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Monthly Archives: November 2011

Emerging markets stocks at 35% discount

I’d be the first one to tell you to ignore the advice of this piece.

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Emerging-market stocks are trading at levels 35 percent cheaper than their 15-year average as rising profits and falling interest rates from Brazil to Indonesia buoy investor confidence.

While the MSCI Emerging Markets Index’s 9.7 percent gain from this year’s low on Oct. 4 lifted its price-earnings ratio to 10.3 from 9.7, the gauge is still trading below its mean since 1996, according to data compiled by Bloomberg. The measure jumped an average 35 percent after developing-nation policy makers began cutting interest rates in 2003, 2005 and 2008.

Investors pulled $26 billion from emerging-market mutual funds in the first nine months and the stock indexes sank about twice as much as advanced nations after Indonesia, Poland and Brazil raised interest rates. Now borrowing costs are coming down as policy makers seek to spur expansions at a time when export growth and inflation are slowing. The MSCI index may rise 30 percent in a year as record earnings outweigh Europe’s debt crisis, more than 17,000 forecasts compiled by Bloomberg show.

“You still have great relative growth advantages for a lot of the underlying economies and very cheap stocks,” David Donabedian, who oversees about $17 billion as chief investment officer at Atlantic Trust, said in a Bloomberg Television interview. “We’ll begin to see better performance out of the emerging markets over the next three or four months and the reason is we’re going to see some positive policy changes.”

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Groupon shares plummet 10%

(Reuters) – Groupon Inc stock slumped as much as 14 percent on Tuesday on concern about increased competition, leaving shares of the largest daily deal company close to their $20 initial public offering price.

Groupon shares fell to as low as $20.03 in late morning action before recovering slightly. The company was the third-largest decliner on the Nasdaq.

Groupon raised more than $700 million in an IPO in early November.

LivingSocial, Groupon’s closest rival, announced plans on Monday to offer more than 20 deals with national merchants over the crucial Black Friday shopping period.

Daily deal companies often subsidize national deals, making them less profitable than offers run with local merchants. The national deals usually bring in lots of new customers, but pressure profit margins.

“In the last few days we’ve been hearing about LivingSocial stepping up promotions,” said Edward Woo, an analyst at Wedbush Securities. “The concern is that there will be much more competition for Groupon going forward.”

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Crisis in Europe key to U.S. economy

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Third quarter gross domestic product was revised down Tuesday from 2.5% to 2.0%. That’s a sizable adjustment, but when you consider GDP growth from the previous quarters this year, a .5% revision downward is hardly that bad. (See: As Gloom Rises, U.S. Economic Data Flow Strengthens)

In Q1, the U.S. economy grew a minuscule .4%. In Q2, that number rose to 1.3%. So 2.0% growth in the third quarter at a time when there were “terrible headwinds” such as the debt ceiling debate and a market drop of 8%-9% is not horrible and actually shows some resilience in the consumer, which makes up 70% of the GDP figures, says Yahoo! Breakout’s Jeff Macke.

“Consumer spending was revised slightly down to a 2.3% growth pace from 2.4% because of adjustments to motor vehicle fuels and lubricants,” reports Reuters. “It was still the quickest pace since the fourth quarter of 2010.” This is right in line with previous reports of retail sales and earnings on The Daily Ticker.

What does this all mean for next year as we head into 2012? In a word, Macke says, the outlook is “grim.”

But he acknowledges the fact that no one has a clue what next year will bring. There are just too many unknown variables plaguing the global economy, the biggest of which Macke says is the European debt crisis.

In a sea of uncertainty, one thing is clear, says Macke: The future of the U.S. economy rests upon what happens in Europe. If Europe “seizes economically,” it is going to have a huge impact on the U.S. in terms of both jobs and the ability of U.S. companies to do business there.

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Young Workers Experience a Long Trip to the Real World

Earlier this fall, Steve Ferdman celebrated getting a job offer from Credit Suisse in the usual Wall Street fashion. Over expensive oysters and dark rum cocktails at a trendy Manhattan restaurant with his parents, he toasted landing the full-time position after working six months as a consultant without benefits.

A week later, Mr. Ferdman, 28, sat alone at the same place and ordered a gin and tonic to lament getting laid off by the bank, for the second time since 2008. When he told the bartender about his misfortune, his next round was on the house.

