Category: zerohedge

Submitted by Bill Bonner via Acting Man blog,

Today is the big day. Investors are on the edges of their seats, waiting to find out what the Fed will do. Taper? No taper? Or maybe it will taper on the tapering off?

Our guess is the Fed will not commit to a serious program of reducing its support to the bond, equity and housing markets. It's too dangerous. Ben Bernanke – the man who didn't see the housing crash coming – won't want to see the stock market collapse just before he leaves office. He'll want to go out on a high note…

…and that means guaranteeing more liquidity.

Investors don't seem worried. On Monday, the Dow rose 130 points. Gold was up $10 an ounce. Most of the reports we read tell us the economy is improving. Unemployment is going down. Meanwhile, manufacturing levels are rising. Compared to Europe, the US is a powerhouse of growth and innovation, they say. Compared to emerging markets, it is a paragon of stability and confidence.

How much do investors love the US? Let us count the ways:

1. GDP per capita is running 7% – ahead of where it was in 2007. Among the world's major developed economies only Germany can boast of anything close. All the rest are falling behind.

2. The budget deficit – which was running at about 10% of GDP – is now down to just 4% of GDP.

3. Unemployment is going down, too. Heck, just 7 out of 100 Americans are officially jobless. Didn't Bernanke say he would tighten up when it hit that level?

4. And look at prices. Consumer price inflation is running at just 1% over the last 12 months. No threat from inflation, either.

Statistical Folderol

But wait …

What if all these things were delusions… statistical folderol… or outright lies? What if the true measures of the economy were feeble and disappointing? What if the US economy was only barely stumbling and staggering along?

Well, dear reader, you surely expect us to tell that the US economy is a hidden disaster… and we won't disappoint you. GDP? Carmen Reinhart studied the performance of rich economies following a financial crisis. Her paper, "After the Fall," showed that, six years after a crisis, per capita GDP was typically 1.5 percentage points lower than in the years before the crisis. But in the US, per capita GDP growth is running 2.1% lower than its pre-crisis level – significantly worse than average.

Deficits? Super-low interest rates have helped debtors everywhere. "Never have American companies brought a greater share of their sales to the bottom line," writes Bill Gross. How did they do that? Largely by taking advantage of the Fed's interest rate suppression program. But hey, the US government is the world's biggest debtor. It is the primary beneficiary of the Fed's miniscule rates.

That's part of the reason why deficits are low. Let the yield on the 10-year T-bond return to a "normal" 5%, and we'll see deficits soar again. (Interest payments, under this scenario, would add an additional $360 billion a year to the deficit.) Besides, it's not only the deficit that counts. It's also the total level of debt… and particularly the debt financed with funny money from the Fed.

Only twice in US history has the ratio of US Treasurys held at the Fed gone over 10% – once in 1944 and again today. The first time, it was a national emergency: World War II. Now, the Fed is merely fighting to protect a credit bubble.

Inflation? Yes, consumer price inflation is low. But what that shows is that real demand is still in a deleveraging trough. The money multiplier – the ratio of money supply to the monetary base – collapsed in 2008. It has not come back. Neither has the economy.

Unemployment? The rate has been doctored by removing people from the labor pool. The workforce is now smaller – as a percentage of the eligible pool – than at any time since 1978.

Besides, what is important is not the rate, but what people get from employment. On that score, it is a catastrophe. According to a Brookings Institution study, the average man of working age earns 19% less in real (inflation adjusted) terms today than he did during the Carter administration!

A Strange Kind of Recovery

What kind of economy is it that reduces a man's wages over a 43-year period? We don't know. But it's not likely to win any prizes. But why, with so many strikes against it, does the US economy still have the bat in its hands?

It's partly because the Fed has pumped up stock, bond and house prices – not to mention net corporate profit margins (by reducing the interest expenses on corporate debt) and consumer spending (through entitlement programs funded through the Treasury with ultra-low interest rates). So, the averages look pretty good… and they mask the ugliness beneath them.

The rich got richer on the Fed's EZ money. But the average "capita" is actually poorer. The bottom 90% of the population – people in 9 houses out of 10 – have 10% less income than they had 10 years ago.

This is not a success story. It's a disaster. And not one that tempts us into an overvalued US stock market.

 

As Rick Santelli previously raged…

On CNBC and all the channels that cover business, we have person after person after person, buy side, sell side, upside, downside:

• How is the economy? Economy is great.
• What about stocks? You got to buy them.
• What if they break? You have to buy the dips.
• What's wrong with the economy? I don't hear these people saying anything is wrong with the economy.

So what's wrong, Ben? Why can't we get out of crisis management mode?

 

There's always going to be something.

 

…

 

Why don't these people kick the tires?

 

They take a press release from the Federal Reserve and they think it was written by God.

 

 

Santelli demands we ask Bernanke – "what are you scared of," that keeps you pumping this much money into the system for this long?

Simply put, Santelli's epic rant is the filter that every investor (or member of the public) should be viewing financial media and the Fed today (or in fact every day).

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/eZAWT_dnhko/story01.htm Tyler Durden

Submitted by Bill Bonner via Acting Man blog,

Today is the big day. Investors are on the edges of their seats, waiting to find out what the Fed will do. Taper? No taper? Or maybe it will taper on the tapering off?

Our guess is the Fed will not commit to a serious program of reducing its support to the bond, equity and housing markets. It's too dangerous. Ben Bernanke – the man who didn't see the housing crash coming – won't want to see the stock market collapse just before he leaves office. He'll want to go out on a high note…

…and that means guaranteeing more liquidity.

Investors don't seem worried. On Monday, the Dow rose 130 points. Gold was up $10 an ounce. Most of the reports we read tell us the economy is improving. Unemployment is going down. Meanwhile, manufacturing levels are rising. Compared to Europe, the US is a powerhouse of growth and innovation, they say. Compared to emerging markets, it is a paragon of stability and confidence.

How much do investors love the US? Let us count the ways:

1. GDP per capita is running 7% – ahead of where it was in 2007. Among the world's major developed economies only Germany can boast of anything close. All the rest are falling behind.

2. The budget deficit – which was running at about 10% of GDP – is now down to just 4% of GDP.

3. Unemployment is going down, too. Heck, just 7 out of 100 Americans are officially jobless. Didn't Bernanke say he would tighten up when it hit that level?

4. And look at prices. Consumer price inflation is running at just 1% over the last 12 months. No threat from inflation, either.

Statistical Folderol

But wait …

What if all these things were delusions… statistical folderol… or outright lies? What if the true measures of the economy were feeble and disappointing? What if the US economy was only barely stumbling and staggering along?

Well, dear reader, you surely expect us to tell that the US economy is a hidden disaster… and we won't disappoint you. GDP? Carmen Reinhart studied the performance of rich economies following a financial crisis. Her paper, "After the Fall," showed that, six years after a crisis, per capita GDP was typically 1.5 percentage points lower than in the years before the crisis. But in the US, per capita GDP growth is running 2.1% lower than its pre-crisis level – significantly worse than average.

Deficits? Super-low interest rates have helped debtors everywhere. "Never have American companies brought a greater share of their sales to the bottom line," writes Bill Gross. How did they do that? Largely by taking advantage of the Fed's interest rate suppression program. But hey, the US government is the world's biggest debtor. It is the primary beneficiary of the Fed's miniscule rates.

That's part of the reason why deficits are low. Let the yield on the 10-year T-bond return to a "normal" 5%, and we'll see deficits soar again. (Interest payments, under this scenario, would add an additional $360 billion a year to the deficit.) Besides, it's not only the deficit that counts. It's also the total level of debt… and particularly the debt financed with funny money from the Fed.

Only twice in US history has the ratio of US Treasurys held at the Fed gone over 10% – once in 1944 and again today. The first time, it was a national emergency: World War II. Now, the Fed is merely fighting to protect a credit bubble.

Inflation? Yes, consumer price inflation is low. But what that shows is that real demand is still in a deleveraging trough. The money multiplier – the ratio of money supply to the monetary base – collapsed in 2008. It has not come back. Neither has the economy.

Unemployment? The rate has been doctored by removing people from the labor pool. The workforce is now smaller – as a percentage of the eligible pool – than at any time since 1978.

