Natty Gas Tumbles on Huge Storage
NEW YORK (AP) – Natural gas prices tumbled Thursday after the government reported the U.S. is using so little that it has more in storage now than at any other time on record.
The report was welcome news for homeowners who heat their homes and cook their meals with natural gas. Suppliers already have cut rates in many parts of the country as stockpiles ballooned above the five-year average, and a continued drop in natural gas prices should convince others to cut prices as well.
Natural gas for November delivery fell 34.7 cents, or 7.2 percent, to $4.494 per 1,000 cubic feet on the New York Mercantile Exchange.
The Energy Information Administration reported Thursday that underground aquifers and caverns in the lower 48 states stored 3.589 trillion cubic feet of natural gas last week, topping the previous all-time high of 3.545 trillion cubic feet set on Nov. 2, 2007. Government records go back to 1975.
Analyst Steven Schork said supplies have grown so much that the U.S. is nearing its storage capacity for natural gas. If that happens, producers could dump more of it on the open market, dropping prices even more.
But Peter Beutel at Cameron Hanover said prices have dropped so low this summer that they’ll likely spring back as winter approaches.
“We’ll start drawing down those supplies,” Beutel said “especially if it’s cold and the economy starts to pick back up.”
Elsewhere, oil prices fell because of a stronger dollar, and government and industry reports suggested a swift recovery wasn’t likely for the American economy.
Benchmark crude for November delivery gave up 38 cents at $70.23 on the Nymex. In London, Brent crude lost 50 cents at $68.57 on the ICE Futures exchange.
Reports by the Commerce and Labor departments said that while consumer and construction spending grew in August, the number of people claiming first-time unemployment benefits increased more than expected last week.
Although the Institute for Supply Management’s index of manufacturing activity showed a second straight month of growth in September, the reading was well below what analysts expected.
The mixed economic news helped equities markets start the fourth quarter on a sour note. The Dow Jones industrial average lost about 152 points in morning trading, and the Standard & Poor’s 500 index gave up 20, down about 2 percent.
At the pump, retail gas prices fell by a penny overnight to a new national average of $2.469 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular gas is 13.8 cents cheaper than last month and $1.15 cheaper than the same time last year.
In other Nymex trading, gasoline for November delivery fell less than a penny to $1.7472 a gallon, and heating oil lost 1.84 cents at $1.814 a gallon.
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By Cordell Eddings
Oct. 1 (Bloomberg) — Treasury 30-year bond yields fell below 4 percent for the first time since April as reports showed jobless claims increased, manufacturing declined and inflation remains subdued.
Bonds rallied as signs recovery from the worst slump since the Great Depression will be slow prompted traders to reverse bets that yields would increase before tomorrow’s monthly employment report. The Labor Department may say that job losses last month totaled 175,000, according to a Bloomberg survey. The Treasury announced plans to sell $78 billion of notes and bonds over four consecutive days next week.
“We are not in the double dip-camp, but there are still headwinds for the economy,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney. “There is a ton of money on the sidelines. Investors are feeling more comfortable with interest-rate risk and are moving out on the curve.”
The yield on the 30-year bond fell 11 basis points, or 0.11 percentage point, to 3.94 percent at 1:31 p.m. in New York, according to BGCantor Market Data. That’s the lowest level since April 29. The 4.50 percent security due in August 2039 rose 2, or $20 per $1,000 face amount, to 109 23/32.
The 10-year note yield touched 3.18 percent, the lowest level since May 21. The Standard & Poor’s 500 Index fell 2 percent.
Inflation Data-Driven
The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent from the previous month and was up 1.3 percent from a year earlier, the smallest year-over-year gain since September 2001. Spending by U.S. consumers climbed 1.3 percent in August, Commerce Department figures showed in Washington.
“The 30-year falling below 4 percent was driven from the inflation data,” said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Group AG. “There were a number of investors expressing short positions in the long bond, banking that Fed policy would have to be more aggressive, but the inflation data continues to argue that we’ll have no inflation for longer. The 30-year bond’s yield can decline further as the curve flattens.” Investors cover shorts when they buy an asset to cover wrong-way bets it would fall…..
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New Bill Introduced For Renewable Energy
U.S. Senators John Kerry (D-MA), Chairman of the Foreign Relations Committee, and Barbara Boxer (D-CA), Chairman of the Committee on Environment and Public Works, today introduced the Kerry-Boxer legislation to create clean energy jobs, reduce pollution, and protect American security by enhancing domestic energy production and combating global climate change.
Called the Clean Energy Jobs and American Power Act, the bill could help the U.S. cut carbon pollution and stimulate the economy by creating millions of jobs in the renewable energy sector.
“This is a security bill that puts Americans back in charge of our energy future and makes it clear that we will combat global climate change with American ingenuity. It is our country’s defense against the harms of pollution and the security risks of global climate change,” Sen. Kerry said. “Our health, our security, our economy, our environment, all demand we reinvent the way America uses energy. Our addiction to foreign oil hurts our economy, helps our enemies and risks our security. By taking decisive action, we can and will stop climate change from becoming a ‘threat multiplier’ that makes an already dangerous world staggeringly more so.”
Some of the renewable energy and energy efficiency sections of the bill are listed below
- Section 161. Renewable Energy. Directs EPA to establish a program to provide grants and other assistance to renewable energy projects in states with mandatory renewable portfolio standards.
- Section 162. Advanced Biofuels. Directs EPA to establish a program to provide grants for research and development into advanced biofuels
- Section 163. Energy Efficiency in Building Codes. Requires the EPA Administrator to set a national goal for improvement in building energy efficiency.
- Section 164. Retrofit for Energy and Environmental Performance. Establishes the Retrofit for Energy and Environmental Performance Program to provide allowances to States to conduct cost-effective building retrofits.
A major strength of the bill, according to Environment California, is that it preserves and builds on the Clean Air Act’s protections, which will enable America to move to wind, solar, and other clean energy technologies by requiring the nation’s fleet of old and inefficient coal-fired power plants to eventually meet modern air pollution standards.
“This bill is a good beginning,” said Bernadette Del Chiaro, clean energy advocate with Environment California. “It is the first of many steps toward a cleaner, healthier, and safer world.”
In addition, the bill also improves on legislation passed by the House in June by aiming to cut global warming pollution from large polluters 20 percent by 2020. This comes just a week after the release of a sobering United Nations report concluding that the impacts of global warming are arriving faster than the world’s scientists had predicted just two years ago.
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CIT Board Scrambles To Forge a Plan
NEW YORK (Reuters) – CIT Group Inc’s (CIT.N) board was meeting Thursday to consider a restructuring plan for the struggling commercial lender, a source familiar with the matter said.
Under the terms of a rescue loan CIT received in July, Thursday is the deadline for the company to come up with a restructuring plan agreeable to lenders.
On Wednesday, sources close to the situation said the company would offer its unsecured debt holders two options — either exchange their debt voluntarily or face a prepackaged bankruptcy.
CIT declined to comment on Thursday. The source who reported the board meeting declined to be identified because talks are not public.
CIT shares were down 6 cents, or 5 percent, at $1.15 in midday trading on the New York Stock Exchange.
Its bonds were mixed. The 7.625 percent bond due 2012 was the most actively traded, rising 1.5 cents to 66 cents on the dollar, according to MarketAxess…..
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CNBC Reports F Sales Down 8.9%
DETROIT (Reuters) – Ford Motor Co (F.N) said on Thursday its U.S. auto sales fell 5 percent in September from a year earlier as demand slumped off in part due to the end of the U.S. government’s “cash for clunkers” incentive program.
For the third quarter, Ford said sales for its core Ford, Lincoln and Mercury brands were up 5 percent, the only quarterly sales gain for a major automaker in the U.S. market.
Ford, the only U.S. automaker to have avoided bankruptcy, is targeting a return to profit by 2011 and has been gaining market share at a time when industry-wide sales remain weak.
The company has said it expects industry-wide sales in September to be near 9 million to 9.5 million units on the annualized and adjusted basis tracked by analysts, near the low point for sales that the U.S. market hit in February….
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U.S. Standing in the World Sinks To Pre Cold War Levels
WASHINGTON — The United States’ standing in the world declined in the past decade to below Cold War levels, according to a leading group of political scientists.
Favorable attitudes have risen sharply under President Barack Obama with his commitment to “restore American standing,” but confidence in him appears to be in conflict with unfavorable attitudes about U.S. foreign policy, the American Political Science Association said in a report released Thursday.
“Many American leaders and citizens worry that this decline, despite a recent upturn, may be part of a long-term trend, one that will be hard to reverse,” the report said.
While Obama has raised American esteem, he has not produced more European troops for Afghanistan, secured concessions from North Korea nor made any headway with Iran, the academics said.
Twenty political scientists worked on the report for more than a year. Two of them dissented from the conclusions, saying that “political bias affects perceptions” and that “the academic community, unbalanced as it is between self-identified Republicans and Democrats, is not immune to such bias.”
The dissenters, Stephen D. Krasner of Stanford University and Henry R. Nau of The George Washington University, said U.S. standing is heavily influenced by political bias in the United States and political attitudes in foreign countries. Krasner was director of policy planning at the State Department under President George W. Bush.
The findings are based on analyses of public opinion surveys, votes in the U.N. General Assembly and the expert judgment of specialists in the field of comparative geopolitics, said Peter J. Katzenstein of Cornell University, a former president of the association……
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By Emily Chasan
NEW YORK (Reuters) – If struggling U.S. commercial lender CIT Group Inc were to collapse it would be a “drastic mistake” as the small businesses that rely on it would have few alternate sources of funding, turnaround experts said at the Reuters Restructuring Summit this week.
“I have a great fear of the collapse of CIT and that people don’t understand the ramifications of what that can be,” Lynn Tilton, chief executive of distressed investment firm Patriarch Partners said, adding she believed any collapse would result in millions of job losses at smaller U.S. companies.
“I think it would be a very, very drastic mistake in this country to allow CIT to go under,” Tilton said.
CIT is planning to offer its unsecured debt holders an option to either exchange their debt voluntarily or face a pre-packaged bankruptcy, sources close to the situation said on Wednesday.
Shares of CIT fell 40 percent on Wednesday on fears that however the company rights itself, be it with a debt exchange or bankruptcy, equity holders will get little. But if those options do not work, there is unlikely to be any company able to fill CIT’s shoes, the experts said.
“Over 80 percent of our workforce lies in small and mid-size companies, and yet there is absolutely no credit available to these companies,” Patriarch’s Tilton said.
“Large banks, who have been able to find their way back from the abyss, are not making these loans, and the regulators on the ground are telling them not to make these kinds of loans. It is not the best use of their capital. They are high risk. They are small. It takes a lot of energy. And our smaller regional and community banks are on the cusp of failure.”
And while CIT’s need to restructure has been telegraphed for months, retailers and other small businesses, which are particularly reliant on their funding, appear to have done little to prepare for a collapse, said Cory Lipoff, an executive vice president at Hilco Merchant Resources who works with distressed retailers.
“Everybody has adopted a wait-and-see attitude,” Lipoff said. “Everybody is uncertain and cautious, but nobody is taking any actions right now,” Lipoff said at the summit.
Part of the issue for retailers and other businesses that rely on CIT for loans, is that it remains unclear how a bankruptcy would affect their contracts, turnaround experts said. If CIT goes through a pre-packaged bankruptcy, or ends up with deals to sell some units, their loan contracts might not change at all. If its bond exchange is successful, there may also be no change.
“My partner went out and talked to retail lenders (about CIT)… and the message that came back is ‘We’re just going to wait and see how this all plays out over the next 60 days,'” Lipoff said.
Few financial companies have survived bankruptcy, but CIT believes its customers will continue to borrow from it even if it is reorganizing in bankruptcy court, the sources said.
But the lurking possibility of a free-fall bankruptcy could actually be useful to CIT in gaining support for its plans at this stage, another turnaround expert said.
“Clearly CIT is negotiating in the shadow of bankruptcy,” said Corinne Ball, the attorney at Jones Day who led Chrysler through its bankruptcy earlier this year. Ball said the threat of bankruptcy can push the company’s stakeholders to more “productive discussion” about what course to pursue and force bondholders to think about what they would get if the company were to fail.
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WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke told Congress Thursday that the central bank is “well suited” to oversee colossal financial companies whose failure could endanger the entire economy.
But he was silent on the issue of the Fed losing some of its consumer protection duties, after previously criticizing the Obama administration for its plan to strip the central bank of some of those powers.
Testifying before the House Financial Services Committee, the Fed chief said only that protecting consumers from abusive practices involving mortgages, credit cards and other financial products is “vitally important.”
In past appearances on Capitol Hill, Bernanke has laid out a spirited defense that the Fed should keep those powers. The administration wants to create a consumer protection agency for risky financial products.
Rep. Melvin Watt, D-N.C., was stunned by what he thought was Bernanke’s short shrift to the consumer protection issue. “Five sentences on consumer protection when everything else gets substantially more space,” Watt said. “It is just not a good message to send.”
Bernanke did lay out a case for the additional power over so-called “too big to fail” financial companies, which could include insurance companies, hedge funds and others beyond the big banks traditionally overseen by the Fed. In fielding questions, Bernanke said the “focus” in that regard should remain on financial firms, rather than on other types of companies.
As part of a sweeping rewrite of the nation’s financial rule book, the administration has proposed tapping the Fed to regulate those companies, and Bernanke said the central bank has the expertise to best carry out those duties.
For both accountability and effectiveness, that power is “best vested with a single agency,” Bernanke said. “I believe that the expertise we have developed in supervising large, diversified and interconnected banking organizations … makes the Federal Reserve well suited to serve as the consolidated supervisor.”
To police the broader U.S. financial system for risks, Bernanke supported a council of regulators do that job — also in line with Obama’s proposal.
All financial regulators, Bernanke said, should step up day-to-day oversight and have a big-picture approach in this area.
“To further encourage a more comprehensive and holistic approach to financial oversight, all federal financial supervisors and regulators — not just the Federal Reserve — should be directed and empowered to take account of risks to the broader financial system,” he said.
Bernanke said potential risks monitored by the council could include significant increases in leverage at companies and gaps in regulatory coverage that can arise when new financial products are created.
His endorsement of a council to police risk isn’t a shift in his stance, Bernanke said. “There has been some misunderstanding … we support a council … we never objected to a council,” he said.
Both Democrats and Republicans have been loathe to give the Fed additional powers. They argue that the central bank failed to spot problems that led to the financial crisis in the first place.
“We have had debate and will have further debate about exactly what the role of the Federal Reserve will be in the systemic risk regulation. There were some, myself included, who earlier this year thought the Federal Reserve would have a larger role than it looks like it will have,” said committee chairman Barney Frank, D-Mass.
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Stocks slipped after disappointing data blew in from the Windy City via a weaker than expected Chicago PMI report. See also Chicago PMI Freezes the Bulls. Maybe markets simply needed to CIT (CIT)�(-45%) down amid signs a seven month rally is entering the September of its years. More likely investors were unnerved by The Boss gracing an AARP Magazine cover on the day ADP announced monthly private sector payrolls plunged 254,000. Still, the Dow did post its biggest third quarter gain since the outbreak of World War II and October, notwithstanding ’29 and ’87, is invariably less ominous for equities than popularly perceived.
Life on Mars is again being discussed but the death-knell has started for Saturn after Penske Automotive (PAG) pulled the plug on investment. After the close Bank of America (BAC) announced a departure beyond everybody’s Ken while today sees Accenture (ACN) and Constellation Brands (STZ) report results. Brace also for a battery of economic data including weekly jobless claims, August personal income and spending and ISM’s September Manufacturing Index.
Initiations
Auto Parts Companies: Barclays puts O’Reilly Automotive (ORLY) in the driver’s seat with an Overweight, while AutoZone (AZO) and Advance Auto Parts (AAP) will hope slow and steady wins the race after the broker initiated each with Equal-Weight.
Casinos: Soleil initiates casino companies Las Vegas Sands (LVS) (Buy; $20 target), MGM Mirage (MGM) (Hold; $13) and Wynn Resorts (Hold; $80). For more on these names, see Casino Stocks Are a Bad Bet.
AFLAC (AFL):�The AFLAC duck may have wished for more to crow about after Sandler O’Neill starts with a Hold ($46 target).
Upgrades
Alcoa (AA): The aluminum company, which kicks off earnings season next week, is boosted by Deutsche Bank (Buy from Hold). The broker cites an improving near-term outlook in aluminum allied to ebbing financial risk.
PMC-Sierra (PMCS): J.P. Morgan upgrades PMC-Sierra to Overweight from Neutral and takes its target up $2 to $11.50.
Big Lots (BIG): Closeout retailer Big Lots looks for a big bounce after an upgrade to Overweight at JP Morgan, which notes most of its products are aimed at non-consumable categories.
Downgrades
Microsoft (MSFT): It’s hardly bye-bye for Microsoft but it is cut to Buy from Conviction Buy by Goldman Sachs. See today’s article Why Microsoft’s Downgrade Doesn’t Matter.
Saks (SKS): Another Saks (Inc.) could be more five and dime than Fifth Avenue today after a downgrade (Neutral from Overweight) at JP Morgan.
PMC-Sierra: In contrast to Morgan, Goldman sees PMC-Sierra heading downhill and lowers the stock to Neutral from Buy.
Agilent (A): The stock gets downgraded to Market Weight from Overweight over at Thomas Weisel.
BMC Software (BMC): JP Morgan reduces its BMC Software rating to Underweight from Neutral and establishes a objective of $30.
Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.
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TER Gives Upward Guidance
NORTH READING, Mass. (AP) — Teradyne Inc., a chip maker, on Thursday raised its third-quarter guidance due to improving conditions in the industry and said it will end temporary salary reductions in the fourth quarter.
Shares rose 72 cents, or 7.8 percent, to $9.97 during premarket electronic trading.
The company now expects to report a profit of 10 cents to 13 cents per share, excluding one-time items, from a previous range of a loss of 2 cents per share to a profit of 2 cents per share.
Analysts polled by Thomson Reuters, on average, predict a profit of a penny per share. Analyst estimates typically exclude one-time items.
Teradyne now expects revenue of $250 million to $260 million, from a prior range of $190 million to $205 million. Analysts predict revenue of $201.5 million.
The North Reading, Mass.-based company said it will end temporary salary reductions implemented in 2008 and 2009 in the fourth quarter.
The company will release third-quarter results in late October.
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Asian Markets Fall as Cap Ex Spending is Expected To Fall
By Shani Raja
Oct. 1 (Bloomberg) — Asian stocks fell for the first time in three days on concern the region’s economic recovery may falter after a Bank of Japan survey showed companies plan to deepen investment cuts.
Fanuc Ltd., Japan’s largest maker of robots, fell 3.1 percent after the central bank’s Tankan report showed companies will cut capital spending 10.8 percent this year. Hyundai Motor Co., South Korea’s largest automaker, slumped 8.1 percent on concern export earnings will be hurt after the won rose against the dollar and Chicago business activity dropped. Advantest Corp. slumped 5.8 percent after Credit Suisse Group AG cut its rating.
“The data is looking a bit more mixed,” said Rob Patterson, who helps manage $3.4 billion at Argo Investments Ltd. in Adelaide. “The rally has been very strong and probably a bit overdone. We need more evidence of an economic recovery and the proof will be in the next earnings results.”
The MSCI Asia Pacific Index declined 1.2 percent to 116.60 as of 7:27 p.m. in Tokyo, following a two-day, 0.6 percent advance. The gauge has surged 65 percent from a five-year low on March 9 as stimulus measures around the world dragged economies out of recession.
Japan’s Nikkei 225 Stock Average sank 1.5 percent, while South Korea’s Kospi Index lost 1.7 percent. Australia’s S&P/ASX 200 Index dropped 0.9 percent. Markets in Hong Kong and China are closed for holidays.
Elpida Memory Inc. sank 8.6 percent in Tokyo after the U.S. vowed to use World Trade Organization sessions to press Japan over subsidies to the chipmaker. In Seoul, shipbuilder Hanjin Heavy Industries & Construction Co. slumped 6.5 percent in Seoul, falling for a second day on concern France’s CMA CGM will cancel new vessels. StarHub Ltd. fell 6.5 percent in Singapore after losing sports-channel broadcast rights.
Business Index
Futures on the Standard & Poor’s 500 Index dropped 0.4 percent. The gauge fell 0.3 percent yesterday after the Institute for Supply Management-Chicago Inc. said its business measure decreased to 46.1 in September, while economists had projected the gauge would rise….
Europe Follows In Asia’s Downside Action
y Andrew Rummer
Oct. 1 (Bloomberg) — European stocks declined after Dow Jones Stoxx 600 Index’s steepest quarterly rally in a decade pushed valuations to the highest level since 2003.
The Stoxx 600 slipped 0.4 percent to 241.47 as of 11:50 a.m. in London, erasing an earlier advance of as much as 0.7 percent.
Oil prices fell below $70 a barrel Thursday after surging overnight on signs U.S. gasoline demand may be improving. Weaker equity markets and gains by the dollar helped push down oil prices.
By midday in Europe, benchmark crude for November delivery was down 78 cents at $69.83 in electronic trading on the New York Mercantile Exchange.
The contract jumped $3.90 to settle at $70.61 on Wednesday after the Energy Information Administration said U.S. gasoline stockpiles unexpectedly dropped 1.6 million barrels last week from the previous week.
Analysts had expected a jump of 1.2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
The EIA also said demand for gasoline over the four weeks ended Sept. 25 was 5.4 percent higher than last year.
“Gasoline demand continues to improve,” Barclays Capital said in a report. “We see the global market adjustment as remaining on track for a slow and steady soft landing for both prices and quantities.”
Barclays said it expects crude to average $76 a barrel in the fourth quarter and $85 next year.
Other inventory data was less encouraging. Crude supplies grew more than expected last week, according to the government report, and they have now swelled to 11.4 percent above what they were last year.
Analysts said a multitude of U.S. economic data to be released Thursday and Friday – weekly jobless claims, pending home sales, construction spending, auto sales and non-farm payroll data, among others – could push and pull on prices.
“We are not ready to have a conviction in any trends,” said Olivier Jakob of Petromatrix in Switzerland. “Further violent moves can be expected but the recent ranges are likely to remain respected.”
In other Nymex trading, gasoline for November delivery fell 1.97 cents to $1.7319 a gallon, and heating oil lost 2.23 cents to $1.8101 a gallon. Natural gas retreated 7.2 cents to $4.769 per 1,000 cubic feet.
In London, Brent crude fell 77 cents to $68.30 on the ICE Futures exchange.
The Dollar Ticks Slightly Higher Against Most Major Currencies
Thursday during early deals, the US dollar edged up against its European, Swiss and Japanese counterparts ahead of various economic reports, which are due in the upcoming North American session. Elsewhere, the US currency pared its Asian session gains against the pound.
The Bureau of Economic Analysis is due to release its personal income & outlays report for August. Economists estimate the report, which is due out at 8:30 am ET, to show that personal income rose 0.1% and the personal spending increased 1.1% in the month.
At the same time, the Labor Department is due to release its customary weekly jobless claims report for the week ended September 26th. Economists estimate claims to have fallen to 535,000 in the week.
The results of the manufacturing survey of the Institute for Supply Management, are due out at 10 am ET. Economists expect the index to show a reading of 54 for September.
The Commerce Department’s construction spending report to be released at 10 am ET is expected to show a 0.2% decline in spending for August.
Data on Pending Home Sales, is due out at 10 am ET. The index is expected to rise 1% in August.
The US dollar advanced to 1.0435 against the franc and a 2-day high of 1.4552 against the euro during Thursday’s early European deals, with 1.049 and 1.446 seen as the next upside target levels. The dollar-franc pair closed yesterday’s deals at 1.0364 and euro-dollar pair at 1.4642.
On the economic front, the Eurostat said the seasonally adjusted jobless rate for the Eurozone inched up to 9.6% in August from 9.5% in July. That was the highest rate since March 1999. It also matched economists’ expectations. A year ago, the rate of unemployment was 7.6% in August.
There were 15.165 million people out of work in the euro area in August. The jobless rate for EU27 stood at 9.1% in August, up from 9% in July. That was the highest rate since March 2004.
From Switzerland, data released by Credit Suisse said today that the Swiss SVME purchasing managers’ index or PMI rose for the seventh month in September, suggesting growth in the private sector output,.
The PMI climbed to 54.3 in September from 50.2 in August. Economists had forecast a reading of 51. The PMI has remained above the 50-point growth threshold for two successive months. The index last exceeded this level in June 2008, before Switzerland slipped into recession.
The US currency edged up against its Japanese counterpart during Thursday’s early trading. At about 2:50 am ET, the dollar-yen pair hit as high as 90.18, which may be compared to Wednesday’s close of 89.72. The dollar may likely find resistance near the 91.3 level, if it moves up further…..
China’s PMI Rises On Stimulus Spending
By Bloomberg News
Oct. 1 (Bloomberg) — China’s manufacturing expanded at the fastest pace in 17 months in September on stimulus spending and this year’s record growth in new loans.
The Purchasing Managers’ Index rose to a seasonally adjusted 54.3 from 54.0 in August, the Federation of Logistics and Purchasing said today in an e-mailed statement in Beijing. The latest number was lower than the median estimate of 55 in a Bloomberg News survey of 13 economists. A reading above 50 indicates an expansion.
China, which is marking 60 years of Communist Party rule today, has pledged to maintain stimulus policies to create jobs, maintain social stability and strengthen the recovery of the world’s fastest-growing major economy. A manufacturing index released by HSBC Holdings Plc yesterday also showed an expansion in September as a 4 trillion yuan ($586 billion) stimulus package countered a slump in exports.
“Manufacturing is likely to keep climbing steadily as investment, production and retail sales all rebound further and exports bottom out,” said Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai. Lu estimates China’s economy may grow 9 percent this quarter, up from 7.9 percent in the previous three months.
China’s stock markets were closed today for a public holiday…..
China Can Not Satisfy its Voracious Appetite… Is This Dollar Diversification ?
China’s sovereign wealth fund is spending more money on oil, purchasing 11% of a Kazakh oil producer for $939 million, the Wall Street Journal reports.
China’s investment strategy is to purchase real estate and oil companies and invest with hedge funds and money managers.
The nation’s various oil companies have been gobbling up oil like crazy, as we detailed here, spending close to $13 billion in the past year.
With all these purchases comes a backlash. Iraq might not let China participate in the next rounds of bidding on its oil fields because China is owner of an oil field in Northern Iraq’s Kurdistan region. China wants to bid on Nigerian oil, but the government is wary, since it will adversly affect Western companies.
This is why China is only making an 11% investment in the company. If it does too many big blow deals it could scare everyone off.
IMF Raises 2010 Growth Estimates
By Sandrine Rastello and Timothy R. Homan
Oct. 1 (Bloomberg) — The International Monetary Fund raised its forecast for global growth next year as more than $2 trillion in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II.
The Washington-based IMF said the economy will expand 3.1 percent in 2010, more than a July forecast of 2.5 percent. China’s economy will grow 9 percent and India’s 6.4 percent. That compares with growth of 1.7 percent in Japan, 1.5 percent in the U.S. and 0.3 percent in the euro region.
Days after President Barack Obama and other leaders declared that the Group of 20 is now the main forum for steering the global economy, the forecasts show emerging Asian nations powering the return to growth. The IMF, whose members are gathering in Istanbul for next week’s annual meeting, warned that the recovery would be “weak by historic standards” and said restoring banks to health remains a priority.
“The global economy appears to be expanding again, pulled by the strong performance of Asian economies and stabilization or modest recovery elsewhere,” IMF said in its semi-annual World Economic Outlook. Still, the rebound will be “sluggish, credit constrained and, for quite some time, jobless.”
European stocks gained, with the Dow Jones Stoxx 600 Index adding 0.5 percent to 243.74 at 8:20 a.m. in London.
Crisis ‘Not Over’…..
Brit Bailouts For Lloyds & RBS Flowed To Ireland
By Ian Guider and Andrew MacAskill
Oct. 1 (Bloomberg) — Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, rescued by British taxpayers last year, injected 3.03 billion euros ($4.4 billion) into their Irish units during the past 10 months amid rising real estate losses.
Records in Dublin’s Companies Registration Office show the two banks made a series of six payments, with the first in December and the most recent in August. RBS injected about 1.58 billion euros, while Lloyds sent 1.45 billion euros.
“The scale of that figure is quite shocking,” Brian Lucey, associate professor of finance at Trinity College Dublin, said in an interview. “They weren’t leaders in the Irish market. The figure just shows the level of clean-up needed.”
British banks invested in Irish real-estate developers at the height of the “Celtic Tiger” boom and are now writing down investments amid the worst property slump in western Europe. RBS, 70 percent government-controlled, and Lloyds, 43 percent taxpayer-owned, were bailed out by Chancellor of the Exchequer Alistair Darling with 37 billion pounds ($59 billion) of public money 12 months ago.
The Irish bailout’s sterling cost is 2.8 billion pounds, more than the 2.6 billion pounds spent by British taxpayers on military operations in Afghanistan last year, according to House of Commons Defence Committee figures. This year’s Afghan costs are forecast to be 3.5 billion pounds….
Europe’s Unemployment Rises To 9.6%
By Emma Ross-Thomas
Oct. 1 (Bloomberg) — Europe’s unemployment rate rose to the highest in more than 10 years in August as companies continued to cut jobs even as the region’s largest economies emerged from recession.
Unemployment in the 16-member euro region increased to 9.6 percent from 9.5 percent in July, the European Union statistics office in Luxembourg said today. That’s the highest since March 1999 and matched the median forecast from a Bloomberg survey of 23 economists.
The German and French economies both emerged from the recession in the second quarter and the euro-area economy probably followed in the third, according to the European Commission. Rising unemployment may be an obstacle to the recovery, including in Germany, where the government has been offering temporary subsidies to maintain payrolls.
“With these short term schemes starting to expire, the only thing to expect is for unemployment to continue increase going into next year,” said Martin van Vliet, senior economist at ING Bank. “They are postponing the damage.”
German unemployment remained unchanged at 7.7 percent while Spain’s jobless rate rose to 18.9 percent and Ireland’s increased to 12.5 percent, today’s report showed.
“The risk of unemployment is still hanging in the air so consumers will continue to retrench on spending,” van Vliet said.
The euro declined against the dollar today, and was down 0.4 percent at $1.4582 as of 10:44 a.m. in London….
CSCO Buys Tandberg ASA of Norway
OSLO (AP) – Cisco Systems Inc. says it has agreed to buy Tandberg ASA, a Norwegian company that makes hardware for video conferences, for $3 billion.
Cisco, the world’s largest maker of computer networking equipment, said Thursday it offered 153.50 kroner ($26.50) per share of Tandberg’s stock, an 11 percent premium on Wednesday’s closing share price.
Tandberg said in a statement that the proposal was recommended by a unanimous vote of its board of directors. The acquisition is expected to close in the first half of 2010.
The company’s shares rose 11 percent to 153.80 kroner ($26.50) in morning trading in Oslo.
Tandberg employs 1,500 people globally, with joint headquarters in Oslo and New York.
Comcast Rumored To Buy GE’s NBC Unit
NEW YORK/PARIS (Reuters) – Comcast Corp, the largest U.S. cable service provider, denied a Web report on Wednesday that it had struck a deal to buy media conglomerate NBC Universal for $35 billion.
But Comcast, which normally does not comment on takeover rumors, stopped short of quashing widespread speculation that it was interested in NBC Universal, which is owned by General Electric and Vivendi SA.
A spokesman for Vivendi had no comment on the report and said the French media group had an annual window from Mid-November to early-December to exercise a put option on its stake in NBC Universal.
Vivendi shares were indicated up 1.7 percent in Paris.
When asked if it was looking at NBC Universal, a Comcast spokesperson declined comment.
The Wrap.com reported late Wednesday that Comcast is in talks to buy NBC Universal from GE, and that bankers for both sides met in New York Tuesday to hammer out deal points…..
Small Business Loan Delinquency Rise
By James B. Kelleher
CHICAGO (Reuters) – Delinquencies among small and medium-sized U.S. businesses on the loans, leases and lines of credit they use to finance investment in capital equipment rose in August, PayNet Inc reported on Thursday.
Accounts in moderate delinquency, or those behind by 30 days or more, rose to 4.40 percent in August from 4.36 percent in July, said PayNet, which provides risk-management tools to the commercial lending industry.
Accounts 90 days or more behind in payment, or in severe delinquency, improved modestly, slipping to 1.51 percent in August from 1.52 percent in July. But those that were 180 days behind, or considered to be in default, rose to 0.81 percent in August from 0.78 percent in July.
The report is the latest to suggest the U.S. economy, which slipped into recession in December 2007, is experiencing a patchy rebound.
“The recovery that seems to be under way for large corporations and the stock market and certain parts of the economy doesn’t seem to have arrived yet for these companies,” said Bill Phelan, president and founder of Skokie, Illinois-based PayNet.
Separately, PayNet said its small business lending index, which had risen in June and July, fell at an annual rate of 20 percent in August.
“It’s too early to call it a trend,” Phelan said. “But it’s a little disheartening because this kind of activity is a leading indicator for gross domestic product.”
PayNet collects real-time loan information, such as originations and delinquencies, from more than 225 leading U.S. capital equipment lenders.
The company’s proprietary database encompasses more than 15 million current and historic contracts, worth $645 billion.
More than half the money invested in plants, equipment and software in the United States in any given year is financed with loans, leases and lines of credit.
GM & Penske Talks Breakdown With Saturn Unit Ending Up To Be Shut Down
DETROIT (AP) – For those who expected General Motors’ once-funky Saturn brand to live on with a new owner, there has been a sad twist. Saturn, once billed as a different kind of car company, appears as dead as Pontiac and Oldsmobile.
At the brand’s 350 remaining dealers around the country, there were high hopes that a deal would be announced for GM to sell the brand to former race car driver and auto industry magnate Roger Penske.
Instead, Penske Automotive Group Inc. announced Wednesday it is walking away from the deal, unable to find a manufacturer to make Saturn cars when GM stops producing models sometime after the end of 2011. GM then announced it would stop making Saturns and soon would close down the brand, just like it did with Oldsmobile in 2004 and soon will do with Pontiac.
The day’s events mean an almost certain end to Saturn, a brand that was set up in 1990 to fight growing Japanese imports. Instead of celebrating a rebirth, the announcements sent dealers scrambling for ways to stay open and preserve about 13,000 jobs….
Ken Lewis To Retire By Year End
By DAN FITZPATRICK and JOANN S. LUBLIN
After fighting to keep his grip on the bank he helped build from a scrappy Southern outsider to the nation’s largest in assets, Bank of America Corp. Chief Executive Kenneth D. Lewis said he will resign by year end.
The 62-year-old Mr. Lewis, who has led the Charlotte, N.C., bank since 2001, notified the board of his decision Wednesday. A person close to him says Mr. Lewis was fed up with the criticism that haunted him following the takeover of Merrill Lynch & Co. The board had told Mr. Lewis it wanted to know how long he planned to stay. He indicated that he would stay through 2010, this person said, but he changed his mind during a vacation to Aspen, Colo., in late August. One sign to company insiders that something was up: Mr. Lewis returned to work after Labor Day in a full beard, which no one at the bank had ever seen before. He shaved it off after one day.
AFP/Getty Images
Ken Lewis testifies on the use of TARP funds before the House Financial Services Committee on Feb. 11, 2009.
Mr. Lewis was initially hailed as a hero for swooping in to buy Merrill on the same weekend last September when Lehman Brothers Holdings Inc. collapsed. He soon may face civil securities charges from New York Attorney General Andrew Cuomo over disclosures of Merrill’s bonus payments and ballooning losses shortly before the takeover was completed in January.
“I will simply say that this was my decision, and mine alone,” Mr. Lewis wrote in a farewell memo to employees.
Bank of America said its board plans to name a successor for Mr. Lewis by the time he leaves, but no one has been chosen yet. The directors likely will seriously consider outside candidates for the CEO spot, though they might be able to fill Mr. Lewis’s void internally…..
Wall St Wizadry Allows Them To Hold Less Capital on The Books For The Same Assets
By LESLIE SCISM and RANDALL SMITH
A new wave of financial alchemy is emerging on Wall Street as banks and insurers seek to make soured securities look better. Regulators are pushing back, saying the transactions don’t have enough substance and stand to benefit bankers and ratings firms.
The deals come as Wall Street firms, buoyed by surging markets, are seeking to profit from the unwinding of the complicated securities that helped fuel the credit crisis. Regulators, meanwhile, are struggling to prevent a recurrence of the crisis.
The popular deals are known as “re-remic,” which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Street firms separate the good from the bad. The good mortgages are bundled together and create a security designed to get a higher rating. The weaker securities get low ratings.
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The net result is financial firms’ books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction.
Some state insurance regulators worry that current ratings are flawed — perhaps even too harsh — for determining the capital that should back up residential-mortgage securities. But they are chafing at the re-remic strategy. That’s partly because of the fees and partly because re-remics rely on ratings firms — faulted for failing early on to identify problems with mortgage-backed bonds — to rate the new securities.
At hearings Wednesday on Capitol Hill focused on the ratings firms, U.S. Rep. Dennis Kucinich (D-Ohio) raised concerns about the mounting number of re-remics, saying, “The credit-rating agencies could be setting us up for problems all over again.”
New York and some other key regulators are considering an alternative to re-remics that doesn’t entail insurers paying millions in fees to investment banks and the ratings firms; they also have debated possibly unfavorable accounting treatment for the re-remic deals.
Regulators would like “a lot fewer dollars” paid to Wall Street, as well as “less reliance on the ratings agencies,” said Kermitt Brooks, first deputy insurance superintendent in New York. The state is an important voice on financial matters at the National Association of Insurance Commissioners, or NAIC.
The alternative solution, proposed by trade group American Council of Life Insurers, calls for hiring an analytical firm with expertise in residential mortgage-backed securities to help regulators determine the value of deteriorated holdings on insurers’ books, bypassing the ratings providers. This firm would help size up potential losses and how much capital the insurers need to hold.
The re-remic accounting treatment, meanwhile, is expected to be taken up at a meeting of NAIC regulators in December.
It is unclear how big a concern this is for banking regulators. Alabama Deputy Banking Superintendent Trabo Reed said he has seen only a few examples of re-remics. His concern is that banks engaging in this practice account for it correctly…..
More Write Downs Are Coming This is Just One Angle
By JAMES R. HAGERTY
Banks and loan investors are starting to bite the bullet and lower the principal due on home mortgages for some struggling borrowers, a new report from bank regulators shows.
That’s good news for some homeowners, but may portend more write-offs over the next few years for banks and other lenders now wading through hundreds of thousands of applications for loan modifications. The tradeoff for banks is that by taking the hit now they can boost their chances of being repaid.
Banks and loan servicers modify loans primarily by reducing interest rates or extending the term of the mortgage. These methods can temporarily help borrowers struggling to make payments without requiring lenders to lower the principal owed. Now, in a small but growing number of cases, banks are going further and writing off some of the loan altogether.
Part of this is due to prodding from the Obama administration, which has made saving homeowners from foreclosure a cornerstone of its economic-rescue strategy. The administration in March announced plans aimed at helping as many as nine million households struggling with mortgage debt through loan modifications or refinancings. The plans include financial incentives for mortgage-servicing firms that modify loans.
At the same time, banks now have more flexibility to modify loans because of their success in stabilizing their balance sheets and, in some cases, raising fresh capital. Banks can afford “to take the pain up front,” said Kevin Fitzsimmons an analyst at Sandler O’Neill & Partners LP in New York. “If they want a legitimate chance of salvaging something out of the loans, they are better off taking the loss now.”…… Full OCC Report
By CASSELL BRYAN-LOW
LONDON — U.K. authorities, having failed to negotiate a settlement with BAE Systems PLC, are pursuing corruption charges against Europe’s largest defense contractor.
The U.K. Serious Fraud Office, which investigates complex crimes, said Thursday it plans to press charges against the British firm. The SFO still needs to obtain consent from Attorney General Patricia Scotland to pursue the criminal charges.
The SFO has been investigating potential bribes paid by BAE to win contracts in various countries, including Czech Republic, Romania, South Africa and Tanzania.
A BAE spokesperson wasn’t immediately available for comment.
The development marks a renewed push by British authorities to reach a conclusion to a highly controversial case that has dragged on for five years and cost millions of pounds to investigate.
In 2004, the SFO launched an investigation into whether bribes had been paid by BAE to Saudi officials to secure a massive fighter-jet deal, known as the Al Yamamah contract, with the government of Saudi Arabia. The British government halted the Saudi investigation in late 2006 citing national-security concerns, which sparked outrage in Britain and rebukes from other Western countries, including the U.S.
The U.S. Department of Justice is conducting its own investigation into the Saudi deal.
Do You Really Know what is On Your Banks Balance Sheet ?
That the FDIC had to raise its estimate for coming losses to $100 billion makes it plenty clear that the state of American banking is far from healthy. But what’s scary is not the eye-popping number, it’s the lack of insight anyone has into bank balance sheets.
Jonathan Weil at Bloomberg hits the nail on the head:
There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.
It failed last week.
Georgian’s clean-up will be unusually costly. The book value of Georgian’s assets was $2 billion as of July 24, about the same as the bank’s deposit liabilities, according to a Federal Deposit Insurance Corp. press release. The FDIC estimates the collapse will cost its insurance fund $892 million, or 45 percent of the bank’s assets. That percentage was almost double the average for this year’s 95 U.S. bank failures, and it was the highest among the 10 largest ones.
The obvious worry is that there are a lot more Georgian Banks out there than anyone realizes. Granted, if the FDIC can raise 3-years worth of fees by borrowing forward from its member banks, we can handle a lot of Georgian Banks. And in the end, handling smallish, regional banks isn’t going to prove to be a major systemic problem, even if there are several of them.
What’s scary is that this level of opacity likely extends upwards to the ranks of the too-big-to-fail institutions that can’t be rescued merely by making depositors whole. As the story about JPMorgan’s (JPM) Jamie Dimon — sitting in his office, examining the bank’s CRE exposure by zipcode suggests — even most of the banks have no idea what they’re holding. How oculd regulators?
JPM’s Economic Indicator Points to More Good Times to Come
One of JP Morgan’s preferred equity market indicators is their Economic Activity Surprise Index (EASI). It uses trailing data from the previous 6 weeks to gauge whether analysts are currently too optimistic or too pessimistic. As you can see in the latter half of 2008 analysts became overly bearish which resulted in the current environment that can only be characterized as “better than expected” run amok. The pendulum has swung to the other side now as analysts are now beginning to catch-up. We’ve seen it in recent housing data and in yesterday’s Chicago PMI data. It’s likely that this morning’s ISM will also reflect the overly optimistic trend.
JP Morgan continues to view the EASI as a bullish indicator, but we are beginning to view it more as a contrarian indicator. Such indicators are better trend following indicators rather than leading indicators. Currently, it looks like that trend is beginning to run into some resistance as the economic data begins to come up short of expectations. As for earnings my preliminary research says we likely have at least one more quarter of “better than expected” earnings before the analyst community gives the “all clear” and begins to get far too optimistic about future expectations.
Source: JP Morgan
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