Friday, September 21, 2012

Today's Headlines

  • World Leaders Gather at UN as Arab Spring Turns Perilous. When world leaders last flew to New York for the opening of the UN General Assembly session, fallen Libyan dictator Muammar Qaddafi was a doomed man on the run, Egyptian democracy protesters in Cairo’s Tahrir square had prevailed and Syrians were struggling to be next. A year later, the mood is darker. In Libya, the weakness of the post-Qaddafi government was demonstrated when gunmen attacked the U.S. consulate in Benghazi, killing four Americans including the ambassador. The long-suppressed Muslim Brotherhood dominates Egyptian politics, a development being closely watched by Israel and the U.S. In Syria, what began as a non-violent uprising has degenerated into a sectarian war claiming some 20,000 lives as diplomacy stalls and President Bashar al-Assad fights for his survival. “The bloom has come off the rose,” said Charles Kupchan, a professor of international affairs at Georgetown University. “The initial reaction was excessive optimism that we were at the beginning of liberal democracy in the Middle East and that is not how the region has played out.
  • Clinton Said to Plan Removing MEK From Terrorism List. Secretary of State Hillary Clintonwill notify Congress today that she intends to take the Iraniandissident group Mujahedin-e-Khalq, or MEK, off a list ofterrorist organizations, a State Department official said. A decision will be formally announced before Oct. 1, a second department official said today. The officials spoke on the condition of anonymity pending notification of Congress. The U.S. put the group on its terrorism list in 1997 for its alleged involvement in the killing of six Americans in Iran in the 1970s. The MEK had also made a failed attempt to kidnap the U.S. ambassador to Iran in 1971.
  • Draghi Plan Helping Only Those Who Don’t Need It: Euro Credit. The European Central Bank’s plan to buy bonds is proving more successful at keeping borrowing costs for France and Belgium near record lows than persuading investors to lend to Spain and Italy for less. Spain’s three-year yield is back up to 3.83 percent after dipping to 3.37 percent on Sept. 7, the day after ECB President Mario Draghi detailed his proposal to buy unlimited debt for countries that agree to economic conditions in return for help. Since then, investors have lost 0.1 percent on Spanish debt repayable in three year or less, and made 0.1 percent on Belgian notes with similar maturities. The cost of insuring French debt against default has declined 24 percent, almost twice the 13 percent drop in Italian default-swap costs. “What Draghi has done has been beneficial to some degree, but there’s still skepticism in the market because Spain hasn’t taken the final step and asked for help,” said Adrian Owens at GAM Ltd. in London, which oversees $62 billion. “It doesn’t change the fact Spain still has a huge problem to tackle. France and Belgium are seen as a safer play.” 
  • Italy, Spain to Shun Aid Unless Yields Jump, Polillo Says. Italy and Spain won’t request bailouts unless a new surge in bond yields leaves them shut out of markets, as no government will voluntarily accept conditions imposed for the aid, a senior Italian government official said. “There won’t be any nation that voluntarily, with a pre- emptive move, even if rationally justified, would go to an international body and say, ‘I give up my national sovereignty,’” Gianfranco Polillo, undersecretary of finance, said in an interview in Rome late yesterday. “I rule it out for Italy and for any other country.The program “will be activated only when the single countries have the water up to their necks,” Polillo said
  • Schaeuble Says Greek Program On Limits of What’s Possible. German Finance Minister Wolfgang Schaeuble ruled out more financial help for Greece, saying the last bailout stretched international creditors to their limits. Schaeuble, 70, speaking to reporters in Berlin today, said that he’s “convinced that we went to the limit of what’s economically justifiable with the second Greek program.” It was “very difficult” to put it together under existing rules and questioning it won’t instill confidence. Schaeuble said he doesn’t want to speculate whether Greece needs another reduction of its debt because that would unsettle financial markets. “The conditions for the payment of the next tranche are clearly defined,” Schaeuble said. Greek Prime Minister Antonis Samaras is struggling to reach agreement with his coalition partners on an 11.5 billion-euro ($14.9 billion) budget-cut package that’s key to receiving international aid funds.
  • Dollar Funding Costs Head for First Weekly Increase Since July. The cost for European banks to borrow in dollars is heading for the first weekly increase since July, according to a money-markets indicator. The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 22 basis points below the euro interbank offered rate at 8:15 a.m. in London compared with minus 17 on Sept. 14, according to data compiled by Bloomberg. The cost reached a 14-month low of 15.1 at the end of last week. The one-year basis swap was 25 basis points, or 0.25 percentage point, below Euribor from minus 26.5 yesterday. A measure of European banks’ reluctance to make unsecured loans to one another held at the lowest since March 2011. The difference between Euribor and overnight index swaps, the Euribor-OIS spread, was little changed at 15 basis points. The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.097 percent yesterday from 0.09 percent the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was unchanged at 7.6 basis points. Lenders increased overnight deposits at the European Central Bank yesterday, placing 302 billion euros ($392 billion) with the Frankfurt-based central bank from 299 billion euros the day before.
