Monday September 26 20916 Housing and Economic stories

TOP STORIES:

Meet the affable bear who expects the S&P to tumble to 20-year lows - (www.marketwatch.com) If you’re buying stocks today, says noted permabear Albert Edwards, you need a psychiatric evaluation. Edwards, global strategist at Société Générale told MarketWatch in an early September interview that the stock market, bolstered by easy money, has valuations at “nosebleed” levels even as labor costs are rising and corporate profits are falling. That, he says, points toward a U.S. economy on the brink of recession — and an S&P 500 set to plummet to 550, a level not seen in more than two decades, in response. At the core of his forecast is the belief that the economy goes in cycles — or, as he says, that “recessions come along with regular monotony.” “This is the weakest recovery on record in the U.S.,” said Edwards, who is based in London. “Everything you expect to see at the end of an [economic] cycle is apparent.”

Deutsche Bank’s Riskiest Bonds Fall to Lowest Since February - (www.bloomberg.com) Deutsche Bank AG’s riskiest bonds dropped to the lowest since a marketwide rout in February as a potential $14 billion bill to settle a U.S. probe into mortgage-backed securities reignited capital concerns. The lender’s 1.75 billion euros ($2 billion) of 6 percent additional Tier 1 bonds, the first notes to take losses in a crisis, fell four cents on the euro to 72 cents, according to data compiled by Bloomberg. That extended the decline since the U.S. Department of Justice’s initial settlement figure was announced last week to 11 cents. Deutsche Bank’s bonds and shares have tumbled because of concerns that settling the Justice Department probe may lead to a capital shortfall, even if the Frankfurt-based lender is able to negotiate a smaller bill. A reported plan to securitize billions of dollars of corporate loans may do little to help.

Credit Spreads Widen - (www.mishtalk.com) The present calm in high-yield markets is entirely unwarranted and at odds with where we are in the US credit cycle. Corporate debt to GDP in the US is at all-time highs. In the past, whenever corporate debt reached around 42-45% of GDP, the US approached a recession. Today rates are lower, but corporate debt is already above 45% of GDP. Some investors prefer to look at net debt minus liquid assets, but even there, the measure is higher than in 2001 and 2008 (also the top 50 companies hold two thirds of all cash, so aggregate figures are highly misleading).

Is This Why Deutsche Bank Is Crashing (Again)? - (www.zerohedge.com) Deutsche's dead-bank-bounce is over. The last few days have seen shares of the 'most systemically dangerous bank in the world' plunge almost 20%, back to record lows as the DoJ fine demands reawoken reality that the €42 trillion-dollar-derivative-book bank is severely under-capitalized no matter how you spin asset values. However, another question looms - Is Deutsche Bank cooking its derivatives book to hide huge losses...

China Risks $375 Billion of Shadow Banking Losses, CLSA Says - (www.bloomberg.com) China’s shadow banking could lead to losses of $375 billion, according to CLSA Ltd. estimates of likely levels of bad debt. The brokerage estimated the potential bad debt ratio for “bank-related shadow financing” at 16.4 percent, or 4.2 trillion yuan, in a report released to the media in Hong Kong on Tuesday. Assuming a 40 percent recovery rate left a potential loss of 2.5 trillion yuan. “Shadow financing is banking reform gone wrong given that the key driver of growth has been the banks circumventing regulations to protect their margins,” analyst Francis Cheung wrote in the report. “Shadow financing has grown rapidly, benefiting from implicit government guarantees despite being a channel for credit to higher-risk industries.”

OTHER STORIES:

Dollar Falls With Treasuries Before Fed, BOJ Meetings; Oil Gains - (www.bloomberg.com)
Why 'Quantitative Tightening' May Again Become a Problem for Markets - (www.bloomberg.com)
That $100,000 Painting Bought to Flip Is Now Worth About $20,000 - (www.bloomberg.com)
Markets Tighten Ahead of Fed - (www.wsj.com)

Oil Rebounds as Fighting Halts Libya’s Ras Lanuf Export Return - (www.bloomberg.com)
China August Home Prices Rise in More Cities as Sales Gain - (www.bloomberg.com)
Debt Mismatch Leaves Emerging Nations Exposed to Shock, BIS Says - (www.bloomberg.com)
[UK Telegraph] BIS flashes red alert for a banking crisis in China  - (www.telegraph.co.uk)