The Contraception Mandate Was Not An Essential Part of Obamacare

Yesterday’s Supreme Court decision in favor of
Hobby Lobby has been portrayed as a
blow to Obamacare
, because it allows closely held corporations
to opt out of some of the contraception coverage requirements
imposed as part of the health law. That’s not wrong, exactly, but
it overstates the case, because it’s not a very significant setback
for the law.

That’s because the contraception was never essential to
Obamacare as conceived by its legislative authors. Indeed, as
Ramesh Ponnuru
at National Review, it was so
inessential to the law that it wasn’t included in the actual
legislation. Instead, the mandate was put in place by the Obama
administration’s Department of Health and Human Services (HHS) as
part of the law’s essential benefits rule, which left an awful lot
of discretion to regulators.

It’s possible, in fact, that the law would not have passed had
it explicitly included a contraception mandate. Remember that
several Catholic Democrats, led by Rep. Bart Stupak, were among the
final holdouts to agree to vote for the bill, which had already
been passed in the Senate. Their votes were, by most accounts,
crucial to its passage, and they
agreed to vote for the bill
only after making a deal with the
White House that would prohibit federal funding to be used for

Two years later, Stupak
that he believed the HHS mandate violated the White House
deal, as well as existing law, because it allowed for federal
funding of abortifacients. It’s obviously impossible to be certain
about how things might have turned out in a counterfactual like
this, but it’s certainly easy to imagine that if the mandate had
been in place prior to the law’s passage in the House, it would not
have garnered the support of Stupak and his fellow Catholic
Democrats—and would have died in the House as a result.

That is not to say that the decision isn’t important in other
ways. But as a blow to Obamacare it doesn’t pack much of a

from Hit & Run

The Next Global Meltdown Is Baked In: Connecting The Dots Between Oil, Debt, Interest Rates And Risk

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk.

One of the Grand Narratives of our era is the substitution of debt for income: as earned income and disposable income have stagnated for 40 years, the gap between the rising cost of living and stagnant household income has been filled by borrowed money.

Money has been borrowed to replace income everywhere: consumers have borrowed money to buy things they otherwise couldn't afford, students have borrowed over $1 trillion to attend college, governments have borrowed money to fund wars and social spending, corporations have borrowed money to buy back their own shares, pushing stock prices higher.

There's one little problem with debt: interest must be paid on debt. Let's focus for a second on the difference between cash income and borrowing money. Cash doesn't cost money to maintain; debt does. In a functioning economy (as opposed to the dysfunctional mess we have now), cash would earn income from interest paid by borrowers.

If cash income is saved, the cash can buy stuff without debt or interest payments. That is a powerful advantage over debt.

How powerful is the advantage of cash over debt? It's literally life-changing. Take a look at your credit card statements, which now include an estimate of interest you will pay and how long it will take to pay off the balance at a given monthly payment.

Those making minimal payments will end up paying 100% or more of the balance due in interest.
The phenomenally high accrued costs of interest is true of mortgages, student loans, auto loans, corporate debt and government debt: eventually, current spending is crimped as more and more net income is devoted to paying interest.

There are two words for what happens when real income declines and interest payments rise: impoverishment and insolvency. This dynamic is scale-invariant, meaning it works the same for individuals, households, enterprises and governments.

Let's connect the rising cost of oil to debt. As we all know, oil matters because it's the foundation of our economy, and the cost of oil is built into virtually every sector in some way. For example, look at how the the cost of food rises and declines in lockstep with the cost of oil:

Despite the substitution of cheaper natural gas for oil, we use a lot of oil.

While the recent increase of 3+ million barrels a day in domestic production is welcome on many fronts (more jobs, more money kept at home, reduced dependence on foreign suppliers, etc.), the U.S. still needs to import crude oil.

U.S. Imports by Country of Origin (U.S. Energy Information Administration)

The rising cost of oil acts as an economy-wide tax. Everything that uses oil in its production or transport rises in price without offering consumers any more value than it did at much lower prices.

