Saturday, June 12, 2010


6/12/10 Monetization

Bloomberg (Rodney Jefferson): “Edinburgh’s two biggest fund companies have a warning to investors: don’t overlook the U.S. when scouring the world for nations with too much debt. Standard Life Investments is questioning when… Obama’s administration can reduce borrowings, said Andrew Milligan, the company’s head of global strategy. Scottish Widows Investment Partnership sold U.S. stocks in March on concern an eventual reduction in spending would weigh on economic growth. The amount of total marketable U.S. debt outstanding has risen to $7.96 trillion from $4.4 trillion in mid-2007. ‘I don’t know how long the U.S. can afford not to focus on the issue and take action,’ Ken Adams, the top strategist at Scottish Widows, said… ‘It’s like Greece. It’s very hard to pick the point at which confidence suddenly goes.’”

Doug Noland: "My thesis holds that our markets and economy have been reflated by a Government Finance Bubble (massive debt issuance, bailouts, market interventions, zero rates, Trillion-plus monetization, etc.). With this in mind, let’s take a little closer look at government spending and receipts data. Q1 Federal expenditures were up 13.2% y-o-y to SAAR $3.654 TN, or 25% of GDP (receipts up 2.2% y-o-y to $2.301 TN). Keep in mind that annual Federal expenditures surpassed $1.8 TN for the first time in 2000. Less than a decade later, spending is running more than double this level. Federal Expenditures were less than 19% of GDP in 2000; less than 20% in years 2001-2002; less than 21% in 2003-2007; 21.6% in 2008; and 24.2% in 2009. In contrast, Federal Receipts, which began the decade at about 20%, were 15.6% of GDP in 2009 and were running at 15.7% in Q1 2010....Massive federal borrowings have sustained U.S. financial and economic recoveries. These recoveries have bolstered acutely vulnerable State & Local finances. So far, (over-liquefied and speculative) markets have accommodated the ongoing accumulation of government debt at quite low interest rates. Some have compared U.S. governmental finances to that of Greece, while others have dismissed such talk as ludicrous. It is fair to say that the U.S. system has – and continues to build – enormous risk to rising market yields and/or debt market disruption. I would argue that this risk is more dangerous than previous Bubble vulnerabilities to mortgage Credit disruptions – risks identifiable during those Bubble years right there in the Fed’s “flow of funds” Credit data. "

Jonathan Tepper: "There are three large structural changes that have been slowly but steadily happening. Going forward, the US economy will have to deal with: (1) higher volatility, (2) lower trend growth, and (3) higher structural levels of unemployment....

What do we get when we put the three structural breaks together? Higher volatility and lower trend growth produce more frequent recessions. More frequent recessions and stubbornly high unemployment rates mean that recoveries will not be long-lasting enough to put everyone back to work who would like to work. This in large part explains why high unemployment is currently so problematic.

What are the investment implications for the Muddle Through Economy? Investors will have to adjust to this new reality. Reducing leverage is one way. Another is to reduce the average holding period of investments. Investors will have to become more nimble. This in itself may add to market volatility.

For longer-term investors, this change of paradigm will mean achieving consistent returns is even more difficult. However, investors with a shorter-term, more tactical outlook may find these new, more volatile conditions a source of great opportunities."
BP could suspend its dividend payout to shareholders over the Gulf of Mexico oil spill, the energy giant has confirmed.The company said its board would meet on Monday to consider withholding the latest tranche of a £7bn annual payout.The move comes as David Cameron and Barack Obama prepare to discuss the crisis this afternoon.A BP spokesman admitted there had been "a lot of political pressure" on the company, and said that suspending the dividend was "an option that's up for discussion".

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment increased to 75.5, the highest since January 2008, from 73.6 in May. The gauge was projected to rise to 74.5, according to the median forecast in a Bloomberg News survey of 65 economists.

Foreign direct investment in China rose for a 10th month in May, adding to evidence that the nation is weathering the European debt crisis.

Investment rose 27.5 percent to $8.13 billion, the Ministry of Commerce said in a statement today. That was more than the 23.2 percent median forecast of four economists surveyed by Bloomberg News. Foreign investment in the first five months of the year rose 14.3 percent to $38.9 billion, the ministry said.

China’s economy will expand by 9.5 percent this year, three times the pace of the U.S, the World Bank forecast this week. Companies including Volkswagen AG and PepsiCo Inc. are boosting investment in the world’s third-largest economy to tap rising consumer spending fuelled by the government’s stimulus package and higher wages.

Inventories in the U.S. rose 0.4 percent in April, less than the gain in sales, putting companies in a better position to weather a slowdown in demand last month.

The increase in the value of stockpiles was smaller than the median forecast of economists surveyed by Bloomberg News and followed a 0.7 percent advance the prior month, data from the Commerce Department showed today. Sales climbed 0.6 percent.

Companies had enough goods on hand to supply 1.23 months’ worth of sales at April’s pace, matching the record low reached a month earlier. The need to replenish depleted stockpiles helped propel economic growth over the past two quarters, a boost that will probably diminish in coming months.

Bloomberg (Zoe Schneeweiss and Benjamin Purvis): “George Soros told a conference in Vienna today that ‘we have just entered act two’ of the crisis. The billionaire investor said the current situation is reminiscent of the 1930s and that markets are not capable of correcting their own excesses.”

Bloomberg: “China, the world’s second-biggest energy consumer, imported 29% more crude oil in the first five months of the year as faster economic growth boosted demand for motor fuel and electricity. Oil purchases in the January-to-May period climbed to 95.7 million metric tons from a year earlier…”

Wall Street Journal Asia: “The recent strikes at Honda factories in southern China represent another data point in an emerging trend: Cheap labor won’t be the source of the Chinese economy’s competitive advantage much longer. The automaker has caved and given workers a 24% pay increase to restart one assembly line. Foxconn, the contract electronics producer which has experienced a string of worker suicides, has also announced substantial raises… The supply of Chinese migrant workers from the countryside, once thought to be endless, is running dry, and that is giving workers leverage to demand bigger pay packets.”

