The MasterFeeds: July 2011

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July 27, 2011

Moody’s downgrades Cyprus bonds

Another one "to bite the dust?"

Moody's decision to lower Cyprus' debt rating to just above junk status is the latest sign the island nation may become the fourth eurozone country heading towards a bail-out


Moody's downgrades Cyprus bonds
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By Peter Spiegel in Brussels
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The rating agency's decision is the latest sign the island nation may become the fourth eurozone country heading towards a bail-out

Read the full article at: http://on.ft.com/r3wlk1


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July 26, 2011

Are investors the real cause of Israel's high housing prices? - Haaretz

Are investors the real cause of high housing prices?

One possible avenue for holding down house prices is for the state to further rein in the profitability of investments in second or multiple homes.

Published 02:13 25.07.11
Latest update 02:13 25.07.11
By Ram Ozeri Tags: Israel real estate Israel housing protest Israel protest Israel strike


32,000 people have bought 3 to 10 homes since 2003

High housing prices have brought tens of thousands out to protest in Tel Aviv, complaining that they have been priced out of affordable homes. But for plenty of Israelis, the skyrocketing prices are a blessing.

Between 2003 and this year, 218,000 residences have been bought for investment purposes, a study by TheMarker shows. An investment home is defined as one bought by someone who already owns a home.

Most investment homes, 60%, have been bought by small investors. That is, more than 131,000 people have taken their savings and put it into housing as an investment, taking advantage of the low interest rates of recent years to finance some of the deal.

The other 40% have been bought by more serious investors. Some 32,000 people own three or more homes. Between 2003 and 2011, around 21,000 people have bought two additional homes for investment, and almost 8,000 have bought three or four.

About 2,600 have bought more than five homes over the past eight years. Some 256 people have purchased at least 10, with the average number for this group being 15.

But not all these people are necessarily in the property investment business. Some, for example, are lawyers who act as trustees for clients wishing to remain anonymous. This seems to have become quite common in recent months as many foreign residents, or Israelis with dual citizenship, have looked for ways around new and stricter tax rules for U.S. citizens.

Israelis have always bought apartments as investments, but an analysis of data from the State Revenues Administration shows that such investments have grown significantly over the past decade. In 2002, 22.4% of all housing purchases were for investment, and in 2010-2011 the figure was 30%.

The economic recovery since the second intifada and low interest rates have created a strong recovery in the housing industry - and in investment homes in particular. Housing sales reached 104,000 in 2010, up from 64,000 in 2002, a 60% increase. At the same time, purchases of investment homes surged by 120%.

The peak has passed

But it seems the peak is behind us. At the end of 2010, the Finance Ministry increased purchase taxes on investment homes by between 1.5% and 2%. This translates into NIS 15,000 more in taxes on the purchase of a residence worth NIS 1 million. This may not seem like much, but plenty more costs are involved, and in the first quarter of 2011 the percentage of homes bought for investment purposes fell to 25.8%, the lowest level since 2004.

The treasury's figures for the first three months of the year show not only a slowdown in purchases for investment purposes, but a jump in the number of homes sold that were originally bought as investments. Preliminary indicators for the second quarter show that this trend is is picking up.

One possible avenue for holding down prices is for the state to further rein in the profitability of investments in second or multiple homes. Tax increases have a big advantage over the alternatives - they can be done almost immediately, and the results will be felt quickly.

A major problem with reducing the number of investment homes is that most of them are rented out, so a reduction would lead to higher rental prices.

    This story is by: Ram Ozeri


Are investors the real cause of high housing prices? - Haaretz Daily Newspaper | Israel News

-- The MasterFeeds


July 20, 2011

China complains of U.S. debt, but has too much at stake to dump dollars

It is the ultimate ''too big to fail'' global relationship, said Andy Rothman, an analyst in Shanghai for the investment bank CLSA. If Beijing even hinted that it might try to sell part of its U.S. debt, ''other countries might sell their dollar assets,'' Mr. Rothman said, noting that this would drive down the value of China's holdings. ''It would be financial suicide for China.''


From The International Herald Tribune:

China complains of U.S. debt, but has too much at stake to dump dollars
BY DAVID BARBOZA

SHANGHAI — However grim Washington's debt and deficit negotiations may seem to U.S. citizens, the impasse is nearly as disturbing for China.

As the United States' biggest foreign creditor — holding an estimated $1.5 trillion in Treasury securities and other U.S. government debt — China has been a vocal critic of what it considers Washington's politicized profligacy.

''We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors,'' Hong Lei, a Foreign Ministry spokesman, said at a news conference last week.

Beijing might prefer to respond by starting to dump some of its U.S. debt. But in this financial version of the Cold War, analysts say, both sides fear mutually assured destruction. One reason America would want to avoid defaulting on its debt is that such a move could alienate China, which is a steady purchaser of Treasury securities. Beijing, meanwhile, already has too much invested in U.S. debt to do much more but continue to buy, hold and grumble.

