Bernanke Says Fed Is Prepared to Act as Needed. Federal Reserve Chairman Ben S. Bernanke said central bankers “remain prepared” to act as needed to aid growth even as they get ready to eventually raise interest rates from almost zero and shrink a record balance sheet. While Fed officials plan for the exit, “we also recognize that the economic outlook remains unusually uncertain,” Bernanke said today in testimony to the Senate Banking Committee. “We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.” Bernanke didn’t elaborate on steps the Fed might take as he affirmed the Fed’s policy of keeping rates low for an “extended period.”
Bank Debt Swaps Fall to Week-Low on Stress Test Bets, Earnings. The cost of insuring against losses on European financial bonds fell to the lowest in one week on speculation that stress tests will reassure investors that banks can withstand a crisis. The Markit iTraxx Financial Index of credit-default swaps on 25 of the region’s banks and insurers dropped 5 basis points to 135.5, JPMorgan Chase & Co. prices show. The contracts are down from a 15-month high of 200 basis points June 8.
Regulatory Bill May 'Freeze' Asset-Backed Market, Industry Says. The U.S. financial-regulation bill may halt the already diminished market for asset-backed securities by increasing liability risk for credit raters, a securitization-industry group and bank analysts said. The legislation, set for signature by President Barack Obama, eliminates credit-rating companies’ shield from lawsuits when underwriters include their assessments in documents used to sell debt. Moody’s Investors Service and Fitch Ratings have already told Wall Street that because of an increased risk of being sued, they will no longer let underwriters use ratings in bond-registration statements. The change, if combined with an existing Securities and Exchange Commission rule that restricts sales of asset-backed debt without ratings in offering documents, will put a “flash freeze” on the market, said Tom Deutsch, executive director of the American Securitization Forum. His concerns are shared by analysts at RBS Securities Inc. “A number of transactions that had been planned for the upcoming weeks have been shelved indefinitely given this proposal,” Deutsch said in an interview yesterday.
Fannie Subpoenas to Show $30 Billion Bad Mortgages, Rosner Says. and Fannie MaeFreddie Mac’s regulator may identify as much as $30 billion of debt included in mortgage bonds that the companies can force sellers to repurchase, according to Joshua Rosner, an analyst who in 2007 predicted the collapse in the market for the securities. The Federal Housing Finance Agency this month said it issued 64 subpoenas seeking loan files and other documents related to so-called non-agency mortgage securities bought by the two government-supported companies. The U.S. is trying to determine whether misrepresentations might require issuers to repurchase debt, producing funds from firms that may include Wall Street’s largest banks to help repay taxpayer money.
Oil Falls After Report Shows Unexpected Increase in Supplies. Crude oil fell after the government reported an unexpected increase in U.S. supplies and the highest rate of refinery operation in almost three years. Inventories climbed 360,000 barrels to 353.5 million in the week ended July 16, an Energy Department report showed. Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, also increased. Crude oil imports increased 7.5 percent to 9.98 million barrels a day, the biggest one-week gain since April. “The first thought that came to mind was that this report is bearish, bearish, bearish,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania. “There were inventory gains in each of the three major categories.” Stockpiles of crude oil at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is delivered, rose 985,000 barrels to 37.1 million, the biggest increase since April, the report showed. Gasoline stockpiles climbed 1.12 million barrels to 222.2 million barrels last week, the highest level since April, the report showed. Supplies of distillate fuel rose 3.94 million barrels to 166.6 million, the biggest increase since the week ended Jan. 9, 2009. “This is a pretty clear case of supply outpacing demand,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The distillate data was particularly bearish, with inventories at the highest level for this time of year since at least 1982.”
Bloomberg Businessweek:
Hedge Funds' Potential Threat is Unclear, SEC's Schapiro Says. Federal regulators may find it difficult to determine whether hedge funds pose risks that could threaten the U.S. economy and what the government should do to rein in industry trading practices, Securities and Exchange Commission Chairman Mary Schapiro told lawmakers today. “It’s really not clear” whether the hedge-fund industry presents “systemic risks,” Schapiro said at a House Financial Services subcommittee hearing. “It will be very important” for regulators “to decide where the lines are drawn.”
CNBC:
Commercial Real Estate's Death Knell May Have Been Premature. In the face of some otherwise-daunting obstacles, commercial real estate is proving to be an attractive area for investors looking for bargains as loans come due and foreclosures mount.
NY Times:
Many States Adopt National Standards for Their Schools. Less than two months after the nation’s governors and state school chiefs released their final recommendations for national education standards, 27 states have adopted them and about a dozen more are expected to do so in the next two weeks. Their support has surprised many in education circles, given states’ long tradition of insisting on retaining local control over curriculum.
