Friday, July 09, 2010

Friday Watch


Evening Headlines

Bloomberg:
  • Swaps Show Bond Risk Easing for a Third Day as Stocks Rally. The cost of protecting U.S. corporate bonds from default fell for a third day as the Standard & Poor’s 500 Index rose on a drop in jobless claims and higher-than- forecast sales at some retailers. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 3.5 basis points to a mid-price of 112.8 basis points as of 5:31 p.m. in New York, the lowest since June 21, according to index administrator Markit Group Ltd. “The equity market has proven more of a tailwind for us,” said Tom Farina, who helps manage $188 billion of assets at Deutsche Bank AG Asset Management in New York. “Credit is really starting to gain some traction. It’s a classic credit rally.” Swaps on retailers fell, with J.C. Penney contracts dropping 11.5 basis points to 218.7 basis points, Nordstrom swaps falling 7.8 basis points to 130 basis points, and Macy’s declining 11.4 basis points to 223 basis points, according to CMA DataVision. TJX swaps fell 4.2 to 77.6 and Costco Wholesale Corp. dropped 1.8 to 53.9 basis points, according to CMA. Credit swaps on the biggest European banks’ bonds fell, with contracts on BNP Paribas, France’s largest bank, dropping 9.5 basis points to 113.9 basis points and Societe Generale, the country’s second-biggest bank by market value, falling 9 basis points to 122.1 basis points, CMA data show. Swaps on debt from UBS AG, Switzerland’s largest bank, declined 6.7 basis points to 134.6 basis points and contracts on UniCredit SpA, the biggest in Italy, fell 7.5 basis points to 147.2, according to CMA.
  • U.S. Appeals Court Rejects Six-Month Moratorium on Deep-Water Oil Drilling. A federal appeals panel denied the U.S. government’s request to reinstate a deep-water oil-drilling moratorium while it challenges a lower court order rejecting the ban. The Obama administration sought to delay an order by U.S. District Judge Martin Feldman that scrapped the six-month ban, imposed May 27 after the explosion and sinking of the Deepwater Horizon oil rig in April. The three-judge appellate panel in New Orleans denied the stay after a hearing today. The denial may lead to a quick return to drilling in the Gulf of Mexico, said Anthony Sabino, a law professor at St. John’s University in New York who specializes in complex litigation and oil-and-gas law. “Drilling will begin, not necessarily immediately and not necessarily 110 percent,” Sabino said. “You’d see some of the braver souls go out there. They’d think, ‘We’ve got a green light now.’” The U.S. can ask the full 5th Circuit to review its request for a stay, Sabino said. “That has a snowball’s chance in heck of being granted,” he said. “Even getting a hearing is unlikely.”
  • North Korea Avoids Blame in UN Statement on Warship Sinking. The United Nations refrained from blaming North Korea for the March sinking of a South Korean warship that killed 46 sailors, according to a draft statement backed by the U.S. and China. “The UN seemed to weigh on keeping peace on the Korean peninsula by using very neutral language rather than taking sides,” said Kim Yong Hyun, professor of Dongguk University in Seoul for North Korean Studies. “The South Korean government may not be happy with the statement, even though it was expected, because the UN didn’t reflect its position.” The UN language is a blow to South Korean President Lee Myung Bak, who has called on China to acknowledge North Korea’s responsibility and on the UN to take “appropriate action.” By not specifically blaming North Korea, the UN may help restart six-nation talks on dismantling the communist regime’s nuclear program, Kim said. “The Security Council condemns the attack which led to the sinking of the Cheonan,” the draft statement says. The text “takes note” of North Korea’s denial of involvement in the March 26 incident. A multinational investigation reported on June 14 that a North Korean-made torpedo caused the sinking. The draft says that “in view of the findings” of the panel, the Security Council “expresses its deep concern.” North Korea’s ambassador to the UN said on June 16 that any Security Council statement “condemning us or questioning us” would produce a military response. “Follow-up measures will be carried out by our military forces” Ambassador Sin Son Ho told reporters.
  • BP Bonds Rebounding as Default Swap Curve Inversion Eases: Credit Markets. BP Plc is staging a comeback in credit markets as investors, who three weeks ago priced in more than 40 percent odds that the energy company would be forced into bankruptcy, speculate that mounting costs from the biggest oil spill in U.S. history will be contained. BP’s $1 billion of 4.75 percent notes due in 2019, which plunged almost 25 cents to as low as 80.5 cents on the dollar in the two months following the April explosion in the Gulf of Mexico, have gained 9.75 cents as they climbed in each of the past six trading days. Credit-default swaps protecting against a BP default for one year have declined for seven straight days, falling by almost half from their peak four weeks ago. Bondholders are gaining confidence that London-based BP will stem the flow of as much as 60,000 barrels of oil a day into the Gulf as soon as this month, giving the market a means to begin estimating the financial toll. Five-year credit-default swaps, which reached 594 basis points on June 29, now trade at 394, the lowest in a month, CMA DataVision prices show. Assuming a 40 percent recovery, that implies a 28.5 percent chance of default within five years, according to CMA.
  • Public Universities Face 'Dramatic' Funding Cuts, Moody's Says. Many public universities face “dramatic declines” in funding and possible ratings downgrades as states cut and delay annual appropriations, Moody’s Investors Service said. States are reducing funding to public universities by as much as 6 percent this fiscal year compared with last, Moody’s analysts led by Dennis Gephardt wrote in a report dated today. Institutions rated A2 and A3, five and six steps below the top grade, face the greatest risk of downgrade, New York-based Moody’s said. “Many U.S. public universities face dramatic declines in state funding on a scale that surpasses past experience,” the analysts wrote. Public colleges and universities also face a potential “funding cliff” beginning in fiscal 2012 when stimulus funds are no longer available, the analysts wrote. In 20 states, money from the American Recovery and Reinvestment Act made up more than 4 percent of budgeted support for public universities in fiscal 2010. Moody’s said in February it was reviewing all the public university bonds it rates from Illinois as a result of the state Legislature’s “extensive delays in budgeted appropriations,” according to the report. It also downgraded five of the institutions, including Illinois State University, to A3 from A2, according to a separate report.
  • Air Products(APD) Boosts Airgas(ARG) Offer to $63.50 a Share. Air Products & Chemicals Inc., the industrial-gases producer attempting a hostile takeover of Airgas Inc., raised its offer by $3.50 a share to $5.3 billion in an effort to win more shareholder support. Air Products will pay $63.50 cash for each Airgas share, rather than the $60 originally offered, the Allentown, Pennsylvania-based company said today in a statement. That’s a 5.8 percent increase and represents a 46 percent premium over the closing price on Feb. 4, the day before the bid was publicly announced.
  • U.S. Judge Says Federal Gay Marriage Ban is Unconstitutional. A U.S. judge declared that the federal Defense of Marriage Act, which defines the institution as being between a man and a woman, is unconstitutional. U.S. District Judge Joseph L. Tauro in Boston today decided that Congress exceeded its authority in legislating the issue and that the measure infringed states’ rights to regulate marriage. “In the wake of DOMA, it is only sexual orientation that differentiates a married couple entitled to federal marriage- based benefits from one not so entitled. And this court can conceive of no way in which such a difference might be relevant to the provision of the benefits at issue,” Tauro said in one of two rulings against the U.S. he issued today. The marriage-defining act, popularly known as DOMA, was signed into law by President Bill Clinton in 1996. As of 2003, it affected 1,138 federal programs in which marital status was a factor in eligibility for benefits, the judge said, citing a 2004 report by the federal government.
Wall Street Journal:
  • ECB Signals an End to Aid Program. European Central Bank President Jean-Claude Trichet said strains in European financial markets are starting to ease, suggesting the ECB will continue to pare a program to help the region's most-vulnerable countries get back on their financial feet.
  • U.S., Russia to Swap Agents. Washington Trades 10 Spies for 4 Prisoners of Moscow; Deal Settles Crisis. In the final chapter of a saga worthy of a spy novel, the U.S. and Russia agreed to one of the biggest prisoner swaps between the countries since the Cold War. The deal—to exchange 10 Russian spies who were arrested in the U.S. June 27 for four prisoners being held in Russia—came after high-level negotiations led by Central Intelligence Agency Director Leon Panetta and his counterpart in Moscow, according to people familiar with the matter.
  • Why This Isn't Like 1938 - At Least Not Yet by Don Luskin. Stock prices show we've dodged another depression, but toxic, antibusiness rhetoric and policy errors like the Dodd-Frank bill are hurting the still-fragile recovery.
  • Mexican Truck Dispute Previews Trade Battle. As President Barack Obama renews his focus on trade in a quest for job growth, a festering dispute with Mexico hints at the political battles ahead. Over the past several weeks Mr. Obama has vowed to push for passage of pending free-trade agreements with Korea, Panama and Colombia, and seek other trade opportunities. Yet shortly after taking office, Mr. Obama signed a bill with a provision that effectively bans Mexican trucks from operating inside the U.S. The ban violates the North American Free Trade Act, and prompted Mexico to impose punitive tariffs last year on $2.4 billion in American products—from Christmas trees and potatoes to wine. Mr. Obama could reverse the ban without the approval of Congress, but that would infuriate many Democrats and trucking and other unions that are critical supporters in a tough election year.
  • GE's(GE) Road In China Is Getting Bumpier. Well before General Electric Co. chief Jeffrey Immelt criticized China at a private dinner last week, the company was facing greater headwinds there. During a gathering in Rome, Mr. Immelt had said it is getting harder for foreign companies to do business in China, according to people who heard his comments. Mr. Immelt is under pressure to show growth in his industrial businesses to get the company's lagging stock price moving as he scales back its onetime profit engine, GE Capital. Its shares now trade for $14.83 apiece, down from $38.43 in April 2008. GE, which has 13,000 employees in China, has pinned much of its hopes for growth on Chinese markets. But GE faces increased competition in China as its government promotes homegrown companies and more Western competitors seek business there. Globally, Chinese wind-power companies are eroding GE's market share in wind turbines, and the Fairfield, Conn., conglomerate has faced setbacks in selling aircraft electronics there. Two years ago, Mr. Immelt said GE wanted to achieve $10 billion in sales in China by this year. Its China revenue totaled about $5.3 billion in 2009, up from $4.7 billion in 2008. Danish research firm BTM Consult Aps reported that GE held the second-biggest share of the global wind-turbine market, but its slice of the pie shrank to 12.4% from 18.5% a year earlier. GE estimates the smart grid market in China is a potentially $60 billion over the next 10 years. Its primary customer is State Grid Corp. of China, which covers electricity distribution for much of the country. GE's success hinges on creating a strong alliance with State Grid. But State Grid is also GE's biggest potential rival. State Grid wants to develop smart-grid know-how and machinery on its own. State Grid is developing technology standards and is lobbying the Chinese government to adopt them in order to cement its domestic market dominance.
Bloomberg Businessweek:
CNBC:
  • Google(GOOG) Confident of Getting China Web License. Google Chief Executive Eric Schmidt is confident the company will secure a license to operate a website in China, confounding speculation Beijing may reject them and shut down its flagship site in China. Schmidt, addressing executives and financiers at an annual gathering of the industry's movers and shakers in Sun Valley, said he now expected Beijing to renew its license to operate a website in the world's largest Internet market, but offered no timeframe.
MarketWatch:
  • Rio Tinto(RTP) CEO: China's 9% Growth Not Sustainable. China's economy is more likely to grow at an average rate of 6% annually than 9% annually, the chief executive of global diversified miner Rio Tinto PLC(RTP) said Thursday. "I think 9% is not a sustainable target" for Chinese economic growth, Tom Albanese said at the Melbourne Mining Club dinner here. He said that 6% annual growth is more manageable, particularly since the Chinese economy will be growing from a larger base. "It's a law of large numbers," he added.
Fox News:
  • Don't Blow Off Goldman's(GS) 2Q Just Yet. No financial firm has had its earnings estimates for the second quarter lowered more than Goldman Sachs (GS), and people at the firm say these estimates are likely to fall further in the coming days and weeks, FOX Business has learned.
ABC News:
NY Times:
  • Greece Approves Pension Overhaul Despite Protests. Greece took a big step toward overhauling its debt-plagued economy on Thursday by forcing through a pension bill that would sharply pare down the country’s welfare state by increasing the retirement age and reducing benefits. For Prime Minister George Papandreou, who commands a seven-member majority in Parliament, the bill represents the beginning of the end of the cradle-to-grave state compact that his father put in place as prime minister in the early 1980s.
Business Insider:
Zero Hedge:
CNNMoney:
  • Wall Street's Great Enablers: Pension Funds and Endowments. Are pension funds getting off too easy in their responsibility for the crisis? While banks have been beaten up during the financial reform regulation process (and well before, and deservedly so) there has been remarkably little attention paid to the travails of what one investment banker told us he calls "The Great Enablers" -- university endowments and pension funds that were all too happy to squeeze more and more risk into their portfolios for the promise of fat returns. Now, it seems, endowments and pensions may even be in danger of being canonized for their imagined virtue. CalPERS, which manages money for California state employees, has similarly fallen on hard times due to its fatal love for things like unrated CDOs, real estate and commodities. Many endowment managers are, if not completely unfazed, then certainly unchastened by the credit crisis -- the problem is the stock market, not their own investing style, they may blithely tell you. As early 90s diet guru Susan Powter would have said: Stop the insanity. It's worth recognizing that Wall Street would not have created its highly leveraged, risky products if there were not enormous demand for them from pension funds and endowments, which drive enormous amounts of money into the markets.
  • A Contrarian's View of Financial Reform: Why Bother? The current bill has us on the road toward crony capitalism. Access to capital will be a function of electoral politics, not your ability to repay. It's extremely important that capital be allocated for better or for worse depending on the borrower's ability to repay. Political pressure to broaden access to credit was a root cause of the bubble and Washington is still at it. Ultimately the whole financial system is based on people paying what they owe. Bailing out improvident borrowers at the expense of investors and taxpayers is an outrage. There need to be heavy consequences all around for bad financial decisions.
Forbes:
  • Why Bond Buyers Are Sleeping Better At Night. Moody's says corporate default rate slides to lowest level in 15 months. The worst threat to the hordes of Americans shifting their savings into bond funds is shrinking by the month. The rate at which corporate borrowers have bilked bondholding investors slipped for the seventh straight month in June, the rating agency Moody's announced on Thursday. The default rate dropped from 7.5% in May to 6.1%, the lowest level in 15 months.
Washington Post:
  • Boxer Leads Fiorina, But Approval Plummets. One day after polling showed that the California gubernatorial race is in a virtual tie, a new Field Poll indicates that the state's Senate race is just as closely contested. Sen. Barbara Boxer(D-Calif.) leads former Hewlett Packard CEO Carly Fiorina (R) 47 percent to 44 percent among likely voters in the survey, which had a margin of error of 3.2 points. Boxer's lead is up slightly from March, when she led Fiorina 45 percent to 44 percent in a general election match-up, but the latest numbers stand in stark contrast to a January Field Poll showing the three-term incumbent leading Fiorina 50 percent to 35 percent. Just nine percent of likely voters are undecided. Most worrisome for Boxer in the new poll is her job approval rating: 48 percent of likely voters polled said they disapprove of her performance, while 42 percent approve. That's the lowest rating Boxer has ever received in the 43 surveys since the Field Poll began testing her job approval, and it marks the first time more voters disapprove of Boxer's performance than approve. The poll also shows that 52 percent of likely voters hold an unfavorable view of Boxer, while 41 percent have a favorable opinion of her. Fiorina, by contrast, is viewed favorably by 34 percent of likely voters and unfavorably by 29 percent -- marking the first time that more voters viewed her favorably than unfavorably.
Real Clear Markets:
  • Racial, Gender Quotas in the Financial Bill? What one finds when reading congressional legislation is invariably surprising. Take the Dodd-Frank financial regulation bill, for instance, which was created by merging Senate and House bills. When the Senate returns from recess one of its first actions will be to vote on the bill, which passed the House on June 30. I was searching the bill for a provision about derivatives. What did I find but Section 342, which declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America's financial industry. In addition to this bill's well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.
The New York Review of Books:
Politico:
  • White House: We're Not Anti-Business. The White House has launched a coordinated campaign to push back against the perception taking hold in corporate America and on Wall Street that President Barack Obama is promoting an anti-business agenda. Obama has been happy to be seen by voters as cracking down on Wall Street but those efforts have had an unintended result: feeding a sense that the president and his party are indifferent or even actively hostile toward big business, whether those businesses are Silicon Valley tech companies, Midwestern manufacturers or Main Street small businesses. And it is more than just politics: Obama’s aides believe confidence in the general direction of White House policy has an effect on the willingness of corporations to hire, invest and push the economy toward a more solid recovery.
  • Holder: Spill Probe Not Confirmed to BP(BP). Attorney General Eric Holder signaled here that the Justice Department may be conducting a sweeping criminal investigation into the Gulf Coast oil spill, saying that its suspected targets may cover more than just BP. "There are a variety of entities and a variety of people who are the subjects of that investigation," Holder told CBS' Bob Schieffer at the Aspen Ideas Festival. "For people to conclude that BP is the focus of this investigation might not be correct."
USA Today:
  • Fish Tacos Land on Restaurant Menus Across the USA. Not even the Gulf oil spill contamination has put a dent in one of the restaurant industry's hottest growth trends for 2010: fish tacos. At a time many consumers are looking to cut calories and costs, fish tacos are hitting the mainstream as they spread rapidly from the West Coast eastward.
  • Computerized Stock Trading Leaves Investors Vulnerable. The time it takes to read this sentence is all it takes for nearly 2 million stock trades to flash through the stock market. Most of those trades aren't coming from trigger-happy day traders and mutual fund managers with billions of dollars at their disposal. It's a flood of machine-gun speed fury coming from an army of computers programmed to obey complicated algorithms that are hyperactively buying and selling. What does that mean to you, the individual investor?
Reuters:
Financial Times:
  • Derivatives Reflect Fears of UK Property Slump. The west’s next real estate boom may be further away than ever. A fall in the price of complex derivatives linked to commercial property shows that investors believe that the UK market – predicted last year to recover strongly – is heading for a slide. The pricing of UK property derivatives – tradeable instruments based on an industry benchmark index – has weakened in the past three months, with a pronounced dip in pricing for contracts based on next year’s real estate returns. Derivatives trading suggests that UK commercial real estate is likely to see a fall in value in the next few years, with the prospects for rental growth diminishing. Falling prices reflect fears about a double-dip recession and the effect of another downturn on real estate. Sentiment has shifted sharply since last year, when traders were factoring in strong growth in returns for 2010 and 2011. The UK market in commercial property derivatives is one of the world’s most established. While derivatives trades are carried out based on other European and US markets, the volumes traded elsewhere are not sufficient to be seen as an indicator of sentiment. Bill Bartram, director at JC Rathbone, said the numbers showed that the market was becoming increasingly wary about another dip in property values. In the past month alone, expectations for total returns next year have moved from 4 per cent to 2 per cent, implying a fall in capital values of about 5 per cent. Trading for the 2010 contracts has also seen prices tail off, with total returns dropping from about 12.5 per cent in April to 9.5 per cent, which means there is not expected to be much further growth this year. There has also been a fall in the pricing for contracts based on market performance in 2012 and 2013. The fall in the price of derivatives reflects recent falls in the value of other assets that are backed by physical property, such as shares in property companies.
Telegraph:
  • Legal Noose Tightens on Europe's Monetary Union. The plot continues to thicken at Germany’s constitutional court, a body with power of life or death over Europe’s monetary union. Contrary to general belief, Germany’s eurosceptic professors have not abandoned their legal efforts to block the EU rescues for European banks exposed to Greek debt, and since May 7 for banks exposed to debt from Spain, Portugal, and Ireland as well. Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours. I am not sure that investors in New York, London, Tokyo, Beijing, or indeed Frankfurt quite understand this. There are now four cases at the court – or Verfassungsgericht – arguing that these disguised bank bail-outs breach multiple clauses of EU treaty law, and therefore breach Germany’s supreme and sovereign Basic Law.
  • IMF Tells Europe to Inject More Stimulus. The International Monetary Fund has called on the European Central Bank to prepare fresh emergency action to stabilise debt markets, throwing its weight behind calls for renewed monetary stimulus to offset budget cuts. "Markets are not yet convinced of the central bank's commitment to scaling up purchases if necessary to prevent a further deterioration in market functioning," said the IMF's Global Financial Stability Report. The IMF called on Europe's authorities to make their €500bn (£420bn) rescue fund is "fully operational" and to explain how they intend to shore up banks that fail stress tests.
Yomiuri:
  • The Bank of Japan may raise its real economic growth forecast for this fiscal year to 2% or more from the current 1.8% at a policy meeting to be held on July 14 and 15.
21st Century Business Herald:
  • Chinese banks can withstand a 30%-50% decline in home prices, citing bank officials. The nation's banks have completed stress test on their exposure to mortgages. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. can withstand about a 35% decline in home prices. Bank of Communications Co. can withstand a 30% decline in prices and Agricultural Bank of China can take a 20% drop. China Minsheng Banking Corp. can withstand a decline of 40%. China Merchants Bank Co. can withstand a drop of 37%.
South China Morning Post:
  • China will suspend initial share sales in Shanghai and Shenzhen for a week to ensure Agricultural Bank of China has a successful trading debut. AgriBank shares are due to start trading in Shanghai and Hong Kong next week.
People's Daily Online:
  • China Plans a Unified Pricing to Buoy Rare Earth Prices. The central government is planning a unified pricing mechanism for rare earth minerals in five provinces and regions, a move considered to prevent the valuable resource from being undervalued, industry sources said. The plan, expected to be implemented as early as this month, covers Jiangxi, Fujian, Guangdong and Hunan provinces, as well as the Guangxi Zhuang autonomous region, which are rich in the resource. Rare earth minerals are made up of 17 elements including terbium, thulium and yttrium. They are widely used in areas from wind turbines and hybrid cars to mobile phones and missiles. China is considered to be the world's largest supplier of the resource. In the latest move, reportedly backed by a top government agency, a unitary price based on negotiation will be published once a month to protect the natural resources from being depleted and to avoid cut-throat competition among the five affected areas, sources said. "The pricing mechanism, if put into practice, will effectively buoy rare earths' undervalued prices and give Chinese producers more say on the global market," said Peng Bo, an analyst at Guosen Securities. China supplies more than 95 percent of the global production of rare earth oxides. The country has 59.3 percent of the world's basic reserves of rare earth resources. Developed countries like the United States and Japan are almost entirely dependent on China's exports of the resource.
China Daily:
  • China's home-appliance makers may raise export prices to mitigate the impact of a rising yuan and labor costs, citing companies and industry officials. Guangdong Galanz Enterprise Co., the world's largest microwave-oven maker, will miss its earlier full-year profit estimate because of the yuan's appreciation and rising labor costs, citing the company's export director Jackie Liu. Almost 60% of the company's output is exported and labor costs have risen 50%, he said.
Evening Recommendations
Citigroup:
  • Added (HGSI) and (CELG) to Top Picks Live list.
Night Trading
  • Asian equity indices are +.50% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 127.0 -4.0 basis points.
  • Asia Pacific Sovereign CDS Index 126.75 -8.0 basis points.
  • S&P 500 futures +.06%.
  • NASDAQ 100 futures -.10%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PSMT)/.35
Economic Releases
10:00 am EST
  • Wholesale Inventories for May are estimated to rise +.4% versus a +.4% gain in April.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • None of note
BOTTOM LINE: Asian indices are higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Thursday, July 08, 2010

Stocks Surging Into Final Hour on Less Sovereign Debt Agnst, Short-Covering, Diminishing Economic Fear, Bargain-Hunting


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 26.70 -.45%
  • ISE Sentiment Index 101.0 +1.0%
  • Total Put/Call .83 -2.53%
  • NYSE Arms 1.05 +257.24%
Credit Investor Angst:
  • 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.

Today's Headlines


Bloomberg:

  • 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.
  • iSuppli Boosts '10 Revenue Estimate for Semiconductor Foundries. Market researcher iSuppli Corp. raised its 2010 revenue forecast for semiconductor foundries amid increased consumer spending.
  • 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.
MarketWatch:
  • New 'Volcker Rule' May Not Be as Tough as it Looks. Big banks would have years to divest units and bank regulators would have say.
  • 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.
Business Insider:
Zero Hedge:
Washington Post:
AppleInsider:
Market Folly:
NYPost:
  • 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.
Politico:
Reuters:
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.
Haaretz.com:

Bear Radar


Style Underperformer:

  • Large-Cap Growth (-.06%)
Sector Underperformers:
  • Homebuilders (-1.35%), Gold (-1.27%) and Semis (-1.12%)
Stocks Falling on Unusual Volume:
  • BKE, GPS, LRCX, MSG, HRB and TJX
Stocks With Unusual Put Option Activity:
  • 1) AMX 2) SQNM 3) FWLT 4) DTV 5) SD
Stocks With Most Negative News Mentions:
  • 1) BP 2) BKE 3) BRK/A 4) NANO 5) FRE

Bull Radar


Style Outperformer:

  • Small-Cap Value (+.75%)
Sector Outperformers:
  • Agriculture (+1.47%), Defense (+1.19%) and Restaurants (+1.04%)
Stocks Rising on Unusual Volume:
  • TLVT, GSIC, AIXG, ANF, STEC, CTEL, APSG, TSCO, WDFC, LIFE, ZUMZ, ATLS, COST, GSIC, TLVT, VRSN, PETD, TROW, DNDN, PCLN, AMZN, CTSH, ASMI, PERY, ECLP, PWT, WLK, JCP and GBX
Stocks With Unusual Call Option Activity:
  • 1) MSG 2) FWLT 3) ANF 4) JCP 5) JWN
Stocks With Most Positive News Mentions:
  • 1) BA 2) AAPL 3) ANF 4) ROST 5) GOOG

Thursday Watch


Evening Headlines

Bloomberg:
  • 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.
  • Rising Pessimism in Stocks Is Buy Signal for PNC, Raymond James.
  • 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.
  • Unemployment Benefits Aren't Stimulus by Art Laffer.
  • Argentina Files Fraud Charges Against JPMorgan, Local Companies. Argentina has filed criminal charges against several local companies and JP Morgan Chase & Co. alleging the defrauding of local pension funds through the manipulation of share values.
  • 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.
  • A Growth Agenda for the GOP.
  • 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.
CNBC:
MarketWatch:
Fox News:
  • 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.
Zero Hedge:
LA Times:
  • 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.
Reuters:
  • Tropical Depression Forms in Mexico's Gulf.
  • 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:
Business Spectator:
  • 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.
  • S&P 500 futures +.02%.
  • NASDAQ 100 futures +.01%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ISCA)/.29
  • (LWSN)/.12
Economic Releases
8:30 am EST
  • 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.