patersonfinancialservices.posterous.com
Please join us there.
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San Francisco
James B. Klein
Paterson Financial Services
patersonfinancialservices.posterous.com - New!
paterson-financial-services-news.blogspot.com
paterson.com
This is fascinating stuff.
* * * * * J B K * * * * *
San Francisco
Sarkozy demanded a "commitment from everyone to suppport Greece...or France would reconsider its position in the euro," according to one source cited by El Pais.
Another source present at the meeting between Zapatero and his party members and cited by the paper said: "Sarkozy ended up banging his fist on the table and threatening to leave the euro...This forced Angela Merkel to give in and reach an agreement."
The European Union and International Monetary Fund agreed a 110 billion euro rescue plan for Greece last week. But Germany, which must shoulder a good deal of the burden, had proven reluctant to commit itself to a plan.
Zapatero told his party members that France, Italy and Spain had formed a united front against Germany at the Brussels meeting and that Sarkozy had threatened to break up a traditional France-Germany "hold" on the rest of Europe, according to El Pais.
No wonder the Euro is still tanking.
* * * * * J B K * * * * *
San Francisco
The European Central Bank stripped out details of its bond-purchase plan from a daily report on euro-region liquidity conditions, disguising the size of its market activity.
The ECB said in a market notice today that asset purchases were excluded from the category titled "Outstanding Open Market Operations." A central bank spokesman declined to comment. Executive Board member Jose Manuel Gonzalez-Paramo said yesterday the ECB won't say how much it bought when it announces details of how it plans to sterilize the purchases next week.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aIqTHwkiTutA
They are looking at seasonally adjusted data.
The actual data is here for the past 5 two-week periods.
2142.635
2083.298
2076.018
2039.903
1996.390
Those numbers are falling, not rising and that's what affects the markets.
* * * * * J B K * * * * *
San Francisco
The Federal Reserve's balance sheet rose for the first time in four weeks, Fed data released on Thursday showed.
The Fed's balance sheet -- a broad gauge of its lending to the financial system -- climbed to $2.318 trillion in the week ended May 12 from $2.308 trillion in the week ended May 5.
http://www.reuters.com/article/idUSTRE64C5E620100513?type=GCA-Economy2010
The expansion continues.
The problem now is the flood of bonds from the US Treasury and the inability of the Fed to buy them.
Investors will now have to choose to buy long-dated bonds in a pre-inflationary environment.
The collapse of the bond market prior to the latest auction shows the markets are vulnerable.
At the first sign of inflation, bond buyers will be tempted to shorten asset maturities.
* * * * * J B K * * * * *
San Francisco
U.S. retail sales rose and industrial production powered ahead in April, further evidence the economic recovery was strengthening and broadening out.
Consumers were also a bit more confident early this month, adding to Friday's string of upbeat data that stood in sharp contrast to financial markets which sold off as panicky investors worried about Europe's debts.
http://www.reuters.com/article/idUSTRE63F2NT20100514?type=GCA-Economy2010
You don't cancel trades on Wall Street. Ever.
Your word is your bond, and a lot of people are losing their bonds right now.
* * * * * J B K * * * * *
San Francisco
In the wake of the stock market's May 6 chaos, more than 10,000 trades have been cancelled, according to the Nasdaq OMX Group.
Exchanges including Nasdaq and NYSE Euronext's New York Stock Exchange agreed to cancel "clearly erroneous" trades after hundreds of stocks and exchange-traded funds lost as much as 99 percent of their value and then fully recovered in a 20-minute period on Thursday.
Regulators are still struggling to understand what caused the bizarre trading.
http://www.msnbc.msn.com/id/37089056/ns/business-stocks_and_economy/
How else can you explain the incompetent reaction of the Middle Kingdom's monetary authorities?
I just wish there was a way to bet on this one.
* * * * * J B K * * * * *
San Francisco
China's policy makers may start easing monetary policy in the coming months as bond yields signal that the economy is heading for a "hard landing," BNP Paribas said.
The curve tracking the difference between the yields on 2- and 5-year bonds has "collapsed" in the past 10 days and an inversion may signal a recession in China, BNP strategists Clive McDonnell and Ryan Tsai said in a report today. That outcome would be "unthinkable" for China, they said.
"While the yield curve is telling us that the economy is heading for a hard landing, we believe there is no appetite among policy makers for such an outcome," the strategists wrote.
http://www.bloomberg.com/apps/news?pid=20601068&sid=a7DUAI.vbwAo
It looks like a sell, next time it reaches resistance.
Buy the Euro and sell the Pound.
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San Francisco
The U.K. trade deficit widened in March as imports jumped the most in six months, led by demand for goods from cars to engineering equipment.
The goods-trade gap was 7.5 billion pounds ($11.1 billion), compared with 6.3 billion pounds in February, the Office for National Statistics said today in London. The median of 13 forecasts in a Bloomberg News survey was for a reading of 6.4 billion pounds. Imports jumped 5.2 percent to an 18-month high, outpacing a 1 percent increase in exports.
The Bank of England is counting on a weak pound to boost exports and support economic growth it helped manufacturing jump the most since 2002 last month. The sovereign debt crisis in Europe has darkened the outlook for U.K. exporters at a time when domestic demand may come under pressure from measures to tackle the public finances.
http://www.bloomberg.com/apps/news?pid=20601068&sid=a8mUMTwqQr68
It looks like a sell next time it pushes up to resistance.
There's just too much money in the British system.
Buy the Euro and sell the Pound.
* * * * * J B K * * * * *
San Francisco
The U.K. trade deficit widened in March as imports jumped the most in six months, led by demand for goods from cars to engineering equipment.
The goods-trade gap was 7.5 billion pounds ($11.1 billion), compared with 6.3 billion pounds in February, the Office for National Statistics said today in London. The median of 13 forecasts in a Bloomberg News survey was for a reading of 6.4 billion pounds. Imports jumped 5.2 percent to an 18-month high, outpacing a 1 percent increase in exports.
The Bank of England is counting on a weak pound to boost exports and support economic growth it helped manufacturing jump the most since 2002 last month. The sovereign debt crisis in Europe has darkened the outlook for U.K. exporters at a time when domestic demand may come under pressure from measures to tackle the public finances.
http://www.bloomberg.com/apps/news?pid=20601068&sid=a8mUMTwqQr68
It's not. It's the biggest Armageddon they can imagine.
When the Bond contract hits par, remember where you heard it first.
* * * * * J B K * * * * *
San Francisco
Gold prices continued to set fresh highs on Wednesday, as fears about rising inflation kept the yellow metal in demand.
After overtaking its December high of $1,226.10 an ounce on Tuesday, gold reached a fresh peak of $1,243.90 in early European trade.
Gold bugs have been snapping up coins, particularly in Germany and Switzerland, amid fears over the potential inflationary impact of the European Central Bank's decision to buy eurozone government bonds to tackle the region's debt crisis.
Edel Tully, precious metals strategist at UBS in London, said that the €750bn eurozone rescue package agreed on Sunday night had done little to slow demand for gold. "The continuation of this heightened appetite after the bail-out was announced shows that these fears have not been allayed."
http://www.ft.com/cms/s/0/1a701bcc-5d9f-11df-b4fc-00144feab49a.html
These deficits will be a thing of the past.
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San Francisco
The trade deficit in the U.S. widened in March to the highest level in more than a year as imports climbed faster than exports, adding to evidence of the global recovery from the worst recession in the post-World War II era.
The gap grew 2.5 percent to $40.4 billion, in line with the median forecast in a Bloomberg News survey, Commerce Department figures showed today in Washington. The value of goods sold overseas and those purchased abroad, led by a surge in oil demand, rose to the highest levels since October 2008.
A rebounding American consumer, combined with business spending on equipment and inventories, means imports may keep growing. Exports will probably also improve as expanding economies in Asia and Latin America, which are giving companies such as Cummins Inc. and Dow Chemical Co. a lift, counter any drag from Europe as the debt crisis hurts the euro.
http://www.bloomberg.com/apps/news?pid=20601068&sid=a0JjDCuBrx3I
Is the Weimar Republic returning?
* * * * * J B K * * * * *
San Francisco
Europe's economy expanded at a faster pace than economists forecast in the first quarter as a global recovery boosted exports, helping the region overcome the Greek fiscal crisis and consumers' reluctance to increase spending.
Gross domestic product in the 16 euro nations rose 0.2 percent from the fourth quarter, when it remained unchanged, the European Union's statistics office in Luxembourg said today. Economists had forecast growth of 0.1 percent, the median of 31 estimates in a Bloomberg survey showed. Industrial production gained 1.3 percent in March from February, when it rose 0.7 percent, a separate report showed.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aNiu1cXXGWqc
We are witness to the internal deliberations of the FOMC - Euro style.
I'm still amazed they talked the ECB into this plan. They were surviving fine without any monetary stimulus at all.
Now, it's a competitive devaluation to encourage the export sector.
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San Francisco
The European Central Bank risks irreparable damage to its reputation by agreeing to the mass purchases of southern European bonds in defiance of the German Bundesbank and apparently under orders from EU leaders.
By Ambrose Evans-Pritchard
Published: 5:30AM BST 11 May 2010
Jean-Claude Trichet, the ECB's president, denied there had been any political interference. "We are fiercely and totally independent," he said.
It is clear, however, that the two German members of the ECB's council voted against the move, a revelation that may cause a catastrophic political backlash in Germany.
Axel Weber, ultra-hawkish head of the Bundesbank, told Boersen-Zeitung that the emergency move over the weekend had been a mistake. "The purchase of government bonds poses significant stability risks and that's why I'm critical of this part of the ECB's council's decision, even in this extraordinary situation," he said. The rebuke is devastating. The ECB draws it authority from the legacy and aura of the Bundesbank.
We get to sit in on an FOMC-Euro meeting.
I'm still astonished.
* * * * * J B K * * * * *
San Francisco
The European Central Bank risks irreparable damage to its reputation by agreeing to the mass purchases of southern European bonds in defiance of the German Bundesbank and apparently under orders from EU leaders.
By Ambrose Evans-Pritchard
Published: 5:30AM BST 11 May 2010
Jean-Claude Trichet, the ECB's president, denied there had been any political interference. "We are fiercely and totally independent," he said.
It is clear, however, that the two German members of the ECB's council voted against the move, a revelation that may cause a catastrophic political backlash in Germany.
Axel Weber, ultra-hawkish head of the Bundesbank, told Boersen-Zeitung that the emergency move over the weekend had been a mistake. "The purchase of government bonds poses significant stability risks and that's why I'm critical of this part of the ECB's council's decision, even in this extraordinary situation," he said. The rebuke is devastating. The ECB draws it authority from the legacy and aura of the Bundesbank.
EU Crafts $962 Billion Show of Force to Halt Crisis
May 10 (Bloomberg) -- European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Stocks surged around the world, the euro strengthened and commodities rallied.
Jolted by last week's slide in the currency and soaring bond yields in Portugal and Spain, European Union finance chiefs met in a 14-hour session in Brussels overnight. The 16 euro nations agreed in a statement to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt.
The rescue package for Europe's sovereign debtors comes little more than a year after the waning of the last crisis, caused by the U.S. mortgage-market collapse, which wreaked $1.8 trillion of global credit losses and writedowns. Under U.S. and Asian pressure to stabilize markets, Europe's governments bet their show of force would prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro might break apart.
"A very thick line has been drawn in the sand," said Andrew Bosomworth, Munich-based head of portfolio management at Pacific Investment Management Co. and a former ECB official. "This is all in. What more could they have done?"
A 110 billion-euro bailout package for Greece approved last week by the EU and IMF failed to reassure investors, prompting yesterday's renewed bid to bolster the euro.
How to Pay
"It might temporarily calm nerves but questions will come back later on how they will pay for this package when all of them need fiscal consolidation," said Venkatraman Anantha- Nageswaran, who helps manage about $140 billion in assets as global chief investment officer at Bank Julius Baer & Co. in Singapore.
The MSCI World Index climbed 2.6 percent to 1,128 at 12:15 p.m. in Brussels. Standard & Poor's 500 Index futures rallied 4.4 percent. The euro appreciated 2 percent to $1.30. Crude-oil futures gained 3.4 percent.
"The message has gotten through: the euro zone will defend its money," French Finance Minister Christine Lagarde told reporters in Brussels early today after markets punished inaction last week.
ECB policy makers said they will counter "severe tensions" in "certain" markets by purchasing government and private debt, and the bank restarted a dollar-swap line with the Federal Reserve.
'Overwhelming Force'
"This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion," Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. "This is Shock and Awe, Part II and in 3-D."
Treasuries tumbled on investors' increased appetite for risk, with yields on benchmark 10-year U.S. notes rising to 3.57 percent from 3.43 percent at last week's close. German bunds opened lower, sending 10-year yields up 18 basis points.
The steps came after failure to contain Greece's fiscal crisis triggered a 4.1 percent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings Inc.'s collapse. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent.
The ripple effect in the U.S., including a brief 1,000- point drop in the Dow Jones Industrial Average on May 6, prompted President Barack Obama to call German Chancellor Angela Merkel and French President Nicolas Sarkozy to urge "resolute steps" to prevent the crisis from cascading around the world.
Loan Package
Under the loan package, euro-area governments pledged 440 billion euros in loans or guarantees, with 60 billion euros more in loans from the EU's budget and as much as 250 billion euros from the International Monetary Fund.
"They will have bought themselves a significant amount of time to do the right thing," said Barry Eichengreen, an economics professor at the University of California, Berkeley.
In a step that skirts EU rules barring direct central bank lending to governments, the ECB said it will conduct "interventions" to ensure "depth and liquidity" in markets. The purchases will be sterilized, meaning they won't increase the overall money supply in the financial system.
"This sets a precedent for the rest of the life of the Central Bank and will have likely surprised even the most seasoned observers," said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. "While the ECB's intervention might attract bad press regarding its mandate and independence, we believe that this was necessary to short circuit the negative feedback loop which was getting more and more threatening for the global economy. "
Central Banks Buy
Central banks in Germany, France and Italy all said they began buying government bonds today. None provided further detail.
The ECB also reactivated unlimited fixed-rate offerings of three-month loans, a key tool in the ECB's efforts to fight the credit crisis.
In Brussels, finance ministers from the 16-nation euro region -- joined by ministers from the 11 EU countries outside the euro -- raced against time to weld the contingency lending arrangements before markets opened in Asia.
Inability to craft a convincing package in time would have left deficit-plagued countries at the mercy of the "wolfpack behavior" of speculators, Finance Minister Anders Borg of Sweden, a non-euro member, said as the meeting began.
Budget Cuts
The new war chest would be used for countries like Portugal or Spain in case their finances buckle. Deficits are set to reach 8.5 percent of gross domestic product in Portugal and 9.8 percent in Spain this year, above the euro region's 3 percent limit. Both countries pledged "significant" additional budget cuts in 2010 and 2011, which will be outlined in May, an EU statement said.
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds fell from euro-era highs. The premium on 10-year government bonds plunged to 343 basis points from as high as 973 basis points for Greece. It fell to 201 basis points from 354 for Portugal and to 94 basis points from 173 for Spain.
Europe's financial leaders sought to master the euro's stiffest test since its debut in 1999 without wheelchair-bound Finance Minister Wolfgang Schaeuble of Germany, Europe's largest economy, who was rushed to a hospital soon after the meeting started due to an adverse reaction to new medication. Interior Minister Thomas de Maiziere got on a last-minute flight to Brussels to take his place.
Merkel's Meeting
As Merkel's cabinet held a late-night meeting in Berlin on the euro rescue, her party unexpectedly lost control of Germany's most populous state in a regional election, potentially costing her a majority in the upper house of the federal parliament.
Goaded by Germany, the ministers made a fresh commitment to closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules.
The vow to push budget shortfalls below the euro's 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The euro region's overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011.
Britain, the EU's third-largest economy, won't contribute to a euro rescue fund, though it backs efforts to restore stability, Chancellor of the Exchequer Alistair Darling said.
"When it comes to supporting the euro, that is for the eurogroup countries," Darling told Sky News.
To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net Meera Louis in Brussels at Mlouis1@bloomberg.net
Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone
U.S., German Bonds Tumble as Europe Arranges Rescue Package
May 10 (Bloomberg) -- Treasuries tumbled the most in nine months and bunds slid after European governments announced a loan package worth almost $1 trillion and the European Central Bank said it will buy bonds to halt the region's debt crisis.
The decline sent German 10-year bund yields up by the most in at least a decade as Europe's efforts to keep Greece's fiscal woes from triggering a broader sovereign-debt collapse reduced demand for the relative safety of high-grade government securities. Stock markets rallied around the world and the cost of insuring against losses on European corporate bonds slid.
"Treasuries are down on the commitment that we've got from EMU nations to the euro," said David Keeble, head of fixed- income strategy at Credit Agricole Corporate and Investment Bank in London. "The euro-zone sovereign debt crisis has been holding Treasuries up, and it looks as though it might be solved."
The benchmark 10-year note yield rose 16 basis points to 3.59 percent as of 6:12 a.m. in New York, according to BGCantor Market Data. It advanced 18 basis points earlier, the biggest increase since Aug. 3, based on generic data compiled by Bloomberg. The 3.625 percent security due in February 2020 fell 1 10/32, or $13.13 per $1,000 face amount, to 100 10/32.
German 10-year yields advanced 17 basis points to 2.97 percent. They climbed as much as 21 basis points, generic data showed.
Australian 10-year rates climbed 10 basis points to 5.57 percent. In Japan, yields on same-maturity bonds rose 3 basis points to 1.30 percent.
Greek Crisis
Concern that European governments weren't moving fast enough to shore up the debt crisis in Greece helped propel the yield on the country's 10-year bond yield almost 10 percentage points beyond that of German bunds last week and sent stock markets tumbling. U.S. 10-year yields reached this year's low of 3.26 percent on May 6. The Dow Jones Industrial Average plunged almost 1,000 points that day, before trimming losses later in the session.
Greek bonds soared today, sending the 10-year yield 415 basis points lower to 8.52 percent.
The ECB said today it will buy government and private bonds as part of an historic bid to stave off the sovereign-debt crisis.
'Severe Tensions'
The ECB wants "to address severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy," the central bank said in a statement at 3:15 a.m. in Frankfurt.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 77 basis points to 510, according to Markit Group Ltd. prices at 7:17 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a decline signals improvement in perceptions of credit quality.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 21 basis points to 112, Markit prices show.
The euro climbed to $1.3038 from $1.2755 last week, when it slumped 4.1 percent, the biggest drop since the five days ended Oct. 24, 2008.
Futures on the Standard & Poor's 500 Index rallied 4.3 percent, snapping a four-day decline. The MSCI World Index of shares climbed 2.6 percent.
'Going Well'
U.K. government bonds fell today amid speculation Conservative leader David Cameron may forge a coalition government with the Liberal Democrats after last week's election produced no clear winner. The 10-year gilt yield climbed 8 basis points to 3.91 percent and the two-year yield rose 5 basis points to 1.14 percent.
William Hague, the former Conservative leader, said talks were "going well" as he entered a fourth round of negotiations with lawmakers from the third-biggest party. "Bear with us a little longer," said Nick Clegg, the Liberal Democrat leader.
One gauge of investor sentiment, the so-called payer skew, shows demand for Treasuries has been rising.
The cost to hedge against rising yields as measured by the payer skew in options on interest-rate swaps has fallen about 90 percent from a record high in October, Barclays Plc data show. At about four basis points, the measure, which the Treasury Borrowing Advisory Committee flagged as a warning sign in November, is back in line with the average before credit markets seized up in August 2007.
The skew measures the difference between volatility, which is a gauge of demand, on one-year options that allow investors to lock-in paying fixed rates on 10-year interest-rate swaps and those that grant the right to receive fixed rates.
Not Inflationary
The difference, which typically widens when traders anticipate a rise in yields, fell to 4.24 basis points last month, the lowest level since December 2008, and down from a record 37.6 basis points in 2009, according to Barclays data.
"The payer skew has fallen off a cliff in the last few months," said Piyush Goyal, a fixed-income strategist in New York at Barclays, one of the 18 primary dealers that are required to bid at the government debt sales. "The data has not been inflationary, and there is only so much demand from those who want to hedge higher rates."
Investors added to bets on inflation for the first time in a week. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, widened to 2.16 percentage points from 2.15 percentage points on May 7. The spread is still down from 2.45 percentage points on April 30.
Investors became more bearish on the outlook for U.S. government debt through the middle of the year, according to a weekly survey by Ried Thunberg ICAP Inc., a unit of ICAP Plc, the world's largest inter-dealer broker.
The company's sentiment index fell to 46 for the seven days ended May 7 from 47 the week before. A figure of less than 50 shows investors expect prices to fall. The company, based in Jersey City, New Jersey, interviewed 21 fund managers.
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net Wes Goodman in Singapore at wgoodman@bloomberg.net .
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May 10 (Bloomberg) -- Treasuries tumbled the most in nine months and bunds slid after European governments announced a loan package worth almost $1 trillion and the European Central Bank said it will buy bonds to halt the region's debt crisis. The decline sent German 10-year bund yields up by the most in at least a decade as Europe's efforts to keep Greece's fiscal woes from triggering a broader sovereign-debt collapse reduced demand for the relative safety of high-grade government securities. Stock markets rallied around the world and the cost of insuring against losses on European corporate bonds slid. T May 10 (Bloomberg) -- Treasuries tumbled the most in nine months and bunds slid after European governments announced a loan package worth almost $1 trillion and the European Central Bank said it will buy bonds to halt the region's debt crisis. The decline sent German 10-year bund yields up by the most in at least a decade as Europe's efforts to keep Greece's fiscal woes from triggering a broader sovereign-debt collapse reduced demand for the relative safety of high-grade government securities. Stock markets rallied around the world and the cost of insuring against losses on European corporate bonds slid.
The decline sent German 10-year bund yields up by the most in at least a decade as Europe's efforts to keep Greece's fiscal woes from triggering a broader sovereign-debt collapse reduced demand for the relative safety of high-grade government securities. Stock markets rallied around the world and the cost of insuring against losses on European corporate bonds slid.
3.58%
Probably bought by banks on orders from the Spanish government.
The ECB will buy them back at par when they fall far enough.
* * * * * J B K * * * * *
San Francisco
To that end, all eyes were on the sale by Spain of five-year bonds, lest the market signal it would shun Madrid's debt. On balance the €2.4bn sale was a success, in that the bids for the notes were higher than seen in the past. However, the yield paid was significantly higher than for the previous auction of similarly dated notes.
It was "a classic example of there being a price for everything", said Marc Ostwald at Monument Securities. "[The] 3.58 per cent yield versus 2.80 at the last sale is a reminder of the current malaise and the rising cost of servicing debt. But the 3.58 yield was about 5-6 basis points below the secondary market yield level at the time of the auction, and a cover of 2.35 times shows genuine demand."
http://www.ft.com/cms/s/0/e7112456-58d0-11df-90da-00144feab49a.html?nclick_check=1
When the dust settles, the Euro will be lucky to stay above par.
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San Francisco
May 6 (Bloomberg) -- European Central Bank President Jean- Claude Trichet resisted pressure from investors to take new steps to fight the euro-area's spreading fiscal crisis.
Trichet said the ECB didn't discuss buying government debt today and that Spain and Portugal don't have the same challenges as those faced by Greece, which needed an international bailout last week. European officials should instead intensify efforts to cut budget deficits, he said.
"We call for decisive actions by governments to achieving a lasting and credible consolidation of public finances," Trichet told reporters today after the ECB's Governing Council met in Lisbon. Spain and Portugal are "not Greece," he said.
The euro fell to its weakest level in 14 months after the comments. Trichet is trying to convince investors that turmoil in euro region markets will be containable once the Greek government draws on its 110 billion-euro ($140 billion) aid package and implements an austerity plan.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aeiaj8kohS2A
There's just too much supply, and not enough buyers.
We've already seen 121.16 today and we're now a point lower.
I can't imagine it'll get to 123.16, but if it does, it's a big-time short.
Paterson got burned on the ECB bailout, but we've learned our lesson there.
Notice that the Yen is the only currency still standing, and that's only because their monetary authorities have been living in the clouds for the past 50 years.
* * * * * J B K * * * * *
San Francisco
The Treasury said it will auction $38 billion in three-year notes on May 11, $24 billion in 10-year notes May 12 and $16 billion in 30-year bonds May 13. The total amount was less than the median forecast in a Bloomberg News survey of bond dealers.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aIjOfp3dNS9A
Denounce the currency speculators.
Sell bonds and watch them tank.
Watch, as the ECB buys them at par.
* * * * * J B K * * * * *
San Francisco
Investors are already testing the euro region's efforts to contain the Greek crisis.
Greek bond yields have risen above their level before the government agreed on a European Union-led bailout on May 2 as escalating protests cast doubt on its ability to drive through austerity measures. Spanish and Portuguese bonds also renewed last week's slide as investors question their ability to cut budget deficits. The extra yield that investors demand to hold Spanish debt over bunds today rose close to a 13-year high.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aSpDbd.FbxK4
Hell, if I had any brains, I'd resign.
Of all the actions I least expected, this one is the hardest to understand.
A common currency has been the only pillar of strength in Europe, and now they throw it all away with the stroke of a central bank policy pen.
The Euro won't survive for long if it has to buy the bonds of all the incompetent, socialist governments of Europe.
I guess the bet now is who's next? Spain, Ireland, Portugal, or a country we're not aware of?
I'm taking a week off from currency prognostications to cool the fevered brain.
* * * * * J B K * * * * *
San Francisco
European Central Bank President Jean- Claude Trichet, who capitulated on a January pledge not to relax lending rules for the sake of one country, may have to sacrifice more principles to prevent Greece from bringing down the euro.
Trichet yesterday diluted rules for the second time in a month to guarantee the ECB will keep taking Greek government bonds as collateral for loans. The central bank may have to extend that to other nations, renew a program of lending unlimited cash to banks for a year, and even start buying government debt if the 110 billion-euro ($146 billion) bailout plan for Greece fails to stem the euro's slide, economists said.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aMSO_VQTTzAU
Maybe we're now ready for a substantial rise in interest rates, and a consequent pause in the stock market.
* * * * * J B K * * * * *
San Francisco
New orders received by U.S. factories jumped unexpectedly in March as businesses rebuilt inventories, pointing to continued strength in manufacturing, a government report released on Tuesday showed.
Orders for manufactured goods rose 1.3 percent after an upwardly revised 1.3 percent gain in February, initially reported as a 0.6 percent rise, the Commerce Department said.
Economists polled by Reuters were expecting a 0.1 percent decline.
When transportation orders were stripped out, orders surged 3.1 percent, the biggest gain in almost five years. Excluding defense, factory orders were up 1.3 percent.
Non-defense capital goods orders excluding aircraft, viewed as an indicator of business confidence, leaped 4.5 percent, the steepest increase since December 2007.
Durable goods orders fell 0.6 percent, the first decline in four months, but the decline was less than the originally reported 1.3 percent fall.
http://www.reuters.com/article/idUSTRE6433AH20100504?type=GCA-Economy2010
The smoking gun is found.
The smart guys, me not included, knew this would happen.
This policy allows the ECB to flood the EC with fresh cash as it buys worthless Greek bonds - at par - from bankrupt Greek banks.
So much for ECB discipline. Sometimes my naivete amazes me, too.
I can see the lines forming.
Spain will now sell bonds to the public and Spanish banks.
The bonds will fall in value as reality takes hold.
Then, the ECB buys them at par.
Three? Who's got number three?
Be patient. There's plenty of cash for everyone.
* * * * * J B K * * * * *
San Francisco
The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country's debt as collateral regardless of its country's credit rating, underpinning gains in the bond market.
The decision came less than a day after Greece agreed to a 110 billion-euro ($145 billion) package of emergency loans from the International Monetary Fund and its euro-region allies. Under the plan backed by the ECB, Greece pledged 30 billion euros in budget cuts to bring a deficit of 13.6 percent of gross domestic product within the EU limit of 3 percent in 2014.
"The ECB is a key player in the rescue package designed to help Greece and it is clearly buying insurance against the likelihood of further multiple downgrades of the Greek debt, something that might lead to a halt of ECB financing to the Greek banks," said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aTAygysllnxM
Residential, as always, is immune.
People have to live somewhere, whether they rent or buy.
* * * * * J B K * * * * *
San Francisco
Construction spending in the U.S. unexpectedly increased in March, propelled by gains in state and local government projects.
The 0.2 percent increase brought spending to $847.3 billion, and followed a revised 2.1 percent drop in February that was larger than previously estimated, Commerce Department figures showed today in Washington. The value of private projects dropped to the lowest level in 11 years.
http://www.bloomberg.com/apps/news?pid=20601087&sid=algW1yTJqQfE&pos=2
* * * * * J B K * * * * *
San Francisco
U.S. consumer spending rose in March for a sixth straight month as households pushed savings to a 1-1/2 year low, further evidence consumers were starting to take a bigger role in the manufacturing-led recovery.
The Commerce Department said on Monday spending rose 0.6 percent after rising by an upwardly revised 0.5 percent in February, previously reported as a 0.3 percent gain.
How else do you explain this action, nearly fifty years after Friedman's MHotUS?
* * * * * J B K * * * * *
San Francisco
The Bank of Japan on Friday promised "new efforts" to support economic growth but it is unlikely to make the big changes to monetary policy demanded by its critics in Japan's ruling party.
The bank forecast an end to deflation next year, predicting that prices will rise by 0.1 per cent in the year that starts April 2011, and sharply increased its median growth forecast for this year from 1.3 to 1.8 per cent.
http://www.ft.com/cms/s/0/c1dcc3f8-5415-11df-b75d-00144feab49a.html
The bubble princess.
Too low for too long, and too tight too quickly.
* * * * * J B K * * * * *
San Francisco
When Janet Yellen was first reported to be President Barack Obama's choice for Federal Reserve vice chairman early last month, the dollar weakened on speculation she would help keep interest rates at a record low through the end of the year.
Less than two weeks later, the former professor at the University of California, Berkeley told reporters that she'd be ready to tighten policy to avoid kindling inflation. She pointed out that she had supported interest-rate increases 20 times in her years as a Fed governor from 1994 to 1997 and as president of the San Francisco Fed starting in 2004.
http://www.bloomberg.com/apps/news?pid=20601068&sid=atQYxcq8KG6k
The virus of inflation will soon be here.
* * * * * J B K * * * * *
San Francisco
European inflation accelerated to the fastest pace in more than a year while the region's unemployment rate remained at an 11-year high.
Consumer prices in the 16-nation euro region rose 1.5 percent in April from a year earlier after a 1.4 percent gain in March, the European Union statistics office in Luxembourg said today in an initial estimate. That's the fastest inflation since December 2008 and is in line with economists' estimates in a Bloomberg News survey. Unemployment held at 10 percent in March, the highest since August 1998, a separate report showed.
Oil prices have surged 16 percent in the past three months, pushing up inflation even as companies are cutting costs and eliminating jobs. While European economic confidence improved to the highest in more than two years in April, concern that the Greek crisis is spreading may prompt delays in hiring plans.
http://www.bloomberg.com/apps/news?pid=20601068&sid=a11X4yUYAd8M
As always, corporates lead the way, and Treasuries are sure to follow.
* * * * * J B K * * * * *
San Francisco
The record rally in corporate bonds is showing signs of cracking, with yields rising the most in 13 months relative to government debt and new sales falling to the lowest level this year.
The extra interest investors demand to own company bonds widened 6 basis points this week to 149 basis points, according to Bank of America Merrill Lynch's Global Broad Market Corporate Index. Global company bond issuance tumbled 56 percent from last week to $19.6 billion, data compiled by Bloomberg show.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIRe_zHb6CfU&pos=4
Reasons?
The stock market is booming.
Interest rates are still low.
Home values are stabilizing.
The dollar is strong.
But,...
All this is about to change as the Fed starts to unwind its massive asset position.
If you're not hedged, do so. If you are hedged, it might be time to take some additional risk.
* * * * * J B K * * * * *
San Francisco
Consumer spending, which accounts for about 70 percent of the economy, rose at a 3.6 percent pace last quarter, compared with the 3.3 percent rate forecast by economists and a 1.6 percent gain in the prior three months. The increase was the biggest since the first quarter of 2007.
Consumer Spending
Spending added 2.55 percentage points to GDP. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_5weT0lkjp0&pos=1
No obvious surprises.
* * * * * J B K * * * * *
San Francisco
The following is a reformatted version of the full text of the statement released today by the Federal Reserve in Washington:
Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aqZlwZ85EjzE
The world wants to borrow money for expansion, and the banks can't help.
Banks are confused by incompetent regulators, and dare not take risks.
* * * * * J B K * * * * *
San Francisco
BlackRock Inc., the world's largest asset manager, and Blackstone Group LP's GSO Capital Partners LP are forming mutual funds to invest in loans as the London interbank offered rate rises to the highest level since August.
The firms have joined Goldman Sachs Group Inc. in announcing funds investing in leveraged loans pegged to short- term interest rates. Investors poured more than $2.5 billion into bank-loan mutual funds in March and the first three weeks of April, more than triple the amount for March and April last year, according to Lipper FMI data.
http://www.bloomberg.com/apps/news?pid=20601010&sid=anQNxxSm8VyU
There are some prognosticators - like me - that got this wrong.
Something's going on here, and I don't know what it is.
* * * * * J B K * * * * *
San Francisco
United Technologies Corp. finance chief Greg Hayes sets aside some wiggle room in his profit forecast every year for swings in the euro. By March, half his safety net had already evaporated.
The maker of Otis elevators and Pratt & Whitney jet engines, which gets about a quarter of its sales from Europe, started 2010 assuming a $1.48 euro exchange rate. Hayes cut it to $1.37 last month as concern mounted that Greece would default on its debt. This week, the euro dropped below $1.32 for the first time since April 2009.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajybDxdGYW.M&pos=5
FYI: the 10-year Greek bond yield rose 164 basis points to 11.69 percent as of 11:32 a.m. in London.
Remember, Paterson predicted disaster in the Greek bond market when 10-year yields were 6.83 on April 6th.
Wooof.
* * * * * J B K * * * * *
San Francisco
Greece's credit rating was cut three steps to junk by Standard and Poor's, the first time a euro member has lost its investment grade since the currency's 1999 debut. The euro weakened and stock markets throughout the region plunged.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The move, which puts Greek debt on a par with bonds issued by Azerbaijan and Egypt, came minutes after the rating company reduced Portugal by two steps to A- from A+.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aibv546ON.7A
I still believe we're seeing a bottom here, but I wish it would get here now.
As in right now.
* * * * * J B K * * * * *
San Francisco
The euro may slide to $1.30, the lowest in a year amid concerns the sovereign-debt crisis will spread from Greece, according to a unit of Credit Agricole SA.
The euro will decline as the region's economy may "face the risk of slipping into a negative spiral, stemming from austerity measures in Greece and its adverse impact on economic growth," said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo, in a phone interview.
http://www.bloomberg.com/apps/news?pid=20601068&sid=ax0XYgh8CYhI
Is that a graveyard?
Are the ghosts of inflation past rising from their coffins?
Maybe so.
This is the time all traders hope for: a clear signal is ignored by the rest of the market.
Inflation's coming, and these dinosaurs are about to feel the impact.
* * * * * J B K * * * * *
San Francisco
U.S. consumer confidence firmed to a 1-1/2-year high in April, while house prices rose in February on an annual basis for the first time in more than three years, in fresh signs of a strengthening economy.
The increasing confidence was driven by growing optimism about the labor market, according to a U.S. Conference Board report released on Tuesday, and was the highest since the collapse of investment bank Lehman Brothers in September 2008.
The Board's index of consumer attitudes rose to 57.9 from a downwardly revised 52.3 in March, well above the median forecast for a reading of 53.5.
This is the crucial next step.
When bank lending begins to grow, the Fed will have a real problem.
* * * * * J B K * * * * *
San Francisco
Main Street teamed up with Wall Street to produce something the four biggest U.S. lenders haven't had since the banking crisis began two years ago: reason for optimism.
Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., beneficiaries of $140 billion in taxpayer funds, reduced loan-loss provision expenses from last quarter and said the bottom of the credit cycle was past. Their investment-banking arms capitalized on fixed-income trading, leading to combined first-quarter profits of $13.4 billion, the most since the second quarter of 2007 before the crisis began. Citigroup reduced reserves for the first time since 2006.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aAWbvsgX2rA0&pos=10
* * * * * J B K * * * * *
San Francisco
Caterpillar Inc., the world's largest maker of construction equipment, posted its first earnings increase in seven quarters, exceeding analysts' estimates, as the global economy began to improve.
First-quarter profit excluding costs for a new health-care law was 50 cents a share, beating the average estimate of 39 cents a share in a Bloomberg survey of 21 analysts. Caterpillar stock rose the most since mid-February.
http://www.bloomberg.com/apps/news?pid=20601087&sid=anEjq4hd4nb4&pos=7
This number suggests GDP will be growing strongly in the quarters to come.
Can bank lending be far behind?
* * * * * J B K * * * * *
San Francisco
Orders for durable goods excluding transportation surged in March by the most since the recession began in December 2007, adding to evidence the U.S. recovery is broadening and strengthening.
The 2.8 percent increase in bookings for goods meant to last at least three years, excluding cars and aircraft, was four times larger than the median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Total orders unexpectedly dropped 1.3 percent, depressed by a 67 percent plunge in demand for commercial aircraft that is often volatile.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aIIE.vltUqt8
I hate being wrong, and the next few days will confirm it.
* * * * * J B K * * * * *
San Francisco
The euro dropped to the lowest level in almost a year against the dollar as escalating concern about Greece's finances added to pressure on Group of 20 leaders to stem the crisis.
The euro slid versus 12 of its 16 major counterparts as policy makers from G-20 nations meet in Washington today. Europe's currency headed for a third weekly drop against the yen after the European Union raised its estimate for Greece's deficit and Moody's Investors Service cut the nation's debt rating. The dollar traded close to a one-week high versus the yen before U.S. reports forecast to show improving orders for long-lasting goods and new home sales.
http://www.bloomberg.com/apps/news?pid=20601010&sid=aSRcwqeaJFO0
If permits rose also, then this is the real thing.
* * * * * J B K * * * * *
San Francisco
Building permits, a sign of future construction, rose to the highest point since October 2008.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFEydj3c3Kfw&pos=1
* * * * * J B K * * * * *
San Francisco
Wholesale prices in the U.S. rose more than forecast in March, boosted by higher costs for energy and the biggest gain in food since 1984.
The 0.7 percent increase in prices paid to factories, farmers and other producers followed a 0.6 percent drop in February, the Labor Department said today in Washington. Excluding fuel and food, so-called core prices rose 0.1 percent for a second month, restrained by cheaper autos and appliances.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aYoxl2DbrZU0
* * * * * J B K * * * * *
San Francisco
Greece's benchmark 10-year bond yield rose to 9.03 percent, the highest since 1998 and almost three times the comparable German rate. The cost of insuring government debt against default climbed to a record today. The yield on the two-year note soared more than 275 basis points to breach 11 percent, indicating that investors perceive a growing risk of default or restructuring.
http://www.bloomberg.com/apps/news?pid=20601010&sid=aNEqq__19gRE
Can inflation be far behind?
* * * * * J B K * * * * *
San Francisco
The International Monetary Fund raised its forecast for global growth this year and cautioned that a failure of nations to contain soaring public debt might have "severe" consequences for the world economy.
The Washington-based IMF today said the economy will expand 4.2 percent in 2010, the fastest pace since 2007, compared with a January projection of 3.9 percent. Emerging countries including China and India are leading the world out of its worst recession since World War II, with Europe and Japan trailing the U.S. among advanced economies, the fund said in its World Economic Outlook.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aFDPqGOvEsj4
They ought to be prosecuted for criminal behavior, but instead, they're diverting attention from their culpability to anyone else they can find.
* * * * * J B K * * * * *
San Francisco
Now that nearly all the TARP funds used to bail out Wall Street banks have been repaid, the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac stand out as the source of the greatest taxpayer losses.
The Congressional Budget Office has estimated that, in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie and Freddie will eventually reach $381 billion. That estimate may be too optimistic.
Last Christmas Eve, Treasury removed the $400 billion cap on what the government might be required to invest in these two GSEs in the future, and this may tell the real story about the cost to taxpayers. In typical Washington fashion, everyone has amnesia about how this disaster occurred.
http://online.wsj.com/article/SB10001424052748704671904575193910683111250.html
Sometimes it seems his commentary is intentionally opaque.
* * * * * J B K * * * * *
San Francisco
As a November IMF staff position note aptly pointed out, high fiscal deficits and higher outstanding debt lead to higher real interest rates and ultimately higher inflation, both trends which are bond market unfriendly.
In the U.S. in addition to the 10% of GDP deficits and a growing stock of outstanding debt, an investor must be concerned with future unfunded entitlement commitments which portfolio managers almost always neglect, viewing them as so far off in the future that they don't matter.
Yet should it concern an investor in 30-year Treasuries that the Congressional Budget Office estimates that the present value of unfunded future social insurance expenditures (Social Security and Medicare primarily) was $46 trillion as of 2009, a sum four times its current outstanding debt?
Of course it should, and that may be a primary reason why 30-year bonds yield 4.6% whereas 2-year debt with the same guarantee yields less than 1%.
The US won't be far behind.
* * * * * J B K * * * * *
San Francisco
The U.K.'s inflation rate jumped more than economists forecast in March, breaching the government's upper limit for the second time this year after energy costs rose within weeks of the election.
Consumer prices climbed 3.4 percent from a year earlier, compared with a 3 percent increase in February, the Office for National Statistics said in London today. The median forecast of 30 economists surveyed by Bloomberg News was 3.1 percent. On the month, prices increased 0.6 percent.
A weak pound is helping push up the cost of imports as Prime Minister Gordon Brown tries to convince voters ahead of a May 6 election that he is the best choice to help nurture the economic recovery and reduce the budget deficit. The Bank of England has a mandate to target inflation at 2 percent and keep it within 1 percentage point of that goal.
http://www.bloomberg.com/apps/news?pid=20601068&sid=a4qZsqIzJqvs
If you aren't short Greek bonds, maybe you ought to be.
* * * * * J B K * * * * *
San Francisco
The recovery of the Greek two-year note after the sale left the yield little changed at 7.28 percent as of 10:53 a.m. in London.
The 10-year bond stayed lower, pushing the yield 19 basis points higher to 7.88 percent.
The extra yield investors demand to hold the 10-year bonds instead of German bunds, the euro-region's benchmark government debt, rose to as much as 472 basis points, the most since Bloomberg records began in 1998.
http://www.bloomberg.com/apps/news?pid=20601087&sid=afhSqD1Mas6c&pos=3
* * * * * J B K * * * * *
San Francisco
Robert Khuzami, shortly after becoming the Securities and Exchange Commission's enforcement chief last year, told Congress the agency must be willing to fight big cases to show it poses a "credible threat."
Targeting Goldman Sachs Group Inc., the most profitable company in Wall Street history, in the SEC's first contested lawsuit against a major investment bank in more than a decade reflects the enforcement unit's new combative approach.
The stakes for the SEC are high. While winning high-profile cases may help the agency restore its image after being battered by the financial crisis and its failure to detect frauds including Bernard Madoff's Ponzi scheme, losing may tarnish the SEC's reputation. Goldman Sachs said it will "vigorously" fight the case, which hinges on whether information withheld by the firm should've been disclosed to investors.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aygfBecXRfgI&pos=2
Remember, just because the economy's roaring, the stock market has its own rules.
We'll have a full analysis of this data over at the analysis page:
http://paterson-financial-services.blogspot.com/
* * * * * J B K * * * * *
San Francisco
A gauge of the U.S. economy's prospects rose more strongly than expected to a record high in March, pointing to a steady economic recovery, a private research group said on Monday.
The Conference Board said its index of leading economic indicators increased 1.4 percent, rising for the 12th straight month, after an upwardly revised 0.4 percent gain in February.
Analysts polled by Reuters had expected a 1.0 percent rise in March from a previously reported 0.1 percent gain.
U.S. stocks held slim gains after the report, while Treasury debt prices and the U.S. dollar were little changed.
Really rally.
We've been looking for this kind of market in currencies for a long time.
The ECB did not inflate their money supply, as did the US, and suffered for it when the US stock market roared out of the collapse of 2008 with no inflation.
The ECB did not borrow trillions of euros to bail out their housing industry, banks, governments, and others and are in good shape to save critical sectors.
Even if the Greek bailout happens - notice I did not say succeeds - the net increase in borrowing is minuscule and will not dramatically affect interest rates.
In addition, the other three factors driving currency movements are working in the euro's favor.
- interest rates will remain higher in euro countries than the US
- trade deficits will not benefit the US
- inflation will kill the dollar
All these things combined indicate the euro is ready for a rally against the dollar.
* * * * * J B K * * * * *
San Francisco
* * * * * J B K * * * * *
San Francisco
Fraud charges leveled against the investment bank Goldman, Sachs & Co. center on complex financial dealings. But for President Obama, the accusations against the venerable Wall Street institution offer a chance to revitalize a simple political narrative that he has all but lost in recent months: that he and his party are protecting ordinary Americans victimized by the economic meltdown.
http://www.latimes.com/news/nationworld/nation/la-na-obama-goldman18-2010apr18,0,1317765.story
At this stage in the cycle, growth is a bigger concern than potential inflation.
Any signs of growth will be reflected in lower bond prices.
* * * * * J B K * * * * *
San Francisco
http://www.bloomberg.com/markets/ecalendar/index.html
Leading Indicators
Producer Price Index
Existing Home Sales
Durable Goods Orders
New Home Sales
Watch as other governments pile on.
Goldman was right about the disaster caused by Congress and the regulators, and now they'll pay.
* * * * * J B K * * * * *
San Francisco
The document tackles head-on the SEC's central contention that Goldman misled investors by hiding the fact that Paulson & Co, a hedge fund, had a significant input in choosing poor-quality loans that went into a collaterised debt obligation, a mortgage-backed security, so that it could bet against it.
"There is no basis in the law, the record or common sense for such charges," it says.
In a separate document, sent to the SEC a few days later, Goldman refers to "open and robust" discussions with staff of the commission – a glimpse of the tough behind-the-scene talks that went on from July last year when the regulators formally informed the bank they wanted to press charges.
http://www.ft.com/cms/s/0/59e8b69e-4b3c-11df-a7ff-00144feab49a.html
The Greek people are angry with their incompetent and corrupt government, because the government can't continue to give them money for nothing.
Wait till the German people realize their hard-earned savings will go to Greece, so that Greek living standards won't fall too much.
The volcano will seem like a small problem when this all shakes out.
