February 2010 - Money Morning - Only the News You Can Profit From
How "Hot Money" is Wrecking the U.S. Banking System…
When the Federal Deposit Insurance Corp. (FDIC) released its list of "problem banks" this week, 702 institutions holding $402.8 billion in assets were found to be in trouble.
That's the longest list in 17 years, and it's only going to get worse. In fact, regulators are expecting the number of troubled lenders to grow at an accelerating rate this year. They claim that an uptick in commercial-real-estate losses will serve as the key culprit
But the real culprit – the one that regulators won't talk about publicly – is the funding scheme banks employ to load themselves up on speculative loans. T his scheme – far removed from most investor radar screens – has played a major role in the banking sector's growing woes, and will continue to contribute heavily to bank failures in years to come.
- The centerpiece to this risky strategy is a funding vehicle known officially as a "brokered deposit." However, due to the narcotic-like effects brokered deposits can have on a bank's balance sheet, industry insiders have adopted a more-appropriate moniker – referring to them as "hot money."
To discover more about the risks posed by "hot money," read on…
India Says Economy Will Grow by 8.75% This Year, but Obstacles Remain
The Indian economy will grow by as much as 8.75% in the coming fiscal year, the country's finance ministry predicted on Thursday. But concerns about inflation and a growing deficit have some analysts worried.
The annual Economic Survey released in parliament yesterday (Thursday), one of New Delhi's most important policy documents, said Asia's third largest economy will return to a high rate of growth as it stages a "remarkable recovery" from the global recession. Economic growth this year is estimated at about 7.5%.
The comprehensive annual assessment of India's economic performance was released a day before the government is scheduled to reveal its national budget, which is widely expected to outline policy changes to wind down fiscal stimulus measures and reduce the country's worst deficit in 20 years.
Credit Default Swaps Strike Again – This Time Driving Greece to the Brink of Default
Credit default swaps (CDS) gained infamy in the early stages of the financial crisis as the murky derivatives that helped drive the likes of Lehman Bros and Bear Stearns into bankruptcy.
Now, they're back, inspiring panic in the bond market and making it harder for Greece to borrow money. Already struggling to rein in its out-of-control deficit, credit default swaps could be enough to push the debt-ridden nation into default.
Credit default swaps are credit derivative contracts that let banks and hedge funds place bets on whether or not a company, or in this case a country, will default. The CDS buyer makes periodic payments to the seller, and in return receives a payoff if the underlying financial instrument defaults.
Coca-Cola Follows PepsiCo's Lead and Buys Its Largest Bottler
The soda rivalry continues as Coca-Cola takes a page out of PepsiCo's playbook.
The Coca-Cola Co. (NYSE: KO) plans to buy the North American operations of its largest bottler Coca-Cola Enterprises Inc. (NYSE: CCE) in a $12.3 billion deal. This move comes 24 years after Coca-Cola separated from bottling giant CCE, and six months after PepsiCo's similar purchase of its two largest bottlers.
Coke's initial strategy of separating market and beverage development from product and distribution was initially used to free up the segments' respective balance sheets, while using regional bottlers as a gateway to local retail markets. However, changes in consumer tastes have led to a decline in soda sales, meaning business must change, too.
Weak Job Market and Low Inflation Stall Fed's "Exit Strategy"
Any speculation that U.S. Federal Reserve Chairman Ben Bernanke had his finger on the "exit strategy" trigger has been silenced.
Bernanke yesterday (Wednesday) faced the House Financial Services Committee to instill public confidence in the Fed's ability to exercise a smooth exit strategy and quell continued fears of a tightening monetary policy.
The Federal Open Market Committee (FOMC) "continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the Federal Funds rate for an extended period," he said.
It's Time to Tackle Government Pay
It's fairly well known that the U.S. public sector is paid more than the private sector. What's less well known is that the gap between federal-employee pay and benefits and private-sector pay and benefits is increasing – by about 18% over the last decade.
Given the current level of U.S. unemployment and the size of the budget deficit, it would appear that some economies could be made. In short, it's time to tackle government pay.
After all, if Greece can economize, so can the United States…
Billonaire Investor George Soros Questions the Euro's Future
In an editorial penned for the Financial Times, billionaire investing icon George Soros said that while Greece could be salvaged by a makeshift financial-rescue package, bigger problems lie ahead for the euro.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries – particularly Spain, Italy, Portugal and Ireland – could prove overwhelming.
Home Depot and Lowe's Laying the Foundation for Recovery with Little Help From the Housing Market
The housing market that was at the epicenter of the financial crisis has yet to approach a full-fledged recovery, but that hasn't stopped the nation's two biggest home-improvement retailers from rebuilding.
The Home Depot Inc. (NYSE: HD) and Lowe's Cos. Inc. (NYSE: LOW) both topped analysts estimates in the fourth-quarter, as more Americans undertook "do it yourself" projects and edged back into purchases of big-ticket items.
Home Depot's total revenue for the quarter ended Jan. 31 fell to $14.57 billion, but net income swung to a gain $342 million, or 20 cents a share, from a year-earlier loss of loss of $54 million, or 3 cents a share.