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Monday, February 3, 2014

Claman On Call: Fed cuts bond-buying purchases by $10B

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Fed cuts bond-buying purchases by $10B

Claman on Call: FBN's Liz Claman with an after-hours web-exclusive on the markets, the state of the economy, Federal Reserve tapering and Frito-Lays' Super Bowl ad strategy.

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Will the market downturn cause the Fed to change its course?
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Source: Philip Seymour Hoffman's death being treated as an accident

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Source: Philip Seymour Hoffman's death being treated as an accident
Source: Philip Seymour Hoffman's death being treated as an accident

Philip Seymour Hoffman's sudden death this weekend is being ruled an accidental overdose, a source close to the investigation tells FOX411. 

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Shadow bailouts

Slowing growth would be the main worry in China’s economy -- if only it weren’t for the more worrisome growth of credit. China’s services sector grew at the lowest rate in five years in January, Reuters reports, which was preceded last week worrisome manufacturing data.

Credit growth, particularly in China’s shadow banking system, may be the real danger. This week, Charlene Chu, an influential former Fitch analyst, echoed her warnings on China’s debt problems. Chu cited a lending sector that’s out of control, and an informal shadow banking system that’s intertwined with official Chinese banks. “There’s no way that we are not going to have massive problems in China,” she told the Telegraph.

Last week saw possible hints of those kind of problems. In what a BofA/Merrill analyst called China’s “Bear Stearns moment”, an unnamed investor bailed out a high-yield wealth management product called Credit Plus Equals Gold #1. (More on those products here). This kind of shadow banking bailout, Anne Stevenson-Yang writes, has become endemic in China:

So far every time a Chinese trust starts to fail, it is rescued at government behest. Most notable this time is that, first, there was any suspense whether China Credit Trust would be saved, and second, the total news blackout on the details of the bailout. Moral hazard is woven into the fabric of the Chinese financial system.

Xiao Geng and Andrew Sheng argue that China’s challenge is more than just slowing the growth of credit. They also argue that China will have to unify the shadow banking system, where rates for private business loans can hit 15%-20%, and the official lending system, where rates are around 5.5%-7%. The question, they write, is whether China’s borrowers, consumers and companies alike, can afford to repay their debts if rates rise.

David Keohane spots a note from JPMorgan that is a bit more cheery on China’s shadow banking world. As a percentage of domestic bank assets, China’s shadow banks are relatively small: America’s shadow banks equal 150% of total bank assets, while China’s are at 30%. And, unlike America’s pre-crisis shadow banking system, China’s is far simpler and its products are predominantly owned by the Chinese themselves.

Keohane has more on what China can and can’t do to fend off a shadow-banking crisis. As Stevenson-Yang puts it: “The government may talk about deleveraging and reform, but it continues to forbid bankruptcies, extend more credit and increase the money supply”. -- Ryan McCarthy

On to today’s links:

New Normal
The steady decline of (selling to) the American middle class - Nelson Schwartz

Ouch
Inside a bitter divorce battle in New York City's most exclusive apartment building - NYT

Data Points
4 important points you rarely see made on income inequality statistics - Richard Serlin

Boondoggles
The Sochi Olympics and the economic effects of corrupt spending - James Surowiecki

The Fed
Janet Yellen's brilliance versus the glass ceiling - Ylan Q. Mui

Wonks
Ben Bernanke has a new job - Brookings
"Economists no longer dare to assume that trend is trend and cycle is cycle" - Brad DeLong
Two possible triggers that led to the ongoing emerging markets rout - Cam Hui

Felix
Who's to blame for the emerging market crisis? - Felix Salmon

Dismal Science
Global cancer cases are expected to increase by 70% over next 20 years - Guardian

FYI
If you're unhappy with your current economic situation, you might be able to blame your parents - Chris Dillow

Oxpeckers
Putting the digital media cart before the revenue horse - Michael Wolff

Yikes
East Coast casinos are losing money, multiplying - Brad Tuttle

Big Ideas
Should we establish a postal bank? - Elizabeth Warren

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.


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Business Today: Wall Street suffers worst drop since June after weak data

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02/3/2014
Reuters Election 2012 Daily round-up of the day's top news from the campaign trail, the White House and all the politics in between
Wall Street suffers worst drop since June after weak data
NEW YORK (Reuters) - U.S. stocks slumped on Monday, with the S&P 500 suffering its worst drop since June, after weaker-than-expected data on the factory sector in the world's largest economy provided investors with the latest reason to move away from riskier assets.
Factory, construction spending data hint at slowing economy
NEW YORK (Reuters) - U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in 33 years while construction spending barely rose in December, pointing to some loss of steam in the economy.
U.S. asks jurors to convict SAC's Martoma
NEW YORK (Reuters) - Mathew Martoma sought out a "canary in the coal mine" to give him inside information on drug companies, a federal prosecutor said on Monday, urging jurors to convict the former SAC Capital Advisors portfolio manager of insider trading.
Ackman questions Herbalife recruiting tactics on new website
BOSTON (Reuters) - Billionaire investor William Ackman on Monday charged that Herbalife, a seller of nutrition and weight-loss products, found new distributors through a business that had been convicted in Canada of running an illegal pyramid scheme.
GM, Ford sales stall
DETROIT (Reuters) - Four of the top five U.S. auto sellers on Monday blamed extreme winter weather for poorer-than-expected sales in January, as analysts and executives predicted a rebound in February and March.
Yellen sworn in as first woman Fed chair
WASHINGTON (Reuters) - Janet Yellen was sworn in Monday to a term as chair of the U.S. central bank, the Federal Reserve said in a statement.
Bernanke starts new job at Brookings after weekend off
NEW YORK (Reuters) - Former Federal Reserve Chairman Ben Bernanke began his new job at the Brookings Institution on Monday, wasting no time getting back to work just three days after ending his tenure as head of the world's most powerful central bank.
Analysis: Emerging markets outlook not rosy, but valuations tempt
NEW YORK (Reuters) - Emerging markets were facing headwinds going into 2014, but January's rout surprised even the gloomiest of investors, with big declines in stocks, bonds, and currencies.
Bank of America hikes top European bankers' pay to counter bonus cap
LONDON (Reuters) - Bank of America Merrill Lynch is raising salaries for some of its senior bankers by about 20 percent, a person familiar with the matter said on Monday, to get around a new European Union cap on pay.
Exclusive: Nestle reviewing possible sale of frozen food unit Davigel -sources
LONDON (Reuters) - Nestle is exploring a possible sale of frozen foods business Davigel for about 300 million euros ($400 million), three sources familiar with the matter told Reuters on Monday, as part of a drive to trim its sprawling portfolio.
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