Must Read Macro & Financial News (10/28/2012)

These links were intricately selected by @dvolatility.

U.S. Fiscal Cliff and the Debt Ceiling

Lookout Report: The U.S. Fiscal Cliff Threatens Confidence, And Future S&P 500 Earnings (Standard & Poor's)

We believe the close ties between confidence, the economy, and financial markets are very real. The 15% year-to-date rise in the S&P 500 Index mostly has been in anticipation of healthier future economic and corporate earnings growth both in the U.S. and abroad. The pledge from ECB President Draghi to do "whatever it takes to preserve the euro," along with the Federal Reserve's efforts to invigorate the nascent U.S. housing market recovery as a path to lowering unemployment, have done more to push stocks higher this year than either reported second-quarter or expected third-quarter S&P 500 earnings. From this perspective, 2012 stock market performance can be seen as a leap-of-faith anticipation rally as opposed to a fundamental earnings-driven rally.

How The Fiscal Cliff Could Hit The Economy Much Harder Than People Expect (Reuters at Business Insider)

The $16 Trillion Question: The U.S. Debt Ceiling. "Investors could witness escalating market volatility as debt ceiling rhetoric builds." (Morningstar)

State and Muni Crisis

Illinois Needs Action to Dig Out of Deep Fiscal Hole (Bond Buyer)

Thirteen American Cities Going Broke: Interview with Moody's (24/7 Wall St)

Muni Downgrades Top 2011 Total on Weak Economy: Moody’s (Bloomberg News)

Rich California Towns’ Debt Imperiled by Repayment Doubt (Bloomberg News)

The decisions to seek bankruptcy “provide some indication that willingness to pay debt obligations may be eroding in the U.S. municipal market,” according to the Moody’s report.

Chapter 9 Muni Petitions Surge In 2012 (BloombergBriefs chart at Zero Hedge)


More Proof That The Worst Of The Chinese Slowdown Is Over [CHARTS via BofA] (Business Insider)

China credit ‘gambling’ via trust, bond lending. Debates aren’t slowing race to finance local government projects. (Caixin Online at Market Watch)

Some experts say if the non-bank credit system collapses, the impact on China would rival the fallout from the subprime mortgage crisis four years ago in the United States, which shattered borrowers and financiers.

China firms leave bills unpaid as economy slows; Coal mining, steel and machinery firms feeling the greatest pinch (Caixin Online at Market Watch)

Dirty money cost China $3.8 trillion 2000-2011: report (Reuters)

Billions in Hidden Riches for Family of Chinese Leader (New York Times)

Wen family hits back at 'lies' on hidden fortune (South China Morning Post)

The Dangerous Math of Chinese Island Disputes. "If history is any guide, there's a real risk Beijing will use force against Japan over the Senkakus." (WSJ)


Pressure on BOJ to act mounts as deflation persists (Reuters)

Japan's Jojima: wants bold BOJ moves to beat deflation (Reuters)

Japan's Own 'Fiscal Cliff' Threatens to Roil JGBs (WSJ)

JGB Primary Dealers Issue Warning Against Bond Bill Impasse (WSJ)

Noda Credibility Cliff Widens JGB Gap to 1999 High: Japan Credit (Bloomberg News)

Meanwhile In Japan... (Zero Hedge) *On Japan's demographics, trade deficit, sovereign interest/revenue, debt/GDP, and sovereign debt/revenue, deflation, and Bank of Japan monetization.

WHOA: Japan Has Its Own Fiscal Cliff, And People Are Actually Talking About A Risk Of Imminent Technical Default (Business Insider)

Traders stay short the yen even in the face of risk assets volatility (Sober Look)

France, Canada and Spain

S&P lowers view on French banks (Reuters)

In our view, the economic risks under which French banks operate are
increasing, leaving French banks moderately more exposed to the potential of a
more protracted recession in the eurozone (European Economic and Monetary
Union). Our view of rising economic risks for France's banking sector also
reflects the potentially limited, but still noteworthy, impact from an ongoing
correction in the housing market.

Moody's places Canadian banks on review for downgrade (Moody's)

High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable to downside risks to the Canadian economy than in the past. By the second quarter of 2012, Canadian household debt to personal disposable income reached a record 163%, up from 137% in the second quarter of 2007, reflecting growth in debt that significantly outpaced personal incomes. Growth in consumer debt has been driven by rising house prices, which have increased by 21% since August 2007 (Source: Teranet-National Bank House Price Index).

Spain’s Pain Seen Intensifying as Slump Deepens Plight (Bloomberg News)

U.S. and Canada

Generation Nixed: Why Canada’s youth are losing hope for the future (The Globe And Mail)

Multigenerational Households On Rise; Boomerang Students Return Home; What's the Impact on Housing Demand? (Mish's Global Economic Analysis)

5 Reasons the U.S. Middle Class Is Feeling Poor (Motley Fool on Pew Research)

On the Federal Reserve

Baupost's Seth Klarman on QE's Manipulation Of American's Behavior (Zero Hedge)

Jim Grant's Presentation at the CFA Institute's Fixed-Income Management 2012 Conference (CFA Institute)

David Einhorn Continues His Take Down of Fed Policy (NYT DealBook)


Elliott Associates Winning Battles Against Argentina On Land And Sea (DealBreaker)

Argentina’s stunning pari passu loss (Felix Salmon)

Running a nation into the ground (Sober Look)

On Friday, Argentina's 5-year CDS spread spiked to 1478.14 basis points (+51%). Look at the chart below via CMA. Argentina currently has a 65.83% CPD ("cumulative probability of default"), which is the second highest CPD on CMA's Highest Default Probabilities list for sovereigns. Greece is number one at 99.63%.

source: CMA

Investment Banks, Wall Street, and Hedge Fund Reinsurers

UBS, RBS Traders Suspended as Rates Probe Goes Beyond Libor (Bloomberg News)

RBC, SocGen Said to Be Among Banks Subpoenaed in Probe (Bloomberg News)

UBS Said to Plan 10,000 Job Cuts as Investment Bank Shrinks (Bloomberg News)

Hang Up the Phone, Swaps Traders (WSJ)

Taking Early Exits Off Wall Street (WSJ)

SAC Enters The Reinsurance Business Via SAC RE (Value Walk)

Bloomberg terminal growth slows to a crawl (New York Post)

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