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Profits more than triple for Harley! Woo hooo!
WSJ: Bank of New York Mellon Earnings Soar
JULY 20, 2010, 7:59 A.M. ET
By TESS STYNES
Bank of New York Mellon Corp.'s second-quarter earnings nearly quadrupled as the financial-services company recovers from prior-year securities losses and TARP-related charges.
The asset manager and securities adviser has been expanding its wealth-management business and in June unveiled plans for a unit that will handle futures and swap trades by major customers. The moves come as financial-services firms seek to tap into investors' appetite for clearing transactions and in anticipation of regulatory changes regarding collateral requirements in the U.S. and Europe.
The firm reported a profit of $658 million, or 54 cents a share, matching analysts' expectations, according to Thomson Reuters, up from $176 million, or 15 cents a share, a year earlier. The prior year included a $236 million charge related to the repayment of $3 billion it received from Treasury's Trouble Asset Relief Program. Meanwhile, the latest quarter has $13 million of net securities gains, compared with prior-year losses of $256 million.
Fee revenue rose 1.8% to $2.56 billion as net interest revenue rose 3.1% to $722 million. on revenue of $3.34 billion.
Assets under management rose 19% on year to $1.047 trillion as of June 30 but fell 5.2% during the quarter amid declines in the stock market. Net inflows were $12 billion in the quarter
Credit-loss provisions tumbled to $20 million from $61 million a year earlier and $35 million in the first quarter. Nonperforming assets fell 12% to $406 million during the quarter.
Formed in July 2007 when Bank of New York acquired Mellon Financial Corp., the company is a "custodial bank," which generally holds investments and securities for other investors.
Write to Tess Stynes at tess.stynes@dowjones.com
http://online.wsj.com/article/SB10001424052748703724104575378752705818986.html?mod=rss_whats_news_us_business
WSJ: PepsiCo Profit Falls:
Restructuring Charges Weigh On PepsiCo Profit
JULY 20, 2010, 7:45 A.M. ET
By TESS STYNES
PepsiCo Inc.'s earnings fell 3% on restructuring charges as the food-and beverage company was aided by the acquisition of its two largest independent bottlers earlier this year and strong growth in key international markets.
Chairman and Chief Executive Indra Nooyi said Pepsi exceeded its earnings-growth target for the first half of the year on the strong second-quarter results.
Total beverage volume rose 13% in the Americas amid the company's new deal with Dr Pepper Snapple Group Inc., and fell 1% without those impacts as soda remained weak.
Pepsi continues to focus on international markets for growth. The company in May unveiled plans to invest an additional $2.5 billion in China over the next three years, on top of the $1 billion invested since 2008. The beverage giant also began to see efforts to revive its Gatorade sports-drink brand, which recorded weaker sales during the recession.
Pepsi reported a second-quarter profit of $1.6 billion, or 98 cents a share, down from $1.66 billion, or $1.06 a share, a year earlier. Excluding items such as mark-to-market gains and restructuring expenses, earnings rose to $1.10 from $1.02.
Revenue climbed 40% to $14.8 billion amid the acquisitions.
Analysts polled by Thomson Reuters most recently forecast earnings of $1.08 on revenue of $14.41 billion.
Gross margin rose to 54.4% from 53.9%
Volume fell 3% but revenue increased 2% at its Frito-Lay North America snacks business.
Write to Tess Stynes at tess.stynes@dowjones.com
http://online.wsj.com/article/SB10001424052748703724104575378740151618252.html?mod=WSJ_newsreel_business
WSJ: Whirlpool Net More Than Doubles on Higher Sales
JULY 20, 2010, 7:47 A.M. ET
By MATT JARZEMSKY
Whirlpool Corp.'s earnings more than doubled, handily topping analysts' estimates, as higher volume boosted sales and margins on an improved economy.
The appliance maker has seen results rebound of late as demand has been rebounding off the recession's woeful levels. It restructured during the downturn, shuttering plants and freezing salaries as consumers delayed appliance purchases and housing construction slumped.
Whirlpool posted second-quarter earnings of $205 million, or $2.64 a share, up from $78 million, or $1.04 a share, a year earlier. Excluding items such as a Brazilian legal dispute and refundable energy surcharge credits, earnings soared to $2.82 from 94 cents. Sales increased 8.8% to $4.53 billion and were up 6% excluding currency fluctuations.
Analysts polled by Thomson Reuters had predicted earnings of $2.13 on $4.48 billion in sales.
Gross margin widened to 16.8% from 13.3%.
Sales in North America, the company's largest selling region, were up 6%, or 4% excluding currency impacts, as shipments increased 7% and earnings jumped two-thirds. Europe sales fell 6%, but the region swung to the black on lower costs. Latin America and Asia sales jumped 24% and 43%, respectively.
Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com
http://online.wsj.com/article/SB10001424052748703724104575378732389761268.html?mod=loomia&loomia_si=t0:a16:g12:r1:c0.301166:b35821988
WSJ: Biogen Net More Than Doubles on Higher Sales
JULY 20, 2010, 8:02 A.M. ET
By MATT JARZEMSKY
Biogen Idec Inc.'s earnings more than doubled, with its Tysabri drug again showing strong sales gains.
The company raised its current-year earnings estimate by 15 cents to at least $4.70 a share.
The results come as the maker of multiple-sclerosis treatments faces concerns about the sales growth of Tysabri, which is sold with Elan Corp. The U.S. Food and Drug Administration has maintained the drug's benefits outweigh risks of a rare and serious brain infection linked to it.
Biogen's chief executive departed last month and the chief operating officer plans to do the same at the end of the year.
Biogen reported a second-quarter profit of $294.6 million, or $1.12 a share, up from $144.9 million, or 49 cents a share, a year earlier. Excluding restructuring costs and other items, profit soared to $1.31 from 75 cents. Revenue rose 11% to $1.21 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of $1.12 on $1.13 billion in revenue. Such estimates typically exclude items.
Sales of Tysabri rose 17% as the estimated number of patients world-wide rose 4.8% from the prior quarter. Fellow MS treatment Avonex—the company's biggest seller—posted a 6.3% increase.
Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com
http://online.wsj.com/article/SB10001424052748703724104575378764010849770.html?mod=rss_whats_news_us_business
WSJ: UnitedHealth Net Rises 30% as Claims Costs Fall
JULY 20, 2010, 8:04 A.M. ET
By JODI XU
UnitedHealth Group Inc.'s second-quarter profit jumped 30% on better-than-expected revenue growth while claims costs fell.
As results topped estimates, the largest managed-care company in the U.S. by revenue also raised 2010 forecasts a second time, now projecting earnings of $3.40 to $3.60 a share on revenue of $93 billion, up 25 cents and $1 billion, respectively.
Health insurers have been hurt by falling enrollment, especially in their commercial segment amid high unemployment. UnitedHealth's commercial medical membership fell 1.7% to 24.6 million from a year earlier but increased 70,000 during the quarter. The total number of people served by UnitedHealth rose 8% from a year ago to 76.4 million on gains for risk-based products and Medicaid.
The sector is now facing new uncertainties from the federal overhaul, which might increase insurers' medical costs. However, it might add new members to health insurers like UnitedHealth, which has a chunk of services targeting the public sector.
The company reported a profit of $1.12 billion, or 99 cents a share, up from $859 million, or 73 cents a share, a year earlier. Revenue increased 7% to $23.26 billion.
Analysts polled by Thomson Reuters most recently estimated earnings of 75 cents and $22.97 billion in revenue.
UnitedHealth's medical-benefits ratio, or the amount of premiums used to pay patient medical costs, fell to 81.5% from 83.6%, largely due to prior-year reserves.
Write to Jodi Xu at jodi.xu@wsj.com
http://online.wsj.com/article/SB10001424052748703724104575378763838572170.html?mod=rss_whats_news_us_business
BP -1.85%, $35 handle: BP May Face $18 Billion In Fines From US
Posted: July 20, 2010 at 6:08 am
The US Clean Water Act has provisions that could allow the American government to charge BP plc (NYSE: BP) up to $4,300 per barrel of oil spilled into the Gulf. According to The New York Times, if the government determines that the spill was the result of gross negligence, the fine jumps to $4,300 a barrel. CNN Money puts the potential total fines as high as $18 billion.
It is not clear whether that sum is on top of the $20 billion escrow account that BP has established for liabilities and clean-up costs or the $3 billion BP has already paid to contain the spill, clean water and beaches, and cover claims of individuals and companies affected by the leak. The calculation explains why BP’s plan to sell $10 billion worth of Prudhoe Bay assets to Apache (NYSE: APA) and raise as much as $10 billion through credit facilities or debt offerings may not be adequate to cover all of BP’s costs arising from the spill. The $18 billion fine combined with the $20 billion escrow may not cover lawsuits by those who claim their livelihoods where destroyed by the leak. It also does not include shareholder suits by those who own shares in BP and have lost 40% or more of the value of their investments.
