North American Investment Grade CDS Index 115.59 bps -2.69%
European Financial Sector CDS Index 142.83 bps -6.43%
Western Europe Sovereign Debt CDS Index 143.0 bps +.35%
Emerging Market CDS Index 261.74 bps -3.63%
2-Year Swap Spread 36.0 +1 bp
TED Spread 45.0 unch.
Economic Gauges:
3-Month T-Bill Yield .09% unch.
Yield Curve 248.0 -6 bps
China Import Iron Ore Spot $143.10/Metric Tonne unch.
Citi US Economic Surprise Index -15.90 -5.1 points
10-Year TIPS Spread 2.01% unch.
Overseas Futures:
Nikkei Futures: Indicating -21 open in Japan
DAX Futures: Indicating -13 open in Germany
Portfolio:
Slightly Higher: On gains in my Technology, Biotech and Medical long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 moves to session highs on another bounce in the euro and tech sector strength. On the positive side, Gold, Computer, HMO and Road/Rail stocks are rising on the day. Market leading tech stocks continue to outperform. On the negative side, Homebuilding, I-Banking, Bank, Steel, Oil Tanker and Coal shares are especially weak, falling 1%+. Cyclical shares are underperforming. (XLF) has underperformed throughout the day. Recent comments from (FDX), (BBY) and (TOL) are worrisome. The rise in the Illinois municipal cds to a record is also a large negative. As well, despite gains in European stocks and declines in some eurozone cds, the Western Europe Sovereign CDS Index is rising slightly. Copper appears to be rolling over again, falling -3%. AAII % Bulls rose to 42.5 this week, while the % Bears fell to 30.7, which is a negative. The Shanghai Composite, after being closed for a few days during the recent global equity rally, re-opened last night and fell -.4%. Today's broad market action is a bit worse than the major averages suggest. (AAPL) and stocks that benefit from its success continue to strongly support the Naz. The market continues to remain resilient in the face of mounting headwinds. The euro appears to be strengthening on short-covering and a deterioration in US economic activity, rather than on improving eurzone prospects. The bounce in the euro, low market exposure by hedge funds, (AAPL) optimism and options expiration are likely the main reasons for today's stock resilience in the face of more bad news. Action over the next couple of days should give a better picture on whether or not the recent rally is sustainable. I expect US stocks to trade modestly lower into the close from current levels on more shorting, rising financial sector pessimism, profit-taking and rising economic fear.
Illinois Debt Default Insurance Climbs to Record, CMA Data Show. The cost of insuring Illinois bonds against default rose to a record as lawmakers sought to close a $13 billion deficit in the state’s proposed budget for the year starting July 1. The cost of a five-year credit-default swap for the state rose 2 basis points today to 304.64 basis points, or $304,640 per $10 million of debt, as of 11:50 a.m. in New York, according to CMA DataVision.
Jobless Claims in U.S. Unexpectedly Rose Last Week. The number of Americans seeking jobless benefits last week unexpectedly rose to a one-month high, indicating firings are staying elevated even as the U.S. economy grows.Initial jobless claims increased by 12,000 to 472,000 in the week ended June 12, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected 450,000 claims, according to the median forecast. “The labor market is not improving,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “If you really are going to have a sustainable recovery, you need the labor market to improve.”The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.6 percent in the week ended June 5 from 3.5 percent.
Manufacturing Expansion in Philadelphia Area Slows. Manufacturing in the Philadelphia region expanded in June at a slower rate than forecast as a measure of factory employment contracted for the first time in seven months. The Federal Reserve Bank of Philadelphia’s general economic index dropped to 8, a 10-month low, from 21.4 in May. The employment index declined to minus 1.5 from 3.2 in April. The Philadelphia Fed’s index of prices paid decreased to 10 from 35.5 in May. Prices received declined to minus 6.5 from 3.5.
U.S. House Democrats Lobby to Strip Swaps Rule From Overhaul. A coalition of U.S. House Democrats asked their colleagues to remove a derivatives rule from the financial-regulation overhaul bill, intensifying the debate over the provision in the days before its final consideration. Forty-three members of the New Democrat Coalition, a group of 69 self-described “moderate, pro-growth,” members of Congress, today sent lawmakers a letter opposing the plan crafted by Senator Blanche Lincoln that would ban commercial banks from operating swaps-trading desks. The block of Democrats is now aligned with a group of New York Democrats in opposing the provision, which may threaten its inclusion in the final bill. Lincoln, an Arkansas Democrat, has picked up the support of three Federal Reserve Bank regional presidents in the past week and has pledged to fight all efforts to modify or strip the provision. “In my view, banks were never intended to perform these activities in the first place,” Lincoln said last week during her opening statement to the House-Senate conference committee. “It is this economic activity that contributed to these institutions growing so large that taxpayers had no choice but to bail them out in order to prevent total economic ruin.”