It is the ultimate ''too big to fail'' global relationship, said Andy Rothman, an analyst in Shanghai for the investment bank CLSA. If Beijing even hinted that it might try to sell part of its U.S. debt, ''other countries might sell their dollar assets,'' Mr. Rothman said, noting that this would drive down the value of China's holdings. ''It would be financial suicide for China.''



http://www.nytimes.com/2011/07/19/business/china-largest-holder-of-us-debt-remains-tied-to-treasuries.html

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July 19, 2011

Panama’s economy: A Singapore for Central America? The Economist


The Economist

Panama's economy
Latin America's fastest-growing country has set its sights high. First it needs a government as impressive as its economy
PANAMA CITY
ON A humid stretch of Pacific coast in one of the poorest parts of the Americas, somebody seems to have misplaced a chunk of Manhattan. The 50-storey skyscrapers of Panama City jut out of the jungle like nowhere else in low-rise Central America. Panama's smart banks, open economy and long queues of boats at its ports have caused many to compare it to Singapore, another steamy success story. Panama's president, Ricardo Martinelli, made his country's first state visit there in 2010 and later said, "We copy a lot from Singapore and we need to copy more."

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July 15, 2011

U.S.: New Cyber Defense Strategy Unveiled

Subject: U.S.: New Cyber Defense Strategy Unveiled
Author: STRATFOR

Deputy Defense Secretary William Lynn released the Defense Department's new strategy for operating in cyberspace July 14, Bloomberg reported. The strategy focuses on blunting attacks rather than deterring or retaliating against them. It outlines five initiatives, including partnering with U.S. agencies and private entities. Vice chairman of the Joint Chiefs of Staff James Cartwright called the previous approach defensive and too predictable, saying there needed to be a penalty for cyber attacks. Lynn said foreign hackers stole 24,000 YOU.S.


July 13, 2011

French Banks Face Greatest Italian Risk - Bloomberg

French Banks Face Greatest Italian Risk - Bloomberg
About 45 percent of Italian debt held by foreign banks is carried by French institutions, according to BIS data
French banks’ Italian debt holding is more than their combined exposure to Spain, Portugal, Ireland and Greece, which stood at $253.8 billion at the end of 2010, according to BIS data.
The lenders had $97.6 billion in Italian sovereign debt at the end of the year, dwarfing their $57.5 billion of such debt from the four other countries...

French banks, including BNP Paribas SA and Credit Agricole SA (ACA), have the most at risk from the euro- region’s debt crisis infecting Europe’s largest borrower, Italy.

At the end of 2010, French banks carried $392.6 billion in Italian government and private debt, according to data from Basel, Switzerland-based Bank for International Settlements. That’s the most for financial institutions from any foreign country and more than double held by German lenders.

“They’re on the frontline,” said Julian Chillingworth, who helps manage about 16 billion pounds ($25 billion) at Rathbone Brothers Plc in London. “French banks like BNP Paribas have taken substantial positions in Italy when the market opened up to foreign players and now they face the downside.”

Italian stocks and bonds have been roiled on concerns about the country’s ability to trim debt after warnings by Moody’s Investors Service and Standard & Poor’s and infighting in Silvio Berlusconi’s government over a budget-cutting plan. Italy’s woes may overshadow efforts to fix Greece’s finances, which have left European policy makers struggling to find a strategy that won’t spark a region-wide debt panic.

Italy, whose 1.6 trillion euros ($2.23 trillion) of bonds outstanding is the largest debt load in Europe and behind only the U.S. and Japan, had avoided being sucked into the financial crises engulfing Greece, Ireland and Portugal. Confidence eroded after both Moody’s and S&P in the past two months said they were reviewing ratings for Italy and its banks.

Bear Market

Italian stocks entered a bear market on July 11, defined as losses of more than 20 percent from a previous high, and 10-year Italian yields reached the highest in 14 years. Stocks recovered and yields on 10-year Italian notes retreated from a euro-era high of 6.02 percent after the completion yesterday of an auction of 6.75 billion euros of treasury bills and Berlusconi’s reassurances on hastening the passage of a 40 billion-euro deficit-cutting plan.

“These are positive signs, but it would be better to anticipate markets rather than to react to them,” said Christophe Nijdam, a Paris-based analyst at AlphaValue. “It’s as if politicians got down on their knees before the markets.”

BNP Paribas (BNP), which slid to its lowest level in 7 ½ months this week, rose 1.2 percent to 47.51 euros in Paris trading as of 12:30 p.m.France’s biggest bank has fallen 11 percent this month, more than double the 5.1 percent decline in the 49-member Bloomberg Europe Banks and Financial Services Index. Credit Agricole has dropped 13 percent, while Societe Generale, France’s third-largest bank by assets, slid 11 percent.

