Bloomberg:
- Growth Stocks Cheapest to Value in Two Decades. Companies with the fastest earnings growth have sunk to the cheapest levels in two decades relative to value stocks in terms of projected earnings, indicating they will rally more, according to Morgan Stanley Smith Barney LLC. The Russell 1000 Growth Index's price-earnings ratio was 19% higher than the Russell 1000 Value Index's multiple at the end of July. The last time the difference was this small, the growth index quadrupled between September 1993 and March 2000, while the value index rose 131%. "The typical performance pattern is for value stocks to outperform in the early stage of economic recovery. Then, as the pace downshifts, growth stocks typically outperform."
- Jobless Claims Unexpectedly Rose Last Week to Three-Month High. More Americans than projected filed applications for unemployment insurance last week, indicating firings remain elevated as the recovery moderated. Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April and exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. “There really is no upside momentum in the labor market, and that’s a critical long-term determinant of where the economy is going,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “People just aren’t getting jobs.” The four-week moving average of claims, a less-volatile measure, increased to 458,500 last week from 453,250, today’s report showed. Those who’ve used up traditional benefits and are now collecting emergency and extended payments increased by about 258,000 to 3.92 million in the week ended July 17.
- Mortgage Rates Fall to Record for Seventh Week. Mortgage rates for U.S. home loans fell to a record low for the seventh straight week, aiding a three-month trend of rising applications to refinance. The average rate of a 30-year fixed-rate mortgage dropped to 4.49 percent, from 4.54 percent last week, McLean, Virginia- based Freddie Mac said. The rates were the lowest in records dating to 1971. The average 15-year rate was 3.95 percent, the company said in a statement.
- Russia Banks Grain Exports From Aug. 15 on Drought. Russia, the world’s third-biggest grower of wheat, banned grain exports from Aug. 15 to Dec. 31 as the country’s worst drought in half a century cuts yields. Prime Minister Vladimir Putin said today that the ban is “appropriate” to contain domestic prices that gained 19 percent last week, after drought and record heat in central Russia and along the Volga River forced the government to declare a state of emergency in 28 crop-producing regions. He proposed that Kazakhstan and Belarus, Russia’s partners in a customs union, join the ban. “As of today, Russia has no grain market,” said Kirill Podolsky, chief executive officer of Valars Group, the country’s third-biggest grain trader.
- ADM(ADM), Monsanto(MON), Potash(POT) Advance as Wheat Climbs to 23-Month High. Archer Daniels Midland Co., Monsanto Co. and Potash Corp. of Saskatchewan Inc. rose in New York trading amid speculation that U.S. wheat exports will gain as the grain traded at a 23-month high and Russia banned exports. Dry weather in Russia, Kazakhstan, Ukraine and the European Union, and flooding in Canada have also ruined crops and drove a surge in Chicago wheat prices of as much as 92 percent since June 9. Russia’s drought is now threatening sowing plans for winter grain and damaging other crops including sugar beets, potatoes and corn, the national weather center said this week. “It will increase our tonnage coming out of U.S.,” said Roger Baker, head of the North American wheat-trading desk in St. Paul, Minnesota at CHS Inc., the largest U.S. cooperative grain marketer.
- Builder Option Bulls Boost Bets Shares to Rally 20%. Options traders betting U.S. builders and home-furnishings companies will overcome a record slump in housing sales are boosting bullish wagers to the highest level in eight months. The ratio of outstanding calls to buy the SPDR S&P Homebuilders exchange-traded fund versus puts to sell has almost doubled in the past six weeks to 1.66. The biggest increase was in the ETF’s January $17.50 calls, which now have the largest total of all options on the fund, according to data compiled by Bloomberg. They pay off if the ETF gains 20 percent by January.
- Baidu(BIDU) Says Google(GOOG) Gains by Avoiding Censorship Cost. Baidu Inc., operator of China’s most- popular website, said the cost of complying with domestic self- censorship laws is giving Google Inc. a competitive advantage in the world’s biggest Internet market. “We have to spend a lot of resources to make sure our content and services abide by Chinese law, and they don’t,” Chief Executive Officer Robin Li said in a Bloomberg Television interview in Beijing today. “Even if they decide not to block certain types of content, they’re still very accessible.”
