Monday, February 22, 2010

Today's Headlines

Bloomberg:
  • Obama Endorses New Wealth Taxes, More Drugmaker Fees. President Barack Obama, seeking to break an impasse over health-care legislation, proposed a plan that includes the first Medicare tax on unearned income such as capital gains and higher fees on drugmakers, while scaling back a levy on high-end benefits. The measure released today marks a reversal from months of leaving the legislation’s details largely up to congressional Democrats, who have failed to agree on a plan. House Republican leader John Boehner said today Obama was undermining the Feb. 25 meeting with his plan. “The president has crippled the credibility of this week’s summit by proposing the same massive government takeover of health care based on a partisan bill the American people have already rejected,” Boehner, of Ohio, said in a statement. To sidestep Republican opposition, the Democrats may use a procedure called reconciliation, which would require just 51 Senate votes to pass as long as the bill dealt only with revenue and spending issues. Pfeiffer said the possibility of using reconciliation played a part in the design of the White House plan and gives Democrats “flexibility.” In the plan, Obama is advocating new taxes for Medicare, the government health program for the elderly. He proposed a 2.9 percent assessment on income from interest, dividends, annuities, royalties and rents for individuals earning more than $200,000 or families making more than $250,000. The proposed tax would also apply to capital gains, an administration official confirmed. That would push the rate to 22.9 percent in 2011, up from 15 percent now and 20 percent scheduled to take effect next year. Obama also embraced the Senate proposal for an increase in the Medicare payroll tax on the highest earners. The president endorsed yet another change in the so-called Cadillac tax on high-end employer-provided plans, which has been one of the most contentious parts of the legislation. While some economists say the levy would discourage wasteful spending, labor unions say it would hurt too many workers, and they successfully negotiated to scale it back in January. Under the Obama measure, the 40 percent excise tax would apply to plans with premium costs in excess of $10,200 for singles and $27,500 for families, with adjustments for high-risk occupations and companies with higher costs because of the age or gender of their workers. That’s up from a deal of $8,900 and $24,000 that had been worked out with labor leaders earlier. Dental and vision benefits would no longer be counted, and the effective date would be moved to 2018. The president said there would also be an automatic adjustment to the thresholds for premiums if health-care costs rise unexpectedly quickly. Under the plan, the pharmaceutical industry led by New York-based Pfizer Inc. would shoulder $10 billion more in fees over 10 years starting in 2011. He endorsed a new panel that could curb insurance-rate increases it deems unreasonable and included restrictions already in the House and Senate bills. For instance, insurers wouldn’t be able to refuse new clients because they have preexisting medical conditions. The trade group America’s Health Insurance Plans called on the White House to include “system-wide reforms to control the rapid increase in the underlying cost of medical care.” “Creating a new duplicative layer of federal premium regulation on top of what states are already doing will only add regulatory complexity and increase health-care costs,” said Robert Zirkelbach, a spokesman for the Washington group. Obama also eliminated a Senate provision that gave special aid to Nebraska to help the state cover additional costs for Medicaid, the government health program for the poor. Instead, he said he would provide greater assistance to all the states. The president said he was proposing changes that would give more aid to Americans to help them buy insurance. Under his plan, families making between $66,000 and $88,000 a year would pay no more than 9.5 percent of their income in premiums.
  • U.S. Commercial Property Index Rises 4.1% in December. U.S. commercial property values had their biggest monthly rise on record in December as the number of transactions jumped, according to Moody’s Investors Service. The Moody’s/REAL Commercial Property Price Index climbed 4.1 percent from November, the second straight monthly increase, Moody’s said today in a report. Transaction volume rose more than 75 percent from the previous month. Values, which fell to a seven-year low in October, are down 29 percent from a year earlier and are 41 percent lower than the peak in October 2007. “Two months of positive returns and one month of higher transaction volume does not allow us to discern a trend just yet, particularly in light of the fact that year-end commercial real estate activity can distort the true condition of the markets,” the report said.
  • Yellen Says U.S. Economy Will Perform Below Potential. Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy will operate below potential this year and next and still needs low interest rates to gain strength. “When the day comes to start raising rates again, we have tools at the ready,” Yellen said in the text of a speech today in San Diego. “For the time being, the economy still needs the support of extraordinarily low rates.”
  • Climate Change Fervor Cools Amid Disputed Science.
  • China Stocks Fall After New Year Break; Banks, Developers Drop.
  • Commodity assets under management fell last month for the first time in more than a year on deepening investor concern about the global economy, Barclays Capital said. Total assets dropped $12 billion to $245 billion, the first monthly decline since November 2008, London-based analysts including Kevin Norrish wrote in a report today. Tighter Chinese monetary policy, US President Barack Obama's proposed curb of banks' trading activities adn Greece's budgetary crisis triggered the change in sentiment, according to Barclays Capital.
