North American Investment Grade CDS Index 104.73 bps -.22%
European Financial Sector CDS Index 119.05 bps -1.75%
Western Europe Sovereign Debt CDS Index 153.66 bps -.32%
Emerging Market CDS Index 220.43 bps -.31%
2-Year Swap Spread 19.0 -1 bp
TED Spread 14.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 210.0 +2 bps
China Import Iron Ore Spot $141.10/Metric Tonne unch.
Citi US Economic Surprise Index -4.40 +2.0 points.
10-Year TIPS Spread 1.80% -2 bps
Overseas Futures:
Nikkei Futures: Indicating -66 open in Japan
DAX Futures: Indicating +4 open in Germany
Portfolio:
Slightly Lower: On losses in my Biotech, Tech and Medical long positions
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows despite better economic data and buyout speculation. On the positive side, Disk Drive, REIT and Gaming shares are higher on the day. (IYR) has traded well throughout the day. On the negative side, Coal, Alt Energy, Oil Service, Gold, HMO, Education, Semi, Paper, Steel, Defense and Airline shares are under meaningful pressure, falling more than 2.0%. Small-cap and cyclical shares are underperforming today. The S&P GSCI Ag Spot Index, which led the recent stock rally, is declining another -.64% today. Lumber is falling -2.27%, which puts it below its 50-day moving average. Copper is also falling -.72%. Despite better economic data of late and recent declines, the 10-year yield is falling another -3 bps to 2.48%. The Portugal sovereign cds is rising +2.1% to 406.50 bps and the Spain sovereign cds is rising +.9% to 228.83 bps. This is the first day in quite some time that the market is reacting negatively to negative news out of Europe. The euro's weakness today is noteworthy given the negative news the currency has been ignoring. (MSFT) is weighing on the Naz today on comments from Goldman. Unless this company makes some major changes in direction, the stock will likely head significantly lower over the longer-term as competition mounts. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising sovereign debt angst, technical selling and China worries.
Asset-Backed Bond Sales Fall to Lowest in 15 Years as Consumer Cut Back. Sales of bonds tied to consumer debt including credit card payments and car loans may fall short of $100 billion for the first time in 15 years in 2010 as U.S. households seek to save more. Issuance of so-called asset-backed securities linked to household borrowing stands at $80.4 billion, compared with $110.1 billion in the same period in 2009, according to Wells Fargo Securities data. Bond sales tied to credit card payments fell more than 83 percent to $7 billion as lenders funded consumer demand with money from bank deposits rather than tapping the bond market, according to data compiled by Bloomberg. “We are at the mercy of the economy right now,” John McElravey, an analyst at Well Fargo Securities, said in an interview yesterday at Information Management Network’s annual ABS East conference in Miami. “If people have jobs they can go out and spend.”
Beijing Second-Hand Home Sales Fall on Government Curbs, China News Says. Beijing’s second-hand home sales fell to 18 units on Oct. 1 and Oct. 2 combined, from 1,067 on Sept. 30 alone, after the government and provincial authorities stepped up measures to cool property prices, China News said. Home sales in the eastern city of Suzhou dropped to 169 units on Oct. 1 from 519 the day before, and in Hangzhou halved on Sept. 30 from the previous day, the news service said. Zhejiang provincial government said it would tighten the monitoring of developers’ pre-sale funds from November, while Xiamen of Fujian Province limited new home purchases to one unit per household until the end of this year, China News reported.
Corn Falls for Third Day as U.S. Harvest Advances, Supply Hits 3-Year High. Corn slumped for a third day to a one-month low after the Department of Agriculture said supplies left from last year’s crop climbed to the highest level since 2006, and as dry weather speeds the U.S. harvest. Inventories on Sept. 1 rose 2 percent from a year earlier to 1.708 billion bushels, the USDA said on Sept. 30. That was 322 million bushels above the agency’s Sept. 10 estimate. About 27 percent of the crop was harvested as of Sept. 26, up from 18 percent a week earlier, the USDA said last week.
Microsoft(MSFT) Cut From Goldman(GS) Buy List on Mobile Weakness. Goldman Sachs Group Inc. analysts cut Microsoft Corp. shares to “neutral,” citing the world’s largest software company’s struggles to gain market share in mobile devices. Microsoft was removed from the bank’s Americas Buy List, with a price target of $28 rather than $32, Goldman Sachs analysts including Sarah Friar wrote in a note to clients. The company needs to win “a firmer foothold in the growing migration to mobile devices” in order to improve investor sentiment, they wrote.
