Tag: finance

With European peripheral bond yields collapsing every single day to new all time lows (primarily driven by Europe’s near-certainty that a US-style QE is imminent as we first showed here in November, despite Mario Draghi’s own words from November 2011 that a QE intervention is virtually impossible), increasingly more of Europe is trading just as safe, if not more, as the United States. And in keeping with the analogies, considering a major US metropolitan center, Detroit, recently went bankrupt, it is only fair that Europe should sacrifice one of its own historic cities to the gods of negative cash flows. The city in question, Rome, which as the WSJ reports, is “teetering on the brink of a Detroit-style bankruptcy.”

Rome, the eternal city, which survived two millennia of abuse from everyone may be preparing to lay its arms at the hands of unprecedented corruption, capital mismanagement and lies.

On the first day of his premiership, Matteo Renzi had to withdraw a decree, promulgated by his predecessor, that would have helped the city of Rome fill an €816 million ($1.17 billion) budget gap, after filibustering by opposition lawmakers in the Parliament on Wednesday signaled the bill had little likelihood of passing.

 

Devising a new decree that provides aid to Rome will now cost Mr. Renzi time and political capital he intended to deploy in promoting sweeping electoral and labor overhauls during his first weeks in office.

 

For Rome’s city fathers, though, the setback has more dire consequences. They must now face unpalatable choices—such as cutting public services, raising taxes or delaying payments to suppliers—to gain time as they search for ways to close a yawning budget gap. If it fails, the city could be placed under an administrator tasked with selling off city assets, such as its utilities.

 

“It’s time to stop the accounting tricks and declare Rome’s default,” said Guido Guidesi, a parliamentarian from the Northern League, which opposed the measure.

Alas, if one stops the accounting tricks, not only Rome, but all of Europe, as well as the US and China would all be swept under a global bankruptcy tsunami. So it is safe to assume that the tricks will continue. Especially when one considers that as Mirko Coratti, head of Rome’s city council said on Wednesday, “A default of Italy’s capital city would trigger a chain reaction that could sweep across the national economy.” Well we can’t have that, especially not with everyone in Europe living with their head stuck in the sand of universal denial, assisted by the soothing lies of Mario Draghi and all the other European spin masters.

So what is the catalyst that would push the city into default? Trash.

No really: an appeal for a €485 million transfer from the central government to compensate Rome for the extra costs it incurs in its role as a major tourist destination, the nation’s capital and the seat of the Vatican. “Rome is unique compared with other cities” and deserves state support because of huge numbers of visitors who use services but don’t contribute much to the economy, Mr. Marino said in a recent interview. But even before the government of Enrico Letta fell this month, the proposed transfer had prompted complaints that the aid was unfair, given the dire straits of other cities.

 

Rome has long struggled to balance its books. Because of its dearth of industry, the city depends heavily on trash-collection levies and the sale of bus and subway tickets. It struggles much more than other European cities to collect either one. About one in four passengers on Rome’s public transit system doesn’t buy tickets, costing around €100 million in lost revenue annually, compared with just 2% of passengers on London’s public transit network.

Meanwhile, employee absenteeism at Rome’s public-transit and trash-collection agencies runs as high as 19%, far above the national average.

But how can Rome’s clean up costs be a surprise? Well, they aren’t. What is however, is the severity of the recession that crushed the national economy.

Just six years ago, some €12 billion in city debts was transferred to a special fund subsidized and guaranteed by the national government in a move aimed at giving Rome a fresh start. But Italy’s economy has shrunk by almost 10% since then, eroding the tax base just as national austerity programs pushed extra costs onto local governments.

 

Even before the withdrawal of the “Save Rome” decree, Mr. Marino was facing unpalatable choices. He has already raised cremation and cemetery fees and plans to centralize city procurement, which he says will save €300 million a year.

 

Now, without the transfer from the central government, he may be forced to impose income and property tax surcharge—already among the highest in the country—and to cut salaries to the city’s 20,000 employees or trim city services such as child-care centers or job-training programs—also unpopular moves.

