Late-Night Headlines
Bloomberg:
- Oil extended its declines after falling the most since April yesterday as a government report showed an unexpected gain in supplies in the U.S., the world’s biggest energy consuming nation. Crude stockpiles increased 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said. Supplies were forecast to decline, according to the median of analyst estimates in a Bloomberg News survey. The gains in stockpiles “show us the U.S. consumer is struggling and additional builds could follow,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “A drop back under $60 could easily take place.”
- Morgan Stanley(MS) and Wells Fargo & Co.(WFC) are reviewing whether to continue sales of leveraged and inverse exchange-traded funds as regulators caution that the securities might not be suitable for individual investors. Assets in leveraged and inverse funds have increased 51 percent to $32.8 billion this year, according to data from State Street Corp., the world’s largest money manager for institutions whose products include ETFs. That’s 5.5 percent of the $593 billion in U.S.-listed ETF assets at midyear, according to data compiled by the Boston-based company.
- General Electric Co.(GE), Harley- Davidson Inc.(HOG) and manufacturers with finance businesses should be allowed to keep the units under a revision of rules to govern banking, U.S. Representative Barney Frank said in an interview. Companies that already have finance arms or industrial loan businesses known as ILCs should be able keep them without being subject to Federal Reserve oversight of their manufacturing operations, Frank said. GE, based in Fairfield, Connecticut, said on a conference call with investors yesterday it has been “very active” in opposing any rules that might force it to split off its GE Capital finance unit, which has $557 billion in assets.
- China’s central bank said it will use market tools to control lending growth and pledged to maintain a “moderately loose monetary policy” to support the nation’s economic recovery. In the second half of this year, the central bank will “emphasize the use of market tools instead of quantity controls to guide appropriate growth in money supply and lending growth,” said People’s Bank of China Deputy Governor Su Ning in Shanghai, according to a statement on its Web site late yesterday.
Wall Street Journal:
- Support for President Barack Obama's health-care effort has declined over the past five weeks, particularly among those who already have insurance, a Wall Street Journal/NBC News poll found, amid prolonged debate over costs and quality of care. In mid-June, respondents were evenly divided when asked whether they thought Mr. Obama's health plan was a good or bad idea. In the new poll, conducted July 24-27, 42% called it a bad idea while 36% said it was a good idea. Among those with private insurance, the proportion calling the plan a bad idea rose to 47% from 37%. Declining popularity of the health-care overhaul reflects rising anxiety over the federal budget deficit and congressional debate over the most contentious aspects of the legislation, including how to pay for it. The poll also shows concern over the role of government in determining personal medical decisions. In the Journal poll, only two in 10 people said the quality of their own care would improve under the Obama plan; just 15% of those with private insurance thought it would. Twice as many overall, and three times as many with private coverage, predicted their own care would get worse. "You can't pass a substantial health reform unless privately insured people see there's a benefit for them," said Bill McInturff, a Republican pollster who conducts the poll with Democrat Peter D. Hart. "People are properly skeptical about any proposals out of Washington that speak to cost because they've been singed by past experience," said the senior Obama adviser. Overall, Mr. Obama's ratings fell on a series of measures. His job approval now stands at 53%, down from a high of 61% in April. That is three points higher than President George W. Bush had in June 2001, following a contentious election victory. The share of those who said he could be trusted to keep his word fell to 48% this month from 58% in April. The poll also found a rising sense of partisanship. More than three in 10 surveyed said the current Congress has been more partisan and divided than in the past, compared with just 11% who said it has been less partisan. In February, people were more likely to blame Republicans by a two-to-one margin. This month, they were divided over who to blame, with most saying both parties were at fault. On other issues, the poll found: Falling support for the economic stimulus plan, with 34% in favor, down from 44% in February; 43% now say it is a bad idea. Two-thirds of people said they knew enough about the controversy surrounding the arrest of Harvard professor Henry Louis Gates Jr. to form an opinion. Of them, about one in three said both Mr. Gates and the police officer were equally at fault, 27% said Mr. Gates was more at fault and 11% said the officer was more to blame.
