• Tag Archives Morgan Stanley
  • WTI Plunges To 7-Month Lows – Enters Bear Market As HY Bonds Crater

    WTI Crude has entered a bear market (down over 20% from its highs) amid concerns OPEC-led output cuts won’t succeed in rebalancing the market (and not helped by the fact that Libya is pumping the most crude in 4 years).
    For the first time since Nov 2016, WTI front-month traded with a $42 handle…
    Here are eight factors that are behind the current fall in oil prices according to Arab News:
    1. High exports from OPEC: Despite the reduction in production from oil producers, the level of exports is still high as many tanker-tracking data showed. Morgan Stanley in a report on June 8 said that tanker-tracking data showed that waterborne exports increased strongly in May across the world, up by 2.2 million bpd from April and 3.3 million bpd from May 2016.

    This post was published at Zero Hedge on Jun 20, 2017.


  • Good Luck Getting Out Of That Subprime Auto Loan When Used Car Prices Crash

    We’ve written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years. In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.
    Here are just a couple of our most recent notes on the topic:
    Signs Of An Auto Bubble: Soaring Delinquencies In These 266 Subprime ABS Deals Can’t Be Good New Warning Signs Emerge For Subprime Auto Securitizations Auto Lending Update – Someone Please Explain How This Is Not A Bubble Of course, while pretty much anyone has been able to purchase that brand new BMW of their dreams over the past 5 years…courtesy of a surge in subprime lending volumes….

    This post was published at Zero Hedge on Jun 20, 2017.


  • Carmageddon Crashes into ‘the Recovery’ Right on Schedule – EXACTLY as Predicted Here

    By: David Haggith
    Carmageddon, as Wolf Richter has called it, is hitting the US economy exactly as I said a year and a half ago would start to happen at the very end of 2016 or the start of 2017. Measured year-on-year, auto sales have declined every month of 2017, and are now starting to cause the financial wreckage that I said we would experience in what will become a demolition derby for US auto manufacturers.
    ‘A stretched auto consumer, falling used [vehicle] prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike,’ wrote Morgan Stanley’s auto analyst Adam Jonas in a note to clients. (Wolf Street)
    Stanley now foresees a ‘multiyear cyclical decline,’ along with a declining ‘willingness of financial institutions to lend as aggressively as in the past.’
    After an eight-year boom, the industry appears ‘to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second-hand market, leading to adverse conditions for selling new vehicles….’ not even record incentives, reaching $14,000 for some truck models, have much impact. Those are the ‘diminishing returns’ – when you throw gobs of money at a problem and it doesn’t have much impact. Lenders, particularly the captives, stepped forward, making loans with very long terms, low and often subsidized interest rates (‘0% financing’), sky-high loan-to-value ratios, and leases that gambled on very high residual values that have now gone up in smoke as used vehicle prices are heading south.

    This post was published at GoldSeek on Sunday, 18 June 2017.


  • Morgan Stanley Builds Mortgage App To Try And Stay Relevant As Fintech Booms

    It’s no secret that Wall Street lives in constant fear of Silicon Valley. Bank CEOs probably wake up in a cold sweat after imagining that their clients have handed their money to some new startup that’s found a way to disrupt a financial service like, say, wealth management.
    To try and fend off the robo-advisers and other fintech companies trying to wrest every bit of market share away from the big banks, Morgan Stanley is launching its own suite of apps, meant to win over younger clients who prefer digital products. On Tuesday, the bank announced its latest offering: its very own digital mortgage application tool.
    Here’s Reuters:
    Morgan Stanley is developing a new digital mortgage application tool in a bid to get more of its existing clients to turn to it for home loans, its wealth management technology head said on Tuesday.

    This post was published at Zero Hedge on Jun 15, 2017.


  • LTCM Is Back: One Hedge Fund Uses 25x Leverage To Beat The Market

    Before we start, a little history lesson…
    At the beginning of 1998, Long-Term Capital Managementhad equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt-to-equity ratio of over 25 to 1.
    It was run by finance veterans, PhDs, professors, and two Nobel Prize winners. Everyone on Wall Street wanted a piece of their profits.
    But by 1998, that firm was primed to expose America’s largest banks to more than $1 trillion in default risks. The demise of the firm, LTCM, was swift and sudden. In less than one year, LTCM had lost $4.4 billion of its $4.7 billion in capital.
    The disaster had all the players – the Federal Reserve, which finally stepped in and organized a bailout, and all the major banks that did the heavy lifting: Bear Stearns, Salomon Smith Barney, Bankers Trust, J. P. Morgan, Lehman Brothers, Chase Manhattan, Merrill Lynch, Morgan Stanley, and Goldman Sachs.
    In desperate need of a $4 billion bailout, the crumbling firm was at the mercy of the banks it had once snubbed and manipulated.

    This post was published at Zero Hedge on Jun 11, 2017.


  • Wall Street Wakes Up to #Carmageddon

    Auto industry faces ‘Unprecedented Buyer’s Strike’: Morgan Stanley
    After five months in a row of year-over-year declines in auto sales, and therefore after five months in a row of sales that fell below already lowered expectations, the big guns on Wall Street are now seeing the writing on the wall, and are trying to come to grips with it.
    ‘A stretched auto consumer, falling used [vehicle] prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike,’ wrote Morgan Stanley’s auto analyst Adam Jonas in a note to clients.
    He now sees a ‘multiyear cyclical decline.’ In this environment, he sees an impaired ability by these stretched consumers to buy new vehicles. He sees a declining ‘willingness of financial institutions to lend as aggressively as in the past.’ He’s particularly worried that even the automakers’ captive finance operations – such as Ford Motor Credit, GM Financial, Mercedes-Benz Financial Services, and Toyota Financial Services – which have been doing everything they could to get people into new cars, are at the end of their wits:
    Up to this point, we had believed that competitive forces, particularly the ability of the captive finance subs to find new ways to lower the monthly payment and put ‘money on the hood,’ would help extend the US auto volume cycle a few more years to new heights.

    This post was published at Wolf Street on Jun 9, 2017.


  • Morgan Stanley Warns Of “Unprecedented Buyer’s Strike” In Autos; Slashes Car Sales Forecast

    Morgan Stanley’s auto team, led by analyst Adam Jonas, seems to be convinced that the auto trade is officially over prompting him to slash over 11 million units from his North American SAAR forecast over the next 4 years. Jonas attributes his controversial call to the fact that OEMs have been so aggressive in implementing policies designed to pull forward sales (e.g. longer loan terms, higher loan mix to subprime borrowers, etc.) that they’ve actually started to pressure used car prices to the point that they’re cannibalizing new sales.
    We had held to a ‘higher-for-longer’ thesis on the assumption that the OEMs could keep pulling forward demand from the future… For several years, we have expressed our concern over the sustainability of used car values and powerful forces that could drive a multiyear cyclical decline, impairing the ability for consumers to transact and the willingness of financial institutions to lend as aggressively as in the past. Up to this point, we had believed that competitive forces, particularly the ability of the captive finance subs to find new ways to lower the monthly payment and put ‘money on the hood’, would help extend the US auto volume cycle a few more years to new heights.
    8 years into the biggest auto cycle on record, we appear to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second hand market, leading to adverse conditions for selling new vehicles…
    As such, for the first time this cycle, we are directly incorporating our views of used car value erosion into our US light vehicle sales forecasts, resulting in substantial SAAR reductions of several million units per annum through 2020.

    This post was published at Zero Hedge on Jun 8, 2017.


  • “This Market Is Crazy”: Hedge Fund Returns Hundreds Of Millions To Clients Citing Imminent “Calamity”

    While hardly a novel claim – in the past many have warned that Australia’s housing and stock market are massive asset bubbles (which local banks were have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) – so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars to its clients according to the Sydney Morning Herald, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.
    “Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday quoted by the SMH.
    The 30-year investing veteran said that on May 15 he had advised Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors.” Parker also said he had “disbanded the team for time being”, including his investment committee comprising of several prominent bears such as former Morgan Stanley chief economist and noted bear Gerard Minack and former UBS economist Stephen Roberts.

    This post was published at Zero Hedge on May 29, 2017.


  • Albert Edwards: “What On Earth Is Going On With US Wages”

    When Albert Edwards predicted in late 2016 that a surge in wage inflation was imminent, we were confused by this prediction from the world’s preeminent deflationist: after all, not only had not a single economic indicator validated a tighter labor market despite unemployment just above 4%, but as we have have repeatedly demonstrated what little wage inflation existed, was attributable to managerial-level, supervisory positions while the bulk of job creation remained with minimum-wage jobs, which have continued to see virtually no wage growth. Even Morgan Stanley, a far greater bull than Edwards, one month ago admitted that “wage growth is leveling off, may be slowing.”
    Which is why we have to give Edwards credit: some 6 months after his initial call, he had the courage to do what is never easy and admit he was wrong, and that contrary to his expectations wages are not going up after all.
    Talking about wrong, I have to put my hands up. I have been expecting US wage inflation to roar ahead over the past three months to well above 3%, yet every data release has surprised on the downside. Wage inflation, as measured by average hourly earnings, has actually levelled off at close to 2% while wage inflation for ‘the workers’ is actually slowing (see chart below)! Strictly speaking, “the workers” are defined (by the BLS) as “those who are not primarily employed to direct, supervise, or plan the work of others. Hey, that’s me!

    This post was published at Zero Hedge on May 27, 2017.


  • Goldman Warns Of “Sharp Oil Price Drop”, Inventory Glut “If Backwardation Is Not Achieved”

    Increasingly some of the more prominent sellside analysts appear to be picking and choosing ideas from their competitors. Earlier, it was JPM echoing Goldman’s reco when it cut its 10Y yield forecast. Now, in a note previewing the outcome of this week’s OPEC meeting and proposing a way forward for OPEC, Goldman’s Damien Couravlin adopted the “backwardation” idea presented last week by Morgan Stanley’s Francisco Blanch.
    As a reminder, Blanch’s latest thesis on oil market dynamics, is that “OPEC’s goal for the oil market is not a specific price level, but reaching backwardation“, (which is also why he does not believe that OPEC will proceed with deeper cuts as this would likely mean ceding more market share to U. S. shale production).
    Fast forward to Monday, when Goldman’s energy strategist Damien Couravlin effectively cribbed the whole note by writing that while “oil prices are rebounding with stock draws and greater certainty on an extension of the production cuts” and a “9 month extension would normalize OECD inventories by early 2018” he warns that he sees “risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate.”

    This post was published at Zero Hedge on May 22, 2017.


  • “It Fell Off A Cliff”: Morgan Stanley’s Macro Indicator Just Crashed The Most Since Dec. 2008

    Step aside Citi US Economic Surprise Index, which after a “surprising” streak of negative economic data, recently crashed to the lowest level since October 2016…

    … and make way for Morgan Stanley’s ARIA, a monthly US macro indicator based on data collected through primary research on key US sectors (consumer, autos, housing, employment, and business investment).
    The reason why this particular index will likely feature prominently in financial commentary in the coming days and weeks, is that as Morgan Stanley’s chief economist Ellen Zentner writes, “ARIA appears to have fallen off a cliff in April, with a 0.72% decline, the largest since December 2008.”

    This post was published at Zero Hedge on May 14, 2017.


  • Morgan Stanley: “Book Your Summer Holidays, But Put These Trades On First”

    In the latest Sunday start from Morgan Stanley, the bank’s co-head of economics, Elga Bartsch looks at – what else – the eerie, record calm gripping capital markets despite the daily bombardment, so to speak, of deteriorating geopolitical news, US and European political upheaval, deteriorating economic data, and confusion about China’s credit impulse. And while her advice is not to get too concerned about the future, telling clients “you probably should book your summer holidays if you haven’t already”, the investment bank is quietly joining the ranks of Goldman and JPM in warning that the record low vol won’t last, and is likely to see a rebound just around June, or when the summer holidays begin in earnest, with the most likely catalyst being “surprises” around central bank announcements.
    As a result, she proposes a “barbell” pair trade, one for each potential outcome: a blow off top in the market, or a “risk flaring” swoon in stocks, which will come to credit markets first:
    On one hand, buy S&P calls as “options are only pricing an 8% probability of the 15% S&P rally that our Chief US Equity Strategist Mike Wilson forecasts in his base case“ On the other, buy CDX HY puts: “contrary to just buying vol itself, such a differentiated approach allows us to express our conviction that, in a late-cycle US economy, a broad deterioration in credit markets will likely precede any equity market downturn. “

    This post was published at Zero Hedge on May 14, 2017.


  • Doug Noland: The VIX and the Scheme

    There was little market reaction to Emanuel Macron’s widely-anticipated big victory in the French presidential election. The euro actually retreated somewhat, in a ‘sell the news’ dynamic. European equities ended the week mixed. European bonds were somewhat more interesting. Bund yields declined three bps, while Italian yields jumped nine bps.
    ‘Risk On/Risk Off’ analysis was rather inconclusive this week, though there were some indications of waning risk embracement. U. S. equites came under modest selling pressure. The S&P500 declined 0.3%, while the broader indices were weaker. The midcaps fell 1.1%, and the small cap Russell 2000 declined 1.0%. With Macy’s earnings badly missing estimates, retail stocks came under heavy selling pressure. This sector has given the bears a bit of life. Financial stocks were also under notable pressure. The banks (BKX) fell 1.3% and the broker/dealers (XBD) lost 1.5%. The Transports were hit 2.1%.
    The general market was resilient in the face of ongoing Washington dysfunction. It’s not that surprising that President Trump’s firing of FBI Director Comey had a much greater impact within the media than in the markets. It’s my view that markets are more dominated by liquidity flows and speculative dynamics than the Trump agenda.
    As for speculative dynamics, the Nasdaq 100 (NDX) and Morgan Stanley High Tech Index (MSH) traded at record highs this week, while the Semiconductors (SOX) are within striking distance. For the week, the NDX gained 0.7% (up 16.9% y-t-d), the MSH rose 0.6% (up 19.6%), and Semiconductors surged 3.4% (up 15.3%).

    This post was published at Wall Street Examiner on May 13, 2017.


  • There’s a Pile of Dirty Linen Behind Morgan Stanley’s Removal of Vanguard Funds

    For as long as we have been observing Wall Street sleaze (three decades and counting) we have been reading about illegal sales contests and mutual fund abuses at Morgan Stanley and its 1997 merger partner, the retail brokerage firm Dean Witter. Given that history, when we read last week that Morgan Stanley was going to gut one of the all-time best families of mutual funds from its client offerings (Vanguard Funds), we felt our readers deserved a fuller understanding of the facts than they were getting from corporate media.
    Incredibly, a number of corporate media outlets tried to pass this off as Morgan Stanley attempting to ‘close out under-performing and less popular funds.’ Before we get to the nitty-gritty of why Morgan Stanley is freaking out about the respected Vanguard Funds, some necessary background is in order.
    Our earliest recollection of the mutual fund outrages at Dean Witter came courtesy of BusinessWeek reporters Leah Nathans Spiro and Michael Schroeder in a February 1995 article. (Bloomberg L. P. purchased BusinessWeek from McGraw-Hill in 2009. The Bloomberg brand now shows on the online article.)
    Nathans Spiro and Schroeder explain in the article why Dean Witter was pushing its own internal mutual funds on its brokers and the brokers were not pushing back. The authors write:
    ‘But the greatest incentives are usually for selling investments created by the firm. The reason for favoring its own products, especially mutual funds, is simple: much higher profit margins. The firm reaps a fee for managing its own funds. It gets no management fee for an outside fund…
    ‘The firm that’s most vulnerable on this issue is Dean Witter. It says that more than 75% of the mutual funds it sells are the house brand, probably the highest ratio in the industry. Customers who invest in Dean Witter funds pay a sales load that ostensibly compensates the broker for unbiased advice in helping them pick the best fund. Yet three times out of four, clients are simply ushered into Dean Witter funds. One reason: Brokers receive 5% to 15% more for selling Dean Witter funds than for outside funds. ‘It’s like calling yourself a car consultant when you sell Fords,’ says Don Phillips, publisher of Morningstar Mutual Funds.’
    Seven months after the BusinessWeek article appeared, the Washington Post stunned Wall Street by publishing an insider’s allegations against Dean Witter. Les Silverstone was a respected, retired broker from Dean Witter. He blew the whistle on the lavish prizes brokers were getting for selling select products.

    This post was published at Wall Street On Parade By Pam Marte.


  • Market Mocks OPEC Crude Jawboning; Morgan Stanley Warns Of Risks To 2018 Oil Price

    In the clearest indication yet that OPEC jawboning no longer has an effect on markets, and especially headline scanning algos, following numerous headlines from Saudi energy minister Khlaid Al-Falih overnight warning that the oil rebalancing is imminent, and in case it isn’t, it will come in 2018 when OPEC and Non-OPEC producers may extend their production cuts, this morning oil is firmly hugging the flatline after a failed attempt to push higher earlier in the session.
    As Bloomberg reports, Saudi Arabia and Russia signaled they may extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus as oil prices continue to drop.
    In separate statements just hours apart on Monday, the world’s largest crude producers said publicly for the first time they would consider prolonging their output reductions for longer than the six-month extension widely expected to be agreed at the OPEC meeting on May 25. “We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing’ the Russian Energy Minister Alexander Novak said in a statement.
    Speaking in Kuala Lumpur earlier Monday, Saudi energy minister Khalid Al-Falih said he was ‘rather confident the agreement will be extended into the second half of the year and possibly beyond’ after talks with other nations participating in the accord.

    This post was published at Zero Hedge on May 8, 2017.


  • Will Trump’s Tax Plan Pass: Here Is The Complete Probability Matrix

    With global equity markets enjoying the biggest weekly inflow since the election on what BofA described was rising expectations of a Trump tax deal, the obvious question is “what is the probability of the Trump tax deal getting done.” And, as it turns out, that is also the wrong question, because as Morgan Stanley shows, the outcome from Trump’s tax proposal is not binary. In fact, there are nine distinct possible results, depending on how the various binomial outcomes pan out.
    But first, here is a snapshot of how Morgan Stanley’s Michael Zezas sees the infamous one-pager (which was fully explained by Goldman Sachs earlier in the week).
    A starting point, but we don’t think the timing of tax reform is advanced: The release is a signal that the White House is taking more of a leadership role on tax than they did on healthcare. Yet that fact alone doesn’t change the barriers to action and likelihood of delays (1H18 is our estimated timing), in our view, for the following reasons: Republicans still pursuing elusive healthcare deal – Until Republicans ‘cut bait’ on repealing & replacing Obamacare, they can’t practically start the detailed work of advancing tax reform through the budget reconciliation process. While we see little practical reason for Republicans to remain focused on healthcare, the recently proposed MacArthur amendment signals renewed dedication to the effort. As such, our concern is that they become bogged down in passing amendments to AHCA that satisfy the concerns of moderates, conservatives, and Senate reconciliation rules.

    This post was published at Zero Hedge on Apr 28, 2017.


  • Japan’s 10Y Yield Drops Below Zero Again: All Eyes On The BOJ

    With every other asset class roundtripping the November election outcome, it was only a matter of time before Japan’s 10Y JGB – which on February 2 briefly peaked above the BOJ’s “yield curve controlling” 0.10% yield ceiling, rising as high as 0.15% to the shock of a market ready to declare that Japan had finally lost control of its bond market – retraced the entire “reflationary” move from 0.0% to 0.1%. And, sure enough, following today’s violent deflationary capitulation moments ago Japan’s JGB 0.1% of 2027 once again dipped back under 0%, sliding as low as -0.003% on Wednesday morning in Japan.
    What happens next?
    According to traders, focus will turn to whether the BOJ, in pursuing “yield curve control”, will reduce the amount of JGBs it monetizes. “Amid favorable environment for bonds, focus is on BOJ as whether there will be a reduction in purchase amounts will test the bank’s tolerance for 10-year yield falling into negative,” Katsutoshi Inadome, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, wrote in note according to Bloomberg.

    This post was published at Zero Hedge on Apr 18, 2017.


  • Commercial Bankruptcies Surge As The Fed Warns Of A Stock Correction – Episode 1251a

    The following video was published by X22Report on Apr 10, 2017
    Morgan Stanley wage growth is leveling and might be slowing. Commercial and consumer bankruptcies have surged and it looks like pre 2008. Loan creation have declined further and it is following the same pattern as 2000 and 2008. The Fed minutes shows they have the ability to bring down the market and to push the market up. This time they are getting ready to bring the market down.


  • “Think 1999”: Morgan Stanley Sees Huge 30% Surge In Stocks “Investors Cannot Afford To Miss”

    With Morgan Stanley’s Adam Parker having left the investment bank to continue his career at Eminence Capital, it was up to his replacement, Michael Wilson to come up with the Initiation of coverage report for the “Classic Late Cycle.” So, in keeping a stiff upper lip, and breaking away from the gloom that appears to have recently gripped his colleagues over at Goldman Sachs, Wilson had no choice but to keep a stiff upper lip and keep the Punch Bowl full (to paraphrase Bill Dudley’s famous March 30 speech).
    So, projecting a remarkable dose of optimism at a time when dramatic changes are in store for not only the Fed’s balance sheet but the global credit impulse which is now negative, Wilson, who until recently was Morgan Stanley’s Chief Investment Officer of Wealth Management, writes that “although optimism is a late cycle phenomenon, history tells us the best returns often come at the end. It has taken eight long years to get here, but Wall and Main Street are finally starting to feel a bit better about the future.”
    What alse comes at the end is the crash, and those tend to make both Wall and Main Street feel a bit worse about not only the future but also the present.
    In any case, the basis for MS’ optimism is the economic recovery – which alas is entirely missing in the hard data, which tumbled after the NFP print to the lowest level in a year – and the Trump reflation euphoria – which the bank may have missed faded about a month ago and has been rapidly contracting to pre-election levels – and uses that to extrapolate a move as high as 3,000 in the S&P, or a 30% blow off top.

    This post was published at Zero Hedge on Apr 10, 2017.