Gold climb again as US fear on economic outlook
Global Market
Even as government insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.
History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos. Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging. Senators are promising to investigate.
Fed and Treasury were forced to respond after capital markets seized up and Bear Stearns faced a run by creditors. In an emergency action that jeopardizes the dividend it pays the Treasury, the Fed authorized a $29 billion loan against illiquid mortgage backed securities from Bear Stearns that will be held in a Delaware corporation. JPMorgan Chase & Co. contributed $1 billion. The Delaware company will liquidate the assets over 10 years, with JPMorgan absorbing the first $1 billion in losses, with the Fed bearing any that remain. Any such losses would hurt the Fed's balance sheet, and ultimately the taxpayer, because they would reduce the stipend the Fed pays to the Treasury from earnings on its portfolio. The dividend was $29 billion in 2006.
The Treasury is counting on voluntary loan restructurings and $117 billion in tax rebates to support the economy through the worst housing recession in a quarter century.
The average recovery on failed bank assets is 40 cents on the dollar. Nobody knows if that historical benchmark will hold for the Fed portfolio because the assets haven't been disclosed, they have already been marked down and the Fed has 10 years to recover value.
Fannie Mae and Freddie Mac will buffer against more risk by raising capital. The companies reported record fourth-quarter losses totaling $6 billion and warned additional purchases that credit losses will rise this year. Yet the Treasury's authority to buy $2.25 billion in each of the companies' securities has created investor expectations that the firms hold an implicit federal guarantee against losses. Lenders allow Fannie Mae and Freddie Mac to borrow more cheaply than rival companies because they expect Treasury would provide a bailout before letting them default.
Because Fannie Mae and Freddie Mac own or guarantee about 40 percent of the $11.5 trillion home loan market, the cost of a bailout would be in the hundreds of billions of dollars
Stock Market
U.S. stocks fell on a worsening outlook for bank profits, an unexpected drop in durable goods orders and concern that financing for buyouts will collapse.
Citigroup Inc. tumbled and led financials to retreat after analyst said their loss will be four times bigger than previously forecast. Deere & Co. and United Technologies Corp. declined on report showing the worst-ever slump in machinery demand. Clear Channel Communications Inc. posted its steepest decrease on concern banks will pull loans for their takeover.
The Standard & Poor's 500 Index lost 11.86 to 1,341.13. The Dow slid 109.74 to 12,422.86. The Nasdaq Composite Index declined 16.69 to 2,324.36.
Citigroup lost $1.37 to $22.05. Analyst cut full-year estimate to a loss of 15 cents a share to reflect potential first-quarter writedowns on leveraged loans and collateralized debt obligations of $13.1 billion.
Bank of America Corp. fell $1.13 to $39.84. Analyst reduced their earnings-per- share estimate for this year to $3.35, citing an estimated $3 billion first-quarter writedown.
Deutsche Bank AG fell almost 3 percent in Frankfurt after its annual report said possible asset writedowns and slowing economic growth will make it harder to reach its full-year profit goal.
Deere fell $1.42 to $80.82. United Technologies dropped 55 cents to $69.61.
Clear Channel plunged $5.64 to $26.92. Lehman Brothers Holdings Inc. cut its price estimate on the stock to $25.
Centex Corp. and D.R. Horton Inc. led homebuilders to a 5.9 percent drop after a report showed sales of new homes fell 1.8 percent. The annual rate of new home sales slowed to 590,000. Centex slid $2.06 to $23.73. D.R. Horton lost $1.05 to $15.20.
Jabil Circuit Inc. declined $2.09 to $9.29. Their profit and sales forecasts were trailed estimates. JPMorgan Chase & Co. downgraded the stock to underweight. Hewlett-Packard Co. fell 92 cents to $47.34.
Oracle Corp. slumped in trading after the close of U.S. exchanges after third- quarter sales fell. Sales including maintenance fees from acquired companies totaled $5.37 billion, compared with an average forecast of $5.41 billion. The shares tumbled 9.5 percent to $18.95.
Benchmark equity indexes briefly pared losses as traders speculated lawmakers will force changes to JPMorgan's bid for Bear Stearns Cos. and Rambus Inc. won a lawsuit.
Rambus rallied $7.25 to $25.86 for its advance after it won the patent suit against Hynix Semiconductor Inc., the first step toward collecting royalties from other manufacturers.
Bear Stearns climbed 27 cents to $11.21. The Senate Finance and Banking committees said they are reviewing the government-backed sale of Bear to JPMorgan.
Freeport-McMoRan Copper & Gold Inc. added $5.03 to $97.44. Analysts said the they is a candidate to be acquired by Brazil's Cia. Vale do Rio Doce. Vale's bid to buy Xstrata Plc to create the largest mining company collapsed yesterday.
Exxon Mobil Corp. and Schlumberger Ltd. led energy shares to gain as crude oil rose on a report showing inventories increased less than forecast. Exxon Mobil climbed $1.06 to $86.26. Schlumberger rallied $3.88 to $86.52.
Apache Corp. jumped $6.81 to $119.75 after analyst raised his forecasts for crude oil and natural gas and increased share-price targets for several producers including Apache. Dell increased his target for Apache to $133.
BJ Services Co. gained $1.35 to $27.78. Devon Energy Corp. rallied $4.66 to $107.59.
Consol Energy Inc. and Alpha Natural Resources Inc. advanced after analyst said they would gain from higher prices for coal used in steelmaking. Consol and Alpha were raised to buy. Consol rose $2.33 to $70.59. Alpha added $3.02 to $42.34.
Motorola Inc. climbed 26 cents to $10.02 after announcing plans to split into two publicly traded companies. One company will focus on handsets and the other will sell broadband networking devices.
Currencies
The dollar traded at the record low against the euro on speculation the Federal Reserve will cut borrowing costs further to revive the economy while the European Central Bank holds rates steady.
The currency posted decline against the euro after reports showed U.S. durable-goods orders fell and German business confidence increased. The yen rose against the Australian and New Zealand dollars as concern that credit market losses will widen led investors to bet on a reduction in holdings of higher- yielding assets funded by cheap loans in Japan.
Against the euro, the dollar traded at $1.5857. The dollar traded at 99.17 yen. The euro traded at 157.25 yen.
The dollar has fallen 12.5 percent against the yen and 14 percent against the Swiss franc this quarter. Analysts forecast the U.S. currency will rebound to $1.45 per euro by the end of the year.
Pound weakened against most major currencies after Bank of England expect sterling to decline as economic growth slows. South Korea's won was the biggest loser against the dollar yesterday, dropping 0.9 percent. The Norwegian krone was the biggest gainer, advancing 2 percent as oil prices surged. The yen and Swiss franc appreciated against most of the major currencies as stocks in the U.S. fell, encouraging investors to reduce carry trades.
ECB extended the euro's gain when he cooled speculation the bank will cut rates. The dollar declined further against the euro and yen as orders for U.S. durable goods unexpectedly fell. The 1.7 percent drop followed a 4.7 percent decrease in the prior month.
Commodities
Oil
Crude oil traded near $106 a barrel as gasoline surged to a record on a report showing supplies dropped more than forecast.
Gasoline inventories fell 3.29 million barrels last week. Stockpiles were expected to drop 1.5 million barrels. Refineries operated at 82.2 percent of their capacity.
Crude oil for May delivery rose 2 cents to $105.92 a barrel. Futures rose $4.68 to settle at $105.90 a barrel. Gasoline for April delivery rose 0.21 cent to $2.745 a gallon. Futures touched $2.7752. Pump prices are following futures higher. Regular gasoline rose 0.6 cent to $3.261 a gallon.
Valero Energy Corp. said that output from its catalytic cracking units has been reduced to 73 percent because of uneconomic margins. Total implied fuel demand averaged 20.3 million barrels a day, down 2.2 percent from a year earlier.
Oil inventories climbed 88,000 barrels. A 1.8 million barrel gain was expected.
Prices were rising before the report's release because the dollar weakened against the euro, prompting investors to buy commodities as an inflation hedge.
The dollar fell after European Central Bank said to keep interest rates at this position will help curb inflation, suggesting he sees no immediate need to cut borrowing costs.
Iraq hasn't experienced a disruption to southern oil exports because of clashes between Iraqi forces and loyalist Shiite Muslim cleric in Basra.
Crude oil will average $92.30 a barrel this year. Brent crude for May settlement rose $3.39 to settle at $103.99 a barrel.
Gold
The euro climbed again 1,2 percent versus the dollar after jumping 1.5 percent yesterday.
Gold futures for April delivery advanced $14.20 to $949.20 an ounce. Silver futures for May delivery climbed 58.3 cents to $18.383 an ounce.
The dollar fell against the euro after reports showed German business confidence increased and orders for U.S. durable goods dropped in February, fueling speculation that interest rates in the U.S. may continue to decline, while borrowing costs in Europe remain steady. The euro rose as high as $1.583. The Federal Reserve has cut the U.S. benchmark rate to 2.25 percent. The European Central Bank has kept its main lending rate at 4 percent.
Precious metals had rallied for seven straight years as a falling dollar and higher commodity costs boosted demand for an inflation hedge. Crude-oil futures climbed as much as 4.9 percent today, leading commodities higher
Even as government insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.
