Saturday, November 8, 2014

Weekly Commentary, March 2, 2012: Financial Sphere Weak Links

Gross Domestic Product (GDP) growth jumped to 3.0% in the fourth quarter, up sharply from Q3’s 1.8%, Q2’s 1.3% and Q1’s 0.4%. And while current estimates have Q1 2012 growth downshifting a bit, there are indicators pointing toward an economic upside surprise. Both February retail and auto sales were on the strong side, likely fueled by continued labor market improvements and an overall jump in consumer sentiment supported by recent market strength. With financial conditions having loosened significantly, with markets energized and consumer confidence much improved, I’ll err on the side of being constructive on U.S. growth. For now, I’ll give the benefit of doubt to the fourth year of ridiculous fiscal and monetary stimulus.

This week saw huge demand for round two of the ECB’s Long-Term Refinancing Operation (LTRO). A total of 800 banks tapped the ECB’s three-year facility for euro 529bn, increasing total LTRO lending to an amazing $1.34 TN (euro 1.02TN). One cannot these days easily fathom the scope of post-2008 central bank measures. It is worth noting that the Fed’s balance sheet surpassed $800bn for the first time in 2005. Combined Federal Reserve and ECB balance sheets now exceed $6.0 TN.

There’s a lot for the bulls to like, and this week saw a high-profile S&P500 1,700 by year-end bullish call. With liquidity now abundant for the European banks (and, hence, sovereigns), it has become only easier for one with a bullish persuasion to disregard Europe’s crisis risks. And with the Fed having pre-committed to near-zero rates for the next few years, most believe that cheap Credit and liquidity abundance are ensured here at home for some time to come. Strategists are beside themselves, envisaging upside surprises in growth and corporate profits - along with normalized market price-to-earnings multiples. Things are getting carried away.

I have argued that market multiples have been low – and should remain historically low - because the underlying finance fueling the economy and markets is unstable/unsustainable. What multiple should stock investors have put on Greek corporate earnings in 2009? U.S. homebuilders, financials or the S&P500 in 2007? Respective Credit Bubbles, in Greek and European debt as well as U.S. mortgage finance, inflated boom-time incomes, spending and corporate profits. Since 2008, Washington fiscal and monetary stimulus has unleashed a financial gusher to permeate all facets of the U.S. economy and markets. Very few appreciated back in ’07 how susceptible fundamental indicators were to changes in the Credit backdrop. And as market exuberance today gains a foothold, the marketplace is more than willing to again disregard Bubble risk and possible catalysts for financial instability.

It is helpful to discuss Bubble risk in terms of both the Economic Sphere and the Financial Sphere. Traditional analysis focuses on the real economy, i.e. GDP, inflation, income & spending, corporate profits, etc. In non-crisis backdrops, finance is taken for granted and easily ignored. Few bother even attempting to gauge the nature and sustainability of the finance underpinning the real economy. Granted, we’re in a period where Economic Sphere developments appear encouraging and the Financial Sphere seems relatively quiescent. Fueled by powerful (and atypically resilient) Washington-based finance, I can’t really take issue with a (superficially) sanguine near-term economic view. Yet it is within the Financial Sphere where the negative surprises are lying in wait.

Perhaps I was looking too intensively, but I thought I saw in this week’s trading action hints of latent financial fragility. Crude traded above $110 intraday on Thursday – and the bond market began to take notice. Chairman Bernanke was not quite the ultra-dove on Wednesday, and gold suddenly reversed course and traded down almost $90 on the day. The U.S. dollar caught a bid this week.

I have posited that the leveraged speculating community evolved over years into the marginal source of liquidity for the global securities markets. When it comes to direct marketplace liquidity, central banks get too much Credit and the hedge funds/proprietary trading desks not nearly enough. From my analytical perspective, the leveraged players (and derivative markets) have been and will remain the Financial Sphere’s Weak Link.

Market structures ensure that liquidity appears abundant so long as risk is being embraced (and leverage increased) in the marketplace. Indeed, overwhelming speculative excess has become the other side of “risk off.” This certainly does not assuage problems created from years of global Credit excess, fragility that has evoked repeated extraordinary policy market interventions. In the end, policy-induced market distortions only exacerbate fragilities, ensuring serious structural issues are revealed anytime the speculator community moves in the direction of risk aversion.

The conventional view holds that central banks can “print” their way out of trouble/deflationary risks. From my perspective, in this day and age they instead succeed only in further inflating a historic global Credit Bubble. And, importantly, the hedge fund/leveraged speculator craze is an integral facet of this unique global financial mania (I view derivatives similarly). Importantly, increasingly egregious central bank market interventions work to further inflate the unwieldy Bubble in leveraged speculation (and derivative positions), creating an ongoing Weak Link with respect to both financial and economic stability.

This week provided a reminder that the leveraged speculating community is not without serious issues. While a speculative stock market garners most of the attention, volatility appears to have returned in gold/metals, bonds and in the currencies. All happen to be key markets for the leveraged players. While there were some high-profile success stories, keep in mind that the average hedge fund posted losses during a treacherous 2011. According to Credit Suisse, more than two-thirds of all hedge funds are below their “high-water marks,” meaning that they have investor losses to recoup before they can return to earning their hefty incentive fees (typically 20% of fund returns). Almost a fifth of hedge funds have high-water marks of 20% or more. Literally thousands of funds are struggling for survival, a dynamic with potentially important market ramifications.

Gold equities (and general commodities market volatility) meted out ample grief for many leveraged players in 2011 (and 2008!). I’ll interpret gold’s abrupt Wednesday reversal and quick pounding as an indication of a marketplace of “weak-handed” traders really hoping to ride a trend but without the wherewithal to stomach much in the way of losses. And I’ll add there are similar dynamics at play in this year’s short-squeeze-rife stock market backdrop. This type of environment foments destabilizing speculation, replete with latent market fragilities.

It is also clear that the collapse in Treasury yields last year made a fortune for those leveraged on the right side of the “risk off” and/or “deflation” trade. Yet bold ECB and concerted global central bank actions from late-2011 have meaningfully altered the landscape. As markets commence March 2012, the world is looking a lot more like “risk on” and heightened inflation. It is worth noting that the last time crude prices were near current levels (April 2011) 10-year Treasury yields were almost 150 bps higher. Keep in mind also that year-over-year US consumer price inflation (CPI) has been running in the range of between 3% and 4% for most of the past year. Inflationary pressures remain heightened in Europe, despite ongoing economic deterioration and financial fragilities. Where growth dynamics are more robust, such as China and the developing economies, inflationary biases percolate.

I can only assume enormous amounts of leverage have accumulated throughout the Treasury, agency and MBS markets (likely corporate as well). Chairman Bernanke has been keen to assure the leveraged players that the Fed would not impinge on their speculative trading profits (at least until late-2014!). At the same time, the recent backdrop has made QE3 appear increasingly preposterous – and the backdrop may even be conducive to a surprise on the GDP and inflation fronts.

Last year I posited the thesis that global finance was vulnerable to the possible unwind of the “dollar carry trade,” short positions in dollar instruments that were used to finance higher-returning risk assets globally. The strong correlation between dollar strength and global risk asset weakness during last year’s third quarter seemed to support this view. And I’ve gone so far as to suggest that the Fed’s talk of QE3 was in some measure used to combat a rallying dollar. Well, the dollar caught a bid this week. And as the bulls salivate at prospects for booming U.S. stocks and an economic upturn, from a (leveraged and highly-speculative) Financial Sphere perspective one might want to ponder the ramifications if all this enthusiasm translates into a resurgent U.S. (“king”) dollar.

From a Bubble Dynamics perspective, it is not completely unreasonable that late-2011/early-2012 euphoria marked an important top in the prolonged U.S. Treasury/agency/MBS market Bubble. Considering today’s inflationary backdrop coupled with festering creditworthiness issues, today’s market prices make little sense. Of course, the Fed and global central bankers won’t allow a market hiccup, and this potentially epic market misperception is fully priced in the marketplace.

This week’s LTRO provides an exclamation point on the latest round of unprecedented global policy market interventions. As I explained last week, policymakers were, once again, able to incite the reversal of bearish positions and risk hedges. And as much as this creates the perception that central banks have things all under control, a strong case can be made that such actions only ensure that unwieldy markets just move further from their control. The interventions have become monstrous, increasing the odds of unintended consequences: speculative equities and global risk markets; surging oil prices; and only more dangerous global imbalances - quickly come to mind. And, if they’re not careful, one of these days policymakers may even unknowingly pierce the U.S. bond Bubble.

For the Week:

The S&P500 added 0.3% (up 8.9% y-t-d), while the Dow was unchanged (up 6.2%). The Morgan Stanley Cyclicals gained 0.8% (up 16.6%), and the Transports increased 0.4% (up 2.8%). The Morgan Stanley Consumer index added 0.2% (up 3.2%), while the Utilities declined 0.3% (down 3.5%). The Banks were up 2.0% (up 15.8%), and the Broker/Dealers were 1.4% higher (up 21.9%). The S&P 400 Mid-Caps gave back 0.8% (up 11.1%), and the small cap Russell 2000 was hit for 3.0% (up 8.3%). The Nasdaq100 gained 1.4% (up 16.0%), while the Morgan Stanley High Tech index declined 1.0% (up 16.5%). The Semiconductors slipped 0.8% (up 15.3%). The InteractiveWeek Internet index declined 0.3% (up 11.3%). The Biotechs dropped 1.6% (up 21.7%). With bullion sinking $60, the HUI gold index dropped 3.4% (up 4.9%).

One-month Treasury bill rates ended the week at 5 bps and three-month bills closed at 6 bps. Two-year government yields were down 3 bps to 0.27%. Five-year T-note yields ended the week down 5 bps to 0.82%. Ten-year yields were little changed at 1.97%. Long bond yields ended little changed at 3.10%. Benchmark Fannie MBS yields increased 2 bps to 2.86%. The spread between 10-year Treasury yields and benchmark MBS yields widened 2 bps to 89 bps. The implied yield on December 2012 eurodollar futures dropped 12 bps to 0.49%. The two-year dollar swap spread declined 6 to 25 bps. The 10-year dollar swap spread declined 2 to 8.5 bps. Corporate bond spreads were mixed. An index of investment grade bond risk narrowed 2 to 94 bps. An index of junk bond risk widened 4 bps to 551 bps.

It was a big week for debt issuance. Investment grade issuers included Pepsico $2.75bn, HSBC USA $2.25bn, US Bancorp $1.0bn, Wyndham Worldwide $800 million, Burlington Northern $625 million, HJ Heinz $600 million, Fifth Third Bank $500 million, Paccar $500 million, Rayonier $325 million and Westar Energy $250 million.

Junk bond funds saw inflows slow to $565 million (from Lipper). Junk issuers included Sprint Nextel $2.0bn, Clear Channel Worldwide $1.275bn, Linn Energy $1.8bn, Transunion $600 million, QEP Resources $500 million, RR Donnelley & Sons $450 million, Hornbeck Offshore Services $375 million, Gulfmark Offshore $300 million, Holly Energy Partners $300 million, New Enterprise $265 million, Hertz $250 million, Interpublic Group $250 million, Claire's Stores $100 million, and Thermadyne Holdings $100 million.

Convertible issuance included Stone Energy $275 million.

International dollar bond issuers included Romania $2.25bn, Credit Suisse $2.0bn, Deutsche Telekom $2.0bn, ING Bank $2.0bn, Banco do Brasil $1.75bn, Caisse Centrale Desjardn $1.5bn, Asian Development Bank $1.45bn, Videotron $800 million Manitoba $600 million, Trans-Canada Pipelines $500 million, Virgin Media $500 million, Axis Bank $500 million, and Afren $300 million.

Ten-year Portuguese yields surged 101 bps to 13.42% (up 65bps y-t-d). Italian 10-yr yields ended the week down 58 bps to 4.89% (down 214bps). Notably under-performing Italy, Spain's 10-year yields fell 15 bps to 4.89% (down 15bps). German bund yields declined 8 bps to 1.80% (down 3bps), and French yields sank 17 bps to 2.78% (down 36bps). The French to German 10-year bond spread narrowed 9 bps to 98bps. Greek two-year yields ended the week up 753 bps to 206% (up 8,100bps). Greek 10-year yields jumped 127 bps to 33.33% (up 202bps). U.K. 10-year gilt yields dipped one basis point to 2.14% (up 16bps). Irish yields were little changed at 6.81% (down 145bps).

The German DAX equities index added 0.8% (up 17.3% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.985% (unchanged). Japan's Nikkei gained 1.3% (up 15.6%). Emerging markets were mostly higher. For the week, Brazil's Bovespa equities index jumped 2.8% (up 19.4%), and Mexico's Bolsa gained 1.0% (up 3.4%). South Korea's Kospi index gained 0.7% (up 11.4%). India’s Sensex equities index declined 1.6% (up 14.1%). China’s Shanghai Exchange added 0.9% (up 11.9%). Brazil’s benchmark dollar bond yields dropped 15 bps to 3.04%.

Freddie Mac 30-year fixed mortgage rates were down 5 bps to 3.90% (down 97bps y-o-y). Fifteen-year fixed rates declined 2 bps to 3.17% (down 98bps). One-year ARMs dipped one basis point to 2.72% (down 51bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 5 bps to 4.67% (down 77bps).

Federal Reserve Credit declined $9.2bn to $2.908 TN. Fed Credit was up $390bn from a year ago, or 15.5%. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 2/29) fell $2.3bn to $3.460 TN (4-wk gain of $49.7bn). "Custody holdings" were up $75bn year-over-year, or 2.2%.

Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg – were up $898bn y-o-y, or 9.6% to $10.239 TN. Over two years, reserves were $2.417 TN higher, for 31% growth.

M2 (narrow) "money" supply fell $10.7bn to $9.789 TN. "Narrow money" has expanded 10.3% annualized year-to-date and was up 9.8% from a year ago. For the week, Currency increased $2.2bn. Demand and Checkable Deposits fell $9.1bn, while Savings Deposits increased $4.1bn. Small Denominated Deposits dipped $3.2bn. Retail Money Funds declined $4.5bn.

Total Money Fund assets declined $13.1bn to $2.652 TN. Money Fund assets were down $43bn y-t-d and $99bn over the past year, or 3.6%.

Total Commercial Paper outstanding declined $10.4bn to $927bn. CP was down $137bn from one year ago, or down 12.8%.

Global Credit Watch:

February 29 – Bloomberg (Simon Kennedy): “The European Central Bank may decide all good things must come to an end after allocating more than 1 trillion euros ($1.34 trillion) in long-term loans. The ECB’s three-year lending reached 1.02 trillion euros with today’s second Long Term Refinancing Operation. Eight hundred banks received a total of 529.5 billion euros, more than the 470 billion euros median forecast in a Bloomberg News survey and the 489 billion euros of the first tender in December. While the flood of three-year cash has been credited with fueling a rally on Europe’s crisis-roiled bond markets and safeguarding the region’s banks, the ECB will be reluctant to issue a third tranche, according to Deutsche Bank AG and UBS AG. Doing so would fan tensions among ECB policy makers and reduce pressure on governments and banks to fortify balance sheets themselves, the analysts said.”

March 1 – Bloomberg (Abigail Moses): “Default insurance on Greek debt won’t be paid out, the International Swaps & Derivatives Association said after it was asked to rule whether part of the nation’s $170 billion bailout was a credit event. The group said the European Central Bank’s exchange of Greek bonds for new securities exempt from losses being imposed on private investors hasn’t triggered $3.25 billion of outstanding credit-default swaps. ISDA’s determinations committee, including JPMorgan Chase & Co. and Pacific Investment Management Co., said the switch didn’t constitute subordination, one of the criteria for a payout under a restructuring event. ‘The situation in the Hellenic Republic is still evolving’ and today’s decisions ‘do not affect the right or ability to submit further questions,’ ISDA said… The decision is not an expression of the committee’s ‘view as to whether a credit event could occur at a later date,’ the association said.”

March 2 – Bloomberg (Abigail Moses and Mary Childs): “Holders of credit-default swaps on Greek bonds shouldn’t tear up their contracts after yesterday’s ruling against a payout. The International Swaps & Derivatives Association said the swaps hadn’t been triggered by the European Central Bank’s exchange of Greek bonds for new securities… The group will now probably be asked to determine whether collective action clauses, or CACS, being used by Greece to impel investors to participate in a wider exchange of bonds that would trigger the swaps. ‘They will have to enforce CACS,’ said Alessandro Giansanti, a senior rates strategist at ING… ‘At that point the exchange will become coercive and that will be a restructuring event for CDS.’”

March 2 – Bloomberg (Abigail Moses): “The cost of credit-default swaps on Greek government debt signal there is a 99% chance the nation will default within five years, according to CMA.”

March 1 – Financial Times (Patrick Jenkins, Mary Watkins and James Wilson): “The head of Germany’s Bundesbank has launched a powerful attack on Mario Draghi, president of the European Central Bank, in a sign of mounting concern in Europe’s biggest economy at measures being taken to try to contain the eurozone financial crisis. Jens Weidmann’s warning of increasing risk stemming from some ECB policies highlights fears of potential costs for Germany from its role as the eurozone’s biggest creditor nation and may spark fresh doubts about the eurozone’s ability to deal with the long-running banking and sovereign debt crisis. Mr Weidmann, who has an influential voice on the ECB’s governing council, said the central bank risked endangering its reputation and called for a quick return to stricter rules on the collateral that the ECB accepts from banks in return for central bank funds.”

March 2 – Financial Times (James Wilson): “The honeymoon is over for Mario Draghi. Four months after he took over as president of the European Central Bank, the Italian has run into resistance from the Bundesbank – potentially sowing further doubt in markets about the ECB’s freedom to act if the eurozone debt crisis drags on or escalates. A letter from Jens Weidmann, Bundesbank chairman, taking a swipe at Mr Draghi was leaked on Wednesday night, hours after the ECB announced a second batch of three-year cheap loans to banks. The leak is being seen in some circles as an attempt to undermine the ECB president and his flagship policy of so-called longer-term refinancing operations (LTROs) that have helped ease market tensions. ‘The letter was only written so that it could be made public. And it’s no accident that it came just after the LTRO,’ said one eurozone central bank official.”

February 28 – Bloomberg (John Glover and Abigail Moses): “The European Central Bank’s willingness to ride roughshod over bondholder rights risks pushing up borrowing costs for indebted governments by making investors less willing to lend. The ECB swapped about 50 billion euros ($67bn) of Greek bonds for new securities, identical to the old ones in every way save for identification numbers. The switch makes the ECB senior to other investors, exempting it from the largest sovereign restructuring in history as Greece rewrites the terms of its notes to ensure lenders forgive 53.5% of the debt. ‘Bondholders are effectively being subordinated every time the ECB gets involved -- not legally, but economically,’ said Saul Doctor, a credit strategist at JPMorgan… ‘Foreign investors are going to be less willing to buy sovereign bonds when the ECB can exert itself.’”

February 27 – Bloomberg (Liam Vaughan, Gavin Finch and Svenja O’Donnell): “European Central Bank President Mario Draghi’s success in quelling a bond-market rout across the euro region’s periphery masks a failure by the region’s banks to bolster their capital… ‘The worry is it may act to keep afloat institutions that aren’t exactly viable,’ said Stewart Robertson, chief European economist at Aviva Investors… which manages more than $425 billion. ‘This buys time for banks, but does it really provide them with an incentive to sort out their books? The worry is it doesn’t.’”

February 27 – Bloomberg (Gabi Thesing and Jeff Black): “European Central Bank President Mario Draghi may have shelved the bank’s controversial bond- purchase program. The… ECB said today it hasn’t bought any government bonds for two straight weeks, the first pause since August. The purchases have dwindled since the ECB funneled a record 489 billion euros ($655bn) of three-year loans into the banking system in December, fueling a bond-market rally and reducing the need to intervene with its Securities Markets Program. ‘It looks like Draghi is mothballing the SMP,’ said Christian Schulz, a former ECB economist… ‘It has become less relevant in light of the massive loans to banks.’”

March 2 – Financial Times (Victor Mallet and Joshua Chaffin): “Mariano Rajoy, Spanish prime minister, announced that his country’s budget deficit target for this year was 5.8% cent of gross domestic product, about €15bn above the 4.4% limit agreed between the European Union and the previous government. Speaking in Brussels, Mr Rajoy insisted that the decision to exceed the EU target was ‘sensible, reasonable’. Asked whether it met EU requirements, he added: ‘Is it within the norm? I say yes … We are going to make a very big effort.’ After it took power in December, Mr Rajoy’s centre-right government discovered that Spain’s public sector deficit had barely declined in 2011 despite earlier austerity plans, reaching 8.5% of GDP instead of the targeted 6%.”

March 2 – Bloomberg (Angeline Benoit): “Spain raised its budget deficit target for 2012, breaching its commitment with its European partners, as a deepening economic slump hampers efforts to rein in the euro area’s fourth-biggest shortfall… Spain, which is poised to slip into its second recession since 2009, unilaterally raised the limit after overshooting last year’s goal by 2.5 percentage points. ‘I didn’t communicate the deficit target to the heads of state, nor do I have to,’ Rajoy said… ‘This is a sovereign decision taken by Spain and I will communicate it to the commission in April, just like the rest of the countries.’”

March 2 – Bloomberg (Chiara Vasarri): “Italy’s budget deficit narrowed more than economists forecast last year as spending cuts and tax increases helped shore up public finances even as the economy slipped into recession. The budget shortfall fell to 3.9% of gross domestic product from 4.6% in 2010…”

February 29 – Bloomberg (Zeke Faux): “Homebuilder bonds are rallying the most in more than two years… Speculative-grade debt of builders from Toll Brothers Inc. to… Hovnanian Enterprises Inc. have returned 8% this year, outpacing the junk market, after losing 4.5% in the second half of 2011… The cost of protecting U.S. homebuilder debt from default has declined to the lowest level since May.”

Global Bubble Watch:

March 1 – Bloomberg (Cordell Eddings and Daniel Kruger): “China, the largest foreign U.S. creditor, reduced its holdings of U.S. government securities last year for the first time since the Treasury Department began compiling the data in 2001. The world’s second-largest economy held $1.15 trillion Treasuries as of Dec. 31, down from $1.16 trillion at the end of 2010… China’s policy makers have advocated diversification of the nation’s foreign exchange reserves away from U.S. assets after more than doubling its holdings of Treasuries since 2007 in the wake of the global financial crisis.”

February 27 – Bloomberg (Sridhar Natarajan and Boris Korby): “Sales of speculative-grade bonds from emerging markets are rebounding from an 86% collapse in the second half of 2011 as the global economy stabilizes and Europe contains its credit crisis.”

March 2 – Financial Times (Nicole Bullock): “Sales of junk bonds are running at a record pace this year as investors pour money into risky assets in an effort to increase returns amid very low interest rates. In the first two months of 2012 companies around the world have sold more than $73bn of low-rated debt, the fastest start to the year since Dealogic began tracking this data in 1995. Most of that amount, more than $62bn, has been from the US market, where sales are also running at a record rate.”

Currency Watch:

The dollar index rallied 1.3% this week (down 1.0% y-t-d). On the upside, the Mexican peso increased 1.1%, the South African rand 1.0%, the Canadian dollar 1.0%, the South Korean won 0.9%, the Taiwanese dollar 0.5%, and the Singapore dollar 0.3%. On the downside, the Swiss franc declined 2.0%, the euro 1.9%, the Danish krone 1.9%, the Swedish krona 1.8%, the Brazilian real 1.2%, the New Zealand dollar 0.8%, the Japanese yen 0.8%, the Norwegian krone 0.6%, and the British pound 0.3%.

Commodities Watch:

The CRB index declined 1.5% this week (up 5.2% y-t-d). The Goldman Sachs Commodities Index fell 1.6% (up 9.2%). Spot Gold dropped 3.4% to $1,713 (up 9.5%). Silver fell 2.5% to $34.53 (up 24%). April Crude lost $3.07 to $106.70 (up 8%). April Gasoline declined 1.6% (up 23%), and March Natural Gas sank 7.8% (down 17%). May Copper gained 0.9% (up 14%). March Wheat rallied 4.6% (up 3%), and March Corn gained 2.8% (up 2%).

China Watch:

March 1 – Bloomberg: “Shanghai Greenland Group said it may add more floors to China’s second-tallest building under construction to turn it into the highest in the world after the Burj Khalifa in Dubai. The closely held company set up in 1992 may increase the height of Greenland Center in the central city of Wuhan to 636 meters (2,086-foot) from 606 meters, said Wang Xiaodong, Greenland’s… spokesman. That will exceed the 632-meter Shanghai Tower also scheduled to be completed in 2014. China is home to 53% of all skyscrapers being built around the world, up from 44% a year earlier, Barclays Capital Research said. The country will increase the number of skyscrapers to 141, from the current 75, by 2017…”

March 1 – Bloomberg (Dan Levy): “China’s manufacturing expanded at a faster pace in February and a gauge for India showed sustained growth, indicating that Asian economies are maintaining momentum even as Europe’s debt crisis caps exports. In China, the purchasing managers’ index rose for a third month to 51.0 from 50.5 in January… In India, a PMI released by HSBC Holdings Plc and Markit Economics was close to an eight-month high.”

March 1 – Bloomberg (Dan Levy): “China’s financial hub of Shanghai joined Beijing and Shenzhen in boosting the minimum wage this year as policy makers seek to spur consumer spending and a shrinking labor surplus pushes up salaries. The nation’s most affluent city will increase the wage by 13% to 1,450 yuan ($230) a month… It’s the 19th adjustment since the city’s minimum wage rule was established in 1993…”

Japan Watch:

March 2 – Bloomberg (Toru Fujioka and Andy Sharp): “Japan’s government will make two appointments to the central bank’s nine-member board in coming weeks, giving the administration scope to affect monetary policymaking as politicians press for greater stimulus. A group of lawmakers yesterday told ruling-party policy chief Seiji Maehara the replacements should favor doubling the Bank of Japan’s inflation target and stepping up asset purchases.”

March 2 – Bloomberg (Tomoko Yamazaki): “Japanese pension funds may shun smaller hedge funds in favor of larger ones after the suspension of AIJ Investment Advisors Co. by the nation’s regulator for possibly losing clients’ money, according to GFIA Pte. AIJ was suspended on Feb. 24 by Japan’s financial regulator after it couldn’t account for all of the 185.3 billion yen ($2.3bn) it managed for clients as of March 2011… The suspension of AIJ that sparked the biggest investigation in the history of Japan’s fund industry…”

Asia Bubble Watch:

March 2 – Bloomberg (Shamim Adam): “Asia’s job markets are holding up even as the European crisis hurts exports, auguring stability in domestic demand that reduces the case for the region’s central banks to add monetary stimulus. Two-thirds of Asian employers surveyed by Hays Plc, the U.K.’s biggest recruitment firm, said they plan to raise salaries by at least 3% this year, while 54% anticipate giving bonuses to more than half of their workers. Singapore’s unemployment rate fell to a 14-year low of 2% in 2011, Hong Kong’s January rate matched levels not seen since 1998, while South Korea’s is near the lowest since early 2008. ‘We have tight labor markets across Asia,’ said Frederic Neumann…co-head of Asian economic research at HSBC… ‘Rather than sit back and let inflation rise again, policy makers will want to be proactive and tighten the screws before it becomes a problem.’”

Latin America Watch:

March 2 – Bloomberg (Matthew Bristow): “The biggest surge in consumer defaults since 2002 is causing Brazilian banks to charge more for loans, undermining policy makers’ bid to revive growth by cutting benchmark rates. The default rate on consumer loans rose to 7.6% from 5.7% a year earlier… The average interest rate on the loans rose to 45.1% in January from 43.8 the previous month. In Chile, the rate… was 28% in January.”

Europe Economy Watch:

March 1 – Bloomberg (Simone Meier): “European inflation accelerated in February as political tensions in the Middle East boosted oil prices even as the economy heads into a recession. The inflation rate in the 17-nation euro area rose to 2.7% from 2.6% in January…”

March 1 – Financial Times (Joshua Chaffin): “Unemployment in the 17-member eurozone jumped to a record high of 10.7% in January, underlining the challenge facing European leaders as they gathered in Brussels for a summit dedicated to restarting the continent’s economy. The news was particularly dire for Spain, where the jobless rate hit 23.3%... Youth unemployment – measuring workers under the age of 25 – was just shy of 50%.”

March 1 – Bloomberg (Chiara Vasarri): “Italy’s jobless rate rose to the highest in more than a decade in January as austerity measures meant to fight the debt crisis helped push the euro area’s third-largest economy into a recession. Unemployment increased to 9.2% in January… from 8.9% in December…”

March 1 – Bloomberg (Johan Carlstrom): “Sweden’s reliance on exports to Europe has turned Scandinavia’s erstwhile strongest economy into the region’s laggard as job losses undermine demand. ‘It will get worse before it gets better,’ said Andreas Jonsson, an economist at Nordea Bank… ‘We will see rising unemployment during most of 2012.’ Jonsson said there is a risk the largest Nordic economy will contract this year, versus the central bank’s forecast for 0.7% growth.”

U.S. Bubble Economy Watch:

March 2 – Bloomberg (Shobhana Chandra): “The biggest six-month increase in U.S. worker pay in almost five years helps lay the ground for a pickup in consumer spending, the largest part of the economy. Wages and salaries in the third and fourth quarters grew a combined $197.3 billion, the most since the six months ended March 2007… The report also showed the economy grew faster in the fourth quarter than previously estimated and Americans saved more.”

March 2 – Bloomberg (Nadja Brandt): “Edward Lampert, the hedge fund manager who controls Sears Holdings Corp., agreed to buy a mansion on an island off Florida’s Biscayne Bay for almost $40 million, brokerage One Sotheby’s International Realty Inc. said. The purchase of the 17,000-square-foot (1,600-square-meter) estate, which sits on 2.7 acres… probably will be completed in less than 30 days…”

March 1 – Bloomberg (Dan Levy): “U.S. homes in or nearing foreclosure accounted for almost a fourth of residential purchases in the last three months of 2011 as lenders approved more short sales, where the price is less than the amount owed. Deals for bank-owned and distressed properties rose to 24% of total home sales from 20% in the third quarter, according to RealtyTrac Inc.”

Central Bank Watch:

March 2 – Bloomberg (Aki Ito): “Federal Reserve Bank of San Francisco President John Williams said the Fed should maintain an ‘extraordinarily supportive policy’ to reduce an unemployment rate that will probably exceed 7% for years. ‘This is clearly a situation in which we have to keep applying monetary policy stimulus vigorously,’ Williams said… ‘Looking ahead, we may need to do more if the recovery falters or if inflation stays well below 2%.’”

California Watch:

February 27 – Bloomberg (Michael B. Marois): “California tax collections may be $6.5 billion less than Governor Jerry Brown estimated in his spending plan for the current and following fiscal years -- even with the benefit of about $2 billion from a Facebook Inc. stock offering, the state’s budget analyst said. California will probably collect about $177.5 billion in revenue through June 2013, instead of $184 billion Brown has estimated in his proposed budget… The largest U.S. state by population, and the most indebted, is confronting a $9.2 billion deficit.”

March 1 – Bloomberg (Alison Vekshin): “The bankruptcy that Stockton, California, resisted for three years is now at its doorstep, spurred by the weight of retiree costs, the housing bust and accounting blunders that drained the city’s coffers. Stockton, 80 miles east of San Francisco, rode the boom-and-bust cycle of the 2000s with a surge in new- home construction that attracted buyers seeking an affordable alternative to Bay Area real estate. Then a crash came, as homeowners faced a wave of foreclosures that sapped the city’s tax-revenue gains. The city born in the Gold Rush has struggled for decades, relying on revenue from farming and shipping at its river port. Meanwhile it granted employees some of the state’s most generous benefits, and now has 94 retirees with pensions of at least $100,000 a year… ‘We’re really struggling,’ City Council member Dale Fritchen, 51, said… ‘There were horrible decisions made. City leaders spent money faster than it was coming in, thinking that the gravy train would never go away.’”