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TY! What are you watching this morning?
Is Mr T finally doing his share of the houshold chores?
BL: Euro's Bungled Bid for Unity Exposed by Fine Print Amid Greek Debt Drama
By James G. Neuger
Feb. 19 (Bloomberg) -- The crisis stalking the euro economy began with a footnote.
When the European Union predicted in 1997 that Italy’s budget deficit would exceed the threshold to qualify for the single currency, it buried in the fine print the observation that with “additional measures” the Italians could pass.
They did, thanks to a one-time tax and a yen-denominated swap. It was an early example of the balance-sheet fiddling deployed since then by countries eager to share the benefits of a $13-trillion market and lower borrowing costs, yet unwilling to cede control over their budgets, wages and welfare systems.
Now Greece, by setting a standard for fiscal creativity, has exposed the flaws in Europe’s hybrid of monetary union and fiscal indiscipline. The crisis risks extending the euro’s 6 percent slide against the dollar this year, its expansion into eastern Europe and its prospects to challenge the dollar as an international reserve currency.
Greece’s fiscal tragedy “reveals a lot of things that people didn’t want to look at, such as the lack of economic governance of the euro zone,” said Pervenche Beres, a French member of the European Parliament who is sponsoring a resolution calling for tougher financial regulation. “If Greece falls apart, everything would fall apart. Nobody should allow this.”
Harvard University’s Martin Feldstein was among economists who have cautioned since the currency debuted in 1999 that divergent economies couldn’t fit under a single roof. The union was led by a Germany that consented to give up its deutsche mark as long as the rest of Europe embraced the German aversion to debt that took hold after two world wars.
Making and Exporting
Instead, each country went its own way: Germany, paced by such manufacturers as Volkswagen AG and Siemens AG, parlayed caps on labor costs and the elimination of exchange-rate risks into economic ascendance. Wolfsburg-based Volkswagen’s European sales rose 16 percent from 2006 to 2008 while domestic sales shrank 3 percent. Siemens, based in Munich, boosted the European share of its revenue to 41 percent in 2009 from 32 percent five years earlier.
German unit labor costs fell from 2004 through 2006 and rose only 2.2 percent in 2008, the year of the latest Eurostat figures. Labor costs jumped 4.3 percent that year in Spain, 3.9 percent in Greece and 3.4 percent in Portugal.
The outcome was a skewed European economic map, with imbalances such as Spain’s current-account deficit of 9.6 percent in 2008 set against Luxembourg’s surplus of 5.5 percent. The intra-European mismatch resembles the divergences that sent the Italian lira plunging 40 percent against the mark between 1992 and 1995.
Lehman Bust
Greece, Spain and Portugal, buoyed by European Central Bank interest rates that never rose above 4.75 percent, rode a debt- fueled housing boom that went bust after Lehman Brothers Holdings Inc.’s collapse unleashed a global financial crisis.
The shelter the euro provided Greece began to weaken. The government in Athens paid as little as 8 basis points, or 0.08 percentage point, more than Germany to borrow on Feb. 18, 2005. The gap reached 396 basis points last month and currently stands at 334.
While the euro’s newness puts it at a heightened risk for shifting investor sentiment, doomsday scenarios of breakup are unfounded, said Simon Ballard, a credit strategist at Royal Bank of Canada in London.
“Joining the euro is like frying an egg: once it’s fried you can’t put it back in the shell,” Ballard said.
Nine-Month Low
Investors pushed the euro down to a nine-month low of $1.35 on Feb. 12 as the Greek crisis unfolded. The currency remains above its inaugural level of $1.17 and is still overvalued by 16 percent against the dollar, according to a Bloomberg index of purchasing power parities.
The $1.35 low was breached today as the dollar rose to $1.3466 per euro after the Federal Reserve yesterday raised the discount rate charged to banks for direct loans for the first time in more than three years.
Signs that Greece was an uneasy fit in the monetary union first emerged in 2004 when the government of Costas Karamanlis disclosed that its socialist predecessor had cheated on its euro-entry exam in 2000. It published phony data claiming the deficit was less than 1 percent of gross domestic product.
EU reaction to news that Greece’s budget had never gotten below the 3 percent ceiling showed how much power remains in national capitals. Greece went unpunished except for being told by the EU to tighten up its bookkeeping. At the same time, proposals to strengthen Eurostat, the bloc’s statistics watchdog, foundered on national opposition.
Stability Pact
Germany and France helped ease the rules when they forced through the relaxation of the anti-debt “stability pact” in 2005 after three years of deficits above the threshold.
Now, the question of who’s in charge looms larger than ever. After a decade of haggling, the EU appointed Herman Van Rompuy of Belgium as its first full-time president last year and enacted a new decision-making framework.
Van Rompuy’s powers are of persuasion only. He has a staff of 12, no sway over the EU’s 123 billion-euro ($165-billion) budget, and no vote on policy decisions, not even in case of a tie. Tensions over who calls the shots -- all 27 leaders, or just the 16 using the euro currency? -- further blur his role.
