Tag: finance

It was inevitable that virtually at the same time as Goldman said the S&P is overvalued “by almost every metric” that the firm would go ahead and slam US equities in only its first tactically bearish call on US stocks in over a year.

Recall from Friday night:

S&P 500 valuation is lofty by almost any measure, both for the aggregate market (15.9x) as well as the median stock (16.8x). We believe S&P 500 trades close to fair value and the forward path will depend on profit growth rather than P/E expansion. However, many clients argue that the P/E multiple will continue to rise in 2014 with 17x or 18x often cited, with some investors arguing for 20x. We explore valuation using various approaches. We conclude that further P/E expansion will be difficult to achieve. Of course, it is possible. It is just not probable based on history.

 

The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock: (1) The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4) EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE and P/B relationship; and compared with the levels of (6) inflation; (7) nominal 10-year Treasury yields; and (8) real interest rates. Furthermore, the cyclically-adjusted P/E ratio suggests the S&P 500 is currently 30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings.

Sure enough, here comes Goldman’s global portfolio strategy research team headed by Nielsen, Oppenheimer, Kostin, Garzarelli, and Himmelberg, and pulls another leg out of the Fed-driven rally.

We downgrade the US equity market to underweight relative to other equity markets over 3 months following strong performance. Our broader asset allocation is unchanged and so are almost all our forecasts. Since our last GOAL report, we have rolled our oil forecast forward in time to lower levels along our longstanding profile of declining prices. We have also lowered the near-term forecast for equities in Asia ex-Japan slightly. Near-term risks have declined as the US fiscal and monetary outlook has become clearer.

 

 

Our allocation is still unchanged. We remain overweight equities over both 3 and 12 months and balance this with an underweight in cash over 3 months and an underweight in commodities and government bonds over 12 months. The longer-term outlook for equities remains strong in our view. We expect good performance over the next few years as economic growth improves, driving strong earnings growth and a decline in risk premia. We expect earnings growth to take over from multiple expansion as a driver of returns, and the decline in risk premia to largely be offset by a rise in underlying government bond yields.

 

Over 3 months our conviction in equities is now much lower as the run-up in prices leaves less room for unexpected events. Still, we remain overweight, as near-term risks have also declined and as we are in the middle of the period in which we expect growth in the US and Europe to shift higher.

 

Regionally, we downgrade the US to underweight over 3 months bringing it in line with our 12-month underweight. After last year’s strong performance the US market’s high valuations and margins leaves it with less room for performance than other markets, in our view. Our US strategists have also noted the risk of a 10% drawdown in 2014 following a large and low volatility rally in 2013 that may create a more attractive entry point later this year.

Of course, how the above trade fits with Goldman’s top trade #1 for 2014 revealed in November, which was to go long the S&P funded by an AUD short, one can only wonder.

And now the muppets start to wonder: should we do what Goldman is telling us to do, and blow up as always, or do what Goldman’s trading desk is doing, which probably is buying risk from all those who are selling. Ah, questions.

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

• Full onslaught 1: New Jersey Gov. Chris Christie’s Aides Pressed Hard for Endorsements (WSJ)
• Full onslaught 2: Feds investigating Christie’s use of Sandy relief funds (CNN)
• Iran nuclear deal to take effect on January 20 (Reuters), Iran to get first $550 million of blocked $4.2 billion on February 1 (Reuters)
• Sen. McCaskill didn’t want to be in same elevator with Hillary Clinton (Hill)
• The banks win again: Basel Regulators Ease Leverage-Ratio Rule for Banks (BBG)
• Ireland’s Rebound Is European Blarney (NYT)
• Democrats prove barrier for Obama in quest for trade deals (FT)
• Federal Reserve Said to Probe Banks Over Forex Fixing (BBG)
• UK Treasury gives debt pledge on Scotland (FT)
• KFC’s Crisis in China Tests Ingenuity of Man Who Built Brand (WSJ)
• Hedge fund Elliott’s latest activitist target: WM Morrisson (FT)
• Amec Agrees to Acquire Foster Wheeler for $3.2 Billion (BBG)
• Ermotti Says UBS Not Considering Investment-Bank Spinoff (BBG)
• German choice for ECB heralds shift as rate clout slips (BBG)

 

Overnight Media Digest

WSJ

* Volkswagen AG plans to invest $7 billion in North America over the next five years, in a bid to accelerate its growth in the region and catch up to key competitors like General Motors Co, Ford Motor Co and Toyota Motor Corp.

* Accenture Plc’s unit, Accenture Federal Services, won a one-year contract to continue technical improvements to the HealthCare.gov site after the government chose not to renew its contract with CGI Group Inc.

* General Motors Co Chief Financial Officer Dan Ammann said the auto maker is “the closest it has ever been” to reinstating a dividend. GM last paid a dividend on its common stock in May 2008.

* Units of DuPont Co, Syngenta AG and Dow Chemical Co sued on Friday to overturn a new law in Hawaii that would restrict the planting and spraying of genetically modified crops.

* The Fifth U.S. Circuit Court of Appeals upheld the existing framework for reviewing claims and disbursing funds, narrowing BP’s options for avoiding what it says are millions of dollars in payments to individuals and business not harmed by the 2010 oil spill in the Gulf of Mexico.

* Toyota Motor Corp expects to boost U.S. sales by 100,000 vehicles this year to 2.3 million vehicles, about 4 to 5 percent ahead of last year, the head of the Japanese auto maker’s North American operations said.

* The Denver Art Museum was set to announce on Monday the largest donation in its history – a gift of 22 paintings worth more than $100 million that will nearly triple the size of its Impressionist collection.

 

FT

Following ferocious industry lobbying, global banking regulators agreed on Sunday to ease new rules aimed at reining in banks’ reliance on debt, providing relief to big investment banks who have been anxious about raising billions in extra capital.

U.S. agribusiness giant Cargill Inc acquired a $200 million stake in Ukraine’s largest agribusiness holding, UkrLandFarming, in a deal that would, according to sources, see both groups join forces to export grains to China and other growing markets in the future.

Google Inc is in the top ranks of technology companies building stockpiles of legally-protected innovations with nearly 2,000 patents awarded in the United States last year, almost double the number of all previous years combined.

Global automobile makers are trying to stay ahead of a swiftly shifting market and fierce competition from the technology industry with more investment in research and development than ever before.

According to a Financial Times poll of 15 steel analysts, world production of steel will rise by 3.6 percent in 2014 with a rebound in Europe and the rest of the world offsetting a slowdown in Chinese growth.

