Ten Alleged Russian Spies Arrested in U.S. After Multiyear Investigation. Ten alleged members of a “deep- cover” Russian spy ring whose ultimate goal was to infiltrate U.S. policy-making circles have been arrested, the Justice Department said. The arrests yesterday in the New York area, in Boston and in Arlington, Virginia, are the result of an investigation by U.S. authorities into the ring, which began operating in the 1990s, according to two criminal complaints unsealed today.The alleged agents posed as American and Canadian citizens, some of them living in the U.S. for more than 20 years, with the goal of becoming “Americanized” and passing intelligence back to the Russian Federation, according to the complaints. The conspiracy involved at least three unnamed Russian government officials, according to the complaints. “You were sent to USA for long-term service trip,” read the message, decoded by the Federal Bureau of Investigation, according to the government. “Your education, bank accounts, car, house etc. -- all these serve one goal: fulfill your main mission, i.e. to search and develop ties in policymaking circles in U.S. and send intels [intelligence reports] to C[enter].” By using illegal documents, agents assumed false identities before getting university degrees, took jobs and joined professional associations, according to the complaint. Agents also lived together, posing as married couples and having children to deepen their cover, or “legend,” the FBI said.
Illinois Borrowing $900 Million as Credit-Default Insurance Cost Doubles. Illinois plans to add $900 million in Build America Bonds to the $755 million in securities it sold in June as the cost of insuring the state’s debt against default reached a record high. The cost of an Illinois credit-default swap has more than doubled since April 5 to a record of 370 basis points, or $370,000 to protect $10 million of debt, according to CMA DataVision. The state rescheduled the Build America sale for mid-July, after originally planning it for as early as this week, Dow Jones reported, citing John Sinsheimer, Illinois’s capital markets director. The state paid a premium of 80 basis points on 10-year general obligation debt over top-rated tax-exempts, or 5 basis points more than at the start of the month. Illinois’s debt is rated fifth-highest by Moody’s Investors Service, at A1, and by Standard & Poor’s, at A+. The state’s obligations are the most expensive municipal debt to insure, at 19 basis points above California, the largest U.S. state borrower. Illinois lawmakers went home May 27 without resolving the state’s $13 billion deficit in the budget for the fiscal year that begins this week. The $900 million sale would bring the state’s outstanding general obligation debt to $26.9 billion, according to Fitch Ratings.
Euro Crisis Won't Be Solved by German Makeover: Matthew Lynn. Who is to blame for the state of the world economy? To listen to a range of presidents, investors, pundits and finance ministers, just one country: Germany. U.S. President Barack Obama suggests the Germans are sending the world back into recession. George Soros says they are destroying the euro. French Finance Minister Christine Lagarde thinks they are pushing the euro area into deflation. It is all crazy. Germany’s huge trade surplus isn’t part of the problem. Handicapping the strongest link won’t help the European economy. And Germany couldn’t change direction now even if it wanted to. Instead of criticizing the Germans, other nations should be learning from the world’s second-biggest exporter. German brands such as Siemens AG, Bayerische Motoren Werke AG and Bayer AG didn’t just appear for no reason. It’s not hard to find people blaming the Germans for everything going wrong in the world. The country hasn’t been getting this much flak since World War II.
Oil to Fall in Second Half as Slowing Growth Curbs Demand: Energy Markets. “Getting out of the worldwide recession was always going to be a long slog,” Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington, who forecast oil will average $65 a barrel in the third quarter and $70 in the fourth, said in an interview. “It’s always been our view that the second half of 2010 was going to be a tough period.” “We did avoid a financial meltdown in Greece and Spain but otherwise the picture in Europe is grim,” said David Kirsch, a Paris-based analyst with PFC Energy, an energy strategist to companies and governments. “We’re looking for poor demand throughout the OECD. The U.S. only looks good in comparison with the EU and Japan.” Oil consumption among the 30 industrialized nations that belong to the Organization for Economic Cooperation and Development will average 45.4 million barrels a day in 2010, down 8.3 percent from a record 49.5 million in 2006, according to the Energy Department. “By the end of the next quarter the driving season will have come to an end and it looks like it will be a rather anemic one at that,” Lynch said. “The hurricane season is the one thing that will give the market support.” U.S. gasoline consumption fell in May to the lowest level for the month since 2003, the American Petroleum Institute said in a June 18 report. Deliveries of gasoline, a measure of demand, averaged 9.05 million barrels a day, down from 9.09 million in May 2009, the industry-funded group said. “There’s a significant risk that we’ll test the low levels that were touched in late May,” Kirsch said. “Prices will probably average in the mid-$60s during the third quarter. There won’t be a seasonal run-up during the fourth quarter unless OPEC significantly reduces supply, which doesn’t look likely.” “Supplies are certainly adequate given the weakness in Europe and elsewhere in the OECD,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser. “Whatever will be lost here because of the moratorium, which is only set to last six months, will be more than offset by OPEC spare capacity.” The Organization of Petroleum Exporting Countries lifted crude output by 0.6 percent to 29.372 million barrels a day in May, a Bloomberg News survey showed. The increase left the 12- member group with 5.46 million barrels a day of spare capacity.
