March 9, 2011
Stock and bond markets are opening soft this morning. The dollar is also weaker this morning as oil, metals and other commodities are generally finding a bid as tensions in the Middle East continue. In Libya, the government stepped up attacks on areas where rebel forces have been active, including an air attack at the Es Sider oil terminal. The American Petroleum Institute released their inventory figures this morning showing that oil inventories in the US continue to rise while gasoline and other distillates have been drawn down.
As if taxpayers hadn’t spent enough on Fannie Mae (chart below) after a decade of irresponsible lending, now we are footing a legal bill of over $100 million to defend the former management team from a shareholder lawsuit. Investors are looking to recoup billions from losses they are blaming on misleading accounting practices. Maybe former CEO Franklin Raines will offer up some of the $400 million he was paid when he left the government owned entity?
Two days ago China promised to balance their trade with the US and Europe. Yesterday Boeing received orders for 43 wide-body planes from Hong Kong Airlines and Air China at the Hong Kong air show. The orders are worth about $6 billion after discounts. You can’t say they don’t keep their word.
The Wall Street Journal is reporting a possible change in corporate pension accounting that will have an impact on reported earnings but should increase transparency. Instead of “smoothing” gains and losses, the companies will begin expensing them in the year they occur.
Terry Laughlin, head of the new “bad bank” holding trillions of dollars worth of BofA mortgages rejected a proposal to reduce mortgage balances for underwater homeowners. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?” he asked. “There may be as much as $1 trillion worth of mortgages that are underwater.”
Companies have complained that bank lending is nearly impossible to obtain, which makes sense given banks today are effectively being paid by the Fed not to lend. That doesn’t mean that funding isn’t available as high yield bond issuance remains robust in 2011 after a record year in 2010. Last week alone there were $12.7 billion in high yield bonds issued in the US.
The IPO pipeline in China is robust as companies attempt to tap the equity markets as investors are pulling away. The Hong Kong exchange is preparing to offer up to $8 billion in new deals, including China’s Inner Mongolia Yitai Coal, which is in registration with a $1.5 billion deal.
A Manpower survey predicts that US employers will step up hiring 8% in the second quarter. While this will fall far short of the hiring needed to reduce the rolls of the unemployed (now 9 million below the peak), it is an improvement we have been witnessing anecdotally for 2-3 months.
The Economist is reporting that the recent defense of US agricultural subsidies by Agriculture Secretary Tom Vilsack was so lacking in substance that “it essentially confirmed that there is no rational way to defend them.” The subsidies primarily benefit huge agricultural companies and the politicians who give them public money.
The NY Times is reporting that the SEC is being scrutinized for ethical lapses in the Bernie Madoff case. Evidently the SEC’s general counsel, David Becker, had a financial interest in one of Madoff’s funds.
Sunday is the second Sunday of March, which means its Selection Sunday and time for March Madness!
Have a great day