Wednesday, September 28, 2011

Today's Headlines

  • EU Split Over Push for Bigger Bank Haircuts. The European Commission is resisting a push to impose bigger writedowns on banks’ holdings of Greek government debt than those agreed at a July 21 summit, a European official said. The commission, the European Union’s executive body, opposes ideas that are being floated by some government officials to get banks to accept bigger so-called haircuts and doesn’t want to have talks about any such attempt, the official said on condition of anonymity because the deliberations are private. Germany and the Netherlands are leading a drive by as many as seven euro-area countries for more private-sector involvement in the second Greek package, the Financial Times reported today. The German Finance Ministry said that it wasn’t “putting pressure on anybody” over haircuts after Chancellor Angela Merkel signaled in an interview with Greek television broadcast today that policy makers may review Greece’s second bailout depending on the results of an international progress report. “We must now await what the troika, that is the expert mission, finds out and tells us: do we need to renegotiate or don’t we need to renegotiate?” Merkel said in the interview with Greek NET television, according to a transcript.
  • LBO-Burdened European Firms Face $272 Billion of Refinancings, Fitch Says. European companies acquired by private-equity firms will struggle to refinance more than 200 billion euros ($272 billion) of leveraged buyout debt as investors eschew risky securities, Fitch Ratings said. “A raft of lower-rated issuers still must find ways to address looming refinancings in 2013 and 2014,” according to the report by Edward Eyerman, the London-based head of European leveraged finance at Fitch Ratings. The deepening sovereign crisis in Europe is closing avenues for the most vulnerable borrowers to replace maturing debt after a record 36.8 billion euros of sales in the first half, Fitch said. Sales of high-yield bonds have dried up as concern that Greece will default prompts investors to favor larger, less- indebted companies that can withstand a slowing economy. “Prolonged uncertainty over refinancing and the macroeconomic outlook will keep many of these companies in operational limbo, potentially threatening their competitiveness,” according to Eyerman.
  • EU Proposes $78 Billion-a-Year Financial Transaction Tax to Start in 2014. The European Union proposed a financial-transactions tax that would take effect in 2014 and raise about 57 billion euros ($78 billion) a year, prompting renewed opposition from the U.K. The proposal would apply a tax of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts, the European Commission, the EU executive, said today in Brussels. Those minimum rates would apply throughout the 27- nation bloc. The measure would deliver “a fair contribution from the financial sector,” EU Tax Commissioner Algirdas Semeta said. European governments are split over the merits of a transactions tax, while British banks warn that an EU-only measure would drive business to other regions.
  • China Sovereign Bond Risk Jumps to Highest Since March 2009. The cost of protecting China’s sovereign debt from default jumped to the highest level since March 2009, according to data provider CMA. Credit-default swap contracts on China surged 16 basis points to 170, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. “Everyone is getting more concerned about risks accumulating domestically,” said Ju Wang, a fixed-income strategist at Barclays Capital in Singapore. “Eventually in China, the burden in the banking sector will have to be reflected in the sovereign balance sheet.” China will permit local governments to sell bonds in a pilot program in the fourth quarter, the official Xinhua News agency said today, citing a person it didn’t identify. Local government debt grew to 10.7 trillion yuan, some 27 percent of the country’s gross domestic product, as of the end of 2010, according to a national audit released on June 27. Developers in China face an “increasingly severe” credit outlook, which may force them to cut prices, Standard & Poor’s said in a Sept. 27 report.
  • Solyndra's $733M Plant Had Robots, Spa Showers. The glass-and-metal building that Solyndra LLC began erecting alongside Interstate 880 in Fremont, California, in September 2009 was something the Silicon Valley area hadn’t seen in years: a new factory. It wasn’t just any factory. When it was completed at an estimated cost of $733 million, including proceeds from a $535 million U.S. loan guarantee, it covered 300,000 square feet, the equivalent of five football fields. It had robots that whistled Disney tunes, spa-like showers with liquid-crystal displays of the water temperature, and glass-walled conference rooms. “The new building is like the Taj Mahal,” John Pierce, 54, a San Jose resident who worked as a facilities manager at Solyndra, said in an interview. The building, designed to make far more solar panels than Solyndra got orders for, is now shuttered, and U.S. taxpayers may be stuck with it. Solyndra filed for bankruptcy protection on Sept. 6, leaving in its wake investigations by Congress and the Federal Bureau of Investigation and a Republican-fueled political embarrassment for the Obama administration, which issued the loan guarantee. About 1,100 workers lost their jobs. Amid the still-unfolding postmortems, the factory stands as emblematic of money misspent and the Field of Dreams ethos that seemed to drive the venture, said Ramesh Misra, a solar-industry analyst in Los Angeles for Brigantine Advisors.
