- Euro's Retooled Rescue Fund Faces Political Demands That May Weaken Effort. Europe’s rescue fund faces political demands that risk hobbling its response to emergencies as the 17 euro-area governments prepare to ratify its overhaul. The fund, known as European Financial Stability Facility, would have to wait for a request from a debt-hit government before buying its bonds in the secondary market, its new statute shows. The extra step, along with German lawmakers’ demand for control, may make it less responsive than the European Central Bank, which has bought 115.5 billion euros ($167 billion) of bonds in the past 16 months to calm markets. “What’s clear is that even if the EFSF is ostensibly equipped to react swiftly in an emergency, it will be much less dynamic than the ECB,” said Daniela Schwarzer, senior analyst at the Berlin-based German Institute for International Politics and Security. “Faced with an emergency I would be inclined to put my money on the bank taking the reins of rescue action -- as it has done and is doing.”
- Goldman(GS) Cuts Aluminum Forecast on Weaker Developed Economies. Goldman Sachs Group Inc. (GS) lowered its estimates for aluminum prices through 2013, citing “weaker” growth in developed economies. The metal will trade at $1.18 a pound next year, down from a previous forecast of $1.28, and before rebounding to $1.22 in 2013, below an earlier estimate of $1.30, Goldman analysts Sal Tharani and Sandeep SM said in a report dated today. The 2011 forecast was lowered to $1.16 from $1.18. Aluminum has the highest “beta” to global economic growth, and “thus could be most impacted by macro weakness,” the analysts wrote.
- BNY Mellon(BK) CEO Kelly Steps Down. Bank of New York Mellon Corp. (BK), beset by legal challenges and an underperforming stock, said Robert P. Kelly stepped down as chairman and chief executive officer after a rift with directors over the way he was managing the company. Kelly, 57, who had led the world’s biggest custody bank since 2007, left by “mutual agreement” with the board, the New York-based company said today in a statement. Gerald L. Hassell, 59, its president since 1998, was named Kelly’s successor.
- London the Biggest Loser as Banks Look to Book Trades Overseas. Banks in Europe are exploring ways to cut costs by routing more of their trades and other business through overseas subsidiaries, a plan that may shift tax revenue away from London and loosen European regulators’ influence over the lenders.
- Deutsche Telekom Unprepared for AT&T Collapse. Deutsche Telekom AG (DTE)’s supervisory board hasn’t prepared any alternative scenarios for its T-Mobile USA unit if a $39 billion sale to AT&T Inc. falls apart, according to two people with knowledge of the matter.
- South Korea Inflation Accelerates to Three-Year High, Adding Rate Pressure. South Korea’s inflation accelerated to a three-year high in August on rising food prices, adding to pressure on the central bank to increase borrowing costs. Consumer prices rose 5.3 percent from a year earlier, after a 4.7 percent gain in July, Statistics Korea said today in Gwacheon, south of Seoul. That was higher than any forecast by 11 economists, whose median estimate was 4.8 percent in a Bloomberg News survey. Prices rose 0.9 percent from July. The climbing prices underscore the Bank of Korea’s dilemma on whether to raise interest rates at a time when slowing global demand is weighing on the nation’s industrial output and corporate and consumer confidence.
- Ex-Goldman(GS) Exec Got More Than $57 Million Before Joining SEC. Weeks after Eileen P. Rominger left Goldman Sachs Group Inc. (GS), she took the helm of the U.S. Securities and Exchange Commission’s investment management division as one of the wealthiest people to ever join the agency. Rominger reported $57.5 million in income from Goldman in a financial disclosure form covering 2010 and 2011. She also reported making between $2.3 million and $13.2 million in investment income since the start of 2010. Rominger, 56, retired as global chief investment officer at Goldman Sachs Asset Management in December after 11 years with the firm. She was appointed by SEC Chairman Mary Schapiro in January to replace Andrew J. “Buddy” Donohue at the helm of the division that oversees mutual funds and will handle new oversight of hedge funds required by the Dodd-Frank Act. The financial disclosure, obtained by Bloomberg News under a public records request, asks for ranges rather than specific dollar figures. It showed Rominger holding between $9.3 million and $31.3 million in assets, at least $4 million of that in JPMorgan Chase & Co. (JPM) money market accounts. On the form, Rominger listed compensation received from Goldman Sachs between January 2010 and July 2011 on two lines, one totaling $46.8 million and one for $10.7 million. It was unclear in what time period she may have earned the compensation.
- BRICs No Cure for Global Economic Growth as Avon(AVP) Shares Sink. Stocks of international companies that depend most on emerging markets for sales show developing nations won’t be strong enough to buoy the global economy. Goldman Sachs Group Inc.’s gauge of U.S. companies with the most developing-nation revenue fell 15 percent since April, the biggest drop since the bull market began in 2009.
- Europe Drags Residential Property Price Increase to Lowest in Two Years. Home values worldwide rose at the slowest pace in two years in the second quarter as declines in Europe combined with smaller gains in Asia, Knight Frank LLP said. Prices increased 0.1 percent from the previous three months, according to a report released today by the London-based real-estate broker. That’s the least since the second quarter of 2009, when there was a 0.9 percent drop. The slowdown “was driven by the sovereign-debt concerns in the southern European economies,” Residential Research Associate Kate Everett-Allen said in an interview. “There is still a concern that could spread across the European Union and become a bigger issue because it’s not being dealt with properly.”
- Goldman's(GS) Gloomy Outlook. A Private Note to Hedge-Fund Clients Gives a Strategist's View; Ways to Gain From Global Pain. A top Inc. strategist has provided the firm's hedge-fund clients with a particularly gloomy economic outlook and suggestions for how these traders can take advantage of the financial crisis in Europe. In a 54-page report sent to hundreds of Goldman's institutional clients dated Aug. 16, Alan Brazil—a Goldman strategist who sits on the firm's trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable. Among Mr. Brazil's ideas for trading on that downbeat analysis: a fancy option play that offers a way to take a bearish position on the euro, and a bearish bet through an index of insurance contracts on the credit of European financial stocks. The report also includes detailed information about European financial institutions and pointed language about the depth of the problems in Europe, the U.S. and China. The report comes as Goldman and its major rivals vie for banking and advisory business from the same European nations whose fortunes it is counseling clients to bet against. On Wednesday, Goldman and two other major banks hosted a presentation in London in which the Spanish economics secretary, Jose Manuel Campa, planned to outline Spain's fiscal austerity measures and pitch Spain's case to investors, according to an invitation seen by The Wall Street Journal. Goldman has a leading position among banks in facilitating sales of Spanish sovereign debt. Wall Street firms have sought to sell hedge funds ideas for trades that would pay off under dire circumstances in the past. Before the financial crisis of 2008, Goldman and other top Wall Street firms pitched their hedge-fund clients on bearish bets on the housing market involving credit default swaps—insurance-like contracts that rise in price if the value of the underlying asset falls—that the banks developed. Goldman sometimes took the bearish end of such trades even as it was selling the bullish end to clients. "Here we go again," he says in the report, amid a number of charts displaying negative statistics similar to those that portended problems before the 2008 financial panic. Mr. Brazil writes: "Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world's base currency?" he asks.
- Obama to Move Timing of Speech. After protracted budget fights, no one thought the two political parties would easily hold hands this fall as the legislative season begins anew. But a dispute Wednesday over the timing of a presidential speech showed the depth of rancor between President Barack Obama and congressional Republicans.
- Tempers Fray Over Recovery's Pace. Political leaders encountered frustrated residents in the northeast Wednesday, angered by days without power, continued flooding and what they perceived to be a slow government response to Hurricane Irene's devastation. More than 1.8 million homes and businesses from Virginia to Vermont remained in the dark—with some people told they may not have power for days.
- Oil Speculation Debate: Public Citizen Demands Disclosure. Commodities traders, unlike big buyers and sellers of stocks, have never had to disclose their holdings publicly. But that hidebound system is coming under attack. Tyson Slocum, a member of a Commodities Futures Trading Commission advisory committee and director of the energy group at advocacy organization Public Citizen, this afternoon officially proposed a dramatic change in transparency of energy traders. He delivered a letter to members of Congress and commissioners at the CFTC formally asking that company-specific data be released two weeks after the daily close. The Futures Industry Association opposes publicly disclosing trading data and names, saying in a recent letter to the CFTC that it would hurt investors’ proprietary positions and scare some out of the market. Mr. Slocum acknowledges that same-day disclosure may be problematic, but that two-week old data won’t hurt anybody’s hand. “Such a delay should be more than adequate to protect traders’ interests while providing the public access to the key players involved in energy futures’ markets,” he wrote.
