Friday, June 11, 2010

Euro Company Spreads Rise to Record Versus U.S.: Credit Markets

The risk of owning Europe’s corporate bonds is the highest on record relative to U.S. company debt as investors lose confidence that lawmakers and central bankers can tame the region’s worsening fiscal crisis.

Yields on investment-grade bonds in euros rose to a 10- month high of 239 basis points, or 2.39 percentage points, more than government debt, according to Barclays Capital index data. That’s 43 basis points more than the spread for U.S. company fixed-income securities, near the record 44 basis points reached May 27. European bond spreads were below those on dollar debt as recently as February, the indexes show. (more)

U.S. asset managers worried Obama could confiscate gold

Speaking at the FT Silver conference in London yesterday, lead-off speaker John Levin, HSBC Bank's Managing Director, Global Metals and Trading (HSBC is one of the world's top precious metals traders and its vaults in the U.S. and Europe hold huge holdings of gold and silver bullion) recounted conversations with some of the U.S.'s top asset managers controlling massive amounts of capital asking if HSBC had the capacity in its vaults to store major gold purchases. On being told that the bank's U.S. vaults had sufficient space available he was told that they did not want their gold stored in the U.S.A. but preferably in Europe because they feared that at some stage the U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country's strategy in dealing with the nation's economic problems. (more)

Why You Need to Short Stocks Right Now

Gary Gibson: Dan, you said the summer should be the best environment for short selling since 2008. That implies a lot of declining stocks. How bad is the outlook for stocks really and why?

Dan Amoss: Okay, well I start from the assumption that most economists and analysts are ignoring the importance of balance sheets. There’s way too much bad debt in the global economy, and governments and central banks are trying to paper over these bad debts.

And the consequence of this is that governments will eventually reach the limits of what the market will allow in terms of debt to GDP ratios. At that point, it will be hard for the economy to both grow and service the incredible burden of debt that it has. (more)

Chairman of Goldman Sachs International Was - Until Last Year - Also Chairman of BP

Janine Wedel has written extensively on how the "shadow elite" rule the world and about the "flexians" - the movers and shakers of the shadow elite who glide across borders, and structure overlapping (and not fully revealed) roles in government, business, media, and think tanks to serve their own agendas.

Wedel says that flexians wear many hats both within and outside of government, and use their networks of contacts to influence policy - are warping our democracy and the rule of law. (more)

Trading BP ?

The single most common emailed question I’ve gotten — from readers, from clients, from the media — is “Do you buy BP? If so, when, where and how?

Before we proceed, please understand what my thought process is: I want us to consider, weigh and try to determine what the possible risks are versus the potential reward is in this stock.

I suggest those of you who are considering buying or selling BP think about the following ten issues: (more)

RBC predicts fastest economic growth in a decade for Canada

Canada's economy is expected to surge in 2010, according to a new report from RBC Economics, which predicts gross domestic product growth of 3.6 per cent as a result of strong demand and increased job creation.

RBC says Canada's real GDP grew at 6.1 per cent in the first quarter, the fastest pace in a decade.

"Canada's economy continued to surge ahead as domestic demand was backed by increases in consumer, housing and government spending," said Craig Wright, senior vice-president and chief economist at RBC. (more)

Ax May Fall on Mortgage Interest Deduction

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

Although Congress last year rejected the White House’s proposed cut to the amount wealthier taxpayers can deduct for home mortgage interest payments, the administration included it again in its 2010 budget — saying it could save $208 billion over the next decade.

And now that sentiment has turned against all the federal red ink — and cost-cutting is in vogue — Democrats on President Barack Obama’s financial commission are considering the wisdom of permanent tax breaks such as the mortgage deduction and corporate deferral. Calling them “tax entitlements,” senior Democratic lawmakers have argued they should be on the table for reform just like traditional entitlement programs Medicare, Social Security and Medicaid. ...

Although the backers of the mortgage interest tax break defend it as a key incentive for people to own rather than rent their homes, some say that’s not so. A Brookings-Urban Tax Policy Center study found that the mortgage interest tax break costs more than $100 billion annually but does little to encourage the middle class and less wealthy to buy homes. “I’m not sure that we need to subsidize homeownership at all through the tax system,” said Eric Toder, the study’s lead author. (more)

Soros Says ‘We Have Just Entered Act II’ of Crisis

Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.

“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak. (more)

Trade Deficit in the U.S. Widens to One-Year High

The trade deficit in the U.S. widened in April to the highest level in more than a year as exports fell more than imports.

The gap grew 0.6 percent to $40.3 billion, the most since December 2008, Commerce Department figures showed today in Washington. The increase signals trade will subtract from economic growth this quarter.

The fallout from the European debt crisis may keep limiting trade flows in coming months as the subsequent plunge in oil prices restrains imports. The increase in the value of the dollar since the turmoil began also makes American goods less competitive abroad, raising the risk the gains in exports that have helped lift companies like Dow Chemical Co. will cool. (more)

Chart of the Day