The man who bought the world

[hermes]

IMF Finds Flaw in Bond Industry as Exiting Mutual Funds Is Too Easy

By Lisa Abramowicz
On 2014-10-22T19:03:55Z

http://www.bloomberg.com/news/2014-10-22/exiting-illiquid-bond-funds-is-too-easy-to-imf-as-fees-proposed.html

Investment firms made it easy for individuals to plow into infrequently-traded debt in good times. Perhaps they should make it tougher to exit in downturns.

That’s how analysts at the International Monetary Fund see it anyway. They say regulators should consider new policies to prevent a mass exodus from funds that own illiquid debt.

The concern is that investors in mutual funds and exchange-traded funds have become complacent because they can trade fund shares daily, even though their money has been locked up in assets such as high-yield bonds and loans. Trades in those markets can take weeks to complete.

“This mismatch between the liquidity promised to fund owners in good times and the cost of illiquidity when meeting redemptions in periods of stress is a concern and call for action by regulators,” Fabio Cortes, an economist in the IMF’s monetary and capital markets department, wrote in an e-mail this week.

In other words, assets that look relatively easy to trade now -- as the Federal Reserve holds interest rates near zero -- may be much more difficult to offload in a credit market that’s selling off.

This is especially concerning because investors have piled into riskier debt in search of extra yield, making mutual funds, ETFs and households the biggest holders of dollar-denominated corporate and foreign bonds. The investors now own about 30 percent of the debt, up from less than 20 percent in 2007, the IMF said in a report this month.

Exacerbating Downturn

The “sense of an ability to sell anything instantaneously contributed to the excessive leveraging and risk-taking that led up to the crisis,” Paul Volcker, the former Fed chairman whose calls to limit the ability of banks to bet with their own money inspired the rule that bears his name, said in an e-mail last week. “There is such a thing as too much liquidity.”

The risk has gotten the attention of the financial system’s global regulatory body. The Financial Stability Board is examining whether ETFs pose a threat to market stability when interest rates rise, Carolyn Wilkins, the Bank of Canada’s representative to the group, said in an interview at Bloomberg’s Toronto office on Sept. 23.

Mutual-fund and ETF investors may exacerbate a downturn in credit by withdrawing cash after seeing losses pile up, according to the IMF report. Individual investors have a “tendency to follow the herd,” the analysts wrote in the report.

Stress Tests

They suggest considering gates and fees to limit redemptions in a rout while noting there are drawbacks to both measures.

The IMF’s concerns are overblown, says Brian Reid, chief economist at the Investment Company Institute, which represents U.S. investment companies.

“There’s a disconnect between how funds work and how the IMF understands how funds work,” Reid said. “If you have an open-ended fund, you have to provide daily redeemability” under U.S. law.

Mutual fund and ETF investors provide a surprisingly stable source of cash and don’t move it around all that frequently, Reid said. This is especially true now, with a growing proportion of older Americans plowing into bonds as they approach retirement, he said.

Investors have funneled more than $900 billion into taxable-bond mutual funds since the end of 2008, according to ICI data.

Price Shocks

The U.S. Securities and Exchange Commission has also taken note of the issue amid bond-market volatility. Its investment management division advised mutual-fund managers to stress test portfolios to make sure they can meet redemption requests “over a number of periods,” according to guidance published by the regulator in January.

Stress tests should incorporate situations such as interest-rate increases, widening bond spreads and price shocks to fixed-income investments, the SEC said.

The IMF argues regulators should do more.

John Nester, a spokesman for the SEC, didn’t immediately respond to an e-mail seeking comment.

“These less-frequently traded markets have received a strong increase in inflows by mutual funds and ETFs, which have created an illusion of ‘flow liquidity,’” Cortes wrote yesterday. “At the same time, other measures of liquidity such as breadth and depth have deteriorated.”

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Caroline Salas Gage, Richard Bravo

[Beruno]

ha mais de um ano li que ate os fundos de cash/liquidez tambem poderiam vir a ter comissoes de resgate, e que propunham que tambem poderiam vir a levar com perdas de ate 20%

[hermes]

Aposto que estes dólares são muito mais fugidios que os dólares cativos do dragão chinês.

U.S. Companies Now Stashing $2 Trillion Overseas

By Jeff Cox
On November 12 2014, 12:24 PM

http://www.nbcnews.com/business/economy/u-s-companies-now-stashing-2-trillion-overseas-n247256

U.S. companies are for the first time holding more than $2 trillion overseas, according to an analysis that paints a bleak picture of whether that money will make its way home and the limited economic impact it would have even if it does.

Corporate cash has hit $2.1 trillion, a sixfold increase over the past 12 years, Capital Economics said, citing its own database as well as that of Audit Analytics and other sources. There is no official total, but the firm also used regulatory filings that included "indefinitely reinvested foreign earnings" to glean the total sitting outside U.S. borders.

"The latest signs suggest that, as business confidence improves in light of the continued economic recovery, U.S. firms are starting to hold less cash domestically," Capital economists Paul Dales and Andrew Hunter said in a report for clients. "However, the foreign cash piles of the largest firms have almost certainly continued to grow."

That total, while daunting in its own right, is now greater than the amount held on U.S. shores, which totals just under $1.9 trillion, according to the latest Federal Reserve flow of funds tally.

Such numbers are bound to get attention in Washington, which for years has been debating so-called repatriation measures that would allow companies to bring their cash back home at drastically reduced tax rates. The new Republican-controlled Congress is expected to take up the issue quickly when it convenes in January.
Little optimism

But the Capital analysis provides little optimism in that regard. Dales and Hunter pointed out that during the 2004 tax holiday "most of that cash was used to fund dividend payouts and share buybacks rather than to boost investment." A Democratic congressional report indicated that the biggest companies receiving the benefits of $360 billion in repatriated funds actually cut a net 20,000 jobs, and that the holiday cost Treasury coffers $3.3 billion.

"This is supported by the results of a 2009 study by the (National Bureau of Economic Research), which found that every $1 that was repatriated during the tax holiday resulted in an increase of almost $1 in shareholder payouts," the Capital note said. "Around $0.80 went towards share buybacks and $0.15 to dividend payments."

Very little, then, went to hiring and reinvestment.

Tech and pharmaceutical companies hold the greatest share of overseas cash, accounting for 30 percent of the total. Companies in those sectors specifically have been under fire for a rash of "inversions," or deals that see acquirers change their domiciles from the U.S. to friendlier tax countries.

Companies that would bring the cash home would pay the difference between the local tax rate and the U.S. levy, which is the highest in the world for corporations. Theoretically, the move could provide a 12 percent boost to gross domestic product, but the reality likely will be less substantial.

The U.S. "is also one of the few countries to tax worldwide corporate income, rather than just domestic earnings. This creates a clear incentive for companies to keep their foreign earnings abroad, and this is unlikely to change," Dales and Hunter wrote. "And even if tax laws were relaxed, it seems unlikely that foreign cash holdings would provide any significant boost to the economy."

Aposto que o maior estímulo do século está a ganhar forças para estimular os súbditos do tio Sam.

[Tridion]

Aposto que estes dólares são muito mais fugidios que os dólares cativos do dragão chinês.

U.S. Companies Now Stashing $2 Trillion Overseas

By Jeff Cox
On November 12 2014, 12:24 PM

http://www.nbcnews.com/business/economy/u-s-companies-now-stashing-2-trillion-overseas-n247256

U.S. companies are for the first time holding more than $2 trillion overseas, according to an analysis that paints a bleak picture of whether that money will make its way home and the limited economic impact it would have even if it does.

Corporate cash has hit $2.1 trillion, a sixfold increase over the past 12 years, Capital Economics said, citing its own database as well as that of Audit Analytics and other sources. There is no official total, but the firm also used regulatory filings that included "indefinitely reinvested foreign earnings" to glean the total sitting outside U.S. borders.

"The latest signs suggest that, as business confidence improves in light of the continued economic recovery, U.S. firms are starting to hold less cash domestically," Capital economists Paul Dales and Andrew Hunter said in a report for clients. "However, the foreign cash piles of the largest firms have almost certainly continued to grow."

That total, while daunting in its own right, is now greater than the amount held on U.S. shores, which totals just under $1.9 trillion, according to the latest Federal Reserve flow of funds tally.

Such numbers are bound to get attention in Washington, which for years has been debating so-called repatriation measures that would allow companies to bring their cash back home at drastically reduced tax rates. The new Republican-controlled Congress is expected to take up the issue quickly when it convenes in January.
Little optimism

But the Capital analysis provides little optimism in that regard. Dales and Hunter pointed out that during the 2004 tax holiday "most of that cash was used to fund dividend payouts and share buybacks rather than to boost investment." A Democratic congressional report indicated that the biggest companies receiving the benefits of $360 billion in repatriated funds actually cut a net 20,000 jobs, and that the holiday cost Treasury coffers $3.3 billion.

"This is supported by the results of a 2009 study by the (National Bureau of Economic Research), which found that every $1 that was repatriated during the tax holiday resulted in an increase of almost $1 in shareholder payouts," the Capital note said. "Around $0.80 went towards share buybacks and $0.15 to dividend payments."

Very little, then, went to hiring and reinvestment.

Tech and pharmaceutical companies hold the greatest share of overseas cash, accounting for 30 percent of the total. Companies in those sectors specifically have been under fire for a rash of "inversions," or deals that see acquirers change their domiciles from the U.S. to friendlier tax countries.

Companies that would bring the cash home would pay the difference between the local tax rate and the U.S. levy, which is the highest in the world for corporations. Theoretically, the move could provide a 12 percent boost to gross domestic product, but the reality likely will be less substantial.

The U.S. "is also one of the few countries to tax worldwide corporate income, rather than just domestic earnings. This creates a clear incentive for companies to keep their foreign earnings abroad, and this is unlikely to change," Dales and Hunter wrote. "And even if tax laws were relaxed, it seems unlikely that foreign cash holdings would provide any significant boost to the economy."

Aposto que o maior estímulo do século está a ganhar forças para estimular os súbditos do tio Sam.

Poucos o dizem, mas eu acredito...vem aí um bull market secular 

[vbm]

E aquela lei de comportamento de rebanho, em caso de pânico:
- «Individual investors have a “tendency to follow the herd.”»?

[hermes]