Evening Headlines
Bloomberg:
- Greece on Edge of Biggest Insolvency 24 Centuries After First City Default. History’s first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo’s mythical birthplace. Twenty-four centuries later, Greece is at the edge of the biggest sovereign default and policy makers are worried about global shock waves of a insolvency by a government with 353 billion euros ($483 billion) of debt -- five times the size of Argentina’s $95 billion default in 2001. “There is a monstrously large amount of uncertainty and a massive range of possibilities,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “A macroeconomic disaster could be averted but only by aggressive policy action” by central banks and governments.
- Constancio Says Sustained ECB Bond Buying Would Delay Fiscal Fix. European Central Bank Vice President Vitor Constancio said sustained bond purchases by the central bank would only delay the fiscal adjustments that euro- area governments need to make. “The secondary market purchases are not, and cannot be used to circumvent the principle of budgetary discipline as a pillar of Economic and Monetary Union,” Constancio said at an event in Frankfurt last night, according to a text of his speech published by the ECB. “Sustained buying of government paper by the central bank would only postpone problems and delay the necessary fiscal adjustments, ultimately resulting in a build-up of inflationary pressures.” The comments underscore the ECB’s reluctance to continue buying the bonds of distressed euro-area governments to contain a sovereign debt crisis that’s now threatening to engulf Italy and Spain. He said the tensions are “in some respects” more broad- based than those seen in May last year, when Greece’s fiscal meltdown prompted the ECB to enter bond markets for the first time. “It is clear that sovereign debt challenges in individual euro-area countries -- no matter their size -- can undermine the stability of the euro area as a whole,” Constancio said.
- France's BNP, SocGen Beat Retreat as Europe Debt Crisis Deepens. BNP Paribas (BNP) SA and Societe Generale SA, France’s two largest banks, are trimming about 300 billion euros ($405 billion) off their balance sheets as Europe’s deepening debt crisis threatens to make them too big to save. At the end of March, French financial firms had $672 billion in public and private debt in Greece, Portugal, Ireland, Italy and Spain, according to Basel, Switzerland-based Bank for International Settlements. That’s the biggest exposure to the euro-area’s troubled countries and almost a third more than German lenders. The four largest French banks have 5.9 trillion euros in total assets, including loans and bond holdings, or about three times France’s gross domestic product. “The banks are entering a slimming cure, which is forced by the sovereign crisis,” said Jerome Forneris, who helps manage $10 billion, including the two French lenders, at Banque Martin Maurel in Marseille, France.
- Global Stocks Enter Bear Market as Debt Crisis Outweighs Profits. Stocks fell, pushing the MSCI All- Country World Index of 45 nations into a bear market for the first time in more than two years, after the worsening European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May. The MSCI index has lost more than 20 percent since peaking on May 2, meeting the common definition of a bear market, after slipping 4.5 percent to a 13-month low of 277.38. The MSCI World Index of shares in developed nations also fell into a bear market yesterday, plunging 4.2 percent. The MSCI Emerging Markets Index reached the 20 percent threshold on Sept. 13.
- Barton Biggs Says Recession Worries Make Equities Too Risky. Bets that stocks will gain make up 20 percent of Traxis Partners LLC’s holdings, down from as much as 85 percent six months ago, as the threat of a recession makes equities too risky, according to founder Barton Biggs. “I wish I was minus 20,” Biggs said during an interview today on Bloomberg Television’s “Street Smart” with Matt Miller and Carol Massar. “I wish I was zero. I don’t think any place is a place to invest.” “If we’re going into a global double-dip, corporate earnings projections for the U.S. and Europe are way too high,” Biggs said. “So there are major revisions coming.” S&P 500 earnings are poised to reach a record $99.34 a share this year, according to the average analyst estimate in a Bloomberg survey. Analysts are more optimistic about earnings since the S&P 500 peaked at a three-year high on April 29, driving their forecast up from $98.73 a share that day.
- BofA(BAC) Suit May Be 'New Front' in Mortgage Suits, Lawyer Says. Bank of America Corp. is among a group of lenders that may face a wave of new lawsuits claiming the system they've used for more than a decade to register mortgages cheated cash-strapped counties out of millions of dollars. Dallas County District Attorney Craig Watkins said state attorneys general and county officials across the U.S. have expressed interest in his lawsuit against Mortgage Electronic Registration Systems Inc. and Bank of America, filed in Texas state court on Sept. 21. Dallas County could be owed as much as $100 million in filing fees, he said. “This is a big new front,” said Christopher L. Peterson, associate dean and professor at the University of Utah S.J. Quinney College of Law. “This case is scary because if Dallas wins then there are a lot of other counties around the country that are going to follow.”
- CFTC May Alter Dodd-Frank Speculative Trading Limit CME Opposed. U.S. derivatives regulators may pull back from a January proposal setting speculation limits that CME Group Inc. (CME) said would reduce spot trading on the world’s largest futures exchange, according to a person briefed on the discussions. The proposal, issued under the Dodd-Frank Act by the U.S. Commodity Futures Trading Commission, aimed to curb speculation by limiting the portion of the derivatives market controlled by any one trader.
- Crude Heads for Biggest Weekly Decline in Almost 2 Months as Markets Slump. Oil in New York headed for the biggest weekly decline in almost two months as investors speculated that fuel demand will falter amid a plunge in financial markets and signs of a weakening global economy. Futures were little changed after sliding 6.3 percent yesterday to a six-week low. Crude oil for November delivery was at $80.55 a barrel, up 2 cents, in electronic trading on the New York Mercantile Exchange at 9:15 a.m. Sydney time. The contract yesterday slid $5.39 to $80.53, the lowest settlement since Aug 9. Prices are 8.3 percent lower this week and down 12 percent this year. Brent oil for November settlement fell $4.87, or 4.4 percent, to $105.49 a barrel on the London-based ICE Futures Europe exchange yesterday, the lowest since Aug. 9.
- China's Banking Regulator Evaluates Trust Loans to Developers. China’s banking regulator is looking into financing of developers through trust companies as part of a broader evaluation of real estate lending, a person familiar with the matter said. The inquiries by the China Banking Regulatory Commission are part of regular monitoring and aren’t targeting any individual company, said the person, who declined to be identified because the regulator’s queries were meant to be private. Chinese property developers led by Greentown China Holdings Ltd. plunged in Hong Kong trading yesterday on concern tightened access to loans will force them to cut prices. Greentown said it hasn’t received any notice following a Reuters report that the banking regulator ordered trust companies to report dealings with the developer. “Given that the nature of trust loans is short term, the key question would be whether or not developers have sufficient cash to repay the outstanding loan amounts,” Samsung Securities Asia Ltd. analysts led by Wee Liat Lee, said in a report today. “We believe that developers should be financially secure should the trust loans not to be rolled over.”
- Chinese Stocks to Extend Slump, Mizuho Securities Says: Technical Analysis. Chinese stocks, as measured by the MSCI China (MXCN) Index, may extend a slump that has made the nation’s equities the worst-performing among the so-called BRIC nations, according to technical analysis by Mizuho Securities Asia Ltd.The MSCI China, which mostly tracks Hong Kong-traded shares of Chinese companies, slid 6 percent yesterday to 50.12. The gauge may fall to between 36 and 45 “to complete the bear market,” Chris Roberts, a Hong Kong-based technical analyst, wrote in a Sept. 22 report. The index’s moving average convergence/divergence indicator, or MACD, had fallen below zero, which is “normally bearish,” the report said. “Given that for the past four years the October-November period has either marked a top or a bottom, we would be alert for at least an intermediate low in that time frame,” the report said. Mizuho will “most likely” recommend investors keep an “underweight” weighting on the MSCI China when it issues its next report in October, Roberts wrote. The MSCI China Index has tumbled 25 percent this year as the Chinese government stepped up measures to cool inflation that’s at the highest level in almost three years. The Hang Seng China Enterprises Index, which tracks 40 companies traded in Hong Kong, sank 28 percent. Benchmark indexes in Brazil, Russia and India have fallen between 18 percent and 23 percent this year. China’s Shanghai Composite Index, which is largely restricted to domestic investors, has slumped 13 percent in 2011. China’s stocks may extend declines in the fourth quarter as economic and corporate earnings growth slows and liquidity remains tight, Chen Li, head of China equity strategy at UBS AG, wrote in a report dated Sept. 21. Fourth-quarter profit may drop 7.7 percent from a year earlier as companies clear inventories, hurting margins, the report said.
- Worst Asia Currency Drop Since '97 Spoils Debt: Chart of the Day. The biggest monthly drop in Asian currencies since 1997 is prompting overseas investors to pull out of regional bonds, driving up yields. "Asia was considered a safe haven but recent foreign-exchange performance has caught the majority offside, both traders and corporates," Patrick Perret-Green, head of rates and foreign exchange at Citigroup Inc. in Singapore, said in an interview. "The risk remains for further redemptions." The Bloomberg-JPMorgan Asian Dollar Index slumped 4.3% this month, heading for its biggest loss since December, 1997, led by a 9.6% decline in South Korea's won.
- GE(GE) Put Ratio Surges to Highest Since 1997 as Growth Jeopardized: Options. Options traders are the most bearish on General Electric Co. (GE) in 14 years, speculating its streak of quarterly earnings increases won’t survive Europe’s debt crisis and slowing global growth. The ratio of puts to sell shares versus calls to buy has climbed 11 percent in the past two months to 1.3, and was 1.33 on Sept. 15, the highest since October 1997 and the third- highest among Dow Jones Industrial Average companies, data compiled by Bloomberg show. United Technologies Corp. (UTX) and Honeywell International Inc. (HON), which compete with Fairfield, Connecticut-based GE, both have more calls than puts.
- Obama Takes Aim at Tax 'Targets,' Fires Blanks: Caroline Baum. Two weeks ago, President Barack Obama unveiled his $447 billion plan to put Americans back to work. Eleven days later, he told us how he’d pay for it: $1.5 trillion in tax increases over 10 years and $3 trillion in spending cuts -- on top of the $1 trillion already agreed to in last month’s Budget Control Act.
- RBA Says Banks Face Weaker Credit, Assets Than Pre-Lehman. Australian banks face slower credit growth and weaker asset quality than prior to the global credit crunch sparked by the collapse of Lehman Brothers Holdings Inc. in 2008. While the nation’s lenders are better placed to cope with market shocks than three years ago, the proportion of non-performing assets on their balance sheets remains close to its recent peak, the Reserve Bank of Australia said in its financial stability review released today in Sydney. “The Australian banking system remains in a relatively strong condition compared with some overseas,” the RBA said. “Should conditions deteriorate materially, the effect on the banking system would occur from a somewhat weaker starting position on asset quality than had been the case at the beginning of the crisis.” Since the implosion of Lehman Brothers, the Australian banking system has increased capital levels, cut its reliance on short-term wholesale funding and made greater use of deposits as a source of funding, the RBA said in its half-yearly report. Even so, credit growth has slowed to the weakest since 1977 and house prices are weakening.
- Perry, Romney Go on Attack at Debate. Republican presidential front-runners Rick Perry and Mitt Romney, taking up where they left off in their last on-stage meeting, attacked each other over Social Security and health care in a televised debate Thursday, with the Texas governor on defense for much of the contest.
- U.S. Accuses Pakistan of Militant Ties. Mullen Calls Haqqani Network in Afghanistan a 'Veritable Arm' of Spy Service, as Frustration Breaks Out Into Open.
- Anthony Scaramucci: Chance of Recession Now 75%. According to top hedge fund manager Anthony Scaramucci, proprietary research from Skybridge suggests the economy is in trouble. In a live interview on CNBC'S Fast Money, Scaramucci says, "There’s now a greater than 75% chance that we’ll be in recession by the first quarter of 2012.”
- G20 Pledges to Support Banks, Short on Specifics. The world's major economies pledged on Thursday to prevent the euro zone's debt crisis from undermining banks and markets but announced no new specific measures to shore up confidence in the global economy. Under pressure from investors to show action, finance ministers and central bankers from the Group of 20 economies said they would take all steps needed to calm the stresses wracking the global financial system. "We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required," the G20 said in a communique after a dinner meeting that focused on the European debt crisis.
- US Senators Eye October Action on China Yuan. A bipartisan group of U.S. senators on Thursday predicted the Senate would overwhelmingly pass a bill next month to crack down on China currency practices they blame for millions of lost American jobs.
NY Times:
MediaBeat:
- Dish(DISH) and Blockbuster to Introduce Netflix(NFLX) Competitor Friday. The move for Dish to create a Netflix rival is hardly surprising. Dish acquired Blockbuster in a bankruptcy auction for $320 million back in April and a month later Dish CEO Joe Clayton said he wanted to “take a small piece of the pie from Netflix” when it came to streaming video.
Washington Examiner:
- Soros Turns Up In Obama's LightSquared Imbroglio. As Republican lawmakers begin to dig into the White House's cozy relationship with a startup wireless company and the wealthy Democratic donor who owns it, a new character has appeared on the story's edges: liberal superdonor, conservative bete noire and controversial investor George Soros. Soros reportedly invested in the telecom company LightSquared through a hedge fund, and many of the nonprofits he finances have backed LightSquared in regulatory and policy disputes.
- ECB's Knot Admits to Chance of Greece Defaulting. A situation where Greece cannot pay back its public debt can no longer be excluded, European Central Bank Governing Council member Klaas Knot was quoted as saying on Friday. Until recently, European leaders have rejected any chance of Greece defaulting, but are moving slowly to allow for the possibility of this happening. Knot became the first euro zone central banker warning outright of the possibility of a Greek default. Asked by Dutch daily Het Financieele Dagblad about a Greek default, Knot admitted it was being studied. "It is one of the scenarios. I'm not saying that Greece will not go bankrupt," he was quoted as saying. "I've long been convinced that bankruptcy is not necessary. The news from Athens, however, is at times not encouraging." The Dutch central bank head, who entered office this summer in a controversial appointment, continued by saying European partners had worked hard to help Greece, but faulted the country for not understanding the gravity of the situation. "All efforts are aimed at preventing this, but I am now less certain in excluding a bankruptcy than I was a few months ago," Knot said, and continued by saying he wonders "whether the Greeks realize how serious the situation is." Olli Rehn, European Union Economic and Monetary Affairs Commissioner, said on Thursday European leaders will not allow an uncontrolled default of Greek debt and will not let the country leave the euro zone, but did not explicitly rule out the possibility of Greece defaulting, which many economists now see as inevitable. In a sign of a sharper tone from central bankers, an ECB study, co-authored by Executive Board member Juergen Stark, on Thursday warned the entire euro currency project was now in peril. The ECB announced last week Stark's resignation from the 17-country bloc's central bank. Sources have told Reuters he left because of his resistance to ECB's bond buying, which Knot also opposes.
