European officials debate financial-transaction tax | Obama seeks higher taxes for wealthy and corporations | Fitch and S&P deny Italian claims of data leaks
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14 November 2012
CFA Institute: Financial NewsBrief
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Greek treasury auction averts default
Greece raised enough money through a treasury auction to avoid defaulting on a debt payment this week. The government sold more than €4 billion in debt. Greek banks are expected to fill the gap to reach €5 billion. "No one expected that the auction wouldn't be covered, although the interest rate paid on 13-week T-bills was a bit pricey," a bond trader said. "But the amount raised will be enough to cover Friday's rollover of expiring T-bills." Financial Times (tiered subscription model) (13 Nov.), The Wall Street Journal (tiered subscription model) (13 Nov.)
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European officials debate financial-transaction tax
German Finance Minister Wolfgang Schaeuble said at a meeting with peers that they should proceed with a tax on financial transactions. For the European Commission to design a tax for willing nations, the European Parliament and all EU nations must agree. The U.K., Poland and other nations wary of the tax say they won't let willing nations implement it unless they have more information about possible effects. "There must be a pragmatic way of letting us see the directive to make sure there are no spillover effects," Polish Finance Minister Jacek Rostowski said. Bloomberg Businessweek (13 Nov.)
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Obama seeks higher taxes for wealthy and corporations
President Barack Obama will open negotiations with congressional Republicans aimed at averting the "fiscal cliff" with a proposal that the rich and corporations pay $1.6 trillion in additional taxes during the next decade, White House officials said. That is twice as much as House Speaker John Boehner agreed to during talks with the Obama administration last year. The Washington Post (tiered subscription model) (13 Nov.), CNN (14 Nov.), The Hill (13 Nov.)
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Fitch and S&P deny Italian claims of data leaks
Fitch Ratings and Standard & Poor's denied allegations by Italian prosecutors that they leaked information about downgrades of sovereign debt. Seven former and current employees of the credit rating agencies face a possible trial. An Italian judge will decide whether the trial will commence. Reuters (13 Nov.)
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Morningstar Direct – The New Efficient Frontier
Normal distributions underestimate risk. Click here to read our article on how tail-risk optimization performed in a back-test of the 2008 financial crisis, as published in the Financial Analysts Journal.
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Market ActivityAdvertisement
Asian-Pacific markets rebound after recent declines
Asian-Pacific markets rose Wednesday, recovering from the region's recent sell-down. Hong Kong's Hang Seng Index advanced 1.2%. Australia's S&P/ASX 200 and South Korea's Kospi each edged up 0.2%. Taiwan's Taiex gained 0.3%. Japan's Nikkei 225 closed less than 0.1% higher. China's Shanghai Composite gained 0.4%. India's Sensex was closed for a holiday. MarketWatch (14 Nov.), Bloomberg (14 Nov.)
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Bank of Ireland taps bond market for €1B
Irish Finance Minister Michael Noonan called Bank of Ireland's bond issue a milestone for the troubled banking sector. Ireland and its financial institutions have been locked out of capital markets for two years. "This issuance is further evidence of the strengthening and normalization of our banking system," Noonan said. Reuters (13 Nov.), Independent.ie (Ireland) (14 Nov.), Financial Times (tiered subscription model) (13 Nov.)
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Lockup of 777M Facebook shares ends
The lockup of 777 million Facebook shares, held mostly by rank-and-file employees, ends Wednesday, making them available for trading. The prospect of so many shares coming to market has investors nervous. In August, when the first lockup ended, the share price dropped 6%, to a then-record-low $19.87. USA Today (13 Nov.)
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Foreign investment boosts Chinese stock market, experts say
China's yuan-denominated A-share stock market is likely to benefit from the government's encouragement of participation by foreign investors, experts say. The China Securities Regulatory Commission, the People's Bank of China and the State Administration of Foreign Exchange say the investment quota under the Renminbi Qualified Foreign Institutional Investor program will increase by $31.8 billion. Xinhuanet.com (China) (14 Nov.)
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Economics
Capping deductions wouldn't cut deficit, Geithner says
Limiting tax deductions and closing loopholes wouldn't bring in enough money for the U.S. to reduce its long-term budget deficit, Treasury Secretary Timothy Geithner said. "When you take a cold, hard look at the amount of resources you can raise from that top 2% of Americans through limiting deductions, you will find yourself disappointed relative to the magnitude of the revenue increases that we need," he said. Bloomberg (14 Nov.), The Hill/On The Money blog (13 Nov.)
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Strategists largely agree on "fiscal cliff" compromises
At the Global Financial Leadership Conference, Republican strategist Karl Rove and Democratic strategist James Carville discussed steps they say are necessary to address the U.S. "fiscal cliff." They generally agreed on compromises, but Rove questioned whether the deal would be done by the deadline. OpenMarkets.com (13 Nov.)
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Analysis: Little time remains to avoid "fiscal cliff"
U.S. President Barack Obama and Republicans hope they can avert the "fiscal cliff" with a short-term measure that is linked to a longer-term initiative based on reform of the tax code and entitlements, according to The Economist. Time is short, and the second part will be difficult to accomplish, the magazine notes. "Despite their high-minded rhetoric, neither Democrats nor Republicans relish the political blowback that comes with cutting entitlements and tax breaks," the magazine says. The Economist (free content) (10 Nov.)
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Survey: Many don't know how to find financial adviser
People often are worried about running out of money in retirement, but many don't know how to find a financial adviser for help, according to a survey by TIAA-CREF. More than 50% of respondents said they wouldn't know where to begin searching for an adviser, while 74% said they don't know whom to trust. MarketWatch/The Trading Deck blog (12 Nov.)
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Geopolitical/Regulatory
EU lawmakers struggle with Basel III
Key divisions remain after several meetings by EU lawmakers regarding draft law to require banks to increase capital and liquidity, calling into question a year-end deadline. "I would suggest you take a look at the calendar. I think it's quite obvious that Jan. 1 is quite dubious at the moment," said Philippe Lamberts, a member of the European Parliament's negotiation committee for the legislation. The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (13 Nov.)
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Banks express concern about Fed's Basel III plan
Financial institutions cautioned that the Federal Reserve's proposal to implement Basel III rules would increase systemic risk, limit credit and harm the industry. Financial Times (tiered subscription model) (13 Nov.)
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Risk council wants stricter rules for money funds
The Financial Stability Oversight Council says money market funds should face stronger regulation because they are vulnerable to a run if a financial crisis arises. "Some basic vulnerabilities in the design of money market funds helped accelerate the financial crisis of 2008 and 2009," said U.S. Treasury Secretary Timothy Geithner, who chairs the council. "We are not yet at the point where we have achieved and put in place a set of reforms that provide us a sufficient degree of comfort against those basic vulnerabilities." Reuters (13 Nov.), Bloomberg (14 Nov.), The New York Times (tiered subscription model) (13 Nov.), The Wall Street Journal (tiered subscription model) (13 Nov.)
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SEC broadens Knight inquiry to include risk controls
The Securities and Exchange Commission is examining risk controls at Knight Capital Group to determine whether the firm adequately supervised trading before a large loss in August. The regulator wants to know whether Knight complies with the SEC's market-access rule, which requires companies to take precaution against serious technology problems, including computer failure. The Wall Street Journal (tiered subscription model) (13 Nov.)
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CFTC's Chilton urges disaster preparedness
Bart Chilton of the Commodity Futures Trading Commission called for creation of a private-public task force to improve market preparation in the event of another natural catastrophe. "Now that we have this stark and frankly frightening example to work from, we'd be negligent not to move quickly to make sure that our emergency systems are comprehensive and fully tested," Chilton said, citing superstorm Sandy. The New York Times (tiered subscription model)/DealBook blog (13 Nov.), CNBC (13 Nov.)
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Financial Products
ETF Issuer Solutions aims to launch long-short ETF
ETF Issuer Solutions filed with the Securities and Exchange Commission to introduce an actively managed exchange-traded fund that would follow a long-short strategy aimed at delivering positive returns regardless of market conditions. The AltShares U.S. Long/Short Fund would invest mostly in ETFs and other exchange-traded products. IndexUniverse.com (12 Nov.)
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