I’ll assume that Mr. Hobbs sees Marc Faber residing more in the “destructive” camp – and I presume many would consider my analysis “destructive” as well. We’re now in this strange and uncomfortable period of heightened angst, anger and vilification, whether it is in Athens, throughout Europe, or across the U.S. from New York City to Oakland, California. European policymakers have been keen to blame short-sellers and speculators for their bond market woes. The rating agencies are under attack on both sides of the Atlantic. And analysts such as Mr. Faber and myself are generally viewed with contempt by those determined to view the world through rose-colored glasses.
From Websters: “Destructionist: One who delights in destroying that which is valuable; one whose principles and influence tend to destroy existing institutions; a destructive.”
I tend to view the recent use of “destructionist” in similar light to the vilification of the so-called “liquidationists” and “Bubble poppers” (a Bernanke term) from the spectacular “Roaring Twenties” boom and bust cycle. There are those who believe that enlightened policymaking can implement an inflationary cycle and successfully grow out of debt problems. And then there are others that see failed policy doctrine and Credit Inflation as the root cause of a dangerous dynamic that risks a catastrophic end. Revisionist history has been especially unfair to Andrew Mellon and other “Bubble poppers” that warned of the impending dangers associated with the runaway monetary, Credit and speculative excess in the years immediately preceding the 1929 crash.
I am of the view that inflationary policy doctrine (“inflationism”) is in the process of impairing the Creditworthiness of the financial claims that constitute the foundation of the global financial system. Massive issuance of non-productive debt and central bank monetization have irreparably distorted the global pricing of finance and the resulting allocation of financial and real resources. This backdrop has nurtured destructive speculative dynamics. From my perspective, it is the “destructionist” forces of “inflationism” that today pose grave risk to global Capitalism. And, to be sure, the “socialism” of Credit risk is at the heart of the monetary and economic quagmires imperiling Europe, the U.S and nations around the world.
From Wikipedia: “Destructionism is a term used by Ludwig Von Mises, a classical liberal economist, to refer to policies that consume capital but do not accumulate it. It is the title of Part V of his seminal work Socialism. Since accumulation of capital is the basis for economic progress (as the capital stock of society increases, the productivity of labor rises, as well as wages and standards of living), Von Mises warned that pursuing socialist and statist policies will eventually lead to the consumption and reliance on old capital, borrowed capital, or printed ‘capital’ as these policies cannot create any new capital, instead only consuming the old.”
From the “Austrian” perspective, runaway Credit booms destroy wealth instead of creating it. There is as well an important facet of inequitable wealth redistribution that returns to haunt the system come the unavoidable bursting of the Bubble and the associated devaluation of “printed capital.” I believe the current course of reflationary policymaking is doomed specifically because the ongoing massive expansion (inflation) of financial claims is not associated with a corresponding increase in capital investment and real wealth-creating capacity. Governments around the world are – and will be in the future – required to issue massive amounts of new debt to sustain maladjusted financial and economic structures, in the processes prolonging wealth-destructive over-consumption and destabilizing global imbalances. The “Austrians” use the apt analogy of consuming one’s furniture for firewood.
As she has a habit of doing, The Financial Times’ Gillian Tett wrote an exceptional piece today. “Subprime moment looms for ‘risk-free’ sovereign debt: When future financial historians look back at the early 21st century, they may wonder why anybody ever thought it was a good idea to repackage subprime securities into triple A bonds. So, too, in relation to assumptions about the ‘risk-free’ status of western sovereign debt. After all, during most of the past few decades, it has been taken as a key axiom of investing that most western sovereign debt was in effect risk-free, and thus expected to trade at relatively undifferentiated tight spreads. Now, of course, that assumption is being exposed as a fallacy... As the turmoil in the eurozone spreads, forcing a paradigm shift for investors, the intriguing question now is whether we are on the verge of a paradigm shift in the regulatory and central bank world, too.”
Italian yields jumped 16 bps today to 6.35%, tacking on another 34 bps for the week. The spread to bunds surged 69 bps this week to 453 bps. One is left pondering how the Italian bond market would have fared had the ECB not surprised the market with a rate cut and not continued to aggressively buy Italy’s debt. Tuesday from the FT: “A trader of Italian government bonds said: ‘It was meltdown at one point before the ECB came in. There were no prices in Italian government bonds. That is almost unheard of in a big market like Italy. There were just no buyers and therefore no prices.’”
Just to think that there were “just no buyers and therefore no prices” in the world’s third-largest sovereign debt market. To have Greek yields this week approach 100%. To have speculative positions in sovereign debt early in the week lead to the eighth largest bankruptcy filing in U.S. history. And there were heightened market concerns as to the safety of “segregated” brokerage assets (in response to MF Global issues) and the integrity of the Credit default swap (CDS) marketplace (Greece and beyond). To have G20 policymakers, again, fail to reach a consensus as to how to approach the European debt crisis. To have Greece spiraling out of control. Well, the wrecking ball has been just chipping away at the bedrock of market faith in contemporary finance. And then to read one of the world’s preeminent financial journalists contemplating market “fallacies” and a paradigm shift with respect to the nature of sovereign debt risk.
No doubt about it, it was another troubling week in global finance. But not to worry; the ECB surprised markets with a rate cut and chairman Bernanke stated that the Fed was readying its mortgage-backed security (MBS) bazooka. The more destabilized world finance becomes, the more our captivated markets fixate on synchronized global reflationary policymaking. For now, faith in policymaking seems to be holding up better than confidence in finance.
There are important reasons why financial crises traditionally often originate in the so-called “money market.” Money market assets are generally the most intensively intermediated financial claims. Risk intermediation is critical to the process of transforming loans with various risk profiles into financial claims essentially perceived as risk-free in the marketplace. As I attempted to address last week, this perception of “moneyness” is an extremely powerful force in finance, the markets and economics more generally. The Credit mechanism and resulting flow of finance can work miraculously when markets perceive “moneyness,” although things can unravel dramatically when the marketplace begins to fear what it thought was safe and liquid “money” are instead risky and potentially illiquid Credit instruments. Just as there is a thin line between love and hate, there can be an even finer line between Credit boom and bust.
From the concluding sentences of Ms. Tett’s article: “…if regulatory systems had not encouraged banks and investors to be so complacent about sovereign risk in the past, markets might have done a better job of signalling that structural tensions were rising in the eurozone – and today’s crunch would not be creating such a convulsive shock. It is, as I said above, wearily reminiscent of the subprime tale. And, sadly, that is no comfort at all.”
