Friday May 1 Housing and Economic stories

TOP STORIES:

Chicago Public School Haunted by Bankruptcy Chatter Ahead of Bond Sale - (www.chicagobusiness.com)  The Chicago Board of Education can't catch a break as it tries to borrow to pay for upgrades to the third-largest U.S. school system. First, Moody's Investors Service and Fitch Ratings cut it to one step above junk last month, delaying a planned $372 million bond sale. Then last week, before a pared-down $296 million version of the deal, set for today, Gov. Bruce Rauner said the system may need bankruptcy protection, an option that's not legally open to it. There's little prospect that the backdrop will brighten. The system faces a projected $1.1 billion budget gap next fiscal year as retirement costs climb. Its relative borrowing costs are at a two-year high. And with negative outlooks from Moody's and Fitch, a downgrade to junk may chase off investors. “There are a lot of balls in the air when it comes to our outlook,” said John Miller, co-head of fixed income in Chicago at Nuveen Asset Management, which oversees about $100 billion of municipal debt. Nuveen may buy the new bonds for its high-yield fund, he said. “They might have to entice people with more spread, particularly with headline risk like this.”

Greece facing 'Lehman moment' as debt costs soar - (www.cnbc.com) As Greece's stock market plunges and borrowing costs soar, analysts warned the country could be facing its "Lehman moment" as it faces bankruptcy and more financial chaos. Greek bank stocks fell dramatically on Tuesday and its borrowing costs rose sharply following news that European Central Bank (ECB) staff were mulling contingency plans for both an "orderly" and "disorderly" default by Greece, sources told CNBC. A default could lead to Greece leaving the euro zone—something that closely-watched investor Mark Mobius said could herald the "beginning of the end" of the single currency bloc. "If there was an exit of Greece from the euro, that would be an amazing event for Europe. It would mean the beginning of the end and that would not be a happy picture," Mobius, executive chairman at Templeton Emerging Markets Group, told CNBC.

China Sees First Bond Default by State Firm With Tianwei - (www.bloomberg.com) A Chinese power-transformer maker became the country’s first state-owned company to default on an onshore bond, signaling the government’s willingness to let market forces decide an enterprise’s fate. Baoding Tianwei Group Co., the unit of central government-owned China South Industries Group Corp., said it will fail to pay 85.5 million yuan ($13.8 million) of bond interest due Tuesday. Kaisa Group Holdings Ltd. became the first Chinese developer to default on its U.S. currency debt Monday. Until now, only private-sector companies have defaulted in China’s domestic bond market even as state-owned enterprises have sold the vast majority of debt. Tianwei’s default highlights a shifting attitude toward financial risk, underscored by Premier Li Keqiang’s pledge to open a cooling economy to market forces and strip power from the government.

Harley has a warning for US companies - (www.businessinsider.com)  When iconic motorcycle maker Harley-Davidson Inc warned on Tuesday that discounting from foreign rivals would dent its profits, the message resonated beyond the motorcycle business. From cars to construction equipment, the impact of the strong dollar is a big problem for U.S. companies selling overseas. But the U.S. dollar's recent surge to multiyear highs against major currencies, such as the euro and yen, has also become a challenge to their efforts to protect market share on home turf. Harley's U.S. market share slipped nearly five percentage points in the first quarter to 51.3 percent as competitors offered discounts of up to $3,000 per bike and slashed suggested retail prices by up to 25 percent.

Guess What Happened The Last Time Bond Yields Crashed Like This... - (www.zerohedge.com) If a major financial crisis was approaching, we would expect to see the “smart money” getting out of stocks and pouring into government bonds that are traditionally considered to be “safe” during a crisis.  This is called a “flight to safety” or a “flight to quality“.  In the past, when there has been a “flight to quality” we have seen yields for German government bonds and U.S. government bonds go way down.  As you will see below, this is exactly what we witnessed during the financial crisis of 2008.  U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace.  Well, it is starting to happen again.  In recent months we have seen U.S. and German bond yields begin to plummet as the “smart money” moves out of the stock market.  So is this another sign that we are on the precipice of a significant financial panic? Back in 2008, German bonds actually began to plunge well before U.S. bonds did.  Does that mean that European money is “smarter” than U.S. money?  That would certainly be a very interesting theory to explore.  As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

OTHER STORIES:

ECB Is Studying Curbs on Greek Bank Support - (www.bloomberg.com)
Greek Officials Said to See Decree Giving Time for April Deal - (www.bloomberg.com)
China stocks post strong gains despite warning against "irrational exuberance" - (www.reuters.com)
Russia Central Bank Curbs Spur Ruble’s Worst Stretch This Year - (www.bloomberg.com)
U.S. Pushing for Greek Solution in ‘Interest of Entire World’ - (www.bloomberg.com)

Euro-Area Debt Levels Surge to Record, Led by Greece - (www.bloomberg.com)
Central Banks Should Resist Peer Pressure to Ease, Says Trichet - (www.bloomberg.com)
[Video] Germany's Schaeuble on Greek Crisis, Ukraine, Euro Zone - (www.bloomberg.com)
Greece Makes It Expensive to Hedge European Stocks - (www.bloomberg.com)
The Fed Still Wants Easy Money - (www.bloomberg.com)