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In Embattled
Detroit, No Talk of Sharing Pain - (www.nytimes.com) When New
York City threatened to declare bankruptcy in 1975, the idea so terrified
everyone that it forced the city, its workers and its recalcitrant bankers to
sit down and find ways to share the pain. Now another large city, Detroit,
appears to be on the brink of filing for bankruptcy, but there is little talk
of sharing the pain. Instead, the fiscal crisis in Michigan is setting up as a
gigantic clash between bondholders and city retirees. The city’s proposals,
which could give some bondholders as little as 10 cents on the dollar, are
making some creditors think they would be better off in bankruptcy. They see
the specter of a federal judge imposing involuntary losses as less ominous than
it was for New York.
Biggest
protests in 20 years sweep Brazil - (www.reuters.com) As many as 200,000 demonstrators marched
through the streets of Brazil's biggest cities on Monday in a swelling wave of
protest tapping into widespread anger at poor public services, police violence
and government corruption. The marches, organized mostly through snowballing
social media campaigns, blocked streets and halted traffic in more than a
half-dozen cities, including Sao Paulo, Rio de Janeiro, Belo Horizonte and
Brasilia, where demonstrators climbed onto the roof of Brazil's Congress
building and then stormed it. Monday's demonstrations were the latest in a
flurry of protests in the past two weeks that have added to growing unease over
Brazil's sluggish economy, high
inflation and a spurt in violent crime.
Greek
court orders state TV reopened, PM offers compromise - (www.reuters.com) A Greek
court ruled that shuttered state broadcaster ERT must reopen immediately, a
court official said on Monday, offering the squabbling ruling coalition a way
out of a political crisis over the station's abrupt closure. The ruling - which
ordered ERT switched back on until a restructured public broadcaster is
launched - came six day after Prime Minister Antonis Samaras took it off air in
the name of austerity and public sector layoffs to please foreign lenders. The
ruling appeared to vindicate Samaras's stance that a leaner, cheaper public
broadcaster must be set up but also allowed for ERT's immediate reopening as
his coalition partners had demanded, offering all three a way out of an impasse
that had raised the specter of snap polls.
Lenders
ambush newly solvent borrowers seeking old bad debts – (www.ochousingnews.com) For
people who purchased properties in California, a non-recourse state, and never
refinanced, lenders cannot come after them seeking to recoup their losses on a
foreclosure. For those who live in recourse states, or California loanowners
who refinanced, the situation is quite different. Lenders still have the right
to pursue these borrowers for the deficiency, unless they agreed to a short sale in California after July
15, 2011. Most
borrowers walked away thinking the debt was extinguished. While it was detached
from the property, borrowers are still legally liable for any shortfall on the
lender’s books. Lenders haven’t done much to collect on these old debts so far.
Most lenders reason that they couldn’t get blood from a turnip, so they have
been biding their time waiting for debtors to become solvent again and save
some money that they can go after. Lenders seek court actions against homeowners years after
foreclosure: For
Jose Santos Benavides, the ordeal of losing his home was over. The Salvadoran
immigrant had worked for years as a self-employed landscaper to make a $15,000
down payment on a four-bedroom house in Rockville. He had achieved a portion of
the American dream, earning nearly six figures. Then the economy soured, and
lean paychecks turned into late mortgage payments. On Aug. 20, 2008, one year
after he bought his dream home for $469,000, the bank’s threat to take his
house became real via a letter in the mail. Just four days before the bank
seized the property, he moved out, along with his wife and their two young
children. That wasn’t the worst of it. In November, more than three years after
the foreclosure, he was stunned to learn he still owed $115,000 — with the
interest alone growing at a rate high enough to lease a luxury car.
Detroit
Recovery Plan Threatens Muni-Market Underpinnings - (www.bloomberg.com) Emergency
Manager Kevyn Orr’s plan to suspend payments on $2 billion of Detroit’s debt
threatens a basic tenet of the $3.7 trillion municipal market: that states and
cities will raise taxes as high as needed to avoid default. Orr, appointed by
Republican Governor Rick Snyder to oversee Michigan’s largest city, proposed a deal last week that
included skipping a $39.7 million payment on pension-obligation debt. The city
is also set to default on unsecured unlimited-tax and limited-tax
general-obligation bonds as it grapples with $17 billion in liabilities to
avoid a record bankruptcy. By calling into question the safety of any security
backed by a government’s general obligation to pay what it owes, Orr, 55,
imperils similar debt across Michigan, the eighth-most-populous state. As local
governments strive to rebound from the longest recession since the 1930s, they
may confront higher borrowing costs. “It definitely sets a precedent, and
there’s definitely going to be a penalty going forward for the city and the
state,” said Dan Solender, director of munis at Lord Abbett & Co. in Jersey
City, New Jersey. The company oversees $19.5 billion of local debt.
