CMR is the leading provider of funding and management support for small to medium-sized businesses and entrepreneurs 

US equity markets continue to melt-up this morning, extending gains from Kudlow's trade deal comments last night...

But bonds ain't buying it...

Source: Bloomberg

And the dollar is dumping to one-week lows...

Source: Bloomberg

FOMO forever!!

Back in the day, investment bankers had to decide: hand over a good 10-15 years of your life, working insane 110+ hour weeks in the office, but get paid very well in exchange, with the typical Ibanking associate and VP making anywhere between $300K-$750K in the late 20s, early 30s. Those days are long gone, and while the crazy hours remain, the pay has come down considerably in recent years. And for bankers at the second largest Swiss bank, Credit Suisse, it's about to come down again.

As Bloomberg reports, Credit Suisse expects to cut bonuses at its most lucrative (historically) investment banking and capital markets division and reallocate capital to higher growth areas after a continued slowdown in deal-making. According to "people familiar", the pay cuts are expected to happen even if fourth-quarter revenues rebound, which they probably won't. In fact, it is now expected that after several quarters of lackluster M&A activity, a drop in IPOs and weaker leveraged finance, the bank's best paying unit is expected to post its lowest result in years.

Credit Suisse paid out $3.2 billion in bonuses last year in total. Compensation and benefits for the first nine months were $75 million lower at the division compared to a year ago, according to the bank’s most recent quarterly report.

The bonus bloodbath was first hinted at several weeks ago, when CEO Tidjane Thiam called the division’s third-quarter performance "unsatisfactory." As Bloomberg adds, "the bank lost out this year as a string of deals collapsed or didn’t get off the ground, including the planned initial public offering of Swiss Re’s U.K.-based Reassure unit and Chevron Corp.’s abandoned bid for Anadarko Petroleum Corp. Still, Credit Suisse retains a top 10 spot for M&A and is a global coordinator on Saudi Aramco’s IPO."

Another hint: the head of the bank's Ibanking/capital markets division, Jim Amine, stepped down earlier this month, taking the role as head of private credit opportunities based in New York.

Credit Suisse is hardly alone as bonuses across Wall Street are poised to drop again in 2019, according to a report Tuesday by compensation consultant Johnson Associates. A long-term perspective is even uglier, with a recent Bloomberg analysis indicating that compensation per employee is down as much as 61% at Goldman Sachs when adjusted for nominal wage growth in the period. Second after Goldman's precipitous drop - now that the bank is transforming into a retail bank with major credit card problems - was Credit Suisse Group at 46%. The group had an average reduction of 14%.

Those working at hedge funds and in private equity and investment banking advisory are likely to do better, with their bonuses potentially climbing 5%, according to the report.

Chinese officials slammed American lawmakers who are advancing a bill designed to protest Hong Kong's quasi-independent status guaranteed by the legal handover agreement between the British and the Chinese, but the US isn't the only major western power that's creating problems with the increasing dangerous situation in Hong Kong.

Hong Kong's Justice Minister Teresa Cheng took a nasty tumble last night during a confrontation with pro-democracy sympathizers who came out to protest her presence in London.

Teresa Cheng

Late on Thursday, Cheng, who was in the UK to promote Hong Kong as a 'cener of dispute resolution' (ironic, we know), was suddenly surrounded by at least 30 protesters angry about her government's handling of the protests, which have devolved into violent confrontations with the police.

In a video of her minutes-long confrontation with the protesters obtained by SCMP, the demonstrators can be heard shouting "shame on you", "murderer" and protest slogans like "five demands, not one less."

[BREAKING] Secretary for Justice of the HKSAR Theresa Cheng is attending a event to give a speech but fell on the floor during a protest against her and her government in London#HongKong #HongKongProstest #HongKongProtester #FreedomHK #DemocracyforHongKong pic.twitter.com/L5XYgXNsgX

— Chloe Leung (@chloeleungys) November 14, 2019

It's not clear whether she was pushed, or fell over, but all of a sudden, the minister is seen writhing on the ground, clutching her arm. She was taken to a local hospital after her fall.

