“Very Close To Irrational Exuberance”: Asian Equities Break Above All-Time High As Hang Seng Clears 30,000

Following the new all-time high in US equities, the MSCI Asia Pacific Index broke through its November 2007 peak to make an all-time high in Wednesday’s trading session. This was something we noted could happen yesterday in ‘SocGen: Asian Equities Are So Awesome, A China Minsky Moment Is ‘Manageable’. The dollar weakened slightly after outgoing Fed Chairman, Janet Yellen, cautioned against interest rates rising too quickly in one of her last Q&As at NYU on Tuesday evening. The MSCI Emerging Market Index hit its highest level in six years and the Shanghai Composite rose 0.5% despite the lack of a net liquidity injection from the PBoC.
As Bloomberg notes, Asian stocks headed for a record close for the second time this month as the regional benchmark gauge surpassed its 2007 peak, led by energy and industrial stocks after U. S. equities continued their bounce from a two-week slide.
The MSCI Asia Pacific Index rose 0.7 percent to 172.70 as of 1:01 p.m. in Hong Kong. The gauge passed its 2007 closing high on an intraday basis on Nov. 9 but didn’t hold the level. Japan’s Topix index climbed for a second day Wednesday, rising 0.4 percent, after its worst week in seven months. Hong Kong’s benchmark Hang Seng Index breached the 30,000 level for the first time in a decade, boosted by China banks and energy stocks.
‘Anyone who missed the rally probably wonders if it is too late to join the party,’ Andrew Swan, head of Asian and global emerging markets equities at BlackRock Inc., said in a statement Wednesday. ‘We don’t believe it is.’

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

These Are The Top Geopolitical Risks According To The World’s Largest Asset Manager

Like many others, the world‘s largest money manager with $5.9 trillion in (ETF) investments, BlackRock, is not too worried about a market which no matter what, promptly rebounds from any and every selloff, and seems to close at all time highs day after day as if by magic. To be sure, BlackRock’s employees are delighted: the less the volatility, and the higher the S&P goes, the more likely retail investors are to hand over their cash to BlackRock. So far so good. Still, not even Blackrock can state that after looking at this chart, which unveils unprecedented economic policy uncertainty at a time when equity uncertainty has never been lower…
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… that everything is ok.
And it doesn’t: in a blog post by BlackRock’s Isabelle Mateos y Lago, Blackrock’s chief multi-asset strategist writes that while markets may be a sea of calm, geopolitics are anything but. As a result, the world’s biggest ETF administrator has its eyes on 10 geopolitical risks and is tracking their likelihood and potential market impact, as it wrote recently in the firm’s Global Investment Outlook Q4 2017.

This post was published at Zero Hedge on Oct 19, 2017.

One Trader Warns “The Game Is Starting To Change Before Your Eyes”

In a market that can barely fog a mirror with its heartbeat, a sudden lurch lower – as we experienced overnight across all global risky asset classes – especially on the 30th anniversary of Black Monday, has sparked a cavalacade of “this is it” narratives as well as “this time is different” memes. However, as former fund manager Richard Breslow notes, no matter how much traders may want to ignore reality, the game is starting to change before our eyes…
As BlackRock CIO Rick Reider noted earlier, major central banks flooded the global financial system with nearly $10 trillion in liquidity since 2008, but now we’re beginning to unwind…

Via Bloomberg,
If Catalonia didn’t exist, we would have to invent it. If only for a day…
Stocks are down today and someone has to be assigned the blame.

This post was published at Zero Hedge on Oct 19, 2017.

Gary Cohn is Concerned about Wall Street Clearinghouses – Blockchain is Already Fixing it

Gary Cohn, chief economic adviser to the President, voiced concern over the weekend about risk posed by Wall Street clearinghouses that became systemically important following the 2008 financial crisis.
As Bloomberg reported:
As ‘we get less transparency, we get less liquid assets in the clearinghouse, it does start to resonate to me to be a new systemic problem in the system,’ Cohn, director of the White House’s National Economic Council, said at a banking conference in Washington on Sunday.
Cohn isn’t the first to raise the risk. JPMorgan Chase & Co. and BlackRock Inc. have argued for years that clearinghouses pose their own threats, shifting risk to just a handful of entities. The Treasury Department’s Office of Financial Research has warned that clearinghouses used for derivatives trades can be vulnerable and potentially spread risks through the financial system.
While it is worth noting that this is another example of how the government’s response to a crisis they created made the economy as a whole more fragile, the good news for Mr. Cohn is that there is an exciting technological breakthrough that allows people to transparently move money without relying upon third parties to guard against shady counterparties: blockchain.

This post was published at Ludwig von Mises Institute on October 17, 2017.

Macquarie Identifies The Winners And Losers Of MiFID II

Macquarie’s equity research team has just offered up a valuable economics lesson which seems to perfectly, if inconveniently, explain why their business model is doomed by the upcoming implementation of MiFID II.
So what happens when you compete in a ‘slightly’ fragmented market (see below) to sell a highly commoditized product to a customer that places so little value on the product that it has historically only existed courtesy of subsidies from trading revenues…then a regulatory body suddenly comes along and says you have survive as an independent operation?

Well, as Macquarie notes today, almost everyone, particularly those in an equity research group, loses.
As equity research analysts, we can’t close the review of MiFID II implementation without discussing the implications of research unbundling, by which asset managers will have to pay separately for execution and trading. Here are a few points that have emerged as consensual on a number of white papers and articles: P&L method over RPA. An increasingly large number of leading asset managers already announced they will internalise the cost of research in their P&L instead of charging it separately to investors via Research Payment Accounts that are seen as overly cumbersome to implement. The list includes, in alphabetical order, Allianz Global, Aviva, Axa IM, BlackRock, Deutsche AM, Franklin Templeton, HSBC AM, Invesco, Janus Henderson, JPMorgan AM, M&G, Robeco, Schroders, Standard Life, T Rowe Price, UBS and Union (please see live list here).

This post was published at Zero Hedge on Oct 5, 2017.

If Everything’s So Awesome, Why Did This Happen Yesterday?

Monday saw US equities ramp exuberantly on the back of a one-way street in USDJPY as the narrative proclaimed that “the world didn’t end” and therefore we should buy stocks. There’s just one thing…
The biggest bond ETF in the world saw the biggest inflow of funds in its history at the same time.
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In fact, TLT – BlackRock’s 20+ Year Treasury Bond ETF has seen no outflows for 12 days.
Inflows have averaged over $150 million per day for the last week, which, as @SentimentTrader explains has led to significant gains 3-, 6-, and 12-months later…

This post was published at Zero Hedge on Sep 12, 2017.

Insurance Companies Could Face Staggering $500 Billion Loss During A Crisis-Like Downturn

Here’s one more example of how central banks’ global coordinated monetary stimulus in the wake of the financial crisis has increased systemic risk in the US: According to an analysis conducted by BlackRock, insurers are more vulnerable to a market downturn now than they were ten years ago.
The reason? Ultralow interest rates have forced insurers to venture into markets with higher yielding assets, forcing them to stomach more risk along the way. Whereas insurers once tended to adhere to only the safest types of fixed-income products – typically highly rated government and corporate debt – they’re increasingly buying exposure to risky high yield and EM products, along with illiquid private equity funds, to try and boost their earnings back to pre-crisis levels.
These products carry a potentially higher reward for insurers, but heightened risks are also omnipresent. In a downturn similar to the 2008 crisis, BlackRock estimates that US insurers’ holdings would drop by 11% – even more than they did during the crisis. Such a drop would be tantamount to $500 billion in losses.
‘The world’s largest money manager mined regulatory filings of more than 500 insurance companies and modeled their portfolios in a similar downturn. Their stockpiles – underpinning obligations to policyholders across the nation – would drop by 11 percent on average, according to its calculations. That’s significantly steeper, BlackRock estimates, than the group’s ‘mark-to-market’ losses during the depths of the crisis.

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

Diversify Into Gold On U.S. ‘Political Instability’ Advise Blackrock

– Gold set to shine as Washington stumbles
– ‘Bet on gold’s diversifying properties rather than political stability’
– World’s largest asset manager believes Trump and political drama in the U. S. means gold likely to rise
– Real rates flattening out and rising political instability – Blackrock’s Koesterich
– ‘For now my bias would be to stick with gold’ – Blackrock
– U. S. debt ceiling issue to be fractious as bankrupt U. S. hits $20 trillion debt
– Investors will again turn to gold in coming political strife
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‘For now I would prefer to bet on gold’s diversifying properties rather than political stability’ – Russ Koesterich, Blackrock.
Not for the first time this year, Blackrock’s Koesterich has spoken about his faith in gold during times of both financial and political instability.

This post was published at Gold Core on August 28, 2017.

Why Blackrock Isn’t Worried At All About Record Low Volatility

Yesterday, in an extensive, eloquent essay, One River’s Eric Peters described why it’s only a matter of time before record low breaks the market’s current phase of “metastability” and explodes higher. Below is the punchline:
To sell implied volatility at current levels, investors must imagine tomorrow will be virtually identical to today. They must imagine that bond yields won’t rise despite every major central bank looking to hike interest rates and exit QE. They must imagine that economies at or near full employment will not create inflation; that GDP will neither accelerate nor decelerate; that governments will tolerate historic levels of income inequality despite citizens voting for the opposite; that strongly rising global debts will be supported by decelerating global growth. And volatility sellers must imagine that nine years into a bull market, amplified by a proliferation of complex volatility-selling strategies and passive ETFs with liquidity mismatches, that we will dodge a destabilizing shock to market infrastructure. I can imagine a few of those things happening, but neither sustainably nor simultaneously. It is much easier to imagine a tomorrow that looks different from today.
As volatility declined, investors have had to sell even more of it to sustain sufficient profits. This selling reinforces the trend lower, which produces an illusion that legacy volatility shorts are less risky today than yesterday. Lower volatility thus begets lower volatility. And this also ensures that quantitative models reduce overall portfolio risk estimates, which allows (and in many cases forces) investors to buy more assets at prevailing prices. This in turn reduces volatility, reflexively. Naturally, the reverse is also true. Rising volatility begets rising volatility. And given the unprecedented volatility-selling in this cycle, I can imagine a historic reversal.

This post was published at Zero Hedge on Aug 7, 2017.

Leaked: EU Plans to Freeze Deposits to Prevent Bank Runs

Desperate Times, Desperate Measures. Following a spate of drastic banking interventions in Spain and Italy earlier this summer, the European Commission is preparing new legislation to prevent bank runs from completely wiping out Europe’s hordes of zombified lenders. According to an Estonian document seen by Reuters, that legislation would include measures allowing EU governments to temporarily stop people withdrawing money from their accounts, including by electronic fund transfers.
The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits pushed Banco Popular over the brink in Spain. In its final days, Popular was bleeding deposits at a rate of 2 billion a day on average. Much of the money was being withdrawn by institutional clients, including mega-fund BlackRock, Spain’s Social Security fund, Spanish government agencies, and city and regional councils.
The European Commission, with the support of a number of national governments, is determined that what happened to Popular does not happen to other banks. ‘The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,’ a source close to the German government said.

This post was published at Wolf Street on Jul 30, 2017.

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

When discussing Blackrock’s latest quarterly earnings (in which the company missed on both the top and bottom line, reporting Adj. EPS of $5.24, below the $5.40 exp), CEO Larry Fink made an interesting observation: ‘While significant cash remains on the sidelines, investors have begun to put more of their assets to work. The strength and breadth of BlackRock’s platform generated a record $94 billion of long-term net inflows in the quarter, positive across all client and product types, and investment styles. The organic growth that BlackRock is experiencing is a direct result of the investments we’ve made over time to build our platform.”
While the intention behind the statement was obvious: to pitch Blackrock’s juggernaut ETF product platform which continues to steamroll over the active management community, leading to billions in fund flow from active to passive management every week, if not day, he made an interesting point: cash remains on the sidelines even with the S&P at record highs.
In fact, according to a chart from Credit Suisse, Fink may be more correct than he even knows. As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.”
What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

This post was published at Zero Hedge on Jul 17, 2017.

Silicon Valley’s ‘Death by Overfunding’: Next Unicorn Collapses

When the ocean of hype turns toxic.
San Francisco-based Jawbone was a unicorn whose valuation peaked at $3.2 billion in 2014. Past tense because the maker of fitness trackers and other gadgets began quietly liquidating last month. And it’s being sued by vendors that claim they’re owed money, according to Reuters. Yet, Jawbone had raised nearly $900 million in equity and debt capital. And it blew this money.
Jawbone’s liquidation was first reported by The Information on July 6 and confirmed on Monday by Reuters. It’s the second largest failure of a venture-backed startup in terms of money raised, behind the bankruptcy in 2011 of solar-panel maker Solyndra.
Top venture capital firms – including Sequoia, Andreessen Horowitz, Khosla Ventures, and Kleiner Perkins – had invested in Jawbone. In September 2014, it raised $147 million at a valuation of $3.2 billion. In February 2015, it raised $400 million in debt, of which $300 million from BlackRock. By November 2015, with prospects curdling, it laid off 15% of its workforce.
In January 2016, when VC firms refused to throw more money at it, Jawbone’s president Sameer Samat, who’d arrived from Google seven months earlier, went back to Google, and in the same breath, the Kuwait Investment Authority led a $165-million Hail Mary investment in the company.

This post was published at Wolf Street by Wolf Richter ‘ Jul 11, 2017.

