PANIC, ANXIETY SPARK RUSH TO BUILD LUXURY BUNKERS FOR L.A.'S SUPERRICH

Illustration by Mario Wagner

Oscar winners, sports stars and Bill Gates are building lavish bunkers — with amenities ranging from a swimming pool to a bowling alley — as global anxiety fuels sales and owners "could be the next Adam and Eve."

Given the increased frequency of terrorist bombings and mass shootings and an under-lying sense of havoc fed by divisive election politics, it's no surprise that home security is going over the top and hitting luxurious new heights. Or, rather, new lows, as the average depth of a new breed of safe haven that occupies thousands of square feet is 10 feet under or more. Those who can afford to pull out all the stops for so-called self-preservation are doing so — in a fashion that goes way beyond the submerged corrugated metal units adopted by reality show "preppers" — to prepare for anything from nuclear bombings to drastic climate-change events. Gary Lynch, GM at Rising S Bunkers, a Texas-based company that specializes in underground bunkers and services scores of Los Angeles residences, says that sales at the most upscale end of the market — mainly to actors, pro athletes and politicians (who require signed NDAs) — have increased 700 percent this year compared with 2015, and overall sales have risen 150 percent. "Any time there is a turbulent political landscape, we see a spike in our sales. Given this election is as turbulent as it is, we are gearing up for an even bigger spike," says marketing director Brad Roberson of sales of bunkers that start at $39,000 and can run $8.35 million or more (FYI, a 12-stall horse shelter is $98,500).

Adds Mike Peters, owner of Utah-based Ultimate Bunker, which builds high-end versions in California, Texas and Minnesota: "People are going for luxury [to] live underground because they see the future is going to be rough. Everyone I've talked to thinks we are doomed, no matter who is elected." Robert Vicino, founder of Del Mar, Calif.-based Vivos, which constructs upscale community bunkers in Indiana (he believes coastal flooding scenarios preclude bunkers being safely built west of the Rockies), says, "Bill Gates has huge shelters under every one of his homes, in Rancho Santa Fe and Washington. His head of security visited with us a couple years ago, and for these multibillionaires, a few million is nothing. It's really just the newest form of insurance."

A hidden door by Creative Home Engineering leads to a secret passageway that connects to an underground bunker.

Rising S Bunkers installed a 37-room, 9,000-square-foot complex in Napa Valley for an Academy Award-winning client that rang in at $10.28 million, with a bowling alley, sauna, jacuzzi, shooting range and an ultra-large home theater. Swimming pools, greenhouses, game rooms and gyms are other amenities offered. This year, on another Napa Valley property, the company constructed a $9 million, 7,600-square-foot compound with horse stables and accommodations for 12, along with four escape tunnels leading to outlets on the estate, multiple hidden rooms — in case "you let someone in whom you do not fully trust," says Lynch — and an aboveground safe house "disguised as a horse barn." The company also is designing a $3 million bunker for "a major sports figure from Southern California."

READ MORE

'Idiocracy' to Return to Theaters as Election Season Reminder

The company's best-selling bunkers for L.A. are 10 by 50 feet, start at $112,000 and have their own power sources, water supplies and air-filtration systems: "These complexes accommodate families of four or five and are self-sustaining," says Roberson, adding: "You can pretty much put a palace underground anywhere there is physically enough room." Regardless, Ellia Thompson, chair of land use practice at Ervin Cohen & Jessup in Beverly Hills, notes that zoning guidelines vary throughout L.A., so one should check with the city department of building and safety about permits: "A special permit may be required if you are digging out more dirt than certain basement quantities."

Business has doubled in the past year at Ultimate Bunker, which just built a $10 million complex on a 700-acre property a few hours north of Minneapolis for a client "known for television, who has his own show," says Peters. Two 1,000-square-foot bunkers (one for storage) are connected by 300 feet of tunnels to the main 6,800-square-foot home as well as three guesthouses that each boast a $200,000 bunker "to take care of his family and friends," says Peters. "It's like an underground mansion with more mansions on top of it."

Al Corbi, president and founder of S.A.F.E. (Strategically Armored & Fortified Environments), with offices in West Hollywood, says that his most spectacular projects were $100 million subterranean residences, one for a global venture capitalist and the other for an East Coast developer to mimic the Universal CityWalk promenade, with a pizzeria and wellness outpost that, he says, "resembles a Burke Williams day spa." Corbi says both bunkers protect from nuclear holocaust (8 feet of soil blocks radioactive fallout), pandemic (a positive-pressure air system with HEPA filters keeps contaminants out), electromagnetic pulses and solar flares (using a metal encasement), among other threats. "Power technology has improved tremendously thanks in part to Tesla and lithium-ion batteries that only degrade a maximum of 10 percent after 30 years," says Corbi. "And now there is food with a 25-year minimum shelf life. [The owners] could be the next Adam and Eve." (Note to L.A. chefs, however: The rations are grim, ranging from beef Stroganoff to chili.)

READ MORE

Hollywood's Newest Home Trend: Safe Rooms

When it comes to the details of secret passageways and hidden doors, many in Hollywood turn to Arizona-based Creative Home Engineering. "We've seen year-over-year growth of about 20 percent, but perhaps more telling is an increasing percentage of clientele who need their secret door to employ high-security features," notes president Steve Humble, who says before, 60 percent of secret doors in cigar rooms, home theaters, children's bedrooms and the like were for novelty value. "Nowadays, 80 percent are used for security. In the past year, I have performed installations inside two nuclear-protected complexes with more than 10 secret doors each, one in the L.A. area owned by a plastic surgeon."

Film fantasies play a part in the choice of secret entrances. "Many of my clients come to me knowing what movie secret door they would like duplicated," says Humble, who cites as top inspirations Indiana Jones and the Last Crusade, the Batman and James Bond franchises, Mr. & Mrs. Smith and Goonies, on which a popular access control device that "requires that a certain sequence of notes be played on the piano to get the door to open" is based. There's also Get Smart: "At this moment, we are converting a phone booth [inside a private residence] so that when the user dials the correct number, the back panel opens to grant access to a secure area." He adds: "I can tell you that we've built secret doors for many of the most recognizable and highly awarded directors and celebrities in Hollywood. There are a lot of Oscars and Emmys tucked away safely behind my secret doors."

1. A floor plan for an $8.35 million, 6,000-square-foot bunker from Texas company Rising S Bunkers includes a decked-out game room.

2. The largest swimming pool that Rising S has built measures 40 feet.

3. Fitness rooms are a must to compensate for a lack of outside activity.

4. Natural light tubes and ultraviolet LED lamps promote growth in underground gardens of consumable plants and vegetables.

5. Theaters seat as many as 20 people and come with 10-foot screens.

6. Rising S has seen garages with 15 vehicles, including Rolls-Royces, muscule cars and armored personnel carriers (one client has three).

http://www.hollywoodreporter.com/news/bunker-builders-anticipate-lucrative-trumpocalypse-932748

Secret Truth Revealed about THE REAL DEBATE

The Elite have invested billions of dollars over a period of 60 years to create a population of semi-conscious happy consumers in the US (and are attempting to do so globally).  The form changes from time to time, but the essence is the same: don't mess with the status quo.  As we explain in Splitting Pennies - Understanding Forex - this is no where more obvious than financial services.  In fact, a large part of the 'dumbing down' campaign is designed to make you fire from the right brain, and the reptilian brain (ribbit).  That means they encourage sports, violence, and basically anything vulgar and stupid.  It's not only designed to destroy your family, it's designed to destroy a civilization.  And it's working!  For those who are curious about this mega-brainwashing-system that went into place during the 50's and 60's and now has a complete domination over almost all aspects of American life, checkout the following books: Virtual Government: CIA Mind Control Operations in America, Population Control: How Corporate Owners Are Killing Us.

The Real Debate

Part of this social control paradigm they've created is turning politics into a big circus-style entertainment.  TRUMP fits the bill perfect here, as our entire political system has become a big reality show.  Tonight's event, used to be one of much intellectual rigor.  To understand what 'debate' is - read this book "Logic and Contemporary Rhetoric" - a MUST read for any intellectual, trader, thinker, or someone who enjoys to understand how things work.  Modern politicians, don't bother to read this book, it will only ruin your career (you shouldn't read in fact, just practice smiling and saying what it says on the teleprompter).

