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EU debt crisis grows as Portugal teeters on edge

March 10, 2011

EU debt crisis grows as Portugal teeters on edge

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FOREX: Euro May Lead Risky Assets Lower as Traders Eye Portugal Debt Sale

March 9, 2011

FOREX: Euro May Lead Risky Assets Lower as Traders Eye Portugal Debt Sale

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Robert Lenzner: The Next Bubble May Be Bonds, Stocks, Commodities, China

February 16, 2011

The prime example of a bubble that really hurt was the parabolic ascent of the NASDAQ Composite Index from a rational level of 2200 in early 1999 to the ridiculously irrational 5000 15 months later. That was vertical mania by investors out of their mind. By the end of 2002 the value of these mostly technology issues had collapsed in panic selling that was more extreme than the buying. That was a bubble worth trillions popping. So, too, was the mania in housing, where all reasonable expectations were obliterated by leverage upon leverage in mortgage-backed securities and derivative contracts. This bubble was a systematic and dangerous departure from economic fundamentals into the chaos of evaporating home prices.. We are still suffering four years later from that extinguishment of household wealth — a massive damaging loss for ordinary Americans quite soon after the Nasdaq stock market bubble. Get the idea? Bubbles are serious when they are massive. The rule for spotting bubbles before they destroy you, says Harvard economist Ken Rogoff, is to “look for large rapid surges in leverage and asset prices, surges that can suddenly implode if confidence fades.” By this measure, then, the deterioration in Treasury bond prices, in tax-free muni bond prices and fright from the anxiety about some European sovereign bonds, like Greece and Portugal, are more signs of a rationally-proceeding bear market than a panicky bubble. At least so far. Orderly retreats are not bubbles by my standard. Same with gold, where speculation in futures contracts have been substantially reduced (lots of leverage in futures contracts) while bullion prices are trading in a fairly boring range, since confidence in the gold bubble has eased. If gold were a bubble, it wouldn’t matter what the dollar was doing. Investors would just be blown away with the urge to buy gold. Long-term gold investors believe this mania will be triggered by a sudden aversion to dollars, a plunge in their value — and a corresponding spike to unrealistic levels for gold. They will all be trying to get out at the same time. Good luck. Commodities are a better candidate for a bubble, as we had one in the summer of 2008 when oil popped at $147 and fell unmercifully, taking with it some food and metals prices. Since then oil has rebounded by 21 percent, food by 35 percent, copper by 108 percent, gold by 73 percent and silver a pretty bubbly 222 percent. It was, of course, George Soros who called gold the ” ultimate bubble ” when it was selling for about $1,000 an ounce. Since then, we have had plenty of volatility in commodity prices and a generally accepted opinion that the demand from emerging market nations would push prices ever higher. What could pop the bubble would be China’s failure to restrain inflation and its subsequent hard landing. The China bubble clan is watching to see if the People’s Bank of China fails to prevent the bubble, in the same manner as the Federal Reserve failed to restrain the housing bubble in the US by its too massive monetary easing and low interest rates. Ignoring asset bubbles “is a very painful way to show your disdain for macro concepts and a blind devotion to your central skill for stock picking,” says Jeremy Grantham, founder of GMO, the highly reputed Boston investment manager. Grantham “unabashedly” worships bubbles, reckoning it is absolutely mandatory to identify “hugely mispriced major sectors or asset classes among equities.” He suggests that short-term interest rates should remain low for 8 more months, until say August or September, in his Quarterly Letter of January 2011. The signal for an equity bubble would be the S&P 500 index rising to 1500 and rising short term interest rates. “I still don’t understand how the U.S. could have massive numbers of unused labor and industrial capacity yet still have peak profit margins. This has never happened before.” The real quandry, my friends is: When does an overpriced market become a bubble? After all the investors shifting out of Treasuries into common stocks finally rebalance their portfolios, only to get killed again?

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Sheldon Filger: Obama Proposing Record Budget Deficits; Is America Doomed to Follow Greece?

February 14, 2011

As the United States national debt reaches parity with total annual GDP, President Barack Obama continues to preside over a record level of deficit spending by the federal government. He has just sent to Congress a proposed $3.73 trillion budget for FY 2012, while forecasting a record $1.65 trillion deficit for the current fiscal year. Earlier, the Congressional Budget Office projected that the current deficit would reach at least $1.5 trillion. These figures mean that America remains trapped with unsustainable structural mega-deficits, and that more than 40 percent of everything the U.S. federal government spends is financed with borrowed money. As I have commented on before, this level of government indebtedness just cannot be sustained, and will lead to catastrophic repercussions. While the politicians in Washington, particularly in the Obama administration, pay lip service to the need to “rein in” this profligate public spending, nobody believes that they are serious. The president’s claim that he “plans” to reduce the deficit cumulatively over ten year by just over a trillion dollars is an utter farce, since even by the most optimistic forecasts this would leave a combined deficit over the decade of more than ten trillion dollars. The problem, however, is not uniquely one of the Obama administration and the Democratic Party. The Republicans, who left for Obama as an inaugural present in 2009 a first-ever annual deficit to exceed a trillion dollars, are as intellectually bankrupt as are their adversaries on the other side of the aisle. The GOP is equally bereft of ideas on how to control this raging fiscal train wreck, offering little more than worn-out cliches such as reducing taxes, as though that would not further exacerbate the federal government’s structural mega-deficit. What we are witnessing is not only an economic and fiscal calamity in the making. It is as much a display of political dysfunctionality and moral cowardice as it is of inept fiscal policy. Which leads to the melancholy conclusion that it will not be the political echelon in Washington that ultimately imposes budgetary discipline on public spending. Increasingly likely is a doomsday scenario, in which the bond vigilantes, well practiced already with their punishing assaults on the credit ratings of Greece, Ireland and now Portugal, unleash the full fury of the market place on Uncle Sam. When that fiscally apocalyptic moment arrives, not even the impressive weight of political inertia that resides in Washington DC will be able to impede a sovereign debt crisis in the United States that will not only cripple the nation’s economy with devastating effect; it will likely dispossess the next generation of Americans of their future.

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Mark Weisbrot: Spain’s Troubles Are Tied to Eurozone Policies

February 11, 2011

It has become fashionable since Spain’s economy began to decline to make comparisons to Germany, which is rebounding strongly. The idea is that the Germans went through their restructuring, got organized labor under control, and thereby made their economy more competitive. According to this narrative, this is the key to their economic success — so Spain should do the same if the Spanish economy is to recover. This fits well with various stereotypes of Germans as disciplined and hard working, willing to do what is necessary to be competitive in the global economy, while their counterparts in Europe’s periphery are seen as undisciplined and indulgent. However, the story does not fit the economic facts very well. Spain’s problems are mostly associated with the euro, combined with some bad economic policy decisions that have nothing to do with “labor inflexibility,” the strength of unions, or government spending. And its recovery is being delayed as a result of decisions made by the European authorities: the European Commission, the European Central Bank, and the International Monetary Fund (IMF). When Spain joined the euro in 1999, its level of productivity in manufacturing was about 63.6 percent of Germany’s. Over the next 10 years, productivity grew at about the same rate in both countries, so that by 2009 the ratio was about the same: 63 percent. Hourly wages in manufacturing also increased by about the same amount in both countries, so Germany kept its large, productivity-based cost advantage over Spain. Of course, this arrangement has worked out much better for Germany — during the upswing from 2002-2007, more than 120 percent of Germany’s growth was due to exports — with most of these exports going to other Eurozone countries. This is the basic problem when a country decides to adopt a common currency with other countries that have much higher levels of productivity. They can’t really be competitive in tradable goods — which includes not only exports but industries that compete with imports. If Spain had its own currency, it could let the value of its currency fall to a level that would make the country’s tradable goods sectors competitive. In a situation where the economy is in recession or is weak — Spain’s economy shrank by 0.2 percent in 2010 — the increased exports and reduced imports from such a devaluation would also help get the economy growing again. Instead, the European authorities have prescribed what is called an “internal devaluation” — shrink the economy and raise unemployment enough so that the country can become competitive, through lower prices and wages, without changing the exchange rate (i.e. keeping the euro). Unemployment in Spain is now 20 percent, and although exports have picked up some over the last year or so, it is not nearly enough to pull the economy out of its slump. Spain needs expansionary fiscal and monetary policy to boost the economy. But monetary policy is controlled by the European Central Bank — which just last week announced that it may raise interest rates, despite Europe’s anemic recovery and crushing unemployment in the Eurozone’s weakest economies (Spain, Ireland, Portugal). Expansionary fiscal policy is prohibited by pressure from the European authorities — who are actually pushing Spain to do the opposite, i.e. cut spending and raise taxes — and the fact that, not having its own monetary policy, Spain cannot engage in “quantitative easing,” as the US has done recently, or Japan has done for decades, to finance government spending without adding to the country’s net debt burden. Now back to Spain’s decade of experience with the euro. The adoption of the euro opened up a period of bubble growth, with big capital inflows from other European countries, and the country experienced a vast run-up in the stock market and a huge housing bubble. Spain’s economy grew by a third between 1999 and 2007, and its net debt fell to just 26.5 percent of GDP in 2007. But it was bubble-driven growth: the stock market peaked at 125 percent of GDP in November 2007 and dropped to 54 percent of GDP a year later. A housing bubble increased construction from 7.5 percent to 10.8 percent of GDP (2000-2006), and housing starts dropped by 87 percent when the bubble burst. It was the bursting of these bubbles, and not any lax spending policies by the government, that crashed Spain’s economy and caused its budget troubles. And it is Spain’s subordination to the European authorities, which prohibits it from using any of the three most important macroeconomic policies — fiscal, monetary, and exchange rate — to get out of its slump. Furthermore, although it was theoretically possible for Spain to have narrowed the productivity gap with Germany — since it was starting out at a much lower level of productivity — the bubble-driven growth of the last decade, spurred by the adoption of the euro and large capital inflows, is not the kind of growth that drives up manufacturing productivity. So the neoliberals have it backwards: it is the neoliberal macroeconomic policies, locked in with the euro, that are the source of both its recession and continuing troubles. Spain should refuse to accept any policies that prolong its slump and prevent it from reducing unemployment. If that means restructuring its debt or even leaving the euro, then these options should be on the table in any negotiations with the European authorities. These choices would better than suffering through many more years of sluggish growth and high unemployment. This column was published by the Guardian Unlimited (UK) on January 29, 2011.

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Mark Weisbrot: Spain’s Troubles Are Tied to Eurozone Policies

February 11, 2011

It has become fashionable since Spain’s economy began to decline to make comparisons to Germany, which is rebounding strongly. The idea is that the Germans went through their restructuring, got organized labor under control, and thereby made their economy more competitive. According to this narrative, this is the key to their economic success — so Spain should do the same if the Spanish economy is to recover. This fits well with various stereotypes of Germans as disciplined and hard working, willing to do what is necessary to be competitive in the global economy, while their counterparts in Europe’s periphery are seen as undisciplined and indulgent. However, the story does not fit the economic facts very well. Spain’s problems are mostly associated with the euro, combined with some bad economic policy decisions that have nothing to do with “labor inflexibility,” the strength of unions, or government spending. And its recovery is being delayed as a result of decisions made by the European authorities: the European Commission, the European Central Bank, and the International Monetary Fund (IMF). When Spain joined the euro in 1999, its level of productivity in manufacturing was about 63.6 percent of Germany’s. Over the next 10 years, productivity grew at about the same rate in both countries, so that by 2009 the ratio was about the same: 63 percent. Hourly wages in manufacturing also increased by about the same amount in both countries, so Germany kept its large, productivity-based cost advantage over Spain. Of course, this arrangement has worked out much better for Germany — during the upswing from 2002-2007, more than 120 percent of Germany’s growth was due to exports — with most of these exports going to other Eurozone countries. This is the basic problem when a country decides to adopt a common currency with other countries that have much higher levels of productivity. They can’t really be competitive in tradable goods — which includes not only exports but industries that compete with imports. If Spain had its own currency, it could let the value of its currency fall to a level that would make the country’s tradable goods sectors competitive. In a situation where the economy is in recession or is weak — Spain’s economy shrank by 0.2 percent in 2010 — the increased exports and reduced imports from such a devaluation would also help get the economy growing again. Instead, the European authorities have prescribed what is called an “internal devaluation” — shrink the economy and raise unemployment enough so that the country can become competitive, through lower prices and wages, without changing the exchange rate (i.e. keeping the euro). Unemployment in Spain is now 20 percent, and although exports have picked up some over the last year or so, it is not nearly enough to pull the economy out of its slump. Spain needs expansionary fiscal and monetary policy to boost the economy. But monetary policy is controlled by the European Central Bank — which just last week announced that it may raise interest rates, despite Europe’s anemic recovery and crushing unemployment in the Eurozone’s weakest economies (Spain, Ireland, Portugal). Expansionary fiscal policy is prohibited by pressure from the European authorities — who are actually pushing Spain to do the opposite, i.e. cut spending and raise taxes — and the fact that, not having its own monetary policy, Spain cannot engage in “quantitative easing,” as the US has done recently, or Japan has done for decades, to finance government spending without adding to the country’s net debt burden. Now back to Spain’s decade of experience with the euro. The adoption of the euro opened up a period of bubble growth, with big capital inflows from other European countries, and the country experienced a vast run-up in the stock market and a huge housing bubble. Spain’s economy grew by a third between 1999 and 2007, and its net debt fell to just 26.5 percent of GDP in 2007. But it was bubble-driven growth: the stock market peaked at 125 percent of GDP in November 2007 and dropped to 54 percent of GDP a year later. A housing bubble increased construction from 7.5 percent to 10.8 percent of GDP (2000-2006), and housing starts dropped by 87 percent when the bubble burst. It was the bursting of these bubbles, and not any lax spending policies by the government, that crashed Spain’s economy and caused its budget troubles. And it is Spain’s subordination to the European authorities, which prohibits it from using any of the three most important macroeconomic policies — fiscal, monetary, and exchange rate — to get out of its slump. Furthermore, although it was theoretically possible for Spain to have narrowed the productivity gap with Germany — since it was starting out at a much lower level of productivity — the bubble-driven growth of the last decade, spurred by the adoption of the euro and large capital inflows, is not the kind of growth that drives up manufacturing productivity. So the neoliberals have it backwards: it is the neoliberal macroeconomic policies, locked in with the euro, that are the source of both its recession and continuing troubles. Spain should refuse to accept any policies that prolong its slump and prevent it from reducing unemployment. If that means restructuring its debt or even leaving the euro, then these options should be on the table in any negotiations with the European authorities. These choices would better than suffering through many more years of sluggish growth and high unemployment. This column was published by the Guardian Unlimited (UK) on January 29, 2011.

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FOREX: Euro Looks to Portugal Debt Sale Ahead of ECB Rate Decision

February 2, 2011

FOREX: Euro Looks to Portugal Debt Sale Ahead of ECB Rate Decision

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Thanos Dimadis: Will Americans Pay for the Euro Zone’s Debt Crisis?

January 24, 2011

Most of us may have been informed of many aspects regarding the Euro zone’s debt crisis and particularly of the risk that the EU members run of getting caught in a vicious cycle of instability, which would definitely cause disastrous effects on the financial system, not only in Europe but also in the rest of the world. But not many of us are aware of the reasons for which the European debt crisis should end with less possible negative effects. There is no other choice ahead for European leaders except that of supporting the euro’s currency survival by making radical decisions in terms of proving that at any given moment they respect the Europe’s cornerstone: the prosperity and the solidarity among all European countries. After a long time of European political confusion, indecision and the inability of dealing with the problem of guarantees expected by the international markets, right now it has become common sense that the debt crisis does not concern only the European countries, but also the whole of Euro zone’s members. What’s occurring in the European continent, should not be — and is not — isolated by what Americans set as their priority, namely, good prospects for their economy, creation of more job opportunities, increased exportation and greater competitiveness for the American products. The truth is that none of these economic targets can be met while the Euro zone’s countries are struggling against the financial markets’ intimidation, the even higher interest rates and the constant danger of an extending and persistent degradation for their high indebted economies. While the European economy continues to remain under the cloud of uncertainty and insecurity for its future, the global economy, the major player of which is still the United States, is under the threat of being affected by the colossal spillovers reflected in terms of the micro and macro-economic level. Of course, American President Barack Obama is fully aware of the interconnectedness between the Euro zone’s debt market and his presidency’s goal of recovering American economy. At this point it needs to be highlighted that thanks to his intensive pressure towards the German Chancellor Angela Merkel in order that she soften her rigorous stance during the inner-European negotiations, the Euro zone’s political leaders agreed on a temporary support mechanism for Greece and, lately, for Ireland. The exceptional role of International Monetary Fund (IMF), lending billions of dollars through that mechanism, is not disengaged from the European political reactions. There is no doubt that the US economy would only lose by just standing as a passive spectator of the Euro zone’s economic collapse, while it would only gain a lot by supporting the debt-ridden European countries. Given that context, the intervention of IMF into the current rescue mechanism — developed and put into practice for the first time in case of Greece — strengthens the conviction according to which the overcome of Euro zone’s crisis will be a victory for the US as well. By being the largest funder among many other countries in the IMF’s executive office, the US is becoming a kind of guarantor for the Euro zone stability. Money given through the IMF’ bailout to Greece, Ireland and probably to Portugal sooner or later is a lifeguard for those economies and, extensively, for the overall global system’s balances. However, through the IMF bailout, the US is extending its financial alongside with its political influence on the Euro zone. With China having demonstrated its intention to buy European bonds, it is clear the Euro zone is being transformed into an area, where each one of these two world’s economic leaders are trying to obtain much more financial, but mainly political impact. While China’s Euro zone bond holdings are limited, the US through the IMF is enhancing its role as the principal financial partner to the Euro zone. The IMF has not apparently the authorization to participate into the oncoming new context of financial governance in the Euro zone, but certainly it has already established its distinctive role of participating in the European crisis resolution management for now and the near future. European leaders constructed more than ten years ago the vision of a common currency among its members, but they didn’t develop the appropriate mechanism for a solid not only monetary but also fiscal environment. Reacting to some Republicans statements, like those of House Republican Caucus vice Chairwoman Cathy McMorris Rodgers and House GOP Caucus Chairman Mike Pence, I need to express my surprise of how easily politics create false impressions. Of course, the case of debt-ridden Greece is not an example of a reliable economic management. But in that case, the problem was not only Greek. The crisis — as we see today — is concerning the total of the Euro zone and so the overall financial system. Some American politicians by supporting the argument that US citizens cannot pay through the IMF’s bailout for the Greek debt or the Euro zone’s crisis, tend to oversimplify the reality. American citizens are not responsible for saving neither Greece nor Ireland or any other state of the Euro zone. But, it is in the American interest that the European countries overcome their economic difficulties, before the spread of economic contagion across the Atlantic Ocean. Hopefully, American President Obama confirms what Henry Kissinger had said that during a crisis making a bold choice and decision is often the safest way. No doubt that the current crisis requires such strong choices and decisions.

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Video: Kraemer Says Bond Sales Don’t Mean End to Debt Crisis

January 13, 2011

Jan. 13 (Bloomberg) — Joerg Kraemer, chief economist at Commerzbank AG, discusses bond auctions by Spain, Portugal and Italy. Kraemer speaks from Frankfurt with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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FOREX: Euro Gains May Prove Short-Lived as Traders Eye Portugal Debt Sale

January 12, 2011

FOREX: Euro Gains May Prove Short-Lived as Traders Eye Portugal Debt Sale

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Volatility persists in European markets on possible rescue fund for Portugal

January 11, 2011

Volatility persists in European markets on possible rescue fund for Portugal

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Another EU Country Has Its Debt Downgraded

December 23, 2010

LONDON — Portugal had its credit rating downgraded Thursday by the Fitch Ratings agency amid mounting concerns over the country’s ability to raise money in the markets to finance its hefty borrowings. Fitch said it was reducing its rating on the country’s debt by one notch to A+ from AA- and warned that further downgrades may be in the offing by maintaining its negative outlook. “The downgrade reflects an even slower reduction in the current account deficit and a much more difficult financing environment for the Portuguese government and banks than incorporated into Fitch’s previous rating (in March), as well as a deteriorating near-term economic outlook,” Fitch said in a statement. Fitch’s downgrade follows a warning earlier this week from rival Moody’s Investor Services that it may cut its A1 rating on Portugal by a notch or two because of uncertain economic growth, the high cost of borrowing on global markets and worries about the banking sector. Fitch’s reasoning is very similar and is likely to stoke renewed speculation that Portugal could well be the next country using the euro in need of financial help from its partners in the European Union and the International Monetary Fund – Greece and Ireland have already suffered the ignominy of being bailed out. The agency said the Portuguese government would likely meet its target of reducing its budget deficit to 7.3 percent of national income this year, but voiced concerns that this is heavily dependent on one-time measures, which don’t make a dent on the long-term state of the public finances. As a result, Fitch said the government will find it “extremely challenging” getting the budget into shape, especially if, as the agency expects, the economy falls into recession next year. The Portuguese government aims to reduce the budget deficit to 3 percent of GDP by 2012 and to just 2 percent of 2013, which would be extremely difficult if the eurozone’s smallest economy starts to contract again – in effect, lower growth means lower tax receipts and higher social spending, hardly conducive to budgetary health. “Failure to meet its 2011 budget headline and structural deficit targets would erode confidence in the medium-term sustainability of public finances that underpins Portugal’s current sovereign ratings,” Fitch said.

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EU Finance Ministers Confident in Portugal & Spain, Ruled Out Aid Increase

December 7, 2010

EU Finance Ministers Confident in Portugal & Spain, Ruled Out Aid Increase

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Spain Approves New Austerity Measures, Limited Stimulus

December 4, 2010

MADRID — The Spanish government approved new austerity measures and a limited economic stimulus package to ease investor fears about its debt – and insisted again it was taking strong steps to right its ailing economy. Markets responded positively to Friday’s actions after weeks of turmoil, but the country was thrown into chaos again after air traffic controllers unexpectedly staged a massive sickout just hours after top government officials endorsed a move to partially privatize key airports. At least 200,000 travelers were stranded on the eve of a long holiday weekend. Prime Minister Jose Luis Rodriguez Zapatero ordered the military to take over air traffic control, but there was no immediate information when flights would resume. Zapatero himself canceled a trip to an Iberoamerican summit in Argentina so he could preside over the cabinet meeting where plans were also approved to sell off a 30 percent stake in the government-owned national lottery, cutbacks to a key jobless benefit, tax cuts for small businesses and an increase in the tobacco tax. “We believe we are contributing to the momentum of the country’s economic activity with this reform package,” said Economy Minister Elena Salgado. “We are eliminating obstacles and reducing costs.” The latest measures, first announced Wednesday by Zapatero, were welcomed by both markets and the European Union after weeks of speculation that Portugal and Spain could follow Greece and Ireland in needing a massive financial bailout. Spanish and Portuguese stocks recovered Friday for the third consecutive day, reversing severe losses last week. Spain’s benchmark index closed 0.7 percent higher, while Portugal’s ended the day with a similar gain. Borrowing costs in countries also eased Friday, a day after the European Central Bank said it would keep helping the continent’s banks and amid speculation it may also be quietly buying the bonds of debt-burdened eurozone countries. The yield on Portuguese 10-year bonds fell below 6 percent for the first time in three months, while Spanish yields hovered around 5 percent after reaching 5.7 percent earlier this week. Germany’s 10-year bonds, a benchmark of global lending safety, stood at 2.8 percent. But just after the markets closed, Spain was forced to shut down the eight airports and airspace around Madrid because the controllers left their posts or didn’t show up to work. The head of Spain’s air traffic authority, Juan Ignacio Lema, called the sickout “intolerable” and apologized to Spaniards. Monday and Wednesday are holidays in Spain, and many Spaniards take advantage of the days off for a five-day weekend or a week of vacation. Airlines told passengers that many flights would not leave Saturday, and Spanish government officials did not immediately say when the military would be able to restore air travel order. Spain’s air traffic controllers have been involved in a long negotiation process with officials over wages, working conditions and privileges. The dispute intensified in February when the government restricted overtime and thus cut average pay of controllers from euro350,000 ($464,000) a year to euro200,000 ($265,000). In less than three years, Spain has tumbled from being Europe’s top job creator to having a eurozone high unemployment rate of nearly 20 percent, with nearly 5 million people out of work. Spain – limping out of nearly two years of recession triggered by a collapse in its real estate sector – is hoping to slash its deficit from 11.2 percent of GDP in 2009 to within the EU limit of 3 percent by 2013. In May, when markets were spooked by the near-bankruptcy of Greece, Spain cut wages for civil servants, froze most retirement pensions, and made it easier and cheaper for companies to lay people off. Zapatero’s Socialist government also pledged to reform the pension system by Jan. 28, and is likely to raise retirement age from 65 to 67, an unpopular move that sparked a nationwide strike in September. The government hopes to raise euro9 billion ($11.9 billion) by selling a 49 percent stake in Spain’s airports in a deal that would also shift the management of Madrid’s Barajas and Barcelona’s El Prat airports to the private sector. Selling the lottery stake would give Spain up to euro5 billion ($6.6 billion). The lottery, famed for its Dec. 22 “El Gordo” (The Fat One) game, brings some euro3 billion ($3.9 billion) into the state’s coffers annually. Meanwhile, some 40,000 small and medium-size companies are expected to benefit from the tax cut. The measures also include a reduction in costs and bureaucracy for people setting up new companies, making it possible to incorporate a new small business in a day for around euro100 ($132). A special subsidy of euro426 ($564) for people whose unemployment benefits have run out will not be renewed beginning in February. ___ Ciaran Giles and Harold Heckle in Madrid contributed.

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Nathan Lewis: The End of the Keynesian Experiment

December 1, 2010

You, the common peasants, aren’t supposed to know this, but the wheels are coming off the world monetary system. The reason you aren’t supposed to know this is because governments around the world need to sell you a ton of their bonds. They are addicted to debt and you are their source. If you understood what “wheels coming off the world monetary system” means, then you would probably not want to buy their bonds — as has already happened to Greece, Ireland, and now Portugal, Spain and Italy. The real situation is described by the gold market. Gold itself has served, for thousands of years, as a stable measure of value. You can think of it as a world currency, just like the dollar or euro. The difference is that gold is stable in value, while the dollar and euro are floating currencies. When it takes more and more dollars to buy a euro, for example if the “price of euros” goes from $1.00 to $1.50, then most people understand that the dollar is probably falling in value. The same is true of gold. When the “price of gold” goes from $1000 to $1500, that means the value of the dollar is falling. The value of the euro has been falling, too. And the yen. And the Chinese yuan, the Russian ruble, the Brazilian real, and most every other currency on earth. We are now in the latter days of the “Keynesian Experiment.” Sometimes, governments undertake experiments. For example, the Soviet Union was an experiment in running an economy on central planning principles — rather than capitalist principles. It probably seemed like a good idea in 1917. However, the experiment was ultimately a failure. Russia and communist China later returned to capitalism. They tried the experiment, came to a conclusion, and then they moved on. It happens. The Keynesian Experiment began in 1971. Before 1971, all of the world’s developed countries used some variant of a gold standard. This had been the case for literally hundreds of years, back to medieval times. Beginning in 1971, the world then moved to a floating-currency system. This was actually an accident — the unplanned result of Richard Nixon’s “easy money” policy. But then, the Russian Revolution was a bit of an accident too, resulting from the turmoil of World War I. (Communist China grew out of the turmoil of World War II.) The immediate result of the Keynesian Experiment was an explosion of worldwide inflation during the 1970s. Then, there was a period of rough stability and recovery during the 1980s and 1990s. Today, we are in another period of currency turmoil, which will probably lead shortly to a crisis. Eventually the Keynesian Experiment will be regarded as a failure, much like the Communist Experiment. At that point, people will want to go back to the principles that have formed the foundation of the Western World’s success over the last half-millennia. Unfortunately, most people have forgotten those principles today. If I had twenty minutes with Barack Obama, Angela Merkel, or Hu Jintao — we will assume they know little about monetary economics — here is what I would say: Tenet #1: Stable Money is superior to Unstable Money. “Stable Money” is money that is stable in value. Capitalist economies work best with conditions of stable money. “Discretionary” monetary policy doesn’t really solve any problems, and actually causes new ones. Tenet #2: Gold is stable in value. Unlike other commodities, gold does not go up and down in value. For this reason, it is the premier monetary commodity and has been for literally thousands of years. Although it is a bit of a stretch to assume that gold is perfectly unchanging in value, nevertheless, after centuries of experience, we have established that it is sufficiently stable in value to serve its purpose as a monetary benchmark. Also, gold is a better measure of stable value than any other available reference or statistical concoction. Tenet #3: Therefore, if your currency’s value is pegged to gold, that currency will be as stable as gold. A gold-value peg is the best means to accomplish our goal of stable currency value. For the last 500 years, every government that has wished to implement a stable-currency policy has used some variant of a gold standard. It is proven, it works, and there is no need to invent another, inferior solution. Tenet #4: A token currency, whether coins or notes, can be pegged to gold via the adjustment of supply. “Supply” is technically known as “base money,” which consists of notes, coins, and bank reserves. If the currency’s value sags below its gold peg, then supply is reduced. If the currency’s value is higher than its gold peg, supply is increased. No gold bullion is needed to maintain this peg — only a mechanism to increase and decrease the supply of base money. Central banks accomplish this today by buying and selling government bonds in “unsterilized” transactions. This is effectively the same as currency board systems in use today. Tenet #5: A “lender of last resort” can be provided within the context of a gold standard. The original “lender of last resort,” or what we today call a central bank, was the Bank of England during the 19th century. The Bank of England was also the world’s premier champion of the gold standard. The Federal Reserve was originally constituted in 1913 to serve as a “lender of last resort” within the context of a gold standard system, and did so for 58 years until 1971. Central banks’ original purpose was perverted during the 20th century due to the rise of Keynesian soft-money ideology, causing them to come into conflict with the proper operation of a gold standard system. Of course, there will be many who will say that I am wrong. You would expect this after forty years of the Keynesian Experiment. In the Soviet Union, they used to put people in jail for “economic crimes” if they esposed capitalist principles. However, history is on my side. The entire course of the Western World, from the late medieval period to the 1960s, when men walked on the moon and the U.S. middle class reached its high point of prosperity, took place with a gold standard system. Although there were ups and downs, the long-term trend was up. We’ve had our ups and downs during the Keynesian Experiment too, just as the Soviet Union had its good and bad times. It is not quite clear yet, but will be as the Keynesian Experiment comes to a close, that the long-term trend during the Keynesian Experiment was down. At that point — not before! — the political consensus will conclude that it is time for something new. In 1979, Deng Xiaoping, the premier of China, declared that centrally-planned communism was bunk. China took a new way, which was really the old way, and it was a huge success. It is not too long — less than a decade I would guess — before the Keynesian Experiment also comes to an end, and the world can finally get back on a more productive and healthy track.

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Dan Dorfman: Market Shifts to the Turkey Trot

November 25, 2010

The Christmas holiday season is often a harbinger of happy events, but only partly this past week, which for investors turned out to be a week of gobblydegook. On Tuesday, for example, there were of a couple of external shockers–artillery fire between the Koreas and signs of a spreading European debt crisis (notably involving Ireland, Spain and Portugal). In response, it turned out to be a terrible Tuesday for investors as the Dow tumbled 142 points. As a result, the following day’s market showing–the day before Thanksgiving–should have been a turkey, or a wicked Wednesday, in continuing response to those shockers, as well as to recent revelations of October declines in new and existing home sales. But wicked Wednesday never came. Call it the case of the missing turkey. Instead, we had a turkey trot, as the Dow went on a tear that day, more than offsetting the previous day’s loss with a solid gain of nearly 151 points. This jump largely reflected a tasty news entree of growing personal income, strengthening positive consumer sentiment, the fourth consecutive month of consumer spending gains and lower than expected weekly jobless claims. So where does that leave the nation’s more than 80 million stock players? In good stead, according to some market pros, who see flickering green lights that we’re entering a period of renewed economic zip. In addition, some suggest, instead of the usual merry month of May, change that, at least for investors, to the merry month of December. One of them is Fred Dickson, the chief investment strategist of regional Northwestern brokerage biggie D.A. Davidson & Co. of Great Falls, Mont. “I would absolutely be a buyer of stocks now,” says Dickson, a former strategist at Goldman Sachs, who thinks it’s the wrong time for investors to be chicken and views the European debt problems and the current trouble between the Koreas as “passing thunderstorms that will move on.” He figures a year from now European debt problems will be about where they are today. “I’d guess Europe has four of five years of debt workouts to go,” he says. He also thinks China has too much to lose not to try to aggressively influence North Korea from doing something incredibly stupid, and, as such, he expects the Chinese to take action in this respect. A revival of positive economic momentum (also reflected in the recent upgrade of third-quarter GDP growth from 2% to 2.5%) and low interest rates are the chief reasons for Dickson’s market enthusiasm. “The economy,” he observes, “is like a car going 25 miles an hour in a 40-mile speed zone, but sooner or later it will shift into a faster gear.” It’s not a robust recovery, he says, but a slowing improving one. Given this outlook, he expects an essentially rising market for the balance of the year, with the Dow (now at 1187) wrapping up 2010 at around 11,500 and then following up with about another 10% or so advance in 2011. His favorite stocks are companies which have increased dividends for at least the past 10 years and sport above-average dividend yields. In this context, he favors PepsiCo., Procter & Gamble, AT&T, United Technologies, Emerson Electric, Kimberly-Clark and Automatic Data Processing. What about gold, the planet’s hottest investment? It has had a huge run, and appears to be expensive, Dickson says. He sees a continuing modest pullback near term, but he figures it’s likely to be higher a year from now. San Francisco money manager Gary Wollin, who manages a bit above $100 million of assets under the banner, Gary Wollin & Co., echoes some of Dickson’s bullish thoughts, especially on the economic front. As for those external shockers, Wollin thinks “we could see some war games and a lot of unrest in Europe, both of which could drive away potential buyers.” But he expects them to have a short shelf life in impacting the market, and predicts an 11,500-12,000 Dow by year-end. Still, he believes there’s always a chance “things could spiral out of control in Europe” via more riots in the streets. Another plus for the stock market–traditional muscle-flexing in December–is noted by Sam Stovall, the chief investment strategist at Standard & Poor’s. Since 1945, he points out, the S&P 500 registered its strongest monthly advance in December, rising 1,7%, versus 0.6% for all 12 months. What’s more, the market rose in 77% of all Decembers, versus 59% for the average of all 12 months. In other words, look for a merry Christmas for investors. What do you think? E-mail me at Dandordan@aol.com.

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Video: Fels Says Portgual May Seek Bailout, Spain Not `Safe’

November 24, 2010

Nov. 24 (Bloomberg) — Joachim Fels, chief global fixed-income economist at Morgan Stanley, talks about the sovereign debt risk facing Portugal and Spain. Fels speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Video: Mortimer-Lee Says Ireland Can Learn From Korea in 1990s

November 24, 2010

Nov. 24 (Bloomberg) — Paul Mortimer-Lee, global head of market economics at BNP Paribas SA, talks about the Irish bank bailout and the prospects for Portugal or Spain following the same route. He speaks with Andrea Catherwood on Bloomberg Television’s “The Pulse.”

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Ireland nears rescue package approval; next Portugal?

November 19, 2010

Ireland nears rescue package approval; next Portugal?

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Ultimate Risk Solutions Names O’Gorman to Head Spanish, Portuguese, Latin American Operations

November 10, 2010

MADRID, SPAIN–(Marketwire – November 10, 2010) – Ultimate Risk Solutions (URS), a global provider of risk modeling software to the insurance and reinsurance industry, has appointed David O’Gorman to head its operations in Spain, Portugal, and Latin America, Alex Bushel, Chief Executive Officer, announced.

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Video: Hu Leaves Portugal With No Mention of Bond Purchase Plan

November 8, 2010

Nov. 8 (Bloomberg) — Bloomberg’s Elliott Gotkine reports on Chinese President Hu Jintao’s two-day visit to Portugal and the relationship between the two countries. Hu said China is “available” to support Portugal’s efforts to come through the economic crisis that has prompted its borrowing costs to spiral this year. He didn’t specify what such measures might be during the trip, which ended yesterday. (Source: Bloomberg)

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Venezuela signs multiple agreements with Portugal

October 25, 2010

Venezuela signs multiple agreements with Portugal

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Video: Mutkin Says Portuguese Bond Yields Are `Not Compelling’

October 15, 2010

Oct. 15 (Bloomberg) — Laurence Mutkin, head of European fixed-income strategy at Morgan Stanley, talks about Portugal’s government bond sales. He speaks with Andrea Catherwood on Bloomberg Television’s “The Pulse.”

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Video: Owen Sees Portugal `Struggling’ to Lower Budget Deficit

October 15, 2010

Oct. 15 (Bloomberg) — David Owen, chief European financial economist at Jefferies International, discusses Portugal’s economy and efforts to reduce its budget deficit. He talks with Maryam Nemazee on Bloomberg Television’s “Countdown.”

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Video: Owen Sees Portugal `Struggling’ to Lower Budget Deficit

October 15, 2010

Oct. 15 (Bloomberg) — David Owen, chief European financial economist at Jefferies International, discusses Portugal’s economy and efforts to reduce its budget deficit. He talks with Maryam Nemazee on Bloomberg Television’s “Countdown.”

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Video: Tyson Sees Portugal `Condemned’ to Wider Bond Spreads

October 15, 2010

Oct. 15 (Bloomberg) — Philip Tyson, head of interest rate strategy at MF Global UK Ltd., talks about Portugal’s budget and the prospects for the country’s bond spreads widening. He speaks with Maryam Nemazee on Bloomberg Television’s “Countdown.”

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Video: Fransolet Says Portugal’s 2011 Budget Is `Achievable’

October 15, 2010

Oct. 15 (Bloomberg) — Laurent Fransolet, head of European fixed income strategy at Barclays Capital, talks about Portugal’s government spending cuts and their effect on growth. He speaks with Francine Lacqua on Bloomberg Television’s “On The Move.”

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Video: Fransolet Says Portugal’s 2011 Budget Is `Achievable’

October 15, 2010

Oct. 15 (Bloomberg) — Laurent Fransolet, head of European fixed income strategy at Barclays Capital, talks about Portugal’s government spending cuts and their effect on growth. He speaks with Francine Lacqua on Bloomberg Television’s “On The Move.”

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Video: Lombard’s Dumas Sees ‘Bankruptcy’ for Portugese Economy

October 15, 2010

Oct. 15 (Bloomberg) — Charles Dumas, director of international research at Lombard Street Research Ltd., talks about Portugal’s budget and deficit reduction plans. He speaks with Andrea Catherwood on Bloomberg Television’s “The Pulse.”

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Video: Cantor’s Parpart Says Greece, Ireland at Risk of Default: Video

October 15, 2010

Oct. 15 (Bloomberg) — Uwe Parpart, chief strategist at Cantor Fitzgerald Hong Kong Capital Markets, talks about the European debt crisis. Christina Romer, former chairman of President Barack Obama’s Council of Economic Advisers, said budget woes in Greece, Ireland, Portugal and Spain are “something to worry about” as the U.S. economy continues its climb out of recession. Parpart, who also discusses the outlook for the euro and U.S. dollar, speaks with Linzie Janis on Bloomberg Television’s “Global Connection.” (Source: Bloomberg)

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Video: Callow Says Ireland Needs `Enormous’ Fiscal Adjustment: Video

October 11, 2010

Oct. 11 (Bloomberg) — Julian Callow, chief European economist at Barclays Capital, talks about the European debt market and the fiscal situation in Ireland, Portugal and Greece. Callow speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Don Tapscott: Macrowikinomics: The Choice Between Atrophy or Renaissance

September 28, 2010

Today an important new book is being released in the United States and Canada. Macrowikinomics: Rebooting Business and the World , written by Don Tapscott and Anthony D. Williams is the sequel to their best selling work Wikinomics . The Economist says Macrowikinomics is “a Schumpeterian story of creative Destruction.” Mark Parker CEO of Nike calls it, “A masterpiece. An iconic and defining book for our time.” Google CEO Eric Schmidt says the book, “inspires, pointing the way forward for all of us.” Tapscott, author of 14 widely read books about technology in business and society teamed up with Williams a few years ago and the result — Wikinomics — was the best selling management book in the United States in 2007. Macrowikinomics offers nothing less than a game plan for all of us to fix a broken world. Drawing on an entirely new set of original research conducted with countless collaborators the authors explain how the world’s most dynamic innovators are using the Internet and new business models to transform industries ranging from manufacturing and transportation to global problem solving. Technology, Health and the Environment are three axes of transformation, each inextricably intertwined. They argue that this is a time of peril as old approaches collapse, but a time of great promise and opportunity as we stand on the threshold of a new age. Now the onus is now on each person to lead the transformation in our workplaces and communities. **** The global economic crisis should be a wakeup call to the world. We need to rethink and rebuild many of the organizations and institutions that have served us well for decades, but now have come to the end of their life cycle. This is more than a recession or the aftermath of a financial crisis. We are at a turning point in history. Let’s face it. The world is broken and the industrial economy and many of its industries and organizations have finally run out of gas, from newspapers and old models of financial services to our energy grid, transportation systems and institutions for global cooperation and problem solving. At the same time the contours of a new kind of civilization are becoming clear as millions of connected citizens begin to forge alternative institutions using the Web as a platform for innovation and value creation. From education and science and to new approaches to citizen engagement and democracy, powerful new initiatives are underway, embracing a new set of principles for the 21st century — collaboration, openness, sharing, interdependence and integrity. Indeed, with the proliferation of social media and social networks, we believe society has at its disposal the most powerful platform ever for bringing together the people, skills and knowledge we need to ensure growth, social development and a just and sustainable world. Of course, the sparkling possibilities described above contrast sharply with the stagnation and inertia that grips so many contemporary institutions. The harsh reality is that it will take years and probably decades to undo some the damage done by misguided policies and approaches. When the economy crashed in 2008, for example, it cost American taxpayers trillions of dollars. Faced with a historic market meltdown, the worst recession in three generations, plus government guarantees that exceed the cost of every war the U.S. has ever fought, American taxpayers are understandably still furious. It is pretty much the same story around the world. Many people are reviving calls for updated regulations, more government intervention and even the breakup or nationalization of the big banks. In the meantime, the lingering effects of the financial meltdown threaten to engulf not just companies but entire countries in a sovereign debt crisis. Greece, Spain, and Portugal may have rocked the financial markets, but the U.S. arguably looms largest, with Congress contemplating a budget that by 2020 would nearly double America’s national debt, to $22 trillion — twice the size of the U.S. economy. Clearly we need to rethink the old approaches to governing the global economy. But rebuilding public finances and restoring long-term confidence in the financial services industry will require more than government intervention and new rules; it’s becoming clearer that what’s needed is a new modus operandi based on new principles like transparency, integrity and collaboration. Clearly the financial system is not the only institution that’s in desperate need of a makeover. A string of recent events suggests that many of the institutions that have served us well for decades — even centuries — are frozen and unable to move forward. The failure to reach a meaningful agreement on climate change in Copenhagen has further undermined confidence in the ability of international institutions to provide effective leadership in dealing with a growing list of global challenges. The disastrous oil spill in the Gulf of Mexico provided yet another reminder that the world is grossly under-investing in green energy alternatives that could at last break our perilous addiction to fossil fuels. And despite Obama’s historic reforms, the government’s own projections suggest that the world’s richest nation will still struggle to rein-in the spiraling health care costs that threaten to cripple government budgets in the years to come. Sure, one could argue that the industrial economy and industrial-age institutions brought us centuries of unprecedented productivity, knowledge accumulation and innovation that resulted in undreamt-of wealth and prosperity. But that prosperity has come at a cost to society and the planet and it is clear that the wealth and security enjoyed in advanced economies may not be sustainable as billions of citizens in emerging markets aspire to join the global middle class. Indeed, as the world’s main economic engines continue to sputter, there is growing consensus that we are finally entering a very different kind of economy. Economist Robert Reich asks, “What will it look like? Nobody knows. All we know is the current economy can’t ‘recover’ because it can’t go back to where it was before the crash.” Is there a way forward? We think so. But don’t look to big government or big corporations to supply the answers. The most promising catalysts for reinvention today can be found in a powerful new form of economic and social innovation that is sweeping across all sectors and turning the old models on their head. After all, political leaders may have failed in Copenhagen, but ordinary people everywhere are connecting to create a mass movement that is bringing greater awareness and sense of community to the process of making household and business decisions that can reduce our carbon footprints. Carbonrally.org is a good example. Some 40,000 environmental enthusiasts propose great ideas for saving energy and reducing emissions and the community chooses the best ideas to pursue as a team. Carbonrally tracks the collective impacts and shows the power of many people getting the job done together. On PatientsLikeMe.com , one of the Web’s most vibrant health care communities, some 60,000 members believe that sharing their health care experiences and outcomes is good, and perhaps even integral, to speeding up the pace of research and fixing a broken health care system. Why? Because when patients share real-world data, collaboration on a global scale becomes possible. The health care system becomes more open and this in turn improves outcomes for patients, doctors and drug makers. New treatments can be evaluated and brought to market more quickly. Patients can learn about what’s working for other patients like them and, in consultation with their doctors, make adjustments to their own treatment plans. All considered, communities such as PatientsLikeMe are leading the way toward a health care system that is cheaper, safer and better than what we have today. Even governments are taking baby steps toward using the Web to generate more productive, transparent and equitable public services. Indeed, where most governments build mainframes and buy expensive software, U.S. federal Chief Information Officer Vivek Kundra is encouraging federal agencies to use free Google services and open-source wikis for everything from word processing to performance measurement, to service improvement. He calls it the government cloud, but think “app store for government” — a place where employees can access a vast ecosystem of secure applications and data sets for doing their jobs. Put it all together and it becomes increasingly clear that we can rethink and rebuild many industries and sectors of society around the principles of wikinomics. Indeed, we’re convinced that the world now has nothing less than an historic choice: reboot the old models, approaches and structures or risk institutional paralysis or even collapse. It’s a question of stagnation versus renewal. Atrophy versus renaissance. Peril versus promise. Fortunately, for the first time in history, people everywhere can participate fully in creating a sustainable future. This is not just a theory — it’s happening. Adapted from MACROWIKINOMICS: REBOOTING BUSINESS AND THE WORLD by Don Tapscott and Anthony D. Williams by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright (c) Don Tapscott and Anthony D. Williams, 2010.

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Video: Nabarro Sees Value in LVMH Moet Hennessy, Volkswagen: Video

September 20, 2010

Sept. 21 (Bloomberg) — Willem-Mark Nabarro, head of European equities at Exane BNP Paribas Ltd., talks about his investment strategy for European stocks. Nabarro also discusses debt concerns in Portugal and Ireland. He talks from Singapore with Linzie Janis on Bloomberg Television’s “Global Connection.” (Source: Bloomberg)

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Video: Nabarro Sees Value in LVMH Moet Hennessy, Volkswagen: Video

September 20, 2010

Sept. 21 (Bloomberg) — Willem-Mark Nabarro, head of European equities at Exane BNP Paribas Ltd., talks about his investment strategy for European stocks. Nabarro also discusses debt concerns in Portugal and Ireland. He talks from Singapore with Linzie Janis on Bloomberg Television’s “Global Connection.” (Source: Bloomberg)

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Portugal’s housing market recovery falters in Q2 2010

September 13, 2010

The average price of houses in Portugal fell by 0.3% in Q2 2010, after four consecutive quarterly price increases, according to the Instituto Nacional de Estatistica (National Statistical Institute or INE), with concerns over Portugal’s deficit worsening.

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John F. Wasik: What to Create Millions of Jobs? Look to China

August 13, 2010

How to beat China at its own game By John F. Wasik American politicians campaigning now would do well to stop polarizing the climate change debate and start talking about jobs, economic development and beating China at its own game. That would mean employing social capitalism to create a powerful national energy plan that ignites the private sector through public incentives. Although the Chinese are faced with horrible environmental conditions, at least they are doing something about it and may win an economic war in the process. Aided by a currency peg to the dollar — many say an unfair manipulation that has hurt U.S. exports — the Chinese are currently winning the trade battle. Imports from China surged to $33 billion in July, a figure not seen since the dark days of 2008, ballooning the U.S. trade deficit with the People’s Republic. To date, U.S. policymakers are losing the Earth Race and the only environmental target they can hit are their own feet. The Chinese recently pulled ahead in the contest, announcing through its State Information Center that it would spend $738 billion in renewable energy projects over the next decade. INVESTMENT-STRATEGIES/ By any measure, that’s a great leap ahead of U.S. clean-tech efforts. The stimulus plan set aside about $36 billion for a host of U.S. Department of Energy-led projects in the wake of the 2008 financial meltdown. In contrast, China’s stimulus investment for reducing greenhouse gas emissions was $221 billion, according to a report by British Bank HSBC. What’s at stake isn’t whether climate change will be tackled this year by the world’s largest economy. It’s a matter of millions of new jobs that will likely flow to China, Germany and any other country with a comprehensive policy. Even poor, tiny Portugal has a better energy plan — it gets more than one-fifth of its energy from renewable sources, whereas the U.S. only gets 4%. The International Energy Agency estimates that there’s a $27 trillion market for clean-tech over the next 50 years. If the U.S. just captures 14% of this business, that creates 850,000 new jobs, reports the World Wildlife Fund. Clean energy is not only a proven job creator, it’s relatively recession proof, according to a Pew Charitable Trust study. It declined only 6.6% last year despite one of the worst economic climates since the 1930s. A tremendous opportunity for America is being lost as Washington has stumbled at every turn this year when it had a chance to launch a world-class energy policy. DAVOS/GREEN Despite the passage of a U.S. House plan to address climate change and promote energy projects, the Senate was unable to bring any energy bill to the floor and recessed this summer without doing a thing. Not even the largest oil spill in history was a call to arms. Misguided deficit hawks have been deriding clean-tech as an expendable line-item. Some $3.5 billion in renewable energy loan guarantees have been rescinded this year, according to the Solar Energy Industries Association, a trade group. And an untold number of clean-tech ventures have been put on hold. If the U.S. doesn’t get in this game soon in a big way, it will be playing catch-up for years. So, to help our country along, here is what we must do: • Increase and extend loan guarantees and tax breaks for all clean-tech companies over decades, not year to year. A national energy program shouldn’t be subject to the political climate of the moment. • Create incentives for all consumers to buy clean power. There’s a reason why Germany is one of the largest manufacturers and consumers of solar power appliances. Utilities buy back home-generated power over time. The U.S. needs a renewable energy portfolio standard to do the same. • Create financing that favors energy-efficient buildings. That means widespread programs for “green” mortgages that offer lower rates for environmentally friendly buildings. That would stimulate the overall housing market and green building. • Enact a permanent national trust fund to build/repair infrastructure in an environmentally friendly way. By my rough estimate, we need at least $5 trillion to fix crumbling roads, bridges, water systems and other public amenities. (The estimate is based on what the American Society of Civil Engineers projected should be spent to fix up essential infrastructure in 2009 minus what was allocated by the stimulus plan.) Washington has battled many enemies over the years and rallied Americans to the cause. When it comes to forging a long-term, job-producing U.S. energy policy, though, their worst nemeses are stateside. So having an external foe may rouse more productive emotion than simply citing numbers and bungled opportunities. John F. Wasik is the author of The Audacity of Help: Obama’s Economic Plan and the Remaking of America From Reuters.com

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Saul Friedman: Consequences of Unequal Distribution of Wealth: The Rich Get Richer…

August 8, 2010

Shirley Sherrod had it about right when she said, “Y’all, it’s about poor versus those who have. It’s really about those who have versus those who don’t. And they could be black, they could be white, they could be Hispanic…” That wasn’t exactly the whole truth, for she and her husband Charles were ardent, longtime civil rights activists who understood that years of racism played a large role in perpetuating the ignorance and poverty in the South among blacks as well as whites. (Racism is here defined as the belief among many whites, supported by the law, that non-whites were inferior. Only in America did the Supreme Court, in Dred Scott , hold that black slaves were chattel, less than human.) Overcoming that sad heritage, Ms. Sherrod, who has spent a lifetime helping in the struggles of the poor, of all shades, put her finger on a fundamental human problem in much of the world — especially the United States — the unequal distribution of wealth among too many of us. That is the subject of a new book that has become the rage among social scientists and activists in Europe, especially Britain. It’s called The Spirit Level: Why Greater Equality Makes Societies Stronger , written by British public health researchers Richard Wilkinson and Kate Pickett, who have produced an unprecedented rediscovery of the causes of so much of today’s anger towards the institutions of government and finance. The book was called to my attention by a Canadian reader, Dr. Rob Dumont, a PhD, from a prominent and wealthy family. In a reply to one of my pieces on poverty, he quoted from the book to tell me that according to its central thesis, the growing gap in many countries between the haves and the have-nots, is responsible for more than the misery of poverty. According to the book, such health and social problems as “Obesity, Mental illness, drug and alcohol abuse, homicides, imprisonment rates, lowered life expectancy, over consumption of resources, teen pregnancy and the lack of social mobility,” all have in common strong links to inequality of wealth. Interestingly, the authors, who have exhaustively documented their work, do not denounce the wealthy. Rather they point out that the most affluent citizens as well as the most wealthy countries also suffer from these ills. Their analysis mocks the American Declaration of Independence which proclaimed, “all men are created equal.” The original sin of slavery gave lie to that promise and the lack of equality has taken a toll in this nation even today. As one knowledgeable Amazon reviewer, Dr. Nicholas P. G. Davies, a Briton, wrote, “Inequality issues are often presented as being about the poor, but this book shows we are all poorer for living in more unequal societies. Inequality is as bad for the rich as it is for the poor. Society is poorer as inequality becomes greater.” AWilkinson and Pickett make this clear with dozens of graphs, which rate the nations based on the problems that come with inequality. As they say, “The impacts of inequality show up in poorer health, lower educational attainment, higher crime rates, lower spending of social capital, lower cooperation with and trust of government.” One graph, showing that “health and social problems are worse in more unequal countries,” makes these points: “The U.S., Portugal and the United Kingdom rate high in the mount of income inequality. For the U.S., low taxes (by international standards), a weak trade union movement, low minimum wage and a tradition of individualism have resulted in a high level of income inequality.” Indeed, the U.S., with its obsession with the market economy, has modest social programs, Social Security and Medicare, while most of the other 20 nations listed are Social Democracies with a broad array of social insurance benefits, including universal health care. Canada is roughly in the middle of the pack, along with France, Spain and Switzerland. Japan and the Scandinavian nations have the lowest income inequality; offering cradle-to-grave social programs. Some critics suggest that the book cherry picks its statistics and the alleged problems to prove their point. But who could argue with the graph that puts the U.S., the richest country, almost off the charts that show the relationship between a huge income gap — perhaps the highest among civilized countries — and such health and social problems as infant mortality, higher than most European nations, homicide and imprisonment rates, the highest in the world, obesity, child well-being (poverty among children has reached new heights) and drug and alcohol addiction? Any thinking American can verify the sad truth in another graph that shows these health and social problems are worse in more income unequal states. With the rise of unfettered rapacious, anti-labor capitalism, which touted sweatshops and child labor, income inequality rose to criminal leves. And today, as you might expect, the southern states, namely Mississippi, Louisiana, Alabama, Texas, Tennessee, Kentucky, West Virginia and Florida “have high levels of income inequality and much poorer outcomes in the health and social areas.” These states also have the highest levels of poverty, and the lowest levels of education attainment, and in the last couple of years, income inequality has become worse throughout the United States, especially in the industrial north, as a result of the 2008-9 recession, which has increased home foreclosures, personal bankruptcies, and the numbers of Americans — nearly 50 million — struggling against poverty or near poverty. Yet at the same time, the rich are becoming obscenely richer. Michelle Singletary reported in the Washington Post last month that while the average income for the top one percent of earners rose 281 percent, or $973,000 per household, in the last decade, the bottom fifth saw their incomes increase 16 percent, or $2,400 per household. Former Labor Secretary Robert Reich, who wrote the forward for the American edition of the book, noted that today’s CEOs are paid more than 350 times that of the average worker. Surely we’ll see the results of such inequality in health and social problems in the next few years.. In his inaugural speech, President Obama said “The nation cannot prosper long when it favors only the prosperous.” But that’s exactly what has happened, as bankers have made huge profits and gotten scandalous bonuses while real unemployment reached towards 15 percent. Franklin Roosevelt fought the economic royalists of his day to help Shirley Sherrod’s Georgia get electricity and survive the Great Depression with the Tennessee Valley Authority and the Works Progress Administration. What has Obama done? One can blame the Republicans or the U.S. Senate, but where is the leadership of the President? It won’t do to give Ms. Sherrod a job. Platitudes like “I feel your pain” are not true. It might help to use the powers of his federal government to put Americans to work. But as she said, “Folks with money want to stay in power and they’ll do what they need to do to stay in power…It’s always about money, y’all,” You can find out more about “Spirit Level,” at the excellent British web site Equality Trust . Write to saulfriedman@comcast.net Friedman also writes for www.timegoesby.net

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Ellen Brown: Why the U.S. Need Not Fear a Sovereign Debt Crisis: Unlike Greece, It Is Actually Sovereign

July 23, 2010

Last week, a Chinese rating agency downgraded U.S. debt from triple A and number one globally, to “double A with a negative outlook” and only 13th worldwide. The downgrade renewed fears that the sovereign debt crisis that began in Greece will soon reach America. That is the concern, but the U.S. is distinguished from Greece in that its debt is denominated in its own currency, over which it has sovereign control. The government can simply print the money it needs or borrow from a central bank that prints it. We should not let deficit hawks and short sellers dissuade the government from pursuing that obvious expedient. We did not hear much about “sovereign debt” until early this year when Greece hit the skids. Investment adviser Martin Weiss wrote in a February 24 newsletter: On October 8, Greece’s benchmark 10-year bond was stable and rising. Then, suddenly and without warning, global investors dumped their Greek bonds with unprecedented fury, driving its market value into a death spiral. Likewise, Portugal’s 10-year government bond reached a peak on December 1, 2009, less than three months ago. It has also started to plunge virtually nonstop. The reason: A new contagion of fear about sovereign debt! Indeed, both governments are so deep in debt, investors worry that default is not only possible — it is now likely! So said the media, but note that Greece and Portugal were doing remarkably well only three months earlier. Then, “suddenly and without warning,” global investors furiously dumped their bonds. Why? Weiss and other commentators blamed a sudden “contagion of fear about sovereign debt.” But as Bill Murphy, another prolific newsletter writer, reiterates, “Price action makes market commentary.” The pundits look at what just happened in the market and then dream up some plausible theory to explain it. What President Franklin Roosevelt said of politics, however, may also be true of markets: “Nothing happens by accident. If it happens, you can bet it was planned that way.” That the collapse of Greece’s sovereign debt may actually have been planned was suggested in a Wall Street Journal article in February, in which Susan Pullian and co-authors reported: Some heavyweight hedge funds have launched large bearish bets against the euro in moves that are reminiscent of the trading action at the height of the U.S. financial crisis. The big bets are emerging amid gatherings such as an exclusive ‘idea dinner’ earlier this month that included hedge-fund titans SAC Capital Advisors LP and Soros Fund Management LLC. There is nothing improper about hedge funds jumping on the same trade unless it is deemed by regulators to be collusion. Regulators haven’t suggested that any trading has been improper. Regulators hadn’t suggested it yet; but on the same day that the story was published, the antitrust division of the U.S. Justice Department sent letters to a number of hedge funds attending the dinner, warning them not to destroy any trading records involving market bets on the euro. Represented at the dinner was the hedge fund of George Soros, who was instrumental in collapsing the British pound in 1992 by heavy short-selling. Soros was quoted as warning that if the European Union did not fix its finances, “the euro may fall apart.” Was it really a warning? Or was it the sort of rumor designed to make the euro fall apart? A concerted attack on the euro, beginning with its weakest link, the Greek bond, could bring down that currency just as short selling had brought down the pound. These sorts of rumors have not been confined to the Greek bond and the euro. In The Financial Times , Niall Ferguson wrote an article titled “A Greek Crisis Is Coming to America,” in which he warned: It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. America, he maintained, would suffer a sovereign debt crisis as well, and this would happen sooner than expected. The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). Then came Ireland, Spain and Greece (9 per cent). And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF. The catch is that the U.S. does not need to satisfy the IMF. “Sovereign debt” Is an Oxymoron America cannot actually suffer from a sovereign debt crisis. Why? Because it has no sovereign debt. As Wikipedia explains: A sovereign bond is a bond issued by a national government. The term usually refers to bonds issued in foreign currencies, while bonds issued by national governments in the country’s own currency are referred to as government bonds. The total amount owed to the holders of the sovereign bonds is called sovereign debt. Damon Vrabel , of the Council on Renewal in Seattle, concludes: The sovereign debt crisis… is a fabrication of the Ivy League, Wall Street and erudite periodicals like the Financial Times of London.. It seems ridiculous to point this out, but sovereign debt implies sovereignty. Right? Well, if countries are sovereign, then how could they be required to be in debt to private banking institutions? How could they be so easily attacked by the likes of George Soros, JP Morgan Chase and Goldman Sachs? Why would they be subjugated to the whims of auctions and traders? A true sovereign is in debt to nobody… Unlike Greece and other EU members, which are forbidden to issue their own currencies or borrow from their own central banks, the U.S. government can solve its debt crisis by the simple expedient of either printing the money it needs directly, or borrowing it from its own central bank which prints the money. The current term of art for this maneuver is “quantitative easing,” and Ferguson says it is what has so far “stood between the US and larger bond yields” — that, and China’s massive purchases of U.S. Treasuries. Both are winding down now, he warns, renewing the hazard of a sovereign debt crisis. “Explosions of public debt hurt economies…” Ferguson contends, “by raising fears of default and/or currency depreciation ahead of actual inflation, [pushing] up real interest rates.” Market jitters may be a hazard, but if the U.S. finds itself with government bonds and no buyers, it will no doubt resort to quantitative easing again, just as it has in the past — not necessarily overtly, but by buying bonds through offshore entities, swapping government debt for agency debt, and other sleights of hand. The mechanics may vary, but so long as “Helicopter Ben” is at the helm, dollars are liable to appear as needed. Hyperinflation: A Bogus Threat Today Proposals to solve government budget crises by simply issuing the necessary funds, whether as currency or as bonds, invariably meet with dire warnings that the result will be hyperinflation. But before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and today the world is struggling with deflation. The U.S. money supply has been shrinking at an unprecedented rate. In a May 26 article in The Financial Times titled “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,” Ambrose Evans-Pritchard observed: The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. So long as workers are out of work and resources are sitting idle, as they are today, money can be added to the money supply without driving prices up. Price inflation results when “demand” (money) increases faster than “supply” (goods and services). If the new money is used to create new goods and services, prices will remain stable. That is where “quantitative easing” has gone astray today: the money has not been directed into creating goods, services and jobs but has been steered into the coffers of the banks, cleaning up their balance sheets and providing them with cheap credit that they have not deigned to pass on to the productive economy. Our forefathers described the government they were creating as a “common wealth,” ensuring life, liberty and the pursuit of happiness for its people. Implied in that vision was an opportunity for employment for anyone wanting to work, as well as essential social services for the population. All of that can be provided by a government that claims sovereignty over its money supply. A true sovereign need not indebt itself to private banks but can simply issue the money it needs. That is what the American colonists did, in the innovative paper money system that allowed them to flourish for a century before King George forbade them to issue their own scrip prompting the American Revolution. It is also what Abraham Lincoln did, foiling the Wall Street bankers who would have trapped the North in debt slavery through the exigencies of war. And it is what China itself did successfully for decades, before it succumbed to globalization. China got the idea from Abraham Lincoln through his admirer Sun Yat-sen; and Lincoln took his cue from the American colonists, our forebears. We need to reclaim our sovereign right as a nation to fund the common wealth they envisioned without begging from foreign creditors or entangling the government in debt.

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Google Q2 2010 Earnings Up 24 Percent–But Short Of Target

July 15, 2010

SAN FRANCISCO — Google Inc.’s second-quarter earnings missed analysts’ target as higher expenses and the fallout from the European debt crisis dragged down the Internet search leader. The letdown announced Thursday stemmed from Google’s expanding payroll and a run-up in the U.S. dollar that has been driven by fears that the euro will crumble if governments in Greece, Spain, Portugal and Italy default on their perilously high debts. The worries hurt Google because about one-third of the company’s revenue comes from Europe, and customer payments made with the euro translated into fewer dollars than a year ago. Even so, the currency squeeze wasn’t as severe as some analysts anticipated. Meanwhile, Google is spending more to maintain its commanding lead in Internet search while it also tries to diversify by developing products in other promising niches such as online video and mobile devices. To help achieve its goals, the company added nearly 1,200 employees in the second quarter to end June with more than 21,800 workers. Despite the rising expenses, Google’s net income rose at a fast clip as second-quarter revenue came in slightly above analysts’ forecasts. But the earnings growth wasn’t quite as robust as analysts had hoped, a factor that seemed to amplify investor concerns already weighing on Google’s stock price. Google shares fell $19.56, or nearly 4 percent, in extended trading Thursday after the release of results. Earlier, the company finished the regular session at $494.02, up $2.68. Although Google remains the Internet’s most profitable company, investors have been fretting about signs of decelerating growth amid stiffer competition from Apple Inc., Facebook and Microsoft Corp. On top of those challenges, a showdown over online censorship in China that has muddied Google’s future prospects in the world’s most populous country. Thursday’s report offered some encouraging news, though. In a positive sign for the overall economy, marketers were willing to pay more for the online ads that generate virtually all of Google’s income, and people are clicking on the commercial messages more frequently. Those trends provide another indication that more companies and shoppers are feeling a little better as they recover from the worst economic downturn in more than 70 years. “We are really pleased with the way we are performing in this economy,” Patrick Pichette, Google’s chief financial officer, said during a Thursday conference call with analysts. “That’s why we feel confident about the future.” Google, which is based in Mountain View, earned $1.84 billion, or $5.71 per share, in the April-June period, up 24 percent from $1.48 billion, or $4.66 per share, a year ago. If not for expenses covering employee stock compensation, Google said it would have made $6.45 per share. That figure was below the average estimate of $6.52 per share among analysts polled by Thomson Reuters. Revenue climbed 24 percent to $6.82 billion, from $5.52 billion a year earlier. After subtracting commissions paid to its ad partners, Google’s revenue stood at $5.09 billion – about $10 million above analyst projections. In another key figure watched closely by investors, the number of revenue-generating clicks on Google’s ads in the second quarter increased 15 percent from the same time last year. The gain is in the same range as the increases in the past year. The average price per ad click in the second quarter edged up 4 percent from last year, but it’s slower than the growth seen during the previous two quarters. After clamping down on its costs most of last year, Google has been spending more freely because management believes the U.S. economy is steadily rebounding, with electronic commerce and the rest of the technology sector leading the charge. Google has brought in nearly 2,000 employees during the first half of this year, through both recruitment and a flurry of mostly small acquisitions. The company’s spending on data centers and other projects known as capital expenditures totaled $476 million, more than tripling from the same time last year. Pichette said the company plans to continue investing in more employees and technology as it tries to position itself to take advantage of an improving economy. To help pay for its ambitions, Google said Thursday that it will take on significant debt for the first time in its six years as a public company, even though it has $30 billion in cash. The company’s board of directors approved a plan to borrow up to $3 billion on the premise that the returns on Google’s investments will be higher than its borrowing costs.

