Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.

Thurs 07.31.2008

First Fire, Then Hire
Morgan Stanley goes on a hiring spree with the money it saved from firing 10 percent of its workforce. Nowhere but on Wall Street does the phrase "One man's trash is another man's treasure" ring so true. And perhaps no one knows that better than Mack the Knife. Morgan Stanley's John Mack, who saved about $1 billion by firing 4,800 people so far this year, is gingerly spending the savings on new hires, according to a report in the Financial Times. It's already spent $400 million on new recruits, and it hopes to spend the remaining $600 million by the end of this year. The bank sent pink slips to about 10 percent of its workforce in January and April, mostly in areas like investment banking, research, and fixed income. It plans to hire new staff in areas such as derivatives, risk management, and proprietary trading.

Weak US growth adds to gloom
The US economy grew at an annual rate of 1.9 per cent in the second quarter, a faster pace than earlier in the year but slower than economists were expecting, the commerce department said on Thursday. Growth was lifted from a downwardly revised annual pace of 0.9 per cent in the first quarter thanks to surging exports and nearly $100bn in stimulus cheques mailed out by the government in May, which boosted consumer spending. However, businesses drew down inventories much more rapidly in the second quarter than they had earlier in the year as they adapted to the tougher economic conditions, keeping gains to GDP below the 2 per cent level forecast by economists.

U.S. Recession May Have Begun in Last Quarter of 2007
The U.S. economy may have tipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures showed. The world's largest economy contracted at a 0.2 percent annual pace in the fourth quarter of last year compared with a previously reported 0.6 percent gain, the Commerce Department said today in Washington. Growth for the period from 2005 through 2007 was also trimmed.

Mr. Paulson's New Bonds $$
These days, it's next to impossible to sell a mortgage-backed security -- unless, like Fannie Mae and Freddie Mac, you have access to the full faith and credit of Uncle Sam. So this week Treasury Secretary Hank Paulson teamed up with four of the country's biggest banks to jump start an alternative to securitization known as "covered bonds." A covered bond is a kind of halfway house between securitizing mortgages and simply holding them on bank balance sheets. With a covered bond, the bank gets the proceeds from selling the bonds now, while the investor gets the income from the mortgages. But unlike a mortgage-backed security, the bank doesn't totally wash its hands of the mortgages if the borrowers default or get delinquent. So it's easy to see their attraction at a time when securitization has become a dirty word.

Fed Leaves Door Open to Future Rate Increases
Leaders Ponder How and When to Act
The Federal Reserve is all but certain to leave interest rates unchanged when it meets next week, and its leaders are disinclined to raise them in the immediate future. But they almost uniformly think that the next time they adjust rates, it will be to raise them, and the debate behind closed doors next week will probably center on how and when to do that. The economy and financial markets have grown shakier since Fed policymakers last met in late June, and oil prices have fallen some. But Fed officials think that the dramatic rate cuts they undertook in the first half of the year are probably sufficient to keep growth from falling off a cliff and that the bank has been vigilant enough in using other tools to protect the financial system that it could raise interest rates without causing a resurgence of the crisis.

Home Prices Hit Four-Year Low
Home prices in May plummeted 15.8% from a year earlier, to 2004 price levels, wiping away four years of appreciation, according to the S&P/Case-Shiller 20-city home-price index released July 29. Analysts have become increasingly pessimistic that a bottom to the market will arrive anytime soon. The S&P/Case-Shiller report is only the latest evidence that home prices are swinging backward with at least as much force as they swung the other direction during the boom. Places that had double-digit increases a few years ago are now seeing prices drop by as much as 28% in a year. Peter Schiff, president of Darien (Conn.) brokerage Euro Pacific Capital, said prices could slide to levels last seen before the housing boom began in the early 2000s.

Central banks fire new round at credit crisis
The U.S., European, and Swiss central banks on Wednesday extended emergency lending facilities for investment banks and expanded other liquidity programs to ease credit market strains that have weighed on the global economy for nearly a year. The joint measures helped lift share prices in the United States and Europe, and were a factor in pushing up U.S. bond yields and the U.S. dollar. The U.S. Federal Reserve said it was prolonging the emergency credit facility for primary dealers to January 30 which had been due to expire in mid-September. The Fed said it acted "in light of continued fragile circumstances in financial markets," and said it would close down the lending program once it determined credit market conditions were no longer "unusual and exigent.

Deutsche Bank writes down another $3.6 billion
Deutsche Bank on Thursday announced a further $3.6 billion of write-downs in the second quarter of the year, taking its bill from the global financial crisis beyond $11 billion. The German financier had originally been seen as one of the winners in the chaos but as the problems on global markets continue, Deutsche Bank is being sucked ever deeper into trouble.