* * * * * J B K * * * * *
San Francisco
Prime Minister George Papandreou's decision to call for the talks prompted a reaction of "rage" among 48 percent of Greeks surveyed in a poll in the Eleftheros Typos newspaper yesterday. Nine of 10 people surveyed said they expected the IMF to insist on more belt-tightening. Labor unions have threatened new strikes over the prospect of more budget cuts.
"The Greek government has managed to ride out the storm of public protest, which for the most part has been reasonably peaceful," Colin Ellis, an economist at Daiwa Capital Markets Europe Ltd. in London, wrote in an e-mail to investors. "But if public opposition to further austerity measures hardens, the Greek government could find it even tougher to put the public finances back on a sustainable footing."
http://www.bloomberg.com/apps/news?pid=20601068&sid=aZ6ZxeVjWe8c
Though the two economies are different, and the two have pursued different monetary policies, the US and India are both facing the same situation: inflation.
Raising the reverse rate one quarter point won't slow down inflation, but it makes everybody feel better.
* * * * * J B K * * * * *
San Francisco
India's central bank may raise interest rates for the second time in a month to tame the fastest inflation among Group of 20 nations.
The Reserve Bank of India will probably increase the reverse repurchase rate to 3.75 percent from 3.5 percent and the repurchase rate to 5.25 percent from 5 percent, according to the median forecast of 25 economists in a Bloomberg News Survey. The announcement is due at 11:15 a.m. in Mumbai tomorrow.
http://www.bloomberg.com/apps/news?pid=20601068&sid=az.3AvgKokm4
This'll make you feel better.
* * * * * J B K * * * * *
San Francisco
Liquids, including light oil, are setting Granite Wash apart from other unconventional gas developments. Oklahoma City- based Chesapeake, the third-biggest producer of U.S. gas, said April 13 that its Granite Wash operations have the highest rates of return in the company.
Producing 1,000 barrels of gas liquids or oil a day would be worth about $82,000 at current futures prices. An equivalent amount of dry gas would be worth less than $30,000.
Apache's first horizontal well at Granite Wash, drilled more than two miles below ground, extracted enough oil and gas to pay for itself in three months, the Houston-based company said. It will produce for decades.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMc8yR7RaRRc&pos=4
* * * * * J B K * * * * *
San Francisco
The cost of five-year swaps on Greek debt was 455.4 basis points as of 9:05 a.m. in London today, according to CMA DataVision prices, compared with a record intraday high of 470 on April 8, and up from 438.2 on April 16. German swaps were at 35.8 basis points, the highest level since March 1. Contracts on Portugal were at 203.1 bases points from 195.8 on April 16.
"Greece is the tip of the iceberg," said Gargour. "The more people scratch beneath the surface, the more they'll find countries in the same situation as Greece, which means the more they'll have to tap on the resources of Germany and their resources are not limitless. You're migrating payments to the riskier countries from the stable ones and reducing the stable ones' credit quality."
http://www.bloomberg.com/apps/news?pid=20601087&sid=ay4Ie.b3WXig&pos=3
She is either late, wrong, or confused in all her pronouncements, like he was.
Just cause she can dance backward, and in heels, doesn't mean she's any good at it.
Pray for Beranke's health. I know I am.
* * * * * J B K * * * * *
San Francisco
Janet Yellen, president of the Federal Reserve Bank of San Francisco, said she's increasingly certain the U.S. economy is "on the right track," and that officials will "at some point" need to lift borrowing costs.
"We've been getting some pretty encouraging news," Yellen said yesterday in a speech in San Francisco. "It's been a long time coming and is very welcome indeed." Still, "it's important not to lose sight of just how fragile this recovery is," she said, while reaffirming the Fed's pledge to keep the benchmark U.S. interest rate low for an "extended period."
http://www.bloomberg.com/apps/news?pid=20601068&sid=a5WYOznf3aPQ
Employment usually doesn't get going for another quarter or two.
This expansion is much stronger than we expected.
* * * * * J B K * * * * *
San Francisco
Payrolls increased in 33 states in March, led by gains in Maryland, Virginia and Pennsylvania that signal weather, in addition to an improving economy, has influenced employment in recent months.
Employers in Maryland boosted staff by 35,800 workers last month, those in Virginia added 24,500 and headcounts in Pennsylvania climbed by 22,600, the Labor Department reported today in Washington. The states were among the most affected by February blizzards that pushed seasonal snowfall to records.
The number of states showing payroll gains increased from 27 the prior month and was the most since February 2008, a sign that the improvement in the labor market is broadening. Nationally, a report earlier this month showed employment increased by 162,000 last month, the third gain in the past five months and the biggest in three years.
"The labor market has, in our view, turned a corner," Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. "Recent data strongly suggest that economic growth is both broadening out and becoming self-generating."
http://www.bloomberg.com/apps/news?pid=20601068&sid=aEqYHza8ZMNk
Latest Observations:
Date Value
2010-03-03 6545.7
2010-03-10 6543.2
2010-03-17 6545.5
2010-03-24 6526.3
2010-03-31 6948.1
C&I loans are not growing. Only Consumer and Real Estate loans show any sign of life.
Here are the stats for total loans and leases.
It's not pretty, but it's a start.
* * * * * J B K * * * * *
San Francisco
Latest Observations:
Date 2010-03-03 2010-03-10 2010-03-17 2010-03-24 2010-03-31
Value 6545.7 6543.2 6545.5 6526.3 6948.1
This is the problem with using seasonally adjusted data.
The peak in the Fed's balance sheet - according to St. Louis Fed numbers - was back in February.
I would be surprised to see new highs in this number.
* * * * * J B K * * * * *
San Francisco
The U.S. Federal Reserve's balance sheet rose to a record high in the latest week, Fed data released on Thursday showed, as the last of the U.S. central bank's mortgage support efforts came to a conclusion.
The Fed's balance sheet -- a broad gauge of its lending to the financial system -- increased to $2.322 trillion in the week ended April 14 from $2.290 trillion in the week ended April 7.
The Fed's program of buying mortgage securities came to a conclusion on March 31, though the figures suggest it was still taking delivery of some of those purchases.
There is so much housing out there, it's surprising that builders want to build more.
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U.S. homebuilder bonds have recovered to levels last seen before the global credit freeze as investors gain confidence the economic recovery is strong enough to prevent defaults.
Yields fell to within 6.06 percentage points of Treasuries, the narrowest since August 2007, according to Bank of America Merrill Lynch's U.S. High-Yield, Homebuilders/Real Estate Index. Hovnanian Enterprises Inc.'s debt has surged 11 percent since New Jersey's largest homebuilder posted its first profit in more than three years on March 2.
http://www.bloomberg.com/apps/news?pid=20601087&sid=azQ9gTIN5Ep0&pos=5
But a strong business cycle.
* * * * * J B K * * * * *
San Francisco
Manufacturers are charging ahead as sales and inventories grow, spearheading a U.S. economic recovery that shows scant signs of lifting labor markets.
Factory production climbed 0.9 percent after rising 0.2 percent in February, the Federal Reserve said today in Washington. Regional data indicated the gains extended into this month, while figures from the Labor Department showed unemployment claims climbed unexpectedly last week to the highest level in two months.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8os5E9dm_9E&pos=1
This is money that should have been spent by the Treasury to bail out the bad loans authorized by the US Congress.
The question is, how much more will they do?
* * * * * J B K * * * * *
San Francisco
The U.S. Federal Reserve has made clear it will not monetize federal budget deficits by printing money, a senior U.S. Federal Reserve official said on Thursday.
"We have politely made clear in all our speeches ... that we will not monetize the deficits," Dallas Federal Reserve Bank President Richard Fisher said on a panel at the Johns Hopkins University's School of Advanced International Studies.
The Fed is finished with its job of providing liquidity to markets during the financial crisis and is debating how best to withdraw reserves from the financial system, he said.
"Our balance sheet is way too large. We have assets on our balance sheet which will create problems unless we figure out how to manage them," he said.
Is this the final collapse?
Or, is this the beginning of the end, and we have a long way to go on real estate.
The usual rule is Wall Street First; meaning that the smart guys acknowledge their losses first, and get out of the way when the rest of the players have to sell.
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San Francisco
Morgan Stanley has told investors in its $8.8 billion real-estate fund that it may lose nearly two-thirds of its money from bum property investments, according to fund documents reviewed by The Wall Street Journal.
That would likely make it the biggest dollar loss—$5.4 billion—in the history of private-equity real-estate investing. Over the past 20 years, Morgan Stanley's real-estate unit was one of the biggest buyers of property around the world, doing some $174 billion in deals since 1991, mostly with money raised from pension funds, college endowments and foreign investors. The losses come from investments in properties such as the European Central Bank's Frankfurt headquarters, a big development project in Tokyo and InterContinental hotels across Europe, among others.
The loss also represents a huge challenge for the firm as it tries to resuscitate its Morgan Stanley Real Estate Funds business, known as Msref.
The firm has reinstated Owen Thomas, the executive who helped create Msref, as head of the real-estate business and brought in an outsider, real-estate-debt veteran John Klopp, to lead its property business in the Americas.
Remember, it's growth that scares the bond market.
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San Francisco
Sales at U.S. retailers climbed in March more than anticipated, signaling consumers will play a bigger role in a broadening economic recovery.
Purchases increased 1.6 percent last month, the most in four months, and gains for February and January were revised up, Commerce Department figures showed today in Washington. Another report showed consumer prices rose 0.1 percent last month.
Companies from Target Corp. to Saks Inc. benefited last month from an early Easter, better weather and a pickup in hiring, indicating the expansion is no longer solely dependent on gains in manufacturing. A lack of inflation is one reason Chairman Ben S. Bernanke, who testifies before congress today, and other Federal Reserve policy makers will probably keep interest rates low in coming months.
"Consumers are gradually finding their way back to the stores," said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who forecast a 1.5 percent rise in sales. "The talk about the 'new consumer' turns out to be a lot of rubbish. We're seeing vestiges of the 'old consumer.'"
http://www.bloomberg.com/apps/news?pid=20601068&sid=aq2Xj5LfKcIw
That's where Paterson's efforts are directed.
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San Francisco
The managers are counting on their performance records to win clients from larger rivals after the financial crisis forced nearly 100 firms to close down in 2008 and 2009. Hechmer guided the Tradewinds International Value fund to an annual 6.7 percent return in the five years before leaving Nuveen, twice the pace of its benchmark. Gundlach's TCW Total Return beat Bill Gross's Pimco Total Return, the world's largest bond fund, in the five years through Dec. 4, the day TCW fired him.
http://www.bloomberg.com/apps/news?pid=20601108&sid=aiHDoq.MKAc4
We've got clients looking at these assets.
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San Francisco
April 14 (Bloomberg) -- Starwood Capital Group LLC, Colony Capital LLC and TPG, whose leaders profited from the 1990s savings and loan crisis, are among firms buying assets from the Federal Deposit Insurance Corp. for as little as 22 cents cash on the dollar, according to data compiled by Bloomberg.
The sales, some including no-interest financing from the agency, are part of an FDIC effort to clean out $40 billion of loans that regulators seized from failed banks. Starwood Chief Executive Officer Barry Sternlicht told potential investors in February it's "very hard to lose money" on the deals.
The government, which was faulted two decades ago for letting bank assets go at fire-sale prices, is planning to profit along with investors. Instead of selling the loans outright, the FDIC kept stakes of 50 percent or more in at least five loan portfolios sold since September. It's also demanding as much as 70 percent of any gains.
http://www.bloomberg.com/apps/news?pid=20601109&sid=anr29UoL2OBE&pos=10
The Fed is trapped, and I don't see any way out.
The bond market sells off going into an auction, and the catalyst is growth. Every sign of growth makes bond holders less interested in long-term debt securities.
After each auction, the market bounces, getting ready for the next sell-off.
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San Francisco
The cost of living in the U.S. rose in March, while prices excluding food and energy were unexpectedly unchanged, indicating tame inflation is accompanying the economic recovery.
The 0.1 percent gain in the consumer price index was in line with expectations and followed no change in February, the Labor Department reported today in Washington. Excluding food and fuel, the so-called core rate held steady after rising 0.1 percent in February, reflecting cheaper rents and clothing.
Retailers like Wal-Mart Stores Inc. and Home Depot Inc. are offering discounts to attract consumers coping with a 9.7 percent rate of unemployment and rising foreclosures. An absence of price pressures is one reason why Federal Reserve policy makers last month pledged to keep the benchmark interest rate near zero in coming months to fuel the economy.
"Inflation as a concern is relegated to the distant future," said Guy Lebas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia. "It gives the Fed the flexibility to keep rates low for a while."
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_txgpdQqthM&pos=2
They are not a scam, as the Chairman of my Econ department once said, after losing his shirt in the collapse of the stock market.
The more of the market you see, and the more detail you see, the easier it is to make good investments.
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San Francisco
April 14 (Bloomberg) -- JPMorgan Chase & Co., the second- biggest U.S. bank by assets, beat analysts' estimates as first- quarter earnings rose 55 percent on record fixed-income trading revenue and a reduction in provisions for credit losses.
Net income climbed to $3.33 billion, or 74 cents a share, from $2.14 billion, or 40 cents, in the same period a year earlier, the New York-based bank said today in a statement. The per-share earnings compared with the 64-cent average estimate of 21 analysts surveyed by Bloomberg.
"It's an embarrassment of riches in this quarter," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York and owns JPMorgan shares. "These are results that you expect from maybe Goldman in a very good environment for trading," Holland said in a Bloomberg Television interview.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVDSv_QM25Hs&pos=1
The major difference is that Black Rock will be hedging their bond exposure in the futures market, while PIMCO has to stand naked.
The bond contract will be leading the way as rates go higher and bond prices fall.
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San Francisco
The highest 10-year Treasury note yields since 2008 are proving too good to pass up for BlackRock Inc. even as Pacific Investment Management Co. says the best is over for bonds.
"We're more comfortable owning longer Treasuries," said Stuart Spodek, head of U.S. bonds at New York-based BlackRock. The world's biggest money manager, with $3.35 trillion in assets, is becoming bullish because "there isn't inflation in the pipeline" and the gap between short- and longer-term yields is "remarkably steep," Spodek said in an interview last week. As recently as October, he said the "easy money has been made" in government debt.
For Pimco, which runs the world's biggest bond fund, record budget deficits and sales of government debt will eventually spur inflation, drawing the almost three-decade bond market rally to a close, Bill Gross, the Newport Beach, California- based firm's co-chief investment officer, said in a March 25 interview with Tom Keene on Bloomberg Radio.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDMWur4iH4Qg&pos=5
The business cycle proceeds.
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San Francisco
Inventories at U.S. wholesalers rose in February, a sign companies are ramping up orders as sales climbed to the highest level in more than a year.
The 0.6 percent gain in the value of stockpiles was larger than anticipated and followed a revised 0.1 percent increase the prior month, the Commerce Department said today in Washington. Sales advanced 0.8 percent, the 11th consecutive increase.
A record reduction in stockpiles last year sets the stage for companies to boost investment and production in coming months as demand picks up. Efforts to stabilize inventories in the last three months of 2009 accounted for two-thirds of that quarter's 5.6 percent pace of economic growth.
http://www.bloomberg.com/apps/news?pid=20601068&sid=ayKSmTKTOvrQ
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San Francisco
The yield on the 10-year Greek bond rose 16 basis points to 7.40 percent, as of 4:04 p.m. in London. The two-year note yield surged 82 basis points to 7.78 percent. The benchmark ASE Index of Greek stocks slid as much as 5.2 percent, its biggest intraday decline since Jan. 12.
http://www.bloomberg.com/apps/news?pid=20601010&sid=aTtmbcNI0HXI