Wall Street tumbles to worst quarter since Lehman fall
NEW YORK (Reuters) - U.S. stocks staggered to the end of a dismal second quarter on Wednesday in another low volume session as investors found little reason to take on risk after conflicting economic data.
Wednesday's session ended like many during the quarter, with a late-day selloff as buying interest waned and investors sold underperforming stocks in the worst quarter since the market meltdown triggered by the collapse of Lehman Brothers.
"Just pushing all the garbage off the side of the ship," Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey, said of the late sell-off.
"If there was more of a lift, they would have been able to sell these things a little higher up, and there wouldn't have been this kind of end-of-day pressure."
The Dow Jones industrial average .DJI dropped 96.28 points, or 0.98 percent, to 9,774.02. The Standard & Poor's 500 Index .SPX slid 10.53 points, or 1.01 percent, to 1,030.71. The Nasdaq Composite Index .IXIC fell 25.94 points, or 1.21 percent, to 2,109.24.
For the quarter the S&P lost 12 percent, the Dow fell 10 percent and the Nasdaq dropped 12 percent as worry about sovereign debt and the sustainability of the U.S. economic recovery caused investors to pull back from a peak hit in late April.
For a graphic see link.reuters.com/hyd25m
Leveraged short ETFs, widely blamed for a portion of Tuesday's losses, were also cited for the late sell-off as managers piled on bets the market will fall. Those funds shorted the market to keep up with customer demand.
The S&P fell below the 1040 level that it had held since February, breaking out to the downside from what chartists call a very bearish "head and shoulders" price pattern and suggesting a major fall could come in the next five months.
Data on Wednesday showed Midwest business activity grew slightly more than expected in June, but a private-sector report showed weakness in employment, a critical part of the economic recovery. For details, see [ID:nN30395701]
The PHLX Oil Services Sector index .OSX was among the few bright spots, inching up 0.02 percent, aided by a 1.8 percent gain in Baker Hughes Inc (BHI.N) to $41.57. The index has fallen 20.3 percent for the quarter and 22.4 percent since the BP Plc (BP.L)(BP.N) oil spill.
"If you want to go bottom fishing, you do it in the oil services sector. There is going to be consolidation in that group," said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.
"With this moratorium on offshore drilling, they are a dead business."
Even with the accelerated volume heading into the close, volume was tepid, with about 9.21 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, slightly below last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered rising ones on the NYSE by 1,907 to 1108, while on the Nasdaq, decliners beat advancers 1,699 to 959.
Cold War support for Russian "spies" on networking site
MOSCOW (Reuters) - Patriotic, anti-American messages adorn the pages of two alleged Russian spies on Russia's answer to Facebook, a reminder of historic suspicions and resentments that have survived the end of the Cold War.
"Russia will never abandon you!" is the repeated message on the pages of Mikhail Semenko and Anna Chapman, arrested in the United States on suspicion of being part of a Russian spy ring. Over 100 people left similar messages of support on the Russian language social netowrking site odnoklassniki.ru on Wednesday.
"Hang on in there Misha (Mikhail)... Everyone knows this is an American witch-hunt," one surfer posted on Semenko's page, referring to U.S. Senator Joseph McCarthy's anti-Communist investigations at the height of the Cold War.
The U.S. arrests earlier this week of 10 alleged spies and tales of secret meetings, invisible ink and secret handovers, have been splashed over the front pages of U.S. media.
Russia has angrily rejected the allegations but later said ties between the Cold War foes would not be damaged.
Semenko's page says he is 27 and last visited on May 24. In his profile picture, the floppy-haired smiling Russian poses in front of the White House in Washington.
"Those yanks really know how to freak people out," another surfer wrote in one of many comments slamming Americans and protesting the innocence of those arrested.
People ranging from teenage boys to female pensioners posted the comments.
Chapman, who Russian media say is actually called Kushchenko, last visited the site on June 20. The 28-year-old's photo shows her casting a sideways glance, clad in a bright blue bustier and with flowing brown hair.
One of her many female supporters wrote: "Soon Anna will return home... Enormous respect is due to Anna. A book will be written about her and a film made."
The spy ring is accused of gathering information ranging from data on high-penetration nuclear warhead research programs to background on CIA applicants for the Russian government.
U.S. Stocks Drop as S&P 500 Posts 12% Loss for Second Quarter
By Kelly Bit
June 30 (Bloomberg) -- U.S. stocks fell, extending the first quarterly drop in the Standard & Poor’s 500 Index in more than a year, after Moody’s Investors Service’s warning that it may downgrade Spain revived concern about sovereign debt and snuffed out an earlier rally.
Alcoa Inc., Walt Disney Co. and Hewlett-Packard Co. lost at least 2.3 percent to lead losses in the Dow Jones Industrial Average after Moody’s said Spain’s Aaa rating is in jeopardy. General Mills Inc. slumped 3.7 percent after its forecast for the year ending in May 2011 trailed analysts’ estimates.
The S&P 500 fell 1 percent to 1,030.71 at 4 p.m. in New York. It has declined 12 percent since March 31, breaking a four-quarter winning streak that drove the benchmark index for U.S. stocks up 47 percent. The Dow decreased 96.28 points, or 1 percent, to 9,774.02 today, giving it a second-quarter decrease of 10 percent. The Nasdaq-100 Index, which gets 63 percent of its value from technology companies, slumped for an eighth straight day, the longest stretch of losses since 2006.
“The glass is half empty when you’re at the end of the quarter,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages $1.5 billion. “It’s continued concerns with the economic slowdown and global deterioration issues as highlighted by the Spanish potential downgrade and the jobs data.”
Companies in the U.S. added fewer workers in June than forecast, according to data today from ADP Employer Services. Shares had advanced earlier after the European Central Bank said it will lend the region’s banks less money than economists had forecast, spurring speculation the region’s lenders are stronger than had been expected. The S&P 500 had gained as the Institute for Supply Management-Chicago Inc.’s business barometer showed manufacturing is overcoming turmoil in financial markets.
Any gains today were limited after companies in the U.S. added fewer workers in June than forecast, according to data from a private report based on payrolls. The 13,000 gain followed a revised 57,000 increase the prior month, data from ADP Employer Services showed today. Economists surveyed by Bloomberg News had anticipated an increase of 60,000, according to the median forecast.
The ADP data came as investors awaited a Labor Department report July 2 that will show the U.S. lost jobs for the first time this year, reflecting a drop in federal census workers as the population count began to wind down, economists said.
European Bank Loans
U.S. futures rallied in trading before the open of exchanges after the European Central Bank said banks sought 131.9 billion euros ($161.8 billion) in three-month loans as a yearlong facility expires. The figure amounts to about half the level the market was expecting to be borrowed from the central bank, said Jacques Porta, a fund manager at Ofi Patrimoine.
“This amounts to the stress test the U.S. banking industry had last year and we didn’t,” said Paris-based Porta, who oversees about $425 million in stocks. “European banks are one of the weakest links in global equities. Investors were afraid the ECB would confirm this, so it’s good news.”
The S&P 500 is valued at 14.9 times projected profits, according to Bloomberg data. Shares of raw-material producers, financial and energy companies led the decline, dropping at least 13 percent. Alcoa, Microsoft Corp. and General Electric Co. led the Dow’s losses in the second quarter, declining at least 20 percent.
S&P 500’s Decline
The S&P 500 has tumbled 15 percent from this year’s high on April 23 on concern a sovereign-debt crisis in Europe and China’s moves to slow the world’s largest emerging economy will dent global growth.
“From a risk-reward standpoint these are good entry prices,” said Robert Doll, who helps oversee $3.36 trillion as vice chairman and chief equity strategist at New York-based BlackRock Inc. “I think the risk of a double-dip recession is low.”
The S&P 500 has in recent days been testing levels watched by analysts who study charts and patterns. S&P 500 futures rebounded at 1,035 in May and at 1,038 earlier this month. The S&P 500 fell as low as 1,028.33 at 3:45 p.m. in New York, the lowest price since Oct. 2, according to data compiled by Bloomberg. The S&P 500’s decline in the past two weeks started after the index failed to stay above a level identified by chart analysts as bullish: its average price in the past 200 days.
All 10 groups in the S&P 500 declined today. Wal-Mart Stores Inc. slipped 1.7 percent to $48.07. The world’s biggest retailer may sell debt in a three-part benchmark offering, according to a person familiar with the transaction. The 5-, 10- and 30-year bonds may be sold as soon as today.
Monsanto Co. slumped 2.4 percent to $46.22. The world’s largest seed company posted a 45 percent drop in third-quarter profit as its Roundup herbicide lost money and corn-seed earnings fell.
General Mills retreated 3.7 percent to $35.52. The maker of Lucky Charms cereal and Progresso soup reported a 41 percent drop in fourth-quarter profit and gave an earnings forecast for the year ending in May 2011 that trailed analysts’ estimates.
AT&T Inc. lost 1.1 percent to $24.19. The largest U.S. phone company is losing its exclusive claim on Apple Inc.’s iPhone. Analysts say Verizon Wireless may sell as many as 12 million next year after it begins offering the device and widen its lead over AT&T. Verizon, the largest U.S. mobile-phone carrier, dropped 2.1 percent to $28.02.
3M Co., the maker of 55,000 products from Post-It Notes to Scotch tape, was the only company to gain in the Dow. It advanced 0.6 percent to $78.99 as business activity in the U.S. expanded in June for a ninth straight month. Deere & Co., the world’s farm equipment maker, increased 0.5 percent to $55.68.
Ford Motor Co. gained 2 percent to $10.08. The second- largest U.S. automaker said it will pay about $3.8 billion in cash to a union health-care fund today, a sign the company is confident that Chief Executive Officer Alan Mulally’s focus on the namesake brand will generate cash.