National governments continue to hold the purse strings. When Chancellor Angela Merkel went to Brussels last week to negotiate over a possible bailout for Greece, she was hemmed in by German high-court rulings that bar a further transfer of power to the EU and by a domestic political uproar over helping a country that won’t help itself.
No Taxpayer Money
“Not a single euro” of German taxpayer money should go to Greece, Horst Seehofer, head of the Bavarian affiliate of Merkel’s Christian Democrats, told a political rally in the southern city of Passau on Feb. 17.
Added to German outrage was the disclosure that New York- based Goldman Sachs Group Inc., Wall Street’s most-profitable securities firm, helped Greece raise $1 billion of off-balance- sheet funding in 2002 through a currency swap that may have masked the deficit’s size.
What resulted, at last week’s Greece-dominated summit in Brussels, was an EU pledge for “determined and coordinated action if needed” to prevent a sovereign debt disaster from destabilizing the economy, coupled with silence on what it would do.
As striking workers protested budget cuts in Athens, the EU declaration failed to shore up confidence in Prime Minister George Papandreou’s plan to shave the deficit by 4 percentage points in 2010 from an estimated 12.7 percent last year.
Aid to Greece?
Still, it would be a mistake to underestimate the EU’s resolve to aid Greece and prevent the fiscal rot from spreading, said Andrew Bosomworth, Munich-based head of portfolio management at Pacific Investment Management Co., which oversees the world’s largest mutual fund from Newport Beach, California.
“The very strong words that came out of the European community last week are not words that I would bet against,” Bosomworth said in a Feb. 15 Bloomberg Television interview. “I don’t think the European Union is going to risk a repeat of Lehman within the monetary union.” He declined to say how Pimco was investing.
The Brussels communiqué, negotiated by a group led by Merkel and Van Rompuy, also sharpened the dividing line between the euro bloc and the rest of the EU. The leader of the largest EU country using its own currency, U.K. Prime Minister Gordon Brown, wasn’t in the room.
Ins and Outs
“The biggest single cleavage in the EU will increasingly be between those that belong to the euro and those that don’t,” said Peter Ludlow, a historian and author of “The Making of the New Europe.”
That leaves the euro’s further expansion to eastern Europe -- after the EU took in ex-communist countries in 2004 -- a potential casualty of the Greek fallout. Already in 2006, Lithuania felt the collateral damage: it was barred from the euro because of 3.5 percent inflation, the first euro aspirant to be vetoed.
The next test comes with Estonia in April or May. Once a showcase economy with growth peaking at 10 percent in 2006, the EU’s second-highest rate that year, the Baltic nation’s GDP plunged an estimated 13.7 percent in 2009. Its bid to join the euro next year hinges on persuading the EU that the deficit won’t head back up after dipping to an estimated 2.6 percent last year.
“It will be more difficult for the potential new members to join,” said Esther Law, emerging-markets strategist at Societe Generale SA in London. “I expect them to be more strict with all the criteria and also to be more strict with the statistics.”
To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net
Last Updated: February 19, 2010 02:50 EST
>>And THIS is exactly why I don't do much trading expiration week...I wasn't sure what was going to happen, but first of all, stocks had been rising on light volume, which I didn't care for, and second, nearly all of March calls I was watching still had much time premium in them...premium which is about to get sharply knocked out of them, imho
Maybe next week some of these will be worth poking, but between the Fed taking away the punchbowl, and the sovereign debt situation which is still not resolved (to me, anyway), things looked a little risky to me, which is why I haven't been posting many things this week
What looks good to you on the charts?
BL: Dollar Advances, Stocks Decline as Federal Reserve Increases Discount Rate
By Justin Carrigan
Feb. 19 (Bloomberg) -- The dollar strengthened and stocks snapped a four-day rally after the Federal Reserve raised the discount rate, its clearest signal yet that the central bank is ready to reverse emergency stimulus. U.S. equity futures trimmed losses after consumer prices rose less than estimated.
The dollar appreciated against all but two of its 16 most- traded counterparts at 9:25 a.m. in New York. The pound plunged to a nine-month low against the dollar on concern the U.K. deficit will keep growing. Futures on the Standard & Poor’s 500 Index declined 0.3 percent after earlier sliding as much as 1.2 percent. The MSCI Emerging Markets Index slid the most in two weeks.
The Fed yesterday raised the rate charged to banks for direct loans by a quarter-point, the first such increase since June 2006. Policy makers around the world are weighing how to withdraw measures to aid economies, which have caused deficits to swell, without derailing the recovery. Shares in Europe pared losses, helped by Nestle SA’s forecast that sales growth will accelerate.
The Fed’s decision is “a shot across the bow,” Christopher Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, said in an e-mailed note. “In the grand scheme of things, the Fed is moving back to doing business as normal.”
The Dollar Index, which tracks the currency against those of six major U.S. trading partners, climbed as much as 1.2 percent, its biggest gain since Jan. 20. The pound slid against 15 of 16 of its most-traded counterparts after the U.K. yesterday unexpectedly posted a budget deficit in January for the first time since records began in 1993.
CPI Trails Estimates
U.S. equity futures pared earlier declines after the cost of living rose less than anticipated in January and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is not stoking inflation. The consumer-price index increased 0.2 percent, led by higher fuel costs, Labor Department figures showed. Excluding energy and food, the so-called core index unexpectedly fell 0.1 percent.
“There’s no inflation for the Fed to fight,” Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “There was an element of nervousness going into today’s CPI figures. The CPI number came in lower-than-expected, indicating the Fed has room to keep rates low for an extended period of time. If easy monetary policy and supportive fiscal policy have helped boost equities thus far, data such as today’s CPI argues for a continuation of supportive policies.”
Borrowing Costs
The cost of borrowing between banks, which plunged to a record low last year as policy makers provided unlimited cash to financial institutions, may start to rise following the Fed decision, which is effective today. The TED spread, the difference between what banks and the Treasury pay to borrow for three months, widened for the first time in three days, to 15.8 basis points.
Europe’s Dow Jones Stoxx 600 was little changed after earlier sliding 1 percent. Thales SA, Europe’s biggest military- electronics maker, lost 15 percent in Paris after cutting its dividend for the first time in at least a decade. Declines were limited as Nestle, the world’s largest food company, rallied 2.6 percent in Zurich after saying revenue from food and beverages will rise more than 2009’s 3.9 percent.
Schlumberger Report
Technip SA, Europe’s second-largest oil-services provider, rose 1.1 percent. Schlumberger Ltd., the world’s largest, is in advanced talks to buy Smith International Inc., the Wall Street Journal reported, citing people familiar with the negotiations.
The MSCI Asia Pacific Index declined 2.1 percent, the biggest drop in two weeks. Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc. and Target Corp., slumped 3.6 percent in Hong Kong.
The MSCI Emerging Markets Index dropped 1 percent, the biggest decline since Feb. 5. Options traders are paying the most to protect against a decline in Chinese stocks since March after the central bank ordered lenders to set aside larger reserves to help cool inflation in the fastest-growing major economy. Chinese markets were closed this week for holidays.
To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
Last Updated: February 19, 2010 09:26 EST
Good quote! Sadly, applies to many people in our society, and quite a few who were at the cause of the recent meltdown
"..and to think -those in the know of what was happening- were reading along..."
I have to know assume they were laughing too, thinking us just the biggest bunch of fools and chumps...
...Really, let's say you were running a message board, and also running pumps, and had the freedom to put dissidents who complained too loudly 'in jail', all the while collecting a monthly check from everyone, even the ones losing money on your pumps...would you have any respect whatsoever for those people?
Imagine what was going through their heads, as we idiots kept complaining to THEM about these awful stocks that were nothing but high-speed bagholder machines. Oh to be a fly on the wall, watching their faces as they responded: "yeah sure, kid, I feel your pain..."
yeah right...right here in my wallet LOLOLOL
Talk about making money coming and going, lol
This is all hypothetically speaking, of course, not referring to any situation which truly exists :)
WSJ: Muni Threat: Cities Weigh Chapter 9
By IANTHE JEANNE DUGAN And KRIS MAHER
FEBRUARY 18, 2010
Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.
The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.
The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.
"People believe that municipal debt is safe based on assumptions that are no longer true," says Kenneth Buckfire, managing director and chief executive of Miller Buckfire & Co., an investment bank that has worked with corporations on restructurings and now is advising municipalities. For example, it isn't safe to assume that governments can raise taxes to cover shortfalls, he says.
Even threatening bankruptcy signals that municipalities are willing to compromise the security of bondholders, says Richard Raphael, an analyst at Fitch Ratings. That makes it harder for cities and towns to raise money from investors and will slow the U.S. economic recovery.
In Harrisburg, which is Pennsylvania's capital and has a population of about 47,000, a March 1 deadline is looming on a payment of $2 million out of the $68 million due this year for the financing of an incinerator plant. The facility has about $288 million in overall debt.
"Bankruptcy is inevitable," Mr. Miller says. "We are in a terrible bind." A budget passed Saturday by Harrisburg's city council didn't include any funds to cover the debt payments, according to the city clerk's office.
Harrisburg Mayor Linda Thompson, a Democrat elected in November, opposes a bankruptcy filing and has presented an emergency plan that includes selling some of the city's assets. She couldn't be reached for comment. A spokeswoman for the mayor says Ms. Thompson is working on the plan.
Michele Torres, executive director of the Harrisburg Authority, which oversees the incinerator plant, says there are sufficient reserve funds to make the March 1 payment to bondholders. But that doesn't fix the problem. "No matter how perfect the facility runs, it just can't generate enough … to meet the $288 million debt," she says.
Since Chapter 9 was enacted in 1934, just 600 cases have been filed under the code, partly because they require state approval. Some municipalities have found escape hatches, such as raising taxes. The largest Chapter 9 case was filed in 1994, when Orange County, Calif., lost $1.6 billion on wrong-way bets on interest rates.
But many experts fear that a surge in municipal bankruptcy filings is unavoidable. "The day of reckoning is coming," says Michael Pagano, dean of the University of Illinois at Chicago's College of Urban Planning and Public Affairs.
To keep cities and towns from toppling into Chapter 9, more states are likely to make use of state laws to assume oversight of financially distressed municipalities, he predicts. Pittsburgh, for one, has been operating under such a law since 2004.
Vallejo, Calif., a city of about 116,000 people near San Francisco, has been trying to rejigger worker contracts in bankruptcy court since it filed for Chapter 9 in 2008, after buckling under declining real-estate values. Some union contracts expire later this year, and Vallejo is attempting to scrap them and start over.
In San Diego, political leaders have faced outside pressure to file for Chapter 9 bankruptcy protection as a way to get around benefits packages for public workers. San Diego Mayor Jerry Sanders has publicly dismissed the idea.
Last month, Las Vegas Monorail Co., a nonprofit with over $600 million in municipal bonds, filed for Chapter 11. The company runs a 3.9-mile monorail system along the Las Vegas Strip that has been hammered by the downturn. Ridership shrank 21% last year from 2008. According to Fitch, while the monorail is covering its operating costs, default "is virtually certain" on a payment due in July.
Ambac Assurance Corp., the bond-insurance unit of Ambac Financial Group Inc., is seeking to have the case converted to a Chapter 9 proceeding. The insurer contends that the company is akin to a municipality. A judge is set to decide on the petition later this month.
Sandy Hoskins, interim chief executive of Sierra Kings Health District in Reedley, Calif., worked for nearly 30 years as an auditor and financial consultant. He says he never heard of Chapter 9 until October, when Mr. Hoskins filed a bankruptcy petition for the hospital system. "There was no other way around it," he says. With low cash balances, "there were vendors not even willing to do business with us. It was a critical situation."
Mr. Miller, Harrisburg's controller, also sees no way out of the financial squeeze. The city's per-capita debt of $9,500 is the highest in Pennsylvania and triple the debt load of Philadelphia, he says. And selling parking facilities or other properties in a fire sale would cost Harrisburg future revenue. A spokesman for Pennsylvania Gov. Edward Rendell says Harrisburg hasn't sought help from state officials.
"We can't raise taxes; they're already very high," Mr. Miller says. "If we did, people would just leave. It's cheaper to move out to the suburbs."
Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com and Kris Maher at kris.maher@wsj.com
http://online.wsj.com/article/SB10001424052748704398804575071591602878062.html?mod=WSJ_article_LatestHeadlines
COMMENTS:
>>Municipal Armageddon. And you thought the financial and housing crises were bad - you ain't seen nothing yet.
It's interesting that cities are using non-recurring asset sales to cover recurring debt payments. What's wrong with this picture - other than buying some time? The answer should be self-evident.
I suspect California municipal governments are in the worst shape of all. The state is beyond broke and is currently confiscating both county and city revenue in an effort to mitigate budget deficits and lessen fiscal cuts.
+ .Marcus Pratt replied:
.Uh...living in Michigan...I'd like to throw our hat in the ring
for most depressed state and municipalities.
Diane Thorton replied
Being originally from Michigan, and having lived in CA for the last +/- 25 years, I have seen the mismanagement spiral of both once-great states.
It's not just a muni/state issue, either - globally, sovereign debt is a millstone. For a sobering read, try Pimco's Bill Gross' take:
Jo McIntyre replied:
As a former municipal reporter covering small cities and school districts, I can tell you how it happens. Has nothing to do with re-election in this case, since they are all unpaid, though from what I have seen, my knowledge applies to paid elected muni officials.
Here's the story: elected officials have no power and no knowledge. Shocking information, I know. They get 'advised' by 'staff.' Notice the disappearance of definite and indefinite articles ('the' and 'an'). 'Staff,' in turn, hire or gather 'task forces' to study ... whatever. The 'task forces' talk to 'experts' and 'consultants' on the whatever.
Now we are almost at the bottom of this. The Consultants recommend people to do the job that the task force is studying. Strangely, the consultants often recommend these same people. The consultants, or different ones, hire other consultants to get expert opinion on the bond issues and tax levy elections that will be necessary to pay for those projects.
This is the bottom. The bond consultants and bond issuers are the ones making the big bucks. Their presence is hidden under a deep, deep layer of people. The bond issuing expense is hidden in the 15% 'other' of the bond levy, rarely mentioned in the election campaigning.
Revenue bonds go through the same circus, but no election, since they presumably will be paid off from revenues generated by the project - sales of water and sewer services, charges for garbage incineration, parking, and so on and so on...
To go back up to the top of the heap again, most of the municipal elected officials only want to be liked. True, in the bigger cities there is probably some financial reward happening, but it is a drop in the bucket compared to what the money people (bond issuers, etc.) get. They elected officials do often become very good friends of the bond issuers, however, almost from the day they are elected.
There's more to the stew, but they are just more middlemen. The above outline will just get you started. I highly recommend that you pick one municipality, preferably your own, and attend meetings for at least a year. Also, look at the annual audits and budgets. It takes at least that long to become familiar with the process and the players.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/February+2010+Gross+Ring+of+Fire.htm
Time to put on your helmet.
Asian markets red, and futures started to drop as they announced the 1/4 point increase
Fed taking the punchbowl away...markets probably won't like that
WSJ: Here Comes the VAT TAX: The VAT Commission
FEBRUARY 19, 2010
Desperately seeking cover for tax increases on the middle class.
A couple of trillion dollars in new deficit spending later, President Obama yesterday signed an executive order creating a Bipartisan National Commission on Fiscal Responsibility and Reform.
Yes, that's really what he called it. And you wonder why Americans are cynical about politics?
Having proposed peacetime records for spending as a share of the economy—more than 25% of GDP this year and next—Mr. Obama now promises to make "the tough choices necessary to solve our fiscal problems." And what might those choices be? "Everything's on the table. That's how this thing's going to work," Mr. Obama said.
By "everything," Mr. Obama means in particular tax increases. The President vowed in 2008 that he wouldn't raise taxes on anyone earning less than $250,000 a year, but that's looking to be as forlorn a hope as peace in Palestine.
Mr. Obama's own recent budget proposal estimates that deficits will exceed $8.5 trillion over the next decade—even including revenues from the huge tax increases scheduled for next year and other new levies that aren't likely to pass. So the President and Democrats are desperately seeking political, and especially Republican, cover to go where the big money is by taxing the middle class. The commission is a bid for that cover.
His choices as co-chairmen are a pair of old Beltway hands who are likely to oblige. Erskine Bowles is a long-time investment banker who was Bill Clinton's White House chief of staff and sat on the board of GM from 2005 until it slid into bankruptcy last year. At least he has experience with rotten balance sheets.
Alan Simpson is a former Republican Senator from Wyoming who was among the bigger GOP skeptics of tax cutting. We'll give him credit for daring to challenge AARP on entitlements during his career, but our guess is that he'll accept tax increases if Democrats agree to cut Medicare and Social Security benefits for future retirees who make more than median incomes.
The rest of the 18 commission members will be named by the four House and Senate leaders from both parties (three each) and four more by Mr. Obama. This means Democrats are likely to outnumber Republicans 10-8, which further tilts the commission toward those who want to take federal taxes from the modern average of about 18.5% of GDP to 25% or more. The real name for this exercise should be the VAT Commission, as in the value-added tax it is likely to propose.
Our advice to GOP leaders is that they select the most antitax members they can find in the hope that they will file a dissenting report. If Mr. Obama really wants to balance the budget, he and the Democrats who run all of Washington with large majorities can show their sincerity by
http://online.wsj.com/article/SB10001424052748703315004575073612836382730.html?mod=WSJ_Opinion_AboveLEFTTop
Posters would come on the board often, and tell me about all the great things about to happen with these make believe companies, about conversations with the CEOs, advance knowledge of PRs, all that crap, all the wonderful things about to move the stock, supposedly. The sad thing is by 2006/2007 even those who cynically traded the 'PR Cycle' got hosed, because none of that seemed to do the trick any more because the companies weren't even pausing to dilute...the "runs" became shorter and shorter, until they barely lasted 20 minutes or less.
The longer you're away from it, the more surreal it seems. With GHTI what stands out in my memory is that none of us had ever seen a stock fall that far that fast...not even the skeptic al penny traders who just scalp for an hour and try to escape without getting wiped out. That sucker didn't bounce, it didn't pause, it just fell to sub-pennies like it had a date in hell, lol
BL: Dollar Soars Against Euro, Yen as Federal Reserve Increases Discount Rate
By Oliver Biggadike and Ben Levisohn
Feb. 18 (Bloomberg) -- The dollar reached its strongest level in nine months against the euro as the Federal Reserve raised the discount rate by a quarter-point to 0.75 percent and said the move does not signal a change in its policy outlook.
The dollar gained against the yen as policy makers said in a statement that the move is “intended as further normalization of the Federal Reserve’s lending facilities.” The euro earlier rose against the dollar on speculation the Swiss National Bank sold the Swiss franc in an effort to cap the currency’s gains.
“It’s a surprising issue. In the last FOMC minutes the Fed indicated that they would raise the discount rate in the near future but nobody expected it to be today,” said Hidetoshi Yanagihara, a senior currency trader at Mizuho Corporate Bank in New York. “It might indicate the Fed will change monetary policy in a much shorter term.”
The dollar rose 0.5 percent to $1.3539 per euro at 4:46 p.m. in New York, from $1.3607 yesterday. It touched $1.3502, the strongest level since May. The greenback appreciated 0.6 percent against the yen, to 91.77 from 91.25.
To contact the reporters on this story:
Oliver Biggadike in New York at
obiggadike@bloomberg.net;
Ben Levisohn in New York at
blevisohn@bloomberg.net
Last Updated: February 18, 2010 16:52 EST
3/4! Sudden Rate Rise: Fed Raises Discount Rate by Quarter-Point in Retreat From Crisis Measures
By Craig Torres
Feb. 18 (Bloomberg) -- The Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.
