- EU Chiefs Put Bond Buying on Table as Crisis Summit Opens. European Union leaders focused on immediate help for Spain and Italy at the start of a two-day summit intended to chart a path out of their financial crisis. The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets. “I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Francois Hollande told reporters as he arrived in Brussels. Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.” Leaders will consider short-term measures to stem the sovereign debt turmoil as EU President Herman Van Rompuy’s road map to strengthen the bloc’s common currency and financial oversight ran into immediate opposition from Germany.
- Euro-Area Confidence Slumps, German Unemployment Rises. Economic confidence in the euro area slumped to the lowest in more than 2 1/2 years in June and German unemployment increased more than economists forecast, adding to signs the European economy fell into a recession. An index of executive and consumer sentiment in the 17- nation euro area dropped to 89.9 from a revised 90.5 in May, the European Commission in Brussels said today. That’s the lowest since October 2009. In Germany, the number of people out of work rose a seasonally adjusted 7,000 to 2.88 million, a separate report showed. Economists in a Bloomberg News survey had forecast a gain of 3,000 in the month. Rising unemployment in Europe’s largest economy underscores indications of a deepening economic slump as the sovereign-debt crisis shifts from periphery states to core members. “Germany won’t be able to disconnect from the euro-region developments,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “The second quarter will show an economic contraction and there are no signs of improvement for the following three months. Whether the situation stabilizes afterward hinges decisively on the euro crisis and latest developments are no real reason for optimism.”
- UK Disposable Income Plunges As Economy Contracts .3%. Britons’ disposable income fell for a second quarter in the first three months of the year, when consumer spending unexpectedly declined and the economy shrank. Real disposable income dropped 0.9 percent from the previous three months, when it also fell by that amount, the Office for National Statistics said today in London. Consumer spending was revised to a 0.1 percent decline from a 0.1 percent increase, while gross domestic product fell 0.3 percent. The decline in consumer spending in the first quarter followed a 0.5 percent increase in the October-December period and declines in the preceding three quarters. Real disposable income is now at its lowest in three years. The savings ratio declined to 6.4 percent from 6.9 percent, the lowest in a year.
- Derivatives Show Money-Market Stress Rises as Euro Summit Opens. Forward markets signaled increased stress in the money markets as European leaders began a two-day summit on the region’s debt crisis. Predictions in the forward market for the gap between the London interbank offered rate and federal funds, known as Libor- OIS, rose to 33.2 basis points from 31.3 basis points yesterday, according to the second rolling three month so-called FRA/OIS spread. The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, widened 1.5 basis points to 25 basis points.
- European Stocks Fall as EU Leaders Hold Summit. The Stoxx Europe 600 Index slid 0.5 percent to 244.67 at the close in London, after earlier dropping as much as 1.3 percent. The benchmark measure has fallen 10 percent from its high in March, paring its gain for the year to 0.1 percent, as the euro area’s sovereign-debt crisis threatened a slowdown in global growth. The volume of shares traded on the gauge was 9.1 percent higher than the average of the last 30 days, according to data compiled by Bloomberg.
- Roach Says Euro Ponzi Scheme Won't Get Fixed by Van Rompuy. Stephen Roach, a professor at Yale University, said the euro-area debt crisis is a result of the currency bloc effectively being a Ponzi scheme, and European Union President Herman Van Rompuy’s plan to solve the turmoil “is not worth the paper it’s printed on.” “It is the vaguest report for a region in crisis I have ever seen in my entire life,” Roach, former non-executive chairman for Morgan Stanley in Asia, said in an interview with Tom Keene and Sara Eisen on Bloomberg Television’s “Bloomberg Surveillance” in New York today. “He talks about a vision. The guy has got sunglasses on. He can’t see the light of day.”
- China Local Government Finances Are Unsustainable, Auditor Says. The finances of China’s county-level governments are unstable and unsustainable as the majority of their fiscal income comes from sources other than taxation, the nation’s top auditor said. About 60 percent of revenue raised last year by 54 counties investigated by the National Audit Office wasn’t derived from taxes, Liu Jiayi, the head of the agency, told a meeting of the legislature yesterday, according to a transcript of his speech on the audit office’s website. Total fiscal revenue at those counties rose 17 percent to 112 billion yuan ($17.6 billion) last year, Liu said.
- China's Stock Index Erases 2012 Gain After June Plunge. China’s Shanghai Composite Index (SHCOMP), the world’s second worst-performing stocks measure this month, erased this year’s gain on concern a manufacturing slump and the European debt crisis will deepen the economic slowdown. The Shanghai index dropped 1 percent to 2,195.84 at the close, a seventh day of losses. The gauge has lost 7.4 percent in June. The measure had gained as much as 12 percent this year through its peak on March 2. Trading values on the Shanghai Stock Exchange fell to a five-month low yesterday. “The economy is still slowing and earnings growth forecasts have further room to be revised downward,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Weak sentiment will dominate as investors have no idea how slow earnings growth will be.”
- China Stocks to Extend Drop After Losing 2012 Gains, BoCo. China’s stocks are poised to extend losses after erasing this year’s gains amid concerns over a slowing economy, according to the only strategist who forecast declines for Chinese shares in 2012. The economy probably expanded at a “subpar” rate in the second quarter and investors should buy shares of companies such as consumer-staples producers, whose earnings may be sheltered from the slowdown, Hao Hong, head of Chinese research at Bank of Communications Co. in Hong Kong, said by e-mail yesterday, declining to name stocks. The Shanghai Composite Index may fall “briefly” below 2,000 in a worse-case scenario, he said.
- Jobless Claims in U.S. Hovered Last Week Near 2012 High. The number of applications for unemployment benefits hovered last week near the highest level of the year, showing little improvement in the U.S. labor market. Jobless claims decreased by 6,000 to 386,000 in the week ended June 23, in line with the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The prior week’s reading was revised up to 392,000 from 387,000, matching an April figure as the steepest of 2012. Concern about the fallout from the European debt crisis and the so-called fiscal cliff that will face the U.S. at the end of this year may prompt employers to keep payrolls lean. “There is no progress,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “There is clearly an underlying weakness that is troubling. The labor market is sputtering along, struggling to create jobs. The pace of consumer spending will slow in the second quarter.”
- Stockton, California, Retirees Feel Shock of Benefit Rollback.
- Supreme Court Upholds Obamacare as Tax. In a surprise conclusion to a constitutional showdown, Chief Justice John Roberts joined the Supreme Court's four liberals Thursday to uphold the linchpin of President Barack Obama's health plan, the individual mandate requiring citizens to carry insurance or pay a penalty. By a 5-4 vote, the court held the mandate valid under Congress' constitutional authority "to lay and collect Taxes" to provide for "the general Welfare of the United States." The penalty for failing to carry insurance possesses "the essential feature of any tax," producing revenue for the government, Chief Justice Roberts wrote. Although the Obama administration always asserted the penalty was valid under the federal taxing power, until Thursday no court had fully accepted that theory. Those that upheld the Patient Protection and Affordable Care Act, as the law is known, did so under Congress's constitutional power to regulate interstate commerce.
- The ObamaCare Tax by Stephen Moore.
- U.S. Subprime Auto-Loan Rates of Near 20% Underpin Bond-Issue Boom. Nearly anyone can get a car loan these days, as long as they are willing to stomach dizzyingly high interest rates--and yield-hungry investors continue to embrace riskier credits. The alignment of those factors is spawning bigger and more frequent subprime auto asset-backed securities issues this year, including this week's $1.4 billion deal from Santander Consumer USA, the largest of its kind since 2007. In all, Santander, General Motors Co.'s (GM) GM Financial and smaller lenders have issued $10 billion of subprime auto-related ABS year-to-date, which is 20% ahead of last year's pace and adding to the overall rise in securities backed by auto loans and leases, rental cars and dealer floor plans, according to Barclays. The jump in issuance is being driven by a boom in lending to car buyers with dented credit, a stark contrast to the paucity of subprime loans for housing.
