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NYSE Margin Debt Hits Record $451 Billion;
Watch Out If Rate Drops
- (www.forbes.com) Margin debt hit a record $451 billion on the New York Stock Exchange in
January,
as investors borrowed more money than ever to buy into the
post-financial-crisis bull market. And that’s a good thing, for now. But
rapidly rising margin debt can also signal a market top, especially if the rate
of borrowing starts to drop below its 12-month average. That was a strong
signal to get out of the stock market in late 1999 and 2007 — if 0nly investors
had been able to see the data in real time. The NYSE margin statistics are
released after a six-week delay. “You can’t use this for timing, but you can
use it to be prepared for trouble,” says Ricardo Ronco, head of technical
analysis at Aviate Global in London who shared the charts here with
me. The net level of margin debt “gives you an important color on the mentality
of the market,” he told me.
Copper
Posts Biggest Decline Since 2011 on China Demand Concern - (www.bloomberg.com)
Copper futures in New York capped the biggest
loss in more than two years asChina’s first onshore default stoked concern that
rising debt will curb demand in the Asian nation, the world’s largest consumer.
After Shanghai Chaori Solar Energy Science & Technology Co. failed to pay
full interest on its bonds, more defaults may follow, including by makers of
nonferrous metals, said Qiu Xinhong, a bond-fund manager in Guangzhou at Golden
Eagle Asset Management Co. Copper stockpiles monitored by the Shanghai Futures
Exchange have climbed for eight straight weeks, the longest streak in two
years, adding to signs of slowing use. Prices have lost 9.2 percent this year,
the most among 34 commodities tracked by Bloomberg, as signs of faltering
growth in China boosted the outlook for a surplus. Global production will
outpace demand by 81,000 metric tons in 2014, after a deficit of 175,000 tons
last year, Barclays Plc said Feb. 12. Shares of Freeport-McMoRan Copper & Gold Inc. (FCX), the biggest publicly traded producer, fell as
much as 4.8 percent today.
Chile
Peso Falls Most in World as Default in China Sinks Copper - (www.bloomberg.com) Chile’s
peso dropped the most in the world as the price of copper, the Andean nation’s
biggest export, plunged on news of China’s first onshore bond default. The peso
depreciated 1.3 percent to 566.07 per U.S. dollar at the close in Santiago, the weakest
level since June 2009. The decline was the biggest among all of the global
currencies tracked by Bloomberg. The peso was down for a third straight week,
declining 1.3 percent. Copper was on course for its biggest daily loss since
December 2011, falling 4.1 percent. The currency declined even after the
government reported that consumer prices increased more than economists forecast
in February, undermining speculation that the central bank will cut borrowing
costs on March 13. Shanghai Chaori Solar Energy Science & Technology Co.
failed to pay full interest on its bonds, raising concern that more defaults
may follow in the $2 trillion market for Chinese and Hong Kong corporate debt.
IMF
Said to Demand Greater Say on Greek Banks in ECB Wrangle - (www.bloomberg.com) The International Monetary Fund wants a greater say in the fate of Greek
banks because it’s worried that the European Central Bank is being too lenient on them, three
people with knowledge of the matter said. The IMF views an analysis of the
country’s banks run in 2013 by BlackRock Inc. (BLK) as being too optimistic, said the people,
who declined to be identified as the talks are private. The fund is concerned
that the ECB, which will conduct its own stress test later this year, hasn’t pushed the Greek
central bank hard enough to revise BlackRock’s findings, the people said. Those
results will be published today. The IMF is refusing to give ground as it seeks
to preserve its role in Greek banking policy just as the ECB prepares to take
control of overseeing euro-area lenders. Annointing the central bank in Frankfurt as the sole supervisor was supposed to
eradicate the turf wars that sometimes blighted attempts to police banks on a
national level in the run up to the region’s debt crisis.
Russia
Invokes $2 Billion Ukraine Gas Debt Amid Crimea Crisis - (www.bloomberg.com) Russia said Ukraine’s natural gas debt climbed
to almost $2 billion and signaled supplies may be cut, ratcheting up pressure
on its neighbor as they scrap over the future of the Black Sea Crimea region. Ukraine
hasn’t made its February fuel payment and owes Russia $1.89 billion, according
to gas export monopoly OAO Gazprom (OGZD), which halted supplies to Ukraine five years
ago amid a pricing and debt dispute, curbing flows to Europe. Lawmakers in
Moscow said they’d accept the results of a March 16 referendum on Crimea
joining Russia as Arseniy Yatsenyuk, Ukraine’s premier, reiterated that his
cabinet deems the vote illegal.
Moody's downgrades Chicago amid pension crisis - (money.cnn.com) Moody's
Investors Service rating agency downgraded Chicago's creditworthiness Tuesday,
citing the city's "massive and growing" pension hole. After years of
avoiding the issue, the city of Chicago is facing a massive spike in its annual bill for the pensions it
promised current and retired workers. Next year, the city's required
contribution will more than double to $1.07 billion. Moody's said the pension
crisis threatens "the city's fiscal solvency," without major tax
hikes or budget cuts. Chicago is home to one of the most troubled pension
systems in the country. In total, the city's four pension funds -- for
firefighters, police officers, and two for other city workers -- face funding
holes of nearly $20 billion. Tuesday's downgrades affect $8.3 billion in city
debt, including $7.8 billion in general obligation bonds and $556 million in
sales tax bonds. It follows previous downgrades by Moody's and other ratings
agencies.
Italy in economic trouble, France to miss
deficit targets -(www.reuters.com) The
European Commission put Italy on
Wednesday on its watch list because of the country's very high public debt and
weak competitiveness and warned France that
will miss agreed budget deficit reduction targets unless it takes action. The
Commission, the European Union's executive arm, conducted in-depth reviews of
the economies of 17 EU countries that it believes have macro-economic
imbalances. Under EU rules, if such imbalances are considered excessive, a
country has to take action under the European Commission's surveillance to
address them or risk a fine. The Commission said that Belgium, Bulgaria, Germany, Ireland, Spain, France,
Croatia,Italy,
Hungary, the Netherlands, Slovenia, Finland, Sweden, and the United Kingdom all
had imbalances in their economies.
A
Struggling RadioShack Will Close 20% of Its Stores - (www.nytimes.com) RadioShack
said on Tuesday that it would close about 1,100 of its stores in the United
States, as losses piled up during a dismal holiday shopping season. The
electronics chain has struggled for many years to keep up with rapidly changing
consumer tastes and cope with stiff competition from big-box electronics stores
and online retailers. A year ago, RadioShack hired Joseph C. Magnacca from
Walgreen as chief executive to help turn things around, but a shift in fortunes
has been elusive and its financial results have been deteriorating. The company reported a loss of $191.4 million for the fourth quarter
of 2013, compared with a loss of $63.3 million a year earlier. The results were
worse than analysts had expected, according to a survey by Thomson Reuters. For
the year, RadioShack reported a loss of $400 million, compared with a loss of
$139 million in 2012.
Beijing
Signals New Worry on Growth - (online.wsj.com) China's
leaders kept the growth target for their giant economy unchanged but signaled
that they are more concerned than ever about reaching it, giving themselves the
option of letting credit flow freely to keep from falling short. The suggestion
of more lending to buoy growth—despite repeated recent efforts to rein in
debt—is the latest sign of government unease that a slipping economy could
trigger higher unemployment and corporate failures, aggravating already high
social tensions. For years, China kept a growth target of about 7.5% but
actually grew far faster; in the last two years the economy has barely cleared
that figure, and many economists have said it would have a tougher time meeting
the goal this year as its economy matures and global demand for its exports
comes under pressure. That is a troubling trend for the rest of the world,
which has increasingly depended on China to fuel the global economy.
China
Bear Stearns Moment Seen by BofA in Solar Default Risk - (www.bloomberg.com) The
growing risk of default byShanghai Chaori Solar Energy Science &
Technology Co. may become China’s “Bear Stearns moment,” prompting investors
to reassess credit risks as they did after the U.S. lender was rescued in 2008,
according to Bank of America Corp. “We doubt that the financial system in China
will experience a liquidity crunch immediately because of this default but we
think the chain
reaction will
probably start,” Hong Kong-based strategists David Cui, Tracy Tian and
Katherine Tai wrote in a note yesterday. During the U.S. financial crisis, it
took a year “to reach the Lehman stage” when investors began to panic and
shadow banking froze, the strategists added.
Get ready for the Dow at 6,000 by 2016: Pro - (www.cnbc.com) The
stock market is in a bubble that is setting up for a major crash, with the Dow Jones
industrial average likely
to hit the 17,000 level within the next few weeks before plummeting to around
6,000 by 2016, author and market observer Harry S. Dent Jr. told CNBC on
Monday. "I think we see another correction, crash, that is larger than the
last one," said Dent, author of The Demographic Cliff, during an
interview on "Closing Bell." "I think this will be the most
dangerous period in people's lives in investing." The fundamental
problem plaguing global economies is a shift in demographics, Dent said. An
aging work force will soon retire, outnumbering younger workers, thereby
draining government entitlements, he said. Despite government stimulus, younger
workers tend to spend less, too, Dent continued. "Generations spend and
then they don't," Dent said. "Governments are fighting that with
massive stimulus, and it shows why the economy is so weak with so much
stimulus. Demographics is the only way you can explain that."
S&P's
rise underpinned by borrowed money - (www.ft.com) US
stocks are being propelled to fresh highs by investors borrowing a record
amount of money in a high stakes gamble that is raising concerns over the
potential for a sharp correction in the five-year bull run. With the S&P
500 registering a fresh closing peak of 1,859.45 last week, margin debt –
money borrowed to buy stocks – hit a record level in January, according to data
from the New York Stock Exchange. Peaks in the use of borrowed money have in
the past been a precursor to big bear markets and viewed as a warning sign. Though margin debt has been hitting record
highs in recent months, it now stands at $451bn on the NYSE, a rise of more
than 20 per cent over the past year and above 2007’s peak of $381bn. Five years
ago it hit a low of $173bn. In past market peaks, excessive levels of margin
debt exacerbated the subsequent slide in stocks, as investors were forced to
quickly sell their holdings as prices fell, sparking a nasty downward spiral.
Russian
assets plummet on Putin's threat to invade Ukraine - (www.reuters.com) Russian
stocks and bonds plummeted on Monday and the central bank hiked interest rates,
burning its way through as much as $12 billion of its reserves to prop up the
rouble as markets took fright at the escalating tension with neighboring
Ukraine. Investors were ditching all Russian assets alike - the rouble, stocks
and bonds. The market capitalization of the Russian rouble-denominated MICEX
stock index fell some $60 billion since Friday, more than the $51 billion
Russia spent on the Winter Olympics in Sochi last month. The Ukrainian hryvnia
has firmed since curbs were imposed on deposit withdrawals last week, but
Ukrainian eurobonds fell sharply. Russia's central bank unexpectedly raised its
key lending rate - the one-week repurchasing agreement - to 7 percent from 5.5
percent, in an attempt to stem capital flight. The central bank did not mention
Ukraine in its statement, but said the decision to raise rates was aimed at
preventing "risks to inflation and financial stability associated with the
recently increased level of volatility in the financial markets".
Hotel
hermit got $17M to make way for 15 Central Park West - (www.nypost.com) In
2004, developers Will and Arthur Zeckendorf bought the famed Mayflower Hotel
and several adjacent lots on the Upper West Side for just over $400 million,
with the goal of creating the city’s most exclusive residential building — 15
Central Park West. Only one thing stood in their way: A 73-year-old recluse
named Herb Sukenik, who refused to move from the hotel. In this excerpt from
his new book, “House of Outrageous Fortune” (Altria Books), author Michael Gross
reveals the most expensive eviction in New York City history. After
buying the Mayflower Hotel, the Zeckendorf brothers were legally responsible
for buying out and even relocating those living in rent-controlled apartments
in the top floors — residents whose leases prevented them from being evicted. They
turned to Michael Grabow, a relocation lawyer, “to get the last four bachelors
out,” he says. “They’d been there 30 to 35 years each, in tiny little rooms.” One
was 98 and had relatives in Mexico. “After 35 years, he checks out with a
single suitcase,” Will Zeckendorf says. “Plus a million-dollar check,” Arthur
Zeckendorf adds, laughing grimly.
TOP STORIES:
States Make
End Run Around Food Stamp Cuts - (www.cnbc.com)
Connecticut and New York have
found a way around federal budget cuts that played a central role in the
massive farm bill passed this month: bump up home heating assistance a few
million bucks in return for preserving more than a half-billion dollars in food
stamp benefits. The moves by Connecticut Gov. Dannel P. Malloy and New York
Gov. Andrew Cuomo -- with the possibility that more governors could follow --
cheer social service advocates who say the deep recession and weak economic
recovery have pounded low-income workers and the unemployed who rely on heating
assistance and food stamps. The $100 billion per year farm bill cut $800
million annually in the food stamp program by ending some state practices that
give recipients minimal heating assistance -- as low as $1 per person -- to
trigger higher food stamp benefits. Compromise legislation requires states to
give recipients at least $20 in heating assistance before a higher food stamp
benefit could kick in.
Detroit reaches new swaps
settlement with banks - (www.cnbc.com)
Hoping the third time's the
charm, the bankrupt city of Detroit says it has reached a tentative, $85
million deal to settle so-called "swaps" contracts with UBS AG and
Bank of America Merrill Lynch, after previous agreements were deemed too
expensive. The $1.45 billion contracts, which had allowed the city to sidestep
borrowing restrictions to shore up its pension plans, have been a key sticking
point in the bankruptcy. The announcement was made by city Emergency Manager
Kevyn Orr, who said the proposed agreement will be filed in court "in the
coming days." "We appreciate the banks' willingness to work with us
to reach a solution that we think balances our goal to provide realistic
recoveries to creditors while freeing up critical funds that we can invest to
improve the quality of life in Detroit," Orr said in a statement Monday. The
proposed settlement is half of what the city had proposed to pay the banks as
recently as January. But U.S. Bankruptcy Judge Steven Rhodes rejected the $165
million settlement as too costly, saying the swaps contracts could be
challenged in court as illegal, allowing the city to pay nothing at all. Under
the original terms of the swaps, the city would have been forced to pay $286
million, so Orr is portraying the latest agreement as a savings to Detroit's
taxpayers of approximately $201 million.
Expect A Historic Stock Market Collapse & Global Chaos
- (www.kingworldnews.com) The
simple truth is the Fed’s taper of asset purchases is going to lead to a
collapse of stock and real estate values in the United States. And this
will cause major turmoil in currencies, equities and interest rates across the
globe. International equity markets, commodity prices, credit spreads and bond
yields are all clearly telling investors that global economic growth is anemic
and contracting. Therefore, investors need to decide who they want to put
their faith in; the promises from governments that have massively manipulated
economies worldwide, or whatever is still left of the free-market. Putting new
money to work into stocks when the S&P 500 is near a record high
(predominately through the use of a record amount of margin debt) is a
dangerous game. This is especially true in light of the fact that
earnings growth is built upon near-zero revenue growth and market cap growth is
woefully unsupported by GDP growth.
TARP
Funds Demolish Homes in Detroit to Lift Prices: Mortgages - (www.bloomberg.com) In Flint, once a thriving auto-industry hub,
excavators with long metal arms and shovels have begun tearing down 1,500
dilapidated homes in an attempt to lift the housing market. The demolitions in
this Michigan city of about 100,000 people
are part of the stepped up efforts by officials in several Midwestern states to
rid their blighted neighborhoods of decayed housing that’s depressing prices.
The funding for the excavator work comes from a surprising source -- the
Hardest Hit Fund of the Troubled Asset Relief Program, or TARP, created in 2008
to stabilize to the financial system. The $7.6 billion Hardest Hit Fund was
intended to help troubled property owners avoid foreclosure and keep their
homes. As foreclosures fall
in most parts of the country, the fund is using the unspent $3.2 billion to
remedy the crisis ofabandoned homes.
In Detroit alone, 70,000 dwellings, or about 19 percent of the total, may need
to be torn down, according to the city.
Wall
Street Hates JPMorgan Fee for $1 Trillion Junk Loans - (www.bloomberg.com) On Wall Street, $3,500 goes further than anyone
dared imagine in the 1980s when the predecessor to JPMorgan Chase & Co.
charged the fee to trade each non-investment grade loan it sold. That surcharge
remains the same today and helps the biggest U.S. bank dominate the secretive
$1.1 trillion junk-loan market while stifling profits for investors and rivals,
which mostly stopped charging it years ago. The New York-based bank waives it for exclusive
customers: trade with JPMorgan, no fee; trade one of its loans with anyone
else, pay up. JPMorgan can dictate terms because of itssize, according to 12 people with knowledge
of the matter who are concerned they’d jeopardize their business if their
identities were revealed. The bank brings more corporate debt to market than
anyone, and competitors and investors say they might be shut out of future
deals if they don’t play by JPMorgan’s rules.
