Monday, May 17, 2010

Today's Headlines

  • Euro Swaps Corner Trichet as Currency Slide Persists. Trader demand for insurance against a slide in the euro is the highest in more than seven years as they bet European plans to fix the region’s debt crisis will worsen the currency’s slide. Demand for one-month options giving investors the right to sell the 16-nation currency rose last week to the most since before 2003 relative to those that allow for purchases. The premium traders pay to swap one-year euro loans for those in dollars was the widest this month since February 2009. The increasing price for protection against further declines shows the European Union’s $1 trillion in loan funds to keep members from default has, so far, failed to persuade investors that nations will get deficits under control. At the same time, traders say the European Central Bank and President Jean-Claude Trichet have lost credibility by shifting policies on government bond purchases that are part of the plan.
  • CDS Traders Face Disclosure Requirements in Europe. Sovereign credit-default swap transactions face mandatory disclosure rules in the wake of the Greek debt crisis, the European Union’s financial services commissioner said today. Michel Barnier said he would deal with the sovereign CDS market “very severely.” Credit-rating companies should also be subject to tougher transparency rules when rating a country’s ability to pay back its debt, he said. “These people don’t like being out in the light of day,” Barnier said of sovereign CDS traders at a press conference in Brussels. “We’ll flood them with light.”
  • GLG Executives to Get $560 Million From Man Takeover. GLG Group Inc. executives including co-founder Pierre Lagrange will receive at least $560 million in stock from the sale of their hedge fund firm to Man Group Plc. The world’s biggest hedge-fund firm agreed to buy GLG for $1.6 billion. GLG’s shareholders will get $4.50 a share in cash, 55 percent more than the May 14 closing price, the firm said in a statement today.
  • Touradji Sells Oil and Steel Companies, Buys Bullish Dollar ETF. Touradji Capital Management LP, the commodity hedge fund with about $2.7 billion under management, sold shares of Barrick Gold Corp. and U.S. Steel Corp. in the first quarter and bought a bullish dollar exchange-traded fund. Touradji’s Global Resources Fund LP returned 1.5 percent in the first quarter, according to a fund report obtained by Bloomberg. The fund’s returns have declined from 40.8 percent in 2007, its best year, to 8.6 percent in 2008 and 4.5 percent in 2009, the report showed. Touradji bought 2.73 million shares of PowerShares DB US Dollar Index Bullish Fund in the three months ended March 31 to become the sixth-largest holder of the fund, an ETF designed to be long the U.S. dollar, according to a filing with the Securities and Exchange Commission. Demand for steel in China will fall because the country has overbuilt, while the European sovereign debt crisis made the dollar a good bet against the euro, Rup said.
  • Oil Slumps Below $70, Metals Plunge, Gold Rallies on Stock Rout. Crude oil dropped below $70 for the first time since February, copper and aluminum tumbled, and gold rallied on concern the European debt crisis and a slide in global stocks may derail the economic recovery and spur demand for haven assets. Crude oil fell for a fifth day, losing as much as 2.5 percent to $69.82 a barrel, copper, aluminum and zinc plunged as much as 4.9 percent, while gold increased 0.8 percent to $1,242.45 an ounce. Rubber slumped 4.3 percent. “The debt situation will more than likely envelope other countries, notably Spain and Portugal, with even more disastrous consequences for the euro,” said Gavin Wendt, senior resource analyst with Mine Life Pty Ltd., in Sydney. Three-month delivery copper fell as much as 3.5 percent to $6,685 a metric ton on the London Metal Exchange, the lowest price since May 5, and traded at $6,710 by 2:32 p.m. in Shanghai. Aluminum dropped as much as 3.9 percent to $2,018 a ton and zinc fell 4.9 percent to $1,955, near the lowest level since Feb. 5.
  • Global Demand for U.S. Assets Rose to Record in March.
  • Bank of America(BAC) Leads Decline in Late U.S. Card Loans. Bank of America Corp., the second- biggest U.S. credit-card lender, said overdue loans fell last month to the lowest level since November 2008 as tax refunds and an improving economy helped customers pay bills on time. U.S. loans at least 30 days overdue, a signal of future write-offs, dropped to 6.73 percent in April compared with 7.07 percent in the previous month, the Charlotte, North Carolina- based bank said today in a regulatory filing. Write-offs climbed to 12.71 percent last month from 12.54 percent in March.
  • Homebuilders in U.S. Turn Less Pessimistic as Sales Rise. Homebuilders in the U.S. turned less pessimistic in May as a government tax credit boosted sales. The National Association of Home Builders/Wells Fargo confidence index rose to 22, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level since August 2007, from 19 in April, data from the Washington- based group showed today.

Wall Street Journal:
  • Maker of Hefty Bags in Talks for Buyout. Buyout firm Apollo Global Management is in talks to acquire Pactiv Corp.(PTV), said people familiar with the situation, a deal that would put the maker of Hefty trash bags into private hands. With a market capitalization of $3.2 billion, Pactiv would be among the largest leveraged buyouts in the past two years.
  • The Small Business Credit Crunch by Meredith Whitney. The financial reforms currently contemplated will further restrict capital. Expect unemployment to stay high. The next several weeks will be critically important for politicians, regulators and the larger U.S. economy. First, over the next week Capitol Hill will decide on potentially game-changing regulatory reform that could result in the unintended consequences of restricting credit and further damaging small businesses. Second, states will approach their June fiscal year-ends and, as a result of staggering budget gaps, soon announce austerity measures that by my estimates will cost between one million to two million jobs for state and local government workers over the next 12 months.
  • SmartPhone Makers US Share Rises Further; Motorola at No. 8. Apple Inc.'s (AAPL) and Research In Motion Ltd.'s (RIM) U.S. market share of the cellphone space continued to grow in the first quarter, with former industry leader Motorola Inc. (MOT) falling to eighth, market-research firm iSuppli Corp. said Monday. "Smartphones represent the hottest segment of the cellphone market," as sales are expected to rise 36% this year for smartphones, triple the rate for all cellphones, said Tina Teng, senior analyst of wireless communications at iSuppli. RIM, whose fortunes are driven by the BlackBerry, saw its U.S. market share rise to No. 5 in the first quarter from No. 8 in the fourth quarter as shipments rose 3.6%. That compares with a 14% drop industrywide to 288.1 million units, which itself was up 14% from a year ago. Apple also rose three places, to sixth from ninth, as its shipments more than doubled on the year and rose 0.2% from the previous quarter. Meanwhile, Motorola's shipments slumped 29% from the fourth quarter, moving its portion of market share to eighth from sixth. Nokia Corp. (NOK, NOK1V.HE) stayed No. 1 in the U.S., but its market share slid sequentially to 37.4% from 37.9% in the fourth quarter. Samsung Electronics Co. (005930.SE) rose to 22.3% from 20.6%.
  • Easing Anxiety for Hedge Fund Advisers (video). Developing an effective compliance program is one step that hedge fund advisers can take now to prepare for the likelihood of future regulation. Dow Jones Compliance Watch columnist, Suzanne Barlyn, speaks with Guy Talarico, chief executive of Alaric Compliance, about getting started.
Fox News:
Business Insider:
The Big Money:
  • Ketchup Fans Mourn Heinz Salt Squeeze. While theoreticians professional and amateur continue to debate whether salt is bad for you, big food companies are deciding that it's no longer a fight worth having. They're reducing salt left and right, even as the government considers whether to force them all to do it. The latest is Heinz, which is cutting the salt in its flagship ketchup by 15 percent.
Huffington Post:
  • Class Warfare: Hundreds Protest Outside Bankers' Houses in DC. "Bank of America: bad for America!" shouted community leaders outside the house of Bank of America general counsel Gregory Baer. The Chicago-based grassroots organization National People's Action, in coordination with the SEIU, bused more than 700 workers from 20 states to Baer's neighborhood, one of the wealthiest corners of Washington. The action kicks off several days of protests targeting K Street for lobbyists' role in financial reform.
Automotive News:
  • Ford's(F) Rising Residuals Central to New Marketing Blitz. Ford division plans to launch a marketing campaign in July to tout the improved resale values of its vehicles. Ford also will train dealers this fall to push higher resale values. In fresh data from Automotive Lease Guide, Ford posted the largest increase of any automaker in ALG’s Perceived Quality Study between fall 2009 and spring 2010. The score measures how consumers view product quality.
Rasmussen Reports:
The Hill:
  • U.S. Mayors Caution Against Tax Increase on Carried Interest. The U.S. Conference of Mayors has weighed in against a tax increase on a common payment for hedge fund managers. The organization, which represents the nation's largest cities, cautions that the tax on carried interest would "disproportionately impact the commercial and multi-family real estate industry." Democrats in the House are looking at the tax increase as a revenue raiser to offset the expense of several other measures, including an extension of unemployment benefits. Under the bill, the real estate world, along with hedge fund managers and venture capitalists, would incur a phased-in tax increase on carried interest. The group last Thursday reached out to House Ways and Means Committee Chairman Sandy Levin (D-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.), warning them that the tax increase would have unintended consequences for the real estate sector. "If this legislation is enacted as currently drafted with the carried interest provision as an offset, a developer's incentive to take on necessary risk associated with real estate development will be greatly diminished," said the letter from the group, which represents cities with populations of 30,000 or more. "Furthermore, higher capital gains rates will cause real estate owners to hold on to properties longer. The result of this behavior will lower tax revenues at the federal, state and local levels and limit opportunities for redevelopment of underutilized properties, hindering job creation."
  • China Stocks Slide 5% as Retail Investors Flee. China's key stock index tumbled more than 5 percent on Monday to its lowest close in a year, led by property stocks, as retail investors fled the market after a month-long rout sparked by the government's severe clampdown on surging property prices. The Shanghai Composite Index .SSEC closed at 2,559.9 points, its lowest close since May 4, 2009, and posted its biggest one-day percentage drop in more than eight months as panic selling emerged in the afternoon. The index has dropped nearly 20 percent in about a month. Property stocks bore the brunt of the market's downtrend again on Monday, with Gemdale Corp (600383.SS), one of the day's top-10 shares by traded volume, falling 8.4 percent while sector heavyweight China Vanke (000002.SZ) dropped 5.3 percent.
  • Banks Dump Greek Debt on the ECB as Eurzone Flashes Credit Warnings. Foreign holders of Greek and Portuguese debt have seized on emergency intervention by the European Central Bank to exit their positions, leaving eurozone taxpayers exposed to the credit risk. The Bank of New Mellon said its custodial data showed a "sharp acceleration" of net sales of debt from the two countries after the ECB began purchasing €16.5bn of bonds from southern Europe and Ireland in bid to halt market panic. "It rather suggests that investors leapt at the opportunity to clear their balance sheets of intolerable risk," said Neil Mellor, the bank’s currency strategist. "This leaves the ECB itself in an unpleasant situation since it now faces a deterioration in its own balance sheet."
  • Russia cut the share of euros in its international currency reserves to 43.8% at the end of 2009 from 47.5% a year earlier, citing central bank data. The dollar's share rose to 44.5% from 41.5%, which the pound's rose to 10.4% from 9.7%. The percentage of yen was unchanged at 1.3%.
  • European leaders have urged U.S. President Barack Obama to consider abolishing credit default swaps, citing comments made by Greek Prime Minister George Papandreou in an interview. "Angela Merkel, Nicholas Sarkozy, Jean-Claude Juncker and I suggested in a common letter to Brack Obama that the market for credit default swaps should be closed," Papandreou said. "The g-20 states want to discuss this."
Les Echos:
  • Czech Prime Minister Jan Fischer said adopting the euro isn't a priority at the moment and criteria for admission will become more difficult, citing an interview.
Beijing Evening News:
  • Many banks in Beijing have raised their interest rates for auto loans by 10% to 30% over the central bank's benchmark rate, citing bank employees. Beijing banks also extended the time for approving auto loans.

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