U.S. stocks soared to finish near the session’s highs Monday as optimism that European leaders will reach an agreement to contain the region’s debt crisis led investors to snap up beaten-down equities before the end of the September quarter.
“I don’t think there are any details, but (there are) further hopes for reaching some sort of settlement in terms of nailing down a plan” to overcome the European sovereign debt crisis, said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “The main thing for the market is to get this European issue behind us.”
After a choppy start to the day’s trading, stocks took off in the afternoon after The Wall Street Journal reported that the International Monetary Fund and euro-zone officials are working on a variety of options for using leverage to make the resources of the European Financial Stability Facility go much further.
All 30 of the Dow’s constituents ended higher, paced by a strong late rally in financials, after they bore the brunt of the steep sell-off last week. Pado said the day’s gains were also likely aided by funds that were keen to employ the cash on their books before the end of the September quarter and ahead of the upcoming third-quarter earnings.
At the same time, cheap valuations lured investors, other analysts said.
“I’d expect to see a little bit of rebound and some positive days, because we had such tremendous downside pressure and a lot of folks are thinking the markets are cheap,” said Robert Pavlik, chief market strategist at Banyan Partners business card design.
The broad stock gains came on the heels of bullish cues from Europe, where banking stocks led a rally on optimism that the region’s politicians will be able to convince voters that a bigger bailout fund is required.
The market “needs some kind of concrete plan to stabilize” and it has “got to be something other than guesswork,” said Stephen Carl, head equity trader at the Williams Capital Group, referring to speculation that the European Central Bank may cut interest rates.
The market gains came even as data released by the Commerce Department showed that the sale of new homes fell 2.3 percent last month to an annual rate of 295,000, marking a decline for the fourth month in a row.
Gold prices continued to tumble after the CME Group boosted margin requirements on trading in the metals Friday. The December gold contract shed $45, or 2.7 percent, to settle at $1,594.8 an ounce, a two-month low.
Silver futures for delivery in December ended down 13 cents, or 0.4 percent, at $29.98 an ounce, the lowest since early February.
President Hugo Chavez accused his opponents on Thursday of representing U.S. interests and trying to stir up discontent in Venezuela’s military while he undergoes cancer treatment in Cuba.
Chavez addressed the nation on television twice by phone, saying he was in bed receiving a fourth consecutive day of chemotherapy and expected to return to Venezuela soon.
He mocked his opponents, saying their coalition is “of the United States.”
“All of those attacking the Armed Force are subordinated to imperialism,” Chavez said, using the formal name for the Venezuelan military. “They’re following the orders of imperialism, trying to divide the Armed Force, trying to demoralize it.”
He did not give details but referred to recent criticisms of some top generals by opponents, and he warned his foes: “Leave the Armed Force alone.”
Chavez said the military’s response to any provocations from his opponents should be to notify state intelligence agencies and remain unified.
The opposition coalition responded with a statement saying the president’s remarks “show the tension that exists within the government.”
“The head of state should worry about what’s happening within his government,” the opposition coalition said. “The message is for you, Mr. President: Leave the Armed Force alone. Don’t oblige Venezuelan soldiers to say slogans in favor of you or your political ideology.”
Chavez, who says he is trying to install a socialist system in Venezuela, made his remarks during a televised gathering of soldiers in a helicopter unit. After two days without speaking publicly, Chavez appeared eager to assert himself both in domestic and international affairs.
He said he was sorry to see the unrest in London. He referred to the U.S. government’s debt woes and said, “The empire is sinking.”
“It’s a terrible crisis they have. It’s capitalism,” Chavez said.
Chavez urged his military to be ready for any possible conflict like those in Libya and Syria. He reiterated his long-standing concerns about a potential conflict with the United States, saying: “They’re like a wounded lion.”
Despite Chavez’s tensions with Washington, Venezuela continues to rely heavily on oil sales to the United States, which is its top client.
Chavez said the current economic crisis will affect Venezuela but that his government has been diversifying and becoming more independent.
He said officials planned to sign an agreement with China on Thursday finalizing a new $4 billion loan to be repaid in oil. The leftist leader said Venezuela no longer “depends on the Yankees, the Yankee banks.”
Russia is also providing a $4 billion loan to Venezuela for arms deals and other purposes, Chavez said.
As for his cancer treatment, Chavez said his body has been responding well. He underwent surgery in June to remove a tumor from his pelvic region, and says the chemotherapy aims to ensure that no malignant cells reappear.
Chavez dismissed a protest by bus drivers in parts of Venezuela on Thursday, saying he believes political adversaries were behind it.
He also expressed confidence about the presidential vote expected in late 2012. “We’re going to knock them out,” Chavez said.
There hasn’t been a good reason to own a money market mutual fund for four years. These days, most funds are yielding under 0.1 percent. You can receive 1 percent in an online bank savings account, and get FDIC insurance to boot.
Nonetheless, the funds are still holding $2.7 trillion in investors’ money. That speaks to their reputation as a liquid, very-low-risk place to park cash while waiting for something better to come along.
Now it seems they may not be as safe as we thought. The problem is Greece.
Fitch Ratings reported last week that American money funds have half their money invested in European banks. European bankers, meanwhile, are very nervous about what might happen if the Greek government stiffs its creditors.
To understand why, imagine today’s financial system as a big house of cards. A card or two might tip over without any damage. But if the wrong ones slip, especially while a breeze is blowing, the chain reaction can bring the house down in a heap.
Back in 2008, the Treasury Department thought it could let Lehman Brothers fall without much danger. We saw what happened instead.
All this explains why the rich nations of Europe are resigned to bailing out the profligate, rioting Greeks
A NATO airstrike hit an area near Libyan leader Moammar Gadhafi’s compound in the capital again Tuesday, as military leaders voiced concerns about sustaining the operations if the alliance mission drags on.
A column of gray smoke could be seen rising from the area around Gadhafi’s Bab al-Aziziya compound shortly before dawn Tuesday. The concussion from the blast was felt at a hotel where journalists stay in the capital.
It was not clear what was targeted, and Libyan officials didn’t immediately comment.
East of the capital, alliance aircraft have begun dropping leaflets warning government troops to abandon their posts outside Zlitan, which lies just west of the rebel-held port city of Misrata.
Rebel forces have been advancing along the Mediterranean coast toward Zlitan, but say they have been instructed by NATO to withdraw ahead of expected bombing runs to old front lines in Dafniya.
The 3-by-5 inch leaflets intended for forces loyal to Gadhafi carry the NATO symbol and a picture of an Apache attack helicopter and burning tanks on one side. Green Arabic writing warns: “There’s no place to hide. It’s not too late to stop fighting. If you continue to threaten civilians, you will face destruction.” The message on the reverse urges soldiers to “stop and stay away from fighting now.”
An Associated Press reporter near the front line said NATO fighter jets were be heard overhead.
If the rebels take Zlitan, they would be within 85 miles (135 kilometers) of the eastern outskirts of Tripoli. A rebel official said opposition leaders in Zlitan have been meeting with their counterparts in Misrata, but he acknowledged they face challenges in advancing on the city.
“We need the people of Zlitan to push more courageously forward. They are dependent on our movements, but the problem is only a third of that city is with the rebels,” said Ibrahim Beatelmal, a rebel military spokesman in Misrata.
On Monday, NATO said attack helicopters struck two of Gadhafi’s military boats off the coast of Misrata, as well as military vehicles and equipment concealed beneath trees in Zlitan.
NATO’s nearly three-month air campaign has grounded Gadhafi’s air forces and weakened his military capabilities. But there are signs the pace of operations has put a strain on the trans-Atlantic alliance.
In London, the head of the Royal Navy warned that the British fleet _ a key contributor to the Libya mission _ will be unable to maintain the pace of operations if the mission drags on until the end of the year.
Adm. Mark Stanhope told reporters Monday he was comfortable with NATO’s decision to extend the Libya operation to the end of September, but said that beyond that the government would need to make “challenging decisions payday loan.”
“If we do it longer than six months we will have to reprioritize forces,” he said.
Elsewhere, a senior NATO official said coalition resources would become “critical” if intervention in Libya continues.
“If additional resources are needed, this of course will need a political decision,” said the official, Gen. Stephane Abrial, Supreme Allied Commander Transformation.
U.S. Defense Secretary Robert Gates last week publicly rebuked the United States’ European allies and said NATO’s operations in Libya have exposed the alliance’s shortcomings. France and Britain have carried most of the load since NATO began the Libya mission March 31.
In western Libya, Gadhafi’s troops were bombarding opposition forces controlling a key border crossing with Tunisia, according to Omar Hussein, a spokesman for rebels in the western Nafusa mountains.
He said government forces were targeting rebels holding the road that leads toward the Dehiba border crossing. Dehiba is a key supply point for the rebels who wrested control of a string of Nafusa mountain towns from Gadhafi’s forces earlier this month.
Canada on Tuesday joined a growing list of countries to recognize the Libyan rebels as the legitimate government of the country.
Foreign Affairs Minister John Baird made the announcement in Parliament as it opened a day-long debate on extending Canada’s military commitment to the NATO-led mission in Libya. Prime Minister Stephen Harper’s government plans to extend an initial three-month commitment to the end of September.
Monday night, Gadhafi troops fired grad missiles at Qasr Ahmed’s industrial zone near Misrata’s port, hitting an electrical transformer and destroying it and damaging an office building.
“I got up on top of our roof and saw fire coming from the oil refinery’s transformer,” said Nidal Suleiman, an engineer who works at a steel factory near the refinery.
He said the fire was quickly extinguished and employees went to work as usual this morning at the refinery. It was not immediately clear if anyone was injured.
NATO, meanwhile, reported it had carried out 62 airstrikes on Libya Monday, hitting military targets in Tripoli and four other cities in Gadhafi controlled territory. The alliance has considerably stepped up the pace of air attacks over tjhe past several days.
Spain’s National Police say hackers blocked its website briefly in apparent retaliation for the arrest of three suspected members of the international activist group Anonymous.
Police said Monday the attack happened around 2 a.m. (0000 GMT) Sunday but did not disrupt police computer operations and that Anonymous claimed responsibility for it.
On Friday police announced the arrest of three alleged members of the Spanish chapter of Anonymous, which has attacked corporate and government websites around the world.
Police said one of the suspects had a server used to hack into Sony’s online Playstation store but the three detainees were not involved in an April cyber intrusion which affected millions of PlayStation Network users.
St. Louis-based Swan Corp. hired Michael Fischer as its president and CEO.
He has more than 30 years of experience in the building products industry in sales, marketing and manufacturing. He joins Swan from Formica Corp., where he served as president.
Fischer joined Formica in 2002 and was its vice president of sales before becoming its president. Previously, he was an executive at Armstrong World Industries.
Thailand’s central bank will probably increase interest rates for the fourth time this year, as rising food and fuel prices become a pivotal issue for the July 3 general election.
The Bank of Thailand will boost its benchmark one-day bond repurchase rate by a quarter of a percentage point to 3 percent, according to all 16 economists surveyed by Bloomberg News, adding to increases of the same amount each in January, March and April. The decision is due at 2:30 p.m. in Bangkok tomorrow.
Prime Minister Abhisit Vejjajiva has pledged higher wages and capped food and diesel costs ahead of the poll, as the opposition faults his Democrat party for jumps in the cost of living. The central bank has said inflation risks exceed threats to growth, and predicts the economy will weather disruption from Japan’s earthquake to grow 4.1 percent this year.
“The monetary authority will continue to fight price pressures, which still appear to be rising,” said Benjarong Suwankiri, an economist at TMB Bank Pcl in Bangkok. Populist policies promising extra spending may add to the challenge of containing inflation, he said.
The Thai baht has declined about 1 percent against the dollar this year, according to data compiled by Bloomberg, aiding exports while providing less of a damper against a surge in global commodity costs. The benchmark SET Index of stocks has climbed 4.2 percent in the same period, more than any other Southeast Asian market, as trade gains and consumer spending boosted corporate earnings.
General Election
The forthcoming election in Southeast Asia’s second-largest economy will pit Abhisit’s Democrat party against allies of fugitive ex-Premier Thaksin Shinawatra, who was ousted in a 2006 coup and lives overseas. About 100 people have been killed following disputes over the last election in 2007.
The opposition Pheu Thai Party, led by Thaksin’s sister, Yingluck Shinawatra, has used billboard advertisements to blame Abhisit for rising costs. The prime minister pledged in February to boost the minimum wage by 25 percent over two years to help the public cope, while Pheu Thai has promised a larger increase as the parties vie for votes.
“We foresee risks that some populist policies promised by the political parties may instigate additional pressures on inflation,” Standard Chartered Plc analysts including Tai Hui wrote in a May 19 note.
Neighboring Asian central banks from the Philippines to China are also raising rates or allowing currency appreciation to fight inflation. The Philippines has lifted borrowing costs twice this year and yesterday reported 4.9 percent economic growth last quarter from a year earlier.
Economic Growth
Thailand’s gross domestic product climbed 2 percent in the first quarter from the previous three months, the fastest pace in a year. Bank of Thailand Governor Prasarn Trairatvorakul said last week the expansion was “better than expected,” adding inflation pressure remains “high.”
Consumer prices advanced 4.04 percent in April from a year earlier, the fastest pace in 15 months. The nation may need to curb diesel subsidies as funding runs out, according to Finance Minister Korn Chatikavanij, pointing to a future shift that could stoke inflation.
Core prices, which exclude fresh food and fuel, rose 2.07 percent last month from a year earlier, accelerating from a 1.62 percent pace in March. The central bank uses the core figure to guide policy and aims to keep it below 3 percent. It may rise to that level by September, Deputy Governor Atchana Waiquamdee said May 27.
Thailand’s manufacturing output declined the most in 20 months in April after the March 11 disaster in Japan, its largest trading partner, disrupted supply chains.
Local companies such as Aapico Hitech Pcl (AH), an auto parts maker, have cut revenue forecasts as the interruptions reduce vehicle production in Southeast Asia’s second-largest economy.
“The big picture of economic strength remains unchanged and we see production recovering strongly in the second half,” Wellian Wiranto, an economist at HSBC Holdings Plc in Singapore, wrote in a note on May 27. “Bank of Thailand too has this trajectory in mind and the industrial production number is unlikely to shake it off its hawkishness.”
Reinsurance Group selling notes
Fewer people purchased previously occupied homes in April, a troubling sign that the weak housing market remains a drag on the economy.
Sales fell 0.8 percent in April to a seasonally adjusted annual rate of 5.05 million units, the National Association of Realtors said Thursday. That’s far below the 6 million homes a year that economists say represents a healthy market.
Purchases made by first-time homebuyers did increase but not nearly enough to signal a housing recovery is on the way. First-time buyers are critical because they typically improve their properties and invest in their communities, a combination that helps home values rise.
Foreclosures, on the other hand, force prices down. They represented more than a third of all sales in April and more are expected in the months ahead.
Since the housing boom went bust, sales have fallen in four of the past five years and hit a 13-year low last year. Declining home prices and low mortgage rates haven’t been enough to boost sales this year.
Some who want to buy can’t, mostly because banks have tightened lending requirements and are insisting on larger down payments. Many buyers who can qualify for loans are holding off. They are worried that home prices have yet to bottom out.
Economists say it could be years before the housing market fully recovers.
A growing problem is that some sales that are under contract are falling apart. A separate survey from the trade group found 11 percent of Realtors said a contract was canceled because an appraisal came in below the negotiated price. And 14 percent said a contract was renegotiated to a lower price because of a low appraisal.
The median sales price in April was $163,700. That’s down 5 percent from the same month one year ago. The median price of a new home is now nearly 31 percent higher than the median price for a previously occupied home _ or twice the normal markup.
The gap is largely because of the flood of foreclosures or short sales _ when the lender accepts less than what is owed on the mortgage. Those sales are forcing down prices.
Sales of homes at risk of foreclosure fell in April. But they still made up 37 percent of all purchases. And a large number of pending foreclosures are backlogged in the courts or held up by state and federal probes into troubled foreclosure practices by lenders.
A record 1 million homes were lost to foreclosures last year and foreclosure tracker RealtyTrac Inc. expects 1.2 million more will be lost this year.
Another problem for the housing market is the glut of unsold homes. In April, the supply rose to nearly 3.9 million. At last month’s sales pace, it would take more than 9 months to clear those homes. Analysts say a healthy supply can be cleared in six months.
The increase in unsold inventory “should continue to weigh on prices,” said Dan Greenhaus, chief economic strategist at Miller Tabak + Co.
The situation is much worse when taking into account the “shadow inventory” of homes, economists say. These are homes that are in the early stages of the foreclosure process but, because of backlogged courts or the government probes, have not hit the market for re-sale.
The Mortgage Bankers Association said Monday that about 8.3 percent of homeowners missed at least one mortgage payment in the January-March quarter when adjusted for seasonal factors. That’s up 0.7 percent from the previous quarter.
Sales fell across most regions of the country. In April, sales declined 7.5 percent in the Northeast, 1.6 percent in the West and 1 percent in the South. But they rose 5.7 percent in the Midwest.