The US government is face with an odd and difficult situation. An $18 billion fine could cripple BP and undermine its ability to continue to fund the escrow account and weather suits against it by American citizens. The escrow account will be funded over a three-and-a-half year period. BP’s costs may have gone into the tens of billions of dollars by they and its ability to handle the weight of more payments could be broken.
BP could still go into Chapter 11 and the US government could be the major reason for putting it there.
Douglas A. McIntyre
Sponsored Link: A secret website Wall Street doesn't wan
Read more: BP May Face $18 Billion In Fines From US - 24/7 Wall St. http://247wallst.com/2010/07/20/bp-may-face-18-billion-in-fines-from-us/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FRyNm+%2824%2F7+Wall+St.%29#ixzz0uDx92e7G
GM! Lombard Research: ‘China overheating’, warns economist
19 July 2010 | By Adam Lewis
Lombard Street Research, an economics consultancy, has dismissed the threat of a house price bubble in China but warns the economy is overheating substantially.
Diana Choyleva, an economist at Lombard, warns in the firm’s latest Monthly Review, that at some point over the coming year China’s expansion is likely to be cut short. It is likely to be restrained by cyclical barriers amid a sizable relapse of global growth.
“The longer the economy continues to boom and inflation is left unchecked, the worse the necessary growth correction is set to be”
“The longer the economy continues to boom and inflation is left unchecked, the worse the necessary growth correction is set to be,” Choyleva warns.
She says: “With the level of output in China well above its trend level, real output growth actually needs to go sufficiently below trend to close the positive output gap and get rid of the overheating.
“On our estimates real quarterly GDP growth was above trend at 5.2% in Q2 or an annualised rate of 22.4%, which further fuelled the economy’s overheating.”
With overheating being the main policy challenge for China at present, Choyleva argues the Chinese authorities are likely to attempt managing inflation expectations by “massaging” the official data.
However, she says “the longer they refrain from restraining China’s red hot economy, the worse the necessary growth correction would be.” She adds: “The more inflation expectations get out of control the harder it will be for the People’s Bank of China to rein in inflation.”
Despite the threat of the economy overheating and the knock-on affect it will have on slowing growth, Choyleva argues that China does not have a property bubble growing.
“A bubble is underpinned by an excessive accumulation of debt vis-à-vis both the ability to service the debt and wealth,” she says. “The surge in Chinese demand for property has been driven by investment motives.
“China’s ultra-easy monetary conditions helped spur it on. But on our estimates, 40% of the properties bought in 2009 were being financed entirely with savings, not borrowed money. This, and the fact that mortgage debt is such a low share of output, makes it difficult to argue that China’s housing market is a bubble.”
http://www.fundstrategy.co.uk/markets/asia/%E2%80%98china-overheating%E2%80%99-warns-economist/1015389.article
>>FAZ AWAY! GS disappoints, profits drop, Blanfein warns, Futures Drop
earlier headlines:
- U.S. Futures, European Stocks Drop Before Goldman Earnings; Copper Climbs
-State Street's Custody, Currency Fees Drove Second-Quarter Revenue Jump
6:08 AM
BP May Face $18 Billion In Fines From US
AAPLE -0.94%
BP -1.82% (35.10)
FCX -1.17% (60.15)
Gold 1178
Copper 2.94
GS -2.66% and falling on weak guidance
FAZ +3.67%
Each company which reported this morning beat analyst estimate, yet J&J Dissapoints on guidance, Pepsi is down after profits fell more than expected.
Comment: Asian markets were red, and had begun to climb after China suddenly decides to reverse direction and NOT tighten loans in attempt to cool their overheated housing market.
BREAKING ON GS;
7.9% ROE vs 13% for GS, reporting, Revenues were a little light, 8.8 vs 8.4%, Trading and principal investments down, nothing like what GS had seen some quarters back.
Client activity across the board declined
That's right, China decided it was riskier to slow down their economy and housing, than to allow the bubble to continue.
Meanwhile, American corporate Blue Chips such as Johnson & Johnson and Pepsi have released reduced guidance and earnings which disappointment analyst expectations. reports in a few minutes.
Earlier, when Business Insider gave their wrapup, this is what they saw:
Mainland Chinese stocks surged even higher today after yesterday's gains, and most of Asia followed except for sick man Japan. The Asian Development Bank hiked their East Asia growth forecast to a whopping 8.1% this year, up from 7.7% previously. China's central bank also voiced concern over its property prices, which could signal less, rather than more, government tightening measures.
Shanghai: +2.2% (CSI 300)
Asia: +0.9% (MSCI Asia Apex 50)
Hong Kong: +0.9% (Hang Seng)
Tokyo: -1.15% (Nikkei 225)
European shares are moderately in the green. Brace yourself for European banks stress tests this Friday. The euro broke above $1.30 a few hours ago, but then settled lower.
The Euro: $1.286 (+0.3%)
Frankfurt: +0.2% (DAX)
Paris: +0.2% (CAC 40)
London: +0.2% (FTSE 100)
Gold and oil are rallying as the dollar weakens, which is a classic global-growth move. The Baltic Dry Index has enjoyed a second day of gains, showing some stabilization.
Gold: +0.1% ($1,183)
Oil: +0.2% (Light Sweet Crude $75.76)
Baltic Dry Index: +0.7% (BDI 1,732)
Dollar Index: -0.3% (DXY 82.35)
Read more: http://www.businessinsider.com/the-10-second-market-wrap-2010-7#ixzz0uDtZuAq3
Good morning! AAPL is -1% this morning, BP -1.85%. Odd, eh?
>>Breaking: BP, scientists try to make sense of well puzzle
By VICKI SMITH, HOLBROOK MOHR and HARRY R. WEBER, Associated Press Writers – 13 mins ago
NEW ORLEANS – In a nail-biting day across the Gulf Coast, engineers struggled to make sense of puzzling pressure readings from the bottom of the sea Friday, trying to determine whether BP's capped oil well was holding tight or in danger of springing a new leak.
No immediate leaks were spotted, which was encouraging. But midway through the testing period on the new temporary cap that was bottling up the crude inside the well, the pressure readings were not rising as high as expected, said retired Coast Guard Adm. Thad Allen, the government's point man on the crisis.
Allen said two possible reasons were being debated by scientists: The reservoir that is the source of the oil could be running low three months into the spill. Or there could be an undiscovered leak somewhere down in the well. Allen ordered further study but remained confident.
"This is generally good news," he said. But he cautioned, "We need to be careful not to do any harm or create a situation that cannot be reversed."
He said the testing would go on into the night, at which point BP may decide whether to reopen the cap and allow some oil to spill into the sea again.
Throughout the day, no one was declaring victory — or failure. President Barack Obama cautioned the public "not to get too far ahead of ourselves," warning of the danger of new leaks "that could be even more catastrophic."
Even if the cap passes the test, more uncertainties lie ahead: Where will the oil already spilled go? How long will it take to clean up the coast? What will happen to the region's fishermen? And will life on the Gulf Coast ever be the same again?
"I'm happy the well is shut off, that there's a light at the end of the tunnel," said Tony Kennon, mayor of hard-hit Orange Beach, Ala. But "I'm watching people moving away, people losing their jobs, everything they've got. How can I be that happy when that's happening to my neighbor?"
On Thursday, BP closed the vents on the new, tight-fitting cap and finally stopped crude from spewing into the Gulf of Mexico for the first time since the April 20 oil-rig explosion that killed 11 workers and unleashed the spill 5,000 feet down.
With the cap working like a giant cork to keep the oil inside the well, scientists kept watch on screens at sea and at BP's Houston headquarters, in case the buildup of pressure underground caused new leaks in the well pipe and in the surrounding bedrock that could make the disaster even worse.
Pressure readings after 24 hours were about 6,700 pounds per square inch and rising slowly, Allen said, below the 7,500 psi that would clearly show the well was not leaking. He said pressure continued to rise between 2 and 10 psi per hour. A low pressure reading, or a falling one, could mean the oil is escaping.
But Allen he said a seismic probe of the surrounding sea floor found no sign of a leak in the ground.
Benton F. Baugh, president of Radoil Inc. in Houston and a National Academy of Engineering member who specializes in underwater oil operations, warned that the pressure readings could mean that an underground blowout could occur. He said the oil coming up the well may be leaking out underground and entering a geological pocket that might not be able to hold it.
But Roger N. Anderson, a professor of marine geology and geophysics at Columbia University, said the oil pressure might be rising slowly not because of a leak, but because of some kind of blockage in the well.
"If it's rising slowly, that means the pipe's integrity's still there. It's just getting around obstacles," he said. He added that "any increase in pressure is good, not bad."
The cap is designed to prevent oil from spilling into the Gulf, either by keeping it bottled up in the well, or by capturing it and piping it to ships on the surface. It is not yet clear which way the cap will be used if it passes the pressure test.
Either way, the cap is a temporary measure until a relief well can be completed and mud and cement can be pumped into the broken well deep underground to seal it more securely than the cap. The first of the two relief wells being drilled could be done by late July or August.
In a positive sign, work on the relief wells resumed Friday. The project had been suspended earlier this week for fear that the capping of the well could interfere with it.
There was no end in sight to the cleanup in the water and on shore. Somewhere between 94 million and 184 million gallons have spilled into the Gulf, according to government estimates.
In Orange Beach, Ala., long strands of white absorbent boom strung along the shore were stained chocolate brown after a fresh wave of BB-size tar balls washed up. Charter boat captains who can't fish because of the spill patrolled the shore, looking for oil slicks.
Fishing guides spent their time ferrying Coast Guard personnel. A flotilla of fishing boats operating as skimmers plied the waters across the Gulf.
Large sections of the Gulf Coast have been closed to fishing and
shellfish harvesting. Many fishermen have been hired out by BP to do cleanup work.
Cade Thomas, a 38-year-old fishing guide from Pine, La., said the whole mentality of the place is different.
"It's all changed dramatically. The fishing stories aren't there," he said. "There's no stories to tell except where we went to today and how much oil we saw."
In Grand Isle, La., most of the summer rental cottages are vacant, tables at the single high-end seafood restaurant are empty, and souvenir shops are barely doing enough business to pay the bills. A hand-painted sign along the main road rechristens the tourist town "Grand Oil."
Folks are grateful the gusher has been stopped, but many say it is too late to save this summer. Thousands of tourists have gone elsewhere.
Scientists cannot say for certain what the long-term environmental effect will be. But long after the well is finally plugged, oil could still be washing up in marshes and on beaches as tar balls or patties.
There is also fear that months from now, those tar balls could move west to Corpus Christi, Texas, or travel up and around Florida to Miami or North Carolina's Outer Banks.
Tim Kerner, mayor of Lafitte, La., said the crisis isn't over by a long shot.
"There's millions and millions of gallons of oil out there, and they need to keep the fishermen working," he said. "We need to constantly have that boom up absorbing oil along the banks and hard boom in the bayous to protect the marshland. It's no time to pull back. It's time to continue to fight until we know it's over."
Kerner added: "I don't want everybody to think we won this battle. This battle's going to be ongoing for a while."
___
Weber reported from Houston, Mohr from Venice, La. and Smith from Grand Isle, La. Associated Press Writers Colleen Long, Shelia Byrd, Jay Reeves, Matt Sendesky, Kevin McGill, and Ramit Plushnick-Masti contributed to this report.
http://news.yahoo.com/s/ap/us_gulf_oil_spill;_ylt=Aoj6TDgVP0horFoUFXKdwbOs0NUE;_ylu=X3oDMTNodWZ0cTA5BGFzc2V0A2FwLzIwMTAwNzE2L3VzX2d1bGZfb2lsX3NwaWxsBGNjb2RlA21vc3Rwb3B1bGFyBGNwb3MDMQRwb3MDMgRwdANob21lX2Nva2UEc2VjA3luX3RvcF9zdG9yeQRzbGsDZmVkc3Rlc3RyZXN1
>>BP: 3d Model of SEAFLOOR LEAKS vs BP Sonar Image
Found on the net:
BREAKING NEWS!!!! Thomas Jefferson and Bp's Sonar data match to a T!! Large plumes away from the BOP!!
Quote
I found this image in an earlier post and thought it was very interesting.
(see first image below)
It is a map the USS Thomas Jefferson compiled about the plumes rising near the BOP. The BOP is represented by the Red Square, the plumes of oil and gas are represented by brown and yellow, Methane and oil anomolies are represented by brown, green, and white.
Bp gave us this sonar image today (see second image below)
The BOP is in the third ring out . All of those other "pings" are plumes in the foreground of the Forward Looking 3d Sonar scan.
The images match almost perfectly!
Confirmed Multiple plumes of oil rising from the sea floor close the the BOP
http://www.godlikeproductions.com/forum1/message1134130/pg1
BP Sonar image:
So you ARE trading, you just don't want to hear from me. Thanks alot bud for ignoring any emails from me attempting to find out why you fired me as a friend
Sorry, but I think I deserved better than that.
Stuffit fighting it out with the storm gods, lol! She hopes to be back on line by 10 am.
Hey darlin! Let us know when you get back to the land of electricity and airco
Yes...is all I know how to do, the last instinct before they put dirt on me, lol
Good morning! I've been under the weather, but will be around Dallas for 1 more week
Hope you had a good weekend
Some thoughts: 3600 jobs in the US and jobs creation in the Middle East. Win/Win I guess...I hope they turn around an invest more back in the US as a result of this
Mike Whitney! Where's yer brain? "The Case for Stimulus II" (??)
The Case for a Second Round of Economic Stimulus
Economics / Economic Stimulus
Jun 25, 2010 - 04:29 AM
By: Mike_Whitney
Alan Greenspan has joined the ranks of the deficit hawks and is calling for austerity measures to reduce government spending. In an op-ed in last Thursday's Wall Street Journal titled "U.S. Debt and the Greece Analogy", Maestro Greenspan made the case for fiscal belt-tightening and disputed leading economists, like Nobel prize winners Paul Krugman and Joseph Stiglitz, who believe that the Obama administration should provide a second round of stimulus. In the opening paragraph, Greenspan dismisses the idea that cuts in government spending will push the economy back into recession. Here's an excerpt:
"I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced. The current spending momentum is so pressing that it is highly unlikely that any politically feasible fiscal constraint will unleash new deflationary forces."
The op-ed features the same circular logic which became Greenspan's trademark during his tenure at the Fed. The real point of the article does not become clear until the very end when the ex-Fed chief levels an attack on Social Security. Here's a clip:
"The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees.
We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments. (We must avoid persistent borrowing from abroad. We cannot count on foreigners to finance our current account deficit indefinitely.)
Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit. I rule out large tax increases that would sap economic growth (and the tax base) and accordingly achieve little added revenues." ("U.S. Debt and the Greece Analogy", Alan Greenspan, Wall Street Journal)
Greenspan has been riding the "private accounts" bandwagon for more than a decade. Not satisfied with having reworked Social Security (under Reagan) to serve as a de facto flat tax levied on the working poor; Maestro now wants to divert the Mississippi River of revenue-streams into Wall Street's coffers. "The major attraction of personal accounts is that they can be constructed to be truly segregated from the unified budget, and therefore are more likely to induce the federal government to take those actions that would reduce public dis-saving," Greenspan opined in testimony before Congress in 2005.
Greenspan has allied himself with a small army of like-minded elites who continue to boost austerity as a path to growth and prosperity. Deficit hawkery has replaced supply-side theory as the latest viral-form of voodoo economics. It turns established economic principle on its head to achieve a given political objective. This is from Bloomberg:
"Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases, according to studies by Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent.
“There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview. He made a presentation to European finance chiefs on the topic during their April meeting in Madrid.
The key is an emphasis on cutting spending rather than raising taxes, said Goldman Sachs economists Broadbent and Daly in London. Lower spending means consumers and companies don’t fear higher taxes, so demand accelerates. A smaller public sector also helps reduce borrowing costs and makes economies more competitive as fewer government workers lighten labor expenses." ("Cameron Bets on Growth From Austerity as U.S. Delays", Simon Kennedy and Rich Miller, Bloomberg)
Cutting spending reduces economic activity and slows growth. The Bloomberg article merely presents the rationale for class warfare. Fiscal strangulation is not the path to economic recovery. Still, the deficit hawks have mounted an impressive public relations campaign and have powerful friends at the Fed, the Treasury, the White House, and Brussels. In the U.S., President Obama has appointed former Republican Sen. Alan Simpson to head a bipartisan commission to "fix the federal government's long-term budget problems", which is code for gutting social programs. In the E.U., German Chancellor Angela Merkel has taken the lead promising to hack $80 billion from the country's modest deficits. Even Tokyo, after enduring 15 years of excruciating deflation, is planning to slash long-term government spending. The groundswell for hair shirts is steadily growing increasing the probability of another severe downturn.
Here's the problem: The bursting of the giant asset bubble pushed the economy into a long-term slump that required emergency action by the Central Bank. Fed chair Ben Bernanke's liquidity injections and zero rates helped to pull the financial system back from the brink, but households and consumers are still deep in the red. The deleveraging process is ongoing and will last for years. Obama must either increase government spending or succumb to grueling economic contraction.
As of March, the average U.S. household’s debt-to-disposable income ratio was 122% considerably lower than its peak of 131% at the beginning of 2008. Economists believe that that number will eventually return-to-trend at 100% which portends years of sluggish consumer spending and slow growth. With more families forced to cut back to patch their battered balance sheets, fiscal stimulus must increase or the economy will slip back into recession. Belt tightening now will only increase the deficits by reducing government tax revenues. In a recent interview, Nomura economist Richard Koo was asked if the US should try to reduce their deficits by cutting back stimulus. Here's how Koo responded:
"Not until private sector deleveraging is over. At present, private sectors in the US, UK, Spain, Portugal, and Italy are still deleveraging. This means these countries should not try to reduce fiscal stimulus. Any attempt to cut deficit in these countries is likely to result in a weaker economy and a larger deficit as seen in Japan in 1997.... When private sector is deleveraging, money multiplier is negative at margin. No monetary stimulus will work in such an environment where people are trying to reduce debt, even with zero interest rates, in order to repair their damaged balance sheets.
Until people realize that they have contracted a completely different disease called balance sheet recession where the private sector is minimizing debt instead of maximizing profits, a constructive policy dialogue is not likely to be possible. Once the exact nature of the disease is understood, the remedy (sufficient and sustained fiscal stimulus until private sector balance sheets are repaired) will become obvious to everyone." ("Interview: Richard C. Koo, Nomura Research Institute", Acemaxx Analytics)
Koo does not believe that the current recovery is self sustaining. The rebound is stimulus-driven and merely reflects improvements in the financial sector (and the markets) which plunged after Lehman Bros collapsed. The heavy-lifting of repairing household balance sheets (which suffered losses of nearly $12 trillion) is still in its early stages. President Obama's $787 billion fiscal stimulus has helped a bit, but it's mainly been used to pay unemployment claims, provide tax cuts and to make up for the losses in state revenues. And while it is not true that the stimulus "has done nothing" as the deficit hawks claim (IHS Global Insight, Macroeconomic Advisers and Moody's Economy.com all estimate it created around 2.5 million jobs.) its effects have largely been canceled-out by the gigantic state budget gaps. Conservative economist Bruce Bartlett explains in the Washington Post:
"The Center on Budget and Policy Priorities estimates that in 2011, the states will have to come up with a total of $180 billion. These budget shortfalls are the equivalent of a massive anti-stimulus....And because they cannot run deficits to hold them over until their economies improve, they're cutting services and raising taxes. Using the data for 2009 and 2010, and then projecting for 2011 and 2012, the Center on Budget and Policy Priorities expects the total state shortfall will reach $610 billion. Because some of the federal stimulus dollars were saved rather than spent, the effective stimulus we've had has been less than the $789 billion that's often touted. It might even be less than $610 billion shortfall in the states. Which would mean the anti-stimulus overwhelmed the stimulus. Or, you could look at it in reverse: Nick Johnson, who directs the State Fiscal Project at CBPP, says that "the effect of the federal stimulus was to wipe out the negative effect of the state contraction."("You've seen the stimulus. Now, meet the anti-stimulus", Ezra Klein, Washington Post)
The Obama stimulus was a good start, but there's more work to be done. It prevented a downward spiral of falling asset prices and debt-deflation, but it wasn't big enough to put a dent in skyrocketing unemployment or lay the groundwork for another expansion. There needs to be a renewed commitment to long-term stimulus until households regroup and the economy gets back on track. Monetary policy alone will not succeed. The monetary transmission mechanism is on the fritz so reserves are piling up at the banks, but not getting into the hands of people who can generate more activity.
Consumer spending is flat, home prices are set to fall, unemployment will likely edge higher, private sector credit is still contracting, capacity utilization is far below pre-crisis levels, the CPI is slipping, and yields on US Treasuries are priced for deflation. The government must pick up the slack or their will be a general fall in prices that will trigger more layoffs, larger deficits, and social unrest. Premature fiscal consolidation can have unintended consequences as noted by Richard Koo:
"Pushing ahead with these misguided policies risks a collapse of social and economic foundations and could even threaten the survival of democratic structures."
By Mike Whitney
Email: fergiewhitney@msn.com
Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.
© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Mike Whitney Archive
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gAnton
26 Jun 10, 00:15 Einstein Once Said
Albert Einstein once said "The definition of insanity is doing the same thing over and over again and expecting different results"
What is strange it the total cone of silence which has descended over this...almost as strange as the total absence of articles mentioning the fact that the DJIA broke through that key 1040 support they kept touting all over the media.
Even ZH had almost nothing! Not his usual wrapup or credit report...very strange, imo
WSJ: Three-Month Euribor Rises After ECB Loan Expiry
JULY 2, 2010, 5:33 A.M. ET
LONDON (Dow Jones)--The cost of borrowing euros in the interbank market rose further Friday, as excess liquidity in the financial system fell a day after banks repaid a hefty EUR442 billion loan to the European Central Bank.
The three-month Euro Interbank Offered Rate, or Euribor, the rate at which interbank term deposits in the monetary union are offered, rose to 0.790% Friday from 0.782% Thursday, reaching its highest level since Sept. 7, 2009.
Euribor is tracked more widely than its London Interbank Offered Rate euro counterpart, and is used to benchmark a wider range of assets.
Erste Bank in Vienna contributed a rate of 0.90%, Allied Irish Banks contributed a rate of 0.85%, while UBS offered the lowest rate of 0.68%.
-By Neelabh Chaturvedi, Dow Jones Newswires; +44-20-7842-9495; neelabh.chaturvedi@dowjones.com
GM! And the bottom line is "we don't know". Zerohedge had a piece called "WHAT WAS THAT" about euro action...however I think the truth lies within the ECB stress tests
Someone needed to raise money, and raise it fast, on a key date. At the same time the CAC40 dropped
The ZH story was tagged as "euro, jerome kerviel, dollar"...
Of course few people remember how Jerome lost $1bn as Soc Gen's rogue trader, but Soc Gen has been in the spotlight recently as stress tests loom...
http://www.ft.com/cms/s/0/c0209356-7e2b-11df-94a8-00144feabdc0.html
It could only be SocGen or CreditLyonaise/Credit Agricole.
Just my .02c, and I have nothing to support my belief except a long history of watching these games being played
WSJ: Allan Meltzer: Why Obamanomics Has Failed
Uncertainty about future taxes and regulations is enemy No. 1 of economic growth.
By ALLAN H. MELTZER
The administration's stimulus program has failed. Growth is slow and unemployment remains high. The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.
But they want new stimulus measures—which is convincing evidence that they too recognize that the earlier measures failed. And so the U.S. was odd-man out at the G-20 meeting over the weekend, continuing to call for more government spending in the face of European resistance.
The contrast with President Reagan's antirecession and pro-growth measures in 1981 is striking. Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending. Recovery began about a year later. After 18 months, the economy grew more than 9% and it continued to expand above trend rates.
Two overarching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions. Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future. High uncertainty is the enemy of investment and growth.
Most of the earlier spending was a very short-term response to long-term problems. One piece financed temporary tax cuts. This was a mistake, and ignores the role of expectations in the economy. Economic theory predicts that temporary tax cuts have little effect on spending. Unless tax cuts are expected to last, consumers save the proceeds and pay down debt. Experience with past temporary tax reductions, as in the Carter and first Bush presidencies, confirms this outcome.
Another large part of the stimulus went to relieve state and local governments of their budget deficits. Transferring a deficit from the state to the federal government changes very little. Some teachers and police got an additional year of employment, but their gain is temporary. Any benefits to them must be balanced against the negative effect of the increased public debt and the temporary nature of the transfer.
The Obama economic team ignored past history. The two most successful fiscal stimulus programs since World War II—under Kennedy-Johnson and Reagan—took the form of permanent reductions in corporate and marginal tax rates. Economist Arthur Okun, who had a major role in developing the Kennedy-Johnson program, later analyzed the effect of individual items. He concluded that corporate tax reduction was most effective.
Another defect of Obamanomics was that part of the increased spending authorized by the 2009 stimulus bill was held back. Remember the oft-repeated claim that the spending would go for "shovel ready" projects? That didn't happen, though spending will flow more rapidly now in an effort to lower unemployment and claim economic success during the fall election campaign.
In his January 2010 State of the Union address, President Obama recognized that the United States must increase exports. He was right, but he has done little to help, either by encouraging investment to increase productivity, or by supporting trade agreements, despite his promise to the Koreans that he repeated in Toronto. Export earnings are the only way to service our massive foreign borrowing. This should be a high priority. Isn't anyone in the government thinking about the future?
Mr. Obama has denied the cost burden on business from his health-care program, but business is aware that it is likely to be large. How large? That's part of the uncertainty that employers face if they hire additional labor.
The president asks for cap and trade. That's more cost and more uncertainty. Who will be forced to pay? What will it do to costs here compared to foreign producers? We should not expect businesses to invest in new, export-led growth when uncertainty about future costs is so large.
Then there is Medicaid, the medical program for those with lower incomes. In the past, states paid about half of the cost, and they are responsible for 20% of the additional cost imposed by the program's expansion. But almost all the states must balance their budgets, and the new Medicaid spending mandated by ObamaCare comes at a time when states face large deficits and even larger unfunded liabilities for pensions. All this only adds to uncertainty about taxes and spending.
Other aspects of the Obama economic program are equally problematic. The auto bailouts ran roughshod over the rule of law. Chrysler bondholders were given short shrift in order to benefit the auto workers union. By weakening the rule of law, the president opened the way to great mischief and increased investors' and producers' uncertainty. That's not the way to get more investment and employment.
Almost daily, Mr. Obama uses his rhetorical skill to castigate businessmen who have the audacity to hope for profitable opportunities. No president since Franklin Roosevelt has taken that route. President Roosevelt slowed recovery in 1938-40 until the war by creating uncertainty about his objectives. It was harmful then, and it's harmful now.
In 1980, I had the privilege of advising Prime Minister Margaret Thatcher to ignore the demands of 360 British economists who made the outrageous claim that Britain would never (yes, never) recover from her decision to reduce government spending during a severe recession. They wanted more spending. She responded with a speech promising to stay with her tight budget. She kept a sustained focus on long-term problems. Expectations about the economy's future improved, and the recovery soon began.
That's what the U.S. needs now. Not major cuts in current spending, but a credible plan showing that authorities will not wait for a fiscal crisis but begin to act prudently and continue until deficits disappear, and the debt is below 60% of GDP. Rep. Paul Ryan (R., Wisc.) offered a plan, but the administration and Congress ignored it.
The country does not need more of the same. Successful leaders give the public reason to believe that they have a long-term program to bring a better tomorrow. Let's plan our way out of our explosive deficits and our hesitant and jobless recovery by reducing uncertainty and encouraging growth.
Mr. Meltzer is a professor of economics at Carnegie Mellon University, a visiting scholar at the American Enterprise Institute, and the author of "A History of the Federal Reserve" (University of Chicago Press, 2003 and 2010).
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>UK Middle Class to be Impoverished by Triple Whammy - Us next?
Middle class families face a triple whammy
Falling pensions, cuts and the banking crisis will impoverish many families, says Edmund Conway.
By Edmund Conway
Published: 9:05AM BST 01 Jul 2010
16 Comments
You don't usually expect radical neo-Marxism from the International Monetary Fund – the last great bastion of capitalism, spreading the gospel about the free market to the furthest reaches of the world. And yet, hidden away in an obscure IMF report a few years back is a short sentence that explains precisely the problems that Britain, and the rest of the Western world, have been sleepwalking towards for years.
The claim made by the IMF's Financial Stability Report in 2005, in a seemingly throwaway remark, was that households had become the financial system's "shock absorber of last resort". In other words, whereas in previous eras, much of the pain of recession and financial crisis was borne by businesses or governments, with families afforded some degree of protection by the pensions system or welfare state, it was now households who were far more likely to face the music.
At the time, the idea received little attention. But it has truly radical implications for economics and politics around the world.
This is not merely about the financial crisis, but something more deep-seated: the way in which wealth is distributed around society. It is about the middle classes, and why they have become the biggest victims of all.
The problem is that families face a threefold threat to their prosperity. The first issue – the one that the IMF was originally focusing on – is pensions. Not so long ago, households were lucky enough to receive gold-plated pensions that would guarantee a certain pay-out upon retirement. Most companies have closed their schemes after realising they are simply unaffordable. The public sector at last looks like following suit, if the BBC's decision this week to reduce the generosity of its pension plan is anything to go by.
This is, in the IMF's words, a "quantum leap". Suddenly households have gone from being able to rely on a constant stream of legally protected income from their employer to having to manage their own investments (as they technically do under the new breed of pensions).
This would be fine if one could be assured that most people would have either the time or the inclination to understand these new responsibilities. But every piece of evidence – academic and anecdotal – suggests that they do not. The result is that the majority of households are heading blindly towards a future of relative poverty.
The second issue is that the welfare state has become unaffordable, and yet many of Britain's poorest families have become overly reliant on it. Here, too, there is to be a reckoning. Whereas Gordon Brown used his first Budget to save money by grabbing an annual £6 billion from pension funds (and the middle class), George Osborne used last month's emergency Budget for a similar-sized grab on the welfare class. Re-indexing tax credits against a lower measure of inflation will cost Britain's poorest families billions by the end of this parliament.
And it is not merely that the middle class and the poorest have found themselves squeezed so hard: it is that so much of the extra cash generated during the boom years (and even after them) has been actively funnelled towards the most wealthy. The median wage in the US, adjusted for inflation, has been stagnant for pretty much three decades. But the figures at the high end of the scale have soared; whereas in 1970 the average US chief executive made $25 for every dollar of their typical employee's salary, today the figure is more like $90.
Much of this disparity is down to globalisation. When the world is changing fast, those qualified to deal with the technology du jour (be it the steam engine or the internet) will earn more than their peers. But the fact remains that not only is inequality at the highest level since the Thirties, the pension and welfare systems set up then for the express purpose of levelling this divide are in an exponential decline, threatening to widen the gulf further.
Moreover, there is good reason to suspect, as Raghuram Rajan points out in his new book, Fault Lines, that policy-makers have only been able to persuade people to live with this manifestly unfair situation by pumping up ever bigger booms in the property and stock markets to give them the impression that they are actually making money. Now that the bubble has burst and debt is harder to procure, that illusion has evaporated.
All this before one even takes into account the third problem for households – that they are having to bear the costs of the clean-up for the financial crisis. The austerity budgets being imposed across Europe will mean that families are taxed more and receive less in the way of welfare and public services. Police numbers will be cut; university fees are likely to rise further. In other words, the cost of trying to live a stable, contented middle-class life will balloon.
So I have one simple question: when do the politicians intend to let the public know about the fate that awaits them? The longer they put it off, the nastier the reaction, the bigger the strikes and the greater the chance that governments will fall. Don't say you weren't warned.
ROFL: How a broker spent $520m in a drunken stupor and moved the global oil price
PVM Oil Futures trader Steve Perkins bought 7m barrels of crude in late-night trading binge on his laptop, driving the oil price to an eight-month high.
By Rowena Mason, Energy Correspondent
UK TELEGRAPH
Published: 5:45AM BST 30 Jun 2010
It's probably not uncommon for City traders to wonder how they burnt so much cash during a drunken night on the town.
But Steve Perkins was left with a bigger black hole in his memory than most when his employer rang one morning to ask what he'd done with $520m of the oil trading firm's money.
It was 7.45am on June 30 last year when the senior, longstanding broker for PVM Oil Futures was contacted by an admin clerk querying why he'd bought 7m barrels of crude in the middle of the night.
The 34-year old broker at first claimed he had spent the night trading alongside a client. But the story began to fall apart when he refused to put the customer in touch with his desk for official approval of the trades.
By 10am it emerged that Mr Perkins had single-handedly moved the global price of oil to an eight-month high during a "drunken blackout". Prices leapt by more than $1.50 a barrel in under half an hour at around 2am – the kind of sharp swing caused by events of geo-political significance. Ten times the usual volume of futures contracts changed hands in just one hour.
By the time PVM realised the trades were not authorised and swiftly began to unwind the positions, losses of exactly $9,763,252 had stacked up.
The amount was almost equal to PVM Oil Futures' entire annual revenue of $12m and caused a $7.6m loss last year - shared by the senior brokers who are its only shareholders.
It swiftly emerged that Mr Perkins had been relieved of his position at PVM, but details of the bizarre incident have only just been made public after a Financial Services Authority investigation.
According to the regulator, Mr Perkins first started trading irregularly the day before the enormous price spike. He had been drinking heavily over the weekend at a PVM golf event and was returning to a day off work.
As a broker, Mr Perkins was only allowed to place trades on behalf of his clients – not using any of PVM's own money. And records show that he placed a legitimate order for a client at 1.34pm through his broking desk by telephone. This was quickly followed by seven more orders with a value of $8m using PVM's cash.
Mr Perkins' trading stopped for a few hours, but in the early hours of the morning, he returned to the oil market via his laptop. He placed an incredible $520m in orders through ICE Futures Europe, where traders can buy or sell crude oil for future delivery and bet on whether prices will go up or down. The first trade was at 1.22am was at $71.40 per barrel and the last trade at 3.41am was at $73.05. During this period, Mr Perkins gradually edged up the price by bidding higher each time, until he was responsible for 69pc of the global market volume.
By 6.30am, the broker appeared to have realised what he'd done. He sent a text message to the managing director claiming an unwell relative meant he would not be coming in to work and started disposing of the oil futures. When PVM challenged his story, the broker confessed and later co-operated fully with the FSA inquiry.
Mr Perkins told investigators that he has "limited recollection" of the entire episode, claiming he had placed the trades during a drink-induced stupor.
Having admitted to an alcohol problem and received treatment, Mr Perkins was banned from trading for five years and hit with a £72,000 fine, reduced from £150,000 because of potential financial hardship.
Mr Perkins was not available for comment last night at his £340,000 home in Brentwood, Essex, and it is not known whether he has found alternative employment. The FSA will consider re-approving him as a broker after the ban, if he has recovered from his alcohol problem, but noted "Mr Perkins poses an extreme risk to the market when drunk". It added that there appeared to have been "no motive" for buying up the oil.
PVM did not return calls for comment.
The investigation also shows that he was able to trade huge volumes with very little cash up front and no position limit, exposing how it easy it was for a single British broker on a bender to cause chaos in the oil market.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7862246/How-a-broker-spent-520m-in-a-drunken-stupor-and-moved-the-global-oil-price.html
TY, I don't follower twitter, have so much I'm already tracking, i appreciate your posting those
>>U.S. Regulatory Bill’s Support May Weaken as Senate Delays Vote
By Alison Vekshin and Phil Mattingly
July 1 (Bloomberg) -- The U.S. financial-regulatory bill, approved by the House of Representatives yesterday, may still be compromised in the Senate, which postponed its vote until after the week-long July 4 recess.
The delay may give opponents of the legislation time to persuade undecided lawmakers to vote against the measure. Republican Senators Scott Brown of Massachusetts, Chuck Grassley of Iowa, and Olympia Snowe and Susan Collins of Maine voted for a previous version of the bill and are being courted by Democratic leaders to support its final passage.
“While the odds are that a week doesn’t change anything, certainly Snowe, Collins and Brown are going to get lots of visits over that week from their local community bankers and anyone else who has an interest in this,” said Mark Calabria, a former Senate Banking Committee staffer who is now a director of financial-regulation studies at the Cato Institute.
Legislation the House approved yesterday with a 237-192 vote would create a consumer financial protection bureau at the Federal Reserve, give regulators new powers to liquidate failing financial firms whose collapse would threaten the economy and create a council of financial regulators to monitor systemic risk. It is aimed at curbing risk-taking by Wall Street firms and lessening the impact of any future financial crisis.
“We put our middle class first and enacted the toughest set of Wall Street reforms in generations,” House Speaker Nancy Pelosi, a California Democrat, told reporters after the vote. “No longer will recklessness on Wall Street cause joblessness on Main Street.”
Memorial Service
The Senate’s vote will be delayed until the middle of July because of the death of Senator Robert Byrd, a West Virginia Democrat. Byrd’s body will lie in repose in the Senate chamber today, and a memorial service will be held in Charleston, West Virginia, tomorrow.
Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday that under the chamber’s rules there isn’t enough time to schedule a vote before lawmakers leave for the recess. “I can’t procedurally get to it,” he said.
On June 29, House and Senate negotiators reopened consideration of a combined bill, which they had agreed to last week, to approve a change sought by Brown, Collins and Snowe to eliminate $19 billion in fees assessed on large financial firms to cover the legislation’s costs.
‘Squeeze Too Much’
“Once you move one part that was tentatively agreed to, there are others who want to know why their failed tentative agreements aren’t on the table as well,” said William Thomas, vice chairman of the Financial Crisis Inquiry Commission and a Republican who represented California in the House until 2007.
“There should be some concern about the conference’s ability to solve its vote problem by making only one change in the conference report,” he said in a June 29 conference call with reporters.
A vote this week would “squeeze too much” into senators’ schedules, Senate Banking Committee Chairman Christopher Dodd told reporters yesterday.
“I am trying to be very patient,” said the Connecticut Democrat, who acknowledged his disappointment in the delay. “I am still very optimistic we will have the necessary votes to pass it.”
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat who wrote the House version of the bill, told reporters yesterday that he doesn’t expect the delay to erode support. He wants to revisit the fee proposal in a separate bill and plans to take it up in committee, he said.
Collins, Cantwell
Sixty votes are needed in the Senate to move the merged bill toward final passage. Democrats need to retain votes from at least two of the four Republican senators who voted for the bill. Democrats also could secure support from Byrd’s replacement and from Senator Maria Cantwell, a Washington Democrat who previously voted against the bill.
Collins said she is “inclined to support” the bill.
“This is not the bill that I would have written had I been able to craft it myself, but it’s a balancing test as I decide whether it warrants my support,” she told reporters yesterday. “And based on my initial review, I believe that it does.”
Cantwell has said her vote would be contingent on changes to the derivatives section of the bill, pushing for lawmakers to tighten regulation of the instruments that have been seen as exacerbating the worst financial crisis since the Great Depression.
Derivatives Rules
The bill would, for the first time, push a large amount of the $615 trillion over-the-counter derivatives market into the purview of federal regulators. Standardized derivatives would need to be moved through a third-party clearing facility and traded on an exchange or swap-execution facility.
Businesses that use derivatives to hedge risk from producing or consuming commodities, deemed “end users,” will be exempt from the clearing requirements if the activities are undertaken as a way to hedge legitimate business risk.
Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.
To contact the reporters on this story: Alison Vekshin in Washington atavekshin@bloomberg.net. Phil Mattingly in Washington atpmattingly@bloomberg.net.
Last Updated: July 1, 2010 00:00 EDT
Yup, index futures taking it on the chin
BL: Jobless Claims in U.S. Increased 13,000 Last Week to 472,000
By Bob Willis
July 1 (Bloomberg) -- More Americans unexpectedly applied for jobless benefits last week, a sign the labor market recovery may be slowing.
Initial jobless claims increased by 13,000 to 472,000 in the week ended June 26, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance rose, while those getting emergency benefits dropped after Congress failed to act on extending the legislation.
The jump in applications raises the risk that the turmoil in financial markets brought on by the European debt crisis is leading to additional cutbacks in staff. The Labor Department tomorrow may report the U.S. lost jobs in June for the first month this year, reflecting a drop in temporary federal workers who helped to conduct the decennial census.
“Initial claims for unemployment insurance benefits are moving in the wrong direction,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Jobless claims are further from levels typically viewed as signaling rising payrolls.”
Economists forecast jobless applications would fall to 455,000 from an initially reported 457,000 for the prior week, according to the median of 46 projections in a Bloomberg survey. Estimates ranged from 440,000 to 475,000.
This is the time of year when states cut back on payrolls in schools, a Labor Department spokesman said. The jump in claims may reflect even larger-than-typical reductions.
Fewer Job Cuts
Another report today showed job cuts announced by U.S. employers fell in June. Planned firings dropped 47 percent to 39,358 from 74,393 in June 2009, according to figures released by Chicago-based Challenger, Gray & Christmas Inc. It was the third straight month that announced reductions totaled less than 40,000. For the first half of the year, announced job cuts totaled 297,677, the lowest six-month tally since 2000.
Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.
The four-week moving average, a less volatile measure than the weekly figures, climbed to 466,500, the highest level since March, from 463,250 the prior week, today’s report showed.
The number of people continuing to receive jobless benefits increased by 43,000 in the week ended June 19 to 4.62 million.
The continuing claims figure does not include the number of Americans receiving extended or emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments plunged by about 376,000 to 4.92 million in the week ended June 12.
Losing Benefits
The Labor Department estimates about 3.3 million people will fall off extended-benefit rolls by the end of July if Congress doesn’t pass emergency legislation.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 percent in the week ended June 19.
Forty states and territories reported a decrease in claims, while 13 reported an increase. These data are also reported with a one-week lag.
The Labor Department tomorrow may report payrolls fell by 125,000 in June, reflecting cuts in temporary census workers as the decennial survey nears completion, economists surveyed by Bloomberg forecast. Private payrolls, which are more revealing of labor-market conditions, probably rose by 110,000 after a 41,000 gain the prior month.
Smaller Gain
A report yesterday showed companies added 13,000 workers to payrolls in June, the smallest gain since February, according to figures from ADP Employer Services. Economists surveyed had forecast a gain of 60,000, according to a Bloomberg survey median estimate.
The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. From January through May, company payrolls grew by 495,000 workers.
Federal Reserve policy makers last week reiterated a pledge to keep the benchmark interest at a record low for an “extended period” and signaled the fallout from the European debt crisis poised a risk for economic growth. They acknowledged the labor market was “improving gradually,” even as employers are reluctant to boost hiring.
The timing of the traditional summer auto-plant shutdowns to retool equipment for new models may reduce claims in coming weeks.
General Motors Co. said June 17 most of its U.S. plants will remain open during the traditional shutdowns, a move that economists said could lower claims because some temporarily suspended workers usually apply for benefits.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: July 1, 2010 08:30 EDT
>>RTT Dollar Plunges To 2010 Low Versus Yen
7/1/2010 8:12 AM ET
(RTTNews) - The dollar fell to its lowest in 2010 versus the yen Thursday morning in New York after data showing the pace of Chinese manufacturing growth slowed in June, a sign that the global economy is stalling.
The buck slumped to 87.70 versus the yen, its lowest level since December 2009. With the loss, the dollar moved closer to last November's 1995 low of 84.80.
Meanwhile, further evidence that European banks are in a better position than once feared propped up the euro for a second day.
The results of a six-day tender for short-term European Central Bank funds hinted that the region's banks were making good on emergency loans. Yesterday, a three-month offer generated fewer bids than expected.
Still, the euro faces stiff headwinds amid the prospect of more downgrades on sovereign debt.
Spain managed to sell Eur 3.5 billion ($4.3 billion) of five-year bonds at an auction today, hours after Moody's put the nation's sovereign rating on review.
The dollar dropped to 1.2340 versus the euro, extending a recent run of choppy trading. The pair has shown little direction since the dollar hit a 4-year high of 1.1805 nearly a month ago.
Against the sterling, the dollar eased to 1.4970 after touching a weekly high of 1.4875 overnight.
Looking at today's economic calendar, the Labor Department will release its customary jobless claims report for the week ended June 26th at 8:30 a.m. ET. Economists estimate a small increase in jobless claims to 458,000.
At 10.00 a.m. ET, results of the manufacturing survey of the Institute for Supply Management for the month of June will be released. Economists expect the index to show a reading of 59 for June.
The Commerce Department will release its report on construction spending for May at 10.00 a.m. ET. Analysts project that construction spending declined 0.9% for the month.
On Friday, the Labor Department releases its all-important monthly jobs report.
by RTT Staff Writer
For comments and feedback: contact editorial@rttnews.comDollar Plunges To 2010 Low Versus Yen
7/1/2010 8:12 AM ET
(RTTNews) - The dollar fell to its lowest in 2010 versus the yen Thursday morning in New York after data showing the pace of Chinese manufacturing growth slowed in June, a sign that the global economy is stalling.
The buck slumped to 87.70 versus the yen, its lowest level since December 2009. With the loss, the dollar moved closer to last November's 1995 low of 84.80.
Meanwhile, further evidence that European banks are in a better position than once feared propped up the euro for a second day.
The results of a six-day tender for short-term European Central Bank funds hinted that the region's banks were making good on emergency loans. Yesterday, a three-month offer generated fewer bids than expected.
Still, the euro faces stiff headwinds amid the prospect of more downgrades on sovereign debt.
Spain managed to sell Eur 3.5 billion ($4.3 billion) of five-year bonds at an auction today, hours after Moody's put the nation's sovereign rating on review.
The dollar dropped to 1.2340 versus the euro, extending a recent run of choppy trading. The pair has shown little direction since the dollar hit a 4-year high of 1.1805 nearly a month ago.
Against the sterling, the dollar eased to 1.4970 after touching a weekly high of 1.4875 overnight.
Looking at today's economic calendar, the Labor Department will release its customary jobless claims report for the week ended June 26th at 8:30 a.m. ET. Economists estimate a small increase in jobless claims to 458,000.
At 10.00 a.m. ET, results of the manufacturing survey of the Institute for Supply Management for the month of June will be released. Economists expect the index to show a reading of 59 for June.
The Commerce Department will release its report on construction spending for May at 10.00 a.m. ET. Analysts project that construction spending declined 0.9% for the month.
On Friday, the Labor Department releases its all-important monthly jobs report.
by RTT Staff Writer
For comments and feedback: contact editorial@rttnews.com
>>Europe stocks hit by China growth fears, CDS on Spanish debt +10 bps
Published 9:24 PM, 1 Jul 2010
Reuters
PARIS - European shares tumbled early, falling below a key support level and retreating for the seventh time in eight sessions, after tepid Chinese economic data fuelled concerns about the global recovery.
Spanish stocks were particularly under pressure, with the IBEX down 2.1 per cent ahead of a five-year government bond auction and after ratings agency Moody's placed the country's AAA rating on review for downgrade.
Five-year credit default swaps (CDS) on Spanish government debt rose 10 basis points to 270 bps, according to Markit.
In the first session of the month following a dismal quarter for equities, the FTSEurofirst 300 index of top European shares was down 1.5 per cent at 978.09 points at 0806 GMT (1806 AEST Thursday), after hitting a three-week low earlier.
The Euro STOXX 50, the euro zone's blue-chip index, fell 1.7 per cent to 2,530.27 points to move below a 38.2 per cent retracement of its rally to a January peak from an historic low in March 2009, signalling more losses. Next key support level is the 2010 low at 2,448.10, hit in late May.
On Wednesday, the S&P 500 fell below the 1,040 level it had held since February, breaking out to the downside from what chartists call a very bearish 'head and shoulders' trend reversal pattern, pointing to a major retreat in coming months.
Data showed the pace of Chinese manufacturing growth slowed in June as government acted to cool the property market and curb bank lending.
"Asian growth has been the engine of the world economy so it does not bode well if China is losing steam. The market had doubts about the global economy and these numbers are confirming the doubts," Louis Capital Markets analyst Jacques Henry said.
"With the poor data we just got from the United States, people are increasingly nervous about the risk of a new recession."
China's official Purchasing Managers' Index fell to 52.1 in June from 53.9 in May, the weakest reading since February, and falling short of the median forecast of 53.1 in a Reuters poll. A separate survey compiled for HSBC fell more steeply to a 14-month low of 50.4 from 52.7 in May.
Mining shares, among the most sensitive to Chinese data, fell along with metal prices, with Xstrata down 1.4 per cent, BHP Billiton down 0.9 per cent, and Rio Tinto down one per cent.
Weak French manufacturing data
Shares in banks, which face repaying the European Central Bank close to half a trillion euros in emergency loans on Thursday, were also among the biggest losers, with Credit Agricole down 3.9 per cent, BBVA down 3.7 per cent and Banco Popolare down 2.9 per cent.
Barclays dropped 3.1 per cent. Thursday, analysts cut earnings estimates for the British lender after it said investment banking conditions weakened in the past two months.
Adding to negative sentiment, a purchasing manager's survey showed France's manufacturing recovery eased for a second straight month in June and firms stepped up job cuts, fuelling jitters on future demand in the euro zone's second-largest economy.
But investors got a glimpse of hope from Germany, with a survey showing the manufacturing sector expanded for a ninth month running in June, growing at the same pace as in May despite signs austerity measures abroad may be slowing demand.
Investors also awaited US weekly jobless claims, due at 1230 GMT (2130 AEST), US pending home sales for May, due at 1400 GMT (2400 AEST), as well as the Institute for Supply Management's June manufacturing index, due at 1400 GMT (2400 AEST). Economists in a Reuters survey expected a reading of 59.0 versus 59.7 in May.
Around Europe, Britain's FTSE 100 index was down 1.5 per cent, Germany's DAX index down 1.3 per cent, and France's CAC 40 down two per cent.
The FTSEurofirst 300 index of top European shares has lost 6.4 per cent so far this year, while the FTSE 100 is down 10.4 per cent, the DAX is down 1.1 per cent and the CAC is down 14.2 per cent.
http://www.businessspectator.com.au/bs.nsf/Article/Europe-stocks-hit-by-China-growth-fears-pd20100701-6XF7X?opendocument&src=rss
SUMMARY POST charts/##sStocks, Metals Fall on China, Spain; U.S. Futures Fluctuate
By Stephen Kirkland
July 1 (Bloomberg) -- Stocks dropped, extending a global first-half slump, fell as a slowdown in China’s manufacturing and Spain’s deteriorating creditworthiness fanned concern the economic recovery is faltering. Metals declined, the Swiss franc strengthened and U.S. index futures fluctuated.
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•Stocks, Metals Fall on China, Spain; U.S. Futures Fluctuate
•China Manufacturing Slows for Second Month, PMI Shows
•Asian Stocks Fall on China Manufacturing, Moody’s Spain Review
•Spain’s Aaa on Downgrade Review at Moody’s as Note Sale Nears
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EURO -15%, OIL $74.62, GOLD 1242, SILVER 18.61, NASD futures -3%, S&P futures -7%
- private firms reports announced job cuts are down in June, the lowest 6 month tally since 2000.
US futures, having lost 1040, are losing the strength to even put up a fight. We may actually see a gap down today
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* SCROLL DOWN FOR ALL CHARTS AND DATA * SCROLL DOWN FOR ALL CHARTS AND DATA *
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Asia And Europe Selling Off, U.S. Futures Struggling To Open Higher (Again)
Chinese stocks just fell for the seventh straight day, which marks the longest losing streak in 18 months according to Bloomberg. Signs of a slowing Chinese economy could be to blame.
