Political momentum was expected to carry a sweeping Wall Street reform bill to approval in the U.S. Congress, but the death of Senator Robert Byrd threatened to delay final action until mid-July.
Democratic backers of the bill scrambled on Monday to replace a crucial vote of support that was lost when Byrd, 92, passed away, with the bill's fate turning on the views of a handful of swing-vote senators.
In the give-and-take of securing their support, reform advocates warned the bill could be further watered down.
"If they have to reopen the bill to make concessions to get additional votes... the bill will get weaker, not stronger," said Barbara Roper, director of investor protection at the Consumer Federation of America, a watchdog group.
The bill is the biggest overhaul of financial regulation since the 1930s biggest overhaul of financial regulation since the 1930s and a top priority of President Barack Obama following a severe banking crisis that slammed the economy.
It would force banks to reduce, but not cease, risky trading and investing; set up a new government process for liquidating troubled financial firms; and impose a $19 billion fee on the largest firms to pay for these and other changes.
The House of Representatives was on track to approve the legislation as early as Tuesday evening or Wednesday.
But both chambers must pass the bill before it can go to President Barack Obama to be signed into law. The White House has wanted a signing ceremony by July 4. That could still happen, but an aide indicated Senate action could slip until the week of July 12, after Congress takes a weeklong break.
"We expect this massive rewrite of U.S. banking law will pass the House this week, but the situation in the Senate is getting more complicated," said Brian Gardner, policy analyst at investment firm Keefe Bruyette & Woods.
Investors Moving On
While Democrats try to nail down enough votes to ensure final passage, investors and analysts were largely assuming the bill would become law.
The KBW Banks index closed down less than 1 percent on Monday in an otherwise largely flat stock market.
Final passage of the bill will alleviate some of the uncertainty that has weighed on bank stocks, but the long implementation period ahead presents many unknowns, said Goldman Sachs financial services industry analysts.
Two of the biggest question marks are appointments Obama must make. One will be the first director of a new Consumer Financial Protection Bureau called for by the bill. It would regulate mortgages, credit cards and other financial products.
Elizabeth Warren, a Harvard Law School professor, tops most short lists of contenders for the new job as the government's top financial consumer watchdog. She now chairs a panel overseeing the $700 billion Wall Street bailout.
Obama must soon name a replacement for U.S. Comptroller of the Currency John Dugan, whose role as a top bank supervisor will be made more powerful by the bill. Dugan's term expires in August. He has said he will step down then.
The biggest banks are expected to face constraints on their profits and growth after enactment of the Dodd-Frank bill, named for its chief authors, Senator Christopher Dodd and Representative Barney Frank, both Democrats.
But some of the sharpest edges were softened to secure support as a Senate-House panel wrapped up negotiations with a marathon, 21-hour session that ended early Friday morning.
Since Byrd's passing, backers of the bill are one vote short of the 60 needed to clear a Republican procedural hurdle in the Senate. Democrats could wait for West Virginia's governor, a Democrat, to appoint Byrd's interim successor, who would likely be a Democrat, but that process could take weeks.
Key Senators Targeted
For now, Democrats were keenly focused on trying to gather and hold support among a handful of key lawmakers.
One of the biggest winners in the negotiating process was Senator Scott Brown, a moderate Republican who won major concessions for financial interests in his home state of Massachusetts and voted for the Senate version of the bill.
Brown, however, has threatened to withdraw his support due to a $19 billion industry tax that was inserted during the final negotiating session.
Senator Olympia Snowe, another moderate Republican who had previously supported the bill, also said she was concerned by the tax. "I would have preferred the bank tax not to be included," she told reporters on Monday.
That tax was added to ensure that the bill does not add to the government's ballooning budget deficit. The nonpartisan Congressional Budget Office estimated on Monday night that the $26.9 billion in additional spending over a 10-year period would be offset by $26.9 billion in new revenues.
Two Democratic senators, Russ Feingold and Maria Cantwell, who voted against the Senate bill last month, saying it was not tough enough, will face pressure to support it now.
Feingold said on Monday he would not change his position.
Cantwell is still studying the 2,000-page bill and has not decided whether to support it, a spokesman said.
"We believe that sheer guilt and momentum will unify all 58 Democrats. A phone call from Obama and every liberal on the planet ... could well bring over Feingold and Cantwell," said policy analysts Teddy Downey and Chris Krueger at investment firm Concept Capital.
They pointed out that 60 votes are needed to overcome the procedural hurdle in the Senate, but only 51 are needed for final passage, giving reluctant Democrats voting options.
Republican Senator Charles Grassley, who has backed the bill at stages in its journey through Congress, has not made up his mind on the final version, an aide said on Saturday.
