Trader's Digest

Diffusion

5/27/2010
[Goldman will settle with SEC]
http://www.bloomberg.com/apps/ne ... 0Uz3h9Y2g&pos=4

Goldman Sachs Group Inc. may spend $621 million to settle the Securities and Exchange Commission’s fraud suit that triggered a 13 percent one-day drop in the firm’s stock, analyst Brad Hintz said.

Negotiations between the SEC and Wall Street’s most profitable investment bank may end with Goldman Sachs paying a fine of about $250 million, plus $371 million to reimburse investors in the disputed trades, Hintz, an analyst at Sanford C. Bernstein & Co., wrote in a note to clients today.

“While this would be painful to Goldman, we believe it would allow both Goldman Sachs and the SEC to walk away declaring ‘victory’,” said Hintz, who has had an “outperform” rating on the stock since June 2009. “Certainly Goldman wants this case settled. Its management has stated that it wants a ’normal’ relationship with its regulators.”

Diffusion

5/26-5/27 Midnight
[Junk bond market seized, sovereign debt crisis spread to corporate market]
http://www.bloomberg.com/apps/ne ... 8Xc9KOQto&pos=3

The percentage of corporate bonds considered in distress surged this week to the highest since 2009 as investors dumped debt of the neediest borrowers on concern Europe’s fiscal crisis may make it harder for them to refinance.

Some 17 percent of junk bonds yield at least 10 percentage points more than Treasuries, up from 9.2 percent last month, Bank of America Merrill Lynch’s Global High-Yield Index shows. The jump is the biggest since the distress ratio rose 11 percentage points in November 2008, two months after Lehman Brothers Holdings Inc. collapsed. Bonds of MGM Mirage and Freescale Semiconductor Inc. joined the list this month.

U.S. distressed bonds have lost 10 percent in May, according to the indexes, amid speculation Greece and other nations in Europe with rising budget deficits may not be able to meet their debt payments, causing credit markets to seize up again. Junk bond sales plunged this month to the lowest level since March 2009, data compiled by Bloomberg show.

“It’s going to be really difficult for some of these companies to address their debt piles,” said Mark Dewar, a London-based senior managing director at FTI Consulting who advised lenders to Lehman Brothers after the U.S. bank filed for bankruptcy. “It becomes a downward spiral.”

The 5.875 percent notes of Las Vegas casino operator MGM Mirage due in 2014 yield 11 percentage points more than Treasuries, becoming distressed on May 20 for the first time since December, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

[And to Asia-Pacific loan market]
http://www.bloomberg.com/apps/ne ... Ez5uM0QFg&pos=4

Syndicated lending in Singapore plunged 72 percent to $1.8 billion this year from $6.5 billion in the same period of 2009, according to data compiled by Bloomberg. It slumped 17 percent in Australia and New Zealand to the lowest since 2004, and 18 percent in Indonesia to the least since 2006, the data show.

“The low levels of deal volumes are because of a hesitation on the part of the corporates to take on fresh leverage,” Atul Sodhi, head of loan syndication for Credit Agricole CIB in the region, said in a telephone interview before the Asia-Pacific Loan Market Association’s 12th annual conference in Beijing today. “Lack of demand is the issue here rather than supply” of credit, he said.

While Asia has led a recovery from the deepest global recession since World War II, concern Europe’s debt woes will derail growth has jolted investors and pushed the MSCI Asia Pacific Index down 8.9 percent this year. “Downside risks have intensified,” Singapore’s trade ministry said May 20 after New York University professor Nouriel Roubini said fiscal problems may push Europe into a “double-dip” recession.

“Most Asian corporates are exporting to Europe or the U.S. and demand conditions in these markets are not necessarily very buoyant, so the rationale to invest in big projects or developments is not so strong,” Sodhi said.

Diffusion

5/26/2010
[Germany to expand ban on naked short]
http://www.bloomberg.com/apps/ne ... SQDytsqME&pos=5

The ministry yesterday proposed legislation to expand a partial ban on naked short-selling to all German stocks and certain euro-currency derivatives in a move that would replace a temporary ruling by the BaFin regulator. Chancellor Angela Merkel’s Cabinet will discuss the bill next week, Offer said. It next meets on June 2.

“We want to give a clear signal, to markets too, that we will act nationally whenever we can to put a stop to the speculators’ game,” Offer said at a regular government press conference in Berlin today. Germany will go it alone and act nationally “whenever possible,” and will do so either via BaFin or by means of legislation, he said.

Fellow EU states have so far refused to follow Germany’s unilateral ban on naked short-selling of sovereign debt securities and financial shares, leaving Merkel’s government isolated in its attempt to ease selling pressure on some southern European bonds and the euro.

[Crisis not over yet]
http://online.barrons.com/article/SB127480467806996761.html (May require subscription)

The widening in the spread between the Fed-set overnight funds rate and three-month Libor, which is set by a survey of major international banks by the British Bankers Association at late morning in London, reflects the higher rates that some European banks are having to pay. The money market is demanding a premium from banks, especially those that own lots of bonds from the weak-credit governments of Greece, Portugal, Spain, Ireland and Italy.

Darda pointed out that, despite the sharp expansion in the balance sheet of the European Central Bank, the broad money supply of the eurozone is shrinking while its turnover (velocity) has declined. Money times velocity equals gross domestic product; so if money and velocity are dropping, GDP must necessarily do the same. Without growing GDP, attempts to reduce fiscal deficits in the eurozone may prove futile, Darda writes in a note to clients.

[Young people could not find job]
http://money.cnn.com/2010/05/26/ ... mployment/index.htm

The youth unemployment rate of 19.6% is the highest for the age group since the government began tracking the data in 1947, the JEC said.

Young workers have been disproportionately impacted by the recession. Although 16-24 year-olds make up 13% of the labor force, they represent 26% of the unemployed, according to the report. And 16 to 17 year olds fared worse, with a 29% unemployment rate.

[New home inventory drops to 6.7 month of sales]
http://money.cnn.com/2010/05/26/ ... ome_sales/index.htm

An estimated 211,000 new homes were for sale at the end of April. At the current sales pace, the government expects it will take five months to sell through that inventory. That's down from March, when there were 6.7 months of inventory on the market.

Diffusion

5/25-5/26 Midnight
[Retail investors turn suspicious]
http://www.bloomberg.com/apps/ne ... IZZvVBqT4&pos=6

Investors had about 60 percent of their portfolios in stocks, 20 percent in bonds and 20 percent in cash, according to a survey last month by the American Association of Individual Investors, a nonprofit investment education group in Chicago. That compares with an average recommendation of 8 percent allocated to cash from strategists at brokerages compiled by Bloomberg, including Bank of America Corp. and JPMorgan Chase & Co.

Investors pulled an estimated $14 billion from U.S. stock and bond mutual funds in the week ended May 12, the first net withdrawals since March 2009, according to the Investment Company Institute, a trade group in Washington. The Standard & Poor’s 500 Index has declined 5.2 percent this year and has gained 59 percent since the market low in March 2009.

The number of individual investors who are bullish for the next six months fell to 36.6 percent the week ended May 12 compared with a high in 2010 of 48.5 percent, said the American Association of Individual Investors.

Money available for immediate spending from sources such as savings accounts, checking accounts and money-market funds, increased 26 percent to $9.36 trillion as of May 10 compared with $7.44 trillion in May 2007 before the recession began, according to data from the Federal Reserve.

Diffusion

5/25/2010
[Consumer confidence rose more than forecast]
http://www.bloomberg.com/apps/ne ... Ms4LNHMds&pos=2

The Conference Board’s confidence index rose to 63.3, exceeding the highest estimate in a Bloomberg News survey, from a revised 57.7 in April, figures from the New York-based private research group showed. The gauge was forecast to rise to 58.5, according to the survey median. A measure of expectations surged to the highest level since August 2007.

The Conference Board’s measure of present conditions increased to 30.2 this month, the highest since December 2008, from 28.2 in April. The gauge of expectations for the next six months surged to 85.3 from 77.4.

The percent of respondents expecting more jobs to become available increased to 20.4, the highest since December 2003, from 17.7 in April. The proportion who expect their incomes to rise over the next six months increased to 11.3 percent from 10.5 percent.

In contrast, the share of consumers who said jobs are currently plentiful fell to 4.6 percent from 4.7 percent. Those who said jobs are hard to get decreased to 43.6 percent from 44.8 percent.

[Betting on the re-bounce of the Republic]
http://money.cnn.com/2010/05/25/ ... e.fortune/index.htm

Typically one grassroots incumbency challenge per election cycle is noteworthy, but when every race becomes a challenge against incumbents in both parties, it is a leading indicator of a sea change. According to a study from opensecrets.org, in election results going back to the early 1980s, incumbents win 90% or more of the time in the House and more than 85% of the time on the Senate.

The data from the early stages of the 2010 election cycle are noteworthy and could mark the beginning of a serious shift by voters away from supporting incumbents.

Recent polls also support the trend. Specifically, a recent ABC News-Washington Post poll indicated that nearly six in 10 respondents are not likely to vote for their current representatives to Congress. This doesn't bode well for Democrats in the upcoming midterms -- particularly as President Obama's approval rating is mired near the lowest of his presidency, with a 47.6% aggregate rating on the Real Clear Political Poll.

The Democrats are the de facto incumbent political party. With support for incumbents at generational lows, this could lead to a shift comparable to the one experienced under President Clinton in 1994. After that year's elections, the Senate shifted from 57 Democrats to 52 Republicans. In the House, the swing was 258 Democrats to 230 Republicans.

What this means for the health care business? In equities, the sector that will likely benefit most from Republicans regaining both houses is health care. As outlined in the chart above, health care has underperformed the broader market by almost a margin of 2:1 since the House passed the health care bill on March 21st. A shift in control of Congress back to the Republicans would likely lead to a rolling back of certain aspects of the bill, which would be positive for the industry and its ability to maintain pricing power (versus having pricing mandated by the government) and therefore protect profit margins.

[Sizzling at auction]
http://money.cnn.com/2010/05/25/ ... _auctions/index.htm

Auctions have increased by about 10% a year since the early 2000s, with homes worth nearly $17 billion sold this way in 2007, according to the National Auctioneers Association.

Auction sales have already spiked 14% in the first three months of 2010, according to the group.

"One auctioneer told me yesterday that he's been doing two, sometimes even three auctions a day, up from one a day or less a couple of years ago," said Hannes Combest, CEO of the National Auctioneers Association.

In fact, Robert Friedman, chairman of Real Estate Disposition Corp., said his company has done 195 auctions this year through mid-May, a pace that would exceed 520 for the year, a 50%-plus increase compared with the 340 sales total in 2009.

Plus, Friedman stressed, price discovery is an important part of the auction process, as well as savings. Most homes sold are near market value but rarely above.

For his company, the main contributor to its added sales volume is the flood of bank repossessions. "We are almost entirely REO at this point," he said, referring to real-estate owned properties, the industry term for homes taken back by banks.

There is such a huge volume of REOs on the market -- 92,000 homes were seized in April alone -- that banks are anxious to turn the properties over quickly. Rather than waiting for the local housing market, they turn to auctioneers.

Diffusion

5/24/2010
[Housing market status]
http://money.cnn.com/2010/05/24/ ... ome_sales/index.htm

The National Association of Realtors reported that existing home sales jumped 7.6% last month to a seasonally adjusted annual rate of 5.77 million units, up from the upwardly revised rate of 5.36 million in March. Sales year-over-year were up 22.8%.

The NAR report showed that the median price of homes sold in April was $173,100 in April, up 4% from a year ago. About a third of homes sold during the month were distressed properties.

Total housing inventory rose 11.5% to 4.04 million existing homes for sale. That represents a 8.4-month supply at the current sales pace, up from a 8.1-month supply in March.

Diffusion

5/23/2010
[How the riches think]
http://www.bloomberg.com/apps/ne ... cg2k0DstM&pos=5

More than half the people in Monaco with more than 1 million pounds ($1.44 million) to invest expect the economy to deteriorate, London-based Barclays Wealth said in a report today. That compares with 35 percent in Japan, 25 percent in the U.S., 17 percent in Switzerland and 16 percent in the U.K.

“We’re seeing in our conversations with clients that there is skepticism about things picking up,” Philippe Sednaoui, chief executive officer of Barclays’s Swiss wealth business, said in an interview at his office in Geneva. The most optimistic investors are in Spain, where 40 percent expect the global economy to expand over the next five years.

Those with more than 10 million pounds to invest are more negative than single-digit millionaires, Barclays found in the survey of 2,000 investors in 20 countries during February and March. The International Monetary Fund forecast last month that the world economy will expand 4.2 percent in 2010, the fastest pace since 2007.

“There’s a real disconnect between the private owners of money and the institutional view of money managers,” said Sednaoui, whose Swiss unit aims to almost double client assets under administration to 30 billion Swiss francs ($26 billion), from 16 billion francs, over the next three years.

Diffusion

5/22/2010
[S & P 500 valuation says a rally is around the corner]
http://online.barrons.com/article/SB127448158833995199.html (May require subscription)

The U.S. market's valuation based on expected 12-month forward earnings is right back where it was at the February low. Binky Chadha, chief strategist at Deutsche Bank in New York, notes that each of the market retreats since March 2009 ended with the S&P 500 forward multiple right near today's 13.

[European market is not a big deal to US exporter]
http://online.barrons.com/article/SB127448088917195067.html (May require subscription)

Is the market overreacting? The stronger greenback makes American exports less competitive and eats into foreign profits that are translated back into dollars, but U.S. exports to Europe make up just 1.4% of our gross domestic product. Even if the euro were to fall to $1, the direct hit to our GDP is less than 0.5%, notes Société Générale. Meanwhile, the pressure on manufacturing and the inconvenient surge in the dollar exchange rate can only encourage our already benevolent central bank to hold interest rates down longer.

Diffusion

5/21/2010
[Libor rises to highest since July]
http://www.bloomberg.com/apps/ne ... c5_tFzKPY&pos=2

The London interbank offered rate, or Libor, for such loans rose for a ninth straight day to 0.497 percent today, from 0.484 percent yesterday, according to data from the British Bankers’ Association, the steepest rate since July 24. The dollar Libor- OIS spread, a gauge of banks’ reluctance to lend, was almost the widest since Aug. 13.

Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Dollar Libor is set by 16 banks in a daily survey by the BBA before 11 a.m. in London. Contributing banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year.

[Looser consumer credit]
http://www.bloomberg.com/apps/ne ... F_RpRbSZE&pos=6

About $22.9 billion in bonds backed by auto loans, borrowings for dealer inventory and related debt were issued through April, according to data compiled by Bloomberg. That’s a 67 percent increase from $13.7 billion a year earlier.

AmeriCredit, specializing in subprime lending, sold $200 million of bonds backed by car loans on March 31, its first sale without help from the Federal Reserve’s Term Asset-Backed Securities Loan Facility since November 2008. The company sold an additional $600 million of bonds on May 13.

AmeriCredit’s auto-loan acceptance rate ran as low as 20 percent a year ago, and today is about 35 percent, Berce said. The company originated 34,800 new and used-vehicle loans in the U.S. in the first quarter, up from 12,400 a year earlier.

Diffusion

5/20/2010
[Wal-Mart's US sales drops, not good]
http://money.cnn.com/2010/05/20/ ... t.fortune/index.htm

And then there is Wal-Mart, whose happy yellow face switched to a grimace when it released first quarter sales on Tuesday. Although international growth helped push revenues up 6%, sales at U.S. stores fell 1.4% from the same period last year. And the company had no one to blame but its shoppers. "More than ever, our customers are living paycheck to paycheck," said Tom Schoewe, the chief financial officer.

[Rental vacancy drops]
http://www.bloomberg.com/apps/ne ... AP3uwADw8&pos=5

The rental vacancy rate dropped to 10.6 percent in the first three months of the year after reaching a record high of 11.1 percent from July through September 2009, according to Commerce Department data. Private reports show that apartment rents are starting to rise.

Diffusion

5/19/2010
[Europe's 1T rescue package may fall apart]
http://www.bloomberg.com/apps/ne ... rYvdTOX3k&pos=3

German Chancellor Angela Merkel’s curbs on government-bond trading proved a step too far for European allies, leaving her isolated as she pushes for a crackdown on euro-area states that flout budget-deficit rules.

Merkel’s unilateral effort to control what she called “destructive” markets came 10 days after voters angry at aid for Greece dealt her a regional election setback that cost her control of the federal upper house of parliament. She’s now trying to win public support for another loan package, this time Germany’s share of a $1 trillion bailout to backstop the euro.

The political trials of the leader of Europe’s biggest nation and her flip-flop last month on extending help to Greece have fanned investor concerns as the 16-nation currency bloc struggles to counter the region’s debt crisis. They contributed to the euro’s decline to its lowest since 2006, said Carsten Brzeski, an economist at ING Group NV.

[Silver lining in the mortgage delinquency report]
http://blogs.wsj.com/development ... d=rss_whats_news_us

But the portion of households that are between 30 and 60 days overdue – mostly representing newly delinquent borrowers – declined to 3.45% as of March 31 from 3.77% a year earlier. Jay Brinkmann, chief economist of the MBA, said that the number of borrowers falling behind has declined modestly but that a huge number remain in what has become a very slow foreclosure process.

Diffusion

5/18/2010
[Junk bond - lower quality, higher appetite]
http://www.bloomberg.com/apps/ne ... DVO7nw8Y4&pos=5

Even with housing starts hovering at their lowest levels on record, Beazer Homes USA Inc. managed to sell bonds this month on terms that allow it to add more debt. The Atlanta-based builder couldn’t even do that when it issued debentures at the height of the housing bubble in 2006 and its credit rating was seven levels higher. In a report last week Moody’s singled out CF Industries Inc., Standard Pacific Corp., AK Steel Corp. as borrowers offering debt on terms historically available only to higher-rated companies.

“We got ourselves in trouble with that in the past and here it is again,” James Kochan, the chief fixed-income strategist at Wells Fargo Fund Management in Menomonee Falls, Wisconsin, said of the trend toward looser debt covenants. “It’s not that surprising, but it is disturbing,” said Kochan, who helps oversee $179 billion.

Lenders are letting down their guard just as worsening government finances raise doubts about the sustainability of the global economic recovery. Money managers say they have little choice but to go along. They need to find a home for the record $29.4 billion that has flowed into high-yield bond mutual funds the past 16 months from retail investors seeking to join in a rally that has produced an average 69 percent return since the market bottom in March 2009.

About 60 percent of high-yield borrowers this year offered weaker investor safeguards than on debt they issued previously, according to Covenant Review LLC, a New York-based research firm that analyzes bond offerings. Those include no limits on the amount of debt companies can have and few restrictions on using assets as collateral for future borrowing, reducing what’s available to satisfy creditor claims in a bankruptcy.

[Growing deflation risk]
http://online.barrons.com/article/SB127410043464692855.html (May require subscription)

WITH ALL THE ATTENTION FOCUSED on the so-called flash crash of May 6, there's been a nearly silent crash in commodities.

From copper to crude oil to corn, prices have been tumbling for the better part of a month. The Thomson Reuters/Jefferies CRB index hit a seven-month low, dropping 2% Monday, which brought its loss to nearly 10% in the past month.

The commodities decline has been overshadowed by news of the European debt crisis, the oil-spill disaster in the Gulf of Mexico and the flash crash which caused a thousand points of fright in the Dow Jones Industrials a couple of weeks ago. But the slide in commodities has been picking up speed in the last week and, anomalously, has come against the backdrop of soaring gold, which hit a record price in dollars of $1,249 an ounce last week.

[Builders - output increases, confidence drops]
http://money.cnn.com/2010/05/18/ ... treasurys/index.htm

The Commerce Department reported that housing starts rose to a seasonally adjusted annual rate of 672,000 in April, beating an estimated jump to 655,000. The increase represented a 5.8% rise from March to April and a 40.9% increase in April compared to last year.

Building permits, viewed as a gauge of future construction activity, missed expectations. Permits fell 11.5% in April to a seasonally adjusted rate of 606,000, compared with the expected rate of 680,000.

[Greek to return to financial market]
http://www.businessweek.com/news ... ooner-update2-.html

Greece, which today received the first installment of a European Union aid package, cut its budget deficit in the first four months of 2010 by 42 percent and expects to borrow in the financial markets as soon as circumstances allow, the country’s finance minister said.

“The program has been designed to be able to stay away from financial markets through the end of 2011 and the first quarter of 2012. We don’t expect this to be the case, we want to come back to markets much sooner,” Finance Minister George Papaconstantinou told reporters in Brussels after a meeting with European Union counterparts today. “When exactly will depend on the condition in the international markets.”

Diffusion

5/17/2010
[Housing market]
http://money.cnn.com/2010/05/17/ ... direction/index.htm

1. Interest rates have been intermittently creeping up. Although nobody expects 6% until at least 2011, the days of 4.5% mortgages are behind us.

2. Bank repossessions are on track to surpass a million homes in 2010. But at least foreclosure filings fell in April, the first time since RealtyTrac began reporting.

3. More than a quarter of borrowers are "underwater," meaning they owe more than their homes are worth.

4. "Strategic defaults" -- where underwater homeowners walkway even when they can still afford to pay -- accounted for 31% of all foreclosures in March, according to a recent study.

[Consumer's financial situation improved]
http://www.bloomberg.com/apps/ne ... djTc8dcjk&pos=5

U.S. loans at least 30 days overdue, a signal of future write-offs, dropped to 6.73 percent in April compared with 7.07 percent in the previous month, the Charlotte, North Carolina- based bank said today in a regulatory filing. Write-offs climbed to 12.71 percent last month from 12.54 percent in March.

Late payments dropped to 4.4 percent from 4.51 percent at New York-based JPMorgan; 5.85 percent from 6.06 percent at Citigroup; 3.1 percent from 3.3 percent at AmEx; 5.07 percent from 5.3 percent at McLean, Virginia-based Capital One; and 5.2 percent from 5.39 percent at Discover.

Loans written off as uncollectible declined to 9.03 percent from 9.51 percent at JPMorgan; 11.23 percent from 11.55 percent at New York-based Citigroup; 6.7 percent from 7.5 percent at AmEx; 9.68 percent from 10.87 percent at Capital One; and 8.42 percent from 8.51 percent at Discover. Card loans typically are written off when they’re 180 days past due.

Diffusion

5/14/2010
[US debt situation is better than Greece]
http://online.barrons.com/articl ... html?mod=BOL_hps_dc (May require subscription)

But are states in the same dire straits as Greece, as critics charge? The data do not bear out their bleatings, according to an analysis from the Royal Bank of Canada. Although the states of California, New York, New Jersey, Massachusetts and Illinois are comparable in terms of economic output and population to Portugal, Ireland, Italy, Greece and Spain, RBC finds the states' debt burdens are nowhere near that of the PIIGS.

For instance, California has $70 billion in tax-supported debt a "GDP" of $1.8 trillion and a population of 36 million, according to RBC's tally. Italy comes closest with a GDP of $2.1 trillion, a population of 60 million, but a debt of $2.6 trillion. Greece has a $428 billion in debt, well in excess of GDP of $331 billion, which is supported by a population of just 11 million.

