Saturday, November 26, 2022

U.S. Financial News Summary for the week ending November 25, 2022

Crypto Bubble Collapse Watch:

November 23 – Bloomberg (Joanna Ossinger): “Sam Bankman-Fried, disgraced founder of the now collapsed crypto exchange FTX and trading house Alameda Research, apologized to staff in a letter that outlined a crash in ‘collateral’ to $9 billion from $60 billion. ‘I didn’t mean for any of this to happen, and I would give anything to be able to go back and do things over again,’ he wrote… A slide in digital-asset markets in spring roughly halved collateral to $30 billion, while liabilities were $2 billion, he said. A combination of a credit squeeze, a further selloff in virtual coins and a ‘run on the bank’ left collateral at $9 billion ahead of FTX’s Nov. 11 bankruptcy… The estimate for liabilities had reached $8 billion by then, he said. ‘I did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash,’ Bankman-Fried said.”


November 22 – Reuters (Manya Saini): “Troubled cryptocurrency lender Genesis Global Capital has hired investment bank Moelis & Company to explore options including a potential bankruptcy, the New York Times reported… The company has not yet made a final decision on bankruptcy and it was still possible to be averted, the NYT added… On Monday, Genesis had asserted it had no plans to file bankruptcy imminently, days after it suspended customer redemptions citing the collapse of FTX.”

November 22 – Wall Street Journal (Peter Rudegeair and Vicky Ge Huang): “Digital Currency Group Inc. said 2022 revenue is on track to reach $800 million, down about 20% from what the cryptocurrency-focused conglomerate expected to generate last year. DCG is the parent company of Genesis Global Capital, a crypto lending firm that paused redemptions and loan originations on Nov. 16… DCG owes Genesis around $575 million that is due in May 2023, in addition to a $1.1 billion promissory note to Genesis due in June 2032, DCG Chief Executive Barry Silbert said… DCG is trying to assuage the fears of crypto traders and investors following the meltdown of crypto exchange FTX this month. Exposures that once seemed manageable have grown across the crypto industry, and investors are questioning the health of firms once viewed as safe.”

November 22 – Bloomberg: “Top partners at Sequoia Capital apologized to investors for backing FTX, whose bankruptcy had its first US court hearing. Sam Bankman-Fried in a letter outlined a crash in collateral to $9 billion from $60 billion. An attorney representing Bankman-Fried’s collapsed FTX Group said a ‘substantial amount’ of its assets ‘have either been stolen or are missing.’ Identifiable information of FTX’s top creditors is being kept secret for now.”

November 24 – Reuters (Huw Jones): “The crash of FTX exchange has injected greater urgency into regulating the crypto sector and targeting such 'conglomerate' platforms will be the focus for 2023, the new chair of global securities watchdog IOSCO said… Jean-Paul Servais said regulating crypto platforms could draw on principles from other sectors which handle conflicts of interest, such as at credit rating agencies and compilers of market benchmarks, without having to start from scratch.”

November 21 – Bloomberg (Katie Greifeld): “Cascading crypto blowups have only exacerbated problems for Grayscale’s $10.5 billion Bitcoin fund. The Grayscale Bitcoin Trust closed a record 45% below the value of its underlying coins on Friday…”

November 21 – Bloomberg (Matt Turner and Abhishek Vishnoi): “Wall Street’s waning conviction in Coinbase Global Inc. has done little to deter Cathie Wood. Instead, she’s been scooping up shares of the struggling cryptocurrency exchange in the wake of the collapse of Sam Bankman-Fried’s FTX. Wood’s Ark Investment Management funds have bought more than 1.3 million shares of Coinbase since the start of November, worth about $56 million… The shopping spree, which started just as FTX’s demise began, has boosted Ark’s total holdings by roughly 19% to about 8.4 million shares. That equates to around 4.7% of Coinbase’s total outstanding shares.”

November 23 – Bloomberg (Sunil Jagtiani and Akshay Chinchalkar): “Pick a number and cross your fingers. Crypto naysayers who argue that’s the essence of Bitcoin prognostication are likely finding validation in the thick uncertainty shrouding the sector. Over the past few days, long-term targets for the world’s largest token by market value have ranged from $5,000 at strategists BCA Research Inc. to $1 million by 2030 for Ark Investment Management’s Cathie Wood.”

November 22 – Reuters (Koh Gui Qing): “Sam Bankman-Fried's FTX, his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years… Separately, attorneys for FTX said… one of the company's units spent $300 million in the Bahamas buying homes and vacation properties for its senior staff…”

Bursting Bubble and Mania Watch:

November 25 – Bloomberg (David Brooke): “Private credit firms, flush with money to invest in an economy that may be on the brink of a recession, are increasingly looking at lending on companies with assets that can collateralize loans, to limit potential losses. In focusing on asset-based loans, direct lenders are muscling in on a type of lending that has historically been dominated by banks. But the $1.3 trillion private credit industry has spent years chiseling away at banks’ syndicated leveraged loan business, which is often based on borrowers’ cash flow, and the lenders may make similar inroads in loans tied to assets. ‘A lot of banks have come out of the market and we’ve found opportunities to grow,’ said Carlos Mendez, co-founder of Crayhill Capital Management, a specialty lender.”

Inflation Watch:

November 22 – Bloomberg (Elizabeth Elkin): “Egg prices are soaring as bird flu causes havoc in the industry while demand rises ahead of the holiday season. Prices for eggs climbed more than 10% from September to October, according to the latest Consumer Price Index data... Prices in October were 43% higher than the same month a year ago.”

November 23 – Bloomberg (Kim Chapman): “California’s worst drought has left growers in the top US agricultural state facing losses of $3 billion, just as producers brace for more widespread cuts to water supplies. The state’s driest three-year period on record resulted in the crop revenue losses after growers left a total of 1.3 million acres unplanted over 2021 and 2022 as compared with 2019…”

U.S. Bubble Watch:

November 23 – Reuters (Lucia Mutikani): “U.S. business activity contracted for a fifth straight month in November, with a measure of new orders dropping to its lowest level in 2-1/2 years as higher interest rates slowed demand. S&P Global said… its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 46.3 this month from a final reading of 48.2 in October… The flash composite new orders index dropped to 46.4, the lowest level since May 2020, from a final reading of 49.2 in October. Outside the initial wave of the COVID-19 pandemic, this was the worst reading since 2009. ‘Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions - notably higher borrowing costs – and weakened demand across both home and export markets,’ said Chris Williamson, chief business economist at S&P Global Market Intelligence.”

November 21 – Associated Press (Josh Funk): “Consumers could see higher gas prices and shortages of some of their favorite groceries during the winter holiday season if railroads and all of their unions can’t agree on new contracts by an early-December deadline that had already been pushed back. The likelihood of a strike that would paralyze the nation’s rail traffic grew on Monday when the largest of the 12 rail unions, which represents mostly conductors, rejected management’s latest offering that included 24% raises and $5,000 in bonuses. With four of the 12 unions that represent half of the 115,000 rail workers holding out for a better deal, it might fall to Congress to impose one to protect the U.S. economy.”

November 21 – Bloomberg (Jonnelle Marte): “US consumers continued to seek out more credit cards this year even as the Federal Reserve aggressively lifted borrowing costs, a shift that cooled demand for mortgages, auto loans and other types of credit, according to research from the New York Fed. The New York Fed’s most recent credit-access survey showed an application rate for credit cards of 27.1% for October, remaining ‘robust’ after a 26.5% rate seen a year before… Demand for any kind of credit is strongest from consumers with high credit scores…”

November 23 – Bloomberg (Reade Pickert): “Sales of new US homes unexpectedly rose in October, largely driven by an increase in the South and likely representing a pause in an otherwise weak housing market. Purchases of new single-family homes increased 7.5% to an annualized 632,000 pace last month after falling in September… The report… showed the median sales price of a new home rose 15.4% from a year earlier, to $493,000.”

November 23 – Reuters (Kannaki Deka): “U.S. new vehicle retail sales are expected to be relatively flat in November as high vehicle prices, coupled with interest rate increase, are moderating demand, a report from industry consultants J.D. Power-LMC Automotive showed… Consumers who were willing to shell out more money for cars amid a shortage are now pulling back from spending as higher loan payment pressures affordability. The average monthly finance payment in November is set to be $712, up 7.2% from November 2021…”

November 23 – Bloomberg (Molly Smith): “US mortgage rates retreated sharply for a second week, hitting a two-month low and providing a bit of traction for the beleaguered housing market. The contract rate on a 30-year fixed mortgage decreased 23 bps to 6.67% in the week ended Nov. 18…”

November 23 – CNBC (Diana Olick): “Mortgage applications rose 2.2% last week compared with the previous week, prompted by a slight decline in interest rates, according to the Mortgage Bankers Association’s seasonally adjusted index… Mortgage applications to purchase a home rose 3% for the week, but they were down 41% from a year ago.”

November 22 – Reuters (P.j. Huffstutter and Bianca Flowers): “Montana farmer Sarah Degn had big plans to invest the healthy profits she gleaned for her soybeans and wheat this year into upgrading her planter or buying a new storage bin. But those plans have gone by the wayside. Everything Degn needs to farm is more expensive – and for the first time in her five-year career, so is the interest rate on the short-term debt she and nearly every other U.S. farmer relies upon to grow their crops and raise their livestock. ‘We might have made more money this year, but we spent just as much as we made,’ said Degn, a fourth-generation farmer in Sidney, Montana. The interest rate on her operating note doubled this year and will be higher in 2023. ‘We can't get ahead.’”

Fixed-Income Watch:

November 21 – Financial Times (Eric Platt and Harriet Clarfelt): “Wall Street banks are using a thaw in corporate debt markets to offload billions of dollars’ worth of loans tied to risky private equity takeovers, but many are still incurring losses to clinch deals with investors. The sale of debt earlier this month linked to the buyout of television ratings provider Nielsen offered a reprieve to lenders including Bank of America and Barclays, which are desperate to clear ‘hung’ deals that have piled up on their balance sheets this year because of a dearth of investor appetite. The $3.2tn market for riskier corporate bonds and leveraged loans has begun revving up in recent weeks after a long lull, paving the way for banks to consider selling some debt on to investors. However, confidence in markets remains shaky…”

November 24 – Wall Street Journal (Mark Maurer): “High-yield companies in the consumer goods, healthcare and entertainment industries are increasingly at risk of credit downgrades and even defaults as they battle rising interest rates and falling revenue, forcing some finance chiefs to consider alternative financing options. Default rates for low-rated U.S. companies will likely reach 3.75% for the 12 months ending in September 2023, up from 1.6% in September 2022, but lower than the long-term average of 4.1% and the 6.3% default rate in September 2020, ratings firm S&P Global Ratings said...”

Social  Instability Watch:

November 20 – Wall Street Journal (Rachel Wolfe and Jon Hilsenrath): “Households, retailers and charities nationwide, feeling the pinch of inflation, are bracing for a humbug holiday season. U.S. consumers and businesses have trimmed spending plans for gifts, charitable contributions and holiday events... The penny-pinching threatens to spoil the year-end for many, especially firms and nonprofits that tally their largest share of sales and donations in November and December. ‘We’re hopeful for a strong giving season, but we’re not counting on it,’ said Thomas Tighe, chief executive of Direct Relief, a medical-assistance nonprofit that takes in around $2 billion a year in donated medicine, supplies and cash to deliver help around the world.”

Leveraged Speculation Watch:


November 23 – Bloomberg (Hema Parmar): “Tiger Global Management marked down the value of its private funds by almost a quarter this year, contributing to a $42 billion decline in assets, one of the industry’s biggest ever. In addition, some of the previously private but now-public companies held by Tiger Global’s venture unit lost value, according to people familiar with the matter… The unit oversaw about $43 billion as of Sept. 30, down from $65 billion at year-end, after accounting for fundraising and redistributions to investors. The division marked down the value of its private investments by 24%. Assets in Tiger Global’s public investment arm shriveled to $15 billion from $35 billion…”

November 21 – Financial Times (Laurence Fletcher and Joshua Oliver): “Hedge funds have billions of dollars stuck on failed cryptocurrency exchange FTX and could face years of waiting to recover anything at all from a marketplace they once believed to be one of the industry’s most reliable bets. In a situation reminiscent of Lehman Brothers in 2008, which left billions of dollars of hedge funds’ assets trapped for years, investors who traded on the Bahamas-based exchange have found themselves among the thousands of creditors in a highly complex bankruptcy. The sudden failure this month of FTX, valued at $32bn this year, has shocked investors who backed it and traders who used it.”

November 21 – Bloomberg (Jeff Cox): “Professional speculators are sticking to their long-held cautious stance even after the latest equity rally forced them to unwind short trades at one of the fastest paces in years… Fund clients tracked by JPMorgan... have reduced wagers in both their long and short books, reversing all the risky exposures that they had taken on between late August and the end of September. At Goldman Sachs…, hedge funds saw their combined trading flow falling for a fifth straight week.”

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.