U.S. Exchanges Said to Seek Broader Scope for Trading Curbs. U.S. stock exchanges will propose doubling the number of companies covered by a two-week-old test of trading curbs and expanding the program to include hundreds of exchange-traded funds, according to two people with direct knowledge of the matter. NYSE Euronext and Nasdaq OMX Group Inc. will ask the Securities and Exchange Commission to broaden circuit breakers triggered by 10 percent moves to Russell 1000 Index companies from those in the Standard & Poor’s 500 Index, according to the people, who declined to be identified because the information isn’t public. More than 300 ETFs including the SPDR S&P 500 ETF Trust would be covered, one of the people said.
Wall Street Journal:
Iranian Diplomat in U.S. Opens Window on Tehran. A former lead Iranian nuclear negotiator has taken up residence at Princeton University, marking the highest-ranking member of Tehran's political elite to relocate to the U.S. since last year's political uprising against President Mahmoud Ahmadinejad.
Killing Escalates Mexico Drug War. A leading Mexican gubernatorial candidate was killed early Monday in a state bordering Texas, in the highest-level assassination of a politician here since President Felipe Calderón declared war on drug cartels in 2006. The killing of Rodolfo Torre, who was seen as a shoo-in for governor in Tamaulipas, represents an escalation of the drug traffickers' war against the Mexican state. "This is an attack not only against one citizen, but against all society; an attack not just on one politician, but against all politicians and our political institutions," Mr. Calderón said in a televised address.
The End of Community Banking. The comprehensive financial reform agreed upon by the House and Senate on Friday, along with all the new regulations of the past year, could signal the end of community banking. The new reforms will give more power to the Federal Reserve to regulate how my bank and others like it do business. What does all this mean for our customers? Less credit will be available, costs will increase, and we will be less able to make loans to regular people who were creditworthy in the past. This is the perfect storm for the small retail banking customer. We will start to see more small community bank failures and mergers because of voluminous regulation.
The SEC's Russian Roulette. On Jan. 6, 2009, Ukragro Corp. of Zhitomir, Ukraine, made an initial filing with the Securities and Exchange Commission to sell stock to the public. Its sole employee and owner was a 79-year-old massage therapist. The company had no revenue, $100 in assets and planned to open a string of health spas. Public records on file at the SEC show that the agency asked no questions and the application cleared through the commission eight days later. Over the past two years, eight other start-ups reviewed by the SEC have been similarly headed by people in Ukraine or Russia, with no revenue or operations and minimal assets. Business plans ranged from renting bicycles in Kiev to selling cars in Siberia. All used the same small Seattle law firm, Dean Law Corp., to help with their initial SEC filings. The SEC cleared them to sell stock, in most cases without asking a single question, according to the public records at the agency.
CNBC:
Washington's Anti-Stock Agenda? With multiples lower across the board, stocks might seem cheaper, Cramer said Monday, but they're actually just worth less for fear that future earnings will be "crimped" by the government. The fear is widespread, Cramer said, as "it's impossible to find a company that isn't threatened by the dominant agenda in Washington." Financial regulatory reform gave banks an earnings "haircut," Cramer said. The debate over health-care reform gave those stocks a similar cut a few months earlier. He thinks the ban on offshore drilling will crush oil-service companies along with the oil companies that need to find oil to keep their reserves up. Elsewhere in the energy space, natural-gas names are expected to get slammed by the Environmental Protection Agency investigations into hydraulic fracturing. Cramer said more damage will be done with forthcoming items on the Congressional agenda, including cap-and-trade on carbon emissions and “card check” unionization. "Washington used to seem as though it had a tacit understanding of the importance of stocks in everyday life, how they're used to save for retirement and college tuition through 401ks, IRAs and 529 plans, all set up by the government to encourage stock investing," Cramer said. "That pro-growth, pro-stock bias is now gone and without it, it's pretty ridiculous to expect the multiple of the S&P 500 to do anything but shrink."
