Thursday, January 17, 2008

Dollar Weakens Against Euro

By RIVA FROYMOVICH Wall Street Journal
January 17, 2008 10:00 a.m.

The dollar softened versus the euro Thursday following the release of housing data. The buck is strengthening against the yen, as currency investors prepare for testimony by Federal Reserve Chairman Ben Bernanke before Congress.

The euro was at $1.4679 from $1.4657 late Wednesday. The dollar was at 107.40 yen from 107.54 yen. The U.K. pound was at $1.9722 from $1.9628, and the dollar was quoted at 1.1020 Swiss francs from 1.0993 francs.

On the day, the dollar is weaker against the euro, which slid markedly Wednesday. One factor is that European Central Bank governing council member Yves Mersch backtracked early Thursday from dovish comments published a day earlier. Another is a disappointing, although expected, financial earnings report from Merrill Lynch.

Against the yen, the dollar is also down, but is showing significant leaps Thursday morning as risk appetite begins to return after a stark unwind in anticipation of Bernanke's testimony before the House Budget Committee at 10 a.m. EST. He is expected to offer his support for an economic-stimulus package from Congress.

Home construction plunged 14.2% in December, tumbling to its lowest point in 16 years, after falling 7.9% in November, the Commerce Department said Thursday.

The big decline surprised Wall Street. The median forecast of economists surveyed by Dow Jones Newswires was a 5.0% drop.

But the effect on the dollar was mollified by the release of weekly jobless claims at the same time, which fell for the third straight week.

The fundamental near-term outlook for the dollar still looks bleak, say analysts, especially as U.S. interest rates are still expected to be cut relatively aggressively at the end of January -- no matter Wednesday's jump. That was about euro weakness, which is still a factor Thursday. ECB's Mr. Mersch, a usually hawkish official, acknowledged that euro-zone growth might have to be downgraded from 2.0% this year Wednesday. Markets saw this as evidence that the ECB may not be in rate hiking mode after all.

"His remarks fed what is arguably a growing perception that the ECB has remained hawkish in part to discourage overly zealous wage demands from labor unions, but that rates are unlikely to move higher," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.

But early Thursday, Mr. Mersch clarified that the central bank did not discuss cutting interest rates at its Jan. 10 policy meeting, causing a slight reverse to the consequent dollar boost.

"The key question we must grapple with is how much is already priced into the currency market, and whether shifts in the interest rate outlook elsewhere might be more important," Ms. Sutton said.

Merrill Lynch matched Citigroup's massive fourth-quarter net loss Thursday, as the company recorded $14.6 billion in losses related to subprime mortgages and complex debt instruments, and write-down expectations as high as $15 billion.

The dollar's recent decline against the yen has incited chatter that Japan might intervene in its foreign exchange market if the buck drops lower to 100 yen.

A former top Japanese currency official said Thursday that even if the U.S. dollar falls to around 102 yen, government intervention is highly unlikely.

"Japan would need agreement from the U.S. for any intervention, but the U.S. wouldn't comply," said Eisuke Sakakibara, Japan's former vice finance minister for international affairs. "Japan can't intervene either verbally or physically. A U.S. Treasury document last year clearly states the U.S. is against even verbal intervention."

Merrill Lynched By Subprime

1.17.2008 forbes


Wall Street's pain parade continued this week, as Merrill Lynch reported $11.5 billion in additional write-downs for the fourth quarter. In the period, the investment bank recorded a loss of $9.8 billion, or $12.01 a share, versus a gain of $2.3 billion, or $2.41 a share, in the corresponding quarter last year.

That was far worse than analysts' expectations for a loss of $4.70 a share, on sales of $702.1 million.

The wide miss disappointed investors, pushing the stock down 4.3%, or $2.38, to $52.71, in pre-market trading. Calling the results "clearly unacceptable," newly minted Chief Executive John Thain said he was nevertheless encouraged by the company's recent steps to strengthen its cash position. "Over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet," Thain said.

