Today's Headlines

Bloomberg:

• Goldman Sachs(GS) Cut Italian Debt Position 92% in Second Quarter. Goldman Sachs Group Inc., the fifth- biggest U.S. bank by assets, cut its holdings of Italian sovereign debt by 92 percent in the second quarter after boosting them in the first three months of the year. “Market exposure” to Italian government bonds fell to $191 million at the end of June from $2.51 billion at the end of March, the New York-based firm said in a quarterly regulatory filing today. Goldman Sachs also increased its credit-derivative positions on Italy in the quarter, pushing its total market exposure to Italian government and non-government securities to negative $977 million from positive $2.4 billion in March. Goldman Sachs discloses the firm’s credit and market stance for Italy, Greece, Ireland, Portugal and Spain each quarter because those five countries are viewed by investors as Europe’s riskiest. The filing today showed that the firm’s total market exposure to the five countries also swung to a negative $977 million as of June from a positive $2.68 billion three months earlier as the bank reduced its position in bonds and stocks and purchased more credit derivatives.
• Monti’s Cabinet Held Discussions on Possible Bond-Buying. Prime Minister Mario Monti’s Cabinet held discussions on a possible request for the euro-region’s bailout funds to buy Italian bonds and doesn’t expect the country to be subject to additional conditions in return for aid, a government minister said. “We still have some time to discuss it; we will see what the conditions will be,” Education Minister Francesco Profumo said in an interview today in Rome, when asked whether Italy would make a request in September. “We have a profound understanding and I believe we have the instruments to take decisions.”
• Pimco Says Capital Flows Signaling New Storms Threatening Europe. Capital has begun flowing out of the countries sharing the euro signaling “another storm” may be about to break, according to Thomas Kressin of Pacific Investment Management Co., which manages the world’s biggest bond fund. The euro lost 5 percent of its value since the beginning of May, on a trade weighted basis, and about 8 percent against the dollar, according to Kressin, head of European foreign exchange at Pimco in Munich. That contrasts with earlier crisis periods when the euro held steady as capital flowed from peripheral nations into the core, Kressin said in a posting on the company’s Web site. Investors are losing confidence in the single currency and seeking havens for their cash outside the euro area as Europe’s debt crisis drags on in its third year. “Now there are growing signs that the crisis of confidence in the euro zone has assumed a new dimension,” Kressin wrote. “Whereas initially investors fled to the safety of the euro zone’s core, now they are taking their capital out of the euro zone altogether.”
• India Industrial Production Slides in Sign Economy is Faltering. Indian industrial production slid in June for the third time in four months, with output of capital goods plunging the most on record, adding to signs of faltering growth in Asia’s third-largest economy. Production at factories, utilities and mines declined 1.8 percent from a year earlier, after a revised 2.5 percent rise in May, the Central Statistical Office said in New Delhi today. The median of 27 estimates in a Bloomberg News survey was for a 0.4 percent climb. Capital goods output, an indication of investment in plants and machinery, slid 27.9 percent. Indian manufacturing has been subdued in recent months as inflation above 7 percent saps domestic demand and Europe’s debt crisis crimps exports. Price pressures from a drop in the rupee and the impact of a weak monsoon on crops forced the central bank to leave interest rates unchanged in July, breaking with a wave of cuts in borrowing costs from China to Brazil to Europe. “The negative trend coming in between a looming drought- like situation is very, very worrying,” said Brinda Jagirdar, an economist at State Bank of India in Mumbai. “Our problems are compounding. We need quick and decisive policy actions to revive growth, otherwise we’ll see a severe collapse.”
• Downgrade Risk Rises as Drought Threatens Deficit: India Credit. The weakest monsoon since 2009 is set to prevent Prime Minister Manmohan Singh from reducing the biggest budget deficit among the largest emerging markets, increasing the risk of a downgrade of India’s debt rating. All the seven economists in a Bloomberg News survey predict the government will overshoot its deficit target of 5.1 percent of gross domestic product in the year to March 2013. Daiwa Asset Management Co. expects the 10-year government bond yield to rise as high as 8.40 percent by the end of this quarter, 28 basis points more than today. Comparable yields are 1.69 percent in the U.S., 3.33 percent in China and 9.64 percent in Brazil.
• Housing Faces Downside Risk as Delinquencies Up. "Significant downside risks" as rising serious delinquencies may mean future foreclosures imminent, says Bloomberg Government economist Nela Richardson. Total 90-day+ delinquencies 3.19% in 2Q after 3.06% in 1Q. Other risks: expected flow from servicers' settlement has yet to materialize; short sales also likely to pick up substantially, putting pressure on prices, says Richardson. 2Q foreclosures, delinquencies data "casts doubts on premature declaration of all-clear in the housing market," said Bloomberg economist Joseph Brusuelas. Earlier MBA reported the mortgage delinquency rate ended 2Q at 7.58%, up +18 bps.
• Wells Fargo’s(WFC) Home-Loan Hegemony Spurs Stability Risk: Mortgage. Wells Fargo & Co.’s grip on the U.S. mortgage market has tripped alarms among regulators and lawmakers concerned that the bank’s control over one of every three new loans could hurt consumers and undermine markets. Wells Fargo and its two largest rivals, JPMorgan Chase & Co. and U.S. Bancorp, made half of all U.S. home loans in the first half, according to Inside Mortgage Finance, an industry publication. Wells Fargo alone controlled 33.1 percent. In mortgage servicing, which involves billing and collections, four firms have 50 percent of the business, and Wells Fargo is No. 1 in that field, too, with 18.5 percent.
• Jobless Claims Unexpectedly Fall. Jobless claims unexpectedly dropped by 6,000 to 361,000 in the week ended Aug. 4, Labor Department figures showed today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for an increase to 370,000.
• U.S. Consumer Comfort Drops to Two-Month Low on Economy Concern. Consumer confidence in the U.S. fell this week to the lowest level in two months as Americans became more discouraged about the economy. The Bloomberg Consumer Comfort Index dropped to minus 41.9 in the period ended Aug. 5 from minus 39.7. The gauge hasn’t climbed since the end of June. Americans’ view of the economy fell to the lowest level since February. Greater discontent about the economy was accompanied by dimmer views of personal finances and the buying climate, a sign consumer spending will be slow to pick up. A recent increase in gasoline prices and scant improvement in the labor market are also restraining confidence among lower-income households. “The American public is downright sour on their own economic prospects and those of the nation as a whole due to the growing labor slack in the economy,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The share of respondents in the Bloomberg survey who rated the economy as “poor” climbed this week to a seventh-month high.
• Banks Face Derivatives Margin Losses. Losses on so-called variation margin and conversion of creditor claims into equity are among options proposed by a group of regulators last week to protect taxpayers from future financial catastrophes when other buffers are depleted. Clearinghouses act as central counterparties in derivatives contracts to spread the risk of default.
• U.S. Banks' Dodd-Frank Costs May Widen to $34 Billion, S&P Says. JPMorgan(JPM) and Bank of America(BAC) are among 8 US lenders that collectively may have annual pretax profits cut by $34 billion amid new US rules that include limits on trades, S&P said. The firms' pretax earnings may drop by a range of $22 billion to $34 billion becuase of the 2010 Dodd-Frank regulatory overhaul, Matthew Albrecht, a credit analyst at S&P, said today. He previously predicted $19.5 billion to $26 billion.
  

