Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Mon 12.31.2007
Gold Forecast for 2008 In a December 2004 interview with the Wall Street Journal, I predicted $525 for gold's high in 2005. It hit that $525 level the following December. For 2006, once again in a Wall Street Journal interview, I predicted a "breakout year" for gold with a top price of $760. Its actual breakout high came earlier in the year than I had anticipated (in May) and a bit lower than I had predicted -- in the $730 range (intraday Comex). In January, 2007, when gold was trading in the $625 range, in a forecast published in a NewsGroup Market Update through our USAGOLD website, I made $715 my minimum upside target and suggested that gold could hit the $800 level, or go as high as $875 if tensions escalated in the Persian Gulf; or if the quid pro quo with China broke down; or if the new Congress proved as anti-market as advertised; or if we got some surprises. Gold hit $840 in November and is trading at the $810 level as this is written.
Dollar Heads for Second Annual Decline Against Euro on Fed Cuts The dollar traded at a two-week low against the euro, heading for a second annual decline, as investors raised bets the Federal Reserve will cut interest rates again to bolster the slowing U.S. economy. The dollar traded at a two-week low versus the euro and yen, after weakening against 14 of the 16 most active currencies this year, as the Fed reduced borrowing costs three times to temper the worst housing slump in 16 years. A U.S. report today may show sales of existing homes held at the lowest since the National Association of Realtors began keeping records in 1999. ``Going into the end of the year, clearly markets have taken another bounce of dollar negativity on board,'' said Jeremy Stretch, senior market strategist in London at Rabobank Groep, the third-biggest Dutch bank. ``The slowdown in the U.S. economy is clearly going to happen.''
Your 'safe' money isn't so safe Did you abandon the roiling stock market for the security of a money market fund? Gulp -- the mortgage mess has probably put your investments there at risk, too. Investors are fleeing the volatility of the stock market at the year-end, according to industry data, and stashing the proceeds in supposedly nice, safe money market funds at the scorching rate of $18 billion per week. Yet investors might only be exiting one danger zone and entering another, as a close look at money market funds at major U.S. brokerages reveals that most are invested in the same sort of dubious paper that has rocked the financial world in the past six months. Although many money market funds have the word "cash" in their names -- leading investors to think that they are no more risky than a handful of paper money -- many are thinly veiled bets on the deteriorating mortgage market
Merrill negotiating another capital infusion Merrill Lynch & Co. was in talks this weekend with Chinese and Middle Eastern sovereign wealth funds to raise more capital in a bid to stave off liquidity concerns following massive credit losses, British newspaper The Observer reported. The news surfaced after Merrill recently said it will raise up to $6.2 billion to be invested by Singapore-based investment firm Temasek Holdings Pte. Ltd. and U.S.-based money manager Davis Selected Advisers L.P. Merrill also said it is selling Merrill Lynch Capital, the firm's middle-market commercial finance business, to GE Capital. Chief Executive John Thain is trying to secure another infusion of foreign capital -- through selling stock or assets -- to shore up Merrill's balance sheet, The Observer reported, citing anonymous sources.
Top economist says America could plunge into recession Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times. Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years. Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: "American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses." He said that US futures markets had priced in further declines in house prices in the short term, with contracts on the S&P Shiller index pointing to decreases of up to 14 per cent.
Recession or not, Middle America will continue to feel the pinch in 2008 The decline in the housing market that led to the squeeze on lending is widely expected to carry over into the new year – and it is not the only pressure on the US economy. A small 1950s bungalow in Stockton, California, is up for sale for $169,950. Sitting off a quiet road dotted with American flags, the Funston Avenue home has two bedrooms, one bathroom and a covered porch. It was built as part of President Truman’s Fair Deal, a federal promise to guarantee economic opportunity and housing for America’s servicemen returning from the war. Sixty years on, however, the American Dream has turned into a nightmare. The bungalow’s value has fallen by $110,000 in two years and the family who live in it have fallen so far behind with their rising mortgage repayments that they have been foreclosed by the bank.
From the sub-prime to the ridiculous: how $100bn vanished It began with low-income Americans being encouraged to borrow mortgages they couldn't afford. The economic butterfly effect would eventually cause deals worth billions of dollars to fall apart; the first run on a British bank in 140 years; some of the most powerful figures on Wall Street losing their jobs; wild gyrations on the markets; and dire warnings that the world is on the brink of recession. At the start of the year, stockmarkets were at six-year highs and £40bn worth of mergers and takeovers were awaiting completion. Private equity firms and hedge funds were gorging themselves on cheap money and a handful of secretive, hugely wealthy individuals were becoming increasingly influential. But it was the millions on more modest incomes who would ultimately shape the events of 2007.
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Fri 12.28.2007
Gold Rises, Heading for Best Year Since 1979; Silver Advances Gold rose in London, heading for its best year since 1979, as higher oil prices and a weaker dollar spurred demand for the metal as a hedge against inflation and as an alternative investment. Silver also advanced. Crude oil is on course for the biggest annual appreciation in eight years, while the euro gained against the dollar for a sixth consecutive trading session. Gold will probably average $800 an ounce next year, compared with $696 this year, according to the median estimate of 37 traders, analysts and investors surveyed by Bloomberg News. ``The major driving force for gold this year has been the weaker dollar,'' Bernard Sin, chief gold trader at MKS Finance, one of Switzerland's four precious-metals refiners, said by phone from Geneva today.
Gold to Pass Record in 2008 on Inflation, Survey Says Gold will rise to a record in 2008, increasing for an unprecedented eighth consecutive year, as investors seek protection from accelerating inflation, metals analysts say. Gold will probably average $800 an ounce, compared with $696 this year, according to the median estimate of 37 traders, analysts and investors surveyed by Bloomberg News. Gold has gained 30 percent to $827.20 an ounce in London this year, its best year since 1979, when the Iranian revolution crippled crude- oil exports and U.S. inflation surpassed 13 percent. ``I do see gold hitting a new high at some point in the first half,'' said UBS AG's John Reade, who is tied as the most- accurate analyst in the London Bullion Market Association's 2007 gold-price forecast.
U.S. November new-home sales fall 9% to 647,000 Sales of new U.S. homes fell by a more-than-expected 9% in November to a seasonally adjusted annual rate of 647,000, the Commerce Department reported Friday. On average, economists surveyed by MarketWatch were expecting new-home sales to drop to a seasonally adjusted annual rate of 710,000 in November. At the same time, October's sales rate was revised downward, the data show. Sales in October were revised to rise by 711,000, or 1.7%. They were previously estimated to have risen to a seasonally adjusted annual rate of 728,000. The monthly report is very volatile, and the government says it can take up to five months to establish a new trend in sales.
Citi may write down $18.7B, Goldman analysts say When Citigroup warned in early November that it was likely to write down its portfolio by $8 billion, or €5.51 billion, to $11 billion in the fourth quarter because of exposure to bad loans, investors recoiled at the size of the losses. Some now say those early estimates appear drastically understated.Citigroup Inc. could write off as much as $18.7 billion in the fourth quarter, wrote Goldman analysts William F. Tanona, Betsy Miller and Neil C. Sanyal in a note to investors late Wednesday. If it does, they say, the bank may be forced to lower its dividend by 40 percent.Citi has about $55 billion in exposure to subprime mortgages, about $43 billion of which are collateralized debt obligations, or CDOs, that have mortgages underlying them.
Credit Crisis? Just Wait for a Replay What if it’s not just subprime? As 2007 ends, it seems that the financial world shakes every time a company reveals some new exposure to the disastrous world of subprime mortgage lending. But just how different was subprime lending from other lending in the days of easy money that prevailed until this summer? The smug confidence that nothing could go wrong, and that credit quality did not matter, could be seen in the many other markets as well. That was particularly true in the corporate loan market. Loans were cheap, and anyone worried about losses could buy insurance for almost nothing. It was not an environment that encouraged careful lending.
Crunch Time for American Consumers The subprime mortgage crisis is merely the tip of a very large iceberg. Beneath the surface lies not only a sea of tenuous loans to prime borrowers, but also an assortment of other liabilities backed by auto loans and credit card debit. Now that home equity extractions, "zero percent auto financing" and "zero interest" credit card rollovers are much harder to come by, Americans must do without the credit lifelines that have previously kept them afloat. Similar to the home buying market, lax lending standards in the automobile marketplace have led to gross distortions that must be painfully corrected. For years standard practice allowed millions of car buyers to trade in old cars (that were worth less then outstanding loans), and roll the balances into new low interest rate loans for new cars.
Bankers rush to raise capital Merrill Lynch is the latest American bank to go to the sovereign wealth funds of the Far East for finance. Will the UK banks be forced to follow suit? This week's $5bn (£2.5bn) injection into Merrill Lynch from Temasek Holdings was just the latest bail-out by Asian and Middle East investors as the credit crunch forces the giants of Wall Street to replenish their capital positions.Including Switzerland's UBS, stakes taken by state investment funds in investment banks in the past month have hit nearly $30bn – and still fears persist. Goldman Sachs analysts said on Wednesday that Citigroup might have to cut its dividend even after its $7.5bn capital injection from Abu Dhabi.
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Thur 12.27.2007
U.S. Nov. durable goods orders rise 0.1% on aircraft A big jump in demand for civilian aircraft pushed durable goods orders up for the first time in four months in November, the Commerce Department reported Thursday. Excluding transportation orders, however, durable goods orders fell by 0.7% in November. New orders for non-defense aircraft and parts shot up by 20.9% in November, the data show. However, new orders for defense aircraft and parts dropped by 20.1% in the same month. Economists surveyed by MarketWatch were expecting orders for durable goods to climb by 2.9% in November after falling by 0.2% in October.
Initial jobless claims hit 349,000, up 1,000 Seasonally adjusted first-time jobless claims nudged up in the most recent weekly data, while continuing claims reached the highest level in more than two years, the government reported Thursday. Initial claims rose 1,000, reaching 349,000 for the week ended Dec. 22, according to the Labor Department. The previous week's initial jobless claims level was revised to 348,000 from an earlier estimate of 346,000. Initial claims were at 322,000 during the same period in the prior year. Economists watch claims closely because an increase could be a leading indicator of a slowdown. Continuing jobless claims gained 75,000, hitting 2.71 million for the week ended Dec. 15 and the highest level seen since Nov. 12, 2005.
Gas could be $3.75 a gallon by spring Sights like this at a Shell station in San Mateo -- $4 or more per gallon -- could become more familiar throughout California in 2008 as gasoline will cost about 65 cents more per gallon than it did in 2007, analysts predict. Gasoline could average $3.75 a gallon across the U.S. in a few months, pushing the price in California up and over the $4 mark, energy analysts said Wednesday. Several factors point toward a nightmarish spring for motorists, they said, including persistently strong crude oil costs and the fact that the traditional December drop in pump prices didn't materialize. "If anyone expects gas to be less than a new record, they are not thinking," said Fadel Gheit, senior energy analyst for Oppenheimer & Co. "There is no question it will be much higher than last year."
Wall Street’s leading bear says Merrill Lynch losses will keep rising Meredith Whitney, the star banking analyst whose bearish comments this year triggered a $369 billion (£186 billion) drop on Wall Street, said yesterday that she expects losses at Merrill Lynch to increase fourfold in the fourth quarter of the year. Ms Whitney, an analyst with CIBC World Markets, predicted yesterday that the US investment bank would incur losses per share of about $2.70, compared with a loss of 50 cents a share previously forecast. Merrill Lynch is expected to have incurred losses of approximately $16 billion over the year. She also said that she expected Merrill to write off another $7 billion of bad investments during the fourth quarter and predicts that the bank will continue to make further writedowns throughout next year.
Citi, Merrill, JPMorgan face higher writeoffs Citigroup Inc, Merrill Lynch & Co (MER.N: and JPMorgan Chase & Co may face larger fourth-quarter debt write-offs than previously expected, and Citigroup may have to slash its dividend 40 percent to preserve capital, according to a Goldman Sachs & Co analyst."It will be a couple of quarters before the current credit crisis is fully digested by the markets," the analyst, William Tanona, wrote on Thursday. The analyst issued his forecast after banks said they would write off more than $70 billion because of the global credit crunch, as rising mortgage and credit losses led investors to shun debt once thought safe but now deemed risky. Citigroup has replaced Chief Executive Charles Prince with Vikram Pandit, while Merrill replaced Chief Executive Stanley O'Neal with John Thain.
Largest monthly fall in US house prices fuels economy fears Concerns about the state of the US economy grew yesterday as new data revealed that house prices in October suffered a record monthly decline. The price of an existing - rather than newly built - single-family home fell in October for the 10th consecutive month, according to the closely watched Standard & Poor's/Case-Shiller home price index. An increase in foreclosures is creating an oversupply of homes which is depressing property prices across the US. The study of 10 metropolitan areas, showed prices falling 6.7%, worse than the last record drop of 6.3% reported in April 1991. News that house prices continue to slide worried investors already fretting about the state of the US economy after Target, the second largest retailer, warned that same-store sales in December were below expectations.
Commercial Real Estate Dominoes Collapse Wal-Mart (WMT) has already scaled back 2008 plans twice. They are now cutting back further and it's not just Wal-Mart. Many big are retailers shelving plans to add area stores. Target Corp. (TGT), Home Depot Inc. (HD), Wal-Mart Stores Inc. and other big-box retailers — buffeted by sagging sales and the housing slump — are pulling the plug on new-store plans in and around Chicago. The pullback is another sign of the darkening outlook for 2008, as retailers turn cautious on expansion. "The economy is in the crapper. Housing is going down the chute," says Richard Kopczick, mayor of Morris, which had expected to gain more than $1 million in sales taxes from a planned shopping center that's lost its key big-box anchors. "Lowe's (LOW) backed off, and then Kohl's (KSS) said they wouldn't come without Lowe's, and the whole house of cards collapsed."
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Wed 12.26.2007
Gold Bulls Eye $1,000 Bullion If the experts are right, gold could be poised for another banner year in 2008. Experts say they expect continued weakness in the dollar and robust investment demand, and that prices for gold could surge to above $1,000 an ounce in the next 12 months, according to a broad cross-section of professionals interviewed by TheStreet.com. Bullion prices surged in the second half of 2007 as the crisis in the credit markets shook investor confidence and increased the allure of hard assets in general and gold specifically. In early November, the price of gold flirted with the record high of $875 an ounce that was reached in 1980 at the height of the Iran hostage crisis.
What lies in store 'What we are witnessing is essentially the breakdown of our modern day banking system, a complex of levered lending so hard to understand that Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August." The quote is from Bill Gross's Investment Outlook, available on the PIMCO site. For those who don't know, Bill Gross is CEO of PIMCO, the largest manager of bond funds in the world. More importantly, he is highly respected, not least for his ability to write investment letters that explain complex topics and ideas to non-professionals in language they can understand. Naturally, an outlook written in December contains a forecast for the coming year, and Gross has never been afraid to stick his neck out and give his views.
Home prices drop 6.1% Home prices in 20 major U.S. cities were down 6.1% on average in the past year as of October, according to the Case-Shiller price index released Wednesday by Standard & Poor's. Since October 2006, prices in 10 cities fell 6.7% -- a record drop. The prior largest decline was 6.3% in April 1991. "No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, chief economist at MacroMarkets LLC and co-developer of the index. Eleven of the 20 metro areas posted a record low annual growth rate. Also, all 20 metro areas declined from the prior month as San Diego posted the largest decline -- 2.6%.
Target warns of weak December With shopping in the spotlight, the jumbo retailer says the month was rough. But Costco sees 'pretty good' sales. Buffett goes shopping -- for another company. As GM struggles, Toyota aims to boost sales. The holidays felt like a lump of coal at Target. The jumbo retailer warned on Monday afternoon that its December sales appeared to be close to flat; earlier, the chain had forecast a 3% to 5% increase at stores open at least one year. Target now expects same-store-sales this month to fall in a range of a 1% decline to a gain of only 1%. An increase in visits to Target stores in the week ending Dec. 22 "was not sufficient to compensate for the unfavorable traffic trends that carried over into December from the week following Thanksgiving,'' the company said on a recorded call.
Dollar May Fall to 95 Yen on Housing Slump, MUFG's Mizuno Says The dollar may fall 20 percent to 95 yen in 2008 as a housing slump erodes U.S. corporate earnings and consumer spending, forcing the Federal Reserve to cut interest rates, according to Mitsubishi UFJ Securities Co. ``The adjustment in the U.S. housing market has just begun,''' Kazuo Mizuno, chief economist in Tokyo at the unit of Japan's largest publicly traded lender, said in an interview today. ``It will probably bottom out in three or four years. Meantime, this will keep buffeting consumption, employment and the dollar.'' Mizuno's forecast is among the most bearish, with the median estimate of 42 economists for the dollar to fall 3 percent to 110 yen next year. The U.S. currency this year dropped 4 percent as the Federal Reserve cut its benchmark interest rate by 1 percentage point to support the economy.
Analysts still fear $100 oil in 2008 Oil prices of near $100 per barrel caused alarm in consuming countries in 2007, and analysts forecast another tense crude market next year with triple-figure records a real prospect.Despite a murky outlook for the world economy, crude prices are seen settling at elevated levels, spelling more pain for consumers and a steady flow of petrodollars for the world's oil exporters. From a low point of just below $50 per barrel in January, prices doubled in 2007, hitting $99,29 a barrel on November 21, an all-time record. Oil forecasting is a notoriously difficult business, but few had expected such a run-up -- apart from an analyst at investment bank Goldman Sachs who has achieved some fame for foreseeing early in 2005 a "super spike" in prices to $105.
Beleaguered Merrill Lynch raises $7.5bn with shares and assets sell-off John Thain, the new chief executive of Merrill Lynch, has raised $7.5 billion (£3.7 billion) in cash to shore up the investment bank’s damaged finances by selling part of its lending business and a stake in the bank at a substantial discount. Merrill said on Christmas Eve that it would sell a stake worth just under 10 per cent for $6.2 billion to two investors – Temasek Holdings, the Singaporean state-run fund, and Davis Selected Advisors, an American fund manager. The bank said that it had also sold part of its lending business to GE Capital, the two deals freeing up $1.3 billion of capital. Temasek and Davis bought Merrill stock at $48 per share, representing a 13.6 per cent discount to the closing price on Friday.
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Fri 12.21.2007
Gold futures rise, boosted by dollar weakness Gold futures rallied more than 1% on Friday, as declines in the U.S. dollar supported investment demand. "Gold prices are higher on the back of speculation that the US dollar may weaken into 2008, which boosts the appeal of gold as a hedge against inflation and makes it cheaper for foreign investors," said analysts at Action Economics. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, dropped 0.3% at 77.585. Gold, as a dollar-denominated commodity, benefits from dollar weakness.
Only Gold Can Beat the Credit Crunch Of course - to any Wall Street power broker, economist, or US policy maker, this headline means the equivalent of "Only Space Aliens Can Halt Teenage Pregnancies". In other words, it’s a total non-sequitur to them. So what? Who cares about Wall Street, economists, or politicians? Individual investors, business owners, workers, fathers, mothers, and college students, they are the ones who must survive if the United States is to survive the mounting credit collapse more or less intact. Why worry about those who caused the mess? The point is that Wall Street or US politicians cannot and will not save investors. They are not concerned with investors, only with themselves. Investors must save their own little selves - and the only way to do that is by jettisoning the world of contracts, paper, and electronic currency blips.
Merrill Lynch may get $5 billion Temasek injection Merrill Lynch & Co is in advanced talks to receive a $5 billion cash infusion from Singapore's state investment company Temasek Holdings Ltd., becoming the latest among a number of blue chip Wall Street and European financial institutions to receive funding from Asian or Middle Eastern government funds in the wake of the ongoing turmoil in structured credit markets, according to a media report Friday. Talks between the organizations are at an advanced stage, The Wall Street Journal reported in its online edition, citing a person with knowledge of the matter. Talks between Temasek and Merrill are ongoing at a time analysts speculate the New York investment bank may book mortgage-related write downs of up to $8 billion in the fourth quarter, the Journal reported.
Bonuses on Wall Street surge 14 percent This might have been one of Wall Street's most dismal years in a decade, but that hasn't stopped bonus checks from rising an average of 14 percent. Four of the biggest U.S. investment banks — Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. — will pay out about $49.6 billion in compensation this year. Of that, bonuses are traditionally estimated to represent 60 percent, or almost $30 billion. But that might not sit well with investors who held on to investment bank stocks this year — and watched them plunge by up to 45 percent. Investment houses have been slammed by the credit crisis, and top executives this past week said they've yet to see a bottom.
US$ & Monoline Bond Insurers The hidden bond insurers used by Wall Street firms are in the news, especially ACA Capital and MBIA. Implications are huge, with monumental ripple effects. Financial press reporting of the bond insurers is woefully inadequate. Moodys and Fitch are giving analysis review to nine 'AAA' rated bond insurers to see if they have sufficient capital to conduct their insurance operations. The list includes ACA Capital, MBIA, Ambac Financial, and Financial Guaranty Insurance. ACA Capital has only $1.1 billion in cash for payout of bond failure claims, but has lost $1 billion in the most recent quarter. More losses are assured. This insurer is very important, since it is widely abused by Wall Street banks to hide cratered bond derivative losses. If ACA insures a bond, then Goldman Sachs or Merrill Lynch for instance can take the under-water bond off the balance sheet.
Years of mortgage foreboding followed by years of pain After years of foreboding - sadly much of it outside the real estate industry - the US housing bubble finally burst in 2007.Amid a spike in late payments and defaults on subprime mortgages made to borrowers with patchy credit histories, the liquidity that helped fuel the US housing boom drained rapidly away, leaving behind a global financial markets crisis that looks set to linger into 2008.Jack Malvey, chief global fixed income strategist at Lehman Brothers, said: "In the end, the story of 2008, 2009 and possibly 2010 will be about the extent and consequences of what promises to be the worst US housing correction since the Great Depression in the 1930s."
Stock market 'winter' is moving in Where in the world can you safely put your money? Not in equities, two top investors warn. They're not perpetual bears -- just investment analysts with enviable records. Growing numbers of market veterans in recent weeks have stuck out their necks and declared the 2002-07 bull market over, done and dead. At considerable risk to their reputations, considering the market is down a mere 8% from its high, they're asserting that a one-two-three punch of earnings recession, credit constriction and inflation have created bear-market conditions that could push the average stock down at least 20% over the next year.Although the news media and amateur analysts sometimes throw the term "bear market" around carelessly, like a schoolyard curse, it is not a concept that institutional analysts and fund managers take lightly.
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Thur 12.20.2007
Buy Signals are Popping Up in Gold and Silver Buy signals are popping up in many places as a result of Tuesday's positive action in the metal pits. Since I posted my last article, gold has made several ‘higher lows,’ a sign that the bull market is alive and well. Admittedly the Amex Gold BUGS Index, XAU and Amex Gold Miners, went lower than I expected. In retrospect I blame the various ETF’s for drawing money away from the gold and silver stocks. The streetTRACKS Gold Shares now has over 19,800.000 ounces of gold in back of it. Even during pull-backs in gold, while investors are dumping their gold stocks, fresh money keeps moving into the GLD. When people see gold and silver shining brightly amidst the battered economic ruins, they will finally realize that the gold bugs were right all along.
Fatwa against the dollar? To all intents and purposes, the Wahabi religious establishment of Saudi Arabia has just issued a fatwa against the US dollar. This bears watching. A message issued by 26 leading clerics warns that inflation has reached intolerable levels in the Gulf kingdom. While it does not vilify the dollar explicitly, the apparent political aim is to undermine the country’s dollar peg. "The rulers should seek to try to remedy this crisis in a way that would ease people’s suffering." "We direct this message to the rulers and officials: we remind you of Prophet Mohammad’s words that you are shepherds who are responsible for your flock," it said. The statement was posted across the Islamic world. The background to this has been a raging debate in Gulf religious and economic circles about the destructive effects of the sliding dollar.
Treasury won't brand China as manipulator China intervenes heavily in foreign exchange markets to maintain an artificially low value for its renminbi yuan, but does not meet the legal definition of a currency manipulator, the U.S. Treasury Department reported on Wednesday. As expected, China once again escaped official censure in the Treasury's semiannual report on international economic and exchange-rate values, although the administration continued to condemn China's foreign exchange policy in strong terms. "China should significantly accelerate the appreciation of the renminbi's effective exchange rate in order to minimize the risks that are being created for China itself as well as the world economy, of which China is an increasingly critical part," the report said.
Bear Stearns swings to loss Bear Stearns Cos. On Thursday posted its first-ever quarterly loss as the company's mortgage-related write-down grew to $1.9 billion after credit markets worsened last month. Confirming press reports earlier this week, Bear Stearns said members of the executive committee will not receive any bonuses for 2007. "We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses," Chairman James Cayne said in a statement. The company said it wrote down about $1.9 billion in mortgage inventory net of hedges, which reduced fourth-quarter earnings by $8.21 a share. Its previous write-down estimate was $1.2 billion.
Bond Insurer Cut to Junk; Negative Outlook for 4 More Citing deepening problems in the mortgage market, Standard & Poor’s cut the rating of one troubled bond insurer on Wednesday and assigned a negative outlook to four other companies that guarantee debts linked to home loans.The announcement shook an already unsettled credit market, signaling that investment banks and others that had thought they were protected from rising foreclosures might not be immune from all losses. Investors bid up Treasury debt, a refuge in troubled markets, and sold shares in bond guarantors and some investment banks. In another indication that credit markets remained unhinged, the Federal Reserve said that its auction of $20 billion in short-term loans to the banking system drew 93 bids, seeking more than three times the amount available. Banks have become increasingly reluctant to lend to each other in the last few weeks, prompting the Fed to use new methods to lend directly to the banks.
Bank's fears for economy point to gloomy 2008 Gloomy signals for the economy continued to mount yesterday as the Bank of England revealed that its Monetary Policy Committee voted unanimously for an interest-rate cut while fresh data pointed to a downturn on the high street and in the housing market. In a sign of the Bank's concern about the economy, the MPC voted 9-0 for the quarter-point cut two weeks ago. The reduction was the first for more than two years, and the committee's first unanimous vote for a cut since the aftermath of the 9/11 attacks in 2001. The MPC's minutes, published yesterday, said: "The worsening financial market turmoil, and the consequent tightening of credit conditions, had increased the downside risks to activity and inflation in the medium term."
Illegal immigrants smuggled into new homes Unable to sell his house in suburban Phoenix's anemic real estate market, Jason Winterholler rented to a couple who paid the deposit in cash and didn't haggle over price. It was a deal he came to regret. The renters were fronts for immigrant smugglers who used the house as a hiding place for illegal immigrants and trashed the home. In October, a police SWAT team drove an armored personnel carrier onto the lawn and raided the house, rounding up nearly two dozen people. "That was the biggest disappointment. I definitely felt violated," said Winterholler, a high school athletic director now living in Pasadena, California. He said that whenever he spoke to the renters, "everything seemed OK."
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Wed 12.19.2007
Why gold could hit $1,100 an ounce this year Every year the LBMA – The London Bullion Market Association – holds a gold forecast competition. And there is one outstanding forecaster. He won in 2002, was second in 2003 and 2005. He won in 2006 and is about to win for 2007. The competition works like this: you give your high for the year, your low for the year and your average price for the year. There are about 25-30 participants, from such esteemed institutions as UBS, HSBC, JP Morgan, Standard Bank, Bear Stearns, Standard Bank, Goldman Sachs, Macquarie, Deutsche Bank, Barclays – it reads like a who's who of subprime CDO-exposed banks.
Steep Write-Down for Morgan Stanley Morgan Stanley, the No. 2 U.S. investment bank, on Wednesday reported a larger-than-expected fiscal fourth-quarter loss due to a $9.4 billion write-down from its exposure to subprime and other mortgage-related investments. The company also said China's government-controlled investment vehicle, China Investment Corp., has invested $5 billion to help replenish its capital. And Chairman and Chief Executive John Mack said because of the poor performance, he would not take a bonus this year. "The write-down Morgan Stanley took this quarter is deeply disappointing -- to me, to our colleagues, to our board and to our shareholders," he said. "Ultimately, accountability for our results rests with me, and I believe in pay for performance, so I've told our compensation committee that I will not accept a bonus for 2007."
Morgan Stanley Getting $5B Investment From China Investment bank Morgan Stanley said Wednesday it sold a portion of itself to China Investment Corp., an investment arm of the Chinese government, for $5 billion to raise capital after taking $9.4 billion in writedowns on mortgage-related investments. Morgan Stanley said the investment will help bolster its capital position and allow it to continue growing its Chinese operations. China Investment will receive equity units that convert into as much as 9.9 percent of Morgan Stanley common stock. The equity units carry a fixed annual payment of 9 percent before converting to shares of common stock Aug. 17, 2010. The Chinese bank will have no special rights of ownership or any role in management of Morgan Stanley.
US Foreclosure Filings Up 68 Pct in Nov. U.S. homeowners increasingly failed to keep up with their home loan payments in November, as the number of foreclosure filings surged 68 percent nationwide compared with the same month a year ago, according to a mortgage research company. In all, 201,950 foreclosure filings were reported last month, compared with 120,334 in November 2006, Irvine-based RealtyTrac Inc. said Wednesday. Last month's filings fell 10 percent from October's 224,451. The last time there was a sequential drop in foreclosure filings was between August and September, when they fell 8 percent. "It's a little bit of good news in the otherwise murky real estate market right now," said Rick Sharga, RealtyTrac's vice president of marketing. "The fact that we're seeing a 10 percent decrease is significant. It's a good thing."
Bear Stearns Hedge Fund Manager Departs Amid Probes Ralph Cioffi, the manager of Bear Stearns Cos. hedge funds that invested in subprime mortgages, left the firm as U.S. prosecutors investigate whether he withdrew money from two funds before they collapsed in July. The U.S. Attorney in Brooklyn and the Securities and Exchange Commission are investigating Cioffi's withdrawal of money from the funds, three people with knowledge of the matter said. The probe is part of a broader regulatory review, according to the people, who declined to be identified because the examination isn't public. Investors in the two funds, which filed for bankruptcy in July, lost $1.6 billion. ``This hits three hot buttons for the government right now: insider trading, hedge funds and subprime,''
Former Fed chief blamed for stoking US sub-prime loans crisis Alan Greenspan, the former Chairman of the US Federal Reserve, has come under the most sustained attack to date for his role in America's mortgage meltdown. When he stepped down from the Fed in February last year after 18 years as Chairman, Mr Greenspan was hailed as one of the best central bankers, who presided over one of the biggest economic booms in history. But an increasing number of critics are now questioning Mr Greenspan's achievements, arguing that he fuelled the housing bubble by reducing the US interest rate from 3.5 per cent to 1percent in the aftermath of the September 11 terrorist attacks in 2001. He is criticised for not clamping down on high-risk "sub-prime" mortgage lending, despite warnings that loans were made on terms which borrowers could not afford once the initial "teaser" rate had expired.
The World's Largest Banks Are Now Trapped The subprime mortgage crisis constitutes the worst banking error in my lifetime. Nothing else comes close. It has visibly begun to unravel. The European Central Bank on Tuesday, December 18, opened a line of credit of $500 billion to commercial banks. The Federal Reserve System under Greenspan was the prime instigator. It forced down short-term interest rates by supplying the overnight bank-to-bank loan market with sufficient liquidity to drop the rate to 1%. This encouraged banks to make loans at low rates. These loans were short-term loans. The borrowers then went out and bought long-term assets: bonds and mortgages. This is known as the carry trade. The pioneering central bank in the carry trade was the Bank of Japan. It lowered short-term rates from about 7% in 1990 to just above zero in 1999, where it stayed until mid-2006. But the yen is not the world's reserve currency. The U.S. dollar is.
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Tues 12.18.2007
Our economic system: is this the end of the world’s economic Pyramid Scheme? Fractional banking, pyramid scheme economics, fraud and collusion in the world's banking and mortgage industry, together with consumer financial illiteracy are the driving force behind a financial tsunami which may end banking as we know it. Money Market Rates Tumble; Central Banks Inject Funds The cost to borrow in euros through the end of the year plunged after the European Central Bank added an unprecedented $500 billion to the banking system as part of a global effort to ease credit-market gridlock. The amount banks charge each other for two-week loans in euros dropped a record 50 basis points to 4.45 percent, the European Banking Federation said today. The rate had soared 83 basis points in the past two weeks as banks anticipated a squeeze on credit through year-end.
$45 trillion gap seen in US benefits The government is promising $45 trillion more than it can deliver on Social Security, Medicare and other benefit programs. That is the gap between the promises the government has made in benefits and the projected revenue stream for these programs over the next 75 years, the Bush administration estimated Monday. The $45.1 trillion shortfall has increased by nearly $1 trillion in just one year, according to the administration's "Financial Report of the United States Government" for 2006. And, it's up 67.8 percent in just the past four years. In 2003, the shortfall between promised benefits and revenue sources over a 75-year period was put at $26.9 trillion. Bush says US economy is safe and sound President Bush on Monday tried to reassure an edgy public that the economy is "pretty good" despite the dreary mix of a failing housing market, a national credit crunch and surging energy costs. "There's definitely some storm clouds and concerns, but the underpinning is good," Bush said at a Rotary Club meeting, an informal setting chosen to show the president engaged with local communities. "We'll work our way through this period." The nation is in a sour mood this holiday season, with consumer confidence hovering near a two-year low. As a wide-open field of candidates vies to replace Bush in the White House, the economy has zoomed to the forefront of public priorities, often ahead of Iraq. Fed to crack down on lenders The Federal Reserve on Tuesday will propose a much stricter set of rules for mortgage lenders as part of the central bank's effort to avert abusive lending. The proposed rules are expected to crack down on lax practices in a number of ways. Among them, the rules are likely to: Prohibit giving people unaffordable loans. One reason for the spike in foreclosures among those with subprime adjustable-rate mortgages (ARMs) was that lenders measured borrowers' ability to repay the loan based on the low introductory loan rate, but not on the higher rate that the loan would reset to. The Fed may propose that lenders base affordability on a borrowers' ability to repay a loan at the reset rate.
Fed Will Limit Penalties on Prepayment of Subprime Mortgages The Federal Reserve will make it tougher for lenders to impose fees for early repayment of subprime home loans, according to consumer advocates and a regulator. The change will probably be one of several proposals from the central bank's Board of Governors when officials convene in Washington today to respond to the collapse in the market for subprime mortgages. Chairman Ben S. Bernanke is under fire from lawmakers, including Senate Banking Committee Chairman Christopher Dodd, who say the Fed didn't do enough to enforce lending rules and was too slow to write new regulations as subprime borrowing surged between 2004 and 2006. Record foreclosures are deepening the housing slump and threatening the six-year economic expansion.
Housing Starts in U.S. Probably Fell to 14-Year Low in November Builders in the U.S. broke ground in November on the fewest homes since 1993, reflecting concern loan restrictions would deepen the slump in sales, economists said before a report today. Work began on 1.176 million houses at an annual pace, down 4.3 percent from October, according to the median estimate of 70 economists surveyed by Bloomberg News. Permits, an indicator of future construction, fell to a 1.15 million rate from 1.17 million, the survey said. Some buyers may be having trouble finding financing after a surge in delinquencies and foreclosures reduced access to subprime mortgages. A near-record number of properties on the market and the prospect that prices will keep falling have set the stage for additional weakening in demand and construction.
Wall St. Extends Losses on Economic Worries Wall Street extended last week's losses Monday as investors remained concerned about flagging growth and rising prices, and were skeptical that a special Federal Reserve credit auction will be a solution. The Dow Jones industrial average fell nearly 175 points and all the major indexes lost at least 1 percent. The Fed offered $20 billion in 28-day credit through an auction Monday. The central bank will not release the results until Wednesday, but the aim of the auction is to encourage commercial banks to borrow from the Fed. That, in turn, is designed to boost banks' lending to businesses and consumers and keep the economy humming.
Wheat breaks through $10 a bushel US wheat futures have risen more than 3%, passing the $10-a-bushel mark for the first time. The current benchmark Chicago Board of Trade WH8 contract for delivery in March hit a record high at $10.09. World wheat stocks are expected to fall to a 30-year low next year, partly hit by droughts in Australia. Wheat prices have nearly doubled since the start of the year, fanning fears about food price inflation at a time when the global economy may be slowing.
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Mon 10.17.2007
Stagflation May Return as Price Pressures Meet Credit Squeeze The world economy is facing the risk of both recession and faster inflation. Global growth this quarter and next may be the slowest in four years, while inflation might be the fastest in a decade, say economists at JPMorgan Chase & Co. The worst U.S. housing slump in 16 years, coupled with a tightening of credit by banks, has brought the world's largest economy "close to stall speed,'' according to former Federal Reserve Chairman Alan Greenspan. At the same time, rapid growth in China and other emerging markets is driving energy and food prices higher worldwide.
Consumer inflation accelerates in November Consumer inflation increased at the fastest pace in more than two years in November, and analysts said the report wouldn't sit well with the Federal Reserve. Consumer prices rose 0.8% in November, led by higher prices for gasoline, the Labor Department reported Friday. But energy wasn't the entire story. Prices of apparel, drugs, housing, and airline fares also spiked. As a result, core inflation, which excludes food and energy prices, rose 0.3%, its biggest advance since January.
New York Fed Factory Index Falls to Lowest Since May Manufacturing in New York expanded this month at the weakest pace since May as orders slowed and companies cut inventories. The New York Federal Reserve Bank's general economic index fell to 10.3, lower than forecast, from 27.4 in November, the bank's Buffalo branch said today. Readings greater than zero signal expansion. The economy is cooling after accelerating in the third quarter as the housing-market recession and reduced access to credit hurt corporate and consumer spending. Export gains alone won't be enough to make up for slowing domestic demand, economists said.
Rupert Murdoch Sees Recession, 5 Years of Real Estate Woes Rupert Murdoch, media tycoon and new owner of the Wall Street Journal, predicts that the U.S. faces a recession that will hit the overall economy and could undermine real estate for five or six years. Appearing on Fox News' "Your World with Neil Cavuto," Murdoch admitted that he’s worried about the economy. "I think we are in for a recession, probably. How bad it will be, I don't know. But I think there's a lot more bad news to come ...”
Central Banks Activate Liquidity Plan LONDON -- Investors buffeted by the credit crisis will enjoy no pre-Christmas lull as central banks began putting a pump-priming plan into action on Monday while critical results from major American banks loom later in the week. The Swiss National Bank offered up to $4 billion in short-term funds at a discount to the official U.S. Federal Reserve rate as part of a concerted effort to ease strains on the interbank lending market. Jim Rogers: ‘Bernanke is an Idiot’ Jim Rogers, co-founder with George Soros of the Quantum Fund, readily admits he’s a "dollar bear looking for a big rally” so he can sell. "The U.S. dollar is not an asset I want to hold over the next 10, 15, 20 years. We have an idiot running the central bank right now who knows nothing about currency, history or the markets,” the commodities investment guru told Forbes Magazine, referring to Fed Chairman Ben Bernanke.
Subprime dampens festive holiday spirit Hong Kong, China creating their own toxic property debt? HONG KONG (MarketWatch) -- It may be the season of office holiday parties and long lunches, but investors in Hong Kong and China have been warned to be alert for a sobering subprime chill. And festive spirits in the mainland markets could be in short supply with renewed speculation Beijing might be about to unveil another rate hike, never mind most people must work through the holidays. So far, Hong Kong and most of Asia have largely skirted the growing subprime crises. Not only is the property misery in the U.S. not our problem; it has even prompted some global funds to retarget funds to safer havens in Asia.
US Trade Deficit Declines Trade Deficit Declines to Lowest Point in 2 Years WASHINGTON (AP) -- The U.S. trade deficit declined during the third quarter to the lowest level in two years, raising hopes that the country's trade troubles could be easing. The Commerce Department reported Monday that the current account trade deficit fell by 5.5 percent to $178.5 billion in the July-September quarter. That was a better-than-expected showing and the smallest current account imbalance since a $173.4 billion deficit in the third quarter of 2005.
U.S. budget path 'unsustainable,' CBO say Gauging the long-term budget outlook carries a number of uncertainties. But if there's one sure thing it's that the federal budget is now on an "unsustainable path," congressional budget watchers warned on Thursday. "In the absence of significant changes in policy, rising costs for health care and the aging of the U.S. population will cause federal spending to grow rapidly" in coming years, the Congressional Budget Office warned in its annual long-term budget outlook. "If federal revenues as a share of gross domestic product remain at their current level, that rise in spending will eventually cause future budget deficits to become unsustainable," the nonpartisan agency said.
Housing Crash Deepens in 2008 as U.S. Realtors See Record Drop For U.S. homeowners, builders, bankers and realtors, the crash of 2007 will only get worse in 2008. Everyone from mortgage-finance company Fannie Mae to Lehman Brothers Holdings Inc. expects declines next year. Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year.
Schultz sees an apocalypse now Commentary: Veteran editor declares 'A financial tsunami is upon us' The Fed flops and Wall Street is worried. But one letter veteran has been here before, not that it makes him any cheerier... Shultz's latest letter, just in, is absolutely apocalyptical: "A financial tsunami is upon us," he says, caused by lax credit and complications introduced by Wall Street's derivatives craze. Among other interesting ideas raised by Schultz in his intense, somewhat terrifying introduction: recession, possibly depression; bank failures; exchange controls; housing prices down by 50%; credit card company failures; money market fund dangers; tripling of U.S. jobless numbers; federal bail-outs for Fannie Mae.
Consumer inflation accelerates in Nov. Consumer prices rose 0.8% in November, led by higher prices for gasoline, the Labor Department reported Friday. This is the fastest pace of consumer inflation in more than two years. But energy wasn't the entire story. Prices of apparel, drugs, and airline fares also spiked. As a result, core inflation, which excludes food and energy prices, rose 0.3%, the biggest gain since January. The figures raise concern that inflationary pressures are increasing, and could limit the room for the Federal Reserve to cut interest rates to counter the expected economic slowing over the next few quarters.