- JPMorgan(JPM) Trading Loss May Reach $9 Billion. Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.
- Obamacare's Taxes Bad for Economic Growth by Larry Kudlow.
- Italian Yields Rise at Auction Ahead of EU Summit. Italy's benchmark 10-year borrowing costs hit a six-month high of 6.19 percent at auction on Thursday ahead of a European Union summit where measures to ease market pressures advocated by Rome are expected to meet firm German opposition.
- Japan's Debt Addiction Creating 'Mother of All Bubbles'.
- Actually, Justice Roberts Demolished Obama In His Supreme Court Ruling. Instead, Roberts argued that the individual mandate is constitutional because it enacts a tax, not a fee. Obama's Solicitor General Donald Verrilli made the exact opposite claim in his oral arguments to the Supreme Court last March. It seems like a very real possibility, then, that when the glow of today's victory wears off, Obama may find that Roberts' ruling was actually a Trojan Horse. Democrats have adamantly argued that the individual mandate is not a tax, but that claim will hold a lot less water after today's decision. Meanwhile, Republicans, despite their newfound dislike of Robert immediately seized on the "Obamacare raises taxes" attack line, and are already raising the specter of the IRS to fire up the conservative base.
- Now That Obamacare Has Passed, Here's What It's Going To Cost You.
- This Visual History Of The Recession Shows An Economy That's Slowing Again.
- A Brand New Type Of Credit Crisis Is Producing A Domino Effect In China. Today, Caixin published another must-read article about a new crisis in which credit guarantees — this time directly between borrowers — have triggered a mini financial meltdown in Hangzhou:
- FHA Broke Its Own Rules By Loaning $1.4 Billion To Risky Tax Debtors.
- 54 Smart Thinkers Everyone Should Follow On Twitter.
- Santelli And The November Obamacare 'Referendum'.
- Stephanopoulos: "You Reject That It’s A Tax Increase? " Obama: "I Absolutely Reject That Notion".
- How Much Further For JPM?
- European Stocks Revert Back Down To Credit's Pessimism (As 2Y Swiss Drops To Record Lows).
- That's 'gross'. Say Nasdaq(NDAQ) 'negligence' hurt Facebook(FB) IPO. Wall Street is ready to rumble. Angry traders who lost millions as the result of Nasdaq’s handling of Facebook’s botched initial public offering believe they could deliver a blow to the exchange operator’s legal defenses.
- SEC: Falcone Used Hedge Fund as Piggy Bank.
- Abound Solar to Soon Close Its Doors. Another DOE loan recipient giving up the ghost. Many solar jobs will be lost, and many fingers will be pointed. The VC-funded DOE loan-recipient was working with the cadmium telluride (CdTe) thin-film materials system and had hoped to achieve the success of its CdTe competitor First Solar. The firm was the beneficiary of a $400 million DOE loan guarantee, only $70 million of which has been drawn down. So, despite the imminent comparisons to Solyndra, this is bad news -- but not quite on the scandalous scale of that solar module maker.
- Health Care Law Has Already Lost in Court of Public Opinion. 54% of voters nationwide wanted to see the law repealed.
- Barlcays(BCS) Plunges 15.6%, Leads European Shares Lower. European shares ended lower on Thursday, led by banks, with investors primed for disappointment from the latest European Union summit to tackle the debt crisis, but not expecting a further steep market selloff. A 2.5 percent decline in banking shares, led by a 15.6 percent slump in Barclays following investigations that found it tried to manipulate key market interest rates, also weighed on the choppy market that witnessed sharp swings on contrasting comments from European policymakers and leaders.