Wall Street Journal:

• Former ECB Chief Economist Warns Against Trying to Blackmail Germany With History. Germany’s guilt over the Second World War doesn’t oblige it to write blank checks to euro-zone countries that fail to reform their economies, said former European Central Bank executive board member Otmar Issing. Mr. Issing served as a member of the ECB’s Executive Board from 1998 to 2006.
• J.P. Morgan(JPM) Details Struggle From 'Whale' Fallout. J.P. Morgan Chase & Co. on Thursday outlined just how the ill-placed trading hedges from its London chief investment office continue to be felt in share buybacks, capital ratios and trading losses. The nation's largest bank by assets also said its potential legal costs jumped nearly 30% from the first quarter.
  

MarketWatch:

• Las Vegas Strip June gambling revenue falls 4.5%. The Nevada Gaming Control Board said Thursday that gambling revenue statewide in June declined just over 6% to $832.5 million. On the Las Vegas Strip, which accounts for more than half the total, revenue fell 4.5% to $483.7 million.

CNBC.com:

• Clouds Gather Over Spain's Rajoy as EU Bailout Nears. Spanish Prime Minister Mariano Rajoy faces a cloudy return from his short summer break as his expected request for European aid in September will spur protests on the street and deepen cracks emerging in his conservative People's Party.
• Monti Takes Off Gloves in Euro Zone Fight. Italian Prime Minister Mario Monti has taken the gloves off in his fight to save Italy from disaster in the euro zone debt crisis, daring to stand up to European paymaster Germany in a way unthinkable a few months back.
• Economists Slash Outlook for Battered Euro Zone Nations. The fortunes of the euro zone's most vulnerable economies have darkened markedly since June, according to a Reuters poll of economists that showed Spain will apply for an EU bailout within months. Forecasters polled this week slashed their 2013 economic outlook for Greece, Portugal and Spain, and said they will all fail to achieve budget deficit targets agreed with the European Commission.

Business Insider:

• France is Preparing a Plan to Evacuate Its Citizens from Israel.
• Everything You Need To Know About The Fiscal Cliff In Just 3 Huge Slides.
• Incredible Footage Shows Syrians Holding Funeral In The Middle Of Heavy Shelling.
• The Chinese Super-Rich Slam On The Brakes. (graphs)
• Retired Hezbollah General Says Iran Is Building A Nuke To 'Finish Off' The Israeli 'Enterprise'.
• Here's The Chart That Might Get Obama Fired...(graph)
• The Saudis Warn Israel They Will Shoot Down Any Jets Using Its Airspace For A Strike On Iran.

Zero Hedge:

• The Transports are Diverging. (graph)
• Why The Fate Of The Global Equity Rally May Rest In The Hands Of Soybeans.
• Wholesale Inventories Drop MoM First Time in 9 Months. (graph)
• Peak Complacency Is Back. (graphs)
  

NY Post:

• SEC drops probe into Goldman Sachs' role in selling subprime mortgage securities. The Securities and Exchange Commission has dropped an investigation into Goldman Sachs Group Inc's role in selling $1.3 billion worth of subprime mortgage securities, the investment bank said in a regulatory filing on Thursday. In February Goldman received a so-called Wells notice from SEC staff related to disclosures in the deal's offering documents. Such notices typically indicate the agency plans to take some kind of enforcement action, and give firms a chance to respond. On Monday, the SEC notified Goldman that the investigation had been closed and that it did not intend to recommend any enforcement action against the bank related to the offering, Goldman said in its quarterly 10-Q filing with the SEC.
• Fund funds’ funk. Fed-up investors yanked $8B+ in June. Investors are sick and tired of paying fees for little in return, and in no place is that more evident than in the fund-of-funds industry. In June, investors pulled $8.7 billion from such firms, according to Trim Tabs Investment Research, which said that $50.4 billion came out of funds of funds over the prior 12 months, leading to a $32.1 billion drop in overall hedge-fund assets in that time. “Investors are saying, ‘Why should I pay a second layer of fees while you guys are not going to give me extra performance?’” said Leon Mirochnik, an analyst with Trim Tabs. Funds of funds have gained 0.9 percent since January, compared with a 2.4 percent gain for hedge funds and an 8.3 percent gain for the S&P 500, according to Trim Tabs.
  

Washington Post:

• GE(GE) recalls 1.3 million dishwashers because of fire hazard.

Reuters:

• Russia's Medvedev hints of Chinese threat to Far East. Prime Minister Dmitry Medvedev on Thursday issued a veiled warning about China's rising influence in Russia's resource-rich Far East, saying it was essential to defend the area against "excessive expansion by bordering states". Speaking days after Russia's first deputy defense minister said two new nuclear submarines would be sent to the Pacific Fleet, Medvedev also said it was "important not to allow negative manifestations ... including the formation of enclaves made up of foreign citizens." His comments, some of the strongest on the subject yet, underlined the Kremlin's suspicions that a steady influx of Chinese migrants may ultimately pose a threat to Russian hegemony in the remote and sparsely populated territories of Siberia and the Far East.
• Potential grows for food crisis as prices surge: U.N. The world could face a food crisis of the kind seen in 2007/08 if countries restrict exports on concerns about a drought-fuelled grain price rally, the U.N.'s food agency warned on Thursday, after reporting a surge in global food prices in July. A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti. Concern about extreme hot and dry weather in the U.S. Midwest sent corn and soybean prices to record highs last month, driving overall food prices higher again and reversing the Food and Agriculture Organisation's forecast for declines this year. "There is potential for a situation to develop like we had back in 2007/08," the FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters. "There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible." The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in July, up 6 percent from 201 points in June, the FAO said in its monthly index update.
• US Postal Service Loses $5.2 Billion, Warns of Low Cash. The U.S. Postal Service's net loss widened to $5.2 billion during the three months that ended in June, and the cash-strapped agency warned on Thursday that without help from the U.S. Congress it will face low cash and be unable to borrow money this fall. The Postal Service, which relies on the sale of stamps and other products rather than taxpayer funding, has been struggling for years as Americans increasingly communicate online and as payments to its retiree health benefits program and other obligations drain its cash. The mail agency suffered its first-ever default last week on a legally required $5.5 billion payment for future retiree health benefits. The agency's inspector general said the Postal Service could face a $100 million cash shortfall in mid-October.
• Moody's: Q2 public finance downgrades highest in 10 years.

Telegraph:

• It starts: first Asian bank mulls British exit from the EU. So we have a new term: BRIXIT. Japan's biggest bank Nomura has issued an 11-page study evaluating the likelihood that the UK will leave the European Union entirely or partly. Events could accelerate as soon as this autumn if eurozone woes force the Government to commit to a firm date for a BRIXIT referendum.
• Shock trade figures deal a blow to UK recovery hopes. Britain's trade deficit widened sharply to a record high in June as exports collapsed amid the eurozone crisis, dealing a blow to hopes that trade will drive a recovery. The trade in goods deficit jumped to £10.1bn in June from £8.4bn in May after an 8.4pc fall in exports far outpaced a 1.2pc fall in imports, the Office for National Statistics said.

Der Standard:

• China Would Risk Crisis in Consumption Boost. "Every country that has grown through debt-financed consumption has ended in crisis," former World Bank chief economist Justin Lin says in an interview.

El Pais:

• The Spanish Treasury's cash balance fell 19% in July from the previous month to 23.2 billion euros. The government's cash holdings parked at the Bank of Spain tumbled from 40.4 billion euros in May, citing the Bank of Spain and the Treasury.