Companies involved in trying to halt the flow of oil from a ruptured BP Plc well in the Gulf of Mexico rallied after the first hurricane of the season headed away from the area.
BP increased 4.4 percent to $28.88. Anadarko Petroleum Corp., the Texas oil company that owns a 25 percent stake in BP’s well, fell 1.6 percent to $36.09. Halliburton Co. advanced 0.3 percent to $24.55.
China Stocks Drop Signals 65% Rally to Morgan Stanley (Update2)
By Bloomberg News
June 30 (Bloomberg) -- China, the worst-performing stock market after Greece, looks like a buy by almost any measure, according to top-ranked analysts of the Asian nation’s shares.
The Shanghai Composite Index’s 27 percent plunge this year, including yesterday’s 4.3 percent slump, sent its price-earnings ratio to 18, the lowest level versus the MSCI Emerging Markets Index in a decade. The largest owners of yuan-denominated stocks have turned net buyers for the first time since equities bottomed in 2008, while international investors are paying the biggest premium in 21 months to bet on a rally in funds that hold China’s yuan-denominated or A shares, data compiled by Macquarie Group Ltd. and Bloomberg show.
Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc. say stocks will rally as China’s June 19 decision to end the yuan’s two-year peg to the dollar helps curb inflation and asset bubbles. The Shanghai index rose 62 percent in 12 months after China last allowed a more flexible exchange rate in July 2005.
“We are very bullish,” said Jerry Lou, the Hong Kong- based strategist at Morgan Stanley, among the top-ranked analysts for China stocks by Institutional Investor, who predicts the Shanghai Composite may climb 65 percent to 4,000 by June 2011. “We like valuations and inflation will peak. All we need is a catalyst such as a change in yuan policy.”
Prospects for a stock rebound may be cut as China’s exports face “strong headwinds” in the second half and loan growth may slow by the end of 2010, Citigroup Inc. said this week, even as the average of 14 economist estimates in a Bloomberg survey calls for economic growth of 10.2 percent this year and 9.2 percent in 2011.
The Conference Board yesterday revised its leading economic index for China, contributing to the biggest sell-off in Chinese equities in six weeks. Agricultural Bank of China Ltd., which priced the Shanghai portion of its $20.1 billion initial share sale, also drove banking stocks lower.
The Shanghai Composite fell for a sixth day today, losing 1.2 percent to 2,398.37 at the close. Its slump this year is second only to the 35 percent plunge in Greece’s ASE Index among the world’s 60 biggest stock markets, according to data compiled by Bloomberg. Companies on the Shanghai gauge will increase earnings by 40 percent in 12 months, more than double the pace of the ASE, analysts’ estimates by Bloomberg show.
Rising profits reduced the Shanghai Composite’s valuation premium over the MSCI emerging index to 26 percent, down from an average of 140 percent since 1997, based on weekly price- earnings ratios compiled by Bloomberg. The last time the gap was so small in February 2000, the Shanghai Composite gained 27 percent in 12 months, while the MSCI measure sank 26 percent.
Lower valuations spurred the biggest Chinese investors to buy last month. Shareholders who own at least 5 percent of a company’s stock boosted their holdings by 1.1 billion yuan ($162 million), according to Macquarie analysts Michael Kurtz and Shirley Zhao in Shanghai, basing their analysis on data from Wind Information. Similar purchases in October 2008 signaled the end of the Shanghai Composite’s year-long bear market, with the gauge rallying 82 percent from its low on Oct. 28, 2008, through October 2009.
Yuan-denominated shares, restricted almost exclusively to local investors, fell below Chinese stocks traded in Hong Kong this month for the first time in almost four years, according to the Hang Seng China AH Premium Index. When A shares last traded at a discount in November 2006, the Shanghai Composite tripled in 12 months, outpacing a 156 percent gain in the Hong Kong benchmark index and a 58 percent rise in the MSCI gauge.
‘Pay for Exposure’
“The premium between A and H shares is disappearing,” said Hao Hong, Beijing-based global equity strategist at China International Capital Corp., the top-ranked brokerage for China research in Asiamoney’s annual survey. That indicates “foreign investors are willing to pay for exposure to China’s stocks.”
International investors pushed the price of BlackRock Inc.’s iShares FTSE/Xinhua A50 China Index exchange-traded fund to 11 percent above the value of its underlying assets last week, the highest level in almost two years, according to data compiled by Bloomberg. The fund trades in Hong Kong and tracks the 50 biggest A-share companies.
The Shanghai Composite fell 23 percent this quarter, lagging behind gauges in the other so-called BRIC markets of the largest developing economies, after China raised banks’ reserve requirements to the highest level in at least three years and curbed real-estate speculation. Property prices rose 12.4 percent in May from a year earlier, the second-fastest pace after April’s 12.8 percent record gain.
Brazil’s Bovespa index dropped 12 percent during the period and Russia’s Micex slipped 8.7 percent, while India’s Bombay Stock Exchange Sensitive Index advanced 0.3 percent. The MSCI emerging gauge lost 8.9 percent.
