November 20, 2019

Markets Wait for a Twitch Either Way in Jobs Data

The difference between a market rally and a rout on Friday could come down to a few hundredths of 1 percent.

On Friday, Wall Street will be closely watching the employment figures for June, which the Labor Department is set to report before the opening bell.

Analysts expect the economy to have added 165,000 jobs in June. But a swing of just 50,000 jobs — a few hundredths of a percent in a job market of more than 135 million people — could have broad implications.

If the economy created significantly more positions, the strong numbers would increase the odds that the Federal Reserve will begin in the coming months to taper its $85 billion in monthly bond purchases aimed at stimulating the economy. That would be a negative for stocks, which have benefited from the flood of money into the financial system.

A weak jobs figure would call into question just how vigorous the economy is and whether it is too early for the Fed to start stepping back. In the hall of mirrors that is Wall Street, investors would see that as a positive for stocks, since it might extend the central bank’s stimulus efforts.

Further complicating the market calculus, volatility will most likely be heightened on Friday. Many traders are off for the long weekend after the Independence Day holiday, so trading volumes could be thin.

“Any number between 150,000 and 175,000 is a nonevent,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “Anything over 200,000 would get people really concerned about a Fed exit, while a really weak number would force everyone to rethink if the economic recovery is going well. So no news is good news.”

The possibility of a change in Fed policy has caused recent swings in financial markets. Yields on 10-year government bonds have risen sharply, lifting mortgage rates, while stocks have sold off slightly.

On Wednesday, shares edged higher in an abbreviated trading session ahead of the holiday. The Standard Poor’s 500-stock index has risen more than 13 percent this year.

Friday’s figures could provide a clue as to whether the stock market rally continues in the second half of 2013. But even veteran economists admit the intensity of the focus on a sliver of one month’s worth of data is a bit much.

“There is double the normal focus on a number, which already gets too much of a reaction,” Mr. Harris said. “And payroll surprises of 100,000 happen every year.”

What is more, there is added uncertainty since seasonal factors make June numbers particularly hard to predict. High school and college graduates enter the work force, for example, while teachers in some cases exit for the summer. Uncertainty in the jobs survey is greatest at the beginning of the summer, the end of the summer and the New Year, Mr. Harris noted.

And this time, economists are struggling to gauge the impact of the recent budget cuts in Washington in certain sectors, like military contractors. So far, sequestration, as the process of mandatory spending cuts is known, has not had a sizable effect on the labor market, at least according to government data.

Last month, the chairman of the Fed, Ben S. Bernanke, said the central bank could begin easing back stimulus efforts later this year if the job market continued to show signs of strength, with the $85 billion monthly bond-buying program wrapping up when unemployment sinks to 7 percent. The Fed currently expects that to happen by the middle of 2014. The June unemployment rate, which is based on a separate survey from the one that calculates the change in overall payrolls, is expected to fall by 0.1 percentage point, to 7.5 percent from 7.6 percent.

“They’re always significant but Bernanke’s tying it to the 7 percent rate does ramp up the employment figures’ importance,” said Dean Maki, chief United States economist at Barclays. Mr. Maki is estimating that the economy added 150,000 jobs, slightly below consensus, but not enough to alter the Fed’s plan to begin tapering later this year, possibly as early as September.

Job creation has been slowing, however, he said. The average number of jobs created each month over the last three months — a better indicator than one month alone — totaled 155,000. That compares with a three-month average of 233,000 for December, January and February.

If the economy were to reverse course and add 250,000 jobs, and the rate fell more sharply in June, Mr. Maki said, the tapering could begin as early as late July, when Fed policy makers next meet. “We’re not in that camp,” Mr. Maki said. More likely, he said, the scaling back will be announced after the Fed meeting in mid-September, when Mr. Bernanke will hold a news conference as well, unlike the July meeting.

On Wednesday, Automatic Data Processing, which tracks private payrolls, reported an increase of 188,000 jobs in June, a bit above the 160,000 consensus and significantly stronger than in May, when A.D.P. reported a jump of 134,000 jobs. A.D.P.’s data often varies from the government figures, however, adding to the confusion on Wall Street. New claims for unemployment fell slightly last week to 343,000, the Labor Department also reported Wednesday, in line with the trend of the last four weeks.

The robust A.D.P. number prompted Ian Shepherdson, chief macroeconomist at Pantheon Macroeconomics, to lift his estimate for Friday to 175,000 jobs. But he, too, admits the Wall Street guessing game is hardly scientific. “You can have a Platonically perfect model and still get the number wrong.”

Article source: http://www.nytimes.com/2013/07/04/business/markets-wait-for-a-twitch-either-way-in-jobs-data.html?partner=rss&emc=rss

DealBook: Credit Agricole Cites Write-Downs in Posting a Record Loss

A branch of Credit Agricole in Marseille, France.Jean-Paul Pelissier/ReutersA branch of Crédit Agricole in Marseille, France.

PARIS — Crédit Agricole, one of France’s biggest lenders, said on Wednesday that a series of write-downs and other charges contributed to its largest-ever annual loss.

The bank reported a net loss of 6.5 billion euros ($8.7 billion) for 2012. In the fourth quarter, the bank posted a net loss of about 4 billion euros, compared with a loss of about 3.1 billion euros in the period a year earlier. Revenue fell 23 percent, to 3.3 billion euros, in the three months ended Dec. 31.

Jon Peace, an analyst at Nomura International in London, described the fourth-quarter loss as “an even bigger kitchen sink” than that for which the market had been bracing, but said Crédit Agricole’s core French retail and asset management businesses had performed surprisingly well. There are “clear signs of improvement” in its finances, he wrote in a note.

“We are turning a page and will develop a new medium-term plan this year,” Jean-Paul Chifflet, the bank’s chief executive, said in a statement. “It will show that we are moving forward on solid foundations.”

After stripping out one-time costs, the bank said net income showed “the resilience of French retail banking and a good performance in savings management, the group’s core businesses.” The bank’s adjusted fourth-quarter net income was about 548 million euros, up 10 percent compared with the last three months of 2011.

Jean-Paul Chifflet, the chief executive of Crédit Agricole.Jacky Naegelen/ReutersJean-Paul Chifflet, the chief executive of Crédit Agricole.

Mr. Chifflet said in a conference call that the bank would not need to raise capital in the financial markets. Shares of Crédit Agricole rose 7.6 percent in afternoon trading in Paris on Wednesday.

The flood of red ink originated in good-will impairments of nearly 2.7 billion euros, losses linked to the sale of its C. A. Cheuvreux brokerage unit to Kepler. The charges take into account the decline in value of the unit.

The impairment comes as banks face pressure over good will.

Last month, the European Securities and Markets Authority called on companies to take a hard look at the value they assign to the assets on their balance sheets, particularly those they purchased in more favorable times. It warned that it would publicly identify those companies that failed to comply.

Crédit Agricole also booked a fourth-quarter charge of 706 million euros related to the sale last year of its Athens-based unit, Emporiki, to Alpha Bank, a write-down that it said left it with no residual exposure to Greece. But it said the French tax authorities had unexpectedly ordered it to pay a bill of 838 million euros on the disposal, causing its loss to grow.

Fourth-quarter results also were hurt by a charge of 541 million euros on the cost of revaluing the bank’s own debt.

Crédit Agricole, based in Paris, was caught flat-footed when the euro zone crisis caused a sharp fall in the value of assets in Greece, Italy and other struggling European countries.

Over the last few years, the bank has been streamlining its business and reducing its reliance on so-called peripheral European economies, as well as increasing its capital buffer.

Crédit Agricole said its core Tier 1 ratio, a measure of a bank’s ability to weather financial shocks, under the accounting rules known as Basel III, stood at 9.3 percent at the end of December, and that it hoped to exceed 10 percent by the end of 2013.


This post has been revised to reflect the following correction:

Correction: February 21, 2013

An earlier version of this article erroneously reported the size of the unexpected tax bill that Crédit Agricole bank had to pay on the disposal of its Greek unit, Emporiki. It was 838 million euros, not 132 million euros. The article also misstated the negative impact of that bill on the group’s fourth-quarter net income. It was 706 million euros, not 704 million euros.

A version of this article appeared in print on 02/21/2013, on page B2 of the NewYork edition with the headline: Crédit Agricole Cites Write-Downs in Posting a Record Loss.

Article source: http://dealbook.nytimes.com/2013/02/20/credit-agricole-posts-record-loss-on-write-downs/?partner=rss&emc=rss

DealBook: Credit Agricole Posts Record Loss on Write-Downs

A branch of Credit Agricole in Marseille, France.Jean-Paul Pelissier/ReutersA branch of Credit Agricole in Marseille, France.

PARIS – Crédit Agricole, one of France’s biggest lenders, said on Wednesday that a series of write-downs and other charges contributed to its largest-ever annual loss, as the bank looked to move beyond the problems in Greece and Italy that have hobbled its recent earnings.

The bank reported a net loss of 6.5 billion euros ($8.7 billion) for 2012. In the fourth quarter, the bank posted a net loss of about 4 billion euros, compared with a loss of about 3.1 billion euros in the period a year earlier. Revenue fell 23 percent, to 3.3 billion euros, in the three months ended Dec. 31.

Jon Peace, an analyst at Nomura International in London, described the fourth-quarter loss as “an even bigger kitchen sink” than that for which the market had been bracing, but said Crédit Agricole’s core French retail and asset management businesses had performed surprisingly well. There are “clear signs of improvement” in its finances, he wrote in a note.

“We are turning a page and will develop a new medium-term plan this year,” Jean-Paul Chifflet, the bank’s chief executive, said in a statement. “It will show that we are moving forward on solid foundations.”

