North American Investment Grade CDS Index 120.49 bps +3.37%
European Financial Sector CDS Index 154.34 bps +6.28%
Western Europe Sovereign Debt CDS Index 133.50 bps +6.94%
Emerging Market CDS Index 260.41 bps +1.91%
2-Year Swap Spread 38.0 +3 bps
TED Spread 41.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .12% unch.
Yield Curve 245.0 +2 bps
China Import Iron Ore Spot $143.10/Metric Tonne -.07%
Citi US Economic Surprise Index -20.0 +.6 point
10-Year TIPS Spread 1.95% -2 bps
Overseas Futures:
Nikkei Futures: Indicating -168 open in Japan
DAX Futures: Indicating +15 open in Germany
Portfolio:
Slightly Lower: On losses in my Technology and Retail long positions
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and added to my (EEM) short
Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades substantially lower, to session lows, despite a bounce in the euro and rise in commodities. On the positive side, Education, Gold, Drug and Utility stocks are holding up well. On the negative side, Gaming, Semi, Computer, Paper, Oil Service, Road&Rail, Retail, Construction, Networking, Disk Drive, Energy and Alt Energy shares are especially weak, falling 2.5%+. It remains a huge negative that Greece sovereign debt angst continues to rise despite Europe's recent actions. The Greece sovereign cds is rising another +7.98% to 995.94 bps, which is very near its record high of 1,031 on May 7th. Moreover, the China sovereign cds is rising +4.44% to 87.71 bps, the Japan sovereign cds is rising +4.98% to 91.28 bps and the Russia sovereign cds is surging another +4.11% to 193.67 bps. Finally, the European Investment Grade CDS Index is rising another +3.9% to 123.79 bps. Oil is firm today on hurricane/Iran fears and the euro continues to trade well on weak US economic data and short-covering. The AAII % Bulls fell to 34.46% this week, while the % Bears rose to 32.43. Given recent headwinds I would have expected to see a few less bulls. (AAPL) continues to support the Naz and trades very well. (RIMM) reports after the close today. I suspect the company is losing more market share than perceived and will likely disappoint again either this quarter or next. Today's equity decline is a bit too orderly and quiet to indicate another tradable low, in my opinion. I expect US stocks to trade modestly lower into the close from current levels on technical selling, rising US housing worries, increasing sovereign debt angst, China bubble fears, tax hike worries, increasing financial sector pessimism and more shorting.
Greek Bond Risk Jumps to Record on Signs of Sputtering Recovery. The cost to insure Greek government bonds against default jumped to a record on speculation the slowing economic recovery will add to the country’s debt woes. Credit-default swaps on Greece rose 145 basis points to an all-time high of 1,077 basis points, according to CMA DataVision. Contracts on Portuguese government securities climbed 16 basis points to a two-week high of 336.5, while Spain rose 4 to 269. Greek bond risk rose as data showed European industrial orders rose less than expected in April, following a report yesterday that showed growth in the region’s services and manufacturing industries slowed in June. “Some type of restructuring is likely inevitable,” said Eric Stein, a portfolio manager for Eaton Vance’s Global Macro Absolute Return Fund, which in 2005 bought credit swaps on $50 million of Greek debt with an annual premium of $99,000 for 15 years, according to regulatory filings. The fund still owned credit swaps on Greece as of March 31, according to its website. “It’s very tough, in the long-term, to service their debt in its current form,” he said. The extra yield investors demand to hold 10-year Greek debt instead of benchmark German bunds rose 10 basis points to 782 basis points. That’s the most since May 7, before the aid package was announced. Contracts on the Markit iTraxx Crossover Index of 50 European companies with mostly high-yield credit ratings increased 16 basis points to 563.5, JPMorgan Chase & Co. prices show. The Markit iTraxx Europe Index of 125 investment-grade companies rose 4 to 129.9.
U.S. Farmers May Face Subsidy Cuts, Peterson Says. Growers of corn, cotton and other crops may have to accept reduced subsidies in the next farm bill as budget-cutting becomes necessary to contain record deficits, House Agriculture Committee Chairman Collin Peterson said. “We’re not going to have any new money; we’ll probably have less money,” the Minnesota Democrat said today at a hearing in Washington of the House Agriculture subcommittee that oversees commodity programs. “We’re going to have to make it work,” he said.
BP's(BP) Demise Would Threaten U.S. Energy Security, Industry Jobs. Oil spill aside, U.S. energy security will suffer if BP Plc goes under or is significantly reduced in size. Such a scenario would have implications for U.S. energy policy at home and abroad -- and mostly bad ones, Bloomberg Businessweek reports in its June 28 issue. Obama recognized as much when he said on June 16 that “BP is a strong and viable company, and it is in all of our interests that it remain so.” The company’s demise would be disruptive to the American oil industry, given that BP is the largest oil and gas producer in the U.S., with about 1 million barrels per day of production. Some 7,000 of BP’s 23,000 U.S. employees work in the Houston area, many in a suburban office park just off the Katy Freeway. From there the company runs its Gulf of Mexico offshore operations with a phalanx of engineers, geologists, and computer scientists. “These are highly compensated people,” says J. Robinson West, chairman of Washington-based consultants PFC Energy. Until the Deepwater Horizon accident, BP’s Gulf activities were viewed by the U.S. government as a big plus for U.S. energy security interests. Since the mid-1990s, the British company has been the leader in Gulf exploration, pushing into deeper water and drilling farther into the earth. Its projects were key to the 7 percent growth in production the U.S. achieved last year, reversing an 18-year decline in output. BP’s most daring move has been last year’s $20 billion deal in Iraq to add almost 2 million barrels per day in production to the country’s prized oil field in Rumaila. That attracted deals with other companies, greatly improving Iraq’s economic prospects. “BP was bold in going in first and opening up the way for the rest of them,” says Toby Dodge, an Iraq scholar at the International Institute for Strategic Studies in London. Oppenheimer & Co. oil analyst Fadel Gheit thinks BP could end up in bankruptcy if costs exceed $100 billion, a possibility if partners in the stricken well, such as Anadarko Petroleum Corp., manage to pin full legal responsibility for the oil spill on the U.K.-based producer. If so, BP may have to part with some prized assets, and Chinese and Russian oil companies less sympathetic to U.S. interests could step in as buyers and change the geopolitics of the oil industry. “Companies will be interested in buying assets in Azerbaijan, Angola, Brazil, and potentially also Norway,” says Gudmund Halle Isfeldt, an analyst at DnB Nor ASA in Oslo, Norway’s largest bank.
Iceland's Creditor Risk Grows as Banks Face Losses. Icelandic banks may face a second crisis as a court ruling banning some foreign currency loans saddles lenders, mostly owned by international creditors, with losses on $28 billion of debt. “If the decision means all loans in kronur linked to the value of foreign currencies are illegal, I can’t imagine the Icelandic banking sector will survive that,” said Oddgeir A. Ottesen, an economist at IFS Consulting in Reykjavik, in a telephone interview. Credit default swaps on Iceland’s five-year debt rose 5 basis points to 322, the first increase this week and the biggest jump since June 4, according to CMA DataVision prices.
New York May Tax Clothing Sales to Narrow Budget Gap. New York Governor David Paterson said a sales tax on clothing purchases of less than $110 might be part of actions needed to close the state’s $9.2 billion budget deficit. “Taxes on clothes has been brought back to us” by legislators, Paterson said in an interview on New York City radio station WOR today. “It’s in the discussion phase.”
Merkel, Leaving for G-20 Meeting, Sees Rift on Deficits, Rules. German Chancellor Angela Merkel said she expects conflict at the Group of 20 summit in Canada this week on issues ranging from economic policy to financial regulation. Europeans and especially “Germans are of the opinion that the reduction of deficits is absolutely necessary to create sustainable economic growth,” Merkel told reporters at the Chancellery in Berlin today before leaving for Canada. “There are others who don’t see the exit strategy as we see it; I think there will be very fruitful but also controversial debates on these themes.” Merkel’s comments underscore a divergence with President Barack Obama, who in a letter to his G-20 counterparts dated June 16 urged a focus on economic growth, saying order to public finances should be restored in the “medium term.”
The extra yield investors demand to hold 10-year Treasury notes over 2-year securities has fallen to a level signaling further strength in the market for government debt, according to Royal Bank of Scotland Group Plc. A close below 2,435 percentage points, "where the primary steepening trendline comes in," will indicate a further drop in yields, wrote William O'Donnell, managing director in Stamford, Connecticut, at RBS Securities, in a research note today.
Lennar Home(LEN) Orders Fall as Much as 25% in June, CEO Miller Says. Lennar Corp.’s home sales are down 20 percent to 25 percent this month compared with a year earlier as the expiration of a government tax credit for buyers saps demand, Chief Executive Officer Stuart Miller said. “The entire market knew there’d be a slowdown as we came off the tax credit,” Miller said on a conference call with investors today. “It’s just that the reality of it doesn’t feel good.” Toll Brothers Inc., the biggest U.S. luxury-home builder, said on June 16 that orders were running about 20 percent behind year-earlier levels in the three weeks after its May 26 earnings release. Meritage Homes Corp.“Most people are viewing the glass that is half empty right now,” Toll Brothers CEO Douglas Yearley Jr. said at an investors conference sponsored by Deutsche Bank AG in Chicago today. “They are not buying.” expects sales for its quarter ending June 30 to fall about 25 percent below the same period last year, when the Scottsdale, Arizona-based company closed on 890 homes, CEO Steven J. Hilton said at the conference.
Wall Street Journal:
States See Mixed Demand for Appliance Rebates. States have paid out less than half the money set aside for rebates on energy-efficient household appliances, disappointing retailers and manufacturers that had hoped for a repeat of the hot demand fueled by last year's cash for clunkers auto scheme. The Department of Energy said this week that $108 million of the $300 million set aside for the program had been paid out on purchases of appliances such as clothes washers and heating and cooling systems.
Representative McMahon to Vote 'No' If Derivatives Plan Isn't Altered. Rep. Michael McMahon (D., N.Y.) said in an interview today that he will vote against the financial overhaul bill if a section that could require banks to spin off their derivatives businesses isn’t changed immediately. McMahon’s threat underscores New York Democrats’ hostility toward the provision, known as “716” and inserted by Sen. Blanche Lincoln (D., Ark.). He said New York Democrats are discussing what they should do, and that others appeared to also be weighing voting against the bill.
U.S. Financial Clouds Looming. How bad are things out there? One index suggests spillover from the European sovereign-debt crisis has pushed U.S. financial conditions to their worst since the Lehman Brothers aftermath. In the second quarter, the U.S. Monetary Policy Forum conditions index fell to minus-1.82, its lowest since the fourth quarter of 2008, Deutsche Bank calculates.
Cuomo Accepts Millions From Interests He Assails. Attorney General Andrew M. Cuomo, declaring his candidacy for governor of New York, could not have been clearer. “The influence of lobbyists and their special interests must be drastically reduced with new contribution limits,” Mr. Cuomo said last month. “We will be taking on very powerful special interests which have much to lose. We must change systems and cultures long in the making.” But as he delivered his announcement, Mr. Cuomo was sitting on millions in campaign cash from the very special interests whose influence he said he wanted to limit. An analysis by The New York Times shows that of the estimated $7.1 million that the Cuomo campaign has received from political action committees, associations, limited liability corporations and other entities, more than half has come from the biggest players in Albany: organized labor, the real estate and related industries like construction, the health care sector and lobbying firms.
Hedge Fund Regulations Stall in Europe. Talks have collapsed between the European Parliament and national governments over new controls for hedge funds due to a continuing dispute over licensing for funds from outside the bloc. On Thursday, the parliamentarian leading negotiations with European countries said he had disbanded efforts to reach an agreement this month on rules to clamp down on hedge funds and private equity.
NY Post:
Port Authority Cops on Lookout for Terror Attack. Port Authority cops who staff the agency’s bridges and tunnels were read harrowing details of a terrorist threat today advising them to be on the lookout for a fuel-filled tanker meant to explode prior to a secondary blast designed to decimate any first responders, The Post has learned. The chilling warning was read at roll call for four police commands – cops assigned to the Holland and Lincoln Tunnel; the George Washington Bridge; and also the Staten Island command, which incorporates the Bayonne and Goethals Bridge and the Outerbridge Crossing, a source said.
Business Insider:
Citi: Brace For An Avalanche of Economic Downgrades. The rising expectations cycle appears to be peaking, according to Citi in a new strategy note. We're in for a double dip for growth expectations, if not a complete double dip for the economy:
Poll: Lawmakers Who Weaken FinReg Could Be Vulnerable. The poll, which was commissioned by Americans for Financial Reform, finds that an overwhelming majority would be less likely to reelect their member of Congress if they weaken FinReg: When asked if they would be more or less likely to re-elect their member of Congress if he or she "voted for loopholes that would make it easier for Wall Street and the big banks to keep doing business as usual," fully 78% of voters said they would be less likely to re-elect their member of Congress, while 63% said they would be much less likely to re-elect him or her. You may be tempted to dismiss this finding because it's a Dem firm. So check out the new NBC/WSJ poll. It finds that 53 percent generally want their Congressional candidate to support reforming Wall Street, 25 percent enthusiastically so. Getting meaningful FinReg appears to be on the minds of Americans, and it could be a voting issue this fall.
Politico:
Democrats Exempt Unions From Disclosure Rules. A Democratic amendment tucked into campaign finance legislation Wednesday night appears to exempt big labor unions from proposed disclosure requirements. The change, inserted by Rep. Bob Brady (D-Pa.), chairman of the committee charged with handling the bill and a key union ally, would also affect other groups funded by members who pay dues of less than $50,000.
Corker Warns of Bank Bill 'Hijacking'.Sen. Bob Corker (R-Tenn.) accused a handful of senators Thursday of “hijacking” the Wall Street reform negotiations. Corker directed his comments at Banking Committee Chairman Chris Dodd, but he was referring to the Connecticut Democrat's intense negotiations with a handful of moderate Republicans and Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.). “A few senators, over very parochial single-issue items, almost are hijacking the process, and I just want to say to my friend there are a numbers of ways to get to 60 votes,” Corker said to Dodd. “And it is fascinating to watch. Now, a few senators who really haven’t spent a lot of time on this issue — over one issue — potentially hijacked the process."
Reuters:
FACTBOX - China Labor Strikes Bring Factories to a Halt. Discontent among China's estimated 130 million strong migrant workers, who have helped power the country's growth, threatens to undermine the government's legitimacy and erode the nation's competitiveness as a low-cost factory hub.
Financial Times:
China Currency Dispute Has Not Gone Away. Near the end of the first week of trading under the new regime, the renminbi has only appreciated against the dollar by the grand total of 0.39 per cent. When the Chinese central bank said there would be no dramatic movements in the exchange rate, it clearly was not kidding. His message was this: while foreign governments might see the new policy as a passport to a stronger renminbi, China’s export lobby is welcoming it as a way of protecting itself from a weaker euro. Those objectives could easily conflict. Some of this confusion will spill over into this weekend’s G20 summit.
Handelsblatt:
Government support to stimulate the economy can't last forever, German Finance Minister Wolfgang Schaeuble wrote. "Stimulating overall demand with funds financed by credits mustn't become the permanent state, like feeding a drug-addiction," Schaeuble wrote.
Repubblica:
European Central Bank President Jean-Claude Trichet said the credibility of austerity measures taken by governments needs to be kept constantly under control, citing an interview with him. It's wrong to think that austerity measures taken by governments such as Germany strangle a recovery, he said.
El Comercio:
OPEC President Wilson Pastor said stricter regulations on deepwater oil exploration following the BP Plc(BP) spill in the Gulf of Mexico will boost crude prices.
Fannie Mae Will Deny New Loans to Homeowners Who Walk Away. Fannie Mae, the mortgage guarantor 80 percent owned by the U.S. government, will temporarily deny new loans to borrowers who deliberately default and walk away from their homes. Borrowers who have the means to make mortgage payments and don’t work with lenders to restructure loans will be banned from obtaining new mortgages backed by Fannie Mae for seven years from the date of foreclosure, the company said today in a statement.
Homebuilder Default Swaps Rise as New Sales Fall 33% to Record Low in May. The cost to protect against losses on homebuilder bonds jumped after purchases of U.S. new homes fell in May to the lowest level on record. Credit-default swaps on D.R. Horton Inc. climbed to the highest in 11 months, and contracts on KB Home and Lennar Corp. also rose, according to CMA DataVision prices. Swaps on D.R. Horton increased 14.6 basis points to 264.9 basis points, according to CMA DataVision prices. A close at that level would be the highest since July 22, end-of-day prices show. Contracts tied to KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, surged 35.3 basis points to 502.7. Swaps on Lennar rose 17.4 basis points to 435.4. Pulte Group Inc. contracts climbed 12.1 to 264.8.
Rudd Resigns as Australia Leader, Gillard Takes Post. Julia Gillard will become Australia’s prime minister after Kevin Rudd was dumped by his Labor party following a slump in opinion polls and a clash with the resources industry over a plan to tax its profits. Rudd, who served the shortest term as leader since 1971, stood down amid signs he would be replaced by Welsh-born Gillard, 48, at a party room meeting in Canberra today. Gillard took the leadership and needs to be sworn in by Governor-General Quentin Bryce as the country’s first female prime minister.
BHP(BHP, Rio(RTP) Shares Rise as Gillard Ousts Rudd as Australian Leader. BHP Billiton Ltd. and Rio Tinto Group led gains in Australian mining companies as Julia Gillard undertook to negotiate with them on a proposed profit tax after ousting Kevin Rudd as prime minister. “The market is expecting a change,” Tim Leung, who helps manage about $1.5 billion at IG Investment Ltd. in Hong Kong. “People expect the incoming prime minister to oppose the super profit tax on resources.”
A Missed Opportunity on Financial Reform by Arthur Levitt. How could Fannie Mae and Freddie Mac have escaped Congress's attention? As a lifelong Democrat and public servant to four presidents, I had hoped the financial reform bill would be the best example of my party's long-standing reputation for standing on the side of individual investors. It's not. The bill, already weakened by deal-making as it emerged from the Senate, has been bled dry of nearly every meaningful protection of investors. Ironically, the authors of this bill are the same Democrats who normally would have opposed many of its features if they were in the minority. Now in the majority, these politicians are investor advocates in their press releases alone. One of many bad ideas that made it into the bill: Public companies will now have a wider loophole to avoid doing internal audits investors can trust. This requirement was the most important pro-investor reform of the last decade, and it worked. Of the 522 U.S. financial restatements in 2009, 374 were at small firms not subject to auditor reviews. But the reform bill about to be passed expands the number of small companies exempt from Sarbanes-Oxley audit requirements. When fraud is happening at a public company, small or large, investors care. Now, thanks to Democratic leadership, investors are less likely to know. There are many missed opportunities in this bill, but these are the biggest:
Merkel Rejects Obama's Call to Spend. German chancellor rebuffs pressure to boost domestic demand, not exports; warns Europe's crisis is far from over. Chancellor Angela Merkel roundly rebuffed U.S. President Barack Obama's call for Germans to aid the global recovery by spending more and relying less on exports, even as she warned that Europe's own financial crisis is far from over. In an interview with The Wall Street Journal in her Berlin chancellery, an unapologetic Ms. Merkel said the nations that share the beleaguered euro have merely bought some time to fix the flaws in their monetary union. She called on the Group of 20 industrial and developing nations meeting in Toronto this weekend to send a signal that tougher financial-market regulation is on its way to dispel the impression that momentum is fading amid resistance by big banks. She took aim at an idea voiced by France, the U.S. and others that Germany could help global producers by spurring its persistently weak consumer demand. The latest call came in a letter last Friday from Mr. Obama to the G-20, in which he asked big exporters—Germany, China and Japan—to rebalance global demand by boosting consumer spending rather than exports. Ms. Merkel countered that Germany's growth and employment are rising—and therefore the world's fourth-largest economy has no reason to rethink its dependence on its powerhouse industrial sector and large trade surplus. "German export successes reflect the high competitiveness and innovation strength of our companies," she said. "Artificially reducing Germany's competitiveness would be of no use to anyone." Continuing to run big deficits could backfire here, she said, because of Germans' angst about their aging society and rising public debt. Fear that the German welfare state will run out of money in the future leads individuals to save their income as a precaution, she said. If Germany cuts its budget deficit instead, "then the citizen is more willing to spend money," she said, "because he knows that he can count on the pension, health and elderly-care systems."
Republicans Raise Minority Profile. South Carolina Republicans shattered racial traditions this week by voting to nominate an Indian-American woman for the state's governorship and an African-American for the U.S. Congress—punctuating a year in which the GOP has fielded more non-white candidates nationally than any since the 19th century.
Confidence Waning in Obama, U.S. Outlook. Americans are more pessimistic about the state of the country and less confident in President Barack Obama's leadership than at any point since Mr. Obama entered the White House, according to a new Wall Street Journal/NBC News poll. The survey also shows grave and growing concerns about the Gulf oil spill, with overwhelming majorities of adults favoring stronger regulation of the oil industry and believing that the spill will affect the nation's economy and environment. Sixty-two percent of adults in the survey feel the country is on the wrong track, the highest level since before the 2008 election. Just one-third think the economy will get better over the next year, a 7-point drop from a month ago and the low point of Mr. Obama's tenure. Amid anxiety over the nation's course, support for Mr. Obama and other incumbents is eroding. For the first time, more people disapprove of Mr. Obama's job performance than approve. And 57% of voters would prefer to elect a new person to Congress than re-elect their local representatives, the highest share in 18 years. The results show "a really ugly mood and an unhappy electorate," said Democratic pollster Peter Hart, who conducts the Journal/NBC poll with GOP pollster Bill McInturff. "The voters, I think, are just looking for change, and that means bad news for incumbents and in particular for the Democrats. "Mr. McInturff said voters' feelings, typically set by June in any election year, are being hardened by frustration over the economy and the oil spill. Support for Mr. Obama and his party is declining among centrist, independent voters. But, more ominous for the president, some in his base also are souring, with 17% of Democrats disapproving of Mr. Obama's job performance, the highest level of his presidency. Fewer than half give him positive marks when asked if he is "honest and straightforward.'' And 49% rate him positively when asked if he has "strong leadership qualities,'' down from 70% when Mr. Obama took office and a drop of 8 points since January. Just 40% rate him positively on his "ability to handle a crisis," an 11-point drop since January. Half disapprove of Mr. Obama's handling of the oil spill, including one in four Democrats. "As a Democrat and as a woman, I am disappointed in him," said poll respondent Melissa Riner, a 42-year-old law clerk from Mesa, Ariz. Referring to the oil spill, Ms. Riner added, "I don't think he's handling it. He doesn't seem to be doing anything. He just talks." In the survey, 45% said they wanted to see a Republican-controlled Congress after November, compared to 43% who wanted Democratic control. But even more telling is the excitement gap between the core voters of each party. Just 44% of Obama voters—those who voted for Mr. Obama in 2008 or told pollsters they intended to—now express high interest in the midterm elections. That's a 38-point drop from this stage in the 2008 campaign. By contrast, 71% of voters who supported Republican John McCain in 2008 expressed high interest in this year's elections, slightly higher than their interest level at this stage in that campaign. The gap helps explain why the Democratic National Committee is spending $50 million on a campaign to try to lure Obama voters back to the polls this year.
AIG(AIG) Changes Pay Plan for Its Stars. American International Group Inc. has changed its compensation structure for its most highly paid employees, potentially making their income more secure while the insurance giant tries to repay its bailout. Government-controlled AIG recently implemented a plan to reduce the impact of its volatile share price on the pay of top employees, by basing most of their noncash compensation instead on the price of its debt, which is seen as a more-stable investment. The plan was devised by AIG's management and board and approved by the company's government overseers.
Mexico, US to Negotiate Gulf Cross-Border Oil Treaty. Mexico and the U.S. plan to negotiate an agreement to set rules for the exploitation of cross-border oil fields in the Gulf of Mexico in which each side would have the right to some of the resources, the Mexican Foreign Ministry said Wednesday. "The governments of Mexico and the U.S. today jointly announce their desire to negotiate a treaty to regulate the exploitation of hydrocarbon deposits that cross our common international maritime border," the statement said. No common oil field has been discovered to date where resources cross the maritime border, the statement said, but both sides want to be prepared should that happen. Some Mexican politicians have expressed concern that oil rigs on the U.S. side of the Gulf could suck up crude from the Mexican side in what they call the "drinking straw effect." Prior to the BP oil spill, production on the U.S. side of the Gulf was intensifying in deep waters and Mexico was barely beginning exploration. Some of the U.S.-side production is near Mexican waters. The ministry also said that a moratorium on drilling in the western part of the Gulf of Mexico has been extended from January 2011 to January 2014.
New Fronts Open Up in Smartphone Turf War. iPhone Advances Inside Companies BlackBerry Had. Consumers around the globe will wait on long lines Thursday to get their hands on the newest iPhone, but far from the sidewalk frenzy, Apple Inc.'s smartphone is making inroads with business customers. Companies like Bausch & Lomb Inc. are buying iPhones for their employees, in some cases replacing BlackBerry devices. Earlier this year, the eye-care products company made iPhone the standard issue device for its sales force. Now, about 1,200 salespeople have one.
BP(BP) Relied on Faulty U.S. Data. BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one. The government models, which have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models wrong.
Woman Accused Gore of Sex Misconduct in 2006. A Portland massage therapist accused former Vice President Al Gore of "unwanted sexual contact" at a hotel during an October 2006 visit, but no charges were filed due to lack of evidence, law officials said Wednesday.
CNBC:
Senators Prepare a Citigroup-Sized Hole in Volcker Rule. Senate negotiators are expected to offer changes today to the financial reform bill that would soften the Volcker rule. On Capitol Hill there is widespread speculation that the Senate negotiators will propose language that would allow banks to invest a small amount of their capital in their internal hedge funds or proprietary trading desks. Depending on which percentage the Capitol Hill negotiators agree to, lawmakers may unintentionally be allowing the banks that needed the biggest bailouts during the financial crisis to escape the Volcker Rule. On the other hand, banks that fared better may be forced to spin off parts of their prop trading and hedge fund businesses.
IBD:
Voice Box Maker Gets The Word Out To Those Who Cannot Speak. The Pittsburgh company DynaVox (DVOX) develops software and hardware that voice words for people who suffer from various neuromuscular diseases, have traumatic brain injuries or can't speak for other reasons.
Business Insider:
Barney Frank Tells Hedge Funds To Pay for Next Stimulus and Fund Homeless Job Creation. Looks like Barney Frank is trying to play tough guy after Republicans teased him and infuriated him over fixing Fannie and Freddie. Reuters via Zerohedge is reporting that Barney Frank is telling hedge funds that they're next in line for funding the cost of a bailout, should we have another one. Zerohedge: Just out from Reuters: Barney Frank has introduced the Frank Bank Levy Proposal, which would tax banks with more than $50 billion in assets, and hedge funds with more than $10 billion, and use the money to fund $4 billion for neighborhood assistance and foreclosure help for the jobless with good credit. In other words, big banks and hedge funds will be funding Obama's next stimulus for his core constituency.
Google(GOOG) Wins YouTube Copyright Case Against Viacom. Google just announced that it has won its $1 billion YouTube copyright case with Viacom. Viacom plans on appealing the decision. Here's Google's blog post about it:
Zero Hedge:
Portuguese Bank Borrowings From ECB More Than Double in May, Hit All Time Record. Earlier, we pointed out the abysmal results of the most recent 5 Year Portuguese auction, which came in at a whopping 4.657%, nearly 1% higher than the last such auction from just a month ago, which then closed at 3.7%. Alas, the deteriorating funding environment in Portugal is not a fluke - according to the Bank of Portugal, bank borrowings from the ECB surged in the past month, and doubled from €17.7 billion to €35.8 billion in May.
How High Frequency Trading Quote Stuffing Caused the Market Crash of May 6, And Threatens to Destroy the Entire Market at Any Moment. Even as the idiots at the SEC mope about cluelessly, confirming they deserve not one cent of taxpayer money to fund their massively overbloated budget, and should all be summarily fired to collect tarballs in the Gulf of Mexico (and soon Maine), our friends at Nanex have conducted an exhaustive analysis (must read for everybody concerned about market structure), in which they identify the various parties responsible for the market crash, and, drumroll please, High Frequency Trading stands at the pinnacle of culprits for the 1,000 point Dow drop.
Why Illinois' Bond Rating Is Worse Than it Seems. Based on raw numbers, other states have more serious financial problems than Illinois. Nevada and Michigan, for example, both have unemployment rates close to 15 percent. California has a $19 billion budget deficit. But does any state have a government less serious about solving its financial problems? “We view the failure to enact significant new recurring fiscal measures as a troublesome indicator with respect to Illinois’ governance and management profile,” Moody’s Investors Service wrote when it downgraded Illinois’ bond rating this month. The bond rating dip came after the state refused to do anything about the $13 billion budget deficit. In other words, if Illinois were a corporation, they’d want to see a new CEO and board of directors before buying its stock. All over the U.S., as property values and tax revenues crash, and federal stimulus money disappears, states are beginning to realize they can’t continue supporting their residents in the manner to which they’ve become accustomed. Trenton and Lansing may not be in denial, but Springfield is. Illinois’ expected budget shortfall of $13 billion is 36.1 percent of its budget – the third-highest percentage in the nation, after New Jersey and Nevada, which has seen severe declines in property values. So far, the legislature’s solution has been to hand off the problem to Gov. Quinn, by giving him emergency budget-cutting powers. But instead of cutting the budget, Quinn wants to borrow $3.7 billion to pay the state’s pension obligations. That’s going to put us deeper into the hole, when the interest comes due. The state did raise the retirement age and reduce pension obligations to new employees, but we won’t see the benefits of that for 25 or 30 years. But the governor and the legislature are afraid to do more, because 2010 is an election year. If they don’t do anything, it’ll be the last election year a lot of them have to worry about. This is a bad time to be running any state – but it’s an even worse time to have leaders who refuse to run a state.
Crain's Chicago Business:
Wall Street Reform Bill to Probe White House Role in ShoreBank Bailout. House and Senate negotiators on the Wall Street reform bill agreed Wednesday to investigate whether the White House exerted political pressure to bail out Chicago’s ShoreBank Corp. The White House has denied any involvement in helping the struggling South Side bank, which is widely known for its community-oriented lending policies and close ties to the Obama administration. But Republicans pressed for an investigation after several of Wall Street’s biggest banks — including Goldman Sachs, J. P. Morgan Chase & Co. and Bank of America Corp. — intervened to raise about $150 million in private capital that ShoreBank needs to qualify for another $75 million in help from the federal government’s Troubled Asset Relief Program.
Rasmussen Reports:
42% Oppose Kagan's Confirmation, 35% Favor. Forty-two percent (42%) of U.S. voters now believe Supreme Court nominee Elena Kagan should not be confirmed following the Senate hearings scheduled to begin next week. That's up nine points from the week President Obama announced her nomination and the highest level of opposition to date in Rasmussen Reports tracking of the Kagan nomination. The latest Rasmussen Reports national telephone survey of Likely Voters shows that 35% think Kagan should be confirmed by the U.S. Senate to the Supreme Court. Another 23% are undecided at this point.
USA Today:
Home Buyer Tax Credit Fraud Includes 1,295 Prison Inmates. Despite efforts by the IRS to combat scams, thousands of individuals — including nearly 1,300 prison inmates — have defrauded the government of millions of dollars in home buyer credits, Treasury's inspector general reported Wednesday.
Gulf Seafood Takes Bite Out of Restaurants. As the ruptured BP well spews oil into the Gulf of Mexico, seafood restaurants nationwide are rewriting menus to cope with volatile prices and spot shortages for shrimp, oyster and crab. Some menu items, such as Gulf oysters, may disappear entirely. Other restaurants may import seafood to fill in the holes. Prices for harder-to-find foods may increase, and portions may shrink.
Tamba Bay Online:
GM Seeks Subprime Borrowers. General Motors Co. is looking to boost auto sales by lining up banks and other financial institutions to make loans and lease deals for buyers with poor credit. "We are developing relationships with other financial sources on a selective basis for specialized financing needs, such as leasing and subprime financing," GM spokeswoman Renee Rashid-Merem said Wednesday. The automaker's sales are up about 15 percent through the first five months of the year, but they trail the increase for the overall U.S. industry by more than 2 percent. Crosstown rival Ford Motor Co. has seen its sales rise 30 percent compared with the first five months of last year. Mark Reuss, GM's North American president, said in an interview last month that GM would like to tap into the subprime credit market to help lift sales.
Reuters:
Venezuela to Nationalize US Firm's Oil Rigs. Venezuela will nationalize 11 oil rigs belonging to U.S. company Helmerich and Payne (HP), the latest takeover as socialist President Hugo Chavez struggles with lower oil output and a recession.
Nike(NKE) Profit Matches View, Sees Pressure Ahead. Nike Inc (NKE) on Wednesday said fourth-quarter profit jumped 53 percent to match Wall Street's view, but cautioned that the strong dollar and higher costs for oil, labor and shipping would weigh on profits and sales in the coming year. Shares in Nike slipped 2.4 percent after the largest global player in the athletic shoe and clothing market said fourth-quarter revenue missed analysts goal.
US Lawmakers Renew Drive for China Currency Bill. U.S. lawmakers on Wednesday dismissed China's recent step toward a more flexible currency policy as too little too late and said they would pursue legislation to press Beijing for more significant reform. "Nothing ever changes unless you force China to act," Senator Charles Schumer said at a hearing where lawmakers also urged top Obama officials not to let up pressure on Beijing. The New York Democrat said he other senators who believed China's currency policy gives it an unfair trade advantage were determined to get a Senate vote soon on their bill that would consider the undervalued yuan a subsidized currency. "We are not placated by these public pronouncements. We want action ... The Chinese will keep treating us like they have us on a yo-yo unless we make a serious push for our legislation," Schumer said. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said he also believed China was moving too slowly and planned to dust off a bill he crafted several years ago to give the White House new tools to deal with the issue. The congressional backlash raises the temperature for this weekend's meeting in Toronto between President Barack Obama, Chinese President Hu Jintao and other leaders of the Group of 20 leading developed and developing nations. A common feature of most of the bills is a provision that would require the Commerce Department to treat "undervalued" currencies as a subsidy under U.S. trade law.That would allow U.S. manufacturers to request, on a case-by-case basis, a "countervailing duty" on Chinese goods that benefit from the exchange rate. Many lawmakers insist the Commerce Department already has the authority to take that step, and department officials have been weighing whether to investigate if China's exchange rate can in fact be treated as a subsidy.
Bed Bath & Beyond(BBBY) Q1 Beats Street; Sees Lackluster Q2. Home furnishings retailer Bed Bath & Beyond Inc (BBBY) posted a strong quarterly profit as consumers continued to splurge on their homes, but thecompany forecast weak second-quarter earnings, sending its shares down 7 percent.
Citigroup's(C) Pandit Eyes Basel. Citigroup Inc (C) Chief Executive Vikram Pandit said the biggest U.S. banks are too focused on regulatory reform domestically, and not paying enough attention to pending changes in global capital rules. The Basel rules on banks' capital requirements can impact the institutions and uncertainty about the rules can slow recovery, Pandit said at a panel discussion on Wednesday. "It's time to shift our focus to these Basel-type accords, which can actually have a big dampening effect, particularly in places like Europe," he said. The Basel rules are expected to require banks around the world to hold more capital to protect against future financial crises.
Japan's Export Growth Slows. Japan's annual export growth slowed for a third consecutive month in May in a sign that its overall economic growth could start to slow as the pace of recovery in overseas demand moderates. Exports also fell 1.2 percent from the previous month on a seasonally adjusted basis as signs of weakness in the U.S. economic recovery and steps to curb bank lending and investment in China hampered demand for Japanese goods.
Telegraph:
Soros Tells Germany to Step Up to Its Responsibilities, or Leave EMU. "German policy is becoming a danger that could destroy the European Project. A collapse of the euro cannot be excluded," he told the German weekly Die Zeit. "Unless Germany changes policy, its withdrawal from the currency union would be helpful for the rest of Europe. At the moment Germany is pushing its neighbours into deflation: this threatens a long phase of stagnation, leading to nationalism, social unrest, and zenophobia. It endangers democracy," he said. Mr Soros saw the political effects of wage cuts first-hand during the Great Depression, and narrowly survived the Holocaust as a Jewish boy in Nazi-controlled Budapest. He has since dedicated much of his wealth to philanthropic works promoting freedom and pluralism across the globe, mostly through Open Society institutes. His comments reflect growing alarm in influential circles on both sides of the Atlantic over the 1930s-style policies of wage cuts and debt-deflation being imposed up the Club Med bloc, Ireland, and parts of Eastern Europe by the EU authorities, at the behest of Berlin.
21cbh.com:
China may limit businesses that process or assemble imported materials into products for export, citing trade officials. The businesses, which currently aren't required to pay taxes on imported materials as they are being processed for export, would need to begin doing so as a result of the new rules. The rules would be applied to some products including the six for which the government removed export tax rebates this week.
China Daily:
Local Government Debt Could Trigger Financial Crisis. The nation's chief auditor warned on Wednesday that local government debt will pose risks to the Chinese economy amid concerns that the debt could trigger a European-style financial crisis. The ratio of debt to disposable revenues at some local governments has exceeded 100 percent, with the highest standing at 365 percent. "The scale is large, and the burden is quite heavy," Liu Jiayi, director of the National Audit Office, said while making an annual audit report to the top legislature. Liu came to the conclusion after an audit of the nation's budgets. Debt repayment pressure for some local governments is quite heavy, with the total public debt of 18 audited provinces, 16 cities and 36 counties amounting to 2.79 trillion yuan ($410 billion), he said. Among those debts, 1.75 trillion yuan was accumulated before 2009, while 1.04 trillion yuan is new, accounting for about 37 percent of the total, he said. The local government debt could total between 6 and 11 trillion yuan for the nation as a whole, according to various estimates by researchers. "New government debt must be strictly controlled to prevent financial risk evolving into fiscal risk," he said.
China Securities:
China's state revenue may be insufficient to pay the 2.9 trillion yuan of debt owed by local provincial and city governments. Severn provinces, 10 cities and 14 districts owed debt that exceeded their repayment abilities by more than 100%, citing the country's Auditor General Liu Jiayi.
Shanghai Morning Post:
Three of China Vanke Co.'s Shanghai developments began selling at prices 20% less than the company estimated before the government's tightened real estate policies, citing a person at the Vanke's Shanghai branch.
Evening Recommendations Citigroup:
Reiterated Buy on (BBBY), target $54.
Reiterated Buy on (NKE), target $86.
Night Trading
Asian equity indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 130.0 -1.0 basis point.
Asia Pacific Sovereign CDS Index 127.75 +5.0 basis points.
Durable Goods Orders for May are estimated to fall -1.4% versus a +2.9% gain in April.
Durables Ex Transports for May are estimated to rise +1.0% versus a -1.0% decline in April.
Initial Jobless Claims for last week are estimated to fall to 463K versus 472K the prior week.
Continuing Claims are estimated to fall to 4550K versus 4571K prior.
Upcoming Splits
None of note
Other Potential Market Movers
The $30 Billion 7-Year Treasury Notes Auction, weekly natural gas inventory report, Wells Faro Healthcare Conference, Deutsche Bank Industrials Conference and the (ADSK) Analyst Meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 116.56 bps +6.22%
European Financial Sector CDS Index 151.84 bps +12.04%
Western Europe Sovereign Debt CDS Index 124.83 bps -4.71%
Emerging Market CDS Index 254.07 bps +.77%
2-Year Swap Spread 35.0 unch.
TED Spread 42.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .12% +1 bp
Yield Curve 243.0 -6 bps
China Import Iron Ore Spot $143.20/Metric Tonne -.42%
Citi US Economic Surprise Index -20.60 -5.7 points
10-Year TIPS Spread 1.97% -4 bps
Overseas Futures:
Nikkei Futures: Indicating -43 open in Japan
DAX Futures: Indicating +12 open in Germany
Portfolio:
Slightly Lower: On losses in my Technology, Retail and Medical long positions
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite many negatives. On the positive side, Coal, Steel and Homebuilding stocks are especially strong, rising .75%+. The reversal higher in the homebuilders, despite very bad data, is noteworthy. The bounce in the euro, mainly as a result of poor US economic data, is also helping prop up stocks today. On the negative side, Medical, I-Banking, Bank, Software, Energy and Utility shares are especially weak, falling .75%+. It remains a huge negative that Greece sovereign debt angst continues to rise despite Europe's recent actions. The Greece sovereign cds is rising another +8.23% to 947.53 bps, which is very near its record high of 1,031 on May 7th. Moreover, the Portugal sovereign cds is rising +6.23% to 319.51 bps and the Russia sovereign cds is surging +4.7% to 186.83 bps. The Emerging Markets Sovereign CDS Index is rising 9.7% to 239.33 bps. Finally, the European Investment Grade CDS Index is rising +7.07% to 120.50 bps. The 10-year yield is falling too much again, dropping another 6 bps to session lows. I am very surprised at today's equity resilience given the news. The deterioration in Greece, once again, is a huge negative that is currently being mostly ignored by investors as the euro currency bounces on poor US economic data. The market is unlikely to ignore Europe much longer, but the bears seem low on firepower right here and more short-covering could occur in the short-term. I expect US stocks to trade modestly lower into the close from current levels on technical selling, rising US housing worries, increasing sovereign debt angst, tax hike worries, increasing financial sector pessimism and more shorting.
