Thursday, September 5, 2013

Political Turmoil Is Smashing The Greek Markets

Athens Stock Exchange Greece AP

Athens' stock market is down -6.11% after the Greek government was thrown into turmoil and a report said the IMF could suspend bailout payments.

Major Greek banks are down -7.53%, and the National Bank of Greece is down more than -9%. Yield on the Greek 10-year note spiked +5.90%. 

The Democratic Left party ditched PM Antonis' Samaras' ruling coalition today to protest his decision to shut down Greek broadcaster ERT, leaving him with a slim and unstable majority to pass austerity measures. 

Meanwhile, the FT's Peter Spiegel reported yesterday Eurozone banks were refusing to roll over Greek debt, prompting the IMF to warn on freezing its funding round.


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20-Second Aerial Video Shows Just How Gigantic Last Night's Protest In Rio De Janeiro Was

This news clip has 20 seconds of video showing just how gigantic last night's protests in Rio De Janeiro, Brazil were.

300,000 people apparently came out in the city alone. As you can see, the crowd just goes on forever.

Following last night's protests, the President of Brazil has called for an emergency cabinet session.


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DAVID TEPPER: When The Dust Settles, There's Only One Place To Be And That's Stocks

david tepperDavid Tepper, who runs a $12 billion distressed-debt hedge fund, Appaloosa Management, emailed in some comments to CNBC's "Squawk Box" this morning after global markets got crushed yesterday.

"All of the concern in the markets is because the Fed sees the economy stronger in the future," Tepper wrote adding that the Fed's forecast shows that they will wait for a lower unemployment rate to raise interest rates.

He added that he thought that the Fed should start to taper. 

"Bottom line: When the dust settles only one place to be —— STOCKS." 

This is right in line with his previous comments.  Tepper has been bullish on equities for a while now. 

Tepper, who has one of the best long-term track records and was up 30% in 2012, came out earlier this year as being super bullish. He told Bloomberg TV back in January that the U.S. was on "the verge of an explosion of greatness."

Just last month, he continued to make a bullish case for stocks on CNBC.


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FED PRESIDENT BULLARD: Ben Bernanke Should NOT Have Talked About The 'Taper' Timeline

Believe it or not, Chairman Ben Bernanke may not be the most dovish person at the Federal Reserve.

When the Fed published its FOMC statement this Wednesday, it noted two dissenters to the decision.

One of those dissenters was St. Louis Fed President James Bullard, who thought that monetary policy should be more dovish.

In an unusual move, Bullard published a press release this morning on why he dissented. 

Among other things, he believed it was a mistake for the Fed to talk about tapering, or gradually reducing, quantitative easing (QE).

"President Bullard also felt that the Committee’s decision to authorize the Chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed," said the St. Louis Fed in the release. "President Bullard felt that the Committee’s decision to authorize the Chairman to make an announcement of an approximate timeline for reducing the pace of asset purchases to zero was a step away from state-contingent monetary policy."

Most believe that the Fed's talk of a "taper" timeline was the catalyst for the global financial market sell-off this week.

Here's the full release:

ST. LOUIS – Federal Reserve Bank of St. Louis President James Bullard dissented with the Federal Open Market Committee decision announced on June 19, 2013.  In his view, the Committee should have more strongly signaled its willingness to defend its inflation target of 2 percent in light of recent low inflation readings.  Inflation in the U.S. has surprised on the downside during 2013.  Measured as the percent change from one year earlier, the personal consumption expenditures (PCE) headline inflation rate is running below 1 percent, and the PCE core inflation rate is close to 1 percent.  President Bullard believes that to maintain credibility, the Committee must defend its inflation target when inflation is below target as well as when it is above target.

President Bullard also felt that the Committee’s decision to authorize the Chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed.  The Committee was, through the Summary of Economic Projections process, marking down its assessment of both real GDP growth and inflation for 2013, and yet simultaneously announcing that less accommodative policy may be in store.  President Bullard felt that a more prudent approach would be to wait for more tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement.

In addition, President Bullard felt that the Committee’s decision to authorize the Chairman to make an announcement of an approximate timeline for reducing the pace of asset purchases to zero was a step away from state-contingent monetary policy.  President Bullard feels strongly that state-contingent monetary policy is best central bank practice, with clear support both from academic theory and from central bank experience over the last several decades.  Policy actions should be undertaken to meet policy objectives, not calendar objectives.

While President Bullard found much to disagree with in this decision, he does feel that the Committee can conduct an appropriate and effective monetary policy going forward, and he looks forward to working with his colleagues to achieve this outcome.


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Bonds Are Really Having A Rough Morning

Heads up: it's been a crazy week for U.S. Treasuries – the bonds have sold off substantially since Federal Reserve Chairman Ben Bernanke's Wednesday press conference – and yields are rising again today.

Right now, the yield on the 10-year U.S. Treasury note is 2.50%, 9 basis points higher from yesterday's close.

