Tuesday, April 19, 2011

Today's Headlines


  • Greek Two-Year Yields Reach Record as Demand Wanes at Auction; Bunds Slide. Greek note yields reached euro-era records amid growing speculation the country will need to restructure its debt as financing costs mount. German debt slid as data showed European services and manufacturing growth unexpectedly accelerated in April, bolstering the case for higher interest rates. Greece sold 1.625 billion euros ($2.3 billion) of 13-week bills at a higher interest rate amid lower demand than the previous auction of similar debt. Greek two-year note yields breached 20 percent for the first time yesterday. Portuguese two-year yields rose to the highest in at least 15 years today. The yield difference, or spread, between Greece's 10- year bonds and German securities of a similar maturity, earlier reached 1,138 basis points. That’s the most since at least 1998. Portugal’s two-year note declined for a fifth consecutive day, pushing the yield to 10.26 percent, the highest since at least 1996. The cost of insuring Greek government debt increased seven basis points to 1,260 basis points, surpassing yesterday’s record closing level, according to CMA prices for credit default swaps. Contracts on Portugal dropped from a record, falling three basis points to 618. European Central Bank Executive Board member Juergen Stark said any country seeking to renegotiate its debt obligations would find it creates more problems than it solves. “It might be perceived at some point by some policy makers as an easy way out, but it would not solve the problem,” Stark said, according to an interview published today. “On the contrary. It is extremely costly to the respective countries. If they really considered restructuring debt, they would have to pay in the future a higher risk premium.” Germany plans to auction 6 billion euros in new five-year 2.75 percent notes tomorrow, while Spain is due to sell up to 3.5 billion euros of bonds maturing in 2021 and 2024.
  • Baltic Dry Index Extends Longest Slide Since January on Glut. The Baltic Dry Index, a measure of commodity-shipping costs, extended its longest run of declines since January as a glut of ships caused charter rates to slump. The gauge fell 1% to 1,271 points. That was the 16th straight retreat. Owners are contending with a fleet that's swelling at more than twice the pace of trade, according to Clarkson Research Services Ltd. The carrying capacity of the dry-bulk shipping fleet will grow 13% to 607.9 million deadweight tons this year as demand expands 5%, it said.
  • Gold Futures Top $1,500 on Outlook for Escalating U.S. Debt, Dollar Slump. Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment.The greenback dropped against a basket of six currencies following Standard & Poor’s revision yesterday of its long-term rating of U.S. debt to negative from stable. “Investors are shocked and flocking to gold as the downgrade threw a cold blanket over the dollar,” said Lim Chae Myung, a Seoul-based trader at Hyundai Futures Co. “The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets.” Gold futures for June delivery rose $2.40, or 0.2 percent, to $1,495.30 at 12:33 p.m. on the Comex in New York after reaching the record. Gold for immediately delivery rose as much as 0.3 percent to an all-time high of $1,499.32 before erasing gains. Before today, futures climbed 31 percent in the past year.
  • Government Debt May Surpass U.S. GDP in 2020: Chart of the Day. A 2 percentage-point increase in the U.S. government's borrowing costs would push debt above the nation's gross domestic product by 2020. A Bloomberg Government Study published March 7, "Cutting the Deficit: Painful Choices," forecast that U.S. government debt as a percent of GDP will rise to 84.9% in 2020. That forecast assumes that interest rates will average 3.54% from 2011 to 2020. The figure is an average of the Congressional Budget Office's effective interest rate projections for all maturities for the next 10 years. If the government's borrowing costs averaged 4.54% over the next decade, debt would rise to 92.5% of GDP in 2020. An increase of an additional percentage point to 5.54% would cause debt to balloon to 100.6% of GDP, and borrowing costs of 6.54% would push debt to 109.5% of GDP in 2020, the estimates show.
  • Fink Calls S&P U.S. Outlook Cut a 'Warning' to Lawmakers: Video. (video)
  • OPEC's El-Badri Sees Crude Price Staying Above $100 in 2011. OPEC Secretary General Abdalla el- Badri said he expects crude to cost more than $100 a barrel until at least next year, while Iran’s envoy to the producer group foresees an “increasing trend” for oil prices in 2011. The officials, speaking today to reporters in Tehran, underscored sentiment within the Organization of Petroleum Exporting Countries that the run-up in recent months is not a result of inadequate supply. Saudi Arabia’s Oil Minister Ali al- Naimi blamed speculators who buy crude futures for propelling pushing prices to their current “unjustified” levels, the official Saudi Press Agency reported today. “Speculation is playing a very important role, and I think the price will not come down below $100 for the rest of 2011,” el-Badri said at a news conference. The OPEC chief told reporters in Kuwait yesterday that current oil prices are “a concern” and include a premium of $15 to $20 a barrel.
  • Cape Wind Power Project Wins U.S. Backing for Construction. The Cape Wind Energy Project won U.S. Interior Department approval of its construction plan in Massachusetts for the nation’s first offshore wind farm. Cape Wind Associates said building the wind turbines in the water, a project in development for about a decade, may begin as early as the U.S. fall. Cape Wind plans to install 130 wind turbines in Nantucket Sound off the Massachusetts coast. The project has been opposed by homeowners whose ocean view would be affected by the windmill towers and by local lawmakers as a threat to a sensitive ecosystem.
  • Housing Starts in U.S. Increased 7.2% in March to 549,000 Pace. A gain in March housing starts failed to make up for ground lost the prior month, as U.S. home builders continue to struggle almost two years into the economic recovery. Work began on 549,000 houses at an annual pace, up 7.2 percent from the prior month and exceeding the 520,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Starts fell 19 percent in February to the lowest level in almost two years.
  • Goldman Sachs(GS) Shares Decline on Concern Earnings Growth Can't Be Sustained. Goldman Sachs Group Inc. (GS) declined in New York trading after first-quarter profit fell 21 percent and analysts said the fifth-biggest U.S. bank relied on unpredictable investment gains to beat estimates. Goldman Sachs dropped $4.17, or 2.7 percent, to $159.61 at 12:31 p.m. in New York Stock Exchange composite trading, reaching the lowest level since Oct. 5. Net income slid to $2.74 billion, the New York-based company said today in a statement. Chairman and Chief Executive Officer Lloyd C. Blankfein, 56, depended on trading and investments with the firm’s own money to generate 79 percent of first-quarter revenue. The investing and lending segment, which accounted for 23 percent of revenue, is unreliable because results are tied to market moves and because regulators might add restrictions to the business, said some analysts and investors.
Wall Street Journal:
  • Thousands of Islands, Many Fish. The world's biggest source of tin and thermal coal now wants to dominate the global market for another vital commodity: fish.
  • Fed Unveils Proposal on US Mortgage Standards. Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday. The rule, which is required by the Dodd-Frank financial reform law, is intended to tighten lending standards and combat home lending abuses that contributed to the 2007-2009 financial crisis. The rule would establish minimum underwriting standards for most mortgages and lenders could be sued by the borrower if they do not take the proper steps to check a borrowers ability to repay the loan.
  • Gas Prices Nearing Point Where Americans Cut Back. With about six weeks to go until the summer driving season begins, the price of a gallon of gasoline is just 18 cents away from the record price of $4.11, which was set in the summer of 2008.
Business Insider:
Zero Hedge:
New York Times:
  • Slow Payers Hinder Trade in Europe. In theory, the European Union is one gigantic economic zone of about 500 million consumers all integrated into the world’s biggest trading bloc. But the ideal is still far ahead of the reality, particularly for businesses that end up trying to collect debts across the Union’s many borders. There are still 27 different national legal systems at work in the bloc, each with its own procedures for handling claims, property attachment and bankruptcies. European officials say at least €55 billion a year in debt is simply being written off, much of it because businesses find it too daunting to press expensive, confusing lawsuits in foreign countries. Officials and business leaders say they believe that debt collection problems are a profound deterrent to commerce within the European Union and one of the reasons that job creation and wealth generation falls consistently behind the United States, where pursuing debts across state lines is a comparatively easy task.
