North American Investment Grade CDS Index 100.78 bps -3.91%
European Financial Sector CDS Index 93.83 bps -5.81%
Western Europe Sovereign Debt CDS Index 112.33 bps -2.25%
Emerging Market CDS Index 206.40 bps -3.35%
2-Year Swap Spread 17.0 unch.
TED Spread 30.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .14% unch.
Yield Curve 240.0 +5 bps
China Import Iron Ore Spot $136.30/Metric Tonne unch.
Citi US Economic Surprise Index -34.10 +3.3 points
10-Year TIPS Spread 1.84% +7 bps
Overseas Futures:
Nikkei Futures: Indicating +165 open in Japan
DAX Futures: Indicating +9 open in Germany
Portfolio:
Higher: On gains in my Biotech, Medical, Technology and Retail long positions
Disclosed Trades: Added to my (MOS) long, took profits in another long
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 breaks up through its 200-day moving average despite weaker manufacturing gauges in the US/China. On the positive side, Gaming, REIT, Construction, HMO, Bank, Computer, Steel, Ag, Oil Service, Energy and Coal stocks are especially strong, rising 3.0%+. (IYR)/(XLF) have traded well throughout the day. The S&P GSCI Ag Spot Index is rising another +1.2% today. Copper also continues to trade well, rising another +2.34%. Lumber is jumping another +2.8%. The European Investment Grade CDS Index is falling -5.6% today to 94.33 bps. The Hungary sovereign debt cds is dropping -3.8% to 319.44 bps and the US Muni CDS Index is falling another -4.33% to 198.88 bps. On the negative side, gold and hospitals shares are substantially underperforming. The 10-year yield is only rising +5 bps, which isn't as much as I would have expected given the magnitude of today's equity rally, which is a mild negative. I suspect investment manager performance angst will begin to surface again pretty soon, which could lead to further near-term gains after a brief pause. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, technical buying, mostly positive earnings reports, diminishing financial sector pessimism and bargain-hunting.
HSBC, BNP Earnings Spur Drop in Bank Swaps to Three-Month Low. HSBC Holdings Plc and BNP Paribas SA led a decline in the cost of insuring bank bonds to the lowest level in three months after posting profits that beat analysts’ estimates, easing concern of a global economic slowdown. The Markit iTraxx Financial Index of credit-default swaps linked to 25 banks and insurers fell 3 basis points to 112.5, near the lowest since April 21, according to JPMorgan Chase & Co. at 12:30 p.m. in London. HSBC, Europe’s biggest bank, and BNP Paribas are the latest companies to exceed profit forecasts in what Deutsche Bank AG strategist Jim Reid called a “blockbuster earnings season.” Credit-default swaps on London-based HSBC fell 1 basis point to 81 and contracts on BNP Paribas, France’s largest lender, declined 3 to 84, according to data provider CMA. Higher bank profits also helped fuel a rally in corporate credit, with the Markit iTraxx Europe Index of 125 companies with investment-grade ratings down 3 basis points at 102, the lowest since May 13. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings declined 12.5 basis points to 466.5.
U.S. Economy: Manufacturing Slowed in July as Orders Cooled. The manufacturing rebound that propelled the U.S. out of the recession cooled in July, reflecting a slowing in orders and production. The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, exceeding the median forecast of economists surveyed by Bloomberg News, from 56.2 in June. The ISM’s new orders measure dropped to 53.5, the lowest level since June 2009, from 58.5. The measure was as high as 65.7 in May. The group’s production gauge decreased to 57 from 61.4.
Bernanke Says U.S. Consumer Spending to Accelerate. Federal Reserve Chairman Ben S. Bernanke said rising wages will probably spur household spending in the next few quarters, even as weak job gains drag down consumer confidence. While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” Bernanke said today in a speech in Charleston, South Carolina. “We are maintaining strong monetary policy support for the recovery,” he said in response to an audience question, without discussing any further action the Fed could take to aid growth. The remarks signal Bernanke and his colleagues, when they meet in Washington next week, will stop short of making major changes in their policy statement or taking new steps to lower interest rates and reduce unemployment, said John Ryding, a former Fed researcher. Consumer spending, which accounts for about 70 percent of the economy, “seems likely to pick up in coming quarters from its recent modest pace,” Bernanke said. “Further action still has a pretty high hurdle to get over,” said Ryding, co-founder and chief economist at RDQ Economics LLC in New York. “The status quo on policy remains.”
A gauge of U.S. corporate credit risk fell to the lowest in more than two months as manufacturing slowed less than economists had forecast, spurring investor optimism that the economy may avoid a double-dip recession. The Markit CDX North American Investment Grade Index declined 4.31 basis points to a mid-price of 100.08 basis points, the lowest since May 12, as of 12:37 pm in NY, according to Markit Group.
Soybeans, Corn Rise as Drought Slashes Grain Output in Russia. Soybean and corn prices jumped to the highest level since January as drought slashed grain production in Russia and parts of Europe, boosting demand for supplies from the U.S., the world’s biggest producer and exporter. Soybean futures for November delivery rose 12.25 cents, or 1.2 percent, to $10.1725 a bushel at 10:20 a.m. on the Chicago Board of Trade. Earlier, the price reached $10.295, the highest level for a most-active contract since Jan. 11. In July, the oilseed jumped 11 percent, the most since May 2009. Corn futures for December delivery gained 6 cents, or 1.5 percent, to $4.1275 a bushel. Earlier, the price reached $4.18, the highest level since Jan. 12. In July, the price advanced 8.9 percent, the most since February.
Copper Rises to Three-Month High as China May East Tightening. Copper prices rose to a three-month high on speculation that China’s government may cut back on policies aimed at slowing economic growth. Copper futures for September delivery rose 5.9 cents, or 1.8 percent, to $3.3705 a pound at 10:35 a.m. on the Comex in New York. Earlier, the price touched $3.3735, the highest for a most-active contract since April 30. Today’s gain would leave the metal up 0.7 percent this year.
Ford(F) Debt Raised by S&P on Improved Image With Public. Ford Motor Co.’scredit rating was raised two levels by Standard & Poor’s because of expectations the company will remain profitable and signs that customers have a better impression of the automaker’s vehicles. The rating was raised to B+, the fourth level below investment-grade, from B-, S&P said today in a statement. The outlook is positive. Ford has “substantial” cash balances and likely will continue to generate free operating cash flow, the ratings firm said. The retail market has an “improved perception” of Ford’s vehicles and its efforts to introduce more fuel-efficient models in the next few years, S&P said.
Funds Provide Inadequate Disclosure on Derivatives, SEC Says. U.S. regulators said mutual funds aren’t telling investors enough about why they use derivatives, with some funds providing “generic” disclosures and others failing to explain how the products affect performance. Regulators said they are concerned that the use of derivatives has increased in the mutual-fund industry without shareholders comprehending the risks or investment strategies.
BlackRock's(BLK) Doll Sees U.S. Stocks Returning 8% a Year. U.S. stocks will return 8.1 percent a year and the Standard & Poor’s 500 Index will almost double by 2020 after its first losing decade made American equities appear cheap, BlackRock Inc. Vice Chairman Robert C. Doll said. The S&P 500, which closed at 1,101.6 on July 30, will rise 85 percent to 2,034 by the decade’s end, Doll said in a statement today. U.S. equity returns will outpace those of other developed nations because of attractive valuations, stronger economic growth, shareholder-friendly management practices and more serious problems in other economies, Doll said.
Wall Street Journal:
U.S. Plans to Name North Korea's Partners. U.S. officials in charge of new sanctions against North Korea on Monday said they will name and shame banks and businesses in other countries that help Pyongyang with illegal activities.
BP(BP) to Begin First Phase of Killing Damaged Well. BP PLC is poised to start the latest attempt to kill a damaged deepwater well in the U.S. Gulf of Mexico by flooding it with thousands of barrels of drilling mud, an executive said Monday.
Global Chip Sales Rose 7.1% in Second Quarter. Global chip sales edged up 0.5% in June from a month earlier, contributing to 7.1% growth in the second quarter from the prior quarter. Meanwhile, gains for the month and quarter from last year were 49% and 45%, respectively, reflecting growth in a broad range of markets from an industry slowdown in the first half of last year.
Glimcher, Blackstone to Buy Hawaii's Pearlridge Center. A partnership between shopping-mall owner Glimcher Realty Trust and buyout firm Blackstone Group LP has agreed to buy Pearlridge Center, one of the largest malls in Hawaii, for $242 million, according to people familiar with the talks.
CNBC:
Better-Than-Expected Earnings Should Help Stocks: Cohen. Corporate earnings in the US and Europe have been "dramatically better than expected" and may give average investors more confidence in stocks, Abby Joseph Cohen, chief market strategist at Goldman Sachs, told CNBC Monday.
Economist: V-Shaped Recovery Won't Go W-Shaped. The chances of a double-dip recession in the developed world are very weak despite a fall in global business confidence, according to researchers at Barclays Capital.
The New Ford(F) Has Learned to Think Small. Ford Motor Co., long known for pickups and SUVs, will emphasize cars, crossovers and fuel-efficient engines in the next few years. The company wants to be the fuel economy leader, and federal mpg standards are rising. Ford launched the Fiesta subcompact this summer and will introduce a redesigned Focus compact early next year. The Fiesta and Focus are the first U.S. vehicles from the One Ford plan. Under the plan, each region has global responsibility for certain models. For example, designers and engineers in Dearborn, Mich., will continue to work on trucks and crossovers that can be adapted worldwide. The Europeans are designing small cars.
LA Times:
Other California Cities Stuck With the Tab for Bell Officials' Massive Pensions. Under the state's arcane, convoluted public pension system, Bell will pay a fraction of the city manager and police chief's pensions. Former employers and other cities will bear the brunt of the cost. The unfolding story of the high salaries paid to municipal officials in Bell has delivered a surprise twist to taxpayers in Glendale, Simi Valley, Ventura and several other Southern California cities — they're on the hook for the pension bills. More than half of former city manager Robert Rizzo's $600,000-a-year pension will be spread among 140 small cities and special districts such as Norco, La Cañada Flintridge and Goleta that are in the same pension liability pool as Bell. The rest would be shouldered by his former employers, Hesperia and Rancho Cucamonga, according to estimates made by The Times and reviewed by pension experts. In the case of its former police chief, Randy Adams, Bell escapes nearly all the costs of his estimated $411,300-a-year pension. Under CalPERS rules, the city is responsible for just 3% of that because he only worked there for one year. Taxpayers in Glendale, Simi Valley and Ventura would have to pick up the rest.