The New York-based Conference Board corrected its April gauge for the outlook of China’s economy this week, saying its leading index for the country rose the least since November, rather than registering the biggest gain in 14 months.
A flood of new stock may also weigh on the market, according to Credit Suisse Group AG’s Sakthi Siva. Chinese companies will sell about 320 billion yuan ($47 billion) of new shares in Shanghai and Shenzhen this year as they fund expansion and banks bolster capital after a record amount of government- led lending, PricewaterhouseCoopers predicts.
Agricultural Bank’s share sale in Shanghai and Hong Kong is the biggest initial public offering since Industrial & Commercial Bank of China Ltd.’s $21.9 billion sale almost four years ago.
“I’m still quite cautious,” Siva, the Singapore-based top-ranked Asia strategist in Institutional Investor’s 2010 poll, said in an interview. “There’s quite a lot of supply.”
Ending the fixed 6.83 yuan peg to the dollar should help “contain inflation and asset bubbles,” China’s central bank said in a June 20 statement. Inflation will probably peak at 3.7 percent toward the end of the third quarter then “level off” the rest of the year, according to CICC’s Hong.
Chinese authorities had prevented the currency from strengthening against the dollar since July 2008 to help exporters cope with the global financial crisis.
The yuan appreciated 21 percent in the three years after a managed float against a basket of currencies was introduced in 2005. Twelve-month non-deliverable forwards yesterday indicate investors are betting the yuan will strengthen 1.6 percent. A yuan revaluation won’t happen quickly or fix all of the global economy’s imbalances, International Monetary Fund Managing Director Dominique Strauss-Kahn said this week.
Vanke, China Merchants
China Vanke Co., the Shenzhen-based property developer that sank 37 percent this year, trades for 13 times reported profits, down from 35 times a year ago, according to data compiled by Bloomberg. Earnings growth of 29 percent this year will help lift the stock 42 percent, according to analyst estimates on Bloomberg.
China Merchants Bank Co.’s 2.7 price-to-book ratio is near a record low relative to the MSCI Emerging Markets Financials Index after the Shenzhen-based company declined 24 percent this year. The stock is poised to surge 49 percent in 12 months, according to analysts, who have 35 “buy” ratings and one “sell,” according to data compiled by Bloomberg.
Consumer-related shares will benefit from a shift in the economy to increase domestic spending, said Leo Gao, who helps oversee about $600 million at APS Asset Management Ltd. in Shanghai, whose APS China Alpha Fund has beaten 87 percent of peers in the past year, according to Bloomberg data.
“Stocks will end the year higher,” Gao said.
Spain’s Aaa Rating on Review for Downgrade at Moody’s (Update2)
By Emma Ross-Thomas
June 30 (Bloomberg) -- Spain’s top credit ranking was placed on review for a possible downgrade by Moody’s Investors Service, which cited “deteriorating” growth prospects and the challenges the government faces to achieve its fiscal targets.
Spain’s Aaa classification may be lowered as much as two grades, Moody’s analysts including Senior Vice President Kristin Lindow in New York said today in a statement. The review will be concluded within a three-month period, the ratings company said.
The moves comes a day before Spain is due to sell as much as 3.5 billion euros ($4.3 billion) of five-year notes and puts pressure on the Socialist government to deepen spending cuts as it starts drafting next year’s budget. Fitch Ratings and Standard & Poor’s already stripped Spain of their top ratings.
“It will add to the general nervousness before the Spanish auction tomorrow,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The move shouldn’t come as too much of a surprise as Spain has already lost its triple-A rating with the other two agencies.”
U.S. stocks extended losses and the euro trimmed gains against the dollar after the announcement from Moody’s, which is the latest blow to the euro-area as its members seek to escape a debt crisis. Single currency members including Greece and Portugal have all had their sovereign ratings lowered on concern they will struggle to cut their budget deficits to within European Union limits.
Prior to Moody’s decision, investors had expected strong demand at the five-year note auction on easing concerns about the region’s banks after lenders sought less cash than forecast at a European Central Bank tender. The extra yield demanded on Spanish debt rather than German equivalents fell to 198.4 basis points today from 204.9 basis points. That compares with a euro- era high of 221 basis points on June 16.
Spain, which faces 24.7 billion euros of maturing debt in July, is trying to convince investors it can cut the third- largest deficit in the euro region, while bolstering the country’s savings banks and lifting the economy out of a two- year slump. The July debt redemptions are the largest for the rest of the year and the government has said it will have no trouble making the payments, which coincide with some of the largest tax revenue of the year.
Moody’s said it will “review” next year’s budget “to assess whether the deficit target for 2011 can be achieved.” That increases pressure on the minority Socialist government, which cut civil servants’ wages this month and will increase the value-added tax rate tomorrow, as it starts drafting next year’s budget ahead of its presentation to Parliament by the end of September.
