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[The US is undergoing what is perhaps the most frenzied road building effort since the 1950s and 60s. Why? Peak Oil is here now. What purpose does this serve?
I suspect that it is perhaps one of the largest giveaways of federal funds to corporate cronies in history. Much of the money will find its way back into Neocon and Neolib pockets. It is also sure to further weaken the Treasury and increase US indebtedness. Second, when it comes time to effectively manage a United States in meltdown, these roads will facilitate military control and be easier to police than other interstate highways. Note how Arnold Schwarzenegger is a big proponent of this, even with California's massive budget problems. This only encourages more energy consumption and accelerates the coming train wreck. - MCR]
INTERNATIONALIZING U.S. ROADS
Phyllis Spivey
June 10, 2005
NewsWithViews.com
http://www.newswithviews.com/Spivey/phyllis3.htm
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
Imagine this: your state government puts a transportation corridor in your neighborhood. It's nearly a quarter-mile wide. It will serve vehicles and trains and incorporate oil, gas, electric and water lines. Try to fight it and you'll not only face the combined might of your local, state, and federal governments, but foreign interests as well. The internationalization of U.S. roads has begun.
We're not just talking about isolated instances of privately-built toll roads with foreign management, as we've seen in Southern California. We're talking about networks of toll roads that may be built by foreign builders, managed by foreign operators, function primarily to accommodate foreign goods, and connect U.S. roads to similar networks in Canada, Mexico and, later, Central and South America.
Interstate 69, for example, is a planned 1600 mile national highway connecting Mexico, the U.S., and Canada. Eight states are involved in the project: Once completed, I-69 will extend from Port Huron, Michigan to the Texas/Mexico border.
In Texas, I-69 will be part of the Trans-Texas Corridor (TTC) project - a 4000 mile network of existing and new toll roads - which will create the largest private highway system in America. Interstate 35, also called the Oklahoma to Mexico/Gulf Coast element, will be developed as part of the TTC.
Plans call for the TTC to be 1200 feet wide with 10 vehicle lanes (three passenger vehicle lanes in each direction), truck lanes (two in each direction), six rail lines (three in each direction), two tracks for high-speed passenger rail, two for commuter rail and two for freight. The corridor will include a 200 feet right-of-way for oil, gas, electric and water lines.
According to Corridor Watch, a group opposing the TTC, Governor Rick Perry announced his Corridor vision in 2002, instructed the Texas Department of Transportation to prepare an action plan and within six-months the Department of Transportation presented the finished product to the state Transportation Commission. "Without any substantive discussion or debate and without public comment," the Commission approved it, a plan projected to cost up to $185 billion and take up to 50 years to build.
In 2003, the Texas Department of Transportation sent representatives to Europe to find "partners," visiting London, Paris, Rome, Madrid and Barcelona. By December 2004, Texas had selected a Spanish firm to finance and build the first segment of the TTC. In March 2005, Department of Transportation officials, joined by Governor Perry and Federal Highway Administrator Mary Peters, signed a 342-page agreement with the firm.
Not only did the Bush Administration bless the project, but the Federal Highway Administration announced in March 2004 that the first segment of the TTC had been granted "experimental project status" and construction could begin before the environmental study was complete. Work could start even before public hearings were completed.
Three months later, the Republican Party of Texas adopted as part of its platform the following statement: "Because there are issues of confiscation of private land, State and National sovereignty . . . , the Party urges the repeal of (legislation) authorizing the Trans-Texas Corridor. Further, we urge the removal of all authorization and powers granted the Texas Transportation Commission and the Texas Department of Transportation for the construction and operation of the Trans-Texas Corridor."
Corridor Watch now reports widespread and growing public opposition, describing Texans as "extremely concerned about the state creating a transportation, communication, utility and economic development monopoly. They are concerned about a project that will consume 584,000 acres of land impacting land owners, farms, ranches, wildlife, the environment, communities, taxpayers, water rights, local economies, and more."
