Evening Headlines
Bloomberg:
- Berlusconi Competes With Banks Wooing Italians to Record Debt: Euro Credit. Italian retail investors are spoiled for choice as the country’s banks prepare to refinance a third of their debt at a time when the government is offering yields at euro-era records on its securities. The country’s lenders, including UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), have more than 100 billion euros ($145 billion) of bonds to repay by the end of 2012. The government, which has paid more for its money than financial firms for the past four months, will sell quadruple that amount in the same period. “The maturities of the Italian public debt create a sort of competition with the issues of the banking sector,” Paola Sabbione, an analyst at Deutsche Bank AG, wrote in a report “Families, thus the banks’ clients, are important holders of Italian public debt.” The yield on Italian 10-year bonds reached a decade-high 6.3 percent on Aug. 5, slamming the shares of the banks, the biggest holders of government bonds. The plunge in UniCredit and Intesa shares, both down more than 30 percent since the start of July, threaten to deter Italian savers, who traditionally buy the bulk of their debt. “This isn’t a good news for banks,” said Vanni Lucchelli a partner of Compagnia Fiduciaria Lombarda SpA, a Milan-based trustee company. “An increase in the capital gains tax to 20 percent excluding government bonds may force banks to offer customers higher rates to give them a compelling net yield compared with treasury bills and bonds.” UniCredit, Italy’s biggest bank, needs to roll over about 32 billion euros in 2012, while Intesa Sanpaolo, the second largest lender, has about 22 billion-euros of bonds expiring next year.
- Euro Is Near Three-Week High Before Sarkozy, Merkel Meet About Debt Crisis. The euro traded 0.2 percent from a three-week high on prospects a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel will result in action to contain the region’s debt crisis. The dollar was 0.7 percent from its lowest in two weeks against the yen before a report that economists said will show U.S. housing starts dropped last month. The Australian dollar declined for the first time in four sessions after minutes today of the Reserve Bank’s meeting on Aug. 2 showed policy makers kept interest rates unchanged on concern that turmoil in financial markets could slow global economic growth. “The euro is supported by the expectation that something will be decided at tonight’s meeting between France and Germany’s leaders on the pan-European bond issue,” said Imre Speizer, an Auckland-based strategist at Westpac Banking Corp., Australia’s second-largest lender.
- Texas College Fund Expands Hedges Against Euro-Debt Crisis. Texas’s public university endowment, the second-largest U.S. college fund, is expanding derivative use to hedge against a euro-region debt default or a collapse in the dollar, while raising limits on commodity investments. About $70 million a year is used for hedges to protect endowments including the Permanent University Fund from market risks, Bruce Zimmerman, president of University of Texas Investment Management Co., said today. The $20.3 billion permanent fund has about 5 percent of its assets gold, he said. Bullion provides a store of value should the dollar decline. Overseers of the fund approved changes today to let endowment managers at UTIMCO, as Zimmerman’s company is known, spend as much as 0.75 percent of assets on hedging risks, up from 0.25 percent. Only Harvard University has a bigger endowment, valued at $27.6 billion. “We are in a very uncertain investment environment,” he said at the University of Texas System Board of Regents meeting today. “The lack of clarity of the direction is as opaque as many of us have ever seen.” The fund may lose a fifth of its value from a euro-region default or a crisis in the dollar, according to a study from the management company. That prompted calls from board members for more aggressive hedging.
