Finance

How can you tell it’s time to get out of the market? In 1929 Joseph Kennedy, an American businessman and politician, supposedly realised the party was over upon hearing a shoe-shine boy dispensing stock tips. In 2000 the exit doors beckoned after 17 “dotcom” firms paid millions of dollars each for brief advertising slots during the Super Bowl, an American football extravaganza.And so to a sell signal fit for 2024: Keith Gill is back on social media. Mr Gill was an architect of the meme-stock frenzy of 2021, exhorting retail traders to buy shares in GameStop, a struggling chain of video-game shops. After a three-year absence he is posting once again, now apparently in possession of a stake in the firm worth a few hundred million dollars. GameStop’s share price has resumed a gut-churning rollercoaster ride and is up by more than 40% since Mr Gill’s return; the ailing company has made use of the excitement to issue some $3bn-worth of new shares. If you are looking for signs of speculative excess in markets, this is Exhibit A. More

Ratings agency Fitch no longer expects China to cut its policy rate this year, instead delaying such a reduction to next year as the U.S. Federal Reserve keeps its interest rates high.
Fitch now forecasts China will keep its one-year medium-term lending facility (MLF) unchanged this year at 2.5%, and cut it to 2.25% next year.
In March, the ratings agency had forecast one cut for 2024.

People walk past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China September 28, 2018. 
Jason Lee | Reuters

BEIJING — Ratings agency Fitch no longer expects China to cut its policy rate this year, and has pushed back its expectations for a reduction to next year as the U.S. Federal Reserve keeps its interest rates high.
Fitch now forecasts China will keep its one-year medium-term lending facility (MLF) unchanged this year at 2.5%, and cut it to 2.25% next year. In March, the ratings agency had forecast one cut for 2024.

“There are a couple of factors behind this. First on the external side, concerns around the exchange rate against the U.S. dollar, because of changing expectations for the Fed, restrain the [People’s Bank of China],” Jeremy Zook, Fitch Ratings’ head of sovereign rating in Asia Pacific, said during a presentation Wednesday.
Next year, “as the Fed begins to cut policy rates we think that should give a bit more space for the PBOC to maneuver,” he said. Zook expects Beijing to make greater use of fiscal policy this year.
The Fed last week held steady on its key interest rate and indicated just one cut by the end of the year. That contrasts with investor expectations heading into 2024 that the Fed would soon ease monetary policy after aggressively hiking rates.

Tighter Fed policy has kept the U.S. dollar strong against the Chinese yuan, which is close to re-touching lows last seen in 2008, according to Wind Information data. A weaker Chinese currency increases the pressure of capital outflows.
“Also there do seem to be concerns around bank net interest margins being quite low, and this also poses challenges for the PBOC,” Zook said. Net interest margin (NIM) is a measure of bank profitability as it calculates the difference between the interest the financial institution receives from borrowers and how much it must pay on deposits.

The last time China cut the one-year MLF was in August 2023, according to official data accessed through Wind Information.
The People’s Bank of China sets the MLF every month and uses it to guide the benchmark loan prime rate (LPR), which is the major reference for financial institutions’ lending rates.
PBOC Governor Pan Gongsheng said in a speech earlier on Wednesday that monetary policy would remain “supportive,” and noted the yuan’s exchange rate has “remained basically stable under complex circumstances,” according to a CNBC translation of the Chinese transcript.
He noted that major developed economies have repeatedly postponed a shift in their monetary policy, and that “the interest rate gap between China and the U.S. remains at a relatively high level.” More

British online payments firm Zilch says it has raised $125 million in debt financing from Deutsche Bank in a deal that will help the company triple sales in the next couple of years and move closer toward an IPO.
The buy now, pay later firm said the debt was structured as a securitization, where multiple loans can be packaged together.
Zilch said its deal with Deutsche Bank came with more flexible terms and would enable it to draw down up to $315 million of credit in total — including from different banks.

Zilch CEO Phil Belamant.

LONDON — British fintech firm Zilch said Wednesday it’s raised $125 million in debt financing from German banking giant Deutsche Bank in a deal that will help the company triple sales in the next couple of years and move closer toward an initial public offering.
The company, which offers shoppers the ability to purchase items and pay off the debt they owe in monthly, interest-free installments, said the debt was structured as a securitization, where multiple loans can be packaged together.

Zilch initially sourced credit for its installment plans and other loans from Goldman Sachs’s private credit arm. The company said the deal with Deutsche Bank came with more flexible terms and would enable it to draw down up to $315 of credit in total — including from different banks.
Philip Belamant, Zilch’s CEO and co-founder, noted the terms of its arrangement with Goldman Sachs were beneficial for a young, fast-growing startup — but ultimately too restrictive. Zilch’s capital needs have accelerated as the business has matured, and required a credit arrangement that was more flexible, he said.

“For us, we think it’s a major milestone in the company’s growing stage, which is, we’ve gone through the line we have with Goldman, it’s been a brilliant relationship and partnership,” Belamant told CNBC. “But now we’re stepping it up to securitization … so we [can] continue scaling.”
The additional $190 million of credit will become available to Zilch as the firm continues to grow. Belamant said the firm is already planning to strike agreements with other banks to raise more debt in the coming months.
The move is a sign of how buy now, pay later upstarts are continuing to double down on their products and loan growth, even as larger incumbent players in finance and technology are bowing out of the once-buzzy market.

This week, Apple announced it would shutter its BNPL program, Pay Later, which let users split purchases over four interest-free installments. It will integrate third-party services from firms like Affirm and Citi, instead. Meanwhile, Goldman Sachs recently sold Greensky, a BNPL firm it bought in 2021.

IPO within 2 years?

Belamant said that with additional capital of $125 million, the firm’s path toward an IPO will likely be accelerated, with Zilch currently aiming to go public in the next 12 to 24 months.
The deal will help Zilch generate $3.75 billion of gross sales by 2026, Belamant said.
He explained that for every $1 of debt raised, Zilch can generate $30 of gross merchandise value (GMV) — the combined value of sales processed on its platform.
So, with $125 million of capital, that will drive $3.75 billion of gross sales. Once Zilch has reaches the $315 million maximum funding threshold, it expects to generate nearly $10 billion of GMV by 2026.
Zilch has already generated over £2.5 billion in GMV since its founding in 2018. The firm reported revenues of £30 million ($38 million) in the 12 months ended March 2023. Losses totaled £71.7 million, marginally down from a 2022 loss of £78.3 million.

Zilch has three key ways of making money. The first is through interchange fees, where card networks charge merchants’ bank account each time a consumer makes a payment. The second is commission fees, where merchants pay to appear on Zilch’s app.
Zilch also has an advertising sales network where it provides placements for retailers to promote their wares to consumers. The UK firm claims it is able to achieve conversion rates of up to 55%, more than 10 times higher than the search industry average.
Belamant caveated the firm is keeping a watchful eye on uncertainty around the U.K.’s upcoming election and market conditions more generally.
“It’s hard to obviously say we’re on that range just due to the market, [and] there’s an election happening, [so] obviously we’ll see what happens,” he said. More

Billionaire investor Steve Cohen’s Point72 plans to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom.
The firm is aiming to raise $1 billion, with Cohen himself and Point72 employees expected to contribute.

Steve Cohen, chairman and CEO of Point72, speaking to CNBC on April 3, 2024.

Billionaire investor Steve Cohen’s Point72 plans to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom, according to a person close to the firm’s plans.
The new long/short equity fund, to be launched later this year or early 2025, will be focused on AI and AI-related hardware, the person said.

The firm is aiming to raise $1 billion, with Cohen himself and Point72 employees expected to contribute, the person added. This stand-alone public equity offering will live outside the main fund due to the need for a more-flexible net exposure, the person said.
Point72 declined to comment. Bloomberg News first reported on the potential offering Tuesday.
Cohen recently came out as a long-term AI bull. He has called AI a “really durable theme” for investing, comparing the rise to the technological developments in the 1990s.
The massive rally in AI-related stocks such as Nvidia has lifted the broader market to record highs this year. The chipmaker giant has topped a $3 trillion market cap amid the increasing enthusiasm, while any stock tangentially connected to AI has experienced a runup in value.
“I don’t see it as a bubble. I think the markets are discounting some of what we … think AI is going to do for companies,” the Point72 founder said in a CNBC interview in April.

The Mets owner highlighted AI’s role in enhancing productivity at basically every company. Cohen said his investment firm found a way to save $25 million by using large language models such as ChatGPT to improve efficiency.
Point72 oversees nearly $34 billion in assets as of April.

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It was a French politician, Valéry Giscard d’Estaing, who coined the term “exorbitant privilege” in the 1960s. He was referring to the benefits received by America as issuer of the world’s reserve currency—namely, the ability to run high deficits comfortably. These days France is reminded that it has no such privilege. Ahead of parliamentary elections on June 30th and July 7th, its hefty deficit and growing debt are central to the campaign. On June 19th the European Commission is expected to put France into an excessive-deficit procedure (EDP), the EU’s fiscal torture chamber, meaning that the country’s politicians will have to come up with a plan to fix things.The commission’s officials have good reason to do so. France has an American-style deficit of 5% of GDP, which its central bank and the IMF expect to come down only slowly. The country’s debt-to-GDP ratio of 111% is similar to Italy’s before the euro crisis in the early 2010s, and is set to rise. S&P Global, a ratings agency, downgraded the French government’s sovereign-debt rating from AA to AA- on May 31st—before Emmanuel Macron, France’s president, gambled on snap elections that may bring the hard-right National Rally (RN) or the left-wing New Popular Front (NPF) to power, under his continuing presidency. More

It was a French politician, Valéry Giscard d’Estaing, who coined the term “exorbitant privilege” in the 1960s. He was referring to the benefits received by America as issuer of the world’s reserve currency—namely, the ability to run high deficits comfortably. These days France is reminded that it has no such privilege. Ahead of parliamentary elections on June 30th and July 7th, its hefty deficit and growing debt are central to the campaign. On June 19th the European Commission is expected to put France into an excessive-deficit procedure (EDP), the EU’s fiscal torture chamber, meaning that the country’s politicians will have to come up with a plan to fix things.The commission’s officials have good reason to do so. France has an American-style deficit of 5% of GDP, which its central bank and the IMF expect to come down only slowly. The country’s debt-to-GDP ratio of 111% is similar to Italy’s before the euro crisis in the early 2010s, and is set to rise. S&P Global, a ratings agency, downgraded France’s sovereign-debt rating from AA to AA- on May 31st—before Emmanuel Macron, France’s president, gambled on snap elections that may bring the hard-right National Rally (RN) or the left-wing New Popular Front (NPF) to power, under his continuing presidency. More

Warren Buffett walks the floor and meets with Berkshire Hathaway shareholders ahead of their annual meeting in Omaha, Nebraska, on May 3, 2024.
David A. Grogan

Warren Buffett’s Berkshire Hathaway has scooped up more shares of Occidental Petroleum over each of the past nine trading sessions, driving his gigantic stake in the Houston-based oil and gas producer to almost 29%, according to regulatory filings.
The Omaha, Nebraska-based conglomerate purchased Occidental shares every trading day from June 5 to Monday, totaling an additional 7.3 million shares with purchase prices slightly under or above $60, filings showed.

The purchases brought Berkshire’s holding to over 255 million shares, representing a 28.8% stake. Occidental is Berkshire’s sixth-biggest stock holding, and the conglomerate has become Occidental’s biggest institutional investor by far.
Berkshire also owns $10 billion of Occidental preferred stock and has warrants to buy another 83.9 million common shares for $5 billion, or $59.62 each. The warrants were obtained as part of the company’s 2019 deal that helped finance Occidental’s purchase of Anadarko Petroleum.
The stock closed at $60.2 Monday, making Buffett’s warrants “in the money.” A full redemption of the preferred equity could lift Berkshire’s ownership of Occidental above 40%.
Buffett has clarified that he wouldn’t take full control of the oil company, once known for being founded by legendary oilman Armand Hammer. There had been speculation of a takeover after Berkshire received regulatory approval to purchase as much as a 50% stake. 
‘Read every word’
The “Oracle of Omaha” previously said he started buying Occidental after reading a transcript of the oil company’s earnings conference call.

“I read every word, and said this is exactly what I would be doing,” Buffett told CNBC.
Occidental CEO Vicki Hollub is “running the company the right way,” he added.
Occidental also pays a 1.5% dividend yield. The stock is about flat this year after dipping 5% in 2023.
The legendary investor said he took advantage of the elevated volatility in the market in early 2022 to acquire 14% of the energy firm, worth more than $7 billion, in just two weeks.
“I find it just incredible. You couldn’t do that with Berkshire. … Overwhelmingly, large companies in America, they became poker chips,” Buffett said in 2022. “Imagine trying to [buy] 14% of the farms in this country; 14% of the apartment houses; 14% of the auto dealerships, or just anything, when already 40% were locked up some other place.”

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Sen. Elizabeth Warren is accusing Fed Chair Jerome Powell of doing the financial industry’s bidding in considering changes to Basel III Endgame regulations.
In a letter first obtained by CNBC, Warren asked Powell for a response to reports that “you are advocating for slashing in half” the increase in capital required under the proposals.
Bank CEOs and their lobbying groups have said the increases are unnecessarily aggressive and would force the industry to curtail lending.

Sen. Elizabeth Warren, D-Mass., speaks during the Senate Armed Services Committee hearing on security in Afghanistan and in the regions of South and Central Asia, in the Dirksen Building in Washington, D.C., on Oct. 26, 2021.
Tom Williams | CQ-Roll Call, Inc. | Getty Images

Sen. Elizabeth Warren, D-Mass., is accusing Federal Reserve Chair Jerome Powell of doing the financial industry’s bidding by considering changes to a sweeping set of regulations aimed at boosting the capital cushion that large American banks would be required to hold.
In a June 17 letter first obtained by CNBC, Warren asked Powell for a response to reports that “you are advocating for slashing in half” the increase in capital required under the proposals, known as the Basel III Endgame.

“I am disappointed by press reports indicating that you are personally intervening—after numerous meetings with big bank CEOs—to delay and water down the Basel III capital rules,” said Warren.
Last year, three U.S. banking regulators including the Federal Reserve unveiled the proposed rules, a long-expected regime shift around bank capital and risky activities such as trading and lending. The regulations incorporate new international standards created as a response to the 2008 global financial crisis.
“These rules are critical and long overdue, particularly in the wake of the Silicon Valley and Signature Bank failures, and as risks from the weak commercial real estate market and other economic threats ripple through the banking system,” Warren said.
Bank CEOs and their lobbying groups have said the increases are unnecessarily aggressive and would force the industry to curtail lending.
In March, Powell told lawmakers that he expected “broad and material changes” to the proposal in the wake of the industry’s campaign against the rules. JPMorgan Chase CEO Jamie Dimon coordinated efforts to weaken the rules, urging CEOs to appeal directly to Powell, The Wall Street Journal reported last month.

“It now appears that you are directly doing the bank industry’s bidding, rewarding them for their extensive personal lobbying of you,” Warren said in her letter. “Taking orders from the industry that caused the 2008 economic meltdown would sacrifice the financial security of middle-class and working families to line the pockets of wealthy investors and CEOs.”
She further criticized Powell, saying “regulatory rollbacks” under the Fed chair allowed the regional banking crisis of 2023 to happen and “enriched Jamie Dimon and his Wall Street cronies.”
Warren urged Powell to allow a Federal Reserve Board vote on the original, tougher Basel proposal by the end of this month. The window to finalize and approve the rules ahead of U.S. elections in November is closing, and analysts have said that the proposal could be delayed or killed if Donald Trump is reelected president.
“Instead of doing Mr. Dimon’s bidding, you should do your job and allow the Board to convene for a vote on a 16% capital increase by June 30th, as global regulators determined was necessary to prevent another financial crisis,” Warren said.
When asked for a response to Warren’s letter, a Fed spokesperson had this statement on Tuesday morning: “We have received the letter and plan to respond.”

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