Investors are paying more attention to China’s bond market, which is poised for growth thanks to new policies and the financial crisis.
Zhang Yuzhe, Caijing 5 February 2009
Industry experts say China’s bond market will find more room to grow in the first half of 2009, a trend signalled last year by a series of favourable regulatory policies and initiatives.
On the other hand, as the economy turns down, credit risk and price risk are worrying investors in the bond market, which has been sopping up investment liquidity detoured by an ailing stock market.
Yet the financial community generally sees the glass half full.
Among the encouraging developments is that regulators are expected to begin allowing private sector investments in corporate bonds, according to a recent statement by Zhu Congjiu, the assistant chairman of the China Banking Regulatory Commission. And regulators are reviewing proposed tax waivers for interest earned on corporate bonds.
Meanwhile, the interbank market administered by the central bank, is seeking a more diversified team of institutional investors. The market may expand to allow participation by fund managers, securities firms and private equity funds.
At the moment, in terms of scale, China’s bond market is dominated by the interbank market and compensated through the stock exchange. Interbank trading is 20 times the amount handled on the exchange, accounting for 93 percent of the total number of bonds on the Chinese market.
However, the market is hampered by identical investments, inadequate liquidity, and inactive trading. One reason is that commercial banks and insurance companies – the major institutional investors on the interbank market -- prefer relatively low risk and tend to hold bonds with high credit ratings.
To broaden the playing field, the People’s Bank of China, the central bank, recently proposed opening the interbank market to high-yield bonds as well as consolidated bonds for small- and medium-sized enterprises.
Moreover, the National Development and Reform Commission (NDRC) plans to continue working toward widening the scale and diversity of corporate bonds, said Xu Lin, chief of NDRC’s Department of Fiscal and Financial Affairs.
Underlying risks associated with bonds are drawing more attention. But investors are learning to safely weigh the risks.
Trading in uncollateralized bonds and those not backed by the government will increase in the future, said Mu Huaipeng, chief of the central bank’s Financial Market Department. The central bank issued uncollateralized notes on the interbank market in 2005 and ‘08. Likewise, the NDRC last April underwrote uncollateralized corporate bonds to be issued on the exchange and interbank market.
An increasing amount of capital is expected to target the bond market due to ongoing instability in the global financial environment, said Yin Jianfeng, a senior researcher at the Chinese Academy of Social Sciences. Analysts expect credit risks to continue through the second quarter as the economy continues to slide, making bonds even more attractive.
But even a half-full glass can spill. Some analysts warn that long-term bond investments may turn south if an economic recovery in the third or fourth quarter triggers an increase in central bank interest rates.
Shi Wenchang, secretary of the National Association of Financial Market Institutional Investors, said state control over interest rates and ample liquidity have given the bond market the necessary room to grow. Yet Shi warned if interest rates are too low and liquidity excessive, pressure for macroeconomic adjustments will build and threaten long-term investments.
To avoid these risks, many institutional investors prefer short- to medium-term bonds that mature in less than three years, even though yields are below those for long-term bonds. One bond trader told Caijing that yields for short-term bonds have already fallen to historic lows.
WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits hit a 26-year high last week and factory orders plummeted in December, data showed on Thursday, illustrating an economy mired deep in recession.
In addition, the number of people staying on the jobless benefit rolls hit a record high late last month.
"The economy is suffering. Things are getting worse, not better. Everything is weakening at a faster pace than we have ever seen. You don't need to embellish," said Brian Fabbri, North America chief economist at BNP Paribas in New York.
The Labour Department said first-time claims for state unemployment insurance benefits rose 35,000 to 626,000 in the week ended January 31, well above the level Wall Street had expected and the highest since October 1982.
U.S. markets shrugged off the data, cheered by above-forecast sales from retailer Wal-Mart (WMT.N) and speculation the government would suspend an accounting requirement on the recognition of losses that has resulted in billions of write-downs for banks.
The Dow Jones industrial average ended up 106.41 points at 8,063.07 .DJI. U.S. government bond prices pushed higher, with the jobless claims report viewed as further confirmation that the year-long recession was deepening.
The housing-led downturn is having a devastating impact on jobs, further squeezing households whose net worth has also been eroded by the stock market collapse.
With consumers drastically cutting back on spending, companies are responding to the slump in demand by further reducing their payrolls.
Illustrating the rapid deterioration of the labour market, the number of unemployed drawing benefits after an initial week of aid surged to a record 4.79 million in the week ended January 24, the latest week for which the data is available.
The data came ahead of a closely watched government report on employment on Friday that is expected to show job losses accelerated last month. A report on Wednesday suggested the private sector purged 522,000 jobs last month.
"It continues to suggest we are going to get a deterioration of labour market readings and that is going to continue beyond tomorrow's (payrolls) number," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.
STIMULUS NEEDED
Analysts said the figures underscored the need for a fiscal stimulus to arrest the economic decay. President Barack Obama, canvassing support for a package of spending and tax-cut measures that could cost close to $900 billion, warned Friday's jobs report would be "dismal".
A separate report from the Commerce Department showed new orders received by U.S. factories slumped 3.9 percent in December, a fifth consecutive monthly decline.
However, the drop was modest compared to November's 6.5 percent plunge, the steepest fall since July 2000. For all of 2008, factory orders edged up just 0.4 percent, the weakest showing since 2002.
Orders for so-called durable goods, items meant to last three years or more, slid 3 percent in December, a bit steeper decline than first reported last week.
Data from the International Council of Shopping Centres showed retail sales for January slid for the fourth straight month, dropping 1.6 percent from a year ago.
Wal-Mart bucked the trend with a stronger-than-expected increase, but in a new sign of concern over the economy, it said it would no longer issue monthly sales forecasts because of volatile consumer habits.
The sharp job cutting last quarter trimmed the total number of hours employees worked, boosting productivity.
Non-farm productivity rose at a 3.2 percent annual rate in the fourth quarter, but output plunged 5.5 percent, the biggest drop since 1982, a separate Labour Department report showed.
Hours worked outside the farm sector fell at an 8.4 percent annual rate in the fourth quarter, the biggest decline since the first quarter of 1975. In the manufacturing sector, hours worked slumped 14.1 percent.
"This suggests that U.S. companies are preparing for a long-lasting recession," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.
Unit labour costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, were up 1.8 percent in the fourth quarter, the preliminary report showed, well below Wall Street's estimates for a 3 percent increase.
Diminishing inflation pressures boosted hourly compensation by a 15.6 percent annual rate during the fourth quarter, the largest increase since the series started in 1947.
"That's something that provides some hint of underlying support to the economy. Real income growing may help to stabilise things in a couple of months, a little bit, for the economy," said Commonfund's Strauss.
Nationalization concerns linger, but shares rebound on insider buying
By Alistair Barr & Ronald D. Orol, Feb. 5, 2009
SAN FRANCISCO (MarketWatch) -- Shares of Bank of America Corp. briefly dropped to their lowest level in more than two decades Thursday on concern the U.S. government may nationalize the banking giant to help stabilize the broader financial system.
The shares slumped as low as $3.77 earlier in the volatile session -- the lowest level since at least 1984, according to FactSet Research data.
The stock erased losses in afternoon action and closed up 3% at $4.84 after the bank disclosed share purchases by executives.
The shares were also buoyed by speculation about the possible relaxation of accounting rules that force banks to report the fair market value of their assets each quarter. The Securities and Exchange Commission didn't respond to a phone call seeking comment.
Shares of Charlotte, N.C.-based Bank of America are trading at a multiple of about 0.19 times their stated book value and half their tangible book value, while the company's market capitalization represents just 3.4% of its deposits, Ladenburg Thalmann analyst Dick Bove pointed out in a note to clients Thursday.
"These numbers are clear, investors believe that this bank is about to fail and be nationalized," he wrote. "If they believed that it would continue as an operating entity it is unlikely that the bank would be selling at such a low value."
Bank of America spokesman Scott Silvestri declined to comment.
Merrill troubles
Bank of America got a $15 billion investment from the Treasury's Troubled Asset Relief Program last year. Since then the bank's troubles have multiplied and the government has become even more entwined in its affairs.
Bank of America shares have plunged 67% since it acquired Merrill Lynch at the start of this year. Soon after, the bank reported a $1.8 billion fourth-quarter loss and disclosed that Merrill had lost roughly $15 billion in the period.
After Bank of America Chief Executive Ken Lewis realized how bad Merrill's situation had become, he flew to Washington, D.C., to tell regulators he was ready to back out of the acquisition, The Wall Street Journal said on Thursday, citing unidentified people close to the executive.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke "forcefully urged" Lewis not to walk away. Two days later during a conference call Bernanke said Bank of America had "no justification" for ditching Merrill, the Journal said.
A Federal Reserve official warned that if Lewis backed out and Bank of America needed more money from the government later, regulators would think hard about their confidence in the bank's management, the newspaper added, without identifying the official.
Lewis was also told that the government would consider ousting executives and directors, the Journal reported, citing unidentified people close to the bank.
After that, Bank of America went through with the deal, but got another $20 billion government investment and protection against losses on $118 billion of troubled assets.
Government control
Bank of America and other big banks that received more than $100 billion in government investment are already under pressure to lend more, even though the recession is stunting loan demand and making borrowers less creditworthy.
On Wednesday, President Barack Obama unveiled executive salary caps of $500,000 a year for financial institutions like Bank of America and Citigroup that get "extraordinary" help from the government.
With the government already telling banks how to lend, reportedly ordering acquisitions and capping compensation, some investors may be concluding that institutions have already effectively been taken over by authorities.
Thursday's Wall Street Journal article about Bank of America being forced to complete its Merrill acquisition likely came from an interview with the bank's management, who are keen to show investors that they knew what was going on but had no choice, Bove said.
"This, to some extent, alleviates the questions concerning management's competence," he added. "It does not take away the belief on the part of investors that the company's woes are so significant that it will fail."
By Elizabeth MacDonald February 5, 2009 Foxbusiness.com
Law enforcement officials say arrests on Wall Street will be made not just by those who hawked predatory loans, but those who sold predatory securities built on those as loans well, interviews with Justice Dept. officials denote.
Namely, the bonds and derivatives compulsively minted by Wall Street’s financial engineering factory, where bad mortgages, bad credit card payments, bad auto loans, bad student loans, you name it, were sluiced through the underwriting pipeline and magically emerged as Triple A rated securities, safe as a US Treasury.
Bonds and derivatives that were sold by companies purposely set up offshore in places like the Cayman Islands or Guernsey, away from the prying eyes of regulators.
The credit rating agencies are under scrutiny, too, as the push was on to get these radioactive securities goldplated Triple A, meaning safe and virtually risk-free, because both Wall Street and the credit rating agencies knew full well that investment portfolios around the world, notably pension funds, by the very dint of their own regulations were only allowed to invest in safe, Triple-A rated securities.
It’s clear Wall Street went wild. It manufactured trillions of dollars in asset-backed bonds and derivatives that dwarfed the value of the underlying mortgages, auto loans, and student loans on which they were based, investment experts say.
The mayhem was notable inside the offices of the Wall Street underwriters of what are called collateralized debt obligations (CDOs), pools of bonds which are backed by pools of mortgages, and so on.
Bucket Shop Bonds
When you invest your money, you expect a competent money manager who will protect your investment, right?
However, too many investors in these mortgage-backed and other asset-backed bonds invested on autopilot, without checking who was watching their money.
Specifically, the securities and derivatives under scrutiny were supposed to be overseen by competent investment managers to ensure investors money was protected and returns were being paid.
Anything less is a breach of fiduciary duty, and potentially securities laws, says Janet Tavakoli, derivatives expert and author of “Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street” (John Wiley & Sons, 2009).
So who were these guys who oversaw these jerryrigged bonds?
Executives you wouldn’t want managing your local McDonald’s, notes Fox Business’s Joanne Ossinger.
And the deals were filled with so many rotten heads of lettuce.
An Unregulated Bond Factory
Derivatives expert Tavakoli says that in November 2006, she warned a Wall Street shop that “their CDO managers are unregulated,” that “most do not have the expertise or the resources to perform CDO management or surveillance,” and that “many cannot build a CDO model.”
She also noted that “rating agencies rarely ask for background checks on CDO managers.”
Many prospectuses for these securities offerings read like “finance comic books,” Tavakoli says she wrote in a letter to legendary investor Warren Buffett in December 2007.
A Rotten Deal
Tavakoli says one notably rotten deal came across her radar screen. In late 2006, she read the prospectus for a mortgage-backed security that took hundreds of mortgage loans, shoved them into a portfolio, and sold the risk to investors.
The portfolio included negative amortization loans and interest-only loans, the most combustible mortgages bought from some of the worst mortgage mills that have since flopped.
In these mortgages, because principal is not being paid down, the loan amount steadily increases and then the interest rate shoots up, with a massive balloon payment that is similar to the levees breaking in New Orleans, Tavakoli says.
More than 60% of the loans backing this security were purchased form New Century Capital, which in turn bought them from New Century Mortgage Corp., a unit of New Century Financial Corporation, an incestuous stew of a company that restated its financials in February 2007 and then filed for bankruptcy on April 2, 2007, under a cloud of fraud allegations, Tavakoli says.
Merrill Lynch Goes Full-Bore
Merrill Lynch was Wall Street’s biggest underwriter of CDO deals built on loans such as these, derivatives built on loans from places that were essentially mortgage mills.
For example, Merrill Lynch was a part owner of California-based Ownit Mortgage Solutions, a mortgage mill that eventually collapsed in December 2006, Tavakoli points out.
Ownit issued crazy 45-year ARMs and no-income-verifications loans. In the words of William D. Dallas, its founder and CEO: “The market is paying me to do a no-income-verification loan more than it is paying me to do the full documentation loans.”
Michael Blum, Merrill Lynch’s head of global asset-backed finance, sat on the board of Ownit Mortgage Solutions. When Ownit imploded in December 2006, Blum faxed in his resignation, Tavakoli says.
Full Steam Ahead
But Merrill continued to sell derivatives based on Ownit’s loans well into 2007, Tavakoli says.
For example, in early 2007, Merril created a package of securities deals including loans issued by Ownit, Tavakoli says.
However, around 70% of the borrowers of the loans had not provided full documentation of either their income or assets, Tavakoli says. Most of the loans were for the full appraised value, meaning they were no down payment loans, loans given at a time when home prices were already starting to crumble.
In the deal documents, says Tavakoli, Merrill disclosed that Ownit went bankrupt, but did not mention it was Ownit’s largest creditor.
Can Merrill say it did an “arms-length” transaction with Ownit when a Merrill officer sat on the Ownit’s board, Tavakoli asks?
In early 2007, both Moody’s Investors Service and Standard and Poor’s, the credit rating agencies, downgraded the Triple-A rated tranche of the deal, “an investment they had previously rated as ‘super safe’ with almost no possibility of loss) to B (junk status meaning you are likely to lose your shirt),” Tavakoli says.
Moody’s later forecast that 60% of the original portfolio value could eventually be lost, Tavakoli says.
However, the SEC as a regulator of the investment banks had the power to stop this nonsense, but it did nothing to halt this securitization activity. “Instead, investment banks accelerated securitization activity in the first part of 2007,” Tavakoli says.
UBS, Blackstone Advisers Fed Insider Ring, U.S. Says
By David Scheer and David Glovin
Feb. 5 (Bloomberg) -- UBS AG and Blackstone Group LP takeover advisers fed information to an insider-trading ring including a former Jefferies Group Inc. money manager in a scheme that yielded more than $8 million in illegal gains, federal authorities said.
Nicos Stephanou, associate director of mergers and acquisitions at UBS’s London office, passed information about bids for Albertson’s Inc., ElkCorp and National Health Investors Inc., U.S. prosecutors and the Securities and Exchange Commission said today in criminal and civil complaints.
Ramesh Chakrapani, a managing director of Blackstone’s takeover advisory unit, leaked tips on two of the deals, the SEC said. The agency sued the pair and five others for involvement in the ring, while federal prosecutors in Manhattan announced criminal charges against Stephanou, ex-colleague Joseph Contorinis, a money manager for the Jefferies Paragon Fund, and a third man. Chakrapani, 33, was arrested last month.
“It is unconscionable when these highly paid individuals abuse their access to sensitive information and enrich themselves at the expense of others,” said Scott Friestad, an SEC attorney who supervised the case.
Albertson’s Bid
The alleged insider-trading network is the biggest uncovered by U.S. authorities since former UBS and Morgan Stanley employees were accused in 2007 of feeding tips on stock research and acquisitions to a ring of hedge funds. Allegations unveiled today expand on an insider-trading scheme alleged last month against Chakrapani relating to the 2006 bid for Albertson’s, the Boise, Idaho-based grocery store chain. The ring’s alleged gains include trading profits as well as losses avoided.
Stephanou, 34, a citizen of Cyprus who lives in London, was arrested at Newark Liberty International Airport in New Jersey on Dec. 27 and remains in custody, prosecutors said. His lawyer, Christopher Morvillo, declined to comment.
Chakrapani’s lawyer Michael Sommer denied the accusations in an interview today.
Contorinis, 44, and Michael Koulouroudis, 58, who also allegedly received the tips, were arrested today. Contorinis’s lawyer, Benjamin Rosenberg, didn’t return a call. Koulouroudis’s lawyer, Michael Bachner, declined to comment. Koulouroudis was released on $900,000 bail, while Contorinis was ordered held on $7 million bail at a hearing today.
Authorities used a “novel” technique to detect the trading ring, said Daniel Hawke, head of the SEC’s Philadelphia office, which handled the inquiry. He declined to elaborate, noting that the investigation continues.
Banker Cooperation
Prosecutors won cooperation from a UBS investment banker who tipped the other defendants, Assistant U.S. Attorney Reed Brodsky said at a hearing today. Brodsky didn’t name the banker, who he said has been charged.
“The government has a very strong case,” Brodsky said in court.
Stephanou was among UBS advisers assigned to help Cerberus Capital Management LP prepare bids with a group of investors for Albertson’s in 2005 and 2006, the SEC said. He tipped at least three people to developments in the deal, including friend and ex-colleague Contorinis, the agency said. The pair had both worked as analysts at the New York office of Credit Suisse First Boston in 1998 and 1999, the agency said.
Contorinis, a resident of Fort Myers, Florida, bought $59 million in Albertson’s shares for the Jefferies hedge fund, the SEC said. Defendants in the case collectively gained or avoided losing $7.7 million on trades tied to the deal, it said.
Carlyle Group
Stephanou also leaked confidential information about the Carlyle Group’s plans in 2006 to buy ElkCorp, the Dallas-based maker of roofing and building products, according to the SEC’s complaint. Building Materials Corp. of America bought ElkCorp for about $1.1 billion in 2007.
Chakrapani, a London resident, was on a team of Blackstone advisers hired to help National Health Investors evaluate strategic options, including a buyout, in 2006, according to the SEC. He leaked information about a potential takeover to Stephanou, who passed it to at least one other person, prosecutors and the agency said.
Federal prosecutors last month charged Chakrapani with securities fraud and conspiracy to commit securities fraud for allegedly passing information to a friend about Albertson’s while working at New York-based Blackstone. The friend, together with family members, reaped $3.6 million, the SEC said in a related lawsuit seeking unspecified fines.
Tom Tarrant, a spokesman for Jefferies Group, a New York- based brokerage specializing in mid-sized companies, declined to comment. He said Contorinis left the company a year ago.
Blackstone spokesman Peter Rose said Jan. 14 the company was “shocked” by Chakrapani’s alleged breach of the firm’s policies and ethical standards after he was charged for trades tied to Albertson’s.
“UBS has assisted and will continue to assist the authorities in their investigation into the alleged actions of a single UBS employee,” company spokesman Doug Morris said.
SINGAPORE, Feb 5 (Reuters) - Singapore's finance minister said on Thursday the economic downturn was worsening and the government may have to tap its multi-billion dollar pool of reserves for another fiscal stimulus package next year.
Singapore was the first country in Asia to fall into recession last year and Finance Minister Tharman Shanmugaratnam reiterated a forecast made before the country's January stimulus package that the economy could shrink up to 5 percent this year.
'We are seeing continued momentum in the decline week by week,' Tharman told parliament at a budget debate.
Singapore, a tiny city-state of 4.6 million, last month took the unprecedented step of drawing on its reserves to help finance a S$20.5 billion ($13.6 billion) stimulus package as its economy shrunk for the third straight quarter.
Tharman said the stimulus package was sufficient. It will result in a budget deficit of about 6 percent of gross domestic product for 2009/2010 before investment income and the top-up from reserves.
'There is a possibility the government may have to go back to the president and the CPA in a year's time to seek a further draw,' Shanmugaratnam said, referring to the Council of Presidential Advisers. Singapore's president, whose role is otherwise largely ceremonial, is the formal guardian of the reserves.
A senior politician said on Sunday the government would dip into the reserves only in times of crisis and to pay for welfare.
'As a general principle, the government must continue to fund such programmes out of revenues raised in the current term of government, not past reserves,' former Prime Minister Goh Chok Tong said
Singapore's two sovereign funds, Temasek and the Government of Singapore Investment Corp, or GIC, together manage an estimated $400 billion in assets.
8 comments:
China’s Bond Market: A Glass Half Full
Investors are paying more attention to China’s bond market, which is poised for growth thanks to new policies and the financial crisis.
Zhang Yuzhe, Caijing
5 February 2009
Industry experts say China’s bond market will find more room to grow in the first half of 2009, a trend signalled last year by a series of favourable regulatory policies and initiatives.
On the other hand, as the economy turns down, credit risk and price risk are worrying investors in the bond market, which has been sopping up investment liquidity detoured by an ailing stock market.
Yet the financial community generally sees the glass half full.
Among the encouraging developments is that regulators are expected to begin allowing private sector investments in corporate bonds, according to a recent statement by Zhu Congjiu, the assistant chairman of the China Banking Regulatory Commission. And regulators are reviewing proposed tax waivers for interest earned on corporate bonds.
Meanwhile, the interbank market administered by the central bank, is seeking a more diversified team of institutional investors. The market may expand to allow participation by fund managers, securities firms and private equity funds.
At the moment, in terms of scale, China’s bond market is dominated by the interbank market and compensated through the stock exchange. Interbank trading is 20 times the amount handled on the exchange, accounting for 93 percent of the total number of bonds on the Chinese market.
However, the market is hampered by identical investments, inadequate liquidity, and inactive trading. One reason is that commercial banks and insurance companies – the major institutional investors on the interbank market -- prefer relatively low risk and tend to hold bonds with high credit ratings.
To broaden the playing field, the People’s Bank of China, the central bank, recently proposed opening the interbank market to high-yield bonds as well as consolidated bonds for small- and medium-sized enterprises.
Moreover, the National Development and Reform Commission (NDRC) plans to continue working toward widening the scale and diversity of corporate bonds, said Xu Lin, chief of NDRC’s Department of Fiscal and Financial Affairs.
Underlying risks associated with bonds are drawing more attention. But investors are learning to safely weigh the risks.
Trading in uncollateralized bonds and those not backed by the government will increase in the future, said Mu Huaipeng, chief of the central bank’s Financial Market Department. The central bank issued uncollateralized notes on the interbank market in 2005 and ‘08. Likewise, the NDRC last April underwrote uncollateralized corporate bonds to be issued on the exchange and interbank market.
An increasing amount of capital is expected to target the bond market due to ongoing instability in the global financial environment, said Yin Jianfeng, a senior researcher at the Chinese Academy of Social Sciences. Analysts expect credit risks to continue through the second quarter as the economy continues to slide, making bonds even more attractive.
But even a half-full glass can spill. Some analysts warn that long-term bond investments may turn south if an economic recovery in the third or fourth quarter triggers an increase in central bank interest rates.
Shi Wenchang, secretary of the National Association of Financial Market Institutional Investors, said state control over interest rates and ample liquidity have given the bond market the necessary room to grow. Yet Shi warned if interest rates are too low and liquidity excessive, pressure for macroeconomic adjustments will build and threaten long-term investments.
To avoid these risks, many institutional investors prefer short- to medium-term bonds that mature in less than three years, even though yields are below those for long-term bonds. One bond trader told Caijing that yields for short-term bonds have already fallen to historic lows.
U.S. jobless claims surge to 26-year high
By Lucia Mutikani
Feb 5, 2009
WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits hit a 26-year high last week and factory orders plummeted in December, data showed on Thursday, illustrating an economy mired deep in recession.
In addition, the number of people staying on the jobless benefit rolls hit a record high late last month.
"The economy is suffering. Things are getting worse, not better. Everything is weakening at a faster pace than we have ever seen. You don't need to embellish," said Brian Fabbri, North America chief economist at BNP Paribas in New York.
The Labour Department said first-time claims for state unemployment insurance benefits rose 35,000 to 626,000 in the week ended January 31, well above the level Wall Street had expected and the highest since October 1982.
U.S. markets shrugged off the data, cheered by above-forecast sales from retailer Wal-Mart (WMT.N) and speculation the government would suspend an accounting requirement on the recognition of losses that has resulted in billions of write-downs for banks.
The Dow Jones industrial average ended up 106.41 points at 8,063.07 .DJI. U.S. government bond prices pushed higher, with the jobless claims report viewed as further confirmation that the year-long recession was deepening.
The housing-led downturn is having a devastating impact on jobs, further squeezing households whose net worth has also been eroded by the stock market collapse.
With consumers drastically cutting back on spending, companies are responding to the slump in demand by further reducing their payrolls.
Illustrating the rapid deterioration of the labour market, the number of unemployed drawing benefits after an initial week of aid surged to a record 4.79 million in the week ended January 24, the latest week for which the data is available.
The data came ahead of a closely watched government report on employment on Friday that is expected to show job losses accelerated last month. A report on Wednesday suggested the private sector purged 522,000 jobs last month.
"It continues to suggest we are going to get a deterioration of labour market readings and that is going to continue beyond tomorrow's (payrolls) number," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.
STIMULUS NEEDED
Analysts said the figures underscored the need for a fiscal stimulus to arrest the economic decay. President Barack Obama, canvassing support for a package of spending and tax-cut measures that could cost close to $900 billion, warned Friday's jobs report would be "dismal".
A separate report from the Commerce Department showed new orders received by U.S. factories slumped 3.9 percent in December, a fifth consecutive monthly decline.
However, the drop was modest compared to November's 6.5 percent plunge, the steepest fall since July 2000. For all of 2008, factory orders edged up just 0.4 percent, the weakest showing since 2002.
Orders for so-called durable goods, items meant to last three years or more, slid 3 percent in December, a bit steeper decline than first reported last week.
Data from the International Council of Shopping Centres showed retail sales for January slid for the fourth straight month, dropping 1.6 percent from a year ago.
Wal-Mart bucked the trend with a stronger-than-expected increase, but in a new sign of concern over the economy, it said it would no longer issue monthly sales forecasts because of volatile consumer habits.
The sharp job cutting last quarter trimmed the total number of hours employees worked, boosting productivity.
Non-farm productivity rose at a 3.2 percent annual rate in the fourth quarter, but output plunged 5.5 percent, the biggest drop since 1982, a separate Labour Department report showed.
Hours worked outside the farm sector fell at an 8.4 percent annual rate in the fourth quarter, the biggest decline since the first quarter of 1975. In the manufacturing sector, hours worked slumped 14.1 percent.
"This suggests that U.S. companies are preparing for a long-lasting recession," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.
Unit labour costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, were up 1.8 percent in the fourth quarter, the preliminary report showed, well below Wall Street's estimates for a 3 percent increase.
Diminishing inflation pressures boosted hourly compensation by a 15.6 percent annual rate during the fourth quarter, the largest increase since the series started in 1947.
"That's something that provides some hint of underlying support to the economy. Real income growing may help to stabilise things in a couple of months, a little bit, for the economy," said Commonfund's Strauss.
Bank of America shares touch multi-decade lows
Nationalization concerns linger, but shares rebound on insider buying
By Alistair Barr & Ronald D. Orol,
Feb. 5, 2009
SAN FRANCISCO (MarketWatch) -- Shares of Bank of America Corp. briefly dropped to their lowest level in more than two decades Thursday on concern the U.S. government may nationalize the banking giant to help stabilize the broader financial system.
The shares slumped as low as $3.77 earlier in the volatile session -- the lowest level since at least 1984, according to FactSet Research data.
The stock erased losses in afternoon action and closed up 3% at $4.84 after the bank disclosed share purchases by executives.
The shares were also buoyed by speculation about the possible relaxation of accounting rules that force banks to report the fair market value of their assets each quarter. The Securities and Exchange Commission didn't respond to a phone call seeking comment.
Shares of Charlotte, N.C.-based Bank of America are trading at a multiple of about 0.19 times their stated book value and half their tangible book value, while the company's market capitalization represents just 3.4% of its deposits, Ladenburg Thalmann analyst Dick Bove pointed out in a note to clients Thursday.
"These numbers are clear, investors believe that this bank is about to fail and be nationalized," he wrote. "If they believed that it would continue as an operating entity it is unlikely that the bank would be selling at such a low value."
Bank of America spokesman Scott Silvestri declined to comment.
Merrill troubles
Bank of America got a $15 billion investment from the Treasury's Troubled Asset Relief Program last year. Since then the bank's troubles have multiplied and the government has become even more entwined in its affairs.
Bank of America shares have plunged 67% since it acquired Merrill Lynch at the start of this year. Soon after, the bank reported a $1.8 billion fourth-quarter loss and disclosed that Merrill had lost roughly $15 billion in the period.
After Bank of America Chief Executive Ken Lewis realized how bad Merrill's situation had become, he flew to Washington, D.C., to tell regulators he was ready to back out of the acquisition, The Wall Street Journal said on Thursday, citing unidentified people close to the executive.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke "forcefully urged" Lewis not to walk away. Two days later during a conference call Bernanke said Bank of America had "no justification" for ditching Merrill, the Journal said.
A Federal Reserve official warned that if Lewis backed out and Bank of America needed more money from the government later, regulators would think hard about their confidence in the bank's management, the newspaper added, without identifying the official.
Lewis was also told that the government would consider ousting executives and directors, the Journal reported, citing unidentified people close to the bank.
After that, Bank of America went through with the deal, but got another $20 billion government investment and protection against losses on $118 billion of troubled assets.
Government control
Bank of America and other big banks that received more than $100 billion in government investment are already under pressure to lend more, even though the recession is stunting loan demand and making borrowers less creditworthy.
On Wednesday, President Barack Obama unveiled executive salary caps of $500,000 a year for financial institutions like Bank of America and Citigroup that get "extraordinary" help from the government.
With the government already telling banks how to lend, reportedly ordering acquisitions and capping compensation, some investors may be concluding that institutions have already effectively been taken over by authorities.
Thursday's Wall Street Journal article about Bank of America being forced to complete its Merrill acquisition likely came from an interview with the bank's management, who are keen to show investors that they knew what was going on but had no choice, Bove said.
"This, to some extent, alleviates the questions concerning management's competence," he added. "It does not take away the belief on the part of investors that the company's woes are so significant that it will fail."
Inside Wall Street's Factory of Fakery
Third in the Crackdown on Wall Street series
By Elizabeth MacDonald
February 5, 2009
Foxbusiness.com
Law enforcement officials say arrests on Wall Street will be made not just by those who hawked predatory loans, but those who sold predatory securities built on those as loans well, interviews with Justice Dept. officials denote.
Namely, the bonds and derivatives compulsively minted by Wall Street’s financial engineering factory, where bad mortgages, bad credit card payments, bad auto loans, bad student loans, you name it, were sluiced through the underwriting pipeline and magically emerged as Triple A rated securities, safe as a US Treasury.
Bonds and derivatives that were sold by companies purposely set up offshore in places like the Cayman Islands or Guernsey, away from the prying eyes of regulators.
The credit rating agencies are under scrutiny, too, as the push was on to get these radioactive securities goldplated Triple A, meaning safe and virtually risk-free, because both Wall Street and the credit rating agencies knew full well that investment portfolios around the world, notably pension funds, by the very dint of their own regulations were only allowed to invest in safe, Triple-A rated securities.
It’s clear Wall Street went wild. It manufactured trillions of dollars in asset-backed bonds and derivatives that dwarfed the value of the underlying mortgages, auto loans, and student loans on which they were based, investment experts say.
The mayhem was notable inside the offices of the Wall Street underwriters of what are called collateralized debt obligations (CDOs), pools of bonds which are backed by pools of mortgages, and so on.
Bucket Shop Bonds
When you invest your money, you expect a competent money manager who will protect your investment, right?
However, too many investors in these mortgage-backed and other asset-backed bonds invested on autopilot, without checking who was watching their money.
Specifically, the securities and derivatives under scrutiny were supposed to be overseen by competent investment managers to ensure investors money was protected and returns were being paid.
Anything less is a breach of fiduciary duty, and potentially securities laws, says Janet Tavakoli, derivatives expert and author of “Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street” (John Wiley & Sons, 2009).
So who were these guys who oversaw these jerryrigged bonds?
Executives you wouldn’t want managing your local McDonald’s, notes Fox Business’s Joanne Ossinger.
And the deals were filled with so many rotten heads of lettuce.
An Unregulated Bond Factory
Derivatives expert Tavakoli says that in November 2006, she warned a Wall Street shop that “their CDO managers are unregulated,” that “most do not have the expertise or the resources to perform CDO management or surveillance,” and that “many cannot build a CDO model.”
She also noted that “rating agencies rarely ask for background checks on CDO managers.”
Many prospectuses for these securities offerings read like “finance comic books,” Tavakoli says she wrote in a letter to legendary investor Warren Buffett in December 2007.
A Rotten Deal
Tavakoli says one notably rotten deal came across her radar screen. In late 2006, she read the prospectus for a mortgage-backed security that took hundreds of mortgage loans, shoved them into a portfolio, and sold the risk to investors.
The portfolio included negative amortization loans and interest-only loans, the most combustible mortgages bought from some of the worst mortgage mills that have since flopped.
In these mortgages, because principal is not being paid down, the loan amount steadily increases and then the interest rate shoots up, with a massive balloon payment that is similar to the levees breaking in New Orleans, Tavakoli says.
More than 60% of the loans backing this security were purchased form New Century Capital, which in turn bought them from New Century Mortgage Corp., a unit of New Century Financial Corporation, an incestuous stew of a company that restated its financials in February 2007 and then filed for bankruptcy on April 2, 2007, under a cloud of fraud allegations, Tavakoli says.
Merrill Lynch Goes Full-Bore
Merrill Lynch was Wall Street’s biggest underwriter of CDO deals built on loans such as these, derivatives built on loans from places that were essentially mortgage mills.
For example, Merrill Lynch was a part owner of California-based Ownit Mortgage Solutions, a mortgage mill that eventually collapsed in December 2006, Tavakoli points out.
Ownit issued crazy 45-year ARMs and no-income-verifications loans. In the words of William D. Dallas, its founder and CEO: “The market is paying me to do a no-income-verification loan more than it is paying me to do the full documentation loans.”
Michael Blum, Merrill Lynch’s head of global asset-backed finance, sat on the board of Ownit Mortgage Solutions. When Ownit imploded in December 2006, Blum faxed in his resignation, Tavakoli says.
Full Steam Ahead
But Merrill continued to sell derivatives based on Ownit’s loans well into 2007, Tavakoli says.
For example, in early 2007, Merril created a package of securities deals including loans issued by Ownit, Tavakoli says.
However, around 70% of the borrowers of the loans had not provided full documentation of either their income or assets, Tavakoli says. Most of the loans were for the full appraised value, meaning they were no down payment loans, loans given at a time when home prices were already starting to crumble.
In the deal documents, says Tavakoli, Merrill disclosed that Ownit went bankrupt, but did not mention it was Ownit’s largest creditor.
Can Merrill say it did an “arms-length” transaction with Ownit when a Merrill officer sat on the Ownit’s board, Tavakoli asks?
In early 2007, both Moody’s Investors Service and Standard and Poor’s, the credit rating agencies, downgraded the Triple-A rated tranche of the deal, “an investment they had previously rated as ‘super safe’ with almost no possibility of loss) to B (junk status meaning you are likely to lose your shirt),” Tavakoli says.
Moody’s later forecast that 60% of the original portfolio value could eventually be lost, Tavakoli says.
However, the SEC as a regulator of the investment banks had the power to stop this nonsense, but it did nothing to halt this securitization activity. “Instead, investment banks accelerated securitization activity in the first part of 2007,” Tavakoli says.
UBS, Blackstone Advisers Fed Insider Ring, U.S. Says
By David Scheer and David Glovin
Feb. 5 (Bloomberg) -- UBS AG and Blackstone Group LP takeover advisers fed information to an insider-trading ring including a former Jefferies Group Inc. money manager in a scheme that yielded more than $8 million in illegal gains, federal authorities said.
Nicos Stephanou, associate director of mergers and acquisitions at UBS’s London office, passed information about bids for Albertson’s Inc., ElkCorp and National Health Investors Inc., U.S. prosecutors and the Securities and Exchange Commission said today in criminal and civil complaints.
Ramesh Chakrapani, a managing director of Blackstone’s takeover advisory unit, leaked tips on two of the deals, the SEC said. The agency sued the pair and five others for involvement in the ring, while federal prosecutors in Manhattan announced criminal charges against Stephanou, ex-colleague Joseph Contorinis, a money manager for the Jefferies Paragon Fund, and a third man. Chakrapani, 33, was arrested last month.
“It is unconscionable when these highly paid individuals abuse their access to sensitive information and enrich themselves at the expense of others,” said Scott Friestad, an SEC attorney who supervised the case.
Albertson’s Bid
The alleged insider-trading network is the biggest uncovered by U.S. authorities since former UBS and Morgan Stanley employees were accused in 2007 of feeding tips on stock research and acquisitions to a ring of hedge funds. Allegations unveiled today expand on an insider-trading scheme alleged last month against Chakrapani relating to the 2006 bid for Albertson’s, the Boise, Idaho-based grocery store chain. The ring’s alleged gains include trading profits as well as losses avoided.
Stephanou, 34, a citizen of Cyprus who lives in London, was arrested at Newark Liberty International Airport in New Jersey on Dec. 27 and remains in custody, prosecutors said. His lawyer, Christopher Morvillo, declined to comment.
Chakrapani’s lawyer Michael Sommer denied the accusations in an interview today.
Contorinis, 44, and Michael Koulouroudis, 58, who also allegedly received the tips, were arrested today. Contorinis’s lawyer, Benjamin Rosenberg, didn’t return a call. Koulouroudis’s lawyer, Michael Bachner, declined to comment. Koulouroudis was released on $900,000 bail, while Contorinis was ordered held on $7 million bail at a hearing today.
Authorities used a “novel” technique to detect the trading ring, said Daniel Hawke, head of the SEC’s Philadelphia office, which handled the inquiry. He declined to elaborate, noting that the investigation continues.
Banker Cooperation
Prosecutors won cooperation from a UBS investment banker who tipped the other defendants, Assistant U.S. Attorney Reed Brodsky said at a hearing today. Brodsky didn’t name the banker, who he said has been charged.
“The government has a very strong case,” Brodsky said in court.
Stephanou was among UBS advisers assigned to help Cerberus Capital Management LP prepare bids with a group of investors for Albertson’s in 2005 and 2006, the SEC said. He tipped at least three people to developments in the deal, including friend and ex-colleague Contorinis, the agency said. The pair had both worked as analysts at the New York office of Credit Suisse First Boston in 1998 and 1999, the agency said.
Contorinis, a resident of Fort Myers, Florida, bought $59 million in Albertson’s shares for the Jefferies hedge fund, the SEC said. Defendants in the case collectively gained or avoided losing $7.7 million on trades tied to the deal, it said.
Carlyle Group
Stephanou also leaked confidential information about the Carlyle Group’s plans in 2006 to buy ElkCorp, the Dallas-based maker of roofing and building products, according to the SEC’s complaint. Building Materials Corp. of America bought ElkCorp for about $1.1 billion in 2007.
Chakrapani, a London resident, was on a team of Blackstone advisers hired to help National Health Investors evaluate strategic options, including a buyout, in 2006, according to the SEC. He leaked information about a potential takeover to Stephanou, who passed it to at least one other person, prosecutors and the agency said.
Federal prosecutors last month charged Chakrapani with securities fraud and conspiracy to commit securities fraud for allegedly passing information to a friend about Albertson’s while working at New York-based Blackstone. The friend, together with family members, reaped $3.6 million, the SEC said in a related lawsuit seeking unspecified fines.
Tom Tarrant, a spokesman for Jefferies Group, a New York- based brokerage specializing in mid-sized companies, declined to comment. He said Contorinis left the company a year ago.
Blackstone spokesman Peter Rose said Jan. 14 the company was “shocked” by Chakrapani’s alleged breach of the firm’s policies and ethical standards after he was charged for trades tied to Albertson’s.
“UBS has assisted and will continue to assist the authorities in their investigation into the alleged actions of a single UBS employee,” company spokesman Doug Morris said.
Singapore finmin says economic woes deepening
SINGAPORE, Feb 5 (Reuters) - Singapore's finance minister said on Thursday the economic downturn was worsening and the government may have to tap its multi-billion dollar pool of reserves for another fiscal stimulus package next year.
Singapore was the first country in Asia to fall into recession last year and Finance Minister Tharman Shanmugaratnam reiterated a forecast made before the country's January stimulus package that the economy could shrink up to 5 percent this year.
'We are seeing continued momentum in the decline week by week,' Tharman told parliament at a budget debate.
Singapore, a tiny city-state of 4.6 million, last month took the unprecedented step of drawing on its reserves to help finance a S$20.5 billion ($13.6 billion) stimulus package as its economy shrunk for the third straight quarter.
Tharman said the stimulus package was sufficient. It will result in a budget deficit of about 6 percent of gross domestic product for 2009/2010 before investment income and the top-up from reserves.
'There is a possibility the government may have to go back to the president and the CPA in a year's time to seek a further draw,' Shanmugaratnam said, referring to the Council of Presidential Advisers. Singapore's president, whose role is otherwise largely ceremonial, is the formal guardian of the reserves.
A senior politician said on Sunday the government would dip into the reserves only in times of crisis and to pay for welfare.
'As a general principle, the government must continue to fund such programmes out of revenues raised in the current term of government, not past reserves,' former Prime Minister Goh Chok Tong said
Singapore's two sovereign funds, Temasek and the Government of Singapore Investment Corp, or GIC, together manage an estimated $400 billion in assets.
背叛 - 曹格
曲：曹格
词：阿丹、邬裕康
编曲：涂惠源
雨 不停落下来
花 怎么都不开
尽管我细心灌溉
你说不爱就不爱
我一个人
欣赏悲哀
爱 只剩下无奈
我 一直不愿再去猜
钢琴上黑键之间
永远都夹着空白
缺了一块
就不精采
紧紧相依的心如何
Say goodbye
你比我清楚还要我说明白
爱太深会让人疯狂的勇敢
我用背叛自己
完成你的期盼
把手放开不问一句
Say goodbye
当作最后一次对你的溺爱
冷冷清清淡淡今后都不管
只要你能愉快
心 有一句感慨
我 还能够跟谁对白
在你关上门之前
替我再回头看看
那些片段
还在不在
紧紧相依的心如何
Say goodbye
你比我清楚还要我说明白
爱太深会让人疯狂的勇敢
我用背叛自己
完成你的期盼
把手放开不问一句
Say goodbye
当作最后一次对你的溺爱
冷冷清清淡淡今后都不管
只要你能愉快
紧紧相依的心如何
Say goodbye
你比我清楚还要我说明白
爱太深会让人疯狂的勇敢
我用背叛自己
完成你的期盼
把手放开不问一句
Say goodbye
当作最后一次对你的溺爱
冷冷清清淡淡今后都不管
只要你能愉快
只要你能愉快
Time cures everything......
Time kills everything......
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