What would happen then is unknown, but hardly pleasant:

The political fallout could be severe. The mayor of Taranto, a southeast city that defaulted on €637 million in debt in 2006, has suffered some of the lowest poll ratings in the country after cutting back services.

Oh well, another government overhaul is imminent then, after all it is Italy. Just as long as it is not elected. Because then there woud be a chance that someone who actually sees behind the facade of lies, like Beppe Grillo for example, may just be elected PM, and then all bets are off.

Howeber, that will never be allowed, and instead Rome will almost surely be bailed out. That however would open a whole new can of worms as every other insolvent city demands the same treatment:

A new appeal for a special transfer to Rome could embolden demands that other cities in distress be helped, even though Italy’s public finances are already strained. Naples is close to having to declare bankruptcy. Reggio Calabria has been run by a special commissioner for the past three years, but may still default on €694 million in debt, according to Italy’s Audit Court.

And if all else fails, there is the nuclear option: “Some politicians say Rome should sell assets such as ACEA, the electric utility that is worth about €1.8 billion and is 51% owned by the city.“

True: and Goldman, or some other bank filled to the gills with the Fed’s generous excess reserves, would be happy to swoop in and scoop up hard Roman assets providing it with just the right cover for creeping global encroachment. The benefactors? A select few equity shareholders. Because for every million or so peasants who suffer, a few rich men have to get even richer in the New Feudal Normal.

via Zero Hedge http://ift.tt/1cXa7wT Tyler Durden

Newly-released Snowden documents show that the British and American spy agencies gathered and stored many millions of images from Yahoo web cam streams … and that a large percentage are naked or pornographic images.

Given that the spy agencies use porn to discredit activists – and apparently to blackmail critics –  it is worth asking whether that was the larger purpose for this spy program.

Indeed, Glenn Greenwald – who has seen all of the Snowden documents – tweets:

Regarding GCHQ/NSA collection of sex chat photos, remember they plot to use online sex activity to harm reputations ….

via Zero Hedge http://ift.tt/1o9aO8d George Washington

Goodbye SAC Capital. Hello SEC Capital.

A new study released by Rajgopal of Emory and White of Georgia State confirms what most have long known: SEC employees are immaculate stock pickers and “that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular.” But those wily regulators are tricky indeed: instead of frontrunning good news and outperforming on the upside, the “abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices.” In other words, in a market in which hedge funds have given up on shorting stock, the best outperformer is none other than the very entity that is supposed to regulate and root out illicit market activity!

From the study’s summary:

We use a new data set obtained via a Freedom of Information Act request to investigate the trading strategies of the employees of the Securities and Exchange Commission (SEC). We find that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices. We find that at least some of these SEC employee trading profits are information based, as they tend to divest (i) in the run-up to SEC enforcement actions; and (ii) in the interim period between a corporate insider’s paper-based filing of the sale of restricted stock with the SEC and the appearance of the electronic record of such sale online on EDGAR. These results raise questions about potential rent seeking activities of the regulator’s employees.

What questions? By now it is abundantly clear that enforcing a fair and efficient market is the last thing on the minds of SEC staffers. It is now also quite clear that in such times when said staffers are not browsing porn on the taxpayers’ dime, they are trading stocks on illegal, market-moving information.

And since not even the most sophisticated hedge funds can generate returns through shorting, maybe it is time for the government to do something right, and spin off SEC Capital as a standalone hedge fund.

The added benefit: the 2 and 20 fees said fund charges can be used to pay down a tiny fraction of US debt, and maybe hire real private sector regulators who will do the public agency’s job for a change.

