Bloomberg:
- Moody’s Investors Service Inc. said the US government’s Aaa bond rating will come under pressure in the further unless additional measures are taken to reduce budget deficits projected for the next decade. The ratios of government debt to the US GDP and revenue have increased “sharply” during the credit crisis and recession. President Barack Obama projected yesterday the US budget deficit will rise to a record $1.6 trillion in 2010, representing 10.6% of US GDP, the highest level since World War II. “If the current upward trend in government debt were to continue and become irreversible, the rating could come under downward pressure,” said analysts led by Steven A. Hess, senior credit officer at Moody’s in New York.
- Former Federal Reserve Chairman Paul Volcker plans to tell the Senate Banking Committee today that hedge funds and private-equity funds should be allowed to both profit and fail, without any expectation of government support. “Managements, stockholders or partners would be at risk, able to profit handsomely or to fail entirely, as appropriate in a competitive free-enterprise system,” Volcker says in remarks prepared for testimony before the panel.
- Bank Debt Swaps Exceed Corporate Insurance by Most Since Lehman. The cost to protect against losses on European bank bonds jumped above insurance on company debt by the most since the collapse of Lehman Brothers Holdings Inc. amid concern that government budget woes will spread to lenders. The Markit iTraxx Financial Index of credit-default swaps exceeded the investment-grade Markit iTraxx Europe Index by 9.25 basis points, according to JPMorgan Chase & Co. That’s the most since September 2008, CMA DataVision prices show. “The financial sector is still dependent on sovereign support,” said Tim Brunne, a Munich-based strategist at UniCredit SpA. “If sovereigns are impacted negatively from budget deficits, that could spill over to financials. The link is weaker for companies.” “The bear continues to have the market in its claws,” Maureen Schuller, a credit strategist at ING Groep NV in Amsterdam, wrote in a note to investors.
- Russia’s economy probably contracted an annual 2.2 percent in the fourth quarter, ING Bank NV economist Tatiana Orlova said in a note to clients today. Fixed investment shrank 14.2 percent from a year earlier and household spending declined an annual 9.6 percent in the three final months of the year, ING estimates. “All these improvements fit the picture of a gradual recovery from a low base,” Orlova said in the note. “The household consumption growth figure especially gives not much ground for optimism. We expect the picture to change little in the coming months.” Russian output contracted a record 7.9 percent in 2009, the State Statistics Service said yesterday.
- Crude oil may pull back below $73 a barrel even if the market retraces two weeks of losses and climbs back above $78, National Australia Bank Ltd. said. Oil, which fell in January in its first monthly decline since July, is “on the defensive” after technical support marked by two short-term moving averages was breached, said Gordon Manning, a Sydney-based technical analyst at Australia’s fourth-largest bank. While prices are rebounding, the risk remains skewed to the downside, he said. “Enough pressure’s come out of the market, but I’m not convinced that the bounce will have much in it,” Manning said today in a telephone interview. “I could see oil getting back to $78 to $79. That wouldn’t surprise me, but any rally is going to conk out.”
- Copper prices, which more than doubled last year, are set to plunge as speculators unwind positions and global inventories expand, according to David Threlkeld, president of metals trader Resolved Inc. “We’re going to see a catastrophe in the market,” said Threlkeld, who first got the world’s attention in 1996 when he showed that hoarding by Sumitomo Corp.’s Yasuo Hamanaka would lead to a collapse. Prices may slump to less than $1 a pound, he said by phone. That about 67 percent less than today’s levels. Some 90 percent of buying “has been from speculators,” said Threlkeld, who has traded the market for more than 40 years. “Whether they are exchange-traded fund speculators or China pig farmer speculators it doesn’t really matter, because that buying is going to come back to the market,” he said from Arizona. There are about 3 million tons of unreported inventories in China, said Threlkeld. The forecast for a slump to less than $1 a pound -- equivalent to $2,205 a ton -- may be driven by higher interest rates in China and the U.S., he said. “The way the figures are being reported is anything that’s shipped to China is assumed to be consumed, which is clearly ridiculous,” Threlkeld said. Stockpiles monitored by the Shanghai Futures Exchange totaled 101,210 tons last week, more than three times the level a year ago. “What we have now is we have a unique situation, whereby we have a surplus and production has gone up and consumption has gone down,” he said. Output exceeded demand by 191,000 tons in the 11 months to November 2009, the World Bureau of Metal Statistics said on Jan. 20. Inventories monitored by the London Metal Exchange grew about 48 percent last year and stood at a one-year high of 543,525 tons yesterday.
