Brazil shifts course after Rousseff’s interventionist economic management bet goes bad

Brazil shifts course after Rousseff’s bet goes bad

1:02pm EDT

By Brian Winter and Silvio Cascione

SAO PAULO (Reuters) – President Dilma Rousseff’s big gamble for 2013 was that Brazil had matured enough for investors to accept permanently lower interest rates, looser fiscal policy, and lower returns on big infrastructure projects like new highways.

Six months in, it is clear she was wrong and, in typically pragmatic fashion, her government is rapidly shifting course to avert even bigger trouble.

Thursday’s warning by ratings agency Standard & Poor’s of a possible downgrade on Brazilian government debt was only the latest example of the financial world lashing out against Rousseff’s interventionist economic management. Read more of this post

Moody’s Casts Doubt Over Nordic Havens Amid Housing Risks

Moody’s Casts Doubt Over Nordic Havens Amid Housing Risks

Scandinavia’s mortgage model is adding risk to the region’s economies as too few homeowners pay down their debt, Moody’s Investors Service said.

While interest-only mortgages in Sweden and Denmark helped households keep up payments during the crisis, consumers now rely too much on the loans, according to Oscar Heemskerk, vice president and senior credit officer at Moody’s.

“We see vulnerability in that model,” he said in a June 5 interview in Stockholm.

At the current pace of amortization, Swedish households will need 140 years on average to repay their home loans, the Financial Supervisory Authority estimates. In Denmark, interest-only loans make up more than half the country’s $490 billion mortgage market, central bank figures show. Danes carry the world’s highest debt burden relative to disposable incomes, at more than 300 percent, the Organization for Economic Cooperation and Development estimates. Debt by that measure in Sweden and Norway hit record levels this year, central bank figures show. Read more of this post

Fed’s $5.7 Trillion Gift Imperiled on Yield Rise: Credit Markets

Fed’s $5.7 Trillion Gift Imperiled on Yield Rise: Credit Markets

The most relentless surge in borrowing costs for U.S. corporate debt in four years is threatening to derail this year’s record pace of sales as concern deepens the Federal Reserve will curtail unprecedented stimulus.

Yields are climbing for a sixth week from last month’s record lows and yesterday touched 3.78 percent, the highest level since September, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index. U.K. oil-and-gas services provider Petrofac Ltd. (PFC) cited market conditions for canceling its issue of investment-grade dollar-denominated notes as sales fell below the 2013 average for a second week. Read more of this post

Exit strategies, spillovers vex G20 finance officials

Exit strategies, spillovers vex G20 finance officials

1:05pm EDT

By Maya Dyakina

ST PETERSBURG, Russia (Reuters) – The Group of 20 nations is intensifying its debate on how to withdraw the fiscal and monetary stimulus measures that developed nations have used to counter economic recession, Russia said on Friday.

So-called “spillover effects” from expansive policies have also risen to the top of the agenda, Finance Minister Sergei Storchak said on Friday, after G20 finance talks held against a backdrop of sharply increased global market volatility. Read more of this post

Soros Fund Back in Japan

Jun 7, 2013

Soros Fund Back in Japan

By Kana Inagaki and Gregory Zuckerman

Investors of all types are selling Japanese stocks, worried a recovery might not be easy for the government to engineer. But George Soros’s firm, Soros Fund Management, is buying once again. Mr. Soros’s firm, which manages $24 billion of the investor’s cash, sold much of its Japanese -stock position in May, before the recent, steep sell-off, according to someone close to the matter. Mr. Soros, who had scored gains of more than $1 billion on bets against the Japanese yen and on Japanese stocks, returned to the market this week after seeing some signs of stability in the Japanese bond market, the person said. His fund is also ramping up buying of shares in Japanese companies from big global blue-chips to medium-cap growth stocks, the person added. While the recent sharp fall in shares came as a surprise, the current level of the stock market is “very attractive” to the Soros firm since it expects Japanese economic figures and earnings to pick up. Read more of this post

Feeding the Fee Machine

Feeding the Fee Machine

06 JUN 2013 – ASHBY MONK

If you’re having one of those lovely mornings where everything seems to be going right with the world… stop reading. What follows is downright depressing:

– Most Giants are still paying alpha fees for beta returns.

– Many (most) Giants are still paying the full fee rate to external managers, despite the widespread reports of “fee compression”.

– Asset management fees have actually gotten far worse over the past few decades, as research shows that fees have risen substantially as a percentage of assets managed.

– According to my old college professor Burton Malkiel, “… investors have received no benefit from this increase in expense ratios.”

– Here’s how Tom Brakke explains the situation: “The incredible growth in the industry during the last forty years has resulted in a billionaire’s club made up of the owners of asset management firms, hedge funds, pension consulting organizations, and the like — and tens of thousands of others in the business have gotten plenty rich from the mother load of fees.” Read more of this post

JPMorgan’s CEO Jamie Dimon Sees ‘Scary’ World as Interest Rates Return to Normal

Dimon Sees ‘Scary’ World as Interest Rates Return to Normal

Global markets will face increased volatility as central banks bring interest rates back to normal levels, JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said.

“We should all hope for a normalization of interest rates — that’s a good thing,” Dimon said today during a panel discussion at the Fortune Global Forum in Chengdu, China. “As we go back to normal, it’s going to be scary, and it’s going to be kind of volatile.”

Investors have been encouraged to buy riskier assets as global central banks unleashed unprecedented monetary stimulus after the financial crisis of 2008. Concern that the policies would be reviewed grew last month following comments from Federal Reserve Chairman Ben S. Bernanke. Read more of this post

As Bond Prices Fall, Strategies Shift; Investors Move to Guard Assets as Companies Race Into Market to Borrow Funds

Updated June 6, 2013, 7:48 p.m. ET

As Bond Prices Fall, Strategies Shift

Investors Move to Guard Assets as Companies Race Into Market to Borrow Funds

By KATY BURNE, MIKE CHERNEY and CAROLYN CUI

A sharp fall in bond prices has sent investors scurrying to protect themselves amid fears that rising interest rates will put an end to decades of strong returns. The U-turn is forcing some companies to accelerate fundraising plans to take advantage of investor demand while it lasts. Read more of this post

A Bond Pro Readies a New Portfolio for Rising Interest Rates

A Bond Pro Readies a New Portfolio for Rising Interest Rates

Popularity often comes with a big price in the mutual fund world. Right about the time most of us become aware of a fund’s great performance and invest, its returns start to suffer. Academic studies show that a big influx of assets can make a fund less nimble and lead managers outside their ideal investment universe. It can also have a psychological effect on managers, who can become overly risk averse lest they make a mistake and lose all those assets.

New funds, of course, have a different problem. They’re untested so investors, often wisely, avoid them. The solution to this quandary: Find a new fund run by a very experienced manager. Read more of this post

JPMorgan ‘Afraid’ of Emerging Market Selloff Impact on Banks; BlackRock, the world’s biggest money manager, Trimmed Emerging-Market Holdings on Fed Taper Concern

BlackRock Trimmed Emerging-Market Holdings on Fed Taper Concern

BlackRock Inc. (BLK), the world’s biggest money manager, said it reduced emerging-market positions, citing concern a reduction in bond buying, or quantitative easing, by the Federal Reserve may curb support for the assets. “We had very little exposure to local emerging-market bonds but have trimmed our external emerging-market positions recently to reduce the levels of risk from this sector,” Scott Thiel, deputy chief investment officer of fundamental fixed-income in London, said today in an e-mailed statement. “Sustained accommodative U.S. monetary policy has benefited these markets and the potential reduction in QE could reduce that liquidity and source of support,” Thiel said.

To contact the reporter on this story: Mark McCord in London at mmccord2@bloomberg.net

JPMorgan ‘Afraid’ of Emerging Market Selloff Impact on Banks

The emerging market selloff sparked by speculation the Federal Reserve will reduce stimulus may cut revenue for investment banks including Standard Chartered Plc (STAN) and HSBC (HSBA) Holdings Plc, JPMorgan Chase & Co. (JPM)’s Cazenove said. Read more of this post

U.S. Bond Funds Suffer Second-Biggest Redemptions Since 1992

U.S. Bond Funds Suffer Second-Biggest Redemptions Since 1992 (1)

By Christian Baumgaertel on June 06, 2013

http://www.businessweek.com/news/2013-06-06/u-dot-s-dot-bond-funds-suffer-second-biggest-redemptions-since-1992-1

U.S. bond funds suffered their second-worst weekly withdrawals in more than two decades after global bond markets slumped in May.

Investors pulled $9.1 billion from fixed-income mutual funds and exchange-traded funds in the week through June 5, Denver-based Lipper said today in an e-mailed statement. That’s the second-biggest redemptions for a week since the company started tracking the data in 1992. Corporate high-yield mutual funds saw redemptions of $3.2 billion during the period, Lipper said, the largest weekly withdrawal on record. Read more of this post

$1 Trillion Debt Crushes Business Dreams of U.S. Students

$1 Trillion Debt Crushes Business Dreams of U.S. Students

Dr. Steve Sherick wants to build the emergency-care business he started two years ago that now employs seven doctors and two part-time administrators. The $300,000 in student loans he and his wife carry makes that prospect difficult, he said.

Sherick, 36, who contracts with a local hospital in Trinidad, Colorado, about 200 miles south of Denver, graduated in 2009 with about $140,000 of debt. That’s not counting the student loans of his wife, a pediatric oncologist, and their mortgage. He would like to hire a full-time administrator and offer more competitive salaries to entice doctors to work in the rural community. Read more of this post

Home Loan Rates Near 4% Send Buyers Scurrying: Mortgages

Home Loan Rates Near 4% Send Buyers Scurrying: Mortgages

Rob Braunstein said his search for a three-bedroom home on a quiet street in Needham, Massachusetts is taking on more urgency as he watches mortgage rates tick higher. Every increase, he worries, shrinks his budget by boosting monthly payments, he said.

The average rate for a 30-year fixed mortgage has risen for each of the past five weeks and is at the highest level in more than a year, according to government mortgage-buyer Freddie Mac. While that’s already put a dent in the refinancing boom that has powered bank earnings this year, for buyers like Braunstein, the message is clear: buy quickly. Read more of this post

Fannie Shares Seen as Worthless Surging in Disconnect

Fannie Shares Seen as Worthless Surging in Disconnect

Fannie Mae and Freddie Mac shares surged to five-year highs last week, giving them a combined market value of $48 billion, about the same as BlackRock Inc., the world’s largest money manager, and Starbucks Corp., the biggest coffee-shop operator.

The securities have climbed eightfold this year as the U.S. housing recovery led the mortgage financiers to record profits and speculation grew they would repay the government after their 2008 bailout and be released from conservatorship. Under a new bipartisan bill being prepared by U.S. senators, the companies would be liquidated and the stock could be worthless. Higher-ranking preferred securities, whose buyers include billionaire hedge fund manager Paulson & Co. and Bruce Berkowitz’s Fairholme Capital Management, are also at risk from the legislation. Read more of this post

Brazil’s disappointing economy: Stuck in the mud

Brazil’s disappointing economy: Stuck in the mud

Feeble growth has forced a change of course. But the government’s room for manoeuvre is more limited than it was

Jun 8th 2013 | BRASÍLIA |From the print edition

FAILING to meet low expectations is becoming a habit for Brazil’s economy. Figures published on May 29th showed that in the first quarter of this year it grew by just 0.6% (2.4% annualised), well short of the recovery analysts had expected. For the first time in years the country is running a trade deficit. Its primary fiscal surplus (ie, before interest payments) is shrinking and government debt is growing. Other emerging economies are also cutting growth forecasts, as China slows and the euro zone slumps. But Brazil’s woes started earlier than most and seem to be home-grown. Inflation close to 6.5% despite low growth suggests domestic rigidities are the main problem, rather than weak foreign demand. Read more of this post

New Revenue Recognition Rules Arriving As Soon As September

June 6, 2013, 2:55 PM ET

New Revenue Recognition Rules Arriving Soon

Emily Chasan

Senior Editor

The U.S. Financial Accounting Standards Board and London-based International Accounting Standards Board expect to complete their joint project to overhaul rules that govern the way companies recognize revenue as soon as September.

FASB has been working on a project to overhaul revenue recognition since 2002, and expects its new rules could take effect for reporting periods after January 2015. The proposed new rules are expected to make it easier for investors to compare revenues between companies by eliminating inconsistencies in some industry-specific rules, and changing the way revenue is recognized at companies with long-term service contracts or firms that have multiple delivery periods for a good or service and recognize revenue over time. Read more of this post

How the Robots Lost: High-Frequency Trading’s Rise and Fall

How the Robots Lost: High-Frequency Trading’s Rise and Fall

By Matthew Philips on June 06, 2013

http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall

Steve Swanson was a typical 21-year-old computer nerd with a very atypical job. It was the summer of 1989, and he’d just earned a math degree from the College of Charleston. He tended toward T-shirts and flip-flops and liked Star Trek: The Next Generation. He also spent most of his time in the garage of his college statistics professor, Jim Hawkes, programming algorithms for what would become the world’s first high-frequency trading firm, Automated Trading Desk. Hawkes had hit on an idea to make money on the stock market using predictive formulas designed by his friend David Whitcomb, who taught finance at Rutgers University. It was Swanson’s job to turn Whitcomb’s formulas into computer code. By tapping market data beamed in through a satellite dish bolted to the roof of Hawkes’s garage, the system could predict stock prices 30 to 60 seconds into the future and automatically jump in and out of trades. They named it BORG, which stood for Brokered Order Routing Gateway. It was also a reference to the evil alien race in Star Trek that absorbed entire species into its cybernetic hive mind. Read more of this post

Relaxation Beverages Are on the Rise

Relaxation Beverages Are on the Rise

By Maura Kelly June 06, 2013

Relaxation beverages are taking off. Industry revenue doubled to $73.7 million from 2010 to 2011, and it’s expected to rise to $223.5 million in 2016. Below, six of the big sellers.

Cosmetics Seller Sephora Is Driving Growth at Luxury House LVMH; “Their business model is very clever”; Stocking exclusive products means Sephora can limit discounts, while private-label merchandise yields high profit margins

Cosmetics Seller Sephora Is Driving Growth at Luxury House LVMH

By Andrew Roberts on June 06, 2013

Justine Le Sassier wouldn’t be caught dead buying a Louis Vuitton handbag. “They don’t have any appeal,” the 18-year-old art student says while shopping on the Champs-Elysées. Happily for Vuitton’s owner, LVMH Moët Hennessy Louis Vuitton (MC), even if Le Sassier won’t shell out $1,300 for a purse, she’s crazy about the €13.90 ($18) foundation sold by Sephora, LVMH’s fast-growing international fragrance and cosmetics chain. “I love their makeup,” she says. “And it’s reasonably priced.” Read more of this post