Category: zerohedge

Below we present a twitter exchange we had with a Japanese media outlet overnight on Twitter. It needs no commentary.

Plan in the works to decontaminate Fukushima’s J-Village in time to reopen it as soccer facility ahead of 2020 Olympics.

— SNA Japan (@ShingetsuNews) November 26, 2013

Is this a joke “@ShingetsuNews: Plan in the works to decontaminate Fukushima’s J-Village to reopen it as soccer facility ahead of Olympics.”

— zerohedge (@zerohedge) November 26, 2013

@zerohedge No joke. TEPCO, Fukushima Prefecture, and the Japan Football Association have begun talks on the plan.

— SNA Japan (@ShingetsuNews) November 26, 2013

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ckTNdbe3SFc/story01.htm Tyler Durden

Concluding the trifecta of today’s housing data, we present perhaps the most authoritative report on what is actually going on in the market, that by RealtyTrac. What RealtyTrac has to say is in direct contradiction with both the Permits and Case-Shiller data, both of which are now openly reliant on yield-starved institutional investors dumping cash into current or future rental properties. In fact it’s worse, because if RealtyTrac is accurate, the great institutional scramble for any housing is now over – to wit: “Cash Sales Pull Back From Previous Month, Still Represent 44 Percent of Total Sales Institutional Investor Purchases Plummet Nationwide…  Institutional investor purchases represented 6.8 percent of all sales in October, a sharp drop from a revised 12.1 percent in September and down from 9.7 percent a year ago. Markets with the highest percentage of institutional investor purchases included Memphis (25.4 percent), Atlanta (23.0 percent), Jacksonville, Fla., (22.2 percent), Charlotte (14.5 percent), and Milwaukee (12.0 percent).” And plunging.

Some other observations from RT’s October 2013 Residential & Foreclosure Sales Report, which makes one thing clear – while prices may still be going up, transaction volumes have cratered:

Despite the nationwide increase, home sales continued to decrease on an annual basis for the third consecutive month in three bellwether western states: California (down 15 from a year ago), Arizona (down 13 percent), and Nevada (down 5 percent).

 

The national median sales price of all residential properties — including both distressed and non-distressed sales — was $170,000, unchanged from September but up 6 percent from October 2012, the 18th consecutive month median home prices have increased on an annualized basis.

 

The median price of a distressed residential property — in foreclosure or bank owned — was $110,000 in October, 41 percent below the median price of $185,000 for a non-distressed property.

 

“After a surge in short sales in late 2011 and early 2012, the favored disposition method for distressed properties is shifting back toward the more traditional foreclosure auction sales and bank-owned sales,” said Daren Blomquist,vice president at RealtyTrac. “The combination of rapidly rising home prices — along with strong demand from institutional investors and other cash buyers able to buy at the public foreclosure auction or an as-is REO home — means short sales are becoming less favorable for lenders.”

 

More in the full report

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sN66tKt5WFg/story01.htm Tyler Durden

Concluding the trifecta of today’s housing data, we present perhaps the most authoritative report on what is actually going on in the market, that by RealtyTrac. What RealtyTrac has to say is in direct contradiction with both the Permits and Case-Shiller data, both of which are now openly reliant on yield-starved institutional investors dumping cash into current or future rental properties. In fact it’s worse, because if RealtyTrac is accurate, the great institutional scramble for any housing is now over – to wit: “Cash Sales Pull Back From Previous Month, Still Represent 44 Percent of Total Sales Institutional Investor Purchases Plummet Nationwide…  Institutional investor purchases represented 6.8 percent of all sales in October, a sharp drop from a revised 12.1 percent in September and down from 9.7 percent a year ago. Markets with the highest percentage of institutional investor purchases included Memphis (25.4 percent), Atlanta (23.0 percent), Jacksonville, Fla., (22.2 percent), Charlotte (14.5 percent), and Milwaukee (12.0 percent).” And plunging.

Some other observations from RT’s October 2013 Residential & Foreclosure Sales Report, which makes one thing clear – while prices may still be going up, transaction volumes have cratered:

Despite the nationwide increase, home sales continued to decrease on an annual basis for the third consecutive month in three bellwether western states: California (down 15 from a year ago), Arizona (down 13 percent), and Nevada (down 5 percent).

 

The national median sales price of all residential properties — including both distressed and non-distressed sales — was $170,000, unchanged from September but up 6 percent from October 2012, the 18th consecutive month median home prices have increased on an annualized basis.

 

The median price of a distressed residential property — in foreclosure or bank owned — was $110,000 in October, 41 percent below the median price of $185,000 for a non-distressed property.

 

“After a surge in short sales in late 2011 and early 2012, the favored disposition method for distressed properties is shifting back toward the more traditional foreclosure auction sales and bank-owned sales,” said Daren Blomquist,vice president at RealtyTrac. “The combination of rapidly rising home prices — along with strong demand from institutional investors and other cash buyers able to buy at the public foreclosure auction or an as-is REO home — means short sales are becoming less favorable for lenders.”

 

More in the full report

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sN66tKt5WFg/story01.htm Tyler Durden

It’s a full-on “Baffle with BS” onslaught this morning. On one hand, the Case-Shiller Top 20 Composite Index rose by 13.3% Y/Y, better than the 13.00% expected, and the highest annual price increase since 2006. Unfortunately, the ramp is coming to an end, especially since the touted NSA data shows that monthly price increases have slowed for the fifth consecutive month, and stood at just 0.7%. At this rate the sequential price change in October will be negative. This is further reinforced by today’s “other” housing report: the September FHFA House Price Index, which unlike Case-Shiller rose 0.3%, below expectations and in line with last month. So on one hand home prices are better than expected, on the other: worse. Clear as mud.

