Stocks: Worst Thanksgiving-Week Drop Since ’32

Traders work at the New York Stock Exchange on Nov. 22, 2011.

U.S. stocks fell, capping the worst Thanksgiving-week drop since 1932 in the Standard & Poor’s 500 Index, as S&P cut Belgium’s rating and a report said Greece is demanding private investors accept larger losses on their debt.

Financial (S5FINL) stocks in the S&P 500 rose 0.4 percent as a group, trimming an earlier gain of 2 percent. Chevron Corp. and Hewlett-Packard (HPQ) Co. slid at least 1.5 percent to pace losses in the Dow Jones Industrial Average. Sears Holdings Corp. lost 1.3 percent while Wal-Mart Stores Inc. (WMT) rose 0.4 percent on Black Friday, traditionally the biggest U.S. shopping day of the year.

The S&P 500 declined 0.3 percent to 1,158.67 at 1 p.m. New York time, falling for a seventh straight day, the longest streak since August. The Dow retreated 25.77 points, or 0.2 percent, to 11,231.78. The U.S. stock market was closed yesterday for a holiday and trading ended at 1 p.m. today. About 3 billion shares changed hands on U.S. exchanges, the lowest volume since Nov. 26, the day after Thanksgiving last year.

“The demands of Greece now totally change the game,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail. “The situation can no longer be called voluntary by any stretch of the imagination. The equity markets in the United States may test the lows again as there is increasing concern of a major recession in Europe.”

The S&P 500 fell 4.7 percent since Nov. 18, capping a second week (SPX) of losses, as the burden of government debt grew around the world. The cost of insuring European sovereign bonds against default rose to a record. The benchmark gauge was headed toward its worst November since 2000, dropping 7.6 percent for the month so far.

Stocks Reverse Gains

Stocks reversed gains today as Reuters reported that Greece is demanding that new bonds issued to investors as part of a debt swap have a net present value of 25 percent, lower than the “high 40s the banks have in mind.” Belgium’s credit rating was cut one step to AA by S&P, which said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load.

Banks had the biggest gain in the S&P 500 among 24 industries, rising 1 percent. Wells Fargo & Co. jumped 1.3 percent to $23.51. BB&T Corp. rose 0.6 percent to $21.17.

“It’s nice to see some better performance in financials,” Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has about $108 billion in client assets. “Still, you need several days like this to make a compelling case for momentum in the financial sector.”

Jefferies Rallies

Jefferies Group Inc. (JEF) gained 1.3 percent to $10.65. The investment bank has hired at least seven UBS AG bankers in Hong Kong in the past two months after luring Ren Wang from the Swiss lender to become its Asia president, three people with knowledge of the matter said.

Some of the biggest American companies fell today. Chevron retreated 1.6 percent to $92.29. Hewlett-Packard declined 1.5 percent to $25.39.

A measure of retailers in the S&P 500 fell 0.8 percent, the second-biggest decline among 24 industries. Sears Holdings slid 1.3 percent to $58.40. Wal-Mart rose 0.4 percent to $56.89. Amazon.com Inc. (AMZN), the biggest Internet retailer, slumped 3.5 percent to $182.40.

Black Friday arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history. 

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Freeh Appointed Trustee in MF Bankruptcy

Former Federal Bureau of Investigation Director Louis J. Freeh was appointed Chapter 11 trustee in the MF Global Holdings Ltd. (MF) bankruptcy after the company and creditors said one person should take charge of recovering assets.

Such a trustee would coordinate globally with regulators and advocate for a prompt return of creditor funds, according to court filings. A trustee to guide the search for assets would be more cost-effective than the company or its lenders, MF Global and its creditors have said. The appointment was filed today.

Customer accounts of MF Global Inc., the broker-dealer unit of parent MF Global Holdings believed to hold $5.45 billion, were frozen Oct. 31. That day, the New York-based company reported a shortfall in funds required to be segregated under U.S. Commodity Futures Trading Commission rules. About $1.2 billion in customer funds are believed to be missing, according to James Giddens, the trustee appointed to liquidate the broker-dealer and distribute refunds to its customers.

