Tuesday, April 05, 2011

Today's Headlines

  • U.S. Service Industries Grew Less Than Forecast in March. Service industries in the U.S. expanded less than forecast in March, a sign the biggest part of the economy is trailing the gains in manufacturing. The Institute for Supply Management’s index of non- manufacturing businesses decreased to 57.3 from 59.7 in February. Higher fuel costs, also a headwind for American consumers, and the effect on supply chains from the earthquake in Japan are hurdles facing U.S. companies in coming months. “It looks like April is continuing to struggle under some of these clouds. We’re seeing a little bit of a slowdown” in the economy, he said. The measure of new orders decreased to 64.1 from 64.4 in February, while the gauge of business activity fell to 59.7 from 66.9. The group’s employment gauge dropped to 53.7 from 55.6 a month earlier. The index of prices paid declined to 72.1 from 73.3. Economists at IHS Global Insight in Lexington, Massachusetts, today were the latest to cut forecasts for U.S. growth over the first half of the year, reflecting the jump in food and fuel costs and the possible disruptions to factory supplies following the earthquake in Japan. The reductions come on the heels of similar moves by economists at Goldman Sachs Group Inc. and JPMorgan Chase & Co. The economy probably grew at a 2.3 percent annual rate last quarter, a percentage point less than IHS Global previously estimated, according to a note from Nigel Gault, the firm’s chief U.S. economist. “The recovery will withstand the twin shocks from higher oil prices and the natural disaster in Japan, as long as they do not worsen,” Gault wrote. “But, the economy will not escape the twin shocks unscathed.”
  • China Raises Interest Rates to Counter Inflation Pressure. China raised interest rates for the fourth time since the end of the global financial crisis to restrain inflation and limit the risk of asset bubbles in the fastest-growing major economy. The benchmark one-year lending rate will increase to 6.31 percent from 6.06 percent, effective tomorrow, the People’s Bank of China said on its website at the end of a national holiday. The one-year deposit rate rises to 3.25 percent from 3 percent. The move comes as a surprise to some, after Credit Suisse Group AG, Morgan Stanley and Bank of America-Merrill Lynch said officials may pause in tightening. While Japan’s disaster and Europe’s debt woes are clouding the global outlook, Premier Wen Jiabao’s government is more focused on the estimated 5 percent jump in consumer prices last month, said analyst Shen Jianguang. It’s “very significant” that China raised rates before the March inflation data has even been announced, said Shen, a Hong Kong-based economist at Mizuho Securities Asia Ltd. who formerly worked for the International Monetary Fund and the European Central Bank. Premier Wen last month described inflation as “a tiger” that once set free will be difficult to cage, and also as a potential threat to social stability. “Exorbitant” house price increases in some cities are a top public concern, he said. China’s inflation accelerated to 5.2 percent last month, the fastest pace since July 2008, according to the median estimate in a Bloomberg News survey of nine economists. China’s key lending rate will rise to 6.56 percent by year- end, with the deposit rate climbing to 3.5 percent, according to the median forecast in a Bloomberg News survey of economists on March 22.
  • Bernanke Inflation Outlook Pollyannish, Pimco's Gross Tells CNBC. Federal Reserve Chairman Ben S. Bernanke’s view that the impact of rising commodity costs on inflation is transitory is “pollyannish,” according to Pacific Investment Management Co.’s Bill Gross. Treasury 10-year note yields at 3.5% are unattractive, Gross, who runs the world’s biggest bond fund, told CNBC in an interview today.
  • Gold Surges to Record $1,452 on Demand for 'Chaos' Hedge, Silver Tops $39. Gold futures surged to a record of $1,452 an ounce as sovereign-debt concerns boosted demand for the precious metal as an alternative asset. Silver topped $39 an ounce. The cost of insuring Portugal’s debt rose to an all-time high. The conflict in Libya and the nuclear crisis in Japan spurred demand for gold as an investment haven. Before today, the metal jumped 27 percent in the past year, and silver more than doubled. “There’s still turmoil in the Middle East, uncertainty in Japan and possible sovereign-debt defaults,” said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago. “There’s still demand for gold and silver as a hedge against chaos.” Gold futures for June delivery rose $17.40, or 1.2 percent, to $1,450.40 at 12:12 p.m. on the Comex in New York. The previous record was $1,448.60 on March 24. Gold for immediate delivery rose as much as 1.2 percent to a record of $1,450.65.
