- Rajoy Raids Reserve Fund for 1st Time to Pay for Higher Pensions. Spanish Prime Minister Mariano Rajoy will raid for the first time a decade-old pension reserve fund that invests in government debt to pay for an increase in retirement payments. The Cabinet agreed to use 3 billion euros ($3.9 billion) from the 67 billion-euro reserve fund, Deputy Prime Minister Soraya Saenz de Santamaria told reporters yesterday in Madrid. It raised pensions 1 percent in the 2013 budget and indicated it would compensate retirees for above-forecast inflation. “The reserve fund is there to be used,” Budget Minister Cristobal Montoro said. “Politically, it’s very important” to maintain pensioners’ purchasing power. The pension reserve invests mostly in Spanish government bonds, and accounts for about 10 percent of the central government’s outstanding debt. The cache that has been built up since 2000 to safeguard pensions from the aging population is being raided as the 25 percent jobless rate undermines the welfare system’s revenue. “It adds pressure for Spain to ask for the bailout since it means less support for Spanish debt,” said Virginia Oregui, the San Sebastian-based managing director at Geroa EPSV Fondos, which manages 1.1 billion euros, including Spanish government bonds.
- Monti Says ECB Conditions, IMF Role Hinder Bond Requests. The European Central Bank should not impose extra economic conditions on nations using its bond- buying mechanism, and the International Monetary Fund shouldn’t have an oversight role, said Italian Prime Minister Mario Monti. Countries such as Italy and Spain are reluctant to request the bond-buying they championed because of uncertainty about what conditions the central bank would seek to impose, he said. The program is only available to countries that are already taming public finances and conditions should not go beyond European Union recommendations made in June, Monti said. Oversight should be limited to establishing “checks so the countries continue to behave in that positive way,” Monti said in an interview with Erik Schatzker on Bloomberg Television yesterday in New York. “If this is the conditionality that will be finally delivered, should a country be in a market situation suggesting its use, there would be nothing dishonorable.”
- Japan Output Slides More Than Forecast as Contraction Risk Grows. Japan’s industrial production fell more than economists forecast in August as slowing demand in China and Europe undermines a recovery in the world’s third- largest economy. Output fell 1.3 percent from July, when it dropped 1 percent, the Trade Ministry said in Tokyo today. The decline was the biggest in three months and compared with economists' median estimate for a 0.5 percent slide. The data add to evidence that Japan’s economy is at risk of shrinking this quarter as exports fall, political tensions with China mount and the impact of the government’s car subsidy program fades. JPMorgan Securities, Barclays Securities Japan and BNP Paribas expect a contraction after growth slowed to a 0.7 percent annual pace in the previous three months. “There’s no sign of a recovery in Europe and China’s economy remains dull,” Jun Kawakami, an economist at Mizuho Securities Co. in Tokyo, said before the report. “It’s difficult to be optimistic about the outlook for production as exports are weakening and domestic demand lacks momentum.”
- Japan-China Politics Risk Prolonging Worst Ties Since 2005. Political transitions in both nations may prolong what’s become the worst bilateral crisis since at least 2005 and impair a $340 billion trade partnership. President Hu is poised to hand power to the next generation of China’s leaders, and Prime Minister Noda faces elections as soon as this year. With boats from China, Japan and Taiwan in disputed East China Sea waters, any perception of backing down on territorial claims would risk domestic political backlash. Noda faces a newly installed opposition chief who advocates a harder line on China, while Chinese citizens have demonstrated in public over the Diaoyu, or Senkaku, islands.
- Obama Cabinet Flunks Disclosure Test With 19 in 20 Ignoring Law. On his first full day in office, President Barack Obama ordered federal officials to “usher in a new era of open government” and “act promptly” to make information public. As Obama nears the end of his term, his administration hasn’t met those goals, failing to follow the requirements of the Freedom of Information Act, according to an analysis of open-government requests filed by Bloomberg News. Nineteen of 20 cabinet-level agencies disobeyed the law requiring the disclosure of public information: The cost of travel by top officials. In all, just eight of the 57 federal agencies met Bloomberg’s request for those documents within the 20-day window required by the Act. “When it comes to implementation of Obama’s wonderful transparency policy goals, especially FOIA policy in particular, there has been far more ‘talk the talk’ rather than ‘walk the walk,’” said Daniel Metcalfe, director of the Department of Justice’s office monitoring the government’s compliance with FOIA requests from 1981 to 2007.