Texans are also concerned about how the law authorizing the TTC grants dictatorial powers to the Transportation Commission for the taking of private property. The powers include purchase and condemnation of property contiguous to an existing or planned segment of the TTC, for use in constructing or operating the TTC, or for ancillary facilities that directly benefit users of the TTC, e.g., businesses, and - "for virtually any revenue generating purpose."
"With complete disregard for public will and the citizens of Texas," Corridor Watch says, "our government is marching forward." But Texas state officials are not marching alone.
Texas politicians are marching in lockstep with international trade groups such as North America's Super Corridor Coalition ( NASCO), the North American International Trade Corridor Partnership, (NAITCP) and the Central North American Trade Corridor Association (CNATCA)
NASCO (www.nasco-itc.com) describes itself as a "public/private, non-profit corporation seeking to create an international trade corridor system throughout North America, secure funding for certain projects, i.e., tax dollars, and promote the development of International Trade Processing Centers. A lobbying group, linked to other lobbying groups, it is "partnered" with the North America's Supercorridor Caucus in Congress and working with Senate committees on a Multi-State International Corridor Development Program. Tim Brown, a Bell County, Texas Commissioner is President.
NASCO opines that, because of "several important trade agreements, the heartland of America enters a new era as a geographic crossroad for international trade." They refer to the North American Free Trade Agreement (NAFTA) nations of Mexico, Canada, and the U.S. and "those who will follow," doubtless meaning the CAFTA and FTAA (pending trade agreements) countries of Central and South America. NASCO's Web site links to the NAFTA Secretariat site where you may view "the complete text of the NAFTA."
The NAITCP (www.naitcp.org) purports to be a "partnership of cities of Mexico, the United States and Canada linked by a trade corridor that works to promote economic and social development in our region." NAITCP just held its 11th annual summit in Mexico, May 11-13. It was called "Hemispheria, the North American Convergence Summit," and featured working groups on "Trade and Transportation Corridors in North America, Smart Borders, and Cultural Integration."
The CNATCA (www.cnatca.org) aims to encourage "continued economic integration between the three North American countries and to foster greater collective involvement in the emerging global economy." Dedicated to "proactive global citizenship," the Association's Web site presents the flags of Canada, the United States and Mexico both horizontally and vertically, but as one entity, the U.S. flag between the other two.
CNATCA's project, the Central North American Trade Corridor, extends from Alaska through the Canadian provinces of British Columbia, Alberta, Saskatchewan and Manitoba, through North Dakota, South Dakota, Nebraska, Kansas, the Oklahoma panhandle, and Texas, and then south of the U.S. border to Mexico City.
No wonder Texans are frustrated. How much influence can citizens exert when policy-making goes international? This is a question Americans everywhere should be asking, for the next trade corridor, toll road network, or inland port could land anywhere.
Nearly two dozen states have passed legislation allowing their transportation systems to operate toll roads and okaying private firms to build and run them. The Bush Administration is easing the way for states to convert car pool lanes to toll lanes, and to allow private investors to build and operate highways. Converting existing roads to toll corridors - thereby forcing taxpayers to pay each time they use roads for which they've already paid - is a great revenue producer for big spending governments.
California might be next. Governor Schwarzenegger reportedly favors toll roads and last February offered a provocative glimpse of California's future: "We're going to make an announcement really soon where we're going to look at our whole infrastructure and transportation and we have a very creative way of financing it. We want to approach it in a very radical way and then look at all kinds of transportation."
Could the governor be thinking of the TTC model, transit ways built by foreign firms with foreign money in exchange for decades of toll revenue? Providing political justification for such a move is the state's near-bankrupt condition, years of diverting road monies to finance general obligations, and a freeway system in crisis with the volume of international cargo traffic exploding.
Why foreign involvement? Besides cost considerations, modern trade agreements prohibit discrimination against trading "partners", i.e., foreign suppliers of goods and services, even in the area of government procurement. NAFTA, for example, mandates treatment "no less favorable than the most favorable treatment" the U.S. accords to its own goods and suppliers.
Another NAFTA mandate - and likely the primary impetus for developing the Texas corridor - authorizes Mexican trucks to transport international cargo throughout the U.S.; it also allows the establishment of Mexican trucking enterprises in the U.S. and permits Mexican bus services throughout the U.S.
Lawsuits based on environmental issues have delayed implementation of these provisions, but in June 2004, the U.S. Supreme Court ruled that environmental reviews were not required. The latest holdup is an agreement on safety standards, UPI reporting in March 2005, that Mexico would not allow U.S. safety inspectors to check trucks on its side of the border.
But expect Mexican trucks to roll soon and, then, look out. Trade agreements with all of Central and South America are pending. If approved by Congress - the North American Trade Corridor will likely be linked with transportation corridors all the way to Tierra del Fuego.
The trade agreements that have already transformed America's culture and economy; will now slice up America's heartland - at U.S. taxpayers' expense - decimating farmland, small communities and, of course, property rights. Our shredded borders will open fully to trucks, busses, and people from all points north and south, the trucks delivering products and services once produced in the U.S.A. by Americans.
President Bush is demanding Congressional approval of the Central American Free Trade Agreement (CAFTA). Many legislators - even those who express outrage over present border problems -- have already caved. Call your Congressman toll free at 1(877)762-8762. Demand a No! vote on CAFTA.
© 2005 Phyllis Spivey - All Rights Reserved
Prepare for the Late, Late Oil Age
Business Day (Johannesburg)
OPINION
May 19, 2005
By Peter Willis
Johannesburg
http://allafrica.com/stories/200505190762.html
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
I RECENTLY had the pleasure of accompanying US author Richard Heinberg on a lecture tour of SA, focusing on his contention that the global peak in oil extraction is very close and significant. Although he is a genial man with a good sense of humour, his message is sobering. He readily acknowledges that his thesis is controversial (meaning there are people who disagree with it, which is no surprise) but the logic of his central argument is compelling and was not effectively challenged in any of his 15 public engagements while here.
He and others point out that oil - the most potent form of easily accessible energy we have found - is a finite resource that we have been extracting for 150 years. Not surprisingly, we have found it convenient and profitable to extract the most accessible deposits first and in the past few years we have witnessed a marked failure to find major new oil fields, while existing ones are heading into decline. It seems highly improbable that we will ever again stumble on bonanzas of the kind we were used to in the mid-20th century.
What is perhaps surprising is how the world has preferred not to think about this until it is - arguably - too late to take sufficient avoiding action. We knew oil was finite but, be honest, we didn't stop to inquire when exactly it might run out, and with what consequences.
Meanwhile global demand continues to rise for the black gold upon which we have resolutely built our entire modern way of life, with China and India now stepping on the gas in imitation of so many other countries. Demand is strong in SA, too. Short of a couple of mega-field discoveries soon (in view of the typical five-to-seven-year project-development time lag), the world faces a classic supply-demand crunch. By Heinberg's reckoning, the crunch is due within two or three years.
How do we respond to such information? We would be right to remain alert to alternative data and analyses, in case Heinberg and those who think like him have got it wrong. At the same time we would be wrong to assume this means the end of life as we know it, and to abandon hope and barricade ourselves on remote organic farms.
We would equally be wrong to imagine the free-market pricing mechanism will effortlessly match supply to demand and that technological innovation, driven by higher oil prices, will effect a smooth transition to the next generation of personal transport and air travel. Yet, to judge by the reactions of many to Heinberg's lectures, this is a popular response. Our generation's faith in classical economics and modern technology runs deep. We have been brought up to believe there is virtually no problem that these two in combination cannot solve.
To be sure, prices will play a role in moderating demand as supply diminishes. New technologies will emerge to replace some of our dependence on oil. But reliance on these twin "fixes" alone would be a seriously flawed strategy.
We may assume that higher oil prices will slow demand. Then what? Those of us with decent salaries may be able to absorb the additional costs of travel in our (or our employers') budgets and the more forward-looking among us will hunt down a more fuel-efficient car for our next purchase, thereby sending a message to the car makers to speed up their efforts in this department. But what of those for whom travel costs already represent too high a percentage of their weekly budget? What advice does classical economics have for them? This could become politically complex.
Meanwhile, our touching faith in the omnipotence of technology, coupled with our preference for not looking at awkward truths like the inevitable end of cheap oil, has meant that we as nations and corporations have failed to invest heavily enough and early enough in possible alternatives to petrol and diesel (and there are few), leaving a yawning gap today between the 800-million cars running on oil-based fuel and the state of readiness of bio-diesel, electricity stored in batteries, or hydrogen-based fuel cells. While these alternatives all have potential, none is in a position to replace oil at the time when we need it to.
Meanwhile, there is every likelihood that the geopolitical landscape will change to reflect the desperation of consumer nations to secure supplies from oil-producing nations, at whatever the cost. We can therefore expect high and volatile fuel prices, coupled with periodic shortages of supply. These will probably lead to a slowdown in economic activity and the loss of many jobs. This in turn will mean there is less money available to invest in making the technological and infrastructural changes necessary to shift us away from our oil dependency. It's a catch 22 - when the economy is buoyant, there seems no great urgency about investing in alternatives to what is working well. When the underpinnings of our growth-focused economy start to wobble, the urgency is there but not the economic confidence. Here the role of government becomes critical, providing leadership and investment signals that business can work from.
Let us assume there is at least a slender chance that the above scenario is accurate. What would happen? The consequences would be vastly more complex than anyone could hope to grasp and portray. So, how do we think about them? Do we leave it to the energy and transport experts, or to government?
Perhaps an issue of such importance and with such complex implications for the whole of our society and economy requires a wider, more determined dialogue. We know from the early 1990s what South Africans can achieve when they sit down to talk in earnest about matters of critical importance to everyone, and there are some similarities here with the approach of "peak oil". A world we have become deeply dependent upon is about to change irrevocably and we perhaps have the opportunity to decide whether we ride this wave of change consciously and with our eyes wide open, or get tumbled along by forces that seem beyond our control.
Ultimately, as Heinberg said to a group of eager executives who were coming up with ingenious solutions to the challenges that "peak oil" might present to their company: "Remember the end of cheap oil is not the sort of problem you can solve. It's like growing old. You can't solve that. However, you can choose to respond respectfully, wisely and imaginatively to it, so that even ageing can become a source of unexpected riches."
The peak in global oil production, whether it comes very soon or just soon, is not the end of the world. It is an opportunity for us to think, plan and act together in unprecedented ways. Let's not find out what happens if we ignore the warning signs.
Willis is southern African director of the University of Cambridge Programme for Industry, based in Cape Town, and a board member of the South African New Economics Network, which invited Heinberg to SA. Heinberg is author of The Party's Over: Oil, War and the Fate of Industrial Societies, and Powerdown: Options and Actions for a Post-Carbon World.
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Copyright © 2005 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com).
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[Oil has broken 40 euro / barrel for the first time. This is partly because of big demand, driven by hoarding - the U.S. and China each have strategic petroleum reserves to fill - but mainly because the euro is in trouble.
The French and the Dutch may have persuaded themselves, or somebody may have successfully nudged their ambivalence, but one way or another the recent "no" votes on the European Constitution have transferred their downward momentum to the European currency. "'The euro has lost it, and you're seeing people who sold dollars and held euros in reserve buy gold,' said Dennis Gartman, trader, economist and editor of the Suffolk, Virginia-based Gartman Letter, a financial newsletter." In other words, the people who got out of the dollar and into the Euro are not returning to a leaky US currency. They're moving out of fiat money altogether. -JAH]
COMEX gold shoots to 6-week high of $436/oz early
Thu Jun 16, 2005 09:04 AM ET
http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh94077_2005-06-16_13-04-50_n16333168_newsml
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
NEW YORK, June 16 (Reuters) - Gold futures in New York shot to a six-week high Thursday morning as investment fund purchases across the metals complex lifted prices above nearby technical resistance levels.
