SKY News Summary – 12-18-08
Here is a link to key government data sorted by type:
http://www.gpoaccess.gov/indicators/08novbro.html
The U.S. leading index decreased 0.4% according to The Conference Board. “The leading index continued to fall in November, due mainly to large declines in building permits, stock prices, and initial unemployment claims, which offset the continued positive contributions from real money supply (M2) and the yield spread. Without the very large increases in inflation-adjusted money supply since September, the leading index would have been significantly weaker. The six-month change in the leading index has continued to fall — to -2.8 % (a -5.6 % annual rate) in the period through November, down from -0.9 % (a -1.7 % annual rate) during the previous six months. In addition, the weaknesses among the leading indicators have remained widespread in recent months.
http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1
http://www.gpoaccess.gov/usbudget/fy09/browse.html
Below is a link to an address by Már Gudmundsson, Deputy Head of the Monetary and Economic Department of the Bank for International Settlements, at the Financial Technology Congress 2008, Boston, 23 September 2008. The address is entitled, “How might the current financial crisis shape financial sector regulation and structure?”
http://www.bis.org/speeches/sp081119.htm
The Bureau of Economic Analysis’ International Transactions reports were available today. According to the agency, for the 3Q 2008, “the U.S. current-account deficit decreased to $174.1 billion from $180.9 billion in the second quarter. The deficit on goods and services decreased to $176.5 billion from $180.1 billion in the second quarter Goods exports increased to $346.5 billion from $337.3 billion. More than half of the increase was accounted for by a rise in industrial supplies and materials, largely reflecting increases in energy products and in chemicals. Automotive vehicles and parts, capital goods, and consumer goods also increased. Goods imports increased to $561.2 billion from $553.6 billion. The increase was more than accounted for by an increase in petroleum and products. Income receipts on U.S.-owned assets abroad decreased to $193.9 billion from $195.7 billion. The decrease was more than accounted for by a decrease in direct investment receipts. In contrast, “other” private receipts (which
consists of interest and dividends) and U.S. government receipts increased. Income payments on foreign-owned assets in the United States decreased to $161.3 billion from $165.7 billion. The decrease was more than accounted for by decreases in direct investment payments and in U.S. government payments. Net foreign purchases of U.S. Treasury securities were $89.5 billion in the third quarter, up from $65.7 billion in the second. Transactions in U.S. securities other than U.S. Treasury securities shifted to net foreign sales of $89.2 billion in the third quarter from net foreign purchases of $17.1 billion in the second. The shift largely resulted from a shift to net foreign sales of $34.7 billion of U.S. corporate bonds from net foreign purchases of $50.6 billion. In addition, net foreign sales of U.S. federally sponsored agency bonds were $57.0 billion, up from $32.8 billion. In contrast, transactions in U.S. stocks shifted to net foreign purchases of $2.5 billion from net foreign sales of $0.7 billion.” http://www.bea.gov/newsreleases/international/transactions/2008/trans308.htm
The Bureau of Economic Analysis also released its statement of personal income by state for the Third Quarter 2008. “U.S. personal income growth slowed sharply in the third quarter of 2008 with all states except New Jersey and Wyoming sharing in the slowdown, according to statistics released today by the U.S. Bureau of Economic Analysis. U.S. personal income remained unchanged from the second quarter which had been boosted by economic stimulus payments. The third quarter personal income growth was the weakest for the nation since the first quarter of 1994 and contrasts with the 1.6 % increase in the second quarter of 2008. State personal income growth rates in the third quarter ranged from a 1.4 % increase in Wyoming to a 1.6 % decrease in Mississippi.
Inflation, as measured by the national price index for personal consumption expenditures, accelerated to 1.3 % in the third quarter from 1.0 in the second. Inflation as high as the third quarter rate has not been seen since the fourth quarter of 1990. This increase in the prices households paid for goods and services was greater than the personal income increases in every state except Wyoming.
The lack of personal income growth in the third quarter reflects the concentration of Economic Stimulus Payments in the second quarter. Only $5 billion in economic stimulus payments were made in the third quarter, down from $113 billion in the second. This decline offset increases in the other components of personal income.
A clearer picture of current conditions emerges when personal income is adjusted for inflation and when the economic stimulus payments are removed. Nationally, personal income excluding economic stimulus payments in real dollars declined 0.3 % in the third quarter after declining 0.4 % in the second. Most states shared in this decline but energy producing states such as Alaska, Wyoming, and Texas continued to grow, albeit slowly.”
http://www.bea.gov/newsreleases/regional/spi/2008/spi1208.htm
The Mortgage Bankers website reported that ‘the level of commercial/multifamily mortgage debt outstanding decreased slightly by 0.1 % in the third quarter, to $3.44 trillion, according to the Mortgage Bankers Association (MBA) analysis of the Federal Reserve Board Flow of Funds data. The $3.44 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $3.3 billion from the second quarter 2008. Multifamily mortgage debt outstanding grew to $890 billion, an increase of $15.2 billion or 1.7 % from second quarter.
“Uncertainty surrounding the weakening economy, coupled with the continuing pressures of the credit crunch, led to a slight pullback among investors in commercial/multifamily mortgages in the third quarter,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The government-sponsored enterprises and other finance companies have taken advantage of the limited competition to increase their holdings, but the numbers show banks and thrifts beginning to pull back on their holdings, life insurance companies slowing the growth of their portfolios, and the CMBS (commercial mortgage backed securities) market continuing to pay-down its holdings with few, if any, acquisitions.”
The Federal Reserve Flow of Funds data summarizes the holding of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (included under Life Insurance Companies in this data) and in CMBS, collateralized debt obligations (CDOs) and other asset backed securities (ABS) for which the security issuers and trustees hold the note.