Big Bets

“The French banks’ case is being tested because of Italian wobbles coming in the wake of the Greek uncertainty persisting longer than expected,” said Matthew Czepliewicz, an analyst at Collins Stewart in London.

Pascal Henisse, a spokesman at BNP Paribas in Paris, Credit Agricole’s spokeswoman Stephanie Ozenne and Societe Generale (GLE)’s spokeswoman Astrid Brunini all declined to comment on the turmoil in Italy and its impact on their banks.

About 45 percent of Italian debt held by foreign banks is carried by French institutions, according to BIS data.

French banks’ Italian debt holding is more than their combined exposure to Spain, Portugal, Ireland and Greece, which stood at $253.8 billion at the end of 2010, according to BIS data. The lenders had $97.6 billion in Italian sovereign debt at the end of the year, dwarfing their $57.5 billion of such debt from the four other countries, the data show.

Italian Acquisitions

Drawn by the lucrative financial industry in Italy, French financial companies spent at least 20 billion euros since 2006 to buy banking and insurance assets in the euro-area’s third- largest economy.

BNP Paribas and Credit Agricole, France’s second-largest bank, bought two of Italy’s 10 largest lenders. At the end of 2010, BNP Paribas held more Italian than French sovereign debt.

BNP Paribas, which acquired Rome-based Banca Nazionale del Lavoro SpA in 2006 for 9 billion euros, has about 900 branches in Italy. Credit Agricole operates about 960 branches in Italy. BNP’s 19,000 and Credit Agricole’s 12,000 employees in Italy are the most outside their home market.

Paris-based BNP had 71.2 billion euros of loans at its BNL unit at the end of March, compared with BNL’s 31.7 billion euros of deposits, according to its website. Credit Agricole’s Italian retail-banking unit, Cariparma, had 31.6 billion euros of loans and 30.3 billion euros of deposits at the end of March, company data show.

Overblown Fears

“Credit Agricole’s funding position in Italy is more conservative compared with BNP Paribas’s,” said Dirk Hoffmann- Becking, an analyst at Sanford C. Bernstein. “BNP makes up the gap by channeling funds from the corporate center.”

Investors’ concerns about commercial and sovereign debt held by BNP Paribas and Credit Agricole in Italy may be mitigated by the overall funding capacities and deposits base of the French banks, analysts and investors say.

“When you break down the exposures into their major components, the asset quality implications do not seem as negative as the share price movements often indicate,” Czepliewicz said. “Do recent sovereign debt movements change something in the quality of BNL’s lending book? Probably not.”

Also, the fears of a contagion may be overblown, the Collins Stewart analyst said.

“The question is if an Italian contagion would be fundamentally grounded or is just panic,” he said. “My sense is: it is just panic.”

Market Panic

Italy has “big advantages” over other southern European nations as it has low foreign debt, a primary budget surplus, long debt maturity and lack of a housing-market “bubble,” a team of strategists at Credit Suisse Group AG led by Andrew Garthwaite in London wrote in a report yesterday.

Those advantages may matter little in a market gripped by panic, and may require European leaders to act firmly and quickly, some investors said.

“We’ve seen fever spikes,” said Valerie Cazaban, who helps manage 100 million euros at Stratege Finance in Paris and holds shares in BNP Paribas. “European policy makers should contain it as soon as possible before the illness bursts out.”

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris atfabiobv@bloomberg.net.

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net;

French Banks Face Greatest Italian Risk - Bloomberg:
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-- The MasterFeeds

Draghi Says EU Debt Crisis Is in New Phase - Bloomberg

Draghi Says EU Debt Crisis Is in New Phase

Europe’s debt crisis has entered a new phase and policy makers must come up with a “clear” response to stop the contagion that threatens the region’s single currency, said the European Central Bank’s incoming President Mario Draghi.

“It’s now necessary for those trying to manage the sovereign crisis to give certainty, to define with clarity the political objectives, the scope of the instruments and the amount of resources available,” Draghi said today in a speech in Rome. “It’s a necessary step to ensure the stability of the euro area and its currency.”

European governments can no longer count on their financing costs remaining similar to those of Germany, the region’s strongest economy, simply because of their participation in the single currency, he said.

“The solvency of the sovereign states is no longer something acquired he said, but something earned with high and sustainable growth, which is only possible if budgets are in order,” Draghi, who also heads the Bank of Italy said. “Today’s cost of credit reflects that new reality.”

Draghi’s comments at the annual meeting of Italy’s banking association came after Italian bonds and stocks plunged in recent days on concern the country would struggle to reduce the euro-region’s second-biggest debt. The yield on Italy’s 10-year bond reached the highest since 1997 and financing costs at a sale of treasury bills surged on investor concern that Italy would be the next victim of the region’s debt crisis.