A pay increase of A$234,000 ($252,000) at the height of the global financial crisis made Reserve Bank of Australia Governor Glenn Stevens one of the world’s highly-compensated central bankers.
The raise was agreed on by the bank’s board in October 2008 following a review by PricewaterhouseCoopers and the ending of performance bonuses, according to correspondence between the central bank and Treasurer’s office obtained by Bloomberg News under a Freedom of Information request.
Stevens’s 2010 total compensation was A$1.05 million, with an A$805,000 base salary that was 61 percent more than European Central Bank President Jean-Claude Trichet’s and four times that of Federal Reserve Chairman Ben S. Bernanke. Stevens was one of seven central bank chiefs from around the world to receive an ‘A’ grade in a September 2009 Global Finance Magazine survey for navigating their economies through the world’s worst financial crisis since the 1930s.
“Given the national significance of the governor’s position, the Board’s Remuneration Committee, and the board itself, discharges its responsibilities in this area in a disciplined manner,” Donald McGauchie, chairman of the remuneration committee and a member of the board until last month, wrote to Treasurer Wayne Swan explaining the decision.
Trichet, Shirakawa
Spokesmen in the Reserve Bank and Treasurer’s office declined to comment on the correspondence when contacted by Bloomberg News yesterday. Australian offices and markets are closed for the Easter holiday today.
Trichet was paid 367,863 euros ($537,300) last year, 2 percent more than his 2009 salary, according to the ECB’s annual accounts published in March. Bernanke earned $199,700, while Bank of Japan Governor Masaaki Shirakawa’s salary, at 34.4 million yen ($419,410) for the year to March 31, fell 1.5 percent from a year earlier.
Remuneration for Japan’s central bank governor has declined 10.8 percent over the past 10 years as the country grappled with deflation.
Stevens’s salary still trails that of Hong Kong Monetary Authority Chief Executive Norman Chan, who earned HK$7.5 million ($965,000), plus HK$868,000 in benefits last year, according to the HKMA’s annual report published yesterday.
Australia was one of the few economies to skirt the global recession as Stevens slashed the overnight cash rate target to a 50-year low of 3 percent. As the economy rebounded, he raised rates in seven quarter-percentage-point steps from October 2009 to November last year to 4.75 percent, the highest in the developed world.
Surpassing Gillard
The Reserve Bank forecasts Australia’s economy will expand 4.25 percent this year, driven by a mining investment boom and record job growth that helped spur the nation’s currency to the highest level since it was freely floated in 1983 cash advance flexible payments.
“The Australian economy overall has performed very well,” said Edwin Truman, a former director of the Fed’s international- finance division. “It was only mildly affected by the crisis.” The central bank “moved quite aggressively quite early in terms of liquidity support,” he said.
While central bank salaries “can be a political issue like everybody else’s in the financial sector,” the pay increase may be difficult to roll back for Stevens’ successors, said Truman, who’s now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s hard for someone to say ‘I’m not worth that much,’” Truman said.
Stevens’s salary is more than double that of Prime Minister Julia Gillard’s base pay of A$355,264. In correspondence with McGauchie, Swan suggested the governor’s remuneration was too high.
In a letter dated Sept. 15, 2010, Swan said that in the future the Reserve Bank’s Remuneration Committee should “discharge its powers with an emphasis on ensuring that salaries are adjusted to be in line with community expectations of senior officials’ remuneration.”
Swan, in the letter, also said he was advised of the October 2008 decision to increase the governor’s salary in September 2009, “nearly one year after” the move.
Correspondence
The correspondence also included a letter to Swan from Jillian Broadbent, a central bank board member on the remuneration committee, expressing “serious concerns about the possibility that responsibility for the remuneration of senior officers of the Reserve Bank be moved away from the bank’s board.”
She said the current practice, adopted to address the acute staffing difficulties that the bank experienced in the 1980s as personnel were lured by higher-paying jobs in the finance industry, worked “very well” since it was established by then- Treasurer Paul Keating.
Under that framework, it recognized that the relevant comparisons for Reserve Bank remuneration aren’t mainstream government agencies but government business enterprises and other financial institutions.
“Attracting and retaining top financial talent into government in Sydney is a challenge,” she wrote in the letter dated Sept. 17, 2010. “Salary levels and the quality of the bank’s officers are interdependent.”
Swan, in a press conference earlier this month, said he understood community concern related to the governor’s salary, describing the issue as a “matter that’s before the government.”
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