KeNo's Housing and Economic Portal: Friday October 3 Housing and Economic stories

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ARGENTINA CRASHES - (www.businessinsider.com) Argentina's Merval stock index is down about 7% Thursday after taking an 8% beating Wednesday as well. The selling off is all likely due to Wednesday's news that the country's Central Bank head, Juan Carlos Fabrega, resigned from his post. The rumors that he was out started swirling around in the Argentine media Wednesday morning. Fabrega was in favor of negotiating with the group of hedge fund creditors whose lawsuit for over $1.3 billion in sovereign debt tipped the country into default at the end of July. Reports also indicated that he did not get along with Axel Kicillof, the Argentina economy minister who has a close relationship with President Cristina Fernandez de Kirchner. Fabrega was replaced by securities regulator Alejandro Vanoli.

Bill Gross Used $45 Billion Derivatives to Lift Fund Gain - (www.bloomberg.com) Bill Gross is relying on derivatives rather than Janet Yellen to raise his returns on government bonds. The co-founder of Pacific Investment Management Co. sold most of the $48 billion of U.S. Treasuries held by his $221.6 billion Pimco Total Return Fund (PTTRX) in the second quarter, replacing them with about $45 billion of futures, according to an August filing. The contracts require small up-front payments, freeing up money for Gross to invest in higher-yielding securities including Brazilian, Spanish and Italian debt. “They are taking the cash and buying all these peripheral bonds that have a lot of spread on them relative to Treasuries,” said Erik Schiller, a Newark, New Jersey-based senior money manager at Prudential Fixed Income, referring to bonds issued by European countries other than France and Germany. “It is levering their fund.”

Yen Slide Quickens as Pensions Head Overseas: Chart of the Day - (www.bloomberg.com) Japanese pension funds favoring overseas investments are helping send the yen down toward its biggest monthly loss this year, Nomura Securities Co. says. The CHART OF THE DAY shows so-called trust accounts boosted purchases of foreign stocks and bonds to the most since 2009. The accounts capture pension fund flows including the $1.2 trillion Government Pension Investment Fund, Nomura says. The bottom panel shows the yen slumped to a six-year low this month as hedge funds and other large speculators increased bearish bets on the currency to the most since January. “The shift overseas in pension money is accelerating,” said Yunosuke Ikeda, head of currency strategy at Nomura in Tokyo. “With public pensions working toward rebalancing their domestic bond-heavy portfolios, private pensions are highly likely to take the same approach.

Citigroup Embraces Derivatives as Deals Soar After Crisis - (www.bloomberg.com) In the past five years, the firm that took the largest U.S. bank bailout of the financial crisis increased the total amount of derivatives on its books by 69 percent, surpassing most U.S. peers and closing the gap with the market leader,JPMorgan Chase & Co. (JPM) At the end of June, Citigroup had $62 trillion of open contracts, up from $37 trillion in June 2009, company filings show. JPMorgan trimmed its holdings 14 percent to $68 trillion. Citigroup is expanding as regulators try to rein in instruments that helped fuel the 2008 credit contraction. The third-largest U.S. lender has amassed the largest stockpile of interest-rate swaps, a type of derivative that can swing in value when central banks raise rates. More than 92 percent of the bank’s derivatives don’t trade on exchanges, making it harder for regulators to spot dangers in the market.

The Government Keeps Helping People Buy Failing Cold Stone Creamerys - (www.businessweek.com) Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? If you’re the U.S. government, the answer is yes. Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers tens of millions of dollars, according to an analysis of Small Business Administration data published by the Wall Street Journal last week. The default rate for Quiznos, the sandwich chain that filed for bankruptcy in March, was 30 percent. The franchising model offers would-be entrepreneurs the promise of a business in a box. Pony up some cash and get an established brand. Follow the franchisor’s instructions for running the business and sales should blossom—except when they don’t.

IBM cuts pay for workers who don't keep up: Report - (www.cnbc.com) IBM is slashing the salaries of some of its employees for not keeping their skill set sharpened, according to a report from ComputerWorld. Selected employees in IBM's Global Technology Services strategic outsourcing group received a memo on Friday stating "that some managers and employees have not kept pace with acquiring the skills and expertise needed to address changing client needs, technology and market requirements." The memo states that workers will need to dedicate one day per week to training so that they can "focus on learning and development." But during their training, employees will also receive a 10 percent pay cut. "While you spend part of your workweek on learning and development activities, you will receive 90% of your current base salary," the memo states.

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