Watch A Chinese Mine Owner Pay a 200,000 Yuan Dinner Bill in Singles. Hong Kong blog The Dark Side found the incredible story of a Chinese mine owner who ran up a 200,000 yuan ($30,000) bill at a Shanxi restaurant before learning the resturant did not take credit card. Angered by the incident, the mine owner got on the phone and within ten minutes had 200,000 single bills delivered to the restaurant.
AOLNews:
Obama Rewarding the Bad, Punishing the Good. National anger at corruption and incompetence in Washington centers increasingly on a peculiar, profoundly maddening quirk of the Obama administration: its consistent, irrational impulse to reward bad behavior and to punish constructive conduct.
BNET:
Why It's Crazy to Let Wall Street Control Derivative Exchanges. The financial reform bill seeks to curb Wall Street’s taste for derivatives by moving most swap trading to regulated clearinghouses. Yet a provision quietly dropped from the legislation last week could cement big banks’ control over the very exchanges that are intended to make the capital markets safer. Under pressure from the financial industry, lawmakers cut an amendment that would have limited banks’ ownership in the clearinghouses to 20 percent. Instead, regulators can set the threshold — or not (a real possibility, given federal watchdogs’ deference to Big Finance in recent years). This isn’t a mere technical detail. The arrangement would leave the five “broker-dealers” that dominate the derivatives market — Bank of America(BAC), Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM) and Morgan Stanley (MS) — with enormous influence over how quickly swap clearinghouses take shape, their operating rules and their efficacy. The foxes wouldn’t be guarding the henhouse so much as renting it out.
The Hill:
In Wake of Byrd's Passing, Feingold Still A No On Wall Street Bill. One of the two Senate Democrats to vote against the financial regulatory bill on Monday ruled out the possibility of supporting the revised version of the legislation. Senate leaders have turned to Sen. Russ Feingold (D-Wis.) to potentially change his vote on the conference report in a move to shore up votes for the measure in the wake of Sen. Robert Byrd's (D-W.Va.) death early this morning. Feingold reiterated that the bill is still not strong enough to support. "As I have indicated for some time now, my test for the financial regulatory reform bill is whether it will prevent another crisis," he said in a statement. "The conference committee’s proposal fails that test and for that reason I will not vote to advance it." Feingold's comments mean that Democrats will likely need to turn to Sen. Maria Cantwell (D-Wash.), who also opposed the bill, or a group of four Republicans who voted for the bill at some point in the process. "During debate on the bill, I supported several efforts to break up ‘too big to fail’ Wall Street banks and restore the proven safeguards established after the Great Depression separating Main Street banks from big Wall Street firms, among other issues," he said. "Unfortunately, these crucial reforms were rejected. While there are some positive provisions in the final measure, the lack of strong reforms is clear confirmation that Wall Street lobbyists and their allies in Washington continue to wield significant influence on the process."
Politico:
White: Obama Spending Isn't Helping. Polls show he’s already competitive, but Democratic gubernatorial nominee Bill White said his odds of knocking off two-term Texas Gov. Rick Perry might even be greater if President Obama had exhibited more fiscal restraint during his first 18 months in office. “If the president wasn’t spending so much money, borrowing money, it would probably help,” White acknowledged during an interview with POLITICO on Monday. “Increasing spending in almost everything. I mean, I don’t know where to start.” White’s comments reflect the distance he’s willing to carve out between himself and a president from his own party, who is saddled with a 40 percent job approval rating in the Lone Star state, according to the latest Rasmussen Reports survey. Perry, already the state's longest-serving governor, has made a determined effort to link White to the Obama administration and its economic policies.
Obama Still Pressing Immigration. Even with Washington distracted by the oil spill, a change in generals in Afghanistan and a Supreme Court nomination, President Barack Obama and his congressional allies are stoking the immigration debate, ignoring signals that the issue is dead for the year. Key Hispanic lawmakers such as Sen. Bob Menendez (D-N.J.) have already concluded there isn’t the political will in Congress to tackle immigration legislation, and centrist Democrats want nothing to do with the issue — beyond pushing border security — in an election year. So why is the president inviting activists, Hispanic lawmakers and other immigration experts to the White House on back-to-back days? According to those involved in the meetings, the discussions are not about legislation but about keeping the politics of immigration simmering for a key part of the Democratic base. The Obama administration is preparing a lawsuit against Arizona, challenging that state’s toughest-in-the-nation immigration law. And the president told participants Monday that he plans to give a major speech soon urging Congress to pass comprehensive immigration reform.
NY State May Tax Out-Of-State Hedge Fund Execs. Recession-hit New York could raise an extra $50 million a year by collecting income taxes from people who work for hedge funds in the state but live elsewhere, according to a legislative plan to raise revenue. The new plan would tax so-called carried interest. Making hedge fund managers pay the state income tax is one of several options the Legislature devised after rejecting several of Paterson's proposed revenue-raisers, from letting grocers sell wine to raising tuition at public universities. With the recession shrinking New York's tax revenue, the Democratic-led Legislature and governor are still feuding over how to fill a $9.2 billion deficit nearly three months after missing the deadline for enacting a $135 billion budget. The Legislature plans to approve a bill on Monday that it said includes enough money to avert a government shutdown; on Tuesday, it expects to enact a revenue bill that includes a mix of its revenue-raisers and Paterson's proposals. This list includes charging the state's 4 percent sales tax on clothing and footwear that costs less than $110, starting in October, and cutting in half the amount of charitable contributions allowed as itemized deductions to 25 percent for people with New York adjusted gross income above $10 million a year.
Micron(MU) Q3 Margins, Revenue Beat Street View. Shares fell 5.5 percent after-hours to $9.47 from a close of $10.02. The stock had rocketed 6 percent higher in regular trading on expectations of a strong quarterly result.
Spanish Banks Rage at End of ECB Offer. Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a €442bn ($542bn) funding programme this week, accusing the central bank of “absurd” behaviour in not renewing the scheme. On Thursday, the clock runs out on the ECB financing programme – the largest amount ever lent in a single liquidity operation by the central bank – under the terms of the one-year special liquidity facility launched last summer. One senior bank executive said: “Any central bank has to have the obligation to supply liquidity. But this is not the policy of the ECB. We are fighting them every day on this. It’s absurd.” The €442bn ECB facility, which charges interest at a rate of 1 per cent, is not set to be renewed, something that banks in Spain and elsewhere in Europe say ignores current commercial realities. “The system is just not working,” agrees Simon Samuels, banks analyst at Barclays Capital in London. “We’re approaching the third year of liquidity support and still the market cannot survive unaided.” BarCap estimates that at least €150bn of the ECB funding that is maturing will not be rolled over into shorter-term three-month schemes, forcing banks to shrink their own lending.
Foxconn Technology Group plans to move some of its production of Apple Inc.'s(AAPL) electronic products to central China from the southern city of Shenzhen, citing executives. The Taiwanese company is planning the move because of rising pay increases in Shenzhen after labor unrest and a string of suicides at its plant.
TimesOnline:
Britain Has Become Complacent, Warns Rolls Royce CEO. Britain has become complacent and is in danger of slipping down the world league in manufacturing capability, Sir John Rose, the chief executive of Rolls-Royce, has warned. “In the last decade we as a country have risen with a rising tide,” said Sir John at the opening of The Times CEO Summit. “But we have become complacent, complacency fueled by growing public sector debt and the ease of debt to allow growth. As a country we have been too focused on wealth distribution or wealth interception rather than on wealth creation.
Telegraph:
David Cameron: 'The World Doesn't Owe Us a Living'. The Prime Minister said many people are under the “delusion” that just because the UK has historically been one of the richest countries on earth, it will always remain so. Only if we “reboot and rebuild” the UK economy can the country’s future prosperity be assured, he said. Mr Cameron used a speech to business leaders in London to argue that the spending cuts and other changes his Government is planning are not discretionary political choices but essential economic moves to stop the country falling behind its competitors. He said: “I think too many people in this country are living under the delusion that a prosperous past guarantees a prosperous future. But it isn’t written anywhere that this country deserves a place at the top table. He added: “It was once said that freedom once won is not won for ever; it’s like an insurance premium – each generation must renew it. Economic prosperity is the same. Just because we’ve had it before doesn’t mean we’ll automatically get it again.” The Prime Minister said Britain will only remain a major economy if it can tackle the huge Government deficit, reform the welfare system and attract new investment from overseas. “These three steps can help Britain to earn its living in the decades to come,” he said.
