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News Update!
bishan22
Elite
28-Nov-2011 21:23     
 
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Asian indices have a lot to catch up. See below Euro indices. Eyes big big liao.  Smiley

 


FTSE1005282.35117.702.28%5292.115164.7913:20:59
DAX5695.68202.813.69%5696.915573.0014:20:58
CAC2975.36118.394.14%2975.992890.7614:21:01
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krisluke
Supreme
28-Nov-2011 21:22     
 
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Our pivot point is at 67.5.

Our preference: the downside prevails as long as 67.5 is resistance.

Alternative scenario: above 67.5, look for 71.6 and 74.

Comment: the RSI is below 30. It could either mean that the stock is in a lasting downtrend or just oversold and therefore bound to retrace (look for bullish divergence in this case). The MACD is negative and below its signal line. The configuration is negative. Moreover, the share stands below its 20 and 50 day MA (standing respectively at 69.45 and 66.95). Finally, Hutchison Whampoa has penetrated its lower daily Bollinger band (63.96).

Supports and resistances:
71.6 *
67.5 **
65.9
63.55 last
58.4
56 **
53.7 *
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krisluke
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28-Nov-2011 21:07     
 
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Futures Are Exploding Higher After Weekend Talk Of Mega-Bailouts And Stability Pacts



Aaaaaand we're off...

Futures are exploding higher in early going.

Here's a look at S& P futures via CME:

chart

In addition to lots of doom and gloom talk, this weekend saw two different new ideas put forth regarding the crisis in Europe.

First, there's a report about mega 600 billion EUR IMF bailout for Italy. It's not clear where the IMF would get that kind of money, or if it would even be enough, but it's out there.

And then yesterday there was talk about Germany and France rushing into a new stability pact, with the idea being that if this were agreed to fast, then perhaps the ECB would step up its role in backstopping the whole seen.

Of course, the action begins tomorrow when European credit markets open, and we've got sovereign bond auctions out the wazoo coming up, put on your chin straps.
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krisluke
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28-Nov-2011 21:03     
 
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The 21 Most BIZARRE Economic Indicators

Perhaps a subscription to Sports Illustrated is in order, if only for the magazine's annual swimsuit issue.

 

At least that's what some economists think might help guide your views on the economy.

Economists often use complex econometric models that aren't always very accurate. Making sense of the latest economic indicators has become less science and more gut.

Some savvy investors are turning to metrics they can't find on their Bloomberg terminals to judge the nation's health.

Diaper Rash Indicator

Diaper Rash Indicator

Image: By deanwissing on Flickr

The Concept: In a hope to save money, parents with newborns, babies, and toddlers try to cut back on costs by changing their child's diaper fewer times throughout the day.

 

The Proof: According to data from Symphony IRI, diaper rash cream volume increased 2.8% while sales of disposable diapers tumbled 9%. 

Marine Advertisement Index

Marine Advertisement Index
The Concept: The intensity of Marine Corps advertisements evolve with hiring trends. During tough times, civilians who can't get work are more likely to enlist.  But if too many people sign up, the Marines toughen up their videos to scare off potential recruits.

 

The Proof: Remember those stately Marine commercials a young recruit rock climbing sans gear? Well, those are out. With Marine recruitment up and the size of the corps declining, new commercials are out that aren't particularly inviting.

Japanese Hair Cut Indicator

Japanese Hair Cut Indicator

Image: Thomas via Flickr

The Concept: During flush times women are more likely to get their hair cut, dyed, and simply groomed more frequently. During recessions they're more likely to take off extra inches to save on trips to the salon.

 

The Proof: Few analysts have likened to the idea, but Japan's Nikkei magazine drew on data that revealed women cut their hair shorter as the economy fell in 1997.

Big Mac Index

Big Mac Index

Image: Flickr

The Concept: This index compares currency exchange rates in different countries based on the cost of a Big Mac. The index uses purchasing power parity to explain whether a currency is over or under valued at its current price.

 

The Proof: The Economist publishes this index annually and it shows a strong correlation between the dollar price of a Big Mac and GDP per person. The Economist says that simply comparing prices is irrelevant, as labor costs vary greatly by country.

Hot Waitress Index

Hot Waitress Index
The Concept: The hotter the waitress, the closer the economy is to the brink. During boom times, physically attractive people can leverage their looks to get better paying jobs.  Perhaps, modeling or hosting corporate events.

 

The Proof: New York magazine thinks there's substance to this concept.

Skinny Tie Indicator

Skinny Tie Indicator

Image: Fashism

The Concept: Two indicators here. The first, men will buy ties to appear that they're working harder during difficult economic times. The second, ties get slimmer during bad times and brighter when the economy starts to recover.

 

The Proof: In the U.K., with news that layoffs could be coming in 2007, sales of ties spiked as men tried to show employers that they came to do work. Width of the ties narrowed due to austerity measures during past wars, but current production abilities have seemingly put that indicator on hold.  But anyone who has spent time in lower Manhattan will tell you that skinny ties are back.

Beer Consumption Index

Beer Consumption Index

Image: njbandit via Flickr

The Concept: Won't be able to make it out to that bar after work? Apparently you aren't alone. Consumers often try to save money by drinking at home, sending pub sales and jobs into a tizzy.

 

The Proof: In Europe, 73% of jobs tied to the beer industry are outside breweries.  These include jobs at bars and restaurants. From 2008 through 2010, employment in the beer industry fell 12% versus 2% for Europe as a whole. Surely austerity measures feel much harder without that drink.

Hemline Index

Hemline Index

Image: Michael Mulvey via Flickr

The Concept: Discovered by economist George Taylor in the 1920s, the Hemline Index predicts the market based on the length of women's skirts and dresses. The shorter hemline, the better the economy is looking.

 

The Proof: Just a myth, according to retail buyers. But some economists still point to the dreary lengths that came out following the financial crisis in 2008. And others worry that the maxi skirts out this summer are telling of another downturn.

Closing Time of a Car Salesman Indicator

Closing Time of a Car Salesman Indicator

Image: AP

The Concept: The quicker salesmen are to discount cars on their lots, the weaker the economy.

 

The Proof: No actual data exists on closing times.  But discounts increased astronomically in 2008 when Ford, GM and Chrysler were left with excess inventories.

Latvian Hooker Index

Latvian Hooker Index
The Concept: Simple supply and demand: during boom times when women can find better jobs, there are fewer hookers and hourly prices rise.

 

The Proof: Latvian sex workers have unfortunately been stuck in a rut.   As the economy soured, rates fell as low as $60 for a night's work in 2009.  This Baltic index is way more intuitive than that other Baltic index.

Google Search Index

Google Search Index
The Concept: Hundreds of millions of Google searches are conducted each day. So, the search giant thought, why not aggregate it all and see if it tells us something.

 

The Proof: Bingo. The nearly two dozen areas tracked, including unemployment, oscillate with the market.

Coupon Clipping Index

Coupon Clipping Index

Image: krossbow

The Concept: When the economy slips, consumers turn to coupons in their Sunday circulars to try to cut costs on things like toothpaste, laundry detergent and groceries.


 

The Proof: In 2009, coupon redemption soared to 3.3 billion uses as consumers looked to save more at the market. During the second quarter this year, coupon use has increased 4%, coupon processing firm Inmar says.

Toys and Crayons with Kids' Meals Indicator

Toys and Crayons with Kids' Meals Indicator
The Concept: In an effort to protect profit margins, restaurants downsize free offerings to kids like crayons and toys.

 

The Proof: In the middle of the 2009 recession, Red Robin halved the number of crayons kids got to color. Too bad if you're a coloring fiend, you'll have some difficulty getting that sun yellow.

Men's Underwear Index

Men's Underwear Index

Image: Alex Gaylon via Flickr

The Concept: Men will forgo purchasing new underwear to save money during hard times.

