Some of the recent speculation about where rates are going seems to have gotten at least a bit overdone.» Read More
Investors enjoying the afterglow of a putative deal that will keep Greece in the euro zone for now might not want to get too comfortable.
Even after conquering seemingly insurmountable odds to strike a bargain with European authorities, the debt-plagued nation's biggest challenges await.
Overcoming the political fallout from forced austerity and trying to generate the kind of economic growth that will make the deal's conditions sustainable present the very real possibility that a Greek exit, or "Grexit," from the euro zone remains an inevitability.
"The likelihood of short-term Grexit remains significant given the strong conditionality contained in the proposal," Citigroup analysts said in a note. ( Tweet This )
Market participants weren't thinking that way Monday. Every major global index was on the rise, with most European equity markets posting gains approaching 2 percent and U.S. stocks gaining 1 percent or more.
The bottom of the corporate debt barrel is getting more crowded.
The worst of the worst when it comes to bond issuance, or those Moody's Investors Service rates as "B3 negative" and lower, saw their rolls swell to a five-year high in June, the ratings agency said this week.
For the first time since July 2010, that group of at-risk issuers numbered more than 200. The 206 companies represented a 12 percent gain just over the previous quarter and a 24 percent surge from a year ago.
In plain terms, the gains in the list mean credit quality is worsening. But that only tells part of the story.
Evaluating the June jobs report depended heavily on point of view.
For those expecting signs of surging economic growth, there was only a smattering of things to like. For those, however, savoring what appear to the last vestiges of the Federal Reserve's highly accommodative relationship with Wall Street, there were multiple things to latch onto.
The 223,000 nonfarm jobs created in the month were below the previous 12-month average of 250,000 and missed the mark in terms of expectations, as economists predicted 230,000. Yes, the unemployment rate dropped two-tenths to 5.3 percent, the lowest level since April 2007, but that was due to a slide in the labor force participation rate, from 62.9 percent to 62.6 percent, the lowest figure since October 1977.
Worse, wage growth continues to be subdued, with an unchanged June figure equating to an annualized rate of 2 percent that is barely keeping pace with inflation.
Bill Gross thinks conditions are ripe for a significant liquidity crisis in the markets, and he points a finger at his old firm for its potential to be at the center of the storm.
In his monthly note to investors, the Janus Capital Group fund manager said there are six specific triggers for such an event in which there would not be enough buyers to accommodate sellers in a panicked bond market. ( Tweet This )
"Long used to the inevitability of capital gains, investors and markets have not been tested during a stretch of time when prices go down and policymakers' hands are tied to perform their historical function of buyer of last resort," Gross wrote. "It's then that liquidity will be tested."
The comments come as fixed income investors face challenges on multiple fronts: Looming debt defaults from both Puerto Rico and Greece, and the latter's potential exit from the euro zone, along with the likelihood of a Federal Reserve rate hike later this year.
The conditions Gross cited for a market meltdown are:
1) A central bank mistake leading to lower bond prices and a stronger dollar.
2) Greece, and if so, the inevitable aftermath of default/restructuring leading to additional concerns for euro zone peripherals.
3) China— "a riddle wrapped in a mystery, inside an enigma." It is the "mystery meat" of economic sandwiches—you never know what's in there. Credit has expanded more rapidly in recent years than any major economy in history, a sure warning sign.
4) Emerging market crisis—dollar denominated debt/overinvestment/commodity orientation—take your pick of potential culprits.
5) Geopolitical risks—too numerous to mention and too sensitive to print.
6) A butterfly's wing—chaos theory suggests that a small change in "non-linear systems" could result in large changes elsewhere. Call this kooky, but in a levered financial system, small changes can upset the status quo. Keep that butterfly net handy.
Unlike the financial crisis, where Wall Street's largest investment banks came under duress when liquidity dried up, Gross said the next wave will involve nonbank institutions like Pimco, the Newport Beach, California-based firm he co-founded more than 40 years but left in 2014.
Forget Alcoa: Banks are the new barometer when it comes to the outlook for corporate profits.
Since its exit from the Dow Jones industrial average, the aluminum giant's report no longer is the unofficial earnings season kickoff, nor is the company considered a particularly reliable indicator of broader business trends.
With that in mind, the second quarter is turning into one that Wall Street and investors would like to forget.
S&P 500 earnings on the whole are expected to decline 4.4 percent from the same period a year ago, according to the latest estimates from S&P Capital IQ.
In the first quarter, companies in the index posted a more than 3 percent gain, which doesn't sound like much on the surface but came amid expectations heading into the season that profits would decline more than 3 percent.
One of the saving graces was financials, which were the second-best performing of the S&P 500's 10 sectors with gains of more than 13 percent. This time around, though, the group is expected to play less of a leadership role. Projections now are for a 5 percent gain, which would place it fourth best.
Once seen as a golden opportunity, big-money investors are now scrambling to keep their bets on Puerto Rico whole.
Hedge funds, mutual funds and other investors piled in over the last two years, thinking others had overreacted to the island's fiscal problems by dumping local bonds.
But the value of their debt holdings fell sharply early this week on a string of bad news.
The U.S. territory's governor surprised observers by saying its $72 billion in debts weren't payable. The White House explained that it was not contemplating a bailout. Ratings agencies cut their assessments of Puerto Rican bonds. And a report by a group of former International Monetary Fund officials detailed just how bad the island's fiscal problems are.
"The coming weeks will bring showdowns between ... the governor and bondholders, and out of the rubble, we expect the PR government to emerge leaner, having shed some debt and restructured some operations," Height Securities said in a report Monday.
In other words, more observers think that hedge funds and other creditors should expect to accept less than face value for the bonds they own. Some Puerto Rico bonds were trading at 68 cents on the dollar Tuesday.
Billionaire investor John Paulson is looking to make more money on health care.
Hedge fund firm Paulson & Co. is launching the Paulson Long/Short Fund to initially focus on health care, pharmaceutical, and related technology and consumer sector investments, according to a letter sent to clients obtained by CNBC.com. The firm, which runs approximately $20 billion overall, is seeding the fund with $500 million.
Guy Levy, Paulson's health-care expert, will be portfolio manager of the new fund, according to the communication.
"Guy's talent and expertise in health care, pharmaceutical and related sector investing have added significantly to our performance over the past five years, giving me confidence in his abilities to lead this new fund," John Paulson wrote in the letter.
When it comes to municipal bonds, the headlines can drown out the news.
Horror stories from Chicago, Detroit and Puerto Rico, painting a harrowing financial picture amid talk of budget shortfalls and potential defaults, mask a sector that is otherwise pretty sound.
Since the financial crisis and accompanying recession, states and municipalities have in fact gone in a diametrically opposite direction from their counterparts at the federal level. In the aggregate, states and municipalities cut debt each year since 2011, though the first quarter of 2015 saw a 4.8 percent increase, according to the Federal Reserve. At the same time, the federal government has been piling on debt, rising in each respective year 11.4 percent, 10.9 percent, 6.5 percent and 5.4 percent.
"Not just for states but also for local governments, economic conditions are the best they've been in years," said Dick Larkin, director of credit analysis at HJ Sims & Co. "Most states and cities are seeing a resurgence in tax receipts, they're seeing improvements in their financial position, and there should now at this point be more (analyst) upgrades than downgrades."
Yet investors are getting a little antsy.
Over the past 12 months, the $3.7 trillion muni sector has seen a net inflow of $28.8 billion in investor cash, according to Morningstar. But the group saw $594 million in outflows during May and another $1.2 billion in June.
While most analysts agree the picture overall remains positive, there are three factors generating some anxiety:
Congressmen slammed Obama administration officials this week for hiring a firm with a connection to a hedge fund manager that spectacularly blew up.
"Here we have somebody who lost millions of dollars, under investigation by the Department of Justice. We've got to figure out how in the world these people got the contract," said Rep. Jason Chaffetz on Wednesday in reference to Owen Li during a hearing of the House Oversight and Government Reform Committee, according to Politico.
The only problem was that Chaffetz had the wrong man.
There's now more data to support the idea that doing well and doing good are not mutually exclusive.
A new study from investment consultant Cambridge Associates and the Global Impact Investing Network shows that private equity and venture capital funds with so-called impact missions produce roughly the same returns as funds just trying to make as much money as possible.
Some 51 impact funds, which bet on businesses that help people or causes, launched between 1998 and 2010 returned an average of 6.9 percent per year to investors through June 2014 versus 8.1 percent for 705 nonimpact funds.
However, a more representative sample are funds raised from 1998 and 2004 as they have mostly cashed out of their multiyear investments. The seven impact funds launched from 1998 to 2001 gained an average of 15.6 percent versus 5.5 percent; nine impact funds launched from 2002 to 2004 gained 7.6 percent versus 7.7 percent.
"There's a view among some investors that impact investing necessarily entails a sacrifice in financial return," Jessica Matthews, head of Cambridge's mission-related investing group, said in a statement. "However, this data helps to show that is more perception than reality."
"Money for nothing" interest rate policies have failed, the bond guru said in a broadside against global central banks.
Bank of Ireland, which was bailed out during the country's debt crisis, reported soaring profits for the first half of 2015 as bad debts were reduced.
Lloyds Banking Group reported a 15 percent jump in pre-tax profit for the first half of 2015 to £4.4 billion ($6.9 billion) on Friday.