Japan dropped 2% while all major indices were in the red:
MSCI Asia Apex 50 -0.8%
Japan's Nikkei 225 -2.0%
Hong Kong's Hang Seng -0.6%
China's CSI 300 -1.4%
Australia's ASX 200 -1.5%
European stocks have been hammered too, following last night's U.S. bludgeoning, and as Moody's threatens to remove Spain's AAA sovereign rating.
Britain's FTSE 100 -1.1%
France's CAC 40 -1.8%
Germany's DAX -1.4%
The euro is nevertheless holding up, at $1.23. While the Spanish ten-year yield is rising, so far its response appears muted relative to Moody's threat, at 4.57% as shown by the Bloomberg graphic below:
http://www.businessinsider.com/asia-market-wrap-2010-7
____________________________________________________________________________________________
Good morning. Here's what you need to know:
Asian markets were down in overnight trading, with the Nikkei notably down 2.04%. European markets are all also down in early trading, and U.S. futures suggest a slightly higher open.
Several data points emerged from Asian manufacturers today that suggest a regional slow down in manufacturing growth. The HSBC purchasing managers index in China suggests growth is continuing, but only barely.
Japan's tankan survey on business mood is at its first positive level in the last two years. Firms suggest that they intend to increase capital spending 4.4% in the year April 2010 to April 2011. See what Richard Koo thinks the U.S. can learn from Japan >
Toyota may be on the brink of recalling 270,000 more cars over an engine failure issue. The cars in question are Lexus and Crown models, though it is undecided whether a recall will actually be necessary.
China's property bubble continues to show signs that it may be deflating with prices in Shenzen falling. Prices on properties sold fell 10.63% from May to June, though may reflect market preference for lower priced homes.
German manufacturing continued to expand in May, leaving much of the eurozone behind. Greece, notably, had its manufacturing industry contract at its fastest pace in 14 months.
Spain's banking industry continues to tumble today after a weak sovereign bond auction and concerns over a potential Moody's downgrade of the country. Santander is under particular pressure, as investors have growing concerns over their diversification strategy.
After reports of corruption and money being sent outside the country, the U.S. government has decided to cut $4 billion in aid to Afghanistan. The aid may eventually be put back in place, if Afghanistan shows an effort to fight corruption.
Morgan Stanley has gone on a hiring spree in its private banking division bringing on 100 new bankers and may be seeking another 400 by the end of 2011. The move is part of a push to sell more structured products to clients.
Hurricane Alex has made land fall along the Texas-Mexico border bringing 105 mph winds with it. The storm continues to slow efforts to clean up the BP oil spill.
Read more: http://www.businessinsider.com/10-things-july-1-2010-7#ixzz0sQluFdVs
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WHAT WE ARE WATCHING:
JULY 1st Coming up:
Jul 01 08:30 Continuing Claims 06/19 4500K 4510K 4548K
Jul 01 08:30 Initial Claims 06/26 460K 458K 457K
Jul 01 10:00 Construction Spending May -1.0% -0.9% 2.7%
Jul 01 10:00 ISM Index Jun 59.0 59.0 59.7
Jul 01 10:00 Pending Home Sales May -12.5% -10.5% 6.0%
Jul 01 14:00 Auto Sales Jun NA 4.0M 3.9M
Jul 01 14:00 Truck Sales Jun NA 5.1M 5.2M
GM! Son Of REDRUM!!
>>EDZ +7.20%/EEM-2.58%: Greece, Spain Lead Rise in Sovereign Debt Risk Near Record High
By Kate Haywood
June 29 (Bloomberg) -- Greece and Spain led a surge in the cost of insuring against losses on sovereign debt to near a record as protests over austerity measures and concern banks may struggle to fund themselves triggered a credit-market sell-off.
The Markit iTraxx SovX Western Europe Index of default swaps on 15 governments rose 5.5 basis points to 164, the highest level in three weeks and approaching the all-time high of 168.5 on June 4, according to CMA DataVision. Corporate risk gauges climbed the most in more than a month.
Greek workers downed tools for the fifth time this year to protest against pension cuts and looser labor laws. Swaps on Spanish banks jumped after the Financial Times reported they are asking the European Central Bank to ease the effects of the end of a $540 billion funding program, which terminates this week.
“Markets remain very fragile and easy to spook,” said Juan Esteban Valencia, a credit strategist at Societe Generale SA in London.
“It just doesn’t take much to scare the market.”
Credit-default swaps tied to Greek debt jumped 13 basis points to 1,101, having closed at an all-time high of 1,125 on June 4, according to CMA. Spanish contracts rose 9 to a record 275 basis points.
Contracts on Banco Santander SA, Spain’s biggest bank, gained 15 basis points at 215 and Banco Bilbao Vizcaya Argentaria SA jumped 17 basis points to 278, according to CMA.
Refinancing Operation
Banks must repay 442 billion euros ($540 billion) July 1 that they borrowed from the ECB a year ago under the so-called Long-Term Refinancing Operation. Lenders in Spain, Ireland, Greece, Italy and Portugal have about 151 billion euros of central bank loans coming due this week, according to Barclays Capital estimates.
Corporate bond risk also rose after the Conference Board revised its leading economic index for China to show the smallest gain in five months in April. Stocks and U.S. index futures plunged, Treasury two-year note yields dropped to a record low and the yen strengthened on concern that growth in the main engine of the world’s economic recovery is slowing.
Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 31 basis points to 577, according to JPMorgan Chase & Co., the highest since May 25.
A basis point on a credit-default swap contract protecting 10 million euros ($12.2 million) of debt from default for five years is equivalent to 1,000 euros a year.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
--Editors: Michael Shanahan, Andrew Reierson
To contact the reporters on this story: Kate Haywood in London at khaywood@bloomberg.net;
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
EWZ - Goldman: Brazilian Economic Growth Is 100-200% Above Its Sustainable Level
Brazil is a reminder that stimulus takes a long time to stop working, even once a government begins to exit. Even the Brazilian government has begun tightening past stimulus in February, the Brazilian economy will continue charging forward at a far higher rate than is sustainable in the long-term, according to Goldman's Paulo Leme.
Inflation will aso be rising, again despite efforts to exit from stimulus.
Goldman Sachs:
Higher Growth and Higher Inflation for 2010
Thanks to the strong economic policy stimulus that the authorities implemented since 4Q2008 and the global economic recovery, the Brazilian economy continued to grow vigorously in 2Q2010. Given that this pace of growth is not sustainable, since March, the authorities have tightened demand management policies somewhat: BACEN has raised reserve requirements and interest rates, while the Ministry of Finance withdrew the IPI sales tax breaks to stimulate the consumption of consumer durable goods.
Even so, the lagged effect of the fiscal, credit, monetary and wage stimulus is so strong that domestic demand and real GDP growth will continue to grow between two to three times faster than the non-inflationary and sustainable pace.
...
The strong pick-up in domestic demand is straining resource utilization and tightening labor markets in Brazil. As a result, we believe that IPCA inflation will continue to rise, once the temporary decline in the monthly rate of inflation in June is behind us. Therefore we are raising our IPCA inflation forecasts to 6.4% for 2010 and 6.0% in 2011, from 6.2% and 5.5% previously.
While Brazil's economic situation is obviously far different from America's right now, (it's largest threat is an overheating economy, rather than a deflationary slump) the lagged stimulus effects Brazil is experiencing highlight how the U.S. economy could still be feeling the lagged effects of stimulus policies, even well after it has begun rolling them back.
(Via Goldman Sachs, Latin America Economic Analyst, Paulo Leme, 25 June 2010)
Read more: http://www.businessinsider.com/goldman-brazilian-economic-growth-is-200-300-above-its-sustainable-level-2010-6#ixzz0sF9OS08E
http://www.businessinsider.com/goldman-brazilian-economic-growth-is-200-300-above-its-sustainable-level-2010-6
LOL..a closet full of rum drinks and plenty of duct tape!
~>Bottom line: the commodities business will be riskier and less efficient, and there is no corresponding benefit to offset this cost. All to give a politically desperate senator a fig leaf
In sum: the compromise bill shafts commodities not once, not twice, but three times. This will force commodity producers, processors, and marketers to bear more risk, and to incur higher costs to manage risks.
And for what? The spinoff of banks’ commodity business certainly won’t have the slightest effect on systemic risk given the trivial size of the trade relative to the other activities they still undertake. The niggardly end user exemptions will not affect systemic risk either. The position limits will not reduce price distortions in the market.
Fck them all! All their 'fixes' have only made markets riskier and more difficult for the average trader, and they dare say they are doing all this to reduce risk and protect their constituents...
>>12 Charts That Scream New Global Panic
Joe Weisenthal | Jun. 29, 2010, 7:14 AM | 5,516
Read more: http://www.businessinsider.com/12-charts-that-scream-new-global-panic-2010-6#ixzz0sF5rt5T6
Good article! Just checking into chat now