Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
TY, lol. FCX looked easy to bounce at $63 range. However, today, we need follow through on this rally into the afternoon.
I suspect oil, gold and copper will continue a few days here, but the rest of the market, eh
I'm selling the morning gap, and assessing the situation in an hour
Doesn't make sense, does it?
>>Stock futures rise, traders try to build on rally
Stock futures rise as investors try to build momentum; durable goods order tops forecast
Stephen Bernard, AP Business Writer,
On Wednesday May 26, 2010, 8:36 am
NEW YORK (AP) -- Stock futures are rising sharply as investors try to build momentum following a late-day rally during the previous trading session.
A better-than-expected report showing orders for big-ticket manufactured items last month helped further boost futures Wednesday. The Commerce Department says durable goods orders rose 2.9 percent in April.
Stocks had erased nearly all of their early morning losses late Tuesday after Congressional leaders said they likely wouldn't force banks to spin off lucrative trading desks.
Dow Jones industrial average futures are up 97, or 1 percent, at 10,122. Standard & Poor's 500 index futures are up 12.00, or 1.1 percent, at 1,085.00, while Nasdaq 100 index futures are up 19.00, or 1.1 percent, at 1,834.50.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
NEW YORK (AP) -- Stock futures rose Wednesday as investors try to build momentum following a late-day rally during the previous trading session.
The Dow Jones industrial average closed down just 22 points Tuesday after being down by more than 250 points shortly after trading opened. The bounce back was stoked by comments from Congressional leaders saying they would not push for banks to spin-off lucrative trading desks as part of financial regulation reform.
Big swings in trading have again become the norm in recent weeks, similar to the volatility that helped define the market during the credit crisis and the early parts of the recovery last year.
The end-of-session focus Tuesday on domestic news was a stark contrast from what had been driving trading for the past few weeks. Investors had been almost wholly focused on whether steep budget cuts to manage rising debt in European countries would slow a global economic recovery in the coming months.
Concern about Europe's health was overshadowing consistent reports that the U.S. economy was continuing its slow, steady growth. Early in the year, those reports pushed stocks higher.
Reports Wednesday on durable goods orders and new home sales are expected to provide further evidence that the U.S. economy is improving.
Ahead of the opening bell, Dow Jones industrial average futures rose 75, or 0.8 percent, to 10,100. Standard & Poor's 500 index futures rose 9.10, or 0.9 percent, to 1,082.10, while Nasdaq 100 index futures gained 15.75, or 0.8 percent, to 1,830.75.
Economists polled by Thomson Reuters forecast orders for big-ticket factory goods rose 1.3 percent last month, rebounding from a 1.2 percent drop in March. The U.S. manufacturing sector has received a boost from exports, so any slowdown in Europe could eventually stall expansion.
For now though, the manufacturing sector has shown some of the most consistent growth in the economy.
The Commerce Department report is due out at 8:30 a.m. EDT.
A separate report from the Commerce Department is expected to show sales of new homes rose 4.6 percent in April to a seasonally adjusted annual rate of 430,000 units. The results could have been boosted as home buyers rushed to take advantage of a tax credit that expired at the end of last month. The report is due out at 10 a.m. EDT.
Even though signs still point to recovery in the U.S., concerns about Europe remain. The euro, which is used by 16 European countries, fell again Wednesday. The currency has become a proxy for investor confidence in Europe's ability to contain its debt problems the health of the continent's economy. The euro remains close to the four-year low it hit last week. It was down to $1.2318 Wednesday.
Despite the ongoing concerns, major European indexes snapped back after big losses Tuesday.
Britain's FTSE 100 gained 2.1 percent, Germany's DAX index rose 1.9 percent, and France's CAC-40 climbed 2.7 percent.
Meanwhile, U.S. Treasury prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.23 percent from 3.16 percent late Tuesday.
Buzz up! 0
Send
Asian Stocks Rise From 10-Month Low as Copper Gains; Euro Falls
By Darren Boey
May 26 (Bloomberg) -- Asian stocks rallied from a 10-month low, led by commodity producers, as speculation of rising demand in China outweighed European debt concerns that dragged the euro lower. The won stabilized as South Korea’s government pledged to intervene in markets amid tensions with the North.
The MSCI Asia Pacific Index climbed 0.6 percent to 109.46 at 4 p.m. in Tokyo. The measure’s gauge of raw-material makers surged 1.6 percent as copper gained 1.2 percent and oil advanced 1.1 percent. The Stoxx Europe 600 increased 1.3 percent to 235.02. Standard & Poor’s 500 Index futures rose 0.2 percent. The euro fell to $1.229 from $1.2345 in New York. The won was little changed after falling yesterday by the most in a year.
Investor sentiment improved after Rio Tinto Group, the world’s third-biggest mining company, said it expects commodity demand in China, the engine of the global recovery, to increase in the next 15 years. Concerns the European debt crisis and Chinese property curbs will hurt growth have dragged the MSCI World Index down by 15 percent from its high this year in April.
“We’ve got bad news just about every place you can look but on the other hand, we’ve got rising earnings and better economic conditions in most of the world,” Donald Gimbel, senior managing director at Carret Asset Management LLC, told Bloomberg Television. “Now is probably an opportune time to pick up some of the bargains that have been created over the past two or three weeks.”
Two stocks advanced for each one that fell on the MSCI Asia Pacific Index, which rose from its lowest close since July 2009. Hong Kong’s Hang Seng Index gained 1 percent and Australia’s S&P/ASX 200 Index climbed 1 percent. Japan’s Nikkei 225 Stock Average increased 0.7 percent. Korea’s Kospi jumped 1.4 percent.
Biggest Advance
The MSCI index’s gauge of material producers posted the biggest advance of 10 industry groups on speculation earnings will benefit from rising prices. BHP Billiton, the world’s largest mining company, climbed 2.7 percent to A$37.26, while Rio Tinto increased 3.7 percent to A$63.95.
Copper advanced to $6,811 a metric ton on the London Metal Exchange, increasing for the fourth time in five days, while crude oil reached $69.50 a barrel in New York. Oil prices also rose after an American Petroleum Institute report showed that U.S. gasoline stockpiles declined.
“China’s demand for iron ore, copper, coal and aluminum is expected to grow over the next 15 years, after which time we expect to see increasing demand from India,” Jan du Plessis, chairman of London-based Rio, said today at its annual meeting in Melbourne.
Baltic Dry
Shipping stocks gained after the Baltic Dry Index, a measure of shipping costs for commodities, jumped 6.2 percent, the biggest gain since March 4, to its highest level in six months. STX Pan Ocean Co., South Korea’s biggest bulk carrier, surged 8.5 percent to 11,500 won. Korea Line Corp., the second- largest, jumped 5.4 percent to 50,000 won.
Defense-related shares in South Korea extended advances on speculation demand for their products will increase. Speco Co., a military installation parts developer, advanced 11.2 percent, taking a four-day surge to 47 percent.
The won was little changed at 1,252.28 per dollar. Vice Finance Minister Yim Jong Yong said today that “authorities will supply sufficient foreign currency liquidity if needed.”
The currency yesterday plunged 3 percent after a report by a defector group based in Seoul said North Korea’s military was ordered to prepare for combat on May 20, when South Korea said its communist neighbor was responsible for the March sinking of a warship.
Euro Declines
North Korea said it will sever ties with the South and expel its workers from a joint industrial zone as “punishment” for accusing it of the torpedo attack, which killed 46 sailors.
Speculation of central bank intervention also lifted Malaysia’s ringgit from near a two-month low. The ringgit rose 0.7 percent to 3.3413 per dollar, according to data compiled by Bloomberg.
“The recent slide has been triggered by a lot of tension in Europe and Korea,” said Calbert Loh, head of treasury at Bangkok Bank Bhd. in Kuala Lumpur. “The ringgit is oversold and there’s talk that Asian central banks are going to ensure orderly market movements.”
The euro dropped against 15 of its 16 major counterparts as concern Europe’s debt crisis will slow economic growth damped demand for the region’s assets. Reports due later today may show German consumer confidence and French consumer spending declined, according to economists surveyed by Bloomberg.
Structural Problem
The euro dropped to 110.93 yen from 111.39 yen. It sank to 108.84 yen yesterday, the least since November 2001, and touched $1.2178, the lowest since May 19. Australia’s dollar lost 0.4 percent to 82.49 U.S. cents.
“Rebuilding finances will take a long time,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “This is a structural problem, which may spread to other nations in the region. The euro is set to go down.”
European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” U.S. Treasury Secretary Timothy F. Geithner told a group of mid- career Chinese government officials in Beijing yesterday. He said the European Union launched its common currency with a budgeting framework that put restraints on borrowing without tools needed to deal with country-specific imbalances.
The cost of insuring Asian bonds from default fell from a 10-month high reached yesterday, according to traders of credit- default swaps. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan dropped 12 basis points to 160.5 basis points, according to Royal Bank of Scotland Group Plc.
To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net.
Last Updated: May 26, 2010 03:01 EDT
BL: Rising Drilling Costs Mean Oil Above $90 for Years Ahead: Energy Markets
Rising Drilling Costs Mean $90 Crude in 2018: Energy Markets
By Grant Smith
http://www.bloomberg.com/apps/news?pid=20601087&sid=axjU4vKS7Gq0&pos=7
May 26 (Bloomberg) -- Rising costs of extracting oil are propping up New York crude futures for delivery in the years ahead, even as prices sink for barrels that will be delivered in the next few months.
The futures contract closest to delivery on the New York Mercantile Exchange tumbled 13 percent in the past three months to below $70 a barrel as investors fled riskier assets. The December 2015 contract lost 5 percent in that time, while December 2018 futures remain above $90 a barrel, suggesting analysts are less pessimistic about the long term. The U.S. Labor Department’s index for oil- and gas-field machinery rose in April for the first time in six months.
“The price is holding at decent levels” for delivery in later years, said Paul Tossetti, an analyst in Dallas with consultants PFC Energy. “You need a certain level for all these high-priced resources that are coming on-stream, deepwater Gulf of Mexico, deepwater Brazil and the Canadian oil sands. That’s the dynamic part of the non-OPEC oil supply.”
The oil contract closest to delivery slumped to $64.24 a barrel on May 20, the lowest intra-day price since July 2009, on concern that Europe’s sovereign debt crisis will derail the economic recovery. Oil for July delivery was trading at $69.67 on Nymex at 8:17 a.m. in Singapore.
Bank of America Merrill Lynch maintained on May 24 its 2011 price forecast, even as it sliced its projection for the second half of this year by 18 percent. The U.S. Energy Information Administration said yesterday that oil prices will rise to $108 a barrel by 2020 as the global economy rebounds.
Non-OPEC Growth
Merrill estimated supply from outside the Organization of Petroleum Exporting Countries will increase 1.1 percent, to 52.1 million barrels a day this year. That follows growth of 700,000 barrels a day last year, the biggest jump in five years. Non- OPEC accounts for about 60 percent of global output.
The resilience of later prices is linked to advancing oil costs, according to Andy Sommer, senior analyst at EGL AG in Dietikon, Switzerland.
“The costs related to the oil industry, materials, equipment, actually increased,” said Sommer. “The back-end of the curve is supported by that.”
The Labor Department’s Index for U.S. oil and gas producers’ machinery costs rose 0.5 percent to 200.30 last month, its first increase since October.
“We also expect the market to remain relatively tight on solid emerging market fundamentals in 2011 and beyond, particularly in Asia,” Merrill’s head of commodities research Francisco Blanch said in the report. The bank said crude prices will average $85 a barrel next year.
Contango Persists
Since October 2008, oil futures for later delivery have been more expensive than immediate supplies, a price structure known as contango that can indicate expectations for tighter supplies in future. The International Energy Agency forecast in a Nov. 10 report that global oil demand will grow 1 percent a year to reach 105 million barrels a day by 2030.
“Concerns over a Eurozone-centered debt crisis, and the Chinese economy, and U.S. financial regulations, have no impact on full-cycle production costs or on the medium-term view,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “And the medium-term view is one of global oil demand growth bumping into a mature supply base.”
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
Last Updated: May 25, 2010 20:31 EDT
>>House to raise oil tax 400%: 8-cent oil tax to 32 cents - May. 24, 2010
By Aaron Smith, CNNMoney.com staff writer
May 24, 2010: 2:22 PM ET
NEW YORK (CNNMoney.com) -- The House is expected to vote this week on whether to quadruple the oil tax to pay for the damages from the massive oil spill in the Gulf of Mexico.
But as dramatic as the increase might seem, analysts say that consumers will barely feel it.
The House "oil spill response" measure, included among others in a larger bill, proposes that the tax be increased from its current rate of 8 cents a barrel to 32 cents. This is projected to raise nearly $10 billion over the next 10 years for the Oil Spill Liability Trust Fund.
"We're not talking a big impact here; we are talking about adding less than a penny to the cost of the fuel," said Tom Kloza, chief oil analyst for the Oil Price Information Service, referring to the impact that the increase would have on the price of gasoline.
According to Kloza's calculations, the 8-cent tax on a barrel of oil works out to 0.19 cents per gallon of gas. He said that an increase to 32 cents on a barrel of oil would equal 0.76 cents per gallon of gas.
As Kloza provided these calculations on Monday, oil was trading at just over $70 per barrel. The nationwide average price for unleaded gasoline was $2.793, according to AAA.
Christine Tezak, an energy and environmental policy analyst at investment banking firm Robert W. Baird & Co., referred to the "pennies per barrel charge" as "negligible" to consumers.
The existing tax rate of 8 cents has already financed a $1.5 billion liability trust fund, which is nowhere near enough to pay for the damages. The cost of the spill, resulting from an offshore oil rig disaster off the coast of Louisiana that killed 11 workers in April, could exceed $14 billion, according to the bill.
"[The Oil Spill Liability Trust Fund] is essentially exhausted, assuming that all the funds are needed for this spill," said Tezak.
The trust fund covers damage costs -- calculated separately from clean-up costs which the responsible companies must pay for. The damages in the Gulf of Mexico are both environmental, including the effects on wildlife, and economic, like the losses suffered by the fishing and tourism industries.
As part of the bill, Tezak said that the per-incident cap on coverage would increase from $1.5 billion (including $500 million for environmental damage) to $7.5 billion (including $2.5 billion for the environment).
The fund operates as an insurance policy. BP and its minority partners blamed for the spill, including Anadarko Petroleum Co. (ADC) and Mitsui, are required to cover $75 million worth of damages in addition to clean-up costs. After that, the fund kicks in.
Earlier this month, Sen. Bill Nelson, D-Fla., introduced a bill raising this liability cap to $10 billion, but the legislation was blocked.
Tezak said that raising the cap on liability would crowd out the smaller oil companies.
Oil to $60 a barrel, yet gas at the pump barely budges? The powers that be are so eager for $5, $7/gal gasoline...how will this play out?
BL: Options Traders' Ranks Swell as Amateur Investors Embrace `Iron Condors'
By Margaret Collins and Jeff Kearns
May 25 (Bloomberg) -- David Siniapkin, a postal worker in York, Pennsylvania, uses some of his retirement money to trade options. After three years and being down as much as $10,000, he’s broken even.
Siniapkin, 46, said he tries to profit from strategies such as the “iron condor,” which requires placing four different bets on the same security, risking $38 to make as much as $204 on one trade. It takes its name from the payout diagram resembling a bird with outstretched wings. Investors use options to improve returns, hedge risks or speculate on market performance.
Volume in the U.S. has tripled since 2004 to a record 3.61 billion contracts in 2009, while trading by individual investors in the same period has increased fivefold at Fidelity Investments, the world’s largest mutual-fund firm. Sophisticated online software and the growth in training offered by industry groups and brokerages, such as Charles Schwab Corp. and TD Ameritrade Holding Corp., are enabling individuals to execute advanced techniques on home computers that had been the province of professionals.
“Trading options is one of the all-time suckers’ bets,” said Whitney Tilson, founder of hedge fund T2 Partners LLC, based in New York. “Most experienced professionals lose money doing it. It’s virtually certain that inexperienced, individual retail investors will lose money doing this.”
Trading Tools
About half of options investors earn less than $100,000 and 70 percent trade to increase income and for short-term gains, according to an April survey by the Options Industry Council, an industry education group based in Chicago. Retail traders can access professional-level analytics and trading tools that “weren’t even available to institutional investors five years ago,” said Andy Nybo, head of derivatives research at Tabb Group LLC in New York.
The numbers of trades by individuals rather than institutional investors aren’t available, said Jim Binder, a spokesman for Chicago-based Options Clearing Corp., which settles all trading of exchange-listed contracts.
Siniapkin was one of about 100 non-professionals who attended an all-day training class last month provided by online options brokerage Thinkorswim Group Inc., which Omaha, Nebraska- based TD Ameritrade acquired last year for $749 million.
Participants traveled as many as three hours to a windowless Radisson hotel ballroom near Philadelphia and scribbled notes as Bob Groves, a former Standard & Poor’s 100 Index options trader on the floor of the Chicago Board Options Exchange, waved a laser pointer at a projection screen to explain advanced trades.
Knowing Risks
“I’ll do the iron condors, I’ll do calendars, I like double diagonals,” said Siniapkin, who said he has had “mixed success” with these strategies, known as multi-leg transactions, which involve buying or selling multiple contracts on the same underlying security.
Training lets retail investors understand the risks involved, said Debra Peters, vice president of the Options Institute, the CBOE’s education division, which had a record 41,004 registrations for its free online courses last year.
E*Trade Financial Corp., based in New York, saw a 600 percent increase in attendance at training events last year, and TD Ameritrade’s education arm, Investools, has attracted more than 40,000 clients to its classes since June, about a 50 percent increase from a year earlier, the companies said.
Cost of the courses ranges from free to thousands of dollars. Thinkorswim’s session in April was free and participants were later pitched additional training and online tools, which run from $299 to more than $2,000.
Options Contracts
“I’m not a fan of people who say you shouldn’t be doing this,” said Thinkorswim’s founder Tom Sosnoff of investors using complex strategies. “Imagine you walked into the casino and people said to you, ‘You look stupid so you can only play the slots.’”
Options are contracts that grant their buyers the right, without the obligation, to buy or sell a security, a commodity or an index’s cash value at a set price by a specific date. Call options give the right to call a security away from another owner if the security reaches its strike price on or before the contract’s expiration date. Put options give the right to sell.
Like gambling on the Super Bowl and having to beat the point spread, options traders may lose if they predict the correct direction of a stock move and not the magnitude. For example, an investor who buys a put to sell a biotechnology stock before a Food and Drug Administration decision may get the direction of the stock’s move right while losing money if the security doesn’t fall or rise far enough.
Not More Risky
“Options trading is always going to be more complicated than equities trading but it doesn’t have to be more risky,” said Randy Frederick, director of trading and derivatives at Schwab, the largest independent brokerage by client assets. “They can potentially reduce the amount of losses in a bearish market.”
Simpler strategies include buying put spreads to protect stocks from declines and selling call options to profit from the sale while betting that the stock won’t rise past a given level.
“My first couple of trades I did very, very well and I got a little big headed and very, very greedy, and I ended up blowing out an account,” said John Mahoney, 49, an engineer who trades options weekly. “I lost about $20,000 initially.”
Mahoney said he made $4,000 one week in April by playing multiple contracts and is working his way back into the market by trading smaller amounts and attending classes.
IRA Assets
Regulators permit trading options using retirement accounts, said Herb Perone, spokesman for the Financial Industry Regulatory Authority. Certain trading may violate Internal Revenue Service rules, which is why firms including Schwab, Fidelity, TD Ameritrade, E*Trade, Interactive Brokers Group Inc. and OptionsXpress Holdings Inc. prevent investors from executing strategies that may cause an IRA to go into debt, according to the companies.
About 46 million U.S. households owned IRAs last year, according to the Investment Company Institute, a Washington- based mutual fund trade group. Accounts held for 20 years or more had a median of $75,000 in assets, according to ICI.
Michael Madden, a 48-year-old sales manager from Whitehall, Pennsylvania, said he transferred some of his IRA money to Thinkorswim to trade options. He said he lost about 40 percent when he started three years ago and has since recovered those losses, purchasing about $5,000 to $10,000 in contracts a week.
Testing Trades
Fidelity has started allowing spread trades in IRAs, an options strategy requiring two transactions usually executed at the same time, said Gregg Murphy, who oversees equities and options trading for the Boston-based company’s retail customers. Schwab, based in San Francisco, is testing spread trading for retirement accounts with a few hundred customers and hopes to expand it later this year, said Frederick.
Options shouldn’t be an integral part of investors’ long- term planning, of which retirement money is the “nucleus,” said Jonathan Krasney, president of Krasney Financial LLC, a Mendham, New Jersey, fee-based wealth management firm.
“My concern is that investors can quickly dig themselves into a deep hole if they venture into the options market,” Krasney said. Most trading involves contracts that expire within months, so investors can’t hold them indefinitely to recoup losses or wait for gains, as they can with stocks, Krasney said.
Approving Investors
Brokers must approve investors to trade options, said Gary Goldsholle, vice president in Finra’s general counsel office. Customers must provide companies with details about their financial status and trading experience, and sign a document saying they received a copy of the Characteristics and Risks of Standardized Options from the Options Clearing Corp.
Karen Fitchett, 64, said the learning curve has been steep. The New York real estate investor said she has lost tens of thousands of dollars trading options since starting in 2007, which is why she still attends classes like the one provided by Thinkorswim.
“It’s become like an intellectual affair,” she said. “I just became seduced.”
To contact the reporters on this story: Margaret Collins in New York at mcollins45@bloomberg.netJeff Kearns in New York at jkearns3@bloomberg.net
Last Updated: May 25, 2010 00:01 EDT
BL: U.S. Stock Futures Plummet on Bank Borrowing Costs, North Korea Tensions
By Jonathan Burgos and Adam Haigh - May 25, 2010
May 25 (Bloomberg) -- Nick Nelson, a senior strategist at UBS AG, talks about the outlook for equities and his investment strategy. He speaks with Bloomberg's Fracine Lacqua and Manus Cranny in London. (Source: Bloomberg)
U.S. stock futures fell, indicating the Standard & Poor’s 500 Index may slip to 2010’s lowest level, as bank borrowing costs rose and a report said North Korean leader Kim Jong Il ordered his military to prepare for combat.
Goldman Sachs Group Inc. lost 1.8 percent as the rate banks say they pay for three-month loans in dollars increased to 0.536 percent, the highest since July 7 and the 11th straight gain, according to the British Bankers’ Association. Ford Motor Co. and Apple Inc. fell more than 2.5 percent on concern that Spain’s ailing banks signal a widening Europe debt crisis that may curb global economic growth.
S&P 500 futures expiring in June dropped 2.5 percent to 1,044.40 at 7:50 a.m. in New York. The index’s lowest close of the year was 1,056.74 on Feb. 8. Dow Jones Industrial Average futures retreated 210 points, or 2.1 percent, to 9,833.
“The troubles that we have are big enough to keep this downtrend going for quite some time,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. “Everybody realizes this is going to put severe stress on economic growth. Tension between South and North Korea is another additional negative that is spooking markets.”
The S&P 500 lost 12 percent from a 19-month high on April 23 amid concern mounting budget deficits in European countries will derail global growth. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners and after the International Monetary Fund yesterday urged the nation to take more steps to overhaul its financial institutions.
Bank of England
The worsening European debt crisis “may limit the pace of the global recovery,” Adam Posen, a member of the Bank of England’s Monetary Policy Committee said in a speech yesterday.
Equities fell worldwide, driving the MSCI Asia Pacific Index down 3 percent, after the North Korea Intellectuals Solidarity group said that the country’s military was put on alert. The U.S. announced plans yesterday to conduct anti- submarine exercises with South Korea following the March 26 torpedoing of a warship.
Home prices and consumer confidence probably improved, climbing further from the depths reached during the worst recession since the 1930s, economists said before reports today.
The S&P/Case-Shiller index of property values in 20 cities rose 2.5 percent in March from a year earlier, the best performance since 2006, according to the median forecast of 26 economists surveyed by Bloomberg News. Signs the economy is beginning to create jobs may have lifted Americans’ spirits in May for a third consecutive month, another report may show.
Credit Risks
Corporate and sovereign credit risk indicators jumped to the highest level in 10 months on concerns that heightened military tension in the Korean peninsula and a slump in confidence in the euro will hurt the global economy. The gap between the cost to buy and sell corporate credit reached the widest in nine months in another sign investors are increasingly wary of all but the safest government bonds amid Europe’s sovereign debt crisis.
“Economies with a lot of debt and high borrowing requirements have been forced by the bond markets to cut back their expenditures and reduce their deficits,” said John Haynes, the senior U.S. equity strategist at Rensburg Sheppards Plc in London. “Demand will be damaged in the back half of 2010 and into 2011 and that means earnings expectations have to come down and the world looks a slightly less sunny place,” he said in a Bloomberg Radio interview.
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.
I know. This is far worse than 2008. Back then it was our big banks which were insolvent, and they had to be rescued by the governments. Now it's our governments...who will bail them out? Furthermore, unlike 2008, Korea is on the verge of war...Iran not far behind. Europe's core is collapsing, and the China story is wearing thin.
Canada's in decent shape, and I loved Dudley do Right as a kid, but I don't think the Canadians have what it takes to rescue the world economy...
The euro value is squeezed by the central bank's holding of euro assets, and as the euro plunges, it's taking much with it. Good for the european exporters, but not like this...at the expense of the financial system and the balance sheet of major governments.
AA gaps down to 10.62, those AA puts should be nicely in the money this week at this rate
FCX prints 63.35 PM! Lordy
LIBOR, like Commercial Paper, is that unsexy indicator I watch like a hawk...it tells the real story, a bank/lender version of the VIX, don't you think?
GM stuffit...prob with that is that I am so burnt out on bad news, that I can't even read that much of it any more. It was one thing to talk about it, point it out, connect the dots why back when it was an abstraction.
Now that its 3D and unfolding in all kinds of horrible and weird ways, and we all know the very real kinds of human misery it will inflict, there is zero pleasure in detailing it any more.
In fact, I kinda find myself wishing the pollyannas are right, and that we're just a small wardrobe malfunction away from happy times.
How are you?
GM! Yeah, kind grim out there isn't it?
BL: Asian Stocks Hit 10-Month Low on N.Korea War Report
By Clyde Russell and Saeromi Shin - May 25, 2010
Asian stocks and the won plunged to 10-month lows after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week. The euro weakened and commodities declined on concern Europe’s debt crisis will spread.
The MSCI Asia Pacific Index dropped 3.1 percent to 109.24 at 1:30 p.m. in Tokyo, set for its lowest close since July 30. Standard & Poor’s 500 stock index futures lost 1.5 percent. The won lost 4.6 percent against the yen and Korea’s Kospi Index slumped 4.1 percent. The euro fell 1 percent against the yen. Crude oil slipped below $70 a barrel.
“Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, are affecting investors’ sentiment,” said Kim Young Joon, a fund manager at NH-CA Asset Management in Seoul, which manages $9.7 billion in assets. “But much of North Korea’s comments appear bluffing. I don’t think another disastrous event will happen.”
The North Korea Intellectuals Solidarity group said on its web site that the country’s military was put on alert and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. The International Monetary Fund urged Spain to take more steps to overhaul ailing banks as the nation’s financial sector “remains under pressure.”
Defense Stocks Gain
The won plummeted fell 4.4 percent to 1,267.25 per dollar. The Kospi plunged 4.3 percent to 1,534.25. The gauge has fallen 12.4 percent from its recent high of 1,752.20 reached on April 26 and has entered a correction, defined as a decline of more than 10 percent from a peak.
South Korean defense-related stocks rallied in Seoul. Speco Co., a military installation parts developer, jumped 12.6 percent to 5,410 won, while Victek Co., which makes electronic warfare equipment, soared .7 percent to 4,455 won.
Just 42 of the MSCI Asia Pacific Index’s 982 companies advanced today. Hong Kong’s Hang Seng Index sank 2.5 percent and China’s Shanghai Composite Index declined 1.2 percent. The Nikkei 225 Stock Average lost 2.8 percent. Australia’s S&P/ASX 200 Index slid 2.3 percent.
Futures on the Standard & Poor’s 500 Index fell after the measure dropped 1.3 percent in regular trading yesterday. Banks declined the most among the S&P 500’s 24 industries, after the London interbank offered rate, or Libor, for three-month dollar loans advanced to the highest level since July 16, according to data from the British Bankers’ Association.
‘Land Mines’
“Europe is walking on land mines that have yet to explode,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Investors are selling shares and adjusting their positions on concerns over European debt.”
Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($167 billion) in assets, as regulators push ailing lenders to merge with stronger partners.
The euro dropped 0.8 percent to 110.82 yen in Tokyo from 111.71 yen in New York yesterday. The common currency fell to $1.2307 from $1.2372. The dollar traded at 90.05 yen from 90.29 yen.
Australia & New Zealand Banking Group Ltd. slid 2.2 percent, leading declines among financial companies. Financial companies were the heaviest drag on MSCI’s Asian gauge as the cost of insuring Asia-Pacific bonds from default rose. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 4 basis points to 151.5 basis points, according to Royal Bank of Scotland Group Plc.
Canon Inc. slipped 2.7 percent to 3,610 yen. Olympus Corp., an endoscope maker that makes 18 percent of its sales in Europe, declined 3.4 percent to 2,221 yen.
Commodities Drop
BHP Billiton Ltd., which got 22 percent of its fiscal 2009 revenue in Europe, slid 3.2 percent to A$36.61 in Sydney after copper and oil prices retreated on concern a slowdown in the euro region will reduce demand. Rio Tinto Group, the world’s third-largest mining company, lost 3.1 percent to A$62.15.
Crude oil declined 1.4 percent to $69.26 a barrel in New York. Copper dropped 1.5 percent to $6,809 a metric ton on the London Metal Exchange. The metal has slumped 11 percent in the past month. Aluminum declined 1.4 percent to $2,055 a ton and nickel slumped 2.3 percent to $21,700 a ton.
“I don’t think things have worsened in Europe in the past few days, but the reason we haven’t seen any significant rallies in the market is that the uncertainty hasn’t dissipated,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said in a telephone interview. “The one thing about the euro zone is that everyone has been revising down their demand outlook. The fundamentals there have no doubt become weaker in the last month.”
To contact the reporter for this story: Clyde Russell in Singapore at crussell7@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net
BL: Copper, Aluminum, Nickel Drop on Europe Crisis, China Moves to Cool Demand
Updated 17 minutes ago
Copper declined and nickel slumped as signs that Europe’s debt crisis may spread and China may step up measures to avert asset bubbles drove equities lower, renewing speculation economic growth may slow.
Three-month delivery copper on the London Metal Exchange dropped for the first time in four days, losing 1.7 percent to $6,790 a metric ton at 1:10 p.m. Shanghai time. Aluminum also fell as the MSCI Asia Pacific Index of stocks slumped to its lowest level in 10 months.
The euro dropped against 13 of its 16 major counterparts as the International Monetary Fund urged Spain to do more to overhaul its ailing banks, spurring concerns that financial institutions in the euro area face further losses. The Dollar Index advanced for a second day, reducing the appeal of commodities priced in the currency.
“Sentiment remains lousy because of the macro environment in China and Europe,” Lai Qiwen, an analyst at Guantong Futures Co., said from Beijing. “Any decline from here would be panic stricken, whereas any rebound would be cautious.”
The Reuters/Jefferies CRB Index of 19 commodities has declined the past four weeks on speculation that European efforts to curb government debt will slow economic growth and that China may step up measures to reduce asset bubbles.
Shanghai will introduce a property tax policy on a trial basis next month, the Economic Observer newspaper reported, citing an unidentified person. A more detailed policy may be announced at a later date, it said.
Growth Curbs
China has already raised minimum mortgage rates, restricted pre-sales by developers and tightened controls on purchases of second and third properties in an effort to cool growth.
Copper demand from consumers “wasn’t as good as expected in the production high season” partly because of China’s property curbs, Lai said.
Still, copper demand in China may gain as much as 12 percent this year and prices won’t fall much further, according to Wanxiang Resources Co.’s analyst Sheng Weimin. Demand, including refined and scrap copper, may climb to 8.96 million metric tons, said Sheng today.
Copper for August delivery in Shanghai retreated as much as 1.6 percent to 54,350 yuan ($7,959) a ton and last traded at 54,810 yuan a ton.
Aluminum in London lost 1.5 percent to $2,052 a ton, nickel slumped 2.4 percent to $21,660 and lead dropped 1.6 percent to $1,800 a ton. Zinc declined 0.8 percent to $1,914 and tin eased 1.4 percent to $17,500 a ton.
--Li Xiaowei. With reporting by Glenys Sim in Singapore. Editors: Richard Dobson, Matthew Oakley.
To contact the Bloomberg News staff on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net
BL: China's Stocks Decline on Property Tax Speculation, Europe's Debt Crisis
By Bloomberg News - May 25, 2010
China’s stocks fell for the first time in three days on speculation the government will step up measures to avert asset bubbles even as Europe’s debt crisis threatens to halt the global recovery. Poly Real Estate Group Co. paced declines by developers after the Economic Observer said Shanghai will start a property tax trial next month. PetroChina Co., the nation’s biggest oil company, lost 1.6 percent and Jiangxi Copper Co. dropped at least 0.7 percent as raw-material prices fell amid concerns over the health of European finances.
“The market is still worried about the introduction of additional harsh measures such as the property tax, which would likely lead to a 20 percent and 30 percent decline in housing prices,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “That would exacerbate the risk of a double-dip for the economy.”
The Shanghai Composite Index retreated 30.66, or 1.2 percent, to 2,642.76 at the 11:30 a.m. local-time break. The CSI 300 Index declined 1.3 percent to 2,837.63 today. China’s stocks joined a rout across Asia after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week.
Shanghai will introduce a property tax policy on a trial basis next month, the Economic Observer reported, citing an unidentified person.
The report didn’t identify the nature of the tax and said more detailed policies may be announced at a later date. The 21st Century Business Herald reported on May 14 the prospect of expanding a tax on commercial-use properties to residences.
Housing Prices
“The government is determined to bring down housing prices,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.
Poly Real Estate, the second-largest listed developer, lost 4 percent to 11.66 yuan. China Vanke Co., the biggest, dropped 2.9 percent to 7.48 yuan. Gemdale Corp., the fourth largest, retreated 4 percent to 6.81 yuan.
The Shanghai Composite has lost 19 percent this year on tightening measures that include reining in loans for purchases of multiple homes, increasing mortgage rates and raising down payment requirements. The central bank ordered lenders this month to set aside more deposits as reserves for a third time in 2010.
China’s domestic fund managers cut stock holdings in their portfolios by four percentage points in the past two weeks, according to a report by Macquarie Securities Ltd. analysts Shirley Zhao and Michael Kurtz.
Stocks made up 74 percent of China’s 350 open-ended A-share funds, with the rest in bonds, cash and money market instruments, the report said, citing data from Shanghai Wind Information Co.
Rate Outlook
China’s central bank will remain “particularly cautious” about raising interest rates because of debt incurred by local governments and the potential for bad loans at the nation’s banks, Liu Yuhui, an economist with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in the China Daily.
PetroChina fell 1.6 percent to 10.92 yuan. China Petroleum & Chemical Corp., the second-largest oil producer, dropped 2.2 percent to 8.87 yuan. Jiangxi Copper, China’s biggest producer of the metal, retreated 0.7 percent to 29.56 yuan.
Three-month delivery copper on the London Metal Exchange dropped for the first time in four days, losing 1.7 percent to $6,790 a metric ton today. Crude oil declined, falling below $70 a barrel in New York.
Commodities declined on concern Europe’s debt crisis may spread. Concerns over the health of European finances deepened after four Spanish savings banks submitted a proposal to the nation’s central bank to merge their businesses.
Chinese stocks are factoring in both accelerating inflation and declining growth, a “mispricing” that is poised to “correct soon,” Morgan Stanley said.
The brokerage upgraded steel and building materials shares in its China portfolio to “overweight” from “underweight,” a week after increasing the weighting of banks, analysts led by Jerry Lou wrote in a report.
--Zhang Shidong. Editors: Richard Frost, Allen Wan
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or
Email Share Print
BL: North Korean Leader Orders Military to Ready for Combat
By Bomi Lim - May 25, 2010
North Korean leader Kim Jong Il told the country’s military to be combat-ready in a message broadcast last week that coincided with South Korea’s announcement that it blamed his regime for the sinking of a warship, a dissident group said.
The order was broadcast on May 20 by O Kuk Ryol, vice chairman of the National Defense Commission, according to the website of North Korea Intellectuals Solidarity, a Seoul- based group run by defectors from the communist country. Yonhap News agency reported on the posting earlier today, sending the won to a 10-month low and causing stocks to drop.
While Kim doesn’t want war, North Korea is ready to counter any attacks, O said in the message, according to the group, which cited an unidentified person in the country. The organization was among the first in South Korea to report on North Korea’s botched currency revaluation late last year.
“For Kim Jong Il to be giving such an order is pretty serious,” said Kim Yong Hyun, professor of North Korean studies at Seoul-based Dongguk University, adding that he doubted that such a direct order was given.
Lee Jong Joo, a spokeswoman at the Unification Ministry in Seoul, said she couldn’t confirm the report as the closed- circuit radio, on which the message was said to be delivered, cannot be monitored by South Korea’s government. Officials at South Korea’s Defense Ministry weren’t immediately reachable.
Won, Stocks Tumble
The won fell 3.9 percent to 1,261.15 per dollar as of 12:51 p.m. in Seoul, according to data compiled by Bloomberg. It touched 1,272.45, the weakest level since July 16. The Kospi index dropped as much as 4.5 percent, and was 3.9 percent lower at 12:48 p.m. in Seoul, set for its biggest one-day decline in six months.
South Korean defense-related stocks rallied. Speco Co., a construction company that supplies the military, rose 15 percent to 5,520 won. Victek Co., which makes electronic warfare equipment, gained 11 percent to 4,540 won.
Tensions are rising in the Korean peninsula following last week’s report by a South Korean-led multinational panel that North Korea was the “only plausible” perpetrator of the March 26 attack, in which 46 sailors died.
Propaganda War
North Korea said it would shell South Korean positions that tried to blare propaganda over the demilitarized zone that marks the border between the two countries, which are still formally at war following their 1950-1953 conflict. The border is one of the most heavily armed in the world, with U.S. and South Korean troops facing off against North Korea’s million-strong army.
South Korea plans to define North Korea as its “main enemy” when it maps out military strategy, Yonhap reported today, citing a government official it didn’t identify.
South Korea’s President Lee Myung Bak said yesterday the country will push for United Nations censure against North Korea for the sinking of the Cheonan. The multinational team concluded on May 20 that North Korea fired a torpedo to split apart the 1,200-ton warship.
To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net
BL: Stocks Index Falls into `Correction' After Sliding 10% From Peak in April
By Rajhkumar K Shaaw - May 25, 2010
Indian stocks sank, dragging the Bombay Stock Exchange’s Sensitive Index, or Sensex, more than 10 percent below its recent peak.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 298.50, or 1.8 percent, to 16,171.05 at 10:24 a.m. in Mumbai, poised for its lowest close since Feb. 15. The gauge has slid 10 percent from an April 7 peak, a drop some analysts refer to as a correction.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.
BL: Pimco's Brazil Bet Fizzles as Real Plunge Erodes Returns on Domestic Debt
By Gabrielle Coppola and Ye Xie - May 25, 2010
Pacific Investment Management Co.’s bet on Brazilian local bonds is backfiring.
The securities, called a “great value” in February by Michael Gomez, the firm’s co-head of developing markets, are down 1 percent in dollar terms, trailing the 1.3 percent gain in emerging-nation domestic debt, according to JPMorgan Chase & Co.’s GBI-EM index. A 7 percent tumble in the real since May 1, sparked by Europe’s debt crisis, fueled a 5.5 percent plunge in local bonds this month.
Brazilian fixed-rate domestic notes due 2017 were the biggest holding in Pimco’s Developing Local Markets Fund, according to Bloomberg data through the end of 2009. Pimco, manager of the world’s biggest bond fund, is a “consistent” buyer of Brazilian debt, Gomez said in a February interview. The $2.9-billion fund lost 1.9 percent this year, lagging behind 97 percent of its peers, according to data compiled by Bloomberg.
“Brazil has traded poorly,” said Paolo Valle, a money manager at Federated Investment Management Co. in Pittsburgh, which oversees more than $1 billion of developing-nation bonds. “In a correction of risky assets, investors prefer unwinding some of their positions.”
Still Bullish
Pimco remains bullish because Latin America’s biggest country is well-positioned to shore up its economy should the rout in financial markets crimp the global recovery, Gomez told Bloomberg Television on May 21. The Brazilian 2017 security was also the second-biggest investment in the Newport Beach, California-based firm’s $3.2 billion Emerging Local Bond Fund, which has gained 2.1 percent this year, topping 62 percent of peers, Bloomberg data show.
The central bank’s 9.5 percent benchmark lending rate, the second-highest among the world’s 20 richest economies, gives policy makers “plenty of room to move towards a more accommodative policy stance,” Gomez said. Brazil is “an area where you can be defensive and have positive total returns if you get a double-dip in global growth,” he said.
Policy makers raised the benchmark rate 75 basis points, or 0.75 percentage point, last month to curb inflation as the economic expansion quickens. Gross domestic product will grow 6.5 percent this year, the fastest pace since 1986, according to a central bank survey published yesterday.
Neither Gomez nor Mark Porterfield, a spokesman for Pimco, returned e-mails and telephone messages seeking comment.
Real Falls
The real dropped 0.9 percent yesterday to 1.8704 after breaching the 1.9 per dollar level on May 21, heading for the biggest drop since October 2008, amid concern European leaders will fail to contain the region’s debt crisis.
The extra yield investors demand to own Brazilian dollar bonds instead of U.S. Treasuries fell five basis points yesterday and has swelled 50 this month to 246, within two basis points of a three-month high reached May 6, according to JPMorgan.
The cost of credit-default swaps to protect against a default for five years fell two basis points yesterday to 146 basis points, up from 123 at the beginning of May, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The yield on Brazil’s interest-rate futures contract due in January dropped 20 basis points this month, including one basis point yesterday, to 10.92 percent.
‘Risk Aversion’
“This month has been such a profound risk-aversion month, that has definitely led to contagion in the Brazil local rates market,” said Edwin Gutierrez, who helps manage $5 billion in emerging market-debt at Aberdeen Management Plc in London and is maintaining his long-term holdings. “Brazil doesn’t operate in a vacuum, so you have to take these things into consideration.”
The local bonds outperformed last year, soaring 52 percent as a rebound in demand for the country’s commodity exports helped fuel a 33 percent rally in the real, the world’s best- performing major currency, according to the GBI-EM index. Emerging-market debt climbed 22 percent.
Pimco’s Developing Local Markets Fund returned 21 percent in 2009 while the Emerging Local Bond Fund gained 29 percent. Both funds trailed more than 60 percent of peers, according to Bloomberg data.
Falling Yields
The average yield on Brazilian real bonds has declined nine basis points this month to 12.1 percent, according to JPMorgan’s GBI-EM Index. The country’s dollar bonds have risen one basis point over that time to 5.83 percent, according to JPMorgan’s EMBI+ index.
Pimco’s Developing Local Markets Fund held 4.4 percent of its assets as of December 2009 in real-denominated bonds maturing in January 2017. The Emerging Local Bond Fund had 6.9 percent of its money in those securities, according to Bloomberg data. Yields on the bonds declined 81 basis points this year to 12.5 percent.
“Long-term money managers continue to like Brazil,” said Federated’s Valle, who is maintaining his position in local government debt on a bet economic growth will lure international investors. In the short term, “investors are just acting before asking questions” to reduce risk, he said.
To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net Ye Xie in New York at yxie6@bloomberg.net;
http://preview.bloomberg.com/news/2010-05-25/pimco-s-brazil-bet-fizzles-as-real-plunge-erodes-returns-on-domestic-debt.html
MIL is in the hospital with accute blood poisoning, near death, yikes
LIBOR points to trouble...here it comes, imho
GM! How was your weekend?
BR Real Traders Pay Most in Emerging Markets to Guard Against Drop
By Ye Xie and Tal Barak Harif
May 24 (Bloomberg) -- Brazilian currency traders are paying the highest premium in developing markets to insure against a tumble in the real after Europe’s debt crisis sparked the biggest monthly retreat since November 2008.
One-month options giving investors the right to sell the real cost 7 percentage points more than contracts to buy as of May 20, the most among 24 emerging currencies tracked by Bloomberg. The difference is a change from three months earlier when Russia’s ruble and Hungary’s forint demanded higher premiums for possible declines, data compiled by Bloomberg show.
Investors are concerned that the real, last year’s best- performing currency with a gain of 33 percent against the dollar, will fall as Europe’s crisis threatens both the global recovery and forecasts that Latin America’s largest economy will grow by the most in two decades. Brazilian bond and stock funds lost a net $520 million the past two weeks, the most since February, data compiled by EPFR Global, a research firm in Cambridge, Massachusetts, show. The real sank 5.5 percent the past month.
“The currency was a crowded trade for awhile, and in a time like this, it’s going to be the most impacted,” said Edgardo Sternberg, an emerging-markets strategist at Loomis Sayles in Boston who helps oversee $145 billion. “The country is fine, but people are always nervous.”
The so-called risk-reversal rate has more than tripled from 2.34 percentage points in February in favor of options to give investors the right to sell the real, according to data compiled by Bloomberg.
Bearish Wagers
Foreign institutions made 83,129 more bets on the currency falling than rising as of May 20, data from the BM&FBovespa SA exchange in Sao Paulo. The bearish wagers totaled 104,483 on May 7, the most since February.
The real fell 4.6 percent against the euro last week, the most since February 2009. Before last week’s selloff, the real had gained 13 percent against the euro this year on speculation the crisis would be limited to Europe.
The reversal suggests “market fears have started to morph from a potential European credit event, to a more generalized fear of a double dip in terms of global growth,” Citigroup Inc. analysts led by Dirk Willer wrote in a research note to clients on May 21.
The extra yield investors demand to own Brazilian government dollar bonds instead of U.S. Treasuries widened 34 basis points, or 0.34 percentage point, last week to 246, according to JPMorgan Chase & Co. The gap is within two basis points of a three-month high reached May 6.
Default Swaps
The cost of credit-default swaps to protect against a default on Brazilian debt for five years rose 17 basis points to 148, according to data compiled by CMA DataVision. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The yield on Brazil’s interest-rate futures contract due in January fell 15 basis points, the biggest decline since March, to 10.93 percent.
The real sank 2.9 percent last week to 1.8534 per dollar, leaving it down 5.9 percent this year.
“The market is overreacting,” said Yerlan Syzdykov, a senior portfolio manager in Dublin at Pioneer Investments, which oversees $236 billion in assets. “Brazil’s growth will accelerate from here. The currency at these levels looks attractive.”
Brazil’s economy will expand 6.3 percent this year, the fastest pace since 1986, according to a central bank survey of about 100 economists published last week.
Forecasts
Syzdykov said the currency will rise to 1.75 per dollar in coming months and he may invest more in local-currency bonds. The real will strengthen to 1.72 by year-end, according to the median forecast of 18 analysts surveyed by Bloomberg.
Even after this year’s decline, the real is about 10 percent “overvalued,” according to Nick Chamie, global head of emerging-markets research at RBC Capital Markets in Toronto.
Traders are expecting the currency’s fluctuation to increase in the coming month. One-month implied volatility on real options jumped to 21.8 percent on May 21, the highest level since July, and climbed to an all-time high of 70.9 percent in October 2008, one month after the collapse of the Lehman Brothers Holdings Inc. led the real to fall to 2.62 per dollar.
Fibria
The increase in volatility and the real’s decline in 2008 contributed to losses at Brazilian companies such as Fibria Celulose SA that made wrong-way currency bets through derivatives. Sao Paulo-based Fibria, the world’s largest pulp producer, will make its final payment tied to $3 billion of debt from wrong-way currency bets by this week, Chief Executive Officer Carlos Aguiar said on May 20.
Derivatives, financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather, are used by companies and investors to hedge against, or speculate on, price changes.
Brazil’s central bank is buying dollars daily, extending a practice it adopted in March 2009, even as the real depreciates. Foreign reserves increased 1.3 percent in the past month to about $250 billion, the fastest growth since November.
“My perception is that in the shorter term we could see it weaker because of the external factors,” said David Beker, head of Latin American economics at Bank of America Merrill Lynch in New York. “Moving forward - the central bank won’t allow the currency to appreciate - 1.70 is floor.”
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Tal Barak Harif in New York at tbarak@bloomberg.net
Last Updated: May 24, 2010 00:17 EDT
>>Will it last? Emerging Market Stocks Rebound Led by China, Commodities Gain
By Gavin Serkin
May 24 (Bloomberg) -- Emerging-market stocks gained, lifting the benchmark index by the most in eight days, and commodities rallied on speculation China will delay efforts to cool economic growth. U.S. stock index futures fell.
The MSCI Emerging Markets Index advanced 0.6 percent as of 10:14 a.m. in London as the Shanghai Composite Index jumped the most in seven months. The Stoxx Europe 600 Index rose 0.3 percent, rebounding from a six-month low. Futures on the Standard & Poor’s 500 Index fell 0.5 percent after the U.S. benchmark index advanced 1.5 percent on May 21. Copper rose for a third day and palladium for a second day. The ruble strengthened the most since January against the euro. The euro declined against all 16 of its most-traded peers.
President Hu Jintao said China will move gradually and independently in changing the nation’s exchange-rate mechanism, as talks with the U.S. opened in Beijing today. China should be cautious in introducing new tightening measures because the global economic environment is complex, Xu Lianzhong, an official with the National Development and Reform Commission’s price monitoring center, wrote in a commentary published today in the China Securities Journal.
“The market is expecting a softening in the government’s stance on tightening given the uncertain outlook on global growth,” said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million.
China’s Gains
The Shanghai Composite jumped 3.5 percent, paring its retreat this year to 18 percent. China Vanke Co., the nation’s biggest listed developer by market value, surged 4.9 percent. India’s Bombay Stock Exchange Sensitive Index advanced the most in two weeks as Citigroup Inc. said the benchmark climb 10 percent by December. Reliance Natural Resources Ltd. soared 22 percent in Mumbai after Chairman Anil Ambani and his brother Mukesh Ambani agreed to scrap a deal that prevented the billionaires from competing with each other in business.
The decline in U.S. futures indicated the S&P 500 may pare some of its late rally on May 21, when it broke a three-day losing streak as investors speculated equities may have fallen too much following a 12 percent retreat since April 23. Sales of U.S. previously owned homes probably rose 5.6 percent in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit, economists said before a report from the National Association of Realtors at 10:00 a.m. in Washington.
Metals Advance
In London, Rio Tinto Group, the world’s third-largest mining company, gained 2.1 percent as base metals advanced. Barratt Developments Plc rose 3.2 percent after JPMorgan Chase & Co. recommended Britain’s biggest homebuilder by volume. Prysmian SpA rallied 2.4 percent in Milan on a report a group of investors are considering buying a stake in the company. Markets including Switzerland, Austria, Norway, Denmark and Greece are closed today for public holidays.
Copper for delivery in three months gained 0.5 percent to $6,881 a metric ton on the London Metal Exchange. Nickel and zinc also advanced. Gold for immediate delivery added 0.8 percent to $1,185.89 an ounce and palladium by 2.3 percent to $446.60 an ounce. Crude oil for July delivery rose 0.4 percent to $70.28 a barrel in New York trading.
The euro weakened 1.1 percent to $1.2436 and 111.82 yen. The Dollar Index, which tracks the currency against those of six major U.S. trading partners, rose for the first time in four days, climbing 0.8 percent.
Bonds Climb
Government bonds rose, with the yield on the 10-year Treasury dropping 4 basis points to 3.21 percent. German 10-year government bonds advanced for a fifth day, driving the yield almost 2 basis points lower to 2.65 percent, after earlier sliding to within a basis point of the lowest level since at least 1990.
The cost of insuring against losses on European corporate bonds fell, with credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield companies declining 6.5 basis points to 581.75, according to Markit Group Ltd. Swaps tied to government securities sold by Greece, whose deficit crisis sparked declines in sovereign debt that have roiled markets this month, dropped 46.5 basis points to 672, CMA DataVision prices show.
To contact the reporters on this story: Gavin Serkin at gserkin@bloomberg.net
Last Updated: May 24, 2010 05:25 EDT
BL: Euro Declines Against Dollar as Spain Takes Over Lender
By Matthew Brown and Yoshiaki Nohara
May 24 (Bloomberg) -- The euro dropped the most versus the dollar in four days after the Bank of Spain took over a failing regional lender.
The pound rose versus the euro as the U.K. announced $9 billion in spending cuts to contain the budget deficit. Yuan forwards rose the most in four days as President Hu Jintao said China will move gradually and independently in making changes to its exchange-rate mechanism. The euro fell against all of its most-traded counterparts as investors sold the currency to fund trades in higher-yielding currencies.
“We are headed for a softer patch of growth, which is hurting the euro today, and is unfavorable for risk assets going forward,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ in London. “Risk currencies, such as the Australian dollar, are overvalued.”
The euro fell 1.5 percent to $1.2384 at 6.41 a.m. in New York, from $1.2570 on May 21. It touched $1.2144 on May 19, the lowest level since April 17, 2006. Japan’s yen strengthened 1.3 percent to 111.48 per euro and was little changed at 90.05 per dollar.
The 16-nation euro dropped toward a four-year low against the dollar after the Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults. The lender, based in the city of Cordoba, Spain, and controlled by the Roman Catholic Church, will be run by the government’s bank restructuring fund, the regulator said.
Spain’s ‘Revelations’
“Weekend revelations that the Bank of Spain has acted to support a regional lender are likely to weigh on the euro,” Gareth Berry, a currency strategist at UBS AG in Singapore, wrote in a research note. “This will probably revive concerns about the broader stability of the euro-zone banking system.”
Brazil’s real appreciated 1 percent to 2.3296 versus the euro and South Africa’s rand advanced 1 percent to 9.7736 as the fastest convergence in short-term interest rates in almost a year is making the euro an addition to currencies used to finance investments in higher-yielding assets.
Borrowing in euros to finance an investment in the Australian dollar, New Zealand dollar, Brazilian real and Norwegian krone returned 10 percent in the past 6 months, according to data compiled by Bloomberg. The same trade using the dollar instead of the 16-nation currency resulted in a 7.5 percent loss, and a 7.4 percent decline with the yen.
Europe’s currency has lost 6.7 percent this year, based on Bloomberg Correlation-Weighted Indices. The dollar has risen 9.8 percent, and the yen has advanced 14 percent.
Yuan Forwards
Yuan forwards advanced from near their weakest level in eight months after Hu said as talks with the U.S. opened in Beijing today that China will continue to “steadily advance” reform “under the principles of independent decision-making, controllability and gradual progress.”
Non-deliverable 12-month yuan forwards strengthened 0.2 percent to 6.725, while the yuan was little changed at 6.8287. The forwards traded at to 6.7750 on May 20, the weakest since September 2009.
Sterling rose 0.8 percent to 1.1591 versus the euro as the U.K.’s Chancellor of the Exchequer George Osborne announced 6.25 billion pounds ($9 billion) of spending reductions to contain a budget deficit that is the biggest in the Group of Seven nations. Concern that Britain will struggle to cut the shortfall has contributed to a 3.6 percent decline in the pound this year, according to Bloomberg Correlation-Weighted Indexes.
‘Stay of Execution’
“The market’s giving the new government a reasonable stay of execution, wanting to see how definitive they are in the budget-deficit stakes,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “The 6 billion pounds of cuts today are a step in the right direction. For now, markets are cautiously rewarding sterling.”
The Dollar Index rose for the first time in four days, increasing 1.1 percent to 86.310 before U.S. reports forecast to show the housing market is improving and consumers turned the most optimistic in 20 months.
Existing home sales rose to an annual rate of 5.65 million in April, from 5.35 million in March, according to a Bloomberg survey before the National Association of Realtors report today. The Conference Board’s confidence index climbed to 59 this month from 57.9 in April, according to another survey before tomorrow’s data. That would be the highest since September 2008.
“The U.S. is experiencing a V-shaped recovery,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Against this backdrop, the greenback is likely to be supported.”
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
Last Updated: May 24, 2010 07:30 EDT
>>European Stocks, U.S. Futures Tumble; Treasuries Advance
By David Merritt
May 24 (Bloomberg) -- European stocks and U.S. index futures dropped while copper and oil retreated on concern that the turmoil from Europe’s debt crisis has further to run. Government bonds rose and the euro snapped three days of gains.
The Stoxx Europe 600 Index fell 0.5 percent to a six-month low at 12 p.m. in London. Futures on the Standard & Poor’s 500 Index slumped 1.1 percent. The S&P GSCI Total Return Index of 24 commodities retreated for an eighth day, the worst streak since February 2009. The yield on the 10-year Treasury note, a benchmark for borrowing rates around the world, declined eight basis points to 3.17 percent at 7:04 a.m. in New York, approaching a one-year low. The euro weakened 1.5 percent against the dollar and 1.4 percent compared with the yen.
Corporate bond sales are poised for their worst month in a decade, while relative yields are rising the most since Lehman Brothers Holdings Inc.’s collapse, as the response by lawmakers to Europe’s sovereign debt crisis fails to inspire investor confidence. The U.S., Spain and Greece are among developed nations whose borrowings put them in a “ring of fire” amid sovereign debt concerns, said Pacific Investment Management Co., which runs the world’s biggest bond fund.
“While the support declared by European leaders and the International Monetary Fund quelled concerns of sovereign risk spreading, Greece’s ability to refinance near-term debt remains a risk,” said John Wilson, head of the Australian unit of Newport Beach, California-based Pimco, in an e-mailed statement today. “Other developed countries in this ‘ring of fire’ are Ireland, Spain, France, U.S., U.K., Italy, Portugal and Japan.”
Spanish Takeover
The Bank of Spain removed the managers of CajaSur, a savings bank crippled by property loan defaults, and put the bank under a provisional administrator. Spain’s worst recession in 60 years has driven up defaults at the country’s banks, which have until the end of June to seek aid from a government fund of up to 99 billion euros ($123 billion) as the regulator seeks to hasten mergers between ailing lenders to ease over-capacity and help them recapitalize.
More than two stocks fell for every one that gained on the Stoxx 600 Index. Daimler AG fell 2.5 percent in Frankfurt and Fiat SpA dropped 1.7 percent in Milan, leading a decline in carmakers amid speculation that government efforts to reduce their budget deficits may curb economic growth. BP Plc and Repsol YPF SA declined more than 2 percent as crude oil fell below $70 a barrel in New York.
The decline in U.S. futures indicated the S&P 500 may pare some of its 1.5 percent rally on May 21, when U.S. stocks rebounded on from their biggest drop in a year. The S&P 500 is still 11 percent lower than its 2010 high in April even as economic reports including U.S. retail sales beat estimates and European governments committed as much as 860 billion euros ($1.1 trillion) to support their economies.
Not Over
“I don’t think we’re out of the woods yet,” Ted Weisberg, president of Seaport Securities in New York, said in an interview on Bloomberg Television. If gains from May 21 don’t continue, “we have our eyes on the exit and we’re not going to be afraid to walk through.”
The S&P 500 has entered a correction, defined as a decline of more than 10 percent from a peak, on average 421 days after the start of 12 bull markets since 1932, according to HSBC Holdings Plc. The selloffs on average took the measure 15 percent lower. The U.S. benchmark gauge has climbed 61 percent since entering its latest bull run on March 9, 2009.
Sales of previously owned homes in the U.S. probably rose in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit, economists said before a report today.
Home Sales
Purchases increased 5.6 percent to a 5.65 million annual rate, according to the median of 56 forecasts in a Bloomberg News survey. Sales would be the highest since November, the month the incentive was first due to expire. The National Association of Realtors’ report is due at 10 a.m. in Washington.
Asian stocks gained today on speculation Chinese policy makers will rein in efforts to cool the economy. The MSCI Asia Pacific Index rallied 0.4 percent, snapping six days of losses.
The MSCI Emerging Markets Index climbed for a second day, rising 0.4 percent. Chinese shares led gains, with the Shanghai Composite Index surging 3.5 percent for the biggest increase in seven months. Policy makers in the world’s fastest-growing major economy should be cautious in introducing new tightening measures as the global economic environment is complex, Xu Lianzhong, an official with the National Development and Reform Commission’s price monitoring center, wrote in a commentary published today in the China Securities Journal.
Commodities Fall
The S&P GSCI Index of commodities fell 0.3 percent as crude oil retreated 0.3 percent to $69.82 a barrel in New York. Copper for delivery in three months dropped 0.2 percent to $6,830 a metric ton on the London Metal Exchange. Gold for immediate delivery added 0.7 percent to $1,185.40 an ounce and palladium 1.9 percent to $445.15 an ounce.
The gains for Treasuries drove the yield to as low as 3.16 percent, six basis points short of its lowest level since May 18, 2009. Germany’s 10-year bund yield fell 4 basis points to 2.63 percent, within a basis point of the lowest since at least 1990.
The euro fell by the most in four days against the dollar, declining as much as 1.7 percent, before trading 1.4 percent lower at $1.2393. It weakened 1.3 percent versus the yen.
To contact the reporter on this story: David Merritt in London on Dmerritt1@bloomberg.net
Last Updated: May 24, 2010 07:35 EDT
FXI: Asian Stocks Rise on China Policy Speculation; ICBC, BHP Climb
By Masaki Kondo
May 24 (Bloomberg) -- Asian stocks rose, led by the biggest gain in Chinese equities since October, on speculation China’s government will delay further measures to cool the country’s property market because of the European debt crisis.
Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, rose 1.7 percent in Hong Kong. Beiqi Foton Motor Co. jumped 8.6 percent after the Shanghai Securities News reported the government will extend subsidies for trade-in vehicles to the end of this year. BHP Billiton Ltd., which got 20 percent of its fiscal 2009 revenue from China, climbed 2 percent in Sydney.
“The market is expecting a softening in the government’s stance on tightening given the uncertain outlook on global growth,” said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which holds about $583 million.
The MSCI Asia Pacific Index increased 0.2 percent to 112.21 as of 12:23 p.m. Tokyo time, with 10 stocks rising for every seven that dropped. The gauge had fallen 7.5 percent in the past six days on concern Europe will fail to stop its debt crisis from spreading. German lawmakers approved their country’s share of a $1 trillion euro-region bailout in a May 21 vote.
China’s Shanghai Composite Index climbed 3.2 percent, the biggest gain since Oct. 9. Hong Kong’s Hang Seng Index rose 0.5 percent. Australia’s S&P/ASX 200 Index gained 1.2 percent.
Japan, South Korea
The Nikkei 225 Stock Average dropped 0.3 percent in Tokyo, led by insurers on concern recent declines in share prices will devalued their assets. South Korea’s Kospi was little changed, having earlier dropped 0.9 percent after President Lee Myung Bak said he will take North Korea to the United Nations Security Council over the torpedoing of one of the South’s warships.
Futures on the Standard & Poor’s 500 Index lost 0.3 percent. The gauge rose 1.5 percent in New York on May 21, rebounding from the biggest drop this a year, as investors speculated equities may have fallen too much.
Industrial & Commercial Bank gained 1.7 percent to HK$5.56 in Hong Kong. China Vanke Co., the nation’s largest developer by market value, climbed 4.6 percent to 7.73 yuan. Smaller rival Poly Real Estate Group Co. soared 7.5 percent to 12 yuan.
China should be cautious in introducing new tightening measures as the global economic environment is complex, Xu Lianzhong, an official with the National Development and Reform Commission’s price monitoring center, wrote in a commentary published today in the China Securities Journal. The European debt problem is one of many global economic uncertainties that China faces, Xu wrote.
Subsidy Extension?
Chinese automakers rose after the Shanghai Securities News reported the government will extend subsidies for trade-in vehicles to the end of this year. The subsidies were was due to expire on May 31 after its introduction on June 1, 2009. Beiqi Foton advanced 8.6 percent to 19.12 yuan. FAW Car Co. gained 4.3 percent to 17.91 yuan.
BHP, the world’s biggest mining company, rose 2 percent to A$37.50 in Sydney amid speculation demand for metals in China can be sustained. Smaller competitor Rio Tinto Group climbed 2.6 percent to A$63.40.
Mining and finance companies contributed the most to the MSCI Asia Pacific Index’s advance today. Companies in the gauge are priced at an average 14.2 times estimated profit, near the lowest level since January 2009.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Last Updated: May 23, 2010 23:25 EDT
>>BL: Libor Shows Strain, Sales Dwindle, Spreads Soar: Credit Markets
By John Glover and Caroline Hyde
May 24 (Bloomberg) -- Corporate bond sales are poised for their worst month in a decade, while relative yields are rising the most since Lehman Brothers Holdings Inc.’s collapse, as the response by lawmakers to Europe’s sovereign debt crisis fails to inspire investor confidence.
Companies have issued $47 billion of debt in May, down from $183 billion in April and the least since December 1999, data compiled by Bloomberg show. The extra yield investors demand to hold company debt rather than benchmark government securities is headed for the biggest monthly increase since October 2008, Bank of America Merrill Lynch’s Global Broad Market index shows.
Investors are fleeing all but the safest securities on concern European leaders won’t be able to coordinate a response to rising levels of government debt from Greece to Spain, while U.S. legislation threatens to curb credit and hurt bank profits. The rate banks say they charge each other for three-month loans in dollars has almost doubled since February.
“This is a quintessential liquidity crisis,” said William Cunningham, head of credit strategies and fixed-income research at Boston-based State Street Corp.’s investment unit, which oversees almost $2 trillion. “It’s not inconceivable to imagine a situation where the markets behave so poorly, the liquidity behaves so badly, and risk-tolerance just evaporates that -- particularly in Europe -- consumers contract, businesses stop hiring and stop investing, and economic activity halts.”
Spreads, Junk Bonds
Yields on corporate bonds average 188 basis points more than government debt, up from the low this year of 142 on April 21, Bank of America Merrill Lynch’s index shows. The last time spreads widened faster was October 2008, when they soared 108 basis points, or 1.08 percentage point, to 467.
Junk bonds issued in the U.S. have been especially hard hit, with spreads expanding 141 basis points this month to 702, contributing to a loss of 3.78 percent. Leveraged loans, or those rated speculative grade, have also tumbled. The S&P/LSTA U.S. Leveraged Loan 100 Index ended last week at 89.23 cents on the dollar, from 92.90 cents on April 26.
The market turmoil has made banks reluctant to lend to each other. The London interbank offered rate, or Libor, for three- month loans in dollars rose to more than 0.5 percent for the first time since July 24, data from the British Bankers’ Association showed today.
The rate climbed to 0.51 percent, the highest level since July 16, from 0.497 percent at the end of last week, on concern about the quality of banks’ collateral amid the euro-region’s financial crisis. Citigroup Global Markets Inc. strategist Neela Gollapudi in New York said in a report that the rate may reach 1.5 percent “over the next several months” after the U.S. Senate approved a financial-regulation overhaul that may increase banks’ uncertainty about how they will be able to fund themselves.
Risk Aversion
“We’re seeing risk aversion intensifying, as well as a widening of risk aversion across asset classes,” said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate and Investment Bank in London. “That raises concern over counterparty risk and is pushing rates higher in the interbank market.”
Traders in the forward market are betting the premium of the three-month dollar London interbank offered rate, or Libor, over what investors expect the overnight federal funds rate to average -- known as the Libor-OIS spread -- will climb to about 42 basis points next month and about 61 basis points by September, according to UBS AG data. The spread widened 1 basis point to 28 basis points as of 12:25 p.m. in London.
Bank Sentiment
The spread, a gauge of banks’ reluctance to lend, surged to a record 364 basis points on Oct. 10, 2008 as Lehman’s collapse froze credit markets. Overnight index swaps, or OIS, shows where traders expect the Federal Reserve’s overnight effective rate will average for the term of the swap.
Turmoil in financial markets was exacerbated last week when German Chancellor Angela Merkel stepped up calls for regulation and forbade some types of short-selling without consulting her European partners. In a short-sale an investor bets on the decline in a security’s price. Nations including France and the Netherlands said they didn’t plan to follow Germany’s lead.
“Policy makers have different views and priorities in different countries,” said Jamie Stuttard, head of European and U.K. fixed income at Schroder Investment Management in London. “Almost inevitably they aren’t speaking with one voice.”
Signs of Weakness
The latest concerns about the fiscal health of nations, and of the banks that hold their bonds, are surfacing as the economic backdrop shows signs of worsening.
More Americans unexpectedly filed applications for unemployment benefits last week as Labor Department figures showed initial jobless claims rose by 25,000 to 471,000, the highest level for a month and exceeding the median forecast of economists surveyed by Bloomberg. An index of U.S. leading indicators fell 0.1 percent in April, a sign the economic expansion may slow in the second half of the year, Conference Board data showed on May 20.
The ZEW Center for European Economic Research in Mannheim, Germany said last week its index of investor and analyst expectations in Europe’s largest economy fell the most since Lehman collapsed. The euro is swinging between gains and losses after weakening to a four-year low against the dollar last week. The currency shared by the 16 members of the euro region fell 1 percent today to trade at $1.2439.
“De-risking by investors and regulatory uncertainty are combining to create deteriorating liquidity in fixed-income markets,” debt strategists at New York-based JPMorgan Chase & Co. said in a report dated May 21. “Look for the flight to liquidity to persist, liquidity differentials to widen, and less liquid asset classes to cheapen in the near term.”
Sales Postponed
Volkswagen AG, Europe’s largest carmaker, postponed a planned 686.3 million-euro sale of securities backed by Spanish car loans on May 10. Stefan Rolf, a Braunschweig-based spokesman, identified cited adverse market conditions.
Eurasian Natural Resources Corp., a London-based iron ore and alumina miner, delayed a debut dollar-denominated note sale this month because of market volatility, people familiar with the matter said. Towergate Partnership Ltd., Europe’s largest independent insurance broker, postponed a 665 million-pound ($961 million) sale of high-yield bonds on May 13 until markets improve, said people with knowledge of the deal.
The last benchmark-sized sales of 500 million euros or more in Europe were by Casino Guichard-Perrachon SA, Europe’s biggest retailer, and Aeroports de Paris SA in April.
“If companies want to come to the market now in size they’d have to pay a higher premium to do so,” said Felix Freund, a Frankfurt-based money manager at Union Investment GmbH, which oversees 160 billion euros of assets. “Companies are generally well funded from last year’s record issuance and from high cash positions on their balance sheets.”
Leverage Ratios
Of the companies covered by Morgan Stanley’s credit strategists, 70 percent reduced their leverage ratios in the first quarter, up from about 50 percent two quarters earlier, according to a report published by the firm on May 21. For investment-grade companies, cash remains at “multi-year’ highs of 23 percent relative to debt, and 15 percent for speculative- grade borrowers, the firm said.
“Given the backup in spreads over the past month, as well as the deleveraging we expect this year, risk-adjusted valuations have gone from roughly fair to once again cheap,” Morgan Stanley strategists Rizwan Hussain and Adam Richmond wrote in the report.
Even so, the cost to protect against losses on corporate bonds with credit-default swaps remains elevated.
Default Risk
Europe’s Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies climbed 2.15 basis points to 590.4, near the highest level since October and up from 426 at the end of April, according to Markit Group Ltd. and JPMorgan data.
Swaps tied to government securities sold by Greece, whose spiralling deficit sparked the sovereign debt crisis in the region, dropped 35 basis points to 683.5, CMA DataVision prices show, signalling an improvement in investor perceptions of credit quality.
Risk declined in Asia-Pacific earlier today on speculation China’s government will delay action to cool the country’s property market. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan fell 1 basis point to 149 in Hong Kong, according to Credit Agricole CIB. An iTraxx risk benchmark for Australia slipped 5 basis points, CMA data show.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Emerging Markets
In emerging markets, spreads on bonds widened in four of the past five weeks, ending at 337 basis points on average on May 21, according to JPMorgan prices. That’s up from the low this year of 230 on April 15.
Widening bond spreads “are a measure of the seriousness of the risks and the wider and more uncertain range of outcomes,” said Paul Owens, a credit analyst at Liontrust Investment Services Ltd. in London, which managed the equivalent of $1.8 billion as of Dec. 30. “This all showed that the authorities haven’t really been co-operating with each other.”
To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net; Caroline Hyde in London chyde3@bloomberg.net
Last Updated: May 24, 2010 07:32 EDT
BL: Defaults on Apartment Building Mortgages Held by U.S. Banks Rise to Record
By Hui-yong Yu
May 24 (Bloomberg) -- Defaults on apartment-building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter, almost twice the year-earlier level, as more borrowers failed to repay debt approved near the market peak, said Real Capital Analytics Inc. in a report.
Defaults on so-called multifamily mortgages rose from 4.4 percent in the fourth quarter and from 2.4 percent during the same period in 2009, the New York-based real estate research firm said today. Commercial-mortgage defaults also rose in the first quarter for loans against office, retail, hotel and industrial properties, Real Capital said.
“Apartment defaults are leading other commercial real estate,” Sam Chandan, global chief economist at Real Capital, said in an interview. “Banks tended to make more aggressively underwritten apartment loans earlier during this last cycle. Credit and pricing reached their peaks for office properties and other commercial assets later.”
The global recession cut demand for U.S. apartments, office space, retail shops, hotels and warehouses during the past two years as jobs disappeared and consumers cut spending. Defaults on apartment-building mortgages surpassed the previous record, set in 1993, for the past three consecutive quarters.
The U.S. savings-and-loan crisis drove apartment-building defaults to 3.4 percent in 1993. Defaults on other types of commercial property debt peaked at 4.6 percent in 1992, according to Real Capital.
The proportion of defaults on office, retail, hotel and industrial properties rose to 4.2 percent in the first quarter of this year, the company said.
U.S. apartments may lead a rebound in commercial real estate as vacancies peak in 2010 and the economy adds jobs, property research firm Reis Inc. said May 19. Reis estimates apartment vacancies will peak at 8.2 percent in 2010, the highest level since the firm began tracking the number in 1980. The number should start to decline in 2011, Reis said.
Real Capital bases its analysis on bank filings and data from the Federal Deposit Insurance Corp.
To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net
Last Updated: May 24, 2010 00:00 EDT
BL: Fees Plummet 17% in Europe for Investment Bankers Forced to Withdraw Deals
By Ambereen Choudhury
May 24 (Bloomberg) -- Investment banking fees in western Europe are falling victim to the Greek debt crisis, as companies from London to Dusseldorf pull stock and bond offerings and put takeovers on hold.
Income from advising on mergers and selling shares and bonds in the region dropped 17 percent from a year earlier to $5.9 billion in the first four months of 2010, the lowest in six years, according to estimates from New York-based research firm Freeman & Co. Fees in Europe are at about the same level as in 1999, the year the euro started, the data show.
“Companies have been held back from tapping primary markets because of the volatility and uncertainty driven by concerns over sovereign debt,” said Ivor Dunbar, London-based co-head of global capital markets at Deutsche Bank AG, the top- ranked adviser on corporate bond sales and mergers in Europe this year.
The decline in fees in Europe contrasts with a 53 percent jump in revenue in the U.S. and a 68 percent increase in Asia, Freeman said. The sovereign debt crisis, which led to an unprecedented bailout package of almost $1 trillion, sapped confidence among European companies. New York University Professor Nouriel Roubini said May 18 that Greece is the “tip of the iceberg” and European governments may still fail to fix their finances.
“We won’t see a move towards normal M&A and capital markets financing volumes until there is clarity on the scale of the issues facing the euro zone,” said Paulo Pereira, a partner at Perella Weinberg Partners LP in London and former head of European mergers at Morgan Stanley.
‘Doesn’t Look Good’
European leaders announced the loan package and a program of bond purchases on May 10 to stop concern that Greece will default on its debt from spreading to Portugal, Italy and Spain. Amid the turmoil, ex-Federal Reserve Chairman Paul Volcker said last week he’s concerned the single European currency may break up.
“It doesn’t look good,” said Simon Maughan, a banking analyst at MF Global Securities Ltd. in London. European fees may stay depressed until the fourth quarter, he said.
The fallout may be lasting, with sluggish growth in Europe being compounded by a regulatory crackdown on banks that may drive some capital markets business away from London to Asian financial centers like Hong Kong, said Tom Troubridge, head of the London capital markets group at PricewaterhouseCoopers.
Gross domestic product in the 16-nation euro region may rise 0.9 percent this year after shrinking 4.1 percent in 2009, according to the European Commission.
Britain’s coalition government, formed this month, plans to introduce a tax on banks and started a commission that will decide how to separate retail banking from investment banking. European Union finance ministers last week approved draft rules to tighten regulations for hedge and private equity funds.
U.S., Asia Fees Rise
In the U.S., fees rose to $10 billion in the first four months, from $6.5 billion in the year-earlier period, driven by revenue from stock offerings and sales of high-yield bonds, according to the Freeman data. Revenue in the Asia-Pacific region jumped 68 percent from a year earlier to a record $5.6 billion in the first four months of 2010, Freeman said. At that rate of growth, Asia will become more lucrative than the whole of Europe by next year, the data show.
“Asia’s share of global volumes will continue to rise,” said Farhan Faruqui, head of Citigroup Inc.’s Asia-Pacific global banking division in Hong Kong. “Asia is home to a growing list of domestic corporate champions who are keen to move to global champion status” and in doing so will need to make acquisitions and raise funding, he said.
China Fee Boom
Fees in China and Hong Kong surged 161 percent, according to Freeman, as the country’s economy boomed. China’s economy expanded 11.9 percent in the first quarter, the fastest pace in almost three years.
Western banks are adapting to China’s rising importance. HSBC Holdings Plc, Europe’s largest bank, moved its chief executive officer to Hong Kong in February, and is seeking permission to sell shares in Shanghai. JPMorgan Chase & Co., the second-biggest U.S. bank by assets, is setting up a securities joint venture in China with First Capital Securities Co., people with knowledge of the matter said in March.
“Investment banks which have invested heavily in China and some emerging markets are finally seeing the fruits of their labor,” said Scott Moeller, a former Deutsche Bank dealmaker and now a professor at London’s Cass Business school. “The West will go into decline for the next few years.”
Greece’s debt crisis froze bond and stock sales as well as takeovers in Europe, said Frank Aquila, a partner in Sullivan & Cromwell LLP’s mergers team in New York.
Takeovers Drop
The value of European takeovers completed in the first four months dropped 68 percent to $62.4 billion, according to data compiled by Bloomberg. Royal Bank of Scotland Group Plc, Britain’s biggest government-controlled bank, abandoned a sale of its aviation-finance unit and Germany utility E.ON AG decided to pull an auction of its Italian natural gas grid last month.
Bond sales also fell, tumbling 44 percent from the same period last year to 271 billion euros. Towergate Partnership Ltd., Europe’s largest independent insurance broker, postponed a 665 million-pound sale of high-yield bonds this month, citing market volatility. National Express Group Plc, the U.K. rail and bus operator, postponed its bond sale in late April.
Companies raised $9.1 billion in 28 IPOs in western Europe in the first four months, compared with no offerings in the year-earlier period, the data show. Still, the sovereign debt crisis forced Russia’s fertilizer maker UralChem Holding Plc and Germany’s GSW Immobilien AG to shelve IPOs worth a combined $1.23 billion in the past four weeks.
Siemens AG shelved a possible sale of its hearing-aid unit in March after bids fell short of the 2 billion euros sought, two people familiar with the plan said at the time.
“Confidence has returned to issuers in Asia and the U.S., but that has not been the case in Europe,” said Philip Keevil, senior partner at advisory firm Compass Advisers LLP in New York. “Many of them are quite concerned about the recovery, and so haven’t wanted to raise equity or debt to finance expansion or make acquisitions.”
To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net
Last Updated: May 24, 2010 05:02 EDT
BL: Dollar to Be `Growth Currency' as Economy Outpaces Europe, Japan, UBS Says
By Anchalee Worrachate
May 24 (Bloomberg) -- The dollar will probably become a “growth currency” during the next 10 years, shedding its haven status of the past decade, as the U.S. economy outperforms Europe and Japan, according to UBS AG.
The dollar will return to a pattern seen in the early 1980s and late 1990s, when it appreciated as stocks rose, Mansoor Mohi-uddin, global head of foreign-exchange strategy at UBS in Singapore, wrote today in a research report titled “FX Mega- Trends 2010-2020: Dollar Regime Change.” Central banks may intervene more frequently in currency markets as price swings, or volatility, intensify, he said in separate reports.
The greenback has risen 9.7 percent this year, Bloomberg Correlation-Weighted Currency Indexes show, amid evidence the U.S. economic recovery is gathering pace. The Federal Reserve will be the first major central bank to boost interest rates, Mohi-uddin wrote. Further dollar strength may be underpinned by U.S. money managers, foreign central banks and sovereign wealth funds, he said.
“Over the next 10 years it seems likely that the dollar will shift to having a positive relationship with investor sentiment as America’s fundamentals appear more attractive than those of the euro zone, U.K. and Japan,” Mohi-uddin wrote. “The likelihood that the dollar performs strongly rather than weakly when investors are risk-seeking will signify a major change in the currency markets.”
The dollar strengthened to $1.2384 as of 11:17 a.m. in London, from $1.2570 on May 21.
Economic Outperformance
The U.S. economy will expand 3.2 percent this year, according to the median estimate of 77 analyst forecasts compiled by Bloomberg News. That compares with 1.2 percent growth for the U.K., 1.1 percent in the 16-nation euro region and 2.1 percent for Japan, separate surveys show. U.S. equities led gains through the end of April, “until all markets were hit by risk aversion this month,” Mohi-uddin said.
Fed policy makers will raise their benchmark rate to 0.5 percent from a range of zero to 0.25 by December, while the ECB will hold its main rate at 1 percent and the Bank of Japan will stay at 0.1 percent through year-end, according to median forecasts of economists compiled by Bloomberg. The Bank of England will also increase its key rate by the fourth quarter, according to another median forecast.
“The euro zone has been stricken by crisis over the debts of its weaker members,” Mohi-uddin said. “Japan will only emerge slowly from deflation and the U.K. has to deal with its record high budget deficit over the next few years.”
Change in Trend
For the past decade, the dollar, which slid 28 percent against the euro and 16 percent versus the yen, was a refuge amid low interest rates, rising when investors were risk-averse and falling when equities, credit and commodities rose, according to Mohi-uddin.
“Thus when U.S. investors were risk-seeking and sought higher yields, they would often buy higher-returning foreign assets,” he wrote. Now the dollar has strengthened even as stocks rallied, a change from the general trend of the past decade, Mohi-uddin said.
Sovereign-wealth funds, particularly those of oil-producing nations, may also start to view the dollar more favorably amid U.S. economic outperformance, according to the report.
‘Highly Volatile’
“This would cause the dollar to rise, not fall, if oil prices strengthen in the next few years,” he wrote.
The foreign-exchange market will become more volatile in the next decade, raising risks policy makers will increase intervention, said UBS, the world’s second-biggest currency trader, according to Euromoney Institutional Investor Plc. Volatility surged in the wake of the collapse of Lehman Brothers Holdings Inc. in September 2008 before receding last year, according to data compiled by Bloomberg.
“In 2010 exchange rates have again become highly volatile as the European debt crisis has unfolded,” Mohi-uddin said. “The combination of rising emerging markets, crisis in other regions and unpredictable shifts in economic policies will keep currency markets very volatile over the next decade.”
The ECB may face “much greater” pressure to intervene, he said. The euro dropped against all 16 most-actively traded counterparts this year as the region’s debt crisis deepened. The risk of policy makers taking action will increase should the euro weaken below its long-term fair value of $1.20, he said.
The last coordinated intervention by the Fed, the ECB, the Bank of Japan and central banks in the U.K. and Canada was in September 2000, when they supported the euro after the common currency fell to 86 U.S. cents.
Investors should be cautious should policy makers say the currency market isn’t reflecting fundamentals or that trading has become disorderly, Mohi-uddin said.
“These circumstances are likely to prevail as Europe’s debt crisis endures over the next few years,” he said. “There may be several episodes of either unilateral or coordinated intervention by the ECB in 2010-2020.”
To contact the reporters on this story:
Anchalee Worrachate in London at
aworrachate@bloomberg.net.
Last Updated: May 24, 2010 06:41 EDT
BL: Gold Rising as Euro Wanes Makes Wall Street Speculate This Time Different
Gold Rising as Euro Weakens Spurs More Speculation (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A By Nicholas Larkin, Claudia Carpenter and Millie Munshi
May 24 (Bloomberg) -- Speculators are buying gold faster than the world’s biggest producers can mine it as analysts forecast a 27 percent rally that may extend the longest run of annual gains since at least 1920.
Exchange-traded products backed by bullion added 41.7 metric tons in the week to May 14, the most in 14 months, data from UBS AG show. China, Australia and the 15 other largest mining nations averaged weekly output of 41.6 tons last year, researcher GFMS Ltd. estimates. Even though prices have fallen 5.1 percent to $1,185.30 from a record $1,249.40 an ounce May 14, the median in a Bloomberg survey of 23 traders, analysts and investors shows it will reach $1,500 by the end of the year.
Buying accelerated as the MSCI World Index of 23 developed nations’ stocks tumbled as much as 16 percent since mid-April and the euro weakened to a four-year low against the dollar. Holders of ETPs, including George Soros and John Paulson, accumulated a record 1,938 tons by May 21, eclipsing all but four of the biggest central-bank holdings.
“You could see gold go up another $1,000,” said Evan Smith, who helps manage $2 billion at U.S. Global Investors Inc. in San Antonio and in 2006 correctly predicted that gold would reach $700 within two years. “All of the turmoil and problems we’ve seen in Europe is just another reminder that there’s a lot of value in gold as a safe haven.”
The risk to gold bulls lies in economic growth, which should buoy the prospects of metals linked to industrial demand, such as copper and silver. The world economy will expand 4.2 percent this year, the International Monetary Fund said April 21, raising its January projection from 3.9 percent.
Industrial Metals
Astor Asset Management LLC, with $520 million under management, held as much as 10 percent of its assets in the SPDR Gold Trust, the biggest ETP backed by bullion, according to Bryan Novak, managing director of the Chicago-based company. The firm sold the stake in the first quarter.
China, the biggest consumer of industrial metals, will expand 10.1 percent this year, more than three times the pace of the U.S.’s anticipated 3.2 percent gain, according to as many as 77 economists surveyed by Bloomberg.
“The feeling now is as we move into the expansion phase of economic growth, we want to be diversified in economically sensitive metals,” Novak said. “We’re not negative on the economy now.”
‘Afraid of Debasement’
While gold is favored by investors when the dollar weakens and inflation gains, the metal can also advance at other times. Gold rose 5.8 percent in 2008 as U.S. consumer prices gained 0.1 percent. The metal added 18 percent in 2005 when the U.S. Dollar Index, a measure against six counterparts, advanced 13 percent. Gold rose 8 percent this year as the U.S. Dollar Index jumped 11 percent. U.S. consumer prices dropped in April.
“People are afraid of the debasement of all the currencies,” said Peter Schiff, president and chief global strategist for Darien, Connecticut-based Euro Pacific Capital, whose clients have more than $2 billion in assets. “What’s surprising is that gold is still as low as it is,” he said, predicting $5,000 to $10,000 an ounce in the next five to 10 years.
Since the last week of April, ETPs have been adding bullion at a pace not seen since the first quarter of 2009, in the wake of the collapse of Lehman Brothers Holdings Inc. Buying rose as European policymakers agreed on an almost $1 trillion emergency loan package to prevent sovereign defaults.
Half the Peak
Assets in gold-backed products increased 18.3 tons last week, according to UBS data. The bank revised its estimate for the previous week’s holdings.
Gold is still at half the peak set in 1980, after adjusting for inflation. Then, prices rose to $850, equal to $2,266 today, according to a calculator on the website of the Federal Reserve Bank of Minneapolis.
Supply from mines, which peaked in 2001, fell in five of the last eight years, data from London-based GFMS show. Companies are digging deeper to extract dwindling reserves, with mines in South Africa extending as far as 2.35 miles (3.8 kilometers) down.
Investment, including bars and coins, almost doubled to 1,901 tons last year, exceeding jewelry demand for the first time in three decades, according to GFMS. Jewelry will jump 19 percent to 2,100 tons this year and industrial use 8 percent to 398 tons, Sydney-based Macquarie Group Ltd. says.
Central Banks
Muenze Oesterreich AG, the Vienna-based mint that makes the Philharmonic, the best-selling gold coin in Europe and Japan, on May 12 said it had sold 243,500 ounces since April 26, more than the 205,300 ounces sold in the entire first quarter.
Central banks and governments are also buying gold, adding 425.4 tons last year, for a combined 30,116.9 tons, the most since 1964 and the first expansion since 1988, data from the World Gold Council show. Official reserves of central banks and governments may expand by another 192 to 289 tons this year, according to CPM Group, a research and asset-management company in New York.
The net-long position in Comex futures, or bets on higher prices, is within 13 percent of the record reached in November, U.S. Commodity Futures Trading Commission data show. The most widely held option gives owners the right to buy gold at $1,500 an ounce by December, data from the bourse in New York show.
Economists’ outlook may be too rosy, said Michael Pento, chief economist at Delta Global Advisors in Holmdel, New Jersey, who correctly predicted the 2008 commodity collapse. Some investors judge that a debt crisis in Greece may spread elsewhere in the euro zone, including Spain and Portugal.
Billionaire Managers
“The second half of this year will likely show very anemic growth on a global basis,” he said. “The crisis in Greece is going to spread to Spain and it’s going to be very difficult to deal with. They are bailing out debt with more debt and it isn’t sustainable. It’s a wonderful scenario for gold.”
Billionaire John Paulson’s New York-based Paulson & Co. hedge fund is the SPDR gold trust’s biggest investor, with 31.5 million shares, or about 96 tons, a May 17 regulatory filing showed. Kyle Bass, the head of Dallas-based Hayman Advisors LP who made $500 million in 2007 on the U.S. subprime collapse, bought gold this month, according to a letter to clients.
Buying at the start of a bubble is “rational,” Soros said in January. His New York-based Soros Fund Management LLC was the sixth-biggest investor in the SPDR fund in the first quarter, a May 17 filing with the Securities and Exchange Commission shows. He trimmed his holding by 9.6 percent from the previous quarter.
“People still want a store of wealth,” said Andrew Karsh, co-manager of funds for the Credit Suisse Total Commodity Return Strategy team. “A lot of the fundamentals are still in place.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net; Millie Munshi in New York at mmunshi@bloomberg.net.
Last Updated: May 24, 2010 07:03 EDT
TofL: Nowhere to run in Market Crisis
The London Times
Last Updated: 4:29 AM, May 23, 2010
Posted: 12:53 AM, May 23, 2010
When staying at a hotel, always read the fire escape plan on the back of your door. Even better, walk down the hall and check that the fire door opens. It's a good precaution but, unfortunately, the financial markets offer no guides about what to do and where to go in emergencies.
In our global financial hotel, guests are yelling, "fire." There is confusion in the corridors as people rush for the stairs; others cower in their rooms, fearful, awaiting instructions.
Did you call the fire brigade? Are we insured? Who started it?
We want to know where the safe place is -- the muster station on the cruise ship where we assemble in orderly queues for lifeboats.
Instead, we have a rout. The euro, which was widely touted only six months ago as a successor, or at least alternative reserve currency to the dollar, was dumped this week in a mass flight from the eurozone. The biggest worry that Europe might dip into a new recession is now a panic.
Where are the guests in the euro hotel running? When all else seems to be lost, people look to the old refuges they remember, hoping that they still stand. Investors are buying dollars, US treasury bills, gold and even British gilts.
Astonishingly, bonds issued by the British Government are seen by some as a safe haven.
A flight from risk into British debt is truly bizarre at a time when the British government is borrowing at ever-increasing rates -- $14 billion in April. According to figures released Friday, the run rate of government spending is 127 per cent of revenues and the gap between annual spending and revenue represents about 11 per cent of the whole economy, not far from Greece, the ugliest debtor in the eurozone.
If the UK has become a safe haven alongside gold and the US government with its own monumental deficit (10 per cent of GDP), it is because the euro is tainted and we have nowhere else to go. Who is there beyond the US Treasury?
There is no safe haven. When Lehman went bust in 2008, we trusted in the sovereigns. The Federal Reserve and the Bank of England printed money. Now they are exhausted. The sovereigns have shown us their weapons, a trillion dollars' worth, but the flight from risk continues.
Read more: http://www.nypost.com/p/news/business/nowhere_to_run_in_mart_crisis_82ar6sXpDRGBf4ZiaTKFDJ#ixzz0om4mIQ2l
Keep digging, there's got to be a pony in there somewhere
NYP: Euro trash-ed - Socialism's benefit burden may break the EU
By MICHAEL GRAY
Last Updated: 6:17 AM, May 23, 2010
Posted: 1:12 AM, May 23, 2010
Comments: 1 | More Print
Just six months ago the euro was considered the shining beacon on the hill.
OPEC considered pricing its crude in euros instead of the dollar. Europeans were flocking to Manhattan buying extra suitcases on the street to haul back all the cheap trinkets they bought.
Fast-forward to last week and the story of the embattled eurozone currency is better called "Acropolis Now." And the fear is that the contagion could cause a global double dip.
The socialist experiment of the seven-year-old European Union with all its public benefits is now seen as bordering on the unsustainable.
The real-world economic test of bringing first-, second- and third-world countries together under a common currency in order to lift the have-nots appears to have had the undesirous opposite effect.
These bloated budgets need to be reined in by the same governments that financed all these public safety nets from projected future revenue growth. Trouble is, there is no growth and the bills are all coming due.
Although the dollar is benefiting from the angst, US exports might suffer greatly from the strengthening greenback.
"The crisis is not over," NYU economics professor Nouriel Roubini said in an interview with BBC radio broadcast last week. "What we're facing right now in the eurozone is a second stage of a typical financial crisis."
Europeans and Greeks individually will not go quietly into the night to pay off these debts, as demonstrated by continuing rioting in the streets of Athens.
Roubini also questions whether European finance ministers and parliaments have the intestinal fortitude to administer the necessary budget cuts to fund the growing debt.
"There's a question mark whether we can be confident the government is going to be strong enough to do the fiscal austerity," Roubini said.
European banks and Wall Street hold much of the debt. So bailing out Greece also helped German banks, which provided lender financing for German manufacturers selling into the EU.
Greek government officials stated last week that they may go after Goldman Sachs for its deal-making on Greece deficits.
Greek Prime Minister George Papandreou says he has not ruled out legal action against Wall Street investment banks, which he says bear "great responsibility" for his country's debt crisis.
Despite German lawmakers on Friday agreeing to fund the $1 trillion rescue plan for the eurozone, the structural economic changes will need far longer to implement.
European Union finance ministers on Friday pledged to stiffen sanctions on high-deficit countries -- Portugal, Italy, Ireland, Greece and Spain -- and ruled out setting up a mechanism to manage state defaults, saying no euro country will be allowed to renege on its debts.
But will that pledge hold water? The original EU charter said there would be no bailouts of member states.
Former Fed Chairman Paul Volcker said he's concerned that the eurozone could break up over the Greek fiscal crisis.
"You have the great problem of a potential disintegration of the euro," Volcker said in a speech last week. "The essential element of discipline in economic policy and in fiscal policy that was hoped for has so far not been rewarded in some countries."
Click here to see the graphic
mgray@nypost.com
_________________________________________________________
Comments (1)
Peter Verkooijen
05/23/2010 10:49 AM
"The socialist experiment of the seven-year-old European Union with all its public benefits is now seen as bordering on the unsustainable."
This misses the point. The European Union does not have its own economic or social policy. The EU does not have public benefits. The member states have. The welfare programs in the member states have been around since the 1920-30s and had become unsustainable by the 1990s. Enter the European Union. Unification was supposed to keep "the European model" alive, against growing public opposition after the collapse of the Soviet Union. The dreaded "neoliberalism" was on the rise - liberal as in capitalism, the original meaning of the term! The point of the euro was to eventually force unification in economic and social policy as well. That's the point we have arrived at now. Everything is going according to plan...
Short version, it is not a seven-year old socialist experiment, this has been building for a century, has always been unsustainable and is ongoing. It will be a slow slide into a mix of feudalism and totalitarianism, just like here in Obamaland.
Read more: http://www.nypost.com/p/news/business/euro_trash_ed_E0hYsdN6BnXD3VYMTxQ4lN#ixzz0om2zNCQL
NYP: Dear John: I'd like to tell you what I think about the employment stuff. I'm a retired guy and I do a bit of walking. When you're walking, as you know, you're not moving very fast. So you get to see a lot of different things that you wouldn't if you were driving.
Well, recently I walked up to Red Bank, NJ, from Belmar to get theater tickets -- 12-13 miles or so. What I saw on Route 35 was all sorts of stores in little malls shut down, with signs out to the road advertising store space and construction sites that obviously hadn't been worked for a long time.
Everyone I know has someone in their family out of work. People are continuing to be laid off. There are 'for sale' signs on homes all over. And the government is trying to tell us things are on the upswing?
As used to be said, "If you believe that, I've got a bridge to sell you." T.B.
Dear T.B.: And if you had a bridge, you could raise tolls so that people could be even more broke.
Look, as you know you are preaching to the choir when you write about how the employment figures coming from Washington don't reflect reality.
But in all honesty, things have gotten a little better. That's to be expected because Washington has spent hundreds of billions of dollars in an attempt to stimulate the economy. Let's hope the (tiny) improvement continues and that all the money our officials spent doesn't come back to haunt us.
All those stores and buildings you see on Rte. 35 probably shouldn't have been built in the first place. And since we can't tear them down, they'll just have to stay empty as a vivid reminder of our stupidity.
It was nice talking with you, Mr. Gump.
_____________________________________________________________________
Comments (1)
barbours pond
05/23/2010 10:42 AM
The news about the Unemployment figures have been spun ever since the lying boobs and Obama have come to Washington . His BS about it not going to go over 8 % was and is as useless a figure as telling us it is only now 9+ percent. In some states it is over 17% and will rise as the adminmistration is not the least interested in bettering American's lives.
Every time the Market rises a few bucks, Gibbs sticks out Obama's chest for him, and touts his Stimulus and buyouts. Then guess what happens ? Down the Dow goes the next day by 300 points and soon it may drop below 9000 . Get wise all you Politicos, this country rises or falls as jobs go for the Middle Class. Nothing moves for this country , unless it's people have a job to go to. And all the giveaways in the world won't change this.
Read more: http://www.nypost.com/p/news/business/thin_silver_lining_on_employment_q1utxtAcpv2i49FOmhkRdK#ixzz0om2JC4xH