  • Libyan Rebels Prepare to Export Oil as Forces Loyal to Qaddafi Gain Ground. Libyan rebels were pushed back from the central port of Brega by forces loyal to Muammar Qaddafi as the opposition prepared to export crude oil for the first time since the conflict began six weeks ago. Rebels retreated from Brega after capturing part of it yesterday, the Associated Press reported. Regime forces fired rockets and artillery at the rebels today, sending many of them back to the city of Ajdabiya, the AP reported.
  • Portugal's Long-Term Credit Rating is Lowered One Level to Baa1 by Moody's. Portugal’s credit rating was cut by Moody’s Investors Service for the second time in three weeks amid expectations it will be unable to avert a European bailout. Moody’s downgraded Portugal’s long-term government bond ratings by one level to Baa1 from A3, and said it’s considering another reduction. Today’s move put the country at the same level as Ireland, Russia, Mexico and Thailand. Fitch Ratings on April 1 downgraded Portugal three notches to BBB-, the lowest investment grade, and kept the rating on “watch negative.” “Moody’s rating action was driven primarily by increased political, budgetary and economic uncertainty,” the company said in an e-mailed statement today. It expects the winner of June 5 elections to tap the European Financial Stability Facility with “urgency,” and that Portugal will be able to get support from other euro members before then if necessary. Investors are increasing bets Portugal will follow Greece and Ireland into seeking a rescue as its borrowing costs surge to record highs. The gap between Portuguese and German 10-year bonds surged to 536 basis points today, the highest level since the start of the euro. The yield on five-year notes also climbed to a euro-era record of 10.06 percent today. The country plans to sell as much as 1 billion euros ($1.4 billion.) of six- and 12-month bills tomorrow. The cost of protecting against a Portuguese default rose to a record, surpassing the price for Irish debt insurance for the first time in seven months. Credit-default swaps on Portugal’s bonds climbed 12 basis points to 592, implying a 41 percent probability the government will renege on its debts within five years, according to CMA. Contracts tied to Ireland’s notes dropped 11.5 basis points to 587.5.
  • Office Market in U.S. Begins Recovery as Vacancy Rate Declines. Office vacancies in the U.S. dropped for the first time in more than three years in the most recent quarter and rents climbed, signaling the market is beginning a recovery as the economy improves. The national vacancy rate fell to 17.5 percent in the first quarter from 17.6 percent in the previous three months, Reis Inc. said in a report today. The drop was the first since July through September of 2007. Asking and effective rents rose for the second straight quarter after more than two years of declines, the New York-based property-research firm said. “This is the first quarter, at least on a national basis, where the change is strong enough to qualify it as the first quarter of a recovery,” Ryan Severino, an economist at Reis, said in an interview. “We have finally gotten to an inflection point where the good is starting to outweigh the bad.”
  • China's Crackdown on Human Rights Sparks Little Outcry in Washington. China’s latest crackdown on dissidents has drawn scant outcry in Washington, with U.S. officials distracted by military intervention in Libya and doubtful that public denunciations will change China’s behavior. The administration is “scared to death to speak out on very sensitive issues” that might offend China and turn them against U.S. policy on Libya, Rep. Randy Forbes, co-chairman of the Congressional China Caucus, said in an interview yesterday. On Capitol Hill, likewise, legislators are reluctant to devote energy to an issue that hasn’t grabbed the public’s attention and isn’t tied directly to American jobs or the budget, Forbes, a Virginia Republican, added. Neither President Barack Obama nor Secretary of State Hillary Clinton has singled out China for public criticism over the latest wave of arrests. The Delegation of the European Union to China issued a statement today saying its attention had been brought to Ai’s case. The EU is concerned by the “increasing use of arbitrary detention against human rights defenders, lawyers and activists,” according to the e-mailed statement. The Chinese government’s latest wave of arrests has coincided with a campaign by some dissidents to spark democracy protests similar to those that have spread across North Africa and the Middle East in recent months. The administration and Congress should “make clear to the Chinese government that this crackdown is unacceptable, wholly in tension with international standards and Chinese law, and will have serious consequences for the bilateral relationship,” said Sophie Richardson, Asia advocacy director for Human Rights Watch, a New York-based watchdog group. Rep. Frank Wolf, a Virginia Republican and one the most outspoken China critics on Capitol Hill, said in an interview that he is appalled by the series of arrests. The Obama administration has been “very, very weak and inconsistent and ineffective on China,” he said. Wolf said he doesn’t expect much from his colleagues in Congress either, where he said neither party “has the heart to take this issue on” or to press China to change its human rights record by threatening punitive measures on trade or currency.
  • OECD Says G-7 Recovery Gaining Strength, Sees Price Risks. The Organization for Economic Cooperation and Development said an economic recovery among the world’s most advanced economies is gathering strength and called faster inflation a threat. “With financial conditions improving across the board, it seems likely that the recovery is becoming self-sustained,” the Paris-based organization said in its interim assessment published today. While “public finances remain in distress in most OECD countries,” some central banks “will need to deal with a risk that inflation expectations may become unanchored.”
  • Munger Says He Told Buffett of BYD Stake, Stayed Out of Talks. Berkshire Hathaway Inc. (BRK/A) Vice Chairman Charles Munger said his family was invested in BYD Co. “for years” before his company took a stake in the Chinese automaker and that he disclosed the financial interest to his business partner Warren Buffett. “I certainly suggested that Berkshire look at investing in something that the Mungers were already invested in, but we’d been in it for years,” he said today in a telephone interview.
  • Treasuries Decline After Federal Reserve Releases Minutes of March Meeting. Treasuries fell, pushing yields up, after the Federal Reserve released minutes of its March 15 meeting, where policy makers said the recovery is gaining strength while reaffirming plans to buy $600 billion of Treasuries through June.

Wall Street Journal:
  • Boehner, Obama Fail to Reach Budget Deal. House Speaker John Boehner (R., Ohio) on Tuesday said no budget deal was reached after meeting with President Barack Obama at the White House, raising the stakes ahead of a possible government shutdown at the end of the week. The White House earlier said it ordered top officials at multiple federal agencies to ensure contingency plans were ready for a potential partial shutdown. "While there was a good discussion, no agreement was reached," Mr. Boehner's office said in a summary of the meeting that he had with Mr. Obama, Vice President Joe Biden and other congressional leaders.
  • FBI Questioning Libyans. The Federal Bureau of Investigation has begun questioning Libyans living in the U.S., part of an effort to identify any Libyan-backed spies or terrorists, and collect any information that might help allied military operations. The move reflects concerns among U.S. officials—in the wake of an allied bombing campaign that established a no-fly zone over Libya to prevent the massacre of antigovernment rebels—that Libyan leader Moammar Gadhafi might try to orchestrate revenge attacks against U.S. citizens.
  • Apple(AAPL) Crunched in Nasdaq Rebalance. Nasdaq OMX plans to rebalance its Nasdaq-100 Index, cutting Apple's weighting from more than 20% at prsent to 12%. The changes, due to be announced today, will take effect on May 2.
  • New Fee Shakes Up a Lending Market. The money market has been roiled by a sudden shortage of Treasury securities, another unintended consequence of government involvement in financial markets. The disappearance of Treasurys in recent days has created a scramble among banks and investors, who depend on a fluid supply for short-term borrowing and lending. It is an unusual event, considering the market is generally awash in Treasurys, with about $9 trillion outstanding. But recent rule changes mandated by the Dodd-Frank laws have made it too expensive for some banks to offer out their Treasurys holdings as part of a key overnight lending market known as the repurchase or "repo" market. Banks typically borrow in this market, using Treasurys as collateral, parking the cash with the Federal Reserve and earning a better interest rate. Investors and money market funds use the market to lend out their cash overnight and earn a small return. The lack of supply was so severe on Monday, and some investors so desperate for Treasurys, that they accepted negative yields—effectively paying to lend money to the banks. That is something that has rarely been seen since the financial crisis. Exacerbating the problem, the Treasury has stopped selling some short-term Treasurys amid the debate in Washington over the government debt ceiling. At the same time, the Federal Reserve is suctioning up most of the new Treasurys that the government is selling, adding to the shortage of Treasury supply. "It is a perfect storm of collateral being pulled from the market when it is most needed," said Thomas Roth, executive director in the U.S. government bond-trading group at Mitsubishi UFJ Securities (USA) Inc. in New York.
