Stock Market Could Crash Another 20% If U.S. Plunges Into Recession

As a growing number of investment banks and company chiefs warn that the likelihood of a recession is increasing, analysts at Morgan Stanley are telling clients that the stock market—despite reeling from a steep selloff in recent weeks—has plenty of room to fall before hitting levels consistent with recession-era lows, which would be especially bad for cyclical industries like travel and hospitality.

Despite major stock indexes plunging more than 20% below recent highs, markets are still only down by about 60% of the average drawdown compared with previous recessions (which denote two consecutive quarters of negative GDP growth), Morgan Stanley analysts told clients in a Tuesday note.

As the Federal Reserve works to combat decades-high inflation with interest rate hikes that will likely stunt economic growth, a recession “is no longer just a tail risk,” analysts led by Michael Wilson wrote, putting the odds of one over the next year at 35%, up from 20% in March.

They estimate the S&P 500 could plunge as much as 20% to 3,000 points, from current levels of 3,770, if the U.S. falls into recession, citing earnings that tend to fall an average of 14% during recessions—a marked turnaround from record profits and 25% growth last year.

“The bear market will not be over until recession arrives—or the risk of one is extinguished,” the analysts said, adding that market weakness will likely continue over the next three to six months in the face of “very stubborn” inflation readings.

With high prices deterring some consumer spending, Morgan Stanley says stocks tied to discretionary spending, like those in retail, hotels, restaurants and clothing, are at higher risk of a downturn, while those tied to the internet, payments and durable household goods (like appliances and computers) are less at risk.

The note comes the same day Tesla CEO Elon Musk said the U.S. economy will “more likely than not” face a recession in the near term, echoing concerns raised by several other top business leaders and financial institutions following last week’s steeper-than-expected hike in key interest rates, which tend to deter spending by making borrowing more expensive.

Morgan Stanley’s not alone in raising recession odds this week. In a note to clients Monday, Goldman Sachs’ chief economist, Jan Hatzius, said the firm now sees “recession risk as higher and more front-loaded,” given the Fed’s more aggressive rate hike, putting the odds of a recession over the next two years at 48%, up from 35% previously. The investment bank estimates tighter financial conditions could drag down GDP as much as 2 percentage points over the next year.

Restaurants are most at risk of a pullback in spending, according to a Morgan Stanley survey of some 2,000 consumers. Roughly 75% of respondents said they’ll cut back on dining out over the next six months, while 60% said they’d do so on deliveries and takeout from restaurants. Though driving much of the inflationary gains, essential items like gas and groceries should see more resilient spending, with roughly 40% of consumers saying they’d cut back on either.

Major stock indexes plunged into bear market territory last week ahead of the Fed’s largest interest rate hike in 28 years, and the gloomy sentiment has ushered in waves of layoffs among recently booming technology and real estate companies. “We don’t believe the Fed can stop the issues that are causing inflation on the supply side without absolutely wrecking the economy, but at this point, it looks like they are resigned to the fact that it must be done,” says Brett Ewing, chief market strategist of First Franklin Financial Services. Goldman Sachs has warned clients it expects another 75-basis-point hike in July.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill

Source: Stock Market Could Crash Another 20% If U.S. Plunges Into Recession—These Industries Are Most At Risk

The best hope for stocks right now is a recession that crushes inflation and allows the Fed to slow, stop or even reverse rate hikes.

Why it matters: Down 20.5% so far in 2022, it’s the ugliest year for the S&P since 1962. The drop vaporized $9 trillion in paper wealth, delivering a psychological shock to millions whose retirement is mostly in stocks.

Driving the news: Facing persistent inflation, the Fed delivered its largest rate hike since 1994 on Wednesday.

  • The increase is the monetary-policy equivalent of stomping on the country’s economic brakes — sharply increasing the risk that growth contracts.
  • Despite the recent beating shares have taken, the Fed’s announcement was greeted with open arms by investors. The S&P 500 rose 1.5%. The Nasdaq rose 2.5%. Interestingly, the Russell 2000 — which is more closely tied to short-term ups and downs of the economy — rose less, at just 1.4%.

