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Posts Tagged ‘Business Insider’


Corporate America Is Borrowing Like Crazy

In Business Insider’s latest Most Important Charts In The World feature, Gerard Minack of Minack Advisors alerted us to the following chart, which shows how much corporate debt has ballooned since the financial crisis.

“One ‘success’ of Fed Policy has been to encourage an increase in corporate leverage,” said Minack.

Minack Chart Q2

Business Insider

Minack cautions that in the next economic downturn, companies could find their debt burdens overwhelming, the way that households found themselves in trouble in 2007-08.Companies, however, have not slowed their pace of issuing debt, however, with investment-grade corporate bond issuance currently at $375.5 billion year-to-date, up 7% from a year ago.

This chart from Dealogic shows that companies are issuing debt at a torrid pace, more than offsetting the amount of debt coming due next year.

Dealogic bonds

Dealogic

Even without a recession or economic downturn, the bill on these debt loads is quickly coming due.

Dealogic notes that in 2015, $273.6 billion of investment-grade corporate bonds are due to mature, with 30% of this total due in the first quarter.

And the amount of debt coming due is only set to increase in 2016 and 2017, with $310.2 billion and $341 billion worth of debt set to mature in those years, respectively.

And this is the good stuff.

According to market commentary from Frost Investment Advisors, data from Dealogic shows that corporate bonds rated “junk” have totaled $210.8 billion year-to-date, the highest level for the first half of a year since 2000.

And in his latest weekly commentary, John Hussman of Hussman Funds cautioned on the quantity of this debt, writing that, “the major risk to economic stability is not that the stock market is overvalued, but that so much low-quality debt has been issued.”

Yesterday we highlighted, this chart from Dave Lutz at JonesTrading showing the recent divergence in the S&P 500 and high-yield bonds.

Most market headlines come from the stock market and economic data, but the bond market and the debt held by U.S. companies cannot be forgotten.

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ARGENTINA DEFAULTS

cristina fernandez de kirchner

REUTERS/Eduardo Munoz

Argentina has defaulted.Argentine Finance Minister Axel Kicillof delivered the news to the world from Argentina’s consulate in New York City on Wednesday.

Kicillof had just finished a meeting in which he and a delegation from The Republic failed to satisfy the demands of a group of hedge fund creditors negotiating over $1.3 billion worth of debt owed to them for over a decade.

“The Argentine Republic has filed for a stay [on payment] with Judge Griesa… The Judge decided that if the vulture funds said there could be a stay there would be a stay,” said Kicillof. “The vulture funds were not willing to grant the stay.”

Without the stay and without payment, Argentina is in default.

“Notwithstanding any claim to the contrary, Default is not a mere “technical” condition, but rather a real and painful event that will hurt real people: these include all ordinary Argentine citizens, the exchange bondholders (who will not receive their interest ) and the holdouts ( who will not receive payment of the judgments they obtained in Court),” said Daniel Pollack the Court’s appointed mediator.

Pollack also said he would continue to make himself available for more discussions.

In Argentina’s defense, Kicillof repeated the same argument that the administration has been making for months — that paying the “vultures” would be a violation of Argentine law. That’s because there is a clause in The Republic’s bond agreements called the RUFO — Rights Upon Future Offering — clause. It expires in 2015.

According to RUFO, if Argentina negotiates better terms with some bondholders, all bondholders have a claim on those terms. That would open the country to up to $15 billion worth of payments. Earlier this month, the Court didn’t buy that, and refused Argentina’s request for a stay on payment until negotiations could be worked out (ideally with a payment to NML due in 2015).

axel kicillof

Screenshot, TN

Argentine Economy Minister, Axel Kicillof

“This was a situation of extortion,” said Kicillof. “We will not just sign anything that could lead to more external debt for Argentina… We will avoid it with all of our weapons.”The “vulture funds” are investors known collectively as NML Capital and led by hedge fund billionaire Paul Singer. They would not take haircuts on debt dating back to Argentina’s last default in 2001 like over 90% of their fellow bond holders.

To Argentina that refusal made them vultures, and you don’t pay vultures. Instead you sue them all the way up to the Supreme Court and lose.

What’s off about all this is that the $15 billion from RUFO is chump change compared to what the country might have to pay if it goes into default. Default opens the country up to “acceleration clause” claims — in which bondholders sue for all their money at once, and immediately — worth $29 billion. That’s everything in Argentina’s Central Bank.