Yonhap News:
Cheonan's sinking does not ensure relisting N. Korea as state terror sponsor: State Dept. North Korea's torpedoeing of a South Korean warship is a violation of the armistice that ended the 1950-53 Korean War, but does not merit relisting North Korea as a state sponsor of terrorism, the State Department said Monday. "The sinking the Cheonan is not an act of international terrorism and by itself would not trigger placing North Korea on the state sponsor of terrorism list," spokesman Philip Crowley said. "It was provocative action, but one taken by the military of a state against the military of another state. We believe the Cheonan was in fact a violation of the armistice."
Xinhua:
Greek Protesters Warm Up Ahead of New Nationwide 24-Hour General Strike on Tuesday. Hundreds of Greek civil servants working for the Public Power Company (PPC) staged a demonstration on Monday afternoon in front of the Finance Ministry in the centre of Athens. Once again they protested austerity measures and a social security and pension reform bill due to be voted by the parliament in the following days. "We will not sell. We are not for sale" was the main slogan written on banners during the march which is seen as a rehearsal of the massive rally organized for Tuesday in Athens by the two umbrella labor unions of public and private sector employees ADEDY and GSEE. Increased police forces will be deployed in Athens due to fears of violent incidents caused by anarchists. Labor union representatives warn with further escalation of mobilizations after the summer holidays, if the government insists on the implementation of the harsh measures.
Evening Recommendations Citigroup:
Upgraded (AMP) to Buy, target $50.
Reiterated Buy on (AAPL), boosted target to $330.
Night Trading
Asian equity indices are -.75% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 135.0 +2.0 basis points.
Asia Pacific Sovereign CDS Index 131.25 -2.0 basis points.
The S&P/CS 20 City MoM% SA Home Price Index for April is estimated to fall -.1% versus a -.05% decline in March.
10:00 am EST
Consumer Confidence for June is estimated to fall to 62.5 versus a reading of 63.3 in May.
Upcoming Splits
None of note
Other Potential Market Movers
The weekly retail sales reports, ABC Consumer Confidence reading, (BKS) Investor Day, (SMSC) Analyst Day and the Oppenheimer Consumer/Gaming/Lodging/Leisure Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and shipping shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 107.77 bps +3.85%
European Financial Sector CDS Index 121.71 bps +5.51%
Western Europe Sovereign Debt CDS Index 155.99 bps -.17%
Emerging Market CDS Index 241.19 bps unch.
2-Year Swap Spread 21.0 unch.
TED Spread 14.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 225.0 -3 bps
China Import Iron Ore Spot $140.0/Metric Tonne unch.
Citi US Economic Surprise Index -13.70 -5.8 unch.
10-Year TIPS Spread 1.79% +1 bp
Overseas Futures:
Nikkei Futures: Indicating +84 open in Japan
DAX Futures: Indicating +21 open in Germany
Portfolio:
Higher: On gains in my Tech, Retail, Biotech, Ag and Medical long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 breaks out of a multi-month trading range on mediocre volume despite rising sovereign debt angst and more weak US housing data. On the positive side, Education, Homebuilding, Coal, Airline, REIT and Oil Service shares are especially strong, rising 2.0%+. Small-cap shares are outperforming. Lumber is rising +3.21%. (IYR) and (XHB) have traded well throughout the day. On the negative side, Paper, Oil Tanker, Steel, Semi, Wireless and Road & Rail shares are underperforming, rising less than 1%. Cyclicals are underperforming, as well. The Ireland sovereign cds is surging another +4.06%, hitting another record high at 429.06 bps and is continuing its recent parabolic move higher. The US sovereign cds is rising +2.91% to 47.02 bps. Furthermore, key credit default swap indices continue to trend higher, even as equities rally, which is a major negative. Commodities, in general, aren't participating in today's equity rally and the 10-year yield has dropped -10 bps from Friday's high in yield. The Shanghai Composite was unable to bounce again overnight after breaking below its 50-day moving average for the first time since April last week, falling another -.34%. The market is breaking out despite an abundance of red flags, which is a major positive. As well, some key growth stocks are gaining significant upside traction as it appears investors are finally rewarding stocks that can grow in a poor economic environment with higher multiples. While today's action is encouraging, I remain on high alert for a meaningful reversal lower in stocks over the next few days. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying, investment manager performance anxiety and buyout speculation.