 

NYT

* The Basel Committee for Banking Supervision agreed on Sunday to ease a new rule, meant to rein in risky balance sheets, starting 2018, in an effort to avoid tightening financing for the world’s economy. The regulators signaled there is still no agreement on the final level of the new leverage ratio, which measures how much capital a bank must hold against its loans and other assets.

* Comcast Corp unit NBCUniversal News Group announced a partnership with Now This News, a startup that creates short-form news segments tailored for distribution over social media sites like Vine, Instagram and Snapchat. It was not revealed how much money NBC invested, but the transaction would give it a roughly 10 percent stake, as well as an entry into a new news format.

* Gerchen Keller Capital, an upstart investment firm that bets on lawsuits, was expected to announce on Monday that it has amassed about $260 million for its second fund. Litigation finance, as the business is known, often involves bankrolling plaintiffs in exchange for a slice of the lawsuit’s potential winnings.

* An increasing number of pawn businesses catering to the wealthy offer fast liquidity in exchange for high-end luxury items. With almost 250 years of experience in the exclusive world of high-end pawn, Suttons & Robertsons has come to the United States to fill what it believes is a growing need among wealthy Americans who have spent beyond their means and need a quick – and quiet – infusion of cash in exchange for a few cherished baubles they are willing, at least temporarily, to live without.

* The annual North American International Auto Show has taken on added importance for Detroit, which filed for bankruptcy six months ago, as the city desperately needs a successful show to improve its battered image.

* Indonesia, one of the world’s biggest producers of minerals including gold, nickel, copper, tin and thermal coal, implemented a new law on Sunday banning the export of unprocessed ore.

* A fire at a Citibank branch in Morningside Heights in Manhattan burned for more than 30 hours on Saturday and Sunday, drawing over 200 firefighters before it was extinguished. The fate of customers’ valuables stored in safe deposit boxes at the branch was not known.

 

Canada

THE GLOBE AND MAIL

* Thousands of Nova Scotia Power Inc customers were in the dark Sunday after high winds and heavy rain battered the region. More than 20,000 customers were without power Sunday morning – mostly in the Halifax area – although that number had dropped to around 1,100 by early afternoon, the utility said. Spokeswoman Neera Ritcey said crews were replacing a utility pole that caught fire.

* Singer-songwriter Neil Young spoke out strongly against the federal government’s role in the industrial development of Northern Alberta oil sands.

Reports in the business section:

* Industry Minister James Moore said on Friday that the auction of the 2500 megahertz frequency would take place on April 14, 2015, stressing the licenses would come with strict rules to support competition and potentially lower prices for consumers, especially those in rural areas.

NATIONAL POST

* Photos of Toronto Mayor Rob Ford posing with other bargoers at Muzik nightclub drew dozens of comments on Instagram and Twitter. Ford publicly vowed to stop drinking alcohol late last year as the crack video scandal engulfing his office hit a fever pitch – and none of the photos of the mayor posted online suggested he had broken the vow.

FINANCIAL POST

* Target Corp revealed growing pains at its Canadian operations will drag down fourth-quarter results by more than it initially anticipated.

 

China

CHINA SECURITIES JOURNAL

– China will reduce land availability for construction in the Eastern region and cities with a population of over 5 million will not be allowed more building projects, said the Ministry of Land and Resources in an annual meeting last Friday.

CHINA DAILY

– Countries involved in the South China Sea conflict should demonstrate wisdom in resolving issues and be on guard against U.S. interference, said a commentary in the paper. Washington’s recent accusations that China’s fishing regulations in the area were provocative are unreasonable, it added.

PEOPLE’S DAILY

– Everyone is a beneficiary of China’s reforms, said a commentary in the paper that acts as the Party’s mouthpiece.

 

Britain

The Telegraph

THE NORTH SEES FASTEST GROWTH IN ANY REGION

Companies in the North of England are now growing at the fastest pace seen in any UK region one of the country’s leading business figures has said in a sign that the economic recovery is broadening.

UK TO GUARANTEE INDEPENDENT SCOTLAND’S DEBT

The Treasury will on Monday pledge to guarantee all of Britain’s debt even if Scotland votes to leave the UK, in an attempt to prevent creditors from pushing up the cost of government borrowing.

The Guardian

U.S. BANK RESULTS SET TO REIGNITE CONTROVERSY OVER CITY BONUSES

Controversy over City pay is likely to be re-ignited this week when the major U.S. banks – including JPMorgan Chase & Co and Goldman Sachs – release their results for 2013.

MORRISONS MAY SELL 10 PCT OF PROPERTIES TO APPEASE SHAREHOLDERS

British grocer WM Morrison is reported to be considering selling off up to 10 percent of its properties to appease shareholders after bad tidings over Christmas trading. While the supermarket chain has traditionally made store ownership a key plank of its business, owning about 90 percent of its stores, shareholder pressure has pushed the company to consider selling off and leasing back some of its 9 billion pound property portfolio.

The Times

AMAZON, GOOGLE, FACEBOOK AND APPLE ‘MUST NOT BE SO AGGRESSIVE OVER UK TAX’

One of Britain’s biggest shareholders in Amazon, Google Inc, Facebook and Apple Inc has warned them not to be so aggressive in avoiding UK corporation tax in the wake of parliamentary and public anger last year. James Anderson, manager of the £2.6 billion Scottish Mortgage Investment Trust, said the American companies were taking risks by so aggressively seeking to minimise their tax bills.

‘CATCH-UP’ PAY DEMANDS SPELL TROUBLE, WARNS BOSS OF ACAS

Business must brace itself for a wave of “catch-up” pay demands in the private sector after five years of pay freezes or below-inflation raises. The warning has come from the outgoing head of Acas, the industrial dispute mediation agency, who has also cautioned that private sector pay claims could fuel unrest over wages in the public sector.

