Today's Headlines

Bloomberg:

• Greek Bond Risk Jumps to Record on Signs of Sputtering Recovery. The cost to insure Greek government bonds against default jumped to a record on speculation the slowing economic recovery will add to the country’s debt woes. Credit-default swaps on Greece rose 145 basis points to an all-time high of 1,077 basis points, according to CMA DataVision. Contracts on Portuguese government securities climbed 16 basis points to a two-week high of 336.5, while Spain rose 4 to 269. Greek bond risk rose as data showed European industrial orders rose less than expected in April, following a report yesterday that showed growth in the region’s services and manufacturing industries slowed in June. “Some type of restructuring is likely inevitable,” said Eric Stein, a portfolio manager for Eaton Vance’s Global Macro Absolute Return Fund, which in 2005 bought credit swaps on $50 million of Greek debt with an annual premium of $99,000 for 15 years, according to regulatory filings. The fund still owned credit swaps on Greece as of March 31, according to its website. “It’s very tough, in the long-term, to service their debt in its current form,” he said. The extra yield investors demand to hold 10-year Greek debt instead of benchmark German bunds rose 10 basis points to 782 basis points. That’s the most since May 7, before the aid package was announced. Contracts on the Markit iTraxx Crossover Index of 50 European companies with mostly high-yield credit ratings increased 16 basis points to 563.5, JPMorgan Chase & Co. prices show. The Markit iTraxx Europe Index of 125 investment-grade companies rose 4 to 129.9.
• U.S. Farmers May Face Subsidy Cuts, Peterson Says. Growers of corn, cotton and other crops may have to accept reduced subsidies in the next farm bill as budget-cutting becomes necessary to contain record deficits, House Agriculture Committee Chairman Collin Peterson said. “We’re not going to have any new money; we’ll probably have less money,” the Minnesota Democrat said today at a hearing in Washington of the House Agriculture subcommittee that oversees commodity programs. “We’re going to have to make it work,” he said.
• BP's(BP) Demise Would Threaten U.S. Energy Security, Industry Jobs. Oil spill aside, U.S. energy security will suffer if BP Plc goes under or is significantly reduced in size. Such a scenario would have implications for U.S. energy policy at home and abroad -- and mostly bad ones, Bloomberg Businessweek reports in its June 28 issue. Obama recognized as much when he said on June 16 that “BP is a strong and viable company, and it is in all of our interests that it remain so.” The company’s demise would be disruptive to the American oil industry, given that BP is the largest oil and gas producer in the U.S., with about 1 million barrels per day of production. Some 7,000 of BP’s 23,000 U.S. employees work in the Houston area, many in a suburban office park just off the Katy Freeway. From there the company runs its Gulf of Mexico offshore operations with a phalanx of engineers, geologists, and computer scientists. “These are highly compensated people,” says J. Robinson West, chairman of Washington-based consultants PFC Energy. Until the Deepwater Horizon accident, BP’s Gulf activities were viewed by the U.S. government as a big plus for U.S. energy security interests. Since the mid-1990s, the British company has been the leader in Gulf exploration, pushing into deeper water and drilling farther into the earth. Its projects were key to the 7 percent growth in production the U.S. achieved last year, reversing an 18-year decline in output. BP’s most daring move has been last year’s $20 billion deal in Iraq to add almost 2 million barrels per day in production to the country’s prized oil field in Rumaila. That attracted deals with other companies, greatly improving Iraq’s economic prospects. “BP was bold in going in first and opening up the way for the rest of them,” says Toby Dodge, an Iraq scholar at the International Institute for Strategic Studies in London. Oppenheimer & Co. oil analyst Fadel Gheit thinks BP could end up in bankruptcy if costs exceed $100 billion, a possibility if partners in the stricken well, such as Anadarko Petroleum Corp., manage to pin full legal responsibility for the oil spill on the U.K.-based producer. If so, BP may have to part with some prized assets, and Chinese and Russian oil companies less sympathetic to U.S. interests could step in as buyers and change the geopolitics of the oil industry. “Companies will be interested in buying assets in Azerbaijan, Angola, Brazil, and potentially also Norway,” says Gudmund Halle Isfeldt, an analyst at DnB Nor ASA in Oslo, Norway’s largest bank.
• Iceland's Creditor Risk Grows as Banks Face Losses. Icelandic banks may face a second crisis as a court ruling banning some foreign currency loans saddles lenders, mostly owned by international creditors, with losses on $28 billion of debt. “If the decision means all loans in kronur linked to the value of foreign currencies are illegal, I can’t imagine the Icelandic banking sector will survive that,” said Oddgeir A. Ottesen, an economist at IFS Consulting in Reykjavik, in a telephone interview. Credit default swaps on Iceland’s five-year debt rose 5 basis points to 322, the first increase this week and the biggest jump since June 4, according to CMA DataVision prices.
• New York May Tax Clothing Sales to Narrow Budget Gap. New York Governor David Paterson said a sales tax on clothing purchases of less than $110 might be part of actions needed to close the state’s $9.2 billion budget deficit. “Taxes on clothes has been brought back to us” by legislators, Paterson said in an interview on New York City radio station WOR today. “It’s in the discussion phase.”
• Merkel, Leaving for G-20 Meeting, Sees Rift on Deficits, Rules. German Chancellor Angela Merkel said she expects conflict at the Group of 20 summit in Canada this week on issues ranging from economic policy to financial regulation. Europeans and especially “Germans are of the opinion that the reduction of deficits is absolutely necessary to create sustainable economic growth,” Merkel told reporters at the Chancellery in Berlin today before leaving for Canada. “There are others who don’t see the exit strategy as we see it; I think there will be very fruitful but also controversial debates on these themes.” Merkel’s comments underscore a divergence with President Barack Obama, who in a letter to his G-20 counterparts dated June 16 urged a focus on economic growth, saying order to public finances should be restored in the “medium term.”
• The extra yield investors demand to hold 10-year Treasury notes over 2-year securities has fallen to a level signaling further strength in the market for government debt, according to Royal Bank of Scotland Group Plc. A close below 2,435 percentage points, "where the primary steepening trendline comes in," will indicate a further drop in yields, wrote William O'Donnell, managing director in Stamford, Connecticut, at RBS Securities, in a research note today.
• Apple(AAPL) May Sell 1 Million iPhones in New Model's Debut.
• Lennar Home(LEN) Orders Fall as Much as 25% in June, CEO Miller Says. Lennar Corp.’s home sales are down 20 percent to 25 percent this month compared with a year earlier as the expiration of a government tax credit for buyers saps demand, Chief Executive Officer Stuart Miller said. “The entire market knew there’d be a slowdown as we came off the tax credit,” Miller said on a conference call with investors today. “It’s just that the reality of it doesn’t feel good.” Toll Brothers Inc., the biggest U.S. luxury-home builder, said on June 16 that orders were running about 20 percent behind year-earlier levels in the three weeks after its May 26 earnings release. Meritage Homes Corp.“Most people are viewing the glass that is half empty right now,” Toll Brothers CEO Douglas Yearley Jr. said at an investors conference sponsored by Deutsche Bank AG in Chicago today. “They are not buying.” expects sales for its quarter ending June 30 to fall about 25 percent below the same period last year, when the Scottsdale, Arizona-based company closed on 890 homes, CEO Steven J. Hilton said at the conference.

Wall Street Journal:

• States See Mixed Demand for Appliance Rebates. States have paid out less than half the money set aside for rebates on energy-efficient household appliances, disappointing retailers and manufacturers that had hoped for a repeat of the hot demand fueled by last year's cash for clunkers auto scheme. The Department of Energy said this week that $108 million of the $300 million set aside for the program had been paid out on purchases of appliances such as clothes washers and heating and cooling systems.
• Representative McMahon to Vote 'No' If Derivatives Plan Isn't Altered. Rep. Michael McMahon (D., N.Y.) said in an interview today that he will vote against the financial overhaul bill if a section that could require banks to spin off their derivatives businesses isn’t changed immediately. McMahon’s threat underscores New York Democrats’ hostility toward the provision, known as “716” and inserted by Sen. Blanche Lincoln (D., Ark.). He said New York Democrats are discussing what they should do, and that others appeared to also be weighing voting against the bill.
• U.S. Financial Clouds Looming. How bad are things out there? One index suggests spillover from the European sovereign-debt crisis has pushed U.S. financial conditions to their worst since the Lehman Brothers aftermath. In the second quarter, the U.S. Monetary Policy Forum conditions index fell to minus-1.82, its lowest since the fourth quarter of 2008, Deutsche Bank calculates.
• Democrats Face Split on Derivatives Rules.
  

NY Times:

• Cuomo Accepts Millions From Interests He Assails. Attorney General Andrew M. Cuomo, declaring his candidacy for governor of New York, could not have been clearer. “The influence of lobbyists and their special interests must be drastically reduced with new contribution limits,” Mr. Cuomo said last month. “We will be taking on very powerful special interests which have much to lose. We must change systems and cultures long in the making.” But as he delivered his announcement, Mr. Cuomo was sitting on millions in campaign cash from the very special interests whose influence he said he wanted to limit. An analysis by The New York Times shows that of the estimated $7.1 million that the Cuomo campaign has received from political action committees, associations, limited liability corporations and other entities, more than half has come from the biggest players in Albany: organized labor, the real estate and related industries like construction, the health care sector and lobbying firms.
• Hedge Fund Regulations Stall in Europe. Talks have collapsed between the European Parliament and national governments over new controls for hedge funds due to a continuing dispute over licensing for funds from outside the bloc. On Thursday, the parliamentarian leading negotiations with European countries said he had disbanded efforts to reach an agreement this month on rules to clamp down on hedge funds and private equity.

NY Post:

• Port Authority Cops on Lookout for Terror Attack. Port Authority cops who staff the agency’s bridges and tunnels were read harrowing details of a terrorist threat today advising them to be on the lookout for a fuel-filled tanker meant to explode prior to a secondary blast designed to decimate any first responders, The Post has learned. The chilling warning was read at roll call for four police commands – cops assigned to the Holland and Lincoln Tunnel; the George Washington Bridge; and also the Staten Island command, which incorporates the Bayonne and Goethals Bridge and the Outerbridge Crossing, a source said.

Business Insider:

• Citi: Brace For An Avalanche of Economic Downgrades. The rising expectations cycle appears to be peaking, according to Citi in a new strategy note. We're in for a double dip for growth expectations, if not a complete double dip for the economy:
• Goldman(GS) Sorry, Housing Prices Will Keep Falling for Two Years.
• The Banks Keep Stealing - Why Do We Keep Paying? by Dylan Ratigan.
• Hugh Hendry: Soros is a Socialist, The Euro is Doomed and Everyone's Shorting the Wrong Continent.
  

Washington Post:

• Poll: Lawmakers Who Weaken FinReg Could Be Vulnerable. The poll, which was commissioned by Americans for Financial Reform, finds that an overwhelming majority would be less likely to reelect their member of Congress if they weaken FinReg: When asked if they would be more or less likely to re-elect their member of Congress if he or she "voted for loopholes that would make it easier for Wall Street and the big banks to keep doing business as usual," fully 78% of voters said they would be less likely to re-elect their member of Congress, while 63% said they would be much less likely to re-elect him or her. You may be tempted to dismiss this finding because it's a Dem firm. So check out the new NBC/WSJ poll. It finds that 53 percent generally want their Congressional candidate to support reforming Wall Street, 25 percent enthusiastically so. Getting meaningful FinReg appears to be on the minds of Americans, and it could be a voting issue this fall.

Politico:

• Democrats Exempt Unions From Disclosure Rules. A Democratic amendment tucked into campaign finance legislation Wednesday night appears to exempt big labor unions from proposed disclosure requirements. The change, inserted by Rep. Bob Brady (D-Pa.), chairman of the committee charged with handling the bill and a key union ally, would also affect other groups funded by members who pay dues of less than $50,000.
• Corker Warns of Bank Bill 'Hijacking'. Sen. Bob Corker (R-Tenn.) accused a handful of senators Thursday of “hijacking” the Wall Street reform negotiations. Corker directed his comments at Banking Committee Chairman Chris Dodd, but he was referring to the Connecticut Democrat's intense negotiations with a handful of moderate Republicans and Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.). “A few senators, over very parochial single-issue items, almost are hijacking the process, and I just want to say to my friend there are a numbers of ways to get to 60 votes,” Corker said to Dodd. “And it is fascinating to watch. Now, a few senators who really haven’t spent a lot of time on this issue — over one issue — potentially hijacked the process."

Reuters:

• FACTBOX - China Labor Strikes Bring Factories to a Halt. Discontent among China's estimated 130 million strong migrant workers, who have helped power the country's growth, threatens to undermine the government's legitimacy and erode the nation's competitiveness as a low-cost factory hub.

Financial Times:

• China Currency Dispute Has Not Gone Away. Near the end of the first week of trading under the new regime, the renminbi has only appreciated against the dollar by the grand total of 0.39 per cent. When the Chinese central bank said there would be no dramatic movements in the exchange rate, it clearly was not kidding. His message was this: while foreign governments might see the new policy as a passport to a stronger renminbi, China’s export lobby is welcoming it as a way of protecting itself from a weaker euro. Those objectives could easily conflict. Some of this confusion will spill over into this weekend’s G20 summit.

Handelsblatt:

• Government support to stimulate the economy can't last forever, German Finance Minister Wolfgang Schaeuble wrote. "Stimulating overall demand with funds financed by credits mustn't become the permanent state, like feeding a drug-addiction," Schaeuble wrote.
  

Repubblica:

• European Central Bank President Jean-Claude Trichet said the credibility of austerity measures taken by governments needs to be kept constantly under control, citing an interview with him. It's wrong to think that austerity measures taken by governments such as Germany strangle a recovery, he said.

El Comercio:

• OPEC President Wilson Pastor said stricter regulations on deepwater oil exploration following the BP Plc(BP) spill in the Gulf of Mexico will boost crude prices.