Weekend Headlines
Bloomberg:
- Rajoy Party Wins Spanish Elections After Debt Crisis Overwhelms Socialists. Mariano Rajoy won the biggest parliamentary majority in a Spanish election in almost 30 years, and told Spaniards to brace for difficult times as the nation fights to avoid being overwhelmed by the debt crisis. Rajoy’s People’s Party swept the ruling Socialists from power after eight years, winning 186 of the 350 seats in Parliament, compared with 110 for the ruling party’s candidate Alfredo Perez Rubalcaba. That’s the worst result for the Socialists in more than three decades. Opinion polls in the month before the vote showed the PP winning 184 to 198 seats. “Hard times lie ahead,” Rajoy told supporters outside the PP’s headquarters in Madrid, giving no new details of his plans. “We are going to govern in the most delicate situation Spain has faced in 30 years.” Rajoy, 56, who said on Nov. 18 he hoped Spain wouldn’t need a bailout before he can be sworn in as prime minister in a month’s time, has pledged to slash the budget deficit and regain the nation’s AAA credit rating, without saying how he will do it. He inherits a stagnant economy with a 23 percent unemployment rate and borrowing costs back at the levels Spain was paying before it joined the euro.
- War on Sovereign Ratings May Backfire on Bonds: Euro Credit. Europe's sovereign debt market is ossifying as restrictions on default-swap insurance and the threat of a ban on credit ratings for governments make traders and investors wary of owning bonds. "Primary dealers may pull out and won't overbid at auctions because they can't get rid of the bonds," said Soeren Moerch, head of government-bond trading at Danske Bank A/S in Copenhagen. "Banks don't want to hold government debt if they have to take writedowns on supposedly risk-free assets." "It is like blaming a mirror when you are ugly faced," said Mark Dowding, a senior portfolio manager at Bluebay Asset Management in London. "The fact that policy makers, in their efforts to fix the problem, are coming up with trivial solutions such as this really speaks to the poor quality of the leadership within the eurozone at the moment."
- Samaras Won't Sign Pledge Committing to EU's Greek Debt Accord, ANA Says. Antonis Samaras, leader of Greece’s New Democracy Party, won’t sign a document pledging his commitment to the Oct. 26 European Union agreement for the nation, the Athens News Agency reported. Samaras, whose party is a member of the country’s unity government, told officials from the so-called troika of the European Union, the International Monetary Fund and the European Central Bank that he has already taken five actions that show his party’s full commitment to the agreement, the state-run news agency said. These actions, which include a letter to New Democracy’s fellow parties in Europe outlining his commitment to the bailout plan as well as his support for Greece’s 2012 budget, are adequate, the agency cited Samaras as telling troika officials.
- Johnson: Deutsche Bank Could Transfer Contagion. You’ve probably never heard of Taunus Corp., but according to the Federal Reserve, it’s the U.S.’s eighth-largest bank holding company. Taunus, it turns out, is the North American subsidiary of Germany’s Deutsche Bank AG (DBK), with assets of just over $380 billion. Deutsche Bank holds a large amount of European government and bank debt; it also has considerable exposure to lingering real estate problems in the U.S. The bank, therefore, could become a conduit for risk between the two economies. But which way is Deutsche Bank more likely to transmit danger -- to or from the U.S.?
- Dollar Preeminence Grows as Foreign Banks Double Deposits at Fed. Foreign bank deposits at the Federal Reserve have more than doubled to $715 billion from $350 billion since the end of 2010 amid Europe’s debt turmoil, buttressing the dollar’s status as the world’s reserve currency. Forty-seven non-U.S. banks held balances of more than $1 billion at the New York Fed as of Sept. 30, up from 22 at the end of 2010, according to a survey of 80 financial institutions by ICAP Plc, the world’s largest inter-dealer broker. The dollar has appreciated 6.6 percent since Standard & Poor’s cut the nation’s AAA credit rating Aug. 5, the best performance among developed-nation peers, according to Bloomberg Correlation- Weighted Currency Indexes. A budget deficit of more than $1 trillion, a deadlock among Congressional supercommittee members on spending cuts and 9 percent unemployment haven’t deterred investors from seeking safety in the world’s biggest economy. The euro has been undermined by the region’s sovereign debt crisis, while the Swiss franc and yen have fallen as their governments buy billions of dollars to weaken them. “There’s not anything close to a substitute and part of it is the deepness of the market, the liquidity,” Jack McIntyre, a fund manager who oversees $23 billion in debt at Brandywine Global Investment Management, a unit of Legg Mason Inc., said Nov. 15 in a telephone interview from Philadelphia.
- Japan Exports Fall on Yen Gains, Europe Crisis. Japan’s exports fell for the first time in three months, indicating that the yen’s appreciation and financial turmoil in Europe are slowing the nation’s recovery from the March disaster. Shipments dropped 3.7 percent in October from a year earlier, the Ministry of Finance said today in Tokyo, worse than all 29 estimates of economists surveyed by Bloomberg News. Exports to China, Japan’s biggest market, slid 7.7 percent, the largest drop since May, today’s report showed. “A sharp slowdown in demand from eurozone countries should be weakening exports from Asia, in turn leading to weakness in exports from Japan,” said Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo. “Exports should be weakening toward the end of this year, or possibly until January or February.”
- China Stocks Drop, Extending Biggest Weekly Loss in Month; Developers Fall. China stocks fell, extending the benchmark index’s biggest weekly decline in a month, after Vice Premier Wang Qishan said the global economic situation is “extremely severe.” China Vanke Co. paced losses by developers after Xinhua News Agency said the government may not lift property curbs until the third quarter of next year. Jiangxi Copper led a retreat by commodity producers after metal and oil prices fell. “Investors are now worried about the coming fourth-quarter earnings as a result of tightening policies and most expect profits to drop from the previous quarter,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million.
- Singapore Says Economic Growth May Slow to 1% to 3% in 2012. Singapore said its economic growth may slow next year, extending a moderation in expansion that’s already prompted the central bank to ease monetary policy. The economy will grow 1 percent to 3 percent in 2012 after expanding 5 percent this year, the trade ministry said in a statement today. Non-oil domestic exports will probably rise 2 percent to 3 percent in 2011, lower than a previous forecast for shipments to grow 6 percent to 7 percent, the trade promotion agency said in a separate statement today.
- Hedge Funds Cut Bullish Bets by Most in Seven Weeks: Commodities. Hedge funds cut bullish commodity bets by the most in seven weeks on mounting concern that Europe’s debt crisis will restrain global economic growth and demand for raw materials. Money managers reduced combined net-long positions across 18 U.S. futures and options by 10 percent to 754,558 contracts in the week ended Nov. 15, Commodity Futures Trading Commission data show. That’s the biggest decline since the seven days ended Sept. 27. Sugar wagers fell 30 percent, the most since December 2008, and bets on lower copper prices almost doubled.
- U.S. Cheddar Cheese Plunges Most Since 2008 on Slowing Demand. U.S. cheddar-cheese prices plunged the most since December 2008 as grocers slowed purchases after stockpiling most of what they will need for the year-end holidays. The 40-pound blocks of cheddar traded on the Chicago Mercantile Exchange plunged 7.7 percent to $1.8325 a pound after touching a three-month high of $2 on Nov. 15. Prices still are up 27 percent from a year ago. Retail costs rose to a record $5.707 a pound in September, up 21 percent from a year earlier, Bureau of Labor Statistics data show.
- U.S. Sets High Bar for Post-2020 Climate Accord, Stern Says. Climate-change deals reached at a United Nations meeting starting this month may be “completely silent” about how to combat global warming after 2020, the U.S. climate envoy said.
- JPMorgan(JPM), Goldman Sachs(GS) Sued for Alleged MF Global Misstatements. JPMorgan Chase & Co. and Goldman Sachs Group Inc. units were sued by two pension funds over claims they made misleading statements about the exposure of MF Global Holdings Ltd. securities to European sovereign debt. As a result of the misstatements, MF Global’s stock traded at “artificially inflated prices,” the funds said in the complaint filed yesterday in federal court in Manhattan. “While the extent of MF Global’s exposure to European sovereign debt was concealed, the defendants were able to raise some $900 million in the offerings.” MF Global Holdings, which was run by former Goldman Sachs Group Inc. co-chief executive officer Jon Corzine, filed for bankruptcy Oct. 31 after making bets on sovereign debt and getting margin calls.
- NYC Bomb Suspect Arrested: Mayor Bloomberg. New York police arrested a man who was plotting to build and explode a bomb in an attempt to kill government workers and military personnel, Mayor Michael Bloomberg said. The man had been under surveillance for more than a year, said Police Commissioner Raymond Kelly, who joined the mayor and District Attorney Cy Vance Jr. at a press conference tonight. Bloomberg identified the man as Jose Pimentel, 27, an unemployed resident of the Washington Heights section of Manhattan, and a native of the Dominican Republic. Pimentel is an “al-Qaeda sympathizer” who is accused of plotting to bomb police patrol cars, post offices, and members of the military returning from overseas, Bloomberg said.
- Syria Won't 'Bow Down' as Security Forces Kill 12 Before Deadline Expires. Syrian President Bashar al-Assad’s declaration that he won’t “bow down” to international pressure forced the U.S. and its allies to weigh their next steps amid reports that security forces killed 12 more protesters in two cities.
- Iran Nuclear Drive May End Arming Terrorists, Barak Tells CNN. Iran’s determination to build nuclear weapons will result in nations such as Egypt, Saudi Arabia and Turkey seeking nuclear arms, starting a “countdown” to terrorists getting nuclear materials, Israeli Defense Minister Ehud Barak said. “People understand now that Iran is determined to reach nuclear weapons,” Barak, a former Israeli prime minister, said on CNN’s “Fareed Zakaria GPS” in an interview to be aired today. “The countdown toward nuclear materials in the hands of terrorists will start, even if it takes half a generation. But more than this, they will use the nuclear umbrella to kind of intimidate neighbors all around the Gulf to sponsor terror.”
- Russian Hopes of WTO Debt-Grade Boost Dashed by Rating Companies. Russia’s prospects for a higher debt grade after entering the World Trade Organization may not materialize because of the country’s investment climate and institutional weaknesses, rating companies said.
- China's Property Market Reaches 'Tipping Point,' Nomura Says. China’s property market is reaching a “tipping point” and the slowdown in the housing industry will have a spillover effect on demand for steel and other construction materials, according to Nomura Holdings Inc. The risk of the nation’s economic growth falling to less than 8 percent in the first quarter is also higher than before because of the housing market, Zhang Zhiwei, a Hong Kong-based economist at Nomura, said on a conference call today. “The property sector has probably already reached a tipping point given the data is getting worse at a very fast pace,” Zhang said.
- Deficit Effort Nears Collapse. The deficit-reduction supercommittee, stuck in a partisan deadlock, faces an almost certain collapse—raising the threat of disruptive military spending cuts and a resurgent public anger at Congress as it struggles with the basic tasks of governance. Barring an unlikely, last-second breakthrough, the committee is expected to announce Monday that it failed to reach its mandated goal of writing a bipartisan bill to reduce deficits over the next 10 years by at least $1.2 trillion. That expected failure injects a greater uncertainty into the nation's political and economic landscape heading into a volatile election year.
