Tuesday, March 29, 2011

Today's Headlines

  • Portugal, Greece Downgraded by S&P on Restructuring Concerns. Portugal and Greece were downgraded by Standard & Poor’s, which said the European Union’s new bailout rules may mean that both nations eventually renege on their debt obligations. S&P cut Portugal for the second time in a week to the lowest investment-grade rating of BBB-, three steps below Ireland. Greece’s rating fell two grades to BB-, three levels below investment grade. S&P cited concerns that both countries may be forced to restructure debt after seeking European aid and that governments will be paid back before other creditors. The moves increase pressure on European policy makers trying to stem the sovereign-debt crisis almost a year after Greece became the first euro member to seek a bailout. Even as Portuguese Prime Minister Jose Socrates repeatedly denies his country needs help, investors are increasing bets that it will be forced to follow Greece and Ireland into seeking aid. “The downgrades intensify the pressures facing peripheral economies, Portugal in particular,” said Neil Mackinnon, a London-based economist at VTB Capital Plc and a former U.K. Treasury official. “It increases the likelihood of bailout.”
  • U.S. Consumer Confidence Falls to a Three-Month Low. Confidence among U.S. consumers dropped more than forecast in March as fuel costs surged to the highest level in more than two years. The Conference Board’s confidence index fell to a three- month low of 63.4 from a revised 72 reading in February, figures from the New York-based private research group showed today. Another report showed home prices decreased in January for a seventh consecutive month. Sentiment may remain suppressed as higher prices at service stations and supermarkets take a bigger bite out of Americans’ incomes. The median forecast of 69 economists surveyed by Bloomberg News called for the confidence index to drop to 65 this month. Estimates ranged from 59 to 73.5. The measure averaged 98 during the expansion that ended in December 2007. Another report today showed home prices fell in January by the most in a year, raising the risk that home sales will keep slowing. The S&P/Case-Shiller index of property values in 20 cities dropped 3.1 percent from January 2010, the biggest year- over-year decrease since December 2009. The Conference Board’s gauge of consumer expectations for the next six months dropped as fewer Americans said they plan to purchase cars, homes and appliances in the next six months. The share of respondents expecting more jobs to become available in the next six months declined, as did the percentage of those anticipating an increase in incomes. The group’s measure of present conditions increased to 36.9, the highest since November 2008, from 33.8 a month earlier. The gauge rose as 15.1 percent viewed current business conditions as being “good,” up from 12.4 percent a month earlier. The share of consumers who said jobs are currently plentiful fell to 4.4 percent from 4.9 percent. Those who said jobs are hard to get was little changed at 44.6 percent from the prior month. The households surveyed in March projected an inflation rate of 6.7 percent over the next 12 months, the highest level since October 2008. “Consumers’ inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement.
  • Fed's Bullard Says $100 Billion Should Be Cut From Buying Plan on Recovery. The Federal Reserve may need to trim about $100 billion from its plan to buy $600 billion in Treasury securities because the U.S. recovery has gained strength, St. Louis Fed President James Bullard said. “We are still feeding the fire at this moment, so I think we have to start thinking about turning this around in the near future,” Bullard said to reporters at a financial conference in Prague today. “If the economy is as strong as I think and hope it will be in 2011, I think it will be time for us to start to reverse our ultra-aggressive and ultra-easy monetary policy.” “We could pull up a little bit shy of our total of $600 billion,” Bullard said. “I think it could be on the order of $100 billion less than what we initially thought.” “One of the things that I am concerned about is that the policy is so easy right now, that we have to get started on the process of going back to normal because it will take a long time to do that,” Bullard said. His call for a review of the policy has been echoed by Charles Plosser of the Philadelphia Fed, who last week laid out a strategy to sell holdings in conjunction with raising interest rates. Fed officials have purchased $1.7 trillion of mortgage debt and Treasuries through March 2010. The Fed’s second round of purchases has come under fire from Republican leaders in Congress who say it risks inflating asset-price bubbles and stoking inflation.
  • Libyan Forces Defend Sirte as U.K. Talks Look Beyond Qaddafi. International leaders met to forge a postwar blueprint for Libya as troops loyal to Muammar Qaddafi dug in to block rebels advancing on his hometown of Sirte.
  • Crude Oil Advances as Equities Increase Amid Signals Economy to Recover. Crude for May delivery gained 41 cents, or 0.4 percent, to $104.39 a barrel at 1:09 p.m. on the New York Mercantile Exchange. Oil has risen 27 percent in the past year. Brent crude for May settlement on the London-based ICE Futures Europe exchange rose 40 cents, or 0.3 percent, to $115.20 a barrel.
  • Quantitative Hedge Funds Hurt by Japan Catastrophe, FT Reports. Several big quantitative hedge funds, which employ mathematical strategies fed into computers, have suffered severe losses as a result of the Japanese earthquake and tsunami, the Financial Times reported. The $4 billion flagship fund of Connecticut-based Graham Capital Management LP lost $300 million, almost 8 percent of its value, in the first two weeks of the month, and its other funds lost about 5 percent each, the newspaper said, citing an unidentified investor. Winton Capital Management Ltd., which manages $17 billion, saw its flagship fall 3.6 percent in the middle of the month, the FT said. Other such funds have suffered smaller losses, depending on the trading models they use; BlueTrend, run by BlueCrest Capital Management Services Ltd., was down only 1.24 percent in the middle of the month, the newspaper said.
  • Dying Banks Kept Alive Show Secrets Fed's Data Will Reveal for First Time. U.S. regulators closed Chicago- based Park National Bank in October 2009 when it owed $345 million to one of the lowest-cost lenders in town: the Federal Reserve’s discount window. Park National had been a constant customer at the window for more than 18 months before it failed, records show. That glimpse into the loan program, gleaned through the Freedom of Information Act, will be expanded this week with an unprecedented view of the secret lifelines the Fed extended to hundreds of banks. Officials plan to release documents that amount to more than 6,000 pages, according to court records. Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC requested the records under FOIA, then sued after the central bank refused to release them.
  • Rising Corn Acreage Failing to Meet U.S. Feed, Ethanol Use. U.S. corn planting will expand to cover the second-largest area since World War II this year and still fail to meet demand for feed and ethanol, driving prices to their highest in at least 34 years.Sowing will expand by 4 percent to about 91.75 million acres, the most since 2007 and the second-highest since 1944, according to a Bloomberg survey of 32 analysts. Corn will rise 5.7 percent to average $7.15 a bushel in the third quarter, the most since at least 1977, Abah Ofon and Koun-Ken Lee, analysts at Standard Chartered Bank in Singapore, wrote in a report.
  • General Electric(GE) Agrees to Buy Converteam for $3.2 Billion. General Electric Co. (GE) agreed to buy most of Converteam from Barclays Private Equity Ltd. and LBO France for $3.2 billion to add equipment that helps electricity flow to the power grid from devices such as wind turbines.
  • Home Depot(HD) Sells $2 Billion of Debt to Build Cash, Buy Stock. Home Depot Inc. (HD), the largest U.S. home-improvement retailer, returned to the corporate bond market for the second time in less than seven months to rebuild its cash stockpile and finance share buybacks. The company sold $2 billion of 10- and 30-year bonds, according to data compiled by Bloomberg. Home Depot will use proceeds to replace $1 billion of 5.2 percent notes issued in 2006 that matured March 1 and to buy its own stock, according to a Securities and Exchange Commission filing.

Wall Street Journal:
  • Lenovo Says Chip Supply Could Hit Tablet Shipments. Tight supply of memory chips after the major earthquake in Japan could affect the supply of Lenovo Group Ltd.'s new tablet computer, a company executive said, highlighting the uncertainty the disaster has created for makers of electronic gadgets.
  • Housing Booms North of the Border. Some Economists See Canada's Market Ripe for a Correction, With Debt Rising to Worrisome Levels. As much of the U.S. housing market limps along, home prices north of the border are on a fresh tear, fired up in part by a borrowing binge that has sent Canadians' debt to record levels—and now higher than their notoriously profligate U.S. neighbors—while income growth pokes along. All that has raised worry at the country's central bank, which repeatedly has warned about rising debt levels, and among some economists, who say the market is ripe for a correction—maybe a steep one.
