Today's Headlines

Bloomberg:

- Citigroup Inc.(C), Merrill Lynch & Co. and seven other U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds under the Troubled Asset Relief Program, according to a report by New York Attorney General Andrew Cuomo. In the report, the state analyzed 2008 bonuses at nine banks that received TARP financing from the U.S. government. New York-based Citigroup and Merrill, since taken over by Bank of America Corp., received TARP funding totaling $55 billion, Cuomo said in his report. “When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.” The report, called “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture,” comes as Congress and the Securities and Exchange Commission examine whether to limit the compensation paid to top corporate executives.

- A legislative outline of a new U.S. regulatory regime for the $592 trillion over-the-counter derivatives market leaves open for debate whether to ban so- called naked credit-default swaps. House Financial Services Committee Chairman Barney Frank and Agriculture Committee Chairman Collin Peterson said their plan is a “responsible” compromise for market regulation. A three-page summary shows lawmakers have yet to agree on whether to outlaw derivatives where the buyer doesn’t own the underlying asset, or to determine disclosure rules and trading limits. Lawmakers don’t want to ban any particular derivatives products or “even severely diminish them” as a financial risk tool, Frank said. Some lawmakers and regulators have said they are looking more closely into whether credit-default swaps were manipulated by short sellers to spread false rumors about financial companies such as Lehman last year to drive down stock prices. As much as 80 percent of the $26.4 trillion credit-default swap market is traded by investors who don’t own the underlying debt, according to Eric Dinallo, who stepped down this month as superintendent of the New York State Insurance Department.

- The cost to protect against defaults on U.S. corporate bonds using a benchmark credit-default swaps index fell to the lowest in more than 13 months. Credit swaps on the Markit CDX North America Investment- Grade Index, which is used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, dropped 4 basis points to 111 basis points as of 7:36 a.m. in New York, according to broker Phoenix Partners Group. The index has fallen about 20 basis points in July and is headed for its fifth monthly decline as investors speculate that the global recession may be easing.

- Crude oil rose more than $3 a barrel and gasoline surged the most in four months after better-than- expected corporate earnings and as jobless claims held below late-June levels.

- Exxon Mobil Corp.(XOM), the biggest U.S. oil company, said its crude and natural-gas production will accelerate in this year’s second half as new projects come online. Company spokesman David Rosenthal commented on production prospects today on a conference call with investors after Irving, Texas-based Exxon Mobil reported its lowest quarterly profit in more than five years. The company didn’t change its forecast for a 2 percent increase in full-year production after output fell 3.3 percent in the second quarter.

- Anyone taking up President Barack Obama on his pledge to disclose “every dime” spent from the economic stimulus package can find details on more than 22,000 contracts valued at $73 billion at recovery.org. The catch: That Web site is run by Onvia Inc., a Seattle company that tracks government spending. The administration’s stimulus site at a similar address -- recovery.gov -- lists 1,000 contracts so far, according to spokesman Ed Pound. Five months after Obama signed the $787 billion combination of tax breaks and government spending intended to revive the U.S. economy, the administration is still working to provide the transparency promised by the president, and Onvia is benefiting.

- European retail sales fell for a 14th month in July as job cuts hurt household spending, the Bloomberg purchasing managers index showed. The measure of euro-area sales declined to 47.3 from 47.5 in June when adjusted for seasonal swings. It has remained below the 50 mark, indicating contraction, since June of last year.

- Natural gas futures, which fell to a two-week low yesterday, will move lower as the price has dropped below the 10-day and 40-day moving averages, according to a technical analysis by MF Global Ltd. “It’s becoming increasingly harder with each passing day for the low of $3.155 to be challenging,” Michael Fitzpatrick, a vp for energy at MF Global in NY, said.

- Dow Chemical Co.(DOW), the largest U.S. chemical maker, posted second-quarter profit that topped analysts’ estimates as demand improved from earlier in the year, signaling the worst of the global recession has passed. “Business results improved sequentially, reflecting volume growth, our ability to hold price in the quarter, as well as the acceleration and realization of our cost reductions and synergies,” Liveris said in the statement. “The United States economy has found bottom but will be slow in recovering as unemployment continues to be a drag on consumer spending.”

- The Treasury yield curve is poised to flatten with 10-year notes set to rally after the Federal Reserve forecast inflation will be low for an extended period of time, according to RBS Securities Inc. “The momentum is up near oversold territory and looking like it’s running out of bearish gas,” wrote William O’Donnell, head of Treasury strategy at Stamford, Connecticut-based RBS, in a note today.

- Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, won’t be able to repay all of the $84.9 billion in federal aid they have received since being seized by the government last year, their regulator said. “Some assets and senior preferreds will have to be left behind as they come out of conservatorship, and that means some of those losses will never be repaid,” Federal Housing Finance Agency Director James Lockhart said at a speech in Washington today. “Their book is so large, it’s hard for me to see that they will be able to repay all of that.” Fannie Mae and Freddie Mac, which have posted $150 billion in losses going back to the third quarter of 2007, will continue losing money “for at least the next year or so,” and won’t return to “strong profits” for another two to three years, Lockhart told reporters after his speech. “It’s hard to predict at this point,” Lockhart said.

- Sanofi-Aventis SA agreed to buy Merck & Co.’s half of their Merial animal-health venture for $4 billion and said the two companies may again work together to form the world’s biggest maker of pet and livestock treatments. Sanofi will pay cash for the 50 percent it doesn’t own of Merial, which makes a bird flu vaccine for poultry and Frontline, the best-selling flea spray for pets. Sanofi can also combine Merial with the veterinary unit Merck gets when it buys Schering-Plough Corp., the companies said in a statement today.

Wall Street Journal:

- Ford Motor Co.(F) has slowed the bidding process for its Volvo unit in an effort to get a better price for the Swedish car brand, according to a person close to the U.S. company. The knowledgeable person said Ford has decided to wait for General Motors Co. to wrap up its sale of Adam Opel GmbH unit, and is hoping to invite a loser in that two-way bidding race to bid for Volvo.

- Investors have developed a voracious demand for short-term debt issued by U.S. and European banks, and an important global lending benchmark has fallen to an all-time low -- welcome signs that bank credit markets have improved. But beneath the demand for short-term bank debt, known as commercial paper, and a drop in the London interbank offered rate, or Libor, significant kinks remain lodged in the bank markets: Banks are using the fresh cash to repay existing debt, or simply hoarding it. That cash buildup is potentially stymieing efforts by regulators to circulate funds to borrowers and the most needy banks.

- China Investment Corp. has selected Morgan Stanley's(MS) asset-management unit and Blackstone Group LP(BX) to oversee hundreds of millions of dollars in allocations as it ventures into the U.S. hedge-fund business. China's $200 billion sovereign-wealth fund has finalized an allocation of $500 million to Blackstone Group's fund-of-funds unit, so called because it farms out clients' money to dozens of individual hedge funds, and also has earmarked additional money to be overseen by Morgan Stanley's asset-management unit, according to people familiar with the situation. CIC has shown a strong interest in so-called alternative investment firms, or firms that invest in hedge funds, private equity or other assets outside of publicly traded securities.

CNBC:

- Cities in the U.S. Sun Belt states of California, Florida, Nevada and Arizona dominated the record foreclosure spree in the first half of the year, but distress in other regions emerged as joblessness spread, RealtyTrac said on Thursday. Metro areas with populations of at least 200,000 in those four states accounted for 35 of the 50 highest foreclosure rates. Mortgages have failed the fastest in the areas with the greatest overbuilding, purchases by speculators and reliance on riskier loan products to improve affordability. But the source of the mortgage trouble has swung from lax lending standards to unemployment.

- The bond market got a bit of relief Thursday, as a $28 billion auction of seven-year notes went somewhat better than expected.

Rasmussen:
- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 28% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Forty percent (40%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -12. That’s the lowest rating yet recorded for President Obama (see trends). Forty-nine percent (49%) now say that America’s best days have come and gone. Just 38% believe they are still to come. Thirty-four percent (34%) say the country is heading in the right direction. Seventy-five percent (75%) want the Federal Reserve to be audited.

- In an effort to defuse a national controversy, President Obama is hosting a black Harvard professor and the policeman who arrested him at the White House today, but just 30% of U.S. voters give the president good or excellent marks for his handling of the situation over the past week. A new Rasmussen Reports national telephone survey finds that 44% believe Obama has done a poor job dealing with the situation in recent days.

Politico:

- Senate Majority Leader Harry Reid is no longer promising that the Finance Committee will finish work on the health care reform bill before the start of the August recess, as the bipartisan committee negotiations have stalled. “We're trying to do some really crazy stuff on a really short time frame," Sen. Mike Enzi (R-Wyo.), a member of the Finance committee, said Thursday. "This is a train wreck.”

WashingtonTimes:

- Associate Attorney General Thomas J. Perrelli, the No. 3 official in the Obama Justice Department, was consulted and ultimately approved a decision in May to reverse course and drop a civil complaint accusing three members of the New Black Panther Party of intimidating voters in Philadelphia during November's election, according to interviews. The department's career lawyers in the Voting Section of the Civil Rights Division who pursued the complaint for five months had recommended that Justice seek sanctions against the party and three of its members after the government had already won a default judgment in federal court against the men. Front-line lawyers were in the final stages of completing that work when they were unexpectedly told by their superiors in late April to seek a delay after a meeting between political appointees and career supervisors, according to federal records and interviews.

NY Times:

- In May, Amazon(AMZN) introduced the electronic book reader Kindle DX, touted as a new way to read textbooks, newspapers and other large documents. This fall, six colleges and universities will test the technology in a pilot, which includes making the textbooks for certain courses available online. The Kindle DX (for “deluxe”) is searchable and portable, a plus for students accustomed to toting heavy backpacks. But there is another reason that some institutions jumped at the chance to try it out: the technology could substantially reduce their use of paper.

Lloyd’s List:

- Oil companies hired four very large crude carriers to store crude, citing Optima Shipbrokers Ltd. and London brokers it didn’t identify. Three more may be hired, citing a ship broker at Galbraith’s Ltd. There are now 27 supertankers storing crude.

- DP WORLD chief executive Mohammed Sharaf has described the first six months of 2009 as the “most challenging operating environment our industry has ever known”. The comments came as DP World reported a 10% fall in consolidated half year container volumes at its 49 terminals worldwide, which handled 12.3m teu in the six months to June. “The unpredictable trends in global trade we have seen in the first half of the year continue into the second half of the year.

USAToday:

- The USA TODAY/IHS Global Insight economic outlook index predicts GDP growth for October through December, the first increase since September 2008. Helping fuel the growth was improvement in financial indicators, such as the stock market, and increases in building permits. The rate of decline in the number of hours worked has also stabilized.

- A national campaign against first-time drunken-driving offenders is gaining ground as states and the federal government weigh mandatory use of devices requiring violators to prove their sobriety before their engines start. Three more states have enacted laws this year requiring all violators to install devices called alcohol ignition interlocks, bringing to 11 the number of states with such rules. The instrument blocks a vehicle engine from starting if it detects alcohol on the breath of drivers.

Reuters:
- U.S. financial regulators would gain the power to restrict holdings of over-the-counter derivatives under legislation to be considered this fall, the chairmen of two House committees said on Thursday. Chairmen Barney Frank of the Financial Services Committee and Collin Peterson of the Agriculture Committee said antispeculation provisions would be part of legislation to bring the $450 trillion OTC derivatives market under federal regulation. The bill also clamps down on a type of derivative called credit default swaps (CDS), which have been blamed for magnifying global economic distress by spreading losses from bets on risky mortgages and other debt.

- Ford Motor Co (F) has seen a sharp increase in sales over the past week since its

dealers began accepting trade-ins under the U.S. government's "cash for clunkers" incentive program, the automaker's U.S. sales chief said on Thursday. "We were having a strong month before (cash for clunkers) started," said Ken Czubay, who heads Ford's U.S. marketing and sales operations. "The pace of sales has picked up dramatically."

- United Therapeutics Corp (UTHR) said U.S. health regulators approved its inhaled drug to treat pulmonary hypertension, sending its shares soaring as much as 13 percent. The Food and Drug Administration approved Tyvaso inhalation solution for the treatment of pulmonary arterial hypertension (PAH) using the Tyvaso inhalation system, the company said.

- One hundred ninety-seven years, one month and 14 days after its founding, Citigroup Inc has given a roughly 34 percent stake to U.S. taxpayers. While a few technical details still remain, the bank has completed a months-long effort to convert preferred shares held by the U.S. government into common stock.

- Bank of America Corp (BAC) plans to set up a wholly owned subsidiary in China to expand in the world's fastest-growing major economy, people briefed on the plan said. The largest U.S. bank plans to expand its corporate and investment banking business, and offer wealth management services to tap rich Chinese consumers, according to the sources, who requested anonymity because they were not authorized to discuss the plan.

Financial Times:
- We’re not PhD quant-level statisticians here on FT Alphaville, so we won’t be able to explain exactly how they do it; but all those peculiarities in the USO and UNG ETFs do suddenly seem to make a lot of sense. This is especially so if you consider statistical arbitrageurs look for pairs of securities that consistently revert to mean, but offer large amounts of “relative-value” in the trading day. Relative-value would have been incrementally increased in commodity ETFs by the contango and the volatility stemming from a descending price. So yes, commodity ETFs were not responsible for upswings in the price in 2008! The increased flows they attracted counter-intuitively this year, meanwhile — in a descending market– may have had nothing to do with retail investors being keen to take a view on the underlying market. The flows may have stemmed from huge arbitrage opportunities presented to statistical arbitrage firms via the contango and price volatility. In which case, if the structurers of these ETFs are aware of the problem, marketing these securities forcefully to retail investors does indeed raise some important questions.

- Eurozone consumers increasingly expect prices to tumble in the year ahead even as the region’s economy recovers from its severe recession, according to a European Commission survey that could stoke fears of deflation. Expectations about trends in consumer prices in the next year were this month more skewed towards falls than at any point since comparable Commission data started in 1985. The results came ahead of official data on Friday that are expected to show eurozone annual inflation falling further into negative territory. The news suggested that even as the economy recovers, considerable slack remains. Headline inflation has dropped largely because of a plunge in energy costs, but evidence is mounting that price falls are becoming more widespread. The survey also indicated that consumers see little inflationary threat from the massive amounts of liquidity injected into the bank system by the European Central Bank.

TimesOnline:

- Organic food is no healthier than other produce, according to the UK Government’s food watchdog.

Aftenposten:

- Norwegian electric carmaker Think signed a letter of intent with Japan Post to equip one-fourth of the postal service’s 22,000 vehicles with battery-driven engines, citing Think spokesman James Andrew.

Xinhua:

- China will strengthen cooperation in financial supervision with the United States to promote global financial stability and economic recovery, Chairman of China Banking Regulatory Commission (CBRC) Liu Mingkang said on Wednesday.