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.49 trillion, or 43 % of the total. Many of the commercial mortgage loans reported by commercial banks however, are actually “commercial and industrial” loans to which a piece of commercial property has been pledged as collateral. An MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48 % of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties. (Note: It is the borrower’s business income, not the income derived from the property’s rents and leases, which drive the underwriting, pricing and performance of these loans.)
Since the other loans reported here are generally income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.
CMBS, CDO and other ABS issuers are the second largest holders of commercial/multifamily mortgages, holding $758 billion, or 22 % of the total. Life insurance companies hold $315 billion, or 9 % of the total, and savings institutions hold $191 billion, or 6 % of the total. The GSEs, agency-backed mortgage pools and GSE-backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $149 billion in multifamily loans that support the mortgage-backed securities; and issued an additional $179 billion “whole” loans in their own portfolios for a total share of 10 % of outstanding commercial/multifamily mortgages. As noted above, many life insurance companies, banks and the GSEs purchase and hold a large number of CMBS, CDO and other ABS issues. These loans appear in the CMBS, CDO and other ABS category previously referenced.’
http://www.mortgagebankers.org/NewsandMedia/PressCenter/66818.htm
CBI reported that it was awarded its second engineering, procurement, fabrication and construction contract, valued in excess of $150 million, by Westinghouse Electric Company to build the containment vessels for a nuclear power plant expansion in the southeastern U.S. CB&I has built 75% of the containment vessels for nuclear plants currently operating in the U.S.
http://www.cbi.com/ir/news.htm
Medtronic and Shandong Weigao Group Medical Polymer Company announced the completion of Medtronic’s equity investment in Weigao. As a result of the investment, Medtronic now holds a 15 % equity stake in Weigao. “This is a tremendous milestone in our efforts to build a broad presence in China,” said Bill Hawkins, Medtronic’s chairman and CEO. “This region of the world is critical to our global growth strategy. Both Medtronic and Weigao will benefit from the combination of our strengths.”
http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1229611478700&lang=en_US
Sources: USAToday, Medtronic, CBI, Mortgage Bankers Association, The Bureau of Economic Analysis, Bank for International Settlements, The Conference Board, The Budget Bureau, and The Government Printing Office websites.
SKY News Summary – 12-16-08
The Supreme Court ruled that consumers are allowed to sue Philip Morris, part of Altria, for smoking issues, under state laws. The company had argued that Federal warnings on the side of the package precluded state involvement. The specific suit filed with the Supreme Court alleged that Philip Morris knew that “light” cigarettes were just as harmful as regular cigarettes because consumers took longer drags on the cigarette. Altria points out that “While we had hoped for a dismissal based upon federal preemption, it is important to note that the Supreme Court made no finding of liability. The Court said that the plaintiffs “still must prove that [the companies'] use of ‘lights’ and ‘lowered tar’ descriptors in fact violated the state deceptive practices statute.”
http://www.altria.com/media/press_release/03_02_pr_2008_12_15_01.asp
http://online.wsj.com/article/SB122935335406806815.html?mod=wsjcrmain
Retired Marine Corps Gen. James L. Jones, resigned from Boeing’s board of directors as he was named by U.S. President-elect Barack Obama to serve as his national security adviser.
http://www.boeing.com/news/releases/2008/q4/081215b_nr.html
Cisco released its annual internet security report which always makes for interesting reading. According to the report, “This year’s report reveals that online and data security threats continue to increase in number and sophistication. They propagate faster and are more difficult to detect.
Key report findings include:
• Spam accounts for nearly 200 billion messages each day, which is approximately 90 percent of email sent worldwide
• The overall number of disclosed vulnerabilities grew by 11.5 percent over 2007
• Vulnerabilities in virtualization products tripled to 103 in 2008 from 35 in 2007, as more organizations embraced virtualization technologies to increase cost-efficiency and productivity
• Over the course of 2008, Cisco saw a 90 percent growth rate in threats originating from legitimate domains; nearly double what the company saw in 2007
• Spam due to email reputation hijacking from the top three webmail providers accounted for just under 1 percent of all spam worldwide, but constituted 7.6 percent of all these providers’ mail.”
http://newsroom.cisco.com/dlls/2008/prod_121508.html
ConocoPhillips and Peabody Energy filed for an air permit with the Commonwealth of Kentucky for a coal-to-natural-gas facility. The facility, to be known as Kentucky NewGas, is expected to produce enough energy to provide for nearly three quarters of a million Midwest homes. According to the companies, “more than 80 percent of Kentucky residents support coal gasification, which mirrors strong national support for coal.”
http://www.conocophillips.com/newsroom/news_releases/2008news/12-16-2008.htm
ExxonMobil will invest more than $1 billion in three refineries in Louisiana, Texas, and Belgium to increase the supply of cleaner burning diesel by about six million gallons per day. Sherman Glass, President, Refining & Supply, stated that “In combination with cleaner-burning engines and the latest vehicle emissions control technologies, this low sulfur diesel reduces emissions in both on-road transportation, and off-road industrial sectors.”
http://www.businesswire.com/portal/site/exxonmobil/index.jsp?ndmViewId=news_view&ndmConfigId=1001106&newsId=20081216005180&newsLang=en
The Iraqi Ministry of Electricity and GE Energy have signed an agreement for electric power generation equipment and services valued at nearly $3 billion. Under the agreement, GE Energy is providing heavy-duty frame 9E multi-fuel gas turbines capable of supplying 7,000 megawatts (MW) of electricity. According to GE, currently, Iraq’s daily power generation output averages less than 6,000 MW, while the demand is typically more than 10,000 MW. The GE turbines can provide a platform for power stability thus helping address electricity shortages and position Iraq for future economic growth. The agreement follows the Government of Iraq’s previous order with GE in May 2008 for eight gas turbines capable of generating 600 MW to meet short-term power requirements in Iraq.”