Look at the impact on food prices as oil rose from $20/barrel in 2002 to $140/barrel in 2008. While government statisticians adjust the consumer price index (CPI) based on hedonics (as the quality of things goes up, the price is adjusted accordingly) and substitution (people buy chicken instead of steak, etc.), the reality is, as one heckler put it, "We don't eat iPads:" that is, all the stuff that is hedonically adjusted (tech goodies, etc.) is non-essential.

The Status Quo has compensated for the relentless rise in the systemic oil "tax" by making debt cheaper to service. The Federal Reserve's zero-interest rate policy (ZIRP) has two purposes:

1. Channel immense sums of free money to the too big to fail banks by relieving them of the onerous requirement of paying interest on deposits while giving them unlimited access to nearly-free money they can lend out at huge spreads. (This is crony-capitalism writ large. The winners were picked by the Fed and the rest of us are the losers. Yea for the godlike Fed, our modern-day Mammon.)

2. To keep consumption alive as income declined and the oil tax eroded household disposable income, the Fed made borrowing cheaper.

Unfortunately for the godlike deities residing in the Fed, zero-interest rates trigger malinvestments, which are inherently risky. When unqualified borrowers borrow a ton of money–for example, a student with no assets or income, or a poor credit risk household assumes an FHA mortgage, or a corporation sells junk-rated bonds– the risk of default is intrinsically higher than debt taken on by qualified borrowers.

This poses a systemic problem for the Fed: The Fed needs to enable more borrowing by the uncreditworthy to keep consumption growing and bank profits flowing, yet the inevitable result of such credit expansion is a massive expansion of systemic risk.

The more debt that is taken on by marginal borrowers–where marginal is defined as unable to weather any shock or decline to their financial position or income–the more risk piles up in the system.

The analogy is a forest where the deadwood is never allowed to burn: The Yellowstone Analogy and The Crisis of Neoliberal Capitalism (May 18, 2009). The net result of rising systemic risk is a massive conflagration that burns off off the accumulated risk and bad debt.

Such a fire sweeping through the mountains of risky debt piled up in the American financial system would bring down the entire Status Quo. So what's a godlike Federal Reserve to do when it can no longer lower interest rates?

Answer: it suppresses visible risk by manipulating the stock market to reflect complacency.
"Old" VIX Plunges To Record Low (Zero Hedge)

Does a record low measure of risk reflect the systemic risk of default and a decline in consumption, or is it merely a reflection of the herd's boundless faith in the godlike powers of the Fed to suppress risk even as Fed policies pile risk ever higher?

The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk. Suppressing the market's ability to price risk is throwing common-sense fiscal caution to the winds; when risk arises from its drugged slumber despite the Fed's best efforts to eliminate it, we will all reap what the Fed has sown.

via Zero Hedge Tyler Durden

A.M. Links: Democrats Target Supreme Court, Obama Sending More Troops to Iraq, Bodies of Kidnapped Israeli Teenagers Found

  • meanwhile in syriaDemocrats think they have a winner in
    running against the
    Supreme Court
    this November.
  • President Obama told Congress he would be sending about 200
    more troops to
    . The Council of
    , Iraq’s parliament, will meet for its first
    session since elections in April, while the Islamic State in Iraq
    and Syria is showing off scud missiles in its possession in
  • The bodies of three Israeli teenagers kidnapped in June were
    found north of
    . Prime Minister Benjamin Netanyahu called the
    perpetrators “animals” and said Hamas would pay.
  • The president of
    said he was abandoning a unilateral ceasefire with
    pro-Russian separatists in the east of the country and sending the
    military back in.
  • The ruling coalition in
    plans on reinterpreting the country’s constitution to
    permit a larger role for the military.
  • Google announced it was shutting down
    , a social networking site popular in Brazil and

