Futures are up on Obama’s Plan to Stop Foreclosures

Obama will unveil his plan @ 12:15 pm today

WASHINGTON (Reuters) – President Barack Obama was set on Wednesday to unveil a plan to stabilize the troubled housing market, a main cause of the economy’s deepening slump.

Fresh from signing into law a sweeping $787 billion fiscal stimulus package, Obama is turning his attention to the housing market, where foreclosures have continued to climb despite earlier initiatives aimed at halting that trend.

The Obama plan will involve government subsidies to mortgage servicers and lenders to encourage them to lower payments for borrowers in distress.

The aim is to bring mortgage payments to a more affordable range of around 31 percent of borrowers’ incomes.

The Obama administration has closely guarded the details of the roughly $50 billion plan but sources familiar with it have made clear it would be bolder than prior efforts to stem foreclosures.

Obama will outline the plan in a speech at a high school in Mesa, Arizona at 10:15 a.m. Mountain time (12:15 p.m. EST). It marks the second day of a two-day campaign-style swing Obama is taking to highlight his economic initiatives.

MBIA is reorganizing

Bond insurer MBIA Inc. started a public finance-only financial-guarantee insurance company, which will operate only in the U.S., as part of its restructuring plan.

The company’s beaten-down shares jumped 15% at $4 in premarket trading. The stock is off 72% in the last year.

Late last year, Moody’s Investors Service cut its debt ratings on MBIA to junk status, citing its exposure to losses on U.S. mortgages and problems in the bond-insurance …

A 45.7 % jump in applications was recorded

Applications for U.S. home mortgages soared last week as fixed mortgage rates dropped below the key 5 percent level, as demand for refinancings surged, an industry group reported on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity jumped 45.7 percent to 875.3 in the week ended Feb. 13.

It was the highest reading since Jan. 16, and coincided with a 0.2 percentage point drop in average 30-year mortgage rates over the past week to 4.99 percent, the MBA said in a statement.

The increase was mostly due to refinancings of mortgages, with the MBA’s index of such loans climbing 64.3 percent to 4,472.9.

The gauge of loan requests for home purchases rose 9.1 percent to 257.3, the MBA said.

Government Debt and Currencies begin to falter< /strong>

Feb. 18 (Bloomberg) — Hungarian, Polish and Czech government debt, among the highest rated in emerging markets, have already been downgraded by bondholders.

Investors are demanding 1.35 percentage points more yield to own Hungary’s bonds than similar-maturity Brazilian debt, which is rated four levels lower by Moody’s Investors Service, JPMorgan Chase & Co. indexes show. The risk of Poland defaulting is about the same as the Philippines, whose credit rating is six levels lower, based on prices for credit-default swaps. The Czech Republic’s 10-year bonds yield the most compared with German bunds since 2001.

Investors who lost 18 percent on emerging-market sovereign and corporate bonds last year based on Merrill Lynch & Co. indexes now face steeper declines in Eastern Europe, said Lars Christensen, head of emerging-market strategy at Danske Bank A/S in Copenhagen. While the region’s integration with the European Union spurred foreign investment earlier this decade, Poland’s currency weakened 42 percent against the euro since August, the Czech economy cooled to the slowest pace in almost 10 years in the fourth quarter and Hungary required a bailout from the International Monetary Fund.

“Everybody is running for the door,” Christensen said. “The markets have decided the central and eastern European region is the subprime area of Europe.”

Increasing Fear

Hungary’s bonds lost nearly 12 percent last year after returning 9.4 percent in 2007 and returns on Poland’s bonds shrank to 1.3 percent from 9.1 percent in the same period, Merrill indexes show. Investors in Romania’s bonds, which are yielding nearly double those of Egyptian debt rated one level lower in non-investment grade, lost more than 12 percent last year, the indexes show.

“The fear of crisis is increasing,” said Ralph Sueppel, chief economist and strategist at London hedge fund BlueCrest Capital Management Ltd., which manages about $2 billion in emerging-market assets.

Emerging Europe will post an average current account deficit of 4.1 percent of gross domestic product this year, more than double the 1.7 percent deficit in Latin America and trailing surpluses in Asia, Africa and the Middle East, according to Citigroup Inc. data on Czech, Poland, Hungary and five other economies the region.

Weaker Currencies

The region’s economies are set to shrink 0.4 percent this year as demand for their exports and commodities falters, from an average 3.2 percent growth in 2008, according to the International Monetary Fund. The IMF granted more than $35 billion in aid to Hungary, Ukraine, Latvia, Serbia and Belarus to avert defaults.

“There is no doubt the countries are struggling with large imbalances and significant currency mismatches,” Christensen said. “The only way for this to go is weaker currencies and a significant slowdown in domestic demand, leading to more balanced economies.”

East European stocks slumped to the lowest level in more than five years yesterday after Moody’s said banks with subsidiaries in the region face rating cuts. Poland’s WIG20 index declined 7.5 percent to the lowest in more than five years, while Romania’s BET index dropped 8.6 percent.

The Hungarian forint weakened to the lowest ever against the euro, the Polish zloty tumbled to a five-year low and the Czech koruna slid to the lowest since 2005. The currencies are among the world’s 10 worst-performers this year against the euro.

As recently as June 2007, Czech 10-year bonds yielded less than German bunds of similar maturity. The securities now yield 1.63 percentage points more, the highest since 2001, according to data compiled by Bloomberg.

Rising Protection Costs

The cost of protecting payment on Poland’s debt has more than doubled this year to 415 basis points, credit-default swaps show. The cost is only 2 basis points more than on contracts linked to the Philippines, which is rated four levels below investment grade by Moody’s, Bloomberg data show.

Prices for the contracts rise as perceptions of credit quality deteriorate. A basis point is equivalent to $1,000 on a contract protecting $10 million of debt.

The extra yield investors demand to own Hungarian sovereign or quasi-sovereign bonds instead of U.S. Treasuries has risen almost three-fold in the past six months to 4.74 percentage points, more than the 4.26 percentage point spread for Brazilian debt, JPMorgan data show.

‘Most Vulnerable’

“Hungary is the most vulnerable.” Frankfurt-based Standard & Poor’s analyst Kai Stukenbrock said in a phone interview. “External leveraging is not as high in Poland. The Czech Republic is the least exposed..”

S&P and Moody’s cut Hungary’s credit ratings in November, after the country struggled to service its short-term debt amid the global financial crisis. Hungary’s rating was downgraded to A3 from A2 by Moody’s and to BBB from BBB+ by S&P. Both ratings companies have “negative” outlooks on Hungary, meaning the country’s grade is more likely to be cut again than raised or left unchanged.

Poland has an A2 rating from Moody’s and an A- rating from S&P. The Czech Republic has an A1 rating from Moody’s and an A rating from S&P. Both ratings have “stable” outlooks.

Messages left for Kenneth Orchard, a senior analyst at New York-based Moody’s, weren’t returned.

NLC gets a boost in as Bershire picks up 8.74 million shares

NEW YORK (Reuters) – Billionaire Warren Buffett’s Berkshire Hathaway Inc reduced stakes in health-care company Johnson & Johnson (JNJ.N) and consumer products company Procter & Gamble Co (PG.N) as he found high-yielding investments elsewhere, and suffered big paper losses by holding onto investments in big U.S. financial companies.

Berkshire (BRKa.N)(BRKb.N) lowered its stake in Johnson & Johnson 54 percent to 28.6 million shares in the three months ended December 31 and reduced its stake in Procter & Gamble by 9 percent to 96.3 million shares.

It also disclosed a new 8.74 million share stake in water treatment services provider Nalco Holding Co (NLC.N), worth $100.8 million as of December 31. Nalco shares rose 6.7 percent after-hours.

Buffett has deployed at least $11.6 billion in the last five months to buy convertible securities, preferred stock and debt issued by General Electric Co (GE.N), Goldman Sachs Group Inc (GS.N), reinsurer Swiss Re (RUKN.VX), jewelry maker Tiffany & Co (TIF.N) and others, all yielding at least 10 percent.

Berkshire’s portfolio of U.S.-listed equities shrank 26 percent in the quarter to $51.87 billion from $69.89 billion.

But the company held onto 290.2 million shares of Wells Fargo & Co (WFC.N), although its value fell 22 percent in the quarter to $8.55 billion, and a 151.6 million share stake in American Express Co (AXP.N), whose value fell 48 percent to $2.81 billion. Berkshire’s stake in U.S. Bancorp (USB.N) fell 7 percent to 67.6 million shares.

Another bloody begins in Asia

Feb. 18 (Bloomberg) — Asian stocks dropped for a third day, dragging Japan’s Topix index toward the lowest close in 25 years, as the deepening global recession hurts demand for commodities and corporate earnings.

Westpac Banking Corp., Australia’s biggest lender by market value, slipped 2.6 percent as a fivefold surge in bad-debt charges dragged quarterly profit lower. BHP Billiton Ltd. retreated 4.3 percent in Sydney after metal and oil prices declined. Sony Corp., which gets a quarter of its sales from the U.S., fell 3.1 percent after manufacturing in New York shrank at the fastest pace on record.

“I’d be very surprised if profit numbers didn’t keep on coming down,” said San Francisco-based Robert Horrocks, who helps manage about $4.7 billion including Asian equities at Matthews International Capital Management LLC. “You’re seeing the ripples from the credit shock, where the medium-term effect on demand is a chronic problem that governments are trying to combat.”

The MSCI Asia Pacific Index declined 0.9 percent to 78 as of 9:53 a.m. in Tokyo, set to close at the lowest level since Nov. 24. Finance and commodity shares were the biggest drag on the gauge, which has lost 13 percent this year. The measure tumbled by a record 43 percent in 2008, as the credit crisis dragged the world’s biggest economies into recession.

Japan’s Topix lost 1 percent to 749.04 and earlier sank to as low as 744.37, which would be the lowest close since January 1984. Hong Kong’s Hang Seng Index dropped 1.3 percent, while Australia’s S&P/ASX 200 Index fell 2.6 percent.

Government Action

Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. The gauge slumped 4.6 percent yesterday as U.S. President Barack Obama signed a $787 billion stimulus bill into law. After U.S. markets closed, General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date it needs to survive.

Governments and central banks have been cutting interest rates and introducing spending packages to reverse the worst global slump since World War II. International Monetary Fund Managing Director Dominique Strauss-Kahn said last week that he expects more countries to apply to the IMF for aid.

The Japanese government, which yesterday appointed Kaoru Yosano as its new finance minister, said two days ago that gross domestic product contracted 12.7 percent in the fourth quarter, the most since the 1974 oil shock. The Federal Reserve Bank of New York’s general economic index sank to the lowest level since records began in 2001, according to a report yesterday.

A gauge of finance companies on the MSCI index dropped 1.4 percent. The finance measure is the second-worst performer in the past 12 months of 10 industry groups as the credit crisis caused losses at institutions worldwide to swell to more than $1 trillion.

‘Volatile’ Conditions

Westpac Banking Corp. declined 2.6 percent to A$16.34 after profit fell 2 percent in the three months to Dec. 31 as bad debts outweighed increased fee income from last year’s purchase of St. George Bank Ltd.

“With global economic conditions continuing to be volatile, operating conditions will remain difficult,” Chief Executive Officer Gail Kelly, said in a statement.

Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, fell 2 percent to 442 yen. Sony Financial Holdings, which cut its profit forecast last week, lost 6.7 percent to 256,000 yen.

The Markit iTraxx Japan index of credit-default swaps, which measures the cost of protecting investors in Japanese corporate bonds from default, rose to a record today, Barclays Capital prices show.

BHP fell 4.3 percent to A$30.36 in Sydney. Rio Tinto Group, the world’s third-largest mining company, dropped 2.4 percent to A$47.86.

Slowing Global Demand

Concern the global economic slump will deepen drove down commodity prices. Crude oil tumbled 6.9 percent to settle at $34.93 a barrel in New York, the steepest drop since Jan. 27. Copper futures slumped 7.2 percent, the most since Oct. 30.

Sony lost 3.1 percent to 1,608 yen on concern global demand for its televisions and video-game consoles will slow further. The company reported a 95 percent plunge in third-quarter profit on Jan. 29. Canon Inc., the world’s biggest digital-camera maker, slid 2.3 percent to 2,310 yen.

“There are looming prospects that corporate earnings will deteriorate even further,” Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television. “We’re getting ever closer to historic lows, and that weighs on investor sentiment as well.”