Today's Headlines

Bloomberg:

• European Banks Gain Most Since May on Capital Rules. European banks led by UBS AG and Societe Generale SA had their biggest gains since May as regulators eased proposed rules on capital and two of the region’s biggest lenders posted profit that beat estimates. UBS, Switzerland’s biggest bank, surged 11 percent to 17.46 Swiss francs in Zurich trading, while Societe Generale, France’s No. 2 lender, also gained 11 percent to 44.23 euros in Paris. The Basel Committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, buoyed investors’ confidence after saying lenders can count deferred tax assets and minority stakes in financial firms as capital.
• UBS, Deutsche Bank Spur Drop in Financial Risk to 3-Month Low. and The cost of insuring against losses on financial bonds fell to the lowest in three months after UBS AGDeutsche Bank AG posted earnings that beat analyst estimates and regulators softened proposed capital rules. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers fell as much as 9 basis points to 108.5 and was trading at 110 at 3:30 p.m., the lowest since April 21, according to JPMorgan Chase & Co. The gauge has rallied 23 basis points since bank stress tests were released July 23. Default swaps on UBS fell 7.5 basis points to 95 and Deutsche Bank declined 13 to 91.5, according to data provider CMA. Contracts on Allied Irish Banks Plc dropped 84.5 basis points to 373, Banco Comercial Portugues SA decreased 35.5 to 294.5 and Commerzbank AG fell 10.5 to 85. The difference between Markit’s financial gauge and the broader European corporate benchmark also shrank to the narrowest since March. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 2 basis points to 102.75, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings decreased 3 basis points to 474, the lowest level since May 13. Swaps insuring BP Plc debt for five years fell 15.5 basis points to 321.5, CMA prices show. The cost of insuring against losses on sovereign debt also declined. Swaps on Greek government debt dropped 48.5 basis points to 690, contracts on Spain declined 15.5 to 174, Italy dropped 19.5 to 129.5, Portugal fell 30.5 to 221, and Ireland fell 27.5 to 204.
• Gold Futures Fall to 11-Week Low as Global Equities Advance. Gold fell to the lowest price in 11 weeks as a rally in global equities erodes demand for the precious metal as an alternative investment. Gold futures for December delivery fell $20.10, or 1.7 percent, to $1,166.90 an ounce at 9:52 a.m. on the Comex in New York. Earlier, the price dropped to $1,163.60, the lowest level since May 5. Losses accelerated after the price fell below the 100-day moving average around $1,181, a key area of resistance. “Gold is finally succumbing to its wounds,” Zeman said. “I have gold positions that I’m looking to exit. There are a lot of sell stops clustered around the $1,180 area.” Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped to 1,301.74 metric tons yesterday. Assets under management have fallen 1.4 percent this month, heading for the first decline since February. “With the disappearance of technical support for the gold market, it appears likely that traders may move to the sidelines and liquidate, rather than hold on to, lingering expectations of the need for safe haven,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.
• German Growth Not Yet Sustainable, Trade Lobby Head Tells Bild. Germany’s export-driven economic expansion will slow in 2011 as foreign sales cool and government support programs expire, Anton Boerner, head of the BGA wholesale and export federation, told Bild newspaper. The German economy isn’t yet in a self-sustaining economic upswing, Boerner said. Germany’s “debt crisis” poses a risk to growth and governments merely “bought time” by saving Greece from default, he said.
• The financial regulation bill may add more systemic risk than it relieves, said Joel Telpner, a partner with the law firm Jones Day in New York. The U.S. financial overhaul that President Barack Obama signed into law last week mandates that swaps between backs and major users like hedge funds and asset managers also be backed by clearinghouses, creating new demand for clearing services. Clearinghouses are well capitalized by their members, who share the risk if any of them defaults, lessening the impact. The bill may sequester too much risk in clearinghouses, Telpner said. "Clearing may simply concentrate the risk because the number of players that go through the clearinghouse become concentrated and owners of the clearinghouses are going to be the large financial institutions. "Instead of improving systemic risk, maybe we are exacerbating it. Maybe we are creating new entities that are too big to fail and setting up a scenario in the future where we're going to be arguing and anguishing about bailing out the clearinghouses." "The clearing process is going to create a number of very complicated questions. We have yet to begin to understand the potential new set of problems we are creating as a result of clearing." "Associates with three years experience, how are they going to come up with writing these complex rules? If we're hiring a lot of young people to write rules, we may spend the next 10 years having to fix the rules and making them work in the real world."
• India Raises Key Rate More Than Forecast to Anchor Inflation. India’s central bank increased a key interest rate more than economists forecast, battling to contain a surge in inflation that’s led to strikes and street rallies. The central bank raised the reverse repurchase rate a half point to 4.5 percent, and the repurchase rate to 5.75 percent from 5.5 percent, it said in Mumbai. Today was the first time officials boosted one of the main rates by more than a quarter point since the last series of increases in 2008; the median forecasts in Bloomberg News surveys were for quarter-point moves. “Inflation has become the dominant political and economic issue in India,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. “The RBI needs to continue to be aggressive with rate hikes to slow inflation.”
• New York City Borrowing Costs Fall 30% With Year's Biggest Bond. New York City cut its borrowing cost 30 percent on an $800 million bond sale, the municipality’s biggest tax-exempt offer of 2010, as a shortage of new issues drove down the extra interest investors demanded over top-rated debt to buy the securities. The 10-year general obligations, rated third-highest by the three major rating companies, were priced to yield 3.05 percent during sales to individual investors, according to a person familiar with the bonds. The premium was 19 basis points above top-rated comparable debt yesterday, down from 27 basis points in June, according to Municipal Market Advisors data. A basis point is 0.01 percentage point.
• Home Vacancies Rise as Ownership Reaches 10-Year Low. About 18.9 million homes in the U.S. stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade. The number of vacant properties, including foreclosures, residences for sale and vacation homes, rose from 18.6 million in the year-earlier quarter, the U.S. Census Bureau said in a report today. The ownership rate, meaning households that own their own residence, was 66.9 percent, the lowest since 1999. Lenders are accelerating foreclosures as borrowers fall behind in mortgage payments after the worst housing crash since the Great Depression. A record 269,962 U.S. homes were seized in the second quarter, according to RealtyTrac Inc. Foreclosures probably will top 1 million this year, the Irvine, California- based data company said in a July 15 report. “There are a lot of people losing their homes and either moving in with family or renting places to live,” said Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts. “Foreclosures are still going up.”
• U.S. Economy: Consumer Confidence Slips to Five-Month Low. American consumers lost confidence in July, shaken by mounting concern over jobs and wages that threatens to constrain the economic recovery. The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. The proportion of Americans who expected their incomes to rise over the next six months fell to 10 percent, the lowest since April 2009. “Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement.