“These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the central bank said today in a statement. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”
The dollar jumped and Treasuries extended losses as the Fed took another step in a gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed has provided hundreds of billions of dollars in backstop credit to banks, bond dealers, commercial paper borrowers and troubled financial institutions such as American International Group Inc.
The U.S. currency rose to $1.3541 per euro at 4:40 p.m. from $1.3616 before the announcement, while the yield on two- year Treasuries increased to 0.93 percent from 0.87 percent.
The discount rate increase is effective on Feb. 19. The Board also said that effective March 18 “the typical maximum maturity for primary credit loans will be shortened to overnight.”
January Statement
The Fed Board said the outlook for policy remains “about as it was at the January meeting of the Federal Open Market Committee.” The central bank also cited last month’s statement, which said economic conditions are likely to warrant “exceptionally low” levels of the federal funds rate “for an extended period.”
It was the first increase in the discount rate in more than three years.
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net;
Last Updated: February 18, 2010 16:42 EST
OIL Bulls stocks nice! THC +2.34%, APC +1.92%, UGA +1.11%, UCO +1.63%, OIL +0.76%, USO +0.74%, USL +0.44%, ERX +0.54%, BP +0.48%, JOYG +0.56%, DIG +0.42%, CVX +0.38%, COP +0.37%, XOM +0.20%, COP +0.35%
>>I'll be in chat, it's easier for me to post and alert in there
No password needed
http://www.marketaddicts.net/chat/
>>SEED +0.65%, $9.36, mamma in, fyi
VLNC +23.16%, $1.01...not in, can't help noticing
No..actually aches more today...will be a week tomorrow, wish I could speed this up
grrrr
BL: Yvo De Boer Resigns as Top United Nations Diplomat Leading Climate Talks
By Alex Morales
Feb. 18 (Bloomberg) -- Yvo de Boer, the United Nations diplomat who led talks aimed at curbing global warming, is quitting his post after failing to achieve a binding agreement at Copenhagen’s climate summit in December.
De Boer, 55, is resigning as executive secretary effective July 1 to join KPMG International, the UN Framework Convention on Climate Change said today in an e-mailed statement. Some 190 nations aim to craft a pact to fight warming temperatures at a two-week meeting in Cancun, Mexico, in November after gaps among negotiators in Denmark resulted in no legal treaty.
“The important thing is his successor is bedded in quickly and can reinvigorate the UN process,” Ben Caldecott, head of European Union policy at London-based carbon fund manager Climate Change Capital, said today in a telephone interview. No successor was named in today’s UNFCCC statement.
Leaders in Copenhagen reached a non-binding political accord supported by the world’s biggest emitters while failing to gain the acceptance of all nations. That leaves the $127 billion carbon market awaiting mandatory international targets that could boost prices and provide companies with greater incentives to cut greenhouse gases.
“The market would be better with a more robust international agreement,” Trevor Sikorski, an emissions analyst for Barclays Capital, said today in an interview. He said while de Boer’s resignation is a “sad day” for carbon markets, the impetus of climate negotiations had waned since Copenhagen and participants in the talks were “exhausted.”
“In some ways there’s a silver lining to the cloud of de Boer’s resignation for the markets,” Sikorski said. “This provides an opportunity to regain that momentum.”
Role of Business
De Boer’s successor will be chosen by UN Secretary-General Ban Ki-Moon in consultation with the UNFCCC, spokesman Eric Hall said today in a phone interview from Bonn. A timeline for the appointment hasn’t been set, he said.
De Boer said in the statement that the decision to resign was difficult and that the commitment of nations to fight climate change is underlined by pledges to act by nations responsible for four-fifths of the greenhouse gases mostly blamed for global warming.
“Copenhagen did not provide us with a clear agreement in legal terms but the political commitment and sense of direction toward a low-emissions world are overwhelming,” de Boer said. “This calls for new partnerships with the business sector and I now have the chance to help make this happen.”
-- Editors: Randall Hackley, Mike Anderson
To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net
Last Updated: February 18, 2010 08:06 EST
RED red...:Jobless Claims in U.S. Unexpectedly Increased 31,000 Last Week to 473,000
By Bob Willis
Feb. 18 (Bloomberg) -- The number of Americans filing first-time claims for unemployment insurance unexpectedly increased last week, pointing to an uneven recovery in the labor market.
Initial jobless applications rose by 31,000 to 473,000 in the week ended Feb. 13, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance was unchanged and those receiving extended benefits increased.
Companies may want evidence of accelerating sales before hiring after making the deepest payroll cuts in the post-World War II era. Federal Reserve policy makers said last month that while consumer spending has picked up, it’s partly “constrained by a weak labor market.”
“There is still a lot of labor market weakness out there,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “I don’t think the weather has had as big an impact on claims as many think it has.”
Economists forecast claims would fall to 438,000, from a previously estimated 440,000 for the week ended Feb. 6, according to the median of 42 projections in a Bloomberg News survey. Estimates ranged from 440,000 to 480,000.
The Labor Department said it had to estimate filings for Texas, Hawaii and Alabama because it didn’t receive data from employment offices in those states. California provided its own estimates instead of complete figures.
All Recipients
Continuing claims held at 4.56 million in the week ended Feb. 6. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
The number of people who’ve used up their traditional benefits and are now collecting extended payments rose by about 274,500 to 6 million in the week ended Jan. 30.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Feb. 6, today’s report showed. Twenty-four states and territories had an increase in claims for that same week, while 29 had a decrease.
A separate report today from the Labor Department showed wholesale prices in the U.S. accelerated more than anticipated in January, led by a jump in costs of energy, light trucks and pharmaceuticals. The 1.4 percent rise in prices paid to factories, farmers and other producers followed a 0.4 percent increase in December, the government said.
9.7 Percent
The unemployment rate in the U.S. dropped to 9.7 percent in January, while payrolls declined by 20,000, Labor Department figures showed Feb. 6. Manufacturers added to payrolls for the first time in three years and that may help revive the rest of the labor market.
Some companies continue to cut staff. Humana Inc., the best-performing U.S. health-insurance stock this year, will reduce its workforce by 5 percent as the company faces shrinking private-sector enrollments and cuts in government-backed Medicare payments.
About 2,500 jobs will be eliminated through attrition, outsourcing and shedding positions, the Louisville, Kentucky- based company said Feb. 4 in a statement. The insurer also plans to hire 1,100 people in the growth areas of medical-cost containment, pharmacy management and specialty products, for a net reduction of 1,400 workers.
“This regrettable but necessary reduction in our workforce is a direct result of Humana’s need to align the size of our company with that of our membership,” said Michael McCallister, the company’s president and chief executive officer, in the statement.
3,000 Cuts
Warren Buffett’sBerkshire Hathaway Inc. cut about 3,000 jobs since December after customers scaled back orders for building-related materials, the firm said in a regulatory filing last week.
“If you look at our carpet business, our brick business, our insulation business, all of those businesses have had significant reductions in employment,” Buffett said in an interview in Omaha, Nebraska, on Jan. 20. “The day the orders come in, we hire back. But there’s no reason to hire people if they don’t have anything to do.”
For Related News and Information: News on the U.S. labor market: TNI US LABOR <GO> Stories on the U.S. economy: NI USECO <GO> Stories on U.S. consumers: TNI US CONS <GO> For a news search on the recession: STNI USRECESSION <GO>
Last Updated: February 18, 2010 08:52 EST
yup: Walmart miss not helping either: U.S. Stock-Index Futures Extend Losses on Surprise Gain in Jobless Claims
By Elizabeth Stanton and Adria Cimino
Feb. 18 (Bloomberg) -- U.S. stock-index futures extended declines after first-time claims for unemployment benefits unexpectedly increased last week, spurring concern job losses will stifle the economic recovery.
Wal-Mart Stores Inc. fell 1.6 percent after the world’s largest retailer reported comparable-store sales that trailed its forecast. Bank of America Corp. and Home Depot Inc. slipped after the government said initial jobless applications rose by 31,000 to 473,000. Hewlett-Packard Co. rose after increasing its full-year earnings forecast.
Standard & Poor’s 500 Index futures expiring in March retreated 0.5 percent to 1,093.8 at 8:49 a.m. in New York. Dow Jones Industrial Average futures dropped 0.4 percent to 10,250 and Nasdaq-100 Index futures decreased 0.3 percent to 1,805.5.
U.S. stocks advanced yesterday, a day after the biggest rally since November for the S&P 500 Index, as better-than- estimated earnings, industrial production and housing data bolstered confidence in the economic recovery.
The S&P 500 has fallen 4.4 percent from a 15-month high on Jan. 19 as widening fiscal gaps in Greece, Portugal and Spain spurred concern Europe faces another recession. The index is still up 63 percent from a 12-year low in March.
The dollar advanced against 14 of the 16 major currencies, reducing the value of companies’ sales made abroad.
‘Brake’ for Stocks
“The more the dollar rises, the more it’s a brake for the U.S. stock market,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, which oversees about $425 million in equities. In earnings reports, “outlooks are in line, but the market is hungry and wants better news. Investors want more than in line. That’s why the market has been volatile.”
Wal-Mart fell 1.6 percent to $53.20 in trading before the open of U.S. exchanges. Sales by U.S. stores open at least a year fell 1.6 percent, topping the company’s projection of a decline of no more than 1 percent. Fourth-quarter profit was $1.17 a share, beating analysts’ estimates of $1.12, Wal-Mart said. Revenue was $113.65 billion, less than analysts’ estimates of $114.46 billion.
Hewlett-Packard gained 0.4 percent to $50.30. The personal- computer maker increased its full-year earnings forecast after first-quarter profit topped analysts’ estimates.
Earnings Watch
A record nine-quarter earnings slump is projected by analysts to have ended in the fourth quarter with an 80 percent increase in S&P 500 profits. Forty-five companies in the index are scheduled to release results this week. More than 350 companies in the S&P 500 have reported fourth-quarter earnings since Jan. 11, and about 76 percent have beaten analysts’ estimates on a per-share basis, according to data compiled by Bloomberg.
Dell Inc., the world’s third-largest maker of personal computers, is scheduled to report fourth-quarter earnings after the stock market closes. The shares rose 0.9 percent to $14.23.
The index of U.S. leading indicators probably rose in January for a 10th straight month, pointing to an economy that will keep expanding through the first half of this year, economists said before a report set for 10 a.m. New York time.
The Conference Board’s gauge of the outlook for the next three to six months rose 0.5 percent after climbing 1.1 percent in December, according to the median forecast of 53 economists surveyed by Bloomberg News.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Adria Cimino in Paris at acimino1@bloomberg.net.
Last Updated: February 18, 2010 08:54 EST
I didn't think you did, lol. I'm just amazed by that loss...lots of misses this AM
IMF Gold...Isn't that just what we thought they might do? Central Bankers HATE gold, lol....just makes them look bad
Plus, these countries need to raise $$$, and the IMF is their discrete pawnshop who'll sell their valuables, lol
>>NBL -3.19% ($74) on that lousy news
CRY yer heart out! 0.08 Vs. $0.76?? Yikes! CRY $6.36 PM, expecting a plunge?
>>GE -0.06%, $16.06, slipping a bit PM, grrrr
ty, and to you as well..although I usually avoid trading during expiration week unless I see the right kind of setup
>>FERTILIZER Gap down: TNH -3.73%, CAGC -2.13%, MOS -1.13%, AGU -0.67%, POT -0.77%, TRA -0.05%
Considering TRA's losses, that isn't much of a gap red, unless it gets worse after the open
BL: Greek Debt `Twilight Zone' Spurs Increase in Sovereign Credit-Default Risk
By Abigail Moses
Feb. 18 (Bloomberg) -- Credit-default swaps on sovereign debt rose on investor concern that Greece may be unable to borrow unless it gets a pledge of financial support from the European Union.
Greece needs to raise 53 billion euros ($72 billion) this year and faces about 16 billion euros of bond redemptions by May as it struggles to narrow a budget deficit that’s more than four times the EU limit. A political ally of German Chancellor Angela Merkel said yesterday that “not a single euro” should go to help Greece.
“It feels a bit like we are in the Twilight Zone,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors. “We are left with a stand-off that probably has to be resolved before Greece next comes to the market.”
Credit-default swaps on Greek government debt climbed 10.5 basis points to 361.5, according to CMA DataVision prices at 10 a.m. in London. Contracts on Portugal increased 6 basis points to 180 and Spain rose 2 to 134, CMA prices show.
The yield on Greek two-year notes has remained above 5 percent, the highest in the euro zone, even after officials urged the nation this week to reduce its deficit. The premium investors demand to hold the notes instead of benchmark German securities has held above 4 percentage points, the most since the Mediterranean nation joined the euro and more than 10 times its 35 basis point average the past decade.
Greek Bond Sale
Greece is likely to sell 10-year bonds by March, Spyros Papanicolaou, the head of the country’s debt agency, said Feb. 2. The yield on the nation’s outstanding 10-year note increased 12 basis points to 6.5 percent as of 9:51 a.m. in London, after climbing to 6.55 percent, the most since Feb. 9. The 6 percent security due July 2019 fell 0.83, or 8.30 euros per 1,000 euro face amount, to 96.49.
European governments are selling record amounts of debt to haul their economies out of recession. Rising budget deficits, unemployment levels and bad loans in countries from the U.K. to Spain are weighing on sovereign debt markets.
Britain posted its first budget deficit for January since records began in 1993 and jobless claims rose last month to the highest since 1997. Credit-default swaps on the U.K. rose 1.5 basis points to 92.5, CMA prices show.
Bad Loans
Portugal’s unemployment rate rose to 10.1 percent, the highest in 23 years in the fourth quarter after the country’s economy contracted by an estimated 2.7 percent last year. Bad loans at Spanish banks climbed to 5.08 percent of total credit in December.
Spain’s sale of 5 billion euros of 15-year bonds yesterday may have “soothed” some investor concerns, according to Puneet Sharma, head of European credit strategy at Barclays Capital in London. “With a significant amount of issuance expected in 2010, the calm market reaction to this deal could encourage further transactions to come to market,” Sharma wrote in a note to investors.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. An increase signals deterioration in perceptions of credit quality.
The cost of insuring against default on European corporate bonds was little changed today, with the Markit iTraxx Europe Index of 125 companies with investment-grade ratings falling 0.75 basis point to 88.75, according to JPMorgan Chase & Co.
A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
Last Updated: February 18, 2010 06:18 EST
By all means, watch and feel comfortable...and paper ttrade them first before ever risking real money!