Warren Buffett Becomes Bank Of America’s Top Shareholder, Books $12 Billion Profit

As we previewed exactly 24 hours ago, Buffett’s Berkshire Hathaway said it will exercise warrants to swap its preferred Bank of America shares for 700 million shares of BAC common stock, making Buffett the largest shareholder, surpassing BlackRock, Vanguard and State Street . Buffett is also the top shareholder at Wells Fargo.
Buffett exercised his warrants, which were due to expire in 2021, to swap $5 billion in preferred stock worth about 6% of the company for common stock at $7.14 a share, less than a third of yesterday’s closing price of $24.32, effectively translating in a profit of $12 billion for the Omaha octogenarian. The decision was prompted by the latest Fed stress test, which allowed the bank to hike its dividend by 60%, from 30 cents to 48 cents. BofA also announced its plans for a record $12 billion stock buyback, almost immediately after the Federal Reserve gave it the green light on Wednesday, while also approving the capital-return plans of 32 other US banks that received the SIFI designation.

This post was published at Zero Hedge on Jun 30, 2017.

Autopsy of Banco Popular Shows Fragility of EU Banking System

What would a disorderly bank collapse in Spain and Italy have done?
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
New information has revealed just how serious a threat a disorderly collapse of Spain’s sixth largest bank, Banco Popular, might have posed to Spain’s banking system. In its final days, Popular was bleeding deposits at a rate of 2 billion a day on average.
Much of the money was being withdrawn by institutional clients, including global mega-fund BlackRock, Spain’s Social Security fund, Spanish government agencies, and city and regional councils, prompting accusations that Spain’s government was using insider knowledge to withdraw large amounts of public funds, which of course hastened Popular’s demise.
All the while, Spain’s Economy Minister was telling the bank’s less privileged investors, including retail shareholders and junior bondholders, that there was absolutely nothing to worry about. Those that believed him lost everything.
Between the end of March and its last day of trading, Popular shed 18 billion of deposits, roughly a quarter of the total. On the night of June 6, Europe’s Single Supervisory Mechanism decided that the bank could no longer cover its collateral. Popular, warts and all (take note, Italy), was sold for the meager sum of 1 to Banco Santander, though Santander will have to raise 7 billion of fresh capital to fully digest the bad stuff on Popular’s books.

This post was published at Wolf Street on Jun 29, 2017.

Dan Loeb Is Now Nestle’s 6th Largest Shareholder; Goes Activist On World’s Biggest Food Company

Dan Loeb has returned to his earthshaking activist roots, and in a letter released moments ago, Third Point announced it is now targeting the world’s largest food company, with its biggest bet on a public company in its history, amounting to $3.5 billion.
In the letter, Third Point announced that it currently owns roughly 40 million shares of Nestle, and that its stake, which is held in a special purpose vehicle raised for this opportunity including options, currently amounts to over $3.5 billion. Putting this number in the context of Nestle’s market cap of $264 billion, Loeb may have an uphill battle though that never stopped him before.
Loeb’s stake of 40 million shares makes him the 6th largest holder of Nestle, above Credit Suisse Asset Management with 38 million shares and below Massachusetts Financial Services Company with 56.8 million. The Top 4 holders are BlackRock, CapRe, Norges Bank, and Vanguard.
Third Point writes that “despite having arguably the best positioned portfolio in the consumer packaged goods industry, Nestl shares have significantly underperformed most of their US and European consumer staples peers on a three year, five year, and ten year total shareholder return basis. One year returns have been driven largely by the market’s anticipation that with a newly appointed CEO, Nestl will improve.”
While the problems are clear, why did Third Point go activist? To maximize value of course, as It explains:

This post was published at Zero Hedge on Jun 25, 2017.

“Mr. Carlson Said One Of His Clients Had 40% Of His Net Worth In Apple”

The WSJ has a good article explaining how schizophrenic the tech rally this year has been, with shares of giant tech firms “cropping up everywhere” in the universe of factor-based strats, even contradictory ones. Some examples: “Apple is in five low-volatility ETFs with a collective $14 billion and nine momentum ETFs with $17.7 billion, according to data firm XTF. Alphabet resides in seven low-volatility ETFs and three momentum ETFs, while Microsoft is in 11 low-vol ETFs and four momentum ETFs.”
That’s not all: Apple is also the fourth-largest position in the iShares Quality Factor ETF , which invests in firms with high returns on equity, low debt and stable earnings growth. At the same time, Apple is a large holding in a separate BlackRock ETF that aims to capture momentum, and it is also the top holding in BlackRock’s iShares Edge Value Factor ETF, representing nearly 10% of the portfolio.
While in the past different factors offered different investment styles, and at least superficial diversification, the tech juggernaut has made some of the most popular quant strats virtually overlapping.
This “style creep” means investors holding a mix of seemingly disparate funds in the name of diversification “could be surprised to find heavy concentrations in the same group of in-favor stocks, making them vulnerable in bouts of selling. Rules-based funds and strategies that gradually added tech stocks could sell them in a downturn, adding to price declines.”
The biggest risk may be volatility itself.

This post was published at Zero Hedge on Jun 19, 2017.