Trump’s tariffs prompting some US fund managers to look overseas

NEW YORK – President Donald Trump’s announcement of import tariffs, and the prospect of retaliation by other countries, is prompting some fund managers to pare their holdings of US stocks and look for opportunities overseas.

The high turnover of key staff in the White House, including the exit of Gary Cohn, the director of the National Economic Council this week is undermining confidence in policy making also.

President Trump said Thursday that he would begin imposing import tariffs of 25 percent on steel and 10 percent on aluminum in 15 days, sparking fears of a global trade war.

Gary Cohn, the chief economic adviser to Trump, who argued against trade protectionism, resigned late Tuesday after
Trump first announced the tariff plan and his successor has yet to be named.

Fund managers from Oppenheimer, Federated, and Wells Fargo are among those that now see international and emerging market equities as more attractive than the US, where the prospect of higher interest rates contributed to a slump in stocks in February, leaving the benchmark S&P 500 stock index up about 2.0 percent for the year-to-date, after turning in a 7.0 percent gain in January.


Overseas stocks, by comparison, are benefiting from synchronized economic growth in both Europe, Asia and the Americas, but offer lower valuations.

The gross domestic product of countries in the eurozone, for example, expanded at a 2.7 percent annual rate in the fourth quarter, outpacing the 2.5 percent gain in the U.S. economy over the same time. The Stoxx 600, an index of companies in the eurozone, trades at a trailing price to earnings ratio of 14.9, compared with a 22.7 P/E ratio for the S&P 500, according to Thomson Reuters data.

“You’re still seeing an earlier stage of an expansion cycle overseas versus the United States, which is likely to bounce between expansion and slowdown in the year ahead,” said Brian Levitt, senior investment strategist at OppenheimerFunds.

Emerging markets such as China and Russia also look attractive given their prospects for economic growth and low equity valuations, he said.

In the US, meanwhile, a Democratic party takeover of at least one branch of Congress in elections in November would bring more stability to Washington by curbing President Trump’s ability to expand protectionist policies, he said.

“History suggests markets do better with divided government because there is less uncertainty with policy because it becomes harder to get anything enacted,” he said.

WHY TARIFFS HURT

The prospect of import tariffs could damage the U.S. economy by raising costs for US. manufacturers and consumers, while prompting its trading partners to impose their own levies on U.S. exporters, increasing their costs also and sapping overseas demand.

Daniel Pinto, a co-president at JPMorgan Chase & Co, said in an interview with Bloomberg on Thursday that the US equities could fall by between 20 and 40 percent over the next three years if a global trade war breaks out.

Brian Jacobsen, multi-asset strategist at Wells Fargo Asset Management, said that the risks of retaliatory tariffs is prompting him to add to emerging markets and international stocks but at a slow pace, despite the fact that they look more attractive on a fundamental basis.

“Strategically, we still really like international and emerging markets, but when you have asymmetric risks, that makes us a little cautious on non-U.S. assets for now”, given that markets have not yet priced in the possibility of more protectionist policies, he said.

Overall, US fund managers have been reducing their stake in domestic stocks as interest rates rise, making bonds more attractive.

US balanced funds, which hold both equities and bonds, now have an average of 55 percent of their assets in stocks, a 4.0 percent decline from 2014, and nearly 41 percent of their assets in bonds, according to Lipper data.

Yet Ashwin Alankar, head of global asset allocation at Janus Henderson Investors, said that he remains a fan of large-capitalization US stocks despite the likelihood of higher trade costs and inflation.

The recently-passed US corporate tax cuts provide on-going fiscal stimulus that should balance out higher interest rates, he said, a boost to stock prices that is not found in other markets.

As a result, he is moving more of his portfolio in large-cap US stocks, he said.

“Europe isn’t talking about fiscal spending, Japan isn’t,” he said. “The US is the only market in the world right now that could have the tailwind of fiscal spending.”

source: interaksyon.com

In Ecuador cyber heist, thieves moved $9 million to 23 Hong Kong firms

HONG KONG/CHICAGO  - Cyber thieves who stole $12 million from an Ecuadorian bank in 2015 routed the funds through 23 companies registered in Hong Kong, some of them with no clear business activity, according to previously unreported court filings and judicial rulings.

The court papers offer a first glimpse into where some of the money was moved after it reached accounts in Hong Kong.

The filings stem from a lawsuit filed in early 2015 by Ecuador's Banco del Austro (BDA) in Hong Kong against the web of companies that received or handled more than $9 million in stolen funds, bank records submitted to the territory's Court of First Instance show. The BDA lawsuit alleged the companies had been "unjustly enriched" and sought recovery of the money.

The remaining $3 million was routed to entities in Dubai and elsewhere, according to separate court filings in the U.S. Those transfers are not the subject of litigation in Hong Kong.

The cyber thieves allegedly used the SWIFT global messaging system to move the funds. SWIFT, a conduit for bank money transfers worldwide, also was the network used to move $81 million out of Bangladesh Bank in February.

According to the Hong Kong court filings, BDA submitted criminal reports to police in both Hong Kong and Ecuador about the transfers. The content of those reports was not part of the court record reviewed by Reuters. The attacks have caught the attention of global investigative agencies. The U.S. Federal Bureau of Investigation and Bangladesh authorities are leading a search for criminals behind the February heist, which ranks among the largest ever.

In the Ecuadorian heist, the money was transferred by Wells Fargo based on authenticated SWIFT messages, and both BDA and the U.S. bank now believe those funds were stolen by unidentified hackers, according to documents in a BDA lawsuit filed against Wells Fargo in New York this year.

It was not clear whether the Hong Kong Police have launched an official probe. A spokesman for the agency declined to confirm or deny the existence of an investigation.

The Ecuador attorney general’s office did not respond to a request for comment. The FBI and BDA also declined comment.

Initially, cyber thieves moved $9.139 million of the more than $12 million they stole from BDA into the Hong Kong accounts of four companies at HSBC and Hang Seng Bank.

At least $3.1 million of the funds were then routed from those four companies to 19 "second layer" bank accounts, meaning the funds made a second hop to another set of Hong-Kong registered companies, the papers show.

Not tied to real businesses

Hang Seng did not immediately respond to a request for comment. HSBC declined to comment on the details of the case but a spokesman said in an e-mail that the bank actively co-operates with law enforcement and has controls in place to know its customers and deter crime.

SWIFT, an acronym for the Society for Worldwide Interbank Financial Telecommunication, has said its core messaging system has never been breached.

A BDA lawyer said in the filings that the Ecuador bank knew none of the firms or people behind the four companies that initially received the funds. Most of the "second layer" accounts appeared not to be tied to real businesses, the lawyer added.

Hong Kong Deputy High Court Judge Conrad Seagroatt said in a December ruling in the case that the four initial recipients showed no prior history of business activity. "They all appear to be otherwise inactive corporate vehicles controlled by citizens of the People's Republic of China," Seagroatt wrote.

In March last year, BDA secured an order from the court to freeze the accounts of the four companies that intially received the funds, although it later settled with the recipient of the smallest transfer of $95,731.18 and withdrew its claim against that firm, the court record shows.

As of last month, complaints against five of the 23 defendants had been withdrawn or dismissed, and settlements with some defendants have taken place, court papers reviewed by Reuters indicate.

BDA has declined to speak with Reuters about the Hong Kong case or the related litigation in the United States against Wells Fargo.

source: interaksyon.com

Wells Fargo admits deception in $1.2 billion US mortgage accord

Wells Fargo & Co (WFC.N) admitted to deceiving the U.S. government into insuring thousands of risky mortgages, as it formally reached a record $1.2 billion settlement of a U.S. Department of Justice lawsuit.

The settlement with Wells Fargo, the largest U.S. mortgage lender and third-largest U.S. bank by assets, was filed on Friday in Manhattan federal court. It also resolves claims against Kurt Lofrano, a former Wells Fargo vice president.

According to the settlement, Wells Fargo "admits, acknowledges, and accepts responsibility" for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance.

The San Francisco-based lender also admitted to having from 2002 to 2010 failed to file timely reports on several thousand loans that had material defects or were badly underwritten, a process that Lofrano was responsible for supervising.

According to the Justice Department, the shortfalls led to substantial losses for taxpayers when the FHA was forced to pay insurance claims as defective loans soured.

Several lenders, including Bank of America Corp (BAC.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE) and JPMorgan Chase & Co (JPM.N), previously settled similar federal lawsuits.

But Wells Fargo held out, and its payment is the largest in FHA history over loan origination violations.
Friday's settlement is a reproach for "years of reckless underwriting" at Wells Fargo, U.S. Attorney Preet Bharara in Manhattan said in a statement.

"While Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust," Bharara added.

The accord also resolved a probe by federal prosecutors in California of alleged false loan certifications by American Mortgage Network LLC, which Wells Fargo bought in 2009.

No one has been criminally charged in the probes, and the Justice Department reserved the right to pursue criminal charges if it wishes, according to the settlement.

Franklin Codel, president of Wells Fargo Home Lending, in a statement said the settlement "allows us to put the legal process behind us, and to focus our resources and energy on what we do best -- serving the needs of the nation's homeowners."

Lewis Liman, a lawyer for Lofrano, did not immediately respond to requests for comment.

Wells Fargo on Feb. 3 said the settlement would reduce its previously reported 2015 profit by $134 million, to account for extra legal expenses.

source: interaksyon.com

Wall Street Week Ahead: Debt-ceiling battle may overshadow earnings

NEW YORK - U.S. stock investors, hoping to leave politics aside to focus on fundamentals, aren't going to get their wish yet as lawmakers battle over raising the debt ceiling.



Proof that political uncertainty was holding down markets was seen on Thursday and Friday as the S&P 500 generated two days of strong gains in advance of the weekend.







Legislators will be busy negotiating raising the $16.7 trillion federal borrowing limit and reopening the federal government. If the borrowing cap is not increased by October 17, it could lead to a U.S. debt default.



The government has been partially shuttered since October 1. The shutdown has lasted longer than many expected, and while proposals from both President Barack Obama and congressional Republicans have been viewed as signs of progress, a final agreement remains elusive.



When not worrying about the government shutdown, investors will dive into the first busy week of third-quarter results, led by bellwethers General Electric Co, Goldman Sachs Group Inc, and Google Inc.



"If we see a deal over the weekend, the market will trade back to where it was before all this concern settled in, near all-time highs," said David Joy, chief market strategist at Ameriprise Financial in Boston. "Otherwise we'll probably fall back to 1,650, possibly further, depending on how rancorous the disagreement is."



Increase in volatility



The S&P 500 is above its major moving averages, which could serve as support in the case of a market decline. The benchmark index is 0.9 percent above its 50-day moving average of 1,678.22, and 1.8 percent above its 100-day average of 1,662.53.



Many analysts have forecast increased volatility the longer the market goes without a deal. The CBOE Volatility index spiked this week above 20 for the first time since June. Trading in VIX futures suggested more concern about the near-term market trend as well.



Data showed investors were willing to pay more for protection against a slide in the S&P 500 now than three months down the road. On Wednesday, the spread between the VIX and 3-month VIX futures briefly hit its lowest since late 2011 at around negative 2.



That condition reversed on Thursday when the market rallied sharply, but traders remain on guard against another jolt of volatility if Washington politicians emerge from the weekend without any progress.



The indexes' weekly performance was mixed. Late in the session on Friday, the Dow Jones industrial average rose 0.5 percent, the S&P added 0.2 percent and the Nasdaq fell 1.1 percent, pressured by selling in some of its best performers this year, including Netflix and Tesla Motors Inc.



While most analysts said a default on U.S. debt would be catastrophic for the economy, they also said it was highly unlikely that a deal would not be reached.



Ken Fisher, who oversees $49 billion at the Woodside, California-based Fisher Investments Inc, said there was a "maybe 0.0001 percent chance" the debt ceiling would be breached.



"People have been saying that things are different this time, but Washington is just a distraction for markets, simple as that," Fisher said. "If a default was possible, you would see bond prices fall through the floor. Eventually you have to stop listening to the people crying wolf."



Notably, investors in the short-term Treasury bill market are preparing in case of a missed or delayed payment. Yields on bonds maturing from late October through the end of 2013 are at elevated levels as investors shun those issues as a result of the default threat.



Earnings heat up



Next week is a busy one for corporate earnings. Results and outlooks from banks may be the most important, as investors look for companies' comments on how the shutdown may affect growth and the impact of higher interest rates. Among the early indications, Wells Fargo said revenue from home refinancings fell to its lowest level since the second quarter of 2011.



"The shutdown will impact earnings growth some, but I expect the negative effect will likely be small," said Fisher. "We're clearly still in the middle phases of a bull market."



S&P 500 companies are expected to post earnings growth of 4.2 percent in the quarter, down from the 8.5 percent rate that had been forecast on July 1, according to Thomson Reuters data. Of the 31 S&P components that have reported thus far, about 55 percent have topped expectations, below the historical average of 63 percent.



While some government-prepared economic data will be delayed next week because of the shutdown, including consumer prices and housing starts, those still scheduled include the New York Fed manufacturing survey and Philadelphia Fed survey, both for October.



Monday is Columbus Day and a federal holiday. Stock markets will be open but the U.S. government, of course, will remain shut.

source: interaksyon.com