Friday, September 25, 2009

Today's Headlines


- Demand for U.S. durable goods unexpectedly fell in August and sales of new homes rose less than forecast, restraining the pace of the economic recovery. Orders for goods made to last several years dropped 2.4 percent, the biggest decline since January, the Commerce Department said today in Washington. Consumer sentiment improved, a separate report showed. Companies have little incentive to invest in new plants and equipment with excess capacity near a record and consumer spending forecast to be subdued. Today’s report confirms the Federal Reserve’s outlook for a “weak” rebound and prompted economists from firms including Morgan Stanley to trim their projections for third-quarter growth.

- High-yield, high-risk loan sales picked up as bank debt rallied to a one-year high in the secondary market after dropping to record lows.

- Unilever, the maker of Dove soap, agreed to buy Sara Lee Corp.’s personal-care and European detergent unit for 1.28 billion euros ($1.88 billion), gaining Sanex shower gel in its biggest purchase in nine years. Sara Lee gained as much as 6.7 percent in New York trading.

- House Speaker Nancy Pelosi said Democratic leaders are considering following a Senate panel’s lead and taxing the most-expensive health-insurance plans to help pay for legislation to overhaul the medical-care system. The excise tax on so-called Cadillac health plans is part of legislation being considered by the Senate Finance Committee. “There are other provisions in the Senate bill that bend the curve that might be more palatable” to House members, Pelosi said during a break in a meeting of Democratic leaders to discuss what will go into the measure to be presented to the full House. “We’ll see.”

- Goldman Sachs Group Inc.(GS) executives said that new rules on trading over-the-counter derivatives may benefit the firm because of the company’s technological edge, according to Citigroup Inc. analyst Keith Horowitz. Horowitz and his team raised their earnings-per-share estimates for New York-based Goldman Sachs, and said in a note to investors yesterday that they are “more optimistic” about the firm’s ability to cope with regulatory reform. The note followed meetings with Chief Financial Officer David Viniar, President Gary Cohn, Harvey Schwartz and David Heller, the co- heads of Goldman Sachs’s securities trading business, and David Solomon, co-head of the investment-banking division. The Goldman Sachs officials “downplayed” the effect of changes to over-the-counter derivatives, commodity position limits and higher capital requirements, Horowitz wrote. The rules “may actually turn out to be a benefit for GS due to their strong technology position,” he wrote, referring to the company by its stock-ticker symbol. According to the Citigroup analysts’ note, the Goldman Sachs management team said they’ve had “a lot of interaction” with policy makers in Washington and “they believe Washington is likely to be more balanced in the proposals than some market participants may have initially feared.” In particular, they said Washington lawmakers see a need for both standard and customized over-the-counter derivatives, the note said. That’s “a significant step away from earlier rhetoric that called for standardization and clearing of all OTC derivatives.”

- Gold fell, heading for the first weekly decline since mid-August, as some investors sold after the metal failed to reach a record. Gold traded below $1,000 for the second straight day after climbing to $1,025.80 on Sept. 17, nearing the all-time high of $1,033.90 set on March 17, 2008. “If I’m long gold, I’ve got to be pretty discouraged that gold couldn’t get anything going above $1,000,” said Matt Zeman, a LaSalle Futures Group metals trader in Chicago. “All these people who’ve piled into gold in the past few weeks are going to be running for the exits.” Before this week, speculators and index funds had never been so bullish. Since the start of the year, so-called net-long positions, or bets on rising gold futures, had almost doubled to a record 235,647 in the week ended Sept. 15, the U.S. Commodity Futures Trading Commission said on Sept. 18.

Wall Street Journal:

- American International Group could start losing one of its strongest bargaining chips with the government. The Treasury and the Federal Reserve held their noses and bailed out the insurer because its failure could have crippled the financial system. Now, not only are markets healthier, a look at AIG's balance sheet suggests it is becoming steadily less systemic. Currently, the government is in a bind. AIG almost certainly won't be able to pay back the taxpayer and the Fed anytime soon. As a result, the Treasury has given the company time to sell off assets. The risk is that the company ends up getting substantially less for its subsidiaries than it hopes. If that outcome starts looking likely, the government might press for quicker sales to cap its exposure. One argument AIG could use against that: the danger of spooking markets. But that case is weakening.
- Clarium LP's tough 2009 got tougher in September. The hedge fund, run by PayPal co-Founder Peter Thiel, lost 8% in the first 14 trading days of this month, according to an update Clarium sent to investors. The hedge fund also cut leverage from 4.2 to 1 down to 1.4 to 1 between Sept. 11 and Sept. 19, Clarium noted in the update, a copy of which was obtained by MarketWatch. Clarium had already had a difficult 2009. Through Sept. 18 the fund is down 15.6% this year. Assets under management slumped to below $2 billion at the end of August from more than $7 billion in the middle of 2008, before the financial crisis deepened.

- The age-old quagmire of whether money equals happiness is being answered by France: French President Nicolas Sarkozy wants to include "happiness" in his country's gross domestic product.


- U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter, as the level of risk eased in the global market for the complex financial instruments, according to a government report released Friday.


- Iran's President Mahmoud Ahmadinejad has warned President Barack Obama against pressing Tehran about new revelations that Iran has been constructing a secret uranium-enrichment plant. "If I were Obama's adviser, I would definitely advise him to refrain making this statement because it is definitely a mistake," Ahmadinejad told TIME in New York on Friday. "It would definitively be a mistake." His comment came as President Obama, speaking at the G-20 summit in Pittsburgh, made a dramatic announcement that Iran has been constructing a second uranium-enrichment facility whose existence had been kept secret in violation of the non-proliferation agreements to which Tehran is a signatory.

Future of Capitalism:

- Michael Moore's new movie, "Capitalism: A Love Story" opened today. The first thing that must be said is that it isn't really a love story. Capitalism, Mr. Moore tells us, is "evil," and if his word isn't enough, he quotes two Catholic priests who say that capitalism is sinful and immoral, as well as Bishop Gumbleton of Detroit, who says that capitalism runs counter to the teaching of Jesus. The funniest moments of all in the movie, though, may just be in the opening and closing credits. We see that the movie is presented by "Paramount Vantage" in association with the Weinstein Company. Bob and Harvey Weinstein are listed as executive producers. If Mr. Moore appreciates any of the irony here he sure doesn't share it with viewers, but for those members of the audience who are in on the secret it's all kind of amusing. Paramount Vantage, after all, is controlled by Viacom, on whose board sit none other than Sumner Redstone and former Bear Stearns executive Ace Greenberg, who aren't exactly socialists. The Weinstein Company announced it was funded with a $490 million private placement in which Goldman Sachs(GS) advised. The press release announcing the deal quoted a Goldman spokesman saying, "We are very pleased to be a part of this exciting new venture and look forward to an ongoing relationship with The Weinstein Company. "Knowing that background puts the rest of the movie in a different context. Mr. Moore shows Rep. Dennis Kucinich asking rhetorically on the floor of the House of Representatives, "Is this the United States Congress or the board of directors of Goldman Sachs?" Later, Mr. Moore shows up at Goldman Sachs headquarters in Manhattan driving an armored Brinks trunk and announcing, "We're here to get the money back for the American people." Maybe Mr. Moore should look in his own pockets. One could fault Goldman or Weinstein or Viacom for promoting or funding this sort of stuff – capitalist enemies of the predicates of capitalism – but in the end some of Mr. Moore's criticism is justified, and the rest is so farfetched as to be unlikely to do much lasting damage.


- Americans continue to send mixed signals about the dangers of climate change, but 47% reject the idea that they are selfish putting economic concerns ahead of the fight against global warming. A new Rasmussen Reports national telephone survey finds that 29% of adults take the opposite view and believe Americans are being selfish for putting the economy first.

