Friday, March 7, 2014
- Mortgage REIT fans will be interested in this transcript of a roundtable yesterday led by JPMorgan analyst Matt Jozoff, and including executives from Apollo Residential (AMTG -1.9%), Annaly (NLY -2.4%), MFA Financial, Invesco (IVR -2.5%), and Two Harbors (TWO -1.6%). At a minimum, it makes clear - for those who would lump the sector together - the significant differences in investment approaches and assets held.
- As tipped off during his company's earnings call a few days back, David Finkelstein - head of agency MBS trading at Annaly - sounds the most bullish: "Technicals over the near-term are relatively supportive of MBS, and we also believe that even beyond the Fed’s departure from being a - or from adding to their portfolio, we think that the landscape will still be favorable to MBS due to relatively low volatility the fact that we will not have a significant portion of the MBS market actively hedging their portfolio, which should reduce volatility day to day."
- MFA CEO William Gorin doesn't want any part of long-dated agency MBS: "We came into the year owning zero 30-year agency paper ... which we are happy with. When you are competing with a non economic, non profit maximizing competitor in the space [the Fed] ... we’ve decided not to be in that space."
- Related ETFs: REM, MORT, MORL
- Vanguard filed paperwork this morning with the SEC requesting permission to add active ETFs to its lineup.
- The first active ETFs could be based on the following popular mutual funds: Vanguard Wellington (VWELX), Vanguard Explorer (VEXPX) and Vanguard Wellesley Income Fund (VWINX); the filing also included a number of muni-bond funds.
- Active ETFs seem to an emerging trend, as a number of firms have recently filed for SEC permission to offer these funds to investors.
- Vanguard's most popular ETFs: VTI, VWQ, VNQ, VEW, VIG, BND
- Copper futures slumped to their biggest loss in more than two years as investors worried about slowing growth in China, which accounts for 40% of the world's copper demand.
- Traders were spooked by China's first default on a bond traded in the mainland, which comes amid broader fears about the impact of China's economic slowdown on demand for industrial metals.
- Copper prices have lost 9.2% YTD as signs of faltering growth in China have raised the outlook for a surplus.
- Top publicly traded producer Freeport McMoRan (FCX) -4.8%.
- ETFs: JJC, CPER, CUPM
- Alpha Natural Resources (ANR -9.4%) is hit hard after Goldman Sachs last night cut its rating on the shares to Sell and lowered its price estimates for coal; other sector names are following suit.
- Goldman also cut its price estimate for met coal this year to $141/metric ton from $150 and lowered projections for next year and 2016 following increased Australian output, an expected slowdown in the growth of Chinese imports, and “limited U.S. supply rationalization."
- The firm maintains a Neutral rating on Walter Energy (WLT -5.6%) but cuts its price target to $10 from $12.
- Also: BTU -4.2%, ACI -4%, CNX -1.5%, OXF -1.6%, JRCC -1.5%, CLD -0.7%, KOL -2.1%.
- A disruption of natural gas supplies to Europe by an escalation of Russia’s military action in Ukraine may boost LNG demand and prices in Asia and South America, analysts say.
- Russia, which provides Europe with a quarter of its natural gas mainly though Ukraine, has cut supplies twice since 2006; while the current crisis hasn’t interrupted exports, LNG prices will “move through the roof” if flows transiting Ukraine are stopped, Societe Generale says.
- Any potential supply curbs could cause traders to stop selling LNG cargoes out of storage and instead hold them for domestic use, triggering competition for the fuel in South America and Asia.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, KOLD, UNL, NAGS, DCNG
- A check of asset markets following what's currently being interpreted as a strong nonfarm payroll report (175K jobs added vs. 154K expected; UE rate up to 6.7%): Flat ahead of the number, stock index futures are up by 0.5%; gold is down 1.1%, silver down 3.2%, copper off 2.9%; the dollar is up a bit, but mostly against the loonie after a weak jobs number in Canada.
- DIA +0.5%, GLD -1%, SLV -2.9%, JJC -3%, UUP +0.15%
- Previously: Treasury yields fly higher after payroll report.
- Related ETFs: GLD, SLV, DIA, AGQ, IAU, PHYS, UUP, SIVR, USLV, ZSL, SGOL, UDN, UGL, DGP, DOG, GLL, DXD, JJC, DZZ, UDOW, UGLD, SDOW, DSLV, DDM, DGL, DBS, GLDI, DGZ, DBV, AGOL, DGLD, SLVO, FORX, TBAR, UDNT, UUPT, USV, UBG, CPER, GLDE, GYEN, CUPM, GEUR, USDU, GGBP
- The BLS notes severe winter weather occurring in much of the country during the February survey period. Bad weather - says the agency - is more likely to show up in average weekly hours than in the headline payroll number, and this month's report has the average workweek declining by 0.1 hours to 34.2 hours.
