Category Archives: Markets

(CNBC) Shares of luxury online marketplace Farfetch surges 53 percent in IPO’s first day of trading

(CNBC)

  • Shares of London-based luxury online marketplace Farfetch jumped more than 50 percent in their market debut Friday.
  • Farfetch Thursday night raised $885, stamping a valuation of $6.2 billion on the online giant, taking into account employee dilution.
  • The global market for personal luxury goods was estimated to be worth $307 billion in 2017.
Farfetch CEO on IPO and luxury online marketplace

Farfetch CEO on IPO and luxury online marketplace  

Farfetch sold 44.2 million shares Thursday night, raising $885 million and stamping a valuation of roughly $6.2 billion on the online giant after factoring in shares already held by employees. It priced its initial public offering a buck above its range of $17 to $19 a share, after having already upsized its IPO due to robust demand.

Farfetch opened at $27 and posted an intraday high of $30.60.

With a $6.2 billion market price and $385 million in 2017 revenue, Farfetch is trading at a richer valuation than AmazonJD.com as well as other traditional retailers.

“Marketplace” companies often trade at a higher premium than traditional retailers, because they don’t carry the risk being stuck with unwanted product, investment bankers say. Farfetch, however, continues to face steep competition from luxury retailers like Matchesfashion.com and Net-a-Porter. While its marketplace business model alleviates its inventory risk, it does not stop customers from shopping on multiple websites, the bankers say.

Farfetch began as platform to help local high-end boutiques reach broader audiences and later evolved as a tool through which brands like Gucci could sell directly. It connects shoppers to over 700 brands and boutiques internationally and express ships to more than 190 countries, according to the company’s registration documents.

It was founded in 2008 by José Neves, a Portugese entrepreneur with experience in both luxury and technology, according to the company. Neves spent years courting the world’s most elite brands, in an industry ruled by a narrow set of power players, like Chanel, Richement and Hermes. Of the retailers Farfetch works with, 98 percent of have an exclusive relationship with it.

Those tight relations with luxury players stands in contrast to those they have with Amazon. Luxury labels have resisted selling on Amazon, suspicious of its ability to maintain the integrity of their brand.

The global market for personal luxury goods was estimated to be worth $307 billion in 2017, according to the Farfetch’s registration documents, citing data compiled by Bain. It is expected to reach $446 billion by 2025, according to the data.

Farfetch makes its money primarily through commissions on sales on its website, generating revenue of $385 million in fiscal 2017, a 59 percent jump over the previous year.

It continues, though, to lose money, as it goes after new customers and builds out its infrastructure. Farfetch recorded an after-tax loss of $112 million in 2017, down from a loss of $81 million the previous year.

Despite plans to continue to invest, Farfetch’s customers to have proven to be loyal, a rarity in e-commerce.

“Typically over time, customers peter out. Here, it’s almost like in this business, after they get customers they become something of an annuity. It’s more like what you would see in a software or service firm than a luxury apparel company,” said Daniel McCarthy at Theta Equity, a quantitative financial analysis firm.

Still, for Farfetch to ultimately achieve profitability, said McCarthy, it will need to sufficiently grow its sales to balance its fixed costs like administration expenses. Farfetch is also taking a number of risks, including its investments in new technology to support its “store of the future.” Meantime, the luxury market, albeit growing, has limited runway and remains vulnerable to economic dips.

Farfetch has grown through a number of partnerships, including JD.com in Asia and the Chalhoub Group in the Middle East, that have helped it broaden its distribution, offerings and capabilities. It has offices in 11 cities, including London, Tokyo and Los Angeles.

It also continues to invest in brick-and-mortar retail, buying London fashion boutique Browns in 2015. It is using Browns as one of its testing grounds for new technology in what it calls the “store of the future.” Offerings include touch-screen-enhanced mirrors and connected clothing racks.

Farfetch also launched Black and White, an infrastructure platform that luxury brands can use to develop their own e-commerce business.

(JN) Farfetch cumpriu o sonho de içar a bandeira portuguesa na bolsa de Nova Iorque

(JN) A Farfetch tornou-se esta sexta-feira a primeira empresa tecnológica portuguesa no mercado de valores mundial e içou, literalmente, a bandeira de Portugal no edifício da maior bolsa de valores do mundo, em Nova Iorque.

“Colocar a bandeira portuguesa no New York Stock Exchange (NYSE) era um dos pequenos sonhos que tínhamos e que foi realizado hoje”, disse José Neves, fundador da empresa, numa entrevista à Lusa.

O empreendedor português fez questão que a bandeira portuguesa estivesse içada neste dia em que a Farfetch se estreou no mercado de valores mundial a 27 dólares por acção e pouco depois já passava dos 30 dólares.

“Hoje foi um dia fantástico de celebração. Este dia é para equipa”, afirmou José Neves. “Eu sei que todos os nossos escritórios internacionais, incluindo os escritórios de Portugal, celebraram com muita alegria. O trabalho é deles, os resultados são deles”, adiantou, agradecendo à “equipa fantástica de três mil pessoas”, das quais metade tem nacionalidade portuguesa.

Sem adiantar números nem mercados a conquistar nas próximas etapas, José Neves afirmou que, depois desta oferta inicial pública, “começa o segundo capítulo”. “Não damos números concretos, mas vamos continuar a empregar mais pessoas e a gerar mais emprego”, garantiu.

O empresário referiu que desde a fundação da empresa, em 2007, estes 11 anos serviram para criar relacionamentos “fantásticos” com as marcas e “estabelecer a presença internacional” da Farfetch, que se encontra agora nos principais mercados de luxo.

A Farfetch é uma plataforma global no sector da moda de uma indústria que factura mais de 300 mil milhões de dólares anuais, a indústria de luxo.

Segundo o gestor, actualmente apenas 9% das vendas de luxo acontecem na Internet, mas o número vai mudar para 25% nos próximos dez anos, que representam 100 mil milhões de dólares (85 mil milhões de euros), um crescimento “exponencial”. “Penso que a oportunidade para o sector de luxo ‘online’ é enorme”, considerou o empresário.

A Farfetch orgulha-se de ser o único ‘marketplace’ do mercado de luxo e não ter concorrentes nesse modelo de negócio, mas admite ter de disputar a atenção do cliente, que pode comprar em diversos ‘sites’, mas que não oferecem o mesmo serviço.

Além de ser a única que não vende nada seu, o crescimento da Farfetch na primeira metade do ano de 2018 foi de 60%, o que deu a esta empresa luso-britânica mais quota de mercado.

O que se segue são “mais dez anos de crescimento, de inovação e continuar a construir uma empresa que é gerida com base num sentido de cultura e de valores muito fortes”, sustentou José Neves.

Um dos valores que a Farfetch agora assume é ser uma inspiração para outras empresas. “Espero que este lançamento em bolsa seja uma inspiração para outros empreendedores em Portugal. As ‘startup’ portuguesas estão a ter muito sucesso”, declarou José Neves, numa alusão ao programa de aceleração de ‘startup’ da Farfetch, o Dream Assembly, que dá aos empreendedores participantes conhecimentos e contactos na indústria de luxo.

(BBG) S&P, Dow Soar to Record Highs as Trade Fears Abate: Markets Wrap

(BBG) U.S. stock benchmarks reached new highs Thursday on news from China about tariff and currency moves that could ease trade tensions. Treasury yields remained near their highest level this year. The dollar slid.

The S&P 500 Index soared to a record close — led by the technology, health-care and financial sectors — lodging its biggest gain in over a month. The Dow Jones Industrial Average also reached a new pinnacle, with 28 of 30 constituents flashing green. Most European and Asian shares also gained.

Trade conflicts that had stocks gyrating early in the week have since cooled off. China is said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. On Wednesday, Premier Li Keqiang his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

The yield on 10-year Treasuries held above 3 percent, near its high for the year. The greenback weakened after a report said the U.S. and Canada are unlikely to reach a deal on Nafta in Washington this week; jobless data was solid but did little to change the mood. The pound surged after August retail sales came in higher than expected.

“The dollar has generally strengthened on tariff fears, especially against EM currencies,” Pravit Chintawongvanich, an equity derivatives strategist at Wells Fargo Securities, said by phone. “What you’re seeing today is the opposite of that. EM equities and DM equities ex-U.S. are catching up. Today is a continuation of the risk-on theme we’ve seen in the last couple days.”

Equity markets have so far remained resilient in the face of rising bond yields, suggesting investors are comfortable with the outlook for corporate earnings and global growth even as borrowing costs rise along with trade tensions. Ahead of the Fed meeting next week some other central banks topped the agenda on Thursday, with Norway’s policy makers raisinginterest rates for the first time in seven years as the SNB kept deposit rates unchanged.

Elsewhere, emerging-market assets continued to rally off the lows seen earlier this month, with the rand among the leading developing-world currencies as the South African Reserve Bank held its key interest rate at a two-year low. Norway’s krone retreated as investors saw the central bank’s rate trajectory as dovish, while the Swiss franc strengthened.

West Texas crude dropped after U.S. President Donald Trump resumed his criticism of OPEC on Twitter.

Terminal users can read our Markets Live blog.

Here are some key events coming up this week:

  • The Organization of Petroleum Exporting Countries and its allies meet in Algiers this weekend.

These are the main moves in markets:

Stocks

  • The S&P 500 Index gained 0.8 percent as of 4 p.m. New York time to its highest on record.
  • The Dow Jones Industrial Average rose 1 percent, also reaching a record high.
  • The Stoxx Europe 600 Index jumped 0.7 percent.
  • The U.K.’s FTSE 100 Index climbed 0.5 percent.
  • The MSCI Emerging Market Index jumped 0.9 percent to the highest in more than two weeks.

Currencies

  • The Bloomberg Dollar Spot Index decreased 0.4 percent to the lowest in eight weeks.
  • The euro climbed 0.9 percent to $1.1779.
  • The British pound rose 1 percent to $1.3271.
  • The Japanese yen sank 0.1 percent to 112.41 per dollar.

Bonds

  • The yield on 10-year Treasuries rose less than one basis point to 3.07 percent, the highest in more than four months.
  • Germany’s 10-year yield decreased two basis points to 0.47 percent.
  • Britain’s 10-year yield fell two basis points to 1.585 percent.

Commodities

  • The Bloomberg Commodity Index rose 0.6 percent, approaching a six-week high.
  • West Texas Intermediate crude fell 0.4 percent to $70.80 a barrel.
  • LME copper fell 0.6 percent to $6,082.00 a metric ton.
  • Gold rose 0.3 percent to $1,207.28 an ounce.

(CNBC) Jamie Dimon says cyber warfare is the biggest risk to the financial system

(CNBC)

  • The “biggest vulnerability” for the financial system is the threat of cyberattacks, J.P. Morgan’s Jamie Dimon said on Thursday.

Biggest vulnerability today is cyber, JPMorgan CEO says

Biggest vulnerability today is cyber, JPMorgan CEO says  

Banks may be in sound condition post-Lehman Brothers, but the financial system could crack again if hit with a devastating cyber attack, J.P. Morgan Chief Executive Jamie Dimon warned on Thursday.

“I think the biggest vulnerability is cyber, just for about everybody” he told CNBC’s Indian affiliate CNBC TV-18 on Thursday. “I think we have to focus on it, the United States government has to focus on it.”

“We have to make sure because cyber — terrorist and cyber countries — they could cause real damage. We’re already spending a lot of money and J.P. Morgan is secure but we should really worry about that,” Dimon told CNBC-TV18’s Shereen Bhan in New Delhi.

Dimon put inflation running too hot as his second biggest concern, warning the reactionary raising of interest rates from the U.S. Federal Reserve could be the cause of a “traditional” recession.

Industry experts have placed increasing importance on the threat of cyber warfare as attacks become more sophisticated.

Jamie Dimon, chief executive officer of JPMorgan Chase & Co

Eric Piermont | AFP | Getty Images
Jamie Dimon, chief executive officer of JPMorgan Chase & Co

In the past, western officials have warned of increasing suspicious cyber activity originating from countries of concern including Russia, Iran and North Korea.

Earlier this year, America’s Department of Homeland Security and Federal Bureau of Investigation, alongside the U.K.’s National Cyber Security Center, released a joint technical alert warning of the threat of malicious digital activity being carried out by the Kremlin.

Meanwhile, authorities are worried about the heightened threat of cyberattacks from Iran on the U.S. and Europe, especially as the country becomes increasingly ostracized by the U.S., which has reintroduced sanctions on Tehran.

(BBG) We’re Living in What May Be the Most Boring Bull Market Ever

(BBG)  In an age of index funds and private companies, even a boom can feel blah.

To the extent anyone on Wall Street cares—and many will tell you they don’t—records in stocks are good for one thing: advertising. Talk all you want about rates of return or piling it up for retirement, but nothing beats a headline about an all-time high for bringing customers in the door.

And in they have come. Cheered by what’s become by some measures the longest bull market on record, U.S. investors have plowed money into U.S. stock exchange-traded funds at a rate of almost $12 billion a month since the start of 2017, five times as much as seven years ago. There are signs of stress—like the recent sell-off in Asia—but so far they appear in U.S. investors’ peripheral vision. Anyone buying stock in an American company right now must be comfortable paying two or three times annual sales per share, a level of shareholder generosity that hasn’t been seen since the dying throes of the dot-com bubble.

When we tell our grandchildren about this bull market, we’ll start by describing its demise, in the crash of 2019, or 2020, or 2025. But we don’t know the end of this story yet. What will we say of the rest? That dips were bought and passive investingruled, perhaps, and that a handful of tech megacaps—most of them decades old—grew to planetary size. But if the decade is remembered for anything, it could also be as the era when equities returned close to 20 percent a year on average from the March 2009 bottom and the stock market, somehow, got boring.

Which is to say, this isn’t like the boom of the late 1990s. Rarely do companies have initial public offerings where their stocks double on the first day of trading. The tip-dispensing cabbies of the bubble era are driving Ubers now, and any money they have to invest is going into ETFs, not individual stocks.

That’s what it’s like now: a market with fewer human voices, where the hum of computers is the background music to math projects with names like smart beta and risk parity. It’s a land ruled by giants. Three, to be exact—VanguardState Street, and BlackRock, which manage 80 percent of the $2.8 trillion invested in U.S. stock ETFs. IPOs, once the life of the market party, have turned into inconveniences in a world dominated by passive funds, occasions for reordering delicately balanced indexes.

In any case, companies are staying away from public markets in droves. From an annual rate of almost 700 new listings in the last half of the 1990s, the average has fallen 75 percent. While deals are up from last year and hope is running high that the spigot will open again, such expectations have been repeatedly dashed. “What we are really witnessing is an eclipse not of public corporations, but of the public markets as the place where young successful American companies seek their funding,” says a recent study by academics Craig Doidge, Kathleen Kahle, G. Andrew Karolyi, and René Stulz. They found there were 11 public firms for every million Americans in 2016, compared with 22 in 1975.

There’s no shortage of theories on what’s causing this, spanning everything from old-fashioned accounting rules to how the internet has made it easier to raise money from private investors, but the hardships of being a public company are frequently cited as the main culprit. While retail investors may have put more of their money on autopilot, hedge funds and other big investors seeking to carve out an edge can still make the life of a chief executive officer miserable. The number of so-called activist investorsmaking demands on public companies swelled past 500 for the first time in the first half of 2018. That’s nearly double the level of five years ago, according to research consultant Activist Insight.

Few topics get the pros’ dander up like this one. If you’re looking for an anomalous era, look at the 1990s, when every 22-year-old with a Java compiler ran a half-billion-dollar company. People paid dearly for euphoria back then. If the market is more discriminating today, good for it.

Still, the market’s image has dimmed. It’s seen by many as a channel for social blight. Companies may spend a trillion dollars this year on share repurchases—money that critics say should be used to build factories and create jobs (though those investments are up, too). People sense they’re getting screwed as all the country’s economic bounty flows to the top. At times in the past 10 years, the difference between annualized returns in the S&P 500 and growth in wages has been the widest for any bull market since the Lyndon Johnson administration.

Ten years after the worst meltdown since the Great Depression, all this is preventing rehabilitation of the idea of public company stewardship. If the sweet spot for entrepreneurship is somewhere around 30 years old, today’s best and brightest is an age cohort that graduated into the financial crisis. While this group’s Gen X forebears may remember a time when markets could be fun, now they’re a drag, a cesspool of high-frequency traders and at chronic risk of tipping over. What’s the point of going public when venture firms will hand you all the money you want?

That’s the big change: access to capital that doesn’t require a public listing. Right now, venture firms have about half a trillion dollars under management, roughly equivalent to all the money raised in IPOs over the last 10 years. Companies that would’ve gone public within a few years of being created in the 1990s aren’t even thinking about it now.

Disdain for public markets reached a kind of apotheosis last month with the story of Tesla Inc. CEO Elon Musk’s dalliance with going private. Tesla sits at the fulcrum of many of these market strains. Up about 40 percent a year since 2010, it’s a relatively recent IPO upon which the market confers a princely valuation. It’s also a favorite target of short sellers, who bet on the price of a stock falling, to the point where Musk was willing to forgo all the benefits he gets from public markets and consider leaving them. Technology companies trading at 100 times next year’s earnings didn’t used to consider going private. Apparently, they do now.

There’s talk of making markets more friendly to companies. Last month the Trump administration directed securities regulators to study a longer reporting cycle for corporate results. Instead of every quarter, earnings would be disclosed every six months. Job creation and greater flexibility were touted as possible benefits. And Jay Clayton, the Trump-appointed chairman of the U.S. Securities and Exchange Commission, wants to look at loosening restrictions on who’s allowed to trade shares in companies that have yet to go public.

Either proposal can be framed as a way of making equity investments a little less boring and predictable. Yet it’s strange to think that a market that’s created more than $20 trillion in value in less than a decade should need more strategies to burnish its image. If companies are so sick of the stock market after a run like this, the mind reels to consider what they’ll think after the crash of 2019, or 2020, or 2025.

BOTTOM LINE – Even as investors are willing to pay high prices for equities, companies have been slow to go public, and the stock market has lost much of its cultural buzz.

(BBG) Crypto’s 80% Plunge Is Now Worse Than the Dot-Com Crash

(BBG) The Great Crypto Crash of 2018 looks more and more like one for the record books.

As virtual currencies plumbed new depths on Wednesday, the MVIS CryptoCompare Digital Assets 10 Index extended its collapse from a January high to 80 percent. The tumble has now surpassed the Nasdaq Composite Index’s 78 percent peak-to-trough decline after the dot-com bubble burst in 2000.

Like their predecessors during the Internet-stock boom almost two decades ago, cryptocurrency investors who bet big on a seemingly revolutionary technology are suffering a painful reality check, particularly those in many secondary tokens, so-called alt-coins.

“It just shows what a massive, speculative bubble the whole crypto thing was — as many of us at the time warned,” said Neil Wilson, chief market analyst in London for Markets.com, a foreign-exchange trading platform. “It’s a very likely a winner takes all market — Bitcoin currently most likely.”

Wednesday’s losses were led by Ether, the second-largest virtual currency. It fell 6 percent to $171.15 at 7:50 a.m. in New York, extending this month’s retreat to 40 percent. Bitcoin was little changed, while the MVIS CryptoCompare index fell 3.8 percent. The value of all virtual currencies tracked by CoinMarketCap.com sank to $187 billion, a 10-month low.

Digital Gold

The virtual-currency mania of 2017 — fueled by hopes that Bitcoin would become “digital gold” and that blockchain-powered tokens would reshape industries from finance to food — has quickly given way to concerns about excessive hype, security flaws, market manipulation, tighter regulation and slower-than-anticipated adoption by Wall Street.

Crypto bulls dismiss negative comparisons to the dot-com era by pointing to the Nasdaq Composite’s recovery to fresh highs 15 years later, and to the internet’s enormous impact on society. They also note that Bitcoin has rebounded from past crashes of similar magnitude.

But even if the optimists prove right and cryptocurrencies eventually transform the world, this year’s selloff has underscored that progress is unlikely to be smooth.

Read more: A QuickTake on cryptocurrrencies

One silver lining of the crypto slump is that ramifications for the global economy are likely to be minimal. While the market has lost more than $640 billion of value since peaking in January, that’s a far cry from the trillions erased from Nasdaq Composite stocks during the dot-com bust.

The crypto industry’s links with the traditional financial system also remain weak. That’s been a disappointment for bulls, but it’s good news for everyone else at a time when digital assets are tumbling.

“Until you can pay your taxes in cryptos, it’s just a pointless investment vehicle,” said Markets.com’s Wilson. “Some people will make loads of money but most won’t.”

(CNBC) Bitcoin falls after Goldman reportedly drops crypto trading plans

(CNBC)

  • Goldman Sachs is dropping its plan to open a trading desk for cryptocurrencies, Business Insider says, citing people familiar with the matter.
  • Bitcoin fell roughly 5 percent to below $7,000 following the report, and the rest of the top five cryptocurrencies by market cap were all down by more than 12 percent.
  • “To the extent that they represent the institutional herd, this is a negative,” Brian Kelly of BKCM says.
Goldman Sachs reportedly ditches plans to trade cryptocurrencies

Goldman Sachs reportedly ditches plans to trade cryptocurrencies  

Bitcoin slipped below $7,000 Wednesday after a report that Goldman Sachs is abandoning plans to open a trading desk for cryptocurrencies.

The world’s largest digital currency fell roughly 6 percent to a low of $6,866.06, according to data from CoinDesk.

Goldman still sees the regulatory environment as ambiguous, according to Business Insider, which cited people familiar with the matter. The Wall Street giant has been considering the launch of a new trading operation focused on bitcoin and other digital currencies for the past year. The bank’s CEO Lloyd Blankfein tweeted in October that Goldman was “still thinking about bitcoin.”

“No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold,” Blankfein said at the time.

Executives now say more steps need to be taken, most of them outside the bank’s control, before a regulated institution would be allowed to trade cryptocurrencies, according to Business Insider.

Goldman would not confirm the report to CNBC, and repeated its only public comment on the matter.

“In response to client interest in various digital products, we are exploring how best to serve them in the space. At this point, we have not reached a conclusion on the scope of our digital asset offering,” Goldman Sachs said in a statement.

Brian Kelly, founder and CEO of crypto hedge fund BKCM, said while this doesn’t have an impact on actual bitcoin trading volume short-term, the report pours cold water on long-term sentiment.

“They were not a part of the ecosystem yet, but to the extent that they represent the institutional herd, this is a negative,” Kelly said.

Bitcoin has been selling in a narrow corridor around $7,000 for the past month. Late Tuesday night, it drove up to $7,400, its highest point since the first week of August, according to data from CoinDesk.

Joe DiPasquale, CEO of cryptocurrency fund of hedge funds BitBull Capital, said that price level represented a selling trigger for some investors who had been waiting for prices to recover.

“Until there’s additional institutional investor interest to drive demand in pricing, many active managers in the space are going to continue to buy low and sell high,” DiPasquale said.

Institutional interest has been a barometer for prices, especially this summer. Rumors of the first-ever bitcoin ETF being approved drove prices over $8,000 in July. Prices later slipped back below $7,000 after the Securities and Exchange Commission rejected the bitcoin exchange-traded funds from ProShares and other crypto ETF plans by GraniteShares, Direxion and the Winklevoss brothers.

Bitcoin prices have struggled to recover to their high near $20,000 hit in December. The entire market capitalization for all cryptocurrencies is down roughly 63 percent this year, according to data from CoinMarketCap.com.

Cryptocurrencies other than bitcoin known as “alt coins” fared even worse on Wednesday. Ethereum, the second largest cryptocurrency was down 13 percent, XRP fell 11 percent, while bitcoin cash and EOS were down 13 and 16 percent respectively.

(Reuters) EMERGING MARKETS-Currency storms rage on, stocks wipeout nears $1 trillion

(Reuters)

* Biggest fall on Indonesia’s stock market in five years

* Rand tumbles to more than two-year low, bonds hit hard

* All eyes on Argentina after latest peso drubbing

* Turkish lira sags again but not the worst of the moves

LONDON, Sept 5 (Reuters) – Emerging markets storms raged fiercely on Wednesday, with South Africa’s rand at the centre of fresh currency tumult and losses since January for the world’s biggest EM stock index nearing $1 trillion again.

It was another torrid session in both Asia and fragile EMEA markets. Indonesia’s stock market had suffered its worst day in over five years as its currency pains worsened while Chinese equities fell almost 2 percent in Shanghai.

The rand then slumped to a more than 2-year low in a fresh 1.5 percent drop as traders also dumped its bonds and the most globally traded EM currency, the Mexican peso, too.

The latest peg for the spreading angst had been another 3 percent overnight drop for Argentina’s peso after news that it was trying to engineer a rapid injection of support from the International Monetary Fund.

Trade war and general economic health worries were raw too, with investors wary of the threat of fresh U.S. tariffs on another $200 billion worth of Chinese goods that could take effect after a public comment period ends on Thursday.

“Given the magnitude of the move in Argentina, I think the focus is still on that and on possible contagion,” said North Asset Management EM portfolio manager Peter Kisler.

There was no evidence of wide-spread contagion yet he added, though what global stock markets do next could be crucial.

The day’s falls across markets left MSCI’s 24-country EM stocks index down for a sixth straight day and down almost 20 percent from late January, a move that has wiped over $950 billion off its combined worth at the time.

The biggest individual move saw Indonesian stocks slump almost 5 percent at one point in the biggest fall since 2013 as the rupiah currency wobbled around its lowest levels since the Asian financial crisis in 1998.

The central bank said it had “decisively intervened” in FX and bond markets in morning trade.

“EM equities have really been underperforming developed markets. This will end sooner or later, but my feeling is that development markets will catch up to EM rather than that EM will bounce significantly.”

Financial flow numbers released by the Institute of International Finance on Tuesday had also underlined the nerves among EM investors.

Foreign money inflows to emerging markets shrank to just $2.2 billion in August from almost $14 billion in July, they showed, with net outflows from emerging debt of almost $5 billion during the month.

South Africa had said Tuesday its economy returned to recession in the second-quarter of this year with the second straight quarter of contraction, even before the worst of the emerging currency shock hit over the summer.

Elsewhere in Asia, India’s rupee had skidded further overnight to new record lows and Malaysia’s ringitt fell to its lowest in 9 months.

(BBG) Deutsche Bank Is Said to Be Removed From Euro Stoxx 50 Index

(BBG) Years of losses and strategic drift have cost Deutsche Bank AG a seat among Europe’s elite companies.

Germany’s largest lender has dropped out of the Euro Stoxx 50 index for the first time since its inception in 1998, according to documents seen by Bloomberg. The index, compiled by Deutsche Boerse AG, provides a cross-section of the biggest and most liquid stocks in the euro area.

A loss of confidence in the lender’s ability to restore profitability after a string of scandals and fines has caused a sharp decline in Deutsche Bank’s market value. It has lost money for the last three years, and a growing number of analysts are voicing doubts about Chief Executive Officer Christian Sewing’s latest turnaround plan.

Deutsche Bank’s shares peaked in 2007 and have lost some 90 percent since then. They are down over 37 percent this year alone, but were up 0.7 percent by 11.00 a.m. in Frankfurt on Tuesday.

Benchmark Factor

Inclusion in widely-tracked indexes is becoming more important for companies in a world increasingly dominated by ‘‘passive’’ investment funds. Such funds accounted for 30 percent of all Europe-focused equity investment funds at the end of 2017, according to the Bank for International Settlements. The Euro Stoxx 50 alone is tracked by exchange-traded funds with assets of more than 40 billion euros ($46 billion), data compiled by Bloomberg show. Expulsion from the index will force passive investors to sell as they realign portfolios to include the index’s new constituents.

Stocks dropping out of a benchmark index on average have underperformed the respective gauge by 5.6 percent during the month before the announcement and another 3 percent between the announcement and the actual index change, data collected by LBBW analyst Uwe Streich show. Streich said the main problem for the bank was “reputational.”

“Exiting the Euro Stoxx 50 seems to contradict the bank’s self-image as one of the euro zone’s biggest banks,” he said. “Re-entry will be very difficult.”

The index change is set to take effect on September 24.

In a statement that didn’t directly acknowledge its exclusion, Deutsche Bank said: “Management is firmly committed to executing its announced strategy to improve our bank’s profitability. We expect that this will support the valuation of Deutsche Bank by the market, and therefore increase market capitalization.”

The bank said its commitment and strategy are “unaffected by the announcement of the index provider.”

A Deutsche Boerse spokesman couldn’t immediately comment.

Germany’s second-largest listed lender, Commerzbank AG, risks suffering a similar fate by falling out of the DAX Index, which includes the country’s largest and most liquid stocks. Deutsche Boerse is slated to announce the new composition of the DAX on Wednesday after the market’s close.

The two potential index exits “tell the story of how far behind the curve German banks are,” Andreas Meyer, a portfolio manager at Hamburg-based Aramea Asset Management AG, told Bloomberg in August. “While other European banks keep growing, Germany’s banks are occupied with themselves, unaware of how the competition is attacking them on their home turf.”

(Economist) Bitcoin and other cryptocurrencies are useless

(Economist) For blockchains, the jury is still out

AN OLD saying holds that markets are ruled by either greed or fear. Greed once governed cryptocurrencies. The price of Bitcoin, the best-known, rose from about $900 in December 2016 to $19,000 a year later. Recently, fear has been in charge. Bitcoin’s price has fallen back to around $7,000; the prices of other cryptocurrencies, which followed it on the way up, have collapsed, too. No one knows where prices will go from here. Calling the bottom in a speculative mania is as foolish as calling the top. It is particularly hard with cryptocurrencies because, as our Technology Quarterly this week points out, there is no sensible way to reach any particular valuation.

It was not supposed to be this way. Bitcoin, the first and still the most popular cryptocurrency, began life as a techno-anarchist project to create an online version of cash, a way for people to transact without the possibility of interference from malicious governments or banks. A decade on, it is barely used for its intended purpose. Users must wrestle with complicated software and give up all the consumer protections they are used to. Few vendors accept it. Security is poor. Other cryptocurrencies are used even less.

With few uses to anchor their value, and little in the way of regulation, cryptocurrencies have instead become a focus for speculation. Some people have made fortunes as cryptocurrency prices have zoomed and dived; many early punters have cashed out. Others have lost money. It seems unlikely that this latest boom-bust cycle will be the last.

Economists define a currency as something that can be at once a medium of exchange, a store of value and a unit of account. Lack of adoption and loads of volatility mean that cryptocurrencies satisfy none of those criteria. That does not mean they are going to go away (though scrutiny from regulators concerned about the fraud and sharp practice that is rife in the industry may dampen excitement in future). But as things stand there is little reason to think that cryptocurrencies will remain more than an overcomplicated, untrustworthy casino.

Can blockchains—the underlying technology that powers cryptocurrencies—do better? These are best thought of as an idiosyncratic form of database, in which records are copied among all the system’s users rather than maintained by a central authority, and where entries cannot be altered once written. Proponents believe these features can help solve all sorts of problems, from streamlining bank payments and guaranteeing the provenance of medicines to securing property rights and providing unforgeable identity documents for refugees.

Nothing to lose but your blockchains

Those are big claims. Many are made by cryptocurrency speculators, who hope that stoking excitement around blockchains will boost the value of their related cryptocurrency holdings. Yet firms that deploy blockchains often end up throwing out many of the features that make them distinctive. And shuttling data continuously between users makes them slower than conventional databases.

As these limitations become more widely known, the hype is starting to cool. A few organisations, such as SWIFT, a bank-payment network, and Stripe, an online-payments firm, have abandoned blockchain projects, concluding that the costs outweigh the benefits. Most other projects are still experimental, though that does not stop wild claims. Sierra Leone, for instance, was widely reported to have conducted a “blockchain-powered” election earlier this year. It had not.

Just because blockchains have been overhyped does not mean they are useless. Their ability to bind their users into an agreed way of working may prove helpful in arenas where there is no central authority, such as international trade. But they are no panacea against the usual dangers of large technology projects: cost, complexity and overcooked expectations. Cryptocurrencies have fallen far short of their ambitious goals. Blockchain advocates have yet to prove that the underlying technology can live up to the grand claims made for it.

(Reuters) US STOCKS SNAPSHOT-Record highs for S&P, Nasdaq on U.S.-Mexico trade deal

(Reuters) – A broad-based rally pushed U.S. stocks higher on Monday, with the S&P 500 and the Nasdaq closing at record highs for the second consecutive session as investor sentiment was buoyed by a trade agreement reached between the United States and Mexico.

The Dow Jones Industrial Average rose 259.29 points, or 1.01 percent, to 26,049.64, the S&P 500 gained 22.05 points, or 0.77 percent, to 2,896.74 and the Nasdaq Composite added 71.92 points, or 0.91 percent, to 8,017.90.

(ZH) “Exuberance Is Back:” Investing In Ferraris Better Bet Than Stocks

(ZH) As US stocks hit record highs, a 1962 Ferrari 250 GTO offered by RM Sotheby’s sold in Monterey, California on Saturday for a record $48.4 million – the highest price ever fetched at auction, and 25% higher than the previous record set in 2014 when a 1963 model sold for $38.1 million (a 1963 250 GTO reportedly sold in October 2013 for $52 million in a private transaction, however).

The seller, early Microsoft employee Greg Whitten, bought the car in 2000 when similar Ferraris were selling for around $10 million, according to Bloomberg. Whitten made out like a bandit.

Photos: Sotheby’s

And while markets are hitting record highs after a decade of taxpayer-fueled economic recovery, investors with the means and wherewithal to sink their money into Ferraris instead of the S&P 500 did far better, according to the Hagerty Ferrari price index which reveals that the majority of gains occurred between 2013 and 2015.

Even with dividends reinvested, Ferraris commanded a faster increase in value than listed U.S. companies since the end of 2009. Gains on the iconic car, though, have largely petered out over the last three years and U.S. stocks have outperformed. –Bloomberg

Making the case that high-end buyers are still willing to pony up in a frothy market, Bloomberg highlights the December 2017 sale of a Leonardo Da Vinci painting for $450 million (bought by Saudi crown prince Mohammed bin Salman, as it turns out), the most ever for a piece of fine art.

Their takeaway? Watch out:

It all shows market watchers should probably be getting worried, says Shane Oliver, a Sydney-based investment strategist at AMP Capital Investors Ltd., who wrote his PhD thesis on efficiency in markets and asset bubbles. –Bloomberg

Exuberance is back in a big way,” Oliver said. “The fact that people are paying record amounts for Ferraris and paintings and share markets are at record highs causes me to be a little bit more cautious

Since most people can’t exactly afford to invest in a $48.4 million Ferrari, much less insure it and god forbid even drive it – here are some more pictures of the recent sale via RM Sotheby’s.

And just in case Ferraris aren’t your thing, there’s always a gold lambo!

(BBG) Trump Offered Italy Bond-Buying Help, Report Says

(BBG) President Donald Trump told Italian Prime Minister Giuseppe Conte the U.S. is willing to help the country by buying government bonds next year as Italy seeks to refinance its debt, Corriere della Sera reported, citing three high-level Italian officials.

Conte is said to have told officials about the offer after returning from his meeting with Trump at the White House about three weeks-ago, the newspaper said. Conte didn’t give any details on the plan or say whether it’s feasible, Corriere added.

Italy’s bonds have been roiled in recent months by the Five Star Movement-League coalition and its plans to boost spending while cutting taxes in their September budget. The 10-year yield spread over Germany could blow out to 470 basis points — the highest level since the euro area debt crisis — from around 275 currently, should the budget break the EU’s deficit limit of 3 percent. The spread was little changed Friday.

“I laughed quite a lot, when I saw the report,” said Jan von Gerich, chief strategist at Nordea Bank AB. “I am not aware of any portfolios that he has direct control over.” Trump could probably use his clout to try to persuade domestic investors or public pension funds to buy “but that would most likely amount to something nominal rather than significant amounts.”

Trump has frequently expressed his support for anti-immigration movements in Europe and political leaders who challenge the established European Union order. League Party leader Matteo Salvini and his populist ally, Luigi Di Maio of the Five Star Movement, have been demanding the EU bend its rules on deficit targets to allow them to boost spending and cut taxes. They have also tied Italy’s EU contributions to the immigration issue, a stand that has also roiled Italian bonds.

Italy’s deficit this year is forecast to be 1.6 percent of economic output, well within the euro zone’s limit of 3 percent.

Salvini separately told Corriere that he sees signs of an economic attack against the country. He said Conte did the right thing by meeting Trump and praised the finance minister’s plan to travel to China to seek investors. “We have to be open to every scenario,” he said.

(BBG) Elon Musk Hires Morgan Stanley to Help Take Tesla Private

(BBG) Elon Musk has hired Morgan Stanley to assist him in his potential bid to take Tesla Inc. private, according to a person familiar with the matter.

Morgan Stanley is advising Musk, not the company, its board or a special board committee formed to to evaluate a potential take-private proposal, said the person, who asked not to be identified because the matter is private. The bank suspended coverage of the stock on Tuesday without explanation.

Musk, 47, shocked the financial world Aug. 7 when the chief executive officer tweeted that he wanted to take the electric-car maker private and had “funding secured.” In a blog post, he later indicated that no such financing deal had been closed. The tweet has drawn a subpoena from the Securities and Exchange Commission, according to a person familiar with the matter.

By adding Morgan Stanley to Goldman Sachs Group Inc., Musk has tied up the top two merger advisers in the U.S. this year. Both banks have been lead underwriters on most of the company’s stock and convertible debt offerings. Morgan Stanley is among Tesla’s 20 largest shareholders, with a 0.6 percent stake. Its Tesla analyst, Adam Jonas, has historically been one of the more bullish researchers of the stock.

If they succeed in taking Tesla private, the equity will become much more challenging for investors to buy or sell, said Jim Osman, CEO of The Edge Group, which analyzes special situations.

“The hiring of Morgan Stanley and GS is unfortunate for investors wanting to take a long-term view of holding the stock,” he said. “Many funds and investors won’t be able to participate should the stock go private. Whilst we are a fan of Musk, GS and MS will have to think of something very creative to let the investors share in any future value creation.”

Read more: SEC often outgunned by tech titans

The Palo Alto, California-based automaker didn’t immediately respond to a request for comment. A spokesman for Morgan Stanley declined to comment.

Tesla shares slipped 0.5 percent to close at $320.10 in New York trading. After a roller-coaster month in which they soared to almost $380 before falling back below $300, they are up 2.8 percent this year, best among U.S. automakers.

Morgan Stanley and Goldman Sachs have longstanding ties to Musk, who is also CEO of Space Exploration Technologies Corp. as well as Tesla’s chairman and largest shareholder. As of February 2017, Musk owed Morgan Stanley $344.4 million in personal loans backed by his Tesla shares.

Musk tweeted last Monday that he would be advised by Goldman Sachs and by private-equity firm Silver Lake. But he hadn’t formally hired Goldman yet, people familiar with the matter said on Tuesday. By the next day, Goldman announced that it suspending coverage of the stock because it’s acting as a financial adviser “in connection with a matter that is fundamental” to the company’s value.

(CNBC) S&P 500 touches all-time high, ties record for longest bull market

(CNBC)

S&P 500 touches highest level since January 29

S&P 500 touches highest level since January 29 

The S&P 500 hit an all-time high on Tuesday and tied the record for the longest bull market ever as investors bet that the strengthening economy and booming corporate profits seen under President Donald Trump’s first two years would continue, despite recent trade battles.

The broad index rose 0.2 percent and reached an intraday record of 2,873.23, led by consumer discretionary and industrial. The S&P 500 surpassed 2,872.87, a high reached on Jan. 26. The index failed to post a record close, however, ending the session at 2,862.96.

The bull market turns 3,453 days old on Wednesday, which would make it the longest on record by most definitions. On Tuesday, it tied the one that ran from October 1990 to March 2000. The S&P 500 has risen more than 300 percent since hitting its financial crisis bottom on March 9, 2009. For the year, the index is up more than 7 percent.

“Nobody believed in this bull market and they still don’t,” said Marc Chaikin, CEO of Chaikin Analytics. Lots of people “were left so scarred by the crisis they didn’t get on board.”

Chaikin also said the bull run can continue: “We have an economy that is not overheated and rates are still low. Couple that with the fact that people keep finding reasons to hate this market, that is a perfect storm for more gains.”

The Dow Jones Industrial Average gained 63.6 points to close at 25,822.29, just 3 percent below a record high, with Intel and Goldman Sachs leading the index. The Dow Transports hit its first intraday record high since Jan. 16.

The Nasdaq Composite outperformed, rising 0.5 percent to 7,859.17 as Micron and Netflix rose. The Nasdaq also closed less than 1 percent from reaching an all-time high. The Russell 2000, which is made up of small cap stocks, reached a record high.

Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE) ahead of the opening bell.

Drew Angerer | Getty Images News | Getty Images
Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE) ahead of the opening bell.

Equities have been boosted by strong corporate earnings and solid economic growth this and last year. Since the start of 2017, the S&P 500 has risen more than 25 percent.

Quarterly earnings have grown at least 10 percent in five of the past six quarters, according to FactSet. This year, quarterly profits have risen at least 20 percent in the first two quarters. Meanwhile, the U.S. economy expanded by 4.1 percent in the first quarter, its best pace since 2014.

The strong corporate earnings, coupled with the solid economic growth, has been enough to partially offset worries over global trade, particularly as U.S.-China relations become more tenuous.

Trump is reportedly preparing to add tariffs on nearly half of Chinese imports this week. The new round of tariffs would come despite the expectation of restarted negotiations between the two largest economies of the world.

“The three Ts, Trump, tariffs and trade, are sort of a wet blanket on the embers of growth, but … the market can still go higher,” said Greg Luken, CEO of Luken Investment Analytics. “Bull markets don’t die of old age; they die of euphoria and we’re nowhere near euphoria.”

Quincy Krosby, chief market strategist at Prudential Financial, told CNBC that the market wants to go up. She added, however: “You still have hovering over the markets issues that could cause fundamental change – and above all else it is the Fed.”

Trump went after the Federal Reserve once again, saying Monday he disagrees with the Fed’s current tightening path for monetary policy. The Fed has already raised rates twice this year and is expected to raise rates two more times. Trump’s comments, which weighed on interest rates on Monday, come shortly ahead of Fed Chair Jerome Powell’s speech at Jackson Hole on Friday.

The dollar reached intraday lows on Monday after Trump’s comments, continuing to fall 0.7 percent on Tuesday.

“If the inflation data dictates higher rates and the Fed instead buckles to political pressure and doesn’t respond, long term rates will tighten for them,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a note. Just “ask the Turkish central bank.”

J.P. Morgan is about to flip the switch ona new digital investing service, taking a bite out of discount online brokerages. The bank’s new service “You Invest” will feature a bundle of discounted trading, an online portfolio-building tool and no-fee access to J.P. Morgan’s stock research.

After CNBC reported the bank’s new service, shares of Charles Schwab fell 2.4 percent, TD Ameritrade fell 7.1 percent, E-Tradefell 4.4 percent and Interactive Brokers fell 2.5 percent.

Prudential’s Krosby added that “this is a low volume period in the market,” saying the months of August and September “tend to be choppy” due to stocks being “jostled very quickly by a single headline.” With “so many threads” possibly moving stocks – whether it is the Fed, trade, the bull run or banks – Krosby says the market “is hedging itself.” Traders are making defensive moves, in Krosby’s view, as she sees a shift from technology stocks into more durable areas like health care, pharmaceuticals, telecom and utilities.

(BMW) How Does a BMW Sports Sedan Double in Value Over 16 Years?

(BMW) A 2002 BMW M5 is coming to auction with a high estimate of $180,000. Yes, a sedan from the early 2000s.

The Aug. 24 Gooding & Co. car auction at Pebble Beach, Calif., has vintage Aston Martins, antique Bugattis, and supercharged Mercedes. It also has a BMW sports sedan from 2002 that looks suspiciously like a car your neighbor bought new and is still driving 16 years later.

The 2002 BMW E39 M5 sedan, which had an original MSRP of about $72,000 to $75,000, carries an auction estimate of $140,000 to $180,000, or about 1,100 percent higher than the current Kelley Blue Book valuation, which tops out at $15,630.

The reason that this car is valuable, and the ways in which that value is determined, says as much about how the collectible car market is structured as it does about the inherent qualities of the car itself, says David Brynan, a senior specialist at Gooding & Co. “The collectible market is driven by insiders, and they assign value to things,” he explains.

“Right now, there are a lot of people who collect BMWs, and for them, this [2002 M5] is the holy grail.” (A review of the 2000 model in Motor Trend magazine called it “the greatest super-sedan ever produced.”)

This particular BMW was purchased by a man in Rancho Santa Fe, Calif., who bought one M5 to drive and a second to preserve. It’s barely been driven at all: The odometer has just 437 miles on it.

“For BMWs, the criteria is really how original they are, because there are plenty of them out there that were driven and used as regular cars,” Brynan says. “It’s basically a new car.” It still has its pre-delivery inspection stickers and its new car check-in sheet; even the license plate bracket is still in its wrapper.

Not All Cars Are Created Equal

Of course, not all cars are created equal; a like-new 1996 Dodge Neon would not command a similarly dazzling six-figure price.

This BMW’s newness, in contrast, carries such cachet because in the last three years its cult status has risen dramatically.

“There are very few cars that are built from new and intended to be collectibles,” Brynan explains. Like the BMW M5, most cars’ status is developed over time. “They’re introduced, they depreciate, and then people realize that they’re special, and they slowly begin to appreciate,” he says.

There aren’t precise numbers as to how many of the 2002 E39 M5s were produced, but the consensus is that there were just under 10,000 sold in North America during its 1999-2003 production run.

This particular model’s popularity began to surge as people began to realize that it represents the last “fully mechanized experience,” says Eric Keller, founder and owner of the Enthusiast Auto Group, a Cincinnati-based dealer and shop that specializes in BMWs. There’s minimal computer interference in the driving experience; as opposed to newer models whose horsepower, steering, and stability are modulated by an onboard computer, the E39 M5s were much more reliant on the driver’s control. It’s even the last M5 built with a dip stick. By 2006, the V10-powered M5s’ oil level was checked electronically.

“I’ve sold about 400 of these in the last 15 years, and all have been the 2002 or 2003 model year,” Keller continues. “Those two years are the most desirable.” (In 2006, BMW introduced the E39’s replacement, the E60 M5.)

Keller echoes the sentiment that the car’s newness is the primary driver of its value, but adds some qualifiers: There’s also its original finishes, which on one level are an asset (“You don’t want a piece of artwork that’s been touched up by three people after the original artist”), but which, because of the particular popularity of the silver-on-black combination, render the car less valuable than a different color scheme would command.

“Let’s say this car, for conversation’s sake, sells for $150,000,” Keller says. “If it was alpine white on black, it would sell for $220,000; if it was blue on caramel, it would sell for $200,000; if it was black on black, it would sell for $160,000.”

Making Up for Lost Time

So: The BMW is one of the last examples of its type of driving experience—and a spectacularly preserved example at that—but that still doesn’t fully explain its relatively newfound status as a cult object.

For that, Keller says, you have to consider the car’s target demographic. “The era of car up to the mid-2000s has been booming over the last two or three years,” he says, “because all the guys buying these cars either had one back then, or really wanted one back then and couldn’t afford it.”

Keller says that nearly 80 percent of the people who buy E39 M5s from him owned one, used it as a daily car, and then sold it. Since then “they’ve owned a new M5, or a [Mercedes] AMG product, or a Tesla, and they find themselves measuring their driving experience with an analog one,” he says. The comparison, Keller continues, is rarely favorable, and so they find themselves trying to buy back a 2002 or 2003 model.

For those who vainly coveted one of the cars in their teens and 20s, “now they have the disposable income and can finally buy it,” he says. “Most of the people buying those are between 42 and 60 years old.”

Establishing a Market

For all that, the market for the 2002 and 2003 M5s has a long way to go. The Gooding & Co. BMW is, by very dint of the fact that it’s untouched, a clear market outlier.

Including it in the auction could be perceived as a clear attempt by the auction house to raise the model’s perceived value. “It’s not something, let’s say, that we’re intentionally doing, and it can be certainly be seen that way,” Brynan says. “I think it will ultimately establish that market for what this cars sells for.”

Still, he cautions, unlike a particularly coveted vintage car that people would take in any condition, “we’re not going to go out and consign an average, run-of-the-mill version of it,” he says.

Keller says that he assumes the car will sell, at minimum, for $100,000 to $120,000. “I’d be surprised if it does less than that, and frankly, I don’t think it will, because I’ll be in the room,” he says. “I’d be bidding to buy it.”

The car represents a shift in the way people assess car values, Brynan says. “It’s very different from the 1950s and 1960s [vintages], where you’d buy a low-mileage car because you knew it hadn’t been used much, so it had life in it,” he says. “But now, it’s sort of like a contest to see how low a mileage car you can have.”

That change, he says, is the sign of a generational shift.

“It’s gone in a direction plenty of old-school car collectors don’t totally understand,” he says. “But there’s a lot of new people who are into it. It’s a big difference in priority.”

(BBG) Bitcoin Dips Below $6,000 as Almost Every Cryptocurrency Drops

(BBG) Bitcoin touched below $6,000 and dozens of smaller digital tokens retreated as this month’s sell-off in cryptocurrencies showed few signs of letting up.

The largest digital currency fell as much as 6.2 percent to $5,887, the lowest level since June, before paring some of the drop, according to Bloomberg composite pricing. Ether sank as much as 13 percent, while all but one of the 100 biggest cryptocurrencies tracked by Coinmarketcap.com recorded declines over the past 24 hours.

The total market capitalization of virtual currencies dropped to $193 billion. That’s down from a peak of about $835 billion in January.

“Most cryptocurrencies have been overvalued for a very long time,” said Samson Mow, chief strategy officer at blockchain developer Blockstream Corp. “It’s hard to pin this move on any particular factor, but it feels like the opposite of last year when money piled in as people felt FOMO. Now it’s piling out as they sense panic.”

While cryptocurrencies rallied in July on hopes that a Bitcoin-backed exchange-traded fund would attract new investors, U.S. regulators have yet to sign off on multiple proposals for such a product. The letdown has coincided with growing concern that entrepreneurs who raised crypto-denominated funds via initial coin offerings are now cashing out of holdings such as Ether, the token for the Ethereum blockchain that is a popular platform for crypto projects.

“The big story in the market today is the huge weakness in Ethereum,” Timothy Tam, chief executive officer of CoinFi, a cryptocurrency data analysis company, said in a phone interview. “Bitcoin has held up relatively well versus Ethereum. It’s still quite weak versus the U.S. dollar.”

At the height of Ether’s rally last year, the digital coin comprised 32 percent of cryptocurrency market capitalization, coming within striking distance of Bitcoin’s 39 percent. Ether now makes up about 14 percent, while Bitcoin accounts for 54 percent after falling less quickly than its smaller peers, according to Coinmarketcap.com.

“ICOs that have raised a lot of money are really feeling a lot of pain” as their crypto holdings lose value, Tam said.

Ether has tumbled about 40 percent this month, while Bitcoin has dropped about 26 percent.

It’s unlikely that recent global market turbulence, fueled by Turkey’s currency crisis, is impacting cryptocurrencies, said James Quinn, head of markets at Kenetic, a blockchain company with investment and advisory businesses.

“Correlations historically have been extremely low between cryptocurrencies and other asset classes,” he said in a phone interview from Hong Kong. “Which is one of the reasons why there is interest in this space and why people want to make an allocation in this space.”

Still, anyone expecting Bitcoin to provide a haven from turbulence in global markets will have been disappointed. The cryptocurrency’s slide against the dollar this month is almost as big as the Turkish lira’s 25 percent slump.

(Economist) Why the largest group of American corporate bonds is a notch above junk

(Economist) We’re watching a triple-B movie

BY HIS own account Christopher Hitchens, an author who died in 2011, was a poor student. He left Oxford with a third-class degree. This was not for want of ability. Hitchens would become a prolific essayist and fearsome debater. Rather, it was a choice. His tutors warned him about neglecting his studies. But he preferred to divide his time between his social life, political protests, books (other than the prescribed ones) and lively debates with other thinkers.

As Hitchens’s counterexample demonstrates, it is possible to regret the opportunities missed while striving for top grades. It is a lesson that many of America’s biggest companies have grasped. At one time, the sort of company that could tap the bond market for capital would be given an A-grade as a matter of course. These days the typical corporate-bond issuer has a credit-rating of BBB, only a notch above a junk rating (see chart).

That might seem to imply that business has become less efficient or lucrative. Yet profits have never been higher as a share of GDP. In fact, for much of corporate America a BBB rating is the consequence of a financial strategy. Many established firms have chosen to load up on debt to buy back their own shares in order to boost shareholder returns or, more recently, to pay for mergers.

To understand why, it helps to start with a bit of textbook finance that says share buy-backs are pointless. According to a theory proposed in 1958 by Franco Modigliani and Merton Miller, a firm’s capital structure—its mix of equity and debt finance—has no effect on its value. Debt has first call on profits; shareholders get what is left over. Debt is thus less risky for investors and a cheaper form of finance for companies. The more debt a firm has, the more volatile are its equity returns. Investors dislike volatility. So a firm’s share price should in principle decline as it takes on more debt, leaving its overall financial value (the sum of its debt and equity) unchanged.

Grade deflation

The theory simplifies reality to illustrate a truth—a firm’s worth is ultimately its cashflows. In the real world, there are benefits to using debt. A big one is that interest costs are tax-deductible. This tax shield is in effect a subsidy to debt finance. Debt also has costs. A high interest burden can lead to missed opportunities or a damaging bankruptcy. Each firm has to make a trade-off between the costs and benefits. Capital-goods firms may plump for low debts and a solid credit rating to show they will be around to honour their warranties. Telecom companies, which have more stable earnings, are more likely to gear up.

As the corporate-bond market has expanded, new categories of firms have been able to take advantage of cheap debt finance. The taboo on issuing lower-grade debt became weaker in the 1980s after “corporate raiders” used junk bonds to finance leveraged buy-outs of listed companies. Since the financial crisis corporate-debt issuance has accelerated, says Adam Richmond, an analyst at Morgan Stanley. Low yields on government bonds as a result of quantitative easing have drawn investors into riskier sorts of paper. Companies have seized on this demand as a further subsidy to debt. The number of firms issuing bonds has increased by two-thirds in the past decade, according to PIMCO, a fund manager.

No doubt some firms will discover they have issued too much. It is of some comfort that the ratio of corporate debt to GDP is barely higher than its previous cyclical peaks, in 2000 and 2008. Bond finance has in part displaced bank finance. But if banks are less exposed, investors are more so. For now, strong GDP growth is a balm. A recent report by S&P Global, a credit-rating agency, plays down the risk of a rash of downgrades to junk. Firms might simply choose to buy fewer of their shares back to preserve their BBB rating.

Even so, a recession will come sooner or later. The profits of leveraged firms will be damaged, which will in turn hurt confidence. Downgrades and defaults will follow, as they always do. The process will be more drawn-out than usual if, as seems likely, there proves to be a shortage of buyers for a fresh supply of junk.

For now the market is stable. But corporate credit is an asset class to be wary of in a maturing economic cycle. In good times there seems little prospect that buyers might dry up. But they will. The best time to buy corporate bonds is early in an economic recovery, when downgrades and defaults are still under way. There are likely to be more bargains than usual next time. If companies no longer need to strive for an A-grade, all the more reason for investors to do their homework.

(Reuters) Rouble slides towards 2-year low on U.S. sanctions ‘bill from hell’

(Reuters)

MOSCOW, Aug 8 (Reuters) – The rouble slid towards its lowest level in nearly two years on Wednesday and investors sold off bonds and stocks after the Kommersant daily published what it said was the full text of a draft U.S. law detailing possible penalties against Russia.

Republican and Democratic U.S. senators introduced the draft legislation last week, the latest effort by lawmakers to punish Moscow for its alleged interference in U.S. elections and its activities in Syria and Ukraine.

Russian market reaction was muted at the time, however, and jitters only set in on Wednesday after Kommersant’s publication of the sanctions which cited potential curbs on the operations of several state-owned Russian banks in the United States and restrictions on holding Russian sovereign debt.

The rouble weakened beyond the psychological thresholds of 65 versus the dollar and 75 against the euro, briefly touching levels against the dollar last seen in April and within a few kopecks of a low last seen in November 2016.

“The rouble is hit by the sanctions theme. Even though there will be no real action until September, the signal is already there,” a dealer at a major Western bank in Moscow said.

As of 1255 GMT, the rouble was 2.2 percent weaker at 64.90 against the dollar. Versus the euro, the rouble was 2.1 percent weaker at 75.18.

Russia’s five-year credit default swaps (CDS), which reflect the cost of insuring Russian debt against default, rose to their late June high of 145, up from 133-134 earlier this week.

“There are a lot of geopolitical concerns investors have and that’s being reflected in a higher risk premium on Russian assets,” said Phoenix Kalen, director of emerging markets strategy, at Societe Generale in London.

“The probabilities are such that this bill is still relatively unlikely to become law and with that assumption in mind then I wouldn’t expect the rouble to sell off significantly from here,” Kalen added.

The U.S. measure’s prospects are unclear. It would have to pass both the Senate and House of Representatives and be signed into law by President Donald Trump.

“But even so, the document clearly shows the determination to go further than before in order to cause damage for Russia,” Barclays said in a note.

The jitters also sparked a sell-off in Russian treasury bonds, known as OFZs, sending their prices lower and lifting their yields. Yields in 10-year OFZ bonds jumped to 8.12 percent, their highest since mid-March 2017.

“The sanctions story will be one that resurfaces from time to time, especially with Republicans trying to figure out how to position themselves ahead of the mid-term elections in contrast to President Trump’s position, so it is likely that we will see these bursts of pressure on Russian assets,” said Societe Generale’s Kalen.

STOCKS BATTERED

Shares in Russia’s largest lender Sberbank dropped to 192.50 roubles on the Kommersant report, losing more than 4 percent on the day and hovering at their lowest since mid-April.

Shares in Russia’s second-largest bank VTB were also down – by 2.1 percent – underperforming the benchmark stock index MOEX which declined 0.9 percent to 2,290.5.

Russian business conglomerate Sistema saw its shares tumble by 3.6 percent, hit by the threat of targeted sanctions after Republican Representative Ileana Ros-Lehtinen said on her Twitter account on Tuesday that an investigation was underway into Sistema’s chairman Vladimir Yevtushenkov for “operations in illegally annexed Crimea.”

Sistema’s spokesman said the company had no investments in Crimea, the Black Sea peninsula that Russia annexed from Ukraine in 2014.

(BBG) World’s Priciest Precious Metal Set to Blossom as Shortage Looms

(BBG) The world’s most expensive precious metal is set to get even pricier as a mining retreat in South Africa threatens a supply shortage.

Rhodium — a byproduct of platinum mining that’s used in the chemical sector and by the auto industry in catalytic converters — has more than trebled in value since the start of 2017. The silver-white element, named after the Greek word for rose, could go even higher as output is squeezed by the woes facing South Africa’s platinum industry.

With no primary mines for rhodium, supply will be cut as Impala Platinum Holdings Ltd. and Lonmin Plc shut unprofitable shafts to weather the lower platinum prices brought by the switch from diesel cars. Stable demand and dwindling supply in a rhodium market dominated by a small number of active players is a recipe for another price explosion, said Gerry Dawson, a consultant who has traded precious metals for two decades since working at refiner Heraeus Metals New York LLC.

As platinum miners curb production, rhodium output will drop, causing prices to rally further, Dawson said. That could rekindle visions of the market a decade ago, when rhodium topped $10,000 an ounce after five years of a supply deficit were compounded by South African power shortages that curbed mine output.

“There’s a history of big moves here,” Dawson said.

Rhodium, which can resist high temperatures and outperforms other platinum-group metals in removing nitrogen oxides from car exhausts, recently traded at a seven-year high of $2,350 an ounce. It could go to $3,000 an ounce in the near term, said Nikos Kavalis, a founding partner of consultancy Metals Focus.

Niche Market

“Rhodium is a very small market, once its fundamentals change, there’s limited above ground stocks to meet demand,” Kavalis said by phone. “The fact that the price once rocketed above $10,000 remains in the back of investors’ minds.”

Johnson Matthey Plc expects last year’s small rhodium deficit to become a surplus of 68,000 ounces in 2018. Beyond this year, the outlook for the metal looks fairly strong with auto-industry demand particularly supportive, the refiner said.

Still, getting exposure to one of the rarest precious metals isn’t easy. While there are a few exchange-traded funds backed by rhodium, they are small and thinly traded. That leaves retail investors with a limited choice of bars or coins from a handful of dealers, or getting minor exposure to the metal through the shares of South Africa’s platinum miners.

Rhodium has held up better than platinum because it’s primarily used in gasoline cars. While it should continue to outperform its sister metals, according to Simona Gambarini, a London-based economist at Capital Economics Ltd., she is less bullish on the price outlook.

Gambarini expects slower economic growth in China and weaker sales in other core markets to lower the price of the metal to $1,950 an ounce by the end of the year.