Bank of Japan eyes change of policy? FT.com / Asia-Pacific

Somebody up there hates Japan.

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

Yellen Anti-Inflation Credentials Defended by Gramley, Blinder - Bloomberg.com

Greenspan in a skirt.

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

Europe Inflation Quickens, Jobless at 11-Year High (Update1) - Bloomberg.com

And this happened while the Euro was weakening against the dollar.

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

Bond Rally Teeters as Yield Spreads Blow Out: Credit Markets - Bloomberg.com

So it begins.

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

U.S. Economy Expands as Consumer Spending Accelerates (Update2) - Bloomberg.com

Consumers feels wealthier, so they start spending even before income grows.

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

Federal Open Market Committee April 28 Statement: Full Text - Bloomberg.com

We'll have a detailed analysis of the statement later in the week over at the analysis weblog.

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

BlackRock Joins Blackstone in Loan Fund Frenzy: Credit Markets - Bloomberg.com

This must drive banks crazy.

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

Euro Slide Leaves CEOs Wringing Hands With Forecasts at Risk - Bloomberg.com

CEOs are not alone.

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

Greece Cut to Junk at S&P as Contagion Spreads (Update2) - Bloomberg.com

Notice that nowhere in this story does the writer actually tell you what is the yield on 10 year notes.

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

Euro May Drop to $1.30 on Greece Crisis, Credit Agricole Says - Bloomberg.com

Currency trading will make you humble.

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

Confidence up, home prices rise on annual basis | Reuters

Do I hear whistling?

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.

http://www.reuters.com/article/idUSTRE63F2NT20100427

Big Banks Are Back as JPMorgan, Citigroup Turn Corner (Update1) - Bloomberg.com

Again, we ask, can growth in bank lending be far behind?

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

Caterpillar Profit Tops Estimates as Economy Improves (Update5) - Bloomberg.com

This is real business, not money-driven finance, done by the best exporter in the US.

* * * * * 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

U.S. Orders Ex-Transportation Jump by Most Since '07 (Update2) - Bloomberg.com

Durable goods orders is one of the most reliable leading indicators.

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

Euro Drops to Near One-Year Low as G-20 Meet Amid Greece Crisis - Bloomberg.com

How bout a triple bottom?

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

Sales of New Homes in U.S. Climb by Most Since 1963 (Update2) - Bloomberg.com

This is stunning.

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

Producer Prices in U.S. Rise 0.7%; Core Rate Up 0.1% (Update1) - Bloomberg.com

This is probably a spike, but it points the way to higher inflation.

* * * * * 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

Greek Deficit Revised to 13.6%; Moody’s Cuts Rating (Update2) - Bloomberg.com

We sure got this one right.

* * * * * 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

IMF Raises 2010 Growth Outlook, Sees Public Debt Risk (Update1) - Bloomberg.com

Showtime!

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

Fannie and Freddie Amnesia - WSJ.com

Not everyone has amnesia about F&F, but the politicians who created this mess sure do.

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

PIMCO - Rocking-Horse Winner April 2010 IO

More gibberish from Gross.

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%.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Rocking-Horse+Winner+April+2010+IO.htm

U.K. March Inflation Accelerates to 3.4% - Bloomberg.com

The effects of an increase in money supply and a falling currency.

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

Greek Bonds and Default Concern (Update1) - Bloomberg.com

That's a hundred basis points in three weeks, even after the EC bailout.

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

‘Adversarial Shot’ at Goldman Raises Stakes for SEC (Update1) - Bloomberg.com

Politics, pure and simple.

* * * * * 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

Leading economic index at record high in March | Reuters

This is a big jump, and a big revision of the previous data.

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.

http://www.reuters.com/article/idUSTRE63I3DM20100419

Euro - Double Bottom?

After three legs down, and a double bottom, perhaps the Euro is ready to rally against the dollar.

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

Goldman Sachs case could help Obama shift voter anger - latimes.com

This is a standard political stunt, and it usually works.

* * * * * 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

Bloomberg.com: Economic Calendar

Traders will be watching the bond market react to Leaders, PPI, Durables, and Home Sales and Prices.

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

Angry Goldman lambasts fraud charges FT.com / World

This is a politically motivated case, brought by a vindictive and self-destructive government.