Monday, June 28, 2010
Faulty Computer Suit is Window to Dell’s Decline - CNBC
After the math department at the University of Texas noticed some of its Dell computers failing, Dell examined the machines. The company came up with a unusual reason for the computers’ demise: the school had overtaxed the machines by making them perform difficult math calculations.
Dell, however, had actually sent the university, in Austin, desktop PCs riddled with faulty electrical components that were leaking chemicals and causing the malfunctions. Dell sold millions of these computers from 2003 to 2005 to major companies like Wal-Mart and Wells Fargo, institutions like the Mayo Clinic and small businesses.
“The funny thing was that every one of them went bad at the same time,” said Greg Barry, the president of PointSolve, a technology services company near Philadelphia that had bought dozens. “It’s unheard-of, but Dell didn’t seem to recognize this as a problem at the time.”
Documents recently unsealed in a three-year-old lawsuit against Dell show that the company’s employees were actually aware that the computers were likely to break. Still, the employees tried to play down the problem to customers and allowed customers to rely on trouble-prone machines, putting their businesses at risk. Even the firm defending Dell in the lawsuit was affected when Dell balked at fixing 1,000 suspect computers, according to e-mail messages revealed in the dispute.
The documents chronicling the failure of the PCs also help explain the decline of one of America’s most celebrated and admired companies. Perhaps more than any other company, Dell fought to lower the price of computers.
Its “Dell model” became synonymous with efficiency, outsourcing and tight inventories, and was taught at the Harvard Business School and other top-notch management schools as a paragon of business smarts and outthinking the competition.
“Dell, as a company, was the model everyone focused on 10 years ago,” said David B. Yoffie, a professor of international business administration at Harvard. “But when you combine missing a variety of shifts in the industry with management turmoil, it’s hard not to have the shine come off your reputation.”
For the last seven years, the company has been plagued by serious problems, including misreading the desires of its customers, poor customer service, suspect product quality and improper accounting.
Dell has tried to put those problems behind it. In 2005, it announced it was taking a $300 million charge related, in part, to fixing and replacing the troubled computers. Dell set aside $100 million this month to handle a potential settlement with the Securities and Exchange Commission over a five-year-old investigation into its books, which will most likely result in federal accusations of fraud and misconduct against the company’s founder, Michael S. Dell.
The problems affecting the Dell computers stemmed from an industrywide encounter with bad capacitors produced by Asian PC component suppliers. Capacitors are found on computer motherboards, playing a crucial role in the flow of current across the hardware. They are not meant to pop and leak fluid, but that is exactly what was happening earlier this decade, causing computers made by Dell, Hewlett-Packard, Apple and others to break.
According to company memorandums and other documents recently unsealed in a civil case against Dell in Federal District Court in North Carolina, Dell appears to have suffered from the bad capacitors, made by a company called Nichicon, far more than its rivals. Internal documents show that Dell shipped at least 11.8 million computers from May 2003 to July 2005 that were at risk of failing because of the faulty components. These were Dell’s OptiPlex desktop computers — the company’s mainstream products sold to business and government customers.
A study by Dell found that OptiPlex computers affected by the bad capacitors were expected to cause problems up to 97 percent of the time over a three-year period, according to the lawsuit.
As complaints mounted, Dell hired a contractor to investigate the situation. According to a Dell filing in the lawsuit, which has not yet gone to trial, the contractor found that 10 times more computers were at risk of failing than Dell had estimated. Making problems worse, Dell replaced faulty motherboards with other faulty motherboards, according to the contractor’s findings.
But Dell employees went out of their way to conceal these problems. In one e-mail exchange between Dell customer support employees concerning computers at the Simpson Thacher & Bartlett law firm, a Dell worker states, “We need to avoid all language indicating the boards were bad or had ‘issues’ per our discussion this morning.”
In other documents about how to handle questions around the faulty OptiPlex systems, Dell salespeople were told, “Don’t bring this to customer’s attention proactively” and “Emphasize uncertainty.”
“They were fixing bad computers with bad computers and were misleading customers at the same time,” said Ira Winkler, a former computer analyst for the National Security Agency and a technology consultant. “They knew millions of computers would be out there causing inevitable damage and were not giving people an opportunity to fix that damage.”
Mr. Winkler served as the expert witness for Advanced Internet Technologies, which filed the lawsuit in 2007, saying that Dell had refused to take responsibility for 2,000 computers it sold A.I.T., an Internet services company. A.I.T. said that it had lost millions of dollars in business as a result. Clarence E. Briggs, the chief executive of A.I.T., declined to comment on the lawsuit.
Some of the documents in the case that were sealed under a protective order became public this month. Those documents show that after A.I.T. complained, Dell representatives looked at the failed computers and contended that A.I.T. had driven many of the computers too hard in a hot, confined space. Dell’s sales representatives discussed trying to sell A.I.T. more expensive computers as a resolution.
Jess Blackburn, a Dell spokesman, said the company would not comment on pending litigation. Lawyers for Dell deny A.I.T.’s claims, and contend that A.I.T. has cherrypicked and misinterpreted documents in the case. Dell’s lawyers wrote in a response to A.I.T.: “There was a Nichicon problem, and it affected different customers in different ways.”
In addition to the charge, Dell extended its warranty on the systems and often replaced computers when customers complained. (In 2007, Dell restated its earnings for 2003 to 2006, as well as the first quarter of 2007, and lowered its sales and net income totals for that period. An audit revealed that Dell employees had manipulated financial results to meet growth targets.)
But, as Dell did not recall the computers, many of Dell’s OptiPlex customers may be unaware that they had problematic computers or realize why their computers broke. A.I.T. says in court documents that the faulty capacitors touched off a variety of other problems that were often misdiagnosed. Dell could potentially face a raft of new complaints from some of its biggest customers.
Crucially, in their complaints to Dell in the lawsuit, customers describe losing valuable information when their computers malfunctioned. Dell, by contrast, denied that that the capacitor issue had caused data loss.
Dell’s supply chain had always stood out as one of its important assets. The company kept costs low by limiting its inventory and squeezing suppliers. If prices for components changed, Dell could react more quickly than its competitors, offering customers the latest parts at the lowest cost.
But the hundreds of Dell internal documents produced in the lawsuit show a company whose supply chain had collapsed as it failed to find working motherboards for its customers, including the firm representing Dell in the lawsuit, Alston & Bird.
According to a person who saw Dell’s 2005 internal communications, company executives carefully devised a public relations policy around the OptiPlex situation. Mr. Dell and Kevin B. Rollins, then Dell’s chief executive, were told that the news media would be informed of Dell’s commitment to fix any systems that failed, that Dell was working with customers to resolve problems in the most effective manner possible and that the problems posed no safety or data loss risk.
Carey Holzman, a computer expert who investigated the capacitor problems and collected photos from people with broken motherboards, had a different take on the safety situation.
“Of course it’s dangerous,” Mr. Holzman said. “Having leaking capacitors is a huge problem.” He found that the capacitor problems could cause computers to catch fire.
As late as 2008, after Mr. Dell had replaced Mr. Rollins and returned as chief executive, Dell continued to circulate internal memorandums trying to deal with the fallout from the capacitor situation. Dell salespeople, according to the lawsuit, fretted that technology directors at companies who used to buy from Dell could “justify their job” by advising their companies of Dell’s PC failures and recommending the purchase of H.P. and Lenovo computers.
To counter such lingering bad impressions, Dell salespeople were told to emphasize that the company’s direct model allowed it to identify and fix problems faster than competitors.
Dell, however, had actually sent the university, in Austin, desktop PCs riddled with faulty electrical components that were leaking chemicals and causing the malfunctions. Dell sold millions of these computers from 2003 to 2005 to major companies like Wal-Mart and Wells Fargo, institutions like the Mayo Clinic and small businesses.
“The funny thing was that every one of them went bad at the same time,” said Greg Barry, the president of PointSolve, a technology services company near Philadelphia that had bought dozens. “It’s unheard-of, but Dell didn’t seem to recognize this as a problem at the time.”
Documents recently unsealed in a three-year-old lawsuit against Dell show that the company’s employees were actually aware that the computers were likely to break. Still, the employees tried to play down the problem to customers and allowed customers to rely on trouble-prone machines, putting their businesses at risk. Even the firm defending Dell in the lawsuit was affected when Dell balked at fixing 1,000 suspect computers, according to e-mail messages revealed in the dispute.
The documents chronicling the failure of the PCs also help explain the decline of one of America’s most celebrated and admired companies. Perhaps more than any other company, Dell fought to lower the price of computers.
Its “Dell model” became synonymous with efficiency, outsourcing and tight inventories, and was taught at the Harvard Business School and other top-notch management schools as a paragon of business smarts and outthinking the competition.
“Dell, as a company, was the model everyone focused on 10 years ago,” said David B. Yoffie, a professor of international business administration at Harvard. “But when you combine missing a variety of shifts in the industry with management turmoil, it’s hard not to have the shine come off your reputation.”
For the last seven years, the company has been plagued by serious problems, including misreading the desires of its customers, poor customer service, suspect product quality and improper accounting.
Dell has tried to put those problems behind it. In 2005, it announced it was taking a $300 million charge related, in part, to fixing and replacing the troubled computers. Dell set aside $100 million this month to handle a potential settlement with the Securities and Exchange Commission over a five-year-old investigation into its books, which will most likely result in federal accusations of fraud and misconduct against the company’s founder, Michael S. Dell.
The problems affecting the Dell computers stemmed from an industrywide encounter with bad capacitors produced by Asian PC component suppliers. Capacitors are found on computer motherboards, playing a crucial role in the flow of current across the hardware. They are not meant to pop and leak fluid, but that is exactly what was happening earlier this decade, causing computers made by Dell, Hewlett-Packard, Apple and others to break.
According to company memorandums and other documents recently unsealed in a civil case against Dell in Federal District Court in North Carolina, Dell appears to have suffered from the bad capacitors, made by a company called Nichicon, far more than its rivals. Internal documents show that Dell shipped at least 11.8 million computers from May 2003 to July 2005 that were at risk of failing because of the faulty components. These were Dell’s OptiPlex desktop computers — the company’s mainstream products sold to business and government customers.
A study by Dell found that OptiPlex computers affected by the bad capacitors were expected to cause problems up to 97 percent of the time over a three-year period, according to the lawsuit.
As complaints mounted, Dell hired a contractor to investigate the situation. According to a Dell filing in the lawsuit, which has not yet gone to trial, the contractor found that 10 times more computers were at risk of failing than Dell had estimated. Making problems worse, Dell replaced faulty motherboards with other faulty motherboards, according to the contractor’s findings.
But Dell employees went out of their way to conceal these problems. In one e-mail exchange between Dell customer support employees concerning computers at the Simpson Thacher & Bartlett law firm, a Dell worker states, “We need to avoid all language indicating the boards were bad or had ‘issues’ per our discussion this morning.”
In other documents about how to handle questions around the faulty OptiPlex systems, Dell salespeople were told, “Don’t bring this to customer’s attention proactively” and “Emphasize uncertainty.”
“They were fixing bad computers with bad computers and were misleading customers at the same time,” said Ira Winkler, a former computer analyst for the National Security Agency and a technology consultant. “They knew millions of computers would be out there causing inevitable damage and were not giving people an opportunity to fix that damage.”
Mr. Winkler served as the expert witness for Advanced Internet Technologies, which filed the lawsuit in 2007, saying that Dell had refused to take responsibility for 2,000 computers it sold A.I.T., an Internet services company. A.I.T. said that it had lost millions of dollars in business as a result. Clarence E. Briggs, the chief executive of A.I.T., declined to comment on the lawsuit.
Some of the documents in the case that were sealed under a protective order became public this month. Those documents show that after A.I.T. complained, Dell representatives looked at the failed computers and contended that A.I.T. had driven many of the computers too hard in a hot, confined space. Dell’s sales representatives discussed trying to sell A.I.T. more expensive computers as a resolution.
Jess Blackburn, a Dell spokesman, said the company would not comment on pending litigation. Lawyers for Dell deny A.I.T.’s claims, and contend that A.I.T. has cherrypicked and misinterpreted documents in the case. Dell’s lawyers wrote in a response to A.I.T.: “There was a Nichicon problem, and it affected different customers in different ways.”
In addition to the charge, Dell extended its warranty on the systems and often replaced computers when customers complained. (In 2007, Dell restated its earnings for 2003 to 2006, as well as the first quarter of 2007, and lowered its sales and net income totals for that period. An audit revealed that Dell employees had manipulated financial results to meet growth targets.)
But, as Dell did not recall the computers, many of Dell’s OptiPlex customers may be unaware that they had problematic computers or realize why their computers broke. A.I.T. says in court documents that the faulty capacitors touched off a variety of other problems that were often misdiagnosed. Dell could potentially face a raft of new complaints from some of its biggest customers.
Crucially, in their complaints to Dell in the lawsuit, customers describe losing valuable information when their computers malfunctioned. Dell, by contrast, denied that that the capacitor issue had caused data loss.
Dell’s supply chain had always stood out as one of its important assets. The company kept costs low by limiting its inventory and squeezing suppliers. If prices for components changed, Dell could react more quickly than its competitors, offering customers the latest parts at the lowest cost.
But the hundreds of Dell internal documents produced in the lawsuit show a company whose supply chain had collapsed as it failed to find working motherboards for its customers, including the firm representing Dell in the lawsuit, Alston & Bird.
According to a person who saw Dell’s 2005 internal communications, company executives carefully devised a public relations policy around the OptiPlex situation. Mr. Dell and Kevin B. Rollins, then Dell’s chief executive, were told that the news media would be informed of Dell’s commitment to fix any systems that failed, that Dell was working with customers to resolve problems in the most effective manner possible and that the problems posed no safety or data loss risk.
Carey Holzman, a computer expert who investigated the capacitor problems and collected photos from people with broken motherboards, had a different take on the safety situation.
“Of course it’s dangerous,” Mr. Holzman said. “Having leaking capacitors is a huge problem.” He found that the capacitor problems could cause computers to catch fire.
As late as 2008, after Mr. Dell had replaced Mr. Rollins and returned as chief executive, Dell continued to circulate internal memorandums trying to deal with the fallout from the capacitor situation. Dell salespeople, according to the lawsuit, fretted that technology directors at companies who used to buy from Dell could “justify their job” by advising their companies of Dell’s PC failures and recommending the purchase of H.P. and Lenovo computers.
To counter such lingering bad impressions, Dell salespeople were told to emphasize that the company’s direct model allowed it to identify and fix problems faster than competitors.
Friday, June 25, 2010
Financial Reform— Lawmakers Reach Agreement on Financial Reform - CNBC
A Senate-House of Representatives conference panel approved a landmark bill on Friday to overhaul financial regulations, working through the night on the thorniest provisions.
The legislation next heads to the full Senate and House where it is expected to win final approval and President Barack Obama could sign it into law before July 4.
Lawmakers agreed to allow banks to trade in-house many types of over-the-counter derivatives, watering down a controversial plan that would have required banks to spin off much of their lucrative swaps dealing desks.
Under the deal, banks can trade in-house foreign exchange and interest rate swaps, gold and silver swaps, and derivatives designed to hedge their own risk.
But banks will need to spin off dealing desks to affiliates to handle agricultural, energy and metals swaps, equity swaps, and uncleared credit default swaps.
Lawmakers neared a breakthrough in their historic rewrite of financial regulations as they agreed to tough new limits on banks' trading activity and floated a compromise on derivatives.
Democrats faced enormous pressure to complete work on the bill in the coming hours, before Obama discusses recovery and reform with leaders of other economic powers at the Group of 20 meeting in Canada.
In the fifteenth hour of a marathon negotiation session, Democrats agreed on a modified version of the so-called "Volcker rule," which would prohibit most trading and investment activity by banks.
It would give regulators little wiggle room to waive the trading ban but would also allow banks to invest up to 3 percent of their tangible equity in hedge funds and private equity funds.
The legislation next heads to the full Senate and House where it is expected to win final approval and President Barack Obama could sign it into law before July 4.
Lawmakers agreed to allow banks to trade in-house many types of over-the-counter derivatives, watering down a controversial plan that would have required banks to spin off much of their lucrative swaps dealing desks.
Under the deal, banks can trade in-house foreign exchange and interest rate swaps, gold and silver swaps, and derivatives designed to hedge their own risk.
But banks will need to spin off dealing desks to affiliates to handle agricultural, energy and metals swaps, equity swaps, and uncleared credit default swaps.
Lawmakers neared a breakthrough in their historic rewrite of financial regulations as they agreed to tough new limits on banks' trading activity and floated a compromise on derivatives.
Democrats faced enormous pressure to complete work on the bill in the coming hours, before Obama discusses recovery and reform with leaders of other economic powers at the Group of 20 meeting in Canada.
In the fifteenth hour of a marathon negotiation session, Democrats agreed on a modified version of the so-called "Volcker rule," which would prohibit most trading and investment activity by banks.
It would give regulators little wiggle room to waive the trading ban but would also allow banks to invest up to 3 percent of their tangible equity in hedge funds and private equity funds.
Thursday, June 24, 2010
EU Debt Crisis - Trichet Explains Why Soros Is Wrong About the Euro - CNBC
As German chancellor Angela Merkel prepares to take her austerity message to the G20 in Toronto this weekend, the head of the European Central Bank Jean-Claude Trichet has held her up as an example to the rest of the euro zone.
Merkel’s actions will boost confidence among households, investors and companies and will help consolidate the recovery, Trichet said in an interview with Italy's La Repubblica.
That view is at odds with what George Soros said Wednesday, when the legendary investor told an audience in Berlin that the euro is a flawed construct.
"By insisting on pro-cyclical policies, Germany is endangering the European Union," Soros warned. "I realize that this is a grave accusation, but I am afraid it is justified."
Trichet dismissed this, saying the euro [EUR=X 1.2285 -0.0031 (-0.25%) ] was a very credible currency that has kept its value from its debut and has guaranteed price stability for 11 and a half years, with an annual average inflation of 1.98 percent in the euro-zone in that period.
"A currency that guarantees such stable prices, it's of value in the eyes of domestic and international investors" Trichet told the Italian paper.
The single European currency fell against the dollar since worries over certain euro zone countries' ability to pay their debt begun.
On Wednesday, Soros said that "by cutting its budget deficit and resisting a rise in wages to compensate for the decline in the purchasing power of the euro, Germany is actually making it more difficult for the other countries to regain competitiveness."
Merkel defended her actions over the weekend, saying they will prevend future crises.
Deflation Risks
But Trichet does not believe that austerity measures being put in place by European governments will cause deflation.
Some of the more bearish investors are betting that cuts in government spending across the European Union will add to deflationary pressures at a time when consumers and businesses are de-leveraging.
Growth will fall sharply, with private sector deflation pushing yields on 10-year bonds down to 2 percent, triggering a new wave of quantitative easing, Bob Janjuah, chief markets strategist at RBS told CNBC earlier this month.
"I don't think that such risks could materialize," said Trichet, adding that inflation expectations were well anchored. "As regards the economy, the idea that austerity measures could trigger stagnation is incorrect."
Reforming the real economy in each country in the euro zone is what is needed, according to Trichet.
"We ask all governments to be determined to carry out structural reforms to increase the potential growth," he said. "I insist on the need to boost work productivity: in the medium- and long-term, growth depends right on this."
Merkel’s actions will boost confidence among households, investors and companies and will help consolidate the recovery, Trichet said in an interview with Italy's La Repubblica.
That view is at odds with what George Soros said Wednesday, when the legendary investor told an audience in Berlin that the euro is a flawed construct.
"By insisting on pro-cyclical policies, Germany is endangering the European Union," Soros warned. "I realize that this is a grave accusation, but I am afraid it is justified."
Trichet dismissed this, saying the euro [EUR=X 1.2285 -0.0031 (-0.25%) ] was a very credible currency that has kept its value from its debut and has guaranteed price stability for 11 and a half years, with an annual average inflation of 1.98 percent in the euro-zone in that period.
"A currency that guarantees such stable prices, it's of value in the eyes of domestic and international investors" Trichet told the Italian paper.
The single European currency fell against the dollar since worries over certain euro zone countries' ability to pay their debt begun.
On Wednesday, Soros said that "by cutting its budget deficit and resisting a rise in wages to compensate for the decline in the purchasing power of the euro, Germany is actually making it more difficult for the other countries to regain competitiveness."
Merkel defended her actions over the weekend, saying they will prevend future crises.
Deflation Risks
But Trichet does not believe that austerity measures being put in place by European governments will cause deflation.
Some of the more bearish investors are betting that cuts in government spending across the European Union will add to deflationary pressures at a time when consumers and businesses are de-leveraging.
Growth will fall sharply, with private sector deflation pushing yields on 10-year bonds down to 2 percent, triggering a new wave of quantitative easing, Bob Janjuah, chief markets strategist at RBS told CNBC earlier this month.
"I don't think that such risks could materialize," said Trichet, adding that inflation expectations were well anchored. "As regards the economy, the idea that austerity measures could trigger stagnation is incorrect."
Reforming the real economy in each country in the euro zone is what is needed, according to Trichet.
"We ask all governments to be determined to carry out structural reforms to increase the potential growth," he said. "I insist on the need to boost work productivity: in the medium- and long-term, growth depends right on this."
Wednesday, June 23, 2010
Wednesday, June 9, 2010
Saturday, June 5, 2010
Stock Market and Investing: All Eyes on Europe's Sovereign Debt Crisis - CNBC
Week Ahead: All Eyes on Europe's Sovereign Debt Crisis
The weakening euro could continue to strong-arm markets in the week ahead, as investors worry about contagion from Europe's sovereign debt crisis and the potential for a bigger setback in the U.S. economic recovery.
Stocks Friday suffered their second largest decline of the year from the double whammy of fresh worries about Hungary and a disappointing U.S. employment report, which showed little in the way of private sector job creation. But it was a sharp decline in the euro that really took stocks on a ride downhill, as the market followed each dip. The euro closed the week at $1.1966, its lowest level since March, 2006.
In the coming week, the U.S. market would normally have focused on Fed Chairman Ben Bernanke's testimony before a House committee Wednesday, as well as monthly retail sales Friday and other economic reports, but the focus will likely be on news from abroad. Over the weekend, G-20 finance ministers meet in Korea. Then early in the week, euro zone finance ministers meet in Luxembourg Monday and Tuesday. Separately, Hungary is expected to release a new budget after the EU turned down the government's request to run a higher deficit.
"I think the combination of the European problems, and the disappointing U.S. jobs data forces people to the side lines and makes people question how strong a recovery we are getting," said Marc Chandler, Brown Brothers Harriman chief currency strategist.
The problems in Hungary bubbled to the surface Thursday after an official of the newly elected government said the country's fiscal condition was worse than expected and likened its situation to Greece. The comment jarred already nervous markets, sending spreads on Europe's weakest sovereigns sharply wider.
The Dow lost 204 points, or 2 percent for its fifth weekly loss in six weeks. At 9931, the Dow is now 11.4 percent from its late April high. The S&P 500 lost 2.3 percent for the week, to 1064, its lowest close since Feb. 8. The Nasdaq in the past week lost 1.7 percent to 2219, and the Russell 2000 was off 4.2 percent at 633.
Traders have been watching the S&P 500 which moved well below its 200-day moving average in the low 1100 zone.
"You're still above the 1050 level which was the recent low, and if you break through that I think you're in new territory and you've re-established a strong downtrend," said Karl Mills, president of money manager Jurika, Mills and Keifer.
"Technical support levels matter until they don't matter. We blew through some of them very easily. There's always some level to watch. I think what's really going to drive it is the fundamentals in Europe, so what you're watching is credit spreads, Libor, interbank lending and the flow of credit," he said.
Mills said he has been positioned defensively, holding a large amount of cash and is sticking to highly liquid global companies with innovative products or important services. One of those companies is Apple, and he said he is looking forward to its developers meeting Monday.
May's employment report, released Friday morning, showed the creation of 431,000 non farm payrolls, but the bulk of those were were temporary workers hired for the government census and only 41,000 private sector jobs were created.
Economists had expected a number closer to 530,000, with 190,000 private sector workers. "The silver lining in an otherwise dismal report is that the work week increased and incomes increased...second quarter GDP is probably going to be unaffected by today's report," Chandler said. "It's a slower than average recovery, but it's still a recovery."
Richard Bernstein of Richard Bernstein Capital Management said he is not as much as worried about Europe as about the domestic jobs picture. The indicator he watches the most is the weekly jobless claims, which have stalled out in the mid 400,000 range.
"I still think that U.S. assets are perhaps the most attractive in the world, but it's going to take more global volatility for the consensus to come my way," he wrote in a quick note after the jobs report Friday. "USD appreciating. That more than anything else supports my longer-term bullish view."
Bernstein, in an earlier interview, said that the jobs picture needs to improve, but that Europe could actually help stimulate the U.S. economy. "We'll get lower gasoline prices, higher dollar which increases purchasing power and lower interest rates," he said.
"People are just not patient enough, and they want everything to happen rapidly, and these things don't happen that rapidly. I think job creation will continue. I think the economy will continue to progress, and the odds of a double dip are lower than people think," he said.
Barclays Capital chief U.S. economist Dean Maki said monthly jobs reports are volatile, and it's better to look at a three-month trend. "Over the last three months, we created an average of 139,000 private sector jobs," he said. He added that there could be some substitution factor at work, as workers took temporary better paying census jobs rather than take some lower paying private sector jobs, and that could reverse as the census workers are let go during the summer.
Maki also does not think the European sovereign concerns at this point are hurting the U.S. economy. That would change, however, if the stock market decline gets more severe and dampens consumer spending.
In the coming week, he is focused on Bernanke's testimony and retail sales, which he expects to rise 0.4 percent. Bernanke testifies before the House Budget committee. "It's hard to see him dramatically changing his view. He likely will be asked about Europe and will probably address it briefly in his prepared remarks. I would expect him to continue to sound reasonably upbeat on the economic outlook but sight headwinds as a reason to be cautious," said Maki.
What Else to Watch
The U.S. Treasury auctions $70 billion in 3-year and 10-year notes and 30-year bonds Tuesday, Wednesday and Thursday.
Other U.S. data expected this week includes wholesale trade Wednesday and international trade Thursday. The beige book is released Wednesday and weekly jobless claims are reported Thursday.
Later in the week, the European Central Bank holds a rates meeting and news briefing. There is also fresh data from China on its trade balance Thursday, and retail sales, industrial production and CPI Friday.
"In addition to Bernanke, that's likely to be the next major pulse taking of the global recovery," said Brian Dolan of GFT Forex.
The frustration surrounding BP's [BP 37.16 -2.11 (-5.37%) ] inability to stop its spewing oil continues to grow, and traders increasingly mention it as a problem darkening the mood of investors. "I just think if it got turned off, the market would act better," said one trader.
The weakening euro could continue to strong-arm markets in the week ahead, as investors worry about contagion from Europe's sovereign debt crisis and the potential for a bigger setback in the U.S. economic recovery.
Stocks Friday suffered their second largest decline of the year from the double whammy of fresh worries about Hungary and a disappointing U.S. employment report, which showed little in the way of private sector job creation. But it was a sharp decline in the euro that really took stocks on a ride downhill, as the market followed each dip. The euro closed the week at $1.1966, its lowest level since March, 2006.
In the coming week, the U.S. market would normally have focused on Fed Chairman Ben Bernanke's testimony before a House committee Wednesday, as well as monthly retail sales Friday and other economic reports, but the focus will likely be on news from abroad. Over the weekend, G-20 finance ministers meet in Korea. Then early in the week, euro zone finance ministers meet in Luxembourg Monday and Tuesday. Separately, Hungary is expected to release a new budget after the EU turned down the government's request to run a higher deficit.
"I think the combination of the European problems, and the disappointing U.S. jobs data forces people to the side lines and makes people question how strong a recovery we are getting," said Marc Chandler, Brown Brothers Harriman chief currency strategist.
The problems in Hungary bubbled to the surface Thursday after an official of the newly elected government said the country's fiscal condition was worse than expected and likened its situation to Greece. The comment jarred already nervous markets, sending spreads on Europe's weakest sovereigns sharply wider.
The Dow lost 204 points, or 2 percent for its fifth weekly loss in six weeks. At 9931, the Dow is now 11.4 percent from its late April high. The S&P 500 lost 2.3 percent for the week, to 1064, its lowest close since Feb. 8. The Nasdaq in the past week lost 1.7 percent to 2219, and the Russell 2000 was off 4.2 percent at 633.
Traders have been watching the S&P 500 which moved well below its 200-day moving average in the low 1100 zone.
"You're still above the 1050 level which was the recent low, and if you break through that I think you're in new territory and you've re-established a strong downtrend," said Karl Mills, president of money manager Jurika, Mills and Keifer.
"Technical support levels matter until they don't matter. We blew through some of them very easily. There's always some level to watch. I think what's really going to drive it is the fundamentals in Europe, so what you're watching is credit spreads, Libor, interbank lending and the flow of credit," he said.
Mills said he has been positioned defensively, holding a large amount of cash and is sticking to highly liquid global companies with innovative products or important services. One of those companies is Apple, and he said he is looking forward to its developers meeting Monday.
May's employment report, released Friday morning, showed the creation of 431,000 non farm payrolls, but the bulk of those were were temporary workers hired for the government census and only 41,000 private sector jobs were created.
Economists had expected a number closer to 530,000, with 190,000 private sector workers. "The silver lining in an otherwise dismal report is that the work week increased and incomes increased...second quarter GDP is probably going to be unaffected by today's report," Chandler said. "It's a slower than average recovery, but it's still a recovery."
Richard Bernstein of Richard Bernstein Capital Management said he is not as much as worried about Europe as about the domestic jobs picture. The indicator he watches the most is the weekly jobless claims, which have stalled out in the mid 400,000 range.
"I still think that U.S. assets are perhaps the most attractive in the world, but it's going to take more global volatility for the consensus to come my way," he wrote in a quick note after the jobs report Friday. "USD appreciating. That more than anything else supports my longer-term bullish view."
Bernstein, in an earlier interview, said that the jobs picture needs to improve, but that Europe could actually help stimulate the U.S. economy. "We'll get lower gasoline prices, higher dollar which increases purchasing power and lower interest rates," he said.
"People are just not patient enough, and they want everything to happen rapidly, and these things don't happen that rapidly. I think job creation will continue. I think the economy will continue to progress, and the odds of a double dip are lower than people think," he said.
Barclays Capital chief U.S. economist Dean Maki said monthly jobs reports are volatile, and it's better to look at a three-month trend. "Over the last three months, we created an average of 139,000 private sector jobs," he said. He added that there could be some substitution factor at work, as workers took temporary better paying census jobs rather than take some lower paying private sector jobs, and that could reverse as the census workers are let go during the summer.
Maki also does not think the European sovereign concerns at this point are hurting the U.S. economy. That would change, however, if the stock market decline gets more severe and dampens consumer spending.
In the coming week, he is focused on Bernanke's testimony and retail sales, which he expects to rise 0.4 percent. Bernanke testifies before the House Budget committee. "It's hard to see him dramatically changing his view. He likely will be asked about Europe and will probably address it briefly in his prepared remarks. I would expect him to continue to sound reasonably upbeat on the economic outlook but sight headwinds as a reason to be cautious," said Maki.
What Else to Watch
The U.S. Treasury auctions $70 billion in 3-year and 10-year notes and 30-year bonds Tuesday, Wednesday and Thursday.
Other U.S. data expected this week includes wholesale trade Wednesday and international trade Thursday. The beige book is released Wednesday and weekly jobless claims are reported Thursday.
Later in the week, the European Central Bank holds a rates meeting and news briefing. There is also fresh data from China on its trade balance Thursday, and retail sales, industrial production and CPI Friday.
"In addition to Bernanke, that's likely to be the next major pulse taking of the global recovery," said Brian Dolan of GFT Forex.
The frustration surrounding BP's [BP 37.16 -2.11 (-5.37%) ] inability to stop its spewing oil continues to grow, and traders increasingly mention it as a problem darkening the mood of investors. "I just think if it got turned off, the market would act better," said one trader.
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