ratings

Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy. For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar  – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside. Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.

What is wrong with this market? The S&P 500, instead of grinding higher in the aftermath of QE3 actually hit its peak for the year the day after the policy announcement. Go figure. Maybe economic reality finally caught up with Mr. Market (there is a very fine line between "'resiliency" and "denial" — and keep in mind that the S&P 500 is still up 14% in a year in which profits are now contracting, not just slowing down)... On average, six weeks hence, the S&P 500 was up more than 9% after the policy announcement. It was all so novel! Tech on average was up over 11%, industrials were up 12%... ditto for Consumer Discretionary and Materials. The cyclicals flew off the shelves. But this time around. either Mr. Market is jaded or the laws of diminishing returns are setting in. Six weeks after the unveiling of QE3, the market is down 2%. This hasn't happened before. Every economic-sensitive sector is in the red, and even Financials — the one sector that should benefit from all the "sucking at the Fed teat" — have made no money for anybody!

Overall, the acquisition of ANNB by FNB looks like a transaction that will create value for the acquirer’s shareholders, but it comes at a full price.

• Moody’s Cuts Ratings on Catalonia, Four Other Spanish Regions (Bloomberg)
• And the market top: Billionaire Ross Interested in Buying Spanish Bank Assets (Bloomberg)
• Japan Jojima denies govt seeks $250 bln BOJ asset buying boost (Reuters)
• China hints at move to strengthen Communist rule (Reuters)... well everyone else is doing it
• Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court (Bloomberg)
• Obama, Romney now tied in presidential race: Reuters/Ipsos poll (Reuters)
• Former China Leader Jiang Resurfaces Before Political Transition (Bloomberg)
• Some in Congress look to $55 billion fiscal cliff 'fallback' (Reuters)
• CLOs stage comeback in US (FT)
• TXU Teeters as Firms Reap $528 Million Fees (Bloomberg)
• China’s Factories Losing Pricing Power in Earnings Threat (Bloomberg)

A mere nine years ago, California's governator uttered his now infamous words that his opponent's income tax loophole was wide enough to drive his Hummer through. Now in 2012, Bloomberg's Chart of the Day has found another glaringly wide 'loophole' in common financial wisdom. As Sebastian Boyd and Ye Xie note, Ireland and Kazakhstan both belong to the same BBB-rated S&P cohort and yet have debt/GDP loads of 106% and 11% respectively. While debt/GDP is not the sole arbiter of credit quality (ask the Americans) it seems the market is more than willing to effectively differentiate based on this as is clear from CDS levels; but the growing pile up of sovereign nations in this edge-of-the-cliff rating bucket suggests two things to us: 1) "The entire rating system is flawed" as Bloomberg notes; and 2) The self-destroying (or reflexive) nature of a non-investment grade rating shift is now seemingly totally politically motivated (as opposed to quantitatively defined) - perhaps nowhere better signaled than an unwillingness to downgrade Spain yet willingness to downgrade its regions. For your risk comprehending pleasure, we present - the BBBs!

With less than 20 days to go to the election, the Presidential race has tightened following Romney's performances in the debates, as the Republican challenger has overtaken the president in the national averages for the first time this year (and RealClearPolitics has him with an edge in the electoral college also). But ever the fair-and-balance bank, Citi believes that Obama's advantages remain substantial, as an incumbent president in an improving economic environment. In this broad discussion, the Pandit-less bank addresses 'the data' driving their Obama call, what would have to happen for a Romney win, the Senate and House split, The Tea Party (and other unusual events), and the 'bungee jump'-causing headline risk of the pending Fiscal Cliff debate. Everything you need to know about the election-critical states, players, and events (and who would win in a fist-fight), but were afraid to ask Wolf Blitzer.

As the Euro infection commences, is it time to profit?

