Malone. EBITDA in particular was a radically new concept, going further up the income statement than anyone had gone before to arrive at a pure definition of the cash-generating ability of a business before interest payments, taxes, and depreciation or amortization charges. Today EBITDA is used throughout the business world, particularly in the private equity and investment banking industries.(1) [emphasis added]</p> <p>So why did Malone invent “EBITDA”? Long story short, Malone had a key insight about the cable industry. While Wall Street and most of his peers were obsessed with net income and EPS, he wanted to minimize net income. Higher net income meant higher taxes. Also, to grow as a cable company, you wanted scale to achieve more purchasing power and lower costs, and in turn this led to the ability to pay higher prices (often financed by leverage) for assets while earning the same or higher returns. The key was to fund internal growth and acquisitions with pretaxcash flow. More details from The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success:</p> <p> Malone, the engineer and optimizer, realized early on that the key to creating value in the cable television business was to maximize both financial leverage and leverage with suppliers, particularly programmers, and that the key to both kinds of leverage was size. This was a sim</p>
Aberdeen looks for redemption in China
Asset Management
<p>China and its emerging markets trading partners got roughed up pretty badly this summer. Aberdeen Asset Management is betting that the sector is hitting a trough -- and is essentially asking for investors to buy into their view.</p> <p>Aberdeen itself got hit by the market mayhem. In just the second quarter of this year, it has lost $30.5 billion in assets and its stock has tumbled 23% so far this year.  Total assets under management have fallen 7%. The firm has been bleeding assets for nine straight quarters, and a possible rate rise in the U.S. later this year could just make that worse. Competitors, such as Schroders and Henderson, are seeing outflows, boosted by their exposure to European assets, reports the Financial Times. About 30% of Aberdeen client assets are in emerging markets, and about 5% is in Chinese companies.</p> <p>“We’ve got to sit this out. All we can do is control what we can control, which is [to] look at the costs in the business [and] try and manage money well for our clients,” said Aberdeen CEO Martin Gilbert in late July.  “What we can’t do is manage market sentiment.”</p> <p>Aberdeen has pushed to counter asset outflows with acquisitions, most recently snapping up the London-based Advance Emerging Capital, reports BBC. In August the firm looked to the U.S. and bought U.S. hedge fund investor Arden Asset Management, boosting its hedge fund unit's assets from $2 billion to $11 billion. Aberdeen also purchased U.S. private equity firm Flag Capital Management in May. Late last year, the firm acquired Scottish Widows Investment Partnership (SWIP) in an attempt to diversify its business away from such an emerging market focus. But the firm hasn't seen much benefit from that move yet.</p> <p>At an all-day conference for media, the head of equities Devan Kaloo says there's a light at the end of this long and dark tunnel. "Perspective matters," he says. Yes, GDP in China has been slowing, but it has been for some time. Emerging market investors have a right to be skittish, especially as the U.S. looks to raise interest rates, says Kaloo. Investment outflows for emerging markets year-to-date have already surpassed the outflows for all of 2014. But Kaloo is confident that many of these issues are signalling the bottoming of the economic cycle that can only recover from here.</p> <p>Investors pulled 31.5 billion yuan of shares of Shanghai-listed stocks in July, as the market spiraled. The Shanghai Composite Index fell 40% from its high June 12. But last month investors bough 21.4 billion yuan worth of the market's listed stocks through a trading link with Hong Kong, reports The Wall Street Journal. Some sectors, such as insurance, healthcare, and technology, are thought to be ready to benefit from the transitions in the Chinese economy away from raw materials to boosting middle class needs.</p> <p>Kaloo says the news is unlikely to get much worse: withdrawals from emerging market stocks are nearing their peak, in his view; and China is trying to discipline its markets. And the currency has already gotten crushed by the strengthening dollar. If the Fed raises rates by 25 basis points, he doubts EM will get very hurt. The damage is done.</p> <p>There are some actively good signs. Set aside the SOEs -- the ginormous zombies of the economy -- and there's some good stuff happening in the private sector. Emerging market stocks are attractively valued, he says. And investors could benefi</p>