Greece plunges global markets into turmoil

The chase by Marty Cej:

Asian and European stocks are tumbling, the cost of insuring against default on European bonds is surging and commodities are slumping after Greek Prime Minister George Papandreou said thanks for the bailout money but I think I’m gonna ask the people of Greece what they think about the deal first. In what BMO Capital Market’s economists are calling one of “your all-time bonehead moves,”

Papandreou shocked global financial markets with his call for a referendum on the most recent austerity measures required by the EU, IMF and ECB for the disbursement of funds necessary for Greece to avoid a disorderly default. Fitch Ratings told clients a few moments ago that a rejection of the measures would “increase the risk of a forced and disorderly sovereign default and - whilst not Fitch's central rating case - potentially a Greek exit from the euro.”

In short, Greece may have collapsed Plan A – a generous description if there ever was one – without the benefit of having a Plan B in place. The announcement has likely thrown the agenda for this weekend’s G20 summit into disarray and will turn the market’s conversation to the question of what happens when Greece defaults and exits the euro-zone. Will it mean the end of the euro currency? Is Italy next? Spain? Credit default swaps on Italian debt have soared 32 basis points this morning and jumped 28 points on Spanish bonds.

The broad Markit iTraxx index of Western European CDS surged 25 basis points. Gavin Nolan, director of credit research at Markit in London will join us at 10:20 am Eastern to walk us through the implications. Silvio Peruzzo, Euro-area economist at RBS will join the conversation a few minutes later.

The Reserve Bank of Australia cut interest rates this morning for the first time since 2009, saying Europe’s debt crisis was undermining Asia’s export-dominated economies. The rate cut came as a purchasing managers’ index for China fell to 50.4, its lowest level since February of 2009. South Korea, meanwhile, reported its smallest gain in exports in two years. It won’t be hard to connect the dots all the way back to the Canadian economy, earnings growth and the outlook for stocks.

I almost forgot! It’s Mario Draghi’s first day on the job as the new president of the ECB! Congratulations, Mario, and good luck.

It is also the first day of a two-day meeting for the U.S. Federal Reserve’s policy-setting Open Market Committee. The conversation is likely to have changed a bit this morning. How will the increased political and financial risk in Europe affect the discussions? Will there be fewer dissenters this time around? How unconventional can unconventional get?

MF Global became a much more compelling story late yesterday after the Commodity Futures Trading Commission and Securities and Exchange Commission revealed that a last-minute sale of some of the assets to avoid a bankruptcy was scuppered after “deficiencies in customer futures segregated accounts held at the firm” were found.

Unnamed sources are telling Bloomberg and The New York Times that hundreds of millions of dollars in customer accounts may have been funneled into MF Global’s proprietary accounts to back up a losing trade. We need to talk more about the kind of trade that MF Global made, the risk the company took on through its proprietary book and what could happen next. Of course, at the middle of it all, is Jon Corzine, one of the best-known names on Wall Street.

Commodities, currencies, bonds and stocks, they’re all reflecting the sudden increase in financial, political and economic risk emanating from Europe but in different ways. Let’s be specific and accurate. “Commodities falling on European woes” does not help anyone understand anything any better.

And still the earnings parade marches on. We have numbers today from Bell Aliant, Pfizer, Anadarko, Valero, CME Group, Archer Daniels Midland, TransCanada, Baker Hughes, Dollar Thrifty, Dunkin Brands and Westport Innovations.

TMX and Maple hook up

The chase by Marty Cej:

After a five-month courtship that involved the scuttling of proposed marriage with another, the board of TMX Group has agreed to Maple Group’s $3.8-billion takeover offer and will recommend the deal to TMX shareholders. Maple, the consortium made up of 13 members including Manulife, TD, CIBC, and pension plans Caisse de Depot and Aimco, will buy 70- to 80 percent of TMX with cash and the rest in stock. Maple Group is also seeking to buy TMX competitor Alpha Group as part of the deal, as well as the clearing house CDS Inc.


