11-02-10

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

IRAN

ISREAL

KOREA

 

SOVEREIGNS

 

GREECE Greek Deputy PM Makes A Huge Gaffe, And Accidentally Reveals The Country's Debt Plans  BI   Classic gaffe here by the Greek Deputy PM Theodoros Pangalos. According to Greek newspaper Kathemirini, Pangalos said in an interview Sunday: “Debts exist to be restructured... We may pursue it ourselves or the option may be offered to us and it could be in our interest to turn it down.” This is in radical contravention to the official party line out of Greece, which is that restructuring would be a disaster. Of course, this is a classic gaffe in that it's the truth. Opposition politicians have called on PM George Papandreou to sack Pangalos, which Papandreou has declined to do.   SPAIN Fed Helping Spanish Debt Keeps ECB Mum on Dollar: Euro Credit BL   European governments are getting an unlikely assist from the Federal Reserve as the prospect it will buy more Treasuries helps the bonds of Greece, Portugal, Italy and Spain to their first simultaneous monthly gains since July.   Speculation the U.S. central bank will pump more liquidity into the bond market has helped revive investor demand for higher-yielding European debt by driving Treasury yields down. The Fed has asked bond dealers and investors to estimate how much it might purchase in the next six months in its so-called quantitative-easing program and what the effect on yields will be, ahead of this week’s policy meeting.   Portuguese bonds posted their first monthly gain in three in October, delivering returns of 2.6 percent, even as the government and opposition struggled to strike a deal on the 2011 budget until just days before parliament is scheduled to start discussions on the measure. Longer-dated Greek bonds recorded back-to-back monthly gains for the first time since March and the yield on 10-year Italian bonds fell in October to the lowest level in more than four years. “I’m not convinced the recent outperformance of these bonds is being driven purely by improved fundamentals,” said Charles Diebel, the London-based head of market strategy at Lloyds Banking Group Plc. “The debt situation hasn’t changed much for a number of countries. In some cases, it’s getting worse. What has changed is the improvement in risk appetite and the expectation for another round of Fed QE may have had a lot to do with it.”   GERMANY   FRANCE Retire in France at 62? In Turkey, it’s 45 MW   UK UK MPs to be warned on 1.6m job losses  FT   IRELAND Debt costs jump for Dublin and Lisbon  FT   Investors take fright at European proposals   AUSTRALIA Australia unexpectedly raises rates  FT   JAPAN

4- STATE & LOCAL GOVERNMENT

5- CENTRAL & EASTERN EUROPE

7- RISK REVERSAL

8- COMMERCIAL REAL ESTATE

9-RESIDENTIAL REAL ESTATE - PHASE II

Back Office Blues New Yorker

Number of the Week: 107 Months to Clear Banks’ Housing Backlog WSJ

U.S. home prices expected to slide another 8%   CNN

14- CORPORATE BANKRUPTCIES

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

24-RETAIL SALES

26-GLOBAL OUTPUT GAP

31-FOOD PRICE PRESSURES

Food Inflation Rising as Cooking Oil Poised to Catch Grain Gains BL

32-US STOCK MARKET VALUATIONS

The grim reaper is back MW
Market declines could be more severe after FOMC

Stocks Face Dark Side of Gridlock in Capital WSJ

Three signs that the stock market rally is on borrowed time MoneyWeek

G20

US shifts G20 currency focus to trade deficits  FT

CURRENCY WARS

Q3 EARNINGS

Focus on Net Margins - Detailed Q3 Earnings Review  Pragmatic Capitalist

Rosenberg On The Revenue-Less, And Now Margin-Less, Recovery  ZH

 

A week ago, we presented a comprehensive analysis by Moody's highlighting the key items in the cash flow statement of non-financial corporate America. Not surprisingly, we noticed that one of the biggest sources of cash over the past several years, in addition to cutting expenses to the bone and the resulting surge in unemployment, was the lack of investment in organic growth opportunities, via a plunge in Capital Expenditures, meaning that a revenue flat lining is the best most companies could hope for as most have now given up on traditional top-line growth and instead are either hording cash or investing it in an occasional M&A transaction. Now, in addition to that, courtesy of the Fed's free money policy resulting in surging input prices (see Jones Apparel), the next shoe to drop on the path to an upcoming EPS collapse for the S&P is the imminent drop in gross,  operating and net margins for these very companies which are now seeing a contraction at both the top and bottom line. Today, David Rosenberg dissects this issue further, and sees nothing good on the horizon. NOTICE THE WORD "PRICE CUTS"? And, what the NYT had to conclude about 3M’s results? That it “reduced the top end of its full-year forecast and said rising raw materials costs and other pressures were cutting into margins, sending the company's shares sharply lower.” Margin compression at a time of low single-digit nominal GDP growth does not equate to a $95 operating EPS stream for 2011. Further on this file of compressed margin pressure, S&P 500 revenue growth is already slowing down, notwithstanding the fact that 80% of the universe is beating their beaten-down profit estimates. The cost-cutting wave certainly did go much further than anyone expected but as the legendary Herb Stein once remarked, “anything that can’t last forever, by definition, won’t.” At some point, the well will run dry on the cost-cutting front and slowing revenue growth will take over — on track for +5.5% YoY in Q3 from 6.1% in Q2 and the consensus now for Q4 is sitting at +4.9%. As an added signpost of how this has proven to have been a revenue-less recovery, the top-line growth since the profits rebound began just over a year ago is running at barely more than half the average pace recorded in the 2002-07 cycle. For all the talk about profits recovery, sales are still 11% lower now than they were in the spring of 2008. And, if you are wondering why it is that the stock market has still done little more than range trade in 2010, it is because earnings estimates are no longer rising as they were in 2009 — they are falling. The bottom-up consensus now sees 12.9% earnings growth for 2011 from 14.2% a month ago and 20.9% back in the spring. Have a look at the Paul Lim column on page 8 of the Sunday NYT business section — Raising a Caution Flag on Corporate Revenue. From Gluskin-Sheff (full report pdf)

MARKET & GOLD MANIPULATION

Conference Speakers Chime in on Silver Manipulation Story Kitco

Martin Wolf asks whether the current state of monetary disorder demands a return to the gold standard  FT

 

After the experience of the last three decades the monetarism of Milton Friedman is no longer a credible alternative. It was abandoned for two simple reasons: first, it proved impossible for monetarists to agree on what money is; and, second, the relation between any given monetary aggregate and nominal income proved unstable.   Recent experience suggests that we can no longer be so confident that delegation to independent central banks protects against severe monetary instability. That system permitted a gigantic increase in credit, relative to gross domestic product. It is equally clear that governments do not wish to see this edifice collapse, for understandable reasons. This being so, the ultimate solution may be to increase nominal incomes, via inflation. Indeed, several economists recommend this. If that did happen, it would support those who argue for abandonment of the modern experiment with fiat money.   The biggest transition problem is the mismatch between the value of official gold holdings and the size of the monetary system. The value of gold held by central banks is apparently about $1,300bn, while global deposits of the banking system were about $61,000bn in 2008, according to the McKinsey Global Institute. To survive the slightest financial panic, the ratio of gold to bank money would need to be perhaps an order of magnitude higher. One obvious objection is that this would generate huge windfall gains to holders of gold. In short, we cannot and will not go back to the gold standard. As L.P. Hartley wrote, “The past is a foreign country: they do things differently there.” We cannot live in the 19th century. It is foolish to pretend that we can.

IMF speeds gold sales amid soaring prices  FT

 

If sales continue at their current rate, the Washington-based lender could complete its planned disposal of 403.3 tonnes of bullion – or one-eighth of its total reserves – by the end of this year, ahead of earlier market expectations.   The IMF has been almost alone as a seller of gold from the so-called official sector, which includes central banks, governments and sovereign wealth funds as well as international organisations. As a whole, the sector is expected to be a small buyer of gold this year as purchases by Russia, the Philippines, Thailand and others outweigh the IMF’s sales.   Most analysts and advisers to central banks believe that buying will continue next year. Without the IMF’s sales as a counterbalance, the official sector could become a large net buyer.   “Barring something unexpected, central banks are going to be net buyers,” said Tom Kendall, precious metals analyst at Credit Suisse. “Net purchases could be quite significant next year: 100-120 tonnes or more.”

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