Wednesday, December 17, 2008

Today's Headlines

- Mortgage applications in the U.S. increased 2.9 percent last week as more homeowners refinanced to take advantage of lower interest rates.

- BP Capital LLC, the money manager founded by billionaire T. Boone Pickens, said the redemption rate at its equity fund was 65 percent as the company waived the normal requirements for investors to withdraw cash. Pickens said Sept. 30 on CNBC that 15 percent of his hedge funds’ investors asked for the option to withdraw their money. His company lost $2 billion this year since July as oil and natural gas prices slid, according to an Oct. 26 edition of CBS Corp.’s “60 Minutes.” Next year “is going to be a pretty sick year for energy, but the first of the year 2010 you could work yourself back up,” Pickens said at the time.

- The cost of borrowing in dollars in London for three months tumbled after the Federal Reserve chopped its key interest-rate target to as low as zero and said it will flood the economy with cash. The London interbank offered rate, or Libor, that banks say they charge each other for such loans fell 27 basis points to 1.58 percent today, the lowest level since July 2004, according to British Bankers’ Association data. It was the largest decline since Oct. 22. The one-month and overnight dollar rates also dropped and rates in Asia slid. The Libor-OIS spread narrowed. “It’s all coming down, there’s significant easing in funding pressures,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. The Libor-OIS spread, a gauge of cash scarcity favored by former Fed Chairman Alan Greenspan, narrowed 28 basis points to 140 basis points today, the least since Sept. 23. The TED spread, the difference between what the U.S. government and banks pay to borrow for three months, declined 27 basis points to 155 basis points, the lowest level since Sept. 12, the last working day before Lehman Brothers Holdings Inc. collapsed.

- Investors seeking safety in Treasuries may be missing out on opportunities created by forced selling in credit markets, according to James Grant, editor of Grant’s Interest Rate Observer. Investment-grade corporate bonds are paying record yields relative to benchmark rates, “in this time of zero yield elsewhere,” Grant said today in a Bloomberg Television interview. Residential mortgage-backed securities and bank loans secured by assets are also attractive now because money managers forced to dump the securities to meet investor redemptions have made them artificially cheap, he said.

- The U.S. stock rally spurred yesterday by the Federal Reserve’s rate cut pushed the Standard & Poor’s 500 Index above its average level during the past 50 days, a signal to some traders that the advance will continue.

- GMAC LLC said more investors agreed to the sweetened terms of a debt swap, advancing the auto and home lender’s goal of transforming into a bank and getting a U.S. bailout. Investors holding about $16.6 billion of bonds tendered their notes, the Detroit-based company said in a statement sent by PR Newswire today. That’s more than the $10.5 billion that a lawyer representing a group of bondholders yesterday said was tendered. The offer was designed to help avert a collapse and pave the way for GMAC to convert to a bank holding company, giving it access to the Treasury’s $700 billion rescue fund and allowing it to sell bonds backed by the government.

- OPEC, supplier of more than 40 percent of the world’s oil, agreed to cut production quotas by a larger-than-expected 9 percent to revive prices as a global recession reduces demand for crude. The Organization of Petroleum Exporting Countries agreed to a quota for 11 of its members of 24.845 million barrels a day, starting Jan. 1, from its current target of 27.308 million barrels a day, OPEC President Chakib Khelil said. The record 2.46 million barrel-a-day cut is larger than a 2 million barrel indicated yesterday by Saudi Arabian Oil Minister Ali al-Naimi.

- Oil fell to the lowest level in more than four years as OPEC failed to convince traders that the glut in crude will diminish and the U.S. government said supplies climbed for the 11th time in 12 weeks. “It’s less than meets the eye,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “This may stem the bloating in stocks but isn’t enough to get rid of the surplus.” “They are facing the distinct possibility of oil falling to $30 a barrel and even lower,” said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut. Supplies at Cushing, Oklahoma, where oil that’s traded in New York is stored, climbed 21 percent to 27.5 million barrels, the highest since May 2007. “The big build at Cushing shows that in a contango market everyone who can is taking delivery, which makes it much more difficult for OPEC to hold it together,” Barakat said.

- Morgan Stanley(MS) reported a $2.2 billion fourth-quarter loss, wider than the most pessimistic analyst's estimate, as investment-banking fees slid and the value of fixed-income securities declined. The loss of $2.24 a share for the three months ended Nov. 30 compared with a $3.59 billion loss, or $3.61, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss, with no estimates exceeding $1.15. The shares jumped 10.3% percent in New York trading despite the news.

Wall Street Journal:

- Low-Interest Mortgages Are the Answer. Stop the decline in home prices, stop the crisis.

- Winners of the Credit Crunch.


- A new program called Television for iPhone is now available and offers “50 shows from 30 channels” on demand. It’s not live TV - that would be hard - but it’s basically rehashed content from CNBC, CNN, CBS, and Comedy Central.

- An aggressive rate cut by the Federal Reserve on Tuesday did little to lower U.S. home loan costs, but the Fed's promise to expand a massive mortgage debt purchase program if needed should push rates down. The average 30-year fixed mortgage rate was 5.30 percent late Tuesday after the Fed sliced short-term lending rates to near zero, according to HSH Associates, a mortgage information provider. Rates should decline further as the Fed's sweeping debt purchase programs kick in, housing analysts said.

- New York is turning on the financial community from which much of its wealth has been created, increasing taxes for hedge fund managers and on luxury goods in a move that will make the financial capital less attractive for the uber-rich. The state of New York, led by Governor David Paterson, is raising taxes in order to close a budget deficit that is expected to rise to $13.7bn (£8.8bn) next year. The news may help London retain its title as it battles to keep its status as the world's premier global financial capital, a crown London Mayor Boris Johnson has warned London could lose.


- The investment arm of the Novo Nordisk Foundation Novo A/S plans to double investments in smaller biotechnology companies as the financial crisis sends the cost of takeovers down, citing Ulrik Sprok, managing partner at Novo A/S.

Caijing Magazine:
- The unemployment rate among China’s 140 million migrant workers may have risen to 7% as a cooling economy forces companies to slash jobs, citing a labor ministry official. More than 10 million farmers who had moved to cities to work had lost their jobs by the end of November, the official said. About 4.85 million migrant workers returned to their hometowns in 10 provinces across the nation by the end of last month, citing a labor ministry survey.

Xinhua News:

- China had 290 million Internet users at the end of November, 14.6% more than it had at the end of June, citing the Ministry of Industry and Information Technology.

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