U.S. Says 'Not at All Clear' Speeding Up Dealer Closings Needed. A U.S. review of the Obama adminstration’s order to accelerate closing of General Motors Co. and Chrysler Group LLC car delalerships concluded it’s “not at all clear” the action was necessary for the carmakers. “It is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downtowns in our nation’s history was either necessary for the sake of the companies’ economic survival or prudent for the sake of the nation’s economic recovery,” the Treasury’s inspector general for the U.S. financial bailout said today in a report. “Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls -- all based on a theory and without sufficient consideration of the decisions’ broader economic impact,” the report said.
BP(BP) May Keep Macondo Oil Well Shut Until Final Kill. BP Plc’s use of a tight-fitting cap to shut off oil flowing from its Gulf of Mexico Macondo well may be the solution the company has sought since the undersea gusher was triggered by an explosion three months ago. “We are pleased that no oil is currently being released into the Gulf of Mexico and want to take all appropriate action to keep it that way,” National Incident Commander Thad Allen said in a statement today. Three days of tests on the capped gusher have so far shown no problems that would prompt BP to reopen the well, Doug Suttles, chief operating officer for exploration and production for BP, said today in a conference call from Houston.
BP's(BP) Prudhoe Bay Sale Talks to Apache(APA) Said to Stall on Price, Liabilities. BP Plc’s talks to sell half its stake in Alaska’s Prudhoe Bay oil field to Apache Corp. stalled twice over the weekend, raising doubts about whether the deal will be completed, said a person with knowledge of the matter. Talks between BP and Apache faltered late in the evening on July 16 before resuming Saturday. They hit a snag again early yesterday over issues ranging from the valuation of the deal to how current and future legal liabilities will be addressed, the person said.
U.S. Treasury Devises Plan for Boards of Weak Banks. The Treasury Department is working on a system for appointing board members to government-supported banks that have fallen behind on dividend payments to taxpayers, as more banks are running into such problems. The banks whose boards are in play are participants in the Troubled Asset Relief Program, the federal government program established in 2008 to help financial and other firms during the financial crisis. Under TARP terms, banks receiving taxpayer loans must pay quarterly dividends to the Treasury; if a bank misses six payments, the Treasury may appoint two members to its board.
A Climate Absolution?The alarmists still won't separate science from politics.The latest study purporting to absolve the scientists involved in November's Climategate scandal was published this month. On predictable cue, we received a letter from our admirers at the United Nations Foundation and the Natural Resources Defense Council urging us to "set the record straight" on "these bogus scandals." Having devoted considerable space to Climategate, we're happy to do that, though not perhaps as our admirers would want.
Deutsche CEO: West's Levies on Banks May Lift Asia's Role. Asia's already rising importance as a profit center for financial services could gain more momentum as governments in the U.S. and Europe levy new taxes on global banking profits, according to Deutsche Bank AG Chief Executive Josef Ackermann. "The relative importance of Asia will even increase" as a result of regulatory moves against banks in the West, Dr. Ackermann said in an interview with The Wall Street Journal. "Asian countries would be well advised not to copy levies which are so popular in many other parts of the world."
Small Bank in Germany Tied to Iran Nuclear Effort. As the international sanctions noose tightens around Iran's nuclear program, Tehran is increasingly relying on a small, Iranian-owned bank in Germany to conduct business on behalf of the regime's blacklisted companies, Western officials say.
Rig's Final Hours Probed. Spill Investigators Focus on 20 'Anomalies' Aboard Doomed Deepwater Horizon.
GOP Sees Path to Control of Senate. Democrats for the first time are acknowledging that Republicans could retake the Senate this November if everything falls into place for the GOP, less than two years after Democrats held a daunting 60-seat majority. Leaders of both parties have believed for months that Republicans could win the House, where every lawmaker faces re-election. But a change of party control in the Senate, where only a third of the members are running and Republicans must capture 10 seats, seemed out of the question. That's no longer the case.
Bloomberg Businessweek:
Hedge Funds Raise Bull Oil Bets Most Since 2007: Energy Markets. Hedge funds and other large speculators raised bets that oil would gain by the most in more than three years just as it began to slide, the second straight week money managers lined up on the wrong side of the market. So-called net long positions on the New York Mercantile Exchange rose 67 percent the week ended July 13, the most since February 2007, according to the weekly Commitments of Traders report from the Commodity Futures Trading Commission. Oil fell on four out of five days on the Nymex last week, ending down 0.1 percent at $76.01 a barrel as of July 16.
