August 5th, 2011
Wall Street Journal
Bank of New York Mellon Corp. on Thursday took the extraordinary step of telling large clients it will charge them to hold cash.
The unusual move means some U.S. depositors will have to pay to keep big chunks of money in a bank, marking a stark new phase of the long-running global financial crisis.
The shift is also emblematic of the strains plaguing the U.S. economy. Fearful corporations and investors have been socking away cash in their bank accounts rather than put it into even the safest investments.
The giant bank, which specializes in handling funds for financial institutions and corporations, will begin assessing a fee next week on customers that have been flooding the bank with dollars, Bank of New York told clients in a note reviewed by The Wall Street Journal.
The decision won't affect individual savers, who already are stuck with near zero interest rates as the Federal Reserve keeps rates low to support a soft economy. But it is a glaring sign that corporate executives, bank leaders and money-market fund managers are fleeing from risk and hoarding cash as the recovery threatens to peter out.
A Bank of New York Mellon spokesman said, "the vast majority of clients will not be affected by the proposed fee."
The Dow Jones Industrial Average plunged 512.76 points Thursday. The one-month Treasury bill traded at a negative yield for the first time since June—signaling that investors are so worried that they are prepared to pay the government to take their money.
The letter said Bank of New York finds its deposits "suddenly and substantially increasing" as investors are in a mass "de-risk" mode. The bank said the decision was driven by the fact that it cannot invest much of the new deposits because clients have the ability to move the funds out at any moment.
The ultra-low interest rates set by the Federal Reserve in an effort to stimulate the anemic recovery have also neutered banks' ability to reap profits from investing their deposits.
"I'm not surprised BONY is charging," said Sheila Bair, who left as chairman of the Federal Deposit Insurance Corp. last month and is now at the Pew Charitable Trusts. "The deposits are transient and given continued economic weakness, there is not a lot it can do with them."
While other banks haven't followed Bank of New York in charging depositors, some analysts speculated that rivals might follow suit.
Some corporate executives, meanwhile, took a dim view of the new fee.
"If it's true, I think it's atrocious," Gary Cos, chief financial officer of Champions Life Insurance Co. in Richardson, Texas, told CFO Journal, a news service of The Wall Street Journal. Champions, which has $150 million in assets, has bank accounts with three local Texas firms and J.P. Morgan Chase.
Such a move, he said, "would encourage us to find another bank."
A spokesman for J.P. Morgan Chase said it has not imposed similar fees.
Over the past two weeks, money-market funds, corporate treasurers and investment houses have pulled money out of securities that mature in more than one day in favor of stashing their cash in bank accounts at Bank of New York and other banks with custodial operations. The accounts don't earn interest, but have a big attraction: They are insured by the Federal Deposit Insurance Corp.
The fastest-growing asset on bank balance sheets this year is cash. Since the beginning of the year, U.S. bank holdings of cash are up 83%, or $890 billion, to $1.98 trillion. Consumer loans, by contrast, have grown 0.2%, or $1.7 billion. Commercial and industrial loans are up 3.8%, or $46.1 billion.
Bank of New York said that customers that have deposited more than $50 million into their accounts since the end of July will face an annual fee of at least 0.13% of the excess deposits. The fee would rise if the one-month Treasury yield dips below zero, according to the letter sent to customers.
Holding cash comes at a cost to banks. Bank of New York and others pay fees of about 0.10% to the FDIC to insure their deposits, said people familiar with the matter.
Given the size of recent deposits and the flows in and out of money-market funds, the charges could run into the millions of dollars.
Huge deposit flows pose another problem for banks: They force banks to hold increasing amounts of capital, which they are loath to do because doing so depresses profits—which are already under pressure with a slow economy and rising regulatory demands.
One place banks have turned to put their cash is the Federal Reserve. Since late 2008 it has been paying 0.25% interest on funds banks hold with in reserve with the Fed.
However, banks and economists have speculated that one of the Fed's options is to reduce or even eliminate that interest payment, hoping to push banks to invest their deposits in the private sector.
The Fed has worried that removing the payment would hurt vulnerable parts of the financial system—namely money-market funds, which would struggle to make profits in a world where interest rates are almost zero.
But with the economy weakening, the Fed is considering all sorts of ways to promote spending, investment and growth.
While financial institutions haven't rushed to impose commissions, other countries have used negative interest rates to stem a torrent of incoming funds. In 2009, Sweden cut its benchmark interest rate below zero, and in the late 1970s Switzerland's central bank imposed negative interest rates to slow capital inflows that were driving up the value of the Swiss franc.
—Jon Hilsenrath, Damian Paletta and Vipal Monga contributed to this article.
Write to Liz Rappaport at email@example.com
August 5th, 2011
A new hypothesis claims the Earth may once have had two moons, which eventually crashed together forming our current celestial partner.
This new idea, reported in the journal Nature, could explain a long standing puzzle about the differences between the near and far sides of the lunar surface.
The near side is relatively low and flat with many large dark basalt mare, while the far side is high and mountainous, with thicker crust.
