North American Investment Grade CDS Index 104.26 bps +1.0%
European Financial Sector CDS Index 99.0 bps +2.54%
Western Europe Sovereign Debt CDS Index 112.0 bps -.70%
Emerging Market CDS Index 217.07 bps +1.75%
2-Year Swap Spread 17.0 -4 bps
TED Spread 33.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% +1 bp
Yield Curve 239.0 -2 bp
China Import Iron Ore Spot $135.10/Metric Tonne -.88%
Citi US Economic Surprise Index -41.10 -3.2 points
10-Year TIPS Spread 1.79% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -90 open in Japan
DAX Futures: Indicating -2 open in Germany
Portfolio:
Lower: On losses in my Medical, Biotech and Technology long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges and added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows after failing to hold above its 200-day moving average. On the positive side, Gold, Ag, Telecom and Wireless stocks are holding up relatively well. The 2-year swap spread is falling to the lowest level since April 29th. After consolidating gains for the last 10 days, the S&P GSCI Ag Spot Index is breaking out again, rising +2.4% today. Copper also continues to trade well. The Shanghai Composite rose +2.3% last night and has been trading much better of late. On the negative side, Gaming, Homebuilding, HMO, Hospital, Biotech, Medical Equipment, Disk Drive, Semi, Computer, Paper and Oil Tanker shares are under meaningful pressure, falling more than -2.0%. Cyclical and small-cap shares are underperforming. Tech shares have been a bit heavy throughout the day. 3-Month Euro Libor is rising slightly again today. The US Muni CDS Index is rebounding +3.82%, which is also a negative. The Asia Ex-Japan High-Yield CDS Index is rising +4.08% today to 607.83 bps. This index has been trending higher lately, nearing its highest level since last November, even with global equity strength. The 10-year yield is falling -5 bps to session lows at 3.0%. I want to see how overseas market's react tonight/tomorrow morning to our afternoon weakness before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on technical selling, more shorting, profit-taking and rising economic fear.
Europe Stress Relieved With Swap Gap Vanishing: Credit Markets. The bond market is saying that the threat of a European banking crisis is ending. The gap between European and U.S. benchmark credit-default swap indexes, used to hedge against losses or speculate on creditworthiness, narrowed to 0.7 basis point yesterday, the lowest since June 4, prices from Markit Group Ltd. show. That premium soared to a record 23 basis points on May 7 on concern that budget deficits in southern Europe would infect credit markets worldwide. The Markit iTraxx Financial index of swaps linked to the senior debt of 25 European banks and insurers, which on June 8 soared to 61 basis points more than the broader iTraxx index on 125 companies, has fallen to within 7.75 basis points of the main index, according to JPMorgan prices. The financial index has plunged 88.5 basis points to 111.5 basis points since June 8, according to JPMorgan.
Issa Asks FCIC to Explain Spending After Panel Seeks More Funds. U.S. Representative Darrell Issa is asking the Financial Crisis Inquiry Commission to explain its spending after the panel probing the 2008 credit market collapse requested that Congress supplement its $8 million budget. Issa, a California Republican, sent a letter to FCIC Chairman Phil Angelides today, seeking a list of contracts with media consultants and the amount of money spent on such services. Issa also asked Angelides, a Democrat who formerly served as California’s treasurer, to provide a full accounting of travel expenses by FCIC commissioners and their staffs, including payments for airfare, lodging and meals. “I am concerned that the FCIC’s own problems with financial mismanagement and partisanship may have resulted in a waste of taxpayer funds that does not warrant an additional appropriation,” wrote Issa, the top Republican on the House Oversight and Government Reform Committee.
Tiger Global Said to Invest in LinkedIn at $2 Billion Valuation. Tiger Global Management LLC, a hedge fund founded by Chase Coleman, paid $20 million for a stake in LinkedIn Corp., valuing the professional-networking website at more than $2 billion, said two people familiar with the matter. The purchase, at $21.50 a share for about a 1 percent stake, was from existing shareholders and doesn’t represent new investment, said one of the people, who declined to be identified because the sale has not been disclosed.
China Says Environment Accidents Almost Double as Rapid Growth Takes Toll. China, the largest polluter, said rapid economic growth is taking a toll on the environment with accidents doubling, underscoring the need to increase checks as after the worst metal and oil spills in years. Environment accidents jumped 98.1 percent in the first six months from a year ago, with at least 10 incidents each month, the environmental protection ministry said in a faxed statement in response to Bloomberg questions.
