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(Bloomberg) -- The Bank of Israel is set to ease monetary policy again although economists are split over how given interest rates are already close to zero.The central bank’s long-held reluctance to push borrowing costs into negative territory means its first rate cut since 2015 may also be its last. Most economists expect a decrease on Monday to 0.1%, matching a record low, from 0.25%, according to a Bloomberg survey.As the Bank of Israel quickly runs through its crisis playbook from a decade ago, a near-total shutdown of domestic business and a liquidity squeeze in the market are making low rates a less potent stimulus. Buying corporate debt could be on the table if the government’s fiscal aid doesn’t help overcome the economic ordeal caused by the coronavirus outbreak.“Monetary policy could be more expansionary,” said Jonathan Katz, an economist for Leader Capital Markets who expects a cut. “The next step has to be -- and quickly -- a corporate bond-purchasing scheme.”The challenge is to offer immediate relief to an economy fast sinking into a recession while crippled by a dramatic upsurge in unemployment to roughly 25%. Deputy Governor Andrew Abir said in an interview last month that the focus for the Bank of Israel will be on market operations instead of joining a global wave of rate cuts.Cutting the benchmark rate to 0.1% “might have a signaling effect, but it’s only a signaling effect if you put other tools in place,” he said.Stimulus ToolkitThe central bank has already re-started a government bond-buying program for the first time since 2009, committing to purchase nearly triple the amount of sovereign debt it did amid the financial crisis. It’s additionally offering swaps transactions with banks to ease demand for dollars and has relaxed regulations on local banks.The Bank of Israel has also sharply reduced its offerings of short-term debt, a way of loosening policy by absorbing less money.“While a rate reduction has less of an impact than usual at this point in time, it would still reinforce the effect of liquidity measures and would serve as a precautionary hedge against further slowdown in economic activity and any decline in asset prices,” Deutsche Bank AG analysts including Kubilay Ozturk said in a report.Governor Amir Yaron has meanwhile been asking for a primarily fiscal response, saying in his first-ever television interview in mid-March that “the central tool for now is budgetary.”The government last week announced a substantial expansion in aid to a total of 80 billion shekels ($22 billion), equivalent to some 6% of Israel’s output. Much of it will be in the form of low-cost loans, while some is earmarked for the health care and a social safety net.The program has come under criticism for its reliance on loans rather than grants, and for what some analysts say is a lack of clarity on the package’s targets. Many are also urging wider assistance to preserve the economy, with the Manufacturers Association calling for 100 billion shekels in aid.“Given the severity of the measures taken against the outbreak, we expect the economy to contract sharply in the second quarter,” Goldman Sachs Group Inc. economists including Kevin Daly said in a note. “Against this background, we do not see any costs associated with cutting rates and think the Bank of Israel will opt for a rate cut.”An even more ambitious quantitative easing plan may soon follow. A corporate bond-purchasing program should lower yields, making it cheaper for companies to seek financing while the pandemic dries up their cash flow.“The monetary effect will not be very strong” from a rate cut, said Guy Beit-Or, head of macro research at Psagot Investment House Ltd. “It’s not really relevant these days. The key measure is QE.”(Updates with economist comment under ‘Stimulus Toolkit’ subheadline)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Goldman Sachs is buying two corporate jets for the use of chief executive David Solomon and other top bankers, after officials concluded that the aircraft would help meet the group’s goal of saving $1.3bn over the next three years. “We have long made private aircraft available to senior executives who travel extensively to see clients, and that travel was arranged through a fractional ownership arrangement with NetJets,” Goldman said.
New York City, as the nation’s epicenter of the Covid-19 pandemic, is battling an unprecedented health crisis. It is also grappling with a rapid economic slowdown that is undermining hard-won gains in its fiscal health that have been achieved since the financial crisis of the 1970s. New York’s situation is emblematic of the one that many states and cities across the country soon will be facing as unemployment surges and tax revenues drop.
New York has weathered crises before, from the dot-com bust and 9/11 to the 2008 financial crisis. Covid-19, however, isn’t a financial crisis—and this time the banks are part of the solution, not the problem.
