Financial News

[southsider2k5]

http://www.washingtontimes.com/news/2011/j...3yPjEs;facebook

 

The U.S. Treasury next month will go back to relying on the kindness of strangers like never before to purchase the nation’s burgeoning debts — and taxpayers may have to pay higher interest rates to attract enough foreign investors, analysts say.

 

Though a significant rise in interest rates could be toxic for a softening U.S. economy, the Federal Reserve has said it will end its program of purchasing $600 billion in U.S. Treasury bonds as planned on June 30. The Fed is estimated to have bought about 85 percent of Treasury’s securities offerings in the past eight months.

 

That leaves the Treasury, which is slated to sell near-record amounts of new debt of about $1.4 trillion this year, without its main suitor and recent source of support, and forces it back into the vagaries of global markets. Among the countries that will have to step forward to prevent a debilitating rise in interest rates are China, Japan and Saudi Arabia — and even hostile nations such as Iran and Venezuela with petrodollars to invest, according to one analysis.

 

The central bank launched the unusual bond-buying campaign last fall in an effort to lower interest rates and boost the sagging economy — and it was successful at drawing down long-term interest rates to record lows last winter. In particular, 30-year fixed mortgage rates fell to unprecedented lows near 4 percent and spawned a refinancing wave that helped consumers to discharge debts, purchase homes and increase spending.

 

But by the start of the year, a pickup in inflation — led by a surge in oil and other commodity prices that some economists blamed on the Fed’s easy money policies — wiped out the boon for consumers and home buyers and started to weigh on the economy. With the economy relapsing back to tepid rates of growth around 2 percent, some Fed officials argue that it should continue the easing program, but fear that the commodity boom could turn into a serious inflation threat makes it difficult for the Fed to do so.

 

Federal Reserve Chairman Ben S. Bernanke said in a speech Tuesday that the Fed remains on track to withdraw from the Treasury market, stressing that the central bank must remain vigilant against inflation at the same time it tries to nurture the economy back to healthy growth.

 

Not an easy task

 

The end of the Fed’s program would never be easy given the huge onslaught of scheduled Treasury borrowing, but the task will be more difficult because foreign investors in the past six months have been reducing their sizable holdings of U.S. debt, not increasing them.

 

That means to get those buyers back, the Treasury may have to raise the rates it pays on the debt.

 

“With the Fed pretty much out of the picture after June, it seems clear that foreign demand for Treasuries holds the key going forward,” said David Greenlaw, an analyst at Morgan Stanley. “Continued heavy buying by the largest foreign holders of Treasuries will probably be necessary” to prevent interest rates from rising, he said.

 

China and Japan remain the largest foreign buyers of Treasury debt, followed by oil exporters such as Saudi Arabia and Qatar. Even oil exporters that are hostile to the U.S. such as Iran and Venezuela have been among the buyers supporting the Treasury in the past, according to Morgan Stanley estimates.

 

China and many of the oil exporters often channel their investments through London and such offshore investment havens as the Channel Islands, so the origin of the funding is sometimes difficult to track. The uncertainty of where the money is coming from in itself will cause rates to rise and increase volatility in the Treasury market after the Fed exits, Mr. Greenlaw said.

 

Brazil, Taiwan and Russia also are among the Treasury’s major creditors. But many countries have been cutting back on their purchases of U.S. securities in the past six months out of concern about the rapid decline of the U.S. dollar and rising inflation, which hurts their investment values.

 

Vassillli Serebriakov, an analyst at Wells Fargo, said many foreigners were put off by the Fed’s bond-purchase program, which appeared to trigger a foreign sell-off of about $100 billion in Treasury holdings since last fall.

 

In some countries, the program was portrayed as the Fed “printing money” to finance profligate congressional spending and tax cuts — a charge the Fed vehemently denies.

 

Still, given the wariness overseas about the Fed’s policies and untamed federal deficits, going back to relying on foreign buyers to finance the lion’s share of the debt could be tricky, he said.

 

“The key question is to what extent one can expect the recent deterioration in the long-term capital flows to be reversed,” he said.

 

An undetermined future

 

Foreign investors have applauded the Fed’s decision to end the program as it improves the prospects for keeping a lid on inflation. But they will continue to be concerned about uncontrolled deficits and declines in the dollar that diminish the value of their investments, he said.

 

“Some of the reduction in FedTreasury purchases could be replaced by increased demand from foreign investors, but this channel is less certain,” he said.

 

Peter Schiff, president of Euro Pacific Capital, said he does not expect enough foreign or private buyers to step forward and purchase Treasury’s huge slate of debt offerings — a potentially catastrophic development that he thinks will force the Fed to backpedal and renew its bond-buying program.

 

“Do they expect the Chinese to reverse course on their current policy and start heavily buying U.S. debt once again?” he asked.

 

“That seems extremely unlikely given” that China has been investing less in Treasury bonds partly in response to demands from the United States that it stop skewing trade relations between the countries by hoarding huge surpluses of dollars it earned through trade and reinvesting them in Treasuries.

 

Mr. Schiff noted that Bill Gross, the head of America’s own Pimco bond fund, the largest buyer of bonds worldwide, recently reduced Pimco’s holdings of Treasuries to zero out of concern that they weren’t yielding enough given the risks of inflation and deficit spending.

 

“It is not clear what would convince Gross to get back into the market with both feet, but one might expect at minimum it would take much higher interest rates,” Mr. Schiff said.

 

Jeffrey Kleintop, chief market strategist at LPL Financial, said he is not worried about the Treasury finding buyers or about other market disruptions as the Fed pulls back.

 

“While interest rates are likely to rise modestly, we do not anticipate a spike resulting from the lack of Fed buying that would put the economy at risk,” he said.

 

A failure by Congress and the White House in coming weeks to agree on a plan to curb deficits would be a much bigger problem for the markets, Mr. Kleintop said.

 

“The budget and debt-ceiling debate may be of more importance since fiscal policy could tighten sharply or a failure to control the deficit could spike interest rates, in either case putting the economy at risk,” he said.

[Balta1701]

If I posted something like that, the first and correct response would be "The market already knows that and has priced that in for months."

[StrangeSox]

Except that the whole point of Baltas thread was that all of these economic issues could have been fixed if these two people had been appointed.

 

No one ever said that but you.

 

[StrangeSox]

So that thing I said about the US government being pretty lax on student loans....not so much I guess:

 

http://www.news10.net/news/article/141072/...ckton-mans-door

 

FWIW this is a criminal investigation, not for defaulting on loans.

 

But this still seems like another example of the militarization of police forces across the country.

 

[Balta1701]

Pretty much stuck in crap territory.

In the week ending June 4, the advance figure for seasonally adjusted initial claims was 427,000, an increase of 1,000 from the previous week's revised figure of 426,000. The 4-week moving average was 424,000, a decrease of 2,750 from the previous week's revised average of 426,750.

[Balta1701]

Hmmm, this might actually have some hope of passing. White House considering offering a business-side payroll tax credit (your employer would see the money, you wouldn't) in exchange for a vote on the debt ceiling. Would provide some weak but nonzero stimulus and get the debt ceiling vote done.

[Balta1701]

This bit is from remarks by the head of the CFTC.

Legitimate question here for 2k5 and the other trading folks....the head of the CFTC is clearly trying to make it sound like this is unusual/improper and that speculators are essentially dominating the oil price market. Is an 80% turnover from day-trading unusually high compared to, say, other commodities?

For example, based upon CFTC data as of May 31, 2011, only about 12 percent of gross long positions and about 20 percent of gross short positions in the WTI crude oil market were held by producers, merchants, processors and users of the commodity. Similarly, only about 10 percent of gross long positions and about 39 percent of gross short positions in the Chicago Board of Trade wheat market were held by producers, merchants, processors and users of the commodity.

 

Third, based upon CFTC data, the vast majority of trading volume in key futures markets – up to 80 percent in many markets – is day trading or trading in calendar spreads. Thus, only a modest proportion of average daily trading volume results in reportable traders changing their net long or net short futures positions for the day. This means that only about 20 percent or less of the trading is done by traders who bring a longer-term perspective to the market on the price of the commodity. We plan to publish historical data on directional position changes later this month on our website to enhance market transparency.

[southsider2k5]

This bit is from remarks by the head of the CFTC.

Legitimate question here for 2k5 and the other trading folks....the head of the CFTC is clearly trying to make it sound like this is unusual/improper and that speculators are essentially dominating the oil price market. Is an 80% turnover from day-trading unusually high compared to, say, other commodities?

 

Without knowing the exact numbers, I would say it isn't really unusual at all. The explosion in trading volume in every single aspect of trading has been in the short term volume. Having sat on order desks and in trading crowds for the vast majority of my time in the business, I'd say it is now "normal".

 

I would say that it varies from commodity to commodity based on liquidity, delivery method, and depth of market.

 

I'll hold back my comments on the CFTC for obvious reasons.

[southsider2k5]

Without knowing the exact numbers, I would say it isn't really unusual at all. The explosion in trading volume in every single aspect of trading has been in the short term volume. Having sat on order desks and in trading crowds for the vast majority of my time in the business, I'd say it is now "normal".

 

I would say that it varies from commodity to commodity based on liquidity, delivery method, and depth of market.

 

I'll hold back my comments on the CFTC for obvious reasons.

 

More accurately than depth of market, should be ease of exit/entry in the market.

[Balta1701]

Without knowing the exact numbers, I would say it isn't really unusual at all. The explosion in trading volume in every single aspect of trading has been in the short term volume. Having sat on order desks and in trading crowds for the vast majority of my time in the business, I'd say it is now "normal".

 

I would say that it varies from commodity to commodity based on liquidity, delivery method, and depth of market.

 

I'll hold back my comments on the CFTC for obvious reasons.

I learned something. Gracias.

[southsider2k5]

I learned something. Gracias.

 

Thinking about it, there are a couple of more random thoughts out there that are worth while. "Speculators" tend to be small-time in size. There are lots and lots of them throwing around their 1 to 10 contact orders. The people who are actually taking deliveries in commodities are usually the biggest volume traders (in terms of individual order size) out there. They might not look like it when you look at open interest totals in a particular commodity (because they get drowned out by all of the speculators, until first notice/delivery/expiration, when the specs offset each other, and all that is left are the people who need/want deliveries), but they usually have the biggest orders out of necessity. They have to either deliver or take delivery of a lot of product. They either have, or need, a specific amount of the product, based on their own size. They also have to make a trade because of whatever business they are in.

 

The speculators actually do them a service by putting a lot more volume to suck up their large orders out there, versus a non-speculator market like the LME. In London a very few people control the entire marketplace and the pricing is inconsistent, slow, and practically criminal. Placing large orders of equivalent size on the NYMEX crude versus London Aluminum for example will result in very different levels of pricing. Markets go crazy-wide and producers/manufacturers get screwed. Because there are so many speculators to suck up volume in NY, the swings aren't as crazy on non-fundamental market moves, versus large order moves.

[Balta1701]

The International Monetary Fund, still struggling to find a new leader after the arrest of its managing director last month in New York, was hit recently by what computer experts describe as a large and sophisticated cyberattack whose dimensions are still unknown.

 

The fund, which manages financial crises around the world and is the repository of highly confidential information about the fiscal condition of many nations, told its staff and its board of directors about the attack on Wednesday. But it did not make a public announcement.

 

Several senior officials with knowledge of the attack said it was both sophisticated and serious. “This was a very major breach,” said one official, who said that it had occurred over the last several months, even before Dominique Strauss-Kahn, the French politician who ran the fund, was arrested on charges of sexually assaulting a chamber maid in a New York hotel.

 

Asked about the reports of the computer attack late Friday, a spokesman for the fund, David Hawley, declined to provide details or talk about the scope or nature of the intrusion. “We are investigating an incident, and the fund is fully functional,” he said.

 

 

...The concern about the attack was so significant that the World Bank, an international agency focused on economic development, whose headquarters is across the street from the I.M.F. in downtown Washington, cut the computer link that allows the two institutions to share information.

Link

[mr_genius]

really no surprise here. just as i predicted.

 

http://www.cnbc.com/id/43395857

 

It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression.

Edited June 15, 2011 by mr_genius

[southsider2k5]

http://online.wsj.com/article/SB1000142405...8.html?mod=e2fb

 

Today's Pirates Have Their Own Stock Exchange

Western powers patrol the seas but do little to stop pirate financing.

 

By AVI JORISCH

 

Pirates are on a hot streak this season. World-wide, the first quarter of 2011 saw 142 recorded attacks, up from 67 in that time last year. Off the coast of Somalia there were 97, as against 35 last year. Why? Despite some efforts by Western powers to patrol the Horn of Africa, pirates are still able to access capital, as any successful business must.

 

The world's first pirate stock exchange was established in 2009 in Harardheere, some 250 miles northeast of Mogadishu, Somalia. Open 24 hours a day, the exchange allows investors to profit from ransoms collected on the high seas, which can approach $10 million for successful attacks against Western commercial vessels.

 

While there are no credible statistics available, reports from various news sources suggest that over 70 entities are listed on the Harardheere exchange. When a pirate operation is successful, it pays investors a share of the profits. According to a former pirate who spoke to Reuters, "The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials. . . . We've made piracy a community activity."

 

The big player on the Harardheere exchange is a pirate named Mohammed Hassan Abdi, who goes by the name of "Afweyne," or "Big Mouth." Known as the "father of piracy," Abdi and his son Abdiqaadir are in charge of the exchange and are, according to a recent United Nations report, among the best-known pirates in the area. Abdi's boats have hijacked a variety of ships, including the German freighter Hansa Stavanger, which German special forces tried unsuccessfully to liberate in 2009. After a four-month hostage ordeal, the pirates released the ship off the coast of Kenya.

 

Piracy has changed Harardheere from a small fishing village to a town crowded with luxury cars. As local security officer Mohamed Adam put it to Reuters, "Piracy-related business has become the main profitable economic activity in our area and as locals we depend on their output." Mr. Adam claims that the district government gets a cut of every dollar collected by pirates and uses it—naturally—for schools, hospitals and other public infrastructure.

 

Cutting off these financial relationships is essential to curbing piracy. The U.S. could begin by instituting, via executive order, a sanctions regime against these rogue actors. Just as the government maintains lists of terrorists, narco-traffickers, weapons proliferators and money launderers, so too should it keep a list of pirates. This would heighten international awareness of piracy and give banks an additional tool to employ against illicit actors. Pirates, like all other criminals, eventually use the banking sector to try to hide their criminal gains.

 

The U.N. and other international organizations—such as the Financial Action Task Force (FATF), an intergovernmental body that sets standards regarding terrorism finance and money laundering—also have roles to play. For one, the U.N. should expand its current Somalia and Eritrea monitoring committee, which was established in 1992 to implement the U.N. travel ban, asset freeze, and arms embargo on Somalia, as well as the arms embargo on Eritrea. An expanded committee could improve the anti-piracy intelligence-gathering capabilities of its members and track the finances of significant international pirates.

 

For its part, the FATF could get serious about including piracy within its mission of highlighting how money launderers and terrorists raise and move funds. To date, the organization has never issued a report on piracy. Doing so would prod a variety of international organizations, policy makers, law-enforcement agencies, and banking authorities to grapple seriously with this threat.

 

There are four banks in Somalia today—the Central Bank, the Commercial and Savings Bank of Somalia, and the Somali Development Bank (all of which are wholly or partly owned by the government), as well as the independent Universal Bank of Somalia. International financial institutions providing correspondent banking services to the four, or wiring money into or out of the country, should carry out enhanced due diligence on all transactions to make sure they are not related to piracy or the Harardheere stock exchange. In Washington, the Treasury Department could mandate this standard of care by issuing guidance to all American financial institutions.

 

Piracy increases the cost of international commerce by $12 billion annually, and in Somalia alone more than 20 vessels and 400 hostages are currently being held, according to the International Chamber of Commerce. The U.S. and others have a duty to deploy their financial firepower against this threat.

 

Mr. Jorisch, a former U.S. Treasury official, is president of the Red Cell Intelligence Group and the author of "Tainted Money: Are We Losing the War on Money Laundering and Terrorism Finance?" (Red Cell IG, 2009).

[Balta1701]

I'll lay you odds that eventually, somehow, if you look hard enough into that issue, the term "Goldman Sachs" will come up.

[bmags]

this is just a publicity stunt for POTC4

[southsider2k5]

I'll lay you odds that eventually, somehow, if you look hard enough into that issue, the term "Goldman Sachs" will come up.

 

I'd make the same bet about Al Qaeda.

[Balta1701]

I'd make the same bet about Al Qaeda.

Collateralized Terror Options.

[southsider2k5]

holy LinkedIn

 

It is trading at about 50% of its high from the day of its IPO. We are almost out of the 30 day Blue Sky window for it. Wait until the Put trading kicks in.

[bmags]

It is trading at about 50% of its high from the day of its IPO. We are almost out of the 30 day Blue Sky window for it. Wait until the Put trading kicks in.

 

Good. The company is a good company, imo, but was clearly selling too high. Part of the problem is people thinking they'll take advantage of a bubble. The good news is this is not staying so over inflated.

[mr_genius]

It is trading at about 50% of its high from the day of its IPO. We are almost out of the 30 day Blue Sky window for it. Wait until the Put trading kicks in.

 

it's not even worth that much.

Edited June 17, 2011 by mr_genius

[Balta1701]

it's not even worth that much.

The market is always right dude. Otherwise we wouldn't set so many of our policies based on what it says it wants.

[mr_genius]

The market is always right dude. Otherwise we wouldn't set so many of our policies based on what it says it wants.

 

good point. just bought 100 shares online. ready to profit.

[StrangeSox]

good point. just bought 100 shares online. ready to profit.

 

 

you are my favorite Filibuster poster

[Dick Allen]

Good. The company is a good company, imo, but was clearly selling too high. Part of the problem is people thinking they'll take advantage of a bubble. The good news is this is not staying so over inflated.

How do they make their money?