Monday, July 20, 2009

Today's Headlines


- Residential- and commercial-mortgage securities jumped last week as traders speculated that U.S. government programs would create higher prices. The most-senior “non-agency” bonds backed by home loans generally rose 2 cents or 3 cents on the dollar, climbing for a second week on optimism for the Treasury’s Public-Private Investment Program, according to a Barclays Capital report. Some commercial-mortgage bonds probably eligible for the Federal Reserve’s Term Asset-Backed Securities Lending Facility rose to between 90 cents and 97 cents on the dollar, from between 77 cents and 84 cents two weeks ago, Citigroup Inc. said. For home-loan bonds, analysts at Morgan Stanley and Citigroup said values would probably rise further, particularly for lower-priced debt such as securities of sub-prime and option adjustable-rate mortgages, as the $40 billion PPIP allows more investors to again use borrowed money to boost returns and creates additional demand.

- Almost half of U.S. companies surveyed by the National Association for Business Economics projected sales have already bottomed and their outlook on hiring is starting to improve. About 45 percent of respondents in NABE’s Industry Survey said the first six months of 2009 probably marked their lowest revenue levels, and another 41 percent said sales will bottom by the end of the year. While the overall employment outlook is negative, 18 percent said payrolls will increase in the next six months, the biggest share in a year.

- Human Genome Sciences Inc.(HGSI) more than tripled in New York trading after the company and GlaxoSmithKline Plc said their experimental lupus drug reduced patients’ symptoms in a yearlong study. Human Genome Sciences leaped $6.87 to $10.19 at 9:58 a.m. in Nasdaq Stock Market composite trading.

- Three U.S. states are pushing plans for video poker and slot machines as their legislators hope gambling income will compensate for declines in taxes. Ohio lawmakers passed a budget last week that includes $933 million in projected revenue from 17,500 slot machines to be installed by May at horse-racing tracks statewide. Illinois legalized video poker in taverns to raise $300 million annually to support $31 billion in infrastructure improvements. Pennsylvania would get a projected $550 million a year by legalizing video poker in bars, according to a bill awaiting consideration in the state’s House of Representatives.

- U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program. The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today. “TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.

- Goldman Sachs Group Inc.(GS) boosted its forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982. The benchmark index for U.S. stocks will advance 15 percent from its June 30 level to 1,060 on Dec. 31, an increase from David Kostin’s prior projection of 940. The chief U.S. investment strategist at New York-based Goldman Sachs also lifted his 2009 and 2010 earnings estimates for S&P 500 companies to $52 and $75 a share, which are 30 percent and 19 percent higher than prior estimates.

- Components of the index of leading economic indicators are signaling the worst U.S. recession in five decades may be over now, not three to six months from now. Less-known elements of the Conference Board’s report, including ratios and diffusion indexes, bolster the view the contraction has ended.

- Wells Fargo & Co.(WFC), the biggest bank on the U.S. West Coast, gained small-business customers in the quarter that ended in June as CIT Group Inc. ran short on cash, according to the Coleman Report.

- Former Iranian President Mohammad Khatami’s political party called for a referendum to resolve the political crisis prompted by charges of fraud in last month’s presidential election, the Iranian Labor News Agency said. “As millions of Iranians have lost confidence in the electoral process, the Association of Combatant Clerics insists on holding a referendum,” according to a statement carried by ILNA today. Protesters arrested after the June 12 election must be freed, ILNA cited Khatami as saying at a party meeting yesterday.

Wall Street Journal:

- It usually doesn't happen this quickly in Washington. But President Barack Obama and congressional Democrats are finding that the old maxim that what goes around, comes around applies to them, too. Less than six months into his term, Mr. Obama's top initiatives -- health-care reform and "cap and trade" energy legislation -- are in serious jeopardy and he has himself and his congressional allies to blame. Their high-pressure tactics in promoting and passing legislation, most notably the economic "stimulus" enacted in February, have backfired. Those tactics include unbridled partisanship, procedural short cuts, demands for swift passage of bills, and promises of quick results.


- Auto sales could bounce back to the $12- to 13-million annual sales rate within a year, Toyota Motor’s North American President Yoshi Inaba said Monday.


- Following four consecutive quarters of reductions, global inventories of chips have declined to appropriate levels, clearing the way for stockpile rebuilding and higher sales in the second half of the year, according to iSuppli Corp.


- Dendreon Corp.(DNDN), the Seattle-based drug maker, is looking at Atlanta's south side for an $80 million manufacturing facility that could create at least 300 jobs. Dendreon is seeking FDA approval for a treatment -- Provenge -- that helps deal with prostate cancer that does not respond to traditional hormone therapy.