I, as well, see disconcerting parallels to subprime. Especially late in the Mortgage Finance Bubble, a huge and expanding gulf had developed between the market’s perception of “moneyness” for mortgage securities and the true underlying Creditworthiness of the debt. And, importantly, it was the ongoing massive expansion of mortgage Credit that supported home prices and economic growth – all working seductively to further seduce the marketplace into perceiving ongoing “moneyness.” The “Terminal Phase” of Credit Bubble Excess saw systemic risk expanded exponentially, as the quantity of Credit ballooned and the quality of this debt deteriorated markedly. It was both a historic mania and astonishing example of (Minsky) “Ponzi Finance.”
These days, sovereign debt (Treasuries, in particular) is being issued in incredible quantities (and at amazingly low yields). The vast majority of this debt is non-productive and of rapidly deteriorating quality. Yet the markets for the most part are sufficiently content to continue perceiving “moneyness.” Part of this “moneyness” is due to the Credit cycle reality that, similar to subprime, things tend to look ok even in the perilous late stage of a Credit boom. And, importantly, the markets perceive that the Fed, ECB, People’s Bank of China, Bank of Japan, Bank of England, and other global central bankers will continue to monetize (accumulate) this debt – in the process ensuring stable valuation and abundant liquidity in the marketplace (“moneyness”).
Here’s where it gets really troubling from my analytical framework: The more this “new paradigm” takes hold - of the market now recognizing the fallacy of the traditional assumption of “risk-free” sovereign debt (especially in regard to $2.5 TN of Italian federal borrowings) - the greater the scope of central bank monetizaton anticipated by the markets. And this expectation for reflationary policymaking is increasingly underpinning speculative risk asset markets globally. Especially when it comes to Treasury debt, the markets’ perception of “moneyness” is related much more to the expectation of ongoing central bank purchases than it is with (rapidly deteriorating) Credit fundamentals. Ironically, the greater the upheaval in global sovereign debt and risk markets, the more willing the markets are to further accommodate Treasury Bubble excess.
Increasingly, the key dynamic underpinning global risk markets is the expectation for the Fed and global bankers to ensure the “moneyness” of Treasury and global sovereign debt. Indeed, “risk on” or “risk off” now rests chiefly on the markets’ immediate, perhaps whimsical, view of the capacity for the world’s central banks to sustain the faltering sovereign Credit boom. Such a backdrop creates extraordinary uncertainty and is inherently unstable. It points, problematically, to binary outcomes (ongoing speculative boom or bust) across global asset classes, certainly including currencies. And it creates a dynamic where an acutely fragile global financial and economic backdrop can actually incite only more destabilizing speculation and excess.
And, “for the record”, here’s Mr. Faber’s perfect response to Simon Hobbs: “Well, I think I’m very constructive and I’m a great optimist in life. Otherwise I would commit suicide in view of the kind of governments we have nowadays. Because, for sure, they will take wealth away from the well-to-do people one way or the other. And from the middle class they will take it away through inflating the economy and lowering the standards of living.”
For the Week:
For the week, the S&P500 declined 2.5% (down 0.4% y-t-d), and the Dow lost 2.0% (up 3.5% y-t-d). The Morgan Stanley Cyclicals fell 3.0% (down 12.1%), and Transports declined 2.0% (down 3.8%). The Morgan Stanley Consumer index slipped 1.5% (down 2.9%), and the Utilities dipped 0.4% (up 10.6%). The volatile Banks dropped 5.5% (down 24.3%), and the Broker/Dealers sank 7.2% (down 26.9%). The S&P 400 Mid-Caps fell 2.5% (down 0.4%), and the small cap Russell 2000 dropped 1.9% (down 4.7%). The Nasdaq100 fell 1.9% (up 6.2%), and the Morgan Stanley High Tech index declined 2.0% (down 3.6%). The Semiconductors dipped 1.2% (down 4.9%). The InteractiveWeek Internet index declined 1.6% (down 2.9%). The Biotechs sank 8.8% (down 14.8%). With bullion adding $10, the HUI gold index rose 1.4% (up 3.0%).
One and three-month Treasury bill rates ended the week at zero. Two-year government yields were down 7 bps to 0.22%. Five-year T-note yields ended the week down 26 bps to 0.85%. Ten-year yields fell 28 bps to 2.03%. Long bond yields sank 28 bps to 3.09%. Benchmark Fannie MBS yields dropped 22 bps to 3.08%. The spread between 10-year Treasury yields and benchmark MBS yields widened 6 bps to 104 bps. Agency 10-yr debt spreads declined 7 to negative 11 bps. The implied yield on December 2012 eurodollar futures declined 2 bps to 0.575%. The 10-year dollar swap spread increased about 2 to 16 bps. The 30-year swap spread was little changed at negative 24 bps. Corporate bond spreads widened. An index of investment grade bond risk rose 9 to 123 bps. An index of junk bond risk jumped 57 bps to 670 bps.
It was a strong week of debt issuance. Investment-grade issuance this week included Dow Chemical $2.0bn, Becton Dickson $1.5bn, Colgate-Palmolive $1.0bn, Boston Properties $850 million, EQT $750 million, Mattel $600 million, Broadcom $500 million, Cargill $500 million, Air Product & Chemicals $400 million, and Tucson Electric Power $250 million.
Junk bond funds saw inflows of $1.9bn (from Lipper). Junk issuance included LyondellBasell $1.0bn, CSC Holdings $1.0bn, Tnet Healthcare $900 million, Sally Holdings $750 million, Chiron $750 million, CNH Capital $500 million, SM Energy $350 million, American Axle & Manufacturing $200 million and Spectrum Brands $200 million.
Convertible debt issuers included Human Genome $500 million.
International dollar bond issuers included Xstrata $3.0bn, Brazil $2.83bn, WPP $500 million, Oderbrecht $750 million, Bank of China $750 million, Emresa de Energia $600 million, Inter-American Development Bank $500 million, NTL Road Construction and Operation $290 million, and Instit Costa de Electric $250 million.
Greek two-year yields ended the week up 1,770 bps to 90.78% (up 7,854bps y-t-d). Greek 10-year yields surged 317 bps to 25.52% (up 1,306bps). German bund yields sank 35 bps to 1.82% (down 114bps), and French yields fell 11 bps to 3.04% (spread to bunds widened 24bps to 122bps). U.K. 10-year gilt yields fell 30 bps this week to 2.31% (down 120bps). Italian 10-yr yields jumped 34 bps to 6.35% (up 154bps), and Spain's 10-year yields rose 7 bps to 5.56% (up 12bps). Ten-year Portuguese yields increased 8 bps to 11.55% (up 497bps). Irish yields added 2 bps to 8.00% (down 106bps). The German DAX equities index sank 6.0% (down 13.7% y-t-d). Japanese 10-year "JGB" yields dropped 5 bps to 0.99 (down 13bps). Japan's Nikkei declined 1.4% (down 14.0%). Emerging markets were mixed. For the week, Brazil's Bovespa equities index declined 1.4% (down 15.3%), while Mexico's Bolsa was little changed (down 4.8%). South Korea's Kospi index was unchanged (down 6.0%). India’s Sensex equities index declined 1.4% (down 14.4%). China’s Shanghai Exchange rose 2.2% (down 10.0%). Brazil’s benchmark dollar bond yields declined 21 bps to 3.38%, and Mexico's benchmark bond yields fell 36 bps to 3.36%.
Freddie Mac 30-year fixed mortgage rates dropped 10 bps to 4.10% (down 24bps y-o-y). Fifteen-year fixed rates fell 7 bps to 3.31% (down 32bps y-o-y). One-year ARMs declined 2 bps to 2.88% (down 38bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 6 bps to 4.76% (down 39bps y-o-y).
Federal Reserve Credit declined $15.3bn to $2.818 TN. Fed Credit was up $409bn y-t-d and $537bn from a year ago, or 24%. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 11/2) declined $1.8bn to $3.395 TN (7-wk decline of $79.6bn). "Custody holdings" were up $45.2bn y-t-d and $80bn from a year ago, or 2.4%.
Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg – were up $1.216 TN y-o-y, or 13.5% to $10.225 TN. Over two years, reserves were $2.735 TN higher, for 37% growth.
M2 (narrow) "money" supply dropped $35.9bn to $9.592 TN. "Narrow money" has expanded at a 10.4% pace y-t-d and 9.6% over the past year. For the week, Currency added $1.2bn. Demand and Checkable Deposits fell $26.5bn, and Savings Deposits declined $6.8bn. Small Denominated Deposits dipped $3.7bn. Retail Money Funds were unchanged.
Total Money Fund assets declined $11.9bn last week at $2.622 TN. Money Fund assets were down $188bn y-t-d and $178bn over the past year, or 6.3%.
Total Commercial Paper outstanding jumped $18.6bn (16-wk decline of $257bn) to $980bn. CP was up $8.2bn y-t-d, with a one-year decline of $166bn.
Global Credit Market Watch:
November 4 Bloomberg (James G. Neuger): “Italy swept into the spotlight as the next potential victim of the European debt crisis, with world leaders calling for closer monitoring of Prime Minister Silvio Berlusconi’s deficit-cutting strategy. Group of 20 leaders are considering International Monetary Fund inspections of Italy, saddled with Europe’s second-largest debt burden, officials said… Italy last week bowed to tighter European Union monitoring.”
November 2 – Financial Times (David Oakley and Richard Milne ): “The premium Italy pays to borrow over Germany rose to a fresh euro-era high on Tuesday, leaping over a critical level that has previously exacerbated crises in Portugal and Ireland. Despite the European Central Bank on Tuesday making its second biggest purchases of Italian government bonds since it started buying the country’s debt in early August, Italian 10-year bond yield spreads over Germany soared over 450 basis points, a key trigger point that could require bond investors to stump up more cash when using them as collateral… A trader of Italian government bonds said: ‘“It was meltdown at one point before the ECB came in. There were no prices in Italian government bonds. That is almost unheard of in a big market like Italy. There were just no buyers and therefore no prices.”
November 3 – Reuters (Nick Edwards and Benjamin Kang Lim ): “China's people have a clear message for their government -- don't even think of saving Europe. Ahead of a G20 summit in France on Thursday, tens of thousands of ordinary Chinese have been venting their anger online, demanding their leaders sort out China's own problems before bailing out Europe. ‘Domestic pressure (on China's leaders) is huge. Ordinary people are condemning’ any decision to throw Europe a lifeline, one source with ties to China's top leaders told Reuters, requesting anonymity because of political sensitivities.”
November 2 – Financial Times (David Oakley and Sid Verma): “Europe’s rescue fund postponed its bond deal on Wednesday because of market turbulence caused by Greece’s decision to call a referendum on last week’s eurozone plan to bail the country out and stem the region’s debt crisis. Many investors were unwilling to buy the debt because of the market volatility and the lack of clarity over the structure of the European Financial Stability Facility, which is still being decided as policy-makers attempt to increase its leverage and fire-power.”
November 4 – Bloomberg (Rainer Buergin): “Former Bundesbank President Axel Weber said the plan to leverage the European Financial Stability Facility increases the likelihood that tax payers have to step in, Sueddeutsche Zeitung reported. Germany’s public debt would rise to 135% of gross domestic product if Italy and Spain were to tap the EFSF financial backstop, the newspaper cited Weber as saying in a speech in Frankfurt.”
November 2 - Bloomberg (Joji Mochida): “The lending capacity of Europe’s rescue fund may drop by 35% if France’s AAA credit rating is downgraded, because the action will hurt the nation’s ability to guarantee debt issued by the fund, according to Mizuho Corporate Bank Ltd. The European Financial Stability Facility’s effective lending capacity is currently limited to 440 billion euros ($603bn), backed by guarantees from top-rated France and Germany. European leaders on Oct. 27 agreed to boost the fund’s size to 1 trillion euros.”
November 3 - Bloomberg (Patrick Donahue and Rainer Buergin): “Germany’s best-selling Bild newspaper called for Greece to be ejected from the euro and demanded that Germans hold their own vote on dispatching financial aid, signaling growing exasperation in Europe’s largest economy. 'Take the euro away from the Greeks!’ Bild said today on its front page after German Chancellor Angela Merkel and French President Nicolas Sarkozy raised the prospect of a splintered euro area for the first time.”
November 1 - Bloomberg (Yalman Onaran): “U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults. Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show.”
November 2 - Bloomberg (Emma Ross-Thomas): “Spanish regions, cited by rating companies as a risk to the nation’s finances, may face the deepest overhaul since their creation three decades ago as the People’s Party pledges to cull bureaucracy and slash spending. The opposition PP, set to win its biggest-ever majority in Nov. 20 elections, will create a ‘new model of administration’ to avoid overlap between local, regional, and central governments… ‘If you don’t solve this, everything else is impossible,’ said Jaime Garcia-Legaz, secretary general of Faes, a research institute… We’ve created regional leviathans’ and ‘you have to do this if you want to get back to balanced budgets.’”
Global Bubble Watch:
November 4 – Wall Street Journal (Ian Talley and David Gauthier-Villars): “World leaders are actively considering mandating the International Monetary Fund to print more of its special currency to help solve the euro-zone crisis, according to several people familiar with the matter. Asking the IMF to print more of its Special Drawing Rights—essentially an IOU that countries can exchange for cash—is one of the ways the Group of 20 industrialized and developing countries is considering supplementing European efforts to stem the debt crisis that is threatening to spark a global financial meltdown and another recession.”
November 4 - Bloomberg: “Reports that some Chinese banks’ loan quotas have been increased from this month are ‘most likely true’ as officials move to support growth in the world’s second-biggest economy, Daiwa Capital Markets said. New lending may exceed 600 billion yuan ($94bn) this month and next, up from 470 billion yuan in September, Hong Kong analyst Sun Mingchun said… Bank of China Ltd.’s lending quota was loosening from late October, with the extra money to go to smaller businesses facing a funding squeeze, the Guangzhou-based Southern Metropolis Daily said… The Shanghai Securities News reported yesterday that restrictions on lending have been eased for some banks. ‘Policy loosening may have already started,’ Sun said.”
November 4 – Bloomberg (Rebecca Christie): “Group of 20 leaders want international bank regulators to tackle risks posed by high- frequency trading and bond-insurance markets, according to a draft of their closing statement to be released today. The G-20, meeting in Cannes, France, has asked for an assessment of credit default swaps markets.”
Currency Watch:
November 2 - Bloomberg (R. Valdimarsson): “Iceland’s central bank raised its interest rates for a second time in more than three months as policy makers try to shield the krona from market turbulence fueled by Europe’s deepening debt crisis. The seven-day collateral lending rate was raised to 4.75% from 4.5%...”
The U.S. dollar index rallied 2.5% this week to 76.91 (down 2.7% y-t-d). For the week on the downside, the South Korean won declined 0.5%, the Taiwanese dollar 0.6%, the British pound 0.6%, the Singapore dollar 1.9%, the South African rand 2.3%, the Swiss franc 2.4%, the euro 2.5%, the Danish krone 2.5%, the Canadian dollar 2.7%, the Swedish krona 2.9%, the Australian dollar 3.0%, the Japanese dollar 3.1%, the Norwegian krone 3.2%, the New Zeland dollar 3.3%, the Mexican peso 3.6%, and the Brazilian real 4.6%.
Commodities and Food Watch:
November 4 - Bloomberg (Luzi Ann Javier and Jason Scott): “Wheat is heading for the biggest slump in three years as the second-largest harvest on record swells stockpiles, easing shortages that drove global food costs to an all-time high. Prices that plunged 20% to $6.375 a bushel this year…”
The CRB index slipped 0.8% this week (down 3.7% y-t-d). The Goldman Sachs Commodities Index added 0.2% (up 3.5%). Spot Gold gained 0.6% to $1,755 (up 24%). Silver dropped 3.4% to $34.08 (up 10%). December Crude gained 94 cents to $94.26 (up 3%). December Gasoline gained 0.7% (up 9%), while December Natural Gas fell 3.6% (down 14%). December Copper fell 3.8% (down 20%). December Wheat declined 1.2% (down 20%), while December Corn was little changed (up 4%).
China Bubble Watch:
November 2 - Bloomberg: “China’s 2011 tax revenue is on track to increase by the most in four years, providing Premier Wen Jiabao with the ability to spur domestic consumption and economic growth by cutting levies… Collections surged 23% in 2010 and gained 27.4% in the first nine months of this year, double the 13.7% pace at which nominal urban disposable incomes rose…”
Japan Watch:
November 2 - Bloomberg (Shigeki Nozawa): “Japan’s government faces almost 40 trillion yen ($512bn) in losses from intervening in the foreign-exchange markets to stem the yen’s advance, according to estimates by JPMorgan… Valuation losses on Japan’s foreign-exchange reserves minus yen liabilities totaled 35.3 trillion yen at the end of 2010…”
India Watch:
November 2 - Bloomberg (Anto Antony and Ruth David): “State Bank of India, the nation’s largest lender, will get a capital infusion of more than 30 billion rupees ($609 million) from the government to bolster capital as concern that loans may sour mounts. The funds are a part of the 140 billion rupees that the government plans to invest in state-run lenders…”
November 4 – Bloomberg (Rakteem Katakey): “The number of India’s power stations with coal stockpiles of fewer than four days’ normal use has tripled in two months, prompting electricity-supply cuts and threatening to curb growth in Asia’s third-biggest economy.”
Asia Bubble Watch:
November 4 - Bloomberg (Max Estayo and Karl Lester M. Yap): “Philippine inflation accelerated for the second straight month in October, matching the fastest pace this year after utility and food costs increased. Consumer prices rose 5.2% from a year earlier, after a 4.8% gain in September…”
Latin America Watch:
November 2 - Bloomberg (Karen Eeuwens): “Brazilian sales of new cars fell 10% in October from September and declined 7.6% compared with the same period last year…”
November 2 - Bloomberg (Camila Russo): “The cost of insuring Argentina’s debt against default is rising more than that of any other major emerging market except Venezuela on concern measures to stem rising capital flight will backfire. The cost of five-year credit-default swaps on Argentina’s bonds surged 51 bps to 987 bps yesterday.”
November 3 - Bloomberg (Daniel Cancel and Charlie Devereux): “Venezuela’s inflation rate, the highest of 78 economies tracked by Bloomberg, rose to a seven- month high in October on food and education costs. Inflation… accelerated to 26.9%...”
Unbalanced Global Economy Watch:
November 4 – Financial Times (Simone Meier): “Europe’s services and manufacturing output indicator fell the most in three years in October, adding to recession signs… A euro-area composite index based on a survey of purchasing managers in both industries fell to 46.5 from 49.1… That’s a 28-month low, the sharpest drop since November 2008 and below the estimate of 47.2…”
November 2 - Bloomberg (Rainer Buergin and Brian Parkin): “German unemployment unexpectedly rose for the first time in more than two years in October and manufacturing contracted as pessimism mounted among businesses in Europe’s largest economy. The number of people out of work rose a seasonally adjusted 10,000 to 2.94 million… Economists forecast a decline of 10,000… The adjusted jobless rate rose to 7% from 6.9%...”
November 4 - Bloomberg (Gabi Thesing and Jeff Black): “German factory orders unexpectedly plunged in September as demand from the euro region slumped, adding to signs the region’s debt crisis is damping growth in Europe’s largest economy. Orders… fell 4.3% from August, when they dropped 1.4%...”
November 4 - Bloomberg (Andrew Mayeda): “Canada’s economy lost the most jobs since the 2009 recession during October… Employment fell by 54,000 jobs after an increase of 60,900 jobs in September…”
U.S Bubble Economy Watch:
November 2 - Bloomberg (Kathleen M. Howley): “The U.S. homeownership rate in the third quarter was at the second-lowest level in 13 years as borrowers were evicted after foreclosures and the tightest mortgage standards in more than a decade thwarted new buyers. The ownership rate was 66.3%...”
Central Bank Watch:
November 2 - Bloomberg (Vivien Lou Chen): “Charles Evans has pushed for his Federal Reserve colleagues to inject more stimulus into the economy since September. He finally broke ranks with most of them today, casting the U.S. central bank’s first dissent in favor of further easing since December 2007.”
November 3 - Bloomberg (Amity Shlaes): “There are bad ideas, and there’s the proposal that economists from Goldman Sachs Group Inc. released Oct. 14. They suggested that the Federal Reserve Board target a nominal gross-domestic-product growth rate of 4.5% to decide how much money to inject into the economy. The econo- speak name for this practice is ‘NGDP targeting.’ The question is whether that unlovely abbreviation makes it into mainstream English and becomes policy.”
Fiscal Watch:
November 3 - Bloomberg (Lorraine Woellert): “Freddie Mac, one of two mortgage- finance companies under U.S. conservatorship, reported a $4.4 billion loss for the third quarter and said it will seek $6 billion from the U.S. Treasury Department. The company… will draw on its Treasury cash lifeline to eliminate a net-worth deficit of $6 billion for the three- month period ending Sept. 30…”
Muni Watch:
November 2 - Bloomberg (John McCorry and Michael McDonald): “U.S. municipal-debt issuance may rebound to $310 billion in 2012 from a projected $270 billion this year as borrowers seek to refinance, said George Friedlander, senior municipal-bond strategist at Citigroup Inc. The pace of sales has quickened in the past month, with issuers selling $31.8 billion of municipal debt in October, the most since December…”
Real Estate Watch:
November 4- Bloomberg (Chris Spillane): “Luxury-home prices in central London climbed the most in 13 months in October as overseas buyers seeking a haven from the sovereign debt crisis competed for a smaller number of properties for sale, Knight Frank LLP said. Values of houses and apartments costing an average of 3.7 million pounds ($5.9 million) rose by an average of 12.5% from a year earlier...”
I, as well, see disconcerting parallels to subprime. Especially late in the Mortgage Finance Bubble, a huge and expanding gulf had developed between the market’s perception of “moneyness” for mortgage securities and the true underlying Creditworthiness of the debt. And, importantly, it was the ongoing massive expansion of mortgage Credit that supported home prices and economic growth – all working seductively to further seduce the marketplace into perceiving ongoing “moneyness.” The “Terminal Phase” of Credit Bubble Excess saw systemic risk expanded exponentially, as the quantity of Credit ballooned and the quality of this debt deteriorated markedly. It was both a historic mania and astonishing example of (Minsky) “Ponzi Finance.”
These days, sovereign debt (Treasuries, in particular) is being issued in incredible quantities (and at amazingly low yields). The vast majority of this debt is non-productive and of rapidly deteriorating quality. Yet the markets for the most part are sufficiently content to continue perceiving “moneyness.” Part of this “moneyness” is due to the Credit cycle reality that, similar to subprime, things tend to look ok even in the perilous late stage of a Credit boom. And, importantly, the markets perceive that the Fed, ECB, People’s Bank of China, Bank of Japan, Bank of England, and other global central bankers will continue to monetize (accumulate) this debt – in the process ensuring stable valuation and abundant liquidity in the marketplace (“moneyness”).
Here’s where it gets really troubling from my analytical framework: The more this “new paradigm” takes hold - of the market now recognizing the fallacy of the traditional assumption of “risk-free” sovereign debt (especially in regard to $2.5 TN of Italian federal borrowings) - the greater the scope of central bank monetizaton anticipated by the markets. And this expectation for reflationary policymaking is increasingly underpinning speculative risk asset markets globally. Especially when it comes to Treasury debt, the markets’ perception of “moneyness” is related much more to the expectation of ongoing central bank purchases than it is with (rapidly deteriorating) Credit fundamentals. Ironically, the greater the upheaval in global sovereign debt and risk markets, the more willing the markets are to further accommodate Treasury Bubble excess.
Increasingly, the key dynamic underpinning global risk markets is the expectation for the Fed and global bankers to ensure the “moneyness” of Treasury and global sovereign debt. Indeed, “risk on” or “risk off” now rests chiefly on the markets’ immediate, perhaps whimsical, view of the capacity for the world’s central banks to sustain the faltering sovereign Credit boom. Such a backdrop creates extraordinary uncertainty and is inherently unstable. It points, problematically, to binary outcomes (ongoing speculative boom or bust) across global asset classes, certainly including currencies. And it creates a dynamic where an acutely fragile global financial and economic backdrop can actually incite only more destabilizing speculation and excess.
And, “for the record”, here’s Mr. Faber’s perfect response to Simon Hobbs: “Well, I think I’m very constructive and I’m a great optimist in life. Otherwise I would commit suicide in view of the kind of governments we have nowadays. Because, for sure, they will take wealth away from the well-to-do people one way or the other. And from the middle class they will take it away through inflating the economy and lowering the standards of living.”
For the Week:
For the week, the S&P500 declined 2.5% (down 0.4% y-t-d), and the Dow lost 2.0% (up 3.5% y-t-d). The Morgan Stanley Cyclicals fell 3.0% (down 12.1%), and Transports declined 2.0% (down 3.8%). The Morgan Stanley Consumer index slipped 1.5% (down 2.9%), and the Utilities dipped 0.4% (up 10.6%). The volatile Banks dropped 5.5% (down 24.3%), and the Broker/Dealers sank 7.2% (down 26.9%). The S&P 400 Mid-Caps fell 2.5% (down 0.4%), and the small cap Russell 2000 dropped 1.9% (down 4.7%). The Nasdaq100 fell 1.9% (up 6.2%), and the Morgan Stanley High Tech index declined 2.0% (down 3.6%). The Semiconductors dipped 1.2% (down 4.9%). The InteractiveWeek Internet index declined 1.6% (down 2.9%). The Biotechs sank 8.8% (down 14.8%). With bullion adding $10, the HUI gold index rose 1.4% (up 3.0%).
One and three-month Treasury bill rates ended the week at zero. Two-year government yields were down 7 bps to 0.22%. Five-year T-note yields ended the week down 26 bps to 0.85%. Ten-year yields fell 28 bps to 2.03%. Long bond yields sank 28 bps to 3.09%. Benchmark Fannie MBS yields dropped 22 bps to 3.08%. The spread between 10-year Treasury yields and benchmark MBS yields widened 6 bps to 104 bps. Agency 10-yr debt spreads declined 7 to negative 11 bps. The implied yield on December 2012 eurodollar futures declined 2 bps to 0.575%. The 10-year dollar swap spread increased about 2 to 16 bps. The 30-year swap spread was little changed at negative 24 bps. Corporate bond spreads widened. An index of investment grade bond risk rose 9 to 123 bps. An index of junk bond risk jumped 57 bps to 670 bps.
It was a strong week of debt issuance. Investment-grade issuance this week included Dow Chemical $2.0bn, Becton Dickson $1.5bn, Colgate-Palmolive $1.0bn, Boston Properties $850 million, EQT $750 million, Mattel $600 million, Broadcom $500 million, Cargill $500 million, Air Product & Chemicals $400 million, and Tucson Electric Power $250 million.
Junk bond funds saw inflows of $1.9bn (from Lipper). Junk issuance included LyondellBasell $1.0bn, CSC Holdings $1.0bn, Tnet Healthcare $900 million, Sally Holdings $750 million, Chiron $750 million, CNH Capital $500 million, SM Energy $350 million, American Axle & Manufacturing $200 million and Spectrum Brands $200 million.
Convertible debt issuers included Human Genome $500 million.
International dollar bond issuers included Xstrata $3.0bn, Brazil $2.83bn, WPP $500 million, Oderbrecht $750 million, Bank of China $750 million, Emresa de Energia $600 million, Inter-American Development Bank $500 million, NTL Road Construction and Operation $290 million, and Instit Costa de Electric $250 million.
Greek two-year yields ended the week up 1,770 bps to 90.78% (up 7,854bps y-t-d). Greek 10-year yields surged 317 bps to 25.52% (up 1,306bps). German bund yields sank 35 bps to 1.82% (down 114bps), and French yields fell 11 bps to 3.04% (spread to bunds widened 24bps to 122bps). U.K. 10-year gilt yields fell 30 bps this week to 2.31% (down 120bps). Italian 10-yr yields jumped 34 bps to 6.35% (up 154bps), and Spain's 10-year yields rose 7 bps to 5.56% (up 12bps). Ten-year Portuguese yields increased 8 bps to 11.55% (up 497bps). Irish yields added 2 bps to 8.00% (down 106bps). The German DAX equities index sank 6.0% (down 13.7% y-t-d). Japanese 10-year "JGB" yields dropped 5 bps to 0.99 (down 13bps). Japan's Nikkei declined 1.4% (down 14.0%). Emerging markets were mixed. For the week, Brazil's Bovespa equities index declined 1.4% (down 15.3%), while Mexico's Bolsa was little changed (down 4.8%). South Korea's Kospi index was unchanged (down 6.0%). India’s Sensex equities index declined 1.4% (down 14.4%). China’s Shanghai Exchange rose 2.2% (down 10.0%). Brazil’s benchmark dollar bond yields declined 21 bps to 3.38%, and Mexico's benchmark bond yields fell 36 bps to 3.36%.
Freddie Mac 30-year fixed mortgage rates dropped 10 bps to 4.10% (down 24bps y-o-y). Fifteen-year fixed rates fell 7 bps to 3.31% (down 32bps y-o-y). One-year ARMs declined 2 bps to 2.88% (down 38bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 6 bps to 4.76% (down 39bps y-o-y).
Federal Reserve Credit declined $15.3bn to $2.818 TN. Fed Credit was up $409bn y-t-d and $537bn from a year ago, or 24%. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 11/2) declined $1.8bn to $3.395 TN (7-wk decline of $79.6bn). "Custody holdings" were up $45.2bn y-t-d and $80bn from a year ago, or 2.4%.
Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg – were up $1.216 TN y-o-y, or 13.5% to $10.225 TN. Over two years, reserves were $2.735 TN higher, for 37% growth.
M2 (narrow) "money" supply dropped $35.9bn to $9.592 TN. "Narrow money" has expanded at a 10.4% pace y-t-d and 9.6% over the past year. For the week, Currency added $1.2bn. Demand and Checkable Deposits fell $26.5bn, and Savings Deposits declined $6.8bn. Small Denominated Deposits dipped $3.7bn. Retail Money Funds were unchanged.
Total Money Fund assets declined $11.9bn last week at $2.622 TN. Money Fund assets were down $188bn y-t-d and $178bn over the past year, or 6.3%.
Total Commercial Paper outstanding jumped $18.6bn (16-wk decline of $257bn) to $980bn. CP was up $8.2bn y-t-d, with a one-year decline of $166bn.
Global Credit Market Watch:
November 4 Bloomberg (James G. Neuger): “Italy swept into the spotlight as the next potential victim of the European debt crisis, with world leaders calling for closer monitoring of Prime Minister Silvio Berlusconi’s deficit-cutting strategy. Group of 20 leaders are considering International Monetary Fund inspections of Italy, saddled with Europe’s second-largest debt burden, officials said… Italy last week bowed to tighter European Union monitoring.”
November 2 – Financial Times (David Oakley and Richard Milne ): “The premium Italy pays to borrow over Germany rose to a fresh euro-era high on Tuesday, leaping over a critical level that has previously exacerbated crises in Portugal and Ireland. Despite the European Central Bank on Tuesday making its second biggest purchases of Italian government bonds since it started buying the country’s debt in early August, Italian 10-year bond yield spreads over Germany soared over 450 basis points, a key trigger point that could require bond investors to stump up more cash when using them as collateral… A trader of Italian government bonds said: ‘“It was meltdown at one point before the ECB came in. There were no prices in Italian government bonds. That is almost unheard of in a big market like Italy. There were just no buyers and therefore no prices.”
November 3 – Reuters (Nick Edwards and Benjamin Kang Lim ): “China's people have a clear message for their government -- don't even think of saving Europe. Ahead of a G20 summit in France on Thursday, tens of thousands of ordinary Chinese have been venting their anger online, demanding their leaders sort out China's own problems before bailing out Europe. ‘Domestic pressure (on China's leaders) is huge. Ordinary people are condemning’ any decision to throw Europe a lifeline, one source with ties to China's top leaders told Reuters, requesting anonymity because of political sensitivities.”
November 2 – Financial Times (David Oakley and Sid Verma): “Europe’s rescue fund postponed its bond deal on Wednesday because of market turbulence caused by Greece’s decision to call a referendum on last week’s eurozone plan to bail the country out and stem the region’s debt crisis. Many investors were unwilling to buy the debt because of the market volatility and the lack of clarity over the structure of the European Financial Stability Facility, which is still being decided as policy-makers attempt to increase its leverage and fire-power.”
November 4 – Bloomberg (Rainer Buergin): “Former Bundesbank President Axel Weber said the plan to leverage the European Financial Stability Facility increases the likelihood that tax payers have to step in, Sueddeutsche Zeitung reported. Germany’s public debt would rise to 135% of gross domestic product if Italy and Spain were to tap the EFSF financial backstop, the newspaper cited Weber as saying in a speech in Frankfurt.”
November 2 - Bloomberg (Joji Mochida): “The lending capacity of Europe’s rescue fund may drop by 35% if France’s AAA credit rating is downgraded, because the action will hurt the nation’s ability to guarantee debt issued by the fund, according to Mizuho Corporate Bank Ltd. The European Financial Stability Facility’s effective lending capacity is currently limited to 440 billion euros ($603bn), backed by guarantees from top-rated France and Germany. European leaders on Oct. 27 agreed to boost the fund’s size to 1 trillion euros.”
November 3 - Bloomberg (Patrick Donahue and Rainer Buergin): “Germany’s best-selling Bild newspaper called for Greece to be ejected from the euro and demanded that Germans hold their own vote on dispatching financial aid, signaling growing exasperation in Europe’s largest economy. 'Take the euro away from the Greeks!’ Bild said today on its front page after German Chancellor Angela Merkel and French President Nicolas Sarkozy raised the prospect of a splintered euro area for the first time.”
November 1 - Bloomberg (Yalman Onaran): “U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults. Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show.”
November 2 - Bloomberg (Emma Ross-Thomas): “Spanish regions, cited by rating companies as a risk to the nation’s finances, may face the deepest overhaul since their creation three decades ago as the People’s Party pledges to cull bureaucracy and slash spending. The opposition PP, set to win its biggest-ever majority in Nov. 20 elections, will create a ‘new model of administration’ to avoid overlap between local, regional, and central governments… ‘If you don’t solve this, everything else is impossible,’ said Jaime Garcia-Legaz, secretary general of Faes, a research institute… We’ve created regional leviathans’ and ‘you have to do this if you want to get back to balanced budgets.’”
Global Bubble Watch:
November 4 – Wall Street Journal (Ian Talley and David Gauthier-Villars): “World leaders are actively considering mandating the International Monetary Fund to print more of its special currency to help solve the euro-zone crisis, according to several people familiar with the matter. Asking the IMF to print more of its Special Drawing Rights—essentially an IOU that countries can exchange for cash—is one of the ways the Group of 20 industrialized and developing countries is considering supplementing European efforts to stem the debt crisis that is threatening to spark a global financial meltdown and another recession.”
November 4 - Bloomberg: “Reports that some Chinese banks’ loan quotas have been increased from this month are ‘most likely true’ as officials move to support growth in the world’s second-biggest economy, Daiwa Capital Markets said. New lending may exceed 600 billion yuan ($94bn) this month and next, up from 470 billion yuan in September, Hong Kong analyst Sun Mingchun said… Bank of China Ltd.’s lending quota was loosening from late October, with the extra money to go to smaller businesses facing a funding squeeze, the Guangzhou-based Southern Metropolis Daily said… The Shanghai Securities News reported yesterday that restrictions on lending have been eased for some banks. ‘Policy loosening may have already started,’ Sun said.”
November 4 – Bloomberg (Rebecca Christie): “Group of 20 leaders want international bank regulators to tackle risks posed by high- frequency trading and bond-insurance markets, according to a draft of their closing statement to be released today. The G-20, meeting in Cannes, France, has asked for an assessment of credit default swaps markets.”
Currency Watch:
November 2 - Bloomberg (R. Valdimarsson): “Iceland’s central bank raised its interest rates for a second time in more than three months as policy makers try to shield the krona from market turbulence fueled by Europe’s deepening debt crisis. The seven-day collateral lending rate was raised to 4.75% from 4.5%...”
The U.S. dollar index rallied 2.5% this week to 76.91 (down 2.7% y-t-d). For the week on the downside, the South Korean won declined 0.5%, the Taiwanese dollar 0.6%, the British pound 0.6%, the Singapore dollar 1.9%, the South African rand 2.3%, the Swiss franc 2.4%, the euro 2.5%, the Danish krone 2.5%, the Canadian dollar 2.7%, the Swedish krona 2.9%, the Australian dollar 3.0%, the Japanese dollar 3.1%, the Norwegian krone 3.2%, the New Zeland dollar 3.3%, the Mexican peso 3.6%, and the Brazilian real 4.6%.
Commodities and Food Watch:
November 4 - Bloomberg (Luzi Ann Javier and Jason Scott): “Wheat is heading for the biggest slump in three years as the second-largest harvest on record swells stockpiles, easing shortages that drove global food costs to an all-time high. Prices that plunged 20% to $6.375 a bushel this year…”
The CRB index slipped 0.8% this week (down 3.7% y-t-d). The Goldman Sachs Commodities Index added 0.2% (up 3.5%). Spot Gold gained 0.6% to $1,755 (up 24%). Silver dropped 3.4% to $34.08 (up 10%). December Crude gained 94 cents to $94.26 (up 3%). December Gasoline gained 0.7% (up 9%), while December Natural Gas fell 3.6% (down 14%). December Copper fell 3.8% (down 20%). December Wheat declined 1.2% (down 20%), while December Corn was little changed (up 4%).
China Bubble Watch:
November 2 - Bloomberg: “China’s 2011 tax revenue is on track to increase by the most in four years, providing Premier Wen Jiabao with the ability to spur domestic consumption and economic growth by cutting levies… Collections surged 23% in 2010 and gained 27.4% in the first nine months of this year, double the 13.7% pace at which nominal urban disposable incomes rose…”
Japan Watch:
November 2 - Bloomberg (Shigeki Nozawa): “Japan’s government faces almost 40 trillion yen ($512bn) in losses from intervening in the foreign-exchange markets to stem the yen’s advance, according to estimates by JPMorgan… Valuation losses on Japan’s foreign-exchange reserves minus yen liabilities totaled 35.3 trillion yen at the end of 2010…”
India Watch:
November 2 - Bloomberg (Anto Antony and Ruth David): “State Bank of India, the nation’s largest lender, will get a capital infusion of more than 30 billion rupees ($609 million) from the government to bolster capital as concern that loans may sour mounts. The funds are a part of the 140 billion rupees that the government plans to invest in state-run lenders…”
November 4 – Bloomberg (Rakteem Katakey): “The number of India’s power stations with coal stockpiles of fewer than four days’ normal use has tripled in two months, prompting electricity-supply cuts and threatening to curb growth in Asia’s third-biggest economy.”
Asia Bubble Watch:
November 4 - Bloomberg (Max Estayo and Karl Lester M. Yap): “Philippine inflation accelerated for the second straight month in October, matching the fastest pace this year after utility and food costs increased. Consumer prices rose 5.2% from a year earlier, after a 4.8% gain in September…”
Latin America Watch:
November 2 - Bloomberg (Karen Eeuwens): “Brazilian sales of new cars fell 10% in October from September and declined 7.6% compared with the same period last year…”
November 2 - Bloomberg (Camila Russo): “The cost of insuring Argentina’s debt against default is rising more than that of any other major emerging market except Venezuela on concern measures to stem rising capital flight will backfire. The cost of five-year credit-default swaps on Argentina’s bonds surged 51 bps to 987 bps yesterday.”
November 3 - Bloomberg (Daniel Cancel and Charlie Devereux): “Venezuela’s inflation rate, the highest of 78 economies tracked by Bloomberg, rose to a seven- month high in October on food and education costs. Inflation… accelerated to 26.9%...”
Unbalanced Global Economy Watch:
November 4 – Financial Times (Simone Meier): “Europe’s services and manufacturing output indicator fell the most in three years in October, adding to recession signs… A euro-area composite index based on a survey of purchasing managers in both industries fell to 46.5 from 49.1… That’s a 28-month low, the sharpest drop since November 2008 and below the estimate of 47.2…”
November 2 - Bloomberg (Rainer Buergin and Brian Parkin): “German unemployment unexpectedly rose for the first time in more than two years in October and manufacturing contracted as pessimism mounted among businesses in Europe’s largest economy. The number of people out of work rose a seasonally adjusted 10,000 to 2.94 million… Economists forecast a decline of 10,000… The adjusted jobless rate rose to 7% from 6.9%...”
November 4 - Bloomberg (Gabi Thesing and Jeff Black): “German factory orders unexpectedly plunged in September as demand from the euro region slumped, adding to signs the region’s debt crisis is damping growth in Europe’s largest economy. Orders… fell 4.3% from August, when they dropped 1.4%...”
November 4 - Bloomberg (Andrew Mayeda): “Canada’s economy lost the most jobs since the 2009 recession during October… Employment fell by 54,000 jobs after an increase of 60,900 jobs in September…”
U.S Bubble Economy Watch:
November 2 - Bloomberg (Kathleen M. Howley): “The U.S. homeownership rate in the third quarter was at the second-lowest level in 13 years as borrowers were evicted after foreclosures and the tightest mortgage standards in more than a decade thwarted new buyers. The ownership rate was 66.3%...”
Central Bank Watch:
November 2 - Bloomberg (Vivien Lou Chen): “Charles Evans has pushed for his Federal Reserve colleagues to inject more stimulus into the economy since September. He finally broke ranks with most of them today, casting the U.S. central bank’s first dissent in favor of further easing since December 2007.”
November 3 - Bloomberg (Amity Shlaes): “There are bad ideas, and there’s the proposal that economists from Goldman Sachs Group Inc. released Oct. 14. They suggested that the Federal Reserve Board target a nominal gross-domestic-product growth rate of 4.5% to decide how much money to inject into the economy. The econo- speak name for this practice is ‘NGDP targeting.’ The question is whether that unlovely abbreviation makes it into mainstream English and becomes policy.”
Fiscal Watch:
November 3 - Bloomberg (Lorraine Woellert): “Freddie Mac, one of two mortgage- finance companies under U.S. conservatorship, reported a $4.4 billion loss for the third quarter and said it will seek $6 billion from the U.S. Treasury Department. The company… will draw on its Treasury cash lifeline to eliminate a net-worth deficit of $6 billion for the three- month period ending Sept. 30…”
Muni Watch:
November 2 - Bloomberg (John McCorry and Michael McDonald): “U.S. municipal-debt issuance may rebound to $310 billion in 2012 from a projected $270 billion this year as borrowers seek to refinance, said George Friedlander, senior municipal-bond strategist at Citigroup Inc. The pace of sales has quickened in the past month, with issuers selling $31.8 billion of municipal debt in October, the most since December…”
Real Estate Watch:
November 4- Bloomberg (Chris Spillane): “Luxury-home prices in central London climbed the most in 13 months in October as overseas buyers seeking a haven from the sovereign debt crisis competed for a smaller number of properties for sale, Knight Frank LLP said. Values of houses and apartments costing an average of 3.7 million pounds ($5.9 million) rose by an average of 12.5% from a year earlier...”