Monday, November 08, 2010

Today's Headlines

  • Irish Credit-Default Swaps Surge to Record on Bank Bailout Cost Concerns. Credit-default swaps on Ireland and its banks surged to record high levels on concern the cost of bailing out the nation’s financial system is unsustainable. Contracts on Ireland soared 28 basis points from a record closing level to 606, according to data provider CMA. Swaps on the senior debt of Allied Irish Banks Plc climbed 43.5 basis points to 899.5 and Bank of Ireland Plc increased 37.5 to 724.5. “The uncertainty regarding sovereign debt and deficits in the European periphery will remain a strain for risky assets,” Tim Brunne, a Munich-based strategist at UniCredit SpA, wrote in a note to investors. The extra yield, or spread, investors demand to hold Irish 10-year bonds instead of similar-maturity benchmark German debt increased 10 basis points to 531 basis points, near the record 534 basis points reached at the end of last week. Swaps on Allied Irish subordinated debt jumped 8 percentage points to 54 percent upfront and five percent a year, meaning it costs 5.4 million euros in advance and 500,000 euros annually to insure 10 million euros of the bank’s debt for five years. Subordinated swaps on Bank of Ireland jumped 2 percentage points to 31 percent upfront and five percent a year. The Markit iTraxx SovX Western Europe Index of swaps on 15 nations rose 3.75 basis points from a record closing level to 174.75. Contracts on Portugal jumped 9 basis points to 454, Spain climbed 9.5 to 259.5 and Italy increased 4 to 195. Greece declined 3 basis points to 195. The cost of insuring corporate bonds also rose. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 7 basis points to 438, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 98.75, JPMorgan prices show. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers was unchanged at 132.5.
  • Google(GOOG), Dell(GELL) Likely to Keep Acquisition Spree Alive. and Google Inc.Dell Inc. plan to push ahead with more acquisitions, helping maintain a takeover spree that’s boosted the value of U.S. technology mergers to more than $60 billion this year. Google is likely to buy more companies about the size of YouTube and DoubleClick, its two largest deals, to help offer more online services, the company’s head of mergers and acquisitions said in an interview last week. Dell plans more takeovers in its drive to double the size of its data-center business to $30 billion in sales, a company executive said. Internet and computer companies are increasingly relying on acquisitions to gain new technology and customers.
  • Euro Periphery-Nation Bond Yield Spreads Likely to Stabilize, Nomura Says. Bond yield premiums demanded by investors to hold Irish and Portuguese debt instead of benchmark bunds may stabilize, Nomura International Plc said. “This crisis, fueled by little true news, has entered a new phase and we expect some shorter-term stability,” a team of analysts led by Nick Firoozye in London wrote in a research report today. Portugal’s sale of bonds scheduled for Nov. 11 may go “smoothly” as a result, the analysts wrote. Greek Prime MinisterGeorge Papandreou’s move to rule out early elections may also “provide some comfort to spreads,” the analysts wrote in the note.
  • CEOs Most Optimistic on U.S. Profits in Bull Signal for S&P 500. More U.S. executives than ever are increasing earnings forecasts compared with those lowering them. EBay Inc., United Parcel Service Inc. and 196 other companies raised profit estimates above analysts’ projections last month as 130 firms cut them, the biggest gap since Bloomberg began tracking the data in 1999. Shipping companies and computer makers boosted forecasts the most, pushing the Morgan Stanley Cyclical Index of businesses most tied to the economy up 27 percent from July 2 through Nov. 5.
  • SEC Weighs Slowing Algorithms in Times of Market Volatility, Schapiro Says. U.S. Securities and Exchange Commission Chairman Mary Schapiro said her agency is examining whether computer algorithms used to trade thousands of shares in milliseconds should include risk controls that instruct them to slow down during periods of market volatility. The agency is considering what to do about algorithms that “go crazy,” Schapiro said today at a Securities Industry and Financial Markets Association conference in New York. “Should they be programmed with throttles to slow them down?”
  • Gulf Oil-Spill Commission Finds No Evidence BP(BP) Put Saving Cash Over Safety. The U.S. panel investigating the BP Plc oil spill found no evidence decisions were made to put profit ahead of safety on the drilling rig, its co-chairman said.
  • SEC Bans Market-Maker 'Stub' Quotes Blamed for Losses in May 6 Stock Crash. The U.S. Securities and Exchange Commission banned a market-maker pricing practice known as stub quotes, prohibiting a technique that caused shares to trade as low as 1 cent during the May 6 crash.
  • Israel's Netanyahu Asks Biden to Pressure Iran Harder Over Nuclear Program. Israeli Prime Minister Benjamin Netanyahu told U.S. Vice President Joe Biden that Iran must face greater pressure to stop it from developing nuclear arms, his spokesman said. He also expressed hope that disputes that have stalled Middle East peace talks will be resolved.

Wall Street Journal:
  • Regulators Watch Closely as Bonuses Soar. As brokerage firms' recruiting bonuses rise, so does regulators' concern that the incentives being attached to them could pose a threat to compliance with securities laws. The biggest brokerages are offering packages to their top-producing brokers that can exceed 300% of a year's production in fees and commissions, and much of that money is tied to their performance after they join the new company.
  • Obama Jumps Into G-20 Surplus Spat. U.S. President Barack Obama, returning fire in a heated exchange with Germany, added his voice to U.S. efforts to reduce massive German and Chinese trade surpluses and increase pressure on China to let the value of its currency rise. And in a highly anticipated speech to the Indian Parliament, the U.S. president for the first time publicly backed India's inclusion as a permanent member in the United Nations Security Council, albeit after the security council undergoes a broad restructuring that could takes years, if it happens at all.
Business Insider:
Zero Hedge:
New York Times:
  • Cost of Green Power Makes Projects Tougher Sell. Michael Polsky’s wind farm company was doing so well in 2008 that banks were happy to lend millions for his effort to light up America with clean electricity. But two years later, Mr. Polsky has a product he is hard-pressed to sell. His company, Invenergy, had a contract to sell power to a utility in Virginia, but state regulators rejected the deal, citing the recession and the lower prices of natural gas and other fossil fuels. “The ratepayers of Virginia must be protected from costs for renewable energy that are unreasonably high,” the regulators said. Wind power would have increased the monthly bill of a typical residential customer by 0.2 percent. Even as many politicians, environmentalists and consumers want renewable energy and reduced dependence on fossil fuels, a growing number of projects are being canceled or delayed because governments are unwilling to add even small amounts to consumers’ electricity bills.
Washington Post:
  • Regulators Flawed in Foreclosure Oversight. As foreclosures began to mount across the country three years ago, a group of state bank regulators suspected that some borrowers might be losing their homes unnecessarily. So the state officials asked the biggest national banks for details about their foreclosure operations. When two banks - J.P. Morgan Chase and Wells Fargo - declined to cooperate, the state officials asked the banks' federal regulator for help, according to a letter they sent. But the Office of the Comptroller of the Currency, which oversees national banks, denied the states' request, saying the firms should answer only to inquiries from federal officials.
San Francisco Chronicle:
  • California Borrows $40 Million a Day to Pay Unemployment. With one in every eight workers unemployed and empty state coffers, California is borrowing billions of dollars from the federal government to pay unemployment insurance. The Los Angeles Times reports that the state owes $8.6 billion already, and will have to come up with a $362-million payment to Washington by the end of next September. The continued borrowing means federal unemployment insurance taxes are going to increase, upping the annual payroll costs $21 a year per worker. California tops the list of 32 states that have borrowed a total of $41 billion to pay claims.
  • Hedge Funds Post Inflow of $3.8 Billion in September. TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an inflow of $3.8 billion (0.2% of assets) in September 2010, the third straight inflow as well as the sixth in eight months. Assets surged 2.5% to $1.62 trillion, the highest level since April. "September was a good month for hedge fund managers," said Sol Waksman, founder and President of BarclayHedge. "Nine in 10 managers reported a profit for the month, and our Hedge Fund Index increased 3.5%. This is the largest gain since May 2009, and it lifted the index above the October 2007 high-water mark." Hedge fund investors were risk averse in September. Equity Long Only funds redeemed $829 million (1.2% of assets), the heaviest outflow of all fund strategies, while Emerging Markets funds redeemed $269 million (0.1% of assets), the third outflow in four months. Meanwhile, commodity trading advisors (CTAs) hauled in $5.8 billion, the sixth straight inflow as well as the fourteenth in 16 months. In contrast, Funds of Hedge Funds redeemed $635 million (0.1% of assets). "It won't surprise us to see hedge fund managers investing aggressively through year-end, which could keep a strong bid under stock prices," said Vincent Deluard, Executive Vice President at TrimTabs. "Investors have poured $ 16.1 billion into hedge funds in the past three months, and managers need to put that fresh cash to work. Also, more than half of managers have failed to poke through their previous high-water marks. In order for these folks to collect performance fees this year, they need to lever up and produce a blockbuster quarter."
