- North-South Divide May Hurt Euro Region More Than Greek Crisis. Elina Helmanen and Minas Megalokonomos embody a widening north-south divide that may put the euro region at more risk than the Greek budget does. Helmanen, 26, lives on her own, studying politics in her native Finland while juggling a part-time job as a waitress. She expects to find a job after graduating next year. “I believe that if you try hard enough and are ambitious enough, you can get what you want,” said Helmanen. Megalokonomos is the same age and earned a degree in economics in 2007. He has yet to find work at home in Greece and lives with his parents in Athens. “Unemployment and corruption go against any potential a hard-working person has,” he said. Such diverging expectations show the gulf within the group of 16 countries sharing the euro. As growth prospects diminish in the south, the single currency may become an economic and political straightjacket, executives and analysts said.
- Former Fed President Poole Says Fed Has 'Tilted Playing Field'. Former Federal Reserve Bank of St. Louis President William Poole said the central bank played favorites when providing aid as part of efforts to stem the financial crisis. “The Fed did not provide assistance to all on an equal basis but tilted the playing field,” Poole said in remarks prepared for a lecture at the University of Delaware, where he is a scholar in residence. “Why should the Fed have had a program to buy commercial paper from large corporations and no program to help small businesses starved for funds?” The Fed’s program to purchase $1.25 trillion in mortgage- backed securities issued by government-sponsored enterprises probably contributed to the demise of the market for non- government mortgage-backed securities and will “complicate monetary policy in the years ahead,” Poole said. “Much more research is necessary to determine whether the Fed made the right choices; clearly, I have my doubts,” said Poole, 72. Poole expressed concern about “an appalling lack of economic literacy in Congress” and said that neither the House nor Senate versions of legislation to overhaul financial regulation address the most important shortcomings. Banks should be required to hold more long-term bonds, and tax deductions for interest should be eliminated, he said.
- Cornell Faces Moody's Rating Cut as Swaps Backfire. Cornell University, a member of the Ivy League, faces a credit-rating downgrade as it prepares to terminate interest-rate swaps tied to its debt, according to Moody’s Investors Service. Cornell will end the contracts linked to at least $475 million of bonds, potentially costing it $39.9 million, Moody’s said in a report today. The New York-based rating company said it lowered the outlook on the university’s Aa1 ranking, its second-highest, to negative from stable, indicating it could be downgraded. Standard & Poor’s in March 2009 cut the school’s grade one level to AA, its third-highest. The lower outlook reflects a “tightening of operating performance” and a possible cut in state aid, Moody’s analysts Kimberly Tuby and Dennis Gephardt wrote in the report. It also came amid a “decline in pledges and new gifts to the university, and financial resources providing a thinner cushion for a significant amount of debt and large expense base, as a result of investment losses and rapid pace of borrowing in recent years,” they wrote.
- Rosner Doesn't Believe Rubin Was Unaware of CDO Risk. Joshua Rosner, managing director at Graham Fisher & Co., talks with Bloomberg's Matt Miller and Carol Massar about today's testimony by former Citigroup Inc. executives Robert Rubin and Charles "Chuck" Prince before the Financial Crisis Inquiry Commission in Washington. (video)
- Treasuries Head for Weekly Gain on Concern Greece Will Default. Treasuries headed for their biggest weekly gain since February as concern Greece will default on 304.2 billion euros ($407 billion) of debt spurred investors to buy safety assets. “The Greek problem is not over, especially as they may need to fund at very high interest rates, which means that the financing costs will also be high,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., part of Japan’s second-largest listed bank. “Investors may want to hold safer goods and Treasury yield level are very attractive.” Credit-default swaps linked to Greek bonds climbed 53 basis points to a record 468.5 yesterday, according to CMA DataVision. The yield premium investors demand to hold 10-year Greek rather than similar-dated Treasuries expanded yesterday to 3.47 percentage points, the widest since January, according to data compiled by Bloomberg. The spread between 10-year German bunds and Greek debt increased to 4.27 percentage points yesterday, the largest since the euro’s debut in 1999.
- Bullion Held in SPDR Gold ETF Surges .9% to Most on Record. Bullion held by SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, rose by 9.7 metric tons to the largest amount ever, company figures show. The fund’s holdings gained 0.9 percent, the biggest jump in more than six months, to 1,140.43 tons as of today, according to the company’s Web site. Holdings have increased 1.2 percent in the past year. The previous record was 1,134.03 tons on June 1, according to the Web site. The company listed the fund’s net asset value as $42.09 billion as of today.
- Hartford's(HIG) Ayer To Get $39.9 Million Pension Payment. Ramani Ayer, whose stock and bond bets pushed Hartford Financial Services Group Inc. into a U.S. bailout, will receive a pension payment of $39.9 million in May. Ayer stepped down as chairman and chief executive officer on Sept. 30. His pension was disclosed in a regulatory filing today. Hartford fell 28 percent on the New York Stock Exchange during Ayer’s 12 years of leadership. His expansion in equity- linked retirement products produced losses for Hartford starting in 2008 when banks failed and the stock market plummeted. The $3.4 billion of government rescue funds secured by Ayer in June ranks Hartford second only to American International Group Inc. among bailed-out insurers.
- Cusip Requests Portend Jump in Corporate Debt. Call it the Cusip clue. Corporate-debt issuance is poised to grow even more robustly into the second quarter, based on the number of companies that applied in March to issue new debt securities. The number of requests for corporate-debt-related Cusips—akin to serial numbers for new bond issues—rose 41% in March from month-earlier levels, according to Standard & Poor's. The figure was up 78.6% from March 2009, representing the biggest year-over-year jump since March 2005, according to S&P. The rise is noteworthy as it comes after a first quarter that already saw strong corporate-bond issuance—including record levels of high-yield bond issuance—and indicates that such activity could continue to grow. "It can be seen as a proxy for economic activity or capital markets activity, and it's probably another indicator of improving corporate health," said Richard Peterson, a director in the market credit and risk strategies group at S&P.
- Foreclosures Hit Rich and Famous. The rich and famous now have something in common with hundreds of thousands of middle and lower-class Americans: The bank is about to take their homes. Houses with loans of $5 million or more will likely see a sharp rise in foreclosures this year, according to a RealtyTrac study for The Wall Street Journal.
- Dick Bove: Investors Betting Goldman(GS) Bought Greek CDS. Goldman Sachs shares have been on a tear lately. They’re up 8.3% this year, 15% since the end of February and 6% so far this week, after leapfrogging their 200-day moving average on Monday. What’s behind the action? Rochdale securities analysts Dick Bove says investors have been laying bets on Goldman based on the belief that the company has been snapping up credit default swaps that would pay out in the event of a default of the Hellenic Republic. Brendan Conway of Dow Jones writes:
- States Skip Pension Payments, Delay Day of Reckoning. State governments from New Jersey to California that are struggling to close budget deficits are skipping or deferring payments to already underfunded public-employee pension plans. The moves could help ease today's budget pressures, but will make tomorrow's worse.
- Wal-Mart(WMT) Bets on Reduction in Prices. Inc. is cutting prices on thousands of products in an aggressive campaign to reinforce its reputation as a discount leader, as the company seeks to reverse months of slowing U.S. sales.
- Small Farms Balk at Food-Safety Bill. Congress's food-safety fight is nearing an end but small farmers still have a bone to pick with the legislation. The Senate version of a food-safety bill has attracted broad bipartisan support and is expected to pass easily soon after Congress returns from recess next week. Iowa Democratic Sen. Tom Harkin, a co-sponsor, predicted it would be "on the president's desk by May." But small farmers worry the measure's fees and inspection requirements would be ruinously expensive and are pushing for exemptions. "I know people who have been small farmers for 25 to 30 years who are looking to get out of the business because food safety is becoming so alarmist," said Mary Alionis, whose eight-acre Whistling Duck Farm in Grants Pass, Ore., sells produce to farmers markets and restaurants.
- Bank of Mom and Dad Shuts Amid White-Collar Struggle.
- Democrats Pivot to Climate Change as Election Clock Ticks. Environmentalists optimistic about passing bill, but politics complicated. Hot on the heels of the health-care reform bill, lawmakers will soon begin considering major climate-change legislation that the White House wants to get passed this year. But with a little more than seven months to go until Election Day, some are asking: can the Democrats do it?
- What is Jamie Dimon Trying to Pull? Jamie Dimon could be the most dangerous person in America. It's not that he is incompetent and likely to lead his bank quickly onto the rocks. On the contrary, Mr. Dimon threatens our economic and political system precisely because he is so good at his job, and because he is determined to translate his recent success into making his bank even bigger. Dimon represents the heavy political firepower and intellectual heft of the banking system. He runs some of the most effective -- and toughest -- lobbyists on Capitol Hill. He has the very best relationships with Treasury and the White House. And he is determined to scale up. The only problem he faces is that there is no case at all for banking of the size and form he proposes. Consider the logic he presents on p. 36 of his recent letter to shareholders.