Washington Post:

- Heading into a critical period in the debate over health-care reform, public approval of President Obama's stewardship on the issue has dropped below the 50 percent threshold for the first time, according to a new Washington Post-ABC News poll. Obama's approval ratings on other front-burner issues, such as the economy and the federal budget deficit, have also slipped over the summer, as rising concern about spending and continuing worries about the economy combine to challenge his administration. Barely more than half approve of the way he is handling unemployment, which now tops 10 percent in 15 states and the District. Since April, approval of Obama's handling of health care has dropped from 57 percent to 49 percent, with disapproval rising from 29 percent to 44 percent. The erosion in Obama's overall rating on health care is particularly notable among political independents: While positive in their assessments of his handling of health-care reform at the 100-day mark of his presidency (53 percent approved and 30 percent disapproved), independents now are divided at 44 percent positive and 49 percent negative. Obama's approval rating on his handling of the deficit is down to 43 percent, as independents now tilt toward disapproval (42 percent approve; 48 percent disapprove). More broadly, 55 percent of Americans put a higher priority on holding the deficit in check than on spending to boost the economy, compared with 40 percent who advocate additional outlays even if it means a sharply greater budget shortfall. This is a big shift from January, when a slim majority preferred to emphasize federal spending. Independents, who split 50 percent to 46 percent for more spending in January, now break 56 percent to 41 percent for more fiscal discipline. But a larger shift has been among moderate and conservative Democrats, who prioritized more spending by about 2 to 1 in January and March. Now they are about evenly divided in approach. Nearly a quarter of moderate and conservative Democrats (22 percent) now see Obama as an "old-style tax-and-spend Democrat," up from 4 percent in March. Concerns about the federal account balance are also reflected in views about another round of stimulus spending. In the new poll, more than six in 10 oppose spending beyond the $787 billion already allocated to boost the economy. Most Democrats support more spending; big majorities of Republicans and independents are against the idea. Support for new spending is tempered by flagging confidence on Obama's plan for the economy. Fifty-six percent are confident that his programs will reap benefits, but that is down from 64 percent in March and from 72 percent just before he took office six months ago. More now say they have no confidence in the plan than say they are very confident it will work. Among independents and Republicans, confidence has decreased by 20 or more points; it has dropped seven points among Democrats.

- It could be any investment bank or hedge fund. Instead, it is the markets group of the Federal Reserve Bank of New York, which has been on the front lines of the government's response to the financial crisis. Federal Reserve and Treasury Department officials make the major decisions, but the New York Fed executes them. The information gathered there provides crucial insights into the financial world for top policymakers. But the bank is so close to Wall Street -- physically, culturally and intellectually -- that some economic experts worry that the New York Fed puts the interests of the financial industry ahead of those of ordinary Americans. "The New York Fed sticks out as being not just very, very close to Wall Street, but to the most powerful people on Wall Street," said Simon Johnson, an economist at MIT. "I worry that they pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively." Even some former insiders at the Fed say the bank does not pay enough attention to the fundamental flaws in the country's financial system or to the risks associated with bailing out financial firms -- for instance, the chance that banks will be encouraged to take more unwise gambles. The man in charge is a soft-spoken economist named William C. Dudley, who took over as president in January, replacing Timothy F. Geithner when he became Treasury secretary. It is his résumé that alarms some critics, who see an example of a too-cozy relationship between financial firms and their lead regulator. One of several bank officials who have worked in the private sector, Dudley was at Goldman Sachs(GS) for two decades, including 10 years as chief economist, before joining the New York Fed in 2007. The bank's board of directors, which selected Dudley, includes such corporate titans as Jamie Dimon, the head of J.P. Morgan Chase, and Jeffrey Immelt, General Electric's chief. Richard Fuld, then the chief executive of Lehman Brothers, resigned from the Fed just days before his firm went under. Stephen Friedman, who sat on Goldman's board, resigned as chairman of the New York Fed board earlier this year after controversy arose over his purchase of Goldman stock while at the Fed. The staff, though paid much less than Wall Street workers, is well compensated by government standards. The 289 bank officers earned an average of $204,000 in 2007 -- more than Cabinet secretaries. At the height of the financial crisis in September, staffers learned from their market contacts that Wall Street's two largest investment banks, Goldman Sachs and Morgan Stanley, were in mortal danger because their trading partners were so quickly losing faith in them, according to an update on the day's market activity by the New York Fed staff obtained by The Washington Post. Four days later, the central bank brought the two firms under the Fed's protective umbrella by agreeing to make them "bank holding companies." But in allowing Goldman and Morgan to convert themselves to bank holding companies that received access to greater federal aid, Fed officials exempted them from the usual requirements, potentially putting taxpayer money at risk.

- The U.S. housing market is showing signs of stabilization, according to inventory data released on Monday by national real estate brokerage ZipRealty. Emeryville, California-based ZipRealty reported a drop in the number of Multiple Listing Service-listed homes for the 12th consecutive month in June. The number of single-family homes and condos listed for sale decreased in June from May by 2.1 percent, bringing the total number of active listings in 28 major U.S. markets to 696,858, the company said. Additionally, ZipRealty tracked an increase in the median list price in the 28 markets to $270,440 in June from $270,027 in May.

Financial Times:
- Falling property prices in the US and a weaker dollar are attracting investors from Italy, which has largely escaped the housing bubble collapses other parts of Europe have experienced. Sorgente Group, which operates property investment funds, says it is trying to persuade Aegon, the Dutch insurer, to sell San Francisco’s Transamerica Pyramid, Valter Mainetti, chief executive of Sorgente, said.


- Many economists are already talking about a light at the end of the recession tunnel. But a new crisis is looming in Germany as companies find it increasingly difficult to borrow money. The government is coming up with increasingly desperate ideas to get liquidity flowing again.

The Globe and Mail:

- The steep decline in economic activity that marked the first quarter of 2009 was supposed to be as bad as it gets for Canada. But now, faced with dismal trade and manufacturing performances and troublesome inventory levels, a key forecaster believes the second quarter was even worse. Economists at the University of Toronto's Rotman School of Management say they think the economy contracted at a 6.6 per cent annual pace between April and June – worse than the 5.4 per cent contraction that marked the first quarter.

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