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Corbyn Leads U.K. Election Cyber War, But Tories Improve on 2017

This article by Joe Mayes for Bloomberg may be of interest to subscribers. Here is a section:

The clearest difference between the parties is on how far their messages are spread by people sharing content voluntarily -- known as “organic” reach. Labour currently leads on this across the three most important social media platforms: Facebook, Twitter and Instagram.

Posts from the Facebook pages of Labour and Corbyn -- largely focused on issues such as the National Health Service and criticizing the government’s austerity program -- have been shared more than twice as many times as those from the Conservatives and from Johnson himself, according to data from CrowdTangle, a social media analytics tool owned by Facebook.

Labour and Corbyn have also garnered about 100% more views of their videos on Facebook and Twitter than the Tories, according to CrowdTangle and a Bloomberg analysis.



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Ailing Art Collector Faces a Very Modern Problem: Mountains of Debt

This article by Kelly Crow for the Wall Street Journal may be of interest to subscribers. Here is a section:

Today’s art-backed loans have gotten larger and riskier for collectors as the art market has started to shrink. U.S. collectors staked their art to borrow up to $24 billion this year, more than double the level a decade earlier, according to the latest data compiled by the Deloitte accounting firm and ArtTactic, an auction-database company. Some affluent borrowers tap their art like a piggy bank to fund living expenses. Others use the loans to buy more art.

But after a four-year rise, the global art market has started to retrench, with the value of sales down 22% at Christie’s auctions in the first six months of 2019 compared with the same period a year earlier. Last week’s $1.4 billion major fall auctions in New York were a third smaller.

If art values plummet, experts say, collectors may need to sell works for less than they are valued to pay down their loans—or add more pieces to their collateral pool to keep their loans square. If not, they could default on loans and forfeit their art altogether.

“If everyone is taking the same art as collateral—same artists, same bodies of work—and there’s a crisis, everyone may need to sell and you have a big problem,” said Adriano Picinati di Torcello, who issued the Deloitte-ArtTactic report last month.



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Private markets come of age

Thanks to a subscriber for this report from McKinsey which may be of interest. Here is a section:

Private credit. Private credit fundraising softened in 2018 (down 15 percent versus 2017), but its long-term growth trend remains intact. In fact, 2018 was the second-highest fundraising year in history for the asset class (Exhibit 5). Seven-year trailing fundraising has grown at an average of 9 percent per annum since 2013, outpacing both PE and closed-end real estate growth, on the back of sustained low interest rates and a long economic expansion. Annual returns for private debt have averaged around 10 percent since 2008, with higher yields than are available in public debt. This has been an attractive proposition to more and more investors. A good indication is high-yield spreads, which reached ten-year lows in 2018 before widening again in the fourth quarter.

Private credit funds (and hedge funds, which are not included in our data) are now filling a financing void for many middle-market and sponsor-owned companies, helping sectors and providing security structures avoided by banks. Private credit has also increasingly returned to covenant-light lending as the market has grown hotter: in a recent survey by the Alternative Credit Council, 38 percent of North American private credit lenders reported lower financial covenants in the past year, versus just 8 percent reporting higher covenants.



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Netherlands Headed For Unprecedented Crisis: Millions Of Retirees Face Pensions Cuts Thanks To The ECB

Thanks to a subscriber for this article from Zerohedge which may be of interest. Here is a section:

 

In some ways, the Netherlands has one of Europe's most generous retirement systems: at its core, it represents a basic pay-as-you-go state pension as well as employer-run pension scheme which together provide workers with about 80% of their average lifetime wages when they retire. The US and UK have similar systems, but Dutch pension funds are more generous and must use a lower risk-free rate to value their liabilities, forcing them to hold more assets.

Unfortunately, the lower Dutch risk-free rate is not low enough, and as a result about 70 employer-run pension funds with 12.1m members had funding ratios below the statutory minimum at the end of September, according to the Dutch central bank. And here lies the rub: if funds have ratios below the legal minimum for five consecutive years or have no prospect of recovering to a more healthy level, they must cut their payouts. Interest rates have rebounded slightly in recent weeks, but many funds are still facing cuts.

In other words, in making a select handful of European stockholders rich courtesy of NIRP and QE, Mario Draghi is threatening the pensions of hundreds of millions of retired European workers.

So what, if any, is the solution?

Last week, Rabobank reported that the Minister of Social Affairs is supposedly willing to prevent a large part of the pension benefit cuts of 2020, as the government is reportedly willing to lower the minimum coverage ratio from 100% to 90% for one year. This temporary measure can be seen as a pause button, which buys time for:

Pension funds to hopefully recover over the next year. For pension funds, a rise in their risk-free rate term structure which is used to discount their liabilities (EUR 6m swap rates) would be most helpful
Continuing to work out the details of the Pension Reforms announced in June 2019. Unions, employer representatives and the opposition parties were against pension cuts because this would undermine the goals set out in the Pension Reforms.



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CECL Symposium Highlights: Still More Questions Than Answers

Thanks to a subscriber for this report from Raymond James which is dated August 6th but makes a number of worthwhile points. Here is a section:

What is CECL?: CECL is a new accounting standard that modifies how companies estimate loan and lease losses, and affects all periods starting after December 15, 2019 (i.e., begins 1Q20). In the midst of the financial crisis in 2008, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) established the Financial Crisis Advisory Group (FCAG). FCAG believes it has identified a “weakness in current GAAP being the delayed recognition of credit losses that results in the potential overstatements of assets,” which ultimately led to its recommendation for this new standard. The new standard requires financial institutions to use a combination of historical information, current conditions and reasonable forecasts to estimate the expected losses over the life of a loan. This is a significant shift from the current methodology, which relies on incurred losses. We note on day one of implementation, there will be a balance sheet adjustment, creating additional general reserves for expected credit losses and negatively impacting capital levels, but implying limited income statement impacts.

Conclusion: We walked away with more questions than answers, and anticipate a significant amount of variability in disclosures amongst the banks given the latitude FASB has provided in the standards. While many questions remain, FASB officials, consultants and management teams alike continue to work through the issues and are refining models as overall understanding of the standards improves. Fortunately, we anticipate regulatory capital relief for the banks as necessary, since capital levels remain elevated and the intent of the new standards was not to increase capital levels at the banks. However, we believe there could be some unintended consequences and potential ripple effects that will create further disruption in the space, potentially shifting assets out of the banking space and into the non-bank space, which has continued to gain share. Ultimately, we remain concerned with the uncertainty around CECL, anticipated volatility around disclosures and capital impacts, as well as potential negative implications on industry demand will serve to provide one more reason for investors to not own the space.



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Sputtering China Growth Underscores Need for Trade Reprieve

This article from Bloomberg news may be of interest to subscribers. Here is a section:

The investment data shows how cautious private companies have become, with their spending in the first 10 months of the year at the lowest level since 2016. The continued stability in spending by state-owned firms’ is preventing an even stronger drop in the headline data.

Investment in the property market is one bright spot, with spending by the manufacturing sector barely above the record low recorded in September. Infrastructure investment growth continued to bounce along around 4% as it has all year.

“I’m quite concerned with property investment, the only stable element in fixed-asset investment now,” according to Xue Zhou, analyst at Mizuho Securities Asia Ltd in Hong Kong. “Monetary policy needs to be more supportive on economic growth and there should be more cuts to banks’ reserve ratios to help smaller banks.”



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China, U.S. Agree to Tariff Rollback If Trade Deal Reached

This article from Bloomberg news may be of interest. Here is a section:

“If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said.

Such an understanding could help provide a road-map to a deal de-escalating the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by Trump, which by now apply to the majority of its exports to the U.S.



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Chesapeake's Covenants Could Pinch in 2020

This article by Allison McNeely may be of interest to subscribers. Here is a section:

The company warned there is doubt about its ability to continue operating. Its shares and bonds have plunged since reporting earnings Nov. 5.

*Based on price assumptions of $55 per barrel for oil and $2.50 per million British thermal units for natural gas as well as no debt reduction, Chesapeake is likely to trip its leverage covenant by the third quarter of next year, if not sooner, CreditSights analysts Jake Leiby and Michael Mistras wrote in
the report.

**They predict Chesapeake will have a free cash flow shortfall of about $50 million in 2020 and finish the year with gross leverage of 4.6 times debt to a measure of earnings, above the 4.25 ratio in its covenant.



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Fed Cuts Rates by Quarter Point, Hints It May Be Done for Now

This article by Christopher Condon for Bloomberg may be of interest to subscribers. Here is a section:

Federal Reserve officials reduced interest rates by a quarter-percentage point for the third time this year and hinted they may be done loosening monetary policy, at least for one meeting.

The Federal Open Market Committee altered language in its statement following the two-day meeting Wednesday, dropping its pledge to “act as appropriate to sustain the expansion,” while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate.”

As with the September statement, the FOMC cited the implications of global developments in deciding to lower the target range for the central bank’s benchmark rate to 1.5% to 1.75%.

Treasuries weakened on the Fed’s announcement, pushing the 10-year yield up briefly to 1.81% from 1.80%. Stocks were little changed and the U.S. dollar gained. Traders also pared wagers on a fourth consecutive rate cut in December.



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Treasury Prepares Another Debt Deluge as Fed Wades Into Market

This article by Emily Barrett for Bloomberg may be of interest to subscribers. Here is a section:

 

The wild card is how Treasury may address the elephant in the room. Dealers expect comment on last month’s turmoil in funding markets. And to some extent, the Treasury’s borrowing plans this fiscal year will be viewed, and traded, in light of the Fed’s T-bill purchases to replenish bank reserves. The central bank embarked on the program this month, saying it will run “at least into the second quarter” of 2020 at an initial monthly pace of about $60 billion.

 “They’re taking about half of net issuance next year,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

Some say the Treasury’s relentless debt sales have contributed to a shortage of reserves in the financial system, which last month forced the Fed to resort to a money-market operation it hadn’t deployed since the financial crisis.

Treasury Secretary Steven Mnuchin has rejected that notion, saying this month that the September upheaval had “nothing to do with our issuance.” But the department is clearly curious about how dealers are coping with growing supply. It sought comment in this month’s survey on “the interaction between primary dealer positions, auction participation, and recent repo market variability.”



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