Table of contents

FINANCIAL MARKET
Análisis Económico, Financiero y Bursátil
February 27 2009
Economy 1
preserves a sliver of policy that benefits the more affluent: A preferential tax rate on corporate dividends. Stocks 2
Before Bush, dividends were taxed as ordinary income, at rates as high as 39.6 percent in the 1990s. Treasuries 3
“It is a hugely positive step to keep that part of the ‘03 Currencies 4
official in Bush’s Treasury Department when the tax rate on dividends was reduced. “It’s good economic policy, good corporate governance policy and good tax policy.” Obama also proposes to stop the scheduled repeal of the estate tax next year and to impose a 45 percent tax rate on a married couple’s estate valued at more in higher taxes over the next decade on the highest- earning Americans, Wall Street financiers, U.S.-based multinational corporations and oil companies to pay Higher-income earners, primarily families with more for permanent tax breaks for lower earners. than $250,000 of income, would face an additional tax burden under a proposal to limit their itemized Obama’s 2010 budget proposal, released today, deductions. That provision would subject more of their would reinstate the top two Clinton-era tax rates of 36 percent and 39.6 percent, up from the 33 percent and 35 percent the richest Americans now pay. That would affect about 2.6 million taxpayers. The budget also would raise taxes on capital gains and dividends to 20 The proposal would cap the value of deductions for percent for top earners, up from the 15 percent set by things like charitable donations, mortgage interest and investment expenses at 28 percent for people in the top brackets, or 30 percent less than they would The tax increases, which Obama vowed to impose as a presidential candidate, would take effect in 2011 and be the first on high-income earners since 1993. Senior Treasury officials speaking on background to They also would reverse a course set by Bush of reporters acknowledged the proposal would be lowering the tax burden on the nation’s wealthiest controversial. They defended it, saying it still gives top earners a deduction worth twice as much as Americans in lower brackets receive. In all, top-earning households would pay $636.7 billion “It’s a clear repudiation of Bush’s policy,” said in additional taxes over the next decade, Obama’s College Park. “It’s more Obama Robin Hood.” Obama’s budget would keep in place Bush’s tax cuts University Law School in Detroit, said “many will that benefit lower- and middle-income earners, and it object to reinstituting phase-outs for itemized Bursamétrica Management
deductions because of the complications that income, arguing that it’s a form of wages; under his plan, most executives would pay 39.6 percent. That proposal will likely reignite a debate that was Republican leader in the House, said Obama can waged by Congress in 2007 when the House of expect a wall of opposition to his proposed tax Representatives approved the change and the Senate increase on top-earners. Roughly half of Americans earning $250,000 are small-business owners, and the proposed increase will stifle the troubled economy, he Obama proposed $353.5 billion in higher taxes on corporations over the next decade, the bulk of which would come from “reforming” rules that allow U.S.- “There will be overwhelming opposition from the American people and House Republicans to the idea that we should raise taxes during a recession,” Pence overseas. GE has about $75 billion offshore on which said in an interview. “Raising taxes in a recession is it has never paid U.S. taxes, according to its The Treasury officials said they were preparing a said in an e-mail, “You cannot help the job-seeker by more detailed plan on overhauling the international tax rules, which they may make public in the next month. The higher taxes on individuals will largely be used to Obama’s budget estimates that such changes and pay for expanded health coverage for lower-income beefing up Internal Revenue Service enforcement of Americans and to make permanent Obama’s tax international tax rules would generate $210 billion in breaks such as a payroll tax credit worth up to $800 additional revenue over the next decade. He also that was adopted on a temporary basis in the $787 proposed to limit tax shelters by requiring they serve a billion fiscal stimulus measure earlier this month. business purpose by redefining the tax code’s “economic substance doctrine.” “He’s being so generous at the lower-income level that making $200,000 is going to be like falling off a cliff,” said Dustin Stamper, an analyst in the National Tax Office at Grant Thornton LLP. “Say what you want Obama’s budget would end a tax-accounting about the Bush tax cuts favoring the rich, but this is technique called “last-in, first out,” or LIFO, that primarily benefited oil and gas companies when oil topped $100 a barrel but is widely used across Obama’s budget also assumes Congress will continue Republican senators in April 2006 floated such a tax to index the alternative minimum tax for inflation. The AMT is a parallel system that can impose higher rates on families earning between $75,000 and $500,000 called the proposal a “backdoor windfall-profits tax.” when their deductions are too high relative to their income. In addition to oil companies, the repeal of LIFO would hit retailers, automakers and makers of non- Executives at private-equity firms, venture-capital automotive heavy equipment, textile makers, firms, some hedge funds and other partnerships that consumer products, drug companies, alcohol and receive a 20 percent “carried interest” in the firm’s tobacco manufacturers and wholesalers when times profits would see their tax burdens nearly triple under The accounting method has been commonly used Most of their carried interest currently is taxed at the since the 1930s and is viewed as the most accurate 15 percent rate for long-term capital gains. Obama is measure of income for financial statement purposes, asking Congress to tax the profit share as ordinary according to the congressional Joint Committee on Taxation, a nonpartisan panel. Bursamétrica Management
A plan to reinstate an expired oil and chemical excise unexpectedly rose and sales of new homes sank to a tax to fund hazardous waste cleanup would generate $6.6 billion between 2010 and 2014, according to the budget. The S&P 500 has dropped 17 percent so far this year following a 38 percent tumble in 2008, its worst year Stocks
European stocks climbed for the first time in five days as Royal Bank of Scotland Group Plc planned to put care profits will be hurt by a White House overhaul of assets into a U.K. government insurance program and the medical system offset a rally in banks spurred by UBS AG replaced its chief executive officer. the administration’s request for more financial-rescue funds. Health-care stocks in the S&P 500 slid 5.1 percent as a group, the biggest drop since Dec. 1. UnitedHealth UnitedHealth Group Inc. and slid at least tumbled 13 percent to $20.07. Humana sank 19 12.8 percent and Eli Lilly & Co. lost 4.7 percent on percent to $23.64. lost 11 percent to $24.03. concern Obama will cut Medicare payments to insurers and raise rebates drugmakers must provide to patients on Medicaid. , known as Sallie Mae, tumbled 31 percent as the president proposed The budget outline from the White House would stop ending its student loan subsidies. JPMorgan Chase & the “waste” in government payments to Humana and companies like it that provide health plans for the percent as Obama’s budget proposed as much as elderly. It would also squeeze discounts to drugmakers that supply medicines to the poor. “You’ve got to be glued to your screen, not only to Eli Lilly and Co., whose shares posted a daily gain watch prices, but to see what’s coming out of only twice in the past three weeks, fell 4.7 percent to $31.04 after saying it would lose “several hundred money manager at Fiduciary Trust Co., which million” dollars in annual sales if Obama’s health-care oversees $9.5 billion. “The rhetoric out of Washington is going to be the primary driver of the market.” Merck & Co., maker of asthma treatment Singulair, dropped 6.7 percent to $26.04 for the biggest slump in percent to 752.83 after rising as much as 1.9 percent in early trading. The Dow Jones Industrial Average lost 88.81 points, or 1.2 percent, to 7,182.08. The “If you’re a buyer of equities, you’re buying future Russell 2000 Index fell 2.1 percent. Two stocks earnings and corporate earnings are in absolute dropped for each that rose on the New York Stock freefall,” Douglas Cliggott, chief investment officer of Greenwich, Connecticut-based Dover Management LLC, told Bloomberg Television. S&P 500 profits fell 35 percent in the fourth-quarter, Benchmark indexes fluctuated between gains and the biggest decline since records started in 1998. losses throughout the afternoon as the decline in Income is forecast to shrink 33 percent this quarter, health-care stocks was offset by gains in banks. The market turned lower in the final 80 minutes of trading as financial shares pared their advance after the Federal Deposit Insurance Corp. said the banking industry posted a collective loss in the fourth quarter General Motors Corp. had the Dow’s second-steepest loss, tumbling 6.7 percent to $2.38. The automaker reported a $30.9 billion annual loss, the second- The early advance in benchmark indexes came even biggest in its 100-year history, and is expected to ask after government reports signaled the recession is the Treasury for more cash to survive through 2009. intensifying. Orders for durable goods slid more than economists forecast, initial jobless claims Obama’s budget proposal also includes almost $1 trillion in higher taxes on the 2.6 million highest-earning American citizens and companies to pay for Bursamétrica Management