Besides, what is important is not the rate, but what people get from employment. On that score, it is a catastrophe. According to a Brookings Institution study, the average man of working age earns 19% less in real (inflation adjusted) terms today than he did during the Carter administration!

A Strange Kind of Recovery

What kind of economy is it that reduces a man's wages over a 43-year period? We don't know. But it's not likely to win any prizes. But why, with so many strikes against it, does the US economy still have the bat in its hands?

It's partly because the Fed has pumped up stock, bond and house prices – not to mention net corporate profit margins (by reducing the interest expenses on corporate debt) and consumer spending (through entitlement programs funded through the Treasury with ultra-low interest rates). So, the averages look pretty good… and they mask the ugliness beneath them.

The rich got richer on the Fed's EZ money. But the average "capita" is actually poorer. The bottom 90% of the population – people in 9 houses out of 10 – have 10% less income than they had 10 years ago.

This is not a success story. It's a disaster. And not one that tempts us into an overvalued US stock market.

 

As Rick Santelli previously raged…

On CNBC and all the channels that cover business, we have person after person after person, buy side, sell side, upside, downside:

• How is the economy? Economy is great.
• What about stocks? You got to buy them.
• What if they break? You have to buy the dips.
• What's wrong with the economy? I don't hear these people saying anything is wrong with the economy.

So what's wrong, Ben? Why can't we get out of crisis management mode?

 

There's always going to be something.

 

…

 

Why don't these people kick the tires?

 

They take a press release from the Federal Reserve and they think it was written by God.

 

 

Santelli demands we ask Bernanke – "what are you scared of," that keeps you pumping this much money into the system for this long?

Simply put, Santelli's epic rant is the filter that every investor (or member of the public) should be viewing financial media and the Fed today (or in fact every day).

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/eZAWT_dnhko/story01.htm Tyler Durden

Today’s key economic data point, aside from the FOMC announcement of course, was the monthly Housing Starts and Permits data. And with November starts printing at 1091K, a massive 202K unit surge compared to the 889K in October, this was the highest monthly print since early 2008 and biggest monthly jump since… 1990! Supposedly builders just can’t get enough. Well, maybe. Until one again looks below the headlines, where one finds that a substantial portion of the jump is once again due to the builders’ bet that rental housing demand will continue growing, as multi-family unit starts soared from 281K to 354K – just shy of the highest print since 2008 as well.

However, there was more: because if one assumes a major surge in seasonally adjusted data, there should be a matched surge in NSA data too. There wasn’t, and in fact the NSA print rose by a very modest 5.5K to 82.8K actual houses started in November. Additionally, the single-family print barely rose from 49.2 to just 51.9, well below the highs seen in the summer of 2013, when unadjusted single-family starts were higher than the November print from March until August! In fact, at 51.9K, single unit homes are back to mid-2011 levels. Thank you seasonal adjustments.

But nowhere was the seasonal adjustment in today’s data more evident than in the Housing Permits number. Yes, the headline number was great: it dipped modestly from an upward revised 1039K to 1007K but beat expectations of 990K handily. So what happens when one looks at the non-seasonally adjusted number? It cratered from 90.3 to 70.9K – this was the lowest print since February and the biggest absolute monthly drop in 5 years since November 2008!

Some seasonally-adjusted housing recovery…. in rental properties.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/NwrRTNnalLc/story01.htm Tyler Durden

It’s like a futuristic film with hoards of evil masses of people, poverty-stricken, living off the land, while the rich and wealthy continue to lord it, served to their hearts content and just raking it in, while the others hardly get enough to eat and drink. Yes, the resources of the planet are finite for the moment. Yes, those resources belong to the same people and yes the lands are worked for the benefit of the dollar-hungry few, while the money-poor subsist on what scraps get thrown to them. But, it might look like the future, but the present certainly resembles very much the long-forgotten past. We haven’t come very far since the days of feudalism, have we? There is still a power-crazed lord of the manor there that is just a business tycoon under another name. There are still the poor vassals that eke out their existence and wait in expectant eagerness for the bones to get tossed to them as the lord and his ladies walk off into the ramparts of the castle. This time it’s the water and the agricultural lands that are the much-sought after means of wealth. They bring down governments these days and oust leaders.

Water and Agriculture are already the cause of many a dispute in the world and even more so in the Middle East, in the Near East and in Africa. Take the example of ex-President Mohamed Morsi and his fall from power. The Ethiopians decided to spend $3 billion on the building of a hydraulic damn to siphon off the Nile. In May 2013, Morsi convened a meeting to discuss the project and it quickly turned into a fiasco with the media as it was transmitted live (by mistake or on purpose) on national television. The meeting went from decision-making discussions to threats of declaring war and to bribery of senior Ethiopian officials, via the destruction of the dam itself by Egyptian forces. Just a few weeks later, Morsi had fallen from power.

Water is everything from economic survival to territorial appropriation. It’s the cause of the downfall of governments and the revolt of the masses in countries that saw the ousting of their leaders during the Arab Springs. No country in the region was in a position to assume agricultural independence and each country has suffered from the increased dependence on water. There were food crises that hit those nations in 2007 as the Western world was being hit by their own financial crisis. The governments of countries in the regions massively invested in agriculture to keep the barking dogs at bay. But, that did nothing but increase the financial pressure on the economy and brought about hyperinflation. The governments were to some extent the cause of their own strife.

• Saudi Arabia pays out a billion dollars per month for imported food.
• Egypt forked out $3 billion for wheat alone in 2010.
• The countries of the Gulf import some 90% of their food today.
• Food prices got out of control in the lead up to the Arab Springs when the United Nations published figures showing that price indexes rose from 2009’s level of 157 to over 230 in 2011.
• Wheat increased over that same period by 30%.

According to the Pierre Blanc from the CIHEAM research laboratory (International Center for Agronomy Studies, France), the future will be worse as agricultural lands are transformed into deserts. Climate change coupled with demographic transitions (increasing numbers of people are huddled together on small pieces of land – in Egypt 95% of the population lives on 5% of the land, for example) in countries in the water-poor regions of the world will lead to increased hydraulic demand that will not be met by available supplies today. While the regions remain politically unstable, the volatility of governments and policies will only mean that it will pave the way for increased disputes over the sharing of resources. Recent discoveries of oil reserves and gas along the Mediterranean coastline between Egypt, Israel Lebanon and Syria as well as Turkey and Cyprus will mean that those countries (as well as other nations in the Western world) will be vying for a place to exploit those reserves to a maximum.

• Egypt has until now supplied 50% of Israel’s energy needs.
• But that may change in the future with the discovery of Tamar and Leviathan gas reserves.
• Tamar (282 billion m3) would allow Israel to ensure its energy needs for the next 25 years.
• Leviathan (540 billion m3) would be a surplus that would enable Israel to rake in a great deal of money.
• 60% of Leviathan will be used for domestic consumption in Israel, while 40% will be exported to other countries.
• The other countries along the coastline seem to have equally promising amounts of gas and petrol in areas under their exclusive economic control.

Where there are resources that we want, there is a fight for power; that struggle turns into political upheaval and change. Too much testosterone will be flying around there yet again and everyone will be playing out their role of the alpha male to dominate the others.

Originally posted: Water and Agriculture

Mandela and Obama: Millions of Miles Apart |  Potato Juice Just Got Upped | Government: Byword for Corruption | Getting Ready for the Big One: February 2014 | Pornvestments | The Stooges are Running the Show, Obama |  Banks: The Right Thing to Do | Bitcoin Bonanza | The Super Rich Deprive Us of Fundamental Rights |  Whining for Wine |Cost of Living Not High Enough in EU | Record Levels of Currency Reserves Will Hit Hard | 

 Indian Inflation: Out of Control? | Greenspan Maps a Territory | Gold Rush or Just a Streak? | Obama’s Obamacare: Double Jinx | Financial Markets: Negating the Laws of Gravity  |Blatant Housing-Bubble: Stating the Obvious | Let’s Downgrade S&P, Moody’s and Fitch For Once | US Still Living on Borrowed Time | (In)Direct Slavery: We’re All Guilty |

Technical Analysis: Bear Expanding Triangle | Bull Expanding Triangle | Bull Falling Wedge | Bear Rising Wedge | High & Tight Flag 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XIh2AcuvaLk/story01.htm Pivotfarm

Spanish loan delinquencies as a percentage of the total have risen for the 8th straight month to a new record high of 13.00% (even as sovereign bond spreads continue to plunge to multi-year lows signaling all is well). With unemployment rates stuck stubbornly high, however, reality is starting to dawn in the Spanish banking system as mortgage defaults are rising following the Bank of Spain’s order for lenders to review their portfolios. As Bloomberg reports, the default rate for Banco Santander alone jumped to 7% (from 3.1%) following its “reclassification” of loans that it had refinanced (never expecting to be repaid) and with home prices still falling, “there is an urgency to come clean” as regulators see the need for banks to cover a further EUR5 billion shortfall in provisions.

 

The slow-and-steady rise in deliquencies smacks of an industry that is dripping out there problems – hiding facts from reality and the spike for Banco Santander is merely highlighting the mis-statement…

 

Via Bloomberg,

With Spain’s persistently high unemployment rate now at 26 percent, the couple is among the 350,000 homeowners who may be foreclosed upon by lenders in the next two years as the housing crisis worsens, according to AFES, a Madrid-based association that advises on restructuring debt. Since 2008, about 150,000 families have been hit with a foreclosure.

 

“We refinanced three years ago, but now the noose is around our necks,” Males, 42, said. “Not only do we still owe more than the original loan. We’re losing our home as well.”

 

…

 

As mortgage defaults rise, lenders will have to set aside money to cover losses, hurting profits, according to Juan Villen, head of mortgages at Spanish property web site Idealista.com. Spanish banks absorbed 87 billion euros ($120 billion) of impairment charges last year after Economy Minister Luis de Guindos forced them to record more defaults on loans to developers. The government took 41 billion euros in European assistance to shore up its failing lenders.

 

…

 

Defaults are rising partly because of changes required by the Bank of Spain that force lenders to book more soured mortgages.

 

“When the real estate bubble burst in 2008, banks used refinancing en masse to cover up non-performing residential mortgage loans,”

Which led to a broad loan review…

In April, the Bank of Spain ordered lenders to review their portfolios of refinanced loans, including mortgages, to make sure they’re classified in a uniform way. Lenders had 208 billion euros of loans on their books that they’d restructured or refinanced as of the end of 2012, according to the regulator.

 

The review led the regulator to the preliminary conclusion that classifying all refinanced loans correctly would cause a 21 billion-euro increase in defaults. Lenders would need to generate a further 5 billion euros of provisions to cover the losses.

 

The default rate for Banco Santander SA (SAN)’s Spanish mortgages jumped to 7 percent in September from 3.1 percent in June as it reclassified loans that it had refinanced.

 

“As a bank this will be the main focus area, whether you are properly recording your non-performing loans, especially the refinanced ones,” said Alexander Pelteshki, an analyst at ING Financial Markets in Amsterdam. “There is an urgency to come clean.”

But it’s not going to get better any time soon…

“Until Spain starts creating jobs and credit starts flowing again, house prices aren’t going to recover,” Beatriz Toribio, head of research at Fotocasa, said. “We expect further price declines, albeit smaller than in previous years, in 2014.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9sc9Nmd58qQ/story01.htm Tyler Durden

There is a saying: “don’t buy the hand that feeds you” but there is nothing in popular aphorism literature about suing the hand that bails you out. Which is precisely what JPM did overnight when it sued the Federal Deposit Insurance Company, claiming the agency was responsible for over $1 billion in liabilities assumed by the bank as part of its takeover of Washington Mutual in 2008. Of course, having been the subject of a relentless battery of lawsuits by every US agency imaginable, many were wondering when JPM would strike back, or rather if it would have the temerity to sue the same government that bailed it out with billions of direct injections and even more billions in FDIC-subsidized bond issuance. The answer is yes, and as JPMorgan alleged in the complaint, the FDIC agreed to shield it from liability from lawsuits claiming failures by Washington Mutual. JPMorgan said it took on only limited liabilities in its purchase of the Seattle-based bank’s assets. What next: Jamie Dimon sues the Fed for forcing it to acquire Bear Stearns’ assets at the firesale price of $2 $10 per share, in which the bank assumed Bear’s assets if not so much its liabilities – after all there was a government to bail it out for that.

From Bloomberg:

“The FDIC’s indemnification obligations that are the subject of this action are a matter of contract,” the New York-based bank said in its complaint. “They are promises that the FDIC made to JPMC to induce JPMC” to buy Washington Mutual’s assets, it said.

 

Greg Hernandez, an FDIC spokesman, didn’t immediately return voice-mail and e-mail messages after regular business hours seeking comment on the bank’s allegations. Brian Marchiony, a JPMorgan spokesman, declined to comment on the case.

WSJ adds:

J.P. Morgan and the FDIC have squabbled over who must shoulder the burden for legal claims stemming from decisions Washington Mutual made before the deal. J.P. Morgan said the FDIC receivership that liquidated the failed thrift in 2008 should pay any claims. The FDIC has countered that J.P. Morgan is responsible.

 

The battle came to a head Tuesday when the New York bank alleged in its suit, filed in U.S. District Court in Washington, D.C., that the FDIC receivership hasn’t honored its obligations. J.P. Morgan is seeking a portion of the $2.7 billion remaining in the receivership, which includes $1.88 billion J.P. Morgan paid for Washington Mutual’s branches and deposits.

 

* * *

 

The assets in the receivership should be “sufficient,” J.P. Morgan said in its lawsuit, to cover everything from a settlement with mortgage-finance companies Fannie Mae and Freddie Mac to injuries sustained by a woman who slipped on a ceramic tile outside a Washington Mutual branch to millions in unpaid state taxes. The FDIC has said previously that it didn’t reject all Washington Mutual-related claims.

 

J.P. Morgan said in its lawsuit filed Tuesday that the FDIC pledged in a 39-page purchase agreement to protect it from such liabilities. One key section of the agreement states the FDIC receivership “agrees to indemnify and hold harmless” J.P. Morgan for any liabilities of Washington Mutual that “are not assumed” by J.P. Morgan. In exchange, the bank said in its lawsuit Tuesday, J.P. Morgan “protected” the FDIC “from potentially unprecedented liability and helped ensure the stability of the country’s banking system.”

As a reminder, there wasn’t exactly a gun to JPM’s head when it was bidding for WaMu’s assets being offered in a sudden and dramatic firesale:

The fall of the Seattle thrift was the biggest commercial-banking failure in U.S. history, and it presented immediate benefits to J.P. Morgan, expanding its network across the U.S. for the first time. The FDIC chose J.P. Morgan’s bid over a competing offer from Citigroup Inc.

But while JPM was happy with purchasing WAMU’s assets at pennies on the dollar, it seems it had some reservations about the liabilities. As for JPM’s strategy, it is quite clear: divert attention from the possibility of even more billions in legal provisions.

J.P. Morgan reiterated in its lawsuit that it separately expects the FDIC receivership to cover any potential damages resulting from a private lawsuit brought by Deutsche Bank National Trust Co. seeking as much as $10 billion on behalf of more than 100 trusts holding poorly performing bonds issued by Washington Mutual. J.P. Morgan and the FDIC already have disagreed in that case over who ultimately is liable for those claims.

Will the US government – engaged in a push to “punish” banks for what has largely been a failure to govern and supervise effectively and thus also divert attention from its failings – settle with JPM, or will this merely enrage the Department of Justice and seek even more punitive damages (if no prison sentences – never prison sentences) from JPM management remains to be seen. One thing is certain: JPM’s lobby spending in the next year is set to break all records – after all politicians have made it quite clear they demand much moar from the Wall Street lobby.

Full JPM complaint below.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RrdRIiKXDV4/story01.htm Tyler Durden

• MOAR: BOJ Said to See Significant Room for More Bond Purchases (BBG)
• Meltdown Averted, Bernanke Struggled to Stoke Growth (Hilsenrath)
• New Mortgages to Get Pricier Next Year (WSJ)
• Republicans to Seek Concessions From Obama on Debt Limit (BBG)
• Hunting for U.S. arms technology, China enlists a legion of amateurs (Reuters)
• Jury Begins Deliberating in Case of SAC Portfolio Manager (WSJ)
• BP to Write Off $1 Billion on Failed Well (WSJ)
• Rajan Unexpectedly Keeps India Rates Unchanged to Support Growth (BBG)
• Thai protesters say they will rally to hound PM from office (Reuters)
• SEC Brings Fewer Enforcement Actions, Slows Early-Stage Probes (WSJ)
• Eurozone agrees ‘backstop’ for failing banks (FT)
• Merkel Prods EU Finance Chiefs as Bank-Failure Talks Heat (BBG)
• China confirms near miss with U.S. ship in South China Sea (Reuters)

 

Overnight Media Digest

WSJ

* Russia lavished Ukraine with a bailout package worth at least $20 billion on Tuesday, trumping the West in a Cold War-tinged struggle that keeps the former Soviet republic in Moscow’s orbit.

