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Fed says plan now to avert inflation
TULSA, Oklahoma (Reuters) - The United States economy will skid more deeply into recession in coming months, Federal Reserve policy-makers warned on Thursday, but it is time to start planning how to wind down spending to avert an inflationary surge.
The president of the Kansas City Federal Reserve Bank, Thomas Hoenig, said that hard as it was to predict when the winding-down process must be initiated, it will happen.
"We know it has to happen, but the timing I can't tell you. Nobody knows. We will watch every indicator of data that suggests a recovery is on the way," Hoenig said in response to audience questions after a speech in Tulsa, Oklahoma.
"Failure to do that at the right time means you risk a much higher inflation environment," he added.
Hoenig acknowledged the economy remains "under significant stress" from the ongoing banking crisis. But he said the U.S. central bank cannot wait until it is well into recovery and the job market is strong before acting.
The Fed's second longest-serving policy-maker added that he expects resistance "almost immediately" to any move to raise interest rates or, for example, to start selling off its stash of mortgage-backed securities.
Hoenig and a second regional Fed bank president, Gary Stern of Minneapolis, said there were still significant credit strains holding the economy back and cautioned that an eventual rebound likely will be mild.
"The recession is likely to persist for some time longer, and the initial stage of the recovery seems likely to be subdued," Stern said in remarks prepared for the South Dakota economic summit in Sioux Falls.
"In view of the state of the credit markets, it seems a fair bet that it will take time for momentum to build. But ... as we get into the middle of 2010 and beyond, I would expect to see a resumption of healthy growth," he added.
A third speaker, White House Economic Adviser Lawrence Summers, told the Economic Club in Washington that there were "substantial downdrafts" hindering a U.S. recovery. "Economies don't go from losing 600,000 jobs a month to a terribly happy path overnight," he said.
But Summers added that overstocked inventories were being drawn down and "the sense of a ball falling off a table, which is what the economy has felt like since the middle of last fall, I think we can be reasonably confident that that's going to end within the next few months."
Hoenig said getting the banks back into good health was vital for a sustained recovery.
"The restoration of normal financial activity depends on how we deal with the problems of our largest financial institutions," he said, and policy-makers need to be mindful of public dissatisfaction with costly taxpayer-funded bailouts.
Originally posted by Seany
reply to post by spinkyboo
this is one of the "better" job loss statements youve posted in awhile
Sumitomo Mitsui `Reality Check' Hints at Cracks in Japanese Banks' Capital
April 10 (Bloomberg) -- Sumitomo Mitsui Financial Group Inc. posted an unexpected $3.9 billion loss and announced plans to seek capital, adding to evidence that Japan’s biggest banks may struggle to weather the deepening recession.
The Tokyo-based lender, Japan’s second-largest by market value, yesterday said it may raise as much as 800 billion yen ($8 billion) to restore a balance sheet weakened by bad loans and losses on investments including Barclays Plc. The news came a day after Moody’s Investors Service cut the credit ratings of Mizuho Financial Group Inc. and said the bank may need more cash.
Sumitomo Mitsui, Mizuho and Mitsubishi UFJ Financial Group Inc. plowed a combined $11 billion into ailing Western rivals, fueling speculation that they would seize on the global credit crisis to expand abroad. The banks are now retrenching under the weight of swelling investment losses and a recession that’s pushed bankruptcies in Japan to a six-year high.
“It is now reality-check time for those who thought the Japanese banking system had weathered the storm and was going to be a bastion of strength in the global banking system,” said Kirby Daley, a strategist at Newedge Group in Hong Kong. “Mountains of bad loans, topped with cross-shareholdings and stock portfolios which are in the red, in the current environment makes for a very bad mix.”
Sumitomo Mitsui’s shares didn’t trade at the open of the Tokyo market today as sell orders overwhelmed buy offers. They were poised to drop 14 percent following a 16 percent decline in the company’s American depositary receipts. Mizuho slumped 9.6 percent at 9:40 a.m. in Tokyo, it biggest decline in five months, while Mitsubishi UFJ dropped 3.6 percent.
Key developments for Sumitomo Mitsui Financial Group Inc. (8316)
Citigroup To Reportedly Hold 2nd Round Of Bidding For Nikko Cordial
Citigroup Inc. is planning to hold another round of competitive bidding as early as April for the final selection of a buyer for Nikko Cordial Securities Inc., The Nikkei learned on March 19. Citigroup has initiated opening up Nikko Cordial's books to potential buyers for due diligence, according to sources familiar with the matter. Senior executives of Nikko Cordial are also holding explanatory sessions for potential buyers and replying to inquiries about the company's operations and business structure. Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. all expressed interest in acquiring the operations when Citigroup held its first round of bidding in February. Market observers believe that Nikko Cordial could be sold for ¥300 billion or so, but the final figure could be much higher as Citigroup is struggling to sell the company for the highest possible price. At the same time, Citigroup is believed to be emphasizing on selecting a buyer with which it can build a partnership of its own.
Citigroup Reportedly Mulling Stake Sale In Monex
Citigroup Inc. is planning to sell its 26% stake in Monex Group Inc. as part of the group’s efforts to raise cash, the Yomiuri newspaper reported on March 6. The stake was worth around ¥15.3 billion as of March 5, shares of the company plunged 5.7% after the report. Yumiko Iuchi, a spokeswoman at Nikko Citigroup, declined to comment on the report. It appears that Citigroup has already sounded out several financial companies on the sale of its stake in Monex, the Yomiuri reported. Other Internet-based brokerages and large financial institutions that are looking at boosting up their retail businesses could be interested in the stake, the paper added. Citigroup is also trying to sell Nikko Cordial Securities Inc. Sources told Reuters that Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have all shown interest in acquiring Nikko Cordial, sources have told Reuters.
Citigroup Reportedly Starts Receiving Interests For Nikko Cordial
Citigroup Inc. is believed to have started accepting applications from firms interested in acquiring Nikko Cordial Securities Inc. It is believed that nearly 10 firms, which include life insurers and investment funds have received invitations to participate in the auction. It is expected that bidding will revolve around Mitsubishi UFJ Financial Group, Inc., Mizuho Financial Group, Inc. and Sumitomo Mitsui Financial Group Inc.
Just Trust Us, the Banks Are Fine!
It's springtime for banks and financial stocks.
The sector at the epicenter of the credit crisis has moved sharply higher off the March lows and was in rally mode again on Thursday thanks to:
* Wells Fargo, which forecast first-quarter profits of $3 billion, far beyond analysts' expectations.
* Continued strength in life insurance stocks amid reports the government will open TARP to the industry.
* A New York Times story, citing officials involved in the government's stress test, which declares "all 19 banks undergoing the exams will pass them. "
The first two points are somewhat self-evident. The last one, however, is a continuation of what many believe is a hoax (or outright crime) being perpetrated on the American people by its government.
By presumably leaking this "news", the government wants to reassure Americans "the banking system, broadly speaking, seems to be in better shape than many people think," as The NY Times reports.
That could be very significant if the problem really is one of a lack of confidence, as Treasury Secretary Tim Geithner (and his predecessor) seems to believe. But as we discuss in the accompanying video with Jon Najarian of OptionMonster.com, such confidence-boosting measures are counting on the majority of Americans to take the government's word for it and not consider the following:
* The stress tests are being conducted with little transparency - and by the banks themselves.
* The "baseline" stress-test scenario is for unemployment of 8.4%, which is below the actual March reading of 8.5%, which itself understates the pain.
* The "adverse" scenario is for unemployment of 10.3%, which many mainstream economists believe is very likely given current trends - even if the economy already has bottomed since hiring lags a recovery.
* The government has said banks that do fail the stress test will be given additional capital, i.e. we're keeping zombie banks alive - just like Japan! - even as bad loans in commercial real estate and other categories are starting to mount.
* "Many of the largest American lenders...probably need to be bailed out again," The Times reports in its otherwise upbeat story.
* Morgan Stanley is facing larger-than-expected losses on some leveraged loans, The WSJ reports.
* Berkshire Hathaway just got downgraded from Aaa by Moody's.
* GE Capital is sitting on a bad-debt time bomb, according to Steve Eisman of FrontPoint Partners.
Despite these uncomfortable facts - and related concerns about Geithner's Public-Private Investment Program for toxic assets - hope springs eternal the bottom for financial shares really is in.
Only in America.
Check out some of the comments at the end of the article...
Soros: "Danger of Collapse Has Passed," But Stock Rally Not Sustainable
"The real danger of collapse has passed," says legendary financier George Soros. But the "fallout of the collapse" of the banking system "will linger."
In the wake of Lehman Brothers' bankruptcy on Sept. 15, 2008, authorities were forced to put the financial system remains on "artificial life support, which is where it is now," says Soros, the chairman of Soros Fund Management and author of several books, including most recently The Crash of 2008 and What It Means.
As a result, the billionaire speculator says the stock market's recent rally is doomed to fail. "Now we will face reality," he says, referring to a belief policymakers "did not succeed in recapitalizing the banks to the point where they can lend freely." He added, "talk of zombie banks – unfortunately that's where we are now," Soros says. "Instead of providing lifeblood of credit, [banks] are effectively drawing the lifeblood of activity of profit to themselves."
That, in turn, will keep the economy from producing anything more than a fleeting bounce for the foreseeable future, says Soros, in this first part of our extensive interview.
PS A big welcome to all those lurkers out there. Nice to see y'all popping your heads above the parapet now & then.
By John Detrixhe
April 10 (Bloomberg) -- South Korea and Hutchison Whampoa Ltd. led overseas borrowers offering $10 billion in dollar- denominated bonds this week, as foreign issuers sell debt in the U.S. at the fastest pace on record.
Overseas issuers sold $180 billion of debt in dollars this year, according to data compiled by Bloomberg. South Korea, Asia’s fourth-largest economy, sold its first dollar bonds in more than two years. Hong Kong-based Hutchison Whampoa, the operator of phone, ports, property, energy and retail businesses in 54 countries, sold $1.5 billion of 10-year notes in its first dollar-bond offering since 2003.
Foreign companies and governments, seeking to sell longer- dated maturities to a deeper pool of investors amid a global financial crisis, are issuing debt in dollars to repair their balance sheets and ensure liquidity, said James Merli, head of U.S. fixed-income syndicate at Barclays Capital in New York. Pacific Rim borrowers issued $7.3 billion of dollar debt this week, the region’s second-biggest week this year.
Originally posted by stander
This gets settled
Top US lawmakers said Thursday that Congress would take action if accounting regulators and rulemakers failed to quickly improve the mark-to-market accounting standard that has forced banks to record billions of dollars in asset writedowns.
and the banks will record only the good news. That will stabilize the banks in the eyes of the traders and in less than one month, the Dow will snake around the 8k beam.
Hopes that the economic slump may be abating and some stabilization may be returning in the banking sector have helped underpin a month-long recovery in stocks from 12-year closing lows hit early last month.
22:1-24:25, A Crescendo of Hope: Balak and Balaam and the Blessing of Israel.
Originally posted by elston
Okay this is just outright crazy. Who can read this and feel that the banks are solvent. Fed Orders banks to be quiet!!!?
Fed Said to Order Banks to Stay Mum on ‘Stress Test’ Results
April 10 (Bloomberg) -- The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.
I have a few choice words for the Fed that would get me banned from this site.