Office Vacancy Rate in U.S. Climbs to 17-Year High, Reis Says. Office vacancies in the U.S. rose to the highest level since 1993 in the second quarter as the sluggish economic recovery damps demand from corporate tenants, Reis Inc. said in a report. The vacancy rate climbed to 17.4 percent from 16 percent a year earlier and 17.3 percent in the first quarter, the New York-based research company said today in a statement. Effective rents, the amount tenants actually pay landlords, fell 5.7 percent from a year earlier and 0.9 percent from the previous three months, according to Reis. Private employers made fewer hires in June than economists had forecast, reinforcing concerns the recovery will weaken, the Labor Department said July 2. Washington, D.C., remained the city with the lowest office vacancy rate, at 10 percent, according to the firm. New York vacancies stayed at 11.7 percent. Detroit had the highest vacancy rate, at 26.3 percent, amid declining employment in the auto industry, Reis said.
Service Industries in U.S. Expand Less Than Forecast. Service industries in the U.S. expanded in June at a slower pace than forecast, indicating the economy was beginning to cool entering the second half. The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, fell to a four-month low of 53.8 from 55.4 in May. The June figure was less than the median forecast of 55 in a Bloomberg News survey. The group’s index of new orders for non-manufacturing industries declined to 54.4 in June, the lowest this year, from 57.1 a month earlier. The employment gauge fell to 49.7 last month from 50.4. Export orders dropped to 48 in June, the lowest since February, from 53.5. A gauge of prices-paid fell to 53.8 from 60.6.
U.S. Banks Risk 'Untold Problem' as Muni Debt Holdings Swell. Citigroup Inc., State Street Corp. and U.S. Bancorp are among U.S. banks whose municipal bond holdings have reached a 25-year high just as state budget deficits swell to $140 billion, the most since the start of the recession. Commercial lenders added more than $84 billion to their holdings since 2003, according to the Federal Reserve, pushing total investments to $216.2 billion at the end of the first quarter. Bank regulators and ratings companies are ramping up scrutiny of banks most at risk of being forced to raise more capital should debt prices slide. “There is a huge untold problem here,” said Walter J. Mix III, a former commissioner of the California Department of Financial Institutions who closed 30 banks during the last banking crisis in the 1990s. “The economics lead to the conclusion that there will be downward pressure on these bonds.”At Cullen/Frost Bankers Inc., the biggest Texas lender, holdings of municipal debt exceeded Tier 1 capital, a key measure of a bank’s ability to absorb losses, by $491 million at the end of the first quarter, data compiled by Bloomberg show. For State Street, based in Boston, the holdings make up 50 percent of Tier 1 capital. U.S. Bancorp, the Minneapolis lender, has a ratio of 28 percent. It’s 11 percent at Citigroup, the data show. Default speculation drove municipal bond yields to a 13- month high relative to U.S. Treasuries in the first half of the year. Now, the Federal Deposit Insurance Corp. has asked analysts to look into the issue, according to spokeswoman Michele Heller. Citigroup had the largest municipal holdings among the biggest banks, with $13.4 billion of state and local government bonds, according to FDIC call reports. Bank of America Corp. held $8.5 billion, Wells Fargo & Co. owned $7.6 billion and JPMorgan Chase & Co. held $4.5 billion. Each accounted for less than 8 percent of Tier 1 capital, according to the FDIC. U.S. states are likely to face $140 billion in cumulative budget gaps in the coming year, according to the Center on Budget and Policy Priorities. Last year, 187 tax-exempt issuers defaulted on $6.4 billion of securities, the most since 1992, according to data from Distressed Debt Securities in Miami Lakes, Florida. “It’s a market where it’s clear that the underlying fundamentals are lousy,” said Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc., a New York- based brokerage. “People can say fundamentals don’t matter but I’ve been doing this for 32 years. They do.”
