Dollar slump over according to currency forecasters

The best currency forecasters say the dollar’s 13 percent slide over the past year is coming to an end as Europe’s deepening debt crisis discourages bets against the world’s reserve currency.

Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64.

While Moody’s Investors Service added to Europe’s woes last week by lowering Portugal’s credit ranking to junk, the dollar is regaining its status as a haven after the worst performance over the past year among 10 developed-market currencies based on Bloomberg Correlation-Weighted Indexes. The dollar is up 5.3 percent from a 17-month low on May 4 against the euro.

“There’s not a lot of room left for it to weaken beyond $1.50 to the euro, and we still see it recovering to about $1.40 by year-end,” said Stephen Gallo, head of market analysis at Schneider in London, who had an average margin of error of 5.05 percent across all currency pairs. “The risk of a disorderly default is, for now, much higher in Europe than in the U.S.”

Read more here.

The safety net largely expires at the end of this year.

An extraordinary amount of personal income is coming directly from the government.

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession. Moody’s Analytics estimates $37 billion will be drained from the nation’s pocketbooks this year.

In terms of economic impact, that is slightly less than the spending cuts Congress enacted to keep the government financed through September, averting a shutdown.

Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile. Among the other supports that are slipping away are federal aid to the states, the Federal Reserve’s program to pump money into the economy and the payroll tax cut, scheduled to expire at the end of the year.

“If we don’t get more job growth and gains in wages and salaries, then consumers just aren’t going to have the firepower to spend, and the economy is going to weaken,” said Mark Zandi, chief economist of Moody’s Analytics, a macroeconomic consulting firm.

WASHINGTON (AP) — Americans borrowed more in May for the eighth straight month and used their credit cards more for only the second time in nearly three years.

The Federal Reserve says consumer borrowing rose $5.1 billion following a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.

The increase in credit card borrowing marked only the second monthly gain since August 2008. Since the financial crisis, consumers have been cutting back on the use of credit cards, which has depressed economic growth because it has held back consumer spending.

Workers made less per week in June than anytime over the past 18 months, when adjusted for inflation.

The downward spiral in wages is yet another sign of how troubled the jobs market is, economists said. And it will also slow the pace of the recovery since Americans won’t start buying more until they are earning more.

“It’s a symptom of how weak hiring is,” said Heidi Shierholz, an economist with the Economic Policy Institute, a left-leaning research group. “Employers know they don’t have to pay substantial wage increases to keep workers.”

Average weekly earnings last month fell to $788.56. It’s impossible to do exact inflation-adjusted comparisons with previous months until June’s inflation rate is released, but June’s earnings will be lower than they were in January 2010, Shierholz said.

By Avi Salzman

Investors are worried about the effects of a slowdown in Vegas on MGM International (MGM), but they need to take a deep breath, writes Morgan Stanley analyst Mark Strawn in a note initiating coverage of the company at Equal Weight.

Despite the Equal Weight rating, Strawn appears convinced that the shares are on their way up.

“We believe the share price will rise in absolute terms over the next 60 days. Based on a recent round of industry channel checks and our proprietary Las Vega room rate survey, we expect MGM’s recent share price momentum to continue through 2Q11 earnings in late July/early August,” he writes.

Although the third quarter tends to be seasonally slower in Vegas than the rest of the year, Strawn sees leisure room rates growing at a greater than 5% rate for MGM. Strawn expects the company to post strong EBITDA growth in the second and third quarters, with a strong possibility of beating analysts’ expectations.

“If our estimates are correct, this would mark the first consecutive quarters of EBITDA beats for MGM since the second half of 2007 and should drive continued share-price outperformance.”

WASHINGTON (AP) — The Obama administration is making it easier for out-of-work homeowners to stay in their homes, as it tries to revamp its troubled foreclosure-prevention program.

Starting Aug. 1, the Federal Housing Administration will extend the period for unemployed homeowners to miss mortgage payments to a full year from three or four months. That will allow qualified homeowners to go without making a monthly payment for 12 months before the foreclosure process begins.

The extended grace period only applies to FHA-backed loans, which are usually given to low- and middle-income borrowers and represent about 14 percent of all active mortgages and roughly 25 percent of new mortgages, and homeowners in the government’s foreclosure-prevention program. About 10,000 homeowners in the foreclosure program and 3,500 FHA-backed homeowners per month would be eligible, officials said.

Housing and Urban Development Secretary Shaun Donovan said Thursday that administration officials hope private lenders and government-controlled mortgage giants Fannie Mae and Freddie Mac, which back 90 percent of all new mortgages, will adopt a similar policy.

“Our hope is that this will have broader effects,” Donovan said during a conference call.

From Bloomberg:

Kosmos Energy Ltd. said damage to Transocean Ltd. (RIG)’s Marianas rig may delay drilling of a well off Ghana’s coast.

A force majeure notice was delivered to the government of Ghana and Ghana National Petroleum Corp. after an anchor- handling accident damaged the rig, Dallas-based Kosmos said today in a statement. The Marianas was scheduled to arrive July 10 for drilling, Kosmos said.

Kosmos said it anticipates that either the Marianas or a substitute rig will be “available soon” to drill the Cedrela-1 well in the West Cape Three Points Block. Transocean, based in Vernier, Switzerland, reported yesterday it evacuated 108 of 121 workers on the rig after it took on water while preparing to leave an Eni SpA drilling site off Ghana.

The market for deep-water rigs in that part of the world is so tight that Kosmos will likely have to wait at least a month for a comparable drilling vessel, said Brian Uhlmer, an analyst at Global Hunter Securities in Houston. Moving an unused rig from the Gulf of Mexico could take about 45 days.

“There’s literally nothing in Ghana that can come back to work quickly,” Uhlmer said. “I think the most likely is to pull something from the Gulf.”

The Marianas rig, which was used in 2009 to start drilling the Macondo well for BP Plc in the Gulf of Mexico, may be out of service for as many as 180 days with most of the time taken up by moving it to a yard and final inspections, Uhlmer said. “It’s not like fixing your kid’s soccer ball,” he said.

The following article clip is based on results from a survey of bond investors.

For the first time since 2005, investors held no outright bullish positions on Treasury prices, according to a closely watched survey of bond investors’ sentiment by J.P. Morgan Chase & Co.

The survey showed most investors remain neutral rather than bearish, an indication that many may not be ready to call an end to the three-month-long bull run.

Some Treasurys had rallied for 11 weeks in a row until last week, their worst week in two years. Treasurys had been finding buyers despite near-record low yields, the end of the Federal Reserve’s Treasury-buying program and uncertainty over the debt ceiling. They have been seen as a safe investment, particularly amid worries about Europe and U.S. economic growth.

WASHINGTON (AP) — Fixed mortgage rates rose this week by the most in four months.

The average rate on the 30-year loan increased to 4.60 percent, up from 4.51 percent a week ago, Freddie Mac said Thursday. It hit its lowest level of the year three weeks ago, at 4.49 percent.

The average rate on the 15-year fixed mortgage, a popular refinancing option, rose to 3.75 percent. It reached its low point of the year two weeks ago, at 3.67 percent.

Rates typically track the yield on the 10-year Treasury note, which has been rising. And mortgage rates could rise further now that the Federal Reserve’s $600 billion bond buying program has ended.

The Fed has purchased around $75 billion worth of bonds each month since November. That drove the yield on the 10-year Treasury note lower than 3 percent this spring. As a result, rates on mortgages and other loans also fell.

Still, low mortgage rates and plummeting home prices have done little to boost the troubled housing market. Tougher lending standards and bigger down payment requirements have prevented many people from taking advantage of the ultra-low rates. Many people who can qualify are holding off, worried that prices have yet to bottom out.

Most economists say home prices will keep falling through the rest of the year. Many forecasts don’t anticipate a rebound in prices until at least 2013.

Interesting take on the trouble with low yielding savings environments.

Though they pay their depositors zilch, commercial banks’ margins are shrinking while loans stagnate.

Time was that banks used to feast on cheap money. Bank stocks would rally on the hint of Federal Reserve interest-rate reductions since the banks would cut the rates they paid to depositors with greater alacrity than what they charged borrowers, just as big oil companies are apt to lower the prices at the gasoline pump more slowly than crude oil comes down in price.

The Fed has pegged the cost of money virtually at zero—technically a target for the overnight federal funds rate of 0-0.25%—since December 2008 at the depth of the credit crisis. And it looks as if the fed-funds rate won’t be lifted off the floor for a year or so, by the reckoning of the financial-futures market, and may climb to just 0.5% by the time of the Federal Open Market Committee meeting scheduled for Oct. 23-24, 2012.

You’d think the prospect of free money would be just the “juice” that would permit banks to perform like Barry Bonds when he was bashing baseball’s home-run records. But you’d be wrong.

It seems that zero percent money is a drug that loses its potency the longer it’s administered. Even banks may be beginning to feel the same effects as their long-suffering depositors—dwindling income from interest rates so tiny you need a magnifying glass to see.

Citigroup’s bank analysts led by Keith Horowitz slashed estimates for large regional bank companies because continued rock-bottom interest rates will mean markedly lower earnings for 2012 than had been expected. This realization was a contributor to a weak financial sector Tuesday, with the KBW Bank SPDR exchange-traded fund (ticker: KBE), which tracks the Keefe Bruyette & Woods bank-stock index, falling more than 1% in a relatively quiet session.

A top House Republican Wednesday signaled new flexibility on White House demands to close wasteful or ineffective tax loopholes as a way to bridge differences with President Barack Obama and Capitol Hill Democrats in talks on a plan to reduce the deficit and pave the way to increase the government’s borrowing authority.

“If the president wants to talk loopholes, we’ll be glad to talk loopholes,” said House Majority Leader Eric Cantor, R-Va. Cantor added that any revenues raised from closing such loopholes “should be coupled with offsetting tax cuts somewhere else.”

Cantor’s comments reflected important, if nuanced, flexibility for Republicans. His earlier position was that closing loopholes should wait for a comprehensive effort to reform the tax code.

Cantor declined to specify what tax cuts should be financed by any new loophole-related revenues, but he declined to rule out using them to pay for renewing expiring tax cuts like a popular credit for new research and development that’s popular with businesses.

The show of flexibility comes in advance of a White House meeting Thursday between Obama and top congressional leaders.

NEW YORK (AP) — The Western Union Co. said Tuesday it has agreed to acquire Travelex Global Business Payments for about $973.8 million in cash, in a deal that will allow it to expand rapidly in the business of international payment processing.

The Travelex division provides international payments services to business clients, mostly small and medium-sized companies and distribution partners.

Western Union is paying 606 million pounds for the Travelex business. It is expected to boost Western Union’s earnings by 2 cents per share this year and 4 cents per share in 2012. The company expects acquisition related noncash amortization expenses of about $40 million per year beginning in 2012.

The acquisition is expected to close later this year.

‘AA’ Rating Assigned To Frisco, TX’s $122.965 Million Series 2011 GO Bonds; Outlook Is Stable 05-Jul-2011
13:15 EST

Rating On Mezzanine Class Of OTB Housing Loan Trust Certificates No. 5 Raised; Seven Classes Of Nos. 2 To 5 Affirmed 05-Jul-2011
00:15 EST

MINNEAPOLIS (Reuters) – Minnesota’s state government began a broad shut down on Friday going into the July 4 holiday after Democratic Governor Mark Dayton and Republican legislative leaders failed to reach a budget deal.

Parts of the government had already begun to shut down on Thursday ahead of the midnight budget deadline, including some websites and dozens of highway rest stops on one of the biggest travel days of the year.

The budget impasse means that some 23,000 of the roughly 36,000 Minnesota state employees will be furloughed and state parks and campgrounds closed ahead of what is usually their busiest stretch of the year for the July 4 holiday.

Dayton and Democratic legislative leaders Senator Tom Bakk and Representative Paul Thissen met for more than a week with Republican leaders including House Speaker Kurt Zellers and Senate Majority Leader Amy Koch. The leaders met several times on Thursday in the governor’s office.

Neither Dayton nor the Republican leaders gave any indication when they would meet next to discuss the budget.

“I deeply regret that the last week of intense negotiations between the Republican legislative leaders and Senator Bakk, Representative Thissen and myself have failed to bridge the divide between us,” Dayton said in a speech.

He said his last proposed two-year general fund budget was $35.7 billion, but the differences between his approach and the Republican leaders had not changed since January. The gap between the two sides stood at $1.4 billion, he said.

Very nice for the game operations situated there.

This has a lot to do with fuel prices; water doesn’t flow freely.

The company is asking to hike rates $19 per quarter, or $6.33 per month, for an average residential customer using 22,500 gallons of water per quarter in St. Louis County, and about $8.20 per month for an average residential customer using 7,000 gallons of water monthly in St. Charles County.

The Missouri PSC approved a $28 million rate increase for Missouri American Water last June.

The company said its rate filing Thursday also included a request for a consolidated rate structure, under which all customers in the same rate class pay the same rate for the same service.

This is obvious, so I’m chalking the release up as a friendly reminder to check your securities and understand how a U.S. credit rating adjustment can directly affect you, even if you aren’t holding U.S. debt directly.

New York, June 29, 2011 — Ratings that are directly linked to the U.S. government’s rating would move in lock-step with any U.S. sovereign rating action, says Moody’s Investors Service in a new report. Some Aaa ratings of state and local governments could be vulnerable to credit pressure where sovereign credit linkages are potentially strong. However, the creditworthiness of U.S. corporates and financial institutions with Aaa stand-alone credit ratings and Aaa (sf)-rated structured finance transactions that lack any direct credit linkage to the sovereign would generally be resilient to a one- or a two-notch downgrade of the U.S. government.

On June 2, Moody’s said it expected to place the U.S. government’s Aaa rating on review for possible downgrade, if there were no progress on increasing the statutory debt limit by mid-July. If a debt-ceiling related default were to occur, Moody’s would likely downgrade the U.S. sovereign rating. A rating in the Aa range would be the most likely outcome.

“There is a large amount of debt issued with strong credit linkages to the credit quality of the U.S. government,” says Moody’s. “Therefore, we are detailing the potential rating implications of a U.S. downgrade for other Aaa-rated U.S. credits, without commenting on the likelihood of a rating action on the U.S. sovereign.”

Ratings directly linked to the U.S. government would move in lock-step with the any sovereign rating action. These ratings include those on Aaa-rated bonds issued by banks and others guaranteed by the U.S. government. It also includes Fannie Mae, Freddie Mac, the Federal Home Loan Banks and Federal Farm Credit Banks whose own Aaa ratings are based on support from the U.S. government. The ratings on municipal supported transactions, pre-refunded municipal bonds, and structured securities that hold government linked debt as their primary collateral would also move in lock-step with the sovereign rating.

The Aaa ratings on U.S. companies, financial institutions, and the Aaa (sf) ratings on structured finance transactions not directly linked to the U.S. sovereign rating would generally be resilient to a one- or a two-notch sovereign downgrade because the credit linkages to the U.S. government are sufficiently weak. Some Aaa-rated states and local governments, however, may be more vulnerable to credit pressure under the circumstances that would lead to a sovereign downgrade and in turn more vulnerable to rating actions, says Moody’s. Moody’s will issue additional research providing more detail on the impact of a U.S. sovereign rating action on issuers in the U.S. municipal bond sector in the coming weeks.

The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank today announced an extension of the existing temporary U.S. dollar liquidity swap arrangements through August 1, 2012. The Bank of Japan will consider the extension at its next Monetary Policy Meeting. The swap arrangements, established in May 2010, had been authorized through August 1, 2011.

New York, June 23, 2011 — Moody’s Investors Service says the number of companies on its B3 Negative and Lower Corporate Ratings List has changed little in a year. While all is calm, a modest increase in movement of companies on and off the list in the second quarter may be an early signal of future defaults, rating withdrawals and rating upgrades for this population of low-rated, U.S. non-financial companies, Moody’s said in a new report.

The list of U.S. non-financial companies rated B3 negative and lower includes a core group of companies with weak business fundamentals, high leverage and elevated risk of default, Moody’s said. There were 174 companies on the list as of June 1, compared with 209 a year ago and nearly 300 in the wake of the credit crisis in 2009.

While the overall list size has remained steady for a year, there is movement of companies on and off the list each quarter. The number of companies added and the number removed together typically equal about one fourth of the total number of companies rated B3 negative and lower. In the second quarter, that percentage reached 27.6%, its highest level since 2009. This may foreshadow a trend of more churn in this low-rated population.

“It’s too early to say whether such a trend, if it occurs, would be driven by a broad improvement in speculative-grade credit quality that produced more rating upgrades, or by a pickup in defaults and rating withdrawals reflecting negative credit developments,” said David Keisman, senior vice president at Moody’s and author of the report.

For now, key indicators continue to suggest a stable credit backdrop. Moody’s speculative-grade default rate forecast calls for a decline to 1.8% by next May. The ratio of rating upgrades to downgrades for U.S. non-financial companies is positive, ratings under review for downgrade are modest, and Moody’s Liquidity-Stress Index is near all-time lows. However, catalysts that could drive more activity in the B3 Negative and Lower population include the end of the Federal Reserve’s quantitative easing, European sovereign debt concerns and volatility in commodity prices, the report says.

Companies are removed from the B3 Negative and Lower List if they default, have their ratings withdrawn, or receive a rating upgrade to B3 stable or higher. Companies join the list upon a rating downgrade to B3 negative or lower. According to the report, there has been an increase in the number of removals through rating withdrawals and upgrades, and a decline of removals resulting from defaults.

New York, June 27, 2011 — Overseas cash balances of major technology firms such as Apple, Microsoft (rated Aaa), Cisco (rated A1) and Google (rated Aa2) could double to $238 billion over the next three years, according to a new report from Moody’s Investors Service.

“Stronger overseas growth prospects along with heavier domestic cash uses for capital expenditures, dividends and share repurchases, as well as acquisitions will drive overseas cash balances higher for many U.S.-based technology firms,” Moody’s Senior Analyst Richard Lane said. “The high tax bite on permanently repatriated funds also encourages money to stay on an extended overseas vacation,” Lane said.

A sampling of large technology companies shows that 70% of total cash and short-term investments is held overseas, up from 57% four years ago. Based on the structural elements of cash sources and uses, Moody’s projects this collective balance could rise to 79% by 2013 years unless some form of permanent tax reform is implemented.

While investment-grade technology firms have by and large demonstrated good financial discipline through recent cycles, the high tax bite effectively “serves as an additional governor” to limit excessive shareholder-friendly activities, such as engaging in large share repurchases of dividend payments, Lane said.

Although share buyback activity or common dividend increases could be more aggressive, to the extent that permanent tax reforms are implemented, “we do not believe large technology firms would go on a shareholder-friendly bender” to the detriment of their credit ratings, Lane said. “Instead we expect a balance of cash deployment, including potentially more active M&A activity to fill in product or technology gaps to strengthen their competitive positions.”