The Losing Trend

Obama Derides Bank of America Debit Card Fees

2011-10-04T12:04:00.001-04:00

12:01 PM EDT, 10/04/2011 (MidnightTrader) -- Shares of Bank of America (BAC) hit yet another 52-week low after President Obama derided the bank's move to charge consumers a $5 fee to use a debit card for purchases, according to a CNBC report.

"This is exactly why we need this Consumer Finance Protection Bureau that we set up that is ready to go," President Obama said.

Bank of America Website Suffering Access Issues Again

2011-10-03T12:57:00.002-04:00

--Bank of America website problems started on Friday
--Bank spokeswoman says problems not a result of hacking, attack or malware
--Spokeswoman said most customers can still access accounts

(Updates with comments from bank spokeswoman starting in fourth paragraph.)

NEW YORK (Dow Jones)-- Bank of America Corp. (BAC), the nation's biggest bank by assets, continues to suffer issues with its online banking website on Monday, a problem that has persisted since last Friday.

Some customers trying to access either the bank's homepage or their personal accounts are experiencing slowness and trouble accessing them. The problems initially started on Friday, continued to impact sporadic accounts Saturday and have come back Monday, key dates for some customers who get paid on the first of the month or owe bills.

"We're sorry, but some of our pages are temporarily unavailable," A message on the bank's homepage said. "Thanks for your patience."

A spokeswoman for the bank said the messages customers are getting are a " proactive attempt" to direct some traffic away from the site, allowing the bank to slow usage and handle the underlying cause.

The spokeswoman said the bank is not divulging the underlying cause, but that it is not a result of hacking or malware. The bank also has refused to release details on whether the problem is nationwide or impacting only certain areas. She said there were no problems on Sunday, but that Monday the issues were again sporadic.

The spokeswoman said the site was not down, and that most customers can access their accounts, although some were experiencing unusual slowness.

At the end of June, the bank had 29.7 million active online banking accounts, more than half of which use the bank's bill-paying services from the website. The days immediately around the first of the month typically generate higher volume on the bank's website.

On Friday, the website was also plagued with issues, which the spokeswoman at the time said was not the result of any hacking. The spokeswoman also said the website trouble wasn't related to a decision last week to charge customers $5 a month for debit-card purchases.

Bank of America's debit fee has raised the ire of many consumers and consumer groups last week, despite other large national banks having undertaken similar steps recently. J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) are both "testing" monthly fees on debit cards in some regions, though both have been charging $3 a month in the trials. Other banks have also announced $5 monthly fees, including SunTrust Banks Inc. (STI).

By David Benoit
Of DOW JONES NEWSWIRES

End-of-Quarter Portfolio Rejiggering Rattles Shaky Markets

2011-09-30T16:27:00.000-04:00

NEW YORK (Dow Jones)--Investors have been a trigger-happy lot this week, gobbling up risky securities one day and dumping them the next.

But while the European debt crisis dominated the conversation in the market, a key factor behind the turmoil was the fact that it's the end of the quarter.

Quarter-end is always a big deal for large, conservative investors like insurance companies and pension funds, which typically face self-imposed limits on their risk-taking and on how much they can hold in different investments. Those rules mean that at quarter-end they place buy or sell orders just to get back in line with their mandates.

After a quarter as volatile as this one, that rebalancing process can be especially extensive. Some investors may have suffered hefty losses in their equity portfolios and gains in their bond holdings. To readjust, they're stocking up on equities to replenish holdings that have lost value. Others might be redirecting cash from their now top-heavy bond funds.

That rebalancing could be sparking the market's up-and-down moves. After dropping over 6% last week, the Dow Jones Industrial Average hasn't ended in the same direction as the previous session since Tuesday.

At the same time, money managers are generally rethinking their strategies, making it even more difficult to decipher market moves. These investors are reducing riskier holdings due to the darkening clouds over the euro zone and the global economy.

"The market is getting very mixed messages [on Europe ], and when you throw in the fact that we're coming to the end of the quarter," that's prompting adjustments, says Adrian Darley , London -based head of European equities for Ignis Asset Management, which manages roughly GBP70 billion .

The third quarter was an especially tricky one for investors needing to rebalance. The DJIA slipped about 10%, while the Brazilian real--a popular bet on global growth--lost nearly 20% of its value against the dollar. By contrast, the dollar rose against most currencies, and Treasury bond prices rallied after the Federal Reserve said it would buy more U.S. debt to lower interest rates and boost the economy.

"We are managing our portfolios defensively in a period of rising volatility, " said Ashish Shah , head of global credit at AllianceBernstein , which manages $ 210 billion in fixed-income investments.

Granted, much of the market turmoil is tied to concerns about Europe's debt crisis.

"Everyone's talking about it," said Nigel Sillis , director of research, fixed income and currencies, at Baring Asset Management in London , which manages $52 billion . "At the beginning of the week, we dialed in our Asian team for strategy, and they started talking about Europe . We said, look, don't talk to us about Europe , we called you to talk about Asia ."

Ignis's Darley says some investors, especially hedge funds, have fairly extreme positions, making topsy-turvy quarter-end trading more likely. Currency investors appear very worried about a euro collapse over the next one to three months, judging from signals in the derivatives markets, notes analyst Chris Turner at Dutch bank ING.

But AllianceBernstein's Shah says much of the recent turbulence is down to big moves in stocks, bonds and emerging-market currencies throwing investors for a loop. Losses on emerging-market bonds and currencies have been particularly acute, requiring adjustments. Because some investors had taken on more risk by betting on currencies as well as bonds--buying local-currency bonds, for example--"that forced deleveraging into the end of the month," Shah says.

Emerging-market bonds saw their biggest weekly outflow on record in the week ending Sept. 28 , according to fund-tracker EPFR Global. With investors worried about the end-game of Europe's debt crisis and fears over U.S. and Chinese growth mounting, investors are likely readjusting and taking less risk.

"You will continue to see more reduction of risk and people waiting for a trend," a currency trader at a bank says.

-By Neil Shah

2011-09-30T14:22:00.000-04:00

1:01 (Dow Jones) The outperformance of the 30-year Treasury bond even turns the benchmark 10-year note into a relative laggard despite the latter's deeper liquidity. The extra yield investors demand to own 30s rather than 10s is 1.019 percentage points, the narrowest spread since July 2010 . It was 1.262 the day before the unveiling of Operation Twist last week. Some investors say the planned Fed buying will keep the 30-year yield falling in coming months, making the trade of buying 30s and selling 10s attractive. Some traders expect the yield gap to drop to as low as 0.75 point the next couple of months. (min.zeng@ dowjones.com)

Fed to begin 'Operation Twist' on Monday

2011-09-30T14:14:00.001-04:00

The New York Federal Reserve Bank of New York said Friday that it would begin Treasury purchases and sales on Monday as part of the program dubbed "Operation Twist" announced by policy makers earlier this month. The Fed will buy long-term debt on Monday, Tuesday and Friday and inflation-linked debt on Wednesday. It will sell one-year debt on Thursday, the Fed said on its schedule posted on its web site.