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Portugal’s Credit Rating Downgraded By Moody’s

July 13, 2010

LISBON, Portugal — Moody’s credit rating agency downgraded Portugal’s debt on Tuesday, casting fresh doubt on the country’s ability to weather its debt crisis as the economy weakens. Moody’s Investors Service cut Portugal’s government bond ratings to A1 from Aa2. The move deepens the country’s financial woes because foreign lenders will likely demand higher interest returns for the risk of loaning it money. Portugal’s financial ordeal is part of a government debt crisis that has engulfed the eurozone and weighed on the shared currency. The cuts in Portugal’s rating by international agencies in recent months have stoked market concerns that the crisis, which led Greece to the brink of bankruptcy and a bailout, could spread to other financially troubled countries in the eurozone. The government debt agency is scheduled to auction at least euro1 billion ($1.25 billion) in bonds on Wednesday. So far this year Portugal has experienced no liquidity problems and no difficulty raising money on international markets. Moody’s said feeble growth and climbing debt levels over the past two years will continue to sap Portugal’s fiscal strength. The budget deficit ballooned to 9.4 percent of GDP last year, the fourth highest rate in the euro zone. Over the same year the economy contracted 2.7 percent amid the global downturn. The center-left Socialist government has enacted an austerity package to slash the debt but has struggled to find new sources of economic growth. Moody’s said it expects the government’s debt situation “to continue to deteriorate for at least another two to three years” before stabilizing. Portuguese Finance Minister Fernando Teixeira dos Santos said the downgrade, which followed cuts by other rating agencies, including Standard and Poor’s, was expected. “There is no point grieving over this,” Teixeira dos Santos said. “We have to do what the markets demand, which is swiftly put our public finances in order.” The government has set a deficit target of 5.1 percent for 2011, and intends to get the deficit below 3 percent the following year, but financial markets are worried the austerity plan could choke a recovery. The financial crisis, and the government’s measures to address it, have been blamed for pushing the jobless rate to almost 11 percent, one of the highest levels in the euro zone. The minority government, which has resisted trade union protests over a civil service pay freeze and tax hikes, has pointed to recent signs of fresh growth as evidence its policies are working. In the first quarter, Portugal’s gross domestic product rose 1.7 percent from the same period a year earlier – the strongest recovery in the European Union. Goncalo Pascoal, chief economist at Portuguese bank Millennium bcp, said that while growth has been robust so far Portugal’s recovery could still be checked by the austerity measures and continuing difficulties in its main export markets, especially Spain. “We don’t know if the growth will continue,” he said. Moody’s said its outlook for Portugal remains “stable,” meaning it is not expected to downgrade its rating further in coming months. “Whilst the government’s debt metrics have undoubtedly deteriorated, Moody’s believes that they will stabilise at levels that are commensurate with a strong A rating,” the agency said. “In our view, upside and downside risks to that base case scenario are evenly balanced.” The Portuguese Finance Ministry said that its debt-cutting strategy would remain in place. While cuts might not guarantee a quick rebound, “it is nevertheless a necessary condition for a sustained economic recovery,” the statement said.

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Sheldon Filger: Are European Banks on the Verge of Destruction?

June 30, 2010

In February 2009, my blog referred to a story that appeared in The Daily Telegraph, a leading UK newspaper, headlined, “European bank bail-out could push EU into crisis.” The essence of the story was that The Daily Telegraph was shown a top-secret document, leaked from the European Commission, the executive body that oversees the 27-nation European Union, which warned that the EU’s banking system was contaminated by an ocean of toxic assets. Though the story was ignored by the rest of mainstream media, for the most part, I think it is timely to look again at this secret EU document in the light of the current European debt crisis and growing rumors regarding the insolvency of many leading banks across the continent. The confidential 17-page European Commission document warned that the European banking system could be holding as much as 18.6 trillion euros in toxic assets. Furthermore, in the wake of the European bank bailout that followed the collapse of Lehman Brothers, the document warned that the cost of a second Eurozone and U.K. bank bailout would exceed the financial capacity of the European Union. In other words, if Europe’s banking system enters a meltdown in the face of the sovereign debt crisis now plaguing European economies, the EU will be powerless to stop the implosion of the European banking and financial system. Reviewing what the European Commission warned about more than a year ago, it appears that the document’s authors had an impressively prescient ability to forecast the current European sovereign debt and fiscal crisis. In stark terms, the EU document warned that, “It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems … Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance.” With Greece essentially insolvent, Spain in the grips of its own sovereign debt crisis and the U.K. and Italy teetering on the edge, not to mention Ireland, Portugal and Eastern Europe, it seems to me that the worst case scenario hinted at in the leaked document more than a year ago is no longer a speculative possibility, but unfortunately a chillingly realistic forecast of what may very soon be the next great global banking crisis.

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Global Stocks Rise as S&ampP 500 Fluctuates Gold Reaches Record

June 18, 2010

By Rita Nazareth and Stephen Kirkland June 18 (Bloomberg) — The MSCI World Index of stocks rose for the ninth day, the longest rally in 11 months, and Spanish bonds jumped on speculation efforts to contain Europe’s debt crisis will succeed. Treasuries fell, while gold climbed to a record. Oil reversed losses to rebound above $77 a barrel. The global index increased 0.2 percent at 12:47 p.m. in New York. The Stoxx Europe 600 Index also climbed for a ninth day, rising 0.2 percent to the highest level in five weeks. The Standard & Poor’s 500 Index drifted between gains and losses as the expiration of futures and options triggered price swings. Spot gold rose as high as $1,262.50 an ounce. Spain’s 10-year bond yield lost 19 basis points. Spanish banks rallied as European leaders pledged to publish stress tests to boost transparency in the financial industry. Emerging-market equity and bond funds received net inflows in the week to June 16 as concerns over European deficits eased, boosting appetite for higher-yielding assets, EPFR Global data showed. “The stock gains are very comforting,” said David Kelly , who helps oversee $445 billion as chief market strategist for JPMorgan Funds in New York. “They suggest this is still a bull market. There’s a realization that the measures put in place by European governments and the IMF to deal with the debt issues are sufficient to do the job. It’s likely that the global economic recovery will be able to overcome the speed of the European crisis.” One-Month High Shares of commodity producers and financial firms led gains in the S&P 500 among 10 groups, while health-care and telephone companies had the biggest declines. Cisco Systems Inc., DuPont Co. and Exxon Mobil Corp. climbed more than 1 percent for the top advances in the Dow Jones Industrial Average higher. Both gauges are trading near their highest levels in a month. About three stocks rose for every two that fell on Europe’s benchmark Stoxx Europe 600 . Banco Santander SA , Spain’s largest lender, rallied 3.5 percent in Madrid while smaller rival Banco Bilbao Vizcaya Argentaria SA climbed 5.6 percent. Spain’s IBEX 35 Index and Portugal’s PSI-20 increased 2.2 percent, the most among western European benchmark gauges. “Sentiment has changed to the positive after investors saw that the European debt crisis hasn’t spiralled out of control,” said Daphne Roth , Singapore-based head of Asian equity research at ABN Amro Private Banking. Spain’s 10-year bond yield dropped to 4.58 percent and the premium investors demand to own the debt instead of benchmark German bunds narrowed by 26 basis points to 185 basis points. Stress Tests European Union leaders agreed yesterday to disclose how banks perform on stress tests, seeking to show investors that the financial system can withstand shocks. The decision came after Spanish officials unexpectedly pledged to publish results on individual banks, the first European government to do so. European Central Bank President Jean-Claude Trichet said broader regional stress tests will be published in the second half of July “at the latest.” Developing-nation stocks rose for a ninth day, the longest stretch of gains in two months. Emerging-equity funds took in $2.5 billion in the past week, the second-largest inflow this year, while emerging-bond funds received $659 million, EPFR said in a statement. The MSCI Asia Pacific Index gained 0.3 percent. Softbank Corp., the exclusive seller of the iPhone in Japan, climbed 2.7 percent in Tokyo as orders for a new model outstripped supply. Newcrest Mining Ltd., Australia’s biggest gold producer gained 1.7 percent in Sydney. Yen Gains The yen gained for a fifth day to 90.78 per dollar, and appreciated 0.5 percent against the euro after the nation’s leaders pledged to reduce public debt. Japanese Prime Minister Naoto Kan said he would consider an opposition party proposal to raise the consumption tax. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies dropped 21.5 basis points to a one-month low of 522, according to Markit Group Ltd. Copper pared earlier losses, slipping 0.3 percent to $2.9155 a pound in New York after earlier sinking as much as 2.1 percent. The Reuters/Jefferies CRB Index of commodities rose 0.3 percent, erasing an early 0.7 percent slump and extending its five-day advance to 3.2 percent, on pace for its best week since the beginning of April. —-With assistance from Paul Armstrong , Matthew Brown , Claudia Carpenter , David Merritt and Michael Patterson in London. Editor: Michael P. Regan . To contact the reporters on this story: Rita Nazareth at rnazareth@bloomberg.net ; Stephen Kirkland in London at skirkland@bloomberg.net ;

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EU Vows to Disclose Bank Stress-Test Results, Rebuffing Industry Concerns

June 17, 2010

By Tony Czuczka and Gregory Viscusi June 17 (Bloomberg) — European Union leaders agreed to disclose how banks perform on stress tests, seeking to show investors that the financial system can withstand shocks. In reaching agreement at a summit today in Brussels, the EU leaders rebuffed financial-industry executives’ concerns that publishing the results could undermine confidence in banks. “We will do stress tests institution by institution and we’ll announce results, though I don’t know the details about how much exactly we announce, like if we release the answers to each question,” French President Nicolas Sarkozy told reporters. Results will be published in July. The decision by EU leaders came a day after an announcement by the Bank of Spain that it would make its findings public. Greece’s debt woes focused attention on Spain’s public finances and the costs of buttressing the country’s banks, including the foundation-based lenders known as “cajas” that have been hobbled by a surge in bad debts. “What’s important right now is that we have maximum transparency,” German Chancellor Angela Merkel said in a separate briefing. “If you have something to hide, it would come out into the open in the long run anyway.” Merkel said that EU leaders also agreed to pursue a banking levy and a financial transaction tax that apply worldwide, “to ensure fair burden-sharing and rein in systemic risks.” The EU will take those proposals to the Group of 20 summit in Canada later this month. U.S. Stress Tests Europe’s move on stress tests comes more than a year after the U.S. released the results of evaluations it carried out on 19 financial institutions to determine whether they needed more capital following the subprime mortgage crisis. The U.S. Treasury, whose tests measured how the biggest firms would perform if the economy worsened, promised to provide capital to banks that couldn’t raise it. Merkel sidestepped questions on how the governments would react if tests revealed shortcomings, saying the EU has “taken precautions,” including a 750 billion-euro ($927 billion) financial backstop. Publishing the results may lead to a “run on a perfectly sound bank,” the British Bankers’ Association said in a statement yesterday. Germany’s BdB banking association, which represents more than 220 private firms, initially said it opposed making the findings public. The group changed its stance today, and said publishing the results can “contribute to creating confidence and calming the markets” if done in a way that does not leave “room for misinterpretation.” Trichet ‘Happy’ European Central Bank President Jean-Claude Trichet told reporters today in Brussels that he was “happy” that EU leaders reached a consensus on stress tests, and said the results will be published in the second half of July at the latest. EU regulators are evaluating the strength of the region’s lenders after they racked up losses and writedowns during the financial crisis, leading to taxpayer-funded bailouts. ECB Governing Council member Axel Weber said future stress tests in the banking industry will be more comprehensive than the current evaluations and may include government bond markets. Questions have arisen over whether the tests would take into account risks tied to sovereign debt of Greece, Portugal and other European nations. Marking down the value of Greek bonds, even for the purposes of a test, might imply that regulators perceive a debt default as a possibility, which could further unsettle investors, according to analysts. BBVA, Santander Finding common ground on an approach to carrying out and publicizing stress tests in Europe has also been complicated by the fact that there are 27 nations in the European Union, each with its own government and central bank. Merkel said all EU countries had agreed to publish the findings. Bank of Spain Governor Miguel Angel Fernandez Ordonez announced yesterday that the central bank would make the findings public to bolster confidence in the country’s banks. The Bank of Spain, seeking to shore up its savings banks, seized a lender last month and is urging ailing cajas to complete merger plans to tap a government rescue fund. Francisco Gonzalez , chairman of Banco Bilbao Vizcaya Argentaria SA , Spain’s second-largest bank, added to concern about the nation’s lenders this week when he said capital markets were closed to most Spanish companies and banks. He advocated “doing and publishing” stress tests. “Europe needs this because the markets are asking for it,” Gonzalez said on June 14 at a seminar in Santander, Spain. Bond Sale Matias Rodriguez Inciarte , a vice-chairman at Santander, Spain’s biggest bank, told reporters today that the decision to publish results of the tests is a step toward restoring confidence in the country’s banks. Spain sold 3.5 billion euros of bonds today, the maximum set for the auction, easing concern that it will struggle to finance looming debt. Santander and BBVA rose in Madrid trading and the euro rallied. The U.S. stress tests were criticized by some analysts and economists who said they weren’t rigorous enough and others who said it could fuel investor concern. The effort forced banks including Wells Fargo & Co. and Morgan Stanley to issue common equity after the Federal Reserve released results on May 7, 2009, that showed 10 of the 19 lenders needed new capital. It also kicked off a rally that lifted the Standard & Poor’s Financials Index 36 percent from the start of May through the end of last year. To contact the reporters on this story: Gregory Viscusi in Brussels at gviscusi@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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Spain, Portugal Must Specify Steps for `Ambitious’ Budget Targets, EU Says

