BETWEEN THE HEDGES: Today's Headlines

Bloomberg:

- The cost of protecting corporate bonds in the U.S. from default fell to the lowest level in 16 months as investor confidence in an economic recovery increased. An index of credit-default swaps tied to U.S. investment- grade bonds fell below 100 basis points for the first time since May 20, 2008, while contracts tied to high-yield debt in Europe declined for a 10th straight day. A decrease typically signals an improvement in the perception of credit quality. Federal Reserve Chairman Ben S. Bernanke said yesterday that “the recession is very likely over,” and billionaire investor Warren Buffett said he’s buying equities because the economy is responding to government stimulus measures. Inflation remains subdued in the U.S. and the housing market is improving, data due later today is forecast to show. “There is clear evidence that credit market conditions have improved significantly,” London-based BNP Paribas SA credit analysts led by Rajeev Shah wrote in a note to investors. “From a year on after the Lehman collapse, credit market conditions have largely normalized.” Credit swaps on the Markit CDX North America Investment- Grade Index, used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, declined 4 basis points to 100 basis points as of 11:24 a.m. in New York after earlier falling to as low as 99 basis points, according to broker Phoenix Partners Group. That’s the lowest since the index was at 93.4 basis points on May 20, 2008, according to CMA DataVision.

- Confidence among U.S. homebuilders rose in September for the third straight month, another sign the industry is past its worst point and is starting to recover. The National Association of Home Builders/Wells Fargo confidence index climbed to 19, the highest level since May 2008, from 18 in August, the Washington-based group said today. “Virtually all the data on housing has taken on a better tone,” Michael Larson, a housing analyst at Weiss Research in Jupiter, Florida, said before the report. “That’s giving builders more reason for optimism. The turn is largely being driven by the fact that housing is a bargain again.” The gain was led by a gauge that tracks current sales, which rose two points to 18, while a measure of prospective buyer traffic rose one point to 17. A measure of expectations for single-family housing sales over the next six months fell one point to 29, in part because the Obama administration’s $8,000 tax credit for first-time home buyers expires Dec. 1, the report said. Confidence increased in all four regions of the U.S., led by a three-point jump in the Midwest to 19. “We are fairly well convinced that the bottom has been turned and therefore we are not increasing incentives or lowering prices anywhere,” Toll Brothers Inc. Chief Executive Officer Robert Toll said Aug. 27 on a conference call with investors and analysts.

- Consumer prices rose 0.4 percent in August, underscoring the Federal Reserve’s view that inflation will be contained. Compared with a year earlier, prices were down 1.5 percent. For the core index, prices were up 1.4 percent from a year earlier, the smallest gain since February 2004. A lack of inflation will probably give Fed policy makers leeway to keep interest rates near zero in the foreseeable future to secure a recovery. “What we’re seeing is a gradual disinflation that reflects the persistent slack in our economy,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, who accurately forecast the monthly increase in overall prices. “This is providing the Fed with lots of patience in reversing monetary policy.”

- Comerica Inc., Marshall & Ilsley Corp. and Regions Financial Corp. led bank stocks to their best gains in two months after Warren Buffett said the economy “hit a plateau at the bottom.” Marshall & Ilsley, the biggest bank in Wisconsin, and Alabama’s Regions jumped as much as 11 percent. Comerica advanced more than 10 percent and Zions Bancorporation, the largest based in Utah, gained as much as 12 percent. Buffett, the billionaire who runs Berkshire Hathaway Inc., said the residential real estate slump may be easing. That helped lenders held by Berkshire including Bank of America Corp. and Wells Fargo & Co., which both told an investor conference in New York this week they’re expecting more losses on home loans. “We’re a lot better off than we were a year ago,” Buffett said today on CNBC. “Some of the toxic assets have been flushed through. There’s been capital raised.”

- JPMorgan Chase & Co.(JPM), the second- biggest U.S. bank, sold $2.53 billion of bonds backed by credit- card payments, according a person familiar with the transaction. The top-rated securities, which will mature in a little less than one year, priced to yield 45 basis points more than the one-month London interbank offered rate, said the person, who declined to be identified because terms aren’t public. The sale was increased from $2 billion and was offered without the aid of a Federal Reserve program to encourage lending. The issue provides evidence of growing appetite for bonds backed by consumer loans after the market was shuttered last year when the credit crisis sapped demand. The finance arm of General Electric Co. also sold bonds backed by credit-card payments this week outside of the Fed’s Term Asset-Backed Securities Loan Facility.

- Simon Property Group Inc.(SPG), the largest mall owner in the U.S., said retailers may see pent-up demand this holiday season after paring inventory to cope with a plunge in consumer spending. “It could be a little bit better than what the retailers are anticipating,” David Simon, chairman and chief executive officer of Indianapolis-based Simon Property, said yesterday in an interview in New York. Sales at U.S. retailers surged in August by the most in three years, the Commerce Department said yesterday. Some have been too conservative in their inventory reductions, he said. “We’ve heard this every recession: ‘The consumer’s never going to come back,’” Simon said. “I just don’t buy it.”

- US companies are destined to “reverse the purge” that has brought down capital spending, business inventories and employment, according to James W. Paulsen, chief investment strategist at Wells Capital Management. “In the last year, businesses have been preparing to survive a second coming of the Great Depression,” Paulsen wrote. Now that the US economy has started to recover, he added, most companies “find themselves understaffed without any goods on the shelf.” Paulsen estimated that gross domestic product will increase at a 4% annual rate during the next 18 months.

- Discord over trade agreements between labor unions and companies including Chevron Corp., FedEx Corp. and Campbell Soup Co. will test President Barack Obama’s bid for “credibility” on expanding global commerce. Ratifying accords with Colombia and South Korea would “send a strong message for future trade and investment agreements and promote major new economic opportunities,” Chevron Vice President Lisa Barry said in a filing submitted to the U.S. Trade Representative’s office before a deadline yesterday for public comment. Five Democratic House members, including Louise Slaughter of New York, said in a letter to the office that they and labor groups are “adamantly opposed” to any accord with Colombia until attacks on that nation’s labor leaders end.

- Jones Lang LaSalle Inc.(JLL), the second-biggest publicly traded commercial property broker, is joining with Real Estate Disposition Corp. to start an online auction service to sell commercial property and loans. “In a stagnant sales market where interested investors are limited, using an auction opens up a property to a viable buyer marketplace,” Jay Koster, president of Chicago-based Jones Lang LaSalle’s capital markets practice, said today in a statement.

- Diverting overseas aid from economic development to fight global warming may threaten the lives of at least 4.5 million children in the poorest nations, the anti-poverty group Oxfam said.

- Investor sentiment deteriorated from Tokyo to Paris and New York on speculation a six-month rally in stocks has outstripped the prospects for earnings as indexes trade at the most expensive valuations since 2003. Optimism for equities fell in seven of 10 countries in the Bloomberg Professional Confidence Survey. Users expect stocks to drop during the next six months in the U.S., Japan and Spain, while investors in Brazil and the U.K. were the most bullish. Sentiment had improved in all 10 nations in August.

- U.S. President Barack Obama has failed to appoint advisers and regulators who understand the complexity of financial systems, Nassim Taleb, author of “The Black Swan,” told a group of business people in Toronto. “I want my vote back,” Taleb, who said he voted for Obama, told the group. The U.S. has three times the debt, relative to the country’s economic output, as it had in the 1980s, Taleb said.

Wall Street Journal:

- Chief financial officers are growing more optimistic about the U.S. economy and their own companies' prospects, according to a new survey. But they still worry about weak consumer demand and tight credit, and 43% expect their companies to shed jobs in the next 12 months. Nearly 60% of the 657 U.S. finance executives surveyed this month by Duke University's Fuqua School of Business and CFO Magazine said they are more optimistic about the U.S. economy than they were in May, and nearly 50% said they are more optimistic about their companies' prospects.
- Transfield Services Ltd. (TSE.AU) Chief Executive Peter Goode said Tuesday the company has seen "life" returning to the U.S. consumer in the past three months given a pick-up in maintenance activity at the companies it services. The Australian engineering and asset management company said its North American unit, US Maintenance, is benefiting from the return of U.S. consumers to big-box stores. Transfield provides services to retailers that include gardening, parking lot management, painting and maintenance to chains such as Kmart, owned by Sears Holding Corp. (SHLD) and Home Depot (HD).

- Senate Finance Committee Chairman Max Baucus formally unveiled a 10-year, $856 billion bill that would extend health insurance to tens of millions of Americans not now covered, moving an important step forward on President Barack Obama's top domestic priority. "This is a good bill. This is a balanced bill. It can pass the Senate," Mr. Baucus said at an afternoon news conference at which he provided details on the plan. The sweeping measure is designed to steer a more moderate course on health policy than other major bills moving through Capitol Hill, and it doesn't propose to create a new government insurance plan to compete with private insurers, as proposed in rival House legislation and favored by many liberal lawmakers. Instead, the Montana Democrat is proposing to expand coverage by creating a network of nonprofit health-insurance cooperatives. The cooperatives would be seeded with $6 billion in federal money, enough to cover start-up costs and meet insurance solvency requirements.

- The stimulus bill's Buy American provisions -- meant to give U.S. companies a leg up on foreign competition -- are causing Aquarius and other U.S. companies a lot of grief with both suppliers and clients in Canada. Now that grief has boiled over into a major diplomatic row with the largest U.S. trading partner. Canadian communities angered by perceived American chauvinism have started a Buy Canadian campaign to exclude U.S. bidders from municipal contracts. "If that sticks, well, there goes 25% of my business," said Mr. Pokorsky. "To me, Ontario may as well be Indiana."

- 3D technology is coming one step closer to home with the development of a new set-top box system that will allow consumers to browse through and access 3D offerings from their cable or satellite TV company.

- The mortgage-interest deduction claimed by millions of homeowners every year may prove to be a useful window for the IRS to peek into taxpayers' income situation -- and potentially reap millions of dollars in unpaid taxes.

- In the last few days, the Census Bureau has severed ties with the advocacy group Acorn, and the Senate has voted to deny it access to federal housing funds. That's the good news. The not-so-good news is that it took this long and hidden-camera video footage of Acorn workers apparently advising others to commit crimes before federal officials would act. Allegations of fraud have dogged Acorn for years, sometimes resulting in convictions. Last week in Florida, authorities arrested 11 Acorn workers and charged them with submitting fake voter registration papers.