Gold for August delivery (GCQ5: Quote, Profile, Research) stood $5.10 higher at $436.00 an ounce at 9:00 a.m. EDT (1300 GMT) on the New York Mercantile Exchange's COMEX division, which marked its strongest price since May 2.
Renewed speculative interest in metals pushed gold above chart resistance at $432 and then $435 after the opening, touching off stop-loss buy orders that accelerated the rise.
© Reuters 2005. All Rights Reserved.
Gold: Surges and delinks dollar
Mon 13 Jun 2005
http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=493434
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
LONDON (SHARECAST) - Gold prices surged to close at a one-month high on Friday, despite falling earlier on in the session and managing to shake off a stronger dollar.
Gold for August delivery on the New York Exchange ended Friday up $3.20 at $429.30 per ounce.
The precious metal appears to be distancing itself from the normal correlation to the greenback, encouraging traders to buy into gold.
[From FTW's perspective one of the most telling factors here is that big money is fleeing the US. We have been discussing this for years as we documented thefts from the US Treasury and the looting of pension funds to offshore havens. In other words, the biggest money is betting on the failure of the US economy. - MCR]
Larry Summers warns about serious Current Account Deficit
Bud Conrad
05/21/2005
http://www.safehaven.com/forums-11908.htm
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
Larry Summers gave an amazing speech on the problems of the US Current Account (CA) Deficit(Mostly the same as the Trade Deficit). It was academic, analytic and convincing. He described some possible way to improve the outcome, but painted a very bleak picture as to how serious the situation is. I had a difficult time absorbing how negative a picture he presented, and I have been a bear on the problems of our deficit for years. He discussed the prisoner dilemma of foreign countries holding our debt but not wanting to lose cashing it in. He even used the Mutual Assured Damage analogy to the cold war. He suggested that foreign holders might get the rip them off strategy of letting the dollar drop.
The implication is that there could be a serious calamity in financial markets. He offered some small steps that might bring us back toward equilibrium, but concluded with " I don't know the answer". He added that as secretary of the Treasury he did not have the freedom to speculate about the economic connections as he just did in the speech.
He was about to call on me with my question when he turned to Milton Friedman who pointed out that the US borrows in dollars and gets a better safety net because of being able to print dollars.
Afterwards I asked him to explain why interest rates were so low in the face of the situation. He said the 10 year should be at 5.5% at least. He had no economic rationale, but proffered that maybe investors who had been betting on the rate rise had decided to "throw in the towel" much like NASDAQ shorts did at 3,000 on the way up to 5000.
**********************************************
Below is his much more detailed economic analysis of the situation we are in:
The Current Account Deficit is now Unsustainable at 6% of GDP. Since Imports are bigger than Exports, if they grow at a similar rate together, the deficit will grow. The accumulation of debt means that we have to pay increasing interest on the debt making the balance worse. Historically, as the US GDP grows 1%, the Current Account (CA) deficit grown 2%. But foreigners grow their CA by only 1% for a 1% of GDP growth. The conclusion of these items is that the CA will get worse.
The 6 measures to identify if the CA is a problem:
1. Is it too big? At 6% of GDP it is bigger than what got Argentina into trouble. Mexico got to 8% before its last collapse. The US absorbs 75% of the world's export surplus. This has never happened before. The conclusion is that 6% is already too big.
2. Is it rising? Yes, by the measures mentioned above.
3. What is the comparative rate of National Investment compared to the National Saving rate? If a country is making investment and has a strong savings rate, it is in a stronger position. The US has the opposite with big government deficit, and no savings.
