“Election Day is in the rearview mirror, but the aftershocks will reverberate in the market for years. There is a threat of recession, yet if a deal can be struck averting the “fiscal cliff,” it would pave the way for respectable returns in 2013 and 2014. “Rational minds believe something will get done, but I’m just not sure how many rational minds there are inWashington,” quips Charles Schwab chief strategist Liz Ann Sonders.

Thus, caution is the mantra on Wall Street. Most agree that the housing recovery is real. Housing has been a huge winner in 2012, but it’s still early–new housing starts have rebounded to more than 800,000 at an annualized rate, well below a peak rate of more than 2 million. The SPDR S&P Homebuilders ETF is up 50% in the last 12 months….”

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“You wouldn’t know the Federal Reserve has done nothing but add to its record monetary stimulus from looking at short-term funding markets.

The federal funds effective rate on overnight loans between banks was 0.16 percent on Nov. 21, up from 0.06 percent at the end of September 2011, the month Fed officials announced they would begin swapping short-term securities in their portfolio for long-term debt under Operation Twist. The rate for borrowing and lending Treasuries for one day through repurchase agreements also has surged.”

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No lobbying balls in this arena…

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[youtube://http://www.youtube.com/watch?v=83sX8Ent4vo 450 300]

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Did you expect more than this; folly, corporate charters, and too many chiefs have soured the sauce….

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“BRUSSELS (Reuters) – Greece’s debt cannot be cut to 120 percent of GDP by 2020, the level deemed sustainable by the IMF, unless euro zone member states write off a portion of their loans to Greece, a document prepared for euro zone finance ministers shows.

The 15-page document, circulated among ministers, the European Central Bank and the IMF for a meeting that began on Tuesday and is still going on 10 hours later, sets out in black-and-white how far off-track Greece is in reducing its debt to the IMF-imposed target, from a level around 170 percent of GDP now.

The document sets out a variety of ways in which Greece’s debt ratio could be reduced between now and 2020, but concludes they would not be enough without euro zone creditors taking a hit on their own holdings — something Germany and others have declared would be illegal.

The document does say Greek debt could fall to 120 percent of GDP two years later without having to impose any losses on euro zone member states or forcing through a buy-back of Greek debt from private-sector bondholders.”

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“Foreign direct investment in China fell for the 11th time in 12 months as labor costs rose, an economic slowdown threatened to drag growth to a 13-year low and a territorial dispute withJapan weighed on trade.

Investment dropped 0.2 percent in October from a year earlier to $8.31 billion, the Ministry of Commerce said in Beijing today. FDI inflows in the first 10 months of the year declined 3.5 percent to $91.7 billion, while non-financial outbound investment rose 25.8 percent to $58.2 billion.

The decline in inflows highlights challenges for new Chinese leadership headed by Xi Jinping, who took the reins of the ruling Communist Party last week in a once-a-decade power handover, as officials seek to reverse a growth slowdown. The world’s second-largest economy may expand by 7.7 percent this year, the weakest pace since 1999, based on the median estimate of analysts surveyed by Bloomberg News.”

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“LOS ANGELES (AP) — Americans cranked up their use of credit cards in the third quarter, racking up more debt than a year ago, while also being less diligent about making payments on time, an analysis of consumer-credit data shows.

The average credit card debt per borrower in the U.S. grew 4.9 percent in the July-to-September period from a year earlier to $4,996, credit reporting agency TransUnion said Monday.

At the same time, the rate of credit card payments at least 90 days overdue hit 0.75 percent, up from 0.71 percent in the third quarter of last year, the firm said.

While higher, the late payment rate is rising from historically low levels. The lowest late payment rate on TransUnion records going back to the mid-1990s was 0.56 percent, set in the third quarter of 1994. More recently, it was at 0.60 percent in the second quarter of last year.

During the last recession, many Americans reined in spending in favor of paying off debt, particularly credit card balances. The housing downturn also prompted many homeowners to make paying their credit card accounts on time a priority at the expense of other financial obligations, such as their mortgage payments.”

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“The effort to establish a euro-area banking regulator in Frankfurt is exposing deepening fault lines among the city’s banks as policy makers jostle over the shape of the industry.

Deutsche Bank’s co-Chief Executive Officer Juergen Fitschen, an advocate, is among top executives and officials meeting at the Euro Finance Week conference in the currency union’s financial capital today. At the center of the debate will be how much power the European Central Bank, based in Frankfurt, should be allowed to wield.

The argument pits Fitschen, who favors centralized ECB regulation, against more than 1,500 smaller banks who lend more cash to Europe’s biggest economy than he does. The discord over banking union mirrors a wider dispute between politicians, regulators and central banks across the continent that has led the Bundesbank, also based in Frankfurt, to lock horns with the ECB. At stake is a revival of last year’s bank share sell-off, prompted by foot-dragging on steps to stem Europe’s debt crisis.

“The path to banking union leads through Frankfurt and that’s where the conflicts will be focused,” Markus Rudolf, a professor of banking and finance at the WHU Otto Beisheim School of Management in Vallendar, Germany, said by phone. “Frankfurt is the site of very different competing opinions.” ”

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The IMF and the ECB will go back to the drawing board in Brussels to try and hammer out a clear path on funding Greece.

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“The shadow banking industry has grown to about $67 trillion, $6 trillion bigger than previously thought, leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight.

The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off- balance sheet investment vehicles, “can create systemic risks” and “amplify market reactions when market liquidity is scarce,” the Financial Stability Board said in a report, which utilized more data than last year’s probe into the sector.

“Appropriate monitoring and regulatory frameworks for the shadow banking system needs to be in place to mitigate the build-up of risks,” the FSB said in the report published on its website.

While watchdogs have reined in excessive risk-taking by banks in the wake of the collapse of Lehman Brothers Holdings Inc. in 2008, they are concerned that lenders might use shadow banking to evade the clampdown. Michel Barnier, the European Union’s financial services chief, is planning to target money market funds in a first wave of rules for shadow banks next year.

The FSB, a global financial policy group comprised of regulators and central bankers, found that shadow banking grew by $41 trillion between 2002 and 2011. The share of activity based in the U.S. has declined from 44 percent in 2005 to 35 percent in 2011, moving to the U.K. and the rest of Europe.”

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Full article and charts

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“The market for junk bonds – or high yield debt – has been on a tear as investors have poured money into the asset class.

But that market has recently started to show some cracks.

Bloomberg’s Lisa Abramowicz reported earlier in the week:

Investors yanked a record volume of cash from BlackRock Inc. (BLK)’s exchange-traded fund that buys junk bonds as the notes lose value for the first month since May.

The $16.3 billion fund reported an outflow of 2.4 million shares yesterday, equal to about $218.9 million, according to data compiled by Bloomberg. That’s the biggest daily withdrawal in the five-year history of the iShares iBoxx High Yield Corporate Bond Fund, the largest of its kind.

The obvious question, then, is where the market goes from here – do the redemptions continue, or does activity level out? ”

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“As France begins collecting its financial-transactions tax this month, it is becoming evident that President Francois Hollande’s levy is hitting all but the people it was aimed at: speculators.

Hollande, who called finance his “main adversary” during his election campaign, pushed through in August a 0.2 percent transaction tax on share purchases, making France the first and only country so far in Europe to have such a levy. Many investors have been escaping the tax using so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares.”

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“Chinese banks’ bad loans increased for a fourth straight quarter, the longest streak of deterioration since the data became available in 2004, highlighting pressures on profit growth as the economy weakens.

Non-performing loans rose by 22.4 billion yuan ($3.6 billion) in the three months ended Sept. 30, to 478.8 billion yuan, the China Banking Regulatory Commission said in a statement on its website today. Bad loans increased at all types of institutions, including the largest state-owned lenders, rural banks and foreign banks, the regulator said.

China’s banking system is grappling with rising defaults and weaker loan demand after economic growth decelerated for a seventh quarter. Combined net income growth at the nation’s 3,800 lenders slowed to 14 percent in the third quarter from 23 percent in the second, the regulator said today.”

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“Although federal law prohibits the sale or possession of marijuana, Massachusetts last week joined the ranks of states — 18 plus Washington, D.C. — that allow its use for people suffering from chronic illnesses like cancer, HIV/AIDS, multiple sclerosis and epilepsy. In Washington and Colorado, meanwhile, voters passed an initiative to allow pot for recreational use.

Those changes have kickstarted a small but fast-growing medical-marijuana industry, estimated to be worth about $1.7 billion as of 2011, according to See Change Strategy, an independent financial-analysis firm that specializes in new markets. In Colorado alone, sales topped $181 million in 2010, and the business employed 4,200 state-licensed workers, says Aaron Smith, executive director of the National Cannabis Industry Association , a nonprofit trade group that campaigns for marijuana’s federal legalization.

In addition to profiting itself from growing and selling marijuana, the industry benefits a slew of other businesses, such as insurers, lawyers and agricultural-equipment firms, experts say. “Call it the ‘green rush,’” says Derek Peterson, CEO of GrowOp Technology, an online retailer of hydroponics — products used in the cultivation of indoor plants — and a subsidiary of OTC stock Terra Tech TRTC +2.86% . “The industry is expanding, and there are all kinds of investment opportunities.” “

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[youtube://http://www.youtube.com/watch?v=7-ADAr9-Aqs 450 300]

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“Investors are barreling into municipal bonds, driving yields to record lows and hoping for a safe hiding place at a time when taxes are almost certain to rise.”

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“Federal Reserve Vice Chair Janet Yellen said that U.S. interest rates may need to stay near zero until early 2016 to forcefully lift employment, and she strongly backed adopting inflation and unemployment thresholds to guide policy.

Yellen, viewed as a front-runner to succeed Fed Chairman Ben Bernanke when his term expires in January 2014, argued that an optimal path for U.S. monetary policy would keep rates on hold for longer than expected, at the cost of a bit more inflation.

“This highly accommodative policy path generates a faster reduction in unemployment than in the baseline, while inflation overshoots the (Fed policy) committee’s two percent objective for several years,” she told students at the Haas School of Business at the University of California, Berkeley.”

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“Spanish workers staged a second general strike this year as unions across Europe prepared the biggest coordinated protests yet against budget cuts that policy makers say are needed to end the region’s debt crisis.

In Spain, unions said most auto and metal workers joined the strike, even as demand for electricity was just 12 percent below usual. One of Portugal’s two biggest labor groups also called a strike. Partial walkouts are planned in Greece and Italy, and French unions are urging workers to join protest marches.

Opposition to Spanish Prime Minister Mariano Rajoy’s cuts in health, education and welfare benefits is growing while those measures are failing to rein in the budget deficit or bring down borrowing costs. Demands for less austerity are gaining traction as the International Monetary Fund recommends nations including Spain slow the pace of budget cuts.

“This is a strike against the suicidal economic policies of the government,” Ignacio Fernandez Toxo, head of Spain’s CCOO union, told supporters late yesterday.

Rajoy, who won a landslide election victory a year ago, is wrestling with the second-largest budget deficit in the euro region while trying to revive the economy from a five-year slump that pushed the jobless rate to 26 percent. He is trying to avoid following Portugal, Greece and Ireland into seeking a sovereign bailout as Spaniards resist the measures being implemented as a condition for the 100 billion-euro ($127 billion) European bank rescue he agreed to in June.”

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“Bank of England Governor Mervyn King said the U.K. economy may shrink in the current quarter and its recovery will be subdued, prompting officials to keep open the option of further asset purchases to aid growth.

“We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” King told reporters in London today. “There are limits to the ability of domestic policy to stimulate private sector demand as the economy adjusts to a new equilibrium. But the Committee has not lost faith in asset purchases as a policy instrument, nor has it concluded that there will be no more purchases.”

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