Friday, September 18, 2009

Today's Headlines


- Gain in US Household Wealth Will Help East Strain on Spending.

- CME Group Inc.(CME) and Citadel Investment Group LLC, partners in a venture to guarantee credit- default swaps that has yet to process a trade, plan to jumpstart the business by giving stakes to some of the largest asset managers and hedge funds. Pacific Investment Management Co., BlackRock Inc., AllianceBernstein Holding LP, BlueMountain Capital Management LLC and D.E. Shaw & Co. are joining the effort to back trades in the $27 trillion credit-default swap market, CME said today in a statement.

- Crude oil fell for a second day as the dollar strengthened against the euro, dimming investors’ demand for dollar-priced assets to hedge against inflation. Oil dropped as much as 1.7 percent as the U.S. currency climbed for the first time in five days. Inventories of crude oil, gasoline and distillate fuel are higher than average, according to the Energy Department. “The rally in energy is looking a little long in the tooth,” said John Kilduff, senior vice president of energy at MF Global in New York. “It will take a long while, six months or a year, to work off the inventory overhang,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. Supplies of distillate fuel, which include heating oil and diesel, climbed 2.24 million barrels to 167.8 million, the highest since January 1983 and 24 percent more than the five- year average.

- Lithuanian Prime Minister Andrius Kubilius sought “reassurance” about U.S. commitment to the nation’s security after President Barack Obama scrapped plans for a missile-defense system in eastern Europe. Lithuania, the largest of the three Baltic states that broke free from the Soviet Union and joined NATO after the Cold War, viewed the missile shield as a symbol of U.S. resolve, Kubilius said. “The United States administration should know that in central Europe, the feelings are very simple, we are waiting for some kind of reassurance,” the premier said in an interview in Brussels late yesterday.

- BlackRock Inc.(BLK) Chairman Laurence Fink said Obama administration programs to help homeowners stave off foreclosure may hinder the recovery of the mortgage market while benefiting banks that own second loans on the properties. “I am just very worried,” Fink said yesterday in an interview in New York. “How do we get a vibrant securitization market back when we are doing these things in the short run that are good for the banking system and good for the homeowner but not as good as it should be?”

- Prime Minister Vladimir Putin called for trade concessions, including an end to restrictions on technology transfers to Russia, following U.S. President Barack Obama’s decision to abandon a missile shield in Europe. “I’m counting on other decisions to follow this correct and brave decision, including the complete elimination of restrictions on cooperation with Russia and on transfers of high technology to Russia as well as an intensification of World Trade Organization expansion to include Russia, Belarus and Kazakhstan,” Putin said at a business forum in Sochi today.

- The passing of the one-year mark since the collapse of Lehman Brothers Holdings Inc. may lower measures of risk exposure at securities firms and help support demand for riskier assets, according to JPMorgan Chase & Co. “Dealer VAR levels could decline significantly in the coming weeks potentially falling 20 percent by mid-October. While a lower risk measure doesn’t necessarily lead directly or immediately to a greater capital allocation, it does imply that on the margin market trading capacity and risk taking appetite will increase.”

- The total return on high-yield, high-risk loans rose to a record high this week as companies including Blockbuster Inc. and hospital operator Select Medical Corp. sold shares or bonds to reduce their bank debt. The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the most actively traded loans, recorded a year-to-date total return of 46.54 percent as of yesterday, an all-time high since the inception of the index in January 2002, according to data provided by Standard & Poor’s. Leveraged loans are rising as thawing credit markets and Fed Chairman Ben S. Bernanke’s view that the worst recession in seven decades “very likely” has ended spur companies to pay down debt, attracting investors to junk-rated borrowers.

- The Central Intelligence Agency is setting up more bases in Afghanistan to help the U.S. military counter the Taliban’s expanding control over the country, the agency’s director said. The extra CIA operatives will support the 17,000 additional troops President Barack Obama authorized soon after taking office this year and the civilian government employees helping to rebuild the country after years of war, CIA Director Leon Panetta said in an interview.

Wall Street Journal:

- Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives. Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees -- from chief executives, to traders, to loan officers -- to take too much risk. Bureaucrats wouldn't set the pay of individuals, but would review and, if necessary, amend each bank's salary and bonus policies to make sure they don't create harmful incentives. The Fed's latest move marks another striking exertion of power by the nation's central bank since the financial crisis struck with ferocity two years ago. It has bailed out firms such as American International Group Inc. and has flooded the financial system with money. Some congressional critics, especially Republicans, argue the Fed is exerting itself too aggressively, a complaint that will surely be amplified by its move to oversee bank pay practices. The proposal will likely please congressional Democrats, for whom corporate compensation has become a rallying cry, at a time when the Fed is defending itself from moves by Congress to restrain its independence. The Fed itself believes it has the legal authority to take such action through its existing supervisory powers, which are designed to oversee a bank's soundness. Its strategy appears to go further than what some in the industry were expecting, given that it would apply to many employees, not just top earners. "Given the changes the industry has already done, if the restrictions on income-producers or salespeople are too draconian, it will actually undermine the strength of the institution," said Scott Talbott of the Financial Services Roundtable, a trade group of financial companies.