Bloomberg (Yumi Teso and David Yong): “The world’s biggest expected swings in foreign-exchange markets and the euro’s record depreciation are prompting Asian exporters to seek currency controls. TLtek Co., a South Korean exporter… called on policy makers to limit volatility caused by ‘gambling’ on the won… Policy makers in South Korea, Taiwan and China are responding to Europe’s debt crisis by selling their own currencies, limiting investment inflows and delaying interest- rate increases.”

London mayor Boris Johnson warned that the harm being done to BP's share price was a matter of "national concern."
"When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves," he told BBC radio, adding that the US should end its "anti-British rhetoric" in relation to the crisis.
Although BP shares staged a recovery yesterday afternoon, takeover talk intensified after Standard Chartered released a note saying that it would make economic sense for PetroChina to buy the UK firm.
Although the note's authors acknowledged that their analysis would receive a "full dose of skepticism... as a real world proposition", they said the takeover of BP would transform PetroChina into a global oil champion.

Thursday, June 10, 2010


6/10/10 MACD

A “liquidity seizure” arising from Europe’s worsening debt crisis could drag the global economy back into recession, according to Paul Schulte, head of multi- asset strategy in Asia excluding Japan at Nomura Holdings Ltd.

“As Europe’s problems unwind, liquidity is going to seize up. As liquidity seizes up, multiples are going to contract,” Hong Kong-based Schulte told reporters in Singapore today. “Equities are not necessarily cheap.”

Barry Ritholtz: ": Bush Treasury Secretary Hank Paulson and then NY Fed President Tim Geithner misled the public as to how bad AIG’s position actually was.

The two failed to disclose to the public that the AIG problem was even worse than reported. They described AIG’s problems as a “cash squeeze” when it was in fact a full blown bailout of AIG. WHat was supposedly a loan to a distressed company in fact was a bailout of dubious legality.

Had the reality of the situation been properly disclosed, the $185 billion rescue might not have been made. Hence, the fraud."

China's total exports rose 48.5 percent in May from a year earlier and imports were up 48.3 percent, the General Administration of Customs said on Thursday, giving China a trade surplus of $19.5 billion, up from just $1.7 billion in April.

JPM pointed out yesterday, not only do European banks use more leverage, but the "the larger size of Europe’s banks argue against using simple GDP weights to assess potential risks to global markets. Due to a buyer’s strike over the last month, European banks now have 3.5x as much debt to issue than U.S. banks over the remainder of the year."

New Zealand's central bank hikes key rate to 2.75%.

Brazilian monetary policy makers late Wednesday voted unanimously to raise the country's key interest rate to 10.25% from 9.5%. The decision met widely held expectations. The bank said in an accompanying statement that it will continue the process of adjusting monetary conditions to ensure the convergence of inflation to its target. The bank started its latest rate-tightening campaign in April by lifting the Selic rate from the historic low of 8.75%. Earlier Wednesday, the country's Census Bureau reported a 0.43% rise in May consumer prices from April, below the Dow Jones Newswires estimate for a rise of 0.46%. Annual inflation now stands at 5.22%, above the central bank's target of 4.5%.

BP said it had the resources to deal with its liabilities.

"BP faces this situation as a strong company," the company said in a statement on Thursday.

"The company is not aware of any reason which justifies this share price movement," it said of the ADR drop.

ING analyst Jason Kenney said the stock was "materially oversold" but added he didn't see any likelihood of investor sentiment toward Bp improving anytime soon.

Analysts at Bank of America Merrill Lynch said the company could afford to pay its $28 billion estimate of spill costs but added there was massive uncertainty around the overall impact with a possible dividend cut, management changes and more limited growth opportunities in future.

Five-year BP credit default swaps rose 140 basis points (bps) to 520 bps, making a rise of 250 bps in two days, one trader said, implying that the cost of insuring BP's debt against default had almost doubled in recent days.

The cost of the response effort to date has been around $1.43 billion, BP said.

BP shares opened down 11% in London Thursday, taking the company's value to a 13-year low, following a 16% fall in its U.S.-listed shares Wednesday. Shares, however, rebounded and were recently 3.8% lower at 377 pence ($5.48), on a slightly higher London market.

Fund managers at Allianz SE unit Pimco, including Bill Gross of Pimco Total Return Fund, have begun buying Treasury bonds in recent weeks after months of deriding Treasurys, according to Thursday's Wall Street Journal.

The number of people applying for initial unemployment benefits fell 3,000 to 456,000 in the week ended June 5, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected an initial claims level of 445,000. The four-week average of initial claims - a better gauge of employment trends than the volatile weekly number - rose 2,500 to 463,000. Continuing claims in the week ended May 29 - the latest data available - decreased 255,000 to 4.46 million - the lowest level since December 2008. The four-week average of these continuing claims fell 49,250 to 4.62 million - the lowest level since January 2009. States did not explain to the Labor Department why continuing claims dropped, and it may take a couple of weeks to understand the volatility of the data. The total number of people collecting some type of unemployment benefits in the week ended May 22 was about 9.8 million, up 40,000 from the prior week.

Trade of goods and services across U.S. borders softened in April and the trade deficit rose to the highest level in more than a year, the Commerce Department estimated Thursday. Imports of goods and services dropped 0.4% to a seasonally adjusted $189.1 billion while exports declined 0.7% to $148.8 billion. The trade deficit (the difference between exports and imports) rose to $40.3 billion in April from a downwardly revised $40 billion in March. It was the largest deficit since December 2008.

Investors spooked by choppy markets continued to pull out of U.S. stock mutual funds, which saw outflows of $1.1 billion for the week ending June 2 while international mutual funds gained $463 million, according to the Investment Company Institute, a fund industry trade group. Flows to bond funds continued, with taxable and municipal bonds up $3.4 billion and $869 million, respectively.

The European Central Bank on Thursday left its key lending rate unchanged at a record low 1%.

The Bank of England's Monetary Policy Committee on Thursday left its key interest rate unchanged at a record low 0.5%. Policy makers also left the central bank's 200 billion pound ($292 billion) program of bond purchases on pause. Both decisions were widely expected.

The International Energy Agency revised up its 2010 global oil demand forecast by 60,000 barrels a day to 86.4 million barrels, citing better-than-expected preliminary economic data from the OECD countries. The new demand view implies yearly demand growth is seen up by 2%, or 1.7 million barrels, from 2009 levels. Total oil supply fell 575,000 barrels a day to 86.3 million barrels in May. The IEA also commented on the Deepwater Horizon drilling rig sinking, saying the U.S. is now delatedly following the steps taken by the U.K. after the 1988 Piper Alpha disaster -- but it noted that scores of new offshore fields were developed in the subsequent demand. "The longer-lasting impact of Deepwater Horizon on U.S. oil supplies may depend on whether operational negligence on the part of companies or regulators, or rather shortcomings in current operating procedures and regulatory structures, were the key cause. The former might suggest a less profound impact on future oil supply than the latter," the agency said.

The top Nato commander in Afghanistan says a military operation to drive militants out of Kandahar will move at a slower pace than planned.

Congressional anger over China's currency and trade practices boiled over on Wednesday as senators vowed to pass legislation soon and lashed out at President Barack Obama's administration for failing to get tough with Beijing.

39 percent of BP shareholders live in the U.S. “They’re penalizing people that are innocent by cutting the dividend at this point, when they don’t even need to. It seems very political.” “It’s a horrible thing that happened, but how do you decide a fisherman has priority over a grandmother who needs a pension to sustain herself?” said Christine Tiscareno, an analyst at Standard & Poor’s in London. “The company’s not running away from any of its obligations, and if it were up to Tony, they would pay the dividend.” In the U.S., pension funds holding BP shares include the California Public Employees Retirement System, New Jersey Division of Investment and the Texas Teachers Retirement System, Bloomberg data show. U.S. institutions own 25 percent of BP shares, while individual investors in the country hold 14 percent, according to the company’s website. A group of 43 lawmakers led by Peter Welch, a Democrat from Vermont, and Lois Capps, a Democrat from California, this week told Hayward to suspend the dividend to “put progress before profits.” Many pension funds in the U.K. hold stocks in proportion to the FTSE Index and so haven’t sold as 50 billion pounds ($73 billion) was wiped off BP’s market value since the accident, according to the National Association of Pension Funds. BP’s weighting in the index implies that the company accounts for about 1.5 percent of all U.K. pension fund holdings, the NAPF said. “If you’re on a pension, it needs to be stable,” said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo. “Tony Hayward wants to deliver. But maybe they’ll pay a lower dividend to get some goodwill from Obama.”

“The biggest risks to China remain external, of a deterioration in Europe,” Christina Chung, senior portfolio manager at RCM, which oversees $146 billion in assets worldwide, said in an interview in Shanghai yesterday. “Valuations look reasonable but are based on earnings assumptions and there’s the risk of downside if the external economy rolls over.” “Unless there is a double dip in the global economy, the government is likely to maintain a tight policy on the property industry,” Chung said. “The correction in property stocks may take a longer time to play out.”

UK industry expressed alarm yesterday at the “inappropriate” and increasingly aggressive rhetoric being deployed against BP by Barack Obama, US president, and warned that the attacks on the oil company could damage transatlantic relations.

Read the ZeroHedge piece under the headline "Chairman of Goldman Sachs International Was - Until Last Year - Also Chairman of BP"

RealtyTrac reported that even as foreclosure filings declined marginally, by 3% in May, to 322,920 (1% higher YoY), bank repossessions (REOs) hit a record monthly high for the second month in a row, with 93,777 properties repossessed by lenders.

The European Central Bank should slash its benchmark interest rate to zero and expand government bond purchases to offset the recessionary effects of euro-area austerity measures, New York University economist Nouriel Roubini said.

“That has to be the policy mix: tight fiscal, but much more easy money, looser monetary policy, more quantitative easing and also a weakening of the euro,” said Roubini, who predicted the financial crisis, in an interview in Rome today.

ZeroHedge: "Remember that alleged Diamond Offshore Ocean Saratoga rig "spill" that CNBC made such a big hoopla over and which we were quite skeptical about? Score one for the propaganda disinformation station... at least temporarily. DO just went on the record confirming there are no leaks from the Ocean Saratoga. From the press release: "As reported by Taylor Energy, the wells were covered by more than 100 feet of mud and sediment and only four wells were capable of production without pressure assistance. The associated surface sheen was minimal and never made landfall. As a result of deploying three subsurface containment domes and performing six successful well interventions, the initial average observed sheen volume of nine gallons per day has been substantially reduced." But at least in the media frenzy, which coincided with Goldman's downgrade of the entire sector, the Goldman prop team succeeded in buying up all the DO stock on the cheap it wanted. Congratulations CNBC, you were blatantly used once again."

The euro rose sharply on Thursday, pushing the shared currency to its highest level against the dollar in almost a week, after European Central Bank President Jean-Claude Trichet said the central bank would maintain its liquidity measures but not increase or add any. The dollar index , which tracks the U.S. unit against a basket of six major currencies, fell to 87.047, down from 87.911 in North American trade late Wednesday. The euro jumped to $1.2129, up from $1.1982 on Wednesday. "One of the other main reasons why the euro appreciated following Trichet's press conference is because the central bank did not increase their bond purchase program," said Kathy Lien, director of currency research at GFT. The ECB will also continue their unlimited 3-month tenders, she noted. "The lack of new measures has been received positively by the market because it suggests that the ECB does not believe market conditions have deteriorated enough to warrant fresh emergency action," Lien said.