MF Global Holdings, which was run by former New Jersey Governor and ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed for bankruptcy protection to apportion returns to its creditors, including bondholders and lenders.

FBI Director

Freeh served as director of the FBI under U.S. President Bill Clinton from 1993 to 2001. He had previously worked as an FBI agent and later became a federal prosecutor and judge, appointed to the bench in 1991 by President George H. W. Bush.

His appointment as MF Global’s trustee must be approved by U.S. Bankruptcy Judge Martin Glenn, who is presiding over the bankruptcy. The request was made in court papers filed in Manhattan.

Freeh stepped down from the FBI in 2001. In 2007, he formed a New York-based risk management company, Freeh Group International Solutions LLC., and started a law firm, Freeh, Sporkin & Sullivan LLP. Since then, he’s served as an independent monitor in a Justice Department probe of Daimler AG in 2010, and headed a 2008 investigation of energy trading losses that led to the bankruptcy of SemGroup LP.

Freeh also was hired this week to conduct an independent probe of the child sex-abuse scandal at Pennsylvania State University. Additionally, his company was retained by the Educational Testing Service of Princeton, New Jersey, and the New York-based College Board to review security for the SAT college-admissions test.

No Conflicts

His firms don’t have any conflicts that should prevent him from being trustee for MF Global, Freeh said.

“I do not personally have any connection with any interested party in these cases,” Freeh declared in court papers, citing minor exceptions including work his law firm has done for Bank of America Corp., making up less than 1 percent of its revenue to date.

Freeh must obtain a bond valued at no less than $26 million, according to court records. Such bonds are required to be posted within five days of a trustee being selected, according to a handbook for trustee’s posted by the Justice Department.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). 

To contact the reporters on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

Italy Borrowing Costs Almost Double at Sale

Italy's prime minister Mario Monti.

Italy had to pay almost 7 percent to sell six-month bills at an auction today, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. The euro fell to a seven-week low.

The Italian Treasury paid 6.504 percent to auction 8 billion euros ($10.6 billion) of the debt, almost twice the 3.535 percent a month ago and the highest since August 1997. Italy’s two-year bonds yielded a euro-era record 7.83 percent, almost 50 basis points more than 10-year notes.

The euro extended declines, shedding 0.9 percent to $1.3213, the lowest since Oct. 3. Italy’s FTSE MIB index was the biggest decliner among European benchmarks, shedding 1.3 percent at 3 p.m. in Rome. Banks tumbled with Banca Monte Paschi di Siena SpA (BMPS) dropping 3.9 percent.

“The market action surrounding the Italian auction today provides additional precursory indications that the European government bond market is severely disrupted and it will likely struggle to absorb the demanding pipeline of refinancing European sovereigns need to secure,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.

The sale came as Mario Monti, Italy’s new prime minister, prepares additional budget measures that aim to cut a debt of 1.9 trillion euros and boost the economy in a country where growth has lagged the euro-region average for more than a decade. Spain is also facing surging costs. The Treasury in Madrid paid 5.11 percent on three-month notes this week, more than twice that previous sale and higher than Greece pays. 

Italy’s two-year bonds yielded a euro-era record 7.82 percent, almost 50 basis points more than 10-year notes

‘Damaging Concessions’

“For all the periphery issuers, each auction brings such damaging concessions,” Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London, wrote in an e-mail. “Monti and his new Cabinet better engage a faster gear but the periphery and Italy in particular face a very long, very hard road.”

Two years into the region’s debt crisis, European leaders are struggling to stop its spread and prevent contagion from affecting core countries such as France and Germany. The yield difference between French and German 10-year bonds reached the highest since 1990 on Nov. 17 and Germany failed to sell 35 percent of 10-year bonds on offer at a Nov. 23 auction.

The recent developments “in euro-area sovereign bond markets suggest that contagion is spreading from peripheral countries to the so-called core countries,” European Union Economic and Monetary Affairs Olli Rehn said in Rome today.