Unrest
spreads across Istanbul - (www.ft.com) The
crackdown on the protests that have rocked Turkey intensified on Sunday, as
police battled with demonstrators in central Istanbul and
beyond, and prime minister Recep Tayyip
Erdogan vowed
at a vast rally of his own supporters to settle accounts with those
responsible. During the day, Turkish police chased protesters into a shopping
mall, stormed one five-star hotel and tear-gassed another as Mr Erdogan’s
government sought to stop a protest in Istanbul’s main square while staging its
own show of force in the city. For 24 hours after police used
tear gas and water cannon to flush protesters from Gezi Park, the symbolic heart of the demonstrations
against the Turkish prime minister, police were still confronting protesters in
multiple locations around the city late on Sunday afternoon.
Spain's
Rajoy calls on ECB to create bank lending scheme for smaller - (www.reuters.com) Spanish
Prime Minister Mariano Rajoy on Saturday called on the European Central Bank to
create a cheap funding scheme for small businesses, mirroring those used by
authorities outside the euro zone to try and get credit flowing via banks. Rajoy,
who has previously urged the ECB to change its collateral rules to help smaller
companies access financing at better conditions, said the ECB could emulate
plans such as a Bank of England scheme. The British central bank launched a
'Funding for Lending' scheme in mid-2012 aimed at encouraging banks to give
credit by providing them with cheap financing. "I would like the ECB to
act like other central banks, to do as the Bank of England has done - giving
cheap loans to financial entities so that these financial entities can lend at
cheaper rates to small and medium-sized companies," Rajoy said at an event
in Tarragona, northern Spain.
Chrysler
to freeze salaried employees’ pensions in effort to limit liability - (www.washingtonpost.com) Chrysler plans
to freeze pensions for 8,000 salaried employees at the end of the year, the
automaker announced Friday, joining a growing group of companies seeking to limit the amount of money they
have to set aside now for future retirees. The move means that salaried workers
in the company’s pension plan, which pays retirees a fixed benefit for life,
will stop accruing new benefits at the end of 2013. They remain entitled to the
pension benefits they have earned so far, but instead of adding to the
guaranteed payments they will receive at retirement, the workers will be
offered 401(k) accounts, which shift the risk of saving for retirement from
employers to employees. Chrysler's decision comes after a similar one by
General Motors, which last year froze pensions for 26,000 salaried workers in
the United States, moving them to 401(k) plans.
All-cash
buyers cut swath through Napa housing market - (www.napavalleyregister.com) The
number of Napa homes purchased with all cash reached almost 40 percent in 2012,
the result of high investor interest, a difficult mortgage environment and
perceived higher returns on investment, a real estate information service
reported. In 2011, 354 Napa County properties were bought with all cash. In
2012 that number reached 490, San Diego-based DataQuick reported earlier this
year. That’s a 38.4 percent increase. Halfway through 2013, those involved with
the local real estate industry report that all-cash offers are still common but
aren’t always required to make a successful offer. Many buyers think “cash is
king,” but according to Randy Gularte of Heritage Sotheby’s International
Realty, that’s not always the case. He’s seen a slight decrease in all-cash
buyers over the past six months, from an estimated 35 percent to about 25
percent. When dealing with homes priced at around $800,000 and below, “I’m
seeing less cash buyers,” Gularte said.
Hedge
Funds Cut Gold Bets as Paulson’s Loss Widens: Commodities - (www.bloomberg.com) Hedge funds cut wagers on a gold rally for the first
time in three weeks on mounting speculation central banks will curb record
stimulus and as this year’s slump in bullion spurred losses for billionaire John Paulson. The funds and other large speculators lowered
their net-long position by 4.1 percent to 54,779futures and options by June 11, U.S. Commodity Futures
Trading Commission data show. Net-bullish wagers across
18 U.S.-traded commodities rose 0.1 percent. Bearish copper bets more than
doubled as the metal had its longest slump since November. Cocoa holdings
advanced to the highest since 2008 before the biggest weekly slide since
January. The Bank of
Japan left
a lending program unchanged on June 11 and refrained from expanding its toolkit
for tackling volatility in bonds. Federal Reserve policy makers meeting this
week may discuss slowing $85 billion of monthly debt purchases amid signs of a
sustained economic recovery. Gold surged 70 percent as the Fed bought $2.3
trillion of debt from December 2008 through June 2011. Paulson’s Gold Fund
tumbled 13 percent in May, extending this year’s loss to 54 percent.
The
Michigan GOP Has Just Made It Easier For Scrappers To Steal From You - (www.mfi-miami.com) Since
the Great Recession began in 2008, the Detroit metropolitan area has become a
haven for scrap metal collectors. These men and women or “scrappers” who
are usually laid-off autoworkers, drug addicts, high school
dropouts flock to Detroit’s industrial ruins and plethora of abandoned
office buildings, schools and homes and to lay claim on everything made of
metal as if it were the California Gold Rush of 1849. Things that were once considered off limits
like religious or historical items are now up for grabs. Thieves have stolen
church bells and in one case thieves even stole what they thought was a bronze
Jesus from a crucifix at the Church of the Messiah which was actually
plaster colored to look like aged bronze. Scrappers are stealing manhole
covers and exhuming coffins to steal the jewelry and the metal coffins of the
dead. The situation is so bad and competition so fierce that scrappers are now
stealing A/C units, furnaces and hot water heaters from homes in the suburbs
while people are at work. Thieves are stealing catalytic converters from
Cadillacs and the minivans driven by soccer moms in posh suburban communities
like Bloomfield Hills and Rochester.
IMF
denounces US fiscal policy - (www.ft.com) The International Monetary Fund gave a downbeat assessment of the world’s
largest economy and denounced the tightening of US fiscal policy as
“excessively rapid and ill-designed”. Summing up its annual Article 4
consultation with the US, the IMF forecast growth of just 1.9 per cent
this year, followed by 2.7 per cent in 2014. It said that overly rapid tightening of fiscal policy this year – including tax rises and $85bn
in across-the-board, sequestration cuts to public spending – will knock between
1.25 and 1.75 percentage points off growth this year. “The IMF’s advice is to
slow down but hurry up: meaning slow the fiscal adjustment this year – which
would help sustain growth and job creation – but hurry up with putting in place
a medium-term road map to restore long-run fiscal sustainability,” said
Christine Lagarde, IMF managing director. The IMF’s comments suggest that the
US could have had growth above 3 per cent this year had it kept fiscal policy
on hold, highlighting the damage done when Congress resolved the “fiscal cliff”
at the turn of the year.
Yen’s
Slump Failing to Stem Exodus of Factories From Japan - (www.bloomberg.com) Japanese
Prime Minister Shinzo Abe promises that Abenomics will revive the nation’s
industrial might. For Takumi Tanaka at auto-parts maker Uchida Co., times are
worse than after the 2011 earthquake. Tanaka, managing director of a company
founded in 1955, whose 94 employees supply Honda Motor Co. (7267) with parts molds, is contending with
higher costs after a 17 percent drop in the yen in the past nine months pushed
up the price of imported energy and metals. At the same time, he’s under
pressure from clients to build factories near their overseas plants. “We see
very little benefit” from Abenomics, Tanaka said in an interview in Miyagi
Prefecture, where two of the company’s three factories are located, close to
the center of the earthquake that caused Japan’s worst nuclear disaster. “Even today, we are
being asked to build plants in Vietnam, Thailand and Indonesia. There is little relief that manufacturing can
stay in Japan.”
Freddie
Mac: 30-year mortgage rate rises to 3.98%, 14-month high - (www.latimes.com) Are
30-year fixed-rate mortgages with interest rates beginning with a “3” soon to
become something found only in the history books? That prospect appeared more
likely Thursday, as Freddie Mac reported that the average rate that lenders were
offering for a 30-year loan this week was 3.98%. That was up from 3.91% last
week and from a record low of 3.31% in November. As recently as early May, the
typical rate was 3.35%. Not since Freddie Mac’s survey of April 5 last year,
when the rate also was 3.98%, has the reading been so high. The 30-year rate
fell below 4% for the first time in October 2011 and has remained mostly below
that landmark ever since.
In
a Shift, Interest Rates Are Rising - (www.nytimes.com) It
has been a reliable fact of life for investors, corporations and ordinary
borrowers: interest rates, for the most part, keep heading lower. But all of
that may be about to change. For prospective homeowners, the cost of mortgages
has been going up in recent weeks. Governments are also facing the prospect of
higher borrowing costs down the road, and they are projecting increases to
their debt burdens. Savers with money in bank accounts, on the other hand, have
the prospect of finally earning more than a pittance on their deposits. The
interest rate charged by lenders, often cited as the single most important
factor behind economic decisions, has been steadily going down for most of the
time since the early 1980s, and has fallen to historical lows since the
financial crisis. Over the last few months, though, investors and banks have
been demanding higher payments for their loans, pushing up interest rates and
bond yields.
Obama
Axes Bank-Harrassing Gary Gensler at CFTC, Plans to Install Lightweight
Ex-Goldmanite - (www.nakedcapitalism.com) Obama is no longer bothering to pretend that
he is anything other than a stooge for banks and other big money interests. The
president is effectively dismissing Gary Gensler, the ex-Goldman partner who
headed theCommodities Futures Trading Commission. Gensler used his post at
a secondary financial regulator to push for reforms. It was his office that
blew the Libor scandal wide open by taking referrals from British regulators
seriously (by contrast, Geithner, who heard about widespread, deliberate
mismarking in 2008, passed the buck to the Bank of England). Gensler has also
been making himself unpopular by taking the view that swap dealers, which
includes foreign branches of US banks and parties that conduct business with US
parties, must comply with Dodd Frank. As Automated Trader noted in April: “As the CFTC
completes the cross-border guidance,” Gensler said, “I believe it’s critical
that Dodd-Frank swaps reform applies to transactions entered into by branches
of US institutions offshore, between guaranteed affiliates offshore, and for
hedge funds that are incorporated offshore but operate in the US.”
Can
Bernanke Avoid a Meltdown in the Bond Market? - (www.bloomberg.com) The past few
weeks have given us a hint of what might happen when the Federal
Reservestarts to reverse its super-easy monetary
policy. Expect turbulence in financial markets, especially for assets that have
moved far above normal or reasonable valuations. A return to normality
eventually implies a benchmark 10-year Treasury yield of 4
percent or more. It won’t happen all at once, but that’s where we’re heading.
With yields at roughly 2.2 percent, there’s a long way to go. This transition
will mark a recovery of the equity culture and the cooling of investors’
protracted love affair with bonds. Because of this prospect, markets are
sensitive to the merest whiff that Fed Chairman Ben S.
Bernanke might be forced by colleagues on the Federal Open Market Committee to
reduce the scale of quantitative easing. This nervousness has affected asset
prices across the maturity spectrum, not just at the short end of the money
market as you might expect.
Greece
First-Ever Developed Market Cut to 'Emerging' - (www.bloomberg.com) Greece became the first developed nation to
be cut to emerging-market status by MSCI Inc. (MSCI) after
the local stock index plunged
83 percent since 2007. Greece failed to meet criteria regarding securities
borrowing and lending facilities, short selling and transferability, said MSCI,
whose equity indexes are tracked by investors with about $7 trillion in assets.
Qatar and the United Arab Emirates were
raised to emerging markets, while Morocco was cut
to a frontier market. New York-based MSCI kept South Korea and Taiwan as
emerging markets, and placed Chinese shares traded on local exchanges on review
for inclusion in the emerging category, according to a statement yesterday. The
ASE Index fell 1.4 percent to 882.99 at 1:49 p.m. in Athens. The gauge has
dropped 10 percent this week as Greece failed to win any bids in a sale of the
country’s gas monopoly. The unsuccessful attempt to sell Depa SA dented
Greece’s state-asset sales program, which underpins 240 billion euros ($318
billion) of bailout loans from the euro area and International Monetary Fund.
Will
lenders and investors find owner-occupant buyers when they liquidate? - (www.ochousingnews.com) The current housing market price rally is
largely being fueled by investors competing for restricted inventory. Both the
banks that are restricting the inventory and the investors who are buying it
are counting on selling these properties to owner-occupants who are willing to
pay higher prices for a place to shelter their families. Conventional wisdom is
that a resurgent economy and low mortgage rates will bring owner occupants back
to the housing market with a willingness and ability to pay higher prices. But
will it really work out that way? As proof that the current market rally is
entirely fueled by investors, the chart below shows total home sales versus
purchase applications. As you can see, purchase applications have been flat for
three years, yet home sales are up. The only way to fill the gap is with
all-cash investors.
Fed
Mortgage Stockpile Seen Cushioning Pullback - (www.bloomberg.com) The $1.2 trillion of mortgage-backed securities the
Federal Reserve has amassed to stoke economic growth is creating a potential
firewall that dealers say is shielding the bond market from a rapid decline as
policy makers debate scaling back debt purchases. The stockpile, which has made
the Fed the biggest holder of government-backed mortgage bonds, is cutting the
risk that a sudden jump in Treasury yields will lead to an even bigger surge as
investors place bearish bets to protect against housing-debt losses triggered
by rising rates, a practice known as convexity hedging, according to dealers
from Deutsche Bank AG to Barclays Plc. The Fed, which doesn’t hedge, owns about
21 percent of agency mortgage bonds, up from zero a decade ago. The share owned
by investors that typically hedge has dropped. The shift is reducing the odds
that the bond market relives 2003, when convexity hedging fueled a 1.45
percentage-point increase in 10-year (USGG10YR) Treasury yields in two
months and led to a 4.03 percent loss that July in the Bank of America U.S.
Corporate & Government Index, the biggest monthly decline in more than two
decades. That index lost 2.07 percent in May, the biggest decline since the
2008 credit crisis, as Treasury yields increased 0.45 percentage point.
