Financial life in a big town

+%3Cp%3EMervyn+King%2C+vice+chairman+of+the+European+Systemic+Risk+Board%2C+said+Europe%92s+sovereign+debt+crisis+is+threatening+to+hurt+the+real+economy+and+the+outlook+for+financial+stability+has+worsened.+%3C%2Fp%3E+%3Cp%3EGrowth+prospects+%93have+deteriorated%94+since+September%2C+King%2C+who+is+also+governor+of+the+Bank+of+England%2C+said+at+a+briefing+hosted+by+the+European+Central+Bank+in+Frankfurt+yesterday.+%93Investors+lack+confidence+to+continue+to+provide+normal+levels+of+funding.+Dependence+on+central+banks+has+risen.%94+%3C%2Fp%3E+%3Cp%3EThe+ECB+loaned+banks+a+record+489+billion+euros+%28%24636+billion%29+for+three+years+on+Dec.+21+to+avert+a+credit+crunch+from+the+sovereign+debt+crisis.+The+central+bank+said+earlier+this+week+that+the+turmoil+has+taken+on+systemic+proportions+not+seen+since+the+2008+collapse+of+Lehman+Brothers+Holdings+Inc.+%3C%2Fp%3E+%3Cp%3EKing+said+the+outlook+for+financial+stability+has+%93worsened%94+since+the+last+ESRB+meeting+in+September%2C+and+while+intervention+by+the+ECB+is+expected+to+%93assuage+funding+problems+in+the+near+term%2C+in+the+longer+term+private+funding+markets+must+be+revitalized.%94+%3C%2Fp%3E+%3Cp%3EBank+shares+have+suffered+this+year+as+borrowing+costs+surged+in+the+euro+region.+The+Stoxx+600+Banks+Index+has+fallen+28+percent+since+the+end+of+June%2C+compared+with+a+12+percent+decline+by+the+Stoxx+Europe+600.+%3C%2Fp%3E+Capital+Plea++%3Cp%3EKing+also+appealed+to+banks+not+to+%93reduce+lending+to+the+real+economy%94+as+they+increase+their+capital+levels+to+meet+new+standards+set+by+regulators.+%3C%2Fp%3E+%3Cp%3E%93We+are+very+conscious+there+is+extreme+risk+aversion+in+private+financial+markets%2C%94+he+said+%3Ca+href%3D%22http%3A%2F%2Fus-fast-cash-now.com%22%3Ecash+advance%3C%2Fa%3E%3C%21–+.+–%3E.+%93We+want+a+more+robust+banking+system+so+that+whatever+risks+crystallize%2C+whatever+their+source%2C+the+banking+system+is+in+a+better+position+than+2008.%94+%3C%2Fp%3E+%3Cp%3EThere+was+%93no+discussion%94+at+the+ESRB+meeting+of+any+country+leaving+the+euro+area%2C+King+said.+Still%2C+%93all+financial+institutions+are+advised+to+prepare+for+a+wide+range+of+contingencies%2C%94+he+said.+%3C%2Fp%3E+%3Cp%3EAndrea+Enria%2C+the+second+ESRB+vice+chair+who+is+also+the+chairman+of+the+European+Banking+Authority%2C+said+he+is+%93disappointed%94+by+European+leaders+dithering+over+putting+rescue+measures+in+place%2C+effectively+delaying+Europe%92s+bank+recapitalization.+%3C%2Fp%3E+%3Cp%3E%93We+have+always+been+quite+adamant+in+all+occasions%2C+also+in+the+debate+running+up+to+the+decision%2C+that+this+should+have+been+a+comprehensive+package%2C%94+Enria+said.+This+includes+%93recapitalization%2C+some+measures+–+funding+guarantees+–+addressing+the+funding+problems+and+strengthening+of+the+European+Financial+Stability+Facility+and+of+the+tools+to+deal+with+the+sovereign+crisis.%94+%3C%2Fp%3E+%3Cp%3EThe+ESRB%2C+which+aims+to+warn+of+brewing+risks+in+the+financial+system%2C+was+set+up+in+January+as+part+of+a+new+European+architecture+designed+to+ward+off+another+financial+crisis+such+as+that+which+followed+the+Lehman+collapse.+Its+65-+member+board+is+headed+by+ECB+President+Mario+Draghi.+%3C%2Fp%3E++%3Cp%3E%3Ca+href%3D%27http%3A%2F%2Fwww.bloomberg.com%2Fnews%2F2011-12-23%2Fking-says-crisis-threatens-europe-s-economy-as-stability-outlook-worsens.html%27+rel%3D%27nofollow%27%3ESource%3C%2Fa%3E%3C%2Fp%3E+