4. Does the composition of the deficit indicate weakness? If a country is running a CA deficit by importing the means of manufacturing for example, it can be expected that the Investment will improve output, and thus be more sustainable than if the imports are for consumption. A measure of composition is whether the goods are traded goods, or not. The composition of the CA for the US is not good.
5. Where are wealthy locals moving their money? The US is expanding its buying of foreign stocks. We are making Foreign Direct Investment outside the country. The net flow is out of the country, and this adds to the weakness of the US CA position.
6 Is the Capital flow to the US from private investors, who tend to be more concerned about returns than politics, or more from central banks who may have other reasons then just profits? The US was getting about 2/3 of its investment from Central Banks, and this could be a weak position.
By all 6 measures we are in trouble.
There are 3 Counter arguments that the situation may not be serious:
1. We are the Reserve Currency. The large liquid market for Treasuries has given us leverage and speed. It looks like local stability, but if there is a big shift, the speed could lead to explosive results, as there is a tendency for a move to bring others in that keep it going farther. The Global capital market my not give that much edge to the dollar.
2. "We will rip the foreigners off" (I'm not kidding, this is the name Summers gave this argument) Basically it is that we will depreciate the dollar and they will be left with less than they paid for. In fact, this has been happening, so much so that the foreign Debt to GDP (nominal) ratio hasn't been expanding much. The weaker dollar means that the purchasing power of the accumulated foreign debt is not growing so rapidly. the argument has short term merit, but the obvious flaw is that foreigners have to be pretty dumb to not see what is happening and to allow it to continue. An expectation of weaker dollar would drive it down even more.
3 Bretton Woods II Co-dependency (again his term). The term refers to the regime of using the dollar but not based on gold to manage the world. This is where he mentions the cold war term of Mutually Assured Damage. The foreign country that accepts US dollars in trade transactions and re invests them in US Treasuries may not be so concerned about a dollar drift lower, if the benefit of a strong economy is of even more value. We have the odd policy of asking China to raise the value of their currency, leaving them holding weaker claims on us.
"There will be Substantial Adjustments ahead":
1. The most similar historical time was the mid 1980s when the CA peaked at 3.5% of GDP. The fall of the dollar after 1985 caused the CA to come back in line.
2. The 1987 crash might have had some input from these changes.
3. Japan had several parallels and its situation in the late 1980 with seeming unending growth looks something like China today.
"This is a substantial problem in the US and Globally." The US purchases of world goods is necessary for other countries. If the US fixes its CA (Trade) Deficit, then the rest of the world will have excess capacity. So the US fix is a problem for the world.
After comparing the US savings rate, CA, and investment rate, we have only limited options. The US investment ( borrowing, including the government) has to be funded out of US households saving, or from foreigners as investment for their trade-won dollars. There is no simple path here with US consumers not saving much at all. For all these things to work as the US cuts its CA deficit, foreign countries must stimulate their own demand to provide markets for their output. Asian consumers have been held back by lack of long term mortgage lending and retail constraints. Commensurately, currency adjustment of the weaker dollar should occur against Asian currencies more than European.
He only briefly acknowledged the economic link of the CA deficits and the Budget deficit, but clearly they are related, because a smaller physical defect would help improve the CA deficit.
His concluding comment was, "I don't know the answer."
In the question and answer he mentioned that for short term money, the real rate is not much affected by monetary policy. This was to handle the point from Milton Friedman that the US returns from the US investment in foreign countries equal the returns paid to foreign investors. This is so even though the amount owed by the US is bigger than the amount owed by others to us, and that is explained by the bigger return rate that the US earns. I think Summers won that debate and Milton sort of enjoyed Summers oblique reference to a 1968 Presidential lecture (obviously Friedman, but unnamed) that somehow backed up his point of view. Nobel laureate Ken Arrow was there along with the head of the Hewlett foundation who asked an investment question. I asked John Shoven, Dean of humanities, head of Stanford Institute for Economic Policy Research, and head of Economics about how Shoven's worries about Social Security dovetail with this set of problems, and he mentioned that when things move, they could move very rapidly. This was not a low level, off-hand group; and for Summers to bring such a dire analysis is an important reason to think through how serious the long term situation will be.
Dollar Declines; Foreigners Bought Fewer Assets Than Forecast
http://www.bloomberg.com/apps/news?pid=10000087&sid=aJcRmfjRCYRY
&refer=top_world_news#
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
June 15 (Bloomberg) -- The dollar fell for the first day in six against the euro after a government report showed foreign investors purchased U.S. assets at a slower-than-expected pace.
International investors bought a net $47.4 billion in Treasury notes, corporate bonds, stocks and other financial assets in April, up from $40.6 billion in the previous month, the Treasury Department said. Economists expected $70 billion, based on the median forecast in a Bloomberg survey. The March figure was revised lower from $45.7 billion.
"We may see the dollar rally stall a bit here," said Aziz McMahon, a currency strategist in New York at ABN Amro Holding NV. "It may remind the market that even though the U.S. economy is doing better, we're not seeing huge investment inflows."
The dollar fell to $1.2098 per euro at 10:34 a.m. in New York, from $1.2031 yesterday, according to currency-dealing system EBS. The dollar is trading near a nine-month high versus the European currency. It was at 109.42 yen, from 109.47.
"The market was determined to try to push the dollar through the $1.20 mark, but we would need strong U.S. data to get us through those levels," said Michael Malpede, senior foreign exchange analyst at Refco Group Ltd. in Chicago, with about $50 billion in assets.
The dollar is up 12 percent against the 12-nation currency this year, its best annual start since the first six months of 1999, when the euro made its debut. The euro is being buffeted by a recession in Italy, a decline in German exports and French manufacturing and concern the rejection of the European Union constitution by French and Dutch voters will hamper regional economic integration.
Technical Gauge
A technical gauge of how fast the euro fell during the dollar's five-day rally through yesterday reached a level that suggested a possible reversal of its decline.
The euro's 14-day relative strength index against the dollar was 31.18 today after dropping to 23.65 yesterday, the lowest in more than two years. A level above 70 or below 30 in the index, a gauge of momentum in a given period, may signal a change of direction.
"Even though we're dollar bulls, the move has come really fast, so from that perspective it does look like we're really stretched here," said Naeem Wahid, a currency strategist at HBOS Plc in London.
The U.S. currency swung by an average three-quarters of a cent versus the euro on the day of each monthly Treasury report of foreign purchases of U.S. assets in 2004, according to Bloomberg calculations.
An index of consumer prices in the U.S. fell 0.1 percent last month, a separate government report showed earlier. So- called core CPI, which excludes food and energy prices, gained 0.1 percent.
Rate Gap
The euro is down against the dollar this year as the European Central Bank keeps its benchmark interest rate at a six-decade low of 2 percent and the U.S. Federal Reserve sticks to its pace of rate increases. ECB Chief Economist Otmar Issing this week spurred speculation the European central bank may reduce borrowing costs for the first time since 2003.
The Fed has increased its target rate for overnight loans between banks eight times since June last year to 3 percent. Eighty percent of the 44 participants polled by Bloomberg News on June 10 said to sell the euro against the dollar, up from 47 percent a week earlier.
Yen Advance
Against the dollar, the yen advanced as high as 109.15 earlier today. Japan's Nikkei 225 Stock Average rose to the highest in two months. The Nikkei gained 0.7 percent, closing at its highest since April 14.
The Bank of Japan said in its monthly report today the world's second-largest economy is continuing to recover amid greater investment by companies and consumer spending.
"The Nikkei is supporting the yen," said Sabrina Jacobs, a currency strategist in Singapore at Dresdner Kleinwort Wasserstein. "The fundamental picture in Japan is much better than that of Europe and the equity market is holding its own."
The yen may rise to 108.80 per dollar in the next week, Jacobs said.
To contact the reporter on this story:
Vivianne C. Rodrigues at at vrodrigues@bloomberg.net;
Michael McDonald in New York at mmcdonald10@bloomberg.net
Riskiest U.S. debt posts double-digit losses
Mon May 16, 2005 02:17 PM ET
By Dena Aubin
In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
NEW YORK (Reuters) - Rising interest rates, troubles in the auto industry and a slowing economy are taking a toll on the riskiest parts of the U.S. debt market this year, hitting "distressed debt" investors with double-digit losses.
The poor performance of distressed debt could make it harder for the riskiest companies to refinance debt coming due, raising default risks.
Distressed debt, bonds that have plunged in price because of troubles at the issuer, have lost 19 percent this year, according to Merrill Lynch, after posting gains of 25 percent in 2004.
"Part of what you're seeing is a bit of competition for capital, and that is very directly what the Fed's trying to do when they tighten interest rate policy," said Christopher Garman, head of high-yield strategy for Merrill Lynch.
The Federal Reserve has raised interest rates to 3 percent from 1.25 percent in June 2004 to keep inflation in check as oil and other costs rise. Rising rates usually hurt the shakiest companies because they are the first to lose access to financing when money supply gets tighter.
Downgrades of Ford Motor Co.(F.N: Quote, Profile, Research) and General Motors Corp. (GM.N: Quote, Profile, Research) to junk status this month also contributed to the poor performance of risky bonds, strategists said. Yields on some automakers' bonds have surged above 7 percent since the May 5 downgrades, making low-rated bonds from smaller companies less appealing by comparison.
CALPINE YIELDS
The troubles in distressed debt mark a sharp turnaround from the past two years, when easy monetary policy allowed even the lowest- rated companies to raise cash cheaply.
"Credit availability has played a huge role in low default rates," said Mariarosa Verde, managing director of credit market research at Fitch.
But so many bonds have been sold by low-rated companies that there is potential for much more distress in the market than at other times, she said.
The global junk bond default rate declined to 2 percent last month from a peak of nearly 11 percent in January 2002, according to Moody's Investors Service. The rating agency expects defaults to start climbing from April's lows, however, because of the rise in bond sales from risky companies. In one sign of loss of confidence, power producer Calpine Corp. (CPN.N: Quote, Profile, Research) , which was able to raise billions of dollars in the high-yield debt market in recent years, last week warned it faces cash challenges over the next year.
Borrowing money in the junk bond market has become prohibitive as yields on some Calpine notes approached 50 percent on Monday, according to MarketAxess. Calpine has been hurt by a power industry downturn following Enron's 2001 collapse.
AIRLINE, AUTO TROUBLES TAKE TOLL
Troubles in the airline and auto parts supplier businesses also contributed to poor returns on distressed bonds, according to Merrill Lynch.
Auto supplier Collins & Aikman (CKCR.PK: Quote, Profile, Research) , which has been squeezed by production cuts at automakers, warned last Thursday of significant near-term liquidity problems, prompting speculation by analysts that a bankruptcy was likely.
Collins & Aikman Products Co.'s 10.75 percent notes due 2011 have slid to 36.5 cents on the dollar, from 102.5 cents at the beginning of the year, according to MarketAxess.
Delta Air Lines (DAL.N: Quote, Profile, Research) , also considered at risk of a bankruptcy filing, has seen its 8.3 percent bonds due 2029 fall by more than half to 23.5 cents on the dollar from 49.5 cents at the beginning of the year.
Distressed debt was one of the best-performing sectors of the bond market over the past two years, when a growing economy and low interest rates sent investors piling into riskier bonds in search of yield.
Distressed bonds returned a whopping 78 percent in 2003 and 25 percent in 2004, according to Merrill Lynch, but those gains likely signaled an overheated market by late last year, strategists said.
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