The Independent

JAGUAR LAND ROVER NOTCHES UP RECORD-BREAKING GLOBAL SALES

Britain’s largest car manufacturer Jaguar Land Rover has reported record breaking global sales for 2013, the company has said. Together the iconic British brands sold 425,006 vehicles in 2013 – up 19 percent on 2012 – setting new sales records in 38 international markets.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
December Treasury Budget at 14:00–Current consensus is $44.0B

ANALYST RESEARCH

Upgrades

Autodesk (ADSK) upgraded to Overweight from Equal Weight at Morgan Stanley
Banco Bilbao (BBVA) upgraded to Overweight from Equal Weight at Barclays
Carnival (CCL) upgraded to Neutral from Reduce at SunTrust
Diana Shipping (DSX) upgraded to Buy from Hold at Deutsche Bank
Estee Lauder (EL) upgraded to Buy from Hold at Deutsche Bank
F5 Networks (FFIV) upgraded to Outperform from Market Perform at William Blair
Fortinet (FTNT) upgraded to Overweight from Equal Weight at Morgan Stanley
Garmin (GRMN) upgraded to Outperform from Perform at Oppenheimer
HomeAway (AWAY) upgraded to Overweight from Equal Weight at Barclays
Jacobs Engineering (JEC) upgraded to Buy from Neutral at UBS
LPL Financial (LPLA) upgraded to Overweight from Neutral at JPMorgan
Life Time Fitness (LTM) upgraded to Buy from Hold at KeyBanc
MGM Resorts (MGM) upgraded to Buy from Neutral at BofA/Merrill
Macy’s (M) upgraded to Outperform from Neutral at Macquarie
Marriott (MAR) upgraded to Overweight from Neutral at JPMorgan
Multimedia Games (MGAM) upgraded to Buy from Neutral at Janney Capital
Nimble Storage (NMBL) upgraded to Outperform from Sector Perform at Pacific Crest
Pinnacle West (PNW) upgraded to Neutral from Sell at Goldman
Qihoo 360 (QIHU) upgraded to Buy from Hold at Stifel
Red Hat (RHT) upgraded to Overweight from Equal Weight at Morgan Stanley
Strategic Hotels (BEE) upgraded to Buy from Underperform at BofA/Merrill
Towers Watson (TW) upgraded to Outperform from Neutral at Credit Suisse
Ventas (VTR) upgraded to Top Pick from Outperform at RBC Capital
Visa (V) upgraded to Buy from Neutral at Citigroup

Downgrades

BlackBerry (BBRY) downgraded to Underperform from Perform at Oppenheimer
Corcept Therapeutics (CORT) downgraded to Hold from Buy at Stifel
Cree (CREE) downgraded to Hold from Buy at Stifel
Crown Holdings (CCK) downgraded to Neutral from Outperform at Macquarie
El Paso Electric (EE) downgraded to Sell from Neutral at Goldman
InterContinental Hotels (IHG) downgraded to Underperform from Hold at Jefferies
Marriott (MAR) downgraded to Underperform from Hold at Jefferies
Marsh & McLennan (MMC) downgraded to Neutral from Outperform at Credit Suisse
Peregrine (PSMI) downgraded to Hold from Buy at Deutsche Bank
Plexus (PLXS) downgraded to Underperform from Market Perform at Raymond James
Ply Gem (PGEM) downgraded to Neutral from Overweight at JPMorgan
Principal Financial (PFG) downgraded to Neutral from Outperform at Macquarie
Sanmina (SANM) downgraded to Underperform from Market Perform at Raymond James
Shutterfly (SFLY) downgraded to Equal Weight from Overweight at Barclays
Symantec (SYMC) downgraded to Underweight from Equal Weight at Morgan Stanley
TiVo (TIVO) downgraded to Neutral from Buy at Goldman

Initiations

Booz Allen (BAH) initiated with a Neutral at Citigroup
ChemoCentryx (CCXI) initiated with a Neutral at Goldman
Cliffs Natural (CLF) initiated with a Hold at Brean Capital
Continental Resources (CLR) initiated with an Outperform at BMO Capital
EMC (EMC) initiated with an Overweight at Atlantic Equities
F.N.B. Corp. (FNB) initiated with a Buy at Jefferies
HP (HPQ) initiated with an Overweight at Atlantic Equities
Hilton Worldwide (HLT) initiated with an Equal Weight at Evercore
IBM (IBM) initiated with a Neutral at Atlantic Equities
NCR (NCR) resumed with an Overweight, added to Focus List at JPMorgan
National Penn (NPBC) initiated with a Hold at Jefferies
NetApp (NTAP) initiated with a Neutral at Atlantic Equities
Qlik Technologies (QLIK) initiated with a Neutral at Atlantic Equities
ServiceNow (NOW) initiated with an Outperform at RBC Capital
Shutterfly (SFLY) initiated with an Outperform at RBC Capital
Silicom (SILC) initiated with a Buy at Needham
Splunk (SPLK) initiated with an Overweight at Atlantic Equities
Stericycle (SRCL) initiated with an Outperform at Credit Suisse
Tableau Software (DATA) initiated with a Neutral at Atlantic Equities
Teradata (TDC) initiated with an Overweight at Atlantic Equities

HOT STOCKS

Goldcorp (GG) offered to acquire Osisko for C$5.95 per share in cash and shares
Yahoo (YHOO) said malware-infected ads issue larger than previously reported
Dunkin’ (DNKN) reported strong FY13 growth, plans to open 685-800 new stores in FY14
Telstra (TLSYY) to sell majority stake in Sensis for A$454M
Judge estimated EnPro’s (NPO) GST mesothelioma liability at $125M
DOJ probing export and import procedures at Honeywell (HON), Reuters reports
Orbital’s (ORB) Cygnus spacecraft successfully berthed with International Space Station
Covidien (COV) announced acquisition, JV agreement to meet ‘value segment’ markets
JinkoSolar (JKS) to separate Solar PV project business

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Platinum Group (PLG)

NEWSPAPERS/WEBSITES

• Volkswagen (VLKAY) to invest $7B in North America over five years, WSJ reports
• Microsoft (MSFT) News Twitter account hacked by SEA, Business Insider reports
• Cyber attacks said to spread to other well known retailers, Reuters reports
• Rogers Communications (RCI) plans Netflix-like service, Globe and Mail reports
• Fed investigating banks over forex fixing, Bloomberg reports
• Alcatel-Lucent (ALU) in talks to sell enterprise business, Bloomberg reports
• UBS (UBS) CEO: No spinoff of investment bank, Reuters reports
• New Ford (F) aluminum F-150 pickup marks new era, WSJ reports
• Yum struggles in China a year after KFC crisis began, WSJ reports
• Discovery (DISCA), Scripps Networks abandon merger talks, WSJ reports
• Eminence backing Men’s Wearhouse (MW) bid for Jos. A. Bank (JOSB), WSJ reports
• GM (GM) CFO says company close to reintroducing dividend, Reuters says