- Just 16% of U.S. voters give Congress good or excellent ratings now that it's back in action after a rough-and-tumble August recess, according to the latest Rasmussen Reports national telephone survey. That’s up two points from last month but down seven points from the highest rating of 2009, reached in late May. Fifty-three (53%) percent say Congress is doing a poor job, down three points since early August but roughly comparable to what voters thought of the legislators at the time President Obama assumed office in late January.


- The off-the-cuff characterization was in keeping with his newly emerging role, squeezed in between East Room ceremonies and pushing for health care reform: the commander in chief is becoming the nation’s media critic in chief. Obama isn’t just donning his Columbia Journalism Review hat to diagnose what ails the wheezing industry. He’s attempting to isolate one particular media irritant — cable news. This president, it seems, has an obsession with it.

- Republicans on the Energy and Commerce are pressing their chairman to investigate why the Centers for Medicaid and Medicare Services recently told insurers participating in the Medicare Advantage program not to warn seniors about possible benefit cuts. Senate Republican Leader Mitch McConnell blasted Democrats earlier this week for failing to investigate letters CMMS sent insurers about possible cuts to the Medicare Advantage program that would be imposed in the health care bills working their way through Congress.


- Onetime Lehman Bros. higher-up Alex Kirk, who his former boss Dick Fuld suspected behind a tell-all book about the defunct Wall Street firm, is starting a hedge fund. The New York Post reported Kirk is launching River Birch Capital. Kirk, a longtime trader, is using a distressed strategy, according to the tabloid. Also joining the startup is Bart McDade. McDade became president of Lehman during the end of its operation. Kirk, along with trader Michael Gelband, fled Lehman in 2007. Fuld, the villain ex-chief executive officer of the Wall Street firm, went public with his belief that Kirk and Gelband fed author Lawrence McDonald information for his book “A Colossal Failure of Common Sense,” which detailed the collapse of the firm.

- U.S. regulators say that the level of losses from syndicated loans facing banks and other financial institutions tripled to $53 billion in 2009, due to poor underwriting standards and the continuing weakness in economic conditions. According to the Shared National Credit Program (SNC) 2009 Review, an annual inter-agency report released on Thursday, credit quality deteriorated to record levels with respect to large loans and loan commitments. According to the report, criticized assets rated 'special mention', 'substandard', 'doubtful' and 'loss', touched $642 billion, representing 22.3 percent of the SNC portfolio, compared with 13.4 percent a year ago. Classified assets rated 'substandard', 'doubtful', and 'loss,' rose to $447 billion from $163 billion in 2008. The volume of SNCs rated 'doubtful' and 'loss' in 2009 rose almost 14-fold to $110 billion, while non-accrual loans touched $172 billion, up from $22 billion in 2008. The report also said foreign banks held about 38 percent of the $2.9 trillion in loans, while hedge funds, pension funds, insurance companies and other entities held about 21 percent. The report also said that non-banks continued to hold a "disproportionate share" of classified assets compared with their total share of the SNC portfolio. They hold 47 percent of loans seen as 'substandard', 'doubtful' and 'loss'.

- President Barack Obama's "pay czar" said on Friday he will not cap compensation for the top employees at bailed-out companies, and will not reveal names, when he releases the first wave of decisions within a few weeks. "We don't want specific names next to dollars," said Kenneth Feinberg, who was appointed in June to decide compensation packages for the highest-paid personnel at companies that received U.S. government bailouts.


- Mr Darling issued a warning to those countries with less strict controls in place that if they do not increase their level of financial regulation by the end of March 2010, they risk being blacklisted. Blacklisting would lead to sanctions being imposed, not only on the countries but on the banks or companies that might invest in them.

Hong Kong Govt:

- According to the 23 authorized institutions (AIs) which participate in the HKMA’s monthly survey of residential mortgage lending, new mortgage loans drawn down during August declined by 23.3% to HK$19.9 billion compared with July. New loans approved fell by 8.2% to HK$34.2 billion.

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