Reuters - The man who married Putin’sdaughter and then made a fortune

The man who married Putin’s daughter and then made a fortune

The story of Kirill Shamalov, the celebration of his wedding to the Russian president’s younger daughter, and the loan from a politically well-connected bank that helped make him a billionaire

Русский язык (Russian translation)

IGORA, Russia - The wedding party dominated a ski resort nestled in the hills about an hour’s drive north of St. Petersburg. No expense was spared and everyone was sworn to secrecy. The happy couple rode in a traditional Russian sleigh drawn by three white horses, said one of the workers who described the scene to Reuters.  

The bride wore a long pearl-tinted wedding dress, the groom wore a dark overcoat, said another person who attended. The newlyweds were Katerina, younger daughter of Russian President Vladimir Putin, and Kirill Shamalov, son of an old friend of Putin.

Their wedding celebrations took place in February 2013, at Igora, a small ski resort that combines beauty and discretion, five people who were there told Reuters. Set amid woodland with a picturesque lake, the resort is co-owned by the family of Yuri Kovalchuk, another old friend of Putin, and a Cyprus company with undisclosed shareholders.

One person who attended the event said staff were told the bride and groom were named Kirill and Katerina, and that guests wore white scarves embroidered with the letters “K&K” in red thread. When shown a photograph of a woman known as Katerina Tikhonova, the source identified her as the bride. Tikhonova is Putin’s younger daughter, as Reuters confirmed in November.

“Guards were behind every corner, (they) didn’t let anyone close to the celebration,” said a staff member at the resort, which has a luxurious spa complex. “But we knew it was Kirill and Katerina – Putin’s daughter – celebrating marriage.”

At the time of the wedding, Kirill – a tall, dark-haired man with rimless glasses - was a rising star of Russian business, but still only 31. His fortunes began to skyrocket soon after his wedding to the president’s daughter, a competitive acrobatic dancer who is now helping to oversee a $1.7 billion expansion of Moscow State University.

Within 18 months, Kirill acquired a large chunk of shares in a major Russian oil and petrochemical processor called Sibur - a stake now worth an estimated $2.85 billion, based on the value of recent share deals. He also quit his job as a business manager and set up a company to run his personal investments.

How did such a young businessman go so far, so fast? A Reuters examination of Shamalov’s career shows that in the summer of 2013, months after he married Putin’s daughter, Kirill opened discussions about buying shares in Sibur from one of the president’s wealthiest friends.

 A year later, he was able to borrow more than $1 billion, judging by the published accounts of his investment company. The loan came from a bank headed by another longtime associate of Putin, and where Shamalov’s brother holds a senior position. The money was used to make an investment in Sibur that within months proved highly profitable for Kirill.

Asked about his business deals and the wedding, Kirill Shamalov and Sibur declined to comment.

The trajectory of Kirill’s fortunes sheds new light on how people close to Putin have taken commanding positions in key companies - and how such opportunities are now being extended to a new generation. Like the wedding, much of this transfer of riches has occurred away from public scrutiny.

IGORA: The ski resort, pictured in 2008, where Katerina Tikhonova and Kirill Shamalov celebrated their wedding in 2013. REUTERS/Alexander Drozdov/Interpress

“We are not allowed to talk about this. I can be fired - you know whose daughter it is.”

A worker at Igora ski resort

Vladimir Milov, a former Russian deputy energy minister and now an opposition campaigner,  said Putin’s friends had acquired major assets with the help of lenders with links to the state, such as Gazprombank.

“It’s extremely non-transparent, so it is hard to get to and judge the specifics of the loan agreements,” Milov said. “They consider Gazprombank their pocket bank.”

He added: “They are looking to pass on their power and privileges to a new generation.”

Asked about the wedding celebrations and business deals, Dmitry Peskov, spokesman for the Russian president, said: “Putin's daughters are not involved in politics or business. The businessman, Shamalov, is well known. As far as we are aware, all his activities are in line with the laws of the Russian Federation. For many years he has been in the management of the company Sibur, and along with other senior managers is a shareholder. His career and business are not within the sphere of interest of the Kremlin. We do not give comments on the private lives of Putin's close relatives.”

THE BROTHERS SHAMALOV

When Kirill Shamalov was growing up in the 1990s, his father, Nikolai, was a co-founder with Putin and others of a development of dachas known as The Ozero (Lake) Cooperative, about 100 km (60 miles)  north of St. Petersburg. Various members of the Ozero development went on to prominence in Putin’s Russia.

Nikolai Shamalov became a shareholder in a small lender called Bank Rossiya, which over the past 15 years has grown to be one of Russia’s most influential banks. Kovalchuk, the co-owner of the Igora ski resort, is the largest Bank Rossiya shareholder.

PRESIDENTIAL VISIT: Russian leader Vladimir Putin inspects a Sibur plant in Voronezh, Russia, in May 2013. On the far right is Kirill Shamalov, a major shareholder in Sibur and son-in-law of Putin. REUTERS/Mikhail Klimentyev/Sputnik/Kremlin

After Russia seized control of Crimea in 2014, the United States sanctioned Bank Rossiya, describing it as the personal bank of the Russian elite. The European Union sanctioned Kovalchuk and Nikolai Shamalov for their close links to Putin. The U.S. Treasury also sanctioned Kovalchuk as a member of Putin’s inner circle.

