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After Steamrolling Credit Suisse AT1 Investors, UBS Is Selling CoCo Bonds Of Its Own

After Steamrolling Credit Suisse AT1 Investors, UBS Is Selling CoCo Bonds Of Its Own

Wall Street’s institutional memory is now officially…



After Steamrolling Credit Suisse AT1 Investors, UBS Is Selling CoCo Bonds Of Its Own

Wall Street's institutional memory is now officially shorter than that of an HFT algo.

Exactly half a year after countless investors were obliterated when the forced bail-in of now-defunct Swiss giant Credit Suisse by UBS inverted the recovery waterfall, and wiped out AT1 bondholders while still preserving (fractional) equity value to avoid the optics of bank failure, none other than UBS is testing if lighting can strike twice, and according to the FT is - hilariously - roadshowing to potential investors an AT1 (aka Contingent Convertible) bond of its own, despite the now legendary writedown of such bonds issued by its crosstown peer, that crushed confidence in the market and triggered a wave of lawsuits. But apparently confidence wasn't crushed quite nearly enough, however, and now UBS is trying to see just how much dumb money is really left out there.

According to the report, UBS executives have been pitching investors after reporting blowout quarterly results last month, in which the bank earned a record $29 billion - the largest quarterly profit that any bank has ever reported and was the 2nd highest profit of any company during Q2 behind only Berkshire Hathaway - thanks to the historic transfer of "good" CS assets to UBS while Swiss taxpayers remain on the hook for the "bad" ones.

During the roadshow, the UBS team suggested changes to the terms of future additional tier 1 securities to make them more palatable to bondholders, however fundamentally the underlying security still remains the same bag of worthless horseshit come a worst case scenario, which it will. UBS has been under pressure to replace up to $17bn of Credit Suisse AT1 bonds in the coming years to improve the efficiency of the enlarged bank’s capital structure and free up funds for shareholder returns and potential acquisitions.

Not everyone is an idiot, however, and some investors are wary after bondholders lost billions of dollars during the rescue of Credit Suisse when an emergency law brought in by the Swiss government allowed the country’s financial regulator, Finma, to "protect" shareholders while wiping out AT1 holders.

Similar to the bailouts of labor unions in US automakers after the financial crisis, the decision shook up the traditional hierarchy of bank creditors and undermined confidence in AT1s, which were introduced after the financial crisis as regulators tried to shift risk away from depositors and imposed greater capital requirements on banks in case of failure.

“UBS are working frantically in the background to sort this out,” said a bond fund manager who recently met the bank’s representatives. “They need to give investors confidence that the capital structure won’t be inverted and the rules won’t be changed at the eleventh hour again.”

One option discussed is replacing UBS’s AT1 bonds, which are designed to be written down in the event the bank runs into trouble, with versions of the security that would be converted into equity.

“Equity conversion is probably better and there is more demand if you do it like that,” said another bond investor. “But we are not naive and don’t think it changes the risk.”

AT1s have no maturity date but can typically be called every five years by the issuer. Banks usually call AT1s when they are able to and reissue replacements. UBS has a S$700mn ($510mn) bond that is callable at the end of November and $2.5bn bond that is callable at the end of January.

When UBS in August reported $29bn in profit, a record quarterly figure for a bank, due to an accounting gain from the Credit Suisse takeover, chief executive Sergio Ermotti said it was weighing up when to re-enter the AT1 market.

“We are watching the market carefully,” he said. “We will assess the timing and the need of tapping the markets when appropriate.”

“They will have to make their bonds as investor-friendly as possible,” said a bond manager involved in the UBS roadshow. “They will have to pay a premium, too.”

“I think they’ll be able to get a deal done,” said another investor. “UBS is obviously an absolutely massive bank now, probably too big to fail and too big to save for the Swiss economy now, considering its size.”

Of course, he is right, and the moment he sees some whale account take down 30% or more of the offering, every Tom, Dick and Henrich managing other people's money will call scramble to get a piece of the 10x oversubscribed action, completely oblivious that in a few years they will again be suing UBS for getting written down to zero, just as the fine print warns. Only this time Switzerland - which idiotically agreed to make UBS a bank that is far bigger than Swiss GDP ever will be - will not be bailing anyone out anymore as it too will find itself dragged down to the bottom.

Tyler Durden Tue, 09/19/2023 - 07:45

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The Question You Should Ask Whenever You’re Wrong

“Never bet on the end of the world. It only comes once, which is pretty long odds.” — Arthur Cashin, New York Stock Exchange Floor Manager (“Maxims…



“Never bet on the end of the world. It only comes once, which is pretty long odds.” — Arthur Cashin, New York Stock Exchange Floor Manager (“Maxims of Wall Street,” p. 110)

Since Joe Biden gave his State of the Union (or shall we say “Disunion”) speech last week, I’ve encountered a plethora of negative comments about the future of America.

Is the American Dream Over?

“If Biden is re-elected, it will be the end of the American Dream as we know it,” said one pundit on Fox News.

The critics are out in force. Supply-side economist Steve Moore writes, “Biden is intentionally trying to dismantle the American economy with his imbecile energy, climate change, crime, border, inflation, debt and high tax policies.”

Glenn Beck, the host of Blaze TV, recently warned that America may face multiple terrorist attacks in one day, similar to 9/11, given the open borders policy of the Biden Administration.

Recently, I attended a private meeting of political leaders and pundits who thought that President Biden’s address was the most polemical, shrill and divisive talk they had ever heard.

I’ve been watching State of the Union addresses all my adult life, by both Republicans and Democrats, and in many ways they are always polemical and divisive. What was amazing to me is how “sleepy” Joe Biden performed. He must have been well rested and jacked up with some pretty incredible drugs to do as well as he did.

President Biden did say some things that were crazy, such as when he asserted that voting for former president Donald Trump is a “vote against democracy.”

Hey, wasn’t it the Democrats who want to remove Trump from the November ballot in Colorado and other states? Talk about anti-democratic! I was glad to see the Supreme Court ruled 9-0 against the Colorado decision. Let the people decide. Isn’t that what democracy is all about?

Why Then Is the Stock Market at an All-Time High? 

Kevin Roberts, the new president of the Heritage Foundation, recently declared, “The American Dream is being threatened as never before!”

If that is true, why is the stock market at or near an all-time high? What are the prophets of doom and gloom missing?

That’s the question I always ask when I’m wrong about something:

“What am I missing?”

Wall Street is a good bellwether of what is going on the country. So far, the benefits outweigh the costs. The economy is recovering from the Covid pandemic, inflation is coming down, corporate profits are strong, new technologies are being introduced and there’s a strong movement to reverse the “cancel” and “woke” culture in the United States.

We have gridlock on Capitol Hill that is keeping a lot of bad legislation from becoming law. The Supreme Court has reversed many bad decisions by the lower courts.

We Remain Fully Invested

So, all is not lost after all. In my newsletter, Forecasts & Strategies, we remain fully invested, despite occasional corrections in the market.

We are also well diversified in some “contrarian” investments such as Bitcoin and gold, both of which continue to outperform and offset any selloffs in the stock market.

By remaining positive and fully invested, we have made good money in 2024.

The American Obituary Has Been Written Many Times

The American economy has been left for dead many times, only to be resuscitated with renewed vigor. We have survived civil and world wars, the Great Depression, the inflationary 1970s, terrorist attacks and more.

As J.P. Morgan once said, “The man who is a bear on the United States will eventually go broke” (“Maxims,” p. 111).

I encourage you to read my favorite J.P. Morgan story found on pp. 218-219 in “The Maxims of Wall Street.” See

American exceptionalism is alive and well. We are still the Promised Land with millions wanting to live and work here.

Solving Our Unfunded Liability Problem: Look to Canada!

One serious problem in America is the irresponsible, out-of-control deficit spending and national debt, created by both Republican and Democratic leaders over the years. The trouble is getting worse, with rising interest rates to pay the debt and the growing unfunded liabilities from Social Security and Medicare.

Robert Poole of the Reason Foundation warns:

“The Congressional Budget Office (CBO)’s latest 10-year projection is frightening. CBO projects annual federal budget deficits to increase steadily, exceeding $2.5 trillion by 2034, assuming current policies continue… The federal government is projected to borrow an additional $20 trillion over the next decade, the CBO estimates.

“One driving factor is the impact of higher interest rates on the current $34 trillion (and growing) national debt… By 2034, annual interest expense is projected to be $1.6 trillion — more than one-fourth of all federal tax revenue.

“The Penn Wharton Budget Model suggests that the United States has about 20 years to fix this debt/deficit problem — ‘after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt.’

“On August 2, 2023, Fitch Ratings downgraded the federal government’s long-term debt rating from AAA to AA+. And on November 10, 2023, Moody’s Investors Service reduced its outlook on the U.S. credit rating from ‘stable’ to ‘negative.’ Standard & Poor’s did its downgrade in 2011. These are warning shots across the ship of state’s bow.”

Sounds ominous. What to do?

Canada faced a similar problem back in the mid-1990s. Deficits were getting out of hand, and the Canadian dollar was sinking. The Conservative Party and the Liberty Party of Canada worked together and resolved to cut government spending, lay off federal workers and then went on a supply-side tax-cutting program that resulted in economic growth and deficit reduction.

What about the unfunded liability problem, which causes national bankruptcy? Again, Canada offers an incredible example of solving the issue.

Last week, Andy Puzder and Terrence Keeley wrote an op-ed in The Wall Street Journal on the success of the Canadian social security system, which has earned a 9.3% annualized return over the past 10 years (versus almost zero return in our Social Security Trust Fund). They wrote:

“The Canada Pension Plan’s superiority stems from its asset allocation. The fund invests about 57% of its assets in equities and 12% in bonds; the rest is divided among real estate, infrastructure and credit. Over the past 10 years, the Canada Pension Plan has realized a 9.3% annualized net return. Similarly to how Social Security works, Canadian citizens pay into the program and are guaranteed lifetime benefits.”

At some point, the United States will need to imitate the Canadian model. Here is a chart on the difference between the two:

In sum, there are solutions to all of our problems — if we know where to look and remain optimistic.

Sound Advice from the ‘Investment Bible’

In my home, I have a whole section of my library devoted to dozens of books written by doomsayers and Cassandras, such as “The Coming Deflation”…. “How to Prosper During the Coming Bad Years”… “Bankruptcy 1995”… “The End of Inflation” and so on.

I’ve also collected a bunch of quotes on doomsayers and Cassandras in “The Maxims of Wall Street.”

Jim Woods, my colleague at Eagle Publishing, is a big fan.

Jim states, “I’ve always felt that a collection of wisdom from the best brains in that industry has been most special to me. And on this front, there is no better ‘how to’ anthology than the one by my friend, fellow Fast Money Alert co-editor and brilliant economist, Dr. Mark Skousen. The ‘Maxims of Wall Street’ is a collection of some of the greatest wisdom ever to flow from the biggest and brightest names on Wall Street. Great investors such as Jesse Livermore, Baron Rothschild, J.P. Morgan, Benjamin Graham, Warren Buffett, Peter Lynch and John Templeton are just a sneak peek at some of the names you’ll discover in this fantastic collection. Then, there is profundity from the likes of Ben Franklin, John D. Rockefeller, Joe Kennedy, Bernard Baruch, John Maynard Keynes, Steve Forbes and numerous other luminaries too copious to mention.”

If you don’t have an autographed copy of my collection of quotes, stories and wisdom of the world’s top traders and investors, please order a copy now.

It is in its 10th edition, having sold nearly 50,000 copies. It has been endorsed by Warren Buffett, Kevin O’Leary, Jack Bogle, Kim Githler, Bert Dohmen, Richard Band and Gene Epstein in Barron’s.

I offer it cheaply to my Skousen CAFÉ readers: Only $21 for the first copy, and all additional copies are $11 each (they make a great gift to clients, friends, relatives and your favorite broker or money manager). I sign and number each one, then mail it at no extra charge if you live in the United States. If you order an entire box (32 copies), the price is only $327. As Hetty Green, the first female millionaire, once said, “When I see a good thing going cheap, I buy a lot of it!”

To order, go to

You Nailed it!

Friedrich Hayek Won the Nobel Prize 50 Years Ago

“Mises and Hayek articulated and vastly enriched the principles of Adam Smith at a crucial time in this century.” — Vernon Smith (2002 Nobel prize in economics)

March 23 is the anniversary of the passing of a giant in economics — the Austrian economist Friedrich Hayek (1899-1992).

He is most famous for his bestselling book “The Road to Serfdom,” written near the end of World War II, an admittedly a pessimistic book, warning the West that its move toward socialism, fascism and communism was indeed a “road to serfdom.”

Then, when he won the Nobel prize in economics in 1974, he warned again of the dangers of “accelerating inflation,” which he said, were “brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.”

Fortunately, we have moved away from the road to serfdom, especially after the collapse of the Berlin Wall and the Soviet socialist central planning model.

But the road to freedom has been a checkered one, and we must always be alert to losing our liberties in the name of inequality, fairness and social justice.

Last month, Tom Woods interviewed me in honor of the 50th anniversary of Hayek’s winning the Nobel prize. Watch the interview here.

Mark Skousen, Friedrich Hayek and Gary North in Austria, 1985

I had the pleasure of interviewing Hayek for three hours in the Austrian alps in 1985. He was especially happy to hear I resurrected his macroeconomic model in developing gross output (GO). See, a measure of Hayek’s triangles.

This week, Larry Reed, former president of the Foundation for Economic Education, wrote this wonderful tribute to Hayek.

Highly recommended.

Good investing, AEIOU,

Mark Skousen

The post The Question You Should Ask Whenever You’re Wrong appeared first on Stock Investor.

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Walmart and Target make key self-checkout changes to fight theft

Both chains are making changes customers may not like, but self-checkout isn’t going anywhere, according to one industry expert.



In parts of the world, public bathrooms come with a charge, but people pay on the honor system. The money charged allows for better upkeep of the facilities and most people don't mind dropping a small bill or some coins into a lockbox and many of the people who don't are likely dealing with larger problems.

The honor system, however, requires honor. It's based on the idea that most people are trustworthy and that they will pay their fair share.

Related: Beloved mall retailer files Chapter 7 bankruptcy, will liquidate

In the case of a bathroom, people cheating the system are only stealing a low-value service. In the case of self-checkout, a variation on the honor system, people looking to steal by "forgetting" to scan an item can be a very expensive problem.

That has led retailers including Target, Walmart, and Dollar General to make changes. Target has limited the amount of items you can scan at self-checkout at some stores while Dollar General has literally eliminated it in some locations.

Walmart, like Target, has experimented with item limits and limiting the hours of operation for self-checkout. Now, in some stores, the chain has decided to designate some of its self-checkout stations for Walmart+ members and delivery drivers using the Spark app.

Advantage Solutions General Manager Andy Keenan answered some questions about Walmart, self-checkout, and theft from TheStreet via email.     

Target has made self-checkout changes at select stores.

Image source: John Smith/VIEWpress.

What Walmart's self-checkout changes mean

TheStreet: What are the benefits of reserving self-checkout registers for Spark drivers and Walmart+ customers?

Keenan: The benefits include exclusivity and perks of membership, speed, and convenience when shopping.

TheStreet: If this rolls out more broadly, what do you anticipate being the impact on non-Walmart+ customers?

Keenan: There is the potential for non-Walmart+ customers to become agitated, they are losing convenience because they are not enrolled. Customers who are looking for convenience will have fewer options for speed to check out. 

TheStreet: Do lane restrictions like limiting lanes to 10 items or fewer help reduce time spent waiting in lines?

Keenan: Yes, but retailers must have a diverse amount of check lane options including 10 items or fewer to ensure that the speed of checkout actually transpires.

TheStreet: Do you believe self-checkout is leading to partial shrink? If so, do you think that this move to shut off self-checkout lanes will help prevent theft in the future?

Keenan: Yes, self-checkout is leading to partial shrink. We believe this tends to be more due to errors in scanning and intentional theft. 

There are already front-end transformation tests going on in stores, reducing the number of self-checkouts and shifting back to cashier checkouts in order to measure the reduction in shrink. Early indicators show that a move back to cashier checkouts combined with other shrink initiatives will help prevent theft.

Self-checkout is not going away

While changes are ongoing, Keenan believes self-checkout is here to stay.

“Self-checkout is not, as one recent article called it, a failed experiment. It’s actually part of the next evolution of the retail customer experience, and evolutions take time,” Keenan said in a web post about the findings of the 2024 Advantage Shopper Outlook survey.

He makes it clear that rising labor costs and struggles to find workers make some for of self-checkout inevitable.

“Since the pandemic, there’s been a revolution on hourly labor,” Keenan said. “Labor in certain markets that would cost you $16 an hour now costs you $19 or $20 an hour, and it’s a gig economy. The people who once stood at a checkout stand in the front of a store are now driving for Instacart or DoorDash because the hours are more flexible. They want to make their own schedule, and it’s varied work. Today, most retailers can’t offer that.”

Basically, while there are kinks to work out, self-checkout simply makes sense for retailers.

“The notion that we’re going to pivot away from technology that helps offset labor needs and will ultimately continue to improve customer experience because of some challenges is far-fetched. We need to continue to embrace the technology and realize that it may always be imperfect, but it will always be evolving. The noise that, ‘Oh, self-checkout might not be working,’ that’s just a moment in time,” he added.

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Hitting Home: Housing Affordability in the U.S.

The Issue:
Housing is becoming unaffordable to a widening swathe of the American population. This deteriorating affordability directly impacts American…



The Issue:

Housing is becoming unaffordable to a widening swathe of the American population. This deteriorating affordability directly impacts American lives, including where people choose to live and work. It has also been cited as a major contributor to key social problems like rising homelessness and worsening child wellbeing.

The Facts:

  • Median house prices are now 6 times the median income, up from a range of between 4 and 5 two decades ago. In cities along the coasts, the numbers are higher, exceeding 10 in San Francisco. 
  • The ratio of median rents to median income has also crept from 25 percent to 30 percent in two decades. 
  • Households — renters in particular — are increasingly cost-burdened, having to spend more than 30% of their income on rent, mortgage and other housing needs. Among homeowners, about 40 percent of those in the $35-49 income range are cost-burdened. The share of cost-burdened renters in that income range has risen sharply from under 40 percent of households in 2010 to over 60 percent today (see chart). 
  • Historically, rural and interior areas of the country have been more affordable. But, even prior to the pandemic, migration toward these locations has helped drive faster house price appreciation than in more expensive regions.
  • Demographic developments have contributed to the demand-supply imbalance. Supply is crimped by more older Americans opting to age in place. On the demand side, the biggest driver is new household formation. Americans formed about a million new households a year between 2015-2017, but the pace has almost doubled according to the most recent data, largely reflecting a pickup in household formation rates among millennials.
  • A long-standing lack of homebuilding, which partly reflects tight regulatory restrictions in many parts of the country, has also contributed to rising home prices. 
  • More recently, higher interest rates since 2022 have exacerbated these secular trends to make housing even more unaffordable. The mortgage rate on a 30-year home loan soared from 3 ½ percent in early 2022 to nearly 8% in October 2023 as the Fed raised policy interest rates; the mortgage rate had only eased to about 7% in March 2024 as the tightening cycle had peaked. The problem is compounded by mortgage lock-in: higher interest rates have left many homeowners — many of whom bought homes or refinanced at the lows of 2020-21 — with cheaper-than-market mortgages, reluctant to sell their house and reset their mortgage at current, higher rates.

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