Friday, March 12, 2010

Today's Headlines


  • Sales Rise as Buyers Overcome Snow, Job Concerns. Americans braved blizzards and overcame job concerns to propel retail sales in February, pointing to a broadening in growth that will help sustain the expansion. Purchases unexpectedly climbed 0.3 percent, the fourth gain in the past five months, Commerce Department figures showed today in Washington. Another report showing consumer sentiment dropped in March for the second consecutive month represented a risk to the improvement in sales. “The spending numbers look pretty impressive, especially considering they must have been held down a little at least by the snowstorms,” said James O’Sullivan, global chief economist at MF Global Ltd. in New York. “It adds to evidence that the recovery is gathering pace.” “Spending will be holding up relatively well for the remainder of this year but it is not going to come roaring back until we get the jobs necessary to lower the unemployment rate,” said Ryan Sweet, an economist at Moody’s in West Chester, Pennsylvania. Sales excluding autos rose 0.8 percent, exceeding all estimates of economists surveyed. Excluding autos, gasoline and building materials -- the retail group the government uses to calculate gross domestic product figures for consumer spending -- sales increased 0.9 percent after a 0.6 percent gain, today’s sales report showed. Ten of 13 major categories showed increases in sales last month, led by electronics and appliances stores, and grocery stores. Receipts at bars and restaurants climbed 0.9 percent, the most since April 2008. “Consumers are becoming comfortable with spending for what they want, not just what they need,” Christopher Low, chief economist at FTN Financial in New York, said in a note to clients. “This isn’t the bare bones spending on necessities we saw through much of last year.”
  • Apple(AAPL) Starts Taking Orders for iPad Tablet Computer. Apple Inc. began taking pre-orders for its iPad multimedia tablet today, seeking to expand sales beyond the iPhone, iPod and Macintosh computer. Customers who order one of three Wi-Fi versions of the device, either for home delivery or store pickup, will receive it on April 3, spokeswoman Natalie Harrison said in an interview. That’s the same day the iPad goes on sale in Apple’s U.S. stores.
  • New York Draws Level With London as Finance Center, Report Says. London and New York hold equal first place in a ranking of global financial centers after the British capital lost its primary ranking because of concern over higher taxes and tighter regulations, according to a report. London’s score fell 15 points to allow New York to close the gap since the last study was published in September, according to today’s report, compiled by Z/Yen for the City of London Corporation. “Retaining a fair, consistent and predictable tax policy and supervisory environment is critical to retaining London’s role as a global center for a large range of financial services,” Stuart Fraser, chairman of the City’s policy and resources committee, said in the report. London and New York were described as “the twin sister-cities of world finance,” holding a competitive advantage over rivals.
  • Brown Says He, Sarkozy Had 'Good Talks' on Hedge-Fund Rules. U.K. Prime Minister Gordon Brown said he had constructive talks with French President Nicolas Sarkozy over European Union rules to regulate hedge funds. He was speaking to reporters following talks with Sarkozy in London today. “I believe we can reach a solution,” Brown said. “I am confident people around Europe want more transparency. People will see that we have not harmed, indeed we have protected the interest of the financial sector around Europe.”
  • The European Commission said it's "really concerned" about naked credit default swap practices.
  • The cost to protect against defaults on U.S. corporate bonds declined to the lowest in eight weeks as retail sales unexpectedly climbed last month, signaling consumers will contribute more to economic growth. Credit-default swaps on the Markit CDX North America Investment Grade Index fell 1 basis point to a mid-price of 82.5 basis points as of 12:05 pm in NY. The index is at the lowest point since Jan. 14, when it was at 80.6. The gauge has fallen for a second week as overall U.S. corporate bond sales rose 74% this week from the previous period and high-yield, high-risk companies borrowed at least $8.54 billion, the most this year, according to Bloomberg.
  • Oil Falls the Most in Two Weeks After Consumer Sentiment Drops. Oil fell as much as 1.7 percent as the Reuters/University of Michigan preliminary consumer sentiment index dropped to 72.5 from February’s reading of 73.6. A gain to 74 was forecast, according to the median of 68 estimates in a Bloomberg News survey. Prearranged orders to sell oil at specific prices, known as stops, may have been triggered when oil breached today’s low. “The selling started after the consumer confidence numbers were released,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The market has been tenuous and once we started working lower the move gathered strength. We’ve taken out some stops and are looking to test more.”