Nikolai Shamalov has two sons: Yury, born in 1970, and Kirill, born in 1982. Both have prospered during the Putin years.

After studying naval engineering and foreign trade at university, Yury Shamalov worked, according to his official corporate biography, as a staffer on the foreign economic relations committee of the St. Petersburg city council. Putin ran the committee.

On the eve of 2000, Putin became president and began to stamp his authority on Russia’s economy. One company he paid particular attention to was the gas giant Gazprom, which he brought back under state control. Among Gazprom’s assets were Sibur, the petrochemical company, and a lender called Gazprombank.

Both Yury and Kirill Shamalov went on to take important roles in these and other institutions as Putin consolidated his power.

THE BANK

In August 2003, according to his corporate biography, Yury became president of Gazfond, a huge investment fund that controls the assets of Gazprom’s pensioners. Led by Yury, Gazfond later acquired control of Gazprom’s banking subsidiary, Gazprombank. Yury went on to become one of the bank’s deputy chairmen.

Gazfond had effectively bought a state asset and turned it into a private bank controlled by people with long-standing links to Putin.

MULTI-TALENTED: Katerina Tikhonova , daughter of Russian President Vladimir Putin, is both an acrobatic dancer and business administrator. Early this year she described herself as the spouse of Kirill Shamalov. REUTERS/Jakub Dabrowski

“They are looking to pass on their power and privileges to a new generation .”

Vladimir Milov, opposition politician, commenting on the elite around Putin

Kirill Shamalov, meanwhile, was also making rapid progress. In 2002, he was appointed Gazprom’s “Chief Legal Counsel for foreign economic activity,” according to a biography on Sibur’s website. He was just 20 and had not yet graduated from his law studies at St. Petersburg State University.

Three years later, after completing his law degree, Shamalov became “Chief Legal Counsel” at Gazprombank, then still a subsidiary of Gazprom. Then, in June 2008, Kirill joined Sibur as vice-president for business administration.

It was a notably small world. Kirill’s brother Yury was already both a director of Sibur and a deputy chairman of Gazprombank. Chairman of the bank was Alexei Miller, who in the 1990s had worked with Putin in St. Petersburg. When Putin became president, he had trusted Miller enough to put him in charge of Gazprom.

In addition, Gazfond, where Yury Shamalov was chairman, exerted strong influence at both Sibur and Gazprombank. And the same month that Kirill joined Sibur, according to financial declarations, Gazfond, through its control of Gazprombank, became the ultimate owner of Sibur. 

Gazprombank declined to comment, and Gazfond did not respond to questions.

TIMCHENKO CONNECTION

On top of their family links, the brothers Shamalov have deep connections to other members of the Putin elite who reshaped Russia’s economy in the 2000s and made personal fortunes doing so. One is Gennady Timchenko, who became a shareholder in Bank Rossiya along with Nikolai Shamalov.

Timchenko has known Putin for more than 20 years. In the 1990s, he began oil trading from St. Petersburg, when Putin was a rising politician there, and went on to co-found Gunvor, a company that grew to be one of the largest traders of Russian oil. Last year, the U.S. government alleged that Putin had a personal stake in Gunvor, though it offered no evidence of this. Gunvor denied the allegation.

Timchenko was an important contact for Kirill Shamalov,  because the oil-trading magnate later became a large shareholder in Sibur.

In 2010, Gazprombank and Yuri Shamalov’s Gazfond held a combined 95 percent stake in Sibur. That year, they made a deal to sell Sibur to a company owned by Timchenko and one of his business partners, an energy entrepreneur named Leonid Mikhelson. The deal was complex, but Gazprombank smoothed the way by lending money to Mikhelson and Timchenko to fund at least half the purchase.

Mikhelson ended up owning 57.2 percent of Sibur and Timchenko 37.3 percent. Five managers and former managers owned the remaining 5.5 percent. Those managers included Kirill Shamalov. By 2014, according to Sibur’s declarations, Kirill had extended his personal stake to 4.3 percent of Sibur.

KIRILL’S COUP

Once Mikhelson and Timchenko had taken control of Sibur, the only way for anyone to obtain a major stake in the company was for one of them to agree to sell some shares. Fortunately for Kirill Shamalov, Putin’s friend Timchenko was willing to sell to him.


HOW THE CHANGES UNFOLDED

Early 2000s Petrochemical company Sibur is owned by Gazprom, the giant state-controlled gas company.

2005 Gazprom transfers 75% of Sibur to Gazprombank.

2007 Gazprom transfers control of Gazprombank to Gazfond, a pension fund run by Yury Shamalov, brother of Kirill Shamalov.  Gazprom also sells remaining 25% of Sibur to Gazfond. Yury Shamalov becomes a director of Gazprombank and Sibur.

2008 Kirill Shamalov joins Sibur as vice-president for business administration.

2010/11 Gazprombank and Gazfond sell Sibur to businessman Leonid Mikhelson and oil-trader Gennady Timchenko, an old friend of Putin. Gazprombank helps finance the deal.

2011 Sibur begins a share option scheme for managers and Kirill Shamalov accumulates a small stake in the company.

2012 Kirill Shamalov becomes deputy chairman of the management board of Sibur.

2014 Kirill Shamalov borrows more than $1 billion from Gazprombank and buys 17% of Sibur from Timchenko. Sibur’s main owners become: Mikhelson 50.2%, Shamalov 21.3% and Timchenko 15.3%.

