North American Investment Grade CDS Index 107.59 bps +2.17%
European Financial Sector CDS Index 113.17 bps +3.14%
Western Europe Sovereign Debt CDS Index 137.0 bps +1.93%
Emerging Market CDS Index 230.25 bps +1.18%
2-Year Swap Spread 18.0 unch.
TED Spread 19.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 210.0 -4 bps
China Import Iron Ore Spot $147.0/Metric Tonne -.41%
Citi US Economic Surprise Index -59.0 -6.0 points
10-Year TIPS Spread 1.59% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -162 open in Japan
DAX Futures: Indicating -3 open in Germany
Portfolio:
Lower: On losses in my Retail, Biotech and Medical long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 is trading back below its 50-day moving average on a pick-up in volume. On the positive side, Education, Restaurant, Computer Service, Computer Hardware, Software and Internet stocks are holding up relatively well, falling less than 1.0%. Tech shares have outperformed throughout the day. Lumber is rising another +1.88% and the S&P GSCI Ag Spot Index is rising +.68%. The UK sovereign cds is falling -6.27% to 64.65 bps. The AAII % Bulls fell to 30.1% this week, while the % Bears rose to 42.47%, which is also a positive. On the negative side, Airline, Road&Rail, HMO, Oil Tanker and Alt Energy shares are substantially lower on the day, falling more than 2.5%. (XLF) has been heavy throughout the day. The European Investment Grade CDS Index is rising +3.37% to 104.0 bps. Gold continues to trade well. The 10-year yield is falling another -6 bps to 2.57%, which is back to the lows hit 3 days ago. Given the extent of today's bad news, I am somewhat surprised the major averages aren't down more. Tech stocks have led the broad market off its lows. As I said yesterday, (HPQ)'s earnings report after the close has taken on added significance. If HP can maintain its forward guidance, which will be hard to accomplish given the current environment, tech stocks should build on today's afternoon rally tomorrow. However, a guidance cut will likely mean further broad market weakness. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and buyout speculation.
Jobless Claims in U.S. Rose to Highest Since November. Claims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast. The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed today in Washington. “There’s a red flag being waved right now that says ‘Danger,’” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Growth is going to slow in the second half and we might face something a little more ominous than that.”
U.S. Budget Deficit Forecast Increased by CBO to $1.066 Trillion for 2011. The U.S. Congressional Budget Office predicted the budget deficit for fiscal year 2011 will be $1.066 trillion, revised up from an estimate of $996 billion in March. The nonpartisan agency’s semi-annual budget report is likely to add fuel to the November midterm election debate over reducing the deficit at a time when the nation’s economic recovery may call for more stimulus. Today’s report estimated that the deficit will be 7 percent of the nation’s gross domestic product in 2011. The CBO projected that the cumulative deficit for the next decade will be $6.27 trillion, compared with its March estimate of $5.99 trillion. The CBO said today the deficit for the current fiscal year ending Sept. 30 will be $1.34 trillion. That is 9.1 percent of GDP, or the second largest shortfall in the past 65 years, exceeded only by last year’s 9.9 percent. The agency blamed this year’s shortfall primarily on weak tax revenue and policies enacted in response to the economic decline. Last year’s economic stimulus package accounts for $392 billion of the 2010 deficit, the budget office said. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee, decried a “spending spree” sparked in part by the policies of a White House and Congress controlled by Democrats. “Today’s CBO outlook only underscores what we already know -- the current pace of U.S. spending is unaffordable and unsustainable, and without a change in direction, this country is headed for fiscal calamity,” Gregg said in a statement. The CBO report said economic growth has been “anemic” compared with previous recoveries and predicted the economy will only grow by 2 percent from the fourth quarter of 2010 to the fourth quarter of 2011. The CBO anticipated the unemployment rate won’t dip below 8 percent for the rest of Obama’s first term. It said unemployment will drop to 9.0 percent in 2011, 8.1 percent in 2012 and 6.6 percent in 2013. The report also said the government is spending this year almost as much on unemployment benefits as the wars in Iraq and Afghanistan. It said Congress has appropriated $164 billion for the wars this year, while unemployment costs come in at $160 bill. The report forecasts that debt held by the public will reach $10 trillion by the end of next fiscal year, and then climb to 16.07 trillion by 2020.
Philadelphia Fed Factory Index Drops as Manufacturing-Led Recovery Weakens. Manufacturing in the Philadelphia region unexpectedly shrank in August for the first time in a year as orders and sales slumped, a sign factories are being hurt by the U.S. economic slowdown. The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.7 this month, the lowest reading since July 2009, from 5.1 in July. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. Economists forecast the measure would rise to 7, according to the median of 58 projections in a Bloomberg News survey. The Philadelphia Fed bank’s shipments gauge dropped to minus 4.5 from 4 in July. The new orders measure decreased to minus 7.1, the lowest level since June 2009, from minus 4.3. The employment index fell to minus 2.7 from 4. The Philadelphia Fed’s index of prices paid and received all fell, indicating inflation in retreating.
Intel(INTC) Will Buy McAfee(MFE) for $7.68 Billion. Intel Corp. agreed to buy McAfee Inc. for $7.68 billion, its largest acquisition, adding security software to its chipmaking arsenal. McAfee investors will receive $48 a share in cash, Santa Clara, California-based Intel, the world’s largest chipmaker, said in a statement today. That’s 60 percent more than McAfee’s closing price yesterday. Both boards have unanimously approved the deal, Intel said.
Asian Computer Shipments Signal Extended Consumer Spending Slump in U.S. At Taipei-based Acer Inc., the world’s second-largest maker of computers, sales plunged 38 percent in July from a year earlier. Micro-Star International Co., a maker of boards that connect computer components, recorded a 15 percent drop. Sales at Asian computer makers, which account for more than 80 percent of computer and parts imports into the U.S. each year, indicate American shoppers aren’t likely to boost the spending that accounts for 70 percent of the world’s largest economy. Already, consumption is growing at the slowest pace of any recovery since 1945.
Retail Spaces Lead Drop in U.S. Commercial Property. U.S. commercial real estate prices fell the most in almost a year in June as the economic recovery showed signs of faltering, Moody’s Investors Service said. The Moody’s/REAL Commercial Property Price Index dropped 4 percent from May, the company said today in a report. The decline was the biggest since July 2009, and pushed the gauge down 0.9 percent from the start of the year. High unemployment and concern over slowing economic growth are hampering a price rebound for offices, apartments, industrial and retail properties, Moody’s said. The Moody’s index is down 41 percent from its 2007 peak, having gained 4.2 percent from the seven-year low set in October. The value of malls and shopping centers fell almost 11 percent in the second quarter, the biggest drop of any commercial property type tracked in the Moody’s index. Apartments and offices values both gained about 4 percent, while industrial properties dropped 2.9 percent.
OPEC will reduce crude shipments by 1% this month as Chinese refining demand slows, according to tanker-tracker Oil Movements.
Corporate Bond Risk Increases in Europe, Credit-Default Swap Market Shows. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 4 basis points to 485, according to JPMorgan Chase & Co. at 3:30 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.5 basis points to 108, JPMorgan prices show. The Markit iTraxx Financial Index of 25 banks and insurers climbed 1.5 to 126.25.
Wheat Gains Most in Two Weeks on Increased Demand for U.S. Stockpiles. Wheat rose the most in two weeks after a government report today showed increased U.S. export sales of both grains. Exporters sold 1.41 million metric tons in the week ended Aug. 12, 4.4 percent more than the week before, the U.S. Department of Agriculture said. Before today, wheat gained 4.1 percent this month as Russia imposed a ban on external shipments. “Export sales were high,” said Larry Glenn, an analyst at Frontier Ag in Quinter, Kansas. The effects of Russia’s ban “showed up today on the sales report. All of the grains were strong. They were above the high end of the range.” Wheat futures for December delivery advanced 28 cents, or 4.1 percent, to $7.1675 a bushel at 11:39 a.m. on the Chicago Board of Trade. A close at that price would be the biggest gain for a most-active contract since Aug. 5. The price has gained 57 percent since the end of May as the worst Russian drought in 50 years damaged crops.
Oil Falls as Surprise Increase in U.S. Jobless Claims Dims Demand Outlook. Crude oil declined after rising U.S. jobless claims and a contraction in manufacturing in the Philadelphia area bolstered concern that the economic rebound in the world’s biggest oil-consuming country is slowing. Oil declined as much as 1.9 percent after the Labor Department said initial jobless claims rose to the highest level since November. Total U.S. petroleum inventories are at the highest level in at least 20 years, according to the Energy Department. “The negative employment picture, along with collective record petroleum inventories, will continue to put pressure on energy markets,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. A U.S. Energy Department report yesterday showed that total petroleum stockpiles climbed 5.34 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990. The department began to compile weekly inventories in 1990, said Jonathan Cogan, an Energy Information Administration spokesman in Washington. Stockpiles of distillate fuel, a category that includes heading oil and diesel, rose 1.07 million barrels to 174.2 million last week, the highest level since 1983, according to yesterday’s report. The increase left supplies 27 percent above the five-year average for the period, the department said.
Vietnam Dong Slumps to Record Low as Adviser Warns of 'Shock'. Vietnam’s currency dropped for a fourth straight day to a record low after an adviser to the Prime Minister said the country risks a foreign-currency liquidity ‘shock.’ The warning came after the central bank yesterday devalued the currency for a third time in the past year to boost exports and shore up the nation’s trade deficit that has nearly doubled in the seven months through July. The currency has slumped 5.2 percent in 2010, the worst performance among 16 currencies in Asia monitored by Bloomberg.
Basel Committee Says Bank Bond Investors Should Help Fund Future Bailouts. The Basel Committee on Banking Supervision is proposing that debt counted as bank capital should be converted to stock or written off in a crisis, forcing bond investors to bear some of the cost of future bailouts. All regulatory capital instruments sold by banks should be capable of absorbing losses if the company can’t fund itself, the committee said in a consultative paper today. Before taxpayers’ cash is used to rescue a lender, so-called contingent capital should be converted to equity or written off.
Wall Street Journal:
LG Goes With Nvidia(NVDA) Chip in New Smartphones. LG Electronics on Thursday confirmed that it would be using a dual-core processor manufacturered by Nvidia for its line of Optimus smartphones later this year. That’s a coup for Nvidia, which has been pushing to enter the smartphone market with its Tegra chip and expand beyond its traditional business of providing graphics chips for PCs.
Value of Independent Advisory Practices Rises Despite Recession. Despite the recession, demand for advisory practices has soared and the average value of independent advisory practices rose 12.1% annually in the five years through June, said FP Transitions, which operates a market for buying and selling financial-services practices.
Other Duquesne Managers to Start Their Own Firm. Other portfolio managers at Duquesne Capital Management are planning to start their own hedge fund firm, according to a person familiar with the situation.
New York Post:
Druckenmiller Departs and More Could Follow. Hedge fund giant Stanley Druckenmiller's dramatic decision yesterday to throw in the towel and give up a life of managing money may just be the start of a mass exodus from the field. More hedge fund hotshots could follow, sources say. "I think there's a lot of fatigue in the industry," said a prime broker who's talked to a number of managers thinking of quitting the business. With the markets so volatile, investor money hard to come by and tighter regulatory scrutiny in the offing, Druckenmiller is not alone in feeling the pressure, added one hedge fund executive, who asked not to be named.
Shrinking 'Quant' Funds Struggle to Revive Boom Times. They were revered as the brightest minds in finance, the “quants” who could outwit Wall Street with their Ph.D.’s and superfast computers. But after blundering through the financial panic, losing big in 2008 and lagging badly in 2009, these so-called quantitative investment managers no longer look like geniuses, and some investors have fallen out of love with them. The combined assets of quantitative funds specializing in United States stocks have plunged to $467 billion, from $1.2 trillion in 2007, a 61 percent decline, according to eVestment Alliance, a research firm. That drop reflects both bad investments and withdrawals by clients.
The Detroit News:
UAW's Bob King Reiterates Ban on Foreign Cars on Union Property. United Auto Workers President Bob King this month reiterated the union's longstanding policy to ban nonunion vehicles on UAW property, but did so in a more hands-on and publicly forceful fashion that separates him from his predecessors. "Buying a U.S./UAW vehicle makes a difference," King wrote in a two-page rebuttal to a blog post written in July by a Kansas City Business Journal reporter who was recently ousted from the parking lot of UAW Local 249 for driving a Toyota Camry.
LA Times:
CALPERS Investment Staff Received Luxury Travel, Gifts From Financial Firms. California's public pension system allowed senior portfolio managers to take private jet trips around the world, paid for by firms seeking business with the agency. The state's embattled public pension fund for years allowed its top investment staff to accept private jet trips around the world and other luxury travel from financial firms with whom they were doing business — without disclosing any of the trips publicly, according to the court testimony of a senior portfolio manager. Mark testified that he had taken 10 or 12 private jet trips paid for by firms doing business with CalPERS to locations including Shanghai, Mumbai and New York. Financial firms paid for dozens more such trips for him on commercial airlines, he said, often in first or business class. Mark reported none of the travel on disclosure forms that government officials must file with the state when they accept gifts valued over $50. CalPERS spokeswoman Pat Macht said Mark and other CalPERS officials did not have to disclose the payments because the luxury travel was part of CalPERS' contracts with the investment firms. CalPERS has never allowed those contracts to be made public, arguing that they contain trade secrets.
Houston Chronicle:
Drillers Fear Sinking in Shallow Waters. They say federal delays in permit process threaten their companies' existence. A post-oil-spill delay in issuing new federal drilling permits in the shallow waters of the Gulf of Mexico, at first an inconvenience, has suddenly emerged as a real threat to the future of companies in the business, industry executives said Wednesday. While no one is talking about bankruptcy filings, shallow-water drilling contractors say the holdup in permitting is cutting into the bottom line a bit more each day they have rigs sidelined and idled workers on payroll. "At some point," said Randy Stilley, CEO of Houston's Seahawk Drilling, "it becomes a viability issue." So far, permitting delays have idled 14 of the 46 available jackups in the Gulf and forced offshore companies to cut several hundred jobs. Each rig employs about 100 workers and supports many additional indirect jobs at supply boat companies, oil field services companies and other businesses. If the situation doesn't change, 25 rigs will be idle by the end of August and 30 by the end of September as existing permits expire, according to figures provided by the Shallow Water Energy Security Coalition, an industry group formed in May to call attention to the issue. Small independent oil and gas companies that hire the rigs and are the backbone of the business may also be forced to abandon the Gulf, taking with them millions in spending in the region, said John Rynd, CEO of Houston-based Hercules Offshore. "You kill this industry, you kill a lot of dollars," he said. Shallow-water drilling operations, because they rely on rigs whose legs reach the sea floor and have blowout preventers on the rig deck, are not affected by the moratorium. But industry officials say the Interior Department has essentially created a de facto moratorium on shallow-water drilling with new rules issued in June that call for new rig safety measures and additional plans for responding to spills. Since then, the department's Bureau of Ocean Energy Management has approved just two new shallow-water drilling permits, compared with the 10 to 15 per week approved by its predecessor, the Minerals Management Service, prior to the BP accident.
Reuters:
Apple(AAPL) iPhone 4 May Go On Sale in China by September. China Unicom, China's second-largest telecommunications operator, may start selling Apple Inc's iPhone 4 in the mainland market in September, state television reported on Thursday. "China Unicom has reached an agreement with Apple, and the iPhone 4 may enter the mainland market by as early as next month," the report said, citing a company statement released to the ongoing China Internet Conference in Beijing.
U.S. Homeowner Confidence Fell in 2nd Quarter. U.S. homeowners were less confident about the value of their homes in the second quarter, with one-third believing home prices had not yet reached a bottom, real estate website Zillow.com said on Thursday. Nevertheless, a significant number of homeowners said they planned to put their home up for sale in the next six months if they saw signs of a real estate market turnaround. Homeowners were more pessimistic about the short-term future of home values in their local market than they had been in the previous three quarters, according to the Zillow Second Quarter Homeowner Confidence Survey. 5 percent of U.S. homeowners said they were very likely to put their home on the market in the next six months if they saw signs of a real estate market turnaround. Zillow said this translated into 3.8 million homes with the potential to come into the market. By comparison, 5.2 million existing homes were sold in all of 2009.
Nikkei English News:
Sharp Corp. will reduce LCD panel production this month for components that serve other companies, such as Sony Corp., because of higher TV inventories in the U.S. and China.
BHP's(BHP) $45 Billion Debt Commitment 'Tests' Limits of Rally: Credit Markets. BHP Billiton Ltd.’s ability to raise the most debt to finance a takeover since February 2008 underscores a credit-market rally that has pushed corporate bond yields to record lows even as the economic recovery sputters. BHP, the world’s biggest miner, got $45 billion of funding to back its hostile takeover bid for Potash Corp. of Saskatchewan Inc. in the largest debt issue since it agreed to a $55 billion loan to acquire Rio Tinto Group. The Melbourne-based miner will seek to refinance the loans in the corporate bond market, in which U.S. investment-grade yields have fallen to a record low.
Euro Weakens for Second Day on Concern Europe's Economic Recovery Slowing. The euro weakened for a second day against the dollar and the yen as speculation Europe’s economic recovery is waning damped demand for the single currency. The euro dropped against 15 of its 16 major counterparts after Germany’s Der Spiegel magazine reported that tensions are rising in Greece as austerity measures shrink every aspect of the economy. Traders said the euro extended its slide due to the triggering of so-called stop-loss orders, or automatic instructions to sell a currency if it reaches a certain level. “The fundamentals of most of the euro zone haven’t really improved,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. based in Tokyo. “The bias is for the euro to be sold.”
Bank of Japan May Expand Credit Program to Weaken Currency, Sankei Reports. The Bank of Japan may expand a bank lending program to lower interest rates and help weaken the yen, the Sankei newspaper reported, without saying where it got the information. The central bank may increase the credit facility for lenders to 30 trillion yen ($351 billion) from 20 trillion yen, the newspaper said. The duration of the loans may also be increased to six months from three months, possibly at an emergency policy meeting before Prime Minister Naoto Kan meets BOJ Governor Masaaki Shirakawa next week, the report said. Japanese policy makers are facing pressure to support the economy as the yen’s climb to a 15-year high against the dollar threatens to erode exporters’ earnings and fuel deflation.
Clinton to Urge Global Aid for Pakistan to Match Haiti Earthquake Response. U.S. Secretary of State Hillary Clinton speaks today on Pakistan’s increasing need for humanitarian assistance as donations trail the response to the Haiti earthquake. Clinton speaks at 4 p.m. at the United Nations General assembly in New York, a day after an Obama administration official said the U.S. will pledge more money to flood- devastated Pakistan in a bid to spur more financial aid from other nations.
North Korea Confirms Seizure of South's Fishing Boat as Tensions Increase. North Korea confirmed it seized a South Korean fishing boat last week off the communist country’s east coast for violation of the maritime border. North Korea is investigating the four South Korean and three Chinese crew members, who had “confessed that they intruded into the economic waters,” the state-run Korean Central News Agency reported. The North Korean navy captured the boat on Aug. 8 at around 10:15 a.m. local time, the report said. South Korea has sent a message to North Korea, urging a swift return of the 41-ton Daeseung and its crew.
Most Bush Tax Cuts Should Be Extended, Pimco's McCulley Says. President George W. Bush’s tax cuts should be extended except for the top two brackets to help bolster the fragile economic recovery, said Paul McCulley, a managing director at Pacific Investment Management Co. “Congress has to extend them or else the double-dip- recession risk will go up dramatically,” McCulley said in a Bloomberg Radio interview with Kathleen Hays on ‘The Hays Advantage.’ McCulley, based in Newport Beach, California, suggested making permanent the tax cuts on all but the top two income brackets, individuals earning between $500,000 and $1 million and those who earn more than $1 million. Cuts in the lower brackets should be renewed for a few years, and Congress can revisit the issue when the economy is more stable, he said.
California Budget Logjam May Spur IOUs Next Month, Chiang Says. California may begin paying bills with IOUs in September for a second year in a row as a legislative logjam over erasing a $19 billion deficit prevents passage of a budget. State Controller John Chiang said the IOUs may be issued in two to four weeks if the budget impasse persists. The warrants will pay for everything from contracted services to health-care clinics so California can preserve funds to make payments on priority items such as bonds.
Wall Street Journal:
States Will Be Hedge-Fund Police. Thousands of midsize and smaller hedge funds are about to fall under the sway of state overseers, and it isn't clear the states are ready. The new Dodd-Frank financial law seeks to tighten the leash on hedge-fund advisers, forcing all of them to register with regulators and undergo exams. But only hedge funds and other investment advisers managing more than $100 million will face oversight from the Securities and Exchange Commission. Those with smaller portfolios will be overseen by states. The old threshold, for those investment advisers that registered under earlier laws, was $25 million. The SEC estimates about 4,000 investment advisers will switch to the states. "Right now, as it is, the states don't have the budget or the manpower to even deal with the advisers that they have," said Bart Mallon, a lawyer who advises several hedge-fund advisers that have registered with states. "You're lucky if the states [examine firms] on a three-year basis. I've had certain clients who have never been audited." State budgets are strapped, and some regulators have had to take unpaid furloughs. Several states that have a big hedge-fund industry, such as Connecticut and California, say they are weighing options including boosting fees.
Motorola(MOT), Others Granted Net Funds. Motorola Inc. was among several companies to win millions in government funding Wednesday as the Obama administration announced $1.8 billion in new broadband stimulus grants and loans. Motorola, based in Schaumburg, Ill., received a $50.6 million award to build a new wireless-broadband network in the San Francisco area for police, firefighters and other public safety officials. It's the first time the government has given broadband grants to fund public safety wireless networks instead of new Internet networks for consumers.
130,000 iPhone 4 Orders Crush Korea Telecom Servers. IPhone 4 mania is as strong in South Korea as it is in the States–perhaps even more so. Korea Telecom’s servers were overwhelmed by pre-orders for the September iPhone 4 launch, company officials said Wednesday. More than 130,000 people pre-ordered Apple’s (AAPL) latest smartphone in just nine hours, causing some nasty congestion. “Our online shop server was jammed instantly as too many clients placed orders simultaneously,” KT spokesman Jin Byung-Kwon told AFP. “We didn’t expect so many people to pre-order the iPhone 4 in such a short time.” But then, no one ever does. Right, AT&T? Incidentally, first-day pre-orders for the iPhone 4 easily broke the local record held by the iPhone 3G, which received 65,000 pre-orders over five days.
Mexico Under Siege. A surge of drug violence in Mexico's business capital and richest city has prompted an outcry from business leaders who on Wednesday took out full-page ads asking President Felipe Calderón to send in more soldiers to stem the violence. The growing violence in Monterrey, long one of Mexico's most modern and safe cities, is a sign that the country's war against drug gangs is spreading ever further from poorer battlegrounds along the border and into the country's wealthiest enclaves.
RIM(RIMM) Shops for Mobile Ad network. Under pressure in the increasingly competitive wireless market, BlackBerry maker Research in Motion Ltd. is shopping for a mobile advertising network, people familiar with the matter said.
Hedge Funds Tap ETF for Gold Bets as Stock Correlation Rises. Hedge funds managed by George Soros, John Paulson and other high-profile investors are using a $50 billion exchange-traded fund to buy gold, recent filings show, even as the ETF's growing clout may be chipping at gold's role as an asset that moves to its own beat.
Last U.S. Combat Brigade Leaves Iraq. As their convoy reached the barbed wire at the border crossing out of Iraq on Wednesday, the soldiers whooped and cheered. Then they scrambled out of their stifling hot armored vehicles, unfurled an American flag and posed for group photos. For these troops of the 4th Stryker Brigade, 2nd Infantry Division, it was a moment of relief fraught with symbolism. Seven years and five months after the U.S.-led invasion, the last American combat brigade was leaving Iraq, well ahead of President Obama's Aug. 31 deadline for ending U.S. combat operations there.
Deconstructing Harry Reid. The Senate majority leader's inexplicable desire to debate taxes in September.
China's Crude Steel Production Rises. Major steel producers all announce price hikes for September. Amid a revival in steel prices, China's crude steel production has begun a rebound after a three-month decline. According to data from China Iron & Steel Association (CISA), its member companies reported total crude steel production of 14.13 million tons during the first 10 days of August. Average daily production was 1.41 million tons, up 29,000 tons from the last 10 days of July. This is the first daily crude steel output rise after a three-month decline.
Forget Facebook: Bet On E-Commerce IPOs. Don’t scoff. Sure, after the dotcom bomb, e-commerce had a stench from Pets.com, Webvan, and other expensive duds. But savvy investors who looked past those failures and embraced true innovation have put hundreds of millions of dollars into rising stars. From Groupon to Etsy and FreshDirect to Diapers.com, a cunning new breed of e-commerce players should be ready to test the public markets soon.
ABC News:
Ground Zero Mosque Backers Won't Rule Out Taking Funds From Saudi Arabia, Iran. The developers behind the Islamic center planned for a site near Ground Zero won't rule out accepting financing from the Mideast -- including from Saudi Arabia and Iran -- as they begin searching for $100 million needed to build the project.
LA Times:
Credit Default Swap Deals Unnerve California. Some say credit default swaps may influence the market for muni bonds. Is Wall Street profiting from California's misery? That's been a concern of state Treasurer Bill Lockyer, who takes a dim view of financial instruments — known as credit default swaps — that enable speculators to bet against California's ability to pay its debts. Like other giant Wall Street firms, JPMorgan Chase & Co. helps investors place such bets against California but also earns hefty fees from the state for helping it get the best prices on the bonds it sells to finance capital improvements and other expenses. So it was no small annoyance, Lockyer said, when JPMorgan Chief Executive Jamie Dimon publicly suggested in February that he was more concerned about California's budget problems than about Greece's.
Rasmussen Reports:
28% Say U.S. Heading in Right Direction. Twenty-eight percent (28%) of Likely Voters say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey taken the week ending Sunday, August 15. Sixty-seven percent (67%) of all voters say the country is heading down the wrong track, up two points from last week. 77% of voters not affiliated with either political party feel the country is heading down the wrong track.
USA Today:
Companies are Boosting Their Spending: Could Jobs Be Next? Federal Express (FDX) is snapping up more airplanes. Caterpillar (CAT) is expanding factory capacity. And Wynn Las Vegas (WYNN) is remodeling all of its 2,716 rooms. Cash-rich U.S. corporations are sharply increasing their capital spending this year after scaling back drastically during the economic downturn. The trend has emerged as a bright spot in a recovery that lately has lost momentum and prompted worries that the U.S. could slip back into recession. Many economists believe business investment could help pick up the slack and eventually spark job growth that lifts the economy from its doldrums.
Reuters:
US Senator Baucus Urges US Case on Canada Lumber. The Obama administration should pursue a new trade case against Canadian softwood lumber practices, Max Baucus, the powerful Democratic chairman of the Senate Finance Commission, said on Wednesday. "The provincial government of British Columbia is selling government-owned timber used for softwood lumber production at firesale stumpage prices," Baucus said in a letter to U.S. Trade Representative Ron Kirk, arguing the fees contravene a bilateral softwood lumber deal.
India Finds a Way to Access BlackBerry Emails - Paper. India's telecoms ministry has suggested a formula by which security agencies can get access to corporate email on Research In Motion's(RIMM) Blackberry devices, the Economic Times reported on Thursday.
NetEase(NTES) Q2 Profit Up 4.5%, Misses Expectations. China's third-largest online game operator NetEase.com second-quarter net income rose 4.5 percent from a year earlier, missing analysts' expectations, amid a lack of new titles and stiff competition.
NetApp(NTAP) Falls as Qtrly Revenue Beat Disappoints. U.S. data storage equipment maker NetApp Inc's quarterly profit more than doubled, but its revenue beat Wall Street estimates by the smallest margin in four quarters, sending its shares down 5 percent.
Applied Materials(AMAT) Sees Strong Q4, but Solar Wanes. Applied Materials Inc forecast quarterly results that beat Wall Street estimates, with demand for its chip-making gear holding up despite fears of weakening technology spending. But the world's top supplier of semiconductor manufacturing equipment warned that sales of solar and energy equipment -- a fast-growing business that accounts for about 15 percent of revenue -- would slide 10 percent to 20 percent this quarter. Executives blamed that slide on an unfavorable comparison with a strong fiscal third quarter ended Aug. 1, as well as a lowering of subsidies for solar power in Germany.
PetSmart(PETM) Sees Strong Full-Year Earnings, Shares Rise. PetSmart Inc posted a strong quarterly profit, helped by continued positive same-store sales in its higher-margin hardgoods business, and the pet products retailer raised its full-year earnings view, sending shares up 7 percent after the bell.
Move Over Skinny Jeans, Denim Goes Wide for Spring. Women who hate skinny jeans can rejoice this spring when the extra-tight denim that has dominated the market for more than two years makes way for wide-leg cuts. Bell-bottoms and boot-cut styles will appear in U.S. stores this spring. Many apparel watchers predict the eventual demise of the skinny that has spurred both adoration and revulsion. "The pendulum is swinging away from skinny," said Ryan Dziadul, a spokesman for VF Corp's (VFC) 7 For All Mankind. "There are millions of pairs out there. For spring, it's about bell-bottoms."
Canada Does Not Need Offshore Drilling Ban. Canada has no need for a moratorium on offshore drilling in the wake of the Gulf of Mexico spill because the current risk of an accident is low, according to a Senate report released on Wednesday.
Financial Times:
US Banks Receive Basel III Boost. Big US banks should be able to meet tighter global capital requirements without having to raise substantial amounts of new equity, according to calculations by Barclays Capital. The analysis by BarCap’s debt capital markets group estimates that the 35 largest US banks will have to come up with half as much new capital as had been expected following last month’s rewrite of proposed requirements by the Basel Committee on Banking Supervision. Analysts at Nomura calculated earlier this month that the top 16 European banks would also gain a sizeable, though slightly smaller, benefit. The numbers are likely to revive complaints that the reforms have been softened too much in the face of lobbying by banks.
Telegraph:
Western Profits Wilt on China's Surging Wages. Rising wage and production costs in China are eating into the profits of Western companies and may soonset off an exodus of multinational companies to cheaper locations. Credit Suisse's survey of executives found that 55pc of foreign firms in China could relocate plant to Bangladesh, Vietnam, Indonesia or other low-cost regions relatively easily, though it would be costly. Diana Choyleva from Lombard Street Research said China has a delicate task ahead. Rampant overheating has given way to a "sharp cyclical downswing", yet China cannot easily unleash another stimulus blitz without risking inflation. They are in the "nasty quadrant " of the economic cycle where all choices are hard, though China is not as far gone as over-cooked India. Beijing may have manoeuvred itself into a policy swamp by relying on tiger-style export growth for so long with a suppressed currency instead of boosting domestic demand. Consumption has fallen from 47pc of GDP in 1998 to 35pc, the flip-side of over-investment in excess capacity. Meanwhile, China Daily reports that 70pc of all flats in Hainan, 66pc in Beijing, and 51pc in Shanghai are empty, based on a survey of electricity use. They are presumably owned by investors and speculators. Given that the "cohort" of young people aged 20 to 30 currently joining the workforce is now contracting as China's demographic crunch starts to bite, this property glut looks all too like the bubble peaks in Taiwan, Hong Kong, and Singapore in the 1990s.
21st Century Business Herald:
China has begun making changes to its labor union law, including allowing migrant workers to join unions, citing Liu Jichen, head of the law department at the All-China Federation of Trade Unions. Changes to the law may also allow industry trade unions to participate in salary negotiations between companies and workers.
The Chinese government's push to clean up local government financing may double the balance of non-performing loans at the nation's banks, citing a commercial bank official. If the government forces banks to increase provisions for loans that may go bad, it could wipe out profit for China's banking industry this year.
China's government shouldn't set gross domestic product growth as the "final target" as the nation's resources and environment are under great pressure, citing Zhang Bin, a researcher at the Chinese Academy of Social Sciences. The nation should instead use the quality of life of its citizens as its target.
Oriental Morning Post:
Shanghai may raise the "cost of owning property" to curb speculative demand, according to a report from the city's Ministry of Land and Resources branch published in the Oriental Morning Post today. Shanghai may use a mix of financial, taxation and land measures to curb property market speculation, the report said.
Munwha Ilbo:
North Korea imported missile-related equipment from a Chinese company in April, citing a South Korean government official.
Evening Recommendations Citigroup:
Reiterated Buy on (DE), target $75.
Night Trading
Asian equity indices are -.25% to +1.0% on average.
Asia Ex-Japan Investment Grade CDS Index 120.0 +2.0 basis points.
Asia Pacific Sovereign CDS Index 115.25 -.75 basis point.
Initial Jobless Claims for last week are estimated to fall to 478K versus 484K the prior week.
Continuing Claims are estimated to rise to 4500K versus 4452K prior.
10:00 am EST
Philly Fed for August is estimated to rise to 7.2 from 5.1 in July.
Leading Indicators for July are estimated to rise +.1% versus a -.2% decline in June.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Bullard speaking, Fed's Evans speaking, (CAT) analyst meeting, weekly EIA natural gas inventory report and the (VSEA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
