- Ghost of Lehman Haunts G-7 Amid European Debt-Crisis Paralysis. Europe's finance chiefs will face international calls today to accelerate efforts to contain their debt crisis as mounting bets on a Greek default highlight the biggest threat to the global economy. As central bankers and finance ministers from the Group of Seven nations convene in Marseille, France, for their first face-to-face talks since they promised "coordinated action" Aug. 8 to calm financial markets, Europe's failure to stamp out investor worries over sovereign debts are set to be the focus. Any global recession "will have Europe's fingerprints on it," said Constance Hunter, who helps manage about $12 billion as chief economist at Aladdin Capital Management LLP in Stamford, Connecticut. "Europe is the real risk." It's not the only risk as policy makers race to head off a recurrence of the contraction, the worst since the Great Depression, that followed the collapse of Lehman Brothers Holdings Inc. three years ago this month. The Organization for Economic Cooperation and Development yesterday said the G-7 will barely expand in the final quarter as the euro region shrinks.
- Bond Investors Consider Greek Debt Exchange as Budget Concerns Escalate. Questions over Greece’s ability to meet the terms of its first rescue package are dogging the indebted nation as bondholders weigh whether to participate in a debt exchange that’s crucial to a second bailout. Greece is seeking preliminary responses today from bond investors to the proposed debt swap, part of a 159 billion-euro ($220 billion) European Union rescue plan agreed upon in July. The government is still trying to show it can reach budget- cutting targets required for the next 8 billion-euro payment from a bailout engineered in 2010. “There are a lot of optics to get exactly right, or European bond investors are going to start trying to get out of more than just their Greek bond holdings,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. “This is about creating confidence in the markets that the euro -- the currency and union -- is not going to fall apart at the seams.” The cost of insuring Greek government debt soared 240 basis points to a record 3,045 basis points yesterday, according to CMA prices for credit-default swaps.
- Food-Price Gains Defy Policy Makers' Bid to Ease Inflation, Panelists Say. Rising food prices may be an exception to easing inflation worldwide, posing dilemmas for policy makers, particularly in emerging markets including China, panelists at a forum said today. Central banks “should be concerned” about food-price inflation, said Roberto Rigobon, a Massachusetts Institute of Technology professor, while James Rickards, senior managing director of Tangent Capital Partners, said China risks harming employment if the country tries too hard to contain inflation. Their comments compare with signals today from the Federal Reserve and European Central Bank that the inflation outlook is benign enough to allow further easing. China is “between a rock and a hard place, because they’re very concerned about inflation,” Rickards said during a panel discussion. At the same time, raising interest rates too much may hurt export-related jobs important to the country’s economy. “Inflation and unemployment are both highly destabilizing” for China, he said. Inflation remains a major concern of central bankers in Asia’s emerging markets, while policy makers in developed nations are focused on a slowdown in growth. Chinese inflation accelerated to a three-year high of 6.5 percent in July, prompting Premier Wen Jiabao to say Aug. 31 that his top economic priority is stabilizing prices.
- 'Specific Credible' Terror Threat Received by U.S. Officials. The U.S. Department of Homeland Security has “specific, credible but unconfirmed threat information” as the 10th anniversary of the Sept. 11 terrorist attacks nears, agency spokesman Matt Chandler said in a statement. The threat concerns a possible al-Qaeda-sponsored attack targeting New York or Washington on or near the anniversary of the attack, said a different U.S. official, who wasn’t authorized to discuss the matter publicly. The official said the intelligence concerns a possible vehicle-borne attack, perhaps on a transportation hub or bottleneck, and cautioned that the options may be broader than a car or truck bombing. Another intelligence official, who also spoke on condition of anonymity, said the information hasn’t been fully vetted.
- Power Failure Affects Southern California, Arizona. More than 1 million customers lost power in Southern California and Arizona when a transmission line failed. Utility officials said power might not be fully restored until tomorrow. Sempra Energy (SRE)’s San Diego Gas & Electric’s entire service territory was affected, with 1.4 million customers without power, said Jennifer Ramp, a spokeswoman for the utility.
- New Libyan Leaders Face 'Difficult' Unity Fight. Libya’s transitional prime minister, Mahmoud Jibril, called for national reconciliation and unity, saying they may be “more difficult” to achieve than the fight that toppled Muammar Qaddafi’s regime. “There are two battles,” Jibril said after arriving in Tripoli two and a half weeks after opposition fighters entered the capital. Achieving unity will be “our biggest challenge,” he said.
- Brazil Cut to Keep Inflation High, Macquarie's Welch Says. Brazil’s interest-rate reduction last week will prop up domestic demand and prevent inflation from slowing from a six-year high, said John Welch, chief emerging-markets strategist at Macquarie Capital Inc. Welch, speaking at the Bloomberg Global Inflation Conference in New York, said the 50 basis-point rate cut to 12 percent on Aug. 31 shows Brazilian policy makers are “betting” inflation will slow before year-end. Annual inflation surged last month to 7.2 percent, the fastest rate since 2005, in Latin America’s biggest economy. “I don’t see any reason for inflation dropping,” Welch said. “At the margin, it’s accelerating again.” Brazil’s rate cut, which followed five consecutive increases, surprised all 62 analysts surveyed by Bloomberg, who expected rates to be left unchanged. The central bank signaled it may reduce borrowing costs further on expectations the global economic slowdown will help inflation slow in line with its 4.5 percent target next year, according to the minutes of the meeting released today. “They will rethink it,” said Welch, the former chief Latin America economist at Lehman Brothers Holding Inc.
- SEC Files Action Against Deloitte Shanghai Unit. The U.S. Securities and Exchange Commission filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of its former auditing client Longtop Financial Technologies Limited. D&T Shanghai hasn’t provided any documents to the SEC, which issued subpoenas to the firm on May 27, the agency said in a statement today, citing a filing in U.S. District Court in Washington. As a result, the SEC has been unable to access “critical” information in its probe of possible fraud at Longtop, the statement said. Longtop, based in Hong Kong, said in May that D&T Shanghai quit because of errors in the company’s financial records. The SEC also began an investigation.
- Texas Instruments(TXN) Lowers Third-Quarter Revenue Forecast as Orders Recede. Texas Instruments Inc. (TXN), the largest maker of analog chips, said third-quarter sales may fall short of earlier forecasts, citing a slump in orders for electronics components from customers across its product lines. Profit will be 56 cents to 60 cents a share on revenue of $3.23 billion to $3.37 billion, the Dallas-based company said in a statement today. Analysts on average had estimated profit of 60 cents on sales of $3.5 billion, according to Bloomberg data. Texas Instruments gets most of its revenue from analog chips, semiconductors that are key components in everything from medical devices to e-book readers. The company’s customers and distributors are holding off on orders, concerned that a slowing economy will crimp demand for electronics, said Tore Svanberg, an analyst at Stifel Nicolaus & Co. “The weakness is fairly broad-based,” said Svanberg, who recommends buying Texas Instruments shares because of the company’s long-term growth prospects. “I don’t think there’s a place to hide right now.” Texas Instruments stock, down 21 percent this year, fell 1.2 percent to $25.48 in extended trading following the announcement.
- Glenn Beck Debuts Web TV Network to Leverage His Fame After Fox.
- Japan's Economy Contracts More Than Initial Estimate as Yen Hurts Recovery. Japan’s economy contracted more than the government initially estimated in the second quarter as capital spending decreased, adding to concern the stronger yen may derail the nation’s recovery from the March earthquake. Gross domestic product shrank at an annualized 2.1 percent rate in the three months ended June 30, more than the 1.3 percent contraction reported last month, the Cabinet Office said today in Tokyo. The reading was in line with the median forecast of 21 economists surveyed by Bloomberg News.
- Deutsche Bank(DB) Risk Seen Rising as Puts Appreciate Most in Europe: Options. The price of options to protect against losses in Deutsche Bank AG (DBK) shares is rising more than any other European lender as Germany leads the rescue of nations in the region’s shared currency. Three-month options that pay owners should Frankfurt-based Deutsche Bank drop 10 percent cost 1.3 times the price of contracts betting on 10 percent gains, according to data compiled by Bloomberg. That’s up from 1.14 at the end of July, the biggest increase among financial firms in the Stoxx Europe 600 Index, data using five-day averages show. Stocks subject to bans on short selling were excluded.
- Greek CDS Spreads Go Stratospheric. The cost of insuring Greece’s debt against default shot to a new high on Thursday, as investors increasingly see the country in a risk class of its own, even compared with other troubled euro-zone economies. Greece’s five-year credit default swaps rose to 3008 basis points, up 288 basis points from Wednesday, according to data provider Markit. The Greek government said Thursday the economy contracted in the second quarter even more than was originally thought, by 7.3% instead of 6.9%. Officials conceded the government will fail to cut its budget shortfall as planned this year. The rest of Europe is losing patience with Greece. Germany has hinted Greece will not get its next bailout check unless it gets its act together, and Finland reiterated its insistence on collateral for more Greek aid, a controversial condition that has Europe divided and threatens to delay new agreements. “The euro zone has spent a year trying to bail out an overindebted country by loaning it more money,” LeBas said. “That’s not going to work in the long run. Some form of Greek default is a largely foregone conclusion.” The Italian government has come up with an austerity plan that includes spending cuts and tax increases to the tune of EUR50 billion, which will be put to vote in parliament next week. Spain is also attempting budgetary controls to shore up investor confidence. Meanwhile, there are murmurs about Greece being asked to leave the 17-country euro-bloc. While there are denials from all sides that such a proposal is in the offing, the rumors add fuel to the theory that this may be an option, said Otis Casey, credit analyst at Markit.
- Obama's Bid to Spur Growth. President Asks Congress for $447 Billion In Cuts, Spending; Tepid GOP Response. President Barack Obama called on Congress Thursday to pass a $447 billion package of spending initiatives and tax cuts to boost economic growth, in what might be the White House's last chance to revive its political fortunes before the 2012 campaign kicks into high gear.
