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Monthly Archives: May 2011

Art Cashin: Don’t Rule Out QE2.5

“In his daily letter, UBS floor guy Art Cashin looks the prospect of more Fed easing (of some sort) after QE2 officially ends this summer.

QE2 To End? Don’t Rule Out QE 2.5 – The dollar rally is being attributed in no small part to the anticipated end of QE2.

The thesis is that when QE2 ends, the Fed will remain a buyer of U.S. Treasuries but on a somewhat smaller scale. That, it is thought, may allow yields on Treasuries to snug up a bit and that might help the dollar.

The QE2 “enders” cite the speeches by several Fedheads, fretting aloud about latent inflation (although dissenting votes have been quite rare).

But, there’s a silent vote that seems to suggest QE2 may need to be extended. It’s not a Fed President or Governor. It’s the Taylor Rule.

As you may recall, John B. Taylor, in 1993 wrote a paper in which he outlined what became known as the Taylor Rule. The “rule” sets out a monetary policy that suggests how the Fed should adjust rates to meet changing conditions in inflation, GDP and the like.”

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May 24 Morning S&P ratings actions

National Factoring Co. Upgraded To ‘B’ On Positive Performance And Resilience To Market Conditions; Outlook Stable 24-May-2011
09:16 EST

Holly Corp. And Frontier Oil Corp. Ratings Remain On CreditWatch Positive 24-May-2011
08:56 EST

Postal Service Provider Poste Italiane Outlook Revised To Negative After Same Action On Italy; ‘A’ Rating Affirmed 24-May-2011
07:17 EST

Outlook On Cassa Depositi e Prestiti SpA Revised To Negative In Line With Republic of Italy; ‘A+/A-1+’ Ratings Affirmed 24-May-2011
07:14 EST

S&P Revises Outlooks On 12 Italian Local And Regional Governments To Negative After Same Action On Italy 24-May-2011
06:58 EST

Turkish Beverage Group Anadolu Efes Upgraded To ‘BB+’ On Continuous Discretionary Cash Flow Generation; Outlook Positive 24-May-2011
06:13 EST

Various Rating Actions Taken In Spanish SME CLO Transaction FTPYME Bancaja 6 24-May-2011
05:39 EST

Outlook On Four Italian Banks Revised To Negative Following A Similar Rating Action On The Sovereign 24-May-2011
05:21 EST

French Social Security Central Agency, ACOSS, ‘A-1+’ Ratings Affirmed 24-May-2011
05:21 EST

China Glass Rating Raised To ‘B+’ On Improved Capital Structure And Liquidity Position; Outlook Stable 24-May-2011
05:06 EST

Auckland Council Assigned ‘AA/A-1+’ Foreign Currency Ratings On Strong Fiscal Position, Sound Management; Outlook Stable 24-May-2011
01:56 EST

NTT’s Domestic Bonds Rated ‘AA’ 24-May-2011
00:38 EST

Outlooks On Six Brazilian Banks Revised To Positive After Action On Sovereign; Ratings Affirmed 24-May-2011
00:10 EST

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Moody’s: US Commercial Real Estate Prices Sink Past Post Peak Low in March

New York, May 23, 2011 — US commercial real estate prices as measured by Moody’s/REAL National — All Property Price Index (CPPI) fell 4.2% in March, bringing the index down to its lowest level since its peak in October 2007. A recent pick-up in the volume of transactions, however, is a positive sign for the overall commercial real estate market and sets the stage for recovery. A high volume of distressed transactions are weighing on performance, says Moody’s.

In March, there were 182 repeat-sales transactions totaling nearly $2.5 billion, a significant increase by both count and balance over February, says Moody’s. It was second highest number of repeat-sale transactions since 2008, the total only exceeded by that of December, 2010, which benefitted from being the end of the year.

The index is now 47.0% below its October 2007 peak.

“The CPPI continues to bounce along the bottom as a large share of distressed transactions preclude a meaningful recovery of overall market prices at this time,” says Tad Philipp, Moody’s Director of CRE Research. “Indeed, the post peak low in price has been reached in the same period as a post peak high in distressed transactions has been recorded.”

In March nearly one third of all repeat-sales transactions qualified as distressed.

“Given that it may take 12 to 24 months to foreclose on a property and execute an REO sale there is a lag effect that results in fewer distressed transactions coming to market in the early stages of a downturn and an increased level in later stages (i.e., now),”says Moody’s Philipp.

