- German Economy Minister Rainer Bruederle ruled out a rescue for Greece, as officials in Athens struggle to tame the euro area’s biggest budget deficit. “I don’t think that a bailout is the right way because German and French taxpayers can’t pay for Greece,” Bruederle said in an English-language interview in Davos, Switzerland today. “Maybe they will give certain help, but first it’s for the Greeks to solve their problems.” When asked what kind of help he’d consider, he said “it’s too early to discuss.”
- The U.S. Troubled Asset Relief Program’s watchdog expanded investigations into misconduct in the $700 billion federal bank rescue program, increasing the number of opened cases by 41 percent in the fourth quarter. Special Inspector General Neil Barofsky began 25 criminal and civil probes in the quarter, and had 77 total active cases, according to a quarterly report to Congress published today. Through the third quarter of 2009, the Washington-based office opened 61 cases with 54 active, he said at the time. Examiners are looking into possible wrongdoing related to the financial-industry bailout, including insider trading, accounting violations, mortgage fraud, public corruption, obstruction of justice and money laundering, according to the report.
- China’s stocks fell, sending the benchmark index to the lowest level since October, as growth in manufacturing heightened concerns the government will take additional measures to prevent the economy from overheating. “The market is very worried about the outlook for economic recovery, because more tightening measures are expected from the government and that will risk damping growth,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which manages about $285 million. The Shanghai Composite Index fell 45.86, or 1.5 percent, to 2,943.43 as of 9:59 a.m. local time, set for the lowest since Oct. 13. The government plans new measures to rein in overcapacity in steel, cement and other industries amid a surge in bank lending, People’s Bank of China Deputy Governor Zhu Min said in an interview in Davos yesterday.
- George Osborne, finance spokesman for Britain’s opposition Conservatives, said the U.K. risks a “Greek-style budget crisis,” as opinion polls showed his party may struggle to win sufficient electoral support to control the pace of debt-cutting measures. “Britain, with the largest debts, the largest borrowing of any major economy in the world, has to deal with this problem,” Osborne told the British Broadcasting Corp.’s Sunday AM show today. “If we don’t, we risk a Greek-style budget crisis that will put interest rates up.”
- Debt-Laden Dubai May Spend 'Billions' on Airport Expansion Work. Dubai Airports, the government-owned airfield operator, plans to seek approval for expansion plans costing “billions of dirham,” undeterred by the emirate’s need for a $20 billion bailout last year.
- Dubai’s failure to reassure investors its restructuring plan will succeed is causing the emirate’s benchmark stock index to drop the most in the world and forcing companies to scrap bond sales. The Dubai Financial Market General Index lost 15 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 55.75 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 493 basis points, the highest level since Abu Dhabi’s fund injection. Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani, the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.”
- China Bosses Davos as Nobody Discusses What Happened to Google(GOOG). Google Inc.’s opposition to censorship in China was the one topic left off the table in Davos -- at China’s request. “China didn’t want to discuss Google,” Josef Ackermann, chief executive officer of Deutsche Bank AG and a co-chairman of this year’s World Economic Forum, said in an interview. China’s Vice Premier Li Keqiang made that clear, he said. “Google has backed off a little bit.” Even Google CEO Eric Schmidt didn’t bring up China, a market that will account for $600 million of Google’s sales this year, according to JPMorgan Chase & Co. Google said this month that it had faced a “highly sophisticated” attack on its computers and that human-rights activists were targeted.
- The dollar traded near a seven-month high against the euro as signs the world’s largest economy is gaining momentum boosted demand for U.S. assets. The greenback may advance before reports this week forecast to show U.S. manufacturing expanded for a sixth-straight month and household purchases rose. The euro touched a nine-month low versus the yen on concern Greece’s budget problems will spread. “Sovereign debt worries in Greece, Portugal and Spain continue to hang over the euro,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “As long as these worries continue, we are likely to see ongoing ‘safe- haven’ support for the dollar and the yen.”
- Kurt Westergaard, who has been facing death threats for four years over his cartoon of the Prophet Mohammed that stirred Muslim wrath, is trying to settle back into his home -- a month after an ax attack in his living room. The Danish cartoonist, 74, surveys the broken glass, damage to one of his artworks and ax marks on the door of his Aarhus house. He doesn’t see himself as brave, and says he’s all the more determined to campaign for freedom. “It doesn’t fit my temper to hide under a rock somewhere,” says Westergaard, pouring coffee in the small room where the New Year’s Day incident took place. “I have defended some core Danish values which stipulate that everyone should be able to practice their religion but it must not be at the expense of free speech. I just won’t stand for that.”
- Citigroup Inc.(C) plans to sell or split off its $10 billion Citi Private Equity unit, expanding the list of money-management businesses the U.S. bank is disposing of to reduce debt, people familiar with the matter said.
Wall Street Journal:
- Jon Leibowitz, Democratic Chairman of the Federal Trade Commission, is looking to revive a broad and little-used authority to go after "unfair methods of competition" not covered by the antitrust laws. He sat down with the Wall Street Journal to explain the controversial move.
- President Obama will ask Congress to make permanent a temporary bond program to help state and local governments finance projects, as they continue to struggle with budget deficits during the recession. State and local governments issued more than $64 billion in so-called Build America Bonds in 2009, after Congress created the program as part of last year's economic-stimulus program. Under the current arrangement, they would lose the ability to issue such bonds after this year.
- The Pentagon will lay out a long-term vision for U.S. national security on Monday that jettisons the military's decades-old belief that it needs to be prepared to fight two large-scale wars simultaneously, according to defense officials familiar with the matter. The shift in strategy sets up potential conflicts with defense contractors and powerful lawmakers uneasy with the Pentagon's growing focus on smaller-scale, guerilla warfare.
- U.S. President Barack Obama will sign a "pretty good" financial services regulatory reform bill some time this spring, Rep. Barney Frank (D., Mass), chairman of the House Financial Services Committee, predicted Saturday.
- The Obama administration is expected to propose in its fiscal 2011 budget Monday new funding to combat preventable and tropical diseases, malnutrition and other conditions afflicting the world's poor, as part of a strategy to broaden its approach to global health.
- President Barack Obama's plan to reduce the deficit faces a tough battle on Capitol Hill, and prospects for a rapid return to fiscal austerity remain slim. Mr. Obama, responding to growing public concern over deficit spending, will propose as part of his fiscal 2011 budget to freeze basic government spending, outside of national security programs. He also plans to appoint a commission to recommend ways to reduce the deficit. But Republicans are skeptical. Special-interest groups are lining up to protect their own share of the budget. And even some top Democrats are breaking with their president to float their own ideas on how to tackle the deficit. With so many cross-pressures, New Hampshire Sen. Judd Gregg, the ranking Republican on the Senate Budget Committee, said he saw little chance of Congress and the White House making a serious dent in the deficit this year. "There will be a lot of political posturing, but absolutely no substantial action," he said in an interview.
- The huge floating stockpile of crude oil kept on tankers amid a global supply glut is showing signs of shrinking, as traders struggle to make profits from the once highly lucrative storage play. The volume being stored at sea has nearly halved from a peak of about 90 million barrels in April last year, according to ship broker ICAP, and are expected to fall even further.
- Hugo Chávez likes to say that Venezuela is a democracy and that a majority of the electorate supports him and his "21st Century Socialism." Or at least he used to make that claim. Last week the strongman gave up trying to maintain a democratic image. Referring to nationwide civil protests—led by university students—he warned the country Thursday that if they "intensify" he is ready to take "radical measures." Given that the Chávez government already expropriates property at will, jails political opponents, polices prices, controls foreign currency exchange, seizes media outlets and fires rubber bullets and tear gas at demonstrators, his threat to turn "radical" is chilling. Venezuelans have reason to fear martial law. The Venezuelan economy is in a free fall and Mr. Chávez is in damage-control mode. One thing he can't afford is to let Venezuelans complain without consequences. Successful dictators, like Fidel Castro, make dissent a dangerous proposition, and if Mr. Chávez is to survive he knows he must do the same. His plan starts with carrots and ends with sticks.