- A Senate panel has subpoenaed financial institutions, including Goldman Sachs Group(GS) Inc. and Deutsche Bank AG(DB), seeking evidence of fraud in last year's mortgage-market meltdown, according to people familiar with the situation. The congressional investigation appears to focus on whether internal communications, such as email, show bankers had private doubts about whether mortgage-related securities they were putting together were as financially sound as their public pronouncements suggested. Collapsing values for many of those securities played a big role in precipitating last year's financial crisis. Earlier this week, a bipartisan group of 10 members of Congress sent a letter to Federal Reserve Chairman Ben Bernanke, questioning whether Goldman Sachs is being too lightly regulated and too generously backed by taxpayers. An idea for taxing high-value health insurance plans has even become known on Capitol Hill as the "Goldman Sachs tax," after criticisms of its executives' $40,000 health plans. A Goldman Sachs spokesman declined to comment on the criticisms from Congress.
- Republican Sen. Kay Bailey Hutchison of Texas said she would resign her seat in October or November to challenge Gov. Rick Perry in the GOP gubernatorial primary in March.
- The future of the New York Stock Exchange is inside the red-brick building that is rising from the ground here about 35 miles from Wall Street. Right now, the mammoth facility being constructed on the site of an old quarry is a largely empty shell with a jumble of high-tech gear. In about a year, the building is expected to house several football fields of cutting-edge computing equipment for hedge funds and other firms that engage in high-frequency trading, or the use of computers and complex algorithms to trade at lightning speed. "When people talk about the New York Stock Exchange, this is it," said NYSE Euronext Co-Chief Information Officer Stanley Young. "This is our future." As trading goes increasingly electronic, the last bastion of floor trading is embracing high-frequency trading as part of its race to keep up with competitors such as Nasdaq OMX Group Inc. High-frequency trading now accounts for more than half of all stock-trading volume in the U.S. as banks, hedge funds and institutional investors seek to gain an edge by trading before rivals. But even as the Big Board and other exchanges scramble to win more business, some regulators are growing concerned about the risks that high-speed trading potentially poses to the broader financial system. As trades flow at an ever-quicker pace, a computer glitch at even just one firm could trigger a wave of selling that sets off huge losses across financial markets, some people worry. "Unfettered access by unregulated entities into a market where trades can ripple through multiple markets can rise to the level of systemic risk," said David Shillman, associate director of the Securities and Exchange Commission's division of trading and markets. "The very high-frequency traders could be doing more of these activities that could go awry." SEC officials are particularly wary about "sponsored access," in which registered brokers lend out their identification numbers to high-speed trading firms. That effectively allows the firms to trade using a broker-dealer's code, helping them remain anonymous. A rogue firm engaging in aggressive trading could destabilize parts or even all of the market, Mr. Shillman said. Controversy also is growing over a practice known as "flash" orders, in which exchanges allow traders to briefly see and react to certain orders ahead of the rest of the market. The SEC is looking into the practice and is widely expected to ban it, according to people familiar with the matter. The NYSE is rolling the dice that it will become a go-to venue for high-speed trading and is even offering space to other exchanges. The aim behind the site is to get firms' computers as close as possible to the trading site, helping shave of tiny amounts of time -- trades here are calculated not in milliseconds but in microseconds, or millionths of a second.
- The Federal Deposit Insurance Corp., grappling with the worst banking crisis since the 1990s, is poised to start breaking failed financial institutions into good and bad pieces in an effort to drum up more interest from prospective buyers. The strategy, which is likely to begin soon, is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.
- The mayor of Dongguan said the southern Chinese manufacturing hub's gross domestic product growth rate so far this year is at 0.6%, far short of its full-year target of 10%, highlighting the severity of the global slowdown even as economists identify signs of a recovery for Chinese exporters. Li Yuquan, mayor of the city of 10 million people just north of Hong Kong, said the global slowdown has hit Dongguan far harder than other Chinese cities because of its reliance on manufacturing exports of garments, footwear and furniture. Exports, he said, are down by 24% this year in the city that has prided itself as, among other things, "The World's Shoe City." "Dongguan is closely linked to the international markets, so the financial crisis has had a strong impact on us," Mr. Li said to a group of foreign reporters. He attributed a 10% dropoff in employment this year to a deep slide in manufacturing orders, as well as a broader industrial restructuring that has shut down polluting cement and brick factories.
- Although the venture capital industry is having a hard time convincing endowments, pension funds and other limited partners to invest new capital in the asset class, the majority of venture firms still plan to raise a new fund in the next 12 months - if a new survey from Pepperdeine University is to be believed. Of the 185 respondents, 59% indicate they plan to raise funds over the next year, a surprising figure considering that venture capital fund-raising plunged 63% in the first half as cash-strapped investors stopped committing capital. Of those in the survey planning a fund-raising campaign, 43% report they plan to raise more than $100 million, followed by 29% that plan to raise between $50 million and $100 million.
- Samuel Palmisano has been busy. The previously low-profile chief executive of International Business Machines Corp.(IBM) has crisscrossed the globe in recent months, talking to government leaders about promoting the use of technology to improve everything from roads and water systems to the environment and health care. Government spending on such programs can stimulate economic development, argues Mr. Palmisano. And it has another benefit: boosting IBM's bottom line.
- Mountains of coal are piling up along the winding roads of Central Appalachia, a boon to buyers and a bane to miners. Coal companies centered in this region, which includes parts of Kentucky, Tennessee, Virginia and West Virginia, are seeing far fewer shipments to utility companies and steelmakers, resulting in contract renegotiations or cancellations for many of them. A new analysis says the coal sector will have to cut production 50 million tons this year, on top of even steeper cuts earlier in the year, to get supply in line with demand.
- Even many Democrats are revolting against Speaker Nancy Pelosi’s 5.4% income surtax to finance ObamaCare, but another tax in her House bill isn’t getting enough attention. To wit, the up to 10-percentage point payroll tax increase on workers and businesses that don’t provide health insurance. This should put to rest the illusion that no one making more than $250,000 in income will pay higher taxes. To understand why, consider how the Pelosi jobs tax works. Under the House bill, firms with employee payroll of above $250,000 without a company health plan would pay a tax starting at 2% of wages per employee. That rate would quickly rise to 8% on firms with total payroll of $400,000 or more. A tax credit would help very small businesses adjust to the new costs, but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press, Blue Dogs were taking credit for pushing those payroll amounts up to $500,000 and $750,0000, but those are still small employers. So who bears the burden of this tax? The economic research is close to unanimous that a payroll tax is a tax on labor and is thus shouldered mostly if not entirely by workers. Employers merely collect the tax and then pass along its costs in lower wages or benefits. This is the view of the Democratic-controlled Congressional Budget Office, which advised on July 13: “If employers who did not offer health insurance were required to pay a fee, employee’s wages and other forms of compensation would generally decline by the amount of that fee from what they otherwise would have been.”
NY Times:
- President Obama’s ability to shape the debate on health care appears to be eroding as opponents aggressively portray the effort as a government-takeover that could limit Americans’ ability to choose their doctor and course of treatment, according to the latest New York Times/CBS News poll. Americans are concerned that overhauling the health care system would reduce the quality of their care, increase their out-of-pocket health costs and tax bills and limit their options in choosing doctors, treatment and tests, the poll found. The percentage who describe health care costs as a serious threat to the American economy — a central argument being made by Mr. Obama — has dropped over the past month. “We need to fix health care, but if the government creates the system, I’m afraid the quality of care will go down and costs will go up: We will pay more taxes,” Mary Bevering, a Democrat from Fort Madison, Iowa, said in a follow-up interview. She added: “It’s going to come down to regulation. What also worries me is whether we will be told what physician we can have.” There has been a 10-point drop in Mr. Obama’s job approval rating since a high-point in April. And despite Mr. Obama’s efforts to address public misgivings — in speeches, news conferences, town hall meetings and other forums — 69 percent of respondents in the poll said they were concerned that the quality of their own care would get worse if the government created a program that covers everyone.
IBD:
- HMS Holdings (HMSY) is an exception. The company works with government health care programs to make sure claims are paid correctly and by the responsible party.
CNNMoney.com:
- In a note to clients issued Wednesday morning, Kaufman Bros.’s Shaw Wu reported on some interesting trends from his latest iPhone supply chain checks:
Politico:
- House Speaker Nancy Pelosi spent half of Wednesday finalizing a deal with the Blue Dogs — and the other half quelling a brewing rebellion among progressives who think conservatives have hijacked health care reform. Liberals, Hispanics and African-American members — Pelosi’s most loyal base of support — are feeling betrayed after House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) reached an agreement with four of seven Blue Dogs on his committee who had been bottling up the bill over concerns about cost. The compromise, which still must be reconciled with competing House and Senate versions, would significantly weaken the public option favored by liberals by delinking reimbursement rates to Medicare. “Waxman made a deal that is unacceptable,” said Rep. Jerrold Nadler (D-N.Y.), one of about 10 progressives who met repeatedly with Pelosi and Majority Leader Steny Hoyer (D-Md.) on Wednesday. “We signed a pledge to reject any plan that doesn’t include a robust public option, and this plan doesn’t have a robust public option,” he added. By sundown Wednesday, the outcry from the left had become so loud that Waxman was forced to scrap a scheduled markup of the compromise measure. He rescheduled the meeting for Thursday morning and convened a mass question-and-answer session for a deeply divided Democratic Caucus — a meeting that is expected to be extremely contentious.
Seeking Alpha:
- Over at Bespoke Premium, we provide members with a regular look at financial default risk through our Bank and Broker CDS Index . The index measures credit default swap (CDS) prices for global financial firms on a cap weighted basis. Below is a chart of our index that shows the huge spike in default risk that occurred during the peak of the financial crisis in late 2008 and early 2009. As things have settled down, default risk has now moved well below the levels it was at just before the Lehman bankruptcy. Our CDS index is currently at its lowest level since June 23rd, 2008, and it's down a whopping 67% from its all-time high.
Reuters:
- The top U.S. futures regulator on Wednesday expressed concern that exempting some investors from proposed position limits on futures contracts could undermine efforts to clamp down on excessive speculation in energy trading. "While I believe that we should maintain exemptions for bona fide hedgers, I am concerned that granting exemptions for financial risk management can defeat the effectiveness of position limits," CFTC Chairman Gary Gensler said at a second hearing looking into tightening regulatory oversight of U.S. futures markets. "We believe that eliminating or limiting swap dealer hedge exemptions not only will not address the 'swap loophole' but actually will have several negative consequences," said Donald Casturo, managing director of Goldman Sachs Group Inc. "I don't see a Goldman Sachs swap desk or J.P. Morgan swap desk as a passive mechanic," said Gensler, a former partner at Goldman Sachs. "It is a highly sophisticated risk business and it's an important component of our financial market." The representatives of the two financial companies maintained they were not asking for special treatment.
- It is too early to declare victory but investors seem increasingly confident that the healthcare industry may not take a big profit hit from reforms being hammered out in Washington. "The inevitable scaleback in order to have something bipartisan bodes well for all sectors," said Kim Monk, a healthcare analyst for Capital Alpha Partners, referring to a wide range of companies with much at stake, including insurers and hospitals. Wall Street and others are still awaiting final legislation, but the prognosis is improving for the industry with investors more inclined to take bets. "There's a sense of confidence now that we're going to get something a little more centrist," said Craig Miller, vice president of healthcare trading at Stifel Nicolaus. "Investors are comfortable getting into the space."
- Japan Petroleum Exploration Co has entered negotiations with Iraqi authorities to develop a giant oilfield in the Middle Eastern country, the Nikkei business daily said on Thursday.
Financial Times:
- The Obama administration’s plan to give US states more power to protect consumers from unfair banking practices would make it more difficult and costly for large lenders to operate across the country, a financial regulator has warned. John Dugan, who oversees national banks as comptroller of the currency, told the Financial Times that the proposals to create a federal consumer protection agency and give states more leeway to crack down on unfair practices would have negative “ramifications for companies operating across state lines”. “To have a single set of standards has been very beneficial to developing and innovating products,” Mr Dugan said, adding that he wanted to keep national banks “immune” from state regulation. The remarks by the head of the Office of the Comptroller of the Currency, which is part of the Treasury, the department behind the proposed rules, shows the political high stakes surrounding the post-crisis regulatory framework. Mr Dugan said this would cause legal uncertainty and additional red tape for banks, creating a situation akin to the state-based regulation of insurance – a system that has been criticized for its complexity and bureaucracy.
- Chinese bubble fears as funds flow into IPOs
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (NKE), target $65.
UBS:
- Rated (GOOG) Buy, target $525.
Piper Jaffray:
- Rated (DISCA) Overweight, target $30.
Night Trading
Asia Ex-Japan Inv Grade CDS Index -.25%.
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Earnings of Note
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Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 575K versus 554K the prior week.
- Continuing Claims are estimated to rise to 6300K versus 6225K prior.
Upcoming Splits
Other Potential Market Movers
$28 bln 7-yr Treasury Note Auction, EIA weekly natural gas inventory report and
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and shipping shares in the region. I expect US
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