Friday, November 4, 2011
German unemployment unexpectedly rose for the first time in more than two years in October and manufacturing contracted as pessimism mounted among businesses in Europe’s largest economy.
The number of people out of work rose a seasonally adjusted 10,000 to 2.94 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 10,000, the median of 31 estimates in a Bloomberg News survey showed. The adjusted jobless rate rose to 7 percent from 6.9 percent. A separate report showed factory output dropped.
“It’s too early to call this a trend change in the labor market, but it shows that growth forces are weakening,” Lothar Hessler, an economist at HSBC Trinkaus & Burkhardt AG (TUB) in Dusseldorf, said in an interview. “The dynamism of the economic upswing is lessening more than thought.”
German companies are growing more reluctant to hire workers as Europe’s worsening fiscal crisis clouds growth prospects. German investor sentiment fell to the lowest in almost three years last month and business confidence dropped to a 16-month low. In the 17-member euro region, manufacturing output declined more than previously forecast in October, suggesting the region is edging toward a recession.
The euro was little changed after the report, trading at $1.3771 at 10:47 a.m. in Frankfurt, up 0.5 percent on the day.
“The positive development on the labor market has continued all in all, based on the most recent data, and is following the good economic development” the labor agency said in a statement.
The Organization for Economic Cooperation and Development lowered its euro-region growth forecasts for this year and next on Oct. 31, saying the region will show a “marked slowdown with patches of mild negative growth.” The Paris-based group, which didn’t give growth projections for Germany, called on European leaders to prevent contagion spreading from Greece.
Deutsche Bank AG, Germany’s biggest lender, signaled more jobs may be at risk as the European sovereign debt crisis and global economic slowdown crimp investment-banking revenue. Chief Financial Officer Stefan Krause said on Oct. 25 the Frankfurt- based bank will continue to adjust its “platform” if the environment persists after announcing 500 job cuts.
The German economy may fail to grow in the current quarter, the Berlin-based DIW institute predicted on Oct. 26. Expansion will slow to 0.8 percent in 2012 from 2.9 percent this year, the country’s top economic institutes said on Oct. 13 in their twice-yearly report commissioned by the government. In April, the group forecast growth of 2 percent next year.
“The latest monthly rise in the adjusted figure should not mark the end of the impressive upswing on the German labor market,” Alexander Koch, an economist at UniCredit SpA (UCG)in Munich, said in an e-mailed comment. “Despite the recent strong deterioration in the global economic environment, corporate employment plans do not signal an imminent turnaround.”
While banks may be forced to eliminate more positions as the debt crisis erodes earnings, car makers, the industrial mainstay of the German economy, are still taking on staff as demand in the luxury car market holds up.
Porsche AG broke ground on Oct. 18 on a 500 million-euro ($682 million) expansion of a factory in Leipzig where the sports-car maker is hiring more than 1,000 workers. Daimler AG (DAI), maker of Mercedes-Benz cars, said on Oct. 27 it employed 3,360 more people in Germany at the end of the third quarter than it did a year earlier as it targets record car sales.
Germany’s harmonized jobless rate was 6 percent in August, according to the OECD. That compared with 9.1 percent in the U.S., 9.9 percent in France, 7.9 percent in Italy and an OECD European average of 9.4 percent.
AFP - Microsoft said Thursday it is working to fix a Windows software vulnerability that lets a Stuxnet-like Duqu virus sneak into computers by hiding in Word document files.
Duqu infections have been reported in a dozen countries including Iran, France, Britain and India, according to US computer security firm Symantec.
"Microsoft is collaborating with our partners to provide protections for a vulnerability used in targeted attempts to infect computers with the Duqu malware," said Microsoft trustworthy computer group manager Jerry Bryant.
"We are working diligently to address this issue and will release a security update for customers through our security bulletin process," he added in an email response to an AFP inquiry.
Symantec said the Duqu threat is growing and that slipping into machines through Word files is "one of many forms of attacks that cyber criminals can use to infect computers."
Similarities between Duqu and a malicious Stuxnet worm have prompted speculation that the same culprits might be involved, though no links have been proven.
The new virus, dubbed "Duqu" because it creates files with the file name prefix "DQ," is similar to Stuxnet but is designed to gather intelligence for future attacks on industrial control systems.
"The threat was written by the same authors (or those who have access to the Stuxnet source code) and appears to have been created since the last Stuxnet file was recovered," Symantec said on its website.
"Duqu's purpose is to gather intelligence data and assets from entities, such as industrial control system manufacturers, in order to more easily conduct a future attack against another third party.
"The attackers are looking for information such as design documents that could help them mount a future attack on an industrial control facility."
Stuxnet was designed to attack computer control systems made by German industrial giant Siemens and commonly used to manage water supplies, oil rigs, power plants and other critical infrastructure.
Most Stuxnet infections have been discovered in Iran, giving rise to speculation it was intended to sabotage nuclear facilities there. The worm was crafted to recognize the system it was designed to attack.
The New York Times reported in January that US and Israeli intelligence services collaborated to develop the computer worm to sabotage Iran's efforts to make a nuclear bomb.
Tehran denies it is seeking nuclear weapons, insisting its nuclear program has peaceful civilian purposes.
WASHINGTON (AP) — Government-controlled mortgage giantFreddie Mac has requested $6 billion in additional aid after posting a wider loss in the third quarter.
Freddie Mac said Thursday that it lost $6 billion, or $1.86 per share, in the July-September quarter. That compares with a loss of $4.1 billion, or $1.25 a share, in the same quarter of 2010.
This quarter's $6 billion request from taxpayers is the largest since April 2010.
Freddie's losses are increasing mainly for two reasons: Many homeowners are paying less interest because they are able to refinance at lower mortgage rates. And failing and bankruptmortgage insurers are not paying out as much money when homeowners default.
The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them. Since then, a federal regulator has controlled their financial decisions.
Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates it could cost up to $51 billion more to support the companies through 2014 after subtracting dividend payments.
Freddie and Washington-based Fannie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.
Charles E. Haldeman Jr., Freddie's chief executive, said many homeowners are refinancing at lower mortgage rates or are shortening the terms of their mortgage. While that saves homeowners money, it is pushing Freddie deeper into the red.
"In fact, borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year," he said.
For Freddie, those losses are temporary because interest rates will remain low for the foreseeable future, said Jim Vogel, an interest-rate specialist at FTN Financial.
Still, many homeowners are still defaulting on their mortgages. Unemployment remains stubbornly high at 9.1 percent. The percentage of those who are late by 90 days or more on their monthly mortgage payments was virtually unchanged at 3.51 percent in the July-September quarter.
Another reason Freddie needs more aid is because it has received less money from mortgage insurers.
Many riskier mortgage loans require insurance, which is meant to protect lenders and investors from losses if a homeowner defaults and the lender doesn't recoup costs through foreclosure. The borrower pays a monthly premium for the insurance, typically a set percentage of the total mortgage loan. But when those mortgage insurers fail, they pay out less in claims.
For example, the main subsidiary of private mortgage insurer PMI Group was seized by Arizona insurance regulators last month. That followed heavy losses the group incurred after the housing market collapsed. PMI is now paying claims at just 50 percent.
As a result, the amount that Freddie has set aside for losses increased from $2 billion in the January-March quarter to $3.6 billion in the July-September quarter.
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and then sell them to investors around the world. When property values drop, homeowners default — either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.
Fewer foreclosures and delays in foreclosure processing because of a yearlong government investigation into mortgage lending practices have reduced the companies' projected losses.
Fannie and Freddie are required to pay 10 percent dividends on the government money they receive. Freddie paid $1.6 billion in dividends to the Treasury Department in the July-September quarter.
Pressure continues on the government to eliminate Fannie and Freddie and reduce taxpayers' exposure to risk. The Treasury Department put forward a plan in February to slowly dissolve Fannie and Freddie, although that process could take years. Abolishing Fannie and Freddie would transform how homes are bought and redefine who can afford them.
Nouriel Roubini held a party/lecture at his apartment exclusively for clients (many of them hedge funders) of his firm Roubini.com.
He spent about 30 minutes discussing the big issues of the day: The US economy, China, and of course, the biggie, the Eurozone crisis.
Here's the gist of what he told them.
When it comes to Europe, frankly, he said, "Our view is very bearish." Europe is a slow motion train wreck and there's a "significant risk of a Eurozone breakup." This doesn't mean Greece and Portugal leaving, it means Spain and Italy ultimately leaving as well, which would mean the whole thing is toast.
And if the Eurozone breaks up "everything around the world goes sour."
The fundamental problem -- which is something he laid out in a note to clients this week -- the matter of flows. While Europe might be able to address some "stock" problems (the size of the debt), there's no answer to the matter of growth and trade deficits, which the periphery countries are consistently running.
So the basic strategy of the IMF/Germany is this: Keep Greece on life support long enough for a big bazooka to save Italy and Spain, at which point, when it's obvious that austerity doesn't work (which everyone knows) then, perhaps in a year from now, you let Greece default. The hope is that Spain and Italy are okay by then. Roubini is, not surprisingly, skeptical.
There's only one strategy that might work: Periphery reforms and the core engages in fiscal stimulus and more monetary easing, in which case you might get the kind of balanced adjustment that would work. But the problem, of course, is German culture, which is against monetary easing and more fiscal stimulus.
As for the US, he thinks people are breaking out the kool-aid to soon on the avoidance of a recession. "Q3 GDP will be revised downward," he explained because the first estimate only looks at big firms, which are doing better than small and medium sized businesses that are "getting squeezed."
So supposed Q3 GDP gets revised down to a rate closer to 1.5%, then next year we experience a $200 billion fiscal drag: "That will bring growth to zero."
And of course, "If the Eurozone blows up, it all gets worse."
Finally on China, he predicts it avoids a hard landing this year and next year, but sees trouble in 2013-2014.
BANKS across Europe are starting to take seriously what until now seemed only remotely possible: the withdrawal of Greece from the euro currency.
As the fate of Greece's future in the eurozone hangs in the balance, European banks and US banks that operate in Europe are conducting "fire drills" to prepare for a Greek pullout.
Navy makes initial contact with vessels heading for Gaza closure, offers option to head to port in Egypt or to turn around; IDF not expecting violent clashes but ready for all situations.
The navy has made first radio contact with the two-boat Gaza flotilla which is approaching the region. The IDF informed the vessels that their current course is leading them toward a naval closure off the coast of Gaza, which is in line with international law.
The vessels were informed that they can turn around and prevent an infringement of the closure or head to a port in Egypt. The activists on board refused to heed the navy's call and refused to act in accordance with the instructions they were given. The flotilla is now heading toward the area under closure, the navy said.
CANNES—It may well be remembered as the day the euro zone began to break apart.
At a late night news conference in Cannes on Wednesday, German Chancellor Angela Merkel and French President Nicolas Sarkozy shattered the bloc’s most sacred taboo, conceding openly for the first time that Greece might end up having to leave the tight-knit currency club it joined a decade ago.
The admission, after an intense two-hour meeting with Greek Prime Minister George Papandreou on the eve of a G20 summit, sets the euro zone on a perilous course that could reverberate in Europe and beyond for decades.
Were Greece to leave the euro zone, a step that until now European officials have said is technically and legally impossible, the consequences would be devastating even though the country represents just 2.5 percent of the 17-nation currency area’s gross domestic product (GDP).
Just how devastating is difficult to say because the move would take Europe and the global financial system into uncharted territory.
But what does seem clear is that an exit would spark contagion to other peripheral countries as foreign investors pulled out en masse. This in turn would hammer financial institutions across the bloc, leading to bank runs and forcing the European Central Bank (ECB) to respond with massive liquidity provisions and government bond purchases.
The central bank and all private and official sector creditors would have to write off their claims on Greece in one fell swoop. The resulting credit crunch, economists say, would make the freeze-up that followed the 2008 bankruptcy of U.S. investment bank Lehman Brothers seem mild.
“If Greece left the euro, the market pressures on the countries perceived as the next most vulnerable would rapidly become overwhelming,” the Economist Intelligence Unit said in a recent report entitled “After Eurogeddon”.
“As the chain reaction spread across Europe, we think contagion would be rapid, dramatic and uncontrollable at times.”