  • Nasdaq(NDAQ) and ICE(ICE) Unveil Official Bid for NYSE Euronext(NYX).
ABC News:
  • Debt Be Not Proud: Voters Sour On Obama's Economic Leadership. As President Obama goes on the road today to sell his deficit reduction plan, a new ABC News-Washington Post poll finds 57 percent of Americans disapproving of his handling of the economy while pessimism about the nation's financial health is the highest it's been in two years.
  • Obama's Plan For A Fundamentally Different America. Obama promised to preserve the health care provided to seniors and the poor by Medicare and Medicaid by reducing the cost of health care. Once again, the actual results will be quite different than those good intentions. Unlike the Republican proposal, which would attempt to maintain health care by raising somewhat the price of insurance to senior citizens, his plan would attempt to control costs by reducing the care provided to them by Medicare. The president would cut spending by first reducing the price government pays for prescription drugs. That would save money in the short run by reducing pharmaceutical company profits without impacting the availability of medicines. Before cheering, consider the longer-term consequences. With reduced profits now, and lower expected profits on all future drugs, there will be a lot less investment in developing life saving and life enhancing drugs. That means reduced care in the future – especially for those Americans who today are under age 55 and who stand to benefit the most from the drugs that would have been created over the next 10 to 20 years.
Advanced Trading:
  • 10 Things Hedge Funds Must Address. The Dodd-Frank will impose strict regulations on the hedge fund industry. The scope of these rules, how the industry must respond, and whether firms will embrace the spirit of the regulation to gain competitive advantage are open questions.
Rasmussen Reports:
  • Support for Deepwater Drilling Up to 59%. The latest Rasmussen Reports national telephone survey of Likely Voters shows that 59% now say deepwater drilling should be allowed. Twenty-two percent (22%) oppose deepwater drilling.
  • US Retail Gasoline Demand Falls -1.6% From A Year Ago. U.S. retail gasoline demand rose last week as warmer weather encouraged more driving, but was down from a year ago because of high prices at the pump, MasterCard Advisors' SpendingPulse report showed on Tuesday. Average gasoline demand rose 3.3 percent from the previous week to 9.3 million barrels per day. But that was down 1.6 percent from a year ago, marking the seventh straight slippage, due to steep pump prices. The price of retail gasoline rose again last week and was up 9.00 cents at $3.81 per gallon. That was 33.7 percent higher than a year ago. Over the latest four weeks, U.S. gasoline consumption has fallen 2.1 percent from year-ago levels.
Financial Times Deutschland:
  • European Central Bank Governing Council Member Nout Wellink said policy makers must stay "very alert" to avoid being "behind the curve," citing an interview. "There are many reasons to monitor the situation closely and act immediately if necessary."
  • Russia's Finance Ministry will plan its budget for 2012 through 2014 using an oil price of $120 to $122 a barrel, the range required to avoid a deficit next year, citing Finance Minister Alexei Kudrin.
Il Sole 24 Ore:
  • European Central Bank Executive Board member Lorenzo Bini Smaghi said S&P's decision to cut the U.S. outlook to "negative" should encourage nations to lower their public debt burden.
  • Few Line Up in Toronto to Buy RIM's(RIMM) BlackBerry Playbook. The launch of the PlayBook tablet by BlackBerry maker Research in Motion was not greeted by jostling crowds of latest-tech-hungry geeks and lineups for the new device at stores could be tallied on one hand. The stark contrast with the launch of rival Apple's iPad 2 tablet last month was impossible to miss -- marketing hype accelerated in the weeks leading up to the new iPad's debut and swarms gathered around the block to get their hands on it.
JoongAng Daily:
  • Europe's Subprime Quagmire. Europe is making a fundamental mistake by allowing debt restructuring and real stress tests for banks to remain taboo.

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