Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Fri 08.29.2008
World's Largest Gold Refiner Runs Out of Krugerrands Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an "unusually large" order from a buyer in Switzerland. The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer. Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce "American Eagle" gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe.
Gold Bugs Reacting Faster Gold-timing newsletters are reflecting a new market trend: shorter market reaction times, says senior MarketWatch columnist Mark Hulbert. Gold rallies are petering out more quickly now than they used to, says Hulbert. That means that the weakness contrarians now foresee for gold is probably relatively short term."That doesn't mean the weakness couldn't last longer. But such additional weakness would have to be forecast then, based on the sentiment readings that prevailed at that time," Hulbert says. Gold prices have dropped by more than $100 an ounce, an occurrence that normally sends gold timers racing to sell. But newsletters have lowered their gold recommendations only slightly.
London Gold Market Report THE PRICE OF GOLD reversed an earlier 1% drop as the Wall Street opening approached on Friday, touching $838 an ounce as Asian stock markets ended the month 3% lower and government bond prices rose. Up $15 from last Friday, gold prices were heading for their second week-on-week gain. But they remained at an 8% discount to the close of July. "Gold is still bumping into some strong overhead resistance levels," says Phil Smith in his technical analysis for Reuters India. "As we all know, the Dollar's movements affect the gold price, but at the moment this negative correlation is strong and rising. "Also, a long 100-day correlation of Gold vs. Crude Oil at the moment is very high. If you watch gold, you currently have to keep a close eye on oil."
Bank of China flees Fannie-Freddie Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June. The sale by China's fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie's bonds and guaranteed securities. Foreign investors have been a mainstay of the market for such debt, but uncertainty over the mortgage financiers' capital positions and the timing and structure of a potential government rescue has made some investors reassess their exposures. Asian investors in particular have become net sellers of agency debt, said analysts.
Fannie Mae and Freddie Mac: A Damage Report Amid the buzz surrounding a potential bailout, BusinessWeek asks how much the mortgage giants' fall from grace has cost market players—and what losses lie ahead Talk of a government bailout of Fannie Mae (FNM) and Freddie Mac (FNM) has reached a crescendo recently, including market rumors of a surprise government recapitalization of the mortgage finance companies over the Labor Day weekend, which the Treasury Dept. has denied. In view of a potential rescue of the troubled firms (BusinessWeek.com, 8/22/08), it may be time for a damage report. Here is an assessment of how much wealth holders of the agencies' stocks and debt have lost since the housing crisis began to wreak havoc on the government-sponsored enterprises—and the potential financial damage that may lie ahead for investors.
Merrill losses total one-quarter of 36-year profits Merrill Lynch’s losses in the past 18 months amount to about a quarter of the profits it has made in its 36 years as a listed company, according to Financial Times research that highlights the extent of the global banking crisis. Since the onset of the credit crunch last year, Merrill has suffered after-tax losses of more than $14bn as its balance sheet has been savaged by almost $52bn in writedowns and credit-related losses. Merrill’s total inflation-adjusted profits between its 1971 listing and 2006 were about $56bn, according to figures from Thomson Reuters Fundamentals and an FT analysis of reported earnings.
What the FDIC problem list isn't telling us The government's latest assessment of the nation's financial system showed that many more small banks are in trouble. But what the report didn't say may speak volumes. On Tuesday, the Federal Deposit Insurance Corp. revealed that the number of institutions on its so-called "problem bank" list jumped to 117 during the second quarter, up from 90 just three months earlier. That list has gained greater attention lately as many banks continue to suffer losses stemming from the deteriorating housing market and slowdown in the broader economy. Nine banks have failed so far this year, including IndyMac, a California-based mortgage lender with assets of $32 billion at the time of its collapse.
Expecting more U.S. bank failures, FDIC expands Dallas office Fearful of more bank failures, the Federal Deposit Insurance Corp. is beefing up its staff in Dallas and adding five floors of space to its regional office here, FDIC officials said Thursday. Local banks aren't necessarily the focus of concern for the FDIC, which insures bank deposits and disposes of failed banks and their assets. Rather, most of the employees in the FDIC division that handles bank failures across the nation are based in Dallas.
U.S. Thrifts Lost $5.4B in 2Q, Second Largest Ever Federal regulators say U.S. thrifts lost $5.4 billion in the second quarter and set aside a record amount to cover losses from bad mortgages and other loans.
Lehman Is Poised to Pare Up to 1,500 Jobs An investment bank announcing layoffs in the current capital-market slump may not raise a lot of eyebrows. But in the case of Lehman Brothers Holdings Inc. such news might carry a bit more weight. The company has been struggling to keep up with the losses it had to take in marking to market its mortgage assets, and is in talks centered on selling parts of its businesses and even a stake in itself to raise capital. To accomplish either, or simply to get more room to maneuver, cutting its staff makes sense. Lehman is reportedly planning to lay off from 1,000 to 1,500 employees, as much as 6% of the company, though it remains unclear what parts of the company would be affected. The New York Times reported Thursday the firm plans to lay off as many as 1,500 people.
Give no credit when creditors are due After IndyMac failure, be sure your accounts are properly insured "You can count on us" was their slogan. Not quite. IndyMac Bancorp Inc. had $1 billion of uninsured, unsecured, and unprotected consumer deposits at stake. The 10,000 uninsured depositors will get 50 cents on the dollar now and wait for the rest. Uninsured deposits are the most easily avoided risks for investors. Your total savings and checking accounts are insured to $100,000 per person per bank (joint accounts for two people would hold $200,000 insurance) and IRAs are insured separately to $250,000. Mutual fund, bank bond- and investment accounts are not FDIC-insured. If you are the employee of one of the 90 banks on the FDIC's watch list or have an employer that is undergoing massive layoffs, and you hold company stock expecting special treatment, you might want to think twice -- IndyMac's shareholders are doing just that. Don't confuse loyalty to your employer with loyalty to your family. What were uninsured IndyMac depositors thinking? Think again -- and carefully.
Even the best borrowers will feel the brunt of the credit crisis Some bad news headlines hit home more than others. Gas prices and inflation, for example, are tough to avoid. Falling real estate prices may not be an immediate concern -- assuming you are not trying to sell your property into a sinking market -- but they clearly have an impact on net worth. The credit crunch is the one area that many consumers think they can sidestep if their financial situation is not perilous. After all, the term "credit crunch" was just put into the Concise Oxford English Dictionary, defined as "a severe shortage of money or credit," so anyone with decent credit or stable cash flow is likely to believe that credit headlines represent someone else's problems.
Fidelity-Goldman Ties Probed The New York attorney general's office is probing the relationship between Fidelity Investments and Goldman Sachs Group Inc. in connection with the sale of auction-rate securities, the Wall Street Journal said, citing a person familiar with the investigation. Investigators are looking at whether Fidelity's relationship with Goldman may have given the mutual fund giant an incentive to sell the instruments, the paper said. The attorney general started focusing on the relationship after it learned that most of the auction-rate securities sold by Fidelity were underwritten by Goldman.
Auction-Rate Buybacks Add to Bank Writedown Worries Global banks may have to write down up to $10 billion of auction-rate securities after buying them back from retail customers. Eight banks have agreed to buy back more than $55 billion of auction-rate securities from investors at face value in recent weeks, after regulators accused them of failing to fully explain the securities' risks to clients. But those securities are in some cases now worth 70 to 85 cents on the dollar, which means losses for banks that are not keen to record more.
Bankruptcy Law Risks Meltdown Robert Shiller, the Yale economist who correctly called the real estate bust, says bankruptcy law needs to be reformed to avoid a meltdown of the financial system. If a major financial institution fails, bankruptcy law as it now stands may not be powerful enough to prevent a systemic crash, he argued in a New York Times opinion piece. "Current bankruptcy law was not written with the perspective of systemic risk in mind," wrote Shiller, who also accurately predicted the stock market crash of 2000 to 2003."“There is a big problem … when large financial institutions are at the margin between solvency and insolvency. The formal declaration that an important financial institution is insolvent could threaten the whole economy."
New Fannie Mae charges could make mortgages more expensive The average rate on the 30-year fixed mortgage remained flat this week, and other mortgage rates moved little, according to Freddie Macâ??s weekly survey released on Thursday. But a new fee structure announced by Fannie Mae may push rates higher in the weeks ahead.
Spring's Economic Rebound Unlikely to Last The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn't expected to last. Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year. "There will be heavy sledding for the U.S. economy during the next couple of quarters," predicted Lynn Reaser, chief economist at Bank of America's Investment Strategies Group
Consumer Spending Slowed in July Spending slowed for the second consecutive month and personal income fell as the effect of economic stimulus checks tapered off and inflation lingered, the Commerce Department said Friday. “The temporary impact of the stimulus has passed, and it looks like consumer spending is on track to decline in real terms in the third quarter,” the chief economist at RDQ Economics, John Ryding, said. “It’s certainly a wake-up call to people who yesterday looked at the G.D.P. report and said, ‘Hey, the economy grew by 3.3 percent, so everything’s O.K.’ ” Consumer spending was down 0.4 percent in July when adjusted for inflation, coming after a 0.1 percent drop in June. Personal income fell 0.7 percent, worse than analysts’ expectations. Disposable personal income, a measure of how much money Americans have to spend after taxes, also fell 1.7 percent in July when adjusted for rising prices. It had declined 2.6 percent in June.
U.S. Workers' Confidence in Job Market Sags American workers' confidence in the job market is as low as it was during the 2001 recession, according to a survey released Thursday. When asked whether this is a bad time to find a quality job, 65 percent said it was, matching the level of the 2001 recession, according to the survey by Rutgers University's John J. Heldrich Center for Workforce Development. With unemployment at 5.7 percent, the highest level since 2004, and weekly unemployment claims hitting a six-year high earlier this month, workers are worried about everything from their weekly hours to their total pay. As for retirement, many agree with Ray O'Connell, 56, an editor of engineering and computer science journals in New York City. "Won't happen," he said.
Income declined as inflation remained robust in July Consumer spending increased in July, but prices increased even more, suggesting that the growth rate of consumption, the linchpin of the U.S. economy that accounts for more than 70 percent of gross domestic product (GDP), may be turning negative in the third quarter. In fact, July was the second consecutive month that real (price-adjusted) consumer spending declined, the Commerce Department reported Friday.
How the housing bill hits home What the pending legislation will do for you -- and what it won't do One of the highlights of the housing bill waiting to be signed by President Bush is a tax credit of up to $7,500 for first-time home buyers. But read a little closer and it doesnâ??t seem quite as appealing for buyers: that credit has to be paid back. That's just one of the lines of fine print in the bill that mutes the benefit to consumers, housing analysts say. According to the bill, the tax credit has to be returned in installments over 15 years. In essence, the perk amounts to a no-interest loan, said Cameron Findlay, chief economist for LendingTree.com, an online company that matches consumers with lenders.
Realtors peddle real estate to bike-happy clients With gas prices high, bicycles flying out of stores and a buyers' market for houses, a handful of real estate agents around the country are touting the two-wheeled appeal of their listings. Some even show houses exclusively by bike, wheeling through the neighborhood with potential buyers to show off bike lanes and bike-focused businesses and repair shops. Clad in a purple helmet with plastic flowers dangling from her handlebars, Portland's Kirsten Kaufman is part of a new generation of agents eager to replace the stereotypes of hauling clients around in fancy sedans or SUVs.
Credit-Card Rage David Giantomasi says he vigilantly paid his credit-card bills each month. Even if he could only make the minimum payment, he made sure to get all his monthly payments squared away. So he was shocked when the interest rate on his Chase credit card suddenly jumped to 19.99% from 7.99%. When Giantomasi called the card issuer to demand an explanation, he was enraged. He was told that overall turmoil in the credit markets meant higher rates for a number of customers.
Auto Industry Skid Imperils Delphi $$ Doubts Increase About Whether Delphi Can Exit Bankruptcy; a Problem for GM Giant auto-parts maker Delphi Corp. is sliding deeper into trouble, raising doubts about its ability to survive as a stand-alone company. It is laboring to put together a plan to emerge from federal bankruptcy-court protection. But odds are increasing that the nation's largest auto-parts maker instead will be liquidated, with some U.S. plants being taken over by its former parent company, General Motors Corp., according to people involved in the bankruptcy process. Even if that doesn't happen, GM's financial obligation could grow by billions of dollars, these people say.
Carmakers Deserve Loan Guarantees A top General Motors executive said Thursday that automakers were “deserving” of as much as $50 billion in government-backed loans so that they can build more fuel-efficient cars. G.M.’s vice chairman, Robert A. Lutz, said the car companies need money to retool their plants but probably cannot raise enough capital on their own because of the tight credit markets. He said the automakers have already made considerable progress in transforming themselves and that the government should help them proceed faster. “The American auto industry is deserving of government loan guarantees,” Mr. Lutz told reporters at an event near Chicago where G.M. showed off its 2009 lineup. “We have done a whole bunch of things that people said, ‘Why aren’t you doing this?’ ”
Even Toyota Trims Goal in Shift From Big Vehicles Even Toyota is not immune to the slowdown in the global economy. The Japanese company, which is battling General Motors for the title of the world’s largest automaker, cut its sales forecasts on Thursday, warning that higher fuel costs and a slowdown in the United States and Europe would probably hold back the auto business at least through 2009. “We have been going at top speed up to now,” the Toyota president, Katsuaki Watanabe, was quoted by The Associated Press in Tokyo. “It is time to set more cautious targets.”
Consumer spending weakens as stimulus fades Personal income tumbled unexpectedly in July and inflation-adjusted spending shrank at sharpest rate in four years as the lift from government stimulus checks waned, a government report on Friday showed. A big jump in prices pushed inflation to a 17-year high, the Commerce Department said, eroding what little spending power consumers had. The report suggested the economy's stimulus-related momentum was fading after a surprisingly strong second quarter.
Don't Think About White Elephants After the biggest spending and borrowing binge in history, Americans need time and money. They need to pay their debts. They need to build savings for their retirements. They need time and money to recover from their mistakes. What kind of mistakes? Well, down near the bottom of the ladder, people bought houses they couldn't really afford to own in places they couldn't afford to live. And cars they couldn't afford to run. Those mistakes need to be undone. Which is why there are so many foreclosed houses on the market…and why house prices generally are falling.
The Coming Deflation Scare The big run-ups in the prices of some commodities during the first half of this year created the general impression that the inflation threat was rising. However, as we noted in a number of TSI commentaries the FEAR of inflation was rising at a time when the ACTUAL rate of inflation (the rate of money supply growth) was low. . . . What appears to be underway right now is a process whereby commodity prices move back into line with the monetary backdrop. In addition, there is a self-reinforcing aspect to this process in that most people wrongly think that rising prices are synonymous with inflation and that falling prices are synonymous with deflation, the result being that falling prices lead to lowered inflation expectations, which, in turn, lead to a fall in the speculative demand for commodities and other items that are widely perceived to be inflation hedges. It is quite possible, in fact, that the expectations of market participants will end up doing a 180-degree turn, meaning that at some point over the coming year the financial world may be dominated by the fear of DEFLATION.
Japan's Inflation Up As Leaders Unveil Stimulus Package Japan unveiled a stimulus package with 2 trillion yen ($18 billion) in fresh spending to shore up its flagging economy on Friday as figures showed that inflation has spiked to its highest in nearly 11 years, denting consumer spending. Measures in the package span discounts on expressway tolls to assistance to farms and help for part-time workers to find better jobs. Funds are also earmarked for better medical care, ecological technology, housing loans and education, according to the Cabinet Office.
Bush Might Bomb Iran If He ‘Thinks Senator Obama’s Going To Win’ On Fox News Sunday this morning, Weekly Standard editor Bill Kristol said that President Bush is more likely to attack Iran if he believes Sen. Barack Obama (D-IL) is going to be elected. However, “if the president thought John McCain was going to be the next president, he would think it more appropriate to let the next president make that decision than do it on his way out,” Kristol said, reinforcing the fact that McCain is offering a third Bush term on Iran.
Joe Biden, the Expert on Iran? We are coming to understand why the Iranians would be more than pleased with Joe Biden as the Vice President of the United States... Obama signals that he believes Foreign Affairs is extremely important in his run for the Oval office. Then… he makes the mistake of choosing Biden as his running mate. We mentioned Iran… didn’t we? Well, on Iran… Biden wants to talk… and talk… and talk… a la Jimmy Carter. Remember him? (I try very hard not to!) Biden seems to be saying that the “nuclearization” of Iran is unacceptable, and yet when “going to war” is mentioned as a possibility, to thwart the Iranian’s obvious drive for “The Bomb”, he immediately cries foul (or, “time out") and calls for sanctions. But… what if sanctions fail? Then what does he do? He seems ready to accept that which he has already referred to as… unacceptable! See, this is what the elite democrats refer to as “nuance”. We have another word(s) for it down South! Bovine Scatology!
U.S. military secretly sending foreign fighters to home nations The U.S. military has secretly handed over more than 200 militants to the intelligence services of Saudi Arabia, Egypt and other countries, nearly all in the past two years, as part of an effort to reduce the burden of detaining and interrogating foreign fighters captured in Iraq and Afghanistan, according to U.S. military officials. The system is similar in some ways to the rendition program used by the Central Intelligence Agency since the Sept. 11, 2001, terrorist attacks on the United States to secretly transfer people suspected of being militants back to their home countries to be jailed and questioned.
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McCain picks Palin as VP running mate Republican John McCain picked Alaska Gov. Sarah Palin as his surprise choice for running mate on Friday, adding a political unknown to the presidential ticket who could help him appeal to women voters. Palin, 44, will appear with McCain later on Friday in a rally in Dayton, Ohio, as the Arizona senator grabs the political focus away from Democratic rival Barack Obama one day after Obama accepted his party's presidential nomination. "Governor Palin is a tough executive who has demonstrated during her time in office that she is ready to be president," McCain said in a statement announcing the choice. "She has brought Republicans and Democrats together within her administration and has a record of delivering on the change and reform that we need in Washington," the statement said.
Obama's breathtaking show transcended politics Kicking off a general election campaign with a unique event Barack Obama transcended politics on Thursday in accepting his party's nomination for president during an event that played out on television like a combination of a rock concert and Super Bowl. The two months ahead will tell whether Obama's rally inspired his fellow Americans or made them wary, whether they believe a man who stood alone before 80,000 people and said that "this election has never been about me. It's about you." But it was surely a breathtaking show, ending with fireworks exploding over the Denver sky and red, white and blue streamers shooting through the air. For the most part, the television networks that aired the event were seduced. "I thought it was an awfully impressive performance," conservative commentator William Kristol said on Fox News Channel.
Another Hot Presidential Race You might not have noticed, but the contest between Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.) is not the only presidential race underway. At the 30th biennial National Active and Retired Federal Employees Association convention in Louisville next month, incumbent Margaret L. Baptiste will face a challenge from Tom McKinney, president of Chapter 2104 in Dunwoody, Ga. Baptiste is running on leadership and experience. "I have worked long and hard for this association, as I believe in our primary purpose, which is the preservation and protection of our earned annuities and our health-care benefits, which are so important to all federal retirees and their survivors," she said. "We face a challenging time next year, and we need a leader who completely understands the issues and has worked with members from across the country and who is well known by them."
Obama takes aim at Bush and McCain with a call to change America Barack Obama accepted the Democratic Party presidential nomination on Thursday, declaring that the "American promise has been threatened" by eight years under President George W. Bush and that John McCain represented a continuation of policies that undermined the nation's economy and imperiled its standing around the world. The speech by Senator Obama, in front of an audience of nearly 80,000 people on a warm night in a football stadium refashioned into a vast political stage for television viewers, left little doubt how he intended to press his campaign against McCain this fall. In cutting language, and to cheers that echoed across the stadium, he linked McCain to what he described as the "failed presidency of George W. Bush" and — reflecting what has been a central theme of his campaign since he entered the race — "the broken politics in Washington." "America, we are better than these last eight years," he said. "We are a better country than this."
Barack Obama's speech The following is the transcript of Senator Barack Obama's acceptance speech at the Democratic National Convention in Denver, as recorded by CQ Transcriptions.
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Thurs 08.28.2008
Simple Economics Will Drive Gold Higher Gold prices are likely to scale new peaks as market fundamentals tighten because producers need at least a 20 percent rise in bullion prices just to make new investment viable, a leading fund manager said on Wednesday. "Gold mining is a very complicated and expensive business and you really need to see the gold price a lot higher before you see any increase in gold production," Ian Henderson, who manages around $5 billion at JP Morgan's Global Natural Resources fund.
Gold Rises For Third Day As Weaker Dollar Spurs Buying Gold futures rose Thursday for a third session as a weaker U.S. dollar spurred demand for gold as an investment alternative and as tensions over Russia triggered buying of gold as a haven.
Multi-Year Cycle for Commodities Financial distress has slashed the value of many natural resource stocks, but a lot of the underlying assets remain solid and the outlook for commodities is positive, a fund manager said on Wednesday. Ian Henderson, who manages around $5 billion at JPMorgan's Global Natural Resources Fund, said he favours long-term commodity investments but investors have to be selective.
North American Currencies Surge Ahead The Canadian and U.S. dollars navigated a flurry of economic news and data but held on to strong gains against overseas currencies. The economic news also failed to inspire market participants in Treasury and equity markets as both ended the day virtually flat.
Inflation Waning on Oil Decline Inflation concerns are waning with oil prices receding, says Minneapolis Fed chief Gary Stern. "From my perception, some of the concerns about inflation and inflation expectations seem to have diminished," Stern told CNBC. Just a month ago, Stern was concerned that inflation risks were rising. Now, the mix of lower oil prices and tight credit could allow the Federal Reserve to hold off raising interest rates to stave off inflation
MBIA May Rise After Agreeing to Reinsure $184 Billion of Debt MBIA Inc. may rise after the company agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., demonstrating its ability to win new business after losing its top AAA rating. MBIA, the largest bond insurer, jumped 12 percent to $13.40 in after-hours trading yesterday after the Armonk, New York- based company said it will receive premiums of about $741 million as part of the contract.
MBIA to Aid Troubled Bond Insurer MBIA agreed to take control of nearly $200 billion of municipal bonds currently backed by a rival bond insurer, in a move that could help its competitor avoid bankruptcy. The agreement between the two companies calls for the municipal bond issuers to pay their premiums in advance, transferring $741 million to MBIA. In exchange, MBIA will pay FGIC a commission worth nearly $200 million. The New York insurance superintendent, Eric R. Dinallo, put the deal together as part of a wider plan to help the $2.4 trillion bond insurance industry regain its financial health. Insurers like FGIC have been hurt this year by losses and downgrades linked to the broader credit crisis.
Treasurys edge higher amid Fannie, Freddie worries Treasury bonds rebounded Wednesday to finish slightly higher amid uncertainty over whether troubled mortgage financiers Fannie Mae and Freddie Mac would need a government bailout. Investors grew concerned about the potential for further financial losses and the need for federal help for the government-sponsored companies when trading in Fannie's stock was halted because of pending news. The company disclosed several executive changes, which analysts said did not affect bond trading. But there were still concerns in the market before and after the announcement that a failure of the companies could have a wide effect on the economy and financial markets; Fannie and Freddie hold or back roughly half of U.S. mortgage debt.
Fannie Shuffles Its Top Leaders Insiders to Replace Departing Officials Struggling mortgage giant Fannie Mae shook up its senior management yesterday, announcing the departure of its chief financial officer and two other top executives. Daniel H. Mudd will continue to serve as chief executive and the departing company officers will be replaced by other Fannie Mae insiders. The company, battered by the meltdown in the mortgage market, said it was putting in place a team that will help it endure mounting losses that have put the firm's survival at stake.
Fannie's Fatalities A management shake-up won't solve Fannie Mae's ills. We knew this time would come eventually. Time for the bodies to start piling up.Fannie Mae announced a management restructuring that it says will help it work through its capital problems but in reality will likely solve none of them.The troubled mortgage lender will replace its chief financial officer, its chief business officer, and its chief risk officer. Chief executive Daniel Mudd will remain at the helm. Shares of Fannie Mae, which have rallied during the past three trading sessions, fell after the announcement was made.
Lehman Down But Not Out The investment bank explores options as steep losses and write-downs hang overhead. Lehman Brothers is looking for options as a projected $4.0 billion in write-downs hangs overhead. The company's already stark alternatives could disappear once it announces yet another round of quarterly losses. New reports surfaced on Wednesday that the company is trying to sell its asset management unit, which includes its prized Neuberger Berman branch. Chief Executive Richard Fuld, who is reportedly trying to hold on to his position, sent out letters to private-equity firms earlier in the month in hopes of garnering interest in the unit. On Wednesday, three firms are reportedly still in the running: Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital.
SEC proposes international accounting plan Federal regulators on Wednesday proposed a plan to allow public companies to begin using international accounting standards for reporting financial results in two years, and may require them to do so starting in 2014. The push by the Securities and Exchange Commission toward acceptance of a single, global accounting standard has raised objections from some investor advocates and key lawmakers. Supporters of the change say it makes sense in an era of increasingly globalized financial markets and would help lure foreign companies to U.S. markets.
Worthless money, worthless economy "The worst part is that this is also true: worthless money, worthless economy. I wish I could find a laugh in there, but I can't. Plenty to weep about, though! And plenty of time to repent at leisure, too!" There comes that "Kodak moment" (elsewhere referred to as that "Wile E Coyote moment" when he has run off the cliff and is surprised to see himself momentarily suspended in mid-air) when burgeoning governments and the dysfunctional economies that grow up around them have grown and evolved into their final, grotesque, bloated maximum by constantly expanding their spending via debt and taxes to the maximum, and then one day they suddenly cannot do that silly crap anymore.
Small Banks, Tight Credit Reliance on Souring Development Loans Is Leading To a Cash Crunch, Limiting Funds for Other Businesses Late loan payments and defaults by commercial and residential developers have soared to the highest levels since the early 1990s, threatening the health of some small banks, regulators said yesterday. The delinquency rate on construction and development loans hit 8.1 percent at the end of June, the highest rate for any category of bank loans, according to new data from the Federal Deposit Insurance Corp. The rate has more than tripled from 2.4 percent at the end of June last year.
Fed hints it will raise benchmark interest rate The rate would be raised in an effort to slow inflation, but Fed policy makers have not agreed to a timetable for the move, documents show. Federal Reserve policy makers expect to eventually raise their benchmark interest rate in an effort to slow inflation, but they have not agreed to a timetable for the move, according to minutes of the Fed's last meeting in early August. "Members generally anticipated that the next policy move would likely be a tightening" of interest rates, according to the minutes, which were released on Tuesday. But "the timing and extent of any change in policy stance would depend on evolving economic and financial developments and the implications for the outlook for economic growth and inflation."
Spreading the Slowdown "Wall Street, central bankers, economists, politicians - and most investors too - are betting on a soft landing," said a friend from New York. "A slowdown in world growth has taken the pressure off commodity prices. Slower growth will help keep inflation down, generally. And as long as inflation is no problem, the Fed doesn't have to raise rates - which will keep the slowdown from hitting too hard."
Should Biden Share Blame for Foreclosure Crisis? Many Americans Lost Homes Due to a Bill Championed by Biden Experts say hundreds of thousands of Americans may have lost their homes due to a bill championed by Sen. Joseph Biden, D-Del., Barack Obama's vice-presidential running mate. At least two studies have concluded that the United States' foreclosure crisis was exacerbated by a 2005 law that overhauled the nation's bankruptcy law. That conclusion is echoed by other experts, although the banking and credit industry disputes it. Congressional Republicans drove the effort to pass the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. But Biden who has enjoyed hundreds of thousands of dollars in campaign donations from credit industry executives endorsed the measure early on and worked to gather Democratic support for it
A Wake-Up Call on Home Equity Loans An increase in consumer complaints over the cancellation or reduction of home equity lines of credit has prompted one federal banking regulator to remind financial institutions about the laws governing this type of loan. The Office of Thrift Supervision, which supervises savings associations and their holding companies, has warned institutions that if they curtail or terminate a home equity line of credit, the action must comply with federal laws and rules designed to protect customers, including regulations covered in the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act and the OTS nondiscrimination rule.
U.S. moves toward international accounting rules The SEC moved to require all American companies to use international accounting standards by 2016. The commission voted unanimously to propose for comment a "road map" for conversion, with eventual adoption depending in part on revised provisions for financing the group that writes the international standards. The adoption of international accounting standards by the United States would move the world toward one set of standards, which should make it easier for investors to compare companies operating in differing regions, and make it easier for firms to raise capital in whatever market seems most attractive.
New Orleans Girds for Another Storm NEW ORLEANS — An unsettling sense of the past repeating itself pervaded this city on Wednesday as Tropical Storm Gustav crept this way through the Caribbean, two days before Hurricane Katrina’s third anniversary. Residents bought emergency supplies, evacuation plans were dusted off, a municipal help hot line was flooded with calls, and the mayor rushed home from the Democratic National Convention, even as officials warned that it was too early to predict where the storm would hit. Louisiana’s governor, Bobby Jindal, declared a pre-emptive state of emergency, mobilizing 3,000 National Guard members.
Gustav kills 23; New Orleans makes evacuation plan Gustav stalled offshore Wednesday and poured more misery onto Haiti after landslides and flooding killed 23 people. Oil workers began leaving their rigs and New Orleans drew up evacuation plans as forecasters warned the storm could plow into the U.S. Gulf coast as a major hurricane. Gustav killed 15 people on Haiti's deforested southern peninsula, where it dumped 12 inches or more of rain. A landslide buried eight people, including a mother and six of her children, in the neighboring Dominican Republic. Gustav weakened to a tropical storm over Haiti, but was expected to become a hurricane again as early as Thursday over the warm Caribbean waters between Cuba and Jamaica. Its expected track pointed directly at the Cayman Islands, an offshore banking center where residents boarded up homes and stocked up on emergency supplies. By Labor Day, Gustav could make landfall anywhere from south Texas to the Florida panhandle, and hurricane experts said everyone in between should be concerned.
Worker Confidence Sinks To '01 Recession Level $$ American workers' confidence in the job market is as low as it was during the 2001 recession, according to a new survey. When asked whether this is a bad time to find a quality job, 65% said it was, matching the level of the 2001 recession, according to the survey by Rutgers University's John J. Heldrich Center for Workforce Development, released Thursday. With unemployment at 5.7%, the highest level since 2004, and with weekly unemployment claims hitting a six-year high earlier this month, workers are worried about everything from their weekly hours to their total pay.
U.S. Bankruptcy Filings Near 1 Million Mark, Up 29% on the Year The number of U.S. residents and businesses that filed for bankruptcy rose 28.9% to 976,831 for the year ended June 30, 2008, according to U.S. court data released Wednesday. The Administrative Office of the U.S. Courts reported that non-business filings comprised 96.5% of that total, or 934,009. More than 33,800 businesses filed for bankruptcy during that 12-month period, an increase of 41.6% from the year prior. Filings made in the third quarter - the three-month period ended June 30, 2008 - totalled 276,510, the highest quarterly filings since the Judiciary's first fiscal year quarter in 2006.
Retailers' Rude Awakening The back-to-school shopping season is not yielding the kind of revenue they expected. While consumers continue to cling onto their wallets, retailers are forced to pull out all the stops, which include lowering inventory and slashing prices. On Wednesday, a range of retailers reported disappointing results, a sign that consumers are still pinched going into the fall shopping season and beyond.
Best Farm Economy Since 1970s Comes With Expense Risk U.S. agricultural income is the highest in three decades after corn and soybeans rose to records. The risk for farmers is that costs are rising even faster, increasing concern of a profit squeeze. A U.S. Department of Agriculture report tomorrow may show costs are accelerating as revenue growth slows, similar to a pattern that led to a 1980s farm crisis that was the worst since the Great Depression, said Gary Schnitkey, a University of Illinois farm economist. Corn, wheat and soybean prices are all at least 18 percent below their peaks. Fertilizer costs doubled from a year ago, while fuel increased 62 percent, USDA data show. Expenses probably will surpass the $279.2 billion that the USDA estimated in February, eroding net income the government pegged at a record $92.3 billion for 2008, farmers and economists said.
The Growing Income Gap Washington Post columnist Steven Pearlstein was online to discuss how the presidential campaign is addressing growing income inequality and the stagnation of middle class income.
How Safe Is Your Company's Money in the Bank? After eight bank failures through Aug. 1 this year, business owners are wondering if they can bank on their money being safe. The Federal Deposit Insurance Corporation offers coverage up to $100,000 for deposits per bank, but many business owners have bigger accounts. "Security for the business owner is the No. 1 priority," says Peter Miralles, president of Atlanta Wealth Consultants. "They don't want to be doing payroll and find out the bank just shut their doors, and they're only insured for $100,000 -- that may lead them into bankruptcy. Businesses have to be very careful." According to the FDIC, when it seized IndyMac Bank in July, there was almost $1 billion in uninsured deposits.
Tight Credit Puts Squeeze On Big Three Auto Dealers $$ The credit crunch squeezing U.S. auto makers is spreading to some of their dealers. GMAC stopped financing for a large Chevrolet dealer. The credit crunch squeezing Detroit's Big Three auto makers is now spreading to some of their dealers, adding financial pressure to a group already strained by this year's big drop in auto sales.
Retirement Wake-Up Call "Perhaps this loss in housing equity is why an AARP survey that found increasing numbers of people who are eligible for retirement are, instead, continuing to work, and some of them are even going back to work after retiring." I figure that the proverbial poop will hit the proverbial fan when people finally realize that they have been played for chumps, as it is obviously mathematically impossible for everyone, or even the majority of people, to take more purchasing power out of the stock market than they put in. So investing in the stock market, especially over the long-term, is, for almost everybody investing in it, a loser. The only question is, "How bad will it get?", which is a question born of despair and yet tinged with hope, like when my wife rushed home from our disastrous honeymoon complaining about what a disgusting pig I am and is reported to have also wailed, "How bad will it get?"
U.S. Initial Jobless Claims Fall Back Further to 425k Initial claims for unemployment benefits in the United States came in line with expectations, dropping further to 425k in the week ending Aug. 23, the Department of Labor reported on Thursday. Continuing claims rose to 3.423 million for the week ending Aug. 16. Forecasts were for initial claims to fall to 425k this week, following last week's upwardly revised reading of 435k. This week's figure is now below the four-week moving average for initial claims, which is now 440k, down from 446k last week. Continuing claims were expected to come in at 3.390 million for the week ending Aug. 16, following the previous week's downwardly revised figure of 3.359 million.
Sears Stumbles on Slowing Economy $$ Sears reported a 62% drop in fiscal second-quarter net income on weakness at the retailer's U.S. stores. Interim Chief Executive W. Bruce Johnson said the results "reflect the continued effects of a slowing economy," prompting the company to project weak fiscal-year sales and cut its fiscal-year view for earnings before interest, tax, depreciation and amortization to one Johnson said is "comparable to, but no longer exceeds, last year's Ebitda." Still, he said a $500 million cut to domestic inventory levels should lead to higher Ebitda, lower markdowns and help margins the rest of the year.
Chrysler Explores Sale of Dodge Viper Unit Chrysler is exploring strategic options for its Dodge Viper sports car business as the struggling company tries to raise cash to ride out a deepening industry downturn. "We have been approached by third parties who are interested in exploring future possibilities for Viper," the chief executive, Robert L. Nardelli, said Wednesday in a memorandum to employees.
For Tata in India: Industry vs. Farms Is he a hero for bringing affordable cars to the masses or a villain for stealing land for his factories? Ratan Tata's fortunes are changing India's Ratan Tata had always expected his $2,500 car, the Nano, to draw crowds (BusinessWeek.com, 1/10/08). But the nearly 40,000 protesters who recently shut down the highway leading to his factory in the state of West Bengal weren't exactly the fans he was hoping for. It seems like only yesterday that Tata was being hailed as a hero (BusinessWeek.com, 2/14/08) in his quest to build an affordable car for the masses. But in Singur, a two-hour drive north from Kolkata, he's now being pilloried as a greedy industrialist who conspired with state authorities to rob local farmers of 400 acres. Leading the charge is Mamata Banerjee, a firebrand politician from an opposition party. "Tata Babu, you may be rich, but no matter how many times you say Nano, we say no-no," said Banarjee on Aug. 26, addressing a swelling crowd of farmers outside the factory gates.
Toyota Taps on the Brakes For carmakers, it's now a small world after all. It's not just Detroit. For years, Toyota Motor has been gaining at the expense of the Big Three automakers, but the economic downturn in the United States and Europe is now taking its toll. Toyota has announced that it is cutting its 2009 sales forecast by nearly 7 percent, to 9.7 million vehicles. On the road to overtaking General Motors as the world's biggest auto manufacturer, Toyota had earlier this year forecast a nearly 6 percent gain in sales, to 10.4 million. More important, today's announcement confirms that the global automotive industry is making a significant transition toward smaller, more fuel-efficient cars. G.M. and Ford have announced similar shifts, but coming from the industry leader, it is clear it not just a knee-jerk reaction to $4 gasoline.
FAA Rushes to Fix Aging System That Caused Delays $$ The FAA said it is overhauling an error-prone computer system that caused hundreds of delayed flights Tuesday. The Federal Aviation Administration said it is overhauling an error-prone computer system that caused hundreds of delayed flights Tuesday. The system is part of the aging infrastructure that guides air traffic, which the FAA has been trying to update to reduce chronic delays. The National Airspace Data Interchange Network, or Nadin, shut down Tuesday afternoon as technicians at a Georgia facility that houses the system were updating it with new flight-plan data. The failure caused over 600 delays, mostly in Atlanta, Chicago and the Northeast, and forced airlines and some of the FAA's controllers to scramble to ensure safe operations.
Virus Found On Computer In Space Station Citing security policies, NASA would not disclose details about how the virus got on a laptop on the International Space Station. NASA confirmed on Wednesday that a computer virus was identified on a laptop computer aboard the International Space Station, which carries about 50 computers. The virus was stopped with virus protection software and posed no threat to ISS systems or operations, said NASA spokesperson Kelly Humphries.
Israel walks tightrope as US and Russia dispatch ships to Georgia As the US and Russia sent military vessels to dock at different Georgian ports on Wednesday, Israel continued to tread carefully, issuing no statement regarding Russia's recognition of the breakaway Georgian provinces and - in an apparent show of balance - is planning to send humanitarian aid not only to Georgia, but to North Ossetia as well. Anatoly Yurkov, the charge d'affaires at Russia's embassy in Tel Aviv, told The Jerusalem Post in an interview that Moscow appreciated the balanced position Israel had taken throughout the crisis, as well as its "low profile."
Russia's Super-Rich Are Leaving for London Russia's mega-wealthy industrialists are leaving Moscow for London. Among them are famous Russians Viktor Vekselberg, Mikhail Fridman, and Leonid Blavatnik, who collectively control a fortune worth more than $40 billion, according to the most recent Forbes magazine list of billionaires. According to The Telegraph, "Russia is the last source of new money" for London. Vekselberg, Fridman, and Blavatnik are the three oligarchs behind AAR, a consortium that owns 50 percent of TNK-BP, an oil joint venture with the British corporate giant BP. Between 1998 to 2004, more than $100 billion flowed from Russia, according to Forbes magazine. A significant percentage of that is now being spent in the boutiques and estate agents of London, thought to be home to more than 300,000 Russians.
Georgia War Shows 'Weak' Russia Russia's conflict with Georgia is the sign of a "weak" Russian nation, not a newly assertive one, and Moscow now has put its place in the world order at risk, the top U.S. diplomat for relations with the country said in an interview yesterday. "There is a Russia narrative that 'we were weak in the '90s, but now we are back and we are not going to take it anymore.' But being angry and seeking revanchist victory is not the sign of a strong nation. It is the sign of a weak one," said Daniel Fried, assistant secretary of state for European and Eurasian affairs.
Russia Gains at Our Expense David Malpass, the former chief economist of Bear Stearns, says that the dollar, not high oil prices, is the real problem with the U.S. economy. Malpass blames former Federal Reserve Board Chairman Alan Greenspan for starting the current easy money policy in Washington that Malpass says is responsible for the problems that companies and consumers are facing today. "Banks lost a lot of money, but that hasn't stopped the global community. And I don't think it will," says Malpass, now senior economist at Encima Global. "The dollar is strengthening, that's good news. But, 1 percent interest rates didn't make sense. We built a bubble," said Malpass, referring to unusually low interest rates under Greenspan.
A New "Cold War" Looms Russian President Dimitri Medvedev has floated a not-so-subtle warning of Russia and the West descending into a new “Cold War,” the blame for which he places, in traditional Russian fashion, squarely on America… As a follow up, Vladimir Putin has since hinted at the possibility of a direct conflict between Russian and American naval forces in the Black Sea. If these events of the past few weeks are a reliable indication, the world may indeed see a replay of the harrowing years of Soviet aggression.
China, Iraq reach $3 bln oil service deal China and Iraq have signed a $3 billion deal revising an earlier agreement for China's biggest oil company to help develop the Ahdab oil field, an official at the Iraq's Oil Ministry said Thursday. The deal, restoring a project canceled after the 2003 U.S.-led invasion of Iraq, was signed late Wednesday by Chinese officials and Iraqi Oil Minister Hussain al-Shahristani. "The initial agreement has been signed, and we are waiting to see the approval of both governments," said Sarhad Fatah, a spokesman at the Iraqi Embassy in Beijing
China's Unease With Russian Actions Strains Ties $$ Move to Recognize Georgian Regions Sparks 'Concern' China voiced unease about Russia's recognition of two Georgian separatist regions, weakening a pillar of Putin's policy of forging close ties with Beijing as a counterbalance to Washington. Russia's efforts to redraw the map of the Caucasus received a frosty reception from China, a further sign of how Moscow's conflict with Georgia is scrambling diplomatic alignments in place since the end of the Cold War.
China Manufacturing Set to Roar Past U.S. The manufacturing dominance that the United States has held for the past century may be coming to an end. According to Global Insights, last year the U.S. was still easily in the top spot, accounting for a fifth of the total. China, meanwhile ranked second with 13.2 percent. Now the company's estimates show that next year China will account for 17 percent of manufacturing output, and the U.S. will make up 16 percent. Data from Global Insight show the U.S. will have to return the No. 1 position to China, which, according to economic historians, ranked first in manufacturing for nearly 1,800 years up to about 1840, when Britain became the world's biggest manufacturer after its Industrial Revolution.
China faces a new world order of trade China may have overwhelmed the United States - not to mention the rest of the world - in its quest for Olympic gold, but when it comes to trade, China may be losing its advantage. A spate of factors including a weak dollar, sluggish U.S. demand and high commodity prices have started to rebalance the trade accounts of China and the United States. Experts agree that this is not necessarily a bad thing. The question is whether China can pull off its rebalancing act without a hard economic landing.
U.S., Japanese & European Officials Planned to Defend Greenback According to a report from Nikkei News on Thursday, Japanese, U.S. and European Officials collaborated on a rescue plan for the U.S. dollar in mid-March, in the midst of the collapse of Bear Stearns.
Europe's Subprime Headache Almost the entire region of Western Europe, Scandinavia and the Baltics is on the cusp of fully fledged recession, raising fresh fears about the health of Europe's banking system. Germany's IFO confidence index of future business crashed in July to levels last seen in the post-unification bust of the early 1990s. Over the past three months the index has suffered the steepest decline since the 1973 oil shock. "Everything is coming to a head at the same time," said Julian Callow, Europe economist at Barclays Capital.
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Obama speech stage resembles ancient Greek temple Democratic presidential candidate Barack Obama's big speech on Thursday night will be delivered from an elaborate columned stage resembling a miniature Greek temple. The stage, similar to structures used for rock concerts, has been set up at the 50-yard-line, the midpoint of Invesco Field, the stadium where the Denver Broncos' National Football League team plays. Some 80,000 supporters will see Obama appear from between plywood columns painted off-white, reminiscent of Washington's Capitol building or even the White House, to accept the party's nomination for president. He will stride out to a raised platform to a podium that can be raised from beneath the floor.
The Democrat Party Shows That It Is Not a Party of Fairness Whether you like, love, or loathe the politics of Barack Obama, you have to give the man his due! He destroyed the “Arrogant Bill And Hillary Rodham-Clinton’s Political Machine”… Keep in mind that it was Hillary Rodham-Clinton who was so full of herself, that she didn’t plan beyond Super Tuesday. This is a mistake that has probably caused her to lose sleep this week. Instead of preparing to get set to square off against John McCain this Fall, Rodham-Clinton has been reduced to, “Warming Up The Crowd For Obama” Ms. Clinton was so cocksure of herself when this thing started, she was probably writing her acceptance speech a couple of years ago!
At 5,280 Feet, the Party Atmosphere Is Thin EVEN if the modern presidential convention has become a largely symbolic affair, the constant flow of nightly parties and celebrations has always been reason enough to keep the stodgy tradition going. But this year at the Democratic National Convention, there is a new complaint being whispered by disgruntled guests: partying in Denver is a downer."Normally at conventions, you’d have people regaling you with what happened the night before," said Emil Hill, a Washington communications executive who has been party-hopping steadily all week. "This time, not a single person has given me a story. I guess when you lose two elections in a row, people learn from that."
Joe Biden's speech at the Democratic convention Prepared remarks from Sen. Joe Biden, Barack Obama's runningmate, for his address at the Democratic National Convention on Thursday in Denver.
Senator Barack Obama Becomes the Official Democratic Presidential Nominee In a dramatic gesture in Denver tonight Senator Hilary Clinton announced her state of New York was voting for Obama as the democratic presidential nominee. The declaration was theatrical in that it effectively concluded the necessary state by state vote announcements. Shortly after, to a crowd of cheering and tearing onlookers, congresswoman Nancy Pelosi officially announced Obama as the nominee.
Barack Obama's "CHANGE" Barack Obama is the most talked about, most media worshipped political celebrity of all time. He has received praise from Keith Olberman, German crowds , and a host of media outlets like ABC, CBS, NBC, and CNN. He has been called many names both good and bad… Names like “the messiah” has often been associated with Obama by conservatives because he is worshipped by some on the left as if he were God and apparently performed miracles during speeches - remember those who fainted and were raised by a bottle of Obama’s water. Names like the anti-Christ has also been given to him by some conservatives because of his obvious ability to speak well and be able to draw crowds with an almost uncanny charisma.
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At What Point Does the U.S. Just Go Broke? The U.S. government, like so many creaky monarchies and dubious regimes in history, may be conspiring to repudiate its own debt, suggests a former vice president at the Federal Reserve Bank of Dallas. U.S. Treasury debt obligations have long been considered the most secure and most certain of repayment in full, including interest. It's part of the reason the dollar has stayed strong, and why the United States has been able to borrow so much, so cheaply, for decades. Increasingly, that trust is for the first time becoming questionable. "Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation," warns Gerald P. O. O'Driscoll Jr., writing in The Wall Street Journal.
Red all around for Florida banks The combined bottom line of commercial banks in Florida flipped into the loss column in the second quarter as banks here join national saving institutions in the red, according to Federal Deposit Insurance Corp. data released Tuesday. Florida-based commercial banks lost $79 million in the second quarter after pulling in $75 million in the first quarter. About 48 percent of these banks were unprofitable, while just 17 percent saw earnings gains. In the second quarter of 2007, these commercial banks combined for $200 million in profits. But, that was before the real estate meltdown and the collapse of many mortgages.
Beijing swells dollar reserves through stealth Rule changes for commercial banks are acting as cover for exchange rate intervention, writes Ambrose Evans-Pritchard. China has resorted to stealth intervention in the currency markets to amass US dollars, using indirect means to hold down the yuan and ease the pain for its struggling exporters as the global slowdown engulfs the economy. A study by HSBC's currency team in Asia has concluded that China's central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate intervention.
U.S. bank insurance agency warns of worse ahead Sheila Bair anticipated the U.S. mortgage crisis long before most other regulators. But she said she never dreamed it would wreak so much havoc on so many banks. More than a year after the credit crisis first flared, Bair, the chairwoman of the Federal Deposit Insurance Corp., warned Tuesday that the outlook for the ailing banking industry was bad - and getting worse. The swelling tide of toxic home loans is proving to be even more worrisome than initially feared, Bair said. She is struggling to clean up the mess and forestall home foreclosures with a plan to ease loan terms for hard-pressed homeowners.
FDIC may borrow money from Treasury Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported. The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said. The borrowed money would be repaid once the assets of that failed bank are sold.
FDIC: 117 troubled banks, highest level since 2003 FDIC: troubled banks highest in 5 years; bank profits dropped by 86 percent in second quarter The number of troubled U.S. banks leaped to the highest level in about five years and bank profits plunged by 86 percent in the second quarter, as slumps in the housing and credit markets continued. Federal Deposit Insurance Corp. data released Tuesday show 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter and the biggest tally since mid-2003.
Cracking the Banks Regulator's problem list swells to 117. Don't bet on a rebound in the nation's banks anytime soon. The outlook looks increasingly bleak, as the Federal Deposit Insurance Corp. announced that the number of institutions on its "problem" list had jumped to 117 at the end of the second quarter—the highest level in five years—from 90 in the first quarter. The combined assets of the problem banks increased to $78 billion from $26 billion, the F.D.I.C. said.
Gold, silver trade higher on rising crude oil Gold rose to a two-week high in seesaw trading Tuesday as a jump in crude oil fed investor demand for hard assets as inflation hedges. Other commodities traded mostly lower, with copper, corn, soybeans and other agriculture futures falling. Gold for December delivery fell $2.40 to settle at $828.10 an ounce on the New York Mercantile Exchange, after earlier rising to $853.60, its highest level since Aug. 11. Earlier Tuesday, gold dropped as low as $812 as a stronger dollar diminished the appeal of commodities as an alternative investment.
Accounting Rule Driving Bank Meltdown William Isaac, former chairman of the Federal Deposit Insurance Corp. (FDIC), says that a bank accounting rule is responsible for much of the $500-billion-and-counting in losses suffered by major financial institutions in the wake of the subprime mortgage meltdown. The fair value accounting standard adopted in 1993 is "at the root of a lot of the problems," Isaac told Moneynews.com in an exclusive interview. The standard requires banks to value their security holdings at current, fair-market value. Clearly, the fair-market value of mortgage-related securities has dropped off a cliff, forcing much of the write-downs and losses that feed investor doubt.
Inquiry Looks at Fidelity-Goldman Ties $$ Auction-Rate Sales By the Fund Titan Are Under Scrutiny The New York attorney general's office is probing the relationship between Fidelity Investments and Goldman Sachs Group Inc. as part of its investigation into Fidelity's sale of auction-rate securities to individual investors, according to a person familiar with the investigation. Investigators are looking at whether Fidelity's relationship with Goldman may have given Fidelity an incentive to sell the instruments, also called ARS's, this person said. The attorney general started focusing on the relationship after it learned that most of the auction-rate securities sold by Fidelity were underwritten by Goldman, this person said.
Lehman Has Three Days to Live Lehman Brothers, the country's fourth-largest investment bank, has three days to solve its problems before it becomes the target of a hostile takeover, says veteran bank analyst Richard Bove. Lehman CEO "Dick Fuld has the weekend to come up with a solution to Lehman's problems," Bove told Bloomberg News. "If he doesn't do it; if he doesn't sell real estate or come in with some new equity, then the game is on, and Lehman is in play" for a takeover. Just 18 months ago, Lehman CEO Fuld was the toast of Wall Street for his ability to rack up huge profits and keep the firm out of the hands of larger rivals.
Thornburg Fights To Stay Afloat Doubts still exist about the future of mortgage lender Thornburg Mortgage, but the company said its turnaround is under way. A new accounting rule didn't hurt its efforts either. The beleaguered mortgage lender jumped to 9 cents from 40 during trading after it reported better-than-expected earnings due to big one-time gains from the sale of assets and the perverse effect of a new accounting rule, which requires the firm to record the $536.9 million decline in the value of its liabilities as an earnings gain. Without the added benefit of the new rules, Thornburg would have only brought in $22.7 million. Mortgage insurers Ambac and MBIA enjoyed a similar benefit recently. (See "New Accounting Rule Boosts Ambac's Fortunes.") "Our circumstances are somewhat precarious, to put it mildly," Thornburg Chief Executive Larry Goldstone said on a conference call
Citi pays $18M for questioned credit card practice Citigroup Inc. will pay nearly $18 million in refunds and settlement charges for taking $14 million from customers' credit card accounts, California's attorney general said Tuesday. Citigroup will make refunds to the 53,000 customers affected, and pay $3.5 million in damages and civil penalties to the state of California, which had been investigating the questionable practices for three years, the attorney general said. The bank will also pay 10 percent interest to California customers, who accounted for $1.6 million of the money "swept" out of accounts and into a Citi fund between 1992 and 2003.
Volatility Takes Its Toll on Wall St. U.S. stocks got off to a rocky start this week as concerns about weakness in the housing market and volatility in oil prices continued to gnaw at investors. The Dow Jones industrial average fell 2.08 percent, or 241.81, to 11,386.25, with all 30 members of the blue-chip index ending the session lower. The broader Standard & Poor's 500-stock index dropped 1.96 percent, or 25.36, to 1266.84. The Nasdaq composite index fell 49.12, or 2.03 percent, to 2365.59. Analysts said the movements in stock prices were magnified by light trading volumes, reflecting late August's popularity as a vacation time. The Dow industrials have posted triple-digit swings in six of the past 10 trading sessions.
Fears over financials and housing dent Wall St US stocks struggled for direction on Tuesday and ended mixed as investors weighed encouraging news on consumer confidence against continuing concerns about the health of the financial and housing sectors. Bernard McSherry, senior vice-president of strategic initiatives at Cuttone & Company, an agency brokerage, said: “The clouds occasionally lift and investors decide that everything is going to work out for the economy. "The market rallies and then traders have second thoughts about the health of the financials. A sell-off follows and we find ourselves roughly where we started. The pattern remains the same."
Large Homebuilder May Be Near Bankruptcy Woodside Homes, which bills itself as the third largest private homebuilder in the U.S., may be nearing bankruptcy. The Utah-based company is part of a group of builders developing the Inspirada master-planned community outside Las Vegas.
U.S. home prices still falling, but more slowly U.S. home sales have begun to stabilize as sharply reduced prices lured buyers back into the market in July, according to a pair of reports issued this week. And prices, once plummeting at a breakneck pace, fell in June at a more moderate clip. But those prices will have to keep falling before the housing market can make a full recovery, economists said Tuesday. Much of July's purchasing activity was in sales of foreclosed homes sold at steep discounts. Prices are expected to keep sagging under the weight of a huge backlog of unsold homes.
Calling a Bottom for Housing Jim Cramer told viewers of his "Mad Money" TV show Tuesday that he believes the housing market will bottom in the third quarter of 2009. He said the charts clearly show the top of the market in July, 2005, one year before the "beginning of the end" in July 2006. . . . Cramer also listed 10 reasons why he feels the market will be ready to rebound in the third quarter of 2009.
Gov't home price index posts largest-ever drop U.S. home prices fell 4.8 percent in the second quarter compared with a year ago, a new record low, according to a government report. The government index for the April-June period, released Tuesday by the Office of Federal Housing Enterprise Oversight focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year. The previous record annual drop in the index's 17-year history was 3 percent and was set from January through march of this year.