Gas Prices Spur Consumer Inflation Surge in Gasoline Prices Pushes Consumer Inflation Higher While Industrial Production Rebounds Consumer inflation surged by the largest amount in more than two years in November, led by gasoline prices. The cost of clothing, airline tickets and prescription drugs also jumped.
Dollar Gains Most Since May 2005 Versus Euro as Inflation Rises The dollar strengthened the most against the euro since May 2005 after government reports showed U.S. consumer prices and industrial production increased more than forecast last month. The U.S. dollar gained against 15 out of the 16 most- actively traded currencies today as accelerating inflation prompts futures traders to reduce bets on how much the Federal Reserve will cut borrowing costs next year. The U.S. currency has risen 1.3 percent against the euro over the past five days, the biggest weekly increase since August.
ECB Gov.: 'Second Wave' of Credit Crisis Worse AMSTERDAM -- European Central Bank Governing Council member Nout Wellink said on Friday that the global credit crisis had now reached a "second wave," worse than the first. Greenspan: Odds for Recession 'Rising' WASHINGTON -- Former Federal Reserve Chairman Alan Greenspan says the odds the U.S. will fall into a recession are "clearly rising" and he believes economic growth is "getting close to stall speed." Greenspan, who ran the central bank for 18 1/2 years, until early 2006, offered his views on the economy in an interview on NPR News' Morning Edition that will air on Friday. Excerpts of the interview were released on Thursday.
One in 5 Homeowners See House Price Drop More than one in five U.S. homeowners expect their home to fall in value in the coming year, a Reuters-University of Michigan consumer survey said on Friday. The survey found 21 percent of the 1,168 surveyed see a fall in prices, with those heavily concentrated in areas that have already seen values decline, the survey's director Richard Curtin said in a statement.
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Thur 12.13.2007
Gold & Mortgage Failure Avalanche An avalanche comes in 2008. Its wreckage will hit both the USEconomy and banking world. The greatest deception in the bank sector this year has been the misrepresentation of the mortgage debacle as a subprime problem. That is akin to calling an iceberg only a problem for what one can see, when 90% of its mass lies below water. Ice is lighter than water. Most mortgage bonds are like acidic stones weighing down bank and investor balance sheets. Wall Street and the USGovt con artists, using tools are fraud and distortion, prefer the public and investment community to think of the 'Subprime Problem' as the source of distress.
U.S. Nov. PPI up 3.2% -- largest change since 1973 Wholesale prices rose 3.2% in November, the largest change since August 1973, as the change in energy goods prices hit a new record high, the Labor Department reported Thursday. Wholesale energy prices rose 14.1% in November, beating the prior record change of 13.4% in January 1990. Gasoline price growth also hit a new record -- reaching 34.8% -- up from the prior record of 28.8% in April 1999. Meanwhile, the core producer price index, which excludes food and energy costs, rose 0.4%. Economists had expected November's producer price index to grow 1.8% and for the core to grow 0.2%. In October, the PPI had grown 0.1%, while core prices had no growth.
Banks raise loss estimates Some of the nation's largest banks on Wednesday warned of higher losses in the fourth quarter as the turmoil in the credit and mortgage markets continues to weigh on the financials sector. Bank of America Chief Executive Ken Lewis said the firm would have to write down a larger amount of its investment in some debt securities than previously planned. "Based on conditions today, we expect those write-downs will be larger than have already been reported -- although obviously we won't know our final numbers until we close the fourth quarter," Lewis said in remarks prepared for delivery at a Goldman Sachs conference. The company had previously expected to report a write-down of $3 billion.
Liquidity Won't Help Insolvency The Federal Reserve today announced a new scheme to inject more liquidity into the money markets. It cobbled together a partnership arrangement, as the Canadian, UK and European central banks also agreed to participate in the scheme.The process of 'injecting liquidity' is a euphemistic way of saying 'creating money out of thin air.' The Federal Reserve doesn’t need a printing press to do this. They simply create a book entry on its balance sheet, and presto, $40 billion (or whatever amount they deem appropriate) of new ‘money’ is created, which the Fed then lends to those bankers coming to it hat in hand. Creating money this way is a barbaric process because it further debases the dollar, but is hailed by the banking insiders and their apologists as a brilliant maneuver to fight the worsening liquidity crunch.
Great Depression drives Bernanke's rescue The co-ordinated move by five central banks to shore up confidence in the world’s frozen money markets is not the first piece of international co-operation to fend off a financial crisis. There have been several combined efforts in the currency markets, such as the 1985 Plaza accord when five governments agreed to push the dollar lower to reduce America’s current account deficit and lift the world’s largest economy out of the recession of the early 1980s. It is, however, one of the biggest joint efforts so far, and the first major intervention of its kind since the September 11 terrorist attacks in 2001. The simultaneous initiative was designed to have maximum impact, to be greater than its parts, which are in fact quite different local initiatives.
Credit crisis worsens as Alan Greenspan says the Fed is powerless Fallout from the sub-prime mortgage crisis wreaked further havoc yesterday as Bank of America, Wachovia and PNC all said that investment write-downs would be worse than forecast as the credit crunch worsened. Bank of America, which said last month that it may need to write down the value of its mortgage bond portfolio by about $3 billion (£1.4 billion) this quarter, conceded that the losses would probably be considerably higher. Wachovia, separately, doubled its provision for fourth-quarter loan losses to about $1 billion, while PNC, in Pennsylvania, said that it would take a $110 million fourth-quarter charge, most of it relating to residential mortgages. Meanwhile, shares in Sallie Mae fell by 13 per cent, the most in 14 years, after America’s largest student lender cut its profit forecast for 2008 by 17 per cent.
U.A.E. Will Only Revalue Together With Gulf Neighbors The United Arab Emirates will only revalue the dirham against the dollar or drop its peg to the U.S. currency should other Gulf Cooperation Council members agree to do the same, the country's central bank governor said. ``Even a one-step revaluation has to be done with Gulf'' countries including Saudi Arabia, Bahrain, Oman and Qatar, Sultan bin Nasser al-Suwaidi told reporters in Dubai today. The falling dollar will trigger a ``review'' of the U.A.E.'s dollar peg, al-Suwaidi said in a Nov. 15 interview, signaling the federation may end its 30-year link to the U.S. currency. Kuwait, another GCC member, in May abandoned the dinar's peg to the dollar in favor of a basket of currencies.
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Wed 12.12.2007
The Common Man's Sovereign Wealth Fund The streetTRACKS Gold Shares ETF "tonnes in the trust" rose by more than 12 tonnes yesterday as the price of gold gained another $17 per ounce in London. The trust now has 615 tonnes in allocated storage, now well clear of China and the ECB, an organization that is believed to have sold some of their reserves recently. Netherlands - look out, you're next and then it's on to Japan. This is turning into kind of a "common man's" sovereign wealth fund, in some ways similar to the giant funds run by China and some Middle Eastern oil exporting nations. Just like these big countries that are looking for something to do with their huge piles of quickly depreciating U.S. dollars, it seems that many individuals are also accumulating way too much paper money and they too are looking for something to do with it all.
Import prices rise 2.7%, the most in 17 years Driven by a weaker dollar and much higher prices for petroleum and natural gas, import prices surged 2.7% in November, the largest monthly increase in 17 years, the Labor Department reported Wednesday. Even excluding fuels, import prices rose 0.5%. Import prices have now risen 11.4% in the past year, the largest gain in the 25-year history of the import price index. Import prices increased a downwardly revised 1.4% in October. The report comes one day after the Federal Reserve cut its overnight interest rate target by a quarter percentage point, citing slower economic growth. However, the Fed also said some inflationary pressures remain, which could be an argument against cutting rates further.
Trade gap widens in October on high oil prices The U.S. trade deficit widened in October, suggesting the trade sector will subtract from economic growth in the fourth quarter. The fourth quarter could use all the help it can get. Before the report, many economists were expected fourth-quarter GDP growth to dive below a 1.0% annual rate from the strong 4.9% growth rate in the third quarter. A narrowing trade deficit has boosted growth in three of the past four quarters. The nation's trade deficit widened 1.2% in October to $57.8 billion from a revised $57.1 billion in September, the Commerce Department said. This is the biggest trade gap since July. The lion's share of the deterioration in the trade gap was due to sharp increases in the quantity and price of petroleum imports.
Fed set to revamp liquidity support The Federal Reserve is set to overhaul the way it provides liquidity support to financial markets, following a negative reaction to Tuesday’s interest rate cut. US stocks fell sharply after the central bank cut rates by only 25 basis points to 4.25 per cent and failed to offer a clear signal of more to come. The overhaul, which could be announced as early as Wednesday, is likely to take the shape of a new liquidity facility that will auction loans to banks. This would allow the Fed to provide liquidity directly to a large number of financial institutions against a wide range of collateral without the stigma of its existing discount window loans.The idea is that this would ease severe strains in the market for interbank loans, and help restore more normal conditions in credit markets generally.
Morgan Stanley issues full US recession alert Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a "perfect storm" for consumers as the housing slump spreads. In a report "Recession Coming" released today, the bank's US team said the credit crunch had started to inflict serious damage on US companies. "Slipping sales and tightening credit are pushing companies into liquidation mode, especially in motor vehicles," it said. "Three-month dollar Libor spreads have jumped by 60 to 80 basis points over the last month. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June."
Greenspan: subprime "accident waiting to happen" The U.S. subprime mortgage crisis was an "accident waiting to happen" as a period of unprecedented global growth seduced investors into underpricing risk, former Federal Reserve Chairman Alan Greenspan argued in an article published by The Wall Street Journal on Wednesday. While acknowledging the low U.S. interest rates set under his leadership may have contributed to the bubble in U.S. home prices, Greenspan said he felt the roots of the subprime mortgage crisis actually lie with global economic expansion. "The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when...market capitalism quietly, but rapidly, displaced much of the discredited central planning that was so prevalent in the Third World," Greenspan wrote.
Bank of America sees disappointing fourth quarter Bank of America Corp expects its fourth-quarter results to be disappointing due to write-downs and lower trading revenue, Chief Executive Ken Lewis said on Wednesday. The company is likely to be profitable in the quarter but expects to set aside $3.3 billion for losses and write-downs, Lewis said at a conference. "While we do not make a practice of forecasting quarterly earnings, I think you certainly can assume results will again be quite disappointing," Lewis said. He said he personally would have preferred a half-point rate cut by the Federal Reserve on Tuesday "because the capital markets are still so fragile." The Fed cut the fed funds rate by a quarter point.