Full study link here

via Zero Hedge http://ift.tt/1mI4k1f Tyler Durden

Russia may be awaiting a diplomatic resolution of the Ukraine crisis, but we wouldn’t hold our breath especially with the deposed president Yanukovich set to conduct a press conference tomorrow from Russia’s Rostov-on-Don at 5pm local time, where we hardly anticipate a scaling back of the escalation in what is sure to not be an abdication from power. Instead, Putin continues to prepare for the worst and is openly signalling to the West that if he has to fight to regain influence in the Ukraine, he will, as a top Kremlin politician warned last week. As such it was not surprising to read that two Russian warships, the Minsk and the Kaliningrad which last week were sent out on deployment around Syria, crossed back into the Black Sea, most likely in direction Sevastopol, as the build up of Russian forces in the Crimea continues.

From Bosphorus Nabal News:

Today, two Ropucha class landing ship from Russian Navy passed through Bosphorus returning from their Syrian deployment. As the political crisis in Ukraine particular in Crimea is increasing it is possible that Russian Navy wanted these valuable assets closer to home.

 

Large landing ship Kaliningrad passing through Bosphorus. Photo: seabreeze.org.ua via webcam.

 

And in other more perplexing news, AFP reported that a Russian warship was docked in Havana Wednesday, without explanation from Communist Cuba or its state media. “The Viktor Leonov CCB-175 boat, measuring 91.5 meters (300 feet) long and 14.5 meters wide, was docked at the port of Havana’s cruise ship area, near the Russian Orthodox Cathedral.

The Vishnya, or Meridian-class intelligence ship, which has a crew of around 200, went into service in the Black Sea in 1988 before it was transferred seven years later to the northern fleet, Russian media sources said.

Neither Cuban authorities nor state media have mentioned the ship’s visit, unlike on previous tours by Russian warships.

The former Soviet Union was Cuba’s sponsor state through three decades of Cold War. After a period of some distancing under former Russian president Boris Yeltsin, the countries renewed their political, economic and military cooperation.

The ship is reportedly armed with 30mm guns and anti-aircraft missiles.

The Mail adds that The intelligence vessel bristles with electronic eavesdropping equipment and weaponry, including AK-630 rapid-fire cannons and surface-to-air missiles.

Why is Russia planting a spy ship in the US backyard? It might have something to do with John Kerry’s earlier admonition that the US is now behaving like a “poor nation” – maybe Russia decided to test just how poor?

via Zero Hedge http://ift.tt/1fu5Bse Tyler Durden

Just like in yesterday’s scorching 5 Year auction, demand for today’s $29 billion in 7 Year paper was blistering, with a yield of 2.105% stopped through the When Issued 2.108%, and the lowest since November as appetite for the belly of the curve is the highest in months. The Bid to Cover was also very strong at 2.723, the highest since November 2012, and like in other shorter-maturity auctions, has reverse the recent declining trend in BTCs. But the most notable features in the conclude auction, the bulk of which will naturally be quickly flipped back to the Fed, is that while Indirects took down 41.12% or spot on with the 12 Month average, and Dealers were left with 34.28%, below the 40.0% TTM average, it left Directs with 24.6% – this was the highest Direct take down in the history of the bond. The Primary Dealers, who have been openly complaining about Direct Bidder participation in bond auctions in recent weeks, will certainly not be happy about this particular development as increasingly more paper goes straight into the hands of Direct bidders.

Most importantly, and like before, if there are still any vestiges of the Great Rotation from bonds to stocks, don’t look for them here.

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

Missed today’s follow up Janet Yellen testimony before the Senate Banking Committee? Don’t worry: you didn’t miss much, all the bases were covered including winter weather during the winter, the Fed’s complete cluelessness about what “full employment” means (because the definition changed thoroughly from December 2012 when it was 6.5%), what the “quantitative” definition of quantitive easing is (Yellen has no idea), why the Fed isn’t subject to a haircut on its MBS holdings while all the other banks have to suffer under the intolerable Basel III 15% haircut (something to do with illiquidity of MBS, and specifically – something to do with the fact that the Fed has soaked up more than all net issuance of MBS in the past year, but don’t worry – the Fed is on top of it), and, of course, Bitcoin.

For everything else, here is Goldman’s post-mortem of Yellen’s Day Two testimony.

BOTTOM LINE: There were few surprises from day two of Chair Yellen’s semi-annual monetary policy testimony before the Senate Banking Committee (originally scheduled for February 13 but delayed due to snow). At the margin, she indicated a bit more concern about the soft recent data, though not to the degree of signaling an end to the QE tapering process.

MAIN POINTS:

1. Regarding the recent string of weaker economic data, Chair Yellen briefly deviated from her prepared text during her introductory remarks, and noted that “…a number of data releases have pointed to softer spending than many analysts had expected. Part of that softness may reflect adverse weather conditions, but at this point it is difficult to discern how much.” Responding to a question from Senator Schumer on whether that Fed would cease tapering in light of the recent data, Yellen indicated that “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions.”

2. Yellen did not clearly indicate a preference for any specific change to the forward guidance. At different points in time during the Q&A, Yellen suggested several indicators to supplement the unemployment rate in assessing the amount of slack remaining in the labor market, including the number of individuals working part-time for economic reasons, the broader “U-6” measure of unemployment, the long-term unemployment rate, wage inflation, and labor market flows. She declined to provide any quantitative information on her view of what constitutes full employment.

3. On the potential approach to managing the Fed’s expanded balance sheet during monetary policy exit, Yellen stated that “there is no need to bring down the size of our portfolio to tighten monetary policy. We have a range of tools that we can use to raise the level of short-term interest rates at the time the Committee deems appropriate.” This was consistent with past statements from Chairman Bernanke and represents a change from the June 2011 exit strategy principles. We forecast portfolio reinvestments at least until the time the Fed starts increasing the funds rate.

4. When asked about potential imbalances in financial markets due to the stance of monetary policy, Yellen stated that “at this stage I don’t see concerns.” However, consistent with past statements from Federal Reserve officials, she did highlight “pockets of concern,” including underwriting standards in leveraged lending and farmland prices.

via Zero Hedge http://ift.tt/1dF6MiZ Tyler Durden

Wolf Richter   http://ift.tt/NCxwUy   http://ift.tt/Wz5XCn

In real estate, national averages paper over the gritty details on the ground and are a crummy, often contradictory indicator as to what is happening in specific metro areas. When a new trend starts or when a reversal takes place in some locations, it’s watered down by data from other unaffected locations to form the overall averages. But even with this caveat, a national average suddenly sounded an alarm for the housing market: the smart money has started to bail out.

The smart money entered the housing market gingerly in 2011 then piled in helter-skelter over the next two years, gobbling up vacant single-family homes out of foreclosure. The forays were funded by Wall Street, awash in the Fed’s crazy-money. The smart-money operators trained their guns on specific markets, such as Phoenix and Las Vegas, and bought homes by the thousands that they tried to rent out. Then they spread their campaigns to other cities.

The tally has reached 200,000 single-family vacant homes for which they’re now trying to find tenants. In the process, mega-landlords have emerged. On top of the heap: Invitation Homes, a unit of private-equity giant Blackstone Group, and American Homes 4 Rent, a highly leveraged REIT that went public last August.

As in the heyday before the financial crisis, their smartest minds are now feverishly at work trying to figure out how to shuffle risks and future losses off to yield-desperate investors who’ve been driven to near-insanity by the Fed’s relentless repression of interest rates. So Blackstone and American Homes 4 Rent have started selling synthetic structured securities that are backed, not by mortgages, like the toxic waste before the financial crisis, but by something even classier, rental payments – based on the rickety hope that these single-family homes will stay rented out. Wall Street is already jubilating: the market for this type of synthetic monster is estimated to be $1.5 trillion [read…. The Exquisitely Reengineered Frankenstein Housing Monster].

But now the party appears to be running out of booze. This frantic institutional buying has driven up home prices – in some areas above the levels of the prior bubble. Trying to make money by buying these homes at inflated prices and renting them out into a tough job market where strung-out consumers with declining real wages have trouble making ends meet has become a precarious business model.

