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(BN) Trichet Draws ECB ‘Bazooka’ to Stop Debt Crisis Spreading to Italy, Spain

Bloomberg News, sent from my iPad.

Trichet Draws ECB 'Bazooka' to Stem Italian, Spanish Contagion

Aug. 8 (Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled he's ready to start buying Italian and Spanish bonds in his riskiest attempt yet to tame the sovereign debt crisis.

In a statement issued in the name of the ECB president after an emergency Governing Council conference call last night, the Frankfurt-based central bank welcomed Italy and Spain's efforts to reduce their budget deficits and said it will "actively implement" its bond-purchase program. It also called on all euro-area governments to follow through on the measures they agreed to July 21, including allowing the European Financial Stability Facility to purchase bonds on the secondary market.

With governments failing to act swiftly enough to stop contagion, it has fallen to the ECB to battle a crisis that's threatening the survival of the euro. Buying Italian and Spanish debt may require the ECB to massively expand its balance sheet and open it to accusations of bailing out profligate nations, breaching a key principle in the euro zone's founding treaty. Germany's Bundesbank opposes the move.

"The ECB is once again intervening as the last line of defense," said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. "The intervention will put a halt to the bond-market crash that some member states faced. It will in our view bring an immediate tightening in Spanish and Italian bond spreads of the order of 100 to 150 basis points."

Euro-era Records

Italian and Spanish 10-year yields closed on Friday at 6.08 percent and 6.03 percent respectively. Both reached euro-era records earlier in the week. Italy has 1.8 trillion euros ($2.6 trillion) in outstanding debt.

The euro traded at $1.4326 at 8 a.m. in Tokyo, up from $1.4277 at the close of European trading on Friday.

ECB policy makers were forced to step up their response to the debt crisis after a failure to enter the Italian and Spanish bond markets last week helped fuel a global rout.

"It looks like the ECB has decided to bring out the bazooka," said Douglas Borthwick, head of foreign-exchange trading at Stamford, Connecticut-based Faros Trading.

Fears of a further slump when markets open today were compounded by Standard & Poor's decision on Friday to strip the U.S. of its AAA credit rating for the first time.

S&P 500 Index stock futures expiring in September declined 2.5 percent to 1,167.4 at 7:26 a.m. in Tokyo. Group of Seven finance chiefs, including U.S. Treasury Secretary Timothy Geithner, were set to confer late last night European time.

Bailouts

Since starting its bond purchases in May last year, the ECB has bought about 74 billion euros of assets to help stabilize Greek, Irish and Portuguese markets -- the three countries of the euro area to have received bailouts from the European Union and International Monetary Fund.

Four months ago, the ECB ceased bond purchases and put the onus on governments to find a solution to the debt crisis as it turned its attention to raising interest rates to curb inflation. Now it finds itself once again in vanguard.

Because the ECB will have to spend considerably more to have an impact on the bond markets of the euro area's third- and fourth-largest economies, it may not be able to continue to sterilize its purchases by absorbing the equivalent amount from banks via term deposits, said Carsten Brzeski, senior economist at ING Belgium in Brussels.

That would amount to swelling the money supply, or quantitative easing, which may in turn fuel inflation.

'Last Principle'

"I don't think that very large volumes -- like 50 billion a week -- can be sterilized," Brzeski said. "Then they risk throwing their very last principle overboard."

The ECB, which is also lending banks unlimited amounts of cash at its benchmark rate of 1.5 percent, has always said its so-called non-standard measures are temporary.

Last night it reiterated that the bond program aims to help restore "a better transmission of our monetary policy" and "therefore to ensure price stability in the euro area."

Cailloux said he expects the ECB to buy on average around 2.5 billion euros of bonds a day, which would amount to about 600 billion euros if maintained over a year. While the ECB may be playing for time until the EFSF is ready to take over bond purchases, between them they may be forced to hold "close to half of the traded Italian and Spanish debt, or around 850 billion euros," Cailloux said.

In a joint statement yesterday, French President Nicolas Sarkozy and German Chancellor Angela Merkel called Italy's decision to balance its budget in 2013, a year ahead of schedule, of "fundamental importance." They also called for their parliaments to approve the strengthening of the EFSF by the end of September.

To contact the reporters on this story: Matthew Brockett in Frankfurt at mbrockett1@bloomberg.net Jeffrey Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Best Regards,

Christopher Tahir

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PS. Please forgive me for any mis-typing in the e-mail...:)

Sunday, 7 August 2011

Outlook for this week

After US debt rating was downgraded after market closed last Friday (Saturday in Asia) by S&P to AA+ from AAA, we still can't see the market reaction toward this downgrade, but we can see that Tel Aviv Stock Exchange has plunged >6%.

