WILLEM BUITER: ‘Catastrophe’ In Europe Has Been Avoided, But Fear ‘Will Strike Again’

“Citi’s chief economist Willem Buiter gave a tempered assessment of the effects of the European Central Bank’s two three-year LTROs when he appeared on Bloomberg TV this morning (via @lindayueh).

While he emphasized that the ECB’s liquidity actions were the best course of action to address a credit crunch in the banking system, he argued that Europe will still have to face many hurdles—and indeed, more “near-panics”—in the years ahead:

It has bought time. Without actions of this nature there could have been catastrophe. Catastrophe has been avoided, and the collective sigh of relief can still be heard from here to Frankfurt…

Undoubtedly I think before this crisis is over, there will be other episodes of near-panic and paralysis in the markets which will call for the big battalions of the ECB, or the big bazooka to use a metaphor, to be fired. Only the ECB has the big pockets to keep governments funded and the banks funded when fear strikes, and it will strike again. I mean, other sovereigns will restructure in the euro area in the years to come and there’s no doubt that other holes will be discovered in banks’ balance sheets that will have to be filled in a hurry.

As for the U.S., he predicted that the Federal Reserve will embark on more quantitative easing this year if unemployment or economic activity begins to disappoint as the year progresses. However, he argued that this time the Fed should make QE “credit easing” by expanding the kinds of assets it purchases….”

Watch his full interview 

They may have to make some major technological shifts to stay viable before staying competitive…..

“It’s like Thailand was 50 years ago,” Alexandre de Lesseps told me. We were talking about the next big emerging market to bloom in Asia. It may surprise you, but it is one heck of a story… and opportunity. It also fits our grand thesis on emerging markets and is the subject of my upcoming book, World Right Side Up. The country I’m talking about is Myanmar (or Burma, as most people still seem to call it).

I caught up with Alex over the holidays because I remembered his infectious enthusiasm for the country. He is an accomplished investor of frontier markets, those half-forgotten realms on the fringe of the investing world. Alex has been investing in Burma for 15 years as a partner at SPA Capital Partners, working with Serge Pun & Associates. The latter is an investment holding company that has been in Burma since ’91. (And yes, Alex is the great-great-grandson of Ferdinand de Lesseps, the French developer of the Suez Canal, who also oversaw the early construction of the Panama Canal.)

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Romney defeated Santorum in MI and also took Arizona to bolster his front runner status…

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“American Airlines was sued by its pilots’ union, which is seeking to block the airline from rejecting a labor agreement and forcing new employment terms on the union because the contract has expired.

American parent AMR Corp. (AAMRQ) can’t use its bankruptcy case to reject the collective bargaining agreement because the contract expired in 2008, the Allied Pilots Association said in a complaint filed yesterday in U.S. Bankruptcy Court in New York.

American, based in Fort Worth, Texas, filed for bankruptcy in November, saying its cost structure wasn’t competitive with other airlines. Companies can use bankruptcy to reject labor contracts with unions to cut costs….”

Full article

“Goldman Sachs Group Inc. (GS), Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM)are among banks warned by federal regulators that they may face civil claims tied to sales of mortgage-backed securities.

Goldman Sachs and Wells Fargo said yesterday that they received Wells notices from the Securities and Exchange Commission, warning that agency staff may recommend enforcement. The SEC has issued such notices to multiple banks including JPMorgan, the nation’s largest, in probes focusing on mortgage securities, said people with knowledge of the matter who asked not to be identified because the communications weren’t public.

“It’s a big deal given the level of anticipation that has been in the markets about whether there would be further actions,” said Jacob Frenkel, a former SEC lawyer now with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland. “These cases were complicated and time-consuming and the government has said for a long time that its investigations were continuing. These Wells notices are the manifestation of these investigations coming to their conclusion.”

Almost four years after mounting mortgage defaults prompted unprecedented government bailouts of the financial system, regulators are still examining how banks packaged and sold home loans to investors. The SEC is looking for evidence that firms failed to disclose underlying credit weaknesses in mortgage pools and delinquencies, Jason Anthony, special counsel for the agency’s structured products unit, said last week. He didn’t identify companies under scrutiny….”

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A ‘secretive market’ has tripled recently giving investment banks a chance to make money as beneficial as the IPO market.

“The European Central Bank, which today offered lenders a second round of unlimited loans, will help some bank stocks double this year, say top fund managers who successfully bet on the biggest bank rally since 2009.

Italian lenders such as Banca Monte dei Paschi di Siena SpA and Banca Popolare di Milano Scarl will benefit the most from the ECB initiative aimed at helping banks borrow during Europe’s debt crisis, according to Nicolas Walewski, who manages 2 billion euros ($2.7 billion) in European equities at Alken Asset Management LLP. Other top managers from Mandarine Gestion SA and MainFirst Bank AG are betting lenders including BNP Paribas SA (BNP), France’s biggest bank, may rise by as much as 50 percent…”

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“Euro-area banks tapped the European Central Bank for a record amount of three-year cash in an operation that may boost bond and equity markets.

The Frankfurt-based ECB said today it will lend 800 financial institutions 529.5 billion euros ($712.2 billion) for 1,092 days. Economists predicted an allotment of 470 billion euros, according to the median of 28 estimates in a Bloomberg News survey. In the ECB’s first three-year operation in December, 523 banks borrowed 489 billion euros.

“The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy,” said Laurent Fransolet, head of fixed income strategy Barclays Capital in London, who estimates about 300 billion euros of the total is new lending. “So the impact may be bigger than with the first one.”

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Perhaps sugar can be your next trade…..

“Italian and Spanish two-year notes rose as the European Central Bank lent financial institutions more three-year cash than economists predicted, fueling bets the extraordinary loans will be used to buy the nations’ debt.

The advance drove the Italian two-year yield to a 15-month low. The ECB will lend 800 financial institutions 529.5 billion euros ($711 billion) through its longer-term refinancing operation, more than the 470 billion-euro median of 28 estimates in a Bloomberg survey. German bunds were little changed as the country sold 3.26 billion euros of 2022 securities and a report showed unemployment stayed at the lowest in more than two decades last month.

“What we saw after the first LTRO is likely to develop further, with yields falling, and it will be no surprise to see further support for Italian and Spanish bonds,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “Demand was relatively strong and far stronger than the demand we saw in December.”

The Italian two-year note yield fell 24 basis points, or 0.24 percentage point, to 2.20 percent at 11:39 a.m. London time, the lowest rate since Nov. 8, 2010. The 2.25 percent note due November 2013 gained 0.38, or 3.80 euros per 1,000-euro face amount, to 100.095. That’s the first time the price of the securities has climbed to more than 100 cents on the euro.

Spain’s two-year notes advanced for a 10th consecutive day, with the yield dropping 11 basis points to 2.34 percent.

Unlimited Loans

Italy’s government note yields have tumbled about 4 percentage points since the ECB announced its plan to offer unlimited loans for three years on Dec. 8.

“An obvious use of LTRO funding is to purchase government bonds paying higher rates,” Fitch Ratings said in an e-mailed report yesterday. “Sovereign spreads showed a marked decline following the LTRO” in December, it said.

Germany’s 10-year bond yield was at 1.80 percent after fall to 1.78 percent yesterday, the lowest since Jan. 31…”

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“The euro weakened against the dollar after the European Central Bank awarded a second round of three- year loans to banks, increasing the supply of the currency and boosting higher-yielding assets.

The 17-nation currency declined versus all but two of its 16 major counterparts as the ECB said it will lend financial institutions 529.5 billion euros ($713 billion) for three years, surpassing the 470 billion euros forecast by economists. The Australian and New Zealand dollars extended gains after the ECB announcement on speculation part of the cash will be spent on higher-yielding assets.

“There is a chance that the euro will weaken, at least in the near term, on the ground that growing your balance sheets this much and this quickly can’t be good for the euro,” said Kit Juckes, head of currency research at Societe Generale SA in London. “The long-term loan is more positive for high-yielding assets than euro assets.”

The euro dropped 0.2 percent to $1.3430 at 6:41 a.m. in New York, trimming this month’s gain to 2.7 percent. The common currency declined 0.2 percent to 108.11 yen after rising as much as 0.4 percent before the ECB announcement.

The Frankfurt-based ECB said today it will lend the funds to 800 financial institutions. In the ECB’s first three-year refinancing operation in December, 523 banks borrowed 489 billion euros.

Dollar Weakens

The dollar declined against higher-yielding currencies before Federal Reserve Chairman Ben S. Bernanke testifies in Congress today after saying last month that policy makers are keeping open the option to boost bond purchases.

Bernanke said last month the central bank is considering buying more bonds after policy makers extended their pledge to keep the benchmark interest rate at “exceptionally low levels” at least through late 2014. The Fed has engaged in two rounds of asset purchases, totaling $2.3 trillion in so-called quantitative easing….”

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The ECB had a range of 300-800 billion Euros. Finding the right number is what bulls were worried about. It appears from the markets reaction that they found the right number to lend in order not to upset markets.

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Asia

Europe

Futures

Currencies

Commodities

LIBOR, EURIBOR, 10 year yields for Italy, Spain, France, and Germany

While President Obama may not be Wall Street’s ideal candidate, stock prices are rising on growing expectations he will be re-elected this November.

Part of that, market pros say, is simply that investors feel more certain about who will be in the White House for the next four years and which policies they will have to deal with.

Obama’s chances of winning in November increased to above 60 percent on Tuesday, up from about 50 percent at the beginning of the year, according to the odds on prediction market Intrade.com.

Read the rest here.

Lindsey Tugman

BUFFALO, NY (CNN) — As thousands of teachers face layoffs across the country, teachers in Buffalo, New York are getting lipo? Yep. And nose jobs and whatever else they want. All on the taxpayers’ dime. How is this happening?

This Buffalo plastic surgeon has a lot of happy patients. Dr. Kulwant S. Bhangoo says, “Let’s just suppose I was a woman weighed 300 pounds, and I lost 150-160 pounds.”

Indeed, that’s what happened to Buffalo school teacher Valerie Akauloa, but it’s not just the results that make her happy, it’s the sweet deal that she gets.

The sweet deal that all the 3,400 teachers in Buffalo are eligible to get under one of their insurance plan options, they are billed nothing for any plastic surgery procedure, such as botox, liposuction, tummy tucks, and there is no deductible.

Linda Tokarz teaches second grade and says she gets regular treatments. She says, “I think its great for us. I wouldn’t want to see it taken away.”

Dr. Kulwant Bhangoo has been a plastic surgeon in Buffalo for almost four decades. He says, “I feel the teachers have paid their dues and it would be wrong to take it away from them.”

While he does have plenty on non-teacher patients, Dr. Bhangoo does say three out of every 10 are Buffalo teachers and the school district’s insurance covers every single penny. They will come in for hair removal on their face, liposuction, breast enhancement, and rhinoplasty.

Dr. Bhangoo is one of many plastic surgeons who advertise in where else the teachers union newsletter.

Last year, Buffalo’s schools spent $5.9 million on plastic surgery which is also known as a cosmetic rider. And Buffalo teachers have had this rider for nearly four decades.

Now you might think Buffalo’s school district must be flush with cash to be offering perks like free plastic surgery, right? Wrong. Louis Petrucci, the president of the Buffalo Board of Education says he is projecting a $42 million deficit in next year’s school budget.

You don’t have to be a brain surgeon to know that a plastic surgeon or a teacher would like this policy more than the typical taxpayer. But the teachers will tell you there is more to the story. They say the teachers contract with the city expired nearly a decade ago negotiations for a new one have failed.

And they add they are woefully underpaid. It is quite interesting to hear what the president of the teachers unions says about the plastic surgery benefit. Philip Rumore says, “We’ve told the district from the beginning of negotiations six or eight years ago that we’re willing to give it up, so as long the district comes back to the table with us, it’s gone.” When asked, “Do you feel as a gesture of good faith, the union should say, teachers, no more free plastic surgery?” Rumore responds, “It would be a wonderful gesture of good faith. We’re willing to give it up. All the district has to do is come to the table and negotiate with us. But not willing to do it unilaterally.”

Fact is that police and firefighters in Buffalo have similar plastic surgery programs, but those departments are not dealing with the same financial problems as the economically challenged school system.

But at least for now, the policy remains in a school district with a unique mix of brain and beauty.

Source

Via The Psy-Fi Blog and Abnormal Returns

Facing the Big Guns

Tadas Viskanta, who writes and curates the excellent Abnormal Returns, recently penned an equally excellent article entitled There Has Never Been A Better Time To Be An Individual Investor. In this he cogently sets out a list of reasons why investing is cheaper and easier than ever before while caveating that our innate biases work against us when investing.

While agreeing with every word of the article, I think there’s danger for anyone executing anything other than the suggested default option of a low cost, globally diversified, occasionally rebalanced portfolio. Active private investors are engaged in an arm’s race with the securities industry and most of the big guns are facing the wrong way. The problem is that darned scientific method, which is why there’s also never been a more dangerous time to invest.

Read the rest here.

LYON, France – Interpol has arrested 25 suspected members of the Anonymous hackers group in a swoop covering more than a dozen cities in Europe and Latin America, the global police body said Tuesday.

“Operation Unmask was launched in mid-February following a series of coordinated cyber-attacks originating from Argentina, Chile, Colombia and Spain,” Interpol said.

The statement cited attacks on the websites of the Colombian Ministry of Defense and the presidency, as well as on Chile’s Endesa electricity company and its National Library, among others.

The operation was carried out by police from Argentina, Chile, Colombia and Spain, the statement said, with 250 items of computer equipment and cell phones seized in raids on 40 premises in 15 cities.

Police also seized credit cards and cash from the suspects, aged 17 to 40.

“This operation shows that crime in the virtual world does have real consequences for those involved, and that the Internet cannot be seen as a safe haven for criminal activity,” said Bernd Rossbach, acting director of police services at Interpol, which is in the French city of Lyon.

However, it was not clear what evidence there was to prove those arrested were part of Anonymous, an extremely loose-knit international movement of online activists, or “hacktivists.”

Read the rest here.

Posted by JC Parets on February 28th, 2012

It’s looking like fresh lows are in the cards for nat gas. Where is the bottom? When is the blood bath over?

We’re going on over 3 1/2 years of destruction and 80% losses. There is an old saying on Wall St. that, “Bottom Fishing can be Hazardous to your Wealth”. If you didn’t know this, let the current state of Natural Gas and the ’08 Financials be a lesson.

But in this case, we’re not talking about a company that can go bankrupt right? This is a commodity after all. So the reversion to the mean process should begin at some point. But where and when?

Take a look at the recent consolidation in the United States Natural Gas Fund ($UNG). The breakdown here below the triangle is typical. This type of brief pause usually resolves itself in the direction of the underlying trend. In this case it is clearly down. As scary as it may sound, the 4 point base in the triangle gives us a target somewhere in the 17.50 area. We may not get that low, and we can just as easily go even lower. But I have a feeling that a vicious tradable rally will develop from this breakdown.

Read the rest and see the charts here.

By WILLIAM J. BROAD

Published: February 27, 2012