What we’re reading (8/5)
“SEC Chief Gary Gensler Braces For Clash With Crypto Traders” (Wall Street Journal). “Securities and Exchange Commission Chairman Gary Gensler this week declared war on what he called the Wild West of crypto trading, promising a vigorous attack on fraud and misconduct. But progress is likely to be more piecemeal and incremental than wholesale and sudden. Mr. Gensler outlined his desire to regulate digital assets such as bitcoin and other crypto products to the same extent as stocks, bonds and commodity-related trading instruments.”
“Container Shipping Rates Between U.S. And China Exceed $20,000, Hitting A Record” (CNBC). “Container shipping rates from China to the United States have scaled fresh highs above $20,000 per 40-foot box as rising retailer orders ahead of the peak U.S. shopping season add strain to global supply chains. The acceleration in Delta-variant Covid-19 outbreaks in several counties has slowed global container turnaround rates. Typhoons off China’s busy southern coast in late July and this week have also contributed to the crisis gripping the world’s most important method for moving everything from gym equipment and furniture to car parts and electronics.”
“Lessons From America’s Decade-Old Downgrade” (Fisher Investments). “10 years ago today, Standard & Poor’s made a $2.1 trillion math error, fought with the Treasury for several hours, then downgraded America’s credit rating from AAA to AA+. Not because America’s debt was problematic, but because they didn’t like how politicians were squabbling over the debt ceiling. They thought it would undermine the stability of America’s debt and scare off investors. Headlines globally agreed, warning debt costs would soar absent the AAA rating. How wrong they were. Yields fell in the immediate aftermath … and kept on falling. Over the next few years, debt got more affordable as buyers competed to own the world’s deepest, most liquid government asset. If ever you needed proof that credit ratings are inconsequential to markets, the events of a decade ago are required reading.”
“The Stock Market Is At Record Highs, But Corporate Debt Is Ballooning. Here Is One Stock That Should Benefit.” (Forbes). “Credit agencies may be one of the big winners of the post-pandemic build back, as they ride the waves of economic instability and decide which consumers and businesses are worthy of credit lines and extra lending. They wield very real power. For consumers, they dictate mortgage capability, car lease agreements, mobile phone contracts and store credit. But for businesses fighting for a comeback, credit agencies are the last throw of the dice for a much-needed cash injection. As consumers tighten their belts in the post-COVID world, businesses continue to feel the squeeze and there’s speculation it’s going to get harder before it gets better…[t]he power of the credit agency has therefore grown to an all-time high, and The Edge thinks stocks in this field are worth watching. One credit agency which has caught our attention is Dun & Bradstreet Holdings, Inc. (DNB).”
“As More Defaults Loom, China’s Finance Regulators Face A Dilemma” (The Economist). “A document circulating among Chinese banks in early July has caused unease among investors and local officials. Known as “Document No. 15”, the regulatory directive says that banks should stop lending to heavily indebted local-government financing vehicles (lgfvs), companies set up by city or provincial governments to finance building projects and public works. The groups, which have not so far been allowed to default, have about 48.7trn yuan ($7.5trn) in debts, 11.9trn yuan of which is held in fixed-income securities. They routinely use bank loans to pay interest on bonds. Ending the steady stream of credit is a recipe for turmoil. ‘If banks don’t give them a blood transfusion’, a local investor told Chinese media, ‘lgfvs will face a default crisis.’”