Over the last few months, Merrill Lynch (nyse: MER - news - people ), along with other firms on Wall Street, have been aggressively courting foreign, often state-controlled investment funds for cash infusions.

In January, Merrill raised $6.6 billion from the Kuwait Investment Authority, Japan's Mizuho Financial Group (nyse: MFG - news - people ), Korean Investment Corp., and other investors. The transaction is expected to be finalized within the next three weeks.

In December, Merrill also secured $6.2 billion in funding from Singapore's government-controlled Temasek Holdings and New York-based Davis Selected Advisors. (See: "Merrill's Merry Day" )

Earlier this week, Citigroup (nyse: C - news - people ) simultaneously annouced $18.1 billion in write-downs and a $12.5 billion in cash from a collection of foreign investors. (See: "Citigroup's Write-Down Disaster." )

As expected, Merrill Lynch's sore spot was its fixed income business, which reported a negative $15.2 billion in revenue for the quarter, largely due to write-downs on collateralized debt obligations and subprime mortgages. The company said the business environment became more challenging in November and December, which resulted in "in substantially reduced client flows and decreased trading opportunities."

The disappointing fourth quarter comes as Merrill Lynch struggles to find its footing, in the credit markets and within its own walls.

In October, Chief Executive Stanley O'Neal (nyse: SXE - news - people ) stepped down after shouldering the lion's share of the blame for the firm's failure to effectively manage risk. At the end of June, just as the subprime mortgage debacle began to unravel, the firm had $32 billion in exposure to collateralized debt obligations, a type of investment-grade security backed by assets like subprime mortgages.

Weeks before the investment bank's third-quarter earnings report, O'Neal tried to calm investors, predicting that the firm would likely face a 50 cent loss. When the actual numbers hit the wall, they were far worse. In the third quarter, the company had recorded more than $8 billion in write-downs and a loss of $2.85 a share. The large miss hastened the departure of O'Neal and paved the way for a new chief executive officer, John Thain, to take the reins in mid-November.

In O'Neal's aftermath, Thain, the former chief executive of NYSE Euronext (nyse: NYX - news - people ), is struggling to clean Merrill Lynch's house and expose all the ugly lumps now, while the markets still expect hefty write-downs. (See: "Investors Trust In Thain" )

The massive write-downs have continued to disappoint investors, but Merrill's exposure to risky collateralized debt obligations are at least narrowing. As of Dec. 31, the company's exposure to CDOs was $4.8 billion. For comparison, it recorded an exposure of $15.8 billion at the end of the third quarter. Its exposure to U.S. subprime and other residential mortgages also declined to $2.7 billion, at the end of the fourth quarter, versus an exposure of $5.7 billion, at the end of the third quarter.

Inflation negates 2007 wage increases

Posted on Wed, Jan. 16, 2008 10:15 PM Kansas City Star

Inflation last year wiped out real average weekly earnings gains for urban wage earners.

From December 2006 to December 2007, average weekly earnings rose by 3.4 percent, seasonally adjusted, the U.S. Bureau of Labor Statistics reported Wednesday.

Those average earnings gains, though, were reduced to a loss of 0.9 percent when the rise in the consumer price index was factored in, according to the bureau’s preliminary data.

The number of average weekly hours worked has been unchanged since July.

Before adjusting for inflation and seasonal changes, average weekly earnings in December 2007 were $605.96, compared with $578.67 a year earlier. Weekly earnings data are collected from payroll reports of private, non-farm establishments.

But consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said. Both energy and food prices jumped by the largest amount since 1990.

Core inflation, which excludes both energy and food, rose 2.4 percent last year, slightly lower than the 2.6 percent increase of 2006. It is the performance of core inflation that the Federal Reserve closely monitors.

Analysts said the slight drop in core inflation for 2007, plus various reports showing the economy is in the grips of a serious slowdown, will convince the central bank that a key interest rate it controls should be reduced by a half-point when Fed officials next meet on Jan. 30-31.

“Price pressures may be a little greater than the Fed would like, but with the economy hitting the skids, inflation is not so high to stand in the way of aggressive action,” said Joel Naroff, chief economist at Naroff Economic Advisers.

Separately, the Labor Department said Wednesday that Midwest consumers had a price break in December, driven by gasoline prices, which declined 3.7 percent in the month.

Overall, prices for Midwest consumers were 0.3 percent lower in December than in November.

Providing further evidence of a slowing economy, the Fed reported that output at the nation’s factories was flat in December, the worst showing since an outright decline of 0.5 percent in October.

In a separate report, the Fed said its latest beige book survey of economic conditions around the country showed the economy was losing momentum heading into 2008. Even so, seven of the 12 Fed regions, including the Kansas City district, did report slight increases in activity.

The Fed observed that “holiday sales were generally disappointing” and pointed to “further weakness in auto sales.”

The Star’s Diane Stafford and The Associated Press contributed to this report.

Digg Caught Red-Handed Censoring Ron Paul Stories

Self-proclaimed 'digital democracy' expunges articles after just a single bury
Paul Joseph Watson
Prison Planet
Thursday, January 17, 2008

UPDATE: After just one bury, this article too was deleted from Digg's upcoming category.

The self-proclaimed 'digital democracy' Digg.com has been caught red-handed artificially suppressing and censoring Ron Paul stories by expunging them from the website with just one bury, despite the fact that thousands of other Digg users are voting the stories up.

Digg allows users to vote stories up (digg them) or vote them down (bury them). The content of Digg's main page, which receives millions of readers a day, is decided upon this apparently democratic system.

For months allegations have been flying around concerning how stories about Ron Paul, which routinely receive well over a thousand diggs, rarely make it to the main page on Digg as a "popular" item.

Speculation centered around organized armies of Neo-Con bury brigades that flag each other when new Ron Paul stories emerge and bury them en masse to prevent wider exposure. The fact that hordes of trolls are stomping around Digg acting as electronic thought control police has been widely documented in the past. However, the popularity of Ron Paul is so mammoth that Digg has been forced to employ extra measures of censorship to block hundreds of stories about the Congressman from becoming viral.

It has now emerged that Digg has either directly implemented a policy to expunge Ron Paul stories from the website or that it has empowered "super-users" the influence to eliminate Paul stories with just one bury, even if the story has thousands of diggs from other users.

The revelation that Digg is artificially suppressing political content that it doesn't like actually appeared on an anti-Ron Paul website, TechCrunch, which has ridiculed Paul supporters in the past.

The writer, Duncan Riley, submitted his story about Paypal freezing the funds of Ron Paul supporters to Digg and tracked its progress via the Ajaxonomy Bury Recorder (ABR) service, a tool "that allows you to see the the number of buries on a Digg story by the time of each bury, the reason and at what stage in the voting process it was buried."

"Thinking that the Ron Paul story might get a few votes, I decided to run it in ABR through out the afternoon to see what might happen," writes Riley.


Riley's Ron Paul story was removed from Digg's upcoming section after receiving just one bury, despite the fact that it had received 43 diggs. CLICK FOR ENLARGEMENT.

"At exactly 43 votes the story received one bury for spam, and then it completely disappeared from the upcoming sidebar at Digg in its particular category. I ran a search for TechCrunch posts (newest via URL) on Digg to see whether it was there; nothing, clicked the include buried stories post: bingo, the post appeared in the list."

"There have been rumors and suggestions that certain users at Digg have “special powers” in the past, so what I saw could simply be one of those users who can alone bury stories submitted to Digg, at any stage of the voting process. Or (with tin foil hat on) Digg might have decided to ban Ron Paul. There’s zero way of knowing, and Digg never talks about its internal workings so we have no way of finding out which one it is, or even if it’s a combination of both. I wonder how long it will take for someone on Digg to bury this post?" he concludes.

The power of Digg to set the national news agenda is evidenced by the fact that it receives easily more traffic than the iconic Drudge Report and more visitors than any U.S. newspaper website.

Digg's ranking system is subject to the whim of a notorious "Bury Brigade" that obsessively votes down anti-establishment political content, leading many like Wired News to attack the concept that Digg is some kind of online democracy.

These new revelations prove that not only has Digg been hijacked by Neo-Con trolls, but it has also engaged in a deliberate censorship policy to suppress stories about Congressman Ron Paul's presidential campaign, proving itself equally corrupt as the corporate-owned U.S. media.

In it's preamble Digg claims, "You won’t find editors at Digg — we’re here to provide a place where people can collectively determine the value of content and we’re changing the way people consume information online."

The fact that Digg has been caught unfairly editing out Ron Paul material completely invalidates this statement.

We invite our readers to contact Digg via feedback@digg.com and politely inform them that political thought control is anti-American, dangerous to free speech and completely hypocritical for a website that bills itself as some kind of democratic voice for the people.

This is an absolute disgrace and we should do everything in our power to expose Digg.com as a mere tool of the political establishment.

USS Kitty Hawk "did not have approval to visit HK"

Reuters
Thursday January 17, 2008

The head of U.S. forces in the Pacific said on Thursday the USS Kitty Hawk, banned from entering Hong Kong in November, had not obtained final permission from China before setting off from its home base in Japan.

The aircraft carrier and its strike group were refused permission by Beijing to dock in Hong Kong for a long-planned Thanksgiving holiday visit in November, causing a bilateral row.

Asked if it had had approval to dock in Hong Kong, Admiral Timothy Keating said: "My understanding is it did not. It got close, the captain of the ship ... realised they didn't have permission so they turned around and started back home."

A bilateral agreement stipulates that the United States must apply for port visits at least 30 days in advance, while China should grant or reject such requests five days before arrival.

But on the morning of the Kitty Hawk's approach to Hong Kong, sources familiar with the situation said Beijing still hadn't given approval for entry, with the aircraft carrier strike group was forced to wait outside Hong Kong.

Beijing later said the ships could dock, but by then the aircraft carrier and its strike group were heading back to Japan.

Keating, who has just concluded a visit to Beijing, said he was upbeat the situation wouldn't be repeated, with a pending request for another ship, the USS Blue Ridge, to visit Hong Kong in the coming weeks.

"Our Chinese hosts didn't say no to the pending request. I'm hopeful, I'm optimistic, I bet that our request will be approved. I don't have any inside information however," Keating told a news conference.

But he criticized Beijing for refusing a distress port visit to Hong Kong in November by two minesweepers that were low on fuel and facing bad weather, saying it was a "serious concern".

Full article here.

Coming soon, an X-ray vision gun

Ben Farmer
London Telegraph
Thursday January 17, 2008

The superhero power to see through walls will soon be within the grasp of ordinary mortals, thanks to a new hand-held X-ray scanner.

Inventors hope the gadget could revolutionise police work and Customs searches by allowing officers to seek out contraband, weapons, bombs or hidden people.

The LEXID device sends out low-level X-rays which are collected in a lens based on the design of a lobster's eye.

Rick Shie, senior vice-president of its American inventors, Physical Optics Corporation, said that lobsters' eyes, which are able to see in deep, murky water, use thousands of tiny squares to focus by reflection rather than the bending or refraction of light like human eyes.

Mr Shie said: "The LEXID works by emitting a low-level X-ray and then the lobster eye interprets what is returned and the image is produced on a screen.

"We are still in the research stage but have conducted successful trials and the government is keen to test it. "It can detect bombs, contraband or people and will show up anything within a couple of metres."

America’s Department of Homeland Security is already understood to be interested in the device for use in its war on terror.

While the images produced by the scanner are not crystal-clear, they are sharp enough to reveal a cache of weapons or parts of a bomb.

Full article here.

Ron Paul Ad - US National Debt

Youtube
Thursday January 17, 2008

A funny Ron Paul commercial that pokes fun at President Bush for contributing to the Nine trillion Dollar US National debt, or at least not doing anything to reduce it.

Gates’s Comments on NATO’s Afghan Force Anger Dutch

THE HAGUE (Agence France-Presse / New York Times) — The Dutch government has summoned the American ambassador here to explain comments by Defense Secretary Robert M. Gates, who criticized NATO forces in southern Afghanistan in a news report published Wednesday.

Mr. Gates told The Los Angeles Times that international troops deployed in the south — mainly from Britain, Canada and the Netherlands — were not properly trained to fight an insurgency.

“I’m worried we have some military forces that don’t know how to do counterinsurgency operations,” Mr. Gates told The Los Angeles Times. “Most of the European forces, NATO forces, are not trained in counterinsurgency.”

The Dutch defense secretary, Eimert van Middelkoop, told reporters that Dutch troops had acted with experience and professionalism and said, “We do not recognize ourselves in the image conjured” by Mr. Gates.

Nearly 1,665 Dutch soldiers are deployed in Oruzgan Province in southern Afghanistan as part of the NATO-led International Security Assistance Force.

Speaking from Oruzgan, the contingent’s commander, Col. Nico Geerts, also criticized Mr. Gates’s comments in a radio interview, saying Dutch soldiers were “doing an excellent job.”

In Washington, a State Department spokesman, Sean McCormack, confirmed that the ambassador was called in to clarify Mr. Gates’s remarks.

Mr. McCormack said Mr. Gates “was not directing his comments at any one country in particular, but at the alliance as a whole, which includes us.”

The ambassador also acknowledged the contribution of the Dutch armed forces and the “sacrifices” of the Dutch people in sending troops to Afghanistan, Mr. McCormack said.

Mr. McCormack said the meeting with the ambassador was not a “finger wagging” session. “It was the defense minister looking for a clarification of the comments,” he said.

Mr. Gates made his remarks just after the Bush administration decided to send 3,200 more marines to Afghanistan, as NATO allies struggle to provide 7,500 more troops requested by commanders on the ground.

The commanders, backed by the United States, have regularly called for more troops and equipment in their fight against a resilient Taliban. The force grew to about 42,000 in December 2007 from around 33,000 in January 2007.

NATO is engaged in its most ambitious mission yet, trying to spread the rule of President Hamid Karzai’s weak central government into more lawless parts of Afghanistan. But the international forces have struggled to defeat the insurgency, particularly in the south near the mountainous border with Pakistan.

NATO’s secretary general, Jaap de Hoop Scheffer, a Dutchman, also defended allied troops fighting the Taliban-led insurgency after Mr. Gates’s criticism, saying he had “the greatest respect for what the allies are doing in the west, the north, the east and the south.”

Fourteen Dutch soldiers have been killed in Afghanistan, either accidentally or in combat.

Dispute Deepens for Russia and Britain

Published: January 17, 2008 new york times

MOSCOW — A British cultural organization at the center of a dispute between the Kremlin and Britain closed its office in St. Petersburg on Wednesday under pressure from Russia’s intelligence service, which summoned the organization’s entire Russian staff for questioning, Russian and British officials said.

The closing, which a British official said was temporary, occurred the morning after the organization’s director, Stephen Kinnock, was stopped in front of his home by the Russian authorities and accused of drunken driving. The British government said he had been falsely accused.

“First thing to say, right up front: he was not drunk,” said James Barbour, a spokesman for the British Embassy here, who suggested that the Russian allegations, which were widely circulated by the Russian news media, were a pretext used to intensify an already bitter dispute.

Mr. Kinnock, whose status as an accredited diplomat gives him legal protections, was not arrested or charged with any crime. But the public allegations against him, and the questioning of the staff of the British Council, which is the official cultural arm of the British government, were condemned in London, where David Miliband, Britain’s foreign secretary, accused Russia of “intimidation.”

Mr. Miliband, speaking to reporters, said the actions were “completely unacceptable.” The Russian ambassador in London, Yury V. Fedotov, was summoned to meet a senior British official. “We would like to hear where the Russians plan to take it from here,” a British official said, speaking on the condition of anonymity under civil service rules. For his part, Mr. Miliband insisted that all of the council’s activities complied with both the law and diplomatic convention.

“The work of the British Council in Russia is completely legal under Russian and international law, and we think it is very important to defend the integrity of our officials in the work that they are doing,” Mr. Miliband said. The episode has acquired a high profile in London because Mr. Kinnock is a son of Neil Kinnock, a former Labor Party leader and a member of the House of Lords. The public stature of the Kinnocks has increased pressure on the London authorities to take a tough line against Russia. A British official said the government in London regarded Russia’s actions as “perplexing.”

The new moves against the British Council, and the public use of the Russian intelligence service against its staff, were the latest twist in a downward spiral in relations since the death of Alexander V. Litvinenko, a former K.G.B. officer, in London in November 2006.

Mr. Litvinenko died after ingesting a highly toxic radioactive isotope, polonium 210. Scotland Yard has accused another former K.G.B. officer, Andrei Lugovoi, of murdering him. Russia has refused to extradite him to stand trial.

Last July, Britain expelled four Russian officials from the Russian Embassy in London to register its annoyance at President Vladimir V. Putin’s refusal to hand over Mr. Lugovoi. The Kremlin reciprocated by ordering four British officials to leave Moscow.

As part of the dispute, late last year Russia ordered the British Council, which has offices in St. Petersburg, Yekaterinburg and Moscow, to close all but its Moscow office by Jan. 1. A standoff ensued when Britain refused, saying that all three offices were legal under diplomatic convention and a previous agreement with the Kremlin.

When the holiday vacation period ended Monday, all three offices of the British Council reopened, and the British ambassador here, Anthony Brenton, publicly defied the Kremlin, telling journalists assembled at Russia’s Foreign Ministry that the council intended to continue its operations despite the Russian position.

Russia’s Federal Security Service, or F.S.B., which is the principal successor to the Soviet K.G.B. and was formerly led by Mr. Putin, accused Britain on Wednesday of using Russian citizens at a banned activity, and suggested that questioning the council’s employees was necessary to protect them.

“In order to safeguard Russian citizens from being used as tools in the Britons’ provocative games, the Federal Security Service organs have started explanatory work among the Russian citizens working for this organization,” the F.S.B. said in a statement posted on its Web site.

Britain showed no sign of backing down and said the council planned to reopen the office in St. Petersburg on Thursday.

The office was closed on Wednesday “simply on the basis that the staff would be busy with F.S.B. for the day,” Mr. Barbour, the embassy spokesman, said. He added that the British Council offices in Moscow and Yekaterinburg remained open.

The strained relations are in marked contrast to a short-lived honeymoon between Britain and Russia when Mr. Putin first took office eight years ago.

Since then Britain has gradually withdrawn the warm embrace offered by Tony Blair, the prime minister at the time. With the inauguration of a new government under Prime Minister Gordon Brown, Britain has seemed to take a harder line.

In an earlier statement, Mr. Miliband told Parliament on Tuesday that Russian “threats” against British Council personnel “can only make matters worse. It is not in the interests of either the U.K. or Russia for flourishing cultural, educational and scientific links to be held hostage to unrelated issues in this way.”

Apart from the Litvinenko dispute, Russia has also expressed increasing annoyance at Britain’s refusal to hand over two foes of the Kremlin, the tycoon Boris Berezovsky and the Chechen leader Akhmed Zakayev, who have been granted asylum by the British government.