It almost feels like a race between the politicians and the NFL – who will come to a settlement first. Well one group that came to an agreement today was the European Union as they have agreed to bailout Greece (again). This will be a TARP like effort to restructure, I’m sorry extend short-term maturities out to 30 years at par with significantly lower interest rates. In essence it is a blank check and now the IMF may need to get involve to bolster liquidity. Which means US taxpayer funds will be exposed.
As the EU tries to ring fence the sovereign debt crisis to Greece, larger issues lie ahead with the likes of Ireland, Portugal, Italy and Spain facing a potential funding crisis. After Apple’s earning mid-week the EU should ask them for a loan, as they sit on ~$75 billion in cash and equivalents. Updates will be sporadic over the next week as I am trying to take a few days off. Stay tuned! {TJM}
Gold is trading at an all-time high! What it means: One of two things — QE3 or WW3. Investors (and central banks around the world) are flocking to the yellow metal as an alternative asset class ahead of another perceived stimulus package, or as a hiding spot with a wary eye towards geopolitical strife. While this trend can certainly continue, commodities have downside risk if either of these attitudes shift, or if perceptions of disinflation or deflation begin to percolate (remember, the stock market is a forward-looking discounting mechanism). ~Todd Harrison
“DAGONG (China’s rating agency) IS LIKELY TO DOWNGRADE U.S. RATING…Debt limit aside, borrowing to pay off loans won’t work, agency says.” ~China Daily
The five most accurate currency forecasters over the past six calendar quarters now believe the weakness in the U.S. dollar is nearing an end, according to Bloomberg. The dollar fell 13.6% against a basket of major currencies (The Dollar Index) in the 12-month period ended June 2011. The euro-zone debt crisis has changed the climate to the extent that hedge funds and other large speculators are no longer betting on the collapse of the dollar. Sentiment would obviously change if the U.S. government failed to properly handle the debt ceiling issue. The strength in U.S. corporate earnings is a plus. Estimates from equity analysts compiled by Bloomberg call for S&P 500 profits to increase by 19% in 2011.
Real GDP increased at an annualized rate of 4.0% in Q1 2011, following an increase of 3.5% rise in the prior quarter. Personal consumption expenditures, exports, and nonresidential fixed investment contributed positively to growth during the quarter. Meanwhile, imports rose sharply. In the March 2011 quarter, trade in goods and services resulted in a deficit of $562B, many because of the high price of petroleum. However, the major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending. We are taking a negative action not based on the delay in raising the debt ceiling but rather our concern about the high level of debt to GDP in excess of 100% compared to Canada’s 35%. Nonetheless, since the US’s debt is denominated in dollars, a hard default is unlikely. ~Egan-Jones Rating Agency
“Italian banks own government bonds equivalent to 13% of total bank assets—among the highest exposure of any major economy banking system…in contrast, Spanish banks’ exposure to their own government is just 6.8% of bank assets; for U.S. banks, it is 5% and the U.K. just 1.5%. The only banking system more exposed to its own government is Japan’s at 24% of bank assets”. ~WSJ
Remember 75% of the “rich” (making +$200/250k) also make <$500k. So won’t make huge tax revenue off this group of working wealthy. ~Brian Sullivan
The current economic climate in the U.S. continues to present headwinds for small businesses. Only 31% of CEOs running small companies expect the economy to improve over the next 12 months, down from 50% in Q1, according to a quarterly survey by Vistage International. The top reasons cited for the pessimism included concerns over health care costs, tight credit markets, slow progress on new trade agreements and anemic growth. While only 49% of those polled said they planned to add staff, 66% said they intended to increase wages over the next year. Late payments are also making life tougher. A survey by the National Federation of Independent Business found that 40% of small businesses are coping with late payments from customers, according to USA TODAY. Manufacturers with less than $10 million in annual revenue, on average, received payments 48 days out in 2011. That is a six-day increase over 2010 and a 10-day rise from 2006.
US ethanol refiners use more corn than farmers. ~FT
U.S. state tax revenue rose 12.5 percent in the first two months of last quarter from the same period a year earlier, evidence that governments are rebounding from the strains brought on by the recession, a report found. The Nelson A. Rockefeller Institute of Government in Albany, New York, said the growth was based on reporting by 45 states. ~Bloomberg
The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers’ share is ultimately shifted to workers in the form of lower wages. But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.) ~WSJ
“Christian Lopez revealed to reporters earlier this week that he has over $100,000 in student debt after graduating from St. Lawrence University. This…won’t help.” So says Connor Simpson of The Atlantic Wire, after John Leland of the New York Times explained that Christian Lopez, the fan who caught Derek Jeter’s 3,000th hit over the weekend, could owe as much as $14,000 to the IRS for…yes, giving the ball to the Yankees’ captain. ~Minyanville
We have re-entered a stage in our financial crisis when investors have extreme fear of putting their money into cash equivalents. Investor concern was rational in 2007-2008 and it is rational now as well, especially when money market funds, such as the Fidelity Prime Money Market Fund (FDRXX), a $120 billion fund, holds about 46% of its assets in the short-term debt of European banks. It is long past the time to move out of these funds or hedge their risks. ~Arrow Insights
The price of copper is trading at around $4.40 per pound, down about 5.3% from the all-time high of $4.65 reached in February 2011, according to Reuters. The demand for copper has been strongest in China, which has accounted for about 40% of this year’s 21 million metric tons of global consumption. The price of copper is also up on potential supply shortages later this year and into 2012. High copper prices have motivated thieves to steal more of it for its scrap value.
Copper thefts are up 85% in London and 123% in France.
Investors seeking current income have taken a liking to emerging market debt. Data provided by EPFR shows the funds in this category took in over $53 billion in 2010 and another $15 billion so far this year, according to Reuters. Emerging market bond funds now oversee more than $186 billion. Emerging countries have made great progress in shoring up their financial systems. A report from Prudential noted that nearly 60% of emerging nations are rated investment-grade (BBB or higher), up from just 2% in 1993. Weakness in the dollar and attractive yields don’t hurt. The yield on the Barclays Capital Global Emerging Markets Index was 5.55% at the close of June, compared to 1.34% on its U.S. Treasury: Intermediate Index and 3.16% on its Intermediate Corporate Index. The U.S. Dollar Index (DXY) is down 4.8% so far in 2011.
Over the past four years Rupert Murdoch’s U.S.-based News Corp. has made
money on income taxes. Having earned $10.4 billion in profits, News
Corp. would have been expected to pay $3.6 billion at the 35 percent
corporate tax rate. Instead, it actually collected $4.8 billion in
income tax refunds, all or nearly all from the U.S. government. ~Reuters
Bob Lutz’s main argument is that companies, shareholders and
consumers are best served by product-driven executives. In his book,
Lutz wisecracks his way through the 1960s design- and technology-led
glory days at GM to the late-1970s takeover by gangs of M.B.A.s.
Executives, once largely developed from engineering, began emerging from
finance. The results ranged from the sobering (managers signing off on
inferior products because customers “had no choice”) to the hilarious
(Cadillac ashtrays that wouldn’t open because of corporate mandates that
they be designed to function at -40°F). It’s pretty easy to imagine Car
Guy Lutz removing his mirrored shades and shouting to the cowering line
manager, “Well, customers in North Dakota will be happy. Too bad nobody
else will!” (See five destructive myths about the U.S. economy.) ~Time
How could merely rinsing the mouth with Gatorade make us perform better? To understand the mechanisms behind this peculiar gargling effect, the neuroscientists then had the cyclists swish around drinks made with real sugar and saccharin in a brain scanner. Although the athletes couldn’t reliably tell the difference between the two, their brain showed much higher levels of activation in reward areas, such as the nucleus accumbens and orbitofrontal cortex, when given the drink made with real sugar. According to the researchers, this is because the human mouth contains carbohydrate receptors that respond to foods independently of their taste. Once a hint of carbohydrate is detected, these receptors immediately send a sensory report to the brain, telling it to expect a lovely rush of calories. Nothing has been swallowed, but that doesn’t matter: The sugar still makes us happy. ~Wired
Chugging eight glasses of water per day, as many health professionals and nutritionists recommend, is said to do many wonderful things for your health — from preventing urinary tract infections to improving skin tone, promoting weight loss, regulating your digestion, and increasing concentration. But a new study published in the British Medical Journal suggests that not only does drinking eight glasses of water fail to deliver on those health benefits, but it can actually have detrimental effects — such as hyponatremia, a low-blood-sodium condition common to marathon runners. Margaret McCartney, the Scottish doctor who undertook the study, says those claims of health benefits are “thoroughly debunked nonsense,” and come from bottled water manufacturers themselves. (For example Hydration for Health, a research group backed by Volvic and Evian.) ~Gawker
Paul McCartney during his Friday concert at Yankee Stadium: “Who is this Derek Jeter guy? Somebody said he’s got more hits than me.”
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