In additional indices published this month, Moody’s quarterly national indices for the four property types all showed declines in first quarter 2011. Industrial recorded the largest decline, at -7.7%, followed by office, -7.1%, apartment, -4.7%, and retail, -4.5%.

In this month’s “From the Lab” section of the CPPI report, Moody’s analysts examine the price performance of major assets in major markets with and without the inclusion of distressed exchanges. Results suggest a trend of recovery in prices for these major assets and markets even when distressed exchanges are included, as these assets and markets outperform the overall CPPI. “This is consistent with liquidity in the commercial real estate sector first returning to prime assets in capital attracting cities,” added Philipp.

The report, “Moody’s/REAL Commercial Property Price Indices, May 2011,” is available on the company’s website, www.moodys.com. In addition, Moody’s publishes a weekly summary of structured finance credit, ratings and methodologies in “Structured Finance Quick Check” at www.moodys.com.

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Upgrades and Downgrades This Morning


ISSI – Integrated Silicon initiated with a Outperform at Northland Securities

TX – Ternium S.A. downgraded to Hold from Buy at Deutsche Bank

MYL – Mylan Labs upgraded to Buy at Argus

ROSE – Rosetta Resources upgraded to Positive from Neutral at Susquehanna

KVHI – KVH Industries upgraded to Buy from Neutral at Merriman

PVA – Penn Virginia upgraded to Buy from Neutral at SunTrust

TEU – Box Ships initiated with a Buy at Lazard

DAC – Danaos upgraded to Buy from Neutral at Lazard

DRC – Dresser-Rand ests and target raised to $64 at Stifel Nicolaus

GLAD – Gladstone upgraded to Hold at Stifel Nicolaus

TIVO – TiVo upgraded to Buy from Neutral at Lazard

VRUS – Pharmasset: Hearing tgt raised to $200 from $100 at JPMorgan


DO – Diamond Offshore removed from Conviction Buy List at Goldman

LUKOY – Lukoil downgraded to Neutral from Buy at Goldman

ARCO – Arcos Dorados initiated with a Neutral at JP Morgan

IM – Ingram Micro downgraded to Neutral from Buy at Goldman

RIMM – Research In Motion downgraded to Hold at Wunderlich

ZIP – Zipcar initiated with a Neutral at JP Morgan

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Gapping Up and Down This Morning

Gapping Up

HSFT +17.6%, SLV +2.1%, NABI +2.3%,CRM +2.2%, BBL +1.8%, TIVO +2.9%, SD +1.8%,  CREE +3.2%, ASML+1.7%, RIO+1.6%, BHP +1.6%, E +1.3%, SI +1.3%, E +1.3%, RDS.A +0.9%, SOLR +13.6%, CISG +5.4%, SNE +4.8%, PWRD +4.4%, SCOK +2.6%, STO +2.5%,

Gapping Down

XL -1.5%, FRO -7.2%, INVE -4.8%, CVI -1.4%

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Nestle Buys Prometheus Laboratories; Giving Them Exposure Into Health Foods

“Nestlethe world’s biggest food group, has agreed to buy U.S. gastrointestinal diagnostics firm Prometheus Laboratories for an undisclosed sum as part of its drive into foods with health benefits.

Nestle said in a statement that Prometheus, which is expected to have annualized 2012 sales of around $250 million, focuses on conditions such as inflammatory bowel diseases, including Crohn’s disease and ulcerative colitis.”

Full article

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NY Attorney General Investigates JPM, UBS, and DB

JPMorgan Chase & Co. (JPM)UBS AG (UBSN) and Deutsche Bank AG (DBK) are being investigated as part of New York Attorney General Eric Schneiderman’s expanded probe of mortgage securitization, according to a person familiar with the matter.

Four bond insurers also were subpoenaed: Ambac Financial Group Inc. (ABKFQ)MBIA Inc. (MBI)Syncora Holdings Ltd. (SYCRF) and Assured Guaranty Ltd. (AGO), according to the person, who couldn’t be identified because the probe isn’t public.

Schneiderman is seeking information on claims paid out during and after the economic crisis and any information or documents related to litigation or settlements with the banks, according to the person. The expanded investigation was reported earlier by the Wall Street Journal.”

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US House Dems urge limits on oil speculators

Washington, 24 May 2011: Reuters

The U.S. Congress should take steps to limit speculation in oil markets, which has boosted prices as much as 30 percent, a new report from the Democratic staff of a House of Representatives oversight committee said on Monday.

The report, based on data and comments from industry experts, cites comments from Exxon Mobil CEO Rex Tillerson and others that oil should be around $60-$70 a barrel based on the fundamentals of supply and demand.

“Addressing excessive speculation offers the single most significant opportunity to reduce the price of (gasoline) for American consumers,” according to the report, prepared for Democrats on the House Committee on Oversight and Government Reform, which has broad oversight of government policies.

The staff report, which also backs other positions championed by minority Democrats including eliminating oil company subsidies, is unlikely to gain much traction in the Republican-controlled House. It argues that Republicans proposals such as steps to boost domestic offshore drilling, would not achieve the goal of reining in $4 gasoline prices.

With national elections next year, members of Congress have been arguing about the best way to combat high gasoline prices, a top concern of voters. While Republicans have focused on increasing domestic oil production, many Democrats have called for cracking down on market manipulation.

“With gas prices skyrocketing to more than $4 per gallon, it is time to stop focusing on advancing the priorities and profits of oil companies and instead find ways to give American consumers relief at the pump,” said Rep. Elijah Cummings, Maryland Democrat, the ranking committee member.

The report says increasing domestic drilling would “impact prices by only about 1 percent.” It cites data from the U.S. Energy Information Administration, saying drilling on the Atlantic and Pacific coasts of the United States would have little impact on global prices by 2020.

The Oversight Committee, chaired by Republican Congressman Darrell Issa, is set hold a hearing on Tuesday on factors affecting gasoline prices in the world’s largest oil consumer.


“In order to make the most significant impact on lowering gas prices, the committee’s primary focus should be on countering the growing impact of excessive speculation, rather than pursuing the oil industry’s priorities of increasing domestic drilling or repealing safety measures put in place after the devastating BP oil spill,” the report said.

Big hedge funds and other speculators had increased their bets on higher prices to an all-time record level at the end of April, according to data from the U.S. Commodity Futures Trading Commission.

Data shows money managers had accumulated contracts equivalent to around 350 million barrels of U.S. crude oil, or four days of global consumption, with a notional value of more than $38.5 billion.

U.S. benchmark crude, known as WTI or West Texas Intermediate , hit a post-2008 high of $114.83 on May 2, before tumbling more than 10 percent in one session three days later.

Many experts said the steep decline on May 5 came as funds liquidated long positions, demonstrating the outsized impact investment flows have on commodity prices.

So far in May, speculative bets on higher oil prices have been reduced by around a quarter, but remain at a level never seen before the start of this year. WTI crude prices have fallen by around 15 percent in May, to trade around $97.50 on Monday. High gasoline prices have cut U.S. President Barack Obama’s approval ratings. He has set up a working group of federal agencies to investigate possible market fraud.

More than a dozen senators, including one Republican, have called on the CFTC to unveil a plan by Monday to impose position limits for speculators in energy futures markets. CFTC chairman Gary Gensler fell short of that goal. In a letter late on Monday to the senators, he said that commission staff will “shortly” complete its review of almost 12,000 comments on the agency’s proposal from January to put position limits on 28 commodities, including crude oil.

“The commission will begin considering a final rulemaking after staff can analyze, summarize and consider comments and after the commissioners are able to discuss the comments and provide feedback to staff,” the letter said.

Gensler did not say in the letter, which was also written on behalf of commissioners Michael Dunn and Scott O’Malia, when a final rule might be issued imposing position limits. Commissioners Jill Sommers and Bart Chilton did not sign on to the letter.

Chilton, an outspoken proponent of position limits, said in a separate letter to the senators late last week that he agreed “wholeheartedly” with their position. “I believe we are fully capable of enacting a position limits rule that does not harm markets, or harm legitimate business activity,” Chilton said.


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Sony’s Music Website in Greece Hacked; Exposing 8k+ Customers

Sony Corp. (6758) said the website of its music unit in Greece was hacked, compromising the personal information of about 8,500 customers registered as fans of its artists.

The third-party operator of Sony Music Entertainment Greece’s website discovered the breach on May 22 and took down the site, Atsuo Omagari, a Tokyo-based Sony spokesman, said by phone today.

The information includes names, e-mail addresses and phone numbers but not credit card data, the spokesman said.”

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German Business Confidence Remains Unch; Helps to Bolster Stock Rise

“German business confidence remained unexpectedly unchanged in May as booming exports and rising company spending boosted economic growth.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, held at 114.2 from April. Economists forecast a decline to 113.7, the median of 24 forecasts in a Bloomberg News survey showed.

A rebound in construction spending, surging company investment and rising exports poweredGermany’s fastest growth in almost a year in the first quarter, data today showed. Still, Europe’s largest economy may struggle to maintain its momentum as euro-region governments toughen austerity measures to lower budget gaps while surging energy costs squeeze incomes.”

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Euro Rises Against Greenback, But Falls Against Yen

“The euro rose against the dollar as German business confidence unexpectedly stayed near a record in May, fueling bets that theEuropean Central Bank will resume raising interest rates even as the debt crisis intensifies.

Europe’s common currency snapped two days of losses against the yen. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, held at 114.2 from April after economists forecast a decline to 113.7. The pound fell versus the euro after Moody’s Investors Service placed U.K. financial institutions on review for downgrades and Britain posted a larger budget deficit than predicted.”

Euro / Dollar article

Euro Yen article

“The euro weakened for a third day against the yen on speculation Europe’s sovereign-debt crisis is worsening and as the region’s industrial expansion slows.

Europe’s common currency approached a nine-week low against the dollar before a report that economists said will show the region’s industrial orders fell in March. The pound fell versus all 16 of its major counterparts after Moody’s Investors Service placed 14 U.K. financial institutions on review for possible downgrade. New Zealand’s dollar rose as company executives raised their expectations for inflation.

“Not only are the sovereign-debt concerns weighing on the euro, there’s the additional headache of weaker data now which is adding to the selling pressure,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “With uncertainty now seemingly pervading the outlook, you’re going to see support for the yen on a safe-haven basis.”

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European Markets Rise on Commodity Gains

“European stocks advanced, with the benchmark Stoxx Europe 600 Index rebounding from a one-month low, as commodities rallied. Asian shares and U.S. index futures increased.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, and Rio Tinto Group, the third largest, both gained 1.7 percent as metal prices rose. Travis Perkins Plc (TPK) climbed 2.8 percent after Jefferies Group Inc. recommended buying the company’s shares.

The Stoxx 600 rose 0.4 percent to 275.74 at 11:53 a.m. in London. The index fell last week after Greek 10-year bond yields climbed to a record and Fitch Ratings cut Greece’s credit rating to B+, four notches below investment grade. The Stoxx 600 yesterday erased its gains for the year afterSpain’s ruling Socialist Party suffered its worst election defeat in 30 years and Standard & Poor’s said it may downgrade Italy’s debt.”

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China’s Market Buck The Upside Commodity trend on Inflation and Slow Growth Fears

China’s stocks fell for a fourth day on concern government measures to cool inflation are slowing the world’s second-biggest economy.

PetroChina Co., the nation’s biggest oil company, lost 1.9 percent after Goldman Sachs Group Inc. cut China’s economic growth estimates. Industrial and Commercial Bank of China Ltd. led declines for lenders after the Securities Times cited investors as saying the central bank may further boost banks’ reserve requirement ratios. China Gezhouba Group Co., which has hydroelectric power projects, rose 2.4 percent as Xinhua News Agency reported China will boost water conservation efforts.

“Investors are concerned about the pace of economic growth after so many measures to cool the economy and the debt crisis in Europe,” said Sun Chao, an analyst at Citic Securities Co., China’s biggest-listed brokerage, in Shanghai. “They are simply selling as they are unwilling to take more risks for now.””

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GS Downgrades China’s GDP Growth

“Goldman Sachs Group Inc. joined banks lowering their forecasts for China’s growth as Premier Wen Jiabao’s campaign to rein in inflation restrains the world’s fastest-growing major economy.

China’s gross domestic product will gain 9.4 percent in 2011, less than a previous call of 10 percent, Goldman analysts Yu Song and Helen Qiao wrote in a note to clients today. Credit Suisse Group AG, JPMorgan Chase & Co., ING Groep NV and Daiwa Securities Group also pared their estimates this month.”

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Oil Bounces After GS and MS Upgrade

“Oil rose in New York after its biggest loss in more than a week, on signs of shrinking crude inventories and as a drop in the dollar heightened the oil’s appeal for protecting against inflation.

Goldman Sachs Group Inc. and Morgan Stanley increased their oil-price forecasts as conflict in Libya prolonged the loss of supplies. An Energy Department report tomorrow may show U.S. crude inventories fell last week. Gasoline demand typically jumps from the Memorial Day holiday as motorists take to the roads for summer vacations. Oil also gained as the dollar weakened versus the euro after data showed Germany’s economy grew at the fastest pace in almost a year.”

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