  • Health Bill Includes Student Loan Revamp, Miller Says. Legislation designed to complete work on a health-care overhaul will include a House measure to revamp the college student loan program, a top Democrat said. “This is critical to passing this in the caucus,” California Representative George Miller, one of the leaders of the health-care effort and chairman of the House Education and Labor Committee, said today. “People have made it very clear they want to take this home.” The measure would expand the government’s role by allowing it to provide new college loans directly while ending federal guarantees and subsidies to lenders such as SLM Corp., commonly known as Sallie Mae. That’s caused the plan to draw resistance from senators whose states are home to private lenders.
  • China May Face 'Massive' Bank Bailouts After Stimulus Program. China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus program unleashed in 2008, according to Citigroup Inc. and Northwestern University’s Victor Shih. In a “worst-case scenario,” the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroup’s Hong Kong-based chief economist for greater China, said yesterday. “The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,” said Shih, a professor who spent months researching borrowing by about 8,000 local government entities. Chinese officials pledged this week to limit the risks posed by the investment vehicles, which circumvent restrictions on local-government borrowing to channel money into stimulus projects. Citigroup’s Shen said officials may keep monetary policy loose for longer than they should, boosting asset prices and building up overcapacity, to avoid the “squeeze” on investment vehicles that would trigger bad loans and bailouts. “The risk is that inflation or asset bubbles force the government to withdraw their support to local governments much earlier than expected,” he said in a phone interview. In Shen’s worst case, commercial banks, lending because of explicit or implicit government guarantees rather than the quality of projects, see 20 percent of lending to the investment vehicles turn bad in 2011. Shih was more pessimistic than Shen in an interview on Bloomberg Television in Hong Kong yesterday. He said that if the central government stops lending to the entities now, the cost of a bailout may already be “in the neighborhood” of 3 trillion yuan. The academic said that “the only credible action by the central government now is to allow a handful of these entities to go bankrupt -- so that the banks know that the central government means business when it says it’s withdrawing guarantees.”
  • Loan Prices Reach 20-Month High as Interest Costs Dip. The high-yield, high-risk leveraged loan market reached a more than 20-month high as companies, such as Fresenius SE, reduced minimum interest-rate floors to ensure a minimum return on new deals. Prices on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, ended at 90.22 cents on the dollar yesterday, the highest since July 7, 2008, when it closed at 90.32 cents. The index’s total return was 2.85 percent for the year as of yesterday. The average minimum London interbank offered rate written into credit agreements, guaranteeing investors a certain interest rate, decreased as the loan market rebounded. These so- called Libor floors fell to an average of 232 basis points this year, down from an average of 279 basis points during 2009, according to data compiled by Bloomberg. “This year we’ve seen Libor floors going below 2 percent and as low as 1.5 percent,” David Nadelman, co-head of Syndicate, Americas at RBS Securities in New York, said in a telephone interview. “The market is heating up enough that arrangers are finding that they don’t need to rely on the Libor floor as much as a yield enhancer to get participants in deals.”
Wall Street Journal:
  • EU Advances Draft Rules for Hedge Funds, Amid U.S. Objections. European officials rebuffed criticism from U.S. Treasury Secretary Timothy Geithner suggesting a draft law aimed at regulating hedge funds and other alternative investment vehicles would discriminate against U.S. fund managers and banks. As they did so, the proposed law to which Mr. Geithner objected took a step further in the European law-making machine.
  • Hedge Funds: How the Votes Stack Up. Interesting work by William Hutchings of Financial News , who has looked into how support and opposition stack up among European governments for the proposed EU hedge fund law that has been exercising U.S. Treasury Secretary Timothy Geithner.
  • Gulf Opens In Europe On Handling Of Sovereign CDS.
  • High-End Consumer Is Back: Collective Brands(PSS). The high-end consumer is making a comeback, but mainstream consumers have yet to rebound and unemployment is to blame, Matthew Rubel, Collective Brands chairman and CEO, told CNBC Friday.
NY Post:
  • Goldman(GS) Hired for ResCap Sale: Sources. Government-controlled finance company GMAC has hired Goldman Sachs to start the process of selling the company's money-losing mortgage unit Residential Capital, The Post has learned. The struggling mortgage unit has been stuck in limbo for months as GMAC execs and the US Treasury -- which owns a 56 percent stake in the parent firm -- fight over the direction of the company. With Goldman hired, it's increasingly more likely that billionaire Warren Buffett might step up and buy ResCap. Indeed, the Berkshire Hathaway chief owns a sizable chunk of ResCap's debt and has been interested for months in buying the lender.