 

The Proof: True. Even Alan Greenspan is on the bandwagon. Research firm Mintel estimated men's underwear sales fell 2.3% in 2009, the first time since 2003.

Speed Contractors Return Calls Index

Speed Contractors Return Calls Index

Image: Courtney Bailey Graham / flickr

The Concept: Always busy with other clients, getting a contractor to return a call can be a big hassle during a home renovation project. So, the quicker a contractor returns your calls, the worse the economy is doing.

 

The Proof: There isn't much hard data on this one.  But it seems to make sense.  Then again, if the economy is bad enough, then you might not be able to afford that home makeover you want to commission.

Baked Bean Index

Baked Bean Index

Image: istorija/Flickr

The Concept: Consumers move to canned goods to save on food expenses during hard times.

 

The Proof: During 2009, the value of baked beans soared 23% in the U.K. as consumers fell back on the staple instead of going out for dinner.

Lipstick Index

Lipstick Index

Image: AP

The Concept: Created by Leonard Lauder, chairman of Estee Lauder, the index shows that women turn to lipstick instead of more expensive indulgences like handbags and shoes during hard times.

 

The Proof: According to Investopedia, lipstick sales doubled after the recession following September 11.

Popcorn Index

Popcorn Index

Image: Warner Brothers

The Concept: To escape the doldrums of reality, consumers flock to cinemas to see Jason Bourne and Harry Potter, regardless of the movie's quality.

 

The Proof: The box office posted one of its biggest years during the 2009 recession, before plateauing as markets eased. If there's a double-dip, expect popcorn sales to be up again.

Number of Mosquito Bites

Number of Mosquito Bites

Image: wikipedia commons

The Concept: Mosquito bites increase as more homes sit empty and ill maintained. With higher grass and disheveled properties, back yards and swimming pools become breeding grounds for the pest.

 

The Proof: In 2009, the number of pools that had to treated by the Maricopa County Environmental Services Department jumped 60% from 2007, as foreclosed properties sat unattended. However, this metric may have become less useful as banks delayed foreclosing on homes in an effort to preserve the housing market. 

Alligator and Crocodile Populations

Alligator and Crocodile Populations

Image: AP

The Concept: With fewer Americans spending on discretionary items, sales of high end hand bags made of alligator or crocodile, which can retail upwards of $20,000, fall.

 

The Proof: In 2009, alligator farms in Louisiana faced solvency issues as the market all but dried up. Alligators kept producing, but their skins were not needed or purchased by luxury designers. 

Sports Illustrated Swimsuit Cover Model Indicator

Sports Illustrated Swimsuit Cover Model Indicator

Image: AP

The Concept: The nationality of the woman chosen for Sports Illustrated's annual swim shoot issue dictates how American markets will perform over the year. If an American is chosen, the concept goes, the S& P 500 will outperform historical returns.

 

The Proof: Russian born Irina Shayk appeared on the 2011 Sports Illustrated Swimsuit cover, and markets have had difficulty remaining in the green since the year's open.

The 17 hottest economies

The 17 hottest economies

Image: Patrick Hoesly on Flickr

These indicators might be of less use overseas where 17 markets are growing at a break neck clip.

Click here to see the 17 hottest economies >

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krisluke
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28-Nov-2011 20:56     
 
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REVEALED: More Details On The Fed's Breathtaking $7.7 Trillion In Loans To Large Banks



While most people know about Congress' $700 billion TARP program, the Fed's secret emergency loans to banks during the financial crisis remains shrouded in mystery.. 

A new Bloomberg Markets report shines more light on this lending.

After adding up all the guarantees and loans, the Fed committed $7.77 trillion to rescuing the financial system as of March 2009, the report said. 

Notably, while the banks were taking these huge loans, they maintained that they were fine

From Bloomberg:

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Federal Reserve Chairman Ben Bernanke's excuse for all the secrecy was that revealing the details of those who borrowed money from the Fed would possibly make needy banks reluctant to borrow in the future and investors wary of investing in those institutions.

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krisluke
Supreme
28-Nov-2011 20:52     
 
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CHART OF THE DAY: Guess Which Country Has The Highest Percentage Of Workers Employed By The Government



With all the talk these days all around the world of fiscal consolidation, it may interest you to know that the US still has an extremely small percentage of its workers employed by the public sector, at least compared to Europe.

The largest?

According to Citi's Tobias Levkovich, the answer is China, where nearly 50% of workers are somehow in the government sector. Granted, this could include state-owned-enterprises, which remain a large chunk of the Chinese economy, but either way it does confirm that for Chinese employment to remain solid, Beijing will have to keep its foot on the gas pedal for awhile.

 
chart

Image: Citi



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krisluke
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28-Nov-2011 20:48     
 
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10 Things You Need To Know Before The Opening Bell

Good morning. Here's what you need to know.

 
  • Asian markets were up in overnight trading, with the Hang Seng gaining 1.97%. After a weekend of rumors on a possible Euro-wide stability pact / fiscal union / Eurobond deal, Europe is surging, and U.S. futures are higher ahead of the market open.
  • New home sales data for October will be released at 10 AM ET. Consensus is for a drop to a seasonally adjusted annual rate of 310,000 units. Follow the release at Money Game >
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krisluke
Supreme
27-Nov-2011 19:33     
 
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Here's The REAL Reason Germany Doesn't Want The ECB To Print Money

There's almost nobody left who thinks the Eurozone can survive intact if the ECB doesn't take on a role as a lender of last resort. That would mean the ECB would have to print a lot of money (or at least threaten to print a lot of money) so that it could buy up a bunch of peripheral debt and push down borrowing costs for countries that are in trouble (namely Italy).

The Germans remain steadfast in their opposition to this. The best elucidation of the German position comes from Bundesbank chief Jens Wiedmann, who doesn't really see a euro crisis, but rather a series of individual, idiosyncratic crises in the various countries that have gotten into trouble. It's an odd position to take, and observers usually chalk it up to memories of Weimar, and fears of society-wrecking hyperinflation.

But even this isn't the REAL reason for German opposition to central bank action.

The REAL reason, as explained by strategist Lorcan Roche Kelly in a note for Trend Macro, is that early last decade, Germany embarked on a policy called Agenda 2010, which basically offered German workers a trade: They'd get very little real wage growth, but in exchange, unemployment would be kept low.

And indeed, Germany has had the lowest wage growth in Europe, as this chart from Triplecrisis.com shows nicely...

 

chart

Image: triplecrisis.com





And as you know (or may not know) Germany has kept up its end of the bargain, keeping unemployment at remarkably low levels, even as other Western nations has seen their numbers rise.

So any inflation caused by money printing would mean a real wage cut for German workers, and a violation of the deal.

Of course, there are a few problems here, the first is that ECB intervention in a time like this wouldn't necessarily be inflationary. In fact, as our own periods of QE have shown, you can have massive expansions to a central bank balance sheet without anything remarkable happening on the price side.

We ran this chart earlier this week showing how inflation (CPI) stayed within a normal range even after our Fed bought tons of debt starting with the 2008 financial crisis.

 

chart

Image: FRED





Furthermore, Germany is getting closer to violating the deal with German workers, as unemployment is starting to tick up. And it will shoot up massively in a full-blown deflationary collapse of Europe.

So the Germans are still wrong, but there's a little more to their argument than just that they're scared of Weimar happening again.


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krisluke
Supreme
27-Nov-2011 19:28     
 
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 Alert Admin 		The Hottest Prime Property Markets Around The World

Investors looking to broaden their portfolio are always on the hunt for prime property. But luxury home prices are beginning to ease as the rout in the global economy is hurting home prices.

 

Luxury property prices surged 4.3% for 21 prime cities in the year-to-September, but climbed just 0.5% in the third quarter, according to Knight Frank's Prime Global Cities Index.

Luxury homes in Asia are driving up property prices, while St. Petersburg posted the largest decline in the third quarter, falling 11.6%. We ranked the cities based on annual change.

