$CHK to Buy Back Bonds Despite Court Loss

“(Reuters) – In a direct challenge to its bondholders, Chesapeake Energy Corp on Friday went ahead with its plan to buy back $1.3 billion of notes early.

Chesapeake, the second-largest U.S. natural gas company, said it issued a notice to redeem the bonds, 6.775 percent notes maturing in 2019, at 100 cents on the dollar, or par.

It is pursuing the redemption despite failing at a Thursday hearing to persuade U.S. District JudgePaul Engelmayer in Manhattan to force bond trustee Bank of New York Mellon Corp to accept the plan.

Bank of New York Mellon and investors holding $250 million of the notes oppose the proposed redemption, saying Chesapeake acted too late.

The investor group argued that any redemption should include an extra “make-whole” payment that Chesapeake has said could cost it an extra $400 million.

Chesapeake is hoping to avoid the $400 million payment as it tries to close a potential $4 billion cash shortfall this year.

In morning trading, the price of the notes fell 3.25 cents to 104 cents on the dollar, boosting the yield to 5.97 percent from 5.34 percent, according to bond pricing service Trace. The price had risen to a record high of 108 cents on Thursday.

The dispute is separate from a U.S. Securities and Exchange Commission probe into a perk that granted Chesapeake’s departing chief executive, Aubrey McClendon, a stake in company wells, and a U.S. Department of Justice probe into possible antitrust violations over Michigan land transactions.

In denying Chesapeake’s request for a preliminary injunction, Engelmayer said the company had not shown it would suffer irreparable harm without one….”

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“With Greenspan emerging from his crypt to confirm that he is now as clueless about everything as he was 15 years ago (although the absolutely zero reaction out of “stocks” to his statement that stocks are “very undervalued” is perhaps indicative that SkyNet may just be learning), it is appropriate to remind readers that this thing known as the “market” died some four years ago. What we have now is a vehicle with a “role in the policy fight to support spending” while “today’s stock market has arguably lost some of its ability to reflect underlying economic trends.” Not our words – those of Bank of America’s Ethan Harris, who, four years after the fringe blogs, finally “gets it.”

From Bank of America’s “A Market With A Mission”

Equity prices in the US and Europe have been hovering at multi-year highs. To the extent that this reflects powerful policy easing,equity markets may have lost some of its ability to reflect economic trends in exchange for an important role in the policy fight to support spending.

 

…

 

The ongoing climb in stocks does not look like a traditional reflation trade. US long rates remain well-behaved in face of brightening data. Equity prices thus seem to be benefiting from a diet of steadfast monetary support from G-4 central banks as well as expectations that global growth and inflation will remain tepid enough to avoid early policy exits.

 

A contribution exercise indeed suggests that earnings growth expectations have yet to become a key driver of US and European stock prices. Rather, improved confidence and diminished risk perceptions explain, to a significant extent, the equity price pickup in recent months. This is particular true for the euro area, where firms are still feeling the brunt of a long-lived recession.

 

Risk assets breathed a sigh of relief back in September, when both the Fed and the ECB reaffirmed their commitments to fight downside risks. Six months on,  and risk perceptions still seem to be receding. As Chart 2 shows, equity risk premia (ERP) have been edging down in recent months. Altogether, the ERP has shed 1pp in the US since June. In the euro area, however, the ERP has dipped by 2pp during the same time period…..”

 

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“The Federal Reserve Thursday dealt a blow to J.P. Morgan Chase JPM +1.65% & Co. and Goldman Sachs Group Inc., GS +1.37% citing weaknesses in their “stress test” capital planning that could hamper their funneling more dividends and share buybacks to investors.

The central bank also denied capital plans submitted by BB&T Corp.BBT +0.50% and Ally Financial Inc. But the Fed at the same time cleared 14 other banks to boost payouts to shareholders, including Citigroup Inc.C +1.03% and Bank of America Corp.,BAC +0.41% both of which in past years had capital requests rejected by the central bank.

The Fed also approved a reduced repurchase plan from American Express Co., AXP +0.12% in the only instance of a bank winning approval for a plan resubmitted to the regulator under a new stress-test wrinkle this year.

The Fed said the results show the banking system has grown stronger since the financial crisis, in large part because banks and securities firms are paying out less than they did before the 2008 meltdown.

The actions underscore the government’s increased role in the banking sector since the financial crisis. Regulators over the last few years have pushed banks to build up capital buffers and improve risk management to more realistically account for potential losses.

“The financial crisis showed not only that regulators needed to increase capital requirements and conduct regular tests, but also that firms need strong internal processes to evaluate their own capital needs based on their individual risks and circumstances,” Fed governor Daniel Tarullo said in a statement….”

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SOURCE

NYSE

NASDAQ

AMEX

In Play ,

On the Wires 

Derivative will destroy everything unless used in moderation…as a hedge…as they were meant to be.

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“WASHINGTON (Reuters) – Consumer prices recorded their largest increase in nearly four years in February as the cost of gasoline surged, but details of the report on Friday showed no sign of a pickup in inflation to trouble the Federal Reserve.

The Labor Department said its Consumer Price Index increased 0.7 percent last month, the largest gain since June 2009, after being flat in January. Gasoline accounted for about three quarters of the spike in consumer inflation.

Economists polled by Reuters had expected the CPI to advance 0.5 percent.

In the 12-months through February, consumer prices rose 2.0 percent, the largest gain since October. They had increased 1.6 percent in January.

Fed officials are likely to dismiss the gasoline-driven jump in price pressures as temporary when they meet next week to evaluate the economy.

Gasoline rose 9.1 percent, the largest gain since June 2009, after falling 3.0 percent in January. Gas prices at the pump, however, have declined in the past two weeks.

Excluding food and energy, consumer prices rose 0.2 percent slowing from January’s 0.3 percent advance.

The generally benign underlying price pressures should give the U.S. central bank scope to keep pumping money into the economy, despite signs of improvement in labor market conditions.

The Fed last year embarked on an open-ended bond buying program and said it would keep it up until it saw a substantial improvement in the outlook for the labor market. It hopes the purchases will drive down borrowing costs.

In the 12 months through February, so-called core CPI increased 2.0 percent, also the largest increase since October, after rising 1.9 percent in January….”

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“The incentive for investors to buy and hold Brent crude has dwindled to its weakest level in eight months as supplies from the North Sea recover.

The premium for immediate supplies of Brent crude versus later deliveries shrank to 28 cents a barrel on March 13, the least since July, as production headed for the highest in 10 months. The narrowing spread is dimming the attraction of buying front-month futures and then transferring, or rolling, the position into the next contract at each monthly expiry. Brent traded as high as $109.55 a barrel in London today.

“The Brent structure has been weakening,” Olivier Jakob, managing director at consultant Petromatrix GmbH in Zug,Switzerland, said by phone on March 13. “And if Brent cannot sustain a high enough roll return, then investors will be more hesitant to hold it at these kinds of price levels.”

Futures have dropped 8 percent from this year’s peak of $119.17 as Europe’s debt crisis and the resumption of North Sea output prompted money managers to cut bullish bets by the most in 18 months. Returns are falling just as the price difference between Brent and West Texas Intermediate, the U.S. benchmark oil, shrinks to its narrowest since Jan. 18.

Roll Yield

Excluding gains or losses from changes in the price of the underlying security, an investor could have made almost $12,000 by buying and rolling a 1,000-barrel lot of Brent, according to data compiled by Bloomberg. The same strategy returned $17,000 per contract in 2011.18

Buying WTI, for which immediate supplies are cheaper than later deliveries, and rolling it through 2012 would have lost $3,150 per contract….”

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“Gold traded below its highest level this month and headed for a second weekly gain in New Yorkas investors weighed a pickup in physical demand against signs economies are improving.

The metal is heading for the first back-to-back weekly advance since January even as U.S. data showed this week retail sales jumped and jobless claims dropped. Global equities reached the highest since June 2008. Japan’s political parties confirmed Haruhiko Kuroda as the Bank of Japan (8301) governor as well as Kikuo Iwata and Hiroshi Nakaso as deputies, ushering in a leadership that may push for more monetary stimulus within weeks.

“Numbers out of the U.S. have been coming out better and that’s helping equities go higher,”Afshin Nabavi, a senior vice president at bullion refiner MKS (Switzerland) SA in Geneva, said today by phone. “Physical demand still remains strong, from the Far East mainly. There seems to be bargain hunting every time around the $1,570 an ounce area.”

Gold futures for April delivery added 0.1 percent to $1,591.70 an ounce by 7:48 a.m. on the Comex in New York. Prices climbed to this month’s high of $1,598.80 an ounce on March 13 and are up 0.9 percent this week. Gold for immediate delivery increased 0.2 percent at $1,593 in London….”

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Say what you will, but stimulus and QE result in devaluation….

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“Italy’s incumbent lawmakers, who united last year to impose austerity on taxpayers, are bracing for a fight over their own privileges as the upstart movement led by Beppe Grillo enters parliament and vies for key roles.

Up for grabs as the legislature convenes today are the speakerships of the Senate and Chamber of Deputies, followed by appointments to budget committees and commission chairmanships. The posts could give Grillo’s Five Star Movement, which took a quarter of the votes in elections last month, enough leverage over the bodies’ more than 2 billion euros ($2.6 billion) in annual operating expenses.

“The costs could be cut in half,” said Elio Lannutti, a consumer advocate, ex-senator and a friend of Grillo’s. “If they keep these people out, the revolution is just going to get bigger.”

Five Star was swept into the legislature with a mandate to cut taxes, curb public spending and shove career politicians from power. The party’s power is still up in the air, as no political force emerged from the Feb. 24-25 election with a majority. It’s now up to President Giorgio Napolitano to nominate a figure to form a government.

Still, Five Star has already used its electoral gains to push its version of an austerity agenda.

Lawmakers make about 20,000 euros a month in salary and benefits, including train and air travel. Yesterday, Grillo called on Pier Luigi Bersani, head of the largest parliamentary force, to persuade his members to give up more than half of their pay. Monthly salaries, at about 11,000 euros, should be reduced to 5,000 euros, Grillo said. There are 945 elected seats in the Senate and Chamber. That compares to 635 in the U.S. Congress.

‘The Caste’…”

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“A resurgence of the debt crisis that scarred the euro-area over the past 3 1/2 years is the biggest threat facing Germany in an election year, policy makers and leading economists said.

With sovereign bond yields declining in countries such as Italy and Ireland, governments acrossEurope cannot be lulled into thinking they can let up on their budget-cutting efforts, economists including Deutsche Bank AG senior adviser Thomas Mayer and Holger Schmieding of Berenberg Bank said during Bloomberg’s first Germany Day conference in Berlin yesterday.

“No nonsense,” Schmieding said during a panel discussion at the event, urging governments not to “backtrack in any way on the achievements” made so far. “If any country tried now to undo austerity, it would likely shatter confidence, it would probably spark another row in Europe, another wave of the euro crisis, and that wave of crisis would leave us all with less business investment, less jobs across the euro area.”

Policy makers including Chancellor Angela Merkel, Europe’s dominant political leader, risk complacency as they use a period of relative market calm to shift from crisis-fighting to longer- term efforts to bolster economic growth and combat record levels of unemployment in countries such as Spain andGreece. Leaders resume a two-day summit in Brussels today that was due to tackle Cyprus, the fifth euro country to call for outside aid.

Cyprus ‘Bail-In’….”

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“European political chiefs paved the way for finance ministers to wrangle a rescue for Cyprus today as the euro area seeks progress toward a bailout that’s been batted about for nine months.

“I can’t imagine that we’ll let the weekend go by without resolving the Cyprus problem,” Luxembourg Prime Minister Jean- Claude Juncker said early today after euro leaders met midway through a two-day European Union summit in Brussels. The EU gathering ends today with a 27-nation discussion of foreign policy, to be followed by a euro-area ministers’ meeting.

Cyprus requested a bailout in June and a deal on aid has been delayed by debate on how to cut the island nation’s debt. The previous government had rejected key demands by the so- called troika that oversees euro-area bailouts. Yesterday’s summit was the first for new President Nicos Anastasiades.

Finnish Prime Minister Jyrki Katainen said finance chiefs didn’t receive specific instructions from leaders ahead of today’s talks on Cyprus. He reiterated that any deal must offer a path to sustainable debt and include a role for the International Monetary Fund.

“We need IMF in the package because of two reasons,” he said. “We need their know how” and “of course it’s better if there are more payers than just the euro-area countries.”

Leaders yesterday welcomed Anastasiades, elected last month, who pledged “decisive” action to comply with whatever terms are agreed on for his country, the fifth euro-area nation to seek aid. Katainen said yesterday the new government has “more credibility” than its predecessor.

Uncertainty Persists….”

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“European governments loosened the shackles on national budgets as the euro-area recession deepens and unemployment climbs, with pro-growth appeals coming even from German Chancellor Angela Merkel, the leader most closely associated with austerity.

European Union leaders endorsed “structural” budgetary assessments, using code for granting countries such asFrance, Spain and Portugal extra time to bring down deficits. Still, balanced budgets remained the goal and there was no talk of large-scale spending programs or bond issues.

“If there is too much austerity, there will be too much unemployment,” French President Francois Hollande said at an EU summit in Brussels late yesterday. “Flexibility is necessary if we want to make growth the priority.”

The euro zone’s economic slump has shoved aside the financial crisis as the bloc’s biggest headache, leading the EU to push back deficit-reduction deadlines and making it perilous for politicians to wrap themselves in the flag of austerity.

European leaders are cloaking the easing up on the fiscal reins in language designed to reassure investors who have driven bond yields lower since mid-2012. They labelled the policy “differentiated growth-friendly fiscal consolidation,” with deficit targets set on a country-by-country basis.

‘Risk to Growth’…”

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“The Canadian dollar reached the strongest level in three weeks against its U.S. counterpart before a U.S. report forecast to show inflation is contained.

The currency was poised for its first five-day gain in six weeks before Labor Department data that is projected to show American inflation rose 1.9 percent in the past year, giving the Federal Reserve scope to maintain asset purchases that devalue the U.S. dollar. Since the Canadian dollar touched its lowest point in eight months versus the greenback on March 1 it has strengthened after data March 8 showed both the U.S. and Canada created more jobs than estimated in February….

…The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.2 percent to C$1.0202 per U.S. dollar at 7:59 a.m. in Toronto, reaching the strongest level since Feb. 22. One loonie buys 98.02 U.S. cents.”

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“Toyota Motor Corp. (7203)’s Prius hybrid is emerging as the likeliest winner from China’s faltering attempt to dictate the future of world motoring.

Policies favoring Warren Buffett-backed BYD Co. (1211) and other electric-vehicle makers were meant to help China vie for global leadership in a technology the government expected to replace clunkers that run on gasoline. Except, as Chairman Mao Zedong put it, “seek truth from facts,” and the fact is: EVs flopped….”

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“Kenya’s Great Rift Valley, a 450- mile long volcanic trench ripped open by shifting tectonic plates, is known as the cradle of mankind for the million-year- old remains of human forebears discovered there.

Oil drillers say the area also holds a string of fields that could make East Africa’s largest economy a major energy producer. The U.K.’s Tullow Oil Plc (TLW) and Canada’s Africa Oil Corp (AOI). found crude at two wells last year and now plan as many as 11 more test wells in 2013. The valley could yield 10 billion barrels, Tullow estimates, enough to supply Kenya for three centuries or the U.S. for about 18 months…”

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“Australia’s dollar headed for the strongest weekly gain in six months before minutes on March 19 from the Reserve Bank’s latest meeting, when policy makers refrained from cutting interest rates.

The so-called Aussie traded within 0.3 percent of the highest level in more than five weeks versus the greenback as traders scaled back rate-cut bets following a report yesterday showing the biggest job gains in almost 13 years. New Zealand’s currency, nicknamed the kiwi, headed for a weekly loss as the nation’s central bank reiterated its focus on exchange rates.”

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“China’s benchmark stock index rose, paring a weekly loss, after valuations dropped to the lowest level in three months. Airlines and railway shares advanced, overshadowing losses by property developers.

The Shanghai Composite Index (SHCOMP) climbed 0.4 percent to 2,278.40 at the close, after rising as much as 1.8 percent and falling as much as 0.9 percent. A gauge of volatility jumped to a 10-month high. The index is valued at 9.4 times projected 12- month earnings, according to data compiled by Bloomberg. The multiple dropped to 9.3 on March 13, the lowest since Dec. 21. Hainan Airlines Co. (600221) rallied 10 percent and Daqin Railway Co. advanced the most in almost a month.

“Stock valuations are low,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “From a five-year horizon, prices will definitely be higher than the current level asChina’s economy is still growing. There are also expectations that the new premier will tackle structural problems such as high property prices and will boost consumption.”

Li Keqiang was elected premier by the nation’s legislature today, succeeding Wen Jiabao and making him in charge of economic policies. Xi Jinping became president yesterday, replacing Hu Jintao.

The Shanghai Composite dropped 1.7 percent this week amid concern the government is intensifying measures to curb asset bubbles and after industrial production and new lending data missed estimates. The 100-day volatility was at 19.2 today, the highest since May, while trading volumes were 4.1 percent lower than the 30-day average, according to Bloomberg data.

The CSI 300 Index added 0.2 percent to 2,539.87 today, while the Hang Seng China Enterprises Index (HSCEI) fell 0.7 percent, retreating 9.8 percent from a Feb. 1 high. TheBloomberg China- US 55 Index (CH55BN) climbed 0.6 percent yesterday in New York.

Airlines Climb…”

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