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Daily Scan: Asian markets end mixed; Greek bonds skyrocket on Tsipras win
Capital Markets
<p>Updated throughout the day</p> <p>September 21</p> <p>Good evening everyone. Asian shares ended mixed today amidst a bloodbath in financial and energy stocks. Mainland China was among those which managed to put on some points on the board, Hong Kong and South Korea, not so much:</p> <p> SHCOMP: +1.89%<br /> SZCOMP: +3.55%<br /> Hang Seng Index: -1.10%<br /> Hang Seng China Enterprises Index: +1.74%<br /> Straits Times Index: -0.02%<br /> KOSPI: -1.57%</p> <p>The European markets meanwhile are trading mostly higher at the moment with the FTSE 100 nudging up 0.3%, the CAC climbing 0.4%, while the DAX – perhaps unhappy that Tsipras won the election – is currently down 0.7%. Here’s what else you need to know:</p> <p>Greek bond yields head lower. With Alexis Tsipras victorious – and the Syriza party forced to work alongside the right-wing Independent Greeks – the Greek 10-year bond yield fell a full basis point to 8.22%. Greek banking shares meanwhile have rebounded 76% from its August lows – an awesome showing for a beaten-down sector. It’s still down 81% year on year though. Financial Times (paywall)</p> <p>Malaysian police confirm body of missing DPP. Anthony Kevin Morais, a Deputy Head of the Attorney-General's Chambers Appellate and Trial Division that had worked on the 1MDB task force, has been identified as the man found dead in a drum filled with concrete in Subang Jaya, Selangor. Channel News Asia</p> <p>China, Russia team up to build airliners. Yury Slyusar, president of the Russian state-controlled United Aircraft Corp (UAC), was quoted saying that the UAC and the state-backed Commercial Aircraft Corp of China are on the cusp of working together to build wide-body airliners. Reuters</p> <p>Chinese business sentiment hits market rout lows. The MNI China Business Indicator, one of the most closely-watched business sentiment surveys, fell to 51.3 in September -- a reading 8.4% lower than August's figure and a low unseen since July’s market rout. Much worse however, is the fact that future expectations fell to its lowest level since 2007. Financial Times (paywall)</p> <p>China home sales head for the moon. Existing home sales in China reportedly grew 115% from the year before, but can the nation be able to sustain it? The Telegraph</p> <p>Companies accelerate use of carbon pricing.The number of companies putting a price on their carbon pollution has risen sharply in the past 12 months as governments prepare to agree on tougher action to combat climate change later this year. General Motors, Glencore, and Cathay Pacific are among 437 companies reporting the use of carbon pricing measures to environmental data group CDP. Financial Times</p> <p>Apple’s China apps hacked. Some of the most popular Chinese names in Apple Inc.’s App Store were found to be infected with malicious software in what is being described as a first-of-its-kind security breach, exposing a rare vulnerability in Apple’s mobile platform, according to multiple researchers. </p>
Two behemoths clash for title of biggest bond ETF
Asset Management
<p>On a global basis last year, investors pumped a record $81.9 billion into fixed-income exchange-traded funds. Despite all the talk about the Federal Reserve possibility raising interest rates, investors' enthusiasm for bond ETFs has not waned in 2015, as such funds have attracted over $44 billion in new assets as of the end of July.</p> <p>Momentum for bond ETFs has also significantly increased during the current quarter. On a year-to-date basis, just one fixed income fund, the iShares Barclays 1-3 Year Treasry Bnd Fd (NYSE: SHY) is among the top 10 asset-gathering ETFs. However, in the third quarter, six of the top 10 asset-gathering ETFs, including SHY, are bond funds.<br /> Bond Funds<br /> Another member of that group of six is the ...</p> <p>Full story available on<br /> Photo: Edward Dalmulder</p>
Robert Sechan, Steven Tananbaum and Anthony Scaramucci On 'Post-Economic Traumatic Stress' – or, the decline of Lehman
Asset Management