 

But one thing is certain: the surge in the housing market of bankrupt Detroit has never been stronger, and the Y/Y price change just picked up once again, rising to a 3 month high of 17.2% compared to last year.

Perhaps all US cities should just file bankruptcy and see their home prices go through the roof?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XWedj0_Zvhg/story01.htm Tyler Durden

Call it the last hurrah for Private Equity and hedge funds as they scramble to “telegraph” that there is still some interest in rental property conversions. Despite ever louder cries that the REO-to-Rent and the general surge into rental properties is over (see our report on RealtyTrac’s latest data due out shortly), as many PE firms seek to cash out and to flip their existing exposure, today’s Housing Permits number for October showed just the opposite.  Because while permits for single-family housing units was virtually unchanged month over month, barely rising from 615K to 620K on a seasonally adjusted annualized basis, it was the structures with 5 units or more, aka rentals, that exploded by the most in the past two months going back all the way to 2008.

Whether this is merely an attempt to game the system and buy virtually zero-cost permits by the boatload, thus engineering a last-minute momentum push in the rental market, offloading existing properties to the last and dumbest money around, remains to be seen. However, one thing is clear: the rebound in the conventional, single-family housing market is over, and the only variable remains rental. The variable will become a constant once it becomes clear that increasingly fewer Americans can afford all time record high rent payments.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rZT9CyAP9cQ/story01.htm Tyler Durden

As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an “oppressive” German regime where math and logic still matter, the real story – with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world, and especially the NY, London, and SF housing markets. Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales, Bloomberg reports.

Specifically, China appears to be targeting that little-discussed elsewhere component of finance, shadow banking. Per Bloomberg, the regulations drawn up by the China Banking Regulatory Commission impose restrictions on lenders’ interbank business by banning borrowers from using resale or repurchase agreements to move assets off their balance sheets. Banks would also be required to take provisions on such assets while the transactions are in effect. Ironically, it may be that soon China will be more advanced in recognizing the various exposures of shadow banking than the US, which is still wallowing under FAS 140 which allows banks to book a repo as both an asset and a liability. 

Recall from a Matt King footnote in his seminal “Are the Brokers Broken?”

Quite apart from the fact that FAS 140 contradicts itself (with paragraph 15 (d) making borrowed versus pledged transactions off balance sheet, and paragraph 94 making them on balance sheet, a topic complained about by many broker-dealers immediately after its issue), there seems to be little consensus as to who is the borrower and who is the lender. As far as we can tell, terms like ‘borrower’ and ‘lender’ are used in exactly the opposite sense in the accounting regulations relative to standard market practice. The description above follows common market practice. The accounting documents seem to refer to this the other way around, a source of confusion commented upon in some of the accounting literature

So while in the US one may be a borrower or a lender at the same time courtesy of lax regulatory shadow banking definition (depending on how much the FASB has been bribed by the highest bidder), in China things will very soon become far more distinct:

The rules would add to measures this year tightening oversight of lending, such as limits on investments by wealth management products and an audit of local government debt, on concerns that bad loans will mount. The deputy head of the Communist Party’s main finance and economic policy body warned last week that one or two small banks may fail next year because of their reliance on short-term interbank borrowing.

 

“China’s banks and regulators are playing this cat-and-mouse game in which the banks constantly come up with new gimmicks to bypass regulations,” Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., said by phone. “The CBRC has no choice but to impose bans on their interbank business, which in recent years has become a high-leverage financing tool and may at some point threaten financial stability.”

Cutting all the fluff aside, what China is doing is effectively cracking down on the the wild and unchecked repo market, and specifically re-re-rehypothecation, which allows one bank to reuse the same ‘asset’ countless times, and allow it to appear in numerous balance sheets.

The proposed rules target a practice where one bank buys an asset from another and sells it back at a higher price after an agreed period.

The reason why China is suddenly concerned about shadow banking is that it has exploded as a source of funding in recent years:

Mid-sized Chinese banks got 23 percent of their funding and capital from the interbank market at the end of 2012, compared with 9 percent for the largest state-owned banks, Moody’s Investors Service said in June. The ratings company forecast a further increase in non-performing loans as weaker borrowers find it hard to refinance.

And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter.

This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing’s relentless drive to tighten the monetary spigots in the world’s second-largest economy. “The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.”

This should not come as a surprise in the aftermath of the recent spotlight on China’s biggest tabboo topic of all: the soaring bad debt, which is the weakest link in the entire, $25 trillion Chinese financial system (by bank assets). So while the Fed endlessly dithers about whether to taper, or not to taper, China is very quietly moving to do just that. Only the market has finally noticed:

The slowing pace of bond sales from earlier in the year is reviving worries of reduced credit and soaring funding costs that were sparked in June, when China’s debt markets were rattled by a cash crunch.

 

The rise in borrowing costs and shrinking access to credit could undercut the recent uptick in China’s economy that global investors in stock, commodity and currency markets have cheered. Wobbly growth in China could undermine economic recovery in the rest of the world.

 

“If borrowing costs don’t fall in time, whether the real economy could bear the burden is a big question,” said Wendy Chen, an economist at Nomura Securities.

 

Chinese bond yields are rising amid a lack of demand among the big banks, pension funds and other institutional money managers, analysts say. These investors, traditionally the heavyweights in China’s bond market, have seen their funding costs rise in tandem with interbank lending rates, which are controlled by China’s central bank. The country’s bond market is largely closed to foreign investors.

 

The yield on China’s benchmark 10-year government bond was at 4.65% Monday, down from 4.71% Friday. Last Wednesday’s 4.72% was the highest since January 2005, according to data providers WIND Info and Thomson Reuters. The record is 4.88% set in November 2004. Bond yields and prices move in opposite directions.

 

“The recent sharp rise in bond yields was mostly due to worsening funding conditions and growing expectations for a tighter monetary policy as Beijing seeks to deleverage the economy,” said Duan Jihua, deputy general manager at Guohai Securities.

 

As government-bond yields have risen, the average yield on debt issued by China’s highest-rated companies rose to 6.21% as of Friday—the highest since 2006, when WIND Info began compiling the data.

In conclusion, it goes without saying that should China suddenly be hit with the double whammy of regulatory tightening in both shadow and traditional funding liquidity conduits, that things for the world’s biggest and fastest creator of excess liquidity are going to turn much worse. We showed as much yesterday:

If the Chinese liquidity spigot – which makes the Fed’s and BOJ’s QE both pale by comparison – is indeed turned off, however briefly, then quietly look for the exit doors.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BaaUyN4AYc4/story01.htm Tyler Durden

As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an “oppressive” German regime where math and logic still matter, the real story – with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world, and especially the NY, London, and SF housing markets. Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales, Bloomberg reports.

Specifically, China appears to be targeting that little-discussed elsewhere component of finance, shadow banking. Per Bloomberg, the regulations drawn up by the China Banking Regulatory Commission impose restrictions on lenders’ interbank business by banning borrowers from using resale or repurchase agreements to move assets off their balance sheets. Banks would also be required to take provisions on such assets while the transactions are in effect. Ironically, it may be that soon China will be more advanced in recognizing the various exposures of shadow banking than the US, which is still wallowing under FAS 140 which allows banks to book a repo as both an asset and a liability. 

Recall from a Matt King footnote in his seminal “Are the Brokers Broken?”

Quite apart from the fact that FAS 140 contradicts itself (with paragraph 15 (d) making borrowed versus pledged transactions off balance sheet, and paragraph 94 making them on balance sheet, a topic complained about by many broker-dealers immediately after its issue), there seems to be little consensus as to who is the borrower and who is the lender. As far as we can tell, terms like ‘borrower’ and ‘lender’ are used in exactly the opposite sense in the accounting regulations relative to standard market practice. The description above follows common market practice. The accounting documents seem to refer to this the other way around, a source of confusion commented upon in some of the accounting literature

So while in the US one may be a borrower or a lender at the same time courtesy of lax regulatory shadow banking definition (depending on how much the FASB has been bribed by the highest bidder), in China things will very soon become far more distinct:

The rules would add to measures this year tightening oversight of lending, such as limits on investments by wealth management products and an audit of local government debt, on concerns that bad loans will mount. The deputy head of the Communist Party’s main finance and economic policy body warned last week that one or two small banks may fail next year because of their reliance on short-term interbank borrowing.

 

“China’s banks and regulators are playing this cat-and-mouse game in which the banks constantly come up with new gimmicks to bypass regulations,” Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., said by phone. “The CBRC has no choice but to impose bans on their interbank business, which in recent years has become a high-leverage financing tool and may at some point threaten financial stability.”

Cutting all the fluff aside, what China is doing is effectively cracking down on the the wild and unchecked repo market, and specifically re-re-rehypothecation, which allows one bank to reuse the same ‘asset’ countless times, and allow it to appear in numerous balance sheets.

The proposed rules target a practice where one bank buys an asset from another and sells it back at a higher price after an agreed period.

The reason why China is suddenly concerned about shadow banking is that it has exploded as a source of funding in recent years:

Mid-sized Chinese banks got 23 percent of their funding and capital from the interbank market at the end of 2012, compared with 9 percent for the largest state-owned banks, Moody’s Investors Service said in June. The ratings company forecast a further increase in non-performing loans as weaker borrowers find it hard to refinance.

And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter.

This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing’s relentless drive to tighten the monetary spigots in the world’s second-largest economy. “The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.”

This should not come as a surprise in the aftermath of the recent spotlight on China’s biggest tabboo topic of all: the soaring bad debt, which is the weakest link in the entire, $25 trillion Chinese financial system (by bank assets). So while the Fed endlessly dithers about whether to taper, or not to taper, China is very quietly moving to do just that. Only the market has finally noticed:

The slowing pace of bond sales from earlier in the year is reviving worries of reduced credit and soaring funding costs that were sparked in June, when China’s debt markets were rattled by a cash crunch.

 

The rise in borrowing costs and shrinking access to credit could undercut the recent uptick in China’s economy that global investors in stock, commodity and currency markets have cheered. Wobbly growth in China could undermine economic recovery in the rest of the world.

 

“If borrowing costs don’t fall in time, whether the real economy could bear the burden is a big question,” said Wendy Chen, an economist at Nomura Securities.

 

Chinese bond yields are rising amid a lack of demand among the big banks, pension funds and other institutional money managers, analysts say. These investors, traditionally the heavyweights in China’s bond market, have seen their funding costs rise in tandem with interbank lending rates, which are controlled by China’s central bank. The country’s bond market is largely closed to foreign investors.

 

The yield on China’s benchmark 10-year government bond was at 4.65% Monday, down from 4.71% Friday. Last Wednesday’s 4.72% was the highest since January 2005, according to data providers WIND Info and Thomson Reuters. The record is 4.88% set in November 2004. Bond yields and prices move in opposite directions.

 

“The recent sharp rise in bond yields was mostly due to worsening funding conditions and growing expectations for a tighter monetary policy as Beijing seeks to deleverage the economy,” said Duan Jihua, deputy general manager at Guohai Securities.

 

As government-bond yields have risen, the average yield on debt issued by China’s highest-rated companies rose to 6.21% as of Friday—the highest since 2006, when WIND Info began compiling the data.

In conclusion, it goes without saying that should China suddenly be hit with the double whammy of regulatory tightening in both shadow and traditional funding liquidity conduits, that things for the world’s biggest and fastest creator of excess liquidity are going to turn much worse. We showed as much yesterday:

If the Chinese liquidity spigot – which makes the Fed’s and BOJ’s QE both pale by comparison – is indeed turned off, however briefly, then quietly look for the exit doors.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BaaUyN4AYc4/story01.htm Tyler Durden

Today’s AM fix was USD 1,250.75, EUR 923.88 and GBP 773.69 per ounce.
Yesterday’s AM fix was USD 1,231.75, EUR 911.60 and GBP 760.57 per ounce.

Gold rose $5.60 or 0.45% yesterday, closing at $1,248.80/oz. Silver climbed $0.15 or 0.25% closing at $20.02/oz. Platinum rose $3.19 or 0.2% to $1,380.99/oz, while palladium inched up $6.11 or 0.9% to $712.52/oz.

Gold in U.S. Dollars, 3 Days – (Bloomberg)

Gold was trading near a one-week high today and is turning higher for the week, due to short-covering gains and the market questioning the Iran deal.

Comex had to suspend gold futures trading yesterday again – again for 20 seconds due to a massive sell order that led to just a $10 price fall.

Comex trading was halted for December gold futures at 6:02:24 a.m. GMT yesterday, Damon Leavell, a CME Group Inc. spokesman in New York, said in an e-mail. This led to gold falling to a 4 and a ½ month low near $1,225 an ounce before recovering from the massive sell order. Questions regarding gold manipulation continue to be asked including by Bloomberg (see link) overnight.

While the focus of the Bloomberg story is regarding possible rigging on the London AM Fix, regulators in the U.S. including the CFTC may need to reopen their investigation into manipulation of the gold market after the highly irregular trading on the COMEX last Wednesday and again early on Monday morning.

Without the massive sell order that shut down the COMEX for 20 seconds, gold prices would have been higher yesterday. That one trade pushed gold prices lower as European markets opened up and created very significant short term negative sentiment towards gold.  It led to dozens of headlines that flew around the world which said that gold prices had fallen due to the Iran deal.

IN CHINA, THE GOLD RUSH CONTINUES as Chinese people buy jewellery, coins and bars as a store of wealth to protect from inflation.

The world’s largest jewellery group, Chow Tai Fook Jewellery Group Ltd. , established in 1929, saw sales jumped 49% during the first half of 2013.

Gold in U.S. Dollars, 24 Hours – (Bloomberg)

It posted a first-half profit that beat analyst estimates as the drop in gold prices drove strong Chinese demand for gold. Net income almost doubled to HK$3.5 billion ($451.5 million) from a year earlier for the six months ended September 30, it said in a statement to Hong Kong’s stock exchange today.

Jewelers in China and throughout Asia are benefiting from continuing robust demand for gold. This has led Chow Tai Fook and jewellery outlets having to buy gold bars and rebuild gold inventories.

Retail sales of gold tripled across China after the peculiar “flash crash” of April 15-16 when gold fell 10% in two days. Demand has remained robust and the recent weakness has seen continued demand.

Founded in 1929 in the southern Chinese city of Guangzhou, the jeweller was named after its founder Chow Chi Yuen. “Tai Fook” means “big blessing” in Chinese.

Markets await the release of a batch of U.S. economic reports, including  U.S. housing starts and building permits for October, along with two home-price indexes and consumer-confidence numbers.

GoldCore were interviewed over the weekend about the huge increase in Chinese demand for gold in recent years and how it is sustainable. The video can be watched here:
VIDEO: “China’s Insatiable Demand For GOLD Causing PARADIGM SHIFT”

Gold Prices / Fixes / Rates / Vols – (Bloomberg)

Click Gold News For This Week’s Breaking Gold And Silver News
Click Gold and Silver Commentary For This Week’s Leading Gold, Silver Opinion
Like Our YouTube Page For The Latest Insights, Documentaries and Interviews
Like Our Facebook Page For Interesting Insights, Blogs, Prizes and Special Offers

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Pfqq-V36fXs/story01.htm GoldCore

