WSJ: Lighthizer, Mnuchin to Travel to Beijing

Lighthizer, Mnuchin to Travel to Beijing

*U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin flying to Beijing week of March 25—Sources

*China Vice Premier Liu He Traveling to Washington Following Week—Sources

*US-China Talks in Final Stages—Sources

WSJ : Bitcoin Is in the Dumps, Spreading Gloom Over Crypto World The value of al

Bitcoin Is in the Dumps, Spreading Gloom Over Crypto World
The value of all cryptocurrencies outstanding is down 85% from peak and volumes on U.S. exchanges have been falling; making it through ‘winter’

Bitcoin is in the longest slump of its 10-year history. That is forcing even its most ardent supporters to shelve dreams of global disruption and focus on simply tightening their belts long enough to outlast the downturn.

Signs of the crypto winter are everywhere, marking a sharp reversal since the manic highs of 2017. The price of bitcoin Tuesday was just above $4,000, down about 80% from a trading peak of about $19,800 in December 2017. The total market value of all cryptocurrencies outstanding is down 85% from its peak in January 2018. And volumes on the largest U.S. exchanges have been falling steadily for the past 15 months, according to research firm TradeBlock.

Bitcoin is still driven largely by momentum, and right now it doesn’t have it. Cryptocurrencies have struggled to attract mainstream institutional investors. Regulation is still unclear, which has scared off some potential users. Companies that have sprung up around the crypto world are under pressure until the next upswing, and crypto fans aren’t sure where that will come from or when.

To be fair, crypto markets have long been defined by choppiness. During part of 2011, the price of bitcoin dropped about 95%. The price also dropped 85% from December 2013 to January 2015, sparked by the shutdown of the Silk Road website, an online drug bazaar that used bitcoin, and problems at the teetering Mt. Gox trading exchange.

But the sector is much bigger than it was during some of those earlier swings, and it is closer than ever to becoming mainstream. Its influence today is widespread: Western governments have given it tacit or explicit acceptance and venture capitalists support it. Developers are finding ways to apply its underlying technology, blockchain, to fields as varied as supply-chain management and capital-markets trading.

“There’s still coffee,” said Eric Larchevêque, CEO of Paris-based Ledger SAS, which makes crypto-storage products that resemble thumb drives, “but you don’t have the extra nuts.” The company has cut back on some costs, like for travel and advertising, he said, though it has avoided layoffs.

Ledger raised $75 million in January 2018, and that plus product sales are enough to sustain the company, he said, but it is contingent on more austere management. “We’re trying to deal with it on a day-by-day basis,” Mr. Larchevêque said. “We want to make sure the company will still be here in 18 months.”

Revenue for bitcoin miners is also down over the past 15 months. The market for so-called initial coin offerings, which brought in $12 billion in 2018, has raised $100 million so far this year, according to research firm Diar.

“People are looking for ways to support themselves through winter,” said Galen Moore. The Boston resident recently started an open-source data-analytics project called Canary Data that he hopes to turn into a new startup, but he has also taken consulting work to pay the bills.

Dan Held, director of business development at a startup called InterChange, said that as vicious as this bear market has been, it’s not the worst.

After the Silk Road and Mt. Gox debacles, “we weren’t sure if demand would ever come back,” Mr. Held said.

One thing Mr. Held noticed during those other bleak periods: Firms that survived were the ones closest to employing trading fees, like exchanges do. InterChange focuses on back-office accounting software for trading desks, exchanges and hedge funds. “No matter what the market is doing, you still have to do your accounting,” he said.

Boaz Bechar started a data-research site called Blocktrail in 2014 and sold it to the big mining company Bitmain in 2016. Bitmain recently laid him off as part of a broader downsizing. Mr. Bechar believes that only the biggest crypto companies will be able to weather the ups and downs of a volatile industry. “The big players are going to get bigger doing what they do, and it will be a race to the top,” he said.

FT : Iliad/French telecoms: phone Homer

Iliad/French telecoms: phone Homer
For investors, the story will get worse before it gets better

The tragedy unfolding at Xavier Niel’s Iliad has taken another twist in the wrong direction. On Tuesday, the French telecoms company said cash flows would be weaker than expected. It may sell mobile assets to help cover the shortfall. Subscriber numbers have been the main casualty in a price war with rival French telecom warriors. There is little sign of a truce.

Battle lines were drawn by Mr Niel in 2012 with the launch of the Free mobile service. Despite the name, it was cheap, not gratis. Market share was grabbed from Patrick Drahi’s SFR and Martin Bouygues’s eponymous network. The tables turned in 2018. SFR and Bouygues Telecom used the same tactics, driving down returns and share prices across the sector. Consolidation now looks the best option. But no side wants to surrender.

An offer by Bouygues Telecom last year for SFR was quickly rejected by Mr Drahi. And Iliad has ruled out joining any tie-ups. That is one reason why shares in the group have underperformed the others so drastically. Over the past five years, its price has fallen almost 60 per cent.