<p>&nbsp;</p> <p>&nbsp;</p> <p> Benzinga got a sneak peek of this Sunday’s Wall Street Week show.</p> <p> This week’s guests will be Mary Deatherage, managing director at Morgan Stanley Private Wealth Management; Robert Sechan, managing director at UBS; Steven Tananbaum, managing partner and CIO at GoldenTree Asset Management.<br /> Host Anthony Scaramucci believes “post-economic traumatic stress” is upon the investment world; SEchan and Tananbaum supplement the discussion with their lessons learned from Lehman.</p> <p>&nbsp;</p> <p>“Did Lehman’s bankruptcy throw us into oblivion?” Skybridge Capital’s Scaramucci asked.</p> <p>Sechan responded, “Well, I do not. I think what happened was...Bear Stearns happened. It created a general market assumption that every bank out there was too big to fail. And then, when Lehman was let under, all hell broke loose.”</p> <p>Tananbaum ...</p> <p>Full story available on</p> <p>Photo: World Economic Forum</p>
Immigrants: Why Merkel opened up the flood gates
Asset Management
<p>The Fed Punts Again<br /> The Demographic Realities of the European Immigration Crisis<br /> A New East-West Rift<br /> Merkel Has a Plan<br /> Newfound Sympathy<br /> Detroit, Toronto, NYC?, and Coconut Grove<br /> “The European Project has very little economic and political capital left to defend it if anything goes wrong now. As Mr Juncker says, the bell tolls.”<br /> – Ambrose Evans-Pritchard<br /> Perhaps I should issue a storm warning for this letter. Maybe it’s because I had major gum surgery on my entire lower jaw this week and am in a bit of discomfort, but as I read the news coming through my inbox, it’s not helping my mood. This week’s letter will focus on the immigration crisis in Europe – after I muse on what I think is the very disturbing aftermath of this week’s Federal Reserve meeting.</p> <p>It wasn’t a shock that the Federal Reserve did not raise rates. Even the most inside of insiders said the odds were at most 50-50. Those Wall Street Journal reporters who have an “inside ear” at the Federal Reserve all indicated there would be no rate increase. The IMF and the World Bank were pounding the table, declaring that it was inappropriate to raise rates now, and although most FOMC members give lip service to the fact that Federal Reserve policy is to be based solely on domestic considerations, global concerns may well have played a role in their decision.</p> <p>What surprised me was the aggressively dovish stance taken by Yellen in her press conference and in the press release. It would have been one thing to come out and say, “We’re not going to raise rates at this meeting, but conditions are getting better, so get ready,” so that the market could have a little certainty. The statement we got instead, combined with early data from the quarter, is making me rethink my entire view on the timing of an interest rate increase.</p> <p>My immediate reaction upon reading the press release was almost perfectly echoed by my good friend Peter Boockvar of the Lindsey Group):<br /> The Fed punts AGAIN on a new set of excuses, and I'm sorry to many<br /> The Fed punted AGAIN and thus are inviting us to the daily obsession of when they eventually will hike for another 6 weeks. While the economic commentary on the US was not much different than the last statement, they added “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” They see the risks to the outlook for economic activity and the labor market as nearly balanced but [are] “monitoring developments abroad.” Jeff Lacker is the only one that stood out fr</p>
Video: ICYMI -- The Janet Yellen press conference post FOMC rate decision
Capital Markets
<p>Chair Janet Yellen read a statement on Thursday, September 17 after the Federal Reserve decided to stand pat on interest rates. She then fielded questions from reporters. Do you agree with the way the press portrayed the Fed decision? Anything in this hour-long video that surprises you?</p>
Fed leaves interest rates unchanged: Four insights from Loomis Sayles
Asset Management
<p>Editor's note:  Loomis Sayles asked members of its staff to explain how they interpret the recent Federal Reserve decision to let interest rates stay near zero percent. Here is what they said:</p> <p>Plans for normalization deferred, not derailed</p> <p>"Today the FOMC signaled that plans for interest rate normalization are deferred but not yet derailed. It's difficult to categorize this outcome as a genuine surprise. While the rate decision and accompanying policy statement were no doubt dovish relative to expectations, the so called "dot plot" reveals that the median Fed member sees that interest rate normalization, once begun, is expected to proceed at the same pace as was expected in June. The expected medium-term path for rates beyond lift-off is little changed. While recent international developments and associated market volatility have increased near-term uncertainty, these developments have not altered the Fed's fundamental outlook."</p> <p>- Michael Gladchun, Fixed Income Trader</p> <p>The Fed is right not to add fuel to the fire</p> <p>"The Fed pointed to "recent global and financial developments" as key reasons for maintaining the status quo. They have been flagging the risks associated with a slowing China and the turmoil in other emerging markets. We believe the Fed is right to not add fuel to that fire, especially since a wait-and-see approach does not present risks to the US economy, which shows no inflationary pressures.</p> <p>China is the main external concern. The good news: the market seems to be pricing in a hard landing for China based upon price actions witnessed in the commodity and emerging markets sectors. Downside from here would require an even worse case economic scenario, which seems less likely. The bad news: we have not yet observed an inflection point in the economic deceleration taking place in China and other emerging markets. Both the financial markets and the Fed will be sifting through the tea leaves in coming months to see if these trouble spots start to show signs of improving. It should show up in trade and credit data first. Until then, expect the markets to be jittery and volatile."</p> <p>- Matt Eagan, Portfolio Manager</p> <p>Stocks poised for further recovery</p> <p>"In my view, whether the Fed raised rates at this meeting or not, stocks are poised for further recovery later this year and have the potential to reach new highs in 2016.</p> <p>S&amp;P 500 earnings have been tamped down by weakness in the energy and commodity sectors. Multinationals could see less adverse currency impact in the first half of next year depending on the extent to which the Fed holds rates steady, leading to less upward pressure on the dollar."</p> <p>- Richard Skaggs, Senior Equity Strategist</p> <p>Company performance will matter most</p> <p>"Equity valuations are much more sensitive to long-term interest rates than to short-term Federal Reserve rate actions. If inflation remains relatively low and long-term rates remain supportive, company performance will matter most to equities.</p> <p>Global equities have been more volatile in recent weeks with emerging markets being one source of heightened concern. The Federal Reserve cited global developments in today's statement; we will continue to watch developments offshore just as intently as developments within the US for direction during the balance of the year."</p> <p>- Craig Burelle, Macro Strategies Research Analyst</p> <p>MALR013940</p> <p>This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herei</p>
Credit risk a bigger problem for emerging markets than higher rates
Capital Markets
<p>The Wall Street Journal recently had a lead article with the headline “Higher Rates A Risk for Emerging Markets.” The implication of the headline—and of much of the article—was that a general rise in interest rates—even a small one such as the Fed soon may generate—poses a danger to EM nations and companies.</p> <p>Frankly, that idea totally misses the point: EM nations and companies have borrowed in dollars and euros that they may not be able to repay in a slower global economy where they will not earn the foreign exchange they will need in order to so. The result is a classic credit risk problem.</p> <p>The Fed may raise short-term rate by a quarter percent—maybe even by a quarter percent a couple of times. Those quarter percents mean nothing when the interest rate on existing borrowings is LIBOR plus 3 and the new credit conditions may require the EM nation or company to pay LIBOR plus 4 or 5—or even more—in order to get credit at all. Brazil, for example, has been downgraded to junk by S&amp;P. That is not interest rates rising; that is the Brazilian economy going in the tank.</p> <p>The WSJ article itself tells us that the issue is credit risk. It has a nice set of graphs at the end (the beginning in the online edition) that it discusses hardly at all. The graphs show that for EM loans in its sample, the margin over LIBOR is 2.5 percentage points, up from 1.2 in 2005. By contrast, six-month LIBOR itself has moved only from .5% in 2013 down to a little over .3% in 2014, back to a little over .5% now. Basically, nothing has happened to general interest rates. It is credit risk that has been changing—and that will continue to change, perhaps at an accelerating pace. The loans were made when EM economies looked strong and the financial world was reaching for yield. Now the EM economies look weaker. Simple story.</p> <p>Real market turmoil comes from credit risk. We might see some of it.<br /> Photo: Global Panorama</p>
Instincts and crisis collecting: Friedhelm Hütte’s career as art dealer at Deutsche Bank
Lifestyle, 4:01
<p> Some of the world's biggest art collections are owned by banks, and not open to the public</p> <p>Banks are best known for making money, but financial institutions also reinvest profits to acquire masterpieces and collections. With almost 60,000 pieces, Deutsch Bank has the world’s largest corporate art collection, reports Finbuzz.</p> <p>&nbsp;</p> <p>Walking into the lobby of Deutsche Bank’s main London office it is clear how much the institution values art. Pieces by Tony Cragg, Damien Hirst, Anish Kapoor, and Keith Tyson line the reception area. Across their UK offices, the bank displays over 4,000 works of art. Deutsche Bank bank also sponsors art projects and exhibitions or fairs. From October 14-17 in Regents Park, for example, the bank will sponsor the Frieze London art fair. The bank also provides a wide range of communication tools. Among these is ArtMag, an online and print art publication to keep up with creative trends in London and beyond.</p> <p>FinBuzz caught up with Friedhelm Hütte, head of the art department at Deutsche Bank, for an interview:</p> <p>Your collection is known to be one of the largest among banks that collect art. So how big is it?</p> <p>Well, we’d rather be modest. But from what we know, it’s the biggest corporate collection in the world. Our collection is all about contemporary art, which means the pieces were produced after 1945. We focus on drawings, mixed media, photographs – all forms two-dimensional art. We always look for new talent and new artists in the market and support them through our “Artist of the Year” award.</p> <p>Why do banks collect art?</p> <p>The first purpose of collecting is to present art in our buildings around the world, 95% of the pieces we own are on display. They are there for the clients to enjoy, to talk about. We also run guided tours, which are open to the general public.</p> <p>Who makes a decision on what to buy or not to buy?</p> <p>Our team is based internationally. Amongst our renown team are advisors like Okwui Enwezor, who just curated the Venice Biennale, or Victoria Northoorn from Buenos Aires. We monitor art magazines and attend art sales. There are about 60-70 artists globally on our watch list and then some of them make it to our collection. My team makes a proposal and then a Committee composed of several executives of the bank makes a decision.</p> <p>Would you say your active interest in contemporary art has something to do with how you position the Deutsche Bank brand?</p> <p>Absolutely. It has a direct link with our brand as contemporary art is all about new ideas and being open; same goes for Deutsche Bank – it is a global bank, which is integrated in many different cultures around the world, it is innovative and forward-thinking. And just as our bank is present on those five continents, we have works of artists from all five continents. So our collection perfectly reflects the philosophy of our bank.</p> <p>Within the impressive collection, are there works or a</p>
The 3 best (and worst) things about being a fund manager this year
Hedge Funds
<p>With the PBOC loosening its grip on the yuan, the Shanghai Composite collapsing like a wet taco, and the Fed prolonging its guessing game, 2015 has been anything but boring so far.</p> <p>That said, not a lot of people have been encouraged by the myriad equity surprises and monetary plot twists this year, so here’s a little somethin somethin to keep things in perspective.</p> <p>Here are the three best, and worst, things about being a fund manager in 2015.</p> <p>Best:</p> <p>Hedge fund inflows continue to break records. You don’t even need to be a fund manager to know this one. Inflows to the hedge fund industry have been soaring to new highs of late, and traders have been enjoying the most money they’ve ever had to play with in years.</p> <p>These markets actually aren’t too bad. They may not be as smooth and trending as those in the 80's and the 90's, but today’s markets have been posting swings meaty enough for agile traders. Meanwhile, a tumble in cash returns and a climb in small cap and international stock competitiveness has created a veritable stock-picker’s market -- especially in contrast to 2014.</p> <p>It’s a wonderful time to be in the markets. No matter how bad you’re doing, the world is in an interesting juncture right with commodities hitting rock bottom, China rising, Europe struggling to grow, and the Fed flip-flopping on rates. It may sound bad but it’s one hell of a time to cut your teeth in.