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Aug 8, 2012

Reuters Counterparties: Green shoots in the housing market

It's now five years since August 2007, which means that the US is now halfway into its very own lost decade. There is, however, a bit of good news coming from the housing market, as the WSJ's Nick Timiraos reports:
Prices rose by their largest percentage in at least seven years during the second quarter, propelled by low inventories of properties for sale and high demand for bargain-priced foreclosures... Prices rose by 2.5% in June from a year ago, and by 6% from the previous quarter, said CoreLogic Inc., a Santa Ana, Calif., data firm. The quarterly jump was the largest since 2005... Separately, Freddie Mac, which uses a different methodology, said home prices during the second quarter jumped by 4.8% from the previous quarter. That was the largest jump since 2004.
It's been long enough since we last saw this kind of rise in home prices that Bill McBride of Calculated Risk thinks it's worth remembering the economic effects even modest gains in home prices can have. There's increased profitability at Fannie and Freddie, fewer homeowners with negative equity, lower mortgage delinquency rates, fewer fear-driven sellers adding to excess inventory, and increased private residential investment. That last data point, McBride says, is the "the best leading indicator for the economy".
Still, that doesn't mean that younger Americans are going to become home buyers en masse anytime soon. Not only does student debt loom over many first time buyers, but as Bloomberg's Caroline Fairchild notes, median wages for college graduates fell 10% from 2009-2011 compared to 2007. As a result of this decreased cash flow, the workforce's newest entrants prefer to rent; they're delaying making other large purchasing decisions like cars, too.
That isn't necessarily a bad thing. A less-indebted and more mobile population should be a source of economic strength. But if, as Felix thinks it will, the housing crisis lasts a full decade, those benefits will largely be wasted in a sputtering economy. We really need a housing recovery: let's hope Calculated Risk is right, and Felix is wrong. – Ben Walsh
On to today's links:
Tax arcarna
"Should I be preparing to leave the country?": France's wealthy react to proposed 75% top marginal tax rate – NYT
The market is one step ahead: as earnings growth slows, stock returns increase – Market Watch
Popular tax break silly, possible sign of national failure – Matt Yglesias
Good Ideas
Forget congestion pricing. Instead, pay commuters to drive outside rush hour – Arstechnica
Light Touch
Morgan Stanley pays $4.8 million to settle electricity price-fixing that cost consumers an estimated $300 million – Reuters
Treasury and the Fed would prefer "public shaming kept to a minimum" re allegations of banking rogue states – Reuters
Report: 16% of China's wealthy have already left the country and 44% intend to soon – Economist
New Normal
Extended unemployment benefits weren't "designed to deal with a stagnating labor market of the sort the US" now has – WaPo
The Fed
Bernanke's "prolonged low interest rate environment has been hurting US households" – Credit Writedowns

Standard Chartered begins fightback on Iran allegations:Selected News From Reuters

WASHINGTON/LONDON | Wed Aug 8, 2012 7:18pm EDT
(Reuters) - Cowboy local regulator or the exposer of lax federal bureaucrats?
That's the key question being asked about New York banking regulator Benjamin Lawsky after his explosive charge that London's Standard Chartered bank abetted $250 billion of money-laundering transactions with Iran.
Standard Chartered won help Wednesday from Britain's central bank governor, who portrayed Lawsky as marching to his own tune, and marching out of step with federal regulators in Washington. "One regulator, but not the others, has gone public while the investigation is still going on," the Bank of England's Mervyn King said at a news conference in London.
Meanwhile, the U.S. Treasury Department, in a letter responding to a request for clarification from British authorities, said it takes sanctions violations seriously.
The British bank lost over a quarter of its market value in 24 hours after Lawsky, the head of New York State's Department of Financial Services, threatened Monday to cancel Standard Chartered's state banking license, which is critical for dealing in dollars. Lawsky called Standard Chartered a "rogue institution" for breaking U.S. sanctions against Iran.
Standard Chartered shares bounced 7.1 percent on Wednesday to close in London at 13.15 pounds, up from a three-year low of 10.92 hit on Tuesday. They were still down 18 percent since the regulator's threat, which Chief Executive Peters Sands said was "disproportionate" and came as a "complete surprise."
The bank's top executives, some like Sands scrambling back from summer vacations, worked on a defense strategy. So far, the executives have contested the regulator's figures and his interpretation of the law, but they have given little further detail. The bank says only a tiny proportion of its Iran-related deals - less than $14 million - was questionable under U.S. sanctions rules.
Sources told Reuters that federal banking regulators in Washington, who had been probing Standard Chartered's Iran-related deals for more than two years, were surprised by the timing of Lawsky's charges and the stridency of his language.
Lawsky's Department of Financial Services had come to the conclusion the case was getting old and that it wanted to move forward, a person with knowledge of the situation said. The department told other agencies at a meeting in April that it planned to move forward with the case, the person said.
Members of Lawsky's office met representatives of Standard Chartered around May but did not inform the bank it planned to issue an order against it, the person said.
"This is a case about Iran, money laundering, and national security," Lawsky said in a statement on Wednesday. "We will continue to work closely with our law enforcement partners, both federal and state, in this effort. No bank, big or small, foreign or domestic, is above the law."
In Washington, Adam Szubin, director of the Treasury Department's Office of Foreign Assets Control, said in a letter to British authorities that his office is investigating Standard Chartered for "potential Iran-related violations as well as a broader set of potential sanctions violations."
The letter, which was dated Wednesday and obtained by Reuters, came in response to a British request for clarification of U.S. sanctions laws. Although much of the letter focused on so-called U-turn transactions, which are at the center of New York's allegations, the letter said it was not a comment on Lawsky's action.
The alleged U-turn transactions refer to money moved for Iranian clients among banks in the United Kingdom and Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.
In London, King drew unfavorable comparisons between the handling of this case and other U.S. actions against British banks, such as the investigation of interest rate manipulation at Barclays PLC.
In the Barclays case, he said, all regulators in Britain and the United States produced coordinated reports after the investigation was complete.
"I think all the UK authorities would ask is that the various regulatory bodies that are investigating the particular case try to work together and refrain from making too many public statements until the investigation is completed," King said.
Standard Chartered's Sands, in his first public comments since the crisis arose, offered no major new information on the allegations, which the bank has been reviewing with authorities for the past two years.
"(We) fundamentally reject the overall picture and believe there are no grounds for them to take this action," he told reporters. The threat to cancel the bank's license to operate in New York would be "wholly disproportionate," he said.
Although Standard Chartered's business is concentrated in emerging markets, which has helped insulate it from the global financial crisis, it needs to be able to operate in New York so it can offer dealings around the world in U.S. dollars.
Also on Wednesday, Deloitte LLP, which was accused in Lawsky's order of wrongdoing in its role as an outside consultant to Standard Chartered, denied any misconduct. Deloitte was hired by Standard Chartered after U.S. authorities reprimanded the bank for similar lapses on transactions in 2004.
"Deloitte had no knowledge of any alleged misconduct by any Standard Chartered Bank employees and categorically denies that it aided in any way any violation of law by the bank," the firm said in a statement.
Specifically, Deloitte said it "absolutely did not delete" references to transactions from a report, contrary to an allegation in Lawsky's order.
On Monday, Lawsky had reproduced what he said were quotes from an unidentified Standard Chartered executive director in a conversation in 2006 that demonstrated the bank's "obvious contempt" for U.S. banking regulations.
"You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?" the quote was rendered in documents released by the regulators.
People familiar with the situation said the bank's group finance director, Richard Meddings, one of five executive directors at the time, was the unnamed man.
Ray Ferguson, a bank executive who attended that meeting, told Reuters that while Meddings had used the expletive in a heated exchange, he did not, to his recollection, say the second part of the quote attributed to him about U.S. sanctions.
Meddings did not respond to repeated requests for comment.
Asked for the bank's view on the quote, Sands said: "We don't believe it's accurate." He defended the ethics of the bank, which he has run for six years: "I don't think there is anything wrong with the culture at Standard Chartered,"
Calling the allegations "very damaging", he said he would address "mistakes" that had been "clearly wrong", but said: "There were no systematic attempts to circumvent sanctions."
The BoE's King said he did not share the view held by some that the move in New York was part of a concerted U.S. effort to undermine London as a financial center, following the Barclays probe and a U.S. Senate panel report that criticized HSBC Holding's efforts to police suspect transactions.
One British lawmaker, however, said the affair was part of a "political onslaught" in the United States against British banks.
"I think it's a concerted effort that's been organized at the top of the U.S. government. I think this is Washington trying to win a commercial battle to have trading from London shifted to New York," said John Mann, a member of parliament's finance committee, who also called for a parliamentary inquiry.

(Additional reporting by Nate Raymond, Patrick Temple-West, Sinead Cruise, Kelvin Soh, Anjuli Davies 
and Sarah White; Writing by Eddie Evans; Editing by Leslie Adler)

DealBook | DealB%K Afternoon Edition: Carlyle Swings to a Loss in 2nd Quarter

Wednesday, August 8, 2012
Carlyle Swings to a Loss in 2nd Quarter The Carlyle Group swung to a loss in its second quarter, the firm said on Wednesday, as it struggled to show growth in its core private equity investments. The firm's loss of $57 million was reported as economic net income, a metric preferred by other publicly traded private equity firms like the Blackstone Group and Kohlberg Kravis Roberts. The figure includes unrealized gains for investments. That amounts to a loss of about 19 cents a share, surpassing the 14 cents a share average estimate of analysts surveyed by Standard & Poor's Capital IQ. But Carlyle also pointed to the $3 billion in realized gains that it generated during the quarter as a sign that it was continuing to create value for its limited partners. And it said that it raised nearly $4 billion in new capital for the quarter.
    Kindler, Former Pfizer Chief, Joins Lux Capital
    Kindler, Former Pfizer Chief, Joins Lux Capital Jeffrey B. Kindler, who retired as Pfizer's chairman and chief executive at the end of 2011, has joined Lux Capital as a venture partner, the firm announced on Wednesday.
    Liberty Media to Split Off Starz The premium cable business Starz will become a separate publicly traded company in a spinoff later this year.
    Greenberg Asks: Was That Sandy Weill, or Sacha Baron Cohen? Sanford I. Weill's call to break up big banks certainly took many on Wall Street by surprise. But it was such a major Damascene conversion that at least one longtime banking grandee, Alan C. Greenberg, thinks it's unbelievable.
    New York Times Company in Talks to Sell The New York Times Company is close to a deal to sell the online resource guide to for $270 million, reports Christine Haughney. The Times Company bought for $410 million in 2005
    Starbucks Invests $25 Million in Square; Schultz Joins Board Square, the rising mobile payments company, has received a $25 million investment from Starbucks, reports Claire Cain Miller of The New York Times. Howard D. Schultz, Starbucks's chief executive and a former Groupon board member, will join Square's board
    The English soccer team Manchester United is expected to price its United States initial public offering. Kohl's, MBIA and Nordstrom are among the companies reporting earnings.

The Economist | Selected New Articles: Chick-fil-A's stand, Romanian schools and a Mars landing

Democracy in America: Feathers flying
Corporate social responsibility combined with ethical consumption is a recipe for culture war
read more »
Banyan: Hazards of playing politics
India's main anti-corruption crusader says he will launch a political party. It is a defeat of sorts
read more »

Eastern approaches: Idiots and Romanian schools
Romania's education system is letting its younger generation down
read more »

Baobab: Diplomats and documentaries
A Danish film causes a ruckus in Liberia
read more »
Schumpeter: Circling the wagons
A deal purporting to rescue a big insurer shows the lengths to which the Italian financial establishment will go to get its way
read more »
Babbage: Falling onto Mars
A slideshow following Curiosity's progress from Earth to Mars
read more »
Graphic detail: The laziness of the short-distance runner
Performing daily chores can use up more calories than winning gold medals
read more »
Online debate: Jewish fundamentalism
Is democracy possible in a Jewish state with a strong ultra-Orthodox component?
read more »

Stocks and Markets in the News | Wall Street at Close: U.S. stocks manage a fourth-day gain

By Kate Gibson, MarketWatch 

NEW YORK (MarketWatch) U.S. stocks on Wednesday barely managed to extend a winning run, with the Dow industrials and S&P 500 ending higher for a fourth day as Wall Street adopted a cautious tone. 

“We’re seeing a lot of indication that things are not as bad as we thought they were, but the question is, how good are they? We’ve had a pretty strong market rally for simply going from bad to less bad. If it’s actually getting good, then we need to be prepared to put some money to work, but it seems like it is too early,” said Bruce McCain, chief investment strategist at Key Private Bank. 

Crisis weakens unions' influence A far-reaching restructuring of labor markets in the euro-zone's periphery has developed over the last several years, to remedy what some see as a root cause of the crisis. (Photo: AP) 

“Will a black hole open up in Europe that will suck the world economy into it? So far we’ve avoided that, but we’re still nervous,” added McCain of underlying market worries. 

The Dow Jones Industrial Average DJIA +0.05%  climbed 7.04 points, or less than 0.1%, to 13,175.64, with 19 of its 30 components gaining, led by Hewlett-Packard Co. HPQ +2.37% , up 2.4% after the company hiked its third-quarter earnings forecast. Read more on Hewlett-Packard. 
McDonald’s Corp. MCD -1.66%  fell 1.7% after it reported revenue at restaurants open at least 13 months fell 0.1%. 

“You get reports like McDonald’s today that reflect overseas weakness,” said McCain of the fast-food chain, the day’s biggest weight among the blue chips. 

The S&P 500 index SPX +0.06%  rose 1 point to 1,402.22, with consumer staples the best performing and consumer discretionary the worst among its 10 sectors. 

Macy’s Inc. M +2.73%  shares gained after the department-store chain reported better-than-expected income in its second quarter and hiked its 2012 guidance. Read more on Macy’s
The Nasdaq Composite Index COMP -0.15%  fell 4.61 points to 3,011.25. 

Advancers just outran decliners on the New York Stock Exchange, where composite volume neared 3.2 billion. The Nasdaq’s composite volume came close to 1.9 billion. 

Oil prices CLU2 -0.05%  lost 32 cents to end at $93.35 a barrel in New York.
Treasury prices fell after the government sold $24 billion in 10-year notes, with yields 10_YEAR +0.12%  on the benchmark rising 2 basis points to 1.648%. 

The sale “was poor as the yield was a few basis points above the when-issued, and the bid-to-cover of 2.49 was well below the previous 12-month average of 3.13 and the lowest since August ’09,” wrote Peter Boockvar, equity strategist at Miller Tabak, in emailed comments 

The bottom line, according to Boockvar, is European Central Bank President Mario Draghi “ended the U.S. Treasury rally dead in its tracks on July 26 when he temporarily calmed markets and that certainly carried over to today’s auction.” 

Kate Gibson is a reporter for MarketWatch, based in New York.

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