After stripping out one-time costs, the bank said net income showed “the resilience of French retail banking and a good performance in savings management, the group’s core businesses.” The bank’s adjusted fourth-quarter net income was about 548 million euros, up 10 percent compared with the last three months of 2011.

Jean-Paul Chifflet, the chief executive of Crédit Agricole.Jacky Naegelen/ReutersJean-Paul Chifflet, the chief executive of Crédit Agricole.

Mr. Chifflet said during a conference call that the bank would not need to raise capital in the financial markets. Shares of Crédit Agricole rose 7.6 percent in afternoon trading in Paris on Wednesday.

The flood of red ink originated in good-will impairments of nearly 2.7 billion euros, losses linked to the sale of its C.A. Cheuvreux brokerage unit to Kepler. The charges take into account the decline in value of the unit.

The impairment comes as banks face pressure over goodwill.

Last month, the European Securities and Markets Authority last month called on companies to take a hard look at the value they assign to the assets on their balance sheets, particularly those they purchased in flusher times, and write down the goodwill of those that have declined below book value. It warned that it would publicly identify those companies that failed to comply.

Crédit Agricole also booked a fourth-quarter charge of 704 million euros related to the sale last year of its Athens-based unit, Emporiki, to Alpha Bank, a write-down that it said left it with no residual exposure to Greece. But it said the French tax authorities had unexpectedly ordered it to pay a 132 million euro bill on the disposal, causing its loss to grow.

Fourth-quarter results also were hurt by a charge of 541 million euros on the cost of revaluing the bank’s own debt.

Crédit Agricole, based in Paris, was caught flat-footed when the euro zone crisis caused a sharp fall in the value of assets in Greece, Italy and other struggling European countries.

Over the last few years, the bank has been streamlining its business and reducing its reliance on so-called peripheral European economies, as well as increasing its capital buffer. It disposed of its stake in the Italian lender Intesa Sanpaolo, booking a second-half loss of 445 million euros. But the bank is still working to sort out another Italian unit, Cariparma, where it took an 852 million euro charge.

Crédit Agricole said its core Tier 1 ratio, a measure of a bank’s ability to weather financial shocks, under the accounting rules known as Basel III, stood at 9.3 percent at the end of December, and that it hoped to exceed 10 percent by the end of 2013.

Article source: http://dealbook.nytimes.com/2013/02/20/credit-agricole-posts-record-loss-on-write-downs/?partner=rss&emc=rss

DealBook: Despite Calm, Draghi Raises Economic Concerns

Mario Draghi, the president of the European Central Bank, at the World Economic Forum in the Swiss resort of Davos on Friday.Pascal Lauener/ReutersMario Draghi, the president of the European Central Bank, at the World Economic Forum in the Swiss resort of Davos on Friday.

DAVOS, Switzerland — Calling 2012 the year the euro was renewed, the president of the European Central Bank expressed concern that calm on financial markets had not yet led to economic growth and better lives for European citizens.

Mario Draghi, the central bank president and the person who can probably take more credit than anyone for the relative tranquility that greets visitors to the World Economic Forum this year, used an appearance here to take stock of the state of the euro zone.

Mr. Draghi said that central bank measures last year had prevented a banking crisis. And he also praised government leaders for steps they took to strengthen the currency union, for example agreeing to put the central bank in charge of supervising banks — a change that will be phased in over the next year.

World Economic Forum in Davos
View all posts


And the net effect of those moves? ‘‘To say the least, the jury is still out,’’ Mr. Draghi said. ‘‘We haven’t seen an equal momentum on the real side of the economy. That’s where we have to do some more.’’

The euro zone economy has stabilized at a very low level, Mr. Draghi said, and should begin to recover in the second half of 2013.

Data released Friday supported the thesis of a gradual recovery. The Ifo business climate index, a closely watched indicator of business confidence in Germany, rose more than expected. The survey suggested that the euro zone’s largest economy is growing again after a contraction at the end of 2012.

What’s more, the central bank said Friday that more euro zone banks than expected had chosen to make early repayment of three-year central bank loans they took out a year ago. The volume of early repayment is seen as a sign that at least some banks are healthier than they were, and able to raise money on their own. The central bank said 278 banks would pay back 137 billion euros, of a total of 489 billion euros they borrowed a year ago at exceedingly low interest rates.

Banks could borrow the money at the central bank’s benchmark interest rate, currently 0.75 percent. But some may have felt that there was a stigma attached. Even though the European Central Bank does not disclose borrowers, banks may have been concerned about appearing weak in the eyes of the central bank. In addition, banks needed to post bonds or other assets as collateral, and some may now prefer to deploy the assets elsewhere.

Looking ahead, Mr. Draghi described 2013 as a year of implementation, when the European Central Bank and governments would begin carrying out decisions they made last year.

The central bank would begin assuming authority over banks, he said, and governments would carry out changes intended to improve their ability to respond to crises and police each other’s spending. As central supervisor, the central bank is expected to be more willing than national regulators to force sick banks to confront their problems.

