Thursday, March 25, 2010

Today's Headlines


  • U.S. Bank Plans Don't Tackle Cause of Crisis, RBC's Nixon Says. The U.S. government’s proposed rules to rein in banks by limiting proprietary trading and investments in hedge funds don’t address the cause of the global financial crisis, Royal Bank of Canada Chief Executive Officer Gordon Nixon said. “It doesn’t do a lot in terms of reducing systemic risks,” Nixon said in an interview yesterday at Bloomberg’s New York headquarters. “Most of the institutions that actually went under weren’t even in the proprietary trading or hedge fund business.” "The business will move; it will either move into unregulated entities, or move geographically into other markets,” Nixon said. “A much better approach to proprietary trading is to ensure that you’ve got the appropriate amount of capital allocated against those risks that are being taken.” If it’s done properly, Nixon said, people will take less risks because it’s too expensive. A series of banking rules and reforms from several jurisdictions are getting “too complicated” and will hamper banks’ abilities to lend, Nixon also said. “You’ve got this jurisdictional battle going on,” said Nixon, who was in New York to accept an award from the research firm Catalyst for diversity. “You have a set of potential rules which are way more complicated than they have to be or should be.” Nixon called instead for simplicity. “Focus on the key drivers of what created the systemic risk, which is built around ensuring effective capitalization levels and ensuring there is not excessive leverage in the system.”
  • Ambac Subprime Contracts Taken By Wisconsin Regulator. Ambac Financial Group Inc. will hand control of subprime mortgage-related contracts to a regulator amid concern the second-largest bond insurer’s collapse would trigger losses for municipal noteholders. Ambac Assurance Corp., which guarantees $696 billion of debt payments, will set up a segregated account for insurance contracts linked to credit-default swaps, residential mortgage- backed securities and other structured finance transactions, the parent company said in a statement. The Wisconsin Office of the Commissioner of Insurance ordered the handover to “protect policyholders, including investors in thousands of state and local municipal bond issues,” according to a separate statement. “While there’s clearly significant uncertainty, the potential outcome of these actions for Ambac Assurance is positive in that it may emerge stronger and without the threat of rehabilitation hanging over it,” said Michael Cox, a structured-finance strategist at Chalkhill Partners LLP in London.
  • Copper, Gold Trading Limits Weighed by U.S. Commodity Regulator. U.S. regulators are considering limits on how much of the market for metals including gold and copper that speculators can control after last year’s financial crisis spurred record swings in prices. Hedge funds and other large speculators are “contorting” the market, according to Bart Chilton, one of five members of the U.S. Commodity Futures Trading Commission, which will hear the views of analysts, investors and exchange officials at a public meeting today in Washington. Position limits “will force speculators to exit these markets, thereby reducing their dominance and eliminating the possibility of speculative price bubbles,” said Michael Masters, the founder of Masters Capital Management, who is scheduled to testify at today’s meeting. “Passive speculators are an invasive species that will continue to damage the markets until they are eradicated,” said Masters, whose fund is based in St. Croix, U.S. Virgin Islands. “When passive speculators are eliminated from the markets, then most consumable commodities derivatives markets will no longer be excessively speculative, and their intended functions will be restored.”
  • Zinc imports by China, the world's largest consumer, may slump almost 60% this year as domestic production increases, said a CBI China Co. analyst. China ramped up production of metals and boosted imports to records last year as the government's stimulus plan spurred construction and automobile sales. Zinc is used to galvanize steel. Smelters have restarted plants as prices gained 61% in the past year in Shanghai, boosting inventories. "High metal stocks seem to have little impact on prices," said Huw Roberts, an analyst at CHR Metals Ltd., in Shenzhen today. Zinc stockpiles in China have increased to more than double the amount stored in warehouses monitored by the Shanghai Futures Exchange after output jumped, according to CBI China. Inventories in commercial warehouses in Shanghai and Guangdong increased to about 460,000 tons in the middle of this month from 380,000 tons at the end of 2009, CBI has said. Ouput of zinc increased 48% to 739,000 tons in the first two months and copper gained 16% to 702,000 tons, government figures show. Production may increase to 5.18 million tons this year from 4.36 million tons in 2009, CBI's Gao said.
  • China's supply of nickel in pig iron may increase 30% this year, capping gains in prices of the refined metal in London, an executive from Shanghai Tsingshan Mineral Co. said.
  • Goldman Sachs(GS) Quits Losing Bet on Euro-Dollar Advance. Goldman Sachs Group Inc. exited a bet the euro would climb against the dollar after the trade lost 2.8 percent amid concern the European Union is unable to agree on an aid plan for Greece, undermining the common currency. “We have clearly underestimated the impact on the euro from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends,” five analysts including Thomas Stolper, London-based economist at Goldman Sachs, wrote in an e-mail to Bloomberg today. “These political headwinds currently matter far more for the euro than the cyclical factors.”
  • Best Buy(BBY) Surges as Profit Tops Analyst's Estimates on TVs. Best Buy Co. climbed the most in almost 10 months in New York trading after fourth-quarter profit and its full-year earnings forecast exceeded analysts’ estimates. Earnings rose to $1.82 in the quarter ended Feb. 27, the Richfield, Minnesota-based retailer said today in a statement. Analysts projected $1.79, the average of estimates compiled by Bloomberg. U.S. same-store sales advanced 7.4 percent after Best Buy cut prices of flat-panel TVs before the National Football League’s Super Bowl championship game on Feb. 7 and offered discounts during the holidays. Sales at international stores open at least 14 months increased 5.5 percent, topping some analysts’ estimates.
  • Qualcomm(QCOM) Jumps Most Since 2008 After Forecast Boost. Qualcomm Inc., the world’s biggest maker of mobile-phone chips, climbed the most in more than a year in Nasdaq Stock Market trading after boosting its second- quarter profit and sales forecasts. Profit, excluding some items, will be 56 cents to 58 cents a share in the period ending this month, compared with an earlier target of as much as 53 cents, Qualcomm said today. Analysts in a Bloomberg survey projected 52 cents on average.
  • Obama Tax's $14 Billion Charge Starts at Caterpillar(CAT). Caterpillar Inc. lobbied to keep the U.S. from taxing a subsidy on retiree drug benefits. It lost the battle when President Barack Obama signed an almost $1 trillion health-care overhaul into law this week. The world’s largest maker of bulldozers put a price tag on that defeat yesterday: a $100 million charge to earnings. Disclosures by Caterpillar and AK Steel Holding Corp.(AKS) in the two days since the signing are the first sets of health-care charges that ultimately may shave as much as $14 billion from U.S. corporate profits, according to an estimate by benefits consultancy Towers Watson.
  • Bin Laden Threatens Deaths If Mohammed Is Executed. Al-Qaeda leader Osama Bin Laden warned that more Americans would be killed if the self- proclaimed mastermind behind the Sept. 11 attacks is executed, according to an audio tape aired by al-Jazeera. “The day America will take such a decision it will have taken a decision to execute whomever we capture,” Bin Laden said on the audio tape. Khalid Sheikh Mohammed and four accused conspirators are to go on trial in the U.S. and the government intends to seek the death penalty. In the recording, the al-Qaeda leader also warned President Barack Obama of further attacks on U.S. soil if the Palestinian “situation” isn’t resolved.
  • U.S. Treasury Said to Have Plan for Citigroup(C) Shares. The U.S. Treasury intends to unload its 27 percent stake in bailed-out bank Citigroup Inc. using a preset trading plan that will lock the government into a schedule for selling its shares, people with direct knowledge of the matter said.
  • Natural Gas Falls Below $4 as Supplies Gain More Than Forecast. Natural gas fell below $4 per million British thermal units for the first time in almost six months as a government report showed that U.S. inventories of the power-plant fuel rose more than analysts anticipated. Inventories gained 11 billion cubic feet in the week ended March 19 to 1.626 trillion cubic feet, the Energy Department said today. Analysts forecast an increase of 8 billion. The five-year average change is a decline of 37 billion. “Everything is working against gas,” said Tom Orr, research director at Weeden & Co., a brokerage in Greenwich, Connecticut. “There are no fundamental catalysts that will happen now for at least a couple of months.”

Wall Street Journal:
  • U.S. Softens Sanction Plan Against Iran. The U.S. has backed away from pursuing a number of tough measures against Iran in order to win support from Russia and China for a new United Nations Security Council resolution on sanctions, according to people familiar with the matter. Among provisions removed from the original draft resolution the U.S. sent to key allies last month were sanctions aimed at choking off Tehran's access to international banking services and capital markets, and closing international airspace and waters to Iran's national air cargo and shipping lines, according to the people.
  • SEC Scrutinizes Bets Made by Hedge Funds. Federal regulators are probing bets made against stocks before new offerings, in inquiries focused on hedge funds including Appaloosa Management LP and Carlson Capital LP. Appaloosa, a $13 billion New Jersey firm run by David Tepper, has been scrutinized by the Securities and Exchange Commission over trades it made around the time Wells Fargo & Co. agreed to acquire Wachovia Corp. in 2008.
  • Higher Prices Make Box-Office Debut. Major U.S. movie-theater chains, seeking to capitalize on the surge in revenues fueled by such 3-D hits as "Avatar" and "Alice in Wonderland," are imposing some of the steepest increases in ticket prices in at least a decade. The new prices take effect Friday in many markets across the country in theaters owned by such major exhibitors as Regal Entertainment Group, Cinemark Holdings Inc. and AMC Entertainment Inc. The increases, in one case as much as 26%, vary from theater to theater, but many cinemas are raising prices most—or even solely—for 3-D showings.
  • Mossberg's Most Wanted Questions on iPad.
  • RBS Default Swaps Rise on Speculation of Debt Restructuring. Credit-default swaps linked to Royal Bank Of Scotland Group Plc rose amid speculation the U.K. state-controlled lender plans to restructure as much as 15 billion pounds ($22 billion) of subordinated debt. The cost of insuring RBS’s senior bonds against a default climbed 10 basis points to 152, the highest level in almost a month, according CMA DataVision in London.
  • King Dollar Is a Game Changer. The biggest story out there right now has got to be the re-emergence of King Dollar. This could be a major game changer for both Wall Street and Washington. All the dollar bears from the beginning of this year, and all the gold bulls, have been completely and utterly wrong.
  • Deere(DE) Projects $150 Million Hit From Health Care Reform. Farm equipment maker Deere expects after-tax expenses to rise by $150 million this year as a result of the health care reform law President Barack Obama signed this week.
  • Treasury Will Soon Have to Pay More to Finance Growing Debt. The US government could soon have to reward investors more handsomely for helping to finance its debt.Treasury auctions this week served notice that the market is beginning to reach a saturation point as hundreds of billions flow in every couple of weeks.
NY Times:
  • Social Security to See Payout Exceed Pay-In This Year. The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security. This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office. Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual. The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.
Business Insider:
Institutional Investor:
  • Andrew Cuomo's Subprime Skeletons. In June 2000, near the end of his four-year tenure as U.S. secretary for the Department of Housing and Urban Development during the Clinton administration, Cuomo warned in a prescient 119-page report that demand for mortgage-backed securities was driving Wall Street into the risky business of subprime lending. He cautioned that unscrupulous lenders were doling out loans without proof of borrowers’ ability to repay. And he recommended making mortgage transactions more transparent, prohibiting practices that injure consumers, restricting abusive transactions and issuing more prime loans. Yet according to experts on housing policy, Cuomo was one of many politicians in Washington in the late 1990s who inadvertently helped plant the seeds of the subprime mortgage implosion by easing terms on federally insured home loans. They were trying to do the right thing — fight home-lending practices that discriminated against ethnic minorities — but some point to dire consequences.
Washington Post:
The Detroit News:
Detroit Free Press:
Las Vegas Sun:
  • State Retirement Fund Fires Goldman Sachs(GS), Other Fund Manager. The Nevada Public Employees Retirement System today fired Goldman Sachs and Quantitative Management Associates as portfolio managers. Goldman Sachs managed $600 million and Quantitative Management handled $500 million of the system's $22.5 billion in holdings. Calling it a "very rare" occurrence, System Investment Officer Ken Lambert said the firings were due to under performance in return on investment. Thirty firms have been fired in the last 30 years by the board, Lambert said. The $1.1 billion will be temporarily managed by Mellon Capital until the board decides next month who should manage the investment, said Lambert.
Rasmussen Reports:
  • 55% Favor Repeal of Health Care Bill. Just before the House of Representatives passed sweeping health care legislation last Sunday, 41% of voters nationwide favored the legislationwhile 54% were opposed. Now that President Obama has signed the legislation into law, most voters want to see it repealed. The latest Rasmussen Reports national telephone survey, conducted on the first two nights after the president signed the bill, shows that 55% favor repealing the legislation. Forty-two percent (42%) oppose repeal.
  • S&P to Review Status of Five Dubai Govt Firms. Standard & Poor's will reassess the credit ratings status of five Dubai government-linked firms following an "extremely positive" debt proposal for the emirate's flagship Dubai World conglomerate. The ratings agency downgraded six Dubai government-related companies in December shortly after Dubai World said it needed to delay repayment on about $26 billion of debts. S&P had warned it might downgrade the companies again. Dubai's government said on Thursday it would inject $9.5 billion and recapitalise debt-laden Dubai World and fully repay bonds for its Nakheel property unit when they fell due. "It is extremely positive news," Farouk Soussa, head of Middle East government ratings at S&P, told Reuters.
  • U.S. Serious Mortgage Delinquencies Jump in Q4.
  • Ford(F) Sees More Gains in U.S. Market Share in March.
Financial Times:
  • Censorship Fears Grow as IBM(IBM) Tool Bolsters Chinese Spam Curb. IBM has developed a system for the detection and analysis of spam text messages for China Mobile that would help the world's largest mobile operator track social networking groups and their messaging habits. The initiative comes in response to a large-scale government campaign to root out SMS spam and increase monitoring of text messaging flows. Although IBM said the tool's purpose is to fight spam, analysts expressed concerns that its design could also make it yet another instrument for censorship.
Frankfurter Allgemeine Zeitung:
  • The financial crisis in the shipping business is likely to continue for two to three years, citing Ralf Nagel, head of the German shipping companies association. As many as 1,000 German ship owners out of 3,500 may face liquidity problems, Nagel said.

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