Today's Headlines

Bloomberg:

- Investors should sell China’s local- currency stocks as the market is in “bubble territory” and share prices already reflect expectations for a rebound in the economy and earnings, Shenyin & Wanguo Securities Co. said. China’s Shanghai Composite Index has jumped 79 percent this year, the world’s best performing major market, as new loans tripled to a record and the government implemented a stimulus package to revive economic growth. The measure trades at 35.4 times reported earnings, almost triple last year’s low in November and twice what investors pay for stocks on the MSCI Emerging Markets Index. “It’s difficult to find a catalyst that will further lift economic prospects,” said Yuan Yi, Shanghai-based analyst at Shenyin Wanguo, in a report today. “China’s stock market is in bubble territory, which means it’s being held up mainly by excess liquidity and not profit expectations.” Shenyin was voted No. 1 in strategy last year by Capital Week magazine. Yuan advised investors to reduce their equity holdings by selling into market rebounds and favoring retailers, food and beverage producers and drugmakers as these companies have more stable earnings. China Galaxy Securities Co., the nation’s largest brokerage, warned May 5 the local-currency stock market is a bubble which may burst as investor confidence in the nation’s economic recovery weakens and bank lending slows. The index may fall to 2,928 if it breaches the so-called support level of 3,138, according to DMG & Partners Securities Pte., citing analysis of chart patterns. The formation of a “double top,” made up of two consecutive peaks that are approximately equal with a moderate trough in between, is a signal for further losses, DMG analyst James Lim said in a report today.

- Timothy Barakett, founder of Atticus Capital LP, is closing his $3.5 billion Atticus Global Fund to spend more time with his family and concentrate on philanthropic interests, according to a letter sent to investors today. Barakett, 44, is also closing a $600 million fund he manages. Atticus expects to return 95 percent of investors’ money by the beginning of October, the letter said. “My decision is solely a personal one,” Barakett wrote. “After 15 years of being singularly focused on building and managing Atticus, I believe it is time to reassess my future.” The global fund has lost 6 percent this year, after losing 27 percent last year, only its second down year.

- China’s exports and new loans tumbled in July and industrial output rose less than estimates, underscoring government concern that the world’s third-biggest economy is yet to establish a solid recovery. Exports fell 23 percent from a year earlier, the customs bureau said. “The fixed-asset investment number is worrying because government-sponsored investment is a pillar of the recovery,” said Tao Dong, chief Asia-Pacific economist at Credit Suisse AG in Hong Kong. “This set of data should postpone any thought of more aggressive tightening; the economy is slowing down a little bit.” The export decline matched economists’ estimates and was the third biggest since China’s shipments began to shrink in November last year. Imports fell 14.9 percent, leaving a trade surplus of $10.63 billion. The industrial production figure suggested the economy “started the third quarter on a slightly softer tone,” Ben Simpfendorfer, a Hong Kong-based economist for Royal Bank of Scotland Plc, said in a Bloomberg Television interview. “It’s a modest disappointment.” July’s new loans were the least since the government dropped quotas limiting lending in November last year and pressed banks to support a 4 trillion yuan stimulus package. None of 11 economists surveyed forecast such a low number. China Construction Bank Corp., the nation’s second-largest bank, will cut new lending by about 70 percent in the second half to avert a surge in bad debt, President Zhang Jianguo said last week. “We noticed that some loans didn’t go into the real economy,” Zhang, 54, said in an Aug. 6 interview at the bank’s headquarters in Beijing. “I feel that some industries are expanding too rapidly. For example, housing prices are rising too fast, and housing sales are growing too fast.” UBS AG said in a July 31 note that the scale of China’s new lending in the first half was “neither sustainable nor necessary.” Consumer prices fell 1.8 percent last month from a year earlier, the biggest decline since 1999, the statistics bureau said today. They were unchanged from the previous month. Producer prices dropped a record 8.2 percent.

- China’s imports of copper and the metal’s products in July dropped for the first time in six months, declining from a record, after stockpiles increased in the world’s largest consumer. Imports slumped to 406,612 metric tons in July, the Beijing-based customs office said today. That’s 15 percent down from a record 477,217 tons in June, according to data on the Bloomberg. The country may have stockpiled as much as 400,000 tons of copper in the first half because of sizeable imports and a seasonal slowdown in demand, Macquarie Group Ltd. said July 6. Reported inventory by the Shanghai Futures Exchange has jumped fourfold this year to 63,434 tons from the end of 2008. Caijing magazine reported in June that China has bought 235,000 tons of copper for strategic reserves this year, citing Yu Dongming, a Chinese government official. The country has also bought aluminum, zinc and some rare metals for reserves. China may not continue purchases of industrial metals for strategic reserves after prices rebounded, the magazine cited Yu as saying.

- India’s weakest monsoon rains in five years may lower imports of fertilizer, a minister said, pressuring prices as China, the world’s biggest potash market, negotiates contracts for soil nutrients. Purchases of potash, used to grow rice, soybeans and sugar cane, in the six months ending Sept. 30 may be less than 2.16 million tons, Srikant Jena, minister of state for chemicals and fertilizers, said in an interview in New Delhi yesterday.

- Crude oil fell below $70 a barrel in New York U.S. equities dropped and the dollar strengthened for a sixth day. The Organization of Petroleum Exporting Countries raised its 2010 forecast for supply from outside the group to 51.17 million barrels a day as tax incentives slow the output decline in Russia, OPEC’s biggest rival, the organization said in its monthly report today.

- Russia’s economy contracted the most on record last quarter as rising unemployment sapped consumer demand, bank lending stalled and the government failed to approve a stimulus package until just two months ago. Gross domestic product contracted an annual 10.9 percent in the second quarter, the Federal Statistics Service said today, citing preliminary data. The median estimate in a Bloomberg survey of seven economists was for output to shrink 10.2 percent. Russia’s economic decline is worsening after output contracted 9.8 percent in the first quarter, ending 10 years of expansion that averaged close to 7 percent. The worst global financial crisis since the Great Depression undermined demand for Russia’s oil, natural gas and metals. Industrial production plunged as companies depleted stocks and struggled to raise funds during the credit crunch. “We can’t develop like this any longer,” President Dmitry Medvedev said yesterday during a meeting with political party leaders in the Black Sea resort of Sochi. “It’s a dead end. And the crisis has placed us in a situation where we will have to make decisions on changing the structure of the economy.”

- Amgen Inc.’s(AMGN) osteoporosis drug denosumab prevented fractures and strengthened bones in men taking hormone therapy for prostate cancer, according to a study released as U.S. advisers consider whether to recommend the treatment’s approval for sale. Denosumab reduced spinal fractures in prostate cancer patients by 62 percent compared with a placebo, and increased spinal bone mineral density, a predictor of fracture risk, according to research in the New England Journal of Medicine. “These are medical practice-changing results,” said Matthew Smith, the lead author. “It addresses an important unmet medical need for fracture prevention in men with prostate cancer.”

- Treasuries rose after the sale of a record $37 billion of three-year notes attracted the most demand ever from a group of investors that includes central banks, easing concern foreign buyers will shy away from U.S. auctions as the economy shows signs of recovering from recession.

CNBC:

- Elizabeth Warren, chairwoman of the US congressional oversight panel for the Troubled Asset Relief Program, said there’s no good estimate of how much toxic debt is left on the books of small and large financial institutions. Small banks in particular need more capital, Warren, a law professor at Harvard University, said.

- The Federal Reserve most likely won't be delivering any rate hikes at its meeting this week, but it can deliver something many investors are looking for: hope.

- Veteran banking analyst Richard Bove recommended taking short-term profits in US banking stocks as he expects a pullback in share prices, and said fundamentals for the sector had not yet improved.

- Google(GOOG) has lifted the lid on a new version of its search engine, allowing users to look at the results it will generate.

- Rival oil supplies and the sluggish pace of recovery in world consumption will shrink demand for OPEC's crude oil next year, the producer group said on Tuesday.

MarketWatch:
- U.S. companies slashed their workers' hours in the second quarter, boosting the productivity of the workplace to an annualized rate of 6.4%, the Labor Department reported Tuesday. It was the fastest increase in productivity in the nonfarm business sector in nearly six years. Economists surveyed by MarketWatch had been looking for a gain of 5.4%. Unit labor costs -- a key indicator of inflationary pressures -- plunged at a 5.8% rate, the largest decline in nine years and slightly wider than the 5.3% decline expected by economists. Hourly compensation rose just 0.2% in the second quarter. After inflation, real hourly compensation sank 1.1%.

Washington Post:

- If you're looking for green shoots, stop by the Whole Foods(WFMI) in Paramus, N.J. Wander in past the multihued display of locally grown flowers into the oasis of produce for which the upscale grocer is known: twenty-some types of leafy greens and pristine arrangements of flawless fruit, from rolling mounds of kiwis to deep bins of shiny crimson cherries.

NJ.com:

- Fighting to erase a double-digit deficit against Republican Chris Christie, Gov. Jon Corzine has brought two high-powered political strategists into his campaign and is overhauling his message to voters as he enters the final 90 days of an already heated race.Trailing by as much as 14 points in some polls, the governor has hired Democratic strategist Bill Maer, who has served as a senior political advisor to several major Democrats, and has asked Jamie Fox, a veteran Democratic operative, to take a more active role.

Rassmussen:

- Public support for the health care reform plan proposed by President Obama and congressional Democrats has fallen to a new low as just 42% of U.S. voters now favor the plan. That’s down five points from two weeks ago and down eight points from six weeks ago. A new Rasmussen Reports national telephone survey shows that opposition to the plan has increased to 53%, up nine points since late June. More significantly, 44% of voters strongly oppose the health care reform effort versus 26% who strongly favor it. Intensity has been stronger among opponents of the plan since the debate began. Sixty-seven percent (67%) of those under 30 favor the plan while 56% of those over 65 are opposed. Among senior citizens, 46% are strongly opposed. Sixty-two percent (62%) of unaffiliated voters oppose the health care plan, and 51% are strongly opposed. This marks an uptick in strong opposition among both Republicans and unaffiliateds, while the number of strongly supportive Democrats is unchanged.

Politico:

- Sen. Arlen Specter (D-Pa.) fired back Tuesday at a raucous town hall audience that booed and jeered him for more than an hour. Specter immediately tried to temper the rough crowd, which started booing him before the question-and-answer session even began, with the blunt warning: “If you want to stay in here, we’re not going to tolerate any demonstrations or booing. So, it’s up to you." But minutes later during the senator’s response to a question on whether Americans would be able to maintain their private insurance under the Democratic health care proposal, a protester who was not selected to speak stood up, walked into the aisle and began shouting at him. (video)

The Washington Times:

- The U.S. Commission on Civil Rights says some little-noticed provisions in the House health care bill are racially discriminatory, and it intends to ask President Obama and Congress to rewrite sections that factor in race when awarding billions in contracts, scholarships and grants. The commission also fears the programs, which are designed to improve health care in underserved areas, will not be effective. In a draft of a letter the commission approved Friday, the group raises constitutional questions about giving preferential treatment to minority students for scholarships, and about favoring medical schools and organizations that have a record of sending graduates to areas with inadequate health care services. "These programs are unlikely to reduce health care disparities among racial and ethic groups," according to the draft letter obtained by The Washington Times. "A growing body of evidence indicates that increasing access to high-quality physicians - whatever their racial or ethnic ancestry - is the best way to mitigate such disparities." The draft letter also cites testimony from Dr. Amitabh Chandra of Harvard University who said the idea that expanding the number of minority physicians and providing "cultural competence training" will bridge the health status gap is "grounded in hope more than science," according to the draft language.

USA Today:

- It will cost nearly $8 billion over the next decade to pay for the expanded federal bureaucracy needed to combat global warming under a bill passed by the House of Representatives, a report by the non-partisan Congressional Budget Office says. Critics of the House bill that passed in June, such as Republican Sen. James Inhofe of Oklahoma, have seized on the increased size of government to try to stir opposition in the Senate, which is scheduled to consider its climate-change bill in the fall. The bill "is full of regulations, mandates, bureaucracy and big government programs," Inhofe, the top Republican on the Senate Environment Committee, said in a speech on the Senate floor in July. The complex bill, which runs more than 1,400 pages, assigns new tasks to at least 21 federal agencies, from the Energy Department to the Commodity Futures Trading Commission. It also creates new government programs, such as an effort to limit deforestation in developing nations. The overall price tag: $8 billion from 2010 to 2019, according to the non-partisan Congressional Budget Office. Government agencies would charge fees in some cases, reducing the net cost to taxpayers to $7.8 billion over the 10-year period, the CBO says. The House bill would "significantly expand agencies' workloads" by having them "undertake a variety of rulemakings, conduct studies and assessments, prepare reports, and carry out other activities," the budget office said in a June report.

Reuters:
- Shares of CIT Group Inc(CIT) sank 20 percent on Tuesday after the troubled lender delayed filing its second-quarter report with regulators and again warned it may have to file for bankruptcy.

- Poor consumer demand amid economic turmoil and choppy credit markets will continue to pressure U.S. companies in consumer-dependent sectors for the remainder of this year, Standard & Poor's said in report on Tuesday. Companies in consumer products, media and entertainment and retail and restaurant sectors continue to feel the worst effects of the economic downturn and will likely see the most defaults through the remainder of 2009.

- Bernard Madoff's longtime deputy, Frank DiPascali, was charged with 10 crimes and is expected to plead guilty later on Tuesday for his role in Wall Street's biggest investment fraud.

- The chief executive of Swiss drugmaker Novartis AG on Tuesday said animal rights activists engaged in "terrorism" and attempted to block medical progress by burning down his holiday home and desecrating the graves of his relatives. "When you try to terrorize people and you burn their houses, when you desecrate graves and when you make death threats, to me that is way beyond activism and I would call this clearly terrorism," Daniel Vasella said in an interview on CNBC television. "These people tried to hinder medical progress and stand in front of new medicines for patients," Vasella said.

Financial Times:
- A runaway deficit may soon test Obama’s luck. Voters have good reason to disapprove. The deficit this year is likely to be $1,800bn (€1,270bn, £1,090bn). The gross federal debt is just about to bust the $12,100bn limit set by Congress. According to the Congressional Budget Office’s alternative fiscal scenario, public debt could rise from 44 per cent of GDP last year to 87 per cent by 2020. Spending on healthcare alone could rise from 16 to 22 per cent of GDP. The gap between spending and revenue in the latest House healthcare bill would be $65bn in just over a decade. The administration itself has no plan to balance the budget. Its own budget forecasts a trillion-dollar deficit as far ahead as 2019. Mega-deficits as far as the eye can see are bad politics. They could be even worse economics. The nightmare scenario is that mounting fears over US creditworthiness push up long-term interest rates, thereby choking off the nascent recovery.