North American Investment Grade CDS Index 123.49.0 bps +.40%
European Financial Sector CDS Index 145.18 bps -3.46%
Western Europe Sovereign Debt CDS Index 118.83 bps -.56%
Emerging Market CDS Index 303.67 bps -3.15%
2-Year Swap Spread 43.0 +4 bps
TED Spread 35.0 +2 bps
Economic Gauges:
3-Month T-Bill Yield .15% -1 bp
Yield Curve 249.0 -3 bps
China Import Iron Ore Spot $151.90/Metric Tonne -1.75%
Citi US Economic Surprise Index +19.40 +.2 point
10-Year TIPS Spread 1.96% +1 bp
Overseas Futures:
Nikkei Futures: Indicating +41 open in Japan
DAX Futures: Indicating +11 open in Germany
Portfolio:
Higher: On gains in my Technology, Medical, Biotech and Retail long positions
Disclosed Trades: Covered all my (IWM), (QQQQ) hedges and some of my EEM short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 is reversing morning losses substantially on heavy volume. On the positive side, Bank, I-Bank, Steel, Oil Tanker, Coal, Airline, Road&Rail, REIT, Networking, Disk Drive and Oil Service stocks are especially strong, rising 2.5+%. Small-Caps and Cyclicals are outperforming today. The rise in the euro, profit-taking and equity strength are weighing on gold again. Oil is flat despite the equity rally and bounce in the euro. The Eurozone Investment Grade CDS Index is falling -5.0%, which is a large positive. The Shanghai Composite reversed morning losses and finished at session highs, rising +1.1%. (XLF) has traded well throughout the day. On the negative side, Utility, Software, Telecom, Medical and HMO shares are mildly lower today. The Japan sovereign cds is up another +4.4% to 94.5 bps. While a test of morning lows is likely over the coming weeks, the market's hugely oversold state and very high investor angst readings could lead to further stock gains in the short-term. I may put some hedges back on into the close, depending on the action in the final hour. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, short-covering, less financial sector pessimism and diminishing economic fear.
LBO Debt Tumbles Revealing 'Leveraged Fantasy': Credit Markets. First Data Corp., Energy Future Holdings Corp. and the rest of the biggest leveraged buyouts in history are leading junk bonds to their worst performance since 2008 as the sovereign debt crisis sweeping Europe makes it harder for the neediest borrowers to refinance. First Data notes have lost 15 percent this month and the cost of protecting the Atlanta-based credit card processor’s debt from default has soared to the highest since July. Securities of Energy Future, the largest buyout in history, have declined 9.9 percent. High-yield debt overall has lost 3.5 percent, on pace for the first monthly drop since February 2009, after gaining 7.2 percent this year through April, according to Bank of America Merrill Lynch Index data. Investors around the world are ditching corporate bonds at the fastest pace in 19 months and turning to the safety of Treasuries amid signs that the global economic recovery is being derailed. Interbank lending rates are the highest since July, new bond sales worldwide have plunged 61 percent this month and a weeklong rout in stocks deepened today, with U.S. benchmark indexes losing the most in more than a year. “LBO’s need growth to de-lever. They also need access to capital markets to continue pushing out maturities,” said Jason Rosiak, the head fund manager overseeing $2.7 billion at Pacific Asset Management.
Euro Rises 3rd Day as Officials May Discuss Ways to Stem Crisis. The euro rose for a third day against the dollar on speculation European Union officials meeting today will discuss more measures to counter the region’s spreading debt crisis. German Finance Minister Wolfgang Schaeuble will present a nine-point plan to his euro-area counterparts aimed at avoiding a repeat of the fiscal crisis touched off by Greece’s budget deficit. The plan includes calls for faster budget cuts, tougher penalties for countries that flout the rules and the option of an “orderly state insolvency” for euro countries. Treasury Secretary Timothy F. Geithner will visit Germany and the U.K. next week to discuss the European debt crisis, the Treasury said in a statement. He will meet U.K. Chancellor of the Exchequer George Osborne, European Central Bank President Jean-Claude Trichet and Germany’s Schaeuble.
Oil Extends Decline on Euro Debt Crisis, U.S. Recovery Concern. Crude oil extended its decline in New York on concerns Europe will struggle to contain the sovereign- debt crisis and doubts about the strength of the economic recovery in the U.S., the world’s largest energy consumer. Oil fell for the seventh time in eight days yesterday as French Finance Minister Christine Lagarde said countries that share the euro need greater coordination. The index of U.S. leading economic indicators unexpectedly fell in April, and the most Americans in a month filed applications for unemployment benefits. Crude inventories rose for the 15th time in 16 weeks in the seven days ended May 14. “The contagion effect across Europe is very real,” said Peter McGuire, managing director at CWA Global Markets Pty in Sydney. “There is just so much uncertainty in the market. Oil was probably overpriced in the high 80s and I think it’s probably got a little more to the downside.”
GE(GE) Accused by Mitsubishi of Monopolizing Wind Market. General Electric Co. was accused by Mitsubishi Heavy Industries Ltd. of trying to monopolize U.S. sales of wind turbines through litigation, intimidation and fraud, claims GE dismissed as “outrageous.” Mitsubishi, based in Tokyo, is seeking damages that may exceed $1 billion in an antitrust lawsuit filed today that claims “GE embarked on an unlawful anticompetitive scheme to drive Mitsubishi suppliers out of the U.S. market.” “GE is attempting to kill competition” for variable-speed wind turbines, Sonia Williams, a Mitsubishi spokeswoman, said in an interview. “We want to restore a level playing field.” “GE’s patent empire is built on a fabric of fraud,” Mitsubishi said in the complaint.
Global Payments(GPN) CEO Calls Durbin's Debit Proposal 'Nonsense'. Global Payments Inc., the fourth- biggest provider of card-processing services for U.S. merchants, said the Senate didn’t give enough thought to a proposal to cap debit fees and may approve a plan that’s difficult to implement. “It is cobbled-together nonsense,” Paul R. Garcia, chief executive officer of the Atlanta-based company, said in an interview. “This truly has not been thought through.”
S&P 500 Slips Below 200-Day Average in Bearish Signal. The decline in U.S. stocks pushed the Standard & Poor’s 500 Index below its average closing price during the previous 200 days, a sign to some analysts that more losses are in store. While the benchmark gauge for U.S. equities traded below its 200-day moving average on May 6 and May 7, it hasn’t closed below the trendline since July 2009, four months into the rally that lifted the index as much as 80 percent from a 12-year low. To technical analysts, who base investment decisions on price and volume charts, a close below the 200-day moving average may signal a lasting retreat.
Spain Approves Public Worker Wage Cuts, Lowers Growth Outlook. Spain approved the first public wage cuts since returning to democracy in 1978 and cut its economic growth forecast for next year as the government tries to tame the euro region’s third-largest budget deficit. Gross domestic product will grow 1.3 percent in 2011, less than a previous projection for 1.8 percent, and the government said the deficit will narrow to 6 percent of GDP next year from 11.2 percent in 2009. Wages for government workers will drop 5 percent in June.
Record U.S. Fuel Supply Cools Refining Margins: Energy Markets. U.S. petroleum inventories climbed to the highest level in at least 20 years for the middle of May, driving down the profit margin from refining crude into gasoline and heating oil from a 15-month high. Supplies of oil and all petroleum-based fuels jumped to 1.81 billion barrels in the week ended May 14, the highest stockpiles on a seasonal basis in Energy Department data through 1990. The supply glut will weigh on prices, even with an Energy Department forecast for the first increase in domestic consumption in four years amid signs of an economic rebound. Consumption of the motor fuel fell 0.2 percent to 9.2 million barrels a day in the four weeks ended May 14. It was the second consecutive four-week decline after 11 increases. U.S. oil supplies have risen for 15 of the past 16 weeks, jumping 11 percent between Jan. 22 and May 14. Stockpiles were 6.5 percent above the five-year average last week.
Europe Outlook, China Pose Risk to Commodities, Aberdeen Says. The economic outlook in Europe and measures to curb loan growth in China will limit demand for commodities, particularly base metals, said Aberdeen Asset Management Plc’s portfolio manager. Aberdeen manages $259.3 billion in global assets, including an undisclosed amount in commodities.
Stock Funds See $12 Billion Exit on Crisis, EPFR Says. Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19 on concern Europe’s sovereign-debt crisis will slow global growth, EPFR Global said in an e-mail. Investors redeemed $7 billion from U.S. equity funds during the week ended May 19, EPFR said. They also withdrew $4.8 billion from European equity funds and $284 million from Japanese equity funds during the week, it added. Commodities funds, along with those for U.S. bonds, emerging-market debt and Asia ex-Japan equities received inflows as investors sought assets that may offer shelter amid the slide in European stocks and bonds, EPFR said.