- The government's $700 billion bank bailout bill has met its goal of helping bring the financial markets back from the brink, but has so far failed to increase lending from the banks who received the taxpayer assistance, a key government overseer reported Sunday in a generally critical review of the program. "On the positive side, there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008," according to a quarterly report to Congress submitted by the office of the Special Inspector General for the government's $700 billion Troubled Asset Relief Program. The report, which was authored by TARP's Special Inspector General, Neil Barofsky, also warned that the Obama administration's and the Federal Reserve's policies to support the mortgage market could in fact be creating another dangerous housing bubble. "Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," said the report.
- Congressional aides are preparing to slog through an expected $3.8 trillion in spending to be proposed by President Obama on Monday when his fiscal year 2011 budget is delivered to Capitol Hill. The administration's new budget to be released Monday says deficits over the next decade will average 4.5 percent of the size of the economy, a level which economists say is dangerously high if not addressed, said the congressional official. The 2,000-page, 10-pound book, which retails to the public for $37 a pop, is a blueprint for spending that is likely to include requests for more money for education, $25 billion more for cash-strapped states, increased spending for the National Institutes of Health, the Energy Department, the National Science Foundation and the Census Bureau, which this year is conducting its decennial count of people living in the United States.
- President Barack Obama is endorsing nuclear energy like never before, trying to win over Republicans and moderate Democrats on climate and energy legislation. Obama singled out nuclear power in his State of the Union address, and his spending plan for the next budget year is expected to include billions of more dollars in federal guarantees for new nuclear reactors. This emphasis reflects both the political difficulties of passing a climate bill in an election year and a shift from his once cautious embrace of nuclear energy. He's now calling for a new generation of nuclear power plants.
- Paid your taxes on time? Good, 'cause Nancy Pelosi needs to pay her tab. Documents uncovered via a FOIA request show that Pelosi racked up over $101,000 of taxpayer dollars for "in-flight services." And by "services," she clearly meant alcohol. Look at all the booze on this receipt pictured right!
- These two charts tell you pretty much all you need to know about the state of the US economy. They also, unfortunately, provide some clues as to how this movie will end. First, from John Mauldin, the state of the U.S. government's finances. The red line is spending. The blue line is tax revenue.
- British business executives dealing with China were given a formal warning more than a year ago by Britain’s security service, MI5, that Chinese intelligence agencies were engaged in a wide-ranging effort to hack into British companies’ computers and to blackmail British businesspeople over sexual relationships and other improprieties, according to people familiar with the MI5 document. The warning, in a 14-page document titled “The Threat from Chinese Espionage,” was prepared in 2008 by MI5’s Center for the Protection of National Infrastructure, and distributed in what security officials described as a “restricted” form to hundreds of British banks and other financial institutions and businesses. The document followed public warnings from senior MI5 officials that China posed “one of the most significant espionage threats” to Britain.
- Ever since the American International Group nearly collapsed, the conventional wisdom has been that the exotic derivatives that drove it to the brink were the product of a lone, unregulated subsidiary in London. The Federal Reserve chairman, Ben S. Bernanke, called the London branch “a hedge fund, basically, attached to a large and stable insurance company.” But the suggestion that A.I.G.’s core insurance business did not dabble in derivatives is not quite true. One of its biggest insurance units, incorporated in Delaware, was also dealing in the derivatives known as credit-default swaps, according to regulatory filings with the state.
- More than a dozen gunmen sealed off a street in the violent border city of Ciudad Juárez and opened fire on a house where high school students were having a party, killing 13 people, officials said Sunday. Chihuahua State authorities gave no motive for the mass killing, but it bore all the signs of the drug violence that has consumed the city over the past three years. Juárez has become ground zero in the government’s war against drug traffickers, as rival cartels use their enormous firepower to fight over drug distribution and routes across the border to Texas. Although the government argues that the overwhelming majority of murders stem from turf battles among traffickers, there was no immediate evidence to suggest that the slain students were involved with gangs. Neighbors told El Diario de Juárez, a newspaper, that the students had gathered to celebrate a birthday when just before midnight on Saturday, seven S.U.V.’s drove up and masked gunmen stormed the party. As they cowered in their houses, neighbors dialed emergency services, but soldiers and police officers did not arrive until after the shooting had stopped. Among the dead was a man who lived next door, who had opened an informal stand to sell soft drinks and candy to the partygoers. Families drove the injured to hospitals themselves rather than wait for ambulances. A neighbor who gave his name only as Hector was quoted by The Associated Press as having said the students must have been attacked by mistake.
