Tuesday, March 23, 2010

Today's Headlines


  • States Sue to Block Health Care Reform as Illegal. Thirteen states filed a lawsuit challenging the constitutionality of the health-care overhaul signed by U.S. President Barack Obama, said Bill McCollum, Florida’s attorney general. The states claim the legislation, signed today, places a fiscal burden on their cash-strapped budgets with an expansion of state-run Medicaid. The lawsuit seeks to bar enforcement of the healthcare legislation while the case proceeds in federal court in Pensacola, Florida. Also joining Florida in the lawsuit were Alabama, Colorado, Idaho, Louisiana, Michigan, Nebraska, Pennsylvania, South Carolina, South Dakota, Texas, Utah, and Washington. A copy of the complaint was posted on the Florida attorney general’s Web site. “Florida will not permit the constitutional rights of our citizens and the sovereignty of our state to be ignored or disregarded,” McCollum said in a statement.
  • Germany, France Back IMF Aid to Greece, Official Says. Germany and France have agreed to back International Monetary Fund aid for Greece, a German Finance Ministry official said, signaling a joint position after weeks of dispute over how to resolve the Greek crisis. Germany and France, the euro region’s two biggest economies, are now pulling together before a two-day EU summit in Brussels beginning March 25, the official said on condition of anonymity.
  • U.S. Economy: Sales of Existing Homes Decrease, Supply Climbs. Sales of existing U.S. homes fell in February for a third month, and the number of properties on the market climbed by the most in almost two years, casting a pall over the prospects for a recovery. Purchases dropped 0.6 percent to a 5.02 million annual rate, the lowest level in eight months, figures from the National Association of Realtors showed today in Washington. There were 3.59 million houses for sale, a 312,000 increase from January that marked the biggest gain since April 2008. The median price of a previously owned house decreased 1.8 percent to $165,100 from $168,200 a year ago, today’s report showed. The number of homes on the market jumped 9.5 percent, pushing the time it would take to sell all properties at the current sales pace up to 8.6 months from 7.8 months at the end of January. The increase in supply last month was “unusual” and “discomforting,” Lawrence Yun, the Realtors’ chief economist, said in a news conference. The jump may be caused by more distressed properties coming on the market, particularly condominiums, and by trade-up buyers who are now putting their houses up for sale before purchasing another property, he said. If inventories exceed a 10-months’ supply, it would lead to larger price declines and signal the housing slump was not over, he said.
  • Junk Defaults May Swell in 2011 as Debt Matures, Moody's Says. Defaults in Asia may rise next year as speculative-grade companies struggle to refinance maturing U.S. dollar debt, according to Moody’s Investors Service. The dollar bond refunding requirement in 2012 for high- yield companies in Asia is “concentrated among single-B issuers typically characterized as having limited financial flexibility,” Elizabeth Allen, a Moody’s vice president, wrote in a note to clients today. Debt maturing in 2011 and 2012 will be “higher than the historical average, indicating this will be a challenging issue after 2010.”
  • Leveraged Buyout Revival Seen in Default Swaps: Credit Markets. Credit-default swaps tied to the bonds of borrowers from Computer Sciences Corp. to Lubrizol Corp. are rising on speculation that leveraged buyouts will accelerate, saddling takeover targets with added debt. “Private-equity shops do have quite a bit of money on the sidelines,” said Mikhail Foux, a New York-based credit strategist at Citigroup Inc.
  • Gold May Fall to $1,074, Commerzbank Says: Technical Analysis.
  • Gold May Drop to $1,030 as Dollar Favored, GFMS Analytics Says. Gold may decline to $1,030 an ounce in the next few weeks as sovereign debt problems in Europe prompt investors to favor the dollar as an asset of “first resort,” GFMS Analytics Ltd. said.