Note: All data is for Q3 2011 unless otherwise indicated. Annual percent change measures difference between September 2011 and September 2010. Six month change reflects price changes between June 2011 and September 2011.

#21 Mumbai, India

#21 Mumbai, India

Image: Wikimedia Commons

Annual change: -17.9%

 

Six-month change: -9.1%

Quarterly change: -2.5%

Source: Knight Frank

#20 Cape Town, South Africa

#20 Cape Town, South Africa
Annual change: -8%

 

Six-month change: -8%

Quarterly change: N/A

Note: Data is for Q2

Source: Knight Frank

#19 Singapore

#19 Singapore

Image: Wikimedia Commons

Annual change: -6.8%

 

Six-month change: -5.4%

Quarterly change: -3.5%

Source: Knight Frank

#18 Abu Dhabi, UAE

#18 Abu Dhabi, UAE
Annual change: -3.6%

 

Six-month change: N/A

Quarterly change: N/A

Source: Knight Frank

#17 Dubai, UAE

#17 Dubai, UAE
Annual change: -0.3%

 

Six-month change: -2.3%

Quarterly change: -1.8%

Source: Knight Frank

#16 Monaco

#16 Monaco

Monaco

Image: ThinkingNomad on flickr

Annual change: 0%

 

Six-month change: 0%

Quarterly change: 0%

Source: Knight Frank

#15 Los Angeles, USA

#15 Los Angeles, USA

On shaky ground.

Annual change: 1.8%

 

Six-month change: 1.2%

Quarterly change: 1.7%

Note: Data is for Q2

Source: Knight Frank

#14 Shanghai, China

#14 Shanghai, China

Image: Wikimedia Commons

Annual change: 3.8%

 

Six-month change: 0.5%

Quarterly change: -0.7%

Source: Knight Frank

#13 Tel Aviv, Israel

#13 Tel Aviv, Israel

Image: Wikimedia Commons

Annual change: 4%

 

Six-month change: -4.1%

Quarterly change: -6.5%

Note: Data is for Q2

Source: Knight Frank

#12 Kiev, Ukraine

#12 Kiev, Ukraine
Annual change: 6%

 

Six-month change: 6.3%

Quarterly change: 13%

Source: Knight Frank

#11 Geneva, Switzerland

#11 Geneva, Switzerland
Annual change: 6.2%

 

Six-month change: 7.3%

Quarterly change: 4%

Source: Knight Frank

#10 Zurich, Switzerland

#10 Zurich, Switzerland

Image: sdh_zh via Flickr

Annual change: 6.5%

 

Six-month change: -1.1%

Quarterly change: -0.8%

Note: Data is for Q2

Source: Knight Frank

#9 Paris, France

#9 Paris, France

Image: Wikipedia

Annual change: 7.3%

 

Six-month change: 0%

Quarterly change: 0%

Source: Knight Frank

#8 St. Petersburg, Russia

#8 St. Petersburg, Russia

Image: Wikimedia Commons

Annual change: 7.7%

 

Six-month change: -4.2%

Quarterly change: -11.6%

Source: Knight Frank

#7 Hong Kong

#7 Hong Kong

Image: Wikimedia Commons

Annual change: 7.8%

 

Six-month change: 0.4%

Quarterly change: -2.4%

Source: Knight Frank

#6 Moscow, Russia

#6 Moscow, Russia

Image: Wikimedia Commons

Annual change: 8.5%

 

Six-month change: 3.4%

Quarterly change: 1.3%

Source: Knight Frank

#5 New York, USA

#5 New York, USA

Image: Chip Griffin via Flickr

Annual change: 9.3%

 

Six-month change: 9.2%

Quarterly change: 5.4%

Source: Knight Frank

#4 Beijing, China

#4 Beijing, China
Annual change: 10.2%

 

Six-month change: 4.9%

Quarterly change: 2.2%

Source: Knight Frank

#3 London, UK

#3 London, UK

Image: mugley via Flickr

Annual change: 11.4%

 

Six-month change: 5.7%

Quarterly change: 2.2%

Source: Knight Frank

#2 Jakarta, Indonesia

#2 Jakarta, Indonesia

Image: Wikimedia Commons

Annual change: 15.1%

 

Six-month change: 11.9%

Quarterly change: 5.6%

Source: Knight Frank

#1 Nairobi, Kenya

#1 Nairobi, Kenya

Image: Wikimedia Commons

Annual change: 25%

 

Six-month change: 12%

Quarterly change: 5%

Source: Knight Frank

Now check out 10 cities with expensive billionaire homes...

Now check out 10 cities with expensive billionaire homes...

Image: flickr/ Aramisfirefly

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krisluke
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27-Nov-2011 19:25     
 
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 Alert Admin 		EUROPE: Changing The Rules In The Middle Of The Game



Angela Merkel is leading the call for a rule change, a rewiring of the basic treaty that binds the EU. But is it both too much and too late? The market action suggests that time is indeed running out, and so we’ll look at the likely consequences. Then I glance over the other way and take notice of news out of China that may be of import. Plus a few links for your weekend listening “pleasure.” There is lots to cover, so let’s get started.

Changing the Rules



I have been writing for a very long time about the changes needed to the EU treaty if Europe is to survive. Specifically, last week I noted that Angela Merkel has made it clear that the independence of the ECB must not be compromised. This week Sarkozy and the new prime minister of Italy, Mario Monti, agreed to stop their public calls for such changes (at least until their own crises get even worse, would be my guess). And Merkel has called for a new, stronger union with strict control of budgets as the price for further German aid for those countries in crisis. In seeming response:

“The European Commission on November 23 proposed a new package including budget previews at EU level, the establishment of independent fiscal councils and growth forecasts, closer surveillance of bailout recipients and a consultation paper on Eurobonds. There is also a growing consensus among EU policy makers on the need for the adoption of fiscal rules in national legislation. However, it is far from clear whether EU countries would accept the implicit loss of sovereignty this would involve and agree to treaty changes enshrining legally enforceable fiscal oversight at EU level. The German Chancellor, Angela Merkel, is willing to support a change in Germany’s own constitution if the EU Treaty change to that effect is agreed first.” ( www.roubini.com)

But this means a major treaty change that must be approved by all member countries. Note that Merkel wants the treaty change first, or at least the language, before she takes it to German voters, which will certainly be required, since what she is suggesting is not allowed by the present German constitution. Without the changes stated clearly and explicitly in advance, it is unlikely, as I read the polls, that German voters will go along. Merkel has made it clear that any proposed changes will be limited to fiscal issues and central control and not touch on the ECB’s independence. She is adamant against eurozone bonds and putting the German balance sheet at risk (see more below).

But will the rest of Europe go along with what would be a major alterations of their own individual sovereignty and their ability to adjust their own budgets, no matter what? And agree to all this in time to deal with the current crisis? Such changes will be controversial, to say the least. And they would require, if I understand, the yes votes of all 27 European Union members, or at a minimum the 17 eurozone members.

That is problematical. Will even German voters give up their independence and listen to an EU commission tell them what they can and cannot do with their own budget? A budget that is in theory controlled by the rest of Europe? The answer depends on whom you listen to last, as the answers range all over the board.

When Even Germany Fails



Let’s get back to the German balance sheet. This week the markets were greeted with a failed German bond offering. The German central bank had to step in and buy German bunds, at a recent-series-high rate. And while the “trade” has been to buy German bunds as a hedge, Germany is not precisely a model of balance and austerity, with high (above 4%) deficits and a rising debt-to-GDP ratio. And the market senses the contradictions here. When even German bond auctions fail, whither the rest of Europe?

As a quick aside, notice that German yields are not higher than those of UK debt at some points. The market is clearly signaling that the lack of a national central bank with a printing press is an issue. Go figure. But that is a story for another letter at another time.

Let’s look at some recent headlines. Greek 2-year bonds are now at 116%. You read that right. “Bond yields on short-term Italian debt rose above 8 per cent on Friday as Rome was forced to pay euro-era-high interest rates in what analysts called an ‘awful’ auction. A peak of 8.13 per cent was reached on three-year bonds, according to Reuters data, as Italian debt traded deeper into territory associated with bail-outs of Greece, Portugal and Ireland in the past 18 months.

“Italy raised its targeted €10bn in an auction of two-year bonds and six-month bills but at sharply higher yields. ‘Rates have skyrocketed. It’s simply not sustainable in the long run,’ said Marc Ostwald, strategist at Monument Securities in London.

“Investors demanded a yield of 7.81 per cent for the two-year bond, up from 4.63 per cent last month. The six-month bills saw yields of 6.50 per cent, up from 3.54 per cent. That was significantly higher than Greece paid for six-month money earlier this month when it issued bills at 4.89 per cent.” (Reuters)

Spanish bond yields are slightly lower but not by much, with both countries paying more for short-term debt than Greece.

And no one is really talking about Belgium, which I have been pointing to for some time. Belgium debt yield on its ten-year bonds went to 5.85%. Notice the recent trend, in the chart below. It looks like Greece in the not-very-distant past. (Chart courtesy of Roubini.com and Reuters data)

chart

European Inverted Yield Curves



Let’s rewind the tape a little bit. Both the Spanish and Italian bond markets are close to or already in an “inverted” state. That is when lower-term bonds yield higher than longer-term bonds, which is not a natural occurrence. Typically, when that happens, the markets are sending a signal of something. (Charts below courtesy of my long-suffering Endgame co-author, Jonathan Tepper of Variant Perception, who lets me call him up late for data like this.)

chart

chart

Note that Greece (especially) and Portugal inverted when they began to enter a crisis. And shortly thereafter they went into freefall. Why did it happen so suddenly?

The short explanation is that once the market perceives there is risk, the debt in question has to collapse to the point where risk takers will step in. Do you remember two summers ago, when I related what I thought was a remarkable conversation with two French bond traders in a bistro in Paris after the markets had closed? Greece was all the news. It was all Greece, all the time. And I asked them what their favorite trade was (as I like to do with all traders). The surprising answer (to me) was they were buying short-term Greek bonds. They walked me through the logic. I forget the yields, but they were sky-high. They figured they had at least a year and maybe two before the bonds defaulted, plenty of time to get a lot of yield and exit. And there were hedges.

Italian and Spanish yields are approaching that “bang!” moment. The only thing stopping them is the threat of the ECB stepping in and buying in real size. Which Merkel is against. And the market is starting to believe her, hence the move in yields.

Time to Review the Bang! Moment



One of the most important sections of Endgame is in a chapter where I review (and compare with other research) the book This Time is Different by Ken Rogoff and Carmen Reinhart, and include part of an interview I did with them. This chapter was one of real economic epiphanies for me. Their data confirms other research about how things seemingly bounce along, and then the end comes seemingly all at once. Which we’ll term the bang! moment. Let’s review a few paragraphs from the book, starting with quotes from the interview I did:

“KENNETH ROGOFF: It’s external debt that you owe to foreigners that is particularly an issue. Where the private debt so often, especially for emerging markets, but it could well happen in Europe today, where a lot of the private debt ends up getting assumed by the government and you say, but the government doesn’t guarantee private debts, well no they don’t. We didn’t guarantee all the financial debt either before it happened, yet we do see that. I remember when I was first working on the 1980’ Latin Debt Crisis and piecing together the data there on what was happening to public debt and what was happening to private debt, and I said, gosh the private debt is just shrinking and shrinking, isn’t that interesting. Then I found out that it was being “guaranteed” by the public sector, who were in fact assuming the debts to make it easier to default on.”

Now from Endgame:

“If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is.

“Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels, and make banks seem more stable and profitable than they really are. Such large-scale debt buildups pose risks because they make an economy vulnerable to crises of confidence, particularly when debt is short-term and needs to be constantly refinanced. Debt-fueled booms all too often provide false affirmation of a government’s policies, a financial institution’s ability to make outsized profits, or a country’s standard of living. Most of these booms end badly. Of course, debt instruments are crucial to all economies, ancient and modern, but balancing the risk and opportunities of debt is always a challenge, a challenge policy makers, investors, and ordinary citizens must never forget.”

And the following is key. Read it twice (at least!):

“Perhaps more than anything else, failure to recognize the precariousness and fickleness of confidence—especially in cases in which large short-term debts need to be rolled over continuously—is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!—confidence collapses, lenders disappear, and a crisis hits.

“Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public’s expectation of future events, which makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to “multiple equilibria” in which the debt level might be sustained —or might not be. Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.”

“How confident was the world in October of 2006? John was writing that there would be a recession, a subprime crisis, and a credit crisis in our future. He was on Larry Kudlow’s show with Nouriel Roubini, and Larry and John Rutledge were giving him a hard time about his so-called ‘doom and gloom.’ ‘If there is going to be a recession you should get out of the stock market,’ was John’s call. He was a tad early, as the market proceeded to go up another 20% over the next 8 months. And then the crash came.”

But that’s the point. There is no way to determine when the crisis comes.

As Reinhart and Rogoff wrote:

“Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!—confidence collapses, lenders disappear, and a crisis hits.”

Bang! is the right word. It is the nature of human beings to assume that the current trend will work itself out, that things can’t really be that bad. The trend is your friend … until it ends. Look at the bond markets only a year and then just a few months before World War I. There was no sign of an impending war. Everyone “knew” that cooler heads would prevail.

We can look back now and see where we have made mistakes in the current crisis. We actually believed that this time was different, that we had better financial instruments, smarter regulators, and were so, well, modern. Times were different. We knew how to deal with leverage. Borrowing against your home was a good thing. Housing values would always go up. Etc.

Until they didn’t, and then it was too late. What were we thinking? Of course, we were thinking in accordance with our oh-so-human natures. It is all so predictable, except for the exact moment when the crisis hits. (And during the run-up we get all those wonderful quotes from market actors, which then come back to haunt them.)

If it was just Europe and if the crisis could be contained there, then maybe we could focus on something else for a change. But Europe as a whole is critical to the world’s economy. A huge percentage of global lending is from euro-area banks, and they are all contracting their balance sheets. In a banking balance-sheet crisis, you reduce the debt you can, not the debt that is the most needed or reliable. And some of the debt will be to foreign entities. As an example, Austria is now requiring its banks to cover their Eastern European loans with local deposits. Which is of course problematical, as the size of those loans relative to the bank balance sheets and the Austrian economy is huge. According to BIS statistics, Austrian banks’ total exposure to the region equates to around 67% of the country’s GDP, not including the Vienna-based Bank Austria, which is technically Italian.

We could find similar results for other European (mostly Spanish), as well as Latin American banks. And as I note below, this will reach into China and throughout Asia.

The Risk of Contagion in the US



And the US? I am constantly asked what my biggest worry is. What is the largest monster I think I hear in my closet of nightmares? And the answer has been the same for a long time: it is European banks.

Those who think this is all a non-event note (correctly) that US net exposure to European banks is not all that large, and that while it may not be a non-event, it’s not system-threatening. The problem is that little three-letter word net.

Gross exposure is huge, and we are starting to read that regulators and other authorities are becoming concerned. As well they should. The problem is that as a bank sells risk insurance, it can buy protection from another bank in Europe to hedge it. But who is the counterparty? How solvent are they? It was only a month before Dexia collapsed that authorities and markets assured us that the bank was fine, and then bang! it was nationalized.

That is the part we do not know enough about. If European banks are as bad as they appear to be, then that counterparty risk is large. Will sovereign nations step up and bail out US banks on the credit default swaps their banks sold? Care to wager your national economy on that concept selling in today’s political climate?

Contagion is the #1 risk on the minds of European leaders and regulatory authorities, and it should be in the US, too. This points to a massive failure in Dodd-Frank to regulate credit default swaps and put them on an exchange. This is the single largest error in the last few decades, as it was so predictable. At least with the repeal of Glass-Steagall it was the unintended consequences that got us. Dodd- Frank almost guarantees another credit and banking crisis. Don’t get me started.

Since the ECB is for now off the table as a source of unlimited funds (remember I said “for now”), there are calls for funds from a variety of sources. Some new supranational fund, more EFSF “donations,” etc. The only semi-realistic one is IMF participation. If that is seriously considered, then the US Congress should step in and protest. US funds should not be used for governments of the size of Italy and Spain. These are not third-world countries. This is a European issue of their own making and not the responsibility of US taxpayers, or for that matter taxpayers anywhere else. We should “just say no.”

As I have been writing, there is no credible source other than the ECB for the amount of funds needed. Maybe something can be cobbled together under the pressure of a crisis, but for now there is no realistic option. Europe is at the end of the road unless Germany “blinks.” The only thing we can do now is to see how it works out.

If the ECB can’t print, then the rules have to be changed, if the eurozone is to survive. And while a recession is underway.

“Maersk Line, the world's largest container shipper by volume, plans to cut its capacity on Asia-to-Europe routes, a senior executive said Friday, as the euro-zone debt crisis weighs on international trade.

“Almost all carriers are losing money now ... and it looks like 2012 will going to be similarly challenging,” Tim Smith, the company's North Asia chief, told reporters at a shipping conference.”

Time is not on the Europeans’ side. Let’s hope they can figure it out, but prepare for what might happen if they don’t.

Time to Start Watching China



I am going to begin devoting more time to analysis of Asia in general and China in particular. There are signs of problems developing, and they demand study. Here is just one note (of a dozen) that came across my desk in the last two days. This is from Andy Lees of UBS:

“We saw today that 80% of Chinese construction firms say developers are now behind on payments (late cash flow), and that consequently land purchases are already 42% down y/y (slowing local authority cash flow). We also heard that pricing controls means that utility companies no longer have the cash flow to afford vital imports. Q3 corporate cash flow was down 27%.

“China's trade surplus is annualizing this year at USD152bn, FDI [Foreign Direct Investing] @ USD114bn yet its FX reserve increase is USD472bn. The attached chart [below] shows Chinese external borrowings which unfortunately were last updated at the end of last year, but the data would infer these have continued to soar.

“I am being told that European banks are now starting to shrink their foreign loan books to meet domestic needs, with Mexico, Brazil and China all big losers. With China now saying they may run a full-year trade deficit next year, and with them unable to afford to import vital coal and other resources without either suffering domestic inflation or without selling its FX reserves, it may now well be time to consider some sort of puts on the yuan. In fact the only reason perhaps not to is that India may collapse first, reducing the competition for coal and giving China a little more breathing room.

chart

China is not a problem in the short term. But there have to be adjustments to keep that status of “not a problem.” The situation bears watching and becoming familiar with, as I am on the record that Japan is the next in line to suffer a real world-shaking crisis. And China, which does not adjust in advance, can suffer contagion effects from Japan. The world is so connected.

My plan now, in addition to reading more is to tap some very good sources who either live in or travel to China a lot. And I will visit China for at least two weeks next summer, depending on publishing schedules. Europe is getting so old hat, and the crisis there will resolve, one way or another. Let’s focus on a different set of opportunities.

New York, China, and Some Links



Last week I had the privilege of meeting Ken Rogoff at the UBS Wealth Management Conference. He graciously allowed me to take a picture with him. I got to listen to a panel with him Ottmar Issing, noted German former central banker) and Jim O’Neil, Chairman, Goldman Sachs Asset Management along with Alan Greenspan. Your basic $400,000 panel, assuming O’Neil was free. Only Greenspan spoke separately (and gave a very short speech). I could have listened to all of them a lot longer.

There was remarkable convergence with the panel I was on, except that I am under no pressure to be politically correct, or simply do not recognize that I should be. Everyone was concerned about Europe. I was not seen as alarmist by any fair comparison.

It was also good to have lunch with Art Cashin and finally hear him speak. He got two standing ovations, both of which he deserved. Not many know his pivotal role at the NYSE or have his level of experience and trust. He is a true legend. And if luck and schedule hold, I get to be with him for dinner Monday night, along with Barry Ritholtz, Barry Habib, Michael Lewitt, Rich Yamarone (of Bloomberg), and maybe Dennis Gartman, as well as Tiffani. What a treat.

Then it’s back home the next morning to be here until January 10, when I fly to Hong Kong and Singapore.

Let me commend to you an interview the BBC did with my friend Kyle Bass of Hayman Advisors, which is the opening story in the current best-selling book by Michael Lewis, Boomerang! You can listen to it at http://www.zerohedge.com/news/kyle-bass-un-edited-buying-gold-just-buying-put-against-idiocy-political-cycle-its-simple. It is 24 minutes, and the video does not seem exactly synced, so just listen to someone who is always thinking about what lies ahead and has done a good job of it so far. And think with him. And kudos to Kyle for handling a very hostile interview so well. He has more patience than I do.

I was at the Cleveland Clinic on Monday and saw eight doctors for a general check-up and some real focus on my arm. Turns out to be a torn rotator cuff and also tennis elbow. They are not related, and no surgery needed, but there is rehab.

And then I heard from Richard Russell. Let me belatedly wish Richard an even faster recovery than I enjoy. He broke his hip and is graciously sharing his rehab with readers, as he has shared his life over the years. He wrote yesterday, “I heard rehab for a broken hip was hard. That's a false statement. It's harder than hard. You have to build the strength in your good leg and both of your arms, to a point beyond your wildest fantasies. In other words, three of your limbs have to make up for the loss in strength in the leg that you can't use.”

Makes me think “What arm pain?” I am embarrassed to even mention it. Richard, as in everything, continues to be my hero.

It is time to hit the send button. I fly to NYC Sunday morning to meet with Bill Dunkelberg, and we will spend a long afternoon detailing our book on jobs and employment. Then Tiffani comes in for dinner and we have meetings all day Monday for our business. So much is happening. Have a great week and enjoy the season. Figure out how to spend more time with family and friends. I know I need to.

Your just stopping here before it becomes another book analyst,

John Mauldin
John@FrontlineThoughts.com
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krisluke
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27-Nov-2011 19:23     
 
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 Alert Admin 		The NATO Attack On Pakistan's Military Bases Is Already Causing Huge Repercussions For US Troops In Afghanistan

Pakistan

Image: STR / Getty Images

Torkam border crossing — shut downNATO forces attacked two Pakistan military posts on the border with Afghanistan Saturday killing at least 25 Pakistani troops.

 

Just recently established to help curtail Taliban raids into Afghanistan, the military posts are located about 1,000 feet apart on a mountain top and according to the AFP were quiet when hit by " unprovoked" airstrikes.

A NATO spokesman said it was likely a coalition assault that struck the posts, but is conducting an investigation to uncover further details.

The US has been walking a fine line with Pakistan since the May 2 raid on Osama bin Laden's Abbottabad compound, and this attack pushes crumbling US/Pakistan relations to a new low.

Already Pakistan has sealed its Afghan border to NATO forces, shutting down a crucial supply line necessary to the 130,000 US led troops fighting the Taliban in Afghanistan. And the New York Times reports Pakistan's supreme military commander has used the " unprovoked attacks" as reason to shut down drone operations in Pakistan, and to close two supply routes into Afghanistan.

NATO forces currently receive 40 percent of their war-fighting supplies through the crossings that will now be closed indefinitely.

Pakistan's response is less shocking than the attacks themselves. One senior American official working closely with NATO in the area told the NYT that “It seems quite extraordinary that we’d just nail these posts the way they say we did. “Whether they were going after people or whether there was some firing from the Afghan side of the border, then the Pakistan side, we just don’t know. It’s real murky right now. Clearly, something went very wrong.”

In comparison, NATO helicopters killed three Pakistani security guards about a year ago and Pakistan responded by shutting down one border crossing for 10 days. Even after the bin Laden raid that outraged Pakistan, it refused to halt any of the supply lines into Afghanistan.

Senior commander of US and NATO forces in Afghanistan Ge. John Allen said " My most sincere and personal heartfelt condolences go out the families and loved ones of any members of Pakistan security forces who may have been killed or injured."

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krisluke
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27-Nov-2011 19:21     
 
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 Alert Admin 		The Good News And The Bad News About Black Friday Sales

Black Friday Shopping Handbags

Image: Chris Hondros / Getty

First the good news: Black Friday sales smashed expectations and set new records.

 

Total sales were up 6.6% from last year to $11.4 billion, with customer traffic up 5.1%, according to ShopperTrak.

Online sales were up a massive 24.3%, according to Coremetrics.

Now the bad news: Stores make little money thanks to heavy discounting. Toys R US CEO Gerry Storch told CNBC it was the busiest day and the least profitable day of the year.

As for the economy, a strong Black Friday could mean the consumer more desperate for sales than expected.

Also check out Charles Hugh Smith's essay on why holiday retail sales are America's most overhyped indicator.

Don't miss: 10 things you're better off buying used >

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27-Nov-2011 19:16     
 
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 Alert Admin 		15 Facts About McDonald's That Will Blow Your Mind



In 1992 when Rutgers professor Benjamin Barber coined the term " McWorld," there were 12,700 McDonald's worldwide.

Today there are over 33,000.

The relentless spread of McDonald's over the past 61 years is an incredible business success story. In some markets the burger chain is just getting started, with plans to open 200 stores in China this year.

McDonald's serves 1% of the world's population every day

McDonald's serves 1% of the world's population every day

Image: Ben Hider/Getty Images

Source: Société Générale

 

McDonald's sells more than 75 hamburgers every second

McDonald's sells more than 75 hamburgers every second

The Hamburglar

Source: McDonald's Operations and Training Manual via Side Dish

McDonald's' $24 billion in revenue makes it the 90th-largest economy in the world

McDonald's' $24 billion in revenue makes it the 90th-largest economy in the world

Image: Vacacion on flickr

Source: Yahoo Finance

Counting $32 billion in revenue from franchise stores, McDonald's claims the 68th biggest economy, bigger than Ecuador

Counting $32 billion in revenue from franchise stores, McDonald's claims the 68th biggest economy, bigger than Ecuador

Image: wfbakker2 on flickr

Source: 2009 Annual Report

McDonald's hires around 1 million workers in the US every year

McDonald's hires around 1 million workers in the US every year

Image: McDonald's

This estimate from Fast Food Nation assumes a 700,000 domestic workforce with 150% turnover rate.

 

According to company estimates, one in every eight American workers has been employed by McDonald's

According to company estimates, one in every eight American workers has been employed by McDonald's

Image: Associated Press

Source: McDonald's own estimate in 1996 via Fast Food Nation

McDonald's is the world's largest distributor of toys, with one included in 20% of all sales

McDonald's is the world's largest distributor of toys, with one included in 20% of all sales

Image: McDonald's

Source: QSR via Motley Fool

McDonald's' iconic golden arches are recognized by more people than the cross

McDonald's' iconic golden arches are recognized by more people than the cross

McDonald's product placement inside FarmVille

Image: Viralblog

A survey by Sponsorship Research International found that 88 percent could identify the arches and only 54 percent could name the Christian cross, according to Fast Food Nation.

 

The Queen of England owns a McDonald's near Buckingham Palace as part of her vast real estate portfolio

The Queen of England owns a McDonald's near Buckingham Palace as part of her vast real estate portfolio

A McDonald's restaurant owned by the Queen, seriously

Image: Google Maps

Source: DailyMail

For the next three years, McDonald's is going to open one restaurant every day in China

For the next three years, McDonald's is going to open one restaurant every day in China
Source: Reuters via Paul Kedrosky

McDonald's delivers -- in 18 countries!

McDonald's delivers -- in 18 countries!
Source: Japan Times

 

The only place in the lower 48 that is more than 100 miles from a McDonald's is a barren plain in South Dakota

The only place in the lower 48 that is more than 100 miles from a McDonald's is a barren plain in South Dakota

Image: AggData.com via Side Dish

Source: AggData via Side Dish

Americans alone consume one billion pounds of beef at McDonald's in a year -- five and a half million head of cattle

Americans alone consume one billion pounds of beef at McDonald's in a year -- five and a half million head of cattle
Source: John Hayes, McDonald's senior director of U.S. food and packaging, via Side Dish

Sorry to gross you out but... McDonald's chicken nuggets used to be made of this pink goop*

Sorry to gross you out but... McDonald's chicken nuggets used to be made of this pink goop*

Image: Gizmodo

UPDATE: According to Snopes, McDonald's stopped using mechanical separation for McNuggets in 2003.

 

BONUS - Here's an awesome video of a McDonald's rap drive-thru order



 

Another thing McDonaold's does right? Localization

Another thing McDonaold's does right? Localization

The McArabia

Image: Hoteltrotter.blogspot

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krisluke
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27-Nov-2011 19:14     
 
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There's An Easy, Fair Solution To The Global Debt Crisis -- Too Bad No One Ever Talks About It

great depression

The global debt crisis, of course, is nothing new.

Since the dawn of time, men have been lending other men money (or other things of value) and not getting them back.

But it's only recently that the solution to this state of affairs has gotten so complicated that even PhD economists can't figure it out.

In most situations in which people or companies can't pay their debts, a simple thing happens.

It's called " bankruptcy."

The borrower says, " I can't pay you back" and then the borrower surrenders his or her claim on any assets that he or she still possesses.

The lender, meanwhile, sifts through those assets and recoups what he or she can.

And in this normal, natural state of affairs, both parties get hurt by the experience, and they go home to nurse their wounds, having learned a harsh lesson that hopefully will help them avoid making similar mistakes in the future.

And that's as it should be.

great depressionBecause they're both responsible for the mistake.

The borrower borrowed too much. And the lender loaned too much.

And they both paid the price for their optimism and/or greed.

Now, note what does NOT happen in this normal, natural " debtor can't pay lender" state of affairs:

The world doesn't freeze up with paroxysms of angst, denial, finger-pointing, can-kicking, moral hazard, and endless bailouts--in which no one is ever forced to acknowledge his or her mistake and learn his or her lesson.

In the US housing market, as in the European sovereign debt market, borrowers borrowed too much and lenders loaned too much.

Both sides had good intentions, but the good intentions didn't work out.

And now we're in the age-old situation in which borrowers can't pay.

And, as always, both sides bear responsibility for this situation.

No matter how popular it is to bash Wall Street, no one forced American consumers and European countries to borrow money. And no matter how popular it is to rail about deadbeats and the loss of personal responsibility, no one forced Wall Street to make all those dumb-ass loans.

great depressionIn a simple, fair, and just world, both sides would now pay the price.

And the world would move on, quickly, and put this whole mess behind it.

But instead, we just get denial, empty promises, can-kicking, finger-pointing, and endless bailouts.

The reason we're not getting the simple solution this time, of course, is that so many people borrowed so much and so many people loaned so much that, collectively, they have a lot of power to influence the solution.

And, of course, like anyone else who has made a colossal, painful mistake, they're slow to acknowledge that they made a mistake, and they're doing everything they can to never have to acknowledge that.

But that shouldn't change anything.

The simple, fair, and best solution to the global debt crisis is the same as it ever was:
  1. Acknowledge the problem
  2. Restructure the debts
  3. Move on


Yes, step 2 will involve " losses" -- big ones.

DepressionInFrontOfStockMarket AP 10 10 08Yes, these losses are so huge that they will filter through the financial system and economy and eventually hit just about everyone.

(But that, too, is as it should be: By repeatedly electing politicians who promised us again and again that we could have it all, we facilitated the problem.)

Yes, the losses are so huge that we will likely require a lender-of-last-resort to recapitalize bankrupt financial institutions after the " bankruptcy" and keep them operating (because, given the interconnectedness of the global financial system, it really would be a mess if the entire thing suddenly entered bankruptcy court at the same time).

But the need for a lender of last resort shouldn't scare anyone. In bankruptcies, there have always been lenders of last resort: They're called " debtors-in-possession." These folks provide the capital that the company needs to keep operating--in exchange for amazing protection and terms.

As long as the lender behaves responsibly, it will get the same terms that any debtor-in-possession would get: Its money will be " senior" to all other claims on the financial institution's assets. So the only way the lender will lose money is if the institution has been so astonishingly irresponsible that it has blown through all of equity and debt capital it had before it was restructured.

(And to be clear: I'm not talking about the lender of last resort giving " bailouts." I'm talking about it stepping in as the financial institution goes bust. The lender of last resort will take over the entity's operations temporarily--very temporarily--and then sell off the operating businesses and/or write down the debts, recapitalize the bank, and refloat it with new management. The original shareholders will lose everything. The original bondholders will lose something. The taxpayers will, in all likelihood, gain something--the way most debtors in possession do.)

 
Debt to GDP 112511

Image: St. Louis Fed

U.S. Debt To GDP: A long way to go to get back to reality.



Yes, the financial institutions' equity investors will get wiped out.

 

Yes, the financial institutions' lenders will get dinged.

But again, that's as it should be.

They were the ones, after all, who trusted the financial institution not to make dumb-ass loans.

By making those loans, the lenders took risks--with the aim of reaping nice rewards.

This time, the risks didn't pan out. So they should pay the price.

That's capitalism.

And as hedge-fund manager Kyle Bass recently remarked, capitalism without bankruptcy is like Catholicism without hell.

The solution to our global debt problems is simple. It's time we started talking about it.

SEE ALSO: Here's What's Wrong With The Economy (And How To Fix It)
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krisluke
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27-Nov-2011 19:12     
 
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 Alert Admin 		WAIT! Is This The First Sign That The ECB Might Save The Eurozone?

There are reports going around about how France and Germany might engage in some kind of new " stability pact" to fight the sovereign debt crisis. This Reuters report, which itself is citing a German newspaper, is fairly sparse when it comes to details, but it would somehow involve quasi-treaty changes and more aggressive efforts at enforcing fiscal conservatism.

 

However, the real bombshell in the report is this line...

The European Central Bank should also emerge more as a crisis fighter in the euro zone. The ECB is independent and governments cannot tell it what to do. But the expectations on the ECB are clear, Welt am Sonntag wrote.

" Based upon these measures, there should be a majority within the ECB for a stronger intervention in capital markets," Welt am Sonntag said. It quotes a central banker as saying: " If the politicians can agree to a comprehensive step, the ECB will jump in and help."

If the ECB is merely going to step up purchases, then it won't do very much.

But if there's a real quid-pro-quo, where the countries do some kind of stability pact, and the ECB then really moves to suppress yields, then things get interesting.

UPDATE: WSJ has more on this story, and it includes the same comment, about how the pact might spur the ECB to act and do more. The key point here is that this move towards fiscal integration could be accomplished without the need for a total treaty pact, but rather a series of bilateral accords that could be accomplished with as little as 9 Eurozone countries.

MORE: See Edward Harrison's smart take on things here.

euro
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krisluke
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26-Nov-2011 21:22     
 
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Weekend Comment Nov 25: Banking on rating changes
CREDIT RATINGS AGENCY Standard & Poor’s has released a revised set of ratings criteria for banks. As banks around the world begin to be re-rated in line with these new standards, the local players stand to gain.
 
Nomura analyst Anand Pathmakanthan, in a report dated November 24, writes that Singapore banks are less at risk than their European or American counterparts. In fact, Pathmakanthan thinks there may even be some chance that they may see upgrades. “Given much stronger underlying macro and operational support, the impact is more likely to be neutral-to-positive, favourably impacting funding costs and valuations in the process,” he says.
 
S& P’s new ratings methodology is a two-step methodology. In the first step, banks will be assessed for their Stand-Alone Credit Profile, which assesses economic risks such as current account deficits and asset bubbles, industry risk such as system-wide funding and government supervision and regulation, and bank-specific factors comprising business position, capital and earnings, risk position, and funding and liquidity. In the second step, S& P will assess the likelihood of “extraordinary support” from the government and the corporate group. This will be factored into the Issuer Credit Ratings.
 
According to Pathmakanthan’s report, the ratings initiative will impact the credit ratings of approximately 1,000 banks across 86 banking systems around the world. New ratings will be rolled out across the next few weeks to be completed by the middle of December. S& P expects approximately 90% of all ratings to remain within one notch of current ratings. Around 60% will remain unchanged, 20% will be upgraded by one notch, 15% downgraded by one notch and less than 5% of the banks will see their ratings downgraded by two or more notches.
 
“We have consistently noted that Asean banks are a relative oasis of stability, ticking all the right boxes when one assesses key operating fundamentals such as profitability, capital, asset quality, balance sheet transparency and liquidity,” says Pathmakanthan. He points out that the 3Q earnings of the Asean banks were at or near records. Their core equity ratios average above 10% while non-performing loans average less than 4%. Loan-to-deposit ratios average at less than 90%. In fact, unlike their Western peers, the Asean banks have a problem of too much in deposits rather than too little.



 
“At the macro level, banking systems are well regulated while macro fundamentals such as current account surpluses, forex reserves and government debt are all at very comfortable levels. In short, Asean bank ratings should reflect all these considerations and the ratings bias should be neutral-to-higher, unlike downward-destined US and Europe, in our view.”
 
In particular, Pathmakanthan is optimistic about the prospects for the Singapore-listed banks. If they see credit ratings upgrades, these would further serve to emphasise the stark differences in fundamentals between Singapore banks and Western banks, thus giving local banks an opportunity to win market share from customers who are seeking to diversify their exposure away from the Western banks. “Singapore banks have the capital, liquidity and reach to take market share -- a ratings upgrade would serve to ratchet up this potential significantly.”
 
The three banks have seen their shares fall in recent months as they have battled weak loans growth and pressures on their margins. Year-to-date, shares of DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank have fallen 16%, 20% and 18%, respectively. All three are now less than 10% from the lows they touched during the recent financial crisis.
 
Of course, that’s no guarantee they won’t fall lower. CLSA, in a recent report, says that the banks are “struggling to generate solid growth in pre-provision profit”. The brokerage says that although the banks are now cheap relative to past historical averages, price-to-book ratios are “far from stressed” and could push 30% to 40% lower if they match the lows of the last cyclical downturn.
 
Running through the results of all three banks, CLSA notes that although DBS showed the best set of results that were the most positively received, the bank had beat peers on “low-quality trading and investment income.” Meanwhile, OCBC saw stronger loan and deposit growth, less margin compression, declining operating expenditure and superior credit. However, it also saw a substantial decline in market-related revenue lines, notably life insurance.
 
CLSA has just one “outperform” call, and that is on UOB. “The UOB result was the worst overall, but held back by management conservatism, particularly in balance sheet management. Perversely, this puts it in a stronger position for 2012 in terms of sustainable growth,” CLSA adds.
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krisluke
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26-Nov-2011 20:59     
 
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S'pore re-elected into IMO Council for 10th running term

 

Singapore has been re-elected into the Council of the International Maritime Organisation (IMO) for its 10th consecutive term. The election was held at the 27th Session of the IMO Assembly in London on Friday.

An IMO council member since 1993, Singapore's membership to the IMO Council has enabled the Republic to contribute significantly towards advancing the efforts of the international maritime community to enhance navigational safety, promote efficient shipping, and protect the marine environment.

Singapore has been re-elected into the Council of the International Maritime Organisation (IMO) for its 10th consecutive term. The election was
held at the 27th Session of the IMO Assembly in London on Friday. -- PHOTO: PSA


Following Singapore's successful re-election, Mr Lui Tuck Yew, Singapore's Minister for Transport and Second Minister for Foreign Affairs, who led the Singapore delegation - comprising officials from the Ministry Of Transport and the Maritime and Port Authority of Singapore - said, 'Singapore is honoured to be re-elected to the IMO Council and is grateful for the support of our fellow IMO Member States.'

Singapore has contributed to, and played an active role in the IMO serving in various leadership positions, such as the Chairman of the IMO Council for a two-year term between 2001 and 2003. Singapore is currently the Vice-Chairman of the Maritime Safety Committee.
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krisluke
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26-Nov-2011 20:55     
 
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Dr Yaacob calls for guidelines on proper behaviour online

By Judith Tan


While the Minister-in-charge of Muslim Affairs Dr Yaacob Ibrahim was heartened by the response by the Malay-Muslim community over the recent offensive postings on the Internet, he is calling for a code of conduct to govern proper behaviour online.

He said such guidelines will allow people to moderate their views, and speak about issues in a 'rational and sensible manner that will not offend other groups and communities'.

Dr Yaacob, who is also the Minister for Information, Communications and the Arts cautioned the three incidences were not the first and neither would they be the last. 'We have to continue to deal with this,' he added.

While the Minister-in-charge of Muslim Affairs Dr Yaacob Ibrahim (above) was heartened by the response by the Malay-Muslim community over t
the recent offensive postings on the Internet, he is calling for a code of conduct to govern proper behaviour online. -- ST PHOTO: STEPHANIE YEOW


The first online posting on Facebook was in February by former People's Action Party (PAP) youth wing member Jason Neo that sparked accusations of racism as it circulated online. Another surfaced on Nov 19 with police looking into full-time national serviceman Christian Eliab Ratnam's posting on his Facebook wall of a picture of text criticising Islam. The third incident was when blogger Donaldson Tan had allegedly re-posted on his Facebook page a picture of a pig superimposed on the Kaaba, a cuboid building in Mecca that is sacred in Islam.
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26-Nov-2011 20:36     
 
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" Fair value" accounting rule tweak raises concerns
* Hoogervorst hopes " fair value" tweaks will be limited

  * Industry officials say IASB must show independence

  * EU markets watchdog says Greek debt writedowns inconsistent

  By Huw Jones

  LONDON, Nov 25 (Reuters) - A global accounting rule that was rehashed under pressure from policymakers in the financial crisis has to be revised, sparking industry fears it could make standard setters vulnerable again to political influence.

  In late 2009 the International Accounting Standards Board (IASB) revamped the first part of its " fair value" or mark-to-market rule which governs when and how banks in over 100 countries must price assets on their books at the going rate.

  Policymakers in the EU and elsewhere said at the time the existing rule forced banks to price assets at depressed values causing more volatility when markets were already fragile.

  IASB Chairman Hans Hoogervorst said on Friday the revamped IFRS 9 rule, which is likely to take effect in 2015, will be reworked even though countries like Australia already use it.

  In a speech in Melbourne, Australia, Hoogervorst said further changes would make IFRS 9 fit better with a separate reform of insurance accounting and help bridge a gap with a U.S. fair value accounting rule reform.

  World leaders want the IASB and its U.S. counterpart to " converge" their rules.

  " We gradually came to the conclusion that we could make a lot of progress on both these issues -- insurance and convergence -- by adapting IFRS 9 in a limited way," Hoogervorst said.

  " It was not an easy decision to make. Most importantly because we knew that our constituents that have already adopted might not be very happy," Hoogervorst added.

  The former Dutch finance minister, who took up the reins earlier this year, hoped for only limited tweaks but " in practice pressure for wider changes will undoubtedly be there" .

  He promised to " proceed with caution and limit any changes to those that are absolutely necessary."

  Ed Nusbaum, chief executive of auditor Grant Thornton, said the IASB should stick to market value assessments of bank assets.

  " We want to make sure the IASB stays independent and the standards being set are not overly influenced by political influence to try to make banks and other institutions look better than they really are," Nusbaum told Reuters.

 

  REAL GREEK VALUE

  IFRS 9 will replace the IASB's current " fair value" rule known as IAS 39.

  Hoogervorst complained in August to the European Securities and Markets Authority (ESMA) that some banks in the EU were failing to apply the rule properly to avoid large writdowns on holdings of sovereign debt in Greece, which is receiving a second bail out from the EU.

  At the end of June markets were showing a 50 percent discount on Greek sovereign debt but French banks wrote down their holdings by much less than this while in Britain and Germany regulators insisted on full market value writedowns.

  " It has been observed that there are differences regarding recognition or non-recognition of impairment losses," ESMA said on Friday in a study on Greek debt writedowns which named no banks or EU member states.

  Two financial institutions showed no impairment at all even though ESMA concluded " there was objective evidence of impairment of Greek sovereign bonds as of 30 June 2011).

  " Issuers should have provided indications on the facts and circumstances and the conditions that existed at that date in their reports," ESMA added.

  ESMA noted its study will be " relevant" for banks and auditors preparing full annual statements for 2011, due early next year.

  " While one can always debate the percentage of the impairment, the first question was was it impaired and the accountants clearly said in an almost united way that it was indeed impaired," Grant Thornton's Nusbaum said.

  " That is important going forward in looking at Greek debt but it's too early to make an assessment about Italy and others," Nusbaum said. (Reporting by Huw Jones)
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krisluke
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26-Nov-2011 20:34     
 
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Australia shares lose grip on 4,000 Woodside slumps
Looking out over Sydney harbor towards the opera house at dusk
(Reuters) - Australian shares extended losses to 1.6 percent on Friday, falling for the sixth down day in a row, with banks and miners hit hard on worries about the euro zone crisis.

  For the week, the market was down 4.7 percent, its worst week in two months.

  Shares in Woodside Petroleum tumbled 9 percent after its production forecast fell short of most analysts' expectations.

  Still, volumes remained light, as has been the case for weeks, as the apparently endless euro debt saga saps confidence and keeps investors sidelined.

  The benchmark S& P/ASX 200 index lost 63.4 points to 3,980.8 at 0350 GMT, breaking key technical and psychological support around 4,000. The index eased 0.2 percent on Thursday.

  New Zealand's benchmark NZX 50 index was down 0.9 percent to 3212.8.

  STOCKS ON THE MOVE

  * Woodside Petroleum lost as much as 9 percent and was last down 7.4 percent to A$32.85 after its quarterly update. Traders said its 2012 forecast was below the bottom end of most analysts' forecasts.

  0350 GMT

  * Against the weaker trend, shares Foster's Group Ltd edged up after the government cleared SABMiller's A$11.5 billion takeover under foreign acquisitions laws, marking the last regulatory hurdle for the deal.

  The shares rose 0.75 percent to A$5.38, just below the A$5.40 offer, ahead of next week's shareholder vote on the deal.

  2350 GMT

  * Northern Star Resources rose as much as 7 percent after targeting an increase in gold production to 100,000 ounces a year from 80,000 following new exploration work at its Paulsens mine. The stock, which has more than doubled since late September, was up 5.5 percent to A$0.87 at 0057 GMT.

  * Retailers continued to suffer on worries about a poor Christmas season. Department stores David Jones fell 3.9 percent and larger rival Myer lost 2.1 percent ahead of its shareholders meeting.
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