6/11/2016

ARAMCO Could Bring 150B to Wall Street Banks

The planned initial public offering of oil colossus Saudi Aramco has kicked off a scramble among banks for a role in a deal that could generate $US1 billion ($1.34bn) in fees and help define success or failure on Wall Street for years.

By virtually any measure, Saudi Arabian Oil Co, as it is formally known, is one of the largest enterprises on earth. Saudi Arabia has said the state-owned company could be worth $US2 trillion-$US3 trillion — roughly equal at its midpoint to the total market value of every other publicly traded oil and gas company in the world, according to S&P Global Market Intelligence.

Ever since Saudi Arabia indicated in January that it was eyeing a public listing for Aramco, senior bankers at the world’s largest fin­ancial institutions have been swarming around the company’s headquarters seeking to ingratiate themselves with officials and win a piece of the biggest investment-banking deal ever.

The pay-off for enduring such scrutiny is expected to be rich. The kingdom has indicated it could float as much as 5 per cent of Aramco, which would mean proceeds of as much as $US150bn, and list it on multiple international exchanges. At that level, the IPO would blow past Alibaba’s $US25bn offering in 2014 as the biggest in history. Other benefits could be substantial, too.

Underwriters typically earn fees of about 2 per cent on deals over $US10bn, according to market-data provider Dealogic. Fees on privatisations tend to be lower, and Aramco is expected to drive a tough bargain.

But even if the fee pool comes in well under 1 per cent, as one source said it might, it could still be as high as $US1bn. Other business could also follow as key underwriters are typically well-positioned to trade the new securities; given the company’s sheer size, the volume of turnover in Aramco shares could be immense.

Current U.S Labor Market

AMERICA’s labour market has become a reliable source of comfort when other economic indicators dismay. When growth slowed to just 0.8% in the first quarter of the year, economists were mostly unperturbed, because payrolls were growing by over 150,000 workers a month. Wage growth was picking up. Even labour-force participation was rising, after a long period of decline.

So the news on June 3rd that the economy created a mere 38,000 new jobs in May—the lowest total since 2010—was a nasty shock. Three days later Janet Yellen, the Fed’s chairman, hinted that she no longer favours raising interest rates this summer. This abrupt change of direction followed weeks of warnings from Fed officials that a rate rise was coming, perhaps as soon as the conclusion of the Fed’s next meeting on June 15th. That now looks all but impossible.

The report, taken alone, was dire. But on the whole, there is much less cause for gloom. The American economy may have slowed, but remains fundamentally strong, as it is buttressed by a healthy consumer. Personal consumption, adjusted for inflation, is up by 3% in the past year, having surged in April. The University of Michigan’s consumer-confidence index, which was due to be updated as The Economist went to press, grew strongly in May. Even before that, confidence exceeded its average during the 2003-07 boom. According to a recent Fed survey, 69% of Americans say they are “doing okay” or “living comfortably”, up from 62% in 2013. What is more, the rise has been most pronounced among those with only a high-school education.

But demographic change is keeping average wage growth artificially low. The financial crisis struck when the oldest baby-boomers were nearing retirement age. As well-paid boomers retire, average wages fall. In addition, many low-wage workers, who were disproportionately likely to lose their jobs during the recession, are now returning to work, which also pulls average wages down.

At the same time, Americans have been leaving petrol stations with fatter wallets, thanks to cheaper oil. Consumers did save more of the petrol-price windfall than expected. But that means that now oil prices are firming—on June 7th Brent crude surpassed $50 a barrel for the first time since October—consumers will not have to rein in spending much in response

Somewhat higher oil prices should also help put an end to another drag on the economy: pallid investment, which was partly responsible for the first quarter’s slow growth. Investment in oil rigs and the like has fallen by almost 70% over the past two years, adjusted for inflation, as investors have mothballed shale-oil and -gas projects.

When will U.S Interest Rates Rise

The world economy is a worry. Europe has not yet secured its recovery (see next story), Brexit is a growing concern, and the Chinese economy remains fragile. Financial markets, which tanked early in the year on account of the world economic outlook, are sturdy for now—after Ms Yellen’s dovish comments, the S&P 500 rose close to a record high. But the world economy could yet shake markets again.

Even if it doesn’t, the contrast between American vigour and torpor abroad will delay interest-rate rises, argues Mark McClellan of the Bank Credit Analyst, a newsletter, because the Fed cannot tighten monetary policy without sending the dollar on a tear. That could itself cause renewed financial-market wobbles, particularly in emerging markets with dollar-denominated debts. It would also dampen inflation, which remains below the Fed’s 2% target, as the dollar’s strength made imports cheaper.

Where next, then, for Ms Yellen? She rightly says that raising interest rates is not a goal in itself, and describes today’s near-zero rates as only “modestly” accommodative—a reminder that the so-called “natural” rate of interest, the rate which neither stimulates nor dampens the economy, is probably much lower than it used to be. The Fed will probably need convincing that the latest labour-market report was an aberration before tightening policy. The next few months should provide such reassurance. Come what may, expect Ms Yellen to take only baby-steps.

Interest Rates in Europe

Europe is at risk of suffering lasting economic damage from weak productivity and low growth, the European Central Bank's president warned on Thursday, underscoring his argument that monetary policy alone cannot end the bloc's economic malady.

The ECB has been easing policy aggressively to boost growth and inflation in recent years with little to show for its efforts, fuelling arguments that monetary policy was at its limits and governments needed to help out.

"We do not let inflation undershoot our objective for longer than is avoidable given the nature of the shocks we face," Mario Draghi told the Brussels Economic Forum. "For others, it means devoting every effort to ensuring that output is returned to potential before subpar growth causes lasting damage."

"There are many understandable political reasons to delay structural reform, but there are few good economic ones. The cost of delay is simply too high," he added.

The euro zone grew by just 1.6 percent last year with much of the expansion coming from the ECB's stimulus and growth is expected to flatline over the next several years with inflation also holding below the ECB's target of close to 2 percent.

Draghi said growing below potential for too long actually reduced the economy's potency because instead of output rising toward capacity, potential would fall toward the actual output, permanently embedding low growth.

Draghi said growing below potential for too long actually reduced the economy's potency because instead of output rising toward capacity, potential would fall toward the actual output, permanently embedding low growth.

"Given the harm that has already occurred to potential growth during the crisis, it also means (a need for) acting decisively to raise potential," Draghi said.

Singling out areas for improvement, Draghi said the euro zone was lagging behind in innovative capacity, particularly in the services sector, and needed to utilize the latent potential in the euro area labor force, which can be unleashed with appropriate labor market and activation policies.

6/1/2016

Could Artificial Intelligence Set Monetary Policy?

Instead of relying on the Federal Reserve chair, imagine using a computer to transform mountains of raw economic data into reliable predictions for unemployment, inflation and gross domestic product to ascertain the best level for the federal funds rate.

Machine learning is a dominant sub-field of AI. It refers to technology that allows a computer to acquire a skill for which it hasn’t been explicitly programmed. At its heart, it’s an automated process for recognizing patterns in data and transforming them into possible solutions for a given problem. The more data, the better.

Google’s self-driving car is an example. No team of programmers instructed the car how to respond to every potential scenario on the road. Instead, it learns to drive by detecting patterns in vast amounts of data generated by real drivers.

Hedge funds, such as Two Sigma and Renaissance Technologies, use machine learning to help make investment choices. Amazon.com Inc. uses it to predict customer purchases and Netflix Inc. to recommend movies.

But the number of variables at work is much broader -- ranging from the strength of a dollar to more subjective factors, such as the possibility of a Donald Trump presidency. The world is also highly dynamic: Even long-understood connections between economic variables can change.

Varian concedes that contemporary data are growing exponentially. Quarterly aggregated GDP could soon be supplanted by information on billions of transactions reported in real time. Web scrapers, such as MIT’s Billion Prices Project, already comb the Internet for real-time price points relevant to inflation. Still, he says, machine-learning algorithms would need equally dense historical data to make machines “dramatically better” than humans. And that just isn’t available.

Should machine learning surmount that hurdle, don’t expect the Fed or any other central bank to turn monetary policy completely over to a machine. Economists and computer scientists agree there will always be a role for humans in making monetary policy

Bitcoin Mercantile Exchange Circumvents Foreign Trading Restrictions

China restricts the ability of companies and individuals to exchange their yuan for other currencies, part of the government’s strategy for managing its economy. That can make it complicated and expensive for citizens to invest in overseas securities, while foreign investors face restrictions in trading China stocks. Hayes’ idea is to let Chinese investors use bitcoin to buy synthetic versions of offshore stocks that would normally be off-limits, like Apple or Facebook. Conversely, foreign investors could effectively short a basket of the country’s shares not typically exposed to such strategies.

BitMEX doesn’t sell bitcoin itself. Rather, traders go to sites like Coinbase or Kraken to exchange their money for the cryptocurrency. Then, they can open an account with BitMEX, deposit the bitcoin and use that money to trade. Investors don’t buy stocks themselves, rather they pay in bitcoin for derivatives, or contracts designed to simulate stocks or indexes. Any profits or losses are calculated in the customer’s BitMEX account, and they can withdraw the proceeds to convert back to cash when they choose.

China’s Slowdown Effects Neighboring Countries

Those nearest to China are among the hardest hit as growth in the world's second-largest economy grinds to the slowest pace in a quarter century.

Taiwan's tech manufacturers face increased competition from rivals on the mainland. It's a double whammy for the island, which is also getting hit by slowing demand from China -- its biggest market. Exports dropped for 15 straight months through April, while GDP shrank 0.68 percent from a year earlier.

For Mongolia, the slowdown in its southern neighbor that sucks in about four fifths of its shipments has taken its toll as falling commodity prices undercut its biggest exports like coal, oil and copper. While its economy managed to expand 3.1 percent in the first quarter from a year earlier, that's a far cry from the 17.5 percent pace clocked in the fourth quarter of 2011.

Chinese Wealth Management Products are Dangerous

 The risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China.

WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month.

The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets. In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable -- a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis.

Issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past three years as lenders competed for funds and fees while savers sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments.

The outstanding value of WMPs rose to 23.5 trillion yuan, or 35 percent of China’s gross domestic product, at the end of 2015 from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank Co. and China Everbright Bank Co., especially dependent on the products for funding.

Messaging Apps In Iran Forced to Move Data to Iran Servers

Companies behind popular messaging apps have a year to move all the data they have on Iranian users onto servers in Iran, according to Reuters. This raises concerns about privacy.

The Iranian government wants to be able to track private and semi-private conversations on messaging apps. Many social networks are already blocked in Iran, but it looks like the government wants even more control.

In particular, apps like WhatsApp and Telegram have become incredibly popular in Iran, and the government has no control over what is said on these platforms. Users can create groups on Telegram and reach hundreds of people.

Today’s news proves once again that encryption is a cornerstone of the freedom of speech. Every time the FBI asks for a backdoor, the FBI also endangers countless numbers of people around the world who just want to be able to criticize their government freely.

Chinese Stocks to be Added on MSCI’s Emerging Markets Index

The MSCI Emerging Markets Index is an index created by Morgan Stanley Capital International (MSCI) that is designed to measure equity market performance in global emerging markets.

The Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Emerging markets are considered relatively risky because they carry additional political, economic and currency risks.

Today, rumors circulated that Chinese stocks would soon be added to MSCI’s Emerging Markets Index. This would channel billions of dollars into its economy. As a result, Chinese stocks soured marking its biggest one-day gain in three months.

If the Fed raises interest rates in June, the dollar will get stronger and Emerging Market currency will depreciate. If China is added to this index, it will weigh down the value when its currency depreciates a because of its peg to the dollar. This happened in august and January.

Carl Icahn takes a 'large position' in Allergan

Icahn is an activist investor where he buys out seats on the board of directors and votes in favor of maximizing shareholder return. Icahn’s large stake in Allergan may lead to squeezing out some shareholder return. For example, buying back shares, giving dividends, or selling the company for a premium.

Billionaire investor Carl Icahn said on Tuesday he had acquired a "large position" in Botox-maker Allergan Plc (AGN.N) and that he was very supportive of Chief Executive Officer Brent Saunders.

Shares of Allergan rose 0.8 percent to $237.85 in mid-morning trading.

Icahn, who did not disclose details of the stake, said in a statement on his website that he was confident in Saunders' ability to enhance value for all Allergan shareholders. (bit.ly/1UatnIM)

Allergan has "no reason to believe that this investment was made for purposes of influencing the actions of management or control of the company," spokesman Mark Marmur said in an emailed statement

Saunders has come close to Icahn before. Saunders became CEO of Allergan after it was bought by Actavis, where he had been CEO, and then changed its name. Saunders had moved into the top spot at Actavis from the CEO job at Forest Labs, which Actavis acquired.

Icahn had a Forest Labs stake and was agitating for change when the company's long-time management ceded control and Saunders took the CEO job in 2013. Icahn said he sold the Forest position when the company changed hands.

Allergan is near to closing the sale of its generic business to Teva Pharmaceutical Industries (TEVA.TA). Once that happens, Saunders has said the company will be able to make acquisitions of more than $1 billion. Allergan needs to pay off more debt before it will make even bigger deals, he has said.

The move comes a few months after Allergan's plans to be bought by Pfizer fell apart. In that so-called "inversion" deal, Pfizer would have moved its headquarter to Dublin, where Allergan is based, in order to lower the taxes it pays in the United States.

Volkswagen Posts Positive 1Q Earnings

This one goes out to the haters: Volkswagen posted positive first quarter earnings. It's a start for the battered emissions-rigging auto giant, but net profit was still down 20% from last year. It’s been a tough road for VW this year: falling market share in its biggest market (R.I.P. China), severed brand loyalty and investor revolts are just a few of the fun obstacles VW has faced. Fun fact: Audi and Porsche make up 40% of the company’s revenues, but a full 70% of its profit. In other words, it's tough to invest in a company called Volkswagen. It's a bit easier to go for a side brand with a less-hated name.

Starbucks Using Nitrogen in their Cold Brew

Nitro cold brew coffee started dotting menus of local cafes and trendy shops like Stumptown Coffee Roasters in the past few years. It's often served on tap like beer, and has a creamier, richer taste than regular cold brew coffee, which is brewed with cold or room temperature water, vs. iced coffee made by serving hot brewed coffee over ice.

Starbucks plans to start tapping kegs this summer — for ice-cold coffee.

The Seattle-based coffee company said Tuesday it will introduce a nitrogen-infused version of its cold brew coffee in stores as it aims to capitalize on the explosive growth in chilled coffee drinks.

The company that made a morning hot coffee run a staple of American culture wants a stronger presence in cold beverages. It could not only boost sales during hot summer months, but help store traffic in what might otherwise be sluggish afternoons and evenings.

Starbucks said iced coffee consumption has grown 75% in the past decade and sales of cold brew in particular grew nearly 340% between 2010 and 2015, based on data from market research firms NPD Group and Mintel. Even Dairy Queen, the fast food chain known for its soft-serve cones and Blizzard treats, last week started selling iced coffee and mixing its soft serve with cold coffee to make drinks called frappes.

India’s Economic Growth

India's economy grew by 7.9% year-over-year in the first quarter of 2016, according to the country's Statistics Ministry.

That's an increase from the fourth quarter's 7.2% print.

And it's above economists' expectations of 7.5% gross-domestic-product growth, according to the Bloomberg consensus.

But while this GDP figure makes India stand out among its worse-off BRIC emerging-economy peers, there are some doubts about its credibility.

"There is some evidence that India's economy has picked up speed recently but today's remarkably strong GDP data are hard to believe," Capital Economics' India economist Shilan Shah wrote in a note to clients.

"The short point is that — as we have cautioned since the release of the revised GDP series last year — we should take the official GDP data, and the world-beating rates of growth they are suggesting, with a pinch of salt."

Instagram Making it Easier for People Making Money on it

“We’ve grown to 200,000 active advertisers on Instagram, and the vast majority of those are small to medium businesses. Fifty percent of people follow a business on Instagram, and sixty percent learn about products and services on Instagram.”

Instagram this morning officially announced the launch of its tools for business users, including new business profiles, analytics and the ability to turn Instagram posts into ads directly from the Instagram app itself. The launch comes following a series of leaks and reports of the tools’ imminent launch, and largely confirms details we already knew — like how the profiles would be structured, and what sort of insights on posts and audience demographics would be available.

In the future, Instagram’s mobile ad tools may allow users to create different kinds of ads, like those that look to gather customer data for lead generation purposes. Plus, the company is thinking about ways it can “close the loop” when it comes to the ads’ performance.

5/26/2016

How Investors React to a Rate Hike

Markets tend to react to news of interest rate increases in two phases. The first reaction is often negative as the fast money that has capitalized on easy lending pulls back as the liquidity party winds down.

The second phase is what the market is witnessing now as investors focus on the benefits of a strengthening economy rather than the drawbacks of higher interest rates.

Some market strategists remain skeptical of an imminent hike, arguing that the Fed will instead wait for several upcoming events—most notably the U.K. referendum on European Union membership in June, and possibly the U.S. election this fall—to pass. The U.K. vote takes place about a week after the June Fed meeting.

All of these risks also pose a problem for markets. If any one of those becomes a problem, you have an asymmetric risk to the downside.

Tesla Raises $2B in Secondary Offering

Tesla raised $2 billion in a second offering of common stock in order to fund the Model 3 production. Goldman Sachs upgraded Tesla to a “buy” after having them as a “hold.” The timing of this upgrade is suspicious because Goldman Sachs is the bank responsible for selling the newly issued Tesla shares. Goldman’s price target for Tesla is $215. The high valuation is necessary because the new shares dilutes the share price and automatically brings it down. But if they had a solid price target, share prices will remain stable.

However, hares have lost a third of their value since a 2014 peak in September, in part over concerns about lower gasoline price, new electric cars entering the market, and capital spending.

Verizon Low Balls Yahoo

Yahoo feels it’s worth between $4 billion and $8 billion, but front-runner Verizon reportedly only wants to bid around $2 to $3 billion. This offer is likely just a negotiation tactic of anchoring, but is a bit of a slap in the face for Yahoo and its ore businesses.

America’s Credit Card Debt Reaches $1 Trillion

Credit-card debt balances are poised to hit $1 trillion this year, coming close to pre-recession levels.

Thanks to aggressive credit card pushing by banks and growing consumer confidence, this year’s sum falls just shy of the all-time peak of $1.02 trillion in July 2008, the Wall Street Journal reports.

The increase largely sum comes from creditworthy consumers feeling less hesitant to take on debt as economic conditions have steadied and the job market improved. Lenders have also been issuing credit to subprime consumers who were previously unable to qualify for credit, according to the Journal.

Banks and credit card companies have been making the most of this upswing by increasing credit card limits, doling out more cards, and offering sweeter perks or rewards — all in an effort to raise profit margins in one of their more profitable sectors after low-interest rates hurt returns on lending and stock trading profits were dampened by stricter regulation and volatile markets

Cash is King

Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Cisco Systems (CSCO) and Oracle (ORCL) are sitting on $504 billion, or 30%, of the $1.7 trillion in cash and cash equivalents held by U.S. non-financial companies in 2015. Apple alone is holding more cash and investments than eight of the 10 entire industry sectors.

Unfortunately for U.S. investors, 72% of total cash held by all non-financial U.S. companies is stockpiled outside the U.S., up from 64% in 2014 and 58% in 2013, as companies try to avoid paying U.S. tax rates.

Investors are eyeing companies' growing cash piles as potential sources of dividend increases to maintain fat returns even if stock prices continue to go nowhere.

Dividends rose 4% last year to a record high of $404 billion, while companies cut back on capital spending by 3% to $885 billion.

Companies have also been pulling back from using cash to buy back their own stock. That is a maneuver that can reduce a company's number of shares outstanding and in theory should make each share more valuable.

Apple is hold $215.7 Billion in cash reserves with 93% of it stockpiled overseas in order to evade U.S taxes.

NVIDIA Dominates the VR Sector

The trends are in NVIDIA's favor, with VR expecting to generate global hardware revenue of up to $2.3 billion this year, according to a recent report from information technology research firm International Data Corp.

IDC expects the total number of shipped VR units to reach 9.6 million this year and 110 million units by 2020.

There are several plays on the explosion of VR, but NVIDIA produces high-quality gaming graphics processing units and graphic cards that are crucial for the operation of VR headsets.

Alibaba’s Accounting Principles Investigated

The SEC has ordered Alibaba to give over all the data related to its largest shopping day of the year (the Chinese Black Friday, 11/11.) Regulators believe Alibaba hasn’t been reporting its earnings using the standardized GAAP guidelines that all U.S.-listed companies must adhere to—a big no-no, since if every company used its own interpretation of measurements like “net income,” it would be impossible to compare them. Alibaba shares fell 7% on the news.

Microsoft Lays Off 1,850 Employees

The company says it will record an impairment and restructuring charge of about $950 million because of the cuts tied to its failed acquisition of Nokia's handset business in 2014.

"We are focusing our phone efforts where we have differentiation — with enterprises that value security, manageability and our Continuum capability, and consumers who value the same,” Microsoft CEO Satya Nadella said in a statement.

The latest downsizing marks an ongoing makeover in Microsoft's mobile strategy.

Two years ago, when then-Microsoft CEO Steve Ballmer oversaw a $7 billion acquisition of Nokia's handset business, the smartphone market was vastly different, Milanesi says. Back then, Nokia was a force in the enterprise market for mobile phones and Microsoft had ambitions to rival the Android and iOS operating system platforms.

But Samsung became the dominant Android vendor in a market that has saturated.

Clean Energy vs. Exxon/Chevron

Around 40% of shareholders from Exxon and Chevron voted in favor of implementing stress tests to measure the risk that anti-climate change efforts pose to their businesses. In other words, investors are growing worried that efforts to curb climate change are seriously hurting business at Exxon and Chevron, and they want to know just how much.

Despite the defeat, the proposals drew more support than any contested climate-related votes in the history of the two biggest U.S. oil and gas companies. Preliminary results showed 41% support from Chevron CHV, +0.82%  investors that cast ballots and 38% support at Exxon XOM, -0.44%  , an indication that more mainstream investors are starting to take more seriously the threat of a global weaning from fossil fuels.

The number of shareholders supporting the climate-risk measures is significant, and it will continue to grow.

Apple Looking into Building Electric Car Charging Stations

Apple has publicly hired EV charging experts from BMW, Georgia Tech and Google. Apple is asking charging station manufacturers about their technology for the sake of its oft-rumored electric car project. It's not certain how deep the talks go or who's involved (the companies certainly aren't talking). However, NRG Energy issued a vague response noting that it's talking to "every potential manufacturer of tomorrow."

 Apple's strategy revolves around controlling as much of the experience as possible. It only makes sense that the company would want optimized charging stations instead of leaving drivers to use generic stations that might not work as effectively.

Google to Build an R&D Center Near Detroit for Self-Driving Cars

Google's Self-Driving Car Project just announced on Google+ that it's building what it calls a "self-driving technology development center" in Novi, Michigan, about 30 miles northwest of Detroit. The 53,000-square-foot facility will be used for research and development in concert with the company's Michigan-based partners — this is still the home of the American auto industry, after all — and will be where Google works alongside Fiat Chrysler (based another 30 miles north in Auburn Hills) to build its self-driving minivans starting later this year. "Many of our current partners are based here, so having a local facility will help us collaborate more easily and access Michigan's top talent in vehicle development and engineering," the post reads.

The Novi facility is expected to open later this year

Millennials Likely to Retire Late

12% of American Millennials do not see retirement in their future. And in Japan, 37% expect to work all the way to their graves. Are millennials crazy for having this mindset? Considering that nearly 19% of Americans over the age of 65 are still working—the highest rate since Medicare was introduced—millennials might just be being realistic.

ECB to Buy Corporate Debt

Investment-grade corporate bonds issued in euros are the latest addition to a growing list of assets the ECB is buying as part of its 1.74 trillion euro effort to boost economic growth in the euro zone via lower borrowing costs.

The difficulty is that the 600 billion euro market for such notes is largely limited to big corporations in France and the Netherlands that already enjoy easy access to credit. Issuers in Germany, Britain and France accounted for 70 percent of new bonds sold this year and there was little evidence of growing supply from peripheral countries.

The ECB, however, is hoping its money will eventually trickle down to smaller borrowers across the euro zone for whom funding is still a problem. Since this is likely to take time, the ECB will increase the pace of its purchases only gradually and refrain from setting a monthly target.

One of the aims of the program, indeed, is to encourage medium-sized companies, which have traditionally relied on bank loans, to issue bonds.