* Inflation is slowing across the developed world despite ultra-low interest rates and unprecedented money-printing campaigns, posing a dilemma for the Federal Reserve and other major central banks as they plot their next policy moves.

* A five-year battle between the largest U.S. bank and one of its regulators escalated Tuesday when JP Morgan Chase & Co sued the Federal Deposit Insurance Corp over the messy 2008 purchase of Washington Mutual Inc’s banking operations.

* First-year enrollment at U.S. law schools plunged this year to levels not seen since the 1970s as students steered away from a career that has left many recent graduates loaded with debt and struggling to find work.

* Xiaomi Inc, the startup that has rattled China’s smartphone market with its fast-selling handsets, is looking to tap its international fan base for help as it tries to expand abroad, according to its new American executive.

* Private-equity firm Centerbridge Partners LP backed out of a deal to acquire LightSquared Inc, the telecommunications firm in bankruptcy proceedings, amid uncertainty over when federal regulators would clear the way for the company to build out its wireless network, said people familiar with the matter.

* Frontier Communications Corp agreed to buy AT&T Inc’s landline telephone, broadband and TV operations in Connecticut for $2 billion in cash, expanding its base of operations and shoring up the ability to pay its dividend.

* The world may be anxious to welcome Microsoft Corp’s next chief executive. The company’s board isn’t in a rush. John W. Thompson, the Microsoft director leading the search, said in a blog post Tuesday that the board doesn’t expect to name a new CEO until next year.

* After fighting over everything from arcane spectrum rules to telecom mergers, Dish Network Corp and Sprint Corp are showing signs of becoming friends. Sprint, the No. 3 U.S. cellphone carrier by subscribers, and Dish, a satellite TV company, said Tuesday they will work together to test a fixed wireless broadband service in Corpus Christi, Texas, beginning in the middle of next year.

* A coming vote for control of the board of Telecom Italia SpA could finally dispel confusion over the strategy of the telecommunications company, allowing it to pursue an investment plan to address Italy’s “hypercompetitive” telecom market, Chief Executive Marco Patuano said in an interview.

* China’s Wanda Cinema Line Corp is expanding its partnership with IMAX Corp signing on 80 new IMAX theaters in a deal that would make China the big-screen company’s largest market.

 

FT

BP Plc accused a U.S. lawyer of making “misrepresentations” about the number of clients he represented in his legal action against the energy giant over the 2010 Deepwater Horizon disaster.

3M, whose products range from Post-It notes to films used in flat-panel TVs, said it may buy back up to $22 billion worth of shares in the five years until 2017, jumping on the bandwagon of U.S. companies announcing sizable capital returns to investors.

JPMorgan Chase & Co, the largest U.S. bank, has sued the Federal Deposit Insurance Corporation, which managed the receivership of Washington Mutual after the it failed during the financial crisis and then sold most of its assets to JPMorgan.

Britain’s Airports Commission on Tuesday outlined two ways to grant Heathrow a third runway, while casting severe doubt on proposals for a hub in the Thames estuary that had been championed by Mayor of London Boris Johnson.

British retailer House of Fraser is in advanced, exclusive talks to be bought out by French department store chain Galeries Lafayette, according to two sources familiar with the situation.

 

NYT

* William Morris Endeavor, working with its private equity partner, Silver Lake Partners, beat out two other groups with an offer of about $2.3 billion for IMG, according to people with direct knowledge of the matter, who spoke on the condition of anonymity because the companies intend to announce the acquisition on Wednesday.

* Facebook is betting the patience of some of its users against the hundreds of millions of dollars it could make on video advertisements. The company will place video ads into some news feeds – the stream of items on a Facebook page – starting this week.

* The first initial in the ABC television network stands for “American,” but it might well stand for “asterisk.”

* A bipartisan tax-and-spending plan designed to bring some normalcy to Congress’s budgeting after three years of chaos cleared its final hurdle on Tuesday when 67 senators voted to end debate on the measure and bring it to a final vote before it goes to President Obama for his signature.

* Frank Darabont, the creator of one of television’s biggest hit shows, “The Walking Dead,” escalated his long feud with the AMC network on Tuesday, charging in a lawsuit that he had been cheated out of tens of millions of dollars because of “self-dealing” by the network.

* President Obama has chosen a former Microsoft executive, Kurt DelBene, to replace Jeffrey Zients as head of the effort to finish repairs on the government’s health insurance website, administration officials said on Tuesday.

* BP on Tue
sday accused a Texas lawyer of fraudulently driving up its settlement costs in the 2010 Gulf Coast oil spill by claiming to represent tens of thousands of clients who turned out to be “phantoms.”

* Some e-commerce marketers are having a challenging holiday season, and they blame Google for it. A change to Gmail that relegated retailers’ emails to a separate inbox for promotions has had a big effect during the busiest shopping period of the year, according to three services that manage mass emails. And another change to Gmail, involving the way it shows images in messages, made it harder for retailers to track who opens their emails.

* The deal world remained muted this year in terms of big transactions and activity. According to Dealogic, the number of announced takeovers in the United States so far this year was down about 22 percent, while volume was $1.1 trillion, up about 15 percent from last year but still below the level in the years before the financial crisis.

* The Bill & Melinda Gates Foundation has tapped Susan Desmond-Hellmann, chancellor of the University of California, San Francisco, as the next chief executive of the charitable organization.

 

Canada

THE GLOBE AND MAIL

* Manitoba is calling for a recount of its population, claiming Statistics Canada’s estimate is too low and is ultimately shortchanging the province in transfer payments.

The province believes it has 18,000 more people than the 1,265,015 residents Statscan says it has, with the province arguing it will lose $100 million in federal transfers because of the discrepancy.

* Toronto city council met to discuss water rates and rules with the integrity commissioner on Tuesday, but instead, all eyes were on the controversial mayor, Rob Ford, as he stood twice to apologize, danced in the chamber, argued with a councillor and received a personal visit from Santa Claus in his office.

Reports in the business section:

* Two of Barrick Gold Corp’s independent directors – Robert Franklin and Donald Carty – resigned suddenly on Tuesday, the company said in a surprise announcement that came less than two weeks after it overhauled its board and nominated four new independent board members.

* Imperial Oil Ltd has applied to build a $7-billion steam-driven Alberta oil sands project during a period in which industry-wide costs are expected to climb because numerous major developments will be under construction.

* The dozens of First Nations along the route of TransCanada Corp’s Energy East pipeline should not expect offers for equity stakes in the $12-billion project as the company seeks approval, although a host of other economic benefits would accrue to the communities, TransCanada’s chief executive said.

NATIONAL POST

* Ontario’s elite private schools have won a court battle to enforce their own discipline free from judicial oversight, following the controversial expulsion of a student caught smoking a bong on his last day of high school.

* Oil sands advocacy group Ethical Oil has filed a formal complaint against a judge who participated in a mock trial of well-known environmentalist David Suzuki. Held at Toronto’s Royal Ontario Museum in November, the live theater performance put Suzuki on “trial” for seditious libel.

FINANCIAL POST

* The National Energy Board will release a verdict on Enbridge Inc’s Northern Gateway pipeline on Thursday, setting the stage for a decision on the contentious pipeline by the federal cabinet next year.

* BlackBerry Ltd’s interim Chief Executive John Chen has found the man he wants to lead the struggling company’s enterprise services business.

Late Tuesday, BlackBerry officials announced John Sims, formerly the president of SAP AG’s mobile service business, as the new president of the division.

* After receiving nearly 200 submissions from market players during months of consultations, Canadian regulators have decided to combine scrutiny of mutual fund compensation with a separate consideration of whether they need to overhaul the rules governing the relationship between financial advisers and retail clients.

 

China

CHINA SECURITIES JOURNAL

– The most severe threat to China’s economy in 2014 could come from its volatile property market, experts and analysts told the paper. The real estate environment could lead to the weakening of investment and a hard landing, they said.

– China’s banking regulator discussed drafting regulations on the establishment of private banks and the use of private capital to establish small and medium-sized banks in a meeting held on Monday, the paper said.

SHANGHAI DAILY

– Online sales of masks and air purifiers on China’s online marketplace Taobao have reached 870 million yuan ($143.3 million) so far this year amid the country’s worsening smog. Rival JD.com said similar sales had increased 685 percent versus 2012.

SHANGHAI SECURITIES NEWS

– Chinese search engine firm Baidu Inc is set to launch a new financial management product “Baifa” on Dec. 20 in conjunction with asset management firm Harvest Fund. The product will have a 1 yuan threshold for investment.

CHINA DAILY

– Authorities in China’s northeastern Hebei province began the demolition of 18 cement factories on Tuesday in a bid to clean up soaring levels of pollution. Seventy-four plants on the outskirts of Shijiazhuang, the provincial capital, are targeted for destruction by March.

PEOPLE’S DAILY

– Some of China’s government units have become complacent about mass education, said a commentary in the paper that acts as the Party’s mouthpiece. Such complacency only underlines the importance of educating the masses, it said.

 

Britain

The Telegraph

NETWORK RAIL TO ADD 30 BLN STG TO GOVERNMENT DEBT

Network Rail is to be reclassified as a public-sector company, adding 30 billion pounds ($48.72 billion) to public sector net debt. The change to the status of the state-owned company that manages Britain’s railway network, will take place next September, the Office for National Statistics said.

CO-OP BONDHOLDERS BACK 1.5 BLN STG RECAP

The Co-op Bank’s 1.5 billion pound emergency recapitalisation has passed its final investor hurdle as the lender received the support of bondholders for the deal.

SIR MARTIN SORRELL BUYS INTO DAVOS

Martin Sorrell’s WPP Plc has bought a 30 percent stake in Richard Attias & Associates, the conference producer behind the annual meeting of political and business leaders in Davos in the Swiss Alps.

The Guardian

MARK CARNEY STANDS BY FORWARD GUIDANCE POLICY

Bank of England Governor Mark Carney has robustly defended his forward guidance policy in parliament against critics who argue it is confusing and has done little to persuade markets that an interest rate rise can be delayed for three years while the economy mends.

GLAXOSMITHKLINE TO STOP PAYING DOCTORS TO PROMOTE DRUGS

Britain’s biggest pharmaceutical company, GlaxoSmithKline , has said it will stop paying doctors tens of millions of pounds a year to promote its drugs.

LIBOR RATE-RIGGING SCANDAL TRADER PLEADS NOT GUILTY

A former UBS and Citigroup trader has pleaded not guilty in a London court to charges that he had sought to manipulate Libor benchmark interest rates with employees from around 10 leading banks and brokerages.

BOB DIAMOND COULD GAIN MILLIONS FROM NEW AFRICAN INVESTMENT VENTURE

Bob Diamond, ousted as boss of Barclays last year after the Libor-rigging scandal, potentially stands to reap millions of pounds from a new stock market venture set up to acquire financial services companies in Africa.

HEATHROW AND GATWICK SHORTLISTED FOR NEW RUNWAYS

A new battle looms over a Heathrow third runway –
or a second at Gatwick airport – after the Airports Commission said that additional capacity was needed in the south-east of England. Extra runways at London’s two biggest airports are on the shortlist the commission will study before issuing its final recommendation.

CAR INSURANCE TOO HIGH, SAYS COMPETITION COMMISSION

Car insurance premiums are too high, with the way no-fault claims are settled and contracts between insurers and price comparison sites among the issues driving up costs for consumers, the competition watchdog has said.

The Times

MANUFACTURING SECTOR HOLDS ITS MOMENTUM

Growth in factory orders and output has remained at its highest since the mid-1990s, confirming that the manufacturing recovery has kept its momentum. The Confederation of British Industry’s survey of nearly 400 factory bosses found that nearly all industry sectors reported growth for a second consecutive month.

HOUSE OF FRASER CLOSE TO FALLING INTO FRENCH HANDS

House of Fraser, one of Britain’s oldest retail chains, is in late-stage talks with a view to being bought by the family owned French department store Galeries Lafayette, it emerged last night.

The Independent

UK INFLATION FALLS TO A 4-YEAR LOW AT 2.1 PCT IN NOVEMBER

The lowest inflation for four years added to the UK’s economic purple patch yesterday, following strong quarterly growth and declining unemployment in boosting the nation’s recovery prospects next year.

MEGA DISCOUNTERS LURING CUSTOMERS AWAY FROM BIG FOUR SUPERMARKETS IN RECORD NUMBERS, SAYS KANTAR

Half the country shopped at an Aldi or Lidl in the last three months for the first time on record, with cash-conscious shoppers love-affair with discount supermarkets shows no signs of slowing down.

 

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Luxottica (LUX) upgraded to Overweight from Neutral at HSBC
Pan American Silver (PAAS) upgraded to Neutral from Underweight at JPMorgan
Roadrunner (RRTS) upgraded to Buy from Hold at Stifel
Southern Copper (SCCO) upgraded to Buy from Neutral at Citigroup

Downgrades

Avon Products (AVP) downgraded to Neutral from Buy at BofA/Merrill
El Paso Electric (EE) downgraded to Hold from Buy at Jefferies
Jabil Circuit (JBL) downgraded to Sell from Neutral at Citigroup
Kinross Gold (KGC) downgraded to Neutral from Overweight at JPMorgan
LATAM Airlines (LFL) downgraded to Sell from Neutral at Goldman
Nanometrics (NANO) downgraded to Hold from Buy at Stifel
Royal Bank of Scotland (RBS) downgraded to Underweight from Neutral at HSBC
Targacept (TRGT) downgraded to Neutral from Buy at MKM Partners
Tower Group (TWGP) downgraded to Neutral from Buy at Compass Point

Initiations

Alere (ALR) initiated with an Outperform at JMP Securities
Arc Logistics (ARCX) initiated with a Buy at Citigroup
ArrowHead Research (ARWR) initiated with a Buy at Jefferies
Cognex (CGNX) initiated with a Buy at BB&T
DaVita (DVA) initiated with a Buy at KeyBanc
Envision Healthcare (EVHC) initiated with a Buy at KeyBanc
Eros International (EROS) initiated with a Buy at UBS
Fabrinet (FN) initiated with a Buy at B. Riley
Foundation Medicine (FMI) initiated with an Outperform at JMP Securities
GigOptix (GIG) initiated with a Buy at B. Riley
Groupon (GRPN) initiated with an Outperform at Northland Securities
Illumina (ILMN) initiated with an Outperform at JMP Securities
LabCorp (LH) initiated with a Market Perform at JMP Securities
MEDNAX (MD) initiated with a Hold at KeyBanc
Mirati Therapeutics (MRTX) initiated with a Buy at Jefferies
NeoPhotonics (NPTN) initiated with a Buy at B. Riley
Organovo (ONVO) initiated with a Market Perform at JMP Securities
Plains GP Holdings (PAGP) initiated with a Buy at Citigroup
QIAGEN (QGEN) initiated with an Outperform at JMP Securities
Quidel (QDEL) initiated with a Market Perform at JMP Securities
Rackspace (RAX) initiated with a Neutral at UBS
Restoration Hardware (RH) initiated with a Buy at KeyBanc
Tableau Software (DATA) initiated with a Neutral at RW Baird
United Rentals (URI) initiated with a Buy at Jefferies
World Point Terminals (WPT) initiated with an Outperform at Wedbush

HOT STOCKS

Amazon Web Services (AMZN) announced upcoming China region for cloud computing platform
Kraft Foods (KRFT) authorized $3B share repurchase program
Jabil Circuit (JBL) to sell aftermarket services unit for $725M, announced $200M share repurchase program
Blackstone (BX) purchased three Texas power plants from Direct Energy for $685M cash
BorgWarner (BWA) acquired all shares in Gustav Wahler, terms not disclosed
Teva (TEVA) confirmed agreement with Pfizer (PFE) to settle generic Viagra patent litigation
iRobot (IRBT) CEO Angle told CNBC he sees ‘a high growth year’ in 2014

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Lennar (LEN), HEICO (HEI), VeriFone (PAY)

NEWSPAPERS/WEBSITES

• Some advertisers rejoiced when Facebook (FB) introduced long-awaited video advertisements. A bigger question is how users will react and some are wary, the Wall Street Journal reports
• Consumers can expect to pay more to get a mortgage next year, the result of changes meant to reduce the role that Fannie Mae (FNMA) and Freddie Mac (FMCC) play in the market, the Wall Street Journal reports
• The Fed will decide today whether the U.S. economy is finally resilient enough to withstand less policy support, or whether it is prudent to wait a bit longer. A policy announcement is expected at 2 p.m., Reuters reports
• Boeing (BA) is narrowing its list of sites for building its newest jetliner, the 777X, to “a handful,” signaling its determination to consider locations outside Washington state where it now builds similar planes, Reuters reports
• New BlackBerry (BBRY) CEO John Chen, rejecting calls to exit the hardware business, gets a chance this week to convince investors he has the time and vision to revive a unit that’s dragging sales back down to 2007 levels, Bloomberg reports
• Goldman Sachs (GS) is among as many as 11 companies set to be fined early next year in a four-year-old EU antitrust probe into an underwater power cables cartel that tests regulators’ ability to penalize private-equity investors, sources say, Bloomberg reports

SYNDICATE

AMC Entertainment (AMC) 18.421M share IPO priced at $18.00
MarkWest Energy (MWE) announces 4.75M unit sale under equity distribution agreement
Opexa Therapeutics (OPXA) 4.12M share Spot Secondary priced at $1.70

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/n3mWGw3bVA8/story01.htm Tyler Durden

Today’s AM fix was USD 1,233.25, EUR 896.97 and GBP 754.05 per ounce.
Yesterday’s AM fix was USD 1,237.25, EUR 898.71 and GBP 759.42 per ounce.

Gold fell $10 or 0.81% yesterday, closing at $1,230.70/oz. Silver slipped $0.06 or 0.3% closing at $19.90/oz. Platinum dropped $13.51, or 1%, to $1,348.75/oz and palladium fell $14.78 or 2.1%, to $701.52/oz.

Gold (Black) and the Federal Reserve Balance Sheet (Red) – October 2008 to December 11, 2013

Gold, platinum and palladium all gained in London before the U.S. Federal Reserve’s policy statement on a potential ‘taper’ to its massive debt monetisation programme.

The taper caper continues and for the second time in three months, world markets are braced for the possibility of a slight reduction in the size of history’s greatest and most radical monetary experiment.

The Federal Reserve’s open market committee closes its meeting today and decides whether to start to taper the nearly $20 billion per week, or $85 billion per month, it creates each month in order to buy U.S. bonds.

Federal Reserve Balance Sheet and S&P 500 – The Financial Times

The Federal Reserve’s balance sheet is set to exceed a whopping $4 trillion today, prompting warnings its ultra loose monetary policies are inflating asset price bubbles and will lead to a devaluation of the dollar and significant inflation in the coming years.

The Fed’s assets rose to a record $3.99 trillion on December 11, up from $2.82 trillion in September 2012, when it embarked on a third round of bond buying. It’s balance sheet has ballooned by more than $3 trillion or 300% since September 2008 when it was at just $0.91 trillion.

The deterioration in the balance sheet of the Fed and most central banks in the world bodes well for gold prices in 2014.

Gold in U.S. Dollars, 30 Days – (Bloomberg)

Legendary investor Warren Buffett has described the U.S. Federal Reserve Bank as “the greatest hedge fund in history.” Buffett is underestimating the risks involved in the radical debt monetisation programme which poses serious risks to the dollar, the U.S. economy and the global economy.

Download Protecting your Savings In The Coming Bail-In Era (11 pages)

Download From Bail-Outs to Bail-Ins: Risks and Ramifications –  Includes 60 Safest Banks In World  (51 pages)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-Ihst0G6BV4/story01.htm GoldCore

Yesterday it was the Us Treasury’s Financial Crimes Enforcement Network that tightened its grip on businesses that accept Bitcoin. Today, it is China, where the world’s largest Bitcoin exchange by trading volume, BTCChina announced that he had received word from “above” that his platform would no longer be able to accept renminbi from BTC buyers. “As of right now, we have received notice from our third-party payment company that they will disallow customers from making deposits into our exchange,” Bobby Lee, a former Yahoo developer who co-founded BTCChina this year, told the Financial Times.  The result, not surprisingly, is an overnight crash in BTC, which crashed by 50% from $900 two days ago to just $455 hours ago.

More from the FT:

With its booming market for commerce, China had been seen by Bitcoin enthusiasts as fertile ground for the virtual currency. However, regulators were concerned that people could use Bitcoins to skirt the country’s capital controls. They also grew alarmed at the rampant speculative demand for Bitcoins, warning it had the makings of a bubble.

 

The Chinese central bank took a hard line two weeks ago, banning the country’s financial institutions from handling Bitcoin transactions.

 

Although the People’s Bank of China said individuals were still free to trade it at their own risk, the ban on third-party payment service providers from doing Bitcoin business effectively makes new purchases of the virtual currency impossible.

 

“I’m not that surprised,” said Hong Hao, chief China strategist at Bank of Communications. “Even if the amount of Bitcoin in circulation wasn’t that large yet, it was a potential threat to the monetary system.”

 

Mr Lee of BTCChina said the emphasis of the notice was on deposits, meaning that customers with existing renminbi balances would still be able to withdraw their cash from the exchange. “They are completely safe,” he said, adding that people with money already deposited on the exchange still had the option of buying Bitcoins.

 

…

 

China’s capital controls mean it takes time for investors to arbitrage the difference between prices in and outside the country.

In a world where the central banks are actively engaged in gold capital controls (and have been for over 40 years), and the BIS has its own in-house gold prices suppression team, nobody could have possibly seen this coming.

We are, of course, joking. But some who apparently were angry and did not see this coming, were the computer hackers of the world. As @george_chen reports, the PBOC reported it was promptly DDOSed in retaliation for China’s overnight crackdown on Bitcoin.

BREAKING NEWS: CHINA CENTRAL BANK (PBOC) WEB UNDER ATTACK; UNSTABLE FOR ACCESS; LOCAL MEDIA BLAME BITCOIN INVESTORS pic.twitter.com/uXEoPWfxoP

— George Chen (@george_chen) December 18, 2013

MORE: PBOC TOLD MEDIA THIS AFTERNOON “WAS FIXING WEB”; MEDIA BLAMED “FOREIGN BITCOIN INVESTORS” FOR DDOS ATTACK story:http://t.co/E1KCVS73X7

— George Chen (@george_chen) December 18, 2013

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rIGD9qmMfLw/story01.htm Tyler Durden

Of the 8 “most important ever” FOMC decisions in 2013, this one is undisputedly, and without doubt, the 8th. As Jim Reid summarizes, what everyone wonders is whether today’s decision by the FOMC will have a bearing on a few last-minute Xmas presents around global financial markets. No taper and markets probably breathe a sigh of relief and the feel-good factor might turn that handheld game machine into a full-blown PS4 by Xmas day. However a taper now might just take the edge off the festivities and leave a few presents on the shelves. Given that the S&P 500 has pretty much flat-lined since early-mid November in spite of better data one would have to say that some risk of tapering has been priced in but perhaps not all of it. Alternatively if they don’t taper one would expect markets to see a pretty decent relief rally over the rest of the year. So will it be Santa or Scrooge from the Fed tonight at 2pm EST?

Heading into today’s FOMC, Asian equities have recovered from a soft opening to trade with a fairly upbeat tone. S&P 500 futures are trading 0.2% higher as we type, and the Nikkei is outperforming (+2.0%) helped by a higher USDJPY. Japanese export data for November was better than expected (+18.4% YoY vs +18.0% expected) which is helping sentiment there, even if imports soared too, leading to the biggest Japanese trade deficit ever. China’s seven-day repo rate is up 124bp today to 6.4%, in its biggest jump in six months which also takes the rate to its highest level since June 2013. The rate spike has been attributed to a number of factors including the approaching end of year, recent acceleration of rate liberalization reforms and the PBoC who did not add liquidity to the banking system earlier this week. Elsewhere the Reserve Bank of India held rates constant at its policy meeting, against expectations of a third successive rate hike to fight inflation.

The latest German IFO number yielded little surprises with the headline coming in as expected but bund futures saw a brief move higher after the German debt agency announced that the federal government plans to issue just EUR 205bln in debt, ex-linkers, compared to EUR 247bln this year. Also of note the 3-month Euribor Interest rate fixed at 0.298% vs. Prev. 0.298% after seeing consecutive rises in recent sessions. Today, as was the case yesterday, the Euribor strip has been bull flattening, as the rising trend noted since the beginning of December has dissipated, with yesterday seeing the first rise in Eurozone excess liquidity for some weeks.

Turning to the day ahead, the German IFO survey, UK employment data and the BoE’s minutes will be the main focus in Europe. November Housing starts will be released at the start of the US session before the FOMC’s policy announcement at 2pm EST. Bernanke’s final scheduled press conference follows half an hour later.

Finally, there is no POMO today, but there is a double POMO tomorrow.

 

Overnight news bulletin summary from RanSquawk and Bloomberg

• All eyes and ears await Bernanke’s penultimate FOMC meeting due later and whether or not the Fed will opt to commence the beginning of tapering or wait until Q1 2014. For a full Fed preview please click here.
• The latest German IFO release provided markets with very little as it came in alongside expectations.
• GBP is the outpeformer for this morning’s session following the UK ILO data which came in at 7.4% against expectations of 7.6% and resulted in an aggressive steepening of the UK curve.
• Looking ahead for the session there is the release of the US Housing Starts, Building Permits, weekly DoE inventories, US 5y note auction and the widely anticipated Fed rate decision.
• Treasuries steady as market waits FOMC decision on interest rates and possible tapering at 2pm in Washington; Bernanke’s last press conference as Fed chief scheduled for 2:30pm.
• 10Y yields near levels seen at Sept. meeting, when Fed chose not to scale back asset purchases; expectations for such a move today are split
• The Fed has decided to delay imposing limits on leverage at eight of the biggest U.S. financial institutions until a global agreement is completed, according to two people briefed on the discussions
• Bank of Japan officials see significant scope to boost JGB purchases if needed to achieve their inflation target, according to people familiar with the discussions
• U.K. unemployment fell to 7.4% in the three months through October, lowest level since April 2009 and moving toward 7.0% threshold at which BOE said it will consider raising rates
• Policy makers said further appreciation of pound could hamper Britain’s economic recovery, according to minutes of BOE’s Dec. meeting
• Germany’s Ifo institute’s business climate index rose top 109.5 in Dec., strongest in 20 months, from 109.3 in Nov.
• Australia’s central bank Governor Glenn Stevens said the board has maintained an “open mind” on whether it needs to cut interest rates further as it sees signs low  borrowing costs are supporting spending
• Ukrainian anti-government protesters demanded to know what President Viktor Yanukovych had ceded to seal $15b of Russian financial aid and a one-third discount on energy imports.
• Sovereign yields mixed. EU peripheral spreads widen. Nikkei gains 2% while Shanghai Composite little changed. European stocks and U.S. equity index futures rise. WTI crude and gold little changed, copper falls

US Calendar Event Calendar

• MBA mortgage applications, cons n/a (7:00)
• Housing starts, cons 954k (8:30)
• FOMC rate decision, cons 0.25%; pace of bond purchases, unch at $85bn (14:00) followed by press conference (14:30)
• Sale of US$35bn 5y notes (11:30)

Market Re-Cap

All eyes and ears await Bernanke’s penultimate FOMC meeting due later and whether or not the Fed will opt to commence the beginning of tapering or wait until Q1 2014. This has led to somewhat cautious trade once again in Europe with volumes reflecting the fact that few are willing to take a position into the final main event of 2013. None the less a 2.0% gain overnight in the Nikkei 225, supported by news that the BoJ is said to see significant room for ramping up its bond purchases has resulted in higher stocks in both UK and Europe with technology names leading the advance.

The latest German IFO number yielded little surprises with the headline coming in as expected but bund futures saw a brief move higher after the German debt agency announced that the federal government plans to issue just EUR 205bln in debt, ex-linkers, compared to EUR 247bln this year. Also of note the 3-month Euribor Interest rate fixed at 0.298% vs. Prev. 0.298% after seeing consecutive rises in recent sessions. Today, as was the case yesterday, the Euribor strip has been bull flattening, as the rising trend noted since the beginning of December has dissipated, with yesterday seeing the first rise in Eurozone excess liquidity for some weeks.

Meanwhile, the UK curve has steepened aggressively after the UK ILO unemployment rate for December came in at 7.4%, below expectations, and moving ever closer to the BoE’s threshold for an adjustment to monetary policy, this in turn has led to GBP out performing its counterparts in the forex market. The actual BoE minutes were broadly in-line showing once again that the MPC voted unanimously for rates and the APF to remain unchanged.

Asian Headlines

Chinese FDI (Nov) Y/Y 2.4% vs. Exp. 1.1% (Prev. 1.2%); Jan-Nov FDI rose 5.48% Y/Y.

China’s Mofcom said retail sales are to grow by around 13% this year from a year ago and that it sees exports maintaining relatively steady growth in December, but added that they can’t be overly optimistic about Dec. exports. (Newswires)

Japanese Trade Balance (JPY)(Nov) M/M -1292.9bln vs.
Exp. -1351.1bln (Prev. -1090.7bln, Rev. -1092.7bln)
– The largest deficit on record for the month of November.

RBI Repurchase Rate (Dec 18) 7.75% vs. Exp. 8.00% (Prev. 7.75%)
– RBI Reverse Repo Rate (Dec 18) 6.75% vs. Exp. 7.00% (Prev. 6.75%)
– RBI Cash Reserve Ratio (Dec 18) 4.00% vs. Exp. 4.00% (Prev. 4.00%)

EU & UK Headlines

German IFO Business Climate (Dec) M/M 109.5 vs Exp. 109.5 (Prev. 109.3)
– IFO Current Assessment (Dec) M/M 111.6 vs Exp. 112.5 (Prev. 112.2)
– IFO Expectations (Dec) M/M 107.4 vs Exp. 106.5 (Prev. 106.3)

IFO economist Wohlrabe says expects German Q4 growth of 0.3% and growth could accelerate to 0.5% in Q1 2014.

UK ILO Unemployment Rate 3-Months (Oct) 7.4% vs. Exp. 7.6% (Prev. 7.6%) – lowest since Feb. 2009

UK Claimant Count Rate (Nov) M/M 3.8% vs Exp. 3.8% (Prev. 3.9%)
UK Jobless Claims Change (Nov) M/M -36.7K vs Exp. -35.0K (Prev. -41.7K, Rev. -42.8K)
– Average Weekly Earnings (Oct) 3M/Y 0.9% vs Exp. 0.8% (Prev. 0.7%, Rev. 0.8%).
– Weekly Earnings ex Bonus (Oct) 3M/Y 0.8% vs Exp. 0.9% (Prev. 0.8%)

UK Employment Change (Oct) 3M/3M 250K vs Exp. 165K (Prev. 177K)

The BoE December minutes showed the MPC voted 9-0 to leave rates and bond purchases unchanged, alongside expectations.

The Italian economy chief at the centre left coalition PD, Taddei says working on plan for EUR 16bln of spending cuts.

German Chancellor Merkel said Germany won’t agree to shared debt and Euro Bonds. Merkel said solid Eurozone finances remain priority and cannot spur Eurozone growth with stimulus alone.

US Headlines

Fed Watcher Hilsenrath said a 60% chance of a taper as forecast by PIMCO is in the right ballpark. Hilsenrath added the Fed is likely to do something today and that he sees tapering more likely today than it was ahead of the Sept meeting, commenting that the economy is in a better place than in September.

Goldman Sachs is now reining in riskier activities, shrinking its balance sheet and steering clear of trades that don’t produce the double-digit-percentage returns its shareholders crave, according to sources. The reason for this is because new rules and lacklustre markets have curbed profit, making it too expensive for the Co. to operate as it had during the boom years.

Moody’s said the outlook for US government’s Aaa rating remains stable and that the conclusion of the Senate debate reinforces US government creditworthiness.
Republican Senator Rand Paul threatens to delay Janet Yellen vote.

Equities

European equities are seen up across the board amid thin volumes following on from positive sentiment in the Asian session which saw the Nikkei 225 trade with gains of 2.02% after news that the BoJ is likely to expand its low-interest lending facility for industries by about JPY 1trl. The DAX is the outperforming index this morning following gains seen across German blue-chip companies. In terms of out equity specific news from the session so far, Endesa are the outperformer in the Stoxx 600 after being raised to buy vs hold at Kepler, whilst Technip are down over 8% following a broker move for CGG and a TEC FP pre-market update.

FX

GBP is the outpeformer for this morning’s session following the UK ILO data which came in at 7.4% against expectations of 7.6% and therefore, approaching the threshold set by the BoE for an adjustment to monetary policy. Elsewhere, as was the case yesterday there is said to be a very large option expiry in USD/JPY at 103.00 ahead of the NY cut with a size of USD 3bln.

RBA governor Stevens said AUD is still uncomfortably high and that AUD/USD above 0.9000 is not sustainable for the economy.

Commodities

WTI and Brent crude futures are trading flat after the recent modest gains were pared as the overnight US API data was seen lower than expected. However, natural gas is seen marginally higher as colder weather is expected in the US Midwest next week.

Iraq’s October crude exports rose 8.8% to 2.25mln b/d, according to Joint Organisations Data Initiative. They added that Nigeria’s October crude exports fell 8.6% to 2.05mln b/d and Kuwait Oct crude shipments fell 6.4% to 1.95mln bpd.

An oil refinery in Eastern Libya restarted production on Tuesday and oil exports from its related terminal is now set to follow suit according to a top oil official.

Saudi Arabia pumped 9.75mln bpd of crude oil in October and exported 7.71mln bpd of Crude in October, according to JODI.

The strikes at the three main refineries in France have now entered day six, with a majority of their producing units now closed, according to a CGT union official.

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DB’s Jim Reid recaps the rest of overnight events

One wonders whether today’s decision by the FOMC will have a bearing on a few last-minute Xmas presents around global financial markets. No taper and markets probably breathe a sigh of relief and the feel-good factor might turn that handheld game machine into a full-blown PS4 by Xmas day. However a taper now might just take the edge off the festivities and leave a few presents on the shelves. Given that the S&P 500 has pretty much flat-lined since early-mid November in spite of better data one would have to say that some risk of tapering has been priced in but perhaps not all of it. Alternatively if they don’t taper one would expect markets to see a pretty decent relief rally over the rest of the year. So will it be Santa or Scrooge from the Fed tonight at 2pm EST?

For the record, the view from DB’s chief US economist Peter Hooper is that today’s FOMC will be a very close call, but he is leaning towards a taper-light of $5-15 bn, skewed towards Treasuries. He also thinks that the taper, if it does come, will be accompanied by a dovish statement that reinforces the low for longer message on policy rates. These “soft” statements will most likely come through either a re-emphasis of existing forward guidance; by noting that market expectations on the Fed funds rate do not look unreasonable; or by pointing out that their actions could be reversed if markets react negatively enough to put the economic expansion at risk. Meanwhile DB’s US economist Joe Lavorgna is looking for a $10 billion Treasuries-only taper. This is a view that he has held since the much stronger than expected October employment data (which came in at +200k versus consensus of +120k), which was subsequently matched by a similarly strong November employment report (+203k vs consensus of +185k). Joe makes the point that there should be much less concern on behalf of monetary policy makers about a taper given that the budget sequester was loosened, and 10yr treasury yields are at the same level as just before the September FOMC. Joe also thinks that the Fed will move to soften the taper effect by strengthening forward guidance. He thinks that the easiest and most efficient way to do that is to lower the unemployment rate threshold to 6.0% (or possibly even 5.5%).

While our economists are tipping a December taper, the view from the rest of the street is more mixed. Indeed, a Reuters poll conducted last week had 32 economists predicting a taper in March, 22 respondents said January and only 12 expected it this week. A December 6th survey by Bloomberg showed only one-third of economists said the Fed will begin reducing monthly bond purchases today. These numbers might have edged slightly higher over the past week though.

So aside from the tapering vs no taper cliffhanger, the other potential variable today is the multitude of ways in which the Fed could augment its forward guidance (if at all). Apart from the aforementioned “soft” statements and changes to the unemployment thresholds, there has been lots of market talk of reducing interest on excess reserves, the addition of an inflation floor and lowering fed funds rate projection
s for the coming years. Related to this point, today will also see the Fed update its economic projections. The key points of interest will be if and how the Fed changes their unemployment and inflation forecasts which may have an impact on how the market views the strength of the Fed’s forward guidance and the timing of rate hikes. Last but not least, this will be Ben Bernanke’s last scheduled press conference after eight years at the helm of the Fed. He may use this as an opportunity to reflect on his tenure as Fed Chairman. Whether his final press conference increases the odds in favour of a major policy announcement is debatable, but it certainly adds another element to an already fascinating FOMC. As we head into the final days of Bernanke’s tenure, the media are already reflecting on Bernanke’s tenure, including the WSJ’s Hilsenrath who wrote overnight that the Fed Chair successfully avoided a meltdown in 2008-2009 but failed to engineer a robust recovery.

Yesterday’s US November CPI number appeared to do little to settle the tapering debate. The headline number was exactly flat (0.0% MoM) and less than the market consensus of +0.1%. But many noted that this outcome was driven by softness in energy prices and absent this effect, core inflation was stronger than expected at 0.2% MoM (vs 0.1% expected and 0.1% previous). We should note that this number only just rounded up from 0.1% to 0.2%. The market reaction to the CPI print saw strengthening initially across equities, treasuries and major currencies against the USD (including EURUSD and GBPUSD). However this was quickly pared and the S&P 500 ended the day at -0.31%, erasing half of Monday’s gains in the process. In Europe, the Stoxx 600 had a fairly weak session (-0.74%) despite the strongest German ZEW reading since 2006. Perhaps the weakness in equities was driven by the higher than expected US core inflation print, but the intra-day low in equities came shortly after the better than expected NAHB homebuilder confidence print which picked up in December after a two-month lull (58 vs 54 previous and 55 expected). The NAHB said that the uptick was due in part to the release of pent-up demand caused by the uncertainty generated by the October government shutdown. There was little sign of FOMC nervousness in treasury markets with 10yr UST yields closing 4bp lower at 2.835% supported by a relatively solid 2yr auction.

Heading into today’s FOMC, Asian equities have recovered from a soft opening to trade with a fairly upbeat tone. S&P 500 futures are trading 0.2% higher as we type, and the Nikkei is outperforming (+1.5%) helped by a higher USDJPY (+0.25%). Japanese export data for November was better than expected (+18.4% YoY vs +18.0% expected) which is helping sentiment there. China’s seven-day repo rate is up 124bp today to 6.4%, in its biggest jump in six months which also takes the rate to its highest level since June 2013. The rate spike has been attributed to a number of factors including the approaching end of year, recent acceleration of rate liberalization reforms and the PBoC who did not add liquidity to the banking system earlier this week. Elsewhere the Reserve Bank of India held rates constant at its policy meeting, against expectations of a third successive rate hike to fight inflation.

In other headlines, the Financial Stability Oversight Council’s Office of Finance Research released its prototype financial stability monitor yesterday, which is designed to provide a heatmap tracking threats to market stability. The heatmap suggests that threats to financial stability have generally abated in 2013 compared to 2012. Interestingly but unsurprisingly, the key underlying indicator that has increased in risk over the past 12 months is “interest rate risk” – here the OFR says that duration risk is at recent historical highs, portfolio allocation to fixed income remains above historical trend and “there may be mispriced credit risk amid weakening standards for loan underwriting, as reflected in looser covenants and bank lending conditions”. This is the kind of thing that makes us think that removing bond buying will ultimately be much more difficult than central banks think.

Turning to the day ahead, the German IFO survey, UK employment data and the BoE’s minutes will be the main focus in Europe. November Housing starts will be released at the start of the US session before the FOMC’s policy announcement at 2pm EST. Bernanke’s final scheduled press conference follows half an hour later.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZVxhYWrNL1w/story01.htm Tyler Durden