North American Investment Grade CDS Index 110.61 bps +.28%
European Financial Sector CDS Index 126.20 bps +2.16%
Western Europe Sovereign Debt CDS Index 132.66 bps -.72%
Emerging Market CDS Index 245.94 bps +1.94%
2-Year Swap Spread 25.0 -2 bps
TED Spread 38.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 235.0 -3 bps
China Import Iron Ore Spot $117.80/Metric Tonne +.08%
Citi US Economic Surprise Index -33.50 -5.0 points
10-Year TIPS Spread 1.72% -8 bps
Overseas Futures:
Nikkei Futures: Indicating -182 open in Japan
DAX Futures: Indicating -13 open in Germany
Portfolio:
Lower: On losses in my Medical, Retail, Biotech and Technology long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades substantially lower to session lows despite euro strength, cds stability and some positive news in key stocks. On the positive side, Education, Ag, Utility and Telecom stocks are holding up relatively well. The 2-year swap spread is falling to the lowest level since early May. Overall, credit default swap indices are seeing relatively muted action given the decline in equities. Equity investor angst is surging, which is also a positive. On the negative side, Bank, Internet, Road & Rail, Gaming, REIT, Homebuilding, Construction, Networking, Gold and Coal shares are under significant pressure, falling more than -3.5%. Small-cap and cyclical shares are underperforming. (XLF)/(IYR) have seen heavy selling throughout the day. The 10-year yield continues to fall too much, declining another -6 basis points to session lows. Shanghai copper inventories are rising another +4.01% today and are up +30.88% over the last 5 days. There are some signs that this is just a pullback after recent gains, however the action in bank shares is very troubling. I will closely monitor Asian trading and Europe's open on Monday before deciding to further shift market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising economic fear, increasing financial sector pessimism, tax hike worries and regulatory concerns.
U.S. Economy: Confidence Tumbles Risking Slowdown. Confidence among U.S. consumers tumbled in July to the lowest level in a year, heightening the risk of a slowdown in economic growth. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August and less than the most pessimistic forecast of economists surveyed by Bloomberg News. Another report showed inflation cooled last month. The sentiment figures showed a record-low share of Americans expected their incomes will rise in the next 12 months, underscoring growing pessimism over employment prospects. The 9.5-point decline from June’s final reading of 76 was the biggest since October 2008. The Michigan report’s gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, fell to an eight-month low of 75.5 from 85.6 in the prior month. The index of consumer expectations for six months from now, which more closely projects the direction of spending, dropped to 60.6, the lowest since March 2009, from 69.8. The share of consumers anticipating income gains during the coming year dropped to 39 percent, the lowest on record. Three of four Americans surveyed said they expected no decline in unemployment in the next 12 months. Today’s sentiment report also showed confidence about the government’s economic policy fell to the lowest level since the start of the Obama administration. The proportion that said economic policies were unfavorable rose to 42 percent in July, almost twice the low of 22 percent in May 2009, the report said.
Bank of America(BAC), Citigroup(C) Fall as Loan Books, Interest Shrink. Bank of America Corp. and Citigroup Inc. fell in New York trading after profit reports showed their loan books shrinking, a sign volatile markets and a stalling U.S. economy may be keeping borrowers away. Bank of America, based in Charlotte, North Carolina, declined 8.3 percent, the most in more than a year, in New York Stock Exchange composite trading at 11:33 a.m. New York-based Citigroup fell 3.7 percent. Consumers and companies are balking at taking on more debt amid Greece’s debt crisis and concern the U.S. economic rebound will stall. Total loans at Bank of America, the largest U.S. lender, fell 2 percent from the first quarter to $956.2 billion, pushing down interest income 6.2 percent, the company said in a statement. At Citigroup, the nation’s third-biggest bank, loans shrank 4 percent to $646 billion and interest income declined 3.6 percent. “I don’t see a great deal of demand in the near term,” Citigroup Chief Financial Officer John Gerspach said on a conference call with reporters. Corporate borrowers are “sitting on the sidelines” and “almost every major company” has a “decent amount of cash sitting in their balance sheet,” Gerspach said.