- The trial of 9/11 mastermind Khalid Sheik Mohammed won't be held in lower Manhattan and could take place in a military tribunal at Guantanamo Bay, sources said last night. Administration officials said that no final decision had been made but that officials of the Department of Justice and the White House were working feverishly to find a venue that would be less expensive and less of a security risk than New York City. The back-to-the-future Gitmo option was reported yesterday by Fox News and was not disputed by White House officials.
- The Obama administration is quietly working with Saudi Arabia and other Persian Gulf allies to speed up arms sales and rapidly upgrade defenses for oil terminals and other key infrastructure in a bid to thwart future military attacks by Iran, according to former and current U.S. and Middle Eastern government officials. The initiatives, including a U.S.-backed plan to triple the size of a 10,000-man protection force in Saudi Arabia, are part of a broader push that includes unprecedented coordination of air defenses and expanded joint exercises between the U.S. and Arab militaries, the officials said. All appear to be aimed at increasing pressure on Tehran. The efforts build on commitments by the George W. Bush administration to sell warplanes and antimissile systems to friendly Arab states to counter Iran's growing conventional arsenal. The United Arab Emirates and Saudi Arabia are leading a regionwide military buildup that has resulted in more than $25 billion in U.S. arms purchases in the past two years alone.
- Al Gore's Lawyer Slams Global Warming Suits. Harvard Law Professor Laurence Tribe represented Al Gore in the disputed 2000 Supreme Court case against George W. Bush but that didn't stop him from attacking one of the favorite tactics of the anti-global warming crowd: Lawsuits. In an article posted today by the conservative Washington Legal Foundation, Tribe argues that federal judges have committed grave error by allowing global-warming suits to proceed instead of leaving the issue of limiting carbon emissions to Congress. "Courts squander the social and political capital they need in order to do what may be politically unpopular ...when they yield to the temptation to treat lawsuits as ubiquitously useful devices for making the world a better place," write Tribe and his coathors, Joshua D. Branson, a third-year at Harvard Law; and Tristan L. Duncan, a partner at Shook, Hardy & Bacon, the Kansas City law firm perhaps best known for defending Philip Morris and other tobacco companies.
Bespoke Investment Group:
- Default Risk For Financials Shoots Up. (chart)
- There are reasons to doubt that the impressive performance in a single quarter will be repeated in the coming months. Weak fundamentals will prevent the American economy from sustaining that fast pace of growth. Of the 5.7% increase in real output, 3.4 percentage points came from inventory changes, as firms which had operated on a shoestring in the recession built inventories back to normal levels. That brief buying spree brought some workers back to assembly lines, but unless a new source of demand arises the boost from restocking will fade and growth will slow. There are already signs of a loss of momentum.
- The Obama administration’s plan to try self-described 9/11 mastermind Khalid Sheikh Mohammed in civilian court hit more turbulence Sunday as Democratic and Republican senators said they would oppose federal aid to cities that host such trials. President Barack Obama is proposing a $200 billion fund in his budget as a way to help pay for security in cities that land trials of suspected terrorists. But Sen. Evan Bayh (D-Ind.) and Senate Minority Leader Mitch McConnell (R-Ky.) signaled the request would face bipartisan opposition in Congress. “I don't think we should spend any more money than is absolutely necessary to try these guys,” Bayh said on Fox News Sunday. “We ought to try them quickly. We ought to impose harsh sentences, including the death penalty for people who've killed Americans. Those are my criteria. … If there's somewhere we can try them without spending that money, why spend the money? We've got a lot of other fiscal problems.”
- A tactic that would have seemed far-fetched a year ago, when the new president was sworn in with a 67 percent job approval rating, is now emerging as a key component of the GOP strategy: Tie Democratic opponents to Obama and make them answer for some of the unpopular policies associated with the chief executive. GOP strategists gathered here for the Republican National Committee’s winter meeting believe that now that he's fallen below 50 percent in the venerable Gallup poll, Obama will be an asset to GOP candidates, particularly in conservative or swing states.
San Diego Union-Tribune:
- Zell upbeat on outlook for office properties. Construction recovery to be extremely slow, billionaire predicts. Sam Zell, the billionaire real estate mogul who stubbed his toe when he invested in newspapers, returned to San Diego yesterday to dismiss predictions that office buildings will fail on the same scale as housing did in the recession. Speaking to the 14th annual real estate conference sponsored by the University of San Diego’s Burnham-Moores Center for Real Estate, Zell forecast a very slow recovery in construction and advised idle developers to go to medical school while they await an upturn. “In 2008 and ’09, it was all about property falling off the cliff,” Zell told nearly 700 attendees at the Hilton San Diego Bayfront. He spoke of “panic” overcoming buyers, sellers, lenders and investors and scaring them away from looking for opportunities. “It was all about a loss of confidence.” Expressing worry about federal deficits and a falling dollar, Zell said he still believes in real estate.
- I am a Capitalist Pig, and proud of it, thus you would not expect me to support government interference and more strenuous regulation of financial institutions – after all, capitalism (free markets) and tight regulation don't mix well. Well, at the risk of been kicked out of the Capitalistic Pig Party, I am in support of tighter regulation of too-big-to-fail (TBTF) institutions – the likes of Citigroup, JPMorgan, Bank America, and (God forbid; after all, they are doing “God’s work” – their CEO’s words, not mine) Goldman Sachs. Lack of tight regulation in the TBTF space leads to the worst economic system of all: asymmetric socialism. The enormous gains are reaped by employees and shareholders, but losses are socialized and paid by taxpayers. That is simply immoral. Letting companies fail is at the core of capitalism's DNA, and I still stand by that. However, what we've discovered over the last few years is that if we let TBTF banks go bankrupt, their failure may take down other healthy (interlinked) financial institutions and derail the real (nonfinancial) economy. Breaking them up is what makes the most sense to me. Break them into small enough pieces that their failure becomes a non-event for the economy as a whole. That way failure will not be socialized, but borne by those who were to reap the rewards, rather than your regular Joe and Jane Six-Pack having to fork over a chunk of their paychecks to “bail out” the TBTFs so they can keep their jobs. Breaking up TBTF will face the criticism that smaller banks will be less efficient and thus borrowing costs will be higher for consumers and corporations. This would be true if TBTF banks did not come with marble conference rooms, million-dollar executive offices, fleets of corporate jets, and $100-million compensation packages. The bottom line, if you compare the financial metrics: smaller banks are not any less efficient than the large ones.
- Still no action by Congress on credit default swaps. "Every civilization," Swiss historian Jacob Burkhardt once wrote, "carries within itself the seeds of its own destruction." We believe the financial crisis of 2008 exposes a seed that can destroy Western-style free-market capitalism. The name of that seed is the credit default swap, or CDS. The total amount of subprime mortgages written soon rose to $2 trillion. The total value of the CDSs written against CDOs rose to $65 trillion. That's right: $65 trillion of insurance against $2 trillion worth of high-risk mortgages. Those who profited the most sought out the worst of the worst mortgages to bet against. One big winner was a hedge fund manager named John Paulson. In 2006, Paulson convinced Goldman Sachs and Deutsche Bank to create extremely high-risk CDOs and sell them to others, so both he and they could bet against them. Paulson picked the mortgages. He made $15 billion. His friend George Soros (who later said "I'm having a very good crisis") made $5 billion. Deutsche Bank made $25 billion doing this. Goldman Sachs made much, much more. In 2006, Goldman Sachs and Deutsche Bank underwrote 352 fraudulent mortgages in Sikeston, Mo. In 2009, Goldman Sachs paid Massachusetts $60 million to close an investigation into its role in creating "mortgages designed to fail at the inception." Since CDSs are totally unregulated, the companies offering the insurance had nowhere near the funds necessary to pay off when the real estate bubble burst. There were many sellers of CDSs, but AIG was the largest. By October 2008, AIG had written $2.7 trillion worth of CDSs, and it couldn't pay. Congress bailed out AIG with $180 billion of taxpayer money so it could pay off these bets. Taxpayer money ended up in the pockets of Goldman Sachs and Deutsche Bank because they bought CDS side-bets from AIG against the very CDOs they created. To date -- either as a sign of incompetence, indifference or corruption -- Congress has done nothing since writing bailout checks in 2008. Each and every law that allowed this to happen is still on the books. When Illinois Sen. Dick Durbin said of Congress, "The big banks own this place," it may have been more than hyperbole. This is not a conservative versus liberal issue. It's not a Republican versus Democrat issue (we are one of each). This is not populism. It's a matter of right and wrong. We hope the Massachusetts message of outrage will be repeated from all over the country, but on this specific issue we hope it will read: "It's the credit default swaps, stupid!"
The Philadelphia Inquirer:
- Kohl's Corp.(KSS) gambled big when it opened 30 new California stores last year amid one of the worst retail environments in decades. But in just a few months, the stores have turned out promising initial results -- attracting many first-time Kohl's customers and boosting business at the department store chain's existing locations. Although the new stores increased the number of Kohl's locations in California by one-third, statewide sales have grown more than 40% year over year since the Sept. 30 grand openings, company executives said.
- Democrats Quietly Working to Resuscitate Healthcare Overhaul. While the focus shifts to legislation on jobs, party leaders are taking advantage of a cooling-off period to strategize, seek a new compromise and improve the public's opinion of the legislation.
- The White House's top economic adviser Lawrence Summers gave some backing to Treasury Secretary Timothy Geithner on Sunday, saying Geithner deserves an "enormous amount of credit" for his strategy in stabilizing U.S. banks. The comment, made on CNN's "Fareed Zakaria GPS" program, provided a public White House endorsement of Geithner after a week in which the Treasury chief was vilified by members of Congress for his role in the 2008 bailout of American International Group's (AIG) its subsequent payment of $62 billion in taxpayer funds to large banks. One Republican lawmaker asked Geithner to resign during a House of Representatives Oversight and Government Reform Committee hearing last week examining the AIG bailout and why the New York Federal Reserve under his leadership supported limiting public disclosures about the bank payments, which some have labeled a "back door bailout." The AIG matter will continue to be investigated by the panel and by the federal bailout program's special inspector general.
- Buoyed by their surprise U.S. Senate victory in Massachusetts, Republicans in President Barack Obama's home state of Illinois sense the Senate seat he left vacant is ripe for their picking come November elections. Obama's Democrats have long dominated Illinois politics. But Republicans view their man Scott Brown's capture in January of the late Edward Kennedy's seat in Massachusetts as a sign of voter dismay with Democrats in the White House and Congress. Public opinion polls ahead of Tuesday's party primaries in Illinois show five-term U.S. Representative Mark Kirk likely to win the Republican nomination easily. Favored to win the Democratic primary and face off Kirk for the vacant seat is Alexi Giannoulias, Illinois treasurer and Obama's basketball-playing buddy. "The Democratic candidates are second-tier. They're not particularly exciting, not particularly experienced," DePaul University political analyst Michael Mezey said. Kirk has lent his own twist to Brown's best-known line in the campaign, saying: "This is not Obama's seat, it's the people's seat."
- Airline security measures introduced by Washington after a failed attempt to blow up a flight on Christmas Day risk backfiring because they have angered important U.S. partners in the fight against al Qaeda. Saudi Arabia, Algeria and Nigeria have voiced their displeasure at their inclusion on a 14-strong list of countries where passengers departing for the United States are to be subject to especially rigorous pre-flight screening. None of them have said publicly they will scale back security cooperation with the United States in response, but relations have been left frayed and Washington was worried enough to assign a senior diplomat to try to repair the damage. "The United States is behaving like a bull in a china shop," said Mohamed Lagab, an Algerian lecturer in political science who has close ties to his country's government.
- Shanghai copper was expected to fall by 1 percent or more when the market opens on Monday, extending recent losses on pressure from a firm dollar and worries that gains to 17-month highs last month were overdone.
