Diary of a Financier

Top Newsstuffs (February 18-24)

In Bookshelf on Sun 24 Feb 2013 at 05:22

Italian Elections this weekend: a convicted child rapist vs. a comedian vs. a politician; which is the lesser evil?…

A catalyst for a Chinese crash | Asia Confidential
After ploughing $640B stimulus into infrastructure & real estate (as debt) to stave off 2009-10 recession, China repeated the folly in 9/2012 with $160B infrastructure spending from central government & $2.1T from localities.
The difference with the latest package is that non-banks have provided much of the debt, hence the shadow banking system has grown to 44% of GDP. Foreign reserves have stopped growing, so were PBOC to maintain its USDCNY peg by selling RMB, it’d be deflationary, which means exports will decline henceforth (along with the FX warchest).
The debt accumulation has been too big, too fast, making a steady transition to consumption & services impossible.

Rail traffic weekly: Positive trend continues | Association of American Railroads (AAR)
Carloads -5% and Intermodal +6.8(cumulative ytd volume y/y); -1.2% and +13.6 respectively (vs. this week last year).
3 of 10 carload groups posted gains: Petroleum products +56.1% & minerals +12.1; grain -14.3.
[Note that crude oil shipments were +256% in 2012 y/y, but oil is only ~0.8% of traffic vs coal ~40% (and falling).]

Bank of America woefully under-reserved if mortgage putback settlement appeal is upheld | Manal Mehta
In a lawsuit against BAC over losses on private label mortgages, Bank of NY Mellon (BK) agreed to settle for only $8.5B, due to a valuation report from an “independent” third party, Brian Lin (RRMS Advisors), who valued total losses at a mere $76.8B. Institutional investors calculated $32.3B suitable settlement from $108B in losses. Btw, Mr. Lin is a former BoAML employee.
An AG representing FHLBs & minorities (AIG) from the class action (ex-BNYM) has appealed the settlement; if the judge upholds the appeal, BAC only has $8.6B reserve provisions for this settlement.

China to suppress housing, steel smacked | MacroBusiness
After January report showed housing rose the most in 2 years (+1% m/m), Premier Wen Jiabao will expand China’s pilot property tax regime, and he told fastest growing cities to impose “home purchase restrictions,” including annual price control targets that keep new home costs “basically stable.”
[Iron ore, steel, rebar & Shanghai (-2.97%) all got crushed.]

FOMC January minutes: Hawkish rumblings getting louder | Zero Hedge
Greater dissent among policymakers regarding QE: many participants said easing may prompt excessive risk taking, Fed should prepare to vary pace of asset purchases; persistent divergence between potential & actual GDP may damage LT potential output due to structural consequences of underinvestment & unemployment (dislocation of Okun’s Law).
[Market reaction: SPY -1.25%, EURUSD -0.80%, DXY +0.73%, TNX @ 2.021 (after two schizophrenic rallies up to 2.04 & down to 2.01), WTI -2.22%, GC -2.51%.]

Quantifying downside economic effects of full sequestration | Macroeconomic Advisors
Automatic spending cuts (sequestration) kick in March 1 if Congress can’t agree on a deal. Worst case: -700k jobs lost (raise unemployment +0.25pp to 7.4%), -$85B (-0.6%) off GDP.
[Not that bad, but it’s a psychological drag when compounded with the $200B in tax increases that resulted from Fiscal Cliff deal.]

Chinese employment: Services jobs key for shift toward consumption | Bloomberg
IMF says China’s shift from fixed investment/exports to consumption will require growth in services. In 2011, China’s service sector was 37.5% of its workforce, but it should be more like 50% according to precedents like South Korea, which rose from 30-65% (1961-95), and Japan’s from 38-60% (1955-87).

2013 earnings consensus: Here comes the ramp | Zero Hedge
After 4q12 & 1q13 posted -5% & -1% y/y EPS growth, FY13 consensus is now a lofty +27% EPS and +6% revenues… despite EBIT & net margins having appeared to rolled over.


  1. […] Bank of America mortgage putback settlement appeal | BTIG In court proceedings (appeal) set to begin May 30, a judge could reverse the original $8.5B $BAC settlement reached with $BK per Article 77. BoA’s downside is $60.5B (24% of book value), with only $8.6B in reserve provisions set aside. [Previously] […]


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