- Shiller Data Questions Housing Revival Power: Cutting Research. Don't bet the house on a robust revival of the U.S. property market, says the Yale University professor who predicted the bursting of the dot-com and subprime-mortgage bubbles. There is no "unambiguous" sign of a strong recovery in the market, Robert Shiller and fellow economists Karl Case and Anne Thompson say in a paper published this week by the National Bureau of Economic Research.
- Bullard Says Fed Should Have Waited on Bond Buying. Federal Reserve Bank of St. Louis President James Bullard said policy makers should have taken a “wait-and-see posture” on new bond buying until they had a clearer picture of the global economy. “I didn’t really think the committee had a good case for taking a really big action,” Bullard, who doesn’t vote on monetary policy this year, said in a CNBC interview today. “I would have kept it in our pocket for a little bit and really see if the global slowdown is going to impinge on the U.S. economy and what the next steps in Europe are going to be.” “It could be that global growth drags down the U.S. and sends us into a slower growth environment or even recession,” Bullard said. “I would have wanted to see more data on that and see how that’s unfolding before we’d taken more action.”
- How Bernanke Pulled the Fed His Way. In late August, Federal Reserve Chairman Ben Bernanke argued on behalf of Fed programs to stimulate the lumbering U.S. economy and signaled that more might follow, making headlines in his highly anticipated speech at the Fed's annual retreat in Jackson Hole, Wyo. As markets rallied at the prospect of new measures to ease credit, a quiet drama was unfolding behind the scenes. Mr. Bernanke was negotiating a high-stakes plan in a flurry of private conversations with colleagues hesitant about aggressively re-engaging the levers of America's central bank.
- Alleged Maker of Anti-Muslim Video Jailed in Fraud Case. A man believed to be behind an anti-Muslim video that spawned international protests was held without bail in Los Angeles on Thursday, after federal authorities arrested him earlier in the day for allegedly violating the terms of probation on his 2010 conviction. Magistrate Judge Suzanne Segal said Nakoula Basseley Nakoula, the 55-year-old alleged filmmaker, had a history of misrepresenting himself and posed a flight risk in denying a request for bail. "The court has a lack of trust in this defendant at this time," the judge said. Federal prosecutors in Los Angeles have accused Mr. Nakoula of eight violations of the terms of his probation for a 2010 bank-fraud conviction.
- Chinese Slowdown Idles U.S. Coal Mines.
- Libor Furor: Key Rate Gets New Scrutiny. Banks Often Don't Change the Quotes That They Submit.
- Tackling the Many Dangers of China's State Capitalism. The U.S. won't solve the problems created by China's economic juggernaut until it finds a way to tackle the big issue rather than sideshows like the country's currency rate. The big issue is China's state capitalism, the tens of thousands of state-owned enterprises that dominate half of China's economic output and that the government heavily subsidizes and protects. Foreign competitors—which threaten these near monopolies—are restricted by government rules, forced to "share" their technology in joint ventures with state enterprises, and denied lucrative government business, which goes instead to the state champions.
- Michael Bordo: Financial Recessions Don't Lead to Weak Recoveries. The evidence since 1880 shows a faster pace of recovery. The Obama years are the exception.
- Evan Bayh: ObamaCare's Tax Raid on Medical Devices. The industry that gave us stents, replacement joints and defibrillators will get a dose of bad fiscal medicine. The Supreme Court decision in June upholding the Affordable Care Act leaves in place a tax on medical devices that threatens thousands of American jobs and our global competitiveness. It will also stifle critical medical innovation in the industry that gave us defibrillators, pacemakers, artificial joints, stents, chemotherapy delivery systems and almost every device we depend on to save lives. The 2.3% tax will be charged to manufacturers on each sale and takes effect in January. Many U.S. device companies, in response, have already announced layoffs, canceled plans for domestic expansion and slashed research-and-development budgets.
- BlackBerry sales give RIM(RIMM) surprise boost. Shares jump as smartphone maker increases cash base, cuts costs.
- A Chinese Mega City Is On The Verge Of Bankruptcy.
- How Crony Capitalism (Or The 'Undiluted Lunacy' Of The Fed) Corrupts The Free Markets.
- GDP And Durable Goods - Heading To Recession? (graphs)
- Summarizing What Spain Just Announced, And What Was Left Unsaid (Hint: Cash).
- Nike's(NKE) Profit Decline In China Is Stunning.
- FELDSTEIN: The Federal Reserve Has Embarked On A Very Dangerous Strategy.
- Russian Cyber Expert: Hackers Could Shut Down Power In Most Of The World In A Decade.
- EXPERT: Military Conflict 'Looms' Between China And Japan.
- FINALLY: After Stiffing Them All year, George Soros Bails Out The Democrats With A $2 Million Check.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows both President Obama and Mitt Romney attracting support from 46% of voters nationwide. Four percent (4%) prefer some other candidate, and four percent (4%) are undecided.
- TEXT-Fitch Cuts China, India 2012 Growth Forecasts as Risks to Global Recovery Mount.
- Italian unions to strike against Monti spending cuts. Two of Italy's biggest unions have called a strike by public sector workers on Friday to protest against spending cuts enacted by Prime Minister Mario Monti in his attempts to pull the country out of crisis. Thousands are expected to march through central Rome to a rally near the Coliseum. The strike follows clashes between anti-austerity protesters and police in Madrid and Athens this week, and coincides with labour unrest at the ILVA steel plant in southern Italy.
- Micron(MU) misses estimates on weak chip sales.
- Nikkei sags on China tensions despite Spain's pledged cuts.
- China's Wen Not Inclined To 'Ease Dramatically'. China Premier Wen Jiabao isn't inclined to ease policies "dramatically," citing a person familiar with State Council discussions. Wen's desire for stability towards the end of his term as Premier suggests that there won't be aggressive moves on policies. Any room for future easing is "limited", according to the person.
- Spain must leave the euro. Mario Draghi's promise to do “whatever it takes” to save the euro never did look like inducing any more than a temporary lull in the storm; still less did the German Constitutional Court’s thumbs up to the European bail-out fund and the trouncing that eurosceptic parties received in the Dutch election.
- Spain's rising debt costs eat up austerity gains. Spain has pushed through €40bn of fresh austerity measures in the teeth of
recession, despite violent protests across the country and separatist crises
in Catalonia and the Basque region that threaten to break the country apart.
- China Should Speed Up Nationwide Property Tax Trial. China should accelerate the introducing of nationwide property tax trial, citing Wang Juelin, a researcher at the Ministry of Housing and Urban-Rural Development.
- None of note
- Asian equity indices are -.50% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 137.0 -6.0 basis points.
- Asia Pacific Sovereign CDS Index 114.75 -5.25 basis points.
- FTSE-100 futures +.33%.
- S&P 500 futures +.08%.
- NASDAQ 100 futures -.01%.
Earnings of Note
8:30 am EST
- Personal Income for August is estimated to rise +.2% versus a +.3% gain in July.
- Personal Spending for August is estimated to rise +.5% versus unch. in July.
- PCE Core for August is estimated to rise +.1% versus unch. in July.
- NAPM-Milwaukee for September is estimated to rise to 45.0 versus 42.9 in August.
- Chicago Purchasing Manager for September is estimated to fall to 52.8 versus 53.0 in August.
- Final Univ. of Mich. Consumer Confidence for September is estimated to fall to 79.0 versus a prior estimate of 79.2.
- None of note
- The Fed's Fisher speaking, ECB's Asmussen speaking and the Eurozone inflation data report could also impact trading today.