There is practically no difference who the President is anymore.  Even Trump who is like the 'Trump' card, the wildcard candidate, could not likely greatly change the Corporatocracy currently running Washington, or he'd risk imploding it and in the process bankrupting himself.  Unfortunately, there isn't any 'fix' for the system, so no matter how crafty and clever candidates like Trump may seem, even Nuclear war couldn't shake the resolve of the lunatic psychopaths running the world.  The only thing that could really change the system, would be mass non-cooperation (say, 100 Million people stay at home, turn off their TVs.  It would cause a revolution).  With the constant flow of drugs, money, and cheap entertainment, ("the spice must flow") it's guaranteed that for the current generation, the bread and games approach will work.  As long as they're kept fat and happy, they're happy to line up for the slaughter.

The REAL Debate, doesn't happen on TV.  It happens at the Federal Reserve Bank (Or, at the private Residence of some Rockefeller level bankers) - these debates involve topics such as who will be the next Fed Chairman, what country will the US invade next, and what the interest rate policy should be?  (The debate about interest rates, that doesn't last long, not more than a few seconds, long enough for everyone to murmur 'agree' or 'ditto').  And here, in these private chambers, is where the REAL failure happened.  Some Rockefeller sidekick, like Helicopter Ben, will have some popular warped theory about how negative rates are good to stimulate growth, so the valves should be turned on full.  Fast forward almost 10 years, and the same Elite group finally realized that, economically speaking, it makes more sense to give money to people, not banks.  If by strange chance, those advisors with that realization, could have been in the meeting we call The Real Debate, maybe QE wouldn't exist, we'd live in a different world, a more real world, based on real numbers and not aritifically inflated data.  But, we don't live in that world so it's pointless to think about. 

The Real Debate, happens everyday in the FX markets.  Traders on one side (the buy side) push hard to topple their counterpart, the sell side.  That's the Real Debate.  You can watch it live for only $1 Click here to start to watch the real debate for only $1.

Politicians don't call the shots anymore.  If they ever did, is another question.  The Real Debate, it's happening right now on Zero Hedge.  Turn off your TV - and join!

If you want a quick Forex education, checkout Splitting Pennies - the pocket guide designed to instantly make you a Forex genius!

If you want to get started looking at investing, checkout Fortress Capital Forex

CFTC fines Russia bank $5 million for $36 billion of phony ruble-dollar trades -

The U.S. Commodity Futures Trading Commission fined a Russia bank $6 million Monday for executing "fictitious and noncompetitive" Russian Ruble - U.S. dollar futures contracts on the Chicago Mercantile Exchange.

The CFTC brought the enforcement action against VTB Bank, headquartered in St. Petersburg, Russia, and its subsidiary VTB Capital PLC.

VTB Capital is a U.K.-incorporated bank.

The CFTC’s order required VTB Bank and VTB Capital to jointly and severally pay a $5 million civil penalty.

VTB Bank didn't have the capital base to hedge a large position in ruble - dollar contracts, the CFTC said.

So between December 2010 and June 2013, VTB Bank and VTB Capital executed on the CME over 100 block trades in RUB/USD futures contracts, with a notional value of about $36 billion.

The purpose of the trades was to transfer VTB’s cross-currency risk to VTB Capital at prices more favorable than VTB could have obtained from third-parties.

VTB Capital then hedged the cross-currency risk in OTC swaps with various international banks.

That allowed VTB Bank to accomplish through risk-free, non-arms-length transactions in the futures market what it couldn't do through the swaps market.

The block trades were fictitious sales, the CFTC said. They were done without risk to VTB Bank and reported by the CME at prices that weren't bona fide prices.

Non-competitive and fictitious trades violate CFTC rules.

VTB is the former Vneshtorgbank. The Russian government controls most of the stock in VTB. The Bank of Moscow is VTB's biggest subsidiary.

The CFTC said VTB Bank and VTB Capital cooperated with the U.S. investigation.

The UK Financial Conduct Authority helped the CFTC in the investigation.

_____

Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.

http://www.fcpablog.com/blog/2016/9/23/cftc-fines-russia-bank-5-million-for-36-billion-of-phony-rub.html 

OPEN A FOREX ACCOUNT - YOU JUST MIGHT GET LUCKY

Slowly... Then All At Once

Submitted by Howard Kunstler via Kunstler.com,

The staggering incoherence of the election campaign only mirrors the shocking incapacity of the American public, from top to bottom, to process the tendings of our time. The chief tending is permanent worldwide economic contraction. Having hit the resource wall, especially of affordable oil, the global techno-industrial economy has sucked a valve in its engine.

For sure there are ways for human beings to inhabit this planet, perhaps in a civilized mode, but not at the gigantic scale of the current economic regime. The fate of this order has nothing to do with our wishes or preferences. It’s going down whether we like it or not because it was such a violent anomaly in world history and the salient question is: how do we manage our journey to a new disposition of things. Neither Trump or Clinton show that they have a clue about the situation.

The quandary I describe is often labeled the end of growth. The semantic impact of this phrase tends to paralyze even well-educated minds, most particularly the eminent econ professors, the Yale lawyers-turned-politicos, the Wall Street Journal editors, the corporate poobahs of the “C-Suites,” the hedge fund maverick-geniuses, and the bureaucratic errand boys (and girls) of Washington. In the absence of this “growth,” as defined by the employment and productivity statistics extruded like poisoned bratwursts from the sausage grinders of government agencies, this elite can see only the yawning abyss. The poverty of imagination among our elites is really something to behold.

As is usually the case with troubled, over-ripe societies, these elites have begun to resort to magic to prop up failing living arrangements. This is why the Federal Reserve, once an obscure institution deep in the background of normal life, has come downstage front and center, holding the rest of us literally spellbound with its incantations against the intractable ravages of debt deflation. (For a brilliant gloss on this phenomenon, read Ben Hunt’s essay “Magical thinking” at the Epsilon Theory website.)

One way out of this quandary would be to substitute the word “activity” for “growth.” A society of human beings can choose different activities that would produce different effects than the techno-industrial model of behavior. They can organize ten-acre farms instead of cell phone game app companies. They can do physical labor instead of watching television. They can build compact walkable towns instead of suburban wastelands (probably even out of the salvaged detritus of those wastelands). They can put on plays, concerts, sing-alongs, and puppet shows instead of Super Bowl halftime shows and Internet porn videos. They can make things of quality by hand instead of stamping out a million things guaranteed to fall apart next week. None of these alt-activities would be classifiable as “growth” in the current mode. In fact, they are consistent with the reality of contraction. And they could produce a workable and satisfying living arrangement.

The rackets and swindles unleashed in our futile quest to keep up appearances have disabled the financial operating system that the regime depends on. It’s all an illusion sustained by accounting fraud to conceal promises that won’t be kept. All the mighty efforts of central bank authorities to borrow “wealth” from the future in the form of “money” — to “paper over” the absence of growth — will not conceal the impossibility of paying that borrowed money back. The future’s revenge for these empty promises will be the disclosure that the supposed wealth is not really there — especially as represented in currencies, stock shares, bonds, and other ephemeral “instruments” designed to be storage vehicles for wealth. The stocks are not worth what they pretend. The bonds will never be paid off. The currencies will not store value. How did this happen? Slowly, then all at once.

We’re on a collision course with these stark realities. They are coinciding with the sickening vectors of national politics in a great wave of latent consequences built up by the sheer inertia of the scale at which we have been doing things. Trump, convinced of his own brilliance, knows nothing, and wears his incoherence like a medal of honor. Clinton literally personifies the horror of these coiled consequences waiting to spring — and the pretense that everything will continue to be okay with her in the White House (not). When these two gargoyle combatants meet in the debate arena a week from now, you will hear nothing about the journey we’re on to a different way of life.

But there is a clear synergy between the mismanagement of our money and the mismanagement of our politics. They have the ability to amplify each other’s disorders. The awful vibe from this depraved election might be enough to bring down markets and banks. The markets and banks are unstable enough to affect the election.

In history, elites commonly fail spectacularly. Ask yourself: how could these two ancient institutions, the Democratic and Republican parties, cough up such human hairballs? And having done so, do they deserve to continue to exist? And if they go up in a vapor, along with incomes and savings, what happens next?

Enter the generals.

Wall Street’s 0.01%: The Guru Who Only Talks to Hedge-Fund Elite

Jens Nordvig, one of the hottest prognosticators in finance, will sell anyone his secret sauce for winning trades for $30,000 a year.

But if you want unfettered access to his best ideas and personal touch—the kind that the deep-pocketed hedge funds covet—be prepared to shell out about 20 times more.

That two-pronged approach to research, off-limits (at least officially) at Wall Street banks, captures one of the most striking shifts in finance today: the rise of a class system where entire businesses cater to only the highest-paying clients. Of course, haves and have-nots have long existed in the world of finance. But the widening gap within Wall Street itself, between what the privileged few and most others get, is creating a new financial elite—what amounts to the 1 percent of the 1 percent.

And if you’re not part of the 0.01 percent, the next best thing is to sell to it.

“Investors either get personalized advice from someone they really trust, or it’s the data tools, good robots—and the price of those two things are different,” the 42-year-old Dane explained from his WeWork office in Manhattan’s Flatiron district one recent afternoon.

For Nordvig, who left Nomura Holdings Inc. in January after five years as Wall Street’s top-ranked currency strategist, it meant leveraging that standing to build his firm, Exante Data, around a rarefied group of the brightest hedge-fund names— and the money they dole out.

Exante counts Key Square, founded by George Soros protege Scott Bessent, and Adam Levinson’s Graticule, a Singapore-based firm spun out of Fortress Investment Group, among its clients, according to conversations with investors and people familiar with the matter. Graticule didn’t reply to requests for comment.

Nordvig declined to identify specific firms, but says there are just “five to seven” large institutions, whose fees covered most of his startup costs. And by design, he isn’t accepting any new business. That’s because while Exante’s six employees are focused on its analytics rollout, Nordvig devotes the majority of his time advising his marquee customers.

He’s in touch with them on an almost daily basis and is just a phone call or instant message away—any time, 24/7. His research is tailor-made to suit each one’s needs and Nordvig says he’ll often spend hours at a time with a single firm debating macroeconomic policy and trade strategies.

In late July, Nordvig was up until midnight defending his high-stakes call to a hedge-fund client in Asia that the Bank of Japan would stand pat, rather than announce a new set of aggressive stimulus measures as everyone expected. (He dissuaded the firm from shorting the yen, which proved to be prescient as the Japanese currency surged following the non-event.)

“At banks, it’s mass production. It’s Target versus Hermès.”
So far, his backers like what they see.

“Jens is one of the great thinkers in the market,” said Key Square’s Bessent, who oversaw Soros’ personal fortune before starting his own billion-dollar macro fund this year. “Part of what we did was we got him to control his number of clients. At banks, it’s mass production. It’s Target versus Hermès.”

Nordvig isn’t shy about what he brings to the table. Prior to his years at Nomura, he spent almost a decade at Goldman Sachs Group Inc., where he rose to become co-head of global currency research and made his name with bold calls and savvy analysis. In between, he did a brief stint at Ray Dalio’s Bridgewater Associates. And Nordvig brushes off the perception among both admirers and critics that he can, at times, be just a bit too brazen in promoting himself. To him, it’s just part of the cutthroat nature of finance.

“I have a track record of being quite detail-oriented, precise in my analysis and also able to develop new frameworks for thinking about things, and at the same time being quite pragmatic,” he said. “I’ve set up the advisory business so that the people I deal with are some of the biggest macro investors in the world, and I know their interests fit with how I think.”

Whatever the case, there is little doubt the appetite for bespoke research like Nordvig’s is growing. Banks are slashing costs, cutting jobs and abandoning their ambitions to be all things to all customers in the face of a slew of regulations over issues like selective access and excessive risk-taking. An industry-wide slump in revenue since the financial crisis has also prompted bank executives to rethink the value of the commission-based model, where investment research is offered for free in return for trade orders.

Many firms have eliminated analysts as they scale back research spending—making personalized service and attention all the more valuable. Some like Citigroup Inc. and Morgan Stanley have drawn up preferred client lists with code names such as “Focus Five” and “supercore” for top clients.

“It’s a changing landscape,” said Matthew Feldmann, a consultant at Scepter Partners, a multi-family office, and a former money manager at Citadel and Brevan Howard. “People like Jens have found a niche area where all you need is a few wealthy individual customers.”

Perhaps just as important is the proliferation of automated trading strategies and machine-driven data mining, which has replaced many traditional roles that used to exist on Wall Street (not to mention made it harder for hedge funds to outperform as technology makes financial data almost ubiquitous).

Nordvig’s old job at Goldman Sachs exemplified that bygone era. As recently as 2007, he’d stand in the middle of the trading floor with mic in hand on the first Friday of every month, just before the 8:30 a.m. payrolls report. His task? Shout out his immediate take. If the U.S. added more jobs than expected, he’d cry “buy dollar-yen!” and within seconds, Goldman Sachs’s traders would hit the button on their keyboards to put in the order.

“We used to be able to make so much money by just being fast,” he said. Yet today, it’s all done by robots.

Amid the upheaval, Nordvig is confident his experience and smarts will ensure his high-priced advice remains in demand. But he’s not taking any chances.

After years of lackluster returns and faced with the biggest withdrawals since the financial crisis, hedge funds are looking for any edge they can find. These days, that often comes from the world of quantitative analysis. Even legendary names like Paul Tudor Jones, who made their fortunes the old-fashioned way, are hiring a bevy of programmers and mathematicians to build out more sophisticated, computer-driven strategies.

But not everybody has the research budgets to hire scores of Ph.D.s or pay for Nordvig’s white-glove service. That’s where the “data” in Exante Data comes in (Exante is derived from “ex ante,” Latin for “before the event”). Plenty of research superstars have decamped from Wall Street to set up boutique advisory firms, but Exante’s two-tier model is rare. Once the data business is fully up and running, Nordvig promises to give mere mortals on Wall Street the same type of data-mining tools once available only to the biggest quant shops.

Nordvig says he has one overriding advantage: he simply understands markets better.
Yet competition on the data front is heating up. Scores of startups are already scraping data and turning the information into actionable ideas. Goldman Sachs is the biggest investor in Kensho Technologies Inc., which analyzes historical trading patterns to predict how assets react to events like policy meetings and economic releases. An outfit called SpaceKnow Inc. uses satellite images of factories to gauge economic activity in export-oriented countries like China.

Nordvig, in his typical cocksure manner, says he has one overriding advantage: he simply understands markets better.

In coming months, Exante will launch its first data product for the masses. According to Nordvig, his data scientists have come up with a complex algorithm that precisely estimates how much the yuan exchange rate is influenced by China’s buying or selling of dollars, on a daily basis.

There’s nothing publicly available that comes close to measuring intervention in such detail. But Nordvig says his algo succeeds because it can capture anomalies in yuan trading, like a sudden widening in bid-ask spreads, and then compare the data against freely-traded markets in big financial centers.

While the tool can’t yet gauge intervention in offshore yuan and currency forwards, his backtested results show it closely tracks less frequently released official figures. And knowing beforehand can make a huge difference. Case in point: In August 2015, the People’s Bank of China unexpectedly engineered a weakening of the yuan, which blindsided investors and sent financial markets worldwide into a tailspin.

“This is about knowing what topics are important to the clients you serve,” Nordvig said.

http://www.bloomberg.com/news/features/2016-09-15/wall-street-s-0-01-the-guru-who-only-talks-to-hedge-fund-elite

There’s a $300 Billion Exodus From Money Markets Ahead

With a seismic overhaul of the $2.6 trillion money-market industry weeks away from kicking in, money managers are bracing for a last-minute exodus of as much as $300 billion from funds in regulators’ cross hairs.

Prime funds, which seek higher yields by buying securities like commercial paper, are at the center of the upheaval. Their assets have already plunged by almost $700 billion since the start of 2015, to $789 billion, Investment Company Institute data show. The outflow has rippled across financial markets, shattering demand for banks’ and other companies’ short-term debt and raising their funding costs.

The transformation of the money-fund industry, where investors turn to park cash, is a result of regulators’ efforts to make the financial system safer in the aftermath of the credit crisis. The key date is Oct. 14, when rules take effect mandating that institutional prime and tax-exempt funds end an over-30-year tradition of fixing shares at $1. Funds that hold only government debt will be able to maintain that level. Companies such as Federated Investors Inc. and Fidelity Investments, which have already reduced or altered prime offerings, are preparing in case investors yank more money as the new era approaches.

“All managers, like ourselves, are positioning around the uncertainty of the exact magnitude of the outflows,” said Peter Yi, director of short-term fixed income at Chicago-based Northern Trust Corp., which manages $906 billion.

$300 Billion

While Yi sees the additional outflow from prime-fund investors potentially reaching $200 billion in the next 30 days, TD Securities predicted in a Sept. 7 note that it may tally as much as $300 billion.

Yi is preparing by shortening his funds’ weighted average maturity and avoiding short-term debt that matures beyond September. He’s not alone. For the biggest institutional prime funds tracked by Crane Data LLC, the weighted average maturity of holdings fell to an unprecedented 10 days as of Sept. 12. It’s not just floating net-asset values that investors are avoiding. Prime funds can also impose restrictions such as redemption fees.

Amid the tumult, money-fund assets have held steady because most of the cash leaving prime and tax-exempt funds has streamed into less risky offerings focusing on Treasuries and other government-related debt, such as agency securities and repurchase agreements. These funds are exempt from the new rules, which the U.S. Securities and Exchange Commission issued in 2014.

A major repercussion of the flight from prime funds is that there’s less money flowing into commercial paper and certificates of deposit, which banks depend on for funding. As a result, banks’ unsecured lending rates, such as the dollar London interbank offered rate, have soared. Three-month Libor was about 0.85 percent Wednesday, close to the highest since 2009.

Libor may stabilize after mid-October because prime funds may begin to increase purchases of bank IOUs, although the risk of a Federal Reserve interest-rate hike by year-end will keep it elevated, said Seth Roman, who helps oversee five funds with a combined $3.2 billion at Pioneer Investments in Boston.

“You could picture a scenario where Libor ticks down a bit,” Roman said. But “you have to keep in mind that the Fed is in play still.”

Financial firms paying higher rates to attract investors to their IOUs will push three-month Libor to about 0.95 percent by the end of September, according to JPMorgan Chase & Co.

Click here to read more about rising Libor rates.

Although bank funding costs are rising, it isn’t a signal of financial strain as in 2008, said Jerome Schneider, head of short-term portfolio management at Newport Beach, California-based Pacific Investment Management Co., which oversees about $1.5 trillion. 

“This is not a credit stress event, it’s a credit repricing due to systemic and structural changes,” he said.

The market for commercial paper has shrunk about 50 percent from its $2.2 trillion peak in 2007, pushing financial firms to diversify funding sources -- choosing longer-term debt and loans in foreign currencies.

At least $269 billion in commercial paper and certificates of deposits held by prime funds will come due before Oct. 14 and most issuers of that debt will need to find financing outside the money-fund industry, JPMorgan predicts.

The hubbub in money markets has its roots in a crucial episode of the financial crisis -- the demise of the $62.5 billion Reserve Fund, which became just the second money fund to lose money, or “break the buck.” The event contributed to the global freeze in credit markets and pushed the Treasury Department to temporarily backstop almost all U.S. money funds.

With the Fed’s target rate still not far from zero, money-fund investors looking to pad returns may overcome their aversion to prime funds. Institutional prime funds’ seven-day yield was 0.24 percent as of Sept. 12, compared with 0.17 percent for government funds, according to Crane Data.

“You’ll see the prime-fund space continue to shrink until we hit mid-October,” said Tracy Hopkins, chief operating officer in New York at BNY Mellon Cash Investment Strategies, a division of Dreyfus Corp.

“After that,” she said, “I would not be surprised to see assets return, once customers get accustomed to the floating NAVs and want to earn incremental yield over government money-market funds.”

http://www.bloomberg.com/news/articles/2016-09-13/there-s-a-300-billion-exodus-ahead-as-new-money-fund-era-dawns

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Seven College Endowments Report Annual Losses in Choppy Markets

Seven public U.S. university endowments with assets of more than $1 billion including the University of California reported fiscal 2016 investment losses as lackluster economic growth and volatility drubbed markets.

College endowments are poised to take the worst slide in performance since the 2009 recession. Funds with more than $500 million lost a median 0.73 percent in the year through June 30, according to the Wilshire Trust Universe Comparison Service. The Wilshire data, from fund custodians, excludes fees while most schools report returns net of fees.

