David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Exclusive Interview with Zoltan Pozsar: Adapting to the New World Order

    Thanks to a subscriber for this interview from Ronald Stöferle and Niko Jilch. Here is a section:

    These topics are becoming more mainstream. When I talk to the most sophisticated macro hedge funds and investors, the common refrain that comes back is they’ve never seen an environment as complicated as this. There is consensus around gold; it’s a safe bet, and everything else is very uncertain. This is a very unique environment. I think we need to take a very, very broad perspective to actively reimagine and rethink our understanding of the world, because things are changing fast. The dollar and the renminbi and gold and money and commodities. I think they are all going to get caught up.

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    Wells Fargo CEO Says 'There Will Be Losses' From US Office Loans

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

    Wells Fargo & Co. Chief Executive Office Charlie Scharf said there are significant risks to segments of the US office sector and that his bank will see losses stemming from real estate loans.

    “We look city by city, we look property by property to look at our exposures, and I would say there’s no question that there will be losses,” Scharf said Wednesday at a conference hosted by AllianceBernstein Holding LP. The San Francisco-based bank is proactively managing its loan portfolio and working with borrowers to restructure terms with the goal of helping clients and minimizing risk, he said. 

    Many office owners are struggling amid the rise in remote work and the surge in borrowing costs, which has made financing more difficult. Landlords such as Columbia Property Trust, owned by funds managed by Pacific Investment Management Co., have defaulted on office debt, often in a bid to renegotiate terms with lenders. Brookfield Corp. recently handed over control of a building in downtown Los Angeles to a receiver after it stopped payments on the office tower.

    “If you’re reserving conservatively, then you’ve derisked the financial impact to the company,” Scharf said, noting that Wells Fargo has a little less than 6% reserve coverage in its office portfolio. “In the context of the overall portfolio and the overall size of our loan portfolio in the company, we’re not overly concentrated in office.”

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    Britain Comes to Terms With Its New Water Poor Reality

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

    By 2050, the UK’s Environment Agency expects the gap between available water and what’s needed by homes and businesses to reach 4 billion liters per day in England — enough to fill 1,600 Olympic size swimming pools. Leaks are part of the picture, but so is a neglected network, some of which was built more than 150 years ago, that doesn’t store enough for times of drought, and water consumption that outstrips many other parts of Europe.

    The crisis has become a national obsession. The public is furious with a privatized English water industry that has paid out millions to executives and shareholders while failing to keep pace with population growth and climate pressures, and the government and regulators that have allowed it to happen. As well as the threat of water shortages, underdeveloped pipes and treatment plants mean raw sewage is frequently dumped in rivers and the sea, causing environmental damage.

    Now, after years of delays, the UK is racing to fix its broken water system before it’s too late. “The worst risk has not materialized yet,” says Jim Hall, a professor of climate and environmental risk at Oxford University and a member of the government’s official infrastructure adviser. “There is some sense until now that we’ve got away with it,” he says, but “a severe and prolonged drought could materialize at any time.”

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    Treasuries Gain as Investors Assess Debt-Ceiling Accord Impact

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

    Mounting rate-hike expectations have pushed short-term yields up relative to longer-term ones, flattening the Treasury curve. The flattening continued Tuesday as yields declined, briefly pushing 30-year yields below the five-year for the first time since March.

    The trend has temporary support from Wednesday’s month-end bond index rebalancing, which may create demand for the long-maturity Treasuries created during the month in quarterly auctions. 

    Later this week, Friday’s release of US labor market data for May has the potential to alter expectations for Fed policy. Job creation exceeded economists’ median estimate in April and each of the previous 12 months. However Fed officials in their public comments have been divided on how to balance an anti-inflationary stance with the possibility that the central bank’s 10 rate increases totaling 5 percentage points in the past 14 months warrant a pause in June.

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    World's Largest Solar Manufacturer Is Fueling a Price War

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

    Chinese company Longi Green Energy Technology Co. cut wafer prices by as much as 31% on Monday. Wafers are silicon squares that are wired up and pieced together to form solar panels. 

    The reduction comes after solar silicon prices have plunged by almost half since early February. A slew of new factories have ramped up production, ending a shortage of the material that disrupted the industry’s supply chain last year. 

    Longi President Li Zhenguo warned last week that aggressive expansion in the solar supply chain could lead to excess capacity that forces more than half the companies in the industry out of business in the next few years. 

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    AB InBev Falls as Data Shows Accelerating Bud Light Declines

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

    Anheuser-Busch InBev ADRs fall as much as 2.5% ahead of the bell after the latest Nielsen data shows accelerating volume and sales declines for its Bud Light beer. Shares dropped as much as 1.9% in Europe.

    Nielsen data through May 20 show that Bud Light volume declines accelerated to -27.2% vs -25.0% in the week ended May 13, while sales worsened to down 24.3% from down 21.6%, writes Citi analyst Simon Hales

    The broader InBev beer portfolio also continues to see weakness, while Molson Coors’ Coors Light beer continues to see market share gains accelerate, he says.

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    Soaring Real Yields Suggest Fed's Inflation Battle Isn't Over

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

    But the latest swing higher in real yields shows that in spite of fraught debt-ceiling negotiations, the world’s biggest bond market senses another jolt of policy tightening and an extended period of staying on hold may be warranted. A similar outlook is being echoed in the swaps market, with traders almost fully pricing in a quarter-point hike within the next two policy meetings.

    That view has found support in recent data pointing to a resilient US economy and sticky inflation. A report on Friday showed the inflation rate for US personal spending on items excluding food and energy running firmer than forecast at an annual pace of 4.7% in April. That comes amid upside surprises in UK and European inflation numbers, reminders that central banks may have more work to do and bond yields may keep climbing. 
     

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