Standard And Poors
According to Bill Gross the outlook for 2014 is all about inflation, and how it will impact bonds in the 1-5 maturity bucket: "I am amazed at the fascination and emphasis placed on the u-rate during employment Fridays. Bond prices will move (in some cases by points) with a minor up or down change in unemployment relative to expectations, but when it comes to the third little pig of the litter – inflation – no one seems to care. This number – the PCE annualized inflation rate – is released near the 20th of every month but you will not see CNBC or Bloomberg analysts waiting with bated breath for its release. I do. I consider it the critical monthly statistic for analyzing Fed policy in 2014. Why? Bernanke, Yellen and their merry band of Fed governors and regional presidents have told us so. No policy rate hike until both unemployment and inflation thresholds have been breached and even then “they’re not thresholds,” they’re forks in the road that may or may not lead in a different direction. If so, then 1-5 year bonds, combined with credit, volatility, curve rolldown, and a dollop of currency should float a bond investor’s boat in 2014 and avoid breaking the buck in total return space.... If PCE inflation stays below 2.0% and inflationary expectations don’t rise appreciably above 2.5%, then a 3-4% total return for 2014 is realistic. "
AMZN - Profitless, but making it up in volume.
Ahead of today's presidential and congressional elections, Goldman provides some brief thoughts on various election-night (and beyond) events. From a viewer's guide to the poll-closing times to a discussion of the apparent 'closeness' of the race and post-election market performance, they note that equity performance post 'tight' races has been better than in elections where the winner is more clear-cut. This election has a twist though in that it will be immediately followed by debate on the fiscal cliff, and thus resolution of the election will reduce, but not eliminate policy uncertainty.
SNB bond-buying is "exacerbating" the gap between borrowing costs for stable countries like Germany and the rest of the 17-nation euro zone.
Get those rotten tomatos ready
On January 30, a skeleton fell out of the closet in the Netherlands. Het Financiele Dagblad reported that Vestia, the biggest Public Housing Corporation in the Netherlands with 79 thousand rental units, had had a margin call of 1.6 billion euros on its interest rate derivative portfolio. Vestia had doubled its derivative contracts to 10 billion dollars (in notional value) in 2010 on a loan portfolio of 6 billion euros. They say they had arranged the extra “coverage” already for potential future loans.
The loan to cover the shortfall had secretly been provided by the fund guaranteeing Public Housing Corporations, the Warborgfonds, since September 2011. Recently Vestia was able to secure a replacement loan from the De NederlandseWaterschapsbank.
According to RTLZ, Vestia's Contract Support Annexes will have to be examined in detail to figure out exactly what the conditions are. The Interior Minister has been promised the results of this examination sometime in March.
Twenty Woningcorporaties are preparing to guarantee Vestia liquidity of another billion euros. They will demand strict conditions on this sum according to NRC. They want assurances that they will not have to contribute to the Centraal Fonds Volkshuisvesting (CNV) so-called reorganization support if any other corporations get into trouble.
It is not entirely clear how many Woningcorporaties have derivative contracts but newspaper Trouw estimates there to be 148 of them. A fall in interest rates of one percent would require 24 to seek additional funding, according to Interior Minister Spies in NOS news. Another 24 on the other hand have been rumoured to be able to withstand this scenario. RTLZ reports that 20 of them have already had margin calls on their derivative products.
It could all lead to a viscous spiral downwards in the sector according to NRC Handelsblad. In fact, four directors of other Woningcorporations anonymously state in Trouw that Public Housing corporations are too lax in offering guarantees to each other through the Waarborgfonds. If the government or the CNV intervenes, it could alarm bankers who will call in all outstanding Vestia loans (NRC). This is not likely according to Vestia mouthpiece Ronald Florisson because the corporation now has enough funding on hand thanks to the winding down of the derivative contracts. Florisson is “very thankful” for the arranged backstop.
Vestia has jacked up the rents for new renters by 9 percent. Several opposition parties are not amused and are going to protest in Parliament this week.
Director Eric Staal left Vestia with a rather unusual golden handshake of 3.5 million euros, allegedly to secure his pension requirements. He had earned 500 thousand euros a year, two or three times the norm for directors of public and semi-public institutions. However this is all being investigated. The PVV (Partij Voor de Vrijheid) is demanding the seizure Staal's Caribbean villa.
Vestia's Advisory Board has recently confirmed that the current director is being paid according to the “Balkenende norm” set by government for the sector. These semi-public servants are allowed to earn 130 percent of a Government Minister's salary, which was 187 340 euros in 2011, plus expenses of 7560 euros. Despite the fact that the salaries of these directors of semi-public institutions have to be published, there are regular scandals in which they have been found to receive much more.
Another noteworthy example of things coming unhinged in the Public Housing sector involves a management company working for one of the corporations. These companies stand between buyers and renters of Woningcorporatie properties and do investment and development work in the sector.
It was reported on 23 February that management concern Redema had had the Owners' Associations savings accounts put into bank accounts in its own name and went bankrupt. It will cost 'hundreds' of families at least 1.5 million dollars. Since more and more public housing is being sold off instead of rented, the whole phenomenon of Owners' Associations is relatively new for many people.
So there is lots of uncertainty in Public Housing these days. The entire Public Housing Corporation sector has loans (I don't believe they issue bonds) outstanding of around 85 billion euros, ultimately guaranteed by government. According to writer Peter Verhaar at nuzakelijk.nl, Standard and Poors rates the sector “extremely strong”. Verhuur argues that the problems are largely due to Public Housing having undergone a fake privatization.
Undertheradar's goal is to give an impression of the state of economics, finance and politics in the Netherlands and compare it to its partners in the eurozone.
The Case Shillers are shilling that the market is still weakening. But that's just not the Case.
Mario Draghi once again mistakes a Solvency issue for one of Liquidity
Bank of America now precisely at $5.00 following an after hours downgrade from A to A-. We note that BofA's CDS widened 10bps today while MER CDS widened 18bps and notably wider (we haven't seen runs post downgrade) and we wonder how this will impact the firm's huge derivative book which was recently moved to the Bank's higher rated, and deposit backed unit for its better rating support. In fact, following such a drastic action, it is quite likely that derivatives units across the board will see counterparties scrambling to demand a far greater cash cushion for fears of the same downgrade waterfalls that took down AIG and MF Global.