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Frontrunning: October 23





  • Top China Banks Triple Debt Write-Offs as Defaults Loom (BBG)
  • PBOC suspends open market operations again (Global Times)
  • Eurozone bank shares fall after ECB outlines health check plan (FT)
  • O-Care falling behind (The Hill)
  • Key House Republican presses tech companies on Obamacare glitches (Reuters)
  • J.P. Morgan Faces Another Potential Huge Payouta (WSJ)
  • Yankees Among 10 MLB Teams Valued at More Than $1 Billion (BBG)
  • Free our reporter, begs newspaper as China cracks down on journalists (Reuters)
  • Peugeot Reviews Cost-Saving Alliance With GM (WSJ)
 
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Asia Slides As China Overnight Repo Soars On Fears Of Another Domestic "Tapering" Episode, Preparations For Bank Loan Defaults





Following the past two days of reports in which we noted that both the broader Chinese housing market was overheating and reflating at an unprecedented pace as 69 of 70 cities posted Y/Y home price gains, while a separate report showed a blistering 12% price increase in Shanghai new homes in one week, it was only a matter of time before the PBOC resumed its tighter policy posturing, which infamously sent short-term repo rates to 25% briefly in June and nearly led to a collapse of the already fragile local banking system, in an attempt to pretend it is still in control of what is now the world's fastest growing credit bubble and of course, Chinese inflation which is now impacted not only by record domestic credit production but by hot money flows from both the Fed and the BOJ.  Predictably enough, as reported overnight by the Global Times, the PBOC suspended its open market operations Tuesday without injecting money as usual, a move that analysts said was in response to a surge in foreign capital inflows in September. And just like the last time the PBOC proceeded to "surprise" the market with its own tapering intentions, overnight funding rates soared, with the one-day repo rate surged 67 bps, most since June 20, to 3.7561%; while the seven-day repo rate rose 42 bps, most since July 29, to 4.0000%. This, however, brings us to the far more important story, one reported by Bloomberg overnight, and one which we predicted is inevitable over a year ago: namely that the Chinese banks, filled tothe gills with bad and non-performing debt, are finally preparing for the inevitable default onslaught and as a result have suddenly tripled their debt write offs in what can be best described as preparing for an avalanche of defaults.

 
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Frontrunning: October 22





  • Despite budget win, Obama has weak hand with Congress (Reuters)
  • Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
  • Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
  • Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
  • J.P. Morgan Aimed to Limit Damage (WSJ)
  • EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
  • Wall Street Profits May Halve in Second Half (WSJ)
  • Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
  • Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
  • Italy plans to offer guarantees on govt bond derivatives (Reuters)
  • Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)
 
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Frontrunning: October 21





  • FHFA Is Said to Seek at Least $6 Billion From BofA for MBS Sales (BBG)
  • Record Pact Is on the Table, But J.P. Morgan Faces Fight (WSJ)
  • Magnetar Goes Long Ohio Town While Shorting Its Tax Base (BBG)
  • Mini-Wall Street' Rises in Hamptons (WSJ)
  • Obama to call healthcare website glitches 'unacceptable' as fix sought (Reuters)
  • Starbucks Charges Higher Prices in China, State Media Says (WSJ)
  • Cruz Is Unapologetic as Republicans Criticize Shutdown (BBG)
  • Berlusconi struggles to keep party united after revolt (Reuters)
  • SAC Defections Accelerate as Cohen Approaches Settlement (BBG)
 
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Guest Post: Gold Fails To Obey Script





Selling both the rumor and the news turns out not to work... but we cannot yet say whether a trend change is definitely in the bag. However, considering how absolutely dismal sentiment on gold is, considering the many similarities to the 2008 'retest' that could be observed recently (back then, gold was also declared 'dead' by the mainstream) and given the fact that for a change, the gold market has not acted in the way that was widely expected, it continues to make sense to look for more signs of a trend change to emerge. Ideally declines should continue to be kept in check by support at $1275, while any rally that manages to exceed the $1350 level on a closing basis and confirmed by the gold stock indexes can probably be interpreted as a sign that the short to medium term trend has finally reversed for good.

 
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Frontrunning: October 18





  • Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
  • Budget fight leaves Boehner 'damaged' but still standing (Reuters)
  • Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) - just like Bernanke
  • Republicans press U.S. officials over Obamacare snags (Reuters)
  • Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
  • More brilliant: Fed could taper as early as December (FT)
  • Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
  • Ford's Mulally won't dismiss Boeing, Microsoft speculation (Reuters)
  • China reverses first-half slowdown (FT)
  • NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)
 
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Frontrunning: October 17





  • Congress Vote Ends Impasse to Be Revisited in January (BBG); Congress Passes Debt, Budget Deal (WSJ)
  • House GOP extracts no concessions (Politico)
  • Washington becomes the biggest risk to the U.S. economy (Reuters)
  • Debt Deal Seen Boosting U.S. Consumers as Holidays Approach (BBG) - only thing missing: disposable income
  • Federal Employees Head Back to Work (WSJ)
  • Regulator Suggested Shift for Dimon at J.P. Morgan Unit (WSJ)
  • Twitter hires Google ad exec ahead of IPO (CNET)
  • Teens can now post publicly, but posts are friends-only by default (WaPo)
  • Germany Moves to Finalize Coalition Deal (WSJ)
  • Draghi Turns Judge on EU Banks as ECB Studies Accounts (BBG)
  • UK nuclear deal with China a ‘new dawn’ (FT)
 
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Frontrunning: October 15





  • Spot the pattern: Senate Leaders Nearing a Deal (Politico), Senators say debt, shutdown deal is near (USA Today), Senate Leaders in Striking Distance of a Deal (WSJ), U.S. senators hint at possible fiscal deal on Tuesday (Reuters), Senate Debt-Limit Deal Emerging (BBG)
  • U.S. debt ceiling crisis would start quiet, go downhill fast (Reuters)
  • Uneasy Investors Sell Billions in Treasurys (WSJ)
  • BOE’s Cunliffe Says U.K. Is Not in Grip of Housing-Market Bubble (BBG)
  • Letta Mixes Tax Cut With Rigor in Post-Berlusconi Italian Budget (BBG)
  • Japan Seeks to Export More High-End Food  (WSJ)
  • Burberry names Bailey CEO as Ahrendts quits for Apple (Reuters)
  • China’s Biggest Reserves Jump Since 2011 Shows Inflow (BBG)
 
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Frontrunning: October 14





  • Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
  • As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
  • The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
  • China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
  • Vegetable prices fuel Chinese inflation (FT)
  • China Slowing Power Use Growth Points To Weaker Output Data (MNI)
  • London Wealthy Leave for Country Life as Prices Rise (BBG)
  • Gulf oil production hits record (FT)
  • Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts  (WSJ)
  • Weak Exports Show Limits of China’s Growth Model (WSJ)
 
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Frontrunning: October 11





  • Dot Com part deux: Investors are showing increasing hunger for initial public offerings of unprofitable technology companies  (WSJ)
  • Poll Finds GOP Blamed More for Shutdown (WSJ)
  • House, Senate Republicans Offer Competing Plans on Debt-Limit, Government Shutdown (WAPO)
  • Obama, Republicans aim to end crisis after meeting, hurdles remain (Reuters)
  • US Rethinks How to Release Sensitive Economic Data (WSJ)
  • Chinese East Oil Fuels Fresh China-US Tensions (WSJ)
  • ECB Agrees on Swap Line With PBOC as Trade Increases (BBG)
  • China September Auto Sales Surge 21% on Japanese Rebound (BBG)
  • JPMorgan Taps Taxpayer-Backed Banks for Basel Rules (BBG)
 
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Frontrunning: October 10





  • The ice breaks; fiscal talks set (The Hill); Ryan steps up to shape a deal (The Hill), as predicted here yesterday
  • Republicans consider short-term U.S. debt ceiling increase (Reuters)
  • Shutdown Standoff Shows Signs of a Thaw (WSJ)
  • JPMorgan Clients in Cash as Schwab’s Options Hedge Default (BBG)
  • Mitch McConnell, Senate GOP search for way out (Politico)
  • Meredith Whitney Winds Down Brokerage Unit After Setting Up Fund (BBG)
  • Washington Budget Chaos Keeps Fed Rates Low for Longer (BBG)
  • Chinese Premier Outlines US Debt Concerns (FT)
  • Saudis brace for 'nightmare' of U.S.-Iran rapprochement (Reuters)
  • Obama Urges Action on Yellen’s Fed Nomination (Reuters)
  • Libyan Prime Minister Ali Zidan Freed After Kidnap (WSJ)
 
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Brazil's Second Largest Oil Company On Verge Of Latin America's Biggest Corporate Bankruptcy Filing





When on October 1, fallen billionaire Eike Batista's OGX Petroleo & Gas, missed a $45 million bond coupon payment, some were surprised but most  had seen the writing on the wall. After all, Brazil's second largest oil company after Petrobras, and the crowning jewel of Batista's EBX Group, had been under the microscope of investors and certainly creditors (and if it wasn't it certainly should have been) after oil deposits that Batista had valued at $1 trillion turned out to be commercial failures. And so the countdown to the inevitable bankruptcy filing began. Overnight, Bloomberg reports that the wait should not be long (in fact it may coincide with the default of that other insolvent mega-creditor: the United States), and will mostly certainly take place before the end of the month, following the retention of bankruptcy specialist law firm Quinn Emanuel.

 
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Frontrunning: October 9





  • Janet Yellen, a Backer of Pushing the Fed's Policy Boundaries (WSJ)
  • Jos. A. Bank proposes to buy Men's Wearhouse for $2.3 billion (Reuters)
  • J.P. Morgan to Cull Business Clients (WSJ)
  • RBS Said to Pass Currency Trader Chats to FCA Amid Probe (BBG)
  • Prosecutors give SAC settlement ultimatum (FT)
  • U.S. builders hoard mineral rights under new homes (Reuters)
  • Bill Comes Due for Brazil's Middle Class (WSJ)
  • US expected to slash aid to Egyptian government (AP)
  • Samsung launches world's first smartphone with curved screen (Reuters)
  • Microsoft’s $7.2 Billion Nokia Bet Not Luring Apps (BBG)
  • China raises hurdles for foreign banks (FT)
 
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Goldman Says Gold "Slam Dunk" Sell, Ready To Buy All Its Clients Have To Offer





Goldman, which is the hedge fund best known for originating prop order flow in the opposite direction of what its sellside "research" team tells its clients to do (see Tom Stolper), has never been clearer on gold: "Gold is slam dunk sell for next year because the U.S. economy will extend its recovery after lawmakers resolve stalemates over the nation’s budget and debt ceiling, Goldman Sachs Group Inc.’s Jeffrey Currie said." How the economy will expand, especially with the Fed supposedly tapering (even though everyone saw what happened to markets and the economy at the mere mention of "tapering" the last time around) and eventually ending QE - the only driver of upside market momentum in the past 5 years - was not discussed. What was, however, clear is that Goldman will continue buying all the gold its clients have to sell until the bailed out hedge fund's price target of $1,050/ounce is hit.

 
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Earnings Season Starts With Government Still Shut; 9 Days Till The Debt X-Date





Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.

 
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