http://www.genewscenter.com/Content/Detail.asp?ReleaseID=5027&NewsAreaID=2&MenuSearchCategoryID=
EDS, an HP company, has been awarded a $111 million contract by the U.S. Defense Information Systems Agency to provide security readiness reviews for the Department of Defense.
http://www.hp.com/hpinfo/newsroom/press/2008/081215a.html
IBM announced a five-year IT outsourcing agreement with Madhav Nagrik Sahakari Bank, a bank in India. The bank will offer Internet banking, mobile banking and ATM facilities in semi-urban and rural areas. According to Mr. Mukesh Modi, Managing Director ofMadhav Nagrik Sahakari Bank, “Our association with IBM, the world’s leading IT services company, would not only help us focus more on our aggressive growth plans but at the same time ensure a higher degree of customer satisfaction.”
This agreement with IBM also helps the bank overcome a key challenge of getting high-quality IT experts in small towns like Sirohi, which has a population of about 55,000. With IBM hosting the bank’s entire IT infrastructure from its own data centers, the bank will be able to leverage the same world-class expertise that serves many of its larger enterprise as well as global clients.”
http://www-03.ibm.com/press/us/en/pressrelease/26281.wss
“The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.”
http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm
The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced that building permits in November were at a seasonally adjusted annual rate of 616,000, or 15.6% below the October rate of 730,000 and is 48.1 % below November
2007 estimate of 1,187,000.
http://www.census.gov/const/newresconst.pdf
Bernard Madoff was criminally charged with allegedly running a Ponzi scheme that may have created losses of up to $50 billion. How can investors avoid this kind of scam? Some early observations are that “Some customer statements do not reflect securities in the firm’s possession,” according to Stephen Harbeck, chief executive of nonprofit group Securities Investor Protection Corp., which is overseeing the liquidation of the company. In fact, the firm manufactured its own statements because it operated as a broker dealer with an asset management division. In other words, it custodied assets at a related-party broker-dealer, creating a conflict of interest and meaning there was no independent custodian who could verify the assets actually existed. He also was paid through trading commissions rather that taking a percentage of clients’ assets as is customary for an asset manager. (He wasn’t a registered with the SEC as an investment adviser until 2006 although he was collecting funds and investing them.) Although he frequently claimed his business was audited, in fact it was audited by a very small New York firm
http://online.wsj.com/article/SB122945750489411369.html
http://online.wsj.com/article/SB122928886040304911.html
http://online.wsj.com/article/SB122910977401502369.html
http://online.wsj.com/article/SB122912266389002855.html
http://online.wsj.com/documents/SECrelease.doc
http://www.sec.gov/litigation/complaints/2008/comp-madoff121108.pdf
The Bureau of Labor Statistics of the U.S. Department of Labor reported that the November Consumer Price Index for All Urban Consumers (on a seasonally adjusted basis), decreased 1.7 % in November, the second consecutive record decrease. For the 12 month period ending in November the CPI was up 1.1%, compared to 5.6% for the twelve months ending July of this year. Falling energy prices, particularly gasoline, drove the decline in the overall index. Excluding energy, the index was virtually unchanged.
http://www.bls.gov/news.release/cpi.nr0.htm
Sources: Altria, Boeing, Cisco, conocophillips, Exxon, GE, HP, IBM, Wall Street Journal online, The Bureau of Labor Statistics, SEC, Census, and Federal Reserve websites.
SKY News Summary – 12-11-08
The St. Louis Federal Reserve publishes a series of economic information in the form of charts and graphs.
http://research.stlouisfed.org/publications/usfd/20081205/usfd.pdf
The National Bureau of Economic Research provides hours of fun with graphs on recently-released economic indicators.
http://www.nber.org/releases/
The Census Bureau released wholesale trade numbers for October 2008. Adjusted sales of merchant wholesalers were down 4.1% from September, but up 2.7% year-over-year. October durable goods were down 4.2% from September but were down 1.6% year-over-year. Sales of petroleum were down 11.2% from October. Inventories were down 1.1% from September but were up 8% year-over-year.
http://www2.census.gov/wholesale/xls/mwts/currentwhl.xls
The Bureau of Labor Statistics released employer costs for employee compensation for September. Employer costs for employee compensation for civilian workers averaged $28.87 per hour worked in September 2008, Wages and salaries, which averaged $20.13, accounted for 69.7% of these costs, while benefits, which averaged $8.74, accounted for the remaining 30.3%. Employer costs averaged $2.42 for insurance benefits (life, health, and disability insurance) or 8.4% of total compensation. In addition to insurance, the other benefit categories were: legally required benefits, including Social Security, Medicare, unemployment insurance, and workers’ compensation, which averaged $2.27 (7.9% of total compensation); paid leave benefits (vacations, holidays, sick leave, and personal leave), which averaged $2.03 (7.0 percent); retirement and savings, which averaged $1.28 per hour (4.4% of total compensation); and supplemental pay (overtime
and premium, shift differentials, and nonproduction bonuses), which averaged 75 cents per hour worked (2.6%).
http://www.bls.gov/news.release/ecec.nr0.htm
The Bureau of Labor Statistics also released the Import and Export Price Indexes for the month of November. The Import Price Index fell for the fourth consecutive month (down 6.7%) due to falling prices for both petroleum and nonpetroleum imports. Exports also dropped (3.2% ) for the fourth consecutive month.
http://www.bls.gov/news.release/ximpim.nr0.htm
The Securities and Exchange Commission finalized settlements with Citigroup and UBS to provide $30 billion to customers who invested in auction rate securities before the market for those securities froze in February. The whole settlement is available at Litigation Release No. 20824 “Today’s settlements are the largest in SEC history, and represent the largest return of customer money in the agency’s 75 years,” said SEC Chairman Christopher Cox. “The Commission’s prompt action after the auction rate securities market froze in February of this year, which led to last summer’s settlements in principle, helped restore liquidity to tens of thousands of investors. Every one of the investors covered by these settlements will be able to receive 100 cents on the dollar on their ARS investments.”
http://www.sec.gov/news/press/2008/2008-290.htm
The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending December 5, 2008. New loan applications decreased 7.1% from one week earlier, but were up 2.2 % compared with the same week one year earlier.
