Evening Headlines
Bloomberg:
- Ireland Long-Term Sovereign Credit Rating Cut by S&P. Ireland’s long-term sovereign credit rating was cut one step to AA- from AA by Standard & Poor’s, which cited the projected cost of supporting the nation’s financial sector. “The negative outlook reflects our view that a further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government’s ability to meet its medium- term fiscal objectives,” S&P said today in a statement. S&P said its new projections suggest that Ireland’s net general government debt will rise toward 113 percent of gross domestic product in 2012. That’s more than 1.5 times the median for the average of euro zone sovereign nations, and “well above” the debt burdens the New York-based firm said it projects for similarly rated countries in the region such as Belgium at 98 percent and Spain at 65 percent.
- Debt Rally Cracking as Swaps Soar, Yield Spreads Flatline: Credit Markets. The rally that drove corporate bond prices to the highest in six years is showing signs of strain as worsening economic data rattle investor confidence that the U.S. can avoid relapsing into recession. A benchmark gauge of U.S. corporate credit risk for companies ranging from Alcoa Inc. to Wal-Mart Stores Inc. has climbed for four days, reaching the highest in more than five weeks.“It’s inevitable that we fall into a double-dip recession,” said Komal Sri-Kumar, who helps manage $118 billion as chief global strategist at TCW Group Inc. in Los Angeles. “The employment situation went into a double-dip; housing is going into a double-dip as we see from today’s numbers; and now the next stage is the overall economy will go into a double- dip.” The Markit CDX North America Investment Grade Index, tied to the debt of 125 U.S. and Canadian companies, rose 3.6 basis points to a mid-price of 113 basis points as of 6:22 p.m. in New York, the highest since July 16. The extra yield investors demand to own U.S. investment-grade corporate bonds instead of Treasuries with similar maturities has climbed 2 basis points since July 30 to 190 basis points, after falling to as low as 186 on Aug. 9, according to Bank of America Merrill Lynch index data. Leveraged loan prices fell for the third straight day to a four-week low. The S&P/LSTA U.S. Leveraged Loan 100 Index declined 0.1 cent to 89.44 cents on the dollar. The price has dropped from 89.88 cents on Aug. 9. In emerging markets, spreads widened 16 basis points, the most since June 4, to 283 basis points, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Credit-default swap indexes are signaling caution even with bond sales on pace for the busiest August since 2007, following record July sales, Bloomberg data show.
- Lack of Jobs, Foreclosures May Keep Housing in U.S. Depressed.
- BOJ May Hold Emergency Meeting to Discuss Easing Policy, Nikkei Reports. The Bank of Japan may take more steps to loosen monetary policy such as increasing liquidity and reducing interest rates because the yen has reach a 15-year- high, Nikkei English News reported, without saying where it obtained the information. The BOJ policy board may meet sooner then the next meeting planned for Sept. 6-7, Nikkei said.
- Greentown China Cuts 2010 New Housing Starts Target, Oriental Post Reports. Greentown China Holdings Ltd. has cut its target for new housing starts this year to 9.6 million square meters from an earlier target of 11 million square meters, the Oriental Morning Post reported today, citing Chief Executive Officer Shou Bainian. It also “may be difficult” for the company to achieve its 67 billion yuan contract sales target for this year, the Shanghai-based newspaper reported, citing Shou. China’s central government is unlikely to ease property control measures in the second half and more measures may be introduced for some cities, Shou was cited as saying.
- Irish, Portuguese and Greek bonds are trading close to distressed values seen before the European Union and International Monetary Fund announced a $945 billion bailout package to safeguard monetary union. The premium investors demand to hold Irish 10-year government rather than benchmark German bunds has soared past the record set the day before the rescue package was unveiled. "Anyone contemplating selling any of their bund holdings should beware, because the peripherals story is back," said Andrew Roberts, head of European interest-rate strategy at Royal Bank of Scotland Plc in London. "It had a little holiday after the stress-tests nirvana allowed everyone a false sense of security, and now we're back to reality."
