Tuesday, March 30, 2010

Today's Headlines


  • Greece Leads Rise in Sovereign Credit Risk as Bonds Struggle. Greece led a rise in the cost of credit-default swaps on sovereign debt as a poor reception for the country’s new bonds triggered concern that Europe’s most indebted nations could struggle to fund their budget deficits. Contracts on Greek government debt climbed 20 basis points to 335.5 in London, the highest in more than a week, according to CMA DataVision. Swaps on Spain, Portugal, Italy and Ireland also climbed and the Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose 3.5 basis points to 82, the widest level in a month. Greece’s new 5 billion euros ($6.7 billion) of seven-year bonds fell after the European country with the biggest budget deficit failed to offer investors a premium over existing debt. Bondholders are concerned the country may struggle to borrow the 30 billion euros it needs, part of the more than 2 trillion euros that countries in the region have to raise this year. “The Greek debt crisis is far from over,” said Tim Brunne, a credit strategist at UniCredit SpA in Munich. “The fundamental problems are still the same.” Contracts on Spain increased 3.5 basis points to 114, Portugal widened 6 basis points to 141 and Italy gained 4 basis points to 113. Ireland widened 4 basis point to 138.
  • Downtown New York Towers Empty as Best Market Falters. Downtown Manhattan, where demand for office space began to surge three years after the 9/11 terrorist attacks, is about to lose its spot as the best- performing U.S. market. Vacancies may exceed 14 percent of the area’s 87 million square feet by late 2011, empty space that’s equivalent to four Empire State Buildings and the highest rate since 1997, according to property broker Cushman & Wakefield Inc. That doesn’t include the 4.4 million square feet of offices in two towers now under construction at the World Trade Center site. Those are scheduled for completion in 2013. “The amount of space that’s potentially going to come to the market will increase availabilities and put pressure on pricing,” said Kenneth McCarthy, Cushman’s head of New York- area research. “It will be quite awhile before it can be absorbed.”
  • Fed's Evans Says Jobless May Exceed 9% at Year-End. Federal Reserve Bank of Chicago President Charles Evans said the U.S. jobless rate may remain higher than 9 percent at the end of this year, underscoring the potential need to keep interest rates low into 2011. The unemployment rate may be “nine and a quarter” at the end of 2010, and higher than 7 percent at the end of 2011, Evans said in an interview with Bloomberg Television today in Hong Kong. A government report this week may show the rate was 9.7 percent in March, according to the median forecast in a Bloomberg News survey.
  • Prime Brokerages Should Give Clients Daily Reports. Prime Brokerages Should Give Clients Daily Reports. Investment firms must give hedge- fund clients daily reports on how their money is being held and if it has been reinvested, a U.K. regulator said in proposals responding to the collapse of Lehman Brothers Holdings Inc. Around 35 U.K. prime brokerages will be able to invest a maximum of 20 percent of client deposits in their group’s bank accounts and will have to give clients daily updates on whether their money has been re-used as collateral for loans, under the proposals published today by the Financial Services Authority.
  • Ireland's 'Worst Fears Surpassed' as Banks Need $42.7 Billion. Ireland’s banks may need at least 31.8 billion euros ($42.7 billion) in new capital after a real- estate slump left them crippled by mounting bad loans. The fundraising requirement was announced after the National Asset Management Agency, the country’s so-called bad bank, said it will apply an average discount of 47 percent on the first block of loans it is taking over from lenders and the country’s financial regulator set new capital targets. The discount compares with the government’s initial 30 percent estimate. “Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin today. “The detailed information that has emerged from the banks in the course of the process is truly shocking.”

Wall Street Journal:
  • Best Buy(BBY) Announces First U.K. Store. U.S.-based Best Buy Co., the world's biggest consumer-electronics company, said Monday it will open its first U.K. store in May--a move that ups competition in the retailing of computers, home-entertainment and audio systems. The 50,000-square-foot flagship megastore in Thurrock, East London, will be the first of five so-called big-box stores Best Buy plans open in the U.K. this year.
  • Obama Steps Up Confrontation. White House Seeks to Rally Supporters With Aggressive Tone Against Opponents.
  • Hedge Fund Group Spent $1.1 Million Lobbying in 4Q. A trade group representing hedge funds spent nearly $1.1 million in the fourth quarter lobbying federal officials on proposed financial regulations, including a measure that would require hedge funds to register with the Securities and Exchange Commission. The $1.08 million that the Managed Funds Association spent on lobbying in the latest quarter was about double the $520,000 it spent in the period a year earlier. The group's lobbying total for the latest quarter also tops the $910,000 it spent the previous quarter.
Business Insider:
  • Goldman(GS): CDS Traders Getting Aggressive On U.S. Banks. Goldman's Equity, Credit, and Options Market Monitor, part of their cross-product research platform argues that the fixed income market, via credit default swaps, is pushing a bullish case for U.S. financial stocks. Thus they're part of the recent excitement over U.S. banks from Wall St.:
  • Your Health Insurer's Next Move: Tell You To Take A Hike To A Mexican Hospital. The Medical Tourism Association predicts increased use of international treatment among insurers, as expanded coverage pushes up costs. "Companies could not bear the cost of health insurance as it is, and they certainly won't be able to once cost skyrockets," said association CEO John Edelheit. Indeed, major insurers like Aetna have already launched medical tourism pilot programs, so they can cover you while also saving a buck.
  • OPEC Dying To Convince The World It Can Still Maintain $80 Oil. OPEC member states' compliance with production quota's has fallen to a dismal 54%, something Secretary-General Abdalla El-Badri isn't too happy with. At the same time, its traditional power structure with Saudi Arabia as undisputed production king is under attack by the rise of Iraqi oil production potential. Now, to make matters even more uncertain for the cartel, the non-OPEC world is increasing its production relatively quickly as well. According to OPEC's latest March report, even though their production levels remain well below mid-2008 levels, total world supply is already back up there. (shown below) Thus non-members are becoming more significant, Iraq wants to let loose production, and even many OPEC members aren't even listening to the quotas from central command.
cnet news:
Lloyd's List:
  • Shanghai Slowdown Sees Profits Drop. CHINA’s largest port operator, Shanghai International Port (Group), succumbed to an 18.6% decrease in net profit last year to Yuan3.7bn ($553m) from Yuan4.7bn in 2008, as a result of substantial declines in container throughput.
  • UN Climate Change Group to Debate Levy on Shipping. SHIPPING could face a further challenge regarding its contribution to climate change as the UN-sponsored Advisory Group on Climate Change Financing holds its first meeting in London tomorrow, co-chaired by British Prime Minister Gordon Brown and his Ethiopian counterpart Meles Zenawi.
Rasmussen Reports:
  • National Sales Tax Still Unpopular. A new Rasmussen Reports national telephone survey finds that 37% of voters nationwide favor a national sales tax if the money is used to pay for health care for all Americans, but 51% oppose that idea. These findings are unchanged from December. Take health care out of the equation, however, and opposition to a national sales tax on all goods and services is higher. Only 22% favor a national sales tax as a way for the government to raise more money, while 60% are opposed.
Real Clear Politics:
USA Today:
  • Health Care Law Too Costly, Most Say. Nearly two-thirds of Americans say the health care overhaul signed into law last week costs too much and expands the government's role in health care too far, a USA TODAY/Gallup Poll finds, underscoring an uphill selling job ahead for President Obama and congressional Democrats. Those surveyed are inclined to fear that the massive legislation will increase their costs and hurt the quality of health care their families receive. The risk for them is that continued opposition will fuel calls for repeal and dog Democrats in November's congressional elections. The bill was enacted without a single Republican vote. Obama's approval rating was 47%-50% — the first time his disapproval rating has hit 50%. In the survey:
  • Majority of Germans Against Aid for Greece - Poll. More than two-thirds of Germans oppose their country's participation in any EU aid package for debt-ridden Greece, a poll taken just before last week's euro zone agreement on a last-resort financial safety net showed. The Forsa survey for Stern magazine, conducted on March 24 and 25 and released on Tuesday, highlighted the risks for Chancellor Angela Merkel if a rescue becomes necessary. Some 68 percent of Germans said they were against aid and only 28 percent thought Berlin should help Greece.
  • Consensus for Financial Regulations Fading: IMF. An international drive to impose new regulations in the wake of the financial crisis is fading and global cooperation is diminishing, the managing director of the International Monetary Fund said on Tuesday. Dominique Strauss-Kahn said world powers had worked well during the height of the crisis in 2008 and 2009, but as the immediate danger passed so did the will to re-write cross border regulations." One of the lessons of the crisis is that facing global challenges we need to have global answers," Strauss-Kahn told the Romanian parliament during a flying visit to Bucharest." This lesson is about to be lost," he said.
  • Gold Slips, Market Eyes Currencies. Gold slipped in afternoon trade on Tuesday, coming under pressure after the euro surrendered earlier gains against the dollar on worries about euro zone fiscal health. The dollar rose against the euro on renewed worries about the ability of Greece and other euro zone countries to fund their deficits. " Activity is mostly to do with the dollar, there is a lot of concern about the euro zone," said Andrey Kryuchenkov, analyst at VTB capital. "However, we still anticipate fairly anemic retail demand for the remainder of the year." "Clearly, a pullback in prices tempted some retail investors to return to the market, which was also reflected in improved sales of gold coins, VTB Capital said. "However, we still anticipate fairly anemic retail demand for the remainder of the year."
  • Invesco Aim Picks Credit Card Stocks to Ride Recovery.
  • FACTBOX - US Health Overhaul to Hit Corporate Profits.
  • US Weekly Gasoline Demand Falls 1.3% - Mastercard.
  • Economist Johnson Urges Breakup of Big Banks. America's big banks must be broken up and their risk-taking curtailed or the world's richest economy will face another massive financial crisis, former IMF chief economist Simon Johnson says in a new book. In "13 Bankers, The Wall Street Takeover and the Next Financial Meltdown," published on Tuesday, Johnson and his co-author James Kwak describe Wall Street as an oligarchy holding the country hostage to its risk-taking. "The crisis exacerbated the problem by allowing the largest banks to get bigger at precisely the moment that the government should have been doing everything in its power to make them smaller," Johnson told Reuters in an interview."The process of saving them ... has allowed them to build themselves up so that their balance sheets are now bigger than they were before the crisis. That doesn't make any sense, the too big to fail problem has become worse."The notion certain banks are too big to fail is the central perception lawmakers in Washington must overcome if they are to undertake meaningful reform, said Johnson, who believes reforms now before Congress will not address systemic problems.Specifically, he says the six biggest banks -- Citigroup (C.N), JP Morgan Chase (JPM.N), Morgan Stanley (MS.N), Goldman Sachs (GS.N), Wells Fargo (WFC.N) and Bank of America (BAC.N) -- should all be cut down to size, Johnson says."We should make them all smaller and safer so that if somebody does fail ... we can let them go through some sort of bankruptcy," he said.
Financial Times:
  • China Invited to Join IEA as Oil Demand Shifts. The head of the International Energy Agency, the developed world’s energy watchdog, has called for China to join the agency and warned that the institution risked losing relevance as energy demand shifted eastward away from its current members. Nobuo Tanaka, executive director of the IEA, told the Financial Times: “Our relevance is under question because half of the energy consumption already is in non-Organisation of Economic Cooperation and Development countries. And for oil it is soon coming that the majority of consumption is happening in non-OECD countries.”
  • The U.S. will likely widen corruption investigations into European companies, citing Aaron Marcu, a NY-based partner with Freshfields Bruckhaus Deringer. U.S. authorities are investigating 111 cases under the Foreign Corrupt Practices Act, a record level.
Die Zeit:
  • White House economic adviser Lawrence Summers said inflation isn't a threat to the U.S. because the economy is growing below its capacity and many people are without a job, citing an interview. That's curbing wage and price pressures, Summers said. Generous liquidity provisions at the height of the financial crisis would only lead to inflation "if we were to see excessive credit supply," he said. However, "the money the government spends or supplies as loans doesn't even balance out the sum of what's disappearing in the deleveraging of companies and people."
  • TSMC, UMC Set to Raise Prices, Sources Say. Taiwan Semiconductor Manufacturing Company (TSMC) plans to raise its prices by 2-6%, whereas United Microelectronics Corporation (UMC) is also mulling a 1-2% price hike, according to industry sources. The price increases may occur in the second quarter of 2010 at the earliest.

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