Before Bernanke, it was at 2.21%.

Bonds have really started sliding in the last hour or so. The chart below shows 10-year Treasury futures this morning.

UST futures Thinkorswim


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Municipal Bond Market Rocked As Interest Rates Spike

(Reuters) - The possibility of rising interest rates rocked the U.S. municipal bond market on Thursday, with prices plunging in secondary trade, investors selling off the debt, money pouring out of mutual funds and issuers postponing nearly $2 billion in new sales.

"The market got crushed," said Daniel Berger, an analyst at Municipal Market Data, a unit of Thomson Reuters, about the widespread sell-off.

Yields on top-rated 10-year bonds and highly rated 30-years on Municipal Market Data's benchmark scale both spiked 20 basis points.

Those on 10-years ended the day at 2.48 percent, the highest since October 2011, while those on 30-years closed at 3.78 percent, the highest since December 2011. Yields move inversely to price. Berger said it was the largest one-day yield increase since December 2010.

"It's a bit of a follow-through from the market's disappointment from what they were hoping to get from the Fed and a continued reflection to the fragile state of fixed income markets," said Jonathan Lewis, chief investment officer for Samson Capital Advisors.

On Wednesday, Federal Reserve Chairman Ben Bernanke said the central bank could soon reduce its bond buying if the U.S. economy shows signs of strength. The comments sent the yield on the U.S. 30-year Treasury bond to its highest level since September 2011. Municipal bonds often follow Treasuries.

Even before Bernanke's comments, investors had been pulling out of the $3.7 trillion bond market, worried the era of low interest rates was near an end and the central bank would begin "tapering." Since May 1, yields on triple-A bonds have risen by 80 basis points on 10-years bonds and by 99 basis points on 20-years.

The turmoil rippled through the primary market, with four sales totaling $1.763 billion postponed on Thursday due to market conditions.

"Given recent volatility and heavy supply in the market, the city intends to remain flexible on the timing of the sale," said James Lanham, deputy city treasurer for Philadelphia, which moved its $400 million general obligation bond sale to an undetermined date.

Most likely issuers will wait for the market to stabilize in the next few days or weeks before coming back.

Even though rates are rising, they are still relatively low and "very attractive for borrowing," said Darci Doneff, managing director in underwriting and trading at Piper Jaffray.

But rising rates could finally bring an end to the surge of refinancing that has lasted more than a year, she said. For the year through the end of the May, refundings totaled $87.52 billion, compared with only $56.5 billion in new money sales.

"That could be a significant drop," said Doneff. "That could be a major impact on the forward supply."

A SHOCK FOR MOM-AND-POP INVESTORS

In the last month, investors have sold off longer-term bonds to buy shorter-term debt and retail buyers have pulled money out of municipal bond mutual funds, which have seen declining returns the last two months.

The funds reported $2.22 billion of net outflows in the week ended June 19, up from $1.6 billion of outflows in the previous week, according to data released by Lipper on Thursday. It was the biggest outflow since the week ended December 19.

In the last four weeks, outflows amounted to $5.4 billion.

"We've continued to have a weaker June in munis from this tapering talk," said Chris Alwine, head of municipal bonds at The Vanguard Group, which has $100 billion in assets. "Our view is that the market has over reacted to this talk."

Since April 30 through June 19, municipal bond funds at Vanguard and PIMCO have both seen returns ranging from -0.19 percent to -3.61 percent. The lower end of that range was all in short-term funds.

Retail investors, often referred to as the "mom-and-pop buyers" because they tend to be retirees, favor municipal bond funds as safe havens.

"Muni bond investors are in for the shock of their lives," said financial advisor Ric Edelman. "For the past 30 years there hasn't been interest rate risk."

That risk can be extreme. A one-point rise in the interest rate could cut 10 percent of the value of a municipal bond with a longer duration, he said.

Many retail buyers, though, are not ready for the change and "when it starts, it will be too late for them to react," he said, adding that he was encouraging investors to look at their portfolio allocation and make changes to protect themselves from interest rate risks now.

LOOMING BUYING OPPORTUNITY

June and July are the peak months of the year for cash flowing to investors from muni bond payments and redemptions. Investors could see the lower prices as a buying opportunity.

"People are no longer thinking reasonably about the value of the market," Lewis said.

Investors are leaving just as municipal bonds grow very cheap. His firm manages municipal bonds for institutional investors, who he said will find the ratios to comparable Treasury securities, which are taxed, appealing.

On Thursday, 30-year municipal bonds yielded 108 percent of similar Treasuries, the highest since August 2012 and far above the average of 99.3 percent.

"With equities selling off significantly now, I would expect to see some support in the Treasury market," said Alwine, adding that would influence the municipal market.

(Reporting by Lisa Lambert; Additional reporting by Caryn Trokie in New York; Editing by Tiziana Barghini and Andre Grenon)


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