Hedge Funds to Increase Use of Trading Algorithms, Tabb Says. Asset managers such as hedge funds will probably increase their use of computer programs known as algorithms to execute their stock trades in 2011, according to securities-industry research firm Tabb Group LLC. The proportion of orders processed by algorithms will probably amount to 35 percent next year, up from 29 percent in 2010, according to a report from Tabb analyst Cheyenne Morgan and director of research Adam Sussman. Human traders at broker- dealers will execute 35 percent of orders in 2011, down from 39 percent this year, the report said. The growth during the past decade of electronic trading that allows investment firms to exert greater control over their orders has diminished the importance of sales traders at securities firms. Sales desks will generate $9.5 billion of the $15.3 billion in equity commissions paid to brokers this year, compared with almost $3 billion paid for algorithms, Tabb said.
Commodity Shipping Gains; Snaps Longest Losing Run in 15 Years. Commodity shipping rates measured by the Baltic Dry Index ended their longest losing streak in almost 15 years on speculation owners are refusing to offer vessels at current hire rates. The index rose 20 points, or 1.2 percent, to 1,720 points, according to the Baltic Exchange in London. That ended a run of 35 consecutive drops, the longest since November 1995, during which the measure lost 60 percent of its value. Daily rates for capesizes, typically iron-ore carriers and the biggest tracked by the gauge, gained 3.5 percent to $12,495. “We interpret the recent weakness in the Baltic Index as reflecting the early stages of a slowdown in Chinese steel demand,” Daniel Brebner, an analyst at Deutsche Bank AG in London, said in a note e-mailed today. “A slowdown in orders for steel products has resulted in a slowdown in orders for iron ore over the past month, resulting in a decline in shipping.”
Gold Falls Most in Two Weeks on Speculation of Stronger Euro. Gold futures fell the most in two weeks on speculation that the euro’s rebound against the dollar reduced demand for the precious metal as a haven against European debt concerns. “There’s continued unwinding of the gold-euro trade,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “As the euro firms up, the risk premium comes off.” Gold futures for August delivery fell $19.80, or 1.6 percent, to $1,188.50 at 12:46 p.m. on the Comex in New York.
Business Set for 'Supreme Court' Battle Over Consumer Chief. The imminent reshaping of U.S. banking regulation creates a new center of gravity in Washington, a consumer chief with thousands of employees, a $400 million budget and power to impose federal rules on mortgages, credit cards and lay-away plans.
U.K. Denounces Inaccuracies in U.S. Over BP(BP), Libya. British Ambassador to the U.S. Nigel Sheinwald rejected suggestions that the release last year of Lockerbie bomber Abdel Basset Al-Megrahi and BP Plc’s commercial interests were linked. “I am troubled by the claims made in the press that Megrahi was released because of an oil deal involving BP, and that the medical evidence supporting his release was paid for by the Libyan government.” Sheinwald wrote in a letter to Senator John F. Kerry, a Massachusetts Democrat and chairman of the Foreign Relations Committee. He said these were “inaccuracies” that were “harmful to the U.K.”
Shadow Banking Debt Still Tops Regulator Banks', Fed Report Says. Liabilities of shadow banks, or institutions without access to central bank loans or permanent federal guarantees, still exceed the traditional banking system’s three years after the financial crisis began, according to a report from the Federal Reserve Bank of New York. The shadow banking system had about $16 trillion of obligations in the first quarter, compared with $13 trillion for banks, the report said. The gap has narrowed from 2008, when obligations were $20 trillion and $11 trillion, respectively. The U.S. had to lend, spend or guarantee $11.6 trillion to bolster financial markets and fight the longest recession in 70 years, according to data compiled by Bloomberg as of last September.
BofA's(BAC) 'Brutal Honesty' on Cost of New Rules Pushes Banks Lower. Bank of America Corp. led financial stocks lower after saying U.S. curbs on debit-card fees may trigger a $10 billion charge, spurring speculation that rival banks have underestimated their own costs. Goldman Sachs Group Inc. was the only gainer among the nation’s largest lenders at midday, while Bank of America, the biggest in the U.S., dropped as much as 8.6 percent. Citigroup Inc., Wells Fargo & Co. and Visa Inc., which runs the largest card-payment network, slid more than 5 percent. MasterCard Inc. and American Express Co. declined as much as 4 percent.