Critics say the deal will mean a monopoly on Canadian stock trading and higher fees while supporters point out that the banks do the bulk of trading on the exchange and are unlikely to raise fees on themselves. It could be a thorny issue for regulators to decide and a tough sell for Maple Group’s public relations team once the word “monopoly” starts popping up in headlines. Are there any other possible bidders out there? Does a broad Canadian ownership with deep pockets put the TMX in an acquisitive position? There has been $30 billion in exchange deals since October of last year, according to Bloomberg data, so why stop now?

Tom Kloet, TMX CEO and prospective CEO for Maple Group in the event of a successful takeover, and Luc Bertrand, former head of the Montreal Exchange and spokesperson for Maple Group, will sit down with us at 12:30.

Canadian Pacific Railway is poised to rally this morning after Pershing Square Capital – the hedge fund of activist shareholder Bill Ackman – disclosed late Friday that it has acquired a 12.2-percent stake in CP, making Pershing the railway’s biggest shareholder. CP stock rallied in the last minutes of Friday trading but a raised price target at RBC – to $80 from $66 – may help things along this morning.

The Globe and Mail says Ackman may get “active” with CP management as soon as this week in a bid to correct the stock’s underperformance relative to CNR as soon as possible. CP’s senior executives met with the company’s financial and legal advisers over the weekend, the Globe reports, to “review options.” The most likely option is to sit and listen to Ackman’s ideas.
It is a big week for central banks with a two-day Fed meeting kicking off Tuesday and Mario Draghi’s first meeting as the new European Central Bank president Thursday.

For Draghi, it will be a battlefield commission as he takes over in the midst of a struggle to bail out the weakest members of the euro-zone, prevent the collapse of the region’s banks and establish a permanent bailout mechanism that will prevent this sort of thing from happening again. Not to mention the vampire issue in Transylvania or the werewolf cull in the Carpathians that continues to be thwarted by PETA. The Fed’s statement will come out at 12:30 pm Eastern Wednesday followed by a Q&A with Ben Bernanke.

The discussion is likely to revolve around jobs and housing and just how unconventional unconventional can get. For the ECB, it could mean a rate cut as Draghi puts his stamp on the job.
Both central banks will also be explicit in their recognition of the European debt crisis as the biggest threat to the global economic recovery. Expect both the ECB and the Fed to lob the problem back to governments ahead of the G20 leaders’ summit this weekend. Monetary policy is doing what it can, they’ll say, so how about a little help on the fiscal policy side?

Today is the last trading day of October in what has proven to be a remarkably bullish month for stocks. We’ll need to slice and dice the market’s performance into leaders and laggards and wax prophetic over what may happen next. Earnings continue to top expectations, money is flowing back into commodities and European leaders are slouching towards a solution in a blue velour pantsuit… will the final quarter of 2011 prove to be the strongest quarter of the year for Canadian stocks?

The best performer for October? Yellow Media. The worst? Agnico-Eagle.

We are also tackling Canadian GDP for August, which rose 0.3 percent, topping the 0.2 percent expected by economists.

Obit: Robert Pritzker, a patriarch of one of the world's richest families

By Eric Johnson

CHICAGO Fri Oct 28, 2011 9:58pm EDT
(Reuters) - Chicago businessman and founder of a conglomerate that was purchased by Warren Buffett, has died, his assistant said on Friday.

He was 85.

The cause of death was Parkinson's disease, said Pritzker's assistant, Becky Spooner.

Together with his brother Jay, who founded the Hyatt hotel chain, Robert Pritzker founded the Marmon Group, an industrial conglomerate that made everything from bolts and screws to water treatment products and railroad cars.

The company was purchased by billionaire investor Buffett's Berkshire Hathaway in 2008.

"Throughout his career, Mr. Pritzker strongly believed that well-educated engineering minds would long be essential to the ability of the United States to compete in world markets," said Louhon Tucker, an executive at Colson Associates, in a statement.

The Pritzker family is one of the world's richest. The 11 members of the family on the 2011 Forbes 400 list of the richest Americans -- which did not include Robert -- had a combined worth of $17.1 billion, according to the magazine.

Pritzker was born in Chicago in 1926. He graduated with a degree in industrial engineering in 1946 from Illinois Institute of Technology, the benefactor of a $60 million charitable contribution from Pritzker in 1996, the school said in a statement.

"Bob was an extraordinary man and one of IIT's most ardent and benevolent supporters. His name was synonymous with IIT," said President John L. Anderson. "The university is deeply saddened by the loss of one of its great leaders."

Pritzker retired from Chicago-based Marmon in 2002. He then created Colson Associates, a consortium of manufacturing and service companies, which he ran until just before his death.

Pritzker also served on many civic and cultural boards, such as the Chicago Symphony Orchestra and Lincoln Park Zoological Society.

He is survived by his wife Mayari and five children.

A study in contrast ...Market Update

The chase by Marty Cej:

Nothing brings events into stark relief quite so well as well-timed juxtaposition. Yesterday, an agreement to solve the European sovereign debt crisis that was long on promise but short on details sparked a global equity market rally, helping to push the S&P 500 towards its best month since Oct. 1974. This morning, profit warnings and job cuts from consumer-sensitive companies such as Whirlpool, Electrolux and Newell Rubbermaid stand out “like a rich jewel in an Ethiop’s ear.”

It’s this whiplash-inducing contrast that we’ll need to examine today because it is a dichotomy that investors will have to reconcile and act upon in the days and weeks to come.
Specifically, we need to take a look at Whirlpool’s remarkable earnings statement this morning and apply the company’s anecdotal observations and actions to the North American economy and consumer. Whirlpool, the world’s biggest household appliance maker, said it will cut 5,000 jobs and slash its earnings expectations due to “recessionary demand levels in developed countries, a slowdown in emerging markets and high levels of inflation in material costs.” Electrolux, the second-biggest appliance maker, said it will deepen cost cuts as sales volumes in mature markets fall to their lowest level in more than a decade.

The CEO of Newell Rubbermaid said the company will cut 500 jobs as part of a program labeled “Project Renewal” (you paid a consultant for that??) because of a “really tough macro environment.” I will add that within yesterday’s robust report on U.S. GDP was a line on disposable income, which contracted in the third quarter. According to National Bank Financial, that means “that Americans were drawing from their savings to finance spending. That’s an area of vulnerability for subsequent quarters for consumers, particularly if the stagnant labour market doesn’t pick up steam soon.” Next Friday sees the release of U.S. and Canadian employment data.

Turning back to the markets, we’ll need to take a careful look at the rally by the S&P 500 over the past month. At the open of trading, the U.S. benchmark is up 14.12 percent for the month, the best month for the measure since a 16.3 percent gain in October 1974. Who were the leaders? The laggards? Is the outlook for economic growth and earnings gains healthy enough to justify the rally? Did leadership shift over the course of the month?

Bill Strazullo, Chief Markets Strategist at Bell Curve Trading in Boston will help us identify the trends and anomalies in the world’s biggest stock market. He joins us for a half hour of analysis starting at 9 am.

We will also feature an interview today with Gord Nixon, CEO of Royal Bank of Canada. Gord sits down with Howard Green at 12:30 to discuss the euro-zone bailout package, the global economy, the Canadian banking industry and his bank in particular.

Our conversation with Don Lindsay, CEO of Teck Resources, follows at 1:00. Stephen Snyder, CEO of TransAlta, sits down with Michael Hainsworth on the Close at 4:40.
How’s that for a line-up? And yesterday we spoke with the CEOs of Methanex, Barrick Gold, Goldcorp., Potash Corp. and Cogeco, and one former Prime Minister. Let’s face it, the only thing that comes close to rivaling the BNN Greenroom happened in at Thanksgiving 1976 at San Francisco’s Winterland when The Band invited a few friends to jam with them at their final show. Or just about any night on the Dick Cavett Show in the mid-1970s.

Sterling Partners have ridden in on a fine Arab charger to rescue Mosaid from the clutches of Wi-Lan. Sterling has agreed to buy Mosaid for $46 a share, topping Wi-Lan’s raised-but-still-hostile bid of $42 a share. Calls are out.

In earnings, we are watching numbers from Merck, Chevron, MacDonald Dettwiler, Weyerhauser, Newmont, Transalta, Postmedia and Norbord.