Tuesday, September 17, 2013

Wednesday September 18 Housing and Economic stories


Puerto Rico Poised for Worst Year Since ’00 on ‘Spooked’ Buyers - (www.bloomberg.com) Municipal debt from Puerto Rico is poised for its worst year since at least 2000 as demand for state and local securities wanes with yields at two-year highs. Bonds of Puerto Rico and its localities have lost 14.9 percent this year through Aug. 28, about three times more than the rest of the $3.7 trillion municipal market, according to Standard & Poor’s data. The commonwealth’s borrowings haven’t had an annual loss this steep since at least 2000. Investors demand 2.76 percentage points of additional yield to buy 30-year Puerto Rico general-obligation bonds rather than top-rated munis, the most since January, data compiled by Bloomberg show. The island’s general-obligation debt is rated one level above junk amid recurring budget deficits and a pension system that has a lower funding level than any U.S. state. Individual investors, who own about 70 percent of the municipal market, are “spooked” by the drop in prices on Puerto Rico bonds and are selling, said Matt Dalton, who manages $1.6 billion of munis at Belle Haven Investments Inc. in White PlainsNew York.

San Bernardino Wins Eligibility for Bankruptcy - (www.nytimes.com) A federal bankruptcy court judge granted the city of San Bernardino eligibility for bankruptcy protection on Wednesday, raising the possibility that the city will propose a plan to dig itself out of debt by cutting money promised to the public pension system. The ruling by Judge Meredith Jury came despite opposition from the powerful California Public Employees’ Retirement System, more commonly known as Calpers. San Bernardino, a working-class city of 240,000 about 60 miles east of Los Angeles, declared Chapter 9 bankruptcy last summer, saying it had effectively run out of money to pay for day-to-day operations, in large part because of pension obligations. Lawyers for Calpers had argued that the city should not treat pension funds like other creditors. For the past year, Calpers has also argued that the city has not provided enough documentation for the court to rule in the bankruptcy case and that the city had ignored warnings about a financial crisis for years and filed for bankruptcy as a matter of convenience.

Japan’s Public Pension Fund Suffers Biggest-Ever Bond Losses - (www.bloomberg.com) Japan’s Government Pension Investment Fund, the world’s largest manager of retirement savings, posted its smallest gain in three quarters in the period ended June on record domestic bond losses. GPIF, which has 121 trillion yen ($1.24 trillion) in assets, earned a 1.9 percent return last quarter compared with a 6.9 percent gain in the prior three months, according to a statement on its website today. Market investments in Japanese bonds fell 1.5 percent while domestic stocks jumped 9.7 percent, the fund said. Losses on local bonds were wider than the previous record quarterly decline in 2008, said Tokihiko Shimizu, director general of the research department at GPIF. “Returns from domestic stocks and overseas bonds and equities compensated for the loss in domestic bonds,” Shimizu said in a telephone interview today. “Diversifying our assets was effective.”

Investors Dumping Emerging Markets At An Accelerating Pace - (www.businessinsider.com) The brutal financial asset sell-off in the Emerging Markets picked up this week. And it's all reflected in the fund flows reports. "Emerging Markets debt-dedicated funds recorded net outflows of $2,013MM (0.84% AUM) for the week ending on August 28, 2013, reports EPFR," said Morgan Stanley's Robert Habib. "Outflows increased for the third consecutive week and were the highest since they peaked late in June at nearly $6bn (2.2% of AUM). The total outflows since these commenced late in May now amount to $22.4bn. In line with the large outflows, prices of EM-dedicated funds extended their negative trend and fell 0.72% during the week." "On a regional basis, investors decreased exposure from all EM regions, particularly from Asia-dedicated funds once more," added Habib.

Why Fannie and Freddie remain a big threat - (finance.fortune.cnn.com) To commemorate the five-year anniversary of the financial crisis, former Treasury Secretary Hank Paulson has written a new prologue to his memoir On the Brink, which chronicles the dark days of 2008. As head of the Treasury, Paulson, now 67, had the herculean task of saving the global banking system when problems in the subprime mortgage market sent waves of losses to the furthest reaches of the financial markets. In order to prevent financial Armageddon, Paulson had to achieve bipartisan support for radical bailout plans including the takeover of the mortgage giants Fannie Mae and Freddie Mac and the Troubled Asset Relief Program, (un)popularly known as TARP. Brokering rescue deals with Washington D.C. was no small feat given how sour relations had grown between Democrats and Republicans. Just two months before Lehman Brothers filed for Chapter 11, Nancy Pelosi, the Democratic Speaker of the House, described then-president George W. Bush as "a total failure" who used criticisms of Congress to divert attention from the fact that he had "no ideas." When Lehman did go bankrupt, the ensuing chaos became a huge thorn for both presidential candidates Barack Obama and John McCain. Amid this charged political climate, Paulson fought hard to keep politicians focused on rescuing the banking system. The former head of Goldman Sachs (GS) got down on one knee andbegged Pelosi to support TARP. And in his memoir he mentions getting physically ill more than once as politics slowed down his ability to act, even while Wall Street's meltdown gained momentum.







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