(Bloomberg) -- Oil posted a record weekly jump on hopes that global producers will decide to make historic output cuts next week, though optimism was tempered by concern that the curbs won’t avert a glut.The OPEC+ coalition including Saudi Arabia will hold a meeting of its members by video conference on Monday, with the gathering open to even producers outside the group. While it’s unclear who will attend, market watchers are predicting that stockpiles are likely to swell even if global supplies are cut by 10 million barrels a day.Investors will be closing watching the guest list of the meeting -- especially names outside the Organization of Petroleum Exporting Countries and its allies -- after Saudi Arabia made clear it will only cut production if others, including the U.S., shoulder some of the burden.U.S. West Texas Intermediate futures ended the week up 32%, while Brent crude jumped 37%. Still, prices are less than half the levels at the start of the year, with the coronavirus crisis crushing demand.See also: Trump’s Push for Huge Deal to Cut Oil Supply Draws Disbelief“I think Russia, Saudi Arabia and OPEC are coming to the conclusion that if they don’t agree to something, it will be forced on them by the market,” said Brian Kessens, a portfolio manager at Tortoise Capital Advisors. “Any cuts will extend the run way to June instead of May, which is helpful as countries try to work through the coronavirus lockdown. But it only softens the blow.”One delegate from the producer group said a global cut of 10 million barrels a day is a realistic goal. Russian President Vladimir Putin told the country’s top oil executives that producing countries should join together to slash output to reverse the collapse in prices, adding that worldwide curbs of a little above or below 10 million barrels a day are possible.Meanwhile, U.S. President Donald Trump is convening an extraordinary gathering of the nation’s biggest refiners and producers at the White House on Friday. They are expected to discuss possible relief efforts from the administration, including potential American output cuts.Getting countries from all over the world to agree would be a tough task. Even if that’s successful, an output reduction of the size that’s being discussed will be just a fraction of the 35 million barrels of daily demand destruction some traders now see.Citigroup Inc. and Goldman Sachs Group Inc. have argued any supply-reduction deal would anyway be too little, too late as consumption craters due to efforts to stem the spread of the coronavirus.“A near-term return to production cuts still seems unlikely, and we are skeptical that such a large coalition could be put together,” Morgan Stanley analysts wrote in a note. Some of the necessary production shut-ins are likely to occur in the U.S. due purely to market forces.The announcement of a potential supply cut first came from Trump, who tweeted on Thursday that he had spoken to Saudi Crown Prince Mohammed bin Salman, who had in turn spoken with Russia’s Putin.However, the U.S. leader’s goal is purely aspirational and will ultimately hinge on whether Riyadh and Moscow can reach a deal, a person familiar with the situation said.Apart from benchmark futures, hopes for the curbs have boosted every corner of the market over the last 24 hours, from time spreads used to gauge market health, to key North Sea swaps. Those gains are now easing as traders worry that the undertaking may be too fraught with hurdles.The physical oil market of actual barrels of crude continued to remain under pressure, giving producers more urgency to act. Belarus said Russian companies are offering Urals oil for $4 a barrel.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Voodoo SAS’s backers are exploring the sale of a stake in the French mobile game developer, people with knowledge of the matter said.Shareholders of Voodoo are working with an adviser as they consider selling part or all of their holdings in the company, according to the people, who asked not to be identified because the information is private. A deal could value the Paris-based firm at more than 1.5 billion euros ($1.6 billion), the people said.They are gauging interest from potential investors including rival game developers such as Ubisoft Entertainment SA and Zynga Inc., the people said. Deliberations are at an early stage, and there’s no certainty they will lead to a transaction, the people said.The plan to sell is a rare example of a Europe deal process launching in the middle of the coronavirus-led market rout that’s hampered M&A activity globally. The game industry is one of the few that’s benefited from the crisis, which has confined millions of people across the continent in their homes.Mobile game downloads globally jumped 23% in March from February, hitting the highest-ever level for a single month, according to data from analytics firm Sensor Tower Inc. Gross revenue from mobile games rose 7% from the previous month, the data show.Voodoo sold a stake in 2018 to a Goldman Sachs Group Inc. private equity fund called West Street Capital Partners VII. It said at the time that cofounders Alexandre Yazdi and Laurent Ritter retained a majority holding.The company, which was started in 2013, makes easy-to-play casual games including “Helix Jump,” “Roller Splat” and “Snake VS Block.” Many are free to download with optional in-game purchases. The company’s games have over 300 million monthly active users and have generated more than 2 billion downloads, according to its website.Representatives for Voodoo, Goldman, Ubisoft and Zygna declined to comment.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
As global co-head of real estate for (BX) (ticker: BX), she’s involved in everything to grow the business: product development, capital raising and investor experience. “The work is hard, you have to make judgment calls, you have to get along with all different types of people, but that’s an amazing experience,” McCarthy says. Blackstone Real Estate has more than $320 billion assets under management with a global team of about 550 people.
Mass, 61, who came from a family of engineers, joined Goldman as a partner in 2001, after a decade at Merrill Lynch and, before that, at Drexel Burnham Lambert. Mass also finds herself mentoring women at Goldman as well as outside the firm, in industries like private equity where there aren’t lots of senior women.
Shares of Bank of America Corp. got a lift Thursday, after analyst David Konrad at D.A. Davidson turned bullish, saying he believed the bank will outperform its peers during the economic weakness brought on by the COVID-19 pandemic.
(Bloomberg Opinion) -- Private equity firms are crying foul, fearful that companies they own are largely cut off from the $377 billion of small business loans and grants baked into the U.S.'s $2 trillion coronavirus relief bill. But do they really deserve any part in a bailout?Statistics from corporate loan borrowers that make $50 million a year or less in Ebitda don’t paint a pretty picture. An average middle-market business has a debt-to-Ebitda ratio of 4.8 times and is paying an interest rate of 7.7%, data from S&P Global Market Intelligence show. Put another way, this company is using about 37% of its operating earnings to pay interest alone(1) — and that was before the outbreak. So if this business were running at, say, one-third of its full capacity because of regional lockdowns, it wouldn’t even be able to cover its interest payments. A cheap loan from the Small Business Administration would certainly help. But before asking Uncle Sam for money, private equity firms should consider their role in this mess. Should they be liable if this virus morphs into a full-blown credit crisis?In the past decade, the sector started urging portfolio companies to tap the loan market rather than issue high-yield bonds, which were largely closed off to businesses their size. Today, roughly half of leveraged loans, or about $1.5 trillion, are issued by sponsors for their holdings.There’s certainly a good case for private equity firms to back leveraged loans. Unlike bonds, these loans can be called immediately — that is, borrowers can redeem them at any time — which allows portfolio companies to refinance more easily. What’s more, these businesses tend to be closely held; the loan market’s opaque reporting standards spare firms from quarterly financial disclosures to the Securities and Exchange Commission.But private equity’s large presence in the market has caused a fast deterioration of loan quality. Roughly half of borrowers are rated B or worse, up from 30% in 2012, data compiled by Citigroup Inc. show. After all, levering up to juice returns is the sector’s forte. Last year, more than 75% of deals included debt multiples greater than six times Ebitda, compared with 25% after the collapse of Lehman Brothers Holdings Inc., as I’ve noted.Everyone suffers in times of distress, private equity firms and corporate issuers alike. In March, the average yield of the S&P/LSTA U.S. Leveraged Loan 100 Index shot as high as 13% from 5.6% just a month earlier, as the Big Three ratings agencies were busy downgrading high-yield issuers at the fastest pace in at least a decade. If the Federal Reserve hadn’t stepped in with new financing facilities, how would Middle America roll over its loans?According to the parameters of the rescue bill, companies with more than 500 employees aren’t eligible for small-business relief. That number includes affiliates, meaning staff at portfolio companies are being added together. To get around this, the industry wants the Trump administration to view their investments as independent entities. In reality, these holdings don’t operate separately, at least not in terms of financing decisions. Private equity firms have teams of lawyers and advisers dedicated to crafting credit agreements that give them as much financial flexibility as possible, such as removing caps on leverage ratios. As a result, the leveraged loan market is now filled with covenant-lite loans, as my colleague Brian Chappatta has written. The wheel of fortune is turning. Banks that agreed to help private equity firms may be too busy with other obligations right now. With blue-chip companies drawing at least $124 billion from their credit lines in the first three weeks of March alone, and dollar funding tight, do lenders have the bandwidth? There are $66 billion leveraged loans mandated, or in the works, and about $10 billion under syndication — that is, marketed but not priced, data compiled by Bloomberg show.There’s good reason to believe the current jitters go beyond a few canceled deals, and could threaten to trigger system-wide margin calls. Leveraged loans aren’t mark-to-market, but the financing facilities that banks provide to asset managers (which allow the latter to buy such loans before packaging and selling them as bonds) tell a lot about the quality of these assets. Goldman Sachs Group Inc. and JPMorgan Chase & Co. already demanded their clients to put up extra collateral, or face the risk of liquidation, Bloomberg News reported last month.It’s unclear if industry titans can convince President Donald Trump to bail out their investments. For its part, the Federal Reserve is loath to make loans to distressed companies. Since the passage of the Dodd-Frank Act in 2010, the Fed isn’t allowed to take big credit risks and can only lend with a high degree of protection.Private equity may be in the eye of the storm, but it certainly doesn’t need a bailout. Last year, capital committed to this sector grew 20% to a record $1.3 trillion, according to data provided by PitchBook, a Morningstar company. So instead of trying to pass off their portfolio companies as small businesses, firms can use that dry powder to shore up the balance sheets of their investments.These firms came out of the collapse of Lehman Brothers fairly unscathed. Perhaps the coronavirus could finally teach them a lesson: Using cheap debt to pay themselves dividends isn’t such a savvy investment model after all. (1) 4.8 times 7.7% comes to 37%.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Oil soared after U.S. President Donald Trump said Saudi Arabia and Russia would make major output cuts, though uncertainty swirled over the volume of curbs and whether reductions would be made at all.While Trump tweeted that cuts of 10 million to 15 million barrels were possible, he didn’t specify if that reduction would be per day. He also said he spoke to Saudi Crown Prince Mohammed Bin Salman about the market.His comments immediately triggered skepticism, even within the U.S. government. One person familiar with the administration’s discussions with the Saudis said there was widespread internal confusion about what the president was referring to and the numbers he mentioned may not be reliable.The prospect of the U.S. joining in on any output cuts was raised after Ryan Sitton of the Texas Railroad Commission, in a rare move for the state’s oil regulator, spoke with Russian Energy Minister Alexander Novak on reducing global supplies by 10 million barrels a day. He said he would also talk to the Saudi oil minister soon.Meanwhile, Kremlin spokesman Dmitry Peskov said Russian President Vladimir Putin hasn’t spoken to the Saudi crown prince and hasn’t agreed to cut oil production to boost prices.The Middle East kingdom also didn’t confirm the cuts, but called for an urgent meeting of the OPEC+ producer alliance to reach a “fair deal” that would restore balance in oil markets, state-run Saudi Press Agency reported. Any curbs by the group would be conditional on other countries joining, according to a delegate.U.S. West Texas Intermediate futures jumped as much as 35%, before closing up almost 25% -- their biggest single-day advance ever. Brent crude increased as much as 47%, the global benchmark’s largest surge in intraday trading.“The 10, 15 million barrel a day cut is just not going to happen. On top of that, Russia has older oil wells, so they can’t restart in the same way that Saudi Arabia can,” said Tariq Zahir, a fund manager at Tyche Capital Advisors.If Trump meant 10 million barrels per day, that would equal both Moscow and Riyadh curbing nearly 45% of their production in what would prove an unprecedented move. If collective action does remove that much from the market, that would be the equivalent of about 10% of world demand prior to the impact of coronavirus crisis.Still, that may not be enough to stop the pain that’s rippled across the energy industry as demand craters with the coronavirus outbreak shutting down economies around the world.Oil’s move comes after prices were already climbing following China’s instruction to government agencies to start buying cheap crude for its strategic reserves.The Trump administration will also rent space in the U.S. emergency oil reserve to domestic producers that are scrambling to find places to store excess barrels. After years of saying OPEC should work to reduce oil prices, Trump has recently changed tack as American shale producers struggle in the wake of crude’s collapse.The person familiar with the administration’s discussions with Saudi Arabia said U.S. leverage had been undermined by the president’s conflicting messages.The sudden jerk in prices Thursday also reverberated across the oil futures curve, with the prompt WTI timespread narrowing by almost 58% to trade at negative $1.45 a barrel in the 15-minute period following Trump’s tweets. The six-month spread, or gap between the May and November contracts, also narrowed by as much as $3.78 a barrel.Meanwhile, Brent’s premium over WTI, which had been hovering at around $1 barrel, widened to as much as $3.09 a barrel.Before the news on Thursday, Saudi Arabia hadn’t appeared to relent on its bid to flood the market, saying a day prior it was pumping at a record and had this week loaded almost 19 million barrels of oil in a single day.Goldman Sachs Group Inc. also doesn’t see a bright outlook. In a note earlier this week, it said any conceivable oil production cut by the U.S., OPEC+ and Canada would still “fall well short” of its estimated 26 million barrels a day of demand loss and only provide “fleeting support to inland crude prices.”Meanwhile, the physical crude market continues to show deepening signs of strain.Dated Brent, the benchmark for two-thirds of the world’s physical supply, was assessed at $15.135 on Wednesday, the lowest since at least 1999. Crude has slipped below $10 in some areas including Canada and shale regions in the U.S., Belarus wants to buy Russian oil for $4, while some grades have posted negative prices.As supply balloons, there are growing signs that the world is running out of places to store the glut.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- With $250 billion of new U.S. bond issues at investment grade since the middle of March, and 150 billion euros ($164 billion) in Europe, the high-end credit market is an undoubted beneficiary of the central banks’ coronavirus stimulus plans. The debt capital market is definitely back open.Indeed, analysts at Goldman Sachs Group Inc. have bravely ventured that the worst of the widening of credit spreads — where the yield on corporate debt starts to increase faster than that of benchmark bonds — may be over for high-grade issuers.As I’ve written before, it’s important not to see this as a sign that all is well in the entirety of the credit markets: Companies with non-investment grade paper are crucial to the real economy too, but junk bonds are a long way from being in a good place. Defaults are looming.Setting aside the broader economic concerns of this state of affairs, there will be opportunities for investors in finding companies that will emerge from the crisis stronger — or the ones that will get most state support, if you’d prefer to be cynical. Credit selection, akin to stock-picking, will be the answer for those hunting yield. Tread carefully among the rubble and you might find some sparklers.As the Goldman analysts say, the high-grade part of the market is functioning well. There are 16 new issues slated in the euro debt capital markets on Thursday, including bonds from corporate giants such as BP Plc, British American Tobacco Plc and Royal Dutch Shell Plc. There’s even a rare deal coming in sterling, a market that’s been largely shut, from carmaker Volkswagen AG. That will be a significant test for a sector that’s been effectively shutdown by Covid-19.Credit spreads blew out spectacularly in March, and while things have improved, the environment has changed profoundly — even for the higher quality stuff. The premium offered on yields for new issues and overall credit spreads are significantly wider than during the first two months of this year, before the coronavirus struck the West in earnest. For corporate issuers, the heady days of rock-bottom interest rates are over, but this is better news for investors. The potential for positive performance is phenomenal, explaining why so many are diving back in to try to outperform the index. The European Central Bank has 1 trillion euros of bond purchases to complete this year, with as much as 20% of that to steer into eligible investment grade companies. That will be a major tailwind for a spike in the value of corporate debt.The ECB excludes financial firms and junk bonds from its Quantitative Easing program, but the crowded demand for high-quality paper will no doubt steer people toward non-investment grade sales, helping issuers. Also, whisper it, but the eligibility criteria for QE might well be softened.High-yield is still suffering badly from blown-out credit spreads. But it can offer the biggest opportunities to investors, especially if the particular company is critical to any economic recovery. Government credit and bailout plans might add to the appeal of certain sectors such as infrastructure, health and utilities. Less vital industries in the junk bond space will have to pay up to attract buyers. The beleaguered cruise liner company Carnival Corp had to pay a whopping 11.5% coupon to raise $4 billion this week. To get a sense of how far things have gone south for Carnival, at the beginning of March the yield on its existing three-year dollar bond had slipped below 2%. Bank debt might be popular too. Lenders’ senior investment-grade paper is already practically backstopped by national central banks. Subordinated bank debt remains for the brave, albeit the riskiest additional tier-1 perpetuals (known as CoCos, where investors lose out if a company goes bust) will always have their fans among those clamoring for proper yield. Selecting which companies can weather a crisis versus the dead ducks has probably been the most overlooked financial skill-set since the Lehman Brothers crisis, especially in corporate bonds. Blanket QE and the remorseless rise of passive investing has masked what active managers should be best at. It will pay in future to invest in a more selective fashion rather than simply buying the index.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- I spent the better part of the last three weeks on the phone with clients of my asset-management firm and friends who wanted a sounding board about markets. That’s not a complaint. For me, one bright spot of this crisis has been a return to indulgently long phone conversations, a throwback to a simpler time before smartphones and social media. Three questions came up routinely in those conversations, which makes me think they’re on a lot of investors’ minds. My thoughts are certainly not novel. They borrow liberally from investing giants such as Warren Buffett, Jack Bogle, Seth Klarman and others too numerous to name, and financial writers who have covered similar ground over the years and in recent days. But given the opportunity for costly mistakes during market upheavals, it never hurts to revisit some common pitfalls. The question that came up most is whether investors should sell their stocks now and buy them back later when they decline further. The spread of coronavirus and the resulting economic damage is expected to worsen. As it does, the thinking goes, stocks will continue to decline.It’s a natural impulse, but it misses a crucial aspect of the way markets work, which is that prices instantly reflect investors’ expectations about the future. That’s probably why, to many investors’ surprise, the U.S. stock market held its ground after dreadful news last Thursday that 3.28 million workers filed for unemployment the previous week, nearly quintupling the previous record. While exact numbers are never known in advance, a surge in initial jobless claims was widely expected well before the Labor Department released its official tally.More bad news is expected. Goldman Sachs Group Inc. said on Tuesday that it expects the U.S. economy to shrink by an annualized 34% in the second quarter and unemployment to rise to 15% by mid-year before a recovery takes hold in the third quarter. That, too, is reflected in stock prices. The prospect of future declines depends on whether expectations become even more dire. But unless investors can predict if the outlook will darken further, there’s no reason to think they can anticipate the market’s next move. And that’s only half the battle. Those who manage to get out before another market drop must decide when to get back in, which is never clear. Market turns tend to be sudden. By the time it feels safe, the market is often sharply higher, leaving investors with regret about missing the bottom. Then comes the temptation to wait for the market to revisit its lows, an opportunity that may never come.I know investors who sold their stocks when Lehman Brothers collapsed in September 2008, months before the market bottomed around the financial crisis. What seemed like a stroke of genius at the time became a harrowing trial. The market unexpectedly turned higher in March 2009 and never looked back. More than a decade later, some of those investors are still waiting for that elusive re-entry despite the likelihood that the market will never revert to that September 2008 level. There’s plenty of evidence showing that binary market timing, or all-in-all-out moves around markets, is a good way to lose money. I’ve never even seen it work in back tests, which have the formidable advantages of perfect hindsight, zero emotion and no cost. Every time someone tells me binary market timing is possible, I ask for a successful back test, and I have yet to see one. A second question is whether retirees have time to wait for stocks to recover. If history is any guide, the answer is most likely yes. There have been 10 bear markets in the U.S. since 1948, excluding the current one, as measured by a 20% or greater decline in the S&P 500 Index. The average number of years from peak to recovery — that is, the time it took for the S&P 500 to climb back to its previous high — was 3.9 years, and the median was 2.7 years. On five of those occasions, the market recovered in two years or less. In other words, market downturns tend to feel a lot longer than they are.The third question cuts entirely in the opposite direction: With markets down and interest rates at historic lows, should investors borrow money to buy stocks? The answer is no. While it’s safe to assume that markets will recover eventually, the path is unknowable. That’s a problem for investors playing with other people’s money. If markets fall further before recovering — a distinct possibility given all the uncertainty, particularly in the U.S., where stocks aren’t cheap — those investors may be forced to sell at even lower prices to meet margin calls. Borrowed money robs investors of time, which is arguably their only edge. Market downturns tend to provoke extreme reactions, and this one is no different. Yes, savvy investors can pick up some bargains by rebalancing their portfolios or even tilting toward their most beaten-down investments. U.S. investors might also lighten up on home bias, as there are better bargains in overseas stocks. But when markets are roiling, don’t discount the value of doing nothing. I had a seventh-grade shop teacher who used to say, “Sometimes I sit and think, and sometimes I just sit.” For many investors, this is probably a good time to just sit. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Oil markets are in pain. Demand has plummeted, with about three billion people under lockdown just as the world faces a historic supply glut. The world’s crude storage, meanwhile, is filling fast, from underground caverns to rail cars and tankers. For landlocked producers, that hardly matters: Some are already paying customers to take their oil away.The consequences will be long-lasting. Drillers in the U.S. and elsewhere are scaling back or shutting down production. Against a background of steep spending cuts, not all of that will be swiftly reversible. Price relief will hinge on the world’s convalescence.The collapse in appetite for gasoline, jet fuel and diesel has been unprecedented in speed and scale. Goldman Sachs Group Inc. estimated Monday that with economies representing 92% of global gross domestic product now under some form of social distancing, the loss of demand this week stands at 26 million barrels per day, roughly a quarter below last year’s levels. Over a month, that’s almost 800 million barrels lost. Numbers since published from the shuttered economies of Italy and Spain suggest levels of destruction could be even worse. Spanish diesel demand is down 61%. The collapse is translating into a surplus that’s straining refineries, pipelines and the world’s limited ability to squirrel away oil.There is no precise estimate for how much capacity the world has to store oil products. Analysts at S&P Global Platts estimate 1.4 billion barrels, including 400 million of floating storage. So far, 50% of that has been used: The figure will rise to 90% by the end of April. It’s a squeeze visible in freight rates, with fleets of very large carriers filling up, making it harder to use them to store oil or even move it to a buyer. Costs for the benchmark journey from the Middle East to China have risen sevenfold; Reliance Industries Ltd. paid $400,000 a day for a supertanker to haul oil from the Middle East to India’s west coast in early April.For landlocked drillers, though, there are greater worries. They are facing a lack of local storage, and pipeline companies asking them to cut back or prove they have a buyer for their crude before loading. They simply can’t get oil to the right place, at the current price. Meanwhile, refineries are cutting back as they reach storage limits.This all means that negative oil prices — when producers are effectively paying customers to take the oil — aren’t only possible, but already a reality. The global benchmarks for oil, West Texas Intermediate and Brent, have dropped about two-thirds this year. They aren’t about to dip below zero. You won’t get paid for filling up at the pump. In the neighborhood of $20 a barrel, though, where your oil is now matters almost more than how much it costs you to produce it.Check out grades that demand expensive refining or in locations requiring costly transport. Wyoming Asphalt Sour, used in paving, was among the first to slide into the red at a negative $0.19 per barrel in mid-March, as my colleagues Javier Blas and Sheela Tobben reported last month. Other producers may be selling at a loss, effectively subsidizing buyers to take their output. Western Canadian Select, the benchmark price for the giant oil-sands industry in Canada, is at around $5, with Bakken crude in Guernsey, Wyoming, in single digits too. The gap with WTI has become wider.Many of these producers are already cutting back, or shutting down. Whiting Petroleum Corp., a shale champion, filed for bankruptcy Wednesday. Oil explorers, servicing companies and others are in severe pain too, and the squeeze won’t be felt only in the U.S. Russia says it won’t boost supply at current prices. Ecuador has failed to find buyers.What does this mean for an eventual recovery? First, the extent of demand loss means that even a resolution to the Saudi-Russian spat would help only a little, perhaps easing pressure on the world’s fleet of very large oil carriers, known as VLCCs.A real pick-up in prices will require demand to come back. At that point, it may not require much to prompt a temporary spike, depending on how much is stored, locked up by traders through financial contracts, or taken out for good. Geopolitics, with oil-producing nations strained, may also help a little. For the time being, though, negative prices are here to stay.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The Federal Reserve is trying to call time on a fire sale of Treasuries by foreign governments and central banks.Foreign official holders of Treasuries dumped more than $100 billion in the three weeks to March 25, on course for the biggest monthly drop on record, according to weekly Fed custody data that captures much of the pandemic-fueled turmoil.Countries reliant on oil exports and smaller Asian economies have been selling U.S. debt, and central banks have been primarily offloading older, less-liquid Treasuries, according to traders and market makers familiar with the transactions.The Fed on Tuesday rolled out its latest effort to restore functioning in markets, on top of moves to ramp up debt purchases and backstop several sectors. It introduced a temporary repurchase agreement facility that let other central banks swap Treasuries for dollars.“The fall in custody holdings is a clear signal that foreign central banks -- which have a lot of Treasury holdings -- have been selling them to source dollars,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “They need access to dollars as a lot of their payments are in dollars and that has driven them to sell Treasuries.”The Fed stopped short of saying it wanted to prevent a snowball effect from the selling, but said the new program will provide “an alternative temporary source of U.S. dollars other than sales of securities in the open market.”As fear swept through markets last month and fueled unprecedented volatility, liquidity -- the ability to trade without causing significant price moves -- deteriorated in Treasuries to its worst since the 2008 financial crisis. At the same time, the greenback surged as investors sought refuge in the world’s primary reserve currency.The Bloomberg Dollar Spot Index rose 3.1% in March, the most since 2016.Liquidity BufferSome of the foreign official Treasury selling may simply be building up of a liquidity buffer, wrote William Marshall of Goldman Sachs in a client note. Though, “we suspect the rest may have been to either support a currency peg (in the case of oil-exporting countries like Saudi Arabia) or their respective domestic dollar liquidity needs,” he added.The Fed has acted to calm debt markets to avert knock-on economic effects, by announcing trillions of dollars of purchases of assets including Treasuries and mortgage-backed securities. It also unveiled measures that would let other central banks tap expanded dollar swap lines.Tuesday’s Fed statement regarding the new repo facility didn’t specify if all central banks would be involved.The new repo program “is a sensible second-best solution for major countries that are outside the enlarged Fed FX swaps network but have substantial corporate dollar funding needs,” Krishna Guha, head of central-bank strategy at Evercore ISI and a former New York Fed official, said in a report. “This group includes China, which ought to be eligible for the new program, though the Fed release is not clear on this point.”Line of FireThis isn’t the first time Treasuries have been in the line of fire as the dollar gained. In 2016, a surge in the greenback saw central banks across Asia intervening to stabilize currency markets.Another indicator of central banks’ positioning in Treasuries is primary dealer holdings, which tend to rise when official accounts are selling. Fed data on these holdings are available with a lag, but their stock of the securities had surged to $272 billion as of March 18, from $193 billion at the start of February.The new repo facility “effectively backstops foreign central banks from forced liquidation of their Treasury holdings into dysfunctional markets,” Jonathan Cohn, a rates strategist at Credit Suisse, said in a note.Emerging-market “reserve managers sometimes need to sell U.S. Treasuries to defend their currency when the dollar is appreciating,” he wrote. “These types of forced flows can contribute to dislocations along the curve and weigh on dealer balance sheets.”(Updates with Goldman quote in ninth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Don’t hold your breath. Massive Chinese stimulus isn’t coming to shore up the world.As China tries to get back on its feet from Covid-19, policy makers are announcing more fiscal help to deal with the worst economic hit in decades. This has included plans to spend trillions of yuan on standard measures from the Beijing playbook, such as issuing infrastructure bonds to boost activity, lower lending rates to help struggling companies, and cheap credit for small banks to support them.One measure from recent days stands out: Special central government bonds, a tool authorities have pulled out only twice before, in moments of dire financial pressure. This signals both seriousness and, ominously as the rest of the world looks for China to join in the rescue, that the country is being pushed into a corner. China’s economic engine, long a driver of global demand, may not rev up. Though China has been first-in and somewhat first-out on the virus, the measures laid out so far still amount to only 1.6% of gross domestic product on-budget and 1.7% off-budget. Compare that to Australia and South Korea, where off-budget measures already amount to 5.2% of GDP in addition to budgetary help, according to Credit Suisse Group AG analysts. Beijing is relying more on monetary policy to flush the system with liquidity and boost credit, unlike some countries where fiscal measures are playing a larger role. This reflects the reality that China is running out of effective tools. The special treasury bonds are therefore notable. They have only been deployed previously when things just had to get done. In 1998, Beijing used them out to recapitalize banks as the financial crisis pummeled Asia. In 2007, they were marshaled to set up sovereign wealth fund China Investment Corp. and strengthen foreign-exchange reserve management. They don’t end up on the government’s balance sheet and are earmarked for specific, targeted policy goals. This time, the bonds could directly fund China Inc. or recapitalize banks so they’ll have more room to lend. Nomura Holdings Inc. analysts estimate that almost 2 trillion yuan to 4 trillion yuan ($282 billion to $563 billion) of these long-maturity obligations could be issued to fill the gap between the official and actual fiscal deficit targets. Unlike regular central government bonds, these need to be put to spending that has returns, which could force some discipline.China doesn’t have the fiscal space of a decade ago, when it unleashed a 4 trillion yuan package to shore up what was then a much smaller economy and the rest of the world with it. Revenues plunged almost 10% in January and February from last year; those from land sales fell 16.4%. That’s only an early blow. At the local government level, revenue last year grew at the slowest pace in a decade. Property prices are dropping across several cities. With the need for expenditure and leverage rising, the ability to service borrowings has become difficult.There aren’t many places left to add more debt. China’s overall burden as a portion of its GDP is among the world’s highest. Local government debt has dominated in recent years as almost all of the 2.15 trillion yuan quota of municipal off-books bonds for specific projects was issued. Meanwhile, years of using state-backed enterprises’ balance sheets to boost economic growth has leveraged them to the hilt. Households are also strained.The special treasury bonds represent something of a last stand. They’re going to indirectly lean on China’s banks, which have other problems. Herein lies the risk. Banks are currently staring into a credit down-cycle made worse by the virus shock, which will amount to billions in yuan of non-performing assets, rising credit costs and slower profit growth. Jitters in the sector last year have hit confidence. Rounds of monetary-policy easing have pushed them to lend to the weakest borrowers. As Goldman Sachs Group Inc. analysts put it, issuing these bonds signals “a new round of loosening, monetizing fiscal stimulus via the central banking system, leveraging on banks to ramp credit growth.”Much of this will mean that prudent policies to unwind the leverage buried in China’s labyrinthine financial system will be thrown aside. More debt, on or off the books or contingent liabilities, will pile up. The type of stimulus China really needs — for consumers — won’t arrive.This time, China has limits that it has rarely faced in the past. As Beijing is constrained to turn inward, it’s no wonder that other countries are coming out with far more aggressive measures. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Coming off one of its worst quarterly performances in decades, the Dow Jones Industrial Average saw one of the most ominous starts for a quarter in nearly nine decades as stocks swooned on Wednesday. More April showers could be in store for investors.Source: Provided by Finviz * The S&P 500 slid 4.41% * The Dow Jones Industrial Average tumbled 4.44% * The Nasdaq Composite lost 4.41% * New quarter, same old tricks for Boeing (NYSE:BA) stock, easily the Dow's worst-performing name today as it lost 12%.On Wednesday, stocks were stung by health officials reporting that the U.S. could hit 240,000 total coronavirus deaths. Adding to the pain were more states moving to shutdown non-essential business for the entire month, dealing another body blow to the already-fragile economy.InvestorPlace - Stock Market News, Stock Advice & Trading TipsOn a related note, reports broke earlier today, citing the U.S. intelligence community, that China is concealing both cases and deaths stemming from the coronavirus. Other countries are accused of doing the same, but with one of the first outbreaks occuring in China, it would be helpful to other nations trying to combat COVID-19 to get accurate data. * 30 Stocks on a Deathwatch Overall, it was another glum day for equities, with a theme investors got all-too-cozy with in March. That being 28 of 30 Dow stocks pointed lower in late trading. More Boeing ProblemsFor months now, the center of Boeing's rapidly deteriorating universe has been the 737 MAX passenger jet. However, the company has another problem: the KC-46A Pegasus used by the U.S. Air Force.That plane has a long history of problems with the most recent being fuel tank leaks. Fuel leaks are never a good thing in the aviation industry, but it's a really bad scenario for a plane with a primary function of fueling other jets.Boeing said it's on top of the issue, but in the wake of the company's other issues, the optics of the KC-46A Pegasus problem are poor. Dividend ConcernsDow financial components, including American Express (NYSE:AXP) and JPMorgan Chase (NYSE:JPM), were sapped today as a slew of British banks announced dividend cuts with prodding from the Bank of England, stoking concerns domestic banks could follow suit.JPM and Goldman Sachs (NYSE:GS), another Dow stock, were among the big banks announcing scrapped buyback plans last month.The good news is names like JPM and Goldman have low payout ratios and can easily afford to sustain if not raise dividends this year. The bad news is that if these names and other cut or suspend dividends, there's essentially no reason to own this group in a low interest rate environment. Speaking Of Dividends…Jefferies global equity strategist Sean Darby published a report today highlighting 60 well-known U.S. companies that he says are "susceptible to a dividend cut." The group includes two Dow components: 3M (NYSE:MMM) and Coca-Cola (NYSE:KO).Just speculating here, but of that pair, MMM is the more likely dividend offender, but that's not a given. If either KO or MMM go to negative dividend action, well, let's just say that would be concerning because both companies boast a payout increase streak longer than 50 years. Pre-Earnings TroubleIt's not yet earnings season, but some reports are trickling in here and there. Walgreens (NASDAQ:WBA) will join that group tomorrow and with the stock down more than 6% today, it doesn't look like investors are expecting much out of a name that has been one of the Dow's worst performers since early 2019.WBA has a spotty history of post-earnings moves, usually more down than up, so don't be surprised if there's more stress on this name to finish the week. Bottom Line on the Dow Jones TodayArguably the biggest near-term headwind for riskier assets is a lack of positive news, be it about the coronavirus, the economy or earnings. At this point, even some good dividend news would at least lighten the mood.The upside of this dour scenario -- and it is dour -- is that if the virus curve legitimately flattens, that's a credible upside for equities. There just isn't any clarity on when that will actually happen.Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities. More From InvestorPlace * 25 Stocks You Should Sell Immediately * 1 Under-the-Radar 5G Stock to Buy Now * This Stock Picker's Latest Video Just Went Viral * The 1 Stock All Retirees Must Own The post Dow Jones Today: No April Fool's Joke, Stocks Sink to Start New Quarter appeared first on InvestorPlace.
Goldman Sachs Group Inc (GS) is offering its employees worldwide an additional 10 days of leave to help them care for their children or elderly relatives and to cope with the unique circumstances related to the coronavirus impact.“We recognize our people are dealing with personal circumstances related to the profound impact of COVID-19, whether it be protecting their health, caring for a child whose school or daycare services are unavailable, adjusting to a new routine, tending to an ill or elderly family member,” Bentley de Beyer, Goldman's Global Head of Human Capital Management, wrote in a memo to employees. “To support employees, we will now offer 10 days of family leave to our people globally to care for family members, as needed, due to COVID-19 related illness or childcare needs, including homeschooling.”Goldman Sachs employees will be able to take the 10 days of leave throughout 2020. The allowance is in addition to the firm’s other benefits and offerings, including other leave programs, that can add relief to employees, according to De Beyer.Wall Street analysts assign a Moderate Buy consensus rating to Goldman stock based on 6 Buys and 5 Holds. The $239.33 average price target sees investors making a potential 62% profit on the shares in the next 12 months. (See Goldman Sachs stock analysis on TipRanks)Related News: Billionaire Investor Howard Marks Believes Now Is The Time To Buy (But Not Too Much) Goldman Sachs: 3 “Strong Buy” Stocks to Snap Up Now Morgan Stanley: 2 Stocks to Buy (and 1 to Stay Away From) More recent articles from Smarter Analyst: * Ford First-Quarter Sales Decline 12.5% as Showrooms Remain Closed Amid Pandemic * Tesla Sees Solid Quarterly Deliveries Despite Global Coronavirus Pandemic * General Motors, Honda Join Forces to Build Two Electronic Cars * Zoom Admits Some Calls Were ‘Mistakenly’ Routed Through China
(Bloomberg) -- Apple Inc. and Goldman Sachs Group Inc. are letting Apple Card users defer April payments without incurring interest to ease financial pressure from economic disruption caused by the Covid-19 pandemic.The card, backed by Goldman, offered the same program for March payments. Apple Card users need to opt in to the program by messaging a support representative via the Wallet app on an Apple device.“We understand that the Covid-19 situation poses unique challenges for everyone and some customers may have difficulty making their monthly payments,” Apple wrote in an email to card customers. “If you previously enrolled in the Customer Assistance Program in March, you will need to enroll again.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Julia La Roche discuss Starbucks’ latest decision to continue to offer all of its employees benefits amid the coronavirus outbreak.