Mr. Draghi defended the central bank’s position that euro zone governments must continue to work to get spending under control. Austerity — a word Mr. Draghi said he did not like — has been a de facto condition for measures the central bank has taken to contain the crisis and give governments space for economic reforms.

‘‘Fiscal consolidation is unavoidable,’’ Mr. Draghi said during onstage questioning by John Lipsky, a former first deputy managing director of the International Monetary Fund. ‘‘There can’t be any sustainable growth, any sustainable equity achieved through an endless creation of debt.’’

But Mr. Draghi conceded that budget cutting could push countries into recession, and he said governments should cut spending on operations rather than curtailing outlays for infrastructure projects like bridges and roads.

Asked by Mr. Lipsky whether the central bank would follow the Federal Reserve in setting benchmarks for unemployment that would prompt the central bank to lower rates or take other action, Mr. Draghi said no.

But, in what could signal a subtle shift in the central bank’s thinking, Mr. Draghi suggested that the bank can pursue economic growth as part of its prime mandate to defend price stability.

‘‘We have given plenty of evidence we can do so within the existing framework,’’ Mr. Draghi said.

Article source: http://dealbook.nytimes.com/2013/01/25/despite-calm-draghi-raises-economic-concerns/?partner=rss&emc=rss

Euro Watch: German Growth Report Provides Glimmer of Hope for Euro Zone

PARIS — A report Friday provided Europe with the faintest glimmer of hope, suggesting the German economy was growing again, but analysts played down the possibility of any imminent exit from the morass in which the bloc has found itself.

A broad survey of euro zone purchasing managers by Markit Economics, a data and analysis firm, showed activity in December reached its highest level in nine months, at 47.3, from 46.5 in November. Economists had been expecting a level of about 46.9.

While an improvement, a level below 50.0 still signals contraction.

Germany’s output rose in December for the first time in eight months, the data showed, though only modestly, and output continued to fall in France.

Chris Williamson, Markit’s chief economist, said the data suggested that the euro zone output might have reached bottom in October. Still, he said the data were consistent with expectations that G.D.P. would contract again in the final quarter of the year.

The purchasing managers data gives economists early clues to movements in the business cycle, and is fairly well correlated with G.D.P. over time.

Purchasing managers subindexes, covering the manufacturing and services sectors, also showed the rate of decline slowing, though demand for new business continued to fall, Markit said, “indicating that companies continued to face steeply deteriorating demand for goods and services.”

The euro zone economy contracted by 0.1 percent in the third quarter from the previous quarter, after a second-quarter decline of 0.2 percent.

The economy has been hurt by weak global growth, as well as the budget cutting measures regarded as critical to winning the trust of financial markets.

The cost of those measures is visible in the labor market: Eurostat, the statistical agency of the European Union, reported Friday that the number of employed people in the euro zone declined by 0.2 percent in the third quarter from the second quarter and by 0.7 percent from the third quarter of 2011. Most sectors of the economy suffered, with a 1.5 percent decline in the construction sector dragging most heavily on employment.

Eurostat said last month that the unemployment rate in the euro zone hit to a record 11.7 percent in October.

Ben May, an economist in London with Capital Economics, predicted that euro zone G.D.P. would slide by 0.3 percent in the fourth quarter, or about 1.2 percent on an annualized basis. Further, he noted, “a quarterly fall in GDP of 0.5 percent or more is not out of the question.”

Holger Schmieding, chief European economist at Berenberg Bank in London, predicted that euro zone would begin to rise from recession in the spring, helped by the determination of the European Central Bank to use “all necessary means“ to defend the euro, “rock-bottom“ interest rates and less pressure on governments to enact painful austerity measures.

Separately, an inflation report Friday showed subdued price pressures in the euro zone. Euro zone prices rose 2.2 percent in November from a year earlier, slowing from a 2.5 percent rise in October, Eurostat said. On a monthly basis, prices fell 0.2 percent in November from October.

Article source: http://www.nytimes.com/2012/12/15/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Europe Wins Modest Respite From Debt Crisis

LISBON — Europe won some further modest respite from its debt crisis Wednesday as Germany and Portugal became the latest countries to borrow with relative ease ahead of a hazard-filled few weeks for the 17-nation euro zone.

Both countries saw their borrowing costs dip at the auctions, in a further sign that investors may have temporarily put some of their concerns over Europe’s debt crisis to one side at the start of the new year. Italy and the Netherlands have also managed to sell their debt over the past week or so in a fairly trouble-free manner.

Germany, the biggest contributor in Europe’s bailouts, managed to sell €4.06 billion, or $5.3 billion, in its benchmark ten-year bonds at an average yield of 1.93 percent, down on the previous 1.98 percent it had to pay. But demand barely covered the bonds on offer.

And Portugal, which was bailed out last April after being locked out of international markets, paid a markedly lower interest rate to borrow €1 billion in three-month treasury bills.