New Credit Hurdle Looms for Banks $$ U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge in coming months: paying off hundreds of billions of dollars of debt coming due. At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.
Fed: Rates not too low; next move likely to be up Federal Reserve officials at August meeting said rates not too low, but next move likely up Even as they grappled with inflation worries, most Federal Reserve officials at their August meeting didn't believe the Fed's key interest rate was too low given harder-to-get credit conditions straining consumers and businesses alike. Documents, released Tuesday, provided insight into the Fed's thinking at the Aug. 5 meeting, when central bank policymakers decided to hold its key rate steady at 2 percent for the second straight meeting. Confronted by problems at every turn -- rising unemployment, shaky growth, credit troubles and creeping inflation -- the Fed took a gamble that once "Most members did not see the current stance of policy as particularly accommodative, given that many households and businesses were facing elevated borrowing costs and reduced credit availability" due to fallout from financial market strains and economic problems, the Fed's documents stated.
FOMC Minutes Indicate Neutral Bias and Put Spotlight on Dissent Economists say the minutes of the August 5 FOMC meeting don't reveal much that is new insofar as monetary policy is concerned, but the eight-page report does highlight differing viewpoints among the 11 voting members. Paul Ferley, assistant chief economist at RBC Capital Markets, said the minutes continued to emphasize a balance between both sides of the dual mandate.
Fed sees rate increase in future Federal Reserve policy makers expect to eventually raise their benchmark interest rate in an effort to slow inflation, but they have not agreed to a timetable for the move, according to minutes of the Fed's last meeting in early August. "Members generally anticipated that the next policy move would likely be a tightening" of interest rates, according to the minutes, which were released Tuesday. But "the timing and extent of any change in policy stance would depend on evolving economic and financial developments and the implications for the outlook for economic growth and inflation." Although members of the Fed's policy-making body, the Federal Open Market Committee, are not tethered to the comments, their remarks reinforced a sense on Wall Street that the central bank is carefully watching the trend of rising prices, and is more likely to raise rates than lower them by the beginning of the year.
Delays put award of $35B tanker deal at risk Delays in awarding $35 billion tanker deal to either Boeing, Northrop stress Pentagon timeline The Pentagon is in danger of missing a self-imposed deadline to award a politically charged $35 billion deal to Boeing or Northrop Grumman for Air Force refueling tankers ahead of the next administration. Boeing's recent request for more time leaves the Pentagon with even less room to breathe in replacing a fleet that dates back to the Eisenhower era. "The government has put this re-competition on a very tight schedule," said Loren Thompson, a defense consultant for the Virginia-based Lexington Institute. "What you see here is the improbability of conducting a major competition in record time." The Defense Department was expected to release its final request for bids as early as Tuesday.
The Only Way to Fix Social Security John McCain and Barack Obama both talk about how they would put Social Security on sound financial footing. The program will face the first signs of a financial crunch within a decade and have to rely on Uncle Sam - who's in hock already - to make up for the shortfall. But no matter the next president's preferred fixes, he'll have to do a lot of compromising with Congress. Sure, any solution is likely to have elements the president favors. He will have veto power, after all. John McCain favors slow growth in benefits over raising taxes. Obama prefers just the opposite. But any voter who can fog a mirror shouldn't be surprised to see both types of changes coming down the pike.
U.S. wind power strangled by antiquated power grid When the builders of the Maple Ridge Wind Farm spent $320 million to erect nearly 200 windmills in upstate New York, the idea was to get paid for producing electricity. But at times, regional electric lines have been so congested that Maple Ridge has been forced to shut down even with a brisk wind blowing. That is a symptom of a broad national problem. Expansive dreams about renewable energy, like Al Gore's hope of replacing all fossil fuels in a decade, are bumping up against the reality of a power grid that cannot handle the new demands. The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not.
Ford to Spend $75M to Hasten Focus Production Demand for Ford Motor Co.'s Focus and other small cars has been superheated ever since gas prices headed toward $4 per gallon in May, and since then, Ford hasn't been able to build the Focus quickly enough. On Tuesday, though, the automaker took two steps toward further cranking up Focus production, announcing that it would sink $75 million into the body-making part of an SUV factory next door to the Wayne Assembly Plant, where the Focus is built
China Economy in Deep Trouble Don't look for an Olympic bounce to offset China's very real economic problems, says U.S. Treasury Secretary Henry Paulson. With the games behind it and international attention shifting, China must now contend with domestic economic problems, says Paulson. "Serious troubles in China's economy could threaten the stability of the U.S. and global economies," writes Paulson in Foreign Affairs. Several problems looming on China's economic horizon could impede the nation's unprecedented growth and stifle it for years to come.
Moscow, Defying West, Recognizes Independence of Georgian Regions $$ Russian President Medvedev said that he has signed a decree recognizing the independence of the breakaway Georgian territories of South Ossetia and Abkhazia. Medvedev said Russia is not afraid of a new Cold War, but does not seek it. . . .Russia defied the West by recognizing the independence of two separatist regions of Georgia, a move that threatened to dismember a U.S. ally.
Russia's Power Play Could Shift Oil Flows There was a report earlier from a Turkish news source that Kazakhstan is considering moving its oil through Russian pipelines and not shipping it to Baku for transport through the Baku-Tbilisi-Ceyhan (BTC) pipeline. Currently, Kazakhstan ships 500,000 barrels a day by tanker across the Caspian Sea to the BTC pipe and is half the capacity of that pipe. This is the pipe that goes through Georgia to Turkey.
-------------- Election News ------------- Happy-sad N.Y. delegates wowed by Clinton Hillary Clinton's speech wowed two delegates sharing their daily impressions of the Denver confab with the Daily News, and began the healing process needed to get Barack Obama elected. "I still don't know why she's not the nominee," Jackie Rowe-Adams said of her heroine. "She is awesome. I felt so much power and wisdom from Hillary tonight." "I felt a little pain within her ... it's like she felt sorry for us that we didn't get the candidate we wanted." Obama delegate and fellow Manhattanite Richie Fife said Clinton deftly got the job done
Obama's Lack of Cojones Will Cost Him the Election It is a well know fact that Barack Hussein-Obama doesn’t have a spine! Look at the way that Hillary Clinton exposed him for the linguine-spine, wimp that he really is. Hillary, "Manhandled Barry" during the debates. She spanked his ass, and sent him home to cry in the arms of "Michelle, My Bell." What a complete, and utter embarrassment! And the Democrats have the nerve to question George Bush’s Intelligence Quotient!
Let the Games Begin Okay, now that the Olympics are over, it’s time to let the REAL games begin! Yes, you know I’m talking about the political games that will accompany this year’s presidential election cycle. And I dare any of you to tell me this isn’t a game. There will be a winner and a loser, and if you don’t know the rules by game time, you’re just S.O.L. (so outta luck!)… This has been such a long election cycle, that I have to give credit to John McCain. I think it’s great that he has the stamina to keep up with a whipper-snapper like B. Hussein Obama. And I was equally impressed with Joe Biden’s running up the stage steps and his sprint across the stage to greet his new partner in crime. I guess he didn’t want to appear too senior next to the freshman senator for Illinois.
Obama's Response Ad Reflects Lessons of 2004 Sen. Barack Obama's campaign and its allies, mindful of the lessons of the Swift boat attacks of 2004, have begun an aggressive, multi-pronged attack on an advertisement running in swing states that seeks to link the Democratic presidential candidate to former domestic terrorist...
Obama, Biden's Son Linked by Earmarks Sen. Barack Obama sought more than $3.4 million in congressional earmarks for clients of the lobbyist son of his Democratic running mate, Sen. Joseph R. Biden Jr. of Delaware, records show. Obama succeeded in getting $192,000 for one of the clients, St. Xavier University in suburban Chicago. Barack Obama through Muslim Eyes How do Muslims see Barack Hussein Obama? They have three choices: either as he presents himself – someone who has "never been a Muslim" and has "always been a Christian"; or as a fellow Muslim; or as an apostate from Islam. Reports suggests that while Americans generally view the Democratic candidate having had no religion before converting at Reverend Jeremiah Wrights's hands at age 27, Muslims the world over rarely see him as Christian but usually as either Muslim or ex-Muslim. Lee Smith of the Hudson Institute explains why: "Barack Obama's father was Muslim and therefore, according to Islamic law, so is the candidate. In spite of the Quranic verses explaining that there is no compulsion in religion, a Muslim child takes the religion of his or her father. … for Muslims around the world, non-American Muslims at any rate, they can only ever see Barack Hussein Obama as a Muslim." In addition, his school record from Indonesia lists him as a Muslim
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Merrill, Wachovia Hit With Record Refinancing Bill Merrill Lynch & Co., Wachovia Corp., Lehman Brothers Holdings Inc. and the rest of the U.S. finance industry are about to find out how expensive credit has become. Banks, securities firms and lenders have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co., just as yields are at their most punitive compared with Treasuries. The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data. Higher refinancing expenses will restrict the ability of banks to borrow in the capital markets and lend, further cutting off credit to consumers and businesses and curbing what is already the slowest growing economy since 2001. Standard & Poor's said last week that it had a "negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years. After Merrill's Sale of Bad Debt, Few Have Followed Despite Interest in Unloading Subprime Assets, Firms Are Reluctant to Take Large Losses Merrill Lynch sent an important message last month to its Wall Street brethren when it sold off a massive portfolio of securities badly damaged by the subprime mortgage meltdown: Someone was still willing to buy them. Shareholders and regulators who had been urging banks and investment firms to rid themselves of problem assets welcomed the development. But a mass exorcism of the securities -- which remain a burden for Wall Street as it tries to scrape its way out of the credit crisis -- never materialized. That's because by agreeing to sell at 22 cents on the dollar, Merrill sent another powerful message: Purging the mortgage-related securities would require pricing them at a fraction of their face value. The sale left Merrill's peers wondering whether they should take a similar loss on the securities or hold on to them and risk an even further drop in value. The dilemma is one of several that Wall Street firms face as they try to unfreeze markets and repair balance sheets devastated by the credit crisis. Treasury Secretary Henry M. Paulson Jr., eager to restore investor confidence in the system, has been urging Wall Street executives to clean up the mess quickly and raise more money. U.S. Mint resumes gold coin orders on limited basis The U.S. Mint said it must allocate the American Eagle bullion coins among dealers to cope with overwhelming demand as it resumed taking orders for the popular coins on Monday. "The unprecedented demand for American Eagle gold one-ounce bullion coins necessitates our allocating these coins among the authorized purchasers on a weekly basis until we are able to meet demand," the U.S. Mint told its authorized American Eagle dealers in a memo dated August 22. Last week, soaring demand forced the U.S. Mint to suspend temporarily sales of the American Eagles, creating a shortage in the one-ounce version of the coins, which are also available in other weights and denominations.
THE GOLD PRICE-FIXING CONSPIRACY For many years now, a number of people in the financial arena have been alleging that there is an active conspiracy to suppress the price of gold. Some see it as a sinister backroom affair. Others claim that it’s just the way the world works, and that it happens right out in the open, if only you know where to look. Among the latter is the Gold Anti-Trust Action Committee (GATA), the source of much of the material that has been written on the subject in recent years. In order to get their take, we sent our own Doug Hornig to interview Chris Powell, co-founder and secretary/treasurer of GATA.
2nd-Quarter U.S. Home-Price Index Fell 0.5% Home prices in the U.S. fell at a slower pace in the second quarter, signaling the worst housing slump in more than 25 years may be starting to stabilize, a private survey showed today. Home values declined 0.5 percent in the three months through June from the previous three months, compared with a 0.9 percent drop in the first quarter. Compared with a year earlier, values dropped 15.4 percent, the most since record keeping started 20 years ago. The housing slump, currently in its third year, is declining at a slower pace as the drop in property values has made homes more affordable. Even so, prices probably will continue to fall for the rest of the year as sellers try to unload properties that have sat on the market for a record number of months.
The Freddie-Fannie Deathwatch "We need housing to stop hurting us," Jim Cramer told viewers of his "Mad Money" TV show Monday. He said that until the crisis that has enveloped Freddie Mac and Fannie Mae is finally resolved, the markets will continue to decline. Cramer said that sometimes the market just lies as it did today when Freddie and Fannie shares were up while the rest of the financial service stocks fell. While it's wrong to take all stocks lower because of problems of a select few, that's exactly what will continue to happen until the U.S. Treasury steps in and takes action. He called Fannie and Freddie the root of all market evil. In order for the market to finally bottom, said Cramer, housing has to stabilize. That requires lower interests rates, lower home inventory and higher home sales, things that cannot happen with speculation still swirling on the fate of Fannie and Freddie.
Fannie and Freddie woes spread The problems plaguing mortgage finance giants Fannie Mae and Freddie Mac could cause another big financial drain on banks. Shares of Fannie and Freddie have plunged in recent weeks due to fears that the two companies may need to turn to the Treasury Department to raise more capital. Some even speculate that Fannie and Freddie may wind up being nationalized, which would cause the stocks to lose most, if not all, of their value.
U.S. view of economy is getting worse Americans' opinions on the health of the economy have worsened significantly over the last year, according to the results of a CNN poll released Monday. Seventy-five percent of participants in a national CNN/Opinion Research Corp. poll believe the U.S. economy is in bad shape, compared to just 43% of respondents who shared that view a year ago. In a poll conducted Aug. 23-24, 43% of those surveyed rated the current economic conditions as "very poor," while 32% rated it as "somewhat poor." Only 21% rated the economy as "somewhat good" and a mere 4% said it was "very good." The findings are based on 497 interviews and have a margin of error of plus or minus 4.5 percentage points.
LIBOR Indicates Credit Crisis Deepening as 2008 Draws to a Close The rate at which banks lend to each other hit its highest level in two months last week, and may soon approach record levels established last year – an indication that the credit crisis is far from over. The three-month dollar London interbank offered rate (LIBOR) last week reached 2.81% — a level not seen since June. The LIBOR is fixed on a daily basis by the British Bankers’ Association, which averages the daily borrowing rates of 16 different banks. At 2.81% Libor was 81 basis points higher than the benchmark Federal Funds rate. The spread between the two key rates was just 24 basis points in January, but could be as high as 85 basis points by December, according to futures trading. The average spread between the two rates was just 12 basis points before the onset of the credit squeeze last year.
Regulators Step Up Bank Actions $$ 'Memorandums of Understanding' Surge As U.S. Races to Head Off More Failures Federal regulators have increased the number of struggling banks they have effectively put on probation, forcing them to fix their problems and try to avoid potentially costly failures. The Federal Reserve and the Office of the Comptroller of the Currency, two of the nation's primary bank regulators, have issued more of these so-called memorandums of understanding so far this year than they did for all of 2007, according to data obtained from regulatory agencies under Freedom of Information Act requests. These secret agreements can force banks to take steps including raising capital, cutting back on risky loans and suspending dividend payments.
Failed Bank List (bookmark this site) The FDIC is often appointed as receiver for failed banks. This page contains useful information for the customers and vendors of these banks. This includes information on the acquiring bank (if applicable), how your accounts and loans are affected, and how vendors can file claims against the receivership. This list includes banks which have failed since October 1, 2000.
Bankers Face a Grim Fall $$ Worsening Outlook Suggests It's Time For Consolidation Labor Day typically marks the end of a late-summer lull on Wall Street. This year, investment bankers are beginning to worry that they will return from the Hamptons to find they have even more time to spend with their families. Senior bankers warn that after a tough first half, the outlook has deteriorated further. Does the grim forecast mean that the long-rumored consolidation in investment banking will finally occur? It should. The damage caused by mortgage-backed securities remains the focus for investors. The investment banks might have taken most of the balance-sheet hits from their subprime problems, but other areas, in particular commercial real estate and higher-grade residential mortgages, have begun to show cracks. Continued credit-market weakness is likely to force further write-downs in the third quarter.
Existing-homes sales rise, inventory swells Sales of previously owned U.S. homes ticked higher in July thanks to lower prices, but record inventory suggested the battered housing market is unlikely to recover soon, a trade group report showed on Monday. Home resales rose 3.1 percent to a 5 million-unit annual rate, according to the National Association of Realtors. While that topped analysts' expectations of a pace of 4.90 million, the overall picture was mixed. The median national home price declined 7.1 percent from a year ago to $212,400 and the inventory of homes for sale rose to 4.67 million which would take 11.2 months to clear at the current sales pace. That matched a record set in April. The data points to a generally weak but stable market since the volume of sales has hovered around 5 million for 10 months despite gyrations in price and inventory, said Michael Englund, chief economist with Action Economics in Boulder, Colorado.
Fannie-Freddie crisis spreads The crisis gripping Fannie Mae and Freddie Mac spread across the financial system on Monday as JPMorgan Chase warned of a possible $600m (£323m) loss from its holdings of preferred shares in the two mortgage financing groups. JPMorgan said it would write down the value of its $1.2bn of preferred shares in Fannie and Freddie by half.
Wall St. Rattled by Bank News; Stocks Sell Off Shares that went up on Friday plummeted on Monday. The markets dropped after a flurry of disappointing news about several major financial institutions. The Dow Jones industrial average closed down 241.81 points, or 2.08 percent, to 11,386.25, and the broader Standard & Poor’s 500-stock index declined 25.36 points, or 1.96 percent, to 1,266.84. The Nasdaq was down 2.03 percent, or 49.12 points, to 2,365.59. Monday’s sharp decline followed a jump of 197.85 points for the Dow on Friday. Concerns about major banks and insurance companies again weighed on the markets. The American International Group, the world’s biggest insurance company, fell 5 percent to a 13-year low after the Credit Suisse Group predicted that the insurer would face major losses this quarter because of mortgage-related write-downs.
Lehman Loses Confidence Lehman Brothers entered the weekend with a note of optimism, only to come out of it down all over again. A key South Korean official threw a very wet blanket over the prospect of Korea Development Bank picking up the beleaguered brokerage house. And, for good measure, CEO Richard Fuld may be out by the end of the year. Shares of Lehman Brothers deflated Monday after a top South Korean regulator, Jun Kwang Woo, expressed concern about state-run Korea Development Bank's interest in buying the global bank, going so far as to call such an acquisition "improper." His opinion matters, too: As the chairman of the government's Financial Services Commission, Kwang Woo is in charge of monitoring all the financial institutions in Korea--both state- and privately-owned.
JPMorgan takes $600 million hit on Fannie, Freddie PMorgan Chase & Co said the market value of its investments in Fannie Mae and Freddie Mac preferred stock has dropped by half to $600 million this quarter. In a filing with regulators on Monday, the bank said the decline could affect its earnings. The precise amount of losses for the third quarter is difficult to determine, given the oscillations in the preferred shares' values, it said. Fannie Mae and Freddie Mac have seen their share values plummet amid the credit market crisis, which has triggered questions about whether they have enough capital.
FOMC Minutes Could Reveal Debate Within Fed Economists say Tuesday's release of the FOMC minutes for the Aug. 5 meeting will be largely muted following the more recent commentary by Fed Chairman Ben Bernanke at Jackson Hole, Wyoming, over the weekend. However, the report could highlight the range of opinions within the Fed. David Sloan, senior economist at 4cast, said the minutes should offer a fairly up-to-date guide as to how the Fed is thinking, given that not a lot has happened in terms of economic data since the meeting. Expecting the minutes to reveal that the Fed will remain "reasonably dovish" for the time being, he said markets should be encouraged by the report. Communities Become Home Buyers to Fight Decay As a wave of home foreclosures courses through the United States, some of the nation’s hardest hit cities think they have found a way to ease the blight left on their communities by the crisis. Using taxpayer and private money, Boston, Minneapolis, San Diego and a handful of other places are buying foreclosed properties to refurbish and resell them to developers and homeowners in an effort to prevent troubled neighborhoods from sliding into urban decay. The efforts so far have been taken on a small scale. But local officials say they can become an important pillar of any housing recovery with the help of $4 billion in federal grants that were part of a housing bill Congress approved in July.
Freddie debt sale eases concerns of nationalization Ailing mortgage finance company Freddie Mac easily sold $2 billion of short-term debt on Monday, reassuring investors that it and rival Fannie Mae can fund operations without a government takeover. Fannie Mae shares rose 9 percent, and Freddie Mac stock gained more than 22 percent in early afternoon trading in New York. Broader markets tumbled. An analyst said the government-sponsored enterprises (GSEs), which own or guarantee nearly half of the mortgages in the United States, were unlikely to be nationalized, which also soothed market jitters. Investors have been dumping their stock and have pushed the shares down more than 90 percent since March on fears the housing slump will leave the two insolvent without emergency support from the government. Freddie Mac on Monday sold $1 billion each in three- and six-month bills, with a measure of bids stronger than its sale earlier this month. Freddie Mac and Fannie Mae must routinely issue debt to refinance maturing issues that fund their combined $1.5 trillion in mortgage investments.
U.S. Existing Home Sales Don't Signal Market Normalization Economists say the larger-than-expected rise in July U.S. existing home sales doesn't necessarily point towards stabilization, since more than a third of the sales are related to foreclosures. They also note that a record high inventory level will put downward pressure on prices going forward. The annualized pace of sales in the National Association of Realtors index rose 3.1% to 5.00 million units in July, following June's revised sales pace of 4.85 million. Since July 2007, existing home sales have declined by 13.2%. Ian Shepherdson, chief U.S. economist at HFE, said it's "hard to avoid the conclusion that sales have bottomed out," but he said it's likely that sales have increased from homes in foreclosure rather than a pickup in the regular sales market. "Any real improvement is still a long way off," he added.
U.S. Auto Sales to Decline in August U.S. auto makers are expected to report big declines in August domestic sales despite stepped-up incentives, the Wall Street Journal said citing a report by J.D. Power & Associates. Industry-wide sales, however, will improve slightly from July, it said. The research firm expects sales in the closing days of the month to improve, helped by General Motors Corp's 100th anniversary sales event, which offers "employee pricing" on most vehicles and cash rebates on selected light trucks.
Automakers Seek $25B in Fed Loans to Ride Downturn The Big 3 Detroit-based automakers are seeking about $25 billion in federal loans as they struggle to ride out a steep downturn in U.S. auto sales, The Wall Street Journal reported on Friday. Lobbyists for the U.S. automakers — General Motors Corp, Ford Motor Co, and Chrysler LLC — briefed White House officials, as well as U.S. Rep. John Dingell and other Michigan Democrats, on a possible bailout and plan to unveil the proposal after Labor Day, according to the report. The plan is for the government to lend some $25 billion to the automakers in the first year at an interest rate of 4.5 percent, or about one-third what the companies are currently paying to borrow, the report said. Under the proposal, the government would have the option of deferring any payment at all for up to five years, the article said.
GM receives Gulf Arab interest in Hummer buy General Motors Corp has received interest from two separate investors from the Gulf Arab region to buy its Hummer brand, the company's Middle East chief told Reuters on Tuesday. "For sure, there has been interest from various parties within the Gulf ... there is a precedent in the cases of Aston Martin, Ferrari or Daimler and those kinds of solutions could be very realistic solutions," General Motors Middle East Managing Director Terry Johnson said in an interview. General Motors is readying sales documents for its Hummer brand and has initial expressions of interest from potential buyers that it hopes to develop into formal sale talks, the automaker's chief executive said on Aug 21.
Rio Tinto posts record first-half profit Rio Tinto, the global mining company, posted record first-half profit Tuesday, lifted by booming Asian demand for iron ore and the acquisition last year of Alcan. The company, which is fighting a $150 billion hostile takeover bid by BHP Billiton, said net income had more than doubled in the January-June period to $6.9 billion, from $3.3 billion a year earlier, as revenue rose to $27.2 billion from $12.1 billion. It also raised its interim dividend by 31 percent to 68 cents, and said it was committed to increase its total 2008 and 2009 dividends by at least 20 percent in each year
Will economy's path be shaped like a U, V, W or L? Wall Street, meet Sesame Street. Bulls, bears and Nobel laureates are talking a lot about letters as they try to predict the shape of the charts that will describe the economy's downturn and recovery. Will this roller coaster follow the path of a "U" - a stretched-out slump with a sharp upturn? Or will it be shaped like a "V," with a vertiginous descent followed by a quick recovery? Will we wrestle with a "W"-shaped double dip, or labor through an "L" of long-term languishing? Global Insight Inc.'s May presentation "U.S. Recession and Recovery: U-, V-, or W-shaped?" answered with a "W," saying a second dip would come as spending from stimulus checks dries up. "There's been debate about whether it's V-shaped or U-shaped," Nobel-winning economist Joseph Stiglitz said recently on CNBC. "I think there's growing consensus it's an L-shape." By focusing on letters, Wall Street is "trying to make a desperate situation look sort of technical - 'It's not that much of a fuss, the big boys can take care of it, don't you worry,'" said Wall Street historian Charles Geisst. "Except the big boys here, their trousers are getting a little short, I'm afraid." So far, the downward ride has included record bank writedowns and home foreclosures, the wipeout of $1.9 trillion in shareholder wealth and a spike in unemployment.
Tough economic times hurt post office The U.S. Postal Service could lose about $2 billion this year due to tough economic times, and it needs to change to meet the demands of the public, Postmaster General John Potter said Monday. Potter told the National Association of Postmasters of the United States at their convention in St. Louis that the postal service is grappling with issues that many businesses are facing - like how to handle high fuel prices. "We simply cannot control it," he said. But, he pointed to the postal service's large fleet of alternative-fuel vehicles as a positive step. Potter praised postmasters and postal workers for their commitment to service and reliability, but said more needs to be done to reduce bureaucracy, cut costs and embrace technology. "We're probably going to lose somewhere in the neighborhood of $2 billion this year," he said. "If we don't act, we'll lose $2 billion or more the following year."
Something Rotten In Denmark The ancient Viking city of Roskilde is renowned for its picturesque views, music festivals and a cathedral where a handful of Danish kings and queens are buried. But now there's a small footnote to add to the tourist books: it is the site of Denmark's second bank failure. The Danish central bank and several private lenders announced Monday that they were taking over Roskilde Bank and effectively nationalizing it. Now some 33,000 individual investors in Denmark have lost their money. (The bank's institutional investors already bailed a long time ago.) The Danish central bank governor said overnight that shareholders had lost 1.0 billion kroner ($198.2 million), and hybrid loan holders had lost 2.5 billion kroner ($495.9 million).
Iran says it has started building submarines Iranian state TV said the country had begun production of a domestically built submarine capable of firing missiles and torpedoes. The defense minister, General Mostafa Mohammad Najjar inaugurated a production line Monday for the mid-sized submarine, named Ghaem. The television station quoted him as saying that Iran had made huge investments to become self-sufficient and equip its armed forces with modern weapons.
Gulf Countries Remain Tied to the Dollar RIYADH, Saudi Arabia — As oil prices soared and the dollar’s value plunged, a chorus of academics and policy experts took up the cry that Saudi Arabia and neighboring Persian Gulf countries should abandon their currency pegs to a depreciating dollar to help combat the social ravages of inflation that were spreading across the region. The brief, put forth by the likes of Alan Greenspan, the former Federal Reserve chairman, and the Harvard economist Martin Feldstein, made impeccable theoretical sense: with gulf economies riding an oil boom, higher interest rates and stronger currencies were needed, not the reverse. Currency traders took heed. But that argument made only limited headway in Saudi Arabia. And now, with the dollar’s modest comeback and oil’s retreat, policy makers in the region have been bolstered in their resolve to keep the pegs in place and accept the consequences of higher inflation if need be.
France calls summit on EU-Russia relations The French EU presidency has called an emergency summit on EU-Russia relations for 1 September, as Russian troops continue to occupy parts of Georgia despite EU pressure. The Brussels summit will take place "following the demands of many member states" and will be devoted to EU "aid to Georgia and the future of its relations with Russia," a French communique said on Sunday. The move follows a telephone call between French president Nicolas Sarkozy and Russian president Dmitry Medvedev on Saturday, in which Mr Sarkozy fruitlessly urged Russia to withdraw from the Georgian towns of Poti and Senaki. On Sunday, German chancellor Angela Merkel said on national TV that "Russia has not yet fulfilled its commitment to the six-point peace plan [on withdrawal to pre-conflict positions]," adding "Russia's credibility is at stake." The Russian army began to pull back from Georgia on Friday at a "snail's pace" in the words of one US general, with armed Russian checkpoints still controlling access to key parts of western and northern Georgia on Sunday evening.
West awaits Medvedev word on recognizing rebel areas TBILISI (Reuters) - Georgia and its Western allies waited on Tuesday to hear if Russian President Dmitry Medvedev would recognize Georgia's separatist regions as independent, a move Washington has warned would be unacceptable. In a sign of the fragility of the ceasefire declared after Russian troops marched into the pro-Western state, Georgian and separatist forces were in a tense standoff over a disputed village on the fringes of breakaway South Ossetia. The two houses of Russia's parliament adopted non-binding resolutions on Monday urging Medvedev to recognize the independence of South Ossetia and the second Georgian separatist region of Abkhazia. But the Kremlin leader issued no response to the unanimous votes in parliament. U.S. President George W. Bush said he was deeply concerned by the parliamentary votes. He urged Russia's leaders not to recognize the regions, which broke with Tbilisi after the collapse of the Soviet Union, as independent. Senior officials of the world's leading industrial nations, the Group of Seven, also expressed alarm at the move.
Russia Recognizes Independence of Georgian Regions Russia recognized the independence of Georgia's breakaway regions, South Ossetia and Abkhazia, risking a deepening rift with the West and striking a blow against NATO's expansion toward its border. "I signed decrees on the recognition by the Russian Federation of the independence of South Ossetia and Abkhazia,'' President Dmitry Medvedev said on television from Sochi today. ``Russia calls on other states to follow its example." European governments condemned the move. The U.K. Foreign Office "categorically" rejected it, while Italy and France expressed regret. Russia's unilateral recognition of the two regions stems from its military rout of Georgia, which came this month in response to a Georgian operation to retake South Ossetia. It echoes the West's establishment of ties to Kosovo in February, a step Russia bitterly opposed after the enclave broke away from Serbia, a Russian ally. U.S. President George W. Bush has opposed any move to divide Georgia.
Putin casts doubt on Russia's WTO accession Prime Minister Vladimir Putin said Monday that Russia should abandon some of the commitments it made during World Trade Organization accession talks. Putin's statement is another sign that a war of words between Russia and the West is likely to go beyond empty threats. Also Monday, President Dmitry Medvedev warned that Russia might cut its ties with NATO. Putin said at a regular meeting of his Presidium that it was "sensible" to abandon some of the commitments Russia made during the WTO accession talks. "We don't see or feel advantages from the membership, if they exist at all, but we are carrying the burden," he said in comments posted on the government Web site. "Basic fairness should prevail."
No More NATO Members Ron Paul -- Before the US House of Representatives, statement on H Res 997, expressing the strong support of the House of Representatives for the North Atlantic Treaty Organization to enter into a Membership Action Plan with Georgia and Ukraine, April 1, 2008 Mr. Speaker, I rise in opposition to this resolution calling for the further expansion of NATO to the borders of Russia. NATO is an organization whose purpose ended with the end of its Warsaw Pact adversary. When NATO struggled to define its future after the Cold War, it settled on attacking a sovereign state, Yugoslavia, which had neither invaded nor threatened any NATO member state. This current round of NATO expansion is a political reward to governments in Georgia and Ukraine that came to power as a result of US-supported revolutions, the so-called Orange Revolution and Rose Revolution. The governments that arose from these street protests were eager to please their US sponsor and the US, in turn, turned a blind eye to the numerous political and human rights abuses that took place under the new regimes. Thus the US policy of “exporting democracy” has only succeeding in exporting more misery to the countries it has targeted.
Ron Paul Big Announcement If they expected us to retire quietly from the scene, the political elite are in for a surprise. Today I am making some very big announcements. First, from August 31 to September 2 in Minneapolis, we will host a handful of events that will shake the political establishment. Everything will culminate on Tuesday with the official launch of the Campaign for Liberty at the Rally for the Republic. The Campaign for Liberty will be the largest organization for peace, freedom, the Constitution, and sound money in American history. It will launch in grand fashion with lots of special guests and - if the early television and print inquiries we've received are any indication - plenty of media attention. I would like to personally invite you and your family to join me and thousands of others in Minneapolis for these events and send a message to the Republican Party.
North Korea to Consider Restoring Nuclear Reactor $$ North Korea is shaking up the latest denuclearization agreement it made with the U.S. and four other countries, in a move designed to pressure the Bush administration in its final months to give it a better deal. The country's foreign ministry said Tuesday it may reverse the promising steps it took two months ago to end its pursuit of nuclear weapons, which included disabling its sole nuclear plant. The reason: It is angry the U.S. hasn't removed it from a terrorism blacklist. Getting off the U.S. list of state sponsors of terror has long been a goal of North Korea's authoritarian regime. The U.S. promised to start the process in June, when Pyongyang provided a declaration of the scope of its nuclear-weapons efforts.
N. Korea Makes Plutonium Threat North Korea said on Tuesday that it had stopped disabling its main nuclear complex, and threatened to restore facilities there that the North has used to produce plutonium for nuclear weapons. For months, U.S. experts and North Korean engineers have been disabling key facilities at Yongbyon, north of Pyongyang, in a move that temporarily shut down the North’s only known source of plutonium. If the North rebuilds the facilities, it would nullify a major foreign policy achievement of President Bush. North Korea often issues strident warnings as a negotiating tactic. Nonetheless, the latest declaration dimmed Mr. Bush’s hopes of achieving a breakthrough in the North’s nuclear disarmament before he leaves office in January.
Governing Coalition Collapses in Pakistan Pakistan's ruling coalition broke apart Monday amid a political battle over the presidency, paralyzing the U.S.-backed government at a time when Taliban insurgents here and in neighboring Afghanistan appear to be gaining ground. Former prime minister Nawaz Sharif said he would oppose the candidacy of his onetime political partner Asif Ali Zardari, leader of the Pakistan People's Party and widower of former prime minister Benazir Bhutto. President Pervez Musharraf, a longtime U.S. ally, resigned under threat of impeachment a week ago, and Parliament is set to elect his successor on Sept. 6. Sharif, leader of the Pakistan Muslim League-N party, said he decided to leave the coalition government after Zardari announced plans Saturday to run for president and reneged on a promise to reinstate dozens of judges deposed under Musharraf's rule. Pakistan's judges and lawyers led the struggle against Musharraf and have demanded more power for the judiciary and stronger checks on the executive.
Kennedy, Michelle Obama Tell Convention Nominee Offers New Path Democratic presidential candidate Barack Obama's nominating convention finished its first night with rousing tributes from his wife, Michelle, and the party's unofficial patriarch, Senator Edward Kennedy of Massachusetts. During speeches last night, both promised that Obama would forge a new political path, fight for all Americans and ensure universal health care. Obama said voting for her husband would mean listening "to our hopes instead of our fears." Kennedy ended his speech with an echo of his closing line in 1980, when he dropped his own bid for the presidency in favor of Jimmy Carter. Back then, he said, "for all those whose cares have been our concern, the work goes on, the cause endures, the hope still lives and the dream shall never die."
Clinton tells her supporters to back Obama In a ballroom overflowing with many of her most diehard supporters, Senator Hillary Rodham Clinton on Monday implored New York Democrats to work as hard to elect Senator Barack Obama as they worked for her. Clinton, while acknowledging that true party unity may take time, repeatedly told them it would be disastrous for the country to endure four more years of a Republican in the White House. Despite news reports of lingering tensions between her campaign and Obama's, Clinton sought to dispel those notions in her remarks.
Clinton tells her supporters to back Obama In a ballroom overflowing with many of her most diehard supporters, Senator Hillary Rodham Clinton on Monday implored New York Democrats to work as hard to elect Senator Barack Obama as they worked for her. Clinton, while acknowledging that true party unity may take time, repeatedly told them it would be disastrous for the country to endure four more years of a Republican in the White House. Despite news reports of lingering tensions between her campaign and Obama's, Clinton sought to dispel those notions in her remarks.
Biden Prepares 50,000-Word Acceptance Speech Senator to Address Convention on Wednesday, Thursday Minutes after he was chosen as Barack Obama's vice-presidential pick, Sen. Joseph Biden (D-Del) revealed that he has begun writing a 50,000-word acceptance speech, aides to the senator confirmed today. The address, which Mr. Biden has been working on around the clock, is an abridged version of a 200,000-word acceptance speech that Mr. Biden wrote when he ran for President in 1988. According to those familiar with the speech, the Delaware senator will begin delivering the speech on Wednesday night of the Democratic convention and conclude it on Thursday night.
Obama May Have Been Assassination Target Two men were arrested today in Colorado in connection with a possible plot to kill Democratic presidential candidate Barack Obama, the Denver Post reported. One of the men, identified as Tharin Gartrell, was arrested on charges of weapons possession, the newspaper said. He was found with two rifles, a high-powered telescope, two other weapons and methamphetamine when arrested for a traffic violation, the report said. Denver's CBS affiliate reported that one of the suspects said he had come to Denver to kill Obama. The Illinois senator is scheduled to accept the Democratic Party's presidential nomination on Aug. 28.
Black Americans debate the risks in Obama's rise On the night that Senator Barack Obama accepts the Democratic nomination for president, Roderick Harrison plans to pop open a bottle of Champagne and sit glued to the television with his wife and 12-year-old son. Harrison, a black demographer, says he expects to feel chills when Obama becomes the first black presidential candidate to lead a major party ticket. But as the Democratic convention gets under way, Harrison's anticipation is tempered by uneasiness as he ponders a question: Will Obama's success further the notion that the long struggle for racial equality has finally been won? Obama has received overwhelming support from black voters, many of whom say he will help bridge the racial divide in the United States. But even as they cheer him on, some black academics, bloggers and others who follow the race closely worry that Obama's historic achievements may make it harder to rally support for policies designed to combat racial discrimination, racial inequities and urban poverty.
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At the Fed, a Debate Over Countering Inflation Grows Louder JACKSON HOLE, Wyo. - With the decline in oil prices, inflationary pressures are easing for the moment. The Federal Reserve’s policy makers all acknowledge as much. But that has not halted their debate over whether to raise interest rates now to avoid higher inflation in the future. The issue moved to a broader forum over the weekend: the Fed's annual gathering in this mountain resort. The event drew central bankers and economists from abroad, the latter sometimes quite critical of what America’s central bank has done. "The Fed overreacted to the slowdown in economic activity," Willem H. Buiter, a professor of European political economy at the London School of Economics and Political Science, declared in his presentation, offering harsh criticism of his hosts. The Fed, he added, "cut the official policy rate too fast and too far and risked its reputation for being serious about inflation."
Bernanke, Buiter, Draghi Diverge on How to Forestall Crises One year into the financial crisis, central bankers and scholars at the Federal Reserve's annual retreat this weekend couldn't agree on how to prevent a repeat. Fed Chairman Ben S. Bernanke, European counterpart Jean- Claude Trichet, former officials and economists meeting in Jackson Hole, Wyoming, split over whether central banks should be made responsible for financial stability and how closely to heed the concerns of Wall Street. "We shouldn't delude ourselves into thinking we are going to build a panic-proof system,'' former Fed Vice Chairman Alan Blinder, who attended the conference, said in an interview with Bloomberg Television. "But there are choices between less and more panics, more virulent ones, less virulent ones, and that is the way we want to push the system.''
Worrisome Stagflation Becomes More Real All the Time U.S. Federal Reserve Chairman Ben S. Bernanke didn’t use the "S" word - stagflation - but he might as well have. On Friday, the U.S. central bank chief said that the financial crisis that has hammered the U.S. market is combining with rising inflation to eviscerate American economy. Together, the two forces are making it extremely difficult for the Fed to restore economic stability in the U.S. market. Bernanke apparently welcomed the recent drop-off in the prices of oil and other key commodities - and says that inflationary pressures will moderate over the next year and a half, but also cautioned that the current inflation outlook remains highly uncertain. The upshot: The Fed will monitor the economic situation closely and will "act as necessary" to make sure that inflation doesn’t get out of hand. These dueling cross-currents - a sputtering economy and racing prices - is stagflation, the potentially ruinous manifestation that was once thought to be a theory only, meaning it couldn’t possibly show up in real life. That changed in the 1970s, when soaring energy costs and a collapsing U.S. global competitiveness combined to send the American economy into a tailspin. When the inflation rate peaked at 13.5% in 1981, then-Fed Chairman Paul A. Volcker had to put short-term interest rates up to more than 20% to finally break inflation’s back. Let’s hope that’s not happening again.
Home Buyers Hold Fate of U.S. Economy The willingness and ability of Americans to come back into the housing market over the next few months will determine whether the U.S. economy experiences a mild downturn or the deepest recession in 30 years. Many economists say that home prices have another 10 percent to fall to bring them into balance with rents and incomes. A fall of that magnitude would elicit a huge sigh of relief from Wall Street and Washington. But it wouldn't take much — a further clampdown by private lenders or a meltdown at mortgage finance companies Fannie Mae and Freddie Mac — to push home prices down much more severely, perhaps more than 20 percent. "That's how you could quickly get into this darker scenario," said Mark Zandi, chief economist with Moody's Economy.com. If banks tighten lending standards further, denying loans to borrowers with good credit histories, affordability won't be enough to keep people buying homes. And a sharper housing bust would leave deep scars in consumer sentiment, which would likely lead to a deep recession.
Lehman's clock is ticking As a Korean bank signals interest in a deal, pressure mounts on CEO Dick Fuld to do something fast. Lehman Brothers' latest march toward the once-unthinkable price of $10 a share was interrupted when a Korean bank expressed interest Friday in the struggling brokerage firm. The question now is whether CEO Dick Fuld is willing to reciprocate. A spokesman at the Korea Development Bank in Seoul said Friday that the state-run firm "is considering all kinds of options [with respect to] Lehman Brothers," including an outright purchase. The news sent Lehman's stock, which has lost three-quarters of its value this year as investors worry about potential losses on the firm's big mortgage portfolio, up more than $2, to $15.93 a share in heavy trading. The shares closed up 69 cents at $14.41. A Lehman spokesman declined comment on the story. But the market was upbeat because Fuld - after weeks scouring the globe for a strategic investor and getting rebuffed at every turn - now has a chance to do a deal that will put the firm on stronger footing.
Rapid rise of dollar may endanger U.S. and world economies The dollar is enjoying its strongest rally in three years largely because of bad news outside the United States rather than good news at home. Just as the dollar's swift decline earlier this year set off alarm bells with world policy makers who were worried that it was contributing to inflation, a swift rise that hurts U.S. exports would not be welcome, either. Currencies are typically viewed as proxies for their underlying economies, and the dollar is no exception. What makes it somewhat unusual is that it is the dominant currency of global trade. And its movements are intricately linked to the price of oil, which in turn has vital importance for the world economy.
What Will Mac ’n’ Mae Cost You and Me? THE inevitability of a taxpayer-funded bailout of Freddie Mac and Fannie Mae, the hobbled mortgage behemoths, shook investors last week, and shares in both companies plummeted on fears that existing stockholders would be wiped out. These government-sponsored entities guarantee or hold $5.2 trillion in mortgages and have been hammered by defaults across the nation. Fannie Mae’s shares closed on Friday at $5, down from almost $70 a year ago. Freddie Mac fell to $2.61, which is down from about $65. Their heavily leveraged balance sheets magnify even a small rise in delinquencies. There is no certainty about what form a Mac ’n’ Mae rescue would take. Naturally, this is giving investors the jitters. Up and down Fannie’s and Freddie’s capital structure, debt and equity holders want to know how a bailout would affect them. It is widely assumed that debt issued by Fannie and Freddie will be backed by the taxpayers. Call it “too big to fail times two."
Seeing Red: Buffett, Others Clash On Danger Posed by U.S. Debt Two long-term views of the U.S. economy were on vivid display at a town hall meeting here Thursday night, with the world's richest person on one side and pretty much everybody else on the other. there is general agreement that times are tough in the short term -- the markets are flighty, foreclosures are widespread and jobless claims remain high -- there is sharp disagreement on what the future holds. Some, such as super-investor Warren E. Buffett, believe that the economy is merely experiencing a "correction" and that subsequent generations of Americans will have a much higher standard of living than those alive today.
Libor Signals Tighter Credit as Banks Balk at Lending Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen. "It's like an ongoing nightmare and no one is sure when we're going to wake up,'' said Thomson, a money manager in Glasgow at Resolution, which oversees $46 billion in bonds. "Things are going to get worse before they get better.'' In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens. Binit Patel, an economist in London at Goldman Sachs Group Inc., said in an Aug. 21 report that nations accounting for half of the world's economy face a recession.
U.S. and global economies slipping in unison Economic trouble has spread far beyond the United States to major countries in Europe and Asia, threatening businesses around the world with the loss of the international sales and investment that have become increasingly vital to their sustenance. Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Foreign demand for American goods and services was supposed to continue compensating for waning demand in the United States.
In the Ruins of the Housing Boom, the Price of an Illusion ELLIE WOOTEN, the likable mayor of this likable Central Valley city, is on her way to the office when her cellphone rings. A constituent wants her mortgage payments reduced, and is hoping that the mayor has some clout with her lender. Although Merced has one of the highest foreclosure rates in the country, this borrower isn't in such dire straits. She's not even behind on her mortgage. But her oldest daughter is turning 18, which means an end to $500 a month in child support. She just wants a better deal. The mayor hangs up and shrugs: "It's a surprise her daughter is turning 18? You'd think she could have planned ahead." But hardly anyone in Merced planned very far ahead. Not the city, which enthusiastically approved the creation of dozens of new neighborhoods without pausing to wonder if it could absorb the growth.
Bad Begets WorseHow the Mortgage Giants Lead The Market Deeper Into Crisis Fannie Mae and Freddie Mac are giants of the mortgage finance industry. But to investors, they're rapidly shrinking. And as they struggle, they're taking the housing market with them, reinforcing a downward spiral in which their troubles translate into pricier home loans and increasing foreclosures, in turn further undermining the companies. "Right now you have a giant negative feedback loop," said Paul Miller, an industry analyst at Friedman, Billings, Ramsey Group. "How you break it, I don't know." About 70 percent of newly issued mortgages are owned or guaranteed by Fannie Mae and Freddie Mac. Without this financial backing, the banks and other lenders who typically make home loans would no longer be able to do so. The housing market could collapse.
Oil rises as dollar weakens Oil up near $115 a barrel, dollar weakness seen as main driver Oil prices edged up to nearly $115 a barrel Monday as the U.S. dollar lost some ground against the euro and the Japanese yen, making commodities more attractive to investors. By afternoon in Europe, light, sweet crude for October delivery was up 38 cents to $114.97 a barrel in electronic trading on the New York Mercantile Exchange. The contract tumbled $6.59 on Friday to settle at $114.59 a barrel. Analysts said this week -- with U.S. markets headed toward the Labor Day holiday next Monday -- would likely be characterized by volatile prices and low trading volumes.
Merrill Lynch settlement with SEC worth up to $7B Federal regulators said Friday that investors who bought risky auction-rate securities from Merrill Lynch & Co. before the market for those bonds collapsed will be able to recover up to $7 billion under a new agreement. The largest U.S. brokerage will buy back the securities from thousands of investors under a settlement with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and other state regulators over its role in selling the high-risk bonds to retail investors. Under that deal, announced Thursday, Merrill agreed to hasten its voluntary buyback plan by repurchasing $10 billion to $12 billion of the securities from investors by Jan. 2. Merrill also agreed to pay a $125 million fine in a separate accord with state regulators. The $330 billion market for auction-rate securities collapsed in mid-February.
Wall Street bailout aid questioned at Fed event JACKSON, Wyo. (AP) -- Do Washington policymakers listen too much to Wall Street? A possible bailout of Fannie Mae and Freddie Mac, on the heels of similar action involving investment firm Bear Stearns, seems to send a loud signal to financial companies that the government will clean up their messes. That's the feeling of some analysts and academics here Saturday, the final day of a high-profile economics conference. The Federal Reserve's handling of the worst financial crisis to hit the country in decades spurred much debate. "The Fed listens to Wall Street," said Willem Buiter, professor of European political economy at the London School of Economics and Political Science. "Throughout the 12 months of the crisis, it is difficult to avoid the impression that the Fed is too close to the financial markets and leading financial institutions, and too responsive to their special pleadings, to make the right decisions for the economy as a whole," he wrote in a paper presented to the conference.
Fed's Bernanke Proposes 'Macroprudential' Systemwide Oversight The experience of the Bear Stearns liquidity crisis has led Federal Reserve Chairman Ben Bernanke to suggest that financial infrastructure needs to be improved at both the "software" and "hardware" levels. He said a systemwide focus for financial regulation, or macroprudential oversight, could reduce moral hazard, broaden the mandate of regulators and even develop a more fully integrated overview of the entire financial system. Bernanke said the Fed's actions to bail out Bear Stearns in March were necessary and justified, yet he noted "particularly thorny issues" arise when the government intervenes in a financial crisis. In order to mitigate increased moral hazard from the assumption that the Fed views some firms as "too big to fail," he said countervailing action must be taken.
Fed Funds Futures Hold off Rate Hike Speculation after Bernanke Speech In the aftermath of Federal Reserve Chairman Bernanke's speech on financial stability, Fed funds futures are pricing in a 90% chance that the Federal Reserve will hold off on increasing rates at the next meeting scheduled for September 16. Bernanke, speaking at the annual Federal Reserve retreat, said the inflation outlook is uncertain but added that the Fed will act as needed to ensure "medium term" price stability. Bernanke added that falling commodity prices and the rising U.S. dollar will help moderate inflation for this year and the next year.
Falling Commodity Prices and Rising Dollar Are Promising Signs, Says Bernanke Falling commodity prices and a stable U.S. dollar are encouraging signs for the American economy, Federal Reserve Chairman Ben Bernanke said while speaking in Jackson Hole, Wyoming on Friday. Bernanke, speaking at the annual Federal Reserve retreat, said the inflation outlook is uncertain but added that the Fed will act as needed to ensure "medium term" price stability. "Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided," Bernanke said. "Its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment."
Police Raid Islamic Offices in Galilee Dozens of police and intelligence personnel swooped down on Al Aqsa offices of the Islamic Movement in the Lower Galilee city of Um el Fahm Saturday night and seized money, computers and documents that linked the organization with Hamas. The money was intended for activities in Jerusalem, which were sponsored by the movement's leader, Sheikh Raad Salah. He has accused Israel of building a synagogue under the Temple Mount's Al Aqsa mosque. Um al Fahm is a large Arab city located several miles east of Hadera, southeast of Haifa, and has increasingly become a hotbed of anti-Israeli incitement. Rice's Visit is 17th Trip in Two Years American Secretary of State Condoleezza Rice's visit to Israel this week will be the 17th time in two years she has visited the region. Expectations are low that she will succeed in her newest bid to forge an agreement by Prime Minister Ehud Olmert and Palestinian Authority (PA) chairman Mahmoud Abbas on the establishment of a new Arab country. She is expected to meet together with Foreign Minister Tzipi Livni and senior PA negotiator Ahmed Qureia. American President George W. Bush has said he wants an agreement signed before he leaves office in January. Prime Minister Olmert told a Knesset committee weeks ago that there was "no practical possibility" of reaching an agreement within the time frame set by President Bush.
Area around Nano car plant at Singur turned into a fortress Singur, Aug 24 (PTI) The area around the Tata Motors Nano car plant here turned into a fortress with massive deployment of security for Trinamool Congress' indefinite dharna from today. Over 2,000 police personnel were deployed and the gate of the Tata Motors unit was barricaded with policemen on watch towers keeping close watch and water cannons kept ready. Trinamool Congress chief Mamata Banerjee is scheduled to address a meeting from a specially erected platform near the gate of the Tata Motors project to demand return of 400 acre to farmers who were unwilling to part with their land.
Columbian Bank and Trust of Kansas Closed by U.S. Regulators Columbian Bank and Trust Co. of Topeka, Kansas, was closed by U.S. regulators, the nation's ninth bank to collapse this year amid bad real-estate loans and writedowns stemming from a drop in home prices. The bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance Corp., the FDIC said yesterday in a statement. Citizens Bank and Trust will assume the failed bank's insured deposits. Columbian Bank's nine branches will open Aug. 25 as Citizens Bank and Trust offices, the FDIC said. Customers can access their accounts over the weekend by writing checks or using ATM or debit cards.
Regulators close Kansas bank State and Federal regulators shut down Columbian Bank and Trust of Topeka, Kan. -- the ninth bank to fail so far this year and the fifth since mid-July. The Federal Deposit Insurance Corp. estimates the failure will cost its deposit insurance fund $60 million. Columbian Bank and Trust had $752 million of assets and $622 million of deposits as of June 30, the FDIC said. The insured deposits of the failed bank, which had nine branches, were sold to Citizens Bank and Trust of Chillicothe, Mo. Also, Citizens Bank and Trust agreed to buy $85.5 million of Columbian Bank and Trust's assets.
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Clinton delegates back Obama, but poll shows concern Delegates to the Democratic National Convention arrive in Denver having largely put aside the deep divisions of the primary fight between Senators Barack Obama and Hillary Rodham Clinton, although some hold lingering concerns about Obama's level of experience, according to a New York Times/CBS News poll. More than half of the delegates that Clinton won in the primaries now say they are enthusiastic supporters of Obama, and they also believe he will win the presidential election in November, the poll found. Three in 10 say they support Obama but have reservations about him or they support him only because he is the party's nominee. Five percent say they do not support him yet.
It's official: Joe Biden is Barack Obama's pick Joe Biden would bring considerable foreign policy experience to the Democratic ticket. Sen. Barack Obama has chosen Delaware Sen. Joe Biden as his running mate on the Democratic ticket in the race for the White House. Obama announced the selection of Biden on his Web site early Saturday, and a text message went out shortly thereafter: "Barack has chosen Senator Joe Biden to be our VP nominee." The new teammates were to make their first public appearance together later in the day at a rally at the Old State Capitol in Springfield. News started circulating of Biden's selection late Friday as media reported Obama had alerted a number of his top candidates for vice president that he had chosen another. Then speculation swirled around Biden. Biden, 65, has been a fixture in the Senate since 1973 when Obama was 11 years old. He is the chairman of the Foreign Relations Committee and would bring considerable foreign policy heft to the ticket at a time when Republicans increasingly are focusing on Obama's lack of experience in that arena.
Obama VP Pick Joe Biden: Good on Civil Liberties, Friendly to Hollywood Though he's known best for his foreign policy credentials, the 66-year-old senator's work on the Senate Judiciary Committee has put him in the middle of most of the defining issues of the internet age -- epic fights over intellectual property, privacy and antitrust law. The role of the vice president in influencing an administration's tone and policy varies with the character of the executive teams occupying the White House, but as Al Gore demonstrated while Bill Clinton's vice president, there are plenty of opportunities for the veep to push specific items to the top of the agenda. "They can be a thought leader, a convener, a driver of national strategy, an exhorter to industry," said Larry Irving, a former adviser to the Clinton White House, earlier this week. Biden Joins Obama on Democratic Ticket $$ Barack Obama used his first joint appearance with his vice-presidential nominee, Sen. Joseph Biden, to push a more populist economic message, emphasizing his running mate's blue-collar roots and painting Republican Sen. John McCain as out of touch. "This working class kid from Scranton and Wilmington has always been a friend to the underdog," Sen. Obama said of Sen. Biden, of Delaware, to the 35,000 people gathered outside the Old State Capital, the same site where he declared his candidacy 19 months ago. The two men plan to take a tour of economically stressed swing states before arriving together in Denver for their party's nominating convention, which opens on Monday.
Bernanke: Financial crisis taking toll on economy Bernanke says financial crisis and higher inflation pose challenge to policymakers Federal Reserve Chairman Ben Bernanke said Friday the financial crisis that has pounded the country -- coupled with higher inflation -- is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore "Although we have seen some improved functioning in some markets, the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said in a speech to a high-profile economics conference here. Although Bernanke welcomed the recent drops in prices for oil and other commodities, and believes inflation will moderate this year and next, the Fed chief said the inflation outlook remains highly uncertain.
Fed Chief Still Sees Inflation Easing $$ Federal Reserve Chairman Ben Bernanke on Friday signaled he isn't contemplating higher interest rates despite what he called a "jump" in inflation, saying he expects those pressures to subside. Mr. Bernanke also said officials "remain focused" on addressing risks to the economy and financial markets that have led officials to maintain a "relatively low" federal funds rate target for interbank lending. Officials are betting that stable commodity prices coupled with slower global growth and anchored inflation expectations will eventually soften price pressures, Mr. Bernanke said in opening remarks to the Kansas City Fed's annual Jackson Hole conference. "In this regard, the recent decline in commodity prices, as well as the increased stability of the dollar, has been encouraging," he said.
Chairman of the US Federal Reserve, Ben Bernanke, set to defend rate cuts Ben Bernanke, the chairman of the US Federal Reserve, is expected to defend the central bank's drive to stave off recession Ben Bernanke, the chairman of the US Federal Reserve, is expected to make a staunch defence of the central bank's aggressive drive to stave off recession in America through interest-rate cuts and ground-breaking interventions in financial markets. Mr Bernanke is set to stand by his strategy to shore up America's economy in the face of the US housing slump and the global credit crunch as he comes under the spotlight from fellow central bank officials and leading economists at the Fed's annual Jackson Hole symposium. As the Fed's chairman joins economic experts from across the world at the elite "talkfest" at the Wyoming mountain retreat, the backdrop could in some ways scarcely be more appropriate.
Bernanke says inflation outlook "uncertain" Federal Reserve Chairman Ben Bernanke on Friday called the U.S. inflation outlook "highly uncertain," and said central bank policy-makers would do what they must to preserve price stability. At the same time, he called a recent decline in commodity prices and stabilization of the U.S. dollar "encouraging." "If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next," he said in prepared remarks to a Kansas City Federal Reserve Bank symposium.
Buffett Says Fannie Mae, Freddie Mac 'Game Is Over' Fannie Mae and Freddie Mac, the two largest mortgage finance companies, "don't have any net worth," billionaire investor Warren Buffett said. "The game is over" as independent companies said Buffett, the 77-year-old chairman of Berkshire Hathaway Inc., in an interview on CNBC today. "They were able to borrow without any of the normal restraints. They had a blank check from the federal government." Freddie Mac and Fannie Mae touched 20-year lows yesterday on the New York Stock Exchange on speculation a government bailout will leave the stocks worthless. U.S. Treasury Secretary Henry Paulson won approval from Congress last month to pump emergency capital into the companies, which account for more than half of the $12 trillion U.S. mortgage market.
What Can Lehman Do Now? As the stocks of Fannie Mae and Freddie Mac have plummeted, financial shares have taken a beating. But few have suffered as much as Lehman Brothers, the troubled investment bank whose stock plunged more than 10 percent on 11 days of the last quarter. In the last 12 months, Freddie’s stock price has dropped 95 percent. During that period, Lehman has fallen 76 percent. The Standard & Poor’s financial index has lost 42 percent. By way of comparison, Merrill Lynch is down 68 percent and Citigroup is down 64 percent. The connection between Lehman, Fannie and Freddie is clear, says Richard X. Bove, an analyst at Ladenburg Thalmann. “Lehman’s business is broader than Fannie and Freddie, but the link is that they were doing the same thing — packaging mortgages and selling them,” he told The Times.
Mint suspends red-hot Eagle gold coins A shortage of American Eagle bullion coins due to soaring demand following a recent sharp retreat in gold prices has forced the U.S. Mint to temporarily suspend sales of the popular coins. "Due to the unprecedented demand for American Eagle gold one-ounce bullion coins, our inventories have been depleted. We are therefore temporarily suspending all sales of these coins," the U.S. Mint told authorized coin dealers in a memorandum dated on Friday. Michael White, a U.S. Mint spokesman, said that only the one-ounce 22-karat American Eagle coins are sold out, but the half-ounce, quarter-ounce, and 1-10th ounce coins as well as the less popular 24-karat American Buffalo coins are still available.
Paulson Might Weigh Whom to Hurt in Any Fannie, Freddie Rescue Treasury Secretary Henry Paulson's response to the sinking fortunes of Fannie Mae and Freddie Mac might boil down to picking which investors get hurt and by how much. At stake if Paulson does intervene: the fate of worldwide bondholders of $5.2 trillion of agency and mortgage-backed debt and scores of large banks, insurers and pension funds that own the firms' common and preferred shares. Paulson's choices probably include buying Fannie's and Freddie's bonds, a special class of preferred shares or preferred shares convertible into common stock, analysts and investors said. The terms and conditions of any purchases would put the government ahead of other creditors and stockholders, while ensuring that bondholders are protected, they said.
Sovereign, Midwest Battered By Fannie, Freddie Preferred Stock Midwest Bank Holdings Inc. Chief Investment Officer Don Wiest is wagering U.S. Treasury Secretary Henry Paulson will rescue him from a failing $67 million stake in Fannie Mae and Freddie Mac. Melrose Park, Illinois-based Midwest and banks from Philadelphia-based Sovereign Bancorp to Frontier Financial Corp. in Everett, Washington, own preferred shares in the beleaguered mortgage-finance companies that have lost more than half their $35 billion value since June 30. Concern that Paulson may step in with a rescue plan that would wipe them out along with common stock investors has sent the securities tumbling.
Demand, And The Dollar, Will Guide Oil First the Iran premium, now the Russia premium--geopolitical fears seem to be taking over the energy markets, with oil still hovering at $120 per barrel on Friday morning after a $6 leap on Thursday. But to ignore the big picture of waning global demand, as well as the trajectory of the dollar, would be a mistake. Although Russia is grabbing the headlines as a major oil and gas exporter playing hardball with the West, Thursday's rise in oil prices also got a boost from a fall in the dollar--the second hiccup in its largely upward journey this week. And although Russia has used the "gas weapon" in past spats with both Ukraine and Georgia, it is difficult to see what situation could provoke a willful, long-term disruption in energy flows to the West.
GCC must rethink dollar peg for FX union Gulf Arab states should consider dropping their pegs to the weak US dollar to have more tools to control inflation and achieve single currency criteria, Dubai International Financial Centre (DIFC) economists said. Targetting inflation should be the top priority of the Gulf central bank to be set up by Saudi Arabia, the United Arab Emirates and three other states as they roll out a single currency, the DIFC said in a report on Tuesday. "Pegging to the US dollar is not the best policy to control inflation," said Nasser al-Saidi, chief economist of the DIFC, a financial free zone in regional business hub Dubai.
Berlin moves to block takeovers by wealth funds Berlin moved Wednesday to block takeovers of German firms by petrodollar-rich investment vehicles known as sovereign wealth funds if they are deemed to jeopardise national security. Chancellor Angela Merkel’s cabinet approved a bill that would see acquisitions by foreign entitities not based in the European Union of more than a 25 percent stake in German firms scrutinised, the economics ministry said. If such a purchase is deemed to pose a threat to public security or order, Berlin could prevent it from going through, according to the bill that must now be passed by parliament to become law, the ministry said in a statement. Sovereign wealth funds are investment vehicles typically controlled by hydrocarbon-rich countries like Russia or Gulf nations with trillions of dollars at their disposal ready to invest abroad. Many large banks were forced to go cap-in-hand to sovereign wealth funds when the subprime mortgage crisis left them strapped for cash. Singapore’s Temasek for example became the largest shareholder in Merrill Lynch. But concerns that their motives may be political and not just economic have prompted a backlash, with many countries such as the United States bolstering their defences against the funds’ advances
Billionaires say US debts need attention 'I.O.U.S.A.' film and billionaires behind it want nation's debts to get attention in campaign Two billionaires used the screening of a documentary in theaters across the United States on Thursday to urge the country to come to grips with its staggering debt load. Warren Buffett and Pete Peterson were at the premiere of the movie "I.O.U.S.A." to add their views to the film's message: An economic disaster will befall the nation if the federal government's $53 trillion in debts continue to grow. But Buffett said at a news conference before the movie's showing that he doesn't think the country's financial picture is quite as dire as the filmmakers portray. "I do not regard our national debt as unduly alarming," said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., and is listed by Forbes magazine as the world's richest man.
Expect Further Pressure on the Consumer Mid-priced department store Kohl's Inc doesn't expect any relief for U.S. consumers in the foreseeable future as high fuel and food costs put a tight hold on their shopping habits. "There is nothing that we see in any of the metrics or nothing I've read independently that would lead you to believe there is any turnaround in the near term for consumers," Kohl's newly-appointed Chief Executive Kevin Mansell told Reuters in an interview on Thursday. Kohl's will continue to tightly manage its inventory levels throughout the holiday season and keep prices attractive, especially since back-to-school sales aren't expected to be robust, Mansell said.
Economy remains stuck in low gear Economy languishes as July's leading indicators fell sharply, weekly jobless claims improved A private sector measure of the economy's health showed the largest drop in a year, and while new jobless claims fell for the second straight week, they remain near the highest levels since 2002. The reports are the latest evidence the languishing American economy remains stuck in low gear. The New York-based Conference Board said Thursday its monthly forecast of future economic activity fell 0.7 percent in July, far more than the consensus estimate of a 0.2 percent decline by Wall Street economists surveyed by Thomson/IFR. The last time the index showed a drop this great was last August, when it fell by 1 percent.
Dollar Index Faces Worst Loss in Five Months The dollar fell broadly Thursday as worries of wider credit-related losses at some U.S. financial firms made investors abandon risky trades, igniting a rally in the yen and Swiss Franc. A surge in crude oil prices above $120 a barrel also took some steam out of the dollar's recent strong recovery, setting it on track for its worst one-day fall in five months against a basket of six currencies. It was on course for its sharpest daily loss against the yen since July, while the euro eyed its biggest single day gain versus the U.S. currency also since July.
Analysts see tough quarter for U.S. investment banks Wall Street research analysts are projecting yet another tough quarter for U.S. investment banks marked by additional writedowns across a series of fixed-income assets amid an already weak operating environment. Shares of Lehman Brothers Holdings Inc fell as much as 9 percent in morning trade Thursday, after a Citigroup analyst forecast big losses for the fourth largest U.S. investment bank, while a newspaper reported that an intended asset sale had collapsed.
Freddie Hunts for Cash $$ But Prospect of Government Bailout Spooks Potential Investors Freddie Mac executives are sounding out private-equity firms and other investors about the possibility of buying new common or preferred shares in the mortgage company. But that effort is running up against what may be an insurmountable hurdle: Many investors fear any money they invest now in Freddie or its main rival, Fannie Mae, will be lost later if the U.S. Treasury bails out the companies through a purchase of equity in them. Investors believe such a purchase would likely involve terms that would wipe out the value of previously issued shares. "Senior management has been talking with a wide array of possible investors this week," said David Palombi,Freddie Mac's chief spokesman. He noted that the company remains above its current regulatory capital requirements but has pledged to raise $5.5 billion of capital "given appropriate market conditions."
Markets await Bernanke as central bankers gather JACKSON HOLE, Wyoming (Reuters) - Federal Reserve Chairman Ben Bernanke tackles financial stability in a key speech on Friday but economists doubt he will provide solid clues about future policy action to calm the credit crunch. Central bankers are gathering in this mountain resort for an annual symposium as financial markets tense for more losses from home loans, amid concern that U.S. mortgage giants Fannie Mae and Freddie Mac will need government cash. This time last year, Bernanke told the conference the Fed would take steps to shield the economy from the U.S. housing collapse, but would not bail out investors.
Some Fear Commercial Property Loans Will Be Next Stage in Downturn As the value of home mortgages crumbles by the day, Wall Street has hoped that commercial real estate loans would stay clear of the storm. But bankers believe the headwinds may be shifting after a large apartment complex in Harlem warned last week that it might not be able to make good on a $225 million mortgage payment by September. A default by the complex, the rent-regulated Riverton Apartments, a 12-building residential development constructed after World War II, would be New York’s largest in the current housing crisis. For Wall Street banks, which hold about $100 billion of commercial mortgage-backed securities, the prospect has fanned new worries that a deterioration of the overall commercial property market could prompt more write-downs in the coming quarter, on top of losses already expected from their distressed mortgage securities holdings.
Fed Acted on Lehman Rumor $$ Amid Market Speculation in July, Credit Suisse Was Urged to Maintain Ties In an apparent attempt to prevent a repeat of the cascading rumors that helped sink Bear Stearns Cos., the Federal Reserve last month quietly called one major bank to see if it had pulled a credit line from Lehman Brothers Holdings Inc., people familiar with the matter said. Responding to a July rumor that Credit Suisse Group planned to pull a line of credit to Lehman, Federal Reserve officials called to see if it was in fact true, according to these people. Credit Suisse told Fed officials there was no truth to the rumor and it had no intention of pulling the line of credit, the people said. The Fed's unusual move underscores the tough position that federal officials are in as the Wall Street investment bank tries to overcome mortgage-related losses. As financial institutions suffer through write-downs and loan woes, the Fed has a strong incentive and the moral authority to dispel groundless speculation that could threaten the viability of an important cog in the U.S. financial system.
Lehman straits may spur hostile takeover Lehman Brothers failed to sell a large stake to Asian investors, a report said, and such failures may open the door to a hostile takeover of the investment bank, an analyst wrote. A newspaper report said Lehman sought to sell up to a 50 percent stake to China's biggest brokerage, CITIC Securities, or state-owned Korea Development Bank, but the two Asian companies walked away after deciding the asking price was too high. That represents a failure for a bank seeking to assuage investors concerned about its $60 billion of mortgage assets. The bank has looked at selling at least a part of its asset management unit to private equity firms, and is looking at selling commercial real estate assets.
Roubini: One-Third of Regional Banks to Fail Regional banks will experience a huge increase in the number of homeowners willing to simply walk away from their mortgage loans, and 30 percent of these banks could fail as a result, says New York University economics professor Nouriel Roubini. "The housing recession is not bottoming out by any standard. The problem is actually getting worse." Because the number of homes that are worth less than the mortgages their owners are carrying is growing, the number of homeowners who default on their mortgage loans is increasing, and consequently, so are banks' balance sheet woes.
What Paulson Learned From the Pentagon When smart generals develop a war plan, they try to anticipate every possible scenario. But they don't hold a press conference to announce the details--mostly they keep everything secret. They may even leak a deceptive nugget or two to throw the enemy off-track. Treasury Secretary Henry Paulson isn't exactly waging war with Fannie Mae and Freddie Mac, or with the bond markets. But it's certainly a high-stakes standoff. Paulson wants big investors to bail out the two struggling mortgage giants by continuing to buy their bonds and equity shares. But to keep investors from bailing themselves, Paulson has pledged that, as a last resort, the government will inject money into Fannie and Freddie if that's what it takes to keep them in the mortgage business. And that's about all he has said. Some critics have questioned the vagueness of Paulson's plan or ridiculed Treasury denials that a bailout is imminent. There's understandable frustration about the lack of detail involving two institutions critical to the U.S. housing market. But an optimistic observer might also conclude that Paulson's has demonstrated some shrewd maneuvers borrowed from the annals of grand strategy.
Economy Needs New Stimulus Plan New Jersey Governor and former Goldman Sachs Chairman Jon Corzine says he wants a second stimulus package to save the U.S. economy, one that creates new jobs. In an interview, the Democratic state governor says that giving taxpayers more money, possibly in the form of help with energy bills as winter begins, would be understandable. But, he says, the better answer would be spending money on transportation upgrades that would create construction industry jobs.
Inflation Is Stinging U.S. Workers Harder $$ European Pay Raises Keep Pace Now, But Economists Fear a Wage-Price Spiral Consumer prices are rising at their fastest pace in more than a decade in both the U.S. and the euro zone. But it's affecting workers on the two sides of the Atlantic in very different ways. In Montgomery, Ala., Steve Murphy, an instructor for adults with mental disabilities, doesn't expect to get a raise because his employer is getting squeezed by higher fuel bills. In Madrid, Spain, travel agent Ignacio Temprano gets raises to match inflation because Spanish unions helped negotiate such increases into law. He says he considers the extra money "a bonus." Unions are more powerful in the 15-nation euro zone than in the U.S., and many laws and practices there are more worker-friendly. That's part of the reason why many European workers are keeping up with inflation better than their U.S. counterparts.
3 Banks Settle Securities Case With New York Three major investment banks — Merrill Lynch, Goldman Sachs and Deutsche Bank — will soon buy back at least $12.5 billion in auction-rate securities and pay $162.5 million in fines as part of separate settlements reached Thursday with state regulators. The deals are the latest to emerge from state and federal investigations that have entangled about 30 Wall Street firms, from global banks to discount and regional brokerage firms. Investors were told that auction-rate debt was as safe and liquid as cash, but after the market collapsed earlier this year, they were unable to sell the securities. In earlier settlements, Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia agreed to buy back $35 billion of the securities and pay more than $360 million in fines. Several other firms, including Bank of America, are negotiating deals.
Lehman On The Bubble Richard Fuld seems to be putting himself and Lehman Brothers into a corner. The embattled chief executive can't find willing investors, even overseas--perhaps because Lehman Brothers (nyse: LEH -news - people ) shares have tanked 61% since the last time the company raised capital. The $4 billion of common stock sold in June as part of the $6 billion total capital raised is now worth $1.8 billion. On Thursday, the Financial Timesreported Fuld tried to convince the Korean Development Fund to buy 50% of his company last month and was turned down.
Financial Follies Citigroup highlighted the cracks in Wall Street Thursday, reducing price targets and raising projected write-downs of three major brokerage houses as the fallout from the subprime loan crisis persists in disrupting the world's financial markets. While investors keep Citi's troubles clearly in view, the bank on Thursday issued negative reports for Goldman Sachs, Lehman Brothers Holdings and Morgan Stanley. Shares of Goldman dropped 2.8%, or $4.37, to $153.82, in morning trading, while Lehman slid 5.3%, or 73 cents, to $12.99, and shares of Morgan were off 1.8%, or 76 cents, to $36. 74.
Oil Sparked All Over Again Oil had been spending much of the year spiking on tensions in the Middle East, but now saber rattling between the West and its former Cold War nemesis are starting to make energy markets nervous. Despite being largely unresponsive to the conflict between Russia and Georgia, which began more than two weeks ago, oil prices shot up more than $5 a barrel Thursday as escalating tensions stoked fears of a disruption of energy shipments to Western countries.
Maker of Snickers and M&Ms is raising prices The maker of Snickers bars and M&Ms candies said it is raising wholesale prices more than 12 percent to offset the higher costs of raw materials, packaging and energy, the second major candy company in the past week to announce such a move. The statement issued this week by Mars follows a similar announcement by its larger candy rival, The Hershey Co., which cited the spiraling costs of everything from cocoa and peanuts to fuel and utilities. The changes represent a 12.2 percent value increase to Mars' entire U.S. portfolio, and affect single bars as well as other package types, Mars spokeswoman Bertille Glass said Thursday.
Reports Offer Mixed Signs on the Economy Manufacturing in the mid-Atlantic states declined less rapidly in August while weekly jobless claims fell, according to two reports on Thursday that revealed morsels of good news in an otherwise bleak economic environment. At the same time, an index of leading economic indicators published by the Conference Board posted its largest one-month decline in nearly a year, suggesting that the underlying picture continued to deteriorate. The Philadelphia Federal Reserve Bank said its business activity index rose to minus 12.7 in August, the highest since December 2007, from minus 16.3 in July. Readings below zero point to contraction in the sector, which has been shrinking since late last year by this measure.
F.D.I.C. Retirees Ride to Rescue in New Era of Bank Failures Before he retired from the Federal Deposit Insurance Corporation three years ago, Gary Holloway was cleaning up the remnants of the savings and loan crisis two decades earlier. His nettlesome problems included selling leaky gas stations in Florida and the Thomas Ranch in California, also in need of a petroleum cleanup. What Mr. Holloway and his co-workers were really doing was working themselves out of jobs. The F.D.I.C. closed offices and slashed its staff in the 1990s as the savings and the loan mess wound down after hundreds of failures through the 1980s. Activity slowed, with just 29 bank failures in the five years ended in 2004. So after 30 years with the agency, Mr. Holloway retired for a laid-back life of fishing and golfing in rural Spicewood, Tex. At the F.D.I.C., what followed was nothing — literally. From 2005 through the end of 2006, not a single bank failed, the longest such stretch since 1993.
Boeing may withdraw from U.S. tanker bid Boeing Co confirmed on Friday it may withdraw from a $35 billion competition for new aerial refueling aircraft unless the Pentagon agrees to give it six months to submit a new bid. "If they don't give us sufficient time to prepare a meaningful and competitive proposal ... there's a strong likelihood that we would no-bid," Boeing spokesman Dan Beck said, confirming comments by Boeing defense unit chief Jim Albaugh in an interview with the Wall Street Journal. "Basically we would not submit a proposal," said Beck.
G.M., With an Eye on Profit, Invests in Ohio Plant For years, the workers who built compact cars at the General Motors plant next to the Ohio Turnpike feared their jobs would suddenly disappear. Now their futures seem as secure as anyone’s in the auto industry. G.M. announced Thursday that it would spend $500 million so the factory can start building a compact car that is a critical part of its effort to become profitable again. G.M. is closing four North American truck plants, including one in western Ohio. Sales of those vehicles have plunged, so the company recently added a third shift and 1,400 jobs at its plant in Lordstown, which is southeast of Cleveland. In April 2010, the plant will begin making the Chevrolet Cruze, which G.M. says will be far better for its bottom line than its predecessor, the Cobalt.
Desperately Seeking S.W.F. Why sovereign wealth funds like Singapore's Temasek keep coming back to the troubled financial sector. Why would a sovereign wealth fund that poured $5 billion into Merrill Lynch eight months ago want to invest even more money after seeing Merrill's shares fall by more than half? Easy. It's practically a sure thing.
The "Do Not Concede" Convention This whole display of Democrat unity just ain't workin'. Despite the biased media's best attempt to portray them as a party rallying around their choice, Barack Obama, the rumblings behind the scenes are making for a collective disruption on the convention floor that will hardly be anticlimactic. Some of Hillary Rodham Clinton's Texas supporters to the Democratic National Convention aren't ready to concede the presidential nomination to Barack Obama. And if the roll call goes against Clinton, they plan to try to force a convention vote on her for the vice-presidential nomination. Meanwhile Hillary's acting all "I hadn't the slightest clue they would do this". On one hand, she says she's asked her supporters to back Obama, while on the other hand Hillary attends mini-rallies where the only thing missing are pitchforks, torches, and rolling pins.
Economy makes grim reading for Gordon The stagnation of the British economy between April and June will come as a hammer blow to the Government. No longer can Gordon Brown boast of economic growth in every quarter since Labour came to power. In fact, the zero per cent growth is the weakest performance of the economy since the tail end of the last recession in 1992. Ministers taking comfort in the fact that today's figure was not negative should think again. The signs coming from the services, manufacturing and construction sectors, the machinery that runs the economy, were grim in July, suggesting the worst is yet to come. It looks like we have started the slow slide into recession, rather than avoiding one.
Russia sends aircraft carrier to Syria The Russian aircraft carrier "Admiral Kuznetsov" is ready to head from Murmansk towards the Mediterranean and the Syrian port of Tartus. The mission comes after Syrian President Bashar Assad said he is open for a Russian base in the area. The "Admiral Kuznetsov", part of the Northern Fleet and Russia’s only aircraft carrier, will head a Navy mission to the area. The mission will also include the missile cruiser “Moskva” and several submarines, Newsru.com reports.
Moscow halts military co-operation with Nato Russia tried to seize the high ground over its relations with Nato today when it told the alliance it planned to halt all military cooperation until further notice. Nato foreign ministers, however, had already made it clear at its emergency meeting on Georgia in Brussels on Tuesday that it could not envisage convening a Nato-Russia Council session until all Russian troops had been withdrawn from Georgia. The military freeze between Russia and the alliance became official today. Under the security partnership with Nato, Russia has been cooperating on counter-terrorism and consulting on regional issues where Moscow and the West have mutual interests.
New oil and gas survey makes the Arctic hot According to the U.S. Geological Survey’s lastest estimates, 22 percent of the world’s undiscovered technically recoverable resources are to be found in the Arctic. The information is likely to make the Arctic an increasingly attractive region for the world’s petroleum companies. According to a press release from the U.S. Geological Survey (USGS), the Arctic accounts for about 13 percent of the undiscovered oil, 30 percent of the undiscovered natural gas, and 20 percent of the undiscovered natural gas liquids in the world. About 84 percent of the estimated resources are expected to occur offshore.
No fair play in the Arctic? Russia is leading the scramble for the Arctic's natural resources, ahead Canada, USA, Denmark and Norway, Daily Telegraph reports. There is little chance of everyone playing fair when so much it as stake, the newspaper maintains. According to Cleo Paskal, an Assistant Fellow at Chatham House and an expert on how climate change will affect borders, Russia is a step ahead of the other Arctic countries. The Russians have a big head start. Their nuclear submarines have been all over the Arctic for decades, they have 16 icebreaking ships to the Americans' four, they have a lot of experience and a lot of the right gear, he says to the newspaper. -And they have a lot to gain. Apart from fossil fuels, there are important fisheries that will increasingly move north with global warming. Strategic control of the Arctic is within their reach, he adds.
USA lagging behind in race for the Arctic There are five countries participating in the race for the Arctic, and we are lagging behind all of them, U.S. congressman Rick Larsen said in a congress hearing this week. Nations from around the world are racing to protect their interests in the Arctic region, and right now the United States is in last place, Mr. Larsen said in the hearing, his website reports. The hearing on the U.S. CoastGuard’s capabilities in the Arctic region was held in a subcommittee of the Sub-committee of the Transportation and Infrastructure Committee on the request of congressman Larsen.
'Israel removed soon' Iranian President Mahmoud Ahmadinejad is calling Israel a “germ of corruption” that will be “removed soon.” The comments were posted Wednesday on his presidential website. They appear to be part of an effort to defuse criticism by hard-liners over recent remarks made by a high-level official. Last week, Iranian media quoted Vice-President Esfandiar Rahim Mashai as saying Iranians were "friends of all people in the world — even Israelis." The comments were rare from a government official in Iran, whose president regularly calls for Israel’s destruction. They sparked domestic criticism of Mashai, with some officials calling for his resignation. In 2005, Ahmadinejad said he believed Israel should be "wiped off the map."
U.S. Sees Much to Fear in a Hostile Russia The president of Syria spent two days this week in Russia with a shopping list of sophisticated weapons he wanted to buy. The visit may prove a worrisome preview of things to come. If Russia’s invasion of Georgia ushers in a sustained period of renewed animosity with the West, Washington fears that a newly emboldened but estranged Moscow could use its influence, money, energy resources, United Nations Security Council veto and, yes, its arms industry to undermine American interests around the world.
China and Iraq Finalize Oil Contract, as Western Oil Majors Waver China and Iraq will sign a deal next week to develop the Ahdab oil field, 100 miles southeast of Baghdad, at time when political gridlock and security concerns have cast doubt over several pending short-term contracts. The new agreement, valued at $1.2 billion, is a variation of a deal struck with the state-owned China National Petroleum Corp. in 1997, when Iraq was in the clutches of Saddam Hussein. "The Chinese contract was signed with the former regime," Hussein al-Shahristani, Iraq’s oil minister, said in an interview that appeared on Iraqi news Web site al-Noor. "It’s valid. It was unfair because it was a production-sharing contract. We have negotiated with them for a year. It was turned from a sharing contract into a service contract."
The Eagle Has Been Grounded $$ Mint Halts Gold-Coin Sales After Metal's Price Drop Depletes Supply As gold prices tumbled from their highest level ever, investors and collectors loaded up on one-ounce "American eagle" gold-bullion coins. The buying spree came to an abrupt halt this week after the U.S. Mint stopped selling the coins for the first time since production began 20 years ago. "Due to the unprecedented demand...our inventories have been depleted," the Mint -- part of the U.S. Treasury Department -- told its dealers Friday. "We are therefore temporarily suspending all sales of these coins." The move shocked sellers and collectors of the coins, which are the most widely traded in the U.S. Suppliers became angry as they turned away customers. Theories about the decision's underlying cause ran rampant -- from investors in gold futures to Russia's invasion of Georgia.
Fed Rumor Patrol Reports underscore the vulnerability of Lehman. When it comes to Lehman Brothers, everyone is walking on eggshells—including the Federal Reserve. The Wall Street Journal reports that the Fed called Credit Suisse in July to see if there was any truth to a rumor that the bank was planning to pull a line of credit to Lehman. Credit Suisse, the paper says, told the Fed it had no such intentions. The call was "unusual" the Journal says, because of the implication that the Fed was hinting that Credit Suisse should keep backing Lehman. "Urging lenders and trading partners to stick by an embattled firm also carries the risk that it will inflame the same anxieties that the Fed is trying to soothe. That is one reason why such calls occur rarely."
Buffett spotlights nation's debt crisis Billionaire investor teams up with Wall Street luminaries to focus attention on America's ballooning budget deficit. The catastrophe looming in the documentary "I.O.U.S.A." isn't romantic like the doomed young love in "Titanic," but billionaires Warren Buffett and Pete Peterson warn it could break many more hearts. The disaster they warn of could be bigger than any we've ever seen - bigger than an iceberg, bigger even than the current m If the U.S. doesn't do something, and fast, to tame the federal government's debts - now more than $50 trillion - the two Nebraska natives warn we will saddle coming generations with economic problems that will make this year's financial turbulence Premiering Thursday at 358 theaters nationwide, "I.O.U.S.A." is part of Peterson's campaign to give the ballooning debt a central role in the presidential campaign.
Paulson's Fannie-Freddie 'Bazooka' Shakes Investors U.S. Treasury Secretary Henry Paulson's "bazooka" may be intimidating the same investors he intended to reassure. The powers Paulson won from Congress last month enabling a government rescue of Freddie Mac and Fannie Mae -- authority he likened to a weapon whose mere existence made it unlikely it would have to be fired -- may end up making a bailout more likely, say analysts and investors. They say the threat of government action is creating uncertainty that is raising the companies' borrowing costs and increasing the odds Fannie and Freddie will need taxpayer funding
Foreign Economies Must "Decouple" from the United States by Suspending Lending to U.S. Consumers Economists, who now see American troubles spreading around the world are predicting that foreign central banks will ignore the gathering inflation threat and follow the U.S. Federal Reserve down the rate-cutting path. Similarly, they argue that since the downturn began here, the recovery of the U.S. economy will likely be under way while the rest of world is still decelerating. These assumptions have prompted a recent rally in the U.S. dollar, and an accompanying sell-off in gold, commodities and foreign stocks, and have cast doubts on the ability of foreign economies to economically "decouple" from the United States. But investors should not take the bait. America and the U.S. economy does, indeed, pose a global threat, but not for the reasons these economists suppose. Foreign economies are suffering not because American consumers have slowed their voracious spending, but because they are defaulting on hundreds of billions of dollars of existing loans underwritten by lenders around the world.
Oil rises towards $120 on Russia-U.S. tension Oil rose by more than $4 a barrel to nearly $120 on Thursday, climbing for a third day, as Washington's missile shield deal with Poland angered Russia, adding to international tension. The spat adds to political factors that have supported oil prices in recent months, such as the dispute over Iran's nuclear work. A weaker dollar also boosted the appeal of commodities as an inflation hedge.
Fannie and Freddie's ability to raise capital 'uncertain' As mortgage financiers Fannie Mae and Freddie Mac struggle with continuing credit losses, their ability to raise needed capital is uncertain and, analysts say, is complicated by the possibility of a government bailout of the two companies. "We're in uncharted water with this," Bert Ely, an Alexandria, Virginia-based banking industry consultant and longtime critic of Fannie and Freddie, said Tuesday. Published reports about a possible bailout, continued quarterly losses at Fannie and Freddie and further deterioration in the credit markets have investors concerned about the mortgage companies' solvency. Those worries have sent the companies' prices tumbling, with Fannie falling another 4.49 percent and Freddie sliding 5.01 percent on Tuesday.
Fannie and Freddie shares dive on bailout fears Fannie Mae and Freddie Mac shares plunged to their lowest levels in almost 20 years on Wednesday, while the mortgage companies' bonds rallied on the belief that an increasingly likely government bailout would wipe out shareholders but secure their massive debt. U.S. Treasury and Freddie Mac officials met to discuss how the company can best weather the current economic woes in light of mounting credit losses, sources familiar with the meeting said, but neither Treasury nor Freddie Mac officials would comment on details.
Conditions worsen at Fannie Mae and Freddie Mac, prompting bailout fears Financial conditions are continuing to worsen at Fannie Mae and Freddie Mac, leading some investors to prepare for a government bailout of the U.S. housing giants even as the Treasury Department and the companies say such government intervention will not be necessary. Stock prices of both companies fell again in midday trading, and some large overseas investors slowed their purchases of securities issued by the firms. Share prices at Fannie and Freddie both plummeted by more than 24 percent Monday and Tuesday, and by more than 17 percent Wednesday. The shares have dropped more than 87 percent so far this year. On Tuesday, Freddie Mac was forced to pay its steepest borrowing premium in 10 years. "The markets are acting like a bailout is inevitable," said Sean Egan, managing director of Egan-Jones Ratings, an independent credit ratings firm.
Fed's Stern Says Now Not "Appropriate Time" to Close Fannie, Freddie Federal Reserve Bank of Minneapolis President Gary Stern said Wednesday that now is not an "appropriate time" to close government-sponsored Enterprises Fannie Mae and Freddie Mac. Speaking on Bloomberg Television, Stern said it is "important" for Fannie and Freddie to function and that they should be re-oriented towards lower income buyers. He added that the Federal Reserve will monitor exposure other banks have to Fannie and Freddie. "That is something obviously we will be taking a look at," he said. "But I don't think the problem with Fannie and Freddie is just confined to banks that happen to hold their preferred stock." Stern also said the Federal Reserve needs to adopt less accommodative monetary policy before strong growth returns and that "we may have to move" on rates if inflation doesn't moderate as expected. Right now, however, is a "good time to be patient" in setting the Fed rate, he said.
Lehman’s secret talks to sell 50% stake stall Lehman Brothers, the beleaguered US investment bank, held secret talks to sell up to 50 per cent of its shares to South Korean or Chinese parties in the first week of August but failed to reach agreement with either. The South Koreans and Chinese walked away after concluding that Lehman was asking too high a price, said New York-based people familiar with the potential buyers. Lehman declined to comment.
Lehman under mounting pressure to take action The pressure is increasing on Lehman Brothers Holdings Inc. to come up with a plan to restore itself to financial health - or possibly face the worst-case scenario of selling itself off in pieces and at bargain prices. The nation's fourth-biggest investment house is considered the most vulnerable amid the financial sector's continuing losses from the credit crisis. This week, Lehman has been the subject of analyst downgrades and projections that it will lose $4 billion in the third quarter. There is rising speculation - most of it negative - about its short-term prospects, leading more investors to bail out of Lehman stock, which closed Wednesday at $13.73, well off its 52-week high of $67.73. Lehman needs to come up with a plan to purge itself of its risky mortgage-backed assets and raise new capital. But neither task is easy: Prospective buyers for those assets want to pay as little as they can get away with, and the big offshore investors that invested in Citigroup Inc. and Merrill Lynch & Co. months ago are wary about sinking more money into the financial industry. What makes the situation harder for Lehman Chief Executive Richard Fuld is that Wall Street is still smarting from the near-collapse of rival Bear Stearns & Co. in March.
Fears bloom on rumors of pending bombshell in financials All the talk in the credit markets this week is that another big bomb is about to go off in the financial system. That helped pull the stock market down Tuesday for a second session, led (again) by bank and brokerage stocks. What kind of financial-system bomb? That's the problem: The fear is very generic, not specific. Notably, these jitters intensified last week, even before a weekend article in Barron's that effectively dug the grave for the common stocks of mortgage financiers Fannie Mae and Freddie Mac. Because their shares crashed on the article, Fannie and Freddie don't seem to fill the bill as looming market surprises, although they're adding to the heightened state of concern.
Will Stocks Hit Bottom after Fannie, Freddie? The near-collapse of Fannie Mae and Freddie Mac may signal a turning point for stock markets, provided that conditions in the credit markets improve, Michael Browne, Portfolio Manager from Sofaer Global Research, told CNBC Thursday."I suspect that this offers a tremendous buying opportunity for the markets, it's the sort of crash, it's the sort of failure, that you see that tends to mark bottoms," Browne told "Squawk Box Europe" after discussing the future of the government-sponsored enterprises. He stressed that this was just a hunch and was reluctant to recommend any specific stocks. The fundamentals for the financial sector remain poor and continue to deteriorate, Browne said, but he added that "these are the sort of moments that give you opportunities."
Financial Crisis Is Still Far From Over, Market Pros Say The financial industry was hit with more downgrades and dire predictions, sending most stocks lower in the already battered sector. BlackRock's Bob Doll became the latest market pro to forecast a worsening of the credit crisis, telling CNBC Wednesday that the financial sector will only hit bottom after a round of consolidation and layoffs and the end of capital raising. "We are still of the view, stubborn as we are, that we have not seen the end of the problems and therefore financials have not made a relative bottom," said Doll, BlackRock's global investment adviser for equities, during a wide-ranging panel discussion.
Leading Economic Indicators Index in U.S. Falls 0.7% The index of leading U.S. economic indicators fell in July by the most in almost a year, reinforcing the darkening outlook for growth. The Conference Board's gauge dropped 0.7 percent, more than forecast and the biggest decline since August 2007, after an unchanged reading in June, the New York-based group said today. The index points to the direction of the economy over the next three to six months. The worst housing recession in a quarter century, rising job cuts and shrinking access to credit raise the risk that consumer spending will falter by year-end, bringing the economic expansion to a halt. A separate report showed manufacturing in the Philadelphia region shrank in August for a ninth month.
Fannie & Freddie Trading Should Be Halted As investors dumped shares of Fannie Mae and Freddie Mac for the third straight day, CNBC's Jim Cramer urged that trading in both stocks be stopped altogether because they were being manipulated by people with insider information. "This is an outrage," Cramer said shortly after the market closed. "It's very clear that someone knows what's happening." Cramer blamed regulators, including the Securities and Exchange Commission and New York Stock Exchange, for not stepping in to halt trading in the shares on the possibility of insider trading. "They used to stop trading when it was clear that there were some people who knew what was going on and others don't," he said. "There's no cop on the beat anymore. "There's so much confusion, so much money changing hands," he added. "It's just so unfair to the little guy."
Auction-rate probe focuses on 3 banks New York AG focuses auction-rate probe on BofA, Goldman Sachs and Deutsche Bank New York Attorney General Andrew Cuomo will intensify his probe into auction-rate securities by focusing on Bank of America Corp., Goldman Sachs Group Inc. and Deutsche Bank AG, a person close to the investigation said Wednesday. The banks are the three biggest players in the auction-rate securities market that have not already reached a settlement with Cuomo, who is seeking deals on behalf of regulators and state authorities. Five major Wall Street firms including Citigroup Inc. and Switzerland's UBS AG have agreed to $42 billion in settlements. For the next phase, Cuomo has directed staff to spend more time gathering facts and talking to the three banks about the sale of the risky securities, said a person inside the attorney general's office who asked not to be identified by name because he was not authorized to speak publicly about it.
FDIC Rides To Rescue Of IndyMac Borrowers Thousands of financially distressed borrowers from the failed IndyMac Bancorp may be able to keep their homes due to an FDIC effort to modify their mortgages. The Federal Deposit Insurance Corp. said Wednesday that it would ease mortgage terms for certain IndyMac (other-otc:IDMC.PK - news - people ) home borrowers who have defaulted or are near defaulting, offering a mix of interest-rate reductions, longer repayment times and principal forbearance. It said that it sent out offers to 4,000 borrowers this week and is currently awaiting their response as well as their proof of income. Several thousand others will be contacted in coming weeks. The FDIC is hoping that other mortgage lenders will follow its lead and modify terms for troubled borrowers, helping to stem the rising tide of foreclosures and stabilize the housing market.
FDIC Unveils Plan to Aid IndyMac Borrowers $$ The federal government threw a lifeline to borrowers of failed thrift IndyMac Bancorp Inc., unveiling a plan to quickly modify thousands of mortgages to keep consumers in their homes and limit the government's potential losses from taking over the firm. The Federal Deposit Insurance Corp. said the modification would combine interest-rate reductions, longer repayment periods and principal forbearance on first mortgages either held or securitized by IndyMac. The agency said it will send new loan terms to around 4,000 borrowers this week, with a target of about 25,000 offers in the coming weeks. "Our goal is to get the greatest recovery possible on loans in default or in danger of default, while helping troubled borrowers remain in their homes," FDIC Chairman Sheila Bair said. The plan, she said, should "reduce future defaults, improve the value of the mortgages and cut servicing costs."
Precious Metals Fundamentally Sound Despite Market Havoc Our recent waterfall selling event in futures and commodities created a major dust-up as proclaimed gold is dead and crude oil is headed for $60. Somebody has to be on the other side of the trade so let's set aside the histrionics and take a cold, hard look at reality. When we do work on markets to figure where we've been and where we go next, fundamentals are first in line for strategizing. After this work is settled, we go backwards from the longest, many years' monthly charts reversing to weeklies and dailies. For trade entry and exit we check all the faster ones including real time, 1, 5, 15 minute and those important intraday patterns.
Silver has Run Out, Now! For a long time, people have been asking me, "When will silver run out?". They know that the world uses up more silver each year (about 850 million ounces) than the world mines (about 600 million ounces), and that existing demand can only be met by selling existing inventory (such as recycling 200 million ounces, or goverments selling 50 million ounces), so it's a natural question to ask. The question is not implying that mankind will be unable to mine any more. Rumor is that there remains at least about 14-16 years of silver in the ground at "current" prices; while at much higher prices, silver mining becomes more economic, and more deposits can be added to that "in ground" reserve number.
Prescriptions for Fannie and Freddie As policy makers work to ease the strain on the mortgage giants Fannie Mae and Freddie Mac, a consensus is emerging that the two companies will have to look substantially different in the long term. Leading figures from across the ideological spectrum say that the companies, which were created by Congress to support the housing market, must be restructured so that they do not threaten the financial system. These voices include Republicans, many of whom have long been critical of the outsize roles of Fannie Mae and Freddie Mac in the mortgage market, and some Democrats, who have generally been more supportive of the companies. Proposals for the companies include making them government-owned and breaking them up into smaller firms, phasing them out of existence entirely, or simply limiting their operations to certain core areas like affordable housing as well as limiting their ability to borrow money.
Starved for Capital, Lenders Call on Banks Lenders who had relied on now-choked debt and equity markets for financing are increasingly looking to good, old-fashioned bank deposits as a cheaper and more reliable alternative. Chevy Chase, Md.-based commercial lender CapitalSource, which lends to mid-sized businesses such as health care companies by raising debt in the capital markets, last month acquired flagging California bank Fremont General. The deal was done in the belief that damped investor appetite for these securities will make this way of doing business untenable.
A Few Speculators Dominate Vast Market for Oil Trading Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses. But when the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange. The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.
U.S. Dollar Falls as Oil Makes Comeback The U.S. dollar is broadly weaker on Thursday as oil and other commodities stage a comeback. WTI crude oil is up $3.75 to $119.31. The front month gold contract at the Chicago Board of Trade is up $20.70 to $836.90 per ounce. The Canadian dollar is up 0.0074 to 0.9501 against the U.S. dollar (1.0526 USD/CAD) and down 0.66 to 103.00 against the yen. The U.S. dollar is down 1.44 to 108.42 against the yen and the Dollar Index is down 0.614 to 76.344. The euro is up 0.0085 to 1.4832 against the U.S. dollar, down 0.0015 to 1.5615 against the Canadian dollar, up 0.0015 to 0.7936 against the pound sterling and is lower by 1.20 to 160.83 against the yen. The pound sterling is up 0.0071 to 1.8692 against the U.S. dollar and down 0.0061 to 1.9674 against the Canadian dollar.
U.S. Jobless Claims Fall Again The number of U.S. workers filing new claims for jobless benefits fell last week for a second week in a row, the government said on Thursday, though they continued at levels that showed a weakening labor market. The Labor Department said initial claims for state unemployment insurance benefits dipped by 13,000 to a seasonally adjusted 432,000 in the week ended August 16 after falling a revised 12,000 a week earlier.
Bernanke's Firefighter Role to Be Debated at Forum Thrust into the role of financial firefighter, Federal Reserve Chairman Ben Bernanke has taken unprecedented steps over the past year to battle the nation's worst credit and financial crises in decades. For many, the verdict is still out on if he opened up the hoses too widely. While intended to prevent a broader economic meltdown, the Fed's actions have drawn some criticism on Capitol Hill and elsewhere about whether taxpayers are being put at risk and if expanded safety nets will encourage financial companies to gamble more recklessly in the future.
Crunch time Even the best borrowers will feel the brunt of the credit crisis Gas prices and inflation, for example, are tough to avoid. Falling real estate prices may not be an immediate concern -- assuming you are not trying to sell your property into a sinking market -- but they clearly have an impact on net worth. The credit crunch is the one area that many consumers think they can sidestep if their financial situation is not perilous. After all, the term "credit crunch" was just put into the Concise Oxford English Dictionary, defined as "a severe shortage of money or credit," so anyone with decent credit or stable cash flow is likely to believe that credit headlines represent someone else's problems. Unfortunately, the same pervasive situation that made "credit crunch" a household term has also made it a household problem, in ways that many consumers don't immediately see.
Wachovia Unloads Troubled Loans $$ LandCap Will Buy $40 Million of Assets Via Joint Venture In an early sign that investors are starting to pounce on the billions of dollars of troubled land and construction loans that banks are looking to unload, a venture headed by LandCap Partners is buying $40 million of such assets from Wachovia Corp. LandCap, a residential-land company headed by real-estate veteran Jeffrey Gault, has created a joint venture that will buy the loans which have a book value of $75 million to $80 million, according to people familiar with the deal. The loans are to home developers and collateralized by 2,900 house lots -- which are in varying stages of development -- in such states as California, Arizona, Florida and Illinois. Many of the loans are in some form of distress because of delinquent payments or plunging values of the collateral. Charlotte, N.C.-based Wachovia, which declined comment, will be a minority partner in the venture.
Goldman sees more pain for banks, brokers Analysts cut profit estimates and warn of more write-downs, asset sales Goldman Sachs analysts became the latest to chop their profit estimates on bank and brokerage stocks on the expectation of more ugly write-downs triggered by the ongoing tumult in credit markets. "We expect third-quarter results will be hampered by declining global equity markets, further deterioration in mortgage assets, and slower levels of corporate and institutional activity," wrote Goldman analysts led by William Tanona in a research note sent Wednesday. Also, Goldman said although banks are aggressively unloading assets to raise capital and shoring up their balance sheets, things aren't likely to improve anytime soon. Any significant recovery "is still a few quarters away, as we anticipate additional asset sales and write-downs in coming quarters throughout the financial-services sector."
Goldman Stands By Forecast of $149 For Oil Goldman Sachs reiterated on Wednesday its year-end price forecast of $149 a barrel for U.S. crude oil, and said strong fundamentals were a more important factor than a strengthening dollar. The restatement came in a research note dated Aug. 19 but sent out on Wednesday. The U.S. investment bank is one of the most influential financial players in commodities markets.
USDA: Food Prices to Post Biggest Rise Since 1990 U.S. consumers should brace for the biggest increase in food prices in nearly 20 years in 2008 and even more pain next year due to surging meat and produce prices, the Agriculture Department said Wednesday. Food prices are forecast to rise by 5% to 6% this year, making it the largest annual increase since 1990. Just last month, USDA forecast food prices would climb between 4.5 and 5.5% in 2008. Prices are expected to rise by 4% to 5% next year, lead by red meat and poultry. The forecast, if correct, would be the third straight year where food prices have surged at least 4%.
Eyeing Georgia, Poland Expresses Worry WARSAW — The bustling streets of downtown Warsaw, increasingly filled with gleaming new automobiles and lined with Western boutique stores, seem a world away from downtown Tbilisi, Georgia’s capital, where jittery residents this month faced the once inconceivable threat of Russian tanks advancing down Rustaveli Avenue in the center of the city. But the events in the Caucasus, and threats of an attack by a Russian general after the announcement of a deal to place an American missile defense base on Polish soil, have cast a pall of doubt over this country, which, flush and confident, has taken its place in the West, specifically on the side of America, as an ally rather than as a vassal. As the United States and Poland formally signed the missile defense agreement on Wednesday, over vociferous objections from Moscow, polls in the daily newspaper Dziennik showed public opinion swinging sharply in the last month, from opposition to the missile base to support.
Russia warns of response to U.S. missile shield WARSAW, Poland — The United States and Poland signed a deal Wednesday to place a U.S. missile defense base just 115 miles from Russia — a move followed swiftly by a new warning from Moscow of a possible military response. For many Poles — whose country has been a staunch U.S. ally in Iraq and Afghanistan — the accord represented what they believed would be a guarantee of safety for themselves in the face of a newly assertive Russia. Negotiators sealed the deal last week against a backdrop of Russian military action in Georgia, a former Soviet republic turned U.S. ally, that has worried former Soviet satellites across eastern Europe. It prompted Moscow's sharpest rhetoric yet over the system, which it contends is aimed at Russia despite Washington's insistence the site is purely defensive.
Russia Never Wanted a War THE acute phase of the crisis provoked by the Georgian forces’ assault on Tskhinvali, the capital ofSouth Ossetia, is now behind us. But how can one erase from memory the horrifying scenes of the nighttime rocket attack on a peaceful town, the razing of entire city blocks, the deaths of people taking cover in basements, the destruction of ancient monuments and ancestral graves? Russia did not want this crisis. The Russian leadership is in a strong enough position domestically; it did not need a little victorious war. Russia was dragged into the fray by the recklessness of the Georgian president, Mikheil Saakashvili. He would not have dared to attack without outside support. Once he did, Russia could not afford inaction. he decision by the Russian president, Dmitri Medvedev, to now cease hostilities was the right move by a responsible leader. The Russian president acted calmly, confidently and firmly. Anyone who expected confusion in Moscow was disappointed
What did we expect? If the conflict in Georgia were an Olympic event, the gold medal for brutish stupidity would go to the Russian prime minister, Vladimir Putin. The silver medal for bone-headed recklessness would go to Georgia's president, Mikheil Saakashvili, and the bronze medal for rank short-sightedness would go to the Clinton and Bush foreign policy teams. Let's start with America. After the collapse of the Soviet Union, I was among the group of Americans - led by George Kennan, the father of "containment" theory, Senator Sam Nunn and the foreign policy expert Michael Mandelbaum - that argued against expanding NATO, at that time. It seemed to us that since we had finally brought down Soviet Communism and seen the birth of democracy in Russia, the most important thing to do was to help Russian democracy take root and integrate Russia into Europe. Wasn't that why we fought the Cold War - to give young Russians the same chance at freedom and integration with the West as young Czechs, Georgians and Poles? Wasn't consolidating a democratic Russia more important than bringing the Czech Navy into NATO?
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Former IMF Economist Predicts "Whopper" U.S. Bank Failure, Says Global Financial Crisis Set to Get Much Worse The global financial crisis is set to get much worse, with a large U.S. bank failure likely in the next few months, former International Monetary Fund (IMF) Chief Economist Kenneth Rogoff has warned. Speaking at a conference in Singapore, Rogoff, now an economics professor at Harvard University, said that despite hopes that the U.S. economy had turned the corner, the reality is that "the worst is to come." And that includes the probable collapse of a "whopper" U.S. bank or investment bank, he said. "We’re not just going to see mid-sized banks go under in the next few months," said Rogoff, who held the IMF role between 2001 and 2004. "We're going to see a whopper, we’re going to see a [failure of a] big one - one of the big investment banks or big banks." The Fannie and Freddie Trigger The bailout clock is ticking for the mortgage giants. What will it take for the government to step in finally and bail out Fannie Mae and Freddie Mac? The stock market has clearly indicated that a bailout is inevitable, as the share prices of the two mortgage giants continue to slide toward zero. On Tuesday, Freddie Mac had to pay an unusually rich premium to sell $3 billion of five-year notes. Dawn Kopecki of Bloomberg News reports that the test may be the ability of Fannie and Freddie to repay some $223 billion of bonds that come due by the end of next month. Fannie has about $120 billion of debt that matures through September 30, while Freddie has $103 billion, Bloomberg says. Recession may topple US banks, ex-IMF economist says Credit market turmoil has driven the US into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund. "The worst is yet to come in the US," Rogoff, a Harvard University professor of economics, said in an interview in Singapore. "The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job." The US housing slump has triggered about $US500 billion in credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest US securities firm. Bonds of regional banks such as National City Corp. and Keycorp are under pressure on expectations of more fallout. Rogoff, 55, said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance firms.
US bank 'to fail within months' The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned. Kenneth Rogoff's comments came as shares in Fannie Mae and Freddie Mac sank on a report that the home lenders would, in effect, be nationalised. Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was "not out of the woods". "I would even go further to say 'the worst is to come'," he said. "We're not just going to see mid-sized banks go under in the next few months," said Mr Rogoff, who held the IMF role between 2001 and 2004. "We're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks." Bernstein cuts outlook on U.S. investment banks Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) may post a third-quarter loss and incur fresh write-downs of about $3 billion, according to Sanford C. Bernstein & Co analyst Brad Hintz, who also cut his earnings estimates for Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz). Weakening credit market conditions in the third quarter indicate that more write-downs and hedging failures will likely impact U.S. investment banks' performance for the period, the analyst said Wednesday. "We expect the quarter will again be characterized by mark-to-market valuation adjustments in mortgage-backed securities, commercial mortgage-backed securities and collateralized debt obligations holdings, as well as ineffective hedge performance," Hintz wrote in a note to clients.
Shoppers Across the Board Pulling Back in Weak Economy From affluent shoppers at Saks to bargain-hunters at Target, from Home Depot to office-supplier Staples, consumers are pulling back, and that's hurting retailers and raising more concerns about how they'll do the rest of the year. The latest quarterly reports show more signs of financial stress on shoppers, as Target's customers stick to necessities and have trouble making their credit card payments. Saks says it's now seeing its high-end designer consumer cut back, whereas previously it was only the aspirational customers who were retrenching. And while falling gas prices in recent weeks should provide some relief to consumers, economists say that won't be enough to offset all the other economic problems out there, from a housing slump and a weakening job market to soaring food prices and tighter credit. Long period of frugality needed for the U.S. economy Looking for the foundations for the next bull market in U.S. stocks? Wait until you see consumers who save much more, have a lighter debt load and can actually sell their houses. In other words, bring a book: it may be a bit of a wait. The S&P 500 is down about 12 percent this year and is at levels seen in both 2001 and 1999, leaving many investors sitting on paltry gains or losses for the past decade. On top of that, the United States is arguably in recession, a state of affairs that won't be helped by the rapid deterioration of economies in Europe and Japan. Fair enough, you say, but that information is a heck of a lot less useful than telling us when we might expect an improvement. David Rosenberg, the U.S. economist at Merrill Lynch in New York, has three conditions he is looking for before he becomes more positive on U.S. stocks: a rise in the personal savings rate to about 8 percent; a decline in the number of houses on the market to about eight months of supply; and a big drop in the amount that debt payments sap from American household budgets Gold Bulls 'Running for Cover' Signal Price Drop Gold, down 21 percent from a record $1,033.90 an ounce in March, may be headed down after open interest in New York futures contracts for the precious metal plunged to the lowest level in 11 months. The CHART OF THE DAY shows open interest, or the total number of contracts yet to be closed, liquidated or delivered. This reached 365,611 on Aug. 12, down 26 percent from a four- month high on July 18 and the lowest since Sept. 10. Open interest on the Comex division of the New York Mercantile Exchange reached 593,953 on Jan. 15 -- the highest since at least 1994 -- before gold rallied another 15 percent to a record on March 17.
Mortgage application volume hits multiyear low Mortgage applications drop to lowest level in more than 6 years, despite lower interest rates Mortgage application volume fell last week to its lowest levels in more than six years, the Mortgage Bankers Association said Wednesday. The fall in application volume is the latest sign of a struggling housing market. On Tuesday, a Commerce Department report showed construction of homes and apartments fell in July to the lowest level in more than 17 years. And while fewer new homes are being built, fewer customers are also refinancing existing mortgages. A sharp drop in refinance volume in recent weeks has been the leading driver of declining application volume.
Lehman couldn't secure Korean Funds Lehman Brothers Chief Executive Dick Fuld nearly struck a deal to raise almost $5 billion from South Korean wealth funds and institutions but the pact disintegrated, the New York Post said citing sources familiar with the matter. One source told the paper that Lehman was aiming to raise more capital than the Korean investor was willing to invest at the time. The precise terms of the deal could not be learned, the paper said. Lehman has more than $60 billion of mortgage and mortgage security exposure, where losses are creeping higher even on loans to the highest quality borrowers.
Slumping economy takes toll on US retailers The slumping US economy is taking its toll on retailers from luxury chain Saks to discounter Target, and everything in between. Saks reported its largest loss in two years after cutting prices on women's designer clothing, while profit dropped for a fourth straight quarter at Target. Office-supplies retailer Staples said second-quarter net income probably dropped, and Home Depot, the biggest home improvement chain, posted its seventh sales decline since 2006. Retailer earnings may worsen with the further deterioration of the US economy, as consumers rein in spending to cope with rising unemployment and inflation. The world's largest economy may grow at an average 0.7% annual pace in the last two quarters of the year, half the rate of the first six months. Jump in Wholesale Prices Shows That Inflation Remains High $$ Soaring U.S. producer prices, which last month rose at their sharpest rate in 27 years, show inflation is still running high even as the U.S. economy slows. Most Federal Reserve officials are betting inflation will moderate in the coming months as the economy cools and oil prices stabilize, but they are unlikely to act on that belief until they see evidence of sustained price stabilization. Many forecasters expect the U.S. central bank to keep its target for the federal-funds rate steady at 2% for the remainder of this year. But some policy makers remain uneasy about price increases spreading through the economy. Officials "must remain poised to act if slowing growth fails to contain inflationary pressures," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech Tuesday. Mr. Fisher has voted against most of his colleagues on the Fed's rate-setting committee this year, pushing for rate increases during recent Fed policy meetings.
Lehman braces for pain Lehman Brothers is considering selling at least a portion of its asset management unit, one of its best-performing assets, which should signal to investors that more write-downs or losses are looming. Investors are clearly bracing for more pain at Lehman: the fourth-largest investment bank's shares trade at less than half their book value, implying that the company's assets are likely to be marked down or sold at a loss. That in turn will likely force the bank to raise capital in some form, be it by issuing securities or selling valuable assets, analysts said.
Paulson Playing Chicken With Markets: Guess Who Will Win? James Carville, Clinton strategist, said, I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter, but now I want to come back as the bond market. You can intimidate everybody. If a politico like Carville recognized the fixed income market as an irresistible force, you'd think a Wall Street pro like Henry Paulson would give it the respect it deserves. But peculiarly, he has been acting as if he can bluster his way through a mushrooming crisis of confidence in Fannie and Freddie.
Record rise in foreclosures may be distorting housing data As if the housing market wasn't scary enough, the record-setting surge in foreclosures could be distorting some of the closely watched housing data used to gauge the market's health. The foreclosure glut is making listings of homes for sale a less reliable indicator, because much of the distressed inventory might be left out. In addition, fire-sale prices for such properties may also be skewing volume figures. Some real-estate analysts say this may indicate that housing conditions are worse than they now look, dampening hopes that the troubled market could soon be bottoming out. The combination of weak housing sales, falling home values, tighter credit conditions and a slowing economy have left financially strapped homeowners in a tough spot - some borrowers have no choice but to foreclose if they can't find a buyer for their home or pay or refinance their loans.
Fannie's Perilous Pursuit of Subprime Loans As It Tried to Increase Its Business, Company Gave Risks Short Shrift, Documents Show In January 2007, as years of loose mortgage lending were about to send the nation's housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board. Discussing the company's successes, Mudd said one of Fannie Mae's achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step "toward optimizing our business." A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document.
Deflating Mortgage Rates $$ Moves to Bolster Fannie, Freddie Could Lower Costs There is no shortage of market indicators predicting the government will soon intervene to steady Fannie Mae and Freddie Mac. But there is one number in particular that could push the Treasury into doing something drastic: the cost of a 30-year mortgage. The rate on a standard 30-year mortgage is currently 6.52%, almost exactly the same as a year ago. And that rate has risen sharply since the end of March, despite all that has been done to shore up the housing market. That includes massive mortgage purchases by Fannie and Freddie, expressions of government support for both companies and the passage of new housing legislation.
Some Investors Say U.S. Bailout of Housing Giants Is Inevitable Financial conditions are continuing to worsen at Fannie Mae and Freddie Mac, leading some investors to prepare for a government bailout of the housing giants even as the Treasury Department and the companies say such government intervention will not be necessary. Stock prices of both companies fell again on Tuesday, and some large overseas investors slowed their purchases of securities issued by the companies. Share prices at both Fannie and Freddie have plummeted by more than 24 percent in the last two days, and more than 85 percent since December. On Tuesday, Freddie Mac was forced to pay its steepest borrowing premium in 10 years. “The markets are acting like a bailout is inevitable,” said Sean Egan, managing director of Egan-Jones Ratings, an independent credit ratings firm. Mr. Egan said he believed the federal government would need to help pump about $20 billion into each company, possibly through a government guarantee rather than through a direct injection of capital. “We believe Treasury is going to be forced to act within the next couple of weeks,” he added. “Probably some time after Labor Day, when investors are back from vacations so that the bailout has the biggest possible positive impact.”
US rates may rise before growth quickens, Fed banker says Higher interest rates may be needed to bring down inflation even before growth and financial markets return to normal, Federal Reserve Bank of Richmond President Jeffrey Lacker said. "It is important to withdraw this monetary policy stimulus in a timely way,"Lacker said today in a Bloomberg Television interview. "That may require us to withdraw before we are certain all of the weakness is behind us and before we are completely certain that financial markets are as tranquil as we would like to see." US consumer prices rose at the fastest pace in 17 years, limiting the Fed's leeway to cut interest rates and revive faltering economic growth. Prices paid to US producers in July increased double the amount economists projected, a Labor Department report showed today. Central bank policy makers signaled two weeks ago that falling employment and persistent financial market turmoil would delay any increase in borrowing costs.
Monetary Policy in Uncertain Times Speech by Richard W. Fisher - President and Chief Executive Officer Federal Reserve Bank of Dallas ". . . . We are in the midst of a fierce correction from a prolonged period of indiscriminate behavior in the credit markets, a surfeit of home building, a global avalanche of cheap labor and correspondingly cheap imports, and other unsustainable financial and economic activity. If you were a yachtsman, you would say that we sailed the economy along in a following sea for a long time; now we are navigating force 10 seas. Everyone is battening down the hatches and reefing in their sails. Worldwide, creditors are tightening their standards and consumers and businesses are correcting their courses. The correction in the housing market has yet to find its bottom. Credit markets remain tempestuous. The price of the Chinese and other emerging-country labor we came to rely upon to hold costs down is rising; the cost of imported goods, and of goods and services overall, is rising too, driven in part by demand from the newly rich consumers in those emerging countries. U.S. consumers are being hammered by declining real income, U.S. savers and investors are being squeezed by negative real interest rates and U.S. companies’ business margins are under pressure. All these forces have conspired to constrain economic growth. My best guess is that our $14 trillion economy grew faster than the 1.9 percent annualized rate initially reported for the second quarter, thanks to exports and prudent inventory management. But I expect U.S. economic growth will decelerate to a snail’s pace, if not completely grind to a halt, in the second half of this year. Indeed, we may see the slowdown extend into 2009 as the excesses that drove the housing markets unwind before the economy can again gear up to cruising speed. Then, as 2009 unfolds, it is quite possible that the economy will resume a more normal growth trajectory. Congress charged the Federal Reserve with creating the monetary conditions for sustainable, noninflationary employment growth. We are sorely aware of the present risk to job growth. At the same time, we have to be keenly aware of the consequences of our actions for inflation. We have a dual mandate—the operative words modifying growth are “sustainable” and “noninflationary”—and we are duty bound to deliver upon it. . ."
Greenback Slides On U.S. Turmoil The dollar dropped for the second-straight day against a basket of currencies, while pressure intensified on Fannie and Freddie and economic data reported higher wholesale inflation in July. Comments from U.S. Treasury Secretary Henry Paulson couldn't keep the dollar from sliding, despite his optimism about appreciation of the Chinese currency. "To me, the biggest reason for China's currency to continue to appreciate is because that's key to opening up and reforming the economy," he said. Paulson added that the appreciation of China's currency against the dollar by more than 20% over the last three years has had "some impact" on the bilateral trade balance, but that the bigger factors affecting trade will be a market-driven currency regime in China. Massachusetts asks Fidelity to buy back securities Massachusetts' top securities regulator is asking Fidelity Investments to buy back auction rate securities it sold to customers. Secretary of State William Galvin told the Boston mutual fund company's chief executive, Edward Johnson III, by letter that he had "grave concern" about investors who have been unable to sell auction rate securities since the market dried up in February.
Cerberus gives executives time to fix Chrysler When the economy soured and gas prices soared, no auto company seemed in a worse position than Chrysler. The smallest of Detroit's Big Three, Chrysler — which also owns the Jeep and Dodge brands — is famous for its big V-8 Hemi engines and rugged sport utility vehicles, and was woefully short of the fuel-efficient cars that consumers wanted. As a result, its sales in the United States are down 23 percent this year, more than twice the industry average. And its market share, as high as 13 percent in 2007, fell below 9 percent last month. Adding to its difficulties, Chrysler is still recovering from a painful divorce a year ago from its German partner, Daimler, and is in the midst of a huge restructuring under its new owner, Cerberus Capital Management. With all Chrysler's problems, the industry has been rife with speculation about whether Cerberus would decide it had made an ill-timed bet and sell the company.
In Farm Country's Boom, Hints of a Bubble The trucks rumble down the main drag of this farm town all day long, the ones heading east brimming with grains of No. 2 Yellow Corn, the ones going west filled with Sweet Bran, a cattle feed that looks like breakfast cereal and smells like warm beer. That eighteen-wheeled evidence of prosperity shows why the Plains states are a bright spot in the otherwise gloomy national economic picture. Here, the housing market is holding up just fine, the banks are making plenty of loans, and employers keep adding jobs. The good times in farm country show the difficulty facing policymakers grappling with the nation's economic distress, underscored yesterday by data indicating the steepest rise in monthly wholesale prices in 27 years and a 17 year low for new housing construction.
RECESSATION: THE WORST OF BOTH ECONOMIC DIRECTIONS UNFORTUNATELY, it really is different this time. We got the bad news last Thursday that Wall Street was hoping to avoid: Inflation is out of control. And it shouldn't be because the economy is so weak that prices - by any traditional economic theory known to man - ought to be collapsing right now. You have probably noticed that gasoline has recently come down substantially in price. But that didn't count in the consumer inflation numbers that were released last week. Why? Because the government did some seasonal adjustments this past spring that made inflation look unreasonably good. And the way these stats work, it's now payback time. As I've been mentioning for several months now, inflation will continue to be elevated for the rest of the year because these seasonal adjustments are going to turn ugly.
U.S. businesses face economic dilemma Prices for goods purchased by American businesses surged more than expected in July and have jumped by nearly 10 percent over the last year — the sharpest increase since 1981. The data released on Tuesday by the Labor Department underscored how rising prices have seeped into much of the economy, led by higher costs for food and energy. Businesses have been absorbing some of the higher costs themselves while passing much of the increase to consumers, intensifying the strain on households just as joblessness expands and spending power shrinks. "There is virtually nothing that we have touched in the last six months that hasn't increased," said Gary O'Neal, a division manager at Central Plains Steel in Wichita, Kansas, which distributes steel to manufacturers of construction and farming equipment. "The prices have increased so rapidly and so high compared to historically where they've been. It's just been uncharted territory."
Fed's Lacker Says Rate Hike Should Come Sooner Rather than Later Speaking in an interview with Bloomberg TV, Richmond Fed President Jeffrey Lacker (non-voter) said the Federal Reserve should not wait too long for a rate hike. The Richmond Fed President called inflation a "risky situation," and said that keeping inflation in check requires a tight monetary policy.
Higher Costs Taking a Toll on Business Prices for goods purchased by American businesses surged more than expected in July and have jumped by nearly 10 percent over the last year — the sharpest increase since 1981. The data released on Tuesday by the Labor Department underscored how rising prices have seeped into much of the economy, led by higher costs for food and energy. Businesses have been absorbing some of the higher costs themselves while passing much of the increase to consumers, intensifying the strain on households just as joblessness expands and spending power shrinks. "There is virtually nothing that we have touched in the last six months that hasn't increased," said Gary O’Neal, a division manager at Central Plains Steel in Wichita, Kan., which distributes steel to manufacturers of construction and farming equipment. "The prices have increased so rapidly and so high compared to historically where they’ve been. It’s just been uncharted territory."
Hedge Fund Founder Ordered to Pay $300 Million A federal court in Philadelphia has ordered the former president and founder of a hedge fund to pay nearly $300 million for defrauding clients. Federal prosecutors indicted Paul Eustace, president and founder of the Philadelphia Alternative Asset Management Company, in November on two criminal counts of commodities fraud. The government said Mr. Eustace stole $200 million from clients from 2001 through 2005. The government accused Mr. Eustace, of Ontario, Canada, of creating false account statements, raising management fees based on false profits and transferring clients’ money to himself.
Fed's Fisher Says FOMC Cannot Risk Credibility, Must Act if Inflation Continues The Federal Reserve must be prepared to take action and curb inflation if slowing growth doesn't moderate prices as expected, said the most hawkish member of the FOMC on Tuesday. Dallas Fed President Richard Fisher (voter), who has dissented from keeping interest rates on hold at the last two FOMC meetings, said the Fed will put its credibility at risk if it fails to combat inflation. He said the Fed has fulfilled its mandate to promote growth by cutting rates rapidly and taking efforts to stabilize credit markets; and though GDP is expected slow to a "snail's pace" in the second half of 2008, rising inflation cannot be ignored.
Soft Freddie Mac 5-Year Auction Shows Credit Worries U.S. government-backed mortgage finance company Freddie Mac caused ripples through the debt market on Tuesday after weak results in a $3 billion, 5-year note auction. The reference note sold for 113.0 basis points above the 5-year Treasury benchmark. Before the auction, the 5-year spread was 105 bps. On Monday, shares of Freddie Mac were under assault, falling 25% after Barron's magazine reported a growing likelihood the U.S. government will have to bail out the government-sponsored agencies because of an inability to raise capital. Last week, the 5-year Treasury-Agency spread was at 96 basis points. Analysts say there's no reason to question the implicit government guarantee carried by senior Freddie Mac debt.
Saudi's economic cities under pressure to deliver JEDDAH, Saudi Arabia (Reuters) - An hour's drive north of Jeddah on the Red Sea coast, 8,000 workers toil under the relentless summer sun building what Saudi Arabia hopes will be the key to its social and economic future. If all goes to plan, the King Abdullah Economic City and three sister developments in Hail, Jizan and Medina will by at least 2020 be vibrant communities in a country with high unemployment and an over-reliance on oil.
U.S., Poland Sign Missile-Defense Deal $$ U.S. Secretary of State Condoleezza Rice and Polish Foreign Minister Radek Sikorski on Wednesday signed a deal that will put an American missile defense base in Poland. The formal signing comes six days after the two countries agreed to a deal that will see 10 U.S. interceptor missiles placed just 115 miles from Russia's westernmost frontier. The plan that has further strained Russian ties with the West already troubled by Moscow's conflict with Georgia, an ex-Soviet republic-turned-U.S. ally. Ms. Rice emphasized that the site isn't intended as a threat. "This is a system that is defensive and is not aimed at anyone," she said. "This is an agreement that will establish a missile defense site ... that will help us to deal with the new threats of the 21st century of a long-range missile threats from countries like Iran or from North Korea."
Russia Tightens Its Grip $$ Gains in Ossetia Look Permanent; NATO Calls for Withdrawal The most lasting result of the Caucasus conflict is likely to be the territorial expansion of the pro-Russian statelet of South Ossetia, and maybe of Russia proper. This town in South Ossetia is overwhelmingly ethnic Georgian, and once stood firmly under Georgian government authority. Tuesday, the Georgian flag no longer flew atop the police station, a squat concrete block with three Russian-made armored personnel carriers parked in the courtyard. Instead, flapping in the wind were the white, red and yellow colors of the South Ossetian banner. Although Russia has promised to pull out of Georgian areas that it has occupied in recent days, this withdrawal -- if it occurs -- almost certainly won't include places like Akhalgori and surrounding villages, just an hour's drive from the Georgian capital, Tbilisi.
Iran satellite launch a failure, U.S. officials say Iran's attempted satellite launch was a failure that fell far short of claimed successes, U.S. security officials said on Tuesday, but an analyst said the test still marked progress toward a potential weapon. "The attempted launch failed," a U.S. intelligence official told Reuters, speaking on condition of anonymity. "The vehicle failed shortly after liftoff and in no way reached its intended position," the official said. "It could be characterized as a dramatic failure." A U.S. defense official gave a similar characterization of the test as unsuccessful. But Charles Vick, a senior analyst for GlobalSecurity.org research group, said Iran appeared to have succeeded in igniting the second stage of its booster rocket and gained data that will help it perfect its launch system. The technology could also be used to develop a rocket capable of carrying nuclear weapons that could strike Europe or China, he said.
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Tues 08.19.2008
Large U.S. bank collapse seen ahead The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday. "The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference. "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004. "We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.
Fannie's Perilous Pursuit of Subprime Loans As It Tried to Increase Its Business, Company Gave Risks Short Shrift, Documents Show In January 2007, as years of loose mortgage lending were about to send the nation's housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board. Discussing the company's successes, Mudd said one of Fannie Mae's achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step "toward optimizing our business." A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document. Internal documents show that even late in the housing bubble, Fannie Mae was drawn to risky loans by a variety of temptations, including the desire to increase its market share and fulfill government quotas for the support of low-income borrowers.
Large U.S. Banks May Fail Amid Recession, Rogoff Says Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund. "The worst is yet to come in the U.S.," Rogoff said in an interview in Singapore today. "The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job." The U.S. housing slump has triggered more than $500 billion of credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Rogoff said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance companies, which have lost more than 80 percent of market value this year.
Gold rebounds as investors go bargain buying Gold prices rebounded Monday, pushing back above $800 an ounce as investors went bargain buying after the metal's massive sell-off last week. Silver also rose. In other commodities, crude oil fell below $113 a barrel as Tropical Storm Fay headed for Florida but stayed away from major oil installations in the Gulf of Mexico. After plunging below $800 on Friday for the first time since late last year, gold had a modest recovery as new buyers sought steep discounts from the metal's all-time highs above $1,000 an ounce reached earlier this year.
Time to Be Bullish on Gold? The chairman of Cumberland Advisors predicts more bank failures, while Louise Yamada tells investors why now is the time to be bullish on gold. More Bank Failures Due. “I think the financial problem is halfway through the cycle, or something like that. There’s another shoe to drop ahead of us, and it could be more severe. The reason is that this time around, as financial firms need to raise capital, they’re going to have to pay a higher and higher price to get it -- some of them are not going to be able to get it. And so I don’t think we’ve seen the last of the bank failures…”
Wholesale prices rising at fastest pace since 1981 Wholesale inflation surged by 1.2 percent in July, more than double what had been expected Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday. The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected. Core prices, which exclude food and energy, rose 0.7 percent. That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.
Financial Crisis Could Get Much Worse, Experts Say The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday. Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae and Freddie Mac. "I think the financial problem is halfway through the cycle," David Kotok, chairman and chief investment officer from Cumberland Advisors, told CNBC. "There's another shoe to drop ahead of us and it could be more severe.
Mortgage giants decline over renewed bailout fears Shares of mortgage finance giants Fannie Mae and Freddie Mac tumbled Monday amid renewed fears that shareholders will wind up with nothing if the government intervenes to bail out the troubled companies. The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up due to soaring losses from bad mortgages. The new government power, enacted by Congress after the companies' shares plunged to levels not seen since the early 1990s, for several weeks quieted worries that the companies could collapse.
Investors Can’t Shake Mortgage Worries Stocks fell sharply on an otherwise quiet Monday as jitters about the mortgage industry prevailed in low-volume trading, sending shares of Fannie Mae and Freddie Mac to 17-year lows. The Dow Jones industrial average fell 180 points and the broader Standard & Poor’s 500-stock index lost 1.5 percent, as shares of banks and financial services firms took a sharp hit. The biggest losers were Fannie Mae and Freddie Mac, the beleaguered mortgage giants, which have suffered from widespread concern over their ability to raise capital and continue to guarantee most of the nation’s mortgages. Mortgage giants decline over renewed bailout fears Shares of mortgage finance giants Fannie Mae and Freddie Mac tumbled Monday amid renewed fears that shareholders will wind up with nothing if the government intervenes to bail out the troubled companies. The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up due to soaring losses from bad mortgages. The new government power, enacted by Congress after the companies' shares plunged to levels not seen since the early 1990s, for several weeks quieted worries that the companies could collapse.
Fannie Mae, Freddie Mac Are Pounded $$ Two Stocks Plunge On Growing Fears Of a U.S. Bailout Share prices of Fannie Mae and Freddie Mac plunged Monday amid growing fears that the two largest providers of funding for U.S. home mortgages won't be able to avoid a government bailout. In 4 p.m. trading on the New York Stock Exchange, Freddie shares were down 25% to $4.39. Fannie stock dropped 22% to $6.15. Both stocks are down more than 90% from a year ago. Many investors and analysts fear the two companies may not be able to raise more capital by selling shares, amid gloom over the huge losses they face on mortgage defaults. On Monday, some preferred shares previously issued by Fannie and Freddie were quoted at dividend yields of more than 16%, up from 14% Friday. With investors demanding such high yields, raising money through new preferred shares may be too expensive.
Freddie Mac plans $3bn debt issue Freddie Mac was on Monday marketing a $3bn benchmark five-year debt issue even as renewed concerns about the future of the US government-sponsored entities (GSEs) sent ripples through the financial markets. Shares of Fannie Mae and Freddie Mac hit their lowest levels in nearly two decades on fears of a federal bail-out that would eliminate the common stock, as well as significantly reduce the value of preferred shares and subordinated debt. This scenario is not a new one, but a weekend story in Barron’s magazine rekindled investor worries over the relative value of the various parts of the capital structure should the federal government nationalise the GSEs.
FDIC Presses Bank Regulators To Use Warier Eye $$ Flagging Woes Now Will Bolster Insurer; The 'Camels' Rating The deteriorating condition of commercial banks is intensifying a debate among government officials over how to respond, illustrating the likely difficulties facing regulators bracing for a wave of bank failures. In private meetings, Federal Deposit Insurance Corp. officials have pushed other agencies to more forcefully downgrade the confidential rating -- which is known only to regulators and bank management -- of troubled financial institutions, according to people familiar with the talks. If the FDIC gets its way, it could result in more public enforcement actions and could give the FDIC more muscle to either force the companies to improve their balance sheets or seek a sale. It could also make it more expensive for companies to raise capital, as scrutiny from investors would likely spike.
Bailout Rumors Slam Fannie, Freddie Bailout rumors have Fannie and Freddie shareholders worried that those stocks are in a race to zero. On Monday, Fannie Mae and Freddie Mac plunged off a weekend report that posited that the government will indeed need to rescue the cash-starved firms and that equity holders will end up losing their shirts. Fannie fell 17.8%, or $1.41, to $6.50 and Freddie lost 16.6%, or 97 cents, to $4.88. Investors don't have much left to lose; both companies have lost more than 90.0% of their market value in the last year. Uncle Sam's paternal posturing in recent months had initially calmed investor anxieties. However, as the likelihood has lessened that the two will be able to raise enough capital to stay afloat on their own, Wall Street has begun to view the U.S. government as a dangerous rescuer instead of a benevolent savior.
Lehman May Put a Prized Unit on the Block Lehman Brothers, the troubled investment bank, is considering the sale of all or part of its prized money management division to private equity firms to raise billions of dollars of capital and ease the pressure caused by losses related to real estate. The move would be the latest by a Wall Street firm forced to sell off high-end assets, following the recent sale by Merrill Lynch of its stake in Bloomberg L.P.and the sale by Citigroup last month of its large German consumer banking franchise. Lehman sent letters last week to a number of financial companies, including private equity firms like Kohlberg, Kravis & Roberts, J. C. Flowers, the Blackstone Group, the Carlyle Group and Apollo Management, to test interest in its money management division, according to several people briefed on its contents.
'Liar loans' threaten to prolong mortgage crisis In the mortgage industry, they are called "liar loans" — mortgages approved without requiring proof of the borrower's income or assets. The worst of them earn the nickname "ninja loans," short for "no income, no job, and (no) assets." The nation's struggling housing market, already awash in subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years. "Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting" such as California, Florida, Nevada and Arizona.
US Home Builder Sentiment Still at Record Low U.S. home builder sentiment was stuck at a record low in August, as stringent lending and a flood of foreclosed homes dragged on the real estate market, according to data from the National Association of Home Builders released Monday. The NAHB/Wells Fargo Housing Market index held at 16 in August for a second straight month, the group said in a statement. The August figure matched the median forecast among analysts surveyed by Reuters. Readings below 50 mean more builders view market conditions as poor than favorable.
As Oil Giants Lose Influence, Supply Drops Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand. Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies. And much of their production is in mature regions that are declining, like the North Sea. The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies.
U.S. Stocks Retreat on Inflation Concern, Housing Data, Losses U.S. stocks tumbled for a second day after wholesale prices climbed twice as fast as economists projected, housing starts fell and concern grew that the nation's biggest financial firms will post more losses. American International Group Inc., the world's largest insurer, and Lehman Brothers Holdings Inc., the biggest mortgage- bond underwriter, retreated more than 3 percent after analysts warned of additional credit writedowns. D.R. Horton Inc. lost 1.1 percent as the government said builders broke ground on the fewest houses in 17 years last month. Staples Inc. retreated 7.4 percent after producer prices increased 1.2 percent in July and the retailer said profit decreased.
Car buyers' satisfaction with US brands stumbles U.S. car buyers are growing less satisfied with their purchases from domestic automakers while their Asian and European competitors continue to improve, according to a recent survey. Consumer satisfaction with U.S. auto brands slipped as Lexus and BMW tied for first place, followed by Toyota and Honda, according to the University of Michigan's American Customer Satisfaction Index released Tuesday. General Motors Corp.'s Buick and Cadillac brands, and Ford Motor Co.'s Lincoln and Mercury lines, fell from their No. 2 perch at a time when U.S. companies are struggling to outshine their competitors and reverse their shrinking sales and market share. That's an unsettling sign for domestic automakers, said Claes Fornell, the University of Michigan business professor who heads the annual survey. Traditionally, U.S. brands improve their customer satisfaction scores each year, just not as much as their overseas counterparts. Now, the domestic companies' ratings are declining while their competitors' scores continue to climb.
The End of Credit Card Consumerism A new frugality could remake the U.S. economy—and American life When it comes to longevity, few royals can top America's King Consumer. For more than four decades, our shopaholic nation has shown an insatiable desire to spend until our credit cards melt. And throughout this era, consumer spending has, well, consumed a greater and greater share of our total economy. Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one. Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions—all enabled by decades of cheap credit.
Wake Up America - You're Sinking America is in decline. Our standard of living is descending to reconnect with our means and more resemble Western Europe’s. We’ve been living on a borrowed standard of living ever since we started replacing organic growth with financial engineering, some 40 years ago.
Credit con game Debt settlement outfit falsely promised relief as clients' woes grew; regulator acts For thousands of people far behind on their credit card payments and other bills, Robert Lovinger's "Debt Meltdown Program" sounded awfully alluring. He offered to help them reduce the amount of their bills by as much as 60% and, in some instances, to free them of debt altogether within 30 months. About 2,000 people joined, and they often ended up paying thousands of dollars for the Long Island-based service—which was marketed under several names, including The Debt Elimination Center and Edge Solutions. What many customers got, in fact, was little or nothing. In some cases, Mr. Lovinger and his staff failed to contact creditors to settle customers' delinquent bills; in others, they drove people deeper into debt by refusing to accept settlement offers from lenders, even after clients asked them to do so.
How the Housing Law Affects Reverse Mortgages Most seniors should be cautious The housing bill signed by President Bush on July 30 raises the amount seniors can borrow using federally backed reverse mortgages and lowers the cost of getting the cash. But aging experts say you should still be cautious before spending down your home equity. Here's how the new law affects reverse mortgages and what you still need to be wary of. Instant cash—with strings. A reverse mortgage is a loan against your home if you're generally age 62 and over that doesn't have to be paid back as long as you live in that house. Tapping home equity to finance your golden years is growing in popularity, with 107,367 reverse-mortgage loans made in fiscal year 2007, up from 6,600 loans in 2000, but they still account for only about 1 percent of older households, according to the AARP. After you pay a variety of fees on the loan, you can get a lump sum, monthly payments, a credit line, or a combination of these options based on the value of your house. If the home is sold, the loan must be repaid with the proceeds, and any equity that remains after that is distributed to the borrower.
Debate rages over free wireless spectrum The debate over new unlicensed spectrum the Federal Communications Commission is considering opening up is heating up as Google ups the ante with a new lobbying Web site. Google on Monday launched the new site called FreetheAirWaves.com to provide consumers with a voice, the company's policy guru said during a press conference call. Google and other technology companies such as Intel, Microsoft and Motorola have been lobbying the FCC for months to open up what's known as "white space" spectrum for unlicensed use after the digital TV transition early next year. These slivers of spectrum that sit between TV channels as buffers to ensure that TV channels don't interfere with each could be used to provide broadband wireless services.
Renewable Power's Growth in Colorado Presages National Debate When Colorado voters were deciding whether to require that 10 percent of the state's electricity come from renewable fuels, the state's largest utility fought the proposal, warning that any shift from coal and natural gas would be costly, uncertain and unwise. Then a funny thing happened. The ballot initiative passed, and Xcel Energy met the requirement eight years ahead of schedule. And at the government's urging, its executives quickly agreed to double the target, to 20 percent. In Colorado -- a state historically known for natural gas and fights over drilling -- wind and solar power are fast becoming prominent parts of the energy mix. Wind capacity has quadrupled in the past 18 months, according to Gov. Bill Ritter (D), and Xcel has become the largest provider of wind power in the nation. Experts say U.S. is losing its ability to patrol Arctic waters A growing array of American military leaders, Arctic experts and lawmakers say the United States is losing its ability to patrol and safeguard Arctic waters even as climate change and high energy prices have triggered a burst of shipping and oil and gas exploration. In the meantime, a resurgent Russia has been busy expanding its fleet of large oceangoing icebreakers to about 14. It launched a large conventional icebreaker in May and, last year, the world's largest icebreaker, named 50 Years of Victory, the newest of its seven nuclear-powered, pole-hardy ships. The U.S. National Academy of Sciences, the Coast Guard and others have warned over the last several years that the United States' two 30-year-old heavy icebreakers, the Polar Sea and Polar Star, and one smaller ice-breaking ship devoted mainly to science, the Healy, are grossly inadequate. Also, the Polar Star is out of service.
Bibles seized from Americans' luggage Christian group was set to distribute 300 Chinese customs officials confiscated more than 300 Bibles on Sunday from four American Christians who arrived in a southwestern city with plans to distribute them, the group's leader said. Chinese customs officials confiscated more than 300 Bibles on Sunday from four American Christians who arrived in a southwestern city with plans to distribute them, the group's leader said. The group, based in Sheridan, Wyo., distributes Bibles and Christian teaching materials around the world to "strengthen the persecuted church," according to its Web site.
Washington's hypocrisy The U.S. administration is trying to stick the label of "bad guy" on Russia for exceeding the peacekeeping mandate and using "disproportionate force" in the peace-enforcement operation in Georgia. Maybe our American friends have gone blind and deaf at the same time. Mikheil Saakashvili, the president of Georgia, is known as a tough nationalist who didn't hide his intentions of forcing Ossetians and Abkhazians to live in his country. We were hoping that the U.S. administration, which had displayed so much kindness and touching care for the Georgian leader, would be able to save him from the maniacal desire to deal with the small and disobedient peoples of the Caucasus.
Musharraf departure heightens uncertainty Pakistan’s president Pervez Musharraf stepped down on Monday after nine years in power, dodging his opponents’ attempts to impeach him but deepening confusion over who will control the nuclear-armed state. Announcing on national television that he had decided to resign “in the interest of Pakistan”, Mr Musharraf said that, if he had decided to stay on, a political struggle could have dragged in the military. In an emotional broadcast just hours before parliament was due to consider formal impeachment proceedings, he said: “Even if a move to impeach me is defeated, the government’s relations with the president’s office will be ridden with friction.”
Iranian Satellite Launch ‘Quantum Leap in Capability,’ Israeli Expert Says Iran’s weekend test launch of a rocket that is meant to carry a research satellite into orbit represents a “quantum-leap” in Iranian technological capabilities and shows that the U.S. is justified in its desire to put a defensive missile shield in Europe, an expert said here on Monday. Iranian television reported on Saturday that Iran had successfully test launched a rocket that it wants to use to carry a research satellite into orbit. Images of the nighttime launch of the two-stage Safir or Ambassador rocket were broadcast on Iranian state television. Experts agreed that the test-launch was not of itself threatening but signaled that Iran was making headway in technical advances in its missile program. Tehran offers to help Muslim nations launch satellites Iran is prepared to help Muslim countries launch satellites, an Iranian official said Monday, a day after Tehran declared that it had test-fired a new rocket capable of carrying a satellite into orbit. "I am announcing now that Iran is ready to launch satellites of friendly Islamic countries into space," Reza Taghipour, head of Iran's Aerospace Organization, said on state television. On Sunday, Iranian television showed images of a nighttime rocket launch and said a satellite had been sent into orbit. Iranian officials later said that only the rocket had been fired. Iran has made several recent claims of test-firing missiles that Western military analysts have said were inflated.
The Iran Scenarios These days you can read as many different scenarios regarding the likelihood that Israel will attack Iran’s nuclear facilities as there are experts putting them forth. History, past and present, may have already written the script. In a recent interview with Der Spiegel; Israeli Prime Minister, Ehud Olmert asked, “Why do you need to enrich uranium if you don’t have the facilities that can make use of this uranium for civilian purposes?” Iran does have such plants, but both have been in various stages of construction and delay since 1992 and neither has ever produced a watt of electricity. The August edition of Energy Tribune takes on the question of an Israeli military action against Iranian facilities refining fissionable materials for the development of nuclear weapons. John Bolton, the former U.S. ambassador to the United Nations, is quoted saying that Israel has “a window” in which to conduct the strike. It would be between “the day after the November 4 U.S. election and closes with the swearing-in of George W. Bush’s successor on January 20, 2009.”
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Financial Crisis Is Expected To Bring More Big Shocks The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday. Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae and Freddie Mac. "I think the financial problem is halfway through the cycle," David Kotok, chairman and chief investment officer from Cumberland Advisors, told CNBC. "There's another shoe to drop ahead of us and it could be more severe."
US banks scramble to refinance maturing debt Battered US financial groups will have to refinance billions of dollars in maturing debt over the coming months, a move likely to push banks’ funding costs higher and curb their profitability, say bankers and analysts. The banks’ need to raise capital to offset mounting credit-related losses is forcing them to pay higher interest rates to entice investors. The rising funding costs are set to put pressure on earnings because, in many of their businesses, banks rely on the difference between borrowing and lending rates to make money. “It is difficult to see how banks will continue to repeat the heady profit growth of the past few years if they borrow at these levels,” said a Wall Street banker. Banks could also be forced to raise lending rates, exacerbating the credit crunch felt by many businesses and individuals and further depressing economic activity. Mohamed El-Erian, co-chief executive of Pimco, the asset management group, said: “If banks keep borrowing at these levels, you will get a repricing of credit for the whole economy.”
Bracing for Inflation Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009. The relative price stability of the past 15 years is giving way to worsening inflation, despite the recent softening of oil prices. The Consumer Price Index for all items shows the inflation rate averaged 2.6% a year from 1992 through 2007 but has doubled since January, reaching an annual rate of 5.6% in July (BusinessWeek.com, 8/14/08). By next year, the monthly figure could hit double digits, and the inflation rate for 2009 overall could triple 2007's 2.85%. I say this not only because I have looked at a broad range of statistics that point in this direction. I also run a private equity investment firm that owns companies in a number of industries -- including restaurants, the manufacture of gardening tools, oil and gas exploration services, and distribution of entertainment products such as books and videos -- that are already being forced to pass price increases on to the consumer.
Bernanke Tries to Define What Institutions Fed Could Let Fail Ben S. Bernanke is still trying to define which financial institutions it's safe to let fail. The longer it takes him to decide, the tougher the decision becomes. In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank's protective role, turning its balance sheet into a parking lot for Wall Street's hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac. The lack of clearly defined limits may put the Fed's independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts that might otherwise require politically sensitive appropriations and taxes.
Freddie Mac debt sale weak, bailout concerns rise Investors dumped the stocks of Fannie Mae and Freddie Mac on Monday after Barron's reported the increasing likelihood of a U.S. Treasury bailout that would approach nationalization of the two housing finance titans. The weekly financial newspaper said such a move could wipe out existing holders of the largest U.S. home funding companies' common stock. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses. Shares of the two providers of home mortgage funding fell more than 16 percent and some of their bonds sharply underperformed Treasuries. A spokeswoman for the U.S. Treasury said the department has no plans to use its authority to backstop the two funding agencies. That authority was greatly increased by a rescue plan approved at the end of July. "The Barron's article overstated Freddie Mac's financial situation," Sharon McHale, a Freddie Mac spokeswoman, told Reuters. "We continue to be adequately capitalized."
Dollar surge will not stop America feeling the effects of a global crunch Two alerts landed on my desk this weekend from the elite markets team at Goldman Sachs. One was entitled "The Dollar Has Bottomed!". Those betting on an imminent disintegration of American economic and political power may have to wait another cycle. Rival hegemons are falling like ninepins. The US dollar index hit an all-time low in March. It crept slowly upwards in the early summer before smashing through layers of resistance over the past month. The surge against sterling, the euro, the Swiss franc and the Australian dollar is one of the most spectacular currency shifts in half a century. "Something fundamental has changed," said the bank. Indeed. . . . . . . . . So no, this painful ordeal is far from over. We are not witnessing a dollar rally so much as a collapse in European and commodity currencies. The race to the bottom has begun in earnest.
Dollar Falls Against Yen, Euro Before Housing, Inflation Data The dollar fell from a seven-month high versus the yen before U.S. government housing and inflation reports this week that may add to speculation the Federal Reserve will delay raising interest rates. The currency also retreated against the euro, snapping a three-day advance, after crude oil advanced. The British pound slid against the euro as an industry report showed U.K. home prices dropped the most since at least 2002. "The U.S. housing slump will take two or three years to bottom out," said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's biggest financial group by market value. "Hefty oil prices will keep buffeting the U.S., the world's largest energy consumer."
A Fabrication Bottleneck or Something More The Internet is abuzz with reports that precious metal dealers have stopped selling coins and small bars because they have run out of inventory. For example, Franklin Sanders reports on goldprice.org that his inability to purchase product from his suppliers is something that he has never seen before in his "twenty-eight years of brokering silver and gold." On Friday afternoon, Kitco posted the following notice: "Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products." The rush out of fiat currency and into precious metals on this latest drop in prices is not just a North American phenomenon. The Times of India reports: "There is a shortage of the yellow metal in the bullion banks and traders." The bottom line is that it is difficult, if not impossible, to buy coins and small bars. Mints and refiners are back-ordered. Dealer shelves are bare. But the question is, why? Is it just a fabrication bottleneck, or is something else happening?
Morgan Stanley, Goldman Change Lending Systems Morgan Stanley and Goldman Sachs are responding to the credit crisis with a system that uses the market's view of their own creditworthiness as a basis for lending decisions, the Financial Times reported. Wall Street's second-largest investment bank Morgan Stanley is essentially tying its promise to provide financing to hedge fund clients to the price of credit insurance on its own debt, it said. If the cost of the protection rises to a certain level, that would trigger a reduction in Morgan Stanley's commitments to hedge funds, the quoted people familiar with the situation as saying.
Subprime rescue hit by second mortgages Efforts to avert foreclosures are being complicated by the large number of subprime borrowers who took out second mortgages so they could afford the downpayments on their homes, industry executives say. George W. Bush, the US president, signed a bill last month providing $300bn to help distressed homeowners refinance into cheaper mortgages backed by the Federal Housing Administration. In exchange for agreeing to a loss on the initial loan, primary lenders are guaranteed a minimum pay-out while the second mortgage would be wiped out. Second-mortgage providers are generally in a weaker position than primary lenders in a renegotiation because they hold what is known as a second lien – meaning they stand behind the primary lender in terms of their rights to seize the home.
An economic Cassandra whose predictions are coming true On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he said, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. As Roubini stepped down from the lectern after his talk, the moderator of the event said, "I think perhaps we will need a stiff drink after that." People laughed - and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. But Roubini was soon vindicated.
Breaking up big banks questioned as losses mount America's biggest banks have suffered unprecedented losses from the ongoing credit crisis, and that's made some investors question whether the big financial conglomerates should be broken up in order to survive. Break-up advocates, who for months have been clamoring for Citigroup Inc. to be dismantled, got some validation of their viewpoint this past week. Europe's UBS AG - created through the combination of Swiss Bank Corp. and Union Bank of Switzerland in 1997 - on Wednesday laid the groundwork to tear up its business model after another quarter of steep losses. Though the UBS announcement was expected, it was nonetheless a departure from what executives promised during a wave of big bank deals that began in the late 1990s. The creators of global banks like Citigroup, JPMorgan Chase & Co., and HSBC Holdings PLC had promised customers and shareholders that a diverse set of businesses would shield them from economic volatility.
Foreign Investors Selling Freddie, Fannie Debt While even moral hazard hawks generally agree that some sort of government intervention would be needed in the event of financial trouble at Fannie and Freddie, the most compelling reason was that the US, chronically dependent on foreign funding, would be ill advised to treat its money sources badly. Of the GSEs' $5.2 trillion in debt (their own corporate bonds plus MBS), $1.3 trillion is in the hands of foreign investors and central banks. The speed with which the powers that be cobbled together a support program was seen in some circles as an admission of the importance of reassuring our friendly overseas credit suppliers.
CFOs and CPAs Say U.S. Is in Recession, Predict Rough Year Ahead When asked about specific policies that could help to stabilize the economy, a majority of finance executives say Congress and the Federal Reserve should refrain from pumping more cash into the economy. A majority of CFOs and senior executive accountants believe the U.S. economy is already in recession and will continue its slowdown for a third consecutive quarter, according to a survey conducted by the American Institute of Certified Public Accountants. To make matter worse, the executives doubt the economy will improve in the next 12 months. "Our members are still seeing increased pressure on profits from rising costs without the ability to raise prices," Chris McKittrick, the AICPA’s director of members, said in a statement released Thursday, August 14. "Expectations for revenue and hiring are trending downward." Mark Lang, a professor of accounting at the University of North Carolina's Kenan-Flagler Business School, which helped conduct the survey, added, "The fact that firms continue to reduce planned growth in capital investment, staff development and employment is particularly troubling since it suggests that the slowdown could have long-term implications."
Gold falls to below $800 an ounce Gold fell to below $800 an ounce for the first time since December 2007 while aluminium prices hit their lowest in some six months. Copper also fell. The price of commodities has fallen on speculation that demand will slow amid a global slowdown. Another factor has been the stronger dollar, which has reached a half-year high against the euro. As economists see improved prospects for the US economy, the dollar becomes more attractive as an investment. And as the dollar becomes more attractive, particularly in times of crisis, gold has lost its lustre, as have other precious metals.
Commodity prices likely to rebound Crashing commodity prices have once again given ammunition to skeptics who believe the boom of recent years was a blip, but that view underestimates the demand and economic growth in the emerging world. Corrections are inevitable in any uptrend and the natural resources sector is no exception, say investment managers who oversee funds in all asset markets, and who have no specific interest in talking up commodity prices in particular. The caveat is a global recession, but that is unlikely given forecasts of 8 percent to 10 percent growth this year in China, the world's fourth largest economy, despite the halt in much industrial activity during the Olympic Games.
A long year of lessons for the Federal Reserve When U.S. Federal Reserve officials gathered for their annual conference in Jackson Hole, Wyoming, in August of last year, Bear Stearns shares were trading at well over $100. The Fed's benchmark interest rate was 5.25 percent, more than double where it stands now, and oil cost about $70 a barrel. Twelve months later, Bear Stearns is gone, as is about $400 billion from the balance sheets of banks worldwide. The legendary oilman T. Boone Pickens thinks the days of oil under $100 a barrel may be gone, too. Looking back at the 2007 conference in Jackson Hole provides some cringe-inducing moments. In his speech at the mountain resort, Ben Bernanke, the Federal Reserve chairman, declared that the central bank was ready to act to shield the economy from the credit crisis but would not save investors who had made bad choices. "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions," he said, words that now seem to ring hollow in light of the Fed's role in rescuing Bear Stearns from bankruptcy in March. Now, Bernanke is hoping the Fed will not have to act again.
Mrs. Fields Will Seek Bankruptcy Protection $$ Mrs. Fields Famous Brands LLC, which serves up fresh-baked cookies and TCBY frozen yogurt at more than 1,200 franchises across the country, is planning to file for Chapter 11 bankruptcy protection, according to a regulatory filing. The company was trying to negotiate a restructuring agreement with its senior noteholders, but warned in June that it might have to seek protection from creditors if it couldn't complete the deal out of court. In the Securities and Exchange Commission filing, Mrs. Fields indicated it would file a prepackaged bankruptcy reorganization plan with the U.S. Bankruptcy Court in Wilmington, Del. Michael R. Ward, Mrs. Fields's interim co-chief executive, confirmed the company's plans Friday.
Wachovia to Buy Back Auction-Rate Securities Wachovia Corp. is buying back as much as $8.8 billion in illiquid auction-rate securities, but the decision should have minimal impact on the Charlotte, N.C., bank as it works its way through more-serious headaches relating to the U.S. mortgage rout, analysts said Friday. Under an agreement between the nation's fourth-largest bank by assets, the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and the Missouri secretary of state, Wachovia Securities LLC and Wachovia Capital Markets LLC will buy back $5.7 billion in auction-rate securities by Nov. 28, according to the SEC. The two units will buy an additional $3.1 billion of the securities by next June, the SEC said. A person close to the New York attorney general said the buyback numbers are estimates and that Mr. Cuomo's office expects the bank to purchase $6.4 billion in November and a further $2.1 billion in June. Wachovia, which neither admitted nor denied wrongdoing, also will pay $50 million in civil penalties.
Fed's Evans Said U.S. Economy Faces Three-Front Battle The downside risks to growth have recently risen and the economy is expected to be "extremely sluggish" in 2008, according to one Fed official on Friday. Chicago Fed President Charles Evans (non-voter) said the U.S. economy faces a triple-front threat as growth risks are on the rise, inflation is "unsettlingly high" and financial markets remain in turmoil amidst depressed housing and auto markets. "Although real activity is weak, we also are simultaneously experiencing bad news on the inflation front in the form of higher energy and commodity prices. This creates the challenge of facilitating the economy's return toward more favorable growth rates without igniting greater inflationary pressures," he said in Bloomington, Illinois. "The financial turmoil and subsequent tightening of credit conditions add another dimension of difficulty to the problem," he added. Evans said the confluence of these threats have "added layers of complexity to the management of monetary policy," making the decision-making process more complicated than usual.
Top Federal Reserve Officials Predict Weak Second Half; Warn Growth May Not Return Until 2010 Two top U.S. Federal Reserve officials on Friday predicted a weak second half for the U.S. economy, warning that strong U.S. growth may not return until 2010. Atlanta Federal Reserve Bank President Dennis P. Lockhart and Chicago Fed Bank President Charles L. Evans both said the U.S. central bank is in no hurry to start raising rates while the American economy is sputtering badly because of an ongoing global financial crisis, a sagging housing market and inflationary pressures caused by a yearlong run-up in food-and-energy prices. Indeed, Lockhart even said he wouldn’t rule out actually cutting interest rates if economic circumstances warranted – a remarkable admission at a time when the economic crisis is juxtaposed over rising inflationary pressures, and when most Fed-watchers expect the central bank’s next move to be an increase in interest rates, Reuters reported. A reduction in interest rates would jump-start U.S. growth.
Jobless rate at 13-year high Florida's jobless rate spiked to a 13-year high in July, and unemployment in Palm Beach, Martin and St. Lucie counties rose sharply. Florida's seasonally adjusted unemployment rate was 6.1 percent last month, the Florida Agency for Workforce Innovation said Friday. That's the highest since January 1995, when unemployment stood at 6.5 percent. The number of jobless in Florida has nearly doubled in the past two years. In July 2006, 330,000 people were out of work, a number that rose to 604,000 last month. The pain was especially severe in St. Lucie County, which had the third-highest unemployment rate among the state's 67 counties. "It's tough," said Richard Stetson, vice president of the Workforce Development Board of the Treasure Coast. "St. Lucie County has not diversified as well as it wants to, so a lot of the community is still based on residential. With the slowdown in construction, that trickles down."
U.S. Mass Layoffs Rise to Highest Levels Since 2003 U.S. mass layoffs actions, involving 50 or more employees from a single firm, came in at a seasonally adjusted 1,534 reading in the second quarter of 2008, a 113 increase from the previous year-over-year result, the U.S. Bureau of Labor Statistics reported Friday. According to the preliminary statistics, the Bureau of Labor reports that 299,866 workers lost their jobs in the last 31 days. Both layoff events and separations reached their highest levels in the second quarter since 2003.
Ford to Take a Step To Shore Up Finances $$ Ford Motor Co. will sell as much as $500 million of its shares to buy back debt from its credit arm, a move designed to help shore up its finances after a $2.1 billion write-down attributed to declining resale values of trucks and sport-utility vehicles. The debt-for-equity exchange revealed one step, albeit small, that Ford is taking to improve its overall balance sheet after making a loss of $8.7 billion in its second quarter -- a high for the auto maker. Essentially, the company will sell the stock to buy down debt due before the year 2012 taken on by Ford Motor Credit Co., a wholly owned subsidiary. Ford Credit had a pretax loss of $334 million in the second quarter, compared with a profit of $105 million a year ago. Analysts generally viewed the development as a positive but incremental measure, saying that the stock sale wouldn't have a substantial effect on the company's liquidity position. By buying back its debt at a discount, the auto maker could, however, make a small profit.
Mitsubishi Is Said to Be Close to Deal for California Bank Mitsubishi UFJ Financial Group, one of Japan’s largest banks, is near a deal to buy the remaining part of UnionBanCal Corporation that it does not already own for about $3.5 billion, people involved in the deal said. The transaction values UnionBanCal, which owns Union Bank of California, one of the 25 largest banks in the United States, at about $10.5 billion. Mitsubishi is trying to expand beyond its relatively stagnant home market as Japanese companies seek to broaden their presence abroad and take advantage of a weaker dollar.
Dreading winter's bitter bill Heating costs are expected to climb this winter putting additional pressure on Americans already hurt by high gasoline and food prices. Home heating bills are expected to soar this winter and Americans, already struggling with high gas and food prices, are bracing for more financial hardship. On average, consumers are expected to pay $1,182 to heat their homes this year, up 20% from last year, according to recent estimates from the Energy Information Administration (EIA). But the outlook for the Northeast, where 8 million households depend on heating oil, is even more worrisome. Homeowners in the region are expected to spend an average of $2,725 on heating oil this winter. The looming spike in heating costs could pose an even more serious threat to household budgets than the high price of gas, according to Tancred Lidderdale, a senior EIA economist. "When gas prices go up consumers have options," he said. They can drive less or use public transportation. But when it comes to home heating, "households have fewer options."
Credit crunch 'still worsening' The global credit crunch shows no signs of abating, according to the International Monetary Fund (IMF). In its latest global financial stability report, the IMF says that falling house prices and slowing economic growth are hitting credit. It warns that banks are under renewed stress, and further cutbacks in bank lending could deepen the slowdown. The IMF also says that emerging markets like China may also suffer more pain in the future from the credit crunch.
Inflation Gets Right Down to the Real Nitty-Gritty Even dirt isn't dirt-cheap anymore. At your local garden center, the cheapest dirt, which often goes by the name of "premium topsoil," may cost $4.99 for a 40-pound bag, about a buck more than a year or two ago. Then there's the gourmet dirt -- the scientifically exquisite potting mixtures, soil enhancers and soil amendments, crafted from special ingredients such as peat moss, bark fines (partially composted pine bark), perlite, coconut husks, and/or "spent mushroom substrate." You can buy a bag of "Bumper Crop," for example, for $14.99 at Johnson's Florist and Garden Center in the District, up two bucks from 18 months ago. Dirt and its upmarket cousins offer a glimpse of how rising energy prices have caused inflation in the grittier corners of the consumer culture. Products that are cheap, heavy and bulky, such as bags of soil, are particularly vulnerable to rising freight costs.