  • LivingSocial Raises $400 Million To Fuel Expansion. LivingSocial, the number two player in the burgeoning daily coupon website market, has raised $400 million to help fuel its expansion and keep up with rival Groupon Inc., according to people familiar with the situation.
  • The GOP Path to Prosperity by Paul Ryan. Congress is currently embroiled in a funding fight over how much to spend on less than one-fifth of the federal budget for the next six months. Whether we cut $33 billion or $61 billion—that is, whether we shave 2% or 4% off of this year's deficit—is important. It's a sign that the election did in fact change the debate in Washington from how much we should spend to how much spending we should cut.
  • Buffett Has Conned Virtually Everyone: Steinhardt. Berkshire Hathaway(BRK/A) Chairman Warren Buffett is the "greatest PR person of recent times" and has "managed to achieve a snow job that has conned virtually everyone in the press," Wisdom Tree Investments Chairman Michael Steinhardt told CNBC Tuesday. "It is remarkable that he continues to do it."
Business Insider:
Zero Hedge:
NY Post:
  • Street Trades Slump. A shrinking Wall Street bull bodes more bad news for the cash-strapped Big Apple. The nation's biggest banks, many of which are headquartered in New York, are expected to produce much smaller profits this year -- and some analysts say for the foreseeable future -- than they did during the market's halcyon days. According to the city's Independent Budget Office, Wall Street profits are forecast to fall almost 30 percent to $14.9 billion in fiscal 2012, compared to an estimated $21 billion in profits for fiscal 2011. New York's fiscal calendar year ends June 30.
New York Times:
  • Sokol's Ways Questioned in Past Suits. Lawsuits involving David L. Sokol after he joined Berkshire Hathaway(BRK/A) suggest that management had some warnings about his rules-pushing nature long before his resignation last week for buying stock in a company shortly before Berkshire acquired it.
Charlotte Observer:
  • FreedomWorks: 'Fire Jim Rogers'. FreedomWorks, a conservative group aligned with the tea party movement, has launched a petition drive to fire Duke Energy(DUK) CEO Jim Rogers for guaranteeing a $10 million line of credit to the 2012 Democratic National Convention.
Real Clear Politics:
  • Immelt, the Jobs Czar from Hell. The New York Times reported last month that General Electric earned $14.2 billion in international profits, including, $5.1 billion in the United States. Yet GE did not pay a dime in federal income taxes last year. Oddly, President Obama chose GE Chairman and chief executive Jeffrey Immelt to head his President's Council on Jobs and Competitiveness.
  • Rep. Paul Ryan's Budget Sets 2012 Stage. House Budget Committee Chairman Paul Ryan unveiled his much-anticipated fiscal 2012 budget Tuesday, giving structure to the conservative vision for America’s future and possibly laying the policy groundwork for the 2012 Republican presidential nominee.
Rasmussen Reports:
  • 50% Favor Drilling in ANWAR to Reduce Foreign Oil Dependence. A new Rasmussen Reports national telephone survey finds that 50% of Adults believe the United States should produce more domestic oil by allowing drilling in the ANWR, an issue that Congress has debated for years. Thirty-five percent (35%) oppose drilling in the refuge, while 14% are not sure.
  • 'One in Seven' Chance That Nations Will Abandon Euro.The risk is roughly one in seven that Europe's ongoing debt crisis will push member nations to abandon the shared currency, raising the spectre of the "effective end of the euro area," the Economist Intelligence Unit has warned. Attempts to restore investors' confidence in debt-laden nations' ability to honour their commitments could see the weaker eurozone members grow ever wearier of the demands placed on them, according to a new report from the research body. Meanwhile, those countries whose finances are in better shape could lose patience with propping up other member nations, in this worse case or "ultimate risk" scenario.
  • How The Oil Price Affects What You Pay for Everything.

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