Cardinals head to conclave to elect pope for troubled Church (Reuters) Hyperinflation 'Unthinkable' Even With Bold Easing: Abe (Nikkei) Ryan Plan Revives '12 Election Issues (WSJ) Republicans to unveil $4.6tn of cuts (FT) - Obama set to dismiss Ryan plan to balance budget within decade Italy 1-yr debt costs highest since Dec after downgrade (Reuters) CIA Ramps Up Role in Iraq (WSJ) Hollande Hostility Fuels Charm Offensive to Show He’s No Sarkozy (BBG) SEC testing customized punishments (Reuters) Judge Cans Soda Ban (WSJ) Hungary Lawmakers Rebuff EU, U.S. (WSJ) Even Berlusconi Can’t Slow Bulls Boosting Euro View (BBG) - luckily the consensus is never wrong Funding for Lending ‘put on steroids’ (FT) Investigators Narrow Focus in Dreamliner Probe (WSJ) With new group, Obama team seeks answer to Karl Rove (Reuters) Boston Booms as Workers Say No to Suburbs (BBG) Overnight Media Digest WSJ * Illinois settled Securities and Exchange Commission civil-fraud charges that the state misled municipal-bond investors by failing to adequately disclose the risks of its underfunded pension system. * Lawmakers grilling Mary Jo White, President Barack Obama's nominee for chairman of the Securities and Exchange Commission, on Tuesday will have to weigh two seemingly contradictory versions of the attorney. * U.S. aviation safety investigators examining Boeing Co's 787 Dreamliner increasingly are focusing on manufacturing or design problems with the batteries as possible causes of overheating rather than on other parts of the jet's electrical system, the head of the National Transportation Safety Board said on Monday. * Starr International Co, run by the former chief executive of American International Group Inc, won the right to pursue as a class action its case against the U.S. government, alleging that elements of AIG's financial-crisis bailout package were unconstitutional. * A crisis of confidence in the nuclear-power industry has trickled down to Namibia, where uranium accounts for 12 percent of exports. But uranium prices are down 70 percent over the past six years. * General Motors Co is in the process of changing advertising agencies of its Cadillac brand. Advertising and marketing work to support Cadillac, valued at about $250 million, will be moved to longtime Michigan advertising agency Campbell Ewald, according to three people briefed on the matter. * The monopoly powers of Mexico's telephone giant, América Móvil SAB de CV and leading broadcaster Grupo Televisa SAB, are coming under fire with a broad set of new laws that aim to open up the telecommunications and television businesses to competition. * Many small U.S. banks are feeling a financial pinch from the government's efforts to punish executives and directors of banks that collapsed during the height of the financial crisis. * KKR & Co LP is considering teaming with other private equity firms to pursue biotech firm Life Technologies Corp, according to people familiar with the matter, in the latest sign that buyout shops are still willing to form "clubs" if they covet a large target. * VeriFone Systems Inc Chief Executive Douglas Bergeron is stepping down after a dozen years at the helm of the card-payment systems maker. The company said it will hire an executive-search firm to find a successor, with Chairman Richard McGinn serving as CEO on an interim basis. FT Dell Inc has agreed to give Carl Icahn a closer look at its books less than a week after the activist investor joined a growing chorus of opposition to founder Michael Dell's plan to take the world's No. 3 personal computer maker private. Private equity firms are looking to buy the UK property business of Germany's second-biggest lender, Commerzbank AG, in a potential 5 billion pound ($7.45 billion) deal. UK lender LLoyds Banking Group plans to sell 20 percent of its stake in wealth manager St James's Place Alibaba Group has chosen Jonathan Lu, its Chief Data Officer who has more than a decade of experience in executive roles, to lead China's largest e-commerce company as it prepares to launch an initial public offering. Italy's central bank has told some of the country's biggest banks to increase their bad loan provisions by an estimated 21 billion euros ($27.33 billion) amid deepening of a nearly two-year old recession. Billionaire hedge fund manager John Paulson is exploring moving to Puerto Rico from New York to lower his tax bill. Richard Joseph, a former futures trader, was convicted of six counts of insider trading, leaking information from the print room at JPMorgan Cazenove. Joseph placed spread bets with CMC Markets ahead of a series of deals in 2007 and 2008. Mexico is looking to overhaul its telecom industry by introducing sweeping proposals that will increase competition and limit the control of telecoms tycoon Carlos Slim and broadcasting giant Televisa. NYT * For the second time in history, federal regulators have accused an American state of securities fraud, finding that Illinois misled investors about the condition of its public pension system from 2005 to 2009. * A state court judge invalidated New York City's new restrictions on sweetened beverages on Monday, a day before they were set to take effect, saying the rules were "arbitrary and capricious." * Britain, unlike other economic powers, is responding to the financial crisis by creating two new agencies, one to oversee institutions and another to watch for market abuses. * In advance of a summit meeting of European Union leaders on Thursday in Brussels, the president of the European Commission, José Manuel Barroso, called on the bloc's 17 members to stay the course on austerity. * Intrade, the online betting site, announced late on Sunday that it had halted trading and frozen customer accounts after the discovery of potential financial irregularities. * Oppenheimer & Co will pay nearly $3 million to settle accusations by federal and state regulators that it misled investors about the performance of one of its private equity funds, in a case that signals stepped-up scrutiny of the buyout industry and how it values its holdings. * Dell Inc has agreed to open its books to the activist investor Carl Icahn, signaling a possible truce on one front in the battle over the computer maker's proposed $24.4 billion buyout. * In prepared testimony for her nomination hearing, Mary Jo White placed a premium on unearthing financial fraud, as she works to deflect concerns from lawmakers who question her ability to regulate banks she recently defended. * British authorities have opened an investigation into Hewlett-Packard Co's claims that it was duped when it bought the business software maker Autonomy, according to regulatory documents filed on Monday. Canada THE GLOBE AND MAIL * Ottawa and the Northwest Territories have reached a deal to hand the territory province-like power over its land, a move aimed at empowering local leaders to unlock more of their resource riches. * Less than a third of the almost 300,000 members and supporters who signed up to choose the Liberal party's next leader have so far registered to vote, prompting front-runner Justin Trudeau's camp to complain about a host of technical glitches and request a one-week extension on registration. * The federal government is facing questions over the legitimacy of its centerpiece for aboriginal education reform. Manitoba chiefs rejected the Harper government's vision for aboriginal education on Monday, claiming Ottawa is trying to "bypass" first nations chiefs and shirk its treaty responsibilities. Reports in the business section: * Chrysler Canada is jumping back into leasing for the first time since 2008, raising the competitive stakes another notch in an auto market already awash with financing and leasing incentives. * AT&T Inc will begin selling BlackBerry's new BlackBerry Z10 smartphone next week, marking the smartphone's debut in a crucial U.S. market that has largely shunned the company's devices in recent years. * Molson Coors Brewing Co's Canadian arm sold far less Miller Genuine Draft beer in the country over the past three years than the targets called for under its agreement with Miller Brewing Co. That under-performance - spelled out in court filings - is at the crux of a dispute that has erupted between the two companies, as Miller tries to cancel its Canadian licensing agreement with Molson. NATIONAL POST * The federal government, which has come under fire over tougher employment insurance (EI) rules, is sweetening benefits for parents. It says it will allow individuals receiving parental benefits through EI to qualify for sickness benefits as well, starting March 24. * The latest annual report on federal ad spending shows Ottawa shelled out C$78.5 million ($76.5 million) in 2011-12 telling Canadians about everything from the switch to digital TV and the War of 1812, to elder abuse and anti-drug messaging. The Harper government spent C$21 million on major advertising campaigns under its Economic Action Plan brand. * Despite activist claims that the city's homeless are dying due to a lack of shelter space, there is no shelter bed shortage in Toronto, according to an internal report prepared for city council. FINANCIAL POST * After years of growth, economists say the real estate boom is over and predict Canadian housing prices to flatline over the next decade. A TD Economics study, Long-Run Rate of Return for Canadian Home Prices, predicts a "string of lackluster performances" over the next few years. * Alamos Gold Inc is going on the offensive in the takeover battle for Aurizon Mines Ltd, asking a securities regulator to reject both a break fee and poison pill that it believes are highly irregular. * Travel tour operator Transat AT Inc said it has managed to wrest concessions from its flight attendants as the company continues its campaign to be more cost competitive. The bulk of the expected C$9 million in annual savings will come from Transat lowering the amount of flight attendants on its Airbus A330s to 10 from 11, and the move will also support a potential shift to a fleet of Boeing Co's 737s. China SECURITIES TIMES -- Huatai Securities said on Tuesday its board of directors had sanctioned the issuance of no more than 10 billion yuan of corporate bonds on the Shanghai Stock Exchange to supplement operating funds. -- The Shanghai securities regulator said five foreign banks, including Standard Chartered, have applied for licences to distribute mutual fund products in China. CHINA SECURITIES JOURNAL -- The Shanghai stock exchange is looking to invest more in regional stock exchanges to support smaller firms in China, its director general said on Monday. CHINA DAILY -- China's first special envoy for Asian affairs will have a focus on Myanmar, the Foreign Ministry said on Monday. There has been tension between China and its southern neighbour over conflict in Myanmar, close to the Chinese border. -- Roughly one in ten of the 5,000 proposals submitted to China's top political advisory body since March 3 are related to environmental issues, said Lu Fuhe, a top national political advisor. SHANGHAI DAILY -- French firm Carrefour, the world's number two retailer, has implemented a system to allow shoppers to trace the origin of fruit and vegetables in their Chinese stores in Shanghai, a reflection of the recent pressure in China over food safety. CHINA BUSINESS NEWS -- The number of dead pigs found in the Huangpu River, one of Shanghai's key water sources, is now estimated to have increased to 2,800. Fly On The Wall 7:00 AM Market Snapshot ANALYST RESEARCH Upgrades Axiall (AXLL) upgraded to Buy from Neutral at CitigroupDick's Sporting (DKS) upgraded to Outperform from Market Perform at BMO CapitalDick's Sporting (DKS) upgraded to Conviction Buy from Buy at GoldmanIntercontinental Hotels (IHG) upgraded to Neutral from Sell at UBSMosaic (MOS) upgraded to Outperform from Market Perform at BMO CapitalSherwin-Williams (SHW) upgraded to Neutral from Underperform at Credit SuisseVantiv (VNTV) upgraded to Outperform from Market Perform at Raymond JamesVitamin Shoppe (VSI) upgraded to Buy from Neutral at Goldman Downgrades CVS Caremark (CVS) downgraded to Neutral from Buy at GoldmanEverBank Financial (EVER) downgraded to Neutral from Buy at Sterne AgeeRadioShack (RSH) downgraded to Sell from Neutral at GoldmanRed Hat (RHT) downgraded to Neutral from Buy at Citigroup Initiations Fifth & Pacific (FNP) initiated with a Buy at Brean CapitalRush Enterprises (RUSHA) initiated with a Market Perform at BMO CapitalTJX (TJX) initiated with an Overweight at BarclaysWabash (WNC) initiated with an Outperform at BMO CapitalWABCO (WBC) initiated with an Outperform at BMO CapitalXoom (XOOM) initiated with an Outperform at RW BairdXoom (XOOM) initiated with an Overweight at Barclays HOT STOCKS SEC charged Illinois for misleading pension disclosuresTreasury Department sold $489.9M of GM (GM) common stock in FebruaryHP (HPQ) disclosed U.K Serious Fraud Office opened investigation related to AutonomyKKR (KKR) has considered teaming to bid for Life Technologies (LIFE), and Thermo Fisher (TMO) and Danaher (DHR) also weigh bids for Life, valued at $12.5B with debt, DJ reports Diamond Foods (DMND) sees second half sales down more than first halfRio Tinto (RIO) slowed Guinea iron ore investment, to cut staff, Reuters reports Said Guinea iron ore project not frozen, to work with government on funding, Bloomberg reportsHill International (HIL) sees FY13 consulting fee revenue $500M-$520M Cadence Design (CDNS) acquired Tensilica for $380M in cashPall Corp (PLL) signed 30 year agreement to supply Embraer (ERJ) with KC-390 manifoldsMRC Global (MRC), NAWAH entered into alliance to open distribution facility in IraqLakeland Industries (LAKE) reported $11.5M goodwill impairment charge in Brazil EARNINGS Companies that beat consensus earnings expectations last night and today include:Costco (COST), BioScrip (BIOS), Stewart Enterprises (STEI), XenoPort (XNPT), Heckmann (HEK) Companies that missed consensus earnings expectations include:Stage Stores (SSI), FuelCell (FCEL), Chiquita Brands (CQB), Hill International (HIL), Casey's General Stores (CASY), Urban Outfitters (URBN) Companies that matched consensus earnings expectations include:Douglas Dynamics (PLOW), Flow International (FLOW), Manitex (MNTX) NEWSPAPERS/WEBSITES Multinationals (GE, HPQ, CAT, HON) have been increasing their footprint in Asia for years as they have moved from selling into the region to also investing here. But the transformation is gaining critical mass as Western companies' market-share leads in Asia over cash-flush local competitors narrow, forcing Western firms to invest more, tailor their products and transfer top executives to Asia, the Wall Street Journal reports Rising fuel prices have GM (GM) and Chrysler Group (FIATY) taking another look at selling smaller pickup trucks—vehicles that the Detroit Three automakers (F) abandoned in the U.S. amid weak demand. Both see the vehicles helping them to hit higher fuel-economy targets and to regain market share from Toyota (TM), the current top-selling small hauler., the Wall Street Journal reports Two groups of AIG (AIG) shareholders won class-action status from a federal judge on in a $25B lawsuit by former CEO Maurice "Hank" Greenberg over alleged losses caused by the U.S. government's bailout of the insurer, Reuters reports As the jobs market showing signs of healing, economists think they know what's next for monetary policy: the Fed will at some point reduce its monthly bond purchases, and soon after, end them altogether. But perhaps they shouldn't be so sure, Reuters reports Shares of companies that own and operate their truck fleets (WERN, KNX, SWFT, HTLD) are outperforming those that act as brokers for trucking services, driven by stronger U.S. freight activity, Bloomberg reports The Treasury Department, exiting its ownership stake in GM (GM), accelerated its sell- down of the automaker in February, saying it received $489.9M in proceeds from the sale of common shares, Bloomberg reports SYNDICATE Emeritus (ESC) announces 7.97M share secondary offering by holdersGovernment Properties (GOV) 9.95M share Spot Secondary priced at $25.20HeartWare (HTWR) announces public offering of 1.5M shares of common stockLexington Realty (LXP) files to sell 15M shares of common stockSalesforce.com (CRM) announces proposed $1B offering of convertible senior notesSapiens (SPNS) files to sell $40M of common stock, 6M shares for holdersSun Communities (SUI) announces 4.5M share common stock offeringU.S. Silica (SLCA) announces 8.5M share secondary offering by stockholderYandex (YNDX) announces 24.25M Class A ordinary shares offering by holders
Science has determined that people need to know 7.5 things per day, on average, about the world of business. You can't argue with science. Lucky for you, The Huffington Post has an email newsletter, delivered first thing every weekday morning, boiling down the day's biggest business news into the 7.5 things you absolutely need to know. And we're giving it away free, because we love you, and also science. Here you go: Thing One: So Much Cash, So Little Use For It: The good news? Companies are as flush with cash as they have ever been. Now the bad news: They're not going to spend any of it, except to give it back to shareholders. U.S. companies plan to pay a record $300 billion in dividends this year, writes the Wall Street Journal, up from $282 billion a year ago. Companies also announced plans last month to buy back nearly $118 billion in stock, the most for any single month on record, by one measure. All of this cash flowing to investors has a couple of positive effects, besides the obvious make-investors-happy effect: For one thing, it is helping to boost stock prices through the roof, for whatever that is worth. For another thing, it will result in more tax money to the U.S. government, which I hear tell has been experiencing some agita about its budget lately. Dividends are being taxed at higher rates this year -- one effect of this year's "fiscal cliff" caused by all of that budget agita -- so more dividends equals many more tax dollars. Of course, the government's budget woes could be alleviated a good bit if companies would stop hoarding cash overseas, away from the clutches of the IRS. U.S. companies are holding a record $1.9 trillion offshore, according to Bloomberg's count, having shipped another $183 billion overseas in the past year. As one analyst tells the WSJ, all of this cash sloshing about is hardly a great sign. Companies are giving it back to shareholders and stashing it overseas because they can't figure out what else to do with it, as Paul Krugman notes in his New York Times column. Corporate cash may be pushing the Dow to a record high, but it is not being invested in the future, or in people. The job market is still missing more than 3 million of the jobs it lost during the recession. At the current pace of hiring, that hole could take nearly two more years to fill. And then there are wages, which have stagnated even as corporate profits have hit record highs. It's something to keep in mind when reading today's February jobs report. The job market is recovering, but still far from healed. Thing Two: Not-So-Stressful Tests: One group of companies in particular should be forking a bit more cash over to shareholders soon: The banks. The 18 biggest U.S. banks mostly got clean bills of health in the Federal Reserve's latest round of stress tests, meaning they will probably be allowed to raise their dividends and buy back more stock. There are good reasons to question just how stressful the Fed's tests really are, the NYT notes, in terms of their assumptions about losses during another crisis and about how much capital they really need. Thing Three: China: Do What We Say, Not What We Do: China's commerce minister warned Japan, the U.S. and other countries against engaging in "competitive currency depreciation" to boost their growth, the Financial Times writes. "Leave that sort of thing to China," the FT does not add. Actually, to be fair, China has gotten out of the active currency-devaluation game lately as it tries to press gently on its property bubble. Thing Four: What A Draghi: One group not rushing into the currency wars is the European Central Bank, which on Thursday again decided to leave interest rates alone, despite the continent's never-ending recession. Things are going to have to get a lot worse for the ECB to act, ECB chief Mario Draghi declared, expressing confidence that Italy's recent spot of trouble isn't going to turn into another financial-system-eating nightmare. Thing Five: In Case You Need More Proof: The past decade has been among the hottest in the past 11,000 years, according to a new study of the entire stretch of the Holocene period, the WSJ writes. There is a clear spike in temperatures at the very end of the WSJ's compelling 11,000-year temperature chart, strongly suggesting that this is man-made and not a natural temperature fluctuation. Thing Six: Fed Considers Do-Nothing Strategy: Fed officials are considering just hanging on to all of the bonds it has bought during its years-long campaign to boost the economy, letting them mature rather than trying to sell them off and risk roiling the bond market, Reuters reports. The approach makes sense, but it does raise questions about the Fed's ability to withdraw support for the economy quickly, if needed. But won't that be a nice problem to have? Thing Seven: Carl Icahn Will See You In Dell: Not content to make his rival, William Ackman, miserable, activist investor Carl Icahn has turned his attention to struggling computer maker Dell, for some reason. He declared yesterday that Dell had better borrow a bunch of money and pay him and other investors a huge dividend, or else spend years in litigation, the WSJ writes. That should turn things around. Thing Seven And One Half: The Robots Will Blow Out The Candles: On this day in 1817, the New York Stock & Exchange Board was officially formed, by the same people who in 1792 had signed the Buttonwood Agreement to trade stocks under a buttonwood tree in lower Manhattan. In 1863 the name was changed to the New York Stock Exchange, which eventually became the go-to site for photographs and videos of anguished and/or ebullient traders. Today the NYSE is operated by NYSE Euronext after its merger with a European electronic exchange, and the whole company will soon be owned by an Atlanta futures exchange called Intercontinental Exchange. You can still find a few traders there for souvenir photographs, but it has mostly been taken over by computers. Now Arriving By Email: If you'd like this newsletter delivered daily to your email inbox, then please just feed your email address to the thin box over on the right side of this page, wedged narrowly between the ad and all the social-media buttons. OR, if you are logged into a HuffPost account, you could simply click on this link and tick the box labeled "7.5 Things" (and any other kind of news alert you'd like to get). Nothing bad will happen to you if you do, unless you consider getting this newsletter delivered daily to your email inbox a bad thing. Calendar Du Jour: Economic Data: 8:30 a.m. ET: Jobs Report for February Corporate Earnings: Nada. Heard On The Tweets: Is it still a stairway to heaven or have they upgraded to like an escalator or teleport or something?— M. Kittenosaurus(@mkat816) March 7, 2013 My biggest problem with Facebook isn't design — it's that I won't put in work to update my scattered, irrelevant friend list— John Herrman (@jwherrman) March 7, 2013 a filibuster is basically the political equivalent of getting cornered by the drunkest guy at a party.— Morgan Murphy (@morgan_murphy) March 7, 2013 I'm sure everybody's already tweeting about how this would be composer Maurice Ravel's 148th birthday. #partytime #ravel #poppinbottles— Thomas Lennon (@thomaslennon) March 7, 2013 People may not take my threats seriously, but after I nuke the U.S., I'm going to kill Superman. #shitjustgotreal— KimJongNumberUn (@KimJongNumberUn) March 7, 2013 -- Calendar and Tweets rounded up by Alexis Kleinman And you can follow us on Twitter, too, if you want, no pressure: @AlexisKleinman and @MarkGongloff
Tunisian opposition politician shot dead, protests erupt (Reuters) China says extremely concerned after latest North Korea threats (Reuters) Postal Service to cut Saturday mail to trim costs (AP) Debt Rise Colors Budget Talks (WSJ) Obama proposes short-term budget fix, Republicans swiftly object (Reuters) S&P Analyst Joked of Bringing Down the House Before Crash (BBG) Dell’s Bigger Challenge Ahead in Turnaround After Buyout (BBG) Some of the Mark Carney Gloss Is Coming Off (WSJ) Japan Official Says BOJ Tools Sufficient as Shake-Up Looms (BBG) S&P Lawsuit Undermined by SEC Rules That Impede Competition (BBG) Heavy Clashes Erupt in Syrian Capital (WSJ) Carmakers Use Aluminum Over Steel in Boost for Rio (BBG) Beijing vows to raise minimum wages (FT) China Port Operators Step Up Overseas Investment (WSJ) Overnight Media Digest WSJ * A slowly improving U.S. economy and recently enacted tax increases will help bring down the federal deficit for the next few years, the Congressional Budget Office said Tuesday, but it will take another $2 trillion in belt-tightening over the next decade to begin to move the federal debt closer to historic levels. * The U.S. government wants Standard & Poor's Ratings Services to pay more than $5 billion - roughly what its parent company has earned in the past seven years - for giving its seal of approval to bundles of subprime mortgages that eventually crumbled, costing investors billions and helping sink the economy. * Nasdaq OMX Group's missteps during last year's debut of Facebook Inc shares cost Wall Street an estimated $500 million. In the end, U.S. securities regulators may end up fining the exchange group 1 percent of that. * Pinterest is in talks to raise a new round of financing that would value the online scrapbooking site at $2 billion to $2.5 billion. * Regulators leading the world-wide probe into rate-rigging allegations are expected to announce Wednesday a settlement of around 400 million pounds ($626.72 million) with Royal Bank of Scotland, according to people close to the investigation. * John Malone's international cable business Liberty Global Inc has agreed to acquire U.K. cable-television and Internet provider Virgin Media Inc for $16 billion, in a deal that may create a stronger rival to market leader British Sky Broadcasting Group Plc. * Walt Disney Co's net income weakened in the latest quarter, even as revenue grew, reflecting slimmer profits at the movie studio, where home-video titles were less lucrative than those released in the final months of 2011. * Chipotle Mexican Grill Inc and Panera Bread Co have posted solid results even as traditional fast-food chains like McDonald's Corp and Yum Brands Inc are struggling with waning consumer confidence. FT John Malone's Liberty Global Inc struck a deal to buy British cable group Virgin Media for $23.3 billion in a cash and stock deal, a move that would put the U.S. billionaire up against old rival Rupert Murdoch. Michael Dell struck a deal to take Dell Inc private for $24.4 billion in the biggest leveraged buyout since the financial crisis, partnering with the Silver Lake private equity firm and Microsoft Corp to try to turn around the struggling computer company without Wall Street scrutiny. Business secretary Vince Cable is expected to revive a radical plan to return state-owned Royal Bank of Scotland to private sector hands by distributing free shares to the public. BP Plc is facing demands of more than $34 billion in damages from states and local government in the United States over its 2010 Deepwater Horizon disaster. The claims could significantly increase its potential bill for the Gulf of Mexico spill. Swiss bank UBS said it was cutting bonus payments to its staff in a move to appease regulators and investors and recoup a large part of its $1.5 billion Libor fine. Boeing said it sought permission from U.S. aviation authorities to start test flights of its 787 Dreamliner jet as part of its effort to identify the cause of battery failures that forced the plane to be grounded. European aerospace and defence company EADS plans to bring an American on its board for the first time as the company plans to boost its credentials in the lucrative US market. The Airbus parent has nominated Ralph Crosby, a former executive at Northrop Grumman, to join its board. Jim O'Neill, chairman of Goldman Sachs' asset-management division and the man who coined the acronym 'BRIC', will retire from the bank later this year. NYT * Court documents offer a look at the inner workings of Standard and Poor's, which the U.S. government says inflated credit ratings with dire consequences for the entire economy. * Dell Inc, seeking to revive itself after years of decline, said on Tuesday it had agreed to go private in a deal led by its founder and the investment firm Silver Lake. * U.S. President Barack Obama on Tuesday called on Congress to quickly pass a new package of limited spending cuts and tax increases to head off substantial across-the-board reductions to domestic and military spending set to begin on March 1, but his appeal for more revenue was dismissed by Republicans. * Liberty Global Inc, the international cable company owned by American billionaire John Malone, agreed on Tuesday to buy the British cable company Virgin Media Inc for about $16 billion. * Law firm Debevoise & Plimpton's move to get out of the estate-planning business comes as the legal industry continues to emphasize more profitable practices. * Twitter confirmed on Tuesday that it was acquiring Bluefin Labs, a company that analyzes online chatter about TV shows and companies and sells its findings. * Jim O'Neill, the economist who a decade ago coined the term "BRICs" - the acronym for the emerging growth economies in Brazil, Russia, India and China - plans to retire from Goldman Sachs Group Inc later this year, the firm announced on Tuesday. Canada THE GLOBE AND MAIL * The Canadian government is prepared to knock holes in the hefty tariff walls shielding dairy producers from foreign competition and admit more European cheese into the country in return for greater access to EU markets for Canada's beef and pork. * The Conservative government is preparing to commit long-term cash for infrastructure in its 2013 budget in an effort to squeeze more projects - including partnerships with the private sector - out of limited public funds. Reports in the business section: * Suncor Energy Inc has taken a writedown of nearly C$1.5 billion on its Voyageur project, a massive oil sands plant that is now at serious risk of cancellation. * Kathleen Taylor spent years preparing for the top job at Four Seasons Hotels Ltd, but the company said on Tuesday that she will be replaced only three years after she finally sat down in the corner office. NATIONAL POST * Prime Minister Stephen Harper would seek a constitutional amendment to give the House of Commons primacy over any future elected Senate, said Harper's point-person on reform in the Senate. FINANCIAL POST * Car loans drove Canadians to record debt in the fourth quarter of 2012 as the pace of consumer borrowing began to pick up after a brief lull, according to a survey released on Tuesday. China CHINA SECURITIES JOURNAL -- Top Chinese steel maker Baoshan Iron & Steel Co said it had so far bought back 424 million shares in response to a regulatory call last year for listed companies to buy back their own shares to support the stock market. CHINA DAILY (www.chinadaily.com.cn) -- Chinese health authorities have launched a campaign to address abusive practices in the country's growing assisted reproductive technology industry. -- Beijing weather authorities have launched a "fireworks index" to inform residents celebrating the upcoming Spring Festival holiday whether conditions are appropriate for setting off fireworks. SHANGHAI DAILY -- Ten people who illegally detained citizens trying to take complaints to the central government have been jailed. The defendants allegedly intercepted people coming to Beijing to complain about land seizures. The practice is believed to be common in China, the report said. -- Clothing retailer H&M has been fined by the Shanghai city market watchdog for selling substandard shoes. PEOPLE'S DAILY -- China will announce the names of the 10 most polluted cities in the country every month, said Wu Xiaoqing, vice minister of environmental protection. Fly On The Wall 7:00 AM Market Snapshot ANALYST RESEARCH Upgrades Allergan (AGN) upgraded to Outperform from Market Perform at JMP SecuritiesCarlyle Group (CG) upgraded to Buy from Neutral at CitigroupDell (DELL) upgraded to Neutral from Sell at CitigroupExpress (EXPR) upgraded to Overweight from Neutral at JPMorganGannett (GCI) upgraded to Buy from Neutral at CitigroupMarsh & McLennan (MMC) upgraded to Buy from Neutral at Goldman Downgrades Arch Coal (ACI) downgraded to Neutral from Overweight at JPMorganAshford Hospitality (AHT) downgraded to Neutral from Outperform at RW BairdC.H. Robinson (CHRW) downgraded to Underperform from Buy at BofA/MerrillCentene (CNC) downgraded to Neutral from Buy at CitigroupCharter (CHTR) downgraded to Market Perform from Outperform at Raymond JamesExpedia (EXPE) downgraded to Sector Perform from Outperform at RBC CapitalHologic (HOLX) downgraded to Neutral from Buy at BofA/MerrillIntercontinental Hotels (IHG) downgraded to Neutral from Outperform at RW BairdMarcus (MCS) downgraded to Neutral from Outperform at RW BairdMcClatchy (MNI) downgraded to Neutral from Buy at CitigroupMinerals Technologies (MTX) downgraded to Neutral from Overweight at JPMorganPebblebrook Hotel (PEB) downgraded to Neutral from Outperform at RW BairdSandRidge Permian Trust (PER) downgraded to Sector Perform at RBC CapitalSilgan Holdings (SLGN) downgraded to Neutral from Buy at CitigroupSirius XM (SIRI) downgraded to Neutral from Outperform at MacquarieSohu.com (SOHU) downgraded to Neutral from Outperform at MacquarieTrimble Navigation (TRMB) downgraded to Neutral from Overweight at JPMorganValidus (VR) downgraded to Neutral from Conviction Buy at GoldmanVascular Solutions (VASC) downgraded to Hold from Buy at Benchmark Co. Initiations Advanced Energy (AEIS) initiated with a Buy at CitigroupFinish Line (FINL) initiated with a Neutral at RW BairdFirst Solar (FSLR) initiated with a Buy at CitigroupFoot Locker (FL) initiated with an Outperform at RW BairdGlobal Eagle (ENT) initiated with an Overweight at Piper JaffrayMEMC Electronic (WFR) initiated with a Buy at CitigroupSunPower (SPWR) initiated with a Buy, added to Top Picks Live at CitigroupSuntech (STP) initiated with a Sell at CitigroupTesaro (TSRO) initiated with a Buy at Deutsche BankThor Industries (THO) initiated with an Outperform at BMO CapitalTrina Solar (TSL) initiated with a Neutral at CitigroupYingli Green (YGE) initiated with a Neutral at Citigroup HOT STOCKS Liberty Global (LBTYA) to acquire Virgin Media (VMED) for $23.3BSilver Wheaton (SLW) acquired some gold production from two Vale (VALE) mines for $1.9B Biogen (BIIB) to acquire full rights and control of Tysabri from Elan (ELN)Disney (DIS) said confident about FY13, ability to create long-term growthFord (F) announced 900 dealers to be certified to sell plug-in EVs by springHome Depot (HD) to hire 80,000 associates for spring seasonChipotle (CMG): Confident in continued ability to drive sales growth in 2013Sees 2013 comparable restaurant sales flat to low single digits3M Company (MMM) authorized $7.5B share repurchase programMoody's affirmed MetLife's (MET) ratings, long-term ratings' outlook to negativeFitch: Yum! Brands (YUM) ratings not immediately impacted by China weaknessEquity Residential (EQR) sees Q1 FFO 62c-66c, consensus 66cZynga (ZNGA) sees FY13 EBITDA margin 0%-10%Said no full year 2013 year guidance, cites platform transition Netflix (NFLX), Queen Latifah's Flavor Unit Entertainment announced multi-year deal EARNINGS Companies that beat consensus earnings expectations last night and today include:Elan (ELN), W.R. Grace (GRA), KKR Financial (KFN), Horace Mann (HMN), Genworth (GNW), Jive Software (JIVE), Take-Two (TTWO), Hanesbrands (HBI), Panera Bread (PNRA), Hain Celestial (HAIN), Zynga (ZNGA) Companies that missed consensus earnings expectations include:AU Optronics (AUO), C.H. Robinson (CHRW), Stanley Furniture (STLY), Chipotle (CMG), Expedia (EXPE) Companies that matched consensus earnings expectations include:Myriad Genetics (MYGN), Aflac (AFL), Fiserv (FISV), CME Group (CME), Thoratec (THOR) NEWSPAPERS/WEBSITES U.S. stock exchanges, banks, trading firms and mutual funds want the SEC to study the effect of pricing some small stocks in nickels and dimes, rather than in pennies, the Wall Street Journal reportsMicrosoft’s (MSFT) contribution to the Dell (DELL) buyout is a $2B gamble that the software firm can boost up one of its major customers without upsetting all the others, the Wall Street Journal reportsThe Federal Reserve said that one of its internal websites had been briefly breached by hackers, though no critical functions of the U.S. central bank were affected by the intrusion, Reuters reportsSoftbank (SFTBF) will issue $3.2B in corporate bonds, the biggest ever by a non-financial Japanese firm to retail investors, to convert part of the $17.7B in short-term loans used to purchase Sprint Nextel (S) to longer term debt, sources say, Reuters reportsWith Michael Dell’s (DELL) deal to take his company private, he now faces the larger challenge of turning a business falling behind in personal computers into a provider of high-margin cloud-computing tools and services, Bloomberg reportsAutomakers from Ford (F) to Audi (VLKAY) and Jaguar Land Rover (TTM) are using record amounts of aluminum to replace heavier steel, providing relief to producers of the metal facing excess supplies and depressed prices, Bloomberg reports SYNDICATE Boise Cascade (BCC) 11.765M share IPO priced at $21.00Celldex (CLDX) 12M share Secondary priced at $7.50MagnaChip (MX) 5M share Secondary priced at $14.50NCI Building Systems (NCS) files to sell 54.14M shares of common stock for holdersRose Rock Midstream (RRMS) files to sell 2M common units for holdersSilver Bull (SVBL) proposes public offering of unitsTICC Capital (TICC) files to sell 3M shares of common stockWNS Holdings (WNS) files to sell 12.6M ADSs for Warburg Pincus
HISTORICALLY, futures exchanges have been very effective at preventing the failings of individual traders from hurting others. That is one reason why America’s Dodd-Frank law introduced new rules for over-the-counter (OTC) swaps designed to make them more like futures. (“Swap” is a broad term for many types of financial derivatives directly agreed between two parties, including credit default swaps and currency forwards. The most common is the interest rate swap, which allows people to transform floating-rate debt into fixed-rate debt and vice versa.) In particular, policymakers want greater transparency and central counterparty clearing. If swaps are traded on exchanges rather than negotiated bilaterally, regulators and market participants should have an easier time measuring—and containing—systemic risk. (Customers should also get better prices.) Likewise, having a clearinghouse that collects margin and is capitalised by fees from members should make it easier to cancel out positions and minimise counterparty losses in the event of default.*The easiest way to make the swaps markets behave more like the futures markets is to encourage the existing futures exchanges to create products that displace swaps. This “futurisation of swaps” has already started. Back in October, the Intercontinental Exchange (ICE) converted the energy swaps contracts it cleared into futures ...
HISTORICALLY, futures exchanges have been very effective at preventing the failings of individual traders from hurting others. That is one reason why America’s Dodd-Frank law introduced new rules for over-the-counter (OTC) swaps designed to make them more like futures. (“Swap” is a broad term for many types of financial derivatives directly agreed between two parties, including credit default swaps and currency forwards. The most common is the interest rate swap, which allows people to transform floating-rate debt into fixed-rate debt and vice versa.) In particular, policymakers want greater transparency and central counterparty clearing. If swaps are traded on exchanges rather than negotiated bilaterally, regulators and market participants should have an easier time measuring—and containing—systemic risk. (Customers should also get better prices.) Likewise, having a clearinghouse that collects margin and is capitalised by fees from members should make it easier to cancel out positions and minimise counterparty losses in the event of default.*The easiest way to make the swaps markets behave more like the futures markets is to encourage the existing futures exchanges to create products that displace swaps. This “futurisation of swaps” has already started. Back in October, the Intercontinental Exchange (ICE) converted the energy swaps contracts it cleared into futures contracts. That was pretty easy to pull off because both ICE and its traders were already very familiar with commodity futures. In December, the CME Group started offering a more exotic product, the “deliverable interest rate swap future”. Like all futures contracts, the product is a promise by the seller to provide something to the buyer at a fixed point in the future. But instead of wheat or government bonds, sellers of this new contract agree to provide buyers with an interest rate swap, which would presumably have to be acquired from a bank or other swap dealer. ICE plans on releasing a new futures contract in April that would be based on an index of credit default swap (CDS) prices.This process could continue for quite a while. The Bank for International Settlements estimates that the current size of the global OTC swaps market is somewhere between $600 and $700 trillion (in notional terms). For perspective, the World Bank estimates that the combined equity market capitalisation of every listed company on Earth is about $50 trillion. America’s futures markets are about half of that size. The big exchanges therefore stand to gain tremendously from even a relatively small shift towards futures and away from swaps. The incumbents—the big dealer banks and the interdealer brokers—stand to lose out. They, and others with vested interests in the status quo, argue that the rules being written by America’s Commodity Futures Trading Commission (CFTC) are unfairly biased in favour of the futures markets. In an effort to sort out everyone’s views, the CFTC hosted a public roundtable last Thursday. Your correspondent was in attendance.Everyone admitted that the OTC swaps market was insufficiently regulated before the crisis. Some were even willing to admit that certain swaps only existed to get around regulations affecting futures trading.** The debate was whether the regulatory pendulum had swung too far. Those with that view seemed to mostly be concerned with maintaining what they called a “level playing field” between futures and swaps markets. Swaps and futures are supposed to be different products that are treated differently under the law. Therefore, they said, a futures contract that is simply a promise to deliver a swap should be treated like the underlying swap contract, rather than other futures contracts to deliver physical commodities, government bonds, or shares in the S&P 500. The critics worry that the CFTC’s rule-making will stifle competition among swaps trading platforms and clearinghouses. In particular, they are concerned by the fact that margin requirements for futures will be lower than for swaps contracts. Unsurprisingly, the men and women representing the exchanges had little sympathy with the notion of “a level playing field” on which swaps and futures could compete. They argued that futures and swaps operate on two separate “playing fields” that should have distinct rules.The exchanges and those who prefer using futures made some good counterarguments. You might think that a swap by any other name is just as risky but according to Donald Wilson, the founder of the DRW Trading Group, the two products create different risks for clearinghouses. Futures traders keep their cash with futures commission merchants, which act a bit like deposit-taking banks that lack deposit insurance. When a trader blows up, the losses are first absorbed by whatever margin he posted. Then the clearinghouse’s capital absorbs the next batch of losses up to a certain amount. Any remaining losses are distributed to the trader’s FCM, which spreads out the pain to across the other customer accounts. This caps the risk to the clearinghouse by transferring it to the futures traders. By contrast, there are currently no equivalents to FCMs in the swaps markets. This means that the clearinghouses have to absorb a greater share of any loss. Thus, clearinghouses should demand a lower margin for a futures contract than an economically-equivalent swap. If the goal is to protect the clearinghouse from defaulting, the existing differentiation is not unreasonable. Still, it seems easy to imagine scenarios in which “swap futures”, especially futures based on CDS, end up proving far more troublesome than traditional futures contracts.The other interesting question is whether these rules threaten to create a duopoly at the expense of customers. The current plan under America’s Dodd-Frank law is that swaps can be traded across different “swap execution facilities” while being cleared elsewhere, such as at LCH.Clearnet. By contrast, the futures exchanges are vertically integrated. If you buy a Brent oil future from ICE you must clear the trade with them, even though CME offers an economically equivalent product. Regrettably, the CFTC had very few people representing the interests of end users to see how they would be affected by “futurisation” and what they would prefer. Moreover, almost all of those people were narrowly focused on the energy swaps market. But according to the BIS estimates mentioned above, commodity swaps, which include energy as well as other products, have been worth less than half of one percent of the global swaps market since the middle of 2009. Most (77%) swaps are interest rate swaps. The rest are currency swaps (10%), “other” (7%), credit default swaps (4%) and equity derivatives (1%). Many nonfinancial companies use interest rate swaps to transform floating-rate obligations into fixed ones, as do municipalities and other local governments. Pension funds use them to help hedge their long-duration liabilities in lieu of buying bond futures, which require (minimal) margin payments. Others use them to speculate. I wish we had heard more from all of these actors. The energy traders we did hear from were mostly concerned with minimising their margin payments. One woman represented a real estate developer that found interest rate swaps helpful because her firm could use their property as collateral and did not need to post cash margins.At the end of a very long day, I found it very difficult to reach any conclusions. Even after having spent the past few days thinking and writing about it, it still seems very unclear what regulators should be doing. Ultimately, as Ben Bernanke observed more than twenty years ago, the clearinghouse system works in part because the government stands behind them as utilities. They are effectively too big to fail, although their activities seem to be far less corrosive than other financial utilities. Hopefully the “futurisation of swaps” will not change that. *Many swaps were already cleared before the crisis. At the time of its bankruptcy, Lehman Brothers had more than 66,000 interest rate swaps outstanding, for a total notional exposure of $9 trillion. This led some people to worry that Lehman’s postions could not be unwound without enormous losses that would cascade throughout the financial system. As it turned out, this fear was misplaced. LCH.Clearnet, the clearinghouse, rapidly netted out and liquidated Lehman’s entire interest rate swap portfolio without imposing losses on any counterparties.**The best examples of this are in the world of commodity swaps. Commodity futures trading is regulated, with limits imposed on market participants based on whether they are a producer, a “hedger” (i.e., an actual consumer of raw commodities), or a speculator (everyone else). Speculators can get around these position limits by going to dealer banks and purchasing an equivalent exposure through a swap. The banks can then buy or sell the commodity futures on behalf of their speculator clients by claiming that they have a legitimate to need to “hedge” their commodity exposure—even though this exposure only exists because the banks sold the speculators a swap to get around the position limits on futures trading. Tellingly, the volume of commodity swaps surged during the bull market before the crisis but has been much lower since then. Similar patterns are not obvious in the interest rate, currency, or equity swap markets. This is not to say that all commodity swaps are examples of regulatory arbitrage, but some of them clearly are.
Today is Tim Geithner's last day as Treasury Secretary. Below are some quotes from various exit interviews and recaps conducted with the former NY Fed president. We provide our succinct annotations to some of his answers. On the bank bailout: “To save an economy from a failing financial system, you have to do things that are going to be fundamentally impossible to explain to people,” Geithner said. “You’re going to look like you’re giving money to people who were responsible for burning down the economy.” He is correct - the people who "burned down the economy" have received over $2 trillion in money since the great financial crisis began courtesy of the Fed... ... and continue to receive $85 billion each month in gratitude for their hard work: * * * “F--- the banks,”: One episode recalls how Geithner, widely thought to be a friend of the financial industry, reacted to concerns of banks protesting Obama’s push for new rules for Wall Street. “F--- the banks,” he said, according to people familiar with the episode. Another solid dose of the hypocrisy we have all grown to love and expect coming from the man who purposefully leaked material, non-public information to the banks ahead of the critical August 2007 Fed action, upon which the banks subsequently acted as we first reported: MR. LACKER. If I could just follow up on that, Mr. Chairman. CHAIRMAN BERNANKE. Yes, go ahead. MR. LACKER. Vice Chairman Geithner, did you say that [the banks] are unaware of what we’re considering or what we might be doing with the discount rate? VICE CHAIRMAN GEITHNER. Yes. MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that. CHAIRMAN BERNANKE. Okay. Thank you. Go ahead, Vice Chairman Geithner. VICE CHAIRMAN GEITHNER. Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System—what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about. F--- the banks indeed... But not before we give them a few [_]illion dollars in funding. * * * On rewriting the nation’s financial rules: Early in the process, during a meeting with Obama at the White House, Jamie Dimon, the chief of executive of JPMorgan Chase, made an offer to come with other bankers to Treasury to help develop the broad framework for how to tighten oversight of Wall Street. Geithner declined. Dimon followed up. Geithner declined again. Dimon grew frustrated and complained personally to Obama and others in the White House that Geithner was being unhelpful, according to people familiar with the matter. “Whiners”: To his colleagues, the Treasury secretary described bankers who relentlessly protested the new regulations as “whiners” and, in routine meetings with top chief executives held at the Willard Intercontinental Hotel, he often told them they should stop fighting regulation. That at least is the spin. Here are the facts as presented by Dallas Fed president Dick Fisher: As of third quarter 2012, there were approximately 5,600 commercial banking organizations in the U.S. The bulk of these—roughly 5,500—were community banks with assets of less than $10 billion. These community-focused organizations accounted for 98.6 percent of all banks but only 12 percent of total industry assets. Another group numbering nearly 70 banking organizations—with assets of between $10 billion and $250 billion—accounted for 1.2 percent of banks, while controlling 19 percent of industry assets. The remaining group, the megabanks—with assets of between $250 billion and $2.3 trillion—was made up of a mere 12 institutions. These dozen behemoths accounted for roughly 0.2 percent of all banks, but they held 69 percent of industry assets. In simple terms: total bank assets: $13 trillion; 69% of that is $9 trillion. So 12 banks, among which the very much "complaining" Jamie Dimon, and other "whiners" control $9 trillion. And that is how TBTF became TBTFest. But at least they are whining. * * * And last but not least: What’s next? “I have no idea what I’m going to do,” Geithner said. “For all my professional life, I’ve made basically one choice about what kind of work I want to do. And the reasons that led me to that are very powerful and are very enduring.” Will Geithner be the next Fed chairman: “Not a chance,” he said. “I have great respect for the institution, but that will be someone else's privilege.” Instead of commenting, we will merely post Geithner's assessment of America's downgrade risk 4 months before it was downgraded. Sources: Washington Post, Politico * * *