  • Demand for U.S. Capital Goods Climbs. Orders for U.S. capital goods climbed in August by the most in three months, a sign business investment continues to support the recovery. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent, the most since May, a Commerce Department report showed today in Washington. Demand for all durable goods dropped 0.1 percent, less than forecast.
  • Crude Oil Set For Second Straight Quarterly Decline on Europe Debt Crisis. Crude oil fell in New York, heading for the biggest quarterly drop since 2008, on concern that Europe’s debt crisis will linger and on rising U.S. supplies. Futures dropped as much as 2.5 percent as German Chancellor Angela Merkel signaled policy makers may review Greece’s second bailout after inspectors rule on whether the country is meeting the terms of its current package. U.S. crude oil stockpiles climbed 1.92 million barrels to 341 million last week, the Energy Department said today. “A build of nearly 2 million barrels is by no means bullish but the main driver of this market remains the crisis in Europe,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “How the crisis develops and what it means for the U.S. dollar will continue to be our focus until the situation is resolved.” Crude oil for November delivery declined $2.02, or 2.4 percent, to $82.43 a barrel at 12:53 p.m. on the New York Mercantile Exchange. Oil is down 7.2 percent this month and 9.8 percent this year. Prices have dropped 14 percent since the end of June, the biggest quarterly loss since the last three months of 2008.
  • Gundlach's DoubleLine Has Zero Euro Exposure as Losses Loom. Jeffrey Gundlach’s DoubleLine Capital LP is invested only in U.S. dollar-denominated assets to avoid losses stemming from Europe’s sovereign debt crisis. “All of our international exposure is in dollars,” Gundlach, the founder and head of Los Angeles-based DoubleLine, said at a panel in New York today. “There’s a big loss in Europe and all we want to do as investors is make sure as best we can that we’re not the ones taking the loss. How do you do it? No investments in Europe.” That includes avoiding investments in U.S. banks, he said. DoubleLine has attracted $17 billion since its December 2009 inception.
  • Spain, Italy Extend Bans on Shorting Bank Shares. Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility. The European Securities and Markets Authority announced the extension by the two countries in an e-mailed statement. The Spanish ban will remain “until the market conditions allow it” to be lifted, the country’s financial regulator said in an e- mailed statement. Italy’s restriction, and another enacted by France in August, will both last until Nov. 11. The Bloomberg Europe Banks and Financial Services Index has fallen 10 percent since the ban first took effect on Aug. 12. Societe Generale SA has dropped 18.5 percent and Unicredit SpA has fallen 26.6 percent during the period. The initial bans by France, Spain and Italy lasted 15 days. A similar rule introduced the same day in Belgium is indefinite.
  • Fed's Hoenig Says Operation Twist Risks Creating 'Imbalances' in Economy. Federal Reserve Bank of Kansas City President Thomas Hoenig said the Fed’s plan to push down long- term interest rates may lead to unintended consequences and policy makers risk creating “imbalances” in the economy. “I have real concerns about trying to fine-tune and micro- manage the economy when monetary policy is a blunt tool,” he said today in an interview with Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. Efforts to “redefine yield curves” may “introduce new complexities and risk new unintended consequences,” he said. “We risk further imbalances,” said Hoenig, 65, who doesn’t vote on the FOMC this year. “We ought to be very, very humble in our expectations of what we can do with this instrument we call monetary policy.”
  • Emerging-Nation Bond Rout Reduces Sales by 72%: Credit Markets. Emerging-market companies are selling the fewest bonds in 2 1/2 years as investors drive borrowing costs higher amid a global economic slowdown. Borrowers in developing nations issued $16 billion of fixed-income securities since the end of June, a 72 percent decrease from $58 billion in the previous quarter and the least since the first three months of 2009, according to data compiled by Bloomberg. Prices of emerging-market corporate notes are down 4.7 percent, the biggest drop since the 20 percent rout after Lehman Brothers Holdings Inc. collapsed in September 2008, JPMorgan Chase & Co.'s Composite Corporate EMBI Index shows. "For emerging-market borrowers, access to international markets is hugely important because they aren't able to fund on domestic markets in the scale they want," said Stuart Culverhouse, the chief economist of broker Exotix Ltd. in London. "There's been a massive retreat from risk."
