Finance

Stock futures dipped on Wednesday evening as investors hoped to build on a strong start to the week amid a flurry of corporate earnings.
Futures tied to the Dow Jones Industrial Average shed 76 points, or about 0.2%. S&P 500 futures ticked down 0.3%, while Nasdaq 100 futures slipped more than 0.3%.

The move in futures comes as Wall Street is enjoying a July rebound, with the three major averages hitting their highest levels in more than a month.
The Nasdaq Composite jumped nearly 1.6% on Wednesday, its fourth positive session in five. The tech-heavy index is up about 3.9% for the week.
Meanwhile, the Dow and S&P 500 each rose for the third day in four. The blue-chip index is up nearly 1.9% for the week, while the S&P 500 has gained 2.5% thus far.
“The bulls seem to be coming back into the market now. We’ve seen pretty sharp rallies in tech, crypto and other risk assets over the past few days,” said Callie Cox, U.S. investment analyst at eToro. “Which is notable to us, because in an economy with some pretty notable weakness in it, you’d expect to be seeing other parts of the market performing well. But the animal spirits are back, at least for now.”
In the early weeks of earnings season, corporate results have largely held up so far, helping calm fears about an impending recession.

However, the reports after the bell on Wednesday were mostly mixed. Shares of Alcoa and CSX jumped in extended trading after the companies beat expectations. Shares of Tesla were choppy after the automaker reported stronger-than-expected earnings but shrinking automotive gross margins.
United Airlines reported that it returned to profitability during the second quarter, but results came in below expectations. The stock fell more than 6% in extended trading.
In other corporate news, shares of Carnival were under pressure after the cruise company announced that it was selling an additional $1 billion of stock.
On Thursday, AT&T and American Airlines are two of several major companies set to report results before the opening bell. Investors will also be watching initial jobless claims data, which has been trending upward in recent weeks.