- Hard bargaining is intensifying over Europe’s efforts to regulate hedge funds and private equity funds on a pan-European basis for the first time. Six months of furious lobbying by the fund management industry has resulted in two heavily amended versions of the original proposals put forward by European Commission officials.
- Fund companies’ pay models are in flux as they struggle to offer compensation that can attract and retain talent, while standing up to the realities of the post-financial crisis world. Striking that balance has led asset managers to examine – and in some cases revamp – the way they structure pay. While investment bank bonus pools grew between 20 per cent and 50 per cent in 2009, asset managers saw theirs shrink by between 10 per cent and 30 per cent compared with the previous year, says Jeff Visithpanich, a principal and compensation consultant with Johnson Associates. More asset managers will follow the path taken by the big banks that benefited from the US government’s troubled asset relief program (Tarp), says George Wilbanks, managing director at Russell Reynolds Associates. Changes will include up to 75 per cent of bonuses paid in equity, rather than cash. Base pay will also become a much bigger part of overall compensation and some companies have even tripled salaries, while keeping overall compensation level. Tethering compensation more closely to overall company results is not limited to sales teams. More broadly, fund companies have been putting greater emphasis on performance than tenure.
- Morgan Stanley (MS) plans to hire several hundred traders over the next few years to boost its underperforming securities business, new boss James Gorman said in an interview with the Financial Times.
- The Obama administration continued its fight back against its political and economic difficulties on Sunday, highlighting its push for a $100bn bill to boost job creation even as it put the final touches to a budget intended to cut the US’s yawning budget deficit. Robert Gibbs, President Barack Obama’s spokesman, called for a bill “somewhere in the $100bn range” and portrayed it as a necessary further stimulus to reduce unemployment from its current level of 10 per cent. At the same time, Monday’s 2011 budget proposal is expected to seek $20bn of savings to tackle the deficit. “We are not creating the jobs that we would like to and I think that some additional recovery and stimulus spending is important to . . . create an environment where small businesses and large alike can hire more workers,” Mr Gibbs told CNN. The bill would follow a $152bn package under former President George W. Bush and the $787bn stimulus package Mr Obama signed into law last year.
- Aerospace executives and the US government reacted with concern on Sunday to a Chinese threat to impose sanctions on American groups involved in a $6.4bn arms deal with Taiwan. Giovanni Bisignani, director-general of the International Air Transport Association, the global airline industry body, called for fresh talks between Beijing and Washington to avert a crisis over the arms package. “At a moment in which the world is in crisis [and] China is playing a very important role in overcoming and pushing for recovery it would be a very, very difficult and unhappy situation” for sanctions to be imposed, he said, as industry leaders gathered in Singapore for Asia’s biggest air show. The deal, to which the Obama administration gave the green light last week, includes 60 Black Hawk helicopters, 114 Patriot missiles and systems supplied by Boeing, United Technologies, Lockheed Martin and Raytheon. Chinese media and bloggers have recently opened debate about other avenues of retaliation against US arms sales to Taiwan. The latest package gives China an excuse to step up its own arms modernisation program including missile tests, said Jin Canrong, an international relations expert at Renmin University in Beijing.
- The United Nations' expert panel on climate change based claims about ice disappearing from the world's mountain tops on a student's dissertation and an article in a mountaineering magazine. The revelation will cause fresh embarrassment for the Intergovernmental Panel on Climate Change (IPCC), which had to issue a humiliating apology earlier this month over inaccurate statements about global warming. The IPCC's remit is to provide an authoritative assessment of scientific evidence on climate change. In its most recent report, it stated that observed reductions in mountain ice in the Andes, Alps and Africa was being caused by global warming, citing two papers as the source of the information. However, it can be revealed that one of the sources quoted was a feature article published in a popular magazine for climbers which was based on anecdotal evidence from mountaineers about the changes they were witnessing on the mountainsides around them. The other was a dissertation written by a geography student, studying for the equivalent of a master's degree, at the University of Berne in Switzerland that quoted interviews with mountain guides in the Alps. The revelations, uncovered by The Sunday Telegraph, have raised fresh questions about the quality of the information contained in the report, which was published in 2007. It comes after officials for the panel were forced earlier this month to retract inaccurate claims in the IPCC's report about the melting of Himalayan glaciers. Skeptics have seized upon the mistakes to cast doubt over the validity of the IPCC and have called for the panel to be disbanded. This week scientists from around the world leapt to the defense of the IPCC, insisting that despite the errors, which they describe as minor, the majority of the science presented in the IPCC report is sound and its conclusions are unaffected. But some researchers have expressed exasperation at the IPCC's use of unsubstantiated claims and sources outside of the scientific literature. Professor Richard Tol, one of the report's authors who is based at the Economic and Social Research Institute in Dublin, Ireland, said: "These are essentially a collection of anecdotes. "Why did they do this? It is quite astounding. Although there have probably been no policy decisions made on the basis of this, it is illustrative of how sloppy Working Group Two (the panel of experts within the IPCC responsible for drawing up this section of the report) has been. "There is no way current climbers and mountain guides can give anecdotal evidence back to the 1900s, so what they claim is complete nonsense." The IPCC report, which is published every six years, is used by government's worldwide to inform policy decisions that affect billions of people.