The government expects to cut the budget deficit to 6 percent of gross domestic product next year from 11.2 percent in 2009, aiming to bring the shortfall in line with an EU limit of 3 percent in 2013. Moody’s expects the deficit to remain “just over” 5 percent that year, lead Spain analyst Kathrin Muehlbronner said in a telephone interview.
That will push the debt ratio to close to 80 percent by 2014, she said. Last year Spain’s debt burden was 53 percent of GDP, less than Germany’s and below the euro region average.
Moody’s also forecasts less economic growth than Spain’s Finance Ministry as budget cuts threaten the recovery. Moody’s projects that the economy will expand by an average 1 percent a year through 2014, while the government expects growth to accelerate to 2.7 percent in 2013.
Fitch Ratings also cited growth concerns when it cut Spain to AA+ on May 28. Standard & Poor’s ranks the nation AA, having stripped Spain of the top rating in January 2009.
“The general consensus is that it’s a bit overdue. It’s late, it’s old news,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
“You’d need something genuinely new, like the prospect for downgrades across Europe, to have the market reacting to it,” he said.
Stocks Drop, Euro Trim Gains as Moody’s Reviews Spain Rating
By Michael P. Regan and Rita Nazareth
June 30 (Bloomberg) -- Stocks slid, extending the first quarterly drop in more than a year for U.S. benchmark indexes, the euro pared gains and Treasuries turned higher as a possible downgrade of Spain revived concern about European debt.
The Standard & Poor’s 500 Index lost 1 percent to 1,030.71, extending its second-quarter drop to 12 percent and dropping to the lowest level since Oct. 2. The shared European currency strengthened 0.4 percent to $1.2234 at 4:37 p.m. in New York, trimming a rally of as much as 1 percent. The 10-year Treasury yield decreased one basis point to 2.94 percent after climbing as much as 4 basis points earlier.
Spain’s top credit ranking was placed on review for a possible downgrade by Moody’s Investors Service, which cited “deteriorating” growth prospects and the challenges the government faces to achieve its fiscal targets. The euro rallied earlier and the S&P 500 rallied on signs that funding pressures on European lenders are easing and American manufacturing is withstanding turmoil in financial markets.
“Investors still don’t have major conviction on the market right now,” said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees more than $200 billion. “Spain has been under scrutiny for quite some time. That has put some pressure on stocks. We still don’t know the extent of this European sovereign debt situation.”
Alcoa Inc., Walt Disney Co. and Hewlett-Packard Co. slid at least 2.3 percent to lead losses in the Dow Jones Industrial Average. The 30-stock gauge fell 96.28 points, or 1 percent to 9,774.02, the lowest level since Nov. 3.
Investors said some of today’s stock-market losses may be explained by window dressing, the process in which money managers sell shares of the worst-performing companies at the end of the quarter.
“A lot of window dressing could be going on here,” said Eric Teal, who oversees about $4.5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. “On top of that, the news on Spain possibly getting downgraded triggered some selling.”
More than $7 trillion has been erased from the value of global equities since April 15 peak on concern Europe’s debt crisis and China’s efforts to contain inflation will stifle the global economic recovery. Equities tumbled yesterday, sending the S&P 500 down 3.1 percent, after U.S. consumer confidence unexpectedly declined and a Chinese economic index was revised lower.
The S&P 500 has retreated 15 percent from this year’s high on April 23 and is down 7.6 percent in 2010.
Stocks in the U.S. are the cheapest relative to bonds in three decades, a sign it’s time to buy after the biggest equity retreat since the bull market began 15 months ago, according to Michael Darda, the chief economist for MKM Partners LLC.
Income for S&P 500 companies may reach $92 a share in 2010 excluding capital gains and losses, giving the index an earnings yield of 8.8 percent, said Darda, whose Stamford, Connecticut- based firm advises about 400 institutional clients. That’s the highest relative to the interest rate on investment-grade debt since the 1970s, according to data compiled by MKM.
“I’m definitely not a seller,” said Barton Biggs, who helps oversee $1.4 billion at New York-based hedge fund Traxis Partners LP. “We’re going to get better employment numbers, stabilized housing numbers, we’re going to be growing at 3 percent in the second half of this year. The S&P 500 is going to finish the year 10 to 15 percent higher than it is today.”
Early gains in U.S. stocks were limited today after companies in the U.S. added fewer workers to payrolls in June than forecast, according to data from a private report based on payrolls. The 13,000 gain followed a revised 57,000 increase the prior month, data from ADP Employer Services showed today. Economists surveyed by Bloomberg News had anticipated an increase of 60,000, according to the median forecast.
The U.S. Labor Department will release its monthly jobs data on July 2. Employment fell in June for the first time this year, reflecting a drop in federal census workers as the decennial population count began to wind down, economists said before the report.
The Stoxx Europe 600 Index slipped 0.2 percent as declines in raw-material producers overshadowed gains in banks. Rio Tinto Group Plc, the world’s third-largest mining company, slumped 2.6 percent in London, while Banco Santander SA led gains in Spanish banks with a 3.5 percent rally in Madrid.
Bank Bonds Protection
The cost to protect bank bonds from default fell the most in more than a week. Credit-default swaps on the Markit iTraxx Financial Index of 25 banks and insurers declined 6.5 basis points to 165.5, according to JPMorgan Chase & Co. in London, the biggest one-day decline since June 18.
Banks tomorrow need to repay 442 billion euros in 12-month ECB funds and demand for the three-month cash was a litmus test for the health of Europe’s banking system, economists said. The Frankfurt-based central bank said 171 institutions asked for money at its benchmark interest rate of 1 percent.
Crude oil fell, capping the first quarterly decline since 2008, as a government report showed that U.S. gasoline stockpiles increased for the first time in eight weeks and crude supplies declined. Crude for August delivery dropped or 0.4 percent to $75.63 a barrel, the lowest settlement since June 14. Futures fell 9.7 percent for the quarter and have retreated 4.7 percent this year.
Asian stocks fell, dragging the MSCI Asia Pacific Index to its biggest quarterly decline in more than a year, as yesterday’s slump in U.S. consumer confidence fueled concerns about the strength of the global economy. The benchmark lost 1 percent and slumped 9.8 percent since March 31.
The West's protectionist war on the yuan
China apparently worked hard behind the scenes to make it through the G20 Toronto Summit without getting mentioned in dispatches. The final communique says not a word about China specifically, although the country is imbedded in a reference to the need for "greater exchange rate flexibility in some emerging markets."
But the United States wasn't going to let China off that easily. President Barack Obama issued his own final communique, zeroing in on China as the world's bad-boy currency:
A strong and durable recovery also requires countries not having an undue advantage. So we also discussed the need for currencies that are market-driven. As I told President Hu yesterday, the United States welcomes China's decision to allow its currency to appreciate in response to market forces. And we will be watching closely in the months ahead.
It was the standard U.S. pitch on China, a fake free-market curve ball accompanied by threats of a trade war in Washington: raise the value of the yuan or face tariffs on exports to the United States. In Canada and across Europe, bashing China over its currency regime has become routine. After China announced before the summit that it would allow its currency, the yuan, to rise, Canada weighed in with a condescending response. "Some countries will want to see more detail and perhaps even a schedule of some sort," said Finance Minister Jim Flaherty.
An army of Western central bankers, IMF bureaucrats and economists have joined the China currency war, with vast media support. That support is likely mostly based on the idea -- reiterated by Mr. Obama at the Toronto summit -- that the Chinese yuan become subject to "market forces." Under this good-bad currency theory, the free market is supposedly represented by a flexible exchange rate against the opposite, the pegged rate now in place in China.
But as Steve Hanke of Johns Hopkins University writes opposite, the flexible-pegged dichotomy is a false one. In free market terms, the real currency divide is over whether a currency is freely convertible into other currencies. Unfortunately, the West's obsessive fixation on the Chinese peg and the calls for exchange-rate flexibility conveniently dodge the convertibility issues. The result is a self-serving policy push from the West that is aimed solely at getting the Chinese to do one thing -- raise the yuan-- that would reduce the competitiveness of Chinese goods. That's not opening the yuan to "market forces," as Mr. Obama said. Instead, re-pegging the yuan at a higher level would simply install a yuan value within a regime that denies the Chinese and others the freedom to convert yuan into other currencies, including dollars.
The real free market option, as outlined by Prof. Hanke, is to get China to adopt a true currency fix that would give the country the best of both worlds: a stable currency and convertibility. There is no economic mystery to this: Hong Kong has had a fixed currency for decades, set at HK$7.80 to the U.S. dollar, since 1983. It remains one of the most actively traded currencies in the world.
By aiming only at currency flexibility, Canada, the United States and Europe are forcing China to move to a crawling peg that maintains and even entrenches Communist government control over the economy and undermines the freedom of the Chinese people and others who are now forced to work with the yuan. When exports leave China, U.S. dollars flow into China and, due to the lack of exchange freedom, the U.S. dollars accumulate in the hands of state agencies. What China and the Chinese people need is foreign exchange freedom to do what they want with their yuan, making their own capital investments and trade decisions. That's where the market forces Mr. Obama talks about are missing.
Exchange flexibility may also do more damage to the Chinese and world economy. Over the last decade and more, China has benefited from currency stability, with the yuan pegged to the U.S. dollar. Robert Mundell, the Columbia University Nobel economist, says the peg, even with the lack of convertibility, made it possible for the Chinese economy to grow under stable conditions. "It's wrong," he said last week, "for the U.S. to force China to destabilize the [yuan]."
Even if the yuan were to climb slowly under a controlled peg, there is little reason to believe it would have any significant impact on made-in-China exports to the West, especially the United States. Much of the value of Chinese exports to the U.S. is built into the exports before they reach China for cheap assembly and processing. Manipulating the yuan to achieve trade purposes -- which is really what the United States is trying to do -- will not do anything to create jobs in the U.S., Canada or Europe. If the revaluation is severe enough, production would move from China to other countries.