“I did everything right. I came into work every day, I put in long hours, and I still got punched in the face,” Mr. Ferdman said. “People shouldn’t want to work in this industry anymore.”

Being young on Wall Street once meant having it all: style, smarts and too much money to spend wisely. Now, twenty-somethings in the finance industry are losing both cash and cachet.

Sam Meek, 27, of Greenwich, Conn., was laid off from his job at a hedge fund. "I'm scraping by right now," he said.Andrew Sullivan for The New York TimesSam Meek, 27, of Greenwich, Conn., was laid off from his job at a hedge fund. “I’m scraping by right now,” he said.

Three years after the global financial crisis nearly brought Wall Street firms to the brink, the nation’s largest banks are again struggling. As profits wane, layoffs have claimed thousands of jobs and those still employed have watched their compensation shrink. These problems are set against the morale-crushing backdrop of the Occupy Wall Street movement, which has made a villain of a once-lionized industry.

Much of the burden of Wall Street’s latest retrenchment has fallen on young financiers. The number of investment bank and brokerage firm employees between the ages 20 and 34 fell by 25 percent from the third quarter of 2008 to the same period of 2011, a loss of 110,000 jobs from layoffs, attrition and voluntary departures.

By comparison, industry headcount dropped by 17 percent in the same period, according to an analysis by The New York Times of data for New York City provided by the Bureau of Labor Statistics. The number of staff members over the age of 55 decreased by only 11 percent.

Young financiers have experienced setbacks in the past. Bankers and traders who rushed wide-eyed to Wall Street in the halcyon days of the 1980s were waylaid by the stock market crash of Oct. 19, 1987, known as Black Monday. Then they got pummeled in 2000 by the dot-com collapse and the recession that followed.

But experts say that today’s doldrums, unlike previous downturns, are here to stay.

“A lot of the positions that are being cut right now aren’t coming back,” said Leslie K. Hild, a vice president with the recruiting firm Right Management. “It’s an emotional roller coaster for almost everyone.”

The industry’s woes have also affected the plans of undergraduate and graduate students at the nation’s top colleges.

At Harvard Business School, where a relatively high 39 percent of this year’s graduates went into finance, compared to 34 percent last year, there has been a “heck of a lot more anxiety” about next year’s hiring season, according to William A. Sahlman, a professor of business administration.

“People used to think of some of these organizations, like a Morgan Stanley or aGoldman Sachs, as safe career bets,” Professor Sahlman said. “Those firms are not going away, but they’re going to hire half the people they hired before.”

Several large firms are not recruiting new entry-level analysts for their investment banking divisions this fall, having filled their entire incoming class with last summer’s interns. At the University of Pennsylvania, whose Wharton School is the closest thing that exists to a Wall Street farm team, Goldman Sachs canceled its informational session.

The mood is even darker outside the Ivy League. Matthew Slotnick, a senior economics major at Boston College, said that he had sent more than 100 résumés to contacts on Wall Street and received several interviews. But he has not gotten any offers. Mr. Slotnick, who has wanted to work at an investment bank since entering college, is now applying to smaller banks and firms outside of New York.

“People are saying it’s sort of a 2007, 2008-type hiring climate,” he said. “I haven’t given up, but it’s a bit depressing.”

Any sympathy for Wall Street’s huddled masses yearning to get rich should be tempered by the fact that financial sector recessions often deal a soft blow. Laid-off financial workers typically get large severance packages, including the use of outplacement services. During their job hunt, many can draw on substantial savings built off past bonuses, on top of collecting unemployment.

But for those laid-off Wall Street workers whose golden tickets have vanished, the disillusionment is real.

Sam Meek, 27, who was laid off in September when his Connecticut hedge fund decided to downsize, used to spend $500 on charity dinners and lavish golf outings. Now, it’s home-cooked meals and beer on the sofa. Recently, Mr. Meek and his roommate, another unemployed banker who spoke on the condition of anonymity because he did not want to jeopardize his job search, sat together in the kitchen filing for unemployment and drinking a bottle of Champagne.

“I’m scraping by right now,” he said.

Mr. Meek, a former Marine, says he is pursuing several job options, including an opportunity to help develop a social network for the military. But he remains reluctant to commit to a new company.

“I’m doing full due diligence,” he said.