The work, based on computer simulations undertaken by planetary scientists Erik Asphaug and Martin Jutzi from the University of California, Santa Cruz, claims the lunar far side highlands, are the solid remains of a collision with a smaller companion moon.
It builds on the giant impact model for the origin of the moon, in which a Mars-sized planet called Theia collided with the proto-Earth early in the solar system's history. The impact ejected debris into Earth orbit, which eventually coalesced to form the moon.
The new work by Asphaug and Jutzi suggests this giant impact also created another, smaller body, initially sharing an orbit with the moon. Eventually they collided, with the smaller one coating one side of the Moon with an extra layer of solid crust tens of miles thick.
WATCH VIDEO: NASA smashes the LCROSS and spent Centaur rocket into the moon in a search for water on the lunar surface.
They found a low-velocity collision wouldn't form an impact crater or cause much melting, but would instead pile onto the impacted hemisphere as a thick new layer of solid crust, forming a mountainous region like the lunar far side highlands.
"In this case, it requires an odd collision: being slow, it does not form a crater, but splats material onto one side," said Asphaug.
The researchers hypothesize that the companion moon was initially trapped in a gravitationally stable "Trojan point."
It became destabilized after the moon's orbit expanded away from the Earth, something it's still doing today at a rate of about three centimeters (1.8 inches) per year.
Asphaug and Jotzi believe the impact would have made the moon lopsided and reoriented so one side faces Earth.
Their model also shows the impact squishing a molten subsurface layer over to the opposite (Earth-facing) side of the moon.
Sarah Maddison of Melbourne's Swinburne University said, "While it's not proof that this is what's happened, from their models, they seem to explain quite a few things including the dichotomy in the composition of the moon's crust."
Maddison says the Trojan orbit also makes the idea of a low-speed impact feasible.
"Because the two moons are both in the same orbit around Earth, they're traveling at similar speeds," she said.
According to Maddison, last week's discovery of the first Trojan asteroid orbiting with the Earth around the sun helps strengthen the idea.
More Moon Stuff
August 4th, 2011
Obama: "We're Not Even Halfway There Yet"
And that is what scares us both totally and completely Mr. President. You keep making excuses while you Continually conduct your office against the generally accepted morays of common sensibilities. In fact, everything that you have done seems to have been geared at ratcheting down the wealth creating abilities of America and therefore America's people, not to exclude your own, who have incredibly suffered the worst of your extreme excesses.
But, do you care? Apparently not as much as I and many others.
Your ideas, whether they are intended to harm or not, do actually harm. This is the truth that America is just now beginning to become totally cognizant of. But, will you undertake measures to correct your actions?
We already know the answer to that question, and therefore we already understand the impetus of your undertakings.
Your change is built upon a failed ideology that has quickly failed, even here.
And how do you respond? Even more excuses. You sir, are a failure and we have your measure.
"It's been a long, tough journey. But we have made some incredible strides together. Yes, we have. But the thing that we all ought to remember is that as much as good as we have done, precisely because the challenges were so daunting, precisely because we we were inheriting so many challenges, that we're not even halfway there yet.
"When I said 'change we can believe in' I didn't say 'change we can believe in tomorrow.' Not change we can believe in next week. We knew this was going to take time because we've got this big, messy, tough democracy," President Obama said at a campaign fundraiser in Chicago on Wednesday night.
August 4th, 2011
CR editorial note: Well, we have been predicting this type of thing, along with a host of other blooming eventualities for quite a long time. Do we feel like rubbing it in? No, but we do feel like the wisdom of heartland America has not and will not be heard, even as epic fail continually rears its grotesque head ever more consistently.
As you mushy independents continually see your earnings drop and your retirement savings being retired, we would recommend that you come over here and begin to both face and hear the the real truths about both this administration and the Conservative principles that made this country great that have been discarded.
We cannot continue this Swan Lake stumble of Liberal disrepair as a country for much longer....but are you willing to see that just yet?
Stocks plunge as worries about global growth cause traders to dump stocks and seek safety. Gold briefly tops $1,680 but falls back. Treasury yields fall as the dollar rises.
Stocks plunged, with the Dow Jones Industrial Average ($INDU -4.31%) tumbling 513 points, their worst one-day loss since December 2008 and ninth-worst point loss, as investors worried that the U.S. economy may be slipping back into a recession. The overall market carnage wiped out all of the 2011 gains for the major averages.
The market rout was prompted in part by concerns that the Federal Reserve won't try to boost the economy again and the prospects of little -- if any -- help on the way from the federal government. A huge concern was what Friday's big jobs report will say. In addition, there were deep fears about the health of the European financial system; stocks on the continent fell sharply. Stocks in Brazil were down nearly 6%.
With today's losses, the market is now in a correction, with the Dow, Standard & Poor's 500 Index ($INX -4.78%) and the Nasdaq Composite Index ($COMPX -5.08%) all down more than 11% from the closing highs for 2011, reached on April 29. Nearly all of the declines for the indexes have come since July 21; the Dow's loss in that time is about 1,340 points.
Gold briefly surged above $1,680 an ounce for the first time and then sold off, and crude oil dropped below $88 a barrel for the first time since mid-February.
The Dow closed down 513 points, or 4.3%, to 11,384. The S&P 500 was off 60 points, or 4.8%, to 1,200, its lowest level since Nov. 30, 2010. The Nasdaq was off 137 points, or 5.1%, to 2,556, its lowest level since Dec. 1, 2010. The Nasdaq 100 Index ($NDX -4.57%) was down 106 points, or 4.6%, to 2,207.
While gold fell back, investors bid hotly for Treasurys. The 10-year Treasury yield fell to 2.458% from Wednesday's 2.599%.
Gold settled down $7.30 to $1,659 an ounce after reaching as high as $1,684.90. Silver was off $2.33 to $39.43 an ounce, a decline of 5.6%. Crude oil was down $5.30, or 5.8%, to $86.63 a barrel, its lowest level since Feb. 18 as the Egyptian revolution neared its climax. It had reached as low as $86.04.
What started the blow-off?
The supposed trigger was a weak report on initial jobless claims. They were down 1,000 to 400,000. A week ago's estimate of 398,000 was revised to 401,000.
The number raised the worries for Friday's nonfarm payrolls and unemployment report. The report, which will come out at 8:30 a.m. ET, is expected to show little change in the unemployment rate, which was 9.2% in June, and maybe an 85,000 gain in nonfarm payrolls.
But there were other big issues, including a move by the Bank of Japan to push the yen lower against major currencies, especially the dollar.
In addition, European stocks plunged on worries that debt problems for Greece, Portugal, Italy and Ireland were worsening. The European Central Bank unexpectedly began large-scale intervention in the eurozone debt markets, the first time since March, buying bonds in an apparent attempt to prevent the region's sovereign debt crisis from engulfing Italy.
The market tensions also set off a furious battle between investors wanting safety in Swiss francs and the Japanese yen and the central banks of those countries, which don't want their economies priced way too high.
Worst sell-off in over 2 years
Today's sell-off was the worst for the major averages since Dec. 1, 2008. Very little was spared.
General Motors (GM -4.34%, news) was down to $25.99 after second-quarter results beat estimates. But the company warned that profits in the second half of 2011 may be lower than in the first half. Ford Motor (F -6.78%, news) fell to $10.86.
All 30 Dow stocks were lower. The best performer was Kraft Foods (KFT -1.52%, news), which dipped to $33.78. The company announced plans today to spin off its North American grocery business to shareholders, splitting the existing company in two. The grocery business would consist of the company's U.S. beverages, cheese, convenient meals and grocer segments and nonsnack items in its Canada and North American Food Service operations.
Winners and losers
Dendreon (DNDN -67.38%, news) plunged to $11.69. The drugmaker withdrew its sales estimates for 2011 and announced job cuts because of lower-than-expected growth in the use of prostate-cancer treatment Provenge. The problem is that the drug costs are extraordinarily high.
Transocean (RIG -8.55%, news) fell to $53.98. The world's largest offshore driller posted its 11th straight quarterly profit decline. Daily rental rates for the company's vessels dropped as much as 26% during the second quarter because of competition from rival operators and an influx of newer rigs onto global drilling markets.
Walter Energy (WLT -29.50%, news) declined to $77.89. The southern Appalachia producer of steelmaking coal reported second-quarter revenue of $766.7 million, missing the $931 million average estimate by analysts in a Bloomberg survey.
Web.com Group (WWWW +19.75%, news) soared to $10.37. The company that builds websites for small businesses said it is buying Network Solutions and expects the deal to add at least 20% to the consensus estimate of its 2012 earnings.
Zipcar (ZIP +0.61%, news) rose to $23.23. The car-share company boosted its sales forecast for the full year to at least $240 million. Analysts project revenue of $238 million, according to the average of a Bloomberg survey.
August 4th, 2011
Posted By: Laura Ingraham
Happy Birthday, Mr. President. We'd toast to your 50 years, but we already have a vicious hangover from the latest 500 point drop in the S&P. As you enjoyed another big ticket birthday fundraiser in Chicago, regular folks were seeing their 401(k)s evaporate, their real estate values plunge, and their business prospects wane.
Any decent CEO with your track record would know that it's time to change course, reexamine strategies, and fire top advisers. But you, who have never worked in business a day in your life, think it's time to double down on the same moronic policies that hurt economic growth and lead to more instability in American markets. Did you learn that practical thinking at Harvard Law? At Columbia? If so, those "educational" institutions should lose their accreditation immediately.
President Obama is reportedly urging his Treasury Secretary Tim Geithner to stay on through the election. (!!) Geithner has been an unmitigated disaster, as has Fed Chairman Ben Bernanke. Both should be fired immediately. But not by Obama's thinking--actually cites both men as key to his administration's economic "accomplishments." What accomplishments are those? Obscenely high unemployment? Oppressively steep gas prices? America's weakened global stature? Lord save us.
Oh, and if the President had any sense of optics and, frankly, propriety, he would have cancelled this week's birthday fetes. Or are we the only ones who are supposed to sacrifice, Mr. President?