Evening Headlines
Bloomberg:
- IMF Says Risks to Global Economy Have Risen 'Significantly'. Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” “After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Shinohara said. “The global outlook remains unusually uncertain and downside risks have risen significantly.”
- Greek Default Seen by Almost 75% in Poll Doubtful About Trichet. Global investors have little confidence in Europe’s efforts to contain its debt crisis or in European Central Bank President Jean-Claude Trichet, with 73 percent calling a default by Greece likely. Only 23 percent say they expect the region’s almost $1 trillion rescue package to both keep the European monetary union together and prevent a debt default by a government, according to a quarterly poll of investors and analysts who are Bloomberg subscribers. More than 40 percent say Greece is likely to abandon the euro. “There is clearly a risk of a breakup of the euro,” says Geoff Marson, managing director at a Guernsey subsidiary of London-based Odey Asset Management, which oversees about $6 billion. Trichet, whose ECB supported the rescue package by buying bonds of Greece and other European governments, saw his approval rating tumble from a January Bloomberg poll. A plurality -- 48 percent -- give the 67-year-old central banker an unfavorable rating in the latest poll, while 41 percent view him favorably. In January, Trichet received a 60 percent approval rating, with 27 percent regarding him negatively. “Trichet has sacrificed the ECB’s independence by helping to rescue Greece,” says Cyril Boudin, a participant in the poll and a derivatives trader at Unicredit Group in London. More than 60 percent of those surveyed say they expect the euro to fall further against the dollar over the next three months. While the European currency may be due for a “corrective bounce” in the short run, “longer term, the market has parity in its sights,” says Marson, who took part in the poll. “This crisis could be a significant step that leads to an eventual breakup of the euro zone,” says William Aston-Reese, vice president of money-market sales at New York-based broker Tradition Asiel Securities Inc. and a poll participant.
- Crude-steel production capacity in South Korea, Asia's fourth-biggest producer, will surge 25% to a record this year as Hyundai Steel Co. adds plants, an industry group forecast. Total capacity may gain by 16 million metric tons to 80.2 million tons from a year ago, the Korea Iron & Steel Association said today.
- Hornbeck(HOS) Sues U.S. to Lift Deepwater Drilling Ban. Hornbeck Offshore Services Inc. sued the U.S. Interior Department to lift the six-month ban on deepwater drilling in the Gulf of Mexico triggered by the deadly explosion of a drilling rig and subsequent oil spill. Hornbeck, whose supply boats serve almost all 33 drilling rigs that were operating in the deepwater gulf, said one customer has already said it will cancel a contract as a result of the moratorium. “There is nothing in the report that suggests OCS drilling is more dangerous today than it was on the day immediately preceding the tragic incident involving the Deepwater Horizon,” Carl Rosenblum, an attorney for the company said in a complaint filed in New Orleans federal court. Hornbeck is seeking an injunction stopping the moratorium. “Hornbeck is suffering immediate irreparable harm,” including the ability to retain trained staff for its vessels and offshore operations, which have been idled by the ban on drilling in waters deeper than 500 feet, according to the complaint.
- Iran Guard Corps Companies Among Targets for UN Council Vote. The United Nations Security Council is set to vote today on a fourth round of sanctions on Iran that target companies controlled by Iran’s Revolutionary Guard Corps, a bank and a top official of the nation’s atomic energy agency.
- Iran Opposition Struggles as Nuclear Wrangle Boosts Ahmadinejad.
- SEC Plans to Seek Circuit Breakers for 'Thousands' of Stocks. U.S. Securities and Exchange Commission Chairman Mary Schapiro said the agency will expand a proposal that would halt trading of stocks after they’ve risen or fallen 10 percent during a five-minute period. The SEC intends to add “thousands” of companies to a plan that would initially affect companies listed on the Standard & Poor’s 500 Index, Schapiro said during a speech today.
- Aussie Faces 'Volatile Ride' as China Bubble May Pop, HSBC Says. The Australian dollar faces a “bumpy and volatile ride” because of the risk that China’s property bubble may deflate, HSBC Plc said as they lowered their year-end forecast for the currency to 85 U.S. cents. The absence of any shocks from China or from Australian banks’ large foreign borrowings could allow the Aussie to climb to $1, said HSBC, which earlier this year had forecast parity. The Aussie could drop to 70 cents if such shocks occur, analysts from HSBC wrote in an e-mailed report.
- India Free-Float Rules May 'Drag' on Stocks, Credit Suisse Says. India may fail to absorb a surging supply of stocks as increased sales “drag” on the market after the government raised the minimum public holding for all companies, Credit Suisse Group AG said. More than 200 companies may need to sell at least $13 billion of shares over the next 12 months, analysts led by Nilesh Jasani wrote in a report. Some $15 billion of equity offerings are already planned, they said. All companies must increase the public holding to at least 25 percent by selling at least 5 percent a year, the government said on June 4. “Implementation could prove to be a substantial drag for the market,” the analysts wrote. “Without a rampant bull market supported by massive unprecedented inflows, the rule- modified primary market demand for funds cannot be met.”
- Washington Wire: Primary Updates.
- Lincoln Bucks Wave Against Incumbents. Arkansas Sen. Blanche Lincoln survived a strong challenge Tuesday from Lt. Gov. Bill Halter in a hard-fought Democratic primary runoff, pulling out a narrow victory on a night when results across the country showed both the power and limits of this year's anti-establishment tide. Ms. Lincoln barely avoided becoming the third senator this year to be defeated by her own party. Labor unions and liberal groups had sought to make an example of Ms. Lincoln for her deviation from liberal positions, putting millions of dollars behind Mr. Halter's challenge. Even with the victory Tuesday, Ms. Lincoln will have a hard fight to avoid succumbing to an anti-incumbent tide that has left its mark across the country this year. She is trailing by double digits in multiple public opinion surveys against her GOP opponent, four-term Rep. John Boozman.
- Lincoln's Win: Support for Derivatives Plan May Firm Up. It’s unclear what Sen. Blanche Lincoln’s victory in the Arkansas Democratic primary will mean for the details of the financial overhaul bill, but it certainly means she will remain a powerful lawmaker in the coming weeks. Many bankers had assumed she would lose her primary. And that, they hoped, would allow lawmakers negotiating a final bill to ditch a provision she wrote that could force banks to spin off derivatives. It’s in the bill that passed the Senate, but not the one that passed the House. With her political stock potentially rising and a seat on the conference committee to finalize details of the bill, she will be in a powerful perch in the days ahead. In fact, her derivatives provision might just have helped her win her primary, so it’s doubtful she’ll be looking to shed it. Her victory might encourage more Democrats to support the provision as a way to send a message to Wall Street that resonates with voters.
- S&P Takes Negative Action On 8 US Oil & Gas Companies. Standards & Poor's Ratings Services took several negative ratings actions, including four downgrades, on eight U.S. oil and gas companies following the U.S. Department of the Interior's extension of the moratorium on drilling permits. The ratings agency said the actions also reflect "our heightened concerns about the burgeoning scope of the Macondo well disaster." S&P's action affect those operating in the Gulf of Mexico, which could be hit by operating disruptions and the flow of oil from the well disaster. S&P said the six-month moratorium affects permits issued for new drilling operations at water depths greater than 500 feet. S&P believes when the moratorium is eventually lifted, there could be extensive delays in issuing new permits due to high initial volume and new safety and operating standards. Uncertainty about the ultimate costs and potential financial liabilities associated with the disaster already resulted in a ratings downgrade for BP on Friday. Tuesday's ratings actions on Transocean and Anadarko Petroleum Corp. (APC) also reflect those concerns. S&P on Tuesday lowered its junk-level ratings on ATP Oil & Gas Corp. (ATPG), Hercules Offshore Inc. (HERO), Helix Energy Solutions Group Inc. (HLX) and Hornbeck Offshore Services Inc. (HOS). ATP's rating was slashed two notches, to highly speculative territory, while the other three ratings were cut by one notch each. Anadarko and Seacor Holdings Inc.'s (CKH) barely investment-grade ratings' outlooks were revised to negative from stable. Transocean and PHI Inc. (PHII), meanwhile, were placed on watch for downgrade. Transocean's rating is at BBB+, or three notches into investment-grade territory, while PHI is four notches into junk, at B+.
- Citadel Veterans Open Up Own Shop. Three Executives From Hedge Fund's Execution-Services Arm Start a Computer-Driven Trading Firm.
- U.S. Hits China With Steel Penalty. In a move that could escalate trade tensions between the U.S. and China, the Department of Commerce found that Chinese drill-pipe makers were selling roughly $200 million of pipes in the U.S. for less than their market value. The ruling, while preliminary, places a 15.7% subsidy on finished and unfinished drill pipe, mainly used for oil and natural gas extraction, coming into U.S. ports beginning Wednesday.
- Teens Face Worst Summer Job Market in 41 Years. Employment among 16-to 19-year olds in May grew by just 6,000, the smallest increase since 1969, when teen jobs fell by 14,000, according to government data analyzed by employment firm Challenger, Gray & Christmas. In May 2008 and 2009, teen employment grew by over 110,000. “It’s certainly a preliminary strong indication that it’s going to be a tough job market for teens,” said John Challenger, CEO of Challenger, Gray & Christmas.
- Texas Instruments(TXN): High End of Quarterly Outlook Likely.
- Boutique Investment Bank Fills The Void Left By Exit Of Big Guns. Evercore Partners (EVR) has flourished in this somewhat neglected domain.
- The Blog Prophet of Euro Zone Doom. For years, almost nobody paid attention to the sky-is-falling alarms of Edward Hugh, a gregarious British blogger and self-taught economist who repeatedly predicted that zone could not survive. Living a largely hand-to-mouth existence here on his part-time teacher’s salary, he sent one post after another into the Internet wilderness. It was the height of policy folly, he warned, to think that aging, penny-pinching Germans could successfully coexist under one currency umbrella with the more youthful, credit-card-wielding Irish, Greeks and Spaniards who shared the euro with them. But now that the European sovereign debt crisis is rattling world markets, driving the euro lower almost every day and raising doubts about the future of the monetary union, his voluminous musings have become a must-read for an influential and growing global audience, including policy makers in the White House.
- BP(BP) Expresses Extreme Confidence About Latest Leak Fix, Says Flow Will Slow To A "Trickle".
- Google(GOOG): Here's Why Our New Search Engine "Caffine" Is So Amazing.
- Taylor Energy Denies Significant Gulf Leak, Says Photos From Unidentified Aircraft Were Misleading.
- Beware of Falling Prices. Lumber prices are sinking. And while that might make a trip to Home Depot cheaper, it's also a sign that the global economic recovery and the U.S. housing rebound are in danger of stalling.
- Medicaid: States' $24 Billion Black Hole. Governors and state lawmakers are anxiously waiting to see whether Congress will send them another $24 billion to help cover their ever-expanding Medicaid rolls.
Atlanta Journal Constitution:
- Enough of It! Stop the Federal Spending Spree. Runaway federal spending has emerged as the chief issue on the minds of voters heading into the fall election season — and for good reason. In 2000, the federal government spent $1.8 trillion while debt held by the public stood at $3.4 trillion. A mere decade later, the federal government is on pace to spend $3.7 trillion while publicly held debt is approaching $10 trillion. There’s no blame game left to be played. President George W. Bush left office having presided over one of the largest expansions of federal spending in history. President Barack Obama appears intent on pulling off the amazing feat of making Bush look like a relative tightwad.
- The More We Learn, The Worse It Gets. The truth is, the more we learn about ObamaCare, the worse it gets. It’s filled with budgetary gimmicks and flawed assumptions that will bankrupt the U.S. treasury. Its taxes will force deep cuts in employment in the medical device and other industries. Restaurants and other employers will have strong incentives to avoid hiring workers from low income households in order to lessen the burden from the law’s mandates and penalties. It will disrupt insurance for millions of Americans who are perfectly happy with the coverage they have today. And the government’s clumsy cost-cutting efforts will undermine the quality of American medicine. Most Americans already instinctively understand all of this. But it’s also clear that the administration and its allies will spend millions trying to persuade them that up is down when it comes to health care. We have launched this web site to set the record straight. ObamaCareWatch.org pulls together all of the best evidence and analysis about the legislation, as well as relevant news items and commentary, in an accessible and searchable format for anyone to use as they need to. Our aim is to provide Americans with the facts so that they can hold those who sponsored and passed ObamaCare accountable for what they have done.
- How Senator Dodd Empowered Fed to Assume AIG's(AIG) Toxic Assets. A little noticed 1991 amendment to a Depression-era law, written by a securities industry lawyer and pushed by Sen. Christopher Dodd, D-Conn., allowed AIG to post tens of billions of dollars in shaky mortgage securities as collateral for taxpayer loans. In rescuing the insurance giant and several Wall Street firms in the fall of 2008, top government officials wrestled with how to deal with so-called "toxic" securities tied to the risky home loans at the root of the subprime mortgage meltdown. Their solution, amounting to a transfer of about $90 billion in mostly subprime mortgage securities from major financial institutions to American taxpayers, is likely to remain one of the most controversial aspects of the massive federal response to the crisis. Critics contend that the Federal Reserve Bank of New York failed to protect taxpayers sufficiently when it paid $29 billion for toxic assets in saving the foundering investment house Bear Stearns and about $60 billion to settle AIG's liabilities for investments in subprime mortgage securities. The Fed wound up lending $43.8 billion to take possession of those securities. William Ford, a former president of the Federal Reserve Bank of Atlanta, voiced support for senior Fed officials' decisions to serve as a lender of last resort in the heat of the crisis, but called it "dangerous" to accept subprime mortgage securities as collateral. A government watchdog says that the Fed engaged in a bit of legerdemain to make it appear that taxpayers have profited from the toxic securities. The amendment to Section 13(3) of the Federal Reserve Act allows the Fed to accept any collateral to its "satisfaction" for loans to "non-banks" such as AIG, as opposed to typical Fed loans to banks requiring investment-grade collateral. One person who was present during the legislative process, but declined to be identified for fear of damaging relationships, called it "fascinating, the whole way this thing gets slipped in. No one really understood what was happening, and boom, it's in the law." Rodgin Cohen, a prominent Wall Street lawyer, said he drafted the amendment, with help from others. While he's represented Goldman Sachs(GS) and AIG for years, Cohen said he wasn't acting on a client's behalf. Dodd, who's retiring from Congress this year, received $41,625 in campaign donations in 1991 and 1992 from Goldman Sachs, Bear Stearns, J.P. Morgan and three other big Wall Street firms that would benefit from the 2008 bailout. Since then, those banks donated another $883,800 to his political committees, according to Federal Election Commission records.
- Patrick Plans for Possible $800 Million Cut in Massachusetts State Budget. Governor Deval Patrick's administration today announced a broad plan to slice more than $800 million from next year's state budget if anticipated federal funding doesn't come through, proposing cuts across nearly every aspect of state government. Only the local aid Beacon Hill sends to cities and towns would be protected, preserving a priority Patrick has set as he campaigns for re-election. Patrick, the House, and the Senate all built into their spending plans for next fiscal year money the state expected to get through a federal stimulus program that boosts Medicaid reimbursements, which frees up money to fill other budget gaps. But Congress has so far failed to extend the program past Dec. 31, leaving the funds in doubt. Massachusetts is one of about 30 states depending on a six-month extension to help ease the effects of the economic crisis on its budget, but some in Congress worry the increase in spending will further swell the federal budget deficit.
Big Government.com:
- Congressman Issa to Investigate Paulson, Center for Responsible Lending. On April 22nd we published an article entitled IndyMac Attack: Did Schumer, Paulson, Soros, and the CRL Kill the Bank and Profit From Its Collapse? We summarized the story as follows:
- Goldman(GS)-Basis Talks Look to be Breaking Down: Source. Goldman Sachs Group Inc (GS) may be looking at a new legal headache as settlement talks with an Australian hedge fund that invested $100 million in a now toxic mortgage-linked security appear to be breaking down, a source said. Lawyers working for the Basis Yield Alpha Fund could file a lawsuit against Goldman over the transaction -- called Timberwolf -- as early as Wednesday if a deal is not reached, said a person familiar with the situation. Negotiations between Goldman and Basis began months ago, but have heated up in the wake of a lawsuit filed by the U.S. Securities and Exchange Commission against Goldman over another subprime mortgage-linked security.
- Australia Mining Tax Hits Projects. Aluminum Corp of China (Chalco) could be forced to call off its $2.5 billion Aurukun bauxite and alumina refining projects in Australia if a proposed mining tax is introduced, the Australian Financial Review reported.
- Fed's Hoenig Again Calls for Hike in Interest Rates.
- Airlines Attack 'Cash-Grab' German Tax. Airlines reacted furiously to plans announced by Angela Merkel, the German Chancellor, to raise €1 billion from a new “eco tax” on aviation. Lufthansa said it was a “black day” for the sector, while the industry’s trade association denounced it as a “cash grab” and a “kick in the teeth” for airlines and passengers alike.
- BP(BP) Oil Spill Fears Hit North Sea as Norway Bans Drilling. Norway has banned new deepwater oil drilling in the North Sea amid in a sign that panic over BP's Gulf of Mexico spill is spreading.
- The French government plans to introduce a tax on individuals earning more than 11,000 euros a month to help finance the country's pension system, citing government officials.
- U.S. Cautious About U.N. Condemnation of N. Korea Amid Reluctant China. The United States Tuesday was cautious about how to punish North Korea for the torpedoeing of a South Korean warship amid China's lukewarm position on further sanctions on its communist ally.
- South Korean President Lee Myung Bak said "tangible" actions need to be taken against North Korea related to the sinking of a warship, citing participants in a defense policy advisory committee meeting.
- Wharf (Holdings) Ltd. expects revenue from home sales in China to decline this year as the government tries to curb speculation in the property market, Peter Woo, the company's chairman, said. The developer, which owns Times Square complexes in mainland cities including Shanghai, Dalian and Wuhan, said housing prices in China may drop 20% to 30% this year.
- Beijing Worried Over ABC Flotation. Not Enough Interest Seen in Bank's IPO. The central government is getting cold feet over the Agricultural Bank of China's planned US$20 billion share sale, two people involved in the offering said. China's Ministery of Finance and Central Huijin Investment Co., the two main shareholders of the Agricultural Bank of China, want the lender to delay a planned share sale in Hong Kong on concern there isn't enough interest, citing two people involved in the offering.
- Shanghai Greenland Group Co. plans to cut prices at its 100 property developments in 41 Chinese cities, citing the company. The developer's sales in Shanghai fell to about 7,000 square meters last month from 32,700 square meters in April, citing Lu Qiling, an analyst at Shanghai Uwin Real Estate Information Services Co.
Citigroup:
- Reiterated Buy on (BEN), target $132.
- Upgraded (MDRX) to Overweight, target $24.
- Asian indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 148.0 +.5 basis point.
- S&P 500 futures -.25%.
- NASDAQ 100 futures -.18%.
Earnings of Note
Company/Estimate
- (CIEN)/-.17
- (BF/B)/.53
- (MW)/.14
- (ALOG)/.31
- (SHFL)/.10
- (TITN)/.09
- (THO)/.60
- (KFY)/.13
10:00 am EST
- Wholesale Inventories for April are estimated to rise +.5% versus a +.4% gain in March.
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -900,000 barrels versus a -1,902,000 barrel decrease the prior week. Gasoline supplies are estimated to fall by -500,000 barrels versus a -2,647,000 barrel decline the prior week. Distillate inventories are expected to rise by +500,000 barrels versus a +445,000 barrel increase the prior week.
- The Fed's Beige Book.
- (DHR) 2-for-1
- The Fed's Bernanke speaking, $21 Bln 10-Year Treasury Note Auction, weekly MBA mortgage applications report, (ECPG) investor day, Jefferies Life Sciences Conference, UBS Tech/Services Conference, RBC Tech/Media/Communications Conference, JPMorgan Diversified Industries Conference, Piper Consumer Conference, BofA Merrill Small/Mid Cap Conference and the Needham Healthcare Conference could also impact trading today.
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