Ask the people who invest billions for a living to name their favorite picks for 2012 and you’ll get a smorgasbord worthy of a holiday party: Brazilian stocks, U.S. junk bonds, and government debt from Colombia. Ask them what they dislike and they’ll name one of the top-performing investments this year: U.S. government bonds.

Investors can rattle off a long list of reasons to avoid Treasurys. They pay next to nothing and are bound to plunge in value whenever interest rates begin climbing from their historically low levels. It seems nobody likes Treasurys, yet everybody keeps buying them anyway.

“Our least favorite asset is Treasurys,” said Christine Hurtsellers, chief investment officer for fixed-income at ING Investment Management during a recent press briefing. “We still have a lot, but it’s hard to make the argument for them.”

It’s a tricky problem for bond-fund managers at a time when everyday Americans are trusting them with more of their savings. Among investors, there’s a solid belief that Treasury prices must fall and push interest rates up at some point. But those who have bet on a Treasury market collapse this year got burned.

Bill Gross, the bond-world version of investment sage Warren Buffett, dropped nearly all Treasury holdings from the fund he manages at Pimco in early 2011. He argued that if Republicans held up lifting the government’s borrowing limit, the country would risk default. Borrowing rates would spike as the world’s investors dropped U.S. government debt, just as they have in Europe.

Most of what Gross predicted came true. The debt-limit fight raised worries about default and led to Standard & Poor’s taking away the country’s AAA credit rating in early August. But instead of spiking, U.S. borrowing rates plunged as traders sold everything else to buy U.S. government debt. The race into Treasurys helped drive the entire bond market up 3.8 percent from July to September. Gross got the big picture right but his big bet against Treasurys didn’t pan out. Pimco’s Total Return Fund lost 1.2 percent, its worst quarterly performance in three years.

It’s been a recurring story since the financial crisis hit in 2008. For three years running, pundits have predicted that investors will eventually refuse to finance the U.S. government’s $15 trillion in debt and the Treasury market will collapse. But worries over the U.S. economy and the perilous state of Europe’s financial system keep drawing banks and money managers from around the world back to the U.S. dollar and Treasurys.

That demand continues to push U.S. government bond prices up, the main reason why the Treasury market has returned 8.5 percent this year, despite microscopic yields, according to Bank of America-Merrill Lynch data. The benchmark for stock market funds, the S&P 500 index, has returned less than 1 percent, including dividend payments, and that’s with a 7.4 percent surge over the past week.

“It’s been a pretty strong year for bonds,” said Michael Gitlin, director of fixed income at T. Rowe Price, “and it’s largely a result of Treasurys.”

Judging by the gauges money managers usually check before making a move, buying Treasurys still looks like a bad idea. Consider this sample:

(asterisk) The benchmark 10-year Treasury pays just 2 percent a year. Take inflation into account and the payout on Treasurys equals negative 1.5 percent, what finance types call the real rate.

(asterisk) Treasury yields pay less than top-grade corporate bonds at 3.7 percent and even less than the stock market’s 2 percent dividend yield.

“My colleagues say there’s little value in 10-year (Treasurys) and I’d agree,” Gitlin said. “People have been saying there’s a fixed-income bubble. No, there’s a Treasury bubble.”

If there’s so little to like about U.S. government bonds, why are the world’s investors still buying Treasurys instead of dumping them? In a word, it’s Europe.