CFOs Pick Dollar Bonds as Faith in Euro Wanes: Credit Markets. European borrowers are selling more of their bonds in dollars than at any time since the euro’s record low in 2000 as issuers lose faith in the common currency. Companies in Western Europe sold $162.8 billion of bonds in dollars this year, 24 percent of their total issuance and up from 16 percent in 2009, according to data compiled by Bloomberg. Euro-denominated sales fell to 63 percent from 68 percent, the lowest share since 2007 and below the average of the past decade.
Dubai Developers Face Refinancing Risk, Fitch Says. Dubai’s property companies may face significant refinancing risks as the emirate’s real estate market will likely remain under pressure until at least 2012- 2013, Fitch Ratings said. The property industry “is likely to see a period of stagnant growth at best and a double-dip contraction at worst,” Bashar al-Natoor, director at Fitch’s Europe Middle East Africa corporates team wrote in a note e-mailed today. Property prices in Dubai fell by 55 percent since mid-2008 mainly because of the financial crisis, prompting some foreign homeowners to stop paying off mortgages and leave the country. Some analysts expect property prices to dip another 20 percent to 40 percent.
Euro's Gain Hurts Exports as Spain Sweats Major Rally. The euro’s biggest rally in a year is threatening exporters in Europe’s weakest economies as they grow more reliant on international sales for growth. The 8.5 percent gain to $1.2890 from a four-year low on June 7 reduced speculation that the region’s debt crisis would break up the single currency. At the same time, the head of Spain’s Exporters Club says the stronger euro will make it harder to counter a “paralyzed” domestic market.
IMF to Seek $250 Billion Boost in Its Lending Resources at G-20. The International Monetary Fund is seeking a boost in its lending resources to $1 trillion, from the current $750 billion, at a Group of 20 summit in South Korea in November, according to a Korean government official.
CNBC:
IMF and EU Suspend Talks With Hungary. The IMF and EU suspended on Saturday a review of Hungary's funding program, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.
Banks Seek to Keep Profits as New Oversight Rules Loom. In ways large and small, the broad overhaul of the nation’s financial regulatory system that was approved by Congress on Thursday will eat into the profits of the nation’s banks. So after spending many millions of dollars to lobby against the legislation, bankers are now turning to Plan B: Adapting to the rules and turning them to their advantage.
NY Times:
Wealthy Reduce Buying in a Blow to the Recovery. The economic recovery has been helped in large part by the spending of the most affluent. Now, even the rich appear to be tightening their belts.
Insurers Push Plans That Limit Choice of Doctor. That could come as a surprise to many who remember the repeated assurances from President Obama and other officials that consumers would retain a variety of health-care choices.
Iran's President Renews Pressure on Conservatives. Having successfully suppressed the opposition uprising that followed last summer’s disputed presidential election, President Mahmoud Ahmadinejad and his supporters are now renewing their efforts to marginalize another rival group — Iran’s traditional conservatives.
John Paulson Puts His Legend to the Test. It's tough to be the king. John Paulson, current monarch of hedge funds, is having a challenging year, according to recent press reports. Bloomberg News recently reported that Paulson's $9 billion Advantage fund was down 5.8% in the first six months of the year. His Advantage Plus fund was down 8.8%. And while his Recovery fund was reportedly up through June, it suffered a 12.4% decline that month. The lone bright spot: his gold fund, up 13% for the year.
North Korea Gloating Over Ship Sinking With New Propaganda Poster. (pic) The poster, reads, “We will smash you with a single blow if you attack!” Photographed by a Chinese businessman visiting North Korea, the poster may be from a previously conflict, but is nevertheless being circulated in the country now. The split of the boat is similar to how the Cheonan was destroyed, according to a military analyst speaking to Radio Free Asia.
Zero Hedge:
John Taylor Says The Euro Is Like a "Headless Chicken", States Prop Trading Makes Up 80% of Goldman's(GS) Revenue. John Taylor is his usual painfully forthright, objective and candid self in this must read Capital.de interview in which he analyzes the prospects before Europe (not good), and compares the Euro to a "chicken, with a severed head running across the yard before it dies." Taylor believes that so long as Europe continues to exist in its make believe monetary never-never land, any efforts to bring some form of fiscal rationality in the form of austerity, will be undermined by the continuing lies on the monetary and financial stability fronts.
Washington Post:
Timothy Geithner's Realm Grows With Passage of Financial Regulatory Reform. Half a year after some predicted he would be booted from the Obama administration, Treasury Secretary Timothy F. Geithner stands to inherit vast power to shape bank regulations, oversee financial markets and create a consumer protection agency. Few Treasury secretaries have had such sweeping influence over such a wide realm as Geithner will wield once President Obama signs the new financial overhaul legislation passed this week by Congress. The effort to dramatically expand financial regulation bears the stamp of no one more than Geithner. The bill not only hews closely to the initial draft he released last summer but also anoints him -- as long as he remains Treasury secretary -- as the chief of a new council of senior regulators. The legislation also puts him at the head of the new consumer bureau until a director is confirmed by the Senate, allowing Geithner to mold the watchdog in coming months. And it will be up to him to settle a raft of issues left unresolved by the bill -- for instance, which financial derivatives will be subject to the tough new trading rules and which risky activities big banks will be required to spin off.
LA Times:
Office Vacancies Rise, Rents Drop in Southern California Again. An oversupply of space, businesses' reluctance to add costs and landlords' eagerness to keep good tenants leads to some of the cheapest lease rates in years. In the Inland Empire, vacancy tops 25%.
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 27% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
Politico:
GOP Senators: Obama Failing in Oil Clean-Up. Just days after BP temporarily plugged the massive oil leak in the Gulf of Mexico, Senate Republicans on Sunday lashed out at the Obama administration for failing to clean up America's soiled shoreline. Senate Minority Leader Mitch McConnell (R-Ky.) told CNN's "State of the Union" that the administration was suffering from incompetence.
Goldman Sachs(GS) Sets Aside $9 Billion for Pay as Revenues Drop. Goldman Sachs is set to pay as much as 45pc of its 2010 revenues to its staff in a move that is likely to reignite political anger with the investment bank just days after it settled a high-profile fraud case with American regulators. Analysts expect Goldman to say that its closely-watched compensation ratio, which indicates the intended level of staff pay as a proportion of its revenues, is between 40pc and 45pc when it announces its second quarter results this week. Goldman's results will also show for the first time a $600m (£392m) hit for the UK's bonus tax. The bank is estimated to have set aside just over $9bn in pay for its staff in the first half of 2010, working out at an average payout of $235,429 for each of its 38,500 employees for the last six months of work. Goldman bankers are on track to be paid nearly $500,000 each at full year, with senior bankers being paid far more. Although compensation is not paid out until the end of the year, the plans angered investors and politicians. Goldman admitted in a regulatory filing that several investors had demanded an investigation into "alleged excessive compensation" from top earning bankers. The Thompson-Reuters consensus of analysts estimates show an expectation of revenues of $9.1bn for quarter and earnings per share to be $1.98. Consensus estimates had been far higher at around $2.27 per share.
BP bosses meet to decide huge sell-off: £9.5bn of assets could help pay bill for Gulf oil disaster. The embattled board of BP will meet this week to decide the first in a series of massive sell-offs to help pay for the expected £45 billion bill for the oil giant's Gulf of Mexico spill. Thursday's board meeting is expected to approve the sale of assets in Argentina, where it owns 60 per cent of oil company Pan American Energy, a stake worth about £3.5 billion, and oil and gas fields in Vietnam, Colombia and Venezuela with an estimated value of £1 billion. Also likely to be approved for sale will be assets in Alaska's Prudhoe Bay, worth a further £5 billion.
Welt am Sonntag:
German Finance Minister Wolfgang Schaeuble said he's still working on "tougher, stricter and more efficient" European Union deficit rules and plans to present proposals to the European Council by the end of October, citing an interview. Germany needs to "do everything possible" to avoid questions about exiting the euro, Schaeuble said.
Kenneth Fisher, the billionaire who oversees about $35 billion as head of Fisher Investments Inc., predicts that the S&P 500 and Germany's DAX will be "significantly higher" by the end of next year, he said in an interview.
Welt am Sonntag:
Boeing Co.(BA) CEO Jim McNerney said the company is seeking to deliver the first 787 Dreamliner airplane by the end of this year as planned, citing the CEO in an interview.
ShanghaiDaily.com:
Fewer Buyers Cause Fall in Chinese Car Plate Prices. CAR plate prices in Shanghai dropped for a second consecutive month as the number of bidders fell sharply. The average price for a private car license was down 1,018 yuan (US$150) to 39,362 yuan for July from a month earlier, said Shanghai International Commodity Auction Co. The lowest bid also dropped to 38,400 yuan this month, a decrease of 800 yuan from last month's 39,200 yuan. The government offered 9,000 car plates for auction this month, 200 fewer than in June. This month's auction attracted 13,389 bidders, which was 2,863, or 18 percent, fewer than a month earlier. Before the auction, market observers expected that prices would fall as a slowdown in auto sales had dampened the market demand for car plates. "Auto sales have been quiet recently as it is the non prime sales season with negative impact from a tight control on the property market and sluggish stock market," he said. "But the notable decline in number of bidders was still out of our expectation."The center estimated that there were around 1.3 million vehicles being kept in stockpile, an indication that the industry overall was facing a sales stagnation.
China Daily:
China should impose "direct taxes" on its people, such as personal income tax and real estate tax, to help allocate more funds to low-income groups and narrow the gap between rich and poor, Jia Kang, the head of the Finance Ministry's research institute, wrote today. Jia also called on the government to make budgets more transparent to improve financial allocation.
China Business News:
China will not relax curbs to cool the property market, citing Jiang Weixin, Minister of Housing and Urban-Rural Construction.
China Securities Journal:
The growth of China's exports is expected to slow down to about 16.3% in the second half on removed tax rebates, the European Union's fiscal crisis and other reasons, citing a report from the State Information Center. China's import growth is expected to fall to about 19.3% in the second half because of stabilizing commodities prices and slowing domestic investment demand, citing the report.
dzwww.com:
China's eastern province of Shandong faces an oversupply of oil products, citing the local petroleum and chemical association. The province received 12.2 million metric tons of oil-product supply in the first half. Fuel consumption reached 7.3 million tons during the period, according to the report. Oversupply of oil products in the province will persist in the long term, it said.
Weekend Recommendations Barron's:
Made positive comments on (GOOG), (CNQR), (VFC), (SWY) and (GS).
Citigroup:
Reiterated Buy on (CHKP), target $40.
Night Trading
Asian indices are -1.0% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 137.0 +11.0 basis points.
Asia Pacific Sovereign CDS Index 131.5 +10.5 basis points.
The NAHB Housing Market Index for July is estimated to fall to 16 versus a reading of 17 in June.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Duke Speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.
North American Investment Grade CDS Index 110.61 bps +.28%
European Financial Sector CDS Index 126.20 bps +2.16%
Western Europe Sovereign Debt CDS Index 132.66 bps -.72%
Emerging Market CDS Index 245.94 bps +1.94%
2-Year Swap Spread 25.0 -2 bps
TED Spread 38.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 235.0 -3 bps
China Import Iron Ore Spot $117.80/Metric Tonne +.08%
Citi US Economic Surprise Index -33.50 -5.0 points
10-Year TIPS Spread 1.72% -8 bps
Overseas Futures:
Nikkei Futures: Indicating -182 open in Japan
DAX Futures: Indicating -13 open in Germany
Portfolio:
Lower: On losses in my Medical, Retail, Biotech and Technology long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades substantially lower to session lows despite euro strength, cds stability and some positive news in key stocks. On the positive side, Education, Ag, Utility and Telecom stocks are holding up relatively well. The 2-year swap spread is falling to the lowest level since early May. Overall, credit default swap indices are seeing relatively muted action given the decline in equities. Equity investor angst is surging, which is also a positive. On the negative side, Bank, Internet, Road & Rail, Gaming, REIT, Homebuilding, Construction, Networking, Gold and Coal shares are under significant pressure, falling more than -3.5%. Small-cap and cyclical shares are underperforming. (XLF)/(IYR) have seen heavy selling throughout the day. The 10-year yield continues to fall too much, declining another -6 basis points to session lows. Shanghai copper inventories are rising another +4.01% today and are up +30.88% over the last 5 days. There are some signs that this is just a pullback after recent gains, however the action in bank shares is very troubling. I will closely monitor Asian trading and Europe's open on Monday before deciding to further shift market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising economic fear, increasing financial sector pessimism, tax hike worries and regulatory concerns.
