Oil rises above $85 in Asia as European countries offer massive bailout loan to Greece

Oil prices rose above $85 a barrel Monday in Asia after European countries offered a massive loan to debt-ridden Greece.

Benchmark crude for May delivery was up 35 cents to $85.27 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost 47 cents to settle at $84.92 on Friday.

The finance ministers of the 15 eurozone nations agreed Sunday to offer euro 30 billion ($40 billion) in loans to Greece this year if Athens asks for the money.

The promise -- filling in details of a March 25 pledge of joint eurozone-IMF help -- was another attempt to calm markets that have been selling off Greek bonds.

Oil was down the previous three days on investor concern that slowly recovering U.S. crude demand doesn't justify further gains. Crude jumped 25 percent to above $87 last week from $69 in early February.

"If oil markets continue to take cues from supply and demand -- in preference to the dollar, equities or economic data -- we cannot paint a picture that includes higher prices," Cameron Hanover said in a report.

In other Nymex trading in May contracts, heating oil added 1.02 cents to $2.2362 a gallon, and gasoline gained 0.71 cents to $2.2964 a gallon. Natural gas was steady at $4.062 per 1,000 cubic feet.

In London, Brent crude was up 55 cents at $85.38 on the ICE futures exchange.

Greece debt crisis

Trying again to halt a debt crisis that has hammered the euro, fellow eurozone governments tossed struggling Greece a financial lifeline Sunday, saying they would make euro30 billion in loans available this year alone -- if Athens asks for the money.

The International Monetary Fund stands ready to chip in another euro10 billion, said Olli Rehn, the EU monetary affairs chief.

The promise -- filling in details of a March 25 pledge of joint eurozone-IMF help -- was another attempt to calm markets that have been selling off Greek bonds in recent days.

Markets viewed the March pledge as too vague and carrying such tough restrictions that Greece could not easily get the money. As a result, investors demanded high rates to loan to the government as it struggles to avoid default -- rates the government says it can't go on paying. Greece has some euro54 billion in debt coming due this year and a huge budget deficit.

In an emergency video conference, the finance ministers of the 16-eurozone nations agreed on a complex three-year financing formula that generates an interest rate of "around 5 percent."

This is less than commercial market rates -- which have soared above 7 percent on Greek 10-year borrowing in recent weeks as the debt crisis dragged on -- but more than beneficiaries of IMF usually pay. European Central Bank president Jean-Claude Trichet and German Chancellor Angela Merkel have insisted that Greece not get below-market interest rates amounting to an EU subsidy for its past bad behavior.

"This is certainly no subsidy" to Greece, Rehn told a news conference.

The test of Sunday's announcement will be whether it restores confidence that Greece will not default and gives it a chance to borrow normally at lower rates. Under last week's rates, Greece would have had to pay more than twice what Germany pays.

The danger is that interest payments themselves begin to sink the budget despite severe cutbacks imposed in recent days. A Greek default would be a serious blow to the euro, rattle markets and inflict losses on European banks that have bought Greek government bonds.

Greek Finance Minister George Papaconstantinou said Greece had not asked for the plan to be activated, and still hoped to borrow on markets rather than seeking a rescue.

"The Greek government has not asked for the activation of the mechanism, even though this is already immediately available," Papaconstantinou said in Athens. "The aim is, and we believe we will continue to borrow unhindered on the markets."

Officials, speaking privately, told The Associated Press they first want to see how markets react on Monday.

European Commission President Jose Manuel Barroso said the pledge of cash for Greece showed the 16 euro-zone nations will defend Europe's single currency and help a partner in trouble.

"It shows that the euro area is serious in doing what is necessary to secure financial stability," Barroso said in a statement.

"I am convinced that it will help Greece to continue vigorously correct public finances imbalances and to deliver the necessary structural reforms."

Rehn said the loan deal will be "the clarification that the markets are waiting for."

Those markets, however, have so far ignored repeated EU claims of support for Greece causing commercial lending rates for Athens to go to 7 percent and more in recent weeks.

At two summit meetings -- one in February and one in March -- the EU leaders made determined noises about their readiness to end the Greek debt crisis.

But the terms were tough, with Greece needing approval of all 15 other eurozone governments and only if it could not borrow any other way. German fears a bailout with soft loans will only rile German public opinion which already takes a dim view of Greece's financial housekeeping.

EU and IMF officials will meet Monday to work out details of IMF and EU lending for 2011 and 2012, especially on amounts and loan conditions. Officials estimated that over a three-year period Greece was being offered a total of euro80 billion in financial aid by the EU and the IMF.

Greece has been spending beyond its means for years, leaving it with a 2009 budget deficit of 12.9 percent of economic output. The revelation of its statistics fudging has slammed the euro and gutted market confidence, fueling higher borrowing costs.

Athens plans to cut its deficit to 8.7 percent this year and has launched a euro4.8 billion austerity program cutting public sector wages, freezing pensions and hiking taxes.

HIGHER INTEREST RATES NOW?

As prospects for the U.S. economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation's ballooning debt and the renewed prospect of inflation as the economy recovers from the recession.

The shift is sure to shock consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

"Americans have assumed the roller coaster goes one way," said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. "It's been a great thrill as rates descended, but now we face an extended climb."

The impact of higher rates is likely to be felt first in the housing market, which has recently begun to rebound. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing more upward pressure on rates.

"Mortgage rates are unlikely to go lower than they are now, and if they go higher, we're likely to see a reversal of the gains in the housing market," said Christopher Mayer, a professor of finance and economics at Columbia Business School. "It's a really big risk."

Each 1 percent increase in rates adds up to 19 percent to the total cost of a home, according to Mayer.

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

Another area in which higher rates are likely to affect consumers is credit-card use. Last week, the Federal Reserve reported the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed out in the fourth quarter of 2008, a jump that amounts to about $200 a year in additional interest payments for the typical U.S. household.

With losses from credit-card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, said Dennis Moroney, a research director at the TowerGroup, a financial-research company.

Similarly, many car loans have become significantly more expensive, with rates at auto-finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve.

The federal government, too, is expecting to have to pay more to borrow. The Office of Management and Budget expects the rate on the benchmark 10-year U.S. Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.

The long decline in interest rates also helped prop up the stock market; lower rates for investments such as bonds make stocks more attractive.

That tail wind, which prevented even worse economic pain during the recession, has ceased, according to economists, analysts and money managers.

"We've had almost a 30-year rally," said David Wyss of Standard & Poor's. "That's come to an end."

What Does Aggregation Mean

1. Used in corporate financial planning, aggregation is a process whereby a number of a firm's smaller projects are combined and treated as an individual project.

2. Used in futures markets, aggregation is a principal involving the combination of all future positions owned or controlled by a single trader or group of traders.

The end of wall street

The day after the Federal Reserve permitted both Goldman Sachs (NYSE: GS - News) and Morgan Stanley (NYSE: MS - News) to become bank holding companies, in September 2008, The Wall Street Journal editorialized that the end of Wall Street had arrived. "[I]n a single week, the era of the independent investment bank has ended," the paper's editorial writers observed, along with many others. "Wall Street as we've known it for decades has ceased to exist."

Superficial change
While in a literal sense, the Journal was correct -- the investment banks that relied most heavily on the short-term financing of their long-term assets were indeed defunct -- the question remains just how much has really changed on Wall Street, and how different is the world of finance than it was before the momentous events of 2008? The surprising answer -- given all the hyperbolic editorializing at the time -- is that very little has changed on Wall Street in the aftermath of one of the worst financial debacles since the laws that separated commercial banking from investment banking were first implemented during the Great Depression.

True, Goldman Sachs and Morgan Stanley have fewer competitors for their services than ever before, as Bear Stearns has all but disappeared (after being bought by JPMorgan Chase (NYSE: JPM - News)); and Lehman Brothers and Merrill Lynch are much altered after being absorbed by Barclays and Bank of America (NYSE: BAC - News), respectively. That is a serious change, in their favor. What were once the Big Five Wall Street firms has been reduced to two, although to be sure plenty of competition for them still exists from the so-called universal banks such as JPMorgan Chase, Citigroup (NYSE: C - News), Bank of America, Credit Suisse (NYSE: CS - News) and Deutsche Bank (NYSE: DB - News).

Subsidizing the Street
The other major change -- again in their favor -- is that as bank holding companies, both Goldman and Morgan Stanley now have easy access -- on a regular basis, free of negative connotations -- to cheap, short-term funding from the Federal Reserve. After Bear Stearns failed in March 2008, the Fed for the first time opened its discount window to investment banks. But Wall Street firms that availed themselves of such borrowing worried that a stigma would attach to them, and seemed to avoid doing it. Now, they can borrow billions of dollars from the Fed at will at around 75 basis points and then turn around and lend that money right back to the U.S. Treasury (by buying Treasury bills or bonds) and pocket spreads of 200 basis points and up. In effect, American taxpayers are now subsidizing the profits of Wall Street.

So, yes, as these two examples illustrate, one could say there have been dramatic changes in the way -- what used to be -- Wall Street operates.

Yet little has really changed
But, in a larger sense, very little, if anything, has changed on Wall Street in the aftermath of the crisis. For absurdly high fees, Wall Street still provides M&A advice on deals. Wall Street still underwrites debt and equity securities for its corporate clients. Wall Street still provides brokerage services for institutional and retail clients. Wall Street still provides prime brokerage services for hedge funds, although because of the much-diminished competition, those that do -- among Goldman, Credit Suisse, JPMorgan -- can charge higher and higher fees and demand more and more margin. For all the talk of reregulation and the implementation of the so-called Volcker Rule, Wall Street can still engage in proprietary trading and make private equity investments. One thing that Wall Street no longer does is to underwrite and to sell mortgage-backed securities, although in time even that will likely resume.

The Journal also predicted that, under the Fed's oversight, neither Goldman nor Morgan Stanley would be able to use nearly as much "leverage" in their business as they had previously, which is undoubtedly true. "That in turn means less risk and almost certainly less profit and lower compensation," the paper conjectured. That's the part that has yet to come to pass. In 2009, Goldman had record profitability -- of $13.4 billion -- driven, in part, by the twin benefits -- of the lower cost of capital and fewer competitors -- the crisis sent its way. And, of course, Wall Street still pays its employees at absurdly high levels, compared to what they could possibly make doing anything else in the real world.

The sad truth
To see the genuine changes that the financial crisis has wrought, one must look beyond Wall Street, to Main Street. With a chronic 10% unemployment rate -- and as high as 18% if those who have just given up looking altogether are accounted for (as well as jobs in certain industries that are gone forever and homes that are no longer worth the amount of the mortgage on them), the burden of the financial crisis is without question being disproportionately borne by the American people; and that is without even trying to account for the huge budget deficits brought on, in part, by the Wall Street bailouts. These deficits will no doubt linger for our children and grandchildren to sop up.

The sad truth of the denouement of the financial crisis at the moment is that Wall Street is much the same as it was before; it's Main Street that may never be the same again.

Hain Foods: what's wrong?

Cramer's recent interview with Hains Food (Hain) CEO Irwin Simon was one of his worst calls ever. I have to tell you that generally I am a fan of Cramer because he provides good insight into companies and usually doesn't play favorites. He also generally recommends "best of breed " companies with sound rationale and catalysts for improved stock performance.

Hain Foods is not "best of breed" in the the food manufacturing sector. If you're looking for best of breed in the food sector look to General Mills (GIS), Nestle (NSRGY.PK), Smuckers (SJM) or even Treehouse (THS) in the private label sector.

So what is wrong with Hain Foods ? First, they really only have one nationally, recognizable brand in Celestial Seasonings. In this current environment, tier one brands are doing well along with private label. Tier 3 and tier 4 brands are struggling. Second, they have no critical mass in any one category. Retailers continue to hold the leverage (i.e. shelf space) and the brands that are performing the best have #1 market share and are strong leaders in their categories. Third, consumers are still very price-conscious and that is holding back sales in the Natural and Organic area. While that may change if the economy continues to improve, we dont believe that will be a strong catalyst for sales growth for Hain Foods.

One need only look to Hains sales growth to find the answer. Last quarter sales were $242mm v.s. the previous year at $312mm. For the current quarter, sales are estimated to decline -14%. In the consumer foods sector, sales growth is key. It is certainly tough in this deflationary environment, but the better performers are at least delivering positive sales growth.

Lastly, there was no mention of Mr. Simon selling more than $400,000 in Hain stock on April 1, 2010. Not the sort of unbiased reporting that we expect from Cramer.

Hain does have a strong position in the healthy and better for you food sector. However, they have not figured out a way to leverage their portfolio of brands and the sector itself is still under pressure.