- Oil Futures Contango Collapses as Cushing Fills: Energy Markets. Record oil stockpiles in the U.S. Midwest are reducing the premium traders will pay for later deliveries amid signs that fuel demand may be ebbing as the pace of the economic recovery slows. Inventories in the 15-state region that includes Illinois rose to 97.7 million barrels in the week ended July 30, the highest level recorded since the data started in 1990, according to an Energy Department report yesterday. Supplies in Cushing, Oklahoma, the delivery point for New York futures contracts, were less than 1 percent below the all-time high set in May, the report showed.
- This Is Your Grandfather's iPad as Japan Elderly Embrace Apple(AAPL). Yasuda and his peers, looking for easier ways to browse the Web and send e-mails, are a potentially lucrative demographic for Apple as the proportion of people aged 65 and over climbs to records each year in countries including the U.S., China and France. Japan has the world’s oldest society, with the elderly accounting for an estimated 22 percent of the population, almost triple the global average. “The iPad is a good tool for the elderly because it’s very forgiving of mistakes, something the seniors fear when dealing with computers,” said researcher Takahiro Miura of the University of Tokyo, whose team is working with International Business Machines Corp. on using computers to help senior citizens rejoin the workforce. “Unlike the PC, it doesn’t require prior knowledge.”
- Pentagon Demands Wikileaks Return All Documents Leaked to Them. The U.S. Defense Department demanded that WikiLeaks return all classified military documents leaked to them and expunge all copies from their records.
- U.S. Storm Forecast Reduced Because of Slow Start. The U.S. reduced its forecast for the 2010 Atlantic hurricane period to 14 to 20 named storms, down from 14 to 23, because of less activity than expected in the first two months of the season.
- Chicago's Rating on $6.8 Billion of Debt Lowered to AA by Fitch. Chicago, the third most-populous U.S. city, had its creditworthiness on $6.8 billion of general- obligation debt cut one level by Fitch Ratings because declining tax revenue has weakened its finances. The one-step downgrade to AA, third-highest, from AA+ was also influenced by the city’s accelerated use of reserves to balance its budget, Fitch said in a press release. Fitch maintained a negative outlook on the city’s debt, meaning the rating might be lowered further.
Wall Street Journal:
- Hedge Funds Turn in Mixed Performance in July. Hedge funds turned in a mixed performance in July, as managers betting on the world economy turned out to be too bearish and stock specialists failed to benefit from the market rally. The lackluster performance so far this year is curbing new allocations from investors, people in the industry say, as the sector struggles to get back on its feet after 2008's heavy losses from performance and redemptions. Some well-known funds losing money in July include Brevan Howard Asset Management's $25 billion Master Fund, down by about 2%; and RAB Capital PLC's (RAB) Special Situations Fund, plummeting 12.5%. The Brevan Howard fund is slightly down on the year, after making about 18% in 2009 and 20% in 2008. RAB Special Situations is down 8.6% year-to-date, reversing double-digit gains earlier in the year. Overall industry performance for the month is likely to be flat to slightly up, based on the returns of funds of hedge funds that have posted returns, and on Hedge Fund Research Inc.'s HFRX index. "A combination of being in bearish positions and short the euro was very bad for macro managers," said one head of a London-based fund of hedge funds, estimating that his firm's portfolio of managers will post a small return for July. He said equity funds that take long and short positions in stocks should have made money, since most of them were net long, but returns instead have come in largely flat. Among the winners, CQS Management Ltd.'s Directional Opportunities Fund is estimated to have made 6.9%, amid rallies in the stock, credit and convertible bond markets it invests in. Dan Loeb's Third Point Offshore Fund, a fund that looks to capitalize on company mergers, debt restructurings and other corporate events, gained 3.2% from stock and bond positions in companies such as Atlas Pipeline Partners LP (APL), whose share price nearly doubled in the month. The $1.86 billion Third Point fund is up 13.7% on the year and the $800 million CQS fund has gained around 11%. The S&P 500 rose 7% in July and is flat on the year. London's Lansdowne Partners Ltd. also had a good month, with its financials fund up about 4%. The fund is slightly down on the year. The HFRX ended July up 1.23%, reversing two months of decline and leaving the index flat on the year, at +0.02%. Within the index, equity hedge strategies, taking long and short positions in stocks, gained 2.28%, while macro funds taking bets on the world economy were down on the month, at -0.63%. Flat July returns were also seen at Man Group PLC's (EMG.LN) Athena Guaranteed Futures Ltd., a product tracking its $21.1 billion AHL strategy. It rose 0.33% in July. The strategy is bouncing back from a rough 2009 and is up 9.5% this year. Goldman Sachs Dynamic Opportunities Ltd. (GSDO.LN), a publicly traded fund of hedge funds with big names such as Moore, D.E. Shaw and The Children's Investment Fund in its portfolio, gained 0.17% in the month, for a 0.03% year-to-date return. Inflows at hedge funds stalled in the second quarter, at a net $9.5 billion, after having reached $13.8 billion the first quarter. Because of the performance losses in the quarter, HFR estimates the industry shrank to $1.648 trillion at June 30, from $1.668 trillion at March 31. Industry assets reached a peak in mid-2008 of about $1.93 trillion.
- Toyota Exec: Doubts Co. Would Allow UAW to Organize in Plants. The war of words between the United Auto Workers and Toyota Motor Co. (TM) continued Thursday after one of the auto maker's executives said that he doubts the union would be allowed to hold organizing rallies in the company's plants and that workers are angry over the union's picketing at dealerships. "I still don't understand why they are picketing our dealerships when the dealerships have nothing to do with the workers," said Toyota executive vice president Steve St. Angelo, who oversees Toyota's North America engineering and manufacturing. "Our workers make the ultimate decision if they want to unionize or not and for the past 25 years they have said no." The UAW is now in its third week of protesting Toyota after the company decided to move production of its Corolla from a unionized plant in California to a non-unionized plant in Mississippi. Union members are now protesting at 52 dealerships in California. Toyota said it moved production after General Motors Co., a partner in the plant, decided to pull out of the facility. "When the UAW pickets our dealerships, our team members get angry because they want to build cars that are their livelihood," St. Angelo said on the sidelines of an automotive gathering in Traverse City.
- Mo. to O.: 'NO'. They said voters would learn to stop worrying and love ObamaCare. They were wrong.
- U.S. Charges 14 Linked to Somali Terror Group. U.S. authorities charged 14 people with terrorism-related crimes, including providing money and recruits in support of the Somali Islamist group al Shabaab. The group, alleged by U.S. authorities to have ties to al Qaeda terrorists, is one of several vying for control of Somalia in a long-running war. Al Shabaab is believed to be behind bombings in Uganda last month that killed dozens of people as they watched the televised World Cup soccer final.
- Goldman(GS) May Spin Off Part of Proprietary Trading Friday. Goldman Sachs may spin off part of its proprietary trading operations into an independent hedge fund as soon as Friday, people familiar with the matter told CNBC, speeding up the firm's move to comply with new rules limiting Wall Street firms from betting their own money in financial markets.
- Senate Approves Higher Government Mortgage Fees. Higher monthly fees are coming for consumers who take out home loans guaranteed by the Federal Housing Administration, the primary source of mortgages for first-time homebuyers. The Senate late Wednesday unanimously approved legislation giving the FHA the power to hike monthly premiums it charges to consumers. The measure now goes to President Barack Obama, who is expected to sign it.
- Many Retailers Post Weak July Sales, Short of Estimates.
- Major US Ports Predict Holiday Shopping Boom. If shipments into one major U.S. port are any indication, we could be in for a stellar holiday shopping season. “I think we’re seeing the imported goods and the containers like what you see here obviously filled with holiday items and we’re seeing those in larger numbers,” said Richard Steinke, the executive director of the Port of Long Beach, which sits on a complex alongside the Port of Los Angeles. Together the ports are responsible for 40-45% percent of all goods coming into the United States.
- Wall of Worry Getting Stronger. Commentary: Latest sentiment data show mounting pessimism.
- White House: Andy Griffith Healthcare Pitch Stays. The Obama administration yesterday dismissed calls by Republicans to halt its $700,000, tax-funded Andy Griffith ad campaign aimed at lifting dismal public approval of health-care reform, even as an independent group trashed the veracity of the TV spot. Republicans say the ad campaign goes well beyond general explanations of Medicare benefits, and argues in favor of the health-care law, whose repeal is favored by 59 percent of voters, according to a poll. The campaign's "promise that 'benefits will remain the same' is just as fictional as the town of Mayberry," wrote Brooks Jackson of FactCheck.org.
- Vast Majority of New Yorkers Oppose Ground Zero Mosque.: Poll. New Yorkers overwhelmingly oppose the controversial Cordoba House mosque near Ground Zero by a massive 61-26 percent, a new poll out this morning found. The Siena College survey of 622 New York residents found strong opposition to the mosque in all parts of the state as city voters turned thumbs down, 56-33 percent against, suburban residents, 66-21 percent against, and upstaters, 64-21 percent in the negative. Opposition cut across party lines although Republicans were most opposed, by a whopping 81-11 percent. Democrats were against the project, 55-32 percent, as were independents, 54-31 percent. Mayor Bloomberg has been urging support for the project - which got the green light from the Landmarks Preservation Commission on Tuesday -- as a symbol of American religious tolerance and Attorney General Andrew Cuomo, the Democratic nominee for governor, has also backed construction. Former Mayor Rudy Giuliani and current GOP gubernatorial hopefuls Rick Lazio and Carl Paladino strongly oppose the project. Meanwhile, the new poll found 52 percent of New Yorkers favor passing an Arizona-like anti-illegal immigration law in the state while 45 percent were opposed.
- Chart of the Day: There's Still This Huge Housing Bubble Yet to Pop. Eyes are currently on China as the next housing bubble to burst, but there may be another lurking to the south.
- Actually, The New Fannie and Freddie Homeowner Bailout is a Massive Bailout of the Banks.
- Geither: The Entitlements Shortfall is Coming Sooner Than You Think.
Institutional Investor:
- How ETFs Can Trip Up Hedge Funds. It’s no secret that more and more hedge funds are aggressively using exchange traded funds, and not just to hedge. Many of them are using these index-like investments to make single-sector — or single-market — bets. For example, at the end of the first quarter, Traxis Partners, headed up by former Morgan Stanley strategist Barton Biggs, held a dozen ETFs, and six of them were his largest holdings, including funds that specialize in health care and Brazil. But as more and more hedge funds use ETFs to make bets on the broad market or on a specific sector, they risk tripping a modest ownership threshold. In a recent memo to clients, the law firm Pillsbury Winthrop Shaw Pittman noted that under the Investment Company Act, private investment funds such as hedge funds are prohibited from acquiring more than 3 percent of ETFs. In addition, they are not permitted to invest more than 5 percent of their assets in a single registered investment company or more than 10 percent in registered investment companies. Pillsbury, however, stresses that only the 3 percent limit applies to hedge funds, because they are not considered investment companies. Hedge funds that do exceed the 3 percent threshold, however, could be forced to liquidate their positions or their managers could be subject to penalties, according to George Mazin, a partner of law firm Dechert.
- GM Donates $41,000 to Lawmakers' Pet Projects. When General Motors went through bankruptcy last year, it suspended its political donations. Now that it's owned by the U.S. government, it's donating to lawmakers' pet projects again. The carmaker gave $41,000 to groups associated with lawmakers, the vast majority of it -- $36,000 -- to the Congressional Black Caucus Foundation, the company reported on a disclosure form last week.
- Apple(AAPL) Close to Acquiring Chinese Game Maker for $148M - Report. Apple is rumored to be in talks to buy a Chinese mobile Internet service provider and game developer for $148 million, with a final agreement said to be "close." Chinese business news organization SinoCast reported Thursday that Apple is in talks with Handseeing Information Technology Co, a company that specializes in rich Internet applications. The Chinese company's primary business model is said to be online gaming on mobile devices.
- NTIC Co., formerly known as National Iranian Tanker Co., borrowed money on "favorable" terms from Chinese banks to build 12 supertankers in the Asian country. The transactions in August 2009 involved a 10% down payment and a 90% loan.
- Greens Defend Climate Tactics. Environmentalists went with an all-or-nothing strategy for the 111th Congress. Nothing won. Now, green groups licking their wounds after spending tens of millions of dollars to pass a cap-and-trade bill must answer serious questions about whether they are capable of playing another round of hardball.
Guardian:
- Rupert Murdoch Says Apple's(AAPL) iPad Is a 'game-changer' For New Media. Rupert Murdoch has lavished praise on Apple's iPad, describing the device as a "game changer" for news media and predicting that "hundreds and hundreds of millions" of similar tablet computers will eventually be sold around the world.
- North Korea Avoids Being Listed as U.S. State Sponsor of Terrorism: Sate Dept. The United States Thursday announced a new list of state sponsors of terrorism that does not include North Korea despite concerns over Pyongyang's suspected delivery of weapons to militant groups in the Middle East. Iran, Syria, Sudan and Cuba are still listed under the annual congressionally mandated Country Reports on Terrorism 2009.