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NEWS TICKER, FRIDAY, JULY 31ST: US bond markets expect a $900m issue from the Metropolitan St. Louis Sewer District as early as next year after its rate commission voted yesterday to back the district’s plan to tap the markets. The bonds will continue financing a $4.7bn capital program required by the Environmental Protection Agency (EPA) to keep sewers in St. Louis and St. Louis County from regularly overflowing into area creeks and rivers. Already, the district has put $600m toward sewer projects in St. Louis and St. Louis County. MSD customers can consequently continue to expect annual sewer bill hikes each summer. In 2012, the average customer paid $29 monthly. This month, bills rose to an average of $41. After this bond issue, the monthly sewer bill will cost the average household $61 by 2019 - JP Morgan has hired Lebo Moropa, giving the bank its first dedicated prime brokerage and equity finance presence in South Africa, reports Securities Lending Times. Former HSBC trader Moropa has joined the bank in Johannesburg and will focus on synthetic and cash prime brokerage and securities lending, including delta one and will report to Paul Farrell in London. Moropa was a delta one trader at HSBC and has worked for JP Morgan before– Apulia Finance has informed the Luxembourg Stock Exchange of its intent to issue a securitised paper, backed by residential mortgage loans originated by Banca Apulia. The issue date is August 6th and the deal is lead managed by BNP Paribas who is also joint arranger with Finanziaria Internazionale Securitisation Group. Swap counterparty in the transaction is Canadian Imperial Bank of Canada and the clearers are Euroclear and Clearstream. Funding is at three month Euribor with a spread of 0.40% before the step up date and 0.80% after the step up date. The deal is worth a combined €170m of which €153m are Class A asset backed floating rate notes due 2043; €6.79m Class B asset backed notes and €9,84m are Class C asset backed floating rate notes – all due 2043.

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The European Review

By Patrick Artus, chief economist at Natixis

Avoid investing in German financial assets

Wednesday, 09 May 2012 Written by 
Avoid investing in German financial assets It may seem tempting to invest in German financial or property assets: Germany's economic and financial situation is at present far better than that of the other euro-zone countries, and German assets have outperformed those of the other euro-zone countries. http://www.ftseglobalmarkets.com/

It may seem tempting to invest in German financial or property assets: Germany's economic and financial situation is at present far better than that of the other euro-zone countries, and German assets have outperformed those of the other euro-zone countries.

But it should be realised that: German assets are overvalued because the euro zone's monetary policy is too expansionary for Germany and because German investors have a very significant domestic bias while the supply of assets is small and Germany risks economic and financial overheating which could lead to a correction in asset prices in the medium term.

German financial assets might seem attractive
German financial and property assets might seem attractive for two reasons. First, because the present economic and financial situation in Germany is far better than in other euro-zone countries. This is reflected in its public finances, current-account balance, the size of its industry and export capacity, its cost-competitiveness, corporate profitability and investment drive, and in its labour market - which is now experiencing rises in real wages, compared to falling real wages in the rest of the euro zone. All in all, given that Germany does not need to reduce its fiscal deficit, and given the rise in real wages, better export performance, increasing business investment and job creation, the growth outlook is at present far better in Germany than in the other euro-zone countries.



The second reason why German assets could seem attractive is that their recent performance has been strong. This is true for government bonds, equities, corporate bonds, bank debts and residential real estate (but not commercial real estate), since 2008.

But in reality, investment in German assets should be avoided, because they are too expensive and Germany could start overheating

German assets are too expensive
Since 2006, Germany has witnessed and will continue to maintain stronger growth than the euro zone as a whole. This means that the euro zone's current monetary policy is too expansionary for Germany, as it was for the rest of the euro zone from 2002 to 2007. This of course tends to cause a rise in asset prices.

Also, Germany has excess savings (by households and companies, as shown by its external surplus) with an increasing bias for investing domestically, while at the same time the supply of assets is small: meaning the fiscal deficit has almost disappeared, companies are self-financed and issue few bonds and residential construction is at a low level. There is therefore ex ante excess demand for German assets, which has driven up asset prices, especially for safe-haven government bonds.

Germany could start overheating in the medium term
Germany is practically in a situation of full employment, and since its companies are very profitable, wage growth is accelerating. In 2012-2013 an increase in the unit wage cost approaching 3% can be expected, with productivity gains that are fairly low. This will probably lead to a rise in underlying inflation towards 2%, and hence to even more abnormally low long-term interest rates, which will continue to push up the prices of other assets.

It is well known that such a situation of overheating (full employment and interest rates that are too low relative to growth) is potentially unstable and can lead to a downward correction in asset prices (as it occurred in Spain, Ireland and the United States, for example).

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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