Congress Should Take Up $90 Billion Bank Tax, Frank Says. U.S. Representative Barney Frank, an architect of the financial-overhaul bill lawmakers sent to President Barack Obama yesterday, said he wants Congress this year to take up the White House plan for a $90 billion bank tax to recoup government bailout funds. Frank said Treasury Secretary Timothy F. Geithner had urged him not to look for bank fees, which Frank had sought to help pay for the legislation, because the administration plans a major push for a broader tax.
How Financial Overhaul Changes the Mortgage Market. The financial-regulatory overhaul promises some big changes concerning how Americans go about getting a mortgage. The bill will offer more protections for consumers against risky or complex mortgages, but bankers say that with fewer choices and more safeguards, loans could be slightly more expensive. The upshot, says Howard Glaser, an industry consultant and Clinton administration housing official, is that consumers will have “safer” loans, but fewer of borrowers will qualify. Some of the provisions of the bill will take effect immediately, but many of the effects won’t be noticed right away. That’s partly because many of the exotic mortgages that fueled the subprime bubble were swept away when the market melted down three years ago. Mortgage bankers say that lending standards are tighter today than at any time in the past two decades, and most loans being made today are conventional fixed-rate loans that are backed in some way by the federal government. Here’s a look at some of the main changes for mortgages:
Gold Plunges; Paulson Liquidation Speculation Abounds Again as Fund Rumored to be Down $1 Billion for the Day. There are some crocodile tears over at the 50th floor of 1251 Avenue of the Americas this morning. With a holding of 168 million shares of BAC and 506 million in Citi, Paulson and Co. is down nearly $300 million on just its top two positions alone. When one adds the other top ten positions, which include $3.5 billion worth of GLD, as well as massive positions in ANG, CMCSA, STI, TRE, RIO, BSC, COF, WFC, MGM and many others, it is not surprising that the market is rife with rumors that the once vaunted bearish and now very much bullish (who according to Goldman's carefully crafted settlement press release yesterday, only achieved his subprime-related wealth due to prospectus misrepresentations by Goldman, which is now permanently in the public record) is down about $1 billion for the day so far.
Boston Globe:
A Revival for Tech Stocks. The economic recovery may be wheezing and stalling, but you’d never know it by following the revived business at technology companies. Tech companies of many different stripes are emerging as the business stars of 2010, reporting sharply higher revenues, thanks to customers who are either replacing old equipment or buying new products that do more. Many industries continue to post healthy profits, relying in part on expenses that were cut to the bone. But few can match technology this year when it comes to growth in actual demand for products and services from customers. The tech-spending recovery that started in the last months of 2009 continued into this year and appears to be going strong. Early second-quarter business reports from technology companies like Intel Corp. show continued momentum. That wave has benefited many Massachusetts tech companies, including three clear stock stars: EMC Corp.(EMC), Akamai Technologies Inc.(AKAM), and Acme Packet Inc.(APKT) “Corporate IT departments pretty much stopped buying for most of the decade,’’ says Rob Enderle, a technology analyst at Enderle Group. “They’ve got aging and failing hardware that needs to be replaced on the desktop and in the back office.’’
Kurier:
Jean-Claude Juncker, who heads the group of euro-area finance ministers, said he expects stress tests of European banks to be smooth, citing an interview. "I don't expect any major disasters," Juncker said. "There can't be any sugarcoating; reality will catch up."
Der Standard:
The eurozone safety net intended to protect the European currency is "poorly conceived," Slovakia's Finance Minister Ivan Miklos said in an interview. The European package to protect its currency does more to aid banks than countries with fiscal difficulties like Greece, Miklos said. Europe has introduced "moral hazard" into the system by not holding banks accountable for their actions, he said. Europe needs to create a process in which countries can enter insolvency in an orderly fashion, Miklos said.
Ethics Office Probes Wall Street Giving Ahead of House Vote on Bank Bill. A congressional ethics office is investigating campaign donations made by the financial industry to some U.S. House members as they were preparing to vote on the Wall Street regulation overhaul in December. The Office of Congressional Ethics is looking into contributions to eight House members, including six members of the House Financial Services Committee. For seven of the lawmakers, fundraisers were held days before the House passed the financial plan on Dec. 11, according to invitations posted online by the Sunlight Foundation, a Washington-based watchdog group. “The OCE inquiry is simply that, an inquiry,” said lobbyist Julie Domenick, who held a Dec. 10 fundraiser for Representative Joseph Crowley, a New York Democrat, and said she received a letter from the ethics office. “It doesn’t mean that anyone has done anything wrong.”