“The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.45% from 5.47%, with points increasing to 1.23 from 1.16 (including the origination fee) for 80% loan-to-value (LTV) ratio loans.” The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.09% from 5.13%, with points decreasing to 1.26 from 1.28 (including the origination fee) for 80% LTV loans.
http://www.mbaa.org/NewsandMedia/PressCenter/66668.htm
AT&T announced that it has opened its first data center in Bangalore, India. The new Bangalore facility is part of AT&T’s previously announced $1 billion global network investment for 2008. “In October 2006, AT&T became the first global telecom operator to secure national long distance and international long distance licenses in India through AT&T Global Network Services India, an AT&T joint venture.”
http://www.att.com/gen/press-room?pid=4800&cdvn=news&newsarticleid=26393
Cisco announced that the fourth largest electric company in Russia, has completed the transformation of its nationwide telephone network using Cisco’s Unified Communications Product. “5,300 employees across five power plants and the head office will now have seamless access to companywide resources to boost efficiency of business processes, raise the quality of customer services, and reduce management and operational costs.”
http://newsroom.cisco.com/dlls/2008/prod_121108.html
“GE Energy has signed a $3.7 million contract with China National Electric Equipment Corporation to supply control and protection systems for the largest heavy-oil-fired super-critical power plant in Azerbaijan, owned by Azerenerji Joint Stock Company.”
http://www.genewscenter.com/Content/Detail.asp?ReleaseID=4936&NewsAreaID=2&MenuSearchCategoryID=
Eli Lilly used its annual meeting to update investors on its transformation and expanding product pipeline. The company plans to reduce the cost of bringing new medicine to the market from $1.2 billion to $800 million by 2010. It currently has 59 molecules in clinical development and is the fastest-growing pharmaceutical company in the U.S…
“Our scientists are dedicated to maximizing the potential of our pipeline, which now boasts an unprecedented 59 molecules in clinical development, 40 percent of which are biotech-based.
http://newsroom.lilly.com/releasedetail.cfm?ReleaseID=353929
Shell completed the sale of its 50% shareholding in Refinería Dominicana de Petróleo, S.A. (for a total value of $110 million, to the Government of the Dominican Republic, who is now the sole owner of the refinery.
http://www.shell.com/home/content/investor/news_and_library/press_releases/2008/sale_dominican_refinery_10122008.html
On Dec. 4, Microsoft announced Qi Lu had been hired as president of the Online Services Group. “ Lu comes to Microsoft four months after leaving Yahoo!, where he most recently held the position of executive vice president of Engineering for the Search and Advertising Technology Group. During his 10 years at Yahoo, Lu gained a reputation as top-tier technologist and superb manager. Before joining Yahoo! in 1998, Lu was a Research Staff Member at IBM’s Almaden Research Center. He also has worked at Carnegie Mellon University as a Research Associate and at Fudan University in China as a faculty member. Lu holds 20 U.S. patents, and received his Bachelor of Science and Master of Science in computer science from Fudan University in Shanghai, and his Ph.D. in computer science from Carnegie Mellon University in Pittsburgh, Pa.”
http://www.microsoft.com/presspass/features/2008/dec08/12-10LuQA.mspx
Intel Corporation announced that it has completed the development phase of its next-generation manufacturing process that shrinks chip circuitry to 32 nanometers (a billionth of a meter). The company expects production to begin in the fourth quarter of 2009.
http://www.intel.com/pressroom/archive/releases/20081209corp.htm?iid=pr1_releasepri_20081209_r
Jean-Claude Trichet, President of the European Central Bank, explained how the Euro system works now that ten years have gone by.
He says, “In the Eurosystem architecture the Governing Council has a decisive role as the main decision-making body within the Eurosystem. Its members, through their ad personam participation, are required to focus on the European perspective. The one-member/one vote principle guarantees that each member has to assess the interest of the euro area as a whole, instead of the interest of any particular country, a feature which makes the ECB very different from other European institutions, like the Commission and the Council…In the present circumstances we have at times to decide rapidly and to have these decisions implemented timely, usually via the National Central Banks…Let me now turn to how the interaction between the component parts of the system, the ECB and the National Central Banks, which are an integral part of the Eurosystem, are organized. The Statute gives some guidance regarding the distribution of labour within the Eurosystem where it states:
• the ECB shall ensure that the tasks conferred upon the ESCB [Eurosystem] are implemented either by its own activities or through the NCBs (Art. 9.2);
• to the extent deemed possible and appropriate, the ECB shall have recourse to the NCBs to carry out operations which form part of the tasks of the ESCB [Eurosystem] (Article 12.1)
From these Articles it is clear that in the system of currently sixteen component parts the ECB has a special position: it is the “captain of the team”. The ECB and its decision-making bodies, the Governing Council and the Executive Board, are the decision-making centre of the Eurosystem, and many important decisions taken are – in full conformity with the principle of decentralisation – implemented by the (respective) National Central Banks; of course, on behalf of the Eurosystem.
Still, at the beginning, it was probably hard to imagine how the Eurosystem would work in practice, since the Statute allows a degree of leeway on how to design the interaction between the ECB and the National Central Banks. It is clear that the major achievements of the Eurosystem which include the successful establishment and conduct of the single monetary policy, the smooth introduction of the euro and the launch of the euro banknotes, could only be accomplished through the very close cooperation of the staff of the Eurosystem central banks. The teamwork necessary to successfully master these challenges and the experiences gained in the process contributed to the emergence of a shared identity which found its concrete expression in the Eurosystem Mission Statement, its Strategic Intents and Organisational Principles. I regard the signature of this strategic document by all Eurosystem central banks in 2004 to be major achievement of our team and I am sure that Yves shares this view.
Together these documents define the role of the Eurosystem, the principles it should rely on to achieve its main objectives, and how all its members should interact and cooperate on the basis of shared values… The Eurosystem continues to strive for efficiency and effectiveness, using to the full extent the resources available in the Eurosystem. Further evidence of this are the major Eurosystem projects and initiatives currently either already in operation or under development. Allow me to mention just a few examples.
TARGET2 provides a centralised payment system based on a single technical platform. It guarantees a harmonised level of service for banks all over Europe combined with one single transaction price for domestic and cross-border payments and is one of the best individual payment systems in the world. This system was developed and is operated by a “consortium” of central banks – the Banca d’Italia, the Banque de France and the Deutsche Bundesbank – on behalf of the Eurosystem. TARGET2 Securities will be a platform for the cross-border and domestic settlement of securities against central bank money. The development and operation of this system was assigned to the Deutsche Bundesbank, the Banco de España, the Banque de France and the Banca d’Italia.
Following a review of the current Eurosystem collateral management handling procedures, in particular, the Correspondent Central Banking Model (CCBM), the Governing Council decided to again develop a single platform, called CCBM2, allowing the Eurosystem to manage collateral both for domestic and cross-border operations. Work will be undertaken by the Nationale Bank van België/Banque Nationale de Belgique and De Nederlandsche Bank based on their existing system. As you can see a range of different organisational models are explored to achieve maximum synergies, e.g. specialisation, attribution to one particular member of the Eurosystem team, decentralisation and, when and where needed, pooling, which means that a group of central banks provides a service for the entire Eurosystem…
http://www.bis.org/review/r081117b.pdf
The euro banknotes are printed in various countries. The precise locations are shown on the map at the following website.
http://www.bundesbank.de/bargeld/bargeld_faq_eurobanknoten.en.php#euro_print
More information on the printing of Euros may be found at De Nederlandsche Bank’s website. The site explains that “In the euro area, the national central banks and the ECB are jointly responsible for the printing of euro banknotes. First, the ECB charts the expected need for every denomination. Next, every central bank is asked to have print some denominations. The ECB decides which printers in Europe will be allowed to print the notes. Of course, these printers must meet the highest of specifications. Whereas DNB has most of its banknotes printed by Joh. Enschedé & Zonen inHaarlem, foreign printers have been engaged as well.
Printing the notes is an elaborate process. First, the paper is manufactured, including the watermark, the safety thread and in many cases also the foil and the golden stripe. Once the paper is ready, the printing process can begin. Printing euro banknotes involves several printing techniques: offset print for the basic design on the front and back sides, plate print for the palpable ink on the front side, screen print for the special inks on the back, and letterpress for the serial number, also on the back. Once the sheets of paper have been printed, they are cut into banknotes. The notes that come out of the cutting machine are checked one by one for flaws in the printing and any dust particles that may have stuck in the paint. Only perfect euro banknotes are fit to be circulated.”
http://www.dnb.nl/en/payments/euro-banknotes-and-coins/euro-banknotes/the-life-cycle-of-a-banknote/index.jsp
JPMorgan Chase well buy up to $780 million of AAA rated portions of collateralized loan obligations according to Bloomberg news.
http://www.bloomberg.com/apps/news?pid=20601009&sid=a9UeEptycDcY&refer=bond
Sources: Bloomberg News, St. Louis Fed, National Bureau of Economic Research, Census Bureau, Bureau of Labor Statistics, SEC, Mortgage Bankers Association AT&T, Cisco, GE, Lilly, Shell, Microsoft, Intel, Deutsch Bundesbank, and De Nederlandsche Bank websites.
SKY News Summary – 12-4-08
The Mortgage Bankers Association announced mortgage applications for the week ending November 28th were up 112% (on an adjusted basis) from the prior week. “Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship,” said Orawin Velz, Associate Vice President of Economic Forecasting. “When rates plummeted following the Fed’s announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound.”
http://www.mbaa.org/NewsandMedia/PressCenter/66599.htm
The SEC will today consider final rule amendments on requirements of rating agencies. The commission decided to omit changes that would have imposed different ratings symbols for structured finance versus other investment products. However, the following amendments will be considered:
“Final Amendments to the Instructions to Exhibits 1 and 2 to Form NRSRO
This proposal would amend the instructions to Form NRSRO to require enhanced disclosures by NRSROs and applicants for registration as NRSROs. The amendments to the instructions to Exhibit 1 would require an NRSRO or NRSRO applicant to provide transition statistics for each asset class of credit ratings for which it is registered or is seeking registration, broken out over 1, 3, and 10 year periods. The amended instructions would clarify that all ratings transitions (i.e., upgrades as well as downgrades) must be included in these statistics as well as that default statistics must show defaults relative to the initial rating and incorporate defaults that occur after a credit rating is withdrawn. The amendments to the instructions to Exhibit 2 would require NRSROs to provide enhanced disclosure in three areas: (1) whether and, if so, how much verification performed on assets underlying or referenced by the structured finance transaction is relied on in determining credit ratings; (2) whether and, if so, how assessments of the quality of originators of structured finance transactions play a part in the determination of the credit ratings; and (3) more detailed information on the surveillance process, including whether different models or criteria are used for ratings surveillance than for determining initial ratings.
Records of Rating Actions (Final Amendments to Rule 17g-2(a)(8) and Instructions to Exhibit 1 of Form NRSRO)
This proposal would amend paragraph (d) of Rule 17g-2 to require an NRSRO to make publicly available a random sample of 10% of their issuer-paid credit ratings and their histories documented for each class of issuer-paid credit rating for which the NRSRO is registered and has issued 500 or more ratings. This information would be required to be made public on the NRSRO’s corporate Internet Web site in XBRL format no later than six months after the rating is made. The proposal would also amend the instructions to Exhibit 1 of Form NRSRO to require an NRSRO to disclose where in its Web site these ratings histories would be made available.
Final Amendments to Rule 17g-2
This proposal would add three new record keeping requirements to Rule 17g-2 and make one non-substantive change to an existing requirement. The first new record keeping requirement would be implemented by adding a new paragraph (a)(8) to Rule 17g-2. This provision would require an NRSRO to make and retain records of all rating actions related to a current rating from the initial rating to the current rating. The second new record keeping requirement would be implemented by adding a new paragraph (a)(2)(iii) to Rule 17g-2, which would require that if a quantitative model is a substantial component of the credit rating process for a structured finance product, an NRSRO must keep a record of the rationale for any material difference between the credit rating implied by the model and the final credit rating issued. The third new record keeping requirement would be implemented by adding a new paragraph (b)(8) to Rule 17g-2, which would require that an NRSRO retain records of any complaints regarding the performance of a credit analyst in determining, maintaining, monitoring, changing, or withdrawing a credit rating. The minor change would amend Rule 17g-2(b)(7) to add the word “monitoring” to the text that currently requires an NRSRO to retain all internal and external communications that relate to “initiating, determining, maintaining, changing, or withdrawing a credit rating.”
Final Amendments to Rule 17g-5(c)
These amendments would add three new prohibited conflicts to Rule 17g-5(c). The first amendment would add a new paragraph (c)(5) to Rule 17g-5, which would prohibit an NRSRO from issuing a credit rating with respect to an obligor or security where the NRSRO or an affiliate of the NRSRO made recommendations to the obligor or the issuer, underwriter, or sponsor of the security about the corporate or legal structure, assets, liabilities, or activities of the obligor or issuer of the security. The second amendment would add a new paragraph (c)(6) to Rule 17g-5, which would prohibit a person within an NRSRO who has responsibility for participating in determining credit ratings or for developing or approving procedures or methodologies used for determining credit ratings from participating in any fee discussions, negotiations, or arrangements. The third amendment would add a new paragraph (c)(7) to Rule 17g-5, which would prohibit an NRSRO from allowing a credit analyst who participated in determining or monitoring the credit rating to receive gifts, including entertainment, from the obligor being rated or from the issuer, underwriter, or sponsor of the securities being rated, other than items provided in the context of normal business activities, such as meetings, that have an aggregate value of no more than $25.
Re-Proposed Amendments to Rule 17g-5
The re-proposed amendments to Rule 17g-5 would prohibit an NRSRO from issuing a rating for a structured finance product paid for by the product’s issuer, sponsor, or underwriter unless the information about the product provided to the NRSRO to determine the rating and, thereafter, monitor the rating is made available to other NRSROs. Specifically, the re-proposed amendments would require NRSROs that are hired by arrangers to perform credit ratings for structured finance products to disclose to other NRSROs (and only other NRSROs) the deals for which they were in the process of determining such credit ratings. The arrangers would need to provide the NRSROs they hire to rate structured finance products with a representation that they will provide information given to the hired NRSRO to other NRSROs. In addition, NRSROs seeking to access information maintained by the NRSROs and the arrangers would need to furnish the Commission an annual certification that they are accessing the information solely to determine credit ratings and will determine a minimum number of credit ratings using the information. Furthermore, the Commission is proposing to amend Regulation FD to accommodate this information disclosure program that would be established under the re-proposed amendments to Rule 17g-5. Specifically, the Commission is proposing to amend Rule 100 of Regulation FD to permit the disclosure of material non-public information to NRSROs regardless of whether they make their ratings publicly available.”
http://www.sec.gov/news/press/2008/nrsrofactsheet-120308.htm
The following excerpts from a letter by Kieran P. Quinn, Chairman of the Mortgage Bankers Association help to make sense of the SEC’s new rules:
“…Due Diligence/Transparency/Confidentiality
The Proposal would require the disclosure of information and methods used by NRSROs to assign, monitor and revise credit ratings. MBA supports the SEC’s efforts to increase transparency and reliability of MBS and CMBS credit ratings. We also endorse elements of the Proposal that would provide more information to investors so that they can make informed investment decisions. By providing a basis for investors to have a better understanding of MBS, MBA believes the enhanced transparency may increase confidence in the MBS market.
