- It’s getting scary across the pond. “The question now is how far this will spread,” Paul Krugman writes. “I’m looking at the spread between Italian and German bonds. It’s getting a bit scary out there.”
- “The US Treasury market is in an interesting place where we have seen a flight to safety this week and a Fed that may keep rates low forever on one hand and an improving economy, rising commodity prices and a financial situation in the US that doesn’t look much different than Greece on the other,” Peter Boockvar says.
- Most troubling aspect of S&P’s downgrade of Greece isn’t that the country’s debt has been slashed to junk. “The real problem is that the losses on default are likely to be far steeper than is typical for sovereign borrowers,” Yves Smith writes at naked capitalism.
- Maybe there’s no need to overreact regarding European’s increasing debt woes, The Economist’s Free Exchange blog says. “The situation is salvageable, and for now the right outlook is one of concern rather than panic.”
- Do CDOs have social value? James Kwak, Arnold Kling and Frank Partnoy discuss at NYT’s Room for Debate blog.
- At yesterday’s Senate hearing, Goldman Sachs (GS) CEO Lloyd Blankfein “trod the fine line between not being apologetic and actually saying ‘it’s capitalism, stupid’ and the more junior executives interrogated did not say anything blatantly incriminating,” former IMF chief economist Simon Johnson observes.
- Peter Kafka live blogs H-P’s conference call in which the company explains why it’s buying Palm.
- “The Nexus One may not be a bestseller, but perhaps that’s beside the point,” PCWorld’s Jeff Bertolucci says. “The phone has served as an Android demo unit, one that shows handset and app developers what the Android platform is capable of. Indeed, more manufacturers are introducing Android devices — a development that will certainly boost Google’s mobile market share.”
- NYT’s Bits blog wonders whether Gizmodo has any chance of winning the iPhone battle.
- AOL’s turnaround still isn’t here, evidenced by 1Q revenue falling 23% and ad sales dropping 19%. Not a good sign, especially since both Google (GOOG) and Yahoo (YHOO) posted significant revenue growth. But, as Kafka points out, AOL CEO Tim Armstrong still has a grace period to rebuild the company before investors expect to see tangible results.
US stocks close higher, shrugging off another credit downgrade in Europe, as investors were happy to hear the Fed will keep short-term interest rates near zero for an “extended period.”
DJIA closes up 53 to 11045, after a brief foray under the 11000 mark. S&P 500 jumps 8 to 1191 and Nasdaq Comp rises 0.26 to 2472.
Stocks plunged yesterday on renewed contagion fears after S&P downgraded Greece and Portugal. But today the market took S&P’s downgrade of Spain in stride. Financials and energy were S&P 500′s biggest gainers; consumer discretionary the only sector to finish in the red.
After the closing bell, news broke that Palm finally found a buyer, although the acquirer comes as a bit of a surprise. Hewlett-Packard (HPQ) announces plans to acquire the embattled smartphone pioneer for nearly $1 billion.
H-P is paying $5.70 a share, a 23% premium to Wednesday’s closing price. Including debt, the deal is valued at $1.2 billion. Hewlett-Packard will be getting WebOS software, which can set it apart from the rest of the Google (GOOG) Android-using pack.
Palm shares soared 28% to $5.93 in after-hours trading, topping the offer price and suggesting investors may be looking for additional, higher bids. Palm garnered some interest from Asian technology companies, including Lenovo (LNVGY) and HTC (HTCXF), but it was never clear how legitimate their interest was.
So the Fed sat on its hands, again, and did nothing with interest rates, meaning the Fed extends the record low fed funds rates of 0-0.25% for another month or so (although as far as the Street’s concerned, it’s at least another six months (and, of course, the Fed can actually raise rates any time it wants. But don’t expect it to.))
But, really, think about this. What does it really say about the Fed’s real opinion of the economy that it once again feels compelled to keep interest rates pinned to the floor? Is that any kind of a sign of confidence? Not to me.
Newswires’ Michael Derby and Kathleen Madigan report:
As expected, the Fed has maintained its 0% to 0.25% overnight target range. Fed also says it will keep rates very low for an “extended period.” Policy wise, this is a status quo Fed meeting.
The Fed has essentially done what was expected. They’ve left rates steady and have no plans to change rates any time soon. The economic outlook has been upgraded a bit and officials are more hopeful over the state of hiring. But Kansas City Fed President Thomas Hoenig doesn’t like what the Fed’s doing, dissents again.
Still, nothing is in this policy statement that would dislodge existing views of what will happen with monetary policy, so don’t expect to see rates changed for some time.
The Fed also upped its assessment of labor markets in today’s FOMC statement. It said the labor market “is beginning to improve,” better than “is stabilizing” wording in March 16 announcement.
Job growth is seen as key to Fed changing policy stance. Statement also says household spending “has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”
This is what can happen when you think jawboning can replace concrete policy. While European leaders have talked, and talked, and talked, without actually doing much of anything about the escalating Greek crisis, the rest of the world has watched, and waited, and worried, and wondered if this was all going to be settled and contained before it spread to the rest of Europe, and God knows where else after that.
Contagion 3, Jawboning 0.
“It’s not a question of the danger of contagion; contagion has already happened,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview with Bloomberg television in Berlin today. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”
The ratings agency S&P threw a Molotov cocktail into the serene marketplace yesterday, downgrading both Greece and Portugal. Not content with bolstering their battered reputation with those moves, S&P tossed another grenade today, downgrading Spain. The only “PIIGS” members left unaffected are Italy and Ireland. But they may not remain so.
More downgrades are coming, says BBH’s Win Thin, as ratings agencies are “on the warpath and unlikely to relent any time soon.”
So far, over here the reaction has been almost nonexistent. Stocks have been volatile, and fell on the news of the Spanish downgrade, but are back to their morning highs. Of course, U.S. investors are waiting to hear from the Fed at 2:15 p.m. I wonder what’ll happen after that, especially with the dollar up sharply as the euro sells off. The euro is threatening the $1.31 level; $1.32 was seen as a line in the sand.
“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland, as reported by Ambrose Evans-Pritchard in the Telegraph.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.” And that was before the Spanish downgrade.
Barry’s taking a light tone here, but he nails three of the biggest contributors to the financial crisis: the repeal of Glass-Steagall, the failure to implement regulation of derivatives, and the decision to let Wall Street operate under “alternative” capital ratios that allowed them to boost leverage to the range of 35-1.
Add to those the Fed’s disastrous monetary policy, with Greenspan lowering rates practically to the floor (where Bernanke’s since nailed them,) the absolute abandonment of any standards in mortgage lending (why have standards when you’re just going to sell the loan to Wall Street, which is going to bundle it up into a ball of yarn and sell it to “sophiticated” investors,) and you’ve got our crisis.
Well, here’s the script, Mr. DeMille. Get cracking.
Here is a commercial I want to see someone create, that I’d like to see go viral:
The screen is dark. There is a soft heartbeat in the background
White letters appear on the screen: 1998 Glass Steagall Repeal
Voiceover: In 1998, the Glass Steagall act was repealed by Congress. Since 1932, it successfully kept banks separated from Wall Street (pause) . . . After its repeal?
(Citigroup, Countrywide, and Washington Mutual logos on screen. They shatter and collapse).
Voiceover: Major banks collapsed, causing the worse recession in generations and costing taxpayers billions.
(Heartbeat gets a little louder and quicker).
Apologies for the scant posting lately. John and I have been pretty consumed with producing “The Upshot,” for which we’ve got about another week and a half. But there’s so much going on elsewhere, and this Greek thing just needs a comment.
Now, if you think the Greeks will roll over and go along with the draconian German demands just in order to get some money (a lot of money, actually, but still,) well, just remember, the Trojan War took 10 years. This can be a pretty stubborn group. Dateline, Athens:
ATHENS (AFP)–Greece has turned down proposals by the European Union and International Monetary Fund to cut salaries under austerity measures to shore up its crisis-hit economy, the Greek labour minister said Wednesday.
“We have been asked for a cut which we don’t accept. Neither we as a state, nor our social partners,” Andreas Loverdos said after a meeting with the Hellenic Federation of Enterprises, a key business lobby group.
The main sticking point — essentially Germany wants the Greeks to take severe auserity measures, and the Greeks are like, hey, Germany, give us back our gold you scoundrels — the one that has held up this entire sordid process, remains firmly in place. Germany won’t agree to a deal until the Greeks agree to severe budget cuts, not painful, severe. The Greeks won’t do it. That is where we are, and that is where we’ve been. Meanwhile, Rome (not the literal Rome, the figurative one) continues to burn.
It’s all got the feeling of the guns of August, as UBS’ Art Cashin says, even if it is only spring.
We said on the global conference call last week that the Greek rescue effort reminded me of Barbara Tuchman’s Pulitzer prize-winning book, “The Guns of August”. In the book, Tuchman skillfully detailed how the world headed into World War I because leaders on all sides believed the other side would fail to take the next step – knowing the tragedy and chaos all out war would bring. Yet neither side stopped at step after step until they found themselves at war.
Germany and Greece may be engaged in a similar mis-assessment. Greece seems to believe that Germany will recognize that the European Union must avert the negative consequences of a Greek default. Therefore, Germany would not dare to let it occur. The Greeks seem to believe the Germans will be compelled to put up the money in the end.
The Germans, on the other hand, think that Greece will come to its senses and reform in order to get the needed funds. They don’t want to give money to a guy with a drinking problem so that he may buy another drink. They will give him money to go to a sanitarium to straighten out……as of this morning the standoff continues.
The companies that supplies the materials for new homes are hopeful, but they still have a long road ahead of them, as we explore in today’s Upshot column.
These companies are in many cases actually getting more for their products these days, but it’s because inventories have been cut to the bone, rather than from the demand side. A company like USG is raising prices, but its wallboard plants are running at about mid-40% capacity. At the height of the boom, it was over 96% in 2005.
The demand side picture has picked up; witness the new home sales report last week. But it’s a bounce from the absolute worst of times, so the market is still a long way off from anything resembling normal. Given how much government intervention there is in housing right now, who can say when it will actually recover or what it will look like.
Many companies reporting first-quarter earnings are reveling in revitalized profits and sales. But the companies that supply building materials for home and office construction and remodeling are just happy to see signs of stability.
The recent improvement in the new home market, where sales shot up 27% last month, is brightening the picture along with price increases tied to rising raw materials costs. Whether it lasts past this month’s expiration of the home buyer tax credit is a different question. But for now stability is enough.
USG Corp., the nation’s largest distributor of drywall, lost $110 million on revenue of $760 million, compared to a year-earlier loss of $42 million on sales of $864 million. “It wasn’t a great quarter, but it was stable compared to the [fiscal fourth] quarter,” said Chief Executive William Foote last week.
Mr. Foote noted the Chicago-based company continues to cut costs amid weak building-materials demand, which contrasts with industrial and consumer companies now seeing an uptick in orders, sales and profits. USG eliminated 370 jobs during the quarter, mostly in its L&W Supply distribution business, which provides materials to hard-hit commercial construction.
Slightly higher US stock futures suggest bulls will try to muster an early bounce when regular trading gets underway.
There’s a lull in economic data calendar, and FOMC statement due out around 2:15 p.m. There’s some expectation that the committee could tweak “extended period” language in the communique, and given improvements in recent readings on the economy, that possibility is certainly on the table. That’s the focus today.
Pay little heed to FOMC’s economic assessment; it’s always a statement of the obvious, and their forecasts are sketchy. Action, or lack thereof, on “extended period” will tell you all you need to know about the Fed’s view on the economy.
S&P futures up 4.90, DJ futures up 38. Ten-year lower, yield at 3.73%. Keep an eye on European bond markets, too; yesterday wasn’t a one-off. The Greek bond market is effectively frozen, at least until the details of this EU-IMF bailout get worked out. “Everyone knows the bailout is our last hope,” a bond trader tells Dow Jones. And “contagion” has become more than just talk. It’s there.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
It doesn’t look like George Zimmer is going to be able to guarantee it, anymore. The founder of Men’s Wearhouse has been fired from his own company, the clothier announced today. Click here to read the announcement. “The Board expects to discuss with Mr. Zimmer the extent, if any, and terms of his ongoing relationship […]
