Carl Icahn: BlackRock is an extremely dangerous company – Fortune 07-15-15

Salient to Investors:

Carl Icahn said:

  • BlackRock have fueled a bubble in the high-yield debt market through the sale of ETFs filled with risky bonds, akin to the banks selling billions of dollars of faulty subprime mortgage bonds in 2007. The ETFs offer the appearance of liquidity and make the high-yield bond market seem safer than it is.
  • Credit default swaps in high-yield bond funds make the liquidity problem even worse.
  • The high-yield debt market is overvalued – expect losses in oil and gas high-yield bonds.

Larry Fink at BlackRock said:

  • There could be some losses in high-yield debt but there won’t be a crash. There are no similarities with the market in 2007, not nearly as much leverage in the system as then, particularly at the banks.
  • Icahn’s criticism of Blackrock is baseless. Studies show that ETFs increased liquidity in the markets, not the opposite.

Read the full article at http://fortune.com/2015/07/15/carl-icahn-blackrock-is-an-extremely-dangerous-company/

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U.S. Bond Sentiment Is Worst Since Disastrous ’09 – Bloomberg 12-29-14

Salient to Investors:

  • The median Wall Street forecast predicts the 10-yr T-yield to rise to 3.01% by the end of 2015, the 2-yr to rise more than double to 1.53%, and the 30-yr to rise to 3.70%. Wall Street calls for higher T-yields in 2015 are the most aggressive since 2009, when US debt securities suffered record losses.
  • Futures indicate an 88% percent chance the 2-yr will be at 1% or less.
  • 20% of investors, traders and analysts polled last month picked government bonds as the most likely asset to decline in 2015.
  • Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ said 2015 should be the break-out year finally, and the market is wrong in ignoring Fed rhetoric that it is nearing tightening – expects the 10-year yield to rise to 3.4% by the end of 2015.
  • Boris Rjavinski at UBS said things are pointing to a pretty healthy recovery.
  • Peter Fisher at BlackRock Investment Institute said US interest rates will rise in 2015 and sees a global divergence in monetary policy and growth.
  • Guy LeBas at Janney Montgomery Scott said any rate increase will be tempered as the increasing number of older Americans leads to less spending and slower inflation while boosting demand for low-risk, fixed-income assets, and predicts the 10-year yield to end 2015 at 2.47%. The Census Bureau reports Americans 65 years old or older reached 14.2% of the US population in 2014 versus 12.4 % a decade ago.
  • Ira Jersey at Credit Suisse said increasing wage growth, stronger employment and the lowest gasoline prices in 5 years will boost household spending. Credit Suisse predicts 10-yr yields to rise to 3.35% by the end of 2015.

Read the full article at http://www.bloomberg.com/news/2014-12-29/u-s-bond-sentiment-is-worst-since-disastrous-09-as-fed-shifts.html

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BlackRock Sales in October Rally Signal Its Limits – Bloomberg 10-20-14

Salient to Investors:

  • Peter Hayes at Blackrock said nobody really expects rates to rally significantly from here and everybody is waiting for a pullback. Hayes said the muni market is overpriced and said sell into strength and wait for better opportunities.
  • Munis have rallied in each of the first 9 months of 2014 for the first time in 25 years.
  • Chris Alwine at Vanguard said munis are fully valued, overbought and at risk of a backup, especially if we get heavy supply over the remainder of the year.
  • Michael Zezas at Morgan Stanley predicts the muni market to lose 0.88% in the next 12 months.
  • The median analyst forecast expects 10-yr Treasury yields to rise to 3.2% in Q3, 2015.
  • Tim McGregor at Northern Trust and Jamie Pagliocco at Fidelity Investments expect investor inflows to absorb new deals for the remainder of the year and keep yields near current levels.
  • Lipper said individuals have added to muni mutual funds for 14 straight weeks, the longest stretch since October 2012.
  • The ratio of 10-yr muni yields to 10-yr Treasuries has dropped to 90% versus the 5-yr average of 98%.

Read the full article at http://www.bloomberg.com/news/2014-10-20/blackrock-sales-in-october-rally-signal-its-limits-muni-credit.html

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BlackRock Buys Korea Stocks as Valuations Lure Foreigners – Bloomberg 09-26-14

Salient to Investors:

Andrew Swan at BlackRock said:

  • Blackrock has an overweight position in Korea stocks as a lot of negativity is already priced in and the market is so cheap.
  • The South Korean equity market could be in the early stages of bottoming.
  • A recovery in domestic demand may help shrink Korea’s current-account surplus and curb the currency’s appreciation.

Oh Sung Sik at Franklin Templeton Investments said some active funds have upgraded the Korean equity market from underweight.

Daphne Roth at ABN Amro Private Banking said the won’s strength versus the yen poses a risk to Korean exporters, which have Japanese rivals, and sees few catalysts.

MSCI Korea index companies are valued about the same as their net assets, a 36 percent discount versus the regional index, and at the steepest discount versus the MSCI Asia ex-Japan Index since 2007.

Foreign investors purchased a net $4.95 billion of Korean shares this quarter, the most among 8 Asian markets and more than 3 times as big as went into Taiwan, and versus $4 billion into India and $1.6 billion into Thailand.

Read the full article at http://www.bloomberg.com/news/2014-09-26/blackrock-buys-korea-stocks-as-valuations-lure-foreigners.html

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Citigroup Warns History No Guide in Policy Shift: Credit Markets – Bloomberg 09-23-14

Salient to Investors:

Stephen Antczak et al at Citigroup said:

  • Each of the 5 times since 1980 that the Fed started raising its benchmark rate, the extra yield on corporate bonds over government debt narrowed in the following 6 months as accelerating growth boosted optimism.
  • Spreads will tighten this time also, but after 6 years of short-term rates near zero and nontraditional forces at play, a flight by yield-seeking “tourists” could outweigh any benefits, and prevent or diminish the normal pattern of spread tightening.
  • Going back to 1988, in the 11 periods when the 10-yr T-yield rose more than 1% over a short period of time, the median spread on investment-grade bonds has typically tightened 0.31%, and on junk-rated debt by 1.08%.

Julian Robertson at Tiger Mgmt said the bubble in bonds will end in a very bad way.

Rick Rieder at BlackRock said the Fed’s statement last week offered signs that the pace of policy rate hikes is going to be quicker than markets have expected.

Much of the money contributing to the market’s growth may not stay around when rates rise. TrimTabs Investment Research said that when the Fed first signalled it would start ending QE in 2013, US bond funds posted a record $61.7 billion of redemptions through one period last June.

In the 3 tightening cycles in the past 25 years that ended in 1995, 2000 and 2006, high-yield junk bonds provided positive returns.

Patrick Maldari at Aberdeen Asset Mgmt said any violent move in benchmark rates would force the market to be more sensitive to Fed policy since interest-rate increases are associated with economic strength, but he expects a gradual, engineered move in benchmark rates and is more focused on credit risk than interest-rate risk.

The yield spread on junk bonds over treasuries is at 1.74% versus a high of 8.96% during the credit crisis.

Collin Martin at Charles Schwab said this time could be different and we won’t necessarily see spread tightening.

 

Read the full article at http://www.bloomberg.com/news/2014-09-23/citigroup-warns-history-no-guide-in-policy-shift-credit-markets.html

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BlackRock Warns on Euro QE as Pimco Bets Against Volatility – Bloomberg 09-23-14

Salient to Investors:

Owen Murfin at BlackRock said:

  • Bond investors have been too hasty to bet the ECB will buy sovereign debt
  • The ECB’s target of increasing its balance sheet by $1.29 trillion is ambitious and the poor take-up of new cheap loans offered to banks is no guarantee of QE – a second tranche in December is likely to be larger.
  • Be cautious on periphery sovereign bonds as they are pricing in too much of a probability of sovereign QE in Europe. They have rallied without any pullback more on optimism about a very accommodative ECB rather than massive fundamental improvement.

