alamat palsu: recovery (4)
Can you hear me now?
The Fed makes its views loud and clear
Jan 28th 2012 | Washington, dc | from the print edition
JAPAN holds the modern record for years spent with interest rates at zero; they were on the floor from 2001 to 2006. America is on track to break that record. Having cut its short-term rate to near zero in late 2008, the Federal Reserve said on January 25th it will probably stay there “at least through late 2014”, more than a year longer than its previous guidance.
On the same day the Fed for the first time published projections of the year individual members of the Federal Open Market Committee, its main policymaking body, expect the federal-funds rate to start rising and the path it would follow over the next three years. The median forecast for a rise in interest rates is 2014 (see chart) but the accompanying statement implies it will probably be later.
The Fed also took the long-awaited step of announcing an explicit inflation target—something that many other central banks adopted years ago and that the Fed chairman, Ben Bernanke, has long advocated. The central bank said it prefers inflation of 2%, also the target (or the midpoint in a target range) of the British, Canadian, Swedish and Israeli central banks.
Mr Bernanke characterised these steps as a way to make monetary policy more transparent and predictable, and therefore more effective. But the practical consideration is that the Fed needs new ways to kick-start economic growth. Promising lower rates for longer is one way to do this, because it will drive bond yields lower.
Some officials have argued that the Fed could better steer private-sector expectations with a framework that more explicitly committed it to lower unemployment or higher output. The Fed did not go that far but the inflation target (a word the Fed’s official documents didn’t use but Mr Bernanke did in a subsequent press conference) will help in two ways.
First, 2% is at the high end of the range that officials previously considered acceptable. Higher inflation implies lower, and thus more stimulative, real interest rates. Second, markets previously thought the Fed was so focused on inflation that it would tighten as soon as it topped 2%, no matter how high unemployment was. Mr Bernanke dispelled that notion by emphasising the Fed’s equal attention to unemployment. Should inflation overshoot 2% while the economy is unacceptably weak, the Fed will take its time about bringing it back down.
The increased transparency is helping. Since the Fed committed itself in August to two years of near-zero rates, the ten-year Treasury yield has fluctuated around 2% despite a run of better-than-expected economic news. The yield dropped on news of the Fed’s new projections, before rising back up again.
But this flurry of activity still may not be enough. The Fed actually lowered its projections for economic growth to between 2.2% and 2.7% in 2012; it projects growth of 2.8-3.2% in 2013. Unemployment, now 8.5%, is seen edging below 8% only by the end of 2013. Inflation, meanwhile, will be at or below the new target of 2%. With unemployment too high and inflation still weak, more monetary stimulus is easily justified. Mr Bernanke left the door open to that option. The odds are that he will walk through it.
A deal, but to what end?
Jan 31st 2012, 0:18 by The Economist | Brussels
BY THE standards of past summits, European leaders finished early—shortly before 10pm on January 30th. And by the acrimonious standards of past gatherings, notably last month’s bust-up with Britain, this event was uneventful, even amicable. Agreement was reached on the fiscal compact, the new treaty to toughen budget rules, in record time: less than two months.
A final row between France and Poland over who gets to attend which summits was resolved with a complicated compromise. This involves variable configurations of meetings involving 17 countries (the euro zone), 23 (the largely-forgotten Euro-Plus Pact, 25 (the signatories of the fiscal compact), 27 (all EU member states, still in charge of the single market) and 28 (involving soon-to-join Croatia).
It shows that, at the very least, European leaders can negotiate rapidly when they have the political will to do so—and when the British and the Czechs decide to step aside. Whether electorates will be quite so quick to shackle themselves to Germanic fiscal rules is another matter.
But did the leaders achieve anything useful to stem the crisis in the latest of their interminable summits? Their compact—now called the “treaty on stability, co-ordination and governance in the Economic and Monetary Union”, has as its main aim the imposition of balanced-budget rules on members. This may be a useful discipline in good times. But many worry that, at a time of widespread crisis, such pro-cyclical rules risk imposing too much austerity too widely, thus darkening the spectre of recession and making it even harder to balance budgets. This may explain why leaders suddenly want to be seen talking about their plan (declaration is here in PDF) for growth and jobs, particularly in tackling the problem of youth unemployment.
Nevertheless, Angela Merkel, the German chancellor who had pushed hard for the treaty, hailed it as a great success. Many others, however, dismiss the compact with so much faint praise. “It is an important distraction”, says one diplomat. “It has gone from damaging to merely useless,” says a member of the European Parliament. Even Mario Monti, these days everybody’s favourite Italian, judged the compact little more than “a decorative songbird”.
By contrast the two issues that could affect the course of the euro-zone debt crisis in the coming weeks—the fate of Greece and the possibility of creating a bigger firewall—were for the most part ignored or relegated to side-meetings. With Greece and its private creditors still negotiating the scale of haircuts to be imposed on bondholders, this may have been too delicate a time for leaders to discuss Greece. A statement from the euro zone says little that is new.
Moreover, Mrs Merkel was keen to dampen emotions after her officials floated the idea of placing the country under a commissar with the power to reject Greek budgets. When asked about such a prospect, Mrs Merkel expressed “frustration” with Greece’s lack of compliance with its austerity-and-reform programme, but backed away from imposing such a draconian loss of sovereignty on Greece. President Nicolas Sarkozy of France, for his part, said “there is no question of placing Greece under tutelage.”
All leaders of the euro zone are insisting that forcing private creditors to take a hit on Greek bonds constitutes a “unique” event, for fear of causing contagion. But spreads on Portuguese bonds are rising to alarming levels, and the outlook for Italy and Spain is still wobbly.
“An inability to tackle a problem the size of Greece inspires little confidence in the ability of the EU to tackle Italy and Spain,” says Sony Kapoor, head of Re-Define, a financial think-tank in Brussels.
Germany parried demands, from Mr Monti and others, to enlarge the firewall by merging the existing temporary European Financial Stability Facility (EFSF) and the permanent new European Stability Mechanism (ESM). This would enlarge the fund from €500 billion ($659 billion) to €750 billion. Mrs Merkel said the matter should be discussed in March, as decided in last December’s summit.
The British have decided not to be awkward about the compact, despite the falling-out at the previous summit, where Britain threatened to veto a change to the EU’s treaties unless it were able to secure greater protection from financial-services legislation. The stalemate forced the other 26 countries to negotiate the compact outside the EU treaties (with Britain sitting in as an observer).
Mr Cameron is under pressure from Eurosceptic backbenchers to wage legal warfare to prevent signatories to the pact from using EU institutions, such as the European Commission and the European Court of Justice. “We will only take action if our national interests are threatened. And I made clear today that we will be watching this closely,” said Mr Cameron.
Nevertheless, Mr Sarkozy and Mr Cameron are still sparring. The French president’s barb in a television interview a day earlier, when he mockingly said that Britain had “no industry left”, prompted Mr Cameron to rattle off a list of great British car companies—among them Honda, Toyota and Nissan (all Japanese). He said he relished the prospect of French banks moving operations across the Channel to London if Mr Sarkozy pressed ahead with his promise to impose a tax on financial transactions unilaterally.
Perhaps the most interesting dynamic was between France and Germany ahead of the French presidential elections in April and May. Mrs Merkel said that she would campaign for the re-election of Mr Sarkozy, saying he had done the same for her in the past. But she said she would not be worried if his opponent, François Hollande, who is leading opinion polls, were to win—even though he wants to renegotiate the fiscal compact and has blocked Mr Sarkozy’s attempt to enshrine a golden rule in the constitution.
Asked if she could envisage having to take France to court for failure to adopt a balanced-budget rule, as provided for by the compact, Mrs Merkel said: “I cannot imagine taking legal action against France because I cannot imagine that France will not institute a golden rule.”
BRUSSELS, Jan 31, 2012 (AFP)
EU leaders closed one chapter in the debt crisis Monday with a German-driven treaty meant to end deficits — then launched a race to resolve Greece’s bailout woes.
European Union president Herman Van Rompuy called after for a new deal with Athens “by the end of the week” on the conditions underpinning a long-delayed second bailout for Greece.
Greek Prime Minister Lucas Papademos went immediately into a post-EU summit huddle with a top official from his old employers at the European Central Bank (ECB) and senior EU officials.
“It’s too early now to say we need some extra funding,” Papademos said early Tuesday. “Our goal is to avert it.”
In October last year, Greece was promised a second bailout of 130 billion euros ($171 billion) if it could convince private investors to write off 100 billion euros of debt.
Despite a change of government late last year, new conditions have not been met and the ECB and other national central banks or EU institutions are now being nudged to agree their own write-downs.
With Greece facing a big bill for bond redemptions on March 20, EU partners are on edge amid unrelenting fears of default.
Wall Street was gripped with “renewed default concerns towards Greece and Portugal,” investment analysts Charles Schwab said.
Eurozone partners’ handling of Greece took a new turn at the weekend when Germany asked the other governments in the currency area to put Athens under control of EU guardians.
“There cannot be any talk of putting any nation under wardenship,” said French President Nicolas Sarkozy. “It would not be reasonable, democratic and efficient.”
Greece’s education minister called the idea “the product of a sick imagination,” and although Sweden and others showed sympathy, German Chancellor Angela Merkel did not push this plan further on this occasion.
For her, though, it is about “how Europe can help Greece accomplish the tasks given to it.”
The EU focus on bailouts was supposed to give way at Monday’s summit to a renewed push to stimulate growth and create jobs across European economies.
This idea even saw tentative moves to place an ambitious free-trade deal with the United States on the coming agenda.
But at its root was the announcement that 25 of 27 countries had adopted the new pact on budgetary discipline.
The Czech Republic joined Britain on the outside looking in, but a threat by Poland to withdraw evaporated after France gave ground in an argument about the influence of non-euro countries on eurozone summits.
Pushed by Germany and the ECB, the treaty — to be formally signed in March — will require governments to introduce laws on balanced budgets and impose near automatic sanctions on countries that violate deficit rules.
Only those countries that sign up will be able to access bailout aid from a new rescue fund whose legal basis was also ticked off at the talks. It will enter force after 12 nations ratify it.
The pact is a “first step toward a fiscal union,” said European Central Bank chief Mario Draghi amid hopes among some governments that the pact will prompt the ECB to step up a controversial bond purchase programme.
With Italy and Spain still fragile, EU leaders will discuss in March whether to add half as much again to a new rescue fund’s initial 500-billion-euro size, amid wider moves to beef up IMF resources.
“We are getting the feeling that there is a shift in Germany’s position and I am optimistic,” said Italian premier Mario Monti.
Leaders began their summit day by landing on a military airstrip to beat a Belgian general strike that grounded most public transport in protest at a new round of EU-ordered austerity.
Leaders, some facing imminent re-election campaigning, must contend with an unemployment rate averaging 10 percent across the 17-nation eurozone.
European Commission chief Jose Manuel Barroso said 82 billion euros of unspent EU funds could kick-start growth and job creation — but with the catch that money is matched locally.
He met earlier with premier Mariano Rajoy of Spain, where nearly half of all under-25s are out of work, to talk about a shortfall in meeting deficit reduction targets there.
Madrid plunged quicker into what Brussels deems a “moderate” recession looming large over Europe.
Among ideas adopted by the summit for boosting growth in Europe, there were calls to lower the tax burden on employers to get more people hired, and give all young people guaranteed options in work, training or study.
However, a summit statement concluded: “There are no quick fixes. Our action must be determined, persistent and broad-based.”
Europe signs up to German-led fiscal pact
By Julien Toyer and Paul Taylor
BRUSSELS | Mon Jan 30, 2012 8:00pm EST
(Reuters) – Chancellor Angela Merkel cemented her political ascendancy in Europe Monday when 25 out of 27 EU states agreed to a German-inspired pact for stricter budget discipline, even as they struggled to rekindle growth from the ashes of austerity.
Only Britain and the Czech Republic refused to sign a fiscal compact in March that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and will enshrine balanced budget rules in national law.
The accord was eagerly greeted by the European Central Bank which has long pressed euro zone governments to put their houses in order.
“It is the first step toward a fiscal union. It certainly will strengthen confidence in the euro area,” ECB President Mario Draghi said.
Officially, the half-day summit focused on a strategy to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.
But differences over the limits of austerity, and Greece’s unfinished debt restructuring negotiations, hampered efforts to convey a more optimistic message that Europe is getting on top of its debt crisis.
Merkel told a news conference the agreements on the fiscal pact and a permanent rescue fund for the euro zone were a “small but fine step on the path to restoring confidence.”
French President Nicolas Sarkozy said he expected a deal on reducing Greece’s debt to private bondholders within days and he believed independent European institutions – a clear reference to the ECB – would help meet a funding gap.
Greek Prime Minister Lucas Papademos said he hoped to reach a deal both with private creditors over restructuring 200 billion euros of debt and on conditions tied to a second bailout by its international lenders by the end of the week.
“Significant progress has been made in talks about private sector involvement … We are seeking to conclude negotiations with the troika by the end of the week,” Papademos told reporters after he and his finance minister met the heads of EU institutions.
Until there is a deal, EU leaders cannot move forward with a second, 130-billion-euro rescue program for Athens, which they originally pledged at a summit last October. Without it, Athens faces default in March when huge bond repayments fall due.
The EU leaders also agreed that a 500-billion-euro European Stability Mechanism will enter into force in July, a year earlier than planned, to back heavily indebted states.
Europe is already under pressure from the United States, China, the International Monetary Fund and some of its own members to increase the size of the financial firewall, but Merkel has refused to consider the issue before March.
EURO “MESS”
Many economists doubt the wisdom of so severely restricting deficit spending, and EU diplomats say the fiscal compact was mostly a political gesture to calm German voters angry at repeated euro zone bailouts and to restore market confidence.
“To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do,” a British official said.
There was no repetition of last month’s confrontation between British Prime Minister David Cameron and Sarkozy when Cameron vetoed efforts to amend the EU treaty to tighten euro zone budget discipline.
But the British and French leaders sniped at each other at separate news conferences while professing mutual respect.
Cameron told reporters: “Our national interest is that these countries get on and sort out the mess that is the euro.”
German Chancellor Angela Merkel said that although Cameron had shown no sign of relenting in his opposition to treaty change, the new pact could be easily slotted into EU law at a later date and she expected it would be within five years.
Financial markets fretted over the lack of tangible progress in the Greek debt talks and gloom about Europe’s economic outlook. The risk premium on southern European government bonds rose while the euro and stocks fell.
Highlighting those fears, Spain’s economy contracted in the last quarter of 2011 for the first time in two years and looks set to slip into a long recession.
France halved its 2012 growth forecast to a mere 0.5 percent in a potentially ominous sign for Sarkozy’s troubled bid for re-election in May. But the president said Paris could achieve its deficit reduction target without further savings.
Italy, rushing through sweeping economic reforms under new Prime Minister Mario Monti, was rewarded with a significant fall in its borrowing costs at an auction of 10- and 5-year bonds, despite two-notch downgrades of its credit rating by Standard & Poor’s and Fitch this month.
But Portugal’s slide toward becoming the next Greece – needing a second bailout to avoid chaotic bankruptcy – gathered pace as banks raised the cost of insuring government bonds against default and insisted the money be paid up front instead of over several years.
The yield spread on 10-year Portuguese bonds over safe haven German Bunds topped 15 percentage points for the first time in the euro era.
The ESM was meant to replace the European Financial Stability Facility, a temporary fund that has been used to bail out Ireland and Portugal. But pressure is mounting to combine the resources of the two funds to create a super-firewall of 750 billion euros ($1 trillion).
The IMF says if Europe puts up more of its own money, that will convince others to give more resources to the IMF, boosting its crisis-fighting abilities and improving market sentiment.
Germany has so far resisted such a step.
Merkel has said she will not discuss the issue of the ESM/EFSF’s ceiling until the next EU summit in March. Meanwhile, financial markets will continue to worry that there may not be sufficient rescue funds available to help the likes of Italy and Spain if they run into renewed debt funding problems.
The EU will consider how to deploy 82 billion euros of unspent funds from the EU’s 2007-2013 budget in an attempt to boost growth and employment. Some will be recycled toward job creation, especially among the young.
But with no new public money available for a stimulus, the leaders focused mainly on promoting structural reforms such as loosening labor market regulation, cutting red tape for business and promoting innovation.
($1 = 0.7615 euros)
(Additional reporting by Julien Toyer, Harry Papachristou, John O’Donnell, Matt Falloon and Robin Emmott in Brussels, Marius Zaharia, William James and Jeremy Gaunt in London, Axel Bugge in Lisbon; Writing by Paul Taylor, editing by Mike Peacock)
Some G20 countries soften stance on Europe: sources
ReutersReuters – 34 minutes ago
By Francesca Landini and Luis Rojas
MILAN/MEXICO CITY (Reuters) – Some of the world’s biggest economies want to move quickly on a cash injection for the International Monetary Fund to help rescue the euro zone, but hardliners may still scupper an early deal to boost the fund’s war chest, G20 sources said on Friday.
Officials from the Group of 20 leading economies are engaged in what one called a ‘chicken and egg’ game as they work toward a possible deal on boosting the IMF’s firepower at a meeting of the bloc’s finance ministers and central bank governors in Mexico City in one month’s time.
Emerging market powers Brazil and China are among the countries keen to pursue the two-track plan pushed by the current G20 president Mexico to work on additional IMF funding simultaneously with extra steps from Europe, one G20 official told Reuters, rather than insisting on European action upfront.
“There was a much more cooperative sentiment between G20 countries than in recent meetings,” said the official, referring last week’s discussions between G20 deputies in Mexico City.
“Some emerging countries are more open to consider contributions to increase IMF resources in parallel with euro zone efforts, so they are open to make commitments to increase IMF resources in the next few weeks,” the source added.
Mexican central bank governor Agustin Carstens said a consensus was building on boosting IMF resources to help European countries and others that need aid.
But the February 25-26 meeting deadline may prove ambitious, given the United States’ insistence that Europe boost its own crisis shield further before any pledges to the IMF – which estimates it needs $600 billion more to limit the fallout.
“Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall,” U.S. Treasury Secretary Timothy Geithner said at the World Economic Forum in Davos, Switzerland.
“If Europe is able and willing to do that, we believe the IMF is ready to play a constructive role.”
Canada is also taking a tough public stance, although a G20 official from another country said Ottawa was becoming more conciliatory, along with Japan.
“Canada and Japan are more flexible than in the past,” the second official said. “It could be a bit more difficult with the USA, although they too have softened their position, but it’s still early in the game.”
STANDOFF FEARS
Europe, for its part, supports the two-track approach, but officials are concerned that Germany’s reluctance so far to back increased funding for the euro zone’s own rescue fund may fuel a standoff at the G20.
Germany has insisted that the safety net should not exceed 500 billion euros, but officials close to the G20 talks estimate that a further 230 billion to 250 billion euros is needed.
“It is important that we should not let this be locked between the Americans and the Germans, or the IMF and the Germans, so that nobody would get any pretext or excuse to not do their part,” one senior euro zone official said.
A G20 official from a large emerging market economy said Europe accepted the need to put in more resources but “won’t say it for fear of” Germany.
“They will get to that point because they know not one cent of this IMF money will be made available unless they come up with their side … the majority view is that we move in parallel we have things ready, but we don’t have to deploy it until the Europeans have gotten their act together.”
European Union leaders will discuss increasing the bloc’s permanent rescue fund, the European Stability Mechanism (ESM), on March 1-2, just days after the February meeting in Mexico, with the timing creating extra difficulty for policymakers.
“If the parallel approach wins inside the G20, a deal on increasing IMF resources could be clinched by the G20 meeting in February,” the initial G20 source said. “Otherwise, the G20 will work on reaching a deal by next April in Washington, after an increase of ESM firepower is signed in March among euro zone countries.”
G20 finance ministers are due to meet in Washington on April 19-20 ahead of a leaders summit in Mexico’s Los Cabos on June 18-19.
Countries keen on the parallel approach are Brazil, Australia, Japan, Indonesia, China, Indonesia and South Korea, the source said.
A senior Brazilian government official confirmed Brazil was keen to push the two aims simultaneously, but said a commitment to a bigger ESM would definitely smooth the way.
“If the Europeans increase (funding to) the ESM then they increase the chances of additional resources to the IMF in support,” he said.
The extra funding may come in the form of bilateral loans between individual countries and the IMF or an increase in countries’ quotas, which could also give emerging economies more say in how the fund is managed.
(Additional reporting by Lesley Wroughton in Washington, Alonso Soto in Brasilia, Paul Carrel in Davos and Jan Strupczewski in Brussels; Writing by Krista Hughes; Editing by Andrea Evans, Gary Crosse)
Ketua The Federal Reserve (bank sentral AS) Ben S. Bernanke mengatakan, The Fed mempertimbangkan pembelian aset tambahan untuk menggenjot pertumbuhan. The Fed mempertahankan komitmen untuk menjaga suku bunga tetap rendah sampai 2014.
“Para pembuat kebijakan siap untuk memberikan akomodasi moneter lebih lanjut jika lapangan kerja tidak menunjukkan kemajuan sesuai level maksimum yang kami targetkan,” kata Bernanke, Rabu (25/1) waktu Washington.
Dia menambahkan, pembelian obligasi adalah salah satu pilihan yang tersedia.
Saham dan pasar obligasi naik The Fed mempertahankan komitmen untuk menjaga biaya pinjaman tetap rendah setidaknya hingga pertengahan 2013. The Fed memangkas proyeksi pertumbuhan ekonomi dan kenaikan harga tahun ini dan 2013 serta menargetkan inflasi jangka panjang sebesar 2%.
“Apa yang mereka lakukan adalah menyiapkan meja untuk beberapa pelonggaran moneter tambahan,” kata Scott Minerd, Chief Investment Officer Guggenheim Partners LLC.
Indeks Standard & Poor’s 500 naik 0,9% menjadi 1.326.06 pada pukul 16.07 waktu New York. Imbal hasil untuk obligasi bertenor 5 tahun turun 10 basis poin menjadi 0,8% setelah sempat menyentuh rekor terendah 0,76%.
http://internasional.kontan.co.id/news/the-fed-pertimbangkan-pembelian-aset-tambahan
Sumber : KONTAN.CO.ID
Washington (ANTARA News) – Federal Reserve pada Rabu memangkas prakiraannya untuk pertumbuhan ekonomi AS tahun ini dan berikutnya, mengutip pertumbuhan lebih lambat dalam investasi bisnis dan sektor perumahan masih depresi.
The Fed memproyeksikan pertumbuhan untuk tahun ini dalam kisaran 2,2-2,7 persen, dan 2,8-3,2 persen pada 2013, lapor AFP.
Dalam proyeksi ekonomi November, bank sentral telah memperkirakan pertumbuhan produk domestik bruto 2,5-2,9 persen untuk 2012, dan 3,0-3,5 persen untuk 2013.
Pengatur kebijakan Komite Pasar Terbuka Federal juga menetapkan target inflasi pada 2,0 persen, menandakan tingkat kenaikan harga di mana pihaknya bisa mulai memperketat kebijakan moneter.
“Mengkomunikasikan tujuan inflasi ini dengan jelas kepada publik membantu menjaga ekspektasi inflasi jangka panjang tertanam secara kuat,” kata FOMC, karena pihaknya mengatakan diharapkan untuk mempertahankan suku bunga utamanya mendekati nol selama tiga tahun lagi.
The Fed mengatakan itu adalah “komitmen kuat” untuk mandat hukum dari Kongres “mendorong kerja maksimum, harga stabil, dan suku bunga jangka panjang moderat.”
Setelah perbaikan baru-baru ini di pasar tenaga kerja yang bermasalah, FOMC menurunkan proyeksi tingkat pengangguran menjadi 8,2-8,5 persen untuk kuartal keempat.
Perkiraan November adalah untuk tingkat 8,5-8,7 persen.
Tingkat pengangguran telah jatuh selama empat bulan berturut-turut, menjadi 8,5 persen pada Desember, di tengah pemulihan rapuh dari resesi yang mendalam.
Perkiraan inflasi juga pada atau di bawah tingkat target baru untuk tiga tahun berikutnya.
http://www.antaranews.com/berita/294477/federal-reserve-as-pangkas-prakiraan-pertumbuhan
Sumber : ANTARANEWS.COM
Dow Average Rallies to Highest Level Since May
By Rita Nazareth – Jan 25, 2012
U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since May, as the Federal Reserve signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy.
A measure of commodity shares in the Standard & Poor’s 500 Index added 1.6 percent after gold rallied as record-low rates may boost its appeal as a hedge against inflation. Banks had the biggest drop in the S&P 500 among 24 groups as the industry may face pressure on margins from the Fed’s policy on rates. Apple (AAPL) Inc. climbed 6.2 percent to an all-time high as profit more than doubled. Textron Inc. (TXT), the maker of Cessna planes, surged 15 percent after forecasting higher-than-estimated earnings.
The S&P 500 added 0.9 percent to 1,326.06 at 4 p.m. New York time, after dropping 0.5 percent earlier. The Dow gained 83.10 points, or 0.7 percent, to 12,758.85. The Nasdaq-100 Index rose 1.3 percent to 2,465.66, the highest since 2001.
“The Fed is saying that money will stay easy and the cost of money will stay low,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The ability for businesses to find the money they need to grow and for consumers to find the money they need to buy things is going to be easier. That makes the growth path a little simpler.”
Benchmark gauges reversed losses as the Fed extended its previous pledge to keep rates low at least until the middle of 2013 as more than two years of economic growth have failed to push unemployment below 8.5 percent. Fed Chairman Ben S. Bernanke said central bankers are still debating additional asset purchases.
Earnings Season
Investors also watched earnings reports. Of the 112 S&P 500 companies that reported results since Jan. 9, 74 posted per- share earnings that beat projections, according to data compiled by Bloomberg. Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, the data show. The projection has fallen from 6.2 percent at the end of last year.
The Morgan Stanley Cyclical Index of companies most- dependent on economic growth added 1 percent. The Dow Jones Transportation Average advanced 1.5 percent. All 10 groups in the S&P 500 gained.
Gold producers rallied as the metal climbed to a six-week high. Newmont Mining Corp. (NEM), the largest U.S. gold producer, jumped 4.8 percent to $60.25. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, climbed 4.8 percent to $46.08.
Apple Rallies
Apple rallied 6.2 percent, the most since May 2010, to $446.66. The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. (HPQ) as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.
Textron surged 15 percent, the most in the S&P 500, to $24.76. Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.
The Bloomberg U.S. Airlines Index (BUSAIRL) of 11 companies jumped 4.5 percent. Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) reported fourth-quarter profits that topped analysts’ projections. Delta Air climbed 6.2 percent to $9.96. US Airways rallied 17 percent to $7.52.
M&A Deal
Illumina Inc. (ILMN) surged 46 percent to $55.15. Roche Holding AG offered $5.7 billion in a hostile bid for Illumina to bolster sales of gene-mapping equipment and services. Roche proposed paying $44.50 a share, 18 percent more than yesterday’s close.
Walter Energy Inc. (WLT) gained 3.9 percent to $70.14. The company may finally lure buyers willing to bet on a recovery in coal prices with the industry’s cheapest stock. After losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week, according to data compiled by Bloomberg. That was less than any North American coal-mining company with $1 billion in market capitalization.
Walter Energy, which bought Western Coal Corp. for $5.3 billion in April, is an attractive target because it produces high-grade steelmaking coal, Brean Murray Carret & Co. said. A buyer could spend double Walter Energy’s closing price of $67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year, data compiled by Bloomberg show.
Banks (S5BANKX) Decline
Banks had the biggest decline in the S&P 500 among 24 industries, falling 0.3 percent. Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it harder to boost profits and capital after the Fed’s pledge on low rates. Bank of America rose 0.8 percent to $7.35. Citigroup added 0.2 percent to $29.96.
“This is a very dovish Fed,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s an attempt to push down long-term interest rates. They are pushing the rates down to a level where consumers should find them very attractive, but banks will find them very unattractive.”
Corning Inc. (GLW) tumbled 11 percent, the biggest decline in the S&P 500, to $13.05. The largest maker of glass for flat-panel televisions said glass prices contributed to a 53 percent drop in fourth-quarter profit and are still sinking.
Xerox, WellPoint
Xerox Corp. (XRX) slumped 9.9 percent to $7.81. The provider of printers and business services gave earnings forecasts that trailed some analysts’ estimates as Europe weakens.
WellPoint Inc. (WLP) decreased 4.8 percent to $66.10. The largest U.S. health insurer by enrollment forecast 2012 earnings and reported fourth-quarter profit that were less than analyst estimates on higher medical costs.
“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a phone interview. His firm oversees $3.5 trillion as the world’s largest asset manager. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”
bloomberg 25 Jan 2012:
Germany, Europe’s dominant economic power, signaled on Jan. 23 that it might back an increase in the region’s overall rescue capacity to 750 billion euros ($983 billion) from 500 billion euros.
Stockbroker: Economy would have collapsed without ECB interventions
Published 23 January 2012
Europe’s economy would have ‘vanished into the underworld’ had the European Central Bank not intervened in the eurozone debt crisis, says stockbroker Dirk Müller. He argues that a European ratings agency would ease the crisis and that the current combination of loans and austerity in Greece will lead to default.
Dirk Müller is a German stockbroker and best-selling author. Also known as Mr Dax, he is one of the most familiar faces on Frankfurt’s stock exchange.
He spoke with EurActiv Germany’s Daniel Tost.
After France and Austria were stripped of their AAA ratings, S&P also cut the European Financial Stability Facility’s rating by one notch to AA+. EFSF Chief Executive Officer Klaus Regling and Eurogroup head Jean-Claude Juncker immediately issued statements saying the decision would not reduce the EFSF’s €440 billion lending capacity. Does the EFSF have enough firepower?
The fund is ready for the very urgent payments. Should something larger become necessary – we are talking about Spain and Italy – the fund would of course not be prepared.
It was said that one had to get money from somewhere in order to leverage the thing and in order to motivate others to throw in money – a lot of money.
This has not been successful in the past. This move now is not particularly helpful in improving that.
The fund received solid demand at its six-month debt sale on Tuesday. Is there a need for an increase in guarantees to the EFSF?
The question is: How much money will one need and what’s awaiting us in the next 12 or 24 months? The ESM is going to replace the fund, then we will be talking about different structures.
At the moment the fund should be able to deal with things. But either it needs higher liabilities from the AAA states or one has to accept slightly higher interest rates. Although I think that this will be a lesser problem.
S&P’s downgrade of nine euro countries has caused widespread criticism. There is talk of a targeted attack on Europe and of a sort of self-promotion of the agency. Is it time for a European rating agency?
I think this is absolutely sensible and long overdue. But such a neutral institution that facilitates assessments is actually only useful for private investors or the bulk of investors.
We have to be clear about this: the ratings agencies we are now talking about are private American companies. On what grounds banks, even central banks, trust these companies with their own decisions is not comprehensible for me. It is the very own task of banks to assess risks.
If you take out a loan as a private person today, banks will X-ray you down to your underwear and assess the risk for themselves. But when it comes to investing billions in bonds, banks just put this inspection into the hands of American companies that have both economically questionable and certainly politically dubious interests, if you look at the structures and the ownerships.
Thomas Mayer, chief economist of Deutsche Bank, says that it would actually be better if one would get away from the agencies as a whole and more investors would rely on their own analyses…
That I can only underline.
Are the downgrades comprehensible in light of the far-reaching reforms in many of the struggling countries in the eurozone?
I would agree to the extent that the rating agencies are right in their sceptical view considering national debts. What I am absolutely not pleased about and what raises many questions is the application of double standards.
The UK, the US and Japan are seen with completely different eyes than the European states. This is reprehensible.
Then there is the timing. One to two years ago the rating agencies themselves called upon the European countries for exactly these reforms.
They have taken these steps and the consequence is the agencies saying: What you are doing is really bad and we need to punish this. This is really crossing the Rubicon and one should not surrender to these rating agencies.
According to ECB board member Ewald Nowotny, the downgrading came at an inopportune time: the tensions surrounding the debt crisis had recently eased somewhat. Will they be rekindled now?
Interestingly, the markets seem to be going numb towards the downgrades. A year ago this move would have caused turmoil. Today it is accepted with a shrug. It is expected and not taken particularly seriously.
Immediately afterwards, we saw yields on French bonds even decrease because this sword of Damocles was gone. It is increasingly missing its intended effect.
It was a reassuring signal for the markets when the bond auctions of Italy and Spain, which started amidst great fear, went through painlessly – also due to the support of the ECB and the pressure of the Italian and Spanish governments on their own banks to buy these bonds.
But we have been seeing these downgrades happening at exactly the right moment again and again. One might no longer believe in a coincidence.
Does the ECB need a stronger role to resolve the euro debt crisis?
The ECB already is playing the “master role”. Without the support of the ECB, we would have vanished into the underworld long ago. It made 500 billion available to the banks, which they immediately parked back at the ECB.
Now due to pressure from their governments, they have invested the smallest amounts in government bonds of Italy and Spain, because they are sitting in the same boat and Spain is saying: If you are not buying them, then we are going to drown – and you are going to drown with us.
One might say that this is pulling oneself up by the bootstraps. That’s about what is happening with the government bond acquisitions of banks. But without the ECB, we would already be somewhere else.
S&P argues that politicians analyse the crisis as a budget crisis or a public debt crisis. The agency believes, however, that a large part of the crisis is due to diverging economic imbalances in the external field, but also to the competitive capabilities of nations. Do you agree?
This is correct. We in Europe have created a huge problem with the euro. Every state needs the currency that suits its own performance. We have seen this, when about half a year ago, the Swiss franc was somewhat increased in value by capital flows.
Immediately Switzerland’s strong and stable economy was in difficulties, because export trade came under pressure. Citizens drove across the border in droves and bought in Germany. Imbalances in the currencies immediately lead to big shifts in trade flows.
In the Swiss example, we could immediately see this on the border and in front of the news cameras. Elsewhere this happens via computer and large contracts between companies.
With a currency much too strong for their possibilities, the Greeks cannot build up a business model. Greek exports account for 6% of GNP.
These imbalances have been developing for 10 years now. It is not correct to say: The euro has been a success story for 10 years and suddenly problems are arising from nowhere.
Different currencies act as a buffer between the different states. If I take out of this buffer, I have a rigid system with still different forces pulling against each other.
These build up, and as with an earthquake, what we are seeing now erupts. These tensions have built up for over 10 years and have not arisen only suddenly.
Moritz Krämer from S&P says that the so-called power of his industry is also wanted by politicians, because they have wired ratings into the regulations for banks or investors. Is this correct?
One can agree in part. I find it incomprehensible why, for example, the decisions by insurance companies whether to purchase bonds or not bonds are based on the ratings of S&P and Moody’s.
That the ECB itself even makes its own political decisions based on the judgment of US companies is not at all comprehensible. They seem to put off every thought of whom the agencies belong to, what role they play and what interests they may have.
Why these rating agencies are so powerful has another background. The US capital market is the most important and largest capital market in the world. Without this market no big global investor can be active.
Everyone depends on this market. In order to sell bonds there, I must allow for a review of a rating agency licenced in the United States. This is American law.
This means that as long as any company, bank or state wants to sell its bonds in America – and they all want this, because that is the market where you can make the money – you have to let yourself be rated by an American agency.
They decide who gets money and who does not – and if so, at what price. Now the question arises, what sense a European rating agency would make if it were not approved in the US.
The probability of a Greek default seems to be increasing. There is disagreement among the central banks of the eurozone about how the monetary authorities should deal with the Greek government bonds on their balance sheets. Is there any solution?
I am almost at a loss for words. For two years we have been pumping money into Greece. What is happening now was predicted two years ago. At that time I warned about exactly this kind of development: Pushing more money down Greece’s throat and at the same time imposing these extreme austerity measures.
Greece is saving itself into a disaster, the Greek economy will completely collapse and the consequence will be that Greece cannot meet its obligations at all. The tax money that we have made available so far, will be eliminated.
What we are doing is bordering on the misappropriation of taxpayers’ money. We should have done this hair-cut for Greece two years ago, taken the country completely off of the capital market, externally financed it and slowly rebuilt the Greek system.
Governments allowed the private sector a long time to part with their bonds. The ECB has bought these bonds in a big fashion. But not only the ECB, but also hedge funds. These have also been buying these bonds and have no interest in rescuing Greece.
Hedge funds have bought Greek bonds as well as bad-debt insurance in the form of credit default swaps and tell themselves: Now there are two versions. Either Greece goes bankrupt, then I make big money with my insurance. Or we don’t participate in the voluntary debt restructuring, which means we get 100% returned.
Hedge funds were provided this business model because of the long manoeuvring. The consequence is that taxpayers now have to pay. One year ago he would have not been involved. One can only say: Thank you very much.
