Today's Headlines

Bloomberg:

• Greek Credit Swaps Surge to Record, Signal 91% Chance Nation Will Default. Credit-default swaps on Greek government debt surged to a record, signaling a 91 percent chance the nation will fail to meet debt commitments, after its economy shrank more than previously reported. Five-year contracts on the country’s sovereign bonds jumped 196 basis points to 3,001 basis points, at 3:45 p.m. in London, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Gross domestic product shrank 7.3 percent from a year earlier after declining 8.1 percent on an annual basis in the first quarter, the Hellenic Statistical Authority said. Greece’s financial situation is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers last night, according to parliament’s HIB bulletin. “It’s a combination of Greece continuing to disappoint and probably a growing realization among politicians that they’re throwing good money after bad,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “They’ve finally woken up to the fact that they’re not going to get this money back.” The default probability, which is based on a standard pricing model, assumes investors would recover 40 percent of the bonds’ face value were Greece to fail to meet its obligations within five years. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 2.5 basis points to 322.5. The gauge is approaching the record close of 327 basis points on Sept. 6. Swaps on Portugal jumped 19 basis points to 1,060, Ireland climbed 18 to 834 and Spain rose five to 396. Greek two-year note yields jumped as much as 85 basis points to a euro-era record 55.76 percent today. The nation’s 10-year yield climbed to an all-time high 20.13 percent.
• Trichet Opens Path for Further Steps as Euro Region's Growth Forecasts Cut. European Central Bank President Jean-Claude Trichet said threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further action should the debt crisis worsen. The economy faces “particularly high uncertainty and intensified downside risks,” Trichet said at a press conference in Frankfurt today after the ECB left its benchmark rate at 1.5 percent. While monetary policy is still “accommodative,” financing conditions have worsened in parts of the 17-member euro region and the ECB stands ready to pump more cash into markets if needed, he said. The yield on German 10-year bunds fell to a record as some investors speculated the ECB could cut interest rates or open up more emergency credit lines for banks. The spreading debt crisis is sapping confidence in Europe’s financial institutions, driving up market borrowing costs and forced the ECB to widen its bond purchase program to Italy and Spain. “The hiking cycle has been aborted and Trichet even offered some goodies for rate cut fetishists,” said Carsten Brzeski, an economist at ING Group in Brussels. “A further worsening of the economy and deflationary tendencies could force the ECB’s hand to act. The tightening bias is gone.” The euro dropped as much as 1.1 percent and traded at $1.3952 at 6:19 p.m. in Frankfurt. The currency has depreciated 4 percent against the dollar this year.
• Trichet Loses Cool on Deutsche Mark Question. Almost 13 years after its demise, the Deutsche mark retains enough potency to haunt Jean-Claude Trichet’s final days as European Central Bank president. Trichet, 68, today lost his cool with a reporter who asked whether Germany should abandon the euro and return to the mark as Europe’s debt crisis roils markets and spooks voters.
• Solyndra Headquarters Raided by FBI. Solyndra LLC, the bankrupt solar- panel maker that was backed by the Obama administration, is being raided by the Federal Bureau of Investigation today, an agency spokeswoman said. “We’re executing a search warrant jointly” with the Department of Energy inspector general “regarding an investigation,” FBI spokeswoman Julie Sohn said of the raid at the company’s Fremont, California, headquarters offices and plant. Sohn said she couldn’t provide details about the investigation. The company, whose $535 million federal loan guarantee was criticized by Republicans, filed bankruptcy on Sept. 6, six days after shutting down its factory and firing 1,100 people. The U.S. Federal Financing Bank, owned by the U.S. Treasury Department, is the company’s biggest lender, according to court papers. Congressional Democrats have asked the company’s chief executive officer to explain his optimistic projections about its future. Democratic Representatives Henry Waxman of California and Diana DeGette of Colorado said Solyndra Chief Executive Officer Brian Harrison met with them earlier this year and assured them it was in a “strong financial position.” “At that time, he said the company was projected to double its revenues in 2011, there was ‘strong demand in the United States’ for its shipments, and the company was expected to double the megawatts of panel production shipped this year,” Waxman and DeGette wrote in a letter today to Representative Cliff Stearns, a Florida Republican who heads the oversight panel of the House Energy and Commerce Committee.
• Bernanke: Fed Will Weigh Stimulus at Next Meeting. Federal Reserve Chairman Ben S. Bernanke said policy makers will discuss the tools they could use to boost the recovery at their next meeting this month and stand ready to use them if necessary. Policy makers “are prepared to employ these tools as appropriate to promote a stronger economic recovery in the context of price stability,” Bernanke said in the text of a speech to economists today in Minneapolis.
• Jobless Claims in U.S. Unexpectedly Climbed by 2,000 to 414,000 Last Week. Claims for U.S. unemployment benefits rose last week, a sign the labor market is struggling to gain traction more than two years after the recession ended. Jobless claims rose by 2,000 to 414,000 in the week ended Sept. 3, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Today’s data showed the four-week moving average, a less- volatile measure than the weekly figures, rose to 414,750 last week from 411,000. The unemployment rate among people eligible for benefits remained unchanged at 3 percent in the week ended Aug. 27, today’s report showed.
• Gold Futures Gain in New York After U.S. Jobless Claims Unexpectedly Rise. Gold gained for the first time in three days after an unexpected rise in U.S. jobless claims spurred demand for the metal as a haven asset. Claims for unemployment benefits rose by 2,000 to 414,000 in the week ended Sept. 3, the Labor Department said. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Before today, the metal was up 28 percent this year as waning prospects for global growth boosted investor demand. “Things aren’t looking very positive, and the market continues to remain skittish,” Adam Klopfenstein, a senior market strategist at MF Global in Chicago, said in a telephone interview. “We need some results to show that jobs will be created.” Gold futures for December delivery gained $34.70, or 1.9 percent, to $1,852.30 an ounce on the Comex at 10:33 a.m. in New York. The price touched a record $1,923.70 on Sept. 6.
• U.S. Consumer Sentiment at Second Lowest Level of Year in Bloomberg Index. U.S. consumer confidence last week fell to the second-lowest level this year as Americans grew more pessimistic about the world’s largest economy. The Bloomberg Consumer Comfort Index was minus 49.3 in the period to Sept. 4 compared with minus 49.1 the previous week. This year’s low of minus 49.4 was reached in May, when gasoline prices were the highest in three years. While the drop was within the survey’s 3-point margin of error, the index has been stuck below minus 40 -- the level associated with recessions or their aftermath -- since the end of February. Job creation stagnated in August, the unemployment rate held above 9 percent and hourly wages retreated, giving households little to cheer about. Pessimism stretches across social, economic and political lines, posing a threat to consumer spending that accounts for 70 percent of the economy. “Falling sentiment indicates signs of growing distress in the consumer sector,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The results reflect “a labor market that has seized up and the lagged effects of inflation that is effectively reducing the purchasing power of households.”
• OECD Slashes Growth Forecasts, Says Rate Cuts May Be Needed. The Organization for Economic Cooperation and Development slashed its growth forecasts for the U.S. and Japan and said central banks around the world should be ready to ease monetary policy if economies weaken further. The U.S. will grow 1.1 percent in the third quarter and 0.4 percent in the fourth, instead of the 2.9 percent and 3 percent predicted in May, the OECD said today in its interim economic assessment. Japan will expand 4.1 percent in the third quarter before stalling in the fourth, and the three biggest euro economies will grow 1.4 percent and then shrink 0.4 percent.
• JPMorgan(JPM) Sees Euro Break-Up Hedge in Sales of Italian Bonds. JPMorgan Chase & Co. said selling Italian and Spanish bonds along with bank stocks and debt, and buying dollars and gold may provide the best protection against the “very unlikely” risk of a euro-area collapse. “There are formidable barriers to break-up, which make it less likely, but also mean it would be more disruptive if it did occur,” Seamus Mac Gorain, a strategist in London, wrote in an investor report yesterday. “The financial turmoil and economic impact would be most pronounced in the euro area, arguing for broad underweight euro-area equity and credit.”
• Illinois Governor Calls for Employee Layoffs to Balance Budget. Illinois needs to lay off more than 1,900 state employees and close some facilities to avoid a partial government shutdown next spring, Democratic Governor Pat Quinn said today. “It’s time for a rendezvous with reality,” Quinn said at a news conference in Chicago. The state “clearly does not have enough money.”

Wall Street Journal:

• Interview: IMF Mideast Head: Dollar Peg Has Served Gulf States Well. Saudi Arabia and other Arab Gulf nations that peg their currencies to the U.S. dollar have no reason to drop the link, the International Monetary Fund's director for the Middle East said Wednesday.
• Deficit Committee Adds a Focus on Jobs.
• Fed's Plosser: Monetary Policy Can't Help Jobs Market Much Right Now. Monetary policy has little ability to help the U.S. jobs market in current economic circumstances, a top Federal Reserve official said Thursday. “I am really doubtful that monetary policy is a tool that is going to help us very much” to help spur demand and improve hiring in an economy where many households and companies are still looking to cut borrowing levels, rather than to increase them, Federal Reserve Bank of Philadelphia President Charles Plosser said in an interview with Dow Jones Newswires and The Wall Street Journal.

CNBC.com:

• US Is Great Athlete Who Got Fat: Blackstone(BX) CEO. The CEO of private equity giant Blackstone believes America is like a once great athlete who has stopped training, let themselves go and put on a whole lot of weight.

Business Insider:

• Brooklyn Ad Agency Risks Reputation With "Tea Party Zombies Must Die" Pet Project. An online game called "Tea Party Zombies Must Die," produced by Brooklyn creative agency Starvingeyes, might provoke boycotts from the right over the game's targeted violence against conservative figures, AdWeek reports. Stavingeyes head Jason Oda made the game as a personal project, unrelated to work the agency has done for Pepsi, UPS, Nascar and other major brands.
• It's Falling Apart: Senator Already Threatening to Quit Super Committee.
• Why a Breakup of the Eurozone is Now Likely.
  

Zero Hedge:

• Bring Back the Uptick Rule!
• Bank of America's(BAC) Legal Woes Go Global After Norway's Sovereign Wealth Fund Sues for Mortgage Fraud.
• Rick Santelli Tells Arch Globalization Advocate Friedman He Is An Idiot. (video)
• August is 7th Worst Month Ever for SAC Capital. (Out of 229)
  

New York Times:

• Heat-Seeking Missiles Are Missing From Libyan Arms Stockpile.
• Google(GOOG) to Buy Zagat.
  

The Detroit News:

• Health Costs Trip Up UAW, Chrysler. With just a week left until their contract expires, Chrysler Group LLC and the United Auto Workers are still far apart on key issues — including health care cost sharing — according to people close to the negotiations. Talks between the UAW and Chrysler and General Motors Co. have intensified since the beginning of the week, and have now entered a critical stage.
  

The Daily Caller:

• Solyndra Officials Made Numerous Trips to the White House, Logs Show. Not only does the now-bankrupt solar energy firm Solyndra have a cozy financial relationship with the Obama administration, company representatives also made numerous visits to the White House to meet with administration officials, The Daily Caller has learned. According to White House visitor logs, between March 12, 2009, and April 14, 2011, Solyndra officials and investors made no fewer than 20 trips to the West Wing. In the week before the administration awarded Solyndra with the first-ever alternative energy loan guarantee on March 20, four separate visits were logged.

Reuters:

• Greek Economy Suffers, Government Rules Out Euro Zone Exit. Greece ruled out quitting the euro on Thursday, shrugging off warnings by its biggest creditor Germany and yet another set of bad economic figures showing it is struggling under the weight of EU/IMF-imposed austerity. Anger at Greece's failure to meet fiscal targets that are a condition for its international bailout is nearing breaking point in Berlin and other European capitals, with senior German politicians now talking openly about the possibility of Athens exiting the euro zone. Greece is missing fiscal and reform targets set out under the first, 110-billion euro bailout it obtained in May 2010, despite the spending cuts and tax hikes it took to comply. Faced with the threat of its EU partners blocking an 8-billion euro bailout tranche due next month if it does not get its act together, the country's socialist government pledged on Tuesday to step up long-promised budget cuts and asset sales. But economic figures released on Thursday show austerity is stretching the economy to the limit, making it more and more difficult for the country to meet its 2011 budget deficit target of 7.6 percent of GDP, from 10.5 percent last year. GDP contracted at an annual pace of 7.3 percent in the three months to June, from 8.1 percent in the previous quarter, according to seasonally unadjusted figures by statistics agency ELSTAT, while unemployment stayed near record highs. The figures confirm austerity is taking a bigger-than-expected toll on the economy, which is in its third consecutive year of recession. The GDP data showed private consumption dropped by an annual 6.1 percent in the second quarter while investment shrank by 17.9 percent, according to the ELSTAT figures. Construction, once one of the country's strongest growth engines, slumped by an annual 47 percent in terms of volume between January and May. Unemployment fell slightly to 16.0 percent in June, helped by seasonal tourism jobs. But it remained close to a record 16.6 percent it hit the previous month, well above its 11.6 percent level in June 2010. "It appears the rise in the unemployment rate will continue. There are no convincing signs of an imminent peak," said Platon Monokroussos, an economist at EFG Eurobank. Rules that make it hard to hire and fire workers have helped make joblessness among the Greek young more than 15 percentage points higher than the euro area average, according to OECD figures. Unemployment in the 15-24 age category stood at 43 percent in June, almost twice as high as three years ago. "If the (euro zone's) core economies demand that Greece passes further fiscal measures, it could prompt Greece to try to implement another debt restructuring as soon as next year," May said. "Exiting the euro zone is a real possibility."
• Euro Hits Two-Month Low Vs. Dollar; ECB Signals Pause.
• German Economy Ministry Opposes Stimulus - Report. Germany's economy ministry opposes new stimulus measures as a way to counter a possible economic downturn, newspaper Die Welt reported on Thursday. Citing a three-page ministry working paper, the daily said the idea had been dismissed by Economy Minister Philipp Roesler, who also heads the Free Democrats, junior coalition partner in Chancellor Angela Merkel's government. "Calls for programmes financed by debt, as they are being made somewhat internationally, are counterproductive given the underlying crisis of confidence in indebted countries," Die Welt quoted the report as saying.
• U.S. Commercial Paper Market Shrinks Again.

Financial Times:

• Market Turmoil Lands Hedge Funds With Big Losses. August, it now seems likely, will be the industry’s worst month since October 2008, when the collapse of Lehman Brothers triggered a worldwide sell-off. It will almost certainly also be one of the top five worst months for the industry since performance data started to be aggregated in 1990. According to the latest provisional figures from Hedge Fund Research, the average hedge fund manager has lost 4.1 per cent in the past four weeks.

Telegraph:

• 'No Quick Fix for Euro'. (video) Herta von Stiegel, author of The Mountain Within and a former senior executive with JP Morgan and Citibank, tells Robert Miller that a single Eurobond for all 17 members of the single currency bloc is not the solution to the sovereign debt crisis.

DeutschlandFunk radio:

• German Finance Minister Wolfgang Schaeuble said Italy's sovereign debt is far too large and that the country must make massive efforts to cut its deficit.

HandelsZeitung:

• Credit Suisse Group AG may wind down its onshore banking business in the U.S. following pressure from authorities there. The bank will instead concentrate on Asia.