The latest pressures on cash flows will not help. Heavy investments in French fibre and an expensive push into Italy resulted in negative free cash flows of €1bn last year — and an additional €1.5bn in debt. Free cash flow may just turn positive in 2020, at €58m, according to Bloomberg estimates. But that is before Iliad meets its 5G investment obligations, which will send free cash flow negative again in 2022. In Iliad’s favour, its debt level — at almost twice ebitda — is more manageable than at SFR owner Altice’s, where it is four times.

Factors beyond the gods’ control also weigh on the prospects of a face-saving deal. France’s political climate is unconducive. With the gilets jaunes protests now in their 18th week, it is not the moment to announce job losses and higher prices for consumers. Foreign acquirers will have been put off. For investors in Iliad, the story will get worse before it gets better.

FT : Is the equity bull market too big to fail? Private sector’s growing relianc

Is the equity bull market too big to fail?
Private sector’s growing reliance on stocks means a crash could substantially damage the economy

The US equity market is on another streak, posting a double-digit gain since the start of the year and extending a bull run that has lasted 10 years. In terms of pure numbers, equities occupy a position far above any other asset, and in everyday life stocks have jumped ahead of real estate as a store of wealth for Americans.

From a risk management perspective, policymakers should consider broadening the definition of “too big to fail” to include market segments and not just financial groups since, at various times, the main risks to the economy and financial system have been the high value of assets on the private sector’s balance sheets.

The power and influence of equities should not only be assessed by the numbers, but also by how the market has become part of daily public and political conversation as well as a driver and verification of policy.

At today’s prices, the market value of publicly traded equities is estimated to be about $33tn, not far off the record high of $36tn recorded in the third quarter of 2018. Measured in relation to nominal GDP, the market value of equities stands at about 1.6 times. The record high of 1.7 times was reached twice before, in Q3 2018 and Q1 2000.

Household holdings of equities, both directly and indirectly held, stand at almost $30tn, and represent the highest valued asset on household balance sheets. Equities account for 33 per cent of total household financial assets, topped only by the 37 per cent share recorded in 2000.

Equities have exceeded the market value of real estate on household’s balance sheets for six consecutive years. The only other time equities exceeded real estate was in 1998-1999, which came on the heels of five consecutive years of 20 per cent to 30 per cent gains in the equity market.

News on the equity market dominates the airwaves. Today there are several financial markets shows dedicated to stocks, and even news TV broadcasts post an equity ticker showing how the market is faring. Updates on the equity markets are as frequent and as common as weather reports.

The equity market has become an important driver of consumer and business confidence and is often viewed as the single most important “real time” barometer of current and future economic conditions.

Monetary policymakers often look at the equity market for a validation of their views on the economy and policy stance. Many analysts think the recent pivot by the US Federal Reserve to pause from further rates hikes was directly linked to the near 20 per cent sell-off in equities in the fourth quarter of 2018. And political leaders such as President Donald Trump have been pointing to the stock market as a barometer of the success or failure of their policies and even their leadership.

None of this suggests a correction in the equity market any time soon, but it does illustrate how it has risen to a level of financial, economic, public and political importance never seen before. That raises the natural question: “Is the equity market too big to fail?” That clearly was a valid issue back in the late 2000s when the housing market — a key driver of growth and liquidity — crashed, triggering widespread damage to the economy and financial market.

When it comes to the equity market, that question can only be answered in hindsight, but after 10 years of gains risks are rising, especially since recent gains appear to be linked to the promise of easy money and not stronger corporate earnings.

Policymakers have consistently argued that it is impossible to identify asset bubbles and the best defence against them is robust supervisory and regulatory oversight. That policy does not work in practice when the risks sit on the balance sheets of the private sector and easy money is part of the problem.

At today’s levels, the equity market is too big to fail without causing substantial damage to the economy that would be far greater than what happened after the tech bubble burst in 2000, since policymakers have far less capacity to reduce interest rates and real estate is unlikely to provide the same buffer for investors or the economy.

FT : Barclays makes case for why shareholders should rebuff activist Bank chairm

Barclays makes case for why shareholders should rebuff activist
Bank chairman warns against move by Edward Bramson to seek a board seat

Barclays, the UK bank under attack from activist investor Edward Bramson, published its most detailed explanation of why it thinks investors should vote against his attempt to force his way on to the board at the lender’s annual meeting.

In a notice sent to investors ahead of its annual meeting in May, John McFarlane, Barclays’ chairman, warned the bank’s directors that he believed Mr Bramson’s “presence on the board would be detrimental to the company and shareholders as a whole”.

Mr McFarlane predicted that if Mr Bramson’s effort to win a directorship were successful he would attempt to significantly scale back Barclays’ investment bank, forcing the lender into a “prolonged round of review and/or restructuring at a time when focus should remain on successful execution”.

He also claimed that Mr Bramson’s interests were not aligned with shareholders because his position was “leveraged . . . and subject to a time-limited derivative instruments to hedge against downside risk”.

Last month, the Financial Times reported that Mr Bramson had funded the majority of his stake with a $1.4bn loan from Bank of America under a complex arrangement known as a funded equity collar, which effectively limits the potential losses on the 5.5 per cent stake he holds via his Sherborne vehicle, while also capping potential returns.

“The board believes that this structure results in a shorter term focus . . . and, as a result, Mr. Bramson is incentivised to try and create near-term share price improvement at the potential expense of long-term sustainable shareholder value,” Mr McFarlane wrote.

Mr McFarlane also cast doubt on Mr Bramson’s record as an activist investor, pointing out that he had “overseen executive management departures and the sale of businesses and large reductions in employees”.

Given that Barclays had “already implemented similar measures during the course of its restructuring . . . further such initiatives would be counterproductive,” Mr McFarlane said.

“None of Sherborne’s previous investments involved a bank, let alone an organisation of the scale and complexity of Barclays,” Mr McFarlane added.

NYT : Trump and Deutsche Bank’s cozy tie-up

Trump and Deutsche Bank’s cozy tie-up

President Trump has long enjoyed the backing of one major lender: Deutsche Bank. David Enrich of the NYT has taken a deep look into their often turbulent relationship — which is now under investigation by prosecutors and Congress.
Deutsche Bank courted Mr. Trump when no one else would. He had already gone bankrupt, and no Wall Street lender would back him. But bankers at Deutsche like Mike Offit and Justin Kennedy (the son of Justice Anthony Kennedy) lent him millions. Mr. Trump rewarded some bankers, after some prompting, with a trip to his Mar-a-Lago resort.
It issued loans despite finding financial discrepancies. Deutsche Bank officials concluded that Mr. Trump was worth about $788 million, not his self-proclaimed $3 billion. And a senior banking executive told Mr. Enrich that he had told others that Mr. Trump had worked with people in the construction industry who were tied to organized crime.
Only when Mr. Trump sued Deutsche Bank did its investment banking arm drop him as a client. But its private wealth arm, hungry for business, eventually took him back and lent him millions more.
After the 2016 election, Deutsche Bank executives admitted to problems. They concluded that their colleagues had ignored many warning signs about Mr. Trump, including from internal “exposure reports.” Salesmen for the firm were warned not to utter Mr. Trump’s name in public.
Now the bank is in investigators’ cross hairs, and plans to hand over extensive internal documentation to Congress and federal prosecutors. Rosemary Vrablic, Mr. Trump’s main private banker — “She is the boss,” he once told the NYT — expects to be called to testify on Capitol Hill.

>>> US Gapping down


Gapping down
In reaction to disappointing earnings/guidance:

  • TACO -6.5%, DSW -6.4%, REV -5.5%, UNIT -4.7%, BITA -4.1%, WAGE -3.6%, EOLS -1.9% (also secures $100 million senior debt facility with Oxford Finance - provides non-dilutive financing and increased flexibility ahead of Jeuveau U.S. launch), HQY -1.7%

Other news:

  • TORC -8.8% (commenced an underwritten public offering of $50 million of shares of its common stock)
  • EMES -5.2% (files to delay 10-K)
  • YEXT -5.1% (prices underwritten public offering of 6.1 mln shares of its common stock at a price to the public of $21.50 per share)
  • NOMD -4.9% (announces public offering of 20.0 mln of its ordinary shares)
  • WHD -3.9% (commences secondary offering of 8.5 mln shares of its Class A common stock by selling shareholders)
  • ECPG -3.4% (attributed to block trade)
  • TWO -2.7% (commenced underwritten public offering of 18,000,000 shares of common stock)
  • NSTG -2.5% (files mixed securities shelf offering and announced public offering of 4.5 mln shares of common stock pursuant to its shelf registration statement -2.5 mln by the company)
  • AIZ -1.2% (secondary public offering of 7,869,230 shares of its common stock held by TPG Global at $98.70 per share)

Analyst comments:

  • CNXM -3.5% (downgraded to Market Perform from Outperform at Wells Fargo)
  • ENPH -3.3% (downgraded to Underperform from Mkt Perform at Raymond James)
  • CWH -2.2% (downgraded to Neutral from Buy at Goldman)
  • YUM -2% (downgraded to Neutral from Overweight at JP Morgan)
  • IMGN -1.9% (downgraded to Underweight from Neutral at JP Morgan)
  • VRTX -1.3% (downgraded to Mkt Perform from Outperform at SVB Leerink)
  • CCI -0.9% (downgraded to Hold from Buy at Deutsche Bank)
  • BKNG -0.5% (downgraded to Market Perform at Telsey Advisory Group)