Afterwards, Cheng made a complaint to the Metropolitan Police and asked that they "take the case seriously and put the culprits to justice," according to a statement from her office. She also took a minute to shame the members of the mob that overwhelmed her in London: "The secretary for justice castigates the violent mob in London today causing her serious bodily harm on her way to an event venue."

The secretary also used the statement to denounce "all forms of violence".

"The secretary denounces all forms of violence and radicalism depriving others' legitimate rights in the pretext of pursuing their political ideals, which would never be in the interest of Hong Kong and any civilised society."

Meanwhile, in a terse statement about the incident, the Metropolitan police said "a woman was taken to hospital by London Ambulance Service suffering an injury to her arm." They added that "inquiries are ongoing to establish the full circumstances. There has been no arrest at this stage.”

Which is unfortunate, because Beijing is demanding a full investigation.

Chinese Foreign Ministry Spokesman Geng Shuang said Friday that China’s envoy to Britain, Liu Xiaoming, will visit Cheng. But Geng also warned British politicians not to make "wrong remarks" by expressing support for the protesters.

"China demands an investigation into the incident," Geng said. "[Britain] should also protect the safety and integrity of all Chinese people in the nation."

Meanwhile, Hong Kong's "Week of Rage" continued Thursday, with more white-collar workers who have been let off work opting to join the protests, after several police shootings and the second protester death in a week has inspired more support for the protesters.

Campuses had been transformed into citadels, reinforced positions where young protesters prepared to battle with the Hong Kong police or whatever government-backed goons may come.

In one video, explosions can be heard on the campus of Chinese University of Hong Kong, with video capturing a car on fire.

Explosions are heard at Chinese University, as protesters say a car at the other end of the bridge has been set on fire

Video: SCMP/Alvin Lum pic.twitter.com/Jr4YfA7TFA

— SCMP Hong Kong (@SCMPHongKong) November 15, 2019

A government worker died this week after being caught in a brick-hurling fight between protesters and police. The death has been ruled a murder by the police. The incident has caused sympathy for an investigation into police conduct to soar: some 80% of Hong Kong adults want the government to set up an independent commission of inquiry to examine the use of force by police throughout the nearly six-month long period of unrest.

Spoke to several Hong Kong bankers, finance and insurance folks about why they came out to protest today. Almost all said police violence this week. Several mentioned violent scenes at CUHK. Said they wanted to show support for students on the front lines. pic.twitter.com/pzCzvoasCF

— Iain Marlow (@iainmarlow) November 15, 2019

“Everybody’s worried, but that’s not stopping us from coming out.”

This office worker in Hong Kong’s Central business district explains why many continue to come out in support of the #HongKongProtests downtown #?? pic.twitter.com/RGWWuNhk13

— Bloomberg TicToc (@tictoc) November 15, 2019

As Bloomberg reported, a campaign to disrupt traffic has led to the shooting of a protester and citywide school cancellations, while Hong Kong Chief Executive Carrie Lam’s government has denied reports of a plan for an unprecedented curfew that would almost certainly stoke the protesters' rage.

Authored by Jeffrey Snider via Alhambra Investment Partners,

There’s trouble brewing in a particular sector of the corporate bond market. It’s not really new trouble, merely the continuation of doubts and angst that have existed for more than a year already. What’s different now is that it is finally causing more open disruptions, and thus sparking our interest as to what it might mean well beyond this specific market or corporate finance.

Including and especially what it could do to repo.

What I’m writing about is CLO’s, or collateralized loan obligations. It’s a fancy term for securitized corporate loans. A bunch of these are pooled together in the same way mortgage loans used to be more than a decade ago. Particular tranches are assigned cash flow and loss priorities, rendering the lower parts of the structure as solid near risk-free securities.

Source: Bloomberg

And, in fact, they are. Even among the worst junk of the housing bubble era, the senior and super senior tranches performed admirably – just as they were designed. I’m still not aware of any that caused actual cash losses, meaning credit. “Thickness”, or the amount of loss protection provided by the tranches above them, was never the issue.

