Evening Headlines
Bloomberg:
- EU Heads for Eurobond Clash Over Fiscal Union. European ratification of a reinforced crisis-management fund will act as a prelude to an even more divisive debate: whether to put more money into the pool and use it to borrow on behalf of all 17 euro states. The question of “eurobonds” or “fiscal union” -- toxic language in northern countries like Germany -- will force itself onto the agenda once the retooled rescue fund is in place as soon as next month. The trigger will be a European Commission feasibility study of jointly sold eurobonds, seen by a growing number of economists as the only way of guaranteeing to the markets that countries such as Italy won’t go bust. Unprecedented bailouts by governments and the European Central Bank have so far failed to stamp out the crisis that is menacing the region’s core members. “No single currency has ever survived without some form of debt mutualization,” said Simon Tilford, chief economist at the London-based Centre for European Reform, a research institute focused on European integration. “There’s an increasing recognition that that is the only way of stabilizing the euro zone.” “Only Germany can reverse the dynamic of a European decay,” billionaire investor George Soros wrote in today’s Handelsblatt, the Dusseldorf-based newspaper. “Germany and other countries with a AAA rating have to approve some sort of euro- bond regime. Otherwise, the euro will implode.” Germany, which authored the rules that failed to prevent Europe’s debt explosion, fears that mutual borrowing would drive up its financing costs, historically the euro area’s lowest and the benchmark for the region. A switch to shared borrowing would push up German funding costs by 1.22 percentage points -- German 10-year yields are about 2.3 percent -- adding 25 billion euros a year to Germany’s interest bill, Kai Carstensen of the Ifo Institute in Munich told the Frankfurter Allgemeine Zeitung on July 19.
- France, Spain, Italy, Belgium Try to Halt Bank Rout. France, Spain, Italy and Belgium will impose bans on short-selling from today to stabilize markets after European banks including Societe Generale SA hit their lowest level since the credit crisis. “While short-selling can be a valid trading strategy, when used in combination with spreading false market rumors this is clearly abusive,” the European Securities and Markets Authority, which coordinates the work of national regulators in the 27-nation European Union, said in a statement after talks ended late yesterday. National regulators will impose the bans “to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field.” The watchdogs are trying to stem a rout that sent European bank stocks to their lowest in almost 2 1/2 years and quell concern that European lenders may be struggling to fund themselves. Banks’ overnight borrowings from the European Central Bank jumped to the highest in three months yesterday, a sign some lenders may have need for emergency cash. Regulators imposed similar limits on short sales in September 2008 following the collapse of Lehman Brothers Holdings Inc. The gap between the three-month euro interbank offered rate and the overnight indexed swap rate widened yesterday to the most since April 2009, showing that European banks are becoming more reluctant to lend to each other for longer than overnight.
- China Said to Tell Banks to Tighten Curbs on Property Loans. Chinese regulators have told banks to tighten lending for real estate on concern credit risks will increase as the impact of government curbs deepens in the next three to five months, a person familiar with the matter said. The regulator aims to guard against the risk of bad loans should government efforts to cool the market cause property prices to fall. China Vanke Co., the nation’s biggest listed property developer, fell 1.2 percent to 8.45 yuan as of 10:23 a.m. in Shenzhen trading.
- Growth Forecasts for U.S. Reduced Through 2013 on Limited Employment. The world’s largest economy will expand at an average 2.3 percent annual rate in the second half of the year, about a percentage point less than projected last month, according to the median forecast of 53 economists polled from Aug. 2 to Aug. 10. Gross domestic product will grow 2.4 percent next year and 2.8 percent in 2013, also less than previously estimated.
- U.S. Companies Poised for Third-Highest Rate of Annual Buybacks. U.S. companies are authorizing share repurchase plans at a rate that may make 2011 the third biggest year for buybacks since at least 1985, according to Birinyi Associates Inc. There were $36 billion in repurchases approved last month, bringing the total this year to $324 billion, Rob Leiphart, an analyst at the Westport, Connecticut-based research firm, wrote in a note today. Should the rate hold up, 2011 would end with $554 billion. Only 2006 and 2007 had more, with $655 billion and $863 billion authorized, Birinyi data show. Chief executive officers have more money than ever after boosting cash for 10 straight quarters to $963.3 billion, Standard & Poor’s data show. With stocks down 14 percent from their April 2011 high, companies may be more inclined to repurchase shares than return money through dividends, he said.
- Vulpes, BIA, Riley Paterson Hedge Funds Profit From Rout With Bearish Bets. Asian hedge funds run by Vulpes Investment Management, Ballingal Investment Advisors Ltd. and Riley Paterson Investment Management rose this month as managers profited from the worst rout in equity markets since 2008. Vulpes’s long Asian volatility and arbitrage fund, LAVA, advanced 5 percent in the month through Aug. 10, said Stephen Diggle, the firm’s founder. Ballingal’s BIA Pacific Macro Fund rose about 4 percent, said two people briefed on the return who asked not to be identified because the information is private. The Riley Paterson Asian Opportunities Fund gained 2 percent in the same period, according to its managers. The MSCI Asia Pacific Index declined 11 percent this month to yesterday.
- Bank of America(BAC) Credit-Default Swaps Lead Surge in Lender Risk. Credit-default swaps on Bank of America Corp., the nation’s biggest lender, surged to the highest since April 2009 before paring the gain. A swaps index that gauges the perceived risk of owning junk bonds, which falls as sentiment deteriorates, plunged to the lowest in almost two years. Investors are turning to the derivatives to protect against losses as European leaders struggle to contain a crisis of confidence that has sent borrowing costs for Spain and Italy to euro-region records and this week caused credit swaps on France to soar. Confidence in corporate credit deteriorated even as U.S. jobless claims fell and stocks rose. Swaps on Charlotte, North Carolina-based Bank of America soared as much as 71 basis points to a mid-price of 375 basis points before trading at 345 basis points as of 9:43 a.m. in New York, according to broker Phoenix Partners Group. Credit swaps on Goldman Sachs Group Inc. added 29 basis points to 224, and those on Morgan Stanley jumped 32 basis points to 289, according to data provider CMA. Swaps on Societe Generale SA, the French bank whose shares have plunged 16.5 percent the past two days, climbed 42 basis points to 379 basis points, CMA data show. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added as much as 11.1 basis points to a mid- price of 126.5 basis points earlier today.
- Oil Heads for Third Weekly Drop on Concern Volatility Threatens Recovery. Oil fell in New York, heading for a third weekly decline, as concerns that market volatility will derail the economic recovery countered an unexpected drop in jobless claims in the world’s biggest crude-consuming nation. Crude for September delivery fell as much as 62 cents to $85.10 a barrel in electronic trading on the New York Mercantile Exchange, and was at $85.20 at 12:04 p.m. Sydney time. The contract yesterday gained 3.4 percent to $85.72. Prices are down 2 percent this week and 12 percent higher the past year.
- AIG(AIG) Share Slide May Prolong Treasury's Ownership, Goldman(GS) Says. American International Group Inc.’s share slide may prolong the U.S. Treasury Department’s ownership of the bailed-out insurer, limiting near-term gains for private investors, Goldman Sachs Group Inc. said. Michael Nannizzi, a Goldman Sachs analyst, cut his one-year price target for New York-based AIG to $27 from $31 in a note to clients today. The insurer has plunged by more than half since Dec. 31 as it paid claims tied to natural disasters and said it would take charges to bolster reserves for policies sold in prior years.
- High-Frequency Firms Tripled Trading as S&P 500 Plunged 13%, Wedbush Says. The stock market’s fastest electronic firms boosted trading threefold during the rout that erased $2.2 trillion from U.S. equity values, stepping up strategies that profit from volatility, according to one of their biggest brokers. The increase from Aug. 1 to Aug. 10 over their 2011 average surpassed the 80 percent rise in U.S. equity volume, showing that high-frequency traders made up more of the market during the plunge, Gary Wedbush, executive vice president and head of capital markets at Wedbush Securities, said in a telephone interview. Wedbush is the largest broker supplying bids and offers on the Nasdaq Stock Market, according to exchange data. “We’re seeing a tremendous amount of high-frequency trading,” said Wedbush, whose company is one of the biggest execution and clearing brokers catering to high-speed firms. “Their business is a trading business, and volatility creates far more opportunities. Some of their algorithms and automated systems are trading two, three or five times as many shares as they would have in a more normalized volatility environment.”
