Thursday, May 20, 2010

Today's Headlines

  • Company Credit Risk Rises to Near 10-Month High on Europe Debt. A gauge of U.S. corporate credit risk rose a fifth time in six days as Europe struggled to contain the region’s debt crisis. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 10.83 basis points to a mid-price of 124.25 basis points as of 12:54 p.m. in New York, according to Markit Group Ltd. Swaps on American International Group Inc. soared as Europe’s crisis could hinder the bailed-out insurer’s asset sale to Prudential Plc. “It looks as if at the top of the European Union there is a complete division about how to deal with this crisis,” Jenkins said. “And at a time of stress, you need unity.” Swaps on AIG soared 55 basis points to a mid-price of 445 basis points, according to broker Phoenix Partners Group. The bailed-out insurer’s $35.5 billion sale of its AIA Group Ltd. unit to London-based Prudential may be at risk as a result of Europe’s debt woes, said Bill Bergman, an analyst at Morningstar Inc. in Chicago. Swaps on GE Capital surged 26.6 basis points to 235.9, the highest since Sept. 14, CMA prices show. Contracts linked to Citigroup increased 17.8 basis points to 211 basis points, and those on Bank of America Corp. advanced 14.2 basis points to 173.8 basis points, according to CMA prices. Contracts on JPMorgan Chase & Co. rose 12.2 basis points to 122.1 basis points.
  • Commodities Drop to Eight-Month Low as Economy's Prospects Dim. Commodities fell to an eight-month low as the sovereign-debt crisis in Europe dimmed prospects for economic growth and investor appetite for riskier assets.
  • Palladium Plunges, Heads for Biggest Two-Day Drop in 12 Years. Palladium prices plunged, heading for the biggest two-day loss in 12 years, on concern that slowing global growth will slash demand. Platinum tumbled. Palladium has dropped 16 percent in two days on mounting speculation that Europe’s debt crisis coupled with slowing growth in China will erode consumption for the metal used mostly in car parts.
  • More Americans Unexpectedly File Claims for Jobless Benefits. More Americans unexpectedly filed applications for unemployment benefits last week, showing firings remain elevated even as employment climbs. Initial jobless claims rose by 25,000 to 471,000 in the week ended May 15, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level in a month, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance and those getting extended payments fell. The four-week moving average, a less volatile measure than the weekly figures, climbed to 453,500 last week from 450,500, today’s report showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 percent in the week ended May 8.
Your Dollars at Work:
  • California: The Frog in the Sub-Prime Frying Pan by Orange County Treasurer Chriss Street. Just as a frog will jump out of a hot frying pan, but will sit in water that slowly goes from cold to hot until he cooks to death; California’s politicians have sat quietly as the accumulation of chronic budget deficits bubbling up from an uncomfortably warm problem to a scalding hot crisis. Even the release of Governor Schwarzenegger’s $19.1 billion budget deficit projection for the coming July fiscal year appears to have failed to bludgeon the state’s political establishment into action to avoid a looming credit rating downgrade to sub-prime that would set off a Greek style default on steroids. The media, after months of missing the potential consequences of a Greek default, have now become focused on the similarities between California and Greece. Both do owe gobs of money, have huge budget deficits, massive unfunded pension liabilities and can’t print their own money; but California’s situation is worse!
  • Mortgage Rates Fall to 4.84%. U.S. mortgage rates fell for the fourth straight week, pulling down borrowing costs to a five- month low. Rates for 30-year fixed loans fell to 4.84 percent in the week ended today from 4.93 percent last week, Freddie Mac said in a statement. It was the lowest since the week ending Dec. 10, 2009, when rates averaged 4.81 percent. The average 15-year rate was 4.24 percent, the McLean, Virginia-based mortgage finance company said.
  • The Problem With Absolute Return Funds. Mutual fund outfits are selling the glamour and mystique of hedge fund strategies. You'd be better off with a plain old balanced fund.
  • Merkel Calls for Tough Steps on Regulation. German Chancellor Angela Merkel urged the world's economic powers to send a "signal of strength" by agreeing to stronger global financial regulation, as markets sagged on doubts about whether European leaders have a handle on their continent's debt crisis.
  • Wall Street Banks Lose Court Ruling on Hot News Ban. Three Wall Street banks suffered a legal setback when a federal appeals court in New York put on hold a ban on financial news service Inc from quickly reporting "hot news" about their analysts' research. The ruling by the U.S. Second Circuit Court of Appeals was a defeat for Bank of America Corp's (BAC.N) Merrill Lynch unit, Barclays Plc (BARC.L) and Morgan Stanley (MS.N).

Financial Times:
  • 'We Are Done With Financials'. As the war on speculators, banks (indeed entire financial system) rages on, one big US hedge fund has had enough. Writing to investors, the fund says it’s now too risky to invest in large financial institutions for anything other than the short-term. “We are DONE FOR THE FORESEEABLE FUTURE INVESTING IN LARGE, COMPLICATED FINANCIAL INSTITUTIONS. By “investing”, I mean taking long positions with the view of holding for 9-24 months based on some view of normalized earnings and a forecast of what will happen over the next several years. By “large, complicated” I mean the major banks and life insurers with asset and rate risk and significant balance sheet leverage. These companies have become uninvestable. We are still willing to trade these companies from the long side, and are enthusiastic about owning simple banks, P&C insurers, assets managers and the like. After the G7 restructures its debt and we have the big “reset” we will look at these companies again [so maybe 10 years from now].” Ah, the law of unintended consequences strikes.
Hamburger Abendblatt:
  • European Union Energy Commissioner Guenther Oettinger urged the leaders of the Group of 20 to agree on a financial-transaction tax when they meet in Canada in June, citing an interview. The aim is to make the web of financial-transaction taxes so dense that evasion will be impossible, Oettinger said.
  • The prices of second-hand residential property in southern China's Shenzhen has fallen by between 3% adn 10%, a month after tough government policies to cool the market.
Eurasia Review:
  • NATO Condemns North Korean Role In Sinking South Korea Warship. NATO said Thursday it strongly condemns the North Korean actions which resulted in the sinking of the Cheonan, established in the findings of the multinational investigation. The sinking of the Cheonan by North Korea constitutes a clear breach of international law and poses a serious threat to the region, NATO said. Additionally, NATO said, "The Alliance expresses its sympathy over the loss of the 46 south Korean sailors and condemns the act of aggression that led to their deaths."Earlier Thursday, North Korea rejected South Korea's claim that it sank a South Korean warship in March, and warned it will respond with measures, even an "all-out war," if the South sought additional sanctions. "Our army and people will promptly react to any punishment, retaliation, and sanctions with various forms of tough measures including an all-out war," a spokesman for the North's National Defense Commission (NDC) said in a statement, carried by the official Korean Central News Agency.

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