  • Asia-to-Europe Container Shipments Turn Unprofitable on Fuel Hit. Container shipments from Shanghai to Europe have turned unprofitable as the sovereign debt crisis hurts demand from consumers and companies including Maersk Line struggle to pass on fuel costs, figures released today show. Spot prices fell 3.8% to $1,172 per standard container in the week ended Sept. 21 after dropping 5.1% in the previous seven days, and have tumbled 38% since June 29, according to London-based ship broker ICAP Plc. Shippers need rates of $1,200 to $1,350 per box to make a profit on the key route linking producers in China with markets in northwest Europe, according to Kai Miller, head of ICAP's container desk. This week marks the first time rates have fallen below that level since Feb. 24, the broker's data shows.
  • Cyprus Should Mull Euro Exit, Ruling Party Head Tells Cyprus may abandon the euro if international lenders insist on excessively onerous austerity measures, reported, citing Andros Kyprianou, general secretary of the communist party AKEL. “If the troika insists on very painful measures, should we remain stubborn and say we won’t leave the euro area because it’s so important to us?” Kyprianou said in a video clip posted on the website of the Cypriot online newspaper. Kyprianou was referring to the so-called troika that oversees euro-area bailouts, comprised of officials from the European Commission, the European Central Bank and the International Monetary Fund. Cypriot President Demetris Christofias is a member and former leader of the AKEL party. “I’m not prejudging what we should do, but I am saying that these questions have to be discussed very seriously if we really want to serve the interests of the Cypriot people,” he said in a second clip.
  • U.K. Posts Record August Deficit as Tax Revenue Falls: Economy. Britain posted its biggest August budget deficit on record, heaping pressure on Chancellor of the Exchequer George Osborne as the recession hits tax revenue and pushes up spending on welfare. The shortfall excluding government support for banks was 14.4 billion pounds ($23.5 billion), the Office for National Statistics said in London today. The median of 21 forecasts in a Bloomberg News survey was for a deficit of 15 billion pounds. Tax revenue rose 1.8 percent in August from a year earlier and government spending climbed 2.5 percent.
  • Jobless Rate Rises in Five of 10 U.S. Campaign Swing States. The jobless rate rose in August in five of 10 states considered battlegrounds in the U.S. presidential election less than two months before voters head to the polls. Unemployment climbed in Wisconsin, New Hampshire, Iowa, North Carolina and Nevada, figures from the Labor Department showed today in Washington. Changes in the unemployment rate in the swing states may influence voters as they weigh President Barack Obama’s argument that his policies are helping heal the economy and Republican challenger Mitt Romney’s contention that the president’s policies have left Americans worse off than they were four years ago. Unemployment climbed to 7.5 percent in Wisconsin last month from 7.3 percent in July, rose to 5.7 percent from 5.4 percent in New Hampshire, and increased in Iowa to 5.5 percent from 5.3 percent. The jobless rate in North Carolina rose to 9.7 percent in August from 9.6 percent and advanced in Nevada to 12.1 percent, the highest in the nation, from 12 percent. The jobless rate in Ohio was 7.2 percent in August for a third month and stayed at 8.8 percent in Florida
  • Gold Seen Luring Wealthy as Central Bankers Expand Stimulus. More high-net-worth individuals are seeking to buy gold to protect their wealth from the risk of rising inflation after central banks boosted stimulus, according to Deutsche Bank AG’s asset and wealth management unit. “Gold has historically been considered to be a store of value and an inflation hedge and increasingly it is being utilized as a monetary instrument,” said Mark Smallwood, head of Asia-Pacific wealth-management solutions. “There is a growing interest among our clients to gain exposure,” he said, with an increased preference for physical holdings. Gold is in the 12th year of a bull run, 13.5 percent higher this year, as investors seek to hedge against weaker currencies and the threat of rising consumer prices. Holdings in gold- backed exchange-traded products expanded to an all-time high yesterday, and Bank of America Corp. and Deutsche Bank are among banks forecasting that the price will rally to a record. “With the movements by the central banks globally in the last few weeks, there is considerable investor concern as to the long-term effects of the liquidity infusions,” Smallwood said by phone from Guilin, China yesterday. “As a result of that, private clients are concerned about the possible future effects of inflation and the means of hedging that risk.” 
  • Senate JPMorgan(JPM) Probe Said to Seek Tougher Volcker Rule. A U.S. Senate panel probing the multibillion-dollar trading loss by JPMorgan Chase & Co. plans to unveil its findings at a hearing this year to press regulators to tighten the Volcker rule, according to three people briefed on the matter. Staff members of the Permanent Subcommittee on Investigations, headed by Senator Carl Levin, have interviewed JPMorgan officials as well as examiners and supervisors at the institution’s regulator, the Office of the Comptroller of the Currency, said the people, who spoke on condition of anonymity because the inquiry isn’t public.   
  • Bearish Treasury Bets Hit a Record Amid Inflation Concern. Options traders are paying record prices to protect against swings in long-term U.S. Treasuries relative to stocks amid concern inflation will accelerate. Implied volatility (TLT), the key gauge of options prices, for contracts with an exercise level closest to the iShares Barclays 20+ Year Treasury Bond Fund (TLT) has climbed to 16.65, compared with 13.85 for the SPDR S&P 500 ETF Trust (SPY), according to three-month data compiled by Bloomberg. The ratio between the two ETFs reached 1.24 on Sept. 14, the highest since at least 2005.