Bonds Gain

Italian bonds gained today on pledges by the government for swift passage of a 40 billion-euro ($64 billion) deficit- reduction plan that seeks to balance the budget in 2014. The premium investors demand to hold Italy’s 10-year bond over German bunds fell 17 basis points to 269.3, down from a euro-era record of 348 reached during trading yesterday.

Italian Finance Minister Giulio Tremonti, speaking at the same conference, said the plan would be passed by both houses of parliament by July 15. Opposition parties have agreed to ease passage of the measure in the legislature.

“Italian politicians decided to respond firmly to market concerns over the credibility and implementation of the 40 billion-euro fiscal package,” Fabio Fois, European economist at Barclays Capital in London said in a note to investors. “These are clearly positive developments. The fiscal plan was originally supposed to be voted on at the beginning of August.”

Asset Sales

The deficit plan is “an important step in strengthening the public accounts” that will help reduce the debt, Draghi said. He also called on the government to explain details of additional measures for 2014 that will be needed to achieve the balanced budget.

Tremonti did say the government was considering a plan to sell off more state-owned assets “once the crisis passes.”

Austerity measures won’t be enough for Italy and other euro-region countries to reduce debt if not accompanied by policies to boost economic growth, Draghi said. The Bank of Italy expects Italian growth to continue to lag behind the euro area average for the next two years, he said. Second-quarter growth did expand at a similar pace as that of the euro region, Draghi said, reversing the trend in the first three month when Italy grew 0.1 percent, a fraction of the 0.8 percent rate for the euro area.

In contrast to many European economies, Italy has the advantage of a solid banking system and a declining jobless rate, Draghi said.

Italian lenders will pass stress tests this week with a “significant” margin of capital above the core Tier 1 minimum, he said. He estimated the lenders still need to boost capital by 20 billion euros to meet Basel 3 standards for 2019, he said.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net. Jeffrey Donovan at jdonovan26@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net



Draghi Says EU Debt Crisis Is in New Phase - Bloomberg

July 12, 2011

American Beacon books power trio to subadvise go-anywhere offering - InvestmentNews

Over the past year, fund managers ... have opened funds that employ a so-called “go-anywhere” approach to better deal with risks such as rising interest rates... [These] Absolute return funds don't measure their performance against a specific benchmark. [They] attempt “to capitalize on pricing dislocations and pursue maximum value wherever it may exist.”


American Beacon books power trio to subadvise go-anywhere offering

Pimco, Brandywine and GAM will co-manage firm's new flexible bond fund

July 11, 2011

Pacific Investment Management Co., the manager of the world's biggest bond fund, will co-manage a fund started by American Beacon Advisors Inc. that seeks to produce a profit in rising and falling markets.

The American Beacon Flexible Bond Fund will be managed by a team led by the Fort Worth, Texas-based company. Pimco, Brandywine Global Investment Management LLC and GAM International Management Ltd. will be the fund's sub-advisers, the companies said today in a statement.

Over the past year, fund managers including Loomis Sayles & Co. and Toledo, Ohio-based Harbor Capital Advisors Inc. have opened funds that employ a so-called “go-anywhere” approach to better deal with risks such as rising interest rates. Boston- based Loomis Sayles this year opened the Loomis Sayles Absolute Return Fund, while Harbor Capital turned to Newport Beach, California-based Pimco to manage its Harbor Unconstrained Bond fund. Absolute return funds don't measure their performance against a specific benchmark.

“Advisers and investors are embracing the shift toward more flexibility, seeking strategies that enable them to invest in an asset class, unconstrained by the restrictions of traditional benchmarks,” Gene L. Needles Jr., president and chief executive officer of American Beacon, said in the statement.

Needles said the fund will attempt “to capitalize on pricing dislocations and pursue maximum value wherever it may exist.”

The new fund will invest primarily in bonds, including those rated as junk, and also in interest rates and currencies. Junk bonds have a higher return and a higher yield than investment-grade bonds and are rated below Baa3 by Moody's and less than BBB- by S&P. The fund can make use of derivatives, American Beacon said in the statement.

The $243 billion Pimco Total Return Fund, run by Bill Gross, is the world's largest bond fund. Brandywine and GAM International, both based in London, offer advisory services to funds.

--Bloomberg News--

American Beacon books power trio to subadvise go-anywhere offering - InvestmentNews

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July 1, 2011

RIP: QE2

QE2 is no more. Yesterday the FED concluded its last asset purchase of the QE2 program.


The question now is what will be the next move by the FED as it remains committed to ensuring that the economic recovery continues amid signals that the general recovery is slowing.
  • Treasury Secretary, Timothy Geither has reportedly indicated to the Obama administration that he could well step down in the coming months.


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