Bloomberg:
- U.S. Economy: Companies Hire 71,000 Workers, Less Than Forecast. Overall employment fell by 131,000, reflecting the dismissal of temporary census workers, and the jobless rate held at 9.5 percent. “What we are seeing now is more typical of the subpar recovery that we have been dealing with for a while,” said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The jobs report “makes it somewhat more likely the Fed goes ahead and pulls the trigger next week, but I don’t think it’s a done deal. They’ll look to just stabilize things where they are and assess whether more is needed” in subsequent meetings. The decrease in overall employment followed a revised 221,000 drop in June that was 96,000 larger than previously estimated, today’s figures showed. The Census Bureau said it let go about 143,000 of the people conducting the decennial population count from mid-June to mid-July. It still had about 200,000 temporary workers on staff as of July 17, indicating additional cuts to come that will keep distorting the payroll figures for months. In addition to census firings at the federal level, today’s report showed state and local government agencies cut payrolls by 48,000 workers as they try to close budget gaps. Among other service providers, financial firms cut jobs for the seventh time in the past eight months and temporary-help agencies reduced staff for the first time since September. Wages were one bright spot in the report as hourly earnings climbed 0.2 percent in June from the prior month, more than anticipated. Employers also lengthened the average workweek by 6 minutes to 34.2 hours. The increase in hours and wages brought the average weekly paycheck to $772.58, up 0.5 percent from June. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- held at 16.5 percent.
- The U.S. participation rate fell to 1985 levels in July as job seekers gave up their search in a "worrying sign" the labor market remains weak, according to Ryan Wang of HSBC Securities USA Inc. The participation rate, or the share of people who are either working or looking for a job, dropped to 64.6% in July, matching a level also seen in December. "Potential job seekers are not seeing any real improvement," Wang, a NY-based economist, said. "It's another worrying sign that labor market conditions are challenging."
- Company Bond Risk Heads for 3rd Weekly Drop on Europe Optimism. Indexes measuring the cost of insuring against losses on European corporate bonds headed for a third week of declines as optimism the region’s economic recovery is accelerating fueled demand for risky assets. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings decreased 3 basis points to 468, according to JPMorgan Chase & Co. at 2:30 p.m. in London. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers rose 1 basis point to 116.5, little changed in the week and near a 3 1/2-month low, JPMorgan prices show. Swaps on BP fell 10 basis points to 220, the lowest level since June 4, according to data provider CMA. The company’s swaps curve normalized this week, with five-year contracts rising above shorter-dated protection for the first time in two months. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was little changed at 102.25 basis points, and was 2.75 lower than a week ago, JPMorgan prices show. The Markit CDX North America Index rose 1.72 basis points to 145.3, Markit Group Ltd. prices show.
- Codelco Says Tightening to Slow China Copper Demand. Codelco, the world’s largest copper producer, said demand in China for the metal will slow in this half because of government measures to tighten lending and curb inflation. “The big bull run we’ve experienced in 2003-2008 may not occur again,” said Pang Ying, an analyst at Shenzhen Rongtuo Trading Co. “China, Europe, and the U.S. expanded at a fast pace at that time, and we probably won’t see that again in the next few years.”
- Oil Falls on Lower-Than-Expected U.S. Company Payroll Growth. Crude oil fell for a third day as weaker-than-forecast growth in U.S. company payrolls bolstered concern that the economic rebound in the world’s biggest oil- consuming country is slowing. Oil slipped as much as 1.5 percent after the Labor Department said private payrolls that exclude government agencies rose by 71,000, less than forecast, after a gain of 31,000 in June that was smaller than previously reported. U.S. fuel consumption dropped 2.5 percent to 19.3 million barrels a day last week, according to an Energy Department report on Aug. 4. Gasoline supplies increased 729,000 barrels, or 0.3 percent, to 223 million last week, the highest level since April 30, according to the report. Stockpiles of distillate fuel, a category that includes heating oil and diesel, rose 2.17 million barrels to 169.7 million, the highest level since the week ended Oct. 16.
- China Seen Robbing Consumers With Low Interest Rates. Peking University professor Michael Pettis was discussing declining bank-deposit returns when a student interrupted with a story about her aunt that may stymie China’s plan to boost consumer spending. “To send her son to university in six years it means she must replace each yuan in lost income with one from her wages,” the student said, according to Pettis. The government’s policy of keeping interest rates low to reduce the burden of soaring municipal debt is costing savers as much as 1.6 trillion yuan ($236 billion) a year in lost income on bank deposits, according to Pettis, former head of emerging markets at Bear Stearns Cos. To make up the shortfall, savers have to set aside a larger proportion of wages, undermining China’s efforts to counter slower export growth with consumer spending at home. “Consumption is already at a dangerously low level,” said Pettis, author of the “The Volatility Machine,” a 2001 book that examines financial crises in emerging markets. “If it doesn’t begin to rise very quickly, China has a problem because household consumption will continue to drop as a share of GDP.” Pettis isn’t alone in being skeptical about a consumer boom in China. Yale University finance professor Chen Zhiwu and Huang Yasheng at the Massachusetts Institute of Technology also predict constrained consumer spending. Chen estimates the state controls 70 percent of the nation’s assets and says most of its profits don’t flow to consumers. On an inflation-adjusted basis government income surged more than tenfold in the past 15 years while disposable urban income increased less than three times, he said. Pettis said the drag on consumer spending from depressed deposit rates may help slash China’s annual economic expansion to between 5 and 7 percent a year through 2020, from an average of about 10 percent in the past decade. China’s past development has created an “irrational economic structure” and “uncoordinated and unsustainable development is increasingly apparent,” said Vice Premier Li Keqiang in a June article in the government-owned Qiu Shi magazine. Long-term dependence on investment and exports for growth “will grow the instability of the economy,” he said. “Evidence is mounting that the lending spree not only has created bad loans but is now constraining monetary policy,” said Huang. Banks could be saddled with bad loans of more than $400 billion, said Jim Walker, chief economist at Hong Kong-based Asianomics Ltd.
- Breadth Shows U.S. Stocks Rally to Continue: Technical Analysis. U.S. stocks may rally after the ratio of rising to falling shares increased to an all-time high, according to Strategas Research Partners. The advance-decline measure of companies listed on the New York Stock Exchange climbed to a record 95,875 on Aug. 4, according to data compiled by Bloomberg. The indicator, which represents the cumulative number stocks that rise minus those that fall, was set at zero on Aug. 20, 1996. It predicted rallies in July 2009 and February 2010, said Christopher Verrone, lead technical analyst at Strategas. “It’s a significant development,” said New York-based Verrone. “Participation is broadening out. It’s telling us that breadth and momentum are expanding into the rally. The move that we’ve seen off the July low looks a lot healthier than the ones we’ve seen over the last couple of months. It argues for the market to continue to climb higher.”
Wall Street Journal:
- Legacy of the 'Flash Crash': Enduring Worries of Repeat.
- From Snowmobiles to Cellphones, a Scramble for Parts. Companies are reconfiguring products and paying up to stockpile parts, as persistent supply shortages in the electronics industry continued to curb sales in the second quarter. Shortages of key electronics components such as transistors, capacitors and integrated circuits became pronounced in the first quarter, and continued in the second. Manufacturers haven't been able to ramp up supply fast enough to meet rebounding demand.
- New U.S. Visa Fees Would Hit Indian Firms. Legislation that passed the U.S. Senate late Thursday would significantly increase fees for skilled-worker visas, a move that would deal a financial blow to Indian technology-outsourcing companies who send thousands of employees to the U.S. each year. The measure, which was attached to a $600 million border-security spending bill that senators passed just before leaving for the August recess, would require companies who have more than half their U.S. employees on H1-B or L-1 visas to pay thousands of dollars in special new fees for each worker. "The way they've done this, the majority of the impact is on the Indian companies," Mr. Mittal said. He said Nasscom has asked India's external affairs and commerce ministries to look into whether the measure would violate World Trade Organization rules. "It seems like indirect protectionism," he said.
- Fitch: CMBS Delinquency Growth Slows For 4th Straight Month. Delinquencies of loans in U.S. commercial mortgage-backed securities continued to rise in July, though the pace of the increase slowed for the fourth-straight month, according to Fitch Ratings. CMBS delinquencies have continued to rise this year after spiking in 2009 as commercial property owners got increasingly behind on their mortgages due to falling occupancy rates and rents. That drove property values down from highs during the real-estate bubble. Fitch said overall CMBS delinquencies rose to 8.25% in July from 8.14% a month earlier. "We continue to expect further weakness to affect loan performance, particularly in later-vintage transactions," said Fitch Managing Director Mary MacNeill.
- Bad Mortgage Bets Continue to Bleed Home Loan Banks. Souring mortgage bonds that aren't backed by the government continued to cause heartburn for some of the Federal Home Loan Banks during the second quarter. Two banks reported second-quarter losses in part because of larger loss provisions for the so-called private-label mortgage securities. In a sign of how losses have spread from the subprime sector to the broader mortgage market, the Indianapolis and Pittsburgh home-loan banks said that they were expecting higher losses on bonds backed by prime loans, or those to borrowers with good credit. Overall, the 12 Federal Home Loan Banks reported $326 million in combined net income for the second quarter, down 71% from a year earlier. The $797 million decrease in net income from one year ago resulted from larger provisions for credit losses and net losses on derivatives and hedging activities.
- Senate Rejects Fed Nominee. The U.S. Senate on Thursday rebuffed the Obama administration on its nomination of Peter Diamond to join the Federal Reserve, putting in flux the White House's effort to fill the central bank's board of governors.
- US Dollar Will Climb as Global Economy Resumes Slump, Taylor Says. The U.S. dollar will strengthen when the global economy slips back into recession, according to John Taylor, who oversees $7.5 billion at FX Concepts LLC, manager of the world’s largest currency hedge fund.
- Are Jobless Benefits to Blame for High Unemployment? (poll)
- Hedge Fund Hiring Picks Up as Banks Shed Traders.
- Chart of the Day: The Scariest Jobs Chart Ever Takes a Turn for the Worse. (chart)
- Drudge Hilariously Skewers Tim Geithner. Big hats off to Matt Drudge, for brilliantly mocking Tim Geithner's "Welcome to the Recovery" op-ed from earlier this week.
- Goldman Capitulates: Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite". Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting."
- Euro Libor Jumps to One Year Highs, As Eurobor Hits Fresh 2010 High.
- After 12 Weeks of Plunging, ECRI Reverses Downward Path. (graph)
- Obama Sent a Secret Letter to Iraq's Top Shiite Cleric. President Obama has sent a letter to Iraq's top Shiite Muslim cleric, Grand Ayatollah Ali al-Sistani, urging him to prevail upon Iraq's squabbling politicians to finally form a new government, an individual briefed by relatives of the reclusive religious leader said Thursday. The individual, who asked not to be named because of the sensitivity of the topic, said the information came from members of Sistani's family in the Iranian holy city of Qom, where Sistani maintains a large complex of seminaries, libraries, clinics, and other humanitarian organizations.
FINalternatives:
- Experts Say Pensions Will Drive Growth of Hedge Fund Industry.
- Illinois Teachers' Asks Funds of Funds for Help in Single-Manager Search. The Illinois Teachers’ Retirement System plans to expand the number of single-manager hedge funds it invests in from one to as many as a baker’s dozen. And the $33.1 billion pension is turning to its fund of hedge funds managers for help.
- Tepid Demand in Asia Depresses Australian Thermal Coal Prices. AUSTRALIA’S thermal coal prices, a benchmark for Asia, fell for the fifth straight week to their lowest since mid-February of below $93 per tonne, dragged down by tepid demand from end-users, banks and traders, reports Bloomberg.
- Drenching America's Can-Do Spirit. The recent disappointing gross domestic product numbers showing an abnormally sluggish recovery cause me to ask: Where is the "can do" America in which I grew up and where we got back on our feet quickly after downturns? Is it being drenched by nanny-state rules that dictate just about everything we can do or buy these days? Consider:
- State Aid Bill a Gamble for Dems. When the House returns next week to rubber-stamp the Senate’s $26 billion state-aid package, Democrats will take a political crapshoot. Even though party leaders expect that approval will be a slam-dunk, some early responses from rank-and-file Democrats have raised red flags about the optics of returning to a special session to vote on more spending — even if it’s framed as saving teachers’ jobs.
- Bernanke: Many Ways to Replace Fannie, Freddie. It should be possible to create a U.S. housing finance system without the need for potentially risky entities like government-sponsored mortgage finance agencies Fannie Mae and Freddie Mac, Federal Reserve Chairman Ben Bernanke said. Bernanke, in a letter to Representative Marcy Kaptur that was released on Friday, said the housing finance system should ensure successful funding of mortgages and support a secondary mortgage market even during times of financial stress without creating firms that pose systemic risk. "There are a variety of organizational forms that might replace Fannie Mae and Freddie Mac that could likely provide mortgage credit without the systemic risks associated with these institutions in the past," he said in the letter.
- North Korean leader Kim Jong Il's third son is expected to join the leadership of the communist nation's Workers' Party in early September.
- China Plans to Boost Existing Ties With Iran. (Chinese)
- The average home price in China's southern province of Hainan has fallen -42.9% to 8,000 yuan per square meter from 14,000 yuan, citing Cai Renjie, director of the provincial housing department.