California Budget Plan Draws Skepticism. Rank-and-File Lawmakers Express Doubts About Proposal From Governor, Legislative Leaders to Close $19.1 Billion Gap.
Plosser Voices Concern Over Further Easing. The US Federal Reserve must not launch a new round of asset purchases without setting out what they are meant to achieve, the president of the Philadelphia Fed has warned in an interview with the Financial Times. “I think that before we engage (in further quantitative easing) we need to be very clear about what it is we’re trying to do, how we’re going to go about doing it, how we’re going to measure whether we’re effective at it or not, and how we’re going to communicate that,” said Charles Plosser, who opposes a second round of quantitative easing – nicknamed “QE2” – at this point.
Dollar Gains on Renewed Euro-Zone Worries. The dollar rose against the euro on Monday on renewed worries about the impact of the single-currency region’s ongoing debt woes. The greenback also strengthened against the yen ahead of the Bank of Japan’s monetary policy meeting.
Environmental Protection Agency Rules Could Hurt Barack Obama in 2012. President Barack Obama’s Environmental Protection Agency is putting some hazardous speed bumps on his 2012 electoral road in key swing states. Controversial rules covering everything from power plants to petroleum refiners, manufacturers, coal mines and farmers could come back to haunt the White House in industrial and Midwestern states that carried Obama to the presidency two years ago. Political battlegrounds like Ohio, Pennsylvania and Virginia that Obama won in 2008 will be watching how the EPA moves on climate change. Coal-reliant states such as Missouri — which Obama lost by less than 1 percentage point — will be monitoring clean air rules and coal ash standards. And farm states that Obama carried, including Indiana, Iowa, Minnesota and Wisconsin, are waiting on a proposal to tighten air quality limits for microscopic soot. Obama’s situation is tricky. He campaigned on the need to address climate change and faces pressure on his left to tackle a range of issues that environmentalists complain were neglected by former President George W. Bush. But with EPA regulations expected to come out in rapid-fire succession over the next two years, Republican presidential hopefuls are already adding them to the larger, anti-Obama narrative against expansive government. “Some of the things his administration is proposing are just disastrous in the heartland,” Sen. John Thune (R-S.D.) said in an interview. “If he has any hope of winning votes in the center of the country, then he is going to have to reconsider a lot of these things the EPA and some of his agencies are trying to get done.”
GOP Ready to Rumble on Health Law. If Republicans regain control of the House, the one issue likely to be most transformed is the health care overhaul. The debate on and passage of the new law became a galvanizing call for the GOP’s depressed and disillusioned base last summer and will be a driving force in November for voters who oppose the law.
Task Force Undermines Freedom. Americans know best what kind of health care coverage is right for them and their families. They should be able to work with their own trusted physicians to determine the treatments and services that meet their needs. Unfortunately, the health reform law, which was rushed through Congress and forced on the American public, empowers the government to make decisions that should be left to doctors and patients.
Reuters:
Iraq Raises Proven Oil Reserves Figure by 25%. Iraq raised its proven oil reserves figure by a quarter on Monday in a bid to match the clout of leading producer Saudi Arabia and strengthen its case for OPEC to grant it a higher output quota. New estimates at West Qurna and Zubair fields helped push the figure to 143 billion barrels. That would allow Iraq to surpass Iran to become the world's No.3 reserves holder after Saudi Arabia and Venezuela, according to BP (BP) data.
US Clean Energy Loan Chief Says Ramping Up Lending. The former venture capitalist who now is in charge of about $70 billion in federal funding for alternative-energy projects is trying to bring a dash of private-sector efficiency to his new government job.
Financial Times:
Ireland's Economic Outlook Worsens. Ireland’s economic outlook worsened on Monday as the country’s central bank cut its growth forecast for this year, with gross domestic product now set to increase 0.2 per cent against previous forecasts of 0.8 per cent. The slowing economy will compound the challenges the Fianna Fáil-led government faces in framing this year’s budget, which is critical to restoring investor confidence in Ireland’s fiscal consolidation plan.
Naftemporiki:
Greece's government will increase objective property values by an average of 30% from Jan. 1 to boost state revenue by at least 400 million euros. In neighborhoods where the market value is close to the objective value the increase will be between 10% and 20% as of Jan. 1. The increase will be over 50% in coastal areas and areas earmarked to be included in town plans.
Cinco Dias:
Compania Espanola de Petroleos SA said gasoline demand is declining, citing an interview with CEO Dominque de Riberolles. "The situation is somewhat better than last year though demand is still falling," the executive said. "Gasoline demand is falling 6% and diesel once again declined in July and August .6%."
Bond Refinancings in Europe Outweigh Deficit Reduction Plans: Euro Credit. Record refinancing needs for Europe’s highest-deficit nations may overshadow spending cuts next year and increase the risk that more countries will follow Greece in requiring a rescue to avoid default. Euro-region governments have to repay 582 billion euros ($803 billion) of debt in 2011, up from 521 billion euros this year, according to estimates from ING Groep NV. Spain has to roll over almost 20 percent of its outstanding loans, government figures show. Portugal has 23 billion euros of debt coming due and Ireland has more than 10 billion euros, according to data compiled by Bloomberg. “I can’t ignore what’s going on in Ireland and Portugal, and the path of least resistance is for wider spreads or higher yields for both,” said Padhraic Garvey, head of developed market strategy at ING in Amsterdam. “I’m not predicting they will need a bailout next year. I’m just highlighting the risk.” The extra yield investors demand for holding 10-year Irish bonds rather than German bunds rose last week to 454 basis points, the most since the introduction of the euro. The yield premium for 10-year Greek bonds was 786 basis points more than Germany, the most of any euro nation. It was 181 basis points for Spain as of Oct. 1 and 384 basis points for Portugal.
Fed Bond Buying's Unintended Consequences May Mean Higher Rates. A second round of bond purchases by the Federal Reserve may have the unintended consequences of pushing borrowing costs higher, say a growing number of U.S. government securities dealers, strategists and economists. Yields on 10-year Treasury notes, a benchmark for everything from home mortgages to corporate bonds, rose last month for the first time since March even as the central bank hinted that it may conduct more so-called quantitative easing to bolster the economy. The median forecast of more than 60 estimates in a survey by Bloomberg News is for yields to keep rising the rest of this year and through 2011. Based on what the Fed bought in 2009, yields are trading as if it has already acquired an additional $315 billion to $670 billion of securities, according to Deutsche Bank AG, one of the 18 primary dealers that trade with the central bank. Policy makers will announce plans buy $100 billion to $1 trillion in Treasuries before the year is out, a survey of 12 of the 18 dealers show. Three don’t expect the Fed to buy additional debt.
Isilon Systems(ISLN) Said to Seek Buyers for Possible Company Sale. Isilon Systems Inc., the maker of devices used to store video, audio and digital images, is seeking bidders for a possible sale, according to two people briefed on the matter. The company hired Frank Quattrone’s Qatalyst Partners to canvas would-be acquirers, said one of the people, who declined to be identified because the plans haven’t been made public. Isilon, based in Seattle, is seeking to emulate the bidding war that surrounded rival data-storage maker 3Par Inc., both people said.
More Than 80% of Iranians Apply for Government Aid When Food Subsidy Ends. Iran’s government will start paying cash to individuals next week to help them cope with rising prices as it phases out subsidies for food and energy, Economy and Finance Minister Shamseddin Hosseini said. About 60 million Iranians, or more than 80 percent of the population, have signed up for the program, which starts Oct. 7, Hosseini said in Tehran today, according to the state-run Fars news service. He didn’t say how many people will qualify for compensation or how much they will receive, according to Fars. “The accounts of Iranian families will be credited gradually,” Hosseini was cited as saying. “They will see how much they are eligible for when they check their accounts.” Hosseini didn’t say when caps on food and energy products will be lifted or by how much.
Retirement-Age Increase Proposal in France Prompts Third Day of Protests. France today faces demonstrations across the country, the third day of protests in a month over President Nicolas Sarkozy’sproposed pension-system overhaul. Labor unions want the government to suspend plans to raise the retirement age, which were approved by the National Assembly on Sept. 15. The last protest, on Sept. 23, drew between 997,000 and 3 million protesters, according to diverging data published by the police and by unions. No strikes are planned today. “The demonstrations may be big,” Georges Tron, the minister for civil servants, told Canal Plus television yesterday. “It won’t change the precise elements” of the government plan, he said. Sarkozy’s pension bill raises the retirement age to 62 from 60 and the age for a full pension to 67 from 65. Unions want the retirement age to stay at 60.
U.S. Unemployment Rate Probably Rose as Recovery Can't Generate Enough Jobs. The probably rose in September for a second month as the year-old U.S. recovery failed to generate enough jobs to keep up with a growing labor force, economists said before a report this week. Unemployment climbed to 9.7 percent from 9.6 percent in August, according to the jobless ratemedian estimate of 62 economists surveyed by Bloomberg News ahead of an Oct. 8 report from the Labor Department. The data may also show companies added 77,000 workers to payrolls, and total hiring stagnated amid cuts in government staffing as the decennial census wound down. A lack of jobs is restraining consumer spending, the biggest part of the economy, and underscores the Federal Reserve’s concern that the rebound from the worst recession since the 1930s has been too slow to develop. Economists surveyed by Bloomberg project unemployment will average at least 9 percent through 2011.
Chavez Says U.S. is Behind Failed Coup Attempt Against Ecuador's Correa. Venezuelan President Hugo Chavez says the U.S. was behind a failed uprising in Ecuador, in which President Rafael Correa claims he was held against his will in a hospital by police and soldiers protesting wage cuts. Washington is supporting coup d’etats against an alliance of Latin American left-wing countries, known as the Bolivarian Alliance for the Americas, or ALBA, which was formed by Chavez to counter U.S. influence in the region, he wrote in his weekly column “The Lines of Chavez.” “Let’s not forget, the failed attempt, manufactured by Washington, was looking not only to bring down Correa’s government but also the ALBA and Unasur (Union of South American Nations),” Chavez wrote in the column. The U.S. “has revived the old measure of coup d’etats to spoil plans of governments that don’t subordinate to it.”
S&P 500 Profits Cut for First time in Year in Analyst Forecasts. For the first time in more than a year analysts are cutting their forecasts for Standard & Poor’s 500 Index earnings, jeopardizing gains from the biggest September rally since World War II. Estimates for S&P 500 companies’ combined 2011 profit fell as low as $95.17 last month from an August high of $96.16 and posted the first quarterly reduction since the three months ended June 2009, according to more than 8,500 analyst forecasts tracked by Bloomberg. The revision came as the benchmark gauge for U.S. equities rose 8.8 percent last month, the largest September advance since 1939.
FCC Investigating Verizon Wireless(VZ) For 'Mystery Fees'. Verizon Wireless, the largest U.S. wireless company, is under investigation by the Federal Communications Commission for “mystery” data fees it charged about 15 million customers. The FCC began its investigation 10 months ago after reports from consumers about the fees, the FCC said in an e-mail statement today. The commission said Verizon Wireless has reportedly put the amount of the overcharges at more than $50 million.
Nomura Rates China Property 'Cautious' Amid Possible Tightening Measures. China’s property stocks were rated “cautious” in new coverage at Nomura Holdings Inc., which said there’s an increased risk of the government issuing new tightening measures. The introduction of property tax in the “overheated” cities of Beijing, Shanghai, Shenzhen and Hangzhou as well as the “full” enforcement of the land appreciation tax will likely be among policies used to curb speculation, Alvin Wong and Sunny Tam wrote in a report today. “Affordability is starting to get stretched in some overheated cities, while public housing supply does not seem sufficient to create a meaningful impact on overall housing supply,” the analysts wrote. “With this we believe there is higher risk of further tightening measures to clamp down on overheated markets.” The 18 stocks on the MSCI China Real Estate Index have dropped an average 12 percent this year, compared with a 1.8 percent gain in the broader MSCI China Index. The government last week added to curbs by tightening down-payment rules for first homes, suspending third-home loans and pledging to quicken a trial of a property tax. Given the lack of “strong evidence” of a price correction and continued signs of “speculative activities,” a property tax will be “inevitable,” the analysts said.
Global Steel Demand to Slow on China, World Association Says. Global steel demand growth will probably fall to 5.3 percent next year on slowing sales in China, the World Steel Association said. China’s demand is likely to increase 3.5 percent in 2011, down from a projected 6.7 percent this year, the association said.
Wall Street Journal:
Borrowers of Euroland are Proving Einstein's Theory of Insanity Right. "Insanity: doing the same thing over and over again and expecting different results." So, it is alleged, spoke Albert Einstein. All over Europe officials are trying to prove him right. Greece led the peripheral countries in piling up debts that it had little hope of ever repaying. Non-peripheral countries, most notably Britain and France, joined in the fun, the latter despite its commitment to its Euroland partners to keep its fiscal deficit within 3% of GDP—in the event, borrowing reached 8%. Cometh the markets, cometh reality: payback time. National cupboards being bare, the Euroland authorities stepped in with a cunning plan to handle excessive debt: borrow more to repay the wild borrowings of the member countries. And the Irish government will drive its deficit to 32% of GDP by borrowing to bail out banks hit by the inability of property developers to repay excessive borrowings. If more borrowing to repay excessive borrowing doesn't fit the great physicist's definition of insanity, it is difficult to tell what does.
Obama Likely to Scale Back Legislative Plans. In New Political Landscape, Incremental Approach Is in Works to Get Support for Some Proposals on Energy, Immigration. President Barack Obama, facing at best narrower Democratic majorities in Congress next year, is likely to break up his remaining legislative priorities into smaller bites in hope of securing at least some piecemeal proposals on energy, climate change, immigration and terrorism policy, White House officials say.
The Holdouts. More than four years after the housing market peaked, many of the nation's wealthiest homeowners are slashing prices in earnest. The asking price on the late Brooke Astor's Park Avenue duplex has plummeted to $24.9 million from $46 million. Thursday Peter Sperling, son of the University of Phoenix founder John Sperling, dropped the price on his San Francisco limestone mansion to $47 million; he had been asking $65 million since 2006. Then there are the ultimate holdouts: a rarefied slice of extremely wealthy sellers who are holding the line on today's deal-making, price-slashing mentality. Even as their properties have lingered on the market, these sellers haven't budged on initial asking prices, some of which were set in the waning days of the housing bubble.
Claims to BP(BP) Fund Attract Scrutiny. Kenneth R. Feinberg spent part of his summer barnstorming towns near the Gulf of Mexico, urging people who felt they had suffered financial hardship because of the oil spill to apply for a share of the $20 billion BP fund he was overseeing. The point of the fund was to pay claims rather than litigate them in court. “It’s my opinion you are crazy if you don’t participate,” Mr. Feinberg told a crowd at one stop in Louisiana. And participate they did. Mr. Feinberg has seen applications that could bring a tear to the eye. Others are likelier to raise eyebrows. Take the businessman who explained that his part of the $20 billion fund should be ... $20 billion. His income last year? Fifty thousand dollars. A restaurant worker asked for $5.9 million in emergency payments, even though his earnings before the spill were just $18,000. And then there are the 4,000 claims, using a one-page form letter, that flooded in from Plaquemines Parish a couple of weeks ago, some hand delivered to local claims offices. They asked for grocery money, from $150 a month to hundreds of dollars, to make up for the fish they would have pulled from the gulf waters had there been no spill. Few offered any substantiation for the claim, though one person brought a dead fish. In all, about 31,000 claims have little or no documentation, and the people who filed them have been asked to provide more information. And 1,000 more are “very, very suspicious,” Mr. Feinberg said, and are being held for further examination.
Companies Borrow at Low Rates, but Don't Spend. As many households and small businesses are being turned away by bank loan officers, large corporations are borrowing vast sums of money for next to nothing — simply because they can. Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves.
Scientists, Secrets and Wall Street's Lost $4 Trillion. Thanks to an ever growing influx of Ph.D.s from the Ivies and an insatiable demand for an algorithmic trading edge by secretive hedge funds and proprietary trading desks at the largest firms, Wall Street has become part physics lab, part casino, part black hole. What Wall Street bears no relationship to any longer is its primary mission in the U.S. economy: to be a fair and efficient allocator of capital to worthy businesses and innovators to propel job growth while also providing a medium for allowing investors to buy or sell stocks and bonds of those businesses at a fair price.
On Tomorrow's Secret Meeting to Plot the End of High Frequency Trading. The SEC's "definitive"(ly worthless) report on what happened on May 6th was a dud, and was nothing more than a distraction-based smear campaign against Waddell and Reed (an experiment in which we can only hope W&R participated involuntarily): a firm which did something that was completely in its right to do. But is this unexpected? After all had the SEC confirmed that it is indeed HFT who is responsible for a broken market structure, it would have effectively destroyed itself: if and when the SEC does indeed confirm that the entire market topology over the past 5 years has been hijacked by young and pustular math Ph.D.'s with fast computers, the implications to fair markets would be orders of magnitude worse than the fallout associated with the Madoff scandal, and could serve as grounds for the unwind of the SEC itself, which would have to explain why it has been avoiding calls against HFT impropriety for years. So in a sense Mary Schapiro's conclusion is nothing less than a lass desperate act of self preservation.
LA Times:
Bell Officials Cut Police Pensions While Boosting Their Own. As Bell provided record high pensions for Robert Rizzo and 40 other officials, the city cut the pensions for new police officers, claiming it could no longer afford their full retirement benefits. Rizzo, the longtime Bell city manager who was charged with public corruption last week stands to receive an annual pension of an estimated $1 million thanks to major enhancement the City Council approved beginning in 2003. But three years later, the city created a two-tiered pension system for Bell police officers, with officers hired after that year receiving less generous pensions than other police employees.
AllHeadlineNews:
Gunmen Kidnap 22 Acapulco Tourists. Twenty-two Mexican tourists went missing in Acapulco on Thursday after they were kidnapped by gunmen, the local media reported on Saturday. A spokesman for the Guerrero State attorney general's office confirmed the kidnapping of the busload of tourists on Saturday, according to CNN. Incidences of mass kidnappings in Mexico have been linked to the turf war of competing drug cartels. Kidnap victims usually end up dead.
U.S. Department of State:
Travel Alert. The State Department alerts U.S. citizens to the potential for terrorist attacks in Europe. Current information suggests that al-Qa’ida and affiliated organizations continue to plan terrorist attacks. European governments have taken action to guard against a terrorist attack and some have spoken publicly about the heightened threat conditions. Terrorists may elect to use a variety of means and weapons and target both official and private interests. U.S. citizens are reminded of the potential for terrorists to attack public transportation systems and other tourist infrastructure. Terrorists have targeted and attacked subway and rail systems, as well as aviation and maritime services. U.S. citizens should take every precaution to be aware of their surroundings and to adopt appropriate safety measures to protect themselves when traveling.
Rasmussen Reports:
Obama's Full-Month Approval Rating Falls to New Low. The number of voters who Strongly Disapprove of the president’s performance inched up a point to a new high of 44% in September. At the same time, the number who Strongly Approve held steady at 27%. Those figures generate a full month Presidential Approval Index rating of -17, down a point from last month.
Financial Times:
Ireland's Budget Deficit Will Be Higher Than Expected. Ireland's budget deficit this year will be 11.9% of national income and not the 11.6 percent previously forecast. The figures, due out today, are a result of a slowing economy rather than a reduction in project tax receipts, citing officials.
One in four hedge fund managers have moved from London to Switzerland, at an annual cost to the U.K. government of an estimated $791 million in tax revenue. Hedge fund managers are relocating to Switzerland because of its stable tax system and to avoid "fiscal volatility and political hostility" in the U.K., citing consultancy Kinetic Partners LLP.
Traders Angered by Swaps Legislation. Foreign exchange traders are up in arms over a decision to include currency derivatives in Dodd-Frank legislation aimed at reducing risk in the $600,000bn privately negotiated swaps market. The decision to bring foreign exchange options, forwards and swaps under the same umbrella as the toxic products that caused the credit crises has infuriated currency market participants, who claim foreign exchange was entirely innocent in the global economic meltdown. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law on July 21, introduced mandatory clearing for all over-the-counter swaps alongside tighter rules on execution, reporting and capital provision. The earliest drafts of the legislation passed in the House of Representatives and the Senate exempted forex swaps and forwards from the legislative definition of “swaps”. However, the final wording contained no such exemption, and put the matter in the hands of the Treasury Secretary. The inclusion has caused a furore across the industry, which claims the market’s size and lack of standardisation makes it an almost impossible candidate for central clearing. Intensive lobbying in Washington and Brussels has ensued.
Telegraph:
Ireland's Austerity Programme Was Bogus. Ireland needs genuine cuts and to leave the euro if it wants to return to speedy economic growth, says Sam Bowman. It has not been a pleasant few days to be an Irishman. The Irish Government’s gamble in guaranteeing 100 per cent of all banking deposits, seen as a cheap way to avoid bank runs during the start of the financial crisis, committed it to enormous bailouts of any banks that ultimately did fail. This resulted in the Irish state having to bail out the property development bank Anglo Irish Bank last week. It was confirmed that worst-case scenario bill for bailing out the Irish banks will be over €50bn – roughly €25,000 for every taxpayer in the country. To compound this, the "bad bank" set up to purchase toxic property development assets is likely to cost at least another €50bn. Although this is said to be a once-off bailout, it is likely that further injections of public money will be required in the years to come. Ireland has tried to spend its way out of a banking crisis – a mistake which may ultimately cause the collapse of the state’s finances.
Nine of the top 15 drugmakers may "wither" or "get taken out" within five years, GlaxoSmithKline Plc(GSK) CEO Andrew Witty said in an interview. About half a dozen of the biggest pharmaceutical companies may survive as patents expire and business strategies are "tested to destruction," Witty said.
SkyNewsHD:
UK 'On Cusp of Second Banking Failure'. High street banks stand on the verge of another credit crunch and taxpayers may be forced to plug a £25bn-a-month funding gap, an economic think-tank has claimed. Faced with a huge financial black hole, the New Economics Foundation (NEF) has said the banks could turn again to the Government for support. According to its report - Where Did Our Money Go? - an estimated £1.2trillion of state cash has already been pumped into the banking system. However, NEF has described a "shocking" lack of information about how that money has been used and demanded "urgent reform". The report warns that the industry is on a collision course for a severe funding crisis when current financial lifelines are withdrawn. In particular, there are fears over the Bank of England's Special Liquidity Scheme - a vital source of money since the credit crunch - which ends in 2012. The group has urged a range of changes, including splitting retail operations from more risky investment banking and the breaking up of "too big to fail" players. It comes against a backdrop of incoming regulation - such as the Basel III capital rules - that demand banks put aside more cash to boost their capital strength. Calling for reform, Tony Greenham, head of the finance and business programme at NEF, said: "We are on the cusp of a second banking failure.
El Mundo:
Spain's social security reserve fund won't be able to buy government bonds after the country's top credit rating was cut one level by Moody's Investors Services, citing the rules governing the fund. Managers of the fund worth $86 billion in assets can only buy bonds with the maximum credit rating.
Spain needs to deepen and speed up structural reforms to help its economic recovery, IMF Managing Director Dominique Strauss-Kahn was quoted as saying. Pension reform has not been fully resolved in Spain, Strauss-Kahn said. The country should also modify collective bargaining rules for setting salaries and employment conditions, he said.
Sunday Tribune:
Ireland's government may need to cut its 2011 budget further or raise taxes to find 4.5 billion euros($6.2 billion) of "savings" required to bring its deficit in line with European Union rules. Another 6 billion euros to 7 billions euros of savings in total may have to be included in budgets for 2012-2014.
South China Morning Post:
Shenzhen has introduced greater restrictions on home purchases to help cool the property market, citing a statement from the local government. Families with residency status are now limited to the purchase of two homes and those without a permit are allowed to buy one if they can show they have paid taxes in the city for at least a year.
Weekend Recommendations Barron's:
Made positive comments on (UTX) and (SNA).
Made negative comments on (MMYT).
Citigroup:
Removed (FCX) from Top Picks Live list, Maintain Buy, target $92.
Reiterated Buy on (AMZN), boosted target to $190.
Night Trading
Asian indices are +.25% to +1.0% on average.
Asia Ex-Japan Investment Grade CDS Index 114.50 -2.5 basis points.
Asia Pacific Sovereign CDS Index 109.50 -.5 basis point.
Factory Orders for August are estimated to fall -.4% versus a +.1% gain in July.
Pending Home Sales for August are estimated to rise +2.8% versus a +5.2% gain in July.
Upcoming Splits
None of note
Other Potential Market Movers
Fed Chairman Bernanke speaking and the (EC) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on profit-taking, technical selling, mounting global economic fears, increasing financial sector pessimism and China bubble worries. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.