IndyMac 'Unattractive' to a Potential Buyer
Federal Deposit Insurance Corp. Chairman Sheila Bair said IndyMac Bancorp Inc.'s high-risk lending and mortgage losses make it "unattractive" and leave the agency needing to strengthen the firm to sell it. IndyMac's reliance on large deposits arranged by brokers on behalf of their customers and lack of a strong "core deposit base" also limit its appeal, Bair, 54, said today in an interview to be broadcast this weekend on Bloomberg Television's "Conversations with Judy Woodruff." "There are a number of things about this institution that, to be honest with you, make it unattractive to a potential purchaser," Bair said.

Chrysler in talks with Tata and Fiat: sources
Chrysler is in talks to lease U.S. production capacity and share retail distribution with Fiat SpA (FIA.MI), allowing the Italian automaker to return the U.S. market for the first time in 25 years, people briefed on the talks said on Wednesday. Chrysler, the No. 3 U.S. automaker, has also been in discussions with India's Tata Motors Ltd about selling its Jeep Wrangler SUV in India and possibly other Asian markets, said the sources, who were not authorized to discuss the negotiations.

Oil jumps over $4 on surprise drop in gas supplies
Oil prices soared over $4 a barrel Wednesday, halting a dramatic two-week slide after a surprise drop in U.S. gasoline supplies fed speculation that record fuel prices aren't keeping Americans off the roads But energy market analysts offered mixed views on whether prices would swing back toward record levels above $147 a barrel hit earlier this month or if Wednesday's big rally was just a temporary bump.

Senate Democrats back $6 billion in loan-guarantees for automakers
Senate Democrats agreed Wednesday to approve $6 billion in low-cost loans for Detroit's Big Three automakers, which have struggled to raise funds in a weak credit market. Sen. Debbie Stabenow, D-Lansing, said in an interview that the Senate would consider a second stimulus package in September, which will include a portion of the $25 billion in loan guarantees over five years for auto plant retooling Those provisions were authorized in the December 2007 energy bill that required a 40 percent increase in fuel efficiency standards by 2020. That bill didn't include any funding for the loan guarantees. To guarantee $6 billion in loans, Congress must spend $900 million. It would cost an estimated $3.75 billion to back the entire $25 billion package.

Congress eyes direct loans for auto industry to make plants green
Automakers could receive up to $6 billion in direct loans to modernize their assembly plants to build gas-electric hybrids and advanced vehicles under an agreement reached Wednesday by Senate budget leaders. An additional $300 million would help research and develop advanced batteries critical to plug-in hybrid vehicles, said Sen. Debbie Stabenow, D-Mich., who has sought the funding. Stabenow said the provisions would be included in an economic stimulus package expected to be considered next September. Michigan lawmakers have sought the federal aid as General Motors Corp., Ford Motor Co., and Chrysler LLC, have announced reductions in salaried workers and plant closures amid a difficult economic period.

Singapore to the rescue of a troubled Merrill Lynch
The Singapore government has become an unlikely white knight to Wall Street, with a new billion-dollar commitment to Merrill Lynch, even as Merrill, a huge U.S. investment bank, disclosed more problems. Merrill Lynch took a multibillion-dollar write-down and said Monday that it would sell new stock Temasek Holdings, the Singaporean sovereign investment fund, is one of the biggest buyers, pouring an additional $900 million into Merrill Lynch, on top of a nearly $5 billion commitment it made in December. Temasek will also reinvest some $2.5 billion of that earlier commitment back into Merrill Lynch. The new purchase of $3.4 billion in shares brings Temasek's stake in Merrill Lynch to nearly 10 percent.

Kremlin's heavy hand triggers foreign exodus
Foreign investors have become extremely wary of the Russian stock market after the Kremlin moved yet again to tighten its noose around the country's energy and mining sector, launching anti-trust probes against London-listed Evraz Holding and Raspadsky Coal The move follows last week's assault on steel and coal giant Mechel for alleged overpricing of raw materials and using off-shore trading to cut its tax bill. Moscow's RTS stock market index has fallen by 25pc since May on fears that premier Vladimir Putin is once again using probes or other heavy-handed methods to reorder the strategic landscape.

Mexicans Sending Less Money Home
The amount of money sent home by Mexican migrants declined 2.2 percent during the first six months of 2008, showing what analysts said are the effects of the U.S. economic downturn and the nationwide crackdown on illegal immigrants. The funds transmitted, known as familial remittances, totaled $11.6 billion during the first six months of the year, compared with $11.9 billion during the same period last year, according to numbers released yesterday by Mexico's central bank Remittances are the second-largest source of foreign income for the country, following oil exports. Experts think that the decline could help push more Mexicans deeper into poverty as families there face rising prices on basic necessities.

Australia faces worse crisis than America
The world's financial storm has swept through Australia and New Zealand this week amid mounting signs of contagion across the Pacific region. Financial shares were pummelled in Sydney on Tuesday after investor flight forced National Australia Bank (NAB) to slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless

Australia Facing 'Once-in-100-Year' Housing Slump
Australia may be headed for a housing recession similar to those roiling the U.S. and U.K The cause is a combination of rising default rates, the biggest drop in home prices in five years, the highest borrowing costs in a decade and slowing economic growth. Prices in the property market -- described by the International Monetary Fund in April as one of the world's most "overvalued" -- will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia's major cities last month for the first time since just before the Great Depression.

U.K. Consumer Confidence Fell to Record Low in July
U.K. consumer confidence dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated, GfK NOP said. An index of confidence, based on a survey of 2,001 people, fell 5 points to minus 39, the lowest since the data began in 1974, GfK said today in London. The gauge fell to 4 points below the result for March 1990. Britain's economic outlook has deteriorated in the past month after ``bad news'' on retail sales, Bank of England policy maker David Blanchflower said yesterday. The threat of another recession has helped erode support for Prime Minister Gordon Brown, whose ruling Labour Party had the lowest support since the early 1980s in a Populus Ltd. poll published this week.

European Inflation Quickened to 16-Year High in July
Inflation in Europe accelerated to the fastest pace in more than 16 years in July, restricting the European Central Bank's room to bolster the economy even as unemployment starts to increase. The inflation rate for the 15-nation euro region rose to 4.1 percent from 4 percent in June, the European Union statistics office in Luxembourg said today. The rate, the highest since April 1992, matched the median estimate of 36 economists in a Bloomberg News survey. A separate report showed unemployment was 7.3 percent in June, exceeding the 7.2 percent median forecast.

Dubai's borrowings will swell to $32.5b this year
The Government of Dubai is raising a further $16.5 billion of loans for its commercial subsidiaries in the syndicated loan market and is turning to European and Asian lenders to counter a lack of liquidity among local banks, banking sources said. The Government-owned entities — known in the loan market as Dubai Inc — will bring state-backed borrowing to $32.5 billion this year, as the emirate has already completed $16 billion of loans in 2008, according to Reuters Loan Pricing Corp data.

Without fanfare, Bush signs mortgage relief bill
Avoiding public ceremony, Bush quietly signs measure offering mortgage relief for thousands
President Bush signed a housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so. Early in the morning and out of public view, the president signed it without fanfare in the Oval Office, adding his signature to a measure he once threatened to veto. The White House said he was accompanied by Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and other administration officials.

GM to Cut 5,000 White-Collar Jobs by Nov. 1 $$
Before Loss Report Friday, It Also Says It Will Trim Leases
General Motors Corp., which is expected to post a big second-quarter loss on Friday, said it will remove about 5,000 people from its salaried head count by Nov. 1 as part of a cost-cutting initiative it outlined earlier this month. Those cuts would amount to 15% of GM's North American white-collar work force. The auto maker also confirmed plans to scale back its vehicle-leasing operations, which could further crimp U.S. sales. While GM plans to continue to offer subsidized leases in the U.S., it is adjusting some of the lease terms and will exclude certain vehicles.

Chrysler Slashes Costs, Seeks Partners $$
Chrysler LLC is scrambling to slash costs and line up partnerships with foreign auto makers to shore up its finances amid a painful downturn in sales and a deteriorating outlook for the company, people familiar with the matter said. In recent weeks, the auto maker has had discussions with Tata Motors about having the company sell and possibly assemble Jeeps in India, these people said. Separately, Chrysler has had talks about leasing one of its U.S. plants to produce cars for Italy's Fiat SpA, they said. Chrysler has been exploring alliances since it was acquired a year ago by Cerberus Capital Management LP, and has mapped out a deal to make trucks for Nissan Motor Co. Both sets of talks are preliminary and may not lead to deals, these people said.

A Hidden Toll on Employment: Cut to Part Time
The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago. The loss of pay has become a primary source of pain for millions of American families, reinforcing the downturn gripping the economy. Paychecks are shrinking just as home prices plunge and gas prices soar, furthering the austerity across the nation. "I either stop eating, or stop using anything I can," said Marvin L. Zinn, a clerk at a Walgreensdrugstore in St. Joseph, Mich., who has seen his take-home pay drop to about $550 every two weeks from about $650, as his weekly hours have dropped to 37.5 from 44 in recent month.

Nissan offering buyouts to Tennessee employees
Nissan North America Inc. said Wednesday it will offer buyouts to about 6,000 employees at the company's two Tennessee plants and eliminate a night shift at one plant because rising fuel prices and the economic downturn have slowed sales of trucks and sport utility vehicles. The technicians and salaried employees at the assembly plant in Smyrna and powertrain plant in Decherd will be offered a lump sum of $100,000 or $125,000 depending on tenure, as well as medical and car purchase benefits, the company said. Nissan spokesman Fred Standish said that even though the company is ending night shift truck production effective Aug. 11, it does not plan any layoffs. "We've never laid off anybody in Smyrna and we don't intend to do it now," he said. Standish said employees on the shift that is being eliminated are expected to either take buyouts or move into jobs made vacant from other workers taking the buyouts. "There's going to be a lot of movement and realignment," he said. The two plants have about 1,200 more employees right now than they need, he said.