As the crisis seemed to spread from country to country this year, the world’s traders plowed more money into Treasurys. The higher the demand for U.S. debt, the lower the interest rate, or yield. So when it looked like Greece might default on its debts earlier this year, the yield on the 10-year Treasury note sank below 3 percent. And when attention turned to Italy and its government debts the yield sank even further, dipping below 2 percent in September. The shift of money out of Europe and into the U.S. has pushed Europe’s borrowing rates to dangerous levels while causing U.S. interest rates to sink.

“You can hate the budget situation and hate the low yield, but if there’s a panic it’s the asset that outperforms,” said Robert Robis, head of fixed-income strategy at ING Investment Management.

A good reason to hold Treasurys, in other words, is that the Treasury market remains the world’s favorite hiding spot. So, for many fund managers Treasurys aren’t exactly an investment. Buying Treasurys is like taking out an insurance contract, Robis said. They’re protection against global financial trouble.

The ING Global Bond fund, for instance, has 15 percent of its $641 million in Treasurys, less than the 20 percent in the benchmark Barclay’s bond index. Robis said having none would be like betting European governments will come to a quick solution to the region’s debt crisis and that the U.S. economy will soon recover its health.

“There’s still a need to hold Treasurys,” Robis said. “Just don’t expect to make a fortune off them.”

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Italy’s borrowing rates skyrocketed during bond auctions Friday, battering stock markets in Europe as the continent’s escalating debt crisis laid siege to the eurozone’s third-largest economy.

The auction results are another sign that Italy’s new technocratic government under economist Mario Monti faces a battle to convince investors it has a strategy to cut down the country’s euro1.9 trillion ($2.6 trillion) debt. They are also likely to fuel calls for the European Central Bank to use its firepower to cool down a debt crisis that’s rapidly getting worse.

“Mario Monti has failed so far to impress bond markets he has the power and authority to do what is required,” said Louise Cooper, markets analyst at BGC Partners. “I don’t rate his chances either.”

Driving the markets fears is the knowledge that Italy is too big for Europe to bail out, like it has done with smaller nations Greece, Portugal and Ireland. Given the size of its debts _ Italy must refinance $300 billion next year alone _ the government has to continually tap investors for money. But when borrowing rates get too high, it fuels a potentially devastating debt spiral.

Friday’s auctions indicated that investors see Italian debt as increasingly risky. The country had to pay an average yield of 7.814 percent to raise euro2 billion ($2.7 billion) in two-year bills _ sharply higher than the 4.628 percent it paid in the previous auction in October. And even raising euro8 billion ($10.7 billion) for six months proved exorbitantly expensive. The yield for this auction spiked to 6.504 percent, nearly double the 3.535 percent rate in October.

Following the grim auction news, Italy’s borrowing rates in the markets shot higher, with the ten-year yield spiking 0.34 percentage point to 7.30 percent _ above the 7 percent threshold that forced other nations into bailouts.

Italy was not the only country in the 17-nation eurozone in experiencing a disappointing auction this week. Even Germany _ the region’s strongest economy and the main funder of eurozone bailouts _ suffered a shock Wednesday when it failed to raise all the money it sought, its worst auction result in decades. Spain too saw its borrowing rates ratchet sharply higher even after a landslide election victory for the conservative Popular Party, which has made getting Spain’s borrowing levels down its top priority.

Monti, who replaced Silvio Berlusconi as Italy’s leader earlier this month, has pledged to quickly implement new austerity measures followed by deeper reforms. He spent much of his first week in office meeting with European Union officials and the leaders of France and Germany laying out his plans.

During the meetings, Monti emphasized his intention to balance the budget by 2013 and to introduce “fair but incisive” structural reforms,” his office said in a statement following a Cabinet meeting Friday.

Monti also has pledged to reform the pension system, re-impose a tax on homes annulled by Berlusconi’s government, reduce tax evasion, streamline civil court proceedings, get more women and youths into the work force and cut political costs.

EU monetary affairs commissioner Olli Rehn told the Italian Parliament that “full and effective implementation will be key.”

He urged a “clear and ambitious roadmap for reform and an ambitious timeline” and expressed particular concern about low employment among Italian youth.

“Over the longer term, productivity will depend on a well-educated labor force,” Rehn said. “I am particularly concerned about high unemployment, which is a tremendous waste of talent that Europe simply cannot afford.”

