Professional Investment Services

Germany’s New Proposal Is Going To Have The Greeks Fuming

Reuters reports that Germany is pushing Greece to give up control over budgetary policy as part of the newest terms of its second bailout.

The wire service cites a source a European source with information about discussions and proposals that are going on between eurozone finance ministers, known collectively as the Eurogroup. They met this past week ahead of a summit of EU leaders on January 31.

The source said that EU institutions already operating in Greece should be given “certain decision-making powers” in handling the country’s finances, adding that reforms “could be carried out even more stringently through external expertise.”

Greece has balked at the unending austerity measures that Europe has imposed in exchange for the bailout, yet with a sharply contracting economy it remains no closer to debt sustainability.

That pressure is compounded by repeatedly stalled negotiations between government officials and the country’s private creditors on the scale of losses the latter should take during the Greek debt restructuring. Without a deal, Greece will be forced into a disorderly default on or around March 20 because it will have no money to pay off debts which mature that day.

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See Also:

• A New Watershed Moment In The Euro Crisis?
• The ECB Is Despairing About How To Deal With The Greek Debt Debacle
• Remember The Fitch Downgrades?

The Incredible Shrinking Federal Government!

This chart was just tweeted out by the St. Louis Fed.

Federal government expenditures shrunk at an annualized rate of over 7% in Q4!

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• CHART OF THE DAY: Why Is The Baltic Dry Index Getting Crushed?
• Ken Rogoff: It’s Not Just Greece
• GOLDMAN: The 5 Most Important Points From Today’s FOMC Statement

ECONOMY DISAPPOINTS, EUROPE GETS DOWNGRADED, MARKETS GO NOWHERE: Here’s What You Need To Know (DIA, SPY, QQQ, LNKD, MS, JEF)

So the economy grew slower than expected in Q4.

First, the scoreboard:

Dow: 12,660.5, -74.2, -0.6%
S&P 500: 1,316.3, -2.1, -0.2%
NASDAQ: 2,816.6, +11.3, +0.4%

And now, the top stories:

• We got our first read of Q4 2011 GDP, and it was disappointing.  GDP climbed 2.8%, which was slower than the 3.0% economists were hoping for.  Government spending fell 2.1%.  Based on this first read, real GDP rose just 1.7% in 2011, which reflects a sharp deceleration from the 3.0% growth we saw in 2010.  Caterpillar: This Is What The World Will Be Like In 2012 >
• In more positive and current economic news, the University of Michigan consumer sentiment index jumped to 75 in January, up from 69.9 in December.  Economists were expecting 74.
• In a highly anticipated move, Fitch downgraded a bunch of European countries. Specifically, the credit rating agency downgraded Italy, Belgium, Cyprus, and Slovenia. Earlier this month, Fitch warned this was coming.  The markets didn’t budge in what was basically a non-event.
• Facebook plans to file for its IPO some time next week, reported The Wall Street Journal. Shares are expected to trade under the ticker symbol FB.  Morgan Stanley, which was named as an underwriter in the report, led a broad rally in the financial sector.  And for some reason, a bunch of other web companies like LinkedIn rallied.
• In other banking news, Jefferies and Cantor Fitzgerald were downgraded by S&P.  Jefferies shares closed down by more than 2%.
• Don’t Miss: Check Out Frank Holmes’ EPIC Presentation On The China Boom, And What It Means For Commodities >

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See Also:

• STOCKS SURGE AND THE FED SEES LOW INTEREST RATES FOR YEARS: Here’s What You Need To Know
• FINALLY, STOCKS FALL: Here’s What You Need To Know
• Boeing Q4 EPS Crushes Estimates, But 2012 Guidance Is Weak

The EU’s Iran Oil Sanctions Could End Up Affecting 95% Of Tankers

Here’s further proof that the EU’s sanctions on Iranian oil may be more complicated than previously thought.

The sanctions will extend to about 95 percent of tankers because they are insured under rules governed by European law, Bloomberg reports.

This means that even non-EU tankers carrying Iranian oil to countries outside the 27-bloc EU risk having their cover against risks including spills and collisions invalidated.

Ship owners will have to find “questionable” insurance that doesn’t comply with EU law, and whose provider can meet the $1 billion “standard cover provision” for pollution liabilities, Simon Schnorr, a London-based marine client director at Aon Risk Solutions told Bloomberg. Ships without valid insurance would be barred from entering most ports.

You move, Iran.