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

Greeks’ Anger Rises; EU, IMF Prepare Talks on Bailout (Update1) - Bloomberg.com

This is rich. Really rich.

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

India May Increase Rates for Second Time in Month (Update1) - Bloomberg.com

Too little, too late.

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

‘Sleeping Giant’ Field Awakens as Apache, Forest Drill Sideways - Bloomberg.com

Slow day for finance news.

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

Merkel Undermines Bunds as Premium to U.S. Debt Fades (Update1) - Bloomberg.com

The more countries fail, the harder it is to maintain fiscal and monetary discipline.

* * * * * 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

Fed’s Yellen Growing More Confident Economy Is ‘On Right Track’ - Bloomberg.com

And we here at Paterson are growing more confident that Yellen is nothing more than Alan Greenspan in a skirt.

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

Payrolls Rose in 33 States in March, Led by Maryland (Update1) - Bloomberg.com

This is surprising.

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

St. Louis Fed: Series: TOTLL, Total Loans and Leases of Commercial Banks

http://research.stlouisfed.org/fred2/series/TOTLL?cid=100

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

St. Louis Fed: Series: TOTLL, Total Loans and Leases of Commercial Banks

Further signs of life in the bank loans statistics?

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

http://research.stlouisfed.org/fred2/series/TOTLL?cid=100

Fed's balance sheet hits record | Reuters

Old news, and wrong.

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.

http://www.reuters.com/article/idUSTRE63E5LU20100415

China Faces ‘Close Call’ on Rate Rise After Growth Surges 11.9% - Bloomberg.com

Only 11.9 % in March.


Pull your hat down boys, this bronc's a wild one.

* * * * * J B K * * * * *

China's growth spurt in the first quarter came with a slowdown in inflation, complicating decisions on when and how to further tighten monetary policy.

The economy grew 11.9 percent from a year earlier, the biggest gain since the second quarter of 2007, the statistics bureau said in Beijing yesterday. Consumer prices rose less than economists expected, climbing 2.4 percent in March from a year earlier.

http://www.bloomberg.com/apps/news?pid=20601010&sid=aY_uBTG4zNi0

Homebuilder Bonds Recover From Subprime Losses: Credit Markets - Bloomberg.com

This is spectacular news - and a surprise.

There is so much housing out there, it's surprising that builders want to build more.

* * * * * J B K * * * * *

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

U.S. Economy: Manufacturing Advances, Labor Market Struggles - Bloomberg.com

Standard business cycle stuff.

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

Fed will not monetize deficit: Fisher | Reuters

They already have monetized the deficit, to the tune of $1.2 trillion.

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.

http://www.reuters.com/article/idUSTRE63D4NC20100415

Morgan Stanley Property Fund Faces $5.4 Billion Loss - WSJ.com

Wow.

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.

* * * * * J B K * * * * *

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.

http://online.wsj.com/article/SB10001424052702303695604575182022093645864.html?mod=WSJ_hps_LEFTWhatsNews

March Retail Sales in U.S. Rise More Than Forecast (Update2) - Bloomberg.com

Time for the bonds to head South again, getting ready for the next auction.

Remember, it's growth that scares the bond market.

* * * * * J B K * * * * *

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

Hechmer Leads Money Managers in Startups After Industry Shakeup - Bloomberg.com

New clients are coming from the second and third tier of investment professionals, as they step up hiring and management.

That's where Paterson's efforts are directed.

* * * * * J B K * * * * *

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

FDIC Steps Up Busted-Bank Loan Sales on Terms Buyers ‘Love’ - Bloomberg.com

Great opening for a sales call.

We've got clients looking at these assets.

* * * * * J B K * * * * *

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

Consumer Prices in U.S. Rise 0.1%, Core Is Unchanged (Update2) - Bloomberg.com

The longer the Fed leaves all that liquidity in there, the higher the ultimate rate of inflation.

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.

* * * * * J B K * * * * *

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

JPMorgan Net Rises 55% on Fixed Income, Provision Cut (Update1) - Bloomberg.com

Trading profits are the result of good traders, good analysis, and good senior management.

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.

