Recap :


Results of Hubris are many. There are several experiments noting that well over 50% of people consider themselves above the average of the group in various skills. This applies to people’s choices too. Congressional approval ratings are at all time lows, yet most voters think the congress person THEY voted in is good. Most people bemoan the state of the nation’s education system, but think THEIR kid’s teacher is doing well. (h/t Bob for that one!) Most tech startups fail, but THEIR startup will make it big. And it’s the same for hedge funds. Despite serial underperformance, and general recognition that the group as a whole is likely to continue to underperform, people apparently think that THEIR fund will be the exception. A result of this (among other factors) may be that hedge fund AUM has hit another record. Plus ça change…

Separately, GS notes that though US credit spreads are touching levels last seen on the eve of the financial crisis, corporate balance sheets remain healthy: (note that this is broadly speaking a consensus view) We recently updated our measures of corporate leverage that we construct ‘bottom-up’ from the financial statements of US firms with rated debt… For US high-yield issuers, our median debt/EBITDA and debt/assets ratios are currently at the 37th and 26th percentiles of their distribution since the data begin in 1986. Leverage among investment grade issuers looks even lower by historical standards, with these ratios at their 29th and 24th percentiles. That is, our metrics suggest that corporate leverage has been higher than it is now for roughly three quarters of the time over the last three decades.

NYT notes that “swing voters” swing not from party to party, but from voting to non-voting:


  • US Existing Home Sales declined by -0.2% MoM vs -1.0% exp and -0.4% prev
  • EU Consumer Confidence improved to -8.7 vs -9.3 exp and prev.
  • China tightening rations credit abroad –FT (h/t Steve)
  1. “The volume of international lending has dropped as much as 50 per cent,” this adviser calculates in reference to China Development Bank.
  2. Rather than report a borrower as current by collecting token amounts of interest, the two have begun to act more commercially. They declare borrowers in default, take possession of the assets backing loans and sell those assets on the international markets, where they can get paid more than in China itself..
  3. At the same time, regulations in the developed world are also making it harder for the big international banks such as Citigroup, JPMorgan and HSBC to be as active as they used to be in channelling funds to credit-poor parts of the world. For example, HSBC has terminated about 500 correspondent banking relationships in exactly those parts of the world that most need capital. That is because regulators require the banks not only to know their own customers but in these cases to know the customers of their customers.

China has quietly commenced an overhaul of its SOEs; the shifts “mark the beginning of the biggest revamp of China’s state sector since the late ‘90s.” Over the last few weeks some of China’s biggest SOEs have announced spin-offs and restructuring plans and local authorities are experimenting with new management structures. Reuters In Crimea now, few institutions function normally. Most banks are closed. So are land registration offices. Court cases have been postponed indefinitely. Food imports are haphazard. Some foreign companies, like McDonald’s, have shut down. – NYT Upcoming Data:

  • Tue: Australia CPI, China HSBC Mfg
  • Wed: EU PMI, BoE Minutes, Canada Retail Sales, UK Markit PMI, New Home Sales
  • Thu: Germany IFO, Draghi Speaks, US Durable Goods Orders, Jobless Claims, Japan CPI
  • Fri: UK Retail Sales, US Markit PMI
  • Mon: US Pending Home Sales