JC Flowers Fund Reportedly Loses $47.8 Million On MF Global Stake
by Insider Scoop - October 31st, 2011 3:49 pm
Courtesy of Benzinga.
According to Bloomberg sources, JC Flowers & Co. has lost $47.8 million on its stake in MF Global (NYSE: MF). The firm filed for Chapter 11 bankruptcy today after being toppled by wrong-way bets on European sovereign debt. Acquisition talks between MF and Interactive Brokers Group (NASDAQ: IBKR) reportedly broke down early this morning, leading to the bankruptcy filing.
MF Global was in the crosshairs of the market last week after reporting a massive quarterly loss and experiencing a "run on the bank" situation. The futures brokerage is led by former Goldman Sachs (NYSE: GS) CEO and former New Jersey governor Jon Corzine.
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DiggQE3? Investors (and Fed) addicted to liquidity
by ilene - October 31st, 2011 3:46 pm
By Paul R. La Monica @CNNMoney
With long-term bond rates as low as they are, is there really a need for the Fed to try QE3 to push them down further?
NEW YORK (CNNMoney) — The best you can say about "The Godfather: Part III" is that Sofia Coppola recognized her limitations and now spends more time behind the camera than in front of it. "Superman III" proved that Richard Pryor was no Gene Hackman.
And "Return of the Jedi?" I defer to Dante from "Clerks." All that had was a "bunch of Muppets."
The third time is rarely the charm in Hollywood. But don’t tell that to investors and central bankers who are loudly calling on the Federal Reserve for a third round of bond buying to help stimulate the economy.
Fed vice chair Janet Yellen, Fed governor Daniel Tarullo and NY Fed president William Dudley have all hinted in speeches recently that another so-called quantitative easing program, or QE3, could be possible.
Why? The Fed has already pumped trillions of dollars into the economy with the first two renditions of QE. It has left its key interest rate near zero since December 2008 and has pledged to keep rates low until the middle of 2013.
More here: QE3? Investors (and Fed) addicted to liquidity — The Buzz – Oct. 26, 2011.
EURUSD Retraces Entire ‘Bailout’ In 3 Days
by Zero Hedge - October 31st, 2011 3:31 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Joining US TSYs, BTPs, and SPGs, the EUR has now retraced the entire post-summit rally in a mere 3 days, and is down 300 pips today alone. It also seems the actions in Greece are starting to get reactions in US financials and broad risk assets. We also note that EURJPY has retraced over 75% of the intervention in 18 hours…perhaps Azumi will let the market be now?
Chart: Bloomberg
Bill Ackman Long Calls on Canadian Pacific Railway
by Insider Scoop - October 31st, 2011 3:15 pm
Courtesy of Benzinga.
Shares of Canadian Pacific Railway (NYSE: CP) are trading lower on the session by 2.80%, at $62.76. This comes after Bill Ackman, hedge manager at Pershing Square Capital, reported a 12.2% stake in the railway with the Securities and Exchange Commission.
Mr. Ackman has control over 20.6 million shares in the name through long call options. Pershing didn’t indicate whether it has any immediate plans to propose to the railroad operator, though you can be sure he will be speaking with management soon.
Several houses have commented on the filing today. S&P indicated that there was not enough information to be clear what Ackman is trying to do and, thus, they left ratings unchanged. Scotia on the other hand downgraded Canadian Pacific Railway to Sector Perform this morning, noting that any turnaround will occur over the long-term. Over the near-term Scottia’s fundamental 1-year target remains C$64.50.
Canadian Pacific Railway Limited has 14,800-mile network extends from the Port Metro Vancouver on Canada’s Pacific Coast to the Port of Montreal in eastern Canada, and to the United industrial centers of Chicago; Detroit, Michigan; Newark, New Jersey; Philadelphia; New York City and Buffalo, New York; Kansas City, Missouri, and Minneapolis, Minnesota.
Three Out Of Four: Spain Joins Ireland, Portugal With A Gun To Its Head, Demanding Concessions
by Zero Hedge - October 31st, 2011 3:10 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Previously we noted that, just as expected, the weakest PIIGS – Portugal and Ireland - wasted no time to start rumblings about a “suddenly slowing economy” in the aftermath of the Greek bail out which achieved nothing but to delay contagion by 48 hours (we won’t bother readers with the blow out in Italian bond yields any more), and to unleash demands by everyone else to get the same concessions, in essence pushing Europe into an even deeper hole, forcing Golum Van Rompuystiltskin to say he was only kidding about the 4-5x EFSF leverage: he really meant 45x. Confirming that the tsunami of demands has been unleashed is today’s announcement from the Bank of Spain that not only was Q3 GDP flat (read: negative), but that the deficit target for the year would not be achieved. Google translated from Expansion: “The Bank of Spain says the Spanish economic growth was zero in the third quarter from the previous quarter and warns that there are significant risks that may prevent achieving the deficit target this year. The Bank of Spain said that the information available for the third quarter suggests that the pattern of decline shown in the previous quarter “would have continued in the middle months of the year, in an environment marked by the deepening crisis of sovereign debt euro area.” Truly nobody could have seen this coming, yet it is odd how it was casually slipped in broader discussion three short days after the Greek bailout.
The Bank of Spain admitted that absent for that mysterious exporting force (somehow everyone in the world is exporting to someone: just who is importing?) the country would be in a recession:
The report said domestic demand would have experienced a further decline in the third quarter (with a GDP contribution of -0.8 percentage points from April to June period), reflecting the contraction of the components of public spending and the path still down in residential investment, while household consumption and business investment showed little progress.
Instead, “net exports remained a mainstay of the economy and increased its contribution to GDP growth (up 0.8 percentage points) due to the dynamism of exports of goods and tourism.
Yet what is more troubling for the country…
Call Volume Picks Up Ahead Of MetroPCS Earnings Report
by Option Review - October 31st, 2011 3:01 pm
Today’s tickers: PCS, BID, BBBY & CVC
PCS - MetroPCS Communications, Inc. – Shares in the wireless provider are down 4.25% at $8.56 ahead of the company’s pre-market third-quarter earnings release on Tuesday. Options players populating the front month calls and puts appear to be taking largely bullish stances on the stock. Investors positioning for shares to move higher in the next few weeks picked up more than 2,600 in-the-money calls at the Nov. $8.0 strike for an average premium of $1.05 a-pop. Call buyers at this strike profit at expiration in the event that shares in MetroPCS rally 5.7% to surpass the average breakeven point at $9.05. Options players also snapped up more than 300 call options at each of the higher Nov. $9.0 and $10 strike prices at average premiums of $0.49 and $0.19 each, respectively. Finally, the sale of some 1,100 puts at the Nov. $8.0 strike for an average premium of $0.40 per contract may mean traders see shares in the name trading above $8.00 come expiration day next month. Put open interest at the Nov. $8.0 strike is sufficient to cover volume in play thus far in the session. As such, traders may be adjusting existing positions rather than selling-to-open bullish stances on PCS. Options implied volatility on the stock is up 15.9% at 77.25% in early-afternoon trade. Nearly 9,000 option contracts have changed hands on MetroPCS so far today, with trading in calls outpacing that of puts by a factor of roughly two-to-one.
BID - Sotheby’s Holdings Inc. – The auctioneer of authenticated fine art, antiques, jewelry and collectibles popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a sizable ratio put spread in the January 2012 contract. BID’s shares are currently down 3.2% at $36.26 as of 11:50 am in New York. The put player responsible for just about all of the activity in Sotheby’s options today may be bracing for limited bearish movement in the price of the underlying heading into the company’s third-quarter earnings report after the close on Thursday. The investor appears to have purchased 2,000 puts at the Jan. 2012 $35 strike for an average premium of $3.325 each, and sold 4,000 puts at the lower Jan. 2012 $30 strike at a premium of $1.50 apiece. Net premium paid to initiate the spread amounts to $0.325 per contract. The strategist profits if BID’s shares slide 4.4%…
Crunch time?
by ilene - October 31st, 2011 2:49 pm
Courtesy of Bruce Krasting
Possibly the most significant consequence of the EU bailouts last week will be that the “solutions” to the problems in Europe will result in a global credit crunch. To me this outcome is a foregone conclusion. It’s already happening.
The agreements give the EU banks till June 2012 to recapitalize. There are only two possible outcomes. (A) Either the banks sell more common and preferred shares to the public, or (B) they improve their capital ratios by de-leveraging.
It’s simply not possible to sell more shares. The costs (in the form of dilution or 10+% Preferred dividends) make this option a dead end. So the banks will have to get smaller.
Some data points on this from Thompson Reuters Loan Pricing Report today:
The syndicated loan market is not falling apart. At least not yet. Other big lenders have stepped into the hole left by the EU banks. Spreads have widened a bit, they will get wider still. The question is whether credit will dry up in the months ahead. I think it will.
I’m convinced that zero interest rates are adding to the problem of liquidity in the US (and therefore globally). Every month money funds get smaller. More and more money is being…
”Real” Disposable Income Per Capita Since 2000
by Chart School - October 31st, 2011 2:35 pm
Courtesy of Doug Short.
Shortly after the Bureau of Economic Analysis (BEA) posted the monthly Personal Consumption Expenditures (PCE) data, I posted my monthly update of the year-over-year change in the price index since 2000. My focus was on PCE data as a measure of inflation.
Now let’s look at the PCE data to understand what the latest numbers are telling us about a key driver of the U.S. economy: "Real" Disposable Income Per Capita.
The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000.
The BEA use the average dollar value in 2005 for inflation adjustment. But the 2005 peg is arbitrary and unintuitive. For a more natural comparison, let’s compare the nominal and real growth in per capita disposable income since 2000. Do you recall what you we’re doing on New Year’s Eve at the turn of the millennium? Nominal disposable income is up 46.4% since then. But the real purchasing power of those dollars is up a mere 13.5%.
In fact, real disposable personal income is at a level first attained in October 2006 and remains about 1.5% below the level at the beginning the 2007-2009 recession. Real DPI is just shy of flat for the past 12 months, down 0.5%.
The mainstream media focuses on nominal disposable income with little or no attention to population or inflation adjustment. The “real” story in the latest PCE data is one of continued economic weakness.
Note: My BEA data source is the National Income and Product Accounts (NIPA) Tables. Table 2.6 (Personal Income and Its Disposition, Monthly) is available here. A couple of hours after the BEA announcement, the St. Louis Federal Reserve posts the data in FRED (Federal Reserve Economic Data) with separate tables for the nominal and real per capita data: DPI Nominal and DPI in chained 2005 dollars.
Graham Summers’ Weekly Market Forecast (Wake Up Call Edition)
by Zero Hedge - October 31st, 2011 2:27 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Phoenix Capital Research.
So the financial world has collectively woken up and realized that the latest EU bailout scheme is fraught with problems and loose ends. Amongst the various problems are:
1) The Greek private bondholders are furious that the ECB isn’t taking a haircut on its bonds too.
2) German courts and voters aren’t too pleased with Merkel’s decision to go “all in” on the Euro experiment.
3) The Greek default isn’t nearly large enough to render Greece solvent again
4) The default has set a precedent for the other PIIGS countries to follow
5) The CDS/ derivative issue regarding Greece’s default is not over by any stretch
6) The entire EU banking system remains far too leveraged (26 to 1) and needs another $1.5+ trillion in capital at the minimum.
The markets flew into this deal based on rumors and short-covering and are now waking up to the plain obvious facts that you cannot solve a debt problem with more debt. Also, it might be worth considering just where the EFSF bailout money will be coming from when various EU members can’t even stage successful bond auctions without the ECB stepping in.
Again, the primary issue for the EU is a lack of capital. There is TOO MUCH debt there. And issuing more debt, no matter how cheap, is not going to help. Especially when your strongest member (Germany) sports a REAL debt to GDP above 200% and hasn’t recapitalized its banks.
So the EU will be crumbling in the coming weeks. This was the final hurrah for the EU and the Euro in its current form. On that note, the Euro was rejected at resistance at 142 and has already taken out support at 140.
Once we take out 139, look for this breakdown to pick up steam (pulling stocks with it).
Indeed, the financial world is talking about how this was the biggest move in stocks since 1974. Unfortunately, few remember that after that move in 1974, the markets cratered.
Some thoughts on stocks… isn’t it a little strange that the market fell exactly 20% (the “official” bear market level) before kicking off the biggest ramp job in…
Europe to Recapitalize Banks Without Raising any Capital; Berlusconi Defiant as Focus Shifts to Italy; Sarkozy Under Fire for Seeking China’s Help
by ilene - October 31st, 2011 2:12 pm
Courtesy of Mish
Italy’s Prime Minister Silvio Berlusconi denies entering an agreement for early elections and arrogantly insists he is the only one who can possibly save Italy from itself.
Berlusconi ruled out early elections and said the current legislature in Rome will last until 2013, according to an interview published yesterday in Corriere della Sera.
“Only I and my government can achieve this reform program for 18 months, which is why there is no way for me to stand aside,” the Italian leader told the newspaper.
Sarkozy Under Fire for Seeking China’s Help
Please consider Sarkozy Criticized for Seeking China’s Help
French President Nicolas Sarkozy came under fire from opposition leaders for seeking China’s help to resolve the euro area’s debt crisis.
“It’s shocking,” Martine Aubry, the general secretary of the Socialist Party, said in the Sunday newspaper, Journal du Dimanche. “The Europeans, by turning to the Chinese, are showing their weakness. How will Europe be able to ask China to stop undervaluing its currency or to accept reciprocal commercial accords?”
Sarkozy reached out last week to his Chinese counterpart Hu Jintao to build support for an enlarged rescue fund designed to solve the region’s sovereign-debt crisis. The leaders talked just hours after a euro-region summit on Oct. 27 ended with an agreement to boost the European Financial Stability Facility to about 1 trillion euros ($1.4 trillion), leveraging existing guarantees by as much as five times.
Financial Suicide
Aubry asks "How will Europe be able to ask China to stop undervaluing its currency?" That’s a good question for Sarkozy but a far better one for Klaus Regling, head of the European Financial Stability Facility who says "Bailout Fund Could One Day Issue Bonds in Yuan".
Then again, there is a fundamental question as to whether the Yuan is really undervalued in the first place. However, issuing bonds in Yuan would be financial…
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