North Korea Reiterates War Threat Over Ship Sinking. North Korea reiterated its threat of war and said it would freeze all inter-Korean ties should South Korea retaliate after determining that the communist country sank one of its warships in March. North Korea “will regard the present situation as the phase of a war and decisively handle all matters arising in the inter-Korean relations,” an unidentified spokesman from the Committee for the Peaceful Reunification of Korea was cited as saying by the state-run Korean Central News Agency today.
Senate Passes Finance Bill. The Senate on Thursday approved the most extensive overhaul of financial-sector regulation since the 1930s, hoping to avoid a repeat of the financial crisis that hit the U.S. economy starting in 2007. The legislation passed the Senate 59 to 39 and must now be reconciled with a similar bill passed by the House of Representatives in December, before it can be sent to President Barack Obama to be signed into law. The controversial measure, supported by the Obama administration, sets up new regulatory bodies and restricts the actions of banks and other financial firms. It is designed to try to make order of the cascading regulatory chaos that ensued in 2008 when mammoth banks and some unregulated financial firms collapsed, and public funds were used to save them. Among other things, the legislation would:
Pro-Growth Collapse Pounds Markets. Unwinding of Risky, Highly Leveraged Investments Sends Dow Down 376.36; Oil, Dollar Join Plunge. The dramatic unwinding of a highly leveraged trading strategy embraced by hedge funds contributed to the global market selloff on Thursday. The strategy, known as the pro-growth trade, was based on a view that global economies would recover strongly and included bets that commodities, high-yielding currencies and stocks would keep rising, while safer investments such as Treasurys would fall. The Greek debt crisis and efforts by governments in Asia and Australia to rein in growth have undone the trade in recent weeks and the big moves in the currencies and commodities on Thursday were likely driven by investors selling their holdings to limit their losses. "The markets are telling you the growth trade is over," says Michael Novogratz, who oversees macro hedge funds at Fortress Investment Group. In recent days, he says, Fortress has unwound many of its positions that reflected its "pro-growth" mindset, including investments in Asian currencies. The pro-growth trade began to gain popularity about a year ago, when the banking crisis was thought to have passed. Investors, in particular big macro hedge funds that make bets based on their broad economic views, grew convinced that global growth led by China, India and Korea would pick up steam. When the trade worked, other funds jumped on the bandwagon. Among the major hedge funds thought to have been big players in at least one or more of the pro-growth bets include Paulson & Co., Moore Capital Management and Fortress. Wall Street, in particular Goldman Sachs(GS), provided investment ideas to hedge funds to play the trade. "There was a widespread view among hedge funds that the place to be was long global growth," says David Kostin, who follows hedge funds for Goldman Sachs Group Inc. With the markets going against them and losses mounting, hedge funds bailed out of their holdings on Thursday, helping to explain the sharp slide in U.S. stocks, crude oil, copper, the Australian dollar and other currencies, traders and analysts say. The pro-growth trade has been called into question in recent weeks following a growing list of "anti-growth" developments including attempts by China to tap the brakes on its booming growth, mounting sovereign-debt worries, concerns about the U.S. consumer as some measures of retail sales have faltered, disappointing jobless claims, looming financial reform and a short-selling ban in Germany.
Prime Brokers Expect More Margin Calls. Executives of several major prime brokerages said they expect there will be more margin calls Thursday than normal, but demands for managers to post cash as a result of losses weren't reaching crisis levels and the calls are expected to be met.
Obama Seeks $3.5 Billion to Feed Poor Nations. The Obama administration, signaling a shift in U.S. foreign policy in the wake of the 2008 food crisis, said Thursday it wants to spend at least $3.5 billion over the next three years to help potentially 60 poor nations feed themselves. The initiative, the budget for most of which has yet to be approved by Congress, would be a break from the recent past in which the U.S. has largely helped hungry nations by spending roughly $2 billion annually to donate U.S.-grown food, a strategy that has aided U.S. farmers and shippers. "Agricultural development is a springboard for broader economic development," said Rajiv Shah, administrator of the U.S. Agency for International Development. "And food security is the foundation for peace and opportunity."
