Today's Headlines

Bloomberg:

• Sales of U.S. New Houses Plunge to Record Low as Credit Ends. Purchases of U.S. new homes fell in May to the lowest level on record after a tax credit expired, showing the market remains dependent on government support. Sales collapsed an unprecedented 33 percent from April to an annual pace of 300,000, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, figures from the Commerce Department showed today in Washington. Demand in prior months was revised down. The median price decreased 9.6 percent from the same month last year, to $200,900, the lowest since December 2003, today’s report showed. Purchases dropped in all four U.S. regions last month, led by a record 53 percent decrease in the West. The supply of homes at the current sales rate jumped to 8.5 months’ worth from 5.8 months in April. The S&P Supercomposite Homebuilder Index, which includes Toll Brothers Inc. and Lennar Corp., has dropped 28 percent through yesterday since reaching a 19-month high on May 3. Builders are also concerned that the Gulf oil spill and European debt crisis are hurting buyer confidence. Toll, the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period the past three weeks.
• Greek, Spanish Yield Spreads Widen on Economic Growth Concern. The extra yield investors demand to hold the bonds of so-called peripheral European nations instead of German bonds increased as signs the economic recovery may be slowing added to the appeal of the safest fixed-income assets. The yield on the benchmark 10-year bund fell to its lowest in a week after a report today showed growth in Europe’s services and manufacturing industries slowed in June. It extended declines after U.S. data showed purchases of new homes slid to a record low. Spanish and Greek bonds fell, widening the yield spread over German notes. The cost of insuring against losses on Greek debt soared to the highest in more than a month. Greek government bonds fell, pushing the yield to more than 10 percent for the first time since May 10, the day the European Central Bank began buying debt securities to support a European Union rescue plan for nations struggling to raise funds. The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds widened to 775 basis points from 711 basis points yesterday. Credit-default swaps tied to Greek sovereign debt surged as much as 91.5 basis points to 941, above the all-time high closing level of 940 on May 6, according to CMA DataVision. Portugal auctioned 943 million euros of bonds due 2015, more than originally planned at an auction today. The securities were sold at an average yield of 4.657 percent, compared with 3.701 percent at an offering in May.
• Fed Keeps Rate Pledge, Says Markets 'Less Supportive'. Federal Reserve officials retained a pledge to keep the benchmark interest rate at a record low for an “extended period” and signaled that European indebtedness may harm American growth. “The economic recovery is proceeding” and “the labor market is improving gradually,” the Fed’s Open Market Committee said in a statement in Washington. Still, “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”
• Lumber Falls to Eight-Month Low on Collapse in U.S. Home Sales. Lumber futures plunged to the lowest price in eight months after a report showed that new-home sales in the U.S. fell at a record pace in May, dimming prospects for building materials. Purchases collapsed an unprecedented 33 percent from April to an annual pace of 300,000 units, the fewest since at least 1963, the U.S. Commerce Department said today. Economists surveyed by Bloomberg News forecast a 410,000 annual pace. Lumber futures have declined as much as 46 percent since April 21, when prices were the highest in almost four years. “Home sales are down 33 percent, so you have an overall economy issue,” said Dewey Strickler, the president of Ag Watch Market Advisors in Nashville, Tennessee. “For grains or any other commodities to rise, you have to have strong consumer demand, and we don’t really have that right now.” Lumber futures for September delivery fell $7.80, or 4.1 percent, to $184.20 per 1,000 board feet at 12:12 p.m. on the Chicago Mercantile Exchange, after reaching $183, the lowest price for a most-active contract since Oct. 9.
• IEA Says World Oil Demand Growth to Slow Through 2015. The International Energy Agency, an adviser to oil-consuming nations, said growth in world fuel demand will decline over the next five years as the pace of Chinese consumption slows. The IEA estimates that annual demand growth will shrink every year to average 1 percent in 2015, or 940,000 barrels a day, from 1.9 percent, or 1.62 million barrels a day, in 2010, it said in its Medium-Term Oil and Gas Markets 2010 report today. While Chinese oil demand is expected to reach 11.63 million barrels a day by 2015, from 9.16 million barrels a day this year, the pace of annual growth is slowing, according to the IEA data. Consumption will increase 4.1 percent in 2015, compared with 7.6 percent this year, the data show. The rate of decline in developed economies is accelerating. North American demand will drop 0.6 percent in 2015 compared with a rise of 0.8 percent this year, according to the IEA. Total demand from OECD countries will drop 0.9 percent compared with 0.1 percent in 2010, the agency estimates. The agency estimates that non-OPEC oil supply will average 52.5 million barrels a day in 2015 compared with 51.5 million barrels a day in 2009, six-year growth of 1.9 percent. In last year’s report it estimated that supply would decline 0.4 percent in the six years through 2014.
• Commodity Shipping Extends Longest Drop in 14 Months on Surplus. Commodity shipping costs measured by the Baltic Dry Index extended their longest losing streak in 14 months because of an expanding surplus of vessels and declining Chinese imports of iron ore and coal. Growth in China, the world’s biggest consumer of both commodities, will slow to 10.5 percent this quarter and 9.6 percent in the following three months, compared with 11.9 percent in the first quarter, according to the median forecast of 21 economists surveyed by Bloomberg. The nation’s coal and iron-ore imports fell in April and May, customs data show. Shipping lines were counting on expanding demand to bolster business for new vessels joining the fleet. The global fleet of capesizes, which haul 170,000 metric-ton cargoes of iron ore and coal, was at 1,031 at the start of June, up from 950 in January, according to Arctic Securities ASA. That may reach 1,150 by the fourth quarter, Arctic estimates. “There’s been a constant increasing pace of deliveries and China’s iron-ore imports have cooled down,” said Martin Sommerseth Jaer, an analyst at Arctic in Oslo who has followed shipping for six years. “The market is being hit from two sides. You have the supply side which is killing you and you have a break in demand.” The index fell 32 points, or 1.3 percent, to 2,515 points today, according to the Baltic Exchange in London. That’s the 19th consecutive drop, the longest losing streak since April 2009. Daily rates for capesizes declined 4.3 percent to $24,064 a day, the lowest since Sept. 28. Capesize costs may drop to $20,000 by next week, Jaer said. That would be the lowest since April 2009. There were 34 capesizes at anchorage outside major ore and coal berths in China, according to a June 18 report from Truro, England-based Global Ports, which tracks the shipping lines. A month earlier, there were 43 capesizes waiting. The nation’s coal imports slumped 11 percent in April and almost 19 percent in May, customs data show. Imports of iron ore, used to make steel, fell more than 6 percent in both months, the first back-to-back monthly declines since the middle of 2008.
• Soros Says Europe's Banks Haven't Been 'Cleansed' Yet. Billionaire investor George Soros said continental European banks haven’t been “properly cleansed” after the credit crisis because they haven’t marked the value of their holdings to market prices. “The current crisis is more a banking crisis than a fiscal one,” Soros, 79, said in remarks prepared for a speech in Berlin today. “Bad assets haven’t been marked to market, but are being held to maturity. When markets started to doubt the creditworthiness of sovereign debt it was really the solvency of the banking system that was brought into question because the banks were loaded with the bonds of the weaker countries and these are now selling below par.” “We cannot judge how serious the situation is until the results are published,” Soros said today. “Indeed we shall not be able to judge even then because the report will deal only with the 25 largest banks and the biggest problems are in the smaller banks, notably the Cajas in Spain and the Landesbanken in Germany.” Recapitalization of the smaller banks including Spain’s savings banks and Germany’s state banks should be “compulsory” because they are “way over-leveraged,” Soros said.

Business Insider:

• Goldman(GS): A Drilling Ban Would Destroy Half of Gulf Oil Production by 2015. As horrible as the disaster is, and as noble as the concept of weaning America off of oil consumption may be, it's hard to see how America will be able to drastically change its ways any time soon. Any oil not produced in the gulf will be shipped in from abroad. In addition, one has to imagine that the offshore industry in nearby states would be devastated by 2015 as well.
• The Volcker Rule Just Got Dropkicked, As New Compromise Opens Door For Bank Hedge Funds. In the end, financial reform is going to play out exactly how you always imagined it would, with a compromise favoring Wall Street.
  

Zero Hedge:

• Barclays(BCS) Slaughters Goldman(GS), Cuts Q2 2010 EPS by 65% to $1.95 from $5.35 Previously, $4.29 Street Consensus. From Barclays: "Financial market conditions have deteriorated notably since 1Q10, evidenced by sharply wider credit spreads, cash-derivative basis, declines in structured finance indices, sharply higher volatility and a "flight-to-safety" trade in less risky assets. We believe this market dislocation, while certainly smaller than the dislocations seen in 2008 and early 2009, has impacted broker-dealer revenue generation in terms of client activity levels, trading revenue and investment banking results.

Dow Jones:

• China should be wary about raising the levels of Australian dollars in its currency reserves due to the possibility of lower materials demand as the nation's economy becomes more efficient, a think tank official said. The likelihood of lower demand for iron ore and other resources means the Australian dollar "doesn't really look reliable" as a reserve currency," Zheng Xinli, vice chairman of the China Center for International Economic Exchanges said.

alternet:

• A Last-Minute Wall Street Sell-Out By New Dems? A coalition of conservative New Democrats, whose leader is being investigated by a Congressional ethics committee over Wall Street fundraising, has officially come out in favor of gutting financial reform. The issue they’ve targeted: derivatives, the most closely watched effort of the bank overhaul. Good luck in November, guys. New Democrats like to say they are “pro-business,” but what they usually mean is, “willing to funnel federal gifts to bigwig executives.” Their chair is Rep. Joseph Crowley, D-N.Y., currently under investigation by the House Office of Congressional Ethics over a fundraiser he held just days before the final House vote on the Wall Street reform package back in December 2009. Crowley is a favorite of Wall Street CEOs, who has pulled in more than $2.6 million from the finance industry over the course of his Congressional career, over 250 percent more than any other industry. Crowley isn’t the only New Dem close to Wall Street.

Rasmussen Reports:

• 28% Say U.S. Heading in Right Direction. Twenty-eight percent (28%) of Likely Voters now say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey taken the week ending June 20. The latest finding is down slightly from last week and is down seven points from the recent high following Congress' passage of the national health care bill in late March, when 35% felt that way.

Politico:

• President Obama: David Petaeus to Replace Stanley McChrystal.

Market Folly:

• Hedge Funds Aggressively Cover Euro Short Positions.

NBC Chicago:

• Tighter Standards Slow Housing Market. Even for successful buyers with sterling credit, seeking a mortgage these days can feel like a simultaneous root canal and colonoscopy. Tighter loan restrictions were expected after the mortgage fiasco. A quarterly Federal Reserve survey of loan officers at large banks confirms they have tightened standards significantly over the past three years, although now some lenders are beginning to loosen up. But as the housing market continues to struggle, with sales of existing homes dropping unexpectedly last month, sales some mortgage brokers say the pendulum of scrutiny has swung too far, causing transactions to take far longer than necessary, putting buyers through too much hassle and blocking qualified applicants from purchasing. The real estate business seems to have switched its motto from “location, location, location” to “documentation, documentation, documentation.” Potential buyers must chronicle every dollar of income and all assets via pay stubs, W-2s, tax returns, bank statements, credit reports and sometimes even letters from employers or family members. Mortgage brokers blame new federal lending rules for injecting unneeded delays in the loan process, and they accuse some underwriters of focusing on their own job security rather than fairly analyzing a consumer’s default risk.

Reuters:

• Special Report: Saving Goldman Sachs(GS). * Goldman executives working overtime to protect franchise * Some clients wary of doing business with tarnished firm * Controversy costs Goldman a spot on Booz Allen IPO * Calpers says won't use Goldman as real estate adviser * Charm offensive includes sushi lunches and face time.

Financial Times:

• Funds of Hedge Funds. The names, as ever, sound terrific: Momentum AllWeather, Mellon Sanctuary, Principal Absolute Alpha. Yet the aggregate performance of funds of hedge funds (FOFs) has been anything but. While regular hedge funds are down about 2 per cent so far this year, according to Lipper, FOFs – which channel investors’ money to a portfolio of managers – are down more than 6.

Rp.pl:

• Poland's sovereign credit ratings may come under "enormous pressure" if the country doesn't take steps to reduce its budget deficit and produce a "genuine" improvement in public finances by 2012, Piotr Kowalski, the chief executive officer of Fitch Ratings Polska, was quoted as saying.