CXO Advisory:
Rogue Waves and Hedge Fund Returns. How exposed are hedge funds to “rogue” correlations, wherein returns of assets or asset classes that normally exhibit hedging cancellation instead exhibit hedge-killing reinforcement? In summary, evidence indicates that hedge funds with low net market exposure may earn returns largely by assuming that correlations between assets and asset classes will behave predictably, and rogue correlation spikes may swamp these funds with extremely large drawdowns.
LA Times:
Oakland Council OKs Plan to Set Up Pot Factories. The 5-2 vote came after two hours of testy debate between growers who argued the proposal could destroy their livelihoods and businessmen who said it could turn Oakland into the Silicon Valley of pot. Oakland's City Council on Tuesday approved an ordinance that could make it the first city in the state to permit industrial marijuana production, a path-breaking decision that could spur the commercialization of a crop largely grown in hidden gardens. The plan would authorize four potentially enormous pot factories, but makes no provision for the hundreds of growers who now supply Oakland's four dispensaries, which sold $28 million in marijuana last year. "This is a monumental step forward," said Dale Gieringer, an Oakland resident and the longtime head of California NORML, which backs the legalization of marijuana. "It really means moving into the era of industrial-scale operations and Oakland means to do it big."
Washington Post:
Obama's Next Focus of Reform: Housing Finance. Responding to the collapse in home prices and the huge number of foreclosures, the Obama administration is pursuing an overhaul of government policy that could diverge from the emphasis on homeownership embraced by former administrations. The administration's narrower view of who should own a home and what the government should to do to support them could have major implications for the economy as well as borrowers. Broadly, the administration may wind down some government backing for home loans, but increase the focus on affordable rentals. The shift in approach could mean higher down payments and interest rates on loans, more barriers to lower-income people buying houses, and fewer homeowners overall, government officials said.
Engadget:
Researcher Will Enable Hackers to Take Over Millions of Home Routers. Cisco and company, you've got approximately seven days before a security researcher rains down exploits on your web-based home router parade. Seismic's Craig Heffner claims he's got a tool that can hack "millions" of gateways using a new spin on the age-old DNS rebinding vulnerability, and plans to release it into the wild at the Black Hat 2010 conference next week. He's already tested his hack on thirty different models, of which more than half were vulnerable, including two versions of the ubiquitous Linksys WRT54G (pictured above) and devices running certain DD-WRT and OpenWRT Linux-based firmware. To combat the hack, the usual precautions apply -- for the love of Mitnick, change your default password! -- but Heffner believes the only real fix will come by prodding manufacturers into action.
SunHerald.com:
Fitch: U.S. Auto Loan ABS Defying Seasonality with 23% Drop in Losses. U.S. auto loan ABS is continuing to defy historical seasonal patterns at a time of the year when loss levels typically start to increase, according to Fitch Ratings. Prime auto loan ABS loss levels declined last month by 23%, while subprime losses fell 13% month-over-month. As a result of the positive loss and delinquency performance in 2010, Fitch has upgraded 30 classes of prime auto loan ABS through June, compared to eight in 2009. "Improved underwriting on recent vintages, strong recovery rates and structural features continue to benefit transaction performance," said Senior Director Hylton Heard.
Rasmussen Reports:
27% Say U.S. Heading in Right Direction. Twenty-seven percent (27%) of Likely Voters say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey taken the week ending Sunday, July 18. This is the lowest finding since mid-March. Sixty-one percent (61%) of voters now expect the cost of health care to go up under the health care bill, the highest level of pessimism measured since the law was passed in March. Fifty-six percent (56%) favor repeal of the law. About half of Democrats feel the country is heading in the right direction, but 90% of Republicans and 75% of voters not affiliated with either major party believe the country is heading down the wrong track. Sixty-seven percent (67%) of all voters say the country is heading down the wrong track, three points higher than last week.
Politico:
U.S. Chamber Sparks Federal Land War. The U.S. Chamber of Commerce is making a pitch to have the government tap more natural resources on federal lands in order to create jobs and increase federal revenue. The organization made its case in “An Open Letter to the President of the United States, the United States Congress and the American People” and a speech by its president and CEO, Tom Donohue. They were part of a broader statement about “rescuing the U.S. economy and putting Americans back to work” and denouncing “the congressional leadership and the administration” for vilifying “industries while embarking on an ill-advised course of government expansion, major tax increases, massive deficits and job-destroying regulations.
Google Public Policy Blog:
Business Problems Need Business Solutions. Today we submitted comments with the Federal Trade Commission in reaction to the Staff Discussion Draft about the future of journalism in the age of the Internet. We agree that the Internet has posed challenges as well as opportunities for publishers. Google works closely with publishers to find business solutions so journalism can thrive online, and we’re optimistic about the news industry’s future. But we strongly disagree with a number of policy recommendations set forth in the Staff Discussion Draft, such as the suggestion that Congress enact a federal hot news doctrine -- something that would not only hurt free expression, but also the very profession of journalism that the proponents of hot news say they support.