Suit Alleges Morgan Keegan Misled Closed-End Fund Investors.A law firm has filed a class-action suit against Morgan Keegan & Co., saying it misrepresented poor-quality mortgage-backed securities to investors who collectively lost about $1 billion in some of the company's closed-end funds. The action follows other investor suits and complaints, as well as the filing of civil fraud charges last month by federal and state regulators against Memphis, Tenn.-based Morgan Keegan over its use of risky mortgage-backed securities in some of its bond funds.
Bear Stearns-Created CDO Is Liquidated After A Default. The assets of a $2.094 billion collateralized debt obligation created by Bear Stearns Asset Management was liquidated on Thursday, with underlying assets selling for prices between 1 cent to 92 cents on the dollar. "Given the events in markets, prices are holding pretty well," said Keith Lind, managing director of asset-backed securities trading at RBS. He bought some parts of the deal, including some subprime residential mortgage-backed securities. Trustees of the high-grade CDO--called Klio Funding Ltd. and sold to investors in 2004 by Citigroup (C)--decided to liquidate the assets after a default on payments. Moody's Investors Service rated the top two classes of the deal triple-A, and downgraded them all the way to C in 2009.
CBOE Parent Could Face $300 Million In Damages In ISE Suit. The Chicago Board Options Exchange, preparing for a long-anticipated stock market float, is facing a $300 million damages claim from a rival in a patent-infringement case. The International Securities Exchange is seeking $300 million or more in damages after suing the Chicago exchange operator for alleged copying of its trading technology, according to a recent court filing.
The Bankrupting of America by Mortimer Zuckerman. The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are being taken for an expensive ride by public-sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay. The political backlash has energized the tea party activists, put incumbents at risk in both parties, and already elected fiscal conservatives such as Republican Gov. Chris Christie of New Jersey. Over the next fiscal year, the states are looking at deficits approaching hundreds of billions of dollars. The Center on Budget and Policy Priorities, a liberal think tank, estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some states the budget gap is more than 30%. How did we get into such a mess?
Gensler Blames the Math for 'Flash Crash'. A top regulator gave new details on the sudden May 6 stock plunge, saying heavy trading volume may have led a large trader's computer algorithm to execute a larger sell order than it would on other days. Regulators have already cited heavy selling in the E-mini Standard & Poor's 500 futures contract as a possible factor in the nearly 1,000-point intraday drop in the Dow Jones Industrial Average, and said one big trader was exclusively entering sell orders for that contract during a key period just before and after the drop.
Goodbye, Employer-Sponsored Insurance. Millions of American workers could discover that they no longer have employer-provided health insurance as ObamaCare is phased in. That's because employers are quickly discovering that it may be cheaper to pay fines to the government than to insure workers.
Why Google(GOOG) TV Is Now The Most Important Thing In Television. Today, Google officially announced its latest product, Google TV. It's a platform, both hardware (as a set top box) and software, that uses a combination of technologies, including Android, Chrome, and an Intel chipset plus Internet connectivity to create a truly amazing product. We think it's going to change the way people watch TV completely. No longer will people crowd around a desktop computer in order to watch videos on Hulu or YouTube. Gone are the days of hooking up your television to your laptop to watch online content. Google has changed everything.
Senate Passes Faux Financial "Reform" Bill. The Senate passed a financial "reform" bill today by a 59-39 vote which won't fix any of the core problems in the financial system, and won't prevent the next financial crisis. The bill doesn't include the Volcker Rule (it wasn't even debated), doesn't break up or even substantially rein in the too big to fails, and doesn't force transparency in the derivatives market. Senator Feingold said:
CNNMoney:
Why the White House is Wrong on Derivatives. Earth to the White House. The Dodd bill is a dud when it comes to the most explosive issue in finance: defusing the ticking derivatives time bomb. Greenberger said that for whatever progress the Dodd bill might make in reining in Wall Street, all could be lost if the Senate fails to fill "the central hole in the bill" by putting in place meaningful sanctions on those who fail to trade derivatives safely. He says the weak enforcement language smacks of the latest bid by banker-friendly politicos to ensure that the biggest banks get to hold onto their windfall profits. "The way the bill reads now makes Wall Street happy," said Greenberger. "This is just another open invitation for the banks to thumb their nose at the regulatory structure."