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See Also:

• PREEMPTIVE STRIKE: Iran Could Turn Off EU Oil Supply Early
• Russia Inks Deal With Syria For Over Half A Billion Dollars Worth Of Fighter Jets
• The ‘Right To Be Forgotten’ By The Internet Could Soon Be A Reality In The EU

Jefferies and Cantor Fitzgerald Cut At Standard & Poor’s (JEF)

Ratings agency Standard & Poor’s just placed three brokerage houses, including Jefferies Group and Cantor Fitzgerald, on negative outlook.

S&P said it took the action as investment banking and institutional sales and trading operations continue to face a soft market environment. 

However, the company maintained its BBB ratings on the two houses.

GFI Group, another brokerage firm, was placed on CreditWatch negative, which generally precedes a downgrade. If the company is hit with a ratings action, it would see its debt cut to junk rating. 

“We believe brokers with institutional sales and trading and investment banking businesses will be challenged by ongoing weakness in the financial markets — largely because of concerns about Europe’s financial crisis and the impact that it is having on the European banking systems and economies,” Primary Credit Analyst Robert Hoban said. 

S&P noted that Jefferies was only modestly exposed to Europe, but that the risk of contagion could lower underwriting volumes for all three firms. 

Shares in Jefferies are now off some 2.4%, after trading higher earlier in the day.

Full announcement.

————–

Negative Rating Actions Taken On Three U.S. Brokers Based On Expectation Of Continued Weak Industry Conditions

• We believe that brokers with institutional sales and trading and investment banking businesses are likely to face a prolonged period of low profitability and possibly other financial pressures because of ongoing weakness in the financial markets.
• In our view, the confidence sensitivity of firms such as Jefferies Group and Cantor Fitzgerald is elevated under these conditions.
• As a result, we are revising our outlooks on Jefferies Group and Cantor Fitzgerald to negative from stable, and we’re placing our ‘BBB-’ ratings on GFI Group on CreditWatch negative.
• The negative outlooks and CreditWatch negative reflect our view that these firms’ operating performance will remain under pressure as a result of broader issues affecting the securities markets. 

NEW YORK (Standard & Poor’s) Jan. 27, 2012–Standard & Poor’s Ratings Services today said it revised its outlooks on Jefferies Group Inc. and Cantor Fitzgerald L.P. to negative from stable and placed its ‘BBB-’ ratings on GFI Group Inc. on CreditWatch with negative implications. We also affirmed our ‘BBB’ counterparty credit ratings on Jefferies and Cantor Fitzgerald.

The rating actions reflect our view that these companies, and some other institutional brokers, will likely face continued pressures and lower profitability as a result of broader issues affecting the securities markets. We also believe that these conditions could further increase the already high confidence sensitivity of leveraged wholesale funded institutions like Jefferies and Cantor.

We believe brokers with institutional sales and trading and investment banking businesses will be challenged by ongoing weakness in the financial markets–largely because of concerns about Europe’s financial crisis and the impact that it is having on the European banking systems and economies. Although Jefferies’ direct exposure to Europe is modest, in our view, and Cantor’s even more so, the risk of contagion from the region’s debt crisis could lead to a prolonged period of reduced trading and underwriting activities, heightened risk of a recession in the U.S., less favorable funding conditions, and possibly some mark-to-market losses. Based on this view, we already have negative outlooks on Goldman Sachs Group (A-/Negative/A-2) and Morgan Stanley (A-/Negative/A-2), among others.

We continue to believe that Jefferies’, Cantor’s, and GFI’s more agency-focused business models and comparatively limited principal market and credit risk exposures bolster their financial profiles and should reduce the risk of material losses from eroding asset valuations. In addition, we recognize measures these firms have taken, including reducing leverage and making efforts to reduce risk. That said, we consider their exposure to prolonged weakness in the financial markets and heightened stress in the financial system material given the firms’ business and financial profiles. For further company-specific information, see the individual research updates, listed below.

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See Also:

• 2011 GDP: 1.7%
• FITCH GOES ON RAMPAGE: CUTS SPAIN, ITALY, BELGIUM, CYPRUS, AND SLOVENIA
• STEVE ROACH: Recovery? Oh, Please. We’re Screwed.

This Market Really Is Astounding

Whataday!

GDP was weak.

Fitch went on a downgrade rampage across Europe.

And of course, the market would seem “due” for a rest after the blistering start to 2012.

And yet, you can’t keep it down.

The S&P 500 has just gone green.

And what’s more, some of the best “risk” measures, like our new favorite the Junior Gold Miners ETF is surging, up 2%.

Financials are doing well, as are cyclicals.

Worth noting is that the 10-year yield is actually lower today, so the market is not without some interesting internal contradictions.

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See Also:

• WAKE UP: Portugal Is Back In The Danger Zone And European Markets Are Slipping
• Greek 2YR Note Hits New Record As Debt Talks Go Nowhere
• Notorious Market Timer Joe Granville Predicts A 50% Plunge

Facebook Revenue And Profit Numbers Leak Ahead Of IPO Filing Next Week

In a tweet, CNBC Julie Boorstein says sources told her that Facebook’s 2011 operating profit was about $1.5 billion and that its operating revenues were about $3.8 billion.

The numbers are basically in line with several reports we heard toward the end of last year.

Facebook is supposed to finally file for an IPO sometime next week.

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See Also:

• ‘When Online Gambling Is Legalized, Facebook Will Be A $100 Billion Company’
• Check Out Mark Zuckerberg’s Graffiti Skills
• The Greatest Tech Companies In History, Period.

This Chart Makes It Really Hard To Believe In Efficient Markets…

What is the efficient market explanation for the instant 19% surge in RenRen — the so-called Facebook of China — on the news that Facebook will be filing IPO papers wednesday.

For what it’s worth, we’re aware that these secondary names always move around IPO events of a dominant player in a market, but we don’t.

Also, other internet/social names are moving nicely: LinkedIn, Baidu, Sina, and so on.

(HT: @technisidr)

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See Also:

• 2011 GDP: 1.7%
• FITCH GOES ON RAMPAGE: CUTS SPAIN, ITALY, BELGIUM, CYPRUS, AND SLOVENIA
• STEVE ROACH: Recovery? Oh, Please. We’re Screwed.

Home Foreclosures Fell 40% Last Year, But That’s No Reason To Celebrate

The number of new foreclosures in 2011 dropped nearly 40 percent, according to year-end numbers just released by Lender Processing Services; there is, however, little cause for celebration.

The fall is largely due to moratoria and process reviews stemming from the so-called “robo-signing” foreclosure paperwork scandal.

Mortgage delinquency rates were largely unchanged from last year, which means all that distress will be pushed forward to 2012 and beyond.

To give you an idea of just how much the “robo” scandal is toying with the numbers, LPS compared states that require foreclosures to go through the courts versus states that don’t (judicial versus non-judicial) and found the following:

- 50 percent of loans in foreclosure in judicial states have not made a payment in two years, as opposed to 28 percent in non-judicial states.

- Foreclosure sale rates in non-judicial states are about four times those in judicial states.

“Nationally, foreclosure pipelines remain at historic highs, but they are clearing at very different rates depending upon state procedures,” says Herb Blecher of LPS Applied Analytics.

With the nation essentially split between judicial and non-judicial foreclosure states, it’s safe to say the foreclosure crisis will linger longer than anyone expected, especially with negotiations for a settlement between big banks and state attorneys general hitting yet another roadblock.

Mortgages

30 yr fixed 3.89% 3.95% 30 yr fixed jumbo 4.43% 4.51% 15 yr fixed 3.22% 3.37% 15 yr fixed jumbo 3.69% 3.83% 5/1 ARM 2.87% 3.16% 5/1 jumbo ARM 3.04% 3.22%

Find personalized rates:   Bankrate.com

California Attorney General Kamala Harris rejected the latest proposal this week, calling it inadequate.

“Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners, and meaningful enforcement that ensures accountability. At this point, this deal does not suffice for California,” she wrote in a statement.

Bank sources say that without California the value of the settlement would drop by billions and banks would still have major liability for foreclosure fraud. About one fifth of the nation’s foreclosures are in California.

This post originally appeared at CNBC.

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See Also:

• Why The Housing Market Has Much Farther To Fall
• The Rally Is Sustainable Primarily Because Housing Has Finally Turned The Corner
• 9 Charts Showing Just How Bad This Recovery Has Been

Remember The Fitch Downgrades?

Fitch downgraded Italy, Spain, Belgium, Cyprus, and Slovenia about an hour ago.

But markets just don’t seem to care.

There may have been a slight sell-off right after the announcement, but since then markets have actually bounced back a little bit. This is still shaping up to be a negative day for stocks, but we certainly haven’t seen the kind of dramatic market reaction we did to even a rumor of a downgrade just a few months ago.

Despite the lack of strong market movement, it would seem that investors have priced in some kind of downgrade from Fitch, particularly after Standard & Poor’s downgraded nine eurozone countries on January 13.

Check out the Dow today:

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See Also:

• The ECB Is Despairing About How To Deal With The Greek Debt Debacle
• MOODY’S: ‘Central Banks Will Be Asked To Buy Time A Few More Times’
• A New Watershed Moment In The Euro Crisis?