- As Funding Pressure Grows, Local Government Officials In China Are Killing Themselves. In China, the heat is being turned up on local governments, which have been characterized as the SIVs of the country's financial bubble. Local governments are saddled with huge debts, and are desperate for the real estate bubble to continue feeding the beast. As such, we're not surprised to see stories like this, from ShanghaiDaily.com:
- Reed Targets Private Investment Pools. In an effort to throw some light on the shadowy world of private investment pools, Democratic Sen. Jack Reed of Rhode Island is working to require hedge, private equity and venture capital funds to provide information on their dealings to the Securities and Exchange Commission. Reed, a member of the Banking Committee, plans on offering an amendment to the financial regulatory reform bill when it comes to the Senate floor that would require private funds with more than $30 million in assets to register with the SEC and disclose information that would help regulators determine whether the funds pose any risk to the financial system.
- Netanyahu to Skip Obama Summit. Israeli Prime Minister Benjamin Netanyahu has abruptly canceled his plans to attend President Barack Obama’s nuclear security summit next week, creating an embarrassing distraction on the eve of a high-profile meeting the White House has sought to carefully choreograph. An Israeli official confirmed Netanyahu’s decision not to attend, which was revealed by Israeli media outlets Thursday afternoon Washington time. “In the last 24 hours, the Israeli government has learned of various reports from various sources on the intention of several states attending the conference not only to deal with the issue at hand, but to take the opportunity to make a point of grand-standing against Israel and the issue of the Nuclear Nonproliferation Treaty," the Israeli official said. "The prime minister was dismayed at this, and decided to stick to the Israeli policy that Israel is usually represented at these types of conferences at the professional-ministerial level.”
- Diplomat Was Visiting Al Qaeda Inmate. A Qatari diplomat was going to visit a convicted member of Al Qaeda when his suspicious behavior led the U.S. to scramble F-16s, sources said Thursday. Mohamed Al-Madadi, the third-ranking diplomat in the Qatari Embassy, was on his way to visit Ali Al-Marri in the Florence, Colo., Supermax prison. Al-Marri, a Qatari citizen, is serving an eight-year sentence after pleading guilty to conspiring to commit a terrorist act. Al-Madadi was scheduled to meet with Al-Marri at 11 a.m. Thursday, said Alison Bradley, a spokeswoman for the Qatari Embassy. Al-Madadi was apprehended by two U.S. air marshals after he spent a suspiciously long time in the airplane bathroom and possibly joked about igniting a bomb in his shoes, congressional sources said. The government scrambled F-16 fighter jets and escorted the plane to the Denver airport. Al-Madadi will not face charges and will leave the country later this week, congressional sources said.
- Democratic Party Image Drops to Record Low. Americans' favorable rating of the Democratic Party dropped to 41% in a late March USA Today/Gallup poll, the lowest point in the 18-year history of this measure.
- Health Care's History of Fiscal Folly. Expanding health coverage busted state budgets. Will it bust the federal budget too?
- Comcast(CMCSA) Faces Tough Regulation from FCC. Comcast’s bid to take over NBC Universal could face more stringent conditions from the Federal Communications Commission after the company’s victory in the US appeals court, according to people close to the deal. Though a court ruling this week represented a nominal victory for Comcast over the regulator, it has made the leading US cable provider more vulnerable to having rules imposed upon it over how to manage its broadband network, these people say. With its hands tied given the court ruling, people who are closely following the deal say that the FCC will be looking at the Comcast deal as an opportunity to impose conditions on the largest industry presence. They say that the biggest question now is whether the FCC would impose general net neutrality principles that Comcast could easily agree, or whether it would impose more onerous network management conditions that it would be likely to resist. “My sense is it would not be the FCC’s preferred approach but after this week they will be looking more widely for the tools they have to push their policies forward,” said Rebecca Arbogast, an analyst at Stifel Nicolaus.
- Bundesbank Attacks Greek Rescue as a Threat to Stability. Germany's Bundesbank has fired a warning shot at Chancellor Angela Merkel, attacking the joint EU-IMF rescue plan for Greece as a threat to economic stability and probably illegal. The Bundesbank document offers a withering critique of the deal agreed by EU leaders two weeks ago, saying the plan had been cobbled together without consulting central banks and will lead to monetisation of debt. "It brings problems in respect to stability policy that should not be underestimated." The joint rescue between the IMF and the EU would turn the Bundesbank into a "money-printing machine" for the purchase of Greek bonds, according to Rundschau. This would breach the EU's 'no-bail clause'. Hans Redeker, currency chief at BNP Paribas, said the report greatly strengthens the hand of EMU critics in Germany. A group of professors is already itching to file a complaint at the constitutional court to block the Greek rescue. "This reduces Merkel's room for manoeuvre to zero," he said.
- Watch Out for a Double Dip as Prices at the Pumps Soar. Are we heading for another oil price shock? I ask the question because the price of a litre of unleaded petrol at the UK pumps has today reached a new all time high, marginally surpassing the previous record set in July 2008.
- Sovereign Debt Crisis at 'Boiling Point', Warns Bank for International Settlements. The Bank for International Settlements does not mince words. Sovereign debt is already starting to cross the danger threshold in the United States, Japan, Britain, and most of Western Europe, threatening to set off a bond crisis at the heart of the global economy. "The aftermath of the financial crisis is poised to bring a simmering fiscal problem in industrial economies to the boiling point", said the Swiss-based bank for central bankers -- the oldest and most venerable of the world's financial watchdogs. Drastic austerity measures will be needed to head off a compound interest spiral, if it is not already too late for some. The risk is an "abrupt rise in government bond yields" as investors choke on a surfeit of public debt. "Bond traders are notoriously short-sighted, assuming they can get out before the storm hits: their time horizons are days or weeks, not years or decade. We take a longer and less benign view of current developments," said the study, entitled "The Future of Public Debt", by the bank's chief economist Stephen Cecchetti. "The question is when markets will start putting pressure on governments, not if. When will investors start demanding a much higher compensation for holding increasingly large amounts of public debt? In some countries, unstable debt dynamics -- in which higher debt levels lead to higher interest rates, which then lead to even higher debt levels -- are already clearly on the horizon." Official debt figures in the West are "very misleading" since they fail to take in account the contingent liabilities and pension debts that have mushroomed over recent years. "Rapidly ageing populations present a number of countries with the prospect of enormous future costs that are not wholly recognised in current budget projections. The size of these future obligations is anybody's guess," said the report. The BIS lamented the lack of any systematic data on the scale of unfunded IOUs that care-free politicians have handed out like confetti.
- David Cameron: Public Sector Chiefs Will be Forced to Take Pay Cut. Public sector chiefs earning hundreds of thousands of pounds a year would have their salaries cut back by a Conservative government under a radical scheme to link their earnings to the lowest-paid workers in their organisation, David Cameron announces today. In his first newspaper article since the general election was declared earlier this week, the Tory leader writes in the Guardian that his party has now assumed the mantle of progress as he pledges to tackle "unfair pay" in the public sector. Cameron also uses the article to launch a withering attack on Gordon Brown, describing him as an anachronism whose government is past its sell-by date, and claiming the Tories are today's radicals. A Tory government would establish a fair pay review to ensure that no senior manager in the public sector can earn more than 20 times more than the lowest- paid person in their organisation.
- Why We Must Break Up The Banks by Dean Baker. Paul Krugman says it isn't necessary - but breaking up financial giants would at least give us hope that things can change.
- China has initially passed a plan to impose a property tax on home purchases and may start a trial in the cities of Beijing, Shanghai, Chongqing and Shenzhen. The plan is likely to be approved by the State Council and Ministry of Finance.
- China's central bank may raise benchmark interest rates this month to curb property price gains and inflation which may be pushed up by the drought in southern China, citing government economist Zhu Baoliang. Zhu's center is an affiliate of the National Development and Reform Commission, the top economic planning agency.
- Downgraded (SATS) to Sell, lowered target to $17.50.
- Reiterated Buy on (DISH), raised target to $24.
- Asian indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 96.0 -1.0 basis point.
- S&P 500 futures unch.
- NASDAQ 100 futures -.03%
Earnings of Note
10:00 AM EST
- Wholesale Inventories for February are estimated to rise +.4% versus a -.2% decline in January.
- None of note
- The (ORA) analyst meeting could also impact trading today.