Tuesday, May 11, 2010

Today's Headlines

  • ECB 'Shock Troops' Go It Alone as Investors Question EU Plan. European Central Bank President Jean- Claude Trichet is buying time for the euro region as investors speculate on whether the $1 trillion bailout plan is enough to stop the sovereign debt crisis. Spanish and Portuguese bonds have rebounded as the ECB snapped up government debt, reversing a rout that threatened the nations’ ability to borrow. At the same time, the euro fell and stock indexes pared yesterday’s gains on concern about how indebted countries will cut deficits and access aid if needed.
  • AIG(AIG) Approves $380 Million of Awards for Managers in 2010 Plan. American International Group Inc. approved a plan to award executives $380 million, based on their performance, as part of an overhaul of pay practices following the insurer’s taxpayer-funded bailout. The payouts are earmarked for as many as 3,000 managers in a long-term incentive plan, for an average of more than $125,000 per recipient, said two people with knowledge of the program. Board members approved the 2010 program in March, New York-based AIG said in a filing last week. That is the same month employees got the final payments from a previous retention bonus program. The new plan covers managers who fall below AIG’s top 100 earners, said the people, who declined to be identified because some details of the program haven’t been disclosed.
  • EU's Barnier Says Hedge-Fund Compromise Is Possible. Michel Barnier, the European Union’s financial services commissioner, said that a final agreement between the U.S. and EU on rules to regulate hedge funds is “possible soon.” “The debate on hedge funds and private equity is in the last stretch” Barnier said following a speech in Washington. He is on a trip to the U.S. to reach a consensus on issues including regulation of banks and their capital requirements.
  • China Stocks Enter Bear Market on Inflation, Property Concerns. dropped, sending the benchmark index into a bear market, on concern the government will raise borrowing costs to combat inflation and unveil more measures to curb soaring housing prices.China’s stocks The Shanghai Composite Index fell 1.9 percent, led by financial companies and commodity producers, after reports showed consumer prices rose the most in 18 months and property values in 70 cities jumped a record 12.8 percent in April. “If inflation isn’t contained, the central bank will have to raise interest rates,” said Zhao Zifeng, who helps oversee about $10.2 billion at China International Fund Management Co. in Shanghai. “We’ll still need to gauge housing prices in the coming months as the previous crackdown measures were put in place not long ago. More tightening policies could follow.” The Shanghai index has dropped more than 20 percent from a November peak, the definition of a so-called bear market, on speculation efforts to rein in the housing market will hurt earnings.
  • Copper Falls in Asia on Dollar, Slowing China Industrial Production. Copper declined in Asia as a stronger dollar reduced the investment appeal of commodities priced in the currency and industrial production growth in China slowed. Aluminum, lead and zinc also dropped. Three-month delivery copper on the London Metal Exchange fell as much as 1.9 percent to $6,986 a ton before trading at $6,995 a ton at 3:05 p.m. in Shanghai as the dollar rose for the first time in three days. “China’s credit tightening and investors’ risk aversion will together strangle any rebound in copper,” Liu Zhuang, an analyst at Haitong Futures Co., said from Shanghai.
  • New Obama Strategy Treats 'War' on Drugs as Public Health Issue. President Barack Obama’s plan to fight drug abuse and trafficking proposes spending $15.5 billion next year and shifting the emphasis from fighting a war on drugs to treating the problem as a national health issue, the administration’s top drug-policy adviser said in an interview. “It’s a disease, it’s diagnosable and it’s certainly something that can be treated -- but it’s not a war,” said Gil Kerlikowske, director of the White House Office of National Drug Control Policy. The president’s plan calls for increasing drug-control spending by 3.5 percent in the fiscal year that begins Oct. 1.
  • Germany, France May Hurt AAA Ratings in 'Ponzi Game'. Germany and France are among top- rated euro-area states that may compromise their AAA grades by standing behind the debts of weaker members with their 750 billion-euro ($955 billion) stabilization fund. The package is “making debt profiles deteriorate, potentially damaging the ratings of core sovereigns,” said Stefan Kolek, a strategist at UniCredit SpA in Munich. “It’s a kind of Ponzi game at the highest level.”
  • Taliban Ties to NY Bomb May Spark Wider Pakistan War. The Pakistan Taliban’s ties to the failed car bomb in New York’s Times Square may ignite an escalating conflict in the South Asian nation as the U.S. pressures its ally to foil future attacks. Secretary of State Hillary Clinton said in a CBS television interview May 9 the U.S. has told Pakistan it would face severe consequences if militants in that country attacked the U.S.
  • Obama Administration Plans Oil Drilling Agency Split. President Barack Obama will propose splitting the government agency that administers offshore oil drilling into two sections as part of the response to the spill in the Gulf of Mexico, White House spokesman Robert Gibbs said.

Wall Street Journal:
Bloomberg Businessweek:
  • EU Governments' Deficit Cuts May Hamper Recovery, IMF Warns. Europe still needs economic-support measures as their early withdrawal may jeopardize the recovery, the International Monetary Fund said, a day after the region’s finance ministers agreed on a rescue package that includes stepped-up budget-deficit cuts. “Aiming to stabilize public debt in the short run is neither feasible nor desirable, given the risk of a relapse into recession and the magnitude of the required fiscal retrenchment,” the IMF said in a report released today. “However, sustainability indicators are flashing warning signs about the public debt in most countries, and sizable consolidation efforts are needed in the medium term.” “It’s not just about giving money or lending money,” European Commission President Jose Barroso said today in Brussels. “It’s about asking the member states of the euro area to make additional efforts” to narrow their deficits. European Central Bank Governing Council member Nout Wellink stressed that the emergency aid facility has a limited lifetime of three years. “If the countries don’t shore up their budgets fast, this will be insufficient,” Wellink said in an interview with Dutch newspaper NRC Handelsblad.
  • Bank of New York Mellon's Ivy Sued by Cuomo on Madoff. Ivy Asset Management LLC, its former Chief Executive Officer Lawrence Simon and ex-Chief Investment Officer Howard Wohl were sued by New York Attorney General Andrew Cuomo and accused of misleading clients about investments tied to Bernard Madoff. Ivy, a New York-based investment adviser owned by Bank of New York Mellon, withheld damaging information about Madoff so the firm could make millions of dollars in fees, Cuomo said today in a statement. From 1998 to 2008, Ivy was paid more than $40 million to give advice and conduct due diligence for clients with large Madoff investments, Cuomo said. Even after the company learned Madoff was not investing client funds as promised, Ivy kept silent so as to not lose the fees, e-mails revealed, according to Cuomo.
  • Home Prices Gain in 91 Cities in First Quarter. Home prices rose in 91 U.S. cities in the first quarter as states hard hit by foreclosures began to recover and a tax credit cut the number of properties for sale. The median price of a single-family home sold in Saginaw, Michigan, doubled to $60,800, the Chicago-based National Association of Realtors said in a report today. Prices in Akron, Ohio, climbed 90 percent to $95,300 and Grand Rapids, Michigan, recorded a 26 percent increase to $90,700. Nationally, the median declined 0.7 percent.
NY Times:
  • Florida Suit Poses a Challenge to Health Care Law. As they constructed the requirement that Americans have health insurance, Democrats in Congress took pains to make their bill as constitutionally impregnable as possible. But despite the health care law’s elaborate scaffolding, attorneys general and governors from 20 states, all but one of them Republicans, have now joined as confident litigants in a bid to topple its central pillar. In the process, they hope to present the Supreme Court with a landmark opportunity to define the limits of federal authority, perhaps for generations. In the seven weeks since the legislation passed, at least a dozen lawsuits have been filed in federal courts to challenge it, according to the Justice Department. But the case that could carry the most weight, and may be on the fastest track in the most advantageous venue, is the one filed in Pensacola, Fla., by state officials, just minutes after President Obama signed the bill.
  • A Mighty Trading Quarter for Goldman(GS) and JPMorgan(JPM). Goldman Sachs isn’t the only firm that made a trading gain every day last quarter. JPMorgan Chase reported positive trading revenue every day in its first quarter, according to a regulatory filing posted Monday. The firm said that its average daily revenue was $118 million. The achievement is remarkable for both Goldman and JPMorgan — and yet may serve as another target for legislators eager to restrain the trading activities of banks.
Business Insider:
  • The Amazing Management Principles of Bridgewater's Ray Dalio. Dealbreaker has an amazing story on the inside of hedge fund Bridgewater complete with an internal handbook of "management principles" compiled by top manager Ray Dalio. Dalio's dogma is displayed in full, as the core principals of Bridgewater are there front and center for everyone to see.
Bespoke Investment Group:
  • Country Default Risk Plummets. The European aid package announced over the weekend has helped boost global equity markets across the board, and it has also caused sovereign debt default risk to decline significantly over the past two days. Below we highlight 5-year credit default swap prices ($, bps) for a number of countries around the world. For each country, we highlight where default risk stands now, where it was last Friday before the bailout, and where it was at the start of 2010 and the start of 2008.
Washington Times:
  • Lawsuit Wants SEC to ID Porn Snoopers. The Securities and Exchange Commission is facing a federal lawsuit for keeping secret the names of dozens of its supervisors, employees and contractors who spent their workdays looking at pornography on their government computers. The lawsuit, filed Friday by a Denver- and Washington-based law firm, accuses the SEC of violating federal open-records law by shielding the identities of more than two dozen current and past porn-snooping workers. "There simply is no privacy right or interest to search pornography on SEC computers, particularly during work hours," says the 17-page complaint, filed in federal court in Denver.
  • China Readies for Launch of Onshore CDS. China is gearing up efforts to launch an onshore credit default swap (CDS) market as the country seeks to gradually build out its financial derivatives markets. The creation of a credit derivatives market in the country is seen as an important step to enable Chinese banks to lay off risks that ultimately might reduce their need to tap capital markets to meet strict capital ratios as they expand their lending operations.
Rasmussen Reports:
  • 63% Expect Health Care Law to Increase Deficit, 56% Favor Repeal. The number of U.S. voters who expect the recently passed health care bill to increase the federal deficit is at its highest level yet, and most voters continue to favor its repeal. The latest Rasmussen Reports national telephone survey of Likely Voters shows 63% now believe the health care reform legislation signed into law is likely to increase the federal deficit. That’s up four points from last week and up three points from when the law was passed in March. Only 12% expect the law to reduce the deficit, down four points over the past week and the lowest level measured to date. Support for repeal is proving to be just as consistent as opposition to the plan before it was passed into law. Fifty-six percent (56%) now favor repeal, including 46% who Strongly Favor it. Thirty-seven percent (37%) are opposed to repeal, with 28% Strongly Opposed.
Financial Times:
  • Eurozone Banks Sip at ECB's Dollar Swap Facility. Rumors of an interbank funding squeeze swirled through the market last week. Barclays Capital analysts for example noted that demand for USD funding in Europe had spiked in recent days. The activation of fresh ECB, BoE, Fed and Bank of Japan dollar swap lines over the weekend seemed to confirm as much. But it wasn’t until Tuesday that we really got a good idea of how much of a funding squeeze there had actually been. In short, $9bn-worth is not a huge number in the context of about $500bn average use of the Fed’s swap facility at the peak of the crisis, but it does show some demand. Reuters, meanwhile, reported that the Bank of England had received no bids at its first dollar repo operation since restarting the facility. In other words, this may firmly be just a eurozone problem — for now.
London Evening Standard:
  • Gordon Brown Quits as PM as Lib-Dem Deal Falls Apart. Gordon Brown is set to resign and allow David Cameron to be Britain's new Prime Minister, Evening Standard learns. The Labour leader's final desperate attempt to cling on to power with a Lib-Lab deal crumbled amid a rebellion on his own side and policy disagreements with Liberal Democrat leader Nick Clegg. This afternoon he retreated to No 10 to discuss his situation with senior ministers, friends and wife Sarah. Mr Brown had planned to stay in power until the summer if the deal had worked, earning himself a place in history as the man who won a historic fourth term for Labour. However, Labour MPs and ministers reacted with anger to the attempted deal, saying they would prefer to be in opposition than in government with the Lib-Dems.
Finanz und Wirtschaft:
  • Citigroup Inc. Chief Economist Willem Buiter said European governments may have to expand their stabilization package for indebted nations to about 2 trillion euros of capital and guarantees "in the medium term," citing an interview. The rescue plan probably will not be limited to three years as foreseen now and may be turned into a permanent feature.
  • China's consumer price index will continue to trend higher over the next three months compared with last year, citing Yao Jingyuan, chief economist at the National Statistics Bureau.

No comments: