Millions brace for massive US snow storm

PHOTO: AFP

JAN 22, 20168:10 AM

[WASHINGTON] The eastern United States was in panic mode Thursday ahead of what forecasters called a "potentially paralyzing" blizzard, sparking the cancelation of hundreds of flights and the looming closure of Washington's public transportation system.

The US capital and the surrounding area could see up to two feet (61 centimeters) of snow accumulate in a short time from Friday to Saturday, coupled with fierce winds, forecasters said.

With authorities warning the storm could bury Washington under more snow than it has seen in nearly a century, officials took the unusual step of shutting down the city's rail and bus system from Friday night until Monday morning.

The Metro system - the second busiest in the United States after New York - serves about 700,000 customers a day in Washington, Maryland and Virginia.

The Washington Post reported that officials believed this was to be the longest closing in the system's more than 40-year history.

Heavy snow was expected across at least 15 states, with icy rain and coastal flooding in other areas, according to the Weather Channel.

The National Weather Service (NWS) issued a blizzard warning for Washington, and said New York could catch the tail end of the storm as the weekend progresses.

"Heavy snow and blowing snow will cause dangerous conditions and will be a threat to life and property," the NWS warned in its Washington bulletin.

"Travel is expected to be severely limited if not impossible during the height of the storm Friday night and Saturday." NWS director Louis Uccellini said the system had "the potential of being an extremely dangerous storm that could affect over 50 million people." "We are talking about a potentially paralyzing storm that is already setting up," Uccellini told reporters on a conference call.

Ahead of the first snowflakes, American Airlines said it was canceling hundreds of flights, including at Washington's two airports on Saturday. All flights on that day will also be scrapped in Baltimore and Philadelphia, a spokeswoman said, adding that service would likely resume Sunday.

All American Eagle operations will be halted Saturday at New York's three airports, according to the airline.

Washington Mayor Muriel Bowser issued a state of emergency which will allow for access to "federal resources when we need them," she said during a press conference, in which she also called off school Friday.

"I've lived in DC most of my life and I don't know if I've lived through a forecast like this. It's an extremely large storm. It will last for 36 hours." States of emergency were also declared in Virginia and Maryland.

The US capital was already struggling after evening flurries on Wednesday left traffic at a standstill, even snaring President Barack Obama's motorcade, which spent more than an hour navigating the icy streets from Andrews Air Force Base in suburban Maryland to the White House - normally a trip of 20-25 minutes.

"We should have been out earlier with more resources," Ms Bowser admitted.

Asked how Obama planned to weather the big storm, White House spokesman Josh Earnest said Thursday: "My guess is he will stay warm and toasty inside the White House." If the blizzard creates as much snow in Washington over the weekend as predicted, it could surpass a record set in 1922 by a storm that dumped 28 inches over three days and killed 100 people after a roof collapsed at a theater.

Residents were already flocking to supermarkets to stock up on food and snow shovels Thursday, making for long lines at checkouts.

The NWS reported that there was "uncertainty" in snowfall through early Saturday in the corridor stretching from New York City to Boston, which saw massive amounts of snowfall last winter.

New York Mayor Bill de Blasio, however, told reporters that his city was preparing for up to 12 inches of snow, as he issued a hazardous travel advisory for the weekend.

"We're bracing for the first big storm of the winter. I want to let my fellow New Yorkers know we're prepared, the agencies here are ready for what's coming up ahead," Mr de Blasio said.

He said more than 575 salt spreaders would be pre-deployed on Friday evening and that the city had 303,000 tons of rock salt on hand.

Washington had more than 200 plows and 39 tons of salt at the ready, Bowser said.

South of Washington, "significant icing is likely for portions of Kentucky and North Carolina," NWS said.

Uccellini said there was even "the potential for a severe weather outbreak today from East Texas to the western part of Florida." But despite the dire forecast, some were excited about the snow, with parents in Washington's Logan Circle neighborhood trading tips on where to take children sledding once the blizzard died down.

The frigid weather marks a stark departure from what has otherwise been a mild winter along the eastern seaboard.

Just a month ago on Christmas Eve, the NWS reported that temperatures in New York's iconic Central Park peaked at 72 degrees Fahrenheit (22 Celsius), the warmest ever for the day since records began in 1871.

AFP

    
 

JPMorgan chief Dimon gets 35% raise

Wall Street's most prominent banker, JPMorgan Chase's chief executive Jamie Dimon, is getting a 35 per cent raise this year. 

PHOTO: BLOOMBERG

JAN 22, 20168:20 AM

[NEW YORK] Wall Street's most prominent banker, JPMorgan Chase's chief executive Jamie Dimon, is getting a 35 per cent raise this year.