</p> <p>Worst:</p> <p>“Hedge fund” is still a bad word. With 2016 being an election year, hedge fund managers might as well tattoo “greed is good” on their foreheads right now. Elizabeth Warren, Donald Trump, and a whole host of presidentiables and senatoriables are still taking sight on the industry. And let’s not forget the witch hunts currently raging in China.</p> <p>The markets are good for your competitors too. Competition within the hedge fund arena is absolutely fierce right now, and industry performance has taken a massive hit because of it. The rise of the liquid alts space isn’t helping hedge funds post higher returns either.</p> <p>No one really knows what really going to happen. It may be a great time to cut your teeth in but that’s only if you get to survive it. No one really knows what’s going to happen if the Fed decides to lift rates, for all we know Fedmageddon might ensue and volatility will reign. As it is, uncertainty has already reared its ugly head.<br /> Photo: Shaun Wong</p>
U.S. – China: A relationship of inconvenience?
Capital Markets
<p>In an era of economic modernization, it is clear states stand to lose more and gain very little by locking horns and flexing their muscles. With the way the international system has changed over the past few decades, for any state -- especially one that has come a long way from being just another piece of land on the map to a regional superpower, if not global -- it will always be considered foolhardy and erratic behavior to opt for a violent and coercive approach to settle disputes.</p> <p>Talking on the table and weighing the pros and cons of fighting a war is the new battlefield, with diplomacy the best way out. Indeed, Carl Von Clausewitz's statement, "War is nothing but a continuation of politics with admixture of other means," is not more applicable to the current scenario in which states, regardless of their insecurities and reservations about their so-called allies, cannot afford to go to war.<br /> China's emergence as the Asian peninsula superpower<br /> Today China has come a long way towards establishing itself as one of the emerging superpowers in the Asian peninsula. A major chunk of China's economic progress is due to the fact that there is no state on the globe that can challenge its production and manufacturing superiority. And the fact that China is pulling strings on Wall Street clearly means that the U.S. cannot afford to adapt a confrontational policy with the Asian giant.</p> <p>Apart from already going with its economic plans at a breakneck pace, China is also arming itself to the teeth, and this has raised concerns in North America where China's aggressive approach is seen as a ploy to flex its muscles in the vicinity of the South China Sea, which is an international disputed territory with multiple players vying to have control over it. The fact that the Chinese navy's movements and the recent developments in that context (the building of the artificial island) are further worrying the U.S. and its allies.</p> <p>However, it was never really supposed to be the way things have panned out in recent memory. In 1972, U.S. President Richard Nixon visited Beijing, which was a first in U.S. history at that time. It was a move that astonished and shook the whole world, considering China's ideology towards economics and politics. Regardless, that did not stop Washington from trying to broker a diplomatic relationship with a state that was steadfast in its resolve to not give its "newfound friend" any room to maneuver.</p> <p>Even though the media at that time was very critical about this particular move, Nixon and his administration were defiant since they saw the bigger picture. In China, Washington saw a state with huge potential and a possible market and a strategically important ally despite a few features of the state that made Congress a little twitchy.</p> <p>After keeping very much in line with the economic reforms that were introduced during the 1970s and being very consistent about it, China has really come to life since the turn of the new millennium. Today it is a vocal and integral member of the World Trade Organization and one of the most vital cogs in the international monetary system. It might be a benign superpower for now, but one cannot underestimate its global influence on all levels.<br /> U.S. - China relations<br /> Since the beginning of the year, </p>