Denmark Shelves Euro Goal Indefinitely as Crisis Scars Too Deep

Denmark Shelves Euro Goal Indefinitely as Crisis Scars Too Deep

Denmark is shelving indefinitely its euro adoption goal as Prime Minister Helle Thorning-Schmidt says an exchange rate peg without full European monetary membership is proving the best currency regime for the Nordic nation.

A euro referendum “in this election term is unrealistic,” Thorning-Schmidt said yesterday in an interview in Stockholm. “I don’t think it makes any sense to discuss the option of a euro referendum in the next term” set to run from 2015 to 2019, she said. Read more of this post

U.K. commercial real estate investors may be unable to refinance about half of their 198 billion pounds ($303 billion) of bank loans as property values fall

U.K. Property Loans Seen Facing 92 Billion-Pound Refinancing Gap

U.K. commercial real estate investors may be unable to refinance about half of their 198 billion pounds ($303 billion) of bank loans as property values fall, a survey by De Montfort University shows.

About 92 billion pounds of remaining bank loans are “likely to be unrefinancable on terms available in today’s lending market,” according to the survey of 78 lenders, which was published today. The amount of the loans is too high compared with the real estate backing them, the report by the Leicester, England-based university said.

Banks and other lenders cut U.K. commercial real-estate lending by 7.7 percent last year as they repaired balance sheets damaged by losses and tried to meet regulatory requirements, De Montfort estimates. Almost a quarter of all property loans are now in “severe distress” because the outstanding debt is higher than the value of the real estate after the worst-located and lowest-quality buildings in the U.K. depreciated further last year. Read more of this post

Chief executives and the itch to quit

Thu, May 16 2013

By Andrew Callus

LONDON, May 16 (Reuters) – On approaching his 60th birthday this year, long-serving Tullow Oil boss Aidan Heavey told staff he felt “like two 30 year-olds”.

A handful of recent shock departures by 50-something chief executives at European blue chip companies – none of them under any obvious pressure to quit – suggest some of his peers either lack that vigour, or want to channel it elsewhere.

Peter Voser is giving up one of the world’s most challenging CEO roles at Royal Dutch/Shell next year, before his 55th birthday, in pursuit of a “lifestyle change”.

Swiss engineering group ABB’s 55-year old boss Joe Hogan is also going, for “private reasons”. Pierre-Olivier Beckers, 53, is walking out on Belgian retailer Delhaize , and Paul Walsh, 57, is waving goodbye to drinks multinational Diageo. Read more of this post

Central banks saved world economy, now beware the fallout

Published: Friday May 17, 2013 MYT 11:30:00 AM

Central banks saved world economy, now beware the fallout

WASHINGTON: Central banks got it right when they saved the world economy, but their unprecedented actions risk disruptive cross-border spillovers and potentially heavy losses when the time comes to reverse course, the IMF said on Thursday.

In its most detailed survey so far of the dramatic measures taken to counter the damage from the 2007-2009 financial crisis, International Monetary Fund staff repeated earlier assessments that the steps had worked but face diminishing returns.

However, in new research, they also said central banks could face severe losses when they begin to withdraw the extraordinary sums of money they have pumped into financial systems around the world. Read more of this post

Kuroda Faith Waning Halts Debt Deals as Forecasts Blown; “BOJ policy has become more unpredictable”

Kuroda Faith Waning Halts Deals as Forecasts Blown: Japan Credit

Bank of Japan Governor Haruhiko Kuroda’s stimulus policies pushed bond yields above analyst forecasts for the first time since at least July as the widest price swings in a decade halted two debt offerings.

Benchmark 10-year Japanese government bond yields reached 0.92 percent yesterday, the highest since April 2012. That put the rate above the 0.7 percent year-end forecast by analysts in a Bloomberg News survey. The rate later pared gains after the central bank announced a 2.8 trillion yen ($27.4 billion) infusion of funds. Analyst forecasts for 10-year Treasury yields are at 2.2 percent compared with the current 1.93 percent.

Kuroda’s doubling of bond purchases last month to achieve 2 percent inflation in two years has failed to cap borrowing costs, with the 10-year yield rising the most since August 2003 in the three sessions through May 14. Toyota Industries Corp. (6201) joined Lixil Group Corp. (5938) in canceling debt sales this week due to market volatility, casting doubt on the BOJ’s plan to boost investment and growth by keeping borrowing costs low.

“It’s probably not realistic for the BOJ to think that it can keep bond yields low despite monetary easing aimed at 2 percent inflation because it buys” lots of JGBs, said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co. That’s “contradictory,” he said. Read more of this post

Bill Gross: “We See Bubbles Everywhere”

Bill Gross: “We See Bubbles Everywhere”

Tyler Durden on 05/16/2013 14:25 -0400

It is only logical that when one of the smarter people in finance warns that he “sees bubbles everywhere” that he should be roundly ignored by those who have no choice but to dance. Because Bernanke and company are still playing the music with the volume on Max, and if not for POMOthere is always FOMO. However, if there is any doubt why this “rally is the most hated ever”, here are some insights from the Bond King from an interview with Bloomberg TV earlier today: “We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions. It doesn’t mean something like 2008 but the potential end of the bull markets everywhere. Not just in the bond market but in the stock market as well and a developing one in the house market as well.” Read more of this post

Are Japanese Banks On The Verge Of Insolvency? A 100 basis point (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20% of Tier-1 capital for regional banks and 10% for the major banks

Are Japanese Banks On The Verge Of Insolvency?

Tyler Durden on 05/16/2013 13:13 -0400

We have long discussed the problem that the Japanese government faces if interest rates in the troubled nation rise (cost of debt financing will swamp revenues in a vicious circle); but now it seems there is another – just as vicious – problem (that the BoJ is set to discuss according to Nikkei). The inability of the BoJ to ‘control’ Japanese interest rates (JGB rates spiking unprecedentedly day after day) has put the banking system in a lot of trouble. As we explained recently the banks appeared to initially ‘hedge’ their huge JGB positions but now appear to recognize that first out wins and are reducing exposure overall (YTD -3.7% according to local data). The reason – simple – as the IMF explains via the BoJ – according to BOJ estimates (footnote 4), a 100bp (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20% of Tier-1 capital for regional banks and 10% for the major banks. He who sells first wins…

We said previously: This is what is going on in JGBs… JGBs were able to rally since smart money was hedging significantly (and not selling) but once the initial clusterfuck exploded after the BoJ meeting (and protection costs soared), it seems clear that JGBs just became far too expensive to hold given their risk and so protection was unwound and positions were reduced… which is why we are now seeing JGB yields jumping… and as the IMF explains: JGB market exposures represent one of the central macrofinancial risk factors. This risk reflects the possible impact on public debt sustainability of changes in yields and related effects on investor confidence; the increased role of the private financial sector in covering government borrowing needs; the prospect that ongoing demographic shifts will reduce private saving; and growing household interest in investing abroad. Interest rate risk sensitivity is especially prevalent in regional banks and insurance companies (JGBs representing about 70 percent of life insurers’ securities holdings and 90 percent of insurance cooperatives’ securities holdings). In addition, the main public pension scheme, as well as Japan Post and Norinchukin bank, also have large JGB exposures. According to BOJ estimates, a 100 basis point (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20 percent of Tier-1 capital for regional banks (not taking into account net unrealized gains on securities), against 10 percent for the major banks. Surely all this has been provisioned for somehow. Or not?

From Brooklyn to California, Housing Bubble Threat Grows

From Brooklyn to California, Housing Bubble Threat Grows

Just a year since the U.S. housing market hit bottom after the biggest plunge in eight decades, signs of excess are re-emerging.

An open house for a five-bedroom brownstone in Brooklyn, New York, priced at $949,000 drew 300 visitors and brought in 50 offers. Three thousand miles away in Menlo Park, California, a one-story home listed for $2 million got six offers last month, including four from builders planning to tear it down to construct a bigger house. In south Florida, ground zero for the last building boom and bust, 3,300 new condominium units are under way, the most since 2007.

The U.S. spring homebuying season has been marked by a frenzy of demand fueled by the Federal Reserve’s drive to push down borrowing costs, a scarcity of listings and Wall Street’s new appetite for foreclosed homes. While values remain well below their peak, economists including Stan Humphries of Zillow Inc. (Z) and Mark Vitner of Wells Fargo & Co. assert prices in some areas are rising at an unsustainable pace — a dramatic shift from early 2012, when billionaire Warren Buffett said housing “remains in a depression.” Read more of this post

S&P has cut its rating on Berkshire Hathaway by one notch, citing the company’s dependence on its core insurance operations for most of its dividend income

Updated May 16, 2013, 9:53 a.m. ET

S&P Cuts Rating on Berkshire Hathaway

By ERIK HOLM

Warren Buffett’s Berkshire Hathaway Inc. BRKB -0.68% had its credit rating cut one notch to double-A by Standard & Poor’s, which cited the conglomerate’s reliance on its insurance operations.

The downgrade comes after S&P revised the criteria it uses to evaluate the creditworthiness of insurers. The ratings company said the move was fueled by Berkshire’s “dependence on its core insurance operations for most of its dividend income.”

Berkshire-owned railroad Burlington Northern is the only non-insurance subsidiary to provide a “significant portion of the total dividends paid from the operating companies to the holding company,” S&P said. Read more of this post

Reality meets Jim Chanos’s China bearish call

May 16, 2013, 8:01 a.m. EDT

Reality meets Jim Chanos’s China call

By Kirk Spano

Jim Chanos has been famously bearish on China for several years now. While Chinese stocks have underperformed during that time, their markets have not outright collapsed. Recently, Chanos pointed out that credit and capital issues in China have gotten worse. In short, credit has expanded into a slowing economy, setting up the potential for many creditors not to be repaid. But is Chanos wrong?

Chanos, in a recent presentation, noted a multitude of problems in China including, economic inefficiencies, real-estate and credit bubbles, questionable “audited” numbers, inflation, ghost cities, money laundering and broad corruption by the ruling elite, among other issues. All of these factors, Chanos says are leading to a greater dilemma, soon to come, in China. Read more of this post

The short arm of the SEC: Chinese executives of reverse-merger RINO who inflate revenue 15-fold and exproprirate $100m are given a minor fine of $250,000

The short arm of the SEC

Paul Murphy

| May 16 10:30 | 3 comments | Share

So, there was evidence this week that the US authorities might finally be getting to grips with the Chinese reverse merger scandal, whereby a string of Chinese companies exploited lax listing rules to shake down naive American investors. Executives at RINO International, a steel industry supplier, have been charged by the SEC with inflating revenues 15 fold in their US filings, while some of the proceeds from a reverse merger and $100m cash raising in 2007 were diverted to buy a house in Orange County, two Mercedes Benz cars and also funded shopping trips to the Chanel and Valentino stores in Beverley Hills. Most of the rest of the money was dispatched to China. Chief executive Dejun “David” Zou and chairman Jianping “Amy” Qiu have been charged under 10 sections of the Securities Exchange Act. So will they be looking at jail time? Nope. Without admitting or denying the claims against them, RINO, Zou, and Qiu consented to the entry of a judgment permanently enjoining them from violations of the respective provisions of the Securities Act and Exchange Act. Zou and Qiu agreed to pay civil penalties of $150,000 and $100,000, respectively… In addition, Zou and Qiu consented to entry of an order prohibiting them from serving as officers and directors of a public company for a period of ten years. Separately, Zou and Qiu have agreed to pay back the cash spent on the Orang County house in settlement of class action suite. But that’s it. The $100m has gone and the penalty is a minor fine and a directors’ ban. Quite a few American fraudsters will wish they’d enjoyed similarly benign treatment at the hands of the US authorities. There reality here, of course, is that the SEC will consider itself lucky to have reached any sort of settlement with Zou and Qiu. The regulator’s powers don’t reach as far as it would like the world to think.

Top Hedge Fund Manager Predicts A Collapse In The Art Market; “These $90 million paintings won’t go from 90 to 70, it will go from 90 to eight.”

Top Hedge Fund Manager Predicts A Collapse In The Art Market

Sam Ro | May 16, 2013, 6:44 AM | 1,490 | 4

Michael Novogratz, the head of Fortress Investment Group, appeared on CNBC yesterday. Among other things, he talked about what he considered to be an ongoing bubble in art. “Art is 100 percent a bubble—I mean it has all the markings for a bubble,” said Novogratz. “Prices have gone parabolic. You go to any of the art shows and you know even the cheap stuff that was $10,000 two years ago is now $80,000.” Novogratz and the CNBC crew were responding to a story on the recent Sotheby’s auction where Barnett Newman’s “Onement VI” sold for a stagger $43.8 million. “These $90 million paintings, you know, they might be worth eight one day,” added Novogratz. “They won’t go from 90 to 70, it will go from 90 to eight.” Investors skeptical of traditional financial assets have flocked to alternative assets like art and gems in their efforts to store their wealth.