BARRON’S

Worst might be over for Target (TGT) investors
Cisco (CSCO) shares could return 20%
Macy’s (M), Dick’s (DKS), Home Depot (HD), Lowe’s (LOW) could benefit from cold
Magna (MGA) could deliver returns of almost 30%
Titan International (TWI) could rebound in 2014
Drop presents entry point for Ford (F), Schlumberger (SLB), Armstrong World (AWI)
ZTE Corp. (ZTCOY), others think Apple (AAPL), Samsung (SSNLF)are vulnerable

SYNDICATE

Quantum (QTWW) files to sell 1.35M shares of common stock for holders
Talmer Bancorp (TLMR) files registration statement for proposed IPO
Teekay Offshore Partners (TOO) files to sell 1.75M common units for holders
UQM Technologies (UQM) files to sell $30M of common stock, warrants
UR-Energy (URG) files to sell 12.91M common shares for holders

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

Today’s AM fix was USD 1,246.00, EUR 911.89 and GBP 757.86 per ounce.
Friday’s AM fix was USD 1,232.25, EUR 906.53 and GBP 750.78 per ounce.

Gold climbed $18.70 or 1.52% Friday, closing at $1,247.10/oz. Silver rose $0.56 or 2.86% closing at $20.13/oz. Platinum climbed 14.85, or 1.1%, to $1,428.10/oz and palladium rose $5.99 or 0.8%, to $739.10/oz. Gold was up 0.87% and silver was down 0.15% for the week.

Today’s gold prices continued last week’s rally, strengthened by a disappointing U.S. jobs number which creates doubts about the strength of the U.S. economic recovery.

Gold in U.S. Dollars, 1 Year – (Bloomberg)

The Perth Mint‘s Bron Suchecki has written an interested blog post regarding the real risk of gold coin shortages and rationing happening again:

The extraordinary demand for precious metals coins following the 2008 global financial crisis caught the minting industry by surprise, resulting in never before seen coin rationing and shortages.

It seems not much has changed, with recent reports that the UK Royal Mint ran out of 2014 Sovereign gold coins due to “exceptional demand”, as well as the continuation for over one year of an allocation program first put into place early 2013 by the US Mint on its ever popular silver Eagle bullion coins.

While these recent events have been limited to specific coins, with availability of other leading bullion coins like the Perth Mint’s gold Kangaroo not affected, it does seem to indicate that worldwide minting production capacity is still unable to meet demand surges.

However, it is little appreciated that the bottleneck in the global coin minting process is blank (planchet) manufacture. This is a far more complex process than simple stamping of a coin, particularly around purity and accurate weight control.

If you dig deep, you will find that many of the coin supply problems come from underestimation of demand and the resulting exhausting of blank inventories. Often, blank suppliers are mints themselves and can face conflicts where they earn more by prioritising blanks for internal use rather than supply externally. Running higher blank inventories is often not an option, due to the cost of funding the high dollar value of the inventory.

 
How high coin premiums can go when coin demand overwhelms production capacity – (Sharelynx)

Notwithstanding the capacity expansion by blank suppliers over the past five years, in my opinion there is no way the industry can meet the demand that would occur were precious metals to see even a small bit of interest from the mass market. While cast bars are a lot easier to make and refiners are much more casting production capacity, I am not even sure if it could meet sustained mass market demand.

For now 2008 style shortages and rationing don’t seem to be on the horizon but the fact that the UK and US Mint are having supply issues on a few of their product with metal prices at these low levels is an indicator that as prices rise and (re)attract investor interest, shortages and rationing may become a reality of coin buying life again.

The interesting and informative blog post can be read here.

This is another reason why is you are considering buying coins or bars in volume for delivery or bullion storage in Zurich or Singapore, it is best not to wait.

“Don’t wait to buy gold and silver. Buy gold and silver and wait.”
 
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0NDwNF9ViFo/story01.htm GoldCore

With no major macro news on today’s docket, it is a day of continuing reflection of Friday’s abysmal jobs report, which for now has hammered the USDJPY carry first and foremost, a pair which is now down 170 pips from the 105 level seen on Friday, which in turn is putting pressure on global equities. As DB summarizes, everyone “knows” that Friday’s US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn’t show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.

Heading into the North American open, stocks in Europe are seen mixed, though financials remained the best performing sector following reports that global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following ferocious industry lobbying. Also providing support for the sector was a positive broker recommendation by analysts at Bank of America on UBS. Nonetheless, Bunds remained better bid and were in part supported by somewhat lacklustre demand for the latest round of Italian bond auctions, which also resulted in IT/GE 10y spread widening. The move higher by Bunds saw prices edge back above post NFP highs, with resistance now eyed at 140.59 (Dec 16th high). Looking elsewhere, GBP underperformed its peers, with real money selling against a basket of currencies (particularly AUD) touted behind the moves.

Going forward, there are no tier-1 macroeconomic releases, with only monthly budget statement from the US on tap at 1900GMT.

US economic docket:

• Monthly Budget Statement, Dec. est. +$44b (prior – $135.2b) – 2:00pm
• Fed’s Lockhart speaks in Atlanta – 12:40pm
• POMO: Fed to purchase $1b-$1.25b TIPS in 2018-2043 sector – 11:00am
• U.S. to sell $28b 3M bills, $26b 6M bills: 11:30am

Overnight new bulletin summary from Bloomberg and RanSquawk

• European equities are relatively mixed with financials being the outperformer amid reports that regulators are looking to water down new rules that would see a reining in of banks reliance on debt.
• Bunds remain better bid, partly supported by a somewhat lacklustre Italian bond auction.
• GBP is the underperforming currency following real money selling against various currencies, AUD in particular.
• Treasuries steady, 10Y yields holding near lowest since Dec. 23 after weaker-than-expected Dec. jobs data challenged expectations for Fed rate increases and tapering, despite effect of inclement weather on hiring.
• Global regulators diluted Basel III’s planned debt limit for banks amid warnings that the rule would penalize low-risk  financial activities and curtail lending
• China Investment Corp., the country’s $575b sovereign wealth fund, favors European infrastructure and real estate as developed markets will drive the next phase of the global economic recovery
• UBS to increase bonuses by 20%, first boost “in years,” SonntagsZeitung reports, citing unidentified people informed of bank’s plans; CEO Sergio Ermotti said in BTV interview he won’t spin off investment bank
• The Fed is investigating whether traders at the world’s biggest banks rigged benchmark currency rates, raising the risk that firms will be penalized for lax controls as regulators look for wrongdoing
• Iran agreed to curtail its nuclear activities starting Jan. 20 under a deal with world powers, triggering the easing of some sanctions and the start of a six-to-12 month  timetable to reach a permanent accord
• Sovereign yields mostly lower; EU peripheral spreads widen. Asian equity markets mixed; Nikkei closed, Shanghai -0.2%. European stocks gain, U.S. equity-index futures fall.  WTI crude, gold and copper fall

Asian Headlines

Japanese markets closed for Coming of Age Day. (RANsquawk)

Fitch says on India that they will wait to see what shape next government will take, their policy strategies and will be important information for future outlook for rating.  (RTRS)

EU & UK Headlines

Global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following ferocious industry lobbying. (FT)

The UK Treasury has assumed full responsibility for Britain’s GBP 1.2trl debt stock in the event of Scottish independence. Gilt holders are worried about the impact on their investments but will no doubt be reassured by the Treasury’s announcement today. (FT)

Portugal said it may sell bonds via auction before mid-May, according to Secretary of State for Treasury Castelo Branco. Branco also commented that Portugal is not under pressure to sell bonds and that the ability to sell debt in auction is a goal. (BBG)

When asked about any decision on Portugal, Moody’s says the ratings calendar is only indicative for potential action and said they did not make any decision on Portugal on January 10 with the next date for potential action being May 9. (RTRS)

A Greek finance ministry official said Greece’s aims remain on the issue of bonds, which would most likely be in H2 2014 for an amount that will not exceed EUR 3bln and that the maturity period of the new issue will be between 5-7 years. (EKathimerini)

Italy’s Letta may reshuffle government following reports that Italian Finance Minister Saccomanni said he will not resign following criticism from politicians including Democratic Party leader Renzi. (Il Messaggero)

US Headlines

Newsflow from the US remains light with a lack of tier-1 data for the remainder of the session. (RANsquawk)

Equities

Weekend reports in the FT that global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following ferocious industry lobbying has lead Financials to be the outperforming sector in European trade. With upward momentum for the financial sector was also exacerbated by positive broker recommendations by analysts at Bank of America on UBS. In terms of stock specific news, Sports Direct have acquired a 4.63% stake in Debenhams. without the prior knowledge of Debenhams and says they have the intention of being a supportive shareholder, which has seen Debenhams shares up just under 5%. Elsewhere, activist investors including Elliott Associates have built a stake in WM Morrison and are pushing for a radical shake-up of its property portfolio, which has seen their shares up just over 3.5%.

FX

GBP underperformed its peers, with real money selling against a basket of currencies (particularly AUD) touted behind the moves. As a result, despite absence of apparent appetite for risk this morning, with commodities and metals also trading lower, AUD/USD traded higher. The price action saw the pair move above the 23.6% retracement of the October to December sell off, consequently taking out stops on the break of at 0.9050. Next resistance level now seen at the 50DMA line seen at 0.9094.

Commodities

Iran and six world powers have cleared technical hurdles on how to implement an agreement to curb the Iranian nuclear programme in return for easing sanctions, according to EU and Iran officials. (BBG) The pact will take effect from Jan 20th 2014. (AFP) US President Obama said the US is to give ‘modest relief’ on sanctions if Iran fulfils commitments of deal and will increase sanctions if not. (RTRS)

Goldman Sachs forecasts stable oil and lower gold and copper prices. (BBG)

Iran sees no change in oil price in 2014 and is to ask OPEC to cut output if prices fall sharply, according to Iranian Oil Minister. (BBG)

UBS says its possible gold may rise to USD 1,300/oz in short term. (BBG)

China Jan-Nov gold output at 392.141 tonnes, up 7.01% from year ago, according to Chinese Gold Association. (RTRS)

* * *

We conclude with the traditional overnight recap from DB’s Jim Reid

Everyone knows that Friday’s US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn’t show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.

The overnight Asian session has generally seen a follow-through of some of the main post-payroll themes on Friday. The US dollar is down against most major currencies (dollar index –0.2%) and Asian equity bourses are generally on a firmer footing to start the week. USDJPY (-0.8%) has hit a one-month low and EURUSD is up 0.1%. Japan is closed for a public holiday today so treasury markets are largely closed during the Asian timezone. On the equities side, resources stocks in Asia are outperforming, boosted by a number of Nickel miner’s shares after the Indonesian government announced restrictions on the export of unprocessed nickel ore. The circa 1.8% jump in gold prices following Friday’s payrolls is also providing much needed relief to gold stocks. Thailand’s SE index (-0.5%) is lagging its regional peers on political concerns as anti-government protestors begin a blockade in the capital.

There were a number of headlines over the weekend which are worth reviewing. Firstly, the Basel Committee for Banking Supervision yesterday released details on how it plans to define a bank’s leverage ratio (a measurement of a bank’s equity capital to its total assets). The revised definition includes a number of important concessions for banks including the ability to exclude some off-balance sheet exposures from the definition of assets, the ability to net repo and reverse repo assets against liabilities and the ability to net exposures involving central counterparties (Wall Street Journal). Banks will have to report their leverage ratios from 2015 onward, and regulators intend to force them to have a ratio of at least 3% starting in 2018, which is unchanged from previous proposals. A number of commentators were expecting a softening in the definition of leverage in order to address concerns that banks would be forced to reduce lending or raise additional capital, but it remains to be seen whether last night’s announcement has an impact on banking stocks today. In the UK, the Sunday Times wrote that UK GDP growth could hit 4% for one or two quarters this year driven by a sharp pickup in business investment. Staying in the UK, the weekend papers were suggesting that Chancellor Osborne will advocate in a major speech this week that Britain should remain in a reformed EU and push for the liberalisation of regulations to promote growth (Telegraph).

Looking at the week ahead, we’ve generally got a slow start to the week though there are some expectations that a number of investors will be wading back into the market for the first time in 2014 after waiting for last Friday’s payrolls to pass. Of the data releases this week, we should highlight that the CPI numbers around the globe will provide a good guide to the latest inflation trends at a point where many hope we’re around the trough in inflation. If the signs are that we’re not, then it could start to have major implications for central banks activity in 2014. The UK, Italian and French CPI numbers are released tomorrow, Spain on Wednesday, followed by the US, Germany and Euroarea on Thursday. In the EM space, inflation data for India, Romania (today), Poland and Hungary (Wed) will be released this week.

After last week’s lackluster start to US earnings season courtesy of Alcoa, the attention will shift to this week’s earnings flow from the major US banks. The FT thinks that a number of large US broker dealers will report a marked increase in earnings coming from equities businesses as rebounding DM equities and subdued fixed income trading levels force a rebalancing of divisional revenues. The commentary from the major commercial banks will also be watched closely particularly given the backdrop of rising rates in Q4 last year. US financials reporting this week include JPM and Wells Fargo tomorrow, BofA on Wednesday, GS and Citi on Thursday, BoNY and MS on Friday. Industrial bellwethers Intel (Thurs) and General Electric (Fri) are also on this week’s earnings docket.

In Washington DC, reports in Politico are suggesting that House-Senate negotiators have narrowed their differences over how to allocate $1.1trn from the government’s budget. Last year’s year-end Murray-Ryan agreement set overall spending levels for the government. The stopgap continuing resolution, which has kept agencies operating thus far, is due to expire Wednesday. To prevent any threat of a shutdown, a three-day extension through Saturday will be taken up by the House, possibly on Tuesday. In terms of Fed speakers, Chairman Bernanke speaks on the topic “Challenges Facing Central Banks” on Thursday at an event hosted by the Brookings Institute. The Fed’s Lockhart, Fisher, Plosser, Evans and Lacker are also scheduled to speak throughout the week.

Outside of the CPI updates across the globe, there are a number of other important data releases starting with tomorrow’s US retail sales and Euroarea industrial production, Japanese machine tool orders, US PPI and German GDP on Wednesday, the Philly Fed on Thursday and US JOLTs/consumer confidence/building permits/housing starts data on Friday. In China, the money supply and new loan stats for the month of December are expected by Wednesday at the latest.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Z45KRhUwIFY/story01.htm Tyler Durden

With a seemingly endless line of talking-heads willing to ignore essentially every study that has been undertaken with regard the effects of raising the minimum-wage; and propose what is merely populist vote-getting 'benefits' for the ever-increasing not-1% who benefitted from Ben Bernnake's bubbles – we thought the following burger-flipping robot was a perfect example of unintended consequences for the fast food industry's workers. With humans needing to take breaks, have at least 4 weekend days off per month, and demanding ever-increasing minimum-wage for a job that was never meant to provide a 'living-wage', Momentum Machines – a San Francisco-based robotics company has unveiled the 'Smart Restaurants' machine which is capable of making ~360 'customized' gourmet burgers per hour without the aid of a human. First Jamba Juice, then Applebees, next McDonalds…

 

As Brian Merchant ( @bcmerchant ) explains (via The Burning Platform blog),

Meet the Robot That Makes 360 Gourmet Burgers Per Hour

What happens after that should be clear to everyone: more unemployment, lower wages for the remaining employees, worse worker morale, but even higher profits to holders of capital. And so on. Because in a world in which technology makes the unqualified worker utterely irrelevant, this is what is known as "progress."

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8rwlK_gZ38c/story01.htm Tyler Durden

With a seemingly endless line of talking-heads willing to ignore essentially every study that has been undertaken with regard the effects of raising the minimum-wage; and propose what is merely populist vote-getting 'benefits' for the ever-increasing not-1% who benefitted from Ben Bernnake's bubbles – we thought the following burger-flipping robot was a perfect example of unintended consequences for the fast food industry's workers. With humans needing to take breaks, have at least 4 weekend days off per month, and demanding ever-increasing minimum-wage for a job that was never meant to provide a 'living-wage', Momentum Machines – a San Francisco-based robotics company has unveiled the 'Smart Restaurants' machine which is capable of making ~360 'customized' gourmet burgers per hour without the aid of a human. First Jamba Juice, then Applebees, next McDonalds…

 

As Brian Merchant ( @bcmerchant ) explains (via The Burning Platform blog),

Meet the Robot That Makes 360 Gourmet Burgers Per Hour

What happens after that should be clear to everyone: more unemployment, lower wages for the remaining employees, worse worker morale, but even higher profits to holders of capital. And so on. Because in a world in which technology makes the unqualified worker utterely irrelevant, this is what is known as "progress."

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8rwlK_gZ38c/story01.htm Tyler Durden

When it comes to the topic of China’s epic credit bubble (which continues to get worse as bad debt accumulates ever higher), we have beaten that particular dead horse again and again and again and, most notably, again. However, since in China the concept of independent bank is non-existent, and as all major financial institutions are implicitly government backed, by the time the “big” bubble bursts, it will be time to hunker down in bunkers and pray (why? Because while the Fed creates $1 trillion in reserves each year, and dropping post taper, China is responsible for $3.6 trillion in loan creation annually – yank that and it’s game over for a world in which “growth” is not more than debt creation). But just because the big banks can continue to ignore reality with the backing of the fastest marginally growing economy in the world (inasmuch as building empty cities can be considered growth), the same luxury is not afforded to China’s smaller lender, such as its peer-to-peer industry.

Granted, in the grand scheme of things P2P in China is small, although in recent years, as a key part of shadow banking, it has been growing at an unprecedented pace: according to research published last year by Celent consultancy, the country’s P2P lending market grew from $30m in 2009 to $940m in 2012 and is on track to reach $7.8bn by 2015. Here’s the problem: it won’t. In fact, China’s P2P lending boom just went bust because as the FT reports, “dozens of the P2P lending websites that sprang up in recent years have shut as borrowers default on loans. The biggest companies are unscathed so far, but the rapid collapse of smaller rivals highlights the mounting difficulties in the Chinese micro-lending industry as economic growth slows and monetary conditions tighten… Of the nearly 1,000 P2P companies operating in China, 58 went bankrupt in the final quarter of last year, according to Online Lending House, a web portal that tracks the industry. Several more had already run into trouble this year, it added.”

And it’s only going to get worse:

“The main reasons are the intense competition in the P2P industry, the liquidity squeeze at the end of the year and a loss of faith by investors,” said Xu Hongwei, chief executive of Online Lending House. He estimated that 80 or 90 per cent of the country’s P2P companies might go bust.

Oops. None of this is unexpected: after the Chinese banking system nearly collapsed in June, following an explosion in overnight lending rates on just the mere threat of tapering of liquidity by the PBOC (since repeated several times with comparable results), it was inevitable that there would be unexpected consequences somewhere.

That somewhere is manifesting itself in the one industry that was supposed to gradually alleviate the lending burden for the SOEs.

People in the industry had hoped that P2P lenders would fill a hole in China’s financial system by helping small businesses obtain funding and by giving investors higher returns than they can obtain from banks.

 

While proponents believe that will still eventually prove to be the case, many believe the industry has expanded too quickly and with insufficient oversight.

 

“A lot of P2Ps have blindly copied each other and they don’t have a business plan that is robust enough to react to market changes. They’ve just focused on sales, scale and bragging to each other,” said Roger Ying, founder of Pandai, one of the websites that is still active.

 

Wangying Tianxia, a Shenzhen-based lender, was one of the biggest P2Ps to fail, according to the Shanghai Securities News, an official newspaper. Between its founding in March last year to its failure in October, Rmb780m ($129m) of loans were disbursed via its platform.

 

A second China-wide cash crunch at the end of December heaped more pressure on P2P lenders. Fuhao Venture and Guangrong Loans posted notices on their websites in the first week of the new year warning investors that loan repayment might be delayed.

So, condolences to China’s P2P business model: if it is any consolation, you are merely the first of many debt-related dominoes to tumble in China.

But while the Chinese government has already thrown in the flag on P2P – after all at just over a $1 billion in notional how big can the damage be – it is desperately scrambling to give the impression that all is well in the other, much more prominent areas of its credit bubble. Which is why the WSJ reports that “China’s government is gearing up for a spike in nonperforming loans, endorsing a range of options to clean up the banks and experimenting with ways for lenders to squeeze value from debts gone bad.

Write-offs have multiplied in recent months. Over-the-counter asset exchanges have sprung up as a way for banks to find buyers for collateral seized from defaulting borrowers and for bad loans they want to spin off. Provinces have started setting up their own “bad banks,” state-owned institutions that can take over nonperforming loans that threaten banks’ ability to continue lending.

 

“In recent years, Chinese banks have been exploring new avenues to resolve their bad loans,” said Bank of Tianjin, which is based in northeastern China. The lender recently listed more than 150 loans for sale on a local exchange. “We will continue to recover, write off, spin off and use other avenues in order to resolve bad loans,” it said.

 

China’s banks reported 563.6 billion yuan ($93.15 billion) of nonperforming loans at the end of September. That is up 38% from 407.8 billion yuan, the low point in recent years, two years earlier.

Amusingly, just like in the US, where nobody dares to fight the Fed, in China the sentiment is that nothing can possibly go wrong at a level that impairs the entire nation: “Analysts think it is unlikely that Beijing would let major banks go bust. Still, investors suspect the cost of a cleanup could be a sizable economic burden and could become even greater if growth continues to slow.”

Good luck with that, here’s why:

“The last time Beijing confronted bad-loan problems, in 1999 and 2000, the sums involved had crippled the banking system. Banks became far less able to make new loans, forcing the government to take action. Some 1.3 trillion yuan of bad debt was spun off the books of the biggest state banks and swept into four purpose-built bad banks.

 

This time, to avoid a costly bailout in the future, the government is pushing the banks to clean up their mess early. It is giving them new tools to do so: the exchanges to sell bad assets, provincial-level bad banks and permission to raise fresh capital using hybrid securities, complex products that combine aspects of debt and equity.”

One small problem: sell them to who? After all China
is a closed system, and the US hedge funds have their hands full will pretending Spain and Greece are recovering and sending their stock markets to the moon because of the endless stream of lies emanating from the government data aparatus, all of it made up.

A potential constraint on the bad-debt cleanup is the inexperience of buyers at pricing and dealing with distressed debt, never a significant asset class in China. Finding buyers for a failed factory or commercial property seized as collateral can be difficult, particularly in cities with weaker economies.

 

“There’s an immature market for collateral. So the banks’ capacity to resolve loans is more determined by the market than their own abilities,” said Simon Gleave, regional head of finance services at KPMG China.

Analysts see the bad-loan problem as a growing issue. Although figures as of the end of September indicate bad debt represents only about 1% of total loans in

 

China’s banking system, a range of major industries are plagued with overcapacity and local governments are struggling to repay money borrowed to fund a construction binge. Investors broadly believe the actual bad-loan figure is much higher. The share prices of Chinese banks listed in Hong Kong have fallen, to trade below their book value.

And while all of the above is accurate, here is the biggest constraint: it is shown as the blue line in the chart below:

Applying a realistic, not made up bad debt percentage, somewhere in the 10% ballpark, and one gets a total bad debt number for China of… $2.5 trillion, and rising at a pace of $400 billion per year.

No, really. Good luck.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xQS2H7JcVjA/story01.htm Tyler Durden

When it comes to the topic of China’s epic credit bubble (which continues to get worse as bad debt accumulates ever higher), we have beaten that particular dead horse again and again and again and, most notably, again. However, since in China the concept of independent bank is non-existent, and as all major financial institutions are implicitly government backed, by the time the “big” bubble bursts, it will be time to hunker down in bunkers and pray (why? Because while the Fed creates $1 trillion in reserves each year, and dropping post taper, China is responsible for $3.6 trillion in loan creation annually – yank that and it’s game over for a world in which “growth” is not more than debt creation). But just because the big banks can continue to ignore reality with the backing of the fastest marginally growing economy in the world (inasmuch as building empty cities can be considered growth), the same luxury is not afforded to China’s smaller lender, such as its peer-to-peer industry.

Granted, in the grand scheme of things P2P in China is small, although in recent years, as a key part of shadow banking, it has been growing at an unprecedented pace: according to research published last year by Celent consultancy, the country’s P2P lending market grew from $30m in 2009 to $940m in 2012 and is on track to reach $7.8bn by 2015. Here’s the problem: it won’t. In fact, China’s P2P lending boom just went bust because as the FT reports, “dozens of the P2P lending websites that sprang up in recent years have shut as borrowers default on loans. The biggest companies are unscathed so far, but the rapid collapse of smaller rivals highlights the mounting difficulties in the Chinese micro-lending industry as economic growth slows and monetary conditions tighten… Of the nearly 1,000 P2P companies operating in China, 58 went bankrupt in the final quarter of last year, according to Online Lending House, a web portal that tracks the industry. Several more had already run into trouble this year, it added.”

And it’s only going to get worse:

“The main reasons are the intense competition in the P2P industry, the liquidity squeeze at the end of the year and a loss of faith by investors,” said Xu Hongwei, chief executive of Online Lending House. He estimated that 80 or 90 per cent of the country’s P2P companies might go bust.

Oops. None of this is unexpected: after the Chinese banking system nearly collapsed in June, following an explosion in overnight lending rates on just the mere threat of tapering of liquidity by the PBOC (since repeated several times with comparable results), it was inevitable that there would be unexpected consequences somewhere.

That somewhere is manifesting itself in the one industry that was supposed to gradually alleviate the lending burden for the SOEs.