AppleInsider:
Apple unsure when it will be able to meet demand for iPhone 4, iPad. As Apple continues to face overwhelming demand for the iPhone 4 and iPad, selling every unit it can make, the company remains unsure when its production capacity can find equilibrium. Both the iPad and iPhone 4 have been consistently sold out since each product launched last quarter.
Reuters:
Boeing(BA) May Raise Plane Order Forecast. Boeing Co (BA) sees "pent-up demand" for planes in the airline industry and may raise its internal orders forecast this year, the chief executive of its commercial airplane division said on Wednesday.
Le Figaro:
French Finance Minister Christine Lagarde said in an interview that she is "totally confident" about the results of stress tests on French banks to be published by the European Central Bank on July 23.
asharq alawsat:
Iran Intensifies Pressure to Ensure Iraqi Shiite Prime Minister - Sources. At the same time that leader of the Iraqiya bloc Iyad Allawi was preparing to meet his election rival, Iraqi Prime Minister and leader of the State of Law coalition Nouri al-Maliki yesterday, informed political sources told Asharq Al-Awsat that that Iran is intensifying pressure to ensure that the post of prime minister remains within the electoral alliance that was formed between the Iraqi National Alliance – State of Law coalition following the March elections. Sources within the Iraqiya bloc and the State of Law coalition described the meeting that took place yesterday between Allawi and al-Maliki – at the request of the outgoing Iraqi Prime Minister – as being "decisive."
BP(BP) Signs North America and Egypt Asset Deals With Apache(APA). BP Plc, the U.K. company battling a record oil spill in the Gulf of Mexico, agreed to sell assets in North America and Egypt to Apache Corp. for $7 billion as part of its plan to raise cash to fund liabilities. The deals with Apache include BP’s Permian Basin holdings in Texas and southeast New Mexico as well as gas properties in western Canada, London-based BP said today in a statement. BP also agreed to sell Western Desert business concessions and an East Badr El-din exploration concession in Egypt.
China won't relax policies aimed at restraining property prices any time soon, according to HSBC Holdings Plc's Greater China Chief Economist Hongbin Qu. "It is unrealistic for the market to expect policy easing in China any time soon," said Qu in an interview.
Lack of Sales Leaves Dubai Property Buyers Guessing on Prices. A dearth of Dubai home sales and foreclosure auctions is stalling a recovery because buyers aren’t able to gauge how far prices have fallen during the market’s two-year slump. “There are very few transactions at the moment,” said Craig Plumb, head of Middle East research at broker Jones Lang LaSalle Inc. “We are not going to see the bottom of the market until we see transactions through the foreclosure process.” Home prices in the sheikhdom have dropped about 50 percent from their peak two years ago and Credit Suisse estimates a further decline of as much as 20 percent. “People are only going to buy if they believe the price is realistic,” Plumb said. Data provided by the Dubai Land Department is too incomplete to provide a valuable guide to selling prices, he said.
BHP(BHP) Billiton's Iron Ore Output Climbed 16% After Expansions in Australia. BHP Billiton Ltd., the world’s largest mining company, said fourth-quarter iron ore production rose 16 percent, driven by expansions at its Australian mines and surging global steel demand. Output was 31.2 million metric tons in the three months ended June 30 compared with 27.1 million tons a year ago, the Melbourne-based company said today in a statement. That compares with a 32 million ton estimate by Credit Suisse Group AG. Australia, the world’s largest iron ore exporter, will boost sales 50 percent this fiscal year, according to government estimates, as BHP and Rio Tinto Group expand output.
U.S. Drug-War Aid to Mexico Lags Promises as Violence Rages, Damps Growth. The U.S. government has delivered only about 9 percent of the $1.6 billion in drug-war aid promised to Mexico and Central America under a 2008 accord as violence across the border reaches an all-time high. U.S. agencies were forced to delay delivering training and equipment included in the Merida Initiative because they lacked staff and funding, the U.S. Government Accountability Office determined in a report, a draft of which was provided by the office of Congressman Eliot Engel, Chairman of the House Foreign Affairs Subcommittee on the Western Hemisphere. The GAO will present the report in testimony before Congress tomorrow. The shortfall in U.S. assistance hurts President Felipe Calderon’s fight against organized crime, said Adam Isacson, senior associate at the Washington Office on Latin America, a human rights and economy research group. Armed groups in northern Mexico murdered political candidates in this year’s regional elections and have expanded their tactics, including detonating a car bomb in Ciudad Juarez last week. “When you consider the urgency with which politicians talk about violence in Mexico and the threat it poses to us, to have only delivered 9 percent after two years is pretty remarkable,” Isacson said in a telephone interview from Washington.