- Emerging Stock Funds Report Third-Largest Weekly Outflows. Emerging-market equity funds posted the third-largest weekly outflows on record amid Standard & Poor's unprecedented downgrade of the U.S. credit rating and a spread in Europe's debt crisis, Citigroup Inc. said. Funds investing in developing-nation stocks reported withdrawals of $7.7 billion in the week ended Aug. 10, Citigroup analysts led by Markus Rosgen said in a report today, citing figures compiled by EPFR Global. That took total outflows for the year to $14 billion, according to Citigroup.
- Senator Hatch Warns of Future Downgrades, Debt-Limit Impasses. Sen. Orrin Hatch (R., Utah) Thursday warned that the U.S. could face more ratings downgrades and future debt-limit impasses, and asked the Treasury Department to outline its contingency plans for both scenarios. In a blunt letter to Treasury Secretary Timothy Geithner, Hatch blasted the department for a “belated and incomplete” response to an earlier inquiry, and demanded a fuller account of the government’s fiscal situation in the days leading up to an eventual compromise that saw Congress lift the debt ceiling. “We may again have a debt limit impasse in the event of unexpectedly sluggish economic activity and receipts, or if Congress fails to follow through on deficit reduction called for in the recent debt limit legislation,” Hatch said. “I wish to avoid having Congress and the public relying on guesses about Treasury’s cash position and liquidity from think tanks and Wall Street firms.”
- Risk of New Recession Rises. The risk of a double dip recession has climbed sharply as the economy endures the double whammy of slowing growth and wild swings in global markets, according to economists surveyed by The Wall Street Journal over the past week. The 46 economists in the survey—not all of whom answer every question—put the odds that the U.S. is already in another recession at 13%, while they peg the chances of going that way in the next year at 29%—up from 17% only a month ago.
- BofA(BAC) Chief Sees Top U.S. Officials. Embattled Bank of America Corp. boss Brian Moynihan met privately this week with Treasury Secretary Timothy Geithner and Federal Reserve governor Daniel Tarullo amid the bank's campaign to calm investors and employees about the bank's dramatic share slump. The separate meetings took place on Wednesday in Washington, said people familiar with the situation. Earlier that day, Mr. Moynihan participated in an unusual public conference call arranged by one of the bank's largest shareholders, where he offered assurances about the bank's strategy, financial strength and ability to withstand market volatility.
- Citadel Considers Cutbacks. Hedge-fund manager Kenneth Griffin's Citadel LLC is making cuts to its New York operations, after struggling for three years to expand into investment banking and research and keep high-level executives in place, people familiar with the matter say. Chicago-based Citadel is in talks to sell all or part of its investment-banking business, and on Thursday morning told equity research employees in New York that their jobs were being eliminated, the people say.
- Foreign Central Banks Didn't Tap Fed Forex Swap Line In Latest Week. Major foreign central banks didn't tap a facility with the Federal Reserve designed to provide short-term dollar funding to banks in the latest week, even as euro-zone banks found it difficult to borrow in dollar-based money markets.
- Texas Gov. Perry to Run for President. Republican Gov. Rick Perry of Texas intends to run for president, his spokesman confirmed Thursday afternoon, signaling a new addition to the contest for the GOP nomination that is sure to recast the race.
- Debate Jolts Republican Race to Life. A slow-moving Republican presidential campaign came to life Thursday night in a GOP candidates' debate that featured the fiercest face-to-face exchanges of the 2012 contest.
- States Go After Big Bank on Forex. The legal stakes are rising for Bank of New York Mellon Corp. in a widening controversy over the way it prices currency trades for pension funds and other big clients.
- Judgement Call: Appraisals Weigh Down Housing Sales. William Maxwell is an expert in finance. He's a professor at Southern Methodist University's business school, has co-authored a book on high-yield debt and spent years calculating values of financial markets. Yet there's one valuation he can't understand: the appraisal of his Dallas home.
- Tablet War Is An Apple(AAPL) Rout. H-P Cuts Price on Its iPad Rival by 20%; Apple Sells Out but Rivals Combat High Inventories.
