(…) The actual number of job openings eased 0.1% (+4.2% y/y) to 5.501 million, down from the April high of 5.845 million. Private-sector openings improved 1.4% (4.8% y/y) to 5.017 million, and increased 4.8% y/y. (…)
The number of hires increased 0.8% (-2.8% y/y) to 5.252 million. Private-sector hiring improved 1.6% (-2.2% y/y)
Most of the credit outstanding is at floating rates…
(…) The wave is being propelled by outsize investor demand for bank loans, floating-rate debt investments that are prized because they tend to perform well in rising-rate environments. The red-hot loan market has enabled many corporations to demand that lenders cut rates or face losing the business to a rival, a sign of how easy financing is enabling large firms to get advantageous terms in debt markets. (…)
Investors have poured $17 billion into loan mutual funds since Sept. 1, with $7.6 billion coming in December alone, according to data from Lipper Inc. It is the biggest such inflow since 2013, during the “Taper Tantrum” when the Fed’s plan to reduce stimulus fueled a surge into loan funds.
With few new loans to buy, fund managers who received new money from investors are scrambling to buy existing loans, pushing prices higher and spreads down. Companies and their investment bankers saw the opportunity to refinance and pounced. (…)
Total repricings since the start of October amount to $222 billion, representing 24% of all outstanding leveraged loans, according to LevFin Insights. Firms negotiated an average interest reduction of 0.59 percentage point.
Even new loans, which companies are typically prohibited from refinancing for at least six months, have been caught up in the repricing wave. (…)
But even deals previously deemed risky have been drawing strong demand. When talent agency William Morris Endeavor Entertainment LLC and several private-equity firms used $1.8 billion of leveraged loans for their buyout of Ultimate Fighting Championship in August, the deal drew fire from bank regulators for being too aggressive. The Fed told arrangers Goldman Sachs Group Inc. and Deutsche Bank AG that the deal might violate guidelines about how much debt could be used for the purchase, The Wall Street Journal has reported.
Despite the warnings, UFC persuaded holders of its loans in January to reprice lower by 0.75 percentage point, using the markets arms of one of its owners, KKR & Co., to step in for the banks and arrange the transaction.
BTW:
(The Daily Shot)
Americans’ confidence in the U.S. economy remained strong in January. Gallup’s U.S. Economic Confidence Index averaged +11, the highest monthly average in Gallup’s nine-year trend. However, the index has been slightly lower so far in February.
In January, 31% of Americans rated the economy as “excellent” or “good,” while 21% said it was “poor,” resulting in a current conditions score of +10 — marking the highest monthly reading for this component since 2008.
The economic outlook component also reached a new high score of +11 in January. This score was the result of 52% of Americans saying economic conditions in the country were “getting better,” while 41% said they were “getting worse.”
SYNCHRONIZED ACCELERATION?
(…) Across the U.S., 27% of online home searches in the fourth quarter were for starter homes, but only 21% of listings were in that price range, according to Trulia, a real-estate information company.
Meanwhile, just 44% of searches were for luxury listings, while 55% of home listings were priced at the high end.
The findings point to a critical imbalance in the market: There is a significant and growing shortage of lower-priced homes and a glut of high-end ones.
The result is likely to be swiftly rising prices at the low end and challenges for first-time buyers, and sluggish price increases and lingering listings at the top end. (…)
EARNINGS WATCH
- 310 companies (75.8% of the S&P 500’s market cap) have reported. Earnings are beating by 3.4% (3.0% ex-Financials) while revenues are surprising by 0.3%.
- Expectations are for revenue, earnings, and EPS growth of 4.2%, 6.1%, and 8.2%, respectively. (6.0% ex-Financials)
- EPS is on pace for 9.0%, assuming the current beat rate for the remainder of the season. This would be 7.5% excluding the benefit of easy comps at AIG and GS. (RBC)
In all, three quarters of the way, this is a pretty good quarter although a lot of consumer-centric companies have yet to report.
GOP Plan to Overhaul Tax Code Gets Held Up at the Border A border-adjustment tax—the linchpin of the House Republicans’ tax overhaul plan—is splitting the business world into competing camps. Opposing it are retailers, car dealers, toy manufacturers, oil refiners and others that say it would drive up import costs and force them to raise prices.
(…) House Republicans want to drop the top individual tax rate to a 25-year low, cut the corporate tax rate to the lowest since 1939 and kill the 101-year-old estate tax.