- Intel Corp.(INTC) will soon introduce chips based on a new manufacturing technology it hopes will help the company attack potentially tough new markets as well as boost computer performance.

- Inc.(AMZN) is quietly expanding its private-label business in a bid to diversify away from its online bookstore roots and become more like a general retailer.

- Jack Dorsey, the creator of Twitter, said Friday that his next venture would be based on themes similar to the microblogging service’s and may focus on health care and financial services.

- The Federal Reserve’s plan to give much more scrutiny to the compensation packages offered at thousands of U.S. banks met immediate criticism from some Republicans. Rep. Tom Price of Georgia, chairman of the Republican Study Committee, called the announcement “outrageous” and said it “goes against every principle that has created American prosperity.” Price said in a statement that the Fed lacks the authority to review bank compensation, and added that “Markets should set salaries, not bureaucrats. By even considering such a proposal, the U.S. government has announced to the world that we have given up on a market-based economy.” The Fed’s proposal for a say over compensation decisions, he continued, is a slippery slope. “Once a beachhead is established in controlling the pay of private individuals, there’s little left for Americans to control in our economy… Such overreach is precisely why proper regulatory reforms are needed to rein in the Fed and refocus it on its core mission of monetary policy. “ Rep. Scott Garrett (R., N.J.), a senior Republican on the House Financial Services Committee, also took aim at the Fed. “This action should finally dispel the myth of the political independence of the Fed,” he said in an interview. “We have never seen this action before.” The Fed, he said, is encroaching on Congress’s authority.
- Biotech stocks seem to have finally recovered from their harrowing fall off the market cliff earlier this year, though some may wonder if the gains will hold.

NY Times:

- Google(GOOG) is pushing for a second act. The company has built its fortune almost entirely on the back of small text ads, which appear alongside its search results and on sites across the Web. Now it is stepping up efforts to make inroads into graphical display ads, a business long dominated by Yahoo. On Friday, the company plans to introduce a long-awaited new version of an ad exchange, like a stock market, where advertisers and publishers can buy and sell advertising space, filling spots in Web pages on the fly.

Washington Times:
- President Obama said this week that his health care plan won't cover illegal immigrants, but argued that's all the more reason to legalize them and ensure they eventually do get coverage. "It is ironic that the president told the American people that illegal immigrants should not be covered by the health care bill, but now just days later he's talking about letting them in the back door," said Rep. Lamar Smith of Texas, the top Republican on the Judiciary Committee. "If the American people do not want to provide government health care for illegal immigrants, why would they support giving them citizenship, the highest honor America can bestow?" Mr. Smith said.

Washington Post:

- The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency's cash reserves will drop below the minimum level set by Congress, FHA officials said. Until now, government officials have warned that the agency could be forced to ask Congress for billions of dollars in emergency aid or charge borrowers more for taking out FHA-insured loans if the reserves fell below the required level, equal to 2 percent of all loans guaranteed by the agency. Both options are politically unpalatable.

- The proposition was outrageous, outlandish, and right up James E. O'Keefe III's alley. Hannah Giles was on the phone from the District, and she was asking him to dress like her pimp, walk into the offices of the ACORN community activist group, openly admit to wanting to buy a house to run as a brothel, and see what happened. It was serendipity, O'Keefe said Thursday. On that day in May, he was still burning mad after watching a YouTube video of ACORN workers breaking padlocks off foreclosed homes and barging in. "I was upset," he said. O'Keefe, 25, packed his grandfather's old wide-brimmed derby hat from his swing-dancing days, his grandmother's ratty chinchilla shoulder throw, and a cane he bought at a dollar store, then drove from his parents' home in northern New Jersey to the District to execute the idea with Giles, 20. What happened next was a scandal that has shaken ACORN to its core.