In some of the formerly hottest metro areas, purchases by large institutional investors – those having bought at least 10 properties over the past 12 months – plunged in January from a year ago, according to RealtyTrac’s Residential & Foreclosure Sales Report: in Jacksonville, Florida, by 21%; in Tampa, by 48%; in Tucson, 59%; Memphis, 64%; in Cape Coral-Fort Myers, Florida, by 70%!

Institutional purchases hit the skids in over three-quarters of the 101 metro areas that RealtyTrac analyzed, their share dropping to 5.2% overall, from 7.9% in December, and from 8.2% in January 2013. It was the lowest monthly share since March 2012, at the infancy of this whole bonanza.

But 23 of the 101 metro areas had year-over-year gains, some of them late starters. In Atlanta, institutional purchases rose 9% to where a quarter of all homes were purchased by institutional investors. That’s how the Fed has “fixed” the housing market. In Austin, the institutional share soared by a mind-boggling 162% to reach nearly a fifth of all purchases. In Denver, their share rose 21%, in Dallas 30%.

And in Cincinnati 83%. “Big hedge fund investors,” explained Michael Mahon, Executive Vice President at HER Realtors, which covers the area. “I think that’s contributing to the lower levels of inventory available on the market,” he added, seeing how these vacant homes have been pushed from the much scrutinized for-sale listings to the ignored for-rent listings.

“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said RealtyTrac VP Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”

So forget the by now ubiquitous all-encompassing polar-vortex explanation. Which begs the question: if not institutional investors, who the heck is going to buy these homes at these prices?

Existing homeowners who buy a home and sell their old home don’t count. They’re just swapping homes, not creating demand. But foreigners are buying in certain cities – Chinese and Argentine buyers and others who want to deposit their wealth while they still can in a reasonably safe place. So they’re creating demand.

But the most powerful economic force in the housing market, first-time buyers? Normally, they’d swarm all over these homes and create real and lasting demand and make the housing market grow. But prices have soared, and mortgage rates have crept up, and young people are teetering under piles of student loans, and so that economic force has collapsed to record low levels. Read…. Without Them, The Housing ‘Recovery’ Remains A Sham

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While the “developed” world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn’t turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that “Ukrainian banks will be provided with necessary liquid assets, including cash.” But there is a condition: the funding will only come “if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website.”

From Itar-Tass:

“Financial and payment systems, which are of vital importance, operate normally, as well as the open market operations do. The situation is under control. We are getting feedback from all of the country’s banks, regardless their size”, he said.

 

Kuvib stressed that the National Bank’s gold reserve includes high-liquidity assets. He mentioned such priorities of the Ukrainian banking system as the protection of clients’ interests, as well as the resumption of negotiations with external creditors, the International Monetary Fund in the first place, right after the country’s new government is formed and elaboration of a strict new plan for economic and financial reforms.

 

“We are very determined regarding the measures, which will be applied to those who break the mandatory requirements and are involved currency speculations. I am certain the National Bank’s measures will calm the markets and the people and ease devaluation fears”, the bank’s chief said.

In other words, any and all banks that want to continue operating must pledge allegiance to the brand new central bank governor Kubiv, who previously did not work for Goldman Sachs, but instead was one of the commendants for the EuroMaidan demonstrations. That is not say he has no banking experience at all: previously he used to be head of Kredbank. Who is Kredbank? As it turns out, it is the bank with the largest Polish investment in banking institution in Ukraine. Kredobank national network contains central branch and 130 outlets throughout Ukraine. Today, European investment is 99.6% in the share capital of Kredobank, Ukrainian capital is 0.4%.

At least it is clear where the Ukrainian central banker’s allegiances lie, and under whose “open control” suddenly the entire Ukrainian banking sector has fallen under. And just like that, Europe knows everything these is to know about all assets held within the Ukrainian banking system by the local population.

via Zero Hedge http://ift.tt/1dF2wQr Tyler Durden