- Retiree Ponzi Scheme $16 Trillion Short: Laurence Kotlikoff. Social Security just celebrated its 75th birthday. Love it or hate it, it has done its job and should retire. We need a new system, the Personal Security System, which retains Social Security’s best features, scraps the rest, and covers its costs. Social Security’s objective -- forcing people to save for retirement -- is legit. Otherwise millions of us would seek handouts in our old age. But Social Security has also played a central role in the massive, six-decade Ponzi scheme known as U.S. fiscal policy, which transfers ever-larger sums from the young to the old. In so doing, Uncle Sam has assured successive young contributors that they would have their turn, in retirement, to get back much more than they put in. But all chain letters end, and the U.S.’s is now collapsing. The letter’s last purchasers -- today’s and tomorrow’s youngsters -- face enormous increases in taxes and cuts in benefits. This fiscal child abuse, which will turn the American dream into a nightmare, is best summarized by the $202 trillion fiscal gap discussed in my last column. The gap is the present value difference between future federal spending and revenue. Closing this gap via taxes requires doubling every tax we pay, starting now.
- Drillers May Face Months of Waiting Even After Obama Lifts Deep-Water Ban. President Barack Obama’s administration may agree to an early end for its moratorium on deep-water oil and gas drilling while backing new regulations that may keep rigs idle for months afterward.
- Putting the Brakes on ObamaCare. How a Republican Congress could begin the process of repealing this unpopular law. If Republicans take control of one or both houses of Congress this fall, many will have been elected with a promise to "repeal and replace" ObamaCare. But what are their options, really? There likely will be an initial showdown, but President Obama will surely veto any challenge to the law, and it would be hard to imagine mustering the votes to overturn it. Information is the key weapon. Republicans can use congressional hearings to explain what ObamaCare is doing to the economy and the health sector. Their strongest cases would be built around jobs, the cost of health care, and the rising deficit. If evidence shows that looming mandates on employers are crippling job-creation, they should be repealed. If health costs are rising, as they inevitably will be, Congress needs to hold hearings to investigate the causes and explain why the offending taxes and regulations must be repealed. Here are six key strategies that a Republican Congress could employ to put on the brakes:
- BHP Hopes to Thwart Potash Defense. Anglo-Australian miner BHP Billiton Ltd. is likely to ask Canadian regulators to strike down a poison pill that Potash Corp. of Saskatchewan Inc. put in place to stave off BHP's $38.6 billion hostile bid, people familiar with the process said Tuesday.
- U.S. Weighs Expanded Strikes in Yemen. U.S. officials believe al Qaeda in Yemen is now collaborating more closely with allies in Pakistan and Somalia to plot attacks against the U.S., spurring the prospect that the administration will mount a more intense targeted killing program in Yemen.
- Commercial Property Owners Choose to Default. Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans.
- Costco(COST) Targets Mall Space to Expand Reach. Costco Wholesale Corp. is taking on the role of mall anchor, moving into spaces once occupied by department stores that for decades reigned as the retail centers' big draws. The largest U.S. wholesale-style retailer plans to speed up steps that will in essence put its mini-mall type stores into shopping centers, its co-founder and chairman, Jeff Brotman, saidin an interview.
- McCain, Brewer Win Re-Nomination in Arizona. In Florida, Meek, Scott Win Races.
- Big Unions to Pool Money for Fall Elections. The leaders of the AFL-CIO and the Service Employees International Union have agreed to coordinate spending millions of dollars in the midterm elections to support pro-union candidates, most of them Democrats.The two labor organizations say they have a combined $88 million or more to deploy in this year's election cycle.