- Happy Cost of Government Day! You Worked For It. From Jan. 1 until today, every penny Americans earned paid for federal, state and local spending and regulations. The drama of the last-minute vote to increase the debt ceiling by $2.5 trillion has focused on projected deficits of the federal government and how they will add to the national debt. Those numbers are large. The national debt was $10 trillion when President Obama was inaugurated and is expected to be $15.5 trillion at the end of the year. Yet focusing on the deficit understates the true cost of government. In fact, this year's deficit of $1.5 trillion is "only" 40% of federal spending. And while federal spending has jumped to $3.8 trillion in 2011 from $2.9 trillion in 2008—a 31% increase—that does not include state and local spending, which is estimated to total $1.6 trillion in 2011, according to new report from the Americans for Tax Reform Foundation (ATRF). Nor do these numbers include the cost of individuals and businesses complying with federal regulations: The total cost of such compliance is estimated to be $1.8 trillion. Focusing national attention on the deficit rather than on the total cost of government—federal, state and local spending plus the cost of the federal and state regulatory burden—causes several problems.
- China Economist: Policy-Tightening May Continue. The complex nature of its present round of inflation may drive China to keep tightening its monetary policy for a longer period, increasing the risk of going too far, Ba Shusong, an economist at a government think-tank, said in a column published in the People's Daily on Friday. An overlap of domestic factors and imported inflation pressures make managing this round of inflation especially tricky, said Ba, a deputy director-general of the Financial Research Institute under the State Council's Development Research Center.
- China Is As Much A Debt Sinner as U.S. and E.U. The Chinese government is not quite the frugal, prudent borrower it portrays itself to be. When assessing a country’s real debt situation, rating agencies usually use a concept known as “general government” debt. This includes the liabilities of central and local governments as well as social security funds. Most debt ratios for developed economies such as the U.S. are calculated in this way. In the wake of the 2008 financial crisis, China’s local and regional governments went on an infrastructure building spree that saw them run up huge debts, usually channeled through special-purpose financing vehicles that allow them to get around laws requiring them to keep balanced budgets. Various parts of the Chinese government have different estimates of the total size of local government debt, but one of the more authoritative figures puts it at about 37 percent of GDP at the end of last year, according to the GaveKal-Dragonomics economic research firm. By including a range of other liabilities that Beijing is explicitly or implicitly on the hook for — such as ballooning debt at the railway ministry, bonds issued by so-called policy banks that lend on behalf of the state, and bad debts in the state-owned banking system — GaveKal-Dragonomics estimates that China’s real debt-to-GDP ratio could be as high as 90 percent. Other analysts believe the total is more like 70-80 percent.
- Thousands Riot in Southwest China Town. Thousands of residents of a town in southwest China took to the streets on Thursday, smashing police vehicles in the latest protest by citizens angered by the rough handling of local officials, according to news reports. The protest in Qianxi County, Guizhou province, was the latest of thousands of brief, local riots and demonstrations that happen in China every year, and like many recent outbreaks this one pitted residents against "urban administration" officials charged with enforcing law and order. The "clash broke out between urban administration officials and the owner of an illegally parked vehicle, drawing in thousands of onlookers and sparking incidents of crowds smashing law enforcement vehicles and blocking roads," the website of China National Radio reported on Friday. Rioters turned over one urban administration vehicle and smashed five police vehicles, while others blocked the main streets around the riot with fork lifts and trucks, said the report. "While dealing with the incident, some police were injured," said the report, which added that by the early hours of Friday the crowds had largely scattered as police asserted control.
- Hedge Funds Battling the Bear. (video) We know misery loves company but the fact of the matter is, some investors are making money in this difficult market. And a select few are making a lot of money.
- Nordstrom(JWN) Beats Estimates; Raises Outlook. Nordstrom raised its full-year profit and same-store sales outlooks, and reported a higher-than-expected quarterly profit that was helped by more full-price selling.
- Nvidia(NVDA) Outlook Tops Forecasts; Shares Soar. Nvidia delivered a better-than-expected revenue outlook, sending its shares skyrocketing as the graphics chip maker accelerates a push into the fast-growing mobile device market.
- Retail Sales of Video Games Tumbled in July: NPD. A market research firm says that U.S. retail sales of video game hardware, software and accessories dropped 20 percent in July to $707.7 million, compared with the same month a year earlier.
Zero Hedge:
- SEC To Investigate Trades Based On S&P Downgrade Inside Information.
- Letter to Mary Schapiro Demanding An Explanation For Millions of Stub Quote Rule Violations.
Forbes:
NY Times:
- Postcrisis, New Investment Tactics to Lure the Ultra Wealthy. Funds of hedge funds are changing their ways.
NY Post:
- George Soros Accused of Physical Assault, Sued by Ex-Girlfriend for $50 Million. A beautiful Brazilian soap star has the lead role in her own daytime drama, which casts George Soros, the billionaire financier of lefty causes, as a heavy who not only broke her heart, but also reneged on a promise to give her an Upper East Side apartment worth $1.9 million. The drama will be staged in Manhattan Supreme Court, where 28-year-old Adriana Ferreyr yesterday filed a blockbuster $50 million suit charging, among other things, that the frisky octogenarian slapped her around while they were in bed discussing his real-estate betrayal. The sultry actress and the mogul, who's worth some $14.5 billion, had dated for five years before he heartlessly dumped her a year ago, the lawsuit says.
- U.S. Postal Service Proposes Cutting 120,000 Jobs, Pulling Out of Health-Care Plan. The financially strapped U.S. Postal Service is proposing to cut its workforce by 20 percent and to withdraw from the federal health and retirement plans because it believes it could provide benefits at a lower cost. The layoffs would be achieved in part by breaking labor agreements, a proposal that drew swift fire from postal unions. The plan would require congressional approval but, if successful, could be precedent-setting, with possible ripple effects throughout government. It would also deliver a major blow to the nation’s labor movement. In a notice informing employees of its proposals — with the headline “Financial crisis calls for significant actions” — the Postal Service said, “We will be insolvent next month due to significant declines in mail volume and retiree health benefit pre-funding costs imposed by Congress.”During the past four years, the service lost $20 billion, including $8.5 billion in fiscal 2010.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 21% 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 -22 (see trends).
- Italy Turn on the 'Parasites on Society' in Tax Clampdown. Italy has launched a hard-hitting television campaign against the country's endemic tax evasion as Silvio Berlusconi's government tries frantically to reassure Europe and the markets that it can reduce its massive public debt and avoid a Greek-style meltdown.
- Christian Lindner, general secretary of Germany's Free Democratic Party, said the discussion about euro bonds has to end, citing an interview."Markets are speculating about it futilely," Lindner, whose party is in coalition with Chancellor Angela Merkel's Christian Democrats, was quoted as saying. "Germany can't assume responsibility for the debt of crisis countries," he said. That would make Germany's financing more expensive and take away incentives for reform in countries such as Greece, he said.
- The People's Bank of China may rely more on yuan gains to ease imported inflationary pressure, the China Securities Journal said in a front-page commentary today. China will continue its monetary tightening against inflation, according to the commentary, written by a reporter at the newspaper named Wang Hui.
- China's regulators suspended approvals of applications from city commercial banks seeking initial public offerings as they try to restrict lenders to expand outside their home cities to control risks, citing an investment banker. The fast, large-scale expansion of some city banks has caused some market concerns about their asset quality, the report said. Concerns about risks of loans extended to local government financing vehicles may also cause the suspension, citing another investment banker. Some city banks are controlled or partly owned by local governments, according to the report.
- China's National Development and Reform Commission refrained from cutting domestic fuel prices because of the "large decline" in profits at refineries, citing an official at the China Petroleum and Chemical Industry Federation.
- China's Railways Ministry is in discussion with National Development and Reform Commission on whether to halt some rail projects or postpone construction of high-speed trains that are under construction, citing a person at the ministry.
Janney Montgomery:
- Rated (AKAM) Buy, target $27.
- Rated (ICLK) Buy, target $9.
- Rated (EHTH) Buy, target $17.
- Rated (DGIT) Buy, target $27.
- Rated (KITD) Buy, target $17.
- Rated (VCLK) Buy, target $22.
- Rated (LPSN) Buy, target $14.
- Asian equity indices are -.50% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 151.0 +15.5 basis points.
- Asia Pacific Sovereign CDS Index 144.75 -2.75 basis points.
- FTSE-100 futures +.59%.
- S&P 500 futures -.96%.
- NASDAQ 100 futures -.87%.
Earnings of Note
Company/Estimate
- (JCP)/.06
8:30 am EST
- Advance Retail Sales for July are estimated to rise +.5% versus a +.1% gain in June.
- Retail Sales Less Autos for July are estimated to rise +.3% versus unch. in June.
- Retail Sales Ex Autos & Gas for July are estimated to rise +.2% versus a +.2% gain in June.
- Preliminary Univ. of Mich. Consumer Confidence for August is estimated to fall to 62.0 versus a reading of 63.7 in July.
- Business Inventories for June are estimated to rise +.5% versus a +1.0% gain in May.
- None of note
- The Fed's Dudley speaking could also impact trading today.
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