  • Dealers Shift Gears as Inventories of Made-in-Japan Cars Run Low. Plenty of car shoppers dropped by Earl Stewart Toyota in North Palm Beach, Fla., over the weekend to check out the latest Prius hybrids, but not one drove home with a new model.
  • Iraq, Shell Resolve Last Obstacle to $12 Billion Gas Deal - Official.
  • Syria's Cabinet Resigns as Regime Supporters Rally. Syria abolished its cabinet in response to more than a week of political turmoil, but opponents say that action alone won't satisfy their broad grievances against the government. President Bashar Assad accepted the resignation of his cabinet on Tuesday as mass demonstrations took place in Damascus and in other cities in support of his regime. The pro-government protests, which university students and government employees were obliged to attend, allowed the Syrian regime a way to concede from a position of strength rather than weakness.
Business Insider:
Zero Hedge:
New York Times:
  • For Sale: Illiquid Assets, Hard to Value. Side pockets might as well be a curse word for hedge fund investors. During the financial crisis, when hedge funds became an A.T.M. for anxious investors, managers used side pockets, or segregated accounts, to stow away such illiquid investments as risky loans that they did not want to unload in a fire sale. To the frustration of investors, a lot of those assets sit there still.
NY Daily News:
  • Cash-Poor MTA May Put Recipients of Unemployment Benefits to Work Again Cleaning Subways. The cash-strapped MTA may soon put welfare recipients to work scrubbing and cleaning the subways. The Metropolitan Transportation Authority wants to revive its participation in the city's Work Experience Program - which makes the unemployed toil for their benefit checks. "This is a program that has a proven track record of doing three things: providing low-cost cleaning help for the subway; providing job training to people who need it, and leading directly to full-time employment for many of the people who participate in the program," MTA spokesman Jeremy Soffin said.
Detroit Free Press:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
  • German Finance Minister Wolfgang Schaeuble expects debt-strapped Portugal to seek an international bailout by June, citing a ministry official. Portugal is reluctant to tap the EU's bailout fund out of concern that the IMF will impose spending cuts on the government as a condition for aid. Germany would insist that the IMF negotiate the austerity program.
  • Greece's 2010 budget deficit may have ended at about 10% of GDP rather than an estimated 9.5%. Any revision higher may mean additional government deficit cutting measures.
Cinco Dias:
  • Spanish savings banks that don't meet core capital requirements will need $11 billion in aid from a government rescue fund.
Radio TSF:
  • Former Brazilian President Luiz Inacio Lula da Silva said an IMF intervention would not solve Portugal's problem. "The IMF does not solve Portugal's problem, just as it did not solve Brazil's problem," Lula said. "It created more problems than solutions."
Kyodo News:
  • Damaged reactors and spent nuclear fuel pools at Tokyo Electric Power Co.'s Fukushima Dai-Ichi nuclear plant will require years to cool to a safe level, citing Japan's Nuclear Safety Commission.
  • Israel Threatens Unilateral Steps if UN Recognizes Palestinian State. Foreign Ministry instructs envoys in 30 countries to send 'diplomatic protest' to host nations over plan for September vote in General Assembly. Israel informed the 15 members of the United Nations Security Council last week, as well as several other prominent European Union countries, that if the Palestinian Authority persists in its efforts to gain recognition in September as a state within the 1967 borders, Israel would respond with a series of unilateral steps of its own.
  • Egypt's Foreign Minister: Iran is Not An Enemy of the State. In his first press conference as Egypt's foreign minister Nabil El-Araby stated that Egypt will witness a new phase in its foreign relations with other countries including Iran. He emphasized that Iran has historically rooted relations as a neighboring country to Egypt and is not an enemy state. El-Araby added that Egypt’s embassies mistreated its citizens abroad and that they have been notified to act otherwise. When asked about Egypt’s stand towards Hizballah, he said that it is considered to be part of Lebanon’s political and social makeup and that communication between Egypt and Hizballah is welcomed.
Fars News Agency:
  • The intervention of Saudi Arabian and other Gulf Arab forces in Bahrain may become "incendiary" for the whole Gulf region, Iranian Defense Minister Ahmad Vahidi said. Vahidi was commenting on the decision of the Gulf Cooperation Council states to send troops to support the Bahraini government against Shiite Muslim protests.

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