The whole point of securitization was and remains one goal. As I wrote a few months ago on the topic of repo:

We can spend an awful lot of time diagramming and detailing these instruments [ABS CDO’s; another form of securitized financial structures] and those like them, what they were used for and why banks seemed so enamored with the type. In fact, I’ve already done so elsewhere (Eurodollar University). ABS CDO’s can be of a couple different kinds but what they all have in common is that they make what is erstwhile illiquid assets into a liquid security.

What’s so important about that? In a word: repo.

You can’t show up at JP Morgan’s repo desk with a lot of papers holding title to thousands of mortgages and expect to fund them on the basis of those individual loans. That doesn’t work. For one, the cash owner, the interbank repo lender, wants collateral that is highly liquid because that way the cash owner knows the collateral being received isn’t going to move much while in his possession.

Though the senior and super senior mortgage bond tranches weren’t realistically exposed to credit losses, they were exposed to illiquid markets and pricing schemes that were unrealistic. The repo market doesn’t care, however, an unforgiving and brutal place where all that matters to the counterparty on the other side is that pricing scheme.

If an asset’s price can move quite a lot in a very little amount of time, then the repo market won’t like that asset regardless of any other characteristic; credit and otherwise.

And the reason you pool together corporate loans, like mortgage bonds, is because you want a securitized package tailormade for repo funding.

Source: Bloomberg

Whereas MBS and the like found their way into the repo collateral chains before 2007, CLO’s (and Eurobonds, and Eurobond CLO’s) have done something similar particularly since 2012 and 2013 (like stocks, the CLO market was really enthusiastic about the prospects for QE3). But not in a straightforward way, more likely as the initiating link in a collateral transformation chain that in its most vanilla form gives a simple repo transaction a couple of additional (and concealed) legs.

I gave an example of this in the most recent edition of my new Follow The Money series (registration required) which dealt specifically with CLOs’ offshore cousin, the Eurobond binge. The diagram below is taken from that other work but applies all the same – just swap the Argentine government for a risky corporate lender, Bank A for some domestic non-bank, and the orange arrow Eurobond for most varieties of CLO’s.

The problem, again, with how MBS was used in the same way a decade ago was uncertainty about pricing – the thing that kills collateral potential in repo and repo transformation. In our example above, neither the repo market nor Bank B has any interest in being a part of using an increasingly risky and therefore potentially illiquid asset in the chain.

And what we are seeing recently are more and more indications of risky and irregularly priced CLO’s and corporate junk more generally. From the WSJ a few days ago:

Some securities in the $680 billion market for collateralized loan obligations, or CLOs, lost about 5% in October, reflecting worries about rising risk in the complex investment vehicles. The declines were a rare stumble for the CLO market, which has grown by about $350 billion in the past three years, according to data from S&P Global Market Intelligence, fueled by demand from government pensions, hedge funds and other yield-hungry investors.

I think that estimate of $350 billion understates the level by quite a bit; likely just a domestic snapshot of the more visible parts. How many more CLO’s are out there offshore in Eurobond-land? If you ask the Treasury Department, it “found” about $280 billion more in June 2018 alone.

In other words, there are tons and tons of these things floating around the offshore financial world. And a lot of those that are out there have wound up one way or another as the originating entry into a collateral chain; there is likely to be widespread repo market, collateral exposure.

If concerns about this persist and even grow no matter what the Fed or any other central bank does, no matter how many times Jay Powell says the words “repo” and “operation” (which aren’t actually repo operations in the respect they have nothing directly to do with the repo market itself), there’s going to be doubts about provenance across the collateral landscape.

Global collateral landscape.

What we’ve seen in 2019 is just that. After 2018’s broader landmine, it seems to have initiated a different look at especially the high yield corporate market. A more durable re-thinking from the bottom ends. The higher rated stuff has been bid back to lower spreads. The lower rated potentially more illiquid tiers, have not.

If it seems like the bond market is just waiting for the other shoe to drop, it’s likely to be CLO’s that everyone is waiting on; especially those that have made such a huge if obscured splash outside the United States. And the more doubts about the viability of the global economy continue to seep into the mix, the more those on the inside can see how potentially explosive the possible repo unwind could become.