The alternative to forcing currency instability on China, says Prof. Hanke, is to fix the yuan to the U.S. dollar Hong-King style, and remove the currency controls that prevent market forces from playing out within the Chinese economy. Chinese interest rates would move with U.S. interest rates and a convertible currency would bring market forces to bear on wages and prices within China under market conditions. Investments and currency moves would also follow markets rather than bureaucratic directives.
The risk to the West of a flexible Chinese currency is an even more unstable global system. Mr. Hanke said yesterday in an interview that if China were to follow the West's advice on currency flexibility and also allow convertibility, the result would not make protectionists happy. "If they floated with full convertibility, I think there's a pretty good chance the yuan would get weaker because there would be a helluva big outflow of funds." Chinese companies, citizens and investors -- sitting on a bottled up currency--would have a strong desire to diversify their portfolios outside China.
Whatever the market outcome might be in the wake of full convertibility, the West is currently playing a protectionist game with China and the yuan. It wants a higher yuan for self-serving reasons that have nothing to do with market forces. If the West wanted to maintain stability and release market forces, it would be pushing to fix the yuan under full convertibility.
Top Republican: Raise Social Security's retirement age to 70
Boehner, the top Republican lawmaker in the House, said raising the retirement age by five years, indexing benefits to the rate of inflation and means-testing benefits would make the massive entitlement program more solvent.
"We're all living a lot longer than anyone ever expected," Boehner said in a meeting with the editors of the Pittsburgh Tribune-Review. "And I think that raising the retirement age — going out 20 years, so you're not affecting anyone close to retirement — and eventually getting the retirement age to 70 is a step that needs to be taken."
The GOP leader said Social Security was the most important entitlement to reform, though he also pledged Republicans would bring legislation to the floor to repeal and replace the healthcare reforms passed earlier this year if the GOP wins back control of the House this fall.
But Boehner also floated several other reforms to Social Security, paired with raising the retirement age, to make it more solvent. Boehner said benefits should be tied to increases in the Consumer Price Index (CPI) instead of wage inflation, and he suggested reducing or eliminating benefits to Americans with a "substantial non-Social Security income" while retired.
"We just need to be honest with people," he said. "I'm not suggesting it's going to be easy, but I think if we did those three things, you'd pretty well solve the problem."
Republicans have made cutting spending and reforming entitlement programs a key part of their 2010 campaign message.
“The choice this year could not be clearer. While Democrats are fighting to create jobs and stand up for seniors, middle class families, and small businesses, Republicans are fighting for Wall Street and to bring back the same policies that caused the worst economic crisis since the Great Depression," said Ryan Rudominer, the national press secretary for House Democrats' campaign committee.
But Nooo. The President and his acolytes in the Congress are doubling down on a bad hand. They are redoubling their efforts to jam a government takeover of healthcare down the throats of the American people.
The president has come out with a retread health plan that is sloppily conceived—the Congressional Budget Office says the “plan” lacks so many details it can’t even estimate how much the thing will cost—and stealthily designed to pull the wool over the American people’s eyes.
The Congress is contemplating ways to sidestep and circumvent the regular legislative order to railroad Obama’s latest plan for a government takeover of healthcare through the Congress despite overwhelming opposition among the people—using a tricky legislative maneuver called reconciliation that restricts debate, limits amendments and runs roughshod over the rights of minorities.
This government is out of control, and rather than negotiationg with the president and congressional Democrats, as Republicans propose to do in Obama’s TV extravaganza Thursday, Republicans should be objecting, obstructing and delaying with every means at their disposal. Now is not the time for TV posturing and backroom negotiating; now is the time for the American people to vote on the fate of healthcare. It’s called an election.
President Obama is sticking his thumb in the eye of the American people—disrespecting them—by proposing a slipshod, ill-conceived heath proposal that takes the healthcare debate from the ludicrous to the preposterous. The president is acting out as a willful child who doesn’t know when to shut up, take his medicine and listen to his elders. Like delinquent children, the president and Democrats in the Congress recognize no higher authority than their own egos. We used to call that sinful; today it’s considered SOP—standard operating politics.
The American people have rejected every variant of a government takeover of healthcare the President and his fellow congressional liberals have come up with. But like a Night-of-the-Living-Dead zombie, ObamaCare just keeps on bearing down on Americans, especially senior citizens, intent on devouring them in the name of the greater good.
A recent Wall Street Journal analysis of the President’s warmed-over healthcare takeover proposal exposes the deceit and deception at its core:
Obama's new taxes will destroy any semblance of an economic recovery, and the damage these new taxes will do to Medicare and the rationing his healthcare takeover they pay for will usher in will put old people out in the cold and into an early grave.“This new ObamaCare bargain would for the first time apply the 2.9% Medicare payroll tax to "interest, dividends, annuities, royalties and rents," so-called passive income that we are told includes capital gains, though the latter wasn't explicitly mentioned in the proposal.”
