Thursday, April 5, 2012

Thursday, April 5, 2012

DOW – 14 = 13,060
SPX – 0.88 = 1398
NAS + 12 = 3080
10 YR YLD - .07 = 2.17%
OIL + 1.78 = 103.25
GOLD + 10.90 = 1632.30
SILV +.38 = 31.84
PLAT + 7.00 = 1609.00

The big jobs report is due out tomorrow morning 5:30 AM pacific time. The nonfarm payroll report is typically the biggest economic report of the month. And tomorrow's report will be unique because the stock market will be closed for Good Friday.

Today we saw a report that initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 357,000, the lowest level since April 2008. New claims have fallen sharply in recent months, boosting expectations the end of a long cycle of heavy layoffs will lead to more hiring. The weekly report does not have a direct relationship with the March employment report due on tomorrow morning.

In Europe, Spanish bond yields moved higher, renewing concerns about the euro zone's financial health. Prices for U.S. government debt rose while the euro weakened against the dollar. The European Central Bank’s emergency lending program launched last December was supposed to give Europe’s troubled banks and sovereigns three years of relief. But just months later, the medicine is already wearing off. That’s the problem with trying to fix a solvency problem with liquidity—it doesn’t last.

Spain is the new epicenter. Demand for the nation’s debt slumped this week, forcing the government to pay 4.3 percent on five-year bonds, nearly a percentage point more than in March; yield on the 10-year note climbed to 5.9%. Spain’s IBEX 35-stock index is below 8,000, half its 2007 level. It’s down more than 11 percent in just two weeks.

Those are the numbers, but I always say that economics and finance is the important stuff; I should also say that it is much more than numbers, it gets to the very heart of who we are, what we consider important, and survival itself. You remember that last year the Arab Spring began when a fruit vendor in Tunisia named Mohamed Bouazizi set himself on fire on in response to the harassment and corruption he endured from municipal employees in his country. Protests erupted within hours and became more violent over the next two weeks.

Yesterday in Athens, 77-year-old retired pharmacist, Dimitris Christoulas, shot himself in the head after saying that financial troubles had pushed him over the edge. A suicide note said he preferred to die rather than scavenge for food.

The highly public - and symbolic - suicide prompted an outpouring of sympathy from Greeks, who set up an impromptu shrine on the spot where the pensioner died. Today, hundreds of Greeks - including students, teachers, members of leftist groups, and the "Indignants" who held daily sit-ins for months last year - staged a second day of protests at the shrine, leaving flowers and candles.Minor clashes broke out between a small group of demonstrators and police, who fired tear gas. A peaceful demonstration was also held in the city of Thessaloniki. The newspaper called Christoulas a "martyr for Greece” and a symbol of the pain of austerity.

Back in the USA, the IMS Institute for Healthcare Informatics reports 2011 was a breakthrough year for the drug industry, which introduced 34 new medicines, the most in a decade, to treat diseases including cancer, multiple sclerosis, hepatitis C and others.

The number of prescriptions issued to patients declined by 1.1 percent compared with 2010, and visits to the doctor fell by 4.7 percent. Visits to the emergency room, by contrast, increased by 7.4 percent in 2011, an increase linked to the loss of health insurance resulting from long-term unemployment. Patients cut back on prescription drugs and doctor visits as they struggle to pay for health care.

At Bloomberg today you will find a piece that is a bit hard to stomach if you’re the type of person whose heart goes out to the suffering. A bunch of financial services employees’ bonuses were slashed last year and, as a result, their lives have been turned upside down. It really is sad, these tales of down and out bankers. One guy who works for Euro Pacific Capital says he has to scale back his Connecticut summer house rental from four months to one; facing the pressure of paying private school tuition for two kids; living in a “crammed” 1,200-square- foot Brooklyn duplex – he described his situation as very hard.

And then there's the tragic story of the headhunter whose “income has gone down tremendously” and now must buy discounted salmon and read supermarket circulars to find good prices for his favorite cereal. Then there is the story of the trader at Falcon Management. He likes to travel; he rented a four bedroom ski chalet at Bear Mountain in California for Christmas. He went to Spain last August for a bachelor party of one of his buddies. In May he spent 10 days in India on vacation. And then last month, a friend invited him on a trip to Mardi Gras in New Orleans. The friend was going to be a judge in a wet T-shirt contest. He turned down the offer. It wouldn’t have been “the most financially prudent thing to do.” Next time someone tells you that people on Wall Street have no sense of how bad it truly is out there, you tell them about the martyr of the Mardi Gras.

Next week kicks off the first quarter earnings reporting season. Depending on how you look at it, Bank of America Corp. last year had a $1.4 billion profit or a $3.9 billion loss. Both figures are accurate. The big difference is that the second one is harder to find in the company’s financial reports. To locate the first number, known as net income, simply check the bottom of Bank of America’s income statement. The other figure, called comprehensive income, is buried deep in the company’s statement of changes in shareholder equity, where the loss is easy for readers to miss.

That system of financial reporting is about to change. Starting with first-quarter results, U.S. public companies will be required to give greater prominence to comprehensive income in their securities filings, under new rules passed by the Financial Accounting Standards Board. Unfortunately the board didn’t go far enough, because it still gives companies cover to claim that the two earnings metrics aren’t equally important.

Moody's Investors Service is reviewing 15 of the world's largest banks for possible credit ratings downgrades in mid-May, and broad cuts could send banks on average to their lowest historical levels.

In the U.S. Morgan Stanley could see the largest cut after being warned of a possible three-level downgrade to the Baa category, a rating that has traditionally been associated with more speculative risk than some investors and trading partners have been comfortable with. Broad bank downgrades may also accelerate efforts banks have already been making to reduce the size of their businesses, a move that could broadly reduce investments across markets. Now we know why banks have been so anxious to craft earnings by depleting loss reserves and why banks want to deplete capital to boost stocks, and probably redeem options.

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