The big picture: A huge rate hike that raises the risk of recession may sound like a bad thing for stocks — but with inflation still rising, it isn’t.

  • Essentially, investors are saying they prefer a big, sharp Fed-induced economic shock now if it quickly gets inflation under control. In theory, that could allow lower rates to return after inflation is vanquished.
  • Low interest rates have been crucial to the performance of stocks over the last decade.

Context: While Americans have a habit of looking at the stock market as an economic indicator, the linkage between economic growth and stock market performance is surprisingly weak, and, some academics say, nonexistent. The most extreme example of this reality arose during the bleakest moments of the COVID-related recession.

  • In April 2020, the U.S. economy was essentially on life support. Unemployment that month was 14.7%. There were, quite literally, bread lines miles long.
  • That month the S&P 500 posted its best month in 33 years, rising nearly 13%.

What gives? Well, in late March 2020, the Federal Reserve had to cut interest rates to zero and restart money-printing programs do deal with the COVID crisis. (The Federal government also began dumping what would ultimately be trillions of dollars into the economy to keep people afloat.)

The intrigue: But don’t recessions hurt corporate earnings? Wouldn’t that make stocks fall?

  • Earnings are one ingredient in stock prices, and they can definitely fall during recessions. But recently, interest rates — essentially the yield on the 10-year Treasury note — have played a more important role in establishing stock prices than earnings.
  • That’s because those interest rates largely determine the valuation multiple — otherwise known as a price-to-earnings ratio — investors use to determine the price they’re willing to pay for those future earnings (effectively, the price of a stock).
  • TL;DR: Higher rates = lower valuations, and vice versa.
  • So, even if earnings are expected to fall, stock prices can still rise, if valuations rise enough. Those valuations are largely determined by interest rates — and those rates are largely determined by Fed decisions.

The Federal Reserve made an aggressive new move in its campaign to bring down inflation Wednesday, raising its target interest rate by three-quarters of a percentage point, the steepest rate hike since 1994 — and indicated another similar move could be coming next month.

Driving the news: In addition to increasing their target for short-term interest rates to a range of between 1.5% and 1.75% Fed officials projected that their target rate will reach 3.4% late this year, far higher than the 1.9% they envisioned in March. Mortgages, car loans and credit card debt are all about to get more expensive.

Yields on U.S. government bonds — known as Treasuries — rocketed in recent days, as Friday’s inflation report convinced many that a combination of persistently high inflation and aggressive Federal Reserve interest hikes, is on the way. The yield on the 10-year Treasury note surged to nearly 3.50% in recent days, a level not seen since 2011……

  Matt Phillips

More contents:

Celtic provide stock exchange update with revenue ‘significantly higher than market Glasgow Live

13:38
13:16

More Remote Working Apps:

https://quintexcapital.com/?ref=arminham     Quintex Capital

https://www.genesis-mining.com/a/2535466   Genesis Mining

 http://www.bevtraders.com/?ref=arminham   BevTraders

https://www.litefinance.com/?uid=929237543  LiteTrading

https://jvz8.com/c/202927/369164  prime stocks

  https://jvz3.com/c/202927/361015  content gorilla

  https://jvz8.com/c/202927/366443  stock rush  

 https://jvz1.com/c/202927/373449  forrk   

https://jvz3.com/c/202927/194909  keysearch  

 https://jvz4.com/c/202927/296191  gluten free   

https://jvz1.com/c/202927/286851  diet fitness diabetes  

https://jvz8.com/c/202927/213027  writing job  

 https://jvz6.com/c/202927/108695  postradamus

https://jvz1.com/c/202927/372094  stoodaio

 https://jvz4.com/c/202927/358049  profile mate  

 https://jvz6.com/c/202927/279944  senuke  

 https://jvz8.com/c/202927/54245   asin   

https://jvz8.com/c/202927/370227  appimize

 https://jvz8.com/c/202927/376524  super backdrop

 https://jvz6.com/c/202927/302715  audiencetoolkit

 https://jvz1.com/c/202927/375487  4brandcommercial

https://jvz2.com/c/202927/375358  talkingfaces

 https://jvz6.com/c/202927/375706  socifeed

 https://jvz2.com/c/202927/184902  gaming jobs

 https://jvz6.com/c/202927/88118   backlinkindexer

 https://jvz1.com/c/202927/376361  powrsuite  

https://jvz3.com/c/202927/370472  tubeserp  

https://jvz4.com/c/202927/343405  PR Rage  

https://jvz6.com/c/202927/371547  design beast  

https://jvz3.com/c/202927/376879  commission smasher

 https://jvz2.com/c/202927/376925  MT4Code System

https://jvz6.com/c/202927/375959  viral dash

https://jvz1.com/c/202927/376527  coursova

 https://jvz4.com/c/202927/144349  fanpage

https://jvz1.com/c/202927/376877  forex expert  

https://jvz6.com/c/202927/374258  appointomatic

https://jvz2.com/c/202927/377003  woocommerce

https://jvz6.com/c/202927/377005  domainname

 https://jvz8.com/c/202927/376842  maxslides

https://jvz8.com/c/202927/376381  ada leadz

https://jvz2.com/c/202927/333637  eyeslick

https://jvz1.com/c/202927/376986  creaitecontentcreator

https://jvz4.com/c/202927/376095  vidcentric

https://jvz1.com/c/202927/374965  studioninja

https://jvz6.com/c/202927/374934  marketingblocks

https://jvz3.com/c/202927/372682  clipsreel  

https://jvz2.com/c/202927/372916  VideoEnginePro

https://jvz1.com/c/202927/144577  BarclaysForexExpert

https://jvz8.com/c/202927/370806  Clientfinda

https://jvz3.com/c/202927/375550  Talkingfaces

https://jvz1.com/c/202927/370769  IMSyndicator

https://jvz6.com/c/202927/283867  SqribbleEbook

https://jvz8.com/c/202927/376524  superbackdrop

https://jvz8.com/c/202927/376849  VirtualReel

https://jvz2.com/c/202927/369837  MarketPresso

https://jvz1.com/c/202927/342854  voiceBuddy

https://jvz6.com/c/202927/377211  tubeTargeter

https://jvz6.com/c/202927/377557  InstantWebsiteBundle

https://jvz6.com/c/202927/368736  soronity

https://jvz2.com/c/202927/337292  DFY Suite 3.0 Agency+ information

https://jvz8.com/c/202927/291061  VideoRobot Enterprise

https://jvz8.com/c/202927/327447  Klippyo Kreators

https://jvz8.com/c/202927/324615  ChatterPal Commercial

https://jvz8.com/c/202927/299907  WP GDPR Fix Elite Unltd Sites

https://jvz8.com/c/202927/328172  EngagerMate

https://jvz3.com/c/202927/342585  VidSnatcher Commercial

https://jvz3.com/c/202927/292919  myMailIt

https://jvz3.com/c/202927/320972  Storymate Luxury Edition

https://jvz2.com/c/202927/320466  iTraffic X – Platinum Edition

https://jvz2.com/c/202927/330783  Content Gorilla One-time

https://jvz2.com/c/202927/301402  Push Button Traffic 3.0 – Brand New

https://jvz2.com/c/202927/321987  SociCake Commercial

https://jvz2.com/c/202927/289944  The Internet Marketing

 https://jvz2.com/c/202927/297271  Designa Suite License

https://jvz2.com/c/202927/310335  XFUNNELS FE Commercial 

https://jvz2.com/c/202927/291955  ShopABot

https://jvz2.com/c/202927/312692  Inboxr

https://jvz2.com/c/202927/343635  MediaCloudPro 2.0 – Agency

 https://jvz2.com/c/202927/353558  MyTrafficJacker 2.0 Pro+