- European Commission to Propose Shared Euro-Zone Representation at IMF. Europe's upcoming proposals to fight its debt crisis will include new economic rules for the continent and shared representation for euro-zone nations at the International Monetary Fund, a senior European Commission official said in an interview Saturday. Viviane Reding, a European Commission vice president, said the new steps to be unveiled Wednesday will show Europe building stronger ties to relieve mounting international doubts about the future of the 17-nation currency bloc.
- Holiday Fear Mixed in With Cheer. For certain U.S. merchants, this Christmas is an especially crucial crossroad.
- Europe Bond Dive Rooted in Greek CDS Deal. ‘Voluntary’ writedown of bonds dents CDS’ value as a hedge. The grand deal struck last month to keep Greece from default had an unintended consequence that’s encouraged investors to dump the debt of Italy, Spain and other countries, causing yields to spike, bond analysts say. “That’s why you saw Italian yields jump,” said Don Quigley, co-portfolio manager of the Artio Total Return Bond Fund. “If everyone that thought they were hedged with CDS (credit-default swaps) thinks they’re now worth nothing, they have to sell.” The Greek deal “was very short-sighted,” he said.
- The Euro Must Be Split Up. The world’s greatest macroeconomic imbalances are not between the U.S. and China, as many believe, but within the not-so-united states of Europe. This is just one result of the currency and competitive distortions caused by what German Chancellor Angela Merkel calls the “common destiny” of economic and monetary union. Destabilizing European current-account imbalances will need to be eliminated, sooner or later, by splitting up the euro area into a creditor and a debtor group.
- Is Occupy Wall Street Over? Many New Yorkers Hope So. Certainly many New Yorkers would welcome the ending of the movement. In the past two weeks, I’ve noticed a definite turn against the OWS movement among my fellow New Yorkers. They’ve gone from being a fascinating new development to an annoyance to many.
- Tough Decisions Face China as Global Woes Grow.
- Next Up In Europe: A Major Bank Firesale That Will Provide Great Profits For The Vultures. Some good insights here from John Taylor of the hedge fund FX Concepts. The topic at hand here is the inevitable firesale coming in Europe, as banks are forced to recapitalize without access to fresh money.
- The Other Really Bullish Trend In The US Economy.
- Why Germany Is Right To Refuse To Bailout Europe. All economic forecasts for countries in the periphery -which itself grows as we go along- are based on unrealistically positive numbers. And that means that soon they’ll come calling again for bail-outs. Austerity measures quite simply mean less consumption, and that in turn means a lower GDP.
- Right Now Officials In Brussels Are Threatening To Cross A Line That Will Set Off Panic.
- Spanish Banks Are Stuck With 'Unsellable' Property And 50% Troubled Real Estate Loans.
- Kyle Bass Destroys The Ponzi-Prone Debt Sustainability Arguments Of The Status Quo... And Why Germany Can't Save The World. (video)
- Buyers Of Last Resort: As Dumping Accelerates, Here Is Who Is Stuck Buying Another €741 Billion In Italian Bonds.
- Nomura "Goes There" With "The Legal Aspects Of A Eurozone Breakup".
- European Black Swan Sighted. While everyone's attention was focused intently on peripheral European bond spreads last week and the incessant call for ECB intervention, a dramatic (and contagiously panic-worthy) move occurred in the European Investment Bank (EIB) bonds.