Sovereign Default Risk Climbs Average 30%, CMA Says. The cost of insuring sovereign debt against default climbed 30 percent on average last quarter amid Europe’s escalating fiscal crisis, according to CMA DataVision. Credit-default swaps on 93 percent of the 70 governments tracked by CMA rose, with Greece temporarily overtaking Venezuela as the country with the world’s highest bond risk, the CME Group Inc. unit said in a report published today. “The major widening action in European sovereign credits indicates that the eurozone remains the hub and focus of the global debt crisis,” according to CMA’s Global Sovereign Credit Risk report. “None of the Western European sovereign credit- default swaps tightened.” Protection costs for the quarter’s worst European performers more than doubled, with swaps on Greece soaring 190 percent, Belgium climbing 168 percent, Spain 129 percent and Portugal 127 percent, the report said. Swaps on South Korea climbed 65 percent as tensions with neighboring North Korea mounted when a warship sank, making it Asia’s worst-performing sovereign. With a 2 percent increase Vietnam was Asia’s best performer. The cost of insuring Australia’s debt increased 52 percent after a new mining tax was levied on resource companies. The U.S. was one of eight nations whose default swaps showed improvement in the quarter, falling 2.4 percent, according to CMA.
Commodity prices are tracking swings in equities more closely than at any time on record, undermining the traditional role of investments in raw materials as a hedge against financial-market volatility, Commerzbank AG said. Inflows into structured notes, and exchange-traded and commodity-index-linked funds reached $8.6 billion in May, the second-highest on record, taking assets under management to $291 billion, Barclays Capital said. "Investors are looking to diversify their holdings and are likely to trim their investments in commodities should the strong correlation between commodities and equities continue," Commerzbank analyst Eugen Weinberg said. As of July 2, the correlation between weekly percentage changes in the S&P 500 and CRB was .73, from as low as minus .35 in August 2008.
BNP Says Europe Should Be Ready to Break From U.S. Over Rules. BNP Paribas SA Chairman Michel Pebereau said European countries should be prepared to break from the U.S. on bank capital requirements and bonus rules if such regulations risk harming their economies. “There is a necessity, which is not to overreact at the level of regulation,” Pebereau said at the Europlace conference in Paris today. “At this period of time, it is clear we have a different situation if we compare the U.S. and Europe. The priorities are not the same.” His remarks reflect concern on the part of banking executives across Europe that Group of 20 plans to raise capital requirements risk choking off growth in the region, which is more dependent on banks for financing than the U.S. Within the G-20, the U.S. is pushing for faster implementation of new rules while European governments want a phasing-in period. “If we overreact on the field of banking regulation, we’re going to have a problem on the level of financing the economy in Europe,” Pebereau said. “The future of growth in Europe is totally dependent on that. It would be better to have good regulation in Europe than to try to have global regulation in which Europe will not be able to have growth.” He also expressed concern that stricter application of rules on banker pay than elsewhere risks driving business away. “We’re not on a level playing field,” Pebereau said, speaking in English. “In the U.S., there is a very low level of regulation for compensation. If in Europe we have very high level of regulation, you will have a situation in which it is no more possible for European banks to be competitive.”
Wall Street Journal:
BP(BP) Won't Issue New Equity to Cover Spill Costs. BP PLC killed speculation Tuesday that it was looking for a white knight investor to take a large equity stake in the company by saying it won't issue new equity to raise money to cover the costs of the oil spill in the Gulf of Mexico.
U.S. to Challenge Arizona Immigration Law. The Justice Department is expected later Tuesday to file its long-expected challenge to an Arizona state law intended to crack down on illegal immigration, two administration officials said. The law passed in April and set to take effect later this month makes illegal immigration a state crime and requires police to verify the immigration status of people stopped for other alleged crimes.
Barron's:
Bloomberg Businessweek:
Crude is Poised to Test New Lows This Year: Technical Analysis. Crude oil is poised to resume its decline and test new lows for the year in the weeks ahead, according to a technical analysis by Barclays Capital. Crude futures are “heading to the lows last seen in July 2009,” MacNeil Curry, a Barclays analyst in New York, said in a telephone interview. “The bigger picture includes a trend in risk aversion, and we are seeing equities and risk assets breaking down pretty hard.” “Volume is picking up as we break down and volume tends to go with the trend, so it all points to further weakness,” Curry said. “Other commodities are trending down. The S&P is breaking down and risk assets will remain under pressure.”
Fox News:
CNBC.com:
Italy Is the Ticking Time Bomb: Economist. As Silvio Berlusconi’s government calls for a vote of confidence over his unpopular €25 billion ($31.45 billion) austerity package, Roger Bootle and his team over at Capital Economics are questioning whether the country holds great danger for the euro zone.
Shell to Award Deals to Develop Iraq's Oil Field. Shell and its Iraqi state partner are in the process of awarding a deal to drill new oil wells at Iraq's super giant Majnoon oil field in southern Iraq, the head of Iraq's state-run South Oil Co. Dhiaa Jaafar said Tuesday. Shell, which partnered Malaysia's state-run Petronas to develop Majnoon, will also award engineering, procurement and construction deal to build various production installations at the field, an Iraqi oil industry source familiar with the project said. Separately, the Iraqi oil industry source said that firms including Halliburton, Weatherford International, and Petrofac have been invited to submit bids for these two tenders. Shell said earlier that it was planning to drill 15 new wells over the next two years at Majnoon, that would help lift production to 175,000 barrels a day by 2012 from current 45,000 barrels a day. The Anglo-Dutch super major and Petronas were awarded a contract in December to develop the Majnoon field, which is located in Basra governorate and holds some 12.6 billion barrels of proven oil reserves. Shell owns 45% of the venture and Petronas 30%, with Iraq's state-run Missan Oil holding 25%.
Washington Post:
The Hill:
EBay(EBAY) Opposes Delahunt Bill That Would Expand States' Reach on Online Sales Tax. EBay is opposing federal legislation that would allow states to collect more sales taxes from online purchases. The legislation, introduced last week by Rep. William Delahunt (D-Mass.), would allow states to collect online sales taxes from all retailers, and not just those with a “physical presence” in the state. While supporters have argued it would level the playing field among businesses, eBay said the bill would stunt economic growth. “Year after year supporters of increased Internet sales taxes recommend legislation that would impose significant new costs on hundreds of thousands of online small businesses and e-commerce entrepreneurs, which is sure to harm the economy and kill small business jobs,” the company’s vice president for government relations, Tod Cohen, said in a statement. “At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small internet retailers and the consumers they serve from another Internet tax scheme.”
National Real Estate Investor:
CMBS Delinquency Rate Slowing. In another sign that the commercial real estate market is reaching bottom, the delinquency rate on commercial mortgage-backed securities (CMBS) increased in June by the smallest amount in the past 12 months. According to a new report from New York-based researcher Trepp, the CMBS delinquency rate, defined as loans that are 30 days or more past due, climbed just 17 basis points in June to 8.59%. Still, that’s no cause to break out the bubbly just yet. The June delinquency level is, once again, the highest in the history of the CMBS industry. In fact, if defeased loans were taken out of the equation, the overall delinquency rate would be 9.15% - breaking the 9% threshold for the first time. It is also more than double the rate of 4.07% in June 2009.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Politico:
UNODC:
Reuters:
Sub-50% Chance of Double-Dip Recession - Fitch. The risk of a double-dip recession is less than 50 percent, Brian Coulton, managing director of European ratings at Fitch Ratings told Reuters Insider Television in an interview on Tuesday. "We still think it's a long way below 50 percent, it's not our central forecast at all," Coulton said of the risk of a double-dip recession. "We do think there are problems in certain sector in particular the Spanish saving sector, but by and large, the major Spanish banks look pretty strong to us," he said. Asked about stress tests gauging the health of the banking sector, Coulton said large Spanish banks looked "pretty strong to us."
Global PMI Sags in June as New Order Growth Tapers Off. The pace of global expansion in the private sector sagged in June to a four-month low, according to a survey on Tuesday that pointed to slowing growth in order books and employment. The Global Total Output index, produced by JPMorgan with research and supply management organisations, fell to 55.4 in June from 57.0 in May
Financial Times:
The Independent:
Der Spiegel:
Handelsblatt:
Kathimerini:
Expansion:
Spanish lenders increased their net investment in the country's treasury debt in May to a record 153.3 billion euros from 147.5 billion euros in April. Spanish banks and savings banks therefore covered 84% of Spain's net state debt in May, citing data from the treasury. The net amount of debt in the hands of investors outside Spain fell by 2.2 billion euros to 206.4 billion euros.
DigiTimes:
Xinhua:
NetEase:
BYD Co.'s China vehicle sales in June fell 21% to 35,356 units from May, citing the company. June sales rose 3% from a year earlier.
