Repo! The Genetic Opera

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By

William L. Watts

&

Deborah Levine

, MarketWatch

The dollar pared gains as the trading session wore on and U.S. equities backed away from the lows of the day.

“The tone appears to be one of consolidation as the market focuses on this week’s key events,” said currency strategists at Brown Brothers Harriman in a research note. “The U.S. dollar is continuing to gain ground as markets pare back ‘risk-on’ trades.”

The single currency changed hands at $1.4690, down from $1.4720 in North American trade late Friday.

The dollar rose to 92.09 Japanese yen, up from 91.43 yen Friday.

The dollar Index


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, a measure of the greenback against a trade-weighted basket of rival currencies, rose to 76.719, up from 76.446.

A holiday in Japan curtailed volume in Asia, while a lack of major economic data kept activity under wraps in Europe, strategists said.

The dollar remained higher after the Conference Board said the U.S. recession is bottoming out and a recovery is near. The private group’s Index of leading economic indicators rose 0.6% last month. Analysts surveyed by MarketWatch predicted the index would rise 0.7% in August.

See more on leading indicators.

Fed chatter

Meanwhile, ideas the Fed’s rate-setting Open Market Committee could opt Wednesday to signal it’s ready to begin outlining an exit strategy from its massive monetary-stimulus efforts helped pressure equity markets, spurring support for the dollar, analysts said.

U.S. stock indexes stayed under pressure on Wall Street, with the Standard & Poor's 500 Index


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off 0.4%, following lower markets in Europe. The greenback has tended to rally when economic fears are on the rise and to fall when investors are more inclined to take on risk.

See Europe Markets.


See Market Snapshot.

“Given the recent improvements in the housing and manufacturing sectors along with the rise in consumer spending and equity prices, the Fed has plenty of reasons to be upbeat,” Kathy Lien, director of currency research at Global Forex Trading, wrote in an email. “If they become more optimistic, it would initially help to drive the dollar higher but given the schizophrenic nature of the currency market, a rise in risk appetite may erase the dollar’s gains.”

Also under discussion is the central bank’s mortgage-debt buying programs, which many credit with keeping mortgage rates low for borrowers and supporting the struggling housing sector. Some analysts expect those purchases to be slowed down to last longer, much like the Fed declared for its Treasury-buying program last month.

Read more in Bond Report.

Still, dollar weakness has been exacerbated in recent weeks amid signs the greenback is taking on a role as a funding currency for carry trades, in which investors sell a low-yielding currency and purchase higher-yielding currencies.

Also this week is a summit of the leaders of the Group of 20 Global economic powers, which gets under way Thursday in Pittsburgh.

Nervousness before that meeting has also spurred traders to exit pro-risk trades, said Boris Schlossberg, director of currency research at GFT.

“If the talk out of the G20 actually turns into some concrete policy action, the news of further government regulation of capital markets could cast a pall over risk assets and precipitate a profit taking sell off that many analysts have been anticipating for weeks,” Schlossberg said.

William L. Watts is a Reporter for MarketWatch in London.


Deborah Levine is a MarketWatch Reporter, based in New York.

October 7, 2009

The discussion of the initiatives, including a boost in Transportation spending and an extension of an expiring tax credit for first-time homebuyers, comes as the White House is balancing rising concern about unemployment and a budget deficit the Congressional Budget Office estimates will total $US1.6 trillion ($1.9 trillion) for 2009, and $US1.4 trillion in 2010.

Administration officials have told allies in Congress that a broader Transportation bill, and extensions of a homebuyer tax credit and unemployment benefits are all on the table, a Senate aide said.

Representative Chris Van Hollen of Maryland, who chairs the Democratic Congressional Campaign Committee that is tasked with holding the party’s House majority in next year’s midterm elections, said additional Transportation funding would be popular among Democratic lawmakers.

“If there was to be another round of stimulus, additional infrastructure would be at the top of the list,” Van Hollen said in an interview. Money for roads, transit and bridges would be a priority.

Contradictory missions

In considering the measures, the administration has to reconcile two potentially contradictory missions: combating rising unemployment through government intervention and the need to hold deficits down.

White House Press Secretary Robert Gibbs yesterday highlighted those political sensitivities, saying there “were no plans” for a second stimulus like the $US787 billion package passed earlier this year. Instead, he said, the administration is looking at “extensions” of existing programs.

“The economic team is certainly looking at and working on any way that we can create more jobs,” Gibbs said.

The items under consideration include an increase in infrastructure spending through expiring transportation legislation that Congress must reauthorize in the coming months, the Senate aide said, speaking on condition of anonymity.

Other steps being weighed include an extension of a tax credit of up to $US8,000 for first-time homebuyers that is due to expire later this year, and a renewal of a tax benefit for net operating losses that would benefit small businesses, the aide said.

`A stimulus’

“Clearly these things are a stimulus,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, who has called for more stimulus spending. “There’s no two ways about it.”

The Obama administration isn’t near a final decision on additional measures, said Jen Psaki, a White House spokeswoman.

“As they continue to explore the best options, any notion that we are any farther along than preliminary discussions about new proposals is wildly inaccurate,” she said.

The Labor Department Reported last week that unemployment reached 9.8 per cent in September, the highest level since 1983. Nonfarm payrolls dropped by 263,000, a steeper drop than economic forecasters had expected.

At the same time, the federal deficit has risen sharply because of this year’s stimulus package and bailouts for the banking industry, auto industry and Fannie Mae and Freddie Mac. While the Obama administration has pledged that a health-care overhaul it is pushing through Congress won’t widen the deficit, it has stirred concerns among fiscal conservatives.

`More difficult’

“More of a stimulus package is much more difficult at this point than it was in February,” said Julian Zelizer, a professor of public affairs at Princeton University in New Jersey. “The deficit can become a political straitjacket to the Democrats.”

Obama and his aides have stressed that they expect employment growth to lag in an economic recovery. They now confront rising joblessness as they move toward midterm elections in November 2010.

Since 1945, the party that controls the White House has lost an average of 16 House seats in a president’s first midterm election, according to the Cook Political Report, a nonpartisan publication in Washington. The Democrats have 256 seats in the chamber, compared with 178 for the Republicans.

30-day extension

The federal transportation funding program, which provides routine federal aid for highway construction and other transportation projects, expired Sept. 30 and is operating under a 30-day extension passed by Congress.

While the transportation funding law typically is renewed in multiyear increments, the Obama administration has instead proposed an 18-month extension, a move backed by the Senate public works panel. That time frame limits the scope of the bill to the period in which economic forecasters expect high unemployment.

Representative James Oberstar, a Minnesota Democrat who chairs the House Transportation and Infrastructure Committee, has proposed a six-year $US500 billion highway and transit bill. Most of the measure is financed through federal gasoline taxes, which haven’t been raised since 1993. At the current level, the tax would only generate about $US350 billion over six years.

A six-year bill would be “a better stimulus than a temporary, one-time, infusion of cash,” said Jim Berard, a spokesman for Oberstar.

Van Hollen said Congress’ first step would likely be to move forward with an extension of unemployment benefits.

“We don’t want to get ahead ourselves here,” he said.

Bloomberg News

October 9, 2009

The decision to step back from the brink marked the end of a six-year binge of drug and alcohol abuse that by then had Cost Junor his marriage and a career that paid him as much as 1 million pounds ($1.9 million) a year. He was out of work, having already walked away from both his analyst job at BT Alex. Brown and a subsequent position in a dot-com venture. “I burned through everything,” Junor says. “I knew there was a choice — and the choice was to hang from that tree or not.”

His story reflects the cocaine use that medical experts say is rampant in the City, London’s financial district. It’s a habit that often goes hand in hand with heavy drinking. Junor says he and his mates wanted to maintain the thrill they felt at work as they poured into the Square Mile’s pubs and clubs after a day of getting high on finance.

“It’s the same rush from doing a deal and doing cocaine,” Junor, 45, says. “The adulation from doing a deal spills into going for a beer and then a party — it’s an amorphous blob of energy.” Everyone knows about the City’s drug problem, recovering addicts say. Bosses turn a blind eye to drugs, as long as you’re making money for your firm — and until recently, making big money was easy to do.

Cocaine culture

Professionals in the detox business say bankers have swamped them with calls since the financial crisis widened a year ago. The Causeway Retreat, an addiction and mental health hospital for professionals on a secluded island 40 miles (64 kilometers) east of London, has 15 people on the waiting list for its 18-bed facility.

While few walk away from addiction as dramatically as Junor, some bankers are questioning whether the diminished rewards of the City are worth sacrificing their health, says Philip Hopley, a psychiatrist who runs a clinic at the Lloyd’s of London insurance building to be in the neighborhood where his patients work.

“Doing cocaine or drinking heavily is part of the City culture; you work hard and you play hard and you get rewarded because your bonus is fantastic,” says Hopley, a consultant at The Priory, a group that runs several mental health centers. When the bonuses are cut and many of your friends lose their livelihoods, things no longer look so good.

Brain rush

“A number of people now tell me: `I finally realize what a shit job I have got,”’ Hopley says. “`If it wasn’t for the bonus, I wouldn’t be working these hours and I wouldn’t be working with these people.”’ The number of people in the finance industry coming to see him has jumped by about 15 percent this year, he says.

Scientists say it’s no accident that trading and cocaine sometimes go together. Both involve taking risks and have a similar effect on the brain. Each activity raises dopamine levels, the organ’s feel-good chemical, according to Trevor Robbins, professor of cognitive neuroscience at the University of Cambridge. Dopamine surges when we take risks, such as going sky diving, betting on stock price movements or hiding in an office rest room and snorting a line of coke.

Studies show that people who take risks have low levels of dopamine receptors and try to shock the brain into a boost of the chemical through novel situations. They’re also more likely to become addicted, Robbins says.

City casualty

Those who don’t seek help fast enough, like Investment manager Melvin Sabour, can become high-profile casualties.

Sabour, a managing director of AKN Investments Ltd., died of a cocaine overdose in February. Sabour was depressed over losses at his privately held firm, his girlfriend Kyara Dekker told an April inquest into his death. She discovered Sabour, 44, unconscious in the apartment they shared in Mayfair, the neighborhood of townhouses and luxury stores that’s home to money managers such as GLG Partners Inc. and Moore Capital Management LLC. Sabour was pronounced dead by paramedics at the scene. A postmortem examination found that Sabour had a lethal level of metabolized cocaine in his blood and attributed his demise to drug

triggered heart failure.

“Cocaine can and does have a bad effect on the heart and it is quite a significant cause of death in men of younger age in this area of London,” coroner Paul Knapman told the inquest that determined the cause of Sabour’s death.

`Bamboozled’ by abuse

Drugs and alcohol played a role in the death of Darren Liddle, a 26-year-old fixed-income analyst at Credit Suisse Group AG in London in September 2007. Liddle, who spent two stints in a psychiatric hospital, went on a cocaine and alcohol binge at the Hilton hotel on London’s Park Lane just weeks after leaving the hospital for the second time. He sat on the ledge of his 19th-floor room, shaking and crying, for more than two hours before jumping to his death.

A coroner told an inquest in January 2008 that job pressures may have contributed to Liddle’s addictions. Credit Suisse declined to comment on the incident. Liddle’s father and brother didn’t respond to e-mails.

“Medical people are absolutely bamboozled by the level of abuse going on in the City and the extreme level of cocaine consumption,” says Brendan Quinn, The Causeway’s chief executive officer and a specialist nurse in recovery treatment. “More and more people are coming in, putting their hands up and saying: `I’ve got a problem and I need help.”’

Bonus binge

The spread of cocaine in the City is driven by ample supplies at cheap prices. Cocaine, the glamour drug for jet- setters in the 1980s, has dropped in price to about 40 pounds a gram from almost 70 pounds a gram in 1997, according to figures from the U.K. Home Office. The price drop reflects dealers’ success in diluting the product and opening up new supply routes, authorities say.

The number of cocaine users in the U.K. has doubled to 1 million in the past decade, according to the United Nations World Drug Report 2009. The UN says British cocaine use peaked in 2007 — the year after City bonuses reached a record 8.8 billion pounds. While bonuses will plummet more than 60 percent from that high to 3.2 billion pounds this year, the London-based Centre for Economics and Business Research Ltd. predicts, there’s still plenty of money to buy cheap coke.

Some recovering addicts seek help in the company of others secretly struggling with a drug habit. On a rainy day in July in the wood-paneled vestry of St. Michael’s Church, a stone’s throw from the Bank of England, about a dozen bankers and traders sit around a mahogany table, talking about their addictions. With an antique wooden clock ticking in the background and takeout sandwiches on the table, men in pinstripe suits and women in conservative dresses — using first names only — share stories of the daily challenge of keeping clean.

After-work challenge

One equities salesman and recovering addict at St. Michael’s says the greatest challenge to keeping clean comes at the end of a workday. “I could take you to four or five pubs a few minutes from here, walk up to the bar and buy a pint and a gram of coke,” says the man, who asked that he not be identified. “If you continue using, you become suicidal.”

A short underground train ride away, on a warm Thursday evening in August, thousands of bankers spill out of pubs and restaurants in London’s Canary Wharf, clutching cold beers and mixed drinks. At a bar around the corner from the London headquarters of Citigroup Inc., Credit Suisse and Morgan Stanley, a man repeatedly brushes his right nostril with his thumb while waiting for the barman. In the men’s restroom at the back of the bar, there’s a smudge of white powder on the wooden lid of the toilet. When the lid is wiped with a cloth from London-based testing company Drug-Aware Ltd., a bright-blue spot emerges, indicating a positive cocaine sample.

Tabloid coverage

City bankers are merely a part of Britain’s culture of hard living. In September 2005, London’s Daily Mirror newspaper published photos purporting to show model Kate Moss snorting cocaine along with her then-boyfriend, musician Pete Doherty. Moss lost contracts with Burberry Group Plc and Chanel SA after the incident and attended a rehabilitation clinic in Arizona. Police didn’t charge Moss after questioning her about the incident.

At least one cocaine user at a financial firm was brazen enough to deal the drug from his desk. David Frith, a 28-year- old banker who worked at Barclays Plc’s office in Basingstoke, England, was convicted in 2007 of selling drugs from his desk and received a jail sentence of seven and a half years.

Tracking drug deals

Police listened to Frith’s phone calls, which had been routinely recorded by the bank, and tracked his drug runners, according to a police spokesman. Barclays declined to comment on the incident. Frith’s Basingstoke-based solicitors, Talbot Walker LLP, declined to comment.

For some, the only escape from addiction is to quit their City career. Five years ago, Seth Freedman was a 24-year-old private-client broker executing equities trades for wealthy individuals when his coke habit became all-consuming. His dealer would roll up to his office in a station wagon with his latest stash.

“I was buzzing at work because of flickering screens, and I was managing lots of money,” Freedman says, as he smokes a cigarette and nurses a glass of water at a pub in North London. “When the market shuts, how do you keep that buzz going?”

In 2004, Freedman was sitting on the roof terrace of Coq d’Argent restaurant, in the heart of the Square Mile, with both a 30-year-old receptionist and a 16-year-old bottle of Lagavulin single-malt Scotch whisky in his lap. Thanks to the coke in his nose, he felt like the king of the City. Yet he woke up the next morning sporting two bleeding nostrils and a determination to get out of his drug hell.

`Money worship’

“I didn’t want to be caught up in the vicious circle of money worship by day, hard drugs by night, and little to no structure past the next trade I put on or the next gram I scored,” he says.

Instead of checking into rehab, Freedman decided to join the Israeli army — solidifying his connections with a country he had regularly visited as a child. In a 15-month tour, he used the enforced discipline of the military to get fit, learn to work as a team member and find a higher purpose than money. Freedman quit the Israeli army in 2006, disturbed by his stint in the West Bank, to write a book about his experiences called Binge Trading: The Real Inside Story of Cash, Cocaine and Corruption in the City (Penguin, 2009).

Freedman says City bosses push employees to take a short-term view on both trading and living. “You’re encouraged to be a gambler and a risk taker,” he says.

Middle-class secret

Junor, the addict who decided to seek help rather than hang himself, says his addictions thrived in the City. In 1999, he was earning 1 million pounds a year as an analyst at BT Alex. Brown and enjoying boozy lunches with clients. At that point, he only dabbled in cocaine.

“Everyone knew I had a drinking problem when I was in the City,” Junor says. “There were a couple of times where I showed up to meetings pissed, but that was Neill.”

After Deutsche Bank AG took over BT Alex. Brown in 1999, Junor helped establish the digital unit at Emap Plc, the U.K. publishing company that he had covered as an analyst. He began using coke heavily as he jetted between homes in Los Angeles, London and New York.

“I had a fire in me that was alcoholism and it had an accelerant thrown on it that was cocaine,” he says. “Cocaine allows you to keep drinking; it sobers you up.” He quit the publisher in 2001 and continued taking cocaine while living in a West London penthouse loft.

“I’d go to dinner parties where the host was chopping up a big line of coke on the cheese board,” he recalls. “Cocaine is London’s middle-class dirty secret. It’s pervasive.”

Rural retreat

Junor sought treatment in a rehab center in southwest London without success. Then he tried yoga and Alcoholics Anonymous, attending 90 meetings in 90 days in 2006. He’s been clean ever since.

Salvation came two years ago when he moved to a farm in Dorset, southern England, to raise free-range chickens for a living. He still wakes up at 6 a.m. — only instead of boarding a train, he feeds the chickens raised in white sheds spread across his farm. Junor, who now earns less than 100,000 pounds a year, has remarried and his new wife recently gave birth to a daughter.

Some drug addicts hit rock bottom after losing their jobs. One former associate at a global law firm in Canary Wharf used his salary to support a decade-long cocaine habit. In January, he lost his job and had 30,000 pounds in tax-free severance money with nothing to do all day.

Family intervention

“I used lots of coke and gambled,” says the lawyer, 28, who asked to remain anonymous. “I had early onset of cocaine psychosis. You start to go mad. In the last three months of using, I saw, or imagined I saw, insects crawling on me.”

After an intervention from his family, the lawyer checked into a Priory detox clinic in London. The recovering lawyer is staying clean by going to daily addicts’ meetings.

At the recovery facility The Causeway, a helicopter pad sits next to a turreted Edwardian manor house, which sports a gym, a 200-year-old billiard table and a recording studio. Wealthy City bankers take the 20-minute helicopter ride to the secluded 400-acre (162-hectare) Osea Island and pay up to 10,000 pounds a week for treatment.

“Half the referrals this month have come in for people in the City who’ve lost their job, lost their car, everything, because they’ve leveraged themselves too high,” Quinn says. “We had a guy come to the island on a helicopter, and he took 6 grams of cocaine on the 20-minute journey.”

Hiding the problem

Although the major insurers, such as Aetna Inc., Axa SA and British United Provident Association Ltd., cover rehab programs at the Causeway and ensure confidentiality, Quinn says clients from the U.K.’s financial sector are reluctant to claim for their treatments.

“People won’t use their company insurance policy for mental health or addiction for fear that it will go back to their employer,” he says. “They go sick for a month and pay for it themselves with no record of it happening.”

Moved by the scarcity of treatment choices in Britain, private equity executive Jon Moulton tried to establish a modern rehab facility — an effort thwarted by the credit crisis. In October 2007, his charitable foundation opened Winthrop Hall, a 25-room hotel-style center in the Kent countryside, southeast of London. Many of Winthrop’s patients were from the City: lawyers, hedge fund managers and even the CEO of a major foreign bank who spent a lot of time in the U.K.

Cost issue

In January 2009, Winthrop Hall shut its doors as City job losses cut people’s ability to pay, says Moulton, who resigned as managing partner of London-based private equity firm Alchemy Partners LLP in September. The facility wasn’t up and running long enough to have treatments covered by private insurance companies.

“It’s one thing to spend 100 pounds on a consultation for a drug or alcohol problem,” he says. “It’s another thing to spend 800 pounds a day on residential rehab.”

A company that does not offer help to deal with a drug or alcohol problem could face a lawsuit for wrongful dismissal if it fires someone who has admitted an addiction, says Marco Martinez, a former Salomon Brothers Investment banker who checked himself into the Priory in 2000 to treat an addiction to alcohol and codeine.

“The driving force for banks is fear of litigation,” Martinez says. “If someone is selling drugs to a mate on the trading floor and the police find out about it, they will go after the people concerned, but they’ll also go after the employer.”

Online help

Martinez is now working with Tactus, a Dutch treatment provider, to offer banks a new online program to deal with alcohol abuse called lookatyourdrinking.com. He’s planning another Web site for drug users next year.

U.K. law requires employee consent for any drug testing. Although pre-employment urine testing is now standard in the City, says Jason Kennedy, of the London-based headhunting firm Kennedy Associates, the screenings only show evidence of cocaine use in the previous 72 hours.

“Drug tests are usually booked days in advance, which in theory gives a candidate time to clean himself up,” Kennedy says, adding he’s never had anyone fail a test.

Eight city meetings

Bankers seeking help can find it right around the corner. At the eight weekly meetings of drug addicts in the City, bankers talk about the daily struggle to stay clean.

In the safety of a lunchtime Cocaine Anonymous meeting in St. Michael’s Church, one woman with a blond bob and a fat string of pearls says she was terrified of attending for fear of bumping into a bank colleague. “Then I thought — who cares? I want to quit my job anyway,” she says, echoing the sentiments of ex-City fliers Junor and Freedman.

Those survivors say they’re speaking out now to show thousands of anonymous addicts still working in the City that it’s possible to escape before going to the brink of suicide. Although Junor has lost his London townhouse and no longer drives a Porsche, he’s regained something more valuable — his life.

(This story appears in the November issue of Bloomberg Markets magazine.)

Bloomberg News

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By

Deborah Levine

&

William L. Watts

, MarketWatch

The dollar was slightly higher versus most other major rivals as well, with traders eyeing a mix of small gains among benchmark U.S. Stocks Indexes.

Japanese Finance Minister Hirohisa Fujii on Tuesday described the yen’s rise as “a little too sharp,” Dow Jones Newswires Reported, citing Kyodo News Agency. “We could take various steps if the (yen) reaches abnormal levels.”

The remarks marked the second straight day Fujii has made remarks aimed at undoing market perceptions the new Japanese government was comfortable with a rising yen.

“This change of tack could cause a lot of pain for speculators who have built up extreme long yen positions on the belief that the Japanese policy was changing,” said T.J. Marta, founder and chief strategist at Marta on the Markets, referring to positions that bet on the yen gaining.

“This shift in Japanese policy could tip the scales and trigger a cascading unwind of the positions built up in past weeks,” he wrote in a research note. That would benefit the U.S. dollar and gold.

One U.S. dollar bought 90.18 yen, up from 89.62 yen in North American trade late Monday.

The dollar Index


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+0.47

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, a measure of the greenback against a trade-weighted basket of currencies, rose to 77.085 from 76.904 on Monday, paring earlier gains.

The euro slipped to $1.4581, down from $1.4617 late Monday.

So far this month, the dollar index has lost about 1.4%. The dollar has fallen 3.5% versus the yen while the euro has gained almost 2% against the U.S. currency.

Stocks sag

A weak performance for Stocks on Wall Street also supported strength for the dollar, which has served as a safe-haven asset. After a big rally on Monday, the Dow Jones Industrial Average


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slumped 0.1%.

The dollar remained higher after the Conference Board said its consumer confidence index fell to 53.1 in September from 54.5 in August, reversing part of August’s nearly 7-point gain. Economists surveyed by MarketWatch were expecting the index to rise to 57, based on higher stock prices, lower gas prices and fewer layoffs.

See more on confidence.

Earlier, Standard & Poor's said the market value of U.S. homes in 20 major cities rose 1.6% in July compared with June, the third monthly increase in a row. But S&P’s Case-Shiller home price index still showed prices remain down 13.3% over the past year in the 20 U.S. cities surveyed.

See full story on home prices.

Pound rebound

The British pound, however, posted a strong rebound versus the dollar and other currencies after the Confederation of British Industry’s measure of retail-sales activity rose to its highest level in five months.

The monthly distributive trades survey’s retail sales balance rose to 3 from -16 in August, far exceeding forecasts for a rise to -13.

Meanwhile, a Bank of England seminar with prominent City economists signaled no shifts in policy. Reports said BOE officials made clear there were no plans for an imminent change to the deposit rate the central bank pays on deposits held at the BOE by commercial banks.

The pound traded at $1.5950, up from $1.5876.

A cut in the rate would effectively penalize banks for holding excess reserves at the BOE, pushing them to move the reserves into other assets and potentially enhancing the impact of the central bank’s quantitative-easing program, which aims to boost the money supply and raise nominal spending.

Earlier, M4 money data showed weak growth in some key money-supply measures, adding to speculation the central bank could move to take additional steps in coming months.



See full story.

Deborah Levine is a MarketWatch Reporter, based in New York.


William L. Watts is a reporter for MarketWatch in London.