The Business Insider:
Washington Post:
  • If Democrats Ignore Health-Care Polls, Mid-terms Will Be Costly by Pat Caddell and Douglas Schoen. In "The March of Folly," Barbara Tuchman asked, "Why do holders of high office so often act contrary to the way reason points and enlightened self-interest suggests?" Her assessment of self-deception -- "acting according to wish while not allowing oneself to be deflected by the facts" -- captures the conditions that are gripping President Obama and the Democratic Party leadership as they renew their efforts to enact health-care reform. Their blind persistence in the face of reality threatens to turn this political march of folly into an electoral rout in November. In the wake of the stinging loss in Massachusetts, there was a moment when the president and the Democratic leadership seemed to realize the reality of the health-care situation. Yet like some seductive siren of Greek mythology, the lure of health-care reform has arisen again. As pollsters to the past two Democratic presidents, Jimmy Carter and Bill Clinton, respectively, we feel compelled to challenge the myths that seem to be prevailing in the political discourse and to once again urge a change in course before it is too late. At stake is the kind of mainstream, common-sense Democratic Party that we believe is crucial to the success of the American enterprise. Bluntly put, this is the political reality:
  • iPad: 50,000 Sales in 2 Hours, Apple TV Bumped, Mysterious App Icon. The introduction of the iPad Friday morning sold an estimated 50,000 units in two hours, and also bumped Apple's "hobby," the Apple TV, from the front page of its online store. Also, a mysterious icon included in iPad promotional pictures gains attention, and Apple has expanded its site to explain features of the coming hardware in greater detail.
Washington Times:
  • Exports Nomineee Tied to 2 Watch List Firms. President Obama's pick to oversee export controls at the Commerce Department is a trade lawyer whose recent clients include two companies on a government watch list and a shipping business that agreed to pay millions of dollars last year to resolve a federal probe into shipments to Iran, Sudan and Syria. All three companies have had recent interests before the government office that Eric Hirschhorn would oversee if he is confirmed as undersecretary of commerce for industry and security.
  • Negatives for Pelosi, Reid, Boehner Hit Record Highs. Congress' top leaders are feeling the heat from voters this month, as a new Rasmussen Reports national telephone survey shows three of the four reaching or matching their highest unfavorable ratings of the past year. Undoubtedly driven in part by her continuing efforts to pass the national health care plan, House Speaker Nancy Pelosi remains the most unpopular congressional leader, as she has for months. Pelosi is now viewed unfavorably by 64% of voters, which ties a high reached in August. That number includes 47% with a very unfavorable opinion of the California Democrat. Twenty-nine percent (29%) have a favorable view of her. Senate Majority Leader Harry Reid is now viewed at least somewhat unfavorably by 56% of voters. That’s up 14 points from a year ago and the highest level measured since regular tracking began last February. That includes 35% with a very unfavorable view. Twenty-four percent (24%) view Reid favorably, the lowest level found since December.
  • CBC: W.H. Visit 'Frank But Cordial'. In a meeting aides described as “frank but cordial,” members of the Congressional Black Caucus told President Barack Obama on Thursday that he has to do more to help African-Americans. Members of the caucus have complained — both publicly and privately — that they aren’t getting enough from the nation’s first black president. Thursday’s hourlong session was their chance to make that case directly with Obama, and aides said they did just that. CBC Chairwoman Barbara Lee (D-Calif.) said the group discussed direct job creation and work force training as well as areas where government can help “create jobs immediately.” People close to the caucus said members pointed to the high unemployment rate in their largely majority African-American congressional districts. They encouraged Obama to push legislation in the Senate that would lead to direct jobs creation, particularly a summer youth jobs program — a proposal that failed in the Senate this week.
  • Nancy Pelosi: House Vote May Come Next Week. House Speaker Nancy Pelosi told her members Friday to brace themselves for a climactic health care vote as early as next week, warning them to clear their schedules for next weekend and promising to stay in session until the landmark vote, people present said afterwards. President Barack Obama has postponed an overseas trip until March 21, and Pelosi said, "I am delighted the president will be here for the passage of the bill. It is going to be historic.” Members and staff don't think Pelosi has the 216 votes she needs to pass reform at this point, but most believe she's close. A vote next week sets up the prospect that Congress could pass a sweeping health reform proposal championed by Obama that has been in the works for more than a year — though the Senate would still have to take up a series of fixes through a procedural process called reconciliation. It appeared that the “Louisiana Purchase” — $300 million in additional Medicaid money for the state — and a $100 million hospital grant program requested by Sen. Chris Dodd (D-Conn.) will remain in the legislation, sources said. In addition, it looks like House Democrats won't have to vote directly on a Senate bill they really don't like. The speaker hasn't made a final decision, but she told her rank-and-file during the meeting that the plan now is to craft the legislation in such a way that it would "deem" the Senate bill passed once the House approves the package of fixes. That means they would vote on the rule and the so-called reconciliation package, which would make changes to the Senate bill and only requires 51 votes to pass the Upper Chamber. In addition, the package of changes would also include a student lending bill that was paired with health care through reconciliation process, leaders said Friday. All of this could change if the speaker faces major resistance from her members, but it would mean Democrats won't be forced to cast a vote specifically in favor of the Senate bill. Pelosi reminded her members, as she frequently does, that she wants to make the whole process as quick and politically painless as possible, a person present said. House Majority Leader Steny Hoyer said Friday that Democratic leaders are not discussing a third way to placate Democratic opponents of abortion in an effort to win their votes on the final bill. Outside the closed-door Democratic caucus meeting, he brushed aside concerns that Democrats cannot pass a bill without the votes of Rep. Bart Stupak (D-Mich.) and his cohort. “We have not discussed a third way,” Hoyer told reporters. “I’ve talked to Mr. Stupak, but I made it clear I wasn’t negotiating. It is clear that that matter cannot be dealt with per se in the reconciliation bill. We’ll have to deal with it pretty much as is it at this point in time.” He suggested that some pro-life Democrats may support the health care bill with the current language.
Financial Times:
  • S&P Issues Warning Over America's Top-Tier Rating. The triple A rating of the US is at risk, S&P has warned, unless the country adopts a credible medium-term plan to rein in fiscal spending. In a report published yesterday, the ratings agency said that there were risks that "external creditors could reduce their US dollar holdings, especially if they conclude that eurozone members are adopting stronger macroeconomic policies". This could undermine the dollar's status as the global reserve currency, it said, an outcome which would "weigh on the triple A rating on the US." "In our opinion, fiscal outturns, inflation figures, trade volumes, foreign exchange volatility and the current account will be the leading indicators if the dollar's role were to diminish," S&P said. But the ratings agency said that the US could lose its reserve currency status and still hold on to its triple A rating. It added that the loss of a currency reserve status has historically been a gradual process, taking place over decades in the case of UK, for example. Finally, it countered that there is currently no other currency to challenge the dollar. "The euro is the only currency that could do so as China's currency is not fully convertible for capital transactions, let alone an option as a reserve currency," S&P said. In a separate report, S&P warned that Europe's leading economies face a big jump in interest rate costs from the potential threat of rising bond yields over the next five years. With central banks withdrawing emergency financial support from the markets and bond supply rising sharply, Europe's developed countries face additional interest rate charges totalling €202bn ($276bn) by 2015, according to S&P. France, Italy, the UK and Germany face the biggest jump in borrowing costs of €41bn, €38bn, €31bn and €29bn respectively, assuming a sustained 3 percentage point rise in interest costs. S&P said that the impact of central banks phasing out, over 2010, liquidity support to the financial sector including quantitative easing measures, will lead to a big drop in demand for government debt. This is likely to lead to steep rises in benchmark government yields, putting pressure on financing costs as governments struggle with vast debt burdens taken on to stimulate their economies. Another concern is roll-over risk, or the risk of having to refinance maturing debt. S&P warns that debt-rollover ratios (the amount of long-term debt maturing plus the previous year's stock of short-term debt) are high and still rising in many countries. Rollover ratios exceed 20 per cent of gross domestic product for Belgium and Italy, and just below that level for Ireland and Portugal.
  • Greece may get a 55 billion-euro bailout from the European Union. Germany may contribute as much as 20 billion euros and France may provide 10 billion euros. Germany may finance half the amount via guarantees and the other half by purchasing Greek bonds through its Kreditanstalt fuer Wiederaufbau, the paper said. A first measure may be taken in the week before Easter.
N24 TV:
  • Luxembourg Prime Minister Jean-Claude Juncker said he's not willing to back the "radical step" of changing European Union rules to allow the ejection of indebted euro region countries from the 16-nation group. Kicking countries out of the group would lead to turmoil in those countries and undermine the cohesion of the euro region, said Juncker.
  • Nintendo DS Family Sets New Portable Sales Record For February. With more than 613,000 units sold in February, the Nintendo DS™ family of systems set a new U.S. record for portable video game sales in the month of February, according to the independent NPD Group. This tally surpasses the previous record of more than 597,000 units set by Nintendo DS in February 2009.

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