- Iran experts at the U.N.'s nuclear monitoring agency believe that Tehran has the ability to make a nuclear bomb and worked on developing a missile system that can carry an atomic warhead, according to a confidential report seen by The Associated Press. The document drafted by senior officials at the International Atomic Energy Agency is the clearest indication yet that those officials share Washington's views on Iran's weapon-making capabilities and missile technology — even if they have not made those views public. The document, titled "Possible Military Dimension of Iran's Nuclear Program," appeared to be the so-called IAEA "secret annex" on Iran's alleged nuclear arms program that the U.S., France, Israel and other IAEA members say is being withheld by agency chief Mohamed ElBaradei — claims the nuclear watchdog denies.

Vanity Fair:

- 100 to Blame: Infectious Greed, The International Monetary Fund, and More.

- Advanced Micro Devices Inc.(AMD) told workers this week that it will restore pay rates in December that were reduced early this year in the face of the economic downturn. CEO Dirk Meyer told workers in an e-mail message this week that the pay reinstatement is coming. AMD announced in January that it was cutting jobs and temporarily reducing pay for workers. The pay cuts ranged from 5 percent for hourly workers to as high as 20 percent for a few top executives, including Meyer. With promising new products being introduced and the economy gaining strength, Meyer said the company remains "optimistic (about) ending the year on a profitable note."


- A Denver man who sparked anti-terror raids in Queens and has been identified by law enforcement as having a possible link to al-Qaida has been asked to return for a third day of questioning by the FBI. Najibullah Zazi is expected to return to FBI headquarters in Denver this morning. His attorney, Arthur Folsom, said he was allowed to leave last night after eight hours of questioning but said that the FBI had further questions.


- Fifty-one percent (51%) of U.S. voters now say Congress should end all federal funding of the controversial community organizing group ACORN. A new Rasmussen Reports national telephone survey finds that just 17% favor continued taxpayer support of the Association for Community Organizations for Reform Now.

- A new government report concludes that taxpayers are unlikely ever to be repaid for much of the bailout money already given to General Motors, but 57% of Americans believe it’s likely the government will have to provide even more bailout funding to keep GM in business. That figure includes 23% who say an additional funding request is very likely.

- A weekly gauge of future U.S. economic growth rose to a level last seen one year ago, while its annual growth rate hit a fresh record high, feeding hopes of a recovery immune to looming economic threats. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 126.2 in the week to Sept. 11 from an upwardly revised 126.0 the prior week, a figure ECRI originally reported as 125.4. It was the group's highest index reading since Aug. 29, 2008, when it was 126.3. The index's annualized growth rate ticked up to a fresh record high of 22.9 percent from an upwardly revised high of 22.5 percent, which was originally reported as 21.3 . Such a concerted move among all of the index's components suggest an "unstoppable" recovery ECRI Managing Director Lakshman Achuthan told Reuters. Achuthan has recently said that a double-dip recession is highly unlikely, and that an economic turnaround will be stronger than many analysts project. "We have never wavered on our call precisely because at this stage of the cycle there are no relevant roadblocks," Achuthan said, adding that concerns over mounting unemployment, debt-laden consumers, and dips in a recovery are typical of recessionary times. "Variations of these fears have existed at this stage of the last 20 business cycle recoveries spanning over a century." Such a rise in ECRI's WLI growth to a record high "confirms that in the coming months, the economic recovery will surprise a cautious consensus," Achuthan said.

- The head of HSBC's (HBC) North American operations said on Friday he saw "green shoots" emerging in the U.S. economy but it was unclear if it was a permanent phenomenon. "We're starting to see what a lot of the journalists and economists call green shoots," Brendan McDonagh, chief executive of HSBC North America, said on the sidelines of the Global Irish Economic Forum. "It's very hard to distinguish between what is the impact of the financial stimuli the U.S. government has put in place and whether that's had a permanent effect on consumer confidence," McDonagh said.

- The Internet and advances in technology are transforming fashion, making it easier for designers to create collections and less expensive for the them to show and sell their work, experts say. Instead of spending tens of thousands of dollars on a runway show at New York Fashion Week, some designers presented collections for spring and summer 2010 online, while others are expanding the reach of their brand by making it easier for shoppers to buy their clothes online.

Financial Times:
- The Obama administration’s drive to revive the Arab-Israeli peace process suffered a severe setback on Friday when George Mitchell, top US envoy to the Middle East, failed in his latest attempt to persuade Israel to halt settlement construction. The setback clouded prospects for a summit, on the sidelines of next week’s UN General Assembly in New York, between Benjamin Netanyahu, the Israeli premier, Barack Obama, the US president, and Mahmoud Abbas, the president of the western-backed Palestinian Authority.


- Afghanistan Is Hard All The Time, But It’s Doable by General David Petraeus. As in Iraq in 2007, attacks are frequent and challenges significant. But success is vital for the security of all nations.

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