Mr Dimon was given a US$7 million pay hike by the bank's board of directors Thursday, boosting his compensation to US$27 million.

That comprises a US$1.5 million base salary, a cash bonus of US$5 million and US$20.5 million in stock options, according to a securities filing by the bank.

The raise came after the bank saw US$24.4 billion in earnings last year, a gain of 12.5 per cent.

Dimon, who carried the bank through the financial crisis more steadily than rivals but then stumbled badly with both hefty post-crisis legal costs and the massive London Whale trading loss, is hardly the best-paid banker on Wall Street.

His counterparts at Goldman Sachs, Morgan Stanley and Wells Fargo enjoy better paychecks.

AFP

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Templeton's US$42b manager says the gloom has gone too far

JAN 22, 201611:26 AM

[TOKYO] Heather Arnold spends all day assessing the prospects for the world's economies and their stock markets, and doesn't see too much to worry about.

China - the epicenter of market turmoil that's reverberated around the world - is in a natural growth transition, and neither the nation's yuan policy nor its slumping equities should be a big concern to global investors, says the director of research at Templeton Global Advisors Ltd. Low oil prices will be cured by, well, low oil prices, as production is cut in the US while demand steadily climbs. Arnold is buying more shares.

"The depth of pessimism that's out there seems unwarranted," said MS Arnold, who also oversees about US$42 billion as a fund manager at Templeton, on a visit to Tokyo this week. This is "ultimately for us a good thing."

Global equities erased about US$7.7 trillion in value this year as the slowdown in China and rout in crude weigh on sentiment. Stocks in Shanghai, Tokyo and Europe are in bear markets, a measure of commodities is near an all-time low, and the yen jumped as investors sought havens, while others moved to cash.

MS Arnold sees Europe as the cheapest market, using measures including cyclically adjusted price to earnings. It's the area where they're most overweight, she said. The next-best opportunities are in emerging market shares, particularly Asian financial companies, MS Arnold said.

The Templeton Growth Fund, the largest of 16 funds she helps manage with US$14.1 billion in assets, has lost 11 per cent this year, according to data compiled by Bloomberg. The US$6.4 billion Templeton Foreign Fund is down 13 per cent. While Arnold's calm about the rout, she says she's far from complacent.

"Relaxed is probably an overstatement," she said. "When you're managing people's money, you're ever vigilant, because you do look at what's going on and try as best you can to say, is there new news in this? But when we look out, we're still very optimistic." On China, she says the equity market is going through teething pains and it doesn't say much about the underlying economy. Local investors were overexcited from the middle of 2014 and shares went too high, and now they're too pessimistic, she said. The Shanghai Composite Index surged 151 per cent from July 2014 to a peak last June. It's since dropped 44 per cent.

For MS Arnold, China's slower expansion as it shifts to a services-oriented economy is a normal transition, albeit one made more volatile by high levels of debt. Her view contrasts with billionaire investor George Soros, who said on Thursday that the world's second-biggest economy is facing a hard landing that will contribute to global deflationary pressures, prompting him to wager against US stocks.

Fears that China's weakening of the yuan is an act of competitive devaluation are off the mark, according to MS Arnold. The yuan dropped 1.5 per cent in the first week of January, fueling concern about policy intentions. In Davos this week, China's vice president underlined the Communist leadership's pledge to avoid pursuing devaluation.

"This is more taking pressure off a currency that was continuing to move ever higher as their economy was weakening," she said.

At the heart of the worldwide stock rout this year has been oil, which plunged to its lowest level in 12 years. Crude markets could "drown in oversupply," sending prices even lower, according to the International Energy Agency, which trimmed its 2016 estimates of global demand for the commodity this week. This too will pass, according to Ms Arnold, who says demand for oil is quite price-sensitive, while growth in supply will probably slow this year as the US and other non-OPEC countries scale back production.

"The lower it falls, the more the rest of us decide to drive," she said. "This is a self-correcting problem."

Ms Arnold is underweight US stocks. While the market is "fully valued," the economy has room to expand, she said. Growth will be driven by the consumer, she said, even as companies face headwinds such as rising wages and dollar strength.

Not everything seems rosy for Ms Arnold. Like China, developed economies have too much debt after the financial crisis, and the recovery will be slow.

"We should expect growth to remain quite anemic wherever we look, but that doesn't mean we're about to fall off a cliff," she said. "Whenever we see lots and lots of skepticism and fear and loathing in markets, that's never historically been signs of a top."

BLOOMBERG

    
 

As Chinese defaults rise, private placements sweep risks under mat

Chinese brokers are directing large amounts of capital fleeing China's tumbling stock market into high-yielding private debt, aiding embattled corporates but also raising risks for buyers including mutual funds, trusts and ultimately retail investors. 

PHOTO: REUTERS

JAN 22, 20165:50 AM

[SHANGHAI] Chinese brokers are directing large amounts of capital fleeing China's tumbling stock market into high-yielding private debt, aiding embattled corporates but also raising risks for buyers including mutual funds, trusts and ultimately retail investors.

Global investors are increasing worried about debt levels in China's financial system, particularly borrowing by companies in the hard-to-assess shadow banking sector, fearing a shock could destabilise the world's second largest economy.

Newly announced private placements - high-yielding bonds sold directly to institutional investors in one-to-one deals - were more than 60 billion yuan (US$9.12 billion) in November on the Shanghai exchange alone, more than the total new corporate debt issued in both Shanghai and Shenzhen as recently as April.

Shanghai-listed placements were up 450 per cent on the year in October and November, and accounted for a third of all bond listings. "(Private placements) have attracted liquidity exiting the equity market, mainly from asset managers such as investment pools at insurance companies, trust companies, mutual funds, etc," said Nicholas Zhu, a senior analyst at the ratings agency Moody's in Beijing. "After the summer equity downturn a lot of that money had limited investment options and they found this new growth area." Worryingly, many of these placements - which are risky because their pricing is not subject to market scrutiny - are from sectors such as energy and heavy industry, which accounted for most of the rise in corporate defaults in 2015.

Regulators eased corporate issuance rules in 2015 hoping to boost credit access for productive small enterprises, but much of the new debt appears to originate with sectors responsible for China's existing debt overhang.

Ratings agency Standard and Poor's said in a report in July that the size of China's corporate debt had risen to 160 per cent of GDP in 2014, from 120 percent in 2013.

Analysts express particular concern at the poor quality of some issuers because they are raising debt at a time when retail investors are also piling into debt-backed wealth management products.

Of 58 private placements listed in Shanghai in November, a full 48 were real estate, energy, steel or local government construction and investment firms - all indebted sectors partly locked out of public lending markets and key clients of the murky shadow banking system.

Shandong Honghe Mining Group, a coal miner in China's northeast rust belt, highlights the often risky nature of debt issued outside public markets.

The firm placed a 500 million yuan (US$77.04 million), 8.2 per cent coupon private note in Shanghai last October. Honghe has also received "shadow bank" trust financing ultimately sourced from retail investors, trust firm statements show.

But Shanghai exchange filings show the firm's 2014 operating income, before depreciation and other line items, was only 1.4 times interest due that year, while cash and other liquid assets were barely sufficient to cover maturing obligations.

In the meantime, China's benchmark coal prices have fallen 40 percent.

Honghe declined to comment and directed Reuters to review its exchange disclosures. "Many trust loans were issued two years ago when commodity prices were still sky high," says Oliver Barron, analyst at the economic consultancy NSBO Research in Beijing. "And any products that sent funds to those parts of the industrial sector may have repayment difficulties at the old high rates." In early January, bond and bank regulators held a "training session" asking banks to lower yields and boost risk management in the wealth management sector.

But with equities down sharply and onshore rates falling, bankers and buy-side sources say wealth managers are under intense pressure to keep yields high to defend market share.

In such a yield-scarce environment, private placements typically yield a highly attractive 6 to 9 per cent. "When we spoke with a local mutual fund manager a week ago he mentioned that they were very interested in private placement debt," said a director at a foreign buy-side firm in Shanghai. "In general, they're not too concerned about bond defaults because they see the issue as mostly confined to a few cyclical industries." Inflows to bond funds nearly doubled from June to December from end-June in the wake of the equity meltdown, while equity funds tumbled almost 90 percent.

And since high-quality debt has already been bid up to multi-year highs, managers have little choice but to dive into riskier debt or rely on leverage to offer competitive yields.

Investors in private placements are rarely disclosed, but third-quarter reports from funds managed by a diverse range of asset managers including Guotai Fund Management Company, Great Wall Fund Management Company and Aegon-Industrial Fund Management Co Ltd, among others, cite exchange traded private placement debt as one of the asset classes in which they invest.

Individual investors, meanwhile, often have little idea of where their money is going. "As investors, maybe it is difficult to figure out the portfolio of this kind of product," said a project manager at an onshore bond fund.

Shen Liqun, a 68-year-old retiree, invested in a six-month product offered by a wealth management firm in Shanghai, but said the company told her she has to wait longer because the real estate project backing the product is in trouble. "I invested in their product because their offices looked decent and they promised a 10 percent return, higher than bank deposit rates," she said. "Now, I just want to get my principal back."

REUTERS