Success for Bank Stress Tests Hinges on Data, Not Failure Count. The success of the European Union’s bank stress tests hinges on how much detail regulators provide about the basis for their conclusions, not on the number of lenders that fail, investors said. “The more transparency, the more important that the results will be,” said Peter Braendle, who helps manage $51 billion at Swisscanto Asset Management in Zurich. “If the methodology is a black box and we just get some results, that will not be very helpful.” Regulators are scrutinizing banks to assess if they have enough capital, defined as a Tier 1 capital ratio of at least 6 percent, to withstand a recession and sovereign debt crisis, according to a document from the Committee of European Banking Supervisors. Lenders that fail the trials will be made to raise additional capital. The results will be published by CEBS and national regulators from 6 p.m. Brussels time today. The assessors haven’t so far provided full details of their criteria, raising concern among investors they will not be stringent enough. “It’s pretty clear that a lot of banks will pass this test,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment, including bank shares. “It will be more important to see what raw data will be published. With that you can create your own, more stringent scenarios.” Analysts’ estimates for the amount of capital European banks will need to raise range from 30 billion euros ($38.7 billion), according to Nomura Holdings Inc., to as much as 85 billion euros at Barclays Capital. Investors have criticized the tests, saying they may not be rigorous enough. In particular, they are questioning to what extent regulators are examining banks’ sovereign-debt holdings, including how government bonds in the trading and banking books will be valued in the event of a sovereign debt crisis. The tests won’t include the possibility of sovereign defaults, Dutch Finance Minister Jan Kees de Jager said last week, indicating that there will be no assumed losses on government bonds held in lenders’ banking books. “Banks hold the majority of their sovereign bonds in the banking book, and as a EU country’s default is not part of the stress test’s scenarios, impairments are not necessary,” said Konrad Becker, a financial analyst at Merck Finck & Co. in Munich.
Goldman Sachs(GS) Said to Name Counterparties on AIG Hedges for U.S. Panels. Goldman Sachs Group Inc. told U.S. investigators which counterparties the company used to hedge the risk that American International Group Inc. would fail, according to three people with knowledge of the matter. The list was sought by panels reviewing the beneficiaries of New York-based AIG’s $182.3 billion government bailout, said the people, who declined to be identified because the information is private. Goldman Sachs, which received $12.9 billion after the 2008 rescue tied to contracts with AIG, has said it didn’t need the insurer to be bailed out because it was hedged against a failure.
Rutgers' Chinese Solar Panels Show Clean-Energy Economic Shift. At Rutgers University in New Jersey, 7,600 panels convert sunlight into electricity, saving some $200,000 in energy costs this year in the biggest solar-power experiment at a U.S. college. Yingli Green Energy Holding Co., China’s second-largest solar-panel maker, supplied the $10 million project. Yingli is one of several Chinese manufacturers that have slashed costs to reduce global prices for solar modules by about 50 percent in two years. The drive made them more affordable for buyers from Rutgers to Wal-Mart Stores Inc., the biggest U.S. retailer. “It’s all about economics,” said Chief Executive Officer Al Bucknam of SunDurance Energy, the South Plainfield, New Jersey installer that picked Yingli over Western competitors on price and helped sell the deal to Rutgers as a money-saver. China is slashing prices and moving to dominate solar energy in the way Japanese manufacturers ruled consumer electronics decades ago.
Grassley Calls for Probe of General Motors' Plan to Acquire AmeriCredit. U.S. Senator Chuck Grassley asked the Special Inspector General for TARP to look into the details of General Motors Co.’s plan to buy a subprime auto lender and the Treasury Department’s involvement in the acquisition. GM and Fort Worth, Texas-based AmeriCredit Corp. announced the deal today that is intended to help the automaker reach more customers with damaged credit ratings or who want to lease a new car or truck. The purchase will be made with cash GM has on hand, Chief Financial Officer Chris Liddell said. “If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first,” Grassley, a Republican from Iowa, said in a statement on his website. “After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.” GM’s former lending arm, now known as Ally Financial Inc., lost $17 billion on subprime mortgages. GM sold 51 percent of Detroit-based GMAC to private-equity firm Cerberus Capital Management LP in November 2006 as the nation’s biggest automaker ran low on cash. Since then, GM has had to rely on outside lenders, including Ally, which is 56 percent owned by the U.S. Detroit-based GM filed for bankruptcy court protection last year and is now 61 percent owned by the U.S.
Sumitomo, Usiminas May Expand Iron Ore Capacity in Brazil, Furihata Says. Sumitomo Corp., Japan’s third- largest trading company, said its venture with Brazil’s Usinas Siderurgicas de Minas Gerais SA may expand iron ore production by two thirds amid rising demand in Asia. The venture with Usiminas may be able to boost estimated annual iron ore output to 50 million metric tons, Sumitomo’s Managing Executive Officer Toru Furihata said in an interview at its Tokyo headquarters. That’s an increase on its plan to produce 30 million tons by 2015 from 7 million ton by expanding capacity at its mine in the state of Minas Gerais.
China's Auto Prices May Decline Steadily, NDRC Says. China's vehicle prices may decline steadily in the second half of 2010 because of increasing inventories and pressure by wholesalers to meet sales targets, the country's planning ministry said. Automakers may join dealers in offering discounts in the fourth quarter, Cheng Xiaodong, an official with the National Development and Reform Commission, said today in a statement. China's car prices fell 1.18 percent in the first half from a year earlier, according to the agency. "The high prices we saw last year are long gone," said Yu Bing, an analyst at PingAn Securities Co. in Shanghai, who expects a 5 percent price drop for vehicles that cost about 100,000 yuan ($14,750). "Car prices are no doubt coming down." The Chinese government has been subsidizing rural residents' automobile purchases since last year. The country gave out 7.92 billion yuan to rural residents to help them buy motorcycles and automobiles in the first half, according to the planning agency. The government also handed out 2.44 billion yuan to subsidize trade-ins of old vehicles during the period, the agency said.
Chinese Banks Need to Raise More Capital to Meet Lending Growth, S&P Says. Chinese banks will need to raise more funds to cope with tighter capital requirements and loan growth in the world’s third-largest economy, a Standard & Poor’s analyst said. “With tighter capital requirements, their capital buffer is not enough,” Liao said. “That’s why you see AgBank and Everbright pushing so hard to raise capital despite the weak market.” The benchmark Shanghai Composite Index declined 22 percent this year. China’s banks face rising credit risks and non-performing loan ratios are likely to increase as the nation’s economy slows and lending for government projects comes due for repayment, S&P said in a report yesterday. It’s “highly likely” that some loans to local government financing vehicles will turn bad over the next few years, S&P said in the report. Loans to these entities account for about 18 percent to 20 percent of total lending, the rating company said. China’s loan growth will slow in the second half of 2010, S&P’s Liao said today, with full-year loan growth coming in at about 20 percent. The industry’s non-performing loan ratio will rise from an estimated 3 percent to 4 percent currently, though it will remain below 10 percent by the end of 2012, S&P projects.
Judgement Day for EU Banks Nears. After weeks of anticipation, European bank stress-test results are due out late Friday after the region's stock markets close, a closely watched bid to quell concern about the stability of European banks after a spring of fiscal and financial problems. Most banks are expected to pass the tests—which may or may not be a good sign, depending on whether the exercise is deemed to be tough enough. Industry and government officials in Greece, Spain and Germany have hinted this week that major banks in their countries will come through the tests without trouble. That optimism, especially given challenges facing a number of banks in each of the three countries, has raised questions about the rigor of the tests. Thus far only one bank, Hypo Real Estate in Germany, is known to have failed the tests, but since it has already been taken over by the government, its capital levels aren't an issue. The tests will cover 91 banks in 20 European Union countries. Critics say they fear that the European tests won't improve sufficiently on the Oct. 2009 stress tests. At that time, European regulators offered vague assurances that the region's banks were sufficiently capitalized. The fiscal and banking crisis that emerged just a few months later seemed to undercut that view. Under the EU test scenario, the EU economy shrinks by about 2% this year and 1.25% in 2011, compared with current expectations of modestly positive growth in both years. Financial markets sent mixed signals ahead of Friday's results. European Bank shares shot higher Thursday, with the Stoxx 600 banking sector index gaining more than 3% as investors bet on a repeat of the U.S. stress- test scenario. At the same time, the cost of borrowing euros in the interbank lending market reached its highest level in 11 months with three-month Euribor at 0.884%. Such borrowing costs rise when banks are nervous about lending to one another.
Diversity and the Myth of White Privilege by Senator James Webb(D-VA). America still owes a debt to its black citizens, but government programs to help all 'people of color' are unfair. They should end. The NAACP believes the tea party is racist. The tea party believes the NAACP is racist. And Pat Buchanan got into trouble recently by pointing out that if Elena Kagan is confirmed to the Supreme Court, there will not be a single Protestant Justice, although Protestants make up half the U.S. population and dominated the court for generations. Forty years ago, as the United States experienced the civil rights movement, the supposed monolith of White Anglo-Saxon Protestant dominance served as the whipping post for almost every debate about power and status in America. After a full generation of such debate, WASP elites have fallen by the wayside and a plethora of government-enforced diversity policies have marginalized many white workers. The time has come to cease the false arguments and allow every American the benefit of a fair chance at the future.
Motorola's(MOT) Suit Poses Challenge for Huawei's Success. Motorola Inc.'s lawsuit against Huawei Technologies Co. alleging a plot to steal the U.S. company's trade secrets could complicate years of largely successful efforts by the Chinese telecommunications-equipment giant to demonstrate itself as an innovator in the industry.
The U.N. Threat to Internet Freedom. The FCC's move to treat broadband providers like phone company monopolies could spur international efforts to regulate the Web.
Wal-Mart(WMT) Radio Tags to Track Clothing. Wal-Mart Stores Inc. plans to roll out sophisticated electronic ID tags to track individual pairs of jeans and underwear, the first step in a system that advocates say better controls inventory but some critics say raises privacy concerns. Starting next month, the retailer will place removable "smart tags" on individual garments that can be read by a hand-held scanner.
U.S. to Scrutinize For-Profit Career Colleges. The U.S. Department of Education on Friday will propose a measure to penalize for-profit career colleges for graduating students with high debt-to-income ratios. The proposal, which will undergo a 45-day comment period that is expected to include opposition from industry lobbyists, is an effort to ensure schools are training students for gainful employment in a recognized occupation. It comes at a time when for-profits are under new scrutiny as they capture a growing share of federal student-aid dollars.
Gene Shows Promise for Alzheimer's. Scientists have found a way to dramatically reduce the erosion of memory and learning ability in mice with a version of Alzheimer's disease, potentially offering a new approach for tackling the illness in humans.
Liberal Tax Revolt. Some Democrats decide they prefer lower rates. Obama isn't one of them. There's nothing like the prospect of an electoral rout to concentrate the incumbent mind, and so all of a sudden rank-and-file Democrats in Congress are saying maybe they shouldn't let the 2003 tax rates expire after all. Now if they can only persuade their Speaker of the House, the Treasury Secretary and President Obama.
Bloomberg Businessweek:
Falcone's Harbinger Said to Lose 10% in June in Illiquid Fund. Harbinger Capital Partners LLC, the hedge-fund firm run by billionaire Philip A. Falcone, lost about 10 percent last month in a pool of hard-to-sell assets that it’s divesting for clients, according to two investors. The so-called side pocket, with about $2 billion in assets, has slumped 14 percent this year, said the people, who asked not to be named because the information is private.
The Rush to Hedge Against Black Swan Events. Wall Street is seeing a boom in funds that offer protection from market calamities known as "long-tail risks."Wall Street's hottest new product is fear. Pimco, Deutsche Bank (DB), and Citigroup (C) are among firms offering clients protection against "long-tail" risks—extreme market moves that Wall Street's financial models fail to anticipate. In what Morgan Stanley strategists say is an indication that more investors are seeking insurance against financial turbulence, they estimate there was as much as a fivefold increase last quarter in trading of credit derivatives that speculate on market volatility.
SEC Watchdog Expands Probe to Include Goldman Sachs Settlement. The U.S. Securities and Exchange Commission’s internal watchdog said he will expand his probe into whether politics drove an agency lawsuit against Goldman Sachs Group Inc. to include the timing behind a $550 million settlement with the company.
CNBC:
Amazon.com(AMZN) Shares Plunge After Earnings Disappoint. Amazon.comshares plunged after the company posted earnings that missed analyst expectations and revenue that barely beat forecasts. The online retailer reported second quarter earnings of 45 cents a share. Amazon earned 32 cents a share during the same period a year earlier. Sales for the most recent quarter rose to $6.57 billion, up from $4.65 billion last year. The company was seen earning 54 cents a share on revenue of $6.54 billion, according to a consensus eestimate from Thomson Reuters.
Beijing Should Avoid Price Intervention. The Chinese government is still relying on price controls far too often, and this could lead to stagflation, according to a Century Weekly editorial.
LG Display Not Fulfilling All Apple(AAPL) iPad Orders. The chief executive of LG Display Co. (LPL, 034220.SE) said the company isn't currently fulfilling strong panel orders from Apple Inc. (AAPL) for its new tablet computer, the iPad, which is seen to have slowed the global sales of the device. But the South Korean flat-panel maker said it may be able to fill the orders by the second quarter of next year.
In Asia, a Gulf's Worth of Oil Awaits Transport. This field, known as the Tengiz, is still running at only about half speed. Blame geopolitics, not geology. The problem with the Tengiz field, whose lead operator is the American company Chevron, is not a matter of extracting the oil. More than 100 working wells have already been successfully drilled into the scrub brush desert of western Kazakhstan, near the Caspian Sea. The challenge is getting the oil to the market. The Tengiz field, one of the world’s largest known petroleum reservoirs, is tied to a 935-mile pipeline to the Black Sea that the Russian government has declined for years to expand.
Top Banks Paid $1.6 Billion in Excessive Bonuses, U.S. Finds. With the financial system on the verge of collapse in late 2008, a group of troubled banks doled out more than $2 billion in bonuses and other payments to their highest earners. Now, the federal authority on banker pay says that nearly 80 percent of that sum was unmerited. The group includes Wall Street giants like Goldman Sachs, JPMorgan Chase and the American International Group as well as small lenders like Boston Private Financial Holdings. Mr. Feinberg’s report points to companies that he says paid eye-popping amounts or used haphazard criteria for awarding bonuses, the people with knowledge of his findings said, and he has singled out Citigroup as the biggest offender. Even so, Mr. Feinberg has very limited power to reclaim any money. He can use his status as President Obama’s point man on pay to jawbone the companies into reimbursing the government, but he has no legal authority to claw back excessive payouts.
The Institutionalization of the Hedge Fund Industry. The perception has long been that those who invest in hedge funds are high net-worth individuals – the very wealthy. That was largely true when hedge funds first began many years ago, but it is no longer the case. Today, investors in hedge funds are more likely to be institutions such as university endowments, charitable foundations, public and private sector pension funds and sovereign wealth funds.
Rasmussen Reports:
20% Favor Mosque Near Ground Zero, 54% Oppose. Just 20% of U.S. voters favor the building of an Islamic mosque near the Ground Zero site of the World Trade Center in New York City, according to a new Rasmussen Reports national telephone survey. Fifty-four percent (54%) oppose the planned building of a mosque near where Muslim terrorists brought down the skyscrapers by crashing commercial airliners into them on September 11, 2001. Three thousand people died in the incident and related attacks that day.
Politico:
Rangel Trial Looms After Secret Talks Break Down. Thursday’s unexpected announcement that the House ethics committee would begin a trial on ethics charges leveled against Rep. Charlie Rangel (D-N.Y.) came after a secret, months-long effort to settle the case fell apart, according to several sources close to the situation. The negotiations were designed to avoid the extraordinary spectacle of a trial by his peers for Rangel, but they broke down when the parties in the discussions – Republicans and Democrats on the ethics committee, and Rangel himself – couldn’t reach an agreement. Due the sensitive nature of the discussions, no one involved in the talks wanted to openly discuss them, but the conditions for a settlement included a public apology by Rangel for his ethical transgressions in exchange for lesser sanctions against the Harlem Democrat and an end to the case. Republican aides said that Rangel faces the possibility of a formal reprimand by the House or possibly even a censure motion, although Democrats said it was premature to discuss what punishment will be recommended by the ethics committee. One source close to Rangel suggested a compromise still may be reached next week, before the opening steps in the trial get underway.
Climate Bill Blame Game Begins. Eighteen months ago, Barack Obama took office pledging to deal with a “planet in peril.” His party held big majorities in Congress, and the House answered by passing a tough cap-and-trade bill. A massive climate conference in Copenhagen, with Obama at the center of the action, focused the world on the need to address global warming. Then came the nation’s worst-ever environmental disaster, an oil spill in the Gulf that put momentum behind environmentalists and scarred the image of big, polluting industries. Add in a summer of record-high temperatures, and it would seem the stars had been aligned like never before for climate legislation. But by Thursday, the White House’s biggest energy and environmental initiative sat in tatters, relegated to an unknown election-year abyss after Senate Majority Leader Harry Reid said he didn’t yet have 60 votes and would instead move to the lowest hanging energy fruit. The blame game has already begun.
Hispanic GOP Group Backs Arizona Law. A group of Arizona Republicans on Wednesday became the nation’s first Latino organization to back the state’s immigration law, setting the stage for a heated, and potentially emotional, showdown within the Hispanic community. The Arizona Latino Republican Association filed in federal court a motion to intervene with the Department of Justice’s lawsuit against SB 1070, which is being heard in a Phoenix courtroom. The department is arguing that only the federal government has the authority to enact immigration laws.
USA Today:
More Homeowners Get Help Outside of Federal Program. "They're just now aware of what's out there. They don't know about these alternative modifications," says Duran at ClearPoint Credit Counseling Solutions. "They can't sleep, they're very worried. You can hear the tiredness in their voices. It feels so good to me that we're able to get some kind of modification." Despite the attention given to the federal government's $50 billion Home Affordable Modification Program (HAMP), a program to lower monthly mortgage payments for five years, the majority of financially distressed homeowners are getting alternative modifications through their lenders without any government involvement. In 2010, servicers completed more than 800,000 alternative modifications with borrowers, according to Hope Now, a consortium of counseling agencies, servicers and investors. Since its start in spring 2009, HAMP has produced only 389,198 permanent modifications through June.
Reuters:
Hon Hai's 2011 Laptop Shipments Seen Up Over 70%. Hon Hai (2317.TW), Taiwan's biggest electronics parts maker which also assembles PCs for top brands, could see laptop shipments rising over 70 percent next year thanks to bigger orders from HP, two analysts said.Hon Hai Precision Industry Co's laptop PC shipments to Hewlett-Packard Co (HPQ.N) would more than double next year, the analysts said on Friday."Their total (laptop) shipments could reach about 10-12 million units this year. Next year, they should be up more than 70 percent to 20 million, mainly thanks to orders from HP," said one analyst at a local brokerage, who declined to be identified.
SanDisk(SNDK) CEO to Retire at End of 2010, Shares Fall. SanDisk Corp (SNDK) said its co-founder and Chief Executive, Eli Harari, would retire at the end of this year, and a disappointing outlook helped send the shares of the flash memory supplier tumbling 8 percent.
US House Sets China Currency Hearing for September. Democratic leaders in the U.S. House of Representative said on Thursday they will wait until at least September before taking any action on legislation to force China to revalue its currency.
Evening Recommendations Citigroup:
Reiterated Buy on (AMZN), target $165.
Reiterated Buy on (AXP), target $55.
Reiterated Buy on (DO), target $74.
Night Trading
Asian equity indices are +.50% to +1.75% on average.
Asia Ex-Japan Investment Grade CDS Index 121.0 -5.5 basis points.
Asia Pacific Sovereign CDS Index 119.0 -2.5 basis points.
The EU bank stress test results and the (FLEX) annual general meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 108.87 bps -1.23%
European Financial Sector CDS Index 121.55 bps +1.16%
Western Europe Sovereign Debt CDS Index 132.0 bps -1.36%
Emerging Market CDS Index 232.97 bps -3.98%
2-Year Swap Spread 21.0 -2 bps
TED Spread 35.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 237.0 +5 bps
China Import Iron Ore Spot $124.80/Metric Tonne +2.63%
Citi US Economic Surprise Index -36.80 -1.2 points
10-Year TIPS Spread 1.75% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +190 open in Japan
DAX Futures: Indicating -3 open in Germany
Portfolio:
Higher: On gains in my Medical, Retail, Biotech and Technology long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs, despite more negative US economic data. On the positive side, Airline, Road&Rail, Gaming, Bank, Wireless, Steel and Coal stocks are especially strong, rising 4.0%+. Small-cap and cyclical shares are outperforming and the Transports are surging +4.0%. (IYR) has traded well throughout the day. Copper is rising another +2.2%. The European Investment Grade CDS Index is falling -3.5% to 109.42 bps. The AAII % Bulls fell to 32.2 this week, while the % Bears rose to 45.0, which is also a positive. The 10-year yield is rising +5 bps. On the negative side, Education, Food, Hospital and Ag shares are underpeforming. Given the magnitude of today's equity rally and recent bond market strength, I would have expected the 10-year yield to have risen more today. I would not be surprised to see some mild profit-taking in European banks on tomorrow's stress test results. However, it is a big positive that that S&P 500 is finally able to penetrate its 50-day moving average. After any "sell the news" morning weakness tomorrow, I would expect to see stocks rebound into the afternoon. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, diminishing sovereign debt angst and technical buying.
Europe's Services, Manufacturing Growth Accelerates. Growth in Europe’s services and manufacturingindustries unexpectedly accelerated in July as concern over the sovereign-debt crisis eased and an increase in global trade spurred exports. A composite index based on a survey of euro-area purchasing managers in both industries rose to 56.7 from 56 in June, London-based Markit Economics said today. Economists had projected a drop to 55.5, the median of 18 estimates in a Bloomberg survey showed.
China's Banks Face Rising Credit Risks, S&P Says. Chinese banks face rising credit risks and their non-performing loan ratios are likely to climb as the nation’s economy slows and lending for government projects comes due for repayment, according to Standard & Poor’s. It’s “highly likely” that some loans to local government financing vehicles will turn bad over the next few years, S&P said today. Loans to these entities account for about 18 percent to 20 percent of total lending, the rating company said. The banking regulator aims to cap new loans at 7.5 trillion yuan ($1.1 trillion) this year, down 22 percent from 2009, and has told lenders to report risk exposure to local-government financing vehicles by the end of June to prevent a pileup of bad loans. Quality of loans offered last year to support government stimulus is “probably one of the weakest in recent years,” Ryan Tsang, a senior director at S&P, said today in a teleconference. Many of the projects are not commercially viable even if they may benefit the macro economy, he said. Fitch Ratings last week estimated that bank lending in the first half of the year was 28 percent higher than the official 4.6 trillion yuan figure as loans were repackaged into off-balance sheet investment products. The regulator imposed a temporary ban on such “informal securitization” earlier this month, according to Fitch.
Hungary's Survival Without IMF Support Is 'a Myth,' Nomura Says. Hungary won’t be able to access capital markets if it can’t reach agreement with the International Monetary Fund and the European Union on the terms of its bailout loan, Nomura International Plc said.
Jobless Claims in U.S. Increased More Than Forecast. More Americans than projected filed applications for unemployment benefits last week, a sign firings remain elevated even as the economy is expanding. Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The survey median projected claims would climb to 445,000. “Underlying demand for labor is fairly sluggish,” said Omair Sharif, an economist at RBS Securities in Stamford, Connecticut, who had forecast claims would rise to 460,000. “If that continues, it will have an impact on wages and salaries and clearly have some negative implications for consumer spending.” The four-week moving average, a less volatile measure than the weekly figures, climbed to 456,000 last week from 454,750, today’s report showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 3.5 percent in the week ended July 10 from 3.7 percent in the prior week. Thirty-four states and territories reported an increase in claims, while 19 reported a decline.
3M(MMM) Boosts Profit Forecast as Earnings Top Estimates. 3M Co., the maker of stethoscopes and sandpaper, raised its full-year forecast and posted profit that beat analysts’ estimates as sales climbed at all divisions for the third straight quarter. Profit excluding Medicare-related charges will be as much as $5.80 a share this year, up from a maximum of $5.60 forecast in April, the St. Paul, Minnesota-based company said today in a statement. Analysts had predicted $5.64, the average of 16 estimates compiled by Bloomberg.
Caterpillar Raises Forecast as Profit Tops Estimates. Caterpillar Inc., the world’s largest maker of construction equipment, raised its full-year earnings forecast and posted second-quarter profit that topped analysts’ estimates as demand rose in developing countries. Full-year earnings may be $3.15 to $3.85 a share, more than its April forecast of $2.50 to $3.25, the Peoria, Illinois-based company said in a statement today. The average estimate was $3.27 in a Bloomberg survey of analysts. Second-quarter profit was $1.09 a share, beating the 84-cent estimate.
Purchases of U.S. Existing Homes Fell in June. Sales of U.S. previously owned homes fell in June for a second month, adding to evidence the market will slump as the effects of a federal tax credit fade. Purchases of existing houses dropped a less-than-forecast 5.1 percent to a 5.37 million annual rate, figures from the National Association of Realtors showed today in Washington. The number of transactions will be “very low” in coming months, reflecting the end of the government incentive, the group’s chief economist said in a news conference. The median price increased 1 percent to $183,700 from $181,800 in June 2009. The number of previously owned homes on the market climbed 2.5 percent to 3.99 million. At the current sales pace, it would take 8.9 months to sell those houses compared, the most since August 2009. The supply is likely to jump to 10 or more in coming months as sales slow, said Lawrence Yun, the group’s chief economist. Foreclosures and short-sales are boosting the so-called shadow inventory, and competing with owners trying to sell properties. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
Hamptons Home Sales Jump as Wall Street Buyers Return. Hamptons, New York, home sales more than doubled in the second quarter from a year earlier, solidifying a turnaround after two years of Wall Street reluctance to splurge on beachfront property. Transactions climbed to 479 in the towns on Long Island’s East End, the second-biggest jump in at least a decade of record keeping. Larger, more expensive homes boosted the median price 17 percent to $900,000, New York-based appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today.
Feinberg Said to Cite 17 Companies for Unwarranted Payments. Kenneth Feinberg, the Obama administration’s special master on executive compensation, will cite 17 bailed-out companies for making unwarranted or ill- advised payments to executives during the financial crisis, a person with knowledge of the matter said. Almost all the firms Feinberg plans to disclose tomorrow are banks, said the person, who declined to be identified because the findings haven’t been released. Feinberg has been reviewing pay at 419 companies covering the period from October 2008, when U.S. government bailout money was first awarded, to February 2009, when President Barack Obama signed economic stimulus legislation that included executive-pay curbs.
Wall Street Journal:
Five of Six Greek Banks Seen Passing Stress Test. Greece's leading private lenders are expected to pass an upcoming health check of Europe's banking sector, but questions remain over whether one of two state-controlled banks being tested may be forced to seek new capital under a worst-case scenario. The so-called stress tests, the results of which are due Friday at noon ET, are being conducted by Europe's banking regulators on 91 European banks, including six Greek lenders, to see how the banks would fare in the event of an economic slowdown or sovereign loan default.
Bill Would Make Half of All Cars Electric by 2030. The bill approved by the committee would allocate about $3.9 billion over 10 years toward building infrastructure for charging electric vehicles, continuing their development and for incentives to encourage consumers to buy battery-powered cars. The goal is to electrify half the country’s cars and trucks by 2030, which could reduce demand for oil in the U.S. by as much as one-third. The legislation, which passed 19-4 in favor, was one of several bills cleared by the committee that could become part of a larger energy and climate bill. The committee also approved a bill that would provide incentives for homeowners and businesses to install solar energy systems.
CNBC:
30-Year Mortgage Rate Falls to New Low. Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.56 percent for the week ended July 22, down from the previous week's 4.57 percent and its year-ago level of 5.20 percent, according to the survey.
NY Post:
Comcast's(CMCSA) No. 4 Claim Surprises. Comcast, General Electric and NBC Universal claim their new joint venture entity won't dominate the TV market -- declaring it ranks fourth among media companies in terms of its advertising and affiliate revenue. The proposed $28 billion entity will have only a 12 percent share of advertising and affiliate revenue in the national cable market -- and will sit behind Disney, Time Warner and Viacom and only just ahead of News Corp. (owner of The Post), Comcast claimed in a 327-page filing with the Federal Communications Commission in response to the regulator's request for information.
Barr Wins Support as Consumer Watchdog. Assistant Treasury Secretary Michael Barr appears to have the inside track as the candidate to lead the new consumer-oriented watchdog -- a key post established as part of new regulatory measures to clean up Wall Street. As the financial regulation was signed into law by President Obama, many Washington and Wall Street sources voiced their support for a Barr nomination. One Washington insider said Obama is expected to select a nominee for the consumer post within the next two weeks -- one of his first moves after signing off on the historic law. Barr's name is emerging as a candidate amid growing opposition to brainy Harvard law professor Elizabeth Warren-- a front-runner in the early going to run the Consumer Financial Protection Bureau. Praised by fans as a sharp-tongued advocate for average people, critics believe Warren could create divisiveness in Washington due to her tendency to pursue philosophical objectives like a personal crusade, according to one source. "We need someone who is going to be a traffic cop for consumers, not someone who is going to try and become an urban planner," said Rep. Mike McMahon (D-SI), who attended the president's signing.
O's Jobs Errors. The White House last year released a supposedly sci entific analysis that claimed to show that adopting the "stimulus" bill would cut unemployment. Indeed, the report specifically estimated that the unemployment rate today would be down to 7.5 percent. Something obviously went wrong. The actual unemployment rate is 9.5 percent, a statistic that doesn't include the millions who've given up looking for work or can only find part-time jobs. What were President Obama's biggest mistakes?
Brewing Coup Against Microsoft(MSFT) CEO. Senior Microsoft executives, disenchanted with the company's stagnant stock, have been secretly discussing how to kick Chief Steve Ballmer, and maybe the board, to the curb.
Dealbreaker:
Attention New York Hedge Fund Managers: Jodi Rell Wants a Piece of You. As you may have heard, Albany is currently debating whether or not to lay a $50 million tax upon the asses of certain hedge fund managers. Though nothing is set it stone yet, said managers are none too pleased with the proposal and have aired their grievances in public. Sensing friction on the home-front, Connecticut Governor Jodi Rell has jumped all over the situation. Earlier this month she conveyed, in her own words, a “simple yet heartfelt message” (which was “Connecticut welcomes you”) and now she’s hoping to win the boys over with raw meat, having invited Timothy Selby, president of the New York Hedge Fund Roundtable, and all of his friends, to an “intimate” steak dinner.
Onward Toward an Entitlement Society. Are we, by having the government doing so much to help everyone, encouraging an entitlement mentality in this country that is making problems worse? In my view, we are already well along this troubling road. Consider:
Politico:
Obama's Words Sting CEOs. In the eyes of corporate America, President Barack Obama relied on a healthy dose of industry-bashing to sway votes in Congress for health reform and the new Wall Street regulations signed into law Wednesday. Now those efforts threaten to undermine the one agenda item essential to Democrats’ hopes in the midterms and Obama’s chances for reelection: turning around an economy still just a half step out of recession. Some corporate leaders said Obama’s comments prove that he’s hostile to business. Others cited corporate fears of a credit crunch as banks comply with financial reform or the possibility of significant tax hikes if the Bush administration tax cuts are allowed to expire. But it all adds up to a lack of confidence in Obama among some in corporate America — and that’s fueling a reluctance among executives from Wall Street to Main Street to deploy their large cash reserves to make new investments and hire new workers.
Boxer: "We don't have the 60 votes." Senate Majority Leader Harry Reid appears set to punt on a controversial climate proposal while moving to the floor next week with a more limited bipartisan bill that responds to the Gulf of Mexico oil spill and contains other more popular energy items, according to aides and senators.
Reuters:
U.S. Senate Asking BP(BP) CEO to Testify on Lockerbie. A U.S. Senate panel is inviting BP Plc (BP) chief executive Tony Hayward to testify next week at a hearing on the release of the Lockerbie bomber, a Senate source told Reuters on Wednesday. The Senate Foreign Relations Committee also is requesting testimony from Mark Allen, who has served as an advisor to BP, said the source, who asked not to be named.
Trichet Calls for Global Tightening. Public spending cuts and tax increases should be imposed immediately across the industrialised world as evidence of a healthy European recovery mounts, according to Jean-Claude Trichet, president of the European Central Bank. In a strident article for the Financial Times, Mr Trichet argues that policymakers who want to prolong the stimulus are mistaken and that cutting borrowing would have “very limited” effects on growth. The view from Europe’s senior economic policymaker contrasts with continued US demands for fiscal tightening to be delayed at least until 2011 and suggests there is still little agreement over the best way to foster a strong global recovery from the financial and economic crisis of the past two years. Firing a shot at the US administration and the International Monetary Fund, Mr Trichet criticises last year’s global push for budgetary stimulus. “With the benefit of hindsight, we see how unfortunate was the oversimplified message of fiscal stimulus given to all industrial economies under the motto: ‘stimulate’, ‘activate’, ‘spend’.”
Globe and Mail:
GM Turns to Subprime. General Motors Co.'s decision to buy AmeriCredit Corp. (ACF-N24.014.3121.88%) is getting some traction among observers on Thursday. No, it's not the price tag of the deal, at $3.5-billion (U.S.). Nor is it the perplexing move by GM to expand into auto financing so soon after selling its GMAC financial division in 2006. Rather, it's because the deal will give GM the ability to give subprime loans to prospective car buyers. Yes, subprime: the dirty word that got the U.S. economy into big trouble earlier this decade, at least in its application to the real estate sector.
DigiTimes:
Strong iPad, iPhone Demand Causing Tight Touch Panel Supply. Strong channel demand for Apple's iPad and iPhone has resulted in tight supply of touch panels, and with the IT market entering the third quarter, the traditional peak season, the pressure is expected to continue rising, according to sources with touch panel suppliers. The sources said suppliers are now trying to increase output by improving yield rates. They are also expanding their production lines, with the new capacities expected to go online at the end of third quarter and in the fourth quarter, the sources said, adding that their overall capacities will still not be sufficient to satisfy all demand, market sources added.
