Thursday, March 18, 2010

Today's Headlines


  • Pelosi Tactic for Health-Care vote Would Raise Legal Questions. House Speaker Nancy Pelosi may be creating new grounds for a court challenge to the proposed U.S. health-care overhaul as she considers using a mechanism that would avoid a vote on the full legislation. Pelosi said this week she might use a parliamentary technique that would “deem” House members to have passed the Senate’s health-care plan by voting for a more politically palatable package of changes. Some legal scholars question whether that approach can be squared with the Constitution and the Supreme Court’s 1998 declaration that the two houses of Congress must approve “precisely the same text” before a bill can become a law. “Any process that does not result in the House taking of yays and nays on statutory text identical to what passed the Senate is constitutionally problematic,” said Jonathan Adler, a professor who runs the Center for Business Law & Regulation at Case Western Reserve University’s law school in Cleveland.
  • Republicans Lose Bid to Force Up-or-Down Vote on Health Care. U.S. House Democrats defeated an effort by Republicans to curtail Democrats’ options in seeking to pass their $940 billion health-care overhaul. By a 222-203 vote, lawmakers headed off a Republican resolution that would have required a separate, recorded vote on the Senate’s health care plan. The Republicans were seeking to keep Democrats from using a parliamentary technique to avoid a direct vote on that bill. The House may hold a rare Sunday vote March 21 on the Senate health-care bill and a separate package of revisions. House Democratic leaders say they may use a parliamentary technique that would “deem” House members to have passed the Senate bill by voting for the more politically palatable measure containing the revisions. House Speaker Nancy Pelosi said earlier this week that bypassing a direct vote on the Senate measure was an option because there are “a lot of people who don’t want to vote for it.” Republicans, who unanimously oppose the health-care plan, say no bill or amendment has ever been deemed passed that related to an area affecting one-sixth of the economy, as does the health measure. Republicans said Democrats are trying to avoid taking responsibility for the health-care plan.
  • Greece Leads Increase in Sovereign Credit Swaps on Bailout Woes. Credit-default swaps on Greek sovereign debt rose to the highest in almost three weeks as an aid plan for the nation’s debt crisis appeared to be unraveling. Contracts on the government’s borrowings jumped 28 basis points to 316, according to CMA DataVision prices. Investor concern that failure to resolve Greece’s deficit woes will trigger a wider debt crisis also drove up at the cost of default protection on German and French sovereign debt. Greek Prime Minister George Papandreou set a one-week deadline for the European Union to resolve internal disagreement and formulate an aid package. “Time is indeed running out for Greece with a huge amount of debt maturing in the coming month,” London-based analysts at BNP Paribas SA wrote in a note to investors. “It is not clear how much the Greek threats to go to the IMF are meant to put pressure on the EU to come up with aid.” Swaps on German government debt rose 3 basis points to 28.5 and contracts on France increased 3.5 to 40.5, CMA prices show. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 3 basis points to 71.5, the highest in almost two weeks. The cost of protecting European corporate bonds from default also rose, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 9 basis points to 416, according to JPMorgan Chase & Co.
  • Commodities Attract $3.98 Billion, Barclays Estimates. Investors put $3.98 billion into commodities last month, almost 29 times the amount in January, favoring investments linked to indexes over exchange-traded products, Barclays Capital said. Total commodity assets under management, which were also bolstered by gains in prices, expanded to $255 billion in February, after dropping $12 billion to $245 billion in January, the bank said. Inflows in January were $139 million. “Commodity investments have resumed in February, primarily from institutional investors employing commodity indices to gain broad-based exposure, as retail investors still remain jittery,” Barclays said in a report, distributed today. Investments in exchange-traded products shrank $1 billion and those tied to indexes expanded by $4.5 billion, Barclays said. Medium-term notes, or products customized for investors, attracted $494 million. Energy got $2 billion of the additional investments, agriculture $1.18 billion, industrial metals $481 million and precious metals $251 million. A year earlier, gold exchange- traded products alone attracted $6 billion of investment, Barclays said.
  • China, U.S. Trade War Risk Rising, Credit Suisse Says. China is closer to a trade war with the U.S. than any time in the last five years as the two trade barbs over the proper value of the Chinese currency, according to Credit Suisse Group AG economist Dong Tao. Five U.S. senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation this week to make it easier for the U.S. to declare currency misalignments and take corrective action. Chinese Premier Wen Jiabao rebuffed calls on March 16 for an end to the currency link, saying he doesn’t think the currency is “undervalued.” “In the near future, given the political tension between China and the U.S., it is unlikely that we will see much of an appreciation,” Tao told Bloomberg Television. “If the U.S. launches trade sanctions, China is likely to retaliate.”
  • Euro Drops for Second Day on Concern Europe Split on Greece Aid. The euro weakened for a second day against the dollar and yen in the longest stretches of decline in almost a month on concern Greece will fail to secure financial assistance from the European Union. Brazil’s real dropped the most in more than a month after the central bank yesterday put off raising interest rates. The European currency declined versus 15 of its 16 major peers as Greece’s prime minister set a one-week deadline for the European Union to craft a financial aid mechanism for the nation, challenging Germany and damping appetite for the euro. “It’s political brinksmanship now,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “People are expressing their views on Greece and its issues by getting short euro-dollar.”
  • Jobless Claims in U.S. Decreased By 5,000 Last Week. First-time jobless applications dropped by 5,000 to 457,000 in the week ended March 13, in line with forecasts, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance increased, and those getting extended benefits also rose. The four-week moving average of claims, a less volatile measure than the weekly figures, decreased to 471,250 last week from 475,500 the prior week, today’s report showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended March 6, today’s report showed. The percentage of Americans who can’t find work is likely to “remain elevated for an extended period,” Treasury Secretary Timothy F. Geithner, White House budget director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, said this week in a joint statement to lawmakers. The administration officials said unemployment may even rise “slightly” over the next few months as discouraged workers start job-hunting again. U.S. employers won’t hire enough workers this year to lower the jobless rate much below the level of 9.7 percent reached in February, they said.
  • Central Bank Gold Holdings Expand at Fastest Pace Since 1964. Central banks added the most gold to their reserves since 1964 last year amid the longest rally in bullion prices in at least nine decades, data compiled by the World Gold Council show. Combined holdings rose 425.4 metric tons to 30,116.9 tons, an increase worth $13.3 billion at last year’s average price, according to the data. India, Russia and China said last year they added to reserves. The expansion was the first since 1988, the data from the London-based council show.
  • Lehman Shows Auditors Fail Investors Eight Years After Reforms. Eight years after Congress passed the Sarbanes-Oxley Act to clean up the accounting industry, Ernst & Young LLP’s audit work for Lehman Brothers Holdings Inc. may show firms still put client interests ahead of investors. Lehman’s bankruptcy examiner said he found credible evidence of malpractice by Ernst & Young, the third-biggest U.S. accounting firm, stemming from its “failure to follow professional standards of care.” The examiner, Anton Valukas, said Ernst & Young never followed up after it was told about transactions Lehman used to hide billions of dollars of assets.

Wall Street Journal:

  • Greece may seek financial aid from the International Monetary Fund over the April 2 to April 4 Easter Weekend, citing a senior Greek official. Greece has little hope for aid next week from the European Union's March 25 summit, the official said. Greece is likely to put on hold plans to raise 10 billion euros through one or two bond sales until after the EU summit, the official said.
  • NYU Professor Edward Altman Tries His Hand At Credit Ratings. Finance professor and credit market guru Edward Altman is entering the ratings game. Altman, professor of finance at New York University's Stern School of Business, has partnered with RiskMetrics Group Inc. (RISK) to develop a new proprietary tool to evaluate the creditworthiness of nonfinancial companies, the company said Thursday. The initiative comes after burned investors and other critics excoriated established ratings agencies for assigning top-notch ratings to securities that in many cases ended up being worthless during the credit crisis.
  • China Official Warns of Currency Risks. A senior Chinese trade official warned that any further appreciation of the Chinese currency risked driving exporters to the wall, underscoring the domestic political pressures on Beijing amid growing international calls for China to let the yuan rise. Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.
  • Dodd's Chief Counsel Bought Financial Stocks During 2008 Crisis. Senate Banking Committee Chairman Christopher Dodd’s chief counsel in 2008 traded stock in Morgan Stanley(MS), Wells Fargo & Co.(WFC), American International Group Inc.(AIG) and other rescued companies as the panel considered legislation to address the credit crisis, according to her financial disclosure form filed with the Senate. Amy Friend, 51, who is now leading the panel’s effort to write a bill overhauling Wall Street regulations, bought $1,000- to-$15,000 stakes in four banks, weeks after Dodd hired her in January 2008, the form shows. She also owned shares of Fannie Mae, Freddie Mac, AIG and other insurance firms, according to the disclosure document, which she signed on June 5, 2009. “This looks very bad,” said Melanie Sloan, the executive director for Citizens for Responsibility and Ethics in Washington and a former Democratic congressional aide. “At the very least it’s inappropriate and it gives the appearance of wrongdoing, even if there is none.” Friend’s counterparts on the banking panel’s Republican side and on the House Financial Services Committee didn’t own financial instruments, according to their 2008 disclosures. Senate rule 37 states that no lawmaker or employee “shall knowingly use his official position to introduce or aid the progress or passage of legislation, a principal purpose of which is to further only his pecuniary interest.”
Fox News:
  • Fox News Poll: 55% Oppose Health Care Reform. As Americans wait for Congress to act on health care, a Fox News poll released Thursday finds 55 percent oppose the reforms being considered, while 35 percent favor them. In addition, just over half of voters think House Democrats are “changing the rules” to get their bill passed. About a third of voters (31 percent) think House Speaker Nancy Pelosi and the Democrats are “playing by the rules” to get health care through, while 53 percent think they are “changing the rules.” Looking at the results by political party, 53 percent of Democrats think their party is playing by the rules, about one in four think they are changing the rules (27 percent) and the rest are unsure (19 percent). Varying majorities of Republicans (78 percent) and independents (57 percent) think House Democrats are changing the rules to pass the bill. The level of public support for the health care overhaul has remained fairly steady since last July -- 35 percent favor it now and 36 percent favored it last summer. The number opposed -- 55 percent -- is up from 51 percent in January, and from 47 percent last July. Opposition hit a high of 57 percent in December. Among partisans, the president’s party faithful are alone in supporting the proposed reforms. Sixty-six percent of Democrats favor them, while 53 percent of independents and 88 percent of Republicans oppose them.
NY Post:
  • Blackstone(BX) President to Host 'Private' Pelosi Fundraiser. Steve Schwarzman's right-hand man is mounting a campaign to win over House Speaker Nancy Pelosi. The longtime Republican is organizing a fundraiser for the Dems in an attempt to gain her support fighting a tax on private-equity earnings now under consideration on Capitol Hill, sources tell The Post. Blackstone Group President Hamilton "Tony" James, 58, is planning to host an event at his home at which Pelosi is scheduled to speak and which other private-equity bigwigs are expected to attend. The mission, according to a person familiar with the matter, is to convince Pelosi to slow down the momentum in Congress to take measures that could harm private-equity firms, with a particular focus on stopping legislation that would raise taxes on "carried interest."
Business Insider:
  • Goldman Sachs(GS) Uses Scenarios to Study Reputation Risk. Goldman Sachs is using scenario analysis to study reputational risk, according to its global co-heads of operational risk management, Spyro Karetsos and Mark D'Arcy. "Franchise value is highly important within the organisation and managing reputational risk is a by-product of that," says Karetsos, who is based in New York. "While it is not our responsibility to quantify reputational risk, there is an internal process that measures our exposure to those risks that are difficult to quantify, one of which is reputational risk."
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (43%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -20. That’s just one point above the all-time low (see trends).
  • President Obama's Pitch: Fate of Presidency On the Line. President Barack Obama had exhausted most of his health care reform arguments with members of the Congressional Hispanic Caucus during a White House meeting last Thursday when he made a more personal pitch that resonated with many skeptics in the room. One caucus member told POLITICO that Obama won him over by “essentially [saying] that the fate of his presidency” hinged on this week’s health reform vote in the House. The member, who requested anonymity, likened Obama’s remarks to an earlier meeting with progressives when the president said a victory was necessary to keep him “strong” for the next three years of his term.
  • EU's De Gaucht Questions U.S. Over Trade, Raps Yuan. The European Union wants more engagement by the United States to restart global trade talks and allay EU fears of U.S. protectionism, the bloc's trade commissioner said in newspaper interviews published on Thursday. On China, Belgian Karel De Gucht reiterated that Beijing was manipulating its yuan currency. "The yuan is under-priced. It certainly has an impact on their (U.S.) export and trade patterns. The complaint is legitimate," he told the Financial Times newspaper. De Gucht questioned U.S. President Barack Obama's recent choice of words when setting a goal of doubling U.S. exports over the next five years. "It is interesting to note ... that he speaks about 'exports' and not about 'trade'," De Gucht was quoted as saying. "Trade means also accepting that imports are doubling. I don't think it's by accident that the word export is used instead of trade."
  • Broadcom(BRCM) Sees Sales Growth, More M&As. U.S. chipmaker Broadcom Corp (BRCM) expects to exceed the global semiconductor industry's sales growth this year on rising consumer appetite for new mobile devices and TVs, its chief executive said.
Financial Times:
  • MEPs to Continue with Hedge Fund Revisions. European lawmakers pledged to forge ahead with their own efforts to revise controversial EU proposals to regulate hedge funds and private equity fund on a pan-European basis for the first time, in spite of an impasse amongst member states. On Tuesday, efforts to reach a compromise agreement amongst EU member states failed because of a refusal by the UK to concede on a couple of key issues. On Wednesday, MEPs, who must also approve new rules, said they would carry out hammering out their own amendments to the original, much-criticised proposals put forward by the European Commission. Jean-Paul Gauzes, the French MEP who is steering the package through the European Parliament, said the stalemate amongst member states “shouldn’t alter our schedule too much”. “We shouldn’t wait for the council (member states) to take a decision,” he added, a sentiment subsequently supported by MEPs from most of the big political groupings in the parliament. This means that the key parliamentary committee is likely to vote of proposed amendments in April.
  • Commission to Back Curbs on Swaps. Brussels is to propose steps to tackle speculative trading, notably in relation to credit default swaps on sovereign debt - the financial instrument of choice for those who take bets against European governments, most recently in Greece. Michel Barnier, the EU internal market commissioner, said in a speech to European lawmakers he planned to propose a text that would provide a "framework" to cover purely speculative "naked" short selling: "Notably, where this relates to CDS on sovereign debt." "I hope, with these measures, we will have better and safer markets, without discouraging financial innovation," he told MEPs in the European parliament. Mr Barnier did not give details of planned measures. Commission officials indicated a whole range of possibilities would be considered.

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