Evening Headlines
Bloomberg:
- Mortgage Bonds Slumping Amid Concern of 'Mega-Refi' Wave: Credit Markets. Government-backed mortgage bonds are underperforming Treasuries by the most this year, after reaching record high prices, amid concern refinancing will accelerate. The inability of certain homeowners to qualify for new Fannie Mae and Freddie Mac loans is raising speculation that the U.S. will loosen rules, punishing even more bondholders. “Why are you going to believe the government is going to continue to pursue a policy that favors investors over homeowners?” said Doug Dachille, chief executive officer of New York-based First Principles Capital Management LLC. He said he supports allowing borrowers who haven’t missed payments on Fannie Mae and Freddie Mac loans to get lower-cost mortgages without consideration of their incomes or home values. Investors will be looking for signals on what the government may do when the Treasury Department and Department of Housing and Urban Development host a summit tomorrow in Washington on how to repair the mortgage-finance system, said Steve Kuhn, who helps oversee about $750 million of mortgage- bond investments for Pine River Capital Management LLC in Minnetonka, Minnesota.
- Paulson Hedge Fund Bought 1.1 Million Shares of Goldman Sachs(GS) Last Quarter. John Paulson, the hedge-fund manager who became a billionaire by betting against U.S. mortgage markets, bought 1.1 million shares of Goldman Sachs Group Inc. in the second quarter. Paulson’s stake in the New York-based bank, which settled a fraud lawsuit with U.S. regulators in July, was valued at $144.4 million at the end of the quarter, according to a filing today with the U.S. Securities and Exchange Commission. In April, regulators alleged Goldman Sachs failed to disclose the role his firm, Paulson & Co., played in designing and betting against a mortgage security sold to other investors. The SEC didn’t accuse Paulson or his firm of wrongdoing. Goldman Sachs agreed to pay $550 million to settle the case, conceding it made a “mistake,” without admitting misconduct.
- The cost of credit-default swaps insuring the government debt of Pakistan from default rose 129 basis points to 700 basis points as of 9:45 a.m. in Singapore, according to Royal Bank of Scotland Group Plc prices.
- Bill Gates's Charitable Foundation Buys 500,000 Shares of Goldman Sachs(GS). The Bill & Melinda Gates Foundation, established by the co-founder of Microsoft Corp., bought 500,000 shares of Goldman Sachs Group Inc. in the second quarter, according to a filing today with the U.S. Securities and Exchange Commission.
- Mexico Is Said to Plan Tariffs on U.S. goods in Border Trucking Dispute. Mexico will impose additional import tariffs on U.S. goods in retaliation for the U.S. government’s failure to restore a program allowing Mexican trucks to operate north of the border, according to an official at the Economy Ministry. Mexican Economy Minister Bruno Ferrari will announce a new list of U.S. products subject to tariffs today, said an official at the ministry who declined to be identified because he isn’t authorized to speak on the subject.
- Debt Virus Spreads After Make-Believe Recovery: Matthew Lynn. The euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success. The fevered predictions of the early summer that the euro was doomed, and that Europe’s sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over. Don’t believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd. And the big-deficit nations are locked in a downward economic spiral. The euro has bought itself some time, at a huge cost. And yet little has been done to fix the causes of the crisis.
- Yen Rises to 6-Week High Versus Euro on Global Slowdown Concern. The yen traded near a six-week high against the euro as concern the global economic recovery is losing momentum boosted demand for safer assets. Japan’s currency gained versus 12 of its 16 major counterparts before reports that economists said will show German investor confidence deteriorated, U.K. inflation slowed and Canadian factory sales declined. New Zealand’s dollar fell toward a five-week low versus the greenback on speculation the central bank will halt interest-rate increases. South Korea’s won gained the most in two weeks on speculation the authorities will allow it to rise to contain inflation. “There are growing signs that a slowdown is broadening to many countries,” said Soichiro Mori, chief strategist in Tokyo at FXOnline Japan Co., a margin-trading company.
- Buffett's Berkshire(BRK/A) Takes Stake in Fiserv(FISV), Adds to J&J(JNJ) Holding. Berkshire Hathaway Inc. increased its Johnson & Johnson stake, repurchasing shares that Chairman Warren Buffett sold in the financial crisis to fund investments in firms including Goldman Sachs Group Inc.
- Militants Overtake India as Top Threat, Says Pakistan's ISI. Pakistan's main spy agency says homegrown Islamist militants have overtaken the Indian army as the greatest threat to national security, a finding with potential ramifications for relations between the two rival South Asian nations and for the U.S.-led war in Afghanistan. A recent internal assessment of security by the Inter-Services Intelligence, Pakistan's powerful military spy agency, determined that for the first time in 63 years it expects a majority of threats to come from Islamist militants, according to a senior ISI officer. The assessment, a regular review of national security, allocates a two-thirds likelihood of a major threat to the state coming from militants rather than from India or elsewhere. It is the first time since the two countries gained independence from Britain in 1947 that India hasn't been viewed as the top threat.
- Rare Opportunity for China. China loves its rare earth. But its jealous guarding of these minerals could disrupt the market in ways that even Beijing won't appreciate.
- Voters Back Tough Steps to Reduce Budget Deficit. Frustrated voters, fixing on the $1.5 trillion federal deficit as a symbol of Washington's paralysis, appear increasingly willing to take drastic steps to address the red ink.
- U.S. Sounds Alarm at China's Military Buildup. The Pentagon voiced alarm over China's military buildup, saying it was expanding its advantage over Taiwan and investing heavily in ballistic and cruise missile capabilities that could one day pose a challenge to U.S. dominance in the western Pacific. In its annual report to Congress on Chinese military capabilities, the Pentagon also cited China's advances in electronic warfare. The U.S. government has been the target of cyber intrusions the report says appear to have originated in China and aimed to steal military secrets. "These intrusions focused on exfiltrating information, some of which could be of strategic or military utility," the report said.
- Uncle Sam, Venture Capitalist. Meet the battery company that Obama visited yesterday.
- ConAgra Trade Group Is Fined by CFTC for Step to Get First $100 Oil Trade. ConAgra Trade Group Inc. was fined $12 million over a false trade in 2008 when one of the firm’s brokers wanted to be the first to buy $100 oil, according to the Commodity Futures Trading Commission. The incident that led to the charge of causing a non-bona fide price to be reported occurred on Jan. 2, 2008, as oil prices neared $100 a barrel on the New York Mercantile Exchange, the CFTC said today in an e-mailed statement. ConAgra and the regulator settled the charges without admitting or denying wrongdoing, the CFTC said. As prices neared the historic level, the ConAgra trader said he’s “just going to be a madman,” according to a transcript of the conversation in the CFTC order.
- Fed's Outright Treasury Debt Purchases May Top $300 Billion. The Federal Reserve will likely reemerge as the biggest buyer of Treasuries when it resumes purchasing U.S. government securities today to prevent money from draining out of the financial system. JPMorgan Chase & Co. strategists estimate the Fed will buy about $284 billion in Treasuries over the next year, or more than the combined purchases of Japan and China during the year ended May.
- Copper Consumption Growth in China to Slow, Antaike Predicts. Copper usage in China, the world’s largest consumer, may grow at a slower pace this year as real- estate curbs cut demand, according to a state-owned researcher.
- George Soros Sold JPMorgan(JPM), U.S. Bancorp(USB) in Second Quarter. Billionaire George Soros’s Soros Fund Management LLC sold shares of JPMorgan Chase & Co., PNC Financial Services Group Inc. and U.S. Bancorp in the second quarter as financial stocks dropped.
- In Bold Display, Taliban Orders Stoning Deaths. The on Sunday ordered their first public executions by stoning since their fall from power nine years ago, killing a young couple who had eloped, according to Afghan officials and a witness. The punishment was carried out by hundreds of the victims’ neighbors in a village in northern Kunduz Province, according to Nadir Khan, 40, a local farmer and Taliban sympathizer, who was interviewed by telephone. Even family members were involved, both in the stoning and in tricking the couple into returning after they had fled.
Zero Hedge:
Forbes:
- Pennsylvania Official Wants to Ban Marcellus Drilling. A Pittsburgh city councilman says he wants to ban Marcellus Shale drilling in the city. Councilman Doug Shields said Monday that he will introduce legislation to ban such drilling in Pittsburgh. Shields said that Pittsburgh's Community Protection from Natural Gas Extraction Ordinance will be introduced Tuesday.
- U.S. Needs An Exit Plan For Fannie and Freddie. Former Fed Chairman Paul Volcker says that eventually Fannie and Freddie need to be wound down and replaced by new firms.
- Generic Ballot: Republican 48%, Democrat 36%. Republican candidates have jumped out to a record-setting 12-point lead over Democrats on the Generic Congressional Ballot for the week ending Sunday, August 15, 2010. This is the biggest lead the GOP has held in over a decade of Rasmussen Reports surveying. Voters not affiliated with either party prefer the GOP candidate by a 52% to 21% margin.
- GM Mulls "Cornerstone" Sales in IPO - Sources. General Motors Co [GM.UL] is considering selling a chunk of the carmaker's stock to institutions who would commit to buy and hold major stakes as the company prepares for its initial public offering, people familiar with the discussions said on Monday. GM is mulling a plan under which sovereign wealth funds or pension funds would serve as "cornerstone investors," a technique often used for large initial public offerings to show that key investors are supporting the deal, four people said.
- Urban Outfitters(URBN) Q2 Tops on Fresh Styles, Few Discounts. Urban Outfitters Inc (URBN) posted a bigger-than-expected quarterly profit as its fresh styles remained a favorite with shoppers, boosting sales across its brands and sending its shares up 4 percent after the bell.
- Drug Hitmen Kidnap Mexican Mayor Near U.S. Border. Suspected drug hitmen have abducted the mayor of a tourist town near Mexico's northern city of Monterrey in the latest surge in drug violence threatening to undermine industry and scare off investors.
- Resurgence of Controversial Hedge Fund Strategy. The hedge fund strategy pioneered – and made notorious – by Long Term Capital Management is returning to prominence amid one of its most successful years yet, aided in large part by the massive issuance of bonds by the UK government and other sovereigns. Fixed-income relative value trading – shunned by investors after the collapse of LTCM in 1998 – has been one of the industry’s few outperformers this year, thanks to massive pricing anomalies caused by fiscal stimulus packages and unconventional central bank monetary policies around the world. According to Hedge Fund Research, the average relative value fund has returned 5.33 per cent so far this year, compared with just 1.52 per cent from the average hedge fund.
- US Housing: Sunset Boulevard. With one child at home and another on the way, Elise and Morgan Richardson of Idaho Falls began looking last spring to buy a home. “You get married, you have kids and you buy a house,” says Mrs Richardson, 26. “That is just the order of things.” Buying a home has been a rite of passage for nearly two-thirds of the American population since the 1960s. But as the dream of ownership turned into a nightmare for borrowers who, thanks to easy credit during the recent boom, wound up in homes they could not afford when the market began to collapse four years ago, government officials are for the first time in decades seriously rethinking policies that promoted home ownership as a national birthright.
- Barclays(BCS) Fined $300 Million by US for Breaking Sanctions Against Brutal Regimes. Barclays on Monday reached a $298m settlement with US prosecutors that allows the bank to close the lid on an investigation into its business dealings with individuals linked to Cuba, Iran, Libya, Myanmar and Sudan.
- The U.S.'s stance on territorial claims in the South Ci9na Sea region is "a provocation to China, aimed at sowing discontent between China and its Southeast Asian neighbors," Tao Wenzhao, a senior research fellow at Tsinghua Center for US-China Relations, wrote in an opinion piece in the China Daily.
- About 51% of Shanghai flats and 66% of Beijing flats are empty, citing an online investigation by volunteers conducted in 100 Chinese cities. The survey, based on counting the number of apartments observed to have no lights on at night, was conducted on more than 1,000 real-estate projects and was organized by Sina.com, according to the report. In Hainan, more than 70% of the rooms didn't have lights on, the paper said.
- China's banking regulator has ordered limits on lending to property developers with idle land, citing an official with the China Banking Regulatory Commission. The banking regulator has also reiterated the need to firmly implement China's other control measures for the nation's property market.
- China Unicom Ltd. will sell Apple's(AAPL) iPad in China, citing a China Unicom person.
Citigroup:
- Reiterated Buy on (TROW), target $56.
- Reiterated Buy on (FL), target $19.
- Reiterated Buy on (ADI), target $36.
- Rated (CVH) Outperform, target $25.
- Rated (WLP) Outperform, target $68.
- Rated (UNH) Outperform, target $41.
- Rated (HUM) Outperform, target $60.
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 126.0 +3.5 basis points.
- Asia Pacific Sovereign CDS Index 120.0 -1.75 basis points.
- S&P 500 futures +.29%.
- NASDAQ 100 futures +.32%.
Earnings of Note
Company/Estimate
- (HD)/.70
- (SKS)/-.17
- (ANF)/.16
- (WMT)/.96
- (TJX)/.73
- (ADI)/.60
- (JKHY)/.35
8:30 am EST
- The Producer Price Index for July is estimated to rise +.2% versus a -.5% decline in June.
- The PPI Ex Food & Energy for July is estimated to rise +.1% versus a +.1% gain in June.
- Housing Starts for July are estimated to rise to 560K versus 549K in June.
- Building Permits for July are estimated to fall to 580K versus 586K in June.
- Industrial Production for July is estimated to rise +.5% versus a .1% gain in June.
- Capacity Utilization for July is estimated to rise to 74.6% versus 74.1% in June.
- (JOSB) 3-for-2
- The Housing Finance Conference, weekly retail sales reports, ABC consumer confidence reading, Lazard Retail Conference, (CF) analyst day and the (MW) analyst day could also impact trading today.