In my opinion this can't reflect our market for the upcoming week, but this can be a warning for us by now. From the global sentiment, the news are almost all bearish, but the data came out on Friday was bull data. We're digesting what will it be.

Let's see the Dow 1st. In the chart of Dow, we can see that August is a bad month that can be said as one of the worst month. We can see that in the Seasonality Index averagely in 40 years, Dow has August as it's bottom, so if August is dropping should be a fair thing. Overall Dow doesn't seem good in the current state. As we can see that the MACD weighted has just dead crossed and also the Stochastic has moved downward broken the 80 level. Yet the candle is showing no bull power at all as there are 4 blacks. Based on the Seasonality Index chart we can see that there's still a chance of plunging as the bottom might not achieved yet. The index has broken the uptrend line, which is not good for the medium term. See the chart.

That's Dow, back to Indonesia, which has a better future outlook and the higher possibility of gaining investment grade by the rating agencies, with a better economic, cultural outlook, and also higher yield of investment, Indonesia will be a better investment target.

Technically, we can see that our index is still performing better and can be said best among all indices in the world as we are still scoring positive year-to-date. Our chart is still showing positive movement of our index, well, this is undeniable that our index is still in bull mode but flattened by the bad global issues. Well, stochastic is still above 80 line which shows the strength of JKSE, Yet seasonality index of JKSE shows that JKSE has its bottom at July and September not August, and the good news is, we are still on track of the bull.

What I can suggest is trade wise not wasting any penny of yours...

Happy weekend...

Happy Investing^^

Disclaimer ON!!!

Saturday, 6 August 2011

(BN) U.S. Loses AAA Credit Rating as S&P Slams Debt levels, Political Process

Bloomberg News, sent from my iPad.

U.S. Loses AAA Rating at S&P on Concern Spending Cuts Deficient

Aug. 6 (Bloomberg) -- Standard & Poor's downgraded the U.S.'s AAA credit rating for the first time, slamming the nation's political process and criticizing lawmakers for failing to cut spending enough to reduce record budget deficits.

S&P lowered the U.S. one level to AA+ while keeping the outlook at "negative" as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or "new fiscal pressures" result in higher general government debt, the New York-based firm said yesterday.

Lawmakers agreed on Aug. 2 to raise the nation's $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred. Even with the specter of a downgrade, demand for Treasuries surged as investors saw few alternatives amid concern global growth is slowing and Europe's sovereign debt crisis is spreading.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement late yesterday after markets closed.

U.S. Response

The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm's analysis contains a $2 trillion error. The spokesman, who asked not to be identified by name, didn't elaborate, saying the mistake speaks for itself.

Moody's Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody's and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

"This move should not be much of a surprise to markets, though the timing is at a point where market sentiment is fragile after the drop in stocks this week," said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York. "What really matters is whether the markets are willing to 'downgrade' the U.S. bond market. As this week's move showed, U.S. Treasuries remain the flight-to-quality asset of choice."

S&P's action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation's borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest expense in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.

'Fiscal House'

"It's a reflection of the fact that we haven't done enough to get our fiscal house in the order," Anthony Valeri, market strategist in San Diego at LPL Financial, which oversees $340 billion, said in an interview before the cut. "Sovereign credit quality is going to remain under pressure for years to come."

The agreement between Republicans and Democrats raised the nation's debt ceiling until 2013 and threatens automatic spending cuts to enforce the $2.4 trillion in spending reductions over the next 10 years.

Even with the accord, S&P said the U.S.'s debt may rise to 74 percent of gross domestic product by year-end, to 79 percent in 2015 and 85 percent by 2021.

S&P also changed its assumption that the 2001 and 2003 tax cuts enacted under President George W. Bush would expire by the end of 2012 "because the majority of Republicans in Congress continue to resist any measure that would raise revenues."

American Policymaking

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating," S&P said.

S&P put the U.S. government on notice on April 18 that it risks losing the AAA rating it has had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.

"There was still a very narrow cross section of common ground between the parties and we don't think that this agreement really changes that equation," David Beers, a managing director of sovereign credit ratings at S&P said in a Bloomberg Television interview.

Capital Weightings

The treatment of Treasuries and other securities backed by the U.S. in terms of risk-based capital weightings for banks, savings associations, credit unions and bank and savings and loan companies won't change, the Federal Reserve and bank regulators said in a statement following the downgrade.

Obama has said a rating cut may hurt the broader economy by increasing consumer borrowing costs tied to Treasury rates. An increase in Treasury yields of 50 basis points would reduce U.S. economic growth by about 0.4 percentage points, JPMorgan said in a report, citing Fed research and data.

"The minute you start downgrading away from AAA, you take small steps toward credit risk and that is something any country would like to avoid," Mohamed El-Erian, chief executive and co- chief investment officer at Pacific Investment Management Co., said in a Bloomberg Television interview before the announcement.

Ten-year Treasury yields fell to as low as 2.33 percent in New York yesterday, the least since October. Yields for the nine sovereign borrowers that have lost their AAA ratings since 1998 rose an average of two basis points in the following week, according to JPMorgan.

Treasury Yields

Treasury yields average about 0.70 percentage point less than the rest of the world's sovereign debt markets, Bank of America Merrill Lynch indexes show. The difference has expanded from 0.15 percentage point in January.

Investors from China to the U.K. are lending money to the U.S. government for a decade at the lowest rates of the year. For many of them, there are few alternatives outside the U.S., no matter what its credit rating.

"Yields are low in the face of a downgrade because there is nowhere else for people to go if they don't buy Treasuries because they want to be in safe dollar assets," Carl Lantz, head of interest-rate strategy at Credit Suisse Group AG, one of 20 primary dealers that trade directly with the Fed, said before the announcement.

Bond Dealers

The committee of bond dealers and investors that advises the U.S. Treasury said the dollar's status as the world's reserve currency "appears to be slipping" in quarterly feedback presented to the government on Aug. 3.

"The idea of a reserve currency is that it is built on strength, not typically that it is 'best among poor choices'," page 35 of the presentation made by one member of the Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Pimco. "The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate."

Members of the TBAC, as the committee is known, which met Aug. 2 in Washington, also discussed the implications of a downgrade of the U.S. sovereign credit rating. "None of the members thought that a downgrade was imminent," according to minutes of the meeting released by the Treasury.

Remaining AAAs

S&P gives 18 sovereign entities its top ranking, including Australia, Hong Kong and the Isle of Man, according to a July report. The U.K. which is estimated to have debt to GDP this year of 80 percent, 6 percentage points higher than the U.S., also has the top credit grade. In contrast with the U.S., its net public debt is forecast to decline either before or by 2015, S&P in the statement yesterday.

A U.S. credit-rating cut would likely raise the nation's borrowing costs by increasing Treasury yields by 60 basis points to 70 basis points over the "medium term," JPMorgan's Terry Belton said on a July 26 conference call hosted by the Securities Industry and Financial Markets Association.

"That impact on Treasury rates is significant," Belton, global head of fixed-income strategy at JPMorgan, said during the call. "That $100 billion a year is money being used for higher interest rates and that's money being taken away from other goods and services."

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Best Regards,

Christopher Tahir

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PS. Please forgive me for any mis-typing in the e-mail...:)

Thursday, 4 August 2011

(BN) Stocks in U.S. Rise Amid Bets on More Fed Stimulus; Treasuries Pare Gains

Bloomberg News, sent from my iPad.

U.S. Stocks Rise on Bets of More Stimulus; Treasuries Pare Gains

Aug. 3 (Bloomberg) -- U.S. stocks rose, reversing earlier losses and preventing the longest Dow Jones Industrial Average slump since 1978, as investors speculated the Federal Reserve will start another stimulus program. Treasuries 10-year notes erased gains, and the dollar slid.

The Dow halted an eight-day drop, gaining 29.82 points to 11,896.44 at 4 p.m. in New York. The S&P 500 rose 0.5 percent, rebounding after yesterday's plunge drove it to the cheapest price-earnings ratio in more than a year. Ten-year Treasury yields rose one basis point to 2.62 percent. Oil slid to a five- week low following government data showing an increase in stockpiles. The franc fell from a record versus the euro and dollar after Switzerland reduced interest rates.

Speculation the Fed will embark on a third round of asset purchases to stem off a recession grew after the Wall Street Journal said three former central bank officials support the approach. More than $2.3 trillion had been erased from the value of global equities since July 22, and Treasury yields set 2011 lows, amid concern the economic recovery is faltering. Service industries grew in July at the slowest pace since February 2010, the Institute for Supply Management said today.

"Every time we see economic weakness, there will be discussion about more economic stimulus," Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in telephone interview. "That could be the case given the fairly weak economic figures we've had. In addition, the market has given back a lot recently and people started to look at some bargains."