- Libya Standoff Spurs Worries. Rebel Looting Raises Fear of Tribal Insurgency; Calls of Resistance, Reconciliation From Gadhafi Sons. Shooting rounds into the air from pickup trucks, Libyan rebels tore through this deserted village of longtime supporters of Col. Moammar Gadhafi—looting homes, cursing locals and giving form to fears across Libya that the final pursuit of Col. Gadhafi could spur a new phase of tribal warfare.
- Obama and the Burden of Exceptionalism.
- China Factory Activity Rebounds From 28-Month Low. China's factory activity rebounded a touch in August from a 28-month trough, but tight monetary policy at home and torpid demand abroad has dimmed chances for a sustained recovery. China's official purchasing managers' index rose to 50.9 in August from a 28-month low of 50.7 in July, data showed on Thursday. The sub-index for new export orders dipped to 48.3 from 50.4 and the sub-index for overall new orders was at 51.1 — unchanged from July. The output sub-index rose to 52.3 in August from July's 52.1. Analysts polled by Reuters had expected a PMI reading of 51, just above the 50-point level that demarcates expansion from contraction.
- Big-Name Stocks Cheaper Than During 2008-09 Crisis. One out of every 10 companies in the S&P 500 index — including stalwarts like Apple and JPMorgan Chase — is now cheaper than during the 2008-2009 market meltdown.
- When a Private Equity Firm Buys AOL(AOL) and Chops It Up, Will They Sell Huffington Post and TechCrunch Separately?
- Chart of the Day: Bank Funding Costs Are Soaring.
- 10 Big Corporations That Pay Their CEO More Than They Pay In Federal Taxes.
- Brazil Central Bank Unexpectedly Cuts Its Overnight Rate to 12.0% From 12.5% Following Observations of "Substantial Economic Deterioration".
- The Ever Diminishing Returns of Central Bank Intervention, or QE As The Godfather Trilogy.
- Stock Mutual Fund Cash Levels Drop to New All Time Record Low. (graph)
- Solar Firms Aided by Federal Loans Shuts Doors. A Silicon Valley maker of arrays that was started with high hopes and $527 million in loans from the federal government said on Wednesday that it would cease operations. The failure of the company — and the loss to taxpayers — is likely to renew the debate in Washington about the wisdom of clean energy subsidies and loan guarantees.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 19% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -25 (see trends).
- Pensions Using Hedge Funds Don't Always Know Risks - GAO. More and more U.S. pension plans are investing in hedge funds, even though the plans' administrators struggle to understand what is in the funds or their true exposure to risk, a federal auditor said on Wednesday. As companies move to defined contribution plans, such as 401-ks, states and local governments have come to dominate the pension world. They rely heavily on returns for their investments to pay benefits to retirees. Recent volatility in the values of those investments, along with cuts in amounts states and local governments put into the funds during the recession, have raised alarm about shortfalls in pension funding. One answer has been to invest the funds' dollars into riskier hedge funds and private equity that can pay higher returns. "Such assets may serve useful purposes in a well thought-out investment program, offering plan sponsors advantages that may not be as readily available from more traditional investment options," said the Government Accountability Office's managing director, Barbara Bovbjerg, who focuses on workforce issues. "Nonetheless, it is equally clear that investments in such assets place demands on plan sponsors that are significantly beyond the demands of more traditional asset classes," she added in testimony for the Labor Department's pension council. The share of large plans with investments in hedge funds grew to 60 percent in 2010 from 11 percent in 2001, according to the GAO. Investments in private equity also grew, to 92 percent in 2010 from 71 percent.
- China's Premier: Inflation Top Task for Beijing. China Premier Wen Jiabao signalled on Thursday that controlling inflation will remain a top priority in coming months even as the world economy wobbles. Although imported inflation is expected to remain elevated, Wen said the global economy is still fragile and that sovereign debt problems in the United States and Europe are set to put a "drag" on world economic growth in the future. Wen made the comments in an article published in Qiushi, or Seeking Truth, a key journal published by the ruling Communist Party. The summary of his article was published on Wednesday. Noting that an economic slowdown in China is expected and even desirable, Wen said inflation is still unacceptably high. "We must try our best to bring about a bigger drop in inflation in the second-half of this year and lay a foundation for price controls for next year," Wen said. China's inflation ran at 6.5 percent in July, far exceeding the government's full-year inflation target of 4 percent. Wen said China should "unswervingly" adhere to property tightening measures. "We are now at a critical time when it comes to controlling the property market. Our determination should not be shaken, our policy directions should not change, and our efforts should not be relaxed," Wen said.
- Spain Set to Test Market Appetite for New 5-Year Bond. Spain will follow Italy back into the bond market on Thursday, aiming to sell up to 4 billion euros of a new 5-year bond with recent sovereign debt purchases from the European Central Bank expected to support prices.
- IMF Sees Serious Damage to Euro Banks on Sovereign Debt. The IMF's Global Financial Stability Report estimates suggest European banks suffered serious damage to their balance sheets from their holdings of sovereign debt from Ireland, Greece, Portugal, Italy, Spain and Belgium, citing a draft version of the report.
- Exclusive: Bank Chiefs to Lobby Osborne Ahead of ICB Report. I've learned that the bosses of some of Britain's biggest banks will hold talks with George Osborne in the coming days in a last-ditch lobbying effort to prevent reforms that they say will dent the economy's recovery. Bob Diamond, chief executive of Barclays, is scheduled to meet the Chancellor on Friday to discuss the forthcoming final report of the Independent Commission on Banking (ICB). Ana Botin, chief executive of Santander UK, will meet Mr Osborne several days later. I'm told that meetings with other bank bosses are being scheduled for the days ahead of the ICB report, which will be published on September 12.
- The Economic and Social Research Institute, a Dublin think tank, downgraded its 2011 growth forecast for the Irish economy to 1.8% from 2% and advisers the government to trim its deficit quicker than planned.
Thoi Bao Kinh Te Vietnam:
- Vietnam's year-on-year inflation may be around 18% at the end of 2011, citing forecasts from the National Financial Supervisory Commission.
- China Social Security Fund in Third ICBC Sale This Year. The National Social Security Fund sold 9 million shares in the Industrial Commercial Bank of China (1398) last Friday to cash in HK$44.28 million - the mainland strategic reserve fund's third such disposal this year. NSSF, a major ICBC stakeholder, sold 40.1 million shares of the nation's largest lender by market share in March and another 35 million shares in June. It is usual for NSSF to sell ICBC shares when it needs cash amid a weak bourse, a local analyst said. "Mainland banks are no longer the favorite of institutional investors," said James Liu at CIMB-GK Securities Research. Liu also expects mainland lenders to reduce dividend payments this year. The China Banking Regulatory Commission, the mainland watchdog, is expected to retain strict capital reserve requirements in the short term, which will continue to curb lending, Liu said.
- China faces increasing pressure for month-on-month gains in consumer prices, citing Liu Shijin, deputy director of the State Council's Development and Research Center. Imported inflationary pressure has weakened "somewhat," while cost-driven inflation is a longer-term phenomenon, Liu said.
- China Minsheng Banking Corp., Industrial Bank Co. and some other banks have stopped home loans in Beijing because of tight funds, citing unidentified bankers.
- None of note
- Asian equity indices are +.75% to +2.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 144.0 -10.0 basis points.
- Asia Pacific Sovereign CDS Index 138.25 -8.75 basis points.
- FTSE-100 futures +.24%.
- S&P 500 futures +.49%.
- NASDAQ 100 futures +.57%.
Earnings of Note
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 410K versus 417K the prior week.
- Continuing Claims are estimated to rise to 3681K versus 3641K prior.
- Final 2Q Unit Labor Costs are estimated to rise +2.4% versus a +2.2% prior estimate.
- Final 2Q Non-farm Productivity is estimated to fall -.5% versus a -.3% prior estimate.
- Construction Spending for July is estimated to rise +.2% versus a +.2% gain in June.
- ISM Manufacturing for August is estimated to fall to 48.5 versus 50.9 in July.
- ISM Prices Paid for August is estimated to fall to 55.0 versus 59.0 in July.
- Total Vehicle Sales for August are estimated to fall to 12.1M versus 12.2M in July.
- None of note
- The Fed's Duke speaking, ICSC Chain Store Sales for August, Fed's weekly balance sheet/M1 & M2 reports, RBC Consumer Outlook Index for September, weekly EIA natural inventory report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.