June 15, 2010

By Meera Louis June 15 (Bloomberg) — The European Union told Spain and Portugal their governments must spell out the budget-cutting measures they plan to implement to reach their “ambitious” deficit targets for next year. “The targets are appropriately ambitious and imply substantial fiscal consolidation,” the EU said in a report released today in Brussels. “Spain and Portugal are expected to specify measures in their 2011 budgets amounting to 1.75 percent and 1.5 percent of GDP, respectively, in order to attain the new targets.” European governments are struggling to cut their budget gaps and prevent the Greek debt crisis from spreading to other countries such as Spain and Portugal. EU officials last month agreed on an unprecedented 750 billion-euro ($922 billion) rescue package for distressed nations after a separate 110 billion-euro lifeline for Greece failed to contain the turmoil and shore up the euro. Spain is trying to cut the EU’s third-largest deficit in half over two years while at the same time restructuring the savings-bank industry, implementing wage cuts and freezing pensions. The government’s borrowing costs rose at an auction of 12- and 18-month bills in Madrid today amid investor concern the fiscal crisis may be spreading. Austerity Measures Governments across Europe are implementing austerity measures as the debt crisis undermines investor confidence and clouds the economic outlook. German investor sentiment plunged in June on concern the turmoil will undermine exports and crimp growth in the region’s biggest economy. Spain has pledged to cut its deficit to 9.3 percent of gross domestic product this year and 6 percent in 2011. Portugal said it would reduce its budget shortfall to 7.3 percent of GDP in 2010 and 4.6 percent in 2011. The two countries “need to substantiate” their deficit- cutting plans to meet the revised deficit targets for next year, EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference today in Strasbourg, France. “It is essential to substantiate these new measures.” Spanish Finance Minister Elena Salgado said on June 8 that her government will take “any measures necessary” to meet next year’s deficit target. Portugal’s Finance Ministry said in a statement today that the 2011 budget “will adopt all the necessary measures” to meet its deficit goal. Debt Ratio In today’s report, the EU told both countries that the new deficit targets “will not be enough to reverse the increasing trend in the debt ratio by next year.” Citing the “urgency of reversing debt developments,” the EU said additional budget cuts by the two governments should “be focused on expenditure cuts.” The yield premium investors demand to buy 10-year Spanish bonds over comparable German debt rose to a euro-era high of 215.6 basis points on June 8 on speculation Spain may follow Greece in needing an EU bailout to finance its debt. The spread between 10-year Portuguese securities and bunds widened 19 basis points today to 278 basis points, the most in a week, according to Bloomberg generic data. Under the EU’s Stability and Growth Pact, countries with deficits above the 3 percent limit face fines of as much as 0.5 percent of GDP unless they get the budgets back into compliance. To date, no country has been fined for flouting the rules of the pact. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net

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Spain, Portugal Must Specify Steps for `Ambitious’ Budget Targets, EU Says

June 15, 2010

By Meera Louis June 15 (Bloomberg) — The European Union told Spain and Portugal their governments must spell out the budget-cutting measures they plan to implement to reach their “ambitious” deficit targets for next year. “The targets are appropriately ambitious and imply substantial fiscal consolidation,” the EU said in a report released today in Brussels. “Spain and Portugal are expected to specify measures in their 2011 budgets amounting to 1.75 percent and 1.5 percent of GDP, respectively, in order to attain the new targets.” European governments are struggling to cut their budget gaps and prevent the Greek debt crisis from spreading to other countries such as Spain and Portugal. EU officials last month agreed on an unprecedented 750 billion-euro ($922 billion) rescue package for distressed nations after a separate 110 billion-euro lifeline for Greece failed to contain the turmoil and shore up the euro. Spain is trying to cut the EU’s third-largest deficit in half over two years while at the same time restructuring the savings-bank industry, implementing wage cuts and freezing pensions. The government’s borrowing costs rose at an auction of 12- and 18-month bills in Madrid today amid investor concern the fiscal crisis may be spreading. Austerity Measures Governments across Europe are implementing austerity measures as the debt crisis undermines investor confidence and clouds the economic outlook. German investor sentiment plunged in June on concern the turmoil will undermine exports and crimp growth in the region’s biggest economy. Spain has pledged to cut its deficit to 9.3 percent of gross domestic product this year and 6 percent in 2011. Portugal said it would reduce its budget shortfall to 7.3 percent of GDP in 2010 and 4.6 percent in 2011. The two countries “need to substantiate” their deficit- cutting plans to meet the revised deficit targets for next year, EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference today in Strasbourg, France. “It is essential to substantiate these new measures.” Spanish Finance Minister Elena Salgado said on June 8 that her government will take “any measures necessary” to meet next year’s deficit target. Portugal’s Finance Ministry said in a statement today that the 2011 budget “will adopt all the necessary measures” to meet its deficit goal. Debt Ratio In today’s report, the EU told both countries that the new deficit targets “will not be enough to reverse the increasing trend in the debt ratio by next year.” Citing the “urgency of reversing debt developments,” the EU said additional budget cuts by the two governments should “be focused on expenditure cuts.” The yield premium investors demand to buy 10-year Spanish bonds over comparable German debt rose to a euro-era high of 215.6 basis points on June 8 on speculation Spain may follow Greece in needing an EU bailout to finance its debt. The spread between 10-year Portuguese securities and bunds widened 19 basis points today to 278 basis points, the most in a week, according to Bloomberg generic data. Under the EU’s Stability and Growth Pact, countries with deficits above the 3 percent limit face fines of as much as 0.5 percent of GDP unless they get the budgets back into compliance. To date, no country has been fined for flouting the rules of the pact. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net

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Stocks, Oil Advance on Manufacturing Growth Greek Bonds Drop

June 15, 2010

By Rita Nazareth and Esme E. Deprez June 15 (Bloomberg) — Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23. Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008. “We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan , New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.” 200-Day Average The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade. The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April. “The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.” Industrials Rally General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut. CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42. Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Asian, Europe Stocks The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies. BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid. The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week. The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper , a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt. The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14. Greek, German Yield Spreads The extra yield, or spread , investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent. Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision. Standard & Poor’s already cut Greece to below investment grade on April 27. Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014. Spain, Portugal Cuts Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26. Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today. The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13. “I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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Stocks, Oil Advance on Manufacturing Growth Greek Bonds Drop

June 15, 2010

By Rita Nazareth and Esme E. Deprez June 15 (Bloomberg) — Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23. Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008. “We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan , New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.” 200-Day Average The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade. The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April. “The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.” Industrials Rally General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut. CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42. Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Asian, Europe Stocks The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies. BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid. The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week. The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper , a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt. The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14. Greek, German Yield Spreads The extra yield, or spread , investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent. Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision. Standard & Poor’s already cut Greece to below investment grade on April 27. Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014. Spain, Portugal Cuts Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26. Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today. The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13. “I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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Stocks, Oil Advance on New York Manufacturing Growth Greek Bonds Decline

June 15, 2010

By Rita Nazareth and Esme E. Deprez June 15 (Bloomberg) — Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23. Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008. “We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan , New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.” 200-Day Average The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade. The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April. “The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.” Industrials Rally General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut. CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42. Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Asian, Europe Stocks The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies. BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid. The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week. The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper , a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt. The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14. Greek, German Yield Spreads The extra yield, or spread , investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent. Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision. Standard & Poor’s already cut Greece to below investment grade on April 27. Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014. Spain, Portugal Cuts Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26. Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today. The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13. “I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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Stocks, Oil Advance on New York Manufacturing Growth Greek Bonds Decline

June 15, 2010

By Rita Nazareth and Esme E. Deprez June 15 (Bloomberg) — Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23. Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008. “We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan , New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.” 200-Day Average The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade. The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April. “The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.” Industrials Rally General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut. CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42. Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Asian, Europe Stocks The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies. BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid. The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week. The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper , a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt. The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14. Greek, German Yield Spreads The extra yield, or spread , investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent. Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision. Standard & Poor’s already cut Greece to below investment grade on April 27. Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014. Spain, Portugal Cuts Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26. Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today. The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13. “I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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Greece Cut Four Steps to Junk by Moody’s on `Risks’ Tied to EU Rescue Plan

June 14, 2010

By Ben Martin and Maria Petrakis June 14 (Bloomberg) — Greece’s credit rating was cut four steps to non-investment grade, or junk, by Moody’s Investors Service, which cited the country’s economic “risks.” The rating was lowered to Ba1 from A3, Moody’s said in a statement today from London. The outlook is stable, it said. Moody’s said the Ba1 rating “incorporates a greater, albeit, low risk of default.” Greece, which already is rated junk by Standard & Poor’s, last month agreed to a package of additional austerity measures to qualify for financial aid from the European Union and the International Monetary Fund. After that 110 billion-euro ($134.5 billion) Greek lifeline failed to contain the fiscal crisis, the EU announced on May 10 a 750 billion-euro backstop to shore up the finances of the region’s weakest economies amid concern governments will struggle to tackle their budget deficits. The turmoil has prompted investors to sell the bonds of Greece, Spain and Portugal and pushed the euro down 15 percent this year. “This doesn’t look good and I expect another round of sell-off,” said Christoph Rieger , co-head of fixed income strategy at Commerzbank AG in Frankfurt, Germany’s second largest bank. “A junk status means it will fall out of some benchmark indices. People who use those benchmarks are likely to sell.” The premium investors demand to hold Greek 10-year government bonds over benchmark German bunds rose eight basis points today to 568 basis points. Tax Increases The government in Athens said the downgrade by Moody’s doesn’t reflect the progress it has made in reining in its deficit. The package announced by Prime Minister George Papandreou includes wage and pension cuts and tax increases that have prompted street protests and strikes, including one in which three people died. “Today’s downgrade of the Greek economy by Moody’s in no way reflects the progress achieved in recent months nor does it reflect the prospects being opened up by fiscal adjustment and the improvement of the country’s competitiveness,” the Greek Finance Ministry said in a statement. “The Greek government remains absolutely committed to the task of fiscal adjustment and improving the country’s growth prospects.” Moody’s said the “macroeconomic and implementation risks” associated with the EU-IMF support program “are substantial and more consistent with a Ba1 rating.” ‘Considerable Uncertainty’ “There is considerable uncertainty surrounding the timing and impact of these measures on the country’s economic growth, particularly in a less supportive global economic environment,” Sarah Carlson , vice president-senior analyst in Moody’s sovereign risk group, said in the statement. “It’s a significant downgrade,” said Kevin Flanagan , a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney. “It’s not a surprise to people, but the timing and magnitude is what has taken Treasuries off the lows and is providing some support.” The yield on the 10-year Treasury note rose three basis points to 3.33 percent. S&P cut Greece’s credit rating to non-investment grade on April 27, the first time a euro member lost its investment-grade since the euro’s 1999 debut. S&P warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. Moody’s today also downgraded its rating on the city of Athens to Ba1 from A3, citing “the uncertainties arising from current reforms on the city’s finances.” Athens and other Greek municipalities “are unlikely to have enough financial flexibility to permit their credit quality to be stronger than that of the sovereign itself,” it said. To contact the reporter on this story: Ben Martin in London bmartin38@bloomberg.net .

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