- Previous: Jobs +175K vs. +154K expected
- Maybe most surprising in today's report is the 0.4% increase in average hourly earnings, the biggest gain in nearly a year.
- The labor force participation rate is flat at 63% - it was 63.5% a year ago. The employment-to-population ratio is flat at 58.8% - it was 58.6% a year ago.
- Expiring unemployment benefits didn't put a dent in long-term unemployed which rose 203K.
- The broader U-6 unemployment rate slips to 12.6% from 12.7% - it was 14.9% a year ago.
- Bond traders are seeing a strong report, with the 10-year Treasury yield shooting up to 2.81% from 2.72% before the release. TLT -0.8%, TBT +1.7%.
- Treasury ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, TLH, IEI, DLBS, TYO, DTYS, VGLT, UST, BIL, SHV, UBT, VGIT, VGSH, TBX, TLO, SCHO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYD, TYBS, DTUL, SST, DTUS, TUZ, FIVZ, DFVL, TBZ, DLBL, DFVS, TYNS
- It's a streak not seen since at least 1998, according to Bespoke Investment (as far back as its research goes). Going back to 2012, stocks have rallied on 14 of the last 15 jobs report days.
- Trying to explain the unexplainable, Wells Fargo CIO Dean Junkans speculates it's a bad news is good news, good news is good news kind of thing. Weak prints mean the Fed is going to stay looser for longer and strong reports suggest the underlying economy is doing decently.
- Citi's Stephen Englander suggests a reason for the streak to end today: Investors have largely ignored a string of Fed officials touting the growing strength of the recovery and setting the stage for serious rate hike talk. A strong print this morning might force a quick recalibration of attitudes.
- S&P 500 ETFs: SPY, IVE, SH, SSO, SDS, IVV, VOO, SPXU, UPRO, RSP, RWL, EPS, IVW, SPYG, RPG, RPV, SPYV, BXUB, VOOG, VOOV, TRND, SFLA, BXUC, BXDB, FTA
- Biomet has filed to raise up to $100M in an IPO seven years after being taken private for $11.4B. The final size of the offering will probably be higher, with Reuters previously reporting that the firm could look to raise over $1B.
- The medical-device maker didn't say how many shares it would sell, nor the exchange it would list on, although it did say it would trade under the ticker symbol BMET.
- The company's products include dental implants and artificial hip joints, and it competes with Smith & Nephew and Stryker.
- Biomet's main owners are Blackstone (BX), KKR (KKR), Goldman Sach's (GS) P-E arm, and TPG Capital.
- ETF: IPO
- Keep an eye on the hot mortgage REIT sector today as Deutsche cashes in its chips on three bullish calls.
- New York Mortgage Trust's (NYMT) cut to Hold is a valuation call, with analyst Stephen Laws acknowledging solid Q4 results and good prospects going forward, but noting the stock price is already near his raised price target of $7.75 (from $7). NYMT is the rare mREIT at the moment trading above book value.
- Neither CYS Investments (CYS), nor American Capital Mortgage (MTGE) are at book, but both have moved a lot closer to it this year, and Laws cuts both to Hold, believing dividends, not capital appreciation will drive any returns from current levels. "Given investor concerns of higher interest rates, we believe it is unlikely that shares of agency MBS managers will trade at or above book value in 2014."
- Deutsche, he says, currently forecasts the 10-year Treasury yield to hit 4% before year-end, likely keeping a lid on price-to-book ratios for the agency players.
- Related ETFs: MORT, MORL, REM
- Stock index futures are marginally higher ahead of this morning's non-farm payroll report. Consensus estimates are for a gain of 154K jobs and no change to the unemployment rate at 6.6%.
- Europe is off moderately and Asia was mixed overnight - though the Nikkei continued a big rally, up 0.9% and bringing its gain over the last 5 sessions to about 5%.
- The 10-year Treasury yield is down one basis point to 2.73% and gold is off $3 to $1,349 per ounce.
- Index ETFs: SPY, QQQ, IVE, SH, DIA, SSO, SDS, PSQ, IVV, VOO, SPXU, UPRO, TQQQ, QID, RSP, DOG, SQQQ, QLD, DXD, RWL, EPS, UDOW, SDOW, IVW, SPYG, DDM, RPG, RPV, SPYV, BXUB, VOOG, QQEW, QQQE, VOOV, TRND, SFLA, BXUC, QQXT, BXDB, FTA, TNDQ
- Bill Gross has accused departing Pimco (BOND) CEO Mohamed El-Erian of "trying to undermine" him, telling Reuters that he has evidence that El-Erian "wrote" a recent WSJ article that described the breakdown in the men's relationship and didn't portray Gross in a particularly flattering light.
- When asked what the evidence was, Gross replied: "You're on his side. Great, he's got you, too, wrapped around his charming right finger."