Nevertheless, MBA recommends that the SEC consider whether requiring complete disclosure of all rating agency information for a structured security would jeopardize the ability of rating agencies to obtain confidential qualitative assessments of a security’s underlying assets. Servicers and special servicers have raised concerns regarding the public disclosure of confidential qualitative information. If confidential qualitative information utilized in the initial ratings and surveillance processes were required to be made public, the communication of such information would be greatly reduced because this information and its source(s) were never intended to be publicly disclosed. The rating agencies would no longer be able to utilize this information in their ratings and surveillance processes, which could potentially have a negative impact on rating accuracy. For example, qualitative information about an asset’s quality, strengths and weaknesses is obtained by rating agencies through conversations with various parties involved in the securitization. Such information may not be apparent in the information provided to perform a quantitative analysis of the asset. In the case of a CMBS, a special servicer expects its conversations with a rating agency to be confidential if they are about issues regarding the forced sale of a CMBS asset. These conversations typically address the special servicer’s best estimate of the sale transaction, including timetable and price. This information would be one of the factors used by a rating agency to evaluate if a ratings action is required. If this type of information were required to be publicly disclosed, special servicers would be reluctant to provide it. As a result, rating agencies would be forced to wait until the information became available through public channels. Such a time lag would negatively impact the ability of rating agencies to incorporate real time asset pricing information into their ratings action…
Conflicts of Interest
MBA endorses the components of the Proposal that address conflicts of interest. Currently, section 240.17g-5 of the SEC’s regulations includes a list of conflicts in which NRSROs are permitted to engage so long as the conflict is reported to the SEC. The list includes the conflict associated with providing both credit ratings and other services to the same entity for compensation. The section also includes a separate list of conflicts that are prohibited entirely. The Proposal would add to the “prohibited list” the conflict of maintaining credit ratings of an obligor or security and making recommendations about the security’s characteristics to the same obligor or securities issuer. MBA concurs that undue pressure may arise in situations where, in addition to providing ratings, an NRSRO provides other services to the issuer/obligor. However, MBA believes the Proposal may be difficult to implement because of the overlapping characteristics of the two conflicts mentioned above. MBA also recognizes that determining an investment product’s credit rating is often an interactive process between the issuer and rating agency in which the impact of the inclusion or exclusion of various loan pools or portions thereof are examined in terms of their impact on the potential ratings of the RMBS or CMBS offering. These discussions allow the issuer to modify the loan pool being securitized in order to achieve the most efficient securitization execution. MBA requests the SEC to provide clear guidance on the distinctions between permitted discussions about scenario analyses or securitization pool composition and discussions about a pool’s legal structure or other advisory issues that would be prohibited under the Proposal.
Structured Finance Symbol
The Proposal would also require NRSROs to differentiate between the ratings issued on structured finance products from those they issue on bonds. Compliance with this requirement would be demonstrated by either using different symbols for structured finance products versus other securities, or issuing a report disclosing the differences between ratings of structured products and other securities. MBA notes that structured finance transactions are an important segment of capital markets. Such transactions contribute to market efficiencies and improve risk management, hedging, and cash flow allocations. They also provide a direct benefit in the housing finance system by providing mortgage lenders more access to capital through securitized markets. This, in turn, enables borrowers to benefit from lower mortgage interest rates. According to the SEC, the Proposal is an attempt to help ensure that investors fully appreciate the different risk characteristics of structured products, particularly under stress conditions. The SEC also expects the Proposal to alert investors that structured product ratings rely on qualitatively different kinds of information and ratings methodologies than do ratings for bonds.
MBA disagrees that a different rating symbol is the appropriate method to convey information of this scope and depth. Moreover, it is likely that the Proposal could reinforce the very behavior it seeks to extinguish. For example, the sudden appearance of a new rating symbol might prompt investors to shy away from structured finance products simply because of their rating, thereby preempting the more detailed analysis advocated in the Proposal.
MBA also notes that the Proposal would require the new rating symbol to be attached to all structured securities regardless of their recent or long-term performance. Such a symbol would brand all structured securities as a single asset category, despite the fact that different structured securities exhibit markedly different performance characteristics (e.g. CMBS, RMBS, and securities backed by credit card debt or automotive loans). This could spawn greater investor confusion because a wide variety of securities would be lumped into an equally broad investment category. Consequently, the performance of a single type of structured security might be attributed inaccurately to other structured security products due to their shared product identifier.
Another reason why MBA opposes a separate structured finance product symbol is because the performance of a security is primarily attributable to the performance of its underlying assets, not its structure. The use of a structured ratings symbol could be perceived as a broad cautionary signal when in fact the underlying assets determine the securitization’s risk parameters. As a consequence, such a symbol would potentially steer investors away from security types that have demonstrated very strong performance records, such as CMBS.
MBA is also concerned that the effectiveness of the structured finance ratings symbol would be diluted because of the market’s level of sophistication. If market participants attribute negative implications to the structured finance ratings symbol, issuers are likely to develop alternative investment vehicles in order to avoid the symbol’s stigma.
MBA also questions why only structured finance products would receive a unique identifier or be required to have an accompanying report that provides a detailed methodology description. If the purpose of the Proposal is to increase information transparency for structured securities through the introduction of a detailed report of the structured securities rating methodology, it is likely that such a report would also be highly valuable to purchasers of non-structured securities. Moreover, these rating methodologies are widely publicized by NRSROs. Therefore, requiring these same methodologies to be included in the securitization offering would be redundant to information that is already publicly available.
MBA also requests that the SEC consider whether the Proposal will perpetuate the current liquidity shortages in the housing and commercial finance markets. If enacted, the Proposal would force institutional investors to modify their lists of permissible investments. The Proposal would also necessitate amendments to federal and state laws, regulations and supervisory guidance in order for them to comport with the new ratings framework. The Proposal is also likely to instigate unnecessary short-term disruptions as institutional investors determine what their obligations are relative to the structured finance products they currently hold. This, in turn, could further depress liquidity in the market for structured products.
An additional concern with this component of the Proposal is its redundancy with the Proposal’s NRSRO disclosure requirements. As mentioned above, the Proposal would require NRSROs to disclose information they use to assign and monitor credit ratings, including their rating methods. MBA believes these disclosure requirements obviate the need for a separate ratings symbol. If, as the SEC asserts, the Proposal is intended to help make clear that structured product ratings rely on qualitatively different kinds of information and ratings methodologies than do ratings for bonds, MBA believes this would be accomplished through disclosure of NRSRO ratings methods.
For these reasons, MBA requests the SEC withdraw the proposed requirement for NRSROs to differentiate the ratings they issue on structured products from those they issue on non-structured bonds.”
http://www.mortgagebankers.org/files/News/InternalResource/66604_MBAJuly2008SECCommentLetter.pdf
According to the International Council of Shopping Centers, U.S. chain store sales for November 2008 fell by a record 2.7 % on a year-over-year same-store basis according to ICSC’s index. ‘The main special factor in November was a tough comparison from last year with a calendar-shift drag on year-over-year sales, worth between 1.5 and 2.0 percentage points. Looking ahead to December, ICSC forecasts that industry sales will grow by 1.5 percent for December,” he added. In what may be the most encouraging bit of news retailers and shopping center operators have heard in months, there were more Black Friday shoppers this year than last year, and retail sales and expenditures were up too. According to the National Retail Federation’s Black Friday Weekend survey, which includes spending data for Thursday, Friday and Saturday and estimates for Sunday, about 172 million shoppers visited stores and Web sites over the weekend, versus 147 million last year, when the economy was still humming. On average, shoppers spent $372.57 per person over the weekend, up 7.2 percent from last year’s average of $347.55.’
http://www.icsc.org/srch/apps/newsdsp.php?storyid=2469®ion=main
The Association of American Publishers reported that e-book sales rose 77.8% in September from a year earlier to $5.1 million although this is still a small percentage of total book sales.
http://online.wsj.com/article/SB122834809064877527.html
Sources: The Wall Street Journal and Wall Street Journal online, ICSC, Mortgage Bankers Association and SEC websites.
SKY News Summary – 12-2-08
The National Bureau of Economic Research announced that we are in recession. We have been in one for a year which, according to the Wall Street Journal, is “the longest downturn in a quarter century.” This announcement helped to bring about the fourth biggest point drop (679.95 points) since the Dow was formed in 1896 and prompted Federal Reserve Chairman Ben Bernanke to lay out a new plan of options the Fed might take to rescue the economy.
It is interesting to know who is on this committee and why the committee’s conference call could bring about such a reaction. According to the NBER website, the committee consists of: Robert Hall, Stanford University (chair); Martin Feldstein, Harvard University and NBER President Emeritus; Jeffrey Frankel, Harvard University; Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; David Romer, University of California, Berkeley; and Victor Zarnowitz, the Conference Board. The committee based its conclusion on aggregate domestic production determined by the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income from the Bureau of Economic Analysis. Here are some of NBER’s answers to questions about the committee’s conclusions:
“Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?
A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. As an example, the last recession, in 2001, did not include two consecutive quarters of decline. As of the date of the committee’s meeting, the economy had not yet experienced two consecutive quarters of decline.
Q: Why doesn’t the committee accept the two-quarter definition?
A: The committee’s procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP, but use a range of indicators. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in activity.” Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in 2007 and 2008.
Q: Isn’t a recession a period of diminished economic activity?
A: It’s more accurate to say that a recession—the way we use the word—is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when economic activity is contracting. The following period is an expansion.”
http://wwwdev.nber.org/cycles/dec2008.html
The Bureau of Labor Statistics reported that, in October, unemployment rose across the country. 98 metropolitan areas reported jobless rates of at least 7%, up from 16 areas a year earlier, while 43 areas posted rates below 4%, down from 151 areas in October 2007.
http://www.bls.gov/news.release/metro.nr0.htm
Boeing’s 21,000 engineering and technical employees ratified four-year collective bargaining agreements today.
http://www.boeing.com/news/releases/2008/q4/081201c_nr.html
Johnson & Johnson has sold its Professional Wound Care business to One Equity Partners. Financial terms of the transaction were not disclosed, but Professional Wound Care business generated annual net sales of approximately $270 million in 2007.
The general wound care products are mostly dressings, such as gauzes and swabs. One Equity Partners manages $8 billion of investments for J.P. Morgan Chase in direct private equity transactions.
Johnson & Johnson also announced that it will buy Mentor Corp. for $1.07 billion in a cash tender offer. Alex Gorsky, Company Group Chairman for Johnson & Johnson, said, “The addition of Mentor, a market-leader and one of the most respected companies in the aesthetic space, expands our capacity to provide physicians with products that can restore patients’ appearance, self-esteem and quality of life.” “The company develops, manufactures, and markets innovative, science-based products for surgical and non-surgical medical procedures that allow patients to retain a more youthful appearance and improve their quality of life.” Mentor makes breast implants.
http://www.jnj.com/connect/news/all/20081201_170000
Spectra Energy announced that Gregory J. Rizzo will become president and chief executive officer. He replaces Greg Harper who announced his resignation last month to accept another position outside the company.
http://www.spectraenergy.com/news/releases/2008/dec/20081202_01.asp”
The Institute for Supply Management released its report for November 2008, saying that “Economic activity in the manufacturing sector failed to grow in November for the fourth consecutive month, and the overall economy contracted for the second consecutive month.”
http://www.ism.ws/ISMReport/MfgROB.cfm
Sources: National Bureau of Economic Research, The Wall Street Journal and Wall Street Journal online, Bureau of Labor Statistics, Boeing, J&J, Spectra Energy and Institute for Supply Management websites.