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Fed leaves interest rates unchanged: Four insights from Loomis Sayles
Asset Management
<p>Editor's note:  Loomis Sayles asked members of its staff to explain how they interpret the recent Federal Reserve decision to let interest rates stay near zero percent. Here is what they said:</p> <p>Plans for normalization deferred, not derailed</p> <p>"Today the FOMC signaled that plans for interest rate normalization are deferred but not yet derailed. It's difficult to categorize this outcome as a genuine surprise. While the rate decision and accompanying policy statement were no doubt dovish relative to expectations, the so called "dot plot" reveals that the median Fed member sees that interest rate normalization, once begun, is expected to proceed at the same pace as was expected in June. The expected medium-term path for rates beyond lift-off is little changed. While recent international developments and associated market volatility have increased near-term uncertainty, these developments have not altered the Fed's fundamental outlook."</p> <p>- Michael Gladchun, Fixed Income Trader</p> <p>The Fed is right not to add fuel to the fire</p> <p>"The Fed pointed to "recent global and financial developments" as key reasons for maintaining the status quo. They have been flagging the risks associated with a slowing China and the turmoil in other emerging markets. We believe the Fed is right to not add fuel to that fire, especially since a wait-and-see approach does not present risks to the US economy, which shows no inflationary pressures.</p> <p>China is the main external concern. The good news: the market seems to be pricing in a hard landing for China based upon price actions witnessed in the commodity and emerging markets sectors. Downside from here would require an even worse case economic scenario, which seems less likely. The bad news: we have not yet observed an inflection point in the economic deceleration taking place in China and other emerging markets. Both the financial markets and the Fed will be sifting through the tea leaves in coming months to see if these trouble spots start to show signs of improving. It should show up in trade and credit data first. Until then, expect the markets to be jittery and volatile."</p> <p>- Matt Eagan, Portfolio Manager</p> <p>Stocks poised for further recovery</p> <p>"In my view, whether the Fed raised rates at this meeting or not, stocks are poised for further recovery later this year and have the potential to reach new highs in 2016.</p> <p>S&amp;P 500 earnings have been tamped down by weakness in the energy and commodity sectors. Multinationals could see less adverse currency impact in the first half of next year depending on the extent to which the Fed holds rates steady, leading to less upward pressure on the dollar."</p> <p>- Richard Skaggs, Senior Equity Strategist</p> <p>Company performance will matter most</p> <p>"Equity valuations are much more sensitive to long-term interest rates than to short-term Federal Reserve rate actions. If inflation remains relatively low and long-term rates remain supportive, company performance will matter most to equities.</p> <p>Global equities have been more volatile in recent weeks with emerging markets being one source of heightened concern. The Federal Reserve cited global developments in today's statement; we will continue to watch developments offshore just as intently as developments within the US for direction during the balance of the year."</p> <p>- Craig Burelle, Macro Strategies Research Analyst</p> <p>MALR013940</p> <p>This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herei</p>
Credit risk a bigger problem for emerging markets than higher rates
Capital Markets
<p>The Wall Street Journal recently had a lead article with the headline “Higher Rates A Risk for Emerging Markets.” The implication of the headline—and of much of the article—was that a general rise in interest rates—even a small one such as the Fed soon may generate—poses a danger to EM nations and companies.</p> <p>Frankly, that idea totally misses the point: EM nations and companies have borrowed in dollars and euros that they may not be able to repay in a slower global economy where they will not earn the foreign exchange they will need in order to so. The result is a classic credit risk problem.