- John Paulson's Returns Falter Again; Investors Fret. Billionaire trader John Paulson has told his wealthy investors that he has learned from his mistakes of 2011, which produced enormous losses for his closely watched hedge fund. The founder and manager of Paulson & Co, who made his fortune and fame by betting against the subprime mortgage market, went so far as to tell investors in January that last year's big losses, including a 50 percent decline in his popular Advantage Plus fund, were an "aberration." But as the months tick on, many investors are still waiting to see the dramatic turnaround Paulson has vowed to deliver. Halfway through 2012, Advantage Plus is down again, losing 10 percent through May. Another big portfolio that bets on gold - once a bright spot for Paulson - was also in the red. In both cases, he blamed losses in gold stocks for the declines. This has taken a huge bite out of the firm's assets, which have fallen to $22 billion from $38 billion early last year, according to investors. Redemptions were substantial, but poor performance accounted for the bulk of the drop, they said.
- China starts "combat ready" patrols in disputed seas. China has begun combat-ready patrols in the waters around a disputed group of islands in the South China Sea, the Defence Ministry said on Thursday, the latest escalation in tension over the potentially resource-rich area. Asked about what China would do in response to Vietnamese air patrols over the Spratly Islands, the ministry's spokesman, Geng Yansheng, said China would "resolutely oppose any militarily provocative behavior". "In order to protect national sovereignty and our security and development interests, the Chinese military has already set up a normal, combat-ready patrol system in seas under our control," he said. "The Chinese military's resolve and will to defend territorial sovereignty and protect our maritime rights and interests is firm and unshakeable," Geng added, according to a transcript on the ministry's website (www.mod.gov.cn) of comments at a briefing.
- Some small business owners see '12 as year to sell. Jim Angleton did not plan on selling his small financial services business this year, but when a foreign buyer approached with the right offer he went ahead without regrets. "There's uncertainty moving forward," said Angleton, 56, who sold a unit of his Miami-based company, AEGIS FinServ Corp, which issues debit and credit cards to U.S. government employees working abroad. "Tax rules are constantly changing and they don't make sense. This time next year I'll probably be thankful I did this."
- Brazil cenbank slashes 2012 growth view, eyes rate cuts.
- Moody's sees Affordable Care Act pressuring hospitals.
- France and Germany clash at euro summit. François Hollande and Angela Merkel have clashed over calls from Italy and Spain for urgent European Union action to relieve their borrowing costs, after their pleas were dismissed as "scaremongering" by allies of the German chancellor.
- UK House Prices Record Biggest Fall in Three Years.
- EU Plans Curbs on Hedge Fund Pay. European regulators published draft rules today to crack down on excessive bonuses for managers of hedge funds, a sector politicians have blamed for worsening euro zone debt problems. Policymakers have already clamped down on bankers' bonuses, a move that has proved popular in the wider world where most people's incomes are becoming ever-more squeezed. The prospect of big bonuses can also encourage employees at financial firms to take excessive risks, regulators say. The European Securities and Markets Authority (ESMA) said on Thursday such curbs must be extended to managers of alternative investment funds, including hedge funds and private equity and real estate funds. The rules could have a huge effect on hedge fund managers - the bulk of whose pay is from performance fees - and will apply from the end of this year to senior managers, risk takers and employees whose total package puts them in the same bracket as top management.
- Germany's Resources Not Unlimited. Foreign Minister Guido Westerwelle says Germany is against "euro bonds as putting debts together doesn't help growth," he said.
- Eurozone Crisis' Ripple Effect Felt In China. A solution to the eurozone's fiscal woes is not expected in the near future, despite a two-day meeting by the leaders of EU members states on Thursday to discuss a solution to the crisis. The crisis has triggered an economic recession and even stoked fears of a dissolution of the eurozone. Its ripple effect, however, has reached all the way to China, a major trading partner of the EU. Chinese exporters are among the direct victims of a crisis that has led to high unemployment, a reduction in consumer spending and a corresponding depletion of demand for Chinese-made goods. Small clothing companies in south China's Guangdong province are feeling the pinch. Their profits have already been squeezed by the Chinese currency's sharp appreciation against the euro, as well as increases in the cost of labor and raw materials. The Chinese yuan has appreciated by 23 percent against the euro since 2010, making Chinese goods less competitive in the eurozone. "Despite higher costs on our side, European traders still ask for lower prices. We are left with lower profits," said Shen Yonglin, chairman of Guangzhou Shenshi Clothing Co.