Today's Headlines

Bloomberg:

• U.S. Existing Home Sales in Record Plunge. Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery. Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled. “Today’s data do not bode well for home prices,” said Michelle Meyer, a senior economist at BofA Merrill Lynch Global Research in New York. “There is a decent chance we reach a new bottom for home prices. There’s going to be a prolonged, painful drop.” The pace of existing home sales is the slowest since comparable records began in 1999. Purchases of single-family homes also dropped 27 percent, the biggest one-month decrease in data going back to 1968. July’s 3.37 million annual rate was the lowest since May 1995. Compared with a year earlier, existing home sales fell 26 percent before adjusting for seasonal patterns. The median price increased 0.7 percent to $182,600 last month from July 2009. The number of previously owned homes on the market rose 2.5 percent to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months’ supply of single-family homes at 11.9 months was the highest since 1983, the NAR said. “The problem with housing is there’s actually a lot of shadow inventory,” said Constance Hunter, chief economist at Aladdin Capital Management LLP in Stamford, Connecticut. Sales last month fell in all four U.S. regions, today’s report showed. Foreclosures accounted for 22 percent of total purchases in July, while short sales, where banks agree to take less than the value of the mortgage, made up another 10 percent, the NAR said. Purchases will be “soft for at least two more months as the housing market works through the effects of the end of the tax credit,” Lawrence Yun, the group’s chief economist, told reporters at a press conference.
• U.S. Housing Slowdown Concerns Trigger Rise in European Bank Default Swaps. Investor concern that a slump in the U.S. housing market is threatening the global economic recovery triggered a surge in the cost of insuring against losses on European bank bonds to the highest level in a month. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rose 7.25 basis points to 142, the highest level since July 20, according to JPMorgan Chase & Co. The Markit CDX North America Investment Grade Index of contracts linked to 125 companies in the U.S. and Canada jumped 3.27 basis points to 112.7, according to Markit Group Ltd. “High excess supply, high unemployment and rising delinquencies all make for an explosive mix, powerful enough to tip the U.S. economy back into recession,” said Christian Weber, a Munich-based credit strategist at UniCredit SpA. The conditions could create a “negative feedback loop,” he said. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 19 basis points to 518 and the Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 5.75 basis points to 117.5.
• Basel Banking Reform Plans Must Be Supported, Bair Writes in FT. Critics of reforms proposed by the Basel Committee on Banking Supervision are misguided, for the recent financial crisis showed that excessive leverage has disastrous consequences for the economy, said Sheila Bair, the chairman of the U.S. Federal Deposit Insurance Corp. Writing in the Financial Times, she said the Basel committee proposes to eliminate hybrid instruments that weaken banks’ capital structures, add capital buffers so that deleveraging doesn’t wipe out lending, and place higher capital charges on risky derivatives and trading activities. The critics claim these reforms will stifle lending, raise the cost of borrowing and damp economic recovery, Bair said.
• Crude Drops Below $72 as Equities Decline Amid Concern Recovery Is Slowing. Oil plunged to its lowest level in seven weeks as sales of previously owned U.S. homes fell more than forecast in July, boosting speculation that economic growth is slowing, curbing fuel demand. Crude for October delivery fell $1.10, or 1.5 percent, to $72 a barrel at 11:32 a.m. on the New York Mercantile Exchange. “The market is extremely weak fundamentally and without a strong euro or a strong stock market, it just doesn’t have anything else to peg its hopes on,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. Stockpiles of oil and fuels climbed 5.3 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990, when the Energy Department began to collect weekly data. On a monthly basis, supplies are at the highest level since November 1983.
• Gold Rebounds on Investor Demand for Safe Haven as Global Equities Tumble. Gold rebounded from the biggest drop in four weeks as some investors purchased the metal as a haven from tumbling equity markets.
• Wells Fargo(WFC) Builds CMBS Business Once Dominated by Wachovia. Wells Fargo & Co. is plunging back into the commercial mortgage-backed securities market that helped fell Wachovia Corp., the bank it bought in 2008 for $12.7 billion.
• Hero Honda Expects India Motorcycle Sales to Slow on Rising Interest Rates. Hero Honda Motors Ltd., maker of about half the motorcycles sold in India, said demand will grow more slowly this year as the central bank raises interest rates to pare inflation. India may take further steps to damp rising prices, Sud said, after four interest-rate increases since March failed to bring inflation down from near 10 percent. Rising prices have stoked public protests and sap demand for motorcycles in India, the world’s second-biggest two-wheeler market.
• Vietnam Equities Tumble, Entering Bear Market, as Monetary Policy Tightens. Vietnam stocks tumbled, entering a so-called bear market, on concern the government may add measures to plug the nation’s deficit after devaluing the dong last week. The Ho Chi Minh City Stock Exchange’s VN Index slumped 3 percent to 434.42 at the 11 a.m. local-time close, the worst performer today among 93 benchmark indexes tracked by Bloomberg, extending its decline from this year’s high on May 6 to more than 20 percent, which analysts define as a bear market.
• Treasury Two-Year Yield Drops to Record Low on Plunge in Housing Market. Treasuries remained higher as the government sold $37 billion of two-year securities, the second of four note and bond auctions this week totaling $109 billion.
• Fed's Evans Says U.S. Recovery Uncertain as Housing Not 'Out of the Woods'. Federal Reserve Bank of Chicago President Charles Evans said that while the housing market and U.S. economy have shown signs of improvement, recovery isn’t yet assured. “Although there are some signs of general economic recovery and some evidence of home-price stabilization, we are certainly not out of the woods,” Evans said today in a speech in Indianapolis. The recovery “seems to be extremely modest” and the central bank’s “accommodative policy is appropriate,” he said in reply to an audience question.
• Miami Seeks to Impose Contracts on Unions to Help Cut Deficit, Mayor Says. Miami commissioners are likely to impose contracts on the city’s employee unions that will cut wages and pensions to ease a projected $96.5 million operating- budget gap next fiscal year, Mayor Tomas Regalado said. “Probably in two weeks the commission will impose a contract whereby we will be reducing salaries and pensions, which is what’s responsible for the deficit,” the first-term mayor said in an interview on Bloomberg Television outside City Hall today.
• Republican Boehner Calls on Obama to Fire Geithner for Mishandling Economy. to fire Treasury Secretary U.S. House Republican leader John Boehner called on President Barack ObamaTimothy Geithner and the other remaining members of the president’s economic team. In a speech today to the City Club of Cleveland, Boehner said Obama’s stimulus policies are failing to create jobs. “We do not have the luxury of waiting months for the president to pick scapegoats for his failing ‘stimulus’ policies,” Boehner said. “We’ve tried 19 months of government-as-community-organizer. It hasn’t worked. Our fresh start needs to begin now.”
• Apple(AAPL) Said to Prepare New 99-Cent TV Show Rental Service. is in advanced talks with Apple Inc.News Corp. to let iTunes users rent TV shows for 99 cents and is in discussions with other media companies about similar deals, said three people familiar with the plan. Viewers would be able to rent programs from News Corp.’s Fox for 48 hours, said the people, who declined to be identified because discussions aren’t public. CBS Corp. and Walt Disney Co., where Apple Chief Executive Officer Steve Jobs is a board member and the largest shareholder, also are in talks about joining the effort, the people say.

Wall Street Journal:

• Feinberg Criticized for Spill-Compensation Terms. Kenneth Feinberg's effort to set the terms for handing out BP PLC's money to Gulf oil spill victims came under fresh attack Monday from state officials and private lawyers who said he planned to be too restrictive in deciding who gets paid. "Mr. Feinberg seems to be completely tone-deaf to the concerns of people along the Gulf Coast," said Alabama Attorney General Troy King, who blasted Mr. Feinberg as a "corporate shill" of the oil giant.

CNBC:

• BofA(BAC) CEO Buys 30,000 Shares of Company Stock.

New York Post:

• Bill & Hillary Clinton Party With Hedge Fund King. Bill and Hillary Clinton kicked off Bubba's celebratory birthday weekend in the Hamptons by stopping by the Wainscott home of hedge-fund king and big Hillary fund-raiser Daniel Neidich Friday night. Before forming Dune Capital Management, Neidich was a managing director at Goldman Sachs(GS).

Daily Beast:

• Oil Spill Seafood Lie. As shrimp season starts, The Daily Beast tested the Gulf's seafood for oil and dispersant, and the results were immaculate. If Gulf and Atlantic seafood are equally safe, why won't America buy?

Real Clear Politics:

• Medical Care Facts and Fables. There is so much political spin, and so many numbers games being played, when it comes to medical care, that we have to go back to square one and the simplest common sense, in order to get some rational idea of what government-run medical care means. In particular, we need to examine the claim that the government can "bring down the cost of medical care."

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-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).

USA Today:

• Grads Taking Law Schools to Task for Poor Job Market. Law schools, once viewed as a guaranteed path to a high-paying career, are coming under fire as disillusioned graduates find a tighter job market than they say they were led to expect. A small but growing coalition of graduates, on blogs with names like "Scammed Hard" and "Shilling Me Softly," blame their alma maters for luring them into expensive programs by overstating their employment prospects.

Globe and Mail:

• Potash Corp.(POT) Spurns BHP(BHP), Seeks White Knight. Potash Corp. is in talks with a handful of Chinese firms and other international companies looking to trump BHP $38.6-billion (U.S.) hostile takeover bid for the fertilizer giant. The Saskatoon-based company is discussing a range of investment options that would include more than one company stepping forward with a joint bid to rival BHP’s $130-per-share offer. Anglo-Australian firm Rio Tinto is said to be considering a bid alongside a Chinese player as relations between the two sides strengthen, according to sources.

Telegraph:

• Spain Uses Social Security Fund to Prop Up the Bond Market. Spain is putting all its eggs into one basket, and if it carries on like this, we may start to see a lot of Basques and Catalans crowding into one exit. The state pension fund – the €64bn Fondo de Reserva, known as the ‘hucha de las pensiones‘ – is buying Spanish sovereign debt at a vertiginous pace.

Handelsblatt:

• Wolfgang Franz, head of Chancellor Angela Merkel's council of economic advisers, said Germany's economy will slow after a record expansion in the second quarter, citing an interview. U.S. unemployment, weak economies in southern Europe and slowing growth in emerging nations pose risks for Germany's export-driven economy, Franz said.

Valor Economico:

• Petroleo Brazileiro SA(PBR), Brazil's state-controlled oil company, and the government may use a price of $9 a barrel for state-owned oil reserves that will be swapped for company stock.

Xinhua:

• China is still studying property tax and plans to introduce property tax reform, citing Xu Lin, director of finance department at the National Development and Reform Commission. Xu did not say when the tax may take place. China may introduce other tax reforms including environmental and social security tax, he said.

DigiTimes:

• Mistrust in US and India May Limit China Telecom Gear Suppliers Growth, Says iSuppli. Concerns are rising in the US and India over perceived security risks associated with using China-made telecommunications equipment, potentially slowing global sales growth for China's major gear makers, according to iSuppli. A group of US senators recently asked the Obama administration to review a bid from China's Huawei Technologies to supply telecommunications gear to Sprint Nextel, citing concerns over espionage. Meanwhile, Huawei and fellow China-based equipment maker ZTE reported that the government in India started blocking purchase orders placed with them in mid-February. "The key elements that have made Chinese vendors successful: inexpensive labor, a home-field advantage in China's hot telecom market and access to an almost unlimited line of credit though government banks, are unlikely to disappear any time soon," said Lee Ratliff, senior analyst for broadband and the digital home at iSuppli. "However, the vendors face serious opposition in several of the largest markets left to penetrate."