Bridgewater’s Dalio: Expect Austerity, Rising Interest Rates in 2013

“Next year will bring austerity and rising interest rates, predicts Ray Dalio, founder of Bridgewater Associates, the largest hedge fund manager.

Plus, the Fed is out of bullets.

Speaking at The New York Times DealBook conference, Dalio said austerity is coming due to Washington’s inability to solve the fiscal cliff, Business Insider reported.

The Fed, meanwhile, has fired its “bazooka” and its continuing quantitative easing will have little impact.

Yields, already at rock-bottom levels, can’t go down any more and will begin rising next year, probably in late 2013, he said, according to Business Insider.

“We’re facing austerity. And growth is flagging. This is an unprecedented risk the economy is facing — a slowdown with very little room to maneuver.”

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“In what must be one of the scariest data points for equity bulls, Industrial Production just printed above all economist’s estimates with its largest rise since Dec 2010. This 2.5 sigma beat of expectations is the biggest beat since December 2010 and, given that it was data that Ben Bernanke did not have at his previous FOMC meeting, we suggest, ever so humbly, that surely this will play into his qualitative assessment of the economic thersholds and reduce the likelhood of him accelerating his bond-purchases scheme. The driver of such exuberant Industrial Production… Motor Vehicle manufacturing; which as we already know produced the largest channel-stuffing debacle in history. Sustainable? We don’t think so… As previous downward revisions appear to have provided a much bigger than expected rebound from Sandy-scuppered prior levels…”

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“Spend more than 10 minutes watching business television and you will undoubtedly be told that there’s a lot of money on the sidelines, everyone owns bonds, and once ‘some catalyst – election? fiscal cliff? year-end?’ is completed then that rush of desirous greedy capital will send Tom Lee’s own S&P 500 to new ‘giddy’ heights. Well, back here in reality-land (away from the total misunderstanding that the cash on the sidelines will always be there as the person you ‘buy’ your shares from is left with the same ‘cash’ you held before) it appears that these two charts suggest those sidelined investors are anything but. As Morgan Stanley notes, 77% of US investors are now bullish on US equities – near record highs– and if, like us, you prefer positioning (as opposed to sentiment) data, the net longs in S&P 500 futures are as high as they were in 2007 (right before the peak) and in late 2008 (right before the 27% plunge in the first quarter of 2009). But apart from that…

Sentiment…”

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NYSE 

ADBE, BV, BP, BKW, CIEN, CL, CVS, DVA, DE, EQR, XOM, KMB, MRO, MSFT, PG, RIGL, RDS-A, S, TIVO, WYNN, YOKU, ZUMZ,

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In Play ,

On the Wires 

“Discovery Communications Inc. DISCA -2.00% on Friday said it has agreed to buyProSiebenSat.1 Media AG’s PSM.XE +4.04% Nordic assets for $1.7 billion, beating out a rival bidder in a move that will enable the cable-network company to expand in Europe.

“SBS Nordic has a fully distributed portfolio of dual revenue stream networks with a terrific management team that will expand Discovery’s footprint across the Nordic region, which includes some of the most well-penetrated and stable TV markets in the world,” Discovery Chief Executive David Zaslav said.

Discovery was one of two final bidders—the other was Providence Capital Partners—for what is commonly referred to as SBS Broadcasting Group, home to the Scandinavian TV stations currently owned by Germany’s ProSiebenSat.1 Media.

The transaction is expected to close in early 2013.”

“German Chancellor Angela Merkel rejected suggestions on Friday that the worst was over for the euro zone, saying the currency bloc faced years of painful reforms, slow growth and high unemployment.

Speaking to reporters at the end of a two-day summit of EU leaders in Brussels, Merkel hailed agreements on banking supervision and the release of aid to Greece, but was cautious about predicting better times ahead.

“One reason I am careful with my forecasts is the adjustment process, the changes that we are going through are very difficult and painful,” Merkel said.”

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“Western officials” are now reporting that Syrian soldiers have loaded a truck with chemical weapons for possible use, according to the Washington Post.

This comes with other reports that beleaguered Syrian President Bashar Al-Assad has prepped his Army for a fight, and that the U.S. has deployed at least 400 troops and batteries of Patriot missiles to the Turkish border.

Joby Warrick of the Post writes:

Surveillance photos confirmed that at least one army unit began loading special military vehicles that transport bombs and artillery shells carrying chemical warheads, according to the officials. The moves followed specific orders to elite troops to begin preparations for the use of the weapons against advancing rebel fighters, the officials said.

The intelligence estimate, coming late Thursday, counters another recent report, issued by Secretary of Defense Leon Panetta just days ago, that the threat of chemical weapons use by Syrian forces had “leveled off,” according to CBS.

From the CBS report:

“We haven’t seen anything new indicating any aggressive steps to move forward in that way,”

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“Wal-Mart Stores Inc. (WMT) and Kroger Co. (KR) are among the bidders for assets being sold by Hostess Brands Inc., the bankrupt maker of Wonder bread and Twinkies, said a person familiar with the matter.

There are about two dozen bidders, said the person, who asked not to be named because the process is confidential. Last month, financial adviser Joshua Scherer of Perella Weinberg Partners LP said the liquidation sale may generate about $1 billion.

A few of the bids are for all the assets, some are for just the cakes or breads businesses, and others are interested in individual Hostess plants or products, according to the person. Other first-round bidders include Grupo Bimbo SAB and Alpha Baking Co., the person said.”

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“Bank of America Corp. (BAC) said it’s issued a notice of default to MBIA Inc. (MBI) after buying some of the bond insurer’s notes in an attempt to block a legal maneuver in their three-year dispute over toxic mortgage assets.

Bank of America, which failed to persuade investors to sell it a majority of the $329 million of 5.7 percent bonds due in 2034 that were outstanding early in November, said in a statement yesterday that it has acquired $136 million of the notes. MBIA said on Nov. 26 that it repurchased $170 million of the securities, leaving $159 million in investors’ hands, according to data compiled by Bloomberg.

MBIA was seeking consent from its bondholders to alter terms of the securities to protect itself from the threat of a regulatory seizure of MBIA Insurance Corp., its unit that insured real estate-related debt that soured during the worst financial crisis since the Great Depression. After Bank of America bid to buy the December 2034 bonds, potentially providing holders with a better deal than the $10 per $1,000 of face value solicitation fee from MBIA, the insurer purchased about 52 percent of the debt in order to ensure it had sufficient support.

BofA Objection

The bank is objecting to MBIA’s buying back notes at or above par from a select group of holders after discouraging bondholders in a Nov. 20 statement from accepting Bank of America’s tender offer at face value, according to a person familiar with the matter, who asked not to be identified because the discussions are private.

Bank of America also asserts the consent solicitation is invalid because their bond indenture dictates that if MBIA beneficially owns any portion of the notes, they don’t count as outstanding for purposes of changing the terms, according to the person.”

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“An agreement to update 24-year-old United Nations telecommunications rules was approved against the opposition of countries including the U.S. and the U.K., whose officials walked out on the talks on concerns about Internet regulation and censorship.

The new pact includes measures that would give countries a right to access international telecommunications services and the ability to block spam, which delegations declining to sign the amended text argued would pave the way for government censorship and control over the Web.

Canada, Denmark, Australia, Norway, Costa Rica, Serbia, Greece, Finland and others followed the U.S. in refusing to sign on these grounds. The countries who won’t sign the new treaty will continue to be bound by the 1988 version, said Sarah Parkes, a spokeswoman for the International Telecommunication Union.

“What is clear from the ITU meeting in Dubai is that many governments want to increase regulation and censorship of the Internet,” Google Inc. (GOOG), the world’s biggest search engine, said in a statement. “We stand with the countries who refuse to sign this treaty and also with the millions of voices who have joined us to support a free and open web.”

Talks at the World Conference on International Telecommunications in Dubai this week were marked by disagreements between anti-regulation countries, including the U.S. and many European states, and a group that argued for some Internet measures to protect and advance networks, including Russia, China and several Middle Eastern nations.”

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“The euro strengthened to an eight- month high against the yen as European Union chiefs pledged to seek a joint strategy for handling failing banks, boosting demand for the region’s assets.

The 17-nation currency headed for a weekly gain versus the dollar as EU leaders agreed to start work next year on a single resolution mechanism for euro-area banks. The yen fell to the weakest level since March against the dollar after a quarterly gauge of business confidence dropped more than economists forecast, supporting the case for more monetary easing from the Bank of Japan. (8301) The Swedish krona fell to the lowest in five months versus the euro.”

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“Euro-area services and manufacturing output contracted at a slower pace than economists forecast in December as European leaders declared progress on the latest plan to combat the debt crisis, now entering its fourth year.

A composite index based on a survey of purchasing managers in both industries rose to 47.3 from 46.5 in November, London- based Markit Economics said today. Economists had forecast a November reading of 46.9, according to the median of 16 estimates a Bloomberg News survey. A reading below 50 indicates contraction. A separate report showed European car sales fell 10 percent in November, bringing registrations so far this year to a 19-year low.”

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“India’s inflation unexpectedly eased in November, a moderation that may not spur the central bank to cut interest rates next week as price gains still remain above its comfort level.

The wholesale-price index rose 7.24 percent from a year earlier, after climbing 7.45 percent in October, the Commerce Ministry said in a statement in New Delhi today. The median of 34 estimates in a Bloomberg News survey was a 7.6 percent gain.”

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“Alcatel-Lucent SA (ALU) reached a 1.6 billion-euro ($2.1 billion) financing deal, gaining time to overhaul the French phone-equipment maker and try to sell as much as 1.5 billion euros of assets.

The senior secured credit facilities underwritten by Credit Suisse Group AG (CSGN) and Goldman Sachs Group Inc. (GS) will be denominated in U.S. dollars and euros, with maturities of 3 1/2 to six years, the Paris-based company said today. The stock gained as much as 15 percent and the company’s 8.5 percent bonds jumped to the highest since in almost eight months.

The funding will allow Alcatel to “aggressively” consider all options to boost profitability, improve its strategy and shore up the company’s finances, Chief Executive Officer Ben Verwaayen said in the statement.

The CEO has so far sold smaller assets, cut jobs and costs and signed a patent-licensing agreement. Those measures have failed to reduce an average annual cash consumption of 700 million euros since the 2006 merger of Alcatel SA and Lucent Technologies.

The company, whose debt is rated junk by Moody’s Investors Service and Standard & Poor’s, faces more than 2 billion euros of debt repayments over three years.”

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