Evening Headlines
Bloomberg:
- Samsung Posts Record Operating Profit on Chip Prices. Samsung Electronics Co., Asia's biggest maker of semiconductors, flat screens and mobile phones, posted record profit last quarter, fueled by a recovery in demand for computer-memory chips that drove up prices. Second-quarter operating income jumped 87 percent to 5 trillion won ($4.1 billion), plus or minus 200 billion won, from 2.67 trillion won a year earlier, the Suwon, South Korea-based company said in a statement today. Sales increased about 14 percent, it said. Profit beat the 4.74 trillion won average of 14 analyst estimates compiled by Bloomberg. The higher earnings may help Samsung fund a record 18 trillion won capital spending plan to widen its lead over Micron Technology Inc. and Hynix Semiconductor Inc. The Dramexchange Index, which tracks prices of the most widely used computer- memory chips, rose 9.3 percent this year as the global economic recovery spurred demand for electronics, lifting earnings for chipmakers.
- Lumber Falls Most Allowed on Declining Construction Demand, Ample Supplies. Lumber fell the most allowed by the Chicago Mercantile Exchange on declining construction in the U.S. and Canada and speculation that wood processors will not curb production, adding to already ample supplies. The value of Canadian building permits tumbled more than five times as much as expected, falling 11 percent, because of drops in single-family houses and commercial buildings, Statistics Canada said today. Economist surveyed by Bloomberg News expected a 2 percent drop. “We’re not seeing anything good on the housing-demand side, and people are nervous about how much production there is out there,” said Paul Quinn, an analyst at RBC Capital Markets in Vancouver. “I see us staying in this $180 to $220 range for a while until get some direction in the housing market.” Lumber futures for September delivery fell the limit of $10, or 4.6 percent, to $209.40 per 1,000 board feet in Chicago. Lumber has plunged 38 percent since its 12-month high on April 21 on sluggish demand for building materials.
- Bartels Abandons Bullish Forecast for Stocks in U.S.: Technical Analysis. Mary Ann Bartels, the Bank of America Corp. analyst who had forecast the Standard & Poor’s 500 Index to rise to 1,300 this year, reversed her bullish call and said stocks may extend their biggest decline since the rally began. Bartels, ranked second among analysts who study price charts in Institutional Investor magazine’s most recent survey, shifted her view after the S&P 500 last week broke the February intraday low of 1,044.50 on increased volume while its 50-day moving average fell below the 200-day average in a so-called “dark cross.” The benchmark may sink as low as 950 and that “would fit with an economic slowdown scenario.” Should the market fail to stay above 950, Bartels said, the S&P 500 may retreat to as low as 869 -- the July 2009 low -- and that would suggest “the market is discounting a potential double dip for the U.S. economy.” Investors should favor “defensive stocks,” or companies whose earnings are less affected by economic swings, such as utility and phone shares, she said.
- Excessive Debt May Push Stocks Down, First State Says. The stimulus-driven global economic recovery is threatened by excessive corporate and government debt that may push global stocks to below their post-credit- crisis lows, said Alistair Thompson of First State Investments. This could occur within the next 18 months, according to Thompson, who co- manages First State’s Asia Pacific (ex-Japan)/Global Emerging Markets fund. First State managed about $126 billion as of December 31, according to its website. The fund is skewed toward “defensive” stocks, he said.
- Ctrip.com(CTRP), Chinese Travel Agencies Tumble on Report Commission Rates Cut. Ctrip.com International Ltd., a consolidator of hotel and airline bookings in China, tumbled in New York after Goldman Sachs Group Inc. said the nation’s three biggest carriers cut commission rates paid to travel agencies. Ctrip.com declined 14 percent to $32.81, the biggest drop since December 2008. eLong Inc., a Chinese web-based travel service company, fell 8.4 percent to $12.
- Revived Push for Drilling Ban. The Obama administration asked a federal appeals court Tuesday to reinstate a moratorium on deepwater petroleum drilling, saying it is needed to reduce the chance of a second spill similar to the one now spewing crude into the Gulf of Mexico.
- The Massachusetts Health-Care 'Train Wreck'. The future of ObamaCare is unfolding here: runaway spending, price controls, even limits on care and medical licensing. President Obama said earlier this year that the health-care bill that Congress passed three months ago is "essentially identical" to the Massachusetts universal coverage plan that then-Gov. Mitt Romney signed into law in 2006. No one but Mr. Romney disagrees. As events are now unfolding, the Massachusetts plan couldn't be a more damning indictment of ObamaCare. The state's universal health-care prototype is growing more dysfunctional by the day, which is the inevitable result of a health system dominated by politics.
- Blackstone Group(BX) Delays Final Close For Mega Fund. Blackstone Group LP (BX) has delayed the final close of its latest mega fund until later this year, hoping to raise more capital, said two people familiar with the matter. The firm was slated to wrap up Blackstone Capital Partners VI LP on June 30, after two and a half years of fund-raising.
- European Governments to Ramp Up Property Sales. Questions of Asset Quality and Disposal Strategies Could Undermine Efforts; a Greek Real-Estate Investment Trust. As debt-laden European governments push in on measures to cut spending and raise funds, a number of countries are preparing to accelerate efforts to sell public property. European countries for years have been selling public assets such as office buildings and residential units in order to raise money. However, the global banking crisis and subsequent recession have caused such a sharp deterioration in public finances that a number of countries—including Germany, the U.K., France and Greece—are expected to sell assets more actively and on a larger scale in the coming years.
- Behold, the Subprime Shmoe. It helps never to have been a household name in the first place, but somebody who perhaps is getting his reputation back is Joseph Cassano. He can thank Phil Angelides. Mr. Cassano ran AIG's Financial Products unit and was creator of the portfolio of credit default swaps that contributed to bringing down the company and necessitating a government bailout. Mr. Cassano, who lived and worked in London, has been the Harry Lime of the subprime drama, invisible, uncommunicative and all the easier to vilify for that reason. His appearance before Financial Crisis Inquiry Commission was his first public surfacing and, lo, he was neither groveling nor defiant. In his written statement, he acknowledged that AIG had been "long" on housing going into the greatest housing meltdown in memory. When quizzed about his compensation, he minced no words: "I made over $300 million during my career at AIG." It helped, of course, that both SEC and Justice Department investigations, which many had expected to expose the ultimate subprime malefactor, recently evaporated overnight, apparently clearing Mr. Cassano of wrongdoing. It doesn't hurt either that it now appears clearer than ever that a big chunk of the losses that doomed AIG were run up by its securities lending operation, not by Mr. Cassano. Most of all, it doesn't hurt that Mr. Angelides is apparently a man with a bone in his teeth. Evidence increasingly suggests that a more shrewdly structured AIG bailout would have been as costless to taxpayers as the bailouts of other large financial institutions ultimately proved to be. Costless, that is, in terms of any long-term cash expenditures, so unlike those world-historical rat holes Fannie and Freddie. But there's another lesson here. If AIG, which before 2008 was mentioned exactly once in the Factiva database in connection with the phrase "too big to fail," proves anything, it proves the folly of pretending that Washington is out of the business of bailing out large financial institutions in an emergency. We can perhaps make such emergencies less likely by correcting some of the system's bad incentives. But that would require a Congress that thinks before it acts. Notice that the Congress we have is busy legislating even as the Angelides commission is months away from completing its work.
- Schonfeld to Fire 50 Traders as Speed Curbs Profits. Schonfeld Group Holdings LLC, the firm founded in 1988 by Steven Schonfeld, plans to fire 50 traders as competitors with computer-driven strategies and linkages between asset prices wipe out potential profits. The cuts represent 15 percent of the staff at the Jericho, New York-based firm’s proprietary trading division, CNBC reported today, citing an e-mail sent last week by Schonfeld. Schonfeld’s employees, who use the firm’s money to wager on securities instead of managing money for clients, are facing competition from companies using high-frequency trading strategies that account for 65 percent of U.S. equities volume, according to data compiled by Aite Group LLC. “There is no doubt that manual point-and-click-type day traders are at a disadvantage,” said Paul Zubulake, a senior analyst at Aite, a Boston-based research firm. “It just is that if you are in a marketplace, especially arbitrage, if you are not trading at a high speed, you cannot compete, you have no chance. A few years ago you could maybe survive by seeing something visual, but now the machine will take out the price inconsistency very quickly.”
- Commodities May Extend Drop on 'Open Gap': Technical Analysis. Commodities may extend the worst slump since 2008 this quarter after an advance in June proved short-lived, Barclays Capital said, citing trading patterns. The Reuters/Jefferies CRB Index of 19 raw materials ended the second quarter with a decline of 5.4 percent, the most since the final three months of 2008, after the first quarter’s 3.5 percent loss. The gauge may fall to 251, compared with 253.80 on July 6, and a break of that level may lead to further declines to near the 2010 low of 247.25 in July, Dhiren Sarin, Barclays’ technical analyst said. “The outlook is bearish for the CRB Index,” London-based Sarin said in an interview. The trend “is likely to remain in play into this quarter as the market is caught within its weekly cloud and is still within a larger bearish channel.”
NY Times:
- Author Is Threatened Over Book on Chinese Premier. A best-selling Chinese author and democracy advocate detained by security agents on Monday said Tuesday that the agents threatened to imprison him if he proceeded with plans to publish a book criticizing , ’s prime minister. The author, Yu Jie, said in a telephone interview that he still intended to publish the book, titled “China’s Best Actor: Wen Jiabao,” by autumn. Because his books are banned in mainland China, Mr. Yu said, he is negotiating with a Hong Kong publisher. Mr. Yu, 36, said he was questioned for four hours on Monday by police officers and agents of Beijing’s public security bureau who specialize in dealing with political dissidents. One security agent “told me that Wen Jiabao is not some ordinary guy,” he said, “and my criticism against him will be considered as harming state security and the national interest.”“ ‘If you insist on publishing this book,’ ” he said he was told, “ ‘you will probably end up like , who suffered imprisonment of many years.’ ” Mr. Liu, another writer and rights activist, was sentenced last December to 11 years in prison after leading a public movement calling for democratic reforms and an end to Communist Party rule.
Zero Hedge:
- US Ends June with $13.2 Trillion in Debt, Adds $210 Billion in Total Debt, On Track to Breach Debt Ceiling in Under Six Months. In case one is wondering why the House Democrats attached a document to the emergency war supplemental bill that "deemed as passed" a non-existent $1.12 trillion budget, which basically allows the ruling party to start spending money for Fiscal Year 2011 without the constraint of an actual budget, here is the answer: on June 30, the US closed the books with just over $13.2 trillion in total debt, an increase of $210 billion in one month, or $2.5 trillion annualized. There is just $1.1 trillion left on the ceiling. As we have long been warning, at the current run rate, the ceiling will be breached in under six months, or just around November 2.
- Job Gloom at All-Time High. More Americans than ever before feel they have no hope of finding a job. A record 1.21 million people want to work, but said they aren't looking because of the weak labor market, according to federal statistics released Friday. The June figure is up from 793,000 a year ago.
- Galleon Wiretap Hearing Casts Shadow Over Insider Trading Investigation Tactics. On July 27, U.S. District Court Judge Richard Holwell will hold a hearing on whether the wiretap evidence at the center of the case against Rajaratnam should be suppressed. It’s a decision that could shape the way white-collar enforcement officials do their job — and how Wall Streeters, in turn, do theirs. “The Department of Justice is increasingly using blue-collar tactics to investigate white-collar cases,” says Frank Razzano, a former assistant U.S. attorney and Securities and Exchange Commission enforcement official who now defends securities clients at Washington law firm Pepper Hamilton. Whereas the feds would once send a gentlemanly subpoena and wait for a suspect to appear with his or her lawyer, FBI agents now get a warrant to rip suspects’ offices apart or camp in their driveways to scare them into talking, says Razzano.
- Why Pelosi, Democrats Are Wrong on Unemployment Extension. I’m no economist, but three things jump out at me:
- Obama to Bypass Senate on CMS Head. The White House announced late Tuesday that President Barack Obama will use a recess appointment to make Donald Berwick administrator of the Centers for Medicare and Medicaid Services, angering Republicans who had opposed his nomination. A Harvard professor and pediatrician, Berwick has won endorsements from most major medical societies. But his nomination has drawn vicious criticism from Republicans, who have seized on his professed admiration for Britain's National Health Service as an "example" for the United States to follow. "This recess appointment is an insult to the American people," said Sen. John Barrasso (R-WY), a physician and leading Berwick opponent. "Dr. Berwick is a self professed supporter of rationing health care and he won't even have to explain his views to the American people in a hearing. Once again, President Obama has made a mockery of his pledge to be accountable and transparent." "It would confirm the obvious, which is the direction in which we're headed," Minority Leader Mitch McConnell (R-Ky.), has previously said of Berwick's nomination. "Massive rationing."
- EU Suggests Raising Retirement Age to 70. The European Union's executive says Europeans should not retire before 70 to save cash-strapped state pension funds. In a paper to be published Wednesday, the European Commission says it now takes four workers' contributions to state pensions to help support two retirees. Lower birth rates and longer life expectancy mean retiring earlier will not be sustainable.
- Airlines Put Mobile Agents with Handheld Devices into Service. Airline agents are increasingly going mobile at airports, with tools in hand to help passengers — and eventually help sell them something.
- Small-Stock Index Russell 2000 in Bear Market. On the outer fringe of the stock market, there's no longer a debate over if we're headed for a bear market. We're already here. The Russell 2000, a key measure of small-company stocks, on Tuesday fell 1.5%, leaving it 20.5% below its recent high in April. While Tuesday's drop was minor, a decline of 20% or more is an attention-grabber because it meets the unofficial definition of a bear market.
- China Commentary Slams U.S. for Steel Suspicions. China's official Xinhua news agency on Tuesday criticised a group of 50 U.S. lawmakers for calling for a probe into Chinese investment in the U.S. steel sector, saying protectionism was rearing its ugly head again. The bipartisan group of U.S. lawmakers pushed for an investigation into whether the Chinese investment in the U.S. steel sector should be blocked on national security grounds.
- Alcon(ACL) to Buy Laser-Surgery Firm LenSx for $362 Mln. U.S. eyecare group Alcon Inc (ACL), which Swiss drugmaker Novartis AG will take over this year, plans to buy laser eye-surgery company LenSx Lasers Inc for $361.5 million.
- Netflix(NFLX) Signs Movie Deal With Relativity Media. Netflix Inc (NFLX) has struck a deal with Relativity Media LLC to screen its movies ahead of pay-TV channels for the first time, putting it in competition with the likes of Time Warner's (TWX) HBO or Showtime.
- Global Investment Bank Earnings Set for Steep Dip. Global investment banking earnings are expected to drop sharply for the second quarter after brutally tough market conditions saw trading commissions dry up and the market for takeovers and initial public offerings freeze. Analysts are predicting that many European banks will see a drop of 50 per cent year on year in sales, trading and advisory revenues from April to June. In the US, the boom in trading commissions that powered earnings in the past year also appears to have ground to a halt. Howard Chen, an analyst at Credit Suisse, expects revenues from operations in fixed income, currency and commodities at Goldman Sachs and Morgan Stanley to have fallen more than 30 per cent from the first three months of the year. Diversified banks like JPMorgan Chase, Bank of America and Citigroup are also expected to have suffered in their securities businesses, although their retail units and the UK retail banks such as Lloyds and Royal Bank of Scotland are likely to show signs of improvement as defaults on credit cards and other loans drop.
- China's Property Market Braces for 30% Drop. Standard Chartered has told clients to prepare for a fall in property prices of up to 30pc in Beijing, Shanghai, Shenzen, and other large cities in China as the delayed effects of monetary tightening begin to bite. Stephen Green, the bank's China economist, said a glut of newly built homes were hitting the market just as buyers are restrained by higher down-payments and curbs on speculation. "We believe developers will be forced to cut prices," he said. Kenneth Rogoff, ex-chief economist for the IMF, told Bloomberg Television in Hong Kong that the denouement could prove abrupt after such a torrid boom. "You're starting to see that collapse in property and it's going to hit the banking system," he said. The government is trying to deflate the housing market gently, mostly using tools known as "financial repression" rather than Western style rate rises. Xu Shaoshi, land minister, said sales are already dropping. "In another quarter's time or so, the property market will probably come to a full correction and prices will fall. It's hard to say to what extent they will fall," he said. China views soaring house prices as a threat to social stability, since workers are shut out of the market. The price-to-earnings ratio is 13 in Beijing and Shanghai, four times Western levels. Charles Dumas from Lombard Street Research said China's boom had been driven by its fiscal stimulus of 13pc of GDP, the largest ever by major country in such a short period. The boost was concentrated in 2009, with credit growth running at 25pc of GDP. "The Chinese had nowhere to put their savings since real interest rates were negative and capital controls stopped them investing abroad, so they bought apartments," he said. Wealthier families often hold three, four, or more properties as a hard asset to store wealth, leaving many vacant. This has disguised the scale of excess inventory. It is unclear what will happen if there is the same sort of investor flight seen already on the Shanghai bourse, which is down 55pc from its peak.
- India Iron Ore Exports Dip 15% in April-June. Slow offtake by Chinese steel mills and decline in spot prices. India’s iron ore exports declined 15 per cent in the first quarter of the financial year 2010-11 on slow offtake by Chinese steel mills. According to an estimate by the industry body, the Federation of Indian Mineral Industries (Fimi), the country’s exports of iron ore slipped to nearly 20.8 million tonnes in the first quarter of the current financial year as compared to 24.5 million tonnes in the corresponding quarter of the previous year.
- Japan Prime Minister Naoto Kan suggested the government may raise income tax for high-income earners. Kan said the tax system's income redistribution needed to be made more effective if the rate of consumption tax was increased. The government is considering raising the 40% rate for income of more than $206,000.
- Chinese dissident Liu Xianbin has been re-arrested on charges of subversion 19 months after he was released from prison for subversion of state power, citing Chen Mingxian, Liu's wife. Liu was taken into custody on June 28th after police raised his home and confiscated his computer and some documents. Liu, 41, a founding member of the China Democracy Party, was sentenced to 13 years in 1999 for subversion of state power.
- Shanghai Home Sales Hit 5-Year Low. New home sales in Shanghai in the first half of 2010 plunged to a five-year low, shrinking 60 percent compared with the same period last year, yicai.com reported Monday. The average price was 20,983 yuan ($3,098) per square meter, up 50.31 percent year-on-year, the report said, citing statistics by Centaline Property.
- China will implement a resource tax in the western regions of the nation on coal, oil and natural gas, citing Permier Wen Jiabao. The tax will be levied based on the sales price of the resources.
Citigroup:
- Reiterated Buy on (ACL), target $165.
- Reiterated Buy on (CLF), target $87.
- Asian equity indices are -1.0% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 138.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 133.75 +3.25 basis points.
- S&P 500 futures -.33%.
- NASDAQ 100 futures -.33%.
Earnings of Note
Company/Estimate
- (FDO)/.76
- None of note
- (CLB) 2-for-1
- The Fed's Kocherlakota speaking, weekly retail sales reports and the weekly MBA mortgage applications report could also impact trading today.
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