- Gross also indicated that he has monitored El-Erian's phone calls.
- A Pimco spokesman later denied that Gross made the comments that Reuters attributes to him, while the WSJ hotly refuted that El-Erian "wrote" the article.
- Pimco's parent company is Allianz (AZSEY).
- Pimco funds: AUD, BABZ, BUND, CAD, CORP, DI, FIVZ, FORX, GOVY
- Japan has decreed that Bitcoin is not a currency and the government has no laws to define it, although the government said in a statement it can tax transactions.
- The country's banks can't broker Bitcoin transactions or create customer accounts to hold digital assets, Japan said, although brokerages and asset managers can manage clients' Bitcoins.
- The comments come amid calls to regulate Bitcoin and a week after the collapse of Mt. Gox, a leading Tokyo based exchange, due to a massive theft.
- The government's statement also comes after Newsweek marked the return of its print version with a bang by "outing" 64-year-old Japanese-American physicist Dorian S. Nakamoto as the creator of Bitcoin, although he yesterday denied involvement in the digital currency.
- ETFs: BITCN, BTCS
- As expected, China's corporate-bond market has suffered its first ever domestic default, with Shanghai Chaori Solar Energy Science & Technology failing to fully pay 89.8M yuan ($14.7M) in interest that was due today.
- Until now, China had bailed out distressed companies.
- Moody's believes that the default will be a "wake-up call" that will help the growth of China's bond market. It will "signal regulators' higher tolerance for corporate bond defaults amid financial market reforms, which is in line with the current central administration's shift to adopt more market-oriented policies," Moody’s says.
- Meanwhile, the Shanghai government has reportedly given authorization for a city-owned investment company to purchase non-performing loans from local banks. The approval follows similar approval by other municipalities and indicates how Shanghai is preparing for an expected rise in bad debt.
- The markets reacted calmly to Chaori's default and the Shanghai Composite closed -0.1%.
- ETFs: FXI, PGJ, GXC, FXP, YINN, CYB, CNY, DSUM, YANG, MCHI, XPP, YAO, FXCH, CHXF, YXI, HYEM, EMHY, FCA, TCHI, CHLC
- General Electric (GE) has taken advantage of continued low rates with a $3B bond sale comprising $2.25B of 30-year notes and $750M in 10-year paper.
- The auction attracted strong demand, mainly due to the not-so-common opportunity to buy debt from the parent company rather than GE Capital. The last time the parent sold bonds was in October 2012.
- GE is rate at AA+ at S&P.
- Meanwhile, following shareholder feedback, GE will end dividend payments to senior management on new stock that has yet to vest.
- ETFs: LQD, VCSH, VCIT, CORP, VCLT, CSJ, CIU, CFT, SCPB, LWC, CLY, ITR, QLTA, IGHG, PFIG, SLQD, ENGN, IGS, CBND, QLTB, IGU
Thursday, March 6, 2014
- National Bank of Greece (NBG -2.8%) - the country's biggest lender - has a shortfall of €2.18B, according to the Bank of Greece, while the 2nd largest, Piraeus Bank (BPIRY, BPIRF), needs to raise just €425M. Alpha Bank (ALBKF, ALBKY) needs to raise €262M.
- Separately, Piraeus has plans to raise €1.75B to repay €750M of preferred shares and boost its ratios as non-performing loans stand at 36.6% of total loans.
- Related ETF: GREK
- Typically making up 20-25% of Berkshire Hathaway's (BRK.A, BRK.B) insurance units' investment holdings ($186.8B AUM), fixed-income assets dropped to just 14% as of the end of the year. Stocks account for $114.8B of the holdings. Cash of $48.2B is up from $47B a year ago and $30.6B at the end of 2009, and of the fixed-income the units do hold, there's a decided tilt away from duration.
- Investment income in the insurance units was $3.7B in 2013, but this could drop as nice-yielding deals with Mars, Inc, Swiss Re, Goldman, and GE wound down and Buffett has only been able to replace a portion of that money with equally lucrative plays (i.e., Heinz). “Investment opportunities currently available will likely generate considerably lower yields ... We continue to hold significant cash and cash equivalents earning very low yields.”
- Broad fixed-income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, ISTB, GBF, DI, LDUR, MINC, FWDB, GIY, AGND, AGZD
- His stock struggling (relatively) as his bank tries to complete its merger with Hudson City Bancorp, M&T Bank (MTB +1.2%) CEO Robert Wilmer was awarded $3.05M in 2013, 23% less than the previous year. M&T did gain 18% in 2013, but it was the worst performer in the 24-company KBW Bank Index (KRE) which advanced 35%.
- His salary of $950K was a 49% cut from 2012, and the amount of stock Wilmer received fell 12%. His cash bonus of $425K was higher than the previous year.