Obama Said to Appoint Elizabeth Warren as Interim Head of Consumer Bureau. President Barack Obama plans to appoint Elizabeth Warren as the interim head of the new Consumer Financial Protection Bureau as early as this week, according to a person familiar with the matter. The consumer bureau is one of the biggest regulatory consequences of a Wall Street overhaul Obama signed into law in July. The bureau will have a $400 million budget and the power to impose federal rules on mortgages, credit cards, layaway plans and other consumer credit products.
Asian Stocks Set for 'Zero' Return, May Turn Negative, Deutsche Bank Says. Asian stocks are set for “zero percent” returns over the next 12 months as corporate earnings growth falters, according to Deutsche Bank AG. The brokerage is “underweight” in Taiwan, India and China, “neutral” on South Korea, Thailand and Indonesia, and “overweight” in the Philippines, Hong Kong, Malaysia and Singapore, strategists led by Ajay Kapur wrote in a report yesterday. “We could end up on the negative side of that zero expected return,” Kapur wrote, citing “impending earnings-per- share disappointments, high relative valuations in Asia, the probability of a stronger U.S. dollar, diminished pricing power, falling terms of trade and deteriorating free liquidity.”
SEC Questions Trading Crusade as Market Makers Disappear. The U.S. Securities and Exchange Commission has spent 15 years remaking the stock market into 11 competing exchanges and hundreds of computer-driven traders. In the process it has virtually eliminated the traditional market makers who bought and sold stocks when no one else would. Now the SEC is concerned the revolution has gone too far, leaving markets vulnerable when selling starts to snowball.
U.S. Expects to Sue Over Deepwater Horizon Disaster. The U.S. Justice Department said Monday that it expects to file a civil suit in relation to the Deepwater Horizon disaster, asking the court handling hundreds of private cases to give government and state plaintiffs special consideration. In a court filing, the department said the U.S. government had "potential civil claims arising from the spill," citing several statutes under which the federal government could bring suits and claim damages, including the Clean Water Act and the Oil Pollution Act. "At this juncture, the United States expects that it may file a civil complaint related to the Deepwater Horizon disaster under these provisions and possibly others," the Justice Department said in its filing.
The 1099 Insurrection. The White House fights an effort to ease a burden on small business. You might not have seen it reported, but the Senate will vote this morning on whether to repeal part of ObamaCare that it passed only months ago. The White House is opposed, but this fight is likely to be the first of many as Americans discover—as Nancy Pelosi once famously predicted—what's in the bill. The Senate will vote on amendments to the White House small business bill that would rescind an ObamaCare mandate that companies track and submit to the IRS all business-to-business transactions over $600 annually. Democrats tucked the 1099 reporting footnote into the bill to raise an estimated $17.1 billion, part of the effort to claim that ObamaCare reduces the deficit by $100 billion or so.
Tea Party to GOP: Defund Health Care. A major tea party group is asking Republican congressional leaders to include cutting funds to implement the new health care law in a contract the GOP plans to roll out later this month.
Hill Battles Over Bush Tax Cuts.With their backs to the wall, Democrats want two things from Congress this fall: a fast break and a political bank shot — melding small-business relief with a fight over Bush-era tax cuts for the wealthy.
Reuters:
House Lawmakers Urge Action on China Currency. Ninety-three U.S. lawmakers have signed a letter urging Democratic leaders in the House of Representatives to schedule a vote on a bill to get tough with China over its currency exchange rate practices, a lawmaker's office said on Monday. Many members of Congress believe China undervalues its currency by as much as 40 percent to give Chinese companies an unfair price advantage in world trade.
Financial Times:
Saudi Reveals Large Unconventional Gas Reserves. Saudi Arabia has large reserves of unconventional gas that could help the kingdom to meet soaring domestic energy needs and leave more crude oil available for export, the head of its national oil company has said. Khalid al-Falih, chief executive of Saudi Aramco, the world’s biggest oil company, told the Financial Times that the kingdom could hold hundreds of trillions of cubic feet of unconventional resources such as shale gas, more than doubling its proved reserves of 280,000bn cubic feet.
Bankers Fear Race to Surpass Basel III. Top bankers in the UK, US and Switzerland are braced for their national regulators to impose tougher capital requirements than those required by Sunday’s landmark global agreement, even as investors bid up bank shares on relief that the standards were not more rigorous.
US, Eyeing Iran, Moves on $60 Billion Saudi Arms Deal. The Obama administration will soon notify Congress of an arms sale to Saudi Arabia worth up to $60 billion, U.S. officials said on Monday, a potentially record-breaking deal that may help counter Iran's growing regional muscle.
South China Morning Post:
Chinese Develloers' High-Yielding Bonds May Carry Sting. The good news first: people who invested in bonds issued by newly listed mainland developers are getting record high interest rates. But the bad news is that the risk of losses on these bonds is mounting as the housing market shows signs of slowing.
Evening Recommendations Citigroup:
Reiterated Buy on (MGA), target $98.
Night Trading
Asian equity indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 114.0 -3.0 basis points.
Asia Pacific Sovereign CDS Index 110.0 -6.0 basis points.
Advance Retail Sales for August are estimated to rise +.3% versus a +.4% gain in July.
Retail Sales Less Autos for August are estimated to rise +.3% versus a +.2% gain in July.
Retail Sales Ex Auto & Gas for August are estimated to rise +.4% versus a -.1% decline in July.
10:00 am EST
Business Inventories for July are estimated to rise +.7% versus a +.3% gain in June.
Upcoming Splits
None of note
Other Potential Market Movers
The NFIB Small Business Optimism Index, IBD/TIPP Economic Optimism Index, weekly retail sales reports, ABC Consumer Confidence report, (TLEO) Analyst Day, (SLE) Analyst Day, (NUVA) Investor Day, (CSCO) Analyst Conference, (VAR) Investor Meeting, Barclays Financial Services Conference, Robert W. Baird Health Care Conference, Deutsche Bank Technology Conference, BofA Merrill Investment Conference and the Wedbush Morgan Clean Tech Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 102.14 bps -1.08%
European Financial Sector CDS Index 107.17 bps -4.62%
Western Europe Sovereign Debt CDS Index 148.96 bps -1.85%
Emerging Market CDS Index 243.56 bps -2.59%
2-Year Swap Spread 20.0 unch.
TED Spread 16.0 unch.
Economic Gauges:
3-Month T-Bill Yield .13% unch.
Yield Curve 221.0 -2 bps
China Import Iron Ore Spot $139.30/Metric Tonne -.29%
Citi US Economic Surprise Index -15.50 +1.4 points
10-Year TIPS Spread 1.84% +2 bps
Overseas Futures:
Nikkei Futures: Indicating -16 open in Japan
DAX Futures: Indicating -6 open in Germany
Portfolio:
Higher: On gains in my Tech, Retail, Ag and Medical long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and covered some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 is trading near session highs on low volume and is now slightly above its 200-day moving average. On the positive side, Education, Homebuilding, Bank, Networking, Disk Drive, Semi, Computer, Internet, Steel and Oil Tanker shares are especially strong, rising 2.0%+. Small-cap and cyclicals are substantially outperforming. (XLF) has traded well throughout the day. Copper is jumping +2.4% and Lumber is rising +1.32%. The European Investment Grade CDS Index is falling -3.29% to 95.42 bps. Moreover, the Spain sovereign cds is dropping -3.54% to 219.08 bps and the Portugal sovereign cds is falling -3.13% to 320.52 bps. On the negative side, Hospital shares are down on the day and Restaurant, Drug, Biotech, Telecom and Utility shares are underperforming, rising less than .5%. The 10-Year Yield is falling -6 bps to 2.73%, which is negative. The Greece sovereign cds is rising +.64% to 917.45 bps, the Japan sovereign cds is rising +.4% to 66.21 bps and the US Muni CDS Index is rising +.88% to 230.50 bps. Breadth is good, but volume is lackluster again today. The S&P 500 is near a critical technical level and a convincing break above this level would likely lead to even further near-term upside. However, I am closely monitoring my technical gauges for any signs of developing weakness, given the trading range we have be trapped in for some time. I expect US stocks to trade mixed-to-higher into the close from current levels on less terrorism fear, diminishing financial sector pessimism, short-covering, buyout speculation and technical buying.
U.S. Corporate Credit Risk Benchmark Declines to the Lowest in Five Weeks. A benchmark indicator of corporate credit risk in the U.S. fell to the lowest since Aug. 4 after a surge in China’s industrial output boosted optimism in the global recovery and regulators gave banks as much as eight years to meet capital requirements. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 1.2 basis points to a mid-price of 101.6 basis points as of 8:23 a.m. in New York, according to index administrator Markit Group Ltd. The index, which typically falls as investor confidence improves and rises as it deteriorates, has fallen every day except one this month after reaching 114.5 on Aug. 31.
Corn Rises to 23-Month High as U.S. Reserves Shrink, Global Demand Climbs. Corn futures rose, extending a rally to a 23-month high, on speculation that increasing demand for food and livestock feed will tighten supplies in the U.S., the world’s biggest producer and exporter. U.S. inventories before the 2011 harvest as a percentage of use will fall to a 15-year low, the Department of Agriculture said on Sept. 10.
Chicago Losing AA Rating as Daley Deals Fail to Offset Deficits. Chicago’s next mayor will take over a city that is almost out of cash after Richard M. Daley spent most of the $3.5 billion gained from leasing parking meters, garages and a 7.8-mile elevated toll road. The third-biggest U.S. city by population projects a $654.7 million deficit in a $3.39 billion budget for 2011, a July 30 report shows. Daley balanced this year’s $3.12 billion budget partly with reserves. If he uses lease funds to fill the 2011 gap, Chicago will be left with $121 million, enough to run the municipality for two weeks, according to data compiled by Bloomberg.“It almost will disappear by the time the mayor leaves office,” said R. Eden Martin, president of the Commercial Club of Chicago, a civic group. “Cutting $600 million is going to be a catastrophe. It is going to be very, very painful.”
Brazil's Libra May Rival Tupi as Americas Largest Oil Discovery Since 1976. Brazil’s deepwater Libra field may hold as much as 8 billion barrels of oil, rivaling nearby Tupi as the Americas’ biggest crude discovery in three decades, according to an official of the country’s Energy Ministry. Initial estimates for the Santos Basin field off the coast of Brazil are between 7 billion and 8 billion barrels based on seismic and drilling data, Marco Antonio Almeida, head of oil and gas at the ministry, said today in Rio de Janeiro. That would rival the 5-billion-to-8-billion barrel estimate for Tupi. Brazil may possess more than 50 billion barrels of oil reserves in the so-called pre-salt region, which runs 800 kilometers along Brazil’s coast from Espirito Santo to Santa Catarina states, according to the national oil regulator.
'Mass Hysteria' Produced Flawed Financial-Reform Law, Bove Says: Tom Keene. Legislators who don’t understand the banking industry and a sense of “mass hysteria” led to the passage of a financial-reform law that will hurt U.S. consumers, said Richard Bove, an analyst at Rochdale Securities. “We went into a period of mass hysteria,” Lutz, Florida- based Bove said in a radio interview today with Tom Keene on “Bloomberg Surveillance.” “Every American will discover over the next 12 months that every service that he receives from banks in the United States now will cost more and there will be fewer services available.”
Wall Street Journal:
YouTube Launches Streaming Video Trial. Google Inc.'s(GOOG) YouTube has launched a public test of a new live-streaming video service, the site's most ambitious foray into live programming.
Sebelius Has a List. 'As a consequence of us getting 30 million additional people health care, at the margins that's going to increase our costs—we knew that," President Obama said at his press conference Friday in response to a question about rising health spending. That wasn't how he sold the plan, but, anyway, that's a truism. Here's another: The White House was always going to blame insurance companies for any cost increases, even when its own policies cause them.
Oil Should Be Half Its Current Price: Analyst. If theoil market focused on fundamentals, instead of equities and currencies, it would be half the price of what it is now, Peter Beutel, president of energy research firm Cameron Hanover, told CNBC.
Goldman's(GS) Jan Hatzius: The Recovery Was Artificial, And There's A "Sizable Risk" Of A Double Dip. Goldman's top economist is on CNBC this afternoon. He says there's a 25-30% chance of a double dip, though the most likely outcome is a sluggish, gradual recovery. The recovery has been artificial -- stimulus spending and inventory restocking -- and thus there's no reason to see a return to robust growth.
F.C.C. Likely to Open Airwaves to Wireless. This month, the F.C.C. is likely to approve what could be an even bigger expansion of the unlicensed airwaves, opening the door to supercharged Wi-Fi networks that will do away with the need to find a wireless hot spot and will provide the scaffolding for new applications that are not yet imagined.
The Daily Beast:
Do Banks Still Play Us for Fools? by Charlie Gasparino. Even after reports that Robert Rubin and other Citigroup execs failed to disclose a risky mortgage portfolio, Charlie Gasparino reports Wall Street is repeating the same sneaky behavior. Citigroup, the most bailed out and dysfunctional of the big financial houses, has been acting extra-stupidly lately by barring an influential analyst who had the gall to question the bank’s accounting practices from meeting its senior executives.
Politico:
Dems Plan for a Future Without Pelosi. For House Democrats, planning for a future without Nancy Pelosi is neither pleasant nor easy. But as the polls worsen and a Republican-controlled House looks more and more possible, Democrats are beginning to realize they face a top to bottom leadership shakeup if the powerful speaker steps aside in a Democratic minority.
USA Today:
Public Was Misled About ObamaCare by George Pataki. Opposing view on medical inflation: Repeal and replace. This month, with support for ObamaCare continuing to erode, a Democrat-led group is ramping up a multimillion-dollar national ad campaign to rescue the new law. At the same time, Health and Human Services Secretary Kathleen Sebelius wrote the health insurers' national association demanding they stop using "misinformation and scare tactics" to blame 2011 premium increases on ObamaCare. The reality is that this is all part of an orchestrated, well-financed effort to mislead the American people as to the facts on ObamaCare. It's not surprising. The American people have been terribly misled about this bill since before it was passed.
Reuters:
Wipro, Infosys See Cautious Spending on IT. Two leading Indian IT outsourcing companies said customers were still spending on technology but the mood remained cautious and short-term as firms wait to see how the global recovery plays out.
Telegraph:
China Tells Foreign Businesses 'to stop complaining'. China has told foreign companies to stop complaining about the difficulties of doing business on the mainland, and to cease being so "emotional". In the past year, a number of foreign companies have accused the Chinese government of deliberately tilting the playing field against them in order to help Chinese firms. "I'm not sure they want any of us to be successful," said Jeffrey Immelt, the chief executive of General Electric, recently. In addition, foreign companies have been repeatedly blocked from making acquisitions and investments on the Chinese mainland. "The situation is still getting worse," said Jacques de Boisseson, the head of the European Chamber of Commerce and the chairman of Total, the French oil company, in China.
DigiTimes:
Apple(AAPL) to Switch to Qualcomm(QCOM) Chips, Says Paper. Apple reportedly is dropping Infineon solutions from its iPhone devices in favor of those made by Qualcomm, according to a recent report in the Chinese-language Commercial Times. Apple plans to move the fifth-generation iPhone to Qualcomm chips, the paper claimed.
Economic Observer:
China's economic growth will reach 9.5% this year and slow to 8% next year, citing Justin Lin, chief economist of the World Bank.
21st Century Business Herald:
China's consumer price index may reach 5% this year, citing Cheng Siwei, former vice chairman of the standing committee of the National People's Congress.
Pacific Epoch:
Source: CBRC Plans New Capital Reqs for 2011. China Banking Regulatory Commission (CBRC) plans to set new minimum levels for key banking measures and introduce new performance measures in 2011, China Business News reported on September 13 citing an unnamed source close to the regulator. Banks will have to ensure capital adequacy ratio (CAR) of 10% with a 6% minimum core tier-one capital ratio, and an 8% tier-one capital ratio, with the regulator free to impose an additional 0% to 5% "when necessary," the report said. Banks of "systemic significance" will be required to have a CAR of 11%, the report said. The CBRC also intends to introduce a leverage ratio requirement, with minimum core capital to be 4% above banks' total assets, according to the report.
