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dkf's Journal
dkf's Journal
May 29, 2012

Dollar Scarce as Top-Quality Assets Shrink 42%

The dollar is proving scarce, even after the Federal Reserve flooded the financial system with an extra $2.3 trillion, as the amount of the highest-quality assets available worldwide shrinks.

International investors and financial institutions that are required to own only the highest quality assets to meet investment guidelines or new regulations are finding fewer options beyond dollar-denominated assets. The U.S. is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group-of-10 nations fit that category, data compiled by Bloomberg show.

“The pool of high-rated assets has been shrinking, not just in the euro zone but elsewhere as well,” Ian Stannard, Morgan Stanley’s head of Europe currency strategy, said in a May 22 telephone interview. “With the core of Europe shrinking, and the available assets for reserve purposes shrinking, it makes the euro zone less attractive.”

Euro Depreciation

The dollar is gaining mainly at the expense of the euro, which has depreciated almost 5 percent the past six months against a basket of nine major currencies tracked by Bloomberg as nations from Spain to Italy see their credit ratings downgraded amid the region’s sovereign crisis.


May 28, 2012

Greece warned of public finances collapse

Greece's public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the technocrat prime minister who left office after this month's inconclusive vote.

Mr Papademos warned that conditions were deteriorating faster than expected with cash flow likely to turn negative in early June amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.

Mounting anxiety that Greece is headed for further political instability and a possible exit from the euro has prompted many Greeks to postpone making tax payments, and has also accelerated outflows of deposits from local banks.


The looming cash crunch was revealed on Sunday in an eight-point document published by the Greek newspaper To Vima. A senior government official confirmed its accuracy, adding that Mr Papademos gave the document to President Karolos Papoulias, who discussed it with political party leaders as part of a failed attempt to form a national unity government.


May 26, 2012

Greeks Work Hard, So Why Is There a Debt Crisis?

Greek workers put in longer hours than any other Europeans or Americans, according to a new report by McKinsey. (Click here to read the full report) The consulting firm’s 60-page brief, “Greece 10 Years Ahead,” examines what makes the Greek economy so uncompetitive relative to its neighbors and offers advice on what to do about it.

Within the McKinsey report, however, there are two additional data points that explain why more hours worked by Greeks haven’t led to a growing economy.

First, Greece has the lowest labor participation rate in all of Europe — just 66 percent of the employable population have jobs, compared with 73 percent in the European Union and 70 percent in Southern Europe.

Second, not only are fewer Greeks working, those who do are far less productive: A Greek worker’s productivity comes in at $35 an hour, compared with $49 an hour in the EU, $55 an hour in Central Europe, and $58 and hour in the U.S.

Put it all together and it led McKinsey to one inescapable conclusion: "A relatively smaller percentage of Greeks work longer and harder hours than their European peers to support a generally unproductive system.”


May 24, 2012

Facebook Banks Said to Make $100 Million on Stabilizing Stock

Facebook Inc. (FB)’s underwriters for its initial public offering made gains of about $100 million through their work to stabilize the shares in public trading, said a person familiar with the matter.

The gains will be shared by all banks on the IPO syndicate, said the person, who declined to be identified because the process was private. Morgan Stanley (MS) will use some of the gains to reimburse clients who lost money because of glitches in trade execution, the person said.


May 24, 2012

Prison Term for Helping C.I.A. Find Bin Laden

PESHAWAR, Pakistan — A Pakistani doctor who helped the Central Intelligence Agency pin down Osama bin Laden’s location under the cover of a vaccination drive was convicted on Wednesday of treason and sentenced to 33 years in prison, a senior official in Pakistan said.

A tribal court here in northwestern Pakistan found the doctor, Dr. Shakil Afridi, guilty of acting against the state, said Mutahir Zeb Khan, the administrator for the Khyber tribal region. Along with the prison term, the court imposed a fine of $3,500. Dr. Afridi, who may appeal the verdict, was then sent to Central Prison in Peshawar.

He had been charged under a British-era regulation for frontier crimes that, unlike the national criminal code, does not carry the death penalty for treason. Under Pakistani penal law, Dr. Afridi almost certainly would have received the death penalty, a Pakistani lawyer said.

Dr. Afridi’s fate has been an added source of tension between Pakistan and the United States, at a time when the countries remain at loggerheads over reopening supply lines through Pakistan to Afghanistan.


May 22, 2012

Fitch downgrades Japanís credit rating because of ballooning government debt

TOKYO — Fitch has downgraded Japan’s credit rating to A-plus with a negative outlook, reflecting risks from its ballooning government debt.

Fitch Ratings said Tuesday that the downgrade and negative outlook underline growing risks for Japan from high and rising public debt.

Japan’s gross government debt is projected to hit 239 percent of its economy by the end of this year, by far the highest of any Fitch-rated country.

A Fitch statement described Japan’s plans to control its debt mountain as “leisurely.”


May 21, 2012

US lets China bypass Wall Street for Treasury Orders

The Treasury, apparently dissatisfied with the speed of indirect bank and/or Fed-inspired monetization of its exponentially rising debt-load at ever-cheaper costs of funds, decided in June 2011 to allow the Chinese, with their equally large bucket of USDs to bid directly for US Treasuries.

As Reuters reports, China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government. The documents, viewed by Reuters, indicate that the US Treasury has given the PBOC a direct computer link to its auction system - which was first used in the 2Y auction of June 2011. Perhaps this helps explain the massive spikes in direct bidders July and August 10Y auctions (around the US downgrade).

Interestingly, Primary dealers are not allowed to charge customers money to bid on their behalf at Treasury auctions, so China isn't saving money by cutting out commission fees; instead, China is preserving the value of specific information about its bidding habits.

By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price. This, after the 2009 discovery (and relaxing of other reporting requirements to cover this) that China was using special deals to hide its bond purchases, seems like more pandering to the large-holder-of-Treasuries as "direct bidder status may be controversial because some government officials are concerned that China has gained too much leverage".


May 20, 2012

Under Romney Massachusetts had highest debt per capita of any state.


Presumptive Republican presidential nominee Mitt Romney used a speech in Iowa yesterday to blame President Obama for a “prairie fire of debt” that is supposedly spreading across the nation. Romney continued the assault today, giving a speech in Florida in front of a giant clock featuring a running total of the nation’s debt.

As ThinkProgress noted yesterday, Romney’s attack ignores that his own economic plan would add more than $10 trillion to the national debt. It also ignores Romney’s record as governor of Massachusetts, which had the nation’s highest per capita debt total when he left office in 2007.

According to data from the U.S. Census Bureau and the Bureau of Economic Analysis (compiled by Connecticut’s chief analyst in 2009), Massachusetts had $10,504 in per capita bond debt in 2007, the highest total in the nation. No other state had more than $10,000 in per capita debt, and only one had more than $8,000. Massachusetts ranked second, behind only Alaska, in per capita debt as a percent of personal income, with debt making up more than 21 percent of each resident’s income.
Romney has painted the national debt as a moral crisis that “threatens what it means to be an American.” And yet, Romney’s past and his plans for the future prove that he isn’t actually willing to address it.
May 20, 2012

Bain Capital: A Consulting Firm Too Hot to Handle? (Fortune 1987)


Editor’s note: Every Sunday, Fortune publishes a favorite story from our magazine archives. This week, we turn to an April 1987 item on the management consulting firm Bain & Co., which counts former Massachusetts governor and Republican presidential hopeful Mitt Romney as an alumnus (and former CEO). Romney co-founded the spin-off investment firm Bain Capital in 1984. The following story takes a close look at some of the benefits and pitfalls of the consulting firm’s famously aggressive business approach.

FORTUNE — On a January morning four years ago, 30 sleek, immaculately turned-out executives sat tensely at a ring of tables in a large conference room at the Hyatt Rickeys Hotel in Palo Alto. They had flown in from all over the world for a regular partners’ meeting of Bain & Co., a Boston-based management consulting firm. Their attention was riveted not on a discussion of the firm’s revenues but on a speakerphone placed on a table in the center of the room.

Rising out of the ether was the voice of John Theroux, Bain’s managing partner in London. He was describing a palace coup in progress at Guinness PLC, one of Bain’s largest clients. Ernest Saunders, the Guinness managing director who had hired Bain, was trying to unseat Deputy Chairman Anthony Purssell, the man who had brought Saunders in to head the company. Because it was in the Bain firm’s interest to have its man indisputably in charge, Theroux was seeking advice on how to help Saunders consolidate his position.

For the next two hours the partners were canvassed for ideas on how to place Purssell in such an untenable situation that he would have to quit. Ultimately a strategy was devised. ”It was quite cold-blooded,” recalls a partner who attended. Within the month Purssell was out, and Saunders was alone at the top.

The creator of ”relationship consulting,” Bain has built its business on the close ties that it develops with chief executives. Among the comparatively few people who know its work, the firm has become noted for the enormous power it wields with clients, for the cloak-and-dagger mystique that surrounds it, and for the shrewd, suave people it employs. Starting salaries in excess of $60,000 lure the sharpest, most presentable MBAs from Harvard and Stanford.

The brainchild of one man, William W. Bain Jr., 49, Bain & Co. has created a new type of management consultant, the quasi-insider, privy to his client’s secrets, who works directly with the CEO. to help put into effect the consulting firm’s recommendations. As the Guinness affair was to show, it’s a concept that can be pushed too far.
May 19, 2012

Report: Marijuana use grows, cocaine falls among men arrested in 10 US cities

Cocaine use is down but marijuana use continues to grow among men arrested in 10 U.S. cities, according to a federal drug-monitoring program's annual report released Wednesday.

Marijuana was the most commonly used illegal substance,  the 2011 Arrestee Drug Abuse Monitoring Annual Report (ADAM II) says. In Sacramento, Minneapolis, Chicago and Charlotte, N.C., 50 percent or more of arrestees tested positive, not significantly different from 2010, but continuing an upward trend from 2000, it said. Sacramento saw the highest use at 56 percent, and highest growth, up from 46 percent since 2009.

Overall, more than 60 percent of men arrested in 2011 for crimes ranging from misdemeanors to felonies tested positive for at least one illicit drug, the report said. Positive test results ranged from 64 percent in Atlanta to 81 percent in Sacramento, Calif. Four cities, Chicago, Minneapolis, New York, and Portland, Ore., joined Sacramento in reporting 70 percent or more arrestees testing positive.

The report is based on thousands of interviews and drug tests of all arrestees, not just those in drug-related cases. They are tested for marijuana, cocaine, opiates, amphetamines/methamphetamine, Darvon, PCP, benzodiazepines, methadone, and barbiturates, but not alcohol, under the program.


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