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BL: Most Asian Stocks Drop on Growing Europe Deficit Concerns; Macquarie Falls
By Shani Raja and Anna Kitanaka
Feb. 9 (Bloomberg) -- Most Asian stocks fell, led by banks and material companies, amid mounting concern budget deficits in Europe will derail the global economic recovery.
Macquarie Group Ltd., Australia’s largest investment bank, slumped 6.2 percent after its second-half profit forecast disappointed some investors. Westpac Banking Corp. dropped 2.5 percent as the cost of protecting Australian government bonds from default jumped. Mitsubishi Materials Corp., Japan’s No. 3 copper producer, sank 2.6 percent as it swung to a nine-month net loss. Toshiba Corp. fell 2.6 percent after Nikkei English News reported the company and its partners lost a bid in Vietnam.
About five stocks declined for every three that rose on the MSCI Asia Pacific Index, which fell 0.2 percent to 113.94 as of 11:16 a.m. in Tokyo. The gauge has fallen 10 percent from a 17- month high on Jan. 15 on speculation central banks will tighten monetary policy, and that Greece, Spain and Portugal will struggle curbing deficits.
“Investors remain cautious as the correction continues,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “Markets are climbing the wall of worry and are yet to be fully convinced that a workable solution is in the offing regarding highly-indebted European countries such as Greece and Spain.”
Japan’s Nikkei 225 Stock Average lost 0.4 percent, while South Korea’s Kospi index added 0.6 percent. Australia’s S&P/ASX 200 Index declined 0.8 percent. Hong Kong’s Hang Seng Index gained 0.4 percent.
Government Bonds
Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent. Europe concerns dragged the gauge down by 0.9 percent yesterday. Credit-default swaps, or the cost of insuring against losses on sovereign debt, on Spain and Portugal jumped to a record, according to CMA DataVision. Those for Greece also hovered near an all-time high.
Macquarie slipped 6.2 percent to A$47.21. The company said net income in the six months to March 31 may climb 10 percent from the first half. That indicates second-half profit of A$526.9 million ($457 million), below the A$586 million average estimate of three analysts surveyed by Bloomberg.
Today’s forecast is “slightly below the more bullish analysts,” said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney. “Some investors were looking for a greater upgrade, so on a short-term basis are happy to close out positions given the softness in the market.”
Sales Slump
Westpac Banking, Australia’s second-largest lender by market value, sank 2.5 percent to A$22.68. Commonwealth Bank of Australia, the largest, lost 1.7 percent to A$51.85. The cost of protecting Australian government bonds from default jumped to almost a nine-month high today, according to Deutsche Bank AG.
Mitsubishi Materials slumped 2.6 percent to 223 yen. The company said it swung to a nine-month net loss of 31.7 billion yen from net income of 19.6 billion yen a year earlier, as sales dropped by a third.
Toshiba fell 2.6 percent to 412 yen. Toshiba, Mitsubishi Heavy Industries Ltd., and Hitachi Ltd., which together bid for a nuclear plant project in Vietnam, lost the order to Russia’s state-run Rosatom, Nikkei English News reported, citing sources it didn’t identify. Hitachi and Mitsubishi Heavy Industries both dropped at least 1 percent.
Koito Industries Ltd., which makes seats for trains and airplanes, plunged 34 percent to 159 yen. The company will fix about 150,000 passenger seats in some 1,000 commercial airliners after saying that it falsified test results and made unauthorized design changes.
Among stocks that rose today, Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 bank by value, increased 1.8 percent to 2,825 yen after profit beat analyst estimates. NCSoft Corp., an on-line games developer, advanced 2.1 percent to 123,000 won in Seoul as it reported increased quarterly profit.
In Sydney, David Jones Ltd., Australia’s second-biggest department store chain, advanced 1.3 percent to A$4.67. David Jones raised its earnings forecast after posting 2.4 percent sales growth for the second-quarter.
Cochlear Ltd., maker of the world’s best-selling hearing implant, climbed 4.4 percent to A$64.08 after first-half profit rose 8 percent on new product sales.
To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net.
Last Updated: February 8, 2010 21:33 EST
Holy Moly! Must be the "Happy Meals" we're giving away...Do I need to order more fries?
A $32,000 fine for non-compliance? Unbelievable what they are coming up with, during a recession, to raise income
IMHO the EPA is a major threat
MISH: California Sheriff Takes Home $640,000 a Year; Automatic Muni Raises in SF; Oregon Pension Board Buries Head In Sand
http://globaleconomicanalysis.blogspot.com/search?updated-max=2010-02-08T03%3A15%3A00-06%3A00&max-results=3
The San Francisco Chronicle has an interest story about Automatic Raises For Muni Drivers.
Mish: Nonperforming Loans in China Rise to "Trillions of Renminbi"
Friday, February 05, 2010
Inquiring minds are questioning the solvency of the Chinese banking system. Please consider China Defaulting Loans Soar, Insolvency Lawyer Says.
Yikes: Living in a pre-1978 home and thinking about remodeling? The EPA says "You Need Certification"
Mish's Blog
Saturday, February 06, 2010
While pondering the already stressed housing situation, please consider What Remodelers Need to Know About the EPA's Lead Paint Rule.
(AAPL) Apple ipad "Unpopular" Survey Finds
Consumers don't think they need Apple's tablet computer, finds survey
Consumers 'unconvinced' by Apple iPad, study shows
The number of people who are not interested in buying an Apple iPad has increased after the tablet's unveiling, according to shopping website Retrevo
By Claudine Beaumont, Technology Editor
Published: 1:46PM GMT 08 Feb 2010
Just over a quarter of those questioned ahead of the Apple event last month said they had heard that Apple might launch a tablet-style computer, but were not interested in buying one. That figure increased from 26 per cent to 52 per cent in the days following the unveiling last month.
The survey of 1,000 shoppers also highlighted some confusion among consumers about the purpose of the iPad. When asked before the launch whether, from what they'd heard about the Apple iPad, they felt they needed to buy one, 49 per cent said no, while 30 per cent said they would need to find out more about the device before making a decision. But after the announcement in January at the Yerba Buena Centre in San Francisco, 61 per cent of those surveyed now said that they did not feel they needed to buy an iPad, with 15 per cent still saying they needed more information before making a decision.
And the number of people saying they would definitely buy an Apple iPad increased by just two per cent, from three per cent before the announcement to five per cent after the tablet computer had been unveiled. The number of shoppers who were undecided remained almost the same before and after the announcement, up from 18 per cent who said they might buy one, to 19 per cent.
The Retrevo survey also revealed an apparent reluctance among many shoppers to pay more for an Apple iPad that had built-in 3G. This would make it possible to surf the internet on the device while out and about, using the 3G phone network, as well as Wi-Fi hot spots. More than half, 59 per cent, said they wouldn't pay extra for a 3G model, while 12 per cent said they would.
Analysts at Needham & Co. expect Apple to sell around two million iPads this year, and around six million in 2011. The device, which resembles a large iPod touch, received mixed reviews when it was unveiled last month, with many critics disappointed at its lack of portability and it inability to multi-task. The entry-level model is expected to cost around £500 when it goes on sale in the UK this spring.
"Whether this device becomes a big hit is anyone’s guess, but based on this study it sure looks doubtful," concluded the Retrevo survey.
http://www.telegraph.co.uk/technology/apple/7188700/Consumers-unconvinced-by-Apple-iPad-study-shows.html
DM.uk: Greek bailout could hit £26bn, warn economists
By Mail Foreign Service
Last updated at 1:32 PM on 08th February 2010
The Daily Mail.uk
Bailing out Greece could cost £26billion, economists warned last night.
A meeting of the G7 group of leading economies yesterday concluded that the EU stands to foot the bill to stop the Greek debt crisis dragging the euro down even further.
The currency fell to its lowest level against the dollar in ten months on Friday amid fears that vulnerable economies such as Greece, Portugal and Spain could end up effectively bust. The pound rose sharply against the euro.
Global stock markets also tumbled because of fears that the debt crisis will derail economic recovery.
The European Central Bank and the International Monetary Fund previously said Athens would need £16billion to help stabilise the markets.
But experts with Credit Suisse have said the cost would come to 30billion euros (£26billion) by May. The broker warned that even if the immediate danger can be overcome, the coming years will be fraught with difficulty.
Portugal and Spain have also caused panic among investors, and economists fear the spotlight could soon turn to the UK, which has failed to tackle its huge budget deficit.
Experts say Europe's embattled economies must improve productivity, raise national savings and cut government borrowing.
At the weekend, the European G7 countries told fellow members the U.S., Japan and Canada at a meeting in Iqaluit, Canada, that they would ensure Greece delivered on its pledge to drastically cut its budget deficit by 2012.
The EU Commission has privately made it clear that it will bail Greece out if necessary-Greece's debt has been rapidly increasing and stands at almost 13 per cent of the national economy.
Despite a hands-off warning from G7 ministers, the IMF is ready to send a heavyweight workforce to help sort out Greece's budgetary crisis.
Observers said that had Greece been outside the eurozone, the IMF would have already become involved.
Wolfgang Schaeuble, the German finance minister, said Greece would have to make sacrifices.
'Greece has to realise that when you break the rules over a long period of time, you have to pay a high price,' he said.
Michael Woolfolk, senior currency analyst at Bank of New York Mellon, said: 'What I think is needed is an agreement on behalf of the EU to provide further support for Greece to further ensure that it doesn't default.'
http://www.dailymail.co.uk/news/article-1249294/Greek-bailout-hit-26bn.html
DM.uk: French to buy White Cliffs of Dover (!)
White Cliffs of Dover to be sold to the French to help reduce Government's debt
By Vanessa Allen
Last updated at 10:11 AM on 08th February 2010
The Daily Mail.uk
For generations Dover has stood as an indomitable symbol of Britain’s freedom and independence.
The town, with its white cliffs, port and sprawling castle stood at the very edge of the nation’s frontier with the Continent.
But now part of that proud history is up for sale and the leading bidder is revealed as the former age-old enemy – France.
Heritage of defiance: A Spitfire over the White Cliffs of Dover
The Port of Dover is being recommended by Government advisers for sale to the French authorities.
It is one of a string of public assets which have been earmarked for privatisation as the Government battles with a record £830billion national debt.
The proposal for the port has prompted outrage.
Prospective Tory MP for Dover Charles Elphicke said: ‘It’s clear Gordon Brown has no sense of the history of our nation or the pride of our town.
‘How dare he consider selling it all off to the French? Dover is the English border. The people of Dover have a clear message for him – hands off our port, hands off the English border.’
A sale of the Port of Dover, Europe’s busiest ferry port, could net up to £350million for the Treasury. Its harbour board applied to the Transport Secretary for voluntary privatisation last month.
The sale is expected to be rubber-stamped and the leading bidder has emerged as Nord-pas-de-Calais regional council, which also owns Calais.
The French port is just 21 miles away across the Channel and the sale would mark a dramatic reversal in the fortunes of the two towns. Calais was captured by the English under Edward III in 1347, and the occupation lasted for more than two centuries.
The Port of Dover is the largest British port still in the public sector and made a profit of £15.1million in 2008.
It is a ‘trust port’, meaning all revenues are reinvested into it, and it is now seeking £400million to expand. Bosses anticipate a doubling in freight traffic by 2040.
Chief executive Bob Goldfield said: ‘The time is right for the voluntary privatisation of Dover. We want to invest around £400million on a second terminal and need to invest in the existing terminal, but are unable to because of public sector borrowing constraints. We want to throw off the shackles.’
