U.S. funds recommend switching cash into bonds in March: Reuters poll

BENGALURU (Reuters) – U.S. fund managers switched recommended global portfolios slightly more in favor of bonds in March, in part on concerns trade barriers between the world’s two biggest economies may escalate to a broader trade war, a Reuters poll found.

A specialist trader is reflected on his screen on the floor of the New York Stock Exchange August 25, 2015. REUTERS/Brendan McDermid

While recommendations for stock holdings held steady, there were still near 4-1/2 year highs, on expectations for continued robust global economic growth and solid earnings.

But stock market losses this month helped the bond market a bit, pushing the benchmark 10-year Treasury yield down to a seven-week low on Wednesday, with U.S. government bonds set to earn their biggest monthly return since August.

While little else was changed in the way of allocations in the latest monthly poll of 12 U.S.-based asset managers taken March 16-29, there was a slight increase to bonds allocation at the expense of cash in the model global portfolio.

The average recommended exposure for stocks held steady at 57.8 percent, and global bonds was 35.4 percent, up from 34.9 percent the previous month, the highest since last April.

“Market confidence has taken a beating and it is not the import tariff itself that is driving sentiment but expectations that we are going to get more and more from this administration,” said a fund manager at a large U.S. investment firm.

Beijing warned the U.S. on Thursday not to open Pandora’s Box and spark a flurry of protectionist practices across the globe after President Donald Trump slapped up to $ 60 billion in tariffs on some Chinese imports.

A separate poll of more than 100 economists this month showed Trump’s trade tariffs would do more harm than good to the economy but they remained optimistic about the Fed’s rate hike path.

Concerns of a broader trade war have driven demand for longer-dated Treasuries but the short end sell-off has been motivated by strengthening views for faster rate hikes from the Federal Reserve.

Indeed, the Treasury yield curve has flattened in recent months and that trend is forecast to continue over the coming year, according to a separate Reuters poll of fixed-income strategists.

“The economic fundamentals and profits estimates are positive for stocks, and despite the recent volatility, equities remain in an uptrend,” said Alan Gayle, president at Via Nova Investment Management.

“The recent concern and market volatility seems to revolve around policy actions, specifically higher interest rates from the Federal Reserve and trade initiatives/restrictions from the Trump administration. These policy actions represent the greatest risk to the markets, in our view.”

Additional reporting and polling by Rahul Karunakar and Sujith Pai; Editing by Alison Williams

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Reuters: Money

Trump’s Funds Shapes Are Forcing Instructors and Contractors to Work as Centralized Penitentiary Watches

Twice in one week, Ray Coleman, a teacher at the Tallahassee Federal Correctional Institution, reluctantly had to drop his lesson plans and go to work as a guard. “You show up in the morning and they say, ‘Hey, by the way, here’s your keys and radio—you’re going to work the compound today,” he says.

Because the low-security prison is short on staff, Coleman and his fellow teachers are regularly assigned to work as correctional officers in the units where inmates live. On those days, they either cancel their courses or leave the classroom open for inmates to fill out worksheets, unsupervised. “For the most part they’re just sitting there,” Coleman says.

Teachers aren’t the only ones assigned to guard duty—so are the prison’s nurses, case workers, and even accountants. And it’s not just happening in Florida. Federal prison employees across the country say staffing cuts made by the Trump administration have crippled their ability to provide services to inmates and keep prisons safe. “It’s very dire,” says Valerie Limon, a drug treatment specialist at the Lompoc Federal Correctional Complex in California. (Limon and other prison employees spoke to Mother Jones on behalf of their union, the American Federation of Government Employees Council of Prison Locals.) “Morale at our institution is probably at an all-time low.”

For more than a decade, the Bureau of Prisons (BOP) has run on what it describes as “mission critical” staffing—the minimum number of correctional employees necessary to safely run the 98 facilities it operates. Yet over the past year, federal prisons have dipped far below those numbers, employees say, because the agency has largely stopped filling vacant positions after staffers retire or leave.

It’s about to get worse. In January, the Bureau of Prisons told its facility administrators to expect a 14 percent reduction in their staffing levels, pending congressional approval of President Donald Trump’s 2018 budget. If the spending plan passes, prisons will have to cut the number of positions they are allowed to fill, so many of those vacancies will never be filled.

Ray Coleman, a teacher at FCI Tallahassee

The practice of making prison teachers, nurses, and other non-correctional staffers work as guards, called “augmentation,” started more than a decade ago. Prison employees say it used to happen sporadically, during emergencies or when correctional officers were away at trainings. Now, employees say the practice has become a near-daily occurrence at some facilities. As a result, they say, the wait lists for inmate medical care are growing and classes are being canceled.

Kristan Morgan, a nurse practitioner at FCI Tallahassee, is assigned to work as a guard about once a week, often wearing her scrubs or lab coat in the housing unit. None of her colleagues have time to pick up the slack in her 400-inmate caseload: The prison has just one doctor, two nurse practitioners, and three nurses for more than 800 inmates. “We’re working with bare bones,” she says.

“This is the worst I’ve ever seen it,” says Joe Rojas, who has worked for about two decades in the education department at the Coleman Federal Correctional Complex in Florida, the BOP’s largest correctional complex. Now president of his local union, he recalls periods of low staffing in the past but says there’s no comparison. “That was bad, but not like this.”

“It’s not safe,” adds Ray Coleman, the union president at the Tallahassee prison, who says teachers, nurses, and other staffers feel unprepared to fill in as guards. “We’re overwhelmed,” Morgan says.

Federal prisons have long struggled with low staff numbers. In 2005, after Congress reduced the BOP’s budget, the agency began maintaining the bare-minimum number of employees required to keep facilities safe. After that, the practice of asking prison teachers and nurses to double as guards became a common way to avoid paying overtime to correctional officers.

In 2014, BOP Director Charles E. Samuels Jr. told members of Congress that “decades of inmate population growth [had] outpaced staffing resources,” affecting the bureau’s ability to safely supervise its prisons. The inmate-to-staff ratio had jumped by more than a third from 1997. (As of December 2017, the ratio was 4.2 inmates for every 1 staff member.) “When BOP institution managers use augmentation,” Samuels warned, “the normal duties performed by the augmenting staff may be curtailed or delayed, thereby interfering with the BOP’s ability to provide some inmate programs.” 

Teachers and other staffers continued to work as correctional officers under the Obama administration, but prison union members say things took a turn for the worse after Trump was elected. “I may have gone to the housing unit once or twice in my first year and a half, but lately, this last year, someone’s being augmented almost every single day,” Morgan says.

After President Trump lifted the 90-day federal hiring freeze he’d enacted when he took office, the BOP implemented a new requirement that facilities seek approval from the agency’s central office to post a job opening or fill a position, according to union members. Vacancies at many federal prisons currently remain unfilled. The stall in hiring comes during a period of high turnover, as staffers who joined during the 1990s prison boom are coming up for retirement. “Once we leave, our positions won’t be filled,” says Justin Rose, who runs the furniture-building program at FCC Coleman and plans to retire soon.

In July, the Senate Appropriations Committee wrote that it was concerned about the prison hiring freeze. The inmate-to-guard ratio is currently “at a level that is unsafe for staff and should immediately be corrected,” the committee wrote, calling on the agency to “curtail its overreliance on augmentation and instead hire additional full-time correctional staff.” During a House Oversight Committee hearing in December, lawmakers asked the BOP’s new chief, Mark Inch, why the administration wanted to dip below mission-critical staffing levels. “Though I can’t specifically answer on the process that resulted in the mission-critical staffing positions by facility,” said Inch, who had started at the agency three months earlier, “it is certainly a priority [to] relook at our staffing numbers.”

“I want you to relook at that because we’re talking about the safety of people like Eric Williams and his coworkers,” said Rep. Matt Cartwright (D-Pa.), referring to a 34-year-old correctional officer who was stabbed to death while working alone at a federal prison in Pennsylvania in 2013. The president of the prison’s union said that “staffing levels contributed to this death.”

When Trump hosted a meeting on prison reform at the White House in January, he highlighted the role of education and job training in reducing recidivism. “We want to ensure that those who enter the justice system are able to contribute to their communities after they leave prison,” he said.

Federal prison employees claim the recent staffing cuts have led to a reduction in educational programming for inmates. “A lot of our vocational ed classes are really inactive, and that’s because those teachers retired and we weren’t able to hire anybody behind them,” says Coleman, who leads a GED class and a parenting course for inmates. “When you have teachers that are getting pulled up anywhere from two to four times a week, it makes it hard to be a teacher.”

When they start their jobs at federal prisons, teachers, nurses, and other staffers go through three weeks of basic correctional training. But union members say this is not enough to prepare them to work as guards. Unlike teachers and nurses, correctional officers receive a year of probationary training—a chance to learn the ins and outs of working in the housing units.

Prison union members say the shortage of teachers and their assignment to guard duty has led to a drop in the number of prisoners receiving GEDs. During the 2017 fiscal year, 2,667 federal inmates earned a GED, down about 60 percent from the previous year, according to BOP data.

(The Bureau of Prisons notes that it switched from a paper-based GED exam to a computer-based exam in mid-2016, and union members acknowledge this may have played a role in the lower GED completion rates. The agency did not respond to requests for comment about the drop in GED completions.)

Teachers at one of the high-security prisons at FCC Coleman in Florida once boasted one of the system’s top GED completion rates, according to Rojas. He thinks the shortage of teachers has had a serious impact on his students’ performance. Citing data from the prison’s education department, he recalls that nearly 80 inmates earned their degrees during the 2016 fiscal year, but only one did last year.

Rojas joined FCC Coleman’s education team 19 years ago and speaks proudly of the resources he’s helped develop for inmates—the law library, the annual job fairs, the graduation ceremony for students who earn their GEDs. But he worries they won’t survive the Trump administration. He says inmates are already frustrated with the changes in programming: “They don’t want to be locked up with no education.”

“You can hear the rumblings and the complaints,” he adds. He’s afraid the frustration, combined with the extra idle time in housing units when classes are canceled, will boil over. “It’s a Molotov cocktail about to explode,” he says.

The Waseca Federal Correctional Institution in Minnesota hasn’t had a full-time doctor for about two and a half years, says local union president Christopher Campbell, who works in the prison’s food services department. Physician assistants do what they can, but the prison has started more regularly sending inmates to the local hospital.

At FCC Lompoc in California, nurses are exempt from guard duty. But Valerie Limon, vice president of the local union, estimates the medical department only has 75 percent of the employees it’s authorized to have. The Lompoc complex—which includes a low-security prison, a high-security prison, and two correctional camps—is down from three staff psychologists to one, and its two reentry coordinators are sometimes asked to work as guards. “Morale is in the toilet,” Limon says.

The Bureau of Prisons is moving forward with its plans to cut employee levels. “We are currently eliminating several thousand vacant authorized positions,” the BOP said in a statement. “These positions have been identified by the Department of Justice and Congress to be eliminated as part of an effort to ‘rightsize’ the BOP authorized staffing levels in light of the significant decrease in the inmate population we experienced over the last four years.” 

Over the past year, the federal prison population dropped about 3 percent. But as of April 2017, federal prisons were operating at about 14 percent over capacity. And the Justice Department has predicted a 2 percent increase in the federal prison population over the next fiscal year.

The Bureau of Prisons said it did not expect the elimination of positions to result in any layoffs, and that it did not think the changes would have a negative impact on its “overall ability to maintain a safe environment for inmates and staff.” The agency has said that the majority of positions it plans to cut are already vacant. “We are eliminating positions but not staff,” it told USA Today. “We continue to hire staff at institutions around the country as needed to further the mission of the Bureau of Prisons.”

In January, a leaked memo from the agency revealed plans to transfer more inmates from government-run facilities to private ones run by companies such as CoreCivic and GEO Group. According to the directive, the move is intended to alleviate overcrowding at government facilities and “to maximize the effectiveness of the private contracts.”

“They’re kind of speaking out of two sides of their mouth—are we overcrowded or not?” says Rose, the furniture foreman at FCC Coleman, who is vice president of his local union. “What we know is this: They plan to underfund us, cut the staffing, create a crisis, and then hire the private prisons to solve the crisis.”

“You have a lot of buyer’s remorse,” says Rojas, the teacher at FCC Coleman. “Because a lot of people who voted for Trump are going to be losing their jobs.”

Crime and Justice – Mother Jones

Financier Tilton defeats lawsuit by Zohar funds she founded

NEW YORK (Reuters) – Lynn Tilton, the colorful New York financier recently cleared of wrongdoing in a U.S. Securities & Exchange Commission fraud case, won another legal victory on Friday as a federal judge dismissed a racketeering lawsuit by the Zohar investment funds she once managed.

U.S. District Judge William Pauley in Manhattan said the alleged misconduct by Tilton and her firm Patriarch Partners “runs headlong” into a Congressional ban on civil racketeering claims predicated on the purchase or sale of securities.

The three Zohar funds had accused Tilton and Patriarch of “pilfering” more than $ 1 billion of cash and other assets through a “toxic mix of fraud, theft, and mismanagement,” leaving the funds unable to meet obligations to their investors.

In his 36-page decision, Pauley said much of the alleged looting scheme appeared “at least superficially” not to involve securities.

But he said an “integral” component of that scheme “included pillaging portfolio companies of their equity, re-directing Zohar’s equity interests for defendants’ benefit, and diverting the equity distributions into defendants’ coffers–all actions coinciding with the purchase or sale of securities.”

Pauley also refused to assert jurisdiction over 11 other Zohar claims, noting that the funds had filed a similar lawsuit in Delaware Chancery Court.

Lawyers for the Zohar funds did not immediately respond to requests for comment.

A spokesman for Patriarch said the firm is “extremely pleased” with the dismissal.

“This suit — which was filed for no other purpose than to harass and publicly defame Ms. Tilton — had absolutely no basis in fact or law,” the spokesman said in a statement.

Known for her flamboyant clothing, Tilton is a private equity veteran dubbed “The Diva of Distressed” for turning around troubled companies, and was briefly the subject of a reality TV show with that title.

Her distressed debt empire grew to $ 2.5 billion before fraud and mismanagement allegations began to mount.

Tilton had created the first Zohar fund in 2003, and gave up management of all three funds in March 2016.

On Sept. 27, an SEC administrative law judge said the regulator failed to prove that Tilton bilked investors out of more than $ 200 million of management fees by hiding the poor performance of assets underlying the Zohar funds.

In November, Tilton and Patriarch filed a countersuit against the funds and separate claims against other defendants. Pauley directed the funds to respond by Jan. 12, 2018.

The case is Zohar CDO 2003-1 Ltd et al v Patriarch Partners LLC et al, U.S. District Court, Southern District of New York, No. 17-00307.

Reporting by Jonathan Stempel in New York; Editing by Leslie Adler

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Reuters: Money

Biggest withdrawal in four months hits U.S. domestic stock funds: ICI

NEW YORK (Reuters) – U.S. fund investors walloped domestic equities with the most selling in four months, using the proceeds to buy cheaper stocks abroad that could thrive in a global economic expansion, Investment Company Institute (ICI) data showed on Wednesday.

Nearly $ 9.6 billion tumbled out of funds focused on U.S. stocks during the week ended Dec. 20, the most in any week since August, while their counterparts focused outside the country took in $ 8 billion in their best showing since June, the trade group said.

U.S. President Donald Trump on Friday signed into law the largest tax overhaul since the 1980s, which slashes the corporate rate from 35 percent to 21 percent.

That benefit for corporations has stimulated further gains for domestic stocks, but investors have been buying abroad instead, searching for a potentially better value, especially if growth accelerates in Japan, Europe or emerging markets, too.

“I‘m more optimistic than I have been in several months,” said Tom Stringfellow, chief investment officer at Frost Investment Advisors.

“The emerging markets are not as risky as we anticipated, Europe is getting traction.”

Money is also typically shifted in the final weeks of the year in an effort to minimize taxes. Some investors, for instance, sell securities at a loss to decrease their tax liabilities.

“As we shift into a lower-tax regime in 2018, especially for corporations, we have been observing clients engaging in more aggressive tax-loss selling before lower tax rates kick in next year, because tax losses are more valuable in a higher tax environment,” said Scott Minerd, global chief investment officer at asset manager Guggenheim Partners LLC, in a note distributed to clients.

Bond funds pulled in $ 1.6 billion, the least amount of cash in five weeks, but still enough to record a 52nd straight week of inflows and nearly a full year without a single week of withdrawals, according to ICI. Funds that invest in commodities, such as gold or oil, posted $ 434 million in outflows, the most since July.

Overall, domestic equity funds are on pace to post outflows for the third straight year in 2017, according to Thomson Reuters’ Lipper unit, while debt and non-domestic stock funds are strongly positive on the year.

Much of the year-end reallocation is benefiting exchange-traded funds (ETFs), which typically track segments of the market relatively cheaply. ICI said ETFs took in nearly $ 11 billion during the week, compared to outflows of nearly $ 14 billion for mutual funds, which typically charge a higher fee and attempt to beat the market.

Reporting by Trevor Hunnicutt; Editing by Tom Brown

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Hedge funds embrace machine learning—up to a point

ARTIFICIAL intelligence (AI) has already changed some activities, including parts of finance like fraud prevention, but not yet fund management and stock-picking. That seems odd: machine learning, a subset of AI that excels at finding patterns and making predictions using reams of data, looks like an ideal tool for the business. Yet well-established “quant” hedge funds in London or New York are often sniffy about its potential. In San Francisco, however, where machine learning is so much part of the furniture the term features unexplained on roadside billboards, a cluster of upstart hedge funds has sprung up in order to exploit these techniques.

These new hedgies are modest enough to concede some of their competitors’ points. Babak Hodjat, co-founder of Sentient Technologies, an AI startup with a hedge-fund arm, says that, left to their own devices, machine-learning techniques are prone to “overfit”, ie, to finding peculiar patterns in the specific data they are trained on that…Continue reading

Business and finance

Court orders Russian opposition activist Navalny to return presidential campaign funds to donor

A court in Moscow has ordered in favor of a man who demanded the return of money he donated to the presidential campaign of opposition activist Aleksey Navalny, after learning that the law forbids Navalny from participating in the 2018 race.

The Savyolovsky District Court in Moscow ordered the group that poses as “Navalny’s elections headquarters” and its head Leonid Volkov to return 50,100 rubles (about $ 860) to plaintiff Mikhail Kostenko and pay 1,703 rubles ($ 30) in court fees. In his lawsuit, Kostenko claimed he had donated the money to Navalny’s presidential campaign, but after the transfer was completed he learned that Russian law precludes the activist – or indeed any person with an uncompleted criminal sentence – from becoming a presidential candidate. Kostenko concluded that his payment should be considered “unlawful enrichment” and demanded its return.

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Alexei Navalny at the Simonovsky District Court of Moscow © Eugene Odinokov

Earlier, the head of the parliamentary majority party in the State Duma, MP Sergey Neverov (United Russia) has said that in his personal opinion Navalny’s fundraising activities could be described as embezzlement. “I think this is pure embezzlement… you are simply deceiving people when you collect money for a presidential campaign while the law forbids you to participate in elections. Your rights are limited because of your previous convictions,” he said at a meeting with the participants of the ‘School of Parliamentarism’ project. Neverov also noted that Navalny’s allies had collected some 140 million rubles (over $ 2.4 million) through this scheme.

The law ‘On Elections of the President of the Russian Federation’ reads that people convicted of crimes can participate in the presidential race only 10 years after their sentence expires or is officially recognized as served. In August this year, the Simonovsky District Court in Moscow satisfied the request filed by the Russian Justice Ministry and added one year to the five-year probation period in the sentence given to Navalny in late December 2014. The conviction was for his role in a $ 500,000 embezzlement scheme involving the international cosmetics company Yves Rocher.

Back then, Navalny’s attorney told reporters that his client’s suspended sentence was previously due to end on December 30, 2019. The meant that the prolonged probation period would end on December 30, 2020. In addition, Navalny is currently serving a five-year suspended term handed down in 2013 for a fraud scheme involving state-run timber company Kirovles.

Navalny has previously repeatedly said that the law should only apply to custodial sentences, not suspended ones. However, senior Russian officials, such as the head of the Central Elections Commission Ella Pamfilova, have dismissed these statements and said that Navalny had had no chance of entering the 2018 presidential race.

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