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New Fed Forecast for 2019: Slower Growth and Zero Rate Hikes

Submitted by ckanon@abi.org on
The Federal Reserve sent a stark message: The economy is slowing, and it won’t be raising interest rates anytime soon, the Associated Press reported. The Fed left its key short-term rate unchanged and projected no rate hikes this year, reflecting a dimmer view of the economy as growth weakens in the U.S. and abroad. The central bank said that it was keeping its benchmark rate in a range of 2.25 percent to 2.5 percent. It also announced that by September, it will no longer reduce its bond portfolio, a change intended to help keep long-term loan rates down. Combined, the moves signal no major increases in borrowing rates for consumers and businesses. Together with the Fed’s dimmer forecast for growth this year — 2.1 percent, down from a previous projection of 2.3 percent — the statement it issued after its latest policy meeting suggests it is grown more concerned about the economy. What’s more, with inflation remaining mild, the Fed feels no pressure to tighten credit. In predicting no rate increases for 2019, the Fed’s policymakers reduced their forecast from two that were previously predicted in December. They now project one rate hike in 2020 and none in 2021. The Fed had raised rates four times last year and a total of nine times since 2015. The Fed’s decision was approved on an 11-0 vote.
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Warren, Klobuchar Call on FTC to Curtail Use of Non-compete Clauses

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Sens. Elizabeth Warren (D-Mass.) and Amy Klobuchar (D-Minn.) signed onto a letter calling for the Federal Trade Commission (FTC) to limit non-compete clauses for workers, The Hill reported. Warren and Klobuchar said that the clauses hurt roughly 30 million workers by limiting their abilities to tack on additional work to supplement their income or find new employment in a similar field for a period of time after leaving a job. The letter requested that the FTC respond within 30 days with any action it is taking to curtail the clause. The message came partly in response to a petition signed by more than 60 organizations and individuals for the FTC to ban non-compete clauses.
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High-Yield Muni Market Passes a Key Test from Puerto Rico’s Sell-Off

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Over the past month, hedge funds and other investors dumped more than $2.5 billion of debt they received in Puerto Rico’s record restructuring, a sell-off that made the sales-tax-backed securities the most actively traded in the municipal-debt market, Bloomberg reported. Yet the prices haven’t crashed — and the flood did little, if anything, to dampen the gains for other tax-exempt junk bonds. The performance shows that the $3.8 trillion municipal market weathered a major test from Puerto Rico’s bankruptcy. The debt restructuring had raised concern that the speculative corner of the market would struggle to absorb the billions of dollars of new debt, pushing up yields on Puerto Rico’s new securities and other high-risk debt competing for limited space in investors’ portfolios. The new batch of restructured debt hit the secondary market in February after Puerto Rico issued $12 billion of non-rated sales-tax bonds, called Cofinas, to investors who traded in their outstanding securities, cutting more than $5 billion of the island’s troubled debt. Since then, high-yield municipals have earned 1.2 percent, more than the 0.8 percent advance in the broader tax-exempt market, according to Bloomberg Barclays indexes.
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Municipal Bankruptcy
Puerto Rico
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Wall Street Is Betting the Fed’s Rate-Raising Days Are Done for Now

Submitted by ckanon@abi.org on
Just three months ago, investors were in a panic over the idea that the Federal Reserve might push borrowing costs too high and tip the U.S. economy into a recession, The New York Times reported. Now, Wall Street is toying with the idea that the central bank could actually be cutting interest rates by the end of the year. Those forecasts are evident in the market for interest rate futures, where the odds of another interest rate increase in 2019 have fallen to zero, from about 30 percent in December, while the chance of a decrease in rates has risen to more than one in five. One reason for the changing forecasts? The Fed’s own signal to be more patient as it evaluates whether or not to keep raising interest rates. Since the central bank’s chairman, Jerome H. Powell, first spoke about this newfound patience, stocks have soared more than 15 percent. The Fed could add more fuel to this rally on Wednesday, when the central bank concludes its latest monetary policy meeting. It is expected leave interest rates untouched and further emphasize that it is in no hurry to lift them. The central bank isn’t the only reason that the market is up. Some analysts point toward rising hopes for a U.S.-China trade deal as helping to lift important technology and industrial shares. However, sectors sensitive to interest rates — small companies for which borrowing costs make up a significant cost, and homebuilders and carmakers whose customers depend on financing — have posted some of the bigger gains in this rally. Those increases have come even as forecasts for economic growth have shown concern about a slowdown. Economists expect that the U.S. grew at an annualized pace of less than 2 percent in the first quarter, a slowdown from the 3 percent growth posted in 2018.
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Senators Want a Boost for the SEC’s Financial Recovery Powers

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A bipartisan pair of U.S. senators want to give Wall Street’s top cop more power to recover funds for burned investors, the Wall Street Journal reported. The legislation, to be introduced today, would allow the Securities and Exchange Commission to recover money for harmed investors based upon wrongdoing that occurred as much as a decade ago. The measure would help restore some of the muscle the SEC lost when the Supreme Court unanimously decided in 2017 that federal regulators are bound by a five-year statute of limitations. Sens. John Kennedy (R-La.) and Mark Warner (D-Va.) said that the bill would give the SEC more time to spot hard-to-detect financial crimes. “Financial fraudsters can sometimes go on for years, even decades, before they finally get caught,” Warner said in a written statement. “They shouldn’t be able to rip off investors just because some arbitrary five-year window has expired.” Last year, SEC Chairman Jay Clayton told a House committee that regulators should have the authority to seek restitution for harmed investors beyond the five-year window.

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SEC Wants to Make It Easier for Companies to Explore IPOs

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Any company exploring whether to go public would get greater leeway to discuss their plans privately with potential investors before announcing an initial public offering, under a proposal that securities regulators released yesterday, the Wall Street Journal reported. In a bid to boost the number of public companies, the Securities and Exchange Commission proposed letting all companies “test the waters” before deciding whether to seek an IPO. The agency had previously allowed only smaller, emerging companies to talk to investors privately. Currently, large companies must publicly file their securities offering documents to regulators before gauging investor interest. The 2012 JOBS Act allowed small companies to talk to investors before beginning that process, a provision that would be expanded to all companies — including investment firms — if Tuesday’s proposal is completed. Making it easier and more appealing for companies to go public has been a central goal of SEC Chairman Jay Clayton. The number of public companies has fallen by nearly 50 percent since the late 1990s. Several startups valued at above $1 billion, including Uber Technologies Inc. and Airbnb Inc., have held off on going public, though there are signs that some of those companies might make the move in 2019.

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Finance and Banking
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Bankruptcy Code
341
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Govt. Claims/Sovereign Immunity
SEC Issues

Court Orders $1 Billion Judgment Against Operators of Woodbridge Ponzi Scheme Targeting Retail Investors

Submitted by jhartgen@abi.org on

The Securities and Exchange Commission announced yesterday that a federal court in Florida ordered Woodbridge Group of Companies LLC and its former owner to pay $1 billion in penalties and disgorgement for operating a Ponzi scheme that targeted retail investors, according to a SEC press release. Judge Marcia G. Cooke of the U.S. District Court for the Southern District of Florida approved judgments against Woodbridge and its 281 related companies ordering them to pay $892 million in disgorgement. The court ordered former owner and CEO Robert H. Shapiro to pay a $100 million civil penalty and to disgorge $18.5 million in ill-gotten gains plus $2.1 million in prejudgment interest. In December 2017, the SEC filed an emergency action charging the company and other defendants with operating a massive $1.2 billion Ponzi scheme that defrauded 8,400 retail investors nationwide, many of them seniors who had invested retirement funds. The SEC's complaint alleged that Shapiro made Ponzi payments to investors and used a web of shell companies to conceal the scheme.

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