- Commodities Fall to Six-Week Low on Concern Recovery is Slowing. Commodities fell to a six-week low as figures showing weaker-than-expected U.S. home sales fanned concern that the global economic rebound is slowing. The S&P GSCI Spot Index of 24 raw materials slid as much as 1.9 percent to the lowest level since July 13. Crude oil declined to a seven-week low, coffee tumbled the most in more than two years, corn had its greatest drop in five weeks, and copper slipped to the lowest price this month.
- Economy Like a 'Drunk That Keeps Drinking': Langone. The struggling U.S. economy, held up by "artificial" stimulus, is not unlike a "drunk that keeps drinking," Ken Langone, former director of the New York Stock Exchange and co-founder of Fieldpoint Private Bank and Trust told CNBC Tuesday. "We have not begun to take the cure," Langone said. "We should have taken the cure a couple years ago...we've prolonged it by the stimulus packages." Langone also dismissed growing worries that the United States will slide into a second recession—chiefly because the banker doesn't believe the U.S. economy ever really recovered. "It's not a double-dip—we never came out of it," Langone said. "We were artificially propped up." "We've got a lot of problems to address and the sooner we get started...the better we're gonna be," he added.
- Cramer: No Rally Until Obama Steps Up. The markets will continue to push lower until leadership steps forward to inspire confidence that things will get better, Cramer said Tuesday. Until President Obama renews our faith in stocks, no rally will be sustainable. “With the right push from the president of the United States, virtually all the negatives we're fretting about today could partially be fixed,” said Cramer. “The president has enough firepower to blast aside the obstacles standing in the way of higher stock prices ... and a stronger economy. We just don't know if he has the will or the inclination.”
- FedEx(FDX) Sues NY Attorney General Cuomo Over Probe. FedEx sued New York Attorney General Andrew Cuomo Tuesday seeking to stop an investigation of the company, arguing that his office had exceeded its authority.
- The Latest Bill Gross Letter Was His Most Blatantly Self-Serving One Ever. PIMCO boss Bill Gross published his September letter today -- a defense of his call to completely nationalize housing finance in America. And though we wrote about the letter earlier, we definitely did not go far enough in pointing out how scandalously self-serving it was.
- Small Business CEOs Reveal Why They're Not Hiring: Economic Contraction, Obama, And Healthcare.
- Bell Council Members Were Paid Thousands for Sitting on Boards That Rarely Met. Bell council members earned tens of thousands of dollars over the last four years as members of city commissions that rarely met, records reviewed by The Times show.
- Illinois Teachers' Retirement System Selling Off $3 Billion to Cover Benefits.
Illinois Teachers' Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets, in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer. The system is the fifth Illinois statewide defined benefit plan to sell off investments this fiscal year to pay benefits.
- 79% Trust Their Doctor. A new Rasmussen Reports national telephone survey finds that an overwhelming majority (79%) of Americans say they trust their doctor. Just eight percent (8%) do not, and 12% more are not sure. Doctors enjoy a high level of trust across all demographic categories. Perhaps not surprisingly, trust is even higher among those age 50 and older.
- US Manufacturers Warn About CFTC Swaps Rules Costs. U.S. manufacturers are concerned that new regulations aimed at curbing risky trading of swaps by banks and other financial companies could sap the resources of the manufacturing sector as it tries to recover from recession. Regulators' definition of "major swaps participant" -- a key part of the new Wall Street reform law -- could pose risk for the members of the National Association of Manufacturers, the trade association said in a letter to the Commodity Futures Trading Commission. "With the U.S. economy still in recovery mode, it is critical that any new regulations on derivatives not inadvertently harm economic growth," said Dorothy Coleman, vice president of the group, whose members include heavyweights like Dow Chemical (DOW.N), Caterpillar (CAT.N) and General Electric (GE.N).
- Short Interest Steady in Mid-August. Short interest on the NYSE and the Nasdaq was little changed in the first half of August, the exchanges said on Tuesday, as trading volumes remained light and investors stayed on the sidelines. The small change came even as the S&P 500 index saw significant volatility and negative sentiment among inventors increased after data pointed to a slowdown in the economy."I'm surprised the numbers aren't really high. I thought they would've spiked considering the individual investor is so negative on this market," said Keith Springer, president of Capital Financial Advisory Services in Sacramento, California. As of August 13, short interest on the NYSE rose 0.4 percent to about 13.75 billion shares, compared with a revised 13.69 billion shares as of July 30. The short interest on August 13 was equal to 3.60 percent of the total shares outstanding. Over the same time period on Nasdaq, short interest fell 1.6 percent to about 7.22 billion shares, compared with 7.34 billion in the previous period. The average number of days it would take to cover the outstanding short positions was 3.54, up from 3.37 in the previous period.
- Plan to Raise Cash for US School Reforms. The Obama administration will ask Congress for another $700-800m next year so it can continue its Race to the Top education reform scheme, says Arne Duncan, the US education secretary. The scheme, which saw another 10 reforming states receive $3.4bn in funding on Tuesday, has proven wildly popular as many states face budget crises.
- Rio Tinto(RTP) Will Not Counterbid for Potash(POT). Rio Tinto is not planning to make a counterbid for PotashCorp, sources close to the company have said.
- Market Says 25% Change of Ireland Debt Default. INSURANCE against Ireland defaulting on its €85.32 billion national debt has soared on fears the cost of rescuing Anglo Irish Bank will rise, indicating the market believes there is a one-in-four chance of a default. The rising cost of Ireland’s pledge to support its biggest banks has made the nation’s debt riskier than that of Iceland, whose financial system collapsed in 2008. Credit-default swaps on Irish government debt have surged nearly 200 basis points since March, to a record 319 basis points yesterday, according to data provider CMA. That implies a 22.4% probability Ireland will default within five years, compared with a 21.9% likelihood of Iceland failing to meet its commitments. Investors are concerned the cost of rescuing Anglo Irish Bank will exceed the maximum €25bn forecast by the Central Bank, which is equivalent to 15% of the nation’s annual gross domestic product and 75% of its tax take. "When you can’t put a cap on liabilities, market confidence is obviously going to get eroded and that is what’s happening," said Gary Jenkins, head of credit research at Evolution Securities in London.
- Japanese Prime Minister Naota Kan said addressing the strength of the yen is his top priority, citing comments to lawmakers.
- China Steel Corp. may lower prices of hot-rolled coil by $40 a metric ton in October and November.
- None of note
- Asian equity indices are -2.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 130.0 +4.0 basis points.
- Asia Pacific Sovereign CDS Index 120.25 +4.5 basis points.
- S&P 500 futures +.30%.
- NASDAQ 100 futures +.25%.
Earnings of Note
Company/Estimate
- (TOL)/-.16
- (AEO)/.12
- (JAS)/.02
- (JDSU)/.14
- (HEI)/.37
- (GES)/.68
- (RUE)/.25
8:30 am EST
- Durable Goods Orders for July are estimated to rise +3.0% versus a -1.0% decline in June.
- Durables Ex Transportation for July are estimated to rise +.5% versus a -.6% decline in June.
- New Home Sales for July are estimated at 330K versus 330K in June.
- The House Price Index for June is estimated to rise +.1% versus a +.5% gain in May.
- Bloomberg consensus estimates call for a weekly crude oil inventory gain of +300,000 barrels versus a -818,000 barrel decline the prior week. Gasoline supplies are expected to fall by -450,000 barrels versus a -39,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +1,069,000 barrel gain the prior week. Finally, Refinery Utilization is expected to fall by -.45% versus a +1.9% gain the prior week.
- None of note
- The $36 Billion 5-Year Treasury Notes Auction, weekly MBA mortgage applications report, Morgan Stanly Semi/Semi Cap Equipment Investor day, (MDT) shareholders meeting and the EnerCom Oil/Gas Conference could also impact trading today.
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