Liquidity risks.

Risky corporate bond products, suspect repo collateral chains, global downturn, and the growing prospects for illiquid pricing. A bad combination. Even if an especially vigilant forest ranger can’t predict exactly when or where a wildfire might start, they can recognize the right mix of of ingredients which make one more likely. In global repo, money dealers are the forest rangers.

In a move that will send shockwaves across the $3.5 trillion US healthcare industry, on Friday the Trump administration unveiled a plan that would - for the first time - force hospitals and insurers to disclose their secret negotiated rates, the WSJ reported.

In hopes of bringing some transparency and openness to a pathologically opaque industry, one which many have blamed for being behind the explosion in US underfunded liabilities to more than $100 trillion, administration officials said the final rule will compel hospitals in 2021 to publicize the rates they negotiate with individual insurers for all services, including drugs, supplies, facility fees and care by doctors who work for the facility. The White House would also propose extending the disclosure requirement to the $670 billion health-insurance industry. Insurance companies and group health plans that cover employees would have to disclose negotiated rates, as well as previously paid rates for out-of-network treatment, in computer-searchable file formats.

As the WSJ notes, the proposal covering insurers is the newest part of the price-disclosure initiative, and would include the private-employer market, where about 158 million people get their health insurance. Insurers and group health plans would have to put the negotiated rates into a file that third-party developers could incorporate into shopping tools. As with hospitals, insurers will have to create a web-based tool for beneficiaries that discloses the list price, the negotiated rate, cost sharing, and the amount left on a plan deductible, as well as allowable out-of-network rates.

The requirements, which are more far-reaching than industry leaders had expected, could upend commercial health-care markets, which are rife with purposefully complex systems of hidden charges and secret discounts which enable the fleecing of either end users or chronically  underfunded government healthcare programs. The price-disclosure initiative has become a cornerstone of the president’s 2020 re-election health strategy, despite threats of legal action from industry.

“Right now there is too much arbitrage in the system,” a senior administration official said in an interview Thursday with The Wall Street Journal. “There are a ton of vested interests who will oppose this. We expect to get sued. We’re really goring people’s oxes.”

Hospitals and insurers typically treat specific prices for medical services as closely held secrets, with contracts between the insurers and hospital systems generally bound by confidentiality agreements. Policy makers, employers and patients are often unable to see clearly which hospital systems and doctor practices are driving high costs.

Ironically just a few days ago we showed why "US Healthcare Costs Are Exploding", and the primary culprit was soaring insurance and medical care service fees. If there is one thing that could potentially put a dent in this exponential surge, it is the elimination of all the various secret price deals and arrangements.

Why is transaprency good? Because as studies have shown, consumers are often required to pay more out of pocket when they don’t have the price information they need to comparison shop. Employer health-plan deductibles are outpacing wage growth and have risen to an average $1,655 for a single plan, according to a September survey by the Kaiser Family Foundation. Workers on average pay $6,015 toward the cost of their coverage.

Taken together, the WSJ notes, "the price-disclosure initiatives could reshape the $3.5 trillion health-care industry."

The good news: the much needed transparency finally may bring some - literal - price discovery to what has traditionally been the most opaque, and lucrative, sector for the aging and chronically obese US population. The bad news: as Trump is going against trillions in vested interests, expect even more "whistleblowers" to emerge from the sector that has chronically been the biggest lobbyist of Washington...

... doing their best to bring the president down.

Meanwhile, as Americans lament soaring prices of, well, everything, after shelter and rent costs, the second biggest drain of US household income and savings is insurance premiums.

As the House kicks off public testimony from recalled US Ambassador to Ukraine Marie Yovanovitch as part of impeachment hearings sparked by a July 25 phone call between President Trump and Ukrainian President Volodomyr Zelensky, Trump has released a transcript of their first phone call.

The conversation took place on April 21 after Zelensky won Ukraine's election in an upset victory, and essentially consists of congratulations and a benign exchange of pleasantries.

"I'd like to congratulate you on a job well done, and congratulations on a fantastic election," says Trump.

"Good to hear from you. Thank you so very much. It's very nice to hear from you, and I appreciate the congratulations," replied Zelensky.

"I have many friends from Ukraine and they think - frankly - expected you to win. And it's really an amazing thing that you're done," says Trump. "I guess, in a way, I did something similar. We're making tremendous progress in the US - we have the most tremendous economy ever. I just wanted to congratulate you. I have no doubt you will be a fantastic president."

To which Zelensky thanks Trump and says "You will always, also, be a great example for many."

Zelensky then invites Trump to his inauguration, and says he's looking forward to a visit from the president or a "high-level delegation."

Trump complimented Ukraine, saying "When I owned Miss Universe, they always had great people. Ukraine was always very well represented. When you're settled in and ready, I'd like to invite you to the White House. We'll have a lot of things to talk about, but we're with you all the way."

Read:

JUST IN: White House releases transcript of Trump’s first call with Ukrainian President Volodymyr Zelensky. pic.twitter.com/0vdFYanjsN

— Andrew Desiderio (@AndrewDesiderio) November 15, 2019

In part two of Democrats' impeachment hearing drama, the public will hear from former American Ambassador to Ukraine Marie Yovanovitch, who was removed from her post in the spring. Yovanovitch was removed from her post in the spring by the administration, and has been cast by Democrats as an honorable public servant sacked for tying to do the right thing.

As BBG reminds us, Yovanovitch testified in private on Oct. 11 that she felt she was recalled following a "concerted campaign" by President Trump and Rudy Giuliani. Because she left Ukraine in May, she clearly doesn't have any direct knowledge of Trump's efforts to elicit a quid pro quo - or as the Dems are now calling it, a bribe.

Yovanovitch testified that she felt "threatened" by the way Trump spoke about her on the July 25 call, which is at the center of the impeachment issue. Trump called her “bad news” and said “she’s going to go through some things.”

Watch her testimony live below (it's set to begin at 9 am ET):

Later, the committee will enter a closed-door session to hear from David Holmes, a staffer at the US embassy in Kyiv, about this week’s revelation that Trump allegedly asked envoy Gordon Sondland on July 26 about the status of certain "investigations" he sought from Ukraine into the Bidens.

We're still waiting on President Trump to release a transcript of an April congratulatory call with Zelensky, something he promised to do, but has yet to follow through on.

Fortunately, so far, the hearings have been a disaster for the Dems, with even the NYT criticizing them as dull and boring. In response, the Dems tried to spice things up ahead of toady's hearing by talking up the possibility of a bribery charge against Trump.

* * *

After two years of reporting on Ukraine issues, the Hill's John Solomon said that Yovanovitch could still be an important fact witness, and that if he had his druthers, he would ask her these fifteen questions.

1. Ambassador Yovanovitch, at any time while you served in Ukraine did any officials in Kiev ever express concern to you that President Trump might be withholding foreign aid assistance to get political investigations started? Did President Trump ever ask you as America’s top representative in Kiev to pressure Ukrainians to start an investigation about Burisma Holdings or the Bidens?

2. What was the Ukrainians’ perception of President Trump after he allowed lethal aid to go to Ukraine in 2018?

3.  In the spring and summer of 2019, did you ever become aware of any U.S. intelligence or U.S. treasury concerns raised about incoming Ukrainian president Volodymyr Zelensky and his affiliation or proximity to certain oligarchs? Did any of those concerns involve what the IMF might do if a certain oligarch who supported Zelensky returned to power and regained influence over Ukraine’s national bank?

4. Back in May 2018, then-House Rules Committee chairman Pete Sessions wrote a letter to Secretary of State Mike Pompeo suggesting you might have made comments unflattering or unsupportive of the president and should be recalled. Setting aside that Sessions is a Republican and might even have donors interested in Ukraine policy, were you ever questioned about his concerns? At any time have you or your embassy staff made comments that could be viewed as unsupportive or critical of President Trump and his policies?

5. John Solomon reported at The Hill and your colleagues have since confirmed in testimony that the State Department helped fund a nonprofit called the Anti-Corruption Action Centre of Ukraine that also was funded by George Soros’ main charity. That nonprofit, also known as AnTac, was identified in a 2014 Soros foundation strategy document as critical to reshaping Ukraine to Mr. Soros’ vision. Can you explain what role your embassy played in funding this group and why State funds would flow to it? And did any one consider the perception of mingling tax dollars with those donated by Soros, a liberal ideologue who spent millions in 2016 trying to elect Hillary Clinton and defeat Donald Trump?

6. In March 2019, Ukrainian prosecutor general Yuriy Lutsenko gave an on-the-record, videotaped interview to The Hill alleging that during a 2016 meeting you discussed a list of names of Ukrainian nationals and groups you did not want to see Ukrainian prosecutors target. Your supporters have since suggested he recanted that story. Did you or your staff ever do anything to confirm he had recanted or changed his story, such as talk to him, or did you just rely on press reports?

7. Now that both the New York Times and The Hill have confirmed that Lutsenko stands by his account and has not recanted, how do you respond to his concerns? And setting aide the use of the word “list,” is it possible that during that 2016 meeting with Mr. Lutsenko you discussed the names of certain Ukrainians you did not want to see prosecuted, investigated or harassed?

8. Your colleagues, in particular Mr. George Kent, have confirmed to the House Intelligence Committee that the U.S. embassy in Kiev did, in fact, exert pressure on the Ukrainian prosecutors office not to prosecute certain Ukrainian activists and officials. These efforts included a letter Mr. Kent signed urging Ukrainian prosecutors to back off an investigation of the aforementioned group AnTac as well as engaged in conversations about certain Ukrainians like Parliamentary member Sergey Leschenko, journalist Vitali Shabunin and NABU director Artem Sytnyk. Why was the US. Embassy involved in exerting such pressure and did any of these actions run afoul of the Geneva Convention’s requirement that foreign diplomats avoid becoming involved in the internal affairs of their host country?

9. On March 5 of this year, you gave a speech in which you called for the replacement of Ukraine’s top anti-corruption prosecutor. That speech occurred in the middle of the Ukrainian presidential election and obviously raised concerns among some Ukrainians of internal interference prohibited by the Geneva Convention. In fact, one of your bosses, Under Secretary David Hale, got questioned about those concerns when he arrived in country a few days later. Why did you think it was appropriate to give advice to Ukrainians on an internal personnel matter and did you consider then or now the potential concerns your comments might raise about meddling in the Ukrainian election or the country’s internal affairs?

10. If the Ukrainian ambassador to the United States suddenly urged us to fire Attorney General Bill Bar or our FBI director, would you think that was appropriate?

11. At any time since December 2015, did you or your embassy ever have any contact with Vice President Joe Biden, his office or his son Hunter Biden concerning Burisma Holdings or an investigation into its owner Mykola Zlochevsky?

12. At any time since you were appointed ambassador to Ukraine, did you or your embassy have any contact with the following Burisma figures: Hunter Biden, Devon Archer, lawyer John Buretta, Blue Star strategies representatives Sally Painter and Karen Tramontano, or former Ukrainian embassy official Andrii Telizhenko?

13. John Solomon obtained documents showing Burisma representatives were pressuring the State Department in February 2016 to help end the corruption allegations against the company and were invoking Hunter Biden’s name as part of their effort. Did you ever subsequently learn of these contacts and did any one at State — including but not limited to Secretary Kerry, Undersecretary Novelli, Deputy Secretary Blinken or Assistant Secretary Nuland — ever raise Burisma with you?

14. What was your embassy’s assessment of the corruption allegations around Burisma and why the company may have hired Hunter Biden as a board member in 2014?

15. In spring 2019 your embassy reportedly began monitoring briefly the social media communications of certain people viewed as supportive of President Trump and gathering analytics about them. Who were those people? Why was this done? Why did it stop? And did anyone in the State Department chain of command ever suggest targeting Americans with State resources might be improper or illegal?