Bespoke Investment Group:
Country Default Risk. Default risk for sovereign debt has declined quite a bit since the start of July when equity markets here in the US made their correction lows. Below we highlight the default risk as measured by 5-year credit default swap prices for a large number of countries as well as four US states that have the highest default risk. The left side is sorted by percent change since July 2nd, and the right side is sorted by CDS price (highest to lowest).
Chicago Sun-Times:
A New Headache for Giannoulias? Another Rezko Loan. His family bank lent $22.75 million, in newly uncovered deal. By February 2006, businessman and political fixer Tony Rezko was already politically radioactive, caught up in a federal investigation that would see him criminally charged by the end of that year. News reports had linked Rezko, a key adviser and campaign fund-raiser for then-Gov. Rod Blagojevich, to shady deals involving state pension funds -- among the crimes that ultimately would send him to prison. This was the Tony Rezko who, looking for millions of dollars for a massive South Loop development, turned to Broadway Bank, owned by the family of Alexi Giannoulias. Giannoulias, the Democrat now running for U.S. Senate, had left his post as a senior loan officer at the Chicago bank in late 2005 to mount a successful campaign for Illinois state treasurer, though he still held an ownership stake in the bank. Rezko's company asked. And Broadway Bank came through.
Mining Weekly:
Ivory Coast to Triple Gold Output by 2015. Ivory Coast will triple gold output by 2015 to about 20 t/y as three new mines start up, including Randgold Resources' Tongon development, a government official told Reuters. The West African state, the world's top cocoa grower and a modest producer of oil, is eager to diversify its economy in part by developing its mining sector which now makes up just 1% of gross domestic product. "From here to 2015, production of gold in Ivory Coast will be at least 20 t/y because of the new mines," Mbe Adou, general director of mines and geology said in an interview late on Friday on the sidelines of an industry conference.
57% Say Health Care Plan Bad For Country, 59% Favor Repeal. Voter pessimism towards the new national health care bill has reached an all-time high, while the number of insured voters who feel it will force them to switch their coverage is up 11 points from early last month. A new Rasmussen Reports national telephone survey finds that 57% of Likely U.S. Voters say the recently passed health care law will be bad for the country. That’s the highest level of pessimism measured since regular tracking began following Congress' passage of the law in late March. Thirty-two percent (32%) say the health care plan will be good for the United States.
Politico:
Republican Party Eyes Choking Healthcare Law Funding. Republicans may not be able to repeal the Democrats’ health care reform law next year, but they’re eyeing the next best thing: Deny the Obama administration the money it needs to implement the law. GOP candidates across the country are running on a promise to repeal the law. But simply winning the House and the Senate wouldn’t get them there; they’d need to corral two-thirds majorities to overcome what would be an almost certain veto from President Barack Obama. Resigned to that fact, Republicans are now readying a campaign trail message that voters should grant them the power of Congress’s purse strings so that they can choke off funding for the law. “Our goal remains to repeal the bill and replace it, but, clearly, with the president’s veto pen, we’re going to have to take interim steps,” said Rep. Kevin Brady of Texas, the top House Republican on the Joint Economic Committee.
President Obama's Climate 'Plan B' in Hot Water. President Barack Obama’s ‘Plan B’ for tackling global warming is under attack in the courts and on Capitol Hill. Through federal lawsuits, two conservative attorneys general, a major coal company and the U.S. Chamber of Commerce are leading the charge to overturn the Environmental Protection Agency’s ability to write its own climate rules. Key coal-state Democrats and nearly all Republicans are also unified in their bid to slow down the EPA via legislation — and they’re determined to force a series of votes on the issue before the next big suite of rules start kicking in next January. “You attack it at all fronts,” Sen. Lisa Murkowski (R-Alaska), a leading advocate for stopping the EPA, told POLITICO. “You go the judicial route. You go the legislative route. I think this is important to make sure we are looking at all avenues.”
Judge Greenlights Health Reform Suit. In the first substantive legal ruling on President Barack Obama’s health care reform law, a federal judge has rejected the Justice Department’s request to dismiss a lawsuit from Virginia’s state government challenging the reform’s requirement that individuals purchase health insurance. U.S. District Court Judge Henry Hudson ruled that enough factual issues were in dispute in the case to allow the suit, brought by Virginia Attorney General Ken Cuccinelli, to go forward against the health care reform law, Obama’s signature legislative accomplishment.
USA Today:
Rating Sag for Obama's Handling of Wars. War-weary Americans are losing faith in President Obama's handling of conflicts in Afghanistan and Iraq, contributing to his lowest approval ratings since taking office. Barely one in three Americans favor Obama's management of the war in Afghanistan, a new USA TODAY/Gallup Poll shows. Forty-one percent support his handling of the war in Iraq, a new low for Obama. Overall, those surveyed Tuesday through Sunday disapproved of the way Obama is handling his job by a 53%-41% ratio, by far his lowest ratings since January 2009.
Reuters:
Hedge Fund Noster Shorts Banks After Stress Tests.Hedge fund Noster Capital has begun shorting five European banks because it believes last month's stress tests were too weak and that problems over their sovereign debt holdings have not gone away. Managing partner Pedro de Noronha told Reuters he had put short positions on a basket of five banks -- Barclays (BARC.L), UBS (UBSN.VX), Intesa Sanpaolo (ISP.MI), UBI (UBI.MI) and BBVA (BBVA.MC) -- because the stress tests did not assume difficult enough conditions.
US Tells China Not to Exploit Sanctions on Iran. Washington has told China to stop taking advantage of the UN sanctions regime against Iran by seizing opportunities left by departing European companies. China last month condemned moves by the European Union to ratchet up sanctions against Tehran’s nuclear programme by hitting transport, energy and finance. Iran is the third biggest oil supplier to China, and Beijing is investing heavily in the Islamic republic’s energy fields and refineries.
Caixin Online:
Combined new loans in the four Chinese major banks, including Agricultural Bank of China, were 236 billion yuan, down from 356 billion yuan a year earlier, citing industry data.
Iraq Oil Report:
American Base in Basra on Frontline of Oil Boom. Oil executives buzz in and out of this American base, the former British base connected to the Basra airport, some for meetings with officials, some staying the night – or longer. The American mission in Basra, Iraq’s oil capital, is perhaps unlike that of any U.S. outpost in the world: to ensure the world’s largest oil companies have as few problems as possible as they start work on Iraqi oil contracts that could see the country become the largest producer ever. Of the 18 firms that formed winning consortiums for 11 oil development deals over the past year, only two were American companies. Yet the U.S. military presence in Iraq and the State Department has been ordered to help. “U.S. government policy at this time is that the USG in Iraq should assist in facilitating the mobilization of these companies without regard to the nationality of the companies,” said Kenneth Thomas, head of the energy and transportation section of the Basra Provincial Reconstruction Team, a U.S. Embassy initiative. “If more American companies come into Iraq, we will of course assist them in any way we can.” For the Americans – and the British, who maintain a consulate on the base and rent space to the two British oil companies awarded deals – it’s a hyper-inclusive distillation of their goals around the globe: sow peace through the free market.
Oil Companies Face Unlimited Spill Liability in Bill Passed by U.S. House. Oil companies drilling in U.S. waters would face unlimited liability and BP Plc would be barred from new offshore leases under legislation passed by the House. House Democrats on a 209-193 vote yesterday pushed through the overhaul of drilling safety and environmental rules over Republican opposition. The bill also puts into law the Obama administration’s elimination of the Minerals Management Service, the Interior Department agency cited for lax oversight. Gulf Coast lawmakers and oil-industry officials say lifting the liability cap will hurt companies, and Republicans say the measure would make the U.S. more dependent on imports. The Senate may act on its version of oil-spill legislation next week. “The House bill passed today will kill jobs, threaten our fragile economic recovery and place our energy security at risk,” Jack Gerard, president of the Washington-based American Petroleum Institute, said in a statement after yesterday’s vote. “The unlimited liability provisions will drive the vast majority of American companies out of U.S. waters because they will not be able to obtain insurance coverage.” “This bill is supposed to be about the Gulf oil spill, yet it goes far, far beyond offshore drilling,” said Representative Doc Hastings, a Washington Republican. The legislation would impose a $22 billion tax on Americans and raise spending by $30 billion, Hastings said. House Republicans say scrapping liability limits would shut down smaller, independent drillers that can’t insure themselves against potential spill costs. A Senate version also would lift the limits.
Time to Buy Dollars as Euro Economies Reach Limits of Austerity. FX Concepts LLC, the hedge fund that bought the euro in June just as it began a 9.7 percent surge against the dollar, now says it’s almost time to get out of the currency. The firm, which manages $8 billion in assets, expects the euro’s advance from a four-year low on June 7 to come undone by September, partly because European austerity programs will start to weigh on growth. Reports last week that showed Spanish consumer confidence falling to the lowest level this year and banks tightening credit standards in the region suggest the budget measures may already be undermining the recovery.
'Buy' Signals Flashing With Plunge in Confidence: John Dorfman. For investors in the stock market the bad consumer-confidence number could actually turn out to be good news. Ned Davis Research Inc. in Venice, Florida, studied returns for the Dow Jones Industrial Average when confidence as measured by the Conference Board survey is high, medium and low. When it is high (above 113) the Dow gained an average of only 0.2 percent over the next 12 months. When confidence is moderate (between 66 and 113) the index gained 5.9 percent. The biggest gains came when confidence was low (66 or less). Then the Dow plowed ahead by an average of 13.1 percent.
Banks on Europe's Edge Face $122 Billion Refinancing Bill. Banks in Europe’s most indebted nations need to refinance $122 billion of bonds this year, likely paying high interest costs even after receiving a clean bill of health from regulators. Italy’s Intesa Sanpaolo SpA has the most debt coming due at $28 billion, followed by UniCredit SpA with $21 billion, according to data compiled by Bloomberg. Italian banks must refinance a total $69 billion of bonds this year and $157 billion in 2011, while Spanish lenders have $28 billion and $73 billion of debt that needs to be paid. Banks in so-called peripheral European countries from Greece to Ireland have been largely shut out of debt markets since April amid concern their governments will struggle to cut budget deficits. Banco Santander SA, the countries’ third- biggest debtor, and Banco Bilbao Vizcaya Argentaria SA took advantage of a thaw following the European Union’s stress tests to sell bonds last week, though at relative yields that were as much as double what they paid before the crisis. “There is still a strong cloud of pessimism hanging over the markets,” said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London. “Getting that funding done will be as good a test as the stress tests were.”
Democrats Take Lobbyist Cash as Obama Knocks Special Interests. As President Barack Obama thrashes Republicans for allowing “special interest takeovers of our elections,” his Democratic Party is benefiting from millions of campaign dollars brought in by lobbyists. Lobbyists raised at least $1.5 million in the first six months of the year to help elect Democrats to the House, according to a report from the Democratic Congressional Campaign Committee. That was the most of any congressional fundraising committee and almost three times as much as the House Republican campaign committee took in from lobbyists. While Obama criticizes the influence held by lobbyists in Washington, candidates rely on them to help fund increasingly expensive campaigns. Reports released yesterday show lobbyists also personally contributed to Democrats including House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada. Fundraising helps lobbyists get in “on the main floor with the Democratic members of Congress as well as the White House,” said Craig Holman, who handles campaign finance issues for Public Citizen, a Washington advocacy group. “When it comes to negotiating legislation, they get to be key players.”
JPMorgan(JPM) Cuts Forecasts for 2010, 2011 New York Oil Prices as Demand Slows. JPMorgan Chase & Co. lowered by 5.5 percent its forecast for New York oil prices this year on speculation a slowdown in global economies will limit crude’s potential to rise. The bank cut to $77.25 a barrel its estimate for the average price of West Texas Intermediate crude on the New York Mercantile Exchange during the rest of 2010, from a forecast of $81.75 a barrel made last month, according to a monthly report e-mailed today. It lowered its forecast for 2011’s average price to $79.25 a barrel from $90. “We see both lower prices and a tighter range ahead -- but with increased risks,” Lawrence Eagles, an analyst for the U.S. bank, wrote in the report. “Weaker economic growth, energy efficiency and Organization of Petroleum Exporting Countries intransigence provide downside risks.” “There’s an increased drive towards energy efficiency and renewable energy in China,” said Henry Wang, managing director, of Beijing-based energy consultant Gate International Ltd. “This could create downward pressure on oil demand.” Pressure on China’s oil demand, the world’s biggest energy user, affects global consumption, which may impact prices, Wang, who formerly worked for Royal Dutch Shell Plc. in China, said by phone from Beijing today.
China Manufacturing Contracts as Economy Enters 'Slowdown'. China’s manufacturing contracted for the first time in 16 months in July, a survey of purchasing executives showed. A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June. The fastest-growing major economy is cooling as the government clamps down on property speculation, trims credit growth and shutters energy-intensive and polluting factories. A government-backed manufacturing index released yesterday showed the slowest expansion in 17 months in July. “There is no need to panic,” said Qu Hongbin, a Hong Kong-based economist at HSBC, repeating his assessment of last month that China is having a “slowdown not a meltdown.” A separate manufacturing index released yesterday by the statistics bureau and the Federation of Logistics and Purchasing slid to 51.2, the lowest level in 17 months. Credit Suisse Group AG described yesterday’s data as “not bad enough” to force a significant policy change. Morgan Stanley economist Wang Qing said yesterday that a government campaign to close energy-inefficient businesses has likely contributed to a slowdown in heavy industry. UBS AG economist Wang Tao estimates economic growth could be cut by 2 percentage points in the second half of the year if the government doesn’t waiver in meeting its goal. “The Chinese economy is slowing down mainly due to the ongoing property-tightening measures,” Lu Ting, a Hong Kong- based economist at Bank of America-Merrill Lynch, said yesterday.
Sanofi Bid for Genzyme(GENZ) May Need to Be Higher Than $80 to Win Investors. Sanofi-Aventis SA may have to pay at least $80 a share, or $21.3 billion, to acquire genetic-disease drugmaker Genzyme Corp. as activist directors drive up the price, investors in the U.S. biotechnology company say. Sanofi Chief Executive Officer Chris Viehbacher has support from his board to offer as much as $70 a share, or about $18.7 billion, and is preparing a formal offer letter for Genzyme, according to three people familiar with the situation who declined to be named because the deliberations are private.
BlackBerry Challenges Set to Spread as Governments, RIM(RIMM) Collide. Research In Motion Ltd., maker of the BlackBerry smartphone, faces challenges to overseas expansion as developing countries tighten restrictions on mobile e-mail. The United Arab Emirates, home to Middle East business hub Dubai, said yesterday it may suspend BlackBerry e-mail services in October because of concern the devices could be used in crimes. The move comes days after an official in India said that country may ban BlackBerry e-mail use and reports that Saudi Arabia could take similar steps. “It’s a reflection of fears of cyber security and espionage that now extend to mobile phones,” said Ron Deibert, director of the University of Toronto’s Citizen Lab, who helped colleagues uncover a plot against the Indian government that involved computers in China. “It’s the type of thing that will become more common for RIM as they grapple with public policy and ethical issues in emerging markets.”
Obamacare Only Gets Worse Upon Further Review: Commentary by Kevin Hassett. One of the more illuminating remarks during the health-care debate in Congress came when House Speaker Nancy Pelosi told an audience that Democrats would “pass the bill so you can find out what’s in it, away from the fog of controversy.” That remark captured the truth that, while many Americans have a vague sense that something bad is happening to their health care, few if any understand exactly what the law does. To fill this vacuum, Representative Kevin Brady of Texas, the top House Republican on the Joint Economic Committee, asked his staff to prepare a study of the law, including a flow chart that illustrates how the major provisions will work. The result, made public July 28, provides citizens with a preview of the impact the health-care overhaul will have on their lives. It’s a terrifying road map that shows Democrats have launched America on the most reckless policy experiment in its history, the economic equivalent of the Bay of Pigs invasion.
Lula Pushes Petrobras(PBR) Debt Risk to 18-Month High on State Control Concerns. Petroleo Brasiliero SA is losing investor confidence on concern its credit rating will be cut after a Brazilian plan raised the relative risk associated with the state-run oil producer’s debt to the highest in 18 months. Five-year credit default swaps on Petrobras, as the company is known, cost 177 basis points, or 1.77 percentage points, compared with 117 for contracts on Brazil debt, according to prices compiled by CMA DataVision. Last week the spread reached 61 basis points, the widest since January 2009.
AT&T(T), Verizon(VZ) Said to Target Visa(V), MasterCard(MA) With Smartphones. AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, are planning a venture to displace credit and debit cards with smartphones, posing a new threat to Visa Inc. and MasterCard Inc., three people with direct knowledge of the plan said. The partnership, which also includes Deutsche Telekom AG unit T-Mobile USA, may work with Discover Financial Services and Barclays Plc to test a system at stores in Atlanta and three other U.S. cities that would let a consumer pay with the contactless wave of a smartphone, the people said. The trial would be the carriers’ biggest effort to spur mobile payments in the U.S. and supplant more than 1 billion plastic cards in American wallets.
Greenspan Says Home-Price Drop May Spur New Recession. Former Federal Reserve Chairman Alan Greenspan said the slowing economic recovery in the U.S. feels like a “quasi-recession” and the economy might contract again if home prices decline. “We’re in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession,” Greenspan said in an interview on NBC’s “Meet the Press” broadcast yesterday. Asked if another economic contraction, a so-called “double dip,” was possible, Greenspan said, “It is possible if home prices go down. Home prices, as best we can judge, have really flattened out in the last year.”
Wall Street Journal:
Big Names Brace for Deflation. Bill Gross Is Among Investors Getting Set for Decline in Prices: 'It's Happening'. Some of the world's leading investors are becoming more worried about deflation and are re-shaping their portfolios to prepare for a possible period of falling prices. Bond-fund heavyweight Bill Gross, investment manager Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier are among the best-known investors who are bracing for a possible bout of deflation.
Home-Resale Fees Under Attack. A coalition of real-estate industry groups is asking the government to ban a new type of fee on property transactions they say unfairly strips equity from property owners, including homeowners, and redistributes the funds to developers. The group, led by the National Association of Realtors and the American Land Title Association, has asked U.S. Treasury Secretary Timothy Geithner to use the consumer-protection agency created by the recent financial-reform legislation to outlaw "capital recovery fees." The fees, also known as re-conveyance fees, are inserted by developers into covenants governing newly built subdivisions and commercial real-estate developments. They require sellers of a property to pay a percentage, often 1%, of the selling price to the original developer of the property every time it changes hands, for up to 99 years.
European Pension Scheme Exits Hedge Funds. One of Europe's largest institutional investors has pulled out of funds of hedge funds, removing more than $500 million (EUR383 million) from the troubled sector, saying it doubts their utility and dislikes their lack of transparency. The EUR11.8 billion ($15.4 billion) Rabobank Pensioenfonds, one of the 100 largest pension schemes in Europe, decided to pull out of funds of hedge funds and put the money into equities.
Sides Dig In Over Ground Zero Mosque. With city approval of a proposed mosque and Islamic center two blocks away from Ground Zero nearly secured, the battle over the project is moving away from zoning boards to the court of public opinion.
The Soak-the-Rich Catch 22 by Art Laffer. Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshaling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues. -President John F. Kennedy, Economic Report of the President, January 1963.
Citigroup(C) Settlement Shows Low Cost of Lying to Markets. The news that Citigroup will pay a $75 million fine to settle chargesthat it misled investors about its exposure to the subprime market is a stark reminder that despite all the hullabaloo about reforming the financial system, we’ve done very little to address the lack of transparency in our major financial institutions.
Missouri Voters to Have Say on Health Care Law. Missouri is the first of at least three states with ballot measures this year aimed at nullifying the federal health care law by invalidating its keystone provision, the requirement that most people obtain insurance or pay a tax penalty. A recent statewide poll in Missouri found that not even likely Democratic voters could muster a majority against the proposition. The referendum on the measure, known as Proposition C, is seen as an organizational test for the Tea Party and like-minded conservatives in a swing state that President Obama lost narrowly in 2008 and that has since moved measurably away from him.
Targeted Killing Is New U.S. Focus in Afghanistan. When President Obama announced his new war plan for Afghanistan last year, the centerpiece of the strategy — and a big part of the rationale for sending 30,000 additional troops — was to safeguard the Afghan people, provide them with a competent government and win their allegiance. Eight months later, that counterinsurgency strategy has shown little success, as demonstrated by the flagging military and civilian operations in Marja and Kandahar and the spread of Taliban influence in other areas of the country. Instead, what has turned out to work well is an approach American officials have talked much less about: counterterrorism, military-speak for the targeted killings of insurgents from Al Qaeda and the Taliban. Faced with that reality, and the pressure of a self-imposed deadline to begin withdrawing troops by July 2011, the Obama administration is starting to count more heavily on the strategy of hunting down insurgents. The shift could change the nature of the war and potentially, in the view of some officials, hasten a political settlement with the Taliban. Based on the American military experience in Iraq as well as Afghanistan, it is not clear that killing enemy fighters is sufficient by itself to cripple an insurgency. Still, commando raids over the last five months have taken more than 130 significant insurgents out of action, while interrogations of captured fighters have led to a fuller picture of the enemy, according to administration officials and diplomats.
To Help Democrats in the Fall, Obama May Stay Away. As lunch was served in the Roosevelt Room of the White House one day last week, President Obama assured the nine Democratic members of Congress sitting around the table that he would do anything he could to help them survive their fall elections. Even, he said, if it meant staying away. “You may not even want me to come to your district,” Mr. Obama said, according to guests, nearly all of whom hold seats that Republicans are aggressively seeking. It is a vivid shift from the last two elections, when Mr. Obama was the hottest draw for Democratic candidates in red and blue states alike. And it highlights the tough choices Democrats face as they head toward Election Day with the president’s approval ratings depressed, Republicans energized, the economic slump still lingering and two veteran House Democrats now facing public hearings on ethics charges.
NY Post:
Out-Source of Pain. US companies moving jobs offshore at record pace. Jobs are fleeing the US for lower-cost countries at an alarmingly higher rate. Information technology, finance, back-office staffing, call-center and manufacturing firms are setting up shop abroad amidst a record trade deficit, soaring unemployment -- and a protectionist movement at home led by New York Democratic Senator Charles Schumer, The Post has learned.
Maverick Sidesteps SEC Probe. The $11 billion hedge fund founded by Sam and Charles Wyly, the Texas billionaire brothers charged by the federal government this week with running a massive fraud, is not under investigation by regulators, a person familiar with the matter told The Post yesterday.
High Frequency Trading Bot-Versus-Bot. In my mind what is most significant is to whom this quote stuffing is directed. It’s not directed at “head faking” analog Hedge Funds, or that rare bird “Real Money Investors,” it’s clearly directed at other HFT trading bots. Yes, we’ve entered the era of Bot-versus-Bot in our stock market.
Chicago Tribune:
Shorebank's Financial Hole Deepens. ShoreBank’s capital deficiency worsened in the second quarter, according to newly submitted financial results to regulators, and the Chicago-based lender now needs to raise at least $190 million to meet targets set out in March by state and U.S. banking regulators. The South Side bank has arranged a capital infusion of about $150 million from Wall Street investment firms, big banks, insurance companies and philanthropic groups. It’s hoping that private investment will then make it eligible for about $75 million in bailout funds from the U.S. Treasury Department.
Cargo Volume Rebounds at Port of Oakland. In what may be a sign of an improving economy, the Port of Oakland's cargo volume rose in the first six months of 2010 compared with the same period last year. The port's improved cargo numbers - including imports, exports, and empty and full containers - increased 13 percent year over year, which follows a trend of modest upticks starting about a year ago. June was a particularly strong import month, as incoming shipments jumped 30 percent. The news is especially welcome given that 2008 and 2009 were some of the leanest years ever for ports up and down the West Coast. In 2008, Oakland's cargo volume declined by 6.4 percent, and 2009 saw an 8.4 percent drop. The West Coast average loss was 25 percent. "Exports began to rebound last year, and now we're seeing some recovery on the import side of our business," port Executive Director Omar Benjamin said in a statement. "We're pleased to see that cargo activity is on the rise. We hope to see it sustained."
Rasmussen Reports:
56% in New York Favor Repeal of Health Care Bill. Fifty-six percent (56%) of New York voters favor repeal of the new national health care bill, according to a new Rasmussen Reports telephone survey in the state. Forty-two percent (42%) of Likely Voters in the Empire State, however, oppose repeal of the health care bill. These figures include 41% who Strongly Favor repeal and 31% who Strongly Oppose repeal.
Politico:
Waters Chooses Ethics Trial. Rep. Maxine Waters (D-Calif.) has chosen to go through an ethics trial, like the one lined up for New York Rep. Charles Rangel, rather than accepting charges made by an ethics subcommittee, a source familiar with the process tells POLITICO. The back-to-back trials of two black lawmakers represent an unprecedented use of an ethics adjudication system that has rarely been used by House members accused of breaking ethics rules. Waters's case revolves around allegations that she improperly intervened with federal regulators to help a bank that her husband owned stock in and on whose board he once served.
Financial Times:
SAP(SAP) Aims to Broaden Customer Base by 2015. SAP AG Co-Chief Executive Officer Bill McDermott said the company will have "significantly more customers by 2015" and that he is "very optimistic" about its prospects for growth, citing an interview. McDermott said it's possible the company may surpass its full-year guidance for software and related service revenues, the newspaper reported.
Stress Tests Help Boost Europe Bank Funds. International investors have rushed back in to fund the activities of Europe’s banks following the publication 10 days ago of the regulator’s stress tests, in spite of criticism over the robustness of the checks. A clutch of bank bond deals launched across the continent last week, as the markets were buoyed both by the stress tests’ outcome and the relaxation of proposed Basel III bank regulations. Spanish banks – previously among the hardest hit by market jitters – were among the busiest issuers. Spain’s two biggest banks, Santander and BBVA, issued a combined €2.75bn ($3.6bn) of senior debt towards the end of the week and Bankinter, which scraped a passmark in the tests, raised €400m through a covered bond. Angel Cano, BBVA’s chief operating officer, said demand for last week’s issue and an earlier €2bn covered bond had been “90 per cent from outside Spain”. This was a “very important point,” he added: “bit by bit, investors are recuperating their appetite for certain types of paper.” Other European banks that raised money through debt issues last week included Barclays, BNP Paribas, BPCE, Credit Suisse, HSBC, Intesa Sanpaolo, Rabobank, Royal Bank of Scotland and UBS.
Hot Political Summer as China Throttles Rare Metal Supply and Claims South China Sea. The United States and Europe have been remarkably insouciant about supplies of rare earth minerals so crucial to frontier technologies, from hybrid engines to mobile phones, superconductors, radar and smart bombs. Lack of strategic planning by the West has allowed China to acquire a world monopoly on this family of seventeen metals. Assumptions that Beijing would never risk its reputation as a global team player by abruptly strangling supply have proved naive.
NRC Handelsblad:
Dutch Central Bank President Nout Wellink, also chairman of the Basel Committee on Banking Supervision, says the new capital and liquidity rules for banks remained "substantial" even after they were softened. As a result of the rules, banks will need to use large parts of their profits to strengthen capital buffers, in stead of for paying bonuses or dividends to shareholders, he is quoted as saying. Some banks may need to sell shares to raise additional capital, Wellink said.
Finanz und Wirtschaft:
OC Oerlikon Corp.'s solar division chief, Juerg Henz, said Applied Materials(AMAT) exit from the thin-film solar business may slow growth for the technology.
Wirtschaftswoche:
The U.S. and European countries should cut government spending to reduce budget deficits, citing Angel Gurria, secretary-general of the OECD. Lower spending is better than higher taxes, Gurria said in an e-mailed preview of a report to be published Aug. 2.
Yonhap News:
North Korea is ready for "all kinds of war" including a full-scale, an electronic war or a nuclear war, Yonhap News quoted a North Korea-run Web site as saying. The North Korean web site was quoting North Korea's Rodong Sinmun newspaper.
Xinhua:
China to Enhance Army's Capabilities for National Interest: Defense Minister. China's armed forces will continue to enhance its capabilities and military readiness to safeguard sovereignty, security and development of the nation, Defense Minister Liang Guanglie said Saturday. Liang made the remarks while addressing a reception held in Beijing to mark the 83rd anniversary of the founding of the People's Liberation Army (PLA) on Aug. 1. "We will continue to strengthen the PLA's capability to accomplish diversified military tasks, particularly for winning regional wars under informationized circumstances, to firmly safeguard national sovereignty, security and development," he said. He said China's core security interest will always guide the development of the Chinese army. He said the army should strengthen military training, adopt more high and new technology weapons and equipment, improve military logistics and increase combat capabilities by using information technology.
China Securities Journal:
China won't relax property measures until they have effectively controlled home prices, citing Wang Juelin, deputy director of the policy research center at the Ministry of Housing and Urban-Rural Development. Most cities have been slow in issuing policies to rein in local property markets, citing Wang. China also needs to increase the supply of homes, Wang was cited as saying. The government needs to maintain the stability of policies to reduce expectations that efforts to rein in the property market will be relaxed in the second half, citing Wang.
Weekend Recommendations Barron's:
Made positive comments on (F), (ITRI) and (BAC).
Made negative comments on (AAP), (AN), (KMX), (AMD), (STRA), (CPRT) and (ORLY).
Citigroup:
Reiterated Buy on (CVX), target $98.
Reiterated Buy on (MCK), target $79.
Reiterated Buy on (MET), target $55.
Night Trading
Asian indices are unch. to +1.25% on average.
Asia Ex-Japan Investment Grade CDS Index 119.0 +1.0 basis point.
Asia Pacific Sovereign CDS Index 116.50 +3.5 basis points.
ISM Manufacturing for July is estimated to fall to 54.0 versus a reading of 56.2 in June.
ISM Prices Paid for July is estimated to fall to 54.5 versus a reading of 57.0 in June.
Construction Spending for June is estimated to fall -.5% versus a -.2% decline in May.
Upcoming Splits
None of note
Other Potential Market Movers
None of note
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week modestly higher on diminishing sovereign debt angst, short-covering, less financial sector pessimism, mostly positive earnings reports and bargain-hunting. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.