Whalen Calls Goldman(GS) Fine 'Lunch Money', Sees New CEO: Video. Christopher Whalen, managing director of Institutional Risk Analytics, talks about Goldman Sachs Group Inc.'s agreement to pay $550 million to settle U.S. regulatory claims it misled investors in collateralized debt obligations linked to subprime mortgages.
Goldman Sachs Credit Default Swaps Drop on Report of Settlement With SEC. Credit-default swaps protecting against losses on Goldman Sachs Group Inc. bonds fell after a report the bank reached a settlement with the U.S. Securities and Exchange Commission. Five-year contracts on New York-based Goldman declined about 21 basis points to a mid-price of 150 basis points, according to data provider CMA. The contracts had been trading at 177 basis points before CNBC reported the bank had reached a settlement over fraud allegations, according to broker Phoenix Partners Group.
Bank Bonds Beat Industrials as Wall Street Bill Advances: Credit Markets. Bank bonds are outperforming debt from industrial companies by the most since March as investors wager the biggest overhaul of Wall Street regulations since the Great Depression won’t cripple profits at financial firms. U.S. bank bonds returned 1.35 percent this month, the second-best performing class of investment-grade debt after tobacco companies, compared with a gain of 0.5 percent for industrial companies, according to Bank of America Merrill Lynch index data. Investors are seeking out bank debt as investment-grade yields fall to the lowest in six years and regulations are deemed less onerous than anticipated, said Thornburg Investment Management’s Lon Erickson.
Top 100 Political Donors From 1989-2010. (table) The following is a comparison of the top political donors from the 1989-2010 election cycle to political party as compiled by the Center for Responsive Politics. The last column is the difference in a firm’s average percentage of donations to Democrats from the 1989 to 2010 cycles compared to its 2010 cycle only donation. For example, Goldman Sachs(GS) has increased its percentage of donations from 64 percent to democrats to 75 percent in the latest cycle only.
Corn, Soybeans Surge as Hot, Dry Weather in U.S. Midwest May Damage Crops. Corn futures surged to six-month high, and soybeans rose to the highest price since early May on mounting concern that hot, dry weather in the next six weeks may damage crops in the U.S., the world’s biggest producer and exporter. “The market is adding a weather-risk premium,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “The crops will need rains fairly quickly” to prevent significant yield damage, Gerlach said. Corn futures for December delivery rose 9 cents, or 2.3 percent, to $4.0525 a bushel on the Chicago Board of Trade. Earlier, the price reached $4.10, the highest level for a most- active contract since Jan. 12. The grain has soared 18 percent since June 29, the day before the government said U.S. farmers planted less this year than they had planned. Soybean futures for November delivery jumped 26 cents, or 2.7 percent, to $9.88 a bushel. Earlier, the price reached $9.8975, the highest level since May 5. The oilseed has gained 9.5 percent this month after the government said U.S. reserves as of June 1 fell to a six-year low. Shrinking inventories may raise costs for companies including hog processor Smithfield Foods Inc.(SFD) and poultry producer Pilgrim’s Pride Corp.(PPD) and ethanol maker Archer Daniels Midland Co.(ADM) Shares of fertilizer companies Potash Corporation of Saskatchewan Inc.(POT) and Agrium Inc.(AGU) and seed manufacturers Monsanto Co.(MON) and DuPont Co.(DD) rose as higher corn and soybeans may encourage farmers to plant more next year. The National Weather Service said today that August will be warmer than usual in most of the Midwest, increasing the risk to crops, said Marty Foreman, a senior economist at Doane Advisory Services Co. in St. Louis. “If the heat lingers into August, that will change the supply situation very quickly,” Foreman said. “We are on a fence between having a shortage and having an adequate supply.”
Wheat Futures Surge Most in 19 Months as Russian Drought Damages Output. Wheat jumped the most in 19 months on speculation that a prolonged dry spell will widen crop damage in Russia, the world’s fourth-largest exporter. Russia’s grain harvest will drop by at least 20 percent from last year, to 77 million metric tons, the country’s Grain Producers’ Union said today. Wheat futures have surged 24 percent this month. Wheat futures for September delivery advanced 37.25 cents, or 6.7 percent, to $5.9625 a bushel on the Chicago Board of Trade. The increase was the biggest since Nov. 24, 2008. The price touched $5.985 earlier, the highest since Nov. 23, and gained 11 percent in the past three sessions.
Nuclear Weapons Laboratories Say 'Fiscal Realities' Weigh on U.S. Arsenal. Directors of the three U.S. nuclear weapons laboratories said today they are worried the nation’s fiscal troubles and a lack of political consensus may threaten their ability to maintain the stockpile of warheads. “How we design, manufacture, field and evaluate the nuclear arsenal becomes increasingly important as we reduce the size of our stockpile,” said Arizona Senator John McCain, the top Republican on the panel.
Williams Sees China as Next 'Fallen Angel' After Japan, Nasdaq. Larry Williams, a trader who correctly forecast the 1982-1987 bull market, said the bear run in Chinese equities may last until at least 2012, based on a benchmark index’s exponential growth followed by steep declines. The quadrupling in the Shanghai Composite Index between 2006 and 2007 reminds Williams of the Nikkei 225 Stock Average in the 1980s and the Nasdaq Composite Index in the late 1990s. Both the Nikkei 225 and Nasdaq created fallen-angel patterns -- they rose exponentially, then failed to extend their record highs, setting off accelerated declines from which they have since been unable to recover, Williams said. “We saw the exponential rise in Japan, we saw it in Nasdaq, and now we’re seeing it in the Shanghai index,” Williams, 67, said in a telephone interview from his home at St. Croix, Virgin Islands. “When markets topped out and broke hard, they just don’t come back for a long time.” Drawing parallels to Japan and Nasdaq, Williams said China’s current bear market may last until 2012 or beyond. The Shanghai index is down 25 percent this year for the fourth-worst performance among the 93 major equity benchmarks tracked by Bloomberg globally. Since reaching a record high of 6,092.06 on Oct. 16, 2007, the benchmark has tumbled as much as 72 percent. After rebounding last year, the benchmark hasn’t recouped a quarter of the loss. Williams started trading securities in 1962 and created the Williams %R market-timing tool. In his best-selling book, “How to Prosper in the Coming Good Years,” published in 1982, he forecast a booming stock market by the end of the decade, bolstered by tax cuts, low inflation and growing high technology industries. The Standard & Poor’s 500 Index rose every year through 1989, and almost tripled during the period.
Fixing Spain's Savings Banks Means Paying Workers to Play Golf, Not Work. Caixa Catalunya, a lender with 62 billion euros in assets granted 1.25 billion euros of government funds to support its merger with two other cajas, is offering staff over 60 the chance to take 95 percent of their salary until the age of 64, said Carlos Domingo, a savings bank union official in Spain’s Catalonia region. They’ll also get 20,500 euros in a lump sum plus pension contributions as part of a deal that will form a template for negotiations at other cajas, he said. “It’s a clear contradiction with the government’s austerity message,” said Carles Campuzano, spokesman for labor policy at Convergencia i Unio, a pro-business Catalan party, referring to the prospect of the mass early retirements. “It’s also goes against the official message that people should actually work longer before retiring.”
BP(BP) Says It Has Stopped Flow of Oil to Gulf. BP Plc is evaluating data from a pressure test it began yesterday that will determine whether its leaking Gulf of Mexico oil well can remain sealed. By shutting off valves in a cap bolted to the top of the Macondo well this week, BP stopped the flow of oil for the first time in almost three months. “It felt very good not to see any oil going into the Gulf of Mexico,” BP Senior Vice President Kent Wells told reporters on a conference call yesterday. “We’re very encouraged.”
Wall Street Journal:
Law Remakes U.S. Financial Landscape. Senate Passes Overhaul That Will Touch Most Americans; Bankers Gird for Fight Over Fine Print. Congress approved a rewrite of rules touching every corner of finance, from ATM cards to Wall Street traders, in the biggest expansion of government power over banking and markets since the Depression. The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through. Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis. Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions. The bill "is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies," said Sen. Richard Shelby (R., Ala.). The measure is the latest sweeping law to emerge from the 111th Congress. But the financial revamp, the 2009 stimulus act and this year's health-care overhaul—by any measure significant legislative achievements—haven't translated into support for the White House. Mr. Obama's approval ratings have sunk to some of their lowest levels in some polls amid a gloomy economic picture and rising doubts that his economic policies are working.
Fed Gets More Power, Responsibility. After fending off most challenges to its independence and winning new powers to oversee big financial firms, the Federal Reserve has emerged from a bruising debate on the overhaul of U.S. financial rules as perhaps the pre-eminent regulator in the sector. But that could only bring it added blame if things go wrong again. Just a few months ago, amid populist anger at the Fed for failing to prevent the financial crisis of 2008 and bailing out Wall Street, Congress was talking of stripping the central bank of its supervisory oversight of banks or forcing it to submit to congressional audit of its interest-rate decisions.
Is a Big Tax Break for Plaintiffs' Lawyers on the Way? Will a recent Ninth Circuit ruling mean that plaintiffs’ attorneys get a huge tax break? The U.S. Chamber of Commerce’s Legal Newsline reported on Wednesday that the U.S. Department of Treasury may be about to grant plaintiffs’ attorneys long-sought tax write-offs for the costs associated with fronting contingency-fee lawsuits. Legal Newsline cited a speech at the American Association for Justice, the trade association for the trial bar, in Vancouver where one of the group’s leaders told members he’s expecting a Treasury ruling on the write-offs soon. So are the rumors true? For now, Treasury isn’t commenting.
Several China Blogs Go Offline. Chinese Internet users reported a spate of blog shutdowns in what some bloggers say appears to be the latest government effort to tighten reins on expression and exert greater control over the country's fast-growing and increasingly complicated Internet. On Thursday evening, the sites of several prominent bloggers, including Pu Zhiqiang, an outspoken attorney, were inaccessible. A blogger named Yao Yuan listed dozens of other blogs of outspoken writers, lawyers and others hosted by Sohu.com Inc. that he said were inaccessible on Thursday, the Associated Press reported. The blogger referred to the closures as an Internet "mass murder."
BP Oil Spill Undermines SunPower, Vestas as Energy Bill Trips. SunPower Corp. and Vestas Wind Systems A/S, the biggest solar-panel supplier in the U.S. and the world’s largest wind turbine maker, are losing more than Big Oil from BP Plc’s spill in the Gulf of Mexico. Their shares have fallen as much as 22 percent since the leak began April 20, compared with a 12 percent decline in the 52-member Bloomberg World Oil & Gas Index that includes BP. A bill in U.S. Congress to expand alternative energy in the biggest oil-consuming nation was set aside by legislators until they can review offshore-drilling safety. Investors in turn sold wind and solar stocks as support waned for the bill and as Europe considered cuts to clean-energy subsidies, said John Hardy, an analyst at Gleacher & Co. in Greenwich, Connecticut. “There’s a lot of rhetoric out there on the possibility that the spill could help renewable energy,” Hardy said in an interview. “I see it delaying clean-energy legislation until the Senate’s ready to deal with offshore drilling.”
Bloomberg Businessweek:
How I Stopped Worrying and Learned to Short the Euro. Meet Andrew Law and his fraternity of global currency traders. Are they shameless speculators, an essential oil in the gears of capitalism—or both? In March, as his country teetered on the brink of insolvency, Greek Prime Minister George Papandreou blamed "unprincipled speculators" for exacerbating the crisis. Currency traders around the world were roiling markets, he said, and threatened to trigger a new global financial meltdown. He was talking about people like Andrew Law, chief investment officer of the $9 billion Caxton Associates, one of the best-performing hedge fund firms in the world.
CNBC:
Fed's Lacker Says US Recovery Looks Sustainable. The U.S. economy is experiencing a moderate recovery that is unlikely to be derailed by weak housing and persistent unemployment, Richmond Federal Reserve Bank President Jeffrey Lacker said on Thursday.
Senate Close to Restoring Jobless Benefits. More than 2 million workers who have been laid off for long stretches could get their unemployment benefits restored as early as next week. Senate Majority Leader Harry Reid said the Senate will take up a measure Tuesday to restore the extended benefits, right after a new Democratic senator from West Virginia is sworn in. The House already has passed a bill to extend the benefits through November, at a cost of about $34 billion.
Google(GOOG) Earnings Fall Short of Expectations. Googleshares dropped sharply in extended trading Thursday after the company reported a profit that failed to match what Wall Street hoped was coming, after a spike in expenses offset a 24 percent revenue jump. Google, which is expanding into new products and markets in hopes of maintaining the growth momentum Wall Street also looks for, spent heavily on research and development and hired aggressively. In an encouraging sign for the overall economy, marketers paid more for the online ads that generate virtually all of Google's income. People also clicked on the ads more frequently.
AMD(AMD) Profit, Revenue Easily Beat Wall Street Expectations. Advanced Micro Devices posted better-than-expected second-quarter results as corporate spending on tech hardware strengthened, sending its shares up almost 7 percent in after hours trading.
MarketWatch:
Red Light Flashes for Bank Lending Loophole. Struggle to control lending in China forces ever-tough bank-trust rules. Despite regulatory directives aimed at preventing banks from removing loans off their balance sheets to dodge credit restrictions, China's banks did not slow down their pace in packaging loans as wealth management products. Banks and trusts cooperated on wealth management products, effectively allowing them to shirk their responsibilities toward credit limits imposed nationwide under the central government's macroeconomic controls.
ABC News:
An Obama Administration Job for Senator Specter? Sources tell ABC News that Sen. Arlen Specter, D-Penn., has informed the White House that he would like to consider remaining in public service after his senate term ends at the end of this session, and White House officials are keeping an open mind about possible job openings for him. Specter, who was defeated in his March primary by Rep. Joe Sestak, D-Penn., is a close friend of Vice President Joe Biden and someone praised for his leadership in pushing for greater funding for the National Institutes of Health. Sources said the job discussions are far from anything other than preliminary, and were not part of any "deal" when Specter switched parties and began supporting President Obama's agenda in earnest.
LA Times:
Goldman Sachs(GS) to Settle SEC Fraud Case for $55o Million. Goldman agreed to pay $550 million to resolve allegations that the company misled investors who bought subprime mortgage-related securities created by Goldman. Although Goldman neither admitted nor denied wrongdoing, it made a rare concession that its marketing materials for the securities had been "incomplete," which it acknowledged was a "mistake." The penalty equals 4% of Goldman's $13.4-billion profit last year. Moreover, investors concluded the settlement was worth much more to Goldman than it would pay. The deal sent the investment bank's stock price up nearly 10% in a surge that began on rumors late in Wall Street's regular trading session Thursday and continued in the after-hours market after the settlement was announced. The combined increase added more than $6 billion to the firm's total stock market value. In a statement, Goldman called the settlement "the right outcome for our firm, our shareholders and our clients." Of the $550 million the firm will pay, $250 million will go to harmed investors and $300 million will go to the Treasury.
The Daily Beast:
Wall Street Outsmarts Congress. On Wall Street, it’s fairly simple: What’s still OK will be done in the U.S. And what isn’t, as one Wall Street partner told me, can just be pushed to overseas divisions. “It’s not going to affect us at all,” the partner shrugged, referring to Dodd-Frank. “We’ll move some stuff out, have some partial investments.” But don’t take this guy’s word for it. The Wall Street shell game can be viewed another way—through those literal markets that always stay ahead of the regulators. Financial shares soared as the final deal clarified, partly because it removed uncertainty, which traders hate more than anything, but mostly because they realized that these rules allow them to continue pretty much business as usual. Wall Street is happy today. Historically, that’s not a bad thing—a robust financial industry generally produced wealth for all—but in these times, it sure seems to be.
Google Public Policy Blog:
Our Op-Ed: Regulating What is "Best" in Search?Google’s Marissa Mayer wrote in the Financial Times today about the impact for consumers of governments potentially regulating search results. Because the article is behind the FT’s paywall, we thought we’d share the complete text here (also, check out search analyst Danny Sullivan’s take on this issue).
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Politico:
Democrats Skim Spill for Big Oil Cash. Democratic leaders and environmentalists hope to seize on public outrage over the oil spill in the Gulf as a way to roll back billions of dollars in tax breaks and financial incentives long enjoyed by the oil industry. Democrats contend that many of the decades-old tax breaks are outdated and allow oil companies to perform highly profitable drilling on public lands and in federal waters at taxpayers’ expense. Republicans and the oil industry say that taking away the tax breaks will raise energy costs and drive production overseas.
Small Biz Owners Uneasy with Obama. The White House’s attempts to tamp down the growing narrative of President Barack Obama as an enemy of the business community are not resonating with an important audience — business owners themselves. A number of small-business owners attending the U.S. Chamber of Commerce’s jobs summit Wednesday said the administration is responsible for policies that have made them uneasy about hiring or investing in their businesses. And several of the owners interviewed by POLITICO said they believe the White House has demonized their work.
TSMC Says to Spend $9.4 Billion on New Taiwan Plant. Taiwan Semiconductor Manufacturing Co (2330.TW)(TSM.N), the world's largest contract chipmaker, said it will invest more than T$300 billion ($9.4 billion) in a new plant in Taiwan and add 8,000 jobs at the facility over the next few years.
Morgan Stanley(MS) Broker Chief Sees No Dodd-Frank Hit. Morgan Stanley Smith Barney President Charles Johnston played down the financial regulatory reform law that cleared Congress on Thursday, predicting the historic set of new rules will have little impact on the world's largest brokerage.
A Chinese property tax would be well-timed, citing Fang Xinghai, director general of Shanghai's financial services offices.
21st Century Business Herald:
China central bank adviser Li Daokui said the government must keep its macroeconomic polices stable in the second half of this year. Li said he doesn't support changes in monetary policy. China's trade surplus won't continue to grow in the second half, Li said. The nation should also remain alert on inflation in the second half, Li said. China in the long term should maintain a tight monetary policy and loose fiscal policy, Li said.
Evening Recommendations Citigroup:
Reiterated Buy on (GS), target $200.
Reiterated Buy on (PPG), target $81.
Reiterated Buy on (MAR), boosted estimates, target $43.
Night Trading
Asian equity indices are -1.5% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 126.0 +1.0 basis point.
Asia Pacific Sovereign CDS Index 121.0 +.5 basis point.
The Consumer Price Index for June is estimated to fall -.1% versus a -.2% decline in May.
The CPI Ex Food & Energy for June is estimated to rise +.1% versus a +.1% gain in May.
9:00 am EST
Net Long-Term TIC Flows for May are estimated to fall to $40.0B versus $83.0B in April.
9:55 am EST
Preliminary Univ. of Mich. Consumer Confidence for July is estimated to fall to 74.0 versus 76.0 in June.
Upcoming Splits
None of note
Other Potential Market Movers
None of note
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 110.30 bps +1.66%
European Financial Sector CDS Index 123.21 bps +3.44%
Western Europe Sovereign Debt CDS Index 130.66 bps unch.
Emerging Market CDS Index 242.16 bps +.82%
2-Year Swap Spread 27.0 -3 bps
TED Spread 37.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% +1 bp
Yield Curve 238.0 -6 bps
China Import Iron Ore Spot $117.80/Metric Tonne +.17%
Citi US Economic Surprise Index -28.50 -3.5 points
10-Year TIPS Spread 1.80% -5 bps
Overseas Futures:
Nikkei Futures: Indicating -100 open in Japan
DAX Futures: Indicating +10 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical and Technology long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just modestly lower despite poor economic data and the market's overbought technical state. On the positive side, Ag, Wireless, I-Banking and Drug stocks are especially strong, rising .50%+. shares are outperforming. The Japan sovereign cds is falling -3.05% to 83.52 bps. The S&P GSCI Ag Spot Index is surging another 3.3%. On the negative side, Gaming, Steel, Airline, Construction and Gold shares are under pressure, falling more than -.75%. Small-cap shares are underperforming. The 10-year yield is falling too much again, declining -6 basis points to session lows. The Spain sovereign cds is rising +3.15% to 224.53 bps. News from (BP), (GS) and (AAPL) is lifting the entire market and could remove a significant level of uncertainty from these shares. The Shanghai Composite came under renewed pressure last night and Shanghai copper inventories are jumping +26.92% today. If earnings come in ok after the close today and tomorrow morning, I would expect stocks to build on today's rebound tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, declining energy sector pessimism, diminishing financial sector pessimism and less hostile political rhetoric.
