Monday, June 13, 2011

Today's Headlines


  • S&P Cuts Greece Rating, Expects Restructuring. Greece had its credit rating cut three levels by Standard & Poor’s, which branded the nation with the world’s lowest debt grade and said a restructuring looks “increasingly likely.” The move to CCC from B reflects “our view that there is a significantly higher likelihood of one or more defaults,” S&P said in a statement today. “Risks for the implementation of Greece’s EU/IMF borrowing program are rising, given Greece’s increased financing needs and ongoing internal political disagreements surrounding the policy conditions required.”
  • Irish, Portuguese Credit-Default Swaps Surge to Records on Greek Contagion. Credit-default swaps on Greece, Ireland and Portugal surged to records on concern European governments’ struggles to resolve the deficit crisis will threaten their ability to pay their debts. Swaps on Greece jumped 47 basis points to an all-time high of 1,610 as of 5:30 p.m. in London after Standard & Poor’s downgraded the nation, according to CMA. Contracts on Ireland soared 27 basis points to 740, Portugal climbed 22 to 764 and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 7 basis points to 218, approaching the record 221.75 set Jan. 10. Disagreement between the European Central Bank and Germany over bailing out Greece is undermining investor confidence in the region’s most troubled governments. ECB President Jean- Claude Trichet and German Finance Minister Wolfgang Schaeuble are at odds over who should bear the cost of the second Greek rescue in 14 months. S&P lowered its long-term sovereign credit rating on the nation to CCC with a negative outlook from B. “In our view Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece’s official creditors, would result in one or more defaults under our criteria,” S&P said today. The cost of insuring European corporate bonds also rose. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 6 basis points to 406, after earlier climbing to the highest since March 17, according to JPMorgan Chase & Co.
  • China Cracks Down on Local Officials After Regions Struck by Riots, Bombs. Officials in central China’s Hubei province were suspended or detained after protests last week sparked by the death of a local councilman, reflecting rising public anger at abuse of power and a widening income gap. At least five officials in Lichuan were detained or suspended following the June 4 death in police custody of Ran Jianxin, a former head of the city’s anti-corruption bureau who was being questioned over bribery, a government statement said. Photographs purporting to show Ran’s beaten body circulated on the Internet, and his family claimed he had been punished because of earlier allegations of corruption against senior officials over a land deal, the Associated Press reported. Armored cars were used to quell protests on June 9 that were sparked by Ran’s death, with people throwing bottles and eggs as they clashed with police, the AP reported, citing local witnesses. Riots, strikes and protests are on the rise as inequality grows and people lash out at corrupt local governments seeking to generate income by selling homes and farms to real-estate developers at a profit. “People are getting frustrated” at the “systemic exploitation of the have-nots, people at the bottom of the barrel,” said Willy Wo-lap Lam, an adjunct professor of history at the Chinese University of Hong Kong.
  • Crude Oil Futures Fall to Three-Week Low in New York as China Demand Slows. Crude oil fell in New York to the lowest level in three weeks as fuel demand from China slowed, bringing the differential between U.S. crude and a U.K. benchmark to a record. Oil dropped as much as 3.2 percent as China’s National Development and Reform Commission said daily consumption of gasoline, diesel and kerosene fell 4 percent last month from April. “We are feeling the effect of weaker demand in the U.S. and China,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “We broke the support level of $98, and the next support is $95.18.” Crude oil for July delivery fell $2.67, or 2.7 percent, to $96.62 a barrel at 1:16 p.m. on the New York Mercantile Exchange after declining to $96.13, the lowest intraday level since May 20. Futures are up 31 percent in the past year. China’s daily consumption of fuels dropped to 650,000 metric tons in May, the National Development and Reform Commission said in a statement on its website today, citing preliminary figures. “Where is the demand?” said Richard Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago. “I don’t think we have a rosy, good picture for the world economy.” Saudi Arabia will increase production, though it’s too early to say by how much, an industry official with knowledge of the matter who declined to be identified said on June 10. The al-Hayat newspaper, citing senior officials, reported that the kingdom will boost output to 10 million barrels a day in July from the current 8.8 million.
  • California's Top 10 Paid City Managers Raked in $4.7 Million. Robert Gutierrez got $459,468 in salary and severance in 2009 as city manager of Moreno Valley, a suburb with 450 employees and 193,000 residents an hour east of Los Angeles. That’s twice the salary of the governor, responsible for 353,000 employees and 37 million people. Gutierrez wasn’t alone. Almost four in 10 city managers in California were paid more than the state’s chief executive in 2009, according to payroll data. The top 10 shared $4.7 million including bonuses and allowances to oversee cities averaging 115,000, the data shows. Eighty-five managers that year were paid $250,000 or more. “It’s outrageous,” said Deanna Reeder, 49, who lives in Moreno Valley, which had an average personal income of $18,728 in 2009 and an April unemployment rate of 15.6 percent. “California is hurting. Every city is hurting and instead of dealing with it, they overpay some people, and the person they are overpaying doesn’t solve the problems.”
  • VF(VFC) to Acquire Timberland(TBL) for $1.8 Billion. VF Corp. (VFC), the world’s largest apparel maker, climbed the most since 2008 in New York trading after agreeing to buy hiking-boot company Timberland Co. (TBL) for about $1.8 billion. The per-share price is $43, the companies said today. VF will pay about 12 times Timberland’s earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the 9.7 median multiple in nine shoe and clothing deals since 2006.
  • SEC Seeks Halt to Sales of 2 China-Based Stocks. The U.S. Securities and Exchange Commission, as part of a broader probe of China-based firms listed on U.S. exchanges, moved to halt new share offerings in two companies after their independent auditors resigned. SEC investigators claimed that China Intelligent Lighting and Electronics Inc. (CIL) and China Century Dragon Media Inc. failed to disclose that their independent auditors had withdrawn after questioning the accuracy of the companies’ financial statements, according to two separate orders released today.
  • BofA(BAC) May Post Added $27 Billion in Housing Losses, Sanford Bernstein Says. Bank of America Corp. (BAC), the largest U.S. lender, may face a further $27 billion of housing-related losses between now and 2013 amid increasing regulation as the economic recovery slows, analysts at Sanford C. Bernstein said. The losses would be in addition to the $46 billion the Charlotte, North Carolina-based lender has already recorded, analysts led by John E. McDonald wrote in a note to clients today. “The process of addressing legacy mortgage issues will be long and arduous,” the analysts said. “Recent declines in home prices and an uptick in employment trends create an upward bias to our loss estimates” for the lender.
  • New York, Delaware Said to Probe Trustee Banks for Mortgage Securities. New York has broadened its probe of the U.S. mortgage industry, requesting information from at least five financial institutions that act as trustees for pools of mortgages, a person familiar with the matter said. New York Attorney General Eric Schneiderman’s office requested documents from Deutsche Bank AG (DB) and Bank of New York Mellon Corp. (BK), which act as trustees for mortgage-bond trusts, said the person. Between five and 10 trustees are being asked to provide information, said the person, who declined to be identified because the matter isn’t public.
Wall Street Journal:
  • Spain: Police Confirms "Anonymous" Retaliatory Web Attack. Spanish police confirmed Monday that a group of hackers tied to a series of security breaches on websites across the world, attacked its main website soon after midnight Sunday, in apparent retaliation for the recent arrest of three alleged members of the group. On Sunday, "Anonymous" said it launched a denial-of-service attempt to put the police website offline, as part of what it called an ongoing fight against Spain's "corrupt" state.
  • China Jitters Delay Companies' Dollar Bonds. Two China-based companies have delayed U.S.-dollar bond issues in Hong Kong, according to people familiar with the matter, in a sign that economic worries and a U.S. probe into the accounting practices of a small number of Chinese firms are hitting broader bond-market sentiment.
  • US Lacks Vision, Strategy to Be Exceptional: Welch. The United States lacks a "fundamental strategy" for being the "most innovative, the most productive, the most competitive country on Earth," former General Electric chairman Jack Welch told CNBC Monday."If you walk down the street you couldn’t get anybody to say what’s the strategy of the country," said Welch.
