Daily Digest

Daily Digest - May 26

Wednesday, May 26, 2010, 10:40 AM
  • Moody’s Reiterates U.S. Spending Risks Credit Rating
  • Debt Crisis Spills Into Spain, Propels Dollar
  • Hedge Fund Goes From $5 Billion to $300 Million
  • Freddie Mac Portfolio Grows, Delinquencies Mixed
  • DiNapoli says New York Racking Up More Debt
  • Cash-Hungry Governments Worry Miners
  • Crisis in Europe Spurs Sales of U.S. Gold Coins
  • Southern Europe's Markets Are All In Bear Territory (PIIGS)
  • Illinois House Again Rejects Borrowing Pension Money
  • New Pension Figures Could Cost City $165M More (Baltimore)
  • More Singaporeans Investing In Gold As The Price Of Gold Increases

Economy

Moody’s Reiterates U.S. Spending Risks Credit Rating

The U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce projected record budget deficits, according to Moody’s Investors Service Inc....The government’s finances have been “substantially worsened by the credit crisis, recession, and government spending to address these shocks,” Moody’s analysts lead by Steven A. Hess wrote. “The ratios of general government debt to GDP and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa-rated countries.” Debt to revenue has more than doubled over the past three years and is now over 400 percent, which could lead to “potential stress” on finances, the report said.

Debt Crisis Spills Into Spain, Propels Dollar

On Tuesday, the Italian and Danish governments paved the way for spending cuts, while Queen Elizabeth II laid out the U.K.'s austerity plan. European countries are slashing budgets in hopes of convincing investors that they can manage their debt loads. "If there was a doubt about it, there isn't any more. The European debt crisis is not simply a Greek phenomenon," said Marc Chandler of Brown Brothers Harriman in New York.

Hedge Fund Goes From $5 Billion to $300 Million

London Diversified Management LLP, a hedge-fund firm that managed $5 billion at the beginning of 2008, shrunk to just $300 million over two years, after the performance of its flagship fund tumbled and investors pulled out money. The financial crisis wiped hundreds of billions of dollars from the hedge-fund industry, and smaller hedge-fund firms in particular have struggled to recover.

Freddie Mac Portfolio Grows, Delinquencies Mixed

Freddie Mac (FRE.N), the No. 2 U.S. home finance agency, said on Tuesday its portfolio grew in April for the first time in 2010 after the Federal Reserve concluded its buying of mortgage securities in March. The levels of home loans with late payments were mixed in April but remained above year-ago levels, suggesting persistent strain on home-owners due to high unemployment and a slow recovery of the real estate market, the company's latest monthly portfolio data showed.

DiNapoli says New York Racking Up More Debt

New York state is on the brink of racking up more unsustainable debt, state Comptroller Thomas DiNapoli warned on Tuesday.....The proposed borrowing would be used to cover operating expenses and help close the state’s $9.2 billion deficit. “When you borrow to close budget gaps, there’s nothing to show for it but the billions taxpayers pay out each year—no roads, no schools, no bridges,” DiNapoli said. “It’s time to put aside borrowing proposals and move forward with a budget that recognizes New York’s fiscal reality. Every day of delay is just more wasted time.” The state currently has $60.4 billion of debt—a number projected to grow 11 percent by 2014, even if the state doesn’t borrow a penny this year.

Cash-Hungry Governments Worry Miners

While politics and mining are often intertwined, the mining industry is becoming more of a focus for governments, especially given the resurgence in metal prices since the recent recession. An example is the proposed new 40-per-cent “super profits tax" on mining resources now being proposed by the Australian government. The tax would increase effective mining tax rates from about 40 per cent to more than 55 per cent, according to analysts and some company estimates. Governments around the world are watching whether Australia’s tax is passed, which could then empower them to follow suit. Meantime, miners are threatening to pull projects in Australia, worried in part about possible “taxation contagion."

Crisis in Europe Spurs Sales of U.S. Gold Coins

Sales of gold coins by the U.S. Mint have risen to their highest levels since December 2008, with coin dealers reporting that business is booming thanks to demand from investors unnerved by Europe's sovereign-debt problems and a sharp decline in stock markets. So far in May, the U.S. Mint has sold 158,000 one-ounce 2010 American Eagle bullion coins, according to the agency's website. This is already more than double the full-month total of 65,000 for May 2009.

Southern Europe's Markets Are All In Bear Territory (PIIGS)

Italian, Portuguese and Irish stock markets joined Spain and Greece in bear market territory Tuesday, as markets across the Continent suffered through another heavy wave of selling pressure in moves that have become almost commonplace over the past few weeks. Stocks across the so-called PIIGS region -- an unloved acronym that refers to the five countries that makeup the troubled second tier of euro-zone members -- are down more than 20% from highs reached in April, with the exception of Greece, which hit its bear market earlier.

Illinois House Again Rejects Borrowing Pension Money

The Illinois House has again rejected a plan to borrow money so the state can make its annual contribution to government retirement programs. The vote makes it more likely that Illinois will delay its $3.7 billion payment to the troubled pension funds, or even skip it entirely. Officials say losing that money would cost the pension systems $20 billion in interest and revenue in years to come. Pension executives say they would have to sell assets to keep making monthly payments to retirees. Illinois leaders are trying to figure out how to meet the state's obligations despite a $13 billion deficit.

New Pension Figures Could Cost City $165M More (Baltimore)

New numbers in the ongoing pension reform debate in Baltimore city show that if the current system isn't changed soon, the city will have to contribute $165 million more to the fund by July. Retired police and firefighters are in line to get an increase in benefits, despite the budget crisis and a pension system that's badly underfunded, and supporters said that's why pension reform is so urgent.

More Singaporeans Investing In Gold As The Price Of Gold Increases

More Singaporeans are jumping on the gold bandwagon. As the price of gold increases, banks are also reporting a 70 per cent spike in sales of gold coins and gold bars. Interest in the gold futures market is equally high. A one kilogramme gold bar now costs fetches over S$50,000 in the market. And according to some banks, the rising gold prices have led to increased interest in one ounce gold coins and the 100-gramme gold ingots. This resulted in a 70 per cent increase in sales over the past month.

11 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4149
Re: Daily Digest - May 26

"May 25 (Bloomberg) -- Democrats in California’s Assembly proposed selling $9 billion of bonds backed by beverage recycling fees and a new tax on oil production they say can be passed without a two-thirds vote to help ease a $19 billion deficit.

Under the plan proposed by Assembly Speaker John Perez of Los Angeles, the state would sell as much as $8.9 billion of bonds backed by the unclaimed redemptions on recyclable beverage containers. Another $900 million a year would be raised with a so-called severance tax on oil taken out of the ground in California. "

"On Wednesday, Germany’s debt managers failed to raise the full €7 billion from investors scheduled, ending up selling only €5.4 billion in bonds with the rest being retained.

The problem: The country is forcing investors to accept a measly interest rate of 1.47% for five-year bonds compared with the 2.2% rate at the last similar auction. The 1.47% is right around current market levels."

"The average yield rose to 3.701 percent from 3.498 in the previous auction of the same maturity in February. Demand exceeded supply by 1.8 times, the same as in the previous sale."

"The Greek tourism industry, which was hoped to contribute to the country's recovery, is in crisis. Hundreds of hotels are for sale, and visitor numbers are in sharp decline. The cash-strapped government is hardly in a position to help.

The season got off to a late start this year. It is mid-May, there is bright sunshine in the skies over Greece, and Dimitris Fassoulakis is standing on the abandoned terrace of his hotel on the southern coast of Crete. The lobby and the restaurant are empty, and there is no one in the pool. "Pick a spot," says the manager, spreading his arms widely.

Fassoulakis' bungalows complex Valley Village, which is located on the green outskirts of Matala, a former hippie bastion, has 70 rooms and more than 200 beds, only eight of which are occupied at the moment. The vacation season in Crete normally begins in early April, sometimes even at the end of March. But this year the hotelier has only just opened his doors, with 50 of the 210 days in the season already gone before it has even begun."

..................4A) Greece Faces Debt Restructuring or Default, Mundell, Hanke Say

"May 26 (Bloomberg) -- Nobel Prize winning economist Robert Mundell said debt restructuring may be “inevitable” in parts of the euro area and Steve Hanke, the architect of currency regimes from Argentina to Estonia, warned a Greek default may become unavoidable.

Mundell, who won the economics prize in 1999, predicted debt restructuring for “one or two” euro nations within five years. Hanke of Johns Hopkins University said Greece’s “death spiral” will end in default if debt obligations can’t be renegotiated."

"Public spending cuts and tax rises in advanced economies are required by next year at the latest to deal with “very unfavourable government debt dynamics”, the Organisation for Economic Co-operation and Development warned on Wednesday."

"May 26 (Bloomberg) -- Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, and Malaysia are among issuers delaying bond sales as Europe’s debt crisis sent emerging market borrowing costs to near their highest since September. "

"May 26 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross said restrictive lending rates and austerity measures that slow growth may leave default as the “only way out” for some sovereign borrowers when it comes to dealing with growing debt burdens and deficits.

“Credit and equity market vigilantes are wondering if in many cases sovereigns haven’t already gone too far and that the only way out might be via default or the more politely used phrase of ‘restructuring,’” Gross wrote in his June investment outlook today on the Newport Beach, California-based company’s website. “It may not be possible for a country to escape a debt crisis by reducing deficits.” "

"(Reuters) - Germany's push for an orderly insolvency process for indebted euro zone states suggests Berlin is assuming the worst: that one of its peers -- most likely Greece -- will default on its debt repayments.

But by pressing for a process to deal with a potential default, Chancellor Angela Merkel and her finance minister are showing they want to hold the euro zone together rather than eject deficit sinners."

(This was posted at Nathan's Economic Edge)

"Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says. "

jobs

  •  Other news and headlines:

'Critical' Fannie Mae, Freddie Mac Need More Aid, Report Says

Roubini Says Markets Show Greece May Fail on Budget

Sweden faces mortgage loans hangover: report

Britons face £50000 gap in their pensions

World. Banks may need $1.5 trillion in capital

NYSE: Margin Debt Rose 6.3% In April, Hit 19-Month High

Government debt servicing rises 14% to P365 billion in first 4 months (Philippines)

Czech Voters May Hinder Budget Cuts With Stalemate

With Medicaid, states face painful cuts and few choices

Rhode Island lawmakers hoping for federal Medicaid aid to plug deficit

Growing Homelessness in America

In real money, British house prices are down by 70%

Venezuela Seizes 8 Brokers in Foreign Currency Investigation  and Venezuelan Recession Deepened After Electricity Cuts

In graphics: Eurozone in crisis

Spain to levy new tax on rich: PM

Sundstrom: city is 'going broke' (Grand Rapids)

Home Prices Show Renewed Weakness, Dropping 3.2% in Q1

calledoutin08's picture
calledoutin08
Status: Member (Offline)
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Posts: 15
Re: Daily Digest - May 26

Thanks again to all on this site and a special Thank You to my favorite contributer Saxplayer for your hard work! I appreciate all that you do. I must also thank Mr. Martenson for allowing a broke person like myself to subscribe for free, after my E-mail sent more then a year ago asking him and staff to think about the people that do not have the rescources to pay for the subscription to this site. A great BIG THANK YOU to all of you!!!!!!!!!!!!

crash_watcher's picture
crash_watcher
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Posts: 146
Re: Daily Digest - May 26

CNBC’s “Squawk Box” recently interviewed of Ron Kruszewski, CEO of Stifel Financial, on the topic of banning naked short selling in Germany. http://www.cnbc.com/id/15840232/?video=1499127225&play=1

 Although the whole interview was interesting, what caught my ear in particular was, at about 2:30 min, the question was asked: Isn’t naked short selling, as related to common stocks, already illegal in the US, or, is that not longer operational? 

 Kruszewski replied:

 No, it is operational in the cash market, in the cash market you can not short my stock, for example, unless you can borrow it and take delivery or make delivery—in the derivatives market that does not apply, and that’s the big difference.  You can create a short interest in a stock that is theoretically multiple times the cap of that stock with no obligation to deliver.  That’s naked short selling and it is done in the derivatives market every single day.  

 Max Keiser picked up on this in his May 25 show (3:00 min) and commented: “what he is pointing out here is that the derivatives market is ripe for counterfeiting.”

ReginaF's picture
ReginaF
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Posts: 93
Re: Daily Digest - May 26

Ban to pay by  Cash Money over a specific sum in various European States approved by EU.

The European Union had made an legal approval, that banning of paying by cash is ok. F.E. in Greece since April you can only pay in cash up to 1.500 € and since yesterday in Italy only up to 5.000 €

http://www.ecb.europa.eu/ecb/legal/pdf/en_con_2010_36.pdf

For cultural explanation in contrast to the US  a lot of people here are not so used to pay  by credit card and prefer to pay by bank card (EC-Card) or cash. For example, 2 years ago I was the only one who had a credit card to pay flights and so on at the internet within my not so small circle of friends and collegues; now a few more had a card. Ten years ago I payed my new car completly in cash - what a good feeling!

I really don't like this ban!

Greetings from Germany

Regina

John99's picture
John99
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Posts: 490
Re: Daily Digest - May 26

Thanks Saxplayer, appreciate your efforts.

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
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Posts: 4149
Re: Daily Digest - May 26

Thanks John99 and calledoutin08 !

Rick Santelli just mentioned this on CNBC, so here it is:

"China, which boasts the world’s largest foreign exchange reserves, is reviewing its holdings of eurozone debt in the wake of the crisis that has swept through the region’s bond markets.

Representatives of China’s State Administration of Foreign Exchange, or Safe, which manages the reserves under the country’s central bank, has been meeting with foreign bankers in Beijing in recent days to discuss the issue.

Safe, which holds an estimated $630bn of eurozone bonds in its reserves, has expressed concern about its exposure to the five so-called peripheral eurozone markets of Greece, Ireland, Italy, Portugal and Spain.

Any move by Safe would mark a significant change in direction, as Beijing has been trying to diversify away from the US dollar in recent years by buying a greater proportion of assets denominated in other currencies.

One investor said: “This is a big strategic shift. Last year, the Chinese were trying to reduce their exposure to dollar assets by buying eurozone assets. This would be a complete reversal.”"

 

(Also on Financial Times):

"Britain and France were at odds with other European Union countries on Wednesday over plans to insure against future bank failures, in another sign of the problems in trying to forge a common response to the bloc’s economic woes.

Michel Barnier, EU internal market commissioner, set out plans for member states to form national funds to help wind up or reorganise failing banks, funded by a levy on the financial sector.

London rejected the idea, arguing it would introduce “moral hazard” and encourage banks to think the levy was an insurance premium that entitled them to help if they got into trouble. French officials said Paris had similar concerns.

But German finance ministry officials said the package appeared to be “moving in the right direction”. Wolfgang Schäuble, finance minister, wanted German banks to pay about €1bn per year into a separate fund to wind down troubled banks."

"May 26 (Bloomberg) -- Prime Minister Silvio Berlusconi said Italy’s planned 24.9 billion euros ($30.4 billion) of budget cuts over the next two years are “absolutely necessary” to defend the euro."

"Berlusconi said that while public spending that accounts for about half of GDP needed to be scaled back, the measures also aim to combat tax evasion and rein in the underground economy. Those steps include requiring the use of credit cards, checks or other traceable means for any transactions of more than 5,000 euros. "

  • A couple other headlines:

 More Cities on Brink of Bankruptcy (CNBC)

Florida Stops Build America Sales on Subsidy Concerns

middleclassamerican's picture
middleclassamerican
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Targa's picture
Targa
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Joined: Oct 11 2008
Posts: 6
Re: Daily Digest - May 26

Australian government keep investing in residential mortgage-backed securities.

http://www.businessweek.com/news/2010-05-24/australia-to-keep-buying-rmb...

Eye's picture
Eye
Status: Bronze Member (Offline)
Joined: Mar 7 2009
Posts: 88
Re: Daily Digest - May 26

deleted, wrong column.

Hotrod's picture
Hotrod
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Joined: Apr 20 2009
Posts: 183
Re: Daily Digest - May 26

http://soundingcircle.com/newslog2.php/__show_article/_a000195-000205.htm Great article on corporate personhood.

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1891
Re: Daily Digest - May 26
calledoutin08 wrote:

Thanks again to all on this site and a special Thank You to my favorite contributer Saxplayer for your hard work! I appreciate all that you do. I must also thank Mr. Martenson for allowing a broke person like myself to subscribe for free, after my E-mail sent more then a year ago asking him and staff to think about the people that do not have the rescources to pay for the subscription to this site. A great BIG THANK YOU to all of you!!!!!!!!!!!!

Alas, perhaps if I had done as you did, I would not have earned the emnity of others here,

Poet

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