Wednesday, March 28, 2012

Today's Headlines

  • ECB's Weidmann Says Rescue Fund Expansion Won't Solve Crisis. European Central Bank Governing Council member Jens Weidmann said boosting Europe’s rescue funds will not solve its debt crisis, days before finance ministers meet to discuss expanding the limit on bailout lending. “Just like the ‘Tower of Babel,’ the ‘Wall of Money’ will never reach heaven,” Weidmann said in a speech at Chatham House in London today. “If we continue to make it higher and higher, we will, in fact, run into more worldly constraints,” which might include setting “incentives that lead to new problems in the future.” “All the money we put on the table will not buy us a lasting solution to the crisis,” Weidmann said, citing Bank of England Governor Mervyn King’s view on the matter that it merely buys time. He said the risks that fiscal austerity will prevent countries returning to growth are “being exaggerated,” and “in any case, there is little alternative.” Weidmann rejected any calls for the ECB to “temporarily ease the pressure” and do more to support the euro-area economy. Weidmann said the ECB had already “undertaken tremendous efforts” and said the reason the central bank’s founding treaty “explicitly prohibits monetizing public debt” is to avoid a situation where “governments have an incentive to accummulate debt.” “If central banks went down this route, they would be redistributing fiscal risks and costs among the taxpayers of the euro area,” he said. That would have “a highly corrosive effect on the credibility of central banks and on their independence,” Weidmann said.
  • China’s Stocks Decline to 7-Week Low on Profit Concern. China’s stocks fell the most in four months after Societe Generale SA said Chinese corporate profits won’t grow at all this year and the nation’s largest copper producer reported slumping earnings. Jiangxi Copper Co. (600362) slid 5.5 percent after posting an 18 percent drop in net income and Societe Generale said industrial profit for the first two months signaled overly optimistic estimates for earnings. China Citic Bank Corp. led declines for lenders as Aberdeen Asset Management Plc said it is underweight on China on concern about the nation’s non-performing loans. Air China Ltd. (601111), the biggest international carrier, lost the most since December after saying passenger growth may slow. The Shanghai Composite Index (SHCOMP) fell 62.3 points, or 2.7 percent, to 2,284.88 at the close, its biggest drop since Nov. 30. The Shanghai Composite has dropped 7.1 percent from this year’s high on March 2 on concern the world’s second-biggest economy is stalling as the government’s property curbs and tight monetary policies reduce profits. Industrial companies posted their first January-February profit decline since 2009, as net income dropped 5.2 percent from a year earlier to 606 billion yuan ($96 billion), the National Bureau of Statistics said yesterday. That compared with a 34.3 percent gain in the first two months of 2011. The industrial profit figures suggest 2012 consensus earnings estimates for Hong Kong-listed Chinese companies are “far too optimistic,” Societe Generale strategists Guy Stear and Anthony Lee wrote in a note to clients dated yesterday. A gauge of material producers in the CSI 300 fell 4.3 percent, the most among 10 industry groups. “The economy is bad, demand is weak, and the upstream is particularly in trouble,” said Tao Dong, chief regional economist at Credit Suisse AG in Hong Kong. “Some companies’ earnings, especially those upstream, are probably going to feel a hard landing instead of a soft landing.” Measures of small- and medium-size companies and ChiNext startup firms slumped 4 percent and 5.1 percent respectively in Shenzhen on concern rising share supply will damp valuations.
  • Bovespa Declines as Brazil Exports Seen Hurt by China Slowdown. The Bovespa index fell toward the lowest level in six weeks as a drop in commodities prices pushed raw-material producers down amid concern growth will falter in China, Brazil’s biggest trading partner. Mining company Vale SA (VALE5), whose top export market is China, slid as metals prices declined. BM&FBovespa SA (BVMF3), the operator of Latin America’s biggest securities exchange, sank after a court ordered it to pay 8.42 billion reais ($4.62 billion) in a civil case. The Bovespa fell 1.6 percent to 65,014.75 at 1:16 p.m. in Sao Paulo.
  • Obama Power-Plant Rule Signals Demise of 'Old King Coal'. “This EPA is fully engaging in a war on coal,” West Virginia Democratic Senator Joe Manchin said in a statement. “This approach relies totally on cheap natural gas and we’ve seen that bubble burst before.” “It might sound good now, but what happens if those prices go up?” Manchin added.
  • Oil Falls for First Time in Four Days After Supply Gain. Futures declined as much as 2.5 percent after the government said supplies gained 7.1 million barrels to 353.4 million last week, the largest increase since July 2010. Crude oil for May delivery fell $2.23, or 2.1 percent, to $105.10 a barrel at 12:50 p.m. on the New York Mercantile Exchange. Oil traded at $105.30 before release of the inventory report at 10:30 a.m. The price is up 6.3 percent this year. Brent oil for May settlement dropped $1.55, or 1.2 percent, to $123.99 a barrel on the London-based ICE Futures Europe exchange.
  • Zinc Stockpiles Near 17-Year High on Increases in New Orleans. Zinc stockpiles monitored by the LME neared the highest level in 17 years on gains in New Orleans. Inventories rose 9,850 metric tons, or 1.1%, to 898,675 tons, daily LME figures showed today. The was the highest level since May 23, 1995, according to figures compiled by Bloomberg. Stocks in New Orleans warehouses gained 10,100 tons to 581,425 tons, the most metal on record at the location for data going back to December 1998. World supply of refined zinc will exceed demand by 144,000 tons this year, Natixis estimates. Inventories have climbed 14% this year in New Orleans, which holds 65% of global LME stocks of zinc.
  • Britons See Disposable Incomes Plunge Most Since 1977: Economy. Britons suffered the biggest drop in disposable income in more than three decades last year in a squeeze that may continue this year as energy prices increase. Real household disposable income fell 1.2 percent, the Office for National Statistics said today in London. That’s the biggest drop since 1977 when the then Labour government sought to cap incomes growth in an attempt to bring down inflation. The report also showed that the economy shrank 0.3 percent in the fourth quarter, more than the 0.2 percent contraction previously estimated.
  • Arab Spring Turns to Economic Winter as Unemployment Grows. Amir Mohammed has been sleeping outside the Libyan Embassy in Cairo awaiting a visa for a week, his bed a layer of cardboard on the sidewalk. He has given up on finding a job in Egypt and is looking for a way out. "I'm trying to just eke out an existence in my own country, but I can't," the 30-year-old hairdresser said. "There's no work. Why did we have a revolution? We wanted better living standards, social justice and freedom. Instead, we're suffering."
  • Treasury Bull Market Death Knell Premature, Higgins Says. Treasury yields may pare their recent gains after the U.S. government bond market’s worst quarter in more than a year amid continued Federal Reserve market intervention and a slow economic recovery, according to Standish Mellon Asset Management Co.’s Tom Higgins. Talk of the 30-year-old bull market’s end is “premature” because benchmark 10-year note yields may head lower before they settle into a higher trading range of 2.25 percent to 3 percent by the end of 2012, Higgins, global macro strategist in Boston at the firm, said in a phone interview. “The continued weak backdrop in the economy, the deleveraging environment we are still in, regulation that favors less risky assets and the continued presence of the Fed will continue to anchor rates at lower levels,” said Higgins, whose firm oversees $85 billion in fixed-income assets.
  • Cheddar-Bunny Maker Annie's(BNNY) Surges in Trading After IPO. Annie’s Inc. (BNNY), the maker of organic and natural foods such as bunny-shaped crackers, surged as much as 77 percent in its trading debut, after raising $95 million in an initial public offering that priced the shares above the range. The shares rose 74 percent to $33.03 at 11:48 a.m. New York time after climbing as high as $33.54. Annie’s and its investors sold 5 million shares for $19 each in the IPO, according to a statement. The company earlier offered them for $16 to $18 apiece.
  • Justices Suggest Other Parts of Health Law May Be Thrown Out. U.S. Supreme Court justices indicated they may throw out other parts of President Barack Obama’s health-care law if they strike down its core requirement that Americans obtain insurance. A day after the justices cast doubt on the insurance mandate’s survival, they tangled today over the consequences such a ruling would have. The court is in its third and final day of arguments on Obama’s signature domestic achievement, a law that would extend health coverage to 32 million people. Justices across the ideological spectrum expressed interest in overturning at least provisions that require insurers to cover people with pre-existing conditions. The administration and the insurance industry say those rules are so closely linked to the mandate that they can’t be separated.
Wall Street Journal:
  • Copper Slumps on Disappointing Economic Data. Copper futures fell on weaker-than-expected economic data from the U.K. and the U.S., as well as pressure from a stronger dollar. The most actively traded contract, for May delivery, was down 7.70 cents, or 2%, at $3.8030 a pound in morning trade on the Comex division of the New York Mercantile Exchange.
  • Justices Spar Over Health Law. Justices in the Supreme Court's conservative majority said Wednesday that it would be difficult to figure out which parts of the Obama health-care law should survive if one part of it is judged unconstitutional. Wednesday morning's 90 minutes of argument involved a scenario in which the court decides to strike down the law's provision requiring Americans to carry health insurance or pay a penalty. Whether that scenario becomes reality is still uncertain—at Tuesday's arguments, swing vote Justice Anthony Kennedy seemed to waver—but if it does, the justices must decide what happens to the rest of the law. On Wednesday, the court's four liberals moved to protect the law, arguing that most of it should be kept even if the mandate falls. Justice Ruth Bader Ginsburg, the court's senior liberal, said that if the justices must choose between "a wrecking operation" or a "salvage job," the "more conservative approach would be salvage." But conservative justices repeatedly raised the difficulty of such an operation for a law that has hundreds of provisions. Justice Antonin Scalia said it would be "totally unrealistic" to expect the Supreme Court to "go through this enormous bill item by item and decide each one."
  • Poll: Santorum's Pennsylvania Lead Vanishes.
  • Job Growth Expected From Cheap Natural Gas. The nation's fast-growing supply of cheap natural gas is setting off a manufacturing revival that's expected to create hundreds of thousands of jobs as companies build or expand plants to take advantage of the low prices.
Business Insider:
Zero Hedge:
  • EuroView: Focus On Spain's Deficit Has Obscured Its Debt. The problem for Madrid is that the official figures are seen as increasingly less reliable. With the bill to clean up the country’s faltering banks expected to rise well above the E52 billion that Prime Minister Mariano Rajoy has planned, markets worry that Spain’s debt may suddenly explode the way Greece’s deficit seemed to in 2009. According to some analysts, the signs are already there.

NY Post:

Charleston Daily Mail:
  • Coal Executive Predicts More Layoffs Due To Weak Market. The head of Alpha Natural Resources(ANR), the largest coal producer in West Virginia, said the mine closures and layoffs the company announced last month probably won't be the last this year. Kevin Crutchfield, Alpha's chief executive officer, also said he is concerned that the United States is following a regulatory path that will eventually turn the nation irrevocably away from coal and raise prices. Alpha is the nation's largest supplier of metallurgical coal, which is used in steel making, and the company is a major supplier of steam coal used by utilities to generate electricity. Coal markets have weakened in recent months. Metallurgical coal demand has softened because of slower growth in China and India and ongoing financial uncertainty in Europe. "It's an uphill battle," Crutchfield said of the coal business. "We have ample coal reserves. It's reliable, affordable and abundant. But for some, coal is viewed as a past fuel -- which is unfortunate because we're getting in a situation where decisions being made now will be irreversible and we may live to regret it." "Regulating carbon dioxide as part of the Clean Air Act, I think it has the potential of being devastating to coal," Crutchfield said. "It hasn't manifested itself yet but there's a clear intent there. It could be hugely problematic for our nation. There already have been announcements of coal plants being closed. "We're throwing our eggs in the natural gas basket and making decisions that will become irrevocable. If natural gas prices spike back to $10, $11 or $12, people will be raising Cain."

Emerging Money:

  • Quantitative Easing Will Punish The Shipping Industry. The shipping industry has suffered greatly from the previous rounds of quantitative easing by the Federal Reserve. The stimulative measures devalued the U.S. dollar. As a result, commodity prices for oil, gold, and silver soared as investors and traders sought alternative assets. The increasing price of fuel was devastating for shippers, and it looks like it’s happening again.


  • ECB's LTRO Plan Flops as Banks Cut Lending. European banks cut lending lines to companies last month, defying the central bank's grand plan to stem the crisis with a flood of more than €1 trillion (£838bn) of cheap loans. The European Central Bank (ECB) said loans to the real economy fell in February, scotching claims that radical long-term refinancing operation (LTRO) would stem the crisis. Open Europe's Raoul Ruparel said: "The LTRO has succeeded in avoiding a severe funding crunch...[But] it does not tackle the underlying lending risks which the banks are still keen to avoid, particularly with the looming recession in Europe."


  • German real gross wages have dropped 2.9% since 2000, citing the Hans Boeckler Foundation.

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