Wall Street Journal:
  • Chinese Property Mogul Sings Blues. Over the past few weeks, observers of China’s real estate industry have been treated to songs of woe from analysts, regulators, and Standard & Poor’s rating agency. But the tune carries further when a Chinese real-estate rock star is singing the blues. Zhang Xin, the chief executive officer of Soho China Ltd., said Wednesday that in her 17 years in the residential property business she hasn’t faced such a tough market. “This by far the most challenging year in terms of what you can sell,” Ms. Zhang told the Foreign Correspondents Club Shanghai. Referring to the higher ends of the market, where Soho focuses, she said, “you’re seeing no transactions on the residential side.”
  • China Opposes EU Aviation Emissions Plan. China opposes the EU's plan to include airlines in its system to limit greenhouse-gas emissions, Chinese Foreign Ministry spokesman Hong Lei said Wednesday. "China appreciates the EU's efforts to reduce emissions but we oppose their forced implementation of unilateral legislation on aviation emissions," Mr. Hong said at a regular news briefing.
  • Amazon(AMZN) Losing $50 Per Kindle Fire? With its new Kindle Fire tablet, Amazon is clearly undercutting Apple’s iPad on price. At just $199, the Fire costs less than half of Apple’s entry-level iPad. An appealing price point, but one that requires Amazon to eat a few dollars on each sale. According to Piper Jaffray analyst Gene Munster, “Amazon is likely losing about $50 per Kindle Fire.”
  • Every Job Requires an Entrepreneur. Someone took risks to start every business—whether Ford, Google or your local dry cleaner.
  • Hedge Funds Face New Round of Redemptions. The hedge fund industry is braced for a new round of redemptions after two months of poor performance and growing investor desire to move money into cash. The world's largest listed hedge-fund manager, Man Group PLC , stoked fears of another industry meltdown Wednesday when it reported a net $2.6 billion was pulled from its funds between June 30 and Sept. 26. It lost a further $1.5 billion from fund losses and $1.9 billion from the effect of a stronger U.S. dollar when accounting for euro- and Australian dollar-denominated funds. Its GLG unit, acquired last year, posted particularly large outflows. Man Group shares fell as much as 25% in London.
Business Insider
Zero Hedge:
  • Portugal PM Says Country Vulnerable if Euro Zone Default. Portugal's Prime Minister Pedro Passos Coelho said on Wednesday his country would be vulnerable if any country in the euro zone were to default on its debts. "I don't want any country to default but if this were to happen, it is evident...we would be vulnerable to an accident of this nature," Passos Coelho told parliament when asked if Portugal would consider asking for a second bailout. "If that were to happen, we cannot exclude that Portugal's assistance plan would have to be reinforced."
  • UniCredit Exec Says Euro "Practically Dead". The euro is dead and cannot be saved, while Greece will inevitably default, Attila Szalay-Berzeviczy, Head of Global Securities Services at UniCredit Group wrote in an article on a Hungarian website on Wednesday. Szalay-Berzeviczy signed the article as former head of the Budapest Stock Exchange. "The common currency of Europe is practically dead," he said in a long article posted on news website
  • German Inflation Hits Surprise 3-Year High in September. Annual consumer price inflation rose to 2.6 percent from 2.4 percent in August -- a jump above expectations for it to hold steady, Wednesday's preliminary statistics office data showed.
Sueddeutsche Zeitung:
  • Germany's Christian Social Union head Horst Seehofer said extending the aid package for Europe's indebted nations is putting Germany's credit rating at risk, citing an interview. A downgrade of Germany's credit rating would have negative consequences for jobs and economic growth, Seehofer said. The rescue fund shouldn't be increased, he said.
  • Austrian Finance Minister Maria Fekter said she's against a Greek default because it would cost her country's taxpayers about $6.8 billion.
  • China's passenger car sales, excluding minivans, may fall in the fourth quarter as the country plans to raise the threshold in October for vehicles qualifying for a energy-saving subsidy, citing China's Passenger Car Association secretary-general Rao Da.
  • China's top priority will continue to be stabilizing prices, citing Vice Premier Li Keqiang.

No comments: