Late-Night Headlines
Bloomberg:
- Crude oil fell to a six-week low on speculation that a government report will show U.S. New Canaan , Connecticut U.S. Winchester , Massachusetts
- A new poll found that President Barack Obama’s approval rating has dropped by 13 percentage points from two months ago in Ohio, traditionally a critical swing state in presidential elections. The survey by Quinnipiac University released today showed 49 percent of Ohio voters approved of Obama’s job performance, down from 62 percent in a May 6 poll. The disapproval figure for Obama in the new poll was 44 percent, up from 31 percent in the May survey. The pollsters termed Obama’s ratings “lackluster” in a release, and said the numbers were his lowest marks “in any national or statewide Quinnipiac University poll since he was inaugurated.” The White House announced late today that Vice President Joe Biden will travel to Cincinnati on July 9, where he will tout progress being made by the $787 billion economic stimulus Measure passed in February. “The economy in Ohio is as bad as anywhere in America,” said Peter Brown, assistant director of the Quinnipiac University Polling Institute. The poll numbers “indicate that for the first time voters have decided that President Barack Obama bears some responsibility for their problems.” In the poll, 48 percent said they disapproved of Obama’s handling of the economy, while 46 percent approved. In the May survey, 57 percent approved of the president’s efforts on the economic front, while 36 percent disapproved. The independent survey of 1,259 Ohio voters was conducted between June 26 and July 1 and has an error margin of plus-or- minus 2.8 percentage points.
- The New York Yankees agreed not to restrict spectators’ movements during the playing of “God Bless America” at its new stadium to end a suit brought by a man who was thrown out last year for trying to use the restroom. The stipulation that the Major League Baseball team has no such policy was signed July 1 by U.S. District Judge Jed Rakoff in New York and entered into the case docket yesterday. The City of New York will pay the plaintiff, Bradford Campeau-Laurion, $10,001 and $12,000 to his lawyers in legal fees and costs. “This settlement ensures that the new Yankee Stadium will be a place for baseball, not compelled patriotism,” Donna Lieberman, executive director of the New York Civil Liberties Union, said in a statement.
- AlphaShares LLC, the fund manager co- founded by Princeton University economist Burton Malkiel, has introduced an index similar to the VIX that uses options prices to track stock market volatility in China and Hong Kong. The AlphaShares Chinese Volatility Index, or CHIX, tracks the implied volatility of options on the Hang Seng Index, the benchmark for Hong Kong stocks, and the FTSE/Xinhua China 25 Index, which tracks China’s 25 largest companies by market value, AlphaShares said in a statement. “Investors turn to the VIX to see how fear and uncertainty are driving markets here in the United States,” Jonathan Masse, who helps oversee about $150 million as senior portfolio manager at AlphaShares in Walnut Creek, California, said in an interview. “This is a new tool that international investors can use for China.”
- The House’s second-ranking Democrat left open the possibility of a second U.S. economic stimulus program, while Senate leaders and an aide to President Barack Obama questioned the need for one. The administration is facing criticism that the first package was rolled out too slowly and failed to stop unemployment from soaring to the highest level in almost 26 years. Unemployment increased to 9.5 percent in June, the highest since August 1983. Senate Republican leader Mitch McConnell of Kentucky said in a floor speech today that Democratic proponents of the stimulus program “over-promised on results and now their predictions are coming back to them.” McConnell mocked the idea of another stimulus plan. He called it “mind-boggling” and a worse idea than the previous one, which he said “has been demonstrably proven to have failed.” He added, “There is no education in the second kick of a mule.” The Senate’s second-ranking Democrat, Dick Durbin of Illinois, said he would leave any decision on the need for a fiscal stimulus to “the president’s evaluation.” “I’m not sure how you would do it” during a congressional session dominated by debates on health-care overhaul and climate-change legislation, he told reporters.
- China threatens to derail climate treaty talks as U.S. and European leaders lay the groundwork for a new accord to fight global warming, Italy’s Prime Minister Silvio Berlusconi said today. “There are some problems,” Berlusconi said at a news conference in Rome. World leaders will gather tomorrow in Italy to discuss issues including how to craft a global climate accord by the end of this year. “There is very strong resistance from the Chinese president,” the Italian leader said. China and India are balking at terms outlined in a draft document ahead of the July 9 “major economies forum” on climate change to be headed by U.S. President Barack Obama, according to Tobias Muenchmeyer, an adviser to the environmental group Greenpeace. Developed countries have to bear “historic responsibility” for climate change, India’s Prime Minister Manmohan Singh said today before leaving for the Group of Eight economic summit in L’Aquila, Italy. “What we are witnessing today is the consequence of over two centuries of industrial activity and high-consumption lifestyles in the developed world,” Singh said in a statement. Friction before the leaders hold the talks about climate change may mar Obama’s first major role as president in international climate treaty deliberations. “This could cause embarrassment for the U.S.,” Muenchmeyer said, referring to the possibility that countries won’t be able to reach substantive agreements at this week’s meetings, which are intended to help lay the groundwork for success at United Nations-led climate negotiations in Copenhagen in December.
- Members of the Senate Finance Committee may abandon a plan to impose new taxes on employer- provided health benefits because of overwhelming public opposition to the idea, a senior Democrat on the panel said. Senator Kent Conrad of North Dakota said that, while the proposal hasn’t been dropped yet, senators working on health- care legislation believe it may be too hard to sell the idea to the public and that they must start examining alternative ways to offset the $1 trillion cost of revamping the system. Panel members have been considering ending a current income tax exclusion for employer-provided health-care benefits. Conrad, who also heads the Budget Committee, said senators were informed of three opinion polls taken last week that examined public sentiment on health-care reform, and found the tax plan was opposed by some 70 percent of the American people. Conrad didn’t provide details about other tax options that are under consideration. He said they include taxes on the health-care industry and broader changes to the tax code.
- Amgen Inc.(AMGN) rose 14 percent in extended trading after saying its drug denosumab helped slow bone complications in patients with advanced breast cancer. Denosumab did a better job in a clinical trial than Novartis AG’s Zometa delaying fractures and other complications in breast cancer patients whose illness had spread to their bones, Amgen said today in a statement. Amgen rose to $7.13, or 14 percent, to $59.36 at 6:24 p.m. New York time in Nasdaq Stock Market extended trading.
- Baker & McKenzie LLP, the world’s second-largest law firm by revenue, plans to eliminate 11 percent of its lawyers and professional staff in Hong Kong and China because of the “very challenging” economic climate. “These difficult measures are necessary to ensure our ongoing financial health in an increasingly competitive environment,” the Chicago-based firm said in an e-mailed statement today. A comparable number of secretarial and support staff will be leaving, according to the statement. “The current economic climate is proving very challenging for most businesses, including many of our clients,” Baker said in its statement. “It is difficult to predict the timing and pace of the recovery of the markets in which we operate in Asia.”
- Chinese stocks may be headed for a “sizeable correction” after a so-called momentum indicator for the Shanghai Composite Index advanced to the highest in at least five months. The 14-day relative strength index, or RSI, for the Shanghai Composite climbed to 83 this week. Above the 70 threshold that signals to technical analysts an asset or market is poised to fall. “The RSI shows that the market is in a pretty overbought situation,” said Barole Shiu, a Hong Kong-based technical analyst at UOB-Kay Hian Ltd. “If history repeats itself, there’s a very strong chance we’ll see a sizeable correction.” At the stock measure’s peak in October 2007, its RSI reached 79.6. The Shanghai Composite plunged 72% in the following 12 months before rebounding, according to Bloomberg.
- Japanese machine orders unexpectedly fell for a third month and the current-account surplus narrowed because of plunging exports, stoking concern that the economy will struggle to emerge from its worst postwar recession. Orders, an indicator of spending by companies in the next three to six months, declined 3 percent in May from April, the Cabinet Office said today in Tokyo.
- John Meriwether plans to shut the hedge fund he started after the collapse of his Long-Term Capital Management LP in 1998 roiled global markets, according to a person familiar with the matter. Long-Term Capital lost more than 90 percent of its $4.8 billion of assets in the weeks following Russia’s currency devaluation and bond default. The Federal Reserve orchestrated a $3.6 billion bailout by the fund’s 14 banks to calm fears that the firm’s lenders and trading partners would be dragged down. The decline of Meriwether’s current firm, JWM Partners LLC, played out over months, with its main fund losing 44 percent from September 2007 to February 2009. Long-Term Capital relied on borrowed money to enhance returns. The average leverage at the beginning of 1998 was about $28 for every $1 of net assets. JWM Partners was more conservative, aiming to produce returns of 15 percent a year and borrowing $15 or less for every dollar of net assets.
Wall Street Journal:
- Mexico is increasing oil exploration in a group of states south of the Gulf of Mexico to book reserves and offset declining output at existing wells. State-run oil company Petroleos Mexicanos is seeking companies to design oil wells and oversee exploratory drilling starting in November under a two-year contract, according to a tender notice published on Compranet, the state procurement Web site. "The southern region currently has a large amount of drilling activity, with the goal of discovering new reservoirs and developing existing ones," said Pemex in the notice. Pemex plans 18 exploration wells in the southern district this year and in 2010, compared to just three in 2008, according to a drilling map included in the notice. Pemex drilled a total of 65 exploration wells in 2008, 33% more than the year earlier. Over the past year, Pemex increased production in the southern district by 10%, to 492,717 barrels a day in May, or 19% of total production.
- The Obama administration said Tuesday it may continue to imprison non-U.S. citizens indefinitely even if they have been acquitted of terrorism charges by a U.S. military commission. Jeh Johnson, the Defense Department's chief lawyer, told the Senate Armed Services Committee that releasing a detainee who has been tried and found not guilty was a policy decision officials would make based on their estimate of whether the prisoner posed a future threat. The Bush administration took the same position, but its legality was never tested. Also at the hearing, Obama administration officials differed with the Navy's senior uniformed lawyer over whether coerced statements could be used to obtain convictions before military commissions. David Kris, head of the Justice Department's National Security Division, told the committee that federal courts might reverse convictions if they were based on coerced statements. Military judges could consider "battlefield realities" when weighing whether to admit statements, he said, but the ultimate question was whether an admission was forced. Vice Adm. Bruce MacDonald, the Navy's judge advocate general, testified that the standard should be whether a statement was "reliable," rather than whether it was coerced. He suggested that a coerced statement might be less likely to be reliable but that coercion should be only one factor examined in the "totality of the circumstances." The question could be central to whether military-commission convictions stand up. Military prosecutors have said that involuntary statements make up the lion's share of evidence against detainees.
- Merrill Lynch & Co. spent decades building one of Wall Street's premier investment banks. Undoing that work has taken just months. Merrill has lost at least 18 veteran investment bankers since the firm agreed to sell itself to Bank of America Corp. in September, thinning its senior ranks.
- The top U.S. military officer warned that the "window is closing" for preventing Iran from acquiring a nuclear weapon, highlighting the difficult choices facing the Obama administration in the wake of last month's disputed elections. Mullen told a Washington think tank that Iran was likely just one to three years away from successfully building a nuclear weapon, which means that the U.S. and its allies are running out of time to persuade Iran to abandon its nuclear program. "Iran is very focused on developing this capability," he said at the Center for Strategic and International Studies. "The clock is ticking and that's why I'm as concerned as I am."
- Thousands of angry ethnic Han Chinese wielding clubs and machetes roamed this capital city of Xinjiang territory and engaged in sporadic revenge attacks against Uighurs after deadly riots Sunday. The fresh unrest prompted Chinese President Hu Jintao to fly home early Wednesday from Italy, where he had been scheduled to attend the meeting of the Group of Eight leading nations. His departure from such a high-profile international event underlined the severity of the challenge the Xinjiang violence presents to China's leadership.
- Does Obama Want to Own the Airlines? Welcome to government for the benefit of government officials and their hangers-on.
- Policy makers on both sides of the Atlantic launched an effort to crack down on what they called speculation in oil markets, underscoring concerns that a sharp rise in oil prices could worsen the global economic downturn. In Washington, the Commodity Futures Trading Commission, the main U.S. futures-market regulator, said it is considering tougher regulation of oil-futures markets. The proposed rules, which drew immediate criticism from traders, would seek to curb the influence of speculative investors such as hedge funds and investment banks by limiting how much money any single trader can bet on any one commodity at a time. In an opinion piece submitted to The Wall Street Journal, meanwhile, U.K. Prime Minister Gordon Brown and French President Nicolas Sarkozy wrote that governments need to act to curb a "dangerously volatile" oil price that defies "the accepted rules of economics" and "could undermine confidence just as we are pushing for recovery." The moves come at a time when the hotly debated idea that speculative investors are driving up prices is gaining credence, and political momentum is building to stop them. On Tuesday, Sen. Byron Dorgan (D., N.D.), a backer of an antispeculation bill last year, called the CFTC's action "a positive first step" to curbing "oil speculators looking for a quick buck at the expense of American consumers." The price of oil recently bounced back to some $73 a barrel from a 2009 low of nearly $34, despite a slump in demand, bulging supplies and a world economy in the doldrums. Crude, which closed at $62.93 Tuesday, reached $145 a barrel last summer. Higher prices could affect the prospects for economic recovery: A sustained 10% rise in the price of oil can knock as much as 0.4 percentage point off global economic growth over the subsequent 12 months, estimates Jim O'Neill, chief economist at Goldman Sachs. In recent years, big noncommercial traders such as hedge funds and investment banks have poured money into oil and other commodities. Such investors typically put their money in indexes that track the value of futures contracts, in which investors promise to pay a certain amount in the future for oil and other commodities. As of last July, financial investors had about $300 billion riding on such indexes, roughly four times the level in January 2006, according to the International Energy Agency, a Paris-based watchdog. Money drained from oil and other commodity markets during the second half of 2008, but investments have since surged, partly as a hedge against inflation and a weaker dollar: J.P. Morgan Chase analysts estimate that a net $25 billion has poured into commodities in the first half of 2009. In Congress, though, there is growing consensus that investors may be distorting prices. A recent report from the Senate Permanent Subcommittee on Investigations blamed speculators for driving up wheat prices, and recommended the CFTC enforce position limits on index traders in the wheat market. In a statement, CFTC Chairman Gary Gensler said the agency will hold public hearings to gather views from consumers, businesses and market participants on whether it should propose limits on trading in energy-future contracts. The CFTC also plans to require swap dealers and hedge funds to report holdings, including those traded at overseas exchanges, in a separate and routine way.
MarketWatch.com: It took an epic economic and financial death-spiral to make believers out of everyone, but the event you've been waiting for has finally happened -- the Goldman Sachs(GS) conspiracy is sharing the spotlight with the Jonas Brothers. It all happened right in front of our faces. The press covered it. The government knew about it. The question Rolling Stone should be asking isn't about whether there's a Goldman conspiracy, but whether it's still a conspiracy if everyone is in on it.
CNBC.com: Without further regulation, Cramer told viewers on Tuesday, manipulation of the energy futures market is virtually inevitable. Right now traders can use near-unlimited credit to swing prices in either direction, and that’s causing false valuations of oil and natural gas. “The oil futures market? It’s a total farce,” Cramer said, adding that he was “stunned and outraged” by the speculation and Washington’s seeming inability so far to curb it. The Mad Money host named margin requirements as the big issue. Those requirements need to be increased, he continued, if the manipulation is to end. Cramer said that people denying the effects of speculation have a “vested financial interest in maintaining the status quo,” or they are academics with no real-world trading experience. While the government finally seems to understand the severity of the problem, as the Commodity Futures Trading Commission on Tuesday announced it would consider limiting trader positions on commodities with finite supply, Cramer doubted the CFTC could fight off the industry’s powerful lobby.
- Provident Royalties and three founders were charged with securities fraud for allegedly bilking thousands of oil and natural gas investors in a $485 million Ponzi scheme, the Securities and Exchange Commission said on Tuesday.
IBD:
- American Medical Systems (AMMD) is a major player in the more delicate second area: restoring pelvic health to men and women.
Forbes:
- A week after China was granted a license to develop Iraq’s largest known oilfield, the three largest Chinese oil companies are already gearing up to bid for 11 other oil and gas field contracts in Iraq that will be auctioned off later this year.
Politico:
- President Barack Obama says there’s “nothing” he “would have done differently” about his economic stimulus plan, but one of his top outside economic advisers says the plan was “a bit too small.” Democratic Sen. Claire McCaskill of Missouri says the idea of a second stimulus is a “non-starter,” but Democratic Sen. Sheldon Whitehouse of Rhode Island says it “should be on the table.” Senate Majority Leader Harry Reid (D-Nev.) says there’s “no showing that a second stimulus is needed,” but House Majority Leader Steny Hoyer (D-Md.) says Congress needs to be “open to whether we need additional action.” Democrats are all over the map on the stimulus and the possibility of a sequel, and it’s not hard to see why: When it comes to a second stimulus, they may be damned if they do and damned if they don’t.
Washington Post:
- A former executive of a Pennsylvania defense firm with close ties to Rep. John P. Murtha (D-Pa.) has agreed to plead guilty to taking bribes from a partner defense company and is cooperating in a federal investigation of Pentagon contracting, records show.
The Business Insider:
- At long last, Michael Lewis’s article on the destruction of AIG is online. One of the most striking things about the article is that there was no secret quantitative formula at work behind AIG’s credit default swap sales. In fact, the guys running AIG don’t seem to have understood how much subprime insurance they were selling at all. And they only discovered it by accident, when it was too late. Lewis explains how Joe Cassano the head of AIG’s Financial Products group wanted to hire a fellow named Gene Park to be the sales ambassador to Wall Street’s securitization desks. Park decided that before he took the job he’d better look into how the business was working. One of the things he discovered is that no one was watching the shop.
Google Blog:
- It's been an exciting nine months since we launched the Google(GOOG) Chrome browser. Already, over 30 million people use it regularly. We designed Google Chrome for people who live on the web — searching for information, checking email, catching up on the news, shopping or just staying in touch with friends. However, the operating systems that browsers run on were designed in an era where there was no web. So today, we're announcing a new project that's a natural extension of Google Chrome — the Google Chrome Operating System. It's our attempt to re-think what operating systems should be
Financial Times:
- How Obama could introduce a petrol tax.
- The adoption of tough European restrictions on hedge funds would provoke a transatlantic regulatory war, one of the sector’s leading figures has warned. Stanley Fink, the former chief executive of Man Group known as the “godfather” of the British hedge fund industry, said that the European Commission’s proposed regulation would be “very restrictive” for non-EU funds and some styles of investing. “That could, and probably would, lead to retaliatory action whereby European hedge funds will be stopped from marketing in other jurisdictions [such as the US] – and that could be very bad for the industry,” he told the Financial Times in a video interview. Asked if the restrictions could spark an international hedge fund war, he said: “I think that could be one of the unintended consequences.”
Telegraph:
- This directive, which seeks to shackle legitimate financial freedoms, will eventually hit us all, not just managers of hedge funds. But it will also damage our economy. London has become home to the world's largest pool of assets under management precisely because we operate under the world's most sensible and sane rules, a rare regulatory success story. But as we report today, the EU is already planning to change its voting rules to strengthen its position and leave us even more emasculated. We simply won't have the power to change policies, such as the draft directive on hedge funds, as regulations will be voted through by simple majority, making blocking minorities nearly impossible to engineer. Labour conveniently signed up to the EU's new triple-headed dog of supra-national regulation last month. With these new voting rules, that dog will not only bark but will have a rabid bite as well.
Daily Yomiuri Online:
- Japan, US agree to hold official talks on nuclear umbrella
DEBKAfile:
- Western anti-terror agencies have warned that a large group of 15-20 al Qaeda terrorists, trained in Pakistan and Algeria to hijack and blow up airliners, deployed secretly in at least six European and Middle East countries in early July. They are standing ready to carry out multiple terrorist attacks.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (AMGN), boosted estimates, raised target to $69.
Night Trading
Asia Ex-Japan Inv Grade CDS Index +2.3%.
Morning Preview
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Earnings of Note
Company/EPS Estimate
- (PBG)/.73
- (AA)/-.38
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -2,800,000 barrels versus a -3,660,000 barrel decline the prior week. Gasoline supplies are expected to rise by +900,000 barrels versus a +2,333,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,825,000 barrels versus a +2,896,000 barrel increase the prior week. Finally, Refinery Utilization is expected unch. versus a -.06% decline the prior week.
3:00 pm EST
- Consumer Credit for May is estimated at -$8.8B versus -$15.7B in April.
Upcoming Splits
Other Potential Market Movers
G8 Annual Summit, the Fed’s Evans speaking and the Morgan Stanley Deepwater Conference
BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial shares in the region. I expect US equities to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
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