Topley’s Top Ten – August 19th, 2019

Author

Matt Topley
August 19, 2019

1.LIBOR-The Most Widely Used Global Benchmark for Short-Term Interest Rates….Rolling Over But Above Lows.

1 Year LIBOR Rate – Historical Chart

Interactive chart ofthe 12 month LIBOR rate back to 1986. The London Interbank Offered Rate is theaverage interest rate at which leading banks borrow funds from other banks inthe London market. LIBOR is the most widely used global “benchmark” orreference rate for short term interest rates. The current 1 year LIBOR rate asof August 09, 2019 is 1.99%.

Benchmark for $370 Trillion in Financial Products.

2. U.S. Weighs Selling 50- and 100-Year Bonds After Yields Plummet

‎August‎ ‎16‎, ‎2019‎ ‎4‎:‎07‎ ‎PM

  • Treasury conducting an outreach on ultra-long debtissuance

  • Announcement follows slide in 30-year yield to record low

With interest rates on 30-year U.S. debt hitting all-timelows this week, the government is once again considering whether to startborrowing for even longer.

The U.S. Treasury Department said Friday that it wants toknow what investors think about the government potentially issuing 50-year or100-year bonds, going way beyond the current three-decade maximum.

The government stressed that no decision has yet beenmade on ultra-long bonds, explaining that it’s looking to “refresh itsunderstanding of market appetite.” The idea was broached before, back in 2017,but was shelved after receiving a less-than-warm reception.

“This comes up every now and again,” said GennadiyGoldberg, U.S. rates strategist at TD Securities. “Every time the takeaway is,there simply isn’t enough demand at that tenor, or at least there hasn’t beenin the past.”

The announcement follows a plunge in the 30-year yield toa record low this week below 2%, and also comes in the wake of many othernations opting to extend their borrowing profiles with so-called century bonds.Investors have snapped up 100-year bonds issued by the likes of Austria, although the experience of Argentina underscores some of the potentialpitfalls of buying such long-maturity debt.

The yield on America’s current benchmark 30-year bondspiked to its highs of the day and the curve steepened following the Treasury announcement.The 30-year rate climbed as much as 8 basis points on the day to 2.05%, beforeending the session at around 2.03%. The yield spread between the U.S.’slongest-maturity debt and its two-year note widened the most in five weeks onFriday.

The Treasury’s group of market consultants, the TreasuryBorrowing Advisory Committee, has long been unenthusiastic on the prospect ofan ultra-long issue, said Bruno Braizinha, director of U.S. rates research atBank of America.

The challenge for the Treasury would be to offer a yieldattractive enough for the typical investor base of pension funds andinstitutions, while keeping a lid on the cost of borrowing for U.S. taxpayers.

By Braizinha’s estimates, the yield on a 50-year issuewould be expected to come in around 10-30 basis points above the 30-year rate.

— With assistance by Liz McCormick, Benjamin Purvis, andKatherine Greifeld

(Updates with yield spread in sixthparagraph)

3.Stock/Bond Correlation Decidedly Negative…

While today bonds are less negatively correlated with stocksthen was the case in December, correlations remain decidedly negative (seeChart 1). With growth still decelerating and the economic risks to thedownside, Treasuries are likely to continue to rally if growth estimates fallfurther.

Why bonds are now the better hedge–Russ Koesterich, CFA

4.70% of IPOs 2019 Outperforming S&P

Big IPOs, Like Beyond Meat, Have Had a Good Year.WeWork Wants In.

Beyond Meat isn’talone in seeing its stock rise after going public, which might be why WeWork’sparent, We Co., is gearing up for an IPO. Barron’sanalyzed 42U.S. IPOs filed in 2019 that raised more than $100 million. Some 70%outperformed the S&P 500, relative to their offer prices, and 60% did so,relative to opening prices. Here’s more on their performances, through Friday’sclose:

•Twenty-nine of the stocks are up this year—and all have beaten the S&P 500,26 by double-digit margins.

• Beyond Meat, which thumped theindex by rising more than 570%, is the biggest outperformer. It also trouncesthe next three top risers— Shockwave Medical , Turning Point Therapeutics , and Adaptive Biotechnologies —whoseshares all have more than doubled from their IPO price.

• Theaverage change across all the stocks is a 43% rise. The average performance,relative to the S&P 500, is 45%.

• The biggest loser: PrecisionBiosciences , which gave upmore than 40% since its late-March IPO. Six underperformed by double-digitmargins, including Uber Technologies and Lyft .