The German and Portuguese auctions come ahead of severe tests for euro zone leaders as they try to navigate their way out of their crisis over too much debt in some countries.

Euro zone governments are struggling to convince financial markets that indebted governments will not default and should be able to borrow at affordable rates to repay debts as they come due. Greece, Ireland and Portugal have needed bailouts, while much larger Italy and Spain have also seen their borrowing costs rise ominously.

Italy, the recent focus of the crisis, must borrow to cover €53 billion in expiring debt in the first quarter alone in a series of debt auctions beginning Jan. 13. The auctions will test of whether the government of new Prime Minister Mario Monti is making progress in regaining market confidence through budget cuts and efforts to improve weak economic growth.

Greece must also win final approval of a second, €130 billion bailout, without which it can’t pay its debts. As part of that the government must strike a deal with creditors for a 50 percent reduction in their holdings of Greek debt to try to put the country back on its feet. Many in the markets think a bigger writedown will be needed.

At the Portuguese auction, the rate fell to an eight-month low of 4.346 percent and was sharply down from the 4.873 percent rate it had to pay in a similar auction last month. Though Portugal cannot tap long-term bond markets at a reasonable price, it has sought to maintain a market presence by issuing shorter-term debt.

Analysts said the improvement may represent a sign that Portugal is regaining the markets’ confidence as it carries out spending cuts and revenue increases in return for its €78 billion bailout.

“There’s been an improvement in the risk perception of Portuguese debt, which has driven rates down” said Filipe Silva, debt manager at Portuguese financial group Banco Carregosa. “Now we just need to see whether it holds.”

Germany’s auction was better than one in November which raised fears that Europe’s debt crisis was spiraling out of control when the government sold only 65 percent of debt on offer.

Still, there was some concern voiced over the amount of German bunds investors actually wanted Wednesday.

Bids for €5.14 billion worth of bonds exceeded the full amount on offer of €5 billion, but only barely, counting the €943 million the government kept back for secondary market operations.

“Yes, it was covered, so that’s a relief,” said Marc Ostwald, a markets strategist at Monument Securities. “On the other hand, the coverage was poor.”

Mr. Ostwald said the low interest rate offered little attraction to typical buyers such as annuity and insurance companies, as it was too small to cover their obligations. Meanwhile, investors seeking only a safe haven were more likely to want much shorter-term issues.

“Clearly, it wasn’t the best cover, but you wouldn’t expect it to be,” he said.

Germany can borrow cheaply and for longer because its finances are among the strongest in the euro zone but concerns about the costs of bailing out other countries have raised questions about its finances too.

On Tuesday, the Netherlands saw its borrowing rates fell to near zero percent in a pair of short-term auctions, in a sign that investors are searching out what they consider to be Europe’s safer assets at a time of concern over the level of debts in a number of countries.

Italy, the euro zone’s third-largest economy, also sold large chunks of debt last week.

Analysts say the run of smooth auctions may be largely due to a massive €489 billion infusion of cheap, 3-year credit to euro zone banks by the European Central Bank.

Some of that cheap money may be being used by some banks to buy higher-yielding short-term debt, though Italy’s longer-term borrowing rate in the markets remain at dangerously elevated levels near 7 percent.

Article source: http://www.nytimes.com/2012/01/05/business/global/europe-wins-modest-respite-from-debt-crisis.html?partner=rss&emc=rss

Draghi Takes Bold Approach at European Central Bank

Since taking office a little more than a month ago, he has presided over an interest rate cut, signaled a greater willingness to deploy the bank’s resources to fight the European debt crisis and turned up the pressure on governments to remake the euro zone.

More action is likely on Thursday when the bank’s policy council meets. Analysts predict another cut, perhaps a big one, in the bank’s benchmark interest rate, now at 1.25 percent.

The central bank is also expected to start offering longer-term loans to commercial banks to compensate for a flight from European financial institutions by private lenders.

And Mr. Draghi is likely to re-emphasize the bargain he hinted to political leaders last week: The central bank will take steps to temporarily stabilize financial markets if politicians make real progress on fixing the structural flaws in the euro zone to make future debt crises less likely.

It remains unclear just what Mr. Draghi meant — just as it remains uncertain whether Germany, the euro region’s chief financier, will go along with whatever steps Mr. Draghi might have had in mind.

But Mr. Draghi seems unburdened by past policy moves by the central bank and determined to take the initiative before the strains of the crisis exhaust him, as they sometimes seemed to have worn on his predecessor, Jean-Claude Trichet.

While Mr. Trichet, whose term ended in October, remains an esteemed figure in Europe, with legendary stamina, three years of nearly nonstop crisis management took their toll in his final months in office. For now, at least, Mr. Draghi, a former head of the Bank of Italy, appears fresh and unafraid of putting his own stamp on policy.

“Draghi can say different things,” said Marie Diron, an economist in London who advises the consulting firm Ernst Young. “People won’t say, ‘This is not what you were saying a few months ago.’ It makes a change of policy, a bit of U-turn, easier.”

