Must-Know News - Feb. 08

• 1) Corporate Bond Spreads Rise Most Since November: Credit Markets

“Feb. 8 (Bloomberg) — Corporate borrowing costs are rising at the fastest pace in more than two months on concern that worsening government finances will slow the global economy and make it harder for companies to meet debt payments.

The extra yield investors demand to own corporate bonds instead of government securities widened 4 basis points last week to 169 basis points, the most since the period ended Nov. 27, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. Spreads widened for three weeks, the longest stretch in about a year, while those for U.S. high- yield, high-risk companies expanded by the most since August.

Optimism over the recovering economy that made January the best start to a year since 2001 for the corporate bond market is fading as finances in Greece, Spain and Portugal deteriorate, Japan struggles to emerge from recession and concerns grow that emerging-market valuations are too high. ”

• 2) Weak Dollar Illusory as Correlated Trade Shows Gains Since 1975

“Measured against a basket of currencies from the Group of 10 nations proportioned by how they trade against each other, the greenback is up about 3 percent since 1975, according to Bloomberg Correlation-Weighted Currency Indexes.”

…………………2A) Price of gold in 1975 (Kitco chart)

• 3) No Job Growth for Small Business Spurs Recovery Doubt

“Feb. 8 (Bloomberg) — Small businesses are becoming the Achilles heel of the U.S. recovery by limiting growth and job creation.

Companies with fewer than 500 employees, such as Phoenix Technologies Ltd. and Sonic Corp., helped lead the economy out of the four recessions since 1980. This time, they continue to cut capital spending and dismiss workers, eliminating 3,000 jobs in January, according to Roseland, New Jersey-based Automatic Data Processing Inc., the world’s largest payroll processor. ”

• 4) Dollar climbs as debt concerns linger (MarketWatch)

“The escalating debt crisis in Europe, particularly that latest news on Portugal and Spain following down the path of Greece to possible national bankruptcy, has spooked global markets, including obviously Asian equity and global currency markets,” said Martin Hennecke, an associate director at Tyche Group Ltd. in Hong Kong.

“While currency movements in the short term are hard to predict, the medium- to long-term prospects of the major Western currencies of the euro, USD [U.S. dollar], and GBP {British pound] are all very dire, since the respective countries behind these currencies have basically lost control of their budget deficits to the point where printing money … will be their only option to escape the debt trap and national bankruptcy,” he said.

Given that, Hennecke said Tyche Group generally prefers Asian currencies over the euro, U.S. dollar and British pound - “or, even better, gold and silver.” ”

• 5) Tuition soars as students face tough financial times (Opinion)

“Tuition at state colleges is jumping another 14 percent. At the University of Washington, tuition and fees are expected to pass $9,000 by the 2010-11 school year.

In our state, the tuition increases may also be combined with cuts in available financial aid.

The College Board, a not-for-profit membership association that oversees the SATs and Advanced Placement tests, says families nationwide are paying from $172 to $1,096 more in tuition and fees this school year.

That brings the national average for tuition for 2009-10 to $7,020, not including room and board.

In Pullman last week, more than 100 students attended a rally to protest tuition increases and budget cuts. In California, tuition increases of more than 30 percent have sparked protests said to be reminiscent of the 1960s.

Average tuition at private colleges rose 4.4 percent, up $1,096 to $26,273, according to the board.”

• 6) Pension funds down by US$1.5t since January market peak

“Assets drop back to 2006 levels, which works out to zero growth over 4 years

By NEIL BEHRMANN

IN LONDON

GLOBAL pensions have lost an estimated US$1 trillion to US$1.5 trillion since global equity markets peaked in early January.

The downturn, following the pension management crowd’s bullish outlook in early January, has jolted pension trustees and investment managers.”

(If the above link doesn’t work try this one)

• 7) L.A. Tests Investors’ Deficit Aversion With $1.8 Billion Issue

“Voters in Los Angeles, which faces a $212 million deficit this fiscal year, have authorized the sale of $20 billion of school bonds since 1997, half of which have already been issued, according to a preliminary statement for the securities dated Feb. 3. That, coupled with $8 billion of state matching funds, brings the total size of the district’s construction and remodeling plans, involving 131 new schools, to $28 billion.

The bonds will be priced Feb. 17 and 18, according to Jean Marie Buckley, whose Sausalito, California-based Tamalpais Advisors Inc. is the district’s financial adviser.”

• 8) With Federal Stimulus Money Gone, Many Schools Face Budget Gaps

“Federal stimulus money has helped avoid drastic cuts at public schools in most parts of the nation, at least so far. But with the federal money running out, many of the nation’s schools are approaching what officials are calling a “funding cliff.”

Congress included about $100 billion for education in the stimulus law last year to cushion the recession’s impact on schools and to help fuel an economic recovery. New studies show that many states will spend all or nearly all that is left between now and the end of this school term.

With state and local tax revenues still in decline, the end of the federal money will leave big holes in education budgets from Massachusetts and Florida to California and Washington, experts said.

“States are going to face a huge problem because they’ll have to find some way to replace these billions, either with cuts to their K-12 systems or by finding alternative revenues,” said Bruce Baker, an education professor at Rutgers University. ”

• 9) Record India Share Sales May Falter as NTPC Shunned

“Feb. 8 (Bloomberg) — India’s drive to sell a record 250 billion rupees ($5.4 billion) of shares in state-owned companies to plug a deficit in government revenue may fall short after foreign investors shunned the year’s biggest offering amid a stock market slump.

Investors overseas accounted for only 4.1 percent of the bids by funds for NTPC Ltd., India’s biggest utility, in a sale that closed Feb. 5. ”

• 10) Citi in talks over $3 billion in car loans: report

“PHILADELPHIA (Reuters) - Citigroup Inc <C.N> has held talks with private equity groups and hedge funds over the sale of $3 billion in car loans in a move to clear troubled assets from its balance sheet, according to a report by the Financial Times. ”

• 11) Rendell may suggest revisions to state sales tax (Pennsylvania)

“HARRISBURG — State officials have been talking for months about a huge, looming financial problem regarding how to pay for increased pensions of retired state employees and public school teachers.

The unfunded pension costs will likely be in the range of $3 billion to $5 billion once the crisis hits in 2012, Gov. Ed Rendell has estimated.

Now the governor, even though he leaves office in January 2011, is developing a plan to try to resolve the pension funding crisis, a plan that involves major changes in the state’s sales tax, the Pittsburgh Post-Gazette has learned.

Mr. Rendell is expected to mention the pension crisis and his proposed solution on Tuesday, when he proposes a fiscal 2010-11 budget. But the sales tax changes, which would have to be approved by the Legislature, wouldn’t be used to pay for the next budget but to fund the looming pension costs, the newspaper has learned.”

• 12) China Agrees to Purchase Output and Help Finance $8 Billion Coal Project (Australia)

“CANBERRA, Australia—Resourcehouse Ltd. said it signed a US$60 billion, 20-year export contract with one of China’s largest power companies in a deal that brings a massive coal mine proposed by Australian billionaire Clive Palmer a step closer to reality and underscores the growing commercial relationship between Australia and China. ”

“China is the world’s largest producer and user of coal, and last year became a net importer of the fuel, which provides two-thirds of its energy needs.

Australia already is the largest supplier of coal to China. Of the 125.8 million tons of coal imported by China last year, 43.9 million came from Australia. ”

• 13) Governor plans emergency address on Nevada budget

“CARSON CITY (AP) — Nevada’s budget is so far out of balance that by one account the state could lay off every worker paid from the general fund and still be $300 million in the red. The economic downturn has hit so hard that prisons may be closed, entire colleges shuttered and thousands left without jobs.

Against the backdrop of an imploding economy and an $881 million shortage, Gov. Jim Gibbons will try in an emergency “State of the State” address Monday to explain the depth of the state’s financial crisis and how fixing the gaping hole in the budget.

It won’t be pretty.”

“Nevada is on track to borrow $1 billion from the federal government to meet jobless claims because its unemployment insurance trust fund has gone broke.

“When we lay somebody off, it doesn’t save us very much money,” Hettrick said. “Between that and taking the money out of the economy, it really doesn’t make sense for Nevada to lay off people.”

Still, budget cuts could result in thousands of layoffs with the shock waves reverberating for years.”

• 14) Mortgage Bankers Sell Building at a Loss

“On Friday, CoStar Group Inc., a provider of commercial real estate data, said it had agreed to buy the MBA’s 10-story headquarters building in Washington, D.C., for $41.3 million. That is well below the $79 million the trade group agreed to pay for the glass-walled building in 2007, near the top of the property bubble, while it was still under construction. ”

• 15) Rash of retirements push Social Security to brink (USA Today)

“WASHINGTON — Social Security’s annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.

The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.”

• 16) San Jose city manager, mayor push opposing plans for pension reform

“Connolly said that conflict played out recently when Retirement Director Russell Crosby urged pension trustees to lower the funds’ assumed rates of return, as many other funds have done. Police and fire trustees stuck to their projected 8 percent return, despite objections from the city finance director and council members Sam Liccardo and Rose Herrera, who serve on the board.”

“Employee costs, chiefly for pay and benefits, make up almost three-fourths of the city’s operating expenses and have risen 64 percent since 2000 — more than twice the rate of inflation.

Pension costs alone — particularly for police and firefighters, whose more generous benefits allow them to retire as early as age 50 with up to 90 percent of their pay — have soared 131 percent during that time.

During the recent market crash, the pension funds lost around $1 billion, about a quarter of their total value.

To guarantee it can pay out benefits to current and future retirees, the city most likely will have to boost its $138 million annual contribution to the funds by more than $38 million in the budget year that starts in July.”

• 17) Falling property tax values leave West Michigan cities cash strapped

“GRANDVILLE — Over the past few months, Grandville city officials have braced for the arrival of an “unprecedented” fiscal-year budget with “the biggest deficit we’ve ever faced.” Now, sure enough, the grim reaper is at the door.

About two-thirds of the city’s revenue comes from property taxes and, for the first time in decades, those values are falling.

Grandville is not alone. Kent County’s equalization department reports a 4 percent decline in the tax base this year, a collective loss of $889 million. In Grandville, property assessments will be reduced 5 percent on average to match sale prices.”

• 18) Some cash-strapped states raiding workers comp funds

“The recession is driving some state governments to raid workers compensation funds to combat budget deficits, but employers, risk-sharing pools and insurers are fighting back.”

• 19) Global recession set to cause political instability in 2010

“The knock-on effects of the financial crisis and the deepest global recession in decades continue to be felt across the world, causing political risks to increase in 2010.

That’s the message from Aon at the launch of this year’s edition of its Political Risk Map, which offers a snapshot of the political risk climate across the globe.”

“2010 is likely to witness an increasing risk of non-payment of sovereign debt, exchange transfer restrictions and rising political interference as a result of the growing fallout from the economic crisis, said Aon. ”

• 20) From  Nathan’s Economic Edge

Check out the graph that he posts of Federal Net Outlays.

• 21) Here’s Why The Real Jobs Loss Number Was 5x Worse Than What The BLS Reported

“TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 104,000 jobs in January. Meanwhile, the Bureau of Labor Statistics (BLS) reported the U.S. economy lost 20,000 jobs. We believe the BLS has underestimated January’s results due to problems inherent in their survey techniques.”

(Info was posted by Mish here)

- Saxplayer00o1