History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos. Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging. Senators are promising to investigate.
Fed and Treasury were forced to respond after capital markets seized up and Bear Stearns faced a run by creditors. In an emergency action that jeopardizes the dividend it pays the Treasury, the Fed authorized a $29 billion loan against illiquid mortgage backed securities from Bear Stearns that will be held in a Delaware corporation. JPMorgan Chase & Co. contributed $1 billion. The Delaware company will liquidate the assets over 10 years, with JPMorgan absorbing the first $1 billion in losses, with the Fed bearing any that remain. Any such losses would hurt the Fed's balance sheet, and ultimately the taxpayer, because they would reduce the stipend the Fed pays to the Treasury from earnings on its portfolio. The dividend was $29 billion in 2006.
The Treasury is counting on voluntary loan restructurings and $117 billion in tax rebates to support the economy through the worst housing recession in a quarter century.
The average recovery on failed bank assets is 40 cents on the dollar. Nobody knows if that historical benchmark will hold for the Fed portfolio because the assets haven't been disclosed, they have already been marked down and the Fed has 10 years to recover value.
Fannie Mae and Freddie Mac will buffer against more risk by raising capital. The companies reported record fourth-quarter losses totaling $6 billion and warned additional purchases that credit losses will rise this year. Yet the Treasury's authority to buy $2.25 billion in each of the companies' securities has created investor expectations that the firms hold an implicit federal guarantee against losses. Lenders allow Fannie Mae and Freddie Mac to borrow more cheaply than rival companies because they expect Treasury would provide a bailout before letting them default.
Because Fannie Mae and Freddie Mac own or guarantee about 40 percent of the $11.5 trillion home loan market, the cost of a bailout would be in the hundreds of billions of dollars
Stock Market
U.S. stocks fell on a worsening outlook for bank profits, an unexpected drop in durable goods orders and concern that financing for buyouts will collapse.
Citigroup Inc. tumbled and led financials to retreat after analyst said their loss will be four times bigger than previously forecast. Deere & Co. and United Technologies Corp. declined on report showing the worst-ever slump in machinery demand. Clear Channel Communications Inc. posted its steepest decrease on concern banks will pull loans for their takeover.
The Standard & Poor's 500 Index lost 11.86 to 1,341.13. The Dow slid 109.74 to 12,422.86. The Nasdaq Composite Index declined 16.69 to 2,324.36.
Citigroup lost $1.37 to $22.05. Analyst cut full-year estimate to a loss of 15 cents a share to reflect potential first-quarter writedowns on leveraged loans and collateralized debt obligations of $13.1 billion.
Bank of America Corp. fell $1.13 to $39.84. Analyst reduced their earnings-per- share estimate for this year to $3.35, citing an estimated $3 billion first-quarter writedown.
Deutsche Bank AG fell almost 3 percent in Frankfurt after its annual report said possible asset writedowns and slowing economic growth will make it harder to reach its full-year profit goal.
Deere fell $1.42 to $80.82. United Technologies dropped 55 cents to $69.61.
Clear Channel plunged $5.64 to $26.92. Lehman Brothers Holdings Inc. cut its price estimate on the stock to $25.
Centex Corp. and D.R. Horton Inc. led homebuilders to a 5.9 percent drop after a report showed sales of new homes fell 1.8 percent. The annual rate of new home sales slowed to 590,000. Centex slid $2.06 to $23.73. D.R. Horton lost $1.05 to $15.20.
Jabil Circuit Inc. declined $2.09 to $9.29. Their profit and sales forecasts were trailed estimates. JPMorgan Chase & Co. downgraded the stock to underweight. Hewlett-Packard Co. fell 92 cents to $47.34.
Oracle Corp. slumped in trading after the close of U.S. exchanges after third- quarter sales fell. Sales including maintenance fees from acquired companies totaled $5.37 billion, compared with an average forecast of $5.41 billion. The shares tumbled 9.5 percent to $18.95.
Benchmark equity indexes briefly pared losses as traders speculated lawmakers will force changes to JPMorgan's bid for Bear Stearns Cos. and Rambus Inc. won a lawsuit.
Rambus rallied $7.25 to $25.86 for its advance after it won the patent suit against Hynix Semiconductor Inc., the first step toward collecting royalties from other manufacturers.
Bear Stearns climbed 27 cents to $11.21. The Senate Finance and Banking committees said they are reviewing the government-backed sale of Bear to JPMorgan.
Freeport-McMoRan Copper & Gold Inc. added $5.03 to $97.44. Analysts said the they is a candidate to be acquired by Brazil's Cia. Vale do Rio Doce. Vale's bid to buy Xstrata Plc to create the largest mining company collapsed yesterday.
Exxon Mobil Corp. and Schlumberger Ltd. led energy shares to gain as crude oil rose on a report showing inventories increased less than forecast. Exxon Mobil climbed $1.06 to $86.26. Schlumberger rallied $3.88 to $86.52.
Apache Corp. jumped $6.81 to $119.75 after analyst raised his forecasts for crude oil and natural gas and increased share-price targets for several producers including Apache. Dell increased his target for Apache to $133.
BJ Services Co. gained $1.35 to $27.78. Devon Energy Corp. rallied $4.66 to $107.59.
Consol Energy Inc. and Alpha Natural Resources Inc. advanced after analyst said they would gain from higher prices for coal used in steelmaking. Consol and Alpha were raised to buy. Consol rose $2.33 to $70.59. Alpha added $3.02 to $42.34.
Motorola Inc. climbed 26 cents to $10.02 after announcing plans to split into two publicly traded companies. One company will focus on handsets and the other will sell broadband networking devices.
Currencies
The dollar traded at the record low against the euro on speculation the Federal Reserve will cut borrowing costs further to revive the economy while the European Central Bank holds rates steady.
The currency posted decline against the euro after reports showed U.S. durable-goods orders fell and German business confidence increased. The yen rose against the Australian and New Zealand dollars as concern that credit market losses will widen led investors to bet on a reduction in holdings of higher- yielding assets funded by cheap loans in Japan.
Against the euro, the dollar traded at $1.5857. The dollar traded at 99.17 yen. The euro traded at 157.25 yen.
The dollar has fallen 12.5 percent against the yen and 14 percent against the Swiss franc this quarter. Analysts forecast the U.S. currency will rebound to $1.45 per euro by the end of the year.
Pound weakened against most major currencies after Bank of England expect sterling to decline as economic growth slows. South Korea's won was the biggest loser against the dollar yesterday, dropping 0.9 percent. The Norwegian krone was the biggest gainer, advancing 2 percent as oil prices surged. The yen and Swiss franc appreciated against most of the major currencies as stocks in the U.S. fell, encouraging investors to reduce carry trades.
ECB extended the euro's gain when he cooled speculation the bank will cut rates. The dollar declined further against the euro and yen as orders for U.S. durable goods unexpectedly fell. The 1.7 percent drop followed a 4.7 percent decrease in the prior month.
Commodities
Oil
Crude oil traded near $106 a barrel as gasoline surged to a record on a report showing supplies dropped more than forecast.
Gasoline inventories fell 3.29 million barrels last week. Stockpiles were expected to drop 1.5 million barrels. Refineries operated at 82.2 percent of their capacity.
Crude oil for May delivery rose 2 cents to $105.92 a barrel. Futures rose $4.68 to settle at $105.90 a barrel. Gasoline for April delivery rose 0.21 cent to $2.745 a gallon. Futures touched $2.7752. Pump prices are following futures higher. Regular gasoline rose 0.6 cent to $3.261 a gallon.
Valero Energy Corp. said that output from its catalytic cracking units has been reduced to 73 percent because of uneconomic margins. Total implied fuel demand averaged 20.3 million barrels a day, down 2.2 percent from a year earlier.
Oil inventories climbed 88,000 barrels. A 1.8 million barrel gain was expected.
Prices were rising before the report's release because the dollar weakened against the euro, prompting investors to buy commodities as an inflation hedge.
The dollar fell after European Central Bank said to keep interest rates at this position will help curb inflation, suggesting he sees no immediate need to cut borrowing costs.
Iraq hasn't experienced a disruption to southern oil exports because of clashes between Iraqi forces and loyalist Shiite Muslim cleric in Basra.
Crude oil will average $92.30 a barrel this year. Brent crude for May settlement rose $3.39 to settle at $103.99 a barrel.
Gold
The euro climbed again 1,2 percent versus the dollar after jumping 1.5 percent yesterday.
Gold futures for April delivery advanced $14.20 to $949.20 an ounce. Silver futures for May delivery climbed 58.3 cents to $18.383 an ounce.
The dollar fell against the euro after reports showed German business confidence increased and orders for U.S. durable goods dropped in February, fueling speculation that interest rates in the U.S. may continue to decline, while borrowing costs in Europe remain steady. The euro rose as high as $1.583. The Federal Reserve has cut the U.S. benchmark rate to 2.25 percent. The European Central Bank has kept its main lending rate at 4 percent.
Precious metals had rallied for seven straight years as a falling dollar and higher commodity costs boosted demand for an inflation hedge. Crude-oil futures climbed as much as 4.9 percent today, leading commodities higher
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