This would free up bank cash and indirectly force lenders to look for clients among enterprises that are too small to tap financial markets directly.

Creating this trickle-down effect will be crucial if the program is to succeed and would address the criticism that it may simply supply more money to already well-funded companies that can borrow cheaply.

Fitch says, for example, that European issuers sold bonds with the lowest coupons on record in the first quarter of the year, with high-rated companies paying less than 2 percent on bonds with a maturity of 10 years or more.

Saudi Arabia is Determined to Stop Iran’s Economic Rise

The Saudis and Iranians, leaders of the Sunni and Shiite Muslim camps in the Middle East, are already clashing via proxies on the battlefields of Syria and Yemen. Their long-troubled relationship got worse when Saudi Arabia executed a top Saudi Shiite cleric in January, and an Iranian mob responded by attacking the kingdom’s embassy in Tehran, leading the Saudis to cut all diplomatic ties.

Since the easing of sanctions early this year, a key Saudi concern has been that Iran will use the proceeds of a potential wave of investment to step up engagement in regional conflicts. That’s one reason the Saudis are doing their bit to ensure the investment never arrives.

Saudi Arabia tried to get Iran to freeze its oil production in March due to a global supply glut. But Iran did not comply because they want to compensate for al the lost revenue they faced during sanctions.

Also last month, Saudi Arabia banned Iran’s Mahan Airline from flying through Saudi airspace. Shipping insurers and brokers have been advising clients since February that ships carrying Iranian crude will not be permitted to enter Saudi or Bahraini waters, according to an April report by Control Risks. It said ships that have been to Iran as one of their last three points of entry must also receive special approval.

The Saudis can’t do much to block Iran at the global level, he said, but they’re “applying pressure on Iran wherever they are able to do so, to limit its political and economic influence.

                                                                                                                                                                       

The ECB may help Bayer Finance it’s Monsanto Acquisition

Bayer could receive financing from the European Central Bank that would help to fund a takeover of Monsanto (MON.N), according to the terms of the ECB's bond-buying program.

U.S.-based Monsanto, the world's largest seed company, turned down Bayer's $62 billion bid on Tuesday, but said it was open to further negotiations.

The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements.

The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity.

UK Banks to Deny Lending to Risky Clients

A “perfect storm” of regulatory reform, higher compliance costs and less profitable relationships have hit the UK’s banking sector over the past decade and shut customers out of lending. Banks have severed ties with clients they deem risky at an accelerated rate over the past three years — two large UK banks are dropping as many as 1,000 personal accounts and 600 corporate accounts a month — in response to stretched compliance teams and a reduced appetite for risk in the wake of fines for poor anti-money-laundering controls.

Clamping down on money-laundering and financial crime has been an FCA priority for the year. This follows a record £72m fine on Barclays in November for poor money-laundering controls on wealthy Qatari clients.

High-profile clients affected recently include Wafic Said, the Syrian-born billionaire, who said in March he would sue Barclays after the bank cut its ties with him after 40 years.

It is important that banks retain flexibility in setting up appropriate systems and controls to ensure they comply with legislation … However, banks should not use [anti-money-laundering rules] as an excuse for closing accounts when they are closing them for other reasons.

Shadow Banking Supervision is Unsustainable

Shadow banking usually refers to nonbanking firms carrying out services similar to those typically offered by banks. Or in other words, the shadow banking system refers to unregulated activities by regulated institutions.

Banks face tougher rules since the 2007-09 financial crisis, prompting a shift in risks to shadow banking like repurchase agreements, securitization or pooling of debt, money market funds and securities lending by asset managers.

Policymakers now call the sector market-based financing that can offer alternative funding for the economy, but are still mindful of risks after securitization helped sow the seeds of the financial crisis.

The FSB's "narrow" measure of shadow banking published last November, which excludes pension funds and insurers, rose by $1.1 trillion to $35 trillion in 2014, or 12 percent of global financial system assets.

A broader measure estimated shadow banking to be worth $137 trillion in 2014, or 40 percent of assets.

Shadow banking in China has seen sharp growth, rising from 2 percent to 8 percent of the global total between 2013 and 2014, but the FSB said on Wednesday the country did not agree with the classification of some entities as shadow banks.