• M&A Mystery: Why Are Takeover Prices Plummeting? (WSJ)
• Hedge-Fund Fight Club Traded Illegal Tips Not Punches (BBG)
• Speed Traders Meet Nightmare on Elm Street With Nanex (BBG)
• A new wave of U.S. mortgage trouble threatens (Reuters)
• Penny Lane: Gitmo’s other secret CIA facility (AP)
• US hardens threat to leave Afghanistan with no troops (WSJ)
• Russian Prison Stuns Captain of Greenpeace’s Bombed Ship (BBG)
• ECB’s Weidmann Warns Central Banks Might Be Too Dominated by Fiscal Concerns (WSJ)
• China Air Move Splits Japan as Carriers Obey New Rules (BBG)
• Inside the Breakup of the Pritzker Empire (WSJ)
• Exports show growth fatigue after falling in September (Kathimerini)
• Thai Protesters Urge Civil Servants to Join Anti-Government Push (BBG)
• Fears Rise as China’s Yields Soar (WSJ)
• Horse-Gambling Frenchman Parlays System Into Best U.S. Forecasts (BBG)
• FDA Tells Google-Backed 23andMe to Halt DNA Test Service (BBG)

 

Overnight Media Digest

WSJ

* The Obama administration is mounting an aggressive campaign to head off new congressional sanctions against Iran, arguing they would jeopardize the high-stakes deal sealed this past weekend to curb Tehran’s nuclear program.

* Wal-Mart named Douglas McMillon as its next chief executive, handing the job to a long-serving insider who, at just 47 years old, will be the youngest CEO since Sam Walton to helm the giant retailer.

* The U.S. Food and Drug Administration, in a U-turn from its position three years ago, removed restrictions on GlaxoSmithKline Plc’s diabetes drug Avandia and said it no longer had serious concerns over the drug’s heart-attack risk.

* The FDA ordered genetic-testing startup 23andMe to stop marketing its mail-order DNA kit, citing the risk that false results could cause consumers to undergo unnecessary health procedures such as breast-cancer surgery.

* Eric Noll, an executive vice president at Nasdaq OMX who was seen as the top internal contender to succeed CEO Robert Greifeld, has resigned from the market operator to lead brokerage firm ConvergEx.

* Qualcomm Inc said a Chinese government agency is investigating the chip maker under the country’s antimonopoly law, a probe that comes amid rising tensions affecting U.S. companies in China.

* Katie Couric became the latest high-profile journalist to join a digital outlet, striking a deal with Yahoo Inc, the company announced Monday.

* Carlyle Group LP said it will acquire Diversified Global Asset Management Corp, a Toronto-based investor in hedge funds, as the firm continues to expand from private equity. The deal is valued at $33 million, plus a possible $70 million if the hedge-fund firm achieves a certain level of performance.

* McGraw Hill Financial Inc said on Monday it hired Citigroup Inc executive Neeraj Sahai to run its Standard & Poor’s Ratings Services unit, the world’s largest ratings firm.

 

FT

Brussels unveiled proposals on Monday to plug tax loopholes and force multinationals to pay more in corporate taxes to members of the European Union.

European Commission is set to warn the United States on Wednesday that its technology firms may lose exemption from privacy rules if Washington does not protect EU citizen’s data online.

Chancellor George Osborne will face renewed demands to put in place stringent banking regulations as pressure amounts over controversies plaguing Royal Bank of Scotland, the Co-operative Bank and payday lenders.

Authorities in China have launched an antitrust investigation into U.S. mobile chipmaker Qualcomm. The company however said it was not aware of any charge of breaking the law by the regulators.

Walmart appointed company veteran Doug McMillon as the fifth chief executive replacing Mike Duke. The announcement comes at a time when the company is struggling with falling U.S. sales and bribery allegation in Mexico.

Blackberry’s interim Chief Executive John Chen said the company’s finance and operating chief along with the chief marketing officer would leave the company in a management rejig.

 

NYT

* Security experts say they believe that government spies hit the big Internet companies at a weak spot – the fiber-optic cables that connect their data centers.

* As Walmart enters a fiercely competitive holiday season while still hampered by sluggish sales, the company’s board announced on Monday that Michael Duke, its chief executive, would retire early next year and a longtime executive, C. Douglas McMillon, would replace him.

* Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman were in advanced merger talks that would have created one of the country’s ten largest firms with about 1,700 lawyers. But on Monday, the firms issued a joint statement that the deal was off.

* Chrysler will not move forward with an initial public offering until next year at the earliest, giving its parent company, Fiat, more time to negotiate the purchase of a 41.5 percent stake held by a union health care trust.

* One of the top executives at Nasdaq OMX, Eric Noll, is leaving the company to lead the brokerage firm ConvergEx Group.

* Patients injured by a flawed hip implant sold by Johnson & Johnson have directed their anger at myriad places over the years. The regulatory system that allowed the product’s sale. The company that repeatedly denied problems with the device. Even the doctors who implanted the hips. Now, some patients have found a new target for their ire: the legal system and the lawyers they hired to sue Johnson & Johnson.

 

Canada

THE GLOBE AND MAIL

* Struggling Sears Canada Inc’s so-far unsuccessful attempt to find a buyer underscores a fast-changing domestic retail landscape. Just three years ago, Canada was considered a golden spot for expansion, with U.S. chains clamoring to find store locations from which they could launch.

* A prominent judge has found tha
t a Canadian spy service has not been forthcoming with Federal Court. In a highly unusual statement, the Federal Court said Justice Richard Mosley found last week that the Canadian Security Intelligence Service was not sufficiently open about all the surveillance alliances it planned to form.

Reports in the business section:

* New BlackBerry Ltd executive chairman and interim CEO John Chen has begun what is expected to be an extensive purge of the company’s top ranks. Gone are predecessor Thorsten Heins’s top lieutenants, chief operating officer Kristian Tear and chief marketing officer Frank Boulben, the company said Monday.

* Brighter job prospects in Alberta and more challenging ones in the eastern side of the country are altering the country’s population flows. Alberta saw another year of above-average population growth in 2012-13, driven by record levels of net international migration and interprovincial migration, Monday’s preliminary population estimate from Statistics Canada shows.

NATIONAL POST

* The Harper government’s case for the defense in the Senate scandal has morphed from the lone gunman theory – that Nigel Wright acted alone – to a full-fledged cover-up by a number of rogue operatives.

* Mayor Rob Ford blames a 2.5 percent tax hike proposed by city staff on his effective demotion as chief magistrate and lashes out at the “embarrassing” return to “tax and spend” ways. Councillor Doug Ford says the “political will” to cut costs has evaporated at city hall.

FINANCIAL POST

* Canada’s banking regulator delivered a warning Monday about the state of the housing sector, reminding industry players to remain vigilant to the dangers of a correction in the market and what it would mean for borrowers.

 

China

CHINA SECURITIES JOURNAL

– China plans to adopt measures to encourage direct financing, said Yao Gang, vice chairman of the China Securities Regulatory Commission on Monday at a forum. Plans include the development of the multi-level capital market, an increase in direct financing instruments and the regulation of information disclosure.

CHINA DAILY

– China’s central government is planning to reduce by as much as 60 percent the range of corporate investment needing review and approval from the National Development and Reform Commission and other central government agencies, NDRC vice-minister Lian Weiliang, told a news conference on Monday.

SHANGHAI SECURITIES NEWS

– The China Securities Regulatory Commission has partnered with the Singapore Exchange (SGX) to build a direct listing framework to encourage Chinese companies to list in Singapore, SGX announced on Monday.

– The Shanghai Futures Exchange (SFX) plans to launch trading in non-ferrous metal futures for copper, aluminium, zinc and lead, on the evening of Dec. 20, the SFX said in a notice on Monday.

PEOPLE’S DAILY

– In order to improve the education of the masses, China must look back to identify problems with its previous system, said a commentary in the paper that acts as the party’s mouthpiece.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

ASML (ASML) upgraded to Buy from Hold at Societe Generale
Agnico-Eagle (AEM) upgraded to Overweight from Equal Weight at Morgan Stanley
Autoliv (ALV) upgraded to Neutral from Sell at Citigroup
Danaher (DHR) upgraded to Buy from Neutral at Goldman
FireEye (FEYE) upgraded to Overweight from Equal Weight at Barclays
Forest Labs (FRX) upgraded to Neutral from Underweight at Piper Jaffray
Huntsman (HUN) upgraded to Buy from Neutral at Goldman
Kinross Gold (KGC) upgraded to Equal Weight from Underweight at Morgan Stanley
Peabody Energy (BTU) upgraded to Outperform from Neutral at Macquarie
Summit Hotel (INN) upgraded to Outperform from Market Perform at BMO Capital
Workday (WDAY) upgraded to Outperform from Neutral at RW Baird

Downgrades

AutoZone (AZO) downgraded to Neutral from Buy at Goldman
Cardiovascular Systems (CSII) downgraded to Hold from Speculative Buy at Benchmark Co.
DealerTrack (TRAK) downgraded to Underweight from Equal Weight at Barclays
Eldorado Gold (EGO) downgraded to Equal Weight from Overweight at Morgan Stanley
Francesca’s (FRAN) downgraded to Neutral from Buy at Janney Capital
Freeport McMoRan (FCX) downgraded to Neutral from Buy at Goldman
IAMGOLD (IAG) downgraded to Underweight from Equal Weight at Morgan Stanley
Lionbridge (LIOX) downgraded to Neutral from Buy at B. Riley
Omega Protein (OME) downgraded to In-Line from Outperform at Imperial Capital
The Fresh Market (TFM) downgraded to Neutral from Buy at Goldman
Waters (WAT) downgraded to Neutral from Buy at Goldman
Weingarten Realty (WRI) downgraded to Market Perform from Outperform at Wells Fargo

Initiations

58.com (WUBA) initiated with a Buy at Citigroup
Container Store (TCS) initiated with a Hold at Jefferies
Container Store (TCS) initiated with a Market Perform at Wells Fargo
Container Store (TCS) initiated with a Neutral at Guggenheim
Container Store (TCS) initiated with an Outperform at Credit Suisse
Container Store (TCS) initiated with an Overweight at JPMorgan
Costamare (CMRE) initiated with a Neutral at Credit Suisse
Galena Biopharma (GALE) initiated with an Outperform at Oppenheimer
Gulfport Energy (GPOR) initiated with a Buy at KeyBanc
Haemonetics (HAE) initiated with a Buy at Jefferies
Integrys Energy (TEG) initiated with an Equal Weight at Barclays
Mallinckrodt (MNK) initiated with a Buy at Jefferies
Marcus & Millichap (MMI) initiated with a Buy at Citigroup
Marine Products (MPX) initiated with a Neutral at B. Riley
Prospect Capital (PSEC) initiated with an Outperform at BMO Capital
Sapiens (SPNS) initiated with an Overweight at Barclays
Surgical Care Affiliates (SCAI) initiated with a Buy at BofA/Merrill
Tuesday Morning (TUES) initiated with an Outperform at Credit Suisse
Veracyte (VCYT) initiated with an Overweight at Morgan Stanley
West Marine (WMAR) initiated with a Buy at B. Riley

HOT STOCKS

Gabelli said Superior Industries (SUP) should be repurchasing stock
Philip Morris (PM) sees continued currency headwinds in 2014
Justice Department moved to intervene in H&R Block (HRB) lawsuit alleging disability discrimination
FDA to review efficacy of Plan B contraception in overweight women (TEVA), DJ reports
Laredo Petroleum (LPI) announced corporate reorganization, merger with subsidiary
Signet Jewelers (SIG) expects to open 75-85 new Kay, Jared stores in FY14

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Hormel Foods (HRL), LDK Solar (LDK), Dycom (DY), Perfect World (PWRD), Nuance (NUAN), Palo Alto (PANW), Workday (WDAY)

Companies that missed consensus earnings expectations include:
Copart (CPRT), Hillenbrand (HI), Fifth Street Finance (FSC)

Companies that matched consensus earnings expectations include:
21Vianet (VNET), Culp (CFI)

NEWSPAPERS/WEBSITES

• Soon after Microsoft’s (MSFT) Xbox One went on sale  Friday morning, some customers were taking to Twitter (TWTR) to complain that their new devices were malfunctioning.Microsoft has acknowledged a problem, but said it isn’t widespread, the Wall Street Journal reports
• For M&A’s this year, U.S. companies are paying just 19% more, on average, than their acquisition target’s trading price one week before the deal was announced. That’s the lowest takeover premium since at least 1995, as far back as records go at Dealogic, the Wall Street Journal reports
• The FAA is set to direct airlines to avoid flying Boeing (BA) 787 Dreamliners and 747-8 jumbo jets with GE (
  GE) engines near thunderstorms after some planes experienced ice buildup in their engines, Reuters reports
• Singapore’s DBS Group Holdings (DBSDY) and ABN AMRO are among the suitors to place final bids for Societe Generale’s (SCGLY) Asia private bank, in a $400M deal. Credit Suisse (CS) is also submitting a final bid, sources say, Reuters reports
• Since its IPO, Twitter (TWTR) has been targeting retailers to advertise on its service, especially important during the most lucrative shopping season of the year. The company has met with Best Buy (BBY), Target (TGT) and others, as it lags behind Facebook (FB) in dollars flowing from retailers, Bloomberg reports
• U.S. corporations are changing CEOs at the fastest pace in five years as companies from Wal-Mart Stores (WMT) to Microsoft (MSFT) deal with shifting customer tastes, competition from upstarts and restive shareholders, Bloomberg reports

SYNDICATE

America First Tax Exempt Investors (ATAX) files to sell 6M shares for limited partners
BitAuto (BITA) files to sell $100M in common stock
Sprouts Farmers Markets (SFM) 17M share Secondary priced at $37.00

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Jwt-6jO4aeo/story01.htm Tyler Durden

If yesterday Goldman was pitching going long of the S&P in AUD terms (the world renowned Goldman newsletter may cost $29.95 but is only paid in soft dollars) as its first revealed Top Trade of 2014, today’s follow up exposes Top Trade #2: which is to “Go long 5-year EONIA vs. short 5-year US Treasuries.” Goldman adds: “The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program.”

More from Goldman on this trade recommendation:

• We unveil today the second of our Top Trade recommendations for 2014
• Long 5-year EONIA vs. short 5-year US Treasuries at -61bp for a target of -130bp
• The spread is already priced to widen in the forwards, led mostly by the US leg
• We look for a bigger term premium at the belly of the US curve …
• …while disinflation and the AQR should preserve the ECB’s easing bias

We present today the second of our Top Trade recommendations for 2014: long Euro area 5-year rates vs short their US counterparts. Specifically, we recommend receiving 5-year EONIA fixed rates against shorting 5-year US Treasury Notes. The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program. We will, however, be watching to see if the decline in US borrowing requirements more than compensates for these effects. The greater liquidity of 5-year Treasuries compared with 5-year US$ OIS has also been a consideration. In the Euro area, we are of the view that German bonds may ‘cheapen’ further relative to EONIA as fixed income portfolios are rebalanced in favour of higher-yielding securities, particularly if the ECB eases further. Three macro factors underpin our new Top Trade recommendation, which we review in the sections below.

Separately, and from a tactical standpoint, we now recommend going long Mar-14 Australian Bank bill futures (IRH4) (see Trade Update: Position for further RBA easing, published earlier today). Our view is that the weakness in the Australian economy will remain in place through 2014. As such, we expect the RBA to cut rates by a further 25bp, most likely by the March policy meeting, with a move as early as in December quite possible. At this point, we believe the market only discounts a 25% chance of an easing move in March.

1. Growth Differential Widens

We expect real GDP growth to accelerate across the major developed economies over the coming quarters. As economic activity picks up speed, and core inflation slowly makes its way back up, we expect intermediate maturity yields to re-price higher. Against this backdrop, we note that:

• On our central forecasts, these dynamics are likely to materialize sooner and faster in the US than in the Euro area. In the former, we project sequential quarter-on-quarter annualized real GDP growth of 3.0%-3.5% during most of 2014 and 2015 – an above-trend expansion, following three years with growth close to its potential rate. We also expect an improvement in the economic outlook in the Euro area, but with GDP growth heading to around 1.0%-1.5% – roughly the potential rate of growth – over the corresponding period.
• Our 2014 GDP growth forecast for the Euro area is in line with the latest consensus (as collated by Consensus Economics), while our US GDP forecast is around 50bp above consensus. The downside skew to our crude oil forecasts (we see Brent at US$105/bbl at the end of 2014, from US$110/bbl at end-2013) could benefit the US economy more than Europe’s, given the larger pass-through to retail gasoline prices, which would support household disposable income.
• Downside risks to economic activity are arguably higher in the Euro area than in the US. As we have written in the past (See Global Viewpoint EMU Policies and Market Implications, October 21), ‘banking union’ represents a key institutional upgrade, which will help contain systemic risks and, over time, support the recovery. The transition towards it, however, presents several challenges. A further deleveraging of banks’ balance sheets and the possibility of private creditor ‘bail-ins’ as the Comprehensive Assessment is carried out could weigh on growth more than we already anticipate.

2. Service Price Inflation Diverges

Recent data show that consumer price inflation has stabilized in the US, while it is still trending downwards in the Euro area. Our forecasts indicate that the ongoing divergence in price dynamics on the two sides of the Atlantic will extend into next year: US CPI inflation is seen increasing from an estimated 1.5% in 2013 to 1.7% in 2014, while Euro area inflation goes from 1.4% to 1.1%, with no inflection point expected until the third quarter of 2014.

A significant cross-country divergence in inflation dynamics is also evident when looking beneath the surface (i.e., headline numbers), and accounting for the common international effect of lower commodity prices on retail prices. We notice that services, which typically exhibit a ‘sticky’ or persistent price behaviour, represent about half of the total CPI basket in the US and in the Euro area, and more than two-thirds of ‘core’ CPI. The spread between service price inflation in the US and the Euro area is wide, and possibly set to increase. According to the latest available data, inflation in this category is running at 2.3% in the US, and at just 1.2% in the Euro area. Our econometric estimates of trend service inflation, derived through an econometric approach following the methodology proposed by Stock-Watson (2007), point to an acceleration in the US and, by constrast, a deceleration in the Euro area.

3. Forward Guidance is in the Price

Our 2014 outlook is characterized by central banks cementing their ‘forward guidance’ on policy rates. Currently, a very accommodative monetary policy stance is largely priced in the US, while the market is underestimating the possibility that the ECB can provide further easing, even by cutting the deposit rate below zero. More specifically:

The US$ OIS curve discounts that Fed Funds rates will be kept low for all of 2014 and most of 2015. The 3-month US$ OIS rate in 2-years’ time is around 75bp, back to the levels it stood at in June. The US$ OIS curve steepens considerably beyond this horizon, with the 3-month US$ OIS rate in 3-years’ time currently at 1.65%. But this is just in line with our (dovish) Fed fund forecasts, indicating that the ‘ex-ante’ risk premium is extremely limited. In our previous work, we have shown that estimations of the ‘ex-post’ risk premium in the Eurodollar strip is also very depressed (i.e., investors price negative returns on cash through early 2017) conditioning for the current macro outlook. As we transition to an above-trend growth environment in 2014 and the tapering of Fed bond purchases gets underway, we believe investors may start to challenge the ‘time inconsistency’ of the Fed’s approach, and test its commitment to keep
front-end rates so depressed for so long.

In the Euro area, the front end of yield curve is priced ‘fairly’ relative to our baseline views: the 3-month EONIA in 2-years’ time is currently at around 45bp, increasing to 100bp in the following year. That said, ECB officials have on several occasions said that they judge the costs of deviations from their central objective to keep inflation ‘close but below 2%’ as symmetrical, and may be prepared to ease further should disinflation become more entrenched. Even on our more optimistic central scenario for CPI (the annual inflation on our economists’ forecasts does not fall much below 1%), we expect the ECB to offset any sell-off emanating from developments in the US and any negative shock occurring in the Euro area while the Asset Quality Review gets underway.
All told, we see room for markets to re-price US rates higher during 2014 without much spillover into EUR rates. To be sure, our US economists expect the Federal Reserve to strengthen its forward guidance in March when tapering begins. As discussed above, however, this outcome appears to us already largely reflected in the forwards and its announcement could result in a steepening of the curve, as investors discount that more aggressive easing in the near term would result in more tightening later.

4. The Risks to the Trade

We see the main risks to this recommended trade coming from two sides:

The first is timing. The market reaction to the strengthening of ‘forward guidance’ could, contrary to our expectations, be associated with a flattening of the 2-5-year US curve, at least initially, as investors try to squeeze more ‘carry and roll down’ from the US term structure (for a 5-year UST note, the latter is currently in the region of 70bp per annum). Although the EONIA curve would also likely move in the same direction, the net result could be a tightening of the US-Euro area rates differential instead of the widening we expect. Under our central assumptions for growth and inflation, we would view such an outcome as an opportunity to build up positions in the direction we suggest, as the anchoring to short-term rates should result in an easing of US financial conditions, and increase inflation expectations.

The second risk, as is always the case, stems from the fact that our macro forecasts may not be realized, or at least not to the extent that they ‘beat the forwards’. Evidence of a softer US growth trajectory than we currently anticipate could, for instance, delay the tapering of Fed bond purchases and lead to a flattening rally in the US curve, led by the Treasury curve. This risk is amplified by the large consensus that growth will improve next year (albeit at a slower pace than we project). On the Euro area side, the trade we recommend would suffer from a faster normalization of inflation, which could lead market participants to reassess the ECB’s easing bias.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sa7Iuf9DC3I/story01.htm Tyler Durden