Wall Street Journal:
  • The Woman Behind Greece's Debt Deal. The architect of Goldman Sachs Group Inc.'s(GS) controversial 2001 trade with the Greek government is a top executive in the bank's London office with a yen for yoga and a command of Greek. Colleagues say 46-year-old Antigone Loudiadis who has a given name from classical mythology but goes by the nickname "Addy," was the woman behind the deal. A complex and long-dated arrangement, the trade she set up allowed Greece to reduce its outstanding debt by converting the debt into euros and then restructuring the debt at more favorable rates. Undertaken privately, it helped mask Greece's true indebtedness until recently, when the country's finances fell under deep scrutiny by public markets, critics say. To skeptics, the trade was typical of Greece's devil-may-care attitude toward fiscal responsibility. For Goldman, the trade generated fees of as much as $300 million, according to the people familiar with the matter—a windfall that left traders in the firm's London marveling at Ms. Loudiadis' deal-making prowess.
  • Google(GOOG) Attack Linked To Asian Hackers. U.S. investigators are homing in on the likely perpetrators of the attacks on Google and as many as 33 other companies, with evidence pointing to an Asian hacking group that is likely Chinese, according to people familiar with the investigation.
  • Bailout Anger Undermines Geithner. Timothy Geithner's role in calming the financial crisis landed him the coveted job of Treasury secretary last year. That same résumé is now dogging him. In his next test, Mr. Geithner will find out this week how lawmakers are treating one of his main goals—revamping the nation's financial regulations—when Senate Banking Committee Chairman Chris Dodd unveils his new bill. In Washington, where perception can take on the status of fact, the political woes facing Mr. Geithner are diminishing his authority. His dilemma: The bank rescues he helped engineer averted economic collapse. Yet to some lawmakers, Mr. Geithner looks weak. His association with unpopular financial bailouts has become an albatross. His neutral rhetoric on bankers' bonuses—the fat payouts are "very hard for people to understand," he recently told CNBC—spurs talk that he coddles Wall Street. He successfully argued against ripping up contracts that controversially allowed millions of dollars in bonuses to be paid to American International Group(AIG) employees, stating: "This is not Bolivia," according to two people who heard him say it. Midterm elections could produce losses for Democrats for a variety of reasons, including high unemployment, and some worry Mr. Geithner isn't helping. "I told him, as a party, we are going to be doomed if our image is that we are the antipopulist handmaidens of Wall Street," said Rep. Brad Sherman, a California Democrat and a bailout opponent.
BuinessWeek:
  • France's Lagarde Says Credit-Default Swaps Fuel Speculation. French Finance Minister Christine Lagarde said that credit-default swaps fuel market speculation and that she’s pressing for tighter rules on their use in the wake of turmoil in the market for Greek government bonds. “We can draw some lessons from this crisis,” Lagarde told a committee of French lawmakers on Feb. 17. “We should examine the suitability of CDSs” in relation to sovereign states because their movements have become “disconnected from the underlying” economic situation, Lagarde said, according to the minutes of the meeting published today. France is stepping up a push for rules on credit-default swaps.
NY Times:
  • Hedge Funds Bet on Greek Debt Default. Hedge funds have increased their bets this month on Greece’s economic woes by shorting its bonds or buying default protection, although anecdotal evidence suggests some have cashed in after recent gain, Reuters reported. Even hedge funds without direct exposure to Greece have been insulating their portfolios against collateral damage in the currency or credit markets, as concerns over Greece’s ability to service its heavy debt have grown. Figures from Data Explorers this past week show rising short positions on Greek sovereign bonds, indicating funds have either been directly shorting bonds or buying credit default swaps (which pay out in the event of default) from banks, who usually hedge their exposure by shorting the bond themselves.
NY Post:
  • Goldman's(GS) Rehab. Lloyd Blankfein is starting to worry about his legacy. The 55-year-old chief executive of Goldman Sachs -- three-plus years into his tenure -- recently turned to a Texas corporate p.r. firm to buff the image of the tarnished Wall Street powerhouse.Turning to outside consultants to gauge a firm's "perception in the marketplace" is unusual for the 140-year-old firm. But that's what you do, even if you are Masters of the Universe, when the national and international media accuse you of engineering and profiting from a back-door rescue of AIG, of using cash from a taxpayer bailout and cheap Federal Reserve financing to help finance lavish bonuses, and taking down the entire Greek economy.
The Business Insider:
Seeking Alpha:
  • Subprime Sovereign Debt. It’s, I think, unlikely that we are going to witness the collapse of the European Union, though the revelations that it wasn’t only Greece which was cooking its government books has ominous implications for just about all of the countries in the EU. An article in the WSJ yesterday reveals that the Greeks were not the only creative bookkeepers in the Union:
  • AIG(AIG): The Main CDS Insurer for Greek Government Debt?