    Wall St. Journal: 

    Day of Protests in Pakistan Turns Deadly. Pakistani protesters clashed with police in a number of cities after Friday prayers over an anti-Islam video, leading to at least 17 people dead. At least 12 of the deaths were in Karachi, a violent port town, where thousands of protesters set fire to government and private property. Some of the dead included police, the Associated Press reported.  
    Global Sales of iPhone 5 Kick Off With Crowds.

  • Dalio Fears Social Unrest That Led to Hitler’s Rise. Ray Dalio, founder and co-chief investment officer of the world's largest hedge fund, Bridgewater Associates, thinks it’s likely the euro will survive; however, he does predict a “10 to 15 year managed depression” in Southern Europe. In a worst case scenario, he painted a much darker picture. “When people get at each other’s throat, the rich and the poor and the left and the right and so on, and you have a basic breakdown, that becomes very threatening,” Dalio told CNBC in an exclusive interview on “Squawk Box.” 
  • BofA(BAC), JPMorgan(JPM), Citi(C) Repeatedly Hacked by Iran: Sources. Iranian hackers have repeatedly attacked Bank of America, JPMorgan Chase and Citigroup over the past year, as part of a broad cyber campaign targeting the United States, according to people familiar with the situation.  
  • Trade Growth to Plunge Below 20-Year Average. World trade will grow by a mere 2.5 percent this year, dragged down by Europe to less than half of the previous 20-year average, the World Trade Organization (WTO) said on Friday
  • Brazil’s Finance Chief Attacks US Over QE3. Guido Mantega, Brazil’s finance minister, has warned that the U.S. Federal Reserve’s “protectionist” move to roll out more quantitative easing will reignite the currency wars with potentially drastic consequences for the rest of the world.
Zero Hedge: 
Business Insider:
New York Times: 
  • California Debt Higher Than Earlier Estimates, a Task Force Reports. Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion “wall of debt” looming over the state, which had to be dismantled. Since then, he has slowed the issuance of municipal bonds, called for spending cuts and tried to persuade the state’s famously antitax voters to approve a tax increase this fall. On Thursday, an independent group of fiscal experts said Mr. Brown’s efforts were all well and good, but in fact, the “wall of debt” was several times as big as the governor thought. Directors of the State Budget Crisis Task Force said their researchers had found a lot of other debts that did not turn up in California’s official tally. Much of it involved irrevocable promises to provide pensions to public workers, health care for retirees, the cost of delayed highway maintenance and an estimated $40 billion bill to bring drinking water up to federal standards. They also pointed out many of the same unpaid bills from previous years that the governor had brought to light, like $8 billion in delayed payments to schools and community colleges, and $250 million that was raided from a fund dedicated to transportation and treated as revenue. The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time, so that even if Mr. Brown should succeed in pushing through his tax increase, gaining an additional $50 billion over the next seven years, the wall of debt would still be there, casting its shadow over the state.
Real Clear Markets:
  • Monetary Policy Is Now An All-Too-Real Depressant. We cannot have a manipulated, centrally planned recovery without housing. A market recovery on its own is entirely possible, feasible and even likely, but that would require recognition that after four years of massive monetary intrusion to rebuild the worst of the artificial world of 2006 these economic "laws" are no longer applicable. QE 3 cannot possibly succeed as traditionally defined, but it is not a neutral proposition without a downside
Frankfurter Allgemeine Zeitung:
  • Italy has made "extraneous demands" that have slowed German ratification of the ESM. Italian demands this week kept German Cabinet from endorsing euro region member states' approval of German declaration that limits German liabilities to ESM.
  • Greece may introduce new taxes demand by the troika of inspectors from the European Commission, the ECB and the IMF in an effort to raise 2 billion euros on top of 11.6 billion euros in cuts to spending. The measures include a tax on self-employed professionals as well as the removal of the tax-free threshold for the self employed.
El Confidencial:
  • The Spanish government has asked Sandander, Banco Bilbao Vizcaya Argentaria and CaixaBank to take a 30% stake in the bad bank. The government wanted the three banks to take a larger stake. The banks haven't agreed to participate yet and are showing strong resistance to participation. International real estate funds show no interest in the bad bank, citing people in the financial sector.
  • Canon Halts Factory in China's Guangdong Today. The company halted operations at its factory in China's Guangdong province today

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