But will it be enough to satisfy the large body of economists and political leaders who contend that the last stage of the crisis must include much more aggressive and controversial action by the central bank?

Guntram B. Wolff, deputy director of Bruegel, a research organization in Brussels, argues that the central bank may have no choice but to become the lender of last resort to governments and not just commercial banks, as the only way to prevent market panics that drive up borrowing costs for sovereign governments, like Italy’s.

“A lender of last resort needs to be created in order to stop self-fulfilling sovereign crises,” Mr. Wolff wrote on Monday. “Interest rates paid on sovereign bonds in a number of countries are clearly the result of self-fulfilling crisis, which will ultimately force default even on a country like Italy, with devastating consequences for the euro area as a whole.”

For all his differences in tone, Mr. Draghi inherited the tensions that made Mr. Trichet’s tenure so difficult, including a mandate for the central bank that did not anticipate the crisis now threatening the European and global economies. He faces, as Mr. Trichet did, resolute opposition from Germany to any expansion of the bank’s writ beyond a single-minded focus on price stability.

Mr. Draghi, in a speech to the European Parliament last week, hinted that the central bank would intervene more aggressively in bond markets to keep interest rates under control in countries like Italy and Spain, if euro zone leaders would exert more financial discipline over member nations. But it is not yet clear what he meant.

Would the central bank simply expand bond-buying modestly? Or would it cross the Rubicon and buy securities on a scale that would significantly enlarge the money supply? He did not say.

In any case, the reaction in Germany to Mr. Draghi’s remarks was swift. Jens Weidmann, the president of the German central bank, said he remained stalwartly opposed to more bond market intervention, which he said he regarded as an illegal transfer of debts from one country to another. Mr. Draghi would risk straining the unity of the euro zone if he radically stepped up European Central Bank purchases of government bonds over the objections of Germany, the European Union’s largest member.

Article source: http://feeds.nytimes.com/click.phdo?i=afcc7df3488f9daaacf86b1d60529597

European Finance Ministers Approve Billions in Loans for Greece

Speaking after the meeting, Jean-Claude Juncker, who heads the euro zone finance ministers, said they had agreed to release their portion of an 8 billion-euro loan to Greece. The International Monetary Fund is expected to sign off on its share — roughly one third — early next month, making the loans available by the middle of December.

The ministers also agreed on rules to increase the firepower of their bailout fund, the European Financial Stability Facility, and will be able to offer insurance to those buying the bonds of nations like Spain and Italy. In these cases, insurance certificates — attached to make bonds more attractive — will themselves be tradable, said Klaus Regling, who heads the bailout fund. The fund will also seek investment from sovereign wealth funds and other non-European sources.

Though a goal of 1 trillion euros, or $1.3 trillion, was set for the expanded bailout fund, ministers acknowledged that this was now unlikely, and no figure was given at Tuesday night’s news conference.

Luc Frieden, Luxembourg’s finance minister, said the figure of 1 trillion euros “will be very difficult to reach, in view of the changed market circumstances.”

“I think the E.F.S.F. alone will not be able to solve all the problems,” Mr. Frieden said.

“We have to do so together with the I.M.F. and with the E.C.B., within the framework of its independence,” he said, referring to the European Central Bank.

The six hours of talks here highlighted the contrast between Europe’s tortuous decision-making and the breakneck speed with which financial markets have been pushing the currency zone toward a moment of truth.

While proposals have been working their way through Europe’s convoluted procedures, risks have grown that the debt crisis will plunge Europe into a steep recession or lead to a fragmentation of the currency union.

On Tuesday, the borrowing costs of Italy, the euro zone’s third-largest economy after Germany and France, reached nearly 8 percent, a record since the inception of the common currency in 1999. After the discussions late Tuesday, Olli Rehn, European commissioner for economic and monetary affairs, said that because of the economic slowdown, there would have to be tougher measures if Italy was to reach its financial goals.

Mr. Juncker said the ministers would explore “further options” to leverage the bailout fund.

A month after European Union leaders announced a plan to resolve the crisis, most of those decisions have either been delayed or overtaken by events, said Nicolas Véron, a senior fellow at the Bruegel economic research institute in Brussels. Plans to increase the power of the bailout fund, were now “too little too late,” Mr. Véron said, adding that Europe’s policy errors were caused by a “systemic failure of our institutional framework.”

France and Germany said they planned to break the downward spiral by outlining a new push toward a fiscal union, with stricter rules against budget “sinners,” before a meeting of leaders next week in Brussels.

The details of how these ideas will be pushed through remain highly uncertain, but Mr. Juncker said that discussions on tightening the rules would include the possibility of changing the European Union’s governing treaty — a slow and cumbersome process.

Germany is determined to toughen the euro zone rules significantly before it contemplates any additional far-reaching changes to help shore up the currency. So far, Berlin has resisted both greater intervention by the European Central Bank, which might stoke inflation, as well as the short-term introduction of common euro zone bonds.

Some officials hope that agreement in principle on new fiscal rules can encourage the central bank to intervene more actively to help Italy and Spain without risking criticism from Berlin. In recent days, senior figures in Austria, Finland and the Netherlands have declined to rule out an enhanced role for the bank.

The latest discussions illustrate the time it takes to impose decisions in Europe. Plans to expand the bailout fund, and allow it more freedom, were agreed to in July, and a decision was made in October to leverage its power to around 1 trillion euros. The decision on whether to release an international loan of 8 billion euros to Greece was also made in October, but carrying that out was held up when the former Greek prime minister, George A. Papandreou, suggested holding a referendum on the bailout package. The idea was later scrapped, and Mr. Papandreou resigned.

The finance ministers agreed Tuesday to release that 8 billion-euro installment, said an official who requested anonymity because an announcement had not yet been made. The money, part of the initial 110 billion-euro bailout extended to Greece last year, also must be approved by the International Monetary Fund.

Bank recapitalization, the third pillar of the October meeting, was not a main area of discussion on Tuesday, but there are worries that this requirement may impose burdens on banks that make them less likely to lend.

Article source: http://feeds.nytimes.com/click.phdo?i=e2fb4e96eb311b604fa61e1a8de99323

Strategies: Half Stocks, Half Bonds: A Solution for Turbulent Times

For investors, the course is obvious: Seek safety, and avoid risky assets like stocks.

All of that may seem clear enough. Since August, it has often been the prevailing view in financial markets. But it’s not the only narrative, and it hasn’t always been the dominant one.

In fact, another argument has received considerable support lately. It goes something like this: Recent economic data have been surprisingly strong, showing that while the economy is weak, it’s not in a recession, at least not in the United States. As for the crises in the euro zone and in Washington, the politicians will just have to come to their senses before the situation really gets out of control.

For investors, the course is obvious: Jump into stocks. Don’t miss the big rally.

It may be hard to decide which picture makes the most sense. Perhaps each is appealing, sometimes one more than the other, depending on the news of the particular moment.

These days, paying close attention to the economy and the markets can cause whiplash. What should an investor really do?

In a word, nothing.

When the latest news tempts you to move your investments around, take a deep breath. Unless you need the cash soon, the best course of action may be inaction.

That’s the import of a recent study by the Vanguard Group. Assuming you’ve already set up a diversified portfolio, sitting tight may make the most sense.

Vanguard created a model portfolio divided equally between stocks and bonds, and compared the returns in periods of economic expansion and recession. It found that “the average real returns of such a portfolio since 1926 have been statistically equivalent regardless of whether the U.S. economy was in or out of recession.”

Vanguard’s founder, John C. Bogle, popularized index funds, and the study tracked the stock and bond markets using indexes that mirror the broad markets. Individual stock and bond selection wasn’t involved at all.

The study, titled “Recessions and Balanced Portfolio Returns,” used the official recession dating of the National Bureau of Economic Research to compare market returns throughout the up and down phases of the business cycle from 1926 through June 2009. During expansions, the model portfolio had average real returns, factoring in inflation, of 5.6 percent, compared with 5.3 percent during recessions.

In short, there was a difference, but it was too small to be of any statistical significance, says Joseph H. Davis, chief economist and head of the investment strategy group at the Vanguard Group and a co-author of the report. (The other author was Daniel Piquet of Vanguard.)

When the economy was bad and when it was good, the portfolio performed more or less the same. It really didn’t matter.

“The results may seem counterintuitive,” Mr. Davis said in a telephone interview. “You might think that it’s best for investors to avoid a recession, and in some ways, of course, it is. No one wants a recession. But the results suggest that as investors, rather than try to time the market, most people are best off with a diversified portfolio and just sticking with it over the long run.”

What accounts for these results? Put simply, bonds tend to outperform stocks when a recession is on the horizon, while stocks tend to rally when an economic expansion is in the offing. “The financial markets themselves tend to move in advance of the economy,” Mr. Davis said.

Predicting the economy’s direction is famously difficult. So unless you have substantial bond holdings in your portfolio well before a recessions begin, you’ll miss upturns in the bond market. And unless you’re holding stocks before an economic recovery has started, you’ll miss those big rallies.

By holding stocks and bonds in equal proportion — a portfolio that’s easy to construct by using index funds — you won’t need to be prescient; you can stick to your portfolio and ride out the storms.

Of course, a 50-50 stock-bond division is relatively conservative. Alter those proportions and the results will shift significantly. During recessions, for example, a portfolio containing 60 percent stocks and 40 percent bonds fared worse than the 50-50 portfolio, with an average real return of 4.9 percent annually. In expansions it did better, with an average real return of 6.8 percent, according to Vanguard’s calculations.

That points out the allure of market timing. In an ideal world, if you knew in advance where the economy was heading, you’d be a market wizard. You would shift your entire portfolio into stocks during expansions, for example, and put all of it into bonds in recessions. If you could actually do this, the results would be impressive. In expansions, Vanguard found, stocks have gained an average of 11.9 percent annually, after inflation, while the comparable figure for bonds in recessions is 7. 2 percent That kind of timing is ideal.

BUT it’s easy to shoot yourself in the foot. Get the timing wrong and hold only stocks in recessions, for example, and you’d have an annual average gain in those periods of 3.3 percent, after inflation. And if you hold bonds in expansions, you’d lose an average annual 0.7 percent, also after inflation.

It may be possible to predict the rough direction of the economy some of the time, but there’s no evidence that anyone gets it right all the time. “I’d be very careful before assuming that I knew better than the overall market,” Mr. Davis said.

It turns out, though, that if you have a diversified portfolio and are prepared to hold onto it, you may not need to know where the economy is going.

In other words, humility may bring the steadiest returns.

Article source: http://feeds.nytimes.com/click.phdo?i=1cc05d1d5d1eb538dbe0904e4d5b4b47

Lawmakers Trade Blame as Congressional Deficit Talks Crumble

The stalemate was the latest sign of partisan deadlock in Washington, which members of both parties do not expect to lift until the 2012 election has clarified which party has the upper hand.

Barring an unexpected turnaround before Monday’s deadline, the failure of the special Congressional deficit committee will be the third high-profile effort to fall short of a deal in the last 12 months, including a bipartisan deficit commission and talks last summer between President Obama and Speaker John A. Boehner.

By law, the special Congressional committee’s inability to reach an agreement will trigger $1.2 trillion in automatic spending cuts over 10 years to the military and domestic programs, to start in 2013.

As time wound down to a Monday night deadline for an agreement, Capitol Hill lacked the frenzied negotiation typical of a Congressional race to beat the clock. Instead, many members — well aware that Congressional approval ratings are near historic lows in polls — seemed resigned to the fact that Democrats and Republicans remained far apart on major budget issues, especially tax increases on the affluent, which Democrats insist must be part of any deficit solution and which Republicans oppose.

The White House called on the 12 members of the special committee to finish their work, but with no expectation of a breakthrough, the leaders of the committee planned to issue a statement on Monday acknowledging that they had failed to reach an agreement. And lawmakers on the panel, which is evenly divided between the two parties, blamed one another for the failure.

Many outside Washington, including on Wall Street, had low expectations for the committee, and some analysts predicted that the breakdown might not have a major effect on financial markets. But the developments added to the air of uncertainty at a time when the world economy is coping with Europe’s debt problems and a sluggish recovery from the 2008 financial crisis. Some members of Congress were vowing to pass legislation to repeal the automatic cuts, locked in by the law that raised the debt ceiling in August.

Once they return from their Thanksgiving recess, members of Congress face another set of decisions with the potential to hamstring the economy. A temporary payroll-tax cut for nearly all households and jobless benefits for many long-term unemployed are scheduled to expire at year’s end, and many economists predict that growth and hiring will slow further if such measures are not renewed.

On Sunday, in the halls of the Capitol and on television talk shows, Democrats and Republicans offered strikingly different post-mortems for the process.

Democrats blamed the Republicans for their unwillingness to yield on a no-new-taxes pact they signed at the request of a conservative antitax group, arguing that the American public realizes that no grand deal could be reached without a combination of spending cuts and new tax revenue.

“As long as we have some Republican lawmakers who feel more enthralled with a pledge they took to a Republican lobbyist than they do to a pledge to the country to solve the problems, this is going to be hard to do,” Senator Patty Murray, Democrat of Washington and the committee’s co-chairwoman, said on CNN’s “State of the Union.”

But Representative Jeb Hensarling, Republican of Texas, the co-chairman, said it was the Democrats’ inflexibility that had caused the impasse, particularly when it came to agreeing to major money-saving changes in social programs like Medicare and Social Security.

“Unfortunately, what we haven’t seen in these talks from the other side is any Democrats willing to put a proposal on the table that actually solves the problems,” Mr. Hensarling said on “Fox News Sunday.”

At the White House, officials made a final effort to spur the committee on to a solution. “Avoiding accountability and kicking the can down the road is how Washington got into this deficit problem in the first place,” a White House spokeswoman, Amy Brundage, said in a statement. “So Congress needs to do its job here and make the kind of tough choices to live within its means that American families make every day.”

The panel’s apparent failure has already become a topic in the 2012 presidential campaign. Mitt Romney, speaking in New Hampshire on Sunday, blamed President Obama, saying he should have been more involved in pushing for a deal.

“He hasn’t had any role. He’s done nothing,” Mr. Romney said. “This is another example of failed leadership.”

But another committee member, Senator John Kerry, Democrat of Massachusetts, said on “Meet the Press” that President Obama and White House budget officials “were asked to be hands off.”

Jackie Calmes, Robert Pear and Jennifer Steinhauer contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=6c2607e243b1b7d0960dd1ad68c60b72