Forbes:
U.S. Firms Feel Bite Of Mexican Drug War. American companies in Mexico are getting nervous amid a surge in violence in the business hub of Monterrey. Mexican President Felipe Calderon tried Thursday to convince U.S. lawmakers in a joint session of Congress that his war on the Mexican drug cartels is working, but there are signs he is starting to lose the confidence of big business. Despite a death toll of 23,000 in drug-related violence during Calderon's three-year effort to take on the cartels, the impact on big business has been relatively minimal and contained. But recent developments have started to make U.S. businesses more nervous and some have begun to rethink their operations in Mexico, people familiar with the situation say.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
68% Oppose Boycotts of Arizona Over New Immigration Law. Boston and Los Angeles were among the first to announce boycotts of Arizona, but 68% of Americans say it’s a bad idea for other cities or states to boycott Arizona over its new immigration law. A new Rasmussen Reports national telephone survey shows that only 14% of Adults think it’s a good idea for cities or states to join that boycott.
Politico:
Blair Exit Revives Concerns About DNI. The resignation of Director of National Intelligence Dennis Blair is sure to reignite debate about whether he was an ineffective leader for the intelligence community or whether his authority to reshape the sprawling anti-terrorism apparatus was undercut by the White House, which never gave his office the powers some say are necessary to fill its intended role.
Dell(DELL) Margins Miss; Plagued by Supply Shortage. Dell Inc's (DELL) quarterly sales and profit beat expectations but its gross margin fell short of analysts' forecasts and the computer maker warned that components supply will remain tight. Dell, whose shares fell 3 percent after the results on Thursday, has been struggling to boost profitability due to both sales of lower-cost personal computers and higher costs of components, including memory.
BP(BP), Accused of Cover-Up, Says Captures More Oil. The U.S. government on Thursday accused energy giant BP of falling short in the information it has provided about the Gulf of Mexico oil spill, in a clear sign of Washington's growing frustration with BP's handling of the spiraling environmental disaster.
Salesforce.com(CRM) Forecast Disappoints, Shares Fall. Salesforce.com Inc (CRM) issued a full-year profit outlook at the low end of Wall Street projections as the Web-based software maker plans to increase spending to fuel sales growth. Salesforce, whose shares fell 5.6 percent in after-hours trading, said profit will also be hurt by costs associated with integrating three acquisitions.
Financial Times:
Hendry Takes a Big Bet on China Crash. Hugh Hendry, the voluble hedge fund manager well known for his bearish but highly successful calls on the global economy over the past two years, has taken a big position that is designed to profit from a crash in China. Mr Hendry's London-based Eclectica Asset Management has constructed a "short credit" portfolio that stands to make gains of 250 per cent for his flagship fund in the event of a slump in China's growth. Eclectica is also poised to launch a standalone fund to benefit from the strategy next month, the Financial Times has learned. The new fund will stand to deliver even larger gains than those for the main fund if successful. "The investment team and I have carefully constructed a short credit portfolio made up of over 20 single-name industrial, cyclical businesses that have the dubious distinction of suffering from gigantic financial leverage and Asian/commodity overdependence," Mr Hendry wrote to investors in his monthly letter this week. "Without a doubt, some of these businesses will not survive. Others will have to be radically overhauled and restructured and we will make money," said Mr Hendry.
Telegraph:
Fidelity Calls for CGT Rethink. Fidelity, one Britain's biggest fund managers, is urging the new coalition government to rethink its planned rise in capital gains tax (CGT).
Recession-Hit Irish Will Pay Second Highest Bill for Greek Bailout. Irish fury as eurozone state with highest deficit will be second-biggest donor to Greece per person. Ireland has emerged as one of the biggest per capita donors in the Greek bailout, sparking angry exchanges in Ireland's parliament, the Dáil, over claims that Irish households faced an unfair burden compared with other eurozone countries.
National Business Daily:
China will impose a 5% price-based resource tax on oil and gas extraction on a trial basis in the northwest region of Xinjang. The trial may be expanded to two other inland cities, citing Lin Boqiang, an energy researcher.
Evening Recommendations Citigroup:
Reiterated Buy on (LTD), target $31.
Night Trading
Asian indices are -3.75% to -1.0% on average.
Asia Ex-Japan Investment Grade CDS Index 157.50 +15.5 basis points.