- China said a meeting between the Dalai Lama and President Barack Obama would set back ties with the U.S. that have soured in recent weeks over censorship of Google Inc., climate change and arms sales to Taiwan. Such a step would “seriously undermine the political foundation of Sino-U.S. relations” and “threaten trust and cooperation,” Zhu Weiqun, a Communist Party official who manages Tibet affairs, told reporters in Beijing today While Zhu’s comments mirror oft-repeated warnings, tension between the world’s No. 1 and No. 3 economies is on the rise. Any further provocation from either side might hamper global efforts to contain the Iranian and North Korean nuclear programs and make China less willing to cooperate on financial matters, such as mitigating the effects of the global credit crisis. “The Chinese will take a shortsighted stance toward the United States and the U.S. may take protectionist trade measures against China,” said Huang Jing, a visiting professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy. That would do “irreparable damage to the mindset of the Chinese and American people. Americans may say China’s peaceful rise is a fake and view China like they did the Soviet Union.” U.S. manufacturers are finding themselves in the firing line. Chinese Foreign Ministry Spokesman Ma Zhaoxu today reiterated that China will impose sanctions on companies involved in U.S. arms sales to Taiwan announced by the Pentagon last week. China’s warning to Obama on meeting with the Dalai Lama and stance on the arms sales suggests a change in tone, Huang said. China snubbed Obama at the December climate-change conference in Copenhagen, sending a mid-level diplomat to negotiate with the U.S. president in the place of Premier Wen Jiabao. Inability to close the gap between the Chinese and U.S. positions led to an 11th-hour compromise deal that was widely criticized by environmental groups as insufficient.
- Francois Trahan resigned as chief investment strategist for ISI Group Inc., according to an e-mail sent to the firm’s clients. He joined the New York-based brokerage and research provider in 2007 from Bear Stearns Cos., where he was the No. 1 U.S. strategist in Institutional Investor’s 2005 and 2006 surveys. Trahan was hired by Bear Stearns in 2002 and had previously worked for Brown Brothers Harriman & Co. and Ned Davis Research Group.
- Ford Motor Co.’s(F) U.S. sales rose 25 percent in January and Nissan Motor Co. posted a 16 percent increase as a Toyota Motor Corp. recall put some of its most- popular models off-limits. Ford’s deliveries jumped to 116,534 from 93,506 a year earlier, beating analysts’ estimates.
- The Federal Reserve Bank of Atlanta failed to rein in speculative real estate lending that led to losses at two Georgia banks that were later closed, the central bank’s inspector general said. Villa Rica-based West Georgia’s “large concentration” of real estate loans, including some for homes that hadn’t yet been sold, and weaknesses in underwriting “warranted a more forceful supervisory response,” Fed Inspector General Elizabeth Coleman said in a report.
Wall Street Journal:
- Low taxes have long given Switzerland a strong hand in the battle to lure the operations of big multinational companies. Now, an intramural war is on in which individual Swiss states are competing harder to attract business. Switzerland's states, known as cantons, are offering rock-bottom tax rates meant to tempt multinationals into establishing regional headquarters or other operations in their jurisdictions. In doing so, other cantons are trying to take business away from Zug, the Swiss canton that has mastered the game of attracting business to such a high degree that it is beginning to run out of space. Since the 1960s, Zug has set the pace in persuading multinationals to set up shop, drawing names such as Johnson & Johnson, Burger King Holdings Inc. and Siemens AG. As Zug now runs short on housing and office space, small cantons nearby are getting in on the act. "Zug made an extremely good decision years ago to have a competitive tax code," says Georges Meyer, a tax partner at PricewaterhouseCoopers in Zurich. "Now you see a trend of neighboring cantons trying to attract business too."
- Lancet Retracts Study Tying Vaccine to Autism.
CNBC:
- Barney Frank Named ‘Porker of the Year’.
NY Post:
- Now this is a high-stakes staring contest. Two of the most powerful men on Wall Street are locked in a quiet stalemate over who will be first to blink and disclose how much its top bankers earned in compensation last year -- and as a result first face heat from a public fed up with outsize bonuses. Jamie Dimon's JPMorgan Chase(JPM) and Lloyd Blankfein's Goldman Sachs(GS) were among the first of the large banks to report earnings, and did provide some details about the size of their compensation pools. However, both banks have been slow to file a document with the Securities and Exchange Commission that outlines what the bank's top brass is pulling in.
Washington Post:
- Virginia's Democratic-controlled state Senate passed measures Monday that would make it illegal to require individuals to purchase health insurance, a direct challenge to the party's efforts in Washington to reform health care. The bills, a top priority of Virginia's "tea party" movement, were approved 23 to 17 as five Democrats who represent swing areas of the state joined all 18 Republicans in the chamber in backing the legislation. The votes came less than a week after President Obama implored Democrats in Washington not to abandon their health-care efforts, urging them in his State of the Union address not to "run for the hills" on the issue. But the action in Virginia, a state that backed Obama in 2008, could indicate that the president is failing to reassure members of his own party that current reform efforts remain worthwhile. The votes also suggest that Democrats on the state level fear that supporting health-care reform could be politically damaging, and their action could put pressure on members of the state's congressional delegation who have been behind the effort.