Earlier today, Argentine bankers put together a last ditch rescue package. They offered to put down $250 million as collateral — a show of good faith that the country was willing to pay (and avoid triggering RUFO) in 2015. Another option would have been for banks to buy NML’s debt, and then request a stay on payment themselves.

But for any of that to happen there would have had to be a stay on payment, and hedge funds would not allow that to happen.

Indeed, even before Kicillof said a word Standard & Poors cut the country’s rating to “selective default” — meaning Argentina chose to renege on some of its payments, but not all of them.

“We are… lowering our long-and short-term foreign currency sovereign credit ratings on Argentina to selective default (‘SD’) from ‘CCC-/C’,” said the agency’s release, “indicating that Argentina defaulted on some of its foreign currency obligations. At the same time, we are removing the ‘CCC-/C’ foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014.”

In his address, Kicillof said that he would not be surprised if NML held sway over rating agencies, and would try to use its power to make things very uncomfortable Argentina.

But so be it. He said that the country would continue on doing what it’s been doing — trying to pay “exchange bondholders” (the 92% of bondholders who did restructure their debt) without paying the “vultures.”

That flies directly in the face of the Supreme Court, which upheld a lower Court’s ruling in favor of NML. New York Judge Thomas Griesa ruled that Argentina could not favor some bondholders over others according to a clause in Argentina’s called pari passu. In Latin, it means “equal step.”

When Argentina tried to pay exchange bondholders earlier this month, Griesa sent that money right back to The Republic. And there it sits in a Bank of New York Mellon custodial account.

“First we’re not going to sign any agreement that hurts Argentina’s future,” said Kicillof. “Second, we’re going to defend the 92% of bondholders that did restructure… In third place, we’re going to take every measure… we have to make sure this situation is not perpetuated. Argentina is ready to talk, to come to an agreement. Let’s come to a just, fair… ruling for 100% of our investors. But do not make us do anything illegal… Do not make us do anything unjust… Do not make us do anything that will make us put Argentina’s economy at risk…. We won’t allow it.”

The full statment from Pollack is below.

This morning and this afternoon, representatives of the Republic of Argentina, led by Minister of the Economy, Axel Kicillof, and representatives of its large bondholders held further face-to-face meetings in my office and in my presence.

Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in Default. Today, July 30, was the last day of the grace period for the Republic of Argentina to pay many hundreds of millions of dollars of interest to its “exchange” bondholders, i.e. those who took bonds in 2005 and 2010 in exchange for the bonds they held following the Default of 2001.

In order to make that payment of interest, however, the Republic of Argentina was also required, simultaneously, to make a “ratable” payment to the bondholders who declined to accept the exchanges of 2005 and 2010, i.e. the “holdouts”. The Republic of Argentina did not meet those conditions and, as a result, will be in Default.

Notwithstanding any claim to the contrary, Default is not a mere “technical” condition, but rather a real and painful event that will hurt real people: these include all ordinary Argentine citizens, the exchange bondholders (who will not receive their interest ) and the holdouts ( who will not receive payment of the judgments they obtained in Court).

The full consequences of Default are not predictable, but they certainly are not positive. This case has been highly publicized and highly politicized for many weeks. What has been perfectly clear to me all along, however, in my capacity as the neutral Special Master, is that the laws of the United States must be obeyed by all parties. The courts of the United States (both the United States District Court and the United States Court of Appeals), after full briefings and hearings, ruled that the Republic of Argentina could not lawfully make the interest payments to the exchange bondholders unless it simultaneously made the payments due the holdouts.

I have worked relentlessly, over a five-week period, to bring the Republic of Argentina and its bondholders together in an agreement that would allow the June 30 interest payment of many hundreds of millions of dollars to be made, and to be made lawfully, thereby avoiding Default. It is not my role or intent to find fault with either side. I will continue to be available to the parties to aid them in reaching a resolution which they must reach in the interests of all concerned.

Default cannot be allowed to lapse into a permanent condition or the Republic of Argentina and the bondholders, both exchange and holdouts, will suffer increasingly grievous harm, and the ordinary Argentine citizen will be the real and ultimate victim.

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If You Think 5G Is All About Faster Network Speeds, You’re Wrong

It’s hard to imagine a world in which our smartphones are faster than they already are today.

You can already reach for your phone, ask Google a question, and receive the answer within seconds.

The forthcoming generation of wireless technology will be even faster, but it’s not just about sheer speed.

The next major network upgrade will solve one of the most aggravating problems we experience today — searching for a reliable, fast connection.

The primary goal with 5G is to make it feel like the end user is always connected, regardless of whether or not you’re inside or outside, near a window or buried in a basement.

Part of the reason we’ll need such strong connectivity is because 5G will be about powering much more than just smartphones — it’ll be designed to connect smart watches, fitness bands, and smart household gadgets like the Nest Learning Thermostat among others.

First, what is 5G?

The term 5G refers to the true next generation of wireless networks. Since 4G rolled on a widespread scale over the past few years, we’ve seen numerous advancements, including LTE, LTE Advanced, and Verizon’s XLTE, which essentially means the carrier is using more bandwidth.

All of these improvements build on the same core requirements and are categorized under the 4G umbrella. But 5G will be the real successor to 4G, and it will be founded on a different set of requirements than today’s existing network technology.

It’s important to understand the differences between these networks because your phone’s performance greatly depends on the type of network you’re connected to. It’s more than just a little symbol that sits in the upper right-hand corner of your phone.

The jump from 3G to 4G represented a massive improvement in high-speed downloads. It would be nearly impossible to use a service like Netflix with a 3G connection, which is one example of why 4G-level speeds became necessary for consumers within the past few years.

So what will 5G bring, and what will we need it for in the future? Those questions are hard to address at this stage since it’s so early, but industry analysts are already making projections.

Speed isn’t the most important thing

There’s a common misconception that 5G simply means super fast data speeds. That’s because the early testing we’ve seen so far has emphasized how much faster 5G will be than today’s existing technology.

Kevin Smith/Business Insider

The Fitbit Force (left) and Jawbone (right).

Last May, Samsung claimed that its upcoming 5G technology will be able to transfer more than 1 gigabit of data per second, as MIT Technology Review reported.

To put that in perspective, a relatively speedy LTE connection today transfers data at about 60 megabits per second, which translates to roughly 0.05 gigabits.

A gigabit connection is much faster than any data speeds you’ve experienced with your smartphone yet. Google claims that even at a rate of one gigabit per second, you can download a full HD movie in less than two minutes.

Next-generation wireless networks will certainly be faster than our connections today, but that’s the least important priority for 5G, says Tod Sizer, vice president of the Wireless Research Program at Alcatel-Lucent Bell Labs.

“If you say speed is the real thing we need to improve in 5G, you’re missing the point,” Sizer told Business Insider in an interview. “The end user doesn’t really care about speed. They care about what the application [they’re using] needs.”

One of the biggest improvements we’ll see in 5G is the flexibility to support many different types of devices. In addition to connecting to phones and tablets, 5G will need to support wearable devices like fitness trackers and smart watches, smart-home gadgets like the Nest Learning Thermostat, and all sorts of sensors.

“Being able to support a hundred-thousand machines in a given area is what we’re designing for today,” Sizer said. “We do believe that in the future every person will have 10 to 100 machines they need to work for them.”

“In the future every person will have 10 to 100 machines they need to work for them.”

That’s part of why it’s so hard to confirm the requirements for what type of technology will go into 5G. It’s hard to figure out the data capacity necessary to power all of these devices.

“[It’s] not just in terms of supporting more data, but in terms of supporting more usage,” Peter Jarich, vice president, consumer and infrastructure at Current Analysis, told Business Insider. “And that becomes the real challenge. That’s an answer we don’t know yet, what capacity is needed.”

Improving end-to-end performance will be another big focus when it come to 5G, Sizer said. End-to-end performance refers to how well the cellular radio in your smartphone can maintain connections with the servers it retrieves information from.

Poor end-to-end performance isn’t very noticeable while you’re sending a text message or viewing a web page, but it can be really shows when you’re making a video call through Skype or watching Netflix, Sizer said. If you experience latency and lag when streaming video, it’s likely due to a weak end-to-end connection.

Business Insider, William Wei

Sizer said that this next generation cellular network will also usher in significant battery life enhancements for smartphones and mobile devices. According to Sizer, there are a lot of small tasks that applications need to run properly.

For example, an email application sends a bunch of tiny requests back and forth from the host service’s servers to check for new emails.