Older financiers are having problems, too. Ian C. Horowitz, 40, a former equity researcher at Rafferty Capital Markets, was laid off in June when his firm decided to outsource its research division. Mr. Horowitz currently collects $400 a week in unemployment benefits and has been mowing lawns and doing odd jobs around his New Jersey town to support his wife and two children.

Mr. Horowitz, who lived through the downturn of 2001, said that the latest cuts felt different.

“There have been economic moments where things were bad, but you knew the pendulum would swing the other direction,” he said. “This is structural. The playing field has changed.”

Wall Street’s social scene has also changed, thanks to Occupy Wall Street and the fear of reproach from industry outsiders. Today’s young bankers no longer brag about their jobs, especially in public. One twenty-something Goldman Sachs employee, who spoke on the condition of anonymity because he was not allowed to speak on the record, said he now told new acquaintances he worked at a consulting firm.

The mood has darkened so much that even the young Wall Street workers who still have prestigious jobs are considering letting go of the brass ring.

“It’s lost its luster,” said a former Goldman analyst who left the financial sector this year. The former analyst, who spoke on the condition of anonymity because he signed a confidentiality agreement with the firm, said that in addition to losing some of the monetary benefits of their jobs, his friends who remained in finance were suffering from peer envy. “The new status jobs aren’t at Goldman Sachs. They’re at GoogleApple and Facebook.”

For many of the high-achieving, type-A young professionals who end up on Wall Street, being tossed around by an industry in tumult can amount to the first real failure of their lives. Even if the industry recovers, some may not stick around long enough to see their fortunes improve.

“I’m still scratching my head,” said a former employee of Nomura, the large Japanese bank, who was laid off on Oct. 1. “I went to the right schools, I know the right people and I’m very good at what I do. But when you have to cut costs, you have to cut costs.”

The ex-Nomura employee, who spoke on the condition of anonymity because a confidentiality clause is attached to her severance package, said she had recently come across a group of Occupy Wall Street protesters in Lower Manhattan. While she said she did not support all their ideals, she could now sympathize with their frustrations about high unemployment and a growing sense of economic hopelessness.

“I’m in the same boat as these guys,” she said of the protesters. “I just want to start working.”


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Egypt breaks down, goes full ‘tard

CAIRO – Egypt’s ruling military moved up the date for transferring power to a civilian government to July next year and consulted Tuesday with political parties on forming a new Cabinet. But the major concessions were immediately rejected by tens of thousands of protesters in Cairo’s iconic Tahrir Square threatening a “second revolution.”

“We are not leaving, he leaves,” chanted the protesters, demanding that military ruler Field Marshal Hussein Tantawi and his council of generals immediately give up power to a civilian transitional authority. “The people want to bring down the field marshal,” they shouted in scenes starkly reminiscent of the uprising that ousted Hosni Mubarak nine months ago.

Aboul-Ela Madi and Mohammed Selim el-Awa, two politicians who attended a five-hour crisis meeting with the military rulers, said the generals accepted the resignation of Prime Minister Essam Sharaf’s government and will form a “national salvation” Cabinet to replace it.

Previously, the military rulers had floated late next year or early 2013 as the timetable for transferring power.

The military’s concession came less than a week before the first parliamentary election since the ouster nine months ago of longtime authoritarian ruler Mubarak. The elections are staggered over three months.

“Our demands are clear. We want the military council to step down and hand over authority to a national salvation government with full authority,” said Khaled El-Sayed, a member of the Youth Revolution Coalition and a candidate in the upcoming parliamentary election. The commander of the Military Police and the Interior Minister, who is in charge of the police, must be tried for the “horrific crimes” of the past few days, he added.

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Chicago Sheister Tony Rezko Sentenced to 10.5 Years in Prison

Tony Rezko, former fundraiser and friend of President Barack Obama and Gov. Rod Blagojevish, was sentenced to ten and a half years in prison Tuesday for corruption.

Rezko, 56, has already served about 44 months of the 126 month sentence on his 2008 conviction for corruption — including fraud, money laundering and attempting to get $7 million in kickbacks from companies seeking to win deals during Blagojevich’s time as governor — the Chicago Sun-Times reported.
Read more: http://trade.cc/jkv

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China to push huge, trillion dollar stimulus

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China announced Monday is it set to invest in a $1.7 trillion stimulus program over the next five years to ensure economic growth amid fears of slowing growth at home and abroad.

“Global economic conditions remain grim, and ensuring economic recovery is the overriding priority,” said Chinese Vice-Premier Wang Qishan, Reuters reports. “[And] an unbalanced recovery would be better than a balanced recession.”

Gross domestic product averaged 9.7% in China from 2008 to 2010, but growth has been slowing since the beginning of this year. The country’s GDP slowed to 9.1% in the third quarter, from 9.5% in the second and 9.7% from the first.

There’s been much discussion by economists — even here on The Daily Ticker — over whether China can maintain those near double-digit growth patterns. Evan Smith, co-manager of the Global Resources Fund at U.S. Global Investors, worries about a so-called “hard-landing” in China.

But should GDP in China slow further, the demand from the country’s billion-plus population is not going anywhere. In the accompanying video, Smith and The Daily Ticker’s Aaron Task and Daniel Gross discuss China’s impact on global resources.

From coal to corn to iron ore, China is “impacting the price of almost all commodities,” he says. And in terms of oil, the implications are rather concerning. “There is not enough oil on the planet if they continue grow like they have been growing.”

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Today’s Most Active Put/Call Options Trades

BAC        12/17/11           6.0000         776            0.1500      dn 0.0400 
BAC        1/21/12           7.5000         501            0.0800      dn 0.0100 
HL         1/21/12           6.0000         400            0.4100      dn 0.0600 
GOOG       11/25/11         590.0000         358            1.7000      dn 1.4000 
BAC        12/17/11           5.0000         313            0.5600      dn 0.1400 
ANR        12/17/11          23.0000         273            0.9600      dn 0.0900 
HOT        1/21/12          50.0000         233            1.6200      dn 0.9500 
AAPL       1/21/12         375.0000         232           22.1500      up 1.1000 
TZA        12/17/11          29.0000         228            7.2000      up 0.7000 
TZA        12/17/11          30.0000         219            6.7500      up 0.6500 

BAC        11/25/11           5.0000         710            0.0400      up 0.0000 
LNKD       2/18/12          50.0000         576            4.0000      up 0.2000 
LDK        12/17/11           2.0000         280            0.1900      dn 0.0900 
BAC        12/17/11           5.0000         257            0.2200      up 0.0300 
GILD       1/21/12          38.0000         250            2.0100      dn 0.1700 
MTG        1/21/12           2.5000         200            0.4800      up 0.0000 
HPQ        11/25/11          27.0000         183            1.2500      up 0.0300 
LNKD       12/17/11          65.0000         180            4.2000      up 0.1000 
HPQ        12/17/11          26.0000         173            1.3700      up 0.0700 
BAC        1/21/12           5.0000         164            0.4100      up 0.0000 

 CALLS      PUTS           TOTAL 
40594    46021        86615
BAC        12/17/11           6.0000       13873            0.1500      dn 0.0300 
KGC        1/21/12          12.5000       13137            1.1800      up 0.3200 
BAC        12/17/11           5.0000       11219            0.5800      dn 0.1100 
EUO        1/21/12          19.0000        7000            0.8500      dn 0.0500 
ANR        12/17/11          23.0000        5085            0.9400      dn 0.1000 
FRO        1/18/14           5.0000        4891            1.3000      dn 1.6500 
CSTR       12/17/11          50.0000        2502            0.2000      dn 0.1000 
BBY        12/17/11          27.0000        2334            0.8800      dn 0.1200 
APC        1/21/12          90.0000        2247            0.9300      dn 0.1600 
FRO        1/19/13           5.0000        2061            0.9500      dn 1.4500 

JPM        1/19/13          30.0000        3505            6.6500      up 0.0500 
FMCN       12/17/11          15.0000        2408            1.8000      dn 0.9500 
HPQ        11/25/11          25.0000        2308            0.1600      dn 0.3300 
WLT        12/17/11          65.0000        2126            3.5000      up 0.0500 
HPQ        12/17/11          27.0000        2003            1.9100      up 0.1100 
ALU        1/21/12           2.0000        2000            0.4400      up 0.0900 
BAC        1/19/13           5.0000        1942            1.3400      up 0.0100 
INTC       12/17/11          25.0000        1830            1.8200      up 0.1000 
HPQ        11/25/11          27.0000        1829            1.2700      up 0.0100 
HPQ        11/25/11          26.0000        1785            0.5100      dn 0.3400 

 CALLS      PUTS           TOTAL 
783233    735635        1518868

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Italy’s new PM insists he can fix country

BRUSSELS (Reuters) – Italy’s new prime minister Mario Monti said on Tuesday he is committed to turning around the country, but he offered no new details on how he will deliver broad reforms to invigorate the euro zone’s third-largest economy.

Speaking following his first meetings in Brussels since taking office, Monti said he was determined to win back investor confidence, after Italy’s short-term borrowing costs have surged to levels seen as unsustainable, striking the 17-nation euro zone at its core.

“We can get to the bottom… to the heart of structural reforms in Italy,” Monti said, flanked by European Commission President Jose Manuel Barroso.

“As far as the issue of public finances goes, I’ve already said a couple of minutes ago that, in general terms, we’ll respect the commitments undertaken by my government,” Monti told a news conference.

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ECB funding demands surge

FRANKFURT/LONDON (Reuters) – Euro zone banks’ demand for central funding surged to a two-year high on Tuesday, and U.S. funds cut their lending to the bloc’s banks, tightening a squeeze that looks unlikely to ease this year.

Fast-spreading sovereign debt worries have left lending markets virtually frozen and the European Central Bank as the only available funding option for many banks.

The ECB’s weekly, limit-free handout of funding underscored the widespread problems, with 178 banks requesting 247 billion euros, the highest amount since mid-2009.

Just as fears about the financial health of Italy and Spain have stopped banks lending to some their peers, U.S. funds have also continued to retreat from the region, and Italian and Spanish banks have seen corporate deposits flow out to safer havens.

U.S. money market funds, which are key providers of liquidity to banks and have been pulling back from the euro zone since May, cut their exposure to European banks by a further 9 percent in October, according to ratings agency Fitch.

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Money Markets Remain Stressed as Stocks Bounce Around

Stock markets were flat on Tuesday as the U.S. economy grew slower in the third quarter than estimated earlier, and the euro surrendered gains against the dollar after Spanish and Italian bond yields surged.

Wall Street’s S&P 500 index remained below 1,200 points after data showed U.S. gross domestic product grew at a 2 percent annual rate in the third quarter, down from a previous estimate of 2.5 percent.

While the stock market was quiet, tension continued to grow in funding markets, the key arteries of the financial system.

Severe dollar funding strains supported the U.S. dollar as European banks scrambled to secure cash in dollars after their longtime vehicle for short-term funds – U.S. prime money markets – have continued to cut exposure to that market.

Stress in the dollar money market showed little sign of abating, with the cost of swapping euros to dollars for three months near its widest level since 2008 on Tuesday.

U.S. Treasuries turned higher as safe-haven assets continued to attract demand. <US/>

Gold <GOL/>, theoretically a buy in times of distress, rose along with bonds, as did other commodities like oil <O/R>, copper <MET/L> and grains <GRA/> as investors looked for places to put their money besides stocks.

“It’s going to be tough sailing with no real clear-cut signs of global growth, coupled with the geopolitical situation on a worldwide basis,” said Michael Mullaney, a portfolio manager who helps manage $9.5 billion at Fiduciary Trust Co in Boston.

Half an hour after the open, Dow Jones industrial average .DJI was down 17.07 points, or 0.15 percent, at 11,530.24. The Standard & Poor’s 500 Index .SPX was up 0.05 points, or 0.00 percent, at 1,193.03. The Nasdaq Composite Index .IXIC was up 4.49 points, or 0.18 percent, at 2,527.63.

World stocks as measured by MSCI .MIWD00000PUS were up 0.02 percent. The pan-European FTSEurofirst 300 .FTEU3 fell 0.08 percent after a 3.3 percent loss on Monday.

“This does not look like any weakness that one could buy into with a high degree of confidence,” said Jeremy Batstone-Carr, strategist at Charles Stanley.

Spain’s Treasury paid the highest yields in 14 years to issue short-term bills, heaping pressure on center-right Prime Minister-elect Mariano Rajoy to soothe nervous markets by fleshing out austerity plans following Sunday’s emphatic election victory.


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