Evening Headlines
Bloomberg:
- Monti Faces Resistance on Cabinet as Market Honeymoon Turns Sour. Mario Monti, Italy’s premier-in- waiting, faced political resistance on forming a Cabinet as his market honeymoon turned sour, with Italian yields surging amid concern he’ll struggle to tame Europe’s sovereign-debt crisis. Monti, a former European Union competition commissioner, struggled to get political parties to agree on participating in his so-called technical Cabinet during talks in Rome yesterday. A government lacking political representation may find it hard to muster support from the parties in parliament to pass unpopular laws. Monti said he’ll wrap up his talks today. “My commitment is aimed at making sure that politics can transform this difficult moment in a real opportunity for the nation,” Monti told a news conference in Rome yesterday. “The key thing is” to have the support of the parties, “without which I wouldn’t even take on this task, regardless of the physical presence” of politicians in the Cabinet, he said. Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian borrowing costs as investors bet on which nation may need aid next. Monti, an economist and former adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt and spur economic growth that has lagged behind the euro-region average for more than a decade.
- Italy Investors Give Junk Rating to Monti's Debt: Euro Credit. Mario Monti's Italian government will have to stave off a ratings downgrade as it refinances $420 billion of bonds and bills coming due next year, as investors price the debt as junk. The ranking implied by Italy's bonds is Ba2, two steps below investment grade and six levels lower than the country's A2 grade, according to Moody's Analytics. The only nation with investment-grade ratings whose bonds cost more to insure using credit-default swaps is Hungary, franked four steps lower. "A downgrade is definitely looming," said Holger Schmieding, London-based chief economist at Joh. Berenberg Gossler & Co., Germany's oldest private bank, which manages about $34 billion. "The business cycle has turned down and there are problems in banking which Italy is not immune to."
- Cameron Rebuffs Merkel Push for Closer European Political Union. U.K. Prime Minister David Cameron rebuffed a call by German Chancellor Angela Merkel for political union in Europe, underlining Britain’s growing distance from the 17-nation euro area as it seeks to resolve its debt crisis. The crisis offers an opportunity for powers to “ebb back” from Europe to nation states, Cameron said in a speech in London last night. Hours earlier, Merkel told her Christian Democratic Union party in the eastern German city of Leipzig that it’s time to push for closer political ties and tighter budget rules. “We should look skeptically at grand plans and utopian visions; we’ve a right to ask what the European Union should and shouldn’t do,” Cameron said. Europe should be “outward- looking, with its eyes to the world, not gazing inwards” and should have “the flexibility of a network, not the rigidity of a bloc,” he said. Merkel’s drive for closer union and Cameron’s riposte set up a potential tussle between European leaders at a summit on Dec. 9 that’s due to discuss an overhaul of the 27-nation EU’s guiding treaty to bolster the euro. Cameron, who will be in Berlin for talks with Merkel on Nov. 18, has pledged to use any changes to EU rules to claw back powers from Brussels.
- Fed's Fisher Sees U.S. Poised for Growth, Lower Easing Odds. Federal Reserve Bank of Dallas President Richard Fisher said the U.S. economy is “poised for growth” going into next year and that he sees a declining likelihood the central bank will need to ease further. “The direction we’re moving in is positive,” the policy maker said today in an interview from Bloomberg’s headquarters in New York. He said he expects gross domestic product to expand by 2.5 percent to 3 percent in the fourth quarter, “gradually getting better as we go through time.” “We’re poised for growth,” Fisher said, citing recent data on retail sales and consumer sentiment. “I’m more comfortable now in terms of not -- this is me personally speaking -- not anticipating greater accommodation,” he said. The risk of another recession “is negligible,” said the 62-year-old policy maker. In addition, “I’m not worried about immediate inflation right now. What I’m worried about is the efficacy of our policy as it relates to job creation.” “I don’t see us entering into other instruments other than what we’ve already done,” he said. “Our objective is to get back ultimately to an all-Treasury portfolio and a normal operating style.”
- Vinik Purchases U.S. Stock Market ETFs, Sells Emerging Markets. Jeffrey Vinik, the Boston hedge- fund manager who formerly ran the Fidelity Magellan Fund, bought $1.6 billion of exchange-traded funds that track U.S. stock markets, while selling emerging-market ETFs. Vinik bought 8.6 million shares in the SPDR S&P 500 ETF Trust last quarter, valued at $973 million, according to a Form 13F filed today with the U.S. Securities and Exchange Commission. He added $412 million of shares in the iShares Russell 2000 Index Fund, and $257 million of a fund tracking the Nasdaq 100. Vinik sold off $231 million of shares in the iShares MSCI Emerging Markets Index fund last quarter.
- SAC Capital Increases Stakes in Retailers Target(TGT), Dollar General(DG).
- Obama Microphone Slip Shows Scary Israel Rift: Jeffrey Goldberg. OK, so now we know for sure that President Barack Obama more or less detests the Israeli prime minister, Benjamin Netanyahu. Obama made this plain when he was overheard on an open microphone getting catty about Netanyahu with the French president, Nicolas Sarkozy. It was Sarkozy who first brought the harsh on Netanyahu, calling him a liar. But Obama chose not to demur. He said instead, “You’re fed up with him, but I have to deal with him even more often than you.” One mistake here is that the two violated a sacrosanct rule of microphone-wearing, which is: Always assume your mic is broadcasting your lowest-decibel mutterings directly to your most dire enemies. But the incident also revealed two mistaken interpretations of Middle East politics that could have grim consequences as the conflict over Iran’s nuclear program moves to a boil.
- Estimates for Indian corporate earnings may be downgraded as Asia's third-largest economy slows, according to N. Krishnan, head of India research at CLSA Asia-Pacific Markets. The BSE India Sensitive Index, or Sensex, has slumped 17% this year as the central bank raised borrowing costs to curb inflation that has exceeded 9% for a 11 straight months. The benchmark wholesale-price index rose 9.73% in October from a year earlier, the commerce ministry said yesterday. That compares with a 9.72% jump in September and the median forecast of 9.65% in a Bloomberg News survey of 19 economists.
- BofA(BAC) Divests China Construction Bank Stake to Boost Capital. Bank of America Corp. plans to bolster capital by divesting most of its stake in China Construction Bank Corp., locking in investment gains as concern mounts that the Asian lender's defaults may rise as China's economy slows. Bank of America will sell 10.4 billion shares this month in private transactions for a profit of about $1.8 billion, leaving the second-biggest U.S. lender with a 1 percent stake in Beijing-based Construction Bank, according to a statement yesterday.
- Tighter Oversight of China Bank Risk Needed: IMF. The International Monetary Fund called for China to expand oversight of banks as risks increase from off-balance sheet lending and a surge in property prices. "Despite ongoing reform and financial strength, China confronts a steady buildup of financial sector vulnerabilities," the Washington-based IMF said in its first formal evaluation of the Chinese system. Banks need to upgrade risk-management systems, the central bank and regulators should add skilled personnel and disclosure standards must be raised, the IMF said. While a stress test of 17 major commercial banks showed they were resilient to isolated shocks -- such as a real-estate slump or a shift in short-term versus long-term interest rates - - a combination of blows at the same time would leave the system "severely impacted," the fund said. Over the medium term, China is building up "contingent liabilities" from its government- dominated credit allocation model, which could hamper growth. Today’s report underscores concern that China’s slowing growth and a cooling property market may spark a jump in non- performing loans. The MSCI China/Financials Index of shares has tumbled 23 percent this year, underperforming the broader Shanghai Composite Index of equities, which is down 10 percent. “The existing configuration of financial policies fosters high savings, structurally high levels of liquidity and a high risk of capital misallocation and asset bubbles, particularly in real estate,” the IMF said. “The cost of these distortions is rising over time, posing increasing macro-financial risks.” “Instead of credit growth targets, market-based interest rates should become the primary instrument for managing credit expansion,” the IMF said. “This will reduce the risks that monetary control will be increasingly circumvented and ineffective in the face of capital inflows, off-balance sheet lending, and other financial innovations.”
- Eastern Europe's Growth Probably Faltered in Third Quarter on Euro Crisis. Eastern European economic growth probably slowed in the third quarter as Europe’s debt crisis damped demand for exports, the region’s main driver for expansion, and stunted lending by banks.
- Wenzhou's 'Annus Horribilis' Shakes China. Model of Entrepreneurial Zeal Unravels in City of Shoemakers, Nouveaux Riches; Indebted Factory Bosses Flee. The mystique of Wenzhou—the birthplace of China's private sector, where entrepreneurs have splurged on Bentleys and helicopters—is cracking. This seaside city spearheaded Chinese manufacturing, building export industries around cigarette lighters, buttons and shoes, and transforming itself into a seedbed of investment capital. Its nouveaux riches captivated the rest of China with their special brand of unapologetic consumption, whether they were buying Shanghai apartments, Shanxi coal mines or French wine. Now, the trust-based financing networks that took the place of banks in Wenzhou and fueled its binge are collapsing in the face of slowing exports.
- China Copper Hunger Fades. Demand Has Fallen, and Market Players Cite Speculators Being Reined In. For a clue as to why copper is lagging behind many other commodities, investors could look to Wenzhou, China.
- Let's Give Some Credit To Credit-Default Swaps. The birth of the credit-default swap has been well-chronicled. In recent days, though, we may have witnessed the beginning of the end for that controversial insurance policy against financial disasters.
- Timing Questions Emerge on MF Global(MF) Cash. Hundreds of millions of dollars might have gone missing from customer accounts at MF Global Holdings Ltd. as far back as four days before the securities firm filed for bankruptcy protection, people familiar with the situation said Monday. The possibility of a shortfall in customer funds on Oct. 27 suggests problems might have emerged sooner than MF Global officials initially indicated to regulators and exchange operator CME Group Inc.
- Lawmakers Near Deal on Raising FHA Loan Limits. U.S. lawmakers are near a deal to increase the maximum size of mortgage loans that can be insured by the Federal Housing Administration, a crucial source of mortgages for first-time home buyers, congressional aides said Monday. The likely agreement between House and Senate lawmakers to lift the loan limits is being hashed out as part of a spending bill for several federal agencies that is expected to clear Congress by Thursday, aides said. The loan limits fell on Oct. 1 to $625,500 for mortgages backed by the FHA, Fannie Mae and Freddie Mac in expensive markets like New York, San Francisco and Washington, D.C. The agreement being worked out between House and Senate negotiators wouldn't include loans backed by Fannie and Freddie, which are the main source of funding for U.S. home loans. Instead, the deal would restore the FHA's loan limits to as high as $729,750 in high-cost cities through 2013.
- A Short Econ Quiz for the Super Committee. Why an extra trillion in 'irresponsible' deficit spending can't become 'responsible' if paid for by higher taxes.
- Tepper's Appaloosa Cuts Bank Stakes. Appaloosa Management LP, the New Jersey hedge fund run by investor David Tepper, continued cutting stakes in banks during the third quarter, completely eliminating its positions in Bank of America Corp.(BAC), Wells Fargo(WFC) and Fifth Third Bancorp (FITB), according to a filing Monday with the Securities and Exchange Commission.
- Paulson Cuts Stakes in Gold ETF(GLD), Citigroup(C), H-P(HPQ).
- Einhorn's Greenlight Bulks Up on Apple(AAPL), Microsoft(MSFT).
- Professor: Oh Please, Of Course Congressional Insider Trading Is Totally Illegal.
- FULL DETAILS: How Congress Insider Traders Abused The Public's Trust During The Financial Crisis. Specifically, Schweizer tells how on September 16, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke held a private meeting with legislators in which they reported that the economy was in deep trouble and predicted near-term disaster in the markets. Congressmen privy to this information reacted--not by dropping everything and drawing up a plan to save the economy, but by dumping stock and avoiding the losses everyone else would take in the coming month. Others bought stocks in financial firms that would later be saved by the federal government. If this behavior had happened in the private sector, Congress would be outraged. The fact that it happened in Congress should have the public outraged.
- Here's Video Of The Bizarre Bob Costas-Jerry Sandusky Interview.
- Yale Bans Sex Week After Finding Organizers In Bed With The Porn Industry.
CNBC:
- Greece's New Coalition Is Already Divided Over Austerity. Greece's conservatives vowed on Monday to reject any new austerity measures in return for the aid that is keeping Athens from bankruptcy, signaling a new coalition government may not enjoy the kind of cross-party support its lenders demand.
- U.S. Boosts Estimate of Auto Bailout Losses to $23.6B. The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion in the face of General Motors Co.'s(GM) steep stock decline. In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion. The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion.
- Toll road operators in Greece have been hit by mass toll-dodging as some Greek road-users join a civil disobedience campaign in response to their country's economic crisis.
- Spain and Italy's Borrowing Costs Soar as Angela Merkel Remains Defiant Over Eurobonds. Spain and Italy's borrowing costs soared as economists warned that Europe is sliding into recession and Angela Merkel defied intense pressure and ruled out issuing European-guaranteed debt.
- Utopian Germans Risk Full-Blown EMU Depression. Berlin wants limited EU changes under the Lisbon Treaty's "ratchet clause"– avoiding the need for ratification – to make it easier to impose discipline, including an EU "austerity commissioner" with powers to administer delinquent nations. Mrs Merkel may wish to go further – and her finance minister Wolfgang Schauble is a diehard integrationist – but her hands are tied by Germany's Basic Law, the anchor of German democracy, and the constitutional court. The judges ruled in September that the fiscal powers of the Bundestag may not be transferred to EU bodies. "There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit... then Germany must give itself a new constitution. A referendum would be necessary," said chief justice Andreas Vosskuhle. The pro-European wing of the CDU is floating plans for changes to the Basic Law to allow for a quantum leap to a European superstate. This is vehemently opposed by Bavaria's Social Christians, and part of the CDU itself. It would require a two-thirds majority in both houses of parliament. There is a high likelihood that German voters would reject the plan. It would in any case take two or three years to push through. Yet the crisis is escalating by the day. Moody's said it is not clear whether Europe's EFSF bail-out machinery can "fund itself in the markets at low cost", raising doubts about its ability to contain the debt crisis. The rating agency said plans to leverage the EFSF to €1 trillion have come to little, leaving it with just €266bn after funding Ireland, Portugal and Greece. "This limits the EFSF's role as an important pillar of the euro area crisis management strategy," it said. There is nothing yet standing behind the system as Europe spins wildly into the eye of the storm.
- European Union Financial Services Commissioner Michel Barnier won't succeed with a plan that would allow banning the publication of new ratings on any sovereign debt in "extraordinary situations," citing people in the European Commission. EU Competition Commissioner Joaquin Almunia and EU Trade Commissioner Karel de Gucht has told Barnier that a blanket ban would risk roiling markets, citing the people. A ban may still be possible for countries that are dependent on funds from the euro region and the IMF, such as Greece, Portugal and Ireland. A draft of the rules will be determined tomorrow.
China Daily:
- China should raise electricity prices while inflationary pressure is easing, citing Jiang Kejun, a researcher with the Energy Research Institute of the National Development and Reform Commission. There will be a "severe" discrepancy between coal and power prices with "serious" power shortages this winter, Jiang said.
- China's foreign trade next year is "not very optimistic" as there is a low likelihood of external demand improving, citing Zhang Yansheng, a researcher at the National Development and Reform Commission.
- None of note
- Asian equity indices are -1.0% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 201.0 +10.5 basis points.
- Asia Pacific Sovereign CDS Index 153.25 +2.0 basis points.
- FTSE-100 futures -.37%.
- S&P 500 futures -.19%.
- NASDAQ 100 futures -.23%.
Earnings of Note
Company/Estimate
- (JEC)/.72
- (SPLS)/.47
- (BZH)/-.36
- (HD)/.58
- (WMT)/.97
- (DKS)/.26
- (SKS)/.09
- (TJX)/1.05
- (A)/.80
- (DELL)/.47
- (ADSK)/.41
8:30 am EST
- The Producer Price Index for October is estimated to fall -.1% versus a +.8% gain in September.
- The PPI Ex Food & Energy for October is estimated to rise +.1% versus a +.2% gain in September.
- Advance Retail Sales for October are estimated to rise +.3% versus a +1.1% gain in September.
- Retail Sales Less Autos for October are estimated to rise +.2% versus a +.6% gain in September.
- Retail Sales Ex Auto & Gas for October are estimated to rise +.2% versus a +.5% gain in September.
- Empire Manufacturing for November is estimated to rise to -2.0 versus -8.48 in October.
- Business Inventories for September are estimated to rise +.1% versus a +.5% gain in August.
Upcoming Splits
- None of note
- The Fed's Fisher speaking, Fed's Lacker speaking, Fed's Williams speaking, Fed's Evans speaking, Fed's Bullard speaking, ECB's Gonzalez-Paramo speaking, ECB's Praet speaking, EU's Barnier presenting draft law on credit-rating companies, weekly retail sales reports, UBS Tech/Services Conference, Lazard Healthcare Conference, Morgan Stanley Consumer Conference, Citi Healthcare Conference, Stephens Investment Conference, BofA Merrill Financial Services Conference, Citi Small/Mid-Cap Conference, (VIP) analyst day and the (PXP) analyst meeting could also impact trading today.
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