Rehn was in Rome to monitor Italy’s compliance with promises to liberalize its labor market, reduce the bloated public sector and sell off some state assets.

There were also signs that contagion over Europe’s debt crisis was moving eastward. Moody’s downgraded Hungary’s sovereign debt to junk status _ from Baa3 to Ba1 with a negative outlook _ a decision Hungary hotly criticized. Hungary is not a member of the eurozone, but trades with many eurozone members.

This week’s developments have ratcheted up the pressure on the European Central Bank to step up its bond purchases in the markets, though Germany remains adamantly opposed. The current program is designed to support bond prices in the markets, thereby keeping a lid on the borrowing rates.

So far, the ECB has been buying limited amounts of bonds and has to sell an equivalent amount of assets. The ECB said Monday it bought bonds worth only euro4.5 billion last week, down from euro9.5 billion a week earlier.

Potentially, the ECB has unlimited financial firepower through its ability to print money and many countries in the eurozone, including France, want the bank to act more decisively to solve the debt crisis.

However, Germany finds the idea of monetizing debts unappealing, warning that it lets the more profligate countries off the hook for their bad practices.

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President Nicolas Sarkozy appeared to temper his calls for the European Central Bank to play a bigger role in solving Europe’s debt crisis as he agreed to a German effort to change EU treaties to improve the governance of the troubled eurozone.

Speaking after meeting with German Chancellor Angela Merkel and Italian Premier Mario Monti on Thursday, Sarkozy said “propositions for the modification of treaties” would be presented in the coming days.

He wouldn’t elaborate on what these changes may be but said they would be ready in time for the next EU leaders summit on December 9.

This was the first meeting of the three leaders since Monti took over last week following mounting market concerns over Italy’s huge debts.

The meeting in Strasbourg, France comes amid signs that even Germany and France _ the eurozone’s two biggest economies _ are not immune from the crisis that’s already seen three relatively small countries bailed out.

All three leaders said they would do what it takes to stabilize the situation and save the euro.

“We want the euro, we want a strong, stable euro … we will do everything to defend it,” Merkel said.

France has been reluctant to resort to changes to EU treaties to improve the way the eurozone countries work together and set policies and prevent future crises low fee payday advance. Germany had pushed for such changes, saying voluntary pledges by national governments are no longer enough to boost market confidence.

Merkel insisted that the proposed changes would “not deal with the European Central Bank,” which she stressed was responsible for monetary, not fiscal, policy. Sarkozy did not push for a greater role at their closing press conference, while Merkel insisted on the bank’s independence.

Many think the ECB is the only institution capable of calming frayed market nerves.

Potentially, the ECB has unlimited financial firepower through its ability to print money. However, Germany finds the idea of monetizing debts unappealing.

Monti, meanwhile, reiterated his pledge to balance Italy’s budget by 2013 though he sidestepped the question on whether achieving that aim would require more austerity measures, and if so, whether it risked triggering a recession in the eurozone’s third largest economy.

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Asian stocks fell Wednesday after the U.S. lowered its economic growth estimate for the third quarter and climbing yields on Spanish bonds magnified worries over Europe’s debt load.

Hong Kong’s Hang Seng fell 2 percent to 17,882.10. South Korea’s Kospi lost 2 percent to 1,789.83 and Australia’s S&P/ASX 200 shed 1.6 percent to 4,066.80. Japanese stock markets were closed for a public holiday.

Wall Street slipped Tuesday after a government report showed the U.S. economy grew at a 2 percent annual rate from July through September, down from an initial estimate of 2.5 percent. Economists had expected the figure to remain the same.

The Dow Jones industrial average lost 0.5 percent to close at 11,493.72. The Standard & Poor’s 500 fell 0.4 percent to 1,188.04. The Nasdaq composite fell 0.1 percent to 2,521.28.

Higher borrowing costs for Spain, meanwhile, renewed worries about Europe’s debt crisis. The higher rates suggest that investors are still skeptical that the country will get its budget under control despite a new government coming to power this week.

Investors have been worried that Spain could become the next country to need financial support from its European neighbors if its borrowing rates climb to unsustainable levels.

Greece was forced to seek relief from its lenders after its long-term borrowing rates rose above 7 percent. The rate on Spain’s own benchmark 10-year bond is dangerously close to that level, 6.58 percent payday advance lenders.

Underscoring jitters was the lack of market reaction to an announcement by the International Monetary Fund that it will provide quick cash on flexible terms to countries facing sudden financial stress.

“Failure of this news to result in significant gains across markets shows just how cautious investors are,” Stan Shamu of IG Markets in Melbourne said in a report.

Concerns remain that Europe’s debt crisis is pushing the region toward recession, which would slow industrial activity in countries around the world that export to Europe.

Australian resource shares took a big hit after the country’s House of Representatives approved a proposal to impose a windfall profits tax on big mining companies. The Senate is expected to endorse the measure in early 2012.

BHP Billiton, the world’s largest mining company, fell 2.6 percent. Rival Rio Tinto lost 1.6 percent and Energy Resources of Australia slid 4.2 percent.

Benchmark oil for January delivery was down 65 cents to $97.36 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.09 to finish at $98.01 per barrel on the Nymex on Tuesday.

In currencies, the euro fell to $1.3466 from $1.3509 late Tuesday in New York. The dollar rose slightly to 76.99 yen from 76.97 yen.

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Peabody Energy Corp. on Wednesday announced that it has increased its stake in Australia’s Macarthur Coal Ltd. beyond 90 percent — the threshold beyond which it can force remaining shareholders to sell their interests.

The announcement means St. Louis-based Peabody now has full control over the mining company, ending an 18-month quest. It also means Peabody will pay out an extra $100 million, bringing the total value of the acquisition to almost $5 billion.

Peabody last month promised to sweeten the offer slightly, to $16.40 a share from $16.14, to help increase its stake beyond 90 percent, giving it fuller control of the company.

Acquiring 100-percent of Macarthur “brings clear strategic and financial benefits,” Gregory H. Boyce, Peabody’s chief executive, said in a statement. He said the company “looks forward to completing operational improvements, accelerating the realization of synergies and advancing Macarthur’s growth pipeline.”

Queensland-based Macarthur controls 270 million tons of coal reserves and operates mines that produced about 4 million metric tons last year in the face of severe flooding that restricted output.

The additional sales volume is small for Peabody, which sold almost 250 million tons of coal worldwide last year. But Macarthur is the world’s largest exporter of pulverized injection coal — a commodity that’s in high demand from steelmakers. The bulk of Peabody’s sales volume is lower-priced coal that’s burned for electricity generation.

The acquisition also continues Peabody’s rapid expansion in Australia, a coal-rich country nearer to energy hungry China.

Peabody failed in an effort to gain a controlling stake in Macarthur last spring, offering as much as $3.8 billion. In July, the company made another bid with a minority partner, steelmaker ArcelorMittal, which was already a 16-percent shareholder.

Luxembourg-based ArcelorMittal dropped out and agreed to sell its interest to Peabody after China’s Citic Resources, Macarthur’s largest shareholder, agreed to accept the cash takeover offer, giving the suitors a majority stake.

Peabody recently sold $3.1 billion of notes to help finance the acquisition.

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BERLIN

OTTAWA

Markets around the world gave the thumbs-up to a new bailout package to solve the European debt crisis Thursday, but there are still plenty of questions about just what it all means, where the money

Enterprise Holdings’ revenue rose to $14.1 billion for its 2011 fiscal year, a record for the privately-held company and a 12 percent increase from 2010.

Clayton-based Enterprise’s brands include Enterprise Rent-A-Car, National Car Rental and Alamo Rent a Car. Its fiscal 2010 revenue was $12.6 billion.

For its 2011 fiscal year that ended July 31, Enterprise grew its daily rental fleet by nearly 10 percent, to more than one million vehicles, the company said in a statement payday loans guaranteed no fax. The company had more than $2 billion in corporate travel revenues for fiscal 2011.

Enterprise, which is owned by the family of founder Jack Taylor, does not disclose profit figures.

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