Today's Headlines

Bloomberg:

• Payrolls in U.S. Fell 125,000 in June as Private Hiring Trailed Estimates. Private employers added fewer workers to payrolls in June than forecast, reinforcing concerns the recovery will weaken as Americans curtail spending. Employment at companies rose 83,000, less than the 110,000 gain forecast by economists in a Bloomberg News survey. Including government, payrolls fell for the first time this year because of a drop in federal census workers. The jobless rate dropped to 9.5 percent from 9.7 percent as the labor force shrank, the Labor Department reported today in Washington. Declines in the average workweek and hourly earnings make it more likely consumers will pull back, hurting sales at retailers including Best Buy Co. Overall payrolls declined by 125,000 last month as the government cut 225,000 temporary workers conducting the 2010 census. Economists projected a decline of 130,000 payrolls, according to the median forecast in the Bloomberg survey. Average hourly earnings fell 2 cents to $22.53 in June, today’s report showed. The average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month. In another sign manufacturing may be slowing, orders placed with factories declined 1.4 percent in May, more than economists forecast, according to a Commerce Department report today. The decrease in bookings was the biggest since March 2009 and followed a revised 1 percent gain in April. The drop in census workers left 339,000 temporary employees still working on the population count, indicating more cuts to come that will keep distorting the employment figures for months. The number of unemployed in June was 14.6 million. Of those, the largest number, or 3.46 million, were between the ages of 25 and 34. The jobless aged 45 to 54 numbered 2.72 million, followed by 35 to 44 year-olds at 2.62 million. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 16.5 percent from 16.6 percent.
• Mobius Says Derivatives, Stimulus to Spark New Crisis. A new financial crisis will develop from the failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said. “Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,” he said in a phone interview from Istanbul on July 13. Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product. A “very bad” crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said. Governments have pledged about $2 trillion in stimulus spending. “Banks have lobbied hard against any changes that would make them unable to take the kind of risks they took some time ago,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore. “Regulators are not winning the battle yet and I’m not sure if they are making a strong case yet for such changes.”
• Weber Told Banks They May Need to Raise Capital, FT Reports. Bundesbank President Axel Weber told German banks at a meeting on June 30 that they should prepare emergency capital-raising plans in case they fail stress tests, the Financial Times reported, citing an unidentified executive present at the meeting. Weber told the chief executive officers of 16 German banks they may need to recapitalize either with the help of their owners or the German bank rescue fund, the FT quoted the executive as saying. This could lead to the forced recapitalizations of some banks, the banker said, according to the FT. The FT also reported that bankers and analysts expect up to 20 of Europe’s banks to be forced into cash calls as a result of this month’s stress tests, raising up to 30 billion euros ($37.4 billion) of fresh equity.
• Commodity Funds Change Strategy to Fight Index Money, Man Says. Commodity hedge funds are trading more frequently and making bets for later in the future to avoid “getting whipped” by index funds, according to Edwin Garcia, a manager at Man Group Plc, the largest publicly traded hedge-fund company. Assets under management at index-tracking funds rose 71 percent to $111 billion by the end of May from December 2008, according to Barclays Capital. That “influx of the index money” contributed to price swings in nearby futures, prompting hedge funds to trade more later-dated contracts, Garcia said. Commodity hedge funds lost 4.9 percent in the first five months on average, after declining about 3 percent in 2009, according to Chicago-based Hedge Fund Research Inc. The S&P GSCI Total Return Index tracking the net amount investors received dropped 12 percent from January through May. Hedge funds are also using more options, Garcia said. On the London Metal Exchange, the world’s largest marketplace of copper and aluminum, trading in options contracts for the six major industrial metals soared 64 percent in May from the same month last year, according to figures on the exchange’s website.
• Crude Oil Falls, Heads for Weekly Loss After U.S. Jobs Report. Crude oil fell below $73 a barrel in New York, heading for its first weekly decline in four weeks, after a U.S. report showed the world’s biggest economy lost jobs for the first time this year. Oil for August delivery dropped as much as $1.25, or 1.7 percent, to $71.70 a barrel in electronic trading on the New York Mercantile Exchange and was at $72.36 at 1:53 p.m. London time. Crude fell 7.5 percent in the last four days, touching a three-week low of $72.05 yesterday, amid concern the economic recovery in the U.S. and China will slow and curb demand in the world’s two largest energy consumers. China yesterday reported slowing manufacturing expansions.
• Leveraged-Loan Boom Loses Steam as Economic Woes Depress Market. Leveraged-loan investors are demanding the highest premiums in 2010 after buying almost three times more of the debt than a year ago, signaling a slowing market amid a weakening global economic recovery. Borrowing costs in the loan market have risen to the highest since Dec. 17 relative to benchmark rates since the 2010 low on April 15, according to Standard & Poor’s Leveraged Commentary and Data (S&P LCD). Monthly leveraged loan issuance dropped to $16.4 billion last month from $24.3 billion in May and $26.2 billion in April, which was the most in a month since November 2007, according to S&P LCD. “The institutional market is going to be in a state of disrepair when there are sell-offs, with investors looking for price discovery, which puts everything on hold as the buy-side asks for more money,” said Jeff Titus, a managing director for loan sales and trading in Atlanta for SunTrust Banks Inc. Junk-bond sales plummeted during the same period. Speculative-grade borrowers sold an average $7.25 billion of debt in May and June, a 72 percent decline from the average monthly issuance through April, according to data compiled by Bloomberg.
• BP's(BP) Gulf Well Ahead of Schedule to Intercept Leak. BP Plc’s first relief well aimed at plugging its Gulf of Mexico gusher is seven to eight days ahead of schedule to intercept and eventually stop the biggest oil leak in U.S. history. The target date for intercepting the leaking well and pumping in mud and cement to permanently seal it is still mid- August, U.S. National Incident Commander Thad Allen said today on a conference call with reporters.
• General Motors Gives $6.6 Million in Stock to Top Executives. General Motors Co., the largest U.S. automaker, gave stock valued at $6.66 million to 14 top managers, including $1.33 million worth to Chairman and Chief Executive Officer Ed Whitacre. The 123,347 shares were valued at $53.98 each, a price determined by a third party, the company said today in filings with the U.S. Securities and Exchange Commission. GM gives executives salary stock units and restricted shares to augment their compensation, which is constrained by government rules because the automaker is 61 percent owned by the U.S. Treasury Department.
• US Consumer Bankruptcies Rise 14% in First Half. U.S. consumer bankruptcy filings rose 14 percent to 770,117 in the first six months of 2010 from the same period a year earlier, the American Bankruptcy Institute reported. “Years of rising consumer debt and low savings rates” are pushing totals near the record set in 2005, when proposed changes in bankruptcy law triggered a surge in filings, ABI Executive Director Samuel J. Gerdano said in a statement. By the end of the year, more than 1.6 million bankruptcies will have been filed, Gerdano said.

Wall Street Journal:

• India Ministry Wants Ban on Iron Ore Exports. India's steel ministry is seeking a complete ban on exports of iron ore to preserve the raw material for its expanding domestic steel industry, Steel Minister Virbhadra Singh said Friday. "The current export tax is insufficient. If possible, the government should completely ban iron ore exports or at least impose a uniform 20% tax on its exports," Mr. Singh told Dow Jones Newswires. The steel ministry recently wrote to the finance ministry proposing a rise in the export tax on iron ore, Singh said.
• Alleged Russian Agent Claimed Clinton Administration Official Was His Firm's Adviser. The alleged Russian secret agent who posed as a Canadian entrepreneur named Donald Heathfield claimed a former Clinton administration national-security official was an adviser to his company.

Bloomberg Businessweek:

• Energy Hedge Funds Close After Investor Withdrawals. Energy hedge funds in Europe are collapsing after investor withdrawals forced managers to scale back bets amid sliding prices for oil, coal and electricity. At least six funds managing more than $158 million shut in the first half, including four in May and June, according to data compiled by Bloomberg. London-based Rampart Capital LLP succumbed after failing to reach “critical mass” within nine months of opening, according to Chief Investment Officer Marcello Romano. The average loss from January through May for global energy funds was 19 percent, according to a June 10 report from JPMorgan Chase & Co., compared with a 0.9 percent gain for Hedge Fund Research Inc.’s main index of more than 2,000 members. “The industry is limping,” said Fredrik Adolfson, a 43- year-old manager for Stockholm-based Adapto Energy Fund, which started on Jan. 18 and returned about 3 percent through June 30. “Risk capital has dropped off radically.” Liquidations around the world rose to about 240 in the first quarter, compared with 165 in the previous three months, Chicago-based Hedge Fund Research reported June 8. “I certainly can’t think of a period when so many funds in the sector called it a day,” Fraser McKenzie, head of research at 47 Degrees North Capital Management Ltd., said in an interview. McKenzie’s company, based in Pfaeffikon, Switzerland, is a fund of funds with investments in energy. About 30 funds are actively trading European energy markets after the latest round of closures, according to investment- adviser Energy Alpha Strategies Ltd. in London. The Reuters/Jeffries CRB index of 19 commodities climbed 23 percent last year. Hedge funds investing mainly in European energy lost 2 percent, according to a Bloomberg survey of 13 funds, down from a profit of 4.3 percent in 2008.
• ECB's Paramo Says Stress Tests Don't Need to Consider Default. European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said European banking stress tests do not need to consider a euro area member default. While the stress tests should look at sovereign risk, a default scenario is “absurd,” Gonzalez-Paramo told reporters in La Coruna, Spain, today.

MarketWatch:

• Microsoft(MSFT) is Doomed in the Mobile Market.

New York Times:

• 21 Die in Gun Battle Near U.S. Border With Mexico. Nearly two dozen people were killed in a Mexican border area on Thursday during a fierce gun battle between suspected members of rival drug gangs, Mexican authorities said. The bloodshed took place only 12 miles from the United States border, in Sonora, a state famed for its beaches but whose interior has increasingly been consumed by drug violence. Prosecutors said the battle was a showdown between rival drug and migrant-trafficking gangs, who sprayed gunfire at each other in a sparsely populated area near a dirt road between the hamlets of Tubutama and Saric, The Associated Press reported. The shooting culminated in the deaths of 21 people, with Mexican authorities taking another nine people into custody, including six with bullet wounds.
• E.U. Plan to Deal With Debt Crisis Run Into Hiccups. The huge financial safety net for the euro zone patched together nearly two months ago was trumpeted as a triumph of solidarity. But as often happens in the European Union, commitments made in Brussels can get complicated once the leaders get back home.

Zerohedge:

• David Viniar Walks A Thin Line Between Truth and Perjury at Today's FCIC Hearing. Today, during the FCIC's second day of hearings, Goldman CFO David Viniar was forced to provide additional data about the firm's AIG CDS trades. Luckily the firm kept a record of all entry and exit points, and thus will be able to confirm just what the P&L of the associated trades is (and if not, we are happy to teach Goldman's risk department how to use the Bloomberg CDSD function in conjunction with RMGR run scraping to build a real time CDS portfolio tracker)... Which is ironic, because when asked by Brooksley Born why the firm has not yet provided a break down of its derivative revenue Mr. Viniar by all accounts perjured himself. As Bloomberg reported: “We don’t have a separate derivatives business,” Viniar told the panel. “It’s integrated into the rest of our business.” Uh... what?
• Baltic Dry Approaching Sea Level, Just Above 1 Year Lows. (graph)
• ECRI Weekly Leading Indicator Ever Close to the -10% Threshold, Drops to -7.7%. (graph)
• Bank of China Shares Halted on $9 Billion Rights Offering Announcement, As Bank Urgently Needs to Replenish Capital. Those China CDS are looking ever more attractive.

Boston Globe:

• Bill for Three Resort-Style Casinos Passes in State Senate. The Massachusetts Senate passed a bill tonight by a 25-15 margin to license three resort-style casinos, bringing the Commonwealth once settled by Puritans closer than ever to Vegas-style gambling.

The Deal:

• The Shape of Things to Come. The financial reform bill pushed through by Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., likely will become law in a couple of weeks. Some experts still question whether the new law will increase costs enough to rein in banks' thirst for risk and excessive leverage. Some of these experts, many of them former regulators, say the bill fails to address the root causes of the crisis -- a business model based on rapid growth, extreme leverage and accounting practices that allowed some major institutions to hide virtual insolvency. William Black, associate professor of economics and law at the University of Missouri-Kansas City, an expert in financial fraud and a former senior deputy chief counsel at the Office of Thrift Supervision, says Congress is still ignoring the root cause of the crisis: accounting laxities, which he argues have been the origin of nearly every financial problem since the S&L debacle of the '80s.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday 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).
• 29% Say Stimulus Plan Helped the Economy, 43% Say It Hurt. The new survey found that just 29% believe last year’s economic stimulus plan has helped the economy while 43% believe it hurt. Not surprisingly, there is little appetite for another round. By a 69% to 15% margin, voters believe tax cuts is a better way to create jobs rather than more government spending. Ultimately, though, voters are looking to the private sector to create jobs. Sixty-five percent (65%) say that decisions made business owners seeking to grow their business will do more to create jobs than decisions made by government officials. Just 23% expect the government officials to have a bigger impact.

Politico:

• Orrin Hatch Will Vote No on Elena Kagan. Sen. Orrin Hatch (R-Utah), who had been considered a possible GOP vote in favor of Supreme Court nominee Elena Kagan, announced Friday that he will oppose her confirmation to the high court. Just hours earlier, Hatch said he was “anguishing” over whether to support Kagan, but in a statement e-mailed to reporters Friday morning the Judiciary Committee veteran said he feared her personal ideological and political preferences would drive her rulings – not the law.

Reuters:

• German Criticism Hits Bank Stress Tests: Sources. German banks, backed by the Bundesbank, are balking at an across-the-board approach that assigns the same risk weighting to all government bonds, the sources said, whether they are German, Greek or Spanish. Rising criticism in Germany over assumed potential "haircuts" for European bank holdings of sovereign debt is complicating planned EU stress tests, regulatory and financial sources told Reuters. This is a politically touchy subject and national central banks do not necessarily agree with how Europe's Committee of European Banking Supervisors (CEBS) and the European Central Bank are conducting the tests, the sources said. "German banks are resisting calls for including all sovereign debt exposure in European stress tests for banks," one executive said, adding he saw no reason to test holdings of Germany's liquid and top-rated sovereign debt. Potential sovereign debt markdowns are supposed to be included in European Union tests for more than 100 European banks, in an effort to end a crisis of confidence that has dragged down the global economy.But the renewed criticism may complicate the process ahead of an end-of-July deadline to publish the results, with regulators facing an arduous choice between diplomacy and being robust enough to convince markets. If they take a global haircut as a scenario, German and French banks will be disadvantaged because they have more or less the same German and French bonds in their portfolio. But if the regulators assign haircuts on bonds for individual countries, markets will see it as the probability of default EU regulators see for each country.The decision is crucial for the success of the stress tests, whose assumptions need to be realistic enough to put investors' minds at ease, without admitting too bluntly that regulators seriously think a European country could default. No German bank is in acute danger from a probe into the health of Europe's lenders, banking and regulatory sources said on Thursday, and there is enough cash available to fill any gaps if the situation worsens. There is less data about Germany's landesbanks and Spain's cajas and the fear is that many of Europe's biggest problems lie with these smaller players. Sources familiar with the matter told Reuters this week that the first three to be tested in Germany -- Deutsche Bank, Commerzbank and landesbank BayernLB -- passed the initial tests.
• U.S. Video Game Sales Down 5% in May - NPD.
  

Financial Times:

• China Acts to Ease Uighur Tension. China has installed a grassroots network of officials throughout Xinjiang, its predominantly Muslim north-west frontier region, to address social risks and spot early signs of unrest a year after bloody ethnic riots erupted in the provincial capital. Hundreds of cadres have been transferred from southern Xinjiang, the region’s poorest area, into socially unstable neighbourhoods of Urumqi, the capital, and tasked with helping Uighur families find jobs. They are also expected to assist other low-income groups in accessing government money, according to local officials.

Der Spiegel:

• Germans Anticipate a Collapse of Merkel's Government. Pundits think that Chancellor Angela Merkel's government is in trouble. A new survey has found that German citizens agree. Almost two-thirds think that the governing coalition in Berlin will not survive much longer. Commentators and pundits in Germany were unanimous: Wednesday's laborious election of Christian Wulff as the country's new president was anything but helpful for Chancellor Angela Merkel's already ailing coalition. A survey conducted by Infratest dimap seems to indicate that voters agree. According to the poll, commissioned by public television station ARD, fully 68 percent of Germans believe that the election was a "disgrace" for Merkel and 77 percent feel that she no longer has complete control over her own governing coalition. Sixty-two percent believe that Merkel's government, which pairs her conservatives with the business-friendly Free Democrats (FDP), will not survive much longer.

DigiTimes:

• Intel(INTC) to Launch New CPUs in 3Q10. Intel plans to launch several new desktop processors in the third quarter of 2010 to replace some previous models, and will also reduce some CPU prices to boost demand, according to sources from motherboard makers.