February 2010

SkyTop Capital’s Managing Partner, Dan Sobol, at GoldenNetworking.com’s Hedge Funds Leaders Forum 2010

February 26, 2010

Dan Sobol, Founding Managing Partner at SkyTop Capital, an emerging special situations and distressed fund, will join GoldenNetworking.com’s Hedge Funds Leaders Forum 2010, ‘Generating Alpha in Challenging Times’ (http://www. HedgeFundsLeadersForum.com),

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Homes sales drop shakes market

February 26, 2010

for the year was $137,500. “We shouldn’t freak out about this,” said Mike Larson, a real estate analyst with Weiss Research in Jupiter. “We’re pretty close to a price bottom – if we’re not there already.” Real estate experts attributed January’s price

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Ann Pettifor: Bankers turn on the hands that fed them: governments. How Greece’s crisis could impact America.

February 26, 2010

Citizens are rightly angry at the way both the Bush and Obama Administrations, aided by Governor Ben Bernanke – pretty well unconditionally bailed-out the bankers of Wall St., just like governments in Europe and Asia. While politicians and regulators rushed to dampen the flames of financial crisis with taxpayer funds, what happened to those guilty of financial arson? Besides the odd rogue and loner like Bernard Madoff, none has gone to jail for crimes against the people – as far as I know. As if to rub our collective noses in it, bankers have masqueraded their contempt for both politicians and taxpayers by using bail-out resources to post massive capital gains and bonuses. It’s hard to believe they could be guilty of worse. But believe it you must. For now these self-same bankers are turning on their rescuers – the governments that bailed them out. Bankers, hedge and pension-fund managers, including Goldman Sachs, are attacking the very European governments that pay their fees; that provide banks with ‘free money’ in the form of negative rates of interest; that guarantee their liabilities, and that in effect bailed them out unconditionally with taxpayer largesse. It is not a pretty sight. When the worst of the financial blaze had been put out in 2009, regulators started to murmur about taking away Wall St.’s toxic toys. Violent tantrums were thrown; there may even have been some bullying. Politicians and regulators capitulated. The delinquents fooling around with incendiary financial devices were duly re-financed by the Federal Reserve and other central banks – and left free to run amok in the global economy. There they now threaten to put a match to Greece’s volatile economy. So serious a threat do these speculators pose, that the Securities and Exchange Commission is examining ” abuses and destabilising effects related to the use of credit default swaps and other opaque financial products “. The clear implication according to SEC spokesperson John Nester is that these products can potentially cause “cascading harm” to the financial system. The fact is that if today’s speculators bring down the Greek economy, they will likely blow up more debtor nations, and then in a cascading effect, turn on their main benefactors, the now heavily indebted British and United States governments. —————————————————————– Greece’s fiscal crisis is no small thing. Americans ignore it at their peril. Her heavily indebted economy is the canary in a coalmine of sovereign debtors that includes Spain, Portugal, Italy, Ireland, Britain and the United States. As long as the Greek canary keeps singing, people in Europe and the United States need not fear going up in smoke. But Greece’s struggling government is threatened by a financial instrument widely used by speculators to discredit government bonds, and undermine the country’s weakening creditworthiness. It is the same incendiary device that played a critical role in wrecking the US economy: the credit default swap (CDS). As Huff Post readers well know, this is no swap. It is the most morally questionable form of insurance, because it lets one insure against the borrower defaulting on, say, a bond without having an insurable interest in that bond. In other words it is possible to insure against Greece defaulting on her bonds, without owning Greek bonds. That is like taking out insurance on your neighbour’s home, without owning the house. The incentive to burn down the place and collect the payout, is powerful – which is why regulators ban you and me from the practice. But not Goldman Sachs and other international financial speculators. Instead these footloose bankers, hedge- and pension-fund managers operate beyond regulation and have a perverted incentive to burn down the house that is Greece. —————————————————————————— As the financial crisis abated, world leaders (the G20) met in Pittsburgh in September, 2009 to review progress. They ended their Summit by patting themselves on the back for their handling of the crisis: “Our countries agreed to do everything necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital.” “It worked” they concluded, with just a touch of premature smugness. In some ways it sure did. There have been no brakes on global flows of capital. Nobody’s toxic financial toys have been confiscated. For bankers, business is better than usual. And so the stage is set for a new, global financial crisis. World leaders could act, at even this late hour, to prevent such a crisis, and protect their citizens. They could place brakes on the mobility of capital, making it harder for speculators to roam wild and wreak havoc. And as the blogger Sudden Debt argues, they could instruct central bank governors and regulators to govern CDSs like conventional insurance. First: regulators could insist that those that sell Credit Default Swaps join the ranks of other insurance companies, where they will be regulated. They would be required, amongst other things, to comply with statutes, have adequate and segregated reserves and actuarial departments. Second, regulators could ensure that those buying Credit Default Swaps show proof of an insurable interest: i.e. that they own the underlying bonds. With these two strokes of a pen, the meltdown of Greece could be avoided – and a global crisis prevented. But do our over-indulgent regulators have the confidence or maturity to take on their own delinquent banksters? You tell me.

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How Much Risk Lurks in Your Loan Portfolio?

February 26, 2010

A new, eBay-style electronic marketplace for troubled loans tries to give bankers a clear sense of what their distressed debt is worth. By Penny Crosman February 25, 2010 Although risk analytics tools are improving in terms of estimating the potential

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Thailand to Seize $1.4 Billion From Ex-Premier Thaksin for Abuse of Power

February 26, 2010

By Daniel Ten Kate and Anuchit Nguyen Feb. 27 (Bloomberg) — A Thai court seized about 60 percent of ex-leader Thaksin Shinawatra’s fortune frozen by the military after a 2006 coup, a decision that may bring a respite from political fights that have deterred investors for four years. Nine Supreme Court judges ruled to seize 46.4 billion baht ($1.4 billion) that Thaksin’s children and relatives earned from the 2006 sale of holding company Shin Corp. to Singapore’s Temasek Holdings Pte. The court will return 30.2 billion baht to Thaksin’s family, the judges said in a statement late yesterday. The ruling may placate both Thaksin’s supporters and opponents who disagree on how much authority appointed soldiers, judges and royal advisers should wield over elected politicians. Protests from the two sides have led to airport blockades, rioting and bombings since the coup that ousted Thaksin. “It’s a compromise solution, probably the best solution among all,” said Kongkiat Opaswongkarn , chief executive officer of Asia Plus Securities Pcl in Bangkok. “The splits in society cannot be solved in a day but at least people can take a break for the time being.” Since the coup, courts have disbanded parties linked to Thaksin that won the past two elections. The rulings have eroded confidence in the judicial system among Thaksin’s supporters, who say different standards are applied to opponents who seized the prime minister’s offices and the airports two years ago. Prosecutors have yet to bring those cases to trial. Prime Minister Abhisit Vejjajiva took power in December 2008 after a court dissolved the pro-Thaksin party that won an election the previous year. Thaksin’s red-shirted supporters aim to gather as many as 1 million people in Bangkok starting from March 12 to push for a fresh election. ‘Politically Motivated’ Thaksin said the ruling was “100-percent politically motivated” and urged his supporters to continue their fight against the government. “I urge all of my supporters to be calm and patient,” he said from Dubai, his home for most of the time since fleeing a two-year prison sentence in 2008. He had denied all the allegations against him. “Don’t give up. Continue to fight. Use your patience to fight for democracy and justice.” Thaksin and his allies have won the past four elections on heavy support from the northeast, Thailand’s poorest region and home to a third of its 66 million people. Abhisit said Feb. 5 his ruling Democrat party, which hasn’t won an election since 1992, may win half of the country’s parliamentary seats in the next nationwide vote, which must take place by the end of 2011. Boost for Stocks The ruling may boost Thai stocks, which trade at 10.9 times 2010 earnings, the third-cheapest in Asia. Thailand’s SET Index has lagged benchmarks in Indonesia, Malaysia, the Philippines and Vietnam this year. “The market will rise as political tension has eased,” said Prapas Tonpibulsak , chief investment officer at Ayudhya Fund Management, who said the SET index may gain as much as 18 percent above today’s close this year. “Upside will probably be limited as conflicts remain.” Foreign investors, net sellers of $98 million of Thai stocks this year, bought a net $58 million on Feb. 25, the most since Oct. 9, according to stock exchange data. The baht gained on optimism an economic recovery is gathering pace after industrial production rose for a fifth straight month in January. After Thaksin founded Shin Corp. in 1983, its units were awarded one of two mobile-phone concessions and an exclusive satellite franchise. The company controls Advanced Info Service Pcl , Thailand’s top mobile-phone operator, and satellite services monopoly Thaicom Pcl . Thaksin said he transferred his Shin stake to his children and relatives before taking office in 2001, an argument the court rejected. Seven years earlier he disclosed that he was worth 60 billion baht — about $2.4 billion at the time. Royalty Payments, Myanmar Loan The court said Thaksin benefited Shin-controlled companies by changing Advanced Info’s royalty payments to the state-owned telecoms operator and approving a government loan to Myanmar, part of which was used to buy equipment from Thaicom. Thaksin has 30 days to appeal the ruling if he can find new evidence in the case. He will “keep all options open,” Noppadon Pattama , a former foreign minister and a member of Thaksin’s legal team, said before the verdict. Around the region, Indonesia and the Philippines previously attempted to recover assets from deceased dictators Suharto and Ferdinand Marcos . The pair embezzled as much as $45 billion between them, according to a 2007 United Nations report . “The amount of money to be confiscated was considered from the additional fortune that he made from the abuse of authority,” the court said in a statement. Thaksin could retain the value of his family’s Shin stake before he became prime minister, it said. Tracking the SET Index Shin shares gained 121 percent from when Thaksin took office on Feb. 9, 2001, to when his family sold the company on Jan. 23, 2006, compared with a 128 percent gain in the benchmark SET index, according to data compiled by Bloomberg. Siam Cement Pcl , Thailand’s fourth-biggest company, which is controlled by the monarchy’s investment arm, gained 717 percent in that time. “Whether Thaksin used his influence to benefit his companies is for the courts to decide,” said Vikas Kawatra , head of institutional broking at Kim Eng Securities (Thailand) Pcl, the nation’s biggest brokerage by trading volume. “We analyze the stocks on fundamentals and price movements and based on past performance versus the SET it appears his companies performed no better than others in the benchmark.” To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ;

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China Google Attacks May Have Hit 100 Companies, Security Researcher Says

February 26, 2010

By Brian Womack Feb. 26 (Bloomberg) — The Chinese cyber attacks that Google Inc. reported last month may have targeted more than 100 companies, a larger number than previously thought, according to security research firm ISEC Partners Inc. ISEC said it discovered the additional companies while working with victims of the attack, which originated in China. Google initially alerted 30 companies to the problem, San Francisco-based ISEC said. Google disclosed last month that it suffered “a highly sophisticated” cyber attack on its corporate infrastructure. The Mountain View, California-based company said Gmail e-mail accounts of Chinese human-rights activists were targeted by the hackers. It’s hard to tell how closely related the attackers are to Google’s, ISEC said. “Although none of the attacks or technique used in this series of attacks are particularly novel, the skill set, patience and tenacity of the attackers is much greater than most enterprises are equipped to deal with,” ISEC said in a report. Jill Hazelbaker , a Google spokeswoman, didn’t immediately respond to a message seeking comment. Google climbed 37 cents to $526.80 today in Nasdaq Stock Market trading. The shares have fallen 15 percent this year. To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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Wells Fargo Cuts Stumpf’s Pay in Half; Wealth Management Chief Gets Raise

February 26, 2010

By Dakin Campbell Feb. 26 (Bloomberg) — Wells Fargo & Co., the lender that gave Chief Executive Officer John Stumpf more than $18 million in 2009 compensation, cut his salary in half for this year and slashed pay for most top executives. The San Francisco-based bank reduced Stumpf’s salary to $2.8 million from $5.6 million, according to a company filing. David Carroll , head of wealth management, saw his salary more than double to $1.5 million from $700,000. The salaries, which were paid in a mix of cash and stock last year, will now be paid in all cash, the company said. “From a pure cash standpoint, it appears that all is good and they can say, ‘We have cut salaries in half,’” Frank Glassner , CEO of Veritas Executive Compensation Consultants LLC in San Francisco, said in a phone interview. Still, “it’s a little bit of a sleight of hand” because the bank has removed some long-term incentives, he said. Until now, Wells Fargo has resisted pressure from lawmakers to cut compensation amid public anger about taxpayer bailouts of lenders during the credit crisis. Stumpf received about $18.4 million in bonus and base compensation in 2009, according to the lender. President Barack Obama has called bank bonuses “obscene” at least twice this year. Wells Fargo repaid $25 billion in U.S. Troubled Asset Relief Program funds in December, freeing it from rules on pay. Wells Fargo spokeswoman Angenette Maniego declined to comment. Finance chief Howard Atkins will receive $1.7 million in 2010, down from $3.4 million last year, while the base pay for both David Hoyt , head of wholesale banking, and Mark Oman , head of home and consumer finance, was cut to $2 million from $3.9 million, the company said. The salaries take effect March 1. Wells Fargo said it deferred a decision on the executive bonuses until it can review rivals’ policies. The lender said earlier this week that shareholders will cast a “non-binding advisory vote” on pay for the executives at the annual meeting in April, according to a statement. To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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Long-Time Marijuana Use in Teens Linked to Delusions, Psychosis As Adults

February 26, 2010

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Tuitions Topping $30,000 Daunt New Yorkers as Private School Demand Slips

February 26, 2010

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Cote, Rivlin, Stern, Fudge Named to Deficit-Cutting Commission by Obama

February 26, 2010

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Obama Social Secretary Rogers, Criticized for Gate-Crash Incident, Resigns

February 26, 2010

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Star Fund Manager Goes From Gold to Manure as He Remakes His Life in U.K.

February 26, 2010

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Chesapeake Energy CEO Aubrey McClendon Wins Dismissal of Excess Pay Suit

February 26, 2010

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Colombia Court Rules Against Referendum on Allowing Uribe Third-Term Bid

February 26, 2010

By Helen Murphy and Alexander Cuadros Feb. 26 (Bloomberg) — Colombia’s constitutional court ruled against allowing a referendum on permitting presidents to run for three consecutive terms, dashing Alvaro Uribe ’s chances of holding office for 12 years. The court voted 7-to-2 against permitting Colombians to vote on whether to lift the ban on third terms, court President Mauricio Gonzalez told reporters in Bogota. The magistrates rejected the initiative — which may have let Uribe stand for office in May — because it endangered institutional checks and balances provided for in the 1991 constitution, Gonzalez said. “Colombia has a life after Uribe,” said Patrick Esteruelas , a Latin America risk adviser to hedge funds at the Eurasia Group in New York. “Investors associate the Colombia security and economic miracle with Uribe. There’s a deep bench of candidates waiting in the wings willing to continue the very same policies.” Today’s decision opens the way for former Defense Minister Juan Manuel Santos to stand for president with Uribe’s backing. Former Medellin Mayor Sergio Fajardo , former Senator German Vargas Lleras and Senator Gustavo Petro also intend to run. Opposition lawmakers say another four years in office for the popular Uribe would have drawn comparisons to Venezuela’s Hugo Chavez and other regional leaders who have clung to power. Uribe, who never publicly said whether he wanted to run, spurred the fastest economic growth in 30 years as he curbed violence and pushed back cocaine-funded rebels . Still, his approval fell and he faced nationwide protests this month after reforming the deficit-ridden health system by decree, limiting benefits. ‘Love for Colombia’ “The only feeling I harbor is a love for Colombia,” Uribe said at an event in Barranquilla broadcast on national television after the court ruled against holding the referendum. Opposition lawmakers say the 57-year-old lawyer isn’t the only president who can run Colombia and fight terrorism. “This is all about Uribe’s personal ambitions, his cult of personality,” Carlos Gaviria , a former constitutional court president who lost the 2006 presidential election to Uribe, said in a telephone interview. “To risk such a fragile, incipient democracy for his personal gain is outrageous.” U.S. President Barack Obama , at a White House press brief briefing with Uribe last June, said George Washington ’s decision to abandon power set a positive precedent for the U.S. Second Term During his second term — made possible by a constitutional change overturning a one-term limit — Uribe strengthened his hand in the National Electoral Council, the central bank and the Supreme Court. He also named three of the judges on the nine- member constitutional court. A third term for Uribe may have made it harder for the U.S. to criticize Chavez, Washington’s fiercest critic in the region, who has twice changed the charter to scrap term limits and gain extra powers. Ecuadorean President Rafael Correa and Bolivia’s Evo Morales also altered their constitutions to stay in office. Uribe’s policies have won investors’ support, attracting almost $50 billion in foreign direct investment since he took office in August 2002. The economy grew at the fastest pace in three decades in 2007 before sliding into a recession last year. The IGBC stock index has risen more than nine-fold since he first took office and the peso gained more than 30 percent. “After all those years of chaos and civil war, all this pent-up investment flowed into the country,” said Neil Shearing , an emerging-markets economist at the London-based research company Capital Economics Ltd. Market Reaction Still, investor reaction to Uribe’s retirement would be “muted,” said Alberto Bernal , head of emerging-market research at Bulltick Securities Corp. in Miami. “The market had been positioning itself for a 60 percent chance the court would rule against holding the referendum,” Bernal said. “Whoever wanted to get out because of the risk Uribe wouldn’t run for a third term already got out.” Yields on Colombia’s benchmark peso bonds due July 2020 ended at 9.04 percent today compared with 8.92 percent on Feb. 3, after local media revealed a pre-analysis by the court ruled against the referendum. The IGBC index has gained 1.9 percent in the same period, while the peso has gained 2.2 percent. Developer Gonzalo Ramirez and a group of 99 investors plan to start a $50 million expansion next month of the luxury El Tesoro shopping mall in Medellin, once among the world’s most dangerous cities. Santos Favored “We have total confidence in Colombia’s healthy investment environment whoever is president,” said Ramirez, who forecasts sales at the mall to grow as much as 40 percent to $8 million a month. Santos was favored by 18 percent of voters to 12 percent for Fajardo in a poll taken between Feb. 13 and Feb. 15. by Centro Nacional de Consultoria . The poll of 2,000 Colombians has a margin of error of plus or minus 2.1 percentage points. While Uribe remains popular, with an approval rating over 60 percent, he has been dogged by controversy in the past two years. During his second term, the government faced disclosures that the army murdered civilians and passed them off as guerrillas killed in combat. Uribe has also been weakened by accusations the domestic intelligence agency spied on journalists and opposition politicians. Many former allies in congress have been convicted for ties to paramilitary groups. To contact the reporter on this story: Helen Murphy in Bogota at hmurphy1@bloomberg.net

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New York City Storm Breaks 114-Year-Old Snowfall Record for Central Park

February 26, 2010

By Brian K. Sullivan Feb. 26 (Bloomberg) — A winter storm that pummeled New York City for two days broke a monthly record for snowfall in Central Park that stood for 114 years, according to the National Weather Service. The storm killed at least three people, knocked out power to more than 700,000 electrical customers across the U.S. Northeast, grounded at least 3,844 flights from regional airports and disrupted shipping as far away as Maine. As the city digs out, forecasters are already watching another storm that may hit the U.S. East Coast next week. “It’s pretty significant for our area to see this kind of snowfall,” said Jeffrey Tongue, a weather service meteorologist in Upton, New York . “This is stuff that doesn’t happen too often, maybe a couple of times a century.” Manhattan’s Central Park had received 36.9 inches (93.7 centimeters) as of about 5 p.m. today, the most ever for a single month, the weather service said. The previous record for February was 27.9 inches in 1934, and the mark for a single month was 30.5 inches in March 1896. Almost 21 inches blanketed the city during the storm, which began yesterday at about 8 a.m. The record for a single snowstorm was set Feb. 11-12, 2006, when 26.9 inches fell. Storm Warning Canceled With the storm winding down and moving east, the weather service dropped a winter storm warning and replaced it with an advisory at about 4:30 p.m. Tongue said the advisory was in place to warn drivers that roads may be slick tonight, and wasn’t a caution that more snow was on the way. A few snow showers may linger overnight, he said. At its peak, the storm was powerful enough to set daily records for both rain and snowfall in Newark, New Jersey, and blast a 90-mph wind gust past a weather service buoy in the Atlantic. Its central barometric pressure rivaled that of hurricanes. Heating oil gained on speculation stockpiles would fall as winter storms boosted demand. Heating oil for March delivery added 3.87 cents, or 1.9 percent, to settle at $2.0249 a gallon on the New York Mercantile Exchange. U.S. demand for heating oil through March 5 will be 6 percent above normal for the period, according to David Salmon , a meteorologist at Weather Derivatives, which forecasts temperature changes and the impact on demand for commodities. Flights Grounded At Newark Liberty International, a hub for Continental Airlines Inc., 65 percent of today’s 607 scheduled commercial and freight flights were canceled, according to FlightStats.com, which tracks airline and airport performance. At LaGuardia, 61 percent of the 577 scheduled departures were scrubbed, and John F. Kennedy International reported 39 percent of its 579 flights canceled. Major U.S. carriers scrubbed 2,344 flights today, mostly across the northeast. Delta Air Lines Inc ., the world’s largest carrier, trimmed 500 flights, said Susan Elliott , a spokeswoman. The Atlanta-based airline doesn’t anticipate more cancellations this weekend, “although there will be some delays,” she said. Continental grounded 500 flights, including all 200 of its regional jet flights at Newark, said Mary Clark , a spokeswoman. Demand for jet fuel, averaged over the four weeks ended Feb. 19, was down 1.9 percent from a year earlier, according to the Energy Department. “The storm just kills jet fuel demand,” said Andy Lipow , president of Lipow Oil Associates LLC in Houston. “When an airline cancels its flights, it’s not like it doubles up the next day.” Week’s Second Storm The system was the second winter storm of the week for the U.S. Northeast. It came just weeks after parts of the mid- Atlantic region set seasonal records for snowfall. A Brooklyn man was killed in Central Park by a falling tree branch, while two people died in car accidents on slick roads near Lebanon and Victor, New York. New York City’s public schools shut down. Utilities in the Northeast reported a total of more than 700,000 homes and businesses without power this morning. New York-based Consolidated Edison Inc. had as many as 40,000 customers lose power in Westchester County, and about 500 in Manhattan, Brooklyn, Queens, Staten Island and the Bronx, said a spokesman, Chris Olert . New Hampshire was especially hard-hit, and Governor John Lynch declared a state of emergency. About 330,000 residents lost power because of the storm and accompanying high winds, said Katya Brennan, a spokeswoman for the state Department of Safety. Deliveries Delayed Crude oil tanker deliveries to a Portland, Maine, pipeline that supplies two Montreal-area refineries were delayed a second day because of unsafe swells and high winds. A storm expected to hit the West Coast tonight may be the Northeast’s next big problem, said Tom Kines , a senior expert meteorologist with AccuWeather Inc. Some forecast models keep the storm fairly far south, although Kines said he isn’t sure that will happen. “I don’t trust it,” he said. “If this storm we are seeing now is getting out of the way, it will allow this next storm to move farther north. We are getting into the time of year where rain is more favored, but in this weather pattern anything goes.” To contact the reporter on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net ;

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Citigroup Adviser Rubin Said to Face Questions From Financial Crisis Panel

February 26, 2010

By Ian Katz and Jesse Westbrook Feb. 26 (Bloomberg) — Robert Rubin , the former U.S. Treasury secretary who later advised Citigroup Inc. as the bank piled up subprime-mortgage losses, may soon face his first public grilling on the 2008 financial crisis. The Financial Crisis Inquiry Commission , investigating the worst economic slump since the Great Depression, plans to ask Rubin to testify in April, said two people with knowledge of the commission’s decisions. The panel may summon former Federal Reserve Chairman Alan Greenspan and former Citigroup Chief Executive Officer Charles Prince in its review of companies and regulatory lapses that fueled excessive speculation in the real- estate market, said the people, who declined to be identified before the hearings are announced. Rubin, 71, has been perceived as “bullet-proof” because his Citigroup job was “framed as if he was only there to give advice,” said Charles Geisst , author of “Wall Street: A History” and a finance professor at Manhattan College in Riverdale, New York. “Unless they’ve actually got some stuff where he advised on some surreptitious deal that went bad or his advice was purposely misleading, they’re going to have a very difficult time with him.” Rubin’s reputation dimmed after the U.S. bailed out New York-based Citigroup with $45 billion and American International Group Inc. had to be propped up because of losses on derivatives. When Rubin was President Bill Clinton’s Treasury secretary, he fought efforts to regulate derivatives. FCIC Chairman Phil Angelides and Vice Chairman Bill Thomas , in an interview yesterday, wouldn’t confirm whether Rubin will be asked to appear. The commission plans to seek testimony from those who’ve been “major leaders” in government and on Wall Street, Angelides said. ‘Major Participants’ “It is striking the extent to which many major participants in this meltdown have not been called upon to answer questions either in public or private,” Angelides said. Rubin, through an aide, declined to comment. Greenspan, 83, through his assistant, said he would be pleased to testify if asked. Prince, 60, declined to comment. A request for Rubin and Prince to testify may show the FCIC is focused on Citigroup, which has lost $23.9 billion since 2008. Citigroup investors including Smith Asset Management’s William Smith criticize Rubin for collecting more than $110 million in pay over a decade while failing to steer management away from decisions that triggered losses. Rubin, chairman of Citigroup’s executive committee from 1999 until 2008, became the bank’s chairman for five weeks after Prince resigned in November 2007. Rubin retired as senior counselor to the bank in January 2009. Rubin, Obama Barack Obama named Rubin to be an economic adviser during the 2008 presidential campaign, and two Treasury protégés, Lawrence Summers and Timothy Geithner , are top officials in the White House. Summers, 55, is chief economic adviser and Geithner, 48, is Treasury secretary. When Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein , JPMorgan Chase & Co. CEO Jamie Dimon , Bank of America Corp. CEO Brian Moynihan and former Morgan Stanley CEO John Mack testified to the panel last month, no one from Citigroup appeared. Former U.S. Securities and Exchange Commission Chairman Harvey Pitt said the hearing was a “parade of soundbites” that failed to shed light on why companies such as Lehman Brothers Holdings Inc. failed, and U.S. taxpayers had to spend $700 billion rescuing the financial industry. Thomas and Angelides said the first hearing was an introduction before the staff completed extensive probing and investigation. That will change as the panel examines additional companies and individuals, the two men said. ‘Hard Slog’ “We had our initial hearing and now we are in the hard slog of the research and investigation,” Angelides said. “The hearings will be stops along the investigatory trail.” In the late 1990s, Rubin as Treasury chief and Greenspan as Fed chairman successfully blocked attempts by Brooksley Born , head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. Born is an inquiry commissioner. Congress passed a law in 2000 keeping over-the-counter derivatives unregulated. That allowed for rapid growth in products such as credit-default swaps, contributing to the $1.7 trillion in losses banks have suffered since 2007. To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net ; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net .

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Japan’s 10-Year Bonds Advance for First Month Since November on Deflation

February 26, 2010

By Yasuhiko Seki Feb. 27 (Bloomberg) — Japan’s 10-year bonds made their first monthly gain since November as a government report showed consumer prices dropped for an 11th month, adding to signs deflation is deepening. Bond futures touched the highest level this year as the report fueled speculation the central bank will keep interest rates near zero, helping to enhance the attraction of the fixed payments from debt. Benchmark bonds ended three days of gains yesterday as an advance in stocks damped demand for the relative safety of government debt. “Japan is plagued by stubborn deflation and an end to it is nowhere near,” said Yasunari Ueno , chief market economist in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest bank. “Bond yields will continue to decline.” The yield of the 1.3 percent bond due December 2019 fell 1.5 basis points this month to 1.30 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price gained 0.132 yen to 100 yen. The yield climbed half a basis point yesterday. Ten-year bond futures for March delivery gained 0.36 this month to 139.87 at the Tokyo Stock Exchange. The contracts rose as high as 140.05 yesterday, the most since Dec. 22. Bonds also completed a weekly gain, pushing yields down three basis points, after the statistics bureau said yesterday that consumer prices excluding fresh food slid 1.3 percent in January from a year earlier, matching the decline in the previous month. Slow Improvement Bank of Japan Deputy Governor Hirohide Yamaguchi said this week that prices may not be improving as quickly as he had expected. Finance Minister Naoto Kan yesterday reiterated that the central bank should help the government beat deflation. Japanese bonds handed investors a return of 0.1 percent this month in local-currency terms, according to indexes from Bank of America Corp.’s Merrill Lynch unit. Demand for bonds was also boosted after the yen climbed to the highest in a year against the euro this week. A stronger yen increases deflation as it pushes down the cost of imports. “If the yen rises back to a 14-year high seen back in November and reemerges as a concern for the recovery, the chance of more measures by the Bank of Japan will increase,” said Koichi Kurose , chief strategist in Tokyo at Resona Bank Ltd., a unit of Japan’s fourth-largest banking group. Japan’s currency advanced to 119.66 per euro on Feb. 25, the strongest since Feb. 24, 2009, and reached 88.80 per dollar, the highest in almost three weeks. Stocks Gain Bonds pared their monthly gain yesterday as Japanese stocks advanced for the first time in four days, encouraging some investors to buy higher-yielding assets. “Global stocks seem to be maintaining a firm undertone as the economy recovers,” said Shinji Hiramatsu , senior investment manager at Sompo Japan Asset Management Ltd. in Tokyo, which has the equivalent of $15.7 billion under management. “Bonds will struggle to extend gains.” Government reports yesterday showed manufacturers boosted production at the fastest pace since May and retail sales ended a 16-month slump. The Nikkei 225 Stock Average rose 0.2 percent. Thirty-year bonds gained for a second day yesterday as Nomura Securities Co. increased the average duration of its Bond Performance Index by 0.20 year to 6.59 years for March. “Month-end index extension is still in vogue,” said Makoto Yamashita , chief Japan rate strategist at Deutsche Securities Inc. in Tokyo. The yield on the 30-year bond declined 1.5 basis points to 2.30 percent yesterday. It dropped 4.5 basis points this week. Money managers such as Japan’s Government Pension Investment Fund, which runs the world’s largest pool of retirement wealth, use the index to help decide their holdings. Duration is a measure of a portfolio’s sensitivity to changes in yield, and a lower figure indicates a more bearish position. To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net .

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Mukherjee Budget Offers Indian Central Bank Scope to Raise Interest Rates

February 26, 2010

By Cherian Thomas Feb. 27 (Bloomberg) — India’s pledge to enact the biggest budget-deficit reduction in 19 years may offer the central bank more scope to drain money from the economy and rein in inflation . Finance Minister Pranab Mukherjee yesterday unveiled plans to cut the deficit to 5.5 percent of gross domestic product in the year starting April 1 from 6.9 percent the previous year. The effort, which relies on tax increases and 400 billion rupees ($9 billion) of state asset sales, is aimed at shrinking a debt burden equivalent to about 82 percent of the economy. The commitment means Prime Minister Manmohan Singh’s government will need to tap less of the nation’s savings than anticipated, lessening the impact on private credit growth from higher interest rates. The Reserve Bank of India may start boosting its benchmark rates at or before the next policy gathering in April, according to Goldman Sachs Group Inc. “By cutting the deficit, the finance minister has made room for monetary tightening without crowding out” lending to private businesses, said K. Ramanathan, who helps manage the equivalent of 22 billion rupees ($477 million) at ING Investment Management in Mumbai. Stocks rose after yesterday’s budget release, with the Sensitive Index gaining 1.1 percent in Mumbai, helping pare losses since the start of the year that were spurred in part by global investor concern about sovereign debt quality. Bonds at first rallied, then closed lower on concern a rise in the tax on fuels will boost energy costs and worsen inflation. Ratings Impact Fitch Ratings analyst Andrew Colquhoun said “we are marginally less encouraged to go for a downgrade” in India’s sovereign debt rating after the budget proposal. Standard & Poor’s said in a statement that it may raise its rating outlook to stable should finances improve, echoing similar remarks by Moody’s Investors Services before the release. Moody’s ranks India’s rupee-denominated debt at Ba2, two levels below investment grade, while Fitch and S&P have a BBB- rating, the lowest investment grade. That puts India below its BRIC counterparts, which include China, Russia and Brazil. Central banks are urging governments to curb deficits after the global recession ended and after Greece’s debt downgrade hit the euro. Federal Reserve Chairman Ben S. Bernanke this week said high deficits may cause “crowding out” of investment and Bank of Japan Governor Masaaki Shirakawa last week called for a “path for fiscal consolidation.” In India, where policy makers aim to achieve the fastest- growing economy in the world within four years, fiscal stimulus measures saw the deficit climb from 2.7 percent of GDP two years ago. The finance ministry yesterday said public debt sales will rise by 1.3 percent, less than the 2 percent median forecast in a Bloomberg News survey, to 4.57 trillion rupees in the next fiscal year. Subbarao Warning Governor Duvvuri Subbarao had last month warned that fiscal stimulus, worth more than 4 percent of GDP given since 2008, must be withdrawn to ensure companies have access to funds. “With fiscal policy in train, the focus will now shift to monetary policy to remove its massively accommodative stance,” Tushar Poddar , chief economist at Mumbai-based Goldman Sachs India Securities Ltd., said in a report. He said the RBI may raise interest rates by 3 percentage points this year to slow “rising domestic demand and inflationary pressures.” Yesterday’s budget numbers are counting on a smooth series of asset sales, wireless license auctions and increase in tax revenue as the economy expands, JPMorgan Chase & Co. analysts said in a note. Should the deficit objective be reached, there will be “space for a strong pick up in investment and credit growth.” ‘Nasty Surprises’ “If a few things go wrong, the budget will look shaky,” Mumbai-based JPMorgan analysts Jahangir Aziz and Gunjan Gulati said in the note. “The global recovery can turn up nasty surprises and create enough anxiety to keep domestic financial markets volatile.” Policy makers are working to unwind 7.5 trillion rupees of tax and interest rate cuts to curb consumer-price inflation that’s the highest in the Asia-Pacific region, according to data compiled by Bloomberg. While India’s inflation has been stoked mainly by shortages in food supply after last year’s worst monsoon rainfall in 37 years, officials are concerned a surfeit of cash in the economy will spur excessive demand for services and industrial goods. Prices paid by industrial workers in India rose almost 15 percent in December from a year earlier, the most in 11 years. Industrial production grew 16.8 percent in December, the quickest pace since at least 1994, prompting the central bank to say manufacturers are nearing capacity. Excise Tax Mukherjee raised the excise tax on almost all products to 10 percent from 8 percent in his budget to help trim the deficit. Indian oil retailers including Indian Oil Corp. , Bharat Petroleum Corp. and Hindustan Petroleum Corp. increased gasoline prices after the levies were announced. Gasoline prices will be raised by 2.71 rupees a liter and diesel by 2.55 rupees a liter, Oil Secretary S. Sundareshan said. Tata Motors Ltd. , India’s biggest truckmaker, will pass on the higher tax to consumers and may raise prices by as much as 70,000 rupees, Managing Director Prakash Telang said. Maruti Suzuki India Ltd. raised prices of various models by as much as 13,000 rupees with immediate effect, the company said in a statement on Feb. 26. Bharatiya Janata Party’s Sushma Swaraj , the main opposition leader in the lower house of parliament called the budget “inflationary” after higher taxes were imposed. Swaraj led a walk-out by her party during Mukherjee’s budget presentation. “Any kind of subsidy cut will require a trade-off between living with slightly higher inflation in the near term but with more sustainable growth dynamics over a medium term,” said Rajeev Malik , a Singapore-based regional economist at Macquarie Group Ltd. “I don’t think the move to tax fuel will mean a more aggressive tightening by the central bank.” Usha Thorat , a deputy governor at the central bank, told reporters in Mumbai yesterday that “the budget is positive for inflation reduction, in the sense it is in sync with the expectation that we outlined.” For Related News and Information: India Country Guide Page: COUN INR India Budget-Related Stories: INEL India industrial-output stories: INPIINDY CN India inflation: INWHOLEY HP Most-read India economy stories: MNI INDECO BN Benchmark interest-rate graph: INRPYLD GP M

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Fannie Seeks $15.3 Billion in Additional U.S. Aid After 10th Straight Loss

February 26, 2010

By Dawn Kopecki Feb. 26 (Bloomberg) — Fannie Mae , the mortgage-finance company under federal conservatorship, said it will seek $15.3 billion in aid from the U.S. Treasury after posting a 10th straight quarterly loss. A fourth-quarter net loss of $16.3 billion, or $2.87 a share, pushed the company to request its fifth draw on an unlimited lifeline from the government, Washington-based Fannie Mae said in a filing today with the Securities and Exchange Commission. Fannie Mae, which posted $120.5 billion in losses over the previous nine quarters, has already taken $59.9 billion in federal aid since April. Its shares , which peaked at $87.81 in December 2000, closed at 99 cents today in New York Stock Exchange composite trading. To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net .

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Europe’s Deficits: Week in Review

February 26, 2010

Feb. 26 (Bloomberg) — Europe’s budget deficits lead a review of the week’s top stories as the region’s economy risks decoupling from the global recovery. The most-read story of the week was Harvard University Professor Kenneth Rogoff’s prediction of sovereign defaults and “painful” austerity. Click here for more stories on Europe’s deficits and Greece’s debt crisis. Warren Buffett is the cover story of Bloomberg BusinessWeek, which reports on what it’s like to have America’s greatest investor as your shareholder . Following is a selection of other top stories from the past week, selected by senior editors at Bloomberg News. AIG Death Spiral Ends as Rescue Brings Stable Revenue Feb. 22 (Bloomberg) — American International Group Inc., the troubled financial firm that threatened to bring down the U.S. economy, is showing stable revenue for its insurance units and improving its ability to repay taxpayers 17 months after a bailout that swelled to $182.3 billion. Republicans Voting Against Stimulus Then Asked Obama for Money Feb. 22 (Bloomberg) — Alabama Republicans Jo Bonner and Robert Aderholt took to the U.S. House floor in July, denouncing the Obama administration’s stimulus plan for failing to boost employment. “Where are the jobs?” each of them asked. Thermo Fisher May Increase Millipore Takeover Bid Feb. 25 (Bloomberg) — Thermo Fisher Scientific Inc. may increase its unsolicited takeover offer for Millipore Corp. in order to reach a deal and expand in the biotechnology business, according to a person close to the situation. Hong Kong Police Said to Begin Investigation of PCCW Buyout Bid Feb. 22 (Bloomberg) — PCCW Ltd. shares fell as much as 2.4 percent in Hong Kong trading after people familiar with the matter said police began probing Chairman Richard Li’s failed bid last year to buy out the city’s biggest phone company. Cohen Trades Secrecy for Golf With Investors Lured by 30% Gains Feb. 26 (Bloomberg) — In late January, billionaire Steven A. Cohen hosted a golf outing for two dozen people at the Bear Lakes Country Club in West Palm Beach, Florida. Venezuela Has $5 Billion to Boost Unregulated Bolivar Feb. 23 (Bloomberg) — Venezuela’s central bank may inject more than $5 billion of dollar-denominated securities into the financial system this year to strengthen the bolivar in the unregulated foreign-exchange market, a government official said. A $500 Million Eco-Cube Will House U.S. London Embassy in 2017 Feb. 24 (Bloomberg) — Having outgrown its 1960 embassy, a Kennedy-era modernist design by Eero Saarinen, the U.S. State Department has decided that London is too important to build one of its conventional insults to local sensibilities. The most-read opinion columns of the past week: 1. Tiger Woods 101 Grads Send Beautiful Woman Home: Scott Soshnick 2. Banker Bonus Anger Is Shifting to Government Workers: Joe Mysak 3. Stimulus Tab of $41,800 Waits for Wall Streeters: Kevin Hassett 4. ‘Next Greece’ Search Is on as Hedge Funds Circle: William Pesek 5. Goldman Sachs Is Innocent of Greece’s Swap Crimes: Mark Gilbert Following are the most-read stories on Bloomberg.com from the past week, excluding daily market coverage: 1. Harvard’s Rogoff Sees Sovereign Defaults, ‘Painful’ Austerity 2. Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs 3. Euro Worst to Come as Greece Hammerlocks ECB on Rates 4. Obama May Prohibit Home-Loan Foreclosures Without HAMP Review 5. U.S. Economy: Confidence Falls to Lowest Since April 6. Rogoff Says China Crisis May Trigger Regional Slump 7. China New Village Makes Chanos See Dubai 1,000 Times 8. U.S. May Give Regulators Room to Apply Volcker Rule 9. Goldman Sachs Says Greek Swaps Not ‘Inappropriate’ 10. Nokia CEO Stung by IPhone Aims to Outdo Jobs With Apps and Maps # # -0- Feb/26/2010 18:01 GMT

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‘Who’s Who’ Group of Executives from 100+ Firms at GoldenNetworking.com’s High-Frequency Trading Happy Hour

February 26, 2010

BATS Global Markets, Blake, Cassels & Graydon LLP, Bloomberg LP, CapitalSource, Chatsworth Group, Citigroup, Columbia University, Credit Suisse, Debt Market, Deschutes Capital, Direct Edge, Echotrade, Elk River Trading, Empire Capital Partners, Far Hills

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Video: Yamada Discusses Outlook for Bond Markets, Strategy: Video

February 26, 2010

Feb. 26 (Bloomberg) — Louise Yamada, managing director of Louise Yamada Technical Research Advisors, talks with Bloomberg’s Pimm Fox about the outlook for bond markets and her investment strategy. (This is an excerpt. Source: Bloomberg)

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Video: Tannenbaum Says Small Business Lending to Be Pricier: Video

February 26, 2010

Feb. 26 (Bloomberg) — Leonard Tannenbaum, chief executive officer at Fifth Street Finance Corp., talks with Bloomberg’s Pimm Fox about financing for small businesses. Tannenbaum sees a “pickup” in lending and says that such lending will be “more expensive.” (This is an excerpt from the full interview. Source: Bloomberg)

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Retail vacancy rate in Tampa Bay shopping centers grows to 10.5 percent

February 26, 2010

discretionary spending. That’s because the hotel and shopping center industries are the biggest parts of the commercial real estate industry that dramatically built far ahead of demand during the boom years of easy credit and soaring land prices. Now

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Video: Gushee Discusses Greece Debt Crisis, Stock Strategy: Video

February 26, 2010

Feb. 26 (Bloomberg) — Charlie Gushee, a managing director at Auerback Grayson & Co., talks with Bloomberg’s Pimm Fox about Greece’s debt crisis and his investment strategy for the nation’s stocks. (This is an excerpt of the full interview. Source: Bloomberg)

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No more Greek debt for German lenders

February 26, 2010

FRANKFURT: Big German lenders including Deutsche Postbank, Eurohypo and Hypo Real Estate have said they would not take on more Greek debt, making it harder for Greece to sell bonds to resolve its deficit crisis

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Video: U.S. Stocks Advance as GDP Expansion Beats Estimates: Video

February 26, 2010

Feb. 26 (Bloomberg) — Bloomberg’s Deborah Kostroun reports on the performance of the U.S. equity market today. Stocks advanced, trimming the weekly drop in the Standard & Poor’s 500 Index, as reports showing business activity expanded and gross domestic product topped estimates overshadowed American International Group Inc.’s plunge and home sales that missed projections. (Source: Bloomberg)

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Video: Aronstein Discusses Outlook for U.S. Economic Recovery: Video

February 26, 2010

Feb. 26 (Bloomberg) — Michael Aronstein, chief investment officer at Oscar Gruss & Son Inc., talks about the outlook for U.S. economic recovery. (This report is an excerpt of the full interview. Source: Bloomberg)

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Video: Gault Says U.S. Growth May Slow to 2.5% in First Quarter: Video

February 26, 2010

Feb. 26 (Bloomberg) — Nigel Gault, chief U.S. economist at IHS Global Insight, talks with Bloomberg’s Matt Miller and Carol Massar about the outlook for the U.S. economy. The economy expanded at a 5.9 percent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories, the Commerce Department said today in Washington. (Source: Bloomberg)

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Dennis A. Henigan: Starbucks Sticks To Its Guns. Why?

February 26, 2010

In case you missed it, last Saturday was “Starbucks Appreciation Day.” No, it was not a gesture of support from lovers of strong coffee (like me). The “appreciation” was on behalf of Americans who believe it is their sacred right to have a handgun with them wherever they go – even to carry it openly to make sure the rest of us know who are the real defenders of the Second Amendment. The “open carry” movement has been convening groups of its followers to meet up at restaurants and coffee shops, with pistols, revolvers and ammo hanging from their hips. Two major retail chains who were “open carry” targets (so to speak) – California Pizza Kitchen and Peet’s Coffee & Tea – reacted quickly by announcing strict “no guns” policies. Starbucks, on the other hand, has earned the “appreciation” of the gun-toters by becoming the “safe house” for the “open carry” movement. Starbucks’ official response has been to offer the assurance that it will “continue to adhere closely to local, state and federal laws” on this issue. This is an evasion, not an answer. The fact is that Starbucks would also “adhere closely to local, state and federal laws” by prohibiting guns on its premises. The law allows Starbucks and other retail businesses to make their own policy on guns. Starbucks has made a choice to recognize the rights of a few gun extremists to show off their weaponry in its stores and ignore the rights of the vast majority of its customers to enjoy their coffee and muffins free of the fear, intimidation and risk of violence inherent in the “open carry” experience. Starbucks seeks to hide behind “local, state and federal law,” but in truth, there is no place for it to hide. For a glimpse into its future as the corporate best friend of the gun-toters, Starbucks should consider the experience of a California restaurant chain, Buckhorn Grill . On February 6, a Buckhorn restaurant in Walnut Creek, California, was visited by about 100 men carrying their highly-visible guns. A recent New York Times editorial said this must have “looked like a casting call for a Sam Pekinpah shoot-’m-up.” Shortly thereafter, Buckhorn’s management made clear that the restaurant had always had a “no weapons” policy and apologized for the “misunderstanding” that had led to the “open carry” event. How many gun carriers need to show up at Starbucks for the company to realize what a nightmare it is creating for its customers and employees? The issue here is much bigger than Starbucks and involves more than just “open carry.” Starbucks’ new gun-wielding friends envision an America in which guns permeate American society. A pitched battle is underway that will determine whether their vision is realized. It started with the gun lobby’s largely successful campaign to make it easier to obtain a license to carry concealed weapons in public. Now the “gun rights” extremists are trying to break down the barriers limiting where concealed weapons can be carried. As of this week, with the shameful acquiescence of the Obama Administration, loaded guns will be allowed in national parks for the first time since they were banned by the Reagan Administration. In over twenty states , the gun lobby has tried, and thankfully failed, to pass legislation to force colleges and universities to allow guns on campus. The battle continues. It may be that “open carry” will turn out to be the “secondhand smoke” of the gun debate. On the tobacco issue, it was one thing for people to subject themselves to the unhealthy effects of cigarettes. It was quite another for the effects of smoking to be so visibly inflicted on non-smokers. Smoking in public became a new, and transforming, focus of the debate, leading to far-reaching restrictions on where people can smoke. On the gun issue, although the carrying of concealed weapons in public subjects everyone to enormous risk , the risk is, by definition, concealed. Perhaps this is why my tobacco-growing home state of Virginia now no longer allows restaurant customers to smoke, but will allow them to carry concealed weapons (and may now be poised to allow them even to carry concealed in restaurants that serve alcohol!). “Open carry,” unlike concealed carry, confronts everyone with the risks of guns in public, in a very direct and highly-visible way. We can only hope that the “open carry” movement will backfire, bringing our country back from the brink of the “guns everywhere” vision of America now being foisted on us by the NRA and the most dedicated supporters of its extremist agenda. Over 27,000 Americans so far have signed the “no guns” petition circulated by the Brady Campaign to Prevent Gun Violence and CREDO Action calling on Starbucks to keep guns out of its stores. Please join them by going to www.bradycampaign.org . Tell Starbucks that, in your America, parents ought to be able to take their families into coffee shops without facing the intimidation and danger of guns. For more information, see Dennis Henigan’s new book, Lethal Logic: Exploding the Myths that Paralyze American Gun Policy .

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Share of long-only investments will reduce – APK

February 26, 2010

bonds. According to Bhm, funds do have to have the courage to invest in market segments such as distressed debt because there are still some opportunities in sectors where the drop in price was unrelated to fundamental data. He also confirmed the number

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Video: Bernstein Says U.S. Economy Is `Back From the Abyss’: Video

February 26, 2010

Feb. 26 (Bloomberg) — Jared Bernstein, chief economic adviser to Vice President Joe Biden, talks with Bloomberg’s Matt Miller and Carol Massar about today’s report showing the U.S. economy expanded at a 5.9 percent annual rate in the fourth quarter. Bernstein also discusses the Obama administration’s proposed new rules for financial advisers who oversee employee retirement accounts in an effort to prevent conflicts of interest. (Source: Bloomberg)

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Fannie Mae Posts 4Q Loss, Wants $15.3 Billion In Additional Government Aid

February 26, 2010

WASHINGTON — Fannie Mae needs another $15 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned its losses will continue this year. The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request means the total bill for the duo will top $126 billion. And the pain isn’t over. Fannie warned Friday that it will need even more money from the Treasury, as unemployment remains high and millions of Americans lose their homes through foreclosure. Fannie Mae reported Friday that it lost $74.4 billion, or $13.11 a share, last year, including $2.5 billion in dividends paid to the government. That compares with a loss of $59.8 billion, or $24 a share, a year earlier. Fannie Mae, which was seized by federal regulators in September 2008, has racked up losses totaling $136.8 billion over the past three year. Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie, lifting an earlier cap of $400 billion. Earlier in the week, Freddie reported a loss of almost $26 billion for last year. The company didn’t request any more money, but expect to do so later this year. Fannie and Freddie play a vital role in the mortgage market by purchasing mortgages from lenders and selling them to investors. Together the pair own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages. “Through this prolonged stress in the housing market, we are helping homeowners across the country, supporting affordable housing, and providing financing to keep the residential markets functioning,” the company’s chief executive, Mike Williams, said in a statement. The two companies, however, loosened their lending standards for borrowers during the real estate boom and are reeling from the consequences. At the end of last year, nearly 5.4 percent of Fannie Mae’s borrowers had missed at least one payment – dramatically higher than historic levels. During the most recent quarter, Washington-based Fannie suffered $11.9 billion in credit losses and a $5 billion write-down for low income tax credit investments. That led to a fourth-quarter loss of $16.3 billion, or $2.87 a share, including $1.2 billion in dividends paid to the Treasury Department. It compares with a loss of $25.2 billion, or $4.47 a share, in the year-ago period.

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Existing-Home Sales in U.S. Unexpectedly Decline 7.2% to 5.05 Million Pace

February 26, 2010

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Citigroup Names Mexico’s Zedillo to Board, Says Armstrong, Mulcahy Leave

February 26, 2010

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Vonn Saves NBC From Leno-OBrien; Visa Basks in Medal

February 26, 2010

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Metro-Goldwyn-Mayer Said to Seek Second-Round Bids for Studio by Mid-March

February 26, 2010

By Michael White and Sarah Rabil Feb. 26 (Bloomberg) — Metro-Goldwyn-Mayer Inc. is asking suitors to submit new bids for the studio by mid-March, about two weeks before its respite from interest payments expires, according to three people with knowledge of the situation. Billionaire Len Blavatnik’s Access Industries, Time Warner Inc. , Lions Gate Entertainment Corp. and Liberty Media Corp. are among the potential buyers examining MGM books, said one of the people, who requested anonymity because the talks are private. MGM, distributor of the James Bond movies, is exploring a sale after failing to make payments on $3.7 billion in debt. Suitors are trying to assess the value of MGM assets that include a 4,100-movie library, future “Bond” movies and rights to co-distribute films based on J.R.R. Tolkien’s “The Hobbit.” “It’s an old library,” said Matthew Harrigan , a Denver- based Wunderlich Securities analyst who follows entertainment companies. “Just about the only thing that has had significant value over the last five years is the Bond franchise.” No firm date for the second-round bids has been set because the suitors are still seeking information from the Los Angeles- based studio, which was taken private for $5 billion by buyers including Providence Equity Partners in 2005. Non-binding first-round bids approached $2 billion, contingent on due diligence, two of the people said. A lenders’ forbearance agreement is set to expire on March 31. They have extended the payment moratorium from the original Dec. 15 deadline to give the studio more time to consider offers. MGM spokeswoman Susie Arons declined to comment. Peter Wilkes , a Lions Gate spokesman, didn’t return a call seeking comment. Courtnee Ulrich , a spokeswoman for John Malone’s Liberty Media, didn’t respond to a request for comment. Access Industries Stewart Till , chief executive officer of Access Industries’ Icon film distribution business in London, said in an earlier interview the company has the wherewithal to be a potential bidder for major entertainment properties. Providence, in Providence, Rhode Island, has a 29 percent stake in MGM, while TPG, based in Fort Worth, Texas, has 21 percent. Sony Corp. , the Tokyo-based owner of Columbia Pictures, and Comcast Corp. , the largest U.S. cable-TV company, each own 20 percent. DLJ Merchant Banking Partners has 7 percent, and Quadrangle Group owns 3 percent. Valuing a library is a lengthy process because each film must be examined to assess revenue potential and to determine who may have a contract to share in profit or distribution rights, analyst Harrigan said. Library Details “You need a ridiculous amount of detail,” said Harrigan. “You look at every movie to see what you can get.” Time Warner, New York-based parent of the Warner Bros. studio, rose 6 cents to $28.92 at 9:41 a.m. in New York Stock Exchange composite trading . Vancouver-based Lions Gate, maker of the “Saw” movies, dropped 2 cents to $5.39. New York-based Access Industries owns a stake in Top Up TV, a U.K. pay television service, along with the Russian TV company Amedia, and in 2008 acquired control of the U.K. arm of actor/director Mel Gibson’s Icon Productions Inc., the U.K.’s Daily Telegraph reported at the time. Liberty Capital , one of Englewood, Colorado-based Liberty Media’s tracking stocks, rose 6 cents to $34.26 on the Nasdaq Stock Market yesterday. The company is evaluating options for its movie production unit, Overture Films. To contact the reporters on this story: Michael White in Los Angeles at mwhite8@bloomberg.net ; Sarah Rabil in New York at srabil@bloomberg.net

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New York Governor David Paterson Says He Won’t Seek Election in November

February 26, 2010

By Henry Goldman and A. Catarina Saraiva Feb. 26 (Bloomberg) — New York Governor David Paterson withdrew his candidacy for election in November after published reports said that he and state police officers spoke with a woman who had filed domestic abuse charges against one of his aides. Paterson, 55, dropped out six days after opening his campaign at a rally in Hempstead, New York, while vowing to stay in his post for the remainder of his term to work toward restoring the state’s fiscal health. “It has become increasingly clear to me in the past few days I cannot run for office and do the state’s business at the same time, and right now New York needs a leader who can devote full-time to this service,” Paterson said today in a press conference at his office in midtown Manhattan. The decision by the former lieutenant governor, who took office after Eliot Spitzer resigned in March 2008, comes as the state faces a deficit of $8.2 billion in its more-than $135 billion budget in the next fiscal year. Sinking public approval ratings had provoked a likely September primary challenge from state Attorney General Andrew Cuomo , 52, whom Paterson asked this week to probe the allegations. Paterson said today he had offered his assistance to Cuomo should he become a candidate. On Feb. 24 the New York Times reported state police officers and Paterson spoke with a former girlfriend of David Johnson, 37, whom the newspaper described as one of Paterson’s closest aides, after she accused Johnson of assault and sought a court-issued protective order against him. Paterson suspended Johnson without pay, the governor said in a Feb. 24 statement. ‘Personal Oath’ He rejected allegations that he had used his position to interfere in any way. “I’m looking forward to a full investigation of actions taken by myself and my administration, but I give you this personal oath,” Paterson said. “I have never abused my office, not now, not ever, and I believe that when the facts are reviewed the truth will prevail. “There are 308 days left in my term. I will serve every one of them fighting for the people of the state of New York,” he said. To contact the reporters on this story: Henry Goldman in New York City Hall at hgoldman@bloomberg.net ; A. Catarina Saraiva in New York at asaraiva5@bloomberg.net

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Hedge-Fund Assets Held Offshore May Be Exempted From U.S. Reporting Rule

February 26, 2010

By Ryan J. Donmoyer Feb. 26 (Bloomberg) — U.S. investors don’t have to report large holdings in offshore hedge funds and private-equity firms this year under disclosure rules designed to detect offshore tax evasion and money laundering, the Internal Revenue Service said. The IRS announcement followed the issuance of proposed regulations yesterday by the Financial Crimes Enforcement Network , a Treasury agency, that effectively spare fund investors from a June 30 deadline to report offshore accounts that exceed $10,000. Failure to file the Report of Foreign Bank and Financial Accounts, or FBAR , when required can result in penalties that exceed the value of the account. In a notice today, the IRS said it “will not apply its enforcement authority adversely in the case” where people are invested in foreign hedge funds or private-equity funds “with respect to that account for calendar year 2009 and earlier calendar years.” The decision “takes off a very large burden for people who haven’t been doing this over the years and are worried about their exposure,” said Seth Entin , a tax lawyer at the Miami- based firm Greenberg Traurig LLP . FinCEN said that it is studying the issue and that pending legislation aimed at broader regulation of private pools of capital may influence a later decision. “Treasury remains concerned about the use of, for example, hedge funds to evade taxes and FinCEN will continue to study this issue,” the rules proposed by FinCEN say. Cash-Surrender Values The proposed regulations say investments in offshore mutual funds and life-insurance policies featuring cash-surrender values are subject to the reporting requirements. Both types of investments are more liquid than assets in hedge funds and private-equity firms, which require longer financial commitments, giving rise to concern that they can be more easily used to launder funds and evade taxes, the proposed rules said. U.S. citizens with foreign holdings have rushed to meet FBAR filing requirements in the wake of the IRS prosecution of customers who hid bank accounts at UBS AG . Failure to file an FBAR can trigger annual penalties of 50 percent of an account’s value that can accumulate to exceed the original holdings. The IRS offered to reduce those penalties for Americans who voluntarily disclosed offshore holdings. FinCEN is seeking written comments on the proposed regulations. To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net .

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Stocks in U.S. Advance as Business Gauge, Economic Expansion Top Estimates

February 26, 2010

By Elizabeth Stanton Feb. 26 (Bloomberg) — U.S. stocks advanced, trimming the weekly drop in the Standard & Poor’s 500 Index, as reports showing business activity expanded and gross domestic product topped estimates overshadowed American International Group Inc. ’s plunge and home sales that missed projections. JPMorgan Chase & Co. led bank stocks to the biggest advance among 10 industries groups in the S&P 500 after Barclays Plc recommended buying the shares. Merck & Co. and UnitedHealth Group Inc. rose at least 0.8 percent, leading gains in health- care companies. AIG, the insurer bailed out by the U.S. government, slumped 10 percent after reporting an $8.87 billion fourth-quarter loss. The S&P 500 rose 0.1 percent to 1,104.49 at 4 p.m. in New York. It dropped 0.4 percent this week and gained 2.9 percent in February. The Dow Jones Industrial Average gained 4.23 points today, or less than 0.1 percent, to 10,325.26. Trading volume on U.S. exchanges was 7.89 billion shares, 11 percent less than the 2010 average, amid a storm that dumped about 21 inches (53 centimeters) of snow in New York City. “It’s a very brittle recovery,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $2.8 billion. “Any sort of sustained growth in consumer spending is a ways off.” A decline in the Conference Board’s consumer confidence index to a 10-month low on Feb. 23 sent the S&P 500 to its biggest drop in more than two weeks. The University of Michigan today revised its gauge of consumer sentiment to 73.6 for February, from a preliminary reading of 73.9. Business Barometer The U.S. economy expanded at a 5.9 percent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 62.6 from 61.5 last month, a bigger increase than economists forecast and the highest since 2005. Sales of previously owned U.S. homes unexpectedly declined in January for a second month, eroding investor confidence in the sustainability of the recovery. Purchases fell 7.2 percent, the second-largest decline ever, to an annual pace of 5.05 million, the National Association of Realtors said. “At some point we have to turn consumer confidence around, and for that we need fundamental improvement in jobs and real estate, which are central to the problem,” said Eric Teal , who oversees $4.5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. There is a “disconnect between the psychology of the market and the fundamentals of the market.” ‘Buying Opportunity’ JPMorgan rose 3.3 percent to $41.97 for the biggest gain in the Dow average. The second-largest U.S. bank by assets offers an “attractive buying opportunity” as the stock traded at about 6 to 7 times normalized earnings, compared with a multiple of 9 for its peers, Barclays said. Merck , the second-largest U.S. drugmaker, rose 0.9 percent to $36.88. UnitedHealth Group , the biggest U.S. health insurer by revenue, gained 1.2 percent to $33.86. President Barack Obama is seeking the biggest U.S. health-care overhaul in 45 years. Congressional Republicans oppose the plan, which would require Americans to get insurance, with new purchasing exchanges and government aid to help. Obama and Democratic leaders said a bipartisan agreement was unlikely yesterday in Washington. “Health care is doing well based upon the growing realization that what ultimately gets passed isn’t going to be nearly as onerous as had been feared,” Kaufler said. Biggest Loss Ever AIG fell 10 percent to $24.77 for the biggest loss in the S&P 500. The fourth-quarter net loss of $8.87 billion, or $65.51 a share, narrowed from $61.7 billion, or $458.99, a year earlier when AIG recorded the biggest loss in U.S. corporate history. The loss was wider than expected as the company set aside more reserves for insurance claims and paying down bailout debts. Fluor Corp., the largest publicly traded U.S. construction company, dropped 5 percent to $42.80. The company lowered its 2010 earnings forecast to $2.80 to $3.20, from an earlier forecast of $3.20 to $3.60. Gap Inc., the operator of the Old Navy and Banana Republic clothing chains, rose 5.4 percent to $21.50. Gap forecast full- year profit of $1.70 to $1.75 a share. Analysts surveyed by Bloomberg estimated $1.69 on average. Gap also said it plans to increase its annual dividend to 40 cents a share from 34 cents and will buy back an additional $1 billion in stock. Profit Data The combined per-share earnings for the S&P 500 are $17.53 based on fourth-quarter reports by 453 companies, according to Bloomberg data, compared with a loss of 9 cents a share in the year-earlier period, according to S&P. Per-share profit declined in each of the past nine quarters, a record slump. Earnings topped analysts’ average estimates at three-quarters of the 456 companies in the S&P 500 that have posted quarterly results since Jan. 11, according to Bloomberg data. Interpublic Group of Cos. had the biggest gain in the S&P 500, surging 11 percent to $7.50. The owner of advertising firms reported fourth-quarter revenue of $1.8 billion, beating the average analyst estimate in a Bloomberg survey by 3.5 percent. BancorpSouth Inc. slumped 14 percent, the most since December 2008, to $19.47. The holding company for BancorpSouth Bank said it will delay filing its 2009 financial results because it’s reviewing its asset quality. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .

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Bank of America Gave Montag $29.9 Million to Keep Merrill Lynch Promises

February 26, 2010

By David Mildenberg Feb. 26 (Bloomberg) — Bank of America Corp. gave Thomas Montag a $29.9 million compensation package in 2009 for running its global banking and markets unit and to fulfill promises made when Merrill Lynch & Co. hired him in 2008. Montag, president of the unit that includes trading and investment banking, received more than the $6.51 million awarded to new Chief Executive Officer Brian Moynihan , and the $6.12 million earmarked for Joe Price, the former chief financial officer now in charge of consumer banking, according to a regulatory filing today. Keeping Montag was a priority for Bank of America last year as it sought to install new management and repay $45 billion in U.S. bailout funds to escape federal caps on compensation. Montag, 53, joined Bank of America four months before the Charlotte, North Carolina-based bank agreed to buy Merrill Lynch & Co. , in September 2008. He had worked for Goldman Sachs Group Inc., the New York investment bank, since 1985. Compensation for Montag included $29.3 million of stock awards and $586,539 of salary. The package included “a restricted stock award granted in January 2009 required by a contractual commitment entered into by Merrill Lynch in May 2008 in connection with hiring Mr. Montag, well before the Bank of America acquisition ,” the lender said in the filing. Moynihan, 50, succeeded Kenneth D. Lewis as CEO on Jan. 1 at the Charlotte, North Carolina-based lender. Lewis, 62, received $4.21 million, mostly from the increased value of his deferred pension plan. The former CEO received no salary, bonus or stock awards. To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

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Despite Lack Of Work, Millennial Generation Remains Buoyant

February 26, 2010

The recession has created a dismal employment picture for 18- to 29-year olds, the worst since 1972. But despite that harsh economic reality, today’s “Millennials” remain bizarrely rosy about their prospects. That’s according to a recent survey conducted by the Pew Research Center , indicating that nine out of ten 18- to 29-year-olds, dubbed the Millennial generation or Generation Next, believe they’ll have enough money to lead the kind of life they want. The facts on the ground are grim. According to the Bureau of Labor Statistics , 37 percent of all Millennials are either unemployed or out of the work force. The last time a generation saw numbers that bad was when the last of the Baby Boomers were coming of age. And the Millenial optimism contrasts sharply with the more dour outlook of today’s Boomers, only 46 percent of whom told Pew they expect to have the financial security they’d like. One factor could be that, for a large chunk of these young people, the vicissitudes of adult life have yet to set in. According to the survey, 36 percent of all 18- to 29-year-olds depend on their parents for financial assistance. For 18 to 24 year olds, it’s 50 percent. Indeed, one-in-six older Millennials, age 22 and older, has boomeranged back to a parent’s home on account of the recession. On the bright side, the Pew survey suggests that this generation is shaping up to be among the most educated in recent history. 54 percent of all of Millennials currently attend or have attended college, compared to 49 percent of Generation Xers at a similar age.

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Ken Lewis, Former Bank Of America CEO, Left With $83 Million In Pay

February 26, 2010

Former Bank of America CEO Ken Lewis, who retired at the end of last year, took a package of stock and benefits valued at $83 million with him when he left, the Wall Street Journal reports: Mr. Lewis, who retired Dec. 31, got 2009 compensation of $4.2 million. That came largely from an increase in the value of his pension benefits. The former CEO agreed last fall to give up his 2009 base salary and any chance at a bonus at the request of Treasury Department pay czar Kenneth Feinberg. Mr. Feinberg made the request based on concerns about the amount of benefits Mr. Lewis could collect upon retirement. Lewis did not receive a salary or bonus in 2009, although he was paid just over $32K in various perks, according to the Associated Press: Lewis, who stepped down as CEO on Dec. 31, received no salary or bonus. His compensation was limited to perks including tax services, home security and parking, according to a preliminary filing disclosed to the Securities and Exchange Commission. Lewis’ 2008 compensation was valued at $9 million. He resigned after almost a year of strife that followed the bank’s purchase of Merrill Lynch. He was succeeded as CEO by Brian Moynihan, formerly head of the bank’s consumer banking division. Moynihan’s 2009 compensation, including salary and stock awards, was valued at $6.03 million, up 32 percent over 2008, according to the filing. Both Lewis’ and Moynihan’s pay was dwarfed by the bank’s head of global banking and markets, Tom Montag, whose 2009 pay was valued at $29.9 million. The bulk of Montag’s pay was in restricted stock. Bank of America said Montag’s stock award was a “contractual commitment” made by Merrill Lynch, which hired Montag in April 2008 before the company being acquired by Bank of America. Bank of America received $25 billion in government bailout money at the height of the credit crisis in fall 2008. It received an additional $20 billion in January 2009 to help offset losses it absorbed as part of the Merrill Lynch acquisition. The bank repaid the money in December, but rancor over the Merrill deal continued. Earlier this month, New York Attorney General Andrew Cuomo filed civil charges against Bank of America and Lewis, saying the bank misled investors about Merrill Lynch before it acquired the Wall Street bank in early 2009. The charges grew out of from accusations that Bank of America failed to properly disclose losses at Merrill and bonuses paid to investment bank employees before the deal closed. The bank has denied the accusations. Bank of America was eager to repay its bailout money to avoid compensation restrictions imposed by the government pay czar Kenneth Feinberg. Story continues below The AP’s executive pay calculation aims to isolate the value the company’s board placed on the CEO’s total compensation package. The figure includes salary, bonus, incentives, perks and the estimated value of stock options and awards. The calculations don’t include changes in the present value of pension benefits, and they sometimes differ from the totals companies list in the summary compensation table of proxy statements filed with the SEC, which reflect the size of the accounting charge taken for the executives compensation in the previous fiscal year.

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Norb Vonnegut: Euro: If It’s Broke, Don’t Fix It?

February 26, 2010

Hedge Funds Try ‘Career Trade’ Against Euro Here’s the deal. Hedge funds are betting the Euro will crash against major currencies. The “short-Euro” trade, however lucrative to the gods of Greenwich, raises three scary questions with one thing in common: Nobody knows the answers. 1. What happens when money exploits problems instead of fixing them? The Wall Street Journal describes the economics of a bear Euro bet as follows: The euro, which traded at $1.51 in December, now trades around $1.35. With traders using leverage — often borrowing 20 times the size of their bet, accentuating gains and losses — a euro move to $1 could represent a career trade. If investors put up $5 million to make a $100 million trade, a 5% price move in the right direction doubles their initial investment. The Euro is weak, in part, because of the financial crisis in Greece. Investors are hesitant to refinance the country’s debt, which makes sense on one level. Who wants to buy a bad bond? But the incentives are out of whack, when money flows into misery bets that turn “long-term value” into an oxymoron. 2. What happens when empty creditors create an endless supply of problems? Credit default swaps enable investors to buy and sell credit risk. The securities sound like clever financial tools. But said another way, they enable financiers to originate bad loans and then trade out of the problem. Credit default swaps gained notoriety at AIG, and now these weapons of money destruction keep appearing in connection to Greece: The threat of ratings reversals, a downgrade of Greek banks by Fitch, and strikes that shut down most of Athens on Wednesday have precipitated another spike in the price of Greek credit default swaps, which investors buy as insurance against default. Investors are now demanding a risk premium of 392 basis points, the most in two weeks. That means someone who holds Greek debt would have to pay $392,000 to insure $10 million in debt against default for a year. 3. What happens when hedge funds attack in packs ? Money managers signal their moves at dinners, conferences, and through warnings from guys like George Soros that “the Euro may fall apart.” Big money chases good ideas, right? But what happens when smart money turns destructive? Wall Street 101, if you’ll excuse the vernacular, is to attack the weak sister. Short Euro or short Greece — nobody can project the unintended consequences when there’s massive firepower behind the assault. Personally, I think credit default swaps have to go. What do you think? Norb Vonnegut

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Steve Parker: Automotive/Auto racing shows this weekend

February 26, 2010

STEVE PARKER’S THE CAR NUT SHOW Saturday, 2/27, LIVE @ 11am Pacific/2pm Eastern on www.TalkRadioOne.com An amazing spectacle in congress this past week — Akio Toyoda, president and CEO of Toyota Motor Corp., was interrogated by a congressional committee about his company’s recalled cars, safety and quality problems and what did he know about it all and when did he know it. At the same time, the FBI raids three Toyota suppliers in the US. Outside of that, Hummer is officially dead and Saab is officially sold as GM continues as the Incredible Shrinking Corporation. Plus your calls — 213-291-9410. STEVE PARKER’S WORLD RACING ROUNDUP Sunday, 2/28, LIVE @ 5pm Pacific/8pm Eastern on www.TalkRadioOne.com NASCAR had its Disaster at Daytona followed by last week’s normally boring race at California Speedway, where Jimmy Johnson started what he hopes (and probably is) a massive streak of victories. This weekend: Las Vegas, home track of Kurt and Kyle Busch. IndyCar opens its season in two weeks on a new street course in Sao Paulo, Brazil and Formula 1 gears up the same weekend in Bahrain and there are plenty of changes in both series we’ll cover. Plus Danica Patrick gives up NASCAR. Join in at 213-291-9410.

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Dan Dorfman: The ‘R’ Word Is Far From Dead

February 26, 2010

“The most dangerous thing is illusion,” Robert Louis Stevenson wrote. Take the state of the economy, in particular the widely held view that the recession is kaput. That could well be one of those illusions, some economic trackers suggest. Like a lot of folks–maybe you’re one of them–I thought the economic anguish of recent years was over and done with, given a string of 10 consecutive monthly gains in the leading economic indicators, a knockout of a fourth-quarter GDP increase (a recently upward revised 5.9%) and Ben Bernanke’s reaffirmation the other day to maintain low interest rates for an extended period. But like Dorothy discovered in the Wizard of Oz in her quest to get back to Kansas in a hurry to see Aunty Em, what seems obvious and easily achievable is often not as obvious and easy achievable as it’s supposedly cracked up to be. Over the past month or so, talk of a double-dip recession has all but disappeared. But I’ve come across a trio of sharp economists who argue it’s too soon to come to such a happy conclusion. Each, in fact, holds the view one could be looming on the horizon. One of them is outspoken Peter Morici, the professor of economics at the Robert H. Smith School of Business at the University of Maryland. “Not only is the economy not out of the woods yet, but there’s a one in three chance that we could see a double dip,” he tells me. Some of his key reasons: –The growing trade deficit (up 10.4% in December to $40.2 billion), which is sapping off demand for U.S. goods and a problem which the President shows no interest in fixing. –Plummeting home sales (Existing home sales fell 7.2% last month, while existing home sales tumbled 11.2% to a record low). –The Federal Reserve’s shoddy handling of the banking crisis, namely its decision to bail out the big New York banks, while ignoring the 8,000 regional banks. –Weekly jobless benefit claims remain above 450,000 when 350,000 is healthy. If indeed a double dip occurs, Morici says, “we could see 15% unemployment (it’s currently 9.7%) and the stock market will surely tank.” Currently, he sees first-quarter GDP rising 3%, which he views as slow growth when we’re supposedly coming out of a recession. This past week, TrimTabs Research, a West Coast liquidity tracker partly owned by Goldman Sachs and a persistent economic bear, switched to the bullish camp after concluding the economy had bottomed in January. Why such a switch? Because, explains TrimTabs’ economics skipper, Madeline Schnapp, of modest year to year growth in income tax withholdings (meaning increased wages and salaries), rising employment demand and growing purchases by companies of their own shares. This buying indicates Corporate America sees better times ahead both for the economy and the stock market. Sounds good, except a chat with Schnapp finds she’s hardly sold on the idea that we’re home free of the “R” word. In fact, she views a double dip recession as a “real possibility” and thinks we have a 50-50 chance of heading in that direction. Schnapp’s biggest worry centers on a number of huge lurking headwinds, which could turn into hurricanes and derail the economic recovery. These are continuing credit losses from near-record mortgage delinquencies, rising delinquencies in commercial real estate, spiraling bank failures from credit losses and the possibility of higher interest rates if Treasury auctions fail to attract sufficient low-yield buyers. A possible blow-up of the sovereign debt crisis is another concern, notably the high deficits of Greece, Spain and Portugal, a reflection of their off balance sheet commitments, such as currency swaps. Taking note, too, of our staggering debt load, a reference to the ballooning budget deficit, pegged at $1.4 trillion in fiscal 2010. Schnapp observes the U.S. has massive financial commitments. In brief, it has to sell $1.8 trillion of Treasuries within a year and borrow a total of $2.5-$3 trillion to finance the deficit and repay short-term debt. But that’s an open question, she says, pointing to the December sales of Treasuries by Russia and China, which reduced their holdings by $44 billion. Our economic recovery is dependent on stable interest rates, notes Schnapp, and if demand for Treasuries decline, interest rates would go up. And that, she says, would destroy our economic recovery. Our remaining economist who envisions a possible double-dip recession is JC Spender, professor of economics at the Open University School of Business in Milton Keynes, U.K. There’s at least a one in three possibility, he believes. “Just look at the news,” he tells me. “It’s not good on the jobs front. It’s not good in housing. It’s not good in consumer confidence. And it’s not good from Greece.” Spender also took pot shots at Wall Street, observing “it’s telling us it’s avoiding the fate of Main Street and the unemployed in Europe, that it has won the battle against Obama and it’s business as usual, even though it has done tremendous damage to the American people. Wall Street,” he went on to say, “has exposed us to a substantially diminished view of America to the world and should return to the banking it did 20 years ago when it was boring and it provided a good underpinning to the economy.” What do you think? E-mail me at Dandordan@aol.com

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Robert E. Scott: The Myth of the manufacturing recovery

February 26, 2010

Some bloggers have suggested that manufacturing is doing well, just because output has grown for the past few months. One sets up a straw man in a piece title “No, Virginia, U.S. Manufacturing isn’t dead,” but no serious economist claims that manufacturing is dead. Manufacturing employed 11.5 million workers in January, 2010, 8.9% of U.S. non-farm employment. However, nearly 6 million manufacturing jobs have disappeared since 1998, and manufacturing’s share of GDP has fallen by a similar share in that time. The Bonddag blog and many others claim that productivity growth is responsible for manufacturing job loss, but they’ve got it wrong. Growing manufacturing trade deficits from 1998 to 2006, and the worst recession since the 1930s are responsible for the vast majority of all manufacturing job loss. We can reclaim a large share of these jobs by shrinking the trade deficit and putting this recession behind us. I explained the relationship between manufacturing output, productivity growth, trade deficits and job loss in my Snapshot on Manufacturing Job Loss: Productivity is not the culprit . It shows that productivity has always grown rapidly in manufacturing–there was no big upsurge in the past decade. The recent uptick in productivity occurred in other sectors of the economy, which does help explain why job growth economy-wide was so terrible in the Bush era, but that’s another story. With manufacturing, the story is simple. In the past, we had high growth in real output and high output growth in manufacturing leading to stable employment. Then, after 2000, productivity growth continued but output growth flat-lined and manufacturing employment collapsed. The reason: a soaring trade deficit in manufacturing products. People kept buying more manufactured goods; they just bought them from China and other exporters, not from U.S. manufacturers. Josh Bivens reviewed this history in his earlier Snapshot on Trade Deficits and Manufacturing Employment . In the past, employment and the trade deficit in manufacturing were roughly stable for 30 years from the late 60s through the late 90s.* Then the Asian financial crisis hit in 1998. The value of the dollar soared along with the manufacturing trade deficit. Manufacturing employment fell like a rock, with a lag of about 2 years, as shown in the graph below. The manufacturing trade balance did start to improve in 2007, but the big drop in the deficit came in 2008 and 2009, and was caused by the recession. The recession was also responsible for the loss of about 2 million of the 5.7 million manufacturing jobs lost since 1998. Bonddad is misguided, and his analysis is confused. His first mistake is to plot a chart of the U.S. Industrial Production Index since 1960 with a trend line (it’s clearly not a fitted trend, but something done with a ruler or graphing software). He says that the increase in manufacturing output is “continual”, suggesting that growth has been steady, but that’s flat out wrong. One problem is that you can’t calculate or “eyeball” growth rates from a linear plot of output. Every introductory, undergraduate finance student learns that you have to plot stock prices on a logarithmic graph to spot changes in growth rates. This is simply because growth compounds–remember, your grandmother taught you that bit of wisdom about the advantage of putting your money in a savings account. In fact, growth in U.S. manufacturing output dropped sharply after 2000, as shown in my snapshot above. If we use the FRB industrial production index and the business cycle peaks shown on Bonddad’s graph, and calculate simple compound average growth rates, the index grew 4.1% per year between July 1990 and March 2001 (the Clinton Business cycle). However, growth in the index fell to only 1.8% between March of 2001 and December 2007. The BLS output numbers show even slower growth in the Bush era, as indicated in my snapshot above. Bonddad makes a number of mistakes in analyzing the relationship between trade and employment. First, he cites a chart from SilverOz that supposedly compared imports of total goods and services with manufacturing employment. However, exports matter too, and for manufacturing, what is most relevant is the manufacturing trade balance, the difference between imports and exports of manufactured goods. The graph reportedly includes imports of both services and non-manufactured commodities, which are clearly un-related to manufacturing. Furthermore, exports sales can support domestic employment, and imports displace employment. You have to look at changes in the manufacturing trade balance to get an accurate picture of the impact of trade on the demand for manufacturing output and labor. But there are more problems with Bonddad’s trade and employment graph. It has a blue line which purports to measure imports of goods and services (measured with a negative sign, which is appropriate). But this series never exceeds $700 billion in imports. However, U.S. imports exceeded $2.5 trillion in 2008. Something is wrong here. It’s not the trade deficit either, because that was $-760 billion in 2006. Finally, the story is about manufacturing employment. The graph reports employment in “goods producing industries,” which include a number of domestic, non-manufacturing industries. The graph should compare manufacturing employment with the trade balance in manufactured goods, as I do in the chart above. To close the trade gap and rebuild manufacturing will required a coherent trade and industrial strategy. We must end currency manipulation by China and other Asian countries, aggressively attack unfair trade practices and rebuild manufacturing. We also need to create at least 4 to 5 million jobs in the rest of the economy to help end the recession, and rebuild demand for manufactured products. These are topics for another day. That discussion should start by acknowledging that productivity growth is a key source of strength and competitiveness in manufacturing, and is not responsible for manufacturing job loss. *The exception was the period from 1979-1989, when the trade deficit also soared and manufacturing employment also dropped. This was also caused by an over-valued currency, which was corrected by the 1985 Plaza Accord. Subsequently, the trade deficit declined and manufacturing employment stabilized. For more information, please visit EPI.org .

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Video: Bennenbroek Says Greek Bond Yields Could Reach 7%: Video

February 26, 2010

Feb. 26 (Bloomberg) — Nick Bennenbroek, head of currency strategy at Wells Fargo, talks with Bloomberg’s Mark Crumpton about the outlook for euro and Greek bonds. Bennenbroek also discusses China’s currency policy. (Source: Bloomberg)

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