U.S. Spy Chief Nominee Clapper Sees Rising Danger in North Korea Relations. The U.S. may be entering “a dangerous new period” with North Korea marked by military provocations designed to advance the Stalinist state’s political goals, President Barack Obama’s nominee for intelligence chief said. That threat is the “most important lesson” for the U.S. intelligence community to take from North Korea’s sinking of a South Korean warship, James Clapper told the Senate Intelligence Committee in written testimony for his confirmation hearing yesterday. “We may be entering a dangerous new period when North Korea will once again attempt to advance its internal and external political goals through direct attacks on our allies in the Republic of Korea,” said Clapper, who was head of intelligence for U.S. Forces Korea and the Pacific Command in the mid-1980s.
Transocean(RIG) Is BP Spill Focus as Five Workers Named 'Parties of Interest'. Transocean Ltd. employees onboard the Deepwater Horizon drilling rig when it exploded in the Gulf of Mexico have become the focus of a U.S. government probe into the cause of the fatal disaster. Stephen Bertone, chief engineer on the rig, and Mike Williams, chief engineer technician, were designated as parties of interest yesterday by a joint U.S. Coast Guard-Interior Department investigative panel. That boosted to five the number of Transocean workers who could face criminal charges stemming from the accident that killed 11 people. No one from BP Plc, which leased the Deepwater Horizon to drill the Macondo well, or from other companies involved in the work has been named a party of interest, according to the panel’s website.
Wall Street Journal:
153 'VIP' Loans to Fannie Cited. Countrywide Financial Corp.'s controversial "VIP" mortgage program made 153 loans to employees of Fannie Mae, the giant federally backed financial institution that helped fuel Countrywide's growth, according to a letter released Tuesday by Rep. Darrell Issa. Another 20 such VIP loans, which often provided mortgages on terms more favorable than those available to the general public, went to employees of Freddie Mac, another big government-backed buyer of mortgage loans, the Issa letter said. While it has been reported that VIP loans went to some top Fannie Mae officials, the latest information indicates that the activity was more widespread.
Obama's Economic Fish Stories. On unemployment, the president claims that the stimulus bill was several times more potent than his chief economic adviser estimates. Such statements hurt his credibility. A president's most valuable asset—with voters, Congress, allies and enemies—is credibility. So it is unfortunate when extreme exaggeration emanates from the White House.
CMBS Market Rises From Ashes of Collapse. Big Banks Lead the Return of Key Funding Source for Commercial-Property Owners; Still, a Fraction of Precrash Levels. Even as woes mount in the commercial-real-estate market, a once-vital source of funding for commercial-property owners is showing signs of life. Banks including J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. are expected to launch in the coming weeks two offerings of commercial-mortgage-backed securities, or CMBS, totaling $1.4 billion, according to people familiar with the matter.
Housing Market Stumbles. Construction Slows, Inventories Build Amid Weak Job Growth, Tax-Credit End. The housing market, whose collapse pulled the economy into recession in late 2007, is stalling again. In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market.
The Rev. Wright Media Cover-Up. Someone who belonged to JournoList continues to leak information from its archives, providing a fascinating glimpse into how some liberal journalists coordinate their story lines to protect their favorite politicians and ideas. The Daily Caller website reports that at several times during the 2008 presidential race, "employees of news organizations including Time, Politico, the Huffington Post, the Baltimore Sun, the Guardian, Salon and the New Republic participated in outpourings of anger over how [Barack] Obama had been treated in the media, and in some cases plotted to fix the damage." Some of the comments will no doubt revive conservative allegations of a liberal news media conspiracy. Spencer Ackerman, then of the Washington Independent, now at Wired, urged fellow journalists to kill the story of Mr. Obama's ties to the controversial Revered Jeremiah Wright by going after some of his critics. "Fred Barnes, Karl Rove, who cares -- and call them racists," he urged.
Tiger Sowing Seeds of Growth. Julian Robertson Weighs Reopening Firm to Outsiders a Decade After He Shut Fund. Julian Robertson famously wound down his hedge fund at Tiger Management LLC a decade ago amid losses and turned to managing his own fortune. Now, the 78-year-old legendary investor is considering reopening Tiger, a launching pad for young money managers, to the outside world. Mr. Robertson has beefed up Tiger's management ranks as part of a potential expansion that could involve creating a "seeding" fund or a fund of hedge funds for outside investors.
TARP Lending Programs Curtailed. The Treasury Department, under Congressional orders to shrink and end sooner the much-maligned Troubled Asset Relief Program, plans to curtail two programs originally intended to help consumer and small-business lending. Treasury officials say they plan to end a long-delayed, never-utilized $30 billion program designed to boost small-business lending and cut the amount of money available for a Federal Reserve lending program. The Treasury will also stop creating any new programs to stabilize the financial sector.
Bloomberg Businessweek:
European Bank Stress Tests Said to Describe Three Scenarios. European regulators plan to detail three scenarios when they publish the results of their stress tests on the region’s banks this week, according to a document by the Committee of European Banking Supervisors. In the last scenario, banks will publish their estimated losses on sovereign debt they hold in their trading book as well as “additional impairment losses on the banking book” that they may suffer after a sovereign debt crisis, according to the document that was dated July 15.
CNBC:
Apple(AAPL) Outstrips Wall Street Earnings Forecasts; Shares Jump. Appleeasily topped analysts' expectations in its fiscal third quarter and gave a better-than-expected sales forecast, pushing the company's stock higher in extended trading Tuesday. Although the iPhone and iPad generated most of the headlines, it was the Mac computer that helped make the quarter for the company. Apple said it sold 3.47 million Macs in the quarter, along with 9.41 million iPods, 8.4 million iPhones and 3.27 million iPads. The company reported fiscal third-quarter earnings of $3.51 a share excluding one-time items, up from $1.35 a share a year ago. Revenue leaped to $15.7 billion, up from $8.337 billion last year.
NY Times:
S.E.C. Pursuing More Cases Tied to Financial Crisis. Days after the Securities and Exchange Commission secured a $550 million settlement from Goldman Sachs, the agency’s chairwoman said on Tuesday that the commission was pursuing several other investigations related to the 2008 financial crisis. The chairwoman, Mary L. Schapiro, told reporters after a Congressional hearing that the S.E.C. had “a number of cases coming out of the financial crisis related to C.D.O.’s and other products” and involving Wall Street firms, banks and other financial institutions.
Voters Still Think Bailouts Were a Bad Idea. A new Rasmussen Reports national telephone survey of Likely Voters finds that just 25% say it was a good idea for the federal government to provide bailout funding for banks and other financial institutions. Fifty-six percent (56%) hold the opposite view and feel these bailouts were a bad idea.
Politico:
Climate Bill on the Ropes.The Senate climate bill has been at death’s door several times over the past year. But with the days before the August recess quickly slipping away, the case may truly be terminal now. Senate Majority Leader Harry Reid (D-Nev.) has wanted to introduce a sweeping energy and climate bill by next week, and Reid even told POLITICO on Monday night that the package was almost ready to go. But by Tuesday afternoon, Reid was noncommittal about when a bill would come or what it would contain.
USA Today:
Estate Tax to Return in 2011, And it Could Hurt Ordinary Folks. The federal estate tax is scheduled to return with a vengeance on Jan. 1, 2011, imposing a levy of up to 55% on estates valued at more than $1 million. And the same congressional paralysis that allowed the tax to expire in 2010 could thwart efforts to pare it back, estate planning attorneys say. Families who live in areas with high property values are particularly vulnerable, says Clint Stretch, tax principal for Deloitte Tax who lives outside Washington, D.C. "People in my neighborhood bought a house for $32,000 in the '60s, and now it's worth $1 million," he says. "If they've got anything else, they would be paying an estate tax."
Reuters:
US Financial System Support Up $700 Billion in Past Year - Watchdog. Increased housing commitments swelled U.S. taxpayers' total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday. The Special Inspector General for the Troubled Asset Relief Program said the increase was due largely to the government's pledges to supply capital to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and to guarantee more mortgages to the support the housing market. Increased guarantees for loans backed by the Federal Housing Administration, the Government National Mortgage Association and the Veterans administration increased the government's commitments by $512.4 billion alone in the year to June 30, according to the report. "Indeed, the current outstanding balance of overall Federal support for the nation's financial system...has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion -- the equivalent of a fully deployed TARP program -- largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases," the TARP inspector general, Neil Barofsky, wrote in the report. Barofsky also in the report ramped up his criticism of the Treasury's housing relief efforts, saying that its program to reduce monthly mortgage payments for struggling homeowners was showing "anemic" participation numbers and had failed to "put an appreciable dent in foreclosure filings."He said Treasury had refused his repeated recommendations to announce more effective goals and benchmarks for its mortgage modification program, which could reach up to $50 billion in TARP funds."Treasury's refusal to provide meaningful goals for this important program is a fundamental failure of transparency and accountability that makes it far more difficult for the American people and their representatives in Congress to assess whether the program's benefits are worth its very substantial cost," Barofsky wrote.
At Least 25 Hurt in Turbulence Aboard United Flight. A wide-body United Airlines (UAUA) jet shaken by severe turbulence was diverted on Tuesday to Denver International Airport with at least 25 people injured on board, officials said. United Flight 967 hit the turbulence over Kansas after taking off from Dulles International Airport outside Washington, D.C., en route to Los Angeles, Federal Aviation Administration and airline officials said.
VMware(VMW) Outlook Beats Street View, Shares Rise. VMware Inc's (VMW) revenue forecasts beat Wall Street expectations and the business software maker said sales were strong to small- and mid-sized businesses. Its shares rose in 5 percent in after-market trade.
Derivatives Reform to Punish Property Industry. The European Union’s proposed reform of over-the-counter derivatives markets is intended to reduce the systemic risk caused by speculative use of derivatives, typically by hedge funds and other financial institutions. It was assumed those using derivatives for bona fide hedging and prudent risk management purposes would be excluded from the margin requirements that the new regulations would demand. However, it is now becoming clear that the European property industry risks being one of the biggest victims of regulatory overreach. Under the EU’s plans real estate fund managers are clearly classified in the same way as hedge funds and would therefore be subject to the full force of these regulatory changes from day one. However, the definition of a financial counterparty is not specific and may well go further to encompass listed property companies and joint ventures. The use of derivatives is widespread within the property sector. Indeed, it is usually a requirement of any bank facility that a certain proportion of the debt, often 100 per cent, be hedged. This hedging serves to protect the company from rising rates and ensures that the rent, or income, will always be sufficient to pay the interest on the bank loan. By far the most common derivative used for hedging is the interest rate swap. With prevailing market rates very low, the cumulative mark to market value of interest rate swaps would be awe-inspiring. In June Savills estimated that, in the UK alone, the mark to market value of swaps linked to property loans expiring in the next three years was about £10bn ($15bn). This is probably a fairly conservative estimate. With no current provision for “grandfathering” of existing trades, to avoid default, this additional equity would need to be raised in a very short period of time. It goes without saying that a number of property companies will be unable, or unwilling, to put forward large amounts of cash as margin when the swap is already secured against the property itself. These companies will then have two options: either they restructure the hedging (by converting to fixed-rate loans) or they liquidate. The banks, of course, should be delighted with these alternatives as about the one thing they will value more than being able to impose higher margins in a restructuring is actually getting their money back. This would fundamentally change the way in which property companies manage their risk. Companies will have to choose between funding themselves on a more expensive and less flexible basis, probably ill-suited to their business plans, or not hedging at all.
Radio Free Asia:
North Korea is cracking down on DVD, MP3 and radio use to stem the spread of information from outside, citing a personal in the country. Authorities are modifying media players in the nation so they can't play foreign or pirated CDs or DVDs, as well as removing radio-play functions from MP3 players and voice recorders. The government has also barred individuals from bringing in such items from abroad.
Munhwa Ilbo:
U.S. and South Korean defense and foreign ministers plan to warn North Korea against further military provocation in a joint statement to be announced later today.
asahi.com:
China to Let Renminbi Fall if Exports Drop. If China's export juggernaut falters, the country's central bank will allow its renminbi currency to fall against the U.S. dollar, thereby making Chinese goods cheaper overseas, a key monetary adviser here said. Zhou Qiren, a member of the Monetary Policy Committee, an advisory body to the People's Bank of China, also told The Asahi Shimbun in an interview that Beijing's announcement June 19 that it would allow the renminbi to fluctuate more flexibly against the greenback starting June 21 should have been made much earlier. Zhou said having a fixed exchange rate with the dollar over the past two years had been a burden for China. The best way for China to reverse a sharp fall in exports would be to allow its currency to fall in value, too, he added. Chinese exports to both the United States and Europe had been surging until June. But there is now concern that exports will start falling. Following are excerpts of the interview with Zhou:
Shanghai Securities News:
Shanghai's average new luxury home prices dropped 13% in July from April following expanded government restrictions on the property market, citing China Real Estate Information Corp. In Shenzhen, average luxury home prices declined 6.3% in June from April.
Evening Recommendations Citigroup:
Reiterated Buy on (ALTR), boosted estimates, raised target to $34.
Reiterated Buy on (GS), target $200.
Night Trading
Asian equity indices are unch. to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 127.0 -5.0 basis points.
Asia Pacific Sovereign CDS Index 124.50 -2.25 basis points.
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,200,000 barrels versus a -5,058,000 barrel decline the prior week. Gasoline supplies are expected to rise by +650,000 barrels versus a +1,601,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,500,000 barrels versus a +2,943,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to fall by -.43% versus a +.7% gain the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Bernanke speaking before Senate and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
Housing Starts in U.S. Decrease More Than Forecast. Housing starts fell in June to the lowest level since October as a slump in sales following the expiration of a government tax incentive caused U.S. builders to cut back. Work began on 549,000 houses at an annual rate last month, fewer than the median estimate of economists surveyed by Bloomberg News and down 5 percent from May, Commerce Department figures showed today in Washington. Building permits, a gauge of future construction, rose 2.1 percent last month to a 586,000 pace, propelled by a 20 percent jump in multifamily applications that are often volatile. Permits for single-family housing, the biggest part of the market, dropped 3.4 percent to a 421,000 pace, the lowest since April 2009.
Warren May Lack Votes for Consumer Agency, Dodd Says. Elizabeth Warren, the Harvard University professor touted to head a new consumer protection bureau, may not have sufficient support to win confirmation to the post, Senator Christopher Dodd said in a radio interview. Warren, chairman of a panel overseeing the Troubled Asset Relief Program, is credited with conceiving the agency included in the financial-regulation bill awaiting President Barack Obama’s signature. Warren, 61, has clashed with financial-industry executives and Obama administration officials including Treasury Secretary Timothy F. Geithner in her role leading the TARP Congressional Oversight Panel. Her criticism of the Treasury Department’s handling of the $700 billion bank bailout program has led to speculation -- dismissed by Treasury officials -- that Geithner is working to oppose Warren’s appointment to the consumer post. Warren has been lauded by consumer advocates and labor leaders including AFL-CIO President Richard Trumka, who endorsed her today.
California Residents Protest City Manager's $800,000 Salary. Hundreds of residents of one of the poorest municipalities in Los Angeles County shouted in protest last night as tensions rose over a report that the city’s manager earns an annual salary of almost $800,000. An overflow crowd packed a City Council meeting in Bell, a mostly Hispanic city of 38,000 about 10 miles (16 kilometers) southeast of Los Angeles, to call for the resignation of Mayor Oscar Hernandez and other city officials. Residents left standing outside the chamber banged on the doors and shouted “fuera,” or “get out” in Spanish. It was the first council meeting since the Los Angeles Times reported July 15 that Chief Administrative Officer Robert Rizzo earns $787,637 -- with annual 12 percent raises -- and that Bell pays its police chief $457,000, more than Los Angeles Police Chief Charlie Beck makes in a city of 3.8 million people. Bell council members earn almost $100,000 for part-time work. City Attorney Edward Lee said the council members couldn’t discuss salaries in public without advance notice.
Payrolls Fall in 27 U.S. States, Led by California. Payrolls decreased in 27 U.S. states in June, led by California and New York, signaling the slowdown in hiring is broad-based. Employers in California cut staff by 27,600 workers last month and those in New York reduced employment by 22,500, the Labor Department said today in Washington. Tennessee, Arizona and New Mexico rounded out the five states with the biggest job losses. For the second month, Nevada had the highest jobless rate in the country, rising to a record 14.2 percent from 14 percent in May. Data collection began in 1976. Unemployment in Michigan, the second-highest, dropped to 13.2 percent from 13.6 percent. Texas, with a gain of 14,000, and Kentucky, with a 6,200 increase, paced states showing an improvement in employment. Today’s report showed 16 states had unemployment of 10 percent or higher, the same as in May.
Ortel Sees 'Considerable Downside' for Goldman's(GS) Stock: Video. Charles Ortel, managing director at Newport Value Partners, and Thomas Brown, chief executive officer of Second Curve Capital LLC, discuss Goldman Sachs Group Inc.'s second-quarter profit reported today. Goldman said profit dropped 82 percent, missing analysts' estimates on a slide in trading revenue five days after settling U.S. regulators' fraud allegations.
Copper Jumps as Building Permit Gain Revives Demand Outlook. Copper prices jumped the most in three weeks after a gain in U.S. building permits boosted demand prospects for the metal used in electrical wiring and plumbing. Permits, a gauge of future construction, rose 2.1 percent last month to a 586,000 annual pace, the government said today. The gain was the first since March and was more than economists expected. Copper futures for September delivery rose 6.3 cents, or 2.11 percent, to $3.001 a pound at 12:01 p.m. on the Comex in New York.
China Sees Export Threat From Brazil, India Monetary Tightening. Monetary tightening in India and Brazil may add to Europe’s sovereign-debt crisis in curbing demand for China’s exports, a Chinese official said. The outlook for trade is “complicated and difficult,” Yao Jian, a spokesman for the Ministry of Commerce, said at a press briefing in Beijing today. A government research body forecasts second-half export gains will slow to less than half the pace of the first six months. Demand may be restrained by Europe’s woes, the gradual end of post-crisis restocking by businesses, and tightening in emerging economies such as India and Brazil, Yao said. In Brazil, the central bank has lifted the benchmark lending rate, known as Selic, to 10.25 percent from a record low of 8.75 percent in April. Traders are betting on another half percentage point increase this week. India’s next monetary policy decision is on July 27.
Hoyer Says House Will Debate China Currency Manipulation Bill. The U.S. House will debate legislation to authorize trade sanctions against China for currency manipulation as part of a package of measures to promote U.S. manufacturing, House Majority Leader Steny Hoyer said. The measure, sponsored by Representative Tim Ryan, an Ohio Democrat, would authorize imposition of countervailing duties on China’s exports to the U.S. if authorities determined that the renminbi is undervalued by at least 5 percent on average for 18 months. The measure, which would amend the 1930 Tariff Act that forbids subsidies of products imported into the U.S., would apply to all other foreign currencies.
Wall Street Journal:
A Staunch and Self-Confident Ally by David Cameron. We have a clear common agenda: succeeding in Afghanistan, securing economic growth and fighting protectionism. No other international alliance seems to come under the intense scrutiny reserved for the one between Britain and the United States. There is a seemingly endless British preoccupation with the health of the special relationship. Its temperature is continually taken to see if it's in good shape, its pulse checked to see if it will survive. I have never understood this anxiety.
CNBC:
More Than 40% Leave Obama Mortgage-Aid Program in June. The number of borrowers dropping out of a government program to help struggling homeowners rework their mortgage grew in June at almost twice the pace of those getting a permanent modification, the Treasury Department said on Tuesday.
Fox News:
Pay Czar to Banks: Take Back 2008 Bonuses. Pay czar Ken Feinberg is getting ready to stick it to Wall Street again, preparing to demand, or “claw back”, bonus money that some banks paid out during the bailout year of 2008, FOX Business Network has learned. Whether the banks will do so is another story. If approved by the Treasury Department, Feinberg's decision could be announced as early as Friday, people close to the situation tell FOX Business. In an interview, Feinberg refused to say how much money he’s going to ask for or which banks will be targeted. “I’m aiming for Friday to make an announcement,” he said in an interview. “The banks will be notified shortly.”
FINalternatives:
Hedge Fund Inflows Going To Largest Managers. Hedge funds saw net inflows of $9.5 billion in the second quarter, with the lion's share of that new money—$8.8 billion of it—going to firms with more than $5 billion in assets under management, according to data provider Hedge Fund Research. Those large firms now manage approximately 60% of total industry capital. But while the money poured in from investors, hedge funds themselves—hit with volatile markets—had a rough ride. The HFRI Fund Weighted Composite Index posted a decline of 2.5%, offsetting first quarter gains. Total hedge fund industry capital ended the most recent quarter at $1.65 trillion, down from $1.67 trillion the prior quarter.
Investment News:
SEC Expected to Cap 12(b)-1s. Agency would limit fees to 0.25%; anything above would be treated as a sales charge. The SEC is planning to propose a new framework that would cap at 0.25% of assets the amount that funds can charge on a continuing basis to cover marketing and administration costs, according to sources who asked not to be identified. Any fees above the 0.25% limit would be treated as a load that is paid over time. It's unclear what the conversion period would be.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 27% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
Politico:
4 House Dems Revolt. Four junior House Democrats frustrated with leadership’s approach to deficit spending are going rogue. Reps. Gary Peters, John Adler (D-N.J.), Jim Himes (D-Conn.) and Peter Welch (D-Vt.) are getting more vocal on their concerns about government spending. They’re forming a working group to propose major cuts to spending in areas like defense, energy, housing and agriculture that they say would save about $70 billion over ten years. “We have been growing increasingly frustrated with the lack of action and talking about specifics and putting those on the table,” Peters said in an interview with POLITICO.
El Pais:
Spanish Finance Minister Elena Salgado said all the Spanish banks that underwent European Union stress tests passed.
Borsen:
Danish public sector growth must freeze for three years and then the prerequisite for it to start growing again should be growth in the private sector, Danish Foreign Minister Lene Espersen said in an interview. "We need to bring the public sector down to what we can afford, which is 26.5% of GDP," Espersen said.
The 5-2 vote came after two hours of testy debate between growers who argued the proposal could destroy their livelihoods and businessmen who said it could turn Oakland into the Silicon Valley of pot. Oakland's City Council on Tuesday approved an ordinance that could make it the first city in the state to permit industrial marijuana production, a path-breaking decision that could spur the commercialization of a crop largely grown in hidden gardens. The plan would authorize four potentially enormous pot factories, but makes no provision for the hundreds of growers who now supply Oakland's four dispensaries, which sold $28 million in marijuana last year. "This is a monumental step forward," said Dale Gieringer, an Oakland resident and the longtime head of California NORML, which backs the legalization of marijuana. "It really means moving into the era of industrial-scale operations and Oakland means to do it big."