Thursday, 31 January 2013

Bernanke Dissatisfied With Growth Will Press on With Pace of QE

By Joshua Zumbrun & Jeff Kearns - Jan 31, 2013 9:00 AM GMT+0400

Federal Reserve Chairman Ben S. Bernanke signaled he isn’t close to easing up on $85 billion in monthly bond purchases to spur a stalled economy and bring down 7.8 percent unemployment.
Jan. 30 (Bloomberg) -- Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., talks about the Federal Reserve's decision today to keep purchasing securities at the rate of $85 billion a month, and the outlook for Fed policy and the U.S. economy. Feroli speaks with Adam Johnson and Alix Steel on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Audio Download: Stern, Phillips, Shapiro on Fed Policy Statement
Bernanke Dissatisfied With Growth Will Press on With Pace of QE
Minutes from the Federal Open Market Committee’s December meeting showed that policy makers debated when to end the monthly purchases of $45 billion in Treasuries and $40 billion in mortgage bonds. Photographer: Andrew Harrer/Bloomberg
Sponsored Links
A stock that could save your life? Now trading under ...
Don't Miss The Next Penny Stock To Take Off! Insane G...
The Nano-tech Juggernaut; An Awakening $2.6 Trillion ...
Buy a link
The Federal Open Market Committee said in a statement yesterday that growth, while slowed by “transitory factors,” faces “downside risks” even after strains in global financial markets have eased. The expansion will pick up and unemployment will fall in response to “appropriate policy accommodation,” Fed officials said in a statement after a two-day meeting.
“Everything in this statement suggests that they will continue to buy $85 billion per month and that we still have a ways to go before they’re satisfied that the labor market is where they want it to be,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York and a former Richmond Fed economist.
Bernanke and his FOMC colleagues are deploying record stimulus through an open-ended expansion of the Fed balance sheet after determining that the benefits from stoking a flagging economy outweigh any risk of financial instability or higher inflation.
The Standard & Poor’s 500 Index fell yesterday 0.4 percent to 1,501.96, retreating from the highest level since December 2007. The 10-year Treasury note yield declined 0.01 percentage point to 1.99 percent after reaching the highest level since April.

FOMC Debate

Minutes from the FOMC’s December meeting showed that policy makers debated when to end the monthly purchases of $45 billion in Treasuries and $40 billion in mortgage bonds. Thecentral bank has pledged to continue the buying until the labor market improves “substantially.”
Policy makers who provided forecasts last month were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who favored a later date, the minutes said.
The tone of yesterday’s statement suggests “markets overreacted to the December minutes,” overestimating the FOMC’s inclination to curb asset purchases, said Joseph Gagnon, a former associate director of the Fed’s Division of International Finance.
After release of the Dec. 11-12 meeting minutes on Jan. 3, the yield on the 10-year Treasury note rose 0.07 percentage point, to 1.91 percent. The S&P 500 fell 0.2 percent, reversing a 0.2 percent gain earlier in the day.
Gagnon, a senior fellow at the Peterson Institute International Economics in Washington, predicts the Fed will continue buying bonds through the end of this year.

Growth ‘Paused’

“Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors,” the FOMC said yesterday hours after the Commerce Department said gross domestic product shrank at an annual rate of 0.1 percent during the fourth quarter.
The Fed believes growth will resume in 2013, said Ellen Zentner, a senior economist at Nomura Holdings Inc. in New York.
“That’s what they want to stress, that when they look into their crystal ball for GDP that the pause isn’t going to carry forward,” she said.
The buying has already propelled the central bank’s balance sheet above a record $3 trillion and shows Bernanke’s resolve to further boost an economy where 12.2 million Americans remain unemployed more than three years after recovery officially began.

‘Financial Imbalances’

Kansas City Fed President Esther George dissented from yesterday’s statement, saying she was concerned that “the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
Fed presidents rotate voting on monetary policy, with George, St. Louis Fed President James Bullard, Chicago Fed President Charles Evans and Boston’s Eric Rosengren joining the committee as voters for 2013.
The FOMC said asset purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities. The Fed will continue reinvesting any Treasury securities that mature and will reinvest its portfolio of maturing housing debt into agency mortgage-backed securities.
The Fed also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation remains no more than 2.5 percent.

Jobs Outlook

Central bankers will have more information on the outlook for the job market tomorrow, when the Labor Department releases its 8:30 a.m. report covering the month of January.
Economists in a Bloomberg survey expect the unemployment rate will remain unchanged at 7.8 percent. Employers will add 165,000 jobs, which would be the most since August, according to the survey’s median estimate.
“In the United States, we’re becoming increasingly optimistic,” Michael DeWalt, the director of investor relations for Peoria, Illinois-based Caterpillar Inc., said on a Jan. 28 conference call with analysts. “The Fed’s interest-rate policies and their plan to continue injecting liquidity are in our view positive for 2013 growth.”
To contact the reporter on this story: Joshua Zumbrun in Washington at; Jeff Kearns in Washington at;
To contact the editor responsible for this story: Chris Wellisz at

Wednesday, 30 January 2013

Samaras Last Best Greek Hope With Compliance Not Defiance

By Maria Petrakis - Jan 30, 2013 2:01 AM GMT+0400

At his first cabinet meeting after two inconclusive elections and six weeks of turmoil had pushedGreece to the brink of exiting the euro, Prime Minister Antonis Samaras said he’d had enough.
In a seven-minute speech, he warned his ministers to deliver while reducing their pay by 30 percent. “I’m not interested in good intentions,” Samaras said at the June 21 meeting, televised on state-run NET TV. “I want results.”
Greek Prime Minister Antonis Samaras Greek Prime Minister Antonis Samaras. Photographer: Jock Fistick/Bloomberg
The 61-year-old premier has wasted little time since then haranguing European leaders to stop fanning speculation Greece’s place in the euro was less than secure. He has shepherded months of talks between his coalition partners and his troika of creditors over new austerity measures, and clinched the release last month of 34 billion euros ($45.7 billion) of bailout funds that were frozen since he came to power.
He has silenced, at least temporarily, a parade of economists, investors and politicians who predicted Greece’s departure from the euro. The region’s finance ministers spent just 10 minutes on Jan. 22 before signing off on another aid instalment, the latest indication Samaras is the Greek they are banking on to succeed in helping keep their currency intact.
The Athens Stock Exchange General Index more than doubled since June 5, outperforming all equity markets in western Europe. Greece’s 10-year bond yields are about 10 percent from 30.55 percent at the beginning of June.

Greek Hope

“He is possibly the last best hope for anyone who believes that Greece’s best interests lie in remaining in the euro zone,” said Kevin Featherstone, professor of European politics at theLondon School of Economics. “If Samaras were somehow to fall, it’s not at all clear who could possibly succeed him.”
At the World Economic Forum at Davos last week, Greece slipped down the agenda for the first time in three years, even though its economy is in what Samaras has called a “Great Depression,” with a sixth year of recession and one in two youths now jobless. It may have helped that he didn’t attend.
It wasn’t always this way. Predecessor George Papandreou, 60, who revealed Greece’s misstated deficit figures when he came to power in October 2009, was feted as the man who would change Greece. His visits to Davos in 2010 and 2011 helped keep the country as front-page news.
Papandreou, a contemporary of Samaras at Amherst College in the early 1970s, promised a sweeping overhaul of the economy, including cuts to pensions and wages for state workers, in return for euro area and International Monetary Fund money to prevent the first financial demise of a euro area country.

Political Collapse

Samaras opposed Papandreou’s position. He rejected Greece’s first bailout in 2010 and held up loan payments in November 2011 by refusing to give a written endorsement to budget measures after Papandreou’s government collapsed.
He then insisted on sending Greeks to the ballot box last May rather than continue with the interim leadership of Lucas Papademos, a former European Central Bank vice president, in a move that misread the public’s support for him. His New Democracy party failed to win enough votes in the May 6 election to form a government, resulting in another national ballot six weeks later.
“The insistence on elections was to bring about one of the biggest collapses of any party system in western Europe since 1945,” Featherstone said. “This is playing with fire to a very considerable degree. There is a sense that he makes short-term political calculations. Critics see him as an opportunist.”
The May election led to the emergence of Syriza party leader Alexis Tsipras, who was perceived as posing a further threat to political stability in Greece. Tsipras, 38, heads an anti-austerity party that rode a wave of public anger to second place in the vote.

Drachma Specter

During the campaign, Tsipras vowed to cancel terms of the Greek bailout, in a challenge to German Chancellor Angela Merkel to call his bluff and expel Greece. Financial markets gyrated with the benchmark Athens stock index falling to the lowest level in more than two decades on June 5.
Samaras, campaigning on the choice of “euro or drachma,” the old Greek currency, won the June election and formed a government with Pasok, Papandreou’s party, and the smaller Democratic Left. He also promised EU leaders that he will honor terms of the current 130 billion-euro rescue package.
Seven months and 13.5 billion euros of austerity measures later, Samaras has been rewarded with another two years until 2016 to meet budget-cutting targets.
While Papandreou had increasingly faced isolation, Merkel braved demonstrations to visit the Greek capital in October, repaying Samaras’s commitment to playing by the rules Germany had set. For his part, Samaras has gone to Berlin twice. In his first trip, in August, Merkel admonished lawmakers from her coalition who said Greece should quit the euro, telling them to “weigh their words very carefully.”

Merkel Messages

“I want Greece to stay in the euro zone and that’s what I’m working for,” Merkel said. She said she is “deeply convinced” Samaras will make every effort.
That contrasts with a threat she delivered to Papandreou in November 2011 after he returned from a meeting in Brussels with a new bailout package and debt writedown only to declare his intention to hold a referendum on austerity measures tied to it. The plan was subsequently rescinded and Papandreou fell.
The change toward Samaras shows “how close things were to disaster,” said Stathis Kalyvas, a professor of political science at Yale University. “This strikes me as a classic case of someone stepping up to the occasion. Because expectations were so low about Samaras, most foreign observers have been pleasantly surprised.”

Less Public

Samaras, a champion tennis player in his youth, comes from a political family. He is the grandson of a parliamentarian and the nephew of another, though his father was a cardiologist.
Since taking office, his public appearances have been less frequent than those of Papandreou, whose father was prime minister in the 1980s and again in the mid-1990s.
Samaras held just three cabinet meetings, preferring to receive briefings from ministers far from television cameras, a departure from Papandreou’s style of holding open discussions, inspired by his annual symposiums on foreign policy and environmental issues held on Greek islands. Samaras’s office said he wasn’t available to comment for this story.
“He doesn’t want to leave things hanging,” says Dino Arcoumanis, a school friend who is deputy vice chancellor at City University in London. “He doesn’t want to finish meetings without some decisions. Greece now needs that.”

Coalition Glue

The greatest challenge will be to hold together a coalition that in its short lifespan has already lasted longer than any attempted since the return of democracy in 1974.
He’s transcended Greek political traditions by forging a close relationship with his finance minister, Yannis Stournaras, who comes from the opposite side of the spectrum. Stournaras was an adviser to Costas Simitis, the Pasok prime minister as Greece readied for euro membership in the late 1990s.
At the same time, the government has been criticized by human rights groups for police treatment of illegal immigrants. He sent officers in to break up a nine-month strike at a steelmaker in July. This month, he used an emergency decree that forced public transportation workers to end a nine-day walkout.
The potential clash between European demands for more budget cuts and Samaras’s ability to deliver may keep alive the threat of Greece’s exit from the euro.
The economy has contracted by more than 20 percent since 2008 and the IMF says it won’t stop shrinking until next year, with reforms remaining “a constant challenge.” They include an overhaul of the tax system and selling state assets amid waning social support and “political fragilities.”

Lingering Risk

“The efforts of Greek and European leaders have helped, but have not taken this risk off the table,” the IMF said in a report released on Jan. 18. “Indeed, until Greece completes its external adjustment and restores its competitiveness, it cannot be fully taken off the table.”
While the conviction that Greece must remain in the euro “at all costs” has kept Samaras’s coalition united so far, any wavering could reignite the debate over a Greek exit by year end following elections in Germany.
Samaras has focused attention on Germany in a bid to win the support of a public that’s paying the most for Greece’s bailouts. A poll last week by ZDF showed Merkel’s Christian Democratic Union-led bloc had the support of 41 percent of respondents, compared with 29 percent for the opposition Social Democratic Party.

German History

One of the first to evoke the danger of Greece’s austerity leading to a repeat of the German instability that ushered in the Nazi era, Samaras repeated the comparison for his German audience in an interview with newspaper Handelsblatt on Oct. 5.
The Greek prime minister has given at least two interviews to Bild, a newspaper that advised Papandreou in an open letter in March 2010 for Greeks to rise earlier and work harder to overcome the crisis.
“One of Samaras’s skills is his ability to concentrate on the present rather than dwell on the past,” said Arcoumanis, the school friend, whom Samaras appointed ambassador-at-large in September. “If you are talking about 20 years ago, clearly he is a very different person.”
Armed with a master’s degree in business administration from Harvard University, Samaras entered parliament for New Democracy in 1977, at the age of 26. Before he was 40, he served as both foreign minister and finance minister.

Wilderness Years

While as foreign minister in 1992 he signed the EU treaty that paved the way for the euro, he’s remembered more for his dispute with his prime minister over the name of the former Yugoslav Republic of Macedonia.
He abandoned New Democracy in 1993, and formed his own party, Political Spring, which drew enough defectors to bring about the collapse of the then government.
The breakaway party floundered after a few elections, casting Samaras into relative obscurity. He re-joined New Democracy in 2004 and took over as opposition leader when the party was ousted by Papandreou and Pasok in 2009.
“He’s been led by circumstances and forced by circumstances not of his own making to represent the last best hope before further chaos,” said Featherstone at the London School of Economics. “He’s the best by default.”
To contact the reporter on this story: Maria Petrakis in Athens at
To contact the editor responsible for this story: Stephen Foxwell at

Spain Recession Deepens More Than Forecast Amid Austerity

By Angeline Benoit - Jan 30, 2013 12:33 PM GMT+0400

Spain’s recession deepened more than economists forecast in the fourth quarter as the government’s struggle to rein in the euro region’s second-largest budget deficit weighed on domestic demand.
Gross domestic product fell 0.7 percent in the three months through December from the previous quarter, when it declined 0.3 percent, the Madrid-based National Statistics Institute said today. That is more than the 0.6 percent contraction the Bank of Spain predicted on Jan. 23. GDP fell 1.8 percent in the fourth quarter from a year earlier and 1.37 percent over the full year from 2011, INE said.
Spain Recession Deepens More Than Forecast Amid Budget Cuts Gantry cranes and shipping containers stand at Barcelona port in Barcelona. Photographer: David Ramos/Bloomberg
The European Commission this week signaled it may recommend easing Spain’s budget goals for the fourth time in a year as unemployment in the euro region’s fourth-largest economy rose to a record 26 percent at the end of Prime Minister Mariano Rajoy’s first year in power.
“We should be circumspect; the domestic demand contraction is severe and more of the same is likely in the first half of 2013,” said Guillaume Menuet, a senior economist at Citigroup Inc. in London. “The current market momentum is such that investors have to chase the rally, masking economic fundamentals to a large degree.”

Yield Falls

The yield on Spain’s 10-year benchmark fell to 5.14 percent at 9:18 a.m. in Madrid from a euro-era high of 7.75 percent in July. The spread with German borrowing costs has narrowed around 45 percent to 3.44 percentage points. Investors see bonds from so-called EU periphery countries offering even more gains than last year after European Central Bank President Mario Draghi pledged to do whatever is needed to save the 17-nation euro.
Citigroup forecasts GDP will shrink 2.2 percent this year with a budget deficit at 6.3 percent of output and unemployment at an average 26.9 percent.
The Bank of Spain said last week that domestic demand may have dropped 3.9 percent from a year earlier in 2012, nearly twice as sharply as in 2011, as output suffered from five austerity rounds in less than a year. The last cut public wages and unemployment benefits while increasing value-added tax.

Sales Slip

Data show retail sales fell 10.7 percent in December from a year ago, more than economists expected, while home mortgage loans slid 32 percent in November, twice the previous monthly drop. Missed payments as a proportion of total loans at Spanish banks rose to a record 11.4 percent in November.
The International Monetary Fund last week cut its forecast for Spain’s economy and predicts a 1.5 percent contraction this year as the only drivers left weaken amid a European slowdown. The number of tourists visiting in December dropped from a year earlier, with an 11 percent decline from U.K. holidaymakers, the largest group. Exports fell in November.
Spanish retailers such as El Corte Ingles SA, Cortefiel SA and discounter DIA have reacted by lowering prices. Darty Plc (DRTY) is considering exiting the country while the world’s second-largest mobile-phone company, Vodafone Group Plc (VOD), and building-material producerCementos Portland Valderrivas SA are reducing headcount. Materis Paints, Europe’s third-biggest maker of decorative paint, last month predicted sales in Spain will drop 18 percent this year.

More Jobless

Public-job cuts are boosting unemployment as the nation’s 17 semi-autonomous regions race to divide their combined budget deficit by five in the two years through 2013. A third of all jobless people in the euro area are in Spain.
Madrid, the second-biggest contributor to Spain’s economy after Catalonia, plans to cut spending by 1.4 billion euros ($1.9 billion) this year. It already sliced 1 billion euros from its budget in 2012, increasing public-transportation costs and university fees, cutting jobs, delaying investments and reducing health-care and social benefits.
“The balance of risks is still tilting to the downside,” said Raj Badiani, an economist at IHS Global Insight in London. “The government’s commitment to a very painful multi-year fiscal-austerity plan has deflated consumer spending and will continue to do so amid high unemployment, shrinking house equity and still-excessive debt levels.”
To contact the reporter on this story: Angeline Benoit in Madrid at
To contact the editor responsible for this story: Craig Stirling at

Monday, 28 January 2013

Euro Crisis Seen Reaping Social Toll With Record Jobless

By Scott Hamilton - Jan 28, 2013 12:44 PM GMT+0400

Euro-area jobless data this week will expose the social cost of last year’s debt crisis and recession on southern European economies as unemployment across the region probably rose to a record in December.
Unemployment in the 17-nation bloc climbed for a fifth month to 11.9 percent, according to the median of 34 economists’s forecasts in a Bloomberg News survey. That result due on Feb. 1 would show the highest jobless rate since records began in 1995. By contrast, German unemployment data the day before may show the jobless rate there held steady for a fourth month at 6.9 percent in January, a separate survey found.
Euro Crisis Seen Reaping Social Toll With Record Unemployment Fran Lopez, a jobless electrician, checks his mobile phone on a street bench near his home in Madrid, Spain. Photographer: Photographer: Angel Navarrete/Bloomberg
Jan. 23 (Bloomberg) -- Spanish expatriates Carlos Hernandez Sonseca, Raquel del Rosario and Pablo Medina talk about their decisions to leave their home country and seek jobs in Britain. They spoke with Bloomberg's Carol Olona in London on Jan. 18. (Source: Bloomberg)
While measures to stem the region’s debt turmoil have helped reduce sovereign bond yields from Spain to Greece, the recession and crisis have led to job cuts by companies and governments. The European Central Bank predicts the currency bloc’s economy will shrink 0.3 percent this year and President Mario Draghi said last week that the “jury is still out” on whether investor optimism can be reflected in economic momentum.
“The worst may be over for financial markets, but definitely not for the real economy,” Marco Valli, chief euro- area economist at UniCredit Global Research in Milan, said by telephone. “The unemployment situation is going to remain very poor at least for another year, if not longer.”

Spanish Unemployment

The euro was trading at $1.3436 at 9:38 a.m. in Brussels, down 0.2 percent on the day. The Stoxx Europe 600 Index was little changed at 289.63.
Spanish data last week showed a record 26 percent of the workforce without jobs in the fourth quarter, bringing to the total close to 6 million people. InGreece, the rate was even higher in October, at 26.8 percent, also a record.
“Companies are still shedding labor, especially in southern Europe,” Martin Van Vliet, an economist at ING Groep NV in Amsterdam, said in an interview. “Unemployment will probably continue to trend higher in the next couple of months.”
While economists predict the German unemployment rate will stay unchanged, they still see an increase of 8,000 people without work this month from December, according to the median forecast of 31 economists in a Bloomberg news survey.
The euro-area economy has shrunk for two successive quarters and economists predict a further 0.4 percent decline in gross domestic product in the final three months of last year, according to the median of 26 estimates in a Bloomberg survey. The International Monetary Fund on Jan. 23 cut its global growth forecast and projected a second year of contraction in the euro region.

Debt Tensions

While investor confidence in Germany, Europe’s largest economy, rose to the highest in 2 1/2 years this month as debt tensions ease, high unemployment and continued austerity measures elsewhere are undermining household sentiment and spending. An index of euro-area economic confidence probably rose to the highest level since June, according to median estimate in aBloomberg News survey of 30 economists.
“We’re in the phase of financial conditions improving and markets becoming more optimistic, but that has to feed through to the real economy,” ING’s Van Vliet said.
Alongside the euro-area unemployment data, Eurostat, the European Union’s statistics office, will also release data on consumer prices for January. The inflation rate will remain at 2.2 percent, according to the median of 39 economists’ forecasts in another survey.

‘Tough’ First Half

Euro-area economic conditions will be “tough” in the first half before a wider recovery takes hold in 2014, according to Patrick de Maeseneire, chief executive officer of Adecco SA (ADEN), the world’s biggest supplier of temporary workers.
This year “is not going to be a good year,” De Maeseneire said in an interview on Jan. 25. “The first six months will be tough, especially in France, especially in southern Europe,” he said. “Germany is also slowing down, we see automotive slowing down, and that’s going to have an effect on the surrounding economies.”
PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, said last month it will eliminate an additional 1,500 jobs by 2014, on top of 8,000 announced in July.
“Job shedding continues because it’s clear the euro zone economy is still in recession,” said UniCredit’s Valli. Still, “What we’re seeing right now is all the preconditions that are necessary in order to have some sort of economic improvement. Nothing in the near term, but down the road.”
To contact the reporter on this story: Scott Hamilton in London at
To contact the editor responsible for this story: Craig Stirling at