- Soros, Mindich Cut SPDR Gold Holdings in Quarter as Paulson Maintains Bet. George Soros, Eric Mindich and Scout Capital Management LLC cut their holdings in SPDR Gold Trust as prices rallied to a record during the second quarter, while Steven A. Cohen’s SAC Capital Advisors LP bought options on the exchange-traded fund, government records show. Soros Fund Management LLC held 42,800 shares of SPDR Gold Trust as of June 30, compared with 49,400 at the end of the first quarter, a filing yesterday with the U.S. Securities and Exchange Commission showed. Mindich’s Eton Park Capital Management LP reduced its stake to 813,000 shares from 2.328 million, a separate filing showed. SAC Capital purchased call options linked to the SPDR Gold Trust valued at $627.7 million. Gold prices have surged 45 percent in the past year, touching a record $1,817.60 an ounce in New York last week, as Europe’s debt crisis and the prospect of a global economic slowdown boosted demand for the metal as a haven. Some investors may have sold the metal amid the financial turmoil, according to James Dailey of TEAM Financial Management LLC. “Funds were confused about the behavior of the market, and they probably thought it would be better to sit on cash rather than lose money,” Dailey, who manages $185 million at TEAM Financial, said in a telephone interview from Harrisburg, Pennsylvania.
- Japanese banks' credit ratings and share prices may decline as global regulators consider measures that seek to avoid the use of public funds to rescue failing lenders, Mitsubishi UFJ Morgan Stanley Securities Co. said. "The prices of some of Japan's major bank stocks could fall by over 20% once expectations of capital injections and other forms of government support disappear," Junsuke Senoguchi, a senior anlalyst at MUFJ Morgan Stanley, wrote. The absence of a public backstop would lower banks' credit ratings and drive funding costs higher, eroding profitability, he said.
- China Home Sales Skirt Policies With Fake Divorces. Frank He said he faked a divorce from his wife of 10 years to skirt China’s ban on third mortgages and obtain a bank loan for a third property, a 12 million yuan ($1.9 million) suburban villa.“My wife and I love each other, but as long as we can get the mortgage from the bank for the deal, we’ll take it,” said He, a 40-year-old manager at a chemical company. The forged document, which cost the Shanghai couple 20,000 yuan, helped them get a loan amounting to 60 percent of the purchase price, he said. Chinese homebuyers and developers are finding loopholes as they come under pressure from government policies to curb gains in residential prices, such as limits on the number of properties owned. Builders are refraining from cutting prices, offering free parking lots and attics instead, as they face higher borrowing costs after Standard & Poor’s downgraded their outlook in June. Their actions may hamper the government’s efforts to prevent a bubble in the housing market.
- China Slowing 'Significantly': Conference Board. Growth in China, the world’s second- biggest economy, is slowing “significantly,” according to The Conference Board, a New York-based research organization. “The economy is significantly moderating right now and also over the next couple of months,” Bart van Ark, the organization’s chief economist, told Bloomberg Television from New York today.
- A Wild Ride to Profits. High-Frequency Traders Score Big on Stock Volatility; 'Feeding off the Volume'.
- Murky Science Clouded Japan Nuclear Response. After a third explosion rocked Japan's Fukushima Daiichi nuclear complex on March 15, the weather took a worrisome turn. A wind that had been blowing steadily out to sea shifted to the northwest, carrying plumes of radiation up a river known locally as the "corridor of wind." That evening, a late-winter snow began falling on this mountain village. Residents awakened the next day to a blanket of white over their homes, roads, cow pastures and pine forests. They stepped outside and began shoveling.
- Rick Perry Touting a Downhome Resume. Rick Perry became an Eagle Scout and Air Force pilot after growing up as the son of a cotton farmer "from a little place called Paint Creek, Texas," whose house had no indoor plumbing. As Texas's longest-serving governor, he says he cut taxes and red tape and helped boost job growth.
- Soros Fund Cuts Stakes in Citi(C), Wells Fargo(WFC), Monsanto(MON). Billionaire investor George Soros‘s hedge fund reported lower stakes in big banks Citigroup and Wells Fargo, and slashed its ownership in Monsanto, a former top holding, according to a regulatory filing late Monday.
- Urban Outfitters(URBN) 2Q Net Drops 21% On Increased Markdowns.
- Lesson From Europe (Take 2). No, social democracy doesn't 'work.' 'The real lesson from Europe," wrote Paul Krugman in January 2010, "is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works." Here are some postcards from the social democracy that works.
- Ruby Red Tape. A case study in the costs of regulation, from Opal to Oregon. The abstraction known as "regulation" is often invoked as a reason businesses aren't growing or hiring fast enough, and with good reason. Anyone wondering what that means in practice should consult the epic saga of the Ruby pipeline.
