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Monthly Archives: September 2011

Gold Pares Losses Overnight

Gold fell on the back of a global equity rally and the notion that European debt woes will be solved. Earlier this morning those looses were pared.

Gold up $3 @ $1,784.50

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Flash: Asian Markets Ripping


Asian stocks opened higher on Friday after advances on Wall Street, helped by news that top central banks will coordinate a plan to ease dollar funding for stricken European banks, reducing the threat of an emerging credit crunch.

The ECB’s announcement reassured markets and boosted investor confidence ahead of Friday’s meeting of euro zone finance ministers, to be joined by U.S. Treasury Secretary Timothy Geithner.

The FTSE CNBC Asia 100 Index [.FTFCNBCA  6007.39    137.12  (+2.34%)], which measures markets across Asia, gained 0.8 percent.

Japan’s benchmark Nikkei average [.N225  8852.86    184.00  (+2.12%)] opened up 1.34 percent at 8,785.28 on Friday, while the broader Topix gained 1.15 percent to 760.41.

Seoul shares advanced as coordinated efforts by global central banks eased fears about the euro zone debt crisis. The KOSPI [.KS11  1832.94    58.8

Key large-cap stocks rallied, with Samsung Electronics, the largest share on the main KOSPI, gaining 3.8 percent. Banks also posted strong gains, with KB Financial Group up 3.6 percent.

Shares in Korea Electric Power Corp, a state utility, were in focus after electricity shortages caused widespread blackouts across the country on Thursday.

Australia’s S&P/ASX 200 index [.AXJO  4155.10    83.40  (+2.05%)] advanced 1.3 percent, helped by gains in large cap banking counters.

Australia’s top four banks lead the charge, with Westpac up 2.4 percent.

Sundance Resources stocks rose 4.7 percent in early trade after media reports that China’s Hanlong Mining will continue with its A$1.3 billion bid, despite an investigation by the market regulator ASIC into alleged insider trading by Hanlong executives.

Over in Greater China, shares of Europe-focused fashion retailer Esprit Holdings [0330.HK  11.70    -3.38  (-22.41%)] fell more than 20 percent after the Asia’s No.6 apparel and accessories retailer reported a worse-than-expected drop in full-year profit.

In Southeast Asia, Singapore’s STI [.FTSTI  2802.55    36.60  (+1.32%)] and Malaysia’s KLCI [.KLSE  1430.93    -6.68  (-0.46%)] tracked gains seen around the region.

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Foreign Direct Investment in China Slows, but Still Constructive

Foreign direct investment (FDI) in China slowed slightly in the first eight months of 2011 from a year ago although economists said the outlook is still positive given the higher growth rate in the world’s second biggest economy.

The country drew $77.6 billion between January and August this year, up 17.7 percent from a year ago, the Ministry of Commerce said in a statement issued on its website (www.mofcom.gov.cn) late on Thursday.

That marked a slight slowdown from the 18.6 percent annual growth clocked in the January-July period and 18.1 percent in the first eight months of 2010.

In August, China attracted $8.4 billion in FDI, a rise of 11.1 percent compared with a year earlier.

The outlook for genuine FDI, however, still looks constructive, said Wei Yao, economist at Societe Generale in Hong Kong.

“Things are still not as bad as 2008 and we don’t have that kind of liquidity crunch around the globe like last time,” she said. “China’s overall economic growth is still a very big comparative advantage … so this is still the major attraction.”

FDI into China, which surged in the years after the nation joined the World Trade Organisation in 2001, have rebounded since a slump during the global financial crisis.

Recently, China’s growing services sector and lower-cost cities in central and western regions have become bigger magnets for foreign firms and investors are eager to secure a foothold in the world’s fastest-growing major economy.

China aims to let investors use the yuan to pay for foreign direct investment from September, the Commerce Ministry said last month. But no details of that plan have come out.


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Flash: Verdict reached in TCW vs Gundlach

The jury has reached a verdict in a courtroom battle between Trust Company of the West and former investment chief Jeffrey Gundlach, concluding a six-week trial that has transfixed the financial industry.

The Los Angeles Superior Court jury’s verdict — after just two days of deliberations — will be released Friday morning.

The legal showdown between the “king of bonds” and the unit of French bank Societe Generale (SOGN.PA) had offered an insider’s view into money management firms and the outsized personalities that operate them.

TCW fired Gundlach in December 2009 and sued him a month later, accusing him of stealing trade secrets, plotting to form a new company using TCW proprietary information, and gutting the firm of its entire mortgage-backed securities team.

Gundlach fired back with a counter-lawsuit, alleging his former employer owed him hundreds of millions of dollars in compensation and had secretly plotted to fire him when he was chief investment officer.

The case in Superior Court of California, County of Los Angeles is Trust Co of the West v. Jeffrey Gundlach et al, BC429385.


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The Economist: What is the Global Public Opinion on Government Spending?

VIEWS on the best way to deal with the rich-world’s debt problems vary across its countries, according to the latest annual survey of American and European public opinion by the German Marshall Fund, a think-tank. The poll shows clear support for austerity over stimulus in the rich world. That may be because announced austerity plans have yet to kick in: Britain is an exception to this, and there views seem to be more finely balanced. The biggest change in sentiment can be seen in the euro area. In 2009 only 8% of Italians thought their government was spending too much compared to 49% who now want it cut. In Portugal and Spain nearly one-third of those asked two years ago thought that too little was being spent, an opinion now held by only a fraction of that.

Go here for the rest, including the chart of global public opinion on government spending.

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SHOCK: Shares of Modern Day Rotary Phone Maker, RIMM, Crushed After Posting Bad Results

Research In Motion on conf. call said early results are strong for the BlackBerry 7 launch. Co said in North America, Blackberry 7 smart phones have an excellent reputation and, in the last few weeks, have driven a meaningful increase in sell-through in the last few weeks of the quarter and so far in Sept. Outside of North America, BlackBerry 7 sell-through rose almost 50% in the first two weeks of its Q3, largely due to its Bold 9000. The co’s BlackBerry 7 devices just began to rollout in Latin America with one MAC carrier. Co expects BlackBerry unit growth to help contribute to improved Q3 and Q4 earnings. Co has a number of upcoming programs in place to drive sell-through in PlayBook. Overall, BlackBerry 7 launches are going very well.

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Tension in the EU: Berlusconi ‘Called Merkel an Unfuckable Lard-arse”

ITALIAN newspapers claim Prime Minister Silvio Berlusconi referred to the German Chancellor Angela Merkel as an “unfuckable lard-arse” in a telephone conversation with a newspaper editor.

The alleged insult, reported in the Independent, was secretly recorded during an investigation into an alleged blackmail plot against Berlusconi. The editor, Valter Lavitola, is alleged to have been involved in procuring prostitutes for Berlusconi’s ‘bunga bunga’ parties.

Previous revelations from the wiretap transcripts have been used to suggest Berlusconi has not been devoting his full attention to sorting out Italy’s sovereign debt crisis. But the latest allegation, if true, would mean that Italy’s premier has been caught out insulting the leader of the country which ultimately has the power to bail out his government.

The insult against Merkel has not gone unreported in Germany. The country’s popular tabloid Bild ran a headline asking: ‘Did Berlusconi crack bad jokes about Merkel?’ Although it refrained from reprinting the alleged slander.


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Distressed credit card balances on the rise

NEW YORK (AP) — It was a bumpy summer for credit card issuers, but most of the top banks reported that their customers continued to make their payments on time.

Default rates were down at four of the five companies that reported their August results by midday Thursday. Only Capital One Financial Corp. had an uptick in the rate of its write-offs of uncollectible balances.

Capital One also posted a slight increase in its rate of payments late by 30 days or more, which is considered an indicator of future default.

Discover Financial Services, American Express, Chase and Bank of America reported continued declines in both rates.

Citibank is expected to report August results to the Securities and Exchange Commission later Thursday.

The results were similar in July, with a few banks reporting slight increases but most reporting improvements in defaults, or charge-offs, and delinquencies.

Overall, both defaults and delinquencies have dropped sharply since hitting their peaks. Late payments, in particularly, are now at historically low points.

Charge-off rates for cards peaked in the second quarter of 2010 at 10.96 percent, according to Fed data, and were down to 5.6 percent in the latest second quarter. Monthly data from most card issuers has shown continued declines, which will be reflected in third-quarter figures. Industrywide delinquency rates were down to 3.62 percent in the second quarter, after peaking in the second quarter of 2009 at 6.76 percent.

One reason consumers are able to keep up with their payments is that balances have dropped sharply since the height of the recession. Lower balances translates to lower minimum payments.

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Solyndra only one of several failed green stimulus recipients

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Solyndra, the solar panel company whose highly publicized failure and consequent investigation by federal authorities has flashed across headlines recently, isn’t the only business to go belly up after benefiting from a piece of the $800 billion economic stimulus package passed in 2009.

At least four other companies have received stimulus funding only to later file for bankruptcy, and two of those were working on alternative energy.

Evergreen Solar Inc., indirectly received $5.3 million through a state grant to open a $450 million facility in 2007 that employed roughly 800 people. The company, once a rock star in the solar industry, filed for bankruptcy protection last month, saying it couldn’t compete with Chinese rivals without reorganizing. The company intends to focus on building up its manufacturing facility in China.

SpectraWatt, based in Hopewell Junction, N.Y., is also a solar cell company that was spun out of Intel in 2008. In June 2009, SpectraWatt received a $500,000 grant from the National Renewable Energy Laboratory as part of the stimulus package. SpectraWatt was one of 13 companies to receive the money to help develop ways to improve solar cells without changing current manufacturing processes.

The company filed for bankruptcy last month, saying it could not compete with its Chinese competitors, which receive “considerable government and financial support.”

On Tuesday, Deputy Secretary of Energy Daniel Poneman wrote an editorial for “USA Today” in which he blamed China in part for the failure of U.S. solar energy manufacturers to compete.

“Winning will require substantial investments. Last year, for example, the China Development Bank offered more than $30 billion in financing to Chinese solar manufacturers, about 20 times more than U.S.-backed loans to solar manufacturers,” Poneman wrote.

“Unfortunately, expanding production has coincided with short-term softening demand, a product of the banking crisis in Europe and its wider economic effects. The combination has had a dramatic effect on the price of solar cells, which has plummeted 42 percent in the past nine months. This has taken a serious toll on solar manufacturers everywhere, including the U.S,” he continued.

On Thursday, White House spokesman Jay Carney noted that the U.S. is on track to double its renewable energy power in 2012, but it will require commitment in the U.S. to grow.

“We have a choice to make as a nation because we will be buying renewable energy projects (in the future) …do we want to buy it with a stamp on it that says ‘made in America’ or do we want to buy it from the Chinese or other countries?” Carney asked. “High-tech clean energy industries are going to be key to (economic prosperity) in this century.”

But Republicans balk at claims that the Obama administration can decide which companies are winners or losers, and questioned a plan to approve $10 billion more in loans before the stimulus program expires.

“Solar panels have been subsidized by the federal government. States’ governments are also subsidizing or giving taxpayers write-off on their tax return. And yet, these solar panels cannot make it in the competitive world without all these subsidies. And even with them, China is flooding the market with this cheap labor and the solar panels just don’t make sense,” House Energy and Commerce Oversight and Investigations Subommittee Chairman Cliff Stearns R-Fla., told Fox News.

“So I think the administration is on this fervent religion of green jobs and clinging to the idea that solar panel is the answer and it is not the answer,” he said.

Another winner of stimulus who ultimately lost is Mountain Plaza Inc. Despite declaring bankruptcy in 2003, the company received $424,000 from the Tennessee Department of Transportation as part of a grant aimed at installing “truck stop electrification” systems that allow idling truckers to plug-in during extended stops and turn off their exhaust-belching, environment polluting diesel engines.

Mountain Plaza had filed for bankruptcy protection again in June 2010. TDOT, which received a $2 million stimulus grant from the Environmental Protection Agency for the project, said it didn’t learn about the bankruptcy until October, but it is closely monitoring the project.

Elsewhere, Olsen’s Crop Service and Olsen’s Mills Acquisition Co. also failed despite Olsen’s Mills receiving $10 million to increase employment, add equipment and machinery, refinance existing debts and work capital for operations and acquire land. The payout — part of a $64 million package to nine rural businesses in Wisconsin for economic development loan assistance — was delivered in January 2010, after Olsen’s Mills filed for bankruptcy protection for defaulting on a $60 million bank loan.

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Boehner urges debt committee overlook tax increases

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House Speaker John Boehner drew a line in the sand on taxes on Thursday, saying that a special debt committee tasked with cutting at least $1.2 trillion from federal deficits shouldn’t consider tax hikes.

“Tax increases, I think, are off the table,” Boehner said in a speech to the Economic Club of Washington, D.C. “It’s a very simple equation. Tax increases destroy jobs. And the Joint Committee is a jobs committee. Its mission is to reduce the deficit that is threatening job creation in our country.”

The only things the 12-person super committee should tackle are spending cuts and entitlement reform, he said.

Congress established the super committee when it raised the debt ceiling this summer. It has until Nov. 23 to propose ways to reduce deficits, and Congress must hold an up or down vote by Dec. 23. That panel started meeting last week.

Boehner’s marching orders contrast with a more cordial tone the GOP has taken this past week in reaction to President Obama’s new jobs package.

But his stance warning against new tax hikes reflects the message that GOP leaders have sent this week on the president’s push for a new jobs bill.

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The Postal Service, struggling to cut costs and conserve cash, said on Thursday it wants to end overnight delivery of letters and postcards and will study about 250 processing sites for possible closure.

The agency, which lost more than $3 billion last quarter, has said it must downsize drastically or will be forced to stop delivering mail by the end of next summer. Overseen by Congress and a regulator, it funds its services with postal-related revenue and does not get any taxpayer dollars.

Delivering First Class mail in two to three days instead of one to three days could save about $3 billion by 2015, the agency said. The change would allow it to close facilities, cut back on overnight work and eliminate about 35,000 jobs.

“Our entire network was designed based on a requirement that we maintain the capability to deliver First Class mail the next business day,” said chief operations officer Megan Brennan.

“This has enormous implications for the way we process mail … and it’s why we currently maintain so many mail processing locations,” she said. “Our plan is to rebuild our network based on a two- to three-day standard for First Class mail.”

The Postal Service has struggled to offset falling mail volumes as consumers correspond by email and pay bills online. Personnel costs for its half a million employees are among the factors driving the agency out of business.

In June, the agency stopped making biweekly payments into a retirement fund and, in July, it said it was considering more than 3,600 post offices for potential closure. It also wants to stop Saturday delivery to save cash.

While the agency has some ability to consolidate and cut costs, officials are relying on Congress for serious structural reforms. The Postal Service said Thursday’s proposal would not require congressional approval but it would still need broader changes to get on a path toward financial health.


The agency will study more than 300 of its 500 processing facilities — about 60 were already under review — and close sites that handle low volumes or could be consolidated with others, Postmaster General Patrick Donahoe said on Thursday.

The studies will take about three months and include meetings with affected communities. The agency expects to reduce mail processing payrolls by about 20 percent, mostly by not filling jobs when workers retire, Donahoe said.

“It is no exaggeration to say that we are radically realigning the way that we process mail, the way that we deliver mail and the way that we operate our retail network,” he said.

Business mailing group The Coalition for a 21st Century Postal Service said on Thursday its members backed the plan.

But a spokesman for the National Association of Letter Carriers said “willy-nilly proposed cuts” should not be the solution to the agency’s financial problems.

The plan to close facilities could also face resistance from members of Congress, who have proposed a range of ways to overhaul the agency but are often less amenable when closings and job cuts are proposed in their districts.

There is little consensus on legislation to overhaul the agency, which could include cutting Saturday delivery, allowing the agency to dip into an estimated surplus in a retirement fund or raising its borrowing limit.

The House of Representatives, in its continuing budget resolution this week, included an extension that would give the Postal Service until mid-November to make a $5.5 billion payment for retiree health benefits the agency says it cannot afford.

The White House is working on its own overhaul proposal. The plan is expected to be introduced next week, sources said.


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THE CITY THAT NEVER SMOKES: Bloomberg Cuts NYC Smoking to All-Time Lows

New York’s adult smoking rate fell to record low of 14 percent in 2010, said Mayor Michael Bloomberg, who has led the city’s effort to curb tobacco use for the past nine years.

The rate dropped from 22 percent in 2002, meaning about 450,000 fewer people are smoking, the mayor said. New York’s rate among high school students dropped to 7 percent last year from 18 percent in 2001, as the U.S. rate fell to 19 percent from 29 percent, he said. The smoking decline will translate to 50,000 deaths prevented by 2052, Bloomberg said.

“New York City for an awful lot of people sets the style — people copy New York City,” Bloomberg, who quit smoking about 30 years ago, said today at a press conference in Queens. “So the fact that we’ve made all this progress here really will help the entire country.”

Bloomberg, 69, has made the battle against smoking a hallmark of his mayoral tenure. In 2002, he worked with the City Council to ban smoking in offices, bars and restaurants. He also rolled out a media campaign with graphic depictions of the harmful effects of smoking, cracked down on illegal cigarette sales and increased tobacco taxes. In May, the city extended the smoking ban to parks, beaches and pedestrian plazas.

The efforts coincide with the city’s other health initiatives, such as reducing sodium content in foods and increasing access to fresh fruits and vegetables in low-income neighborhoods.

New York, the most-populous U.S. city, with 8.2 million residents, is seeking to lower the adult smoking rate to 12 percent by next year, Health Commissioner Thomas Farley told reporters at the press briefing. Staten Island remains the borough with the highest smoking rate, he said. Smoking is the leading cause of preventable death in New York, Bloomberg said.

The mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.


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Exclusive: Geithner to Float Idea of Leveraging Euro Rescue


Treasury Secretary Timothy Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said.

“Geithner will probably insist on the importance of leverage to have more funds to ringfence the big Europeans, Italy and Spain, and to find a solution for Greece,” one EU official said.

“The leveraging of the EFSF — I think this is something that he will put on the table,” the official said. “There could be some openness to the proposal.”

TALF — the Term Asset-Backed Securities Loan Facility — was set up by the U.S. Federal Reserve and the U.S. Treasury during the global financial crisis in 2008 to jumpstart the frozen Asset Backed Securities (ABS) market.

Under TALF, the New York Fed would lend out up to $200 billion, taking ABS as collateral with a haircut and the Treasury offered $20 billion credit protection for the Fed.

In this way, a little bit of public money leveraged a much larger central bank contribution and the same idea could work for the European Financial Stability Facility, which has 440 billion euros at its disposal, to offer credit protection to, for example, the ECB to buy euro zone sovereign bonds.

“One of the difficulties is that leverage may be seen as a potential liability,” a second EU official said. “But it deserves to be looked at in detail.”

A third euro zone official said that Canada has made the same suggestion for Europe.

“It could help those countries where the sovereign bond market is still curable,” the third official said.

Such a solution would help ease market concerns that the EFSF does not have enough money to bail out Greece, Ireland Portugal and also help Spain and Italy.

“Of course you would have to see if on the basis of the EFSF mandate you can do something similar,” the first official said, adding the solution had not been free of hurdles in the United States either and in Europe they could be even bigger.

“From an economic point of view it is a reasonable idea,” the first official said, noting however that the ECB would have to play along with such a scheme.

“The issues are more on the institutional and legal side and of course political — you have to find a way for the ECB not to, de facto, finance fiscal policy, but on the other hand you need to have resources that the ECB has and the EFSF has not.”

Leveraging the EFSF, however, would not take place before the fund’s new powers of intervention on bond markets, extending precautionary credit lines or lending for bank recapitalization were ratified by the end of September, the official said.

“Once the EFSF becomes more flexible, you can see if there are ways similar or different to try to leverage more the EFSF or find other ways to have a critical mass to ringfence Italy Spain and the others,” the official said.

“You can also think about leveraging on other actors, not necessarily just the ECB,” the official said.


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Amish investor charged with defrauding his community of millions of dollars

Members of the Amish community traditionally have settled their scores independent of secular society, but the federal legal system will decide the fate of Monroe Beachy, 77, of Sugarcreek, Holmes County.

Beachy was charged (pdf)Wednesday with defrauding thousands of his fellow Amish farmers, carpenters and neighbors of tens of millions of dollars in an alleged Ponzi scheme that has earned Beachy a nickname: The Amish Bernie Madoff.

Beachy, who has a 10th-grade education, acquired much of his financial knowledge from classes at H&R Block. He declared bankruptcy in 2010. He faces one count of mail fraud, and was expected to surrender to federal authorities by Friday.

U.S. Attorney Steven Dettelbach will hold a news conference at 2 p.m. today in Cleveland to detail the charges.

Since 1990, Beachy raised an estimated $33 million from more than 2,600 investors — many of them fellow members of the Amish community who reside in this pastoral locale about a two-hour drive south of Cleveland.

When the Securities and Exchange Commission charged Beachy with fraud in February, the agency said he had lost nearly half of his investors’ money.

Beachy had assured his investors that their money was safe, earning higher returns than banks in U.S. government securities, and he issued periodic statements that government officials allege were fictitious.

In reality, Beachy had lost nearly all of his investors’ money by 1998 in speculative investments such as stocks, mutual funds and junk bonds, officials said. But he continued to solicit investments from new investors, which he used to repay earlier investors — a so-called Ponzi scheme similar to that operated by the infamous Bernard Madoff, which lost an estimated $18 billion in 2009, according to investigators. It was the largest loss in history and earned Madoff a sentence of 150 years in prison.

Since Beachy’s bankruptcy filing, Sugarcreek’s Amish community has been in turmoil, with many victims upset at being dragged into court rather than resolving the case among the Plain People themselves.

Some of Beachy’s creditors argue that forcing them to pursue claims through the court would be a violation of their religious freedom.


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FLASH: YHOO Spikes on Takeover Rumors

Shares of YHOO spiked due to rumors that private equity firms were sniffing around the shitty internet giant.

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