Today's Headlines

Bloomberg:

• Regulatory Overhaul Won't Stop Next Crisis, Say Levitt, Breeden. Congress’s proposed overhaul of U.S. bank regulation wouldn’t have averted the 2008 financial crisis and does too little to prevent a recurrence, two former chairmen of the Securities and Exchange Commission said. Legislation being refined by a House-Senate conference after passage by both chambers relies too heavily on regulators such as the Federal Reserve that previously failed, said Richard Breeden, who led the SEC from 1989 to 1993. Congress failed to address emerging threats, such as abuses in the municipal-bond market, that might trigger the next meltdown, said Arthur Levitt, who was SEC chairman from 1993 to 2001. “There was massively too much leverage within the financial system,” Breeden said at a Bloomberg Link Boards & Risk Conference in Washington yesterday. “Regulators had the authority to control that and eliminate it. We can keep passing laws, but if the regulators don’t have the backbone to enforce the rules and to be realistic, then that’s a different problem.”
• Fed Officials May Trim U.S. Growth Outlook on Europe Risks. Federal Reserve officials may trim forecasts for U.S. economic growth when they meet next week to set interest rates as Europe’s debt crisis saps demand for American goods and roils financial markets. Central bankers may reduce their 2010 estimates by “several tenths” of a percentage point and as much as 0.75 point for 2011, said former Fed Governor Lyle Gramley. That would mark a reversal from April, when officials raised their projections for this year to a range of 3.2 percent to 3.7 percent and left 2011 and 2012 forecasts little changed. The new estimates are likely to reinforce the Fed’s pledge, in place since March 2009, that interest rates will stay very low for an “extended period,” said former Fed researcher John Ryding. Some Fed officials are concerned that results of stress tests planned for European banks may further shake confidence in the continent’s financial system.
• The Baltic Dry Index, a measure of commodity-shipping costs that's tumbled 28% during its longest losing streak this year, may decline further, according to technical analysis by Barclays Capital. The gauge fell to 3,020 points yesterday, extending a 13-day fall on speculation weaker Chinese construction may curb raw material demand.
• Iran Vows 'Retaliation' for UN Sanctions Compliance. President Mahmoud Ahmadinejad threatened “retaliation” against any country that acts to enforce the latest United Nations nuclear sanctions against Iran, while the parliament in Tehran is considering a bill to reduce UN inspections of its atomic facilities. “Any country that would damage Iran’s interests because of the sanctions will face Iran’s severe retaliation,” the Iranian president said today in an address televised live by the state broadcaster from the city of Shahrekord. Iran denounced the sanctions after they were approved, with Ahmadinejad saying the measures should be “thrown into the trash bin like a used tissue.” “We will set conditions for dialogue in order to discipline you,” Ahmadinejad said today, referring to the Security Council member nations that approved the sanctions. The vote was 12 to 2, with two abstentions. He said the Persian Gulf country will announce its conditions “soon.”
• Spanish, Portuguese Bonds Decline on Debt, Austerity Concern. The Spanish and Portuguese bonds fell relative to German bunds amid deepening concern the nations’ economic growth will be curtailed by spending cuts needed to reduce their budget deficits.premium that investors demand to hold Spanish 10-year government bonds over German bunds rose to a euro-era record. The European Union today “firmly” denied a report that the International Monetary Fund, the EU and the U.S. Treasury are putting together a credit line of as much as 250 billion euros ($307 billion) for Spain’s government. Spanish and Portuguese debt levels may “snowball” in coming years and more budget cuts are needed, according to a draft European Commission document obtained by Bloomberg yesterday. “The European Commission draft suggests bigger problems in the periphery, and the market is looking for the next Greece,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. The yield premium for Spanish 10-year government bonds over German bunds rose 14 basis points to 220 basis points, the widest spread since before the euro’s debut in 1999. Greek 30-year bonds fell, with the price of the benchmark closing below 50 for the first time since it was issued in 2007. Spain faces 16.2 billion euros of bond redemptions next month and the decline in its debt in secondary markets means it will have to offer higher returns to attract investors. Spain plans to sell 3.5 billion euros of 2020 and 2041 bonds tomorrow in a test of market sentiment toward the Mediterranean nation.
• FedEx(FDX) Outlook Trails Estimates as Employee Costs Rise. FedEx Corp., the world’s largest air-cargo carrier, forecast annual profit that trailed analysts’ estimates as rising health-care and pension costs climb in a “moderate” economic recovery. Earnings for the fiscal year that began June 1 will be $4.40 to $5 a share, the Memphis, Tennessee-based company said today. Analysts projected $5.07, the average of 21 estimates compiled by Bloomberg. Profit this quarter will be 85 cents to $1.05, compared with the average analysts’ projection of $1.02.
• Fannie, Freddie Plunge After Moving to Delist Shares. Fannie Mae and Freddie Mac, the mortgage firms 80 percent owned by U.S. taxpayers, plunged after regulators told them to delist their common and preferred stock from the New York Stock Exchange. The Federal Housing Finance Agency, which has overseen the two companies since 2008, ordered the moves as a preemptive step after the New York Stock Exchange told Washington-based Fannie Mae that its shares no longer met listing standards, FHFA Acting Director Edward DeMarco said today.
• Democrats Say Climate Bill Lacks Momentum After Spill. The BP Plc oil spill in the Gulf of Mexico is unlikely to create enough momentum to pass a comprehensive climate bill sought by President Barack Obama, say leading Senate Democrats. Many Democrats don’t want to vote in this election year on whether to cap the greenhouse-gas emissions linked to climate change, saying they prefer to work in the coming months on legislation directly responding to the spill. “The climate bill isn’t going to stop the oil leak,” said Senator Dianne Feinstein, a California Democrat. “The first thing you have to do is stop the oil leak.”

Wall Street Journal:

• BP(BP) to Set Aside $20 Billion for Claims. President Barack Obama, after emerging from a meeting with top BP PLC executives, said the company will put $20 billion into an independently administered fund to help pay for claims as a result of the Gulf oil disaster. BP Chairman Carl-Henric Svanberg said after the meeting that the company wouldn't pay further dividends this year and will look after the people of the Gulf coast. He said he wanted to apologize to those affected by an oil disaster he acknowledged should have never happened. He said the company would do its own probe of what caused the catastrophe. Mr. Obama called the meeting "constructive" and said BP voluntarily agreed to set aside an additional $100 million for workers who lost their jobs as a result of a deep-water drilling moratorium. Mr. Obama said the $20 billion is not a cap, and added that BP will pay the full costs of the cleanup including environmental damage. The president met with executives of BP, including its chairman and Chief Executive Tony Hayward, for several hours at the White House Wednesday morning. Mr. Obama said "BP is a strong and viable company and it is in all of our interests that it remains so."
• History Shows BP(BP) Will Survive and Prosper After Oil Spill. Will BP survive the oil spill in the Gulf of Mexico? History says it can. While some investors have concerns about BP’s ability to pay for the lawsuits and clean costs associated with the spill, history suggests reputational damage is not likely to threaten the British energy giant’s long term business. Just look at how Union Carbide survived its Bhopal India gas leak disaster in December 1984.
• Afghanistan Invites Firms to Develop Mines. Afghanistan has invited 200 global companies for the development of its mines and a number of Indian companies are keen to participate, the country's mines minister said Tuesday.
• Greek Union Boss Envisages Further Strikes. Greece’s most powerful union leader, Giannis Panagopoulos, is not a hot head who fires off needless threats of industrial action. Even so, he has promised to call yet more paralyzing strikes which would likely spark another round of street riots.

Business Insider:

• Here's How The New Derivatives Regulations Are Just Begging To Be Gamed.

Apple Insider:

• iPhone 4 Demand Predicted to Drive Apple(AAPL) to 9.5M June Quarter Sales. With record breaking demand for the new iPhone 4 on the first day of preorders, one prominent analyst believes Apple will sell 9.5 million total handsets in the June quarter, while a new breakdown of preorders suggests popularity of the 16GB model. Gene Munster with Piper Jaffray issued a note to investors on Wednesday, in which he increased his June quarter iPhone sales estimate by 1 million, to 9.5 million.

The Hill:

• New York House Members Oppose Lincoln Derivatives Measure. New York House members are urging Congress to drop a controversial provision in the Wall Street overhaul that restricts banks' derivatives trading. The provision aims to bar depository banks from also running derivatives desks. Umbrella bank holding companies would be able to own derivatives affiliates under the measure. "We are deeply concerned by the very real possibility that, as a result of the Senate derivatives provisions, America's largest financial institutions will move their $600 trillion derivatives business overseas, at the expense of both the U.S. economy, as well as the economy of New York State and New York City," the lawmakers wrote. The letter is organized by New York Democratic Reps. Mike McMahon and Gary Ackerman. The derivatives business is highly concentrated among the largest Wall Street banks.

Market Folly:

• Global Macro Hedge Funds Net Short Equities. As of last week, long/short equity hedge funds were 22% net long. Again, this is well below historical averages of around 35-40%.
  

Reuters:

• Fed Could Emerge Intact From Wall Street Reform Debate. After suffering more than a year of abuse over its role in the financial crisis, the U.S. Federal Reserve is poised to emerge with its powers relatively intact as lawmakers finalize a sweeping overhaul of financial regulations. With congressional elections looming in November, Democrats in charge of the process say the House of Representatives and Senate bills are relatively close. They aim to finish hammering out differences in the two versions by June 24 so President Barack Obama can sign the reforms into law by early July.

Hospodarske Noviny:

• A Czech fiscal austerity plan proposed by Finance Minister Eduard Janota may raise taxes for everyone regardless of income by reducing the size of the deductions on income tax, citing the document. The plan, likely to be accepted by the new government, includes raising the value-added tax to 12% from 10%, imposing higher taxes on individuals with a monthly income exceeding $6,770, freezing pensions and slashing child subsidies.

The Australian:

• Housing Market a 'Time Bomb', Says Investment Legend. THE Australian and British housing markets are the last two bubbles left in the wake of the financial crisis, and it is only a matter of time before they crash, warns legendary US investor and co-founder of global investment management firm GMO, Jeremy Grantham. He said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend. "You cannot possibly miss it," he said. "The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times). "Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be." In Australia's case, Mr Grantham described the housing market as a "time bomb" just waiting for interest rates to increase and become impossible to support. Since last October, the Reserve Bank of Australia has raised the official cash rate six times. The rate is now 4.5 per cent. If the Australian housing market did not return to the normal multiple of family income, he said "it will be the first time in history." "Sooner or later, the rates will go up and the game is over."