- Asia Funds Lose $77 Billion in Stocks Plunge, Led by Korea. Asian equity mutual funds suffered a $77 billion hit in the first 11 days of August with those betting on South Korea and the Greater China region leading the declines amid a global selloff on concerns over U.S. growth and a European debt crisis.
- 13F Watch: David Einhorn Buys More Microsoft(MSFT) and Apple(AAPL).
- GUTS: Bruce Berkowitz Loads Up The Boat On Financials. While other fund managers are mostly running away from financials, struggling fund manager Bruce Berkowitz of the Fairholme Funds is going the other way. His new 13-F is out, and he's loading up the boat on financials, particularly the real dogs.
NY Times:
- Debt in Europe Fules a Bond Debate. The Germans want to bury it. The French say it is a nonstarter. But the idea that the only way to contain the is for Europe to issue bonds backed by all the nations of zone will not go away. Markets perceive “a great reluctance on the part of the E.C.B. to engage in large-scale purchases of financially troubled governments’ bonds,” Mr. Mayer of Deutsche Bank, and Daniel Gros, director of the Center for European Policy Studies in Brussels, wrote in a note. They reject euro bonds, saying they would “turn into a poison pill” for European monetary union. “Political resistance against E.M.U. would rise in the stronger countries, eventually leading to a probable breakup of E.M.U.,” they wrote.
- Hedge Funds Disclose Second-Quarter Positions.
Forbes:
LA Times:
- California Advocacy Groups Urge Boycott of Amazon(AMZN). Think Before You Click asks consumers to cancel their Amazon.com accounts until the company stops refusing to collect state taxes. California could collect about $1 billion a year on Internet sales.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).
- PACs Gave Nearly $65M to Deficit 'Supercommittee' Members. The "supercommittee" of Congress tasked with finding at least $1.2 trillion to reduce the deficit has received millions of dollars from a wide range of special interests in the past decade, according to a new independent analysis. Political action committees have given nearly $65 million to the six Republicans and six Democrats on the Joint Special Committee on Deficit Reduction from 2001-2010, according to the analysis by MapLight.org, which tracks money in politics. Lawyers and law firms were the top donors by industry, contributing more than $31.5 million to the "supercommittee" members, the analysis shows. That amount is more than the $11.2 million donated by people in the securities and investment industry, the analysis shows. Democratic/liberal interests, health professionals and the real estate industry round out the top five industry donors.
Telegraph:
- Germany's Angela Merkel Faces Eurobond Mutiny. German Chancellor Angela Merkel's coalition partners are threatening a withdrawal from government if she agrees to eurobonds or any form of fiscal union to prop up southern Europe. The simmering revolt in the Bundestag makes it almost impossible for Mrs Merkel to offer real concessions at Tuesday's emergency summit with French president Nicolas Sarkozy. "We are categorical that the FDP-group will not vote for eurobonds. Everybody must understand that there is no working majority for this," said Frank Schäffler, the finance spokesman for the Free Democrats (FDP). Oliver Luksic, the FDP's Saarland chief, told Bild Zeitung the survival of Germany's coalition was now rests on the handling of this issue. "Eurobonds are a sweet poison that leads to more debt, rather than less. Should the government endorse a common European bond and with it take the final step towards a long-term debt union, the FDP should seriously ask whether the coalition has any future." Alexander Dobrindt, general-secretary of Bavaria's Social Christians (CSU) and a key Merkel ally, said his party has issued a "crystal clear 'No' to eurobonds". Chancellor Merkel also faces mutinous grumbling among her own Christian Democrats (CDU), though the party's policy elite is willing to consider partial eurobonds up to the Maastricht limit of 60pc of GDP but only under stringent conditions. It is clear the German public is in no mood for any such formula. A YouGov poll shows 59pc of Germans oppose all further bail-outs. The majority want to see Greece expelled from the euro and 44pc want Germany to withdraw from EMU. "Given the rising euroscepticism in the population, it is too politically dangerous to toy with the explosive subject of eurobonds," said Hamburger Abendblatt. Otmar Issing, the European Central Bank's former chief economist, told German TV a move to eurobonds would impoverish Germany and subvert the Bundestag. "That would be catastrophic. I cannot understand how any German politician agree to this," he said. Germany's constitutional court has yet to rule on the legality of EMU's bail-out machinery and is likely to pay close attention to his warnings that the drift of EU policy is to concentrate budgetary powers in the hands of EU officials outside democratic control. Professor Wilhelm Hankel from Frankfurt University said a eurobond is camouflage for fiscal union. "That is forbidden under EU law and the German constitution. Everybody in parliament realises we are very near to the Rubicon and that if they say yes to eurobonds they cannot stop the march to a transfer union." Mrs Merkel's spokesman played down hopes of a breakthrough at Tuesday's meeting, denying reports that eurobonds are on the agenda. The meeting will focus on tougher rules for delinquents. Marcel Alexandrivich from Jefferies said the moment of danger will come when the ECB is seen to hit its limits. "The ECB can act as a buyer-of-last resort for a while but if it has to purchase bonds at €20bn to €30bn a week there will come a point it will say enough is enough, we can't take this on our books any longer." It is unclear where that point lies. The ECB intends to hand the baton to the EFSF once its new powers are ratified by all parliaments, but EFSF's remaining firepower will be less €300bn. Carl Weinberg from High Frequency Economics said this constraint will force the ECB to desist sooner rather than later. "If so, yields on Italian and Spanish bonds will jump in a heartbeat," he told Bloomberg.
- France is likely to cut its growth forecasts after the economy stagnated in the second quarter versus the first, citing a person close to President Sarkozy. The government currently forecasts the economy will growth 2% this year and 2.25% in 2012.
- Has Paulson Lost His Touch? Billionaire's Fund Down 30%. Billionaire investor John Paulson, whose flagship funds are down some 30 per cent for the year to date, has cut back on one of his biggest holdings but largely kept the other major holdings unchanged. Weeks after telling investors in July that he had been overly aggressive with some of his calls, Mr Paulson showed the world that he began scaling back and diversifying within the financial sector during the second quarter. At the end of June Mr Paulson owned 60.4 million shares in Bank of America, down from 124 million at the end of the first quarter.
- China's inflation may rise to about 6.2% in the third quarter from 5.7% in the second quarter, citing the State Information Center.
- China's banking regulator may require the nation's systemically important banks to have a minimum capital adequacy ratio of 11.5% by the end of 2013, citing draft rules from the China Banking Regulatory Commission. Non-systemically important banks' capital adequacy ratio may be set at 10.5%.
- China's Xinjiang province started a crackdown on terrorism in the region on Aug. 11, citing the provincial security department. The campaign will last until Oct. 15, the report said.
- None of note
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 140.0 -7.0 basis points.
- Asia Pacific Sovereign CDS Index 139.0 -9.0 basis points.
- FTSE-100 futures +.23%.
- S&P 500 futures -.38%.
- NASDAQ 100 futures -.39%.
Earnings of Note
Company/Estimate
- (HD)/.82
- (WMT)/1.08
- (ADI).73
- (TJX)/.89
- (SKS)/-.08
- (DKS)/.50
- (JKHY)/.40
- (DELL)/.49
8:30 am EST
- The Import Price Index for July is estimated to fall -.1% versus a -.5% gain in June.
- Housing Starts for July are estimated to fall to 600K versus 629K in June.
- Building Permits for July are estimated to fall to 605K versus 624K in June.
- Industrial Production for July is estimated to rise +.5% versus a +.2% gain in June.
- Capacity Utilization for July is estimated rise to 77.0% versus 76.7% in June.
- (HMSY) 3-for-1
- (OZRK) 2-for-1
- (EDU) 4-for-1
- The weekly retail sales report and the Wedbush PAC Grow Life Sciences Conference could also impact trading today.
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