Daily Digest

Daily Digest 11/29 - EU Stocks Slip, France to Seize Pension Funds, Kraft Challenges Starbucks

Monday, November 29, 2010, 12:00 PM
  • Stocks Slip in Europe Following Details of Irish Aid
  • Mauldin: Recessions Are on the Margin
  • Germany Faces its Awful Choice as Spain Wobbles
  • Following Hungary And Ireland, France Is Next To Seize Pension Funds
  • Financial Contagion Could Spread to "Core" Eurozone Countries and the U.S.
  • Kraft Challenges Starbucks Attempt to End Agreement
  • Return of Estate Tax Looms as Final Impediment to Extending Bush Tax Cuts

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Economy

Stocks Slip in Europe Following Details of Irish Aid



Officials from the European Union and International Monetary Fund agreed late Sunday to backstop Ireland with €85 billion, or $113 billion, in loans to help the government meet its financial obligations and clean up the battered banks. “We are hopeful that a little more calm and a reality will come back to the markets’ valuations,” the German finance minister, Wolfgang Schäuble, said Monday on Deutschlandfunk radio.

Mauldin: Recessions Are on the Margin (jrb)



The difference between a technical "recession" and growth is meaningless if you can't find a job. If sales are slower because 17% of people are underemployed and governments are cutting back, it certainly doesn't feel like a growing economy to you. That difference is the margin between 2% average GDP growth and 3.5% average growth. That doesn't seem like a lot, but the compounding effects are large over time.

Germany Faces its Awful Choice as Spain Wobbles (pinecarr)



It is clear to those working in the bond markets that the debt crisis in the EMU periphery is nearing danger point, and risks spiralling out of control as quickly as the Lehman-AIG-Fannie-Freddie crisis in 2008. Prof Willem Buiter, chief economist at Citigroup, said last week that Portugal is likely to need a rescue before the end of the year and that Spain will follow “soon after”. Klaus Baader from Societe Generale issued a report the same day entitled “Eurozone sovereign debt crisis: next stop Spain”. He suggests that the EU bail-out fund raises money to buy Spanish bonds pre-emptively.

Following Hungary And Ireland, France Is Next To Seize Pension Funds (pinecarr)



If the recent Hungarian "appropriation" of pension funds, and today's laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the "new" money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France. Financial News explains how France has "seized" €36 billion worth of pension assets: "Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades." FN condemns the action as follows: "The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions  Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system."

Financial Contagion Could Spread to "Core" Eurozone Countries and the U.S. (ivo)



The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union. Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia. "Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings."

Kraft Challenges Starbucks Attempt to End Agreement 



The partnership between Kraft and Seattle-based Starbucks, which began in 1998, “remains in effect indefinitely,” according to a statement today from Northfield, Illinois-based Kraft. Since then, the packaged coffee business has grown from $50 million to $500 million in annual revenue. If Starbucks, the world’s largest coffee chain, were to end the agreement, it would have to compensate Kraft for the “fair market value” of the business, plus possibly a premium of up to 35 percent of that value, the statement said. “Kraft reasonably expected Starbucks to honor the contract,” Kraft General Counsel Marc Firestone said in the statement.

Return of Estate Tax Looms as Final Impediment to Extending Bush Tax Cuts

The federal levy on estates is set to increase the most of all as tax cuts expire Jan. 1, jumping from zero to 55 percent for fortunes worth more than $1 million at death. President Barack Obama and Democrats in Congress barely mention it as they spar with Republicans over whether to keep income-tax reductions for top earners. A new tax on multimillion-dollar estates may emerge as the final hurdle to a deal that preserves most or all of former President George W. Bush’s tax cuts, analysts said. Congress has unsuccessfully sought at least a half-dozen times to resolve the issue since 2000, including an abandoned effort last December to prevent the estate tax’s expiration.

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3 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4061
Re: Daily Digest 11/29 - EU Stocks Slip, France to Seize ...

"LONDON (MarketWatch) -- The cost of insuring Spanish and Portuguese government debt rose Monday as spreads on peripheral euro-zone sovereign credit default swaps, or CDS, widened to record levels in the wake of a lackluster Italian bond auction, analysts said. The five-year Spanish CDS spread widened by 25 basis points to 350 basis points, according to data provider Markit. That means it would now cost $350,000 a year to insure $10 million of Spanish debt against default, up from $325,000 on Friday. The Portuguese spread widened to 545 basis points from 502, Markit said, while the Italian spread widened to 231 basis points from 215. "Spain and Portugal are now at record wides, suggesting that contagion fears haven't been assuaged by Ireland's bailout," said Gavan Nolan, vice president for credit research at Markit."

"This year’s agriculture boom is a bust for U.S. dairy farmers as surging costs for cattle feed compound a glut of milk products.

While the 27 percent jump in wheat prices and 48 percent gain in cotton may send farm income to a record, dairies will lose money in 2011 for the second time in three years, said Mike Brown, an economist at Glanbia Foods Inc., which processes milk in Idaho and New Mexico. Corn, a feed ingredient, jumped 33 percent in the two months ended Oct. 31, almost three times the gain in wholesale-milk prices. "

"Nov. 29 (Bloomberg) -- Italy’s borrowing costs rose at a sale of 6.8 billion euros ($9 billion) of bonds on investor concern that the 85-billion-euro aid package for Ireland won’t be enough to stop the spread of the region’s debt crisis.

The Treasury sold 3 billion euros of securities due March 2021 to yield 4.43 percent, up from 3.89 percent at a sale on Oct. 28, data from the Bank of Italy showed today. The Treasury also sold 2.5 billion euros of securities due in November 2013 to yield 2.86 percent, more than the 2.32 percent at the previous auction. Another 1.34 billion euros of floating-rate notes due 2017 were sold with a yield of 2.3 percent."

"Nov 29 (Reuters) - The euro extended its sell-off in early trading on Monday and broke below key support at its 200-day moving average, signaling more losses to come.

The euro fell as low as $1.3105 EUR= on trading platform EBS, a fresh more than two-month low after breaching 200-day moving average at around $1.3130.

The euro was last at $1.3109, down 1 percent on the day. Traders noted more barriers in the $1.31 area.

The euro came under heavy pressure despite an $85 billion euro ($115 billion) rescue package for Ireland approved over the weekend, on fears that Portugal and Spain will be next to need bailouts."

 

  • Other news, headlines and opinion:

Euro Falls Against Dollar as Irish Deal Fails to Stem Concern

Ireland must find €17.5bn from its pension fund and reserves for bailout

Financial News: France Seizes EUR36 Billion Of Pension Assets

France, Germany say euro saved but investors skeptical

China's food crisis spells end of record highs

Germany faces its awful choice as Spain wobbles (Ambrose Evans-Pritchard)

Belgian Borrowing Costs Rise Along With Debt Levels

Illinois, New York Lead Week as Debt Sales Leap 52% From 2009: Muni Credit

Roubini tells Portugal to seek bailout as markets slide

Cost Of Insuring Italian Sovereign Debt Rises - Markit

Debt Backed by Less Collateral as Spreads Jump: Credit Markets

House could delay Medicare rate cuts

Cash-strapped San Carlos may cut pensions for future workers

Dubai may sell stakes in state-owned companies

Illinois in $1.5bn bond sale to pay bills

Holiday price index: Cost of `12 Days of Christmas' items nears $100K, a 10.8 percent increase (over last year)

Greece Wins EU Pledge for 4 1/2-Year Extension to Repay Emergency Loans

EU Says Growth to Weaken as Crisis `Shadow' Remains

U.K. Home Prices Decline as Property Demand Drops Most in Almost Two Years

Number of the Week: 492 Days From Default to Foreclosure (Blog)

Spanish debt rate hits eight-year high

Belgian risk premiums spike during small bond sale-UPDATE 1

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4061
Re: Daily Digest 11/29 - EU Stocks Slip, France to Seize ...

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