Pimco's Prediction; Foreign Tire Buyer; Wien's Warning
Recapping the day's news and newsmakers through the lens of CNBC.
Pimco Predicts Doomsday
The bond gurus at Pimco say that rising worldwide debt levels put global economies at greater risk of a recession in the next three to five years. How much, you ask? How about a 60 percent chance.
The world economy goes through a recession about once every six years and the frequency of global recessions tends to rise when global indebtedness is high and falling compared with when indebtedness is low and rising, Pimco said in a note published on its website late Tuesday.
"Given that the last global recession was four years ago, and also given that the global economy is significantly more indebted today than it was four years ago, we believe there is now a greater than 60 percent probability that we will experience another global recession in the next three to five years."—Saumil H. Parikh, managing director and portfolio manager at Pimco
Cooper Tire's Buyer
Move over bacon, there's another cross-border deal involving a venerable U.S. company. Apollo Tyres of India will buy Cooper Tire & Rubber for $2.5 billion to make the word's seventh-largest tire company. Apollo, a smaller company, will pay $35 a share, which represents about a 43 percent premium. It gains access to the U.S. as growth slows in its home market.
"So here is an Indian company buying Cooper Tire, and two weeks ago it was Smithfield Foods, a pork producer, being bought by a Chinese company, and none of the deals have closed yet, but it is interesting to note that cross-border has been occurring at least for the somewhat larger deals."—CNBC's David Faber
Forget about quantitative easing, Blackstone's Byron Wien says the market will face headwinds in the second half, citing the fact that the market hasn't seen three down days in a row since April, which hasn't happened since 1935.
He also said that a 2.20 percent interest rate is very low and that historically, the 10-year U.S. Treasury has traded at the nominal growth rate of the economy, which would put rates at about 4 percent (meaning that there's room to rise).
Others agree that we could be in for a summer of discontent.
"The trouble is that profit margins in my opinion have peaked, and that earnings are going to be disappointing in the second half. And that's what the market is beginning to sense. It isn't so much the Fed. The Fed may taper, but if they taper from 85 to 60, that's still an enormous amount of liquidity being poured into the market, and in my opinion three-quarters of that liquidity goes into financial assets, not the real economy."—Byron Wien
Don't Fear the Taper
The bond market is overreacting to the eventual tapering of the Fed's bond buying program. Sure, there's risk to bond yields, which are ticking up. And taper talk—along with Bank of Japan policy—are creating market choppiness. But overall, tapering is ultimately a very bullish indicator for investors.
"The global growth environment, the U.S. growth environment is still pretty sluggish. The interest rate spending sectors, like autos and housing, are sensitive to higher rates. We have seen mortgage purchase applications dropping 6 percent over the past month on recent rates move higher so I think that will keep the Fed a little cautious."—Scott Anderson, Bank of the West chief economist
"Are we growing really quickly? I would say no. But I think the backdrop is good. I do think that we have a market that is to a certain extent its own worst enemy. It has gotten extended and I think there likely to be some kind of consolidation phase as we go through the summer."— Alan Gayle of RidgeWorth Capital Management
"The analogy of [quantitative easing] as a drug addiction has been so overused. That's because it's so apt. The reality is that we've become addicted to it but like any addict, once you've faced the problem and start getting off of it you'll realize life isn't so bad and maybe even better."—Ken Kamen, president of Mercadien Asset Management
Hewlett-Packard CEO Meg Whitman says the company is slightly ahead of where she thought it would be in its five-year turnaround plan (which is close to what she said on May 23 when the company's shares surged 17 percent). It still faces headwinds, as smartphones and portable devices—where HP lags—rule the roost.
"You don't have to wait five years to get results. I'd say we're just a bit ahead of where we thought we'd be. We've got a long way to go. There's a lot of heavy lifting ahead."—Meg Whitman
Paying for a Peek
A closely watched consumer confidence number that routinely moves markets upon release is provided to an elite group of traders, for a fee, a full two seconds before its official release by Thomson Reuters.
The number, provided by the University of Michigan, is made public at 10 a.m., elite Thomson Reuters customers get the data at 9:55 a.m. and ultra-elite customers get it at 9:54:58, providing traders with plenty of time to take advantage of the early look.
Just how much? On May 17, for example, trading of the Spider ETF saw 100,000 shares change hands in the first 10 milliseconds after the data were released to the ultra-elite clients. After a half second, $40 million changed hands.
Thomson Reuters, which finances the survey, says it has disclosed the practice and cited marketing material. But some market watchers were unaware and questioned whether it's kosher.
"There's a lot of talk about whether or not we should be using more private-sector data. Government funding for data has been waning and it's been a tough thing to do, and so the question becomes if we do go to more and more private-sector data, what are the rules surrounding it? The government, for all its foibles, at least does not have a process where you can pay to get it early."—CNBC's Steve Liesman
—By Doug Cubberley, Special to CNBC.com.