Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Wed 04.30.2008
India in mood to buy gold on lower prices, jewellery demand Jewellers took advantage of a drop in gold prices to stock up, with main consumer India abuzz with activity during the wedding season and ahead of a religious festival, dealers have said. In other parts of Asia, the bullion trading cities of Hong Kong and Singapore noted steady buying from jewellers in Indonesia, Thailand and Vietnam. Dealers in the Middle East also reported physical buying, albeit limited. Gold had hit a record US$1,032.70 an ounce in London on 17 March, four days after the yellow metal broke through US$1,000 for the first time. On the London Bullion Market, gold dropped back to US$891.50 per ounce at Friday’s late fixing from US$908.75 a week earlier. "Since the market traded back below US$950, it seems like for the last two, three weeks, the demand in Asia is quite good," said Ellison Chu, Senior Manager at Standard Bank London in Hong Kong.
Economy grows by only 0.6 percent in first quarter The bruised economy limped through the first quarter, growing at just a 0.6 percent pace as housing and credit problems forced people and businesses alike to hunker down. The country's economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider the definition of a recession, which is a contraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if slightly. Many analysts were predicting that the gross domestic product (GDP) would weaken a bit more -- to a pace of just 0.5 percent -- in the first quarter.
U.S. could have recession without drop in GDP The U.S. economy is in a recession, most analysts say, even though the government reported Wednesday that the economy managed to grow, albeit very slowly, in the first quarter. Gross domestic product increased at a 0.6% annualized rate in the quarter after a 0.6% gain in the fourth quarter. That's awfully slow, but is it compatible with a recession? While some people use the old rule of thumb that a recession is defined as two consecutive quarters of declining GDP, the actual working definition is a bit more nuanced. According to the economic historians at the non-profit National Bureau of Economic Research, a recession is defined as "a significant decline in economic activity spread across the economy, lasting more than a few months."
Administration brings back one-year Treasury bill to cope with soaring budget deficits The Bush administration, moving to cope with soaring budget deficits, says it is bringing back the one-year Treasury bill that it stopped issuing seven years ago when the budget was in surplus. The administration said Wednesday it would begin selling the one-year bill, also referred to as a 52-week bill, at an initial auction in June. New one-year securities will be auctioned every four weeks. The government is looking for various ways to borrow the billions of dollars in extra cash it will need to cover a budget deficit that is expected to jump to an all-time high this year, surpassing the old mark of $413 billion set in 2004. A big part of the increased borrowing reflects the need to pay for economic-stimulus rebates to 130 million households. The government began disbursing the payments on Monday in an effort to give the economy a jump start.
Official says Iran has stopped using US dollar for oil deals Iran, OPEC's second-largest producer, has stopped conducting oil transactions in U.S. dollars, a top Oil Ministry official said Wednesday, a concerted attempt to reduce reliance on Washington at a time of tension over Tehran's nuclear program and suspected involvement in Iraq. Iran has dramatically reduced dependence on the dollar over the past year in the face of increasing U.S. pressure on its financial system and the fall in the value of the American currency. Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves. "The dollar has totally been removed from Iran's oil transactions," Oil Ministry official Hojjatollah Ghanimifard told state-run television Wednesday. "We have agreed with all of our crude oil customers to do our transactions in non-dollar currencies."
GM swings to a first-quarter loss General Motors Corp. said Wednesday that it swung to a first-quarter loss as strong overseas growth, particularly in Latin America, failed to make up for losses in the automaker's home market and another hit from its financing division. The world's biggest car maker posted a net loss of $3.25 billion, or $5.74 a share, vs. a profit of $62 million, or 11 cents a share, a year earlier. Excluding charges, GM said its first-quarter adjusted loss was $350 million, or 62 cents a share, compared with an adjusted loss from continuing operations of $10 million, or 1 cent share, a year ago. Revenue came to $42.7 billion, down from $43.4 billion.
Citigroup Increases Stock Offering to $4.5 Billion Citigroup Inc., seeking to bolster capital depleted by mounting losses, raised $4.5 billion in a stock sale, 50 percent more than it planned after ``strong demand'' from investors. Citigroup, the biggest U.S. bank, sold 178.1 million shares at a price of $25.27 each, it said in a statement today. Shares of the New York-based company fell 2.9 percent in New York trading. The sale represents about 3 percent of Citigroup's shares outstanding as of March 31. The world's biggest banks, grappling with more than $300 billion of losses on mortgages, bonds and loans, have sought new capital to stave off credit-rating downgrades that might jeopardize client relationships and access to financing. Companies usually try to avoid forced stock sales because they dilute the earnings power of current shareholders.
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Tues 04.29.2008
Housing prices drop at fastest pace ever Housing prices dropped in February at the fastest rate ever, a widely watched index showed on Tuesday, reflecting that the housing slump is gaining momentum and showing no signs of letting up. The Standard & Poor’s/Case-Shiller home price index of 20 cities fell by 12.7 percent in February versus last year, the largest decline since its inception in 2001. Seventeen of the 20 metro areas reported record annual declines. "There is no sign of a bottom in the numbers," David Blitzer, chairman of the index committee at S&P, noting that all 20 metro areas have declined for six straight months. Half of the cities saw home values plunge by double digits led by Las Vegas at 22.8 percent and Miami at 21.7 percent. Those two areas experienced the sharpest appreciation in 2004 and 2005 with annual increases above 50 percent and 30 percent.
Home foreclosure rate continues ugly climb The number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier, as weakening property values and tighter lending left many homeowners powerless to prevent homes from being auctioned to the highest bidder, a research firm said Monday. Among the hardest hit states were Nevada, Florida and, in particular, California, where Stockton led the nation with a foreclosure rate that was 6.6 times the national average, Irvine, Calif.-based RealtyTrac Inc. said. Nationwide, 649,917 homes received at least one foreclosure-related filing in the first three months of the year, up 112 percent from 306,722 during the same period last year, RealtyTrac said.
Vacant homes for sale hit new record high The percentage of vacant homes for sale in the U.S. set a new record high in the first quarter of this year, the government said Monday. The Census Bureau report shows that shows that 2.9 percent of U.S. homes — excluding rental properties — were vacant and up for sale, compared with 2.8 percent in the fourth quarter of 2007. It was the highest quarterly number in records going back to 1956. That works out to 2.28 million properties, up from 2.18 million in the same quarter last year, according to the report. The West had the biggest gain in vacancy rates among homeowners, rising to 3.2 percent in the January-March period from 2.6 percent in the same quarter a year earlier. Vacancy rates inched up in the Northeast and remained steady in the Midwest and South.
April consumer confidence falls, outlook gloomy Amid worries about jobs, the economy and gas prices, U.S. consumer confidence fell in April, perpetuating its downward slide as inflation expectations rose to match the record high reached after Hurricane Katrina, the Conference Board reported Tuesday. The April consumer confidence index declined to 62.3 from a March reading that was revised up to 65.9. Consumer confidence is at its lowest since March 2003. Economists surveyed by MarketWatch had expected an April reading of 61.0. "This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further," said Lynn Franco, director of consumer research at the private Conference Board.
Countrywide posts $893 million first-quarter loss Troubled mortgage lender Countrywide Financial Corp. continued to hemorrhage money in a toughening housing climate, reporting Tuesday that it lost $893 million in the first quarter compared to a profit of $434 million during the same period last year. Countrywide also said it would increase its residential loan loss provision to $1.5 billion as it struggled to get a handle on rising delinquencies and plummeting home values. Charge-offs for the nation's largest lender climbed to $606 million from $39 million. The loss could be another blow to the merger between the lender and one of the nation's largest banks: Bank of America Corp. agreed in January to acquire Countrywide in a white-knight, $4 billion all-stock deal that would make the firm the largest U.S. mortgage lender.
Emptying the Breadbasket For decades, wheat was king on the Great Plains and prices were low everywhere. Those days are over. At Stephen Fleishman's busy Bethesda shop, the era of the 95-cent bagel is coming to an end. Breaking the dollar barrier "scares me," said the Bronx-born owner of Bethesda Bagels. But with 100-pound bags of North Dakota flour now above $50 -- more than double what they were a few months ago -- he sees no alternative to a hefty increase in the price of his signature product, a bagel made by hand in the back of the store. "I've never seen anything like this in 20 years," he said. "It's a nightmare."
Truckers protest high gasoline prices Dave Gares, an independent truck driver since 1974 who hauls mostly soft drinks these days, never dreamed he'd be paying more than $4 per gallon for diesel.It takes 220 gallons to fill up his tractor-trailer rig, which gets a little over six miles per gallon on the road. It costs Gares up to $1,400 to fill up, with the added cost of fuel additives to boost his truck's mileage. He said he has to absorb the increases to stay competitive. "You can't charge it back to the shipper, so it comes out of your own wallet," said Gares of Lebanon, Pa., one of more than 100 truckers who drove to Washington on Monday to demand changes from Congress. "Now you have to start looking at how to cut back."
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Mon 04.28.2008
Gold rises as record crude raises inflation concerns Gold futures rose on Monday after the crude-oil contract neared $120 a barrel, raising the metal's appeal as a hedge against inflation. Gold for June delivery gained $6.80, or 0.8%, to $896.50 an ounce on the New York Mercantile Exchange. Crude futures rose overnight to a new record high of $119.93 a barrel in electronic trading. "Metals could not help but notice the explosive move in crude," said Edward Meir, an analyst at MF Global, in a research note. "We expect commodities in general to remain firm at least through to midweek, as the strong energy complex sets the tone, while the weakness in the dollar should also help."
OPEC President Says $200 Oil Possible OPEC President Chakib Khelil does not rule out oil prices reaching $200 a barrel, even though supply is adequate, because the market is driven by the dollar's slide, Algerian government newspaper El Moudjahid reported on Monday. "Questioned about a possible rise which would go to $200, the minister did not rule out this eventuality, explaining that this rise is indexed from now on to the fall in the dollar or to the rise in the dollar," El Moudjahid reported. "In terms of fundamentals, stocks are high, demand is easing, supply is satisfactory. Therefore normally, without geo-political problems and the fall of the dollar, the prices of oil would not be at this level," he was quoted as saying.
Warren Buffett Calls Recession Warren Buffett of Berkshire Hathaway has been on CNBC this morning discussing his Wrigley's bid this morning. Interestingly enough this interview was more of a general discussion about the current economic climate and strategy since he said, "We are in a recession." The call in the last few minutes also noted that the classic definition of a recession being negative GDP for two consecutive quarters and a 0.1% growth may keep the classic definition from being there. He also noted that the National Bureau of Economic Research is the one who officially calls the classic recession, and that definition is far different "from the man in the streets." He also noted that the current trade policies will weaken the dollar, although he noted how he was also surprised that inflation hasn't been higher from commodity costs. Warren Buffett also said he thinks this will deeper and longer than many people think.
UBS set for major job cuts totaling 8,000 posts UBS AG is set to lay off roughly 8,000 employees, Swiss weekly Sonntag reported Sunday without citing sources. UBS wasn't immediately available for comment. UBS has already disclosed it will cut jobs, and pledged details on May 6, when it reports first-quarter earnings. Thus far speculation has centered on UBS' loss-making investment bank, which has been hit by over $37 billion in subprime writedowns. Sonntag reports the bank will also cut jobs across the bank, mainly back-office and administration roles.
There goes the neighbourhood: mortgage crisis sees suburbs slump As the banks foreclose on loans across the US, worried householders watch their tree-lined streets change. Susan McDonald doesn't look like an activist. She drives a nice car, wears smart clothes and appears to be the embodiment of the neighbourhood personal banker she is during office hours. But after work McDonald has another life. It is then that the mother of three turns into a neighbourhood organiser, determined to mobilise her community to battle for a way of life that many believe is in peril. McDonald is a self-confessed suburbanite and president of the Franklin Reserve Neighbourhood Association, a new development in the city of Elk Grove, 15 miles south of the California capital, Sacramento.
Many Houses, Not Enough People As we look at the "Vacantvilles"- those communities at the far reaches of the metro areas- where foreclosures and walk-aways number more than sales, it’s hard not to wonder, "What will become of all these empty homes if buyers don’t show?" It’s not a program without its problems, but other cities are looking at Youngstown’s decision to "embrace downsizing". Youngstown is demolishing older neighborhoods- it’s hard to look at spanking new communities with their greenbelts and community centers and picture them being bulldozed. High gas prices and low demand however, are blighting some of these communities as surely as lost jobs have hurt inner cities in the midwest. In many instances, abandoned homes are becoming targets for crime and vandalism. As in Youngstown, cities have to provide services to under-occupied areas.
Chrysler LLC puts two axle plants up for sale Chrysler LLC has placed two Michigan axle plants on the block as part of its effort to develop a leaner business model, The Wall Street Journal reported Monday, citing people familiar with the matter. The Auburn Hills, Mich. automaker has valued its Detroit and Marysville plants at $400 million, and has already approached axle suppliers Dana Holding Corp. and American Axle & Manufacturing Holdings Inc. over a possible deal, the Journal reported. The offer has sparked little interest, however, as any deal would require the buyer to work out a labor deal with the United Auto Workers at the Detroit plant, the newspaper said.
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Fri 04.25.2008
$200 Oil, $2,000 Gold The numbers in the title of this article look absolutely shocking side-by-side, even though there is plenty of evidence to suggest that even those numbers are merely rest stops on a chart with a perpetual sky-reaching tilt. These two figures conjure disbelief in the mind at first look, but then, depending on your where you stand in relation to these industries, they appear inevitable. It is utterly astounding to think that gold and oil could still yet double, more or less, from today’s levels. With gasoline prices stretching the budgets of most North American families, the price of auto fuels in a $200 barrel of oil world would easily be well over $6 a gallon. The only real questions to consider are 1) when will we see these prices, and 2) how can I hedge against these price risks. In terms of question 1, unless you are planning on checking out in the most profound sense of the term, the question is more or less irrelevant.
Gasoline could hit $7 a gallon in four years Surging crude prices, which could surpass $200 a barrel in four years on tight supplies, could push gasoline prices to as high as $7 a gallon, CIBC World Markets analysts said Thursday. Crude supplies are actually lower than some official estimates indicate, while demand is unlikely to fall anytime soon, according to a statement by analysts led by Jeff Rubin at CIBC, an investment bank. They forecast that these tighter supplies and continued strong demand will drive oil and gasoline prices to roughly double their current levels by 2012. "It is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity," said Rubin. "Despite the recent record jump in oil prices, oil prices will continue to rise steadily over the next five years."
Hidden unemployment Last month's jobs report leaves little doubt that the country is in a deep downturn, although you can't easily tell it by the official numbers. At 5.1%, the current unemployment rate is relatively low by historical standards. But the percentage of jobless Americans of prime working age -- 13.1% for men 25 to 54 years old -- is historically high. Most of them do not qualify as unemployed, but they are nonetheless out of work. This discrepancy exists because the government's definition of the unemployed includes only people who do not have a job, have actively looked for work in the four weeks preceding the survey and are currently available for work. The headline number is based on a survey of 60,000 households and is the most widely reported number in the jobs report.
Many states appear to be in recession The finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that's true for the nation as a whole, a survey of all 50 state fiscal directors concludes. The situation looks even worse for the fiscal year that begins July 1 in most states. "Whether or not the national economy is in recession - a subject of ongoing debate - is almost beside the point for some states," said the report to be released Friday by the National Conference of State Legislatures. The weakening economy is hitting tax revenue in a number of ways: People's discretionary income is being gobbled up by higher food and fuel costs, while the tanking housing market means people are spending less on furniture and appliances associated with buying a house.
Load Up the Pantry I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food. No, this is not a drill. You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here. Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster. "Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the Quaker Strategic Growth mutual fund. "I think prices are going higher. People are too complacent.
Why this crisis is still far from finished During the past few weeks we have seen a growing number of market participants predict an end to the dislocations that erupted last summer and claimed victims throughout the financial system and beyond. While their predictions are understandable, they are premature. The dynamics driving the disruptions are morphing and may again move ahead of both the market and policy responses. The optimistic view is based on two distinct elements. First, that the deleveraging process is reaching its natural end as valuations stabilise and institutions come clean about their losses and raise capital; second, that a series of previously unthinkable policy responses have been effective in restoring liquidity to the financial system.
Consumer Mood Sours as Inflation Fears Grow U.S. consumer confidence fell for a third straight month in April, hitting its weakest in 26 years, on heightened worries over inflation and the sagging housing market, a survey showed Friday. The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for April fell deeper into recessionary territory, to 62.6 from 69.5 in March and below economists' median expectation of 63.2 in a Reuters poll. The April result is the lowest since March 1982's 62.0, when the "stagflationary" period of low growth and high inflation was still an issue for many Americans. Short-dated Treasury debt prices briefly edged higher after the release of the data, while stocks briefly turned negative or extended prior losses.
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Thur 04.24.2008
New-home sales sink 8.5% to 17-year low U.S. home builders have slashed their prices by a record amount, but sales still plunged by 8.5% to a 17-year low in March, the Commerce Department estimated Thursday. The decline in new-home sales to a seasonally adjusted annual rate of 526,000 was much weaker than the 577,000 pace expected by economists surveyed by MarketWatch. The report gives little hope that the housing market is near a bottom. February's sales pace was revised lower to 575,000 from 590,000. New-home sales are down 36.6% compared with a year ago and are down 62% from the peak in July 2007. The figures likely overstate the number of sales because they don't account for canceled sales, which have ballooned. The report is based on contracts signed, not sales closed.
Moody’s says Homebuilders at the Mercy of their Banks Several lower-rated homebuilders survived 2007 merely because of the leniency of their lending groups. As 2008 unfolds, these same homebuilding companies will once again find themselves at the mercy of their banks, according to Moody’s.But now the banks are facing increasing pressure to 1) take a harder line on covenants, 2) reduce their homebuilding exposure, which has not provided them with the same level of fees as in the past, and 3) deal with their own balance sheet issues. As a result, Moody’s expects to see a rising number of defaults amid this confluence of negative factors. "As banks harden the line in 2008, we expect a number of homebuilders to face growing resistance when requesting covenant waivers or amendments, which could lead to a forced acceleration of debt repayment and consequent bankruptcy filings.
Durable-goods orders fall for third straight month Hurt by a strike in the auto industry, orders for U.S.-built durable goods slipped 0.3% in March compared to February, marking the third monthly decline in a row, the Commerce Department estimated Thursday. It's the first time orders had fallen for three months in a row since early 2001, during the last recession. Through the first three months of the year, new orders are up 1.5% compared with the same period a year ago. The month-to-month decline was as expected by economists, following an upwardly revised 0.9% decline in February. Orders plunged 4.4% in January. Inventories of durable goods at the factory jumped 1.1% in March -- a troublesome sign that could spell further layoffs and production cutbacks if demand doesn't rebound.
As loans dry up, so will economy Those who say that the worst banking news is already out are more wishful than watchful. Take a look at what happens when businesses can't borrow what they need. If you've been feeling pretty good about the prospects for the economy as the stock market has climbed off the mat, I suggest you forget the Dow industrials for a minute and look toward Yakima, Wash. That's where Western Recreational Vehicles, a four-decade-old company employing 220 people, closed its doors last week. The family-owned maker of Alpenlite-brand motor coaches and campers had survived every bad economy and spike in oil prices since 1971, but it had to shut down when banks yanked its credit. Without the ability to borrow to buy parts and maintain payrolls during a period of seasonally soft sales, as it has always done, a wonderful small business went poof.
Two retail chains impose rice rationing Shades of World War II: Two warehouse-type retail chains in the United States are rationing rice as anxious customers stock up because of a worldwide shortage. It's the most startling sign that the world food crisis is making itself felt in the United States. But, despite rising food prices here, we've still got it good compared with some developing countries, where food shortages and price hikes have sparked deadly riots. "Based on a very rough analysis, we estimate that a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty," World Bank president Robert B. Zoellick said recently. He has called for a "New Deal for Global Food Policy." Likely because of customer hoarding, Sam's Club has imposed a limit on bulk purchases of rice.
Credit Suisse writes off $5.3 billion Credit Suisse Group on Thursday reported a first-quarter loss nearly three times worse than analysts had expected as it wrote down $5.3 billion in soured investments. The bank, based in Zurich, reported a net loss of 2.15 billion Swiss francs, or $2.1 billion, in the first three months of 2008, compared with net income of 2.8 billion francs a year earlier. "On balance, I was quite pleased" with the results, said Peter Thorne, an analyst with Helvea in London. "In this market, if an investment bank doesn't report $20 billion of write-downs you tend to be quite relieved." Credit Suisse shares, which have fallen by about 30 percent over the last 12 months, rose 1.4 francs, or 2.7 percent, to 53.95 francs in afternoon trading in Zurich.
This bear growls on So, sunk in a deep armchair with an optimistic bottle of Rioja (Baron De Ley Reserva), I have tried to tot up reasons why the great credit smash-up of 2007-2008 may now be safely over, heralding sunlit uplands once again. 1) Ben Bernanke has carried out the most dramatic rescue since the creation of the US Federal Reserve. His emergency rate cuts - 125 basis points over eight days in January - was a "game changer", as they say in London’s American Quarter, Canary Wharf. By cutting rates from 5.25pc to 2.25pc since September, the Fed has averted 're-set Armaggedon' on the Greenspan mortgages – those floating rate 'teasers' taken out in 2005 to 2007. Payments will barely jump at all for most subprimers. Big difference.
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Wed 04.23.2008
US regulator fears wave of bank failures US bank failures could rise above "historical norms" as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator. In an interview with the Financial Times, John Dugan, who oversees about 1,700 national banks as comptroller of the currency, said the growing problems for lenders follow a period of almost four years in which no institution regulated by his agency had failed. "We’re going to have some more bank failures that will come back more to historical norms and may go above that with time," he said. "That is a natural consequence of the economy going from historically exceptionally benign credit conditions to something that is more normal to something you would get in a downturn."
Americans hoard food as industry seeks regs Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher. Meanwhile, some Americans are stocking up on staples such as rice, flour and oil in anticipation of high prices and shortages spreading from overseas. Their pleas did not find a sympathetic audience at the Commodity Futures Trading Commission (CFTC), where regulators said high prices are mostly the result of soaring world demand for grains combined with high fuel prices and drought-induced shortages in many countries. The regulatory clash came amid evidence that a rash of headlines in recent weeks about food riots around the world has prompted some in the United States to stock up on staples.
Era of cheap food ends as prices surge Families have been warned that the prices of basic foods will rise steeply again because of acute shortages in commodity markets. Experts told The Times yesterday that prices of rice, wheat and vegetable oil would rise further. They also forecast that high prices and shortages — which have caused riots in developing countries such as Bangladesh and Haiti — were here to stay, and that the days of cheap produce would not return. Food-price inflation has already pushed up a typical family’s weekly shopping bill by 15 per cent in a year. The price of rice, which has almost tripled in a year, rose 2 per cent on the Chicago Board of Trade yesterday as the United Nations food agency gave warning that millions faced starvation because aid agencies were unable to meet the additional financial burden.
Ambac reports quarterly net loss of $1.66 billion Ambac Financial reported a first-quarter net loss of $1.66 billion on Wednesday as the bond insurer continued to struggle with the effects of the mortgage meltdown and broader credit crunch. The net loss was $11.69 a share, versus net income of $2.02 a year earlier, the company said. Its operating loss in the latest quarter was $6.93 a share. Bond insurers like Ambac and MBIA Inc. agree to pay interest and principal on debt in a timely manner in the event of default. The $2.4 trillion business relies on AAA ratings to win new business. But those top ratings were in jeopardy earlier this year amid concern Ambac and MBIA will have to pay big claims from guarantees they sold on complex mortgage-related securities including collateralized debt obligations (CDOs).
SEC mum on why it ended Bear Stearns probe The Securities and Exchange Commission turned down a congressional request to divulge why it cut off an investigation into whether Bear Stearns Cos. hurt investors by improperly determining the value of complex debt securities, The Wall Street Journal reported Wednesday. The SEC cited confidentiality issues in its choice to abort an enforcement case begun in 2005 into actions at Bear Stearns several months before the Wall Street firm collapsed in March and was acquired by J.P. Morgan Chase & Co. The decision could trigger further fighting between lawmakers and securities regulators over the dropped Bear Stearns case, according to the report. An SEC spokesman didn't immediately return a call seeking comment Wednesday morning.
China down to 12 days worth of coal - report CHINA only has enough coal for 12 days of consumption, three days less than a month ago, state media reported Wednesday, sounding the alarm bells over the nation's most important source of energy. In certain parts of China, such as densely populated Hebei province in the north, reserves are down to less than a week, Xinhua news agency reported, citing the China Electricity Regulatory Commission. In the period since early March, coal reserves have slumped by 12 per cent to 46.7 million tonnes, according to the commission. Reasons for the shortage were "multi-dimensional," the commission was quoted as saying, without elaborating. Demand for coal has risen rapidly since China experienced brown-outs early this decade, motivating a construction frenzy in the power industry, with large numbers of new coal-fired plants emerging across the country.
Pentagon says worried about spiking oil prices After spending 15 billion dollars on oil in 2007, the Pentagon said Tuesday it was concerned over rising prices, since for every dollar goes up in oil price, an extra 130 million has to be added to its budget. Oil price is "a significant concern for us today," Undersecretary of Defense Tina Jonas, the Pentagon's chief financial officer, told a conference organized by Jane's defense information group. "Fuel has more than tripled in price over the past four years," Jonas said, adding that "for every dollar increase in the cost of fuel, we end up increasing by 130 million dollars in terms of operational costs." The spiraling cost of oil is especially troublesome for the Pentagon since the "DoD (Department of Defense) is the largest consumer of oil in the United States," David Trachtenberg, former deputy assistant secretary of defense for international security policy, said in his presentation.
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Tues 04.22.08
Bullish outlook for precious and base metals and bulk mined commodities Macquarie Capital Securities said their short-term outlook is bullish for bulks, minor and precious metals with base metals providing to be tighter than expected due to further supply disruption. Analysts Jim Lennon, Adam Rowley and Max Layton said their favored commodities during the short term are thermal and coking coal, iron ore, platinum, gold, cobalt, manganese, chrome and aluminum. Physical tightness of supply for many commodities is expected to persist into the next decade, keeping prices well above normal for the long term, according to Macquarie's analysis. Meanwhile, rising cash and capex costs are driving high long term expectations.
Home sales dip in March Sales of existing homes fell in March, after registering a modest increase the month before, according to a report by an industry group released Tuesday. The National Association of Realtors (NAR) reported that sales by homeowners fell 2% in March to an annual pace of 4.93 million, down from the February reading of 5.03 million. The number was down 19.3% from 6.11 million a year earlier. "Though mortgage rates are at historically low levels, some borrowers are facing restrictive lending practices in declining markets," said Lawrence Yun, NAR chief economist. With a large number of homes to choose from, many buyers are biding their time, he added. The median price of a home sold during the month fell 7.7% to $200,700 from $217,400 a year earlier. In February, the median home price fell 8.2%, which was the largest year-over-year price drop on record.
Fed auctions another $50 billion to banks Battling to relieve stressed credit markets, the Federal Reserve has provided a total of $360 billion in short-term loans to squeezed banks since December to help them overcome credit problems. The central bank on Tuesday announced the results of its most recent auction — the 10th since the program started in December, where commercial banks bid to get a slice of another $50 billion in the short-term loans. It's part of an ongoing effort by the Fed to help ease the credit crunch, which erupted last August, intensified in December and January and took another turn for the worst in March with the sudden crash of Bear Stearns, the nation's fifth-largest investment house.
Crude touches record atop $118 on supply concerns Crude-oil futures rose Tuesday to a new high of $118.47 a barrel as lingering worries over oil-supply disruptions provided support for prices. Crude for May delivery gained nearly $1 to touch the new high in early morning trading on the New York Mercantile Exchange, surpassing the previous record of $118.05 recorded in overnight electronic trading. It was last up 92 cents, or 0.8%, to $118.40 a barrel. Meanwhile, May reformulated gasoline rose slightly to $2.988 a gallon and May heating oil gained 1 cent to $3.3214 a gallon. May natural gas futures fell 5 cents to $10.68 per million British thermal units. At the pump, regular gasoline averaged $3.511 a gallon, a new record high, according to the Automobile Association of America. Regular gas passed $4 a gallon in some gas stations in downtown San Francisco Monday.
Refiners slow fuel production as profits drop A production slowdown at the nation's refineries, now operating at levels last seen in the aftermath of Hurricane Katrina in 2005, couldn't come at a more troublesome time for consumers watching pump prices flirt with $4 a gallon. Such low production rates could create a new set of problems for refiners, already operating at the brink of loss. Utilization rates at 30-month lows threaten to spark probes by lawmakers, who have been holding a series of hearings on the rampant rise in gasoline and diesel prices. "If this operating level persists, the industry will likely see another round of intense legislative scrutiny," said John Kilduff, an analyst at futures brokerage MF Global. U.S. refineries operated at 81.4% of their operable capacity in the week ending April 11, the Energy Department's statistical arm said last week.
Japan's hunger becomes a dire warning for other nations MARIKO Watanabe admits she could have chosen a better time to take up baking. This week, when the Tokyo housewife visited her local Ito-Yokado supermarket to buy butter to make a cake, she found the shelves bare."I went to another supermarket, and then another, and there was no butter at those either. Everywhere I went there were notices saying Japan has run out of butter. I couldn't believe it — this is the first time in my life I've wanted to try baking cakes and I can't get any butter," said the frustrated cook. Japan's acute butter shortage, which has confounded bakeries, restaurants and now families across the country, is the latest unforeseen result of the global agricultural commodities crisis.
Russia looks at all options to invest its oil billions abroad Russia could soon follow the Middle Eastern sovereign wealth funds and invest billions of dollars in direct overseas investments if, as expected, its national welfare fund is given more freedom to invest. Dmitry Pankin, Deputy Finance Minister, said that there was hot political debate about how the fund should be invested. He told The Times: "It is possible to invest ... abroad . ..to buy corporate bonds ... to buy shares. It is less risky to buy government bonds than to buy corporate shares. But we are analysing all proposals." Russia is awash with cash largely because of soaring revenues from its oil and gas. But the country is also struggling with inflation as the economy grows rapidly. For that reason, it is now having to limit government spending on infrastructure even though much of its transport network and other parts of its national framework badly needs to be upgraded.
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Mon 04.21.2008
Gold producer hedge book is at its lowest since 1992 Société Générale's latest analysis of the global gold mine producer hedge book, compiled by GFMS Ltd, concludes that the hedge book stands at just 835 tonnes, which is the lowest level since 1992, and is equivalent to 34% of 2007 production levels. De-hedging in the fourth quarter was 72 tonnes. For the year as a whole, dehedging in 2007 was a record at 446 tonnes, which meant that mine supply last year was 2,030 tonnes, compared with 2,076 tonnes in 2006. Despite the reduction in the volume of the book, price movements mean that the marked-to market value of the combined book deteriorated to negative $9.4 billion, while producers' average realised prices increased by 15% in US dollar term to $767/ounce, compared with an average spot gold price of $786.25/ounce.
Bank of America profit hit; CEO frets for consumer Bank of America Corp.'s first-quarter profit fell 77% as credit-loss provisions jumped $4.78 billion, driven by weakness in home-equity loans as well as credit extended to small businesses and home builders, the company said Monday. "We remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices," CEO Ken Lewis said in a press release Monday morning. Bank of America's revenue dipped 6% to $17.3 billion, while profit in its small business and consumer division fell $1.09 billion. The quarter also saw net charge-offs of $2.72 billion, as consumers became further stressed by rising unemployment and tougher borrowing conditions.
As OPEC Holds Production, Oil Moves Toward $150 Whenever the ministers to OPEC are asked if there is any chance they will raise oil production, the answer is "no." Yesterday, the president of the cartel, Chakib Khelil, said ``Any increase in production now will not have an impact on prices because there is a balance between supply and demand,' according to Bloomberg. Oddly enough, word came from International Energy Agency that emerging market use of oil had passed use in the US for the first time. No matter how great the farce, the power of reason cannot change the cartel's attitude. Even a relatively small incident like the attack of a Japanese oil tanker sent oil up by $1. It has occurred to OPEC members that their best play is to do nothing. With crude now above $116 the tens of billion of dollars in extra profits coming to them can be explained away as being caused by speculation and a weak dollar. The fact that demand is still moving up in China, India, and much of the developing world has nothing to do with it.
Saudis put oil capacity rise on hold Saudi Arabia, the world’s biggest oil producer, has put on hold any plans to further increase long-term production capacity from its vast oil fields, its most powerful policymakers have said. In a series of statements, including one by the king himself, the kingdom has warned consumers it does not reckon there is a need for further expansion, an assumption disputed by the world’s biggest developed countries. The realisation Saudi Arabia will not increase production to 15m barrels a day as quickly as important consumers and the markets had assumed could put further pressure on oil prices, which touched fresh records last week. New York benchmark futures reached a record of slightly less than $117 a barrel last week in response to fear that Russia, the world’s second largest producer, was unable to increase production in the next years.
Bank of England's mortgage bailout The Bank of England on Monday said it will swap as much as 50 billion pounds of U.K. government bonds for high-rated mortgage-backed securities with commercial banks in an effort to thaw frozen credit markets and ensure that lower interest rates are passed on to consumers. The program "is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks," said Bank of England Gov. Mervyn King in a statement. Details of the plan, which will allow banks to swap nearly $100 billion of mortgage-backed securities for nine-month U.K. treasury bills, were largely in line with expectations.
Food Rationing Confronts Breadbasket of the World Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon: food rationing. Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks. At a Costco Warehouse in Mountain View, Calif., yesterday, shoppers grew frustrated and occasionally uttered expletives as they searched in vain for the large sacks of rice they usually buy. "Where's the rice?" an engineer from Palo Alto, Calif., Yajun Liu, said. "You should be able to buy something like rice. This is ridiculous."The bustling store in the heart of Silicon Valley usually sells four or five varieties of rice to a clientele largely of Asian immigrants, but only about half a pallet of Indian-grown Basmati rice was left in stock. A 20-pound bag was selling for $15.99.
Bush seeks to cement legacy of ties with Canada, Mexico U.S. President George W. Bush is tending to his country's relationship with Canada and Mexico one last time, trumpeting trade over the "scare tactics" of economic isolation. Mr. Bush joins Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon on Monday in New Orleans for his fourth and final North American Leaders' Summit. This year's event has the intended twist of giving an economic and symbolic boost to the host city. Almost 32 months after Hurricane Katrina struck, New Orleans is still recovering — with uneven success — from the most brutal natural disaster in U.S. history. Most of Mr. Bush's time will be spent in a hotel and a historic former city hall in the Central Business District, far from the residential areas hit hardest by Katrina. His agenda includes a few events of local flavour, but they are secondary to diplomatic talks.
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Fri 04.18
Citi posts $5 bln loss on another major write-down Citigroup Inc. reported Friday another oversized quarterly loss as the company wrote down about $12 billion of soured mortgage investments and other credit-related items while adding to reserves for further losses on consumer loans. "Valuations of our subprime-related exposures in fixed-income markets and leveraged-finance assets have further declined and credit costs in our consumer-lending businesses have increased," CEO Vikram Pandit said in a press release. It marked the second consecutive quarterly loss for Citi. Citi shares rose 6.5% as the results were generally in line with the wide range of analyst estimates. Investors appeared to welcome the aggressive write-downs.
RBS may seek $24 billion capital boost Royal Bank of Scotland, the U.K.'s second-biggest bank, is planning to tap shareholders for billions of pounds to shore up its weakened capital base, according to newspaper reports. Reports on the size of the capital raising varied. The Daily Telegraph newspaper claimed it would be at least 5 billion pounds ($9.9 billion), while the Times (of London) reported it could be as much as 12 billion pounds ($23.9 billion). RBS would be the first major British bank to seek more cash from shareholders since the credit crisis began, and could pave the way for other U.K. firms to boost their capital base. In a brief statement, RBS noted the speculation and said its interim management statement on trading performance and capital will be published in the coming week. Any announcement is likely to coincide with the bank's annual meeting on Wednesday.
China passes US as second-biggest exporter Global trade growth is expected to slow to a six-year low of 4.5 per cent this year but China has overtaken the US as the world's second-biggest exporter, the World Trade Organisation (WTO) said yesterday. Heavily influenced by the turmoil in financial markets and the sharp economic slowdown in leading western economies, global merchandise trade is forecast to rise by 4.5 per cent this year, against last year's 5.5 per cent. But the WTO gave warning that a stronger slowdown in global economic growth "could cut trade much more sharply, to significantly less" than the projected level of 4.5 per cent. Dr Patrick Low, WTO chief economist, said that in view of the downside risks, the agency will probably have to revise its projections in the third or fourth quarter of this year.
Has Capitalism Failed? It is now commonplace and politically correct to blame what is referred to as the excesses of capitalism for the economic problems we face, and especially for the Wall Street fraud that dominates the business news. Politicians are having a field day with demagoguing the issue while, of course, failing to address the fraud and deceit found in the budgetary shenanigans of the federal government – for which they are directly responsible. Instead, it gives the Keynesian crowd that run the show a chance to attack free markets and ignore the issue of sound money. So once again we hear the chant: "Capitalism has failed; we need more government controls over the entire financial market." No one asks why the billions that have been spent and thousands of pages of regulations that have been written since the last major attack on capitalism in the 1930s didn't prevent the fraud and deception of Enron, WorldCom, and Global Crossings. That failure surely couldn't have come from a dearth of regulations.
Another record low for Bay Area home sales A flood of foreclosure sales dampened the housing market in March, the traditional start of the spring selling season, and Bay Area home sales clocked another record low, according to a real estate report released Thursday. One-quarter of all homes sold in the nine-county area last month were foreclosures. Banks typically sell such homes at a discount, which further depresses prices, particularly in the immediate neighborhoods."It's the weakest kickoff to the spring home-buying season that we've seen in 20 years," said Andrew LePage, an analyst with DataQuick Information Systems, a real estate information service in La Jolla (San Diego County).
Barclays Capital Forecasts Dollar to Drop 2.5% on Oil Barclays Capital forecast the dollar will drop 2.5 percent against the euro in three months as record oil prices increase the U.S. import bill and prevent the European Central Bank from cutting interest rates because of inflation. The securities unit of Barclays Plc, the U.K.'s third- biggest bank, predicts the dollar will fall to $1.63 per euro, compared with a previous estimate of $1.50, analysts led by David Woo, London-based global head of currency strategy, wrote in a research note yesterday. Against the pound, the U.S. currency will weaken to $2.05 versus $1.97. ``The U.S. dollar is locked in a vicious circle,'' they wrote. The currency's drop is causing higher oil prices as oil nations seek to preserve their revenues and ``this in turn leads to further dollar weakness as the European Central Bank becomes even less likely to follow Federal Reserve easing.''
Bankrupt policies, empty stomachs No good deed ever goes unpunished. Asians are quickly discovering the wisdom of this idiom, as they suddenly confront staggering shortages in basic food items. The price of rice has gone up exponentially in the past few weeks, crossing US$1,000 a tonne, despite the absence of any discernible decrease in global production nor a concurrent increase in consumption. The upshot for Asian governments is increased social tensions in many countries where food shortages were unheard of until very recently, as well as a number of others where economic fragility has increased on the back of rising food prices. People have to eat, and if it costs them too much to eat, they will in turn demand to be paid more. This creates a vicious cycle of inflation that will eventually reduce the living standards of pretty much every
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Gold price cycle has only just begun Investec’s Global Gold fund manager Gail Daniel is expecting the gold price to continue to rise over the longer term and is even more bullish on platinum. Although Daniel is expecting some consolidation around the current price, she is expecting the price to pick up later this year and believes ‘it could easily go rising on for three to five years. ‘At the moment the oil price is at a high, but not the gold price. It could be due a catch up,’ Daniel says. The newly AAA-rated manager says that as long as inflation increases globally, we could see an upside of 25% on the gold price. In particular, she highlights the weakness of the US dollar and points out that while it is unlikely the Federal Reserve will increase rates
40 Years of Inflation, 80 Years of Dow/Gold If Wall Street stocks can surge 160 points on falling earnings, an 11% drop in housing starts, and a 16-year record for consumer-price inflation, then so can everything else that doesn't carry a picture of George Washington. Crude oil, rice, Gold, the Euro, wheat, emerging market bonds, copper...anything that's not stamped with the all-seeing eye of the Dollar looks a great bet once again. The Federal Reserve has seen to that, driving the real returns paid to cash down towards a three-decade low. Sinking to minus 2.05% in March, the real rate of interest nearly equals the very worst returns-to-cash paid during the Great Greenspan Reflation of 2002-2005. This latest slump in real interest rates also comes thanks to "emergency" rate cuts, too.
Rice Rises to Record in Chicago, Leading Wheat, Soybean Gains Rice futures in Chicago soared for a fourth day, reaching a record as Turkey and the Philippines seek to buy the grain amid dwindling global supplies. Wheat, corn and soybeans gained. Rice doubled in the past year after countries including Vietnam, China, Egypt and India curbed exports to meet domestic demand. The Philippines received offers for 325,750 metric tons in a tender today, less than its 500,000-ton target. The country, which plans another tender in May, may raise the amount sought next month by 100,000 tons to 600,000 tons. ``Some importers, especially in Southeast Asia, are feeling pinched as supplies are very tight,'' Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd. in Tokyo, said by phone today. ``Anything related to buying tenders can easily lift the rice price as the market is very thin.''
Merrill Lynch posts loss of nearly $2 billion Ongoing write-downs for soured mortgage investments and other bad credit bets continued to plague Wall Street icon Merrill Lynch, leading to an almost $2 billion first-quarter loss and a planned 4,000 job cuts, the company reported Thursday. But new Chief Executive John Thain said core businesses continued to operate well. "Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," he said. "The firm's $82 billion excess liquidity pool has increased from year-end levels, and we remain well-capitalized." But, the results are still, "a stark reminder that we are not out of the woods yet in terms of the credit crisis. There is more pain to come and pressures on earnings are going to continue," according to Octavio Marenzi, head of financial consultancy Celent.
Oil hits another record high as dollar tumbles to record low Oil prices hit all-time highs above $115 a barrel Thursday with reports that oil and gasoline stocks in the United States were lower than expected and as the dollar hit record lows. Light, sweet crude for May delivery rose as high as $115.54 a barrel in electronic trading on the New York Mercantile Exchange. It eased back to $114.89 a barrel by the afternoon in Europe, down 4 cents, as the dollar strengthened slightly and traders booked profits. Oil and other commodities continued to attract investors as the values of the dollar continued falling and as a hedge against inflation. A weaker dollar also makes oil cheaper to investors overseas. The euro hit an all-time high of $1.5982 on Thursday, its second record in as many days against the sagging dollar, but then lost a little ground, falling to $1.5927 late in European trading.
FBI home mortgage probe now targets 19 firms The FBI's probe of potential fraud in the U.S. home mortgage industry now encompasses 19 companies, up from 17 a month ago, agency director Robert Mueller told Congress on Wednesday. He said there was no end in sight to the growth of individual and corporate fraud cases, and the Federal Bureau of Investigation was reassigning agents from other areas such as financial fraud and health care to cope."We've had a tremendous surge in cases related to the subprime mortgage debacle. We currently have almost 1,300 cases that have grown exponentially over the last several years and we expect them to grow even further," he said. "We have also 19 cases involving institutions themselves where mortgage fraud may have contributed to misstatements and the like," Mueller said in testimony before a Senate appropriations subcommittee.
Double Take: JPMorgan Quietly Raising $6 Billion Just hours after suggesting the credit crisis was nearing an end, and reporting a 50 percent drop in net income tied largely to mortgage and credit woes, JPMorgan Chase & Co. filed a curious-looking preliminary prospectus with the Securities and Exchange Commission Wednesday night.Bloomberg News noticed the filing too, and reported that data it had compiled showed that JPMorgan is quietly planning a $6 billion offer of perpetual preferred stock — the biggest such offering in the company’s history. Which means, of course, that it may be time to do a double-take on the company’s earlier suggestion that sunny days are on the horizon; after all, this isn’t exactly the best credit market in which to go hunting for capital, unless there is a real need to do so.
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Wed 04.16.2008
Rush for silver if you want to make moolah! You know this time around white metal may prove to be a better option for you to invest than in yellow metal. There are several reasons for that. Mainly, according to Jason Homel’s Silverstockreport.com, silver has all the monetary properties of gold, and more. It is interesting to know this. If you want know the enviable properties of silver, read on. The historic price ratio of silver to gold shows that about 10 ounces of silver would buy one ounce of gold, a 10:1 ratio. Recently, the ratio is about a 50:1 ratio (with silver at $20/oz., and gold at $1000/oz.) As the silver to gold ratio returns to historic values, from 50:1 to 10:1, you may make over 5 times more money investing in silver, than gold!
China moves in on world resources BP is the latest company targeted by Chinese sovereign wealth funds that are investing in natural resources around the world. And, unlike other countries, Britain is welcoming such investors with open arms. Stephen Foley reports. It was a neat coincidence that Alistair Darling, the Chancellor, was in Beijing yesterday for what was being billed as a China-UK "economic and financial dialogue". Because yesterday was the day that it emerged there has been a bit of dialogue going on between the Chinese government and BP, the jewel in the crown of the British oil industry. China's central bank, it seems, has amassed a £1bn stake in BP, giving it about 1 per cent of the company and underscoring, as if it were needed, the growing financial power of the Chinese state and the "sovereign wealth" that it is putting to work around the globe.
U.S. March consumer prices rise on food, energy Inflation rose in March, the Labor Department reported Wednesday, as energy and food prices gained. After virtually no change in February, the consumer price index in March rose 0.3%, matching estimates from analysts surveyed by MarketWatch. Energy prices in March rose 1.9%. In the prior month, these costs declined 0.5%. Food prices gained 0.2% in March, compared with 0.4% in the prior month. The core CPI, which excludes food and energy costs, rose 0.2% in March - matching analysts' estimates -- after no growth in the prior month. Prior to the release of the data, analysts had been expecting higher headline numbers due to gains in food and energy prices.
Oil hits new record as investors flee the falling dollar Weaker dollar sends oil prices to record high above $114 a barrel as dollar tumbles. Oil prices surged to record highs Wednesday as the weakening U.S. dollar drove up investments in commodities. Light, sweet crude for May delivery rose as high as $114.53 a barrel in electronic trading on the New York Mercantile Exchange before retreating to $113.74 by the afternoon in Europe, down 5 cents. Analysts said the oil increases were being caused by record lows for the dollar -- $1.5966 per euro -- as higher inflation in the euro zone practically eliminated the chances of an interest-rate cut by the European Central Bank. Annual inflation in euro nations rose to a record 3.6 percent in March, boosted by higher prices in transport fuel, heating, dairy products and bread, said Eurostat, the EU's statistical agency. It is the highest inflation rate in 16 years.
Housing starts plunge to a 17-year low U.S. home builders started the fewest number of homes in 17 years, as housing starts plunged 11.9% to a seasonally adjusted annual rate of 947,000 in March, the Commerce Department reported Wednesday. March's rate was the lowest for housing starts since March 1991. Starts were down 36.5% compared with March 2007. Also, building permits dropped 5.8% to 927,000 in March, 40.9% below the same month a year ago. The starts figure was much lower than expected on Wall Street, where economists were looking for a drop to 988,000 annualized units. The stunning drop in home construction indicates that there is still no end in sight to the housing downturn, with builders trying to reduce the excess inventory of unsold homes on the market.
Bailing Out Banks There has been a lot of talk in the news recently about the Federal Reserve and the actions it has taken over the past few months. Many media pundits have been bending over backwards to praise the Fed for supposedly restoring stability to the market. This interpretation of the Fed's actions couldn't be further from the truth. The current market crisis began because of Federal Reserve monetary policy during the early 2000s in which the Fed lowered the interest rate to a below-market rate. The artificially low rates led to overinvestment in housing and other malinvestments. When the first indications of market trouble began back in August of 2007, instead of holding back and allowing bad decision-makers to suffer the consequences of their actions, the Federal Reserve took aggressive, inflationary action to ensure that large Wall Street firms would not lose money.
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Tues 04.15.2008
Trio of catalysts set to boost gold "The recent decline in gold from above $1,000 is prompting gold bears to say that the great gold bull market has reversed itself," says Martin Hutchinson who states, "Let me say right now: They're wrong." In his Money Map Reporter, he explains, "Thanks to three key catalysts, we may well see gold at $1,500 an ounce this year, if not higher." Here's his outlook and a trio of ways to play this trend. "These three catalysts – worldwide monetary policy, global supply-and-demand for gold, and gold's past performance – have already ignited a powerful rally that's virtually certain to carry gold to much higher price points, despite the breather the rally appears to be taking right now.
Food Costs Rising Fastest in 17 Years Steve Tarpin can bake a graham cracker crust in his sleep, but explaining why the price for his Key lime pies went from $20 to $25 required mastering a thornier topic: global economics. He recently wrote a letter to his customers and posted it near the cash register listing the factors -- dairy prices driven higher by conglomerates buying up milk supplies, heat waves in Europe and California, demand from emerging markets and the weak dollar. The owner of Steve's Authentic Key Lime Pies in Brooklyn said he didn't want customers thinking he was "jacking up prices because I have a unique product." "I have to justify it," he said. The U.S. is wrestling with the worst food inflation in 17 years, and analysts expect new data due on Wednesday to show it's getting worse. That's putting the squeeze on poor families and forcing bakeries, bagel shops and delis to explain price increases to their customers.
Oil Rises to Record on Nigeria, Mexico Losses, Chinese Demand Crude oil rose to a record in New York on supply disruptions in Nigeria and Mexico and rising fuel demand in China. Oil climbed to $112.85 a barrel on the New York Mercantile Exchange, the highest since futures began trading in 1983. Mexico, the U.S.'s third-largest crude supplier, shut its fourth export terminal yesterday, while Eni SpA halted output in Nigeria. China said today diesel imports surged 49 percent in March. ``The predominant market view is that the emerging economies will overcompensate for any possible demand slump in OECD countries,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. Crude oil for May traded at $112.79 a barrel, up $1.03, at 11:54 a.m. in London. Prices have gained 77 percent in a year. Futures yesterday rose $1.62, or 1.5 percent, to settle at $111.76 a barrel, the highest close.
Wholesale Prices Soar in March Inflation at the wholesale level soared in March at nearly triple the rate that had been expected as the costs of energy and food both climbed rapidly. The Labor Department reported Tuesday that wholesale prices rose by 1.1 percent last month, the largest increase since a 2.6 percent rise last November, which had been the biggest one-month jump in 33 years. Analysts had been expecting a much more moderate 0.4 percent rise in wholesale prices for the month. For the past 12 months, wholesale prices are up by 6.9 percent and core inflation is up by 2.7 percent, the biggest year-over-year increase in nearly two years. The inflation pressures are occurring at a time when the overall economy is slowing and many analysts believe may have toppled into a recession.
Retailing Chains Caught in a Wave of Bankruptcies The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country. Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales. But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.
US Foreclosure Filings Jump in March Foreclosure Filings Against US Homeowners Soar 57 Percent in March; Bank Repossessions Surge. The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away. And the worst isn't over: the wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that's expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif. The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.
Wall Street prefers clueless, irrational investors So Congress made April "Investor Literacy Month." What a hoax, a cruel joke, yes, an insult to America's 95 million investors. What's really happening? Here's the short version: In the past five years Wall Street's out-of-control greed (with the backing of Greenspan's cheap-money Fed, an "anything-goes, free-market" White House and a banking industry that loves piling up debt in order to charge excessive fees) created a massive housing-credit bubble to rapidly replace their earlier busted dot-com bubble. Then last summer the new bubble failed, exploding in our faces, nearly destroying the global monetary system. Result? These two bubbles triggered a diversionary, knee-jerk reaction: A wave of so-called "investor education" programs across the U.S. and world.
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Mon 04.14.2008
Wachovia to raise $7 billion of capital, slash payout Wachovia Corp said on Monday that it would raise $7 billion of capital and slash its dividend as it posted a $350 million first-quarter net loss and a higher loan-loss provision. The surprise announcement sent Wachovia shares tumbling 10% in pre-open trading. "Overall, (it was) a disappointing quarter as expected," Fox-Pitt analyst Andrews Marquardt said in a Monday research report. "While we are pleased by management's actions to build reserves...we are surprised by the size of potential capital raise." Wachovia's need for capital comes only two months after the Charlotte, N.C., bank raised $3.5 billion through a preferred-stock sale.
Deutsche Bank seeking to sell $20 billion in debt European banks are facing another round of losses from the credit crisis, with Deutsche Bank looking to sell as much as $20 billion of leveraged-buyout debt and Credit Suisse expected to write down as much as $5 billion in the first quarter, according to media reports. The price private-equity firms would pay for the debt is unclear, but the prevailing market price is around 90 cents on the dollar. Deutsche Bank is talking to some of the same private-equity firms as Citigroup, though the German bank is looking to sell off the debt in smaller parcels, the Journal said. Deutsche Bank could also be trying to cut its 35 billion euro ($55 billion) loan balance before it updates its investors on April 29.
US banks Citigroup and Merrill Lynch reveal fresh $15bn loss CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week as they reveal additional sub-prime write-downs totalling $15 billion (£7.6 billion) or more. In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms. Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion. Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red.
Wall Street braces for grim bank results Wall Street is gearing up for another round of grim financial news, this time in the form of first-quarter financial results that many banks are scheduled to report next week. Several of the country's largest banks are on deck to issue their quarterly numbers, including J.P. Morgan Chase & Co. and Wells Fargo & Co. on Wednesday, followed by Merrill Lynch & Co. on Thursday and Citigroup on Friday. Some of the banks recently making headlines, as possible acquisition targets or for receiving enormous cash infusions, will be reporting as well, including Washington Mutual on Tuesday and Wachovia Corp.
M3 Money Supply and Inflation: Got Gold? People are running around trying to figure out why in the heck the price of everything from gas to food to electricity is going nuts. Many, including some not so well educated financial analysts call this inflation. The truth is, inflation is not the price of things increasing. When prices rise, this is merely the symptom of what true inflation is: adding more currency to the money supply. This is not rocket science. When you have more of something, it is worth less. Therefore, if you add more dollars to the available supply of dollars, obviously each dollar is worth less. Preposterous you say? Well let me put it another way, if dollars were as common as rocks lying on the ground, how valuable would they be?
The incredible shrinking city Youngstown, Ohio, has seen its population shrink by more than half over the past 40 years, leaving behind huge swaths of empty homes, streets and neighborhoods. Now, in a radical move, the city - which has suffered since the steel industry left town and jobs dried up - is bulldozing abandoned buildings, tearing up blighted streets and converting entire blocks into open green spaces. More than 1,000 structures have been demolished so far. Under the initiative, dubbed Plan 2010, city officials are also monitoring thinly-populated blocks. When only one or two occupied homes remain, the city offers incentives - up to $50,000 in grants - for those home owners to move, so that the entire area can be razed. The city will save by cutting back on services like garbage pick-ups and street lighting in deserted areas.
Fannie warns homeowners who walk away The country's two largest sources of mortgage money have a blunt warning for anyone thinking about joining the growing "walkaway" trend, where homeowners stop making payments and months later send the house keys back to their lender: You will feel the pain. On March 31, Fannie Mae sent out new guidelines to lenders intended for walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition is for three years. Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.
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Fri 04.11.2008
Gold likely to soar on supply shortfall The price of gold, which breached $1,000 per ounce mark for the first time last month, is poised to remain high for the rest of the year as the yellow metal continues to face supply constraints and increased investment demand, analysts said. The prime factors that will continue drive gold prices is the supply and demand fundamentals and oil price-driven inflation. "With no significant increase in mine supply, and a perceptible shortfall in gold selling by central banks combined with no growth in scrap gold supply, demand will continue to outstrip supply despite soaring prices," analysts said. James Burton, Chief Executive Officer, World Gold Council (WGC), told Khaleej Times that world gold supply growth, which is expected to be almost flat, cannot cope with the rapidly increasing investment demand.
Chinese gold-miner swoops on Canada Jinshan Gold Mines, in which Chinese State-owned gold-miner China National Gold (CNG) has agreed to buy a 42% stake, will continue to be based in Canada, its new controlling shareholder said. Vancouver-based Ivanhoe Mines announced on Thursday that it had agreed to sell its 42% holding in TSX-listed Jinshan to CNG.China became the largest gold-producing country in the world last year, snatching the top spot from South Africa, which had held the accolade for more than a century. However, the world's top gold mining companies - the likes of Barrick Gold, AngloGold Ashanti and Newmont Mining - are all based in North America, South Africa or Australia.
The Face of a Prophet At the age of 77, Mr. Soros, one the world’s most successful investors and richest men, leapt out of retirement last summer to safeguard his fortune and legacy. Alarmed by the unfolding crisis in the financial markets, he once again began trading for his giant hedge fund — and won big while so many others lost.Mr. Soros has always been a controversial figure. But he is becoming more so with a new, dire forecast for the world economy. Last week he rushed out a book, his 10th, warning that the financial pain has only just begun. "I consider this the biggest financial crisis of my lifetime," Mr. Soros said during an interview Monday in his office overlooking Central Park. A "superbubble" that has been swelling for a quarter of a century is finally bursting, he said.
U.S. import prices rise 2.8% in March A surge in prices for imported petroleum pushed prices of goods imported into the U.S. higher by 2.8% in March, the most since November 2007, the Labor Department reported Friday. Imported petroleum prices jumped by 9.1% last month, marking the biggest such increase since rising 12.4% in November 2007. On a year-over-year basis, the price of imported petroleum has risen by a whopping 60%. The price of imported natural gas also surged, higher by 7.7% in March, after rising 9.9% in February. The overall increase was more than anticipated. Economists surveyed by MarketWatch had been on the lookout for March import prices rising by 2.2%.
Consumer sentiment plunges to 26-year-low Consumer confidence sunk to its lowest level in 26 years in early April, according to a report on Friday from University of Michigan/Reuters, as worries about the economy, unemployment and inflation deflated hopes for future. U.S. consumer sentiment index fell to 63.2 in early April from 69.5 in March. Sentiment is at its lowest level since March 1982. Economists surveyed by MarketWatch were looking for an April result of 68.8. The expectations index fell to 53.4 in April -- the lowest since November 1990 -- from 60.1 in March, noted Ian Shepherdson, chief U.S. economist at High Frequency Economics. There's no sign that confidence bottomed out yet, he said.
General Electric's quarterly net off 6%; outlook cut General Electric Co. pulled an unpleasant surprise on investors Friday, reporting a 6% drop in first-quarter net profit -- largely over trouble in its financial-services businesses -- and revising lower its 2008 outlook. It was the first material guidance cut in memory, said Oppenheimer analyst Christopher Glynn in a note, reflecting the difficult U.S. environment. GE said the inability to complete asset sales and higher mark-to-market losses accounted for a hit of fully 5 cents a share. "Demand for our global infrastructure business remained strong, but our financial-services businesses were challenged by a slowing U.S. economy and difficult capital markets," said Chairman and CEO Jeff Immelt in a statement.
Paulson to meet with Chinese central banker Zhou U.S. Treasury Secretary Henry Paulson will hold bilateral meetings with officials from Japan, France, Germany, China, Australia and Argentina over the next two days in connection with the meeting of the G7 leading industrial nations. On Friday morning, he will meet with Japanese Finance Minister Fukushiro Nukaga, Saudi Arabian Finance Minister Ibrahim Al-Assaf, Argentine Finance Minister Martin Lousteau and Australian Treasurer Wayne Swann. The G7, which is meeting Friday, will also host an outreach dinner with the heads of major banks on Friday to discuss the financial market turmoil, but Treasury hasn't disclosed the invitees yet.
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Thur 04.10.2008
The Start of a Run for Gold The price of rice doubled in the last 2 months raising fears of fresh outbreaks of social unrest across Asia, where the grain is a staple food for more than 2.5 billion people. This should come as no surprise since grains, energy, and just about every other commodity prices have risen a minimum of 50% in the last 6 months. And a strong physical demand and lax monetary policy will continue to fuel high commodity prices.You might have also read that Carlyle Fund and Bear Stearns blew up in the past month. Two companies going down is not a cause of concern as companies rise and fall all the time. However, when considering they have about $300 billion worth of mortgage positions with their counterparty sweating, you begin to understand why the New York Fed agreed to advance $30 billion to help JPMorgan assume Bear Stearns positions. Last year, I wrote that the mortgage mess was minimum a $2-3 trillion problem.
Treasuries Rise as Lehman Fund Closures Reignite Credit Concern U.S. Treasuries rose after Lehman Brothers Holdings Inc. liquidated three investment funds because of ``market disruptions,'' reigniting concern that credit-market losses are widening. The gains pushed the two-year note yield close to the lowest level in more than a week as traders raised bets the Federal Reserve will cut its target interest rate a half-point this month to bolster the economy. U.S. stock index futures declined as evidence mounts that more than $230 billion in global losses and asset writedowns at financial firms have pushed the economy into a recession. ``We are reverting to pricing in more rate cuts by the Fed and that's causing a rally in Treasuries,'' said Riccardo Barbieri, London-based head of trading strategy at Bank of America, the second-largest U.S. lender by assets. ``Markets recently have been taking a rather positive view on things, and now there's a dose of realism back in the market.''
U.S. trade gap widens unexpectedly The U.S. trade deficit widened unexpectedly in February, painting an even gloomier picture for the economy. The 5.7% increase wasn't even caused by the two factors usually cited as culprits -- imports of oil from the Middle East and imports of inexpensive goods from China. Rather, the widening of the deficit came about as a result of record imports of food, industrial supplies, capital goods and consumer goods. The nation's trade deficit expanded to $62.3 billion, broader than the revised figure of $59.0 billion for January, the Commerce Department said. February's gap is the largest and the biggest one-month worsening in the deficit since November.
Housing pain continues to spread Ongoing weakness in the market for previously owned U.S. homes is a signal the key spring sales season is off to a poor start and a reminder that softness in residential housing is still spreading, analysts said Thursday. "Overall, it illustrates just how much more national this housing downturn is than any other in recent memory," Deutsche Bank wrote in a research note. "The mortgage crisis is clearly the common culprit, sapping demand through tighter standards and accelerating home-price declines through distressed inventory," said analysts Nishu Sood and Rob Hansen. "Most remaining housing imbalances are in the resale market, so we argue that resale trends are the most important in evaluating the housing market's trajectory."
House prices: disaster ahead Brace yourself for a 30 per cent fall in house prices: that would only be back to 2004 levels. After the biggest monthly drop in house prices since Black Wednesday one simple question is on thousands of lips in Britain this week: "How low can they go?" A picture can be worth a thousand words, so let me double my usual allowance of enlightenment (or confusion) by drawing your attention to the chart linked to at the top of this article. The two lines on this chart provide what I believe to be the most accurate comparison possible between the housing cycles in America and Britain. It shows the relationship of average house prices to average disposable incomes, the broadest and most relevant measure of the money available to households in each economy for buying homes.
Volcker, ex-Fed chairman, chides Bernanke The biggest financial crisis in a generation — a downturn that officials at the Federal Reserve acknowledged in minutes released Tuesday might be "prolonged and severe" — is turning the traditionally reserved and omniscient central bank into an institution that seems to be in the throes of family therapy. In a speech on Tuesday, Paul Volcker, the imposing former Fed chief who felled the runaway inflation of the 1980s, chided the current chairman, Ben Bernanke, for toeing "the very edge" of the bank's legal authority in orchestrating last month's bailout of the beleaguered investment bank Bear Stearns."Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank," Volcker told members of the Economic Club of New York.
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Wed 04.09.2008
Consultant GFMS says gold at $1,100 possible this year The price of gold can very well reach $1,100 an ounce this year or early 2009, the London-based consultancy group GFMS Ltd. said Wednesday in its latest survey of the gold market. While gold, along with other metals and overall commodities have experienced a correction in prices in recent weeks, GFMS expects the ongoing credit crisis to continue fueling investment demand for the precious metal. "We weren't at all surprised that the market saw a hefty correction in the last few weeks, as the speed of the earlier gains looked a little unsustainable," said Philip Klapwijk, GFMS' executive chairman in the report. "However, we don't think current hesitancy means it's game over for the rally."
Gold prices may keep climbing, Barrick says Gold, which touched a record last month, may keep rising on sustained demand from Asia and the Middle East, and as investors seek an alternative to the weakening dollar, Barrick Gold Corp. forecast. The "Middle East, India and China have a strong affinity for gold," Executive Vice President Alexander Davidson said Tuesday. "As the U.S. dollar has lost some of its appeal as an investment, investors are shifting a portion of their investments to gold." The metal traded at a high of $1,032.70 an ounce on March 17 as credit-market losses and a weaker U.S. currency drove investors to buy the commodity as a haven. Barrick Gold, based in Toronto, is the world's largest producer.
Fed looks at options for weathering credit crunch The Federal Reserve is exploring backup options to extend its lending power in case the recent plans it has implemented to loosen the credit markets are unsuccessful, The Wall Street Journal reported on Wednesday. These backup plans include having the Treasury borrow more money than necessary to fund the government and keep the excess proceeds on deposit at the Fed; issuing debt under the Fed's name instead of the Treasury's; and asking Congress for authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011, the report said. Nothing is expected to happen right away, the Journal said, because the Fed still has enough balance sheet room for additional lending now.
New projections of slow growth spurred March rate cut: minutes When Federal Reserve officials gathered behind closed doors last month to set monetary policy, they confronted new projections of much slower growth, leading them to brush aside worries about rising prices and cut rates aggressively, according to a summary of the meeting released Tuesday. The officials learned that the Fed staff had slashed its growth forecast for 2008 in its projection prepared for the meeting. Although spending and production data early in the year wasn't much weaker than the staff had expected, "many other indicators of real activity were more negative," the minutes said. The Fed staff forecast carries a lot of weight with policymakers.
Greenspan, on CNBC: U.S. in recession Former Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economy was in recession, and said it would be appropriate to tap public funds to resolve the mortgage-related crisis that has helped pull the economy under. In an interview with CNBC television in which he defended his chairmanship of the U.S. central bank against charges that his policy missteps had laid the groundwork for the current crisis, Greenspan said Fed decisions on his watch were rationally constructed based on evidence at the time. "I have no regrets on any of the Federal Reserve policies that we initiated back then because I think they were very professionally done," Greenspan said.
The Black Death of financial collapse The financial and economic crisis now upon us is by far the most menacing of the past century - even more so than the Great Depression of the 1930s. It is not just a "subprime" crisis; it is systemic - affecting the entire financial system. It is also global, affecting various countries in various ways but affecting them all. In achieving a certain "globalization", we have been uniquely successful in globalizing collapse, chaos and misery. It is a globalization which, in our short-sighted negligence, we never envisaged. In this crisis, even a country such as Australia is no more than a subordinate, neo-colonial, financial and economic dependency. In essence, we have reverted to what we were before and during the Great Depression of the 1930s,
The Fading American Economy According to the Bureau of Labor Statistics, the US economy lost 98,000 private sector jobs in March, half of which were in manufacturing. Today 13,643,000 Americans are employed in manufacturing, of which 9,849,000 are production workers. Government employs 22,387,000 Americans, 8,744,000 more than manufacturing. Even the category leisure and hospitality employs 13,682,000 Americans, slightly more than manufacturing. There are as many waitresses and bartenders as production workers.Wholesale and retail trade employ 21,467,000 Americans. Professional and business services employ 18,036,000 Americans of which 8,368,000 are in administrative and waste services. Education and health services employ 18,699,000 Americans.
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Tues 04.08.2008
Gold drops over 1% as IMF announces gold sales Gold futures dropped sharply Tuesday after the International Monetary Fund said it would sell more than 14.2 million ounces of gold, currently valued at more than $13 billion. The IMF said it will sell 403.3 metric tons of gold from its holdings, and cut substantial costs as part of an efficiency drive. The IMF gold sales "would come in handy for the gold market -- and I say that as a gold bull," wrote Ross Norma, joint managing director at FastMarkets Ltd., in a research note. "Gold mine production is failing to keep up with burgeoning investment demand and the supply deficit has already seen a quadrupling of prices since Gordon Brown, former U.K. chancellor, sold precisely the same tonnage in 2001," Norman said.
Gold Could Hit $1200 By Early 2009 Gold prices could move sideways in the near term and may not make much of a move in the next two quarters, but they should turn upward after that, according to Martin Murenbeeld, chief economist at DundeeWealth Economics. In a note he told clients: These projections may be considered somewhat bearish by some readers, but we assure them that the medium and long-term outlook remains quite bullish indeed. Mr. Murenbeeld said several issues remain for gold such as the market’s focus on the euro-dollar exchange rate that may "keep gold in check" when the euro declines against the greenback. Then there is the U.S. recession. He noted that commodities, in general, do not do well during U.S. recessions, and nobody can be sure there is a complete decoupling in the global economy. Mr. Murenbeeld also sees a pause in gold and commodity prices developing as the middle of this long cycle arrives.
Greenspan and the Blame Game Interesting piece interview with Alan Greenspan in today’s Wall Street Journal by Greg Ip. Two things (yes — only two!) struck me as particularly interesting. The first had to deal with Greenspan’s reaction to criticism of his low-rate policy by Stanford University economist John Taylor, who believed rates were too low for too long. According to the interview: If the Fed’s policies were to blame, the housing bubble would have been mostly limited to the U..S. Yet, he argued, many other countries had housing bubbles, too. A better culprit, he suggested, was the glut of savings globally. Savers were competing to make loans, keeping long-term interest rates low in many countries, and fueling housing demand."