Contagion Risk

Bundesbank President and European Central Bank council member Jens Weidmann played down the risk of contagion today in an interview with Berliner Zeitung.

“Neither France nor Austria is wobbling, the interest rate levels are not, by historical comparison, unusually high,” Weidmann said, according to the newspaper. He also said German bonds remain in demand and “one shouldn’t read too much into an auction in which not all bonds were sold at low interest rates,” Berliner reported.

The market rout comes in a week that saw two EU nations have their credit rating cut to below investment grade. Fitch Ratings lowered Portugal to junk yesterday. Moody’s Investors Service followed by cutting Hungary to below investment grade.

European leaders agreed last month to try to leverage the region’s bailout fund to boost its firepower to more than 1 trillion euros to help contain the crisis. That effort may be compromised if contagion continues as the fund owes its AAA credit rating to guarantees from the euro region’s six top-rated nations. Should France lose its top rating, the fund’s lending capacity would fall by 35 percent, Mizuho Corporate Bank Ltd. analysts estimate.

Euro-Area Bonds

Monti met yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy in Strasbourg, France, to outline his plans for tackling Italy debt and discuss joint efforts to stem the crisis. Merkel reiterated her opposition to pool European risk by issuing joint euro-area bonds and also said the European Central Bank can’t be counted on as a borrower of last resort.

The ECB has been buying Italian and Spanish debt since Aug. 8 in a bid to stem surging borrowing costs. Italian bonds fell today even with the ECB purchasing the debt according to three people with knowledge of the transactions. The yield on Italy’s benchmark 10-year bond was 7.32 percent after the auction, up 22 basis points. Spain’s 10-year yield rose 10 basis points 6.72 within 10 basis points of a euro-era record.

End of Euro

Monti said that the two leaders agreed with his assessment that Italy succumbing to the crisis could spell the end of the euro.

Sarkozy and Merkel “confirmed their support for Italy, saying that they are aware that the collapse of Italy would inevitably lead to the end of the euro,” Monti told ministers at a Cabinet meeting in Rome today, according to an e-mailed statement. That “would provoke a stalemate in the process of European integration with unpredictable consequences.”

Italy’ will test markets again next week when it seeks to raise as much as 8.8 billion euros selling four different bonds, including a 10-year, on Nov. 28 and Nov. 29.

The soaring borrowing costs won’t have a lasting impact on Italy’s debt even as the Treasury prepares to sell 440 billion euros of bonds and bills next year, Maria Cannata, director of public debt at the Treasury, said on Nov. 16.

Debt Peaking

The amount “sounds prohibitive, but it’s not, even if things have gotten more complicated as investors are frightened by the volatility,” Cannata said at a conference in Milan. Italy’s first bond redemption comes on Feb. 1, when it must pay back 26 billion euros for debt sold 10 years ago.

Unlike Greece, Ireland and Portugal, Italy’s budget deficit is under control and the country already has a primary surplus, meaning that a debt of about 120 percent of gross domestic product should start falling from next year. Italy’s outstanding debt has an average maturity of more than seven years and more than 75 percent of it is in longer-dated maturities, Gustavo Bagattini, European economist at RBC Capital Markets in London, wrote in a report on Nov. 17.

The “relatively long-term nature” of Italian debt “makes it very resilient to interest-rate shocks in the short term,” Bagattini said in a report published yesterday. “From a pure fiscal sustainability point of view, the message is clear that even 10-year borrowing costs of 8 percent, although undesirable, would not send Italian debt spiraling out of control.” 

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Jeffrey Donovan in Prague at jdonovan26@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.

Ivory Coast seeks chocolate fairness for farmers

(CNN) -- The world's chocolate makers may specialize in delivering a sweet taste but the government of the Ivory Coast is seeking to address what it sees as the bitter treatment of the farmers who grow the industry's raw materials.

The West African nation was the world's biggest cocoa producer -- which is the main ingredient in chocolate -- between 2009 and 2010, rearing some 1.19 million tons of the crop according to the International Cocoa Organization (ICCO).

Thanks to a mixture of price volatility, internal instability within the Ivory Coast and a lack of protection from speculators however, an ever smaller portion of the billions of dollars of annual revenue the industry creates finds its way back to the country's farmers.

While this set up may benefit cocoa buyers and chocolate companies, non profits such as the International Cocoa Initiative (ICI) have claimed that it forces farmers to pay low wages and encourages exploitative practices such as child labor.

But according to Sangafowa Coulibaly, the Ivory Coast's agriculture minister, central government efforts are now being made to make the cocoa production process fairer and more profitable for farmers.

"The profits made from the sale of cocoa have unfortunately not been beneficial enough to the farmers because of poor governance," he says.

Coulibaly highlights the fact that farmers receive around a 40% share in the price of the cocoa they grow. This, he claims, is not commensurate with the costs the process incurs and in the coming years he hopes to see this figure rise to 60%.

He also blames the country's former president, Laurent Gbagbo -- who refused to concede defeat in elections in October 2010, leading to a six month long standoff before he was finally forced from power by military force -- for slowing reforms that will benefit the country's cocoa growers.

source : http://edition.cnn.com

Now that the political infighting is over and a new government in place however, Coulibaly says that changes will be made to ensure the long term viability of one of the country's most integral industries.

"Things can only get better," he says. "The political crisis is behind us -- the armed conflict is behind us. Ivory Coast has become a country that aspires to be stable," he adds.

 

With the Ivory Coast contributing to roughly 40% of global cocoa produce alone, such clear intentions of creating a durable and equitable production process should be good news for the world's chocolate companies, as well as the country's cocoa farmers.

But while Coulibaly is adamant that the central government is genuine in its attempts to help farmers, his words are met with a wary skepticism by those at the sharp end of the debate.

Toure Dramane is a farmer and owner of a cocoa co-op deep within the Ivory Coast's rural hinterland.

He says that unless real changes are made to ensure farmers are paid a fair price for their produce they will be forced to employ children and pay low wages, which in turn will create a variety of long term social and humanitarian problems.

The human cost of chocolate

"It's not our choice; it's imposed on us," he says of the price he receives for his cocoa produce.

"We can't transform it. We produce it and we sell. We get the price that is imposed on us. We can't do it any other way."

Dramane says that promises of reform to make cocoa farming fairer and more profitable have been made many times before.

He cites a pledge made by the world's leading chocolate companies to help end child labor almost a decade ago. "[But] in ten years, nothing has been done at all" to address this issue he says, ensuring he remains suspicious about the new government's proclamations no matter how good they sound.

With previous broken promises in mind, Dramane adds that he will reserve judgment about whether conditions will be any different or fairer for farmers until he sees the price he receives for his next harvest.

Europe's debt: Pressure's on

NEW YORK (CNNMoney) -- Investors kept the pressure on European debt on Thursday as interest rates on government bonds remained at elevated levels, a day after a weak Germany bond auction rattled markets in the United States.

German 10-year bond yields rose to 2.26% in early trading before backing off slightly to end the session at 2.19%. Meanwhile Italian 10-year bond yields again rose above the bailout benchmark to a high of 7.13%, before closing at 7.11% on Thursday.

On Wednesday, Germany suffered from a lack of strong demand for its safe bunds, with the government selling only €3.6 billion. The results suggest "that Germany is not immune to increasing risk aversion in the [eurozone] sovereign debt market," wrote Marc Chandler of Brown Brothers Harriman. 

Germany is the largest economy in Europe, followed by France, and is considered to be a pillar of the eurozone economy. Therefore, its bonds are consider the gold standard of sovereign debt, keeping its yields relatively low. 

French 10-year bond yields rose slightly Thursday, closing at 3.72%.

As Italian bond yields flirt with the 7% danger zone -- it's another red flag to investors about the debt-ridden eurozone.

While 7% does not automatically trigger a bailout, it is the level that Ireland, Portugal and Greece exceeded before they got bailed out by their European neighbors.