* * * * * J B K * * * * *

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

BlackRock Lured by 4% Treasury Notes Shunned at Pimco (Update2) - Bloomberg.com

They're both right.

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.

* * * * * J B K * * * * *
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

Wholesale Inventories, Sales in U.S. Rose in February (Update1) - Bloomberg.com

The investory/sales ratio is the key variable, and it's stable.

The business cycle proceeds.

* * * * * J B K * * * * *

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

Greek Bonds Rise to 7.40 from 6.83 in three days

We saw this coming.

* * * * * J B K * * * * *

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

Greenspan: Government can't fully prevent another crisis - Apr. 7, 2010

This is not just disingenuous, it's a bold-faced lie.

Greenspan was wrong a lot more than 30%. He was wrong from the first day Ronald Reagan gave him the job, and was still wrong 20 years later when they dragged his cold, stinking carcass away from the biggest disaster to strike the US and world economies since 1929.

His tenure began in 1987 with the biggest stock market crash since '29, and ended in 2006, with the biggest stock market crash since '29 on its way. Perfect bookends to a breathtakingly incompetent career.

The final disaster began in 2004 when the Fed began to raise interest rates from 1% to 5.25%. By the time the crash was over, in 2009, the mortgage market was in shambles, home sales and values plunged to historic lows, the stock market returned to the values of a decade before, and tax revenues began their long decline.

Congress started this disaster by lowering mortgage lending standards, and the Fed finished it off with disastrous interest rate policy.

Into a mortgage market filled with adjustable rate loans made to borrowers with bad credit, no down-payment, and insufficient income, the Fed's blunder raised mortgage payments by a factor of two or three. The Fed should have known the certain impact of its Fed Funds policy on mortgage securities.

But they didn't, because they are clueless.

And the idiot Greenspan led the way.

* * * * * J B K * * * * *

San Francisco

Alan Greenspan acknowledged Wednesday that mistakes were made during his long tenure as chairman of the Federal Reserve, but he argued that the low interest rate policy he championed at the central bank didn't inflate the housing bubble.

In testimony before the Financial Crisis Inquiry Commission, Greenspan said the recent financial meltdown was possibly "the most severe in history." He admitted that regulators failed to grasp the severity of the crisis, but he maintained that his policies and predictions were correct most of the time.

"When you've been in government for 21 years, as I have been, the issue of retrospect and what you should have done is a really futile activity," Greenspan said. "I was right 70% of the time. But I was wrong 30% of the time, and there were an awful lot of mistakes in 21 years," he added.

http://money.cnn.com/2010/04/07/news/economy/Greenspan_financial_crisis_commission/index.htm

10s today, 30s tomorrow, and we're at major support

This is the week that helps predict the future for long-term interest rates.

The auction by the US Treasury of 10-year notes today, and 30-year bonds tomorrow provides the first data point in the new Fed-less bond market regime.

At the close of business yesterday, April 6, their respective yields were 3.98 and 4.84.

We will certainly revisit this data often in the months and years to come. Make a note.

The bond futures contract closed yesterday at 114.11. Make another note.

As the US Treasury sells more and more debt to refinance existing debt, and create new obligations to fund the expansion of government programs, rates are certain to rise.

Combined with the Treasury's added supply, the US Federal Reserve will be selling both mortgage-backed securities and treasuries to reduce the amount of inflationary fuel in the banking system before the banks can use it to make loans to credit-worthy borrowers.

As banks make loans, and the economic expansion takes hold, inflation grows. Further pressure on bond holders will come from the deteriorating value of the currency. Inflation kills bonds.

The combined pressure from these three sources will be too great for bond yields to hold, and they will certainly continue the rise that began more than a year ago, when 30-year bond yields bottomed at 2.58 in late December of 2008.

Our trader is shorting bonds at every resistance level, and will soon be aggressively selling when support breaks - like today and tomorrow.

Paterson's analysis suggests that the bond contract has a long way to fall, and will probably break par, with yields above 6%.

Get short and get rich.

* * * * * J B K * * * * *

San Francisco

James B. Klein
Paterson Financial Services

WEBSITE: paterson.com
WEBLOG: paterson-financial-services.blogspot.com
NEWS WEBLOG: paterson-financial-services-news.blogspot.com

Ford Sells Bonds as Junk Rallies for 14th Month: Credit Markets - Bloomberg.com

Credit spreads continue to fall, as Treasuries rise to meet them.

* * * * * J B K * * * * *

San Francisco

Ford Motor Co.'s finance arm sold $1.75 billion of five-year debt, taking advantage of investor demand for high-yield bonds, on pace for the longest rally since 1996.

Ford Motor Credit Co., the biggest issuer of speculative- grade securities last year and the only one of the three largest U.S. automakers to avoid bankruptcy, sold the notes with a 7 percent coupon. That's the lowest fixed-rate yield Ford has paid on dollar bonds since June 2005, and compares with the 8.7 percent rate on similar notes sold in September, according to data compiled by Bloomberg.

http://www.bloomberg.com/apps/news?pid=20601087&sid=av5._aEmn93I&pos=7

Fed says extended period may last a long time | Reuters

Bank lending is too weak to allow the Fed to push up the funds rate.

Until bank lending increases, the Fed seems happy to leave things as they are, and to focus on the long end of the curve.

Instead of bank lending, we see banks securitizing their loans and keeping their balance sheets flush with cash.

* * * * * J B K * * * * *

San Francisco

The Federal Reserve could keep interest rates ultra-low for even longer than investors expect if the economic outlook worsens or inflation drops, minutes from the central bank's last meeting suggested.

The minutes of the Fed's March 16 gathering, released on Tuesday showed lingering concern about the economy's prospects, with policymakers indicating they were in no hurry to raise interest rates.

"The duration of the extended period prior to policy firming might last for quite some time and could even increase if the economic outlook worsened appreciably or if trend inflation appeared to be declining further," the minutes said.

"Such forward guidance would not limit the committee's ability to commence monetary policy tightening promptly," they said.

http://www.reuters.com/article/idUSTRE6354CM20100406

Washington Business Journal: Fannie Mae, Freddie Mac touch off swaps scrap

Finally.

Now we get real prices for swaps from Fannie and Freddie.

Watch the investment banks howl, as this source of profit and influence disappears.

* * * * * J B K * * * * *

San Francisco

The Federal Housing Finance Agency, which oversees the government-owned mortgage giants, expects them to start using a clearinghouse to trade the swaps by year's end, according to The Journal. The impending change away from private "over-the-counter" contracts has generated behind-the-scenes meetings among officials at Fannie and Freddie, the banks that now command their business and the exchanges that want it.

http://washington.bizjournals.com/washington/morning_call/2010/04/fannie_freddie_touch_off_swaps_scrap.html

Pimco continues to snub UK gilts, US bonds | Reuters

Two words: in flation.

It's coming, and just like the dinosaurs, investors only see a faint light in the sky.

Gross has it right.

* * * * * J B K * * * * *

San Francisco

Pimco, which operates the world's largest bond fund, continues to avoid UK gilts and U.S. Treasury bonds because debt levels in the two countries pose a serious threat to investors' returns, Bill Gross, Pimco's co-chief investment officer, said on Monday.

Even though the UK and the United States are "decently positioned" to escape their individual debt crises, Gross said they are not good portfolio investments.

"There are more attractive choices" than UK gilts and U.S. Treasuries, Gross wrote in his monthly report to clients on Pimco's website. "Simply comparing Greek or UK debt to U.S. Treasury bonds is not the golden ticket to alpha generation in investment markets," he said. "U.S. bonds may simply be a 'less poor' choice of alternatives."

http://uk.reuters.com/article/idUKN0523626720100405?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FUKBankingFinancial+%28News+%2F+UK+%2F+Financial+Services+and+Real+Estate%29

‘Unloved’ Junk Debt May Be Best Bond Investment: Credit Markets - Bloomberg.com

Reaching for yield and taking risk.

It's that time in the business cycle.

GS already has theirs, and they now want to sell it to you.

It's a good trade.

* * * * * J B K * * * * *

San Francisco

April 6 (Bloomberg) -- Speculative-grade bonds with the highest rankings may offer the best returns after trailing the riskiest debt in a record credit-market rally.

Goldman Sachs Group Inc. is recommending high-yield, high- risk bonds with rankings in the BB tier, the first below investment grade on the Standard & Poor's scale. Pioneer Investment Management Inc. favors BB and B bonds, the next lowest bracket, while saying the riskiest debt is overvalued. Debt ranked in the BB category gained 39.1 percent in the past 12 months, underperforming the CCC tier by 66 percentage points, according to Bank of America Merrill Lynch index data.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7P22sf_Lf4Q&pos=3

Greek Bonds Slide on Speculation EU-IMF Aid Plan May Falter - Bloomberg.com

27 beeps in a day?

That's two points.

* * * * * J B K * * * * *

San Francisco

The yield on the Greek 10-year bond climbed 27 basis points to 6.83 percent, the highest since Feb. 1, as of 11:30 a.m. in London. The 6.25 percent security due June 2020 fell 1.93, or 19.3 euros per 1,000-euro ($1,340) face amount, to 95.74. The two-year note yield advanced 38 basis points to 5.66 percent, the highest since March 2.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1YpSfReN_9o&pos=2

Former CDO experts eye emerging markets | Reuters

Securitization is replacing bank loans in emerging markets, just like it does in the US.

* * * * * J B K * * * * *

San Francisco

Throngs of U.S. credit experts displaced in the credit crisis have shifted their sights to emerging markets in South America and Asia, anticipating a corporate bond boom there will replace jobs lost in the securitization business.

Investors' realization that sliced and diced piles of debt with lofty-sounding acronyms such as CDOs could be treacherous was one catalyst for the global financial meltdown. As faith in that part of the bond market evaporated many experts who built, analyzed and sold such securities saw their jobs vanish.

More so than any other bond market sector, securitization desks were decimated in the market meltdown and ensuing wave of Wall Street layoffs, headhunters say.

http://www.reuters.com/article/idUSTRE6342WF20100405

Gold bricks filled with tungsten

Hard to believe that Madoff wasn't involved.

* * * * * J B K * * * * *

San Francisco

Abstract: Back in October, 2009 I penned an article titled, A Blight on Humanity, where I reported that, in an Asian depository there had been found 60 metric tonnes of "Good Delivery" gold bricks that had been gutted and filled with tungsten.

That article was followed up with, On Doing God's Work, where additional information on the fake gold bricks was presented. This lengthy report has been written to provide the background and genesis of who was involved, why the fake gold was produced and how it was fed into the international gold market. - Ron Kirby

http://www.zerohedge.com/sites/default/files/tungsten%20genesis.pdf

Jim Grant is a bear on bonds

The debate is found at the bottom of the page, and it's 40 minutes long.

I found myself cheering like a baseball fan.

http://www.grantspub.com/about/jim.cfm

The Giants' home opener is on Friday, and I'm taking the afternoon off.

US banks in $2.5bn ‘Christmas capital’ gain

The game's over.

* * * * * J B K * * * * *

San Francisco

US banks earned $2.5bn last year from an accounting rule that enables them to book gains – known as "Christmas capital" – by buying assets at a discount, a new study shows.

More than half of all acquisitions of failed banks last year resulted in such gains, according to SNL Financial, which compiled the data.

For some banks, the gains contributed to the lion's share of their income for the year.

http://www.ft.com/cms/s/0/af2828b6-400a-11df-8d23-00144feabdc0.html

Greenspan Should Have Seen Housing Crisis, Burry Says in Times - Bloomberg.com

A day late and a dollar short.

Where was this guy for the past 20 years?

Greenspan's been a disaster since he got the job, back in 1987.

* * * * * J B K * * * * *

San Francisco

April 5 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan should have foreseen the collapse of the U.S. housing market and warned the public, one of the most prominent bettors against the subprime market wrote in a New York Times commentary yesterday.

"He should have seen what was coming and offered a sober, apolitical warning," Michael Burry, who was head of Scion Capital LLC, wrote in the Times. "Everyone would have listened; when he talked about the economy, the world hung on every single word."

"Unfortunately, he did not give good advice," Burry said. In 2005, "Mr. Greenspan trumpeted the expansion of the subprime mortgage market" at a time when "the tide was about to turn," Burry wrote.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZzzeaYVIPME&pos=7

Bond Buyers Demand Record Downgrade Protection: Credit Markets - Bloomberg.com

This is a cheap way to lower the costs of borrowing.

The problem is not ratings downgrades, but rather rising interest rates.

As inflation takes hold, rates are going up.

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San Francisco

April 5 (Bloomberg) -- Bonds with built-in protection against rating cuts are making up a record share of debt issues as investors hedge against a slowdown in the economic recovery.

Anheuser-Busch InBev NV, the brewer of Budweiser and Stella Artois, is among companies issuing so-called step-up bonds, whose interest increases if a borrower is downgraded. Sales surged to $37.3 billion in March, or 12.4 percent of all debt issued, according to data compiled by Bloomberg. Most of the notes are sold in the U.S., where almost half of bonds rated as so-called junk or on the cusp of non- investment grade include the protection.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aa4m61Wu94ys&pos=3

How Texas Escaped the Housing Crisis - ABC News

I'll be damned.

It's written in the state constitution: no cash-out refis.

I'd prefer to change Fannie and Freddie's underwriting guidelines.

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San Francisco

But there is a broader secret to Texas's success, and Washington reformers ought to be paying very close attention. If there's one single thing that Congress can do now to help protect borrowers from the worst lending excesses that fueled the mortgage and financial crises, it's to follow the Lone Star State's lead and put the brakes on "cash-out" refinancing and home-equity lending.

http://abcnews.go.com/Business/TheBigMoney/texas-escaped-housing-crisis/story?id=10243782

Construction Spending in the U.S. Decreases to Seven-Year Low - Bloomberg.com

It will be a long time before commercial real estate recovers.

The world has changed, and the use of commercial space is changing.

Stay away.

Residential will do just fine.

Everybody needs a home, whether they rent or buy.

Maybe it's time to buy an S&L - again.

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San Francisco

April 1 (Bloomberg) -- Construction spending in the U.S. fell in February to the lowest level in more than seven years, signaling this part of the economy remains in a recession.

The 1.3 percent decrease to $846.2 billion, the lowest since November 2002, followed a revised 1.4 percent drop in January that was more than twice as large as previously estimated, Commerce Department figures showed today in Washington.

Housing will be slow to rebound as foreclosures climb and Americans are uncertain about job prospects. At the same time, commercial and government building are also slumping, restrained by a lack of credit and swelling budget deficits.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aK4orcqqi590

Payrolls in U.S. Rose 162,000 in March; Unemployment at 9.7% - Bloomberg.com

Wow.

It's not a big number, but it's earlier than even we thought.

Non-farm payrolls started increasing in QI 2010. Make a note.

The bonds are taking this hard, and are breaking minor support.

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San Francisco

April 2 (Bloomberg) -- Employment in the U.S. increased in March by the most in three years and the unemployment rate held at 9.7 percent as companies gained confidence the economic recovery will be sustained.

Payrolls rose by 162,000 last month, less than anticipated, figures from the Labor Department in Washington showed today. The March increase included 48,000 temporary workers hired by the government to conduct the 2010 census, as well as job gains in manufacturing and health services.

The government revised January and February payroll figures up by a combined 62,000, putting the March gain at 224,000 after including the updated data. Caterpillar Inc. is among companies adding staff, indicating the recovery that began in the second half of 2009 is starting to foster the jobs needed to lift consumer spending and sustain the expansion.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aehAkiag49Hc

U.S. Economy: Factories Drive Growth as Orders Rise (Update1) - Bloomberg.com

Factory orders are an important leading indicator.

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San Francisco

Manufacturers are driving the U.S. economic recovery as the real estate industry struggles to recover from recession, hurting employment, reports today showed.

Factory orders rose 0.6 percent in February after surging 2.5 percent, the Commerce Department said in Washington, while businesses responding to a survey by the Institute for Supply Management-Chicago Inc. grew for a sixth straight month in March. Figures from ADP Employer Services showed an unexpected 23,000 drop in company payrolls this month, led by a slump in construction jobs.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aX8QHc29VHhY

Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue - Bloomberg.com

You'll want to read all of this article.

It shows the types of assets in the Fed's portfolio, and for which they paid hard cash.

Interestingly, they own some CDSs that made them some money.

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San Francisco

April 1 (Bloomberg) -- After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns's takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZA_RWY3IJ2I&pos=3