The Fed's Dudley speaking and the (ICE) shareholders meeting could also impact trading today.
BOTTOM LINE: Asian indices are sharply lower, weighed down by automaker and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
North American Investment Grade CDS Index 123.0 bps +3.29%
European Financial Sector CDS Index 151.96 bps +5.50%
Western Europe Sovereign Debt CDS Index 114.83 bps +4.06%
Emerging Market CDS Index 303.47 bps +9.19%
2-Year Swap Spread 39.0 +2 bps
TED Spread 33.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .16% unch.
Yield Curve 252.0 -7 bps
China Import Iron Ore Spot $154.60/Metric Tonne -.83%
Citi US Economic Surprise Index +19.20 -1.5 points
10-Year TIPS Spread 1.95% -13 bps
Overseas Futures:
Nikkei Futures: Indicating -215 open in Japan
DAX Futures: Indicating -12 open in Germany
Portfolio:
Lower: On losses in my Technology, Medical, Biotech and Retail long positions
Disclosed Trades: Added to my (IWM), (QQQQ) hedges and added to my EEM short
Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 is breaking down through its 200-day moving average on heavy volume. On the positive side, Education, Homebuilding and Semi stocks are holding up relatively well. The rise in the euro, profit-taking and plunging inflation expectations are weighing on gold again. Oil is falling meaningfully again despite the rise in the euro. On the negative side, Road & Rail, Gaming, Steel, Oil Service, Oil Tanker, Gold and Airline shares are under meaningful pressure, falling 4.0%+. Cyclicals and Small-caps are underperforming again. Most CDS indices are surging meaningfully again today. The Euro Investment Grade CDS Index is jumping another +6.55% to 119.83 bps. The Spain, Portugal and Greece sovereign cds are soaring over +10% each today. As well, the Russia sovereign cds is surging 13.1% to 201.42 bps. I expect US stocks to trade mixed-to-lower into the close from current levels on technical selling, more shorting, forced selling, rising sovereign debt angst, increasing financial sector pessimism, more economic fear, tax hike worries and regulatory fears.
Company Credit Risk Rises to Near 10-Month High on Europe Debt. A gauge of U.S. corporate credit risk rose a fifth time in six days as Europe struggled to contain the region’s debt crisis. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 10.83 basis points to a mid-price of 124.25 basis points as of 12:54 p.m. in New York, according to Markit Group Ltd. Swaps on American International Group Inc. soared as Europe’s crisis could hinder the bailed-out insurer’s asset sale to Prudential Plc. “It looks as if at the top of the European Union there is a complete division about how to deal with this crisis,” Jenkins said. “And at a time of stress, you need unity.” Swaps on AIG soared 55 basis points to a mid-price of 445 basis points, according to broker Phoenix Partners Group. The bailed-out insurer’s $35.5 billion sale of its AIA Group Ltd. unit to London-based Prudential may be at risk as a result of Europe’s debt woes, said Bill Bergman, an analyst at Morningstar Inc. in Chicago. Swaps on GE Capital surged 26.6 basis points to 235.9, the highest since Sept. 14, CMA prices show. Contracts linked to Citigroup increased 17.8 basis points to 211 basis points, and those on Bank of America Corp. advanced 14.2 basis points to 173.8 basis points, according to CMA prices. Contracts on JPMorgan Chase & Co. rose 12.2 basis points to 122.1 basis points.
Palladium Plunges, Heads for Biggest Two-Day Drop in 12 Years. Palladium prices plunged, heading for the biggest two-day loss in 12 years, on concern that slowing global growth will slash demand. Platinum tumbled. Palladium has dropped 16 percent in two days on mounting speculation that Europe’s debt crisis coupled with slowing growth in China will erode consumption for the metal used mostly in car parts.
More Americans Unexpectedly File Claims for Jobless Benefits. More Americans unexpectedly filed applications for unemployment benefits last week, showing firings remain elevated even as employment climbs. Initial jobless claims rose by 25,000 to 471,000 in the week ended May 15, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level in a month, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance and those getting extended payments fell. The four-week moving average, a less volatile measure than the weekly figures, climbed to 453,500 last week from 450,500, today’s report showed.The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 percent in the week ended May 8.
