In the Search for Yield Leveraged Loans Make a Comeback

“(MoneyWatch) Whenever interest rates fall to low levels, investors who are normally risk averse when it comes to their bond purchases begin trading safety for yield. Among the popular choices are junk bonds, preferred stocks, high-dividend stocks, REITs and MLPs. Now, we’re even seeing resurgence in what are called leveraged loans. Apparently, investors haven’t learned their lessons from the financial crisis.

 

These loans are floating rate notes, which provide higher yields (currently about 5.2 percent) and don’t have the same term risk that junk bonds have because their yields move together with interest rates. However, they entail significant price risk because they’re backed by bank loans of lower quality. Banks make these loans, which are often used to finance leveraged buyouts, anticipating that they can get them off their balance sheets by selling them to investors….”

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“The miscalculation by the troika in Cyprus has finally put the last nail in the medium-term short gold investment thesis.

For just over 18 months, the central banks have coordinated, very effectively, to build an edifice of confidence in the global financial system that would allow the idea that quantitative easing would no longer be needed to finish the job of cleaning up the mess post-Lehman Brothers. The troika, and most explicitly, the IMF, overplayed their hand last weekend with their demands for explicit looting of savers in order to go forward with a rescue plan for Cyprus’s over-leveraged banking system. Read Minyanville’s “Cyprus: An Inconvenient Truth (or, How Not to Manage a Debt Crisis).”

This act and the subsequent chaos it has spawned has now firmly put in place a bottom in the price of goldGLD +0.18%  . Regardless of the final outcome in Cyprus — exit from the euro zone, acceptance of the bail-in, civil unrest, etc. — the net effect will be a steady loss of confidence in the banking system, capital flight from both the U.S. and the EU and greater movement into gold as a vehicle for savings and wealth preservation.

While I would have preferred a close above $1620 per ounce this week, closing above $1600 as we approach the end of the month is strength enough given the current sentiment.

At this point both the mining sector and the junior exploration sector are trading at or near discounts to the assets they have in the ground or will prove to have with just a modicum of investment capital. Between rising energy costs, poor management of resources by the major miners, and a moribund underlying commodity price, there has simply been no demand for these high-risk — and up until the events in Cyprus, low-return — stocks. Read Minyanville’s “Facebook Vs. LinkedIn: Why Both Are Facing a Sticky Question.”

That, in my opinion, is about to change and the opportunity is ripe for a value investor to make a perfectly timed entry into a market that has been, frankly, beaten with an ugly stick.

Here are a couple of potential candidates for you to consider, one mid-level producer and an exploration play that I find intriguing…..”

 

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“Long stuck in fourth place, T-Mobile made itself a relevant mobile player in the United States again on Tuesday, with plans to rapidly roll out its 4G LTE network and offer bargain plans with no contracts to entice potential customers.

Oh, and it now offers that quaint little device called the iPhone 5.

Though T-Mobile has only activated the 4G network in Baltimore, Houston, Kansas City, Las Vegas, Phoenix, San Jose, and Washington D.C. for now, the company plans to gradually expand coverage to 200 million people by the end of the year.

T-Mobile’s rollout will run on its existing HSPA+ network, which has theoretical data download speeds that are faster than the LTE networks of AT&T andVerizon (VZ, Fortune 500).

T-Mobile also claims it has 50 percent more bandwidth than AT&T (T, Fortune 500), which in a perfect world would mean that it could handle more people and suffer less of a performance hit. All of this, mind you, is apparently without the added spectrum it is going to get from its pending acquisition of MetroPCS.

But technical touts aside, T-Mobile is pairing this rollout with an aggressive pricing plan for consumers which tosses contracts to the side but requires consumers to pay full price for their phone.

Phones can be paid in full up front. Eligible consumers can also put $99 down, and pay $20 a month over two years. Once that phone is fully paid for, T-Mobile will unlock the phone with no questions asked, allowing users to select any carrier they wish…..”

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“Hold on to your stock portfolio. TrimTabs founder Charles Biderman predicts seasonal factors will spark big market swings in the coming weeks, and the result could be particularly tempestuous if corporate buying does not continue at high levels.

Biderman said conditions will be unsettled despite two underlying bullish influences.

The first bullish factor is related to the Federal Reserve’s policy of quantitative easing. “The Fed is pumping up stocks by creating $4 billion of fake money every day,” he explained.

The second bullish factor is ongoing corporate stock buybacks. “Companies are shrinking the float of shares by about $2 billion every day,” he noted.

Nevertheless, Biderman expects a “very volatile stock market through April,” prompted by the start of a new fiscal quarter on April 1 and the federal tax deadline of April 15.

“For some reason many investors, particularly institutional types, like to invest the first week of a year, quarter and month,” he said.

According to Biderman, the immediate stock market direction will be down — he believes many portfolio manager will be taking profits this week from a profitable first quarter that ends March 31.

But then stocks will go up again for the first week of April as the aforementioned new quarter and new month buyers emerge, only to be followed by fresh downward momentum again that should continue into the federal tax deadline, he predicted.

“My best guess is that billions of dollars of stock will be sold between now and April 15 to pay taxes,” Biderman said “And when the market has been as strong as this one, up 20 percent since the start of 2012, lots of taxpayers are waiting until the last moment to sell.” …”

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“(Reuters) – As Boeing works to regain permission for its 787 Dreamliner to resume flights, the company faces what could be a costly new challenge: a temporary ban on some of the long-distance, trans-ocean journeys that the jet was intended to fly.

Aviation experts and government officials say the Federal Aviation Administration may shorten the permitted flying time of the 787 on certain routes when it approves a revamped battery system. The plane was grounded worldwide two months ago after lithium-ion batteries overheated on two separate aircraft.

Losing extended operations, or ETOPS, would deal a blow to Boeing and its airline customers by limiting use of the fuel-saving jet, designed to lower costs on long-distance routes that don’t require the capacity of the larger Boeing 777. Such a loss could even lead to cancellation of some routes.

“If the FAA approves (only) over-land operations it would be a very damaging blow to the 787 program,” said Scott Hamilton, an aviation analyst with Leeham Co in Seattle.

“Depending on how long that restriction remains in place, it would completely undermine the business case for the airplane, which was to be able to do these long, thin intercontinental routes” over water, he said.

Grounding the 787 already has cost Boeing an estimated $450 million in lost income and compensation payments to airlines. Further restrictions on the 787’s range could send the airlines’ claims – and Boeing’s costs – higher…..”

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European boards

EUR/USD

Italy re-emerges as a new worry

[youtube://http://www.youtube.com/watch?v=otdHbA4GlSI 450 300]

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SOURCE
NYSE

NASDAQ

AMEX

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AOL, BBBY, CLF, GIS, GOOG, MNKD, ORCL, PCG, SYKE, VPHM, VMW, ZIOP,

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In Play ,

On the Wires 

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“Housing data released Tuesday was mixed, showing home prices jumped while new home sales dropped, prompting renowned economist Robert Shiller to call the housing recovery positive in the short-term, but not without many headwinds. There might even be a bubble, he said.

“One thing that makes it very hard to forecast home prices right now is that we’re living in a totally artificial real estate economy,” said Shiller, co-creator of the Standard & Poor’s/Case-Shiller Index, a widely followed measure of housing prices.

Shiller pointed to the Federal Reserve, which last week reaffirmed its policies on bond purchases and record-low interest rates. In September, the Fed launched a third round of quantitative easing (QE), in which it has bought $40 billion of mortgage-backed securities per month, primarily in mortgage-backed bonds.

Meanwhile, Fannie Mae and Freddie Mac, the two largest U.S. home funding sources, remain in government conservatorship as Congress looks for ways to raise new tax revenues, Shiller noted.

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“(Reuters) – Applications for home mortgages rebounded last week as interest rates pulled back for the first time in three weeks, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 7.7 percent in the week ended March 22.

The index has declined for six of the past nine weeks as rates have pulled higher. Still, interest rates remain low on a historical basis, kept down by the Federal Reserve’s efforts to boost the economy by buying bonds and mortgage-backed securities.

The seasonally adjusted index of refinancing applications jumped 8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, gained 6.7 percent….”

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“March has seen a fairly brisk Exodus from municipal bonds in what could be the first signs that investors are beginning to worry about fixed income.

The popular government finance instruments have seen fund outflows of more than $500 million—just a fraction of the $608 billion asset class but a move that caught some bond pros by surprise. The most recent week saw $261 million come out of the market, according to Thomson Reuters.

While munis often see investors take profits in the springtime as they raise cash to pay taxes, the selling this year came a bit sooner than usual and appeared at least in part unrelated to the normal ebb and flow of fixed income trading.

“Some observers have attributed the sharp outflows over the past few weeks to seasonal patterns … but we disagree,” George Friedlander, Citigroup’s chief municipal strategist, said in a note to clients. “There is a real risk the negative pull of seasonality is yet to be felt.”

If the trend continues for munis, it could provide the first signal that the much-anticipated “Great Rotation” of money from bonds into equities has begun. Stock market bulls cite the prospects for the paradigm shift in investor behavior for their belief the equity market will keep rising….”

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“Apparently the unanimous vote in Washington is not extinct.

On Saturday, as part of a marathon voting session in the Senate to pass the country’s first budget in four years, a measure was also approved 99-0 that sought to “end subsidies” based on size for the nation’s six largest financial institutions.

In essence, the Senate is saying banks should sustain an extra cost— not a lower cost—for being big….”

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“Wells Fargo on Tuesday said its online banking website was experiencing an unusually high volume of traffic that it believes stems from a denial-of-service cyber attack.

“The vast majority of customers are not impacted and customer information remains safe,” said Bridget Braxton, a spokeswoman for the fourth-largest U.S. bank by assets. Customers who have trouble should try logging in again because the disruption is usually intermittent, she said….”

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“Tax revenues of U.S. state and local governments grew for the 13th quarter in a row at the end of 2012, rising 2.7 percent from the fourth quarter of 2011, according to Census data released on Tuesday.

Tax revenue totaled $399.7 billion, compared with $389.1 billion in the fourth quarter of 2011. For states alone, the increase was sharper. Their total tax revenue grew 4.9 percent to $193.9 billion in the final quarter of 2012.

The fourth-quarter growth, however, could indicate that revenue will drop or only increase mildly in the first quarter of 2013.

Because tax cuts passed under former President George W. Bush were set to expire at the end of 2012, many taxpayers sold off investments or made other financial moves in the waning days of the year to avoid potentially steep tax bills in 2013. The burst of income affected states, as individual income taxes provide more than one-third of total state tax revenue.

State and local individual income tax revenue shot up 9.4 percent in the fourth quarter from the final quarter of 2011 to$75.7 billion, according to the Census.

Of the states that levy individual income taxes, California brought in the highest amount, $14.28 billion, followed by New York’s $8.42 billion, and Illinois with $3.43 billion….”

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“WASHINGTON (AP) — A new study finds that insurance companies will have to pay out an average of 32 percent more formedical claims under President Barack Obama’s health careoverhaul.

What does that mean for you?

It could increase premiums for at least some Americans.

If you are uninsured, or you buy your policy directly from an insurance company, you should pay attention.

But if you have an employer plan, like most workers and their families, odds are you don’t have much to worry about.

The estimates from the Society of Actuaries could turn into a political headache for the Obama administration at a time when much of the country remains skeptical of the Affordable Care Act.

The administration is questioning the study, saying it doesn’t give a full picture — and costs will go down.

Actuaries are financial risk professionals who conduct long-range cost estimates for pension plans, insurance companies and government programs.

The study says claims costs will go up largely because sicker people will join the insurance pool. That’s because the law forbids insurers from turning down those with pre-existing medical problems, effective Jan. 1. Everyone gets sick sooner or later, but sicker people also use more health care services.

“Claims cost is the most important driver of health care premiums,” said Kristi Bohn, an actuary who worked on the study. Spending on sicker people and other high-cost groups will overwhelm an influx of younger, healthier people into the program, said the report…”

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“Gold swung between gains and drops in New York as it headed for the first back-to-back quarterly losses in 12 years, as signs that the U.S. economy is recovering cut demand for the metal as a protection of wealth. Silver slid.

The dollar reached a four-month high versus the euro after data showed yesterday orders for U.S. durable goods climbed more than forecast in February and home prices increased in January the most since June 2006. Dallas Fed Bank President Richard Fisher said yesterday inAbu Dhabi that he favors tapering asset purchases as the U.S. economy improves.

“The U.S. appears the picture of stability and relative strength,” Xiao Fu, an analyst at Deutsche Bank AG in London, wrote today in a report. “This has, in our view, been a key contributor to the moribund performance of gold.”

Gold futures for June delivery were little changed at $1,596.80 an ounce by 8:08 a.m. on the Comex in New York. They gained and lost as much as 0.3 percent earlier today. Futures trading volume was 30 percent above the average in the past 100 days for this time of day. Gold for immediate delivery declined 0.2 percent to $1,596.67 in London….”

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“West Texas Intermediate slipped from near a five-week high amid rising crude inventories in the U.S., the world’s biggest consumer of the commodity.

Futures fell as much as 0.8 percent. Crude stockpiles advanced 3.7 million barrels last week, the American Petroleum Institute said yesterday. An Energy Department report today may show a gain of 1.3 million, according to a Bloomberg News survey. The euro fell to its weakest level since Nov. 21 against the dollar, undermining the appeal of commodities priced in the U.S. currency. Bank of America Corp. said front-month WTI contracts may start trading at a premium, a price structure known as backwardation.

“The crude inventory builds reported last night are weighing on prices,” said Robert Montefusco, a senior broker at Sucden Financial Ltd. in London, who earlier this month correctly predicted oil prices would decline. “The euro is getting bashed as Europe’s situation looks dire, which is also pressuring oil.”

WTI for May delivery dropped as much as 73 cents to $95.61 a barrel in electronic trading on theNew York Mercantile Exchange, trading for $95.62 at 11:35 a.m. London time. The volume of all futures traded was 17 percent below the 100-day average. The contract climbed $1.53 to $96.34 yesterday, the biggest increase since Dec. 26 and highest close since Feb. 19.

Brent for May settlement gained 18 cents to $109.54 a barrel on the London-based ICE Futures Europe exchange. The benchmark grade was at a premium of $13.91 to WTI after closing yesterday at $13.02, the narrowest settlement since July.

Technical Resistance

The euro fell against the dollar, declining 0.5 percent to $1.2779 at 11:39 a.m. London time. It dropped as low as $1.2773, the lowest level since Nov. 21.

West Texas Intermediate crude prices may shift this year into a so-called backwardated pattern, in which immediate supplies are more expensive than later deliveries, according to Bank of America.

The discount on front-month WTI futures has narrowed with the activation of the Seaway pipeline, which sends crude from the U.S. storage hub in Cushing, Oklahoma, to refineries on the country’s Gulf Coast, the bank said. The discount on front-month WTI was at 27 cents a barrel today.

Depressed Consumers…”

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“U.K. lenders were told by the Bank of England to raise 25 billion pounds ($38 billion) of additional capital, less than analyst estimates.

Banks need to set aside more money to cover bigger potential losses on commercial real estate and from the euro area, possible fines for mis-selling and stricter risk models, the Bank of England said following a report by the Financial Services Authority. The BOE didn’t identify or quantify the number of lenders that need to bolster capital and it said plans already announced by banks should cover about half the shortage.

“It’s a bit of a damp squib,” said Simon Maughan, an analyst at Olivetree Securities Ltd. in London. “The banks are going to have until the end of 2013, at least, to do it and there was no change to the message that they won’t need to raise fresh capital or restrict dividend payments.”

The BOE is pushing banks to increase resilience so they can boost lending and fund an economic recovery. The bank’s focus on loan losses could still hit Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY) the most because of their commercial real-estate holdings, whileBarclays Plc (BARC), with its investment banking unit, would be most affected by the changes to risk weights, Maughan said. RBS and Lloyds have announced asset sales this year to bolster capital, and Barclays plans to sell contingent convertible notes.

Loan Losses…”

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“The euro risks dropping toward parity with the U.S. dollar over the next 2 1/2 years as the region enacts policies aimed at weakening the currency to bolster growth, Morgan Stanley said.

The 17-nation euro, which has slid 2.6 percent this year, will continue to decline as the bailout package for Cyprus fans concern about the safety of bank deposits in the region, Hans- Guenter Redeker, the head of global currency strategy at Morgan Stanley, said in an interview yesterday in Sydney. Italy’s struggle to form a government after last month’s divided vote will also weaken the euro, he said.

“This policy concerning Cyprus, people will be getting more concerned in funding the peripheral, providing deposits there,” Redeker said. “The long-term implication is that monetary transition in Europe is not working, there’s no credit, no growth, and fiscal policy is still fragmented. So, therefore, you need to be fairly pessimistic for the outlook.”

The euro traded at $1.2855 as of 12:14 p.m. in Tokyo after yesterday falling as low as $1.2829, the least since Nov. 22. The common currency will end the year at $1.25 and fall to $1.19 by the end of 2014, Redeker said. The median forecast of analysts polled by Bloomberg is for the euro to trade at $1.29 by Dec. 31.

Europe Recession…”

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