permanent tax breaks for lower earners. It would reinstate the top two Clinton-era tax rates of 36 at Goldman Sachs lowered his estimate to 940 percent and 39.6 percent in 2011, up from the current from 1,100 and said the index may fall as much as 15 33 percent and 35 percent. Taxes on capital gains and dividends for top earners would rise to 20 percent “We have seen some progress with regard to two “Markets know bigger government is a bad thing,” said critical signposts on the way to a sustained rally: passage of a fiscal stimulus plan and some clarity Capital Management, which oversees $4 billion in surrounding the Financial Stability Plan,” wrote Atlanta. The government’s plans to revive the financial “However, we have yet to see any improvement in two system and the economy are “not well thought out and other key signposts: home price stabilization and , the largest U.S. student lender, tumbled $2.59 Soaring unemployment and foreclosures drove sales to $5.80 for the biggest loss since Oct. 1. Obama of new homes in the U.S. down 10 percent in January urged an end to government subsidies for student to an annual pace of 309,000, the lowest level since loan providers. Shifting to direct student loans from data began in 1963, the Commerce Department said the government would save more than $4 billion a today. The median price decreased 13.5 percent, the year, which would be used for more student aid, he International Business Machines Corp. rose the most in three weeks, adding 3.6 percent to $88.97. The biggest computer- services company reaffirmed its full-year forecast, saying it still sees 2009 A senior administration official, speaking on condition earnings of at least $9.20 a share. Analysts surveyed of anonymity, said the White House hasn’t decided whether the $750 billion in additional aid to the financial industry will be needed. He said it will be put Las Vegas Sands Corp. increased 32 percent to $2.85 for the biggest gain since October. Sanford C. Bernstein & Co. initiated coverage of the casino company controlled by Sheldon Adelson with an “outperform” rating. , which gained 7.6 percent today, is up 30 percent over the past four days, poised for a record weekly climb. The group pared an Treasuries
advance of as much as 12 percent after the FDIC said Treasuries fell for a third day as the government sold the nation’s banks posted a loss in the fourth quarter $22 billion of seven-year notes in the last of three for the first time since the savings and loan crisis in auctions this week as it issues an unprecedented 1990 and institutions on the its “problem list” rose 47 amount of debt to spur the U.S. economy. percent to 252 lenders in the quarter ended Dec. 31 from 171 in the preceding quarter. Declines were led by 10- and 30-year . The administration forecasts a budget deficit of $1.75 American International Group Inc. increased 13 trillion in the fiscal year ending Sept. 30. That’s 23% percent to 52 cents. The insurer may get a backstop higher than a forecast by economists at primary from the U.S. government to protect against further dealer Goldman Sachs Group Inc., and equivalent to losses on credit-default swaps, according to a person about 12 percent of the nation’s gross domestic familiar with the matter who declined to be identified because the talks are private. As of Sept. 30, AIG provided protection on more than $300 billion of “The more spending you have to have, the more Treasuries you will have to issue, and that means , co- Goldman Sachs Group Inc. and UBS AG strategists head of structured products and emerging markets in cut their year-end forecasts for the S&P 500 today on Bursamétrica Management
the economy. The possibility of default is more and percentage point, to 1.09 percent at 2:57 p.m. in New York, according to BGCantor Market Data. It touched 1.11 percent, the highest since Nov. 28. The 0.875 percent security due in February 2011 fell 1/32, or 31 from overseas to help fund his $787 billion economic cents per $1,000 face amount, to 99 18/32. The rate climbed from a record low of 0.60 percent on Dec. 17. Treasuries, with $696.2 billion, followed by which has $578.3 billion. ’s yield rose five basis points to 2.98 percent. It slid to a record low of 2.04 percent on Dec. The administration forecast gross domestic product to 18 and averaged 4.65 percent in the past decade. The shrink 1.2 percent in 2009, followed by an expansion 30-year increased six basis points to 3.65 of 3.2 percent in 2010. That’s more optimistic than economists’ estimates for a 2 percent contraction this year and 1.8 percent growth next year, according to the median forecast in a Bloomberg News survey. The White House forecast an annual average yield for 10-year Treasury notes of 2.8 percent this year and 4 percent in 2010. Treasuries pared losses after today’s seven-year note sale yielded 2.748 percent, compared with an average The 10-year note yield will reach 3.08 percent by the forecast of 2.715 in a Bloomberg News survey of fourth quarter of this year, according to the weighted seven trading firms. The government last issued average of 58 economists surveyed by Bloomberg seven-year notes in April 1993, when it sold $9.76 News, and 3.69 percent by the second quarter of billion. The notes at that auction drew a yield of 5.58 2010, according to the weighted average of 43 percent. The government sold a record $94 billion of The seven-year auction’s so-called bid-to-cover ratio, which gauges demand by comparing the number of China’s top banking regulator said today the country bids to the amount of securities sold, was 2.11. will pay attention to safety, liquidity and profitability Indirect bidders, a class of investors that includes when deciding whether to buy more U.S. debt. foreign central banks, were awarded 38.7 percent of today’s sale. Comparable data is not available from “How much we will invest in U.S. Treasuries will depend on the three elements,” said China Banking Regulatory Commission at a “The biggest difficulties will be in the next few seven- year auctions,” said government bond strategist at UBS Securities LLC in Losses by U.S. Treasuries are 0.3 percent in February Stamford, Connecticut, one of the 16 primary dealers and 3.4 percent so far in 2009, compared with a 1.7 required to bid at Treasury auctions. “We’re going to percent gain in the same period a year ago, according get a very hefty slug of supply. As the saying goes, if to Merrill Lynch & Co.’s U.S. Treasury Master Index. you miss an auction this week, you’ll get another widened by four basis points to 1.87 percentage The U.S. is borrowing so much that it may have Money markets show the world’s biggest banks see a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies. The premium banks charge each other for short-term loans, the so-called Libor-OIS spread, rose above 1 “Yields are headed higher,” Cheong said in an percentage point last week for the first time since Jan. interview. “More issuance will be needed to support 9. Contracts traded in the forward market indicate the gauge, which measures banks’ reluctance to lend, will Bursamétrica Management
remain higher for the rest of the year than before The dollar pared its decline against the euro after the Sept. 15, when the bankruptcy of Lehman Brothers concern insurers’ earnings will be hurt by Obama’s overhaul of the health-care system overshadowed a The difference between what banks and the Treasury rally in banks spurred by his request for more pay to borrow money for three months, the so-called TED spread, rose to 99 basis points from 91 basis points on Feb. 10. Europe’s 2.2 percent on Royal Bank of Scotland Plc’s plan to put 325 billion pounds ($462 billion) of investments into a Currencies
state insurance program and shift toxic assets to a The yen slid beyond 98 per dollar for the first time new unit after posting the biggest loss in British since November on speculation governments’ support for banks and Japan’s recession discouraged The yen dropped 1.7 percent to 140.71 against the investors from taking refuge in the currency. pound and 1.4 percent to 78.57 versus the Canadian The dollar fell against the pound and the Canadian dollar as traders bet the deteriorating Japanese economy will lead to deflation. Japan’s currency was much as $750 billion in new aid for the financial headed for an 8.4 percent loss against the dollar in industry and the U.K. extended guarantees on February, the biggest monthly drop since 1995. distressed assets of banks, reducing demand for the safety of the world’s reserve currency. Japan’s trade deficit increased in January to the “The safe-haven currencies are trading on a weak widest in two decades as exports slumped by 46 percent, the Finance Ministry said yesterday in Tokyo. at UBS AG in Stamford, Connecticut. “Recovery in A Cabinet Office report showed last week that the risk appetite is what’s moving things.” world’s second-largest economy shrank in the fourth The yen slid 1 percent to 98.38 per dollar at 4:20 p.m. quarter by the most since the 1974 oil shock. in New York, from 97.39 yesterday, touching 98.71, “We are going back to basics in currency trading in the weakest level since Nov. 10. Japan’s currency that the current-account balance will drive currencies,” depreciated 1.1 percent to 125.24 per euro from 123.92 after reaching 126.08, the weakest level since the foreign- exchange and emerging-market sales and Jan. 8. The dollar traded at $1.2734 per euro, trading group at Morgan Stanley. “The implosion of the trade balance in Japan is exactly the reason why The pound increased 0.7 percent to $1.4302, while the Canadian dollar gained 0.5 percent to C$1.2512 Japan’s currency will depreciate to 115 per dollar by versus the greenback as higher-yielding assets year- end should the global economy start to recover The yen’s decline against the dollar may be tempered versus the euro, yen, pound, Canadian dollar, as the currency approaches resistance at 98.90, a 50 Swedish krona and Swiss franc, fell 0.2 percent to percent Fibonacci retracement of the dollar’s drop 87.727. It touched 88.254 on Feb. 18, the strongest from the August high of 110.66 yen to the January low level since a 2 1/2-year high reached Nov. 21. of 87.13 yen, according to , a rates and currency strategist at Bank of America Securities- Merrill Lynch Japan. Resistance is a level where sell The Ukrainian hryvnia strengthened as much as 5.6 percent to 8.4100 against the dollar, the biggest gain of all 171 currencies tracked by Bloomberg. The hryvnia tumbled to a record close of 9.2900 per dollar The euro was poised for a 0.6 percent loss against the earlier this week after Moody’s Investors Service said dollar in February, its second straight monthly decline, it may cut the nation’s credit rating, which it did the on concern financial turmoil in Europe will worsen, Bursamétrica Management
supporting the case for policy makers to lower interest The IGP-M price index calculated by the Getulio Vargas Foundation rose 0.26 percent in February, less than the median forecast of 0.41 percent in a Confidence in the economic outlook dropped to the lowest on record in February, the European Commission said today, increasing pressure on the The yield on Brazil’s zero-coupon, local-currency central bank to loosen monetary policy. German bonds due in January 2010 declined 15 basis points, unemployment rose in February by a seasonally or 0.15 percentage point, to 10.81 percent. The yield adjusted 40,000 to 3.31 million, a fourth straight on the overnight futures contract for July delivery slid monthly increase, the Federal Labor Agency said. S&P cut Ukraine’s credit rating yesterday by two levels after it downgraded Latvia’s debt to junk. The euro dropped 1.7 percent versus the dollar on Feb. Brazil’s central bank didn’t accept any bids to buy 17, when Moody’s Investors Service said the credit reais in the currency market at three auctions today. ratings of Austrian, Swedish and other banks with subsidiaries in eastern Europe may be cut as The bank said yesterday it would buy reais with U.S. dollars in three auctions in the foreign-exchange market to prop up the Brazilian currency. The “The financial crisis and the budget problems in contracts included an agreement to re-sell the reais at a later date, the central bank said in a statement. at Wells Fargo & Co. in New York. “The downtrend for the euro “The central bank probably didn’t think the bids were interesting enough, so it didn’t see the need to buy reais at just any rate,” Brazil’s real strengthened for a second day on trader at Futura Corretora in Sao Paulo. speculation new aid to the U.S. financial system may help pull the world’s largest economy out recession. The real rose 0.4 percent to 2.3589 per U.S. dollar at 3:09 p.m. New York time, from 2.3691 yesterday. President billion in aid to shore up the financial industry in his first budget proposal. The funds would come on top of the $700 billion rescue package the U.S. Congress approved last October. “The expansionist measures in the U.S. and around the world, especially those aimed at the financial system, are an effective way to restore confidence,” said the Brazilian Association of Analysts and Capital Markets Investment Professionals, or Apimec. Gains in commodities, which account for almost two-thirds of Brazil’s exports, also helped boost the real. Crude oil, a Brazilian export, rose to the highest level in a month. Yields on Brazil’s local-currency bonds and overnight futures contracts fell after the country’s broadest measure of inflation advanced less than analyst expected.

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