</p> <p>The Fed may raise short-term rate by a quarter percent—maybe even by a quarter percent a couple of times. Those quarter percents mean nothing when the interest rate on existing borrowings is LIBOR plus 3 and the new credit conditions may require the EM nation or company to pay LIBOR plus 4 or 5—or even more—in order to get credit at all. Brazil, for example, has been downgraded to junk by S&amp;P. That is not interest rates rising; that is the Brazilian economy going in the tank.</p> <p>The WSJ article itself tells us that the issue is credit risk. It has a nice set of graphs at the end (the beginning in the online edition) that it discusses hardly at all. The graphs show that for EM loans in its sample, the margin over LIBOR is 2.5 percentage points, up from 1.2 in 2005. By contrast, six-month LIBOR itself has moved only from .5% in 2013 down to a little over .3% in 2014, back to a little over .5% now. Basically, nothing has happened to general interest rates. It is credit risk that has been changing—and that will continue to change, perhaps at an accelerating pace. The loans were made when EM economies looked strong and the financial world was reaching for yield. Now the EM economies look weaker. Simple story.</p> <p>Real market turmoil comes from credit risk. We might see some of it.<br /> Photo: Global Panorama</p>
Instincts and crisis collecting: Friedhelm Hütte’s career as art dealer at Deutsche Bank
Lifestyle, 4:01
<p> Some of the world's biggest art collections are owned by banks, and not open to the public</p> <p>Banks are best known for making money, but financial institutions also reinvest profits to acquire masterpieces and collections. With almost 60,000 pieces, Deutsch Bank has the world’s largest corporate art collection, reports Finbuzz.</p> <p>&nbsp;</p> <p>Walking into the lobby of Deutsche Bank’s main London office it is clear how much the institution values art. Pieces by Tony Cragg, Damien Hirst, Anish Kapoor, and Keith Tyson line the reception area. Across their UK offices, the bank displays over 4,000 works of art. Deutsche Bank bank also sponsors art projects and exhibitions or fairs. From October 14-17 in Regents Park, for example, the bank will sponsor the Frieze London art fair. The bank also provides a wide range of communication tools. Among these is ArtMag, an online and print art publication to keep up with creative trends in London and beyond.</p> <p>FinBuzz caught up with Friedhelm Hütte, head of the art department at Deutsche Bank, for an interview:</p> <p>Your collection is known to be one of the largest among banks that collect art. So how big is it?</p> <p>Well, we’d rather be modest. But from what we know, it’s the biggest corporate collection in the world. Our collection is all about contemporary art, which means the pieces were produced after 1945. We focus on drawings, mixed media, photographs – all forms two-dimensional art. We always look for new talent and new artists in the market and support them through our “Artist of the Year” award.</p> <p>Why do banks collect art?</p> <p>The first purpose of collecting is to present art in our buildings around the world, 95% of the pieces we own are on display. They are there for the clients to enjoy, to talk about. We also run guided tours, which are open to the general public.</p> <p>Who makes a decision on what to buy or not to buy?</p> <p>Our team is based internationally. Amongst our renown team are advisors like Okwui Enwezor, who just curated the Venice Biennale, or Victoria Northoorn from Buenos Aires. We monitor art magazines and attend art sales. There are about 60-70 artists globally on our watch list and then some of them make it to our collection. My team makes a proposal and then a Committee composed of several executives of the bank makes a decision.</p> <p>Would you say your active interest in contemporary art has something to do with how you position the Deutsche Bank brand?</p> <p>Absolutely. It has a direct link with our brand as contemporary art is all about new ideas and being open; same goes for Deutsche Bank – it is a global bank, which is integrated in many different cultures around the world, it is innovative and forward-thinking. And just as our bank is present on those five continents, we have works of artists from all five continents. So our collection perfectly reflects the philosophy of our bank.</p> <p>Within the impressive collection, are there works or a</p>
The 3 best (and worst) things about being a fund manager this year
Hedge Funds
