Wednesday, February 22, 2012

Today's Headlines

  • Greece Cut to Default Cusp as Fitch Takes First Ratings Step. Greece's downgrade by Fitch Ratings is the first in a series of ratings cuts that the nation can expect after it negotiated the biggest sovereign debt restructuring in history. Fitch lowered Greece's credit grade by two levels to C from CCC, saying a default is “highly likely in the near term,” and that it will cut the nation again to “Restricted Default” once a bond exchange is completed. Standard & Poor's said in July it expected to downgrade Greece to “Selective Default” after the restructuring agreement, while Moody's Investors Service has said it will cut the nation to its lowest rating. “It's almost a paradoxical exercise,” said Richard McGuire, a strategist at Rabobank International in London. “They downgrade you because you're not paying your bonds and then upgrade you because the bonds don't exist, so you're not in default.”
  • Euro-Area Manufacturing, Services Unexpectedly Contract: Economy. European services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate today. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey.
  • Sovereign Credit Risk Increases to One-Month High in Europe. The cost of insuring against default on European sovereign debt rose to the highest in a month, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 11 basis points to 349 basis points at 4 p.m. in London, the highest since Jan. 18. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings were 9.5 basis points higher at 581.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 133 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 8.5 basis points to 225 and the subordinated gauge was 11 higher at 379.5.
  • German Risk Exposure to Greece Rises After Bailout, Welt Says. Germany’s risk exposure to Greece will rise after the debt-strapped country secured a second bailout package, Die Welt reported, citing its own calculations. By 2014, outstanding loans and guarantees to Greece will amount to 51 billion euros ($68 billion), of which 31 billion euros are related to this week’s rescue package, provided it’s disbursed in full, the newspaper said. Germany had Greece- related risks of 30 billion euros before the second bailout, of which 10 billion euros will have to be written down by state- owned banks and public lenders as a result of the country’s debt restructuring, Welt said.
  • Chanos, Zimmerman on Hedge Fund History. (video)
  • Citigroup(C) 'Defrauded' Fannie, Freddie, Whistle-Blower Claims. Citigroup Inc., which last week admitted breaking Federal Housing Administration rules and paid a fine, also violated regulations for home loans sold to Fannie Mae and Freddie Mac, according to a whistle-blower’s complaint. The bank “defrauded, falsified information or misled federal government entities” by selling or securing insurance for mortgages with defects such as improper appraisals and paperwork errors and not reporting them as required, Sherry Hunt, a Citigroup quality-assurance vice president, said in her complaint, which was unsealed yesterday. It was filed under the False Claims Act in federal court in Manhattan in August.
  • Rising Prices, Efficiency Sink Gasoline Demand: Chart of the Day. Gasoline demand has sunk to an 11-year low as pump prices surge to the highest level since at least 1990 for this time of the year and U.S. consumers favor more fuel-efficient vehicles. Prices at the pump have jumped 85% to $3.57 a gallon Feb. 20 from $1.925 three years ago, according to AAA.
  • 'Bake Sale Ban' Rhetoric Swells Over Obama School Snacks Rules. Special-education students at Tooele High School in northwest Utah who rely on weekly bake sales to pay for field trips and supplies may have to go without. Federal regulators, fresh off a contentious nutritional overhaul of U.S. school meals that replaced fried chicken patties with chef salads, are now preparing the first standards for snacks, sodas and other foods sold outside of regularly scheduled lunch and breakfast. That means vending machines, concession stands and some types of PTA fundraisers during school hours may be forced to cut back the calories. “We have Washington deciding if you can hold a bake sale,” Utah state Representative Ken Ivory, a Republican, said in an interview. “They’ve overstepped their bounds.”
  • Illinois's 'Toughest' Budget May Cut $2.7 Billion From Medicaid. Illinois Governor Pat Quinn will propose a $33.8 billion spending plan that would cut $2.7 billion from the Medicaid program, which provides health care for the poor. It’s the “toughest budget,” Jack Lavin, Quinn’s chief of staff, told reporters in Springfield, capital of the fifth-most- populous U.S. state. The plan, an increase from the current $33 billion, would close two prisons and four mental-health facilities, he said. The state faces a backlog of $9 billion in unpaid bills.
  • Sales of Existing Homes Rise. Sales of previously owned U.S. homes rose in January to the highest level since May 2010 as investors took advantage of lower prices to buy distressed properties. Purchases climbed 4.3 percent to a 4.57 million annual rate, less than forecast, from a revised 4.38 million pace in December that was slower than previously estimated, a report from the National Association of Realtors showed today in Washington. Distressed properties made up the largest portion of all purchases since April. Almost one in four of all transactions was made by investors.
  • Wen Seen Paring China Growth Goal in State-of-the-Union on Inequality Rise. China’s Premier Wen Jiabao is seen signaling next month that curbing pollution, inequality and the risk of financial instability eclipse the benefits of faster economic growth, a survey of analysts indicated.
Wall Street Journal:
  • DirectTV(DTV) Could Be Next To Enter Streaming. Pressure is mounting on DirecTV to unveil its own streaming service as Comcast(CMCSA) joins the bandwagon.
  • Regulator Questions Role of High-Frequency Traders. Securities and Exchange Commission Chairman Mary Schapiro said Wednesday she is worried about the role of high-frequency traders in the stock market and hinted at new policies aimed at curbing frenetic market activity. A large portion of trading in the equities market has little to do with "the fundamentals of the company that's being traded" and more to do with "the minuscule aberrational price move" that computer-assisted traders with direct connections to the exchange can "jump on" in fractions of a second, Ms. Schapiro said.
  • Gingrich Releases Half-Hour Energy Ad. (video)
  • Romney Proposes Slashing Top Tax Rate to 28%. Former Massachusetts Gov. Mitt Romney, seeking to kick-start his presidential campaign among recalcitrant conservatives, will propose cutting the top income tax for individuals to 28 percent, advisers said today.
Business Insider:
Zero Hedge:
NY Post:
New York Times:
  • E.U. Banks and States Caught in Vicious Cycle. Like drunks at a bar door, the euro zone’s governments and banks are leaning unsteadily on each other for support. The banks know they have to sober up, but governments are urging them to have one more for the road. European policy makers may have managed to stop the entire building from swaying in the past few weeks, but they have not yet found a way to break the dangerous mutual dependency between overindebted states and overleveraged banks. ‘‘If you don’t cut the dependency between sovereigns and banks, inevitably states will be inhibited by the risks of their banks and banks will be inhibited by the risks of their states,’’ said Jean Pisani-Ferry, director of Bruegel, a economic research group based in Brussels.


  • Tesla Motors'(TSLA) Devastating Design Problem. Tesla Motors' lineup of all-electric vehicles — its existing Roadster, almost certainly its impending Model S, and possibly its future Model X — apparently suffer from a severe limitation that can largely destroy the value of the vehicle. If the battery is ever totally discharged, the owner is left with what Tesla describes as a "brick": a completely immobile vehicle that cannot be started or even pushed down the street. The only known remedy is for the owner to pay Tesla approximately $40,000 to replace the entire battery. Unlike practically every other modern car problem, neither Tesla's warranty nor typical car insurance policies provide any protection from this major financial loss.
Financial Times:
  • An EFSF Credit Derivative Is Born. The European Sovereign Bond Protection Facility now has its own website! More to the point, the Summary Terms for the certificates can be found here, and a Base Prospectus here.


  • Argentina Train Crash in Buenos Aires 'kills dozens'. A train crash at a station in the Argentine capital, Buenos Aires, has killed 49 people with at least 600 more injured, officials say. The train slammed into the barrier at the end of the platform at the Once station during the morning rush hour.



  • Germany Plans 'Drastic' Cuts in Solar Subsidies. Subsidies for some photovoltaics installations to be cut by more than 30%.

Shanghai Daily:

  • China Appliance Sales Drop 10% in January. SHANGHAI'S languid home appliance market hopes for new incentives to revive sales after China's old-for-new home appliance subsidy program expired at the end last year. The industry's nationwide sales dropped 10 percent in January from a year earlier.

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