Tag: finance

Moments ago, a hearing started in which the ongoing investigation of the George Washington bridge closure will focus on the role of Bridget Anne Kelly, Christe’s former deputy chief of staff. The state legislative committee investigating the matter seeks to retrieve subpoenaed documents from Bridget Anne Kelly, and Bill Stepien, his former campaign manager. Just like in the case of IRS commissioner Lois Lerner, so Kelly is expected to plead the fifth. Watch the hearing below.

As reported earlier by Bloomberg:

A New Jersey judge is set to hear arguments today over whether two former aides to Governor Chris Christie must comply with subpoenas by lawmakers seeking documents related to the George Washington Bridge traffic jams.

 

Bridget Anne Kelly and William Stepien asserted their constitutional right to silence, saying that producing documents would harm them in a criminal investigation by U.S. prosecutors. Kelly’s e-mail saying “Time for some traffic problems in Fort Lee” came almost a month before Christie allies directed the shutdown of access lanes to the bridge from Sept. 9 to Sept. 12.

 

A legislative committee investigating the lane closings has urged a judge in Trenton, New Jersey, to rule that the Fifth Amendment doesn’t protect Kelly and Stepien from having to produce documents. Superior Court Judge Mary Jacobson will decide whether they must hand over documents that could shed light on who ordered the tie-ups and why — questions that may imperil Christie’s possible White House bid in 2016.

And courtesy of NJ.com, here is a deeper look at they key players in this morning’s hearing in Trenton:

BRIDGET ANNE KELLY

Former deputy chief of staff to Gov. Chris Christie

Kelly was a longtime staffer to state Assemblyman David Russo (R-Bergen) before Christie hired her in 2010 as director of legislative relations. In April, Kelly, 41, was promoted to Christie’s deputy chief of staff for legislative and intergovernmental affairs, dealing with officials at all levels of government, faith-based and community groups and trade associations. But Christie fired her on Jan. 9 after emails surfaced showing she apparently had advance knowledge of the lane closures at the George Washington bridge. In a now-infamous email she sent weeks before the closures, Kelly said: “Time for some traffic problems in Fort Lee.”

Bridget Anne Kelly’s attorney

Described as having the style of “a professional fighter” who throws “questions like punches,” Critchley has represented clients as diverse as failed presidential candidate John Edwards’ mistress Rielle Hunter, the Archdiocese of Newark, and former Essex County Executive James Treffinger. He is perhaps best known for leading the defense team for 20 reputed members of the Lucchese crime family acquitted of racketeering charges in 1988. He represented Ridgefield Mayor Anthony Suarez, acquitted of bribery charges in the 2009 FBI sting that netted 46 politicians and rabbis. His pro bono work included a $5 million settlement from the state for a foster child abused by his family.

BILL STEPIEN

Christie’s former campaign manager

Stepien was one of Christie’s closest aides, the political ace who ran both of his campaigns for governor and a behind-the-scenes enforcer who kept Republican troops in line in every county and township. He cut his teeth working with Michael DuHaime, Christie’s top strategist, on Giuliani’s presidential campaign and other races. Stepien also worked closely with Bridget Anne Kelly; Christie fired Kelly and cut ties with Stepien as the bridge scandal began to unfold.

KEN MARINO

Bill Stepien’s attorney

A prominent criminal defense lawyer, Marino’s name often shows up in New Jersey’s biggest legal battles. He defended a Goldman Sachs programmer from West Orange accused of stealing the bank’s software code. He defended a West Windsor businessman accused of stealing $13 million in tax dollars and worker compensation premiums. He has represented cities and contractors fighting over millions of dollars.

Democratic state Assemblyman from Middlesex County, co-chair of the New Jersey Legislative Select Committee on Investigation

Wisniewski, 51, served as Democratic state chairman from 2010-13, during which he honed his skills as the party’s main attack dog against Christie. Wisniewski also led Democrats’ successful effort to redraw the legislative district map, putting in place districts that have helped Democrats retain their majority in both houses of the Legislature. Since 2002, Wisniewski has chaired the Assembly’s influential transportation committee, which put him in place to help lead the investigation into the bridge controversy.

Democratic state Senator from Bergen County

Weinberg, 79, is a 22-year veteran of the New Jersey Legislature. In 2009, then-Gov. Jon Corzine selected her as his running mate in his unsuccessful re-election bid against Christie. Weinberg, whose district includes Fort Lee, was among the first lawmakers to question why the lanes were closed, filing a public records request seeking information and documents related to the issue in November. She is now co-chair of the joint legislative committee investigating the scandal.

Attorney for the joint legislative committee

Schar gained prominence for being the federal prosecutor who led the corruption case against former Illinois Gov. Rod Blagojevich, who was found guilty of multiple corruption charges in June 2011 — including those related to his attempt to essentially sell the Illinois U.S. Senate seat that had been vacated by President Obama. Schar is now a partner at the law firm Jenner & Block LLP and co-chairs the firm’s “white collar defense and investigations practice.” He was hired in January as special counsel to the state legislative committee investigating the bridge controversy.

Superior Court judge

Jacobson, a 60-year-old Bayonne native, was appointed to a Superior Court justice in 2001 by then-Gov. Christie Whitman. She gained national attention last September when she ruled that New Jersey must allow same-sex marriages in the wake of the U.S. Supreme Court’s decision to overturn the Defense of Marriage Act.

via Zero Hedge http://ift.tt/N3BivM Tyler Durden

We are sure the great and good of the economic world will explain away this data with one word – “weather” but the 1.9% drop in Wholesale Sales is the largest in 5 years and aside from the financial crisis is the worst since 1993! This is also the biggest miss on record. Inventories rose more than expected (+0.6% vs +0.4% expectations) which could be a problem as the inventories/sales ratio surges to its highest in 11 months. Unsurprisingly, Autos saw the largest inventory build (+6.8% YoY).

Wholesale Sales plunge…

 

With auto inventory at all time record highs and growing at the fastest pace in 15 months

 

Chart: Bloomberg

via Zero Hedge http://ift.tt/1fowkWc Tyler Durden

… And it is Point72.

Of course, those who are aware of the physical address of the firm that single handedly made and destroyed “expert networks” (and assured a daily bug sweep at every hedge fund office in New York), or better yet, have visited the firm’s sprawling trading floor located at 72 Cummings Point, will know that the name is merely a derivative of the actual address.

The NYT’s Matthew Goldstein reports:

In settling upon Point72 Asset Management as the name for the firm’s flagship operation, Mr. Cohen appeared to find inspiration in the address for SAC’s roughly 98,900 square-foot office at 72 Cummings Point Road. The new name, which the firm announced on Tuesday in a letter to employees, should end speculation that Mr. Cohen might seek to relocate to a less spacious building, if his new firm got much smaller than its current 850 employee work force.

 

“It reminds us of a sense of continuity: our headquarters has been at 72 Cummings Point Road for more than a decade, and we anticipate it will be our home for many years to come,” Tom Conheeney, SAC’s president, said in the letter. “Perhaps more important, the name emphasizes we point to a successful future.”

 

The new name will become official on April 7, just three days before Judge Laura Taylor Swain of Federal District Court in Lower Manhattan is scheduled to either approve or reject SAC’s guilty plea. Mr. Cohen is hoping the selection of the new name and Judge Swain’s acceptance of the firm’s plea will bring to a close an investigation into allegations of insider trading that has dogged SAC for nearly 10 years.

There’s more:

• SAC’S MULTIQUANT BUSINESS SAID TO OPERATE AS CUBIST SYSTEMATIC

Maybe they consulted the ghost of Pablo Picasso for that one. Then again, perhaps when it comes to address-based appelations, Cohen picked the only feasible option: after all going with the zip code of his trading desk adress may have been a little too reminiscent of a convict’s inmate number: 06902. And that would hardly inspire confidence in the New and Improved Stevie A. Cohen.

via Zero Hedge http://ift.tt/N3BdIC Tyler Durden

Submitted by Lance Roberts of STA Wealth Management,

 

via Zero Hedge http://ift.tt/1ngmHhA Tyler Durden

When we disclosed the ridiculous trading record of HFT gigafirm (in the parlance of our times) Virtu, which showed one trading day loss in four years, we pointed out one thing: why reveal the magic sause and share the profits with mortals? In other words, why cash out now? The obvious implication is that the party is now ending as confirmed by Vincent Viola’s decision to chop of a piece of his money cow and lock in his equity stake profits: one doesn’t do that if one sees unlimited growth potential.

In order to determine if there is indeed truth behind the speculation that growth may have topped out, we decided to break down Virtu’s 2013 net trading income by product line. We were not surprised to find that of the $45 million in total growth, the largest income category, US stocks growth was a tiny 5% of all, rising by $2.3 million in 2013, half the $4.5 million growth a year earlier. In fact, between EMEA, APAC and US Equities, there was very limited growth in 2013, while commodities posted an outright trading income decline. So indeed, it appears to be the case that growth in conventional products has indeed plateaued, as more and more HFT competitors rush in.

And yet, one product stood out. It is highlighted on the chart below: FX.

Sadly, with increasingly more homo sapiens-type banker FX traders being laid off left and right for pervasive and ubiquitous manipulation of currencies (who can forget the infamous “Cartel” chat room, JPM’s head of spot trading presiding), what this means is that more and more algos will rush into this product to fill the voids left by carbon-based traders.

And for those trading FX, our condolences: because the typical bizarro, idiot moves that previously were reserved for stocks are now sure to take over the final bastion of capital markets. In other words, the next time you feel like the USDJPY is trading as if it is in need of a software update, you will be right.

Then again, in a world in which FX is the one battleground where central bankers now joust every minute, we can’t wait for the reaction when some fat finger algo decides to take USDJPY higher by 1000 pips, or crashes the EURUSD by 2000, “just because.” Surely the look of sheer panic on the faces of “central planners” everywhere in that particular “Jerome Kerviel Kodak moment” would be even more priceless than the stock of VRTU upon IPO. Speaking of, we wonder: will VRTU algos ramp VRTU stock to infinity, or is there some conflict of interest here?

via Zero Hedge http://ift.tt/1i8zxtz Tyler Durden

Silver is spiking this morning (up over 2.3%) by its most in almost a month as the losses suffered post-Putin’s press-conference are now largely retraced. Gold has broken back above pre-Putin levels and is trading back above $1,350 (holding above its 1-year average). Bonds, stocks, and the USD are all relatively flat this morning leaving one wondering whether the catalyst for this move is related to the Ukraine-gold rumors although we noted Swiss 2Y rates dropping once again as safe-havens are bid.

 

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1eo1vg3 Tyler Durden

While it may have been pushed back from the front pages to keep confidence high, things in the Crimea, and in Ukraine in general (which may or may not waved goodbye to its gold reserves) are going from bad to worse with every passing day, with the near term catalyst of course being this Sunday Crimean referendum vote, which seems like a done deal, and which will give Russia a carte blanche to annex the territory over the howls of protest from Ukraine’s coup government, and the west of course.

Making this outcome one step clower, overnight the parliament of the Autonomous Republic of Crimea adopted an independence declaration from Ukraine which is necessary for holding a March 16 referendum.

“We, the members of the parliament of the Autonomous Republic of Crimea and the Sevastopol City Council, with regard to the charter of the United Nations and a whole range of other international documents and taking into consideration the confirmation of the status of Kosovo by the United Nations International Court of Justice on July, 22, 2010, which says that unilateral declaration of independence by a part of the country doesn’t violate any international norms, make this decision,” says the text of the declaration, which was published by the Crimean media.

As RT reports, the document was adopted during an extraordinary session of parliament. 78 of 100 members of the parliament voted in favor of the declaration.

The Crimean parliament’s vote to become an independent sovereign state paves the way for the March 16 referendum for the Crimean Autonomous Republic and the city of Sevastopol to join Russia. If the referendum is in favor, the Crimean authorities will request for their country to become a constituent republic of the Russian Federation. The declaration was signed by the speaker of the Supreme Council of Crimea, Vladimir Konstantinov, and the head of the Sevastopol City Council, Yury Doynikov.

 

“We adopted the declaration of independence to make the upcoming referendum legitimate and transparent,” Konstantinov said. “Now we declare ourselves the Republic of Crimea, we don’t add ‘autonomous.”

 

After Tuesday’s declaration of independence, Crimea will never rejoin Ukraine, Konstantinov added. He said that Crimea will adopt the Russian ruble as its currency soon after the referendum.

Not unexpectedly, the west, and Ukraine specifically, continue to make loud noises over the referendum, with the latest development is Kiev sending an ultimatum to Crimea. Guardian reports that “Ukraine’s parliament has warned the regional assembly in Crimea that it faces dissolution unless it cancels a referendum it has called to join the region to Russia.”

A resolution, supported by a parliamentary vote, gave the Crimean parliament until Wednesday to call off the referendum, due to take place on Sunday. The Crimean parliament on Tuesday passed a motion stating that it would become independent in the event of a yes vote and then seek to join the Russian Federation, arguing that “the unilateral declaration of independence of part of a state does not violate any international laws”.

There is the minor matter of enforcing this ultimatum in a territory largely controlled by Russian forces:

Also on Tuesday, the acting Ukrainian president, Oleksander Turchinov, announced that a new national guard would be formed in response to Russian attempts to annex Crimea.

 

Turchinov said mismanagement of the armed forces under former president Viktor Yanukovych meant that the Ukrainian military had to be rebuilt “effectively from scratch”. The acting defence minister said the country had only 6,000 combat-ready infantry compared with more than 200,000 Russian troops on its eastern borders.

Good luck with that.

But aside from the actual area of physical confrontation, the real conflict continues behind the scenes. It is here that we find Russia president Putin has apparently rejected a U.S. proposal to resolve the dispute over Ukraine that had been put forward by Secretary of State John Kerry over the past week, according to senior Russian and U.S. officials. WSJ reported that “Mr. Putin’s decision led Mr. Kerry to put off a Russian invitation to meet Mr. Putin in Russia, as early as the beginning of this week in Sochi, to discuss the Ukraine crisis, according to these officials.”

Moscow and Washington on Monday each blamed the other for the diplomatic stumble and for failing to defuse the most serious U.S.-Russian standoff since the end of the Cold War.

 

Residents of the Crimean region of Ukraine are scheduled to vote Sunday on whether to secede from their country and join the Russian federation.

 

Despite the setback, U.S. and Russian officials stressed Monday that discussions on the former Soviet state were ongoing. The State Department didn’t rule out Mr. Kerry visiting Moscow to meet Mr. Putin.

 

“The United States needs to see concrete evidence that Russia is prepared to engage on the diplomatic proposals we have made to facilitate direct dialogue between Ukraine and Russia,” State Department spokeswoman Jennifer Psaki said.

Send in the Kerry again perhaps?

And then there is everything else. Reading Reuters:

A pro-Russian force opened fire in seizing a Ukrainian military base in Crimea on Monday and NATO announced reconnaissance flights along its eastern frontiers as confrontation around the Black Sea peninsula showed no sign of easing. Ukrainian activists trying to cross into Crimea to show solidarity with opponents of last week’s Russian military takeover there said they were halted by men in uniforms of the now outlawed riot police. One of these fired at close range, hitting a man in the chest, apparently with rubber bullets.

 

With diplomacy at a standstill, Russia said the United States had spurned an invitation to hold new talks on resolving the crisis, the worst East-West standoff since the Cold War – although Washington said later a meeting of foreign ministers was possible this week, if Moscow shows it is ready to “engage”.

 

The U.S.-led NATO defense alliance said AWACS early warning aircraft, once designed to counter feared Soviet nuclear missile strikes, would start reconnaissance flights on Tuesday over Poland and Romania to monitor the situation in Ukraine, flying from bases in Germany and Britain.

 

The United States on Tuesday will also begin previously planned military training exercises in the region, the first since the Russian intervention in Crimea. A U.S. Navy destroyer will participate in maneuvers with Romanian and Bulgarian warships in the Black Sea, across from Crimea. In Poland, U.S. fighter jets will take part in joint exercises.

 

* * *

 

On Monday, a Ukrainian defense official said a Russian-led military force of about a dozen men fired in the air as they took control of a Ukrainian naval base near the town of Bakhchisaray, though no one was hurt.

 

The force was accompanied by the base’s Ukrainian commander. He persuaded a number of his men to join the Russian forces while allowing others who refused to leave, the Ukrainian official, Vladislav Seleznyov wrote on Facebook. The Russian force later drove off with nine Ukrainian vehicles.

 

Yarik Alexandrov, one of the Ukrainian naval personnel who refused to pledge allegiance to Moscow, told Reuters near the base that he and his comrades at first refused to surrender. “Then they started shooting round our feet and we surrendered,” he said. “What could we do? We had no weapons.”

 

Similar small confrontations have taken place at other Ukrainian bases around Crimea, although shooting has been rare and there has so far been no bloodshed. Russia denies its troops are involved – a stance ridiculed in Kiev and the West.

 

In a sign of the peninsula’s growing isolation from the Ukrainian mainland, armed men prevented a convoy of cars from a Ukrainian activist group crossing into Crimea.

 

The group was part of the Maidan movement behind the protests that forced Yanukovich to flee to Russia. Ukrainian television showed men in the uniform of the Berkut riot police, banned by the new authorities for its role in shooting dozens of demonstrators in Kiev last month, blocking the road south.

 

One was shown firing twice, hitting a man in the chest. His injuries appeared minor, suggesting the use of rubber bullets.

 

In other armed action, Russian forces took over a military hospital and a missile unit. Reuters correspondents also saw a big Russian convoy on the move just outside the port city of Sevastopol near a Ukrainian air defense base.

 

It comprised more than 100 vehicles, including around 20 armored personnel carriers, plus mobile artillery.

In conclusion, just so there is no confusion about who is in charge of Crimea…

#BREAKING All flights to Crimea airport suspended except from Moscow @AFP

— Agence France-Presse (@AFP) March 11, 2014

via Zero Hedge http://ift.tt/Oh3vjJ Tyler Durden

• Malaysia Says Stolen Passport User Had No Links to Terror Groups (BBG)
• Malaysia military tracked missing plane to west coast (Reuters)
• Freescale loss in Malaysia tragedy leads to travel policy questions (Reuters)
• Firms Suffer 23% Drop in Asia Fees Amid Search for Cash (BBG)
• Putin Dismisses U.S. Proposal on Ukraine (WSJ)
• Lenovo says China strike an IBM matter, but it won’t cut wages (Reuters)
• Congress to Investigate GM Recall (WSJ)
• New hedge funds face life or death battle for funding (FT)
• Muni Bond Costs Hit Investors in Wallet (WSJ)
• BOJ keeps stimulus in place, cuts view on exports in warning sign (Reuters)
• ECB Homes In on Risky Assets as Inspectors Fan Out Across Europe  (BBG)
• Snowden: “The Constitution was violated” (Reuters)
• Lloyds Trader Said to Tip Off BP to $500 Million FX Deal (BBG)

 

Overnight Media Digest

WSJ

* GM faced new pressure from a powerful member of Congress to explain why it took nearly a decade to recall 1.6 million vehicles for faulty ignitions linked to 13 deaths, even as the auto maker hired a high-profile lawyer to lead its investigation.

* Although officials in Washington and Kabul often accuse Pakistan of being an unreliable ally, its army has lost roughly twice as many soldiers in the conflict with Taliban fighters as the U.S.

* Malaysian authorities said Monday that no debris from a missing Malaysia Airlines jetliner had been recovered despite a massive air and sea search under way for passengers and remains of the plane.

* The investigation into passengers aboard a missing Malaysia Airlines flight who were traveling with stolen passports has drawn attention to a thriving market for illicit documents and the disparity in aviation security across the globe.

* Russian President Vladimir Putin has apparently rejected a U.S. proposal to resolve the dispute over Ukraine that had been put forward by Secretary of State John Kerry over the past week, according to senior Russian and U.S. officials.

* Investors who put cash into municipal bonds, a popular strategy for those seeking safe, tax-free bets, are paying about twice as much in trading commissions as they would for corporate bonds, according to a study for the Journal.

* Chiquita of the U.S. and Fyffes of Ireland are merging to create the world’s largest banana company, in an all-stock deal valued at about $1.07 billion.

* Virtu Financial Inc, one of the largest high-frequency trading firms, is seeking to raise $100 million in a public offering of its stock, according to a securities filing.

* Sprint Corp Chairman Masayoshi Son said in a television interview Monday that he would like to buy smaller rival T-Mobile US Inc, confirming his interest in a deal that would combine the country’s No. 3 and No. 4 wireless companies and likely face heavy scrutiny from regulators.

* Longtime rivals Nasdaq OMX Group Inc and NYSE Euronext are joining forces in a bid to reclaim trading volumes from smaller competitors, according to people familiar with the matter.

The two firms are pushing for a controversial rule to be added to a pilot program under consideration by the Securities and Exchange Commission to widen tick sizes, or the increments between price quotes, for certain companies.

* EBay Inc formally rejected the two board nominees backed by activist investor Carl Icahn and reiterated its opposition to his proposal to spin off its PayPal subsidiary.

 

FT

Billions of dollars were wiped off the market value of the world’s biggest mining companies on Monday after fresh concerns about slowing demand from China prompted one of the steepest falls in the price of iron ore on record.

Private equity group Permira is looking to float Japanese agricultural chemicals company Arysta LifeScience on the New York Stock Exchange.

Trading firm Virtu Financial Inc plans to raise up to $100 million in an initial public offering, the company said in a regulatory filing on Monday. People familiar with the firm’s thinking said the 151-person company would raise as much as $250 million and give it a valuation of about $3 billion. Its founder, Vincent Viola, would see his roughly 68 per cent stake in the business valued at $2.04 billion.

Imperial Tobacco’s electronic cigarette division has launched legal proceedings against nine of its US rivals that it alleges have encroached on its patents.

Nigerian oil company Seplat will announce on Tuesday a $350 million initial public offering in a dual listing on the London and Lagos stock exchanges.

 

NYT

* A House committee has started an investigation into the response by General Motors and federal safety regulators to complaints about faulty ignition switches that have been linked to 13 deaths, officials said on Monday.

* Myriad Genetics Inc has suffered a setback in its efforts to protect its main genetic test from competition. A federal judge on Monday denied Myriad’s request for a preliminary injunction that would have immediately stopped a rival company, Ambry Genetics, from offering similar breast cancer tests.

* Puerto Rico is expected to sell about $3 billion in bonds on Tuesday at interest rates that are considerably lower than many investors in the municipal market had expected, providing a rare bright spot for the cash-squeezed island.

* The Blackstone Group and private equity firm TPG Capital are teaming up in a planned bid for manufacturing company Gates Global Inc, a person briefed on the matter said on Monday.

* The Obama administration on Monday withdrew a proposal that would have allowed insurers to limit Medicare coverage for certain classes of drugs, including those used to treat depression and schizophrenia, due to pressure from patients, pharmaceutical companies and members of Congress from both parties.

* General Electric Co Chief Executive Jeffrey Immelt emphasized on the “culture of simplification”, in a letter to shareholders published on Monday. The effort to simplify involves reducing the size of the finance unit, GE Capital.

GE Capital has been selling assets, including a Swiss subsidiary whose initial public offering created a $1 billion tax benefit in the fourth quarter of 2013.

* U.S. fruit firm Chiquita Brands acquired Irish rival Fyffes, which distributes fruits across Europe for about $526 million. The all-stock deal will combine Chiquita, with robust sales in the United States, with Fyffes, which is stronger in Europe, to create a global banana production and distribution company.

* Minerals Technologies said on Monday that it had won a bidding war for Amcol International Corp, agreeing to pay about $1.7 billion.

* Morgan Stanley Chief Executive James Gorman said in a television interview on Monday that he did not have a firm grasp of Bitcoin, which has been much in the news after the collapse of a major exchange, Mt. Gox, and after Newsweek claimed to have found the currency’s creator.

 

Canada

THE GLOBE AND MAIL

* Striking truckers choked off traffic almost entirely to Port Metro Vancouver on Monday after rejecting a back-to-work plan over the weekend, raising fears of price spikes if groceries and other goods sit on docks and waiting ships indefinitely.

Reports in the business section:

* Canada’s first free-trade pact with an Asian nation promises to offer beef farmers, salmon fishermen and whisky makers a new toehold in South Korea by sweeping away virtually all border taxes in coming years. But it fails to secure some of the protections sought by vocal opponents in the auto industry, who immediately said Ottawa gave away too much.

NATIONAL POST

* Canadian Prime Minister Stephen Harper and his South Korean counterpart announced early on Tuesday that the two countries have concluded a free-trade agreement that the Canadian government boasts will be a major boost for the country’s exporters in the fast-growing Asian market, but detractors fear will damage Ontario’s key economic auto industry.

* BlackBerry Ltd has sold its U.S. headquarters in Irving, Texas, to Brookfield Property Partners LP for an undisclosed amount, just months after the struggling smartphone maker announced it was selling the bulk of its Canadian real estate assets to shore up its cash position.

FINANCIAL POST

* HJ Heinz Co, the ketchup maker taken private by 3G Capital Inc and Warren Buffett’s Berkshire Hathaway Inc , paid Bernardo Hees $9.2 million in his first year as chief executive.

* Toronto-based Barrick Gold Corp unveiled a plan on Monday to sell roughly 41 million shares of African Barrick Gold Plc to institutional investors, or 13.5 percent of its holdings.

 

Hong Kong

SOUTH CHINA MORNING POST

— An understanding between Beijing and pan-democrats that the method for electing the chief executive could be changed after universal suffrage is introduced in 2017 would create more room for compromise and avoid a “life-or-death” struggle, says a leading mainland expert on Hong Kong affairs. (http://ift.tt/1i2KvQw)

— Hong Kong textile manufacturers have signed a deal to set up their first industrial park in Yangon, which they expect will slash production costs by at least half. Workers at the 200-hectare facility in the former capital of Myanmar will be paid about a fifth of those employed in mainland factories. (http://ift.tt/1fnODL3)

THE STANDARD

— The first residential project allotted solely to locals – One Kai Tak – will be available for sale by 2015, offering 1,179 flats. Only two pilot sites have been chosen so far for the “Hong Kong Property for Hong Kong People” scheme. (http://ift.tt/1i2KvQy)

— Work on the third runway at Hong Kong International Airport could begin as early as September, Airport Authority chief executive Stanley Hui Hon-chun said. The environmental assessment report will be submitted to the authorities by March-end and the permit is expected by September, he said. (http://ift.tt/1fnOG9I)

— There is still room for 4G service charges to fall in the mainland, China Mobile Guangdong branch head Zhong Tianhua said after the country’s telecom regulator claimed such fees are too high. (http://ift.tt/1i2KyMh)

HONG KONG ECONOMIC JOURNAL

— Franshion Properties (China) Ltd said it was considering a seeking a separate listing of its hotel assets, comprising eight hotels in the mainland and ancillary businesses, on the Hong Kong bourse. Analysts estimate the assets could be worth about HK$20 billion ($2.58 billion).

— Watchmaker and retailer Time Watch Investments Ltd expects its online sales to grow 60-100 percent for the fiscal year 2013/14 ending June, contributing to about 10 percent of its total revenue, according to chairman Tung Koon Ming.

MING PAO DAILY NEWS

— Mattress maker Sinomax, which is seen to raise about HK$780 million in an initial public offering in Hong Kong, plans to open 10 lifestyle stores in the city and in mainland China before the end of this year, according to senior management.

APPLE DAILY

— Galaxy Entertainment Group Ltd may declare a distribution of dividend for the first time when the casino operator releases its earnings next week, in a bid to lure more investment funds to invest in the company, analysts said.

 

Britain

The Telegraph

REGULATOR TO FORCE SHAKE-UP OF PROFITABLE INSURANCE ADD-ON MARKET

The Financial Conduct Authority is to force a major shake-up of the 4 billion pound insurance add-on market, creating greater competition in what it perceives to be a “closed shop” sector.

GATWICK OFFERS COMPENSATION TO HOUSEHOLDS AFFECTED BY SECOND RUNWAY

Gatwick has raised the stakes in the battle for airport expansion in the Greater London area by offering compensation to households likely to be most affected if the go-ahead is given for a second runway.

The Guardian

MORE CO-OP EXECUTIVES MAY GET PAY TOP-UPS WHEN COMMITTEE MEETS

The board committee that sets pay at the troubled Co-operative Group is expected to meet this week to discuss extending controversial retention payments to more members of the newly assembled top management team.

BANKING BONUSES WORLDWIDE UP 29 PERCENT AS CITY OF LONDON FARES EVEN BETTER

The average bankers’ bonus globally was 29 percent higher than a year ago, with those in the City of London higher than in other parts of the world, according to a survey by a leading careers website.

The Times

NATION’S NUMBER CRUNCHERS RED-FACED AGAIN

The Office for National Statistics was red-faced when it published a notice urging users of its data to treat its latest estimate for workers on zero-hour contracts with “due caution”, pending the forthcoming publication of more reliable figures.

HELP TO BUY LIKELY TO BE CLOSED EARLY, LENDERS WARN

Three quarters of lenders believe that the 12 billion pound scheme, which can be used to buy first homes worth up to 600,000 pounds, will be withdrawn early or scaled down, according to the Intermediary Mortgage Lenders Association. It is due to last until 2016.

The Independent

TRAVELEX SET FOR 1 BLN STG STOCK MARKET LISTING IN LONDON

Foreign currency specialist Travelex on Monday became the latest High Street giant to reveal it is considering a stock market flotation. The company, which provides cash and pre-paid cards to more than 37 million customers each year, ended months of speculation about its future plans by announcing it is looking at a 1 billion pound London listing.

Sky News

Fidelity Criticises Pay ‘Mess’ At Barclays

Fund management giant Fidelity International has become the first big City institution to publicly criticise Barclays over its 2.4 billion pound bonus pot, intensifying the pressure on the bank ahead of a potentially-fiery annual meeting next month.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
NFIB small business optimism index for February at 7:30–consensus 93.8
Wholesale Trade Inventories for January at 10:00–consensus 0.4%

ANALYST RESEARCH

Upgrades

Altra Holdings (AIMC) upgraded to Buy from Hold at KeyBanc
Apple (AAPL) upgraded to Outperform from Sector Perform at Pacific Crest
BNY Mellon (BK) upgraded to Buy from Neutral at UBS
Bank of Ireland (IRE) upgraded to Buy from Neutral at BofA/Merrill
CDW Corporation (CDW) upgraded to Conviction Buy from Buy at Goldman
Hospitality Properties (HPT) upgraded to Outperform from Market Perform at Wells Fargo
Imperial Holdings (IFT) upgraded to Outperform from Market Perform at FBR Capital
InterMune (ITMN) upgraded to Buy from Neutral at Goldman
J.C. Penney (JCP) upgraded to Buy from Neutral at Citigroup
Knightsbridge Tankers (VLCCF) upgraded to Overweight from Equal Weight at Evercore
Lonmin (lnmiy) upgraded to Neutral from Sell at Goldman
Macy’s (M) upgraded to Outperform from Market Perform at Wells Fargo
Stanley Black & Decker (SWK) upgraded to Outperform at Wells Fargo
Wesco Aircraft (WAIR) upgraded to Outperform from Sector Perform at RBC Capital

Downgrades

Aixtron (AIXG) downgraded to Neutral from Outperform at Exane BNP Paribas
Amedisys (AMED) downgraded to Perform from Outperform at Oppenheimer
Arotech (ARTX) downgraded to Neutral from Buy at B. Riley
Brookfield Renewable (BEP) downgraded to Hold from Buy at Canaccord
FMC Corporation (FMC) downgraded to Market Perform from Outperform at Wells Fargo
FMC Corporation (FMC) downgraded to Neutral from Overweight at Piper Jaffray
Millicom (MIICF) downgraded to Underweight from Equal Weight at Morgan Stanley
Northern Trust (NTRS) downgraded to Sell from Neutral at UBS
NxStage Medical (NXTM) downgraded to Underperform from Market Perform at Wells Fargo
State Street (STT) downgraded to Neutral from Buy at UBS
Triumph Group (TGI) downgraded to Sector Perform from Outperform at RBC Capital
U.S. Bancorp (USB) downgraded to Market Perform from Outperform at Keefe Bruyette
Unisys (UIS) downgraded to Market Perform from Outperform at Raymond James
Vipshop (VIPS) downgraded to Neutral from Buy at Goldman

Initiations

AMD (AMD) initiated with a Buy at Ascendiant
Aeropostale (ARO) initiated with a Buy at Buckingham
Applied Micro Circuits (AMCC) initiated with a Buy at Ascendiant
Aruba Networks (ARUN) initiated with an Underperform at Bernstein
Cisco (CSCO) initiated with an Outperform at Bernstein
Destination XL (DXLG) initiated with a Buy at Canaccord
F5 Networks (FFIV) initiated with an Outperform at Bernstein
FLIR Systems (FLIR) initiated with an In-Line at Imperial Capital
GW Pharmaceuticals (GWPH) initiated with a Buy at BofA/Merrill
Immersion (IMMR) initiated with a Hold at Ascendiant
Infoblox (BLOX) initiated with an Overweight at Piper Jaffray
Inogen (ingn) initiated with an Outperform at Leerink
Inogen (ingn) initiated with an Overweight at JPMorgan
Intel (INTC) initiated with a Sell at Ascendiant
International Shipholding (ISH) initiated with an Outperform at Imperial Capital
InvenSense (INVN) initiated with a Hold at Ascendiant
Juniper (JNPR) initiated with a Market Perform at Bernstein
Magic Software (MGIC) initiated with an Equal Weight at Barclays
Neonode (NEON) initiated with a Buy at Ascendiant
RF Micro Devices (RFMD) initiated with a Buy at Ascendiant
Ruckus Wireless (RKUS) initiated with an Underperform at Bernstein
Skyworks (SWKS) initiated with a Buy at Ascendiant
Team Health (TMH) initiated with a Buy at UBS
Texas Instruments (TXN) initiated with a Buy at Ascendiant
TowerJazz (TSEM) initiated with a Buy at Ascendiant
TriQuint (TQNT) initiated with a Buy at Ascendiant
Ubiquiti Networks (UBNT) initiated with an Outperform at Bernstein

COMPANY NEWS

Yahoo (YHOO) named Alex Stamos as CISO
Bayer (BAYRY), Onyx (AMGN) reported Phase 3 study of Nexavar did not meet primary endpoint
Qualcomm (QCOM) named Derek Aberle as president
Document Security Systems (DSS) filed a patent claim against Samsung (SSNLF), Taiwan Semiconductor (TSM), and NEC Corporation of America
La Jolla Pharmaceutical (LJPC) announced that its Phase 2 trial of GCS-100 in chronic kidney disease reached its primary and key secondary endpoints
Activist hedge fund Elliott Associates disclosed a 4.99% stake in Boyd Gaming (BYD)
American Eagle Energy (AMZG) said it increased its interest in its Spyglass Area for a total consideration of $47M and said it plans capital spending of $86.1M in 2014
Honda (HMC) to create separate Acura, Honda divisions to spur sales

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
E-House (EJ), Fontegra Financial (FRF), Atlas Financial (AFH), Douglas Dynamics (PLOW), Novavax (NVAX), LipoScience (LPDX), Medifast (MED), Limoneira (LMNR), Onconova (ONTX), PowerSecure (POWR), Urban Outfitters (URBN)

Companies that missed consensus earnings expectations include:
Gray Television (GTN), Sunshine Heart (SSH), Endeavour Silver (EXK), Park-Ohio (PKOH), Celluar Dynamics (ICELl), NMI Holdings (NMIH), Summit Midstream (SMLP), Fuel Tech (FTEK), Nuverra Environmental (NES), Dynavax (DVAX), Casey’s General Stores (CASY)

Companies that matched consensus earnings expectations include:
FuelCell (FCEL), United Natural Foods (UNFI)

NEWSPAPERS/WEBSITES

Sprint’s (S) Son confirms interest in buying T-Mobile (TMUS), WSJ reports
House Energy and Commerce Committee to look into General Motors (GM) recall, WSJ reports
Apple (AAPL) asks record labels for exclusive iTunes releases, LA Times reports
BHP Billiton (BHP) planning to sell West African iron ore assets, Australian Financial Review reports
Chobani working with Bank of America (BAC) to sell a 20% stake in the company that would value it at about $2.5B, Reuters reports
Sony (SNE), HTC and LG shifting to mid-range smartphone market, DigiTimes says
Judge denies Myriad Genetics (MYGN) request for injunction against rival, NY Times says

SYNDICATE

Access Midstream (ACMP) files to sell 8M common units for limited partners
American Eagle Energy (AMZG) files to sell 10M shares of common stock after split
China Recycling Energy (CREG) files to sell 8.77M shares of common stock for holders
ING U.S. (VOYA)files to sell $100M of common stock for holders
MakeMyTrip (MMYT) files to sell 3M shares of common stock for holders
Oxford Lane (OXLC) files to sell 2.35M shares of common stock
Post Holdings (POST) files to sell $250M senior notes, 4M shares of common stock
Stock Building Supply (STCK) files to sell 6.6M common shares for holders
Summit Midstream (SMLP) files to sell 8M common units for limited partners
Tekmira (TKMR) files to sell $60M of common stock
Vipshop (VIPS) files to sell 1.14M ADSs for holders

via Zero Hedge http://ift.tt/1iwxNgm Tyler Durden

Stocks in Europe failed to hold onto early gains and gradually moved into negative territory, albeit minor, as concerns over money markets in China gathered attention yet again after benchmark rates fell to lowest since May 2012. Nevertheless, basic materials outperformed on the sector breakdown, as energy and metal prices rebounded following yesterday’s weaker than expected Chinese data inspired sell off. At the same time, Bunds remained supported by the cautious sentiment, while EUR/USD came under pressure following comments by ECB’s Constancio who said that financial markets misinterpreted us a little, can still cut rates and implement QE or buy assets. Going forward, market participants will get to digest the release of the weekly API report after the closing bell on Wall Street and the US Treasury will kick off this week’s issuance with a sale of USD 30bln in 3y notes.

Bulletin headline summary from Bloomberg and RanSquawk

• ECB’s Constancio says financial markets misinterpreted us a little, can still cut rates and implement QE or buy assets.
• BoE’s Carney says range of views on MPC on spare capacity, sees equilibrium jobless rate at around 6%, equilibrium rate of unemployment has gone down and he personally sees spare capacity higher than 1.5%.
• ECB says AQR to review bank processes, credit files and collateral, with reported capital ratios to be adjusted for AQR during July.
• Treasuries drift lower, 5Y-10Y yield rise by ~1bp before week’s auctions begin with $30b 3Y notes; yield 0.803% in WI trading after drawing 0.715% in Feb.
• The Bank of Japan maintained record easing, keeping ammunition as an April sales-tax bump threatens to trigger the deepest one-quarter contraction since the March 2011 earthquake
• Wall Street’s biggest firms are close to agreeing on a plan that would safeguard the financial markets from the crippling fire sales that engulfed Lehman Brothers Holdings Inc. and Bear Stearns Cos
• China’s central bank Governor Zhou Xiaochuan said deposit rates will be liberalized in one to two years, as the nation expands the role of markets even amid an economic slowdown and risks from a credit boom
• The ECB said it will look for capital shortfalls in euro- area banks by examining more than 3.72 trillion euros ($5.16 trillion) in assets in on-site checks
• U.K. factory production rose 0.4% in January, more than forecast; industrial production rose 0.1%, less than forecast, as bad weather hit oil and gas output
• Russia showed no signs of yielding in the Crimea standoff as Ukraine bolstered its defenses before its prime minister meets Obama tomorrow
• The probe into the disappearance of Flight 370 took another twist today as Malaysian authorities said one of the two people who boarded the plane with stolen passports was an Iranian who had no links to terror groups
• Lois Lerner, who oversaw the IRS scrutiny of Tea Party groups, wrote in emails that political nonprofits might file a court case that led the IRS to accelerate the release of specific information about groups denied tax-exempt status; a House panel is building a contempt case against her
• Sovereign yields mostly lower. EU peripheral spreads widen. Asian equities rise. European equity markets gain, U.S. stock-index futures fall. WTI crude, gold and copper higher

US Event Calendar

• 7:30am: NFIB Small Business Optimism, Feb., est. 93.8 (prior 94.1)
• 10:00am: JOLTs Job Openings, Jan., est.  4,015m (prior 3.99m)
• 10:00am: Wholesale Inventories, Jan., est. 0.4% (prior 0.3%)
• Wholesale Sales, Jan., est. 0.2% (prior 0.5%) Central Banks
• 5:30am: Bank of England’s Carney and others speak in London Supply
• 11:00am: Fed to purchase $1b-$1.25b in 2036-2044 sector

Asian Headlines

The BoJ kept monetary policy unchanged, alongside expectations. The BoJ retained its plan for JPY 60trl-70trl annual rise in monetary base. The BoJ cut its view on exports but upgraded its view on industrial production and capex. (BBG)

EU & UK Headlines

ECB’s Constancio says financial markets misinterpreted us a little, can still cut rates and implement QE or buy assets. (MNI)

BoE’s Carney says range of views on MPC on spare capacity, sees equilibrium jobless rate at around 6%, equilibrium rate of unemployment has gone down and he personally sees spare capacity higher than 1.5%.

He also said that it is best to adjust interest rates by more than 0.25% before reversing QE (BBG/RTRS) BoE’s Weale says had thought inflation would remain above the target for ‘rather longer’

UK Manufacturing Production (Jan) M/M 0.4% vs Exp. 0.3% (Prev. 0.3%, Rev. 0.4%) – Manufacturing growth driven by rubber and plastic products. Also of note, monthly pharmaceuticals output falls most since 1968.

UK Industrial Production (Jan) M/M 0.1% vs Exp. 0.2% (Prev. 0.4%, Rev. 0.5%)

UK BRC Sales Like-For-Like (Feb) Y/Y -1.0% vs. Exp. 1.8% (Prev. 3.9%); 1st decline in 10 months. (BBG)

KPMG said that overall sales were pretty flat which serves a reminder that the recovery was far from certain. (RTRS)

ECB says AQR to review bank processes, credit files and collateral, with reported capital ratios to be adjusted for AQR during July. AQR, stress tests may require banks to raise capital and says assets covered represents 58% of RWA of 128 banks. (BBG)

US Headlines

Several U.S. institutional investors said they are closely monitoring the developments at Pimco, the world’s largest bond firm, in the wake of Mohamed El-Erian’s abrupt resignation as CEO and ensuing acrimony between him and co-founder Bill Gross.

The investors, including retirement systems, have formally put Pimco on “watch lists,” a signal that they will keep a much closer eye its performance than usual.

Equities

As the session progressed, stocks in Europe came off the best levels of the session as the cautious sentiment surrounding money market rates in China, together with better bid Bunds, weighed on appetite for riskier assets. In terms of notable movers, London listed Morrison’s shares fell over 3%, following the release of weaker than expected UK BRC Sales Like-For-Like report, which posted 1st decline in 10 months. KPMG said that overall sales were pretty flat which serves a reminder that the recovery was far from certain.

FX

Comments by ECB’s Constancio prompted modest flattening of the Euribor curve, which was consequently followed by broad based EUR weakness. At the same time, while the release of mixed Industrial and Manufacturing Production reports failed to move GBP/USD, the pair remained a by-product of a firmer USD which benefited from a risk off sentiment.

Commodities

Saudi Arabia’s February crude oil output inched up to 9.849mln bpd, up from 9.767 in January. (RTRS)

Exxon’s Black Sea gas drilling may be threatened by the referendum in Crimea. Exxon Mobil sought the rights to drill in 2012 and it is unclear as to the outcome if Crimea becomes part of Russia. (BBG)

Citigroup say that the low iron ore prices are here to stay. With increases in demand and the surprise deficit of China’s trade balance, iron ore saw the biggest single day drop in 4 years Monday. (RTRS)

Freeport-McMoRan Copper and Gold Inc. are cutting down their Indonesian output by 60%. The Co. halted exports two months ago and are refusing to pay raising export tax as part of the countries new mining rules. (RTRS)

DB’s Jim Reid concludes the overnight summary

Sharp falls in Chinese growth-related assets failed to materially dampen the mood of the S&P 500 (-0.05%) which managed to grind out a virtually flat day yesterday after being notably lower for most of the session. While we are seeing better sentiment in Asia this morning, Monday was indeed a day when many questioned the Chinese growth story with a 8.3% fall in import iron ore prices, a 4% fall in Shanghai copper futures (down another 2.4% overnight) and a 2.9% fall in the Shanghai Composite equity index. The fall in Chinese import iron ore prices was the worst one day performance since August 2009 and the second worst day on record. While there were media reports of lower demand for industrial commodities from tightening controls on the steel and cement sectors (FT, Reuters), we shouldn’t rule out the impact of the recent unwinding of yuan carry trades many of which have been funded by loans collateralised by iron ore and copper inventories.

Looking at a longer time horizon, it’s interesting that in the 5 year period since the lows on March 9th 2009 the S&P 500 has gone up by over 2.7 times in price terms, whereas the Shanghai Composite is actually slightly down. The latter now being at its lowest level since January 2009 and at a level first breached in the summer of 2000. The Chinese economy has grown 68% and 470% in nominal terms since these two dates. So it does seem that the market is telling us something quite different from the bottoms-up perspective to what the top down has been telling us. Surely such a divergence can’t go on forever?

With the high uncertainty over the impact of CNY timings and the huge range of opinion of the scale of 2013’s over invoicing, the numbers coming up next month will be crucial as they should be a much purer reflection of activity in China. So an important month coming up. Unfortunately it might take longer to see cleaner US data. I spoke with Joe LaVorgna yesterday and he was suggesting that we may not actually get clean data until maybe July (i.e. the June numbers). The rationale being that if he’s correct March-May data will see the payback from the weather before normality returns. Interestingly this week is payroll survey week and snow is forecast again.

Coming back to Asia, most bourses are seeing a small retracement of yesterday’s selloff with the Nikkei, Hang Seng and HSCEI seeing small gains. Chinese equities are once again lagging (Shanghai Comp -0.3%). In Japan, the BoJ policy meeting ended with no major surprises, but there was some small selling in USDJPY and Nikkei futures after the central bank cut its view on exports (not surprising after recent trade data) and upgraded its forecast for capex and industrial production. USDJPY pared back gains to trade unchanged at 103.3 this morning.

Australian iron ore mining giants Rio Tinto and BHP assured the market overnight that their long term forecasts for iron ore were still intact but Rio did warn that a credit squeeze and high iron ore stock piles in China were a driver behind yesterday’s price drop. Rio Tinto (+0.1%) and BHP (-0.3%) stock are trading with a more steady footing today after sharp falls in Sydney and London trading yesterday. Chinese onshore rates continue to collapse lower today, helped presumably by an increase in CNY supply given the recent yuan depreciation. This is extending the widening seen in Chinese corporate bonds following last week’s first default by Shanghai Chaori Energy. On the topic of Chaori Energy, it was interesting to see reports today that the company may have at least four outstanding trust loans due this year, and a further two trust loans due in subsequent years, according to the IFR Asia. If confirmed, Chaori’s troubles could provide not only a test case for China’s onshore bond market, but also an interesting example of potential troubles in the country’s burgeoning trust loans sector.

Elsewhere in the EM world, credit spreads edged wider and equities took a small hit lower yesterday but the general consensus was that the price action was orderly despite notable exceptions such as Turkey (10yr +16bp). Despite the weak China sentiment, there was actually impressive demand for a couple of benchmark-sized EM corporate and sovereign bond deals. Brazilian oil company Petrobas attracted a US$23bn order book for a jumbo six-tranche $8.5bn USD bond issue including the issuance of 30 year paper. The country of Azerbaijan issued US$1.24bn in its debut bond deal in international markets, attracting an orderbook of almost $4bn despite turbulence in the Caspian Sea region caused by the political tension in Crimea. On the topic of the Ukraine, further reports filtered out of Crimea suggesting that Russian forces were consolidating their control of the peninsula. Russian troops reportedly opened fire as they forced entry into a Ukrainian military post in Crimea but no injuries were reported (Reuters). There were reports that the Ukrainian military had begun drills in an effort to test the combat-readiness of its troops. Tensions are
likely to escalate into Sunday’s Crimean referendum, which both the Ukrainian government and its international allies maintain is in contravention to the country’s constitution.

Back in DM, US treasuries barely budged ending the day at 2.78% with little in terms of data flow to prompt buying or selling. In terms of Fed speak, Charles Evans (non voter, dove) reiterated that the Fed’s hurdle for altering QE tapering is “pretty high” and repeated that the Fed will need to change communication on rates. Plosser (FOMC voter and a hawk) said that it is important that the Fed send a signal that we are committed to the current pace of tapering. The WSJ’s Hilsenrath wrote that the Fed is formulating a new plan to exit unconventional policy although the suggestions have been floated for a while.

The article said that the Fed could leave excess reserves in the banking system for years and may never remove them. In addition to paying interest on excess bank reserves, the Fed would anchor rates through a program using reverse repurchase agreements. Rather than draining money from the financial system, and setting interest rates by managing its supply, the Fed would set interest rates by managing the cost of money (WSJ).

Turning to the day ahead, German trade and UK industrial production will be the main data releases in the morning session. Governor Carney is scheduled to testify at the UK Parliament’s Treasury Committee today with the subject of discussion being the BoE’s latest inflation report. The US data flow remains light with wholesale inventories and JOLTs job openings scheduled for today. In the EM world, Brazil’s January industrial production will be closely watched today.

via Zero Hedge http://ift.tt/1g4omwL Tyler Durden

Ignorance Can be Better than Bliss

By Paul Price of Market Shadows

Common sense suggests that reading esteemed financial publications and major brokerage house research reports would help you make good decisions. However, in many situations it leads to exactly the opposite result.

Most people don’t have the ability and resources to evaluate individual muni bonds. They count on their brokers or financial advisors to steer them into appropriate issues while relying heavily on rating agencies’ bond quality designations.

The handling of Puerto Rican (PR) tax-free bonds provides a perfect example of how the reliance on financial publications, brokerage houses and rating agencies resulted in bad timing and avoidable losses.  

PR’s bonds had previously been widely recommended. Their coupon rates were higher than most other issuers and they offered tax-free treatment in all 50 states. Until recently, Puerto Rican general obligation (GO) bonds had been rated highly enough that debt holders believed they could expect to be paid back principal plus interest as promised.  

[A general obligation bond is a common type of municipal bond in the United States that is secured by a state or local government’s pledge to use legally available resources, including tax revenues, to repay bond holders (Wikipedia)]

Brokers sold, and individuals bought, PR munis at prices reflecting S&P, Moody’s and other ratings that falsely conveyed a rosier-than-real picture of that government’s ability to repay.  The last remnants of that fantasy ended when Barron’s Aug. 2013 cover story belatedly broke the news that bond trading firms already knew… PR was in serious financial trouble.

 

Spreads on Puerto Rico’s 10-year paper had already shot higher, pushing prices on existing PR bonds lower. The Barron’s story led to panic dumping and even lower resale prices for investors wishing to exit their positions.

Half a year later, on February 4, 2014, ratings giant Standard & Poors also admitted what had been painfully obvious. They downgraded Puerto Rican GOs to junk status. This came only after severe damage to holders of older PR bonds. Spreads versus investment grade paper had ballooned from under 3% to about 7.5%. Way too late to help anybody, Moody’s finally joined in the downgrades too. 

 

Between August, 2013, and last week, many bond holders, scared by the new reality that wasn’t really new, sold at horrible prices to avoid possible defaults. They felt compelled to unload them. PR paper had now been officially deemed ‘too risky for conservative accounts’.

The same brokerage firms that had originally touted the bonds as good investments were advising clients to sell them before losses got even worse. Who bought the bonds that these customers sold? The brokerage firms took them off customers hands while providing only wholesale bid prices. Most of the paper landed squarely into those same firms’ bond inventories.

Fast forward to the March 8, 2014, issue of Barron’s. After Wall Street firms got the chance to scoop up customer bonds cheaply, it was announced that Puerto Rico had already lined up buyers for $3 billion of new debt. The issue, with an effective yield of about 9%, was oversubscribed by two to three times.

 

Bond firms will reap huge underwriting fees moving the new junk-rated paper into public hands while benefiting greatly themselves from the higher prices on their recently acquired inventory of now ‘money good’ older bonds, purchased from scared clients, after the Barron’s article and multiple rating agency downgrades. 

 

The proceeds from the enormous new offering will make payment of old PR debt possible in the same way that overextended consumers sometimes pay off the minimum balance on one credit card by using a cash advance from another credit card.

This week’s new capital raise will give an immediate boost to the value of the old PR bonds. It came too late to help anyone who fretted over the financial headlines and sold already.

Ironically, PR muni owners who never saw the Barron’s story or the rating firms’ downgrade notices are better off than those who kept up with the financial news.

The same principle applied when dealing with stocks from late 2008 right up through the present. Experts convinced people to jettison their holdings at bad prices. Professionals then bought the shares at a discount.

Investors are often worse off for having the proverbial ‘little bit of knowledge’ provided through sound bites from their trusted advisors and the media.

Disclosure: I own no bonds, from Puerto Rico or other issuers.

via Zero Hedge http://ift.tt/Og0qAm ilene