Basel Compromise Means Higher Capital Ratios, Time to Comply. The Regulators looking to rein in the sort of risk-taking that caused the last financial crisis reached a compromise in Switzerland yesterday that more than doubles capital requirements for the world’s banks while giving them as long as eight years to comply.Basel Committee on Banking Supervision will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress. Banks that fail to meet the buffer would be unable to pay dividends, though not forced to raise cash. The definitions of what counts as capital and how risk is assessed have also been tightened.
Yields Fall to Eisenhower Low in Pimco-BofA View of Fed Easing. Bond investors are growing more convinced that Federal Reserve Chairman Ben. S. Bernanke will push Treasury yields down to the levels of the 1950s with another round of asset purchases. Goldman Sachs Group Inc. and Pacific Investment Management Co. project that the Fed will resume quantitative easing by purchasing U.S. government debt as soon as this year to prevent what they see as a 25 percent chance that the economy will slip back into a recession. Bank of America Corp. says the central bank will send the 10-year note yield to a record low of 1.75 percent in the first quarter of 2011.
Musharraf Plans to Form New Political Party, Return to Rule in Pakistan. Pervez Musharraf, the former president of Pakistan, said he plans to form a new political party and contest elections scheduled for 2013, before seeking to become prime minister or president. “A time has come in Pakistan where we need to introduce a new political culture, a culture which can take Pakistan forward on a correct democratic path, not an artificial, make-believe democratic path,” Musharraf, 67, said in an interview with the British Broadcasting Corp.
Euro Seen Dropping More Against Dollar Among Currencies Traders Like Least. The euro is losing out to the dollar as renewed concern over the solvency of nations from Portugal to Ireland points to another slump for the common European currency. Hedge funds and other large speculators have increased bets on a weakening of the euro to the highest level in almost two months, according to data from the Commodity Futures Trading Commission. Investors are paying close to the most in three months to insure against losses on Greek and Spanish bonds, while yields on Irish and Portuguese government debt surged to records relative to benchmark German bunds last week. TD Securities Inc., the most accurate foreign-exchange forecaster in the six quarters ended June 30, and Bank of America Corp. say the euro will drop versus the dollar even as the U.S. economic recovery slows. While a weaker currency would boost German exports, the predictions show that a $950 billion European bailout fund hasn’t been enough to shore up confidence amid credit downgrades of Portugal and Ireland.
Greece's Papandreou Says No New Austerity Measures Needed to Avoid Default. Greece’s Prime Minister George Papandreou pledged to press ahead with government attempts to ease the threat of default, saying no new austerity measures were needed if the country stayed the fiscal course. “I have every confidence that at the end of the year we will have reduced, in accordance with our commitments and decisions, the deficit by 40 percent,” Papandreou said in Thessaloniki, northern Greece, today. “As long as we are progressing well, there is no need for any new measures.”
Economic Docs Find Remedy Amid Bubble Rubble: Caroline Baum. Even the most casual observer of the events of the last five years -- the housing bubble, the bust and the digging-out process -- would be struck by the similarities between the policies that got us into this mess and the prescriptions for getting us out.
Wall Street Journal:
Waning Economic Recovery Fuels Global Uncertainty. The global recovery is still on track, but it's looking increasingly likely to be a long slog for much of the developed world. Just over a year after the recovery started, its initial vigor has abruptly subsided, thrusting the world into a new period of uncertainty. Hopes of a U.S.-led recovery have faded as American consumers retrench. Bursts of growth in Japan and Germany are waning or expected to do so. China and other big developing nations are still growing strongly, but at a slower rate than they were not long ago. "We were waiting for the second stage of the rocket, and it just fizzled out," says Ethan Harris, head of developed economics research at Bank of America Merrill Lynch in New York.
Tensions Still on Boil in Mosque Fight. As Florida Pastor Fades From Spotlight, the Passions He Inflamed Keep Burning on Weekend Marking 9/11 Anniversary.
H-P(HPQ) Nears ArcSight(ARST) Purchase. Hewlett-Packard Co. is closing in on a deal to acquire security-software maker ArcSight Inc. for around $1.5 billion, people familiar with the matter said, continuing a spending spree that began after Chief Executive Mark Hurd resigned last month. The price per share that H-P is willing to pay couldn't be learned. ArcSight was asking around $42 a share, other people familiar with the matter said. As of Friday, ArcSight's market capitalization was $1.2 billion, or $35.10 a share, in 4 p.m. trading on the Nasdaq.
China Has Done "Very, Very Little" on Exchange Rate: Geithner. Treasury Secretary Timothy Geithner said China has not done enough to allow its currency, the yuan, to rise. “China took the very important step in June of signaling that they’re going to let the exchange rate start to reflect market forces. But they’ve done very, very little, they’ve let it move very, very little in the interim,” Mr. Geithner said in an interview with The Wall Street Journal on Friday.
Worries Over Tax Hikes Coloring Business Decisions. The uncertainty over looming tax increases is starting to affect both investing and corporate decision-making. The economy remains the biggest factor in many investors' and businesses' decisions. But worries over whether Congress will extend some of the expiring Bush-era tax breaks are emerging as another important one. Stock prices of utilities, for example, recently have appeared to be factoring in the possibility of significantly higher dividend taxes next year, several analysts say.
Conservative Duo Tests Health Law. Whether President Barack Obama's health-care overhaul survives could depend on a yin-and-yang pair of conservative Washington, D.C., power lawyers who sued to stop it mere hours after the bill became law in March.
Trading Eludes Dodd-Frank as No Investors See Inside Black Box. It took a Congressional inquiry this year to force Goldman Sachs Group Inc. to disclose how much it made in the mortgage market -- and that was only for 2007. Goldman Sachs hasn't revealed mortgage-trading revenue since then, leaving investors to guess how much it contributes to the fixed-income, currency and commodities division, or FICC, which also trades junk bonds, yen, oil and uranium, sells weather derivatives and operates power plants. The division brought in $23.3 billion last year, or 52 percent of the New York-based firm's total, and by itself would rank 90th by revenue in the Standard & Poor's 500 Index, just ahead of McDonald's Corp., according to data compiled by Bloomberg. The Dodd-Frank Act, designed to prevent future financial crises, does little to improve investors' ability to analyze results at the five biggest U.S. firms that trade securities, which together lost $38.6 billion as markets froze in the fourth quarter of 2008. Since taxpayers may have to bail out banks again, firms should be forced to disclose more, said Tanya Azarchs, former head of North American bank research at Standard & Poor's.
BofA's(BAC) Capital Ratios May Delay Dividend Increases, KBW Says. Bank of America Corp. is likely to have the weakest Tier 1 common equity capital ratio among the four largest U.S. banks as international regulators near agreement on standards to help prevent future financial crises, according to KBW Inc. and Morgan Stanley analysts. Lower capital ratios could prompt regulators from permitting the Charlotte, North Carolina-based bank to raise its dividend until 2012 or 2013, a year or more later than its biggest rivals, KBW Inc. analyst Frederick Cannon wrote yesterday in a report to clients. JPMorgan Chase & Co., the second-largest U.S. bank, and Wells Fargo & Co., the fourth- largest, are poised to boost dividends next year, he said.
Vacancies Strain White House's Goals for Economy. President Obama signaled on Friday that he was close to choosing a director for a new consumer bureau, but an array of top jobs that will be crucial to shaping economic policy and financial regulation for the rest of his term remain unfilled.
NY Post:
Isn't That Rich? More fissures were revealed yesterday in the once-solid Democratic opposition to extending the Bush tax cuts for the wealthiest Americans.
Goldman(GS) Has New Program. Call it the rise of the machines. Three years after the brainiacs in one of Goldman Sachs's hedge fund units imploded, the investment bank is aiming to restock its so-called quantitative investment group. The unit -- which resides within Goldman's asset management division and employs rocket scientists and supercomputers to make investment bets -- is on the hunt for at least two senior managers to work alongside quantitative investment strategies head Katinka Domotorffy, who is currently on maternity leave.
Green Light. Faezeh Hashemi Rafsanjani, daughter of Iran's powerful Ayatollah Akbar Hashemi Rafsanjani and a prominent advocate of the Green Movement, speaks to Foreign Policy about the future of Iran's opposition and her (low) opinion of President Mahmoud Ahmadinejad.
Obama Backing Off Strict Crime Policy. For years, it was one of the GOP’s most potent political epithets — labeling a Democrat “soft on crime.” But the Obama White House has taken the first steps in decades to move away from a strict lock-‘em-up mentality on crime — easing sentences for crack cocaine possession, launching a top-to-bottom review of sentencing policies and even sounding open to reviewing guidelines that call for lengthy prison terms for people convicted of child pornography offenses.
Financial Times:
Soros and Paulson Lead Hedge Fund Table. The top 10 hedge fund managers have earned more than $153bn for their investors since they were founded, a third of the 7,000-strong industry’s returns, latest research shows. Since they opened, George Soros’s Quantum fund and John Paulson’s Paulson & Co have together made more money than Walt Disney or McDonald’s. Paulson’s returns – $26.4bn – are only just short of the net income of Boeing since Mr Paulson opened the firm in 1994.
Focus:
Almost two-thirds of Germans favor a ban on full-body covering such as Islamic veils, according to a TNS Emnid survey. 61% would favor a ban on such garb, while 36% of Germans are against it.
Hellenic Shipping News:
Growth in Commodity Derivatives Set to Slow. After a period of explosive growth in the past decade, the market for commodity derivatives is starting to look increasing mature, and set to expand much more slowly in the next few years. It is unlikely futures and options markets for oil and gas, as well as industrial metals such as copper and aluminium, will experience significant growth in the next 2-3 years. Existing opportunities for expanding the use of derivatives as a tool for risk management and investment appear to have been fully exploited in oil and gas for the time being. Lack of volatility will limit interest in hedging and investment to existing market users among producers, consumers and pension funds, rather than favouring expansion to new participants. Environmental markets also face a period of hibernation. Prospects for a nationwide cap-and-trade system in the United States have essentially died after Congress declined to take them up this year, and will recede further if the Republican Party makes significant gains in November's midterm elections.
The Standard:
Top Chinese Central Banker Urges Hike in Deposit Rate as CPI Soars.A key mainland central banker has urged an increase in the nation's deposit rate after the consumer price index climbed to a 22-month high in August. David Li Daokui, a member of the People's Bank of China monetary policy committee, suggested the deposit rate could be raised or floated in order to help depositors stem the erosion in the value of their bank savings. A higher rate would also persuade depositors to keep their money in the bank rather investing it in the equity and property markets."The main reason I am suggesting a rate hike is because this is a policy with long-term effects and modest short-term costs," Li told China Central Television on Saturday. Central bank governor Zhou Xiaochuan on Thursday said rate hikes at commercial banks would bode well for their operation.
United Daily News:
Taiwanese who support unification with China dropped to 14% this year from 29% in 2009, citing its own poll. Support for independence rose to 31% from 26%, while 51% favor maintaining the status quo, compared with 32% polled last year.
Weekend Recommendations Barron's:
Made positive comments on (XRX) and (INTU).
Made negative comments on (VMW).
Citigroup:
Upgraded (OPEN) to Buy, target $70.
Rated (TSRX) Buy, target $8.
Night Trading
Asian indices are +.75% to +1.50% on average.
Asia Ex-Japan Investment Grade CDS Index 117.0 -3.0 basis points.
Asia Pacific Sovereign CDS Index 116.0 -.5 basis point.
The Monthly Budget Deficit for August is estimated at -$95.0 Billion versus -$103.6 Billion in July.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Lockhart speaking, Rodman & Renshaw Investment Conference, Morgan Stanley Healthcare Conference, Barclays Financial Services Conference and the BofA Merrill Investment Conference could also impact trading today.
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 75% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week mixed as buyout speculation, less economic fear and short-covering offset technical selling, rising sovereign debt angst and China bubble worries. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.
North American Investment Grade CDS Index 103.25 bps -.24%
European Financial Sector CDS Index 111.83 bps -4.09%
Western Europe Sovereign Debt CDS Index 151.84 bps -.74%
Emerging Market CDS Index 249.77 bps -1.08%
2-Year Swap Spread 20.0 unch.
TED Spread 16.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 223.0 +3 bps
China Import Iron Ore Spot $139.70/Metric Tonne -.21%
Citi US Economic Surprise Index -16.90 +.4 point
10-Year TIPS Spread 1.82% +7 bps
Overseas Futures:
Nikkei Futures: Indicating +26 open in Japan
DAX Futures: Indicating -1 open in Germany
Portfolio:
Slightly Higher: On gains in my Biotech, Retail and Medical long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 is trading near session highs despite tech sector weakness. On the positive side, Education, Oil Service and Defense shares are especially strong, rising 1.25%+. The 10-year yield is rising +4 bps to 2.80%. The Spain sovereign cds is dropping -3.22% to 226.90 bps. The total put/call is high at 1.25. On the negative side, Wireless, Semi, Computer, Steel, Utility, Alt Energy, Bank and Disk Drive shares are down on the day. Small-caps are underperforming. (XLF) has also underperformed throughout the day. Copper is falling -.97%. The Greece sovereign cds is rising +1.02% to 919.49 bps. Breadth is mediocre and volume is very light again today. Developing weakness in the tech sector is a concern. With much more economic data on tap and investors returning from vacation next week, a more clear picture of the market's health should develop. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, technical selling, eurozone bank worries and increasing terrorism fears ahead of 9/11.