Timchenko and the president’s new son-in-law began discussions in the summer of 2013, according to an interview Kirill gave to the Russian newspaper Kommersant in August this year. The start of those talks was a few months after Kirill had celebrated his marriage to Putin’s daughter.

In March 2014, Kirill stepped down from his management role at Sibur. But he kept his shareholding and stayed on as member of the board of directors. Four months later, on Aug. 1, he registered a new company called Yauza 12 that is wholly owned by him.

The following month, Yauza 12 bought 17 percent of Sibur from Timchenko. That took Kirill’s stake in the petrochemical company to 21.3 percent. Putin’s son-in-law was now the second largest shareholder in Russia’s leading gas and petrochemicals processor.

Earlier this year, a spokesman for Timchenko told Reuters that his sale to Kirill Shamalov took place after negotiations with several potential buyers and was at a market price. The spokesman said the sale reflected a policy of Timchenko’s holding company, Volga Group, of diversifying its assets.

This month, a spokesman for Volga Group told Reuters: “All transactions which were conducted by Mr Timchenko’s structures with shares of Sibur – the acquisition of shares in the company, the sale of part of the share structure to K. Shamalov –  had a market character and took place based on the market valuation of the company.”

How could the then-32-year-old Kirill afford such a purchase? A Reuters examination of Yauza 12 accounts filed at the end of 2014 shows that the company had borrowed 78.9 billion roubles (about $1.3 billion at the time). The source of this money was the bank where his brother is a deputy chairman. The financing came “from Gazprombank secured on assets belonging to me,” Kirill told Kommersant.

Yury Shamalov did not respond to requests for comment.

The terms of the loan are not known, but Kirill’s company appears to have borrowed the money cheaply. Interest paid after he took the loan, according to the Yauza 12 accounts, amounted to 343 million roubles to the end of 2014. That equates to an annual interest rate of about 1.3 percent if the loan began when Yauza 12 bought the Sibur shares, a Moscow-based credit analyst said. The analyst added that because  the loan’s maturity date is unknown, it is unclear whether that interest rate differs from the market rate or not.

Kirill Shamalov and Gazprombank declined to respond to Reuters questions about the loan.

Using the borrowed $1.3 billion, Kirill was able to buy the 17 percent stake in Sibur. He and his spokesman declined to specify how much he paid, other than saying it was a market price.

Three independent analysts told Reuters in October this year that Kirill’s total holding of 21.3 percent was worth at least $2 billion. That may have been conservative. On Dec. 11, the Chinese petroleum company Sinopec agreed to pay $1.34 billion for only 10 percent of the company.

That valuation implies that Kirill’s overall 21.3 percent holding in Sibur is now worth $2.85 billion. 

FULL CIRCLE

With his secret wedding at the Igora ski resort and his financial good fortune, Kirill Shamalov encapsulates key aspects of today’s Russia. The Putin era has its roots in St. Petersburg, where the president began his political career. His friends from the Ozero dacha cooperative, as well as aides he worked with in the St. Petersburg mayor’s office, went on to wealth and influence as Putin consolidated his power.

Now Kirill has joined the ranks of the billionaire elite around the president. The connections, though, are kept discreet. When Kirill and Katerina Tikhonova celebrated their wedding, security was tight and the guest list exclusive: About 100 attended, according to people who were there.

CASH POINT: Gazprombank lent more than £1 billion to Kirill Shamalov, whose brother Yury is a deputy chairman of the bank. REUTERS/Maxim ZmeyevSELLER: Businessman Gennady Timchenko, pictured in 2014, is an old friend of Putin and sold a large stake in Sibur petrochemical company to Kirill Shamalov. REUTERS/Sergei Karpukhin

The guests were asked to leave their mobile phones at the skating palace, an imposing building that hosts figure skating, ice hockey matches and concerts. The organisers wanted no photographs leaking out on social media, and the VIPs were shielded from the resort’s regular staff.

The choice of venue also underscored the close-knit nature of the circle encompassing Putin, his friends from St. Petersburg, and their children.

The Igora ski resort lies about 30 km from the Ozero dacha cooperative. The resort and surrounding plots of land are owned by companies with past or present connections to Shamalov, Kovalchuk and Timchenko.

The owner of Igora itself, according to public records, is a locally registered company called Ozon LLC. Putin’s old friend Kovalchuk and his wife and son own 25 percent of Ozon; the other 75 percent is owned by a Cyprus company.

According to resort staff, Putin has been a frequent visitor to Igora - though always staying discreetly in a neighbouring compound behind a tall fence. That residence belongs to another company, one fully owned by the Kovalchuk family, according to land records.

Next door are two more plots. These are owned by ZAO Lider, which manages assets for Gazfond - the company run by Yury Shamalov, brother of Kirill.

The wedding celebrations thus captured an important facet of Putin’s Russia: a wealthy and close-knit elite at play, shielded from the gaze of ordinary Russians. Entertainment included an indoor ice-skating display, laser lights, and a mock-up Russian village with performers and cultural exhibits, according to a person who attended.

At one point, an emblem was projected on the snow, showing the names Kirill and Katerina, said another worker. But the worker added: “We are not allowed to talk about this. I can be fired - you know whose daughter it was.”

FT : Fed seen raising US interest rates again in March


The Federal Reserve is expected to follow this week’s first post-crisis rate rise by lifting US borrowing costs again in March, according to a Financial Times survey of leading economists.
More than two-thirds of the 42 top economists polled by the FT expect another 25 basis point increase in the central bank’s benchmark rate in three months, taking the Fed at its word even as most investors bet that the pace of future increases will be more gradual.

This contrast with market expectations means Fed chair Janet Yellen faces a fresh set of challenges next year, even though investors this week credited her with having pulled off a long-debated rate move smoothly, without the market tantrums many feared.
Traders and investors now expect the federal funds rate to remain below 1 per cent into 2017. That implies a far shallower pace of increases than the median of the “dots” — the individual projections of Fed policymakers — which point to the federal funds rate reaching 1.375 per cent by the end of 2016 and 2.375 per cent in 2017.
Economists surveyed by the FT aligned more closely with the Fed, with slightly more than half of them expecting the central bank to follow with its third rise by June, to take the funds rate to 0.75-1 per cent.
The Fed’s meeting landed in a volatile week for global equity and credit markets, with US mutual funds and exchange traded funds invested in high-grade corporate debt hit by a record wave of redemptions.
Yields on both Merrill Lynch US investment grade and junk bond indices hit their highest level since 2012 this week, energy prices fell and the trade-weighted dollar logged its greatest weekly gain since the start of November — complicating the picture for Ms Yellen.
Economists have cautioned that lacklustre global economic conditions could stay the Fed’s hand as the dollar depresses exports and sliding oil prices weigh on inflation, a point policymakers have emphasised they will watch.

“It’s critical: everything flows into financial conditions. The trade weighted dollar impacts conditions. Credit spreads play into financial conditions. Equities play into financial conditions,” Ellen Zentner, Morgan Stanley’s chief US economist, said. “To the extent the dollar rises further — depressing inflation in the coming months — will play into how they feel about raising rates.”
Risk markets, which rallied on Wednesday as the Fed confirmed it would tighten policy at a “gradual” pace, have since retreated, with the S&P 500 slipping back into negative territory for the year.
“Defining ‘gradual’ and divining how the Federal Open Market Committee will implement a gradual rate increase will become the new parlour game for financial markets and monetary policy wonks,” said William Lee, an economist with Citi.
Further tweaks to policy from the Bank of Japan on Friday and European Central Bank president Mario Draghi’s insistence earlier this week that the potential remained for further stimulus have not been enough to stem selling in equity markets.

Major global bourse have declined since the month’s start — including roughly 7 per cent falls in German and French indices.
The recent step down in energy prices has unnerved some US portfolio managers, with several concerned about the effect distressed fund closures will have on investor behaviour and subsequent flows.
Economists surveyed by the FT said that the risk remained that the Fed would raise rates two or three times next year, below its current forecast. Only two said the Fed would increase rates just once in 2016.
“Yellen sowed the seeds of a potential pause later on by tying further rate increases to the trajectory in core inflation and also to financial-market developments,” said Thomas Costerg, an economist with Standard Chartered, who expects the Fed will have to cut rates by the end of next year.
“On both fronts, [the] risks are [that] things don’t go according to the Fed’s plans . . . and therefore the Fed hiking cycle may eventually be very short and shallow.”

RTR - GLOBAL ECONOMY YEARAHEAD - Prospects still slim for major global economic

GLOBAL ECONOMY YEARAHEAD - Prospects still slim for major global economic pickup

The world economy may be set for another year like 2015, with modest growth in developed economies offsetting persistent weakness elsewhere but generating very little inflation and keeping interest rates low.

The U.S. Federal Reserve's long-awaited rise in rates from zero showed confidence in the world's largest economy, but rival China is still struggling for a foothold with rate cuts.

Although some countries, such as Brazil, have mainly home-grown inflation troubles, the Fed's first post-crisis rate hike is an unlikely cure for what ails the rest of the world.

With exchange rates dominating the policy debate in many countries, what happens to the dollar will matter a lot.

"The key question is whether the U.S. economy is finally robust enough not only to sustain its own recovery but also to lift world trade and global growth enough to allow the external deflationary pressures weighing on U.S. inflation to wane," outlined HSBC economists Janet Henry and James Pomeroy.

Along with an abrupt downturn in the volume of global trade and a continuing fall in commodity prices, the dollar's rise this year has brought U.S. industrial growth to a near-standstill, keeping a lid on inflation pressures from abroad.

The other extreme, according to HSBC, is that the United States, "via a strong U.S. dollar, will simply become the latest victim of the deflationary pass-the-parcel which has plagued the global economy for a decade, and find itself following all of the other developed market central banks which raised rates but soon found they had to reverse course."

"The outcome, we believe, is likely to be somewhere in between."

A Reuters poll of 120 economists on Friday forecast the Fed would hike rates again in March, but probably won't move as quickly next year as policymakers have suggested. [nL3N14736C]

Other recent Reuters surveys of hundreds of analysts worldwide do not offer hope for a pickup in inflation, even in the United States where the central bank says it is reasonably confident this will happen. Even the most optimistic core inflation forecasts are not far above 2 percent.

