Some House Republicans back higher tax rate for wealthy | Citi will lay off 11,000 in global downsizing | Deutsche Bank concealed $12B in losses, former workers say
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06 December 2012
CFA Institute: Financial NewsBrief
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Analysis: Deficit is much bigger than U.S. admits
The government's shortcomings in how it accounts for loan guarantees and direct loans understate by trillions of dollars the true cost to taxpayers, according to the Financial Economists Roundtable. The U.S. budget deficit would be bigger than officially reported if the government properly accounted for $5 trillion of mortgages guaranteed by Fannie Mae and Freddie Mac and $2.5 trillion of credit programs, including student loans, the economists said. Knowledge@Wharton (05 Dec.)
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Some House Republicans back higher tax rate for wealthy
President Barack Obama's call for increasing the tax rate for 2% of America's wealthiest is drawing some support from House Republicans. They urge House Speaker John Boehner to accept the increase in return for new limits on federal retirement and health care programs. "I and some others are advocating giving the president what he wants," said Rep. Steven LaTourette. The Washington Post (tiered subscription model) (05 Dec.), Reuters (06 Dec.), The Hill (05 Dec.)
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Citi will lay off 11,000 in global downsizing
Citigroup says it will eliminate 11,000 jobs and shrink operations worldwide. The measures mark new CEO Michael Corbat's first moves to improve the bank's financial performance. During the past year, Citi's profitability has been less than half of JPMorgan Chase's. The Guardian (London) (05 Dec.), Bloomberg (06 Dec.)
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Deutsche Bank concealed $12B in losses, former workers say
Deutsche Bank avoided a rescue during the financial crisis by failing to disclose $12 billion in paper losses, three former employees told U.S. regulators. Financial Times (tiered subscription model) (05 Dec.)
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EADS restructures ownership to cut political interference
Airbus-owner EADS approved a change in its ownership structure aimed at preventing political issues in Germany and France from interfering in the company's management. "This new agreement protects the interests of France, Germany and Spain while giving the company the freedom for maneuver it needs to pursue its development," French President Francois Hollande said. Reuters (05 Dec.)
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Sector SPDRs carve the S&P 500 into nine sector exchange-traded funds (ETFs) that conveniently, efficiently, and affordably provide sector exposure while giving investors the unique ability to customize the S&P 500 to meet specific investment objectives.
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Market ActivityAdvertisement
Asian-Pacific markets mixed, with Japan posting gains
Japan's Nikkei 225 rose 0.7% Thursday, approaching an eight-month high, but most Asian-Pacific markets fell or traded flat. South Korea's Kospi edged up 0.1%. Hong Kong's Hang Seng Index traded flat. China's Shanghai Composite slid 0.3%. Australia's S&P/ASX 200 gave up 0.2%. India's Sensex was up 0.7% at midafternoon. MarketWatch (06 Dec.), The Economic Times (India) (26 Feb.)
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China's 10-year bond yields more than Australia's
Investors are expected to increase purchases of China's benchmark bond because it is delivering a higher yield than Australian debt. China's 10-year bond yields 3.55%, 37 basis points higher than comparable debt in Australia. This is the first time in a decade that China's benchmark bond has yielded more than Australia's equivalent debt. Bloomberg (05 Dec.)
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Buffett laments emphasis on trading over investing
Berkshire Hathaway's Warren Buffett says Wall Street is dominated by a trading culture, rather than an investing culture, and he doesn't like it. With a focus on long-term results, Buffett said he sees his most important job as managing a business. "Investing is part of it but it is not the main thing," he said. The New York Times (tiered subscription model)/DealBook blog (03 Dec.)
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Economics
U.S. study backs large-scale exports of natural gas
A study conducted for the U.S. Energy Department concluded that the economic benefits from large-scale exports of natural gas outweigh the negative effects of higher energy costs for U.S. consumers and industrial users of the fuel. Dow Chemical, a big user of natural gas, disputed the finding, saying major exports that raise domestic gas prices would put U.S. firms at a disadvantage to foreign competitors. The New York Times (tiered subscription model) (05 Dec.), Houston Chronicle (tiered subscription model) (05 Dec.), Council on Foreign Relations online/Energy, Security, and Climate blog (05 Dec.)
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Innovative startups see big profit in U.S. health care
Young entrepreneurs are eagerly launching startups using President Barack Obama's overhaul of the U.S. health care system as a tool to make money by improving the efficiency of doctors and hospitals, according to The Economist. "Venture-capital firms see at least two promising areas: companies that serve consumers directly and those that help hospitals provide better, cheaper care," the magazine notes. "For some firms, Obamacare is a direct boon." The Economist (free content) (01 Dec.)
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Survey: Hiring in November fell short of previous month
Private employers in the U.S. hired 118,000 workers last month, far short of the 157,000 increase in October, according to a survey by the ADP Research Institute. The disruption caused by superstorm Sandy was responsible for 86,000 fewer hires, the report said. Bloomberg (05 Dec.)
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U.K.'s Tesco might give up on U.S. grocery market
After investing $1.6 billion, U.K. supermarket giant Tesco appears ready to abandon U.S. expansion through Fresh & Easy Neighborhood Market. "It's likely, but not certain, that our presence in America will come to an end," CEO Philip Clarke said. "Whilst the [U.S.] business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities." Business Insider/Agence France-Presse (05 Dec.)
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Chinese real estate companies shift IPOs to Hong Kong
Chinese property developers are flocking to Hong Kong with initial public offerings to get around tightening restrictions at home. It is increasingly difficult for real estate firms to get IPOs approved by the China Securities Regulatory Commission. China Daily (Beijing) (04 Dec.), Bloomberg (06 Dec.)
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CFA Institute report examines impact of internalization and dark pool trading on market quality.
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Geopolitical/Regulatory
Eurozone plan envisions centralization of economic rule
A confidential plan has been prepared to complete the eurozone's economic and monetary union, in preparation for an EU summit next week. "The general objective will be to aim for a progressive pooling of economic sovereignty at the European level," with the European Central Bank as the banking supervisor, the paper says. The Telegraph (London) (tiered subscription model) (05 Dec.)
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3 high-ranking officials resign from SEC
Following the lead of Securities and Exchange Commission Chairman Mary Schapiro, who is set to depart Dec. 14, three top officials announced their resignation. Division heads Meredith Cross and Robert Cook plan to return to the private sector at year-end. General Counsel Mark Cahn will leave after a "transitional period." The Washington Post (tiered subscription model) (05 Dec.)
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SEC staff produces money-fund study
Securities and Exchange Commission staff has finished examining whether rules are sufficient to prevent the collapse of money market funds in times of stress, Commissioner Luis Aguilar says. He didn't reveal any findings. Reuters (05 Dec.)
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Warren likely would focus on Dodd-Frank on U.S. panel
U.S. Sen.-elect Elizabeth Warren, expected to join the Senate banking committee, likely would use her seat to oversee implementation of the Dodd-Frank Act, analysts and observers say. She probably would press regulators to adopt tough rules for banks, based on Dodd-Frank, and fight efforts to repeal parts of the law, they say. MarketWatch (05 Dec.), Bank Credit News (05 Dec.)
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Financial Products
IShares launches 4 reduced-volatility ETFs
BlackRock's iShares brought to the London Stock Exchange four exchange-traded funds designed to minimize volatility. The iShares S&P 500 Minimum Volatility ETF has an expense ratio of 0.2%; the other funds are the MSCI Europe Minimum Volatility (0.25%), the MSCI World Minimum Volatility (0.3%) and the MSCI Emerging Markets Minimum Volatility (0.4%). IndexUniverse.eu (05 Dec.)
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