ratings

"In many ways, EM is showing similar symptoms to its DM counterparts of weak economic performance and over- reliance on credit. The outcome is what we call the three EM debacles: de-leveraging, depreciation (or devaluation even de-pegging) and downgrades of credit ratings."

You’re doing yourself a disservice if you don't have a basic working knowledge of what, say, a volatility surface means. We're not saying that we all have to become volatility traders to survive in the market jungle today, any more than we all have to become game theorists to avoid being the sucker at the Fed’s communication policy table. And if you want to remove yourself as much as possible from the machines, then find a niche in the public markets where dark strategies have little sway. Muni bonds, say, or MLPs. The machines will find you eventually, but for now you’re safe. But if you’re a traditional investor whose sandbox includes big markets like the S&P 500, then you’re only disadvantaging yourself by ignoring this stuff. Ignorance is not bliss...

Brazil's economic recession is likely to be deeper and longer than Fitch's earlier expectations and its performance has diverged materially from those of its rating peers. Medium-term prospects also look weak compared to peers and most other large emerging markets. Fitch forecasts that Brazil's economy will contract by 3% and 1%, respectively in 2015 and 2016 before recording modest growth in 2017, with risks skewed largely to the downside.

Since inception in June 1998, UBS' Managed High Yield Plus Fund survived through the dot-com (and Telco) collapse and the post-Lehman credit carnage but, based on the press release today, has been felled by the current credit cycle's crash. After 3 years of trading at an increasingly large discount to NAV, and plunging to its worst levels since the peak of the financial crisis, the board of the Fund has approved a proposal to liquidate the Fund. While timing is unclear, this is the worst case for an increasingly fragile cash bond market as BWICs galore are set to hit with "liquidty thin to zero."

Despite The Fed's best efforts to crush the business cycle, the crucial credit-cycle has reared its ugly head as releveraging firms (gotta fund those buybacks) and deflationary pressures (liabilities fixed, assets tumble) have led to a soaring market cost of capital and surge in downgrades. In fact, in the latest quarter, the ratio of upgrades-to-downgrades is its weakest since the peak of the financial crisis in 2009. “We’re seeing more widespread weakness across more industry sectors in the U.S... It’s become broader than just the commodity story.”

Just when you thought the M&A boom is over after a surge in bond yields that Goldman has repeatedly dubbed as "recessionary", and which will make the debt cost of any funding so high that there is barely any room for execution error, moments ago as had been extensively leaked previously, private Dell announced it would acquire tech giant EMC in a deal valued roughly $67 billion, while maintaining VMWare as a publicly-traded corporation. Good luck with raising the tens of billions in debt the deal will require: our best wish to Barclays, BofA, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, RBC who will all be underwriting the required debt financing to Dell.

The global risk on mood (which is really anything but, and is merely an unprecedented short covering squeeze as we will report momentarily) launched by an abysmal jobs report one week ago and "validated" yesterday by the surprisingly dovish FOMC minutes, which said nothing new but merely confirmed what most knew, namely that a rate hike is almost certain to not occur until mid-2016 if ever, and accelerated by a Fed-driven collapse in the dollar which overnight has led to a historic 3.4% move in the Indonesian Rupiah the most since 2008, has pushed global stocks even higher in their biggest weekly rally since 2012, despite the start of an earnings season where virtually every single company reporting so far has stumbled on earnings reports that were far worse than even gloomy consensus had expected.

News That Matters

Deutsche Bank warned it expects to record a third-quarter loss of $7 billion, tied to a huge write-down in its corporate-banking-and-securities segment.  The bank said the charges are driven by the impact of expected higher regulatory capital requirements and its disposal of Postbank. It also said it will consider reducing or eliminating its common dividend for fiscal 2015.

DEUTSCHE BANK SEES 3Q NET LOSS EUR 6.2 BLN
DEUTSCHE BANK TO RECOMMEND DIVIDEND CUT OR POSSIBLE ELIMINATION

And now the real shocker: there is over US$100bn in gross financial exposure to Glencore. From BofA: "We estimate the financial system's exposure to Glencore at over US$100bn, and believe a significant majority is unsecured. The group's strong reputation meant that the buildup of these exposures went largely without comment. However, the recent widening in GLEN debt spreads indicates the exposure is now coming into investor focus."

In the real world, any casino (legal or otherwise) which refused to pay when the “house” lost would quickly be driven out of business

"In the event of a downgrade by Standard & Poor’s and/or Moody’s from current ratings to the level(s) immediately below...  there are $4.5 billion of bonds outstanding, where a 125bps margin step-up would apply, in the event that the bonds were rated sub-investment grade by either major ratings agency."

Unfortunately, we are used to politicians saying whatever they think they need to say to be elected president, and falling way short of their campaign promises on the job. Even scarier would be the notion of selling America to the craftiest bidder. The election may be more than a year away, but isn’t it time to dig beneath the carefully crafted persona that is Trump and unearth the person and the full spectrum of his business dealings? To see the real Donald Trump is to plunge into all the conflicts of interest he denies, the financial tricks he dispenses, the crucial details he obfuscates, and the flimflam he offers up day in, day out.

"The Americans were startled once again when tragic news break out about the deadly campus shooting in Oregon on Thursday. However, the United States is "the only advanced country on earth that sees these kinds of mass shootings every few months," just like President Barack Obama has painfully acknowledged. How come a country as powerful as the United States has been unable to stop this kind of brutal attacks against innocent civilians? The problem is deeply rooted in the country's political system, where bipartisan politics and interest groups exert huge influence, to the point that security of the American people have to give way to political correctness and corporate interests."