The polls point to global growth averaging only 3.4 percent next year with scant prospect of touching 4 percent given the slowdown in China and the gloom surrounding emerging markets.

Nor is it easy to find analysts expecting broad weakness in the dollar, with the most aggressive views suggesting the euro could even fall below parity.

China's renminbi, now a reserve currency, has fallen each day for most of the past two weeks, with many bracing for further devaluation by Chinese authorities still looking for ways to stimulate the debt-laden economy.

SOME HOPE EMERGING

The U.S. growth and inflation outlook is bleaker than forecast this time last year, even after a sharp fall in unemployment. Wage inflation has picked up, but by less than many had thought it would.

Wall Street stock indexes are trading near their levels of a year ago, confounding predictions of a solid rise in 2015, with strategists still expecting them to climb despite downward pressure on earnings.

Over the past year, global fund managers have cut their recommendations for equity holdings to near their lowest since the financial crisis, even as they ramped up bond holdings. reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/asset-allocation-polls

U.S. Treasury yields are not far from where they were this time last year either, but they too are expected to climb, as has been the forecast for many years now, although by less this year than one might expect. [US/INT] [FED POLL] reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/mm-bondyield-polls

Since crude oil prices began falling sharply 18 months ago from above $100 a barrel to below $40 now, the number of analysts predicting a rebound has dwindled. Some are now saying $20 is more likely than a sizeable move higher. link.reuters.com/ses88s

But there are some bright spots.

Underpinned by the European Central Bank's 60 billion euros a month of bond purchases, the euro zone is finally generating modest growth and unemployment has begun to fall.

Inflation remains well below target, however, and so ECB stimulus, including the negative deposit rate, will remain in place for all of next year. That puts the world's largest trading bloc -- and most other central banks -- on an opposite policy path to the Fed. link.reuters.com/hut85w

Some emerging market economies are performing better, too.

India is forecast to grow at a decent clip, underpinned by rate cuts earlier this year during a window of low inflation. And optimism about Mexico has grown as it slowly starts to take advantage of a recent historic reform in the energy sector.

But much can still go wrong. Food prices have already pushed Brazil's inflation above 10 percent during a deep recession and could rise further.

"As if predicting exchange rates and interest rates wasn't hard enough, a strong El Niño may be arriving," warned BofA-ML head of global emerging markets fixed income strategy, Alberto Ades. "So economists and investors will need to keep an eye on the weather, too."

>> Gas Natural Fenosa to divest LPG business in Chile

Gas Natural Fenosa to divest LPG business in Chile

Gas Natural Fenosa has today [18 December] authorised its subsidiary Gas Natural Fenosa Chile SpA (GNF Chile) to sign an agreement with the Perez Cruz family to split Gasco SA into two separate companies. One, Gasco GN, will be dedicated to the business of natural gas, while the other, which will continue to operate as Gasco SA, will handle the business of liquid petroleum gas (LPG).

Compania General de Electricidad SA (CGE) and the Perez Cruz family own 57% and 22%, respectively, of Gasco, while the remainder of the shares are in free float.

GNF Chile and the Perez Cruz family will, either directly or through related parties, launch takeover bids for the totality of the shares in Gasco GN and Gasco SA, respectively. The shareholders undertake to participate in the offer launched by the other party, as appropriate.

The value assigned to each Gasco SA share is CLP 2,100 [EUR 2.75], while Gasco GN shares will be worth CLP 3,200 each.

The transaction will allow Gas Natural Fenosa to focus on its gas distribution business and, in so doing, benefit from greater synergies.

Once the transaction is completed, Gas Natural Fenosa will consider the possibility of merging Gasco GN, CGE and CNF Chile.

[According to Gasco SA’s 2014 annual report, the company made a gross profit of CLP 254bn [EUR 333m] in the 12 months to 31 December 2014.]

>>> Haniel will cautiously look to widen portfolio

Haniel will cautiously look to widen portfolio 

Haniel, the family-owned German conglomerate, will cautiously look to widen its portfolio in the coming year with a EUR 1bn warchest, Boersen-Zeitung reported.

The German-language daily cited a Christmas communication that said Haniel's management, led by Stephan Gemkow, will choose targets carefully as it pursues a long-term strategy of making more equity investments.

The management will seek new business areas, but many companies do not meet Haniel's criteria while others are simply overpriced, according to the cited communication.

While Haniel recently reduced its stake in the retail group Metro, there is still plenty of scope for it to increase the diversification of its portfolio, the article said, referring to comments from ratings agency Moody's.

Boersen-Zeitung

(ZeroHedge) "It's Hot Out There" - Here's Why In One Visualization

"It's Hot Out There" - Here's Why In One Visualization

"It's not just warm, but very warm," exclaims one east coast ski resort owner, adding "I can’t remember it ever being like this here." But why? As WSJ reports, two weather occurrences - the Arctic Oscillation and El Niño - are combining to shake up temperatures from coast to coast in the U.S., bringing springlike conditions to the Northeast for much of this month and leaving parts of the West colder and wetter than usual.

Typically this time of year, Arctic Oscillation would bring cold air to the Eastern U.S., bringing temperatures down. But so far this year, the oscillation has stayed much farther north, allowing warm air from the south to fill the void, said Mike Halpert, deputy director of the National Oceanic and Atmospheric Administration’s climate prediction center.

 

 

The other factor is El Niño, a periodic climate cycle in which sea surface temperatures over the eastern Pacific become warmer than usual. The effects from changes in Arctic Oscillations generally last only a few weeks, but the balmy weather in the Northeast could continue because of the El Niño effect, experts say.

 

El Niños push the subtropical and polar jet streams, which help define weather around the world, to the north. The result is that the southern U.S. gets rain that normally falls in Central and South America, while the Northeast and Midwest get a reprieve from winter as the polar jet stream is pushed up into Canada.

“If people are nervous, they should be nervous.”

The current El Niño is on track to rank among the top three strongest since record-keeping began in 1950, according to federal climatologists.

“The El Niño impact is not dominating yet,” said Bill Patzert, a climate scientist with NASA’s Jet Propulsion Laboratory in Pasadena, Calif. “It’s like the tale of two climates here.

And since every failure of central planning to achieve its seasonally-adjusted economic targets must be blamed on something, even something as ridiculous as the weather, regardless if it is "too cold" like in the past two years, or "too hot", now we know why Q4 GDP will be crap!

Oversold Junk-Bond Funds Pay 10% or MoreBarron's :

Oversold Junk-Bond Funds Pay 10% or More
Take advantage of the rout in risky debt, especially deep-discount closed-end funds with huge yields.

There are no bad securities, just bad prices. That’s what denizens of the high-yield bond market are saying as they see value emerging from the wreckage wrought in the steep price declines of the past few weeks.

Anyone who has perused the financial media has been bombarded with news of steep drops in prices of junk bonds, the shuttering of funds that play in the sector, the exodus by investors from other junk funds, and the explosion of volume in high-yield exchange-traded funds. And they’re no doubt aware that the junk-bond slide was precipitated by the plunge in oil and metals prices, as energy producers and miners were among the biggest tappers of the market to fund their growth during the up-phase of the commodity cycle.

Enlarge Image

Illo: Dave Klug for Barron’s
“High-yield fears grow as default wave spreads,” screamed the Financial Times. That’s even though the rise in defaults among dicey credits at this point remains a forecast, not a fact. The headline was outdated before the ink was dry, and already the market has shown signs of bouncing back. And nowhere more than for the most depressed sector of the market, deeply discounted closed-end funds with truly high yields in the double digits, such as the Credit Suisse High Yield Bond (ticker: DHY), Dreyfus High Yield Strategies (DHF), and the DoubleLine Income Solutions (DSL) funds.

Those headlines hit ahead of the Federal Reserve’s first interest-rate increase in nearly a decade and year-end tax-loss selling, which produced a triple whammy. With seemingly relentless selling sending prices of broad high-yield indexes down 5% in the past month and “distressed” issues down even more, it was feeling like the film Groundhog Day to Carl Kaufman, manager of the Osterweis Strategic Income fund (OSTIX).

“Typically, you get this kind of stuff when you’re close to the bottom,” Kaufman observed about the high-profile events hitting the market, notably the shutting of the Third Avenue Focused Credit fund (see Follow Up). That spooked investors, even though that fund delved into much more speculative credit than the typical junk fund.

THE BRIGHT SIDE of the junk storm is that it has restored some measure of value to the market. Kaufman says he’s buying intermediate-term bonds of a company he likes, which originally were issued with yields in the 5%, but now yield in the 8% range as a result of a price drop of about 15%. (He’s mum on the name but says it’s in the tech sector, and nowhere near the oil patch.)

Now, “the price is right,” Kaufman says. “Looking out five to six years, getting 8% on the bonds and the companies I have is a great deal,” even if prices might drop further in the interim before the bonds mature.

By comparison, stock seers are predicting a 10% gain for the Standard & Poor’s 500 in 2016, according to Barron’s annual outlook survey. Those bird-in-the-hand coupon payments should be weighed against the potential equity gains in the bush that have been rather elusive in the past year.

While the high-yield market has corrected from its peak valuations of mid-2014—when it hardly qualified for the moniker of “high yield” with returns roughly equal to what my grandma earned on her passbook savings—Martin Fridson, the longtime maven who’s chief investment officer at Lehmann Livian Fridson, isn’t ready to pound the table for the sector.

Spreads, the extra yield paid on lower-grade securities to compensate for their higher risk, have increased markedly. The Bank of America Merrill Lynch U.S. High-Yield index is 709 basis points above comparable Treasuries, up sharply from this year’s tightest level of 438 basis points in early March and 335 basis points at the cyclical trough in June 2014. (A basis point is 1/100th of a percentage point.)

That’s not extreme undervaluation, given the expected rise in defaults, he says. Starting with a yield of 8.14%, and deducting forecast credit losses of 4.71% (defaults after taking into account recoveries of principal), leaves an expected return of 3.43% over the next five years. To be sure, those defaults are likely to be concentrated in those trouble spots of energy and other commodities. Deft managers have been avoiding those sectors.

IN FACT, THE TROUBLE spots actually could still be situated in officially investment-grade companies, according to Cliff Noreen, president of Babson Capital Management, with $223 billion under management, including $40 billion in global high-yield. Those sore spots include Glencore (GLEN.UK) and Freeport-McMoRan (FCX), which already are trading as junk even though the ratings agencies haven’t confirmed that.

At a 700-basis-point spread, Noreen thinks that investors are being compensated for the risks, which he says are more technical than fundamental. That’s especially the case for high-yield closed-end funds, which he says afford investors the opportunity to buy into an out-of-favor asset class at 10% to 20% below their net asset values.

Barron's : Euro Stocks Set to Finish Year With Solid Gains

Euro Stocks Set to Finish Year With Solid Gains
GDP is expected to grow 1.6% this year, up from 0.9% in 2014. But unemployment remains high.

Europe’s financial markets proved resilient in 2015, with help from the European Central Bank—and in spite of it. It’s thanks to the ECB and its one-trillion-euro-plus ($1.10 trillion) program of quantitative easing that markets have been relatively stable for most of the year, allowing a fragile economic recovery to strengthen.

There’s little doubt that Europe’s economy is on firmer footing than it was 12 months ago. It is further proof that the euro-zone financial crisis is history, although some symptoms are proving stubborn to shake. For example, unemployment in the euro zone is projected at 11% this year.

Countries that implemented structural reforms during the financial crisis are having an easier time. Talk of austerity is diminishing, and governments that tackled structural reforms early are reaping rewards.

Gross-domestic-product growth is estimated at 1.6% in 2015, up from just 0.9% a year earlier. The ECB deserves credit for fostering an environment that promotes growth.

Europe now is strong enough to withstand shocks. Greece’s brinksmanship over the terms of yet another bailout caused enormous uncertainty, but markets were measured in their responses to terrorist attacks in France.

However, miscommunication surrounding the ECB’s final policy meeting of 2015—investors expected more stimulus than they got—led to a sharp selloff earlier this month, erasing almost half the gains that European stocks had accumulated in 2015 before a festive rally retraced some of those losses.

Although ECB President Mario Draghi is credited with delicately managing political interests among the central bank’s governors while building consensus for accommodative monetary policy, investors blamed him for giving misleading guidance.

JUST IN TIME FOR THE holiday season, the euro zone’s hero has been cast as the pantomime villain.

It sounds like a simple misunderstanding, but the implications are much more serious. At a time when the ECB and the Federal Reserve are moving in opposite directions on policies, Europe’s central-bank chief is confronted by a minicrisis of confidence. Confusion over the interpretation of signals from Draghi changes the way the ECB will convey its messages to markets in the future. Investors may prefer to wait for the bank to act rather than decipher the tea leaves—and risk getting it wrong.

QE has been a boon for Europe despite the year-end let-down. The euro has fallen 10% against the dollar since the start of 2015, but deflation remains a worry.

Bond yields have compressed, and stocks appear set to end 2015 with a solid gain. At Friday’s close, the Stoxx Europe 600 index was ahead 5.5%.

IT’S A NOTABLE ACHIEVEMENT, given geopolitical and economic shocks in 2015, but investors have had to work hard to find strategies that pay off. Investors who went long equities and shorted the euro didn’t necessarily get the results they were expecting. “It’s been a tough year for consensus trades,” says Francesco Filia, founder of Fasanara Capital.

Investments recommended in this column in 2015 have suffered mixed fortunes. Oddly, our second-half performance has been markedly better than the first.

Top picks include Norwegian seafood company Marine Harvest (ticker: MHG.Norway), the world’s largest producer of Atlantic salmon, whose shares have leaped 28% since we spotted that they were cheap in June.

Marine Harvest’s shares, which were trading in Oslo Friday at 114.40 Norwegian kroner ($13.05), still look like a decent value at less than 13 times projected 2016 earnings of NOK8.97 and offer a dividend yield of more than 4%.

Another winner was electronic-payments processor Wirecard (WDI.Germany), Europe’s largest online-payment service provider. Recommended here in September, the company cranked up its earnings guidance at the start of December. Its revised estimate excludes a gain of about €100 million from Visa ’s (V) proposed purchase of Visa Europe, in which it is a shareholder.

The stock is up 21% since it was tipped here. Wirecard trades for 27 times estimated 2016 earnings, based on Friday’s close of €45.37. It looks pricey, but its strength in Internet technologies in online, mobile, and point-of-sale channels mean it is worth hanging onto.

Among our worst calls was Sunrise Communications Group (SRCG.Switzerland), Switzerland’s No. 2 telecom company, which went public only in February. Sunrise traded at 81.75 Swiss francs ($82) when we flagged it in March, but it is off 30% from that mark. The shares peaked at around CHF90 in May but closed Friday at about CHF56.90.

Concerns about its revenue and dividend may be overblown, however. Confirmation of the full-year payout to shareholders would be a positive sign, although it could take a long time for Sunrise to shine.

>>> Weekly Market Update: Liftoff At Last

Weekly Market Update: Liftoff At Last

The Fed raised rates for the first time in nearly a decade, fulfilling the forecast of a 2015 rate liftoff in the final policy meeting of the year. The well telegraphed move initially sent equities higher as market participants were relieved to finally get the first rate rise under their belt. The greenback strengthened on the rate move, keeping pressure on already weak energy prices. Other central banks reacted as countries closely aligned with the US economy raised rates in tandem while the Bank of Japan created more monetary policy divergence by adding more stimulus. As the Fed rate hike sank in, stocks sold off into the weekend and for the week the DJIA ended down 0.8%, the S&P fell 0.3%, and the Nasdaq lost 0.2%.

After the Fed spent the last year talking about rate liftoff, it finally happened on Wednesday. A 25 basis point hike took the key rate off of the zero bound where it has been sitting since December 2008. Chair Yellen said that a rate rise acknowledges that considerable progress has been made in the economic recovery. Yellen managed to keep the rate decision collegial, getting a unanimous vote in support of the hike, and supporting it with a mostly dovish statement. The Fed specified that the rate hike path will be "gradual," maintaining its median 'dot chart' forecast for about four more rate hikes in 2016.

US Treasury markets saw sellers emerge ahead of the FOMC announcement. On Tuesday the 2-year yield backed up to 1.00% for the first time since 2010 and the 10-year rate consolidated around 2.30%. By Friday though, a post-FOMC sell off in equities helped push yields lower and resulted in a flatter US curve. The benchmark 10-year finished the week some 12 basis points below pre FOMC levels.

Manufacturing continued to be a sore spot for the US economy. The December Philadelphia Fed Business Outlook fell to its lowest level in two years. The Markit Manufacturing PMI reading declined with its new orders component registers the weakest reading since 2009. November industrial production steepened its sequential slide and the October was revised lower. On a positive note, US housing starts in November rebounded from a seven-month low and permits surged to a five-month high. November marked the eighth straight month that starts remained above 1 million units, the longest stretch since 2007 and growth was seen in the single family segments.

Other central banks reacted to the historic Fed liftoff from the zero bound. The day after the Fed move, the Mexico central bank raised its rate by 25 basis points to 3.25%. The Banxico said the rate move was aimed at preventing further peso depreciation and that it would focus on relative monetary policy stance with the US. The Chile and Colombia central banks also raised rates by a quarter point each. Meanwhile, the Bank of Japan highlighted the ongoing theme of monetary policy divergence by unexpectedly announcing a ¥300B boost to its ETF purchase program on Friday.

Political turmoil in Brazil spilled into the financial markets when Fitch cut its sovereign rating to junk, matching a downgrade by S&P earlier this month. The announcement was wrapped around continued soft economic data and a growing political crisis in which President Rousseff faces impeachment and the finance minister is said to be on the way out. In neighboring Argentina, new President Macri lifted long standing currency controls, effectively resulting in a devaluation of the currency and sending it lower by ~28% against the US Dollar.

After announcing a tentative deal early in the week, the US Congress moved to pass a $1.1T omnibus spending bill on Friday. House Republican and Democrat leaders scraped together enough votes to pass the compromise bill and the Senate followed suit. One notable feature of the bill is the repeal of the ban on US crude oil exports, which was traded for authorizing a five year extension of solar tax credits. Solar energy stocks performed very well on this development, even as the broader energy sector showed weakness again as crude oil plumbed new lows.

Oil prices came into the week sitting near a 7-year low around $35/bbl and continued to drift lower with no relief. News that Congress lift the oil export ban imposed four decades ago was more than offset by a surprise build to US oil inventories. WTI finished the week below $35 and is closing in on the December 2008 low of $32.40. Brent is even closer to the previous low of $36.20 hit in late 2008. Natural gas fared no better, continuing to hit fresh 13-year lows below $2.00 as the week wore on and unseasonably warm weather continued in the eastern part of North American.

Cheap fuel costs have failed to spark the economy and the DJ Transportation Average has remained a bugaboo for many investors. Knight Transportation gapped lower after cutting its Q4 outlook, weighing on trucking and logistics competitors. On Friday, FedEx quickly gave back all of the gains it made on its Q2 earnings report earlier in the week. Shares of UPS and FDX came under substantial pressure follow a report that Amazon is in talks to lease 20 cargo jets from Boeing so that it can launch its own air-cargo service to handle more of its own shipments. By Friday, the DJ Transportation Average fell to a new 2015 low below 7400, further spooking some old-school Dow theorists.

Various US corporations offered up initial FY16 forecasts, and some were not very well received. MMM shares slid after cutting this year's forecast and guiding next year towards the low end of consensus expectations. Kennametal dropped aggressively after management guided FY16 earnings down as much as 60%. Oracle continued growth in the cloud market failed to impress investors who sold off shares following its Q2 earnings report.

On Tuesday, embattled drug-maker Valeant announced a deal to distribute some of its medicines at a discount through Walgreens pharmacies. The very next day Valeant reset investors' expectations by cutting its 2015 forecast and guiding FY16 earnings below expectations. Shares surged more than 15% as the company looked to put to bed weeks of controversy surrounding alleged questionable business practices.

Deal flow slowed this week but there were a few notable developments. Newell Rubbermaid agreed to buy Jarden for $60/share in a cash-and-stock deal valued around $15 billion. For each Jarden share, Newell will pay $21 in cash and 0.862 of a share in Newell. The companies pegged the deal's total value at $15.4 billion, when including the convertible debt on Jarden's balance sheet. Avon confirmed a long speculated tie up when private equity firm Cerberus agreed to acquire an 80% stake in Avon North America, separating it from its parent company. Cerberus also agreed to take a 16.6% stake in the parent company. As part of Avon's strategic restructuring management confirmed they were suspending the quarterly dividend. The regulatory reviews of the Baker Hughes Halliburton deal continued to push ahead slowly. Both European and US regulators extended their decision time frames into next year.