This year, Social Security begins to pay out more than it takes in; the Raid on Social Security is complete; Social Security is in deficit; Congress has drained it dry.
NOW, the president wants to start a Raid on Medicare.
Medicare already is insolvent. It has an $89 trillion (with a “t”) unfunded liability, which is five times bigger than Social Security’s unfunded liability ($17.5 trillion). Obama wants to run a version of the same scam on Medicare that Congress and past presidents ran on Social Security, namely jack up the earmarked taxes, raid the revenues, leave behind paper IOUs in the Trust Fund and use Bernie Madoff accounting to make it appear this round-trip embezzlement actually strengthened the program’s finances.
President Obama wants to levy a stealth tax on work, saving and investment under the guise of "strengthening" Medicare. All the new revenue from Obama’s new taxes will show up on the books as new Medicare revenue, which will immediately be "borrowed" by the Treasury to help pay for the new healthcare takeover. Then, just as it did for 25 years with Social Security, the federal Treasury will paper over this embezzlement—there is no other word for it—with IOUs it writes to itself; pretending those IOUs represent Medicare assets that strengthen the program’s bottom line.
If the American people swallow this Kool-Aid, it will prove Abraham Lincoln wrong once and for all: politicians really can fool all the people all the time—or at least enough of them enough of the time to work their dastardly deeds without fear of reprisal.
The latest Obama proposal to takeover healthcare is his version of the Raid on Social Security, and it must be stopped before it gets off the ground. The simple fact is, President Obama intends to raid Medicare, not fix it. He plans to use Medicare as a cash cow to fund his grandiose government takeover of healthcare at the expense of old people. This attack on Medicare and America’s senior citizens is outrageous; it borders on the criminal; it certainly is immoral.
Seniors of the nation, rise up; throw off Obama's chains—chains we can live without—you have nothing to lose but your chains.
A real right for every American
If anyone is confused about the meaning of Monday's ruling on the Second Amendment by the U.S. Supreme Court, all he has to do is look at Tuesday's newspaper.
On the same morning the court ruled that every law-abiding American has a fundamental, individual right to own a gun, a maintenance man was walking by his apartment complex in Washington's Maryland suburbs. He spotted a man attacking an innocent woman and, as a caring citizen, intervened. That's when the criminal turned on the maintenance man, forced him at gunpoint into his apartment and fired at him. Fortunately, he missed. Even more fortunate, the maintenance man was able to retrieve his own firearm and return fire, fatally wounding the intruder.
One woman, interviewed later, called the man a hero. A law enforcement officer summed up the scene, saying, "The victim... had a weapon inside the home that he used to shoot the suspect. We believe that the victim had every right to defend himself."
By incorporating the Second Amendment to apply to state and local governments, the court affirmed what most Americans have long believed - that lawful citizens, wherever they live, have the fundamental right to own a firearm to protect themselves and their families. Second Amendment rights are as fundamental as those of the First Amendment and, as Justice Samuel A. Alito Jr. noted in the majority opinion of the court, "... a provision of the Bill of Rights that is fundamental from an American perspective applies equally to the federal government and the states."
It is a landmark decision. The Second Amendment right of every citizen is now a real part of American constitutional law.
But it must be more than a philosophical victory for individual rights. Supreme Court decisions must lead to actual consequences. Otherwise, the entire premise of American constitutional authority is rendered meaningless.
The court's decision must be real, practical and experienced by any and every law-abiding American who seeks to buy and own a firearm. The court cannot be ignored, and its ruling must provide relief to those who have been deprived of their Second Amendment freedom.
The constitutional freedom intended by the Founding Fathers and confirmed by the highest court in the land is realized only when law-abiding men and women can get up, go out and buy and own a firearm.
The National Rifle Association will work to ensure that this constitutional victory is not transformed into a practical defeat by activist judges, defiant city councils or cynical politicians who seek to reverse or nullify the court's decision through a blizzard of restrictions and regulations that render the Second Amendment inaccessible, unaffordable or otherwise impossible to experience in a practical way.
No regulation can be deemed "reasonable" if it prevents or restricts the ability of a lawful American citizen to experience a constitutional freedom.
Imagine being tested, or having to leap through a labyrinth of government red tape, just to exercise the constitutional right to attend church and worship... or, as once was the case, being forced to pay a poll tax or pass a literacy test before being allowed to exercise the right to vote.
These restrictions are no more "reasonable" than those that would prevent Americans from exercising their fundamental Second Amendment rights.
And every elected official who has sworn on the Bible to uphold and defend the United States Constitution must defend the Second Amendment as ardently as the rest of the Bill of Rights.
Every citizen has every right afforded under the Second Amendment. The court confirmed it, Americans agree with it, and it is a fundamental right that must be accessible to all law-abiding Americans, wherever they live.
Wayne LaPierre is executive vice president of the National Rifle Association.