These requests, although small, end up chipping away at your phone’s battery life over time. Part of what Sizer’s team is researching at Bell Labs involves finding a better way to handle these requests.

“There are a lot of applications that have all these little messages,” Sizer said. “If I can take care of these little messages, I can dramatically improve the life of tablets.”

Don’t expect to see 5G for another 10 years

Part of the reason it’s difficult to understand exactly what 5G will offer is because it hasn’t even been defined. The International Telecommunication Union hasn’t revealed the specific requirements and the types of technology that will be incorporated into 5G just yet.

Nailing down the correct specifications and setting up infrastructure to deploy these networks is a slow, gradual process, Jarich explained.

The task involves defining the requirements for 5G and the technology that goes into meeting those requirements, such as achieving a certain speed benchmark and deciding which components and antennas should be added to smartphones to meet those benchmarks.

It typically takes 10 years to get a next-generation network up-and-running. Sizer and Jarich say that initial 5G deployment will probably start in 2020, and we’ll see widespread adoption by 2025.

“In order to deploy a wireless network it requires a massive investment of money and effort,” Sizer said. “It takes time to recoup that investment, which is usually several billion dollars or euros for wireless networks.”

Earlier this year, Korea’s Yonhap News Agency reported that South Korea would invest $1.49 billion into building a 5G network for the country. At the end of 2013, the European Commission kicked off a partnership that would involve the European Union investing $963 million in 5G research.

It usually requires billions of dollars to get a new wireless network fully deployed, and the cost of building 5G shouldn’t be any different than years past, Sizer said. Back in 2012, AT&T invested $14 billion to expand its LTE footprint to 300 million people by the end of 2014. That’s $14 billion one carrier spent building up LTE over the course of three years — imagine how much each carrier could spend creating 5G networks over a span of 10 years.

Both Sizer and Jarich agree that the ultimate goal of 5G is to make it feel like you’re never without an internet connection, whether you’re underground or in a remote area. But that doesn’t mean wired broadband will become obsolete just yet, Jarich said. There simply isn’t enough spectrum available to handle internet traffic without some help from wired connections.

But 5G will do its best to try.

“Those people who were born in the year 2000, they’ve never known a world where they had to share a phone with their sister, where they couldn’t get access to any information they wanted simply by reaching into their pocket,” Sizer said. “And so it’s for these folks who have never known a world where they weren’t always connected, that we’re designing the next generation.”
Read more: http://www.businessinsider.com/5g-network-speed-2014-7#ixzz38gv0YdwD

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Everything You Need To Know About The iPhone 6

 

iphone 6 concept

Johnny Plaid

An iPhone 6 concept

 

The next iPhone is likely only a few months away, and reports and rumors about the new device are spreading like crazy.

We’ve combed the web for leaked photos, rumors, and gossip, and rounded them all up here in one place.

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Investors’ Certainty Regarding An Inevitable Increase In US Inflation Is Puzzling

In a new report, Richard Bernstein at Richard Bernstein Advisors points out that investors are taking pretty big risks in their quests for higher yield

Central banks around the world have kept monetary policy loose and interest rates low in their efforts to boost economic growth. This has caused conservative investors seek bonds in higher risk countries like those in the emerging markets.

One look at emerging market debt and you can see the gap “between perception and reality,” writes Bernstein. “Investors have been lured to these securities by their higher yields, yet the underlying economic and currency fundamentals are deteriorating without commensurate widening of spreads.”

Bernstein also points out that in the U.S. the current M2 (broad measure of money supply) growth rate stands at 6.2%, while the inflation rate is below 2%. “It is hard for us to envision abnormal rates of US inflation with the supply of money growing below average,” writes Bernstein.

Meanwhile, in a large chunk of emerging markets, including the BRIC nations, have money supply growth rates and inflation rates that are much higher than the U.S.

Higher inflation rates are bad news for bond investors whose income levels are fixed.

“Investors’ certainty regarding an inevitable increase in US inflation is somewhat puzzling because the US data has been remarkably benign,” writes Bernstein.

Inflation is just one of the many risks he sees in the emerging markets.

“The ongoing deflation of the global credit bubble will likely prove to be a significant and secular hindrance to emerging market growth, and investors still appear to be underpricing the risks associated with emerging market assets,” writes Bernstein.

 

cotd

Richard Bernstein Advisors

 

 

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