Market Folly:
Benzinga:
  • Traders Boost Bullish Bets on Oil. Hedge funds and other speculators increased their bullish wagers on crude oil futures last week for the first time since January, creating a difference of 68,436 contracts between bullish and bearish bets, according to the Commodities Futures Trading Commission. Much of the buying was believed to be done by ETFs and index funds to cover short positions, so the increase in long positions may not translate to near-term strength in the U.S. Oil Fund (USO). Speculators also added to their long positions for gasoline and heating oil, according to Bloomberg News. NYMEX-traded crude traversed $80 per barrel for the first time since January during the Sunday night electronic trading session. Traders are bearish on natural gas as short positions in those futures rose last week for the first in a month. Last week, shorts outnumbered longs by 154,292, up 2.3% percent from 150,827 the previous week, Bloomberg reported. That could mean a bearish view of the U.S. Natural Gas Fund (UNG) might still be appropriate.
Washington Times:
  • Obama tops Bush at Ducking Reporters. President Obama, who pledged to establish the most open and transparent administration in history, on Monday surpasses his predecessor's record for avoiding a full-fledged question-and-answer session with White House reporters in a formal press conference. President George W. Bush's longest stretch between prime-time, nationally televised press conferences was 214 days, from April 4 to Nov. 4, 2004. Mr. Obama tops that record on Monday, going 215 days - stretching back to July 22, according to records kept by CBS Radio's veteran reporter Mark Knoller.
autoblog:
  • Report: GM CEO Could Earn $9M Per Year, Ex-CEO Henderson Hired as $60K/Month Consultant. Two different outlets are reporting two seemingly conflicting reports about pay at General Motors, but it's clear regardless of the details that money is in motion at The General. Ed Whitacre, Jr., who doesn't receive any pay as GM's chairman, is waiting on approval from the Treasury pay czar for a $9 million "pay package" for his recent move to CEO. The pay has been "approved 'in principle'," but we aren't sure when it's going to be paid. Bloomberg reports that "GM said Whitacre's annual compensation will be $9 million, with a $1.7 million cash salary, $5.3 million in stock that begins paying in 2012 and $2 million in restricted stock." The Detroit News says that Whitacre will get the $1.7 million, but that the $5.3 million in stock will be paid out on a predetermined scheduled over three years starting in 2012. The $2 million in restricted stock is also reportedly performance based, but what criteria will be used to determine when the stock's released is not yet known.
WorldSteel Association:
  • January 2010 Crude Steel Production. World crude steel production for the 66 countries reporting to the World Steel Association (worldsteel) was 109 million metric tons (mmt) in January. This is 25.5% higher than January 2009.
United Nations:
Reuters:
  • Nakheel Sukuk Unlikely to be Paid, All Options Open. Dubai World which is in talks to restructure some $22 billion debt, is unlikely to pay off developer Nakheel's $980 million Islamic bond, a source familiar with the matter said on Monday, and all options are open. "It is very unlikely that the bond will be paid off," the source. "Incredibly unlikely."
Financial Times:
  • The euro will face bigger tests than Greece by George Soros. The construction is patently flawed. A fully fledged currency requires both a central bank and a Treasury. The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro. Mr Issing admits that he was among those who believed that “starting monetary union without having established a political union was putting the cart before the horse”. The crash of 2008 revealed the flaw in its construction when members had to rescue their banking systems independently. The Greek debt crisis brought matters to a climax. If member countries cannot take the next steps forward, the euro may fall apart. The European authorities accepted a plan that would reduce the deficit gradually with a first installment of 4 per cent, but markets were not reassured. The risk premium on Greek government bonds continues to hover around 3 per cent, depriving Greece of much of the benefit of euro membership. If this continues, there is a real danger that Greece may not be able to extricate itself from its predicament whatever it does. The situation is aggravated by the market in credit default swaps, which is biased in favour of those who speculate on failure. Being long CDS, the risk automatically declines if they are wrong. This is the opposite of selling short stocks, where being wrong the risk automatically increases. Speculation in CDS may drive the risk premium higher. The Papandreou government is determined to correct the abuses of the past and it enjoys remarkable public support. There have been mass protests and resistance from the old guard of the governing party, but the public seems ready to accept austerity as long as it sees progress in correcting budgetary abuses – and there are plenty of abuses to allow progress. So makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal and Ireland. Together they constitute too large a portion of euroland to be helped in this way. The survival of Greece would still leave the future of the euro in question. Even if it handles the current crisis, what about the next one?
  • Goldman(GS) Banker Hits at Athens Swaps. One of Goldman Sachs' senior bankers claimed on Monday that the transparency standards surrounding controversial currency swaps the bank structured for the Greek government in 2001 “could have and should have been higher”. Goldman is under fire from European regulators and politicians for helping Greece to conceal the true extent of its national debt through a series of complex financial transactions just after it was admitted to Europe’s monetary union. Gerald Corrigan, a former president of the Federal Reserve Bank of New York who joined Goldman in 1994, on Monday told a UK parliamentary committee that, “with the benefit of hindsight”, the regulatory standards governing those deals should have been higher. Separately, it also emerged on Monday that Greece had failed to meet a deadline to supply European Commission authorities with more information about the currency swaps.

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