Today's Headlines

Bloomberg:

• Fed to Reinvest Mortgage Proceeds Into Treasuries. Federal Reserve officials will reinvest principal payments on their mortgage holdings into long-term Treasury securities, the central bank’s first attempt to bolster growth in more than a year. “The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.” The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period.” Stocks pared losses, the dollar weakened and Treasuries rallied. With growth weakening in the second quarter and company job gains in July falling short of estimates, today’s step signals that risks of a downturn have increased enough for the Fed to delay its exit from unprecedented stimulus. Chairman Ben S. Bernanke told Congress last month that the Fed was “prepared to take further policy actions as needed.” The Fed said it will “continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.” The reinvestment policy applies to agency debt and agency mortgage- backed securities held by the central bank.
• U.S. Economy: Productivity Unexpectedly Fell in Second Quarter. Productivity in the U.S. unexpectedly decreased in the second quarter after employers expanded the workweek by the most in four years even as the world’s largest economy cooled. The measure of employee output per hour fell at a 0.9 percent annual rate, the first drop since late 2008, the Labor Department said today in Washington. Hours worked climbed at a 3.6 percent rate, leading to a 2.6 percent increase in the amount of goods and services produced. A lengthening workweek signals employers have reached efficiency limits after productivity climbed by the most in five decades in the 12 months to March. The Labor Department revised the first-quarter gain in efficiency to a 3.9 percent pace from 2.8 percent. Labor costs after adjusting for the drop in efficiency rose at a 0.2 percent pace, less than estimated and the first increase in a year, today’s report showed. The increase in expenses followed a 3.7 percent drop in the first three months of the year that was larger than previously estimated. Economists projected costs would rise at a 1.5 percent pace, according to the survey median. For Joel Naroff, the data show additional gains in employment may be on the way. “This could be a turning point,” Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, said in a note to clients. “If working people longer and harder is no longer bringing larger returns to businesses, executives may have to find other ways to expand production. They might actually have to hire more workers.” Among manufacturers, productivity increased at a 4.5 percent pace as output climbed faster than hours worked. Labor costs at factories dropped at a 6.1 percent pace from the previous three months.
• Sovereign Debt Swaps Rise to Two-Week High on Recession Concern. Credit-default swaps on European governments from Spain to Germany rose to the highest level in two weeks amid concern the U.S. Federal Reserve may signal the world’s biggest economy is in need of support. The Markit iTraxx SovX Western Europe Index of swaps on 15 nations climbed 1 basis point to 123.5 basis points, the highest since July 26, according to data provider CMA. Contracts on Spanish government debt climbed 6 basis points to 201.5 basis points, while swaps on Germany rose 2 to 42.3. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings climbed 9 basis points to 479, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 105. The costs of hedging against losses on bank debt also rose with the Markit iTraxx Financial Index of 25 banks and insurers climbing 4 basis points to 121.5 basis points.
• Petrobras(PBR), Regulator Disagree on Price for Oil Swap, Estado Says. Petroleo Brasileiro SA and Brazil’s National Petroleum Agency disagree on the price per barrel in a planned share-for-oil swap, O Estado de S. Paulo reported, without saying where it got the information.
• The Baltic Dry Index, a measure of commodity shipping costs, jumped for a fourth session in London as iron ore demand strengthened. The gauge rose 98 points, or 4.6%, to 2,212 points, according to the Baltic Exchange in London. Iron ore-carrying capesize vessels jumped 13% to $24,153 a day. "It's more demand for iron ore generally" that's driving up shipping rates, Kjetil Sjuve, a director at Oslo-based shipbroker Lorentzen & Stemoco AS, said.
• Apollo Said to Close Down Metals Hedge Fund in London. Apollo Management LP, a private- equity firm co-founded by Leon Black, closed its metals hedge fund in London, according to two people with direct knowledge of the matter.
• Chief Executives in U.S. Less Confident on Jobs, Survey Shows. Confidence among U.S. chief executive officers fell this quarter for the first time in a year as their outlook on sales, employment and the economy weakened, a private survey showed. The Young Presidents’ Organization’s gauge of sentiment fell to 57.5 in July from 61 in April, according to the Dallas- based group. A reading higher than 50 shows more chief executives had a positive outlook than a negative one. Sixty-two percent of CEOs surveyed said they plan to hold employment steady in the coming year, while fewer officials expect to boost staff. Forty-two percent of CEOs said they expect business to be better in six months than it is today, and 20 percent said it will be worse. In the April survey, 64 percent were optimistic and 8 percent pessimistic. The proportion of CEOs indicating they’ll keep staff levels at about the same a year from now increased to 62 percent in the July survey from 58 percent in the April poll. Those who expected to expand staff by at least 10 percent dropped to 30 percent from 36 percent. The percentage of CEOs projecting a sales gain of at least 10 percent in the coming year fell to 57 percent in July, from 69 percent in April, the survey showed. Thirty-five percent expected revenue to be unchanged, up from 26 percent. Sixty-six percent of CEOs projected fixed investment would be about the same or lower in the next 12 months, up from 60 percent in the prior report. CEO confidence was most negative in the construction industry and most positive in manufacturing, where more than 70 percent of companies forecast sales would rise in the next 12 months. Thirty-one percent of builders projected higher sales. Thirty-five percent of small companies, defined as those with fewer than 100 workers, said they expect to hire in the coming year, compared with 24 percent for large firms, which have more than 500 workers. Twenty-eight percent of medium-sized companies, those with 100 to 500 workers, expect to hire in the next year. Small businesses also were more optimistic about sales gains than larger companies, the report said.
• India Expresses Concern on 'Discriminatory' U.S. Bill. India called a proposed U.S. bill that could double visa costs as “highly discriminatory” and said such a measure will erode the competitiveness of the nation’s software services companies. In a letter to U.S. Trade Representative Ron Kirk, India’s Trade Minister Anand Sharma said the legislation will hurt primarily companies of Indian origin, according to a statement on the government’s website today. “Though the need of the U.S. government to strengthen their border security is understandable, it is inexplicable to our companies to bear the cost of such a highly discriminatory law,” according to the Indian government statement. Indian companies account for less than 12 percent of the visas issued in the U.S., it said.
• California City With $800,000 Manager Gets Junk Rating. Bell, the Los Angeles suburb that paid its city manager almost $800,000 a year, had its credit cut five steps to junk by Standard & Poor’s on concerns about the city’s ability to refinance or pay debt due Nov. 1. S&P lowered Bell’s general obligation and pension bond ratings to BB, two levels below investment grade, from A-, and put it on a watchlist for potential further downgrade.

Wall Street Journal:

• Fed to Keep Balance Sheet From Shrinking. Federal Reserve officials moved to prevent the Fed's huge balance sheet from shrinking, an attempt to spur the U.S. economy's recovery and avoid deflation.
• Frenzy in Energy Partnerships. Lured by hefty yields, investors are pouring billions of dollars into a small corner of the stock market—energy-focused master limited partnerships—which has seen a huge rally of 15% this year. And that makes some people nervous. MLPs are mostly companies that own and operate pipelines, primarily for natural gas and oil. Benefiting from the tremendous expansion of energy infrastructure in the U.S., MLPs essentially collect rent from energy producers who use their facilities. Over the past decade, the Alerian MLP index, the main benchmark for the group, is up about 11% a year. That is a handsome payoff compared with the Standard & Poor's 500-stock index, which is down 2.6% a year. Their major appeal is payouts to investors these days averaging around 7% a year at a time when bond yields are at all-time lows. MLPs are expected to increase those distributions by another five percentage points or so a year.
• Smart Money Missed Wheat, Commodities Surge. The smart money didn’t see this coming. Hedge funds and other speculative traders were caught flat-footed by the surge in wheat and related commodity prices have been playing a furious game of catch-up lately. Just a few weeks ago, many of these investors were downright bearish about wheat, arguing that heavy inventories and limp demand would drag prices down. On June 15, “non-commercial” investors, including hedge funds, commodity trading advisors and similar investors, held net short positions of nearly 56,000 wheat lots, close to the largest level of negative positions since at least 1986, according Barclays Capital. “A lot of people initially got caught on the wrong side of the trade,” says a senior trader who requested anonymity.
• Trading of Emerging-Market CDSs Rose to $658 Billion in 2Q - EMTA. Trading of emerging-market credit default swaps rose to $658 billion in the second quarter, underscoring an increase in demand for credit protection as concerns over the European debt crisis amplified, industry group EMTA said in the results of a survey released Tuesday. The second-quarter total represents an 85% increase from the same period a year ago and a 35% jump in activity from the first quarter of this year.

NY Times:

• Merrill's Risk Disclosure Dodges Are Unearthed. Barely visible to any but a few inside Merrill, Pyxis was created at the height of the mortgage mania as a sink for subprime securities. Intended for one purpose and operated off the books, this entity and others like it at Merrill helped the bank obscure the outsize risks it was taking. The Pyxis story is about who knew what and when on Wall Street — and who did not. Publicly, banks vastly underestimated their exposure to the dangerous mortgage investments they were creating. Privately, trading executives often knew far more about the perils than they let on.

Business Insider:

• Are Official Statistics Masking Blistering Hot 33% Inflation in China?

Washington Times:

• Agents' Union Disavows Leaders of ICE. The union that represents rank-and-file field agents at U.S. Immigration and Customs Enforcement has unanimously passed a "vote of no confidence" for the agency's leadership, saying ICE has "abandoned" its core mission of protecting the public to support a political agenda favoring amnesty. The National Immigration and Customs Enforcement Council of the American Federation of Government Employees, which represents 7,000 ICE agents and employees, voted 259-0 for a resolution saying there was "growing dissatisfaction and concern" over the leadership of Assistant Secretary John Morton, who heads ICE, and Phyllis Coven, assistant director for the agency's office of detention policy and planning. The resolution said ICE leadership had "abandoned the agency's core mission of enforcing U.S. immigration laws and providing for public safety," instead directing its attention "to campaigning for programs and policies related to amnesty and the creation of a special detention system for foreign nationals that exceeds the care and services provided to most U.S. citizens similarly incarcerated.

KTUU.com:

• Stevens Killed in Crash Near Dillingham. Dave Dittman, a former aide and longtime family friend of former Sen. Ted Stevens says Stevens was killed in a plane crash near Dillingham Monday night. Nine people were on board, including former NASA Chief Sean O'Keefe. Five people were killed in the crash, but other identities were not known, nor are the conditions of the survivors.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 26% 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 -19 (see trends).

Politico:

• Charlie Rangel: 'Fire Your Best Shot'. From the well of the House chamber, embattled Rep. Charles Rangel told his colleagues Tuesday that a 13-count ethics case against him will not force him to resign just to make their lives easier. "You're not going to tell me to resign to make you feel comfortable," the 80-year-old New York Democrat said after reminding the Democratic side of the aisle that "I'm the guy that was raising money in Republican districts to get you here."

USA Today:

• Federal Workers Earning Double Their Private Counterparts. At a time when workers' pay and benefits have stagnated, federal employees' average compensation has grown to more than double what private sector workers earn, a USA TODAY analysis finds. Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade. Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available. The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year. "Americans are fed up with public employee pay scales far exceeding that in the private sector," says Rep. Eric Cantor, R-Va., the second-ranking Republican in the House. Sen. Ted Kaufman, D-Del., says a pay freeze would unfairly scapegoat federal workers without addressing real budget problems. Federal workers received average benefits worth $41,791 in 2009. Most of this was the government's contribution to pensions. Employees contributed an additional $10,569. The average federal salary has grown 33% faster than inflation since 2000. USA TODAY reported in March that the federal government pays an average of 20% more than private firms for comparable occupations. The analysis did not consider differences in experience and education. Federal compensation has grown 36.9% since 2000 after adjusting for inflation, compared with 8.8% for private workers.

Reuters:

• New RIM(RIMM) Offer to Saudis is BlackBerry 'Codes' - Source. BlackBerry maker Research In Motion, aiming to avert a ban on its Messenger service in Saudi Arabia, has agreed to hand over coveted "codes" to users' phones, an industry source familiar with the talks told Reuters on Tuesday.

Financial Times:

• Time to Regulate Volatile Food Markets. With the current extreme price increases for wheat, we are observing potentially the early stages of another global food-price crisis. Even if this does not evolve into something as dramatic as the crisis of 2007-08, when prices of major agricultural commodities from corn to rice shot up to record levels, triggering food riots from Bangladesh to Haiti, it is a stark indication of the perilous state of the world food market. Some lessons have been learned from 2008, but too little has been done to prevent future crises. In particular the malfunctioning of world grain markets has not been addressed – a failure now haunting world markets. The fixing of international food prices today is the result of three forces: expectations on future supply and demand; the growing role of speculators in commodity markets, and the importance of food prices for political stability in countries such as Egypt. Today, low-income countries and the poor are actually more vulnerable than before the last food crisis.
• Contrarian Institutional Investing, Hedge Fund Edition. A third of institutional investors – by common consent the holy grail of hedge fund clients thanks to their willingness to ride out a little bit of vega – say they’re looking to up their allocations to hedge fund managers, according to a new survey.

Maeil Business Newspaper:

• Hyundai Motor Co. and affiliate Kia Motors Corp. may increase capacity in the U.S. to meet growing demand, citing a company executive.