Those are the politically easy choices, the ones Republicans argue would boost economic growth and simplify taxes. If that is all they sought, they could copy their 2001 playbook, push through tax cuts with a 10-year expiration date and declare victory.
Mr. Brady says Republicans won’t do that. They are rethinking fundamental tax rules for businesses and individuals, trying to improve investment incentives and remove tax provisions they say distort economic choices. That would affect every industry and income group, inevitably creating winners and losers. (…)
The Republicans’ task is harder than in 1986, when they worked with Democrats to scrub the tax code. This time, many Democrats are poised to dismiss the GOP plans as unacceptable tax cuts for rich individuals tied to untested changes for businesses. A memo from Senate Democratic tax staffers in December called the House plan “highly regressive and fiscally irresponsible.” (…)
The argument for border adjustment hinges in part on how currency markets will respond. Economists expect border adjustment to increase the dollar’s value as much as 25%, citing similar currency moves when other nations introduced border-adjusted value-added taxes.
As a result, proponents say, an importer would pay more taxes but the stronger dollar would make it cheaper to bring products into the U.S., theoretically leaving the importer no worse off. Exporters could be hit by a stronger dollar—it would make their products more expensive in foreign currencies—but benefit from lower tax bills. (…)
Tax experts are puzzling over how to describe who wins and loses from border adjustment. One thing is clear, economists say: If the dollar goes up 25%, U.S. holders of foreign assets—including pension funds and endowments—would suffer a one-time loss in wealth of more than $2 trillion.
There is also global uncertainty: Other countries may retaliate, either by border-adjusting their corporate taxes or by challenging the U.S. plan at the World Trade Organization as too tilted toward American producers. (…)
Republicans have said they are considering pushing a tax plan through the Senate by a simple majority. With a 52-48 Senate margin, they have little maneuvering room. At least seven GOP senators have expressed concerns about border adjustment, including Utah’s Mike Lee, Arkansas’s John Boozman, Georgia’s David Perdue and Texas’ John Cornyn. (…)
POLITICS 
A reader wrote: “I do not remember so much coverage of Obama as there is of Trump?”
My reply:
“ you are probably right. But there was never an Obama hope factor embedded in valuations as there is now for Trump.
I am not trying to do any kind of job on Trump, just trying to either justify the hype or find the trigger that will deflate it in financial markets. Note that much of the “Trump coverage” are headliners with links to the full articles which readers can elect to read or not.
There is nothing truly political in my posts but politics are currently driving markets and I must monitor and weigh its impact vs other more traditional factors such as profits, inflation, interest rates and economic momentum. All financial.
In truth, I tend to like mavericks. I was a huge Reagan fan (even though he was actually pretty straight compared with Trump). I also read a lot about Teddy Roosevelt and Andrew Jackson. I initially thought that Obama had many attributes that could make him a great president. He failed miserably from my lens although that did not prevent equity markets to triple during his presidency. All financial!”
Seth Klarman also does not get political in his writing except when it impacts the financial world:
(…) Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote.
“President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces,” he continued. “While they might be popular, the reason the U.S. long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off.”
In particular, Mr. Klarman appears to believe that investors have become hypnotized by all the talk of pro-growth policies, without considering the full ramifications. He worries, for example, that Mr. Trump’s stimulus efforts “could prove quite inflationary, which would likely shock investors.”
And he appears deeply concerned about a swelling national debt that he suggests could undermine the economy’s growth over the long term.
“The Trump tax cuts could drive government deficits considerably higher,” Mr. Klarman wrote. “The large 2001 Bush tax cuts, for example, fueled income inequality while triggering huge federal budget deficits. Rising interest rates alone would balloon the federal deficit, because interest payments on the massive outstanding government debt would skyrocket from today’s artificially low levels.” (…)
“The erratic tendencies and overconfidence in his own wisdom and judgment that Donald Trump has demonstrated to date are inconsistent with strong leadership and sound decision-making.” (…)
“The big picture for investors is this: Trump is high volatility, and investors generally abhor volatility and shun uncertainty,” he wrote. “Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”
While Mr. Klarman clearly is hoping for the best, he warned, “If things go wrong, we could find ourselves at the beginning of a lengthy decline in dollar hegemony, a rapid rise in interest rates and inflation, and global angst.” (…)
Mr. Klarman is a registered independent and has given money to politicians from both parties. (…)
Klarman seems to have very similar concerns as those expressed in my Jan. 9 post The Lady and the Trump.
