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.