Bloomberg:
- Bank Credit Risk Declines Most in Week After ECB Loans Tender. The cost to protect bank bonds from default fell the most in more than a week after the European Central Bank said lenders asked for 131.9 billion euros ($162 billion) for three months, less than economists had forecast. Credit-default swaps on the Markit iTraxx Financial Index of 25 banks and insurers declined 6.5 basis points to 165.5, according to JPMorgan Chase & Co. in London, the biggest one-day decline since June 18. Credit-default swaps tied to Greek bonds fell 72.75 basis points to 930.25, the fourth-straight drop, while contracts on Portugal declined 15.5 basis points to 315.25, according to CMA DataVision. Swaps on Spain tightened 6 to 265.5 basis points. The Markit iTraxx Crossover Index of swaps on 50 companies with mostly high-yield credit ratings fell 4 basis points to 582.5, according to Markit Group Ltd. The Markit iTraxx Europe index of 125 companies with investment-grade ratings declined 3 basis point to 130.5, Markit prices show.
- ADP Estimates U.S. Companies Added 13,000 Workers. Companies in the U.S. added fewer workers in June than forecast, according to data from a private report based on payrolls. The 13,000 gain was the smallest since February and followed a revised 57,000 increase the prior month, figures from ADP Employer Services showed today. Economists surveyed by Bloomberg News had forecast a gain of 60,000, according to the median estimate. Companies may be slow to add workers until there’s evidence the gains in demand will be sustained. “We’re in a soft patch in the economy and employers are reluctant to hire,” said Richard DeKaser, chief economist at Washington-based Woodley Park Research, whose ADP forecast of 23,000 was closest among economists surveyed. “It suggests non- government payrolls will be quite soft, well below what’s necessary to ensure a stable economic recovery.” Today’s ADP report showed a decrease of 17,000 workers in goods-producing industries including manufacturers and construction companies. Employment in construction fell by 35,000.
- Cassano Says He Could Have Won Better AIG Deal for Taxpayer. Joseph J. Cassano, whose derivative bets on subprime loans forced American International Group Inc. into a U.S. bailout, said he could have negotiated discounts on collateral calls had he remained with the company. Cassano could have won “a much better deal for the taxpayer” by negotiating with banks demanding collateral from AIG, Cassano said today in testimony to the Financial Crisis Inquiry Commission.
- Chu Says China's 'Crude Securitization' of Loans a Worry: Video. Charlene Chu, a senior director in financial institutions for Fitch Ratings in Beijing, talks with Bloomberg's Rishaad Salamat about potential risks to China's banking system.
- The euro-region's debt crisis, which keeps weighing on market sentiment and threatens to hamper an economic recovery, risks restraining eastern Europe's growth outlook and ability to attract investment, BNP Paribas SA said in its monthly report. The Hugarian and Czech economies are in a "depressed" state, which calls for continued interest rate reductions, limiting potential gains in the forint and the koruna. Polish fiscal overhaul "remains non-existent," and weaker growth will "make that more apparent," according to BNP. Poland's fiscal outlook "suggests there is a higher risk of a disorderly unwinding of positions here than elsewhere in central and eastern Europe," BNP said.
- Commodity Slump Means Worst Quarter in Year on Growth Outlook. Commodities are heading for their worst quarter in more than a year on investors’ concern that slower growth from China to the U.S. will sap demand. The S&P GSCI Total Return Index of 24 raw materials plunged 11 percent since the end of March, led by declines in industrial metals, gasoline and crude oil. That’s the steepest decline since the fourth quarter of 2008 and the first time prices dropped in the first-half since 2001. Zinc’s 25 percent plunge was the worst quarter since the final three months of 2008. Nickel fell 22 percent, lead 19 percent, copper 17 percent and aluminum 15 percent. Barclays Capital is forecasting even lower prices by the fourth quarter. Copper will average $6,000 a metric ton in the period, 7.7 percent lower than now and aluminum $1,850, for a drop of 6.1 percent, according to a June 25 report. Oil retreated 9.7 percent since April, the first quarterly decline since the last three months of 2008. The U.S. is the world’s biggest energy consumer, ahead of China. U.S. crude stockpiles tracked by the Department of Energy rose almost 12 percent this year. The International Energy Agency, an adviser to consuming nations, forecasts that global oil demand will rebound 2 percent this year after a two-year collapse that was the steepest since the 1980s.
- Bankers Who Broke Big Dig With Swaps Gone Awry Get Paid for Fix. The same bankers who sold Massachusetts interest-rate swaps that blew up the debt financing for the so-called Big Dig road and tunnel project in Boston -- costing taxpayers $100 million -- are getting even more money to fix what they broke. UBS AG bankers showed up at the Massachusetts Turnpike Authority in 2001 with a solution to a growing deficit at the state agency overseeing the $15 billion project. The bank gave the authority $29.1 million for an interest-rate swap linked to $800 million of Big Dig bonds, an agreement meant to cut the cost of paying back the debt and cover part of the budget shortfall. JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. made similar deals. The deal with UBS backfired as credit markets faltered two years ago, costing toll payers $36.3 million in extra interest and leading the Zurich-based bank to demand as much as $400 million to end the arrangement when the Big Dig bonds’ insurer lost its top credit ratings. “There was really no mention of any downside of these swaps,” said Christy Mihos, a turnpike board member from 1999 to 2004 who voted for the UBS agreement. “It was portrayed as a no-brainer that we could not lose.” The same Wall Street banks that triggered the worst financial collapse since the Great Depression also helped government borrowers from Greece to California paper over deficits with derivative deals promising savings on borrowings. Many of the agreements failed when credit markets seized up in 2008 and swap payments from banks no longer covered rising debt costs.
- Munis Underperform Treasuries as Default Speculation Mounts. Municipal bonds underperformed U.S. Treasuries in the first half as default speculation drove state and local government yields to the highest level relative to government bonds in 13 months. Ten-year municipal bond yields rose to 100 percent of Treasuries for the first time since May 2009, from 80 percent six months ago, according to Municipal Market Advisors data. Investors bought Treasuries, pushing two-year yields to a record low this week, on signs of slowing global economic growth and amid protests in Europe over austerity measures. The cost of contracts insuring against losses in municipal bonds almost doubled in the past two months, led by Illinois. Greece and Spain led a surge in the cost of protecting sovereign debt.
- Foreclosed Homes Sell at 27% Discount as Supply Grows. Homes in the foreclosure process sold at an average 27 percent discount in the first quarter as almost a third of all U.S. transactions involved properties in some stage of mortgage distress, according to RealtyTrac Inc.
- Merkel's President Candidate Fails to Win 2nd Round. Chancellor Angela Merkel’s candidate for the German presidency, Christian Wulff, failed to get enough votes to win the post in a second round, as delegates used the secret ballot to signal their frustration with her coalition. The vote marks “a serious shot across the bow for Merkel,” Richard Stoess, a political scientist at the Free University in Berlin, said in a phone interview. While the second-round result won’t bring down Merkel’s government, it’s “a disaster for her image and her standing, given the overwhelming majority the coalition has in the assembly.”
- N.Y. Move Could Double-Tax Hedge Fund Managers. Finally, Gov. David A. Paterson and legislative leaders have found something they can agree on: that hedge fund managers from Connecticut and New Jersey should pay the state of New York millions more in taxes. As they grapple with a gaping budget shortfall, Mr. Paterson and the lawmakers plan to enact a tax change that will treat much of the compensation earned by the fund managers who work in New York but live outside the state as ordinary income. However, industry observers say the move could open up fund managers to double taxation and take some of the shine off New York as a hedge fund destination, The New York Times’s David M. Halbfinger reports.
- Hedge Funds Object to Lehman Chapter 11 plan. A group of Lehman Brothers Holdings‘ creditors, including the largest United States pension fund and a prominent hedge fund, said they object to the investment bank’s Chapter 11 bankruptcy plan, Reuters reported. In a filing in Manhattan bankruptcy court on Tuesday, the group of 12 hedge funds, pension funds and asset managers said the current plan would sow conflict among creditors, and could treat large bank creditors better than other creditors. This, it said, could result in years of needless lawsuits, delay the deserved recovery of tens of billions of dollars. The creditors said they are owed $15.5 billion. Among them are the California Public Employees’ Retirement System, a pension fund with $211 billion of assets, and Paulson & Company, a $35 billion hedge fund firm run by billionaire John Paulson. “The plan establishes a ‘pot’ of assets for distribution and pits creditors of the various estates against each other,” the filing said.
Zerohedge:
Washington Post:
- Recession Cut Into Employment for Half of Working Adults, Study Says. The recession has directly hit more than half of the nation's working adults, pushing them into unemployment, pay cuts, reduced hours at work or part-time jobs, according to a new Pew Research Center survey. The economic shock has jolted many Americans into a new, more austere reality, which is likely to have lasting consequences for an economy fueled mostly by consumer spending. More than six in 10 Americans say they have cut down on borrowing and spending, the survey found. The reason: Nearly half of the survey's respondents say they are in worse financial shape as a result of the downturn, which destroyed 20 percent of Americans' wealth.
- Latest Hedge Fund Exposure Levels: Trend Monitor Report. We've been tracking hedge fund exposure levels across asset classes for some time now. During this chronicle, we've seen hedge funds short the euro and then last week we saw them start to cover those shorts. One recent move that has been spot on has been global macro hedge funds going net short equities. So, given the recent market decline, how are hedge funds positioned now? In terms of the latest market exposure, long/short equity funds are now on average 30% net long. This has slowly started to creep up in recent weeks as they begin to increase market exposure. In terms of specifics, it appears as though l/s funds now very much favor large cap stocks. Additionally, they continue to sell emerging markets after having higher than average exposure in this arena as of late. This comes after these hedgies have had low net long exposure through 2010. Market neutral funds, on the other hand, continued to reduce market exposure. These two strategies have seemed to move conversely of each other over the past month or so with regard to equities. Turning to global macro hedge funds, Bank of America estimates that these funds have held their equity short position steady but have added to their net short in commodities and 10 year treasuries. Given the flattening that has occurred in regards to treasury yields as of late, it's interesting to see hedgies press toward a crowded short in 10 year treasuries yet again. This seems to be a trade they just refuse to let up on.
- Chicago-Area Banks Losing Money. Two years into the banking crisis, Chicago-area lenders have yet to find a bottom. As a whole, banks headquartered in the Chicago area are losing money, and the bad loans and foreclosed real estate continue to climb, according to a report by Loan Workout Advisers LLC and MDI Investments Inc. provided exclusively to the Tribune. For consumers, the fallout could mean jumping through more hoops to get loans as banks try to minimize their risks. "When a community bank faces capital problems, lending to consumers and small businesses suffers," said Justin Barr, managing principal for Loan Workout, a bank-turnaround consulting firm.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).
- 28% Say U.S. Heading in Right Direction. Sixty-six percent (66%) of all voters believe the country is heading down the wrong track.
- Republicans Seek to Resurrect Repeal of Health Care Reform. The top two House Republicans are renewing their calls to repeal the health care overhaul and will back efforts to force votes on the House floor amid polls that show the public continues to have decidedly mixed feelings about the legislation.
- White House Quiet on Obama-Blago Link. The White House was mum Tuesday after a union leader testified that Barack Obama personally asked him to approach then-Gov. Rod Blagojevich about appointing confidant Valerie Jarrett to his Illinois Senate seat – testimony Republicans say clearly contradicts the Obama team’s version of events.
- USDA Data Shows Explosive Potential for CBOT Corn. A shocking acreage and stocks report released by the U.S. Department of Agriculture draws attention to the explosive potential for CBOT corn futures prices, a CME Group (CME) panel of analysts said on Wednesday. "This is a shot across the bow and is astonishing given the fact farmers like to plant corn," said Greg Wagner, an independent analyst. In its June plantings report, USDA said American farmers had planted 87.9 million acres of corn this spring, below the lowest end of a range of analysts' estimates for 88.1 million to 90.2 million. USDA also said the supply of corn in the United States on June 1 totaled 4.310 billion bushels, below an average of analysts' estimates for 4.598 billion bushels.
- Cold War Support for Russian "spies" on networking site. Patriotic, anti-American messages adorn the pages of two alleged Russian spies on Russia's answer to Facebook, a reminder of historic suspicions and resentments that have survived the end of the Cold War.
- Moody's Puts Spain Ass Rating on Review for Downgrade. Moody's Investors Service said on Wednesday that it may cut Spain's Aaa local and foreign currency government bond ratings after a three-month review. Moody's said the possible downgrade reflects deteriorating short-term and long-term economic growth prospects, and the challenges the government faces in achieving its fiscal targets.The rating agency also cited concerns over the impact of rising funding costs over the medium term."If at the conclusion of the review, Spain's ratings are lowered, it would most likely be by one, or at most two, notches," Moody's said.
- Just over half of German voters, 51%, would prefer a return to the deutsche mark, while 30% favor sticking with the euro, citing a poll by market researcher Ipsos.
- Spanish lenders and savings banks may lose as much as $244 billion on bad loans, citing reports by RGE and Freemarket. RGE estimates that in a worst-case scenario bad loans could total 170 billion euros and the cost of bailing out lenders may be 80 billion euros to 100 billion euros. A separate study by Freemarket predicted that bad loans may reach 200 billion euros.
- France's gross debt will increase to 83.7% of the country's output by the end of this year and peak at 87.5% in 2012, citing a member of the government attending a parliamentary hearing. Debt in the euro zone's second largest economy stood at 80.3% of GDP after the first quarter, the National Statistics Institute said.
- Over 5,800 Chinese Officials Penalized for Corruption in Construction Projects: CCDI. Over 5,800 Chinese officials have been penalized for disciplinary violations related to construction projects since August last year, a spokesman for the Communist Party of China (CPC) Central Commission for Discipline Inspection (CCDI) said Wednesday. The officials were implicated in more than 9,900 cases of corruption. Some 3,400 of the officials have been referred to judicial authorities, CCDI spokesman Wu Yuliang said at a press conference. The CPC Central Committee decided in July last year to launch a two-year campaign to tackle corruption in the construction sector. As of May, discipline authorities had probed more than 340,000 construction projects and uncovered disciplinary violations in 140,000 of the projects being probed. About 60,000 cases have been rectified, according to Wu.
- Resource Deal Near as 40% Rate Shifts. JULIA Gillard is hoping to settle the dispute with Australia's biggest mining companies today, after two days of intense negotiations in Canberra. For two days, the government has been considering calls from BHP Billiton, Rio Tinto and Xstrata to change the uniform 40 per cent tax rate proposed on profits from all minerals to a "globally competitive" rate on a "commodity by commodity" basis. Rio Tinto iron ore chief executive Sam Walsh said "serious negotiations" were continuing and the miners were "very hopeful of a quick resolution". Apart from earlier concessions on the tax that had been foreshadowed, such as removing the 40 per cent taxpayer guarantee for losses on mining projects, lifting the profits threshold when the tax cuts in from 6 per cent to 12 per cent and exempting the quarry industry entirely, the government is now looking at different tax rates for different minerals and which projects the tax would apply to.
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