Corporate Bond Risk Premiums Uptick to Highest Levels in Japan

Default Premiums on the rise again

Feb. 18 (Bloomberg) — The cost of protecting investors in Japanese corporate bonds from default rose to a record on concern company failures will increase as the economy worsens.

The Markit iTraxx Japan index of credit-default swaps on the debt of 50 investment-grade borrowers rose 15 basis points to 585 at 9:50 a.m. in Tokyo, Barclays Capital prices show. The benchmark has jumped more than 200 basis points this month, double the rise on the Asia iTraxx index excluding Japan, according to CMA DataVision.

“People are increasingly risk averse,” said Fumihito Gotoh, head of Japan credit research with UBS AG in Tokyo. “They’re more concerned about cutting downside risk than timing the recovery.”

Japanese Finance Minister Shoichi Nakagawa resigned yesterday amid accusations he was drunk at a Group of Seven press conference, undermining confidence the government can tackle a recession that’s dragged the Nikkei 225 index down by 15 percent this year. Nakagawa’s departure came a day after the Cabinet Office reported the nation’s economy shrank at an annual rate of 12.7 percent last quarter, the most since the 1974 oil shock.

Taiwan’s economy probably shrank at the fastest pace on record last quarter as a slump in exports pushed the island into its first recession since the technology bubble burst in 2001. Gross domestic product plunged 6.82 percent from a year earlier, according to the median estimate of 18 economists surveyed by Bloomberg News. The statistics bureau publishes an economic report at 4.30 p.m. in Taipei today.

Benchmarks Climb

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 10 basis points to 445 at 9:10 a.m. in Hong Kong, according to ICAP Plc. The Markit iTraxx Australia index climbed 15 basis points to 360 at 11:42 a.m. in Sydney, Citigroup Inc. data show.

The Australian benchmark had been trading below 360 basis points since mid-December, according to CMA DataVision.

Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada jumped 14 basis points to 213 yesterday, according to Barclays Capital. In Europe, The Markit iTraxx Crossover Index increased 17 basis points to 1,110, nearing the all-time high of 1,128 reached Dec. 16, according to JPMorgan Chase & Co.

Credit-default swap indexes are benchmarks for protecting bonds against default, and traders use them to speculate on changes in credit quality. The swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.

A basis point, or 0.01 percentage point, is worth $1,000 on a swap protecting $10 million of debt.

Greenspan says the U.S. is doing too little to repair the system

Feb. 17 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said the U.S. may be doing too little to repair its financial system and promote an economic recovery.

President Barack Obama today signed into law a $787 billion economic stimulus package of tax cuts and increased spending. He has also pledged to use the bulk of the roughly $315 billion left in the bank bailout fund approved by Congress last October to revive the battered financial industry.

“The amount of money in both these pots may not be enough to solve the problem,” Greenspan said in an interview before a speech prepared for today to the Economic Club of New York.

“Given the Japanese experience of the 1990s, we need to assure that the repair of the financial system precedes the onset of any major fiscal stimulus,” he said.

“To stabilize the banking system and restore normal lending, additional TARP funds will be required,” he said.

“Unfortunately, the prospect of stable home prices remains many months in the future,” Greenspan said in his speech. “Many forecasters project a decline in home prices of 10 percent or more from current levels.”

“Certainly, by any historical measure, world stock prices are cheap,” Greenspan said. “But as history also counsels they could get a lot cheaper before they turn.”

“The recent rise of long-term interest rates appears to be signaling market concerns about inflationary pressures,” he said. “It could turn out to be the canary in the coal mine.”

GM is asking for $16 billion and plans to layoff 46k workers

Feb. 17 (Bloomberg) — General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date, and must get some of the cash next month to survive. GM plans 47,000 more job cuts worldwide this year.

Chrysler LLC, propped up like GM with federal assistance, said it’s seeking $5 billion more from the government and will shed 3,000 more positions.

The automakers met a deadline today to report progress in revamping operations with $17.4 billion in loans granted so far, and now they must show the U.S. by March 31 that they can become profitable and be allowed to keep the money. Along with Ford Motor Co., they got a boost when the United Auto Workers said it reached tentative agreements to help trim labor expenses.

I do not want to be an alarmist, but I can not help avoid seeing these types of articles build up. Payroll numbers suggest that income is down 10% across the board yet the government wants you to spend more. Is this a policy of economic ruin ?

States are in major trouble with sales tax receipts down where are they collecting money ?

D E E P R E C E S S I O N O R D E P R E S S I O N

Is America Headed for Depression ? Yes No Stock up on guns, gold, & food ! Current Results

States are facing a great fiscal crisis. At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion.

States are currently at the mid-point of fiscal year 2009 — which started July 1 in most states — and are in the process of preparing their budgets for the next year. Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year — which started July 1 in most states. Now, their budgets have fallen out of balance again. New gaps of $51 billion (over 10% of state budgets) have opened up in the budgets of at least 42 states plus the District of Columbia. These budget gaps are in addition to the $48 billion shortfalls that these and other states faced as they adopted their budgets for the current fiscal year, bringing total gaps for the year to 15 percent of budgets.

The states fiscal problems are continuing into the next two years. At least 45 states have looked ahead and anticipate deficits for fiscal year 2010 and beyond. These gaps total almost $94 billion — 16 percent of budgets — for the 36 states that have estimated the size of these gaps and are likely to grow as gaps are re-estimated in the next few months.

Figure 2 shows the size and duration of the deficits in the recession that occurred in the first part of this decade, and estimates of the likely deficits this time. This recession is more severe — deeper and longer — than the last recession, and thus state fiscal problems are likely to be worse.

Unemployment, which peaked after the last recession at 6.3 percent, has already hit 7.6 percent, and many economists expect it to rise to 9 percent or higher, which will reduce state income taxes and increase demand for Medicaid and other services. With consumers’ reduced access to home equity loans and other sources of credit, sales taxes are also likely to fall more steeply than they did in the last recession. These factors suggest that state budget gaps will be significantly larger than in the last recession. Based on past experience and the depth of this recession, it appears likely that all but a handful of states will face shortfalls in fiscal year 2010 and these deficits will end up totaling about $145 billion. If, as is widely expected, the economy does not begin to significantly recover until the end of calendar year 2009, state deficits are likely to be even larger in state fiscal year 2011 (which begins in July 2010 in most states).[1] The deficits over the next two-and-a half years are likely to be in the $350 billion to $370 billion range.[2]

It may be particularly difficult for states to recover from the current fiscal situation. Housing markets may be slow to fully recover; the decline in housing markets has already depressed consumption and sales taxes as people refrain from buying furniture, appliances, construction materials, and the like. Property tax revenues are also affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And as the employment situation continues to deteriorate, income tax revenues will weaken further and there will be further downward pressure on sales tax revenues as consumers are reluctant or unable to spend.

The vast majority of states cannot run a deficit or borrow to cover their operating expenditures. As a result, states have three primary actions they can take during a fiscal crisis: they can draw down available reserves, they can cut expenditures, or they can raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather a significant downturn or recession. The other alternatives — spending cuts and tax increases — can

further slow a state’s economy during a downturn and contribute to the further slowing of the national economy, as well.

This also includes individuals

Americans are going bankrupt at an extraordinary rate. According to the American Bankruptcy Institute, Baby Boomers are filing bankruptcy more than any other group. The ABI gathered data from courts and public records to track bankruptcy filings. The study revealed the percentage of U.S. citizens over the age of 45 who filed for bankruptcy protection increased nearly 30-percent over the past eight years.

The percentage of people going bankrupt rose by nearly 70-percent in 2007. Experts predict an unprecedented record of nearly 1.5 million bankruptcy filings by the end of 2008. Predictions for 2009 are even gloomier, with an anticipated 4.5 million Americans filing for bankruptcy protection.

Economists relate the sharp increase in bankruptcy filings to the mortgage crisis. A large percentage of homeowners with subprime and adjustable-rate mortgages can no longer meet their mortgage obligations.

The decline in home values and instability within the credit industry has all but eliminated the potential for homeowners to use the equity in their home to consolidate debts. Homeowners unable to afford their mortgage payments or obtain home equity loans are being forced into bankruptcy in an effort to save their home from foreclosure.

Additionally, the failure of Fannie Mae and Freddie Mac set off a landslide of consumer panic. Numerous businesses are closing their doors, unemployment rates are skyrocketing, consumer spending has reached an all-time low and bankruptcy filings are going through the roof.

Homeowners who can no longer afford monthly mortgage payments and unable to refinance or obtain a second mortgage are forced into going bankrupt. Part of the problem stems from new bankruptcy laws enacted in 2005, which made filing for bankruptcy protection considerably more difficult and costly.

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was created to prevent consumers from filing for bankruptcy protection caused by frivolous spending habits. Prior to BAPCPA, the majority of consumers filed for Chapter 7. This bankruptcy chapter allows for liquidation of assets and provides debtors with the opportunity for a fresh financial start.

Today, consumers must undergo credit counseling and submit to the ‘means’ test; a tool used to determine the state median income level. Depending on where the debtor falls on the ‘means’ test scale determines how much of their outstanding debts they must repay.

If debtors fall below their states’ median income level they might be allowed to file for Chapter 7 bankruptcy protection. Otherwise, they will be forced into filing Chapter 13 and adhere to a strict repayment which typically lasts for three to five years.

A large percentage of the debtor’s disposable income must be contributed to the repayment plan. In many cases, debtors are unable to adhere to the plan and end up failing out of bankruptcy. When this occurs, the bankruptcy court can elect to allow the debtor to file for Chapter 7 or dismiss their case altogether.

Going bankrupt is never a happy event. It can be stressful and emotionally draining. However, it is important to realize there is life after bankruptcy. It is also important to retain a positive outlook and search for options and solutions to overcome financial hardships.

If you haven’t already done so, now is a good time to thoroughly review your financial situation and determine what went wrong and how you can prevent it in the future.

Simon Volkov is a private investor who offers solutions to people who are going bankrupt. He specializes in foreclosures, probate, promissory notes and bankruptcy alternatives. If you are considering personal bankruptcy visit http://www.SimonVolkov.com today and discover options you may not know existed!

Stimulus bill signed into law

WASHINGTON — President Barack Obama signed into law the most sweeping economic package in decades, a rescue plan designed to create millions of jobs, spur consumer spending and revive the nation’s outlook.

“We’re putting Americans to work doing the work that America needs done,” Mr. Obama said ahead of the signing, citing major new investments in infrastructure, education, health care and energy. The setting for the signing, the Denver Museum of Nature & Science, was meant to underscore the investments the new law will make in “green” energy-related jobs.

The plan, he said, will put the U.S. economy on a firmer foundation. He called it a balanced plan, with a mix of tax cuts and investments, and said he was assigning a team of managers to make sure the money was spent “wisely and well.”

Ahead of Mr. Obama’s arrival in Colorado, the White House went live with a Web site, www.recovery.gov, that will allow people to track where the money is being spent. The White House press office also promoted the projected job growth for each state and congressional district.

Blood pressure drug can also be used to erase memory

LONDON, Feb 15 (Reuters) – A widely available blood pressure pill could one day help people erase bad memories, perhaps treating some anxiety disorders and phobias, according to a Dutch study published on Sunday.
The drug was shown to significantly weaken people’s fearful memories of spiders. The generic beta-blocker propranolol significantly weakened people’s fearful memories of spiders among a group of healthy volunteers who took it, said Merel Kindt, a psychologist at the University of Amsterdam, who led the study.

“We could show that the fear response went away, which suggests the memory was weakened,” Kindt said in a telephone interview.

The findings published in the journal Nature Neuroscience are important because the drug may offer another way to help people suffering from post-traumatic stress disorder and other problems related to bad memories.