UnitedHealth(UNH) Said Near $1.5 Billion Purchase of Services Firm. UnitedHealth Group Inc. is nearing an agreement to buy Executive Health Resources Inc., a medical services firm backed by Abry Partners LLC, for about $1.5 billion, said three people with knowledge of the talks. UnitedHealth would add the Newtown Square, Pennsylvania- based company to its Ingenix database management and consulting unit, said the people, who spoke on condition of anonymity because the talks are private.
Salary of $800,000 Sparks California Taxpayer Mutiny: Joe Mysak. The search is on for the next $800,000-a-year city manager. The taxpayers of Bell, California, a 2.5-square-mile city just outside Los Angeles forced the resignations last week of three public officials who made too much money. The taxpayers were responding to a Los Angeles Times article of July 15 that asked the question, “Is a City Manager Worth $800,000?” I think we all know the answer. The story reported that the city’s chief administrative officer was on a salary of $787,637, his assistant $376,288, the police chief $457,000. These paydays struck the Bell citizenry, and many other Californians, as a bit bloated. Ideas in public finance blow in from the West, an old municipal market saying goes. If the watchdogs where you live aren’t on the hunt for public officials making king-size compensation, they soon will be.
High Iron Ore Prices Are 'Unsustainable,' Australia's IMX Resources Says. IMX Resources Ltd., a mining company that’s started the first new iron ore project in South Australia in a century, said high prices for the steel-making material aren’t sustainable in the long term and will drop. “You’d be living in a different world if you thought these prices were going to last forever,” Duncan McBain, managing director of the Perth-based company, said in an interview. “The pricing will come down.”
Rate Swings Sting Europe's Borrowers. Households and small businesses across Central and Eastern Europe are sinking under the weight of foreign-currency debts. It's a sign of how the problems go beyond the borrowing by spendthrift governments that has been the main focus of investors.
Citigroup(C) to Fund Housing Projects. Citigroup is bankrolling a $100 million fund to invest in low- and moderate-income housing in New York City, a move drawing cautious support from housing advocates critical of other private investments in affordable housing. The fund will focus on properties in the Bronx, Queens, Brooklyn and Upper Manhattan, said Ron Moelis, chief executive officer of L+M Development Partners, a New York firm that specializes in affordable housing and will manage the fund developed by Citigroup. He plans to invest primarily in buildings created for low-income tenants, including rent-stabilized buildings that are being foreclosed or in danger of foreclosure.
Fund Holders Sue BlackRock(BLK) Advisors Over Auction-Rate Shares. A group of investors in several closed-end funds advised by BlackRock Advisors LLC has sued, alleging that the adviser breached its fiduciary duties to common shareholders by the way in which it redeemed auction-rate preferred securities.
Google(GOOG) Develops a Facebook Rival. Google Inc. is in talks with several makers of popular online games as it seeks to develop a broader social-networking service that could compete with Facebook Inc., according to people familiar with the matter.
Our Divisive President by Pat Caddell and Douglas Schoen. Rather than being a unifier, Mr. Obama has divided America on the basis of race, class and partisanship. Moreover, his cynical approach to governance has encouraged his allies to pursue a similar strategy of racially divisive politics on his behalf.
Bloomberg Businessweek:
LNG Demand Growth in Asia Beats Oil on Emissions. Asia is boosting consumption of liquefied natural gas relative to oil as nations from China to India try to pollute less while driving economic growth. Demand for LNG in China and India is growing as much as nine times faster than that for crude, according to calculations based on data compiled from Facts Global Energy, BP Plc and the International Energy Agency. Oil use is shrinking in Japan and stagnant in South Korea. LNG use will rise 45 percent in China and 12 percent in India in 2011 from this year, said Facts, an energy consultant. “This strong demand growth will not purely be driven by gross domestic product,” Gavin Thompson, China gas study director for Wood Mackenzie Consultants Ltd., said in an e-mail from Edinburgh. “The gas demand story is about displacing oil products, not coal, in the industrial and residential sectors.” The energy consultant this week raised by 48 percent its forecast for China’s LNG demand in 2020.
BP(BP) Oil From Spill Is Biodegrading, Easing Threat to East Coast. Oil from BP Plc’s record spill in the Gulf of Mexico is biodegrading quickly, probably eliminating the risk that crude will go around Florida and hit the U.S. East Coast, the National Oceanic and Atmospheric Administration said.
CNBC:
BofA(BAC), Citi(C), Wells Fargo(WFC) Outlook Negative: Moody's. Moody's on Tuesday changed its outlook on Bank of America, Citigroup and Wells Fargo to negative, from stable, citing lessened government support for the institutions under new U.S. regulations.
Democrat Energy Bill Raises Liability Cap to 100%. U.S. Senate Democrats unveiled a slimmed-down energy bill on Tuesday aimed at reforming offshore drilling and promoting alternative-fuel vehicles.
Massachusetts Legislature Approves Plan to Bypass Electoral College. The Massachusetts Legislature has approved a new law intended to bypass the Electoral College system and ensure that the winner of the presidential election is determined by the national popular vote. "What we are submitting is the idea that the president should be selected by the majority of people in the United States of America," Senator James B. Eldridge, an Acton Democrat, said before the Senate voted to enact the bill. Under the new bill, he said, "Every vote will be of the same weight across the country." But Senate minority leader Richard Tisei said the state was meddling with a system that was "tried and true" since the founding of the country. "We've had a lot of bad ideas come through this chamber over the years, but this is going to be one of the worst ideas that has surfaced and actually garnered some support," said Tisei, who is also the Republican candidate for lieutenant governor. The bill, which passed on a 28-to-9 vote, now heads to Democratic Governor Deval Patrick's desk. The governor has said in the past that he supports the bill, said his spokeswoman Kim Haberlin. Under the law, which was enacted by the House last week, all 12 of the state's electoral votes would be awarded to the candidate who receives the most votes nationally. Supporters are campaigning, state by state, to get such bills enacted. Once states accounting for a majority of the electoral votes (or 270 of 538) have enacted the laws, the candidate winning the most votes nationally would be assured a majority of Electoral College votes. That would hold true no matter how the other states vote and how their electoral votes are distributed. Illinois, New Jersey, Hawaii, Maryland, and Washington have already approved the legislation, according to the National Popular Vote campaign's website.
Politico:
No Deal in Sight for Rangel. Rep. Charles Rangel’s chances of striking a deal with the House ethics committee grew more distant Tuesday, even as the public airing of charges against him drew closer. New tinges of partisanship gripped the ethics process, making it appear far less likely that Rangel can find a settlement that suits both him and the panel’s Republican contingent.
Congress Clears War Funding. Tens of billions of dollars in new Afghanistan war funding cleared Congress late Tuesday, even as the House easily upended a liberal challenge to the increased U.S. military presence — and drone attacks — across the border in Pakistan. The back-to-back votes buy precious time for President Barack Obama to show progress on his strategy for the region. But even as the anti-war movement remains weak in Congress, Obama can’t ignore a growing split among House Democrats over the cost of his military commitments at a time of tighter budgets and economic troubles at home.
Issa: Obama "pre-occupied" with BP(BP) Politics. Rep. Darrell Issa (R-Calif.), one of the Obama administration’s harshest critics, is once again taking aim at the federal response to the BP oil spill – this time, over a White House decision to dispatch administration aides to Florida to deal with the political fallout from the crisis. “This is just the latest manifestation of the Obama administration’s pre-occupation with public relations dictating and in some cases hindering the effort to address the effects of the Gulf Coast oil spill,” Issa told POLITICO in a statement. “Rather than streamline the process and focus on ensuring that local officials have access to the resources they are literally begging for, the Obama administration has responded by dispatching campaign aides. It’s concerning that the West Wing appears more pre-occupied with the politics and public relations of this crisis, than actually managing it.”
Reuters:
CB Richard Ellis(CBG) Posts 2nd-Qtr Profit, Revenue Up. CB Richard Ellis Group Inc, one of the world's largest commercial real estate service companies, posted a second-quarter net profit and its strongest revenue growth since 2007, sending shares up 5.5 percent in after-hours trade.
Broadcom(BRCM) Revenue Up On Wireless Chip Demand. Broadcom Corp (BRCM) posted higher quarterly earnings and revenue on Tuesday on strong demand for its chips used in smartphones such as Apple Inc's (AAPL) iPhone and in broadband equipment. Broadcom shares rose 1.4 percent to $38.05 in extended trade after closing at $37.53 on Nasdaq.
Financial Times:
Greece 'Ahead of the Curve' on Fiscal Targets. Greece is determined to show it can outperform tough fiscal targets set by the European Union and International Monetary Fund, said George Papaconstantinou, finance minister. But the government still faces strong resistance to structural reforms – from opening up closed-shop professions such as truck driving to cutting about 50,000 jobs in local government and lossmaking state enterprises. In an interview with the Financial Times, Mr Papaconstantinou said in the first half of this year the budget deficit had been slashed by 45 per cent after deep cuts in public consumption and capital investment. He said Greece has taken more measures than were necessary to cut the deficit this year from 13.6 per cent to 8.1 per cent of gross domestic product. A 30-member mission from the so-called troika – the EU, IMF and European Central Bank – arrived in Athens this week to assess reforms launched in return for a €110bn loan package, which rescued Greece from a sovereign default. Mr Papaconstantinou sounded confident that the troika would award Greece a pass mark on progress, enabling it to draw down a second €9bn ($11.7bn, £7.5bn) loan tranche in September. “We are ahead of the curve, mostly due to reduction of expenditures ... Revenues are lagging slightly behind ... but we’re reasonably optimistic that even on the revenue side we’ll meet the targets,” he said. An increase of 4 percentage points in value added tax, on top of a 30 per cent rise in excise taxes, would help boost inflows in the second half, he said. The impact of cuts in public sector wages and pensions on overall spending would bring further reductions, he added. Mr Papaconstantinou also predicted that Greece’s recession would be shallower than forecast, with the economy set to shrink this year by 3 to 3.5 per cent, compared with an earlier projection of 4 per cent. But he admitted there were “danger zones” that could undermine fiscal consolidation, such as persistent spending overruns at state hospitals.
Pakistani Ex-Spy Master Blames US for Web Leak. A former Pakistani spy master has hit back at allegations he supported the Taliban, saying the US orchestrated a mass leak of confidential files in a bid to scapegoat him for its failures in Afghanistan. The claim by Hamid Gul, a retired general, is unlikely to gain much traction in Washington, where the publication of 75,000 classified reports by WikiLeaks, a website, has renewed debate over its Afghan strategy. But Mr Gul’s allegations that a hidden US government hand played a role in the huge breach of classified files may resonate in Pakistan, where anti-American sentiment runs high and conspiracy theories feed mainstream discourse.
Telegraph:
Afghanistan War Logs Could Lead to Revenge Killings, Say Intelligence. The lives of informants and double agents have been placed at risk by the release of tens of thousands of secret military documents, intelligence officials have said. Col Dave Lapan, a US Defence Department spokesman, said the military may need weeks to review all the records to determine "the potential damage to the lives of our service members and coalition partners". Teams of US military analysts were examining the documents, which catalogue attacks on and by coalition forces. One of their chief concerns is to assess the potential damage to the military's human intelligence network that has been built up over nearly a decade inside Afghanistan and Pakistan. Such figures range from Afghan village elders who have worked behind the scenes with US troops to militants who have become double agents. Wikileaks insists it has behaved responsibly, even withholding some 15,000 records that are believed to include names of specific Afghans or Pakistanis who helped US troops on the ground. But with the information gradually being uploaded on to the Wikileaks website, Michael Hayden, the former director of the CIA, predicted that the Taliban would take anything that described a US strike and the intelligence behind it "and figure out who was in the room when that particular operation, say in 2008, was planned, and in whose home". The militants would then likely punish the traitor who had worked with the Americans, he said. Robert Riegle, former senior intelligence officer, said: "It's possible that someone could get killed in the next few days."
Nikkei:
Intel Corp.(INTC) will cut the production capacity of a new chip plant in Dalian, Liaoning Province, by 25%, citing documents from China's Ministry of Environmental Protection. The plans will affect the $2.5 billion investment planned for the plant, scheduled to begin operations in October.
China Securities Journal:
China's land supply increased 65.1% in the first half from a year earlier, citing the Ministry of Land and Resources. The average price of land for property development fell 5% in the second quarter as compared with the first quarter.
China Daily:
China's Communist Party will hold "high-level" talks with the U.S. Democratic and Republican parties, citing Li Jun, spokesman for the International Department of the Communist Party's Central Committee.
China Business News:
China may link employee wage increases to local consumer prices, according to a draft of salary rules which will be submitted to the State Council soon, citing Yang Yongqi, a labor law specialist at the Chinese Academy of Labor Security Sciences.
Evening Recommendations Citigroup:
Reiterated Buy on (LMT), target $97.
Reiterated Buy on (BRCM), raised target to $45.
Night Trading
Asian equity indices are +.25% to +1.0% on average.
Asia Ex-Japan Investment Grade CDS Index 113.0 unch.
Asia Pacific Sovereign CDS Index 109.5 -4.25 basis points.
Durable Goods Orders for June are estimated to rise +1.0% versus a -1.1% decline in May.
Durables Ex Transports for June are estimated to rise +.4% versus a +.9% gain in May.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,725,000 barrels versus a +360,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +275,000 barrels versus a +1,118,000 barrel gain the prior week. Distillate inventories are expected to rise by +2,000,000 barrels versus a +3,935,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +1.0% increase the prior week.
2:00 pm EST
Fed's Beige Book
Upcoming Splits
None of note
Other Potential Market Movers
The $37 Billion 5-Year T-Note Auction, weekly MBA mortgage applications report, Keefe Bruyette Woods Community Bank Conference, (IRIS) Financial Analyst Meeting and the (SCHW) Business Update could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 103.23 bps -.41%
European Financial Sector CDS Index 99.23 bps -6.43%
Western Europe Sovereign Debt CDS Index 112.67 bps -5.20%
Emerging Market CDS Index 213.59 bps -4.21%
2-Year Swap Spread 21.0 -2 bps
TED Spread 34.0 unch.
Economic Gauges:
3-Month T-Bill Yield .14% -1 bp
Yield Curve 241.0 +1 bp
China Import Iron Ore Spot $136.30/Metric Tonne +2.17%
Citi US Economic Surprise Index -37.9 -.8 point
10-Year TIPS Spread 1.80% +2 bps
Overseas Futures:
Nikkei Futures: Indicating +149 open in Japan
DAX Futures: Indicating +8 open in Germany
Portfolio:
Slightly Higher: On gains in my Technology long positions
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades hugs the flat line, despite more disappointing US economic data, recent stock gains and weakness in commodities. On the positive side, Computer, Utility, Telecom and Bank stocks are especially strong, rising .75%+. (XLF) has outperformed throughout the day. The European Investment Grade CDS Index is dropping another -2.33% to 98.58 bps. The UK sovereign cds is falling another -6.53% to 58.61 bps. Moreover, the Spain sovereign cds is falling -8.41% to 177.84 bps, the Greece sovereign cds is declining -4.55% to 714.34 bps and the Portugal sovereign cds is dropping -8.54% to 228.98 bps. The US Municipal CDS Index is dropping -4.76% to 200.0 bps. China Import Iron Ore spot continues its recent move higher after sharp declines and Shanghai copper inventories are falling another -3.96% today. Gold continues to trade poorly. Weekly retail sales rose +2.8% this week versus a +2.9% increase the prior week. It is also a positive to see the 10-year yield moving back above 3%. On the negative side, Steel, Gold, Oil Tanker, Coal and Airline shares are under pressure, falling more than -1.75%. Cyclicals are underperforming. 3-Month Euro Libor is rising slightly again today. Lumber is falling -3.37%. Market leader (AAPL) is trading very well today and looks poised to test its all-time high over the coming weeks. Today's overall action is a healthy consolidation of recent gains. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing sovereign debt angst, mostly positive earnings reports, buyout speculation and technical buying.
European Banks Gain Most Since May on Capital Rules. European banks led by UBS AG and Societe Generale SA had their biggest gains since May as regulators eased proposed rules on capital and two of the region’s biggest lenders posted profit that beat estimates. UBS, Switzerland’s biggest bank, surged 11 percent to 17.46 Swiss francs in Zurich trading, while Societe Generale, France’s No. 2 lender, also gained 11 percent to 44.23 euros in Paris. The Basel Committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, buoyed investors’ confidence after saying lenders can count deferred tax assets and minority stakes in financial firms as capital.
UBS, Deutsche Bank Spur Drop in Financial Risk to 3-Month Low. and The cost of insuring against losses on financial bonds fell to the lowest in three months after UBS AGDeutsche Bank AG posted earnings that beat analyst estimates and regulators softened proposed capital rules. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers fell as much as 9 basis points to 108.5 and was trading at 110 at 3:30 p.m., the lowest since April 21, according to JPMorgan Chase & Co. The gauge has rallied 23 basis points since bank stress tests were released July 23. Default swaps on UBS fell 7.5 basis points to 95 and Deutsche Bank declined 13 to 91.5, according to data provider CMA. Contracts on Allied Irish Banks Plc dropped 84.5 basis points to 373, Banco Comercial Portugues SA decreased 35.5 to 294.5 and Commerzbank AG fell 10.5 to 85. The difference between Markit’s financial gauge and the broader European corporate benchmark also shrank to the narrowest since March. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 2 basis points to 102.75, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings decreased 3 basis points to 474, the lowest level since May 13. Swaps insuring BP Plc debt for five years fell 15.5 basis points to 321.5, CMA prices show. The cost of insuring against losses on sovereign debt also declined. Swaps on Greek government debt dropped 48.5 basis points to 690, contracts on Spain declined 15.5 to 174, Italy dropped 19.5 to 129.5, Portugal fell 30.5 to 221, and Ireland fell 27.5 to 204.
Gold Futures Fall to 11-Week Low as Global Equities Advance. Gold fell to the lowest price in 11 weeks as a rally in global equities erodes demand for the precious metal as an alternative investment. Gold futures for December delivery fell $20.10, or 1.7 percent, to $1,166.90 an ounce at 9:52 a.m. on the Comex in New York. Earlier, the price dropped to $1,163.60, the lowest level since May 5. Losses accelerated after the price fell below the 100-day moving average around $1,181, a key area of resistance. “Gold is finally succumbing to its wounds,” Zeman said. “I have gold positions that I’m looking to exit. There are a lot of sell stops clustered around the $1,180 area.” Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped to 1,301.74 metric tons yesterday. Assets under management have fallen 1.4 percent this month, heading for the first decline since February. “With the disappearance of technical support for the gold market, it appears likely that traders may move to the sidelines and liquidate, rather than hold on to, lingering expectations of the need for safe haven,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.
German Growth Not Yet Sustainable, Trade Lobby Head Tells Bild. Germany’s export-driven economic expansion will slow in 2011 as foreign sales cool and government support programs expire, Anton Boerner, head of the BGA wholesale and export federation, told Bild newspaper. The German economy isn’t yet in a self-sustaining economic upswing, Boerner said. Germany’s “debt crisis” poses a risk to growth and governments merely “bought time” by saving Greece from default, he said.
The financial regulation bill may add more systemic risk than it relieves, said Joel Telpner, a partner with the law firm Jones Day in New York. The U.S. financial overhaul that President Barack Obama signed into law last week mandates that swaps between backs and major users like hedge funds and asset managers also be backed by clearinghouses, creating new demand for clearing services. Clearinghouses are well capitalized by their members, who share the risk if any of them defaults, lessening the impact. The bill may sequester too much risk in clearinghouses, Telpner said. "Clearing may simply concentrate the risk because the number of players that go through the clearinghouse become concentrated and owners of the clearinghouses are going to be the large financial institutions. "Instead of improving systemic risk, maybe we are exacerbating it. Maybe we are creating new entities that are too big to fail and setting up a scenario in the future where we're going to be arguing and anguishing about bailing out the clearinghouses." "The clearing process is going to create a number of very complicated questions. We have yet to begin to understand the potential new set of problems we are creating as a result of clearing." "Associates with three years experience, how are they going to come up with writing these complex rules? If we're hiring a lot of young people to write rules, we may spend the next 10 years having to fix the rules and making them work in the real world."
India Raises Key Rate More Than Forecast to Anchor Inflation. India’s central bank increased a key interest rate more than economists forecast, battling to contain a surge in inflation that’s led to strikes and street rallies. The central bank raised the reverse repurchase rate a half point to 4.5 percent, and the repurchase rate to 5.75 percent from 5.5 percent, it said in Mumbai. Today was the first time officials boosted one of the main rates by more than a quarter point since the last series of increases in 2008; the median forecasts in Bloomberg News surveys were for quarter-point moves. “Inflation has become the dominant political and economic issue in India,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. “The RBI needs to continue to be aggressive with rate hikes to slow inflation.”
New York City Borrowing Costs Fall 30% With Year's Biggest Bond. New York City cut its borrowing cost 30 percent on an $800 million bond sale, the municipality’s biggest tax-exempt offer of 2010, as a shortage of new issues drove down the extra interest investors demanded over top-rated debt to buy the securities. The 10-year general obligations, rated third-highest by the three major rating companies, were priced to yield 3.05 percent during sales to individual investors, according to a person familiar with the bonds. The premium was 19 basis points above top-rated comparable debt yesterday, down from 27 basis points in June, according to Municipal Market Advisors data. A basis point is 0.01 percentage point.
Home Vacancies Rise as Ownership Reaches 10-Year Low. About 18.9 million homes in the U.S. stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade. The number of vacant properties, including foreclosures, residences for sale and vacation homes, rose from 18.6 million in the year-earlier quarter, the U.S. Census Bureau said in a report today. The ownership rate, meaning households that own their own residence, was 66.9 percent, the lowest since 1999. Lenders are accelerating foreclosures as borrowers fall behind in mortgage payments after the worst housing crash since the Great Depression. A record 269,962 U.S. homes were seized in the second quarter, according to RealtyTrac Inc. Foreclosures probably will top 1 million this year, the Irvine, California- based data company said in a July 15 report. “There are a lot of people losing their homes and either moving in with family or renting places to live,” said Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts. “Foreclosures are still going up.”
U.S. Economy: Consumer Confidence Slips to Five-Month Low. American consumers lost confidence in July, shaken by mounting concern over jobs and wages that threatens to constrain the economic recovery. The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. The proportion of Americans who expected their incomes to rise over the next six months fell to 10 percent, the lowest since April 2009. “Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement.
Wall Street Journal:
UK Debt Wears Stress Well. As investors and analysts continue to pore over the nitty-gritty details of Europe’s bank stress test results, one unexpected beneficiary appears to be Britain’s government. The cost of insuring against a British government debt default is the cheapest it has been this year. According to data provider Markit, it now costs $61,000 a year to insure $10 million of British government bonds against default compared with $67,000 at the end of the day on Friday – a hefty drop. This cost stood at $100,000 in early February when some investors were speculating, ahead of Britain’s spring election, that the country might have a Greece-style financial crisis. It’s not just Britain. Credit-insurance costs for Greece, Portugal, Ireland, Italy and Spain, which use the euro, are also noticeably lower today, with most of these levels returning to levels last seen two months ago. Basically, derivatives traders like what they see so far in the bank stress test results, though they’re not overjoyed. There are still tensions in Europe’s financial system. For one thing, the cost for banks to borrow euros from each other in the so-called “interbank” market – the belly of the financial system – continues to edge worryingly higher. This rising “Euribor” rate suggests banks are still worried about lending to each other. But it’s reassuring that the credit-default swaps market, where investors buy insurance against bond defaults, is pointing to an easing of fears about European banks and their debt-laden government overseers.
The Do-It-Yourself House Call. Insurer-Endorsed Remote-Monitoring Technology Leads Heart Patients to Take Their Readings at Home. Technology that aims to keep congestive heart failure patients out of the hospital is gaining traction. The idea is for heart patients to take readings like their weight, blood pressure and other key metrics using wireless and other technologies; the data are then transmitted to a case manager or medical care giver. That way health care givers can catch, and address, warning signs before the patient lands in the ER with shortness of breath or a heart attack.
Tax-Cut Debate Grows Louder. More signs that the tax-cut debate is heating up: As Congress begins wrestling with the soon-to-expire Bush tax cuts, a new survey by Rasmussen Reports shows the number of U.S. voters viewing the tax issue as very important has reached a new high. In the survey, conducted in mid-July and released last weekend, 68% of voters said they view the issue of taxes as very important. That’s 10 points above the last reading in May, Rasmussen says. A Gallup survey in April also suggested voters are becoming more conscious of the issue of looming tax increases. That survey showed that 63% of voters expected their taxes to go up next year, the highest level since 1977.
Surprise: Russia Declares North Korea Innocent in Cheonan Sinking. Russia is the FIRST country to find North Korea innocent in the Cheonan sinking. Even Communist China hasn't completed its investigation into the March shipwreck -- though a not-guilty ruling seems likely now.
More on China's Trillions in Unrepayable Project Loans. Last Friday we reported that the most important (and most underreported) story of the week was Bloomberg's disclosure that Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, and that only 27 percent of the loans to the financing vehicles can be repaid in full by cash generated by the projects they funded.
The Sacramento Bee:
Democratic Donor Gives $5 Million to Prop. 23 Foes. Thomas Steyer, a San Francisco hedge fund manager and a big backer of Democratic candidates, will donate $5 million to a group opposing the ballot measure to roll back California's landmark climate change law. California's greenhouse gas reduction law, or AB 32, aims to cut emissions to 1990 levels statewide by 2020. Backed by Valero Energy Corp. and Tesoro Corp. of Texas,Proposition 23 seeks to suspend AB 32 until the statewide unemployment rate drops to 5.5 percent for four consecutive quarters.
Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
Politico:
Rendell: Obama Shouldn't Do 'View'. Pennsylvania Democratic Gov. Ed Rendell advised President Barack Obama against appearing later this week on “The View,” encouraging the president to only do “serious shows.” “I think the president should be accessible, should answer questions that aren't pre-screened, but I think there should be a little bit of dignity to the presidency,” Rendell said during an appearance on MSNBC’s “Morning Joe.” Rendell said the talk show did not have the required stature to host the president, comparing “The View” to “The Jerry Springer Show,” which frequently devolves into onstage brawls. “I wouldn't put him on Jerry Springer either,” Rendell said. “It is different a little bit. But I think the president of the United States has to go on serious shows.
Real Clear Politics:
The Growing Battle Over Berwick. Even with last week's Elaine Sherrod -NAACP media uproar, the Obama administration's recess appointment of Dr. Donald Berwick as Medicare czar continued stirring controversy, with Senate Republicans "spoiling for a fight" and "escalating the conflict" according to the Washington Examiner's Byron York.
Institutional Investor:
Finance Regulation Bill Changes Accredited Investor Rules. Congress changed the rule that determines who can invest in hedge funds and other similar funds. One of the many overlooked features of the Financial Regulation (FinReg) bill signed last Wednesday by President Obama includes a change to the definition of “accredited investor.” The accredited investor net worth threshold for natural persons is $1 million. However, going forward, this no longer includes the value of the investor’s primary residence. Until now, this feature enabled many otherwise middle-class people to qualify for hedge funds in recent years due to the soaring rise in home values. The bill does not change the annual income test, however.
Genzyme(GENZ) Weighs Sanofi Approach: Source. Biotechnology company Genzyme Corp (GENZ) is weighing an informal takeover approach from France's Sanofi-Aventis (SASY) but is not looking to sell the company, a source familiar with the situation said on Monday.
BP(BP) Says DOJ, SEC Probe Trading Around Oil Spill. BP Plc (BP) said U.S. markets regulator the Securities and Exchange Commission and the Department of Justice had launched a probe into market trading connected to the oil giant's Gulf of Mexico oil spill. "The Securities and Exchange Commission and DoJ are conducting informal enquiries into securities matters arising in relation to the incident," the company said in a statement on Tuesday.
Goldman(GS) Launches Derivatives Clearing Service. Goldman Sachs (GS) on Tuesday said it is launching a service to facilitate central clearing for clients in all listed and privately traded derivatives asset classes."The move to central clearing for over-the-counter derivatives is a significant turning point in the marketplace," Jack McCabe, managing director and co-head of futures and the and derivatives clearing service business at Goldman said in a release.
Apple(AAPL) Refreshes Mac Desktops. Apple Inc (AAPL) updated its line of desktop computers on Tuesday with the latest-generation chips, as the company continues to gain share in the PC market. Apple sold 1 million desktop Mac units in its most recent quarter, up 18 percent from last year, generating $1.3 billion in revenue.According to industry tracker IDC, Apple ranks as the No. 4 computer vendor in the United States, with an 8.8 percent market share.
Handelsblatt:
Germany's Finance Ministry wants the European Union to ease its rules on bad banks, citing government sources. The Finance Ministry wants to encourage German banks to offset their outstanding toxic debts via a bad bank, yet is concerned that applicants to the Soffin bank-rescue fund might be put off by strict EU conditions.
