- Brown Says Global Bank Levy Agreement Getting Closer, FT Reports. U.K. Prime Minister Gordon Brown said yesterday that the governments of the world’s leading economies are nearing agreement on a “global responsibility levy” on banks, the Financial Times reported. Brown told the newspaper that Britain, Germany and France are in broad agreement and he hopes the U.S. will join them.
- Bond Buyers Demand Record Downgrade Protection: Credit Markets. Bonds with built-in protection against rating cuts are making up a record share of debt issues as investors hedge against a slowdown in the economic recovery. Sales surged to $37.3 billion in March, or 12.4 percent of all debt issued, according to data compiled by Bloomberg. Most of the notes are sold in the U.S., where almost half of bonds rated as so-called junk or on the cusp of non-investment grade include the protection. Investors are concerned that debt-laden companies are at increasing risk of being downgraded this year, even as the global economy emerges from the deepest recession since the 1930s and credit markets rally. Reductions in corporate ratings and credit outlooks outpaced increases by 150 percent in the first quarter, according to Moody’s Investors Service.
- Bulls Increase With Buybacks Signaled by Profit Surge. U.S. companies are sitting on a record pile of cash after spending the lowest proportion of their profits on stock buybacks since 2003, a sign that repurchases may propel the equities rally as earnings recover. Buybacks by companies in the Standard & Poor’s 500 Index totaled $137.6 billion last year, or 28 percent of operating profit, according to S&P. The last time the ratio dropped to that level, the S&P 500 subsequently climbed for four years. U.S. firms will almost double their spending on stock repurchases to $235 billion in 2010 as earnings surge, according to Mizuho Financial Group Inc.
- New York Budget 'Shell Game' Hides Deficits and Cash Squeeze. The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said. “New York needs to stop playing games with the deficit,” DiNapoli said in a statement. By shifting money between accounts in a “fiscal shell game” state officials and lawmakers “cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,” DiNapoli said. In the year ended March 31 the state used $6.4 billion of funds shifted and borrowed between accounts, and rolled $3 billion of payments into the current year that began April 1, the report said. Lawmakers haven’t agreed on a plan to close a deficit of more than $9 billion this year in a $135.2 billion budget proposed by Governor David Paterson.
- U.S. Economy: Services Expand at Fastest Pace Since May 2006. Service industries expanded in March at the fastest pace since May 2006, indicating the U.S. recovery is spreading beyond manufacturing and starting to create jobs. The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy rose to 55.4, higher than anticipated, from 53 in the prior month. Today’s report showed the non-manufacturing gauge of new orders rose to 62.3, the highest since August 2005, from 55 the prior month, and unfilled orders increased to 55.5, the highest since August 2007. The index of employment increased to 49.8 from 48.6. While it still showed more companies reduced payrolls than added to them, the gauge was the highest since April 2008. The measure of new export orders jumped in March to the highest level since June 2007, while the index of prices paid rose to 62.9 from 60.4.
- U.S. 10-Year Yield Hits 4% for First Time Since June.
Wall Street Journal:
- Economic Pickup: Truck Sales Show Rebound. Tucked inside auto industry's strong U.S. sales report for March last week was a little-noticed portent for the broader economy: Full-sized pickup trucks outperformed the overall automotive industry, according to Autodata Corp.
- Commercial Bankruptcies Increase. The total number of companies filing for bankruptcy in the U.S. jumped by more than 20% in March over the previous month, as business failures in the first quarter outpaced last year's total.The total number of commercial bankruptcy filings hit 8,208 in March, a sharp rise from February's total of 6,655, according to new data from Automated Access to Court Electronic Records. March's total brings the total number of commercial bankruptcies to 21,453 so far this year, almost 1,000 more than the total for the first quarter of 2009, a breakout year for business filings.
- Apple(AAPL) to Preview New iPhone Software. Apple is set to host an event on Thursday to show off the newest operating system software for the
iPhone, as the company prepares for a widely expected launch of its next-generation smartphone later this year.
- Huge 25% Tax Hike for Small Businesses Kills New York Jobs. America's jobs growth engine is being choked to death. A record 25 percent increase in the taxes against US small businesses -- from costs associated with new health care law, to an increased Medicare tax, increased capital gains taxes and higher state and city taxes -- is repealing any ability of these entrepreneurs to add jobs to their payroll. And the numbers for New York's small- to medium-sized business are just as harrowing. By one estimate, the effective tax rate on the 26 million small businesses across the country -- which in the past have accounted for more than half of the job growth in the US -- has jumped to 50 percent from 40 percent, sucking valuable cash from the businesses. These dollars could have been used to add to payrolls or make capital improvements -- but instead will be siphoned off by Uncle Sam, state and municipal governments. A survey of 200 small businesses across the US by the economist found 51.5 percent of business owners in March were concerned about the viability of their businesses -- up from 49.5 percent in February. More than eight million jobs have been lost during the current 28-month recession.While a healthy 162,000 jobs were added in March, it was accomplished with the help of heavy government stimulus. Meanwhile, the average length of joblessness rose to 31 weeks and hourly earnings were down, albeit slightly. In New York, interviews with more than a dozen small business owners by The Post found a group of owners hurting under the weight of the new taxes.
- Why Greece Will Default For Sure. Wolfgang Münchau, of Eurointelligence, shows how it's obvious Greece will default, based its current course. It doesn't take rocket science to do the math.
- On The Inevitable Surge Of Tax Rates. For all who doubt the Obama administration will raise tax rates into the stratosphere in the very near future, here is a chart created by dshort.com which compares the total level of debt to GDP with Federal tax brackets over the past century.
- Looting Main Street. How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece.
- National Debt Seen Heading for Crisis Level. Lost amid last month's passage of the new health care law, the Congressional Budget Office issued a report showing that within this decade, President Obama's own budget sends the U.S. government to a potential tipping point where the debt reaches 90 percent of gross domestic product. Economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University have recently shown that a 90 percent debt-to-GDP ratio usually touches off a crisis. This year, the debt will reach 63 percent of GDP, a ratio that has ignited crises in smaller wealthy nations. Fiscal crises gripped Canada, Denmark, Sweden, Finland and Ireland when their debts were below where the United States is shortly headed. Japan's debt is much higher, but most of it is held domestically, and Japan's economy has been weak for 20 years. "I really don't think we want to be like Japan," said UC Berkeley economist Alan Auerbach. The Obama budget will add $10 trillion to the national debt in the next decade and will not stabilize the deficit, the CBO found. Deficits are expected to dip as the recovery takes hold, but never below $724 billion a year. Interest costs alone will consume $5.6 trillion this decade. A balanced budget has been widely ruled out as unattainable. "The real problem is not just current deficits but where we're heading," Auerbach said. The polling firm Democracy Corps recently warned Democrats that the deficit now tops unemployment as a voter concern. But it also found voters "unenthusiastic" about the options to close the deficit. Voters overwhelmingly prefer spending cuts to tax hikes but reject cutting specific programs. Democrats are already picking off low-hanging, deficit-reduction fruit to increase spending instead. Led by Rep. George Miller, D-Martinez, Democrats approved $61 billion in savings last week by cutting banks out of student lending - and used it to expand aid to students and colleges. Democrats often give the impression that taxes on the rich can fix everything. But the center-left Tax Policy Center ran simulations showing that Obama's budget would have to raise $775 billion in new taxes every year to stabilize deficits at 2 percent of GDP. That means that if Obama keeps his promise not to raise taxes on the middle class, the rich would pay 90 percent of their income in taxes, the center said. $10 trillion Amount the Obama budget will add to the national debt in the next decade. $5.6 trillion Amount interest costs alone will consume this decade. 63% Debt-to-gross domestic product ratio this year. 90% Debt-to-gross domestic product ratio anticipated within this decade.
- Derivatives Exemption Sought for Defined Benefit Plans. Pension lobbyists are urging Congress to exempt defined benefit plans that use swaps and other derivatives from being required to set aside cash for margin requirements and to settle some swaps trades through central clearinghouses. The proposals would require major users of swaps to meet capital requirements, maintain margin levels and settle many of their swaps trades through a central clearinghouse. Currently, most swaps trading takes place in largely unregulated, over-the-counter markets without central clearing requirements. The Massachusetts Pension Reserves Investment Management Board, Boston, reported total notional value of derivatives and swaps of $8.047 billion as of June 30, 20.6% of the fund's total assets of $38.947 billion at the time.
- 54% Still Favor Repeal of Health Care Law. Now that his health care initiative has passed, President Barack Obama has hit the campaign trail to sell it to voters. Early indications are that despite all the spin from both sides, hardly anybody is changing their mind. Currently, two weeks after passage, 54% of the nation's likely voters still favor repealing the new law. The latest Rasmussen Reports national telephone survey shows that 42% oppose repeal. They include 43% who Strongly Favor repeal and 32% who Strongly Oppose it. Repeal is favored by 80% of Republicans and 57% of unaffiliated voters. Sixty-eight percent (68%) of Democrats oppose repeal.
- More than a quarter of Americans count themselves as supporters of the tea party movement, according to a new Gallup Poll out Monday. The survey of 1,033 adults polled nationwide shows that 28 percent said they are a “supporter” of the movement, while 26 percent said they are an “opponent” of tea party activists. Thirty-eight percent said they neither back nor oppose the movement. Forty-three percent of the independents surveyed said they support the tea party.
- Poll: Whitman, Boxer Lead. Republican former eBay CEO Meg Whitman is leading in the California governor's race and Democratic Sen. Barbara Boxer is under 50 percent in her battle for reelection, according to a Los Angeles Times/USC poll released Monday. Whitman leads Democratic Attorney General Jerry Brown by three points, 44 percent to 41 percent, in a general election match-up.
- If 'Too Big' Banks Fail, Directors Must Share Pain. To prevent another economic disaster, we need financial regulations that hold a financial institution’s owners, directors and executives accountable. We must also have the option to break up companies whose very size could pose a systemic risk if they fail. Unfortunately, the new bill proposed by Sen. Chris Dodd (D-Conn.) does none of this. It skirts accountability and ignores the inherent threat of size.
- China Economist Sees "Room for Talk" on Currency Row. A Chinese government economist said on Monday that the U.S. decision to delay a contentious currency report did not mean Beijing will change the value of its currency any time soon.
- CEO PAY - CEOs of Bailed-Out U.S. Regional Banks Get Raises. As 2009 came to a close, Fifth Third Bancorp (FITB) was preparing to report its sixth loss in seven quarters. The Cincinnati-based regional bank had received $3.4 billion of TARP funds with no immediate plan to repay. And its Midwestern market was still struggling with a shrunken auto sector and high mortgage foreclosure rates. Nonetheless, the board of Fifth Third, the nation's 17th-biggest bank, decided to increase the compensation of Chief Executive Kevin Kabat by 56 percent, to $5.2 million -- even though the bank was barred from paying him a bonus because of the bailout rules.
- Greece Blames Germany for "Racial Approach" on Aid. Germany's hard line on aid for Greece has been based on a "moral, racial approach" and the prejudice that Greeks don't work enough, Greek Deputy Prime Minister Theodoros Pangalos told a Portuguese newspaper. Polls show Germans are overwhelmingly against a financial bailout for Greece and Chancellor Angela Merkel ensured at a summit in Brussels last month that tough conditions were attached to any such aid.
- Natural Gas Boom Brings Riches to a Rural US Town.
- US Banks in $2.5bn 'Christmas Capital' Gain on Discounted Assets. US banks earned $2.5bn (£1.63bn) last year from an accounting rule that enables them to book gains - known as "Christmas capital" - by buying assets at a discount, a study shows. More than half of all acquisitions of failed banks last year resulted in such gains, according to SNL Financial, which compiled the data. For some banks, the gains contributed to the lion's share of their income for the year. It emerged last week that leading bank regulators were discussing guidelines to limit how much of a bank's capital can be comprised of such gains, according to people familiar with the situation. "Regulators are trying to get their hands around what is real capital and what is accounting capital," said one person who has worked on some of these transactions.
- Decline of US Commercial Property Slows. Occupancy at US office buildings fell to the lowest level since 1994 in the first quarter of this year, but there are signs that the worst could be over for the stricken commercial property market. New figures from Reis, a commercial real estate research company, showed that the vacancy rate in the US office sector climbed to 17.2 per cent during the first three months of the year. It stood at 15.2 per cent in the same quarter of 2009, but the pace of deterioration has slowed as the labour market has stabilised. Reis notes that commercial real estate, like unemployment, tends to lag behind economic recoveries and that it could be another year to 18 months before the trends of rising vacancies and falling rents are reversed. “We expect less of a bloodbath in fundamentals in 2010 versus 2009, but rents will still decline and vacancies will still continue to rise,” said Victor Calanog, director of research at Reis. “Before employers lease new space, they need to hire more people.”
- George Soros Backs Oxford to Refresh Economics. George Soros is to create a new economics institute at Oxford University. It is part of an attempt to steer the discipline away from the champions of the free market and deregulation who, the billionaire financier believes, share the blame for the global economic crisis. The institute, as yet unnamed, is being funded by the New York-based Institute for New Economic Thinking (Inet), a think-tank and educational and grant-giving organisation founded last October with a $50 million pledge from Mr Soros to stimulate debate about the role of government regulation in the economy and financial markets. A broader, interdisciplinary approach to economics, taking in history, psychology, natural science — to deal with issues such as climate change — and even literature was now needed, Mr Johnson suggested. Mr Soros has donated $5 million to Oxford’s James Martin 21st Century School, which is putting in another $5 million, to create the new institute, which will be headed by Professor Sir David Hendry, a fellow of Nuffield College. It is the first of a dozen or so that Mr Soros hopes to set up at leading universities worldwide. Inet is talking to Cambridge as well as higher education universities in Germany, France, China, Italy and the United States, where there have been discussions under way with Princeton, Columbia and New York University. Oxford was chosen for the first institute because Mr Soros believed that Britain was more open to broadening the economic debate than the US, Mr Johnson said. We want to go to a climate where the minds are open. We find the climate in the UK to be much more conducive to change. “Part of what the 21st Century School is trying to do is to broaden the debate and get a plurality of voices and think of different ways of modelling.”
- U.S. officials asked the Brazilian government to delay the adoption of retaliatory measures in a trade dispute over cotton subsidies to allow time for talks. Brazil will raise import tariffs on 102 U.S. goods, including wheat, cars and boats, starting April 7 if talks over the U.S. subsides fail.