Wall Street is slowly coming to a grips with an economy that offers not breakout growth but more of the mediocrity that could keep rates on hold.» Read More
China's banks are taking over the world, or at least pushing their U.S. counterparts out of the leadership role.
Bank earnings this week in the world's second largest economy paint a dour picture for American financial institutions, according to analyst Dick Bove at Rafferty Capital Markets.
"The Chinese government is now following a policy to allow its banks to expand faster. It has reduced their required reserve ratios," Rafferty's vice president of equity research said in a note to clients. "The United States continues to follow a policy to shrink the biggest banks in this country." (Tweet this)
The picture gets especially ugly when comparing the "Big Four" U.S. banks—JPMorgan Chase, Citigroup, Bank of America and Wells Fargo—to their Chinese counterparts, the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China.
In 2004, the U.S. side had assets doubling those of China and net income equal to 339 percent; now those respective numbers are 71.6 percent and 50.8 percent, according to Bove.
Investors should be wary of excess in several crowded trades in today's market, according to large investment managers at the Milken Institute Global Conference.
"I am worried about bubbles forming," Robert Kricheff, a portfolio manager at bond investor Shenkman Capital, said Wednesday at the event in Los Angeles.
"I don't think there's a big broad bubble—you're not going to pull one string and the dress falls off—but there are definitely issues out there."
There's more to investing in Asia than China and India.
"We've got to look beyond these two big markets and really focus on Southeast Asia," Curtis Chin said on the sidelines of the Milken Institute Global Conference in Los Angeles Wednesday.
Chin, Milken's Asia Fellow and former U.S. ambassador to the Asian Development Bank, gave the example of Indonesia, a relatively large market with a growing middle class.
"Indonesian consumers are there and ready to buy," he said.
Big money managers have a warning for people using popular new investment products.
One that attracted the ire of speakers at the Milken Institute Global Conference in Los Angeles on Tuesday were so-called unconstrained or go-anywhere bond funds, a popular strategy that places few limits on what types of bonds the mutual fund manager can invest in.
Bond guru Bill Gross, most recently of Janus Capital and before that founder of fixed income giant Pimco, started just such a fund in 2014. He was not mentioned by any of the speakers, but the fund category itself was skewered.
"The go-anywhere, the unconstrained, is the pitch de jour. I think that ends badly," John Skjervem, chief investment officer of the Oregon State Treasury, said at the event.
"There are asset owners that are going to buy that and present it to their boards as fixed income and it will show up in that pie chart as fixed income and everyone is going to assume it's capital preservation," Skjervem explained. "But under the hood it's all risk seeking and I don't think that ends well."
A funny thing has been happening to financials: while earnings have been stellar, their stocks have stunk.
Broadly speaking, financial industry companies on the S&P 500 are expected to post first-quarter earnings gains of 15.8 percent, easily outdistancing other sector competitors on the broad market index. If profits are the primary drivers of prices, you'd then expect their stocks to be blooming.
That has not been the case.
Financials, in fact, are the second-worst performing group of the 10 S&P sectors, registering a loss of 2.3 percent heading into Tuesday's trading. Only utilities, which have tumbled 5.6 percent, have fallen further.
The results are even worse drilling down into bank stocks specifically.
Banks as a whole are off 3.4 percent, even though Keefe, Bruyette & Woods reports that 54 percent have beaten consensus profit estimates. Consumer finance stocks have dropped 11.3 percent. Thrifts and mortgage finance institutions have slid 4.5 percent, while real estate-related institutions have been one of the few outperforming groups.
"The role of the activist in the U.S. equity markets ... has been to profoundly improve corporate governance in America," Citadel hedge fund CEO Griffin said Monday at the Milken Institute Global Conference in Los Angeles.
"We can debate the merits of each run by activists at a given company in a given quarter. Did they make the right call going against this company's direction, are they pushing the right thing for a company's use of cash," he added. "But big picture, corporate governance in the United States is better than pretty much anywhere in the world."
Major private equity fund managers, including several billionaires, gave their best investment idea at the Milken Institute Global Conference.
Speaking in Los Angeles on Monday, each revealed what they thought was the surest way to make money by investing in private assets.
The smart money has a warning for investors: Taking on more risk in the markets, especially in company debt, could cause big losses soon.
"Going out on the risk spectrum in today's environment seems like an awfully, awfully, dangerous thing to do," Joshua Friedman, co-founder and co-CEO of $23 billion hedge fund firm Canyon Partners, said Monday at the Milken Institute Global Conference in Los Angeles.
Friedman, an expert on investing in bonds and companies in financial distress, noted several "credit bubbles in the system" including high-yield and bank debt.
"It's clear that we have an overshoot in credit," he added, referencing the high amount of lending to companies that has taken place since the financial crisis.
Despite an embarrassing lawsuit accusing him of stealing trade secrets, energy guru Aubrey McClendon is raising additional cash for new oil and gas exploits.
This time he's using a specialized, $200 million investment vehicle that is set to go public soon, said people familiar with the matter.
Avondale Acquisition, a special-purpose acquisition company, or SPAC, is set to undertake an initial public offering soon, with McClendon as the company's chairman and founder, these people said. Avondale describes itself in Securities and Exchange Commission filings as a "newly organized blank check company" that will focus on potential mergers or other deals with existing businesses in the onshore U.S. oil and gas sector.
Avondale plans to sell the public 20 million "units"—in this case, bundles of stock and a portion of another type of security for $10 apiece—the filings said. The company will leverage the experience of McClendon's current drilling holding company, the privately held American Energy Partners, to select its investments.
McClendon was not available for comment on Avondale's expected debut, but the IPO has been in the works for at least a few months, said the people familiar with the matter.
In arresting Navinder Sarao this week and charging him with manipulating markets, regulators indicated they'd gotten to the bottom of 2010's "flash crash." Many on Wall Street, though, believe the work is only starting.
That's probably a gentle way of stating the Street's reaction to Sarao's arrest Tuesday. Many pros openly scoffed at the notion that Sarao was the sole culprit of the spectacular plunge on May 6, 2010. On that day, the Dow industrials rapidly lost about 600 points, taking the average down nearly 1,000 points on the session, only to rebound within a matter of minutes.
According to separate indictments, Sarao masterminded a scheme in which he was able to send orders to the market that he had no intention of executing, a practice called "spoofing" that caused a market plunge on which Sarao capitalized. The practice happened within minutes of the crash and was a direct cause of it, according to regulators. Authorities allege he acted mostly alone rather than as part of a large, sophisticated operation.
However, many experts believe the explanation is at least an oversimplification and at most an intent to deflect attention away from more fundamental weaknesses in the financial markets.
"The real issue here is that markets have dramatically changed over the past two decades but regulators have not kept up," Joe Saluzzi and Sal Arnuk, who run Themis Trading and have been ardent supporters of changes to market structure, said in a blog post Thursday. "While technology has increased efficiency and brought down trading costs, it has also changed the way traders access the markets."
The Pimco Total Return Fund, launched by Bill Gross, has lost its title as the world's biggest bond mutual fund, following two years of withdrawals.
Shares in global bank rise on Q1 results just days after its annual general meeting, at which it said that it was considering moving from London.
The Swiss banking giant reported a hike in profit for its first quarter, despite the SNB's shock decision to unpeg its currency from the euro.