Even after including the unfunded liabilities for states' employees' pension and other benefits, RBC says that even these much higher debt burdens are less than what faces eurozone countries.

[Goldman to end proprietary trading in CLO debt]
http://www.bloomberg.com/apps/ne ... ay2VS1DQ4&pos=4

Goldman Sachs Group Inc., the securities firm that makes about 10 percent of its revenue from trades on its own behalf, is ceasing proprietary trading in one type of structured debt, according to a person close to the firm.

A group of traders who were focused on making bets on collateralized loan obligations with the New York-based firm’s own money are now handling trades for clients, the person said, speaking anonymously because the plans aren’t public. CLOs are bonds backed by pools of corporate loans. Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment.

Goldman Sachs, the most profitable Wall Street firm, merged the proprietary trading desk with the team that handles transactions for clients as it wound down the positions in the proprietary trading book, the person said. Both groups were run by Gerald Ouderkirk, who was promoted to managing director in October 2006.

Diffusion

5/13-5/14/2010 Midnight
[Insurers on hook of EU debt crisis]
http://www.bloomberg.com/apps/ne ... ufRGx.LFY&pos=3

Insurers are leading the first monthly decline for corporate bonds since December on speculation they face losses on sovereign debt just as cleanup costs for the Gulf of Mexico oil spill loom.

“The insurers’ declines are primarily down to sovereign debt concerns because they’re investors in government bonds, agencies and so on,” said Luis Maglanoc, head of credit research at UniCredit SpA in Munich. “The costs of the Gulf accident are likely to be indirect, as people claim for injury or loss of livelihood for example, and will be in the future.”

The extra yield over Treasuries that investors demand to hold bonds of AIG, the insurer rescued by the U.S. government, increased an average 105 basis points to 355 basis points since April 19, according to Bank of America Merrill Lynch index data. That’s the day before the Deepwater Horizon blew up. The spread on the notes widened 88 basis points this month.

[China to expand international settlement of Yuan]
http://www.bloomberg.com/apps/ne ... RzYCqKnV8&pos=5

hina plans to expand settlements of international trade using yuan to as many as 18 more provinces and municipalities to meet rising demand from companies, two bankers involved in the program said.

“More and more Chinese companies want to use the yuan in international trade because of higher volatility in foreign currencies,” said Shi Lei, an analyst in Beijing at Bank of China Ltd., the nation’s third-largest lender by market value. “The next step would be to provide more investment channels for overseas companies to invest yuan.”

The new rules may let Chinese companies settle trade in goods and services in yuan with counterparties around the world, the two bankers said. The municipalities added to the program include Beijing, Tianjin and Chongqing, while the provinces include Shandong, Inner Mongolia, Liaoning, Jilin, Fujian, Sichuan, Xinjiang, Yunnan, Zhejiang and Jiangsu, they said.

[Politically integrated Europe?]
http://www.bloomberg.com/apps/ne ... bEN2Fmv5I&pos=7

“You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech in London yesterday. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”

“Will economic and financial distress finally be resolved by looking toward more integration in a closely integrated Europe, politically as well as economically?” said Volcker, who chairs President Barack Obama’s Economic Recovery Advisory Board. “I do have my hopes, as a believer in the euro.”

Diffusion

5/13/2010
[Mortgage application for refinancing rises while that for purchasing drops]
http://www.businessweek.com/news ... -3-9-last-week.html

The Mortgage Bankers Association’s index increased 3.9 percent in the week ended May 7, the Washington-based group said today. Its refinancing gauge climbed 15 percent, while the purchase index fell 9.5 percent in the first week since the end of a government incentive.

The drop in applications for purchase financing may be the first sign that the expiration of a tax credit worth as much as $8,000 will depress demand in coming months. The outlook for sales later in the year will depend on job gains, which are needed to limit foreclosures in the absence of the government assistance.

“We won’t get a real reading of the underlying strength of demand until later this summer” when the effect of the incentive is gone, Joseph Brusuelas, president of Brusuelas Analytics in Stamford, Connecticut, said before the report. “Everything comes back to the labor market.”

[Why G and P are missing]
http://www.bloomberg.com/apps/ne ... vpebIXuMU&pos=1

The European Central Bank has trimmed purchases of Spanish and Italian bonds after a government-led financial lifeline for the euro region shored up investor confidence in debt markets, said Sander Schol, a director of the Association for Financial Markets in Europe.

“Central banks are buying less Spain and Italy today than yesterday, that might mean that they think that the markets in these countries have stabilized enough that they don’t have to intervene,” Schol, whose division represents the region’s 20 primary dealers, said in a telephone interview. “They’re narrowing their focus.”

The central banks of Germany, France and Italy intervened in debt markets on May 10 as part of a $1 trillion rescue package after a rout in bonds across the euro region’s periphery last week sparked concerns about the currency’s future. Bonds have since stabilized across the euro region, indicating that the plan is working and will give governments more time to cut their budget deficits.