  • Economists Warn Against More Fed Action. The best cure for the ailing economy now is time. That's the overwhelming opinion of leading economists in a new Associated Press survey. They say the Federal Reserve shouldn't bother trying to stimulate the economy — and could actually do damage if it did. The economists are lowering their forecasts for job creation and economic growth for the rest of 2011, mainly because of high oil prices.
Business Insider:
New York Times:
  • China Backtracks on High-Speed Trains. China’s troubled Railway Ministry was dealt another blow on Monday as it announced a reduction in high-speed rail service and contended with a rare protest alleging that its hiring practices were corrupt. The protest erupted outside the ministry’s fortress-like entrance across from the Defense Ministry here. More than 100 demobilized soldiers and their families chanted slogans accusing the ministry of reneging on promises to hire them. The group traveled 750 miles from the northeastern city of Harbin and claimed that one protester had been killed there.
Washington Post:
  • Militants Linked to Al-Qaeda Emboldened in Yemen. Islamist extremists, many suspected of links to al-Qaeda, are engaged in an intensifying struggle against government forces for control of southern Yemen, taking advantage of a growing power vacuum to create a stronghold near vital oil-shipping lanes, said residents and Yemeni and U.S. officials.
  • There's A Little Black Spot On SunPower(SPWRA) Today. SunPower faces a lawsuit from conservation groups opposing its California Valley Solar Ranch project. The 250 megawatt project had been approved last month after the San Luis Obispo Planning Commission made a detailed report of the impact of the project on the environment. Approval is now subject to the resolution of the lawsuit filed with the California Superior Court. SunPower manufactures and distributes silicon-based solar cells and also produces solar power products for installation on residential and commercial units.
  • ECB's Nowotny: Greece Reforms to Take Time, Need All-Party Consensus. Structural reforms in Greece will take time and need cross- party support, says European Central Bank Governing Council Member Ewald Nowotny in an interview to be published Tuesday in the Austrian daily newspaper Kurier. "Without an adequately strong will, Greece will not be successful with the reforms. Therefore lenders require a cross-party consensus in Greece," the paper reports Nowotny as saying. Greece needs to quickly eliminate both its budget and current accounts deficits through savings, higher taxes, and Cutbacks on the consumer side, he says. Nowotny adds that the previous Greek package had assumed the Greek economy would recover more quickly and says: "We have learned to be very cautious regarding prospects."
White House Dossier:
  • Obama Wooing Hedge Fund Set for Reelection. President Barack Obama has been meeting with hedge fund executives to win their financial support for his reelection. Obama also plans to meet with more hedge fund executives this month at a New York restaurant.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
  • Local Chinese governments have borrowed "slightly" more than $1.4 trillion from banks via financing vehicles, citing central bank officials.
  • Police Use Tear Gas to Quell Riot in Southern China. Riot police poured into a southern Chinese factory town crowded with migrant workers on Monday, a day after militia fired tear gas to quell rioting over the abuse of a pregnant street hawker who became a symbol of simmering grassroots discontent. Video footage and photos shot on mobile phones by residents in Zengcheng in Guangdong province showed angry mobs torching government buildings, smashing police vehicles, and clashing in their thousands with riot police over the weekend. The unrest was triggered by security guards who had set upon the hawker, Wang Lianmei, on Friday, but underlying frustration at other building social pressures including rampant food price and housing inflation, as well as corrupt local officials, had also stoked anger amongst many locals.
  • Obama: Debt Problems Are Impediment to US Growth. President Barack Obama said on Monday that the U.S. debt and deficit are a "concrete impediment" to economic growth and hiring and that the recovery must be strengthened as part of a solution to fiscal problems. "We need to solve our medium and long-term debt and deficit problems, not for abstract reasons, but because they are a concrete impediment to growth and jobs," Obama said at a meeting of his jobs and competitiveness advisory council in North Carolina.
Der Tagesspiegel:
  • German food prices will rise "strongly" in the near future as raw-material prices have been increasing, citing Matthias Horst, director of the country's food-industry association.

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