Wall Street Journal:

• UK Debt Wears Stress Well. As investors and analysts continue to pore over the nitty-gritty details of Europe’s bank stress test results, one unexpected beneficiary appears to be Britain’s government. The cost of insuring against a British government debt default is the cheapest it has been this year. According to data provider Markit, it now costs $61,000 a year to insure $10 million of British government bonds against default compared with $67,000 at the end of the day on Friday – a hefty drop. This cost stood at $100,000 in early February when some investors were speculating, ahead of Britain’s spring election, that the country might have a Greece-style financial crisis. It’s not just Britain. Credit-insurance costs for Greece, Portugal, Ireland, Italy and Spain, which use the euro, are also noticeably lower today, with most of these levels returning to levels last seen two months ago. Basically, derivatives traders like what they see so far in the bank stress test results, though they’re not overjoyed. There are still tensions in Europe’s financial system. For one thing, the cost for banks to borrow euros from each other in the so-called “interbank” market – the belly of the financial system – continues to edge worryingly higher. This rising “Euribor” rate suggests banks are still worried about lending to each other. But it’s reassuring that the credit-default swaps market, where investors buy insurance against bond defaults, is pointing to an easing of fears about European banks and their debt-laden government overseers.
• The Do-It-Yourself House Call. Insurer-Endorsed Remote-Monitoring Technology Leads Heart Patients to Take Their Readings at Home. Technology that aims to keep congestive heart failure patients out of the hospital is gaining traction. The idea is for heart patients to take readings like their weight, blood pressure and other key metrics using wireless and other technologies; the data are then transmitted to a case manager or medical care giver. That way health care givers can catch, and address, warning signs before the patient lands in the ER with shortness of breath or a heart attack.
• Tax-Cut Debate Grows Louder. More signs that the tax-cut debate is heating up: As Congress begins wrestling with the soon-to-expire Bush tax cuts, a new survey by Rasmussen Reports shows the number of U.S. voters viewing the tax issue as very important has reached a new high. In the survey, conducted in mid-July and released last weekend, 68% of voters said they view the issue of taxes as very important. That’s 10 points above the last reading in May, Rasmussen says. A Gallup survey in April also suggested voters are becoming more conscious of the issue of looming tax increases. That survey showed that 63% of voters expected their taxes to go up next year, the highest level since 1977.

Business Insider:

• CIC Might Be Launching a Hedge Fund Right Now. China Investment Corp has started a big round of international hiring, and word is it's because they're starting a hedge fund.
• Surprise: Russia Declares North Korea Innocent in Cheonan Sinking. Russia is the FIRST country to find North Korea innocent in the Cheonan sinking. Even Communist China hasn't completed its investigation into the March shipwreck -- though a not-guilty ruling seems likely now.
• The Chinese Banking System is Seriously at Risk.
• 10 Ways The iPad is Changing Healthcare.
  

Zero Hedge:

• More on China's Trillions in Unrepayable Project Loans. Last Friday we reported that the most important (and most underreported) story of the week was Bloomberg's disclosure that Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, and that only 27 percent of the loans to the financing vehicles can be repaid in full by cash generated by the projects they funded.

The Sacramento Bee:

• Democratic Donor Gives $5 Million to Prop. 23 Foes. Thomas Steyer, a San Francisco hedge fund manager and a big backer of Democratic candidates, will donate $5 million to a group opposing the ballot measure to roll back California's landmark climate change law. California's greenhouse gas reduction law, or AB 32, aims to cut emissions to 1990 levels statewide by 2020. Backed by Valero Energy Corp. and Tesoro Corp. of Texas, Proposition 23 seeks to suspend AB 32 until the statewide unemployment rate drops to 5.5 percent for four consecutive quarters.

HedgeFund.Net:

• Guest Article by Bruce Gwyn, Level III Trading: Gold Top?

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).

Politico:

• Rendell: Obama Shouldn't Do 'View'. Pennsylvania Democratic Gov. Ed Rendell advised President Barack Obama against appearing later this week on “The View,” encouraging the president to only do “serious shows.” “I think the president should be accessible, should answer questions that aren't pre-screened, but I think there should be a little bit of dignity to the presidency,” Rendell said during an appearance on MSNBC’s “Morning Joe.” Rendell said the talk show did not have the required stature to host the president, comparing “The View” to “The Jerry Springer Show,” which frequently devolves into onstage brawls. “I wouldn't put him on Jerry Springer either,” Rendell said. “It is different a little bit. But I think the president of the United States has to go on serious shows.

Real Clear Politics:

• The Growing Battle Over Berwick. Even with last week's Elaine Sherrod -NAACP media uproar, the Obama administration's recess appointment of Dr. Donald Berwick as Medicare czar continued stirring controversy, with Senate Republicans "spoiling for a fight" and "escalating the conflict" according to the Washington Examiner's Byron York.

Institutional Investor:

• Finance Regulation Bill Changes Accredited Investor Rules. Congress changed the rule that determines who can invest in hedge funds and other similar funds. One of the many overlooked features of the Financial Regulation (FinReg) bill signed last Wednesday by President Obama includes a change to the definition of “accredited investor.” The accredited investor net worth threshold for natural persons is $1 million. However, going forward, this no longer includes the value of the investor’s primary residence. Until now, this feature enabled many otherwise middle-class people to qualify for hedge funds in recent years due to the soaring rise in home values. The bill does not change the annual income test, however.

AP:

• GE(GE) Pays $23d Million to Settle Iraq Kickback Charges.

Reuters:

• Genzyme(GENZ) Weighs Sanofi Approach: Source. Biotechnology company Genzyme Corp (GENZ) is weighing an informal takeover approach from France's Sanofi-Aventis (SASY) but is not looking to sell the company, a source familiar with the situation said on Monday.
• BP(BP) Says DOJ, SEC Probe Trading Around Oil Spill. BP Plc (BP) said U.S. markets regulator the Securities and Exchange Commission and the Department of Justice had launched a probe into market trading connected to the oil giant's Gulf of Mexico oil spill. "The Securities and Exchange Commission and DoJ are conducting informal enquiries into securities matters arising in relation to the incident," the company said in a statement on Tuesday.
• Goldman(GS) Launches Derivatives Clearing Service. Goldman Sachs (GS) on Tuesday said it is launching a service to facilitate central clearing for clients in all listed and privately traded derivatives asset classes."The move to central clearing for over-the-counter derivatives is a significant turning point in the marketplace," Jack McCabe, managing director and co-head of futures and the and derivatives clearing service business at Goldman said in a release.
  
• Apple(AAPL) Refreshes Mac Desktops. Apple Inc (AAPL) updated its line of desktop computers on Tuesday with the latest-generation chips, as the company continues to gain share in the PC market. Apple sold 1 million desktop Mac units in its most recent quarter, up 18 percent from last year, generating $1.3 billion in revenue.According to industry tracker IDC, Apple ranks as the No. 4 computer vendor in the United States, with an 8.8 percent market share.

Handelsblatt:

• Germany's Finance Ministry wants the European Union to ease its rules on bad banks, citing government sources. The Finance Ministry wants to encourage German banks to offset their outstanding toxic debts via a bad bank, yet is concerned that applicants to the Soffin bank-rescue fund might be put off by strict EU conditions.