North American Investment Grade CDS Index 114.73 bps -4.24%
European Financial Sector CDS Index 127.53 bps -6.12%
Western Europe Sovereign Debt CDS Index 146.0 bps -1.02%
Emerging Market CDS Index 258.43 bps -1.49%
2-Year Swap Spread 31.0 -1 bp
TED Spread 38.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 239.0 +2 bps
China Import Iron Ore Spot $122.90/Metric Tonne -2.92%
Citi US Economic Surprise Index -20.10 +.7 point
10-Year TIPS Spread 1.80% +7 bps
Overseas Futures:
Nikkei Futures: Indicating +105 open in Japan
DAX Futures: Indicating +23 open in Germany
Portfolio:
Slightly Higher: On gains in my Biotech and Technology long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges, covered some of my (EEM) short and added to my (GOOG) long
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades to session highs, building on yesterday's sharp advance. On the positive side, Education, Restaurant, Disk Drive, Ag, Oil Service, Oil Tanker, Alt Energy and Defense stocks are especially strong, rising 1.25%+. Cyclicals are outperforming again today. The S&P GSCI Ag Spot Index is rising another +1.54% today to 320.55 and is now slightly above its 200-day moving average for the first time since early March. The 10-year yield is rising another +3 bps, which is also a positive. The large jump in the AAII% Bears to 57.1% is also a noteworthy positive. Moreover, the Spain sovereign cds is dropping another -9.9% to 226.25 bps and the European Investment Grade CDS Index is falling -4.7% to 113.08 bps. The US Muni CDS Index is falling -2.4% to 253.46 bps. On the negative side, Gold, Homebuilding, Semi and Bank shares are relatively weak, falling .5%+. China Import Iron Ore Spot prices continue to decline and the Shanghai Composite was unable to rally last night with most other global indices. After a mixed performance yesterday on the big rally in stocks, it is good to see some meaningful cds declines today. The current rally looks like it still has more upside steam. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less real estate sector pessimism, falling sovereign debt angst, bargain-hunting and diminishing economic fear.
Corporate Bond Risk Falls in Europe as IMF Fuels Recovery Bets. The cost of insuring against losses on European corporate bonds fell to the lowest in two weeks after the International Monetary Fund raised global growth forecasts, fueling optimism the economic recovery is on track. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 27 basis points to 545, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings fell 5.75 basis points to 117.5. “It’s important for the market to be confident that we won’t go back to a weak growth scenario and that if we see an economic slowdown it’ll be relatively mild,” said Maureen Schuller, a strategist at ING Groep NV in Amsterdam. “The IMF forecast and retail sales are supportive signals.” The cost of protecting bank bonds from default fell even as proposed stress tests for European lenders drew criticism from analysts for underestimating potential losses. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers fell 11.5 basis points to 138.5, the lowest since May 13, and the subordinated index was down 17 at 211. Swaps on the European government debt also fell. Contracts on Greece dropped 10 basis points to 884, Portugal declined 12.5 to 279 and Spain fell 14 to 231, CMA DataVision prices show. Debt swaps tied to BP Plc’s bonds fell 35 basis points to 391, the lowest level in a month.
U.S. 30-Year Mortgage Rates Decline to Record 4.57%. Mortgage rates for 30-year U.S. loans fell to the lowest on record for the third straight week, reducing borrowing costs for homebuyers as unemployment and foreclosures weigh on demand. The average rate declined to 4.57 percent in the week ended today, the lowest since Freddie Mac began compiling the data in 1971, the mortgage-finance company said in a statement. It was 4.58 last week. Rates for 15-year loans rose to 4.07 percent from 4.04 percent, McLean, Virginia-based Freddie Mac said.
Corn, Soybeans Rise as Adverse Weather Reduces Global Crops. Corn rose to the highest price since January and soybeans gained for the second straight day on speculation that adverse weather will reduce yields in China and Russia, boosting demand for supplies from the U.S.
Oil Rises to One-Week High as Retail Sales Gain, Supplies Drop. Crude oil climbed to the highest in a week as gains in U.S. retail sales and a drop in crude inventories added to signs of a recovery in the world’s largest energy consumer. Oil rallied 2.9 percent yesterday from a four-week low after the International Council of Shopping Centers estimated retail sales expanded at the fastest pace in four years. U.S. crude stockpiles fell 2 percent to 351.8 million barrels last week, the biggest drawdown since September, according to the American Petroleum Institute.
Reid So Toxic His Son Campaigns Without Last Name. For Nevada Democrats, November’s election may prove that something more toxic than one Reid on the party’s ticket is two. Polls show Senate Majority Leader Harry Reid, 70, struggling in his bid for a fifth term, with disapproval ratings hovering around 50 percent. Efforts to rescue him reach to the White House: President Barack Obama hosts a campaign rally for Reid today at the Aria Resort & Casino in Las Vegas. Absent will be the state’s Democratic gubernatorial candidate, Rory Reid, who will be greeting supporters in the Washoe Valley more than 450 miles away. He is Harry Reid’s son. The Reids have been keeping their distance from one another. They’ve attended few events together, and the first statewide television advertisement for Rory Reid, 47, made no mention of his last name.
Jobless Claims in U.S. Declined Last Week to 454,000. The number of Americans applying for jobless benefits fell more than forecast last week while staying at a level that indicates unemployment will be slow to decline. Initial claims for benefits decreased by 21,000 in the week ended July 3 to 454,000, Labor Department figures showed today in Washington. Economists had forecast claims would fall to 460,000 from an initially reported 472,000 for the prior week, according to the median of 36 projections in a Bloomberg survey. The four-week moving average, a less volatile measure than the weekly figures, fell to 466,000 from 467,250 the prior week, today’s report showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 3.4 percent in the week ended June 26 from 3.6 percent.
U.S. Banks Recruit Investors to Kill FASB Fair-Value. Banking lobbyists have launched an e- mail and Web campaign to mobilize investors against a proposed expansion of fair-value accounting rules that may force banks such as Citigroup Inc. and Wells Fargo & Co. to write down billions of dollars of assets. The American Bankers Association opposes the Financial Accounting Standards Board’s plan to apply fair-value rules to all financial instruments, including loans, rather than just to securities. The group says the rule could make strong banks appear undercapitalized. Fair-value, also known as mark-to-market accounting, forces companies to adjust the value of most securities they hold to market prices each quarter. It became one of the biggest flash points of the financial crisis when banks barraged lawmakers and the Securities and Exchange Commission with complaints that the rule exacerbated their problems because they had to record losses on mortgage bonds they had no intention of selling. FASB in April 2009 relaxed that requirement after being pressured by lawmakers on a House Financial Services subcommittee. “History has proven that these rules simply do not work,” Boyle wrote. “They artificially spurred the bubble, then artificially worsened the downturn.”
Wall Street Journal:
Oil-Sands Push Tests U.S.-Canada Ties. Pipeline Project Would Double Imports of the Crude From North, but Environmental Worries Fuel Opposition. A battle over whether the U.S. should curb its use of oil produced from Canada's oil sands is straining ties between the countries and comes amid a wider debate about the safest and cleanest ways to extract fossil fuels. Rep. Henry Waxman (D., Calif.), chairman of the House energy committee, this week urged Secretary of State Hillary Clinton to veto the expansion of a giant pipeline that would roughly double the amount of oil-sands crude Canada ships to the U.S., calling it a "multi-billion dollar investment to expand our reliance on the dirtiest source of transportation fuel currently available." Environmental groups are planning protests Thursday at the Canadian embassy in Washington, consulates and along the route of the proposed extension, sections of which run from Canada to Texas. A spokesman for TransCanada Corp., which is building the pipeline, said TransCanada disagreed with Mr. Waxman's assertions and that the project would create jobs and revenue for states. Mr. Waxman's statement follows a similar letter last week signed by 50 members of Congress, and is the latest volley in a struggle between environmentalists, lawmakers and Canadian oil producers over the rising amount of fuel imported from Canada's oil-sands reserves. The groups are already clashing in U.S. courts over everything from permits to ship or refine oil-sands oil to legislation that could effectively prevent the federal government from buying Canadian oil. The extension must be approved by the State Department. A decision could come as soon as in the next month, but Mr. Waxman and others are asking for a delay until emissions evaluations are done. Attacks on oil-sands production could complicate relations with Canada, the U.S.'s biggest trading partner, where energy makes up about a quarter of exports. Canadian oil-sands executives and politicians have said if the U.S. doesn't take the fuel, nations like China will. The government of Alberta last week took out a full-page ad in the Washington Post defending the oil sands, stating "A good neighbour lends you a cup of sugar. A great neighbour supplies you with 1.4 million barrels of oil per day."
In Sun Valley, Media Chiefs Fret Over Economy. Media and technology executives and investors are sounding new alarms bells about the economy, worried it could wipe out recent growth.
Plea Deal Expected in Russian Spy Case. Members of an alleged Russian spy ring in the U.S. are expected to plead guilty to criminal charges as part of a plea deal likely to be announced Thursday afternoon, people familiar with the discussions said.
Banks Will Need More Cash After Stress Tests. Banks across the euro area will probably need around €90 billion ($113.78 billion) of additional capital to plug holes in their balance sheets revealed by stress testing, bank analysts say. German regional Landesbanks could require a €37 billion-injection and Spanish banks could be short around €12 billion, according to a report published Thursday by banking analysts at Credit Suisse.
The Berwick Evasion. Obama dodges a Senate debate on his ideal Medicare chief.
Barron's:
Bearish Sentiment Surges. Bullish sentiment fell 3.7 percentage points to 20.9% in the latest AAII Sentiment Survey. The proportion of individual investors who expect stocks to rise over the next six months is at its lowest level since March 5, 2009. The historical average is 39%. Neutral sentiment, expectations that stocks will stay essentially flat over the next six months, fell 11.3 percentage points to 22.0%. This is the first decline in neutral sentiment in six weeks. The historical average is 31%. Bearish sentiment, expectations that stocks will fall over the next six months, surged 15.1 percentage points to 57.1%. This is the 15th highest level reading for bearish sentiment since the survey started in 1987. The historical average is 30%. The last time bearish sentiment was higher was March 5, 2009. This coincided with the bottom of the last bear market.
Bloomberg Businessweek:
U.S. Retail Sales Rise in June on Weather, Discounts. U.S. retailers reported sales gains in June as record-high temperatures on the East Coast pushed more shoppers into air-conditioned malls. Sales at stores open at least a year rose more than analysts projected at Nordstrom Inc., J.C. Penney Co. and Macy’s Inc., according to estimates compiled by Retail Metrics Inc. Gap Inc. and TJX Cos. fell short of predictions. “Department stores benefited toward the end of the month from the excess heat across the country, particularly in the northeast but also out west,” said Ken Perkins, president of Retail Metrics. “Results were clearly mixed, and there was selective buying going on.”
CNBC:
US Government Will Issue New Drilling Ban if Appeal Fails. The Obama administration will "immediately" issue a revised drilling ban if a federal appeals court agrees with a lower court's decision to block the government's initial six-month moratorium on drilling in deep waters, an Interior Department official told Reuters on Thursday. The showdown starts at 3 p.m. local time at the U.S. Court of Appeals for the Fifth Circuit in New Orleans, where government lawyers will square off for one hour against drilling companies before a three-judge panel.
Man Group Funds Under Management Slip Further. U.K. hedge-fund manager Man Group on Thursday reported a 2.3% drop in its funds under management over the second quarter, but said it was pleased with the performance of its flagship AHL fund given the weakness in global equity markets. The group said funds under management fell to $38.5 billion at the end of June from $39.4 billion at the end of March.
Are We on the Brink of an AIDS Vaccine? Scientists have just confirmed the discovery of an antibody that protects against 91% of HIV strains, according to the Wall Street Journal.
Apple's(AAPL) new iPod touch rumored to have 5MP camera, FaceTime. A new report alleges that Apple's next iPod touch, expected to arrive this September, will have a 5 megapixel camera, capture HD video, feature FaceTime connectivity, and include a gyroscope, like the iPhone 4.
Dodging a Health-Care Fight. On Tuesday, the Obama administration decided to do something rather peculiar, somewhat shocking and politically fascinating: It circumvented the process by which the Senate advises and consents on executive-branch nominees. The move, which seems unprecedented in subtle but important ways, promises increased chaos in Washington -- but also hope on health care. This is as glaring an admission as there is that Obama and his people know they've lost the public on health care. Rather than using these hearings to bolster popular support for the landmark legislation they rammed through in the spring, they can't bear to submit to public questioning about it. By running away from this fight, Obama is signaling that the possibility of repealing the health-care monstrosity before it really begins to sink its teeth into the American system by 2014 is very real indeed.
Rasmussen Reports:
56% Oppose Justice Department Challenge of Arizona Law; 61% Favor Similar Law in Their State. Voters by a two-to-one margin oppose the U.S. Justice Department’s decision to challenge the legality of Arizona’s new immigration law in federal court. Sixty-one percent (61%), in fact, favor passage of a law like Arizona’s in their own state, up six points from two months ago. A new Rasmussen Reports national telephone survey finds that just 28% of voters agree that the Justice Department should challenge the state law. Fifty-six percent (56%) disagree.
Global Junk Default Rate to Fall Below 2% - Moody's. The global speculative-grade default rate fell for a seventh month in June and should dip below 2 percent within a year, Moody's Investors Service said on Thursday.
NRK:
Norway's government will increase taxes on assets and wealth in its 2011 budget, citing Finance Minister Sigbjoern Johnson. The finance minister also said that the government wants to reduce taxes for citizens who are less well off in an effort to redistribute wealth.
Handelsblatt:
European Central Bank Executive Board member Juergen Stark said introducing a bank tax may cause too much stress for financial institutions and impede credit supply.
Diario Economico:
Portugal will increase income tax in 2011 as part of a plan that has already been announced to reduce tax deductions and benefits, citing Sergio Vasques, the secretary of state for fiscal affairs.
Caijing:
China may extend a resources tax on coal, oil and gas production nationwide on Sept. 1, citing officials from the Ministry of Finance and the State Administration of Taxation.
Retailer Bonds Pull Away as Time Warner(TWX) Raises $3 Billion: Credit Markets. Retailers, buoyed by sales growing at the fastest pace in four years, are outperforming the broader U.S. corporate bond market as investors wager the economy will avoid a double-dip recession and support consumer spending. The bonds have returned 2.8 percent since the end of May as the market gained 1.9 percent, according to Bank of America Merrill Lynch index data. Greensboro, North Carolina-based apparel maker VF Corp., the index’s best performer in June, returned 5 percent for the month.
Hamburg Deaf to U.S. 'Nonsense' as Exports Power German Growth. Hamburg, the port city that sends 1 million tons of goods to foreign markets each week, has a reply to those who say Germany’s economy is too reliant on exports. “Nonsense,” said Frank Horch, the city’s Chamber of Commerce president, in a June 24 interview in the offices of the 345-year-old trade group. “You cannot say Germany has to stop exports, it makes no sense. Germany was born out of this.” Hamburg, Germany’s largest port and a crossroads in European trade since at least the 13th century, is the city with the most to lose from U.S.-led calls on Chancellor Angela Merkel to reduce the trade surplus in Europe’s biggest economy. As global demand for German goods increases, Merkel is torn between fostering the export boom and honoring a Group of 20 pledge to bolster domestic growth and rely less on foreign trade. Her Cabinet’s backing yesterday of a $100 billion domestic savings program suggests she’s ignoring calls by President Barack Obama to tackle what some say are German imbalances. “Germany is very skilled at exporting, and it’s neither possible nor desirable for it to meet U.S. and European calls to curb exports,” said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. “It’s politically convenient for some leaders and people to keep raising export surpluses, even if they know Germany can’t and won’t do anything about them.”
Trichet Faces Threat of Higher Market Rates as Debt Crisis Hurts Economy. European Central Bank President Jean- Claude Trichet is facing higher interest rates sooner than he may have planned. Interbank borrowing costs have been climbing since financial institutions had to pay back a record 442 billion-euro ($557 billion) ECB loan on July 1, threatening to hurt the economy just as investors fret about the health of the banking system and the ongoing sovereign debt crisis. That may force the ECB to consider additional lending measures when policy makers convene in Frankfurt today, economists and analysts said. The increase in funding costs comes as Europe’s economy shows signs of weakening after Greece’s fiscal crisis undermined investor confidence, forcing governments to cut spending and conduct stress tests on banks to prove their resilience. The European Overnight Index Average rate, or EONIA, jumped to 0.542 percent on June 30 from as low as 0.295 percent on June 3. The rate that banks charge each other to borrow for three months has increased to 0.8 percent, the highest in 10 months, from 0.63 percent at the end of March. “Less liquidity in the system is leading to a significant increase in money-market rates that in pre-crisis times could only be achieved with an interest-rate hike,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. The ECB, which no longer offers banks 12-month loans, could look at a new six-month offering in an effort to boost liquidity and damp market rates, according to Citigroup and Commerzbank. Higher rates are “certainly causing the Greek, Spanish, Portuguese and Irish Governing Council members some headaches because it helps prolong their banks’ dependence on ECB money,” said Carsten Brzeski, an economist at ING Group in Brussels. “On the other hand, I don’t think the Germans will be too bothered.”
European Stress Tests Underestimate Probable Losses on Bonds, Analysts Say. European stress tests on 91 of the region’s biggest banks drew criticism from analysts who said regulators are underestimating probable losses on Greek and Spanish government bonds. The tests are designed to assess how banks will be able to absorb losses on loans and government bonds, the Committee of European Banking Supervisors said yesterday. Regulators have told lenders the tests may assume a loss of about 17 percent on Greek government debt, 3 percent on Spanish bonds and none on German debt, said two people briefed on the talks who declined to be identified because the details are private. “This isn’t a stress test,” said Jaap Meijer, a London- based analyst at Evolution Securities Ltd. It’s “merely the current valuation of government bonds.” Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by CEBS. “I wonder how much these stress tests are reverse- engineered to inspire confidence in the market” and banks, said Bruce Packard, an analyst at Seymour Pierce Ltd. in London. “I think they are letting the banks off lightly,” said Stephen Pope, London-based chief global equity strategist at Cantor Fitzgerald. “This sounds like the softest option possible.” Regulators should be applying a 20 percent haircut on Greek bonds and 7 percent on Spanish debt, he said. The tests assume a 3 percentage point deviation from the European Commission’s economic forecasts over two years and a deterioration of sovereign debt risk as compared to market prices in early May, CEBS said. The Commission estimates the EU’s economy will grow by 1 percent this year and 1.7 percent next year.
Paulson Said to Lose 6.9% in June With Advantage Plus Fund. John Paulson, the billionaire who has been betting on a U.S. economic recovery, lost 6.9 percent in June in his Advantage Plus hedge fund to bring his first-half decline to 8.8 percent, investors said.
BP(BP) to Put Sea Turtle Rescuers on Oil-Burn Boats. BP Plc will add trained sea turtle rescuers to all oil-spill clean up teams when controlled burning of the Gulf oil spill resumes as the weather clears, a lawyer for several wildlife advocacy groups said today. Four environmental groups sued BP and the U.S. Coast Guard last week seeking to block the practice of corralling and burning floating patches of oil or force BP to rescue any turtles inadvertently trapped inside the burn boxes. The parties reached a tentative settlement just before a July 2 hearing in New Orleans and worked through the holiday weekend to complete details, the lawyer said. “To keep us from rushing back to court, at a minimum BP and the Coast Guard have agreed to have an observer as part of every single burn team,’’ William Eubanks, the environmentalists’ lawyer, said in a phone interview today. “The things we asked the court for, we’ve gotten.’’
Russian Oil Erodes Middle East's Hold on Exports to Asia: Energy Markets. Russia is sending record amounts of oil to Asia, eroding the dominance of the Middle East, as refiners in South Korea and Japan increase purchases from a source that’s three weeks closer by ship. South Korean imports of Russian crude climbed to an all- time high of 179,000 barrels a day in May, equal to 7.3 percent of the country’s supplies, according to government data. Japan took an unprecedented 241,000 barrels a day, up 61 percent from a year ago, Ministry of Economy, Trade and Industry data showed.
Hedge Funds 'Frozen in Headlights' Cut Trading as Markets Swing. Hedge-fund managers, Wall Street’s best compensated and supposedly smartest investors, are dazed and confused. Reeling from the worst second-quarter performance in a decade, hedge funds have scaled back trading as they struggle to figure out where markets are headed amid sometimes vicious crosscurrents in stock, commodities and other markets, according to brokers and managers.
Wall Street Journal:
China Stalls U.N. Efforts Against North Korea. China is blocking a United Nations Security Council move to condemn North Korea for the sinking of a South Korean warship, say diplomats familiar with the negotiations, marking a rankling divide on the issue between the Washington and Beijing. China is refusing to blame North Korea for the March sinking of the corvette Cheonan, in which 46 South Korean sailors died, and won't label the incident an "attack," according to two Western diplomats. That comes about a week after U.S. President Barack Obama drew an angry response from China for suggesting it was guilty of "willful blindness" toward North Korea. An international investigation concluded in May that the Cheonan was sunk in South Korean waters by a North Korean torpedo, a charge Pyongyang denies. The Security Council has been struggling for weeks to reach agreement on a response. In addition to an international condemnation, Seoul sought a call for an apology and compensation from North Korea, the diplomats said, but China wouldn't agree to the last two points. "The Chinese will only allow condemning the attack—but they don't want to use the words 'condemning' or 'attack,' " said one of the diplomats. "We have to find ways to condemn without 'condemning.' " China also insists on calling the incident a "sinking," the diplomat added. China is North Korea's largest trading partner and one of its few allies.
BP(BP) Sets New Spill Target. Aims to Cap Well by July 27 Earnings; Backup Plans as Obama, Cameron Meet. BP PLC is pushing to fix its runaway Gulf oil well by July 27, possibly weeks before the deadline the company is discussing publicly, in a bid to show investors it has capped its ballooning financial liabilities, according to company officials.
Wells Fargo(WFC) to Cut 3,800 Jobs, Stop Subprime Loans. Wells Fargo & Co. said it will shut down a unit that makes what the San Francisco bank calls "non-prime" real estate, auto and credit card loans and stop originating nonprime mortgages, eliminating a total of 3,800 jobs. The third-largest U.S. bank in stock-market value behind J.P. Morgan Chase & Co. and Bank of America Corp. announced the closing of all 638 Wells Fargo Financial stores across the U.S.
Subway Bomb Plot Tied to Planned U.K. Attack. Federal prosecutors charged a senior al-Qaeda leader Wednesday with helping to mastermind last year's attempted bombing of New York City's subway and said the effort was part of a larger plot that included a failed terrorist attempt in the U.K.
Apartment Vacancies Fell in Quarter. Apartment vacancies fell slightly during the second quarter, the first drop in three years, as improving consumer confidence reversed the trend of renters doubling up or moving in with family during the recession. The improvement allowed landlords to modestly raise rents, though big increases aren't likely until U.S. job growth accelerates.
Bloomberg Businessweek:
Smartphone Use on the Web Goes 'Mainstream'. Smartphone use is gathering steam in the U.S., new research shows. Forty percent of American adults use their cell phones to surf the Web, e-mail, or use instant messaging, according to a study from Pew Research Center in Washington. That's up from 32 percent a year ago, based on Pew's survey of 2,252 adults ages 18 and older that was released on July 7.
Banks Lowering Estimated Hit They'll Take from FinReg. A consensus is forming among Wall Street chief executives that the costs of financial reform will be significantly less than originally predicted, with JPMorgan(JPM) CEO Jamie Dimon confidently predicting that with a little luck he can reduce the earnings hit to a little less than 10%, FOX Business Network has learned. The lower loss projections stemming from the legislation is a function of several factors, say senior people at the large banks. A plan to raise a bank tax appears to have hit a snag and likely won’t make the final bill, and top executives believe there is now enough wiggle room in the “Volcker Rule” so they can continue to take risk trading and maintain their holdings in hedge funds and private equity. Meanwhile, senior executives say they have received assurances from the Obama administration, and Treasury Secretary Tim Geithner, that US banking authorities will make sure that domestic firms are not “disproportionately impacted” with costs so it doesn’t put them at a competitive disadvantage with foreign banks. At the same time, Geithner is also calling major banks and other business leaders trying to dispel the notion that the Obama administration is “anti business,” said a senior executive at one major firm. President Obama has been criticized in recent weeks by several CEOs for adopting anti-business rhetoric and policies such as higher taxes and new entitlements that have dampened the economic outlook.
Business Insider:
Suddenly, The White House Claims It's Pro-Growth and Pro-Business. According to some folks "policy uncertainty" is one thing that's causing the economic rebound to be so weak. On its face it's depressing that so much economy depends on an accurate forecast of policy, but regardless, it sounds as though The White House is taking some moves to rectify this, or at last paint itself as being more pro-business. Earlier in the day, Fox Biz's Charlie Gasparino reported that Tim Geithner had launched a charm offensive with major corporations, trying to convince them that The White House did not see them as the enemy. A few hours later Geithner was on Larry Kudlow's show, pretty much preaching that exact message.
Vancouver Home Sales Plunge 30% - Now Comes The Price Collapse. The Real Estate Board of Greater Vancouver reported yesterday that home sales fell 30.2 per cent in June from the inflated levels of a year earlier, and 5.8 per cent from May. New property listings rose 1.2 per cent from May and 32 per cent from a year earlier. The Calgary Real Estate Board, meanwhile, reported sales of single family homes fell 16 per cent in June from May and 42 per cent from June of 2009, while condo sales fell 14 per cent from a month earlier and 40 per cent from a year earlier. This pattern is quite similar to how things cascaded in the US once the top was in.
DNA Leads to Arrest in Grim Sleeper Killings. LAPD task force traces evidence from a slice of pizza to Lonnie David Franklin Jr., 57, whom neighbors call 'a very good man.' For well over two decades, the killer had eluded police. His victims, most of them prostitutes in South Los Angeles, had lived on the margins of society, and their deaths left few useful clues aside from the DNA of the man who had sexually assaulted them in the moments before their deaths. A sweep of state prisons in 2008 failed to come up with the killer or anyone related to him. Then, last Wednesday, startling news came to the LAPD: A second "familial search" of prisons had come up with a convict whose DNA indicated that he was a close relative of the serial killer suspected of killing at least 10 women.
The Detroit News:
Obama Administration Close to GM, Chrysler Retooling Loans. Nearly two months later, the department is now working with Treasury and teams from both automakers to finalize their request for billions in new loans to retool factories to build more fuel efficient vehicles. GM has sought $14.4 billion in loans, including loans that Delphi Corp. had initially made for a unit that the Detroit automaker has since purchased. Chrysler has sought $8.55 billion.
Gallup:
Obama Job Approval Rating Down to 38% Among Independents. Thirty-eight percent of independents approve of the job Barack Obama is doing as president, the first time independent approval of Obama has dropped below 40% in a Gallup Daily tracking weekly aggregate. Over the past year, Obama has lost support among all party groups, though the decline has been steeper among independents than among Republicans or Democrats. Today's 38% approval rating among independents is 18 percentage points lower than the 56% found July 6-12, 2009.
Politico:
Arizona Suit Imperils Western Dems. The Obama administration's lawsuit over the stringent Arizona border law might have just made the incline a little steeper for many Western Democrats, providing instant fodder to Republicans who are already optimistic about regaining ground lost over the last two election cycles. The dust from the Department of Justice lawsuit filed Tuesday is just starting to settle, but the reflexive sense among strategists on both sides is that it will be a net negative for Democrats this fall.
USA Today:
Small Businesses, Charities Face More Reporting Rules. A little-known provision in the health care reform law could significantly increase tax recordkeeping requirements and costs for nearly 40 million self-employed workers, small businesses and charities, the IRS' national taxpayer advocate said Wednesday. Starting in 2012, self-employed workers, small businesses, charities and government agencies will be required to issue Form 1099s to every vendor from which they purchase more than $600 in goods during the year. For example, a self-employed consultant who buys a $700 computer from an office supply store would be required to send a Form 1099 to the store and the IRS. Currently, businesses are required to provide Form 1099s for services, such as payments to independent contractors, but not for goods. The Congressional Budget Office estimates that the new reporting requirement will raise $17 billion in tax revenue over 10 years, which would be used to offset some of the costs of health care reform.
Greeks Strike Against Pension Reform, Test Government. Striking Greek workers will take to the streets on Thursday to protest ahead of a vote in parliament on a sweeping pension reform, in a test of the Socialist government's resolve to implement austerity measures. Flights to and from Greece will be grounded for hours, ferries will remain docked at ports and public offices will shut down, as unions stage their sixth 24-hour strike this year. "We reject the pension reform bill, a bill that erases fundamental principles," Yannis Panagopoulos, head of private sector union GSEE, said. "We will not stop fighting."
Economic Peril Seen From US Offshore Drilling Ban. A Gulf of Mexico deepwater drilling ban has already cost offshore jobs in a nascent U.S. economic recovery and a lengthy moratorium will put the industry at peril, sector executives said on Wednesday."We're going to see companies go out of business. We're going to to see workers leave this industry," said Louis Raspino, chairman of the International Association of Drilling Contractors and chief executive officer of driller Pride International Inc (PDE). "In a very, very short period of time, we're going to see this industry implode," Raspino said. The oil drilling industry goes head-to-head with the Obama administration in court on Thursday over the White House effort to suspend deepwater drilling. "The blanket moratorium on offshore drilling is the wrong decision," said U.S. Representative Pete Olson, a Republican who represents voters in Houston's suburbs. "The policy is hurting the entire Houston economy and increasing costs for all Americans."The Energy Information Agency said on Wednesday the ban would cut 82,000 barrels per day of production next year. While the legal dispute is pending, oil firms are holding up new drilling operations in the Gulf.Smaller companies in particular cannot afford to lose six months of revenue waiting as the government decides on new regulations to make offshore drilling safer, Raspino said.
Financial Times:
Energy-Focuses Funds Feel Market Volatility. Hedge funds focused on energy markets have suffered a rocky start to the year, hit by volatile commodity prices and the Gulf of Mexico oil spill disaster. Many funds have been left nursing double-digit percentage losses over the first six months of the year. The average energy commodity fund had lost 2 per cent since the beginning of the year to the end of May, compared with gains of 1.3 per cent for the hedge fund industry as a whole, according to Hedge Fund Research. However, the numbers disguise the severe difficulties some energy hedge funds have faced over the past two months, say investors, where performance has been particularly poor. According to a report by JPMorgan, recent losses have led to falls of as much as 19 per cent for some global energy funds. The $2.3bn Norway-based Sector Asset Management, one of Europe’s largest energy-focused hedge fund managers, was the subject of rumours last week, though brokers said it was not winding down. A spokesperson for the firm did not return a call for comment. Sector, which has seen two of its funds lose more than 11 per cent so far this year, has suffered recently as a result of the BP oil spill in the Gulf of Mexico, an investor in the fund told the Financial Times. Other big-name commodity funds that have been hit by volatile markets include Willem Kooyker’s $3bn Blenheim Global Markets fund, which was down 11.29 per cent as at the end of May, according to an investor. Singapore-based Merchant Capital, which trades a selection of commodities including energy instruments was, meanwhile, down 17.6 per cent mid-June.
Telegraph:
EMU Break-Up Risks Global Deflation Shock That Would Dwarf Lehman Collapse, Warns ING. A full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history, devastate every country in Europe including Germany, and inflict a deflationary shock on the US. There would be no winners, warns the Dutch bank ING in a new report "Quantifying the Unthinkable". The US dollar would rocket to 85 cents against the euro equivalent, with a "temporary overshoot" to near 75 cents.
IMF Lifts Global GDP Forecast. The International Monetary Fund has upgraded its 2010 global growth forecast, on the back of robust growth in Asia and renewed US private demand, but flagged big risks to the recovery from Europe's debt problems."Downside risks have risen sharply amid renewed financial turbulence. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area, the IMF said in its latest update of the World Economic Outlook. The IMF raised its 2010 world output forecast to 4.6 per cent from 4.2 per cent previously, but said sovereign debt risks in Europe could escalate and drag on the global economy, in its latest updates of the World Economic Outlook and Global Financial Stability reports.
South China Morning Post:
China Mainland Home Prices Set to Fall by Up to 20%. Home prices on the mainland may fall sharply in the next few months as a result of Beijing's intensified crackdown on the overheated market, according to property consultancies who predict that developers will now begin offering discounts.
Lower Chinese Port Volumes Signal Slowdown in Global Trade. Monthly throughput at Shanghai and Shenzhen declines. Analysts foresee a slowdown in global trade on the horizon as the mainland's two biggest ports, Shanghai and Shenzhen, report lower volumes last month compared with May.
Evening Recommendations Citigroup:
Reiterated Buy on (VFC), target $100.
Night Trading
Asian equity indices are +.50% to +2.0% on average.
Asia Ex-Japan Investment Grade CDS Index 131.0 -7.0 basis points.
Asia Pacific Sovereign CDS Index 134.75 +1.0 basis point.
Initial Jobless Claims for last week are estimated to fall to 460K versus 472K the prior week.
Continuing Claims are estimated to fall to 4600K versus 4616K prior.
11:00 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -2,007,000 barrel drawdown the prior week. Gasoline inventories are expected to rise by +100,000 barrels versus a +537,000 barrel gain the prior week. Distillate supplies are estimated to rise by +1,600,000 barrels versus a +2,457,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by +.22% versus a -1.0% decline the prior week.
3:00 pm EST
Consumer Credit for May is estimated to fall -$2.3 Billion versus +$1.0 Billion in April.
Upcoming Splits
(CLB) 2-for-1
Other Potential Market Movers
The $12 Bln 10-Yr TIPS Auction, weekly EIA natural gas inventory report and ICSC June Retail Chain Store Sales could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 119.81 bps -.83%
European Financial Sector CDS Index 137.53 bps +1.33%
Western Europe Sovereign Debt CDS Index 147.50 bps -1.67%
Emerging Market CDS Index 264.60 bps -3.01%
2-Year Swap Spread 32.0 -4 bps
TED Spread 38.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .15% -1 bp
Yield Curve 237.0 +5 bps
China Import Iron Ore Spot $126.60/Metric Tonne -1.09%
Citi US Economic Surprise Index -20.80 -.3 point
10-Year TIPS Spread 1.73% +1 bp
Overseas Futures:
Nikkei Futures: Indicating +231 open in Japan
DAX Futures: Indicating +20 open in Germany
Portfolio:
Higher: On gains in my Biotech, Medical, Technology and Retail long positions
Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges, covered some of my (EEM) short, added to my (ISRG) long
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher, as it pushes to session highs this afternoon. On the positive side, Airline, REIT, Bank, Semi, Computer, Coal, Disk Drive and Oil Service stocks are especially strong, rising 4.0%+. Cyclicals are outperforming today. (IYR) trades much better, rising +4.66%. (XLF) also trades well, rising +4.0%. Copper is rising another +1.77%. The S&P GSCI Ag Spot Index is jumping another +3.0% today to 315.68 and is now close to its 200-day moving average at 319.50. Weekly retail sales remain firm, rising +3.0% versus a +3.0% gain the prior week. The 10-year yield is rising +5 bps to session highs, which is also a positive at this point. On the negative side, Telecom, Drug, Biotech, HMO and Hospital shares are underperforming, rising less than 1.5%. Despite improvements in some gauges of European credit angst, three-month euro Libor is rising another +.19 basis point today to another multi-month high of 74.19 bps. The TED spread has also been trending higher again over the last few days. China Import Iron Ore Spot prices continue to decline. Weekly retail sales have held up well even as retail stocks have been crushed over the last few months. This could be one of the better performing groups during the upcoming earnings season. The broad market has likely begun a short-term move higher. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less real estate sector pessimism, bargain-hunting and diminishing economic fear.
