U.S. Existing Home Sales in Record Plunge. Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery. Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled. “Today’s data do not bode well for home prices,” said Michelle Meyer, a senior economist at BofA Merrill Lynch Global Research in New York. “There is a decent chance we reach a new bottom for home prices. There’s going to be a prolonged, painful drop.” The pace of existing home sales is the slowest since comparable records began in 1999. Purchases of single-family homes also dropped 27 percent, the biggest one-month decrease in data going back to 1968. July’s 3.37 million annual rate was the lowest since May 1995. Compared with a year earlier, existing home sales fell 26 percent before adjusting for seasonal patterns. The median price increased 0.7 percent to $182,600 last month from July 2009. The number of previously owned homes on the market rose 2.5 percent to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months’ supply of single-family homes at 11.9 months was the highest since 1983, the NAR said. “The problem with housing is there’s actually a lot of shadow inventory,” said Constance Hunter, chief economist at Aladdin Capital Management LLP in Stamford, Connecticut. Sales last month fell in all four U.S. regions, today’s report showed. Foreclosures accounted for 22 percent of total purchases in July, while short sales, where banks agree to take less than the value of the mortgage, made up another 10 percent, the NAR said. Purchases will be “soft for at least two more months as the housing market works through the effects of the end of the tax credit,” Lawrence Yun, the group’s chief economist, told reporters at a press conference.
U.S. Housing Slowdown Concerns Trigger Rise in European Bank Default Swaps. Investor concern that a slump in the U.S. housing market is threatening the global economic recovery triggered a surge in the cost of insuring against losses on European bank bonds to the highest level in a month. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rose 7.25 basis points to 142, the highest level since July 20, according to JPMorgan Chase & Co. The Markit CDX North America Investment Grade Index of contracts linked to 125 companies in the U.S. and Canada jumped 3.27 basis points to 112.7, according to Markit Group Ltd. “High excess supply, high unemployment and rising delinquencies all make for an explosive mix, powerful enough to tip the U.S. economy back into recession,” said Christian Weber, a Munich-based credit strategist at UniCredit SpA. The conditions could create a “negative feedback loop,” he said. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 19 basis points to 518 and the Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 5.75 basis points to 117.5.
Basel Banking Reform Plans Must Be Supported, Bair Writes in FT. Critics of reforms proposed by the Basel Committee on Banking Supervision are misguided, for the recent financial crisis showed that excessive leverage has disastrous consequences for the economy, said Sheila Bair, the chairman of the U.S. Federal Deposit Insurance Corp. Writing in the Financial Times, she said the Basel committee proposes to eliminate hybrid instruments that weaken banks’ capital structures, add capital buffers so that deleveraging doesn’t wipe out lending, and place higher capital charges on risky derivatives and trading activities. The critics claim these reforms will stifle lending, raise the cost of borrowing and damp economic recovery, Bair said.
Crude Drops Below $72 as Equities Decline Amid Concern Recovery Is Slowing. Oil plunged to its lowest level in seven weeks as sales of previously owned U.S. homes fell more than forecast in July, boosting speculation that economic growth is slowing, curbing fuel demand. Crude for October delivery fell $1.10, or 1.5 percent, to $72 a barrel at 11:32 a.m. on the New York Mercantile Exchange. “The market is extremely weak fundamentally and without a strong euro or a strong stock market, it just doesn’t have anything else to peg its hopes on,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. Stockpiles of oil and fuels climbed 5.3 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990, when the Energy Department began to collect weekly data. On a monthly basis, supplies are at the highest level since November 1983.
Hero Honda Expects India Motorcycle Sales to Slow on Rising Interest Rates. Hero Honda Motors Ltd., maker of about half the motorcycles sold in India, said demand will grow more slowly this year as the central bank raises interest rates to pare inflation. India may take further steps to damp rising prices, Sud said, after four interest-rate increases since March failed to bring inflation down from near 10 percent. Rising prices have stoked public protests and sap demand for motorcycles in India, the world’s second-biggest two-wheeler market.
Vietnam Equities Tumble, Entering Bear Market, as Monetary Policy Tightens. Vietnam stocks tumbled, entering a so-called bear market, on concern the government may add measures to plug the nation’s deficit after devaluing the dong last week. The Ho Chi Minh City Stock Exchange’s VN Index slumped 3 percent to 434.42 at the 11 a.m. local-time close, the worst performer today among 93 benchmark indexes tracked by Bloomberg, extending its decline from this year’s high on May 6 to more than 20 percent, which analysts define as a bear market.
Fed's Evans Says U.S. Recovery Uncertain as Housing Not 'Out of the Woods'. Federal Reserve Bank of Chicago President Charles Evans said that while the housing market and U.S. economy have shown signs of improvement, recovery isn’t yet assured. “Although there are some signs of general economic recovery and some evidence of home-price stabilization, we are certainly not out of the woods,” Evans said today in a speech in Indianapolis. The recovery “seems to be extremely modest” and the central bank’s “accommodative policy is appropriate,” he said in reply to an audience question.
Miami Seeks to Impose Contracts on Unions to Help Cut Deficit, Mayor Says. Miami commissioners are likely to impose contracts on the city’s employee unions that will cut wages and pensions to ease a projected $96.5 million operating- budget gap next fiscal year, Mayor Tomas Regalado said. “Probably in two weeks the commission will impose a contract whereby we will be reducing salaries and pensions, which is what’s responsible for the deficit,” the first-term mayor said in an interview on Bloomberg Television outside City Hall today.
Republican Boehner Calls on Obama to Fire Geithner for Mishandling Economy. to fire Treasury Secretary U.S. House Republican leader John Boehner called on President Barack ObamaTimothy Geithner and the other remaining members of the president’s economic team. In a speech today to the City Club of Cleveland, Boehner said Obama’s stimulus policies are failing to create jobs. “We do not have the luxury of waiting months for the president to pick scapegoats for his failing ‘stimulus’ policies,” Boehner said. “We’ve tried 19 months of government-as-community-organizer. It hasn’t worked. Our fresh start needs to begin now.”
Apple(AAPL) Said to Prepare New 99-Cent TV Show Rental Service. is in advanced talks with Apple Inc.News Corp. to let iTunes users rent TV shows for 99 cents and is in discussions with other media companies about similar deals, said three people familiar with the plan. Viewers would be able to rent programs from News Corp.’s Fox for 48 hours, said the people, who declined to be identified because discussions aren’t public. CBS Corp. and Walt Disney Co., where Apple Chief Executive Officer Steve Jobs is a board member and the largest shareholder, also are in talks about joining the effort, the people say.
Wall Street Journal:
Feinberg Criticized for Spill-Compensation Terms. Kenneth Feinberg's effort to set the terms for handing out BP PLC's money to Gulf oil spill victims came under fresh attack Monday from state officials and private lawyers who said he planned to be too restrictive in deciding who gets paid. "Mr. Feinberg seems to be completely tone-deaf to the concerns of people along the Gulf Coast," said Alabama Attorney General Troy King, who blasted Mr. Feinberg as a "corporate shill" of the oil giant.
Bill & Hillary Clinton Party With Hedge Fund King. Bill and Hillary Clinton kicked off Bubba's celebratory birthday weekend in the Hamptons by stopping by the Wainscott home of hedge-fund king and big Hillary fund-raiser Daniel Neidich Friday night. Before forming Dune Capital Management, Neidich was a managing director at Goldman Sachs(GS).
Daily Beast:
Oil Spill Seafood Lie. As shrimp season starts, The Daily Beast tested the Gulf's seafood for oil and dispersant, and the results were immaculate. If Gulf and Atlantic seafood are equally safe, why won't America buy?
Real Clear Politics:
Medical Care Facts and Fables. There is so much political spin, and so many numbers games being played, when it comes to medical care, that we have to go back to square one and the simplest common sense, in order to get some rational idea of what government-run medical care means. In particular, we need to examine the claim that the government can "bring down the cost of medical care."
Rasmussen Reports:
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
USA Today:
Grads Taking Law Schools to Task for Poor Job Market.Law schools, once viewed as a guaranteed path to a high-paying career, are coming under fire as disillusioned graduates find a tighter job market than they say they were led to expect. A small but growing coalition of graduates, on blogs with names like "Scammed Hard" and "Shilling Me Softly," blame their alma maters for luring them into expensive programs by overstating their employment prospects.
Globe and Mail:
Potash Corp.(POT) Spurns BHP(BHP), Seeks White Knight. Potash Corp. is in talks with a handful of Chinese firms and other international companies looking to trump BHP $38.6-billion (U.S.) hostile takeover bid for the fertilizer giant. The Saskatoon-based company is discussing a range of investment options that would include more than one company stepping forward with a joint bid to rival BHP’s $130-per-share offer. Anglo-Australian firm Rio Tinto is said to be considering a bid alongside a Chinese player as relations between the two sides strengthen, according to sources.
Telegraph:
Spain Uses Social Security Fund to Prop Up the Bond Market. Spain is putting all its eggs into one basket, and if it carries on like this, we may start to see a lot of Basques and Catalans crowding into one exit. The state pension fund – the €64bn Fondo de Reserva, known as the ‘hucha de las pensiones‘ – is buying Spanish sovereign debt at a vertiginous pace.
Handelsblatt:
Wolfgang Franz, head of Chancellor Angela Merkel's council of economic advisers, said Germany's economy will slow after a record expansion in the second quarter, citing an interview. U.S. unemployment, weak economies in southern Europe and slowing growth in emerging nations pose risks for Germany's export-driven economy, Franz said.
Valor Economico:
Petroleo Brazileiro SA(PBR), Brazil's state-controlled oil company, and the government may use a price of $9 a barrel for state-owned oil reserves that will be swapped for company stock.
Xinhua:
China is still studying property tax and plans to introduce property tax reform, citing Xu Lin, director of finance department at the National Development and Reform Commission. Xu did not say when the tax may take place. China may introduce other tax reforms including environmental and social security tax, he said.
DigiTimes:
Mistrust in US and India May Limit China Telecom Gear Suppliers Growth, Says iSuppli. Concerns are rising in the US and India over perceived security risks associated with using China-made telecommunications equipment, potentially slowing global sales growth for China's major gear makers, according to iSuppli. A group of US senators recently asked the Obama administration to review a bid from China's Huawei Technologies to supply telecommunications gear to Sprint Nextel, citing concerns over espionage. Meanwhile, Huawei and fellow China-based equipment maker ZTE reported that the government in India started blocking purchase orders placed with them in mid-February. "The key elements that have made Chinese vendors successful: inexpensive labor, a home-field advantage in China's hot telecom market and access to an almost unlimited line of credit though government banks, are unlikely to disappear any time soon," said Lee Ratliff, senior analyst for broadband and the digital home at iSuppli. "However, the vendors face serious opposition in several of the largest markets left to penetrate."
Heating Oil and Diesel Supplies Rising to 27-Year High in Survey: Energy Markets. U.S. heating oil and diesel inventories probably climbed to a 27-year high as the slowing economic recovery curbed demand, a Bloomberg News survey showed. “We really have some risk that the normal, seasonal uptrend in heating oil prices will be disrupted because of high inventories and weak ongoing demand,” said Tim Evans, an analyst at Citi Futures Perspective in New York. “Refiners overestimated demand this summer so we are going into the fall turnaround season with fuel supplies at the highest level in a generation, especially for distillate,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “You have to go back to the Reagan years to see anything like this.” U.S. stockpiles of oil and fuel climbed 5.3 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990, when the Energy Department began to collect weekly data. On a monthly basis supplies are at the highest level since November 1983. “Demand for crude oil will dry up even more than usual this fall as refiners shut units,” Schork said.
Fed Loses Bid for Review of Bailout Disclosure. An appeals court refused to reconsider a decision compelling the Federal Reserve Board to release documents identifying banks that might have failed without the U.S. government bailout. The full U.S. Court of Appeals in New York, in a docket entry dated Aug. 20, denied a May 4 request by the Fed to review a three-judge panel’s unanimous March 19 decision requiring the agency to release records of the unprecedented $2 trillion U.S. loan program begun primarily after the 2008 collapse of Bear Stearns Cos.
Hedge Funds Bet Most on Higher Commodities Prices Since 2008, Led by Food. Speculators including hedge funds are more bullish on commodity prices than at any time since April 2008 after adding to wagers that wheat and corn will keep climbing, Commodity Futures Trading Commission data show. An index of speculative holdings in futures for 20 commodities rose 2.6 percent to almost 1.18 million contracts in the week ended Aug. 17, according to data released by the CFTC on Aug. 20. Commodity assets under management gained about $8 billion in July to more than $300 billion, driven mostly by new investments, according to Barclays Capital.
Oil Falls a Fifth Day on Concern Over U.S. Supply Gains, Slowing Recovery. Oil declined for a fifth day after analysts estimated that U.S. inventories of crude rose last week and as the dollar rose against the euro because of concern the global economy is slowing. Oil dropped to the lowest in almost seven weeks yesterday as investors sought the relative safety of the U.S. currency before economic reports that may show the recovery is faltering. Crude oil for October delivery dropped as much as 56 cents, or 0.8 percent, to $72.54 a barrel in electronic trading on the New York Mercantile Exchange. Deliveries of gasoline, a measure of demand, were little changed at an average 9.257 million barrels a day in July, compared with 9.26 million in July 2009, the industry-funded American Petroleum Institute reported Aug. 20. It was the second-lowest July demand number since 2003.
Florida Man to Plead Guilty to $880 Million Grocery-Business Ponzi Scheme. Nevin Shapiro, the former owner of Capitol Investments USA Inc. accused of leading an $880 million Ponzi scheme, is to plead guilty, court papers showed. Shapiro, 41, of Miami Beach, Florida, is charged with defrauding more than 60 investors in his bogus wholesale grocery distribution business. He is accused of using new investors’ money to pay earlier ones, as well as to fund his lavish lifestyle. Prosecutors said Shapiro stole $35 million to pay illegal gambling debts and make payments on a $5.3 million house, a $1.5 million yacht, a Mercedes-Benz and seats to Miami Heat basketball games. He also bought a pair of diamond-studded handcuffs to give to a prominent professional athlete and donated $150,000 to the University of Miami for an athletic lounge, prosecutors said.
U.S. Funding of Embryonic Stem Cell Research Halted. U.S. funding of embryonic stem cell research approved by President Barack Obama was halted by a federal judge who ruled that the work violates a law passed to bar the destruction of human embryos. U.S. District Judge Royce Lamberth in Washington today issued an order temporarily stopping the U.S. Health & Human Services Department and the National Institutes for Health from conducting the studies. The judge cited the still-in-force 1996 Dickey-Wicker Amendment. “The language of the statute reflects the unambiguous intent of Congress to enact a broad prohibition of funding research in which a human embryo is destroyed,” Lamberth said in a 15-page decision.
Mining Mergers Will End in Tears for Investors: Matthew Lynn. Almost every day brings news of another mega-deal in the mining and resources industry. BHP Billiton Ltd. makes a $40 billion bid for Potash Corp. of Saskatchewan Inc. Vedanta Resources Plc pays $8.4 billion for a controlling stake in the oil driller Cairn India Ltd., while Korea National Oil Corp. offers 1.87 billion pounds ($2.9 billion) for U.K. exploration company Dana Petroleum Plc. Mergers-and-acquisitions bankers who know anything about oil, iron ore or potash are no doubt looking forward to generous bonuses this Christmas. The City of London, where many of the resources companies are listed, is enjoying a frenzy of wheeler- dealing. Speculators and hedge funds can make a fortune taking positions in the shares. And yet, shareholder value is more likely to be destroyed in this flurry of bids.
Dell(DELL) Said to Prepare Sweetened 3Par Bid After HP's(HPQ) Counteroffer. Dell Inc. is readying a sweetened offer for data-storage provider 3Par Inc. after its earlier bid got scuttled by a $1.6 billion proposal by Hewlett-Packard Co., according to a person familiar with the matter. The offer may be sent in the coming days, said the person, who declined to be identified because the plans aren’t public.
Carter to Go to North Korea to Release Prisoner, Reports Say. Former U.S. President Jimmy Carter will soon travel to North Korea to negotiate the release of an American citizen who has been detained for seven months, Foreign Policy Journal and Yonhap News reported.
Wall Street Journal:
Fed Split on Move to Bolster Sluggish Economy. The Aug. 10 meeting of top Federal Reserve officials was among the most contentious in Ben Bernanke's four-and-a-half year tenure as central bank chairman. With the economic outlook unexpectedly darkening, the issue was a seemingly technical one: whether to alter the way the Fed manages its huge portfolio of securities. But it had big implications: Doing so would plunge the Fed back into the markets and might be a prelude to a future easing of monetary policy, moves that divided the men and women atop the central bank. At least seven of the 17 Fed officials gathered around the massive oval boardroom table, made of Honduran mahogany and granite, spoke against the proposal or expressed reservations. At the end of an extended debate, Mr. Bernanke settled the issue by pushing successfully to proceed with the move. The debate over the decision to keep the Fed's $2.05 trillion stock of mortgage debt and U.S. Treasury holdings from shrinking, described in interviews with several participants, set the stage for a more consequential discussion inside the Fed that remains very much alive: what to do next, if anything, about America's stubbornly weak recovery and troublingly low inflation.
Biden: U.S. May Keep GM Stake Beyond This Year. Vice President Joe Biden reiterated Monday that the U.S. government may maintain an ownership stake in General Motors Co. beyond this year, as the auto maker prepares to return to the stock markets as early as this fall.
Red-Ink Fears Prompt Mortgage Backer to Raise Fees. The country's most popular federal mortgage-insurance program is set to raise fees to borrowers in a bid to avoid burning through its dwindling reserves as home prices come under renewed pressure. The move reflects new threats facing the Federal Housing Administration, a New Deal-era agency that has taken a central role in the housing market since mortgage markets seized up three years ago. The FHA, which doesn't make loans but rather insures lenders against losses, guaranteed $857 billion in loans at the end of June, up 24% from a year ago.
New Fees Weighed for Mortgage Industry. The Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions. While the administration hasn't settled on a plan to revamp failed mortgage giants Fannie Mae and Freddie Mac, which are now under federal supervision, a consensus appears to be emerging that some type of government guarantee will be needed to keep the ailing mortgage market functioning. Some conservatives don't believe the government should offer any type of guarantee, while others advocate limited, but explicit, backing. About nine in 10 new loans are currently backed by Fannie, Freddie or government agencies.
Suit Says Countrywide CEO Allowed Lax Loans. The Securities and Exchange Commission alleges that Countrywide Financial Corp.'s ex-chief executive Angelo Mozilo approved loans for favored borrowers that contradicted the company's lending policies. The SEC's statements came in federal-court filings filed last week in its pending civil fraud case against Mr. Mozilo and two other former top Countrywide officials. It appears to be the first time in the year-old case that the SEC has addressed Mr. Mozilo's role in the controversial VIP lending program, where borrowers sometimes received better loan terms and service than were generally available. Some of the borrowers included public officials.
IOU Part Two: California To Issue IOUs For Second Year In A Row. The insolvent state of California which, just like the country of the USA, is operating without a budget (and who needs a budget when the Fed-PD complex will buy the bulk of anything and everything needed to fund ongoing daily operations), has once again ended up on the verge of bankruptcy. As a result, it has just passed a measure which for the second time in as many years (going all the way back to the Great Depression), will allow it to use IOUs in lieu of payment on everything from supplies to contracted services and health-care costs, so it can actually preserve cash to make payments to its generous debtors.
Huffington Post:
Two Top Investigators Leave Financial Crisis Commission. Two senior staffers have quietly left the Financial Crisis Inquiry Commission, a panel working under a tight deadline that has been dogged by rumors of discord among key personnel.
Eric Cantor: Mosque Builders 'Not Interested in Healing'. Rep. Eric Cantor, one of the highest-ranking Jewish lawmakers, says Muslims building a community center in Lower Manhattan are “insensitive” and “not interested in healing or bringing people together.” Cantor told POLITICO in an interview here in his central Virginia district that he does not understand why organizers are pushing so hard to build a Islamic community center blocks from where radicals killed thousands of Americans.
Yomiuri:
Toshiba Corp. will this year put on the market a 3D television that doesn't require special glasses, citing the company.
South China Morning Post:
Some real estate developers in Shanghai have misreported property prices to the government, distorting national housing-market data.
Evening Recommendations Citigroup:
Reiterated Buy on (WINN), target $16.
Janney Montgomery:
Rated (BKE) Sell, target $21.
Rated (TLB) Buy, target $14.
Rated (ANN) Buy, target $19.
Rated (ZUMZ) Buy, target $19.
Rated (URBN) Buy, target $40.
Rated (JCG) Buy, target $41.
Rated (ANF) Buy, target $42.
Night Trading
Asian equity indices are -1.25% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 126.0 +3.0 basis points.
Asia Pacific Sovereign CDS Index 115.75 -1.0 basis point.
Existing Home Sales for July are estimated to fall to 4.65M versus 5.37M in June.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Evans speaking, $37 Billion 2-year Treasury Notes Auction, weekly retail sales reports, Richmond Fed Manufacturing Index, weekly ABC consumer confidence reading and the EnerCom Oil & Gas Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