  • Irish Credit Unions May Need Major Restructuring. Ireland's credit union sector may need to be significantly restructured if arrears continue to rise and lending opportunities remain subdued, the official in charge of regulating the industry said on Monday. "Not all credit unions will make it through this difficult financial and economic environment in their current structure," James O'Brien, the registrar of credit unions, told the National Supervisors Forum.
  • FrontPoint Health Funds See Big Redemptions. Investors have asked FrontPoint to return about half of its healthcare portfolios' assets, or about $750 million, after the fund and its top manager became embroiled in an insider trading case, a source familiar with the matter said on Monday. The Greenwich, Connecticut-based hedge fund firm has also extended the redemption deadline to December 1 from November 15 to receive money back on December 31, FrontPoint's two chief executive officers told their investors late last week.
  • U.S. QE2 Decision Not a Good One -Eurogroup Head. Juncker Says Fed Decision is Fighting Debt with Debt. The chairman of euro zone finance ministers Jean-Claude Juncker criticised on Monday the U.S. Federal Reserve's bond purchase plans, noting they might not boost the U.S. economy but push capital into emerging economies. "I don't think it is a good decision," Juncker told a European Parliament hearing.
  • Radical Yemeni Cleric Calls for Killing Americans. A U.S.-born Islamic cleric linked to attacks by al-Qaida in Yemen on U.S. targets called for Muslims around the world to kill Americans in a new video posted on extremist websites Monday. Anwar al-Awlaki, 39, is one of the most prominent English-language radical clerics and his sermons advocating jihad, or holy war, against the United States have influenced militants involved in several attacks or attempted attacks on U.S. soil. Yemeni officials say he may have blessed the recent mail bomb plot, though he may not have taken an active part in it. Al-Awlaki has in past messages encouraged Muslims to murder American soldiers and justified the killings of American civilians by accusing the United States of intentionally killing a million Muslim civilians in Iraq, Afghanistan and elsewhere. But this message appeared stronger, arguing that no justification was needed. In his 23-minute message delivered in Arabic, al-Awlaki said because all Americans are the enemy, clerics don't need to issue any special fatwas or religious rulings allowing them to be killed. "Don't consult with anybody in killing the Americans," he said. "Fighting the devil doesn't require consultation or prayers seeking divine guidance. They are the party of the devils," he added. It is "either us or them."
  • German Finance Minister Upbeat About Ireland's Recovery Prospects. GERMAN FINANCE minister Wolfgang Schäuble has said that he is optimistic that Ireland will be able to pull out of its economic crisis. But he insisted that future EU bailouts would come with tough conditions, including a clause specifying the precise losses that bondholders would be expected to shoulder. “The EU was not founded to enrich financial investors,” he told this morning’s Der Spiegel magazine. Mr Schäuble rejected suggestions that Ireland’s difficulties were likely to unsettle the financial markets, saying investors would be far more worried if G20 nations failed to cut their deficits in half by 2013 as promised.
  • If You Thought the Bank Bailout Was Bad, Wait Until the Mortgage Defaults Hit Home. Ireland is effectively insolvent – the next crisis will be mass home mortgage default, writes MORGAN KELLY.
  • Eurostat won't Revise its estimate of Greece's 2009 deficit to more than 15.5% of GDP, from 13.8%, citing people at the Finance Ministry.
Canada Free Press:
  • Soros Bets on U.S. Financial Collapse. Another financial expert is expressing his deep disgust with the Federal Reserve’s decision to print more money and buy more U.S. debt, saying it is a sign that the U.S. capitalist system is moving closer to collapse. “This is the type of stuff we accused the communist and socialist governments of doing—interfering in free markets through currency manipulation,” declared Zubi Diamond, author of The Wizards of Wall Street. “What the Fed is doing is not good for free market capitalism and it is not good for America.” In an interview with Accuracy in Media, Diamond went on to say, “The Fed is following the economic models of Third World countries by printing more money and devaluing their currencies. If you keep doing what Third World economies do, eventually you will become a Third World economy.”

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