Wednesday, February 10, 2010

Today's Headlines


- Greek bond yields slid the most since before the euro’s introduction and stocks surged for a second day as Germany considered aid beyond loan guarantees to help the Mediterranean nation tackle its budget deficit. The gains sent the premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds to the lowest since Jan. 19. The ASE Index of stocks jumped to its biggest two-day gain since October 2008. German Finance Minister Wolfgang Schaeuble said help given to Greece may extend past guarantees to loans, according to an official who attended a briefing today in Berlin and asked not to be identified because the discussions were confidential. “Germany’s announcement is bringing some relief for those peripherals that came under most pressure, such as Greece and Portugal,” said David Schnautz, an interest-rate strategist at Commerzbank AG in Frankfurt. “There should be room for more tightening.”

- A benchmark gauge of credit risk in the U.S. pared its biggest decline in almost four months as Federal Reserve Chairman Ben S. Bernanke said the central bank may raise the discount rate “before long” and investors weighed the prospects for a bailout of Greece. The Markit CDX North America Investment Grade Index, a benchmark of credit-default swaps that investors use to hedge against losses on corporate debt, fell 1.25 basis point to 101.5 basis points as of 12:04 p.m. in New York after dropping to as low as 99.5 basis points earlier today, according to broker Phoenix Partners Group. The index, which fell 4.25 basis points yesterday, was having its biggest two-day decline since October after European officials said they may help Greece contain its budget deficit, the biggest in the European Union.

- Gulf borrowers may face higher costs this year as the region struggles with debt restructurings and investors seek higher premiums, according to Deutsche Bank AG’s chief executive officer for the Middle East and North Africa. Dubai-based companies and the government have as much as $15 billion of debt maturing this year and $25 billion due in 2011. The market will be looking at how it will be restructured, repaid or refinanced, Henry Azzam said today at a security lending seminar in Dubai. “All eyes today are on Dubai World,” he said. “The risk is that this exercise could be lengthy and could lead to negative surprises in the months ahead.”

- The Bank of England cut its forecast for economic growth and said inflation will undershoot its target, suggesting policy makers may need to keep up their 200 billion-pound ($314 billion) emergency stimulus. Annual gross domestic product growth will reach about 3.2 percent in the second quarter of 2011, compared with about 4 percent previously, the central bank's predictions show. Inflation will peak at about 3.3 percent before slowing as low as 0.9 percent and staying below the goal of 2 percent.

- President Barack Obama said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chase & Co.(JPM) Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc.(GS) CEO Lloyd Blankfein, noting that some athletes take home more pay. The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.” “I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

- Some Wall Street traders who made it to work today hope they can’t make it home. Weather advisories calling for as much as 20 inches of snow prompted firms such as New York-based Jefferies & Co. to reserve hotel rooms in Manhattan as a precaution if employees can’t make their usual commutes. That’s good news to traders who welcome an evening at the pubs.

- Billionaire Warren Buffett’s Berkshire Hathaway Inc. had its credit grade cut two levels by Fitch Ratings after the company agreed to buy railroad Burlington Northern Santa Fe Corp. “The downgrades reflect Fitch’s concerns about the Burlington Northern acquisition’s effect on Berkshire’s asset profile, capitalization, and interest coverage,” the ratings company said in a statement today. The firm was also cut because of its “significant equity market exposure.”

- Expectations that U.S. stocks will tumble 10 percent or more rose to the highest level since September 1983, according to Investors Intelligence’s weekly survey of newsletter writers. The proportion of investment writers who anticipate a so- called correction climbed to 39.8 percent in the week ended yesterday, an increase from 38.9 percent in the period ended Feb. 2. Bullish publications fell to 34.1 percent, the lowest since March, from 38.9 percent. “When advisers crowd like this and think together, they generally get it wrong,” said Tarquin Coe, technical analyst at New Rochelle, New York-based Investors Intelligence, which has tracked the projections of newsletters since 1963. “At the moment it doesn’t look like the market wants to drop much further. There are too many people looking for a correction.”

- U.S. natural-gas production is unexpectedly rising even as energy companies halt drilling at the fastest pace in more than two decades because newly found fields are gushing more fuel than previous discoveries. The price of gas, the worst-performing U.S. energy futures contract of 2009, is on the verge of further declines when colder-than-normal weather and blizzards that have propped up demand from Chicago to Baltimore come to an end, said Porter Bennett, chief executive officer of Bentek Energy LLC, which tracks North American gas output and shipments.

- Treasuries tumbled after the U.S. sold a record-tying $25 billion of 10-year securities, the second of three note and bond auctions this week totaling $81 billion, and as investors weighed the prospects of European aid for Greece. The notes drew a yield of 3.692 percent, compared with the average forecast of 3.680 percent in a Bloomberg News survey of nine of the Federal Reserve’s 18 primary dealers. The bid-to- cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.67, compared with a 10- sale average of 2.76. Federal Reserve Chairman Ben S. Bernanke said policy makers may raise the discount rate “before long.” “The auction was weaker than others,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures.

Wall Street Journal:

- The options industry is gearing up for another fight over taxes. For the second year in a row, the Obama administration has proposed to raise taxes on options-market makers by more than 70% and to eliminate the special tax treatment they have had for decades. The move would raise $2.6 billion in new tax revenue over the next 10 years, according to Treasury Department estimates. But given the important role that market makers play in options, ensuring liquidity by taking the other side of investors' orders to buy and sell options, the industry is trying actively to kill the proposal. The industry fears the tax could drive away some market makers and make buying and selling options more expensive. "This is an idea that's been out there for a while," said Susan Milligan, senior vice president of government relations for the Options Industry Council. "But when it's in the president's budget, you have to take it seriously."

NY Times:

- Striking civil servants brought public services to a halt across Greece on Wednesday, in a largely peaceful one-day protest against the tough austerity measures officials have said are necessary to stave off a mounting financial crisis.

The Business Insider:

- Below is a Credit Suisse table ranking countries by perceived country risk. Usual suspects Iceland and Greece unsurprisingly make the top of the list. Yet what struck us was how badly the U.S. ranked. According to Credit Suisse, it has more sovereign risk than Kazakhstan even.


- New York Times Co.(NYT), publisher of the namesake newspaper, fell as much as 8.7 percent in U.S. trading after reporting fourth-quarter advertising sales slumped 15 percent and saying the ad market is still challenging. Times Co. dropped 84 cents, or 7.2 percent, to $10.83 at 12:30 p.m. in New York Stock Exchange composite trading, after falling to $10.65, for the biggest intraday decline since Oct. 30. The shares had lost 5.6 percent this year before today.

- Signs of “crazy interest” in Steve Jobs’ tablet computer in Scandinavia, Europe and Asia. Could enthusiasm for the iPad be even greater overseas than it is in the US? Exhibit A:

Google Blog:

- Imagine sitting in a rural health clinic, streaming three-dimensional medical imaging over the web and discussing a unique condition with a specialist in New York. Or downloading a high-definition, full-length feature film in less than five minutes. Or collaborating with classmates around the world while watching live 3-D video of a university lecture. Universal, ultra high-speed Internet access will make all this and more possible. We've urged the FCC to look at new and creative ways to get there in its National Broadband Plan – and today we're announcing an experiment of our own. We're planning to build and test ultra high-speed broadband networks in a small number of trial locations across the United States. We'll deliver Internet speeds more than 100 times faster than what most Americans have access to today with 1 gigabit per second, fiber-to-the-home connections. We plan to offer service at a competitive price to at least 50,000 and potentially up to 500,000 people.


- Hedge Fund Energy Trades Under Growing Scrutiny. Regulators seek to shed light on speculative price spikes. Hedge funds and other speculators trade billions of dollars worth of oil futures without intending to ever take delivery of a single drop of fuel. Even so, their impact can be profound on oil prices, and thus stocks of majors like Exxon Mobile, Chevron and Royal Dutch Shell. This fact has not gone unnoticed in Washington. When Gary Gensler, the former Goldman Sachs (GS) banker and Treasury Department official, was nominated last year to chair the Commodity Futures Trading Commission, he contradicted the previous claims of the energy futures' chief regulator and disputed the notion that speculators have no impact on energy trading. "I believe that excessive speculation in commodity futures can cause sudden or unreasonable fluctuations, or unwarranted changes in commodity prices," Gensler said in a written response to lawmakers' questions ahead of his nomination hearing. Gensler went on to pledge that, if confirmed, he would have the CFTC guard against such speculation. While he stopped short of saying that excessive speculation had taken place in the energy prices run-up of 2008, he did assert that the rapid growth of commodity index funds and increased hedge fund allocations to commodities had contributed to the "bubble in commodities prices that peaked in mid-2008."

The Hill:

- Sen. John Kerry (D-Mass.) says those who think climate change legislation is dead for the year are “dead wrong.” Those who think blizzards and record snow falls in Washington will make it tough to move a global warming bill are guilty of "inside the beltway" thinking, Kerry said. "The inside-the-Beltway conventional wisdom that this issue has stalled is dead wrong," Kerry said in a statement e-mailed to The Hill. Some of Kerry’s Democratic Senate colleagues are less keen on a climate change bill. They told The Hill this week that the optics of Congress tackling global warming in a year with record snow may be a political loser. Other Democratic senators say a bill that was once a top priority for the party and for President Barack Obama cannot be dug up again during 2010.


- Labor groups are furious with the Democrats they helped put in office — and are threatening to stay home this fall when Democratic incumbents will need their help fending off Republican challengers. The Senate’s failure to confirm labor lawyer Craig Becker to the National Labor Relations Board was just the latest blow, but the frustrations have been building for months. "Here's labor getting thrown under the bus again," said John Gage, the national president of the American Federation of Government Employees, which represents 600,000 workers. "It's really frustrating for labor, and a lot of union people are thinking: We put out big time in money and volunteers and support. And it seems like the little things that could have been aren't being done."

- Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs. Like the untraded US rates liquidity index (USRLI), the CLX is constructed as a sum of the Sharpe ratio – deviations from the mean divided by volatility – of various market factors, such as equity volatilities, Treasury rates, swap spreads, corporate bond swaption-implied volatilities, and structured credit spreads.

Real Clear Politics:

- Budget on the Path to Ruin. The new era of Democratic bipartisanship, like cut flowers in a vase, wilted in less than a week. During his question time at the House Republican retreat, President Obama elevated Congressman and budget expert Paul Ryan as a "sincere guy" whose budget blueprint -- which, according to the Congressional Budget Office (CBO), eventually achieves a balanced budget -- has "some ideas in there that I would agree with." Days later, Democratic legislators held a conference call to lambaste Ryan's plan as a vicious, voucherizing, privatizing assault on Social Security, Medicare and every non-millionaire American. Progressive advocacy groups and liberal bloggers joined the jeering in practiced harmony.

Magyar Nemzet:

- International Monetary Fund representatives warned that Hungary needs further spending cuts to avoid the 2010 budget deficit overshooting the target. The Washington-based lender estimated that the shortfall may reach as much as 5% of GDP without as much as $1.5 billion of spending cuts.

Financial Post:

- European Union lawmakers are calling for a clampdown on speculators and short-selling ahead of a meeting next week between the EU financial markets chief and EU finance ministers to discuss the issue. Finance ministers from the 27-country bloc will meet in Brussels on Feb. 16 with a backdrop of intense pressure on the euro, which dipped to an eight-month low against the U.S. dollar, and financial-market volatility that some blame on speculators. The euro's fall, accompanied by a deepening debt-and-deficit crisis in Greece that threatens to spread to other eurozone countries, has put the issue of short-selling and financial-market betting firmly on the political agenda.

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