[Greece will still have trouble even stop paying debt]
http://www.bloomberg.com/apps/ne ... QqtM6flUU&pos=4

Criticism of the International Monetary Fund and European Union’s handling of Greece’s fiscal crisis and calls for a Greek debt restructuring are “too superficial” given the issues confronted, according to the fund’s No. 2 official.

“These critics are not dealing with the essential problems that face Greece,” John Lipsky, the first deputy director at the fund, said in an Bloomberg Radio interview with Tom Keene. “They could simply stop paying their debts and they would still have a huge deficit that would still have to be dealt with in a situation, in which before these programs were announced they had lost market access. That had to be dealt with.”

The EU on May 10 unveiled a rescue package of almost $1 trillion to the region’s most indebted nations to prevent a loss of confidence in the euro. The IMF approved a separate 30- billion euro loan to Greece as part of that nation’s 110-billion euro package with governments from the 16-nation bloc sharing the currency. Greece must focus now on bringing down the deficit and restoring competitiveness in what is the “most closed” economy in the EU, Lipsky said.

More fiscal coordination is needed to prevent against problems that led to the emergency provisions, Lipsky said.

[Luxury is back]
http://money.cnn.com/2010/05/13/markets/thebuzz/index.htm

Whole Foods (WFMI, Fortune 500), the grocery store chain featuring organic goods so pricey that some customers call it Whole Paycheck, reported Wednesday that sales were up 13% from a year ago. The stock surged 6% on the news Thursday.

Handbag and leather goods maker Coach (COH) reported last month that its sales in the first quarter were up 12% from a year ago. And watch maker Fossil (FOSL) said earlier this week that first quarter sales rose 22% from the same period last year.

[Banks are better than government agencies]
http://money.cnn.com/2010/05/13/ ... y.fortune/index.htm

A message to all of you angry taxpayers this election season with your cross-hairs trained on the likes of Goldman Sachs and JP Morgan Chase: Did you notice that Fannie Mae just trundled up to the government bailout window for another $8.4 billion, days after Freddie Mac pulled down another $10.6 billion in taxpayer funds?

So let's pause for a moment -- six months before the mid-term election, as the White House and its allies skillfully stir your ire at Wall Street as a buffer against likely Democratic losses -- to assess the true state of bailout island, that place that has (rightly) made you so feverishly mad.

You are especially angry over Congress' fall, 2008 bipartisan vote to create the $700 billion TARP-popularly translated as a "Wall Street bailout" -- and you're ready to hold incumbents in both parties accountable. But as figures compiled by the nonpartisan journalistic investigator ProPublica show, those anti-Wall Street protesters who now routinely park themselves outside Senate office buildings should consider adding a few more signs to their collection.

Diffusion

5/13/2010 Midnight
[Foreclosure filings dropped for the first time in four years]
http://www.bloomberg.com/apps/ne ... u2ra7o.nQ&pos=6

U.S. home repossessions set a record in April while foreclosure filings dropped for the first time in four years, a sign lenders may be delaying new default actions as they seize properties, RealtyTrac Inc. said.

“Right now it appears that the banks are focusing on processing the loans already in foreclosure, and slowing down the initiation of new foreclosure proceedings as a way of managing inventory levels,” Rick Sharga, RealtyTrac’s executive vice president, said in an e-mail. “We’ll probably see this trend continue for a while.”

A record 92,432 bank repossessions were reported in April, up 45 percent from a year earlier and 1 percent from March, Irvine, California-based RealtyTrac said today in a statement. Foreclosure filings, including default and auction notices, were 333,837. One out of every 387 U.S. households got a filing.

Diffusion

5/11/2010
[Wholesale inventories, sales rose]
http://www.bloomberg.com/apps/ne ... aSMYSnQuk&pos=3

Inventories at U.S. wholesalers rose for a third month in March, and sales climbed even more, a signal companies will need to step up orders to try to meet demand.

The 0.4 percent gain in the value of stockpiles followed a 0.6 percent increase the prior month, the Commerce Department said today in Washington. Sales gained 2.4 percent, the most since November.

The amount of goods on hand compared to sales dropped to the lowest level on record, indicating factories will need to keep increasing production. A report later this week is projected to show purchases at retailers climbed again in April, pointing to a rebound in consumer spending.

[Rescue package may hurt the "AAA" rating of Germany and France]
http://www.bloomberg.com/apps/ne ... xBow.FVKU&pos=6

Germany and France are among top- rated euro-area states that may compromise their AAA grades by standing behind the debts of weaker members with their 750 billion-euro ($955 billion) stabilization fund.

The package is “making debt profiles deteriorate, potentially damaging the ratings of core sovereigns,” said Stefan Kolek, a strategist at UniCredit SpA in Munich. “It’s a kind of Ponzi game at the highest level.”

The unprecedented loan package was designed by the European Union and the International Monetary Fund to halt a sovereign- debt crisis that threatened to push Greece, Portugal and Spain into default and shatter confidence in the euro. As part of the support plan, Germany’s Bundesbank, the Bank of France and the Bank of Italy started buying government bonds yesterday.

[CFOs are optimistic]
http://money.cnn.com/2010/05/11/news/economy/cfo_survey/index.htm

Nearly three out of four chief financial officers of major companies anticipate economic expansion in their countries over the next year, according to a global survey released Tuesday by American Express and CFO Research.

That's the rosiest outlook within the past three years for the annual survey.

The poll also found that 80% of respondents expect to see a sustained rise in demand for their company's products and services this year. But the pickup is just beginning: Only 20% of the CFOs surveyed said their companies have already experienced higher demand, while 47% expect a jump in the second or third quarter of this year.

Although finance executives are broadly optimistic about the recovery, sentiment is brightest in Asia. In Hong Kong, 87% of respondents said they expect growth in the year ahead, followed by Singapore at 82% and India at 78%.

Finance executives in large, industrialized countries -- which have suffered from weighty deficits and high unemployment rates -- had a more tempered response. Only 71% of CFOs in the United Kingdom expect growth in the next year, while Germany (66%) and the United States (64%) had even dimmer growth outlooks.

Diffusion

5/10/2010
[Dollar Libor holds near nine-month high]
http://www.bloomberg.com/apps/ne ... tRKLmr_H0&pos=3

The rate banks say they pay for three-month loans in dollars stayed near the highest level in about nine months on concern an almost $1 trillion European loan plan may not be enough to restore confidence in markets.

The London interbank offered rate, or Libor, for such loans slipped to 0.421 percent today, from 0.428 percent on May 7, the highest since Aug. 17, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of banks’ reluctance to lend, widened more than 1 basis point to 19.2 basis points.

Euro-region nations agreed overnight to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to contain the fallout from the Greek fiscal crisis. The three-month dollar Libor jumped last week to the highest level since August on concern banks are holding too many assets of Europe’s most indebted nations.

“The package has only partly given the all-clear to money markets,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “There’s still a little bit of wariness over counterparty risk. In many ways, the problems that already exist in terms of exposure haven’t been expunged. The financial sector is still in a pretty dicey situation.”

[The black hole of Fannie Mae and Freddie Mac]
http://money.cnn.com/2010/05/10/markets/markets_newyork/index.htm

Mortgage backer Fannie Mae (FNM, Fortune 500) asked for another $8.4 billion from the federal government Monday after reporting a massive first-quarter loss. The losses were due to accounting changes and the continued weakness in the U.S. housing market.

Fannie Mae, along with fellow mortgage company Freddie Mac (FRE, Fortune 500), was put under government conservatorship during the height of the financial crisis in fall 2008. It already owed the government $76.2 billion.

Last week, Freddie Mac asked for another $10.6 billion after posting an $8 billion quarterly loss.

[Moody still thinks Greek and Portugal are at risk]
http://money.cnn.com/2010/05/10/ ... ys_greece/index.htm

A day after European leaders agreed on a $900 billion rescue package, credit rating agency Moody's cautioned investors that two of the euro zone's hardest hit countries aren't out of the woods just yet.

Greece's downgrade would probably be more "substantial" than previously indicated, with cuts to the Baa range, or just above junk status, the report said.

Portugal's possible downgrade is less severe than that of Greece, as Moody's said it is considering a one-notch cut to Aa3 from Aa2. Both ratings are so-called investment grade and considered relatively low risk.

Both reviews will be decided on within the next four weeks, Moody's said.

Diffusion

5/9/2010
[Merkel's party punished by voters]
http://www.bloomberg.com/apps/ne ... 5OVpY7Ekw&pos=8

Chancellor Angela Merkel’s party plunged to its worst result since World War II in Germany’s most populous state, losing control of parliament’s upper house in Berlin, as voters punished her reversal on aid for Greece.

Officials in Merkel’s CDU blamed the party’s showing on German loans for Greece of as much as 22.4 billion euros ($28.8 billion) passed by parliament on May 7 in the face of public opposition. Merkel was criticized at home and abroad for first refusing to rush to aid Greece, then pressing lawmakers to back Germany’s contribution to a 110 billion-euro lifeline.

“Merkel is vulnerable,” Almut Moeller, head of European policy at the German Council on Foreign Relations in Berlin, said in an interview. “After her record of dithering over help for Greece, she really needs to make a show now of strong, resolute policy in Brussels to help stem the crisis from spreading further. The last thing the euro-zone needs at this point is weak German leadership.”