<p>With the PBOC loosening its grip on the yuan, the Shanghai Composite collapsing like a wet taco, and the Fed prolonging its guessing game, 2015 has been anything but boring so far.</p> <p>That said, not a lot of people have been encouraged by the myriad equity surprises and monetary plot twists this year, so here’s a little somethin somethin to keep things in perspective.</p> <p>Here are the three best, and worst, things about being a fund manager in 2015.</p> <p>Best:</p> <p>Hedge fund inflows continue to break records. You don’t even need to be a fund manager to know this one. Inflows to the hedge fund industry have been soaring to new highs of late, and traders have been enjoying the most money they’ve ever had to play with in years.</p> <p>These markets actually aren’t too bad. They may not be as smooth and trending as those in the 80's and the 90's, but today’s markets have been posting swings meaty enough for agile traders. Meanwhile, a tumble in cash returns and a climb in small cap and international stock competitiveness has created a veritable stock-picker’s market -- especially in contrast to 2014.</p> <p>It’s a wonderful time to be in the markets. No matter how bad you’re doing, the world is in an interesting juncture right with commodities hitting rock bottom, China rising, Europe struggling to grow, and the Fed flip-flopping on rates. It may sound bad but it’s one hell of a time to cut your teeth in.</p> <p>Worst:</p> <p>“Hedge fund” is still a bad word. With 2016 being an election year, hedge fund managers might as well tattoo “greed is good” on their foreheads right now. Elizabeth Warren, Donald Trump, and a whole host of presidentiables and senatoriables are still taking sight on the industry. And let’s not forget the witch hunts currently raging in China.</p> <p>The markets are good for your competitors too. Competition within the hedge fund arena is absolutely fierce right now, and industry performance has taken a massive hit because of it. The rise of the liquid alts space isn’t helping hedge funds post higher returns either.</p> <p>No one really knows what really going to happen. It may be a great time to cut your teeth in but that’s only if you get to survive it. No one really knows what’s going to happen if the Fed decides to lift rates, for all we know Fedmageddon might ensue and volatility will reign. As it is, uncertainty has already reared its ugly head.<br /> Photo: Shaun Wong</p>
U.S. – China: A relationship of inconvenience?
Capital Markets
<p>In an era of economic modernization, it is clear states stand to lose more and gain very little by locking horns and flexing their muscles. With the way the international system has changed over the past few decades, for any state -- especially one that has come a long way from being just another piece of land on the map to a regional superpower, if not global -- it will always be considered foolhardy and erratic behavior to opt for a violent and coercive approach to settle disputes.</p> <p>Talking on the table and weighing the pros and cons of fighting a war is the new battlefield, with diplomacy the best way out. Indeed, Carl Von Clausewitz's statement, "War is nothing but a continuation of politics with admixture of other means," is not more applicable to the current scenario in which states, regardless of their insecurities and reservations about their so-called allies, cannot afford to go to war.<br /> China's emergence as the Asian peninsula superpower<br /> Today China has come a long way towards establishing itself as one of the emerging superpowers in the Asian peninsula. A major chunk of China's economic progress is due to the fact that there is no state on the globe that can challenge its production and manufacturing superiority. And the fact that China is pulling strings on Wall Street clearly means that the U.S. cannot afford to adapt a confrontational policy with the Asian giant.</p> <p>Apart from already going with its economic plans at a breakneck pace, China is also arming itself to the teeth, and this has raised concerns in North America where China's aggressive approach is seen as a ploy to flex its muscles in the vicinity of the South China Sea, which is an international disputed territory with multiple players vying to have control over it. The fact that the Chinese navy's movements and the recent developments in that context (the building of the artificial island) are further worrying the U.S. and its allies.</p> <p>However, it was never really supposed to be the way things have panned out in recent memory. In 1972, U.S. President Richard Nixon visited Beijing, which was a first in U.S. history at that time. It was a move that astonished and shook the whole world, considering China's ideology towards economics and politics. Regardless, that did not stop Washington from trying to broker a diplomatic relationship with a state that was steadfast in its resolve to not give its "newfound friend" any room to maneuver.</p> <p>Even though the media at that time was very critical about this particular move, Nixon and his administration were defiant since they saw the bigger picture. In China, Washington saw a state with huge potential and a possible market and a strategically important ally despite a few features of the state that made Congress a little twitchy.</p> <p>After keeping very much in line with the economic reforms that were introduced during the 1970s and being very consistent about it, China has really come to life since the turn of the new millennium. Today it is a vocal and integral member of the World Trade Organization and one of the most vital cogs in the international monetary system. It might be a benign superpower for now, but one cannot underestimate its global influence on all levels.<br /> U.S. - China relations<br /> Since the beginning of the year, </p>
Brokers try out fencing skills at Beazley International Trophy tournament
Lifestyle, 4:01
<p>&nbsp;</p> <p>&nbsp;</p> <p>Fencers and brokers alike gathered at the Mansion House on Tuesday for a fencing tournament at the Lord Mayor’s office. Financiers and bankers were invited to watch the semi-final European fencing tournament, sponsored by Beazley Insurance Company.</p> <p>Great Britain, France, Italy, and the USA competed in the semi-final matches of the Beazley International Trophy tournament. Bankers and brokers watched as the sportsmen lunged and parried against the backdrop of Corinthian columns and stained glass windows in the 18th-century mansion.</p> <p>Great Britain was the overall winner, beating Italy in the final after defeating France in the semi-final. Italy overtook the USA in the semi-final to advance to the last stage of the tournament. Team USA took the bronze medal. Here are the full results from British Fencing.</p> <p>Beazley Insurance had their own private guest list of brokers, but the event was also open to the public free-of-charge, for those who managed to sign up on time.</p> <p>While the professionals were taking a break between rounds, a so-called ‘white-collar fencing’ master class was held, so brokers got an opportunity to try out the sport, albeit with plastic fencing tips and masks. The fencing competition was followed by an evening gala.</p> <p>It is the first ever fencing match to have taken place at the Mansion House, which is often used for official City events hosted by the Lord Mayor, a position currently held by Alderman Alan Yarrow.</p> <p>Beazley has invested about £1m in British fencing since 2011 and is a premier partner of British Fencing. The insurer says the sport requires similar skills as a successful insurance broker- discipline, agility and precision. British Fencing is still looking for a sponsor to take the reigns from Beazley.</p> <p>This story first appeared in FinBuzz.</p> <p>Photo: Bastien Mejane</p>
Dick Fuld’s Big Wood River Estate breaks records
Lifestyle, 4:01
<p>Remember Dick Fuld’s Big River Estate? The interwebs were abuzz when “the most hated man in America” decided to put it on the auction block.</p> <p>Here’s what we wrote about it:<br /> “Set on over 70 acres of rolling Idaho plains with 2,100 feet of Big Wood River frontage, the Gorilla of Wall Street’s estate is supposedly “the first and last property of its kind in Sun Valley,” and is expected to be sold by Concierge Auctions for around $30 million to $50 million – a record for the area – according to the New York Post.”<br /> It didn’t! But CNBC reports that it did break records as it sold for more than $20 million Thursday, surpassing the previous record of $19.25 million and taking the crown of the most expensive property ever to be sold by auction.</p> <p>Who the buyer was and how much he paid for it exactly was not disclosed, though we do know that he got a lot for his money, as you can see from the estate’s promotional video:</p> <p>Big Wood River Estate — from Concierge Auctions</p> <p>As for Fuld, I’m pretty sure he’s not hurting. While he may sold this and his Park Avenue penthouse, he still has his Connecticut estate and all signs point to his wife still owning the notorious $100 Florida mansion.<br /> Photo: Wiki</p>
Video: The 3 best finance movies ever made
Lifestyle, 4:01
<p>With the “Wizard of Lies” and “The Big Short” set to hit the screens next year, I thought it was best to revisit some finance movies we’ve loved over the decades and see which ones still pack a punch.</p> <p>Here’s my top three:</p> <p>Margin Call, 2011</p> <p>Arguably the best – and most realistic – finance movie of the 21st century so far, Margin Call chronicles 24 tense hours inside an unnamed investment bank (rumored to be Goldman) that has just discovered its MBS holdings are about to go horrifyingly toxic. Its stars Jeremy Irons as the creatively-named bank CEO, John Tuld, Kevin Spacey as the firm’s S&amp;T chief, Sam Rogers, and a whole host of A-listers which includes Demi Moore in a very Erin Callan-esque role.</p> <p>American Psycho, 2000</p> <p>Okay, so this isn’t exactly a finance movie, but you’d be hard-pressed to find anything as cult-followed as this – save for my #1 – within the community. American Psycho follows Patrick Bateman (Christian Bale), a Vice President at Pierce &amp; Pierce’s M&amp;A department who has unhealthy desire for all material things as well as a penchant for a bit of rape and serial killing. Interestingly, Bale used Tom Cruise as an inspiration for the role, noting his “very intense friendliness with nothing behind the eyes.” Check it out, it’s bone.</p> <p>Wall Street, 1987</p> <p>The gold standard. Hilariously, Oliver Stone set out to create Gordon Gekko as the absolute impersonation of greed, only to have Michael Douglas play the part a little bit too well. Aside from winning an Oscar for his role, Douglas inspired thousands to land a career on Wall Street – and has been routinely stopped on the streets because of it. Hell, there's even a lizard named after Gordon, Cnemaspis gordongekkoi.</p> <p>Honorable mentions:</p> <p> Trader, 1987<br /> Trading Places, 1983<br /> Rogue Trader, 1999</p> <p>Anything else I missed?<br /> Photo: R. Measel Photography</p>
Japan then and now
Capital Markets
<p>September 2015</p> <p>Late in 2006, Matthews Asia was wrapping up a special report titled “Japan Reawakens.” The timing of that AsiaNow publication, just ahead of the Global Financial Crisis, was unfortunate to say the least. With the ensuing economic turmoil, Japan fell asleep again, sliding off the radar screens of many investors. But as interest in Japan has more recently re-emerged, I thought it would be important for us to take a look back and consider what we previously published. Has Japan evolved the way we had envisioned? What’s changed and what hasn’t? And most importantly, where do we go from here?</p> <p>Governance at Japan Inc.</p> <p>A major theme in that issue of AsiaNow was “Restructuring of Japan Inc.” We discussed topics such as shareholder-friendly governance, the shakeup of cross shareholdings, using catchy phrases like “this is not your father’s Japan” and “from stakeholders to shareholders.” We spoke too soon. Japan’s corporate governance made little improvement in the years that followed. The Global Financial Crisis ushered many companies back into their cocoons, where they found comfort in cash-hoarding practices that shielded them during tough times. I recall a steel company executive telling me, “We survived because we had this cash, why should we pay it out?” Only recently, have the tides begun to shift again.</p> <p>Japan’s Stewardship Code of 2014 and its Corporate Governance Code in 2015 are measures that reflect the strong determination of Prime Minister Shinzo Abe’s administration to bring Japan’s corporate governance practices further in line with global practices. In reality, the code itself still falls short of global best practices, and needs continued improvements. For instance, it does not mandate a majority independent board, there are few repercussions for non-compliance and it lacks a regular monitor-and-review process.</p> <p>Still, we’ve observed a noticeable change in how corporate managers interact with investors and the market in general—some more than others. That changing mindset is evidenced by the increase in shareholder returns in the form of both dividends and share buybacks. On the back of strong earnings, dividend payouts for firms on the Tokyo Stock Exchange’s 1st section have reached a historical high. Note that the figures in the chart below reflect only dividends and buybacks that have already been executed. There are even more buybacks announced but yet to be executed.</p> <p>However, improving corporate governance isn’t simply about paying out excess cash. Ultimately, Japanese corporate managers need to become better stewards of capital. That means improving capital returns by unwinding unproductive cross shareholdings and investing for growth. Already, several major financial institutions have announced plans to comprehensively review their cross shareholdings. Japanese firms have also been active in cross border acquisitions with more than US$50 billion spent year-to-date as they invest for growth.</p> <p>These developments give me some hope that progress will be made over the next several years. Remember, change in Japan rarely happens quickly. There may even be times when it looks like it’s taking a step back. Hence, it’s important for investors to temper expectations, have some patience and let the evolution play out.</p> <p>The Evolving Relationship with Asia</p> <p>Another major theme from the AsiaNow newsletter, published in 2007, was Japan’s integration with Asia. Back then, the relationship was mo</p>
NexAsia Week Ahead: Greek elections; US GDP coming up
Capital Markets
<p>Good morning everyone. With the Fed decision over and done with, attention is set to shift to global politics this week as Greece hits the polls and Shinzo Abe outlines his plans. The Bank of Japan is scheduled to reveal its monetary policy decision though, and the U.S. is about to unveil its final Q2 GDP growth rate as well, so we still have a lot of biggies from the economic data front coming.</p> <p>Here’s what you should look out for:</p> <p>Sunday:</p> <p>7:00 am – Greek parliamentary elections</p> <p>Monday:</p> <p>2:00 pm – Germany August MoM PPI – Forecast: -0.4% from 0%</p> <p>3:00 pm – Switzerland Q2 current account</p> <p>4:30 pm – Hong Kong Q2 current account</p> <p>4:30 pm – Hong Kong August YoY inflation rate – Forecast: 2.24% from 2.5%</p> <p>6:00 pm – Bundesbank month report</p> <p>10:00 pm – U.S. August existing home sales – Forecast: 5.4 million from 5.59 million</p> <p>Tuesday:</p> <p> 9:30 am – Australia Q2 QoQ house price index – Forecast: 2% from 1.6%</p> <p>10:00 am – China August CB leading economic index</p> <p>2:00 pm – Switzerland August balance of trade</p> <p>10:00 pm – Eurozone September flash consumer confidence – Forecast: -7.26 from -6.9</p> <p>10:00 pm – Richmond Fed September manufacturing index – Forecast: -2 from 0</p> <p>Wednesday:</p> <p>9:45 am – China September flash Caixin manufacturing PMI – Forecast: 47 from 47.3</p> <p>12:00 pm – Malaysia August YoY inflation rate – Forecast: 3.47% from 3.3%</p> <p>1:00 pm – Singapore August YoY inflation rate – Forecast: -0.3% from -0.4%</p> <p>3:00 pm – France September flash Markit services PMI – Forecast: 51.3 from 50.6</p> <p>3:00 pm – France September flash Markit manufacturing PMI – Forecast: 48.9 from 48.3</p> <p>3:30 pm – Germany September flash Markit services PMI – Forecast: 54.7 from 54.9</p> <p>3:30 pm – Germany September flash Markit manufacturing PMI – Forecast: 52.8 from 53.3</p> <p>4:00 pm – Eurozone September flash Markit services PMI – Forecast: 53.9 from 54.4</p> <p>4:00 pm – Eurozone September flash Markit manufacturing PMI – Forecast: 52 from 52.3</p> <p>8:30 pm – Canada July MoM  retail sales – Forecast: 0.25% from 0.6%</p> <p>9:00 pm – ECB President Mario Draghi speech</p> <p>9:45 pm – U.S. September flash Markit manufacturing PMI – Forecast: 52 from 53</p> <p>Thursday:</p> <p>6:45 am – New Zealand August balance of trade</p> <p>9:35 am – Japan September flash Nikkei manufacturing PMI – Forecast: 51.65 from 51.7</p> <p>4:00 pm – Germany September IFO business climate – Forecast: 107.8 from 108.3</p> <p>4:00 pm – Bangko Sentral ng Pilipinas interest rate decision – Forecast: unchanged at 4%</p> <p>4:00 pm – Taiwan August YoY industrial production – Forecast: -1.46% from -2.99%</p> <p>4:30 pm – Hong Kong August YoY imports</p> <p>4:30 pm – Hong Kong August YoY exports</p> <p>4:30 pm – Hong Kong August balance of trade</p> <p>5:00 pm – Italy July MoM retail sales – Forecast: 0.2% from -0.3%</p> <p>8:00 pm – Brazil August unemployment rate – Forecast: 7.6% from 7.5%</p> <p>8:30 pm – U.S. August MoM durable goods orders – Forecast: -2.4% from 2.2% (revised from 2%)</p> <p>8:30 pm – U.S. August MoM durable goods orders ex-transport – Forecast: 0.15% from 0.6%</p> <p>8:30 pm – U.S. Sept 19 initial jobless claims – Forecast: 269,000 from 267,000</p> <p>10:00 pm – U.S. August new home sales – Forecast: 510,000 from 507,000</p> <p>Friday:</p> <p>5:00 am – Fed chair Janet Yellen speech</p> <p>7:30 am – Japan August YoY core inflation rate – Forecast: -0.1% from 0%</p> <p>7:30 am – Japan August YoY inflation rate – Forecast: unchanged at 0.2%</p> <p>12:00 pm – Malaysia July unemployment rate – Forecast: unchanged at 3.1%</p> <p>1:00 pm – Singapore August YoY industrial production – Forecast: -5.33% from -6.1%</p> <p>8:30 pm – U.S. Q2 final QoQ corporate profits – Forecast: 1.3% from -8.8%</p> <p>8:30 pm – U.S. Q2 final QoQ GDP growth rate – Forecast: 3.7% from 0.6%</p>