Other major ports were sold off under the 1991 Ports Act, but Dover was retained because of uncertainty over how construction of the Channel Tunnel might affect it.
Gwyn Prosser, the town’s Labour MP, warned that jobs could be lost. The port’s workforce has shrunk by 60 per cent over the past eight years.
Mr Prosser said: ‘This is a strategic asset and we must be careful about the import of foreign capital.’
For sale? The Port of Dover is the largest British port still in the public sector and made a profit of £15.1million in 2008
Read more: http://www.dailymail.co.uk/news/article-1249194/Dover-symbol-British-sovereignty-sold-French-help-reduce-debt.html#ixzz0ezcnrRpe
BL: Dow Closes Below 10,000 as Europe Debt Concern Eclipses Analyst Upgrades
By Rita Nazareth
Feb. 8 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average closed below 10,000 for the first time since November amid concern that deteriorating European government finances will derail the economic recovery.
Bank of America Corp. and American Express Co. lost at least 2.8 percent for the biggest declines in the Dow. Nasdaq OMX Group Inc. fell 4 percent to lead the Standard & Poor’s 500 Index lower after its forecast for operating expenses topped some analysts’ estimates. Home Depot Inc. rose 2.2 percent and Google Inc. climbed 0.4 percent on analyst upgrades.
The S&P 500 decreased 0.9 percent to 1,056.74 at 4:07 p.m. in New York, its biggest Monday drop since October. The Dow slipped 103.84 points, or 1 percent, to 9,908.39. Almost four stocks retreated for each that rose on the New York Stock Exchange. All 10 major groups in the S&P 500 fell today.
“There’s risk aversion,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “Good economic and corporate data points in the U.S. are being offset by uncertainties in Europe. Investors should continue to be mindful. I wouldn’t be surprised to see the market flat to down this week.”
U.S. stocks have fallen for four straight weeks, the longest losing streak since July. Stocks rallied in the final hour of trading on Feb. 5, with the Dow average erasing a 167- point drop, on speculation the European Union would devise a solution for the budget deficits.
European Central Bank President Jean-Claude Trichet said the ECB is “confident” Greece will cut its deficit below the limit of 3 percent of gross domestic product in 2012 from 12.7 percent.
G-7 Meeting
“The European members of the G-7 will make sure it is managed,” French Finance Minister Christine Lagarde told reporters on Feb. 6 after meeting counterparts and central bankers from the Group of Seven in Iqaluit, Canada.
The S&P 500 has still surged 56 percent from a 12-year low on March 9 as governments and central banks globally maintained low interest rates and committed more than $12 trillion to stimulate economic growth.
The Group of Seven finance ministers pledged to press ahead with economic stimulus measures even as investors intensify their focus on mounting budget deficits.
“We need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track,” Canadian Finance Minister Jim Flaherty told reporters yesterday.
Credit Rating
The U.S. is in no danger of losing its Aaa debt rating, Treasury Secretary Timothy F. Geithner said in an ABC News interview broadcast yesterday.
Even so, UBS AG advised clients to further reduce their holdings in equities for a second time in as many weeks. Economist Larry Hatheway and strategist Kenneth Liew reduced their equity allocation to “neutral” from “a small overweight,” saying “resolution of the challenges facing Greece, Portugal and Spain is likely to take time and as a result risk premiums will remain elevated.”
Fed Chairman Ben S. Bernanke plans to testify before the House Financial Services Committee on Feb. 10 about the central bank’s plans to withdraw emergency stimulus, according to a committee memo to lawmakers on the panel. The Fed’s efforts have helped push U.S. 30-year fixed mortgage rates down to 5.04 percent on Feb. 5 from last year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.
Financials
The S&P 500 Financials Index dropped 2.2 percent for the biggest decline among 10 industries. JPMorgan Chase & Co. fell 1.6 percent and Bank of America lost 3.5 percent. American Express, the biggest credit-card issuer by purchases, retreated 2.8 percent to $36.79.
“Financials are underperforming the broader market,” said Art Hogan, the chief market analyst at New York-based Jefferies & Co. “It’s a very tricky space. There’s concern over sovereign debt issues in Europe and their resolution. This is going to take a long time to play out.”
Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall. A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program.
“It’s important to remember that equity values, stock prices, are not just paper profits,” Greenspan said. “They actually have a profoundly important impact on economic activity.”
Nasdaq
Nasdaq retreated 4 percent to $18.05. The owner of the second-largest U.S. equity exchange forecast higher 2010 operating costs than some analysts projected. Expenses in 2010 will be $865 million to $885 million, including about $50 million in one-time costs, the New York-based company said today in a statement. In 2009, costs were $850 million, at the top end of the company’s forecast range.
Homebuilders in the S&P 500 surged 2.8 percent as a group after the Wall Street Journal said the industry is looking “a lot less bad,” citing fewer writedowns and new-home order cancellations and improved order rates.
Lennar Corp., Pulte Homes Inc. and D.R. Horton Inc. advanced at least 2 percent.
“The decline of last week was overdone,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which manages $8.5 billion. “There’s nothing in the U.S. market that justified last week’s selloff. The U.S. is emerging as more stable. The economy and corporate earnings are improving.”
Home Depot, Google, Motorola
Home Depot rose 2.2 percent to $28.59. The home improvement retailer was raised to “overweight” from “equal-weight” at Morgan Stanley. Google shares gained 0.4 percent to $533.47. The Internet search company was added to Bank of America-Merrill Lynch’s “U.S. 1” list because the company “remains an attractive macro-economic recovery play,” analysts wrote in a note to clients.
Motorola Inc. climbed 2.7 percent to $6.57. The mobile- phone maker may rise as much as 40 percent during the next year if it spins off its mobile-phone unit and revenue from the radio and data-communications equipment division increases, Barron’s reported.
Hasbro Inc. rose the most in the S&P 500, jumping 13 percent to $34.71. The maker of “Transformers” robot toys reported fourth-quarter earnings excluding some items of $1.09 a share, topping the average analysts’ estimate by 34 percent, according to Bloomberg data.
CVS Caremark Corp. jumped 5.3 percent to $32.72. The largest U.S. distributor of prescription drugs posted fourth- quarter profit excluding one-time items of 79 cents a share. Analysts estimated earnings of 78 cents a share in a Bloomberg survey.
To contact the reporter responsible for this story: Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: February 8, 2010 16:38 EST
Former NY Governor Calls For 40% of Vehicles on Roads by 2020 to be Electric
By Eric Loveday
February 8th, 2010
Former Governor of New York City George Pataki made an appearance at the Washington Auto Show awhile back. At the show, he made a bold statement that he hopes will ring true. Pataki called for 40% of all the vehicles on the roads in 2020 to be electric vehicles. His numbers are significantly higher than anyone else expects to see and probably much higher than is feasibly possibly, but he insists that anything less may indeed be a failure.
As Pataki told AutoBlogGreen reporter Sebastian Blanco in an interview, "It is an ambitious goal, but I also think it is achievable. The key here is to end our over reliance on foreign oil, and to do that we need to break the transportation monopoly of petroleum products providing fuel, which is currently the case. One of the best ways, I believe, technologically and from a market standpoint, to do that is through electric vehicles and plug-in hybrid vehicles."
Now we agree with Pataki's statement that EVs are certainly a key way to eliminate our dependence on foreign oil, but it's unlikely to happen as fast as he would like to see. Simply put, 2020 is only 10 years away and that short time frame causes problems with the goals of Pataki.
First, automakers will not be able to produce the millions of EVs and plug-in hybrids needed to replace 40% of the cars on the roads today in such a short time frame. Second, many cars purchased today will certainly be on the roads for more than ten years and the bulk majority of those vehicles are gasoline powered.
Pataki refers to Apple and their success with the iPod. He states that if one company can effectively wipe out CD sales in just ten years, then several automakers workings together could greatly reduce sales of gasoline vehicles in ten years. The statement ignores the fact that iPods cost a little over $100 and buyers may be willing to risk that amount of money whereas EVs cost around $30,000 and that's a much more significant risk and commitment on behalf of buyers.
It's widely believed that EVs will gain market share in the coming years, but most analysts predict that it will be a slow going process over the course of several decades.
Source: AutoBlogGreen
http://www.allcarselectric.com/blog/1042327_former-ny-governor-calls-for-40-of-vehicles-on-roads-by-2020-to-be-electric
NYDN: Disaster Ahead? 5000 NYers pay 40% of Taxes to NYC:
Countdown to disaster: Albany keeps ducking hard budget choices
Saturday, February 6th 2010, 4:00 AM
Legislature now stands between New Yorkers and severe damage to the quality of life.
With each day, the state and city governments sink ever deeper into financial ruin because of plummeting tax collections. Paterson's two-week-old plan for balancing the books is suddenly short by an additional $1 billion. And the Metropolitan Transportation Authority has watched $350 million simply evaporate.
Paterson and the Legislature would produce dire consequences should they hold to their traditional approaches to budget balancing.
They would:
• Force the NYPD to lay off 3,150 cops, a move that would likely reverse the city's hard-won victories over crime.
• Drive the schools to lay off 8,500 teachers, pushing up class sizes and threatening to reverse student achievement gains of the last five years.
• Compel astronomical hikes in subway and bus fares, and deep service cuts.
• Close firehouses, increasing response times to emergencies.
• Shutter libraries that are already cutting back hours in Manhattan and Queens.
And worse and worse.
America's Great Recession and the damage done to Wall Street have dealt powerful, long-term blows to New York's economy and, with it, tax revenue. As a result, Albany has no choice but to reduce expenses.
Paterson proposed a budget that did so by inflicting all the above horrors - before he lost that $1 billion and before the MTA went $350 million deeper into the hole. So now what?
The public employee unions have begun to call for tax hikes. New York State United Teachers, for one, has urged imposition of a levy on stock transfers with the goal of raising $3 billion annually. This would be reckless insanity. The tax would drive out stock trading, irreparably weakening New York City as the world capital of finance.
As for other levies, there will undoubtedly be a push for a new round of a so-called millionaire's levy. This, too, would be destructively nuts.
New Yorkers who make more than $250,000 now pay combined city and state taxes at the highest effective rate in more than 30 years. And President Obama has targeted these top earners for a new federal hit in the elimination of President George W. Bush's excessive tax cuts.
Adding to the state burden would create an incentive for some to leave New York - with all their tax payments.
Lest you say, "Let them go," consider the following astounding statistics: Of 3.7 million tax filers in the five boroughs, the top 5,000 accounted for almost 40% of all the income taxes paid to the city. Meanwhile, half of those 3.7 million filers have been fully exempted from local income tax because their wages fall below the taxable limit.
That's progressive taxation, and it's the right policy. But when a city of 8 million is so dependent on revenue from a mere 5,000 people, you can't afford to lose any of them.
What's urgently needed is a budget that moves New York toward fundamentally reforming its expenses - in particular, the cost of workforces whose pensions and benefits far exceed those in the private sector and who remain, even now, in line for annual pay hikes of 4% a year.
The tradeoff is clear. Invest the money there or in maintaining public safety, education and transportation. This is not a close call.
Read more: http://www.nydailynews.com/opinions/2010/02/06/2010-02-06_countdown_to_disaster.html#ixzz0ezXPT3e8
COMMENTS:
Ex New Yorker
12:07:04 PM
Feb 7, 2010
Hey randj, if you lined up every wealthy person in NY and literally took every dollar and asset they owned, it would still only pay for a fraction of what NY pays its municipal unions in salary and benefits. Don't you get it? NY is broke and its tax base has voted with it's feet. They're NOT COMING BACK. Since 2000, 1.3 million NY'ers with an average annual salary of $90K have relocated; only to be replaced by 1.4 million people whose average annual salary is $40K. Do the freakin math! Margaret Thatcher was right. The problem with socialist governments is that eventually they run out of other people's money.
Ex New Yorker
12:13:51 PM
Feb 7, 2010
VotersOfNY is right on the money. I know someone who swept train stations for the MTA. During his last 3 years before retirement, he was allowed to work 3 SHIFTS! That's right, 3 FREAKIN SHIFTS! His third shift was spent sleeping in the Rockaway Park 116th Street Train Station MTA Locker Room. He retired with a pension between $70K and $80K.... almost twice what his base salary was. This has been a standard practice for decades. You want to know why so many people are anti-union? Get real! This is exactly the kind of practice that unions have gotten away with for so long that has literally bankrupted NYC. Wake the ***** up!
12:40:31 PM
Feb 7, 2010
Hey Randij as you seem to have declared yourself the champion of the middle class (that segment of it that work for the city or state anyway) explain to me how it is fair that an $60,000 civil service pension is exempt from NYC/NYS income tax while a $40,000 private sectoe pension is not?
VotersOfNY
11:28:48 PM
Feb 6, 2010
MTA employees are eating the MTA from the inside out with their salaries and pension. Of the top five highest paid employees, TWO of them are car repairmen. One made $283,000 in 2008. That’s only $7,000 less than the HEAD of the MTA. Another car repairman made $275,000. They both have base salaries of $63,000. Are there even enough hours in a year to make that much overtime? If these guys are near retirement, their pensions will be more than DOUBLE their regular salaries. There’s also a car inspector in the top five who made $276,500 with a base salary of $71,600. LIRR conductors and engineers (they drive the trains) are making about $150,000 a year with base salaries of $73,000 a year. A few of them are over $200,000 a year. NYPD cops would quit their jobs in a second to be a cop on the LIRR or Metro North. They make around $150,000 and more. This is why MTA needs to raise the rates all the time. This has been reported many times and no one seems to be able to do anything about
.
Read more: http://www.nydailynews.com/opinions/2010/02/06/2010-02-06_countdown_to_disaster.html#ixzz0ezYZ8z9X
Crains: NYC Businesses face 59% increase in MTA Payroll Tax
Guv: Fill MTA budget hole by hiking payroll tax in city
Paterson pitches 59% increase in NYC's new business payroll tax to help MTA close its latest budget shortfall. Businesses in suburbs would see MTA payroll taxes cut in half.
By Erik Engquist
February 08, 2010 6:23 PM
Crains NY Business
New York City businesses face a 59% increase in the Metropolitan Transportation Authority payroll tax under a proposal unveiled Monday by Gov. David Paterson. Suburban businesses' tax would be halved.
The plan drew an immediate rebuke from a major city business group. New York City Partnership President Kathryn Wylde said her group supported the creation of the tax a year ago but that an increase from the current 0.34% of payroll “cannot be justified unless the MTA gets better control of spending and improves its contracting and procurement processes.”
She added, “It's not fair that we should have a tax almost double, and the suburban counties that substantially benefit from our economy have a significant cut.”
The proposal would raise another $230 million next year for the MTA—not enough to restore any of the service cuts recently proposed by the agency. Since those cuts were announced in response to revenue shortfalls, another $400 million hole has appeared in the agency's budget, mostly because revenues from the payroll tax have come in far lower than expected.
“It's good to see a proposal on the table, but this last year has proven that new taxes aren't like taking money out of the ATM,” said Wiley Norvall, a spokesman for Transportation Alternatives, a pro-transit advocacy group. “If we keep putting all our eggs in this recession-sensitive basket, we could easily get burned yet again.”
The governor wants to increase the tax to 0.54% of payroll for businesses in the five boroughs. In the rest of the MTA's 12-county region, the tax would be reduced to 0.17%.
The tax has generated vociferous complaints in the lower Hudson Valley, where businesses do not believe they should be taxed at the same rate as those who rely more heavily on mass transit. There have also been complaints from Long Island, particularly from Suffolk County businesses. The tax affects nonprofit and government payrolls as well.
Under the proposal, city businesses would contribute 88% of mobility tax revenues, up from 70%. “This will ensure a more equitable distribution of tax liability in line with the fact that New York City is the destination for over 90% of weekday ridership,” the governor's press release stated.
Supporters of the tax argue that the flat rate is justified because the seven MTA counties outside of the city benefit greatly from the mass transit system even if they do not use it as much. The system powers the city economy, which generates billions more in tax revenues for the state than the city receives back in services every year.
Also, many residents of the suburbs north and east of the city use Metro-North and the Long Island Rail Road, respectively, to get to work. These systems receive per-ride subsidies much greater than the city subway and bus systems do. If all suburban riders had to drive to work, roads in Long Island and the northern suburbs would be jammed with vehicles.
“Most MTA revenue sources are regional in nature, not tiered, so this [proposal] could set a dangerous precedent,” said Kate Slevin, executive director of the Tri-State Transportation Committee, an advocacy group. “The MTA benefits the entire regional economy and environment. Air pollution and economic benefits don't magically stop at the Westchester County line.”
The governor's proposal requires approval from the state Legislature, which is far from certain. He has few allies and little influence in the Legislature, which he has been castigating for months over its failure to reduce state spending. Also, state legislators representing the city are likely to balk at an increase in their constituents' tax while neighboring counties get a 50% reduction.
Mr. Paterson's plan calls for self-employed individuals and partners with income below $100,000 to be exempt from the tax, up from the current threshold of $10,000. The change would exempt 400,000 more small businesses.
http://www.crainsnewyork.com/article/20100208/FREE/100209883
BL: Paterson Proposes Raising NYC Payroll Tax to Aid MTA (Update1)
February 08, 2010, 06:11 PM EST
(Adds bond rating cut in fifth paragraph.)
By Martin Z. Braun
Feb. 8 (Bloomberg) -- New York Governor David Paterson proposed changes to a payroll tax aimed at assisting the Metropolitan Transportation Authority, saying it would restore about $230 million in revenue this year to the cash-strapped transit agency.
Paterson, a Democrat, recommended raising a so-called mobility tax on New York City businesses to 0.54 percent from 0.34 percent, while cutting in half the tax on businesses in seven counties outside New York City to 0.17 percent. The proposal would increase the percentage of tax receipts coming from New York City businesses to 88 percent from 70 percent and raise projected revenue to $1.54 billion from $1.31 billion.
“The new proposal I am putting forward will provide relief to straphangers, as the MTA makes the difficult decisions necessary to balance its budget during an historic fiscal crisis,” Paterson said in a news release today. “It also makes key improvements to the current tax structure, promoting regional equity and delivering relief to small businesses.”
Paterson’s proposal comes less than a week after the MTA disclosed in a bond offering statement that it may collect $350 million less this year from the tax, which was adopted by the state Legislature in May as part of a rescue plan for the busiest U.S. transit agency. The state blamed the gap on the recession and compliance problems with the new tax.
Ratings Cut
The disclosure led Moody’s Investors Service on Feb. 3 to cut its rating on $12.6 billion of the MTA’s transportation revenue bonds one level to A3, the fourth-lowest investment grade, from A2.
New York City is the destination of 90 percent of the MTA’s weekday ridership.
In addition to the payroll tax gap in 2010, the MTA last week said it expected payroll tax deficits of as much as $200 million annually starting in 2011. Paterson said his proposal, which will be included in amendments to his fiscal 2011 budget, would restore the $200 million.
Paterson’s plan would exempt individuals and partners with income below $100,000 from the tax, up from the current level of $10,000. The move would let an additional 400,000 small businesses avoid the tax, he said.
Jeremy Soffin, an MTA spokesman, didn’t immediately respond to a request for comment.
Dean Skelos, a Nassau County Republican and minority leader of the state Senate, said in a press release today that the “job killing” payroll tax should be scrapped completely.
--Editors: Mark Tannenbaum, Walid el-Gabry
To contact the reporter on this story: Martin Z. Braun in New York at +1-212-617-6849 or mbraun6@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at +1-212-617-1962 or mtannen@bloomberg.net.
http://www.businessweek.com/news/2010-02-08/new-york-s-paterson-proposes-raising-nyc-payroll-tax-to-aid-mta.html
FT: Palin says US ‘ready for another revolution’
(this was the #1 "Most Popular" story on the FT front page)
By Edward Luce in Washington
Published: February 7 2010 20:55 | Last updated: February 7 2010 20:55
Sarah Palin, the former US presidential running-mate, on Sunday hinted strongly she was preparing a 2012 presidential bid and suggested that Barack Obama needed to take radical steps, such as going to war with Iran, to boost his chance of winning a re-election.
Ms Palin’s comments to Fox News Sunday followed a provocative speech on Saturday to the Tea Party Convention in Nashville.
Amid chants of “Run, Sarah, run”, Ms Palin told the Nashville audience: “America is ready for another revolution and you are part of this.”
The former governor of Alaska also mocked the president as a “charismatic guy with a tele-prompter” and accused him of being a “professor of law at a lecture” rather than the US commander-in-chief.
However, it was Ms Palin’s comments about Mr Obama on Sunday that are likely to cause most controversy. “Things would dramatically change if he [Mr Obama] decided to toughen up and do all that he can to secure our nation and our allies,” she told Fox.
“Say he decided to declare war on Iran, or decided to really come out and do whatever he could to support Israel, which I would like him to do.”
Pressed on whether she would run in 2012, she said: “I would if I believe that that is the right thing to do for our country and for the Palin family.”
However, Ms Palin, who took a fee of $100,000 (€71,400, £62,500) for the speech, which she said she would donate to the “cause”, has also hinted that her association with the Tea Party movement, a large chunk of which boycotted the Nashville convention because it charged $549 a ticket, could open the way to a third-party candidacy along the lines of Ross Perot’s 1992 and 1996 presidential bids. “You’ve got both party machines running scared,” she said.
She also promised to support primary challenges to unseat sitting Republican office-holders who were part of the “establishment”.
Ms Palin’s advice for Mr Obama to attack Iran grew out of strong criticisms of the president’s handling of the “war on terror” and, in particular, the decision to bring Umar Farouk Abdulmutallab, the Nigerian alleged to have attempted to blow up an aircraft on Christmas day, into civilian detention, which gave him the right to remain silent.
Many other conservatives, including Dick Cheney, the former vice-president, attacked the decision as showing weakness and forgoing an opportunity to get more information out of Mr Adbulmutallab. However, officials say that Mr Abdulmutallab has been co-operating with interrogators. John Brennan, Mr Obama’s counterterrorism adviser, said on Sunday that he had informed four senior Republican lawmakers of the decision on Christmas day and none had objected.
In an article in this week’s New Yorker magazine, Jane Mayer writes that of the 153 terrorists convicted in the US since September 11 2001, 150 were convicted in civilian criminal courts, almost all under George W. Bush, the former president.
Bradford Berenson, a White House lawyer for Mr Bush, told Ms Mayer: “From the perspective of a hawkish Bush national security person, the glass is 85 per cent full in terms of continuity [between Obama and Bush].”
http://www.ft.com/cms/s/0/6395e3fc-1427-11df-8847-00144feab49a.html
FT: Debt troubles hit central Europe
By Jan Cienski in Warsaw and Chris Bryant in Vienna
Published: February 5 2010 18:46 | Last updated: February 5 2010 18:46
Central European currencies softened and stock markets dropped on Friday as the region’s financial community reacted to the troubles experienced by the debt-laden economies of Greece, Portugal and Spain, but the overall impact of the turmoil in the eurozone was smaller than expected.
Unlike a year ago, when the region had been seen in danger of a meltdown due to the global economic crisis, investor interest in the more solid economies of central Europe such as Poland and the Czech Republic remained strong.
The Warsaw stock exchange's broad WIG index was down 3.29 per cent on Friday while the Prague exchange fell by 3.6 per cent. The zloty fell by 0.42 per cent to 4.09 against the euro.
Euro-denominated bonds were still in demand and Polish credit default swaps were 149 basis points, or $149,000 to insure $10m debt annually over five years, more than half of Greece, while Spain was 161bp. The Czech Republic was at 87bp, more or less the same as the UK, a G7 country.
“We are a safe haven,” said Dominik Radziwill, Poland’s deputy finance minister, who helped place a €3bn 15-year bond issue last month. “We have become an alternative for investors who are looking at the periphery of Europe. We can see an increase in interest on the part of foreign investors in Polish debt.”
A key reason for the muted market response was that investors had learnt to differentiate the countries of the region, said Lars Christensen, emerging markets economist with Danske Bank.
“The high quality central European countries like Poland and the Czech Republic look significantly better than Greece, Spain or Portugal,” he said.
Poland was the only EU country to not fall into recession last year, reporting growth of 1.7 per cent. The government is predicting growth of 3 per cent in 2010, with the deficit at 6.9 per cent of gross domestic product and public debt near 55 per cent of GDP. It is particularly attractive for investors because interest rates are higher than in the euro-zone and the zloty is expected to continue strengthening after the tumble it took following the collapse of Lehman Brothers in September 2008.
The Czech Republic, which has the most solid banking sector in the region, reported a contraction of 3.9 per cent in 2009, while growth of 1.3 per cent is forecast for this year. The deficit for 2010 is expected to be about 5.3 per cent of GDP.
Market confidence in Hungary and Romania – both IMF aid recipients – has also increased but significant political and fiscal risks remain, with Mr Christensen saying that those economies face the greatest jeopardy of contagion from western Europe.
Hungary successfully issued $2bn of ten-year debt last month after finance minister Peter Oszko told the Financial Times that the country no longer required assistance from the IMF’s €20bn programme.
The forint gained about 15 per cent after a technocratic government took over last April and promised to cut Hungary’s budget deficit to 3.9 per cent last year, among the most frugal budgetary targets in the European Union.
However, investors remain concerned about national elections in April that are likely to return the opposition Fidesz party to power.
Fidesz has warned that this year’s budget deficit could be around twice as high as the current government’s target of 3.8 per cent, which the IMF has said it will not tolerate.
Government debt is in any case expected to reach 80 per cent of GDP this year.
The perception of risk in Romania has improved markedly since January, when parliament passed a budget, allowing the IMF and European Union to unblock more than €3bn in financial assistance.
Romania’s new government has frozen public sector wages and pensions in order to cut the deficit to 5.9 per cent in 2010, from 7.3 per cent last year.
.Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
http://www.ft.com/cms/s/0/9925fa96-127b-11df-a611-00144feab49a.html
FT: Traders make $8bn bet against euro
Record number of short positions in wake of debt crisis
Published: February 8 2010 11:48 | Last updated: February 8 2010 19:03
Traders and hedge funds have bet nearly $8bn (€5.9bn) against the euro, amassing the biggest ever short position in the single currency on fears of a eurozone debt crisis.
Figures from the Chicago Mercantile Exchange, which are often used as a proxy of hedge fund activity, showed investors had increased their positions against the euro to record levels in the week to February 2.
The build-up in net short positions represents more than 40,000 contracts traded against the euro, equivalent to $7.6bn. It suggests investors are losing confidence in the single currency’s ability to withstand any contagion from Greece’s budget problems to other European countries.
Amid growing nervousness in financial markets over whether countries including Spain and Portugal can repair their public finances, Madrid on Monday launched a PR offensive to try to assuage investors’ fears.
Elena Salgado, Spanish finance minister, and José Manuel Campa, her deputy, flew to London to meet bondholders.
They sought to allay doubts about Spain’s creditworthiness by repeating promises to cut its budget deficit to 3 per cent of gross domestic product by 2013 from 11.4 per cent last year. “We’ll make the adjustment that’s necessary,” Mr Campa said. But their disclosure that the treasury planned to raise a net €76.8bn through debt issuance this year unsettled markets further. The projected sum to be raised was lower than the €116.7bn of 2009 but higher than many investors had expected.
The news sent yields on Spanish government bonds, which have an inverse relationship with prices, sharply higher. The premium demanded by investors to hold the country’s debt over German bunds rose to 1 percentage point.
The Spanish government is convinced it is being unfairly treated by foreign investors and the media. José Blanco, Spain’s public works minister, hit out at “financial speculators” for attacking the euro and criticised “apocalyptic commentaries” about Spain’s finances.
Appealing for patriotism, Mr Blanco said in a radio interview: “Nothing that is happening in the world, including the editorials of foreign newspapers, is casual or innocent.”
The single currency fell to an eight-month low of $1.3583 on Friday but recovered a little on Monday to $1.3683. Analysts said sentiment towards the euro had soured because of the increasing concern over Greece’s fiscal problems.
Thomas Stolper, economist at Goldman Sachs, said: “ Behind this intense focus on Greece obviously is the long-standing unresolved issue of how to enforce fiscal discipline in a currency union of sovereign states.”
.Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
http://www.ft.com/cms/s/0/0330ba78-149f-11df-9ea1-00144feab49a.html
>>Electric Cars Materials and Resources Demand
Commodities / Metals & Mining
Feb 08, 2010 - 09:25 AM
By: Richard_Shaw
If electric cars are adopted by the market in the US and abroad, there will be a shift in the relative demand growth rate for certain basic materials.
While global population growth and average global standard of living increases will raise overall materials demand across the board, a move toward electric cars, particularly plug-in electric cars, will change the composition of basic materials demand growth.
What are some of those materials that will be impacted and in what direction will the relative demand growth shift?
Aluminum relative demand may increase in the drive to create lighter vehicles to increase battery driving range.
Coal relative demand may increase due to the increased demand for electric power plant output for plug-in electric vehicles (coal being a major energy source for electricity generation).
Copper relative demand may increase due to the high copper content of electric motors used to power the wheels of electric cars.
Corn relative demand may decrease due to the reduced use of liquid fuels, of which ethanol is a component, and for which corn is an important feedstock.
Natural gas relative demand may increase due to increased demand for electric power plant output for plug-in electric vehicles (gas being a major energy source of electricity generation).
Lead relative demand may increase due to possible increased use of lead-based batteries in some electric vehicles, but may be relatively flat if other metals are the battery base of choice.
Lithium relative demand may increase due to the use of lithium in some percentage of electric car battery systems.
Nickel relative demand may increase due to the use of nickel-based batteries in some percentage of electric car battery systems, but may be relatively flat due to possible preference for other battery materials.
Oil relative demand may decrease due to lower demand for gasoline for which electricity would be the substitute.
Platinum relative demand may decrease due to smaller catalytic converters, or due to a lower rate of replacement, as a result of lower average gasoline consumption per driven mile per vehicle.
Uranium relative demand may increase due to the increased demand for electric power plant output for plug-in electric vehicles (uranium being a significant energy source for electricity generation, particularly in some countries).
Zinc relative demand may increase due to the use of zinc-based batteries in some percentage of electric car battery systems, but may be relatively flat due to possible preference for other battery materials.
These materials can be reached by investors through one or more of futures contracts, exchange traded funds, exchange traded notes, and individual stocks. This chart shows the markets on which the futures are traded, the symbol for closely related ETFs or ETNs, the symbol for related indexes available at StockCharts.com, and the symbol for a closely related individual stock, in those cases where futures, ETFs or ETNs are not available.
None of the above are recommendations for purchase or sale at this time. They are merely reference indexes, securities or futures markets for long-term consideration of the electric car theme and its impact on relative demand growth for certain basic materials. This article also makes no representation as to the timing or degree of market adoption of electric vehicles. That is a separate consideration. This is about a possible long-term electric vehicle theme and what may happen to basic materials relative demand growth rates IF electric vehicles gain wide acceptance and use.
Holdings Disclosure: As of January 28, 2010, we do not have positions in any securities discussed in this document in any managed account.
Disclaimer:
Opinions expressed in this material and our disclosed positions are as of January 28, 2010. Our opinions and positions may change as subsequent conditions vary. We are a fee-only investment advisor, and are compensated only by our clients. We do not sell securities, and do not receive any form of revenue or incentive from any source other than directly from clients. We are not affiliated with any securities dealer, any fund, any fund sponsor or any company issuer of any security. All of our published material is for informational purposes only, and is not personal investment advice to any specific person for any particular purpose. We utilize information sources that we believe to be reliable, but do not warrant the accuracy of those sources or our analysis. Past performance is no guarantee of future performance, and there is no guarantee that any forecast will come to pass. Do not rely solely on this material when making an investment decision. Other factors may be important too. Investment involves risks of loss of capital. Consider seeking professional advice before implementing your portfolio ideas.
By Richard Shaw
http://www.qvmgroup.com
Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.
Copyright 2006-2010 by QVM Group LLC All rights reserved
http://www.marketoracle.co.uk/Article17094.html
STRATFOR: Gulf Defensive Buildup In Advance of Attack on Iran?
Politics / Middle East
Feb 04, 2010 - 12:45 AM
By: STRATFOR
This weekend’s newspapers were filled with stories about how the United States is providing ballistic missile defense (BMD) to four countries on the Arabian Peninsula. The New York Times carried a front-page story on the United States providing anti-missile defenses to Kuwait, the United Arab Emirates, Qatar and Oman, as well as stationing BMD-capable, Aegis-equipped warships in the Persian Gulf. Meanwhile, the front page of The Washington Post carried a story saying that “the Obama administration is quietly working with Saudi Arabia and other Persian Gulf allies to speed up arms sales and rapidly upgrade defenses for oil terminals and other key infrastructure in a bid to thwart future attacks by Iran, according to former and current U.S. and Middle Eastern government officials.”
Obviously, the work is no longer “quiet.” In fact, Washington has been publicly engaged in upgrading defensive systems in the area for some time. Central Command head Gen. David Petraeus recently said the four countries named by the Times were receiving BMD-capable Patriot Advanced Capability-3 (PAC-3) batteries, and at the end of October the United States carried out its largest-ever military exercises with Israel, known as Juniper Cobra.
More interesting than the stories themselves was the Obama administration’s decision to launch a major public relations campaign this weekend regarding these moves. And the most intriguing question out of all this is why the administration decided to call everyone’s attention to these defensive measures while not mentioning any offensive options.
The Iranian Nuclear Question
U.S. President Barack Obama spent little time on foreign policy in his Jan. 27 State of the Union message, though he did make a short, sharp reference to Iran. He promised a strong response to Tehran if it continued its present course; though this could have been pro forma, it seemed quite pointed. Early in his administration, Obama had said he would give the Iranians until the end of 2009 to change their policy on nuclear weapons development. But the end of 2009 came, and the Iranians continued their policy.
All along, Obama has focused on diplomacy on the Iran question. To be more precise, he has focused on bringing together a coalition prepared to impose “crippling sanctions” on the Iranians. The most crippling sanction would be stopping Iran’s gasoline imports, as Tehran imports about 35 percent of its gasoline. Such sanctions are now unlikely, as China has made clear that it is not prepared to participate — and that was before the most recent round of U.S. weapon sales to Taiwan. Similarly, while the Russians have indicated that their participation in sanctions is not completely out of the question, they also have made clear that time for sanctions is not near. We suspect that the Russian time frame for sanctions will keep getting pushed back.
Therefore, the diplomatic option appears to have dissolved. The Israelis have said they regard February as the decisive month for sanctions, which they have indicated is based on an agreement with the United States. While previous deadlines of various sorts regarding Iran have come and gone, there is really no room after February. If no progress is made on sanctions and no action follows, then the decision has been made by default that a nuclear-armed Iran is acceptable.
The Americans and the Israelis have somewhat different views of this based on different geopolitical realities. The Americans have seen a number of apparently extreme and dangerous countries develop nuclear weapons. The most important example was Maoist China. Mao Zedong had argued that a nuclear war was not particularly dangerous to China, as it could lose several hundred million people and still win the war. But once China developed nuclear weapons, the wild talk subsided and China behaved quite cautiously. From this experience, the United States developed a two-stage strategy.
First, the United States believed that while the spread of nuclear weapons is a danger, countries tend to be circumspect after acquiring nuclear weapons. Therefore, overreaction by United States to the acquisition of nuclear weapons by other countries is unnecessary and unwise.
Second, since the United States is a big country with widely dispersed population and a massive nuclear arsenal, a reckless country that launched some weapons at the United States would do minimal harm to the United States while the other country would face annihilation. And the United States has emphasized BMD to further mitigate — if not eliminate — the threat of such a limited strike to the United States.
Israel’s geography forces it to see things differently. Iranian President Mahmoud Ahmadinejad has said Israel should be wiped off the face of the Earth while simultaneously working to attain nuclear weapons. While the Americans take comfort in the view that the acquisition of nuclear weapons has a sobering effect on a new nuclear power, the Israelis don’t think the Chinese case necessarily can be generalized. Moreover, the United States is outside the range of the Iranians’ current ballistic missile arsenal while Israel is not. And a nuclear strike would have a particularly devastating effect on Israel. Unlike the United States, Israel is small country with a highly concentrated population. A strike with just one or two weapons could destroy Israel.
Therefore, Israel has a very different threshold for risk as far as Iran is concerned. For Israel, a nuclear strike from Iran is improbable, but would be catastrophic if it happened. For the United States, the risk of an Iranian strike is far more remote, and would be painful but not catastrophic if it happened. The two countries thus approach the situation very differently.
How close the Iranians are to having a deliverable nuclear weapon is, of course, a significant consideration in all this. Iran has not yet achieved a testable nuclear device. Logic tells us they are quite far from a deliverable nuclear weapon. But the ability to trust logic varies as the risk grows. The United States (and this is true for both the Bush and Obama administrations) has been much more willing to play for time than Israel can afford to be. For Israel, all intelligence must be read in the context of worst-case scenarios.
Diverging Interests and Grand Strategy
It is also important to remember that Israel is much less dependent on the United States than it was in 1973. Though U.S. aid to Israel continues, it is now a much smaller percentage of Israeli gross domestic product. Moreover, the threat of sudden conventional attack by Israel’s immediate neighbors has disappeared. Egypt is at peace with Israel, and in any case, its military is too weak to mount an attack. Jordan is effectively an Israeli ally. Only Syria is hostile, but it presents no conventional military threat. Israel previously has relied on guarantees that the United States would rush aid to Israel in the event of war. But it has been a generation since this has been a major consideration for Israel. In the minds of many, the Israeli-U.S. relationship is stuck in the past. Israel is not critical to American interests the way it was during the Cold War. And Israel does not need the United States the way it did during the Cold War. While there is intelligence cooperation in the struggle against jihadists, even here American and Israeli interests diverge.
And this means that the United States no longer has Israeli national security as an overriding consideration — and that the United States cannot compel Israel to pursue policies Israel regards as dangerous.
Given all of this, the Obama administration’s decision to launch a public relations campaign on defensive measures just before February makes perfect sense. If Iran develops a nuclear capability, a defensive capability might shift Iran’s calculus of the risks and rewards of the military option.
Assume, for example, that the Iranians decided to launch a nuclear missile at Israel or Iran’s Arab neighbors with which its relations are not the best. Iran would have only a handful of missiles, and perhaps just one. Launching that one missile only to have it shot down would represent the worst-case scenario for Iran. Tehran would have lost a valuable military asset, it would not have achieved its goal and it would have invited a devastating counterstrike. Anything the United States can do to increase the likelihood of an Iranian failure therefore decreases the likelihood that Iran would strike until they have more delivery systems and more fissile material for manufacturing more weapons.
The U.S. announcement of the defensive measures therefore has three audiences: Iran, Israel and the American public. Israel and Iran obviously know all about American efforts, meaning the key audience is the American public. The administration is trying to deflect American concerns about Iran generated both by reality and Israel by showing that effective steps are being taken.
There are two key weapon systems being deployed, the PAC-3 and the Aegis/Standard Missile-3 (SM-3). The original Patriot, primarily an anti-aircraft system, had a poor record — especially as a BMD system — during the first Gulf War. But that was almost 20 years ago. The new system is regarded as much more effective as a terminal-phase BMD system, such as the medium-range ballistic missiles (MRBMs) developed by Iran, and performed much more impressively in this role during the opening of Operation Iraqi Freedom in March 2003. In addition, Juniper Cobra served to further integrate a series of American and Israeli BMD interceptors and sensors, building a more redundant and layered system. This operation also included the SM-3, which is deployed aboard specially modified Aegis-equipped guided missile cruisers and destroyers. The SM-3 is one of the most successful BMD technologies currently in the field and successfully brought down a wayward U.S. spy satellite in 2008.
Nevertheless, a series of Iranian Shahab-3s is a different threat than a few Iraqi Scuds, and the PAC-3 and SM-3 have yet to be proven in combat against such MRBMs — something the Israelis are no doubt aware of. War planners must calculate the incalculable; that is what makes good generals pessimists.
The Obama administration does not want to mount an offensive action against Iran. Such an operation would not be a single strike like the 1981 Osirak attack in Iraq. Iran has multiple nuclear sites buried deep and surrounded by air defenses. And assessing the effectiveness of airstrikes would be a nightmare. Many days of combat at a minimum probably would be required, and like the effectiveness of defensive weapons systems, the quality of intelligence about which locations to hit cannot be known until after the battle.
A defensive posture therefore makes perfect sense for the United States. Washington can simply defend its allies, letting them absorb the risk and then the first strike before the United States counterstrikes rather than rely on its intelligence and offensive forces in a pre-emptive strike. This defensive posture on Iran fits American grand strategy, which is always to shift such risk to partners in exchange for technology and long-term guarantees.
The Arabian states can live with this, albeit nervously, since they are not the likely targets. But Israel finds its assigned role in U.S. grand strategy far more difficult to stomach. In the unlikely event that Iran actually does develop a weapon and does strike, Israel is the likely target. If the defensive measures do not convince Iran to abandon its program and if the Patriots allow a missile to leak through, Israel has a national catastrophe. It faces an unlikely event with unacceptable consequences.
Israel’s Options
It has options, although a long-range conventional airstrike against Iran is really not one of them. Carrying out a multiday or even multiweek air campaign with Israel’s available force is too likely to be insufficient and too likely to fail. Israel’s most effective option for taking out Iran’s nuclear activities is itself nuclear. Israel could strike Iran from submarines if it genuinely intended to stop Iran’s program.
The problem with this is that much of the Iranian nuclear program is sited near large cities, including Tehran. Depending on the nuclear weapons used and their precision, any Israeli strikes could thus turn into city-killers. Israel is not able to live in a region where nuclear weapons are used in counterpopulation strikes (regardless of the actual intent behind launching). Mounting such a strike could unravel the careful balance of power Israel has created and threaten relationships it needs. And while Israel may not be as dependent on the United States as it once was, it does not want the United States completely distancing itself from Israel, as Washington doubtless would after an Israeli nuclear strike.
The Israelis want Iran’s nuclear program destroyed, but they do not want to be the ones to try to do it. Only the United States has the force needed to carry out the strike conventionally. But like the Bush administration, the Obama administration is not confident in its ability to remove the Iranian program surgically. Washington is concerned that any air campaign would have an indeterminate outcome and would require extremely difficult ground operations to determine the strikes’ success or failure. Perhaps even more complicated is the U.S. ability to manage the consequences, such as a potential attempt by Iran to close the Strait of Hormuz and Iranian meddling in already extremely delicate situations in Iraq and Afghanistan. As Iran does not threaten the United States, the United States therefore is in no hurry to initiate combat. And so the United States has launched a public relations campaign about defensive measures, hoping to affect Iranian calculations while remaining content to let the game play itself out.
Israel’s option is to respond to the United States with its intent to go nuclear, something Washington does not want in a region where U.S. troops are fighting in countries on either side of Iran. Israel might calculate that its announcement would force the United States to pre-empt an Israeli nuclear strike with conventional strikes. But the American response to Israel cannot be predicted. It is therefore dangerous for a small regional power to try to corner a global power.
With the adoption of a defensive posture, we have now seen the U.S. response to the February deadline. This response closes off no U.S. options (the United States can always shift its strategy when intelligence indicates), it increases the Arabian Peninsula’s dependence on the United States, and it possibly causes Iran to recalculate its position. Israel, meanwhile, finds itself in a box, because the United States calculates that Israel will not chance a conventional strike and fears a nuclear strike on Iran as much as the United States does.
In the end, Obama has followed the Bush strategy on Iran — make vague threats, try to build a coalition, hold Israel off with vague promises, protect the Arabian Peninsula, and wait — to the letter. But along with this announcement, we would expect to begin to see a series of articles on the offensive deployment of U.S. forces, as good defensive posture requires a strong offensive option.
By George Friedman
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http://www.marketoracle.co.uk/Article16995.html
Mish: Australian Housing Bubble About to Burst, Market About to Crash
Housing-Market / Austrailia
Feb 03, 2010 - 12:47 AM
By: Mike_Shedlock
Today the Reserve Bank of Australia (RBA) unexpectedly held interest rates at 3.75%. No doubt this was in fear of the Australia's enormous housing bubble that exceeds the height of the bubble that long ago burst in the US. 20 economists predicted the RBA would hike. Not a single one predicted anything else.
Fear in the board of governors over the pending crash is palpable. Prime Minister Kevin Rudd did not learn a single thing from the US and the disastrous policies of Greenspan. He gave one last goose to the housing market with $14,000 tax credits in a foolish attempt to stem the tide of the global recession that started two years ago.
Prime Minister Rudd brags about Australia's ability to duck the recession. It did not work. All Rudd did was delay the inevitable, fueling an even bigger housing bubble. The bigger the bubble, the bigger the crash, and rest assured Australia is headed for a housing crash.
Here are a few snips from the Bloomberg article Australia Unexpectedly Keeps Interest Rate at 3.75%.
MO: Stock Market Massive Head and Shoulders Bearish Price Pattern
Stock-Markets / Stocks Bear Market
Feb 08, 2010 - 02:31 PM
Market Oracle.uk
By: Captain_Hook
Major stock market indices put in outside weekly reversals last week, which is a bearish technical indication the intermediate-term trend may have finally rejoined the primary forces that would see prices far lower were it not for official intervention. And although this intervention is now getting talked about in the press in a more intelligent fashion, even if only on a very limited basis, it should be understood most remain oblivious to what makes the stock market world go round
Of course while better than nothing in terms of enlightening the masses, at the same time it should also be understood that such accounts never present a comprehensive explanation of what causes prices to trend (meaning intelligent speculation is still possible), with the attached above yet another example of this, offering no discussion on investor sentiment, cycles, and so on. The aspiration Mr. Biderman ultimately comes to, that the low volume ‘jam job’ government price managers have engineered is likely a ‘ticking time bomb’, is correct; however such an account is still lacking, and far too late for those unfortunate and unaware speculators who have already been ravaged by such activities.
And it’s likely fair to say it’s also far too late for Obama to repair his image as well, and that of his administration, even if Geithner is replaced by Paul Volker for the State Of the Union Speech on Wednesday, which is the rumor. Obama, being a particularly self-centered political neophyte, will do anything to keep his approval ratings up, including attempting to steer negative public sentiment towards vulnerable key members of his administration apparently. While this may appease the mob temporarily, in the end, because he is essentially attempting to keep a spoiled child happy, which wouldn’t work even if the economy were to recover (which it won’t), such efforts will of course fail, like those taken to steer various markets (precious metals, stocks, etc.). Speaking of this, and the Fed’s central role in official market rigging activities under the guise of being necessary in terms of Working Group activities, here, even if Bernanke gets reappointed this week it won’t matter either, not in terms of the inflation / deflation debate. Stocks, in their lead role in keeping things ‘glued together’ will fall in spite of the Fed’s best efforts no matter who is in charge when speculators change their betting habits, which we know from our work is now happening.
That’s right, it’s happening right now according to our sentiment tudies, where update US Index open interest put / call ratio distributions are suggestive speculators are now buying the dip (weakness) once again, meaning the ratios should begin falling and remain low as prices continue to fall. This is exactly the same thing that happened at the top in 2000 as well when the mania finally burst, where the bears simply disappear due to both financial and psychological exhaustion, and the short squeeze in stocks comes to a crashing end. And the bulls, they are all ready for a rebound already, especially since stocks have now met correction targets consistent with previous turns during the squeeze since March of last year. So, although it’s still possible the hedgers squeeze prices back up again with open interest put / call ratios in the SPX, SPY, and NDX still high, and VIX at the lows, it’s important to realize that speculator psychology has turned, evidenced by plunging values in DIA, DJX, MNX, QQQQ, and RUT, which again, means support for prices has become precarious. The OEX has yet to break out of a triangular formation, which also leaves the door open to another squeeze if ratios remain elevated at expiry approaches.
It should be noted that February is a 5-week cycle however, meaning put / call ratios will have little influence on the trade this week, allowing for outside monthly reversals in the major stock market indices to go along with the weekly reversals mentioned above, which would complicate things for the bulls and price managers, especially if volumes continue to increase as selling progresses. What’s more, if Obama actually replaces Geithner this week in an attempt to boost his image and the market falls, not only would this be damaging at face value, but more, it would send the message market participants are worried about Volcker being too aggressive in changing the status quo in reverting back to Glass Steagall Act like policy initiatives. The money center banks are essentially nothing more that mega-hedge fund conglomerates these days, so this type of thing would be viewed as a big negative by the smart money, putting yet another nail in the stock markets coffin to go along with increasing taxes, expanding market controls, and protectionism. And when you add in the changing sentiment picture discussed above, Obama might set the record for officially cooking his own goose this early in his first term with a stock market crash so severe people will still remember in 2012.
The last thing the stock market needs is a cooler (Volcker Rule) right now, where a befuddled and transparent President is seen to be schizophrenic, newly steered by such policy, essentially breaking ranks with the bankers. Such a development would truly be a negative for stocks, which unbeknownst to Mr. Volcker, hard medicine may not turn out the same way as his last exercise in cooling things down. That is to say given the vacuum under stocks, along with the hollowed out economy, that was not the case during his tenure as Fed head (not too mention demographics, stock market participation rates, etc.), like a heroin addict being kept alive on life support he is already dead, making revival later on impossible. You see even if increasing doses of the drug were administered it wouldn’t matter, never mind pulling the plug on the life support machine. So, the turn lower corporate bonds last week, which was right on schedule by our accounts (see Figure 2), should be taken in the appropriate light, especially considering this bubble was the big carry trade for timid but still excessively greedy equity players off the 2009 March lows. All this would make an outside monthly close in stocks predictive in my opinion, not a contrarian play. (See Figure 1)
Figure 1
If this were the case, it would also bring the massive head and shoulders pattern in the Dow, as seen above, into play as well, where it should be noted options distributions offer no pricing support at this time. Apparently Robert Prechter was out last week drawing attention to the similarity between the Dow’s bounce into 1930 and present circumstances, which are in fact almost identical on a percentage and structural basis. If this turned out to be an accurate observation, which might be the case with sentiment beginning to swing in a sympathetic direction to enable such an outcome, according to Pretcher, who is no dummy, the above crash target range would be conservative (his is sub-1,000 on the Dow), as a Grand Super-Cycle Degree event is about to unfold. Certainly macro-circumstances are aligned for such an outcome with demographics and the credit cycle rolling over at the highest level, one leading to the other. People don’t borrow more as they age, but less along with generally developing realistic goals in preparation for retirement. So instead of increasing leveraged speculation they begin to save more, which is a trend the banks are endeavoring to make up for in terms of adding leverage to the system through hedge funds, along with goading the government into destroying its balance sheet as well. This is why just the perception of a Volcker Rule could be so hazardous combined with an untimely shift in sentiment. (See Figure 2)
Figure 2
And that’s why you should take these risks seriously as well. Falling gold is telling you the risk of asset deflation is rising, and although nothing is written in stone as of yet, things could change quickly never the less, where one would do well to remember the last time market / sentiment conditions reflected present extremes, the CBOE Volatility Index (VIX) went to 150, back in 1987. Action causes reaction – where in this case the combined actions of a meddling bureaucracy and complicit mob could be enough to bring Rome to its knees once again, with the most successful modern day cooler in history guiding Presidential policy.
Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our continually improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.
And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.
Good investing all.
By Captain Hook
http://www.treasurechestsinfo.com/
http://www.marketoracle.co.uk/Article17097.html
UKT: Euro under pressure as Greek crisis becomes a 'huge game of chicken'
The euro faced renewed selling in foreign-exchange markets on Monday morning as doubts about the ability of Greece to cut its deficit heaped pressure on the single currency
Published: 6:53AM GMT 08 Feb 2010
The euro fell more than half a cent against the dollar to $1.3630 in early trading and also weakened against sterling, though it had recovered by lunchtime. Analysts expect the currency to stay under pressure as long as uncertainty over whether Greece will need to turn to the European Union or the International Monetary Fund for a bail-out persists.
Greece's spiralling deficit - estimated at 12.7pc of its gross domestic product last year - stands far beyond the 3pc threshold permitted by the rules of European Monetary Union (EMU) and has left the single currency facing its biggest challenge in its short history.
The euro continues to feel the impact of escalating concerns over sovereign credit risk," analysts at UBS said today.
Concern over the abillity of Greece to tackle its deficit spread last week to Spain and Portugal, which have both been hit hard by a severe downturn in the property and construction industries. The prospect of a sovereign debt crisis has been since by investors as a real risk in 2010 because of the fragile global recovery and the huge debts carried by some countries. The cost to the investor of buying insurance against a default by Greece, Spain and Portugal jumped last week, as stock markets across Europe fell.
"It's going to take years to sort out the sovereign balance sheet issue," Mohamed El-Erian, chief executive of Pimco, the world's biggest bond fund manager, said today in Sydney. "Europe has become a huge game of chicken, whereby the Greeks are waiting for help from the outside and donors are waiting for Greece to take a step forward."
Over the weekend, the world's finance ministers moved to reassure investors that the problems in Greece and southern Europe can be contained. Speaking at the end of the G7 meeting in Canada, Tim Geithner, US treasury secretary, told reporters that his European counterparts had assured him that the crisis would be "managed with great care".
"European authorities gave us a very comprehensive review of the programme now in place to address the challenges faced by the Greek economy," Mr Geithner said.
While Greek finance minister George Papaconstantinou said the country would cut its deficit to the 3pc threshold allowed under European economic stability rules by 2012, from an estimated 12.7pc of GDP last year, concern remains whether the Greek public will be able to stomach the austerity measures required. European leaders will meet for crunch meeting in Brussels later this week on Greece.
Alistair Darling, the Chancellor, said that Greece must "stick to its plan" to solve its debt woes and would be "backed" by the eurozone. "We understand collectively that it's in all our interests that countries return to good economic health as soon as they can," he said.
At the G7 meeting:
• Jean-Claude Trichet, president of the European Central Bank, said: "We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal."
• Luxembourg Prime Minister Jean-Claude Juncker, the head of the Eurogroup of finance ministers, stressed that Spain and Portugal posed no risk to eurozone stability.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7183610/Euro-under-pressure-as-Greek-crisis-becomes-a-huge-game-of-chicken.html
I have been waiting for SPG to start to fall for quite a while, maybe gravity finally starting to kick in?
UKT: Toyota recall crisis is threat to 'whole car industry'
Toyota's recall crisis has wiped more than 10pc off the value of the company's brand and could damage the reputation of Japanese car makers for a generation, one of the world's leading brand experts has warned.
By Graham Ruddick, City Reporter (Automotive)
Published: 9:41PM GMT 08 Feb 2010
The verdict comes with the crisis on the brink of being exacerbated by recalls of the Prius hybrid and high-end Lexus marque, two of Toyota 's proudest names.
Brand Finance, which publishes an influential ranking of leading brands, said Toyota's poor handling of the crisis meant it was downgrading the brand from AAA rating and a value of $27bn (£15.4bn), to an A rating and $24bn.
Toyota's brand had been the most valuable in the car industry, according to David Haigh, the chief executive of Brand Finance, but faces "terminal damage" unless the company improves the way it has handled the recall of more than 8m cars.
He added: "The inept way Akio Toyoda and his management team have handled the recent crisis has massively damaged the brand. Machiavelli once said the 'Good news should come out slowly but bad news should come out at once.' Toyota has dribbled out the bad news over a month."
The chief financial officer of Toyota's Japanese rival Honda waded into the turmoil on Monday, claiming the image of all car makers was threatened by the recall.
"I think we should see this Toyota problem from a broader viewpoint," Yoichi Hojo told the Wall Street Journal. "If customers start to harbour doubts, that would be problem for the whole industry."
Toyota cars are being recalled worldwide, including 180,000 in the UK, because of problems with sticking accelerator pedals on a selection of its models.
A potential recall of the Prius because of a potential problem with the braking system could affect 300,000 vehicles. Reports in Japan said on Monday that the recall will be on models sold between last May and January in Japan and the US.
Toyota has insisted it is still investigating the possibility of a problem on the hybrid Prius, after Mr Toyoda, speaking for the first time since the crisis began, said last Friday that he had ordered an examination of the car and that an announcement was imminent.
It is also thought Mr Toyoda may order a recall of the Lexus HS250h, which is not yet on sale in the UK but has sold more than 15,000 units in Japan and the US. Lexus has not been part of the recall so far but there are concerns that the HS250h may, like the Prius, have a software fault that causes problems with the brakes on bumpy or low-grip surfaces.
US authorities are investigating the brake issues and Yoshimi Inaba, chief executive of Toyota Motor North America, will face questioning from a Congressional committee this week. There are thought to have been 124 complaints in the US about the Prius braking system.
http://www.telegraph.co.uk/finance/newsbysector/industry/7191137/Toyota-recall-crisis-is-threat-to-whole-car-industry.html
UKT: Greek Ouzo crisis escalates into global margin call as confidence ebbs
For the third time in 18 months the global financial system risks spinning out of control unless political leaders take immediate and radical action.
By Ambrose Evans-Pritchard
The UK Telegraph
Published: 5:46PM GMT 07 Feb 2010
Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU's refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece's drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.
Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or €208bn (£182bn). Spain is worse at 91pc (€950bn), and Portugal worse yet at 108pc (€177bn); Ireland is 68pc (€123bn), Italy is 23pc, (€347bn). Add East Europe's bubble and foreign debts top €2 trillion.
The scale matches America's sub-prime/Alt-A adventure and assorted CDOs and SIVS of the Greenspan fling. The parallels are closer than Europe cares to admit. Just as Benelux funds and German Landesbanken bought subprime debt for high yield with AAA gloss, they bought Spanish Cedulas because these too had a safe gloss – even though Spain's property boom broke world records. They thought EMU had eliminated risk: it merely switched exchange risk into credit risk.
A fat chunk of Club Med debt has to be rolled over soon. Capital Economics said the share of state debt maturing this year is even higher in Spain (17pc) than in Greece (12pc), though Spain's Achilles' Heel is mortgage debt.
The risk is the EMU version of Mexico's Tequila crisis or Asia's crisis in 1998. This Ouzo crisis is coming to a head just as tougher bank rules cause German lenders to restrict loans, and it touches on the most neuralgic issue of our day: that governments themselves are running low. Britain, France, Japan, and the US are all vulnerable. All must retrench. The great "reflation trade" of 2009 is over.
Far from containing the crisis, Europe's response recalls the Lehman/AIG events of 2008 when Brussels sat frozen, and Germany dragged its feet. On that occasion France took charge, in the nick of time.
Today's events will not wait. The rocketing cost of (CDS) default insurance on Iberian debt speaks for itself. Lisbon retreated from a €500m bond issue last week, even before the government lost a crucial finance vote. Can Athens raise money at all on viable terms?
There are echoes of early 2009 when East Europe blew up, with contagion hitting global bourses, commodities, and iTraxx credit indices. That episode was halted by the G20 deal to triple the IMF's fire-fighting fund to $750bn. The odd twist today is that Greece cannot turn to the IMF because that offends EMU pride, yet no other help is on offer because the EU has no fiscal authority. Greece lies prostrate between two stools.
Both the City and Brussels seem certain that Europe will conjure a rescue, crossing the Rubicon towards fiscal federalism and a debt union. The emergency aid clause of Article 122 is on everybody's lips. Insiders talk of a "Eurobond".
On balance, such a rescue is likely. Yet leaving aside whether North Europe can afford to guarantee Club Med debt – or whether a bail-out pollutes more countries, as HBOS polluted Lloyds – there is one overwhelming fact missing from the debate: Germany has not endorsed any such rescue.
Jurgen Stark, Germany's champion at the European Central Bank, said markets are "deluding themselves" if they think others will pay to save Greece. He shot down Article 122, saying Athens was responsible for its own mess.
Bundesbank chief Axel Weber said it would be "politically impossible" to ask taxpayers to bail out a profligate state. Both the finance and economy ministers have forsworn a rescue. Die Welt has called for Greek withdrawal from the euro.
I cannot judge how much is brinkmanship, pressure to make Club Med sweat. But I remember vividly lunching with the British prime minister's economic adviser in August 1992 and being told that Germany would soon rescue sterling in the Exchange Rate Mechanism by cutting rates. Such was the self-deception of the British elite. Anybody following German politics – such as George Soros– knew it was nonsense.
Germany is harder to read today. The euro is a giant step beyond the ERM. Yet there are powerful counter-currents. Germany's constitutional court issued a crushing put-down of EU pretensions last June, ruling that the sovereign states are "Masters of the Treaties" and that EU bodies lack democratic legitimacy.
So if you are betting that Germany must forever more efface itself for the European Project, be careful. Berlin hawks might prefer to lance the Club Med boil sooner rather than later.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7182739/Greek-Ouzo-crisis-escalates-into-global-margin-call-as-confidence-ebbs.html
I think you'll be ok, lol. You're in good company :)
TBI: The Market Selloff Picks Up Steam, As Investors Find Refuge In Commodities
Vince Veneziani | Feb. 8, 2010, 3:26 PM | 417 | 3
The Dow heads into the red and is currently down around 60 points at the 9950 level. The NASDAQ and S&P are both down about 5 points each.
Commodities remain resilient, with crude oil staying afloat at $71.79 a barrel, up $0.60.
Gold is up $12.60 to $1065.40. Silver is up $0.26 to $15.09 an ounce and has held there for awhile.
Save for natural gas and financials, almost all commodity futures are in the green
http://www.businessinsider.com/market-heads-lower-equities-sink-while-commodities-float-2010-2
TBI: What Happens If Greece Leaves The Eurozone? A Massive Run On The Bank, That's What
Tyler Cowen | Feb. 8, 2010, 11:10 AM | 1,540 |
http://www.businessinsider.com/heres-why-its-impossible-for-greece-to-back-out-of-the-euro-2010-2
From Marginal Revolution:
Talk of Euro abandonment would trigger an immediate run on Greek banks, sending the country into an even deeper hole. Who wants a Euro deposit to be converted into a drachma deposit?
You could imagine keeping current Euro-denominated deposits and adding new drachmas to the system, circulating at a flexible exchange rate. That still might trigger a bank run (who expects the parallel currencies to last forever?). Furthermore the new drachmas would bring seigniorage only if the law forces their overvaluation in some manner; refer back to the earlier discussion of the bank run.
Read the rest at Marginal Revolution -->
Why it's hard for Greece to back out of the Euro
Talk of Euro abandonment would trigger an immediate run on Greek banks, sending the country into an even deeper hole. Who wants a Euro deposit to be converted into a drachma deposit?
You could imagine keeping current Euro-denominated deposits and adding new drachmas to the system, circulating at a flexible exchange rate. That still might trigger a bank run (who expects the parallel currencies to last forever?). Furthermore the new drachmas would bring seigniorage only if the law forces their overvaluation in some manner; refer back to the earlier discussion of the bank run.
You could imagine a surprise freeze on all bank deposits, thereby preventing an immediate bank run but leading to a later bank run. Plus in the meantime there is no working banking system. And if this doesn't come as a true surprise, you end up with the immediate bank run.
What is the chance of a bank run very soon -- if only driven by "sunspots" -- thereby forcing the Greek government to suspend redemption and devalue those deposits, effectively turning them back into drachmas?
Looking to history, there are plenty of countries which break pegs or leave currency zones. But they all seem poor enough, banana republic enough, or insulated from "currency competition" more than a new Greek drachma would be insulated from competition with Euro-denominated banking.
Have I mentioned that currency substitution models do not in general imply stability or well-behaved quantity theory relations?
Can you see any coherent scenarios in which Greece (or other EU countries) can leave the Eurozone? The forcing, immediate bank run is the only option I see and that is not a pretty one. It also implies that the "policy decision" is up to Greek account holders and not up to the Greek government. At best, the Greek government is making decisions about the fiscal side of the equation.
Are the nominal interest rates rising on Euro-denominated accounts in Greek banks? (Are they allowed to rise?) That is one good barometer for Greek depositor discontent.
Posted by Tyler Cowen on February 8, 2010 at 10:29 AM in Economics | Permalink
Comments
Tyler, you don't say how Greece would benefit from abandoning the Euro. Actually, given the openness of the Greek economy and the fact that Greece's sources of foreign exchange are diversified, Greece cannot solve its fiscal problem with a devaluation as Argentina did at the end of 2001. In Argentina, the devaluation was necessary for the government to tax the main exports and therefore to reduce significantly the fiscal deficit. Since Greece faces a serious fiscal problem, it needs a fiscal adjustment that cannot rely on an increase in tax revenues from a devaluation (directly as in Argentina or indirectly as a result of a large increase in exports). The fiscal adjustment will have to be negotiated between the government and the unions of civil servants, and it is a distraction to talk about the abandonment of the Euro. And as long as there is no agreement, the government will have no choice but first to delay payment of the servants' wages and then to cut temporarily their wages by issuing a fake currency.
Posted by: E. Barandiaran at Feb 8, 2010 11:57:16 AM
The coherent scenario for a country leaving the eurozone is exactly the opposite: it is Germany leaving because it doesn't want to support countries like Spain and Greece. It could cause a flooding *to* their banking system as everyone would know what that means for the euro.
Posted by: Matt L at Feb 8, 2010 12:01:58 PM
Whatever happened to gold? In the days of my youth any rumour of financial instability caused a parade from the bank to the jewelry stores.
Posted by: Ed at Feb 8, 2010 12:10:40 PM
Greece would certainly lose out from leaving the euro and this is therefore unlikely to happen. However, there's an alternative scenario. If the southern Mediterranean countries continue to stall and expect to be bailed out by the Germans, could we see a new euro (with the North Europeans) or a new Deutsche Mark? This would end up with the same result as the Southern Europeans leaving the euro, but in a back door kind of way.
Posted by: jpf at Feb 8, 2010 12:26:29 PM
Isn't the solution for the Greek government to pay its employees in neodrachmas, but leave the euro in place for everything else?
Posted by: dearieme at Feb 8, 2010 12:31:04 PM
Have I mentioned that currency substitution models do not in general imply stability or well-behaved quantity theory relations?
A point covered nicely by Scott Sumner not too long ago.
Posted by: Michael F. Martin at Feb 8, 2010 12:50:11 PM
Germany does not mind some devaluation of the Euro because it is an export economy. France would also enjoy a devaluation of the Euro. The Greek crisis is driving this devaluation and the bigger economies have no incentive to pay dearly to save Greece from default. Germany and France have to make sure that Spain and Italy stay afloat.
Posted by: londenio at Feb 8, 2010 12:53:23 PM
the greek debt (and the spanish one, the italian, and so on) is denominated in euro.
which is the point of switching currency if you cannot devaluate that one the debt is denominated in?
you switch from euro to the new dracma. but the previous debt?
so only defaulting on the previous debt can be a solution.
God forgive them.
Posted by: Kerub at Feb 8, 2010 2:31:30 PM
Kerub, you're right and your point further highlights that the discussion of Greece abandoning the Euro deflects attention from the serious fiscal adjustment that Greece must undertake. As serious as the one that California must undertake.
Posted by: E. Barandiaran at Feb 8, 2010 3:12:21 PM
I don't understand why other Eurozone members care whether Greece defaults on its sovereign debt. How does that harm the Euro itself? Would other organizations that borrow in dollars somehow suffer if California defaulted on its dollar-denominated debts?
Posted by: Richard at Feb 8, 2010 3:49:21 PM
I asked this question about Spain to Edward Hugh, and here's his reply:
"@ Don,
I hope, in passing, I have answered your question. Basically, getting its own curerncy back wouldn’t help at this point, since all the debts would need to be repaid in another currency, or you default, and become a cross between Argentina, Cuba and Serbia.
Flat broke, and no one willing to lend you any money."
http://fistfulofeuros.net/afoe/economics-country-briefings/two-graphs-that-tell-it-all-on-spain/#comments
Posted by: Don the libertarian Democrat at Feb 8, 2010 4:05:08 PM
http://www.marginalrevolution.com/marginalrevolution/2010/02/why-its-hard-to-greece-to-back-out-of-the-euro.html
TBI: The 10 States About To Get Murdered By The Coming Chinese Import Slowdown
Gus Lubin | Feb. 2, 2010, 11:01 AM | 144,540 | 20
The biggest stimulus to U.S. jobs in the past ten years wasn't Barack Obama; it was China.
Exports to China grew by 341% from 2000 to 2008 and they're on pace to keep growing.
Unless the China bubble pops.
More and more, analysts are calling for a big import slowdown, the result of massive overcapacity.
The ripple effects in the US will be significant. And Obama's ambitious goal to double exports in the next ten years will be destroyed.
We've picked ten states that are most vulnerable to a Chinese slowdown, based on data from the US-China Business Council. In each state, we named a major employer in the export industry that will hand out pink slips if China bites the big one.
So is your state
One of the 10 about to get murdered by the China slowdown >
Click on link to check:
http://www.businessinsider.com/ten-states-about-to-get-murdered-by-the-china-slowdown-2010-2
TBI: The Euro Experiment Failed: Europe Is Less Unified Than Ever
Europeans seem to be united in one thing: they hate the euro
Sylvester Eijffinger and Edin Mujagic | Feb. 8, 2010, 2:47 PM |
From Project Syndicate:
The introduction of the euro in 1999, it was claimed, would narrow the economic differences between the member countries of the monetary union. Unemployment rates would converge, as would other important macroeconomic variables, such as unit labor costs, productivity, and fiscal deficits and government debt. Ultimately, the differences in wealth, measured in terms of income per capita, would diminish as well.
After the common currency’s first decade, however, increased divergence, rather than rapid convergence, has become the norm within the euro area, and tensions can be expected to increase further...
________________
The Euro’s Final Countdown?
2010-02-08
The introduction of the euro in 1999, it was claimed, would narrow the economic differences between the member countries of the monetary union. Unemployment rates would converge, as would other important macroeconomic variables, such as unit labor costs, productivity, and fiscal deficits and government debt. Ultimately, the differences in wealth, measured in terms of income per capita, would diminish as well.
After the common currency’s first decade, however, increased divergence, rather than rapid convergence, has become the norm within the euro area, and tensions can be expected to increase further.
The differences between member states were already large a decade ago. The euro became the common currency of very wealthy countries, such as Germany and the Netherlands, and much poorer countries, such as Greece and Portugal. It also became the currency of the Finns, runners-up in innovation and market flexibility, and of Italy, which lacked both, earning the apt moniker “the sick man of Europe.”
Such differences were a highly complicating factor for the newly established European Central Bank (ECB), which had to determine the appropriate interest rate for all members (the so-called “one size fits all” policy). The larger the differences have become during the euro’s first decade, the more the ECB’s policy could be described as “one size fits none.”
We have compared the performance of the best-performing and worst-performing euro-zone countries between 1999 and 2009. To avoid comparing apples and oranges, we have compared the data for the 11 countries that were included in the first wave in 1999, supplemented by Greece, which joined shortly thereafter. (All data are from Eurostat, the European statistics bureau.)
Because the ECB was given the sole task of achieving and maintaining price stability in the euro area, inflation rates seem the most logical starting point for comparison. In 1999, the difference between the euro-zone countries with the lowest and highest inflation rate was two percentage points. By the end of 2009, the difference had almost tripled, to 5.9 percentage points.
As for economic growth, we have made an exception. For that variable, we looked at the average yearly GDP growth in the first five years after the introduction of euro banknotes and coins in 2002. The difference between Ireland and Portugal in the first half of the decade was 4.8 percentage points. By 2009, it had increased to six percentage points. Moreover, the productivity difference increased from 25 index points in 1999 to 66.2 in 2008; the difference in unit labor costs went from 5.4 percentage points to 31.8; and the difference in the unemployment rate rose from 10.1 percentage points to 15.4.
Nor could we find any convergence regarding government deficits and debt. In 1999, Finland boasted the smallest government debt, equal to 45.5% of GDP. The difference with the largest debtor in the euro area, Italy, was 68.2 percentage points. Despite the most severe financial and economic crisis in almost a century, the Finnish national debt actually decreased by 2009, to 39.7%.
Italy, meanwhile, failed to use the significant windfall from the steep decline in long-term interest rates caused by the introduction of the euro and a decade of rapid economic growth to repair its debt position. Italy’s debt barely budged and stayed well above 100% of GDP. As a result, the difference between the debt positions of Finland and Italy, the most prudent and most profligate euro-zone members, shot up to 73.3 percentage points in 2009. (The situation is even worse for government deficits.)
The implications of these increasing differences could be severe. Increasing tensions between the euro countries on economic policy are likely, as are growing rifts within the ECB governing council in the coming years. We might get a sneak preview this year and in 2011, when European leaders must select a new ECB president and vice-president. As always, those seats will be hotly contested, but, with more at stake than ever, the fight for them could be fiercer than it would otherwise.
Tensions at the ECB and between the euro-zone countries do not bode well for the stability of the common currency, both externally, vis-à-vis other currencies, and internally, in terms of inflation. The ECB will be scapegoated for that. If it keeps its interest rate too low for too long, countries like Germany and the Netherlands will protest. If it hikes the interest rate, the southern euro-zone countries will complain. In any case, support for the euro, already fragile, will erode further, weakening the common currency and fueling even greater tensions.
In 1990, the Italian singer Toto Cutugno won the annual Eurovision song contest with his passionate call to Europeans to unite. The refrain of his winning song, “Together: 1992,” was “Unite, unite Europe.” Almost 20 years later, the Swedish band Europe’s hit song, “The Final Countdown,” seems more appropriate for the euro area with every passing day.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org
http://www.project-syndicate.org/commentary/eijffinger2/English
LOL...me too, and I won't take AA unless they are the only carrier available on a cold day in hell
I've traded gold and silver for close to 10 years, and traded currencies in the 1990s (mostly yen, yikes), and after a deacde or more of watching these patterns, we became 100% convinced that JPM and GS were the ones running this market, esp the currency desks and gold trading desks in NY, London and Japan
Tyler Durden, who I'm convinced is a bond trader, had actually been posting the last hour footprints leading directly to GS, until they stopped reporting the data, lolol,
Ron Paul: Here's The Reason Washington Spending Will Only Ever Spiral Higher
Ron Paul | Feb. 8, 2010, 2:39 PM |
(This post originally appeared at the author's blog)
Last week, the House approved another increase in the national debt ceiling. This means the government can borrow $1.9 trillion more to stay afloat and avoid default. It has been little more than a year since the last debt limit increase, and graphs showing the debt limit over time show a steep, almost vertical trend. It is not likely to be very long before this new ceiling is met and the government is back on the brink between default and borrowing us further into oblivion. Congressional leaders and the administration acknowledge that the debt limit will need to be increased again next year. They are crossing their fingers that the forecasts are correct and they will not need another increase sooner, even before the 2010 midterm elections.
Continually increasing the debt is one of the logical outcomes of Keynesianism, since more government spending is always their answer. It is claimed that government must not stop spending when the economy is so fragile. Government must act. Yet, when times are good, government also increases in size and scope, because we can afford it, it is claimed. There is never a good time to rein in government spending according to Keynesian economists and the proponents of big government.
Free market Austrian economists on the other hand know that times are bad because of the size and scope of government. The economy is fragile because of the overwhelming stranglehold of bureaucracy and taxation of Washington. Any jobs Washington might create through these endless spending programs are paid for through more taxation and debt put on the productive sectors of the economy. Just as insidious is the hidden tax of inflation caused by the Fed and its ever-expanding credit bubble. When the Fed steps in with its solutions, it only devalues the dollars in everyone’s pocket while encouraging more reckless waste on Wall Street. All of this leads to a worsening economy, not an improved one.
And so the downward spiral continues. The worse things get, the more politicians want to spend. The more they spend, the heavier the debt load becomes and the more we have to spend just to maintain our interest payments. As our debt load becomes unsustainable, the alarm of our creditors increases. It is becoming so serious that our credit rating, as a nation, could be downgraded. If this happens, interest on the national debt will increase even more, leading to even higher taxes on Americans and inevitably, price inflation.
Still, Washington is full of talk of more regulation, more taxation and more spending. The Senate is still struggling to pass a massive regulatory increase on the financial sector, even as the stock market suffers more shockwaves. Pay-as-you-go rules give the appearance of fiscal responsibility, but in truth these rules are only used as a justification to raise taxes. Spending programs like healthcare reform, increased military spending, and a recent doubling of destructive foreign aid are viewed by Washington as necessary and reasonable, instead of foolishness we absolutely cannot afford.
The people understand this, which is why there is so much anger directed at politicians. Washington needs to change its thinking and adopt some common sense priorities. The Constitution gives some excellent limitations that would get us back on the right path if we would simply abide by them. The framers of the Constitution understood that only the ingenuity of the American people, free from government interference, could get us through hard times, yet Washington seems bent only on prolonging the agony.
http://www.businessinsider.com/heres-the-reason-washington-spending-will-only-ever-spiral-higher-2010-2
TBI: American Airlines To Charge $8 For Blankets
Business Insider | Feb. 8, 2010, 4:44 PM |
Need we say more?...
DALLAS (AP) — If you want a pillow and blanket in coach on American Airlines, it's going to cost you.
The airline will charge $8 for a pillow and blanket in coach class for domestic trips and some international flights longer than two hours, beginning May 1. The international flights are to and from Canada, Mexico, Hawaii, the Caribbean and Central America.
Spokeswoman Andrea Huguely said Monday it was an economic decision.
"American evaluates all aspects of the business to ensure that economic decisions are prudent and strategic for the long-term success of the company," she said.
Huguely said blankets will remain complimentary in premium-class cabins and in all cabins for other international flights.
The airline will sell a blue fleece blanket with an inflatable neck pillow in a clear zippered pouch, and will throw in coupon for $10 off a $30 purchase at Bed, Bath and Beyond, Huguely said.
JetBlue and US Airways charge $7 for a blanket-and-pillow set, with US Airways adding eye shades and earplugs.
Airlines have steadily added and increased fees for other services such as checking luggage and buying tickets from a reservation agent since 2008, first to help cover jet fuel costs, then to offset large losses.
American parent AMR Corp. lost $1.47 billion last year — and $3.59 billion in the past two years — as traffic fell during the recession and competition limited American's ability to raise fares.
AGREE!: "The bulls need to get their asses out of this downside channel. They tried this morning but didn’t get very far - there is simply not enough participation on the long side."
I did not see any conviction for any 'rally' this morning, which is why I kept posting pics of PUTS
I have friends who subscribe to Elliott Wave, and have shared with me some reports lately
none of it is bullish, lol
!! SPG breaks down! SPG $70 Puts +93.88% ($1.90), EOD:
I have been waiting forever to see SPG start to break down...this is a highly manipulated stock, from my experience. Even with all the talk of commerical real estate problems, SPG remains at elevated prices, and put buyers are generally punished
SPG and SRS trade inverse to each other, this could be big for both PPS levels
jmho!
DJIA -1.04% (9,908), yikes! E-minis S&P -0.45% ($1055), DXY: 80.55, EURO: $1.3643, GOLD $1,064, NDX -0.64% (1,734),