“It was a bit of a bloodbath,” as swings in the markets challenged stock pickers, Jagdeep Bachher, chief investment officer at the University of California system, said at an investment committee meeting on Sept. 9, according to a webcast of the meeting. “Last year was a bad year for active managers all around.”

Ohio State University and California had the largest declines through June 30 among the seven at 3.4 percent each while the University of Virginia fell 1.5 percent. It’s shaping up to be the worst year for endowment returns since 2009, when the richest schools had a loss of 21.8 percent, according to the Wilshire service. For fiscal 2016, a benchmark 60/40 portfolio of the Wilshire 5000 Total Stock Market Index for U.S. equities and the Wilshire Bond Index returned 4.5 percent.

Hedge Funds

The value of the University of California’s endowment rose 2.2 percent to $9.1 billion from the prior year due to inflows from shifting cash from short-term funds to the endowment and royalty payments, Bachher said. The investment losses were driven by poor returns from public equity fund managers and hedge funds, he said.

Market volatility was due to “central bank actions, slow-to-no growth worldwide, the oversupply of oil on a worldwide basis resulting in prices collapsing and the unexpected Brexit vote,” John Lane, chief investment officer at Ohio State’s endowment, said in an e-mail.

Virginia’s best-performing strategies -- private real estate and domestic buyouts -- couldn’t offset losses in its public and growth equity sectors and its resources portfolio, the school said. The fiscal 2016 investment loss follows gains of 7.7 percent and 19 percent in the previous two years, showing how even the best-performing funds are saddled with a new reality of low returns.

The University of Virginia Investment Management Co. is committed to its long-term philosophy, Lawrence Kochard, the chief investment officer, wrote in a report.

‘Significant’ Impact

“We expect a wide variety of investment challenges going forward and believe macro-level factors will continue to have a significant impact on markets,” Kochard wrote.

Kochard said the school is finding “pockets of opportunity” in areas such as non-U.S. equities.

“We also continue to observe an investment community fixated on global macro risks -- including a slowing Chinese economy, the implications of Brexit, the U.S. presidential election and central bank policies -- which provides a good environment in which our global public managers can identify mispriced securities,” Kochard wrote.

The fund has made changes to its asset allocation over time, according to the report. Public equities were increased in fiscal 2016 to 24.6 percent from 20.5 percent in 2012; and marketable alternatives and credit went to 14 percent from 9.3 percent. The management company decreased its allocation to resources to 4.5 percent from 7 percent, and real estate to 6.6 percent from 8.6 percent.

Despite the investment loss, the value of the long-term pool increased to $7.6 billion from $7.5 billion because of contributions in excess of distributions and investment losses.

Global Equities

Ohio State’s biggest loss came from its global equities portfolio. The state’s flagship public school’s 7.2 percent loss in the allocation dragged down a 10.8 percent gain in real assets, according to the school.

The University of Washington’s fund lost 1.6 percent. The drop was led by declines in its “capital appreciation” bucket, which includes a 20 percent asset allocation to emerging markets equity; 38 percent in stocks of developed markets; and 12 percent in private equity, according to the school.

The University of North Carolina at Chapel Hill’s endowment posted a 2 percent decline. The University of Iowa endowment’s investments fell 1.8 percent in fiscal 2016, with global equities leading the decline. The investment loss reflects the portion of the endowment managed by the foundation.

For a quick look at endowments, click here

The University of Colorado’s investment fund, which is managed by Perella Weinberg Partners, lost 2.6 percent, according to the school. The value declined to $1.06 billion from $1.09 billion a year ago. About 43 percent of the fund’s holdings are in private capital, real assets and hedge funds, with 6 percent in cash and fixed income, according to a report.

While the annual returns were hurt by Brexit at the end of June, the fund was up almost 3 percent in July, Mike Pritchard, vice president and chief financial officer of the University of Colorado Foundation, said in an interview.

“This is a time for all universities to consider what does the future look like,” Pritchard said. “Endowments are long term. You want to meet the short-term needs -- scholarships, professorship chairs -- and you also want to sustain the long-term spending power. That’s the balance were all looking at right now.”

http://www.bloomberg.com/news/articles/2016-09-12/seven-college-endowments-report-annual-losses-in-choppy-markets

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