Latest news with #risk
Telegraph
2 days ago
- Business
- Telegraph
Bond markets are waking up to Trump's chaotic tariffs regime
If you didn't already fully understand the meaning of 'uncertainty', last week should have provided you with plenty of learning material. The concept of uncertainty relates to a situation when there is no known calculus for anticipating future outcomes. This contrasts with the concept of risk – when you can gauge the probabilities. Perhaps the purest case of risk concerns the chance of a ball sent spinning by a roulette wheel landing on a particular number. One hundred years ago, John Maynard Keynes made much of this distinction but it is still given insufficient attention. Financial and economic analysis is usually conducted solely on the basis of risk. The world is full of people who seem to think that they can calculate risks when, in reality, they haven't a clue. Keynes thought that the financial and business worlds were beset with endemic uncertainty. Sometimes economic agents would be immobilised by it. At other times, they might simply put it out of their mind, or assume the best, or press on regardless. This is why he thought market participants' 'animal spirits' were so important. In general, financial markets hate uncertainty and so do the managers of financial and non-financial businesses. Last week, the uncertainty quotient leapt up thanks to the still developing consequences of Donald Trump's trade policies. The fun and games last week started when the US Court of International Trade (CIT) blocked two of Trump's key tariff measures, that is to say, 'trafficking tariffs' – i.e. those related to fentanyl on Canada, Mexico and China – as well as his 'worldwide and retaliatory tariffs' on most countries. It took this action because it believes that the US president didn't have the authority to impose these tariffs under the International Emergency Economic Powers Act. You might imagine that this would have an extremely favourable impact, as it seemed to imply a yet further unravelling of Trump's tariff shock. After all, the markets were badly hit when Trump first announced his tariffs on 'liberation day'. So you might reasonably think that markets would surge on news of their undoing. Indeed, the US and other equity markets did react favourably at first. But then the euphoria fizzled out. Partly, this was because equity markets had already regained most, if not all, of the ground they had lost on the initial tariff announcements – due mainly to Trump's backtracking and apparent second thoughts. The lukewarm reaction was also partly because it is widely assumed that the Trump administration would find a way round this. Indeed, on Thursday a US appeals court granted at least a temporary reprieve. The next stop will be the Supreme Court, which is dominated by Republicans. Moreover, even if the Supreme Court upholds the CIT's ruling, the Trump administration would probably try to find other ways of increasing tariffs, such as ramping up Section 301 and 232 investigations into various countries' trade policies, or trying to get Congress to pass legislation imposing tariffs. It was striking that the CIT's ruling wasn't warmly welcomed by the US Treasury market. Indeed, the 10-year bond yield initially edged up to over 4.5pc. The dominant thinking here concerns the possible fiscal implications of a failure by the Trump administration to enact widespread tariff increases. This is because the extra tariff revenue to be raised by Trump's measures was intended to largely offset the loss of tax revenue resulting from Trump's 'big beautiful bill', introducing or extending substantial tax reductions, which has now passed the House of Representatives. If the president presses on with tax cuts but is unable to push through substantial increases in tariffs then the implication would be a significant increase in the budget deficit – hence higher bond yields. Admittedly, if Trump's tariffs are blocked, then there would be much less upward pressure on inflation and that would make it easier for the Federal Reserve to cut interest rates sooner and by more than would otherwise have been the case. Ordinarily, the bond market would like this. But if Trump is prevented from using tariffs as a way of closing the American trade deficit, then he may well want to substitute policies that would cause the dollar to fall substantially. That would renew inflation worries at the Fed – as well as causing widespread consternation among international holders of dollar assets. Actually, a depreciation of the currency, rather than tariffs, is the textbook way of addressing a trade deficit. But, of course, currency depreciation doesn't discriminate between countries and it affects both imports and exports of all types of goods, as well as services. That is precisely why economists tend to favour it. Importantly, though, unlike the imposition of tariffs, a currency depreciation does not produce any extra revenue for the government. That is the key reason why the Trump administration has favoured tariffs. As well as the potential impact on US financial markets and the American economy, these tariff shenanigans potentially have major effects on the world economy. If the proposed tariffs are rescinded, the countries set to gain the most are those heavily exposed to trade with the US – Canada, Mexico, Vietnam, Korea and Japan. Importantly, with tariffs on automative, steel and aluminium imports still in place, Canada, Mexico, Japan and Korea are heavily at risk – unless they can negotiate further concessions as the UK did. lose patience with Vladimir Putin. He may well impose tougher sanctions on Russia and those countries dealing with it, or even step up military aid for Ukraine.