Thenumbers look different if measured against opening prices, which reflect theopportunity for investors who weren’t in on the IPOs. By that measure, 24 areup since their debuts, and 25 outpaced the S&P 500. The average move,versus opening prices, was 10%; the average performance, compared to theS&P 500, was 12%. That calculation trims Beyond Meat’s rise to 266%—and PrecisionBiosciences’ fall to 50%.

5.Fear and Greed Index Measuring Retail Investor Sentiment…Extreme Fear.

6.WeWork Lanndlords Have Little Recourse If the Company Can’t Pay

WeWorklandlords exposed to $40bn in rent commitments w/little recourse if officespace company fails to pay. Comp, like others in shared office sector, createsspecial purpose vehicles for leases, so landlords do not have direct recourseto parent comp. https://ft.com/content/83decf7a-c04d-11e9-b350-db00d509634e…

7.Hong Kong is 5th Largest Exchange in World…Larger Than Euronext.

6-Euronext, Eurozone

Headquarteredin Amsterdam, the Netherlands, Euronext is a pan-European stock exchange with apresence in France, Belgium, Ireland, and Portugal. It has approximately 1,300listed companies with a combined market capitalization of $3.92 trillion.Stocks listed at Euronext trade in euros. Its monthly trading volume is about$174 billion.

5-Hong Kong Stock Exchange, Hong Kong

TheHong Kong Stock Exchange was founded in 1891. It has close to 2,000 listedcompanies, about half of which are from mainland China. It has a monthlytrading volume of $182 billion and a market capitalization of $3.93 trillion.In 2017, the exchange closed its physical trading floor to shift to electronictrading. Some of the biggest companies listed at the Hong Kong Stock Exchangeare AIA, Tencent Holdings,PetroChina, China Mobile, and HSBC Holdings.

4-Shanghai Stock Exchange, China

Thelargest stock exchange in China has a market capitalization of $4.02 trillion.It is a non-profit organization and has more than 1,000 listed companies.Though its origins date back to 1866, it was suspended following the ChineseRevolution in 1949. The Shanghai Exchange in its modern avatar was founded in1990. Stocks listed at the Shanghai Stock Exchange have ‘A’ shares that tradein local currency and ‘B’ shares that are priced in the US dollar for foreigninvestors.

3-Tokyo Stock Exchange, Japan

Foundedin 1878, the Tokyo Stock Exchange is among the top 10 largest stock exchanges inthe world. It has close to 2,300 listed companies with a combined marketcapitalization of $5.67 trillion. Trading at the Tokyo Stock Exchange wassuspended for four years after World War II. It resumed operations in 1949. TheTSE’s benchmark index is Nikkei 225, which consists of the largest companiesincluding Toyota, Honda, Suzuki, and Sony.

2-NASDAQ, United States

TheNASDAQ Stock Market was founded in 1971 in New York City. NASDAQ is consideredthe Mecca of technology companies because many of the world’s largesttechnology companies such as Apple, Microsoft, Facebook, Amazon, Alphabet,Tesla, Cisco, and others are listed here. As of November 2018, NASDAQ had amarket capitalization of $10.8 trillion with an average monthly trading volumeof $1.26 trillion.

1-New York Stock Exchange, United States

Foundedin 1792, the New York Stock Exchange has been the world’s largest stockexchange since the end of World War I, when it overtook the London StockExchange. It has a market capitalization of $22.9 trillion and about 2,400listed companies. According to the 2017 data from Gallup, more than 54%Americans had invested in stocks listed at the NYSE. The NYSE alone accountsfor roughly 40% of the world’s stock market capitalization.

Top 10 Largest StockExchanges In The World By Market Capitalization

February 19, 2019 at 11:47am by Vikas Shukla

8.Liquid vs. Illiquid Bonds.

All that appears to have cometo a long overdue end in recent weeks, as liquidity premiums for both IG andjunk bonds have suddenly jumped higher. In a recent bond market analysis,Goldman strategists looked at the relative value performance of illiquid vs.illiquid bonds, with the results of Goldman’s estimates of the average spreadpickup provided by illiquid bonds over their liquid peers in the IG and HYmarkets shown in the chart below.

The keytakeaway from Exhibit 1 is that the illiquidity premium, i.e., the spread differential betweenilliquid and liquid bonds, has been drifting wider in both the IG and HYmarkets, reaching its highest level in two years. Theunderperformance of illiquid bonds is further illustrated in the next chart,which shows the cumulative excess return (rates-hedged) on a long-shortstrategy involving illiquid vs. liquid bonds.

As thechart clearly shows, the poor showing of illiquid bonds has been particularlypronounced in HY, with liquid bonds outperforming by 2% over the past two weeks.

