Monday November 16 Housing and Economic stories

TOP STORIES:

Illinois Faces Millions in Extra Debt Costs From Budget Fiasco - (www.bloomberg.com) When Illinois returns to the municipal market after its unprecedented 18-month borrowing drought, it may find its budget impasse will cost taxpayers millions of dollars in the coming decades. On a $1 billion offering of 25-year tax-exempt bonds, it would cost about $175 million more now than if an equal amount was issued with spreads at 2014 levels, based on data compiled by Bloomberg that assumes the yield equals the interest rate paid. Now in its fifth month without a spending plan, signs are mounting that debt sales for cash-strapped Illinois are only going to get more expensive. After initially planning to sell $1.25 billion in general obligations for capital needs, the governor’s office said in September that it wasn’t ready to announce any amounts or sale dates. The state’s credit rating has been cut by two of the three largest rating companies, it’s missing pension payments, and yield premiums demanded by investors are hovering near the highest since 2013. Illinois last sold debt in April 2014 for a top yield of 4.5 percent, about 1.1 percentage points more than benchmark securities. That spread has widened by about 70 basis points.

Valeant shares tumble to lowest level in three years - (www.ft.com)  Shares in Valeant dropped to their lowest level in more than three years on Thursday, escalating a crisis of confidence over the embattled pharmaceuticals group’s business model and inflicting further losses on its high-profile hedge fund backers. The drugmaker said it had no explanation for the tumble on Thursday. Shares dropped as much as 20.3 per cent in the first hour of trading in New York and were down 11 per cent at $81.50 just before midday. Valeant, which had seen its market value increase almost 40 fold in just over five years, has been under siege since August, as investors fretted about its reliance on large price increases and ability to repay its debt. Its equity was worth more than $90bn at the start of the summer, but that has fallen to $27bn, a figure lower than its net debt of $29.5bn.

Bonds Tumble Around the Globe as Fed Rate Odds Climb Past 50% - (www.bloomberg.com) Global bond yields climbed to a seven-week high after Federal Reserve Chair Janet Yellen said a U.S. interest-rate increase remains a possibility for 2015. Her comments Wednesday left the odds of the Fed tightening policy by its December meeting hovering around 54 percent, while the yield on the Bloomberg Global Developed Sovereign Bond Index climbed to the highest since Sept. 16. Traders now have their eyes on the October payroll report, to be released on Friday, after the Labor Department reported Thursday that the number of Americans filing for unemployment benefits climbed to the highest level in five weeks. "The tone has changed, people are now anticipating the Fed to tighten in December, and tomorrow’s employment report is going to be critical," said Larry Milstein, managing director of government-debt trading at R.W. Pressprich & Co. in New York. "You’re going to need a pretty significant miss to get the Fed off tightening in December."

A Little Humility, Please, Mr. Summers - (online.wsj.com) In a recent op-ed for this newspaper, we proffered an explanation for a phenomenon that most macroeconomic models cannot adequately explain: Why is investment in U.S. financial assets so strong and investment in the real economy so modest? Former U.S. Treasury secretary and Harvard president Larry Summers took issue with our views on his blog. He was one of the principal architects of the U.S. government’s fiscal and regulatory response, and is among the foremost defenders of the recent conduct of monetary policy. So, Mr. Summers is understandably a fierce defender of the current regime. But his breathless defense of the consequences of extraordinary monetary policy reveals a troubling immodesty. We would suggest more humility in considering the full consequences that may arise from the new tools and tendencies in the conduct of monetary policy.

Growth in leveraged deals prompts credit risk warning - (www.ft.com)  Credit risks are rising to the fore as private equity groups seek to put a near-record $540bn cash pile to work, pushing leverage back to levels not seen since the boom of 2007. A warning from Standard & Poor’s this week follows a sluggish few years for the leveraged buyout market, which has forced sponsors to lever up deals, leaving less cushion if the tide turns. Analysts at the rating agency say that despite the lack of megadeals since Energy Future Holdings, once known as TXU, was taken private at the market peak, excessive leverage has increased credit risk. “It has become increasingly challenging for sponsors to make efficient use of this dry powder,” said Allyn Arden, analysts at S&P. “Private equity funds are more likely to drive up demand for assets as they compete with corporate issuers for acquisitions, potentially resulting in even higher purchase price multiples and weaker credit metrics on new deals.”

OTHER STORIES:

HSBC Explains How Markets Will Behave in a World of 'Quantitative Exhaustion' - (www.bloomberg.com)
The Bear Case for China Sees PBOC Following Fed to Zero Rates - (www.bloomberg.com)
Basel Threatens Market-Making in Securitized Debt, JPMorgan Says - (www.bloomberg.com)
China’s Slowdown Raises Questions About Long-Term Growth - (www.nytimes.com)

San Francisco in housing‘correction’ - (www.cnbc.com)

For stocks, it looks like 2011 all over again - (www.cnbc.com)

Pity the poor hedge funders as comp comes down - (www.cnbc.com)