- White House, Regulator Considering Refinance Program Revamp. The White House is pushing to revamp an existing federal program to allow more Americans with government-backed loans to refinance, and a federal regulator is weighing changes to accommodate that effort, according to people familiar with the matter.
- BofA(BAC) Job Cuts May Total 40,000. Bank of America Corp. officials have discussed eliminating roughly 40,000 positions during the first wave of a restructuring that Chief Executive Brian Moynihan is expected to discuss Monday, said people familiar with the plans.
- Cities Deep in Red Turn to Green Deals. Financing Strategy Skirts Laws on Using Bonds for Deficits. Cities and states have been firing workers and raising taxes to balance the books. But for some of the shakiest cities, those moves aren't enough. Enter Class Green Capital Partners, a New York financial adviser to municipalities. Class Green has been helping cities to essentially take out mortgages on their public buildings and use many of the proceeds to plug their budget shortfalls. Here is the twist: A portion of the bond proceeds go to improve energy efficiency in the buildings, which are meant to generate savings for the city.
- The Latest Jobs Plan. More temporary and targeted tax cuts and spending increases. If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.
- We'll Never Get Over It, Nor Should We. Ten years later, remembering a day of horror and heroism.
- China August Inflation Pulls Back Slightly From 3-Year High. China's inflation eased slightly to 6.2 percent in August from July's three-year high, raising expectations that the central bank will hold off on further policy tightening amid worries about a global economic slowdown. The People's Bank of China needs to keep policy tight as inflation is likely to stay elevated in the coming months and will almost certainly overshoot the government's full-year inflation target of 4 percent, analysts say. The figure was in line with market forecasts of 6.2 percent, and compares with 6.5 percent in July.
- Underfunded Pensions Pressured to Make Riskier Bets. After a tumultuous August, pension funds for companies, governments and unions are falling further under water, raising pressure on boards to take on more risk at a time when the economic and policy outlook has never been more uncertain.
- Weaker Euro Could Be in Store as Officials Struggle With Debt Crisis.
- ... And Now John Paulson's Credit Fund is Getting Smashed. An investor in the fund tells us...John Paulson's "Credit Opportunities" fund tanked 10.10% last month, and is now down 6.77% for the year. Obviously, Paulson's flagship Advantage fund is getting slaughtered, but the credit fund has been touted as a successful product even as Advantage has stumbled. No more.
- Greece: Here's The Latest, And Here's What's Next.
- Senate Attempt to Block Debt Ceiling Increase Fails: Debt Target Is Now $15.2 Trillion, Or Over 100% of GDP.
- Settlement Said to Be Near for Fannie and Freddie. Regulators are nearing a settlement with Fannie Mae and Freddie Mac over whether the mortgage finance giants adequately disclosed their exposure to risky subprime loans, bringing to a close a three-year investigation.The proposed agreement with the Securities and Exchange Commission, under the terms being discussed, would include no monetary penalty or admission of fraud, according to several people briefed on the case.
- Judge Widens Antitrust Suit Against Private Equity Firms. A federal judge has greatly expanded the scope of an antitrust lawsuit against the world’s largest private equity firms, broadening the case to include some of the largest leveraged buyouts in history. The four-year-old suit accuses 11 firms, including Blackstone Group and Kohlberg Kravis Roberts, of a huge, overarching conspiracy to rig the market for multibillion-dollar takeovers.
- Customers Complain HP's(HPQ) $99 TouchPad Developing Cracks. Scores of users are complaining on Internet forums about cracks on forming on HP TouchPad tablet computer near the device’s speakers and headphone jacks.
- U.S. Video Game Sales Fall 23% In August Vs. Year Ago.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday 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).
- Germany Pushes Greece in Dangerous Brinkmanship. Germany and Holland have threatened to block rescue payments to Greece unless the country complies to the letter with bail-out terms, raising the spectre of default and a chain-reaction through southern Europe.
- Germany has no funds for new road and rail projects and no new projects are therefore likely to be started in the coming few years.
- China's northeastern province of Liaoning defaulted on about 85% of its debt servicing payments in 2010, citing a government audit report. 120 of the province's 184 financing platform companies were operating at a loss. Local government platform companies engaged in fraudulent practices to secure and use loans, the report found.
- Ba Shusong, a researcher at China's State Council's development research center, said that the effects of U.S. President Barack Obama's plan to spur jobs are "doubtful". Even so, the plan addresses U.S. internal problems as compared with using quantitative easing measures which transfers the cost of crisis to other nations, he said.
- Rated (PCLN) Outperform, target $675.
- Rated (EXPE) Outperform, target $38.
- Rated (ALLT) Outperform, target $16.
- Asian equity indices are -1.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.0 +5.0 basis points.
- Asia Pacific Sovereign CDS Index 147.0 unch.
- FTSE-100 futures -.41%.
- S&P 500 futures +.23%.
- NASDAQ 100 futures +.11%.
Earnings of Note
10:00 am EST
- Wholesale Inventories for July are estimated to rise +.7% versus a +.6% gain in June.
- (PII) 2-for-1
- The Fed's Williams speaking could also impact trading today.