- Deborah Levine

SEC Delays Ruling On New Stock-Market Shock Absorbers

2011-09-28T11:55:00.002-04:00

The U.S. Securities and Exchange Commission on Wednesday put off until Nov. 28 a decision on stock exchanges' plan for a new system of shock absorbers to contain market volatility.

Regulators are weighing a proposal, put forth by exchanges in April, to retool the "circuit breaker" system developed to curb the massive price swings seen during the May 2010 "flash crash," replacing it with a new regime traders say will allow the market to operate more smoothly.

A ruling on the plan had been slated for Sept. 29 . Another two months will let regulators weigh reaction from the industry, which has included concerns that the program could create snarls for traders trying to price derivatives contracts.

The new concept would put in place curbs preventing share prices from rising or falling too quickly, though buying and selling could continue within such limits.

The current circuit breaker system automatically halts all trading in stocks and exchange-traded funds that see a 10% price move within a five-minute period. These temporary halts have at times frustrated firms that must sit on the sidelines until the affected security is reopened for business.

-By Jacob Bunge

Hedge Funds Face New Round of Redemptions As Losses Bite

2011-09-28T11:49:00.003-04:00

LONDON (Dow Jones)--The hedge fund industry is braced for a new round of redemptions after two months of poor performance and growing investor desire to move money into cash.

The world's largest listed hedge-fund manager, Man Group PLC (EMG.LN), stoked fears of another industry meltdown Wednesday when it reported a net $2.6 billion was pulled from its funds between June 30 and Sept. 26 . It lost a further $1.5 billion from fund losses and $1.9 billion from the effect of a stronger U.S. dollar when accounting for euro- and Australian dollar-denominated funds. Its GLG unit, acquired last year, posted particularly large outflows.

Man Group shares fell as much as 25% in London.

Aberdeen Asset Management PLC (ADN.LN), a U.K. fund manager with about GBP26.2 billion of its GBP176.9 billion in alternative investment strategies, Monday said those funds lost about GBP2.2 billion between June and August from redemptions and performance losses.

Despite volatile markets this year, redemptions have been relatively subdued for most hedge funds, but high-profile losses over the summer and the deepening euro-zone debt crisis and economic gloom could send investors toward the exits. Most large managers of long-only equity and bond funds posted outflows last week, data provider EPFR Global said Monday, highlighting how investors are taking risk off the table.

Friday marks a deadline for investors in many hedge funds with monthly and quarterly liquidity to say they want their capital back.

Expectations of further hedge-fund losses for September come after an average 2.3% decline in August, according to Hedge Fund Research Inc.'s HFRI Fund Weighted Composite Index, the largest monthly decline since May 2010 . An HFR index tracking a smaller pool of funds offering daily liquidity, the HFRX Global Hedge Fund Index, was down 2.51% in September as of Monday, while a report from HSBC Private Bank shows that most funds reporting intra-month performance were down on the month as of Sept. 23 .

Still, some funds are doing well in the tough environment. Brevan Howard's BH Macro Ltd. (BHMG.LN), a listed feeder into its Master Fund , in a regulatory filing said it was up 1.61% for the month as of Friday. It gained 6.2% in August.

Winton Capital's Futures Fund , following a similar systematic strategy, was up 1.04% as of Sept. 21 , and 7.25% so far this year, according to the HSBC report.

Managers stressed that many investors still see the diversification benefits and potential of outpeformance from hedge funds, and will likely stay put as long as there is nowhere else particularly attractive to move capital.

The global hedge-fund industry managed around $2.04 trillion at the end of June, according to HFR, after dipping as low as $1.33 trillion in the first quarter of 2009.

-By Margot Patrick

SEC To Publish For Public Comment Updated Market Wide Circuit Breaker Proposals To Address Extraordinary Market Volatility

2011-09-27T10:45:00.003-04:00

FOR IMMEDIATE RELEASE
2011-190

Washington, D.C. , Sept. 27, 2011 - The Securities and Exchange Commission today announced that the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) are filing proposals to revise existing market-wide circuit breakers that are designed to address extraordinary volatility across the securities markets. When triggered, these circuit breakers halt trading in all exchange-listed securities throughout the U.S. markets.

The proposals being filed today would update the market-wide circuit breakers by among other things reducing the market decline percentage thresholds necessary to trigger a circuit breaker, shortening the duration of the resulting trading halts, and changing the reference index used to measure a market decline.

If approved by the Commission, the new market-wide circuit breaker rules would replace the existing market-wide circuit breakers, which were originally adopted in October 1988 and have only been triggered on one day in 1997.

"This new market-wide circuit breaker together with the other post-Flash Crash measures is designed to reduce extraordinary volatility in our markets," said SEC Chairman Mary Schapiro . "We look forward to reviewing the comments, including any views on how the proposed circuit breaker changes might work together with the proposed limit up-limit down mechanism for individual securities."

The SEC will seek comment on the proposed rule changes, which are subject to Commission approval following a 21-day public comment period.

Market-Wide Circuit Breaker Proposal

The proposals would revise the existing market-wide circuit breakers by:

Reducing the market decline percentage thresholds necessary to trigger a circuit breaker from 10, 20, and 30 percent to 7, 13, and 20 percent from the prior day's closing price.

Shortening the duration of the resulting trading halts that do not close the market for the day from 30, 60, or 120 minutes to 15 minutes.

Simplifying the structure of the circuit breakers so that rather than six there are only two relevant trigger time periods - those that occur before 3:25 p.m. and those that occur on or after 3:25 p.m.

Using the broader S&P 500 Index as the pricing reference to measure a market decline, rather than the Dow Jones Industrial Average.

Providing that the trigger thresholds are to be recalculated daily rather than quarterly.

The market-wide circuit breakers were not triggered during the severe market disruption of May 6, 2010 , which led the exchanges and FINRA in consultation with SEC staff to assess whether the circuit breakers needed to be modified or updated in light of today's market structure. In addition, the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues recommended in February 2011 that the SEC and CFTC review the current operation of the market-wide circuit breakers, and consider appropriate modifications.

Other Post- May 6 Actions

The SEC has undertaken other initiatives to respond to the events of May 6 , including:

Approving rules that require the exchanges and FINRA to pause trading in certain individual securities if the price moves 10 percent or more in a five- minute period. This pilot program applies to all exchange-listed stocks and exchange-traded products.

Approving new exchange and FINRA rules clarifying up front how and when erroneous trades would be broken.

Approving new rules of the exchanges and FINRA to strengthen the minimum quoting standards for market makers and effectively prohibit "stub quotes" in the U.S. equity markets.

The Commission also is considering a proposal by the exchanges and FINRA to establish a "limit up-limit down" mechanism to address extraordinary market volatility in individual securities.

In addition, the SEC has:

Adopted a rule requiring broker-dealers to have risk controls in place before providing their customers with access to the market.

Adopted a rule establishing a large trader reporting system to enhance the Commission's ability to identify large market participants and more effectively collect information on their trading activity.

Proposed a rule to establish a consolidated audit trail system to better track orders and trades in securities across the national market system.

Next Steps

The proposed rules will be available on the SEC's website. The Commission intends to promptly publish the proposed rules in the Federal Register for a 21- day public comment period, and then will review the comments received on the proposals.

Here's Why Everything's Rallying on No Real News

2011-09-27T10:38:00.002-04:00

By Andrew J. Johnson

Even as uncertainty over the euro-zone's sovereign debt crisis continues, the euro, and European stocks, and US stocks, and everything else risky, climb higher.

There are at least three reasons why, says GFT Forex's Kathy Lien :

1) Investors believe that European officials are finally serious about fixing their debt crisis, even if the process is not always pretty;

2) the quarter is also coming to an end and in order to rebalance their portfolios. Following the sharp sell-off in equities in Q3, money managers will need to buy stocks and high-yielding currencies; and

3) investors are optimistic about Tuesday's vote in Greece , in which the Parliament is widely expected to approve an unpopular increase in property tax.

EU Super-Bailout Option Slips Away

2011-09-27T08:53:00.004-04:00

Posted by Terence Roth

And that was that. An idea that tantalized global financial markets came out of the weekend and immediately sank into the tar pit of European decision making.

The sensation at the IMF meetings in Washington was a vaguely formed idea to increase the lending capacity of Europe's EFSF bailout fund not from 250 billion euros to 440 billion euros as agreed in a July 21 summit, but to as high as 2 trillion euros by leveraging its assets. Only this, proponents argue, would persuade markets that the EU wouldn't allow Europe's government debt crisis to spread to Italy and Spain , potentially scuttling the euro as currency.

Financial markets rallied around the globe Monday as investors saw the first glimpse of real hope for containing the European debt crisis.

Problem was that the lead advocates of the deal, the IMF's Christine Lagarde and the European Commission's Olli Rehn, are bureaucrats who don't have to answer to electorates every few years.

Decidedly not on board were the actual governments of the 17 euro -zone nations. Euro-zone finance ministers came home from Washington doubting they could sell more risk to voters already grumbling at past and present tax money being put behind insolvent state treasuries in Greece , Portugal and Ireland .

Germany on Tuesday declared there were no further expansions planned for the EFSF beyond what was decided in July. Angela Merkel cannot go there without risking ouster, and German papers have been full of warnings that Germany's own credit rating could be cut if it bound its treasury too closely to Southern euro partners.

Spain , potentially a main beneficiary of a more muscular financial safety net, said the idea wasn't on the table, according to the country's finance minister.

The ECB sees the idea as toxic. German ECB board member Jens Weidmann warned that EFSF borrowing, essentially from the ECB, essentially means the central bank monetizing state budgets, which is forbidden by the European Union treaty.

Even the EU has had to curtail its enthusiasm, conceding in a public statement Tuesday that "no formal debate has been engaged on this issue."

The heady weekend in Washington is over. Some governments are still maneuvering artfully to get the more modest July 21 plan through their parliaments, and even face dissent inside their own parties. Some officials worry that reopening the July agreement would invite long delays before a new agreement is forged.

The next option might be to accelerate the introduction of the European Stabilization Mechanism. This is planned to replace the EFSF fund in July 2013 and would provide a legal framework for handling government bankruptcies. German Finance Minister Wolfgang Schaeuble has knocked that idea, saying already in Washington that getting the ESM into place will take time.

Right now, euro-zone parliaments are in the process of ratifying a new bailout fund already deemed inadequate; Greece's second 110 billion euro EU/IMF bailout is in doubt; and so is the next 8 billion euro payment of last year's bailout. And solutions remain elusive.

Europe's Banks Face New Funding Squeeze

2011-09-26T18:47:00.002-04:00

LONDON (Dow Jones)--An extraordinary dry spell in the market for long-term European bank funding is amplifying pressure on policy makers to devise a solution to the continent's banking crisis.

For the past three months, European banks have been largely unable to sell debt at affordable prices to investors, who are wary of the banks' vulnerability to risky euro-zone government bonds and other loans.

At $34 billion , the amount of senior unsecured debt issued by the continent's financial institutions this quarter is on track to be the smallest of any quarter in more than a decade, according to data provider Dealogic . Most of those were bite-sized deals of less than $500 million apiece. Traditionally, issuing such debt has been among the most popular ways for banks to finance themselves over the long term.

Now market observers are worried that the funding freeze is going to continue and--perhaps worsen--heading into 2012, with potentially serious repercussions for the banking industry.

Most banks said they have raised enough money to get through the final three months of the year, and they have access to safety valves such as central-bank liquidity to ensure they can meet their day-to-day funding needs.

Yet analysts have estimated that the banks face a mountain of debt, totaling nearly EUR800 billion ( $1.08 trillion ), that comes due in 2012. Much of that will need to be replaced with new debt. If banks can't raise this, they might have to shrink their balance sheets by selling assets or curbing lending.

"This is about the time of year you'd want to be prefunding for next year," said Simon Samuels , an analyst in London with Barclays Capital . The funding lockout "obviously can't go on much longer" without damaging the industry.

Until recently, much of the concern about the deteriorating conditions in Europe's banking system focused on strains in the short-term funding markets. Traditional lenders to banks, such as U.S. money-market funds and fellow banks, have become wary of lending except for extremely short periods of time. This has sowed fears that large European banks could encounter life-threatening liquidity problems.

While those jitters still exist, they have eased somewhat because of the European Central Bank's willingness to serve as a lender of last resort to banks that can't get short-term funding elsewhere. Analysts said this largely eliminates the risk that a big bank will suddenly keel over.

Now, however, analysts, investors and some bankers said they are increasingly anxious about the inability of banks to issue medium- and long-term debt.

Renewing next year's waves of maturing debt is likely to be especially tricky because nearly 25% of it had benefited from government guarantees that won't exist for new debt, according to CreditSights Ltd. analyst Simon Adamson .

If conditions persist, it could force banks to drastically reduce their lending and other activities, which could undermine the broader economy, analysts said.

After months without debt issuance, "the banks will be struggling to catch up, " Adamson said. "Banks will have to be looking at reducing balance-sheet positions." Already, banks in countries such as France have unveiled deleveraging plans that include reductions in certain types of lending.

The situation is putting pressure on European officials to respond. One possibility floated by a number of private-sector experts last week is for euro- zone governments to issue a blanket guarantee of the industry's debts. But while such a plan would make it much easier for banks to borrow, it would risk saddling taxpayers with enormous losses should the industry's health worsen.

The ECB has a number of options that potentially could defuse the long-term funding strains, and some could be considered at the central bank's next meeting on Oct. 6 . One option is to extend the maturities of loans it offers to commercial banks to one year to ensure a steady source of funding. Such a move, which ECB officials have mentioned in recent days, would essentially buy policy makers more time.

The problems aren't confined to the lack of what is known as term-debt issuance. Other funding sources also continue to fade.

Italian banks, for example, traditionally have drummed up funds by issuing certificates of deposits in the French market. In May, the six largest Italian banks had a combined EUR24.5 billion of those CDs outstanding. That number has been declining steadily since then. As of Sept. 16 , it had been cut in half to EUR12.1 billion .

The situation is prompting banks to look for alternative sources of funding. In Spain and Italy , lenders are hoping their retail customers will pick up some of the slack. While banks in those countries--which have fallen out of investor favor--have traditionally peddled debt products to their retail clients, the activity has accelerated recently, according to analysts and bankers.

Banco Santander SA (STD, SAN.MC), Spain's largest bank by market value, last week said it would issue up EUR7.5 billion worth of notes with maturities of up to 25 months. The deal is aimed primarily at retail investors, Santander said. Bankia SA (BKIA.MC), created in July through the merger of seven Spanish savings banks, on Friday did the same, launching a sale of one-year, retail-targeted notes that offer an interest rate of as much as 4% a year.

Competition among banks to issue such retail-oriented debt is heating up. In Italy , where retail bonds play a similar role to certificates of deposit in other countries, the interest rates banks dangle to lure investors have gone up by as much as 25% this summer, analysts said.

But demand could be limited, as those customers are reading the same headlines that are spooking institutional investors. "It's a question of risk appetite," said Alain Tchibozo, an analyst at Mediobanca Securities .

The unavailability of traditional term funding has prompted some banks to turn to what are known as covered bonds, which are secured by assets such as mortgages that reside on the banks' balance sheets. But those bonds tend to be more expensive than traditional funding.

Some European banks have hinted to investors that they would be willing to pay higher prices to issue long-term debt via private transactions, instead of in the public markets, said CreditSights' Adamson. Such deals would have the advantage of taking place out of public view, so banks could afford to pay more without worrying about being stigmatized by the high costs.

Bachmann Warns of Hezbollah Training Camps, Weapons in Cuba

2011-09-26T16:28:00.004-04:00

Some humor for today:

By Neil King Jr.

Of all the world's woes-- Greece near collapse, the Taliban's surge in Afghanistan , jitters over the rise of China --presidential hopeful Michele Bachmann is giving it to Cuba .

She first laid into the less-than-vibrant island nation during last week's GOP debate in Orlando , noting that Cuba remains on the State Department's list of terrorist sponsors and condemning any push to normalize relations with the communist country.

Cuba came up again at a Bachmann campaign rally in Cedar Rapids, Iowa , Monday when a supporter asked her to amplify on her debate comments. This time, the Minnesota congresswoman cited "reports" that Hezbollah , the militant Muslim group based in Lebanon , had established training sites in Cuba and might even set up missile sites 90 miles from U.S. soil.

She was referring to a story that ran in an Italian newspaper and was quickly picked up on various blogs earlier this month.

"Hezbollah has been potentially looking at wanting a part of missile sites in Iran ," she said, citing earlier her position on the House Intelligence Committee . "So of course when you're 90 miles offshore from Florida , you don't want to entertain the prospect of hosting bases or sites where Hezbollah can have training camps or perhaps have missile sites or weapons sites in Cuba . This would be foolish."

Normalizing trade with Cuba , Mrs. Bachmann said, would only be rewarding the government there for such behavior. She then compared Cuba to Palestine, saying the U.S. shouldn't normalize relations with Cuba anymore than Israel should do the same with Palestine--until both renounce terrorism.

She then drove home one of her core campaign messages: She's the candidate "who understands problems that are going on internationally."

Cuba was put on the terror list in 1982, when the Reagan administration accused Fidel Castro of aiding communist rebels in Africa and Latin America . The U.S. has kept Cuba on the list, in part, as bargaining chip, saying officially that Havana doesn't support the U.S war on terrorism and has maintained friendly ties with other countries on the terror list, such as Iran .

Panel Puts Nuclear-Disaster Compensation at Upward of Y3Tln Nikkei

2011-09-26T15:58:00.002-04:00

TOKYO (Nikkei)-Compensation for the Fukushima Daiichi nuclear disaster will cost at least Y3 trillion to Y4 trillion, reckons a government-appointed panel looking into Tokyo Electric Power Co.'s (9501.TO) finances, the Nikkei reported in its Tuesday morning edition.

Tepco, as the utility is known, will run out of cash unless it restarts idle reactors at its workhorse Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture or charges more for electricity, according to projections that will be included in the panel's upcoming report.

The compensation estimates assume that the damaged Fukushima reactors are brought to the safe state, known as cold shutdown, early next year and that residents evacuated from the surrounding areas return home next fiscal year.

Delays in reaching these goals would run up the bill, which will also depend on how much of the decontamination costs Tepco is made to bear.

The panel examined nine financial scenarios for the coming decade, based on when the Kashiwazaki-Kariwa reactors might go back online and how much electric rates might rise.

In its report, which is due out as early as next month, the panel will include three or four of the viable scenarios and put a figure of Y500 billion to Y600 billion on the compensation money to be realized through a companywide overhaul.

Oxygen Bio Chief Faked Resume, Abused Position, Audit Body Says

2011-09-26T15:50:00.002-04:00

The former head of Oxygen Biotherapeutics Inc. (OXBT) was fired last month for allegedly falsifying his resume and abusing his position to personally enrich himself, according to findings from the company's audit committee.

Oxygen, which has never posted a profit, hopes to commercialize drugs it is developing to efficiently deliver oxygen to tissues for cosmetic and therapeutic purposes. The dismissal of Chairman and Chief Executive Chris J. Stern last month forced the company to push back its annual shareholders meeting to this Friday.

Stern purported to have a doctorate from Trinity University but instead earned the degree from Trinity College & University , an unaccredited institution, the audit committee said in a Securities and Exchange Commission filing. He also teaches at St. Galler Business School , not the more prestigious St. Gallen Business School , the committee said.

Stern allegedly used his position at the company in 2008 to use Fiona International SA , a service provider for Oxygen at the time, to disguise payments that were in effect commissions on securities sales, a transaction the company had disallowed. Stern failed to disclose the related-party transaction that gave him warrants to buy 66,667 shares of Oxygen's common stock, which were worth about $489,000 at the time, according to the committee.

Oxygen ended up paying Fiona more than $2.2 million worth of cash, warrants and restricted stock, according to the audit committee.

Contact information for Stern wasn't immediately available. A Raleigh, N.C. , number listed under Stern's name was disconnected.

Oxygen revealed Stern's dismissal last month and refused to pay him severance, citing undisclosed "circumstances surrounding his dismissal." Oxygen's board has named its chief financial officer as interim CEO during its search for a permanent replacement.

The company's quarterly earnings statement last week said it has also informed the SEC and Nasdaq about its findings.

Shares were recently off 6 cents at $2.08 Monday. The stock has fallen 23% over the past year.

Warren Buffett Scorns Stock Buybacks Except Now

2011-09-26T15:05:00.000-04:00

By Shira Ovide

There are a bundle of remarkable things about Berkshire Hathaway's announcement today that it plans to buy back an unspecified amount of its own stock.

One, the conglomerate has never under Warren Buffett's watch repurchased its own shares. That's 40-plus years of never.

Two, this announcement is an implicit admission that Buffett can't grow returns as he has in the past. Buffett has been warning for years that he won't be able to keep pace with his track record of shareholder returns. What seemed like tamping down of expectations may actually be true now.

And third, Buffett really doesn't like stock buybacks -- at least not when other companies do it. Here is what Buffett said, rather snidely, in his 2006 investor letter regarding his company's growth in book value: (Emphasis has been added by Deal Journal )

"We believe that $16.9 billion is a record for a one-year gain in net worth - more than has ever been booked by any American business, leaving aside boosts that have occurred because of mergers (e.g., AOL's purchase of Time Warner ). Of course, Exxon Mobil and other companies earn far more than Berkshire, but their earnings largely go to dividends and/or repurchases, rather than to building net worth."

And in his investor letter dated March 2000 , Buffett wrote at length about the criteria he believes are necessary for a Berkshire stock buyback. And he writes that most buybacks are misguided. Here is Buffett:

"There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds -- cash plus sensible borrowing capacity -- beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise, insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth. We have, on rare occasions, seen that happen. Usually, of course, chicanery is employed to drive stock prices up, not down....

[I]t appears to us that many companies now making repurchases are overpaying departing shareholders at the expense of those who stay. In defense of those companies, I would say that it is natural for CEOs to be optimistic about their own businesses. They also know a whole lot more about them than I do. However, I can't help but feel that too often today's repurchases are dictated by management's desire to 'show confidence' or be in fashion rather than by a desire to enhance per-share value."

Still, Buffett in that 2000 letter said he had made a in not buying back Berkshire stock at previous low points in the stock's trading history.

"My appraisal of Berkshire's value was then too conservative or I was too enthused about some alternative use of funds," he told shareholders in his annual letter at the time.

-- Erik Holm contributed to this post.

Azinonomics: Stagnation Nation?

2011-09-08T14:40:00.000-04:00

Very interesting post from Azizonomics :

It has long been my view that most of the seeds of the West’s ills were sown in the 1970s: that was the decade when Western consumerism began to be sated by Chinese imports, and Arab oil, and the decade when America cut the link between the dollar and gold sparked the first flames of the great Keynesian debasement bonfire. Richard Nixon and Henry Kissinger were the chief architects, of all three of these innovations, and the internationalisation of the dollar as the global reserve currency. As I have reported time and again, it was free lunch economics — but there ain’t no such thing.

In the 80′s, the United States’ trade balance flipped over and the U.S. became a net debtor, sending more and more dollars and debt out to the world as the free lunch got bigger and bigger. But something odd happened from the 70s onwards, as demonstrated by our graphic of the day (Image on the left).
Robert Reich claims that this stagnation began in 1979, but I think it’s obvious from the graph that the wage stagnation began earlier. Ever since Kissinger and Nixon’s innovations wages have been stagnant, while productivity, imports, corporate profits, government debt, the price of gold have all soared.

The reality is that ever since the 70s government policy, and the shape of global infrastructure and industry has favoured the rich over the poor, has favoured the monied over the moneyless, and favoured the powerful over the powerless.

That’s why get skyrocketing corporate profits. [...]

Bernanke at the Economic Club of Minnesota Luncheon

2011-09-08T14:05:00.004-04:00

No commitments made. Chairman Ben S. Bernanke at the Economic Club of Minnesota Luncheon, Minneapolis, Minnesota:

The U.S. Economic Outlook

Good afternoon. I am delighted to be in the Twin Cities and would like to thank the Economic Club of Minnesota for inviting me to kick off its 2011-2012 speaker series. Today I will provide a brief overview of the U.S. economic outlook and conclude with a few thoughts on monetary policy and on the longer-term prospects for our economy.

The Outlook for U.S. Economic Growth
In discussing the prospects for the economy and for policy in the near term, it bears recalling briefly how we got here. The financial crisis that gripped global markets in 2008 and 2009 was more severe than any since the Great Depression. Economic policymakers around the world saw the mounting risks of a global financial meltdown in the fall of 2008 and understood the extraordinarily dire economic consequences that such an event could have. Governments and central banks consequently worked forcefully and in close coordination to avert the looming collapse. The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. Despite these strong and concerted efforts, severe damage to the global economy could not be avoided. The freezing of credit, the sharp drops in asset prices, dysfunction in financial markets, and the resulting blows to confidence sent global production and trade into free fall in late 2008 and early 2009.

It has been almost exactly three years since the beginning of the most intense phase of the financial crisis, in the late summer and fall of 2008, and a bit more than two years since the official beginning of the economic recovery, in June 2009, as determined by the National Bureau of Economic Research's Business Cycle Dating Committee. Where do we stand? There have been some positive developments over the past few years. In the financial sphere, our banking system and financial markets are significantly stronger and more stable. Credit availability has improved for many borrowers, though it remains tight in categories--such as small business lending--in which the balance sheets and income prospects of potential borrowers remain impaired. Importantly, given the sources of the crisis, structural reform is moving forward in the financial sector, with ambitious domestic and international efforts under way to enhance financial regulation and supervision, especially for the largest and systemically most important financial institutions.

Nevertheless, it is clear that the recovery from the crisis has been much less robust than we had hoped. From recent comprehensive revisions of government economic data, we have learned that the recession was even deeper and the recovery weaker than we had previously thought; indeed, aggregate output in the United States still has not returned to the level that it had attained before the crisis. Importantly, economic growth over the past two years has, for the most part, been at rates insufficient to achieve sustained reductions in the unemployment rate, which has recently been fluctuating a bit above 9 percent.

The pattern of sluggish economic growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an annual rate of less than 1 percent, on average, in the first and second quarters. Some of this weakness can be attributed to temporary factors, including the strains put on consumer and business budgets by the run-ups earlier this year in the prices of oil and other commodities and the effects of the disaster in Japan on global supply chains and production. Accordingly, with commodity prices coming off their highs and manufacturers' problems with supply chains well along toward resolution, growth in the second half looks likely to pick up. However, the incoming data suggest that other, more persistent factors also have been holding back the recovery. Consequently, as noted in its statement following the August meeting, the Federal Open Market Committee (FOMC) now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the June meeting, with greater downside risks to the economic outlook.

One striking aspect of the recovery is the unusual weakness in household spending. After contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011. The temporary factors I mentioned earlier--the rise in commodity prices, which has hurt households' purchasing power, and the disruption in manufacturing following the Japanese disaster, which reduced auto availability and hence sales--are partial explanations for this deceleration. But households are struggling with other important headwinds as well, including the persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high for many, notwithstanding that households, in the aggregate, have been saving more and borrowing less. Even taking into account the many financial pressures they face, households seem exceptionally cautious. Indeed, readings on consumer confidence have fallen substantially in recent months as people have become more pessimistic about both economic conditions and their own financial prospects.

Compared with the household sector, the business sector generally presents a more upbeat picture. Manufacturing production has risen nearly 15 percent since its trough, driven importantly by growth in exports. Indeed, the U.S. trade deficit has narrowed substantially relative to where it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has also continued to expand. Corporate balance sheets are healthy, and although corporate bond markets have tightened somewhat of late, companies with access to the bond markets have generally had little difficulty obtaining credit on favorable terms. But problems are evident in the business sector as well: Business investment in nonresidential structures, such as office buildings, factories, and shopping malls, has remained at a low level, held back by elevated vacancy rates at existing properties and difficulties, in some cases, in obtaining construction loans. Also, some business surveys, including those conducted by the Federal Reserve System, point to weaker conditions recently, with businesses reporting slower growth in production, new orders, and employment.

Why has this recovery been so slow and erratic? Historically, recessions have tended to sow the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of stimulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and increased hiring raises household incomes--providing further impetus to business and household spending. Improving income prospects and balance sheets also make households and businesses more creditworthy, and financial institutions become more willing to lend. Normally, these developments create a virtuous circle of rising incomes and profits, more-supportive financial and credit conditions, and lower uncertainty, allowing the process of recovery to develop momentum.

These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.

Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time--with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines--the rate of new home construction has remained at less than one-third of its pre-crisis peak. Depressed construction also has hurt providers of a wide range of goods and services related to housing and homebuilding, such as the household appliance and home furnishing industries. Moreover, even as tight credit for builders and potential homebuyers has been one of the factors restraining the housing recovery, the weak housing market has in turn adversely affected financial markets and the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners "underwater" on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well.

As I noted, the financial crisis of 2008 and 2009 played a central role in sparking the global recession. A great deal has been and continues to be done to address the causes and effects of the crisis, including extensive financial reforms. However, although banking and financial conditions in the United States have improved significantly since the depths of the crisis, financial stress continues to be a significant drag on the recovery, both here and abroad. This drag has become particularly evident in recent months, as bouts of sharp volatility and risk aversion in markets have reemerged in reaction to concerns about European sovereign debts and related strains as well as developments associated with the U.S. fiscal situation, including last month's downgrade of the U.S. long-term credit rating by one of the major ratings agencies and the recent controversy surrounding the raising of the U.S. federal debt ceiling. It is difficult to judge how much these events and the associated financial volatility have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth.

While the weakness of the housing sector and continued financial volatility are two key reasons for the frustratingly slow pace of the recovery, other factors also may restrain growth in coming quarters. For example, state and local governments continue to tighten their belts by cutting spending and reducing payrolls in the face of ongoing budgetary pressures, and federal fiscal stimulus is being withdrawn. There is ample room for debate about the appropriate size and role for the government in the longer term, but--in the absence of adequate demand from the private sector--a substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring.

The prospect of an increasing fiscal drag on the economy in the face of an already sluggish recovery highlights one of the many difficult tradeoffs currently faced by fiscal policymakers. As I have emphasized on previous occasions, without significant policy changes to address the increasing fiscal burdens that will be associated with the aging of the population and the ongoing rise in health-care costs, the finances of the federal government will spiral out of control in coming decades, risking severe economic and financial damage. But, while prompt and decisive action to put the federal government's finances on a sustainable trajectory is urgently needed, fiscal policymakers should not, as a consequence, disregard the fragility of the economic recovery. Fortunately, the two goals--achieving fiscal sustainability, which is the result of responsible policies set in place for the longer term, and avoiding creation of fiscal headwinds for the recovery--are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the long term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

The Outlook for Inflation
Let me turn now from the outlook for growth to the outlook for inflation. Prices of many commodities, notably oil, increased sharply earlier this year. Higher gasoline and food prices translated directly into increased inflation for consumers, and in some cases producers of other goods and services were able to pass through their higher costs to their customers as well. In addition, the global supply disruptions associated with the disaster in Japan put upward pressure on motor vehicle prices. As a result of these influences, inflation picked up significantly; over the first half of this year, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent, compared with an average of less than 1-1/2 percent over the preceding two years.

However, inflation is expected to moderate in the coming quarters as these transitory influences wane. In particular, the prices of oil and many other commodities have either leveled off or have come down from their highs. Meanwhile, the step-up in automobile production should reduce pressure on car prices. Importantly, we see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy. Longer-term inflation expectations have remained stable according to the indicators we monitor, such as the measure of households' longer-term expectations from the Thompson Reuters/University of Michigan survey, the 10-year inflation projections of professional forecasters, and the five-year-forward measure of inflation compensation derived from yields of inflation-protected Treasury securities. In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack that exists in U.S. labor and product markets should continue to have a moderating influence on inflationary pressures. Notably, because of ongoing weakness in labor demand over the course of the recovery, nominal wage increases have been roughly offset by productivity gains, leaving the level of unit labor costs close to where it had stood at the onset of the recession. Given the large share of labor costs in the production costs of most firms, subdued unit labor costs should be an important restraining influence on inflation.

Monetary Policy
Although the FOMC expects a moderate recovery to continue and indeed to strengthen over time, the Committee has responded to recent developments--as I have already noted--by marking down its outlook for economic growth over coming quarters. The Committee also continues to anticipate that inflation will moderate over time, to a rate at or below the 2 percent or a bit less that most FOMC participants consider to be consistent with the Committee's dual mandate to promote maximum employment and price stability.

Given this outlook, the Committee decided at its August meeting to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, the statement following the meeting indicated that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low level for at least two more years.

In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. My FOMC colleagues and I will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September and are prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability.

Conclusion
Let me conclude with just a few words on the longer-term prospects for our economy. As monetary and fiscal policymakers consider the appropriate policies to address the economy's current weaknesses, it is important to acknowledge its enduring strengths. Notwithstanding the trauma of the crisis and the recession, the U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. Our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. And our country remains a technological leader, with many of the world's leading research universities and the highest spending on research and development of any nation. Thus I do not expect the long-run growth potential of the U.S. economy to be materially affected by the financial crisis and the recession if--and I stress if--our country takes the necessary steps to secure that outcome. Economic policymakers face a range of difficult decisions, and every household and business must cope with the stresses and uncertainties that our current situation presents. These are not easy tasks. I have no doubt, however, that those challenges can be met, and that the fundamental strengths of our economy will ultimately reassert themselves. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability.

EU's Barroso Says Euro Will Survive

2011-09-05T23:04:00.000-04:00

Hmmm, more market manipulations in the works :

SYDNEY (Dow Jones)-- European Commission President Jose Manuel Barroso said Tuesday the future of the euro is safe and the single monetary bloc is meeting its sovereign debt crisis head on.

The remarks came in a speech in Sydney as Barroso sought to shore up global confidence in the ailing euro bloc as markets continue to drive up borrowing costs for heavily indebted member states and as question marks are raised over a pledged new bailout for Greece .

"Some like to ask these days: 'Will the euro and EU survive?' My plain and direct answer is, "Yes". You can bet your money on that and I guarantee you don't need to take insurance," said Barroso.

Dark View At An Italian Idyll

2011-09-05T21:10:00.001-04:00

Villa d'Este isn't a bad place to spend a long weekend. Nestled on the banks of Lake Como in northern Italy , the splendid 16th-century former abode of European aristocratic families last week served as the idyllic backdrop for an annual symposium on the state of the global economy.

Part uber-networking event a la Davos and part platform for serious policy discussion, like the Federal Reserve's annual event in Jackson Hole, Wyo. , this gathering offers financial, political and economic leaders the chance to mingle behind closed doors (sessions are off the record) and exchange ideas.

Or should I say "idea"? As top central bankers such as Jean-Claude Trichet rubbed shoulders with economists like Nouriel Roubini while being brushed aside by the bodyguards of heads of state such as Israel's Shimon Peres , there was really only one thought making the rounds: Major Western economies and their capital markets are in deep trouble.

The contrast couldn't have been starker. Outside, the stunning beauty of verdant hills plunging into the lake. Inside, a bunch of powerful people getting gloomier and gloomier about the economic environment in the U.S. and Europe .

Events didn't help the mood. Friday's news that the U.S. had added precisely zero jobs in August landed with a thud on Villa d'. I saw superstar economists like Mr. Roubini and Martin Feldstein , the Harvard professor who has advised numerous U.S. presidents, revise their chances for another recession (upward) live, while the nonfarm payroll numbers were rolling in.

As for Europe , the sight of Mr. Trichet, the president of the European Central Bank , imploring the Italian government to stop squabbling and finally approve much-needed austerity measures didn't fill investors with confidence about the troubled euro zone. As the manager of a big hedge fund said while listening to the ECB chief's impassioned plea, "this screams 'short the euro' to me."

After four days of asking questions, nodding and eating pasta, I came away with three distinct impressions.

First, we are living a "Mrs. Robinson moment." I am referring to the line in the Simon & Garfunkel song that goes: "Where have you gone, Joe DiMaggio ? Our nation turns its lonely eyes to you."

Markets, bankers and companies are all turning their lonely eyes to the monetary and political authorities. In recent weeks, the U.S. stock market has developed a perverse tendency to rise after bad economic data on the hope lackluster numbers would bring the Fed closer to another round of monetary easing. The market tumbled Friday after the dismal job report, but the wishful thinking endures.

Most company leaders and hedge-fund managers I met in Villa d'Este called for immediate fiscal and monetary stimulus in the U.S. and serious structural reforms in Europe . And many talked about the inevitability of more fiscal, and even political, integration to save the euro.

The problem with those hopes is that, to stay with the Simon & Garfunkel tune, "Joltin' Joe has left and gone away." Listening to Mr. Trichet's words and watching his body language, it was obvious that the ECB, for one, is extremely reluctant to bail out the euro zone. "What we do cannot be used to circumvent the fundamental principle of budgetary discipline," he told the gathered luminaries on Saturday.

The gap between investors' desires and political reality is, if anything, even more pronounced in the U.S., where Ben Bernanke has made it abundantly clear that the Fed's toolkit is small.

Secondly, the corporate and financial sectors are probably suffering more than they let on. Received wisdom has it large corporations, especially in the U.S., are doing just fine because of ample cash reserves and healthy sales to emerging markets. But, talking at Villa d'Este to CEOs from sectors ranging from insurance to metals, the story was different. The head of a large industrial conglomerate said the uncertainty over the economic and political situation is paralyzing his long-term planning. "I don't know whether to cut or invest, and I hate it. Businesses cannot stall. They either go up or down," he said.

Stefan Lippe , head of the reinsurance giant Swiss Re, shared a telling statistic. His company has seen a 20% year-on-year jump in the volume of policies, effectively insurance for insurers', even though it is charging on average 5% more than last year--a sign even insurers are getting more risk- averse. "With low bond yields and difficult capital markets, we are here to help to take on risks and free up capital for insurers," Mr. Lippe told me. That's a true statement but not one that augurs well for the return of "animal spirits" to the markets and economy.

The final, and perhaps more-worrying, thought is about emerging markets. Leading economists, such as Zhu Min , the former Chinese central banker who is deputy managing director of the International Monetary Fund , maintain that the developing world can withstand, and even cushion, the current economic malaise.

The view from the boardroom and the trading floor, at least when transplanted to Lake Como , was less sanguine. Captains of industry worry that, with sluggish markets in the West, export-heavy economies such as China and Brazil will struggle to keep up their breakneck growth. Financiers talk darkly of the rising threat of currency wars between developed and emerging countries, as the falls in the euro and dollar put huge strains on the rest of the world.

As a snapshot of the financial health of the globe, the picture taken in Lake Como is well short of postcard-perfect.

(END) Dow Jones Newswires
09-05-11 2057ET
Copyright (c) 2011 Dow Jones & Company, Inc.

Global Regulators To Amend New Rules on Bank Liquidity

2011-09-05T20:38:00.000-04:00

The farce continues :

DOW JONES NEWSWIRES

The Basel Committee on Banking Supervision is looking to soften the technical definitions in the "liquidity coverage ratio," which requires banks globally to hold enough assets to withstand a 30-day run on their funding, the Financial Times reported Monday citing people familiar with the discussions.

Banks have complained that the new Basel III standards on liquidity, to be implemented in 2015, would force them to sharply curtail lending to consumers and businesses, the newspaper said.

The planned changes would have the effect of reducing how much liquidity banks have to hold, and allow them to count more corporate and covered bonds toward the total, the people told the newspaper.

German Court's Bailout Ruling Looms

2011-09-05T20:35:00.001-04:00

BERLIN (Dow Jones)-- Europe's bailouts of struggling euro-zone countries could face fresh obstacles on Wednesday, when Germany's constitutional court rules on the bailouts' legality.

The court's judgment, highly anticipated in European capitals and financial markets, will settle whether Chancellor Angela Merkel's government breached the German people's property rights in agreeing to the initial bailout of Greece in 2010.

The court also is due to rule on whether the German government should have asked the country's parliament before taking part in the bailouts of Ireland and Portugal , as well as on the legality of the European Central Bank's purchases of government bonds.

Legal analysts say that the court is unlikely to rule that aid for euro-zone partners is unconstitutional, but that the judges could make future loan packages for euro countries subject to approval by Germany's lower house of parliament, the Bundestag.

That would subject future bailout deals to German parliamentary politics and potentially slow Europe's crisis-response times.

Upholding any of the plaintiffs' complaints would place additional strain on the euro zone's creaking crisis management, strengthening national lawmakers' prerogatives at a time when many analysts and officials say the euro zone needs more centralized decision-making, particularly in budget policy and debt management.

Market confidence in the debt of many euro-zone nations, including heavyweights such as Italy and Spain , is at its lowest since the common currency was introduced in 1999.

In anticipation of the court's decision, lawmakers from Merkel's ruling Christian Democrats and its coalition partner, the Free Democratic Party , have drafted a proposal that would give the Bundestag far-reaching veto rights over future actions by the European Financial Stability Facility.

The draft stipulates that Germany's government should be allowed to agree to future euro-zone bailouts only after parliament has approved them. But the lawmakers said they want to await the constitutional court's decision before making the draft final.

The Karlsruhe-based constitutional court, Germany's equivalent of the U.S. Supreme Court , warned in a landmark 2009 ruling that it can strike down the actions of European Union institutions if they violate the German constitution.

The court hasn't yet used that power, mindful of the political sensitivity of striking down attempts at European cooperation. Postwar Germany has consistently supported European integration as a way of reassuring neighboring countries that it no longer wants to flex its national muscles at their expense.

Thomas Mayen , chairman of the constitutional law committee of the German Lawyers' Association , says Wednesday's decision will mark a crucial moment in the relations between the E.U. and its member states. "Budgetary sovereignty is a classical right of parliaments since the earliest democratic constitutions. If it is constrained then those who are taking the decisions [the Eurogroup of finance ministers] are acting without parliamentary legitimacy," Mayen said.

The court's 2009 ruling allows it to intervene where it sees E.U. organs clearly exceeding their powers laid out in European treaties in a way that " substantially shifts" the competences of E.U. and national bodies.

Mayen argues the planned creation of a permanent euro-zone bailout fund, the European Stability Mechanism, could be seen as exactly such a shift.

Although the court has shied away from confronting Germany's government and its European policy in the past, it has been emboldened in recent days by some of the country's most authoritative figures.

Germany's largely ceremonial head of state, Federal President Christian Wulff , said in a speech late last month that the ECB's decision to buy "massive" amounts of Italian and Spanish bonds was "politically and legally questionable." German Bundesbank President Jens Weidmann , also late last month, said: " Decisions on the assumption of further risks must be taken by governments and parliaments: Only they have the democratic legitimacy to do so."

The judgment will be handed down by a panel of eight judges chaired by the court's president, Andreas Vosskuhle. The judge responsible for drafting the ruling will be Udo di Fabio , a prominent and sometimes controversial conservative with a track record of upholding the rights of nation-states.

The judgment affects two separate suits, one from a group of economics professors and the other from conservative politician Peter Gauweiler , a veteran lawmaker from the CSU, the Bavarian sister party of Merkel's party. The court has already dismissed a number of similar cases, including one from the same group of professors in 1998 that aimed to stop the euro's introduction.

That lawsuit only dealt with the hypothetical consequences of the euro. But the cost today of rescuing the common currency is increasingly evident to Germans.

Under proposals due to be voted on in the Bundestag in late September, German guarantees for the euro zone's main bailout fund would rise to around EUR211 billion ( $300 billion ).

In addition, the Bundesbank is liable for around 27% of any losses incurred on the ECB's fast-growing portfolio of government bonds, which hit EUR129 billion last week.

(END) Dow Jones Newswires
09-05-11 1638ET
Copyright (c) 2011 Dow Jones & Company, Inc.

September Could Be Worse Than August

2011-09-05T04:40:00.002-04:00

From Market Oracle :

September notoriously often leaves markets in negative territory. Since the start of the Dow Jones Industrial Average in 1896, the index has lost an average of 1.07% in September, with a 0.71% average gain for all other months.

That's a 1.78-point spread - enough to be "statistically significant at the 95% confidence level," and be considered a genuine pattern by statisticians.
More discouraging, the market has performed especially poorly in past Septembers when the preceding months were weak.

And that's where we are today.

August took markets on a wild ride. The Standard & Poor's 500 Index fell 5.7% and the Dow 4.4%. The month included two of the top ten worst-performing Dow days ever - a 635-point drop on Aug. 8 and a 513-point drop on Aug. 4.

Now with investors digesting a slew of disappointing economic reports, and the U.S. Federal Reserve unlikely to announce any stimulus measures until the end of the month at the earliest, it doesn't look like this September will buck the trend.

In fact, it could easily be worse.

Business Booms and Depressions Since 1775

2011-09-02T22:16:00.004-04:00

As seen on Zero Hedge :

~~Click for full resolution~~

Get the full pdf here : http://adf.ly/823765/boom-depressions

Update : Click here instead for full resolution image.

Where Are The Jobs?

2011-09-02T09:13:00.003-04:00

We just had the August jobs report get released and it was nothing short of atrocious.

The August Nonfarm Payroll report came in unchanged, versus estimates of 70,000 jobs to be created during the month. What is even worse is that June and July were revised down an additional 58,000 jobs. The July payroll report was revised down to 85,000 from 117,000, and June was revised down an additional 26,000 jobs. What is interesting to note that despite no jobs being created during the month, the unemployment rate remained unchanged, at 9.1%.

What may be the start of a disturbing trend is the average hourly work week fell to 34.2 hours. Expectations were for 34.3 hours. That could be a sign of a slowdown in activity across the board. Average hourly earnings dropped by 0.1%, not a good sign when expectations were for an increase of 0.2%. If people are losing money, they can not spend. If people can not spend, jobs can not be created.

Breaking down the report via the Bureau of Labor Statistics website is even uglier than the headline number. The Birth/Death model accounted for +87,000. If you take this out, the country actually lost 87,000 jobs during the month of August.

Health care employment rose by 30,000 in August. Mining added 6,000 jobs during the month, and computer systems design and related services added 8,000 jobs in August. Temporary services added 5,000 jobs. The information industry lost 48,000 jobs during the month, with the majority of those coming from the Verizon strike.

Manufacturing lost 3,000 jobs, compared to an average of 14,000 jobs gained during the past four months. Government employment rose 5,000 jobs during the month.

We have not had a 0 print since 1945. If you back out the Birth/Death model, the Verizon strike and the Minnesota government job gain, we lost 60,000 jobs. This is a sad day for Americans who are looking for work. A 0 print does not inspire confidence to the jobless to look for work if they know no one is hiring.

The last time we had a horrible August jobs report, it was the launch of QE2. Yesterday, I wrote about why today might be the most important day for a third round of quantitative easing. An unchanged report is going to go a long way in giving the Federal Reserve ammo to do QE3.

This atrocious report also will weigh heavily on President Obama's jobs speech next week on Thursday. The Republicans will come out firing (if they haven't already) and attack this report every way from Sunday. The Democrats do not have a leg to stand on, with no jobs being created this month, and losing an additional 58,000 jobs in the past two months.

To answer the question of the title, simply put: I don't know, and I don't think anyone else does either.

ACTION ITEMS:

Bullish: Traders who believe that this report will lead to QE3 might want to consider the following trades:

Go long gold (NYSE: GLD) and silver (NYSE: SLV). If a third round of quantitative easing happens, you can be sure precious metals will soar.

Bearish: Traders who believe that QE3 is not coming because of political pressure may consider alternate positions:

The economy is not creating jobs. If people don't have jobs, they can't spend, invest and consume. Stocks will go down on decreased earnings estimates. Short everything.

By Jonathan Chen

European Stocks Extend Losses After Payrolls

2011-09-02T08:58:00.002-04:00

1253 GMT [Dow Jones] Euro Stoxx 50 is down 3.4% at 2226.60, pushing further south after key US nonfarm payrolls and unemployment data come in worse than expected. NFP for August come in unchanged, the worst result since a small decline in September 2010 . The unemployment rate, which is obtained from a separate survey, is also unchanged, standing at 9.1%. Banks are some of the leading decliners, with the Stoxx 600 index, losing 4.1% on fears of stagnating economic growth. US futures are indicating a softer opening on Wall Street . The front-month DJIA contract is down 1.5%; the S&P 500 contract is 1.7% lower. No further data are due.