  • Importers Defer Buying as Sugar Drops to 8-Month Low. Sugar buyers in India, the world’s biggest consumer, and other importers will probably defer purchases until prices stabilize after falling to an eight-month low, according to broker Sucden India Pvt. Sugar has tumbled 41 percent from a 29-year high of 30.4 cents per pound on Feb. 1 amid bets that global production will rebound after rain and drought cut output in Brazil and India. Al Khaleej Sugar Co., the world’s largest refiner, hasn’t increased sales as buyers may be waiting for even lower prices, according to General Manager Cyrus Raja. Waning demand may push down prices before cane harvesting next month in Brazil, the biggest producer, and reduce costs for importers from Egypt to Pakistan. Output in the Center South of Brazil, the largest growing area, will climb about 12 percent to 34.7 million tons next season, FCStone Group Inc. said March 15.
  • Google(GOOG) Exit Reminds Companies Asia Strategy Is Not Just China. Google Inc.’s retreat from China, where U.S. executives say the business climate is becoming less welcoming, may hasten moves by foreign companies to look beyond the world’s fastest-growing major economy for expansion in Asia. Google rerouted its Chinese Web site and today began directing traffic to Hong Kong, fulfilling a pledge to stop censoring searches as required by China. The move follows an American Chamber of Commerce report released in Beijing yesterday that said some U.S. businesses are losing Chinese sales because of rules to support home-grown technology. While China still “is the biggest game in town,” more recently “I see a lot of U.S. companies looking for alternatives,” Susan Schwab, U.S. Trade Representative between 2006 and 2009, said in an interview in Hong Kong last week.
  • Gregg Aims to Use Health-Care Bill to Stir Town-Hall Backlash. Senator Judd Gregg, who will lead Republican efforts to block a bill revising health-care legislation, said he’s aiming to spark an election-year backlash against Democrats that will rival the town-hall meetings that almost sank the measure last year. With the latest legislative fight expected to begin today, Gregg said Republicans will submit a host of amendments to the reconciliation bill, which the House approved on March 21 along with a broad health-care measure and sent to the Senate. Senate Democrats say they hope to finish this week. Gregg has other ideas, saying his goal is to force changes in the reconciliation bill. That would require the House to vote again on the bill, perhaps after a two-week Easter recess beginning March 26, during which Democrats could get an earful from voters, keeping the issue alive during this year’s congressional elections. “It will make last August look like a love fest,” Gregg, 63, said in an interview, referring to the town-hall meetings where constituents protested President Barack Obama’s plans for the biggest U.S. health overhaul in 45 years. “The only issue between now and the next election will be the repeal of it,” said Gregg, of New Hampshire, the top Republican on the Budget Committee. “Every election will turn on it. There will be nothing else.” Senator Ben Nelson, a Nebraska Democrat who voted for the broad health-care bill, gave the Republicans a boost yesterday when he said he couldn’t support the reconciliation measure. He cited student-loan provisions that amount to a “government takeover” of student lending, he said in a statement.
  • Euro May Drop to $1.25 as Greece Woes Persist, Nordvig Says. The euro may fall as low as $1.25 by year-end as Greece’s fiscal crisis drives investors from the region, said Nomura Holdings Inc.’s Jens Nordvig. “The continued uncertainty about the resolution is triggering a medium term asset allocation shift away from euros,” Nordvig, a managing director of currency research at Nomura Securities International in New York, said during a Bloomberg Radio interview. “It’s the longer-term players that are changing how they invest in the euro zone.”
Wall Street Journal:
  • Ford(F) on Course to Sell Volvo to Geely.
  • Start-up Turns Sugar Beets Into Alternative to Gasoline. A biofuels start-up, working with oil giant Royal Dutch Shell PLC, has begun turning sugar beets into a gasoline substitute compatible with existing engines and pipelines. Virent Energy Systems Inc. is expected to say Tuesday that its process of converting plants into liquid fuels is working at a 10,000-gallon-a-year pilot site in Madison, Wisc. "At today's crude-oil and biomass costs, our process is competitive," says Lee Edwards, Virent's chief executive.
  • 'Sarah Palin's Alaska' Goes to Discovery. The Discovery Channel is expected to announce a reality television deal with Sarah Palin, in which the former Alaska governor will highlight her home state, Variety reports.
Fox News:
  • Greek Bank Reportedly Had $1.3 Bln of CDS. Greece's state-controlled Hellenic Post Bank bought around 950 million euros ($1.28 billion) of credit default swaps on the country's debt in August, according to a report in newspaper Kathimerini. The bank's management sold the CDS in December, when the spread on five-year Greek bonds over the German bund had widened to 2.35 percentage points from 1.35 percentage points, the newspaper said. It added the bank made a profit of around 35 million euros on the transaction, the report said, citing documents seen by the newspaper.
Business Insider:
Rasmussen Reports:
  • 49% Support State Lawsuits Against Health Care Plan. Forty-nine percent (49%) of U.S. voters favor their state suing the federal government to fight the requirement in the new national health care plan that every American must obtain health insurance. A new Rasmussen Reports national telephone survey of likely voters finds that 37% disagree and oppose their state suing to challenge that requirement.
  • After Health Care, a Climate Bill Push. Disagreement among Senate Democrats is slowing progress on the climate bill – even as supporters push to move forward with a proposal this week. Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) have been working overtime to move a draft of their climate bill forward before the Senate leaves for recess at the end of the week.
Real Clear Politics:
Il Messaggero:
  • Former European Commission President Romano Prodi said the euro will be damaged if Greece is forced to seek a bailout from the International Monetary Fund instead of the European Union, citing an editorial.
Financial Post:
  • U.S. Faces Possible US$52B Tax Hike. Not only is the cost of doing business in the United States set to rise with the passing of Barack Obama's health-care reform bill, but the expense for taxpayers may also be higher than anticipated. With an additional 32 million Americans expected to eventually receive health insurance coverage, much of the price tag will be paid by businesses. The U.S. Chamber of Commerce, which criticized the bill for saddling an already burdened corporate America with additional costs, noted that it will lead to US$52-billion in new taxes on companies as a result of the requirement that more employees be covered by insurance. At the same time, the organization said the legislation creates 16,500 new jobs in the Internal Revenue Service. "The House made a wrong and unfortunate decision that ignores the will of the American people," said Thomas Donohue, the Chamber's chief executive. "It will drive up health-care costs and make coverage less affordable for businesses and families.... It will further expand entitlements and explode the deficit, and raises taxes by a half a trillion dollars at the worst possible time." Construction equipment giant Caterpillar Inc., for example, estimates its insurance costs will rise by US$100-million, or 20%, in the first year alone. "We can ill-afford cost increases that place us at a disadvantage versus our global competitors," Gregory Folley, the company's vice-president and chief human resources officer, said in a recent letter to House leaders. "We are disappointed that efforts at reform have not addressed the cost concerns we've raised throughout the year." Most key provisions of the healthcare reform bill do not take effect until 2014. Meantime, the regulations that govern these changes will need to be drafted. There will also be two election cycles before then, which could affect what is ultimately implemented. Business will not be alone paying, so will taxpayers. "They passed this bill, but it's not done yet," said Andrew Busch, global currency strategist at BMO Capital Markets in Chicago. "There is still quite a bit to change." The reconciliation bill's price tag is lower at US$875-billion over 10 years, but it includes heftier subsidies to lower-income groups at the expense of higher taxes. The potential changes by Senate parliamentarians will depend on what they feel directly affects the budget. If the Senate makes any changes to this "side-car" bill, the House would need to vote on it again before it is sent to the President for signing. Calling the CBO's US$138-billion estimate "false advertising" and the reform terminology a "misnomer," Citigroup Inc. health-care analyst Charles Boorady said the bill will result in an additional US$1-trillion in U.S. health-care spending over the next 10 years. One the biggest assumptions included in the bill is more than US$400-billion in Medicare savings over the next decade. "I don't think Congress has any kind of history with reducing Medicare spending-- ever," Mr. Busch said. "I can't envision that they'll be able to cut spending for Medicare and send it over to another portion of the bill. It just doesn't seem to make any sense."

No comments: