The Obama Administration is pressing for more home modifications, so why the high failure rate, especially at Bank of America?
Bank of America's answer can be found in U.S. Treasury to Push Lenders to Finish More Home Modifications.
The U.S. Treasury Department will step up public pressure on lenders to finish modifying more home loans to troubled borrowers under a $75 billion campaign against the record tide of foreclosures.
More than 650,994 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed. That failure is getting the administration’s attention.
“We are taking additional steps to enhance servicer transparency and accountability as part of a broader focus on maximizing conversion rates to permanent modifications,” Treasury spokeswoman Meg Reilly said in an e-mail yesterday. The Obama administration plans to announce additional steps tomorrow, including new private-public partnerships and resources for borrowers.
Bank of America Corp. was among the worst performers in the program, with 14 percent of loans in modification in October, according to the Treasury. The bank, the largest in the U.S. and the biggest mortgage servicer, has 990,628 eligible loans, a greater total than any other company on the Treasury’s list. A spokesman for the Charlotte, North Carolina-based bank, Dan Frahm, has said the eligibility data may be overstated.
“As many as one-in-three of those borrowers listed as eligible for the program will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31 percent or is unemployed,” Frahm said in a Nov. 10 interview.
Citigroup, the third-largest U.S. bank by assets, began 88,968 trial modifications, or 40 percent of its eligible mortgages. JPMorgan, the second-largest U.S. bank, has started 133,988 modifications, or 32 percent of those eligible, the Treasury said.
The administration’s $75 billion Making Home Affordable program includes the mortgage modification initiative and loan refinancing through Fannie Mae and Freddie Mac.
Problem Loans at Bank of America
Bank of America has 990,628 eligible loans except for a few details like 1/3 of the portfolios consists of vacant homes, the homeowner is unemployed, or the customer has a debt-to-income ratio below 31 percent. Anyone care to assign probabilities to each of those three categories?
Spectacular Failure
Forget about Bank of America, note the spectacular failure of the plan in general. 650,994 loan revisions have been made and 0% of them have been converted to permanent repayment plans.
Taxpayer Risk
Notice how the plan operates. It takes mortgages and dumps them on the taxpayer via a passthrough of Fannie Mae and Freddie Mac.
If you get the idea that Fannies and Freddie are going to need another bailout you have the right idea.
Mike Shedlock
Sunday, November 29, 2009
Regulators list systemic risk institutions: Report
You may have never heard of the FSB until now. It is a recent international regulatory body that stems from the G-20. It was (apparently)established to regulate banks from a host of countries including the U.S. Here's a link to a short article (April of 2009) that was published in the UK Guardian.: Financial Stability Board - how it will work.
I had never heard of it before and only came across mention of it as I was reading the following article from Reuters about banks on their international watch list ...
LONDON (Reuters) - Thirty global financial institutions have been selected for cross-border supervision exercises by regulators, the Financial Times reported on Monday.
Compiled under the guidance of the Financial Stability Board (FSB), an international body of regulators and central bankers, the list is part of an effort to pre-empt the spread of systemic risks in the event of a future financial crisis.
Those featuring in the list will also be asked to write so-called "living wills" that outline plans to wind up banks in the aftermath of a crisis.
The FSB was established in the summer of 2009 to address the dangers posed by systemically-important, cross-border financial institutions through better supervision and co-ordination.
The list in full, as cited by the FT:
North American banks:
Goldman Sachs (GS.N), JP Morgan Chase (JPM.N), Morgan Stanley (MS.N), Bank of America-Merrill Lynch (BAC.N), Royal Bank of Canada (RY.TO)
UK banks:
HSBC (HSBA.L), Barclays (BARC.L), Royal Bank of Scotland (RBS.L), Standard Chartered (STAN.L)
European banks:
UBS (UBSN.VX), Credit Suisse (CSGN.VX), Societe General (SOGN.PA), BNP Paribas (BNPP.PA), Santander (SAN.MC), BBVA (BBVA.MC), Unicredit (CRDI.MI), Banca Intesa, Deutsche Bank (DBKGn.DE), ING (ING.AS)
Japanese banks:
Mizuho (8411.T), Sumitomo Mitsui (8316.T), Nomura (8604.T), Mitsubishi UFJ (8306.T)
Insurers:
AXA AXA.PA, Aegon (AEGN.AS), Allianz (ALVG.DE), Aviva AV.l, Zurich (ZURN.VX) and Swiss Re (RUKN.VX)
(Reporting by William James; Editing by Diane Craft)
I had never heard of it before and only came across mention of it as I was reading the following article from Reuters about banks on their international watch list ...
LONDON (Reuters) - Thirty global financial institutions have been selected for cross-border supervision exercises by regulators, the Financial Times reported on Monday.
Compiled under the guidance of the Financial Stability Board (FSB), an international body of regulators and central bankers, the list is part of an effort to pre-empt the spread of systemic risks in the event of a future financial crisis.
Those featuring in the list will also be asked to write so-called "living wills" that outline plans to wind up banks in the aftermath of a crisis.
The FSB was established in the summer of 2009 to address the dangers posed by systemically-important, cross-border financial institutions through better supervision and co-ordination.
The list in full, as cited by the FT:
North American banks:
Goldman Sachs (GS.N), JP Morgan Chase (JPM.N), Morgan Stanley (MS.N), Bank of America-Merrill Lynch (BAC.N), Royal Bank of Canada (RY.TO)
UK banks:
HSBC (HSBA.L), Barclays (BARC.L), Royal Bank of Scotland (RBS.L), Standard Chartered (STAN.L)
European banks:
UBS (UBSN.VX), Credit Suisse (CSGN.VX), Societe General (SOGN.PA), BNP Paribas (BNPP.PA), Santander (SAN.MC), BBVA (BBVA.MC), Unicredit (CRDI.MI), Banca Intesa, Deutsche Bank (DBKGn.DE), ING (ING.AS)
Japanese banks:
Mizuho (8411.T), Sumitomo Mitsui (8316.T), Nomura (8604.T), Mitsubishi UFJ (8306.T)
Insurers:
AXA AXA.PA, Aegon (AEGN.AS), Allianz (ALVG.DE), Aviva AV.l, Zurich (ZURN.VX) and Swiss Re (RUKN.VX)
(Reporting by William James; Editing by Diane Craft)
Saturday, November 28, 2009
Black Friday sales up slightly, online sales surge
By Jessica Wohl
CHICAGO, Nov 28 (Reuters) - In a worrisome sign for U.S. retailers, data released on Saturday showed that sales rose a scant 0.5 percent on the traditional kickoff to the holiday shopping season despite early signs of a strong showing.
A focus on bargains pulled U.S. shoppers into stores and onto websites over the Thanksgiving holiday weekend, but many said they would stick to their budgets and avoid purchases if they could not find a good deal.
Those trends appeared to play out in the results issued by ShopperTrak, which measures customer traffic in stores.
The firm said retail sales rose to $10.66 billion on Black Friday, which often is the single busiest shopping day of the holiday season and can set the tone for the weeks leading up to Christmas on Dec. 25.
In 2008, Black Friday sales measured by ShopperTrak rose 3 percent compared to the prior year's Black Friday. Last year's entire holiday season marked the worst performance in nearly 40 years. The firm stuck by its forecast for total holiday sales to rise 1.6 percent this year compared to 2008.
"I figured Black Friday would be up 1 (percent or) maybe 2 percent, just because of the deal-consciousness of folks," said Patricia Edwards, founder and chief investment officer of Storehouse Partners, an investment advisory firm based in Bellevue, Washington. She noted that early November deals from stores and online promotions also may have diverted traffic.
"It's possible it took some of the glory out of the Friday number," she said.
Shoppers spent 35 percent more on Black Friday web purchases than a year earlier, with the average order value reaching $170.19, according to online retail analytics company Coremetrics. Those shoppers bought an average of 5.4 items per order, up from 4.6 items last year, Coremetrics said.
TOUGH HOLIDAY SEASON
Industry executives and analysts have predicted a tough holiday season that may show only a slight improvement over 2008 due to a weak economy and high unemployment.
But their optimism had crept up earlier this week. Analysts polled by Thomson Reuters Data on Friday had increased their forecast for November retail same-store sales to a 2.5 percent increase, from a previous view of 1.8 percent.
The National Retail Federation is due to release its early holiday data on Sunday.
"This will be the hardest holiday season ever to predict," said Eric Karson, associate professor of marketing at the Villanova University School of Business in Pennsylvania.
Retailers used to offer steep promotions on select items as the initial lure for shoppers, in the hopes they would buy more inside the store. Consumers now expect such discounts as a matter of course.
"We have this big game of chicken now evolving between the retailers and the customers," Karson said.
Claude Smith, a 45-year-old out-of-work plumber from Virginia, said he was trying to pay off his bills from his credit card, which now has a higher interest rate. He pays with cash when he visits stores such as TJX Cos's (TJX.N) AJ Wright and Walmart.
"Things are bad. Everybody's thinking about saving everything they have. I go out when there's sales and that's it," said Smith, who visited the Galleria at White Plains mall in New York with his two teenagers on Saturday.
BUYING ONLY WHAT'S NEEDED
Many shoppers showed they were relying on lessons learned from the 2008 season, which began just after a global financial crisis erupted. A U.S. unemployment rate above 10 percent and other financial pressures also weighed on their minds.
"I have three children. I am a single mom. The economy is bad. I am getting only those things that we really need," said Natasha Walker, a 35-year-old telephone operator shopping in Times Square in New York. Her purchases included a GPS navigation system for her car, CD holders, movies for her children and clothing for herself.
Shawn Kravetz, president of hedge fund operator Esplanade Capital LLC, said retailers that slashed costs will do well.
"You can count companies with positive comps (an increase in existing store sales compared to the prior year) on two hands -- J Crew (JCG.N), Wal-Mart (WMT.N), Chico's (CHS.N) and few others. That is not a strong holiday," he said.
Even though online sales are growing, they still account for less than 4 percent of total retail sales, Karson said.
Wal-Mart Stores Inc's (WMT.N) site Walmart.com was the most popular retail site on Thanksgiving for the fifth year in a row, followed by Amazon.com Inc (AMZN.O) and Best Buy Inc (BBY.N), according to tracking firm Hitwise.
Liberty Interactive's (LINTA.O) QVC, best known for its TV shopping channel, rang up more than $32 million in orders for its biggest Black Friday ever, a 60 percent increase from 2008, QVC said. It added that more than 40 percent of the sales came from its web site, QVC.com.
LINK TO REUTERS RETAIL BLOG
CHICAGO, Nov 28 (Reuters) - In a worrisome sign for U.S. retailers, data released on Saturday showed that sales rose a scant 0.5 percent on the traditional kickoff to the holiday shopping season despite early signs of a strong showing.
A focus on bargains pulled U.S. shoppers into stores and onto websites over the Thanksgiving holiday weekend, but many said they would stick to their budgets and avoid purchases if they could not find a good deal.
Those trends appeared to play out in the results issued by ShopperTrak, which measures customer traffic in stores.
The firm said retail sales rose to $10.66 billion on Black Friday, which often is the single busiest shopping day of the holiday season and can set the tone for the weeks leading up to Christmas on Dec. 25.
In 2008, Black Friday sales measured by ShopperTrak rose 3 percent compared to the prior year's Black Friday. Last year's entire holiday season marked the worst performance in nearly 40 years. The firm stuck by its forecast for total holiday sales to rise 1.6 percent this year compared to 2008.
"I figured Black Friday would be up 1 (percent or) maybe 2 percent, just because of the deal-consciousness of folks," said Patricia Edwards, founder and chief investment officer of Storehouse Partners, an investment advisory firm based in Bellevue, Washington. She noted that early November deals from stores and online promotions also may have diverted traffic.
"It's possible it took some of the glory out of the Friday number," she said.
Shoppers spent 35 percent more on Black Friday web purchases than a year earlier, with the average order value reaching $170.19, according to online retail analytics company Coremetrics. Those shoppers bought an average of 5.4 items per order, up from 4.6 items last year, Coremetrics said.
TOUGH HOLIDAY SEASON
Industry executives and analysts have predicted a tough holiday season that may show only a slight improvement over 2008 due to a weak economy and high unemployment.
But their optimism had crept up earlier this week. Analysts polled by Thomson Reuters Data on Friday had increased their forecast for November retail same-store sales to a 2.5 percent increase, from a previous view of 1.8 percent.
The National Retail Federation is due to release its early holiday data on Sunday.
"This will be the hardest holiday season ever to predict," said Eric Karson, associate professor of marketing at the Villanova University School of Business in Pennsylvania.
Retailers used to offer steep promotions on select items as the initial lure for shoppers, in the hopes they would buy more inside the store. Consumers now expect such discounts as a matter of course.
"We have this big game of chicken now evolving between the retailers and the customers," Karson said.
Claude Smith, a 45-year-old out-of-work plumber from Virginia, said he was trying to pay off his bills from his credit card, which now has a higher interest rate. He pays with cash when he visits stores such as TJX Cos's (TJX.N) AJ Wright and Walmart.
"Things are bad. Everybody's thinking about saving everything they have. I go out when there's sales and that's it," said Smith, who visited the Galleria at White Plains mall in New York with his two teenagers on Saturday.
BUYING ONLY WHAT'S NEEDED
Many shoppers showed they were relying on lessons learned from the 2008 season, which began just after a global financial crisis erupted. A U.S. unemployment rate above 10 percent and other financial pressures also weighed on their minds.
"I have three children. I am a single mom. The economy is bad. I am getting only those things that we really need," said Natasha Walker, a 35-year-old telephone operator shopping in Times Square in New York. Her purchases included a GPS navigation system for her car, CD holders, movies for her children and clothing for herself.
Shawn Kravetz, president of hedge fund operator Esplanade Capital LLC, said retailers that slashed costs will do well.
"You can count companies with positive comps (an increase in existing store sales compared to the prior year) on two hands -- J Crew (JCG.N), Wal-Mart (WMT.N), Chico's (CHS.N) and few others. That is not a strong holiday," he said.
Even though online sales are growing, they still account for less than 4 percent of total retail sales, Karson said.
Wal-Mart Stores Inc's (WMT.N) site Walmart.com was the most popular retail site on Thanksgiving for the fifth year in a row, followed by Amazon.com Inc (AMZN.O) and Best Buy Inc (BBY.N), according to tracking firm Hitwise.
Liberty Interactive's (LINTA.O) QVC, best known for its TV shopping channel, rang up more than $32 million in orders for its biggest Black Friday ever, a 60 percent increase from 2008, QVC said. It added that more than 40 percent of the sales came from its web site, QVC.com.
LINK TO REUTERS RETAIL BLOG
The Geopolitics Of The Dubai Debt Crisis: It's Iran vs. The United States
Nov. 28, 2009, 6:36 PM
The role of Iran may be the most overlooked in the Dubai debt crisis
.Of all the states of the United Arab Emirates federation, Dubai has maintained the closest ties to Iran. Indeed, as international pressure has built on Iran over the past decade, Dubai has prospered from those ties. It provides critical banking and trade links for Iran, often serving as the go-between for European or Asian companies and financial firms that want to do business with Iran without violating international sanctions.
Abu Dhabi, the wealthiest member of the UAE and a close ally of the US, may be pressuring Dubai to limit its links to Iran. Indeed, this pressure may be behind statements coming from Abu Dhabi about offering “selective” support for Dubai. Companies or creditors thought to be too linked to Iran could find themselves shut out of any bailout.
The United States government, which has remained somewhat taciturn throughout this crisis, is no doubt encouraging Abu Dhabi to apply this pressure. In part because of Dubai’s connections to Iran, US financial institutions are not among the biggest creditors to Dubai World.
It’s not all Iran, of course. The problems in Dubai, the member of the United Arab Emirates that has found itself in a dire financial crisis, closely mirror those behind the global financial crisis.
Over the past decade, the country attempted to diversify its economy away from dependence on its declining oil reserves—and largely succeeded. But, like a Wall Street investment bank attempting to overcome the decline of its traditional businesses by becoming heavily invested in leveraged real estate products, Dubai accumulated huge debt obligations—estimated to amount to some $80 billion. Much of Dubai’s assets were dependent on tourism, shipping, construction and real estate—which have been in trouble during the global economic downturn.
Like its fellow members of the UAE, Dubai is ruled by an expansive royal family. In this case, they are called Al Maktoum family. Exactly what counts as the personal property of ruling family and what is government owned in Dubai is more than a bit fuzzy. The Dubai government owns three companies: Dubai Holding, which is run by Mohammed Al Gergawi; Dubai World, which is run by Sultan bin Sulayem; and the Investment Corporation of Dubai.
Abu Dhabi has been trying to put pressure on Dubai to cut ties to Iran. The split between Abu Dhabi and Iran is in part rooted in an older territorial dispute, fear of Iran’s nuclear ambitions, religious differences between Shiites and Sunnis, and—importantly—Abu Dhabi’s close ties to Washington, DC.
The UAE is close to reaching a nuclear power cooperation deal with Washington, a move that many regional experts say would challenge the traditional Saudi hegemony in the Gulf. One sticking point in the negotiations with Washington has been concerns that Dubai could share US nuclear technology with Iran.
This power struggle between Abu Dhabi and Saudi Arabia is also playing a role. In May, the UAE May pulled out of a proposed Gulf monetary union over Saudi insistence that it would host the regional central bank.
Dubai, which is a very open and tolerant place compared to Iran, is viewed by many Iranians as a place to let their hair down. It has a thriving Iranian ex-pat community. Iran is Dubai airport's top destination, with more than 300 flights per week.
More importantly, Dubai is a major exporter to Iran and a major re-exporter of Iranian goods. The trade between Iran and Dubai is one of the principal sources of Tehran's confidence that it can survive US-led sanctions. Iranian investment in Dubai amounts to about US $14 billion each year. US intelligence officials have long suspected that the Iranian government uses Dubai based front companies to get around sanctions.
Some of the banks said to have the largest exposure to Dubai debt have in the past been linked to Iran. Notably, HSBC, BNP Paribas and Standard Chartered came under investigation and pressure from US authorities in recent years to cut ties to Iran. Some US officials have quietly protested that these banks just shifted to doing business with Iran through Dubai. The US may want to see these creditors take losses from their Dubai exposure.
Make no mistake: the US government does not want to see the financial ruin of Dubai. Apart from its ties from Iran, Dubai is widely viewed as a model Islamic country. It has a relatively clean government, and there is a remarkable level of religious tolerance and progressive attitudes toward women for the region. American diplomats have held up Dubai as their model for a new Baghdad—progressive, tolerant, and capitalist.
What is most likely happening is more nuanced. The US and Abu Dhabi are hoping to use Dubai’s financial troubles as a way of finally severing the close ties to Iran. For years, Dubai has enjoyed the benefits of walking the line between its military and economic alliance with the US and economic benefits from banking and trade ties to Iran. The price of a bailout from Abu Dhabi may be having to finally choose to give up the Iran connection.
Friday, November 27, 2009
WSJ: Morning of 11-27-09 -Investors comcerned over Dubai default
Dubai World, the city state's largest corporate entity asked creditors for a six-month stay on repayment of its $60 billion in debts. Asia and Europe markets sold off Thursday on the news, while the U.S. markets were closed for a holiday.
The selling resumed on Friday in Asia, with the Hang Seng Index down 4.8% and the Nikkei 225 Average down 3.2%, their worst percentage fall since March. Markets were struggling to figure out what kind of exposure banks had to Dubai debt.
Shares of heavyweights Standard Chartered PLC (2888.HK) and HSBC Holdings PLC (HBC) fell over 7% in Asian trading. The banks rank as the top two lenders respectively in the United Arab Emirates.
European shares pulled back from early lows to close out the trading week, as investors started to buy up shares battered in the previous session. Some banks such as Royal Bank of Scotland Group PLC (RBS) were up, gaining 2.3% on news it had signed a previously announced asset-insurance deal with the U.K. government.
"I think that people are using (the Dubai drop) as a buying opportunity," said Heino Ruland, strategist at Ruland Research in Eppstein, Germany.
But U.S. markets are still expected to take a hit from the Dubai news, at least initially.
"The indications are that we are going to see some profit taking, but I also think it's too early to say whether this is just profit taking or whether you will go back to crisis mode," said Lars Christensen, chief analyst at Danske Bank (DNSKY) in Copenhagen.
"Investors have been taken by surprise by all of this, which to some extent surprises me because the problems in Dubai are well known," said Christensen. "This comes at a time when investors are quite nervous about valuations in general, whether we're talking equities or currencies or fixed income."
Dubai's woes are providing "that shock that makes investors further reduce risk. One has to see this not only in terms of the Dubai situation, but in terms of market pricing and the fact we're nearing the end of the year," he continued.
Oil, gold and other commodities fell sharply on Friday. Oil futures were recently down nearly 5% to $74.06 a barrel, while gold futures dropped 2.5% to $1,158 an ounce.
The dollar continued to climb against its major rivals except the Japanese yen, as lower-yielding currencies benefited from safe-haven flows amid spreading fears of the financial fallout of Dubai's debt problems.
The dollar index, which measure the greenback against a trade-weighted basket of six major currencies, was at 75.319, up 0.7% on the day.
Yields on 10-year Treasury notes fell by 8 basis points, or 0.06 of a percentage point, to 3.19%.
Retail will also be in focus on Friday, which marks the biggest shopping day of the year - "Black Friday" for many retailers.
But Wall Street trading also tends to be notoriously thin the day after Thanksgiving, and a lack of volume could also exacerbate any downward moves. Volume during the past four weeks, going back to the start of the month, has been below the 2009 average, with volume last week nearly 25% below average, said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. one analyst at Miller Tabak.the analyst said.
Stephen Pope, chief global equity strategist with Cantor Fitzgerald in London, said investors need to keep Dubai's problems in focus. "Let's be clear because many are getting this wrong. Dubai World is not the government of Dubai. It is a private company that is government owned."
"The region is not collapsing, and after Eid Al Adha (the Muslim holiday) finishes on Sunday, 29th November expect more light to be shed on what is being done in the region," he said. Dubai World made the announcement after the close of markets there on Wednesday - just as Wall Street was headed off for its Thanksgiving break.
He and others were critical of the timing of the announcement and the manner in which it was done. Dubai World made the announcement after the close of markets there on Wednesday - just as Wall Street was headed off for its Thanksgiving break. Markets in Dubai will reopen on Monday.