People in the industry had hoped that P2P lenders would fill a hole in China’s financial system by helping small businesses obtain funding and by giving investors higher returns than they can obtain from banks.

 

While proponents believe that will still eventually prove to be the case, many believe the industry has expanded too quickly and with insufficient oversight.

 

“A lot of P2Ps have blindly copied each other and they don’t have a business plan that is robust enough to react to market changes. They’ve just focused on sales, scale and bragging to each other,” said Roger Ying, founder of Pandai, one of the websites that is still active.

 

Wangying Tianxia, a Shenzhen-based lender, was one of the biggest P2Ps to fail, according to the Shanghai Securities News, an official newspaper. Between its founding in March last year to its failure in October, Rmb780m ($129m) of loans were disbursed via its platform.

 

A second China-wide cash crunch at the end of December heaped more pressure on P2P lenders. Fuhao Venture and Guangrong Loans posted notices on their websites in the first week of the new year warning investors that loan repayment might be delayed.

So, condolences to China’s P2P business model: if it is any consolation, you are merely the first of many debt-related dominoes to tumble in China.

But while the Chinese government has already thrown in the flag on P2P – after all at just over a $1 billion in notional how big can the damage be – it is desperately scrambling to give the impression that all is well in the other, much more prominent areas of its credit bubble. Which is why the WSJ reports that “China’s government is gearing up for a spike in nonperforming loans, endorsing a range of options to clean up the banks and experimenting with ways for lenders to squeeze value from debts gone bad.

Write-offs have multiplied in recent months. Over-the-counter asset exchanges have sprung up as a way for banks to find buyers for collateral seized from defaulting borrowers and for bad loans they want to spin off. Provinces have started setting up their own “bad banks,” state-owned institutions that can take over nonperforming loans that threaten banks’ ability to continue lending.

 

“In recent years, Chinese banks have been exploring new avenues to resolve their bad loans,” said Bank of Tianjin, which is based in northeastern China. The lender recently listed more than 150 loans for sale on a local exchange. “We will continue to recover, write off, spin off and use other avenues in order to resolve bad loans,” it said.

 

China’s banks reported 563.6 billion yuan ($93.15 billion) of nonperforming loans at the end of September. That is up 38% from 407.8 billion yuan, the low point in recent years, two years earlier.

Amusingly, just like in the US, where nobody dares to fight the Fed, in China the sentiment is that nothing can possibly go wrong at a level that impairs the entire nation: “Analysts think it is unlikely that Beijing would let major banks go bust. Still, investors suspect the cost of a cleanup could be a sizable economic burden and could become even greater if growth continues to slow.”

Good luck with that, here’s why:

“The last time Beijing confronted bad-loan problems, in 1999 and 2000, the sums involved had crippled the banking system. Banks became far less able to make new loans, forcing the government to take action. Some 1.3 trillion yuan of bad debt was spun off the books of the biggest state banks and swept into four purpose-built bad banks.

 

This time, to avoid a costly bailout in the future, the government is pushing the banks to clean up their mess early. It is giving them new tools to do so: the exchanges to sell bad assets, provincial-level bad banks and permission to raise fresh capital using hybrid securities, complex products that combine aspects of debt and equity.”

One small problem: sell them to who? After all China is a closed system, and the US hedge funds have their hands full will pretending Spain and Greece are recovering and sending their stock markets to the moon because of the endless stream of lies emanating from the government data aparatus, all of it made up.

A potential constraint on the bad-debt cleanup is the inexperience of buyers at pricing and dealing with distressed debt, never a significant asset class in China. Finding buyers for a failed factory or commercial property seized as collateral can be difficult, particularly in cities with weaker economies.

 

“There’s an immature market for collateral. So the banks’ capacity to resolve loans is more determined by the market than their own abilities,” said Simon Gleave, regional head of finance services at KPMG China.

Analysts see the bad-loan problem as a growing issue. Although figures as of the end of September indicate bad debt represents only about 1% of total loans in

 

China’s banking system, a range of major industries are plagued with overcapacity and local governments are struggling to repay money borrowed to fund a construction binge. Investors broadly believe the actual bad-loan figure is much higher. The share prices of Chinese banks listed in Hong Kong have fallen, to trade below their book value.

And while all of the above is accurate, here is the biggest constraint: it is shown as the blue line in the chart below:

Applying a realistic, not made up bad debt percentage, somewhere in the 10% ballpark, and one gets a total bad debt number for China of… $2.5 trillion, and rising at a pace of $400 billion per year.

No, really. Good luck.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xQS2H7JcVjA/story01.htm Tyler Durden

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/s3FVxhf4oeg/story01.htm williambanzai7

US Treasury yields broke down sharply Friday, confirming a near-term, potentially medium-term, turn in trend; and, as BofAML's Macneil Curry notes, this Treasury turn should prove to be a headwind for select USD pairs, (although BofAML remains bigger picture USD bulls); particularly USDJPY. However, the weakness in the Canadian USD – which was the only currency not to rally against the greenback on Friday – suggests the downtrend in the Loonie has significant legs. Precious metals – most notably silver – could also benefit from the Treasury trend change.

Via BofAML's Macneil Curry,

US 5yr yields rollover

US Treasury yields have topped and turned trend, with 5yr yields doing so in particularly dramatic fashion. The bullish reversal from 4.5yr trendline support says 5yr yields should fall another 10bps/15bps in the In the sessions ahead, with worst case potential for a re-test of long term pivot resistance at 1.22%/1.25%.

$/¥ is topping out

With Treasury yields rolling over, $/¥ is set to do the same. A break of 103.74 would confirm the bearish turn in trend. While the Head & Shoulders Top targets the 102 area, CFTC positioning and the completing 5 wave advance from Feb’12 and Oct’13 says weakness can extend to the 200d (now 99.70) and below.

$/CAD: the exception to the rule

Friday saw the US $ fall against all major currencies EXCEPT THE CANADIAN $. Indeed, $/CAD has now reached levels not seen since 2009. While we could see a near term pause or correction, weekly charts say that this trend has significant room to run, with the multi-year Head and Shoulders base targeting 1.1666/1.1841

Silver squeeze

With the US Treasury market turning and the US $ near term vulnerable, precious metals should benefit. Silver is particularly worthy of note as a break of 20.51/20.62 resistance would complete a near term base and turn higher opening further gains towards the Oct-30 high at 23.09

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/IpjiVxX11gI/story01.htm Tyler Durden