As withthe relative value of high vs. low price bonds, Goldman thinks the risk-rewardin being long illiquid bonds remains poor despite the new highs made by theilliquidity premium, especially when considering recent marketrepricing events of illiquid securities such as those ofWoodford, H2) Asset Management, GAM and so on.

“Brace For A NewRegime” Goldman Warns As Market Finally Pukes Illiquid Bonds

9.THE US Navy wants to build a fleet of ten robot warships over the next five years.

The hugeships referred to as Large Unmanned Surface Vehicle (LUSV) would function asscouts for the main battle fleet, carrying radar and sonar as well as anti-airand cruise missiles.

Thenew LUSV will build upon the unmanned Sea Hunter, seen here in Portland in 2016

Proponentsof the ships see the role of the vessels as carrying out “3D work” – dull,dirty and dangerous.

A DraftRequest for Proposal, posted on the FedBizOpps website,said: “The LUSV will be a high-endurance, reconfigurable ship able toaccommodate various payloads for unmanned missions to augment the Navy’s mannedsurface force.

“With alarge payload capacity, the LUSV will be designed to conduct a variety ofwarfare operations independently or in conjunction with manned surfacecombatants.

‘LIGHTFRIGATE’

“The LUSVwill be capable of semi-autonomous or fully autonomous operation, withoperators in-the-loop (controlling remotely) or on-the-loop (enabled throughautonomy).”

The USNavy hopes to build two ships a year, costing £330million per pair, over fiveyears, according to US Naval Institute News.

Each shipwould be about 200 to 300ft in length with a displacement of about 2,000 tonnes.

The shipsare described as essentially “a light frigate” and will also have some limitedaccommodation for a human crew, if necessary.

The planis to have the ships as generally unarmed but with the ability to carrymissiles if needed.

LUSVswill also be capable of acting as floating scouts, sailing over ahead of mannedships to detect threats early.

CRUISEMISSILE CAPABILITY

ThePentagon’s Strategic Capabilities Office originally spearheaded LUSV under aprogramme called Overlord which initially tried to convert a fast commercialvessel into an unmanned ship capable of travelling for thousands of miles andweeks.

The US isalso acquiring a fleet of unmanned submarines.

Boeingwas paid £35.4m by the US Navy in February this year for four Orca Extra LargeUnmanned Undersea Vehicles, according to The National Interest.

The51-feet-long Orca can travel up to 6,500 nautical miles.

InFebruary this year the China Shipbuilding and Offshore International Companyunveiled a small robotic warship that could give China the edge over the USfleet.

The JARIunmanned surface vehicle is 49 feet long and displaces 20 tons of water,Defence News reported. It can sail for around 500 milesat a top speed of 42 knots, according to the trade publication.

10.DETOX YOUR BRAIN TONIGHT

Washing Away Neurotoxins May Be The Best Detox Yet

Ever heard of a brain detox? Toxins can build up in thebrain at an alarming rate.  Brain cells have a very taxing function. So much so, in fact, that it appears that they are not able to do theirwork and clear out the toxic by-products of their metabolismat the same time.  This is different than most other cells in ourbodies.  Our heart cells, for example, need to keep operating without abreak every second for our entire lives. What the very latest research seems toshow about brain functioning is that brain cells have such a tough job of thatthey are constantly running in overdrive mode just by beingconscious.  The only way to really clear out the toxins is for the brainto power down into sleep mode…or detox mode.

While we’re awake, our brain cells accumulate various metabolicby-products such as the inhibitory neurotransmitter adenosine, which diminishesour mental focus.  New research shows that during sleep, some brain cellsshrink, opening up the interstitial space between cells by about 60 percent sothat cerebrospinal fluid can wash away neurotoxins and other by-products ofbrain cell function that accumulate while we are awake.

An entire system of plumbing for this has only recently beendiscovered, in part because it nearly disappears while we are awake.  Thisis the primary way that the brain detoxes, and it works ten times better whilewe sleep than it does when we’re awake.  In addition to adenosine andother metabolites, this system has been shown to clear out beta-amyloid, aneurotoxin associated with Alzheimer’s disease.  One understanding ofdiseases like Alzheimer’s is that it they are accompanied by an accumulation ofbeta-amyloid into plaques around brain cells, so it is quite possible that“rinsing away” the neurotoxins through more or better sleep could play abeneficial role.

So, one vital function of sleep is to help the brain detox. Itdetoxifies like an oil change for your car, and it has similar consequences forgoing too long between treatments.

What do you do to get a good night’s sleep?