Your Dollars at Work:
California: The Frog in the Sub-Prime Frying Pan by Orange County Treasurer Chriss Street. Just as a frog will jump out of a hot frying pan, but will sit in water that slowly goes from cold to hot until he cooks to death; California’s politicians have sat quietly as the accumulation of chronic budget deficits bubbling up from an uncomfortably warm problem to a scalding hot crisis. Even the release of Governor Schwarzenegger’s $19.1 billion budget deficit projection for the coming July fiscal year appears to have failed to bludgeon the state’s political establishment into action to avoid a looming credit rating downgrade to sub-prime that would set off a Greek style default on steroids. The media, after months of missing the potential consequences of a Greek default, have now become focused on the similarities between California and Greece. Both do owe gobs of money, have huge budget deficits, massive unfunded pension liabilities and can’t print their own money; but California’s situation is worse!
azcentral.com:
Mortgage Rates Fall to 4.84%. U.S. mortgage rates fell for the fourth straight week, pulling down borrowing costs to a five- month low. Rates for 30-year fixed loans fell to 4.84 percent in the week ended today from 4.93 percent last week, Freddie Mac said in a statement. It was the lowest since the week ending Dec. 10, 2009, when rates averaged 4.81 percent. The average 15-year rate was 4.24 percent, the McLean, Virginia-based mortgage finance company said.
Forbes:
The Problem With Absolute Return Funds. Mutual fund outfits are selling the glamour and mystique of hedge fund strategies. You'd be better off with a plain old balanced fund.
Merkel Calls for Tough Steps on Regulation. German Chancellor Angela Merkel urged the world's economic powers to send a "signal of strength" by agreeing to stronger global financial regulation, as markets sagged on doubts about whether European leaders have a handle on their continent's debt crisis.
Reuters:
Wall Street Banks Lose Court Ruling on Hot News Ban. Three Wall Street banks suffered a legal setback when a federal appeals court in New York put on hold a ban on financial news service Theflyonthewall.com Inc from quickly reporting "hot news" about their analysts' research. The ruling by the U.S. Second Circuit Court of Appeals was a defeat for Bank of America Corp's (BAC.N) Merrill Lynch unit, Barclays Plc (BARC.L) and Morgan Stanley (MS.N).
Financial Times:
'We Are Done With Financials'. As the war on speculators, banks (indeed entire financial system) rages on, one big US hedge fund has had enough. Writing to investors, the fund says it’s now too risky to invest in large financial institutions for anything other than the short-term. “We are DONE FOR THE FORESEEABLE FUTURE INVESTING IN LARGE, COMPLICATED FINANCIAL INSTITUTIONS. By “investing”, I mean taking long positions with the view of holding for 9-24 months based on some view of normalized earnings and a forecast of what will happen over the next several years. By “large, complicated” I mean the major banks and life insurers with asset and rate risk and significant balance sheet leverage. These companies have become uninvestable. We are still willing to trade these companies from the long side, and are enthusiastic about owning simple banks, P&C insurers, assets managers and the like. After the G7 restructures its debt and we have the big “reset” we will look at these companies again [so maybe 10 years from now].” Ah, the law of unintended consequences strikes.
Hamburger Abendblatt:
European Union Energy Commissioner Guenther Oettinger urged the leaders of the Group of 20 to agree on a financial-transaction tax when they meet in Canada in June, citing an interview. The aim is to make the web of financial-transaction taxes so dense that evasion will be impossible, Oettinger said.
Sina.com:
The prices of second-hand residential property in southern China's Shenzhen has fallen by between 3% adn 10%, a month after tough government policies to cool the market.
Eurasia Review:
NATO Condemns North Korean Role In Sinking South Korea Warship. NATO said Thursday it strongly condemns the North Korean actions which resulted in the sinking of the Cheonan, established in the findings of the multinational investigation. The sinking of the Cheonan by North Korea constitutes a clear breach of international law and poses a serious threat to the region, NATO said. Additionally, NATO said, "The Alliance expresses its sympathy over the loss of the 46 south Korean sailors and condemns the act of aggression that led to their deaths."Earlier Thursday, North Korea rejected South Korea's claim that it sank a South Korean warship in March, and warned it will respond with measures, even an "all-out war," if the South sought additional sanctions. "Our army and people will promptly react to any punishment, retaliation, and sanctions with various forms of tough measures including an all-out war," a spokesman for the North's National Defense Commission (NDC) said in a statement, carried by the official Korean Central News Agency.