US inflation fastest since 1991 US prices rose by 5.6% in the year to July, the fastest inflation rate for more than 17 years, figures show. The rate of inflation was much greater than economists had predicted, driven higher by the 30% increase in energy prices during the period. Food costs were 6% higher than a year earlier, the figures showed. The price rises are squeezing consumers further. Inflation-adjusted average weekly earnings fell by 3.1% in July compared with a year earlier.
Hershey to raise prices 11 percent The Hershey Co. said Friday it is raising prices on its products by an average of 11 percent as the nation's largest candymaker tries to stem the impact of soaring commodities costs, and trimmed its projections for 2008 and 2009. The price increase was the second already this year for the candy company known for its Hershey's chocolate bars, bite-sized Kisses and Reese's peanut butter cups. The immediate increase was necessary to offset "significant increases" in the cost of raw materials such as sugar, cocoa and peanuts - up as much as 45 percent since the start of the year - as well as the growing cost of fuel, utilities and transportation, Hershey said. "Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," Hershey's President and Chief Executive David J. West said in a statement.
Weak rules cripple appraiser oversight As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal - the real estate appraisal - was undermined from within. After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals. But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud. And despite ample evidence appraisers are pressured into inflating home values - sometimes to prices in support of loans that are more than buyers can afford - the federal regulators charged with protecting consumers have thus far made a conscious choice not to act. "The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired earlier this year. "It's amazing that the system ever worked at all."
The Quintessential Inflation - The Great Weimar Inflation - Germany the Early Twenties Much has been spoken about it, but few really appreciate key points, motives and reasoning. It seems that it was just excessive money, but in reality it was a constant shortage! The critical role of the velocity of money is also not understood in these situations, today. It was portrayed and possibly constructed as a financial accident, but linking the scene to that day's politics shows another picture! In understanding today's environment and the prospects for "Stagflation" and the battle to export "Deflation", understanding the Weimar Republic's hyperinflation is one of the critical lessons for Investors today.
Qwest, unions keep talking; workers remain on job DENVER (AP) -- Qwest Communications International Inc. and members of its largest union were working on scheduling time Sunday to sit down for further negotiations after a labor contract expired. The talks come a little more than a week before the start of the Democratic National Convention in Denver, where Qwest is providing phone and Internet services. Qwest also is providing service to the Republican National Convention that begins Sept. 1 in St. Paul, Minn. Workers represented by the Communications Workers of America had voted to authorize a strike if needed, but CWA organizing coordinator Al Kogler said no strike had been called when the contract expired after 11:59 p.m. Saturday.
In Most Areas, Home Values Keep Sliding The latest housing numbers from Zillow, the real estate research firm, are littered with minus signs. The data show that it may be a while yet before the housing downturn changes direction. Zillow found that nearly 24 percent of homes sold during the past 12 months sold at a loss. (That includes foreclosures.) And of those who bought homes in the last five years, 29 percent now have negative equity. Here’s another big negative: the median home value in the United States fell nearly 10 percent in the second quarter, compared with the same period the previous year. That is the biggest percentage decline since Zillow began collecting data 12 years ago. Out of 165 metropolitan areas surveyed by Zillow, 85 percent are in a declining-value zone.
Inflated appraisal nearly cost family its home After 25 years as a doorman on Manhattan's Upper East Side, Carl Petrone was ready to retire from the cold winters and his daily commute. Petrone and his wife, Marie, wanted a home someplace warm, and found it in North Carolina - a red-brick tri-level on a quiet, tree-lined street. It was bigger than their tiny place in New York and came with the right price. The home was appraised at $114,500. The real estate agents dropped the price by $6,000 to make the sale. "We thought it was a steal," Marie Petrone remembers. It was a steal - a steal from the Petrones. As the couple would discover, they were the unwitting victims of an unscrupulous appraiser and - as uncovered by a six-month Associated Press investigation - a poorly designed system unable to keep up with such dishonesty.
Illusions About Inflation THERE is widespread concern that high inflation — running at a 5.6 percent annual rate in the 12 months through July — could hurt the stock market. But this investor worry may be yet another example of money illusion: the confusion of nominal prices with their inflation-adjusted equivalent. The notion that inflation is bad for stocks appears to make a good deal of sense. What’s more, there is reason to believe that this perception — mistaken though it may be — has sometimes driven down stock prices. With inflation at 6 percent, for example, a dollar of profit that a company will earn a year from now is worth only 94 cents in today’s dollars. But if inflation were just 1 percent, as it was in early 2002, that dollar earned a year from now would be worth 99 cents today. Such differences add up, especially as investors consider a company’s earning power over many years.
China Blocks World Recession Global financial turmoil that has caused Japan and major economies in Europe to shrink will bring more pain but probably not a global recession because of the emerging star power of countries like China. Economists generally define global recession as growth in world gross domestic product that runs below a long-term trend as estimated by the International Monetary Fund. In other words, the global economy does not have to contract to be in a recession. Whether a global recession is in the offing is important because it highlights the difference between a slowdown within a broader growth cycle and something more protracted and serious. China will almost certainly get hit by cooling global demand, but after five years of double-digit growth the world's fastest growing major economy and other developing nations should contribute enough to global growth over the next few years to prevent a dip into recession territory, economists and money managers said.
U.S. pushes to expand Arctic icebreaker fleet A growing array of American military leaders, Arctic experts and lawmakers say the United States is losing its ability to patrol and safeguard Arctic waters even as climate change and high energy prices have triggered a burst of shipping and oil and gas exploration in the thawing region. In the meantime, a resurgent Russia has been busy expanding its fleet of large ocean-going icebreakers to about 14, launching a large conventional icebreaker in May and, last year, the world's largest icebreaker, named 50 Years of Victory, the newest of its seven nuclear-powered, pole-hardy ships. The U.S. National Academy of Sciences, the Coast Guard and others have warned over the last several years that the United States' two 30-year-old heavy icebreakers, the Polar Sea and Polar Star, and one smaller ice-breaking ship devoted mainly to science, the Healy, are grossly inadequate. Also, the Polar Star is out of service. And this spring, the leaders of the Pentagon's Pacific Command, Northern Command and Transportation Command strongly recommended in a letter that the Joint Chiefs of Staff endorse a fresh push by the Coast Guard to increase the United States' ability to gain access to and control its Arctic waters.
U.S. May Ease Police Spy Rules More Federal Intelligence Changes Planned The Justice Department has proposed a new domestic spying measure that would make it easier for state and local police to collect intelligence about Americans, share the sensitive data with federal agencies and retain it for at least 10 years. The proposed changes would revise the federal government's rules for police intelligence-gathering for the first time since 1993 and would apply to any of the nation's 18,000 state and local police agencies that receive roughly $1.6 billion each year in federal grants. Quietly unveiled late last month, the proposal is part of a flurry of domestic intelligence changes issued and planned by the Bush administration in its waning months. They include a recent executive order that guides the reorganization of federal spy agencies and a pending Justice Department overhaul of FBI procedures for gathering intelligence and investigating terrorism cases within U.S. borders. Taken together, critics in Congress and elsewhere say, the moves are intended to lock in policies for Bush's successor and to enshrine controversial post-Sept. 11 approaches that some say have fed the greatest expansion of executive authority since the Watergate era.
Iran launches satellite carrier Iran says it has successfully launched a rocket capable of carrying its first domestically built satellite. Officials said only the rocket had been fired, correcting state media reports that the communications satellite itself had been sent into orbit. Tehran has pursued a space programme for years, despite international concern over its nuclear plans. In February it sent a probe into space as part of preparations for the launch of the satellite. Long-held ambition Footage aired on Irinn (Islamic Republic of Iran News Network) showed the launch of the Safir rocket in darkness. The presenter said that the satellite launch was a trial which was successful. State and military officials confirmed the launch had taken place. President Mahmoud Ahmadinejad was at the event, said one report.
Washington and Poland just moved the World closer to War The signing on August 14 of an agreement between the governments of the United States and Poland to deploy on Polish soil US ‘interceptor missiles’ is the most dangerous move towards nuclear war the world has seen since the 1962 Cuba Missile crisis. Far from a defensive move to protect European NATO states from a Russian nuclear attack, as military strategists have pointed out, the US missiles in Poland pose a total existential threat to the future existence of the Russian nation. The Russian Government has repeatedly warned of this since US plans were first unveiled in early 2007. Now, despite repeated diplomatic attempts by Russia to come to an agreement with Washington, the Bush Administration, in the wake of a humiliating US defeat in Georgia, has pressured the Government of Poland to finally sign the pact. The consequences could be unthinkable for Europe and the planet. The preliminary deal to place elements of the US global missile defense shield was signed by Polish Deputy Foreign Minister Andrzej Kremer and US chief negotiator John Rood on August 14. Under the terms, Washington plans to place 10 interceptor missiles in Poland coupled with a radar system in the Czech Republic, which it ludicrously claims are intended to counter possible attacks from what it calls "rogue states," including Iran.
A Two-Sided Descent Into Full-Scale War Nine days ago, late in the afternoon of Aug. 7, Georgian tanks, artillery and infantry began moving out of bases in Georgia and toward South Ossetia, a zone long held by separatists who are backed by Moscow. About 800 troops from Georgia's 4th Battalion left a base in Tbilisi, the Georgian capital, that Thursday afternoon, according to Georgian Defense Minister Davit Kezerashvili. Later that day, units armed with the BM-21 Grad, a multiple rocket system whose World War II version was known as Stalin's Rain, moved out of their base in Gori, about 40 miles away. As the Georgian units approached the contested zone from the south, Russian army forces were massed just to its north, separated from it only by the 4,000-yard-long Roki Tunnel through the Caucasus Mountains. The Russian units were receiving intelligence reports about the Georgian movement. About 8 p.m., Russian military aircraft took off and skirted Georgian airspace, staying just outside it, according to Kezerashvili. For days, separatists and Georgian troops had skirmished along the border, but this movement of armor was a major new development. Georgia and Russia were on a collision course. In three hours, full-scale war would begin.
Russia, Pledging to Leave Georgia, Tightens Its Grip Even as Russia pledged to begin withdrawing its forces from neighboring Georgia on Monday, American officials said the Russian military had been moving launchers for short-range ballistic missiles into South Ossetia, a step that appeared intended to tighten its hold on the breakaway territory. The Russian military deployed several SS-21 missile launchers and supply vehicles to South Ossetia on Friday, according to American officials familiar with intelligence reports. From the new launching positions north of Tskhinvali, the South Ossetian capital, the missiles can reach much of Georgia, including Tbilisi, the capital. The Kremlin announced Sunday that Russia’s president, Dmitri A. Medvedev, had promised to begin the troop withdrawal in a conversation with President Nicolas Sarkozy of France, who negotiated a six-point cease-fire agreement. Mr. Medvedev did not specify the pace or scope of the withdrawal, saying only that troops would withdraw to South Ossetia and a so-called security zone on its periphery.
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U.S. mint suspends gold coin sales; futures price is a fiction 12:25a ET Friday, August 15, 2008 The U.S. Mint has suspended sales of American eagle gold coins and is refusing orders from dealers, two coin and bullion dealers confirmed Thursday. The mint's suspension of gold coin sales follows its tight rationing of sales of silver eagle coins, begun in May, when sales to the public were terminated and sales to the mint's 13 authorized dealers were tightly limited. Word of the mint's suspension of gold coin sales came from the American Precious Metals Exchange in Edmond, Oklahoma, (http://apmexdealer.blogspot.com/2008/08/news-alert-us-mint-suspends-sales-of.html) and from Centennial Precious Metals in Denver, Colorado. The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained -- as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.
Gold, Oil Slump, Leading Commodities Drop on Dollar, Growth Gold plunged below $800 an ounce, platinum posted the biggest drop in almost seven years and oil, corn and copper slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom. Crude fell as much as 2 percent to $112.75 a barrel, and coffee and wheat declined as the dollar headed for its longest winning streak in more than two years and on concern a spreading economic slowdown will reduce demand for raw materials. Commodities, measured by the Standard & Poor's GSCI index, have tumbled 21 percent from their record July 3, descending into a bear market. Declining raw-materials prices may help ease global inflationary pressures. Consumer prices accelerated 5.6 percent in the U.S. during the year to July, the biggest jump in 17 years.
Dollar rally triggers rout in commodities A rebound in the dollar Friday pushed gold prices below $800 an ounce, while silver dropped as much as 12 percent and corn and copper slumped. Crude oil prices slid more than 1 percent as the dollar hit a six-month high versus the euro following a bigger-than-expected rise in U.S. inflation and as the outlook for economies in Europe and Asia deteriorated. "The bears are back in town," said an MF Global analyst, Edward Meir. "They are here in full force and doing lots of damage. It's going to be a pretty ugly Friday and Monday." "The root causes are many, but beyond the macro-economic triggers, the immediate reason for the slide is the dollar."
Wall Street's Jobless Try Cupcakes, Cheap Haircuts, Maybe Omaha Jessica Walter didn't go to Harvard University to study cupcakes, but they're what she does since losing her job as a vice president in credit strategy at Bear Stearns Cos. "I want to teach kids to cook," said Walter, 27, who founded Cupcake Kids! in New York to provide birthday parties and cooking classes for children. "The goal is to have this be my full-time job and make enough to live." Wall Street professionals are trying new careers, and fetching smaller salaries, amid the elimination of 76,670 investment jobs in the Americas following the global credit crunch that started a year ago, according to data compiled by Bloomberg.
'Banking sector may see tough days ahead' After taking a hit on their bottomlines in the first quarter of this fiscal, the Indian banks are likely to remain in tough terrains in the face of the tightening macro-economic environment, analysts say. Bottomlines of banks in the first quarter of financial year 2009 were hit by higher than expected mark-to-market (MTM) losses and lower treasury incomes, as per an earnings review "Most of the banks under our coverage witnessed margin pressures during the quarter, in line with the recent rate hikes announced by the RBI. Further, a weaker treasury performance on account of the higher bond yields, the downturn in the equity markets and the high base of the last year added to the woes of banks," the Sharekhan report said.
Soaring Consumer Prices and Mounting Foreclosures Threaten 2008 Economic Growth Consumer prices rose sharply in July even as home foreclosures spiked, making it increasingly likely the economy will stall in the year’s last half under the weight of soaring unemployment, declining home values and accelerating inflation. Banks foreclosed on 77,295 homes in July, 8% more than a month prior, and 183% more than a year ago, RealtyTrac reported. More than 680,000 homes have been repossessed since the beginning of August 2007. The Consumer Price Index (CPI) jumped 0.8% in July, the Commerce Department said yesterday (Thursday). On a year-over-year basis, the consumer prices climbed 5.6%, their biggest surge since 1991.
Dollar rally picks up steam he dollar extended its rally Friday, hitting a nearly 2-year high against the pound and gaining further against the euro, amid troubling signs about the European economy. The 15-nation euro slid to $1.4721 in New York from $1.4803 late Thursday. It has fallen more than 13 cents from its high of $1.6038 set on July 15. The pound hit its lowest level in nearly two years against the dollar. The British currency fell to $1.8589 from $1.8685 the previous session.
Oil falls below $114 on slowing economies Oil drops below $114 as slowing economies spark worry about global demand Signs of anemic growth for the world's largest economies and a strengthening dollar drove oil prices below $114 a barrel Friday. Light, sweet crude for September delivery fell $1.60 to $113.41 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe.The contract fell 99 cents overnight to settle at $115.01 a barrel. "Worries about an economic slowdown in the U.S. and Europe, and even Japan, are weighing on the oil market," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. Gross domestic product in Germany, France and Italy all contracted in the second quarter. Japan said this week its economy also shrank in the April-June period. The U.S. Energy Information Administration reported earlier this week a bigger-than-expected drop in gasoline supplies, but also said U.S. demand for refined fuel products continues to fall.
Commodities Continue to Plunge, While Stocks and Dollar Move Up $$ Metals and oil futures prices tumbled and the dollar continued to gain ground against other currencies Friday, helping push stock futures moderately higher. About half an hour before the bell, Dow Jones Industrial Average futures were roughly 32 points higher. S&P 500 and Nasdaq 100 futures posted single-point gains. Changes in futures do not always accurately predict early market moves after the opening bell. Stocks gained some traction from a report showing an improvement in factory activity in the state of New York. But most of the action was concentrated in the commodities pits, where the bottom is dropping out of several markets.
Russia's Conflict Worries Wall Street When Prime Minister Vladmir V. Putin of Russia wiped $6 billion in shareholder value from a Russian steel company last month with a few choice words, even risk-taking investors in Russia took notice. Now, as a military conflict between Russia and Georgia ends its first week, a number of big Wall Street banks are beginning to reassess the stability of their businesses in the oil-rich nation. And while they are not planning to reverse their investments soon, they are increasingly nervous that Russia’s high-risk, high-reward environment is becoming too much about the risk.
Banks promoted American debt culture "Live Richly." That catchy slogan, dreamed up by the Fallon Worldwide advertising agency, was pitched in 1999 to executives at Citicorp who were looking for a way to lure Americans to financial products like home equity loans. But some in the room did not like it. They worried the phrase would encourage people to live exorbitantly, says Stephen A. Cone, a top Citi marketer at the time. Still, "Live Richly" won out. The advertising campaign, which cost some $1 billion from 2001 to 2006, urged people to lighten up about money and helped persuade hundreds of thousands of Citi customers to take out home equity loans — that is, to borrow against their homes. As one of the ads proclaimed: "There’s got to be at least $25,000 hidden in your house. We can help you find it."
J.C. Penney's 2Q profits fall 36 percent J.C. Penney Co. reported a 36 percent decline in second-quarter profit Friday and issued a profit outlook for the current quarter that falls short of Wall Street estimates amid a tough economy. The Plano, Texas-based department store chain said net income for the three-month period ended Aug. 2 was $117 million, or 52 cents per share, compared with $182 million, or 81 cents per share, in the year-ago period.
Retail Sales Down as Unemployment Rises and Home Values Decline Retail sales fell 0.1% in July, as home values declined, unemployment rose, and consumers cut back on big-ticket spending. The decline was the first drop in five months and followed a 0.3% up-tick in June, the Commerce Department reported yesterday (Wednesday). Sales at dealerships and parts stores were at the forefront of losses dropping 2.4%. Excluding automobiles, retail sales rose 0.4%. Automobile sales have been steadily worn down over the past year by the steep escalation in gas prices. Americans drove 12.2 billion fewer miles, or 4.7% less, than they did in June 2007, the Department of Transportation reported yesterday. U.S. driving levels have dropped in every month since November of last year.
Inflation Climbs to 17-Year High Americans paid more last month not only for gas and food but also for a variety of goods and services, including clothes, shoes, hotels and air travel, as inflation unexpectedly jumped to a 17-year high. The consumer price index climbed 0.8 percent in July, the Labor Department said yesterday, twice as much as Wall Street anticipated. It was the third straight month of high inflation, and the 5.6 percent year-over-year change was the highest since January 1991, when the economy was in recession.
Economists Bet on Aid for Fannie, Freddie $$ Chances are better than even that U.S. government money will be used to prop up Fannie Mae and Freddie Mac, according to economists in the latest Wall Street Journal forecasting survey, in which a sizable minority said the institutions should be nationalized. When Treasury Secretary Henry Paulson went to Congress last month to defend his plan to extend credit to Fannie and Freddie or to purchase stock in the government-sponsored enterprises, if necessary, he made it clear that the proposal is a "backup facility [that] hopefully would never be used." However, sharp losses the two companies reported this month and continued concerns about the U.S. credit market have increased the chance that government funds would be needed.
Sir Alan's Follies The Maestro just can't get the hang of this retirement thing. You'd think at 82, with a celebrated career behind him and a bank account stuffed with speaking fees and book advances, Alan Greenspan might be spending lazy summer days fly-fishing in Scotland, perfecting his watercolor technique on Cape Ann or wagering on the ponies from the Saratoga clubhouse. But here he is, writing op-ed pieces for the Financial Times, giving interviews to the Wall Street Journal and CNBC and adding a new chapter to his recent best-seller in what looks like a desperate attempt to buff up his legacy in the face of rather compelling evidence that . . . well, that he screwed up big time. It's been nearly a decade since Greenspan's stock hit its all-time high with the now-famous Time magazine cover during the Asian financial crisis -- the one that featured Sir Alan, Bob Rubin and Larry Summers as "The Committee to Save the World." Since the committee disbanded, however, its members haven't fared so well. Summers managed to get himself hired and fired as Harvard's president, Rubin helped to steer Citigroup into the ditch, and Greenspan laid the foundation for the worst financial crisis since the Great Depression.
Detroit can't do business as usual "This is Detroit," City Council President Pro Tem Monica Conyers observed Thursday, dismissing concerns that yelling and name-calling by the city's lawmakers might be a tad problematic. "This is just how we are. We don't mean anything by it. You say what you say and move on." Guess the same standard applies for embattled Mayor Kwame Kilpatrick, beset with 10 felony counts and facing a preliminary hearing on assault charges today in a Detroit courtroom: Do what you do and then move on, hoping that a grand deal or a legal technicality will a) keep you in office or b) keep you in the style to which you've become accustomed. Or not. This may be Detroit, but that excuse doesn't go as far as it used to. Judging by the amassing evidence, the Detroit way is no longer acceptable, even to its alleged friends in the Democratic Party who'd sooner make excuses for the circus than pass judgment. Not anymore, not when the transgressions morph from rumors to the Kryptonite of felony indictments.
Inflation Versus Deflation: The Debate Continues Two very good posts I suggest you read immediately: one by Michael Shedlock, "Implications of the Slowing Global Economy" which at its close makes the case for deflation, and a rebuttal from Steve Waldman, "Why Inflation". Both are thoughtful, and as much as Waldman has the stronger argument, I suspect he will not be proven correct, at least near term. Central bankers know in overlevered economies to break glass and print money. Bernanke has written at length as to how damaging even modest deflation is to borrowers and how it impedes investment and growth. He has famously observed that a determined central bank can always reflate, and hews to the conventional wisdom that Japan is in the mess it's in due to not cutting rates fast enough when the bubble economy started imploding. Mortgage Insurers' Losses Mount Problems Feed Fears That Squeeze on Loans Could Worsen Large mortgage insurers have reported $2.6 billion in losses so far this year, sparking concerns that rising foreclosure rates could force the industry into a money crunch and ultimately make the home-buying process even more difficult. These insurers make up a critical part of the mortgage industry, taking on the risk when borrowers make small down payments. They are facing record delinquency rates that have sent them scrambling to stem losses and to improve their capital reserves. Those losses have also dinged their relationships with mortgage-financing giants Fannie Mae and Freddie Mac, which the insurers depend on for business
Mortgage Rates Steady on Fed Target Mortgage rates have held mostly steady for the second week in a row, as the market continued to digest mixed economic news and became comfortable with the Fed's rate target, which isn't likely to move any time soon. Government-backed mortgage buyer Freddie Mac said Thursday that long-term rates were mostly unchanged, with adjustable rates falling slightly. Freddie's chief economist, Frank Nothaft, attributed the stability to "offsetting economic data" that showed strong growth in consumer credit, but weak retail sales, indicating that Americans may be simply holding back on purchases, even if they are able to spend more. Housing Recovery Act Depends on Banks to Refinance Mortgages First-time homebuyers, veterans, senior citizens and delinquent mortgage holders may benefit from the newly enacted housing bill. How well it will work may depend on regulators and your bank. The Housing and Economic Recovery Act, intended to stem home foreclosures and spark sales, offers first-time buyers a tax credit of up to $7,500. It also extends protection to veterans facing foreclosure. As many as 400,000 borrowers on the brink of losing their homes may be eligible for a more affordable loan backed by the Federal Housing Administration.
Housing Rebound in Cleveland Means Bad News for U.S. The good news in the worst housing slump since the Great Depression is that the market in Cleveland is recovering. That's also the bad news. The Cleveland area led the nation for home price gains in April and May with an 18 percent jump in the lowest price tier of the S&P/Case-Shiller home price index after values fell to levels last seen in 2000. The median home price was $117,500 in the second quarter, 15 percent higher than the prior three months, the National Association of Realtors said in a report today. A housing revival in this city of 438,000 on the shore of Lake Erie may portend deeper drops in U.S. markets. Prices for entry level homes in Cleveland had to tumble 37 percent from a September 2005 peak to an almost 11-year low in March before enticing first- time buyers. That may be a sign that U.S. markets with the biggest price increases during the 2000 to 2005 boom have much further to fall before stabilizing, said David Blitzer, chairman of Standard & Poor's Index Committee.
Home prices fall in majority of cities nationwide Median home prices fell in more than three-quarters of U.S. cities in the second quarter, the latest sign of the breadth of the housing market decline, according to new data Thursday. Nevertheless, home sales rose in areas where the market is flooded with foreclosures, indicating that borrowers are taking advantage of steep discounts. Nevada and California, battered by a housing market bust, were the only states to show sales gains in the second quarter compared with a year earlier, according to a report by the National Association of Realtors. Home heating crisis looms Home heating bills are expected to soar this winter and Americans, already struggling with high gas and food prices, are bracing for more financial hardship. On average, consumers are expected to pay $1,182 to heat their homes this year, up 20% from last year, according to recent estimates from the Energy Information Administration (EIA). the outlook for the Northeast, where 8 million households depend on heating oil, is even more worrisome. Homeowners in the region are expected to spend an average of $2,725 on heating oil this winter.
Don't Let Foreclosure Destroy Your Mind The foreclosure filings piling up across the country are taking a toll not just on banks and Americans' personal finances, but on their mental state as well. Nearly 1.7 million homes have been foreclosed upon so far this year, and the pace has accelerated. RealtyTrac reported on Thursday that there were 55% more foreclosure notices issued in July than a year earlier. The related stress can lead to an increase in unhealthy behavior, like not eating or sleeping properly, self-medicating with alcohol or drugs, and damaging personal relationships or employment. Some have even taken their own lives.
Weak Exports and Domestic Spending Declines Push Eurozone to the Recessionary Brink The Eurozone economy recorded its first decline in more than a decade as slowdowns in the European Union’s largest economies dragged on gross domestic product (GDP). The Eurozone economy, which covers the 15 nations that share the euro currency, contracted 0.2% in the second quarter, as a 0.5% decline in Germany and a 0.3% decline in France offset gains in the smaller economies of Austria, Portugal and Spain, Eurostat, the European Union’s official statistics office, announced yesterday (Thursday). Russia and China Both Hate Democracy, but Their Economies Are Different Our guest Philip Pan, a foreign correspondent for The Washington Post, is jumping from one frying pan into another: As Beijing bureau chief from 2000-2007, Pan witnessed China's "economic miracle" firsthand. Now, with his upcoming new assignment for the Post in Moscow, he'll be immersed in a culture far less inclined to foreign investment. Pan, author of the new book Out of Mao’s Shadow, says China and Russia are more different than they are alike, despite the fact that both still cling to authoritarian rule that's likely to inhibit sustained economic growth over time. Nevertheless, in parts one and two of our discussion, Pan argues that free-market capitalism in these superpowers isn't about to wither away in the absence of democracy. Russia Condemns Missile-Shield Deal Between U.S. and Poland Russia condemned an agreement between the U.S. and Poland under which American missile interceptors are to be stationed on Polish territory. "We can only regret that at this very difficult time, the U.S. side is further aggravating relations between the U.S. and Russia," Anatoly Nogovitsyn, deputy chief of Russia's General Staff, said at news conference in Moscow today. Talks on locating part of the planned missile-defense shield in Poland made headway after Russia's attacks on Georgia highlighted the vulnerability of former Soviet republics and satellite states in eastern Europe. Russia has in the past threatened to point ballistic missiles at missile shield sites the U.S. plans to build in Poland and the Czech Republic.
Russia Angry Over Poland Missile Deal The United States and Poland reached a long-stalled deal on Thursday to place an American missile defense base on Polish territory, in the strongest reaction so far to Russia’s military operation in Georgia. Russia reacted angrily, saying that the move would worsen relations with the United States that have already been strained severely in the week since Russian troops entered separatist enclaves in Georgia, a close American ally. At a news conference on Friday, a senior Russian defense official, Colonel General Anatoly Nogovitsyn, suggested that Poland was making itself a target by agreeing to serve as host for the anti-missile system. Such an action “cannot go unpunished,” he said.
Bush, Decrying 'Bullying,' Calls for Russia to Leave Georgia Condemning as unacceptable what he called Russia's "bullying and intimidation," President Bush on Friday said Russia must withdraw its troops from all of Georgian territory and said the United States would stand with Georgia in the conflict. "Georgia’s sovereignty and territorial integrity must be respected," he said. Tensions have risen sharply in the last 24 hours, as the Russian president and foreign minister made it clear they would support separatist efforts by two breakaway Georgian territories and as the specter of a resurgent Russia helped persuade Poland to agree to a long-stalled deal on an American missile defense system.
After Georgia What a more aggressive Russia means for world energy markets. Russia's conflict with Georgia has sparked worries over the small country's ability to provide a secure energy transit route for the West. Georgia contends that Russia targeted the 3-year-old Baku-Tbilisi-Ceyhan pipeline, and a Wall Street Journal reporter saw large bomb craters in a plain near the pipeline. (Russia has denied targeting it.) The B.T.C. pipeline, operated by BP, was the first to bring Caspian oil to market while bypassing Russia. It carries 850,000 barrels of oil a day, or about 1 percent of the world's crude oil supply, from Azerbaijan through Georgia and Turkey. Portfolio.com asked Kent Moors of Duquesne University, who is also an energy and risk-management consultant specializing in the Caspian region, about the prospects of a more aggressive Russia on global energy markets.
Russian Relations In Doubt, Gates Says U.S. Assessing Need For Aid in Georgia Russian behavior in Georgia has "called into question the entire premise" of relations between Washington and Moscow, Defense Secretary Robert M. Gates said yesterday, even as the Bush administration appeared willing to let Russia take its time removing its forces from disputed areas inside the former Soviet republic. Gates reported a sharp drop in Russian military activities and said troops seemed to be positioning themselves to depart Georgia proper, toward the separatist, pro-Russian enclaves of South Ossetia and Abkhazia. He said a U.S. military humanitarian-assessment team that arrived Wednesday will take 48 hours to determine how best to distribute aid.
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Thur 08.14.2008
U.S. Foreclosures Increase 55%, Bank Seizures Rise to Record Bank repossessions almost tripled in July and U.S. foreclosure filings increased 55 percent from a year earlier as falling prices cut homeowner equity, accelerating the housing decline, RealtyTrac Inc. said. Bank seizures rose 184 percent, the most since reporting began in January 2005, the Irvine, California-based seller of foreclosure data said today in a statement. More than 272,000 properties, or one in 464 U.S. households, got a default notice, was warned of a pending auction or were foreclosed on. Nevada, California and Florida had the highest rates. "It's getting worse," Rick Sharga, RealtyTrac's executive vice president for marketing, said in an interview. "The number of properties that have been foreclosed on by the banks and still haven't sold is the highest we've ever seen."
Bank Failures Rise but Critics Say Not Fast Enough First the borrowers. Now the banks. Federal and state regulators have closed eight banks this year, four since the start of July, as rising borrower defaults on residential and commercial real estate loans start to push some lenders into default, too. There were no bank failures in 2005 or 2006 and only three in 2007. Now, some analysts expect a few hundred banks to fail over the next several years -- the most since the savings-and-loan crisis two decades ago. And some critics say the failures aren't happening fast enough. They say regulators are keeping some troubled banks on life support by allowing them to spend money to stay in business that should be reserved to cover loan losses after the bank has failed.
Fed's Stern Sees Weak Economy Into Next Year The U.S. is likely to face weak economic activity into next year, although a sustained drop in energy prices may help engineer a more favorable inflation environment over time, a veteran Federal Reserve official said. In an interview with Dow Jones Newswires, Federal Reserve Bank of Minneapolis President Gary Stern argued that the economy continues to face continuing "headwinds" from the housing and financial markets. "I expect the expansion to remain modest certainly into next year because I think it will take some time for the headwinds to dissipate," he said. Housing still has a ways to go, though he expects a stabilization at some point next year.
Saving Wall Street From Itself By unleashing banks and brokerages, deregulation created vast wealth—and, now, vast problems. Is it time to resurrect Glass-Steagall? Placing blame for the subprime crisis has become a priority among politicians and pundits, right up there with preventing another financial meltdown. The spread of securitization and a fall in lending standards have been easy, if hard-to-visualize, targets. But some commentators have dangled the possibility that much more tangible actors are to blame: the government and its zeal for deregulation. "We are in a worldwide crisis now because of excessive deregulation," Democratic Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee, recently told the Washington Post.
It's Too Soon to Toast the End of Credit Crisis With U.S. stocks and the dollar on the upswing and commodities heading south, hope springs eternal that the worst of the credit crisis may be behind us. What started out as scattered problems with sketchy subprime loans somehow managed to infect the broader housing market, batter the biggest financial institutions, bring Bear Stearns Cos. down and Fannie Mae and Freddie Mac to their knees, decimate the derivatives market, and cause businesses to cut payrolls and consumers to curtail spending. In other words, the entire U.S. economy save the export sector is feeling the aftershock. And with growth now slowing in Europe and Japan, export demand may be at risk. A year from now things will no doubt look better than they do now. Banks have already reported losses and writedowns of a half trillion dollars; forecasts of $1 trillion no longer seem far-fetched.
Retailers Fight The Anti-Shopping Spree Retailers aren't expecting the economy to improve in time for their crucial back-to-school events, or even their big holiday bonanzas, but they have finally started reacting by cutting costs and slashing inventory. They're also working hard to draw in the customers that are still spending. A slew of major retailers reported earnings on Wednesday, citing the down economy and shoppers' weariness about spending as the reasons for their declines and cautious forecasts.
Retailers Brace For Ugly Fall Just a couple of weeks or so until the kids return to school. Gas prices are high, consumer confidence low--an ugly picture for retailers trying to lure shoppers through the door at a critical time of year. Even the most optimistic forecasts say 2008 will show the lowest seasonal sales growth in six years. The likely winners? Those offering cut-rate prices or spending heavily on promotions. Wednesday the government reported July retail sales were the weakest in five months, with sales at department stores and general merchandise stores up just 0.3% from the prior year. The same day, department-store barometer Macy's issued a lackluster earnings report, announcing it made 17 cents a share for the second quarter, two cents below Wall Street estimates. Same-store sales dropped 2.1% from last year's quarter.
Retail Sales Feed a Mood of Decline Another month of weak retail sales in July added to evidence that the spending power of American consumers has weakened considerably, despite the booster shot of billions of dollars from the government’s tax stimulus program. Even as gasoline prices started to retreat, consumers paid more last month for imported goods, the government reported on Wednesday, as import prices rose at the fastest annual rate in 25 years.
Retail sales drop for first time in 5 months July retail sales dip 0.1 percent as shoppers shun autos and face higher gas bills Retail sales delivered the weakest performance in five months in July as shoppers shunned autos while they paid more for gas. With the mass mailings of $92 billion in rebate checks now just a memory, there is concern the fragile economy could slow even more in the second half of this year. The Commerce Department reported Wednesday that retail sales fell 0.1 percent last month, the first decline since a 0.5 percent tumble in February. It was a worse showing than the flat reading economists had been expecting and followed a revised but still weak 0.3 percent reading for June. Analysts said retail sales would have been more feeble without the $92 billion in rebate payments the government sent out in May, June and July. Those checks helped to counter plunging home prices, rising unemployment and soaring gasoline prices. The bulk mailings are now over, though, leaving economists worried about what will happen next to spending.
Credit-Crunch Villains Should Own Up, Do Penance Psychiatry suggests that people hit by catastrophe begin in denial, become angry, then try to bargain their way out of the dilemma, then get depressed, before finally accepting their misfortune and resuming their lives. One year on, the villains of the credit crunch haven't moved past denial. In the current edition of the Economist, there's a 2,000- word article by an unidentified risk manager at what the weekly magazine calls a "large global bank." Even though the author is shielded by anonymity, he -- I'll bet you beer for a month that a woman didn't write it -- refuses to take any blame for acquiescing in the hubris that brought the finance industry's most munificent decade to a shuddering, writedown-ridden halt.
Around the world, pessimism about the economy More signs of the economic slowdown appeared on two continents, Asia and Europe. In Europe, the Bank of England offered on Wednesday a pessimistic outlook for the rest of the year, saying that it expected inflation to hit 5 percent because of energy and food prices and the economy to stagnate. And in Asia, Japan appears to be flirting with a recession, government data showed Wednesday. "The numbers were awful," Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo, said after the Japanese government reported that the gross domestic product shrank at an annual 2.4 percent rate in the three months that ended June 30. "Things are going to be very tough in the second half of the year." Even as commodity prices are beginning to ease, the credit and housing crises in the United States, coupled with the highest inflation in a generation, are weighing on consumers.
Stocks Fold in Face of Higher Oil, Weak Retail Stocks in New York briefly flirted with positivity Wednesday afternoon but sold off into the close after an increase in crude prices and disappointing July retail sales news earlier in the day dealt a double blow to investor sentiment.
Oil rebounds after US gasoline supplies drop Oil jumps to $116 a barrel after government reports big drop in US gasoline supplies Oil prices rebounded Wednesday, jumping back to $116 a barrel after the government reported a bigger-than-expected drop in U.S. gasoline supplies. But more signs of dwindling U.S. demand cast doubt on the rally's longevity. At the pump, a gallon of regular gasoline shed on average another penny overnight to $3.787, according to auto club AAA, the Oil Price Information Service and Wright Express. That's nearly 8 percent lower than record prices above $4 a gallon reached last month, but still 37 percent higher than a year ago; retail gasoline prices tend to lag behind crude oil's moves by several weeks.
Goldman Balks at Helping Rich Clients Recover From 'Auction Rate' Securities $$ For once, Wall Street isn't bending over backward for its richest clients. That is causing new controversy for investment banks, which have already committed to reimburse mom-and-pop investors, charities, and small businesses for more than $40 billion in illiquid "auction rate" securities. Wealthy clients, institutions and corporations have been largely left out of those pacts. The quandary is acute for Goldman Sachs Group Inc., which caters only to the wealthy. While a string of large Wall Street brokers announces daily settlements in the billions, Goldman has been mum about its plans, so far refusing to buy back clients' auction-rate paper
In a Generation, Minorities May Be the U.S. Majority Ethnic and racial minorities will comprise a majority of the nation’s population in a little more than a generation, according to new Census Bureau projections, a transformation that is occurring faster than anticipated just a few years ago. The census calculates that by 2042, Americans who identify themselves as Hispanic, black, Asian, American Indian, Native Hawaiian and Pacific Islander will together outnumber non-Hispanic whites. Four years ago, officials had projected the shift would come in 2050. The main reason for the accelerating change is significantly higher birthrates among immigrants. Another factor is the influx of foreigners, rising from about 1.3 million annually today to more than 2 million a year by midcentury, according to projections based on current immigration policies.
GM engineer says rechargeable car is on schedule Early versions of the Chevrolet Volt's battery packs are powerful enough to run the high-stakes rechargeable car, but dozens of issues remain before General Motors Corp. can start selling the revolutionary vehicle in 2010 as planned. The Volt's chief engineer is on a tight schedule to figure out how the car will handle the batteries' weight, dissipate their heat and mechanically transfer their power to the wheels. That's not to mention the list of issues that have nothing to do with the fact that the car plugs in to the wall for recharging. But the 47-year-old veteran GM engineer who was recruited from a GM post in Germany to run the high-profile project is driven by knowing the entire company's future could rest on it.
Chrysler exec says Cerberus is in for long term Even if private equity firm Cerberus Capital Management LP intends to sell Chrysler LLC in pieces, Chrysler Vice Chairman Tom LaSorda says it won't happen anytime soon. Cerberus founder Stephen Feinberg has given assurances that the investment firm will stay with Chrysler for the long term, LaSorda said Wednesday. But even if it wanted to sell after owning the automaker for just over a year, now is not the time with the U.S. auto industry in a slump, LaSorda said. "No one is going to buy a car company like this in the market that its in," he told reporters after speaking at the Center for Automotive Research Management Briefing Seminars in Traverse City. "One could argue is it worth as much as they paid for it initially based on today's market?" LaSorda said Chrysler's brands - Chrysler, Jeep and Dodge - are worth a lot if they are sold.
China Points the Way to Profits as the New Global Manufacturing Leader There’s more bad news for those of you who are worrying about the United States’ global geo-strategic position. According to a recent report, starting next year, Chinese manufacturing output will exceed that of the United States. In concrete figures, of the world’s $11.8 trillion of manufacturing value added output expected to be produced in 2009, China will account for 17%, while the United States will account for 16%. For investors, even those based in the United States, the implication is clear: a substantial part of any investor’s portfolio should be in China and any other countries where manufacturing is growing as a percentage of the world total.
Europe Economy Shrinks as Spending, Investment Falter Europe's economy contracted for the first time since the introduction of the euro almost a decade ago as faltering sales undermined investment by companies and soaring costs eroded consumer spending power. Gross domestic product fell 0.2 percent in the second quarter from the first, when it increased 0.7 percent, the European Union statistics office in Luxembourg said today. The year-on-year growth rate slowed for a third straight quarter, to 1.5 percent. Separate figures showed inflation held at 4 percent in July, less than initially estimated.
Economic Malaise Threatens To Undermine European Unity MADRID -- The fruits of Spain's economic transformation found their way to Maria Dolores Barroso's cafe. Fueled in large part by a massive building boom, the Spanish "miracle" brought new jobs to legions of construction industry workers -- many of whom would pack her cafe at sundown, dropping their euros on beer and savory tapas well into the madrileño night. But as Europe confronts its toughest economic test since the official creation of the European Union in 1993, Barroso has hung a "for sale" sign on her cafe door. Business has dried up -- falling 80 percent in six months -- as Spain has joined a growing list of European nations slouching toward recession. The abruptly weakening European economies caused a sharp sell-off of the euro last week that sent the dollar to its biggest gain in more than six years on Friday. Those gains continued yesterday.
Conflict Narrows Oil Options for West When the main pipeline that carries oil through Georgia was completed in 2005, it was hailed as a major success in the United States policy to diversify its energy supply. Not only did the pipeline transport oil produced in Central Asia, helping move the West away from its dependence on the Middle East, but it also accomplished another American goal: it bypassed Russia. American policy makers hoped that diverting oil around Russia would keep the country from reasserting control over Central Asia and its enormous oil and gas wealth and would provide a safer alternative to Moscow’s control over export routes that it had inherited from Soviet days. The tug-of-war with Moscow was the latest version of the Great Game, the 19th-century contest for dominance in the region.
Bush, Sending Aid, Demands That Moscow Withdraw President Bush sent American troops to Georgia on Wednesday to oversee a “vigorous and ongoing” humanitarian mission, in a direct challenge to Russia’s display of military dominance over the region. His action came after Russian soldiers moved into two strategic Georgian cities in what he and Georgian officials called a violation of the cease-fire Russia agreed to earlier in the day. Mr. Bush demanded that Russia abide by the cease-fire and withdraw its forces or risk its place in “the diplomatic, political, economic and security structures of the 21st century.” It was his strongest warning yet of potential retaliation against Russia over the conflict.
Georgian City Still Controlled by Russian Forces President Dmitri Medvedev of Russia on Thursday said that Russia would act as an international guarantor of South Ossetia and Abkhazia, the two pro-Russian enclaves at the center of the crisis that have long desired separation from Georgia. President Bush warned Russia of possible retaliation. As Secretary of State Condoleezza Rice headed to the region for discussions on the crisis and to show support for Georgian President Mikheil Saakashvili, the Russian position seemed to be a direct challenge to President Bush who said a day earlier that he “insists that the sovereign and territorial integrity of Georgia be respected.”
Georgia On Our Minds Mission accomplished. By playing with the former Soviet republic of Georgia like a cat with a mouse, Vladimir Putin established who controls this valuable piece of real estate--and sent a message to the U.S. and anybody else who would find a secure route for Central Asian oil past Russian gatekeepers. As the missiles flew, BP was forced to shut down the Baku-Sipsa pipeline carrying oil from Azerbaijan to the Georgian port of Sipsa. It probably would have been forced to shut down the far more important Baku-Tbilisi-Ceyhan pipeline were it not already idled because of an apparent terrorist attack in Turkey.
Russian Assault in Georgia Threatens New Cold War fter sending tanks, troops and warplanes into Georgia last week, Russian President Dmitry Medvedev yesterday ordered a halt to the ground offensive. By the standards of military conflicts in the region, it was a short one. The Caucasian War of the 19th century, when Russia expanded its influence in the region, lasted from 1817 to 1864. Yet just because this one was short -- and it remains to be seen whether the cease-fire holds -- doesn't mean its impact won't be long-lasting. Russia is threatening a new Cold War by dispatching troops to the independent state of Georgia. The trouble is, there isn't much reason to think it will do better this time around than it did in its Cold War with the U.S. and the West last century. We will all be poorer if there is more tension between Russia and the rest of the world. And Russia will suffer most of all.
Peace Plan Offers Russia a Rationale to Advance TBILISI, Georgia — It was nearly 2 a.m. on Wednesday when President Nicolas Sarkozy of France announced he had accomplished what seemed virtually impossible: Persuading the leaders of Georgia and Russia to agree to a set of principles that would stop the war. Handshakes and congratulations were offered all around. But by the time the sun was up, Russian tanks were advancing again, this time taking positions around the strategically important city of Gori, in central Georgia. It soon became clear that the six-point deal not only failed to slow the Russian advance, but it also allowed Russia to claim that it could push deeper into Georgia as part of so-called additional security measures it was granted in the agreement. Mr. Sarkozy, according to a senior Georgian official who witnessed the negotiations, also failed to persuade the Russians to agree to any time limit on their military action.
Moscow Agrees To Georgia Truce Russian Attacks Continue After Statement TBILISI, Georgia, Aug. 12 -- Russia said Tuesday that it had ended its five-day tank and bomber assault against Georgia and agreed to a French peace plan by which most Russian forces would return home and international mediators would work to settle the long and explosive conflict between Georgia and Russian-backed South Ossetian separatists.
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Financial Reality Will Sound a Wake-Up Call for the Federal Reserve and the American Dream In holding overnight rates steady at 2%, the U.S. Federal Reserve once again put forth its belief that, despite a cascade of horrific financial data, the economy is likely to continue to grow slowly and that inflation would moderate. Although wrong on both counts, this view is consistent with the relative optimism that prevails across the country. After nearly two decades of an uninterrupted consumption binge, most Americans simply refuse to believe that anything can seriously derail the American economy. It’s a pleasant dream, but the wakeup call can’t be too far off. The benign outlook on inflation is rooted in the hope that a slowing economy will pop the commodities “bubble” and break the back of inflation. Despite these pronouncements, most rational observers understand that inflationary pressures are currently intensifying, not abating. Rising commodity prices are not the cause of inflation, but merely the symptom of rampant monetary expansion from the Fed and other central bankers around the world.
U.S. credit system remains crippled a year after crisis erupted A year after the credit crisis erupted on Wall Street, one of the most important arteries of modern U.S. finance remains broken. And until it is fixed or replaced, analysts say, borrowers in the United States can expect to face higher than normal interest rates even as access worsens to home mortgages, student loans, auto loans and commercial mortgages. The problem - the drying up of financing for a vast swath of the economy - has intensified as bond investors have grown leery of the securities priming the pump. The inability to revive credit markets has served as a drag on both the U.S. and the global economies. Economies elsewhere are caught in the backwash, affected both directly by the financial problems emanating from the United States and the American economic downturn that has followed.
Bank Stocks Drop Anew Amid Worry Over Falling Home Prices $$ Stuck with a growing glut of foreclosed houses, banks and investors are shedding them at increasingly steep losses, potentially adding to the banking industry's red ink this year. Banks are selling foreclosed homes in some cases for less than half the price they fetched two or three years ago. The cuts are coming as the U.S. banking sector, slogging through its worst crisis in decades, bites the bullet out of fear that prices will keep falling.Financial stocks fell sharply Tuesday, following J.P. Morgan Chase & Co.'s warning late Monday that it expects "a continued decline in U.S. housing prices." The dour assessment included a roughly $1.5 billion trading loss related to the largest U.S. bank's holdings of mortgage-backed securities.
Retail sales drop for first time in 5 months July retail sales dip 0.1 percent as multiple economic woes blunt impact of stimulus checks Retail sales fell in July, the weakest performance in five months, as a variety of economic woes combined to blunt the impact of billions of dollars in government stimulus payments to U.S. households. The Commerce Department reported Wednesday that retail sales dipped 0.1 percent last month, the first decline since sales had fallen by 0.5 percent in February. It was a worse showing than the flat reading economists had been expecting. The weakness last month came after another big slide in auto sales as Detroit faced its worst sales month in 16 years. Automakers have been battered by the weak economy and record gasoline prices which have cut into demand for their once-popular sport utility vehicles and pickup trucks.
Oil rises on mixed dollar Oil rises on mixed dollar and ahead of US crude inventory data Traders bid oil higher Wednesday amid mixed signals on the strength of the U.S. dollar and ahead of weekly U.S. crude inventory data expected to show a slight increase in oil supplies. A weakening dollar has helped boost oil prices this year, because dollar-denominated commodities are often used as hedges against inflation and a falling U.S. currency. The euro rose Wednesday to $1.4919 but the yen was weaker against the greenback, trading at 1 U.S. dollar to 108.93 yen. Light, sweet crude for September delivery rose 23 cents to $113.24 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract dropped $1.44 overnight to settle at $113.01 a barrel.
For banks, breaking up is hard to do UBS is looking at separating its prized wealth management arm from its investment bank, but its U.S. rivals' experience shows that splitting the company into parts could be very difficult indeed. For years, critics have called for banks like Citigroup to be split up, claiming their many separate businesses are too difficult to manage well. But dividing a bank is tricky because the individual units may need more capital separately than they do together. A bank's units can provide stability to one another, with some earning money while others lose money - precisely the reason a former Citigroup chief executive, Sanford Weill, cited when he tried to craft the bank into a "financial supermarket." Selling a unit would be difficult given the low prices these assets would likely fetch now, analysts said.
Bankrupt Retailers: Pushed to the Brink Changes in the law have sharply reduced retailers' ability to reorganize, driving many to liquidate quickly On Feb. 19 the electronic gizmo retailer Sharper Image filed for Chapter 11 bankruptcy protection. As part of its court filing, Sharper Image management committed to its lenders to close 90 of its 184 stores. But within weeks, newly appointed Chief Executive Robert Conway decided to liquidate the rest of the stores. Conway, who is a principal at turnaround specialist Conway, Del Genio, Greiss & Co., reached the conclusion that it would be nearly impossible to secure adequate financing to restock the remaining 94 stores. "We didn't want to delay the process to a point where there would be no value left, and we decided liquidation was the best option. The last few stores closed at the end of July," says Conway. But the final nail in the coffin for Sharper Image came three years earlier, when U.S. bankruptcy law was revised to add cash payments to utilities and other suppliers, and place a 210-day cap on the amount of time bankrupt companies have to decide whether to keep a lease.
Stock Pessimism Fades as Commodities Tumble, Bank Concern Eases Stock investors from Mexico City to Madrid are growing less pessimistic after oil tumbled 23 percent and concerns about bank losses receded, a survey of Bloomberg users showed. While most investors expect benchmark indexes to decline, fewer predict losses than in July for the Standard & Poor's 500 Index, the FTSE 100 Index, France's CAC 40 Index, Italy's S&P/MIB Index, the Swiss Market Index, Germany's DAX Index, Spain's IBEX 35 Index and Mexico's Bolsa, according to the Bloomberg Professional Global Confidence Survey. Brazilian investors were the most bullish for a ninth month. Only in Japan did they grow more bearish, last week's survey of 2,229 users showed.
Commodity Correction - Coming Into an Important Bottom? For the last 4 weeks, commodity markets have been shredded with prices moving steadily lower across the board. From the July highs, spot Copper is down 17.72%, nearby Gold down 17.03%, Spot Silver down 24.62% and spot Platinum down 26.54%. Within Energy, the damage is even more considerable with Heating Oil down 25.55%, Unleaded Gasoline down 20.93%, Crude Oil down 22.94% and worst of all, Natural Gas down an incredible 38.60%. In Crude Oil, the decline has lasted 21 days dating back to the high seen at $146.65 on July 11th. That means Crude Oil has been declining more then 1% per day for 21 days. In the table below, we have gone back and assessed what could be considered all of the other ‘substantial’ double digit corrections which have taken place in Crude Oil since the bull market began in 2002. Not surprisingly, at just over 20% the current decline in Crude is on par ‘as reasonable’ for a potential correction low given what has been this market's high level of historical volatility.
Why Today’s Bull Market is Tomorrow’s Bear Trap Depending on your perspective, U.S. equities are either at the edge of another cliff or at the dawning of a new bull market. We could make the case for either. But in as much as that would be an interesting exercise, the more relevant question is what the data suggests. Let’s take a look. Since their 52-week highs last October, the Dow Jones Industrial Average Index has lost 18.5%, the S&P 500 Index is off 18.2% and the Nasdaq Composite Index has fallen 15.1%. At the same time, the broader U.S. economic picture has darkened considerably with gross domestic product (GDP) a slim 1.9% and consumer confidence in the toilet bowl rather than the punch bowl. Adding insult to injury, sentiment is worsening. Even perma-bulls are tempering their expectations and volume remains decidedly concentrated on the downside.
Dollar Conundrum The long-term downtrend of the dollar has been a black eye for American pride, but it comes with a silver lining: the U.S. trade situation is improving as exports surge. On Tuesday the U.S. Commerce Department reported the trade imbalance dropped to $56.8 billion in June, down by 4.1% from a revised May deficit of $59.2 billion. It was the smallest deficit in three months and far better than the $61.5 billion Wall Street had been expecting. "Right now," said Joe LaVorgna, chief economist at Deutsche Bank, "the second quarter was one of the strongest trade contributions to the gross domestic product ever."
SEC short-selling ban on Fannie, Freddie to end A government order expires Tuesday that temporarily banned a certain kind of short-selling of the stocks of mortgage finance companies Fannie Mae and Freddie Mac and 17 large investment banks. The companies' shares have stabilized since the ban took effect July 21. The Securities and Exchange Commission says its order helped prevent stock manipulation, and that regulators will be able to analyze data to gauge its effectiveness. But some experts say that may be difficult to determine. The SEC instituted the emergency ban last month after a precipitous slide in the shares of Fannie and Freddie, the government-sponsored companies that together hold or guarantee more than $5 trillion in home mortgages - nearly half the U.S. total. The SEC on July 29 extended the ban until 11:59 p.m. EDT Tuesday, saying it would not be extended further.
Financial Shares Go Crunch Just when investors thought it was safe to go back into financial stocks, they heard a crunching noise and realized on Tuesday that the subprime crisis was still out there, eating away at their portfolios. The day began badly, with the market reacting to a mortgage-related warning from JPMorgan Chase, pitiful earnings from UBS and analyst downgrades for Wall Street's golden boy, Goldman Sachs. Then it got worse as a slew of concerns were raised about other companies.
Stocks fall sharply amid financial sector concerns Wall Street falls sharply as investors grow concerned about losses at financial companies Wall Street skidded lower Tuesday as downbeat news from JPMorgan Chase & Co. and other financial companies lifted the market's anxiety about the continuing impact of the credit crisis on the economy. The Dow Jones industrials fell nearly 140 points. The latest reminder of continuing troubles for banks and brokerages came when JPMorgan said late Monday it has incurred wider losses in its mortgage holdings so far in the third quarter than in the second quarter. The nation's second-largest bank by assets said in a regulatory filing it lost $1.5 billion, after hedges, in its mortgage-backed securities and loans this quarter, compared to $1.1 billion in the second three months of 2008. The losses were proof to investors that the financial sector's problems appear to be nowhere near a resolution. Meanwhile, Goldman Sachs Group Inc. fell after several analysts lowered their ratings and earnings estimates for the investment bank. And UBS AG, Switzerland's largest bank, reported further losses and write-downs of $5.1 billion during the second quarter.
PMorgan shares tumble on widening 3Q losses JPMorgan shares fall after bank reports widening losses related to mortgage debt in 3rd qtr JPMorgan Chase & Co. shares tumbled nearly 10 percent Tuesday as the bank's disclosure about escalating losses in its mortgage portfolio set off new concerns about the health of the overall financial sector. An analyst's lowering of the bank's earnings estimates and price target contributed to the decline. JPMorgan Chase plunged $3.88, or 9.3 percent, to close at $38.01. It has traded between $29.94 and $49.95 in the past 12 months. In a filing with the Securities and Exchange Commission late Monday, the bank said turbulence in the credit markets have caused it to lose about $1.5 billion, after hedges, in its mortgage-backed securities and loans to date in the July-to-September quarter. That's more than the $1.1 billion in losses JPMorgan incurred in its investment bank's portfolio during the second quarter.
Wall Street Losses Cut Tax Bill, Sap New York Revenue Wall Street's mortgage losses have grown so large that some firms may pay little or no taxes for years, widening New York City and state deficits and challenging their ability to provide services, Mayor Michael Bloomberg said. Some companies are seeking refunds from the city on taxes they paid ahead of time, saying losses have cut their tax liability to zero. The banks pay tax on 110 percent of earnings in advance as a "safe harbor," protecting against penalties for underpayment.
Freddie Mac Will Stop Buying New York Subprime Mortgages In its latest effort to deal with the fallout of the subrprime credit crisis, government-sponsored mortgage buyer Freddie Mac said it will not purchase subprime mortgages secured by properties in New York state with note dates on or after Sept. 1. The move is Freddie's response to recent New York legislation, effective Sept. 1, that creates a new category of subprime mortgages. The state has said the legislation is intended to curb abusive lending practices. But Freddie said the pending law "creates the potential for heightened legal and business risk exposures for the purchasers or assignees of these loans," including secondary market participants such as Freddie and sister Fannie Mae that buy mortgages.
A Bottom in Housing? You've Got to Be Kidding Many forecasters say just wait until early 2009 and home prices finally will start to pick up. Not so fast says my guest Barry Ritholtz, CEO of Fusion IQ and financial blogger for The Big Picture. Home prices rocketed well above trend in the past five years, says Ritholtz, and have only just begun to deflate to more normal levels. The housing market will either drop about 25 percent dramatically, or peter out for a decade. So which is it? Ritholtz thinks somewhere in between.
Calif. Bank Needs Capital Vineyard National Bancorp stated late Monday that it would need to raise capital and find new sources of liquidity to continue operating through 2008. Shares closed down 44% at $1.08 Tuesday. The $2.4 billion Rancho Cucamonga, Calif., holding company reported a net loss of $67.9 million for the second quarter, mainly resulting from a $40.5 million provision for loan losses, as nonaccruing tract construction loans mounted. This followed a first-quarter loss of $13.3 million. Vineyard's main subsidiary is Vineyard Bank, NA, which had total assets of $2.3 billion as of June 30. According to its preliminary Federal Deposit Insurance Corporation call report for the second quarter, as provided by Highline Financial, on Aug. 12, the bank remained well-capitalized as of June 30, with a leverage ratio of 8.28% and a risk-based capital ratio of 10.03%. However, according to Monday's second-quarter 10-Q filing by the holding company, the bank is no longer considered well-capitalized "as a result of the issuance of the Consent Order, among other things."
'Occupied to sell' is latest in staging If you pay attention to housing trends at all, you've heard of "staging"—the term for decorating (or re-decorating) a home to make it more appealing to buyers. Thom Scott says his company practices "staging on steroids," and business is booming. The Nashville-based firm, called Show- homes, not only fills vacant houses with furniture, but with people to live in them too. It's generally accepted in real estate that vacant homes take longer to sell and fetch less than furnished ones. Vacant properties—potentially weed-choked and the target of vandals—are a big worry: There are about 2.2 million of them for sale, according to census data. Showhomes stages and occupies pricier properties, and it—and its clients—are changing with the times.
GM to Crack Down On Health Coverage General Motors Corp., looking to trim its nearly $5 billion-a-year health-care tab, is cracking down on workers who are collecting medical benefits for which they aren't eligible. The auto maker is giving its 67,000 hourly workers until Aug. 20 to voluntarily remove dependents who shouldn't be covered from their health policies. After that, employees must prove that covered family members are eligible. If GM paid for health expenses it shouldn't have, workers may be forced to reimburse the company, a GM spokeswoman said. GM has audited its health-care rolls before, but the new effort is more extensive than in years past, she said.
5 Ways to Dig Yourself Out of Credit Card Debt How do you stop digging yourself deeper into debt? Americans carry a lot of debt, and it is easy for mounting debt to grow. Sometimes, it grows faster than you can pay it off, and that can be very stressful.
Here are five surefire strategies to help you help yourself: 1. Give yourself a 'time out.' 2. Stop using your credit cards 3. The $100 key rule. 4. Delete your cookies! 5. Count to five.
Japan on brink of recession as economy shrinks Japan said Wednesday its economy contracted in the second quarter as falling exports and weak consumer spending sent Asia's largest economy hurtling toward its first recession in six years. The slump reflects the rapidly deteriorating global economic climate, with fears of a recession in the eurozone also mounting as the fallout from the US financial crisis ripples around the world. Japan's gross domestic product (GDP) shrank by 0.6 percent in the three months to June from the previous quarter, the Cabinet Office said, marking the first time in a year that the world's second-biggest economy has contracted. The economy shrank by 2.4 percent on an annualised basis, matching market expectations.
BP Shuts Down Georgian Pipeline as Precaution BP PLC said it shut down an oil pipeline that runs through Georgia on Tuesday as a precautionary measure, but added that it is unaware of any Russian bombings on pipelines in the region. BP said the 90,000-barrel-a-day pipeline to Supsa on Georgia's Black Sea coast from Baku in Azerbaijan will remain closed indefinitely. Another pipeline operated by the London-based oil company in the former Soviet Republic, the larger Baku-Tbilisi-Ceyhan pipeline, is already out of action after a fire last week on its Turkish stretch. The BTC pipeline usually provides around 1 million barrels of Caspian crude to international markets. BP spokesman Robert Wine said that the Baku-Supsa line was closed because it runs through the center of Georgia, where there was greater risk of conflict.
U.S. refuses Israel weapons to attack Iran The United States has turned down Israeli requests for military hardware to help it prepare for a possible attack on Iranian nuclear facilities, a frontpage report in Israel's Haaretz newspaper said on Wednesday. The unsourced report said the Americans had warned Israel against carrying out any such attack and had refused to supply offensive military hardware. Instead they had offered to improve the Jewish state's defenses against surface-to-surface missiles. Interviewed on Israeli Army Radio, Defence Minister Ehud Barak did not deny the Haaretz story, but refused to discuss it. "It would not be right to talk about these things," Barak said. The West accuses Iran of trying to develop nuclear weapons. Iran denies this and says its nuclear program is only to generate electricity. It has vowed to retaliate against Israel and the United States if attacked. Israel, which is believed to have the Middle East's only atomic arsenal, says a nuclear-armed Iran could threaten its existence.
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Tues 08.12.2008
Gold, Platinum Lead Commodities Into Bear Market on Growth Risk Gold, platinum and silver plunged to their lowest in more than seven months, leading commodities into a bear market, on concern a spreading global economic slowdown will reduce demand for raw materials. Precious metals also slumped as crude oil prices fell and the dollar gained, reducing their appeal as an inflation hedge and alternative investment. Gold has tumbled 22 percent from its record $1,032.70 on March 17. Platinum and silver are down 36 percent and 33 percent from their peaks.
US dollar at 6-mth high as oil, gold decline The U.S. dollar climbed against the euro to its highest since February on Tuesday, rising for a sixth day as worries about a sharp global slowdown hit higher yielding currencies and commodities such as oil and gold. Most Asian stock markets edged lower, despite crude prices retreating for five of the last six days and boosting shares of auto makers and exporters. The potential for further economic weakness weighed on sentiment, particularly after data showed Japan's wholesale inflation at the highest in 27 years.
Russia Calls Off Military Operations in Georgia Russian President Dmitry Medvedev ordered a halt to Russia's offensive in Georgia, saying military action achieved the country's goals. "The aggressor has been punished," Medvedev said on state television. Russia has secured the safety of Russian peacekeepers and citizens in the disputed Georgian regions of South Ossetia and Abkhazia, the president said. Russia sent tanks, troops and warplanes into Georgia on Aug. 8 in what it said was a response to a Georgian offensive on South Ossetia. Russian forces rolled deep into Georgia proper yesterday and took several towns and a military base. Georgian television showed footage today of burning buildings that it reported was a result of Russian bombing of the central city of Gori. The military thrust threatened to draw the U.S. into confrontation with its former Cold War foe. The U.S. backs Georgia's bid to join the North Atlantic Treaty Organization, which Russia views as a security threat. The West views Georgia as a key ally in the region, in part because it has an oil pipeline bypassing Russia.
Ruble, Russian Stocks Surge as Medvedev Halts Georgia Offensive The ruble surged the most in seven years, Russia's Micex Index climbed, and the cost of protecting the country's bonds fell after President Dmitry Medvedev ordered a halt to the military operation in Georgia. The 30-stock Micex erased a decline of as much as 2 percent and oil extended its drop after Medvedev said military actions in Georgia had achieved the country's goals. Russian shares slumped to a 22-month low and the ruble fell the most in more than three years on Aug. 8 as the country sent tanks, troops and warplanes into Georgia in what it said was a response to an offensive on South Ossetia.
Federal Reserve finds deepening credit crisis More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy. The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs. The new survey, conducted in early July, found that about 75 percent of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent of banks who said they were tightening lending standards for prime mortgages in the previous survey. The Fed's July survey covered 50 banks which hold about 80 percent of the residential mortgages on the books of all commercial banks.
Credit squeeze getting worse, banks say Most banks less willing to lend to businesses, consumers The credit squeeze worsened in the past three months, the Federal Reserve reported Monday, and most banks expect to keep a lid on credit for the next year at least. Despite all the aggressive moves by the Fed in the past year to ease the flow of credit to the economy, a record percentage of banks were making it more difficult for borrowers in the three months ending in July, the Fed said in its quarterly senior loan officer survey of 52 major banks. A majority of banks tightened their rules for granting loans to businesses and consumers. The survey shows little appetite at banks to lend for home mortgages, credit cards, home equity loans, commercial real estate loans, or commercial and industrial loans. No bank in the survey eased credit terms for any type of loan in the past three months, and only one bank said it anticipated easing standards for consumers in the next 12 months. Tighter credit could slow economic growth, especially consumer spending, economists say. Lack of credit could sink the commercial real estate market, and curb capital investments by businesses. The survey is considered a leading indicator of credit creation in the United States. "This is consistent with our view that consumer spending will slow markedly over the next several quarters," wrote economists for Lehman Bros.
Worry About Stretched Firms, Consumers Hits Debt Markets $$ Like a bad penny, credit-market troubles keep turning up. A range of corporate bonds and securities backed by consumer loans and mortgages have sagged in recent weeks to levels last seen in March, when worries about a financial crisis hit a high. Back then, investors sold most types of risky assets, as the near-collapse of Bear Stearns Cos. raised worries about a broad market meltdown. This time there is much less panic, but concern is building about the health of businesses and consumers.
Fed Says Banks Toughen Lending Standards Amid Slump The Federal Reserve said more banks made it harder to borrow money as defaults and delinquencies on home loans soared and the economy faltered. Most "domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months," the Fed said today in its quarterly Senior Loan Officer Survey. Funds were scarcer for homebuyers and small businesses, credit card loans became tougher to get, and even banks' best customers were subject to greater scrutiny. Tighter credit may delay any recovery in economic growth, which economists forecast will slow well into next year.
Wachovia to cut 600 more jobs than earlier planned Wachovia plans to cut 600 more jobs than previously expected; total now 11,350 Wachovia Corp. said Monday it plans to cut 600 more jobs than it previously expected as it works to reduce expenses in the face of staggering losses tied to mortgage debt. According to its quarterly filing with the Securities and Exchange Commission, the bank now expects to eliminate 11,350 positions, including 6,950 active employees and 4,400 open positions. All of the additional job cuts will be in the bank's troubled mortgage business. Last month, upon reporting an $8.86 billion second-quarter loss, the Charlotte, N.C.-based bank said it planned to eliminate 10,750 positions, including 6,350 active employees, most of them related to mortgages.
Health care costs seen rising 10 percent in 2009 ealth care costs are expected to rise more than 10 percent into next year, according to a survey of insurers by Aon Consulting Worldwide. But that increase is the smallest Aon has seen in six years. Experts say it shows that efforts to tame costs, such as employee wellness or disease management programs, may be paying off. "There's a variety of tactics that employers have been employing over the last 3 to 6 years that has had an impact on the market," said study director Bill Sharon, an Aon Consulting senior vice president. Aon Consulting surveyed about 70 health insurers around the country, including companies such as Aetna Inc. and Cigna Corp. It found that actuaries expect costs to rise an average of 10.6 percent during 12-month rating periods starting this year between April and September.
Wachovia boosts job cuts, probed on derivatives Wachovia Corp, the fourth-largest U.S. bank, said on Monday it expected to eliminate 11,350 jobs, more than it previously disclosed, as conditions deteriorate in the housing market. Separately, Wachovia said the U.S. Securities and Exchange Commission may recommend civil charges against its main banking unit in connection with municipal derivatives transactions. It also said various state attorneys general have issued subpoenas over that matter. The bank said it was cooperating with the probes.
Gold futures close at their lowest level of the year Dollar strength, oil weakness send gold back to as low as $824.50 on Globex Gold futures closed at their lowest level of the year Monday as a decline in oil prices and strength in the dollar sent the precious metal's prices down by more than 4% an ounce in electronic trading. Gold for December delivery dropped $36.50, or 4.2%, to close at $828.30 an ounce on the New York Mercantile Exchange. The contract fell to a low of $824.50 an ounce in Globex electronic trading. That's gold futures' lowest price since late December. It traded at $830 on Globex as of 4:30 p.m. EDT. "Following a feeble and half-hearted recovery attempt, gold prices suffered an even greater wash-out than last Friday's disastrous run to the downside," said Jon Nadler, a senior analyst at Kitco Bullion Dealers. On Friday, gold dropped $13.10 an ounce to chalk up a weekly loss of nearly 6%. The former all-time high of $845 did not appear to have any significant support, and the steep drop in prices "may be very difficult to recover from," Nadler said.
Who is Really Printing Money? A popular mantra among many gold bugs is: "the Fed is printing money." Any actions by the Fed to support liquidity in the markets are touted as "money creation" and consequently "monetary inflation" which causes gold appreciation. If gold does not rise, they proclaim that there is "manipulation" and "conspiracy". It is fair to say that we do not see the picture in such black and white colors. The main source of new money in the economy is not the Fed but the commercial banks. It is the private banks that increase money supply through debt (new credit) creation. During a credit crisis which is characterized by a steep slowdown of credit creation, growth of money supply in the financial system slows as well. It is silly to think that the Fed can replace the whole system of commercial banks by creating money itself from thin air. What the Fed can do is influence money supply by adjusting interest rates creating more or less incentive for the fractional-reserve lending by the commercial banks.
Gold and the Gold Stocks he past month has seen a large disparity open up between gold, the metal, and the gold stocks. For example, the HUI closed on 8-8-08 at 334, the same level it was at shortly before the sub-prime crisis of last year and at which time gold was $660. And yet gold itself closed on 8-8-08 at $860. That is, gold has gone up by $200 over the past year, but the HUI, representing the gold stocks, is at the exact same spot. This is a frustrating and difficult situation, and one’s first impulse is to complain that the universe is unfair. After all, it seems to be a matter of mathematics. As the price of their final product rises, the gold stock’s earnings should rise (at a faster rate). Math says that the gold stocks should go up, but they are not going up.
Investors Pile Back Into The Dollar Currency traders were buying the dollar in droves on Friday, after the European Central Bank's warning about the euro zone economy raised concerns about slowing growth outside of the United States. The greenback hit a five-month high against the euro, on Friday; the 15-nation European currency traded at $1.5321, on Friday morning in London, down from 1.5408, late Thursday in New York.
Japan's Wholesale Inflation Rate Reaches 27-Year High Japan's wholesale inflation rate accelerated to a 27-year high in July, squeezing corporate profits, increasing bankruptcies and threatening the economy's longest postwar expansion. Producer prices, the costs companies pay for energy and raw materials, climbed 7.1 percent from a year earlier after a revised 5.7 percent increase in June, the Bank of Japan said in Tokyo today. The median estimate of 31 economists surveyed by Bloomberg News was for 5.7 percent. More businesses failed because of rising fuel and raw- material costs in the first half of this year than for all of 2007, according to Teikoku Databank Ltd. Tokyo-based Galaxy Airlines Co. said last week that it will stop air cargo services, and Nippon Paper Group Inc. plans to increase prices for the second time this year.
Back to Kenneth Rogoff's Austere Future ust when it seemed the economic discussion couldn’t get any sillier, Kenneth Rogoff, former chief economist at the IMF and now economics professor at Harvard, has channeled the discredited notions about economic growth offered up most prominently by the Club of Rome and President Jimmy Carter in the ‘70s. In 1972, the Club of Rome released The Limits to Growth, which said if economic growth were allowed to continue, the world would run out of food and commodities. In a column last week for the Financial Times titled “The world cannot grow its way out of this slowdown”, Rogoff said much the same, arguing that the “huge spike in global commodity price inflation is prima facie evidence that the global economy is still growing too fast.” Rogoff’s basic message is that in order to insure long-term economic health, we must crash the world economy now. It would be a hard to find a more impoverishing and absurd plan of action.
Oil prices unlikely to drop below $100 bu Dhabi: Crude prices on the international market are unlikely to drop below $100 a barrel in the near term despite shedding almost $33 per barrel in a month, oil market experts told Gulf News on Monday. They say they don't anticipate a full-blown collapse in crude prices despite a slowdown of the US economy, the world's biggest oil importer. Neither do they see a major spike in crude prices due to the latest geopolitical tensions erupting between Russia and Georgia, which has led to Russia resorting to airstrikes and pounding Georgia's capital, Tbilisi. "The oil market doesn't seem to be very perturbed by the happenings in Georgia. There is a downward bias in the oil market that will continue for a little while," said Dalton Garis, associate professor of Economics at the Petroleum Institute in Abu Dhabi.
Oil's Fall Is Econ 101 Nigerian rebels, Iranian saber-rattling, potential Israel-Iran war, hurricane warnings, Venezuelan meddling, Turkish pipelines, BP woes in Russia, all of these at one time have allegedly contributed to the strong oil price. Every time we rallied a couple of bucks, the usual suspects were rounded up and given credit for the rally. And then the biggest actual ruckus of all -- a war between major oil producer Russia and Georgia -- rages on, and oil cascades lower into the escalation. LOWER! If this incursion were to rank with the parade of horribles that allegedly spurred oil from $90 to $148, it would be off the charts. It is the real deal that can interrupt pipelines and cause a calamity in the European market. It should have sent natural gas -- the Europeans live off Russian natural gas -- into the stratosphere, as it should have caused hoarding and a spike even here for recognition that no liquefied natural gas could come here because it would be needed so badly in Europe.
Oil extends its slide on signs of demand slowdown Oil prices finished at a new three-month low Monday after briefly dropping below $113 a barrel mark, as the dollar extended its rebound and more signs emerged that China's energy demand could be leveling off. In earlier trading, oil fluctuated as traders monitored the conflict between Russia and Georgia that some believe could disrupt supplies. But those worries faded to the background as the dollar's recovery accelerated, and as the energy market focused on a report from China that the country's crude oil imports in July were down 7 percent from last year.
Oil Falls Again as the Dollar Strengthens The last couple of days have seen a reversal in the markets: oil prices are down and the dollar is up. Expensive fuel has hurt consumers and businesses for most of the year, while federal officials have sounded the alarm over the ever-weakening value of our currency. But on Monday, oil traded below $113 a barrel, its lowest level since early May. The euro, so strong for so long, tumbled below $1.49, its weakest level since February. The developments, which extended similar moves from Friday, were welcomed on Wall Street, where the Dow Jones industrial average gained nearly 140 points, although the major stock indexes fell back late in the afternoon after the Federal Reserve released discouraging figures on the availability of consumer credit. The Dow was up 25 points and the Standard & Poor’s 500 index advanced 0.51 percent just before the close. But analysts said that favorable moves in oil and the dollar might not be a sign that economic recovery is around the corner. In fact, many pointed to bleaker-than-expected forecasts as the driving force behind the sudden reversals.
Media Ignores Russia's Influence on Oil Prices id you hear this weekend about that giant country that invaded the other country? The business media apparently haven't -- or at least they don't think it's worth a mention. But we'll get to their oily oversight in a moment. First, a review, because it's all part of a pattern. When the oil market was rising, we saw the business media ignore reality and good reason to frame the market as something that would go up forever. Who could forget what The Business Press Maven back in May called the dumbest headline he had seen in his entire misspent life: "Oil Hits $129, Heads for $130."
NY AG expands auction-rate securities probe New York Attorney General Andrew Cuomo said Monday he is expanding his investigation into the collapse of the auction-rate securities market to include JPMorgan Chase & Co., Morgan Stanley and Wachovia Corp. Last week, Cuomo's office and the Securities and Exchange Commission reached settlements that forced Swiss bank UBS to repurchase $18.6 billion in the securities, while Citigroup agreed to buy back $7 billion of the securities. UBS will also pay a fine of $150 million, while Citigroup will pay a $100 million fine. "This is an industrywide problem," Cuomo said in an interview. "This is not about one or two institutions. We are now working with the other players in the industry." Cuomo sent letters to JPMorgan, Morgan Stanley and Wachovia telling them that his office is reviewing the banks' behavior in the sale of auction-rate securities. The attorney general will determine if the banks knowingly misrepresented the safety of the securities when selling them to investors.
Utility Rates Surge Around the U.S. If you think your electric bill was high this summer, wait till next year. The Energy Department predicts that the average residential electricity bill will rise about 10% in 2009 after a 5% increase this year. Of course, those are not spread out evenly across the board, with costs varying from state to state -- and sometimes city to city -- based on a slew of factors. Consumers throughout the Northeast have seen their rates rise dramatically in recent years due to the effects of de-regulation of the utility market there. Dense population and lack of new power lines and infrastructure to meet the region's energy demands also play a part in the higher cost.
China’s Trade Surplus at an 8-Month High BEIJING — China’s trade surplus swelled in July to its highest level in eight months as its trade gaps with the United States and Europe grew despite concern about weaker global demand, according to data reported Monday. Export growth rebounded in July, the customs agency said, after a June slowdown prompted Beijing to bolster tax rebates for struggling textile exporters. “Though we expect a continued deterioration as the year goes on, as American and European consumers stay at home, the resilience of demand for China’s exports is still remarkable,” an economist at Standard Chartered, Stephen Green, said in a report to clients. China’s global trade surplus in July was $25.3 billion, the agency said, up 4 percent from the same month in 2007.
Cost-Cutting in New York and London, a Boom in India GURGAON, India — On the top floor of a seven-story building in this dusty aspiring metropolis, Copal Partners churns out equity, fixed income and trading research for big name analysts and banks. It is a long way from the well-cooled corridors of Wall Street, and quarters are tight; business is up about 40 percent this year alone. “This is one bulge-bracket bank,” said Joel Perlman, president of Copal, pointing toward a team behind an opaque glass wall. “And this,” he said, motioning across a narrow corridor “is another.” The banks edit and add to what they get from Copal, a research provider, then repackage the information under their own names as research reports, pitch books and trading recommendations.
Leaving Wall Street for a Job Overseas Moving boxes have become a common sight at Wall Street firms, where tens of thousands of bankers and traders have been laid off as the credit squeeze drags on. But a few of the people packing up and saying goodbye are holding passports rather than pink slips. And some are being told to move abroad — or else. As Wall Street’s troubles deepen, big investment banks are moving some key employees to increasingly influential hubs of finance in Asia, the Middle East, Europe and Latin America, regions where the banks had already been building up business to tap rising growth potential. This trend is happening alongside another that is funneling jobs from traditional financial centers like New York and London. Because of price pressure, jobs lower down the corporate ladder are moving overseas, especially India.
Putin Criticizes U.S. For Flying Georgian Soldiers Back from Iraq Big Powers Urge Russia to Accept Truce The world's seven largest economic powers on Monday urged Russia to accept an immediate cease-fire with Georgia and agree to mediation over the crisis as Russian forces continued advances into Georgian territory. With conditions deteriorating despite similar repeated calls, Secretary of State Condoleezza Rice and her colleagues from the Group of Seven leading industrialized nations pledged their support for a negotiated solution to the conflict that has been raging since Friday between the former Soviet republic and Russia, the State Department said. "We want to see the Russians stand down," deputy spokesman Robert Wood told reporters. "What we're calling on is for Russia to stop its aggression."
U.S., Europeans Ask UN to Seek End to War in Georgia he U.S., Britain and France asked the United Nations Security Council today to call for an "immediate and unconditional cessation of all hostilities" in Georgia and for Russia to end its military offensive. France took the lead in drafting a resolution on the conflict in Georgia as the Security Council met on the crisis for the fifth time since it began on Aug. 7. The text calls for the "complete withdrawal of Russian and Georgian forces to their positions prior to" that date. The measure, which France circulated to the Security Council's 15 member nations, will urge all sides to "engage immediately in negotiations aimed at finding a peaceful and durable solution." It also will express the council's "intention to take further action, as appropriate," to end the conflict.
Russia steps up its push; West faces tough choices Russian troops stepped up their advance into Georgian territory on Monday, attempting to turn back the clock to the days when Moscow held uncontested sway over what it considers its "near abroad," and arousing increasing alarm among Western leaders. Even as they prepared to convene an emergency meeting of NATO on Tuesday and President George W. Bush denounced the Russian actions in the strongest terms to date, the United States and its European allies faced tough choices over how to push back. They seemed uncertain how to adjust to a new geopolitical game that threatened to undermine two decades of democratic gains in countries that once were part of the Soviet sphere. Russian troops briefly seized a Georgian military base and took up positions close to the Georgian city of Gori on Monday, raising Georgian fears of a full-scale invasion or an attempt to oust the country's pro-Western president, Mikheil Saakashvili. Bush, little more than an hour after returning to Washington from the Olympic Games in Beijing, bluntly warned Russia that its military operations were damaging its reputation and were "unacceptable in the 21st century."
The Rising Stakes In Georgia The point about flash points is just that. They can go off unexpectedly. That is what is happening in Georgia, where hostilities between the government and Russian-supported secessionists in the breakaway region of South Ossetia threaten to get out of hand, which is to everyone's detriment. Georgia says it has taken control of the capital of South Ossetia by force in order to break a secessionist movement that wants to unite South Ossetia with North Ossetia, which is in Russia, into one autonomous region under Russian sovereignty.
Russia intensifies attack on Georgia 'Massive' bombings, imminent tanks rebuff call for cease-fire Russian planes, troops and artillery units pounded the Georgian city of Gori in a "massive" attack, Georgian officials said Monday as the three-day war over an ethnic enclave in Georgia appeared to escalate. "There was massive bombing of Gori all evening and now we are getting reports of an imminent attack by Russian tanks," said ministry official Shota Utiashvili, who was quoted early Monday in a report by Agence France-Presse. Gori is in Georgia, south of the border with South Ossetia, the disputed region that prompted the bloody conflict. Georgia on Sunday said it was withdrawing troops from the embattled region of South Ossetia as part of a cease-fire proposal meant to stop an expanding war with Russia.
Russia gives Georgia an ultimatum SENAKI, Georgia: Russia issued an ultimatum to Georgia on Monday to disarm its troops along the boundary with the pro-Russian separatist enclave of Abkhazia as Russian tanks rolled across the internal border and occupied a military base in western Georgia. The move was a sign that fighting could escalate on a second, western front after the conflict initially broke out last week around South Ossetia, the separatist enclave farther east.
Russia Presses Into Georgia; Bush Is Sharp in Criticism SENAKI, Georgia — Russian armored vehicles rolled 25 miles into western Georgia and took up positions at a military base here early Monday after issuing an ultimatum to Georgia to disarm its troops, along the boundary with the separatist territory of Abkhazia. Georgian soldiers on the road to Tbilisi, the capital, escaped a burning armored vehicle outside Gori on Monday. The Russian military advances represented the first time Russian forces invaded Georgia proper in the four-day-old conflict, which has unnerved the West and resurrected some Cold War anxieties. Georgian officials said Russian troops had moved into several other cities in western Georgia, holding out the prospect that fighting could escalate on a second front. President Bush, little more than an hour after returning to Washington from the Olympics in Beijing, bluntly warned Russia that its military operations were damaging its reputation and were "unacceptable in the 21st century."
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Mon 08.11.2008
Economic Slump in U.S. to Worsen as Consumers Get 'Squeezed' The U.S. economic slump will extend into 2009 as the longest expansion in consumer spending on record comes to an end, according to a Bloomberg News survey. The world's largest economy will grow at an average 0.7 percent annual pace from July through December, half the gain in the first six months of the year, according to the median forecast of 50 economists surveyed from Aug. 1 to Aug. 8. Household spending, which has grown every quarter since 1992, is projected to stall in the last three months of the year as the impact of tax rebates fades, wages fail to keep up with inflation and property values fall. The jobless rate, now at 5.7 percent, will reach a five-year high of 6 percent in early 2009.
Federal Reserve Policymakers Will Hold the Line on Interest Rates - At Least for Now With oil trading near a three-month low (and corn now at a four-month low), U.S. Federal Reserve policymakers may have just the ammunition they need to hold the line on interest rates for the foreseeable future - or at least until their Sept. 16 policymaking meeting. On the other hand, threats of hurricanes in the Gulf of Mexico and geopolitical turmoil in Iraq, Turkey, Nigeria - and now the fireworks between Russia and Georgia - could spark a dramatic reversal in sentiment and renew fears of supply disruptions. However, this week’s economic calendar contains the types of reports that will factor into the musings of Federal Reserve policymakers with regards to interest rates.
Credit Card Industry Faces Reforms Congress, Federal Reserve Propose Tighter Rules to Protect Consumers Stricter regulation of the credit card industry will probably be approved by the end of the year, consumer advocates, members of Congress and banking officials said as the comment period on the Federal Reserve's proposed actions drew to a close last week. Nearly 56,000 comments poured into the agency via e-mail and regular mail, a record response for any Fed proposal, said agency spokeswoman Susan Stawick. Both the Fed and Congress are working to tighten rules on the credit card industry. The large response to the Fed's proposal comes on the heels of congressional action on the issue. The House Financial Services Committee moved Rep. Carolyn B. Maloney's Credit Cardholders' Bill of Rights out of committee on July 31. The measure would prohibit unexpected increases in the rates charged on pre-existing credit card balances, among other things. Observers said the New York Democrat's bill probably wouldn't pass the Senate this year because time is running out.
FDIC Fund Strained by Bank Failures May Have to Raise Premiums The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17 percent of a government insurance fund and raise premiums for all banks, from Franklin National of Minneapolis to Bank of America Corp. The closing of IndyMac in July, the third-biggest U.S. bank failure, may cost the fund $4 billion to $8 billion, in addition to an estimated $1.16 billion for seven closures through Aug. 1. Premiums for deposit insurance will likely rise, FDIC Chairman Sheila Bair said in a July 30 interview. A decision on the increase is due by the fourth quarter.
Rich hit by property crunch - super-rich unscathed REIGNING over 68th Street between Central Park and the designer shops of Fifth Avenue, the Henry T Sloane mansion has one of the most desirable addresses in Manhattan. Finished in 1905 and designed by CPH Gilbert, architect to New York’s rich at the turn of the century, the mansion was built in Manhattan’s “Great House” era and its 19,000 sq ft provide 30 living rooms, 15 bedrooms, 17 bathrooms and five terraces. Sloane, heir to a luxury furniture firm whose clients included the White House and Tsar Nicholas II of Russia, built the mansion after the collapse of his marriage to a society beauty. Jessie, the former Mrs Sloane, remarried five hours after her divorce came through. Sloane never married again.
Bringing Down Bear Began as $1.7 Million of Unsuspected Options On March 11, the day the Federal Reserve attempted to shore up confidence in the credit markets with a $200 billion lending program that for the first time monetized Wall Street's devalued collateral, somebody else decided Bear Stearns Cos. was going to collapse. In a gambit with such low odds of success that traders question its legitimacy, someone wagered $1.7 million that Bear Stearns shares would suffer an unprecedented decline within days. Options specialists are convinced that the buyer, or buyers, made a concerted effort to drive the fifth-biggest U.S. securities firm out of business and, in the process, reap a profit of more than $270 million.
The Great Panic How the world changed one day last summer. It can be tricky trying to pin down the beginning or end of world events. When asked about the impact of the French Revolution nearly two centuries later, Zhou Enlai replied: "It is too soon to tell." Still, the birth of the credit crunch—the child of a burst bubble in housing—can be traced to a Thursday last summer, a day when many Wall Street executives, bankers, and government officials were enjoying their vacations. On August 9, 2007, it became clear that fear had paralyzed the world's credit markets. The question was no longer only about the quality of assets or the availability of cash. Everything was suspect and no one was willing to take any chances. The world had turned subprime.
Hit the Fannie No sign of turnaround as mortgage giant reports a big loss. If Freddie Mac's big loss on Wednesday was scary, the whopper from Fannie Mae today should really give fright. The biggest buyer of U.S. mortgages has reported a loss of $2.3 billion, or $2.54 per share, for its second quarter, more than triple the estimates by analysts. It was the fourth consecutive quarterly loss and follows a first-quarter loss of $2.5 billion. The second-quarter loss was chiefly a result of the addition of $3.7 billion to its provision for credit losses, now totaling $5.4 billion. To shore up its capital, Fannie is cutting its dividend to 5 cents from 25 cents per share. It is also planning to cut its operating costs by 10 percent by the end of next year and has previously announced that it is increasing the fees it charges lenders and brokers.
UBS's Clients Pull Funds as Securities Losses Mount UBS AG, the world's biggest money manager for the wealthy, may report tomorrow that private-banking clients removed funds for the first time in almost eight years in the second quarter as losses at the securities unit mounted. Clients probably withdrew a net 5 billion Swiss francs ($4.6 billion) in the period, according to the median estimate of 10 analysts surveyed by Bloomberg. UBS's wealth management units, which oversee 1.84 trillion francs, attracted an average of 37.9 billion francs in each quarter last year.
Paulson Says No Plan Is Afoot to Rescue Mortgage Agencies The Treasury secretary, Henry M. Paulson Jr., said Sunday there are no plans to use his new authority to inject capital into mortgage companies Fannie Mae and Freddie Mac, which both posted worse-than-expected earnings last week. “We have no plans to insert money into either of those two institutions,” Mr. Paulson said in an interview on NBC’s “Meet the Press” broadcast Sunday from Beijing. He added that their earnings results were “not a surprise.” Mr. Paulson and Congress brokered a plan last month to bolster the two government-sponsored enterprises that includes giving the Treasury the right to buy their shares. Fannie and Freddie, which account for almost half of the $12 trillion mortgage market, reported losses three times worse than estimated, prompting some analysts to predict that Mr. Paulson will have to act.
Paulson: Give stimulus plan time to work Treasury secretary taking wait-and-see approach on idea of possible second economic aid plan Treasury Secretary Henry Paulson is taking a wait-and-see approach when it comes to a second round of economic aid. That's an idea congressional Democrats are pushing. Paulson says the $168 billion program of tax rebate checks that President Bush signed into law in February was the right size to help the struggling economy this year. For now, he wants to see how it ends up helping the economy in the July through September period. Paulson also worries about driving the budget deficit higher. But House Speaker Nancy Pelosi says the House will vote on a second relief plan when lawmakers return in September from their summer vacation. She believes more is needed to counter higher gasoline prices and other costs.
Credit Crisis Triggers Unprecedented U.S. Response Since the credit crisis erupted a year ago, the Bush administration has presided over one of the broadest expansions of the government into private lending in U.S. history, risking public money to prop up financial firms both large and small. The administration has transformed federal agencies into dominant players in such diverse realms as student lending and mortgage finance while exposing itself to trillions of dollars in loans.
Our $100 Trillion National Debt The "official" debt of the United States is only around $10 trillion dollars as of August 6, 2008. This is a manageable number; we could pay it off in a few decades if we quit buying luxuries like food and clothing, and take a few other minor economy measures. Unfortunately, the "$10 trillion" number was produced by government accounting, which among other things allows one to ignore Social Security, Medicare, and the new prescription drug benefit. This is like ignoring rent, food, and utilities in your household budget… it will lead to a few bounced checks. Our real debt is about Who says so? The President of the Dallas Federal Reserve, Richard W. Fisher. In a May speech at the Commonwealth Club of California, he states that the US national debt is close to $100 trillion. You can read his whole speech at the Federal Reserve web site.
Storms on the Horizon Remarks before the Commonwealth Club of California by Dallas Federal Reserve President - Richard W. Fisher San Francisco, California May 28, 2008 Thank you, Bruce [Ericson]. I am honored to be here this evening and am grateful for the invitation to speak to the Commonwealth Club of California. Alan Greenspan and Paul Volcker, two of Ben Bernanke’s linear ancestors as chairmen of the Federal Reserve, have been in the news quite a bit lately. Yet, we rarely hear about William McChesney Martin, a magnificent public servant who was Fed chairman during five presidencies and to this day holds the record for the longest tenure: 19 years. Chairman Martin had a way with words. And he had a twinkle in his eye. It was Bill Martin who wisely and succinctly defined the Federal Reserve as having the unenviable task "to take away the punchbowl just as the party gets going." He did himself one up when he received the Alfalfa Club’s nomination for the presidency of the United States. I suspect many here tonight have been to the annual Alfalfa dinner. It is one of the great institutions in Washington, D.C. Once a year, it holds a dinner devoted solely to poking fun at the political pretensions of the day. Tongue firmly in cheek, the club nominates a candidate to run for the presidency on the Alfalfa Party ticket. Of course, none of them ever win. Nominees are thenceforth known for evermore as members of the Stassen Society, named for Harold Stassen, who ran for president nine times and lost every time, then ran a tenth time on the Alfalfa ticket and lost again. The motto of the group is Veni, Vidi, Defici—"I came, I saw, I lost."
Arizona Developers Welcome Spillover From Las Vegas KINGMAN, Ariz. — It seems fitting that the most prominent resident to emerge from this dusty desert outpost is Andy Devine, a Western actor who was best known for playing helpmates to the likes of John Wayne and Roy Rogers. Fitting because Kingman, an area of just 40,000 people, is poised to become the freshest face in the Sun Belt’s growth spurt. But even as Kingman rises, the question remains whether it will become a star in its own right or, like its famous son, is destined to be a sidekick to the region’s flashier metropolises, particularly Las Vegas. Two major developers based in Nevada — Rhodes Homes and the Mardian Group — have won approval to build communities in the Kingman area that, by 2040, could have a combined 80,000 new homes. The mayor of Kingman, John Salem, predicts that would mean an additional 150,000 residents, a conservative estimate by other accounts. LOST SOVEREIGNITY OIL-RICH FUND EYEING FORECLOSED US HOMES There's a new land grab starting in America. Foreign money, which up to now has focused its attention on investing in iconic commercial real estate - like Barneys New York and the Chrysler Building - is now moving to scoop up tens of thousands of discounted foreclosed homes across the country. One sovereign fund, said to have earmarked $29 billion to purchase foreclosed residential real estate, recently hired a West Coast mortgage broker and is starting to search for bargains, The Post has learned. The search, which is being carried out, in part, by Field Check Group mortgage consultant Mark Hanson, who was retained by the broker, Steve Iversen, is concentrating on single- and multi-family REO (real estate owned) homes, or homes that have already been taken over by the mortgagee.
American-style credit ensnares consumers overseas ISTANBUL: In Turkey, where borrowing money was until very recently a family affair, being in debt carried a fearful stigma. Some here even likened it to the disgrace that drives people to commit the honor killings that still occur in parts of this society. "People who would kill their sisters or daughters for bringing shame on the family would do anything to avoid being labeled a debtor," said Nazim Kaya, the president of Consumers Union, an advocacy group that helps those who fall into debt. But in a cultural shift that has swept aside centuries of tradition, credit cards have become commonplace here. Only three decades ago, Turkey had fewer than 10,000 cards; today it has more than 38 million. As the American blessing of credit cards became widespread, so did the American curse of debt. Outstanding card debt here ballooned to nearly $18 billion last year, six times the level five years earlier. Default rates spiked and consumer groups protested sky-high interest charges. Newspapers were filled with stories of desperate card holders killing themselves or others.
Dollar hits 6-month high against euro Asian stocks rose Monday and the dollar hit a six-month high against the euro after oil briefly slipped below $115 a barrel and a view that the U.S. dollar's long-term decline is nearing an end gained ground. Government bond prices also climbed, suggesting the rally in equities thinly covered fears that the impact of the U.S. economic slowdown on the rest of the world may have been underestimated. Popular trades like betting against the dollar and financial sector shares while speculating on a rise in oil prices were slashed last week. On Friday the euro recorded its largest single-day decline against the dollar in 7-1/2 years. However, the direction of oil prices remained key.
Turbulence in the European Economy Sparks a Dollar Rally The U.S. greenback surged Friday, capping off the biggest weekly dollar rally in three and a half years, as the euro slumped on speculation the European economy would continue to weaken. The euro fell as low as $1.5008 Friday afternoon, dropping more than 2% from $1.5325 Thursday - the biggest one-day drop since Sept. 6, 2000. Against the yen, the European currency traded at 165.84, from 167.70. In the dollar rally, the euro has declined 3.1% against the greenback in its fourth weekly decline.
Violent S. American Jewel Thieves May Be Hitting Smaller U.S. Cities he FBI is investigating whether a violent, well-organized ring of South American jewelry thieves is expanding its operations away from large metropolitan areas such as New York, Miami, Houston and Chicago and hitting targets in smaller cities in the South. In one incident in Little Rock, diamond merchant Faramarz Hakimian, 48, of New York had just pulled into the parking lot of an upscale strip mall July 29 when two masked men jumped out of a black Chevrolet behind him, smashed his car windows, pulled a gun and told him to lie down on the seat. The assailants took his keys and stole a satchel with half a million dollars' worth of jewelry from the car's back seat, all in broad daylight in front of witnesses at the jewelry shop that Hakimian had come to visit. Arkansas police and FBI agents say the attack may be related to similar robberies of jewelry salesmen in Pine Bluff, Ark., on June 26 and in Nashville on June 24. In Pine Bluff, a Los Angeles salesman was accosted at knifepoint in a parking lot, where robbers stole diamonds hidden in his socks and stabbed him in the back in a scuffle.
Iran nuclear row hurts neighbours KUWAIT: US-allied Kuwait urged Iran yesterday to resolve tensions with the West over its nuclear programme, saying the dispute undermined the interests of Gulf states with which it shares a vital oil export route. “This basin (the Gulf) we all share. Talk of closing the Strait of Hormuz has a great impact on us,” official news agency Kuna quoted Foreign Affairs Minister Sheikh Mohamed al-Salem al-Sabah as saying in a television interview. Kuna quoted him as saying Kuwait would not allow the US to launch an attack on Iran from its soil.
Israel irked over Iranian leader's planned visit to Turkey Israel has conveyed its misgivings to Turkey over a planned visit to the country by Iranian President Mahmoud Ahmadinejad, an Israeli diplomat said Friday. "We are concerned about this visit because we think it is not the appropriate time to host the Iranian president," the diplomat, who asked not to be named, told AFP. Israel voiced its concerns Thursday when the Turkish ambassador in Tel Aviv was summoned to the Israeli foreign ministry and the Israeli ambassador in Ankara visited the Turkish foreign ministry, the official said. "It is not a good idea to give legitimacy" to a leader who has called for the destruction of Israel and denies the Holocaust, moreover at a time when Western powers are mulling fresh sanctions against Iran over its controversial nuclear programme, he said.
War with Iran: On, Off or Undecided? There's good news and bad, mostly the latter but don't discount the good. On May 22, (non-binding) HR 362 was introduced in the House - with charges and proposals so outlandish that if passed and implemented will be a blockade and act of war. It accused Iran of: [read the laundry list online; consider the source] Egypt warns Israel of war on Iran Egyptian Foreign Minister Ahmed Abul Gheit says an Israeli attack on Iran may cause heavy losses for Tel Aviv and the region as a whole, PressTV reported. In an interview with the Egyptian Nile TV channel, Abul Gheit expressed his doubt over the effectiveness of military strikes against Iran for solving the standoff over the country's nuclear program.
Massive US Naval Armada Heads For Iran Operation Brimstone ended only one week ago. This was the joint US/UK/French naval war games in the Atlantic Ocean preparing for a naval blockade of Iran and the likely resulting war in the Persian Gulf area. The massive war games included a US Navy supercarrier battle group, an US Navy expeditionary carrier battle group, a Royal Navy carrier battle group, a French nuclear hunter-killer submarine plus a large number of US Navy cruisers, destroyers and frigates playing the "enemy force".
Oil rises on Russia-Georgia conflict Oil rises on concerns Russia-Georgia conflict may widen and disrupt supplies Oil prices rebounded Monday on concerns a widening conflict between Russia and Georgia over a the breakaway province of South Ossetia could disrupt supplies in the region. Light, sweet crude for September delivery rose $1.16 cents to $116.36 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell $4.82 on Friday to settle at $115.20 a barrel. "The market is watching what happens there closely," said Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne. "It's not a major oil producer, but there are major transport links to Europe through that region."
Georgia Retreats, Pleads for Truce; U.S. Condemns Russian Onslaught OUTSIDE TSKHINVALI, Georgia, Aug. 10 -- The Georgian army, suffering massive casualties in the face of overwhelming Russian firepower, retreated from the breakaway region of South Ossetia on Sunday. Georgian leaders' recent expressions of defiance turned increasingly into pleas for a cease-fire and Western support in the face of a military debacle. Russia ignored calls for a truce and continued to bomb targets deep in Georgia, with little apparent opposition, drawing new condemnation from the United States and other Western countries. President Bush spoke of his "grave concern about the disproportionate response," and the White House warned of serious setbacks in relations with Russia if the onslaught against a close U.S. ally did not end.
Georgia Pulls Out of South Ossetia As Crisis Spreads to Other Territory $$ TBILISI, Georgia – Georgia said Sunday a Russian-backed assault had begun in a second separatist territory, while claiming Georgian troops had withdrawn entirely from the separatist enclave of South Ossetia and were ready to observe a cease-fire. Georgia's foreign ministry said its country's troops had ceased hostilities in South Ossetia on President Mikhail Saakashvili's orders, and officials were ready to negotiate with Russia. "Georgia expresses its readiness to immediately start negotiations with the Russian Federation on cease-fire and termination of hostilities,'' the ministry said in a statement. Russian Foreign Minister Sergey Lavrov disputed Georgia's claim that its troops have pulled out of South Ossetia, but Russia's ambassador to the United Nations, Vitaly Churkin, said his country is "ready to put an end to the war." The U.N. Security Council was meeting for the fourth time in as many days trying to resolve a conflict. Earlier, the head of Georgia's national security council, Alexander Lomaia, said that separatists in Abkhazia had launched an attack on Georgian troops in so-called Upper Abkhazia.
Analysis: roots of the conflict between Georgia, South Ossetia and Russia Twice over the past century, when the empire to the north weakened and Georgia declared its independence, the southern Ossetes revolted against Georgian rule. This happened in 1918-20, between the collapse of the Russian empire and the Soviet Union’s conquest of Georgia in 1921; and it happened again in our own time with the fall of the Soviet Union and its aftermath. In 1918-20, between 5,000 and 15,000 people died depending on whose figures you believe. For the conflicts since 1990, the figure is now around 4,000 and rising. Many factors are involved in the present conflict, but the central one is straightforward. It is that a majority of the Ossetes living south of the main Caucasus range in Georgia wish to unite with the Ossetes living to the north, in an autonomous republic of the Russian Federation.
Global Politics Ignite a Smoldering Dispute MOSCOW — For centuries, the status of South Ossetia has been a nagging irritant on Russia’s southern border — sometimes akin to a canker sore, and sometimes an ulcer. The Ossetians, who number about 60,000, are part of the patchwork of ethnic groups that inhabit the mountains of the Caucasus. They have long yearned for separation from Georgia, appealing to Russia, their northern neighbor, for support. Over the years, ethnic tension became a way of life in Tskhinvali, the provincial capital of South Ossetia, a city ringed by highlands where concrete street barriers were sometimes erected to keep the groups apart. During flare-ups, gangs of young men would ambush convoys on mountain roads. But global politics have breathed new life into the conflict, making it a flash point for resurgent tensions between former cold war rivals. Russia, especially, sees a threat of creeping American influence as its former satellites seek to join NATO. When Kosovo won Western backing for its bid for independence from Russia’s historical ally Serbia, the Kremlin answered by vowing to win similar status for South Ossetia and for the Black Sea enclave of Abkhazia, which fall inside Georgia’s borders. Georgian leaders, meanwhile, hoped to quiet the conflict once and for all before applying for NATO membership.
Taunting the Bear The hostilities between Russia and Georgia that erupted on Friday over the breakaway province of South Ossetia look, in retrospect, almost absurdly over-determined. For years, the Russians have claimed that Georgia’s president, Mikheil Saakashvili, has been preparing to retake the disputed regions of South Ossetia and Abkhazia, and have warned that they would use force to block such a bid. Mr. Saakashvili, for his part, describes today’s Russia as a belligerent power ruthlessly pressing at its borders, implacably hostile to democratic neighbors like Georgia and Ukraine. He has thrown in his lot with the West, and has campaigned ardently for membership in NATO. Vladimir V. Putin, Russia’s former president and current prime minister, has said Russia could never accept a NATO presence in the Caucasus. The border between Georgia and Russia, in short, has been the driest of tinder; the only question was where the fire would start.
Bush 'deeply concerned' about Georgia-Russia conflict US President George W Bush on Saturday expressed deep "concern" over the fighting between Georgian and Russian troops in the South Ossetian crisis. "The attacks are occurring in regions of Georgia far from the zone of conflict in South Ossetia. They mark a dangerous escalation in the crisis," Bush said, speaking in the Chinese capital Beijing where he attended the Olympic opening ceremonies on Friday. Bush called on the two sides to resolve the regional issue peacefully, adding that Georgia was a sovereign nation whose territorial integrity needed to be respected.
1,500 Reported Killed in Georgia Battle GORI, Georgia — Russia and the former Soviet republic of Georgia veered closer to all-out war on Saturday as Russia moved parts of its Black Sea fleet toward Georgia’s coast and intensified air attacks on Georgia, striking two apartment buildings in the city of Gori and clogging roads out of the area with fleeing refugees. Russia acknowledged that Georgian forces had shot down two Russian warplanes, while a senior Georgian official said the Georgians had destroyed 10 Russian jets. Russian armored vehicles continued to stream into South Ossetia, the pro-Russian region that won de facto autonomy from Georgia in the early 1990s. The fighting that began when Georgian forces tried to retake the capital of the South Ossetia, Tskinvali, appeared to be developing into the worst clashes between Russia and a foreign military since the 1980s war with Afghanistan.
Georgia Not on Their Minds Even clashes near pipeline can't halt slide in oil prices. The world oil market is usually extremely sensitive to geopolitical conflict. Today, it seems numb to anything but movements in the dollar. Crude prices are sliding even as fighting intensifies in a region that plays a crucial role in the conduit of oil from the Caspian Sea, Georgia. On the New York Mercantile Exchange, the benchmark oil futures contract fell as much as $4 this morning, to below $116 a barrel, before recovering a bit. Oil prices have declined by about 20 percent since drawing near $150 a barrel last month. Today's slump is driving a rally in U.S. stocks. Oil prices have been falling as the value of the dollar rises and amid signs of slowing demand. Oil on the world market is priced in dollars. But the slump also comes as Russian troops have entered South Ossetia, a pro-Moscow separatist region of Georgia.
Russia disputes claim of Georgian pullout TBILISI, Georgia - Russia's foreign minister is disputing Georgia's claim that its troops have pulled out of South Ossetia, the separatist region where fighting with Russian forces has killed hundreds this weekend. Earlier Sunday, Georgia said its troops were withdrawing and President Mikhail Saakashvili said he was calling a cease-fire. But Russian Foreign Minister Sergey Lavrov disputed that in a telephone call with his Georgian counterpart Eka Tkeshelashvili, a ministry statement said. In the call, "the Russian side brought in facts about the presence of Georgian forces in certain neighborhoods of Tskhinvali," the South Ossetian capital where fighting has been heaviest, the statement said.
Chinese Man Kills Relative of U.S. Olympic Coach BEIJING — A Chinese man wielding a knife attacked two American tourists related to an American Olympic volleyball coach on Saturday, killing one of them and wounding the other and their Chinese guide atop an ancient tower in central Beijing. The attacker then killed himself by leaping from the tower, according to American and Chinese officials. The attack occurred on the first day of the Olympic Games in Beijing, after a dazzling opening ceremony the previous night in which China sought to project an image of power and strength while welcoming hundreds of thousands of foreign visitors. As news of the killing spread, it darkened the mood somewhat in the city, from the warrens of old alleyways where Chinese are eager to open their homes to foreigners, to the stadiums where visitors waited in line for events like swimming and gymnastics. The dead American was Todd Bachman of Lakeville, Minn., the father-in-law of Hugh McCutcheon, the head indoor men’s volleyball coach, American Olympic officials said. The wounded American was McCutcheon’s mother-in-law, Barbara Bachman, who was in serious condition.
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A $2.3 Billion Loss for Fannie Mae Fannie Mae, the home financing giant, posted its fourth consecutive quarterly loss on Friday as home loan defaults increased and said it would slash its dividend more than 85 percent and take other steps to shore up its capital position. Just three weeks after the federal government took sweeping measures to support Fannie Mae and smaller rival Freddie Mac , the Washington-based company reported a greater-than-expected loss of $2.3 billion, excluding preferred dividend payments, or $2.54 a share in the second quarter.
$1 trillion in losses? Bank on more But the bigger-than-expected losses reported by Freddie Mac and Fannie Mae this week, accompanied by dismal forecasts for the housing market, are strong indicators that there are likely more credit-related woes to come. "The banks are still at the mercy of writedowns. I don't think the worst is over for financials yet," said Liz Ann Sonders, chief investment strategist with Charles Schwab & Co. The International Monetary Fund forecasts that global losses tied to the credit crisis will be $945 billion. It's a widely used number, but Sonders thinks it's "potentially very conservative." So how high could losses go? Sonders points to the $1.6 trillion forecast from hedge fund firm Bridgewater Associates or even the $2 trillion number from Nouriel Roubini, the highly-respected professor of economics at NYU's Stern School of Business. And based on the losses already reported, we're not even halfway through the crisis.
Money Market 'Plagued' by Libor That Fed Can't Reduce A year after central banks started to pump trillions of dollars into the financial system to end a seizure in credit markets caused by subprime mortgages, cash is about as tight as it's ever been. The U.S. market for commercial paper, or short-term IOUs, backed by assets such as mortgages has shrunk 40 percent from its peak in July 2007. The amount borrowed in pounds between banks in the U.K. fell by 70 percent in June from a record in February 2007. The European Central Bank received $100 billion of bids for the $25 billion it offered to financial institutions on July 29, the most since the sales began in December. Efforts by the Federal Reserve, ECB and Swiss National Bank to shore up the world's biggest banks and promote lending have had limited success. The London interbank offered rate, the basis for at least $150 trillion of financial products, is within 0.06 percent of the highest since November 1999 compared with the Fed's benchmark interest rate. The largest financial companies have lost almost $500 billion from subprime-linked securities.
U.S. Consumer Debt Spikes In June Americans are filling their pockets with IOUs instead of shopping receipts. The New York Federal Reserve reported a higher than expected surge in consumer debt levels in June, as the cash-strapped borrowed more to get by and more failed to make their monthly payments. Separately, retailers reported lower than expected July sales. Outstanding U.S. consumer credit rose at an annual rate of 6.8% to $2.6 trillion in June versus 3.8% in May. Consumer debt jumped $14.3 billion, far above analysts’ estimates of $6.3 billion. The figure covers most short-term credit extended to individuals, excluding loans secured by real estate. The monthly shift is significant, but not necessarily cause for alarm. Bank Failures Have Customers Wondering About FDIC Protection As U.S. regulators brace for more bank failures, consumers are wondering for the first time since the savings-and-loan crisis of the 1980s about the safety of their money. Harry Newton, a former publisher who lives in New York City, moved $604,000 in cash to seven different banks last month after the seizure of IndyMac Bancorp Inc. to ensure that his funds were covered by the Federal Deposit Insurance Corp. In all, eight banks have been closed in 2008 by state and national regulators amid record losses tied to the collapse of the subprime mortgage market, data compiled by the FDIC show.
Hedge Fund Outlook Is 'Much Worse' Than 1998, LTCM Veteran Says The $1.9 trillion hedge fund industry, mired in its worst performance in two decades, faces "much worse" conditions than in 1998, when Long-Term Capital Management LP collapsed, a veteran of that fund said. "It's definitely a trickier environment,'" said Hans Hufschmid, chief executive officer of GlobeOp Financial Services LP, and a former partner at LTCM and co-head of its London office. "The market is much worse that it was in 1998. Then it was just LTCM, but this impacts everybody." Hedge funds are concerned for the first time about risks related to prime brokers after Bear Stearns Cos.' forced merger with JPMorgan Chase & Co., said Hufschmid, 52, whose London-based company is administrator to funds managing about $104 billion. Banks and brokerages have written down $495 billion and raised $356 billion in capital since the start of 2007 as the U.S. subprime mortgage market collapsed. Banks' increasing reluctance to lend has hurt hedge-fund operations, Hufschmid said in a telephone interview yesterday.
Oil dips on stronger dollar Oil falls as stronger dollar, slowing growth offset Turkish pipeline sabotage Oil prices sagged Friday as a strengthening dollar and worries about economic growth offset supply concerns over pipeline sabotage in Turkey that was claimed by Kurdish rebels. Light, sweet crude for September delivery fell $2.46 to $117.56 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract rose $1.14 cents overnight to settle at $120.02 a barrel. The gains Thursday in the U.S. came after pro-Kurdish news agency Firat said the separatist group Kurdistan Workers' Party, known as PKK, admitted sabotaging the Turkish section of the critical Baku-Tbilisi-Ceyhan pipeline earlier this week. Turkey's state-run Anatolia news agency reported that the fire, which was said to be under control Thursday, could cause the pipeline to be shut down for up to 15 days, stoking supply worries among oil market traders.
Now Oil's Fall Seems Unstoppable LYou know the oil bulls are in trouble when crude prices fail to react to a major pipeline explosion that could knock out almost 1.0% of global production for weeks. Reports that a sabotaged section of a major pipeline in Turkey could take "weeks" to repair failed to make much headway on Thursday, with oil markets more focused on the weakening global economy. Crude futures slipped 6 cents, to $118.52 per barrel, during afternoon trading in New York, while Brent crude fell to $115.57 per barrel. Although West Texas oil, the American benchmark, rose over one dollar to $119.83 per barrel, it was a pretty weak reaction overall. "Both geopolitical events and supply-related disruptions seem to have lost their grip on the markets," said MF Global analyst Edward Meir, "and are unable to break the downward price spiral we are trapped in."
Worker Productivity, and Wages, Slowed in July The efficiency of America’s workers grew at a slightly slower pace in the spring as companies sought to produce more with leaner work forces. Workers’ compensation growth also slowed. The Labor Department reported Friday that productivity — the amount an employee produces for every hour on the job — grew at an annual rate of 2.2 percent in the quarter. That was down from a 2.6 percent growth rate logged in the first quarter. Economists were forecasting productivity to pick up slightly to a 2.7 percent pace. Meanwhile, growth in compensation — wages and benefits — also slowed as companies were less generous amid troubles in the economy and uncertainty about their own prospects.
In U.S. retail sales, more signs of a slowdown Americans sought out more bargains and cheaper goods in July, leaving the country's retailers bracing for a painful back-to-school shopping season and investors on Wall Street once again worried about the outlook for the economy. Retail sales reports released Thursday revealed a country that is rapidly ratcheting back its spending habits, and abandoning mid-tier and discount shopping mall mainstays that were booming a year ago. The gloomy forecast helped depress stocks, particularly those in the retail sector, and the Dow Jones industrials were down about 220 points in late afternoon trading. Wal-Mart shares tumbled more than 6 percent, and American International Group, the big insurer, plunged nearly 20 percent for its worst one-day performance in nearly four decades.
Jobless Claims and Gauge for Home Sales Rise Claims for jobless aid rose last week, the government reported on Thursday, but a gauge of future home sales rose in a hopeful sign for the battered housing sector. The higher-than-expected June signings of home sale contracts offered some hope that the housing market might be stabilizing. But the jobless claims increased concerns about consumer spending and the corporate profit outlook. Initial claims for state unemployment benefits rose 7,000 last week to 455,000, the highest in six years, the Labor Department said. But it said a new federal program to extend benefits was partly the reason for the elevated level. Still, the four-week moving average of claims, which irons out weekly fluctuations and provides a better view of the underlying trend, also showed that jobs were tough to find as the economy copes with the worst housing downturn since the Great Depression.
New Dogs For The Junk Yard Corporate defaults are on the rise and expected to get much worse unless economic growth rebounds from its current slump, according a Thursday report from Moody's that said the pace of defaults surged in July. The corporate ratings and research firm said there were a total of 11 defaulters in July, nine of which were U.S. companies--a level not seen since July 2003--bringing the year-to-date level 48, compared with last year's total of 12 defaulters. The rate of defaults on speculative-grade fixed-income securities, or junk bonds, rose to 2.5% from June's revised rate of 2.1%. Junk bonds are those with ratings too low to be considered investment quality.
Worries of spreading economic woes depress Asian stocks The U.S. dollar rose sharply to a five-month high against the euro and Asian stocks fell Friday, as investors expected the malaise that has afflicted the U.S. economy would spread to other countries. While the U.S. economy has not greatly improved by almost any measure, investors have begun to reassess other parts of the world, particularly after the European Central Bank president said the euro zone faces substantially weaker growth this year and a Japanese official warned the world's second-largest economy may be in a recession. "We are seeing a shift away from a focus on the U.S. to a more global problem," said Sharada Selvanathan, a currency strategist at BNP Paribas in Hong Kong. "The dollar is getting a boost by default."
Credit crunch in a century’s context A few weeks after Black Monday, the stock market crash of 1987, one Wall Street banker gave a common view of the crisis to Barron’s magazine. “We’re observing the end of an era in two very specific areas,” he said. “First is the uncontrolled deregulation of global financial markets ... The second point is, the mindless commitment of human and financial resources to securitisation has reached its peak and now will contract for the indefinite future.” That he turned out to be entirely wrong illustrates how hard it is to judge the weight of a crisis still under way. The credit crunch is now a year old, but unless a deep real recession follows, it looks like cause for reform rather than revolution in the financial system. The bogeymen of 1987 were computerised trading – now universal – and equity index futures – now among the largest markets in the world. Many called for the reregulation of the financial sector as a result, but by 1999 Glass-Steagall, the measure that separated US banks and securities traders, had been repealed. It takes more than a crash to change the world.
Wall St takes a $20bn U-turn on ARS affair After months of regulatory pressure, Wall Street banks on Thursday took a U-turn, by agreeing to compensate tens of thousands of investors who find themselves stuck in the frozen market for auction-rate securities. Citigroup on Thursday agreed to buy $7.5bn worth of ARS from retail investors in the next three months while Merrill Lynch announced that it would buy back ARS it sold to investors starting next year. There are currently $12bn of such holdiings but Merrill said it expected there would be $10bn by the time it begins its buy-back. Meanwhile, UBS, the Swiss bank, was last night close to finalising the details of its own deal with regulators. The development, which marks one of the biggest settlements in Wall Street history, reflects the banking industry’s desire to draw a line under the regulatory probes that were beginning to cause damage to reputations.
Citi and Merrill in $20bn ARS agreements The credit crunch hit the financial sector hard again on Thursday as Citigroup and Merrill Lynch said they would buy a total of up to $20bn in auction-rate securities (ARS) and AIG shares plunged amid fears the insurer might need more capital. The protracted woes of three of the world’s largest financial groups underline the extent of the problems plaguing Wall Street and suggest that, even after a year of huge losses and writedowns, banks and insurers remain under severe pressure. The widespread sell-off in financial stocks dragged the stock market lower. The Dow Jones Industrial Average fell 1.9 per cent as AIG plunged 18 per cent to close at $23.84, its biggest daily fall since it went public in 1969, after the troubled insurer refused to rule out raising more capital to make up for a $5.4bn second-quarter loss announced on Wednesday. Lehman Brothers shares fell 12 per cent and Merrill was down more than 8 per cent.
NO RECOVERY UNTIL 2010 Blackstone President Tony James provided a dire outlook for an economic recovery yesterday as he announced the private-equity firm's second-quarter earnings. "We still don't see things improving for a while," James said. "We expect the economy to continue to be weak well into 2009 and possibly into 2010." He also noted that Blackstone expects inflation pressures to eventually cause the Federal Reserve to raise interest rates, which would slow down the progress of any economic recovery.
Elvis's Big Cadillac May Go Way of Tail Fins, 25-Cent Gasoline Cadillac's biggest sedans, once a symbol of the American dream, are in danger of joining Elvis Presley and tail fins in the pop-icon obituary column. Plans are on hold for new versions of the largest Caddies, which trace their lineage to the 1950s-era car so beloved by Johnny Cash's fictional factory worker in "One Piece at a Time" that he smuggled one out part by part. General Motors Corp. has sidelined replacements for the Cadillac DTS and STS in favor of more fuel-efficient models, people familiar with the plans said. "In the bad ol' days, the big old Caddy and the big Buicks were the way you showed you'd made it,'" said Alan Baum, director of forecasting at the auto consulting firm Planning Edge in Birmingham, Michigan. "To the extent people still want Cadillacs, they want a very different car."
Retailers brace for a back-to-school slump With the benefits of their stimulus checks dried up, American consumers are focusing even more on necessities like detergent and milk. That's creating big problems for apparel chains at the malls as the important back-to-school shopping season gets under way. Shoppers are struggling with higher food and gas bills, tighter credit and a persistent housing slump. Even more ominous: The number of newly laid off people unexpectedly reached the highest level in more than six years, according to a government report released Thursday. The Labor Department reported Thursday that the number of recently laid-off people signing up for benefits rose by a seasonally adjusted 7,000 to 455,000 for the week ending last Saturday - putting claims at their highest level since late March 2002.
Citi to Buy Back $7.3 Billion of Bonds Settlement Aims to Help Customers Unload Auction-Rate Securities Citigroup agreed Thursday to buy back $7.3 billion of bonds from retail and small-business customers who got stuck holding the debt when the market for so-called auction-rate securities melted down in February. The offer, part of a settlement announced by New York State Attorney General Andrew M. Cuomo, will be extended over the next three months to 40,000 individual, nonprofit and small- and medium-size business customers. The bank also agreed to work with larger customers, including retirement plans and other institutional investors, to help them unload $12 billion of auction-rate debt.
THE FED HAS BIAS TOWARD SLOWER ECONOMIC GROWTH THE Federal Reserve told us this week that it was concerned about both the slow economy and rising inflation. If it had to pick one, which would be the bigger concern? Right now Wall Street thinks the Fed would tilt toward the slow economy. So the stock market rallied strongly Tuesday on the hope that interest rates - or, rather, the few that the Fed controls - won't be raised in the foreseeable future. But that sense could change in the months ahead - especially if, as I mentioned in previous columns, statistics on inflation continue to rise abnormally as payback for seasonal adjustments that made price pressure look artificially tame during the spring.
Indebted Ever After Scared by National Deficit? You Should Be, Filmmakers Say. A private-equity billionaire, a former federal government official and a Baltimore newsletter editor have made a documentary film that they hope can do what an endless parade of policy papers has not: Persuade Americans that debt has created a looming economic crisis that would make the Great Depression look like a market correction. The movie, "I.O.U.S.A.," debuting Aug. 21, is an 87-minute alarum on what it calls the tsunami of debt bearing down on the United States' future, caused by the rising national deficit, the trade imbalance and the pending costs of baby boomers cashing in on entitlements. Early reviewers have dubbed the film "An Inconvenient Truth" for the economy, meaning it's not exactly the feel-good movie of late summer 2008.
Copper, Oil Lead Decline in Commodities as Global Growth Slows Copper and crude oil led a decline in commodities on concern that slower global economic growth will curb demand for raw materials. Copper headed for its biggest weekly drop since March, crude oil fell to the lowest compared with closing prices since May and silver reached its cheapest since January. Italy's second-quarter gross domestic product unexpectedly shrank, the statistics office in Rome said today. Japan's economy probably contracted in the three months ended June, according to the median estimate of 25 economists surveyed by Bloomberg News.
Ex-Fed Chief Greenspan Changes His Tune and Blasts the Housing Bubble He Helped Create The housing bubble was former U.S. Federal Reserve Chairman Alan Greenspan’s doing - plain and simple. He gave birth to it, nurtured it, protected it, and guided it during every stage of its development. In fact, if there were a deck of playing cards featuring the key players in this debacle, Alan Greenspan would be the ace of spades. So, it was strange to hear Greenspan, in an interview last week on CNBC, cast his eyes upon the charred landscape that was once the national real estate market and offer high-minded criticisms of the obvious excesses and irrationalities that brought on the devastation. Greenspan’s attitude was akin to a retired drug dealer lamenting the urban blight caused by rampant addiction. The former Fed chief noted that housing prices were still too high, that too many homeowners were upside down on their mortgages, and that Fannie Mae and Freddie Mac were accidents waiting to happen.
Mortgages Made in 2007 Go Bad at Rapid Clip $$ Delinquencies Worse Than 2006 Vintage; New Stress on Banks Mortgages issued in the first part of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting that the blow to the financial system from U.S. housing woes will be deeper than many people earlier estimated. An analysis prepared for The Wall Street Journal by the Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure for 2006 prime mortgages was just 0.33% after 12 months. The data reflect delinquencies as of April 30.
U.S. retailers are grim as consumers appear squeezed The outlook for the back-to-school shopping season seemed grim Thursday, as retailers' July sales reports showed an increasing shift toward buying necessities at discounters and away from nonessentials like clothing. With the benefits of the government stimulus checks fading, the big worry is how much shoppers - squeezed by high gas and food prices - will retrench in the critical months ahead. Not Even 2% Fed Funds Help Munis Amid Record The Oakland, California, agency that runs toll bridges across the San Francisco Bay is proving that the era of cheap money for municipal borrowers is over. This week the Bay Area Toll Authority sold more than $700 million of bonds at rates as high as 5.34 percent to refinance debt that cost 4 percent last year. That leaves less money to finance projects, such as bridge improvements. "The cost of money just went way up," said Brian Mayhew, the agency's chief financial officer. "You may have projects on the cusp that are going to be difficult to do.'" Almost a year after the Federal Reserve began to cut its target rate for overnight loans between banks to 2 percent from 5.25 percent, borrowing costs for states, cities, hospitals and municipal authorities are going in the opposite direction.
Minimum-Wage Hike May Cost More Than It's Worth The recent minimum wage increase probably sounds great to the 13 million workers (10% of the workforce) affected, but the reality might not be as rosy for many of them. For some, it could even lead to job losses and reduced work hours. The second of a series of three minimum wage increases totaling $2.10 took effect on July 24 as part of Congress' Fair Minimum Wage Act of 2007. In 2007, the federal wage minimum was increased to $5.85, this year to $6.55; and in July 2009, it will be raised to $7.25. But to some business pundits, a salary raise mandated by the federal government, intended to help bring workers' income above the poverty line, will backfire. Thousands of young workers or mentally handicapped persons who depend on the unskilled, low wage, entry-level work, will lose their jobs, many believe.
AIG Plummets as Insurer Won't Rule Out Capital Raise American International Group Inc., the world's biggest insurer by assets, fell the most in a quarter-century of New York trading after saying it won't rule out raising more capital. "It's very hard to predict right now when and if we'll need more capital," Chief Executive Officer Robert Willumstad said today in a conference call with analysts. "Future losses can change that assumption and we're obviously dependent on the condition of the U.S. housing market."
Hank the Great? Paulson Copies Frederick With Bonds In 1769, short of funds to rebuild Prussia after attacks by Russia, Sweden and Austria, Frederick the Great let aristocrats, churches and monasteries raise money by pledging their estates as security to investors. From those beginnings emerged what today is Europe's $3 trillion market for covered bonds -- securities backed by assets such as mortgages as well as the seller's promise to pay. Now U.S. Treasury Secretary Henry Paulson, faced with carnage in the housing market that led to $480 billion of losses and writedowns at the world's top financial institutions, is using a similar strategy to help America's banks turn assets into cash. While the European market has grown for 250 years, Paulson's plan confronts obstacles Frederick never faced: Besides competition from the biggest U.S. housing-finance companies, the debt would be tied to mortgages and banks that are sliding in value with America's homes and economy.
Jobless claims rise to highest since March 2002 Jobless claims climb to highest point in more than 6 years as companies hunker down The number of newly laid off people signing up for jobless benefits last week unexpectedly climbed to its highest point in more than six years as the faltering economy forced companies to cut back. The Labor Department reported Thursday that new applications filed for unemployment insurance rose by a seasonally adjusted 7,000 to 455,000 for the week ending Aug. 2. The increase left claims at their highest level since late March 2002.
Chrysler, Nissan in Talks To Team Up on Key Cars $$ Chrysler LLC is in talks with Nissan Motor Co. about jointly producing midsize cars, a partnership that would move the U.S. auto maker toward a radical new business model. The two companies agreed earlier this year to team up on pickup trucks and subcompact cars. Since then, they have been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, people familiar with the matter say. A Chrysler spokesman said the company has "no new alliances" to announce, and declined to comment on any discussions it might be having.
Freddie Mac's Big Loss Dims Hopes of Turnaround The gloom over the nation’s housing market deepened on Wednesday as Freddie Mac, the big mortgage finance company, reported a gaping quarterly loss and predicted that home prices would fall further than previously projected. The announcement disappointed those hoping that the housing market might be bottoming out and heightened worries that the government could be forced to rescue Freddie Mac and the other mortgage finance giant, Fannie Mae. The news also signaled that mortgage rates were likely to rise. In filings with the Securities and Exchange Commission, Freddie Mac said that “there is a significant possibility that continued adverse developments” could cause the company to fall below government-mandated capital levels. In an interview, the company’s chief financial officer, Anthony S. Piszel, said that warning did not imply the company believed that risk was likely or imminent.
The downside of sovereign wealth funds Sovereign wealth funds are looking less eager to live up to their recent reputation as investors of last resort now that the huge investments they made in failed Western banks are turning sour one year into the credit crunch. The funds, which manage almost $3 trillion in assets, have grabbed the attention of global financial markets since last year, when they replaced hedge funds and private equity as the main driver of corporate takeover activity. Since 2007, sovereign wealth funds, mainly from emerging economies with excess reserves, have spent nearly $80 billion to buy stakes in major banks desperately needing cash to repair balance sheets damaged by losses on U.S. subprime mortgages.
China tightens currency controls to curb inflows C China has issued new controls on transfers of foreign currencies, moving to contain inflationary pressures by curbing the speculative inflows, or so-called hot money, that has been flooding into the country in recent years. The new rules, issued late Wednesday with immediate effect, call for penalties of up to 30 percent of the capital involved in any unauthorized inward or outward foreign currency transfers. They give authorities stronger control over such transactions and expand reporting requirements for financial institutions.
Top US official sees 'no alternative' to Doha A senior US trade official on Wednesday defended the World Trade Organisation and the multilateral trading system in the wake of the latest collapse of negotiations for a new round of tariff cuts in a broad range of industries. "Even if the WTO has become extremely unwieldy, it would be crazy to walk away from Doha unless there is something better," said Warren Maruyama, general counsel in the office of the US trade representative. “Right now, there is no plausible alternative.” Mr Maruyama was seeking to dispel fears that the failure of high-level talks would lead to a deterioration in international economic relations, with rising protectionism around the world and the WTO becoming increasingly irrelevant. Discussions among the WTO’s 150 member states over further trade liberalisation unravelled again last week after seven years of futile attempts to find a compromise.
The Big Freeze part 4: How to build a US recovery Macroeconomists, like medical scientists, use case studies to teach their students about the maladies to which the system is susceptible. For supply shocks and stagflation, the example is the 1970s. The financial dislocations that occur when bubbles burst are illustrated by the Great Depression and Japan’s problems in the 1990s. The importance of central bank credibility in resisting inflation emerges from discussion of the experience of the late 1960s and the 1970s. What is most remarkable and troubling about our current difficulties is that all these elements – supply shocks, financial dislocations and concern about rising underlying inflation – are present at once. Moreover, the crisis is global in scope. Concerns about recession are spreading from the US to much of the industrialised world. Significant slowdowns appear more likely in a number of emerging markets, with inflation concerns worldwide at their highest level in more than a decade. There is a growing consensus that the west is facing the most serious financial crisis since the second world war.
Big banks seek to limit their own risks Many of the world’s biggest banks are proposing reforms that would limit the size and scope of their businesses in one of the most dramatic responses to the credit crisis. The proposals would hold down the number of investors who can buy complex financial products, bring large swathes of the derivatives markets into regulators’ sights and call on banks to spend more on technology and risk management. The consequence would be that many of the securitisation businesses that helped fuel the boom on Wall Street and the City of London in the middle years of this decade could face tougher oversight and find far fewer opportunities for growth. Wall Street Report Tries to Dissect Financial Meltdown A group of Wall Street executives released a report on Wednesday that outlined how the industry failed to foresee the financial meltdown of the last year and what companies can do to improve risk management. The 172-page report, written by chief risk officers and senior executives at banks like Lehman Brothers, Merrill Lynch and Citigroup, also provides suggestions about technical issues at the same time as it offers a bit of a mea culpa.
Citigroup nears deal to buy back auction-rate securities Citigroup was nearing an agreement late Wednesday to buy back more than $7 billion of auction-rate securities from investors to settle claims that it misled clients about the dangers of the investments. The pact, with state and federal regulators, is expected to include a fine of as much as $100 million, according to several people involved in the talks. Also on Wednesday, in an unrelated case, STMicroelectronics, a semiconductor company, sued the Credit Suisse Group, saying that Credit Suisse had defrauded STMicroelectronics by investing its cash in unauthorized and unsuitable investments. Regulators are investigating at least a dozen Wall Street firms for their role in the sales and marketing of so-called auction-rate investments, and analysts expect a wave of settlements in the next few months.
Citi Talks With Regulators May Bring Billions in Buybacks $$ Citigroup Inc. is in negotiations with state and federal regulators to resolve allegations of wrongdoing in the auction-rate-securities market that could result in its buying back several billion dollars of the illiquid securities from investors and paying a sizable fine, according to people familiar with the matter. New York Attorney General Andrew Cuomo last week threatened to sue Citigroup for alleged fraud in the marketing and sales of auction-rate securities. Mr. Cuomo's office has said the firm wrongly told customers the securities were safe, liquid and cash-equivalent. It added that the firm failed to tell investors that, from August 2007 until earlier this year, the market was kept afloat primarily because the bank placed bids in auctions for the securities.
Treasury prices pull back after 10-year auction Treasury bond prices fell Wednesday, pressured by strong demand for the government's sale of new 10-year notes. The Treasury Department's auction of $17 billion in 10-year notes was well received, drawing an average yield of 4.075 percent. When the government issues new debt, the flood of supply in the market tends to drive prices for existing bonds lower.
SA strike hits some mines as others maintain production Anglo American , South Africa's top coal producer, said that some of its mines had been affected by a one-day workers' strike, but could not yet quantify the output lost...... Harmony, the world`d fifth biggest gold producer, said that all its South African mines had been hit by a one-day national workers strike, and it expected to lose up to 135kg of gold.
Trouble Out Of Africa Africa's tempting natural resources have attracted huge investment from mining companies and oil explorers, but the risks were evident on Wednesday as the military seized power in Mauritania and miners went on strike nationwide in South Africa. Investment in Africa, however, is unlikely to suffer.
Connecticut Joins States Suing Countrywide The Countrywide Financial Corporation was sued by Connecticut, which accused the company of steering customers into mortgages they could not afford, and charging excessive legal fees to borrowers in default. Connecticut joined California, Florida and Illinois among the states that have sued Countrywide, which as recently as last year made one in six mortgage loans. Washington State has separately announced plans to fine Countrywide and possibly revoke its lending license.
Tempest for a Bank That Bet on Risky Loans CORAL GABLES, Fla. — A cheerful sign outside the glistening offices of Bank United beckons consumers to tap into “Mortgage-ade.” Another promises a “59 Minute Mortgage.” But easy money, it turns out, has created enormous problems at Bank United, Florida’s biggest regional bank. By aggressively peddling a popular type of high-interest loan to risky borrowers, the bank tripled its profits in 2006 as real estate on Florida’s Gold Coast peaked, only to lose nearly $100 million in late 2007 and early 2008 as the market cratered. Now, its chief executive, Alfred R. Camner, is scrambling to raise $400 million in capital, an amount nearly eight times the bank’s shriveled value on the stock market. Analysts and a corporate governance group are monitoring the bank’s asset quality and asking why Mr. Camner was allowed, with board approval, to amass a pool of volatile loans that at one point represented 75 percent of the bank’s mortgage portfolio, despite what has since proved to be great risk
Arctic map flags up territorial disputes over oil British researchers have drawn up the first detailed map of areas in the Arctic that could spark border disputes over extensive oil and gas deposits, they said Wednesday. Experts from the International Boundaries Research Unit (IBRU) at Durham University in northeast England produced the map to illustrate current boundaries and possible future claims. Russia last year staked its disputed claim to a huge chunk of the frozen land when a submarine planted a flag on the ocean floor underneath the North Pole. Canada, the United States, Denmark, Iceland and Norway are also all embroiled in territorial disputes. Martin Pratt, director of research at IBRU, said: "We have attempted to show all known claims -- agreed boundaries and one thing that has not appeared on any other maps, which is the number of areas that could be claimed by Canada, Denmark and the US." The team used special software to construct the boundaries.
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Freddie's Red Think the worst of the mortgage crisis is over? Think again. The Treasury Department ought to make sure its emergency plan for the mortgage giants is ready soon. For one, the bleeding at the second-biggest buyer of mortgages, Freddie Mac, shows no signs of stopping. Freddie today reported a larger-than-expected loss of $821 million for the fourth quarter. It was its fourth consecutive quarterly loss. The company is still talking about raising $5.5 billion in additional capital, but disclosed no details about how it plans to do so. It also said it expected to cut its dividend of 25 cents per share to 5 cents or less. In short, the scramble to raise capital is far from over.
Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation. Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday. Wall Street firms including Morgan Stanley are ratcheting back on risks after the collapse of the subprime mortgage market and ensuing credit contraction saddled banks and brokerages with almost $500 billion of writedowns and losses. Consumers fell behind on home-equity credit lines at the fastest pace in two decades in the first quarter, the American Bankers Association reported last month.
The Three Signs That the Credit Crisis Has Yet to Hit Bottom "Have we seen the worst from the financial sector?" The question - a very good one - came from an audience member following my global investing presentation at the Agora Wealth Symposium in Vancouver, British Columbia. During my entire time there, the interest in the ongoing credit crisis was intense. I took a deep breath and launched into my three-point response. First, I’m encouraged by what I see lately but still believe there is a fair distance to travel before all the skeletons are cleaned out of the financial sector’s closet.
Iran escalates military rhetoric TEHRAN: Iran warned Monday that it could easily close a critical Gulf waterway to oil shipments and said it had a new long-range naval weapon that could sink enemy ships nearly 200 miles away. The warning, by the head of Iran's Revolutionary Guards, followed the weekend expiration of an informal deadline for Iran to respond to incentives from six world powers to stop enriching uranium. The United States, which has warships deployed in the Gulf, has said new sanctions should be imposed on Iran for failing to respond to the deadline. On Monday, a State Department official said the six powers - the United States, Russia, China, France, Britain and Germany - had agreed to pursue new sanctions, but it remained unclear what they might be or which nations would take part.
U.S. warns of 'punitive' action on Iran Iran may face "punitive" measures because of its insufficient response to an incentives package offered in return for a cutback in its nuclear program, a senior White House official said Wednesday. "In the absence of a positive response to the generous offer that we provided in our incentives package, I think that the allies will have no choice but to take further measures that would be punitive," spokeswoman Dana Perino said. Speaking aboard Air Force One en route to Thailand, the next stage of a week-long Asian tour by President George W. Bush, she said Iran's response to the package "doesn't look like it's anything worth writing home about." The political directors of the "P5 plus one" group -- China, France, Britain, Russia, the United States and Germany -- will hold a conference call on Wednesday to discuss next steps in regards to Iran.
Freddie Swings to Loss$$ Freddie Mac swung to a second-quarter loss as it booked $2.5 billion in credit-loss provisions and wrote down the value of $1 billion in securities. The company again reiterated its intent to raise $5.5 billion in capital -- and possibly more -- and said it has recommended board approval to cut its third-quarter dividend on common stock to "five cents or less" a share from the second quarter's 25 cents. The government-chartered loan clearinghouse posted a loss of $821 million, or $1.63 a share, compared with a net income of $729 million a year earlier. The latest results included a write-down from available-for-sale securities primarily related to ones backed by subprime or Alt-A mortgages which have seen deteriorating credit quality.
Freddie Loss Much Worse Than Expected Government-sponsored mortgage lender Freddie Mac on Wednesday posted a second-quarter loss more than three times worse than Wall Street expected, as the slumping housing market continued to weigh on the stock. Freddie reported a net loss of $821 million, or $1.63 per diluted share, compared to a net profit of $729 million, or 96 cents per diluted common share, in the year-ago period. The company lost $151 million, or 66 cents per diluted share, in the first quarter. The consensus analyst estimate compiled by Thomson Reuters was a loss of 41 cents a share.
Citigroup may buy back auction-rate debt Citigroup Inc is in talks with regulators to buy back more than $5 billion of illiquid auction-rate securities and pay a fine of up to $100 million to settle allegations that it wrongly told customers the debt was safe, The Wall Street Journal reported on Wednesday. Citing people familiar with the matter, the newspaper said the largest U.S. bank by assets has been in talks with representatives of the office of New York Attorney General Andrew Cuomo, other state securities regulators and the U.S. Securities and Exchange Commission. On August 1, Cuomo's office threatened to charge Citigroup with fraudulently marketing and selling auction-rate securities and destroying documents that had been subpoenaed.
Permanent job placements fall fastest since 2001 LONDON: The number of people placed in permanent jobs fell last month at its fastest rate since the aftermath of the 9/11 attacks in 2001, a report showed on Wednesday, in a sign the economic slowdown is biting hard. The Recruitment and Employment Confederation/KPMG Report on Jobs also showed a marked slowdown in number of people placed in temporary jobs, a slowing in wage inflation and the first fall in temporary vacancies since the survey began in 1997.
Fed Holds Key Rate Steady Amid Growth Concerns With jobs leaking from the economy month after month, Federal Reserve policy makers decided on Tuesday to keep the key interest rate they control at its current level of 2 percent. Emphasizing the dangers to the economy, the Fed said in its statement that a substantial easing of interest rates in recent months, “combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.” However, the Fed warned that "tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters." By a vote of 10 to 1, policy makers declared that inflation remained "of significant concern" — a description that seemed to put slightly less emphasis on the inflationary risks of keeping rates low than the policy makers had at their meeting in June. The lone nay vote came from Richard W. Fisher, president of the Federal Reserve Bank of Dallas, who sought an immediate increase in the federal funds rate, a short-term rate that influences the cost of mortgages, car loans and a host of other consumer credit.
Fed Knows When General Mills Sells Debt Like Cheerios Before credit markets from New York to London seized up a year ago, investment-grade companies could sell record amounts of debt in days. It took Tyco Electronics Ltd. Treasurer Mario Calastri 12 months to complete the bond sale he began last July. "In the current rate environment, nobody really wants to stick their neck out," Calastri, 51, said. He's one of more than 60 treasurers forced to wait months, reduce borrowings or accept less favorable terms as the turmoil that began a year ago stifles investor demand. Issuers are paying about the highest borrowing costs since the last recession in 2001, according to Merrill Lynch & Co.'s U.S. Corporate & High Yield Master Index, as the lowest Federal funds rate in four years does little to pump up credit. The bond- market headwinds buffeting companies from Tyco to General Mills Inc. may thwart efforts by Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson to keep the economy out of recession with interest-rate cuts, stimulus checks and increased housing cash.
Fed Indicates No Rush To Raise US Interest Rates The Federal Reserve held U.S. interest rates steady on Tuesday, expressing concerns about both economic growth and inflation and indicating it is in no rush to push borrowing costs higher. The 10-1 decision by the U.S. central bank leaves the benchmark federal funds target at a low 2 percent, where it has been since April. The Fed had reduced rates by a cumulative 3.25 percentage points since mid-September in response to a sharp housing retrenchment and turmoil in credit markets, and financial markets had widely expected no change Tuesday. "Although downside risks to growth remain, the upside risks to inflation are also of significant concern," the Fed said in a statement outlining its decision.
Text of the Federal Reserve’s Statement Following is the full text of the statement released Tuesday by the Federal Reserve: The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent. Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the committee. The committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability. Voting for the F.O.M.C. monetary policy action were Ben S. Bernanke, chairman; Timothy F. Geithner, vice chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.
Big Freeze part 3: The economy Imagine you had fallen asleep a year ago and had just woken up, wanting to reacquaint yourself with the world economy. You would get quite a shock. Just as it was last summer, global growth is strong. The International Monetary Fund expects expansion of 4.1 per cent this year, compared with an average of 3.4 per cent since 1990. Inflation is the real surprise. Last July the IMF predicted price pressures would remain "generally well-contained despite strong global growth"; today, inflation in advanced economies is at its highest rate since 1992, rising from 2.2 per cent in 2007 to an IMF projection of 3.4 per cent in 2008. For emerging and developing countries inflation is up from 6.4 per cent to 9.1 per On seeing the data alongside high food and oil prices – still way above their levels last year, in spite of recent falls – your immediate historical parallel would not be one that is often drawn, with the early 1930s; it would be the inflation followed by stagnation of the 1970s. The IMF’s forecast of a slowing world economy in the second half of 2008 is entirely consistent with high commodity prices.
The Fed Sandwich Caught between signs of a slow economy and fast inflation, the Federal Reserve stands still. Oil stuck above $110 a barrel? Grain prices setting records? Iron ore doubling overnight? Never mind. The Federal Reserve held a key interest rate unchanged today and signaled that a tepid economy would likely keep board members from hiking rates anytime soon. The collapsing housing market and tight lending conditions in financial markets have been drags on growth for more than a year now, but alarmingly steep gains in oil prices had begun to shift some Fed members' concern to inflation.
Retailers May Flunk Back-to-School as Costs Soar, Sales Stall Retailers in the U.S. may be dreading the approach of the school year almost as much as kids, given a forecast for the worst back-to-school season in seven years. Even with projections for almost no growth, stores need to raise prices, says Burt Flickinger, managing director of Strategic Resource Group, a New York retail consulting firm. Otherwise, higher costs for everything from cotton, to shipping, to labor in China will eat away at already narrow profit margins, he said.
US inflation hits 27 year-high on rebate spree US Inflation hit its highest rate in almost three decades in June as American consumers spent tens of billions of dollars of tax rebates and the price of petrol continued to surge. Inflation jumped by 0.8 per cent in the month of June, the most since February 1981, when prices rose by 1.0 per cent, according to the Commerce Department. About $80 billion worth of tax rebate cheques were sent out in April, May and June, as part of the government’s plan to stimulate its flagging economy.
D.R. Horton Build 'Em, But They Don't Come Things look bad for D.R. Horton, but they have looked bad for a while. Investors got a terrible third-quarter report from the homebuilder on Tuesday, and they barely flinched. "The numbers say nothing new about the housing market," said Jim Wilson of JMP Securities. "It just says things are still weak are going to stay weak for a long time, on the other hand though it's not getting particularly worse." Still, that doesn't mean the numbers don't hurt to look at. Homebuilding sales in the third quarter dropped 44.0%, to $1.4 billion, from $2.5 billion a year earlier, and the number of homes sold fell 36.0%, to 6,167, from 9,643. Builder's Troubles Put Buyers in a Bind Would-Be Owners Scramble to Outbid Banks, Hire New Contractors Jane Hwang spent $120,000 and devoted five years waiting for her perfect custom home. Then in one brief phone call, she learned she might lose it all. The builder, Seville Homes, couldn't pay its bills, and its bank was seizing Hwang's nearly completed house. Scared of losing her investment, Hwang pounced into action. She went to the auction on the Fairfax County courthouse steps and outbid a bank for the house. "For five years I have been fixated on this place," said Hwang, a real estate agent. "I planned my retirement, I put all my life in there. I had to grab that house."
Baby, It’s Going to Be Cold Inside In a season of roller-coaster energy costs, the drop in oil and natural gas prices in recent days was greeted as good news. But they remain so high that experts are predicting that heating bills this winter will far exceed those of last year. Even after a precipitous decline from its peak in early July, the price of natural gas is still 11 percent above where it was last winter. Heating oil is 36 percent higher, with the government projecting that the costs of both fuels will stay high. Electricity prices are also up moderately. Higher heating costs will hit particularly hard in the Northeast, where many people use heating oil.
Treasury hires Morgan Stanley on Fannie, Freddie The Treasury Department said Tuesday it had hired investment firm Morgan Stanley to help the government assess the risks facing mortgage giants Fannie Mae and Freddie Mac. For $95,000 to cover the company's expenses, Morgan Stanley will assess the state of the mortgage market and give the government a financial profile of the two firms. The two mortgage firms received a promise of support from the federal government as part of a sweeping housing rescue bill passed by Congress and signed into law by President Bush last week. Treasury spokeswoman Brookly McLaughlin said the contract would help ensure the Treasury Department had good advice to decide how to support the two mortgage firms, which together own or guarantee half of all U.S. mortgages. While Congress gave Treasury the authority to extend an unlimited amount of loans to the two companies, Treasury Secretary Henry Paulson has stressed that the new authority is a back-up measure that will not be used unless market conditions worsen.
Fannie's Mudd Soothed Asian Investors as Bonds Rose Fannie Mae Chief Executive Officer Daniel Mudd was sitting down to a glass of wine with his wife at their Washington home around 10 p.m. on Saturday July 12 when Treasury Secretary Henry Paulson called. Concerns about the financial health of the biggest U.S. mortgage finance company had driven Fannie Mae's borrowing costs to the highest since March the previous week and its shares had tumbled 45 percent on the New York Stock Exchange. Investors in Asia, the biggest foreign owners of Fannie Mae's $3 trillion of bonds, were asking the Treasury to bolster the government- sponsored company and its smaller competitor, Freddie Mac, said three people with knowledge of the talks. Paulson told Mudd he had a plan to restore confidence in Fannie and Freddie, the core of the Bush administration's efforts to revive the U.S. housing market. "At that point, the proposal began to take form," Mudd, 49, said in an interview. "We're trying to solve a crisis of confidence. Would this do it?"
Hospitals In For A Slow Recovery The hospital industry has been looking a bit sickly of late and the prognosis for the future isn't much better. Two major players in the hospital management sector, Tenet Healthcare and Health Management Associates, reported earnings on Tuesday that showed just how long the recovery process can be. Hospitals have been ailing for the last few years with legal woes, fleeing physicians and uninsured patients taking up beds, but the down economy has added to those pressures.
Big Three face bankruptcy fears After huge losses and plunging sales, experts aren't ruling out the possibility that GM, Ford or Chrysler might eventually be forced to declare bankruptcy. It's been a bumpy road for Detroit's Big Three automakers for the past few years. But it may get worse. With their sales plunging as fewer consumers are willing to buy gas-guzzling pickups and SUVs, some experts fear that GM, Ford or Chrysler could be forced to head for bankruptcy.
Ford, GM Survival Odds Deteriorate With Economy Ford Motor Co. and General Motors Corp. couldn't stop their credit ratings from dropping to junk when the U.S. economy was healthy. The prospect of a recession "The big problem for the U.S. auto companies is that their performance deteriorated rapidly even while the economy was still growing," Jim Reid, a credit strategist at Deutsche Bank AG in London, wrote in a report this week. "They have a huge problem if the economy doesn't bounce back going into and through 2009." The chart of the day shows the surging cost of protection against Ford or General Motors failing to pay their debts. The likelihood of default is perceived to be at a record, based on prices in the credit-default swap market. "Survival in their current form is probably out of their hands and with the macro gods," Reid wrote.
Adieu Lamborghini, Aston Martin and Ferrari? BRUSSELS: As giant European carmakers battle environmentalists and lawmakers over emissions curbs, makers of classic European sports cars like the Aston Martin DB9, Ferrari F430 and Porsche 911 are concerned the new laws will destroy their lifeblood. Environmentalists say today's supercars, with huge engines pumping out up to three times as much carbon dioxide as the average vehicle, have no place in a world struggling to rein in climate change. But Lamborghini and its rivals contend that theirs is a rare art that needs protecting, blending classic European design elements with cutting-edge technologies that can help save the planet. They also argue that sports cars usually only leave the garage on the weekend, contributing just 0.3 percent of European Union car emissions.
Detroit 3 ask up to $40 billion in loans Detroit's three automakers are urging Congress to make as much as $35 billion to $40 billion in low-cost loans available during the next two to three years to assure that the companies survive long enough to retool and build a new generation of fuel-efficient vehicles. Chief executives Rick Wagoner, Alan Mulally and Robert Nardelli -- of General Motors Corp., Ford Motor Co. and Chrysler LLC, respectively -- talked Friday and agreed that access to capital is their most critical short-term need during this volatile period of high fuel prices and slumping SUV and truck sales, sources told the Free Press. Top lobbyists for GM, Ford and Chrysler followed up Sunday with phone calls to leaders of Michigan's congressional delegation -- including U.S. Sens. Debbie Stabenow and Carl Levin, plus Reps. John Dingell and Sander Levin -- to drive the point home. All three Detroit companies are hemorrhaging cash and having trouble borrowing.
Gas Prices Apply Brakes To Suburban Migration That 1958 brick rambler inside the Beltway is suddenly looking a lot better to Dawn and Jeff Schaefer, who are buying their first house in Northern Virginia. Not too long ago, they were looking farther out -- for a newer house, a bigger yard and all the amenities. But no more. "You get less house and property for the same price, but we're willing to make that sacrifice to save on gas prices and commuting costs," Dawn Schaefer said. Cheap oil, which helped push the American Dream away from the city center, isn't so cheap anymore. As more and more families reconsider their dreams, land-use experts are beginning to ask whether $4-a-gallon gas is enough to change the way Americans have thought for half a century about where they live. "We've passed that tipping point," U.S. Transportation Secretary Mary Peters said.
Another Great Depression? Not likely, economists say Even if the U.S. economy continues to deteriorate, economists generally agree that the country is not heading for another Great Depression. Not only are the conditions far less dire, eight economists said in interviews, but the government is also playing a heightened role in trying to cushion the impact of the housing downturn, losses at financial institutions and rising unemployment. "The government is larger now, and it acts as an anchor," said Richard Parker, senior fellow at the Shorenstein Center at Harvard. "During the Great Depression, the government had neither the means nor the capability to serve as a backstop."
Gaddafi: Iran may suffer fate of Iraq ran could go the same way as Iraq if it persists in its confrontation with the West, Libyan leader Muammar Gaddafi said Tuesday. "What Iran is doing is pure vanity," Reuters quoted Gaddafi as saying. "If a decision is taken against Iran, it will suffer the same fate as Iraq...Iran is no stronger than Iraq and will be unable to resist."
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Tues 08.05.2008
No change expected in Fed interest rates The Federal Reserve, caught between mounting job losses and rising inflation, is likely to sit tight and hope that the interest rate cuts it has already provided will be enough to heal a sick economy. Private economists believe that when the central bank concludes its one-day meeting on Tuesday, it will announce that its target for the federal funds rate, the interest that banks charge each other, will remain at 2 percent. Federal Reserve Chairman Ben Bernanke and his colleagues are being forced to navigate treacherous waters, trying to keep the economy from plunging into a deep recession while worrying about keeping interest rates so low that they could trigger a dangerous inflation spiral. "The Fed is really locked in right now. They can't go forward or backward," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University Channel Islands.
Bernanke May Sound Tougher to Avert Fed Rebellion Federal Reserve Chairman Ben S. Bernanke, likely to leave interest rates unchanged today, may need to sound tougher on inflation to avert the sharpest public disagreement among policy makers in more than a decade. The fastest inflation in 17 years adds to the risk that three members of the Federal Open Market Committee will dissent for the first time since 1992. Gary Stern, president of the Fed's Minneapolis bank, and the Philadelphia Fed's Charles Plosser joined Dallas's Richard Fisher since the last meeting in June in calling for an increase in rates to limit price increases. The trio wield more clout than usual because two seats assigned to Fed governors on the 12-member panel will be vacant at the end of this month. That means Bernanke must craft a consensus that's responsive to their inflation warnings while still heeding tumbling housing prices, a faltering economy and the worst credit crisis since the Great Depression.
No direction home Fed statement won't give clear signal on rates at next meeting or beyond Federal Reserve policymakers are not going to give a clear signal of where rates are headed after their meeting on Tuesday, economists said. Economists expect a "neutral" statement that won't prepare markets for a rate hike in the near term. "The next policy statement is unlikely to include a signal to financial markets that the FOMC is prepared to raise interest rates at the next meeting [on September 16]," wrote Brian Fabbri, chief U.S. economist at BNP Paribas. It has been the practice of the Fed to signal which way it is leaning on rates by presenting a risk assessment - such as inflation risks are higher than growth risks. But the Fed did not include such a statement in June and will avoid doing so once again on Tuesday, economists said. There simply are many uncertainties about the outlook. The statement will simply say that the Fed is "on hold seeking more clarity," wrote the economic team at UBS. It is almost the unanimous opinion of experts that the Fed will keep its target for short-term interest rates unchanged at 2% following their closed door meeting.
Rising prices stifle impact of federal stimulus 4 factors hit U.S. public hard Rising prices, falling home values, stagnant wages and tight credit. It's a potent combination that has hit the American consumer hard. In June, the second-biggest rise in prices in nearly three decades muted the impact of billions of dollars in government stimulus payments, government figures showed Monday. Incomes barely budged in June and consumer spending retreated after taking into account the higher prices for food, energy and other items, the Commerce Department data show.
A second, far larger wave of U.S. mortgage defaults is building The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is building with alarming speed. After two years of upward spiraling defaults, the problems with mortgages made to people with weak, or subprime, credit are showing the first, tentative signs of leveling off. But with the U.S. economy struggling, homeowners with better credit are now falling behind on their payments in growing numbers. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A, or alt-A, mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time. While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.
Oil falls as low as $118 on demand concerns Oil prices decline as low as $118 on concerns that US slowdown is hurting fuel demand Oil prices kept falling Tuesday, sinking as low as $118 a barrel on growing concerns that a U.S. economic slowdown and high energy costs are curbing consumer demand for gasoline and other petroleum products. Crude's decline is giving Americans more relief at the pump. A gallon of regular gasoline on average fell another penny overnight to $3.871, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas prices have fallen four straight weeks for the first time in December; prices are off 5.9 percent from their July high as U.S. motorists cut back on their driving to save money. A day after plunging as much as $5 a barrel in a dramatic sell-off, crude continued its downward trend Tuesday as traders sold oil contracts on the belief that prices are still too high in relation to demand and have further room to fall.
Gold tracks tumbling oil price to end at six-week low Gold futures fell more than $9 per ounce Monday, with a broad decline in commodities led by a tumble in the price of crude oil sending the metal's prices to their lowest level in almost six weeks. Gold for December delivery dropped $9.60 to close at $907.90 an ounce on the New York Mercantile Exchange after trading as low as $903. The contract hasn't seen levels this low since June 25. Prices continued lower in electronic trading on Globex, and were last at $902.40 as of 4 p.m. EDT. Other metals prices also fell sharply, with platinum futures dropping 5.6% on Nymex. "Gold has now decisively stepped into sub-$900 territory as crumbling oil values and fears of a nearer-term Fed response to the rising inflationary pressures bolstered a dollar which had already looked predisposed for incremental gains," said Jon Nadler, a senior analyst at Kitco Bullion Dealers. "Analysts who had foreseen a decoupling by gold from crude oil got a rude awakening today when black gold dipped to under $120 and augmented the slide in various commodities," he said in emailed comments. And "as the U.S. dollar really did not do much ahead of tomorrow's Fed meeting (anticipating no change in stance by the central bank) today's slippage is clearly (in most part) attributable to the goings-on in oil," he said.
The big freeze: A year that shook faith in finance Just over a year ago, Hiroshi Nakaso, a senior official at the Bank of Japan, started to fear that the global financial system was heading for a jolt. Back then, most American policymakers assumed that the western banking system was extraordinarily strong. Thus while US mortgage defaults were rising, western officials were convinced that such losses would be easily "contained". But as Mr Nakaso watched western markets in July 2007, he had a sense of déjà vu. "I see striking similarities in what I see today with the early stages of our own financial crisis [in Japan] more than a decade ago," he privately warned international contacts shortly after IKB, a German lender, imploded as a result of subprime losses. "Probably we will have to be prepared for more events to come ... the crisis management skills of central banks and financial authorities will be truly tested."
Cost of a wrong turn: The Big Freeze: the future of banking (part 2) On Friday August 3 last year, as US financial markets were approaching the summer doldrums and bankers began to head off for holidays on Long Island or Cape Cod, Bear Stearns held a conference call for investors. Shares in the investment bank, the fifth largest in the world, had fallen as investors worried about the collapse of two hedge funds that it managed and its exposure to the troubled housing market. But few were prepared for the candour of Sam Molinaro, its chief financial officer. Instead of reassuring them about Bear Stearns' financial condition, he scared them even more: "I've been at this for 22 years. It’s about as bad as I have seen it in the fixed income market during that period . . . [what] we have been seeing over the last eight weeks has been pretty extreme." Later that afternoon, Jim Cramer, the former hedge fund manager, whose show, Mad Money, on the CNBC financial cable channel had become a cult among US retail investors, took to the air to sound his own alarm. Mr Cramer chided Bear Stearns for admitting publicly that it was struggling to cope but then launched into an angry tirade. He lambasted Ben Bernanke, chairman of the Federal Reserve, for not cutting interest rates aggressively, and said bank executives were calling him in distress. “We have Armageddon. In the fixed income markets, we have Armageddon,” he shouted, as Erin Burnett, his co-host, tried to calm him down.
An unconventional analyst makes himself heard on Wall Street Lutz, Florida, is on no one's list of world financial capitals. But from his home there on Tiffany Lane, over a thousand miles from Wall Street, Richard X. Bove can rattle the mighty of American banking. Lately, some of his pronouncements have caused a few headaches for banks - and for Bove, one of the most outspoken stock analysts tracking them. After a big bank in California collapsed in mid-July, Bove (pronounced Bo-VAY) rushed out a report with a provocative title: "Who's Next?" What followed was a list of 107 banks, ranked according to two measures of their financial strength. The share prices of some of the banks promptly collapsed. But No. 10 on the first list, BankAtlantic Bancorp of Fort Lauderdale, fired back. The bank said Bove's numbers were wrong - and sued him and his employer, a small brokerage firm called Ladenburg Thalmann, for defamation. Bove would not comment on the suit. A lawyer for BankAtlantic said the bank planned to ask the judge to expedite the case.
What to do When the Federal Reserve Finally Gets Serious about Inflation The U.S. Personal Consumption Expenditures deflator, believed to be the primary gauge of inflation for U.S. Federal Reserve Chairman Ben S. Bernanke, rose 0.8% in June. That wiped out the gains from the June infusion of tax rebates and turned the key Personal Consumption Expenditure – which had risen a solid 0.6% in cash terms – into a feeble 0.2% drop in real terms. It’s obvious that inflation is continuing its inexorable increase. It's also obvious that the world’s monetary authorities – including the Federal Reserve – are going to have to get serious about this potentially ruinous trend. For long-term investors, all of this leads to a single conclusion: It’s time to get prepared. The policymaking Federal Open Market Committee meets today (Tuesday), and is expected to keep the Federal Funds target rate at its current level of 2.0%. Even if the FOMC surprises the market and raises the target to 2.25%, that would still leave short- term interest rates about 3% below the current (actual) level of inflation. In short, this wasn't a serious attempt to slay the inflationary dragon.
Sen. Levin to Fed: More credit card rules needed The chairman of the Senate's investigations subcommittee said Monday he supports the Federal Reserve's proposed restrictions on credit card practices, but that the rules don't go far enough. Sen. Carl Levin, D-Mich., said in a 13-page letter to the Fed that it should expand its rules to limit such practices as charging interest for debt paid on time and interest on transaction fees. Levin also sought an end to fees levied on consumers paying their bills on time as well as billing amounts that force consumers to pay four or five times their original debt.
Global credit crunch is 'far from finished' We are coming up for the first anniversary of the credit crunch, which most people date as 9 August, the day last year when, with interbank lending freezing up, the European Central Bank started to flood the money markets with liquidity. Yet the first sign of trouble to come came much earlier, as far back as February last year, when HSBC first warned of massive write-downs on its exposure to US sub-prime mortgage lending. Few had had properly focused on the United States' emerging housing crisis before this announcement. The initial response was to think of it as a largely contained problem that would have limited impact outside the lower echelons of American "trailer-park society".
Greenspan says more banks, institutions may flounder Writing in the Financial Times, Greenspan called the current crisis -- which started a year ago -- a once or twice in a century event and said insolvency would only end once US house prices stabilized, underpinning mortgage-backed securities. Until then, the threat of collapse among banks and other global financial institutions would persist. "Fears of insolvency have not, as yet, been fully set aside," Greenspan wrote in an article published online on Monday. "There may be numbers of banks and other financial institutions that, at the edge of defaulting, will end up being bailed out by governments." The former Fed boss, who stepped down as chairman in 2006 after nearly 20 years in the job, said a "sustained level of global equity prices" was critical if banks were to recapitalize themselves and reassure skittish By extension, continued falls in global equity prices would have a debilitating impact, he said, despite the offset of rising global savings rates. "Lower global stock prices could impede the recapitalization of banks and other financial institutions. Debt issuance would also be suppressed as it leverages off the level of equity," he wrote.
At Freddie Mac, Chief Discarded Warning Signs The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others. That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him Today, Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions. Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations.
Rising prices beat down consumer spending in June Consumer spending, after adjusting for inflation, fell in June as shoppers were hit with the biggest increase in prices in nearly three decades. The Commerce Department reported Monday that consumer spending dipped by 0.2 percent in June, after removing the effects of higher prices, the poorest showing since a similar drop in February. The higher prices reflected a big surge in gasoline costs and helped to drive an inflation gauge tied to consumer spending up by 0.8 percent in June, the biggest increase since a 1 percent rise in February 1981. The big rise in inflation ate up a part of the billions of dollars in stimulus payments delivered during the month. Personal incomes rose by a tiny 0.1 percent in June following a giant 1.8 percent increase in May.
Inflation Takes Steam Out of Rise in Spending Consumers spent more in June, but only because the things they bought cost more. Driven primarily by energy and food prices, inflation grew 0.8 percent over May, the biggest monthly increase since September 2005, the Bureau of Economic Analysis reported on Monday. Spending, by comparison, grew just 0.6 percent in June. "Inflation is intensifying, and that is the main source of weakness in consumer spending," said Dean Maki, chief United States economist at Barclays. High food and energy prices continue to drive overall prices. Without food and energy, core inflation grew at a more modest 0.3 percent over May. The prices of nondurable goods — the most current measure of food and energy prices kept by the bureau, adding in items like clothing — recorded the biggest year-over-year increase since July 1981.
Only luck can save America’s economy The US economy may not be in recession, but this is the nearest thing. In spite of the recent fiscal stimulus, output grew less than 2 per cent at an annual rate in the second quarter, slower than expected. That followed growth of 1 per cent in the first quarter and a contraction (on revised numbers) of 0.2 per cent in the fourth quarter of 2007. A recession is usually defined as two consecutive quarters of shrinking output. It has not happened yet, but it very well might in the next few quarters. Even if it does not, that would be little consolation. Prospects for the second half of the year are poor. Some of the current boost from the fiscal injection delivered last quarter will keep feeding through, but consumer spending, the hitherto unstoppable engine of US growth, is stalling. The prices of food and petrol, together with still-tightening credit conditions and a housing market that has not yet touched bottom, are weighing it down.
Booming China Suddenly Worries That a Slowdown Is Taking Hold Many Chinese have been expecting a post-Olympics economic slowdown, but it has already started and the Games have not even begun. Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China, the region hardest hit by economic troubles. The trends, which actually have little to do with the Olympics (the Games themselves, which open Friday, are small compared with the size of the economy), are being felt worldwide. China’s slowing growth is one reason that gasoline prices have fallen in the United States, for example. Similarly, world prices for metals like copper, tin, zinc and aluminum have tumbled in the last several weeks, as voracious Chinese factories have closed, or cut back their consumption.
Kuwait plans to stockpile oil overseas Kuwait City: Rising international tension between Iran and the West has prompted Opec-member Kuwait to consider long-term plans to increase storage of its oil abroad, oil industry sources and diplomats said. The United States says it wants a diplomatic solution to its dispute over Iran's nuclear programme but has not ruled out military action if that fails. Tehran has threatened to impose controls on shipping through the Strait of Hormuz if attacked. Kuwait, the world's seventh-largest oil exporter, ships all of its crude exports, totalling around 1.7 million barrels per day, through the strait. The Gulf state has no alternative export route.
Iran Tests Anti-Ship Weapon, Repeats Stance on Hormuz Iran's military tested a new anti- ship weapon, the commander of the Islamic Revolutionary Guards Corps said as he repeated a warning that his forces could respond to any attack by closing the Strait of Hormuz, an oil transit point. The weapon relies on technology that hasn't been used by other nations, Brigadier General Mohammad-Ali Ja'fari said today in comments carried by state-run news services including Press TV and the Islamic Republic News Agency. The weapon has a range of more than 300 kilometers (185 miles), IRNA said without giving details of the type of armament tested.
Iran Tests Anti-Ship Weapon, Repeats Stance on Hormuz ran's military tested a new anti- ship weapon, the commander of the Islamic Revolutionary Guards Corps said as he repeated a warning that his forces could respond to any attack by closing the Strait of Hormuz, an oil transit point. The weapon relies on technology that hasn't been used by other nations, Brigadier General Mohammad-Ali Ja'fari said today in comments carried by state-run news services including Press TV and the Islamic Republic News Agency. The weapon has a range of more than 300 kilometers (185 miles), IRNA said without giving details of the type of armament tested.
Energy supplies at stake if Iran is attacked Iran has refused to halt its nuclear programme despite the threat from major powers of increased U.N. sanctions. The United States said on Sunday that Tehran had left the U.N. Security Council no choice but to increase sanctions after Iran ignored an informal deadline to respond to an offer for talks on its nuclear programme. The West accuses Iran of seeking to build atomic weapons, a charge Tehran denies. The U.S. says it wants a diplomatic solution to the dispute but has not ruled out military action if that fails. Iran, pumping around 4 million barrels per day (bpd) of oil, is the second largest producer in the Organization of the Petroleum Exporting Countries (OPEC). Iran's output is over 4 percent of global oil supply. It exports around 2.5 million bpd. OPEC's Secretary General Abdullah al-Badri said in July it would be impossible to replace Iran's oil output in the case of disruption due to an attack.
The Pain Spreads Anecdotal evidence of job losses throughout the economy is spreading. It's not just bankers and builders anymore. Is the unemployment rate headed north of 6 percent? The Conference Board thinks so, and others supported that view by saying they found mounting anecdotal evidence that big job cuts are spreading beyond the banks and builders already clobbered by the housing meltdown. July marked the second time in three months that companies announced job cuts of at least 100,000, the outplacement firm Challenger Gray & Christmas said, as airlines, retailers, automakers and parts suppliers, entertainment companies, and health-care providers all announced deep cuts.
Fewest Treasury Traders Since 1960 Hit Taxpayers For the first time since 1960, when it created the network of securities firms obligated to buy and sell Treasury bonds, the U.S. government has the fewest bond traders making markets in its debt and a bigger burden for American taxpayers financing record federal deficits. The number of so-called primary government securities dealers declined to 19 last month when Bank of America Corp., based in Charlotte, North Carolina, acquired the troubled Countrywide Financial Corp. The sale was the climax of dozens of bank failures, triggered by the biggest decline in residential real estate since the Great Depression and the seizing up of credit markets from New York to London. The Federal Reserve Bank of New York, the agent of the U.S. Treasury, plans to shrink the dealers again when JPMorgan Chase & Co. completes its takeover of Bear Stearns Cos.
U.S. Economy: Inflation Erodes Buying Power, Tax-Rebate Effects The biggest increase in prices in almost three years eroded consumers' buying power, reinforcing speculation the Federal Reserve won't raise interest rates in the face of faster inflation and slow growth. Consumer inflation in June climbed 0.8 percent, the most since September 2005, the Commerce Department said today in Washington. Spending increased 0.6 percent, more than forecast, compared with a gain of 0.8 percent the prior month. Price jumps in petroleum and chemicals also swelled the value of orders to American factories in June. Tax rebates from $168 billion in fiscal stimulus will provide only a temporary boost for Americans facing $4 a gallon gasoline and unemployment at the highest level since 2004. Fed officials, meeting tomorrow, must find a way to acknowledge the risk of accelerating inflation without signaling a rate increase that would worsen the economic slowdown, economists said.
Citigroup Said to Close Remaining Tribeca Global Fund Citigroup Inc. is closing a $400 million convertible arbitrage fund, the final step in winding down its $2 billion Tribeca Global Investments group, people familiar with the plans said. Tribeca Convertible LP has been hurt by investor redemptions, according to the people, who declined to be identified because the decision isn't public. The fund's managers, Andrew Wang, 31, and Jeffry Chmielewski, 32, are likely to leave New York-based Citigroup and are contemplating starting their own fund, the people said. The closure of Tribeca Global, set up in 2004 with a goal of attracting as much as $20 billion, comes as Citigroup struggles with its alternative-asset management unit. The bank most recently shuttered Old Lane Partners, the hedge fund Chief Executive Officer Vikram Pandit, 51, co-founded and sold to the bank last year. Citigroup in March started closing its Falcon Strategies hedge funds after suspending redemptions.
The world cannot grow its way out of this slowdown As the global economic crisis hits its one year anniversary, it is time to re-examine not just the strategies for dealing with it, but also the diagnosis underlying those strategies. Is it not now clear that the main macroeconomic challenges facing the world today are an excess demand for commodities and an excess supply of financial services? If so, then it is time to stop pump-priming aggregate demand while blocking consolidation and restructuring of the financial system. The huge spike in global commodity price inflation is prima facie evidence that the global economy is still growing too fast. There is nothing sinister in this. The world has just experienced perhaps the most remarkable growth boom in modern history. Given the huge cumulative rise in global growth during the 2000s it is little wonder that commodity suppliers have found it increasingly difficult to keep up, even with sharply rising prices.
Analysts widen 2008 loss estimates for GM At least four brokerages widened their 2008 loss estimates for General Motors Corp (GM.N), saying the No. 1 U.S. automaker's disappointing second-quarter results emphasized the need for it to raise cash to combat a severe U.S. downturn. The struggling automaker, which has lost more than $51 billion over the past three years, posted a $15.5 billion quarterly loss on Friday as its North American sales fell 20 percent and plunging prices for SUVs prompted deep charges for its auto finance business. Most analysts believe the company will have significant cash issues going forward, with some believing the automaker will have to tap external funding sources to meet its capital needs. GM burned through $3.6 billion in cash in the second quarter and ended the period with $21 billion in cash and $5 billion in undrawn credit. Liquidity will remain an important concern among investors as cash flow in the second half of the year is likely to remain negative for the company, Goldman Sachs said.
General Motors, Ford Considering Cooperation Troubled US carmakers General Motors (GM) and Ford are considering cooperating on the development of new engines and powertrains, the Detroit News reported Monday. Top managers from both companies have met several times to discuss the possibilities for cooperation, the paper reported sources in Ford and GM as saying.
Rolling Recessions Bring Paralysis to Bernanke, King, Trichet Recessions are threatening to crash over the world economy in waves, as one country after another turns down a year after the onset of the global credit crisis. Such rolling recessions pose a quandary for central bankers Ben S. Bernanke, Jean-Claude Trichet and Mervyn King: If the whole world were clearly slumping, they'd be united in cutting interest rates. Instead, with some countries still booming, they can't ignore the inflation threat. Paralyzed between slowing growth and accelerating prices, U.S. and European policy makers this week are set to fall back on keeping rates unchanged.
China Wins Financial Olympics as Losses Hit U.S. China already has won most of the medals in the financial Olympics by avoiding the toxic debt investments that devastated banks in the U.S. and Europe. Chinese banks hold three of top six spots among the world's largest financial companies based on market value, even though their shares fell more than 20 percent in Hong Kong trading since October. London-based HSBC Holdings Plc, the biggest non-Chinese bank, is No. 3, trailing Beijing-based Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. The Chinese banks owe their rankings in part to having avoided almost all of the $480 billion in writedowns and credit- market losses that have sent bank stocks tumbling worldwide, data compiled by Bloomberg show. Only two years ago, the world's biggest banks were led by Citigroup Inc. and Bank of America Corp. of the U.S. and UBS AG in Europe.
Citigroup Posts Loss on Credit-Card Securitizations Citigroup Inc. reported its first loss since at least 2005 on credit-card securitizations, signaling that risks may be growing in a business that generated $3.5 billion of revenue in the past three years. The biggest U.S. credit-card lender lost $176 million in the second quarter packaging card loans into securities, the company said in an Aug. 1 regulatory filing. The New York-based bank completed fewer deals and was forced to mark down its own $9 billion stockpile of the debt instruments and other stakes the company amassed while selling them to investors.
Looking for allies "A recession is when you have to tighten your belt; depression is when you have no belt to tighten. When you've lost your trousers - you're in the airline business." Rarely has the wry observation of Sir Adam Thomson had so much resonance. He was the late founder of British Caledonian, the airline British Airways bought shortly after its privatisation in 1987. Two decades on, BA is planning an all-share merger with Spain's Iberia. And Thomson, were he still around, might be surprised to find that things have got even tougher - at least according to -Willie Walsh, BA's latest chief executive.
Organic food becomes latest casualty of the credit crunch Dairy farmers are turning their backs on Britain's organic milk market as economic pessimism dents consumers' previously buoyant demand for organic produce. The organic goods market at large is being "credit crunched", particularly among new products like organic ready meals and home-delivery vegetable boxes. Figures show there has been a dramatic reversal in the numbers of dairy farmers converting to organic farming from conventional methods. Rises of up to 80 per cent in the price of organic feed for dairy herds mean that hundreds of organic milk producers are now running at a loss. So far this year, farms which were undergoing conversion to organic, and were capable of producing five million litres of milk, have abandoned the process and returned to fertiliser-intensive, non-organic farming.
Microsoft sees end of Windows era Microsoft has kicked off a research project to create software that will take over when it retires Windows. Called Midori, the cut-down operating system is radically different to Microsoft's older programs. It is centered on the internet and does away with the dependencies that tie Windows to a single PC. It is seen as Microsoft's answer to rivals' use of "virtualisation" as a way to solve many of the problems of modern-day computing.
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Iran Escalates Military Rhetoric Iran warned on Monday that it could easily close a critical Persian Gulf waterway for oil shipments and claimed possession of a new long-range naval weapon that could sink enemy ships nearly 200 miles away. It was unclear what provoked the warning, made by Iran’s Revolutionary Guards, but it followed the weekend expiration of an informal deadline for Iran to respond to incentives from world powers to curb its uranium enrichment activities. The United States, which has warships deployed in the Persian Gulf, has said new sanctions should be imposed on Iran for failing to respond to the deadline.
Housing Lenders Fear Bigger Wave of Loan Defaults The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building. Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.
Stagflation stifles Fed, ECB, BoE The specter of stagflation will likely keep the U.S. Federal Reserve, the European Central Bank, and the Bank of England from changing short term interest rates this week, and their hands may be tied for some time as economic growth slows but inflation remains high. The $20 per barrel decline in crude oil prices since mid-July has quieted, but not silenced, the anti-inflation rhetoric. All three central banks are on alert for any sign that high fuel and food prices are translating into higher wage demands which could set off an inflationary spiral reminiscent of the 1970s. But barring another oil price spike like the one that drove prices up by some 50 percent in the previous six months, the ECB and BoE seem content to hold borrowing costs steady through the end of the year. A Reuters poll of economists showed that most expected no change in ECB or BoE interest rates until the first quarter of 2009 at the earliest. Indeed, the next move in short term interest rates for the ECB and BoE is likely to be down, despite rising inflation rates.
The Cost of Socialism Over the past few decades, the United States has steadily evolved from a nation of ‘producers’ to one of ‘consumers’. The change has been celebrated by politicians and economists as proof of America’s arrival at the top of the global economic food chain. In reality, the development has depleted the nation of its hard-earned wealth, and has led us to the brink of ruin. But rather than encouraging a return of America’s productive energy, our government is responding to the growing economic crisis by simply trying to boost consumerism at all costs. Their strategy involves socializing losses among all citizens so that the depletion can’t be easily discerned. Now that the nation has chosen socialism as its economic salvation, it is worthwhile to examine some historic precedents. They are not encouraging. Europe, the former Soviet block and much of Africa and Asia, show vividly that socialism curbs individual freedom and enterprise, and leads inevitably toward economic decline.
Although Federal Reserve Policymakers Are Set to Meet, They Have Little Room to Maneuver U.S. Federal Reserve Chairman Ben S. Bernanke and his fellow central bank policymakers will be back in the spotlight this week as the group convenes for its monthly monetary-policy meeting. But there won’t be much to report. Although the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) meets Wednesday, the group doesn’t have much room to maneuver: If the Fed cuts rates to stimulate growth, already troublesome inflation could escalate out of control. But if the FOMC raises rates to reign in inflation, the entire economy could drop into a deep-and-lingering recession.
Regulators Close Florida Bank, Others in Region May Follow $$ Federal and state regulators closed First Priority Bank of Bradenton, Fla., the eighth U.S. bank to fail this year. The Federal Deposit Insurance Corp. said First Priority's insured accounts would be acquired by SunTrust Banks Inc. through a purchase and assumption agreement. SunTrust also bought $42 million of the failed bank's assets, including cash, cash equivalents and securities. Separately, the FDIC said it reached an agreement with a unit of Beal Bank Nevada to purchase $14 million in First Priority's assets. The FDIC said that First Priority had total assets of $259 million as of June 30, as well as total deposits of $227 million.
Hundreds of banks will fail, Roubini tells Barron's The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron's in Sunday's edition. Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said -- at least $1 trillion and more likely $2 trillion. The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron's reported.
Rising prices beat down consumer spending in June Consumer spending tumbles in June as prices surged by largest amount since 1981 Consumer spending, after adjusting for inflation, fell in June as shoppers were hit with the biggest increase in prices in nearly three decades. The Commerce Department reported Monday that consumer spending dipped by 0.2 percent in June, after removing the effects of higher prices, the poorest showing since a similar drop in February. The higher prices reflected a big surge in gasoline costs and helped to drive an inflation gauge tied to consumer spending up by 0.8 percent in June, the biggest increase since a 1 percent rise in February 1981. The big rise in inflation ate up a part of the billions of dollars in stimulus payments delivered during the month. Personal incomes rose by a tiny 0.1 percent in June following a giant 1.8 percent increase in May
Pressure grows for action on US economy Pressure for action to revive the economy grew on Friday as a new report showed the unemployment rate rose in July to 5.7 per cent – its highest for four years – and the number of jobs fell for a seventh straight month. The Labor Department data provided further evidence of deterioration in the economy as companies in a broad range of sectors including manufacturing, construction and retailing trimmed workforces. But it also offered some encouragement since the pace of job losses – at 51,000 last month – was not as rapid as predicted by economists and remained below the levels in previous recessions. Officials said there were 26,000 fewer positions shed in May and June than previously reported. "The labour market has not yet capsized but is taking on more water,” said Michael Feroli, a US economist at JPMorgan.
Bad News and Bank Runs The Bush administration is going to be mailing out more "stimulus" checks in the very near future. There's just no way around it. The Fed is in a pickle and can't lower interest rates for fear that food and energy prices will shoot into the stratosphere. At the same time, the economy is shrinking faster than anyone thought possible with no sign of a rebound. That leaves stimulus checks as the only way to "prime the pump" and keep consumer spending chugging along. Otherwise business activity will slow to a crawl and the economy will tank. There's no other choice. The daily barrage of bad news is really starting to get on people's nerves; it's obvious everywhere you look. Most of the TV chatterboxes have already cut-out the cheery stock market predictions and no one is praising the "impressive powers of the free market" any more. They know things are bad, real bad. That's why the business news is no longer presented like a happy-go-lucky Bollywood extravaganza with undulating females and exotic music. Now it’s more like B-grade slasher movie where everyone winds up dead at the end of the show.
Roads, airports on the block as budgets tighten Cash-strapped U.S. state and city governments are likely to sell or lease more highways, bridges, airports and other assets to investors desperate for stable returns after being frazzled by the credit crisis. The trend is set to pick up speed given worsening budget deficits in state capitals and city halls nationwide. It will also be welcomed by Wall Street bankers hoping to help create and market so-called "infrastructure" transactions at a time many debt markets remain paralyzed, and after major U.S. stock indexes fell into bear market territory.
ONE YEAR AGO! Jim Cramer’s TV outburst that will last for ages Cramer Day is upon us. This weekend marks the anniversary of former hedge fund manager Jim Cramer’s outburst on CNBC that the Federal Reserve was “asleep” and that there was “Armageddon” in the fixed income markets. It was possibly the most entertaining five minutes of financial television ever broadcast. Those who do not work in a Wall Street trading room and have not watched the excerpt repeatedly over the past year, can watch it on YouTube (search for Cramer, Bernanke and Burnett) where it is a popular view. Even for those not amused by the sight of Cramer losing his cool on live television, the incident has significance. The outburst signalled for the first time to the general public in the US that the largely technical problems for the credit market could have serious repercussions for them.
Fed likely to hold rates steady amid crosscurrents Fed likely to leave rates steady as it straddles slow economic growth, inflation concerns An ugly brew of rising unemployment, spiking foreclosures and gyrating energy prices is plaguing the country and making life difficult for Federal Reserve Chairman Ben Bernanke as he tries to right the economy. Bernanke and his central bank colleagues are faced with dueling problems: weak economic growth and advancing inflation. To treat one risks aggravating the other. So the Fed is widely expected when it meets Tuesday to leave a key interest rate alone. "It is caught between a rock and a hard place. The (Fed) will stand pat," predicted Sung Won Sohn, an economics professor at California State University Channel Islands.
Jobless Rate Hits a High, Dims Hope For Recovery Four-Year Peak Signals Deeper Economic Woes The fallout from the economic downturn spread into new corners of the job market in July, adding to the deep stresses facing American workers. The unemployment rate jumped yet again as employers slashed jobs for the seventh consecutive month, the Labor Department said yesterday. And the job losses weren't just in the long-troubled construction and manufacturing sectors. Trucking companies, telecommunications firms and car dealers all eliminated thousands of jobs, too, as the troubles in the nation's economy showed new breadth that undermines any hopes of even a tentative recovery in the second half of the year.
Rich begin feeling the pain in down economy The rich are sharing your financial pain -- and contributing to it. It may have taken longer and it may not be as acute, but there are early hints that the economic slump is crimping the lifestyles of the wealthy. They are investing more conservatively, spending less on luxury goods and are being more thrifty with their credit cards. Many are asking their personal shoppers and private-jet travel providers to seek the best deals rather than over-the-top extravagances. That news may produce a shrug from many people who have lost their jobs or homes in this economy. The problem is that when the wealthy get stingy, it trickles down to the rest of us.
Dollar Trades Near 1-Month High Before Federal Reserve Meeting The dollar traded near a one-month high against the euro before a Federal Reserve meeting tomorrow at which policy makers may leave interest rates on hold and signal that prices are rising too quickly. The U.S. currency was also near a one-month high against the yen before data today that is forecast by economists to show the Fed's preferred measure of prices rose in June by the most in six months, backing the case for higher borrowing costs. The New Zealand dollar traded near a 10-month low on speculation the yield advantage of the nation's bonds will shrink as a slowing economy prompts more rate cuts.
Watchful central banks to hold rates The Federal Reserve, European Central Bank and the Bank of England are likely to keep interest rates on hold this week, amid a deteriorating global growth and continued high inflation. As the first anniversary of the credit crisis looms on August 9, when the ECB first moved to pump €95bn ($150bn) into money markets suddenly starved of liquidity, the outlook confronting policymakers remains grim. Evidence has mounted of a deepening slowdown in the UK and faltering momentum in the eurozone, while Japan is weak and could even declare a technical recession. US growth could be lower in the second half than the first. Yet everywhere inflation is above its declared or implicit target, and likely to remain there for some time.
Kansas companies put out of business by high fuel costs After more than 40 years in the business, Mike Ross closed his Salina trucking company on July 1. Tony Gaston cut his Hutchinson fleet from 50 to 26 trucks. Now he is looking at laying off some office staff. Mike Fritch of Burrton went from three trucks to one. Even then, he says, it's touch and go. "It's fuel costs," Fritch said. "Cash flow disappears and fuel costs keep going up. "You have to make the decision: Do you buy a new set of tires, find used tires or try to keep running with what you got? I haven't bought new tires since 2002. I'm cutting corners everywhere I can." Travel down Kansas highways these days and the journey is more solitary -- fewer trucks as well as fewer cars. Nationwide, nearly 1,000 trucking companies failed in the first quarter of this year, parking 42,000 trucks, according to the most recent information available from the Federal Motor Carrier Safety Administration. Just less than 2,000 companies closed their doors all of last year.
Oil prices end higher on Iran nuclear worries Oil prices settled slightly higher Friday, clawing back above US$125 a barrel after Israel raised new concerns about Iran's nuclear program. But more concerns that high prices are eating into demand limited the gains. Meanwhile, gas prices at the pump fell again as U.S. motorists cut back on driving to save money. A gallon of regular gas slipped just over a penny on average to $3.898 (C$1.07 per litre), according to auto club AAA, Oil Price Information Service and Wright Express. Gas is down 5.2 per cent from record high of $4.114 a gallon reached July 17. Crude prices soared earlier in the day after news reports quoted Israeli Deputy Prime Minister Shaul Mofaz as saying that Iran's nuclear program was poised to make a "major breakthrough" and that his country must be "prepared for every option."
Kuwait official sees oil staying above $100: report Oil was unlikely to fall below $100 per barrel as strong demand from emerging economies such as China and India put a floor under prices, a member of Kuwait's top oil council said in remarks published on Sunday. Concerns about the economy of the United States and falling oil demand in developed countries have knocked crude from a July record of $147 a barrel to $125 on Friday. "I don't think that prices will return to the record level, nor will they fall below $100 per barrel," Khaled Boodai told al-Seyassah newspaper.
TransCanada's Alaska pipeline project wins approval by state Senate TransCanada Corp. ' said Friday the Alaska Legislature has signed off on a license for the company's US$26-billion Alaska Pipeline Project under the Alaska Gasline Inducement Act. "The legislature's decision represents a significant milestone in advancing this major natural gas pipeline project to connect stranded U.S. natural gas reserves to Alaskan and Lower 48 consumers," TransCanada president and chief utive Hal Kvisle said. "This ratification of our license under AGIA will facilitate TransCanada´s continuing commercial negotiations with potential shippers, improving the likelihood of a successful open season and the construction of a natural gas delivery system from Prudhoe Bay to Lower 48 markets." TransCanada said it will now move forward with project development, which will include engineering, environmental reviews, aboriginal relations and commercial work to conclude an initial binding open season by July 2010. TransCanada is targeting to have the pipeline in service by September 2018.
US Arctic Oil May be LOST to the UN "The Arctic may hold 90 billion barrels of oil, more than all the known reserves of Nigeria, Kazakhstan, and Mexico combined, and enough to supply U.S. demand for 12 years.” One would have thought Joe Carroll’s Bloomberg News report would have evoked some interest by the public and other media outlets. Instead, news of the U.S. Geological Survey was greeted mostly by a giant collective yawn… “One third of the undiscovered oil is in Alaskan territory, the agency found…” Considering that the Democrat-controlled Congress adamantly refuses to let drilling occur for the oil known to exist in and off-shore Alaska, it is not surprising the public has concluded this vast treasure will remain untouched.
New York Lambasts Citi It's not really a good idea to try to take advantage of New Yorkers, who learn early in life how to play tough. The state's attorney general, Andrew Cuomo, is threatening to wallop Citigroup for its role in selling auction-rate securities, warning the bank that he is readying a suit and suggesting that he won't be satisfied until it pays back every penny it cost its customers and forks over penalties to the state. Cuomo is not only mad about sales of the supposedly super-safe securities, but he's going after the financial-services firm for allegedly destroying evidence about its practices after it knew it would be investigated. Investigated it is: the federal Securities and Exchange Commission is also looking into the affair, Citigroup disclosed before Cuomo announced his action on Friday.
Hovering Above Poverty, Grasping for Middle Class Low-wage workers in the United States are gripped by increasing financial insecurity as they inch along an economic tightrope made riskier by pervasive job losses and rising prices. Many struggle to pay for life's basics -- housing, food and health care -- and most report having virtually no financial cushion should they stumble. Still, they remain inspired by the American dream, with most saying they are more apt to move up economically than slip backward even if they are frustrated now. Most also expect better for their children. This complex picture of low-wage workers emerges from a survey conducted by The Washington Post, the Henry J. Kaiser Family Foundation and Harvard University. The nationwide poll, conducted June 18 to July 7, included 1,350 randomly selected people between ages 18 and 64 who work at least 30 hours a week and earned no more than $27,000 last year.
Economy leads Americans' list of woes Forget the woes of war, terrorists and a troubling culture. American angst is now centered on the economy, our worries fixated on gas prices, personal finances, unemployment, inflation, stagnant real estate - dotted with a few resilient pockets of optimism, according to research released Friday. "The public continues to be extremely downbeat," said a Pew Research Center survey that found just 10 percent of us deemed the economy to be in "good shape." More than half of the respondents - 54 percent - said we are already in a recession, while 18 percent said we were in a depression.
Fannie, Freddie Do More To Prevent Foreclosures $$ Fannie Mae and Freddie Mac, trying to contain mortgage-default losses, are redoubling efforts to prevent foreclosures. In some cases, though, these moves may only delay the inevitable, easing pressure on the companies' finances in the short term without resolving their troubles. The two U.S.-government-sponsored guarantors of home loans last week said they will increase fees they pay loan-servicing companies for "workouts" that prevent foreclosures. (Servicing companies collect loan payments and handle other administrative tasks.) Freddie also said it will give servicers more time to pursue such workouts.
Auto sales in U.S. skid in July to 16-year low U.S. auto sales slumped to a 16-year low in July as automakers failed to keep up with consumers' growing demand for smaller, more fuel-efficient vehicles. While production changes may help that problem, trouble in the credit and auto leasing markets will continue to take a toll on sales.
U.S. ISM Manufacturing Index Declined to 50 in July Manufacturing in the U.S. stagnated in July as orders slumped to the lowest level in almost seven years, signaling higher raw material costs and slower spending are hurting producers. The Institute for Supply Management's factory index fell to 50, a higher reading than forecast, from 50.2 in June, the Tempe, Arizona-based group said today. A reading of 50 is the dividing line between expansion and contraction. Manufacturers are scaling back to protect profits and prevent inventories from growing as demand weakens. The drop in the value of the dollar has made U.S. goods more affordable overseas, leading to gains in exports that are keeping factories from sinking.
Shrinking US payrolls Maybe they have been numbed by all the bad news elsewhere but the loss of 51,000 American jobs in July does not seem to bother investors much. It should. Beneath the headline unemployment rate of 5.7 per cent, the jobs market is fast deteriorating. In the past 12 months, the workforce has increased by 1.4m people, yet the number employed has dropped by more than 200,000. America needs to create more than 115,000 jobs a month just to keep up with population growth.
Employers in U.S. Cutting Jobs, Hours, Signaling Slower Growth Employers in the U.S. fired workers in July for a seventh straight month and cut hours for remaining staff to a record low, signaling economic growth weakened at the start of the second half of the year. Americans labored an average 33 hours and 36 minutes per week, six minutes less than in June and matching the shortest workweek since records began in 1964, the Labor Department said yesterday in Washington. The jobless rate jumped to 5.7 percent, the highest level in more than four years.
Companies Tap Pension Plans To Fund Executive Benefits $$ Little-Known Move Uses Tax Break Meant For Rank and File At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay. In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives' supplemental benefits and compensation. The practice has drawn scant notice. A close examination by The Wall Street Journal shows how it works and reveals that the maneuver, besides being a dubious use of tax law, risks harming regular workers. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy.
Teens pushed out of job scene As jobs grow harder to find, older workers are taking entry-level positions once filled by teens. The job market has been getting tighter for all workers, but it's becoming especially hard for those who are trying to get The unemployment rate for working-age teens rose to 20.3 percent in July, the U.S. Department of Labor disclosed late last week. That's almost four times the overall 5.7 percent unemployment rate, and a big leap up from the already elevated 15.3 percent rate among teens a year ago. Economists are reporting "the demise of the summer job" and saying this is the worst season in more than 60 years for those ages 16 to 19 who want or need to work.
Future Looks Bleak For Jobs Although companies didn't shed as many jobs as expected in July, losses are likely to accelerate as macroeconomic weakness creeps deeper into companies across sectors. The U.S. economy got mostly bad news on Friday as the July unemployment rate jumped to 5.7%, with young people bearing the brunt of the losses. The level was higher than expected by economists, who were looking for 5.6% on average, although the number of jobs actually lost was not as severe as expected, coming it at 51,000 instead of the predicted 72,000.
Good News on Reverse Mortgages Buried in the new housing bill (The Housing and Economic Recovery Act) is some very good news for seniors whose main asset is the family home. The new law makes it easier and less expensive for seniors to access the cash value of their homes on a tax-free basis through a reverse mortgage, and expands the amount that can be borrowed. Reverse mortgages had nothing to do with the mortgage mess -- they are a safe and easy way for homeowners age 62 and older to maintain control and ownership, while tapping their home equity for tax-free cash.
Totaled G.M.'s losses are huge, BMW's U.S. prospects are dim, and the industry pain deepens. G.M.'s $15.5 billion second-quarter loss—a stunning $27.33 per share—was expected, but reports from Europe that BMW was further scaling back its sales expectations for the U.S. market is chilling as well. Friday afternoon's dismal auto-sales numbers only mocked the afflicted. G.M.'s C.E.O Rick Wagoner told CNBC: "Challenging market conditions aren't going to go away tomorrow." He'd better hope, for the sake of investors and his own hide, that they do go away the day after. And even though there are enough one-time charges in the mix that make G.M.'s operating loss closer to $6.3 billion, the company's North American auto sales fell to roughly $19 billion from $29 billion in the same period last year. The world knew that G.M. was in dire straits. It said yesterday that Indian automaker Mahindra & Mahindra was one of several potential buyers for its gas-guzzling Hummer brand, and that it, along with Ford, was scaling back its leasing business. Chrysler had already said it was ending all leasing deals in the U.S., according to the Wall Street Journal.
Horrible, or Just Grim? The economy lost jobs for the seventh straight month, and the unemployment rate jumped to a four-year high. Is there a silver lining in here somewhere? Okay, news on the job market is out and everyone agrees it's not good. But how bad is it? In its press release on the latest numbers, the Bureau of Labor Statistics notes that "over the past 12 months, the number of unemployed persons has increased by 1.6 million, and the unemployment rate has risen by 1 percentage point." Lest you think the problem might be limited to new workers entering the market faster than the economy can create jobs for them, the B.L.S. has a little factoid to disabuse you: "The number of unemployed persons who had lost their last job...has risen by 778,000 over the year." Felix Salmon of the Market Movers blog elsewhere on Portfolio.com sums up the jobs situation in one word: "ugly."
Are Economic Woes Pushing Up Library Circulation? ....Public library usage is expected to rise dramatically in the coming months. Traditionally, people turn to public libraries during hard economic times for free entertainment, free after-school child care, to help with employment, for free access to the public use computers and to help them save money by doing things themselves, such as home and auto repairs. Queens Library saw a 16 percent jump in circulation and attendance immediately following Sept. 11, for instance. After the last recession in the United States, in 2001, the American Library Association reported that library usage had risen sharply and that 91 percent of adults believed libraries would play an important role in the future, even with the information revolution accompanying the rise of the Internet. There have not been any national studies yet on whether the current economic downturn has influenced library patronage.
Volatility looms as eyes on profits, Fed, oil Wall Street could be in for more volatility next week as investors brace for a new batch of key earnings reports and the U.S. Federal Reserve's assessment of the economy. A slightly positive but extremely mixed bag of corporate earnings so far, coupled with choppy oil prices, has had the market on a roller-coaster ride.
U.N. council must increase sanctions on Iran: U.S The United States said on Sunday that Iran has left the U.N. Security Council no choice but to increase sanctions on the Islamic Republic for ignoring demands that it halt sensitive nuclear activities. The U.S. declaration came a day after an informal deadline lapsed for Iran to respond to an offer from the United States, Britain, France, Germany, China and Russia for talks on its disputed nuclear program. "It is clear that the government of Iran has not complied with the international community's demand to stop enriching uranium and isn't even interested in trying," said Richard Grenell, spokesman for the U.S. mission to the United Nations.
Solana, Iran nuclear negotiator to talk soon Iran's top nuclear negotiator, Saeed Jalili, and EU foreign policy chief Javier Solana are expected to discuss the major powers' offer on Tehran's nuclear program by phone soon, Solana's spokeswoman said on Sunday. "We expect a contact between Mr Solana and Mr Jalili soon by phone," the spokeswoman said, a day after the informal deadline set by the powers for an answer from Iran. She gave no further Western officials gave Tehran two weeks from July 19 to respond to their offer not to impose more U.N. sanctions on Iran if it froze any expansion of its nuclear work. Iran said on Saturday it would not back down in its nuclear row with the powers. "In whichever negotiation we take part ... it is unequivocally with the view to the realization of Iran's nuclear right and the Iranian nation would not retreat one iota from its rights," President Mahmoud Ahmadinejad said in a statement.
Iran could have nukes by '09 With Iran racing forward with its nuclear program, Israel now believes the Islamic Republic will master centrifuge technology and be able to begin enriching uranium on a military scale this year, The Jerusalem Post has learned. The new assessment moves up Israel's forecasts on Teheran's nuclear program by almost a full year - from 2009 to the end of 2008. According to the new timeline, Iran could have a nuclear weapon by the middle of next year. Iran, a senior defense official said on Tuesday, had encountered numerous technical obstacles on its way to enriching uranium but was now on track to master the technology needed to enrich uranium within six months.
Ahamdinejad slams West for targeting Iran's sovereignty Iranian President Mahmoud Ahmadinejad has lashed out at the West' especially the US' for targeting the Islamic country's dignity and sovereignty under the pretext of the ongoing nuclear issue' the official IRNA News agency reported Saturday. The 'enemies' want us retreat from our nuclear drive and 'are targeting our sovereignty' under the pretext of this issue' Ahamdinejad told a group of people in southern Tehran Friday. 'The key reason for the hostility of the enemies in the past 30 years against Iran is that they want us to pull back so that they can say we have given in'' he said referring to the US pressure on the country to halt its nuclear programme. 'No nation can survive without independence. Many people sacrifice their personal interests and even their lives to maintain the independence of their country'' he said expressing anger over the threats by the US to attack the country if it did not stop its nuclear programme. 'But the Iranian people will resist with force against the enemies'' he said stressing that Tehran is determined to go ahead with its efforts to have nuclear power.
Ahmadinejad: Iran will stand against its enemies Iran will "stand against" its enemies, Reuters quoted Iranian President Mahmoud Ahmadinejad as saying Friday, the day before a Saturday deadline Western officials set for the Islamic Republic to answer their offer to freeze nuclear expansion. The nuclear issue itself, according to Ahmadinejad, was being used as an excuse by the country's enemies. "The main reason for their enmity with this nation in the past 30 years is that they want to force the Iranian nation to retreat," he was quoted as saying. "Whenever the enemies have failed against this nation they have tried to make excuses, but the Iranian nation will stand against them with its power."
Hey, Barack, Hillary Only Suspended Her Campaign In the turbulent wake left by Barack Obama’s world tour—his campaign to be loved by all, less a significant percentage of the American people—it seems something has slipped the minds of David Axelrod and David Plouffe; Hillary Clinton didn’t quit her campaign, she suspended it… This becomes increasingly significant as more Americans – more Democrats, Progressive-Leftists and especially Democrat superdelegates – realize that Barack Obama
--------------- article from October 2007 -----------------
China threatens 'nuclear option' of dollar sales The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation. Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies. Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
Jobless Rate Climbs to 4-year high of 5.7% as 51,000 Jobs Lost in July The nation’s employers eliminated 51,000 jobs in July, the seventh consecutive contraction in the labor market. And the unemployment rate rose 5.7 percent, a sign that the pressure on business owners and consumers is likely to continue. The number of layoffs was less than the 75,000 that economists had expected, and while the economy has lost jobs every month this year, the declines have softened since the spring. Businesses cut fewer jobs in June and May than the government had previously reported, for a net gain of 26,000 jobs for those two months. Still, the unemployment rate has steadily moved higher; in July, it rose to 5.7 percent from 5.5 percent in June, its highest level since March 2004. The steepest losses came among the manufacturing, construction and trade industries. Administrative and retail workers also slipped. First Fire, Then Hire Morgan Stanley goes on a hiring spree with the money it saved from firing 10 percent of its workforce. Nowhere but on Wall Street does the phrase "One man's trash is another man's treasure" ring so true. And perhaps no one knows that better than Mack the Knife. Morgan Stanley's John Mack, who saved about $1 billion by firing 4,800 people so far this year, is gingerly spending the savings on new hires, according to a report in the Financial Times. It's already spent $400 million on new recruits, and it hopes to spend the remaining $600 million by the end of this year. The bank sent pink slips to about 10 percent of its workforce in January and April, mostly in areas like investment banking, research, and fixed income. It plans to hire new staff in areas such as derivatives, risk management, and proprietary trading.
Jobs Are The Thing America's economy remains tepid, but rising unemployment is making investors nervous. On Thursday the U.S. Commerce Department reported that second-quarter gross domestic product grew 1.9%, shy of the 2.3% expansion Wall Street had expected, and ahead of the 1.0% reported last quarter. Investors seemed more concerned by America's jump in unemployment last week. Pink slips increased last week by 44,000, to 448,000, while the four-week moving average rose 11,000, to 393,000. Analysts polled by Reuters had predicted a figure of 395,000 for the latest week. Investors were more responsive to the employment figures because it provides a powerful insight into the current state of the economy.
Even the SUITS are afraid of being fired! The Right Way to Be Fired Congratulations! You're fired! Here's how to turn an apparent disaster into a stepping-stone to success. Even if you’re a top-notch executive in the best of times, you can still lose your job. But can you lose it the right way? For some executives, getting fired is cause for lashing out, sinking into depression, or silently retreating. But these responses make it difficult to generate new opportunities—and can destroy careers. Assume You’ll Be Fired—and Lay the Right Groundwork How to manage the possibility of being fired? Accept the impermanence of your job, and take these systematic approaches to your next move:
Insert a termination clause in your employment contract—Counterintuitive, yes, but it’s your best hedge against a bitter exit. You’re never as attractive as the day you sign your contract.
Schedule network phone calls—Make networking a disciplined, regular part of doing business. Keep your web of professional contacts intact.
Raise your visibility—Conduct your own public-relations campaign, keeping a strong industry profile. Serve on for-profit boards in and outside your industry. Volunteer for trade associations’ externally oriented committees.
Watch for exit signs—Getting fired should not come as a surprise. If your firm hustles people out the door, raise your own guard. If the company itself has an exit plan, find out how it affects your position. Consult with trusted, seasoned advisers who can alert you to potential changes.
Volunteer to be terminated—if the firm’s exit strategy includes you. This makes you the actor, rather than the one acted upon.
The Case for a Genuine Gold Dollar For nearly a half-century the United States and the rest of the world have experienced an unprecedented continuous and severe inflation. It has dawned on an increasing number of economists that the fact that over the same half-century the world has been on an equally unprecedented fiat paper standard is no mere coincidence. Never have the world's moneys been so long cut off from their metallic roots. During the century of the gold standard from the end of the Napoleonic wars until World War I, on the other hand, prices generally fell year after year, except for such brief wartime interludes as the Civil War.[1] During wartime, the central governments engaged in massive expansion of the money supply to finance the war effort. In peacetime, on the other hand, monetary expansion was small compared to the outpouring of goods and services attendant upon rapid industrial and economic development. Prices, therefore, were normally allowed to fall. The enormous expenditures of World War I forced all the warring governments to go off the gold standard,[2] and unwillingness to return to a genuine gold standard eventually led to a radical shift to fiat paper money during the financial crisis of 1931-33.
General Motors posts $15.5 2Q loss on North American ills, charges for layoffs, strikes
General Motors Corp. said Friday its losses widened to $15.5 billion in the second quarter as North American sales plummeted and the company faced expenses due to labor unrest and its massive restructuring plan. The loss of $27.33 per share is the third-worst quarterly loss in the automaker's history. In the same period a year earlier, GM recorded a net profit of $891 million, or $1.56 per share. Revenue for the April-June period was $38.2 billion, down $8.5 billion from a year earlier. The company said its loss included $9.1 billion in one-time charges, including $3.3 billion for the buyouts of 19,000 U.S. hourly workers, most of whom left at the end of June, as well as $2.8 billion in liabilities related to Delphi Corp., its former parts division. Home Values Fell in 23 of 25 U.S. Metro Areas Home prices fell in 23 of 25 U.S. metropolitan areas in May from a year earlier as foreclosure sales pushed down values and most areas remained mired in the housing recession. Sacramento had the biggest price drop, falling 31 percent from May 2007. Las Vegas declined 29.5 percent, San Diego 27.2 percent, St. Louis 26.9 percent and Phoenix 25.8 percent, said real estate data company Radar Logic Inc. Sales rose in 22 areas in May from April, driven by ``motivated'' sellers including banks, the company said. "Price declines are occurring in areas where subprime lending was heavily concentrated, and a large percentage of sales are foreclosure sales," Susan Wachter, professor of real estate finance at the University of Pennsylvania's Wharton School, said in an interview. Prices for "those sales are always significantly lower than transactions that are not forced."
Govt loves its cars, all 642,233 of 'em Americans love their cars, and so apparently does Uncle Sam. He's got 642,233 of them. Operating those vehicles - maintenance, leases and fuel - cost taxpayers a whopping $3.4 billion last year, according to General Services Administration data obtained and analyzed by The Associated Press. While Cabinet and other officials say they need the vehicles to do their jobs, watchdogs say mismanagement of the government fleet is costing millions of dollars a year in wasteful spending.
Fed officials differ on how to tackle inflation The surges this year in oil and food prices couldn't have come at a worse moment for the typical American worker, who hasn't had a raise to speak of in this decade. Workers' leverage is gone. Companies are not creating jobs. Unions that negotiated big wage increases in the 1970s are shadows of their former selves. Cost-of-living adjustments, once commonplace, have disappeared. And the movement of jobs offshore, or the threat of it, has conditioned workers to not even ask for a raise, fearing they'll join the millions already laid off. Still, the U.S. Federal Reserve's policymakers - its governors and the presidents of its regional banks - are convinced that wage pressures could emerge unexpectedly. That concern, and the idea that wage pressures could lead to yet higher prices and a rising inflation rate, showed up in half-a-dozen interviews with policymakers over the last week.
U.S. Economy: Growth Rate Falls Short of Forecasts The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated "We're in a recession," Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. "It's going to widen, it's going to deepen." The last time the economy contracted was in 2001. It may weaken further as the temporary boost from tax rebates, which aided a pick-up in gross domestic product last quarter from the previous three months, fades. Stocks dropped, Treasuries rallied and traders reduced bets that the Federal Reserve will raise interest rates this year.
More Arrows Seen Pointing to a Recession The American economy expanded more slowly than expected from April to June, the government reported Thursday, while numbers for the last three months of 2007 were revised downward to show a contraction — the first official slide backward since the last recession in 2001. Economists construed the tepid growth in the second quarter, combined with a surge in claims for unemployment benefits, as a clear indication that the economy remains mired in the weeds of a downturn. Many said the data increased the likelihood that a recession began late last year. The next major piece of data comes Friday, when the government is to release its monthly snapshot of the job market. Analysts expect the report to show a loss of 75,000 jobs, signifying the seventh straight month of declines. “We already knew the economy was weak, and now you have both a negative growth number coupled with job losses,” said Dean Baker, a director of the liberal Center for Economic and Policy Research. “There’s a lot of real bad times to come.”
Fed Fears Wage Spiral That Is Little in Evidence The surges this year in oil and food prices could not have come at a worse moment for the typical American worker, who has not had a raise to speak of in this decade. Workers’ leverage is gone. Companies are not creating jobs. Unions that negotiated big wage increases in the 1970s are shadows of their former selves. Cost-of-living adjustments, once commonplace, have disappeared. And the movement of jobs offshore, or the threat of it, has conditioned workers to not even ask for a raise, fearing they will join the millions already laid off. Still, the Federal Reserve’s policy makers — its governors and the presidents of its regional banks — are convinced that wage pressures could emerge unexpectedly. That concern, and the idea that wage pressures could lead to yet higher prices and a rising inflation rate, showed up in half-a-dozen interviews with policy makers over the last week.
Workers' pay and benefits lagging far behind inflation Inflation surged in the second quarter with soaring energy and food costs, as any consumer can attest. The growth in workers’ compensation, however, remained flat with the first quarter and down from a year earlier, the government’s latest data show. It’s another sign that the pain in your wallet is real -- and maybe worse than you think. The Labor Department today said its employment cost index, which measures what employers shell out for wages and benefits, rose 0.7% in the second quarter, matching the first-quarter increase. Last quarter’s rise was down from a 0.9% increase in the second quarter of 2007, a clear indication that employers have been feeling less pressure to boost compensation as jobs overall are harder to find. Paulson says housing remains biggest threat The $168 billion government stimulus effort has been a timely support for the economy and will continue to boost growth in the second half of this year, Treasury Secretary Henry Paulson said Thursday. Paulson predicted in a speech to a Washington audience that the economy will continue growing at a moderate pace for the rest of this year, despite housing slump-induced problems. "We are making progress although not in a straight line," Paulson said. "Housing continues to be at the heart of our economic challenges and remains our most significant downside risk."
Greenspan Says Housing Prices Not Yet Near Bottom Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom" and the resulting market turmoil isn't showing signs of abating While the odds of a recession are 50-50, achieving stable markets will "take a while," Greenspan said today in a CNBC interview. After his comments, benchmark stock indexes declined further. The Standard & Poor's 500 Index slid today by 16.88 points, or 1.3 percent, to 1,267.38. The Dow Jones Industrial Average lost 205.67, or 1.8 percent, to 11,378.02. The economy grew at a 1.9 percent annualized rate in the second quarter after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. Gross domestic product was revised to show a contraction in the final three months of 2007.
Oil falls to almost $124 on dour US economic data Oil prices pulled back Thursday, wiping out some gains from the previous day's $4 a barrel rally, as traders bet that a cooling U.S. economy will continue to eat into U.S. demand for fuel. At the pump, easing prices underscored Americans' waning consumption of gasoline. The average price of a gallon of regular slipped 1.7 cents to $3.909, according auto club AAA, the Oil Price Information Service and Wright Express. Light, sweet crude for September delivery fell $2.69 to settle at $124.08 a barrel on the New York Mercantile Exchange, a day after the contract soared more than $4 in the biggest one-day jump in two weeks. Prices have now fallen in four of the last seven sessions and are 14 percent off their all-time trading high above $147, reached July 11.
GMAC hit with $2.5 billion loss as auto and housing sector weakens GMAC, the auto and mortgage finance company majority owned by Cerberus Capital Management, reported a $2.5 billion loss Thursday as vehicle sales plummeted and the housing slump sent foreclosures higher. The second-quarter loss, GMAC's fourth straight, compares with profit of $293 million a year earlier, the Detroit-based company said today in a PR Newswire statement. Residential Capital's loss jumped to $1.86 billion from $254 million a year earlier as the decline in home prices accelerated.
Orders for New Planes Delayed by Soaring Fuel Costs When Emirates airline’s gigantic A380 aircraft glides into Kennedy International Airport on Friday, Airbus executives will breathe a sigh of relief at seeing their flagship jet complete its maiden American journey. But their relief could be short-lived. Despite a backlog of airplane orders stretching for years at both Airbus, which is owned by EADS, and its main rival, the Boeing Company, aircraft manufacturers are seeing troubling signs among their customers. High fuel prices helped cause major airlines in the United States to lose more than $6 billion in the second quarter. Companies are grounding older planes, eliminating flights and routes and putting off plans to update and expand their fleets.
Mass. regulators accuse Merrill Lynch of fraud Massachusetts security regulators accused Merrill Lynch of fraud Thursday for allegedly promoting the sale of auction-rate securities when they knew the investments were becoming increasingly unstable. The administrative complaint filed by Secretary of State William Galvin claims Merrill Lynch, Pierce, Fenner & Smith - the main subsidiary of Merrill Lynch & Co. - aggressively sold the securities while downplaying the risks. Auction-rate securities have their interest rates set at periodic auctions, depending on the submitted bids. The investments were once considered safe, but the market collapsed in February amid turmoil in the credit markets. The market's failure left many investors with their cash frozen as buyers dried up New York-based Merrill Lynch denied it defrauded investors.
Moody's Lies In The Bed It Made Moody's second-quarter earnings were anything but sterling. The ratings service's profit tumbled on plummeting demand for mortgage bonds and collateralized debt obligations. Yet Moody's, the parent of Moody's Investors Service, managed to perform better than expected, sending shares higher in morning trading. Its early gains were reversed, however, when Connecticut Attorney General Richard Blumenthal announced at a press conference he was suing Moody's, McGraw-Hill, the parent company of Standard & Poor's, and Fitch Ratings for giving artificially low credit ratings to cities and towns that cost taxpayers millions of dollars in unnecessary insurance and higher interest payments.
A Warning For America From South Africa By Gemma Meyer (Gemma Meyer is the pseudonym of a South African journalist. She and her husband, a former conservative member of parliament, still reside in South Africa.) People used to say that South Africa was 20 years behind the rest of the Western world. Television, for example, came late to South Africa (but so did pornography and the gay rights movement). Today, however, South Africa may be the grim model of the future Western world, for events in America reveal trends chillingly similar to those that destroyed our country. America's structures are Western. Your Congress, your lobbying groups, your free speech, and the way ordinary Americans either get involved or ignore politics are peculiarly Western, not the way most of the world operates. But the fact that only about a third of Americans deem it important to vote is horrifying in light of how close you are to losing your Western character. Writing letters to the press, manning stands at county fairs, hosting fund-raising dinners, attending rallies, setting up conferences, writing your Congressman - that is what you know, and what you are comfortable with. Those are the political methods you've created for yourselves to keep your country on track and to ensure political accountability. But woe to you if - or more likely, when - the rules change. White Americans may soon find themselves unable or unwilling to stand up to challenge the new political methods that will be the inevitable result of the ethnic metamorphosis now taking place in America. Unable to cope with the new rules of the game - violence, mob riots, intimidation through accusations of racism, demands for proportionality based on racial numbers, and all the other social and political weapons used by the have-nots to bludgeon treasure and power from the haves - Americans, like others before them, will no doubt cave in. They will compromise away their independence and ultimately their way of life.
* * * * * * * * * *On a lighter note for the weekend* * * * * * * * * * * * *
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