EIA Natural Gas Storage Change Forecast

For Week Ending 6/4/2010

Surveys and Analysts Forecasts

Stor. Change






BNP Paribas




Dow Jones Average








Working gas in storage was 2,456 Bcf as of Friday, June 4, 2010, according to EIA estimates. This represents a net increase of 99 Bcf from the previous week. Stocks were 28 Bcf higher than last year at this time and 310 Bcf above the 5-year average of 2,146 Bcf. In the East Region, stocks were 98 Bcf above the 5-year average following net injections of 53 Bcf. Stocks in the Producing Region were 121 Bcf above the 5-year average of 775 Bcf after a net injection of 28 Bcf. Stocks in the West Region were 91 Bcf above the 5-year average after a net addition of 18 Bcf. At 2,456 Bcf, total working gas is above the 5-year historical range.

The U.S. government ran a $136 billion budget deficit in May, the Treasury Department reported Thursday. A year ago in May the deficit was $190 billion. Income was $147 billion in May, the Treasury said, about $30 billion higher than receipts in May 2009. The increase came as there were fewer individual income tax receipts in the month. More refunds than usual were made in April this year. Spending was $283 billion in May. This is $24 billion lower compared with a year earlier as a large amount of payments were shifted to April. The May deficit was $6 billion below a congressional estimate and marked the 20th consecutive monthly budget shortfall. For the first eight months of the fiscal year, the government incurred a budget deficit of about $936 billion, $56 billion less than the deficit recorded during the same period last year.

The Dow Jones industrial average jumped 273.28 points, or 2.76 percent, to 10,172.53. The Standard & Poor's 500 Index rose 31.15 points, or 2.95 percent, to 1,086.84. The Nasdaq Composite Index gained 59.86 points, or 2.77 percent, to 2,218.71.

The S&P 500 posted a bullish technical alert as its daily moving average convergence-divergence, or MACD, a widely followed momentum indicator, generated a "buy" signal. The S&P and the Dow closed above their 14-day moving average, another short-term bullish sign.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 7 to 1, while on the Nasdaq, about 11 stocks rose for every two that fell.

Crude for July delivery ended $1.10, or 1.5%, higher at $75.48 a barrel on the New York Mercantile Exchange. Crude last settled above $75 on May 12.

The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday. The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday.

"Banks balance sheets are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved," he added.

The root of the crisis over the past couple of years wasn't recession, but debt, which has spread "like a cancer," according to Taleb, who is now relived that public attention has shifted to debt, instead of growth.
The world needs to prepare itself for austerity, he warned. "We need to slash debt. Unfortunately, that's the only solution," Taleb said.

Wednesday, June 09, 2010

Oil Shares Spill Red

6/9/10 Oil Shares Spill Red

Societe Generale analysts Evgeny Solovyov and Aymeric de-Villaret said in a note to clients on Wednesday they see a 50% probability that BP PLC will skip its upcoming quarterly dividend, which will be the subject of a directors meeting by the embattled oil giant on July 27. "This is no longer a question of the strength of its balance sheet (which we think is strong enough) but of whether BP will be able to take the situation under sufficient control by the time it has to decide on the come up with a story palatable for U.S. politicians and public opinion," the analysts said. "BP has been recovering an average of 11,000 barrels a day in the past few days and it expects to increase the rate further. There is a reasonable chance therefore the mood will change by late July." BP PLC's market value has been halved since April 22, the day the Deepwater Horizon drilling platform sank off Louisiana. BP's U.S.-traded shares slumped 15% to $29.18 in afternoon trading Wednesday on heavy volume. The stock traded above $60 before the disaster. For those with some patience and looking for value. one might consider an investment in BP at these prices. As an alternative, the June $20 puts are selling at 44 cents and expire in 7 trading days. If the stock is put to you, the cost of your investment is $19.56. The last time the shares traded at $20 was the winter of 1994.

BP Plc's bond prices dropped on Wednesday, pushing yields higher, which analysts attributed to reports of the rising possibility that BP will have to declare bankruptcy as financial pressure from the oil spill in the Gulf of Mexico keeps building. The talk is "stupid," said Andrew Brenner, head of emerging markets at Guggenheim Securities. "Their liquidity positions are solid." Yields on BP's 2013 bonds with a 5.25% coupon jumped above 8% during the session, he said.

Fadel Gheit, energy analyst with Oppenheimer & Co. said shareholders are worried that BP will stop paying its dividend, either to conserve cash or because of political pressure from U.S. lawmakers. The company is scheduled to make a $2.63 billion payout on June 21. BP hasn't said whether it would approve a payout for the second quarter. Meanwhile, cost estimates grow with every barrel that BP's failed well belches into the Gulf of Mexico.

In Washington, the point man for the U.S. government's response to the oil spill said BP is now capturing more than 630,000 gallons per day from the gushing well.

Gheit said investors are overlooking the fact that BP has deep enough pockets to pay for the spill, fines and damages. It's also able to borrow another $15 billion if needed, he said.

ZeroHedge: "A casual glance at the BP annual report reveals the following suddenly relevant tidbit:"OTC contracts: These contracts are typically in the form of forwards, swaps and options. Some of these contracts are traded bilaterally between counterparties; others may be cleared by a central clearing counterparty. These contracts can be used for both trading and risk management activities. Realized and unrealized gains and losses on OTC contracts are included in sales and other operating revenues for accounting purposes. Highly developed markets exist in North America and the UK where gas and power can be bought and sold for delivery in future periods." While we are positive that BP's risk management department has done a terrific job at evaluating the viability and credit risk of its own counterparties (thank you Federal Reserve), the question now becomes, is the inverse also true (ahem, collateral calls on increasing rating agency, ahem)? As the firm likely has tens of billions in open OTC positions in various commodity and currency markets, is it time that speculators shifted their attention from BP to the Morgan Stanleys (wink wink), Deutsche Banks, and Goldmans of the world?"

BP on Wednesday played down government reports of undersea oil plumes from the spill in the Gulf of Mexico, insisting that it has not found any significant concentration of crude under the surface.

The cost to protect BP Plc’s bonds against default soared to a record, more than nine times the level before one of its wells exploded in the Gulf of Mexico, as pressure on the company to suspend its dividend intensified.

Credit-default swaps on BP climbed 126.1 basis points to 386.9 basis points, according to CMA DataVision prices. More than 40 U.S. lawmakers called today for the London-based company to suspend its dividend and Interior Secretary Ken Salazar told a Senate committee that “significant additional” safety requirements will be imposed on oil and gas companies drilling in the Gulf.

Economic activity improved nationwide last month, but worries about Europe's debt crisis dented confidence, the Federal Reserve said in its Beige Book collection of anecdotal reports.

"Economic activity continued to improve since the last report across all 12 Federal Reserve districts, although many districts described the pace of growth as 'modest,'" the central bank said.

Allscripts-Misys Healthcare Solutions Inc., the Chicago provider of software and solutions for physicians, definitively agreed to acquire Eclipsys, the Atlanta provider of solutions and services for hospitals and clinicians, for $1.3 billion in stock. In a Wednesday statement, the companies said that Allscripts would pay 1.2 shares for each share of Eclipsys. The deal price is nearly a fifth more than the $18.51 closing price of Eclipsys on Tuesday. As part of the deal, Misys PLC has agreed to sell the majority of its 54.6% interest in Allscripts and return the proceeds to Misys shareholders. The combination of Allscripts and Eclipsys provides health-care organizations of every size with a comprehensive technology package, "a single platform of clinical, financial, connectivity and information solutions," the companies said in the statement. The combined company's client base will cover more than 180,000 U.S. physicians, 1,500 hospitals and nearly 10,000 nursing homes and related facilities. The deal should add to Allscripts' adjusted earnings beginning in calendar 2011, they said. UBS, Barclays Capital and J.P. Morgan advised Allscripts. Perella Weinberg Partners advised Eclipsys. Credit Suisse advised Misys.

Santander said it agreed to buy back Bank of America's 24.9% stake in its Mexican unit for $2.5 billion, as the Spanish bank moves to strengthen its position in Latin America's second-largest market.

The French government says it's selling off 1,700 properties including chateaux, barracks and Parisian mansions, in part to cut the country's heavy debt.

George Ure: "We could observe that the decline from all-time levels in 1929 to the depths of the Great Depression came out to 148 weeks. Since the market peak in October of 2007 (14,093 and change) 148 weeks is something to look at...and for what it's worth, 148 weeks brings us to July 9th, right around our July 11th change period in Clif's work."

China’s stocks rose the most in more than two weeks after Reuters reported a surge in the nation’s exports and higher-than-estimated new loans in May, signaling Europe’s debt crisis hasn’t derailed the economy.

The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.

Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” “After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Shinohara said. “The global outlook remains unusually uncertain and downside risks have risen significantly.”

Medicaid: States' $24 Billion Black Hole. Governors and state lawmakers are anxiously waiting to see whether Congress will send them another $24 billion to help cover their ever-expanding Medicaid rolls.

U.S. home buying applications sank for a fifth straight week to a fresh 13-year low, the Mortgage Bankers Association said on Wednesday, suggesting that tax credits had robbed more from future sales than expected. Demand for loans to purchase houses fell 5.7 percent in the week ended June 4 to the lowest level since February 1997, even after adjusting to account for the Memorial Day holiday.

Addison Wiggin: "

Recent S&P research declared that since 1946, 80% of the time the index has fallen 15%, its gone on to a technical bear market – a drop of 20% or more.

In short, if the S&P falls over 15%, there’s a high probability it will fall much further."

The Oil Drum : "NOAA Administrator Jane Lubchenco said that the tests conducted at three sites by a University of South Florida research vessel confirmed oil as far as 3,300 feet below the surface 42 miles northeast of the well site. Oil also was found in a sub-surface sample 142 miles southeast of the spill, but further tests showed that oil is "not consistent" with oil from the spill. "Lubchenco said the water analysis "indicate there is definitely oil sub surface. It's in very low concentrations" of less than 0.5 parts per million. Additional samples from another research vessel are being tested, she said."

Shares of Ambac Financial Group Inc. were down nearly 20% in early action Wednesday as the stock again fell below $1. The bond insurer late Tuesday warned it has "insufficient capital to finance its debt service and operating expense requirements beyond the second quarter of 2011 and may need to seek bankruptcy protection." The company's senior debtholders have formed a committee and will attempt to steer the company toward a prepackaged bankruptcy filing, Reuters reported.

The government's recently expired home buyer tax credits likely pulled some sales into April that would otherwise have occurred in May or later. Buyers seeking to take advantage of the tax credits had to sign purchase contracts by April 30 and have until June 30 to close on the sales.

The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, decreased 3.3 percent, its third straight weekly drop, reaching the lowest since April 1997.

A further decline in the coming weeks would point to potentially bigger effects on home sales and construction.

Paul Volcker: "

There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a $60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.

The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.”

Crude oil for July delivery rose $2.24, or 3%, to $74.23 a barrel. Gold for August fell $12.40, or 1%, to $1,233.30 an ounce.

BP says they are capable of processing 28,000 bpd and now process 15,000 bpd.

Mexico’s share of North American auto production may rise at a quicker pace as General Motors Co., Ford Motor Co. and Chrysler Group LLC seek out workers making less than 10 percent of what their U.S. counterparts earn.

The lower labor costs may help the U.S. companies build smaller cars profitably amid demand for fuel-efficient vehicles in the wake of last year’s recession. Mexico’s gains will come at the expense of workers in the U.S. and Canada, said Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc.

Crude oil prices added to their gains Wednesday after a government report on inventories came in within expectations. Crude for July delivery, the most active contract, rose $2.21, or 3.1%, to $74.21 a barrel at the New York Mercantile Exchange. The Energy Information Administration said oil stockpiles decreased by 1.8 million barrels in the week ended June 4. Refineries operated at 89.1% of their capacity. Gasoline inventories were unchanged from last week, while distillate stockpiles increased by 1.8 million barrels, the EIA said.