- China and US in angry clash over Taiwan arms sale. China has cancelled all military exchanges with the US in a furious response to the proposed $6.4 billion sale of advanced missiles and helicopters to Taiwan by Washington. Beijing has also imposed sanctions on the companies selling the arms and threatened to review co-operation on other issues. The US responded defiantly, insisting that the sales would contribute to regional security.
- AN onslaught by politicians and regulators around the world poses the biggest risk to the financial system and may threaten economic recovery, according to an influential annual survey of the industry.
- Goldman Sachs(GS), the world’s richest investment bank, could be about to pay its chief executive a bumper bonus of up to $100 million in defiance of moves by President Obama to take action against such payouts. Bankers in Davos for the World Economic Forum (WEF) told The Times yesterday they understood that Lloyd Blankfein and other top Goldman bankers outside Britain were set to receive some of the bank’s biggest-ever payouts. “This is Lloyd thumbing his nose at Obama,” said a banker at one of Goldman’s rivals. Goldman Sachs is becoming the focus of an increasingly acrimonious political and financial showdown over the payment of multimillion-pound bonuses. Mr Blankfein took home his biggest bonus so far in 2007, when he was paid $67.9 million.
- Lord Turner of Ecchinswell, chairman of the Financial Services Authority, said that a big part of the foreign exchange trading business of the City of London was “economically valueless” and hinted at a crackdown on a popular speculative activity called the carry trade. In an echo of his controversial assertion last summer that parts of the City were “socially useless”, Lord Turner said that banks and hedge funds that borrowed cheaply in US dollars to bet on higher-yielding investments in emerging markets were adding no value to the real economy. “If I could wave a magic wand here, and greatly reduce the carry trade, I’m pretty certain the world would be a better place,” he said.
- The temperature in china's northern Heilongjiang Province fell to minus 50.1 Celsius(minus 58.2 Fahrenheit) today, close to the lowest in 69 years. The 69-year lowest temperature in the area was minus 52.3 degrees Celsius.
- Made positive comments on (MSFT), (AMGN), (DNDN), (MA), (XOM), (JNJ), (BHP) and (CTXS).
- Reiterated Buy on (OI), target $36.
Asian indices are -1.75% to --.25% on avg.
S&P 500 futures +.19%.
NASDAQ 100 futures +.29%.
BNO Breaking Global News of Note
Earnings of Note
- None of note
8:30 am EST
- Personal Income for December is estimated to rise +.3% versus a +.4% gain in November.
- Personal Spending for December is estimated to rise +.3% versus a +.5% increase in November.
- The PCE Core for December is estimated to rise +.1% versus unch. in November.
10:00 am EST
- ISM Manufacturing for January is estimated to fall to 55.5 versus a reading of 55.9 in December.
- ISM Prices Paid for January is estimated to rise to 62.4 versus 61.5 in December.
- Construction Spending for December is estimated to fall -.5% versus a -.6% decline in November.
Other Potential Market Movers
- The Treasury's quarterly funding estimates, Geithner's testimony to the Senate Finance Committee and the Treasury's Barr speaking could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity stocks in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.