Andrew Balls at Pimco said:

  • The weakening euro-area economy makes QE more likely even while ECB policy has reduced the risk of another regional debt crisis.
  • The credibility of the ECB’s inflation target is in doubt so a full-blown QE program would be their most practical approach.
  • Pimco is overweight on peripheral securities, especially Spain and Italy
  • Euro-area volatility will be suppressed as the ECB rolls out its stimulus measures.

Read the full article at http://www.bloomberg.com/news/2014-09-23/blackrock-cautions-on-euro-qe-as-pimco-bets-against-volatility.html

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BlackRock Urges Changes in ‘Broken’ Corporate Bond Market – Bloomberg 09-22-14

Salient to Investors:

BlackRock said:

  • The corporate bond market is broken and needs improved liquidity.
  • Corporations should be encouraged to issue debt with more standardized terms.
  • The dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment.
  • New rules prompted Wall Street bond dealers to cut their inventories even as the market expanded, thereby greatly reducing their capacity to act as market makers and rendering the old OTC outdated.

Greenwich Associates said the top 10 dealers control more than 90% of trading

SEC member Daniel Gallagher said the risk posed by investors trying to dump bonds after the Fed raises interest rates is percolating right under the noses of regulators.

Read the full article at http://www.bloomberg.com/news/2014-09-22/blackrock-urges-changes-in-broken-market-for-corporate-bonds.html

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No Magic Bullet for Pensions as Calpers Exits Hedge Funds – Bloomberg 09-17-14

Salient to Investors:

  • Calpers’ exit from hedge fund investing underscored that there is no magic bullet to dealing with mounting pension fund costs. Chris Mier at Loop Capital Markets said the problem cannot be fixed very rapidly.
  • Wilshire Consulting said that in 2013, state pension plans had 75% of what they needed to cover retirement obligations. State and local governments put $95 billion into the 100 largest pension funds in 2013, up $23 billion from 2009.
  • Peter Hayes at BlackRock said those plans that take action will have a better rating profile, all things equal, and those that do not are going to be penalized with lower ratings and higher interest costs.
  • Riskier investments are luring pensions, which typically need to earn more than 7% annually to avoid falling behind.

Read the full article at http://www.bloomberg.com/news/2014-09-18/no-magic-bullet-seen-for-pensions-as-calpers-exits-hedge-funds.html

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BlackRock’s Koesterich Says Buy Volatility During Market Calm – Bloomberg 07-25-14

Salient to Investors:

  • Russ Koesterich at BlackRock said volatility is very low because monetary conditions are easy but when investors see the US and UK central banks tighten then we will get a long-awaited rise to normal levels, but not to those of 2008 with the VIX at 90.
  • Pimco expects a new neutral of low interest rates and lower, more stable global growth.

 

Read the full article at http://www.bloomberg.com/news/2014-07-25/blackrock-s-koesterich-says-buy-volatility-during-market-calm.html

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BlackRock Sees Russia Buying Opportunity After Calling Rally – Bloomberg 07-10-14

Salient to Investors:

  • Sam Vecht at BlackRock says Russian stocks are very cheap, carry a high dividend yield, and earnings downgrades are absent. BlackRock’s Emerging Europe Trust was 50 percent invested in Russian stocks at the end of May.
  • JPMorgan upgraded Russian stocks in June,
  • The Micex is at 5.6 times estimated earnings, the lowest of 21 emerging markets.
  • A Bloomberg survey forecasts Russian economic growth of 0.5 percent for 2014.

Read the full article at http://www.bloomberg.com/news/2014-07-10/blackrock-sees-russia-buying-opportunity-after-calling-20-rally.html

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