Week in Review Part II: Street Bytes

As I alluded to above, aside from the central banks firing a bazooka (or more aptly a flamethrower) to unfreeze the Euro banks’ short-term funding issues, the stock market also benefited on Wednesday from China’s lowering of its banks’ reserve requirements for the first time in three years, which should allow for more lending to spur growth. Most were surprised by the move, but you, dear readers, were told the following just last week in this space.

“China is slowing. The central government knows this. One leading banking official…said China would nonetheless maintain its tight monetary policy over inflation fears.

“But that doesn’t mean Beijing can’t play with bank reserve requirements, which is what they are already doing with some rural banks to help small businesses.”

You can never read enough.
 
Alas, China did report its November PMI reading on manufacturing fell below the critical 50 line at 49.0, the first contraction since February 2009. When the government releases a slew of data on Dec. 9, exports are expected to have plummeted in November as well. UBS is now projecting China’s growth rate will slow to 7.7% in the first quarter, year over year. No doubt the housing sector, some 16% of the economy, is sliding.

Others in the region are suffering a similar fate. South Korea’s PMI hit 47.1 last month; Taiwan’s just 43.9; and Australia’s 47.8. India’s is still above 50 at 51, but this was down over October. India’s third quarter GDP also came in at 6.9%, a far cry from the 8% plus pace of the past few years. Lastly, Japan’s unemployment rate rose from 4.1% in September to 4.5% in October, a worrisome development for them. Panasonic and TDK have announced a collective 28,000 job cuts.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.25% 10-yr. 2.03% 30-yr. 3.02%

At one point on Friday, the 10-year Treasury traded with a yield up to 2.16%, from the prior week’s 1.96% close, but then just as the stock rally petered out on the realization all is still not hunky-dory in Europe, Treasuries rallied as the euro slipped.

--S&P cuts its ratings on 15 banks, including the long-term credit rating on the likes of Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase.

--Massachusetts Attorney-General Martha Coakley filed suit against the five biggest mortgage companies in the U.S., accusing them of massive fraud in seizing borrowers’ homes because they were not the actual holders of those mortgages, among other accusations. Coakley added the banks “had no legal right to conduct the foreclosure,” and the failure of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial to follow proper procedures “has adversely impacted titles to hundreds, if not thousands, of properties.” [Financial Times]

Coakley’s suit threatens to disrupt ongoing discussions between various state and federal agencies and the five lenders to settle other allegations, including the “robo signing” scandal.

--Manhattan Federal Judge Jed Rakoff blasted SEC chief Mary Schapiro for taking the easy way out in a regulatory action against Citigroup, after the SEC had sued Citi over its dumping $1 billion in doomed toxic mortgage product on unwitting customers, while bank executives were betting that half the assets would decline in value. Rakoff told Schapiro she’ll have to rework the agency’s $285 million settlement wherein Citi wasn’t forced to admit wrongdoing.   [Instead agreeing to the outrageous boilerplate language of ‘neither admitting nor denying guilt.’]

“As a matter of law, an allegation that is neither admitted nor denied is simply that, an allegation.”

Judge Rakoff said the two sides will have to settle their differences before a jury next summer unless they can agree on whether Citi was actually in the wrong. Most everyone agrees Citi originally got away with a slap on the wrist.

--According to an analysis by the Wall Street Journal of filings with U.S. banking regulators, some 2,500 banks cut their work forces in the third quarter by a combined 20,300 jobs, in an examination of smaller banks, a further sign of deepening retrenchment for the industry.

This is a key. “Banks that cut jobs in the third quarter outnumbered those that added jobs by 605…That was a big swing from the second quarter, when 659 more banks grew than shrank and the industry added 14,434 jobs, adjusted for mergers.” [Dan Fitzpatrick / Wall Street Journal]

--In a total non-surprise, AMR Corp., the parent of American Airlines, filed for bankruptcy protection though the flying public generally has little to worry about except for a few scrapped flights and still lousy service. American will now try to slash its massive debt load and restructure contracts, particularly with its pilots. That’s the negotiation that promises to be messy.

[What American decides to do with its pension fund is another potential mess, with liabilities currently exceeding assets by an estimated $10 billion.]

--U.S. auto sales for November were the best in a year, rising at an annualized pace of 14 million, up from 12.3 million a year ago. Chrysler led the way, up 45%, while Nissan’s rose 19%, Ford’s 13% and GM’s 7% over year ago levels. Toyota, still recovering from the March Japanese earthquake, showed its first increase for the year, up 6.7% for the month. But Honda’s declined 6.4%.

Others: BMW up 15%, Daimler’s Mercedes-Benz unit saw a 55% increase over a year ago, Volkswagen jumped 41% and Hyundai’s rose 22%.

Lastly, GM said it expects to fall short of its goal of selling 10,000 Chevy Volts in 2011, but maintains it will do so in early 2012; the Volt being under investigation over concerns its lithium-ion battery pack could pose a fire risk.

However, GM also said it would buy Volts back from any new owner who is concerned over perceived risks in order to keep customers happy. CEO Dan Akerson said that the automaker is prepared to recall all 6,000 now on the road pending the outcome of the federal inquiry.

--The trustee in the MF Global bankruptcy wrote in a briefing document distributed to Congress, “The trustee has determined that even if he could recover everything that is at U.S. depositories, there will be a shortfall in what MF Global management should have segregated at U.S. depositories,” estimating the customer shortfall at $1.2 billion.

The latest bottom line is it appears MF Global was dipping into client funds for a much longer time than first thought, weeks instead of just a few days before its failure.

In a Senate hearing, Gary Gensler, chairman of the Commodity Futures Trading Commission, was sharply criticized for recusing himself from the MF investigation because he had been a colleague of former MF CEO Jon Corzine. “Looks to me like you’re trying to avoid the heat,” said Republican Senator Mike Johanns of Nebraska.

And speaking of avoiding heat, Corzine has yet to be seen but on Friday was issued a subpoena to appear before a Dec. 8 House hearing of the Agriculture Committee, one of three now seeking Corzine’s testimony between Dec. 8 and Dec. 15.

--According to the S&P/Case-Shiller Index, the 3-year declines in housing prices for some of the major metropolitan areas they monitor are as follows:

Washington, D.C. -1.02%
New York -11.34%
Phoenix -28.31%
Las Vegas -36.13%

--According to a study out of Rutgers University, “just 7 percent of those who lost jobs after the financial crisis have returned to or exceeded their previous financial position and maintained their lifestyles.” [Motoko Rich / New York Times]

--My favorite China indicator, casino revenues in Macau, rose 32.9% in November, the slowest pace this year, or $2.9 billion, down from October’s record $3.4 billion. So it looks like we’re headed into the 20s, which I said was my own worry level.

--China’s grain output hit a record this year, 571 million tons and up 4.5% from a year earlier. China is the second-largest corn consumer and produced a record 191 million tons of that, up 8.2% year over year; a much larger than expected total. This should help ease food inflation. Imports of corn should also be expected to fall.

--Since the start of Ireland’s recession in 2008, it is estimated almost 47,000 businesses have gone under; hardest hit being construction and real estate.
As a result of the above, the collapsing housing market, etc., 75,000 are expected to emigrate from Ireland next year, according to the Economic and Social Research Institute, which is on top of 35,000 leaving in 2011. Unemployment is still expected to average 14.5% in 2012.

--According to an annual report from Transparency International, focusing on the role of corruption, New Zealand has the world’s cleanest government, followed by Finland and Denmark. Others in the top ten are Sweden, Singapore, Norway, the Netherlands, Australia, Switzerland and Canada.

As for the United States, we are ranked No. 24. “We’re 24! We’re 24!” Behind Qatar and Chile, and one ahead of France. Britain is No. 16. Germany and Japan are tied at 14. China is No. 75.

Meanwhile, at the bottom are Myanmar and Afghanistan, tied for 180, and the last two are Somalia and North Korea. Iraq is No. 175.

--According to a survey of Wall Street pay by the major firms, compensation is expected to drop 27% to 30% this year to the lowest level since the 2008 financial crisis. So the average American’s reaction might be, ‘Good.’ But if you’re a New York City worker you better be smart enough to think, ‘Uh oh,’ because this means much lower tax revenues for Gotham, sports fans.

--Facebook is looking at the second quarter for its IPO, at least that is the word this week, and the company is being given a valuation of $100 billion, or over 40 times possible 2012 earnings, which may seem a bit outrageous but, hey, the company is indeed growing rapidly. And compared to Amazon, whose P/E is back over 100, Facebook would be cheap.

--Broadway ticket receipts were up a whopping 32% during Thanksgiving week over a year ago, with attendance up 5.5%. Wicked remains the top grosser, with The Lion King second.

--Editorial / Wall Street Journal…on the pending retirement of Massachusetts Democratic Congressman Barney Frank:

“Few House Members have made a bigger legislative mark, and arguably no one so expensively. Mr. Frank deserves to be forever remembered – and we’ll help everyone remember him – as the nation’s leading protector of Fannie Mae and Freddie Mac before their fall. For years Barney helped block meaningful reform of the mortgage giants while pushing an ‘affordable housing’ agenda that helped to enlarge the subprime mortgage industry.

“ ‘I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision],’ Mr. Frank said on September 25, 2003, in one of his many legendary rhetorical hits. ‘I want to roll the dice a little bit more in this situation towards subsidized housing.’ The dice came up snake-eyes for the housing market and U.S. economy.”

Editorial / New York Post

“Just before the nation’s financial collapse, (Frank) boasted that Fannie and Freddie were ‘fundamentally sound financially.’

“Well, both survived, but only after being taken over by Washington and given billions in federal bailouts, a move called ‘one of the most sweeping government interventions in private financial markets in decades.’ The rest is a sad history – for which Americans are still paying the price.”