Dow Movers

Coca-Cola Co., General Electric Co. and Walt Disney Co. rose more than 1.2 percent to help lead gains in the Dow, which reversed a loss of as much as 166 points. MasterCard Inc., the second-biggest payments network, advanced 13 percent for the biggest gain in the S&P 500 after profit rose 33 percent as customers' spending increased.

Concern about weakening economic data has overshadowed an earnings season that has seen per-share profits grow 17 percent and sales increase 13 percent at companies in the S&P 500 that reported second-quarter results since July 11. Earnings per share have topped analysts estimates at about three-quarters of the 363 companies that have reported, Bloomberg data shows.

The 8 percent slide in the S&P 500 from a three-year high in April through yesterday brought the index's price- to- earnings ratio to 13.8, the cheapest since July 2010 and near the lowest valuation since the bull market began in 2009.

The retreat is no reason to sell stocks, investors including Laszlo Birinyi and Barton Biggs said. Data from Birinyi's firm, Birinyi Associates Inc., shows the current bull market in stocks may last until 2013 based on the length of past advances.

'Strong Rally'

"We are going to have a strong rally out of this position," Biggs, who helps manage $1.4 billion in assets as managing partner and co-founder of Traxis Partners LP, said in a Bloomberg Television interview before markets opened today. He added that politicians had handled the debt-ceiling debate "poorly" and as a result dollar-denominated assets are "tremendously cheap."

Stocks recovered after the Wall Street Journal reported that former Fed officials Donald Kohn, Vincent Reinhart and Brian Madigan said the central bank should consider a third round of bond purchases to help the economy.

Pacific Investment Management Co. and BlackRock Inc., which together oversee almost $5 trillion, say the U.S. economy is stalling. Bill Gross, who runs the world's biggest bond fund at Pimco, and Peter Fisher, head of fixed income at BlackRock, say the Fed is preparing measures to counter the slowdown.

Quantitative Easing

The Fed may arrange a third round of quantitative easing, known as QE3, Gross said. The central bank purchased bonds to cap borrowing costs in the first two easing efforts. The Fed has also promised to keep the target for overnight bank lending low for an "extended period." The Fed may need to consider signaling an even longer commitment to low interest rates, according to BlackRock's Fisher, who is based in New York.

"I believe the Fed is dusting off contingency plans if the economy does not improve," he said in a report that BlackRock distributed by e-mail today. Fisher worked for 15 years at the Fed Bank of New York, according to BlackRock, which has $3.66 trillion in assets.

The S&P 500 sank 3.9 percent last week, its worst drop in a year, after government data showed U.S. gross domestic product expanded at a 1.3 percent annual rate in the second quarter and a 0.4 percent pace in the prior period, the worst six months since the recovery began in June 2009.

Five Straight Declines

Thirty-year Treasury bond yields decreased for a fifth straight day, losing one basis points to 3.90 percent, the lowest end-of-day level since October. The yield, which sank to as little as 3.79 percent today, reached a record low 2.5 percent on Dec. 18, 2008, amid the worst economy since World War II, credit-market losses exceeding $1 trillion and the biggest drop in the S&P 500 since 1931.

Investors are also awaiting a government employment report in two days, which economists forecast will show the U.S. added a net 85,000 jobs last month including a 115,000 boost to private-sector employment. A private payroll survey by ADP Employer Services today showed U.S. companies added 114,000 workers in July, topping the median forecast of economists surveyed by Bloomberg News for an increase of 100,000.

Almost eight stocks fell for every one that gained in the Stoxx Europe 600 Index. Societe Generale SA slid 9 percent as France's second-largest bank said it may miss its 2012 earnings target after second-quarter profit fell.

Franc Declines

The franc depreciated 1.7 percent to 90.80 euro cents after strengthening to a record yesterday as investors pursued assets considered to be the safest. The franc weakened 0.9 percent from an all-time high versus the dollar.

The Swiss National Bank lowered its target for the three- month Libor to "as close to zero as possible" from 0.25 percent. The Zurich-based central bank said it will also expand banks' sight deposits, or cash which can be withdrawn on demand, to 80 billion Swiss francs ($103 billion) from 30 billion francs and repurchase outstanding SNB Bills, according to a statement today.

Oil fell 2 percent to $91.93 a barrel on the New York Mercantile Exchange. The S&P GSCI index of 24 commodities dropped 1.8 percent, the sixth straight decline and the longest losing streak since May 2010. Gold futures rose 1.3 percent to a record $1,675.90 an ounce.

The MSCI Emerging Markets Index of stocks sank 2.2 percent, set for the lowest close in more than a month. South Korea's Kospi Index slumped 2.6 percent, completing its largest two-day plunge since November 2009

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Best Regards,

Christopher Tahir