Friday, March 19, 2010

Today's Headlines


  • Greece Bailout Spat Sparks Surge in PIIGS Credit-Default Swaps. A squabble between the European Union’s biggest members over an aid plan for Greece is triggering a surge in the cost of credit-default swaps linked to some of the region’s most indebted nations. French President Nicolas Sarkozy is opposing Germany’s push for an International Monetary Fund loan to Greece, favoring a European solution for the nation as it struggles to lower the region’s biggest budget deficit. Greek bonds fell as the EU divisions widened. “The battle lines at the upcoming EU council meeting on March 25 to 26 are set,” Philip Gisdakis, a credit strategist at UniCredit Spa in Munich, wrote in a note to investors. Swaps on Greece jumped 22 basis points to 337.5, according to CMA DataVision prices. Contracts on Portugal climbed 14 to 138, Ireland rose 11 to 135.5, Italy increased 7.5 to 105.5 and Spain was up 11 basis points at 112. These countries are collectively known as the PIIGS. Credit-default swaps on Germany climbed 2 basis points to 30.5 and the U.K. added 5 to 79, CMA prices show. The yield on the 10-year Greek bond rose 10 basis points to 6.36 percent as of 3:15 p.m. in London, the highest since Feb. 26, according to generic data compiled by Bloomberg. That pushed the risk premium investors demand to buy 10-year Greek debt over comparable German bonds to 325 basis points, a jump of 25 points the past two days. The cost of protecting European corporate bonds from default rose, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 10 basis points to 428, according to JPMorgan Chase & Co. The index rose 17 basis points since March 12, the first weekly increase since Feb. 5.
  • Trichet Pushes for Transparency Around Credit Default Swaps. European Central Bank President Jean-Claude Trichet said he’s pushing “strongly” for more transparency around credit default swaps. “It seems to me it is the best way in the present period to force, if I may, appropriate transparency, which is very important, and to have better understanding of the risks that are at stake,” Trichet told reporters in Brussels today. “So we are pushing in this direction, on both sides of the Atlantic, very, very strongly.” The European Union may consider banning “purely speculative naked” credit default swaps, European Commission President Jose Barroso said on March 9. German Chancellor Angela Merkel and French President Nicolas Sarkozy have called for a crackdown on derivatives trading to prevent a re-run of the Greek crisis.
  • Gold 'Panic' Buying Ends, Reducing Austrian Coin Sales by 80%. Muenze Oesterreich AG, the Austrian mint that makes the best-selling gold coin in Europe and Japan, said sales have fallen 80 percent this year after buyers began to regain confidence in the global economy. “We’re getting back to business as usual rather than the hectic, panic demand we’ve seen over the last couple of years,” Vienna-based Marketing Director Kerry Tattersall said late yesterday in an interview. Sales of all gold coin types fell to 53,930 ounces in the first two months of 2010, compared with 267,091 ounces in the same period a year before, he said. Gold bar sales fell 74 percent to 69,636 ounces.
  • Crude Oil Drops Most in Six Weeks as Dollar Gains Versus Euro. Crude oil fell the most in six weeks as the dollar strengthened against the euro, curbing the appeal of commodities as an alternative investment. Oil retreated as much as 2.9 percent as speculation that Greece may fail to secure financial assistance from the European Union weakened the euro, which is heading for its biggest weekly decline against the dollar since January. Prices also dropped after failing to sustain a move above $83 a barrel this week. Total U.S. fuel demand dropped the most since November in the week ended March 12, the Energy Department said this week. Consumption decreased by 4.2 percent to 18.8 million barrels a day, 7.8 percent below the five-year average for the second week in March. “This market failed miserably to take out $83,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Are you really in a strong bull market when you can’t take out the highs from January? We’re getting to the point where the market is realizing maybe we’re caught in a trading range.” “We’ve given back all of this week’s gains,” said Michael Fitzpatrick, vice president of energy at MF Global in New York. “The failure at the $81-to-$83 level, the disappearance of momentum in there, certainly suggests that there’s some market weakness.” Crude’s decline accelerated after India, which has the second-largest emerging-market oil demand after China, raised interest rates for the first time since July 2008. “The emerging markets are the only place where demand is going up,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Half of it is in India and China. This could certainly raise questions about how strong growth in India and China can be.”
  • Federal Reserve Must Disclose Bank Bailout Records. The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said. The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released. The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”
  • Greenspan Says Fed, Regulators 'Failed' During Financial Crisis. Former Federal Reserve Chairman Alan Greenspan said the central bank and other U.S. regulators “failed” during the financial crisis because they became too complacent about risks. “Even with the breakdown of private risk-management, the financial system would have held together had the second bulwark against crisis -- our regulatory system -- functioned effectively,” Greenspan said in the text of a speech at a Brookings Institution conference today. “But, under crisis pressure, it too failed." “Even though for years our largest 10 to 15 banking institutions have had permanently assigned on-site examiners to oversee daily operations, many of these banks still were able to take on toxic assets that brought them to their knees,” Greenspan said. Lehman Brothers Holdings Inc., which went bankrupt, and Bear Stearns Cos., acquired by JPMorgan Chase & Co. with help from the Fed, both could have survived on their own if they had adequate capital, Greenspan said. Neither “would have been in trouble” with tangible capital equal to 15 percent of their assets, Greenspan said. His paper proposed that banks may need to hold capital equal to 14 percent of their assets, compared with about 10 percent in mid- 2007 before the financial crisis.
  • India Raises Interest Rates for First Time Since 2008. India’s central bank unexpectedly raised interest rates for the first time in almost two years, saying controlling price-gains has become “imperative’ after inflation accelerated to a 16-month high. Reserve Bank of India Governor Duvvuri Subbarao increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. “This is just the start of the normalization process, we have some way to go,” said Prasanna Ananthasubramaniam, chief economist at ICICI Securities Primary Dealership Ltd. in Mumbai. Prime Minister Manmohan Singh’s top economic advisers Montek Singh Ahluwalia and Chakravarthy Rangarajan this week described India’s inflation rate as “worrying” and “unacceptable” while HSBC Holdings Plc and Nomura Holdings Inc. said the bank was “behind the curve” in raising rates. “Recovery is increasingly taking hold,” the central bank said in its statement. “The developments on the inflation front, however, are a source of concern.”
Business Insider:
  • Democrats Plan Secret $371 Billion Health Care Measure For Later This Year. Democrats are planning a secret $371 billion adjustment to health care legislation later this year, but are keeping it quiet at the moment in order to maintain support for the current reform bill, according to the Politico. The planned alteration in the Sustainable Growth Rate (SGR) formula for Medicare would make the current health reform bill not deficit neutral, and that is why its been held back to be passed alone later this year. Politico gained access to the Democratic strategy document, which also emphasizes the current bill's media plan, noting a preference for conversations on how it increases coverage and is budget neutral, rather than details about the CBO report on costs.
  • 70 Colorado Banks Have High Rate of Bad Loans. A bank research firm says the number of Colorado financial institutions with high levels of delinquent loans has jumped from 13 three years ago to 70 today. About 36 percent of the 195 Colorado banks that Bauer Financial Inc. firm tracks have high levels of bad loans, meaning the banks' nonperforming loans are 3 percent or more of average assets. The U.S. rate is 29 percent, Bauer Financial research director Karen Dorway said.
The Hill:
  • Financial Reform: It's the Derivatives Stupid. Tricky auto loans didn’t cause the financial meltdown on Wall Street. Unscrupulous payday lenders didn’t cost taxpayers a $700 billion “troubled asset” bailout. So fussing about whether U.S. Sen. Chris Dodd’s financial reform legislation contains an independent Consumer Financial Protection Agency is like worrying about whether you’ll lose your tool shed as a conflagration consumes your home. Sure, shielding consumer borrowers would be nice. But safeguarding the entire economy from another collapse is essential. Preserving the economy requires limiting, regulating and exposing derivative trading. That’s because derivatives – those credit default swaps – took down Wall Street. Neither the House of Representatives’ version of financial reform nor Dodd’s proposal adequately deals with derivatives. In fact, the language for derivative regulation isn’t even complete in Dodd’s bill. That is to say, it’s unfinished two years after Bear Stearns toppled onto Wall Street, triggering domino disasters at Lehman Brothers, Merrill Lynch and AIG, and warnings from regulators and politicians of a financial doomsday if taxpayers didn’t hand over their hard-earned cash to save financial institutions accustomed to bonus payments in the billions. In the Alice-in-Wonderland world of Wall Street, derivatives were designed to make investing safer. Instead, in the hands of speculators, they became a form of betting that nearly destroyed the financial world.
  • Missouri Picks Three Hedge Funds, P.E. Shop For Mandates. The Missouri State Employees’ Retirement System has invested $160 million in alternative investment funds. The $7 billion public pension awarded the mandates to four hedge funds and private equity funds in the fourth quarter, Pensions & Investments reports. Three hedge funds each received $50 million allocations. Brevan Howard Asset Management will manage a global value and relative value strategy for MOSERS. Diamondback Capital Management and Elliott International each received multistrategy mandates. MOSERS also invested $10 million with private equity firm DRI Capital.
Chicago Tribune:
  • Caterpillar(CAT): Health Care Bill Would Cost It $100M. Caterpillar Inc. said the health-care overhaul legislation being considered by the U.S. House would increase the company's health-care costs by more than $100 million in the first year alone. In a letter Thursday to House Speaker Nancy Pelosi (D-Calif.) and House Republican Leader John Boehner of Ohio, Caterpillar urged lawmakers to vote against the plan "because of the substantial cost burdens it would place on our shareholders, employees and retirees." Caterpillar, the world's largest construction machinery manufacturer by sales, said it's particularly opposed to provisions in the bill that would expand Medicare taxes and mandate insurance coverage. The legislation would require nearly all companies to provide health insurance for their employees or face large fines. The Peoria-based company said these provisions would increase its insurance costs by at least 20 percent, or more than $100 million, just in the first year of the health-care overhaul program. "We can ill-afford cost increases that place us at a disadvantage versus our global competitors," said the letter signed by Gregory Folley, vice president and chief human resources officer of Caterpillar. "We are disappointed that efforts at reform have not addressed the cost concerns we've raised throughout the year." A letter Thursday to President Barack Obama and members of Congress signed by more than 130 economists predicted the legislation would discourage companies from hiring more workers and would cause reduced hours and wages for those already employed. Caterpillar noted that the company supports efforts to increase the quality and the value of health care for patients as well as lower costs for employer-sponsored insurance coverage. "Unfortunately, neither the current legislation in the House and Senate, nor the president's proposal, meets these goals," the letter said.
Rasmussen Reports:
  • Obamacare Threatens America's Future. Liberals have long dreamed of putting the government in charge of America’s health insurance industry. Each time they tried, the American people have stood up and rejected a government takeover of health care. This is different. The stakes are higher and government-run health care advocates are more united than ever before. They believe their political future depends on this bill’s passage.White House chief of staff Rahm Emanuel set the tone in November 2008. “You never want a serious crisis to go to waste,” he said. “And what I mean by that is an opportunity to do things you think you could not do before.” Emanuel’s directive is the underpinning of the White House’s approach to health care reform. Chicago-style politics continue in Washington as we speak. We are hearing first-hand accounts of how far the White House, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) are willing to go to pass any bill they can claim as a national health care act.
  • China's Steel Supply Far Above Demand - CISA. China's steel output in the first two months of this year was far above demand and exports may drop further this year, while a rise in inventories remains a risk to the sector, a top industry executive said on Friday. "We shouldn't be overly optimistic about the market," Luo Bingsheng, vice chairman of the China Iron and Steel Association, told a steel conference in Tangshan, a big steel producing town near Beijing. "Looking at the market as a whole, Chinese steel mills are still producing too much," he said. Surging rates of fixed asset investment in China would still have a positive impact on steel demand in 2010, but overcapacity was likely to restrict profits and a possible fall in exports would also limit growth.
  • Unemployment Soars in U.S. Metropolitan Areas. Nearly 200 metropolitan areas reported jobless rates of at least 10 percent in January, showing that unemployment problems persist at the local level. California has been especially hard hit during the recession that began in late 2007, and the Labor Department data showed the state's jobs situation continues to deteriorate, with an overall unemployment rate of 12.5 percent in January.The three areas with the highest jobless rates in the country, all above 20 percent, were all located in California, the most populous U.S. state.
  • Latinos Press Obama to Deliver Immigration Reform.
Financial Times:
  • Moscow's 'Nuclear Doctrine' Under Fire. A top Pentagon official has expressed concern at what she describes as Russia’s increasing reliance on nuclear weapons, a trend the US says is at odds with President Barack Obama’s arms control agenda. “There are aspects to their nuclear doctrine, their military activities that we find very troubling,” said Michèle Flournoy, the defence department undersecretary for policy. In an interview with the Financial Times, she said that while Mr Obama had stressed “the importance of reducing the role of nuclear weapons . . . if you read recent Russian military doctrine they are going in the other direction, they are actually increasing their reliance on nuclear weapons, the role in nuclear weapons in their strategy”. Her comments came as Hillary Clinton, secretary of state, visited Russia to help reach a deal on an overdue arms pact. They highlight the challenges to the Obama administration’s bid to address nuclear proliferation through a sequence of treaties and agreements. The administration’s original plan was to use the treaty to build momentum on arms control ahead of a summit on nuclear security that Mr Obama is hosting next month and a conference on the nuclear non-proliferation treaty in May, at which the US wishes to close loopholes exploited by countries such as Iran. Greater reliance by Moscow on nuclear weapons would complicate the US’s planned next step with Russia – a more ambitious treaty to make big cuts in their nuclear arsenals.
  • Greek Labor Minister Andreas Loverdos said unemployment may rise to 12% by the end of March, citing statements by the minister. The number of registered unemployed fell to 10.2% in December from 10.6% the previous month, the country's statistics office in Athens said on Feb.12.
  • Greek Prime Minister George Papandreou said his country is one step away from not being able to borrow in financial markets and the government is taking steps to avoid this situation, according to an audio-transcript of a speech to unions today. "We spoke to all Greeks with complete honesty about the point we are at. One step before inability to borrow," Papandreou said. "With our decisions, as painful and as hard as they might be, we want to avoid exactly this scenario."

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