New Bond Offerings Soaring Amid Political Drama

May 24, 2011, 8:47 am EST

Last week, the S&P 500 logged its third straight weekly decline, and stocks plunged Monday on European debt worries, but I believe this is merely a “pause that refreshes” before the next earnings reporting season begins in July. There is good reason to believe that second-quarter corporate earnings will continue delivering positive surprises, but the big news last week reads more like a gossip column, involving dissension at the International Monetary Fund (IMF) and the Fed.

Despite the fact that former IMF Director Dominique Strauss-Kahn dominated the gossip pages last week, his sudden departure from the IMF seemed to undermine the euro a bit, since the IMF was in the midst of drafting a controversial plan to help Greece restructure its debt. Soaring yields on Greek debt have been crippling that nation from paying down its original European Union/IMF loan. Last Friday, Fitch Ratings downgraded Greece three notches to B+, meaning that Greek bonds have gone from junk to smelly junk!

Meanwhile, the Federal Reserve Board is fighting an ongoing civil war between its hawks and doves. On Wednesday, the minutes of the last Federal Open Market Committee (FOMC) meeting revealed that the FOMC is now composed of five “doves” (whom President Obama named to the Fed). These doves do not want interest rates to rise as long as unemployment remains high. On the other side, five hawks advocate raising rates fairly soon. In effect, the “independent” Fed has been invaded by White House doves! When traders realize that the Fed is becoming a political pawn, I expect that the U.S. dollar will resume its decline. Read 

Airlines’ Next Headache: Retraining Pilots

May 23, 2011, 1:49 pm EST

Pricey jet fuel and environmental problems ranging from severe storms to last week’s new eruption of volcanic ash over Europe have given airline stocks their share of fits and starts this year.  After all, as major carriers like Delta (NYSE:DAL), United Continental (NYSE:UAL), AMR Corp.’s (NYSE:AMR) American Airlines, US Airways (NYSE:LLC) and Southwest (NYSE:LUV) can attest, higher costs are the bane of airlines’ existence. 

But if the Federal Aviation Administration gets its way, airlines will face yet another headwind: the rising cost of air safety.  In the biggest change to flight crew training requirements in 20 years, the FAA is proposing a new safety rule that would send pilots back to school.  The plan, which will be out for comment until July 19, would require airlines to put their pilots through “real-world” emergency training scenarios in flight simulators. 

In addition to this enhanced individual training, flight crews also would have to train together, learn to coordinate their actions tand fly scenarios based on actual events.  The new rules would require remedial training for pilots who have failed proficiency checks or tests or whose performance has been unsatisfactory. Read 

Markman: The Fed’s Meds

May 23, 2011, 12:20 pm EST

One of the most exciting events in the middle of every month for monetary policy followers is the release of the Federal Reserve Board minutes from the previous month’s meeting.

The minutes of the central bank’s rate-setting committee last week provided insights on how and when Bernanke & Co. plan to end quantitative easing and tighten monetary policy. The minutes said that a few participants “thought that economic conditions might warrant action … later this year.”

But that group was shown to be in the minority, because most participants were said to be concerned that “an early exit could unnecessarily damp the ongoing economic recovery.” Read 

Markman: Expect a Bounceback in Limited Partnerships

May 18, 2011, 1:02 pm EST

Master limited partnerships have been shellacked over most of the past week in tandem with the decline in crude oil prices, though they are well off their lows.

A key problem has been news that the White House and Congressional leaders are thinking about changing the way certain partnerships, including MLPs, are taxed, as part of an effort to raise more revenue for the government . I don’t think this is likely to make much progress, and that the decline was likely to be seen as a good entry point for investors seeking high yields.

I have been a big advocate of owning these for the past two years as they provide an ideal mix of high and rising dividend yields, strong balance sheets and rising stock prices. And now the case for MLPs is as strong as ever. Read 

3 Budget Problems That Dwarf the Debt Ceiling

May 18, 2011, 12:05 am EST
3 Budget Problems That Dwarf the Debt Ceiling

There’s a lot of fuss about the U.S. debt ceiling this week, including fears that the Treasury could “default” on its debt. Is the government going to go the route of so many hard-luck Americans during this downturn and just stop paying the bills?

Hardly.

As economist Ed Yardini wrote this week, the U.S. Treasury can still auction new securities to raise funds. And according to Yardini’s math, net interest expenses by the Federal government were $213 billion through the last 12 months that ended in April, while Treasury revenue totaled ten times that. Specifically, the last 12 months saw $2.27 trillion in revenues for the Treasury – including nearly $290 billion in April alone due to tax season. Read 

Who’s Afraid of Big, Bad Inflation? Not China

May 11, 2011, 4:00 am EST
Who’s Afraid of Big, Bad Inflation? Not China

This week, Chinese officials are in Washington, D.C., this week for their annual Strategic and Economic Dialogue meeting, and topping the list of discussion points between the world’s largest economic powers is the issue of China’s currency.

The United States has been pressuring China on the value of the yuan for some time now. And while Beijing has its own game plan when it comes to its currency, new trade data out yesterday may put more pressure on China to send the yuan higher. Dramatic Surge in China’s Trade Surplus

China’s trade surplus swelled dramatically in April as a result of slower import growth and exports that kept powering ahead. The surplus widened to a whopping $11.4 billion in April, compared to a meager $139 million in March. This was a big surprise, as the average analyst expectation was for the trade surplus to come in around just $1 billion. Read 

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