Fuel Supplies Hitting Two-Year High May Send Oil Below $70: Energy Markets. The biggest U.S. petroleum stockpiles in two decades are leading oil bears to predict further price declines that may lead OPEC to restrict production. Inventories of oil and fuel products rose to 1.13 billion barrels last week, the highest level since the Energy Department began keeping combined weekly data in January 1990, according to a report Aug. 18. Oil has fallen 9.8 percent since reaching a three-month high on Aug. 3. The U.S. economic recovery is showing increasing signs of slowing growth and demand for fuel products has declined 6 percent to 19.7 million barrels a day since the recession began in December 2007, according to the Energy Department. Oil may fall below $70 a barrel in coming months for the first time since June, according to Michael Lynch, president of Strategic and Economic Research in Winchester, Massachusetts. The declines may prompt OPEC to clamp down on members exceeding their quotas, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. Inventories of distillate fuel, which include diesel and heating oil, jumped to their highest levels since 1983, climbing 1.07 million barrels to 174.2 million. “That’s what has been keeping a lid on prices,” said London-based Wittner. “We are a full year into the recovery from recession and stocks are still as high as they were a year ago.” Crude supplies were 3 percent higher last week from a year earlier. OPEC cut production by the most in its 50-year history at the end of 2008 when it lowered targets by 4.2 million barrels a day, capping output at 24.845 million. Compliance with the cut weakened in July as Nigeria and the United Arab Emirates pumped more, according to International Energy Agency data. The 11 members with quotas increased production by 190,000 barrels a day to 26.8 million last month, implying compliance of 53 percent, the Paris-based IEA said in an Aug. 11 monthly report, down from 72 percent a year earlier. Supplies from all 12 nations, including Iraq, grew by 220,000 barrels a day to average 29.2 million. Distillate stocks in the U.S. will continue to rise as nations in European economic growth falters, Lynch said. “Distillate has not been this high in years, especially seasonally, reflecting essentially the downturn and the fact that diesel-fuel use has plummeted around the world,” he said. “We usually ship it to Europe and elsewhere, but they have huge inventories now too.”
Russia Opening Iran Nuclear Plant Advances Goal to Play Power-Broker Role. Russia will switch on Iran’s first nuclear power plant tomorrow as the government seeks to bolster its global influence by acting as a power broker between the U.S. and its European allies and the Persian Gulf nation. Rosatom Corp., the state-run Russian company building the plant at Bushehr in southern Iran, plans to open it after repeated delays over 15 years of construction. Iran, under United Nations sanctions because of concern it is concealing a nuclear weapons program, will become the first Middle East country to produce atomic energy when Bushehr goes online. “As long as there’s an Iran problem, the West will need Russia,” said Rajab Safarov, head of the Center for Contemporary Iranian Studies in Moscow. “And Russia will feel like an important geopolitical player.”
BP(BP) Refuses Requests for Documents, Transocean Says. BP Plc fired back at Transocean Ltd. in a dispute over the withholding of information about possible causes of the Gulf oil spill. James Neath, BP’s associate general counsel, said an Aug. 18 letter from a Transocean attorney asserting BP wasn’t releasing critical data contained “many false and misleading assertions.” “Given its content and tone, your letter is nothing more than a publicity stunt evidently designed to draw attention away from Transocean’s potential role in the Deepwater Horizon tragedy,” Neath wrote Steven Roberts, the Transocean attorney, in a response yesterday.
August M&A Augurs Revival as Companies Tap $3 Trillion of Cash. Companies sitting on almost $3 trillion in cash are starting to spend it, putting what is typically the slowest month for mergers and acquisitions on course to be the busiest this year. Intel Corp.’s purchase of security-software maker McAfee Inc. yesterday brings the total value of announced takeovers to $174.7 billion, setting the pace for August to surpass March as the biggest month for deals this year, according to data compiled by Bloomberg.
Wall Street Journal:
Potash(POT) Explores Other Bidders. Potash Corp. of Saskatchewan Inc., the target of a hostile $38.6 billion bid from BHP Billiton, is exploring alliances with an array of global companies—from petrochemical and agri-business multinationals to Chinese sovereign banks—that could cobble together competing offers, people familiar with the matter said. Sovereign wealth funds, Chinese banks or other national financial institutions could provide the funding for a global consortium that makes a counter-offer to keep the world's largest fertilizer maker out of the hands of mining giant BHP, these people said.
Giuliani Says Mosque 'Divisive'. Former Mayor Rudy Giuliani is characterizing the proposed mosque and Islamic cultural center near Ground Zero as "divisive," saying Thursday that the organizers' plans are breeding hate rather than healing wounds. "All this is doing is creating more division, more anger, more hatred," Mr. Giuliani said during an interview on NBC's "Today" show. "The reality is that right now, if you are a healer, you do not go forward with this project. If you're a warrior you do," declared Mr. Giuliani, the New York official most closely associated with the Sept. 11, 2001, terrorist attack on the World Trade Center. The remarks put him squarely at odds with his successor, Mayor Michael Bloomberg, the proposed mosque's most outspoken advocate. Mr. Giuliani, a former U.S. attorney and a Republican candidate for president in 2008, said the organizers have "every right" to build the center two blocks from the site of the fallen Twin Towers. "The question is, should they build it?" he said. "Are they displaying the sensitivity they claim by building it?" Mr. Giuliani, who served as mayor from 1994 through 2001, argued that the project, if built, would "horribly offend" the people most directly affected by the terrorist attacks: the families of the victims. He also took direct aim at the imam behind the center, Feisal Abdul Rauf, accusing him of "selling sensitivity" and questioning whether his motives are genuine.
Wild Trading in Metals Puts Fund Manager in Cross Hairs. Christopher Pia was the quintessential hedge-fund success story: a hard-charger from a working-class New York City neighborhood whose trading prowess earned him a top job at fund giant Moore Capital Management. He bought a sprawling house in Armonk, N.Y., and tooled around town in an orange Lamborghini. But his 18-year relationship with Moore Capital and its founder, hedge-fund tycoon Louis Bacon, came to an abrupt end in late 2008. Mr. Bacon forced out his onetime head trader, friend and protégé, and Mr. Pia launched his own fund. The story behind the rupture is only now surfacing, and it involves allegations of a kind of improper trading that regulators worry is becoming more widespread. The Commodity Futures Trading Commission is investigating whether Mr. Pia's trading at Moore involved market manipulation, according to a person close to the situation. Specifically, CFTC investigators are looking into whether Mr. Pia improperly tried to push up prices of platinum and palladium, possibly to boost Moore's returns and his own compensation, this person says.
U.S. Presses China on Pakistan Flood Aid. The U.S. has increased its aid commitment to flood-ravaged Pakistan to $150 million from $90 million, Secretary of State Hillary Clinton told the United Nations General Assembly on Thursday, as Richard Holbrooke, the U.S. special envoy to Pakistan and Afghanistan, called on China to do more. "I think the Chinese should step up to the plate," Mr. Holbrooke told a small group of reporters after an event at the Asia Society in New York designed to draw attention to the devastating floods. "They always say that Pakistan is their closest ally, and vice versa."
Emerging-Market Hedge Funds Saw $1.5 Billion in 2Q Outflows - Research Firm. Hedge funds that invest in emerging markets recorded net outflows of $1.5 billion during the second quarter of this year, marking the seventh quarter of net redemptions the group has seen in the last eight quarters, an industry research firm said Thursday.
A Year On, Bomber's Release Spurs Calls. U.S. senators ratcheted up pressure on the Scottish government over its decision to release the convicted Lockerbie bomber one year ago Friday, sending letters to U.K. and Scottish leaders demanding an array of medical, legal and diplomatic documents related to the release. The request marked the strongest and most specific U.S. call for documents following the Aug. 20, 2009, release of Abdel Baset al-Megrahi, the only person convicted of the 1988 bombing of a Pan Am airliner as it flew over the Scottish town of Lockerbie.
CNBC:
Housing Double Dip Is Not Just Tax Credit Hangover. You need only look at a report today from California-based MDA Data Quick, headlined, "Bay Area July Home Sales Down Sharply." Sales in San Francisco in July fell to the lowest level in 15 years, down 19 percent from June and down nearly 23 percent from July of 2009. It was also one of the largest monthly drops recorded. Blame it on the end of the tax credit? I don't think so.
Hewlett-Packard(HPQ) Earnings, Revenue Match Expectations. Hewlett-Packardreported a quarterly profit that rose from last year and was in line with preliminary results that the company announced earlier this month, as server and personal computer sales helped results. For fiscal 2010, HP repeated its forecast from two weeks ago, predicting non-GAAP earnings of $4.49 to $4.51 a share on revenue of $125.3 billion to $125.5 billion. "It's a great quarter coming off an awful quarter last year," said Martin Reynolds, an analyst at Gartner. "Revenues are down from the second quarter, which certainly suggests the recovery trajectory is slowing. "Looking ahead, they're going to start running against tougher comparisons and potential currency pressures, so we're cautiously optimistic for the second half of the year. Although there are troubling signs, we think the technology industry will remain robust," Reynolds said. HP shares were less than 1 percent lower in extended trading Thursday.
Dell's(DELL) Results Beat Forecasts, But Gross Margin Falls. Dell beat Wall Street's profit and revenue estimates in the second quarter and said it expected demand for PCs among corporate customers to remain steady in the coming months. But the company's gross profit margin lagged Wall Street expectations and its shares fell in after-hours trading. During a conference call with the media on Thursday, Dell Finance Chief Brian Gladden said the results were impacted by "sequential component inflation."
U.S. is Said to Assure Isreal a Nuclear Iran Isn't Imminent. The Obama administration, citing evidence of continued troubles inside Iran’s nuclear program, has persuaded Israel that it would take roughly a year — and perhaps longer — for Iran to complete what one senior official called a “dash” for a nuclear weapon, according to American officials. White House officials said they believe the assessment has dimmed the prospect that Israel would pre-emptively strike against the country’s nuclear facilities within the next year, as Israeli officials have suggested in thinly veiled threats.
Hefty Paychecks for Vernon Officials Rival Those in Bell. The ex-city administrator who now serves as a legal consultant earned seven figures in each of the last four years, records show. Others in Bell's neighboring city got $570,000 to $800,000 last year. Bell isn't the only city that has paid huge salaries: In neighboring Vernon, a former city administrator who now serves as a legal consultant has topped the $1-million mark for each of the last four years, records show. Eric T. Fresch was paid nearly $1.65 million in salary and hourly billings in 2008, when he held the dual jobs of city administrator and deputy city attorney, according to documents obtained by The Times through the California Public Records Act. Described by city officials as an experienced finance attorney, Fresch was paid nearly $1.2 million last year, records show. Through July 31 of this year, he has earned about $643,000 as "outside legal counsel." Other highly compensated employees include Donal O'Callaghan, who was paid nearly $785,000 last year as city administrator and director of light and power, overseeing Vernon's city-owned utility. He now earns $384,000 a year overseeing capital projects for the utility after stepping down July 20 as city administrator. Former City Atty. Jeffrey A. Harrison earned $800,000 last year and City Treasurer/Finance Director Roirdan Burnett made $570,000, records show. The year before, Harrison was paid $1.04 million. Disclosure of Vernon's hefty salaries follows The Times' recent report that Robert Rizzo reaped total annual compensation of more than $1.5 million as city administrator in working-class Bell. That report sparked public outrage among Bell residents and prompted the resignations of Rizzo and two other highly paid managers. Although Vernon and Bell share a border in Southeast Los Angeles County, they are very different cities. Bell is a working-class, largely immigrant city with 38,000 residents. Vernon has fewer than 100 residents and is largely a business and industrial hub. But municipal government experts said they were taken aback Thursday by word of Vernon's big paychecks.
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
Politico:
Dems Retreat on Health Care Cost Pitch. Key White House allies are dramatically shifting their attempts to defend health care legislation, abandoning claims that it will reduce costs and deficit, and instead stressing a promise to "improve it." The messaging shift was circulated this afternoon on a conference call and PowerPoint presentation organized by FamiliesUSA — one of the central groups in the push for the initial legislation. The call was led by a staffer for the Herndon Alliance, which includes leading labor groups and other health care allies. It was based on polling from three top Democratic pollsters, John Anzalone, Celinda Lake, and Stan Greenber. The confidential presentation, available in full here and provided to POLITICO by a source on the call, suggests that Democrats are acknowledging the failure of their predictions that the health care legislation would grow more popular after its passage. The presentation concedes that groups typically supportive of Democratic causes — people under 40, non-college educated women, and Hispanic voters — have not been won over by the plan. "Straightforward ‘policy’ defenses fail to [move] voters’ opinions about the law," says one slide. "Women in particular are concerned that health care law will mean less provider availbality – scarcity an issue." The presentation also concedes that the fiscal and economic arguments that were the White House's first and most aggressive sales pitch have essentially failed. "Many don’t believe health care reform will help the economy," says one slide. The presentation's final page of "Don'ts" counsels against claiming "the law will reduce costs and deficit." The presentation advises, instead, sales pitches that play on personal narratives and promises to change the legislation. "People can be moved from initial skepticism and support for repeal of the law to favorable feelings and resisting repeal," it says. The presentation also counsels against the kind of grand claims of change that accompanied the legislation's passage. The Herndon Alliance, which presented the research, is a low-profile group which coordinated liberal messaging in favor of the public option in health care. Its "partners" include health care legislation's heavyweight supporters: The AARP, AFL-CIO, SEIU, Health Care for America Now, MoveOn, and La Raza, among many others.
USA Today:
More Offices See Bedbug Infestations. Your abusive boss isn't the only vermin in the office. Defying their reputation as a scourge of households, blood-sucking bedbugs are creeping into a growing number of cubicles, break rooms and filing cabinets. Nearly one in five exterminators have found bedbugs in office buildings in the U.S., according to a recent survey of extermination firms by the National Pest Management Association and the University of Kentucky. That compares with less than 1% in 2007.
Reuters:
More Tough Economic Times Forecast by CBO. The U.S. economy faces difficult times ahead with chronic unemployment and slow manufacturing hurting the pace of recovery, the head of Congress' budget agency said on Thursday. The warning from the non-partisan Congressional Budget Office came on top of more bad U.S. economic data that heightened concerns about a return to recession, roiling markets. The gloomy outlook could also spell trouble for Democrats facing November congressional elections.
Sharp to Cut LCD Panel Production - Nikkei.Sharp Corp (6753.T) will reduce LCD panel production for up to two months starting this month, adjusting supplies as TV inventories pile up in the United States and China, the Nikkei business daily reported. The company will lower the capacity utilisation rate by 20 to 30 percent at its new Sakai factory, which makes panels of 40 inches and up, and cut panel supplies to TV makers including Sony Corp (6758.T), the business daily said.
Salesforce.com(CRM) Raises Full Year Outlook. Salesforce.com Inc on Thursday posted a better-than-expected quarterly profit and raised its full-year outlook as more clients signed up for cloud-based computing services. Shares of the company rose 7.9 percent in after-hours trading as it also reported adding 5,100 net new customers in the quarter.
Telegraph:
Greek Crisis Refuses To Go Away. The European Commission has approved the next €9bn (£7.4bn) tranche of loans for Greece but the underlying economy continues to deteriorate as Greek banks suffer a record loss of deposits and output contracts at a quickening pace. A report by HSBC said banks had lost 8pc of their entire deposit base in the five months to May. "The Greek market has never, since the first data in 2001, experienced such attrition," said banking analyst Joanna Telioudi. While some withdrawals point to capital flight by wealthy Greeks, it is clear that households and companies are running down savings to make ends meet. The Athens Chamber of Commerce warned yesterday that its members are in "dire straits", with a majority facing a liquidity threat. Simon Ward from Henderson Global Investors said Greek lenders are covering their funding gap through loans from the European Central Bank (ECB), which reached a record €96bn in July. "The question is how much eligible collateral they have left to take to the ECB. It must be nearing the limits," he said. "What is worrying is that this is not just Greeks. Portuguese banks borrowed €50bn in July compared to €41.5bn in June. Together with Ireland and Spain they have borrowed €387bn from the ECB," he said. Spreads on 10-year Greek debt rose to 835 basis points over German debt. They are trading once again at the crisis levels of early May, before the EU launched its "shock and awe" rescue and the ECB began purchasing Greek bonds. Stephen Lewis, of Monument Securities, said investors doubt whether the EU/IMF plan is workable without debt restructuring and devaluation, the usual IMF cure for countries with such problems. IMF documents show that Greece's public debt will rise to 150pc of GDP after three years, even if the government complies fully. "The markets suspect that Greece will have to restructure its debt sooner or later, and bondholders will be the losers. They don't believe that Greece's euro membership on present terms is economically viable. The country doesn't have the freedom it needs to get out of this crisis," he said. Ian Stannard, a currency strategist at BNP Paribas, said investors have been unsettled by news that Spain is planning to soften its austerity package by renewing €500bn of rail and road projects. "The fear is that if Spain backtracks, then others like Greece are going to follow. This is creeping on to the radar screen," he said. Mr Stannard said a report on Greece by Spiegel magazine entitled "Entering a Death Spiral" revived worries about political stability, painting a picture of a country nearing popular revolt. It said unemployment had reached 60pc to 70pc in depressed areas. "The entire country is in the grip of a depression," said Speigel. "Everything seems to be going downhill. The spiral is continuing unabated and there is no clear way out." The risk is that country finds itself chasing its tail, trying to sustain a rising stock of debt on a diminishing base. Critics suspect that Greece has already passed the point of no return for debt dynamics, and some IMF officials privately agree. Willem Buiter, chief economist at Citigroup, said it remains unclear whether eurozone debtors can recover amidst severe fiscal tightening. "Europe's underlying problems have not been resolved. Medium-term worries over sovereign credit quality in periphery countries will probably resurface in coming months," he said.
The Standard:
A representative of China's government told Hong Kong journalists that the media should put helping the government ahead of monitoring its performance during times of national crisis, such as war, riots and severe natural disasters.
China Daily:
China's Ministry of Finance and the Banking Regulatory Commission said in a joint statement on Thursday that risks in loans to local government bodies will not cause systemic risk to the banking system.
Xinhua:
China's rapidly aging population threatens the sustainability of China's health-insurance fund, citing Hu Xiaoyi, vice minister of the Ministry of Human Resources and Social Security. While retirees accounted for 25% of the total population covered by health insurance for urban workers in 2009, they used 60% of health-insurance funds for inpatient care.
China should watch inflation pressures in the second half of this year, Guo Tianyong, head of banking research at the Central University of Finance and Economics, wrote in a commentary.
Oriental Morning Post:
Shanghai's public housing fund has stopped loans for third-home purchases.
Securities Times:
Chinese banks may need to take a 600 billion yuan provision on bad local government loans, the Securities Times reported, citing its own calculations based on figures announced by the government.
liveMint.com:
India Testing Ways to Access BlackBerry Emails. India’s security agencies are testing ways to access corporate email on BlackBerry devices by obtaining encrypted data in a readable format, a government source said on Thursday. Research In Motion (RIM) faces an 31 August deadline to give Indian authorities the means to track and read BlackBerry enterprise email and its separate BlackBerry messenger service.
Evening Recommendations Citigroup:
Reiterated Buy on (FL), target $19.
Reiterated Buy on (SPLS), target $26.
Reiterated Buy on (MRVL), target $23.
Reiterated Buy on (TECD), target $54.
Night Trading
Asian equity indices are -1.50% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 122.0 +2.0 basis points.
Asia Pacific Sovereign CDS Index 119.5 +4.25 basis points.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 107.59 bps +2.17%
European Financial Sector CDS Index 113.17 bps +3.14%
Western Europe Sovereign Debt CDS Index 137.0 bps +1.93%
Emerging Market CDS Index 230.25 bps +1.18%
2-Year Swap Spread 18.0 unch.
TED Spread 19.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 210.0 -4 bps
China Import Iron Ore Spot $147.0/Metric Tonne -.41%
Citi US Economic Surprise Index -59.0 -6.0 points
10-Year TIPS Spread 1.59% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -162 open in Japan
DAX Futures: Indicating -3 open in Germany
Portfolio:
Lower: On losses in my Retail, Biotech and Medical long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 is trading back below its 50-day moving average on a pick-up in volume. On the positive side, Education, Restaurant, Computer Service, Computer Hardware, Software and Internet stocks are holding up relatively well, falling less than 1.0%. Tech shares have outperformed throughout the day. Lumber is rising another +1.88% and the S&P GSCI Ag Spot Index is rising +.68%. The UK sovereign cds is falling -6.27% to 64.65 bps. The AAII % Bulls fell to 30.1% this week, while the % Bears rose to 42.47%, which is also a positive. On the negative side, Airline, Road&Rail, HMO, Oil Tanker and Alt Energy shares are substantially lower on the day, falling more than 2.5%. (XLF) has been heavy throughout the day. The European Investment Grade CDS Index is rising +3.37% to 104.0 bps. Gold continues to trade well. The 10-year yield is falling another -6 bps to 2.57%, which is back to the lows hit 3 days ago. Given the extent of today's bad news, I am somewhat surprised the major averages aren't down more. Tech stocks have led the broad market off its lows. As I said yesterday, (HPQ)'s earnings report after the close has taken on added significance. If HP can maintain its forward guidance, which will be hard to accomplish given the current environment, tech stocks should build on today's afternoon rally tomorrow. However, a guidance cut will likely mean further broad market weakness. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and buyout speculation.
Jobless Claims in U.S. Rose to Highest Since November. Claims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast. The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed today in Washington. “There’s a red flag being waved right now that says ‘Danger,’” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Growth is going to slow in the second half and we might face something a little more ominous than that.”
U.S. Budget Deficit Forecast Increased by CBO to $1.066 Trillion for 2011. The U.S. Congressional Budget Office predicted the budget deficit for fiscal year 2011 will be $1.066 trillion, revised up from an estimate of $996 billion in March. The nonpartisan agency’s semi-annual budget report is likely to add fuel to the November midterm election debate over reducing the deficit at a time when the nation’s economic recovery may call for more stimulus. Today’s report estimated that the deficit will be 7 percent of the nation’s gross domestic product in 2011. The CBO projected that the cumulative deficit for the next decade will be $6.27 trillion, compared with its March estimate of $5.99 trillion. The CBO said today the deficit for the current fiscal year ending Sept. 30 will be $1.34 trillion. That is 9.1 percent of GDP, or the second largest shortfall in the past 65 years, exceeded only by last year’s 9.9 percent. The agency blamed this year’s shortfall primarily on weak tax revenue and policies enacted in response to the economic decline. Last year’s economic stimulus package accounts for $392 billion of the 2010 deficit, the budget office said. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee, decried a “spending spree” sparked in part by the policies of a White House and Congress controlled by Democrats. “Today’s CBO outlook only underscores what we already know -- the current pace of U.S. spending is unaffordable and unsustainable, and without a change in direction, this country is headed for fiscal calamity,” Gregg said in a statement. The CBO report said economic growth has been “anemic” compared with previous recoveries and predicted the economy will only grow by 2 percent from the fourth quarter of 2010 to the fourth quarter of 2011. The CBO anticipated the unemployment rate won’t dip below 8 percent for the rest of Obama’s first term. It said unemployment will drop to 9.0 percent in 2011, 8.1 percent in 2012 and 6.6 percent in 2013. The report also said the government is spending this year almost as much on unemployment benefits as the wars in Iraq and Afghanistan. It said Congress has appropriated $164 billion for the wars this year, while unemployment costs come in at $160 bill. The report forecasts that debt held by the public will reach $10 trillion by the end of next fiscal year, and then climb to 16.07 trillion by 2020.
Philadelphia Fed Factory Index Drops as Manufacturing-Led Recovery Weakens. Manufacturing in the Philadelphia region unexpectedly shrank in August for the first time in a year as orders and sales slumped, a sign factories are being hurt by the U.S. economic slowdown. The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.7 this month, the lowest reading since July 2009, from 5.1 in July. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. Economists forecast the measure would rise to 7, according to the median of 58 projections in a Bloomberg News survey. The Philadelphia Fed bank’s shipments gauge dropped to minus 4.5 from 4 in July. The new orders measure decreased to minus 7.1, the lowest level since June 2009, from minus 4.3. The employment index fell to minus 2.7 from 4. The Philadelphia Fed’s index of prices paid and received all fell, indicating inflation in retreating.
Intel(INTC) Will Buy McAfee(MFE) for $7.68 Billion. Intel Corp. agreed to buy McAfee Inc. for $7.68 billion, its largest acquisition, adding security software to its chipmaking arsenal. McAfee investors will receive $48 a share in cash, Santa Clara, California-based Intel, the world’s largest chipmaker, said in a statement today. That’s 60 percent more than McAfee’s closing price yesterday. Both boards have unanimously approved the deal, Intel said.
Asian Computer Shipments Signal Extended Consumer Spending Slump in U.S. At Taipei-based Acer Inc., the world’s second-largest maker of computers, sales plunged 38 percent in July from a year earlier. Micro-Star International Co., a maker of boards that connect computer components, recorded a 15 percent drop. Sales at Asian computer makers, which account for more than 80 percent of computer and parts imports into the U.S. each year, indicate American shoppers aren’t likely to boost the spending that accounts for 70 percent of the world’s largest economy. Already, consumption is growing at the slowest pace of any recovery since 1945.
Retail Spaces Lead Drop in U.S. Commercial Property. U.S. commercial real estate prices fell the most in almost a year in June as the economic recovery showed signs of faltering, Moody’s Investors Service said. The Moody’s/REAL Commercial Property Price Index dropped 4 percent from May, the company said today in a report. The decline was the biggest since July 2009, and pushed the gauge down 0.9 percent from the start of the year. High unemployment and concern over slowing economic growth are hampering a price rebound for offices, apartments, industrial and retail properties, Moody’s said. The Moody’s index is down 41 percent from its 2007 peak, having gained 4.2 percent from the seven-year low set in October. The value of malls and shopping centers fell almost 11 percent in the second quarter, the biggest drop of any commercial property type tracked in the Moody’s index. Apartments and offices values both gained about 4 percent, while industrial properties dropped 2.9 percent.
OPEC will reduce crude shipments by 1% this month as Chinese refining demand slows, according to tanker-tracker Oil Movements.
Corporate Bond Risk Increases in Europe, Credit-Default Swap Market Shows. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 4 basis points to 485, according to JPMorgan Chase & Co. at 3:30 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.5 basis points to 108, JPMorgan prices show. The Markit iTraxx Financial Index of 25 banks and insurers climbed 1.5 to 126.25.
Wheat Gains Most in Two Weeks on Increased Demand for U.S. Stockpiles. Wheat rose the most in two weeks after a government report today showed increased U.S. export sales of both grains. Exporters sold 1.41 million metric tons in the week ended Aug. 12, 4.4 percent more than the week before, the U.S. Department of Agriculture said. Before today, wheat gained 4.1 percent this month as Russia imposed a ban on external shipments. “Export sales were high,” said Larry Glenn, an analyst at Frontier Ag in Quinter, Kansas. The effects of Russia’s ban “showed up today on the sales report. All of the grains were strong. They were above the high end of the range.” Wheat futures for December delivery advanced 28 cents, or 4.1 percent, to $7.1675 a bushel at 11:39 a.m. on the Chicago Board of Trade. A close at that price would be the biggest gain for a most-active contract since Aug. 5. The price has gained 57 percent since the end of May as the worst Russian drought in 50 years damaged crops.
Oil Falls as Surprise Increase in U.S. Jobless Claims Dims Demand Outlook. Crude oil declined after rising U.S. jobless claims and a contraction in manufacturing in the Philadelphia area bolstered concern that the economic rebound in the world’s biggest oil-consuming country is slowing. Oil declined as much as 1.9 percent after the Labor Department said initial jobless claims rose to the highest level since November. Total U.S. petroleum inventories are at the highest level in at least 20 years, according to the Energy Department. “The negative employment picture, along with collective record petroleum inventories, will continue to put pressure on energy markets,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. A U.S. Energy Department report yesterday showed that total petroleum stockpiles climbed 5.34 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990. The department began to compile weekly inventories in 1990, said Jonathan Cogan, an Energy Information Administration spokesman in Washington. Stockpiles of distillate fuel, a category that includes heading oil and diesel, rose 1.07 million barrels to 174.2 million last week, the highest level since 1983, according to yesterday’s report. The increase left supplies 27 percent above the five-year average for the period, the department said.
Vietnam Dong Slumps to Record Low as Adviser Warns of 'Shock'. Vietnam’s currency dropped for a fourth straight day to a record low after an adviser to the Prime Minister said the country risks a foreign-currency liquidity ‘shock.’ The warning came after the central bank yesterday devalued the currency for a third time in the past year to boost exports and shore up the nation’s trade deficit that has nearly doubled in the seven months through July. The currency has slumped 5.2 percent in 2010, the worst performance among 16 currencies in Asia monitored by Bloomberg.
Basel Committee Says Bank Bond Investors Should Help Fund Future Bailouts. The Basel Committee on Banking Supervision is proposing that debt counted as bank capital should be converted to stock or written off in a crisis, forcing bond investors to bear some of the cost of future bailouts. All regulatory capital instruments sold by banks should be capable of absorbing losses if the company can’t fund itself, the committee said in a consultative paper today. Before taxpayers’ cash is used to rescue a lender, so-called contingent capital should be converted to equity or written off.
Wall Street Journal:
LG Goes With Nvidia(NVDA) Chip in New Smartphones. LG Electronics on Thursday confirmed that it would be using a dual-core processor manufacturered by Nvidia for its line of Optimus smartphones later this year. That’s a coup for Nvidia, which has been pushing to enter the smartphone market with its Tegra chip and expand beyond its traditional business of providing graphics chips for PCs.
Value of Independent Advisory Practices Rises Despite Recession. Despite the recession, demand for advisory practices has soared and the average value of independent advisory practices rose 12.1% annually in the five years through June, said FP Transitions, which operates a market for buying and selling financial-services practices.
Other Duquesne Managers to Start Their Own Firm. Other portfolio managers at Duquesne Capital Management are planning to start their own hedge fund firm, according to a person familiar with the situation.
New York Post:
Druckenmiller Departs and More Could Follow. Hedge fund giant Stanley Druckenmiller's dramatic decision yesterday to throw in the towel and give up a life of managing money may just be the start of a mass exodus from the field. More hedge fund hotshots could follow, sources say. "I think there's a lot of fatigue in the industry," said a prime broker who's talked to a number of managers thinking of quitting the business. With the markets so volatile, investor money hard to come by and tighter regulatory scrutiny in the offing, Druckenmiller is not alone in feeling the pressure, added one hedge fund executive, who asked not to be named.
Shrinking 'Quant' Funds Struggle to Revive Boom Times. They were revered as the brightest minds in finance, the “quants” who could outwit Wall Street with their Ph.D.’s and superfast computers. But after blundering through the financial panic, losing big in 2008 and lagging badly in 2009, these so-called quantitative investment managers no longer look like geniuses, and some investors have fallen out of love with them. The combined assets of quantitative funds specializing in United States stocks have plunged to $467 billion, from $1.2 trillion in 2007, a 61 percent decline, according to eVestment Alliance, a research firm. That drop reflects both bad investments and withdrawals by clients.
The Detroit News:
UAW's Bob King Reiterates Ban on Foreign Cars on Union Property. United Auto Workers President Bob King this month reiterated the union's longstanding policy to ban nonunion vehicles on UAW property, but did so in a more hands-on and publicly forceful fashion that separates him from his predecessors. "Buying a U.S./UAW vehicle makes a difference," King wrote in a two-page rebuttal to a blog post written in July by a Kansas City Business Journal reporter who was recently ousted from the parking lot of UAW Local 249 for driving a Toyota Camry.
LA Times:
CALPERS Investment Staff Received Luxury Travel, Gifts From Financial Firms. California's public pension system allowed senior portfolio managers to take private jet trips around the world, paid for by firms seeking business with the agency. The state's embattled public pension fund for years allowed its top investment staff to accept private jet trips around the world and other luxury travel from financial firms with whom they were doing business — without disclosing any of the trips publicly, according to the court testimony of a senior portfolio manager. Mark testified that he had taken 10 or 12 private jet trips paid for by firms doing business with CalPERS to locations including Shanghai, Mumbai and New York. Financial firms paid for dozens more such trips for him on commercial airlines, he said, often in first or business class. Mark reported none of the travel on disclosure forms that government officials must file with the state when they accept gifts valued over $50. CalPERS spokeswoman Pat Macht said Mark and other CalPERS officials did not have to disclose the payments because the luxury travel was part of CalPERS' contracts with the investment firms. CalPERS has never allowed those contracts to be made public, arguing that they contain trade secrets.
Houston Chronicle:
Drillers Fear Sinking in Shallow Waters. They say federal delays in permit process threaten their companies' existence. A post-oil-spill delay in issuing new federal drilling permits in the shallow waters of the Gulf of Mexico, at first an inconvenience, has suddenly emerged as a real threat to the future of companies in the business, industry executives said Wednesday. While no one is talking about bankruptcy filings, shallow-water drilling contractors say the holdup in permitting is cutting into the bottom line a bit more each day they have rigs sidelined and idled workers on payroll. "At some point," said Randy Stilley, CEO of Houston's Seahawk Drilling, "it becomes a viability issue." So far, permitting delays have idled 14 of the 46 available jackups in the Gulf and forced offshore companies to cut several hundred jobs. Each rig employs about 100 workers and supports many additional indirect jobs at supply boat companies, oil field services companies and other businesses. If the situation doesn't change, 25 rigs will be idle by the end of August and 30 by the end of September as existing permits expire, according to figures provided by the Shallow Water Energy Security Coalition, an industry group formed in May to call attention to the issue. Small independent oil and gas companies that hire the rigs and are the backbone of the business may also be forced to abandon the Gulf, taking with them millions in spending in the region, said John Rynd, CEO of Houston-based Hercules Offshore. "You kill this industry, you kill a lot of dollars," he said. Shallow-water drilling operations, because they rely on rigs whose legs reach the sea floor and have blowout preventers on the rig deck, are not affected by the moratorium. But industry officials say the Interior Department has essentially created a de facto moratorium on shallow-water drilling with new rules issued in June that call for new rig safety measures and additional plans for responding to spills. Since then, the department's Bureau of Ocean Energy Management has approved just two new shallow-water drilling permits, compared with the 10 to 15 per week approved by its predecessor, the Minerals Management Service, prior to the BP accident.
Reuters:
Apple(AAPL) iPhone 4 May Go On Sale in China by September. China Unicom, China's second-largest telecommunications operator, may start selling Apple Inc's iPhone 4 in the mainland market in September, state television reported on Thursday. "China Unicom has reached an agreement with Apple, and the iPhone 4 may enter the mainland market by as early as next month," the report said, citing a company statement released to the ongoing China Internet Conference in Beijing.
U.S. Homeowner Confidence Fell in 2nd Quarter. U.S. homeowners were less confident about the value of their homes in the second quarter, with one-third believing home prices had not yet reached a bottom, real estate website Zillow.com said on Thursday. Nevertheless, a significant number of homeowners said they planned to put their home up for sale in the next six months if they saw signs of a real estate market turnaround. Homeowners were more pessimistic about the short-term future of home values in their local market than they had been in the previous three quarters, according to the Zillow Second Quarter Homeowner Confidence Survey. 5 percent of U.S. homeowners said they were very likely to put their home on the market in the next six months if they saw signs of a real estate market turnaround. Zillow said this translated into 3.8 million homes with the potential to come into the market. By comparison, 5.2 million existing homes were sold in all of 2009.
Nikkei English News:
Sharp Corp. will reduce LCD panel production this month for components that serve other companies, such as Sony Corp., because of higher TV inventories in the U.S. and China.