https://jvz2.com/c/202927/365061  AIWA Commercial

https://jvz2.com/c/202927/357201  Toon Video Maker Premium

https://jvz2.com/c/202927/351754  Steven Alvey’s Signature Series

https://jvz2.com/c/202927/344541  Fade To Black

https://jvz2.com/c/202927/290487  Adsense Machine

https://jvz2.com/c/202927/315596  Diddly Pay’s DLCM DFY Club

https://jvz2.com/c/202927/355249  CourseReel Professional

https://jvz2.com/c/202927/309649  SociJam System

https://jvz2.com/c/202927/263380  360Apps Certification

 https://jvz2.com/c/202927/359468  LocalAgencyBox

https://jvz2.com/c/202927/377557  Instant Website Bundle

https://jvz2.com/c/202927/377194  GMB Magic Content

https://jvz2.com/c/202927/376962  PlayerNeos VR

https://jvz8.com/c/202927/381812/  BrandElevate Bundle information

https://jvz4.com/c/202927/381807/ BrandElevate Ultimate

https://jvz2.com/c/202927/381556/ WowBackgraounds Plus

https://jvz4.com/c/202927/381689/  Your3DPal Ultimate

https://jvz2.com/c/202927/380877/  BigAudio Club Fast Pass

https://jvz3.com/c/202927/379998/ Podcast Masterclass

https://jvz3.com/c/202927/366537/  VideoGameSuite Exclusive

https://jvz8.com/c/202927/381148/ AffiliateMatic

https://jvzoo.com/c/202927/381179  YTSuite Advanced

https://jvz1.com/c/202927/381749/  Xinemax 2.0 Commercial

https://jvzoo.com/c/202927/382455  Living An Intentional Life

https://jvzoo.com/c/202927/381812  BrandElevate Bundle

https://jvzoo.com/c/202927/381935 Ezy MultiStores

https://jvz2.com/c/202927/381194/  DFY Suite 4.0 Agency

https://jvzoo.com/c/202927/381761  ReVideo

https://jvz4.com/c/202927/381976/  AppOwls Bundle

https://jvz8.com/c/202927/381950/  TrafficForU

https://jvz3.com/c/202927/381615/  WOW Backgrounds 2.0

https://jvz4.com/c/202927/381560   ALL-in-One HD Stock Bundle

https://jvz6.com/c/202927/382326/   Viddeyo Bundle

https://jvz8.com/c/202927/381617/  The Forex Joustar

 

Stock Market Outlook: Bear Rally Conditions Not Sustainable, MS CIO Says

  • Lisa Shalett, the CIO of wealth management at Morgan Stanley, said in a note last week that stock investors have been too optimistic.
  • She argued that recent strength in stocks may be a bear-market rally driven by “wishful thinking” and excess liquidity.
  • Shalett laid out three risks, including Fed policy tightening, higher rates, and macroeconomic headwinds.

Investors should be wary of stock-market stability off recent lows, says the CIO for Morgan Stanley’s wealth management division.

“Recent strength in the equities market may be nothing more than a bear-market rally, fueled by wishful thinking and excess liquidity,” Lisa Shalett wrote in a recent report.

Despite a rocky week, global stock indexes are still up markedly from recent lows, with the S&P 500 and tech-heavy Nasdaq 100 having gained more than 3% over the past month. But both benchmarks are still down big on the year as investors have grappled with sky-high inflation, rocketing commodity prices, and a series of rapid US rate increases.

Shallett said the gains seen so far in April were down to investors hoping the Federal Reserve would engineer a “soft landing” by raising rates quickly enough to cool inflation but without sending the economy into a recession.

The Fed raised interest rates in March for the first time since 2018, taking a big step to tame inflation at its highest for 40 years in the US, and planned a series of at least six more hikes this year. Markets are pricing in expectations for a 50-basis point hike from the Fed’s next meeting in May and possibly more at subsequent meetings.

The Fed is also expected to shrink its balance sheet by $95 billion a month, according to its most recent meeting minutes. Futures markets show investors believe US rates could be as high as 2.75% by the end of this year, compared with 0.5% right now.

Shalett said she disagrees with the view that investors seem to hold that the Fed hiking interest rates wouldn’t affect stock valuations, and were ignoring macroeconomic risks from the Russia-Ukraine war and slowing growth.

“Morgan Stanley’s Global Investment Committee disagrees with these sanguine views and believes some of the more cautious signals coming from the bond market may better reflect the likely path ahead,” she said.

For starters, she said the Fed is expected to raise rates more times than market expected three months ago and would cut billions more a month than expected from its asset holdings.

“Such aggressive tightening will make the Fed’s policy execution highly complex, and historical examples suggest that even when the central bank does manage to land the economy softly, markets often feel a much harder impact,” she said.

In her opinion, investors are underestimating the potential hit to the stock market from a series of rapid rate rises and the effect those have on the underlying economy.

“This may be wishful thinking. We believe the Fed is apt to tighten policy more than many investors expect, impacting real rates and valuations as a result,” she said.

Lastly, Shalett said input costs, including wages, are still rising for companies, US growth will slow and there is a real risk of recession in Europe stemming from Russia’s war in Ukraine, especially if the single currency bloc halts imports of Russian energy.

With all that in mind, the double-digit gains of 2020 and 2021 will be harder to pull off, she said.  “As financial conditions tighten, a strong but slowing economy is unlikely to be enough to power substantial passive index gains from here,” she said.

Yields will rise for two reasons: (1) more potential renters than landlords and (2) house prices will fall. So, over the coming period we will see higher rents and lower house prices leading to higher rental yields and ultimately a huge investment opportunity.

The Chinese stock market has, since the credit crisis started, lost 50% of its value, much more than the developed world’s markets but the difference is that we consider that China’s stock market is still a primary bull market. Accordingly, we cautiously sit on the sidelines waiting for the best opportunity to buy it.

By:

Source: Stock Market Outlook: Bear Rally Conditions Not Sustainable, MS CIO Says

.

More contents:

Which house-price index is the best?Which house-price index is the best?   

Is China set to dominate the world?   

Tokyo Stock Exchange launches shakeup to attract foreign investors   

You may not like tobacco stocks, but they treat their investors very well 

Fred Harrison: House prices will peak in 2026

UK house prices are rising at the fastest rate in 17 years. How?  

Share tips of the week – 15 April to dominate the world?

Share tips of the week – 15 April

More Remote Working Apps:

Moderna Stock Crash Has Wiped Nearly $100 Billion As Flu Vaccine Results Trigger Latest Plunge

Moderna shares plummeted Friday morning after the Cambridge, Massachusetts-based biotech firm reported early data for its seasonal flu vaccine that failed to impress investors, intensifying a crash that’s wiped out nearly 50% of the value in one of the year’s best-performing stocks.

Key Facts

Shares of Moderna fell 8% Friday by 11:30 a.m. ET after the company reported early data for its seasonal flu vaccine that showed robust increases in antibody concentration among patients in the study.

Though Moderna touted the results as positive, Morgan Stanley analyst Matthew Harison said the initial data looked “undifferentiated” with biotech firm Sanofi’s flu vaccine, which is already on the market—a disappointment for investors seeking data that “supported clearly better efficacy.”

Shares plunged as much as 13% after the early morning report, pulling prices to near one-month lows until they pared losses after Moderna announced a new agreement to supply 20 million more Covid-19 vaccine doses to the World Health Organization’s Covax initiative, which is now on track to receive about 54 million Moderna vaccine doses in 2021.

At current prices of about $250, shares of Moderna have plunged 48% from an all-time closing high of $484 on August 9, wiping out about $97 billion from the firm’s market capitalization, which now stands at roughly $101 billion.

Despite its recent weakness, Moderna is still the S&P’s third-best-performing component this year, with shares skyrocketing about 127% thanks to the company’s Covid-19 vaccine becoming widely available across the world.

Big Number

$8 billion. That’s how much Moderna CEO Stéphane Bancel, who joined the firm in 2011, is worth as of 11:30 a.m. Friday, according to Forbes. The French native owns a roughly 8% stake in Moderna.

Key Background

Covid-19 vaccines, which are Moderna’s only commercialized product, have proven to be a massive boon for businesses heading up their development, but Moderna shares have struggled in recent months as critics increasingly question whether or not sales of Covid-19 vaccines alone will prove a viable revenue stream in years to come.

Last month, the company reported third-quarter sales and earnings that failed to meet analysts’ expectations, with revenue falling short of $5 billion despite average analyst projections calling for $6.2 billion. In addition to lower sales projections, supply chain constraints and the development of antiviral Covid-19 treatments have also triggered Moderna stock sell-offs.

Tangent

Diverse product offerings have helped Moderna’s biggest Covid-19 vaccine competitors earn high marks on Wall Street. Wells Fargo recently initiated Pfizer coverage with a “buy” rating and $60 price target, implying an upside of around 16% from current levels. The vaccine-maker’s new oral antiviral pill, Paxlovid, “provides another avenue for Covid-related growth” and will be a “game changer” for the company’s profits, the analysts said, forecasting nearly $18 billion in sales from the product next year.

Follow me on Twitter. Send me a secure tip.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and

Source: Moderna Stock Crash Has Wiped Nearly $100 Billion As Flu Vaccine Results Trigger Latest Plunge

.

More contents:

These Are The Top Ten Boutique Investment Banks

Boutique investment banks are very different from regular investment banks. The former are smaller in size and don’t offer all investment banking services. Boutique investment banks usually specialize in one or more aspects of investment banking. Moreover, such banks are generally regional or local, but some boutique investment banks operate globally. Let’s take a look at the top ten boutique investment banks.

Top Ten Boutique Investment Banks

We have used a combination of factors, such as the size, area of operations, service quality and more, to come up with the top ten boutique investment banks. Following are the top ten boutique investment banks:

  1. Houlihan Lokey

Founded in 1972, this financial firm specializes in capital markets, valuation, mergers and acquisitions, and financial restructuring. According to the data from Refinitiv, Houlihan Lokey is the top M&A advisor in the U.S., top global restructuring advisor and the top global M&A fairness opinion advisor. Houlihan Lokey has its headquarters in Los Angeles and has offices in the Middle East, the Asia-Pacific region, the United States, and Europe.

  1. Moelis & Company

Founded in 2007, this company offers strategic advice and solutions to companies, financial sponsors and governments. Moelis & Company primarily helps its customers to hit their strategic goals by giving them integrated financial advisory services. The company is headquartered in New York, but serves its clients from offices in 19 geographic locations, including the Middle East, Australia, Europe, Asia, and America.

  1. Lazard

Founded in 1848, it is a leading financial advisory and asset management firm. Lazard advices its clients on restructuring and capital structure, mergers and acquisitions, capital raising and corporate finance, strategic matters, as well as provides asset management services to firms, governments, individuals, partnerships, and institutions. Lazard has its headquarters in New York and serves clients from over 40 cities across 25 countries in Asia, South America, North America, Australia, Central America and Europe.

  1. Guggenheim Partners

Founded in 1999, it is a diversified financial services firm that provides banking, investment management and insurance services. The company’s history dates back to the late 1800s with Guggenheim Brothers, which was Guggenheim’s family business. Guggenheim Partners’ mission is to provide unparalleled service and performance. It has over $315 billion in assets under management (as of March 2021). Guggenheim Partners is headquartered in New York.

  1. Greenhill & Co.

Founded in 1996, it is a leading investment bank that assists clients on mergers, capital raising, acquisitions, restructurings, and more. Robert F. Greenhill, who is the founder of Greenhill & Co., is the former president of Morgan Stanley and former chairman and chief executive officer of Smith Barney. Greenhill & Co. has its headquarters in New York, and has offices in many crucial financial centers, including Melbourne, Paris, Hong Kong, Houston, Sydney, Tokyo and more.

  1. Evercore

Founded in 1995, it is a leading investment banking advisory firm. The company advises its clients on mergers, restructurings, public offerings, divestitures, private placements and other strategic transactions. It also offers wealth management, institutional asset management and private equity investing services. Evercore is headquartered in New York and has offices in many major financial centers, such as the Middle East, Asia, North America, and Europe.

  1. Centerview Partners

Founded in 2006, it is a financial advisory and private equity boutique firm. The company assists companies on valuation, mergers and acquisitions and financial restructurings. Centerview, so far, has assisted in about $3 trillion of transactions. Its clients include 20% of the 50 biggest companies on the basis of market cap. Centerview Partners has its headquarters in New York and has offices in London, San Francisco, Los Angeles and Palo Alto.

  1. Cowen

Founded in 1918, it is a diversified financial services firm. Cowen, along with its subsidiaries, offers investment banking, sales and trading services, alternative investment management, and research services. The company operates through two business segments – investment management and broker dealer division. It is known for identifying emerging industries earlier than others. Cowen is headquartered in New York and has offices in major financial centers around the globe.

  1. Cantor Fitzgerald

Founded in 1945, it is a leading global financial services firm. It started as a securities brokerage and investment bank, and pioneered computer-based bond trading. Fitzgerald now is known for a diverse array of businesses, including commercial real estate finance and services, asset management and wealth management, equity and fixed income capital markets and more. Cantor Fitzgerald has its headquarters in New York.

  1. Blackstone Group

Founded in 1985, it is among the biggest investment firms in the world. This company provides investment and advisory services to investors and clients. Its asset management business includes investment vehicles that focus on public debt and equity, non-investment grade credit, real assets, private equity, secondary funds, real estate and growth equity. Blackstone’s total assets under management were about $619 billion as of 2020. Blackstone is headquartered in New York.

By:

Source: These Are The Top Ten Boutique Investment Banks

.

More Contents:

The U.S. To Vote Bill Against Big Five Technology Monopoly Today

Fed Chair Powell: U.S. Inflation in 2021 Tied to Economic Reopening, Not a 1970s Repeat

The Creator Economy Comes of Age as a Market Force

Morgan Stanley Says “No” to Unvaccinated Clients and Staff At New York Premises

The Patterson Companies, Inc Goes On Sale

Should you invest in an active or passive fund?

How Far Does £1 Million Go in Retirement?

Retirement Blunders British Millionaires Should Avoid

Quick wins for business expenses

Banks Are Giving the Ultra-Rich Cheap Loans to Fund Their Lifestyle

Billionaire hedge fund manager Alan Howard paid $59 million for a Manhattan townhouse in March. Just two months later he obtained a $30 million mortgage from Citigroup Inc.

Denis Sverdlov, worth $6.1 billion thanks to his shares in electric-vehicle maker Arrival, recently pledged part of that stake for a line of credit from the same bank. For Edgar and Clarissa Bronfman the loan collateral is paintings by Damien Hirst and Diego Rivera, among others. Philippe Laffont, meanwhile, pledged stakes in a dozen funds at his Coatue Management for a credit line at JPMorgan Chase & Co.

In the realm of personal finance, debt is largely viewed as a necessary evil, one that should be kept to a minimum. But with interest rates at record lows and many assets appreciating in value, it’s one of the most important pieces of the billionaire toolkit — and one of the hottest parts of private banking.

Thanks to the Bronfmans, Howards and Sverdlovs of the world, the biggest U.S. investment banks reported a sizable jump in the value of loans they’ve extended to their richest clients, driven mainly by demand for asset-backed debt.

Morgan Stanley’s tailored and securities-based lending portfolio approached $76 billion last quarter, a 43% increase from a year earlier. Bank of America Corp. reported a $67 billion balance of such loans, up more than 20% year-over-year, while loans at Citigroup’s private bank — including but not limited to securities-backed loans — rose 17%. Appetite for such credit was the primary driver of the 21% bump in average loans at JPMorgan’s asset- and wealth-management division. And at UBS Group AG, U.S. securities-based lending rose by $4 billion.

Borrowing Binge

“It’s a real business winner for the banks,” said Robert Weeber, chief executive officer of wealth-management firm Tiedemann Constantia, adding his clients have recently been offered the opportunity to borrow against real estate, security portfolios and even single-stock holdings.

Spokespeople for Howard, Arrival and Laffont declined to comment, while the Bronfmans didn’t respond to a request for comment.

Rock-bottom interest rates have fueled the biggest borrowing binge on record and even billionaires with enough cash to fill a swimming pool are loathe to sit it out.

And for good reason. With assets both public and private at historically lofty valuations, shareholders are hesitant to cash out and miss higher heights. Appian Corp. co-founder Matthew Calkins has pledged a chunk of his roughly $3.5 billion stake in the software company — whose shares have risen about 145% in the past year — for a loan.

“Families with wealth of $100 million or more can borrow at less than 1%,” said Dan Gimbel, principal at NEPC Private Wealth. “For their lifestyle, there may be things they want to purchase — a car or a boat or even a small business — and they may turn to that line of credit for those types of things rather than take money from the portfolio as they want that to be fully invested.”

Yachts and private jets have been especially popular buys in the past year, according to wealth managers, one of whom described it as borrowing to buy social distance.

‘Significant Benefit’

Loans also allow the ultra-wealthy to avoid the hit of capital gains taxes at a time when valuations are high and rates are poised to increase, perhaps even almost double. Postponing tax is a “significant benefit” for portfolios concentrated and diversified alike, according to Michael Farrell, managing director for SEI Private Wealth Management.

Critics say such loans are just one more wedge in America’s ever-widening wealth gap. “Asset-backed loans are one of the principal tools that the ultra-wealthy are using to game their tax obligations down to zero,” said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies.

While using public equities as collateral is the most common tactic for banks loaning to the merely affluent, clients further up the wealth scale usually have a bevy of possessions they can feasibly pledge against, such as mansions, planes and even more esoteric collectibles, like watches and classic cars.

One big advantage for the wealthy borrowing now is the possibility that rates will ultimately rise and they can lock in low borrowing costs for decades. Some private banks offer mortgages on homes for as long as 20 years with fixed interest rates as low as 1% for the period.

The wealthy can also hedge against higher borrowing costs for a fraction of their pledged assets’ value, according to Ali Jamal, the founder of multifamily office Azura.

“With ultra-high-net worth clients, you’re often thinking about the next generation,” said Jamal, a former Julius Baer Group Ltd. managing director. “If you have a son or a daughter and you know they want to live one day in Milan, St. Moritz or Paris, you can now secure a future home for them and the bank is fixing your interest rate for as long as two decades.”

Risks Involved

Securities-based lending does comes with risks for the bank and the borrower. If asset values plunge, borrowers may have to cough up cash to meet margin calls. Banks prize their relationships with their richest clients, but foundered loans are both costly and humiliating.

Ask JPMorgan. The bank helped arrange a $500 million credit facility for WeWork founder Adam Neumann, pledged against the value of his stock, according to the Wall Street Journal. As the value of the co-working startup imploded, Softbank Group Corp. had to swoop in to help Neumann repay the loans and avert a significant loss for the bank.

A spokesperson for JPMorgan declined to comment.

Still, for the banks it’s a risk worth taking. Asked about securities-backed loans on last week’s earnings call, Morgan Stanley Chief Financial Officer Sharon Yeshaya said they’d “historically seen minimal losses.” Among the bank’s past clients is Elon Musk, who turned to them for $61 million in mortgages on five California properties in 2019, and who also has Tesla Inc. shares worth billions pledged to secure loans.

“As James [Gorman] has always said, it’s a product in which you lend wealthy clients their money back,” Yeshaya said, referring to Morgan Stanley’s chief executive officer. “And this is something that is resonating.”

By:

Source: Banks Are Giving the Ultra-Rich Cheap Loans to Fund Their Lifestyle

.

Reference:

Stock market news live updates: Stocks rally, zero in on records as markets try to extend win streak

FOREX-U.S. dollar on track for second week of gains; Fed meeting in focus

GM issues new recall for nearly 69,000 Bolt EVs for fire risks

American Express beats Q2 estimates as consumer spending rebounds

Pakistan seeks U.N. probe of India’s use of Pegasus spyware

Here’s what a Bank of America strategist says investors should do next as market rotation enters round four

This ‘fruit pyramid’ can help you build the retirement that’s right for you

%d bloggers like this: