Bloomberg - Evening Briefing - Reining in the hedge funds

Top US regulators are zeroing in on the dangers posed by highly leveraged hedge fund trades—and mulling options to rein in risks to the broader financial system. Officials are especially concerned about the growth of one strategy known as the basis trade, which involves the use of leverage to profit from the price gap between Treasury futures and the underlying cash market. Although hedge funds are subject to less direct government oversight, they rely on highly regulated large banks to finance many of their trades. As a result, under consideration by regulators are options ranging from pushing banks to gather more data on exposures, to pressing them to ramp up haircuts on some secured borrowing. Securities and Exchange Commission Chair Gary Gensler said the “generous” funding prime brokerages provide to some hedge funds is the biggest source of risk out there. His subsequent warning may strike some as familiar, given recent (and not-so-recent) Wall Street history: “If a problem happens,” he said, “it’s going to be the public that bears the risk.” —David E. Rovella

US President Joe Biden has gone out of his way to show the world that he supports Israel in its war against Hamas. But he also made sure to come away from his trip to Tel Aviv this week with a plan to get aid into Gaza, where the United Nations and others warn of a humanitarian catastrophe. Now, it seems Biden is also exerting influence on the way in which Israel will conduct its promised ground offensive. The US is shaping the way the assault will be conducted, particularly to limit casualties among the 2 million civilians who live in Gaza.

The US is seeing stepped-up drone attacks in Iraq and Syria while an American destroyer in the Red Sea intercepted cruise missiles and drones fired toward Israel by Houthi rebels in Yemen. The uptick in activity has prompted fresh concerns that Israel’s war with Hamas may spark a bigger conflict and pull in the US. The risks posed by a broader, regional war to millions of people, as well as the consequences for the wider world, are the subject of the Bloomberg Originals min-documentary Middle East Shockwave. 

Watch: A Bloomberg Originals mini-documentary

If 10-year US Treasury yields hit 5% or higher, that’s a good entry point for investors, according to Morgan Stanley Investment Management. US 10-year yields have soared over 30 basis points this week and reached 4.98% on Thursday, the highest since July 2007. “Those will be great levels to get longer in your portfolio from a duration perspective,” said Vishal Khanduja, money manager and co-head of the broad markets fixed-income team in Boston.

A drumbeat of bad news for Apple is casting doubt on the argument that the world’s most valuable company is immune to risks related to economic turbulence. Tepid sales in China for its new iPhone models have fueled concerns about Apple’s ability to justify its pricey valuation. That’s just as the company grapples with political tensions with China and overheating devices, while KeyBanc this month became the latest firm to downgrade the stock. Apple’s lack of growth and the high cost of its stock is creating a disconnect that’s hard to ignore, according to James Abate, chief investment officer at Centre Asset Management.

Assuming a 7.2% mortgage rate with 20% down on a median priced home of $412,001, US homebuyers will need to make $114,000 a year to afford buying a typical home. “Afford,” let alone “comfortably afford,” means you should spend no more than 30% of your income on housing costs. One problem, though: The median salary in America is $70,000.

Xi Jinping’s signature infrastructure gambit was supposed to connect Asia, Africa and Europe through a network of railroads and trade deals, cementing China’s global influence. A decade on, it’s run into a diplomatic wall at the European border. The lack of European leaders at this week’s Belt and Road Forum in Beijing pointed to growing skepticism among Western democracies about what Xi once described as a “project of the century.” 

Harvard University’s endowment earned an investment return of 2.9% during the latest fiscal year, beating rival Yale University and most other Ivy League peers but lagging far behind plain old US stocks. The value of the endowment, the largest in US higher education, edged down to $50.7 billion. Harvard’s losses underscore the lackluster results at big college funds during as returns fizzled in alternative assets such as venture capital.

• Landlocked Ethiopia wants access to the Red Sea. Its neighbors say no.
• The price of money is going up, and it’s not because of the Fed.
• Fed Chair Powell signals a likely rate-hike pause for November.
• Bezos-backed startup convoy closes operations without a buyer.
• A lot of American voters still aren’t giving Biden credit for the economy.
• Bad news for Trump in New York—worse news for Trump in Atlanta.
• These three independent resorts are bucking the big ski giants.

From the Acropolis in Athens and St. Mark’s Square in Venice to the beaches of Phuket, Thailand, and beyond, you’ve probably noticed that most tourists are back to visiting the usual bucket list destinations. In some places, it’s as if all of them are there at once. Well, the United Nations is coming to your rescue. Its World Tourism Organization’s third edition of “Best Tourism Villages” highlights 54 lesser-known, rural destinations around the world that are worth visiting for natural and cultural draws, for their beauty—and for the silence.

Biei in Hokkaido, Japan, is a rural destination on UNWTO’s 2023 Best Tourism Villages list. Photographer: thanyarat07/Getty Images

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