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Tues 12.11.2007
Fed May Cut Rates, Leave Door Open for Further Action Dec. 11 (Bloomberg) -- The Federal Reserve will probably cut interest rates today and lay the groundwork for more to prevent the economy from sliding into recession. The Federal Open Market Committee will be loath to repeat language from its last meeting that risks between inflation and growth are ``roughly'' balanced, economists said. Keeping the phrase would open officials to criticism they're oblivious to the credit squeeze that's threatening growth.
Freddie Sees $5.5B-$12B More Losses Freddie Mac Chief Says Business Will 'Get Tougher Before It Gets Better' As Defaults Rise WASHINGTON (AP) -- The chief executive of Freddie Mac estimated Tuesday the mortgage finance company will lose an additional $5.5 billion to $7.5 billion over the next few years as the housing crisis worsens and home-loan defaults rise. The government-sponsored company has already logged about $4.5 billion in projected losses during the first nine months of this year. "I honestly think it's going to get tougher before it gets better," Richard Syron, the company's chairman and CEO, said in a discussion with financial analysts in New York.
Citigroup cuts SIV size by $15 billion: LONDON (Reuters) - Citigroup (C.N: Quote, Profile, Research) has reduced the size of its structured investment vehicles (SIVs) by more than $15 billion in the past two months, the Financial Times said on Tuesday. The reduction was achieved through deals under which junior investors bought portions of the SIVs' assets in exchange for their note holdings, the FT said, citing people familiar with the matter. As a result the size of the SIVs has shrunk to $66 billion from more than $80 billion at the end of September.
Ben Bernanke’s Socialist Side Federal Reserve Chairman Ben Bernanke is backing the government’s plan to freeze some mortgages for years — and that has plenty of free-market advocates and mortgage market experts hopping mad. "The streamlined process for refinancing and modifying subprime adjustable rate mortgages announced today is a welcome step in helping Americans protect their homes and communities from the consequences of unnecessary foreclosures," Bernanke said in a prepared statement supporting the plan.
Gold Climbs to Month-High on Falling Dollar NEW YORK -- Gold prices climbed Monday to their highest levels so far this month as expectations for lower U.S. interest rates weighed on the dollar and boosted the appeal of precious metals. The Federal Reserve meets Tuesday, and investors widely expect the central bank to cut its benchmark federal funds rate by at least a quarter point; some expect a sharper half point reduction. Those expectations undercut the dollar, and gave investors reason to shift funds to hard assets like oil and gold. H&R Block Suffers Huge $500 Million 2Q Loss KANSAS CITY, Mo. -- H&R Block Inc., the nation's largest tax preparer, said in a preliminary earnings report Tuesday that it expected a huge second-quarter loss as it continued to wrestle with its disintegrating mortgage arm. In a securities filing, the company said it was submitting its quarterly report late, citing a decision earlier this fall to change accounting firms. The company was scheduled to file late Monday. Foreclosure Avoidance: A Society that is Psychologically Bent On Avoiding the Brutal Facts. Most will agree that as a society, we cannot spend our way into prosperity. In fact, many even the most ardent bulls will acknowledge that we have some serious issues to address in our current economy. From preliminary reports, this rate freeze will have a very minimal impact on the overall housing market. Keep in mind that we have yet to see the plan in action since the first rate resets to take effect will not occur until 1/1/2008. The proposal at best is an avenue for a cathartic release from the housing doldrums and gives those in the industry a respite to scream “let us gasp for air!” It seems to have worked. Housing related stocks are up and with the prospect of further rate cuts, all seems well until you start facing the brutal reality of what is occurring.
Adjustment or affliction? Why the dollar’s drop is failing to rebalance the world People love to complain about the dollar. Five years ago, angst surrounded the greenback’s strength and the ever-rising US trade deficit that stemmed from an uncompetitive exchange rate. The fear was that deepening global trade imbalances would end in tears. The dollar must fall, almost everyone said. Since February 2002 the dollar has indeed fallen, by 28 per cent against the currencies of America’s trading partners after adjusting for inflation. But those expecting a warm glow of happiness in international currency discussions find themselves sorely disappointed.
Subprimed to Lose Lots of Money "So, after the last of the money is finally spent on taxes, that $6.6 billion reduction in tax revenue actually means somewhere between five and eight times as much will be 'lost income' and lost taxes!" The Washington Post reports that "The widening credit crunch is making it harder for cities and school systems to get money for buildings, ballparks and other vital projects from the $2.5 trillion market for municipal bonds, a sector of Wall Street that rarely sees trouble. That is leaving them with a tough choice: either put off the projects, or pay higher interest rates on their bonds."
Chapman Calls for a Recession in 2008 (complete report PDF) Orange, CA – The A. Gary Anderson Center for Economic Research at Chapman University released today the results of its 30th annual economic forecast for the U.S., California and Orange County. The forecast was presented to more than 1,200 Orange County business leaders at a conference held at the Orange County Performing Artscenter, Costa Mesa. Following are highlights of the forecasts.
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Mon 12.10.2007
Oil Min: Iran Has Halted Oil Transactions In Dollars Major crude producer Iran has completely stopped carrying out its oil transactions in dollars, Oil Minister Gholam Hossein Nozari said on Saturday, labeling the greenback an "unreliable" currency."At the moment selling oil in dollars has been completely halted, in line with the policy of selling crude in non-dollar currencies," Nozari was quoted as saying by the ISNA news agency."The dollar is an unreliable currency, considering its devaluation and the oil exporters' losses," he added.The world's fourth-largest oil exporter, Iran has massively reduced its dependence on the dollar over the past year in the face of U.S. pressures on its financial system.The U.S. has successfully encouraged major European and Asian banks to cut their dealings with Iran in a bid to make the Islamic republic give way on its controversial nuclear program.
Gold Trades Above $800 for 5th Day on Fed Rate Cut Speculation Gold traded above $800 for a fifth consecutive trading session in London on speculation the Federal Reserve will cut interest rates tomorrow, boosting bullion's appeal as an alternative investment. Silver also climbed. The dollar has slumped 4.7 percent since the Federal Reserve cut interest rates on Sept. 18 for the first time since 2003. Gold has surged more than 10 percent since then, and touched a 27-year high of $845.84 an ounce on Nov. 7, as reduced borrowing costs eroded demand for the dollar. ``Everyone is waiting for the Fed,'' James Moore, a precious metals analyst with TheBullionDesk.com, said in an interview today. ``If they do cut, that's going to be positive for gold.''
Bernanke May Risk `Fool in Shower' Label for Economy Federal Reserve Chairman Ben S. Bernanke may have to risk becoming the proverbial ``fool in the shower'' to keep the U.S. economy out of recession. Renewed turbulence in financial markets puts Bernanke, 53, under pressure to open the monetary spigots wider to pump up the economy. Traders in federal funds futures are betting it's a certainty the Fed will cut its benchmark interest rate from 4.5 percent tomorrow, and they see a better-than-even chance the rate will be 3.75 percent or below by April. ``The Fed has to assure the markets that it's ready to ride to the rescue and cut rates by as much as necessary,'' says Lyle Gramley, a former Fed governor who's now a senior economic adviser in Washington for the Stanford Group Co., a wealth- management firm.
Fed expected to lower rates despite raging inflation In a glorious bit of timing, the Federal Reserve is expected to cut interest rates on Tuesday for a third straight meeting, just days before government data are released showing some of the highest inflation rates in decades. That's all you need to know about the Fed's balance of risks: Policymakers are much more worried about the illiquid credit markets and the possible hit that the credit squeeze could have on the economy than they are about the risks of inflation breaking out. "Don't look now, but while we're in the midst of an easing cycle, the U.S. is facing a 4% inflation rate," wrote Avery Shenfeld, an economist for CIBC World Markets. "But for now, none of this matters, as both bonds and the Fed are focused on the credit crunch and its growth threat."
UBS to take further $10 billion subprime write-down Swiss banking giant UBS warned Monday that it will write down the value of its subprime mortgage holdings by a further $10 billion, leading to a loss in the fourth quarter and potentially wiping out all its profits for the year. In a bid to soothe the bad news, the bank also announced plans for a capital injection of 13 billion Swiss francs ($11.5 billion) from the government of Singapore and an unnamed investor in the Middle East. The plans would give Singapore a roughly 9% stake, making it the Swiss group's biggest shareholder. "Conditions in the U.S. mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities," said CEO Marcel Rohner.
Big banks scale back plans to avert deepening credit crisis Some of the largest banks in the United States are scaling back a plan set in motion by the Treasury Department to shore up troubled investment vehicles and calm the debt markets. On Monday, after a month of false starts, a new superfund created by the banks to keep the crisis in housing-related debt from deepening will begin raising money from financial institutions. But the role of this new entity, established at the behest of the Treasury, is already coming into question. Citigroup, the financial giant that first proposed the initiative, is devising a separate rescue plan, according to people briefed on the situation. And HSBC and several other European banks are moving to solve their problems on their own.
Crude-oil futures rise sharply Crude-oil futures rose sharply on Monday, buoyed by technical buying and dollar weakness, as traders awaited the Federal Reserve's decision on interest rates due tomorrow. Crude oil for January delivery gained $1.22 at $89.50 a barrel on the New York Mercantile Exchange. Crude is experiencing a "technical rebound partly because the dollar is under a little bit of pressure," said Phil Flynn, an analyst at Alaron Trading. There is also "short-covering in commodities ahead of the Fed decision tomorrow," Flynn said.
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Fri 12.07.2007
Gold & Central Bank Shift An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.In the last month a tectonic shift has taken place among central bankers. To be sure, the USDollar is aided if foreign central banks end their march to raise official interest rates. The USDollar has been propped up for over two years in large part from powerful credit market carry trades that used to exploit higher USTreasury bond yields, both the short-term and long-term variety.
Credit card crunch When the going gets tough, the banks get even tougher. Already being battered for pushing sub-prime mortgages on ill-equipped customers, America's lenders are facing increasing flak over their uncompromising attitude to credit card debtors.Democrats in Congress saw red this week over a widespread practice among card issuers of ratcheting up interest rates just at the point when customers' credit records get worse. Take, for example, a Chicago native, Marvin Weatherspoon. For the last 26 years, he has held a steady job at the Windy City's main conference centre, McCormick Place. A member of the SEIU union, he is supervisor in the centre's linen department.
No housing upturn until 2010 Housing markets from Punta Gorda, Fla., to Stockton, Calif., will crash, and some will suffer price drops of more than 30% before the housing crisis is over, a report from Moody's Economy.com said today. On a national level, the housing market recession will continue through early 2009, said the report, co-authored by Mark Zandi, chief economist of Moody's Economy.com, and Celia Chen, director of housing economics. The report paints a worsening picture of the hard-hit housing sector, which is in the midst of its worst downturn since World War II. While activity will stabilize in 2009, it will be 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said.
Bush unveils sub-prime bail-out plan to threats of legal action American homeowners who took on mortgages they cannot afford will have their interest rates reduced to allow them to stay in their homes, thanks to a plan unveiled by President George Bush.With foreclosures surging to record levels, according to figures out yesterday, the controversial plan is aimed at propping up the housing market and limiting the financial losses suffered by mortgage lenders and investors in mortgage-backed securities. However, the plan could trigger a wave of legal action from those investors, and there was also an angry reaction from many homeowners who have been diligently paying their mortgage bills."We should not bail out lenders, real-estate speculators or those who made the reckless decision to buy a home they knew they could not afford," Mr Bush said. "The homeowners deserve our help. The steps I've outlined today are a sensible response to a serious challenge."
Bush's Subprime Mortgage Freeze Stymies Bond Market President George W. Bush's plan to freeze interest rates on some subprime mortgages may prove to be a cure that breeds another disease. ``If the government goes in and changes contracts it will definitely have a chilling effect on the securitization of mortgages,'' said Milton Ezrati, senior economist and market strategist at Lord Abbett & Co. in Jersey City, New Jersey, which oversees $120 billion in assets. ``When the government comes in and says you have contracted to have this arrangement and you can no longer have it, I think it opens the door for lawsuits.'' ``It could end up there's less confidence in the viability in the bond markets and the mortgage markets going forward and it could lead to higher interest rates and higher mortgage rates for everybody,''
Solid Job Gains, Wage Growth in Nov. Employers added a solid 94,000 jobs to their payrolls in November, the unemployment rate held steady at 4.7 percent and wages grew briskly, encouraging signs the nation's employment climate is holding up in the face of turbulence in the housing and credit markets. The fresh snapshot of the labor market, released by the Labor Department on Friday, showed that hiring was brisk in education and health services, retail, professional services, the government and elsewhere. That helped to offset job losses in construction, manufacturing and financial services -- casualties of the housing slump and credit crunch. The 94,000 new jobs in November came after a surprisingly strong payroll gain of 170,000 in October. The unemployment rate stayed at a relatively low 4.7 percent for the third straight month.
Chrysler, others to temporarily halt truck production The Big Three U.S. automakers will temporarily halt production of full-size pickup trucks because of weak demand, according to a media report Thursday. Chrysler LLC, General Motors Corp. and Ford Motor Co. will all shut down production of the trucks, The Wall Street Journal reported in its online edition. See Wall Street Journal story (subscription required) Citing unnamed sources, the report said Chrysler plans to halt production at plants in Warren, Mich. and Fenton, Mo. before Christmas, and keep them closed throughout January. General Motors will shut three pickup truck plants for the Christmas holiday and for two weeks in January to prevent oversupply, the report said.
China allows yuan to drop ahead of U.S. talks Ahead of next week's U.S.-China Strategic Economic Dialogue, the tea leaves of over-the-counter yuan trading point to a familiar stalemate on China's currency policy. U.S. Treasury Secretary Henry Paulson will lead a delegation to Beijing next week for the third meeting of the U.S.-China Strategic Economic Dialogue on Dec. 12-13, and is expected to once again strongly call for China to allow its currency to appreciate faster. But in Chinese currency trading Thursday, the yuan went the other way, falling 0.33% against the dollar -- its biggest drop since China broke its currency's peg to the dollar in July 2005. "Political tensions between the U.S. and China appear to have risen over access to ports and activity in the Straits of Taiwan
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Thur 12.06.2007
China may exhaust existing gold mines in six years China, poised to overtake the US as the second-biggest gold producer this year, must acquire more bullion assets overseas because existing mines will run out of ore in six years, Zijin Mining Group Co said. China produces more than 200 t of the bullion a year from mines that only have gold, and will deplete the deposits without discoveries, Ren Guangzhi, manager of investment at Zijin, owner of the country's largest gold mine, said. Ren cited data from London-based research company GFMS Ltd. Rising economic growth in China has led to surging demand for jewelry and spurred Zijin Mining, Zhongjin Gold Corp and other Chinese producers to increase production. The Asian nation is the world's largest importer of iron ore and copper because domestic production lags behind demand.
Retailers post disappointing November sales Lack of must-have fashion items and no shortage of macroeconomic concerns battered most U.S. apparel retailers' November sales while Black Friday promotions helped lift November sales at wholesale clubs. Apparel retailers from Limited Brands Inc. to American Eagle Outfitters Inc. missed analysts' estimates while wholesale club Costco Wholesale Corp. exceeded forecast. Wal-Mart Stores Inc. beat estimates because of better-than-expected results at its Sam's Club chain. The luxury sector was another bright spot, with Nordstrom Inc. exceeding estimates. Among 28 retailers that have reported their November sales results, more than two-thirds have missed estimates, according to Thomson Financial.
U.S. mortgage foreclosures at record high A record number of U.S. mortgages were somewhere in the foreclosure process in the third quarter, with 1.69% of all residential borrowers facing the loss of a home, the Mortgage Bankers Association said Thursday. The percentage of homes that entered foreclosure in the third quarter also hit a record at 0.78%, the trade group said. Mortgage delinquencies, those loans with payments that were more than 30 days past due, shot up to a 21-year high at 5.59%, MBA's quarterly survey showed. Although all types of loans showed an increase in foreclosure starts in the third quarter, subprime adjustable-rate loans remained the biggest problem, accounting for 43% of all new foreclosures, even though they comprise just 6.8% of all loans outstanding, the MBA said.
White House to reveal sub-prime rescue for struggling US homeowners Deal with lenders will freeze interest rates on 'teaser' loans but critics say the crisis now extends to other borrowers. President Bush will wade into the sub-prime mortgage crisis today with a rescue package freezing interest rates on certain high-risk home loans for up to five years. After protracted negotiations with America's biggest lenders, the White House is set to announce a package providing relief for a limited number of cash-strapped homeowners who are on the brink of foreclosure. The freeze will apply to mortgages with short-term "teaser" interest rates which are due to jump to much higher rates between 2008 and 2010. In a deal negotiated by treasury secretary Henry Paulson there will also be help to speed up refinancing deals for people struggling with repayments.
House prices seen falling 30 pct Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 percent before the housing crisis is over, a report from Moody's Economy.com said on Thursday. On a national level, the housing market recession will continue through early 2009, said the report, co-authored by Mark Zandi, chief economist, and Celia Chen, director of housing economics. The report paints a worsening picture of the hard-hit housing sector, which is in the midst of its worst downturn since World War II. While activity will stabilize in 2009, it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said.
Wary of risk, Wall Street bankers sold shaky mortgage debt As the subprime loan crisis deepens, Wall Street firms are increasingly coming under scrutiny for their role in selling risky mortgage-related securities to investors. Many of the home loans tied to these investments quickly defaulted, resulting in billions of dollars of losses for investors. At the same time, many of the companies that sold these securities, concerned about a looming meltdown in the housing market, protected themselves from losses. One big bank that saw the trouble coming, Goldman Sachs, began reducing its inventory of mortgages and mortgage securities late last year. Even so, Goldman went on to package and sell more than $6 billion of new securities backed by subprime mortgages during the first nine months of this year.
Record home foreclosures cause snow removal problems The snow brings a new problem with the high number of foreclosures in the Twin Cities. All those empty homes mean no one is around to clear the sidewalks.Kathy Nitschke shovels out her own property, but sees that no one is looking after the vacant home in her Minneapolis neighborhood."A lot of traffic through here, so it's unfortunate when they don't clean things up," said Nitschke. In Minneapolis, there are 50 percent more homes in foreclosures this year than last. In St. Paul, there are four times more vacant homes than in 2006. It means more work for the city--both Minneapolis and St. Paul have a rule, stating snow must be cleared within 24 hours.
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Wed 12.05.2007
Chinese gold jewelry demand jumps Chinese demand for gold jewelry may increase by about 20 percent this year as rising personal incomes help the nation race ahead of the United States as the second-biggest market in the world, GFMS, a researcher, said. Gold use in jewelry in China jumped 24 percent from a year earlier to 221 metric tons in the first nine months, a GFMS analyst, Veronica Han, said from Beijing on Monday, citing data compiled for the World Gold Council. That compares with 515 tons in India, the biggest consumer, and 165 tons in the United States. Increased jewelry purchases by consumers in China and India may help to support the price of gold, which reached a 27-year high of $845.84 an ounce on Nov. 7 and is headed for its seventh annual gain.
Gold is now more precious than ever Demand still outstrips supply, but with the era of easy exploration gone, investors switch focus to mergers and acquisitions Roman Abramovich's investment in Highland Gold Mining underlines that the precious metal is becoming more precious by the month. Gold is increasingly hard to find, but the demand for gold companies is strong. These two are related, of course. Last week, James Mavor, vice-president of the world's largest gold miner, Canada-based Barrick, said production of the metal was falling faster than expected, and would drop, perhaps, 10pc over the next five years."The industry has not been acquiring new mines," Mr Mavor told a mining conference. "What would normally take three to five years to commercialise now takes about seven to 10."
China Loves Gold, The West Still Tepid Dismiss gold if you will as an irrelevant artifact of a much simpler time, but do so at your own peril. Paper money and "innovative" financial products in the West are looking more shaky every day and the phrase "like a run on the bank" is being heard with alarming regularity. Even the word "freeze" has crept back into the financial vocabulary in ways very different, but even more alarming, than it did in the 1970s. Three reports over the last two days tell yet another part of the story about how the yellow metal is becoming more important and more popular in China while Western countries seem to have little use for it. Amid talk that the Chinese government may try to buy mining giant Rio Tinto comes word that there is at least one abundant natural resource on the mainland.
Oil prices firmer as Saudi says no need to hike output Oil prices were higher in Asia trade Wednesday as OPEC kingpin Saudi Arabia said there was no need for the cartel to raise crude production. In late afternoon trade New York's main contract, light sweet crude for January delivery, was 18 cents higher at 88.50 US dollars a barrel from 88.32 dollars in late US trades Tuesday. Brent North Sea crude for January delivery rose 39 cents to 89.92 dollars a barrel. The Organisation of the Petroleum Exporting Countries (OPEC) is to meet Wednesday in Abu Dhabi, and the cartel's most influential member Saudi Arabia said there was no justification for an increase in production. "There is nothing that justifies an increase or a decrease," Saudi Oil Minister Ali al-Nuaimi told reporters at the start of the OPEC meeting.
Gulf Arab States May Revalue to Combat Inflation Gulf Arab nations may revalue their dollar-pegged currencies in the next two months to combat the inflationary effect of a weakening dollar, according to Standard Chartered Plc. The six Gulf Cooperation Council members, Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman are restricted in the fight against inflation because their dollar pegs force them to mimic U.S. Federal Reserve monetary policy. Rising import prices caused by the dollar's decline and increased revenue from higher oil prices has pushed inflation to a five- year high in the Gulf region. ``Within the next two months, the GCC will likely revalue,'' Marios Maratheftis, head of research for the Middle East at Standard Chartered, said in a note to clients today. ``The question is whether or not they will drop the pegs --ultimately a political decision.''
Fed May Couple Cut With Measures to Increase Credit Federal Reserve officials, who are forecast to lower their main interest rate next week, are signaling that they are looking for additional ways to increase credit to companies and consumers. The Fed may lower the discount rate -- what it charges banks for short-term direct loans -- by a quarter-point more than the benchmark rate after Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen publicly expressed frustration that previous rate cuts haven't encouraged banks to lend to one another. Such a move would narrow the gap between the two rates -- normally 1 percentage point -- to a quarter-point. Economists said that may spur lending by easing the stigma of borrowing at the discount rate, letting firms claim they are taking advantage of a better deal.
Central banks must act to stop recession says Merrill Lynch Interest rates will have to fall sharply on both sides of the Atlantic if central bankers are to help prevent a recession led by rising oil and food prices, falling house prices and a tighter credit climate, a leading investment bank said yesterday. Merrill Lynch said that US interest rates will have to fall to 2% over the next two years as the Federal Reserve tries to boost an economy on the brink of the first consumer-led recession since 1991. Consumers, it said, were facing huge headwinds from a combination of "punishing" oil prices, tighter lending standards and rising unemployment. The investment bank also forecast that the Bank of England's monetary policy committee will announce the first of three quarter-point cuts when interest rates are set tomorrow.
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Tues 12.04.2007
Gold Climbs in London as Dollar Drops; Platinum Little Changed Gold advanced in London after the dollar resumed its slide, increasing demand for the metal as an alternative investment. Platinum was little changed. Gold has risen 25 percent this year as the U.S. currency slid 10 percent against the euro. The metal dropped 4.9 percent last week as the dollar rebounded and the European Central Bank completed the sale of 42 metric tons of gold. ``Short term the gold price is still driven by dollar weakness,'' said Ben Davies, chief executive officer of Hinde Capital Ltd. in London who helps manage the Hinde Gold Fund. ``We've seen the market hold up very well during an excessive rate of central bank sales. You have to be impressed.''
Dollar slips, euro gains credibility as viable rival For over half a century, the US dollar has been the preeminent form of legal tender in the world. Much of today's global trade is priced in dollars, even if the item in question isn't being sold or bought by a US firm. Most of the foreign exchange held by national central banks is dollars – not British pounds, Chinese renminbi, or Japanese yen. But in recent months, the king of currencies has taken it on the chin. Since August the dollar has shrunk about 6 percent in value, measured against an assortment of its fellows. Perhaps more important, it may be losing cachet overseas: Tourists can no longer pay in dollars to enter the Taj Mahal and other Indian national landmarks, for instance.
Fed's Yellen, joining chorus, highlights growth risks San Francisco Fed President Janet Yellen said Monday that developments since the last rate policy meeting in October suggest a bigger slowdown than she has expected. Yellen became the third top Fed official to suggest in the past week that further interest rate cuts might be advisable at the FOMC meeting on Dec. 11. It appears that any Fed officials arguing for holding policy steady are going to face tough sledding. Last week, Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn gave similar remarks suggesting that the financial turmoil in credit markets in recent weeks has raised the downside risks to growth in the next few quarters.
GCC States Back 2010 Single Currency, Quiet on Dollar Gulf Arab states said they will stick to a 2010 deadline for currency union and made no comment on any plans for ending their fixed-exchange rates to the dollar. The six members of the Gulf Cooperation Council will continue to observe the timetable and review progress in a year's time, according to an official statement after a meeting of the heads of state in Doha, Qatar's capital, today. ``The council reviewed the work on the implementation of the deadline of the monetary union and has directed countries to continue to implement financial and fiscal criteria for economic performance to bring them together,'' the statement said. ``We are not changing our view that the U.A.E. will revalue its currency in 2008,'' said Caroline Grady, economist at Deutsche Bank AG, the world's biggest currency trader. ``It's clear there's some disagreement on what to do about the dollar pegs.''
Fannie Mae could face more losses Could Fannie Mae be the next large financial company to announce billions of dollars of market losses on bonds backed by distressed mortgages?The vast majority of Fannie Mae's mortgages are loans to borrowers with good credit, but over the past five years the government sponsored enterprise became exposed to mortgages that were made to people with poor credit -- subprime mortgages -- and to mortgages that were made with incomplete documentation of borrowers' income, called Alt-A mortgages in industry parlance. One way that Fannie increased its exposure to subprime and Alt-A mortgages was to buy bonds backed with these types of loans.
Foreclosure gridlock threatens economy Like a lot of Americans, Anne Violette is having trouble with her mortgage. Violette, a self-employed photographer, moved to Delray Beach, Fla., in 2004 and bought a home with a 30-year fixed-rate loan. A year later, she said, a friend in the mortgage industry sold her on the idea of refinancing with an adjustable-rate mortgage that saved her hundreds of dollars a month. Now she is unable to keep up with her rising house payments but has found it virtually impossible to work with the lender on a new payment plan. Her story illustrates the plight faced by millions of Americans who have seen payments soar on their adjustable-rate mortgages or will face such "resets" in the next few years.
Dow Chemical To Shut Down Some Operations, Cut About 1,000 Jobs Dow Chemical Co. will shut down several operations, eliminating 1,000 jobs, as part of its effort to improve the cost effectiveness of its global operations. The Midland, Mich., chemical company expects to incur a fourth-quarter charge of $500 million to $600 million, which will include severance costs and asset write-downs. The company expects to realize savings of about $180 million a year as a result of the changes. Dow Chemical will exit the automotive sealers business in the North America, Asia Pacific and Latin America regions in the next 9 to 18 months and will explore strategic options in France. The company will also write down its investment in its Petromont & Co. LP joint venture and will idle its styrene plant in Camacari, Brazil, on Jan.
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Mon 12.03.2007
Moody's May Cut Ratings on $105 Billion of SIVs Moody's Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market, foreshadowing losses for investments that pay Florida teachers and money market funds. Moody's may lower ratings on $105 billion of debt sold by structured investment vehicles after the net asset values of 20 SIVs sponsored by firms including New York-based Citigroup Inc. declined to 55 percent from 71 percent a month ago, Moody's said in a statement Nov. 30. The assets were valued at 102 percent in June. ``The assets that SIVs hold are continuing to decline in value,'' said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, Switzerland's second-biggest bank by assets. ``As they do that it's creating more problems for the holders.''
The support for gold is only getting started I was sitting down with my daughter recently making a list for Santa. My advice to her was ask Santa for coal this year. After all with oil toying with $100 a barrel dad can use all the help he can get in heating the house. Even at 11 months of age, she didn't that interested. But when I suggested gold instead, she smiled. Oh, boy. I see a lot of expensive birthdays and holidays in my future. As a life-long commodities trader I get called many things. "Peak Oil Nut," "Doom and gloom guy," etc. The most common stereotypical nickname though for any of us "resource guys and gals" who believe in gold is "Gold Bug" It seems to imply that we are all nuts to want to shed some of the fiat currency and store a little gold in our portfolios.
China may pass SA as world's leading gold producer this year For the first nine months of 2007, China's gold production totalled 191.5 tonnes, which was just behind South Africa's declining total of 192.7t, and could overhaul the latter in the final quarter of the year.Dr Sandra Close of Melbourne-based Surbiton Associates, said that Australia eclipsed United States production with 184.5t for the nine months compared with the US estimate of 179t.For the September quarter Australia produced 61.7t (2 million ounces) of gold which was about 1t (330,000 oz) less than the June quarter, but was relatively similar to the September 2006 quarter output.Dr Close said Australia's quarterly gold output has remained relatively stable for the last two years.
Dollar faces new sell-off if Gulf states end greenback pegs Foreign exchange markets are on alert this week for the embattled dollar to face a further, severe sell-off after key talks between the Middle East’s Gulf states that could lead to them scrapping their currencies’ pegs to the greenback.Rulers of the six nations of the Gulf Cooperation Council (GCC) meet today and tomorrow in the Qatari capital of Doha amid significant pressures to sever their currency ties to the falling dollar, which is fuelling record inflation in their countries.Officially, the GCC states have insisted that the key currency issue is not on the agenda for the rulers’ summit talks. However, there is intense speculation that mounting economic and social strains inflicted by the currency pegs could see them scrapped, or the Gulf currencies revalued, either at the meetings or within weeks of them.
Subprime mess to get worse before better Research at the Boston Fed suggests that the foreclosure crisis in subprime mortgages will get worse before it gets better, said Bank president Eric Rosengren on Monday. Just how much worse depends on the outlook for the economy and housing, he said. "Our forecast is quite dependent on how far home prices fall," Rosengren said. He urged community banks and states to focus on the 87% of subprime loans that are not seriously delinquent and where action may avoid future problems. Rosengren said he was not advocating any bailout, instead wanted to use "existing programs for what they were designed to do." Some of the programs administered by the Federal Housing Administration could be modernized, he suggested. Lenders should also consider extending the terms of current loans or refinancing.
Troubled Builders, Bargain Seekers United Lennar Corp. has sold about 11,000 home sites to a venture mostly owned by the real-estate arm of Morgan Stanley for $525 million, a large land sale that signals that investors have begun to pounce on bargain deals. The sites -- in 32 communities in areas hit hard by the housing downturn -- were valued on Lennar's books at $1.3 billion as of Sept. 30. The low price the venture paid is a vivid sign of how land values have plummeted with the downturn, precipitated by defaults on subprime mortgages and tightening credit that have led to a broader slowdown in sales. Lennar, which will have a 20% ownership stake in the venture, will have the option to buy back certain home sites.The deal, which closed with little fanfare Friday night, could be a catalyst for other "vulture" investors to swoop in and grab discounted land from other troubled builders.
Hank Paulson’s ARM Bailout: Swing and a Miss The big mortgage crisis news right now is a plan being spearheaded by Hank Paulson that would freeze the interest rates on ARMs, in order to prevent home owners from going into foreclosure. The idea is that the current interest rates on various ARM loans would be frozen for 3-7 years until the buyer is ready to re-finance into a fixed rate mortgage. The plan is in response to the escalating wave of foreclosures sweeping the U.S.; additionally it hopes to shore up confidence in both the housing markets and the financial sector. However, not only will the plan have rather limited efficacy, but it will create some additional problems.
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