Bloomberg
3 days ago
- Business
- Bloomberg
Untested Banks Find Demand for Risky AT1 Bonds
Investors are so eager to buy the riskiest bank debt that they're snatching up securities even from unproven borrowers. A UK bank rescued from collapse less than two years ago, a lender to small businesses and an online loan provider are among a swathe of firms selling their first Additional Tier 1 bonds this year.
CTV News
3 days ago
- Climate
- CTV News
Air quality alerts issued in parts of Canada amid wildfires
Air quality alerts issued in parts of Canada amid wildfires Air quality expert Jed Kaplan on who is at risk as air quality alerts have been issued in parts of Canada due to ongoing wildfires.
Yahoo
24-05-2025
- Business
- Yahoo
Entergy (NYSE:ETR) Takes On Some Risk With Its Use Of Debt
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Entergy Corporation (NYSE:ETR) does carry debt. But the real question is whether this debt is making the company risky. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together. You can click the graphic below for the historical numbers, but it shows that as of March 2025 Entergy had US$30.9b of debt, an increase on US$28.4b, over one year. However, because it has a cash reserve of US$1.51b, its net debt is less, at about US$29.4b. We can see from the most recent balance sheet that Entergy had liabilities of US$6.20b falling due within a year, and liabilities of US$44.9b due beyond that. On the other hand, it had cash of US$1.51b and US$1.34b worth of receivables due within a year. So its liabilities total US$48.3b more than the combination of its cash and short-term receivables. Given this deficit is actually higher than the company's massive market capitalization of US$35.0b, we think shareholders really should watch Entergy's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. View our latest analysis for Entergy In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses. With a net debt to EBITDA ratio of 5.5, it's fair to say Entergy does have a significant amount of debt. But the good news is that it boasts fairly comforting interest cover of 2.9 times, suggesting it can responsibly service its obligations. On a lighter note, we note that Entergy grew its EBIT by 20% in the last year. If it can maintain that kind of improvement, its debt load will begin to melt away like glaciers in a warming world. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Entergy can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts. But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Entergy saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky. To be frank both Entergy's net debt to EBITDA and its track record of converting EBIT to free cash flow make us rather uncomfortable with its debt levels. But at least it's pretty decent at growing its EBIT; that's encouraging. We should also note that Electric Utilities industry companies like Entergy commonly do use debt without problems. Overall, it seems to us that Entergy's balance sheet is really quite a risk to the business. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Entergy (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process. If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Bloomberg
20-05-2025
- Business
- Bloomberg
Long End of the Curve Is Where Risk Comes In: Misra
00:00 How much risk is in the so-called risk free asset? So depends on what you define by risk. Credit risk. There is no credit risk. I mean, the US issues fiat currency, we we will pay back our debt, the duration risk which is really a function of term premium or I don't want to bond geek out here, but risk premium that's much higher. So you're looking out the curve. There's a lot of risk in most any of her diamonds you look in Japan. So I think if there's a global rise in rates, if we're ignoring I mean, I think the whole Moody's downgrade, we knew about it. It was lagging. I hear you. But, you know, in the words of Hemingway, you know, how do you go bankrupt? And not that I'm saying that the US is going bankrupt, but, you know, it's gradually and then suddenly and I think, are we at that point where the market sees, you know, what we have to look out for fiscal sustainability, Congress is is not doing its bit. So the bond market has to force Congress to do its bit. And so I think that's why the long end is scary because how high do rates have to go before the administration or Congress says, you know what, We don't have the political will, but the market's forcing our hand. I'm not sure what that level is. I don't think the bond market is really beautiful right now. It's in the deep state. So, you know, that's why I think when you ask about risk, the long end has just the front end is being dragged with the long. And that's where I think there's opportunity because I think I mean, we're trying to move away from trade, but we're still in that because effective tariff rate is still high. There's uncertainty. I think the Fed will be late, but at some point they're going to get a lot more aggressively when they start. So the front end, I like the long and that's where that risk comes in.
