News links for 10 May 2013
“India’s industrial output rose for the third straight month in March, strengthening expectations that the economic slowdown may have ended, although more monetary policy stimulus may be required to facilitate a recovery.”
“Car sales in India fell for the sixth straight month in April, the longest stretch in at least 16 years, as high borrowing cost and a slowdown in the economy continued to weigh on what is considered as one of the potential growth markets globally for automobiles.”
“Little over a week after U.S. Federal Reserve policymakers overwhelmingly endorsed a plan to keep buying bonds to spur economic growth and hiring, they are airing their differences over their super-easy policy.”
“The Mayor of London said that he has “always been narrowly in favour” of Britain staying in the EU and “particularly of protecting British interests in the single market”, but said there was also a “real opportunity to get a better deal from Europe”.
He backed David Cameron’s efforts to renegotiate Britain’s relationship with Europe.”
“Doubts are growing about whether China can pass the US to become the world’s biggest economy this century amid warnings that the country’s 30-year miracle is nearing exhaustion.”
” B&A director Luke Reaper.
“This leads us to believe that Irish consumers, while still viewing the economy negatively, are beginning to weather the storm of economic events with a heightened degree of reassurance, which was previously absent,” he said.
The big concern was how to translate that stability into spending as people still expected their incomes to decline.”
“The falling duration on junk bonds suggests companies prefer to lower their finance costs, even though that leaves them with more refinancing problems in future (although as Jim Reid points out in the Video, the maturity profile of high-yield financing and leveraged loans in the US shows that companies have managed to lock in low rates for a while into the future). But it could also be that the worst-quality companies have been able to borrow more, and they usually are only able to issue shorter-term bonds.”
“Britain’s double dip recession appears to have been erased from the history books after the Office for National Statistics revised up its estimate of construction industry growth for the start of last year.”
“It was the highest reading since the statistics service began publishing jobless data in 2006 and more than twice the euro zone’s average reading of 12.1 percent in March, reflecting the impact of a deep, austerity-fueled recession.”
““The margin pressures that the low-rate environment has put on financial institutions, coupled with dramatically increased compliance and other infrastructure costs, have caused many to seek higher returns by accepting greater interest-rate or credit risk,” the bankers said on Feb. 8, following a Federal Open Market Committee meeting on Jan. 29-30.”
““WTI strength is coming from the supply drop at Cushing,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “This shows that WTI is no longer bottled up at Cushing and making its way to refiners.””
“China Mobile Ltd., the world’s biggest phone company, and NTT DoCoMo Inc., Japan’s largest mobile carrier, are among providers that haven’t agreed to carry the iPhone, citing the high costs of subsidies needed to make the device affordable or other terms they find unacceptable. The slowdown in adding new partners is contributing to stagnating iPhone sales growth, giving Samsung-led competitors a potential advantage and putting pressure on Apple to deliver a cheaper device or make other margin-threatening concessions.”
“Slovenians say their country will probably fail in its efforts to avoid running out of cash and eventually require a bailout, a poll showed.
Fifty-seven percent of respondents said the Adriatic nation will have to ask for international assistance, while 36% think a bailout can be avoided, according to a survey of 419 people conducted April 23-24 by Delo newspaper and published today. No margin of error was given.
The poll found that people believe the government of Prime Minister Alenka Bratusek will meet the May 9 deadline to present a detailed overhaul plan to the European Union. Fifty percent said the Cabinet will send the plan on time, compared with 40% who disagree.”
“Just last month, Schaeuble appeared to slam on the brakes by saying the European Union needed to consider treaty change before proceeding, due to the “doubtful legal basis” on which the project rested. Those comments sparked a backlash from EU officials and German partners like France.
On Tuesday however, at a Berlin university event with his French counterpart Pierre Moscovici, Schaeuble struck a more conciliatory tone, calling banking union a “priority project” and promising to press ahead with it “quickly”.
He said that while Europe needed institutional changes in the medium-term, it should not wait for this to solve its current problems.”
“”Bonds are a terrible investment right now,” Mr Buffett said.
He added that bond prices were artificially inflated because the Federal Reserve continued to buy $85bn (€64bn) of bonds a month, and owners of long-term bonds might see big losses when interest rates eventually rose.
He said the average investor should keep enough cash to be comfortable and invest the rest in equities. “Stocks are reasonably priced now. They were very cheap a few years ago.””
““Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes,” Obama said on July 15, 2010. “There will be no more taxpayer-funded bailouts — period.”
Investors, it turns out, don’t believe that, Bloomberg Markets magazine will report in its June issue. The people who lend money to the largest banks are betting that Uncle Sam will toss a lifeline to a giant should it stumble, according to a study by Deniz Anginer, a World Bank financial economist
Bondholders who lend money to the six biggest U.S. banks are so convinced the government will bail out these institutions that they are willing to accept lower returns — a marketplace subsidy worth $82 billion from 2009 through 2011, Anginer calculates..”
“A wide Brent-West Texas Intermediate crude oil price spread in recent years has meant enormous profits for U.S. refiners lucky enough to take advantage of it.
But it’s not as wide now, and that is bringing a new set of issues for those same companies, according to Platts. U.S. refiners were “helped by what has been cheap shale oil and the WTI-Brent disconnect, but for how long?” Platts wrote this week on its blog, The Barrel.”
“Financial journalism lost one of its leading lights today when Alan Abelson died at the age of 87. Alan had served Barron’s as a writer, editor, and chief columnist for the past 57 years.”
“Foreclosure auctions hit a 30-month high in April nationwide and jumped 55 percent in Florida from last year as banks and courts move more quickly to repossess homes.
The pace of auctions last month was the highest it has been since lenders temporarily halted foreclosures in the fall of 2010 when instances of widespread robo-signing and fraud were discovered, according to a new report from the Irvine, Calif.-based RealtyTrac.”
“Low returns on supersafe Treasury bonds and bank savings accounts have spurred a rush into investments that offer the promise of steady income—at the risk of principal loss should defaults rise.
“You don’t have much alternative right now,” said Nick Prala, a corporate-bond trader at Loomis, Sayles & Co., which oversees about $150 billion in fixed-income assets. “This is what happens when you force yields to all-time lows and people still need incremental income.””
Portugal is cutting public sector jobs into the teeth of this epidemic of job loss in order to meet the OMT criteria.
“The jobless rate in two of the euro zone’s crisis-hit members continues to rise, with youth unemployment surging in both Greece and Portugal.”
“Jeroen Dijsselbloem, the Dutch finance minister who heads the group of euro-zone finance ministers, said an “asset-quality review,” which would examine the health of banks’ balance sheets, might uncover “worrying” issues in some lenders.
The review would be similar to so-called stress tests European authorities already conduct.”
“Fannie Mae said Thursday it would make a $59.4 billion payment to the U.S. Treasury next month after reporting a $58.7 billion first-quarter profit thanks to a big tax benefit the bailed-out mortgage-finance company booked after determining it would generate profits in the coming years.
Fannie recognized $50.6 billion in tax benefits during the first quarter, in addition to pre-tax income of $8.1 billion during the period. That compared to a $2.7 billion gain during the year-earlier period.”
“When I first came to the markets, I was taken aback by how superficial the market’s understanding of economics was. Not stupid, but superficial in the most neutral sense of the word. This was particularly true in emerging markets. It seemed that guys would have a hunch, based on price action or intuition, and then would reverse engineer a story that to them would explain what they saw or felt. In other words: the conclusion comes first and the investment hypothesis would then follow.
But these guys made money—at least, for the most part. To me, this did not compute. How did guys who didn’t even understand basic macroeconomic identities or dynamics successfully manage money?”
“Prices rose 1.1% over the month and 2% over the year, but significant constraints remain on housing demand, according to the bank”
“Government promises measures to reform immigration system and boost economy in speech at state opening of parliament”
“Despite the government’s poor showing in last week’s local elections, Osborne has no intention of changing course but is keen to avoid a public call for a volte-face from the IMF, which initially was a strong supporter of the coalition’s approach to tackling the UK’s record peacetime budget deficit.
Treasury officials intend to show that any change to the strategy followed for the last three years would damage the government’s credibility in the financial markets and that the subsequent increase in long-term interest rates would outweigh any benefits from cutting taxes or increasing spending.”
“Prime minister aimed to undermine UKIP with EU referendum offer but has ended up with a mainstream Tory calling for exit”
“Opponents of British membership of the European Union gained their most prestigious recruit when the former chancellor Lord Lawson claimed the British economy would be better off outside the EU.
Lawson said the profoundly misguided aim of the EU was to create a federal European superstate – a United States of Europe – and concluded “that is not for us”. The EU, he said, has passed its sell-by date and has become “a bureaucratic monstrosity” from which the UK should break free. After an association with Brussels of 40 years, he said, “the case for exit is clear”.”