Italian bond yields exceeded 7% earlier in November, then dropped back below the benchmark. The Italian economy is the third largest in the eurozone; a default on Italian debt would likely exact a heavy toll on Europe. 

Meanwhile on Thursday, credit rating agency Fitch downgraded Portugal to junk status, based on the country's high debts and poor economic prospects.

Europe's Debt Crisis

Searching for solutions: The critical situation in Europe has left officials groping for answers.

European leaders met Thursday in France to discuss options for handling the eurozone debt crisis.

"The situation is not easy, trust has been lost, and that is why it's important that we demonstrate that we trust each other," said German Chancellor Angela Merkel at the eurozone press conference. 

"We have to make it clear that we want to take steps in the right direction of a fiscal union, to express our belief that politics have to be coordinated when you have a common stable currency."

French president Nicolas Sarkozy added that, "We are determined as the three big economies of the eurozone to do all we can to support and guarantee the sustainability of the euro."

On Wednesday, the European Commission unveiled a plan detailing options for so-called eurobonds. Some see eurobonds as a way out of the debt crisis, because they would effectively pool the debt of the 17 eurozone countries. 

But the idea is controversial and has drawn opposition from stronger eurozone countries, particularly Germany. 

Europe's healthier nations are concerned about becoming liable for the debt service payments of entire regions, including Greece and Italy, without having a say in their future fiscal actions and policies.

China cracks down on rogue exchanges

(Financial Times) -- The Chinese government has launched a crackdown on hundreds of unregulated electronic equity and futures exchanges that have sprung up in recent years to trade everything from fine art and commodities to insurance products.

The country's State Council, or cabinet, published a notice on Thursday announcing a campaign to "clean up and consolidate" the many exchanges that have been approved by local governments hoping to foster financial markets in their jurisdictions.

It said a task force had been set up under the securities regulator to deal with the problem and all exchanges engaged in "unauthorised and illegal" activities would be shut down.

Apart from the country's two main stock exchanges, three commodities exchanges and one financial futures exchange, no other entity is allowed to list new shares, offer centralised pricing or make markets and no more than 200 investors may hold stakes in a single traded asset, the notice said.

Investors are also banned from reselling an asset from these exchanges within five days.

Even the use of the name "exchange" in Chinese will be strictly regulated from now on and must be approved by provincial-level authorities following consultations with the securities regulator.

"Serious speculation and price manipulation has occurred" at some exchanges and cases of embezzlement and fraud have also emerged, the government said.

Although there is no official estimate for the number of unregulated exchanges or the volume of trading conducted through them, Chinese analysts say there are well over 300 of them today, up from just a handful five years ago.

Last week, three new exchanges were established in the city of Wuhan alone -- the Wuhan Shipping Exchange, Wuhan Agricultural and Livestock Products Exchange and Wuhan Financial Assets Exchange.

In the first 10 months of this year, 58 new exchanges were established, according to state media reports.

Many analysts and industry participants expect most of the exchanges will eventually be shut down and the campaign has already claimed its first casualty.

Beijing-based Hantang Artworks Exchange, where investors could trade shares in precious artworks owned by the exchange, announced on its website this week that it was halting all trading immediately "in the spirit" of the orders from the State Council.

More than 30 similar art exchanges have sprung up in the last few years but most do not appear to have been very successful and some have been mired in scandal and accusations of fraud from the outset.

"I don't think [the government] will kill all the exchanges in one go and for now I don't think the impact on our exchange will be that big," said Mr Wang, a sales manager at Inner Mongolia-based Chifeng Bulk Commodity Exchange, who declined to give his full name. "But it's true that at times we've been playing around the edges and, as an exchange, we hope the state can set up a supervision mechanism to guide the market."

In the early 1990s, Beijing launched a crackdown on hundreds of equity and commodity futures exchanges that mushroomed across the country and eventually consolidated them into the handful of large, regulated exchanges that exist today.

source : By Jamil Anderlini, FT.com, http://www.cnn.com