Coast Guard Adm. Thad Allen on Wednesday said BP PLC may be able to contain all the oil coming from the leak at the bottom of the Gulf of Mexico once a second containment system gets put into place in the next two to three weeks. The current containment cap captured 15,000 barrels of oil in the past day, Allen said in a press briefing.

Adam Brochert: "

Debt-backed paper currency is always a castle made of sand but "eventually" corresponds with debt saturation. Once debt can't be paid back and everyone knows it, what happens? Default or aggressive debasement. There is no "Goldilocks" in between just as there wasn't when CNBC said there was all throughout 2007 (the big boyz needed someone to buy their stocks...). Two options. Literally default or default "in spirit" by paying back the nominal amounts owed using a fresh pile of counterfeited monopoly money that everyone knows you just counterfeited.

Not much of a choice, really. Default nominally or default in real terms. The truth can be a mixture of the two and that's why the inflation-deflation debate is more nuanced than it seems. You don't have to pick a side. This isn't a democrat versus republican debate here. There are practical implications of not realizing this debate is just an intellectual distraction for Gold investors. Many get caught up in the cognitive dissonance of buying into the deflation theme without recognizing that Gold is the money of choice when the sky gets too dark economically."

A suspension of dividend payments would have a big impact on the UK investment community as BP accounts for 12-13 percent of dividend payments from companies in the FTSE 100 index of the largest UK companies.

After an earlier triple digit gain, the Dow Jones Industrial Average fell 40.73 points to 9,899.25. The S&P 500 Index declined 6.35 points to 1,055.65. The Nasdaq Composite Index was off 11.72 points at 2,158.85.

ZeroHedge: "BP stock getting hit with a variety of rumors as to the cause - one is that the culprit is a Fortune article, which quotes Matt Simmons (whom we have quoted before as being supportive of nuking the leak) that BP "has about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11." The other rumor which is gaining traction, is that BP has hired a bankruptcy lawyer. Then again, seeing how today was the 1,293,498th time the Radioshack LBO rumor pushed the stock higher, all this media rumormongering should certainly be taken with a blob of oil."

Anadarko Petroleum Corp., which owns a 25% share of the leaking well in the Gulf of Mexico, fell 19% to $34.83.

Tuesday, June 08, 2010


6/8/10 BP

Late Monday 10-year treasury at 3.15% and 5-year at 1.93%. The Dow industrials lost more than 100 points to end below the lows hit during last month's "flash crash". (The Dow fell 115.48, or 1.2%, to 9816.49, a seven-month low and below the May 6 trough of 9869.62.)

BP PLC plans to replace the containment cap that is siphoning off some oil from the spewing well in the Gulf of Mexico next month, the Associated Press reported Monday. The current cap is collecting about 11,000 barrels of oil a day from the more than 25,000 a day estimated from the spill. BP told the AP that the new cap is intended to be larger than the current one and provide a tighter fit.

A natural gas pipeline explosion in North Texas killed three people on Monday afternoon, according to local media reports. Bloomberg reports: "Enterprise Products Partners LP shut a portion of its 36-inch natural gas pipeline after the line was struck by a fire. The line stretches from Waha in West Texas to the Carthage Hub in Panola, Rick Rainey, a company spokesman said in a telephone interview."

EVTN makes something called a Voraxial Separator. John DiBella, COO of EVTN, says the Voraxial Separator, or perhaps 20 of them, should be deployed on ships in the Gulf of Mexico, in response to the BP oil spill. The Voraxial Separater is a machine that comes in several different sizes and can separate large volumes of oil and water, or liquids and solids, at a rapid rate.

Today's corporate profits reflect a production and income shift away from 2011, when tax rates will rise, into 2010, Arthur Laffer says. The result will be plunging profits and stocks next year. Remembering surging growth rates when Reagan's tax cuts took effect, Laffer says "Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011."

Peter Schiff: "We can't simultaneously grow the economy and grow government. The latest jobs report shows that we are just growing government. If that trend doesn't soon reverse, investors will start betting on the collapse of the dollarzone."

China will likely embark on a new five-year plan soon to boost internal consumption as the country adjusts to a post-crisis world in which external demand from the U.S. and Europe remains sluggish, Stephen Roach, chairman of Morgan Stanley, Asia, said during a speech Monday.

The new plan, to be unveiled by China's leaders in early 2011, will support rural household incomes, promote growth of large-scale services industries and develop social safety nets to reduce precautionary saving, Morgan Stanley's Roach said.

McDonald's Corp. said Tuesday its global comparable store sales rose 4.8%. Same-store sales rose 3.4% in the U.S., and 5.7% in Europe. Same-store sales in Asia/Pacific, Middle East and Africa rose 3.8%.

Obama will allow shallow-water drilling. The decision comes amid anger on the Gulf over the loss of jobs from a moratorium on deepwater drilling.

"We are asking each agency to develop a list of their bottom 5 percent performing discretionary programs, as measured by their impact in furthering the agency's mission," White House budget director Peter Orszag said in excerpts from remarks he is to deliver later at the Center for American Progress think tank.

"In addition, to ensure that we can meet the president's insistence on a freeze for non-security agencies while funding priority areas, we are asking non-security agencies to specify how they would reduce their budgets by 5 percent," Orszag said.

Britain faces a "formidable" challenge to cut government borrowing and needs more ambitious plans to reduce the deficit over the medium term, ratings agency Fitch said on Tuesday. is reporting in this must-read article that "Osama bin Laden and top aides are hiding in Sabzevar, Iran."

John Crudele: "The BLS thinks small businesses that it hopes -- but again can't confirm -- exist created 215,000 jobs this May, compared with 186,000 in the same month a year ago. I'll repeat, those 186,000 jobs did not exist last May. So why should the BLS be any more right with this year's guess of 215,000?

The real employment situation may not be improving much, but there's a noticeable boom in the make-believe job market."

Aluminum prices in China have fallen below the cost of production, Luo Jianchuan, president of Aluminum Corp. of China Ltd., said in Shanghai today. U.S. purchases accounted for 19% of China's overseas aluminum sales last year.

Gold for August delivery added $4, or 0.3%, to $1,244.80 an ounce on Comex. The contract hit an intraday high of $1,254.50 an ounce earlier, according to FactSet Research. Gold closed at a record $1,243.10 an ounce on May 12.

U.S. April job openings rise to 3.1 million. Openings at 16 month high.

BMO's Quant/Tech desk: "We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital...We advocate a zero weight toward equity, and that investors convert their equity positions to cash." (hat tip to ZeroHedge)

The Energy Information Administration on Tuesday said it expects about 26,000 barrels of oil a day in the fourth quarter and 70,000 barrels a day in 2011 to be shut in as a result of the deep water drilling moratorium announced by President Obama. The figures represent the EIA's first estimates of reductions in production resulting from the six-month deepwater drilling moratorium announced on May 27. The EIA said it will refine its moratorium impacts as additional information becomes available.

The American Petroleum Institute on Tuesday reported a surprise decline of 4.54 million barrels in oil inventories in the week ended June 4. Analysts polled by Platts had expected a decline around 1.3 million barrels. The Washington-based trade group's data comes ahead of a more closely watched report by the Department of Energy's Energy Information Administration, scheduled for release Wednesday at 10:30 a.m. Eastern. Crude oil futures settled marginally higher on Tuesday, at $71.99 a barrel on the New York Mercantile Exchange.

The Dow Jones Industrial Average gained 123.49 points, or 1.3%, to 9,939.98, as 26 of its 30 components ended higher. The S&P 500 index rose 11.53 points, or 1.1%, to 1,062. The materials sector led the gains, up 2.5%, closely followed by financials and telecoms, both up 2%. However, the tech-heavy Nasdaq Composite remained underwater, losing 0.2%.

Monday, June 07, 2010

Debt Restructure

6/7/10 Debt Restructure

John Hussman: "From our perspective, the essential difficulty of the market here is not Greece, it is not the Euro, it is not Hungary, and it is really not even the slow pace of job growth in the latest report. The fundamental problem is that we have not, as a global economy, accepted the word "restructuring" into our dialogue. Instead, we have allowed our policy makers to borrow and print extraordinarily large band-aids to temporarily cover an open wound that will not heal until we close the gap. That gap is the difference between the face value of debt securities and the actual cash flows available to service them. The way to close the gap is to restructure the debt. This will require those who made the bad loans to accept the associated losses. By failing to do that, we have failed to address the essential problem faced by the world, which is that we have created more debt than we are able to service. ... We have no inclination to buy dips here, because we have no support from either valuations nor market action. ."

Robert McHugh: " We can say that the risk of a stock market crash is high at this time. That said, stocks can extend their recent rally and push back a major sell-off for several weeks before a plunge begins, so shorting is risky business and we suggest readers consult with their financial advisors before conducting any shorting transactions. Appropriate risk management controls should be put in place. Conservative investors may opt to simply sit on the sidelines during this high risk period."

Rob Hanna: "The NYSE Up Volume % came in under 1% on Friday. In other words, over 99% of the volume was in declining securities. Breadth this extreme is remarkable. According to my database there have only been 4 other days since 1970 where the NYSE Up Volume % came in at under 1%. ... all either marked an intermediate-term low, or were very close to one. "

Copper has fallen 23 percent since reaching a 20-month high in April on signs that growth is slowing in the U.S., China and Europe.

China’s imports of refined zinc shipments dropped 71 percent in the first four months of this year compared with the same period last year, according to customs data.

Real estate experts predicted this week that 3.5 million homes nationally will go into foreclosure this year as risky adjustable-rate mortgages written in 2005 reset and unemployment continues. That's up from 2.8 million homeowners who faced foreclosure in 2009, and sets a pace that isn't likely to plateau until late 2011, said RealtyTrac Senior Vice President Rick Sharga. ``The second wave of toxic loans is about to hit,'' said Sharga.

The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 .

Public criticism of Goldman Sachs has come to China, where the investment bank has been lambasted in articles in state-controlled media. Parts of the media, apparently emboldened by congressional inquiries and public anger in the west, have openly slated Goldman, arguably the most successful foreign investment bank in China. “Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week.

DAVID CAMERON has warned that the UK economy is in a far worse state than previously thought and signalled that Britain faces years of “pain” as the spending axe falls. The prime minister indicated a sharp downgrade in official growth forecasts and revealed that welfare and public sector pay would bear the brunt of budget cuts.

Bloomberg:“…the government’s total debt [...] rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.”

Japan was down 3.84% overnight and the Hang Seng was down a shade more than 2%.

Marsh & McLennan Cos Inc said on Monday that it plans to sell Kroll, a risk consulting firm, to Altegrity in a $1.13 billion deal.

Kroll, put up for sale by the No. 2 global insurance broker MMC, attracted interest from a number of private equity firms, with Altegrity emerging as the winner.

Altegrity, which is owned by Providence Equity Partners, plans to acquire Kroll in an all-cash transaction. The deal is expected to close by late September.

The Coca-Cola Co. will pay $715 million to Dr Pepper Snapple Group Inc. for the rights to distribute Dr Pepper and Canada Dry in the U.S. after Coke acquires its largest bottler.

Coca-Cola also will distribute Canada Dry, C' Plus and Schweppes in Canada.

Gold futures on Monday rose nearly 2% to end just a couple of dollars short of their May 12 record amid lingering concerns about the health of the world economy. Gold for August delivery, the most active contract, rose $23.10, or 1.9%, to settle at $1,240.80 an ounce. Silver for July delivery tracked gold to settle 5% up at $18.16 an ounce. Copper for July delivery settled 5 cents lower, or 1.9%, to $2.7660 a pound on Comex.

Goldman Sachs Group Inc was subpoenaed by a U.S. panel investigating the financial crisis after allegedly failing to hand over documents in a “timely manner.”

Roughly 1.1 million workers have given up hope of finding employment.

The G-20 cannot make meaningful progress in co-ordinating global economic policies as it currently stands, said Mohamed El-Erian, chief executive and investment officer of bond-investment giant Pimco, a unit of Allianz SE. While the G-20 communiqué, issued Saturday, recognized "financial reform priorities" and the "enormous difference in the soundness and sustainability of public finances" among countries, it "opens the door even wider for country differentiation" with "weak paragraphs" on financial and environmental issues, El-Erian wrote in the Financial Times on Saturday. "Investors should keep their seat belts on and tight," he said.

Oil for July delivery settled 7 cents lower, or 0.1%, at $71.44 a barrel on the New York Mercantile Exchange. Natural-gas futures kept their gains and momentum from Friday's rally. Natural gas for July delivery added 12 cents, or 2.5%, to $4.91 per million British thermal units - the highest price since mid-February.

U.S. consumers took on $1 billion more in debts in April, even as credit-card balances declined for the 19th straight month, the Federal Reserve reported Monday. U.S. consumer credit -- excluding real estate loans -- rose by $1 billion to $2.44 trillion in April, a 0.5% annualized growth rate. It was only the second increase in outstanding debt in the past 14 months. Revolving credits, such as credit cards, declined by $8.5 billion to $838 billion in April, or a 12% annualized decrease. Nonrevolving credit, such as auto loans, student loans and personal loans, rose $9.4 billion in April, or a 7.1% annualized growth rate.

The Dow Jones industrials were off 115 points, or 1.2% to 9,816 after tumbling 323 points on Friday. The Nasdaq Composite Index had lost 45 points, 2%, to 2,174, and the Standard & Poor's 500 Index was down 14 points, 1.4%, to 1,050.

Sunday, June 06, 2010


6/6/10 G20

Tiernan Ray: "Friday was the worst decline on record going back to 1998 for the Standard & Poor’s 500 following a monthly jobs report, observe our friends at Bespoke Investment Group this afternoon.

The S&P fell 38 points, or 3.44%, to close at 1,064.88.

According to Bespoke’s data, on a day when the S&P falls following a jobs report, whether the report was better or worse than expected, the average return on the S&P the following week is a decline of 0.75%.

But take heart: the average gain in the month following the jobs day decline is 1.19%!"

"There's not Democrats and Republicans, there's one party: the Big Government party. And it's not here to protect human liberties but its own power," said Judge Napolitano.

Adam Hamilton: "But in this latest correction, the CCI plunged to 0.976x its 200dma. This is the lowest we've seen in this cyclical bull since the CCI's 200dma turned higher again. A 12-month relative low is very rare technically, and a very powerful buy signal. By definition something can only grow this oversold once per year. So in late May per this metric, we just witnessed the best buying opportunities in commodities seen in a year!"

BP reported Sunday that its containment cap is now collecting 420000 gallons a day, saying that was a 'majority' of the oil.

Mike Burk: "By all measures average returns have been negative over the coming week and the 2nd year of the Presidential Cycle has been the worst of all. The OTC has only been up once (1978) and the SPX has not been up since 1986....The market has been following the average seasonal pattern for the 2nd year of the Presidential Cycle quite closely this year. The end of May - beginning of June rally was disappointing and now the seasonal pattern calls for an unpleasant 2-3 weeks.

I expect the major averages to be lower on Friday June 11 than they were on Friday June 4."

BP PLC Chief Executive Tony Hayward said Sunday that a containment cap being used on a ruptured well in the Gulf of Mexico is now funneling off 10,000 barrels of oil a day, and called for higher safety standards for the company and the industry.

"At the moment it is difficult to say, but we would expect it to be the majority, probably the vast majority of the oil," Mr. Hayward said in an interview on BBC, referring to the amount of oil being collected. "We have a further containment system to implement in the course of this coming week which will be in place by next weekend. So when those two are in place we would very much hope to be containing the vast majority of the oil," he added.

Hungary's situation is stable, say government officials. Recent comments about a possible default "are exaggerated and if they come from colleagues that’s unfortunate."

Arthur Brooks: "Today, the average federal worker earns 77% more than the average private-sector worker, according to a USA Today analysis of data from the federal Office of Personnel Management. To pay for bigger government, the private sector will bear a heavier tax burden far into the future, suppressing the innovation and entrepreneurship that creates growth and real opportunity, not to mention the revenue that pays for everything else in the first place.

If these trends are not reversed, it is hard to see how our culture of free enterprise will not change. More and more Americans, especially younger Americans, will grow accustomed to a system in which the government pays better wages, offers the best job protection, allows the earliest retirement, and guarantees the most lavish pensions. Against such competition, more and more young, would-be entrepreneurs will inevitably choose the safety and comfort of government employment—and do so with all the drive that is generally thought to be "good enough" for that kind of work.

What will happen as our increasing number of state employees confront a shrinking private-sector tax base? Just look to the streets of Athens."

Not surprisingly, The last four weeks were actually the worst 1-month equity outflows since Lehman collapsed in 2008.

"Noble continues to work closely with customers to identify opportunities to continue operations that are allowable under the current deepwater drilling moratorium or relocate the units outside of the U.S., as is customarily done with deepwater units," said David W. Williams, Chairman, President and Chief Executive Officer of Noble Corporation. "These units and the more than 1,000 individuals that operate and support them have exemplary safety and environmental records. Our goal is to minimize the impact of the moratorium on our shareholders and our team members – who are among the best trained, safest and most experienced in the industry."

UK insurer Prudential is not considering a renewed attempt to buy AIG's Asian life unit, a spokesman for the company said on Sunday, denying a media report that a fresh takeover proposal was in the works.

"There is substantial concern about what's been occurring in Europe of late and the risks associated with that. That was reflected not only in the communique but in the discussions we had in the room together," Canadian Finance Minister Jim Flaherty said.

"Those countries with serious fiscal challenges need to accelerate the pace of consolidation," read the key line in the communique.

Details of the Spanish government's reform plans have been leaking into the media, and on Friday newspapers said the latest draft includes a proposal for companies to offer only 20 days' severance pay per year worked, versus 45 days at present, if they could prove they had financial difficulties.