- First Solar(FSLR) Says Plant to Miss U.S. Loan Deadline. First Solar Inc said it would not meet a deadline to receive a federal loan guarantee for a huge solar power plant it is building in California, sending its shares to their lowest level in more than four years. The announcement cast a spotlight again on the Obama administration's support of renewable energy, which have come under fire by Republicans since the collapse of solar company Solyndra after it won more than $500 million in backing from the Department of Energy. First Solar, which in June received conditional approval from the U.S. Department of Energy for a $1.9 billion loan guarantee to build the 550-megwatt Topaz plant, said it was unable to process all requirements under the department's loan program before the September 30 cutoff date.
- Analysis: Emerging Market Face Capital Exodus Again. A sell-off precipitated by global recession fears and the deepening euro zone debt crisis has resurrected the specter of capital flight, a threat that still haunts emerging markets for all their vaunted strengths.
- Nike(NKE) Sees Strong Worldwide Demand. Nike Inc staved off margin pressure in the first quarter with strong revenue and price increases, and said it was confident about its position among peers as it heads toward the winter holidays. The world's biggest athletic shoe and clothing maker topped Wall Street's profit and sales estimates, and its shares rose more than 5 percent in after-hours trading.
- U.S. Equity Funds See $4.6 Billion in Outflows - Lipper.
- Russia: BRIC Joint Aid to Eurozone Impossible, Unneeded. It is impossible and not necessary, at this time, for the world's largest developing economies to jointly provide support to the crisis-stricken euro zone, Russia's Deputy Finance Minister Sergei Storchak said on Thursday. "It's impossible, I am absolutely convinced about that," Storchak told journalists in a briefing on the sidelines of the International Monetary Fund and the World Bank fall meeting. "Our state procedures do not allow for that. We don't have a mechanism (for that), not in Russia, not in China, not in India. We all have different ways of making decisions, we cannot syndicate our money." He also said that right now there is also no need for such a joint effort. "In the name of what? What for? I believe there is no need for that."
- European Banks Head Towards Another Meltdown. Shares in some of Europe's largest banks fell by 10pc as the cost of insuring European lenders' senior bonds rose to record levels, according to credit default swap prices. The Markit iTraxx Financial Index of contracts on the senior debt of 25 banks and insurers climbed to an all-time high 315.5 basis points.
- The Great Euro Swindle. Very rarely in political history has any faction or movement enjoyed such a complete and crushing victory as the Conservative Eurosceptics. The field is theirs. They were not merely right about the single currency, the greatest economic issue of our age – they were right for the right reasons. They foresaw with lucid, prophetic accuracy exactly how and why the euro would bring with it financial devastation and social collapse. Meanwhile, the pro-Europeans find themselves in the same situation as appeasers in 1940, or communists after the fall of the Berlin Wall. They are utterly busted.
- Thomas Enders, chief executive officer of Airbus SAS, says public debt in Europe and the U.S. is agitating the financial markets and "one begins to fear that these problems can have an impact on the real economy," citing an interview.
- China's growing foreign exchange reserves are pushing up expectations for yuan appreciation, which results in more hot money inflows and increase of "bubble" risks, citing Zhang Yansheng, a researcher affiliated to the National Development and Reform Commission.
- China's economy faces prominent contradictions and problems including rising raw material and fuel costs, funding constraints on small companies and yuan appreciation pressure, citing an industry ministry official. The country also faces higher wage costs and labor shortages, trade friction and an uncertain outlook for exports, Xiao Chunquan, deputy director of the economic operation and observation department at the Ministry Industry and Information Technology, was quoted as saying.
William Blair:
- Rated (ALTR) and (XLNX) Outperform.
- Asian equity indices are -4.25% to -1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 217.0 -6.5 basis points.
- Asia Pacific Sovereign CDS Index 156.75 -3.75 basis points.
- FTSE-100 futures +.69%.
- S&P 500 futures +.77%.
- NASDAQ 100 futures +.77%.
Earnings of Note
Company/Estimate
- (KBH)/-.15
- None of note
- None of note
- The Fed's Dudley speaking, Fed's Williams speak, ECB's Trichet speaking and the IMF/World Bank Conference could also impact trading today.
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