• Germany will pay Greek aid (Spiegel)
• Spain Banks Face More Pain as Worst-Case Scenario Turns Real (Bloomberg)
• China’s Growth Continues to Slow (WSJ)
• Executives Lack Confidence in U.S. Competitiveness (WSJ)
• Poor Market Conditions will See 180 Solar Manufacturers Fail by 2015 (OilPrice)
• Wen upbeat on China’s economy (FT)
• Gold remains popular, despite the doubts of economists (Economist)
• Armstrong Stands to Lose $30 Million as Sponsors Flee (Bloomberg)
• IMF urges aid for Italy, Spain but Rome baulking (Reuters)
• EU Summit Highlights Financial Divide (WSJ)
• FOMC Straying on Price Target, Former Fed Officials Say (Bloomberg)
• Putin defiant over weapons sales (FT)

To summarize: European stocks are little changed although Spanish shares rise. Spain 10-yr bond yields fall to the lowest level in more than 6 months. S&P futures are now higher on the trading session, driven by correlation engines as the euro is up vs the dollar, despite major disappointments by IBM and Intel. In other news Germany formally shut down the debt redemption fund proposal, ending one more rescue avenue for when the recent baseless euphoria ends, even as Spanish La Vanguardia reports that Germany is pressuring Italy to request European aid alongside Spain so that the government of Prime Minister Mario Monti doesn’t reap the benefit of lower borrowing costs without being tied to tougher economic reforms. Needless to say, Italy is said to resist the proposal: after all in Europe one just wants the upside from being bailed out, as opposed to actually being bailed out...

For those who are curious why Tim Geithner has been invisible in the past 2 months, the answer is he has been manning the phones like a true patriot, and making sure nobody dares to rock the European boat ahead of the US election (as was already disclosed), in this case exemplified by Moody's just released announcement that the rating agency will not downgrade Spain to junk, soaring debt, collapsing GDP and laughable unemployment rate notwithstanding (unless of course the ECB fails in its mission to scare all shorts from approaching within 10 miles of an SPGB, and Spain loses private market access again, in which case Moody's would proceed with a "multiple notch downgrade"). At least not until the US election that is. After that... well, with the fiscal cliff, debt ceiling, Greece vs Troika, etc, etc, buy VIX.

The erstwhile 'developed' market of the Athens Stock Exchange has just suffered a major blow. Coca-Cola Hellenic Bottling Co (CCHBC), the world's second largest Coca-Cola bottler, will quit the exchange for London next year, cutting the value of equities listed in Athens to a mere $31bn - smaller than Vietnam's $35.2bn. CCHBC is Greece's largest company by market value and sets a rather ugly precedent in leaving the troubled nation. Accounting for 23% of the benchmark index weight, it is 50% larger than all four of Greece's major banks combined. A new company, headquartered in Switzerland, will make a share-exchange offer for CCHBC and seek a primary listing on the London Stock Exchange - which will mean around 10% of all trading volume on the Athens Stock Exchange will be lost. The decision to leave Greece was prompted by concerns over political and economic stability - so for the Greeks, Coke Is not It.

The Japanese Yen has been one of the strongest currencies among the developed nations of the world since the end of LTRO (up 6%). This strength (repatriation flows and or carry unwind?) combined with a dismal domestic economic growth environment appears to have pushed Japanese firms to spend spend spend for growth. The latest and greatest Softbank/Sprint deal will shift this year's Japanese corporate acquisition of foreign companies to near-record levels. As Bloomberg Briefs notes, this will be the country's largest overseas acquisition on record - exceeding Japan Tobacco's $19bn acquisition of the UK's Gallaher Group in 2007. However, this growth-buying-spree does not come cheap as ratings are under pressure and while LBO-style financing might make the deal 'cheap' at first, at some point the cycle will re-emerge; but for now - it appears the BoJ (who we are sure are watching intently) should maybe leave intervention off the table until Japan owns it all again and becomes even more too-bigger-to-fail.

When push comes to shove, China still has the bigger gun over Japan on many other levels, and the U.S. most likely has to at least sit in the bed it’s made so far.

This is the stuff that would never be aired in the US mainstream media, at least before a POTUS election!

• Global easing deluge resumes: Bank of Korea Slashes Policy Rate (WSJ)
• And Brazil: Brazil cuts Selic rate to new record low of 7.25 pct (Reuters)
• With Tapes, Authorities Build Criminal Cases Over JPMorgan Loss (NYT) Just don't hold your breath
• IMF snub reveals China’s political priorities (FT)
• Add a dash of trade wars: Revised Duties Imposed by U.S. on Chinese Solar Equipment (Bloomberg)
• IMF calls for action as euro zone crisis festers (Reuters)
• Dubai Losing Billions as Insecure Expats Send Money Abroad (BBG)
• Softbank in Advanced Talks to Acquire Sprint Nextel (WSJ)
• Lagarde calls for brake on austerity (FT)
• EU lambasts Turkey over freedoms (FT)
• Race Tightens in Two States (WSJ)