Pope said the timing was "irresponsible. I see it finishing Dubai as a financial hub."
"The handling of the Dubai World restructuring has been an exercise in poor communication," added London-based Gavin Nolan, vice president for credit research at Markit, in a note to investors. "An unnecessary information vacuum has been created, with investors unsure of their positions."
Dubai's "spreads now have a considerable risk premium attached, and its mishandling of the episode will cost it dear when it next returns to the international capital markets."
-By Barbara Kollmeyer; 34 91 395 8131; AskNewswires@dowjones.com
The selling resumed on Friday in Asia, with the Hang Seng Index down 4.8% and the Nikkei 225 Average down 3.2%, their worst percentage fall since March. Markets were struggling to figure out what kind of exposure banks had to Dubai debt.
Shares of heavyweights Standard Chartered PLC (2888.HK) and HSBC Holdings PLC (HBC) fell over 7% in Asian trading. The banks rank as the top two lenders respectively in the United Arab Emirates.
European shares pulled back from early lows to close out the trading week, as investors started to buy up shares battered in the previous session. Some banks such as Royal Bank of Scotland Group PLC (RBS) were up, gaining 2.3% on news it had signed a previously announced asset-insurance deal with the U.K. government.
"I think that people are using (the Dubai drop) as a buying opportunity," said Heino Ruland, strategist at Ruland Research in Eppstein, Germany.
But U.S. markets are still expected to take a hit from the Dubai news, at least initially.
"The indications are that we are going to see some profit taking, but I also think it's too early to say whether this is just profit taking or whether you will go back to crisis mode," said Lars Christensen, chief analyst at Danske Bank (DNSKY) in Copenhagen.
"Investors have been taken by surprise by all of this, which to some extent surprises me because the problems in Dubai are well known," said Christensen. "This comes at a time when investors are quite nervous about valuations in general, whether we're talking equities or currencies or fixed income."
Dubai's woes are providing "that shock that makes investors further reduce risk. One has to see this not only in terms of the Dubai situation, but in terms of market pricing and the fact we're nearing the end of the year," he continued.
Oil, gold and other commodities fell sharply on Friday. Oil futures were recently down nearly 5% to $74.06 a barrel, while gold futures dropped 2.5% to $1,158 an ounce.
The dollar continued to climb against its major rivals except the Japanese yen, as lower-yielding currencies benefited from safe-haven flows amid spreading fears of the financial fallout of Dubai's debt problems.
The dollar index, which measure the greenback against a trade-weighted basket of six major currencies, was at 75.319, up 0.7% on the day.
Yields on 10-year Treasury notes fell by 8 basis points, or 0.06 of a percentage point, to 3.19%.
Retail will also be in focus on Friday, which marks the biggest shopping day of the year - "Black Friday" for many retailers.
But Wall Street trading also tends to be notoriously thin the day after Thanksgiving, and a lack of volume could also exacerbate any downward moves. Volume during the past four weeks, going back to the start of the month, has been below the 2009 average, with volume last week nearly 25% below average, said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. one analyst at Miller Tabak.the analyst said.
Stephen Pope, chief global equity strategist with Cantor Fitzgerald in London, said investors need to keep Dubai's problems in focus. "Let's be clear because many are getting this wrong. Dubai World is not the government of Dubai. It is a private company that is government owned."
"The region is not collapsing, and after Eid Al Adha (the Muslim holiday) finishes on Sunday, 29th November expect more light to be shed on what is being done in the region," he said. Dubai World made the announcement after the close of markets there on Wednesday - just as Wall Street was headed off for its Thanksgiving break.
He and others were critical of the timing of the announcement and the manner in which it was done. Dubai World made the announcement after the close of markets there on Wednesday - just as Wall Street was headed off for its Thanksgiving break. Markets in Dubai will reopen on Monday.
Pope said the timing was "irresponsible. I see it finishing Dubai as a financial hub."
"The handling of the Dubai World restructuring has been an exercise in poor communication," added London-based Gavin Nolan, vice president for credit research at Markit, in a note to investors. "An unnecessary information vacuum has been created, with investors unsure of their positions."
Dubai's "spreads now have a considerable risk premium attached, and its mishandling of the episode will cost it dear when it next returns to the international capital markets."
-By Barbara Kollmeyer; 34 91 395 8131; AskNewswires@dowjones.com
Jimi Hendrix's Voodoo Child named best guitar riff of all time
Voodoo Child, by Jimi Hendrix has been named the greatest guitar riff of all time, more than 40 years after he first recorded the classic jam.
The track - full title Voodoo Child (Slight Return) - edged past Guns N'Roses song Sweet Child O'Mine which finished second in the poll by musicians' website MusicRadar.com.
Ten singers who can't sing When the site's sister magazine Total Guitar last conducted the survey five years ago, the list was headed by the G N'R song.
The list shows that the older riffs are the best. Just two from the past decade make it into the top 20 - Muse's Plug In Baby at 11 and The White Stripes' Seven Nation Army at 15.
Michael Jackson's Beat It, with its Eddie Van Halen guitar part, props up the top 20.
Voodoo Child - with its distinctive 'wah-wah' opening - was first released on Hendrix's Electric Ladyland album and led on from an earlier track, Voodoo Chile, which was a 15-minute blues jam. Confusingly, by the time it was released as a single in 1970 it too had been named Voodoo Chile.
MusicRadar.com's editor-in-chief Mike Goldsmith said: ''Nearly 40 years after his untimely death, Jimi Hendrix is still the undisputed heavyweight champion of rock guitar.
''Of the current generation of six-string stars, only Jack White of The White Stripes and Muse frontman Matt Bellamy feature in the higher echelons of our list. No surprise given both Bellamy and White share - or have inherited - Hendrix's unique blend of experimental instincts and white-knuckle showmanship.
''Above all though, our poll seems to indicate one thing - in 2009, classic rock still rules.''
More than 5,000 MusicRadar users took part in the poll.
The top 20:
1. The Jimi Hendrix Experience - Voodoo Child (Slight Return)
2. Guns N' Roses - Sweet Child O' Mine
3. Led Zeppelin - Whole Lotta Love
4. Deep Purple - Smoke On The Water
5. Derek and the Dominos - Layla
6. AC/DC - Back In Black
7. Metallica - Enter Sandman
8. The Beatles - Day Tripper
9. Nirvana - Smells Like Teen Spirit
10. The Rolling Stones - (I Can't Get No) Satisfaction
11. Black Sabbath - Paranoid
12. Muse - Plug In Baby
13. Eddie Van Halen - Ain't Talkin' 'Bout Love
14. The Kinks - You Really Got Me
15. The White Stripes - Seven Nation Army
16. AC/DC - Highway to Hell
17. Led Zeppelin - Heartbreaker
18. Black Sabbath - Iron Man
19. Led Zeppelin - Black Dog
20. Michael Jackson - Beat It
Source: TelegraphUK
Late guitar guru Hendrix, who topped the singles chart with the track in 1970, triumphed in a poll of musicians.
The track - full title Voodoo Child (Slight Return) - edged past Guns N'Roses song Sweet Child O'Mine which finished second in the poll by musicians' website MusicRadar.com.
Ten singers who can't sing When the site's sister magazine Total Guitar last conducted the survey five years ago, the list was headed by the G N'R song.
The list shows that the older riffs are the best. Just two from the past decade make it into the top 20 - Muse's Plug In Baby at 11 and The White Stripes' Seven Nation Army at 15.
Michael Jackson's Beat It, with its Eddie Van Halen guitar part, props up the top 20.
Voodoo Child - with its distinctive 'wah-wah' opening - was first released on Hendrix's Electric Ladyland album and led on from an earlier track, Voodoo Chile, which was a 15-minute blues jam. Confusingly, by the time it was released as a single in 1970 it too had been named Voodoo Chile.
MusicRadar.com's editor-in-chief Mike Goldsmith said: ''Nearly 40 years after his untimely death, Jimi Hendrix is still the undisputed heavyweight champion of rock guitar.
''Of the current generation of six-string stars, only Jack White of The White Stripes and Muse frontman Matt Bellamy feature in the higher echelons of our list. No surprise given both Bellamy and White share - or have inherited - Hendrix's unique blend of experimental instincts and white-knuckle showmanship.
''Above all though, our poll seems to indicate one thing - in 2009, classic rock still rules.''
More than 5,000 MusicRadar users took part in the poll.
The top 20:
1. The Jimi Hendrix Experience - Voodoo Child (Slight Return)
2. Guns N' Roses - Sweet Child O' Mine
3. Led Zeppelin - Whole Lotta Love
4. Deep Purple - Smoke On The Water
5. Derek and the Dominos - Layla
6. AC/DC - Back In Black
7. Metallica - Enter Sandman
8. The Beatles - Day Tripper
9. Nirvana - Smells Like Teen Spirit
10. The Rolling Stones - (I Can't Get No) Satisfaction
11. Black Sabbath - Paranoid
12. Muse - Plug In Baby
13. Eddie Van Halen - Ain't Talkin' 'Bout Love
14. The Kinks - You Really Got Me
15. The White Stripes - Seven Nation Army
16. AC/DC - Highway to Hell
17. Led Zeppelin - Heartbreaker
18. Black Sabbath - Iron Man
19. Led Zeppelin - Black Dog
20. Michael Jackson - Beat It
Source: TelegraphUK
Thursday, November 26, 2009
Dubai creditors hold weak hand
Una Galani, Breakingviews.com Published: Thursday, November 26, 2009
Read more: http://www.financialpost.com/opinion/breaking-views/story.html?id=2272521#ixzz0Y2dpoPaA
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Dubai world: Dubai World's creditors have a weak hand. The restructuring of the US$60-billion of debt at the emirate's core holding company, which includes investment vehicle Istithmar and property developer Nakheel, will be the largest and toughest ever in the Gulf region. The few precedents are not encouraging for those who funded Dubai's grandiose vision.
Shocked creditors had expected timely repayment. Now, they are scrambling to form steering committees to liaise with Dubai World's new restructuring chief, Deloitte's Aidan Birkett. In practice, lenders can't really turn down the request for a six-month standstill, until May 2010, and have little option but to wait for Dubai World to formulate a plan to address its sprawling debts.
Even if loans are secured and the underlying paperwork is comprehensive, the region's laws are unfriendly to creditors. It is almost impossible to seize collateral. The courts have consistently rejected claims by lenders to Kuwait's Global Investment and Investment Dar, financial firms which defaulted at the start of the year with combined liabilities of US$5.5-billion. In the Kingdom of Saudi Arabia, authorities even prioritised the claims of local lenders over the foreign banks which are estimated to be owed US$16-billion by two leading merchant families, the Saads and Algosaibis.
What's more, restructurings in the region to date have been relatively simple. Kuwait's Global Investment and Investment Dar simply plan to repay creditors by pushing out maturities by up to five years. Dubai World has some good assets, but the sharp drop in property prices probably means a deeper restructuring will be required. In the West, debt-to-equity swaps are a common fix. But there is no precedent in the Gulf. Dubai World's mix of Islamic instruments and government-ownership could add further complications.
The list of Dubai World's creditors has not been published, but some of the biggest banks in the West and Gulf are likely to feature. Resource-poor Dubai depends too much on international markets to treat foreign creditors quite as badly as the Saudis have done, but that's only a small comfort.
una.galani@breakingviews.com
Read more: http://www.financialpost.com/opinion/breaking-views/story.html?id=2272521#ixzz0Y2dHq4Mp
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Read more: http://www.financialpost.com/opinion/breaking-views/story.html?id=2272521#ixzz0Y2dpoPaA
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Dubai world: Dubai World's creditors have a weak hand. The restructuring of the US$60-billion of debt at the emirate's core holding company, which includes investment vehicle Istithmar and property developer Nakheel, will be the largest and toughest ever in the Gulf region. The few precedents are not encouraging for those who funded Dubai's grandiose vision.
Shocked creditors had expected timely repayment. Now, they are scrambling to form steering committees to liaise with Dubai World's new restructuring chief, Deloitte's Aidan Birkett. In practice, lenders can't really turn down the request for a six-month standstill, until May 2010, and have little option but to wait for Dubai World to formulate a plan to address its sprawling debts.
Even if loans are secured and the underlying paperwork is comprehensive, the region's laws are unfriendly to creditors. It is almost impossible to seize collateral. The courts have consistently rejected claims by lenders to Kuwait's Global Investment and Investment Dar, financial firms which defaulted at the start of the year with combined liabilities of US$5.5-billion. In the Kingdom of Saudi Arabia, authorities even prioritised the claims of local lenders over the foreign banks which are estimated to be owed US$16-billion by two leading merchant families, the Saads and Algosaibis.
What's more, restructurings in the region to date have been relatively simple. Kuwait's Global Investment and Investment Dar simply plan to repay creditors by pushing out maturities by up to five years. Dubai World has some good assets, but the sharp drop in property prices probably means a deeper restructuring will be required. In the West, debt-to-equity swaps are a common fix. But there is no precedent in the Gulf. Dubai World's mix of Islamic instruments and government-ownership could add further complications.
The list of Dubai World's creditors has not been published, but some of the biggest banks in the West and Gulf are likely to feature. Resource-poor Dubai depends too much on international markets to treat foreign creditors quite as badly as the Saudis have done, but that's only a small comfort.
una.galani@breakingviews.com
Read more: http://www.financialpost.com/opinion/breaking-views/story.html?id=2272521#ixzz0Y2dHq4Mp
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Will Dubai defaults set off chain reaction?
Fears that Dubai may not be able to meet the payments on its massive foreign debt sparked a sell-off on stockmarkets around the world as investors worried about the health of the once-booming emirate and scoured their portfolios for exposure.
Most of the concern is focused on Dubai World, one of the Persian Gulf emirate’s flagship conglomerates, with total debt of about US$59-billion, about twice the size of the gross domestic product. On Wednesday the Dubai government asked for permission to postpone payment on part of the debt, sending lenders scurrying to try to get a better understanding of the situation.
The nightmare scenario is that a default by Dubai World could set off a “cascading effect” as banks across the world buckle from losses, in the same way that the failure of Lehman Brothers Holdings Inc. last year nearly collapsed the global financial system, said Brian Eby, a portfolio manager at Connor, Clark & Lunn in Vancouver.
“I think that is unlikely but there is still not enough known [to be sure],” he said.
The S&P/TSX Composite Index Thursday fell 200 points, or 1.7%, to 11,436.8, the biggest drop in almost a month.
In London, the FTSE 100 declined 171 points, or 3.18%, while Germany’s DAX slumped 189 points, or 3.25%.
Analysts said it is unlikely Canadian lenders have significant exposure to Dubai despite the drop on the TSX.
“The market is still trying to figure it out and there is a lot of uncertainty, but really I think the issue is European and U.K. banks,” Mr Eby said .
Shares in all the Canadian banks declined with Bank of Nova Scotia falling the most with a drop of $1.15 or 2.3% to $47.91.
Manulife Financial Corp. and Fairfax Financial each went so far as to put out a press release stating they have no exposure to Dubai World.
Banks outside of Canada that are creditors to Dubai World include HSBC Holdings, Barclays, Lloyds Banking Group, Royal Bank of Scotland, and Credit Suisse.
Over the last decade Dubai World has been engaged in an ambitious effort to transform the city of Dubai into a global capital, partly through its Nakeel Group subsidiary, whose credits include world’s tallest building and an artificial island of luxury homes in the shape of a palm tree.
While the economy was booming, banks and pension funds in other parts of the world were happy to bankroll the expansion binge.
But the taps were turned off when the financial crisis hit, sending ripples through the global financial system as lenders worried the strength of the company and its owners.
Before the financial crisis, Dubai benefitted from soaring oil prices even despite having little oil wealth of its own as neighbouring states bought into the idea of a Persian Gulf financial centre and invested in its real estate. But with oil trading well below its peak, countries like Saudi Arabia have less wealth to spend and limited incentive to help out Dubai.
If the emirate is unable to reach an agreement with its creditors, it may be forced into a restructuring.
Because Dubai is a monarchy, the ultimate owners of Dubai World are the ruling royal family.
When concerns about the viability of the company first emerged in the aftermath of the crisis the government was able to persuade banks that the debt would be repaid, but analysts said this time around the outcome is less clear.
A top Dubai financial official said in a statement on Thursday that he understands the concerns of creditors but that “decisive action” must be taken to deal with Dubai World debt burden.
Analysts said a key concern it that if Dubai is unable to meet its obligations, it set off a chain reaction of defaults across the region.
Most of the concern is focused on Dubai World, one of the Persian Gulf emirate’s flagship conglomerates, with total debt of about US$59-billion, about twice the size of the gross domestic product. On Wednesday the Dubai government asked for permission to postpone payment on part of the debt, sending lenders scurrying to try to get a better understanding of the situation.
The nightmare scenario is that a default by Dubai World could set off a “cascading effect” as banks across the world buckle from losses, in the same way that the failure of Lehman Brothers Holdings Inc. last year nearly collapsed the global financial system, said Brian Eby, a portfolio manager at Connor, Clark & Lunn in Vancouver.
“I think that is unlikely but there is still not enough known [to be sure],” he said.
The S&P/TSX Composite Index Thursday fell 200 points, or 1.7%, to 11,436.8, the biggest drop in almost a month.
In London, the FTSE 100 declined 171 points, or 3.18%, while Germany’s DAX slumped 189 points, or 3.25%.
Analysts said it is unlikely Canadian lenders have significant exposure to Dubai despite the drop on the TSX.
“The market is still trying to figure it out and there is a lot of uncertainty, but really I think the issue is European and U.K. banks,” Mr Eby said .
Shares in all the Canadian banks declined with Bank of Nova Scotia falling the most with a drop of $1.15 or 2.3% to $47.91.
Manulife Financial Corp. and Fairfax Financial each went so far as to put out a press release stating they have no exposure to Dubai World.
Banks outside of Canada that are creditors to Dubai World include HSBC Holdings, Barclays, Lloyds Banking Group, Royal Bank of Scotland, and Credit Suisse.
Over the last decade Dubai World has been engaged in an ambitious effort to transform the city of Dubai into a global capital, partly through its Nakeel Group subsidiary, whose credits include world’s tallest building and an artificial island of luxury homes in the shape of a palm tree.
While the economy was booming, banks and pension funds in other parts of the world were happy to bankroll the expansion binge.
But the taps were turned off when the financial crisis hit, sending ripples through the global financial system as lenders worried the strength of the company and its owners.
Before the financial crisis, Dubai benefitted from soaring oil prices even despite having little oil wealth of its own as neighbouring states bought into the idea of a Persian Gulf financial centre and invested in its real estate. But with oil trading well below its peak, countries like Saudi Arabia have less wealth to spend and limited incentive to help out Dubai.
If the emirate is unable to reach an agreement with its creditors, it may be forced into a restructuring.
Because Dubai is a monarchy, the ultimate owners of Dubai World are the ruling royal family.
When concerns about the viability of the company first emerged in the aftermath of the crisis the government was able to persuade banks that the debt would be repaid, but analysts said this time around the outcome is less clear.
A top Dubai financial official said in a statement on Thursday that he understands the concerns of creditors but that “decisive action” must be taken to deal with Dubai World debt burden.
Analysts said a key concern it that if Dubai is unable to meet its obligations, it set off a chain reaction of defaults across the region.
Dubai defaults
Dubai World Seeks to Delay Debt Payments as Default Risk Soars – Bloomberg.com
” Dubai World, with $59 billion of liabilities, is seeking to delay debt payments…Dubai accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year…Dubai’s Supreme Fiscal Committee hired Deloitte LLP to lead the restructuring of Dubai World debt”
This is the state owned entity…it appears that there is a high probability that the country will default.
“Sheikh Mohammed turned to Abu Dhabi, the capital of the U.A.E. and holder of the world’s sixth-largest crude oil reserves, in February for a $10 billion bailout. The central bank, headquartered in Abu Dhabi, bought all of the 4 percent, five-year securities that Dubai sold on Feb. 23″…so Dubai is at the mercy of it’s neighboring countries.
Update: Reuters
Looks like default is a done deal:
"“Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ’standstill’ and extend maturities until at least 30 May 2010,” the government said in a statement…”Abu Dhabi has been supportive of Dubai, but it appears this support is not enough for Dubai to meet its obligations on time.”"
Found at Wasatch Economics
” Dubai World, with $59 billion of liabilities, is seeking to delay debt payments…Dubai accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year…Dubai’s Supreme Fiscal Committee hired Deloitte LLP to lead the restructuring of Dubai World debt”
This is the state owned entity…it appears that there is a high probability that the country will default.
“Sheikh Mohammed turned to Abu Dhabi, the capital of the U.A.E. and holder of the world’s sixth-largest crude oil reserves, in February for a $10 billion bailout. The central bank, headquartered in Abu Dhabi, bought all of the 4 percent, five-year securities that Dubai sold on Feb. 23″…so Dubai is at the mercy of it’s neighboring countries.
Update: Reuters
Looks like default is a done deal:
"“Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ’standstill’ and extend maturities until at least 30 May 2010,” the government said in a statement…”Abu Dhabi has been supportive of Dubai, but it appears this support is not enough for Dubai to meet its obligations on time.”"
Found at Wasatch Economics
Dubai expected to default on $80 billion in loans!
Dubai is shaking investor confidence across the Persian Gulf after it sought a six-month reprieve on debt payments that risked triggering the biggest sovereign default since Argentina in 200121:20 GMT. Global stock markets endured heavy selling on Thursday as investors were spooked by the spectre of a default by Dubai and after a febrile foreign exchange market saw the yen surge to a 14-year high against the dollar.
The move caused a drop on world markets on Thursday and raised questions about Dubai's reputation as a magnet for international investment.
In Europe, the FTSE 100, Germany's DAX and the CAC-40 in France opened sharply lower. Earlier in Asia, the Shanghai index sank 119 points, or 3.6%, in the biggest one-day fall since August 31. Hong Kong's Hang Seng shed 1.8%. Wall Street was closed for the Thanksgiving holiday and most markets in the Middle East were silent because of a major Islamic feast.
Stocks, bonds and currencies fell across developing countries. The MSCI Emerging Markets Index of stocks dropped 1.1%, led by declines in China and Russia.
The fallout came swiftly after Wednesday's statement that Dubai's main development engine, Dubai World, would ask creditors for a standstill on paying back its $60 billion debt until at least May. The company's real estate arm, Nakheel -- whose projects include the palm-shaped island in the Gulf -- shoulders the bulk of money due to banks, investment houses and outside development contractors.
In total, the state-backed networks nicknamed Dubai Inc are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbour Abu Dhabi, the capital of the United Arab Emirates.
``Nakheel is now standing on the brink of failure given the astonishing amount of cash Dubai would have to inject into it in order to see the enterprise survive,'' said Luis Costa, emerging-market debt strategist at Commerzbank AG in London. ``Events like this are a perfect storm.''
``Dubai's standstill announcement ... was vague and it remains difficult to discern whether the call for a standstill will be voluntary,'' said a statement from the Eurasia Group, a Washington-based research group that assesses political and financial risk for foreign investors interested in Dubai. ``If it is not, Dubai World will be going into default and that will have more serious negative repercussions for Dubai's sovereign debt, Dubai World and market confidence in the UAE in general,'' the statement added.
``There is nothing investors dislike more than this kind of event,'' said Norval Loftus, the head of convertible bonds and Islamic debt at Matrix Group Ltd. in London, which manages $2.5 billion of assets including Dubai credits. ``The worst-case scenario will of course be involuntary restructuring on the Nakheel security that brings into question the entire nature of the sovereign support for various borrowers in the region.''
Moodys Investors Service and Standard & Poor's cut the ratings on state companies yesterday, saying they may consider state-controlled Dubai World's plan to delay debt payments a default. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom that reduced its reliance on falling oil supplies and created the region's tourism and financial hub.
``Dubai is the most indicative of the huge global liquidity boom and now in the aftermath there will be further defaults to come in emerging markets and globally,'' said Nick Chamie, head of emerging-market research at Toronto-based RBC Capital Markets.
``It's very important to resolve this in a way that will minimize contagion across the region,'' Matrix Groups Loftus said. The moot question is whether that will be possible.
The turmoil caused a flight to less risky assets. Gold, which had challenged $1,200 in Asian trading, fell back from its highs and money flowed into havens such as German government bonds.
US markets were closed for the Thanksgiving holiday, but electronic trading of the benchmark S&P 500 equity futures contract had shown a potential drop on Wall Street of 2.2 per cent.
In Europe, the FTSE 100 lost 3.2 per cent at 5,194.1, its worst day since March, while the FTSE Eurofirst 300 fell 3.3 per cent to 988.1.
Initial weakness was blamed on a sell-off in Asia that appeared to be prompted by the yen’s sudden rise. But as the European trading day progressed, it became clear it was Dubai World’s difficulties that had hit a particular nerve, reminding investors of the lingering damage wrought by the financial crisis
Banking stocks tumbled on concern about their potential exposure to Dubai. Indeed, the cost of insuring against default by the emirate jumped, with Reuters reporting the Dubai five-year credit default swap being quoted as high as 500-550 basis points. This means it would cost about $500,000 a year to insure $10m of Dubai’s debt. On Tuesday it would have cost about $360,000.
Greek and Irish government five-year credit default swaps also moved higher as nations with supposedly precarious fiscal positions were punished. In contrast, investors sought out comparative haven assets, pushing the yield on the German Bund down by 8 basis points to 3.16 per cent.
Earlier in the trading day the focus had been on a volatile period in the foreign exchange markets.
The Nikkei 225 fell to a fresh four-month low, off 0.6 per cent to 9,383.2, as exporters wilted in response to a sudden bounce by the yen. The Japanese unit – considered by many to be the haven currency of choice – suddenly burst through Y87 to the dollar at 03:20 GMT.
After breaching this level, the buying accelerated, taking the yen to Y86.30, a fresh 14-year high versus the greenback. It also made headway against the euro.
Comments from Hirohisa Fujii, Japan’s finance minister, that he was watching forex market moves very closely and that the country could take appropriate steps if moves were ”abnormal”, initially helped pare some of the yen’s gains.
But as the European session advanced, investors started to move with ever greater force into the so-called haven currencies, boosting the yen and dollar, most notably at the expense of the euro.
Later the yen was up 1.8 per cent against the euro at $129.79, and had gained 1 per cent against the otherwise stronger dollar at Y86.45.
The dollar, after dipping in Asia to a fresh 15-month low on a trade-weighted basis, later revelled in traders’ reduced risk appetite, bouncing 0.8 per cent versus the euro to $1.5013. Against a basket of currencies it recovered from 74.17 to later trade 0.7 per cent higher but was still just under the crucial 75.0 mark.
Gold took advantage of the early frantic forex action to hit another high of $1,194.90 an ounce. But it was later down 0.3 per cent at $1,188.38 as the dollar found its footing.
Equity investors across Asia had appeared concerned about the implications of such a sharp rise in haven currencies.
Mainland China’s benchmark, the Shanghai Composite, slid 3.6 per cent to 3,170.9, also on continuing worries regarding the banking sector, while Hong Kong’s Hang Seng fell 1.8 per cent to 22,216.3 as a share debut by China Minsheng Bank disappointed. In Australia, the S&P/ASX 200 lost 0.3 per cent to 4,708.6.
By late afternoon in New York, Asian futures were down, pointing to another difficult day for global markets.
Oil dipped 2.2 per cent to $76.23 in electronic trading, though pits and Wall Street were closed on Thursday for the Thanksgiving holiday.
Overnight, US equities had managed to just finish at a new high for the year.
The move caused a drop on world markets on Thursday and raised questions about Dubai's reputation as a magnet for international investment.
In Europe, the FTSE 100, Germany's DAX and the CAC-40 in France opened sharply lower. Earlier in Asia, the Shanghai index sank 119 points, or 3.6%, in the biggest one-day fall since August 31. Hong Kong's Hang Seng shed 1.8%. Wall Street was closed for the Thanksgiving holiday and most markets in the Middle East were silent because of a major Islamic feast.
Stocks, bonds and currencies fell across developing countries. The MSCI Emerging Markets Index of stocks dropped 1.1%, led by declines in China and Russia.
The fallout came swiftly after Wednesday's statement that Dubai's main development engine, Dubai World, would ask creditors for a standstill on paying back its $60 billion debt until at least May. The company's real estate arm, Nakheel -- whose projects include the palm-shaped island in the Gulf -- shoulders the bulk of money due to banks, investment houses and outside development contractors.
In total, the state-backed networks nicknamed Dubai Inc are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbour Abu Dhabi, the capital of the United Arab Emirates.
``Nakheel is now standing on the brink of failure given the astonishing amount of cash Dubai would have to inject into it in order to see the enterprise survive,'' said Luis Costa, emerging-market debt strategist at Commerzbank AG in London. ``Events like this are a perfect storm.''
``Dubai's standstill announcement ... was vague and it remains difficult to discern whether the call for a standstill will be voluntary,'' said a statement from the Eurasia Group, a Washington-based research group that assesses political and financial risk for foreign investors interested in Dubai. ``If it is not, Dubai World will be going into default and that will have more serious negative repercussions for Dubai's sovereign debt, Dubai World and market confidence in the UAE in general,'' the statement added.
``There is nothing investors dislike more than this kind of event,'' said Norval Loftus, the head of convertible bonds and Islamic debt at Matrix Group Ltd. in London, which manages $2.5 billion of assets including Dubai credits. ``The worst-case scenario will of course be involuntary restructuring on the Nakheel security that brings into question the entire nature of the sovereign support for various borrowers in the region.''
Moodys Investors Service and Standard & Poor's cut the ratings on state companies yesterday, saying they may consider state-controlled Dubai World's plan to delay debt payments a default. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom that reduced its reliance on falling oil supplies and created the region's tourism and financial hub.
``Dubai is the most indicative of the huge global liquidity boom and now in the aftermath there will be further defaults to come in emerging markets and globally,'' said Nick Chamie, head of emerging-market research at Toronto-based RBC Capital Markets.
``It's very important to resolve this in a way that will minimize contagion across the region,'' Matrix Groups Loftus said. The moot question is whether that will be possible.
The turmoil caused a flight to less risky assets. Gold, which had challenged $1,200 in Asian trading, fell back from its highs and money flowed into havens such as German government bonds.
US markets were closed for the Thanksgiving holiday, but electronic trading of the benchmark S&P 500 equity futures contract had shown a potential drop on Wall Street of 2.2 per cent.
In Europe, the FTSE 100 lost 3.2 per cent at 5,194.1, its worst day since March, while the FTSE Eurofirst 300 fell 3.3 per cent to 988.1.
Initial weakness was blamed on a sell-off in Asia that appeared to be prompted by the yen’s sudden rise. But as the European trading day progressed, it became clear it was Dubai World’s difficulties that had hit a particular nerve, reminding investors of the lingering damage wrought by the financial crisis
Banking stocks tumbled on concern about their potential exposure to Dubai. Indeed, the cost of insuring against default by the emirate jumped, with Reuters reporting the Dubai five-year credit default swap being quoted as high as 500-550 basis points. This means it would cost about $500,000 a year to insure $10m of Dubai’s debt. On Tuesday it would have cost about $360,000.
Greek and Irish government five-year credit default swaps also moved higher as nations with supposedly precarious fiscal positions were punished. In contrast, investors sought out comparative haven assets, pushing the yield on the German Bund down by 8 basis points to 3.16 per cent.
Earlier in the trading day the focus had been on a volatile period in the foreign exchange markets.
The Nikkei 225 fell to a fresh four-month low, off 0.6 per cent to 9,383.2, as exporters wilted in response to a sudden bounce by the yen. The Japanese unit – considered by many to be the haven currency of choice – suddenly burst through Y87 to the dollar at 03:20 GMT.
After breaching this level, the buying accelerated, taking the yen to Y86.30, a fresh 14-year high versus the greenback. It also made headway against the euro.
Comments from Hirohisa Fujii, Japan’s finance minister, that he was watching forex market moves very closely and that the country could take appropriate steps if moves were ”abnormal”, initially helped pare some of the yen’s gains.
But as the European session advanced, investors started to move with ever greater force into the so-called haven currencies, boosting the yen and dollar, most notably at the expense of the euro.
Later the yen was up 1.8 per cent against the euro at $129.79, and had gained 1 per cent against the otherwise stronger dollar at Y86.45.
The dollar, after dipping in Asia to a fresh 15-month low on a trade-weighted basis, later revelled in traders’ reduced risk appetite, bouncing 0.8 per cent versus the euro to $1.5013. Against a basket of currencies it recovered from 74.17 to later trade 0.7 per cent higher but was still just under the crucial 75.0 mark.
Gold took advantage of the early frantic forex action to hit another high of $1,194.90 an ounce. But it was later down 0.3 per cent at $1,188.38 as the dollar found its footing.
Equity investors across Asia had appeared concerned about the implications of such a sharp rise in haven currencies.
Mainland China’s benchmark, the Shanghai Composite, slid 3.6 per cent to 3,170.9, also on continuing worries regarding the banking sector, while Hong Kong’s Hang Seng fell 1.8 per cent to 22,216.3 as a share debut by China Minsheng Bank disappointed. In Australia, the S&P/ASX 200 lost 0.3 per cent to 4,708.6.
By late afternoon in New York, Asian futures were down, pointing to another difficult day for global markets.
Oil dipped 2.2 per cent to $76.23 in electronic trading, though pits and Wall Street were closed on Thursday for the Thanksgiving holiday.
Overnight, US equities had managed to just finish at a new high for the year.
Tuesday, November 24, 2009
Three Decades of Subsidized Risk
By CHARLES GASPARINO / WSJ
I recently sat down with legendary investor Ted Forstmann to discuss why, on the one-year
By CHARLES GASPARINO
I recently sat down with legendary investor Ted Forstmann to discuss why, on the one-year anniversary of the financial meltdown, the press has largely ignored the role of government in creating the meltdown—and possibly setting the stage for another one—by allowing Wall Street to borrow cheaply and easily during the past three decades.
"I guess reporters think writing about greedy investment bankers is more interesting," Mr. Forstmann laughed.
Mr. Forstmann knows a thing or two about greedy investment bankers: He's been calling them on the carpet for years, most famously during the 1980s when he fulminated against the excesses of the junk-bond era. He also knows that blaming banking greed alone can't by itself explain the financial tsunami that tore the markets apart last year and left the banking system and the economy in tatters.
The greed merchants needed a co-conspirator, Mr. Forstmann argues, and that co-conspirator is and was the United States government.
"They're always there waiting to hand out free money," he said. "They just throw money at the problem every time Wall Street gets in trouble. It starts out when they have a cold and it builds until the risk-taking leads to cancer."
Mr. Forstmann's point shouldn't be taken lightly. Not by the press, nor by policy makers in Washington. But so far it has been, and the easy money is flowing like never before. Interest rates are close to zero; in effect the Federal Reserve is subsidizing the risk-taking and bond trading that has allowed Goldman Sachs to produce billions in profits and that infamous $16 billion bonus pool (analysts say it could grow to as high as $20 billion). The Treasury has lent banks money, guaranteed Wall Street's debt and declared every firm to be a commercial bank, from Citigroup with close to $1 trillion in U.S. deposits, to Morgan Stanley with close to zero. They are all "too big to fail" and so free to trade as they please—on the taxpayer dime.
The conventional wisdom as perpetuated in the media is that these bailout mechanisms are unique, designed to ameliorate a once-in-a-lifetime financial "perfect storm." They are unique, but only in size. A quick look back at the past three decades will demonstrate what Mr. Forstmann meant when he said the government has been ready to hand out free money nearly every time risk-taking led to losses.
The first mortgage market meltdown of the mid-1980s, spurred by the Fed's supply of easy money, was among the most painful market upheavals in the history of the bond market. The pioneers of the mortgage bond market, Lew Ranieri of Salomon Brothers and Larry Fink of First Boston (the same Larry Fink now considered a sage CEO at money management powerhouse BlackRock), lost what were then unheard-of sums of money. (Mr. Fink concedes to losses of over $100 million.)
"What happened then was a dry run of what was to come," Mr. Fink recently told me, as he looked back on the market he created, which would eventually lie at the heart of the most recent financial crisis. Wall Street took excessive risk in mortgage bonds amid the easy money supplied by the Fed—and lost. When the crisis began, the Fed under then Chairman Alan Greenspan slashed interest rates—as it would do after Orange County, Calif., declared bankruptcy in 1994 because of bad bets on complex bonds; and again in 1998 when the hedge fund Long-Term Capital Management (LTCM) blew up; and of course in the bond-market crisis of 2007 and 2008. The lower rates each time lessened the pain of the risk-taking gone awry, and opened the door for increased risk down the line.
Easy money wasn't the only way government induced the bubble. The mortgage-bond market was the mechanism by which policy makers transformed home ownership into something that must be earned into something close to a civil right. The Community Reinvestment Act and projects by the Department of Housing and Urban Development, beginning in the Clinton years, couldn't have been accomplished without the mortgage bond—which allowed banks to offload the increasingly risky mortgages to Wall Street, which in turn securitized them into triple-A rated bonds thanks to compliant ratings agencies.
The perversity of these efforts wasn't merely that bonds packed with subprime loans received such high ratings. It was also that by inducing homeownership, the government was itself making homeownership less affordable. Because families without the real economic means to repay traditional 30-year mortgages were getting them, housing prices grew to artificially high levels.
This is where the real sin of Fannie Mae and Freddie Mac comes into play. Both were created by Congress to make housing affordable to the middle class. But when they began guaranteeing subprime loans, they actually began pricing out the working class from the market until the banking business responded with ways to make repayment of mortgages allegedly easier through adjustable rates loans that start off with low payments. But these loans, fully sanctioned by the government, were a ticking time bomb, as we're all now so painfully aware.
A similar bomb exploded in 1998, when LTCM blew up. The policy response to the LTCM debacle is instructive; more than anything else it solidified Wall Street's belief that there were little if any real risks to risk-taking. With $5 billion under management, LTCM was deemed too big to fail because, with nearly every major firm copying its money losing trades, much of Wall Street might have failed with it.
That's what the policy makers told us anyway. On Wall Street there's general agreement that the implosion of LTCM would have tanked one of the biggest risk takers in the market, Lehman Brothers, a full decade before its historic bankruptcy filing. Officials at Merrill, including its then-CFO (and future CEO) Stan O'Neal, believed Merrill's risk-taking in esoteric bonds could have led to a similar implosion 10 years before its calamitous merger with Bank of America.
We'll never know if LTCM's demise would have tanked the financial system or simply tanked a couple of firms that bet wrong. But one thing is certain: A valuable lesson in risk-taking was lost. By 2007, the years of excessive risk-taking, aided and abetted by the belief that the government was ready to paper over mistakes, had taken their toll.
With so much easy money, with the government always ready to ease their pain, Wall Street developed new and even more innovative ways to make money through risk-taking. The old mortgage bonds created by Messrs. Fink and Ranieri as simple securitized pools had morphed into the so-called collateralized debt obligations (CDOs), complex structures that allowed Wall Street banks as well as quasi-governmental agencies Fannie Mae and Freddie Mac to securitize ever riskier mortgages.
Mr. O'Neal, the man considered most responsible for Merrill's disastrous foray into risk-taking, told me in an interview last year that in the fall of 2007, when he saw that the firm's problems were insurmountable, he had a deal to sell Merrill to Bank of America for around $90 a share. But Merrill's board rejected it, believing he would be selling out cheaply. The CDOs would eventually recover, they argued, as the Fed pumped life into the markets.
Likewise, nearly to the minute he was forced to file for bankruptcy, former Lehman CEO Dick Fuld believed the government wouldn't let Lehman die. After all, government largess had always been there in the past.
All of which brings me back to Mr. Fortsmann's comment about policy makers helping turn a cold into cancer. What if the Fed hadn't eased Wall Street's pain in the late 1980s, and again after the 1994 bond-market collapse? What if policy makers in 1998 had allowed the markets to feel the consequences of risk—allowing LTCM to fail, and letting Lehman Brothers and possibly Merrill Lynch die as well?
There would have been pain—lots of it—for Wall Street and even for Main Street, but a lot less than what we're experiencing today. Wall Street would have learned a valuable lesson: There are consequences to risk.
Mr. Gasparino is a CNBC on-air editor and the author, most recently, of "The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System," just published by HarperBusiness.
I recently sat down with legendary investor Ted Forstmann to discuss why, on the one-year
I recently sat down with legendary investor Ted Forstmann to discuss why, on the one-year anniversary of the financial meltdown, the press has largely ignored the role of government in creating the meltdown—and possibly setting the stage for another one—by allowing Wall Street to borrow cheaply and easily during the past three decades.
"I guess reporters think writing about greedy investment bankers is more interesting," Mr. Forstmann laughed.
Mr. Forstmann knows a thing or two about greedy investment bankers: He's been calling them on the carpet for years, most famously during the 1980s when he fulminated against the excesses of the junk-bond era. He also knows that blaming banking greed alone can't by itself explain the financial tsunami that tore the markets apart last year and left the banking system and the economy in tatters.
The greed merchants needed a co-conspirator, Mr. Forstmann argues, and that co-conspirator is and was the United States government.
"They're always there waiting to hand out free money," he said. "They just throw money at the problem every time Wall Street gets in trouble. It starts out when they have a cold and it builds until the risk-taking leads to cancer."
Mr. Forstmann's point shouldn't be taken lightly. Not by the press, nor by policy makers in Washington. But so far it has been, and the easy money is flowing like never before. Interest rates are close to zero; in effect the Federal Reserve is subsidizing the risk-taking and bond trading that has allowed Goldman Sachs to produce billions in profits and that infamous $16 billion bonus pool (analysts say it could grow to as high as $20 billion). The Treasury has lent banks money, guaranteed Wall Street's debt and declared every firm to be a commercial bank, from Citigroup with close to $1 trillion in U.S. deposits, to Morgan Stanley with close to zero. They are all "too big to fail" and so free to trade as they please—on the taxpayer dime.
The conventional wisdom as perpetuated in the media is that these bailout mechanisms are unique, designed to ameliorate a once-in-a-lifetime financial "perfect storm." They are unique, but only in size. A quick look back at the past three decades will demonstrate what Mr. Forstmann meant when he said the government has been ready to hand out free money nearly every time risk-taking led to losses.
The first mortgage market meltdown of the mid-1980s, spurred by the Fed's supply of easy money, was among the most painful market upheavals in the history of the bond market. The pioneers of the mortgage bond market, Lew Ranieri of Salomon Brothers and Larry Fink of First Boston (the same Larry Fink now considered a sage CEO at money management powerhouse BlackRock), lost what were then unheard-of sums of money. (Mr. Fink concedes to losses of over $100 million.)
"What happened then was a dry run of what was to come," Mr. Fink recently told me, as he looked back on the market he created, which would eventually lie at the heart of the most recent financial crisis. Wall Street took excessive risk in mortgage bonds amid the easy money supplied by the Fed—and lost. When the crisis began, the Fed under then Chairman Alan Greenspan slashed interest rates—as it would do after Orange County, Calif., declared bankruptcy in 1994 because of bad bets on complex bonds; and again in 1998 when the hedge fund Long-Term Capital Management (LTCM) blew up; and of course in the bond-market crisis of 2007 and 2008. The lower rates each time lessened the pain of the risk-taking gone awry, and opened the door for increased risk down the line.
Easy money wasn't the only way government induced the bubble. The mortgage-bond market was the mechanism by which policy makers transformed home ownership into something that must be earned into something close to a civil right. The Community Reinvestment Act and projects by the Department of Housing and Urban Development, beginning in the Clinton years, couldn't have been accomplished without the mortgage bond—which allowed banks to offload the increasingly risky mortgages to Wall Street, which in turn securitized them into triple-A rated bonds thanks to compliant ratings agencies.
The perversity of these efforts wasn't merely that bonds packed with subprime loans received such high ratings. It was also that by inducing homeownership, the government was itself making homeownership less affordable. Because families without the real economic means to repay traditional 30-year mortgages were getting them, housing prices grew to artificially high levels.
This is where the real sin of Fannie Mae and Freddie Mac comes into play. Both were created by Congress to make housing affordable to the middle class. But when they began guaranteeing subprime loans, they actually began pricing out the working class from the market until the banking business responded with ways to make repayment of mortgages allegedly easier through adjustable rates loans that start off with low payments. But these loans, fully sanctioned by the government, were a ticking time bomb, as we're all now so painfully aware.
A similar bomb exploded in 1998, when LTCM blew up. The policy response to the LTCM debacle is instructive; more than anything else it solidified Wall Street's belief that there were little if any real risks to risk-taking. With $5 billion under management, LTCM was deemed too big to fail because, with nearly every major firm copying its money losing trades, much of Wall Street might have failed with it.
That's what the policy makers told us anyway. On Wall Street there's general agreement that the implosion of LTCM would have tanked one of the biggest risk takers in the market, Lehman Brothers, a full decade before its historic bankruptcy filing. Officials at Merrill, including its then-CFO (and future CEO) Stan O'Neal, believed Merrill's risk-taking in esoteric bonds could have led to a similar implosion 10 years before its calamitous merger with Bank of America.
We'll never know if LTCM's demise would have tanked the financial system or simply tanked a couple of firms that bet wrong. But one thing is certain: A valuable lesson in risk-taking was lost. By 2007, the years of excessive risk-taking, aided and abetted by the belief that the government was ready to paper over mistakes, had taken their toll.
With so much easy money, with the government always ready to ease their pain, Wall Street developed new and even more innovative ways to make money through risk-taking. The old mortgage bonds created by Messrs. Fink and Ranieri as simple securitized pools had morphed into the so-called collateralized debt obligations (CDOs), complex structures that allowed Wall Street banks as well as quasi-governmental agencies Fannie Mae and Freddie Mac to securitize ever riskier mortgages.
Mr. O'Neal, the man considered most responsible for Merrill's disastrous foray into risk-taking, told me in an interview last year that in the fall of 2007, when he saw that the firm's problems were insurmountable, he had a deal to sell Merrill to Bank of America for around $90 a share. But Merrill's board rejected it, believing he would be selling out cheaply. The CDOs would eventually recover, they argued, as the Fed pumped life into the markets.
Likewise, nearly to the minute he was forced to file for bankruptcy, former Lehman CEO Dick Fuld believed the government wouldn't let Lehman die. After all, government largess had always been there in the past.
All of which brings me back to Mr. Fortsmann's comment about policy makers helping turn a cold into cancer. What if the Fed hadn't eased Wall Street's pain in the late 1980s, and again after the 1994 bond-market collapse? What if policy makers in 1998 had allowed the markets to feel the consequences of risk—allowing LTCM to fail, and letting Lehman Brothers and possibly Merrill Lynch die as well?
There would have been pain—lots of it—for Wall Street and even for Main Street, but a lot less than what we're experiencing today. Wall Street would have learned a valuable lesson: There are consequences to risk.
Mr. Gasparino is a CNBC on-air editor and the author, most recently, of "The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System," just published by HarperBusiness.
Sunday, November 22, 2009
Fall of the Republic
It is happening before our very eyes. Obama is not interested in helping the poor or the middle class. This film exposes exactly who he is working for. Please watch it and learn for yourself. Citizens of the US must stand up and do what we can to stop the enslaving of the world. Were you born to be the slave of the government? You have seen the looting of our treasury. The US has produced more wealth than any country in history. Not because we are the same as the others - because we were different. But now we are almost back to where we were when we freed ourselves from British rule. When we revolted it was the first time in history that rights were deemed to be given by God - not the government. We now live in a time when that very foundation of our country, the freedom and liberty that made us great, has been dismantled.
Do you have time to get informed? Don't be fooled. Please take a few minutes out of your day and watch this well produced film. While I can't attest to every detail being exactly true, the overall message is right on the money. Did I say money? Oh yes kids - it is, and always has been about the money. They want it, they are getting it, and they want more. Please watch:
Do you have time to get informed? Don't be fooled. Please take a few minutes out of your day and watch this well produced film. While I can't attest to every detail being exactly true, the overall message is right on the money. Did I say money? Oh yes kids - it is, and always has been about the money. They want it, they are getting it, and they want more. Please watch:
Friday, November 20, 2009
Germany warns US on market bubbles
By Ralph Atkins in Frankfurt / Financial Times
Published: November 20 2009 19:48
Last updated: November 20 2009 19:48
Germany’s new finance minister has echoed Chinese warnings about the growing threat of fresh global asset price bubbles, fuelled by low US interest rates and a weak dollar.
Wolfgang Schäuble’s comments highlight official concern in Europe that the risk of further financial market turbulence has been exacerbated by the exceptional steps taken by central banks and governments to combat the crisis.
Last weekend, Liu Mingkang, China’s banking regulator, criticised the US Federal Reserve for fuelling the “dollar carry-trade”, in which investors borrow dollars at ultra-low interest rates and invest in higher-yielding assets abroad.
EDITOR’S CHOICE
In depth: Dollar under pressure - Nov-20Editorial Comment: Deficit attention - Nov-20View from the Top: Robert Zoellick - Nov-20Long View: Fears of US double-dip recession - Nov-20Lex: Bernanke blowing bubbles - Nov-17China says Fed policy threatens global recovery - Nov-16Speaking at a banking conference in Frankfurt on Friday, Mr Schäuble said it would be “naive” to assume the next asset price bubble would take the same guise as the last.
He said: “More likely today is a scenario in which excess liquidity globally creates a new [sort of] asset market bubble.”
He added: “That low interest rate currencies such as the US dollar are increasingly being used as a basis for currency carry trades should give pause for thought. If there was a sudden reversal in this business, markets would be threatened with enormous turbulence, including in foreign exchange markets.”
Mr Schäuble, a political veteran, took over the German finance ministry after Angela Merkel began her second term as chancellor last month.
Currencies in context
Interactive chart showing the dollar in the context of current market trends
His comments reflect the concern of European policymakers that the continent will bear the brunt of a global adjustment process through a stronger euro.
Further signs of official frustration about policy steps being taken elsewhere came from Lorenzo Bini Smaghi, a European Central Bank executive.
He said in a speech in Paris on Friday that emerging Asian economies were continuing “strongly accommodative monetary policies” in spite of their faster economic recoveries.
Although Mr Bini Smaghi did not mention the euro or the eurozone, he warned that delays in implementing an “exit [strategy] by the countries that are ahead in the cyclical upturn creates distortions and encourages other countries to delay their exit, thus further adding to the imbalances and making the exit more difficult for everybody”.
Separately, Jean-Claude Trichet, ECB president, issued his strongest warning yet that banks must control pay and bonuses.
Striking a noticeably stiffer tone, Mr Trichet told the Frankfurt conference: “Profits earned should be used, as a priority, to build capital and reserves, rather than be paid out as dividends or excessive compensation.”
The ECB president quoted a warning by Johann Wolfgang von Goethe, Frankfurt’s most famous son, on the need for self-restraint: “If I wanted to lavishly let myself go, I could well destroy myself and my environment.”
Mr Trichet said: “Compensation and bonuses must remain contained. Otherwise, we would take risks that Goethe [has] already described.”
Published: November 20 2009 19:48
Last updated: November 20 2009 19:48
Germany’s new finance minister has echoed Chinese warnings about the growing threat of fresh global asset price bubbles, fuelled by low US interest rates and a weak dollar.
Wolfgang Schäuble’s comments highlight official concern in Europe that the risk of further financial market turbulence has been exacerbated by the exceptional steps taken by central banks and governments to combat the crisis.
Last weekend, Liu Mingkang, China’s banking regulator, criticised the US Federal Reserve for fuelling the “dollar carry-trade”, in which investors borrow dollars at ultra-low interest rates and invest in higher-yielding assets abroad.
EDITOR’S CHOICE
In depth: Dollar under pressure - Nov-20Editorial Comment: Deficit attention - Nov-20View from the Top: Robert Zoellick - Nov-20Long View: Fears of US double-dip recession - Nov-20Lex: Bernanke blowing bubbles - Nov-17China says Fed policy threatens global recovery - Nov-16Speaking at a banking conference in Frankfurt on Friday, Mr Schäuble said it would be “naive” to assume the next asset price bubble would take the same guise as the last.
He said: “More likely today is a scenario in which excess liquidity globally creates a new [sort of] asset market bubble.”
He added: “That low interest rate currencies such as the US dollar are increasingly being used as a basis for currency carry trades should give pause for thought. If there was a sudden reversal in this business, markets would be threatened with enormous turbulence, including in foreign exchange markets.”
Mr Schäuble, a political veteran, took over the German finance ministry after Angela Merkel began her second term as chancellor last month.
Currencies in context
Interactive chart showing the dollar in the context of current market trends
His comments reflect the concern of European policymakers that the continent will bear the brunt of a global adjustment process through a stronger euro.
Further signs of official frustration about policy steps being taken elsewhere came from Lorenzo Bini Smaghi, a European Central Bank executive.
He said in a speech in Paris on Friday that emerging Asian economies were continuing “strongly accommodative monetary policies” in spite of their faster economic recoveries.
Although Mr Bini Smaghi did not mention the euro or the eurozone, he warned that delays in implementing an “exit [strategy] by the countries that are ahead in the cyclical upturn creates distortions and encourages other countries to delay their exit, thus further adding to the imbalances and making the exit more difficult for everybody”.
Separately, Jean-Claude Trichet, ECB president, issued his strongest warning yet that banks must control pay and bonuses.
Striking a noticeably stiffer tone, Mr Trichet told the Frankfurt conference: “Profits earned should be used, as a priority, to build capital and reserves, rather than be paid out as dividends or excessive compensation.”
The ECB president quoted a warning by Johann Wolfgang von Goethe, Frankfurt’s most famous son, on the need for self-restraint: “If I wanted to lavishly let myself go, I could well destroy myself and my environment.”
Mr Trichet said: “Compensation and bonuses must remain contained. Otherwise, we would take risks that Goethe [has] already described.”
Complete destruction of the U.S. economy
The Healthcare Reform Travesty by Alan Caruba
Other than the complete destruction of the U.S. economy, one sixth of which is generated by the healthcare profession, I cannot see any reason for the bill that Harry Reid is pushing for a Saturday evening vote in the Senate
It has taken less than a year for the Democrats, led by Barack Obama, to saddle Americans with such enormous debt that your grandchildren will be paying it off. The so-called “bail-outs” have proven to be a bonanza for Wall Street firms on good terms with the Secretary of the Treasury, Tim Geithner, whose mantra is “It’s all Bush’s fault.” The “stimulus” bill has not stimulated anything except lies about “jobs created and saved.”
Rush Limbaugh calls Congress a “Kamakazi Congress” and the “Suicide Bomber Congress” because it is obvious that any Democrat Congressman or woman and any Senator who votes for this atrocious bill, probably without having read it, will be thrown out of office. And should be!
Ignoring all the town hall protests, the tea parties across the nation, and the massive September 12 rally in Washington, D.C. has to come with a penalty, but by then it will be too late for most Americans.
The November 23 edition of Business Week had a cover story by Catherine Arnst titled “Why Wait for Health Reform: Ten Ways to Cut Costs Right Now.” It makes clear that all the so-called reforms contained in the 2,000-plus page bill could be achieved in ways that do not require a monster piece of legislation intended to impose socialized medicine on America.
In brief, here how to achieve an improved, and more affordable healthcare system:
Crack down on fraud and abuse
The amount of fraud in the Medicare system is estimated to cost $125-175 billion every year. Since the system operates as a kind of honor code, the government has been unsuccessful in detecting fraud and abuse. Meanwhile, private insurers such as the Blue Cross & Blue Shield Association report its anti-fraud efforts resulted in a savings of $350 million last year, a 43% increase from 2007.
Develop a healthy workforce
Wellness programs pay real dividends for the companies that sponsor them.
Coordinate care through family doctors
A patient suffering from one or more chronic diseases may depend on several doctors and “rarely do they communicate with one another.” This results in waste, often due to duplication of treatments. By designating a primary care doctor to organize care with specialists, pharmacists, and physical therapists, sharing medical records electronically, it is estimated that $250 to $325 billion could be saved.
Make health a community effort
Campaigns to encourage people to eat better, get more exercise, and other options could greatly reduce health-related costs.
Stop infections in hospitals
Every year, 1.7 million patients develop infections while in hospital and 99,000 die as a result. They can be reduced if hospitals put more emphasis on solving the problem.
Get patients to take their medicine
Three out of four Americans do not take their medicine as directed. Noncompliance leads to more doctor visits, hospitalizations, and treatments that add an estimated $177 billion a year to the nation’s health-care bill.
Discuss options near the end of life
End of life care can be especially costly. When patients and the families are informed they can choose pain management, nursing care, and psychological support, all of which reduce costs.
Use insurance to manage chronic disease
In 2009, UnitedHealthcare introduced a Diabetes Health Plan that offers rewards to patients who manage their disease properly. The idea is to contain costs by giving patients financial incentives based on their particular health issues rather than a one-size-fits-all approach…something the proposed healthcare reform will impose on all Americans regardless of their particular health problems.
Let well-informed patients decide
Too many Americans think that drastic surgery and other procedures are the only way they can survive a healthcare crisis, but such procedures extend lives or prevent heart attacks in only a tiny minority of especially sick patients. Few really know this. Educating patients can reduce wasted health spending by up to 37%.
Apologize to the patient
When hospitals reveal mistakes to patients and their families, investigate the cause, and offer a settlement, it takes the lawyers out of the process. Honesty really is the best policy.
Instead, Congress is getting ready to impose a massive bureaucracy that will be put in charge of healthcare, increasing the nation’s deficit and debt as millions are added to the Medicare ranks and private insurance companies are driven out of business. The loss of freedom will be beyond calculation as Americans must deal with bureaucrats instead of their physicians and other healthcare professionals.
It is the worst possible “reform” imaginable. We’re running out of time to call our Senators, mostly Democrats, and demand they vote NO!
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High-Income Americans to Pay for Afghan War Cost
By Viola Gienger
Nov. 20 (Bloomberg) -- Carl Levin, chairman of the Senate Armed Services Committee, said higher-income Americans should be taxed to pay for additional troops sent to Afghanistan and that NATO should provide half of the new soldiers.
An “additional income tax to the upper brackets, folks earning more than $200,000 or $250,000,” could fund more troops, Levin, a Michigan Democrat, said in an interview for Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend. White House Budget Director Peter Orszag has estimated that each additional soldier in Afghanistan could cost $1 million, for a total that could reach $40 billion if 40,000 more troops are added.
That cost, Levin said, should be paid by wealthier taxpayers. “They have done incredibly well, and I think that it’s important that we pay for it if we possibly can” instead of increasing the federal debt load, the senator said.
Other countries in the North Atlantic Treaty Organization should bear responsibility for delivering half the additional troops needed to secure the conflict zone and train Afghan forces, Levin said. He didn’t predict how many troops President Barack Obama would add.
Levin also said Treasury Secretary Timothy Geithner, who has faced calls for his resignation from Republicans in Congress, should stay as long as he has Obama’s confidence. The six-term senator said the administration was right to move the prosecution of Khalid Sheikh Mohammed, the self-proclaimed mastermind of the Sept. 11, 2001, attacks, to federal court in New York from a military commission in Guantanamo Bay, Cuba.
Troop Decision Near
On Afghanistan, Obama may decide within a few weeks whether to grant a request from the top commander in the field, General Stanley McChrystal, for 40,000 more troops to fight the Taliban, which harbored al-Qaeda before being toppled in the invasion following the Sept. 11 attacks. The U.S. contributes about 70,000 of the 110,000 foreign forces fighting the Afghan war.
Levin, who has supported adding U.S. troops to the war mainly to train the Afghan army and police to take over, said he might back an increase closer to 40,000 under certain conditions. They include the proportion that would be used for training, a plan for preparing enough Afghan troops and a “major program” to provide equipment to their forces.
“There’s a lot of other things involved in showing resolve beside just a troop level,” Levin said. A key element to gain support will be “that whatever is announced, it be part of a NATO-Afghan initiative,” he said.
Conditions on Aid
The U.S. also should place conditions on aid that goes through Afghan President Hamid Karzai’s government to ensure that he cooperates in fighting corruption, Levin said. Karzai won re-election by default when his main challenger dropped out of a planned runoff after the first balloting in August was marred by allegations of fraud.
Levin said that while he wanted to be “hopeful” that Karzai would take steps to weed out corruption, “I’m also skeptical.”
Levin commended Pakistan’s leaders for turning more of their attention from their conflict with India to the Taliban and al-Qaeda fighters sheltering near the other border with Afghanistan. Pakistan’s army and its citizens have “taken some very severe losses” in fighting the militants, he said.
“They’ve got a way to go,” Levin said.
He also praised India, saying leaders had shown “restraint” in dealing with “fanatics” who crossed over the border from Pakistan.
On the economy, Levin said Geithner has been “very helpful” on finding ways to support automakers to preserve the industry.
Tighter Regulations
The broader financial crisis has demonstrated the need for tightening regulations on Wall Street, Levin said. He called the Obama administration’s recommendations “very significant.”
“I think the failure to move forward on those reforms in the Senate is the Republican resistance to some of those proposed reforms from the administration, not Democratic resistance,” Levin said.
He also praised proposals for changes from Connecticut Democrat Christopher Dodd, chairman of the Senate Banking Committee.
Dodd “has put forth a very significant reform of Wall Street,” Levin said. “It is long overdue.”
To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net
Last Updated: November 20, 2009 15:28 EST
Thursday, November 12, 2009
The American Economy in One Easy Chart
The chart below shows that interest rates have been decreasing by approximately 0.5% every 2 years. Put simply; As the price of debt becomes cheaper, more is created and then spent, and that effectively is the economy.
In 1981 the 30 year bond which is a good approximation for mortgage rates, was yielding 14% today it yields 4%. Mortgages will be slightly higher as it is perceived that it is safer to lend to a bankrupt Government than the public.
The interest rate has dropped over the last 30 years because the Fed has constantly dropped the short term Fed funds rate and we are now at 0%. The longer dated bonds will follow, as the 30 year Bond chart above very clearly shows,!! it is simply maintaining the yield curve.
Considering that virtually all lending by the banks is SECURED in some way on property. As secured lending accounts for well over 90% of all consumer lending. By constantly dropping interest rates, in line with the trendline above or 0.5% every 2 years, you will GUARANTEE A CONTINUOUS HOUSING BOOM.
Which is exactly what we have had for the last 30 years.
That is until the market runs ahead of itself and then crashes WHICH HAS NOW HAPPENED, or until you reach the ZERO BOUND position of 0% interest rates WHICH HAS NOW ALSO HAPPENED.
The economy is 70% based on the consumer, and the consumer has been trained over the last 30 years, just like Pavlov dogs to expect ever decreasing interest rates and attendant increasing property prices. However the Fed have a problem: They have no more food for the dogs, as they are now at 0%.
When you look at the chart above, have the Fed actually been setting interest rates? Or have they simply been adjusting them, to maintain the downward sloping trend line of the 30 year bond?
In the good old days as soon as the consumer creaked the rallying call went out DROP INTEREST RATES. The theory being if he/she can afford 50,000 of debt at 10% then he/she can afford 100,000 of debt at 5% !!! the 50,000 of new debt money will be spent in the economy and can be booked as “Growth”.
The Consumer is tapped out, so now the Government has taken over the perpetual debt machine, as they are the only big debt spender left in town.
The so called economy is nothing more than a consumption Ponzi Scheme. That has needed continuous feeding with a diet of ever decreasing interest rates and ever increasing consumer debt to survive. When you take on a loan they only lend you the PRINICIPAL they do not loan you the INTEREST, so either more debt is created by continually dropping interest rates, to cover this interest. Or you make the population bigger, more people entering the perpetual debt machine and taking on debt, hence all the immigration over the last 10 years. Whatever happens the total debt outstanding made up of Government, Consumer and Corporate debt. Must I repeat MUST get bigger or the system implodes. PONZI SCHEME!
Now we are at the 0%, and this gigantic Ponzi scheme of an economy has been exposed for what it really is nothing more than an elaborate financial PONZI SCHEME, there is no plan B. Apart from the Government spending lots of freshly printed Dollars therefore devaluing the purchasing power of all existing Dollars, Ultimately, it will be death by inflation.
By Ceri Shepherd
As seen on The Market Oracle
www.trendinvestor.info
http://trendinvestor.blogspot.com/
© 2009 Copyright Ceri Shepherd - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
The interest rate has dropped over the last 30 years because the Fed has constantly dropped the short term Fed funds rate and we are now at 0%. The longer dated bonds will follow, as the 30 year Bond chart above very clearly shows,!! it is simply maintaining the yield curve.
Considering that virtually all lending by the banks is SECURED in some way on property. As secured lending accounts for well over 90% of all consumer lending. By constantly dropping interest rates, in line with the trendline above or 0.5% every 2 years, you will GUARANTEE A CONTINUOUS HOUSING BOOM.
Which is exactly what we have had for the last 30 years.
That is until the market runs ahead of itself and then crashes WHICH HAS NOW HAPPENED, or until you reach the ZERO BOUND position of 0% interest rates WHICH HAS NOW ALSO HAPPENED.
The economy is 70% based on the consumer, and the consumer has been trained over the last 30 years, just like Pavlov dogs to expect ever decreasing interest rates and attendant increasing property prices. However the Fed have a problem: They have no more food for the dogs, as they are now at 0%.
When you look at the chart above, have the Fed actually been setting interest rates? Or have they simply been adjusting them, to maintain the downward sloping trend line of the 30 year bond?
In the good old days as soon as the consumer creaked the rallying call went out DROP INTEREST RATES. The theory being if he/she can afford 50,000 of debt at 10% then he/she can afford 100,000 of debt at 5% !!! the 50,000 of new debt money will be spent in the economy and can be booked as “Growth”.
The Consumer is tapped out, so now the Government has taken over the perpetual debt machine, as they are the only big debt spender left in town.
The so called economy is nothing more than a consumption Ponzi Scheme. That has needed continuous feeding with a diet of ever decreasing interest rates and ever increasing consumer debt to survive. When you take on a loan they only lend you the PRINICIPAL they do not loan you the INTEREST, so either more debt is created by continually dropping interest rates, to cover this interest. Or you make the population bigger, more people entering the perpetual debt machine and taking on debt, hence all the immigration over the last 10 years. Whatever happens the total debt outstanding made up of Government, Consumer and Corporate debt. Must I repeat MUST get bigger or the system implodes. PONZI SCHEME!
Now we are at the 0%, and this gigantic Ponzi scheme of an economy has been exposed for what it really is nothing more than an elaborate financial PONZI SCHEME, there is no plan B. Apart from the Government spending lots of freshly printed Dollars therefore devaluing the purchasing power of all existing Dollars, Ultimately, it will be death by inflation.
By Ceri Shepherd
As seen on The Market Oracle
www.trendinvestor.info
http://trendinvestor.blogspot.com/
© 2009 Copyright Ceri Shepherd - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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