NY Times:
- Europe Fears a Credit Squeeze as Investors Sell Bond Holdings. Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral. Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations. If this trend continues, it risks creating a vicious cycle of rising borrowing costs, deeper spending cuts and slowing growth, which is hard to get out of, especially as some European banks are having trouble meeting their financing needs. The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt. At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world. “There’s a real sensitivity to being in Europe,” said David Glocke, head of money market funds at Vanguard. “When the noise gets loud it’s better to watch from the sidelines rather than stay in the game. Even highly rated banks, such as Rabobank, I’m letting mature.” The latest evidence that governments, too, are facing a buyers’ strike came Thursday, when a disappointing response to Spain’s latest 10-year bond offering allowed rates to climb to nearly 7 percent, a new record. A French bond auction also received a lukewarm response. Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis. Just as American policy makers assured the public then that the subprime problem could be contained, so European leaders thought until recently that the fiscal troubles of a small country like Greece would not spread. But after the bankruptcy last month of MF Global, spurred by its exposure to $6.3 billion of European debt, other institutions have raced to purge their portfolios of similar investments. “This is just a repeat of what we saw in 2008, when everyone wanted to see toxic assets off the banks’ balance sheets,” said Christian Stracke, the head of credit research for Pimco. “The biggest risk everyone is talking about is whether Italy can continue to fund itself,” said Pavan Wadhwa, an interest rate strategist at JPMorgan in London. He said Italy had auctions Nov. 25 and 29. Any sign that it is unable to sell its debt to investors would be troubling, he said. The prospect of slower growth across the Continent, and fears that budget deficits will balloon, is a major reason the selling has spread beyond Italian bonds to much stronger government borrowers with AAA credit ratings like France.
- After Egypt's Revolution, Christians Are Living in Fear...
- Congressional Payday. Hedge-fund mogul Raj Rajaratnam drew 11 years in lockup last month for insider trading. Martha Stewart got five months just for lying about it to federal agents. Members of Congress? Ha. For them, you see, trading on nonpublic information is perfectly legal. And, as a recent “60 Minutes” report — based on a new book, “Throw Them All Out,” by Peter Schweitzer — makes clear, lawmakers of both political parties partake of the practice with abandon. That’s right. It turns out that using information available to only a privileged few to profit on personal investments is strictly illegal — for everyone except congressmen.
- Hedge Fund Exit Requests Up in November: GlobeOp. Redemption requests by hedge fund clients gathered pace in November as investors kick-started the traditional year-end evaluation of manager performance after a 2011 blighted by unprecedented volatility and erratic returns, recent data shows. The GlobeOp Forward Redemption Indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of GlobeOp's assets under administration, measured 3.44 percent this month, up from 2.51 percent in October. "We expect fund redemption requests to increase as year-end approaches," GlobeOp Financial Services SA Chief Executive Hans Hufschmid said, adding the volume of notices to call in cash this month was similar to the 3.22 percent seen in November 2010. With annual returns in many popular strategies close to zero or even dropping into negative territory, many hedge funds face a particularly stressful season of portfolio rebalancing. The average hedge fund is down 3.5 percent in the 10 months to then end of October, according to Hedge Fund Research, with equity and global macro funds losing 5.21 percent and 3.32 percent, respectively.
Wall Street All-Stars:
- S&P 500 Earnings Update - A Slow Drip Lower (by the numbers). Although not yet alarming, there is a slow drip lower occurring in the “forward 4-quarter” earnings estimates for the S&P 500, which this week came in at $104.55, versus $104.60 last week, and down slightly from the twin peak of $107 in late July and early October.
- None of note
- Asian indices are -2.50% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 215.50 +.5 basis point.
- Asia Pacific Sovereign CDS Index 160.50 -.5 basis point.
- FTSE-100 futures -1.10%.
- S&P 500 futures -.77%.
- NASDAQ 100 futures -63%.
Earnings of Note
Company/Estimate
- (TECD)/1.27
- (TSN)/.31
- (ADI)/.64
- (BRCD)/.10
- (BWS)/.52
- (PSS)/.53
- (DY)/.30
- (HPQ)/1.13
- (JACK)/.28
8:30 am EST
- The Chicago Fed Nat Activity Index for October is estimated to rise to .19 versus -.22 in September.
10:00 am EST
- Existing Home Sales for October are estimated to fall to 4.8M versus 4.91M in September.
- None of note
- The Fed's Lockhart speaking, 2-Year Treasury Note Auction, Eurozone insurers releasing interest rate stress test results and the IMF's LaGarde speaking could also impact trading today.
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