Monday, April 18, 2011

Today's Headlines


  • S&P Puts 'Negative' Outlook on U.S. AAA Credit Rating. Standard & Poor’s put a “negative” outlook on the AAA credit rating of the U.S., citing a “material risk” the nation’s leaders will fail to deal with rising budget deficits and debt. “We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said today in a report. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.” Under President Barack Obama’s fiscal year 2012 budget, released in February, the total debt subject to the ceiling would be $20.8 trillion in 2016. The cost to protect against losses on Treasuries in the credit-default swaps market jumped to the highest in 11 weeks. Credit-default swaps on U.S. Treasuries climbed 7 basis points to 48.5 basis points as of 10:25 a.m. in New York, according to data provider CMA. That’s the highest level since reaching 49.4 basis points on Feb. 1 and means it would cost the equivalent of 48,500 euros a year to protect 10 million euros of debt against default for five years. The negative outlook by S&P means that the firm views a one-in-three chance it will cut a borrower’s rating within a two-year horizon, David Beers, S&P’s global head of sovereign and international public finance ratings, said in a Bloomberg TV interview. “This debate in the country really is just beginning and hard choices are going to have to be made,” Beers said.
  • Fed's Fisher, Lockhart Say Rising Oil Prices Threaten Growth. Rising oil prices threaten U.S. growth, Federal Reserve Bank of Dallas President Richard Fisher and Federal Reserve Bank of Atlanta Dennis Lockhart said. "It is a double whammy" as "it slows down our economy" and "adds to inflationary pressures," Fisher said on a panel discussion in Atlanta today. "It adds to the volatility of the financial system," he said. Fisher, who has criticized the Fed's asset purchase program and expressed concern about rising prices, said the central bank has "successfully fought off" deflation.
  • Kenny Says Ireland Won't Default on Debt as Greece Investor Concerns Mount. Irish Prime Minister Enda Kenny said the nation won’t default on its debt as he tries to rebuild confidence at a time when investors speculate Greece may struggle to pay back its borrowings. Irish, Greek and Portuguese bonds fell today amid mounting speculation Greece will have to restructure its debt. All three countries have sought bailouts from the European Union and International Monetary Fund, and Kenny’s government wants a reduction on the rate on its loans, which he has described as “too severe.” Irish bonds fell today, pushing the yield on the country’s 10-year debt to 9.76 percent at the close of trading in London, the highest in two weeks. The yield on Greek and Portuguese bonds of the same maturity rose to euro-era records.
  • Tepco Sets Plan to End Fukushima Nuclear Crisis by October as Robots Find High Radiation. Robots sent into two buildings at Japan’s crippled Fukushima Dai-Ichi nuclear station detected radiation still too toxic for humans as the plant operator set out a plan to end the crisis in six to nine months. Measurements show one hour inside the No. 3 reactor building would expose humans to more than one-fifth of the radiation Japan has said is the most workers can endure in a year, the atomic safety agency said yesterday.
  • India Marxists Face Kolkata Rout in Vote Revolt That Sends Signal to Singh. For the first time, Rajesh Babani won’t vote for West Bengal’s communists, joining a revolt that may end the 34-year rule of the world’s longest-serving elected Marxist government. The reason: his two sons can’t find jobs. “Almost everyone around here is searching for work,” said Babani, 43, as he leaned against the wall of a teashop painted with the Left Front’s red hammer-and-sickle motifs in a slum in Kolkata, the state capital. Babani, who can earn 100 rupees ($2) a day sweeping streets, will vote in elections that started today and that polls say will be won by the All India Trinamool Congress party. Elections in West Bengal and four other regions this month and next may evict three governments, sending a message to Prime Minister Manmohan Singh that voters are angry about unemployment, rising food prices and corruption. With 130 million people set to join India’s workforce in the next decade, the nation must boost labor-intensive manufacturing in states like West Bengal to avoid social unrest. “A volatile mass of young people out of work, sitting around doing nothing, will pose major problems for social stability,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai. “It doesn’t require much to see a scenario where India’s advantage of having a young population very quickly turns into a major hindrance.”
  • U.S. Homebuilder Confidence Fell in April on Sales Outlook. Confidence among U.S. homebuilders fell in April, led by a decline in the outlook for sales, a sign the residential construction market may languish near record-low levels. The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed today. A measure of sales expectations for the next six months dropped to the lowest level since October, and a gauge of current purchases also fell.
  • Sales Gains Signal More U.S. Growth, Business Economists Say. More U.S. companies than at any time since 1994 reported sales gains in the first quarter, a sign they’ll keep hiring and investing, a survey showed. The percentage of businesses reporting an increase in sales in the past three months climbed to 63 percent, while fewer companies said revenue fell, according to a survey issued today by the National Association for Business Economics. Rising sales and profit margins help explain why economists project the labor market will improve in coming months and capital spending will keep manufacturing at the helm of the economic expansion. At the same time, the share of firms that raised prices to recoup higher materials costs more than doubled from the prior survey, signaling inflation may pick up.
  • Libyan Rebel Attack by Qaddafi Loyalists as Migrants Flee Misrata. People fleeing the embattled Libyan port city of Misrata under fire from Muammar Qaddafi’s forces were ferried out today, while rebels in pickup trucks mounted with machine guns repelled an attack at a strategic outpost. Almost 1,000 migrants, mostly Ghanaians, who had been stranded in Misrata, were rescued by the International Organization for Migration. In the east, loyalists earlier shelled Ajdabiya, about 160 kilometers (100 miles) south of the rebel stronghold of Benghazi, Mustafa Gheriani, spokesman for the rebels’ Interim Transitional National Council, said in an interview. Rebels have struggled for weeks to take and hold cities in central Libya, which have been the focus of most of the fighting since the uprising began in February, calling for deliveries of heavy weaponry and for the coalition led by the North Atlantic Treaty Organization to increase attacks. NATO air strikes have so far failed to stop Qaddafi forces from endangering civilians.
  • Finland's Euro-Skeptics Poised to Form Government Following Election Upset. Finland’s euro-skeptic bloc is poised to enter a government with the pro-Europe National Coalition led by Finance Minister Jyrki Katainen after voters used yesterday’s election to protest against funding bailouts. The True Finns, whose leader Timo Soini says taxpayers shouldn’t have helped rescue Greece or Ireland, surged almost 15 points to 19 percent, the Justice Ministry said. Katainen’s group won 20.4 percent to become Finland’s biggest party for the first time. Prime Minister Mari Kiviniemi’s Center Party got 15.8 percent and the Social Democrats, which also opposed bailouts for the two countries, won 19.1 percent. Kiviniemi will lead her party in opposition after its “huge defeat,” she told broadcaster YLE.
  • Iron-Ore Ship Rents Fall to Six-Week Low on Surplus Vessels. Rents for capesize ships that haul iron ore fell to the lowest level in six weeks on excess vessel supply. Hire rates dropped 2.9 percent to $6,655 today, according to data from the Baltic Exchange in London. That’s the lowest since March 7 and the 11th straight decline. Rentals fell 36 percent in the three weeks to April 15. “Ship supply continues to outpace demand for most asset classes,” Jonas Advocaat Kraft, an analyst with Pareto Securities AS in Oslo, said in a note today. The carrying capacity of the fleet of ships to haul commodities such as coal, iron ore and grains will expand 13 percent this year, compared with a six percent increase in demand, according to forecasts from London-based Clarkson Plc. Companies ordered too many ships in 2007 and 2008, when the Baltic Dry index, a measure of commodity shipping costs, averaged 6,730 points. The index then plunged 60 percent during the next two years, according to the exchange. The gauge fell 0.9 percent to 1,284 points today, a 15th straight drop.
Wall Street Journal:
  • S&P Cuts U.S. Ratings to Negative. Standard & Poor's cut its outlook on the U.S. to negative, increasing the likelihood of a downgrade from its triple-A credit rating, as the U.S. continues to struggle with large budget deficits and rising government debt. "More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," S&P credit analyst Nikola G. Swann said.
  • Goldman Sachs(GS) Pays Back Buffett His $5.5 Billion. Billionaire investor Warren Buffett received a $5.5 billion check from Goldman Sachs, repaying an investment Buffett made in Goldman at the height of the financial crisis, CNBC learned Monday.
  • Inflation on the Rise: Fed's Bullard. The Federal Reserve should not exclude food and energy from the inflation numbers it targets, and those figures have been rising recently, St. Louis Federal Reserve Bank President James Bullard said on Monday.
  • IMF Warns Response to Credit Boom 'Insufficient'. The International Monetary Fund on Monday said the policy response by emerging market economies to deal with a surge in capital inflows was "insufficient" and warned it could lead to a hard landing.
Business Insider:
Zero Hedge:
  • Greek 2-Year Bond Yield Passes 20%. (graph)
  • Obama's Budget Increases Deficit By 41% Over CBO Baseline Over Next Decade. In release timed perfectly so as not to interfere with the congressional vote last week, late on Friday the CBO put out its comparison of the Obama's budget, proposed back in February, with the CBO baseline assumption. The bottom line, and probably the main reason for the implicit S&P downgrade of the US, is that comparison the President's budget to the CBO baseline indicates that deficits are expected to rise by 41% over the next 10 years: the CBO project a deficit of $6.7 trillion while the President's number is $9.5 trillion, a 41% increase or $2.7 trillion. Got printing presses?
Washington Post:
Miami Herald:
  • Building Boom in Low-End Housing Underway in South Florida. There’s a quiet building boom taking place in South Florida, but it’s nothing like the mid-decade condo rush that ended in an epic economic bust. The new towers going up today are not being built on the water for the affluent, but on the chipped sidewalks of gritty neighborhoods for the region’s poorest families. The 2009 federal stimulus package and other government programs aimed at fixing the housing crisis have helped boost the affordable housing sector, which uses government funds to build rental communities for low-income residents.
LA Times:
  • Mexican Cartels Setting Up Shop Across U.S. As the cartels expand up and out from the Southwest border, they are sending waves of men like Pineda, many of them trained in Mexico, to run their U.S. operations. In the last few years, they have established a prosperous retail industry, with cartels staking out "market territories," lining up smuggling routes, and renting storage bins and drug houses.
  • Summer Airfares May Climb 15% From A Year Earlier. Higher fuel costs and rising demand for flights are expected to push up the average fare for domestic travel to nearly $390 by the time the season peaks.
Charlotte Observer:
  • Plans Bank of America(BAC) HQ Protest Over Taxes. The liberal advocacy group is making Bank of America a target in a campaign over what it calls unfair tax policies. Members of the group plan to rally outside the bank's Charlotte headquarters Monday, the day federal income tax payments are due. It's part of a national campaign aimed at other major corporations, including Google(GOOG), Wells Fargo(WFC) and Goldman Sachs(GS). MoveOn says the companies are using loopholes in the tax code to avoid paying their fair share.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-seven percent (37%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Financial Times:
Die Welt:
  • Restructuring of Greece's debt is inevitable and only a question of time, citing an unnamed serving Greek government minister.
  • Moody's Investors Service and Standard & Poor's will probably decide whether to cut Iceland's credit grade this week, citing Finance Minister Steingrimur J. Sigfusson.
El Pais:
  • Spain's big companies may face higher expenses from plans to cut their workforce through early retirement, citing a draft to be sent by the government for congressional consideration. Big companies with profit will have to pay unemployment benefits that have been funded by the state until now.
Diario Economico:
  • The European Union and the IMF oppose extending the deadline for Portugal to reduce its budget deficit after that country requested financial assistance.
  • Greece's government asked the IMF and the European Union to extend the maturities of all the country's debt.

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