Rice Jumps to Record on Philippine Imports, Curbs on Exports Rice climbed to a record for a fourth day as the Philippines, the biggest importer, announced plans to buy 1 million tons and some of the world's largest exporters cut sales to ensure they can feed their own people. Rice, the staple food for half the world, gained 2.4 percent to $21.50 per 100 pounds in Chicago, double the price a year ago. Philippine President Gloria Arroyo announced two rice tenders today and pledged to crack down on hoarding. Anyone found guilty of ``stealing rice from the people'' will be jailed, she said. ``We're in for a tough time,'' Roland Jansen, chief executive officer of Pfaffikon, Switzerland-based Mother Earth Investments AG, said in an interview with Bloomberg Television from Zurich today. Unless prices decline ``you will have huge problems of daily nutrition for half the planet.'' Mother Earth holds about 4 percent of its $100 million funds in the grain.
Citigroup, Wells Fargo May Loan Less After Downgrades Bank holding companies including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. have the thinnest safety cushion against losses in seven years. The margin may erode further in coming weeks. Credit ratings on $704 billion of bonds have been cut this year following the collapse of the U.S. housing market. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that the downgrades may compromise bank capital ratios enough that some of the largest institutions will no longer be considered well capitalized. Falling below a regulatory benchmark that is intended to maintain a minimum level of capital to protect depositors against losses would subject banks to more scrutiny from regulators than they have ever experienced.
Credit crunch costs '$1 trillion' The International Monetary Fund (IMF) has warned that potential losses from the credit crunch will reach $945bn (£472bn) and could be even higher. The IMF says that losses are spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit, and company debt. It says that there was a "collective failure" to appreciate the risky borrowing by financial institutions. And it warns that tough measures and government intervention may be needed. The IMF's Global Stability Report warns that "despite unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalised institutions, and broad-based deleveraging."
Iran Begins Installing More Centrifuges Iran has begun installing 6,000 new centrifuges at its uranium enrichment plant in Natanz, state television quoted President Mahmoud Ahmadinejad as saying Tuesday. Iran already has about 3,000 centrifuges operating in Natanz, and the new announcement is seen as a show of defiance of international demands to halt a nuclear program the United States and its allies say is aimed at building nuclear weapons. "The president announced the start of the phase of installing 6,000 new centrifuges in Natanz," state television reported. Centrifuges are machines that can enrich uranium to a low level to produce nuclear fuel or a high level for use in a weapon. Iran insists its nuclear program is peaceful and solely focused on the production of energy.
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Mon 04.07.2008
Bullish on a long-term resources run Commodities have been volatile, but a top letter says think long-term. Vital Resource Investor is one of the best-performing letters over the past 12 months according to the Hulbert Financial Digest, up 10.5% vs. negative 5.8% for the dividend-reinvested Dow Jones Wilshire 5000. Over the past 10 years, the letter is the second-best performer of those tracked by the HFD, with a 13.8% annualized gain vs. 5.2% annualized for the total return DJ-Wilshire 5000. "Precious metals -- Particularly gold, which has emerged as the world's fourth currency of note, after the U.S. dollar, the euro and the Swiss franc.
Dollar Bottom Elusive Before G-7; Bearish Bets Double Optimism for a dollar rebound that pervaded the currency market at the start of the year is fading. Futures traders doubled bets against the greenback in the past two months, data from the Commodity Futures Trading Commission in Washington show. Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland Group Plc, which handle almost 40 percent of global foreign exchange trading, say the currency may slump to $1.65 per euro by October. While the dollar rose April 1 when UBS AG and Lehman Brothers Holdings Inc. said they're raising $19 billion to boost their capital, it declined the rest of the week after Federal Reserve Chairman Ben S. Bernanke acknowledged for the first time that a recession is possible. Officials of the Group of Seven nations meet this week in Washington, and are unlikely to agree on a plan to support the dollar because rising exports may be the only blessing of a weak currency in a slowing economy.
Iran to OPEC: Stop Oil Sales in Dollars Iranian President Mahmoud Ahmadinejad is urging OPEC members to form a joint bank and stop pricing oil trades in U.S. dollars. According to the Iranian government's Web site, Ahmadinejad told OPEC Secretary General Abdalla Salem el-Badri the cartel "should establish a joint bank as well as having joint currency." Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves. Iran has repeatedly urged OPEC members to shift sales away from dollar. But Iran's proposal to trade oil in a basket of currencies is not supported by enough OPEC members, which include staunch U.S. allies such as leading producer Saudi Arabia.
Of home equity and Harleys In his speeches these days, one of Paul Kasriel's favorite examples of economic activity, or lack thereof, is the motorcycle. "There is no consumer purchase more discretionary than a Harley-Davidson hog," says the chief of economic research at Northern Trust Corp. in Chicago. Kasriel was quoted here back in September as providing proof that Americans were living well beyond their means -- and that it was bound to come home to roost. As we all know, he was right and it has, as is evidenced by Harley's U.S. retail sales, which have hit the skids, falling 14% in the fourth quarter alone. Harley-Davidson Inc. is hardly the only consumer-products company feeling the pain, thanks in large part to the credit and housing meltdowns.
More than 50 percent chance of U.S. recession: Greenspan There is more than a 50 percent chance the United States could go into recession, former Federal Reserve chairman Alan Greenspan told El Pais newspaper in an interview published on Sunday. However, the U.S. has not yet entered recessionary state marked by sharp falls in orders, strong rises in unemployment and intensive weakening of the economy, he said. "We would have to see signs of this intensification: there are some, but not many yet," he said. "Therefore ... I would not describe the situation we are in as a recession, although the chances that we'll have one are more than 50 percent." A sharp downturn in the U.S. housing market has led to a full-blown credit crisis that has reverberated throughout the U.S. financial system.
Copper Trades Near Record High on U.S. Rates, Dollar Outlook Copper rose in Asia to less than $100 shy of its record, as investors expected the Federal Reserve to lower borrowing costs this month, weakening the dollar and increasing the appeal of commodities as a haven. A government report on April 4 showed the U.S. lost jobs for a third straight month in March, increasing concern the economy is falling into a recession. The U.S. Dollar Index, a weighted measure against six major currencies, gained 0.4 percent today after falling for the past three days. ``This data has increased the probability of more aggressive interest rate cuts by the U.S. Fed, something that should keep the U.S. dollar under pressure,'' said Johannesburg-based Walter de Wet, head of commodity research at Standard Bank Group Ltd.
Soaring price of food 'leads to riots' Rising food prices threaten economic stability and could trigger riots, Gordon Brown has been warned. The World Bank said this week that the price of staple foods has risen by 80 per cent in the past three years. For consumers in wealthy nations such as Britain soaring prices are squeezing household finances and keeping inflation up. But for developing nations they can lead to malnutrition and social disruption. Food prices are being driven up by shortages of supply - often caused by bad weather - and by rising demand. Mr Brown chaired the Progressive Governance Summit in Watford at the weekend and heard a string of warnings about the rising price of food.António Guterres, the UN High Commissioner for Refugees, told the summit the cost of food is leading to riots. He said: "The biggest problem today is rising food prices in democratic countries everywhere. This can trigger social unrest."
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Fri 04.04.2008
Mining production is hard hit by electricity supply shortage The mining production output for January 2008 was down 10,7% when compared with figures for the same month last year, owing largely to the electricity supply crisis that led to mine shaft closures, with gold production in particular feeling the effects of these closures, reports Statistics South Africa (Stats SA).Stats SA reports that gold production decreased by 16,5% for January 2008, compared with figures for the same month last year. Further, gold production after seasonal adjustment decreased by 5% for January 2008 when compared with figures for December 2007. The total mining production for the three months ended January 2008, after seasonal adjustment, decreased by 3,9% compared with figures for the previous three months.
U.S. payrolls contract by 80,000 in March In employment data that would seem worthy of the name recession, the government reported Friday the steepest monthly job losses in five years as well as a spike in the unemployment rate for March. The report confirms widespread pessimism about the near-term economic outlook. Nonfarm payrolls fell by an estimated 80,000 in March, the Labor Department said. It marked the largest decline seen since March 2003, underscoring how reluctant employers remain to committing to making new hires. Private-sector payrolls have now declined for four consecutive months, the data showed. The nation's unemployment rate surged to 5.1% last month, the highest since September 2005.
Corn Hits $6 a Bushel on Tight Supplies Corn prices jumped to a record $6 a bushel Thursday, driven up by an expected supply shortfall that will only add to Americans' growing grocery bill and further squeeze struggling ethanol producers. Corn prices have shot up nearly 30 percent this year amid dwindling stockpiles and surging demand for the grain used to feed livestock and make alternative fuels including ethanol. Prices are poised to go even higher after the U.S. government this week predicted that American farmers -- the world's biggest corn producers -- will plant sharply less of the crop in 2008 compared to last year. "It's a demand-driven market and we may not be planting enough acres to supply demand, so that adds to the bullishness of corn," said Elaine Kub, a grains analyst with DTN in Omaha, Neb.
Bankers blame feds for forcing Bear Stearns fire-sale price The Federal Reserve and Treasury Department orchestrated the "fire sale" price for the quick purchase of investment bank Bear Stearns, the chief executive officers of the banks involved told Congress on Thursday, disagreeing with each other about whether such a rushed deal was necessary. During a gripping five-hour hearing before the Senate Banking Committee, the CEOs of Bear Stearns and JP Morgan Chase gave their versions of events that led up to the government-brokered sale of the venerable bank March 16, with $29 billion in taxpayers' money at stake in the deal. Bear Stearns CEO Andrew Schwartz and JP Morgan Chase CEO Jamie Dimon said that top U.S. government officials encouraged a low sale price — originally $2 a share but later raised to $10 — to avoid rewarding investors who'd made a bad bet.
Fed's Yellen: House Prices "still too high" Yellen points out that delinquency are more closely correlated to falling house prices as opposed to interest rate resets: Much has been made in the news about the role of interest rate resets in causing delinquencies and foreclosures. After all, delinquency rates on variable-rate subprime loans are far higher and are rising much faster than those on fixed-rate subprime mortgages. However, research suggests that this has not been a major factor, at least so far. The vast majority of subprime loans are recent vintages, so only a fraction had hit reset dates as of late 2007. Moreover, in many cases, the initial—or "teaser"—rates were not set that far below the formula, and some of the short-term rates that enter into these formulas have come down since last summer.
Lenders Buried By Foreclosures Let Late Borrowers Stay in Homes Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages. The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on. Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
Ron Paul could teach the media a lesson Ron Paul may be gone, but he should not be forgotten. At this advanced stage of the presidential race, it probably seems bizarre that anyone would be writing about a guy who had as much of a chance to be president as Harold Stassen, who made nine unsuccessful bids for the Republican nomination between 1948 and 1992. Throughout the campaign, the media have treated Paul as a footnote. Snickering pundits all but dismissed him as a cranky kook, in the tradition of another Lone Star State insurgent, Ross Perot. Even when the mainstream publications covered him, you could imagine the assignment editors rolling their eyes in amusement, like parents patronizing a child.
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Thur 04.03.2008
5 reasons gold is headed to $1,500 Managers of two top-performing gold funds expect gold to soar further. Here's why, plus five stocks they expect to share the ride. Gold's much-heralded climb above $1,000 an ounce was pretty short-lived. Gold's long-term ascent won't be. With gold now trading closer to $900, this is a great time to load up on more exposure to bullion, which is only taking a breather before heading to $1,500 an ounce and higher. That's the view of two gold gurus who have been correctly calling bullish advances in the yellow metal for years, most recently predicting the move to $1,000 an ounce. That was in November, when it seemed like an audacious forecast.
Gold, Silver, Economy + More "You shall be in charge of preventing all financial thievery in the kingdom," declared Hanky Panky Paulson, former chief henchman for the King of Insider Trading, the evil, conniving, Illuminist investment bank and brokerage firm called Goldman Sachs, to the King of Financial Thieves, the diabolical, nongovernmental, private bank known as the Federal Reserve, whose chief henchman is Fed Head Helicopter Ben Bernanke. And you can bet that the King of Financial Thieves will do just that and prevent as much financial thievery as possible, save, of course, for the frauds and thieveries which its own henchmen commit. After all, we could not have any competition of that nature now could we?
U.S. weekly initial jobless claims rise to 407,000 First-time applications for state unemployment benefits rose last week, the Labor Department reported Thursday -- the eve of the release of pivotal data on the state of the nation's job market. Claims for the week ended March 29 rose by 38,000 to reach 407,000, marking the highest level seen for this economic indicator since mid-September 2005. The four-week average of initial claims also rose, increasing by 15,750 to 374,500, and thus hit the highest since the beginning of October 2005. Economists see readings consistently higher than 350,000 as signaling significant weakening in the labor market. Initial claims ranging from about 300,000 to 325,000 are consistent with a healthy rate of U.S. employment growth.
Distressed-debt investors await bankruptcy wave Arthur Weiss turns to four flat-panel computer monitors in his spacious San Francisco office. The screen on the far left shows a watch-list of troubled companies. He points to each name, running briskly down the page. "This one is bankrupt. So are these four," he says. "This one is filing for bankruptcy soon. This one may avoid it, this one probably won't." After a minute or so, he moves to the column on the spreadsheet that shows where the bonds of these companies are trading. All change hands for less then 80 cents on the dollar. A lot trade around 60 cents, with some below 40. "There are great opportunities right now," says Weiss, a portfolio manager at the hedge fund firm of Group G Capital Partners LLC, which specializes in distressed debt. "A lot of companies that aren't in distress are going to be."
Peak Oil, Gold and the U.S. Dollar On Tuesday, Seeking Alpha published my first contribution entitled "Energy, Inflation and Gold", wherein I advised U.S. investors to take positions in energy and gold. The market responded with a huge April Fool's day rally while gold sold off big-time. Great timing for my debut! However, am I really an April Fool with respect to gold? Read on. What actually changed Tuesday? Answer: absolutely nothing. One could make an argument that it was a short covering rally, which is my gut feel. What I do know for certain is: we still have a housing problem; we still have huge fiscal deficits; the economic data has been lousy for months and continues to be lousy; real inflation (as opposed to the inflation rates reported by Uncle Sam) is high and rising; oil remains over $100/barrel and the U.S. is still sending billions of U.S. dollars out of the U.S. every day to the oil producing nations.
The Nightmare of the New Deal If you ask a random sample of Americans who know (or think they know) something about U.S. history to discuss the twin subjects of the Great Depression and the New Deal, most will say something like this: "The Depression hit the country because capitalism has a tendency to sometimes collapse, but luckily Roosevelt was elected and his brilliant New Deal policies got the economy moving again." That view is not just mistaken – it’s a key component of the statist mythology in America. So long as people think that they need a strong, interventionist government to protect them from the instability of capitalism, libertarianism will have a very hard time making any headway. People want prosperity. If they believe that big government is necessary for it, big government they will have.
Hey, Fed: Stop robbing my savings and stop the inflation All the actions the Federal Reserve has taken in recent months to fuel the economy with cash and credit haven't impressed many MarketWatch readers, who instead lament the fall of interest rates and the value of the dollar at a time when everyday household expenses are on a steady rise. In response to our request for readers to tell the Federal Reserve what their worries were, there was a bevy of stories about how families were dipping into savings to pay bills or finding themselves with little money left for food and clothing. "Worried about rising health insurance, higher local taxes, higher transportation costs, higher food, tuition, energy costs," BobP863 wrote. "I'm worried that everything I need is going up. Meanwhile, my savings will be going down."
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Wed 04.02.2008
Bernanke gloomier about near-term The outlook for U.S. growth has worsened since January and the possibility of a recession can't be ruled out, Federal Reserve Chairman Ben Bernanke said Wednesday. "It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke said in testimony prepared for the Joint Economic Committee of Congress. "Clearly, the U.S. economy is going through a very difficult period," he said. The financial market turmoil is already dampening growth, he said, leading the central bank to cut its near-term forecast once again. "[I]n light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and risks remain to the downside," Bernanke said.
Fed Chief: No Choice But to Bail Out Bear Stearns The Federal Reserve saw no choice but to orchestrate a dramatic rescue of Bear Stearns last month after the investment bank warned that bankruptcy was imminent, Fed Chairman Ben Bernanke said Wednesday. In remarks prepared for delivery to the congressional Joint Economic Committee, Bernanke sought to explain the central bank's controversial decision to offer backing of as much as $30 billion through JPMorgan Chase to prevent a sudden collapse of Bear Stearns. Bernanke was expected to face tough questioning from some members of Congress who worry that taxpayers' money was unjustifiably put at risk to rescue a Wall Street bank.
February Factory and Durable Goods Orders Fall New orders at U.S. factories fell for the second month in a row in February and by a much larger-than-expected 1.3 percent, a government report showed on Wednesday. Orders for durable goods, items intended to last three years or longer, fell 1.1 percent, revised up from -1.7 percent reported March 26, the Commerce Department said. When the volatile transportation component was stripped out, factory orders took a steeper drop of 1.8 percent. Analysts polled by Reuters had expected factory orders to fall 0.8 percent and durable goods orders to decline 1.7 percent. In January, factory orders broke a five month streak of gains, dropping 2.5 percent and becoming one more harbinger of a possible U.S. recession.
Some homes worth less than their copper pipes Shards of broken glass outside the basement window of 31 Vine Street hint at the destruction inside the three-story home.Thieves smashed the window to break in and then gutted the property for its copper pipes -- a crime that has spread across the United States as the economy slows and foreclosed homes stand empty and vulnerable."They cut it here and then pulled it right out of the wall," real estate broker Marc Charney said, pointing to broken plaster near a wrecked baseboard heating system in the 2,774-sq-ft home in Brockton, Massachusetts, a working-class city of 94,304 people. Similar stories are unfolding nationwide as a glut of home foreclosures coincides with record highs in the price of copper and other metals.
Only the money is cheap The Bear Stearns bailout and the associated calls for further Federal intervention in the mortgage market have highlighted once again an eternal economic truth: in an era of excessively cheap money, only the money is cheap. Everything else - assets, business ethics, economic stability, support for free markets - becomes either horrendously expensive or wholly unobtainable. It is not surprising that political support for free markets wanes in an era of excessively cheap money because the markets themselves stop working to the advantage of society as a whole and become rent-seeking exercises for the well-connected. The equilibrium of the free market, in which all transactions are between willing rational buyers and willing rational sellers
Senators Agree on Draft Housing Rescue Bill Democrats and Republicans in the U.S. Senate agreed Tuesday to draft a housing rescue bill that could deliver billions of dollars to homeowners facing foreclosure and help steer the economy away from a deep recession. Democratic leaders want the federal government to pay for more mortgage counselors, rehab projects for empty homes and tax breaks for borrowers stuck in unaffordable loans. Perhaps the most controversial provision of their plan would let bankruptcy judges erase some mortgage debt. Lawmakers and policy-makers on all sides agree that the country is facing a tough economic crisis led by a wave of failing home loans, but Republicans generally resist a big government bailout.
Auto sector feels pinch of credit crunch Driving a sporty car was nice, but with high gas prices and inflation pinching at his pocketbook, Jorge Valdes decided last October to get rid of his white BMW 525i sedan when the $700-a-month lease payments became too much to bear. Valdes turned to LeaseTrader.com, an online service that allows one car lease owner to transfer it to another before it expires. He passed on the remaining 16 months of his 36-month lease to another driver, allowing him to lease a new, cheaper car and lower his monthly car payments. "With gas and insurance I was paying over $1,000 a month to drive a vehicle and it didn’t make any sense," said the 27-year-old firefighter who lives in Miami, Fla.
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Tues 04.01.2008
Gold futures tumble over 4% as dollar rallies Gold futures dropped over 4% Tuesday in a broad-based commodities sell-off, as strength in the U.S. dollar exerted heavy selling pressure on the precious metal. Gold for June delivery tumbled $41.80, or 4.5%, to $879.70 an ounce on the New York Mercantile Exchange. Other metals futures were also sharply lower, with platinum selling off 7%. The Reuters-Jefferies CRB index, a benchmark barometer gauging the prices of major commodities, fell 1.7% to 380.47. "Everything from cotton to copper and soybeans to silver is off sharply," said Jon Nadler, senior analyst at Kitco Bullion Dealers. "The ever-weakening dollar had prompted many a fund to pile money into the sector since September last year, pushing values of some commodities well beyond fundamentals."
The Federal War on Gold Given the rising price of gold and the fact that federal spending is totally out of control, the prospect of gold confiscation and criminalizing the private ownership of gold by federal authorities inevitably rears its ugly head. There are few things that federal big spenders hate more than gold. Why? Because they know that, historically, gold has provided the best means by which people could protect themselves against the ravages of a rapidly depreciating currency. The mainstream press often uses the term "inflation" to describe rising prices. That’s incorrect. Actually, when the general price level is rising, that’s a result of inflation, not inflation itself. Inflation is the process by which governments print up the money to pay for ever-increasing expenditures.
UBS plans $19 bln write-down, capital injection Swiss banking giant UBS on Tuesday revealed a further $19 billion hit from the credit crisis, doubling its write-downs so far, and said it will have to issue around 15 billion Swiss francs ($15.1 billion) in new shares to shore up its capital base. The latest hit means UBS will report a net loss of around 12 billion francs for the first quarter and marks the end of the road for beleaguered Chairman Marcel Ospel, who will step down later in April. Shares in UBS, however, jumped 10.9% in afternoon Swiss trading as the group attracted an upgrade from Deutsche Bank and analysts said the move appears to be a concerted effort to draw a line under the firm's mortgage woes.
Lehman raises $4 bln of capital to quell critics Lehman Brothers Holdings Inc sold $4 billion of convertible preferred securities on Tuesday in an effort to dispel questions about the fourth-largest U.S. investment bank's stability. Lehman's shares surged 10.7 percent in pre-market trading to $41.65 as the offering was seen as a vote of investor confidence in the firm. The sale met with strong demand even after rumors of looming write-downs at Lehman have cratered the company's stock for weeks. Lehman has said in the past that it suspects that short sellers, who profit when share prices fall, are spreading rumors about the company to push its stock down.
USA 2008: The Great Depression Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world's richest country faces economic crisis. We knew things were bad on Wall Street, but on Main Street it may be worse. Startling official statistics show that as a new economic recession stalks the United States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families. Dismal projections by the Congressional Budget Office in Washington suggest that in the fiscal year starting in October, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s.
Independent Truckers May Go for Strike Eddie Wagner, 36, was nearly born in a truck, and has spent his last 14 years in the family's business. Both his mother and father, plus other relatives, were truck drivers. His mother delivered him in a hospital, Wagner said, but it was only a few days later when he joined her in the tractor cab. He worked for a trucking company until 1999, when he purchased his own rig. On Monday, as he passed through Lakeland delivering eggs from his native Minnesota to four Central Florida locations, Wagner couldn't say whether he would stay in the business. "The next five months will tell what's going to happen," he said. "I can't afford to run my own truck." Several independent truckers and even some who drive for trucking companies echoed Wagner's last lament.
April fools This is no joke. On e-Bay you can buy a new Bear Stearns Cos. golf shoe tote bag for $32, a Bear Stearns T-shirt for $20, or a hat for $51. Fleece blankets are going for $20, a pewter statue of the investment bank's tower on Madison Avenue is $172, and a Bear Stearns teddy bear is $24.50. My personal favorite: the Bear Stearns "wine stopper set," which was going for $75. There were more than 330 Bear Stearns items on the auction site as recently at Monday. Almost all of the tchotchkes were going for more than the $10 a share the investment bank sold for, and that's even after the price was renegotiated with J.P. Morgan Chase & Co.
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