Copper Drops on Concern Over Strength of U.S. Economic Rebound. Copper fell the most in almost two weeks in after reports signaled an uneven economic rebound in the U.S., the world’s second-biggest consumer of the metal. Manufacturing in eastern Pennsylvania, southern New Jersey and Delaware expanded in June at a slower rate than forecast, an economic index showed today. The number of Americans seeking jobless benefits last week unexpectedly rose to a one-month high, according to Labor Department figures. Copper futures for September delivery slid 9.5 cents, or 3.2 percent, to $2.9185 a pound at 10:40 a.m. on the Comex in New York.
OPEC will reduce shipments this month amid high inventories and slack demand in Europe and North America, according to tanker-tracker Oil Movements. OPEC will ship 23..58 million barrels a day in the four weeks to July 3, down .3% from 23.66 million a day during the period to June 5, the consultant said. "There's precious little evidence that there's any buoyancy in demand, except to the Far East," Oil Movements founder Roy Mason said. "Europe looks dead. Everything west of Suez is pretty dead except for the Americas, isolated pockets like Brazil."
Home Builders Drop As Toll Brothers(TOL) Warns of Recent Weakness. Shares of home builders slumped Thursday after Toll Brothers Inc. (TOL) said recent deposits and traffic have been running behind the year-earlier figures, raising worries demand has weakened more than expected. Toll Chief Financial Officer Joel Rassman said late Wednesday that in the past three weeks, the luxury home builder's per-community deposits have been running about 20% behind the comparable period a year earlier, and its per-community traffic has been 3% behind. He said total net signed contracts in the fiscal third quarter will be less than those signed in the fiscal second quarter. Rassman also said demand in recent weeks had been "quite choppy," though the housing market "has emerged from its darkest period of late 2008 through early 2009." In recent trading, Toll Brothers slid 4.8% to $17.88, down 12% over the past three months. Hovnanian Enterprises Inc. (HOV) fell 4.8% to $4.52, and Beazer Homes USA Inc. (BZH) declined 5.6% to $4.35. Meritage Homes Corp. (MTH) lost 4.7% to $17.83, and KB Home (KBH) slipped 3.9% to $12.43. D.R. Horton Inc. (DHI) fell 3.7% to $10.82, and PulteGroup Inc. (PHM) was down 2.8% to $9.48. "The fear out on the Street is that the slowdown seen post tax credit is more than just a hangover and it's the new norm for housing demand," East said. He added that home builder shares could remain under pressure in coming months, as there are "no easily identifiable catalysts to move the builders up" over the summer. Urani said HAMP was supposed to help cut back on defaults, but instead, it's only delaying them like other mortgage modification programs. "We've got a huge pipeline of people who are delinquent, and we're reaching the spot where banks are cycling over and repossessing their homes," Urani said. "We're still seeing inventory rise because of that, especially with sales slowing down after the tax credit expiration. Rising inventory could really pressure prices."
Lawmakers Bet on Firms They Oversaw. In 2009, amid the federal government's most aggressive intervention in the U.S. economy in decades, some members of key congressional committees placed bets with their own money on the stocks of companies they helped oversee, according to a preliminary analysis by The Wall Street Journal of public disclosure filings made public Wednesday. The disclosures come at a time of heightened scrutiny over the government's role in the economy during the critical moments of the financial crisis in 2008 and 2009. The Journal has reported that some members of Congress or their spouses made bets during 2008 that U.S. stocks and bonds would fall in value.
Dying on the Vine: Tomato Prices. Tomatoes Go From Shortage to Glut in a Matter of Weeks. In California, harvest time is arriving just as tomato growers in other parts of the U.S. are reeling from a sudden supply glut that is pushing the price for fresh tomatoes sharply lower. Florida farmers who fetched more than $30 a few months ago for a 25-pound box of round, fresh field-grown tomatoes, also known as slicer tomatoes, are now getting $5 or less. The U.S. Agriculture Department estimates that wholesale tomato prices fell to 25 cents a pound in June, down 78% since March. The current price is "the lowest number that I can remember seeing," says Gary Lucier, an agricultural economist and tomato expert at the USDA.
San Diego May Go Bust. San Diego is the latest city to consider bankruptcy as a result of burgeoning debt associated with pensions and benefits, according to Bloomberg.
Zero Hedge:
High Frequency Trading Is Now In Business of Frontrunning Each Others Regulatory Capture. To say that the latest bout of regulatory capture-cum-bribery of SEC individuals by the HFT lobby is getting out of hand, would be like hoping to have your limit bid get hit in any stock without some computer subpennying you to death first. As the below post by Themis Trading indicates, soon there will be no SEC employees left for the HFT lobby left to poach, which is why each HFT firm is now designing new algorithms to predict whom their competitors will poach, and front run said poaching.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-six percent (46%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
46% Rate Obama's Response to Gulf Leak as Poor. Voters are more critical than ever of President Obama's handling of the ongoing Gulf oil spill despite his Oval Office address to the nation Tuesday night laying out what the government has done and intends to do in response. In fact, they're nearly as critical of the president now as they are of BP and Transocean, the two companies responsible for the leak to begin with. The latest Rasmussen Reports national telephone survey of Likely Voters - taken Tuesday and Wednesday nights - finds that 46% of U.S. Voters now give the president a poor rating for his handling of the Gulf situation, the highest level of disapproval yet. That's 12 points higher than two weeks ago and 20 points worse than at the beginning of last month. Thirty-three percent (33%) say Obama is doing a good or excellent job in response to the situation that he calls the worst environmental disaster in U.S. history.
More Than 90 U.S. Banks Miss May TARP Payments. More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations. The statistics, compiled by SNL Financial LC from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss. The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.
SandRidge Hedge Fund Down 19% This Year on Natgas. SandRidge Capital, a $1 billion energy hedge fund that also manages money for Citigroup (C), said on Thursday it has lost more than 19 percent on the year after bad bets on U.S. natural gas prices.
Why This Crisis Will Go All The Way by Wolfgang Munchau. Whatever the Europeans try to do to alleviate the crisis, it does not work: A blanket bank rescue, a €440bn special purpose vehicle to provide a protective shield, and one austerity package after another. Bond spreads and credit default swap indices continue to rise, and the money market is once again freezing up. This has never happened before to European politicians, who in the past were able to get away with a lot less effort. A statement was usually sufficient to placate the markets. What is going on?
Athens News Agency:
Greece's private and public-sector union groups will hold a nationwide 24-hour strike on June 29. The strike is being held to protest the government's planned changes to the pension system and labor rules.
Spain May Force Europe's Hand on Publishing Bank Stress Tests. The Bank of Spain’s decision to publish the results of stress tests on the nation’s lenders may force European neighbors to follow suit as investors demand more disclosure of the risks on banks’ books. “Pressure is increasing and now European countries need to consider whether to follow Spain,” said Daniel Hupfer, who helps manage $40 billion at M.M. Warburg in Hamburg, including shares of Deutsche Bank AG, BNP Paribas SA and Banco Santander SA. “Whether they will is hard to predict. Europe isn’t really seeing eye-to-eye right now.” Banking groups in Germany and the U.K. said disclosing details on specific institutions carried risks. Publishing the results may lead to a “run on a perfectly sound bank,” the British Bankers’ Association said in a statement. Germany’s BdB banking association, which represents more than 220 private firms, said making the findings public risks “misinterpretation.”Some analysts say the U.S. tests were designed to make sure none of the banks looked too good, or too bad. “What came out was reasonable, but it was more PR and psychology and the Europeans don’t do that kind of thing,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. Deutsche Bank Chief Executive Officer Josef Ackermann said last week in Vienna that releasing the findings would be “very, very dangerous” unless mechanisms to support European banks were in place beforehand.
Taleb Calls Cameron 'Extraordinary' in New Statesman. Nassim Nicholas Taleb, author of “The Black Swan,” said British Prime Minister David Cameron is “the only thing we have left” to build a more robust economy, in an interview with the New Statesman magazine. Taleb, whose book is about how unforeseen events can roil markets, said that Cameron is “extraordinary” and “understands expert problems,” according to a transcript released by the London-based magazine. By contrast, “Barack Obama doesn’t have a clue.” After Taleb met Cameron for an hour in London, he told the New Statesman, “I went to Washington, and the discourse had nothing to do with the real problem. And I thought, ‘He’s the only thing we have left.’” Cameron’s government yesterday announced the formation of a panel to examine the future structure and regulation of banking, including the question of whether to split up retail and investment banks. Taleb praised his moves to cut the deficit. “You have to take some pain to remove the tumor,” he said. “It’s unethical for members of society today to spend their great-grandchildren’s money. Lower the level of debt, encourage equity, and you definancialize the economy.”
Copper Leads Metals Lower After U.S. Housing Starts Slump 10%. Copper declined for a second day after a drop in U.S. housing starts signaled slower demand for industrial metals. Zinc and nickel also fell. Three-month copper on the London Metal Exchange fell as much as 1.8 percent to $6,530.25 a metric ton, and traded at $6,558 at 9:55 a.m. in Singapore.
Bullard Joins Two Colleagues Backing Derivatives Curb. Federal Reserve Bank of St. Louis President James Bullard joined two colleagues in support of a proposal by Senator Blanche Lincoln that would force commercial banks to wall off their swaps-trading desks. “St. Louis Fed President James Bullard is in support of Senator Blanche Lincoln’s derivatives reform amendment,” said Robert Schenk, the regional bank’s senior vice president for public affairs. The endorsement puts three of the Fed’s 12 regional presidents at odds with Chairman Ben S. Bernanke over the steps needed to curb risk-taking at the largest banks. The three officials, who also include Thomas Hoenig in Kansas City and Richard Fisher of Dallas, helped persuade lawmakers earlier this year to preserve the Fed’s supervisory role over smaller banks.
U.S. Lawmakers Seek Fiduciary Obligation for Brokers. In the debate over fiduciary duty, the House side of the conference committee offered a proposal that would require the Securities and Exchange Commission to impose the standard on brokers when they provide “personalized investment advice about securities to a retail customer.” The proposal would allow the SEC to extend the obligation to other customers. “I cannot foresee us giving in on fiduciary responsibility for individual investors,” Representative Barney Frank, a Massachusetts Democrat who is leading the negotiations, told reporters today. The standard, which currently applies to money managers, would require brokers selling stocks and bonds to act in clients’ best interests and disclose all conflicts of interest.
Erdogan Rebuffs U.S. While Insisting Turkey Isn't Ally of Iran. Turkey under Prime Minister Recep Tayyip Erdogan may be headed for more tension with the U.S. as it steers an increasingly independent course, enabled by a booming economy that lessens its dependence on the West. Erdogan says his embrace of nations such as Syria and Iran that the U.S. regards as adversaries doesn’t put him in that camp. Any suggestion that his country has broken with the West is “malicious propaganda,” he told a regional forum last week. Even so, the U.S. should anticipate increasing “friction” as Turkey seeks to raise its global profile, said Henri Barkey, a member of the State Department’s Middle East policy planning staff from 1998 to 2000. “We are going to see many more clashes between Turkey and the U.S.,” said Barkey, now a professor at Lehigh University in Bethlehem, Pennsylvania. “They are opening embassies everywhere, using trade as a major source of influence, trying to play a role in a whole series of international organizations and alliances.”
U.S. House Negotiators Rebuff Attempt to Revive Fed Audit Plan. U.S. House lawmakers negotiating an overhaul of financial regulation rebuffed an attempt by Republicans to revive a measure that would remove the Federal Reserve’s shield against audits of its interest-rate decisions. House members on a joint conference committee voted 12-7 against the Fed audit measure backed by Representative Ron Paul, a Republican from Texas. The proposal, part of legislation passed in December by the House, was rejected during Senate debate and isn’t in the text of a bill lawmakers are amending in House-Senate negotiations.
U.S. Won't Lift Deepwater Drilling Ban, Lawyers Tell Judge. The six-month moratorium on deepwater drilling ordered in the wake of the Gulf of Mexico oil spill is essential to ensure public safety and shouldn’t be lifted, U.S. regulators said yesterday in a court filing. The lawsuit was originally filed June 7 by Covington, Louisiana-based Hornbeck. Since then more than it has been joined by more than a dozen companies that build rigs, operate supply-boat fleets, provide remotely-operated submarines, clean tanks, load cargo and provide other support for the 33 rigs drilling in the deepwater Gulf of Mexico when the ban was imposed. Many of the plaintiff companies are based near Port Fourchon, Louisiana, and have subsidiary operations scattered throughout the Louisiana coastal zone. Among these are Bollinger Shipyards Inc., Bee Mar LLC and Chouest Shipyard Companies, which along with Hornbeck collectively employ more than 13,000 workers and 7,000 vendors, according to court papers. “The potential immediate losses include, but are not limited to, the loss of 3,000 to 6,000 Louisiana jobs directly and indirectly related to the deepwater drilling operations at the 33 wells,” Hornbeck attorney Carl Rosenblum said in court papers June 9. “Lost wages for direct and indirect jobs lost could be over $165 million to $330 million per month for every month the 33 platforms are idle.”
Wall Street Journal:
Slippery Start: U.S. Response to Spill Falters. Officials Changed Their Minds on Key Moves, and Disagreements Flared Between Agencies; Boom Taken Away From Alabama. The federal government sprang into action early following the vast BP oil spill. But along the beaches and inlets of the Gulf, signs abound that the response has faltered. A Wall Street Journal examination of the government response, based on federal documents and interviews with White House, Coast Guard, state and local officials, reveals that confusion over what to do delayed some decision-making. There were disagreements among federal agencies and between national, state and local officials.
Inspector General Faults MMS Investigation of Gulf Spill. The U.S. agency in charge of regulating offshore oil drilling is carrying out its investigation of the Gulf of Mexico oil spill in a "completely backwards" manner, and lacks sufficient guidelines and inspectors to police the industry's operations in the Gulf, the acting inspector general of the U.S. Interior Department is expected to tell a congressional panel Thursday. U.S. officials should also consider setting new ethics rules aimed at limiting the influence of oil and gas industry representatives over regulators, according to remarks prepared for delivery Thursday by Mary L. Kendall, the acting inspector general of Interior.
Bill Gives Public Workers Clout. The Senate is moving closer to passing legislation that would require states to grant public-safety employees, including police, firefighters and emergency medical workers, the right to collectively bargain over hours and wages.
Ex-SEC Aide to Represent Trader Group. A new group representing mostly high-frequency traders snagged a former Securities and Exchange Commission staffer this week by hiring the agency's former chief economist as its public face. Jim Overdahl, who left the SEC in March to join the economics firm NERA, will serve as a spokesman for a new arm of the Futures Industry Association, dubbed the FIA Principal Traders Group. The group consists of 25 member firms, many of which use some kind of high-frequency-trading strategies. Such trading is now under increased scrutiny in Washington following the May 6 "flash crash" in the stock market amid growing interest by regulators in the role of high-frequency trading in U.S. markets. This marks the second time in the past week that news arose about a former SEC staffer going through the "revolving door" into the high-frequency trading industry. Earlier it was reported that Elizabeth King, an SEC staffer who worked in the division now involved in looking at market structure issues, will work for the high-frequency trading firm Getco. Getco is one of the 25 firms who have joined the FIA's new trade group.
A Stealth Attack on Capital Gains. Congress has proposed a discriminatory 'enterprise value tax' on hedge funds and other partnerships. It is a threat to any business or industry that politicians decide is no longer popular. Buried in a Senate bill to extend health coverage to Americans struggling through the recession is a provision that would upend decades of established partnership law. It would single out particular types of businesses and penalize the entrepreneurs who have built them from scratch.
Natural Gas Spreads Spark New Amaranth Concern: Energy Markets. Trading patterns in natural-gas futures are fanning speculation of a repeat of the collapse four years ago of U.S. hedge fund Amaranth Advisors LLC. The premium for the futures contract expiring in March 2011 over the April 2011 contract surged to 43.3 cents per million British thermal units June 15 on the New York Mercantile Exchange, the highest level since Feb. 19. The gap was 24.8 cents per million Btu as recently as the end of last week. The increase came even as U.S. inventories rose to their highest level for this time of year since at least 1993, when the government began collecting data. “This is peculiar behavior given that supplies are currently building at a comfortable pace,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, wrote in a report yesterday. “We haven’t seen these particular spreads behave in such a manner since a prominent natural-gas trader morphed a $9 billion hedge fund, Amaranth, into a $3 billion fund in August 2006.”
UK's New Chancellor Has Abolished The English SEC-Equivalent, The FSA. George Osborne, the UK's Chancellor of the Exchequer, a role equivalent to that of Tim Geithner in the US, at least in public office, not sure about tax "avoidance", has just announced the abolition of the FSA - the English just as worthless equivalent to the SEC. It is time Mary Schapiro's corrupt organization share the same fate. From the FT:
Senators Negotiating Financial Regulations Hold Industry Stocks. At least two-thirds of the U.S. senators drafting new financial regulations hold stock in banks or other companies affected by the legislation, such as Citigroup Inc. and Wells Fargo & Co., disclosure statements show. Eight of the 12 senators on a conference committee formed to iron out differences between the House and Senate versions of the legislation reported that they owned stocks in financial companies. One of the dozen lawmakers got an extension of the filing deadline and hasn't yet disclosed stock holdings. Among the House's representatives on the conference panel, six of the 22 members who have filed forms reported owning financial stocks. An additional nine House members got filing extensions. The 43 negotiators are trying to complete the biggest overhaul of financial-industry rules since the Great Depression, responding to a 2008 economic crisis that forced the U.S. to provide $700 billion in bailout funds for Citigroup, Bank of America and other banks. The legislation, which passed the Senate last month and the House in December, is based on a proposal President Barack Obama sent to Congress a year ago.
Republican Seeks to Bar GM, Chrysler From Hiring Lobbyists. A Republican congressman will attempt Thursday to bar two domestic automakers and other government-owned companies from employing lobbyists. Rep. Darrell Issa, R-Calif., the ranking member of the House Oversight Committee, plans to introduce the amendment during a negotiating session Thursday between House and Senate members on a sweeping overhaul of the nation's financial system. The amendment would bar government-owned companies from employing lobbyists, said Kurt Bardella, a spokesman for Issa, including General Motors Co., Chrysler Group LLC and Ally Bank Inc. The proposal prompted urgent lobbying by the automakers on Capitol Hill.
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
Politico:
Pundits Boo President Obama Speech. President Barack Obama’s Oval Office address on the Gulf Coast catastrophe is being greeted with a barrage of criticism from commentators and political analysts across the ideological spectrum — the most intense negative reaction to any major public appearance he has given as president. If the goal was to change the widespread Washington storyline that Obama is not rising to the occasion for the BP debacle, it became clear within moments that the 18-minute speech was an emphatic failure — and not just among conservatives who predictably root for the president to fail. “Junk Shot,” blared the headline at Huffington Post. Salon took a similar theme: “Just words: Oval Office speech fizzles.” Generally sympathetic commentators Keith Olbermann and Chris Matthews likewise honked with critical reviews on MSNBC.
AP:
Cassano Lawyers: SEC Closes Inquiry of AIG Exec. Lawyers for Joseph Cassano said Wednesday the Securities and Exchange Commission has decided to close its inquiry of the former head of AIG's financial products unit without taking any action against him. Word of the SEC's decision followed similar action by the Justice Department, which decided not to file criminal charges against Cassano, whose dealings in mortgage-related securities nearly bankrupted American International Group Inc.(AIG) and led to a controversial $182 billion federal bailout of the insurance titan. The Justice Department also had decided not to bring criminal charges against Andrew Forster, who worked for Cassano. The subsidiary dealt in complex financial contracts called credit default swaps that helped sink AIG in September 2008, leading to the taxpayer-funded bailout. Investigators were looking into whether Financial Products officials tried to deceive investors and AIG's auditors, PricewaterhouseCoopers, by misstating the accounting value of a credit default swap portfolio. When AIG posted a loss for the fourth quarter of 2007, it pinned the blame on an $11 billion writedown related to the credit default swaps held by the Financial Products unit. If AIG couldn't make good on its promise to pay off the contracts, many of which were held by major banks, regulators feared the consequences would pose a threat to the whole U.S. financial system. The AIG bailout has drawn much public anger, largely because the company paid employees $165 million in retention bonuses after the company nearly failed and had to be bailed out by the government. A watchdog panel said last week it's still unclear whether U.S. taxpayers will ever fully recoup the $182 billion they plowed into AIG, and the government should have used up all its options before bailing out the company.
BIS Wants OTC Derivatives Rated Like Drugs. Use of over-the-counter derivatives should be controlled according to their degree of safety in the same way that drugs are regulated, a top official at the Bank for International Settlements said. Stephen Cecchetti, head of the Basel-based body’s monetary and economic department, said in New York on Wednesday that the idea would be to “balance the need for innovation in financial instruments with the need to limit the capacity of any individual security to weaken the whole system”. He told a conference at Columbia University: “The solution is some form of product registration that would constrain the use of instruments according to their degree of safety.” He said the “safest” securities would be available to everyone, much like non-prescription medicines. Next would be financial instruments available only to those with a licence, like prescription drugs. Finally would come securities available “only in limited amounts to qualified professionals and institutions, like drugs in experimental trials”. Securities “at the lowest level of safety” would be deemed illegal, Mr Cecchetti said, without specifying what that level would be. Mr Cecchetti’s are among the most innovative of suggestions so far on how to bring the vast OTC derivatives markets under closer supervision and to ensure they are traded and processed more transparently to safeguard the wider financial system.
Telegraph:
Spanish Debt Wilts Amid 250 Billion Euro Rescue Plan Confusion. The spreads on 10-year Spanish bonds jumped to a post-EMU high of 224 basis points above German Bunds as traders brace for a crucial auction by Madrid on Thursday. The relentless rise in bond yields replicates the pattern seen in Greece at the onset of crisis. Spain must raise €25bn of debt in a cluster of auctions in July. "We're in a dangerous and stressful situation," said Gary Jenkins, a credit expert at Evolution Securities. "Spain is a big enough borrower to wipe out the EU's rescue fund." El Economista said officials from the EU, the IMF, and the US Treasury had been discussing a credit line of €200bn to €250bn, dwarfing the €110bn package for Greece. Dominique Strauss-Kahn, the IMF's managing director, reportedly called a secret meeting of the IMF's Board of Directors to tackle the crisis. The loan terms would be softer than the draconian budget cuts imposed on Greece, with the lion's share of the money coming from eurozone states under their €750bn shield. "The issue here is political risk. If they keep bailing out countries, it will mean printing money: that is not going to go down well in Germany," he said. Theodora Zemek from AXA Investment Managers said any rescue will have knock-on effects on the credit ratings of donor states. "Germany and France risk going from AAA to AA," she said. The original hope behind the EU's €750bn "shock and awe" headline was that the announcement of such sums would end all doubts about the political solidarity behind the euro project, but nationalist body-language from EU capitals and daily spats between France and Germany have sapped confidence. What haunts markets is fear that Spain may be the last line of defence. There can be no easy rescues after that because the money will run out. If investors ever start to question Italy's public debt – the world's third largest – they may face a sovereign version of the Credit Anstalt crisis of 1931.
Tokyo Shimbun:
Toyota Motor(TM) will face a U.S. Congressional probe in September as lawmakers seek to further investigate the company's global vehicle recalls, citing an interview with Representative Bart Stupak, a Michigan Democrat.
China Forex Magazine:
China will strengthen scrutiny of hot money inflows into the nation to prevent the formation of asset bubbles, Wang Xiaoyi, deputy director of the State Administration of Foreign Exchange, wrote in an article. The nation's economic growth is still mainly supported by government policy, Wang wrote. Realizing stable and growing foreign demand for Chinese products may become more difficult, Wang wrote.
People's Daily:
The "made-in-China" model is facing a turning point as China transitions from a subsistence wage to a consumer society, Tang Jun, a researcher at the Chinese Academy of Social Sciences wrote.
Australian Financial Review:
Australian banks plan to seek the sale of commercial buildings worth billions of dollars in the next six months as they cut their exposure to property companies.
Evening Recommendations
None of note
Night Trading
Asian indices are -.50% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 131.0 -2.0 basis points.
The Consumer Price Index for May is estimated to fall -.2% versus a -.1% decline in April.
The CPI Ex Food & Energy for May is estimated to rise +.1% versus unch. in April.
Initial Jobless Claims for last week are estimated to fall to 450K versus 456K the prior week.
Continuing Claims are estimated to rise to 4500K versus 4462K prior.
The 1Q Current Account Deficit is estimated to widen to -$121.9B versus -$115.6B in 4Q.
10:00 am EST
Philly Fed for June is estimated to fall to 20.0 versus a reading of 21.4 in May.
Leading Indicators for May are estimated to rise +.4% versus a -.1% decline in April.
Upcoming Splits
None of note
Other Potential Market Movers
The weekly EIA natural gas inventory report, William Blair Growth Stock Conference, Goldman Sachs Healthcare Conference, (STM) analyst meeting, (MCK) analyst meeting and the (VRX) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and automaker shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