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For a fleeting moment, the protesters seemed to be having a good time. On July 9th some of the thousands of Sri Lankans who had taken to the streets to express frustration at the country’s economic crisis stormed into the president’s residence, where they cooked, took selfies and swam in the pool. Not long after, word came that the president, Gotabaya Rajapaksa, had fled and would resign. His successor, Ranil Wickremesinghe, until recently the prime minister, inherits a mess. In April Sri Lanka declared that it could no longer service its foreign debt. Its government has sought aid from India and Russia to pay for essential imports. The economy is likely to shrink dramatically this year. In June annual inflation climbed to 55%. If the government is unable to stabilise the situation, the country may yet succumb to hyperinflation and further political chaos. The scenes in Sri Lanka may be a sign of things to come elsewhere. Debt loads across poorer countries stand at the highest levels in decades. Squeezed by the high cost of food and energy, a slowing global economy and a sharp increase in interest rates around the world, emerging economies are entering an era of intense macroeconomic pain. Some countries face years of difficult budget choices and weak growth. Others may sink into economic and political crisis. All told, 53 countries look most vulnerable: they either are judged by the imf to have unsustainable debts (or to be at high risk of having them); have defaulted on some debts already; or have bonds trading at distressed levels.Today’s bleak situation has an analogue in the desperate years of the 1980s and 1990s. Then, as now, a long period of robust growth and easy financial conditions was followed by leaner times and rising debt burdens. Macroeconomic shocks, rising inflation and, eventually, soaring interest rates in the rich world pushed many heavily indebted poor economies over the fiscal cliff. In August 1982 Mexico’s government announced that it could no longer service its foreign debt. More than three dozen countries fell behind on their debts before the year was out. By 1990 roughly 6% of the world’s public debt was in default.Much has changed since. Many governments opened up to trade, liberalised their economies and pursued more disciplined macroeconomic policy. Faster growth and better policy led to broad improvements in the fiscal health of emerging economies. By 2008, as rich countries sank into an intense financial crisis of their own, the level of public debt across poorer economies stood at just 33% of gdp.This allowed them to engage with the global financial system in a manner more like the rich world. Most emerging-market governments hoping to tap global capital used to have little choice but to borrow in a foreign currency, a risky step that could quickly transform home-currency depreciation into a full-blown crisis. Around the turn of the millennium, about 85% of new debt issued outside America, Europe and Japan was not denominated in the borrower’s currency. But by 2019 roughly 80% of outstanding bonds across the emerging world were denominated in local currency.As emerging economies’ financial systems matured, their governments became better able to tap domestic capital markets. The crises of the 1980s and 1990s also taught them the value of stockpiling foreign-exchange reserves; global reserves rose from less than 10% of world gdp in 2005 to 15% in 2020. It was thanks largely to these adjustments that most emerging markets weathered the slow growth of the 2010s and the shock of the pandemic. Only six governments defaulted in 2020—including Argentina (for the ninth time), Ecuador and Lebanon—equivalent to only 0.5% of outstanding global public debt. But this greater resilience also allowed governments to rack up more debt. By 2019 public debt stood at 54% of gdp across the emerging world. The pandemic then led to an explosion in borrowing. In 2020 emerging economies ran an average budget deficit of 9.3% of gdp, not far off the average deficit of 10.5% run by rich economies. In that year alone, the emerging-world debt ratio rose by ten percentage points. Borrowing stabilised in 2021 as economies rebounded. But the picture has grown darker this year. The jump in food and energy prices that followed Russia’s invasion of Ukraine is depressing growth across most of the world, increasing debt burdens. Rising import bills have drained hard currency from many vulnerable places—including Sri Lanka—eroding their capacity to service foreign debts. Conditions will probably deteriorate as rich-world central banks continue to raise interest rates. Hawkish turns by the Federal Reserve tend to diminish risk appetite and draw capital out of the emerging world, leaving overextended borrowers high and dry.And Fed policy has not been this hawkish for some time. The federal-funds rate is expected to approach 3.5% by the end of this year, which, along with the unwinding of some recent asset purchases, would constitute the Fed’s sharpest tightening since the early 1980s. The emerging world has thus experienced net capital outflows every month since March, according to the Institute of International Finance, an industry group. The dollar has risen by over 12% against a basket of currencies since the start of the year, and is up by far more against many emerging-market currencies. As funding conditions have worsened, borrowing costs for some governments have soared. About a quarter of the low- and middle-income issuers of debt face yield spreads over American Treasuries of ten percentage points or more—a level considered distressed (see chart 1).The combination of heavy debt burdens, slowing global growth and tightening financial conditions will be more than some governments can bear. One set of potential victims comprises the poorest economies, which have been less able to borrow in relatively safe ways (in their own currencies, for example) and which, because of the pandemic, were already near the brink. Among 73 low-income countries eligible for debt relief under a g20 initiative, eight carry public-debt loads which the imf has deemed to be unsustainable, and another 30 are at high risk of falling into such a situation. Debt problems in these countries pose little threat to the global economy; together, their gdp is roughly equivalent to that of Belgium. Yet they are home to nearly 500m people, whose fates depend on whether their governments can afford to invest in basic infrastructure and public services.Then there are the troubled middle-income economies in the mould of Sri Lanka, which are more integrated into the global financial system, and which through policy missteps and bad luck have found themselves exposed. Overall, 15 countries are either in default or have sovereign bonds trading at distressed levels. They include Egypt, El Salvador, Pakistan and Tunisia. More middle-income countries may be better insulated against deteriorating global conditions than they were in the past. Still, the imf reckons that about 16% of emerging-market public debt is denominated in foreign currencies. And the places that are more insulated have in many cases become so by funding borrowing through local banks. That, however, raises the possibility that any credit stress experienced by a government also feeds through to its banking system, which could in turn impair lending or even lead to outright crisis. Across the emerging world, reckons the imf, the share of public debt held by domestic banks has climbed over the past two decades to about 17% of gdp, more than twice the level in rich economies. Sovereign-debt holdings as a share of total bank assets stand at 26% in Brazil and 29% in India, and above 40% in Egypt and Pakistan.Just how big this group eventually gets, and how serious the spillovers to the rest of the world, depends on whether bigger economies, like Brazil and Turkey, are ensnared by crisis. Both have muddled through so far, despite some vulnerabilities, but poor policy could push them towards the brink.As a commodity exporter, Brazil has benefited from higher food and energy prices. Its hefty pile of foreign-exchange reserves has so far reassured markets. The president, Jair Bolsonaro, trails in the polls ahead of an election due in October, though, and has loosened the country’s purse strings in an attempt to win support, adding to the country’s heavy debt load. He has also suggested that he may not obey voters should they opt to toss him out. If he spooks markets, an outflow of capital could at the very least leave the economy facing a severe fiscal crunch and recession.Turkey has a dynamic economy and a modest level of public debt. But it owes a lot to foreigners relative to its available currency reserves. And its president, Recep Tayyip Erdogan, insists that the central bank keeps interest rates unduly low in the face of soaring inflation—which has climbed to near 80%. The lira has crashed in value over the past four years. Without a policy change, the government could face a balance-of-payments crisis.Neither of the world’s largest emerging markets, China and India, is at high risk of an external crisis. Both have intimidating piles of foreign-exchange reserves. China’s government wields close control over both capital flows and the domestic financial system, which should allow it to contain panic, while India’s is only minimally reliant on foreign funding. Both, however, carry enormous public-debt loads by historical standards. And both matter enough to the global economy that a period of deleveraging that depressed growth and investment could have big knock-on effects.Taken together, then, 53 low- and middle-income countries are already experiencing debt troubles, or are at high risk of doing so. Their economic size is modest—their combined output amounts to 5% of world gdp—but they are home to 1.4bn people, or 18% of the world’s population (see chart 2). And worryingly, there are few options available to ward off crisis. An end to the war in Ukraine would help most, but that seems a distant prospect. A growth rebound in China or elsewhere would be a double-edged sword: it would boost growth but also contribute to inflation, leading to further rich-world rate rises. Debt relief would help. Roughly a third of the massive debts owed by middle-income economies in the 1980s was forgiven under a plan put together by Nicholas Brady, then America’s Treasury secretary, in 1989. Additional relief was provided to 37 very poor countries through an initiative organised by the imf and World Bank in 1996. The g20 took similar steps during the pandemic, first with the Debt Service Suspension Initiative, through which more than 70 countries were eligible to defer debt payments, and then through the Common Framework, which was intended to provide a blueprint for broader relief.Yet the framework has failed to gain traction. Only three countries have so far sought help under it, and none has completed the process. Prospects for improving the scheme, or for reaching agreement on debt relief, have been dimmed by the fact that lending by Paris Club countries—rich economies that have agreed to co-operate in dealing with unsustainable debts—has become less important, while loans from private creditors and big emerging markets, China in particular, have become more so. In 2006 Paris Club economies and multilateral bodies accounted for more than 80% of poor countries’ foreign obligations. Today they account for less than 60% of poor-country debt. Nearly a fifth is owed to China alone.Indeed, work by Sebastian Horn and Christoph Trebesch of the Kiel Institute and Carmen Reinhart of Harvard University helps illustrate how massive and murky a force Chinese lending has become. They reckon that almost half of China’s lending abroad is unreported, such that their estimates of China’s claims on foreign governments probably understate the true figures. Even so, they reckon that from 1998 to 2018 China’s foreign lending, the bulk of which has gone to low- and middle-income economies, rose from almost nothing to the equivalent of nearly 2% of world gdp. And among the 50 economies most in hock to China, obligations to Chinese institutions amount to 15% of gdp on average, or about 40% of external debt.But more than a third of the world’s most debt-distressed countries also number among those most indebted to Chinese lenders. As of 2017, the debt owed to China by Kenya amounted to 10% of the latter’s gdp, and by Laos a staggering 28%. China is also a big creditor of Sri Lanka (which owed it the equivalent of 8% of gdp in 2017) and Pakistan (9%). Many indebted economies are loth to ask for debt relief from China, fearing the wrath of its leadership or a loss of access to future funding, and Chinese institutions have tended to prefer reprofiling debts to outright relief. Deteriorating relations between China and the West, meanwhile, have reduced the scope for co-operation in handling debt problems. In the 1980s, emerging-market defaults on loans owed to American banks pushed some financial institutions to the brink of insolvency. Residents of rich economies may take some comfort from the fact that their lenders are less exposed today. But for the billion or so people living in countries at risk of distress, the pain will be only too drawn out, both as fiscal woes infect local banks and as negotiations over external debt prove intractable. ■ More

The Netflix logo is seen on their office in Hollywood, California.
Lucy Nicholson | Reuters

Check out the companies making headlines in midday trading.
Netflix — Shares of the streaming company popped 7.4% a day after Netflix posted a smaller-than-expected subscriber loss in the recent quarter. Netflix reported a beat on earnings but a miss on revenue.

Casino stocks — Shares of Las Vegas Sands and Wynn Resorts rose 4.4% and 4%, respectively. The action followed a report from Reuters that Macau will reopen casinos on Saturday as it gradually eases back on Covid restrictions.
Bath & Body Works — Bath & Body Works’ shares slipped more than 1% after the personal care retailer trimmed its guidance for the second quarter and full year. The company cited macroeconomic issues among the reason for the cut.
Baker Hughes — Shares plunged more than 8% after the oilfield services company reported disappointing second-quarter earnings. Baker Hughes reported earnings of 11 cents per share, which is half of what analysts were expecting, according to consensus estimates from Refinitiv.
Biogen —  Shares of the biopharmaceutical company fell 5.8% despite the company reporting a beat on quarterly earnings and revenue. Biogen said it faces increasing generic and biosimilar competition for its Tecfidera and Rituxan drugs.
Merck — Merck shares slipped 2.9% after the company’s cancer therapy drug did not meet its goal in a late-stage trial in patients with head and neck cancer.

Nasdaq — Shares of the exchange operator jumped 6.1% on the back of an earnings beat on the top and bottom lines. Nasdaq reported earnings of $2.07 per share on revenue of $893 million.
J.B. Hunt Transport Services — Shares of J.B. Hunt dipped about 0.8% despite a stronger-than-expected report for the recent quarter. The company’s chief operating officer said that the labor and equipment markets remain “challenging.” The transportation company reported $2.42 in earnings per share on $3.84 billion of revenue. Analysts surveyed by Refinitiv had penciled in $2.35 in earnings per share on $3.60 billion of revenue.
Elevance Health — Elevance shares tumbled 7.6% despite a beat on earnings and revenue in the recent quarter. The company, formerly known as Anthem, also raised its full-year guidance.
— CNBC’s Tanaya Macheel, Sarah Min and Jesse Pound contributed reporting

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Coinbase said in a blog post that it had “no financing exposure” to collapsed crypto firms Celsius, Three Arrows Capital and Voyager Digital.
The firm did, however, make a “non-material” investment in Terraform Labs, the Singapore-based company behind failed stablecoin project Terra.
Shares of Coinbase climbed 14% Wednesday.

Coinbase reported a 27% decline in revenues in the first quarter as usage of the platform dipped.
Chesnot | Getty Images

Coinbase said it had no counterparty exposure to several collapsed crypto firms, seeking to allay fears about the impact of a liquidity crisis in the industry on its business.
Coinbase “had no financing exposure” to Celsius, Three Arrows Capital and Voyager Digital, the company said in a blog post Wednesday. Each firm filed for bankruptcy protection after a plunge in digital token prices set off a cascade of liquidations in highly leveraged positions.

Shares of the company closed up more than 14% on Wednesday.
“Many of these firms were overleveraged with short-term liabilities mismatched against longer duration illiquid assets,” the company said.
“We have not engaged in these types of risky lending practices and instead have focused on building our financing business with prudence and deliberate focus on the client,” it added.
While Coinbase denied any credit exposure to Celsius, 3AC and Voyager, it says it did make “non-material investments” in Terraform Labs, the Singapore-based company behind failed stablecoin project Terra, through its venture capital business.
The update is an attempt by Coinbase to reassure investors it won’t suffer the same fate as some of its peers. The company’s stock has plunged roughly 70% since the start of 2022, as interest rate hikes by the Federal Reserve shook investors in both crypto and stocks.

The crypto market has been in a state of disarray ever since the demise of Terra, a so-called “algorithmic” stablecoin that tried to maintain a $1 value using code. This led to liquidity issues at Celsius and 3AC, two companies that made risky crypto gambles using borrowed funds.
As cryptocurrencies started falling this year, investors wanted to take their funds out of firms like Celsius and 3AC. But a drop in the value of the assets held by such companies meant they were unable to process those redemption requests. As a result, Celsius, Voyager and others halted withdrawals before eventually filing for bankruptcy protection.
Bitcoin climbed above the $24,000 mark Wednesday, for the first time in over a month, alongside a broad recovery in crypto prices. The world’s top digital coin is still down roughly 50% year to date.
Investors are hoping the Fed will be less aggressive than feared with an expected hike in interest rates next week.
Central banks are racing to tame runaway inflation with tighter monetary policy, but this has spooked stocks and other risky assets — crypto included — which benefited from a flood of stimulus during the Covid-19 pandemic.

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Warren Buffett and Charlie Munger press conference at the Berkshire Hathaway Annual Shareholders Meeting, April 30, 2022.

Berkshire Hathaway’s Class A shares are among the market’s most expensive stocks priced above $400,000 apiece and therefore it was often one of the least traded well-known companies. So a surge in volume that began over a year ago left many scratching their heads.
Now new research released Wednesday has shed light on this trading frenzy and concluded that a change in how Robinhood and other online brokers report fractional trading data was a culprit.

“This volume is due to the interaction of a well-intentioned but misguided FINRA reporting rule, Robinhood trading, and fractional shares,” wrote the authors — Robert Bartlett at University of California, Berkeley, Justin McCrary at Columbia University and Maureen O’Hara at Cornell University.

Arrows pointing outwards

In 2017, the Financial Industry Regulatory Authority started requiring brokers to report fractional trades — sometimes just 1/100th of a share — as if they were for one whole share, which the authors coined as the “Rounding Up” rule.
The effect of this rule change went pretty much unnoticed until the spring of 2021 when Covid pandemic-driven trading mania by retail investors boosted the use of fractional trading.
With more tiny trades being reported as full shares, trading volumes for many stocks became massively inflated. In Berkshire’s case, the authors said this reported “phantom” volume now represents 80% of the Class A shares’ daily trading volume.
Shares of Warren Buffett’s Omaha, Nebraska-based conglomerate hit a record high above half a million dollars in March and have since retreated more than 20% to about $430,000 apiece amid a sell-off in the broader market.

Trading volumes for this pricey name surged more than tenfold in March 2021 from its average daily volume of just 375 shares over the past decade, according to the study. Volumes have stayed at these elevated levels.
“FINRA is already actively working on the issue, and is engaged in ongoing discussions with firms and regulators,” a FINRA spokesperson told CNBC on Wednesday. “The current trade reporting systems (other than the Consolidated Audit Trail) do not support the entry of a fractional share quantity. FINRA’s guidance on trade reporting needs to be understood in that context.”
The Wall Street Journal first reported on the new study earlier Wednesday. More

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Even if the economy faces two quarters of contraction — the traditional definition of a recession — Josh Friedman thinks it’s strong enough to withstand a more serious slowdown. Friedman is co-founder, co-chairman, and co-CEO of the $26 billion credit giant, Canyon Partners. He sat down with Leslie Picker to explain why he believes the markets “can tolerate a little bit of stress.” 

While a stronger economy means fewer opportunities for distressed investors like Friedman, he said his firm is prepared with “comprehensive shopping lists of securities” in other areas like secondaries, loan originations, and securitized packages.
 (The below has been edited for length and clarity. See above for full video.)
Leslie Picker: I was looking back at our interview from January and at the time, you said we were at a fork in the road. From an economic and market standpoint, that prediction appears to be very prudent, given everything we’ve seen in the equity market sell-off, the fixed income sell-off, shift in monetary policy, geopolitical strife, and more over the last six months. It’s definitely the epitome of a fork in the road. So, I’m just curious how you’re sizing up the current environment, given what we’ve seen since we last spoke,
Josh Friedman: I think we have to start by looking at where we came from. When I last talked to you, I think it was the day that the market dropped something over 1,000 points and bounced back. And my basic comment was, well, things were just too expensive. Markets fluctuate. And a confluence of recovery from COVID supply constraint and excessive stimulus both from the Treasury and from the Fed caused quite an amount of over speculation and froth in almost every asset class that you could imagine – whether it was real estate cap rates, whether it was SPACs, whether it was equities, whether it was credit markets, where you had no interest, no spread, and still had credit risk. So, it was not surprising to see a pullback from that just on its own, because those things are always self-correcting. There’s always some kind of a mean reversion. But now, we’re in a little different place because the Fed underestimated so significantly the more embedded inflationary aspects that are in the economy. And that’s kind of the fork in the road that we’re at right now.  Will there be an ability of the Fed to rein this in quickly? Will people’s activities in response to the Fed’s comments, cause that to happen by itself? Will there be enough demand destruction to contain inflation? Or maybe that’ll happen all by itself, even without the Fed doing what it asserts that it will do. 
Picker: So, the fork in the road is essentially the debate that I think pretty much everybody is having right now is, will there be a soft landing or a hard landing? And will the Fed be able to accomplish the potential for a soft landing? And I’m just curious how you are looking at this from a probabilistic standpoint.

Friedman: I guess my view is the Fed sometimes gets given a little too much credit for everything that happens. The Fed announced that it was going to do all sorts of asset purchases. And yes, they bought treasuries and quantitative easing and so forth right after COVID. But a lot of the measures they announced actually never were effectuated. The market did it all by itself in response to knowing that the Fed was there to protect them. And now, knowing that the Fed is going to raise rates, the market started to do that by itself. People are starting to contain demand, supply is starting to be back in a little more equilibrium – not in every market, energy markets have unique problems that are sort of unique to the supply and demand in the energy transition – but I think sometimes the markets have a natural pull toward the center. It’s very popular if you’re in my seat to predict a hard landing because it’s much more exciting, it makes you a better guest on shows like this. But, my general view is that unemployment is only three and a half percent, personal balance sheets are actually quite good, they can tolerate a little bit of stress in the system. The banking system has none of the stress that we saw in the global financial crisis. So, I think it’s not just the Fed that has to engineer a slightly softer landing, I think the market will have natural forces that pull us toward the middle by themselves.
Picker: From a credit investor standpoint, this has obviously all shifted the risk profile of different aspects of the corporate capital structure. Where are you seeing the most opportunity right now? What is concerning to you, given just the recent sell-off we’ve seen across a lot of the credit market?
Friedman: We had a sea change in the opportunity range about the time when I last spoke to you, which I think was maybe late March, something like that. And since then, the high yield market has gotten decimated. June was the worst single month that we’ve seen in decades, with the exception of the immediate aftermath of COVID, which was gone like that, because the Fed bailed everyone out, which they’re not doing this time.
Picker: And there wasn’t even a recession in June, it was just the market. 
Friedman: Correct. And so, we’ve seen the equity markets get destroyed down 20% to 30%, depending on which market you look at. We’ve seen the investment grade debt market get destroyed, we’ve seen the high yield market get destroyed. So, all of a sudden, bonds that were trading at par in the secondary market are trading at 80, 85, 78, 68. And liquidity isn’t great, and high yield funds that were used to nothing but inflows in a declining interest rate environment have seen an awful lot of outflows. And again, there are ups and downs to this, but generally speaking, the first area of opportunity, in my view, is just secondary market. high yield credit that dropped 20 points, and there’s lots of it, And it’s not so very efficient in the market today. And a lot of people who used to play in that market have exited that market for a while, or at least they’re out of practice, because they’ve been busy originating direct loans. 
The second area, I would say, is origination of new loans will change quite dramatically. The banks were very eager to compete with a lot of the private direct lenders. And in their zeal to compete, they got stuck with a lot of paper on their balance sheet. So, number one, there’s a process of helping relieve them of the burden of that capital at lower prices that seem to be quite attractive. And second of all, they’re less likely to be as aggressive. This is how these cycles always end – they get a little too aggressive, they act as principals, and then they have an issue. But this isn’t like 2008, when you had massively leveraged balance sheets, and lots and lots of paper that the banks had to relieve themselves of. This is more of a short-term effect, but it will keep them on the sidelines a bit. And I think some of the private lenders who have been buying relatively low interest rate loans, and then leveraging them to produce a return are finding that the cost of leverage is going to be a lot higher. So, we’re in a very, very, very different world of origination of loans, in addition to secondary trading of bonds and loans.
Picker: So, it’s probably a good time then for you to be putting that dry powder to work in some of these areas that have sold off pretty dramatically, then. 
Friedman: I think I mentioned last time that we were just starting to dip our toe in the water. That’s definitely accelerated. We’ve got comprehensive shopping lists of securities. And we just wait and we try to be patient. The other area where we’re seeing pretty dramatic change is in anything that’s put in some kind of a securitized package – whether that’s car loans, whether that’s personal loans, whether that’s home improvement, loans, etc. – things that were trading at 6%, 7%, 8% yield could be as high as 25% yield with very quick paybacks today. Again, not an enormous liquid market, but places where you see blocks that are $10 million, $20 million, $30 million. And that’s an area that’s well worthy of focus right now.
Picker: Distress has been an area that I think a lot of credit investors have looked for opportunities in recent years…do you think distress is going to provide more opportunities?
Friedman: You know, we grew up in the distressed businesses where Mitch and I started out. Mitch was a bankruptcy lawyer. We lived through many cycles of distress. It tends to be quite cyclical. There’s a difference between a distressed seller. So, a mutual fund that has redemptions and has to sell right away or someone who’s got leverage and is being unwound and a company that’s actually entering financial distress. I think companies are pulling their horns in. The coupon rates on the debt they’ve issued have been pretty low recently, the covenant burden is pretty loose. So, actual new bankruptcies? Pretty slow right now. But price depression on a lot of quality securities? Pretty good. 
I would also mention that the high yield index today is of higher credit quality than it was at a decade ago, there are more double B’s, there are fewer triple C’s, generally higher quality credit. That doesn’t mean that a slowdown in the economy, even if it qualifies technically as a recession, because we have two quarters of contraction, which by the way, I think the economy is strong enough to be able to absorb. But even if you have that, that doesn’t immediately mean that you’re going to have a tidal wave of distress.  You’ll definitely have some, what gets shaken out first of the lower quality companies that you may not be interested in at any price, but we’ll see on that. Right now, we have more sellers of paper than we have buyers, and therefore prices are down between 15 and 20 points. We’ll see what happens with respect to actual entering of restructurings and renegotiations of financial terms. 
Picker: Just to follow up on something you just said. The technical definition of a recession: two consecutive quarters of declining GDP. You think the economy is strong enough to support that? Does that negate the idea of a recession or a traditional recession?
Friedman: You have some people saying, “Oh, consumers are already in a recession.” Well, consumers are facing higher gas prices, they’re facing higher mortgage rates if they happen to have a need for a new mortgage. Housing sales are down. So, in some respects, we’re seeing contraction in certain parts of the economy. We’re seeing inventory liquidations periodically but we’re not in some awful recession. We still have unemployment less than 4%. We still have job openings that far exceed the number of people available to fill those jobs. And all I’m saying is a modest uptick in unemployment, a modest decrease in available job openings, doesn’t throw the economy in anything like what we had in 2008, in my view.  More

The Consumer Financial Protection Bureau plans to issue guidance in coming weeks pushing banks to repay customers who fall victim to alleged money-transfer scams, according to a report in The Wall Street Journal.
Banks generally don’t have liability in instances when the transaction is authorized.

The Consumer Financial Protection Bureau headquarters in Washington, D.C.
Joshua Roberts/Bloomberg via Getty Images

A CFPB spokesperson declined to comment on the specifics of the report.
“Reports and consumer complaints of payments scams have risen sharply, and financial fraud can be devastating for victims,” the spokesperson said in an e-mailed statement. “The CFPB is working to prevent further harm, including by ensuring that financial institutions are living up to their investigation and error resolution obligations.”

Early Warning Services, LLC, a group of seven banks that own Zelle, didn’t immediately return a request for comment.
“There’s no question that scammers are a big, big problem with these peer-to-peer services,” Matt Schulz, chief credit analyst at LendingTree, said in an e-mail. “They’re attracted to these apps like moths to a flame because there’s just so much money flowing through them and because transfers happen so quickly.”
It’s important for consumers to proceed with caution when using these apps because making a mistake may mean they’ll never see the money again, Schulz said.
“This isn’t like credit card fraud where the problem can often be handled with a quick phone call,” he added. “With P2P fraud, real money is often taken from a real account and oftentimes is gone for good. That’s a huge problem, especially in a time of rising inflation when so many Americans live on a tight budget.”

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Check out the companies making headlines before the bell:
Baker Hughes (BKR) – The oilfield services company reported second-quarter adjusted earnings of 11 cents per share, just half of what analysts had forecast. Revenue also fell below estimates, with Baker Hughes citing various challenges including component shortages and supply chain inflation. Baker Hughes tumbled 6% in premarket trading.

Biogen (BIIB) – Biogen gained 2.4% in premarket action after reporting an adjusted profit of $5.25 per share for the second quarter. That was well above the consensus estimate of $4.06, and revenue also topped forecasts. The beat came even as Biogen said it faces increasing generic and biosimilar competition for its Tecfidera and Rituxan drugs.
Netflix (NFLX) – Netflix jumped 6.1% in premarket trading after reporting subscriber losses that were substantially below expectations. The streaming service also said it would add a net 1 million new subscribers this quarter. Netflix reported better-than-expected quarterly earnings, though revenue did fall slightly shy of Wall Street estimates.
Casino Stocks – Shares of casino operators rose in premarket action following a Reuters report that Macau would reopen casinos on Saturday amid a drop in Covid infections. Las Vegas Sands (LVS) gained 1.5% while Wynn Resorts (WYNN) rose 1.9%.
Merck (MRK) – Merck fell 1.5% in premarket trading after its Keytruda cancer drug failed to meet its goal in a late-stage study focused on head and neck cancer patients.
Cal-Maine Foods (CALM) – Cal-Maine rose 1% in the premarket after beating Street forecasts on the top and bottom lines for its latest quarter. The nation’s largest egg producer was helped by higher egg prices, but also saw increases in feed costs that it expects to continue in fiscal 2023.

Elevance Health (ELV) – The health care and insurance company, formerly known as Anthem, beat top and bottom line second-quarter estimates and raised its full-year outlook. Elevance’s profits got a boost from a strong performance in its pharmacy benefits management unit.
ASML (ASML) – ASML slid in the premarket after the Netherlands-based semiconductor manufacturing equipment maker cut its full-year sales outlook. ASML reported better-than-expected quarterly earnings but said its customers are turning somewhat cautious in anticipation of slowing chip demand.
Omnicom Group (OMC) – Omnicom beat top and bottom line estimates for its latest quarter, with the ad agency operator also raising its organic revenue growth forecast for the year. Omnicom also said it is maintaining a “healthy level of caution” to deal with challenging macroeconomic conditions. The stock surged 7.3% in the premarket.
Comerica (CMA) – The bank’s stock gained 1% in the premarket after it reported better-than-expected profit and revenue for the second quarter. Results were helped by strong loan growth as well as a rising interest rate environment.

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