7 Reasons Why Europe's Recent Rally Could Be Short-Lived

With European leaders promising a debt crisis solution by the end of the month and all 17 countries having voted for the expansion of the EFSF, some renewed optimism has recently boosted the euro and European stock markets.

However, Europe's debt situation remains extremely complicated as it into its crucial EU summit on October 23.

Morgan Stanley's Global Currency Research team has outlined some major issues that they think will throw off Europe's path to a final solution.

In fact, they think the recent rally in the euro is just a short-term bear market rebound.  They see the euro at $1.30 in Q4 of this year and $1.25 in Q1 2012.

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G-20: IMF Could Extend Aid To Italy And Spain, Only If EU Leaders Have A Concrete Plan By Oct. 23

PARIS (AP) — The finance chiefs of the world's leading economies have opened the door for the International Monetary Fund to play a bigger role in fighting the eurozone's escalating debt troubles.

The Group of 20 rich and developing nations asked the IMF on Saturday to propose ways that it could help stop countries under severe market pressure from toppling into a full-blown crisis with potential global repercussions.

The move appeared aimed at Italy and Spain, the eurozone's third and fourth largest economies, which have seen their funding costs spike amid growing worries over the currency union's stability. The rest of Europe cannot afford to bail out Spain or Italy should they run out of money.

Until now, the IMF has funded about a third of the bailouts of Greece, Ireland and Portugal, but helping the eurozone to stem contagion beyond those countries would require a broader use of resources that would go far beyond the fund's traditional role of providing rescue loans to cash-strapped governments.

But while acknowledging that the IMF has a role to play in containing the continent's debt problems, G-20 ministers made clear Saturday that Europe must first come up with its own solutions.

"Of course, even though the world has a big stake in Europe doing this effectively, Europe itself has the strongest interest," U.S. Treasury Secretary Timothy Geithner told reporters after a two-day meeting of G-20 finance ministers and central bank governors in Paris.

"I think they've come to recognize that, if you underdo it, it's going to be more expensive."

Eurozone ministers sketched out a plan to their counterparts on Saturday and have promised that it will restore confidence in Europe and its banks when they unveil it next weekend.

At their Oct. 23 summit in Brussels, European leaders are expected to sign off on a scheme to maximize the impact of their €440 billion ($600 billion) bailout fund, a plan to recapitalize banks across the continent to ensure they can withstand worsening market turmoil, and a second bailout for Greece.

Part of an effort to shore up shaky countries on the continent may include a bigger role for the IMF, too.

"What has been asked of us is instruments that are more flexible, more short term, that allow countries in good economic health but in difficulty to resist," the IMF's managing director Christine Lagarde said.

She said G-20 leaders would consider the new tools at their summit in Cannes, France, early next month.

The IMF's investigation of new instruments reflects the extent to which the eurozone's debt crisis has affected the rest of the global economy.

"We heard loud and clear that the emerging markets in particular were very concerned about the risk of contagion from advanced economies to emerging markets and to low-income countries," Lagarde said.

The G-20 also committed to making sure that the IMF has the resources it needs to stabilize the world economy, indicating that an increase in its funding was possible. But there is resistance to such a move.

Geithner, for instance, stressed that the IMF, with $390 billion on hand, didn't need any more funding, although he said the IMF should continue to play its important role in containing the turmoil.

"That is a very, very substantial amount of financial firepower," he said. After Europe unveils its plan, "if there's a case for more use of the IMF's existing resources, we'd be supportive of that."

In discussing the requested list of tools, Lagarde said the IMF's efforts would focus on "short-term liquidity instruments available to what we call the 'non-consenting' victims of the economic crisis."

She gave the example of precautionary credit lines the IMF offered to several countries after the collapse of U.S. investment bank Lehman Brothers in 2008, and said the new tools could go in a similar direction.

Precautionary credit lines are linked to fewer conditions than traditional IMF rescue loans that come only in return for radical economic reforms and painful budget cuts. That's why they would be aimed at countries that are fundamentally in decent health, but suffering from increased risk-adversity among investors.

Such flexible short-term loans could help Italy and Spain if they had to come up with billions of euros to recapitalize their banks, also reassuring private investors that they will get their money back.

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AP Business Writer Greg Keller contributed to this report.

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This Roy Lichtenstein Painting Could Fetch A Record Breaking $45 Million At Auction

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Image: via Christie's

Pop artist Roy Lichtenstein's I Can See the Whole Room!...and There's Nobody in It! is expected to sell for a whopping $35 to $45 million at a Christie's auction in New York next month.

The painting, a comic book-style work that depicts a man looking through a peephole, first set a record when it sold at a 1988 Christie's sale for $2.09 million. It was expected to go for between $800,000 and $1.2 million.

The 1961 work is also poised to break the current record for the most expensive Lichtenstein work ever sold at auction. The current titleholder is “Ohhh ... Alright ...,” which sold for $42.6 million at last year's pop art sale.

I Can See the Whole Room!...is the highlight of Christie’s Post-War and Contemporary sale, scheduled for November 8.

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MOODY'S: Federal Budget Cuts Could Paralyze State And Local Governments

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Moody's affirmed its negative credit outlook for state and municipal credits Monday, citing revenue losses as Washington looks to reduce the federal deficit.

"The determination of both political parties to reduce project federal budget deficits is certain to result in reduced funding for federal programs run by the states," Moody's said in a report, obtained by Reuters. "Given the numerous challenges facing the local government sector, we believe that rating downgrades will continue to outpace upgrades until we begin to see meaningful economic growth and recovery of property values."

Although tax revenues have increased slightly, they have not risen enough to replace the loss of federal stimulus funding, the statement said. The ratings agency added that state and local governments also face pressure from ballooning Medicaid costs and public pension liabilities.

The problem is worse for local governments that are suffering from the loss of state aid, while still struggling to recover from the housing slump. Municipalities largely rely on revenue from property taxes, which have declined for two consecutive quarters. 

This raises concerns that states may have to bail out troubled local governments, Moody's said, although bond defaults and municipal bankruptcies will likely remain rare.

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Target's Blunders With Missoni Could Have Long-Lasting Effects

NEW YORK (AP) — Target is a victim of its own success.

The discounter drummed up so much hype around its exclusive, limited-time line by upscale Italian designer Missoni that its website crashed and was down most of the day on Sept. 13 when the collection was launched, angering customers.

More than a week later, some shoppers who bought the Missoni for Target line are posting on social media websites Facebook and Twitter that they won't shop at Target again because their online orders are being delayed — or worse, canceled — by the retailer.

Brielle deMartino, 23, from Del Ray Beach, Fla., was so excited that she woke up at 6 a.m. on the launch day and spent $700 on Missoni clothes, a bike and plates. The next day, she got an email from Target that her online order was cancelled. Then, she spent hours on the phone with Target customer service representatives she describes as unapologetic.

"I have never been treated like this," says deMartino, who got the charges removed from her card after calling her bank and posted on Facebook and Twitter about the ordeal. "Instead of taking responsibility, they didn't care. I have always been pro-Target, but I don't want to give my money to a company like that again.'

Talk about having a bulls-eye on your back. Target became the discount industry's darling by making it cool to buy stylish clothes and trendy decorations at the same place you pick up toothpaste and paper towels. But recently, it has suffered from similar public relations nightmares as its rival Wal-Mart Stores Inc.

Earlier this year, Target had its first union election in what is seen as a precursor to more labor disputes nationwide. Now, customers are blasting Target on websites like Twitter at a time when Americans worried about the economy are easily being influenced by what their friends say on social media websites.

"This was badly handled," said Robert Passikoff, president of Brand Keys Inc., a New York customer research firm that has an index that shows Target's image has taken a hit. "What was supposed to be engaging and delightful is now the opposite — disappointment."

Morgan O'Murray, a Target spokeswoman, said the company experienced unprecedented demand for the collection and is working on correcting problems. "This demand impacted our Target.com site and affected the shipment and delivery of select guest orders," O'Murray said in a statement. "Providing an exceptional experience is incredibly important to Target, and we have a team dedicated to addressing those guests who have been affected."

The crash heard around retail The Missoni collection was an attempt by Target to regain the cache it lost among the fashion-forward crowd after it began focusing on expanding its food business. Target is among a few retailers who have partnered with high-end designers that create exclusive lines they can offer for a limited time at deep discounts.

The collections can spur demand by creating a sense of urgency to buy. Last year, Target scored big with a line created by Liberty of London, offering 300 items with the designer, which is known for its floral prints, and selling out of most of it in a couple of days. The retailer tried to recreate that success with Missoni line, which featured stationery for $2.99 up to $599.99 patio furniture at a fraction of the cost of the designer's original works that can go for $595 to $1,500 and more. Target declined to comment say how much it spent on marketing, but it used social media websites and ads on TV and in Vogue magazine.

Target also opened a temporary store in Manhattan at the start of New York Fashion Week on Sept. 8. On the night of the store's opening, Target hosted a party attended by Missoni-clad celebrities like actress Elizabeth Olsen, the younger sister of the twin actresses Mary-Kate Olsen and Ashley Olsen.The temporary store, which spanned six blocks, was supposed to stay open three days, but closed after items sold out in six hours.

By Sept. 13, the day of the launch, Target said demand for Missoni items rivaled the frenzy on the day after Thanksgiving, which is typically the busiest shopping day of the year. More than 100 customers lined up at stores nationwide. Some locations sold out in a few hours.

Celebrities were even writing about the launch, or tweeting, on Twitter. Actress Busy Phillips, who plays Laura in ABC's "Cougar Town," tweeted: "Got the bike. Not the colorful one but still SO EXCITED." Actresses Jessica Alba and Jessica Simpson also were gushing about the line: "I dreamt about the Missoni 4 Target bike last night," Alba tweeted. Simpson replied, "I want that bike too!! So cute!"

The buzz turned to frustration for some shoppers. About two hours after the 6 a.m. launch, many on Target's website came face-to-face with Target's mascot bulldog and the disappointing news: "Woof! We are suddenly extremely popular. You may not be able to access our site momentarily due to unusually high traffic. Please stay here and we'll try to get you in as soon as we can!" This happened throughout the day. Some who were patient got through. Those who weren't left the website disappointed.

Ben Rushlo, director of performance management at Keynote Systems Inc., which tracks websites' performance, said that he couldn't remember the last time a site stayed down most of the day. He said usually, a website slowly deteriorates throughout the day — with minor glitches becoming more prevalent — before crashing. "It wasn't your normal meltdown," he said.

Even some customers who got through complained that items disappeared from their online shopping carts. Some were unable to checkout. Those who were able to buy breathed a sigh of relief, with some hocking their buys on eBay.com for more than double Target's prices.

But the celebration was short-lived for some. Twitter and Facebook are abuzz with customers complaining that they got emails from Target notifying them that their orders will be delayed or canceled altogether. The posts range from mild ("I'm waiting for orders and now get an email that some may not ship," to prickly ("Every time I see someone with Missoni for Target I get a little more mad.").

Megan Bonner, 26, from Memphis, Tenn., bragged on Twitter after ordering $300 worth of Missoni dresses and cardigans until the next day when she got emails telling her that her shipments would be delayed. Nervous that she wouldn't get the items at all, she bought some of them at a nearby Target. But now she worries she won't be refunded for the other merchandise.

"I feel violated. I feel taken advantage of," she said. "If I don't hear back from them in another week, I will call back. Maybe, I just won't go back anymore."

Target had planned to sell the line into October online and at all 1,700 U.S. stores. But many locations are sold out and the online pickings website are slim. Target had said it was replenishing merchandise, but that it would trickle in.

The debacle comes at a precarious time for Target. The chain, which has struggled to return to its pre-recession growth, is just beginning to benefit from its expanded grocery business and a 5 percent discount it gives shoppers who pay with a Target credit or debit card. Target Corp., based in Minneapolis, had been posting disappointing revenue gains, but it had a 3.9 percent second-quarter increase in revenue at stores opened at least a year — a measure of a retailer's health. That compares with a 2 percent first-quarter gain.

Analysts disagree on whether Target's image can rebound from the snafu, which comes just months after a failed measure to unionize by employees at a Valley Stream, N.Y. spurred organizers to target stores nationwide. C. Britt Beemer, chairman of America's Research Group said in order for Target to recover, it needs to placate angry customers by, say, offering $10 to $20 gift cards. "A lot of companies don't want to fix the problem," he said. "They feel it's better to let it go away. But the problem is that's a dangerous strategy."

Passikoff, with Brand Keys, says the damage is already done — and he can prove it. He said the negative publicity has pushed down Target's reading on the company's Loyalty Index, which measures brand reputation, among other things, to 109 from 119 in August. Brands should have at least a 116, Passikoff says, and anything under 100 signals "trouble."

But Brian Sozzi, a Wall Street Strategies analyst, says shoppers' discontent — much like the Missoni for Target line — is fleeting. "I think it is short-term anger," he said.

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How One Possible Fed Stimulus Measure Could Actually End Up Slamming Consumers

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As was widely discussed yesterday, Jon Hilsenrath of the WSJ noted that the Fed is considering three “unconventional” steps.    Among these options was lowering interest earned on excess reserves (IOER) from 0.25% to 0%.  

Hilsenrath noted: “A second step under consideration at the Fed, one getting mixed reviews internally, would reduce or eliminate a 0.25% interest rate the Fed currently is paying banks that keep cash on reserve with the central bank.

The 0.25% payment is greater than the 0.196% rate an investor can get on a two-year Treasury. Some officials believe the Fed shouldn’t reward banks for holding cash instead of making loans.

“I’m not especially pleased with the way that policy tool is working at the moment,” Charles Evans, president of the Federal Reserve Bank of Chicago, said in a recent interview. Mr. Rosengren said cutting that rate could give banks more incentive to lend and would further signal the Fed’s determination to get the economy going.

Other Fed officials believe that reducing the rate wouldn’t do much good because it is already so low, and might instead disturb short-term money markets.

Let’s summarize the current situation.  Banks are currently flushed with liquidity as lending opportunities are scarce and they are hesitant to devote incremental deposits to government backed securities with an already depressed yield curve environment.  So instead, they choose to leave deposits overnight at the Fed for 25bps.

Now here’s the misconception: this 25bps really isn’t free profit.  Banks pay FDIC insurance on deposits which eats into most/all of this amount.  Should the Fed lower IOER to zero, these deposits which were roughly break even for many banks would now be a loss.

The cause & effect of this would undoubtedly be banks adding in additional fees to deposit customers to cover this loss of revenue.  Bank NIM would get squeezed with the loss of interest income.  Overall net income would be affected less as an increase of fees would be seen below the line.

Would the loss of this 25bps change behavior among banks?  It’s difficult to say. Would they be willing to add duration by buying a 3yr treasury at 32bps to offset the loss of income?  More importantly, would this loss of 25bps accentuate the increasing opportunity cost of incremental loans?  My prediction would be little/no increase in loans, a small amount of additional securities purchases & with the lions share content to be held at the Fed for nothing at all.

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What Obama's Jobs Plan Could Mean For US GDP

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Here's some excellent work from Nomura on the odds of an agreement, and what the deal would mean to the economy.

There are some dynamics that could pressure both sides into agreement on a limited set of proposals. The current poor economic conditions and the low public standing of the President and Congress in the wake of the debt ceiling debacle, could lead both parties to decide that it’s in their best respective interests to reach a limited agreement. Obama saw his job approval rating over the month of July slip 5 points to 42%, where it still sits today (based on daily Gallup poll results). Early indications are that both sides are somewhat chastened by the public outrage over the dysfunctional behavior displayed during the debt ceiling debate and have an interest in showing the public that Washington can function properly.

Still, forging a bipartisan compromise on The American Jobs Act will be difficult at best, given that Congress already has a full agenda for the rest of the year: 1) the Budget Control Act process that requires the Joint Select Committee on Deficit Reduction (JSCDR) to agree upon $1.5 trillion in deficit savings over 10 years by 23 November (see US Special Comment: The deficit-cutting dream team – or not, 12 August); and 2) the 2012 fiscal year appropriations process to keep the federal government running when the 2011 fiscal year ends on 30 September. To pay for The American Jobs Act, President Obama has asked that the JSCDR come up with nearly $2 trillion in deficit savings ($1.5tn + $447bn). To meet its charge of coming up with the necessary deficit reduction, the president urged the JSCDR to include entitlement reform, close corporate tax loopholes, and raise taxes on the wealthiest Americans. Some of the measures suggested by the president are taken from the report released late last year by the National Commission on Fiscal Responsibility and Reform (also known as the Simpson-Bowles deficit reduction plan), which indeed may finally get its chance to serve as a handy guide to deficit reduction and tax reform.

The passage of measures within The American Jobs Act has the potential to alter our baseline forecast for US economic growth. For example, extending the 2% social security tax cut for employees would raise growth in Q1 2012 real GDP by as much as 1.0 percentage point, and by 0.5 percentage points in 2012 overall.

See here for the full Obama bill factsheet >

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Could Facebook's Music Service Include Concert Ticketing?

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Facebook is widely expected to be announcing a music service next week in partnership with Spotify, Rdio, and perhaps some other music services like MOG.

One interesting possibility that hasn't been mentioned: Facebook might integrate concert ticket buying into the service.

Some interesting datapoints:

Facebook is reportedly planning an HTML5-based mobile app platform with integrated payments. Users would be able to buy goods from within Facebook apps on any mobile phone with a modern Web browser.

But what about smaller acts playing bars or clubs that don't use Ticketmaster? You know -- all those bands who used to love MySpace before it collapsed.

Enter a startup called MogoTix, which Facebook is using to handle ticketing for its f8 conference next week. This is a switch -- in previous years, it's used Eventbrite (which also handles ticketing for a lot of other tech events in Silicon Valley).

When I asked MogoTix CEO Scott Thorpe how he got the deal, he simply said that Facebook was "very interested" in their technology, which lets buyers and sellers use their mobile phones to handle all ticketing -- customers get tickets sent to their phones as little electronic codes, and ticket takers at the venue can scan those codes using THEIR phones. No paper, no dedicated readers.

Thorpe also said he'd be very happy if smaller bands used MogoTix to sell tickets and book tours directly -- without the participation of the venues.

Could Facebook be helping push the company in this direction? He wouldn't comment.

So this is just speculation at this point, but social ticket buying would give users another reason to use a Facebook music service, rather than just sticking with the individual listening-only services (like Spotify) that will be part of it.

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A Scary Look At All Of The Recent Airport Security Breaches That Could Have Been Disastrous

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Security at airports worldwide has been beefed up since September 11th, 2001. Billions of dollars have been spent, thousands of new security guards have been trained, and our collective awareness has been greatly heightened.

But none of that means we've become safer. In the last 10 years, the number one killer of airport security -- basic lapses in individual human judgment -- has meant more than a few close calls for flights around the world. In fact, a report from the Transportation Security Administration stated that over 25,000 people had been involved in security breaches since 2001.

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Personal Recommendations Could Give eCommerce A Comeback

Image: Wikimedia Commons

Nathan Labenz is a co-founder of Stik.com, a startup that helps people do business with professionals that their friends recommend.

Think back, for a moment, to 1999. The dot-com bubble is in full swing. The DOW is above 11,000 (about where it is today), the University of Michigan Business School is offering a course called “From Idea to IPO in 14 Weeks”, and grandiose predictions are en vogue like never before or since.

One common prediction from that era was that brick & mortar stores would inevitably lose out to eCommerce.  The argument was: who would drive to a store instead of simply shopping online? And what business could afford to maintain retail space as consumers moved online? Investors found this logic so compelling that Pets.com raised $300 million in venture capital, sponsored a float in Macy’s Thanksgiving Day parade, and even ran a Super Bowl ad before the bubble burst.

Now, fast forward to 2011. The brick & mortar model is going strong. National banks spent most of the 2000s opening as many branches as possible, and State Farm is still, quite literally, your neighbor.

Meanwhile, eCommerce is still only about 7% of retail sales in the US and growing gradually. What happened?

In short, the prognosticating class failed to recognize two basic facts: 

1. As social creatures, people like to establish trust via personal interactions before making important purchases

2. As physical creatures, people prefer to touch even the most basic things before buying.

This history of eCommerce since 1999 has largely been about overcoming these two hurdles.  Progress has been slower than expected, but there have been notable successes. Amazon, for example, disrupted books and music sales by making it fun and easy to sample media on their website, and in this domain the old predictions are starting to come true: Borders is closing their doors.

Yet, eCommerce has remained highly impersonal, and the fate of booksellers has been the exception, because websites have never had a good way to promote trust-building interactions. That is, until Facebook began powering 1-click logins for other sites. 

Facebook’s tools increase sign-up rates (thanks to the simplified process) and, more importantly, give websites the opportunity to personalize online experiences. eCommerce sites can now offer personalized product & service recommendations even to first-time visitors, establishing trust and credibility as quickly as users can recognize their friends’ profile pictures.

Study after study shows that people trust their friends’ recommendations more than any other source of information, so we should expect Facebook’s tools to fuel another round of disruption. But what will be the next shopping experience to move online? Presumably, non-physical products sold on the basis of trusted recommendations would be the logical place to look.

My colleagues at Stik.com and I are betting that big-ticket industries like mortgage, insurance, and financial advice will be among the next to move online. These products are just contracts, after all, but people have traditionally been afraid to buy online because the stakes are so high. By harnessing the power of trusted recommendations, however, websites can begin to overcome this barrier. And importantly, the professionals in these industries are eager to help.  It’s unquestioned dogma among salespeople that “referral business is the best business,” and they are more than willing to work to build their online reputations.

We are still early in the history of trust-based, Facebook-powered eCommerce, but the early data is promising. At Stik.com, people are twice as likely to interact with professionals that their friends recommend. As any eCommerce veteran will tell you, that’s a quantum leap. When trusted, personal recommendations become commonplace, brick & mortar offices may finally be disrupted after all.

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The Most Brutal Layoffs Yet: Bank Of America Could Slash Up To 30,000 Jobs (BAC)

Bank of America might lay off up to 30,000 people in the coming years, according to a report in the Charlotte Observer.

That means it could cut over 10% of its 288,000 employees worldwide, making BofA the bank with the most brutal layoff plans we've heard yet, second only to HSBC's plans to layoff 30,000 of its 300,000 strong workforce. 

Sources familiar with the firm announced the mass layoffs soon after the FHFA filed a huge lawsuit against Bank of America over $30.85 billion in losses on mortgage securities.*

The unfinalized plans are to cut over 10,000 and up to 30,000 employees in the next few years.

The reason for them is simple.

The massive cuts are partly to make up for what are expected to be huge lawsuit-related losses over the firm's and Countrywide's role in the mortgage crisis. Bank of America bought Countrywide, the country's largest mortgage lender, in 2008.

Also, it needs to downsize anyway. JPMorgan is more profitable and has around 38,000 fewer employees.

This is just one of many of Bank of America's efforts to cut costs and shore up capital in advance of the 2013 capital requirements mandated by Basel III.

*(BofA isn't alone. The FHFA announced similar lawsuits against nearly every one of the U.S. bulge bracket banks, all of which are named here.)

Wall Street layoffs to hit en masse this fall >

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Slowdown In Germany Could Actually Save The Euro

Believe it or not, Germany's financial slowdown is a blessing in disguise.

At least that's what Alberto Alesina and Francesco Giavazzi write in an editorial published today.

They argue that up until now Germany's stance on monetary policy called for slow interest rate increases commensurate with nipping inflation in the bud in a growth environment.

But now with German growth slowing, the strongman of Europe may be more open to the same accommodative monetary policy measures necessary to stimulate growth in peripheral European countries like Italy and Greece.

That's not to say that a solution everyone can agree on will be easy:

We should stop thinking that the euro can be saved with some financial trick...All these schemes share the idea that a solution can be found without hard and immediate choices in the problem countries, and without costs (except, perhaps, for Germany). The most commonly-advocated financial scheme is Eurobonds. But let’s start calling them by their real name – a German guarantee on Italian and Spanish debt. Once their real nature is clear, should we be surprised if the Germans are not enthusiastic about them?  So let’s stop kidding each other with dreams of Eurobonds. Let’s start talking about fiscal rigour and growth in the weak economies.

Alesina and Giavazzi admit that long-term fiscal rigor will probably be difficult to accomplish, because strict rules like a balanced-budget amendment do not take into account the money governments should be spending on a cyclical basis.

But growth is far more simple:

Citizens of the problem countries – and the Eurozone more generally – need to decide whether they want to grow or not. They don’t have to grow, they could just survive. A slow decline that eats away Europe’s wealth is possible. This banquet would bequeath a mess to their children but, as Keynes said, in the long run we are all dead.

While Alesina and Giavazzi make an interesting point about the German stance on monetary policy, they do not acknowledge that the problems of the eurozone may be, at least in part, responsible for the slowdown in Germany in the first place. The German people -- in their criticism of PM Angela Merkel -- seem to realize this. The last thing they want to do is give away more money to accommodate the rest of the EU, regardless of the damage they cause themselves in the process.

The real impediment to a viable solution for the eurozone remains finding a viable solution that will not perjudicate disciplined countries like Germany in the future. We can talk all day about growth, but we'll keep running into the same problems without some greater economic consolidation.

Rules can be violated, particularly without an authority strong enough to enforce them. Currently the EU does not have the force nor the willpower to keep up this side of the bargain. This is the time to change that.

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Hurricane Katia Could Be A Category 3 Storm By Sunday

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Forming in the same general weather patterns that guided Irene's course up the U.S. Eastern seaboard, Tropical Storm Katia was officially named Tuesday and looks to be headed toward Puerto Rico.

According to the National Weather Service Katia's path is slightly north of Irene's and should put it northeast of Puerto Rico by Sunday.

Currently about 535 miles southwest of the Cape Verde Islands Katia's moving quickly with sustained 40 mph winds and according to the National Hurricane Center could be a powerful Category 3 hurricane by this weekend (via CBS Tampa).

The Center reports Katia will have hurricane intensity by late Wednesday or early Thursday.

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Bailout "Hysteria" In Germany Could Cost Merkel Her Government

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The latest news from Germany shows that Angela Merkel has lost the amount of votes needed from her own party to vote for the latest EFSF bailout, reports The Telegraph.

If Merkel has to rely on opposition votes to push the rescue package through, many suspect that her coalition government will collapse.

Merkel has cancelled a trip to Russia to deal with the crisis, which also faces potential opposition from the country's constitutional courts.

The EFSF fund had been pegged at €440 billion ($638 billion). However its unclear how successful the fund could be without Germany's support.

"Hysteria is sweeping Germany " said Klaus Regling, the EFSF's director.

Read more at The Telegraph >

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For $65 Million Dollars You Could Live In This Italian Castle

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Having 300 guests over for a soiree? This might be the place for you.

Sotheby's is selling this incredible castle in near the town of Ivrea, in the Italian province of Italy. Parts of the compound date to the 9th Century, and has been owned by King Arduino, of the Bishop of Ivrea, the Holy Roman Emperor Otto I and the Savoia.

The castle has 30 bedrooms and 47 bathrooms for your guests. Check out more details over at Sotheby's.

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9 Hedge Fund Managers Who Could Make Millions On Bank Of America (BAC)

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Glenview's Larry Robbins

These 9 hedge fund managers, some of the biggest Bank of America shareholders, just got a bit of a double-edged reward.

They've made millions this morning, after shares of Bank of America have been on the rise ever since Warren Buffett announced that he's investing $5 billion in the firm. But the deal could end up stinging shareholders a bit if Buffett exercises the option to buy 700 million shares, an option he now has as part of the deal.

There's another thing to remember too.

Most Bank of America investors lost a lot of money in Bank of America this year. The stock has been down 50% recently since the beginning of the year.

However one look at how Goldman Sachs' stock performed after Buffett's similar "good faith" investment in the company shows that its likely they will earn much if not all of their investment back and more, depending on when they bought in. Buffett invested in Goldman in September 2008. The stock jumped 14% in the four days after the investment, then it fell 62% though mid-November, according to WSJ.  It later rallied 270% from mid-November to October 2009.

The point is, these 9 hedge fund managers stuck with Bank of America, and it looks like it's starting to pay off.

Congrats, guys! 

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