The Business Insider:
- Goldman(GS) Alumni Preparing To Launch Gay-Focused Fund.
- Anyone who thinks that the business of derivatives ended with the financial crisis had better check out the recent trading volumes released by the derivatives exchange company CME Group(CME). Just this January, total derivatives trading volume shot up 19% year over year, with particularly feverish activity in interest rate derivatives (for fixed income, Up 33%), foreign exchange derivatives (Up 78%), and metals derivatives (Up 65%). Traders are loving derivatives like never before:
- Oil traders appear blind to the fact that developed nations' oil consumption growth has most likely ended forever, given that oil prices remain pretty high historically speaking. Some oil bulls might be betting that a global recovery will generate sufficient emerging-markets oil demand to make up for the developed world consumption growth and increase total global demand at the same time. Let's just hope that substantial U.S. oil consumption growth isn't part of their equation. That's because there's increasing evidence that the U.S. economy has already made a critical shift towards spending less on fuel, as recently highlighted in Stephen Schork's Schork Report, via Alphaville. As he puts it: oil demand has been "wiped off the map" and it's never coming back.
Washington Times:
- The work computer of one regional supervisor for the U.S. Securities and Exchange Commission showed more than 1,800 attempts to look up pornography in a 17-day span: "It was kind of distraction per se," he later told investigators. But he wasn't alone. More than two dozen SEC employees and contractors over roughly the past two years have faced internal investigations after they were caught viewing pornography on their government computers, according to records obtained through the Freedom of Information Act and other public documents.
Money Morning:
- Warning: This is Not Another Wall Street Conspiracy Theory, These are the Facts. Just last week, the House Committee on Oversight and Government Reform held a hearing on the U.S. Federal Reserve's decision to directly pay billions of dollars to banks as part of its scheme to bail out insurance giant American International Group Inc. (AIG). According to committee Chairman Dennis Kucinich, D-Ohio, the testimony that congressmen heard just didn't "pass the smell test." What really stinks about the whole mess is not only the cover-up of what really happened and why, but the inability of anybody in Congress to actually do their homework and be able to frame pointed questions and get to the truth. It's not complicated, but it is convoluted. Here are the facts and some questions that Congress needs to ask - and that the American people deserve straight answers to.
HedgeCo.Net:
- The Top Ten Hedge Fund Launches Of 2009.
Reuters:
- Portugal needs to make significant economic adjustments to reduce its budget deficit, Bank of Portugal governor Vitor Constancio said on Tuesday, adding he was relatively pessimistic about the short-term outlook. Portugal's deteriorating public finances have come into focus in recent weeks in the wake of debt problems for fellow euro zone member Greece. The country's bonds have been hit by these concerns and spreads widened again on Tuesday.
Financial Times:
- George Papandreou, Greek prime minister, has held emergency consultations with opposition party leaders to shore up support ahead of an expected call by the European Commission for more stringent measures to rescue the country’s economy. The meeting of political leaders followed two days of fierce internal debate by senior members of Mr Papandreou’s Pasok socialist party over whether to deepen planned wage and spending cuts. The Greek premier is considering a televised address to the nation. On Tuesday Mr Papandreou renewed earlier attacks on “speculators and hedge funds” for driving up the cost of financing Greece’s swollen public debt to record levels. “Greece is at the centre of an unprecedented speculative attack … resulting in the strangulation of our economy,” he told an economic conference. He said the level of spreads on Greek debt “is completely unjustified in relation to the real situation of the Greek economy”. The Commission is expected on Wednesday to call for across-the-board wage cuts for Greek public sector workers and new tax measures before it approves a stability and growth plan aimed at reducing the budget deficit from 12.7 per cent to 2.8 per cent of gross domestic product over the next three years.
BBC:
- Toyota Motors(TM) says its massive vehicle recall could cost it up to $2bn (£1.25bn) in lost output and sales. The carmaker is in the process of recalling millions of vehicles that are potentially prone to uncontrolled acceleration. Toyota said the wide-ranging vehicle check might spread from the US and Europe to include the Middle East, Latin America and Africa. It said 180,000 potentially affected cars had been sold in these regions. It has identified eight models as potentially at risk.
Focus:
- United Nations economist Heiner Flassbeck said speculation in commodities derivatives is increasing and is pushing up prices, citing an interview. Flassbeck, chief economist at the UN Conference on Trade and Development, said speculation has become disconnected from supply and demand.
National Post: