- Spain May Force Europe's Hand on Publishing Bank Stress Tests. The Bank of Spain’s decision to publish the results of stress tests on the nation’s lenders may force European neighbors to follow suit as investors demand more disclosure of the risks on banks’ books. “Pressure is increasing and now European countries need to consider whether to follow Spain,” said Daniel Hupfer, who helps manage $40 billion at M.M. Warburg in Hamburg, including shares of Deutsche Bank AG, BNP Paribas SA and Banco Santander SA. “Whether they will is hard to predict. Europe isn’t really seeing eye-to-eye right now.” Banking groups in Germany and the U.K. said disclosing details on specific institutions carried risks. Publishing the results may lead to a “run on a perfectly sound bank,” the British Bankers’ Association said in a statement. Germany’s BdB banking association, which represents more than 220 private firms, said making the findings public risks “misinterpretation.” Some analysts say the U.S. tests were designed to make sure none of the banks looked too good, or too bad. “What came out was reasonable, but it was more PR and psychology and the Europeans don’t do that kind of thing,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. Deutsche Bank Chief Executive Officer Josef Ackermann said last week in Vienna that releasing the findings would be “very, very dangerous” unless mechanisms to support European banks were in place beforehand.
- Taleb Calls Cameron 'Extraordinary' in New Statesman. Nassim Nicholas Taleb, author of “The Black Swan,” said British Prime Minister David Cameron is “the only thing we have left” to build a more robust economy, in an interview with the New Statesman magazine. Taleb, whose book is about how unforeseen events can roil markets, said that Cameron is “extraordinary” and “understands expert problems,” according to a transcript released by the London-based magazine. By contrast, “Barack Obama doesn’t have a clue.” After Taleb met Cameron for an hour in London, he told the New Statesman, “I went to Washington, and the discourse had nothing to do with the real problem. And I thought, ‘He’s the only thing we have left.’” Cameron’s government yesterday announced the formation of a panel to examine the future structure and regulation of banking, including the question of whether to split up retail and investment banks. Taleb praised his moves to cut the deficit. “You have to take some pain to remove the tumor,” he said. “It’s unethical for members of society today to spend their great-grandchildren’s money. Lower the level of debt, encourage equity, and you definancialize the economy.”
- Copper Leads Metals Lower After U.S. Housing Starts Slump 10%. Copper declined for a second day after a drop in U.S. housing starts signaled slower demand for industrial metals. Zinc and nickel also fell. Three-month copper on the London Metal Exchange fell as much as 1.8 percent to $6,530.25 a metric ton, and traded at $6,558 at 9:55 a.m. in Singapore.
- Bullard Joins Two Colleagues Backing Derivatives Curb. Federal Reserve Bank of St. Louis President James Bullard joined two colleagues in support of a proposal by Senator Blanche Lincoln that would force commercial banks to wall off their swaps-trading desks. “St. Louis Fed President James Bullard is in support of Senator Blanche Lincoln’s derivatives reform amendment,” said Robert Schenk, the regional bank’s senior vice president for public affairs. The endorsement puts three of the Fed’s 12 regional presidents at odds with Chairman Ben S. Bernanke over the steps needed to curb risk-taking at the largest banks. The three officials, who also include Thomas Hoenig in Kansas City and Richard Fisher of Dallas, helped persuade lawmakers earlier this year to preserve the Fed’s supervisory role over smaller banks.
- U.S. Lawmakers Seek Fiduciary Obligation for Brokers. In the debate over fiduciary duty, the House side of the conference committee offered a proposal that would require the Securities and Exchange Commission to impose the standard on brokers when they provide “personalized investment advice about securities to a retail customer.” The proposal would allow the SEC to extend the obligation to other customers. “I cannot foresee us giving in on fiduciary responsibility for individual investors,” Representative Barney Frank, a Massachusetts Democrat who is leading the negotiations, told reporters today. The standard, which currently applies to money managers, would require brokers selling stocks and bonds to act in clients’ best interests and disclose all conflicts of interest.
- Erdogan Rebuffs U.S. While Insisting Turkey Isn't Ally of Iran. Turkey under Prime Minister Recep Tayyip Erdogan may be headed for more tension with the U.S. as it steers an increasingly independent course, enabled by a booming economy that lessens its dependence on the West. Erdogan says his embrace of nations such as Syria and Iran that the U.S. regards as adversaries doesn’t put him in that camp. Any suggestion that his country has broken with the West is “malicious propaganda,” he told a regional forum last week. Even so, the U.S. should anticipate increasing “friction” as Turkey seeks to raise its global profile, said Henri Barkey, a member of the State Department’s Middle East policy planning staff from 1998 to 2000. “We are going to see many more clashes between Turkey and the U.S.,” said Barkey, now a professor at Lehigh University in Bethlehem, Pennsylvania. “They are opening embassies everywhere, using trade as a major source of influence, trying to play a role in a whole series of international organizations and alliances.”
- U.S. House Negotiators Rebuff Attempt to Revive Fed Audit Plan. U.S. House lawmakers negotiating an overhaul of financial regulation rebuffed an attempt by Republicans to revive a measure that would remove the Federal Reserve’s shield against audits of its interest-rate decisions. House members on a joint conference committee voted 12-7 against the Fed audit measure backed by Representative Ron Paul, a Republican from Texas. The proposal, part of legislation passed in December by the House, was rejected during Senate debate and isn’t in the text of a bill lawmakers are amending in House-Senate negotiations.
- U.S. Won't Lift Deepwater Drilling Ban, Lawyers Tell Judge. The six-month moratorium on deepwater drilling ordered in the wake of the Gulf of Mexico oil spill is essential to ensure public safety and shouldn’t be lifted, U.S. regulators said yesterday in a court filing. The lawsuit was originally filed June 7 by Covington, Louisiana-based Hornbeck. Since then more than it has been joined by more than a dozen companies that build rigs, operate supply-boat fleets, provide remotely-operated submarines, clean tanks, load cargo and provide other support for the 33 rigs drilling in the deepwater Gulf of Mexico when the ban was imposed. Many of the plaintiff companies are based near Port Fourchon, Louisiana, and have subsidiary operations scattered throughout the Louisiana coastal zone. Among these are Bollinger Shipyards Inc., Bee Mar LLC and Chouest Shipyard Companies, which along with Hornbeck collectively employ more than 13,000 workers and 7,000 vendors, according to court papers. “The potential immediate losses include, but are not limited to, the loss of 3,000 to 6,000 Louisiana jobs directly and indirectly related to the deepwater drilling operations at the 33 wells,” Hornbeck attorney Carl Rosenblum said in court papers June 9. “Lost wages for direct and indirect jobs lost could be over $165 million to $330 million per month for every month the 33 platforms are idle.”
- Slippery Start: U.S. Response to Spill Falters. Officials Changed Their Minds on Key Moves, and Disagreements Flared Between Agencies; Boom Taken Away From Alabama. The federal government sprang into action early following the vast BP oil spill. But along the beaches and inlets of the Gulf, signs abound that the response has faltered. A Wall Street Journal examination of the government response, based on federal documents and interviews with White House, Coast Guard, state and local officials, reveals that confusion over what to do delayed some decision-making. There were disagreements among federal agencies and between national, state and local officials.
- Inspector General Faults MMS Investigation of Gulf Spill. The U.S. agency in charge of regulating offshore oil drilling is carrying out its investigation of the Gulf of Mexico oil spill in a "completely backwards" manner, and lacks sufficient guidelines and inspectors to police the industry's operations in the Gulf, the acting inspector general of the U.S. Interior Department is expected to tell a congressional panel Thursday. U.S. officials should also consider setting new ethics rules aimed at limiting the influence of oil and gas industry representatives over regulators, according to remarks prepared for delivery Thursday by Mary L. Kendall, the acting inspector general of Interior.
- Bill Gives Public Workers Clout. The Senate is moving closer to passing legislation that would require states to grant public-safety employees, including police, firefighters and emergency medical workers, the right to collectively bargain over hours and wages.
- Ex-SEC Aide to Represent Trader Group. A new group representing mostly high-frequency traders snagged a former Securities and Exchange Commission staffer this week by hiring the agency's former chief economist as its public face. Jim Overdahl, who left the SEC in March to join the economics firm NERA, will serve as a spokesman for a new arm of the Futures Industry Association, dubbed the FIA Principal Traders Group. The group consists of 25 member firms, many of which use some kind of high-frequency-trading strategies. Such trading is now under increased scrutiny in Washington following the May 6 "flash crash" in the stock market amid growing interest by regulators in the role of high-frequency trading in U.S. markets. This marks the second time in the past week that news arose about a former SEC staffer going through the "revolving door" into the high-frequency trading industry. Earlier it was reported that Elizabeth King, an SEC staffer who worked in the division now involved in looking at market structure issues, will work for the high-frequency trading firm Getco. Getco is one of the 25 firms who have joined the FIA's new trade group.
- A Stealth Attack on Capital Gains. Congress has proposed a discriminatory 'enterprise value tax' on hedge funds and other partnerships. It is a threat to any business or industry that politicians decide is no longer popular. Buried in a Senate bill to extend health coverage to Americans struggling through the recession is a provision that would upend decades of established partnership law. It would single out particular types of businesses and penalize the entrepreneurs who have built them from scratch.
- Natural Gas Spreads Spark New Amaranth Concern: Energy Markets. Trading patterns in natural-gas futures are fanning speculation of a repeat of the collapse four years ago of U.S. hedge fund Amaranth Advisors LLC. The premium for the futures contract expiring in March 2011 over the April 2011 contract surged to 43.3 cents per million British thermal units June 15 on the New York Mercantile Exchange, the highest level since Feb. 19. The gap was 24.8 cents per million Btu as recently as the end of last week. The increase came even as U.S. inventories rose to their highest level for this time of year since at least 1993, when the government began collecting data. “This is peculiar behavior given that supplies are currently building at a comfortable pace,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, wrote in a report yesterday. “We haven’t seen these particular spreads behave in such a manner since a prominent natural-gas trader morphed a $9 billion hedge fund, Amaranth, into a $3 billion fund in August 2006.”
- Crude Politics. The drilling experts speak out on the Obama deepwater moratorium.
- UK's New Chancellor Has Abolished The English SEC-Equivalent, The FSA. George Osborne, the UK's Chancellor of the Exchequer, a role equivalent to that of Tim Geithner in the US, at least in public office, not sure about tax "avoidance", has just announced the abolition of the FSA - the English just as worthless equivalent to the SEC. It is time Mary Schapiro's corrupt organization share the same fate. From the FT:
- Senator Kaufman Says Evidence Shows May 6 Flash Crash "No Isolated Event."
- Why Did Fed Advocate #1 Mel Watt (And 7 Others) Hold a Fundraiser Within 48 Hours of the House FinReg Vote? These are the kinds of stories that just make one's blood boil:
- Senators Negotiating Financial Regulations Hold Industry Stocks. At least two-thirds of the U.S. senators drafting new financial regulations hold stock in banks or other companies affected by the legislation, such as Citigroup Inc. and Wells Fargo & Co., disclosure statements show. Eight of the 12 senators on a conference committee formed to iron out differences between the House and Senate versions of the legislation reported that they owned stocks in financial companies. One of the dozen lawmakers got an extension of the filing deadline and hasn't yet disclosed stock holdings. Among the House's representatives on the conference panel, six of the 22 members who have filed forms reported owning financial stocks. An additional nine House members got filing extensions. The 43 negotiators are trying to complete the biggest overhaul of financial-industry rules since the Great Depression, responding to a 2008 economic crisis that forced the U.S. to provide $700 billion in bailout funds for Citigroup, Bank of America and other banks. The legislation, which passed the Senate last month and the House in December, is based on a proposal President Barack Obama sent to Congress a year ago.
- U.S. Debt Bomb's Detonation Sped Up By Five Years. Fed's policy of piling on debt will lead to years of sluggish growth - or worse.
- Republican Seeks to Bar GM, Chrysler From Hiring Lobbyists. A Republican congressman will attempt Thursday to bar two domestic automakers and other government-owned companies from employing lobbyists. Rep. Darrell Issa, R-Calif., the ranking member of the House Oversight Committee, plans to introduce the amendment during a negotiating session Thursday between House and Senate members on a sweeping overhaul of the nation's financial system. The amendment would bar government-owned companies from employing lobbyists, said Kurt Bardella, a spokesman for Issa, including General Motors Co., Chrysler Group LLC and Ally Bank Inc. The proposal prompted urgent lobbying by the automakers on Capitol Hill.
- Obama's Speech: There's a Pipe Spewing a Gazillion Gobs of Oil into the Gulf, So Let's Build More Windmills.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
- Pundits Boo President Obama Speech. President Barack Obama’s Oval Office address on the Gulf Coast catastrophe is being greeted with a barrage of criticism from commentators and political analysts across the ideological spectrum — the most intense negative reaction to any major public appearance he has given as president. If the goal was to change the widespread Washington storyline that Obama is not rising to the occasion for the BP debacle, it became clear within moments that the 18-minute speech was an emphatic failure — and not just among conservatives who predictably root for the president to fail. “Junk Shot,” blared the headline at Huffington Post. Salon took a similar theme: “Just words: Oval Office speech fizzles.” Generally sympathetic commentators Keith Olbermann and Chris Matthews likewise honked with critical reviews on MSNBC.
- Cassano Lawyers: SEC Closes Inquiry of AIG Exec. Lawyers for Joseph Cassano said Wednesday the Securities and Exchange Commission has decided to close its inquiry of the former head of AIG's financial products unit without taking any action against him. Word of the SEC's decision followed similar action by the Justice Department, which decided not to file criminal charges against Cassano, whose dealings in mortgage-related securities nearly bankrupted American International Group Inc.(AIG) and led to a controversial $182 billion federal bailout of the insurance titan. The Justice Department also had decided not to bring criminal charges against Andrew Forster, who worked for Cassano. The subsidiary dealt in complex financial contracts called credit default swaps that helped sink AIG in September 2008, leading to the taxpayer-funded bailout. Investigators were looking into whether Financial Products officials tried to deceive investors and AIG's auditors, PricewaterhouseCoopers, by misstating the accounting value of a credit default swap portfolio. When AIG posted a loss for the fourth quarter of 2007, it pinned the blame on an $11 billion writedown related to the credit default swaps held by the Financial Products unit. If AIG couldn't make good on its promise to pay off the contracts, many of which were held by major banks, regulators feared the consequences would pose a threat to the whole U.S. financial system. The AIG bailout has drawn much public anger, largely because the company paid employees $165 million in retention bonuses after the company nearly failed and had to be bailed out by the government. A watchdog panel said last week it's still unclear whether U.S. taxpayers will ever fully recoup the $182 billion they plowed into AIG, and the government should have used up all its options before bailing out the company.
- Hedge Funds Rely Less on the Rich - Survey. Hedge funds get 72% of capital from institutions.
- Steel Dynamics(STLD) Sees Weak Q2 Earnings; Shares Down.
- BIS Wants OTC Derivatives Rated Like Drugs. Use of over-the-counter derivatives should be controlled according to their degree of safety in the same way that drugs are regulated, a top official at the Bank for International Settlements said. Stephen Cecchetti, head of the Basel-based body’s monetary and economic department, said in New York on Wednesday that the idea would be to “balance the need for innovation in financial instruments with the need to limit the capacity of any individual security to weaken the whole system”. He told a conference at Columbia University: “The solution is some form of product registration that would constrain the use of instruments according to their degree of safety.” He said the “safest” securities would be available to everyone, much like non-prescription medicines. Next would be financial instruments available only to those with a licence, like prescription drugs. Finally would come securities available “only in limited amounts to qualified professionals and institutions, like drugs in experimental trials”. Securities “at the lowest level of safety” would be deemed illegal, Mr Cecchetti said, without specifying what that level would be. Mr Cecchetti’s are among the most innovative of suggestions so far on how to bring the vast OTC derivatives markets under closer supervision and to ensure they are traded and processed more transparently to safeguard the wider financial system.
- Spanish Debt Wilts Amid 250 Billion Euro Rescue Plan Confusion. The spreads on 10-year Spanish bonds jumped to a post-EMU high of 224 basis points above German Bunds as traders brace for a crucial auction by Madrid on Thursday. The relentless rise in bond yields replicates the pattern seen in Greece at the onset of crisis. Spain must raise €25bn of debt in a cluster of auctions in July. "We're in a dangerous and stressful situation," said Gary Jenkins, a credit expert at Evolution Securities. "Spain is a big enough borrower to wipe out the EU's rescue fund." El Economista said officials from the EU, the IMF, and the US Treasury had been discussing a credit line of €200bn to €250bn, dwarfing the €110bn package for Greece. Dominique Strauss-Kahn, the IMF's managing director, reportedly called a secret meeting of the IMF's Board of Directors to tackle the crisis. The loan terms would be softer than the draconian budget cuts imposed on Greece, with the lion's share of the money coming from eurozone states under their €750bn shield. "The issue here is political risk. If they keep bailing out countries, it will mean printing money: that is not going to go down well in Germany," he said. Theodora Zemek from AXA Investment Managers said any rescue will have knock-on effects on the credit ratings of donor states. "Germany and France risk going from AAA to AA," she said. The original hope behind the EU's €750bn "shock and awe" headline was that the announcement of such sums would end all doubts about the political solidarity behind the euro project, but nationalist body-language from EU capitals and daily spats between France and Germany have sapped confidence. What haunts markets is fear that Spain may be the last line of defence. There can be no easy rescues after that because the money will run out. If investors ever start to question Italy's public debt – the world's third largest – they may face a sovereign version of the Credit Anstalt crisis of 1931.
- Toyota Motor(TM) will face a U.S. Congressional probe in September as lawmakers seek to further investigate the company's global vehicle recalls, citing an interview with Representative Bart Stupak, a Michigan Democrat.
- China will strengthen scrutiny of hot money inflows into the nation to prevent the formation of asset bubbles, Wang Xiaoyi, deputy director of the State Administration of Foreign Exchange, wrote in an article. The nation's economic growth is still mainly supported by government policy, Wang wrote. Realizing stable and growing foreign demand for Chinese products may become more difficult, Wang wrote.
- The "made-in-China" model is facing a turning point as China transitions from a subsistence wage to a consumer society, Tang Jun, a researcher at the Chinese Academy of Social Sciences wrote.
- Australian banks plan to seek the sale of commercial buildings worth billions of dollars in the next six months as they cut their exposure to property companies.
- None of note
- Asian indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 131.0 -2.0 basis points.
- S&P 500 futures -.47%.
- NASDAQ 100 futures -.41%.
Earnings of Note
8:30 am EST
- The Consumer Price Index for May is estimated to fall -.2% versus a -.1% decline in April.
- The CPI Ex Food & Energy for May is estimated to rise +.1% versus unch. in April.
- Initial Jobless Claims for last week are estimated to fall to 450K versus 456K the prior week.
- Continuing Claims are estimated to rise to 4500K versus 4462K prior.
- The 1Q Current Account Deficit is estimated to widen to -$121.9B versus -$115.6B in 4Q.
- Philly Fed for June is estimated to fall to 20.0 versus a reading of 21.4 in May.
- Leading Indicators for May are estimated to rise +.4% versus a -.1% decline in April.
- None of note
- The weekly EIA natural gas inventory report, William Blair Growth Stock Conference, Goldman Sachs Healthcare Conference, (STM) analyst meeting, (MCK) analyst meeting and the (VRX) investor day could also impact trading today.