Follow Reason and Reason 24/7 on
Twitter, and like us on Facebook. You
can also get the top stories mailed to you—sign up

from Hit & Run

China Admits First Official Local-Government Loan Default

There has been a growing number of defaults since China first broke its non-payment cherry earlier this year. Names like Chaori Solar have "promised" to pay back the money they owe, only to falter on that promise mere months after a temporary reprieve. Wide-scale panic has for now been avoided by liquidity provision to banks (not shadow-banks) and mini-stimulus which many assumed was targeted at keeping the state-owned enterprises (SOEs) alive no matter what. That 'hope' all changed this weekend… As Bloomberg reports, Qilu Bank's annual report shows that Licheng district urban construction development co. ha snot paid its loan interest…"To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan."

As Bloomberg reports,

Bank loans of a local-government urban construction development co. in eastern province of Shandong were in default by end-2013, according to the full-year earnings report of Qilu Bank released in April.


The urban construction development co. of Licheng district in Jinan city, capital of Shandong, owes interest of 6m yuan [which we find fascinatingly small – how bad are things if they cannot fund this?]


The development co. holds a 0.08% stake in Qilu Bank [indicative of the interconnectedness within China]

As Nomura economist Zhang Zhiwei wrote in note today that:

"To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan."

*  *  *

For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:

Bank of America warns further that a more confident government means the start of defaults


With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market

via Zero Hedge Tyler Durden

July POMOs Drop To Just $19 Billion, Lowest Since 2012

In June there were no POMOs on Friday. In July, when as was revealed yesterday the Fed’s monthly POMO operations will add only $19 billion in net liquidity injections (below the $20 billion scheduled due to an extra $1 billion POMOed in June) the lowest since 2012, there are no POMOs on Friday and there is just one Wednesday POMO. The days of the Fed market rigging, or as the BIS called it over the weekend, the “fairy dust of illusionary riches” are coming to an end… at least until the market crashes as it did after the end of QE1 and QE2, and the Fed scrambles right back in to buy it all up again.

via Zero Hedge Tyler Durden

Cop Manhandles Jaywalking ASU Prof, Slams Her to the Ground, Charges Her With Assault

Ersula OreA police encounter in Tempe, Arizona, over the
weekend turned ugly after a campus police officer wrestled Arizona
State University professor Ersula Ore to the ground. Video footage
shows the officer attempting to pull Ore’s hands behind her back
and pin her against the dashboard before slamming her onto the
ground in the middle of the street.

Ore’s crime, evidently, was jaywalking in the middle of the

The video footage is available at
. It depicts Ore arguing with the officer, Stewart
Ferrin, off camera. She objected to being stopped and claimed that
people cross the street—which is under construction—all the time.
Nevertheless, the officer insisted on Ore providing him with her
ID. After she took issue with his disrespectful tone and refused
the demand, he attempted to place her under arrest.

After being yanked onto her feet again, Ore gave Ferrin a kick
to the shin. She is now being charged with aggravated assault.

described the incident
as a “cop assaulting a black ASU

Ferrin stopped Ore for walking in a traffic thoroughfare. “I’ve
been here for over three years and everybody walks this street… I
never once saw a single solitary individual get pulled over by a
cop for walking across a street on a campus,” Ore told the officer
before pointing out how the sidewalk was obstructed by

Ferrin then told her to put her hands behind her back and
threatened to “slam” her on his car when she refused to show her
ID, objecting expressly to the officer’s disrespectful approach.
Ferrin threw Ore violently to the ground, leaving her dress hiked
up, her body exposed. He and another officer then dragged her to
her feet, at which point she kicked Ferrin in the shin. Now she
faces the felony assault charge, which she plans to fight.

Ferrin’s lawyer is claiming that her client was molested by the
officer while he had her pinned on the ground, off camera. The kick
was therefore self-defense.

Whether or not that defense holds up, Ferrin’s behavior toward
Ore certainly seems unnecessary, given the trivial nature of her
supposed crime.

Watch the video below.

from Hit & Run

The Best And Worst Performing Assets In Q2 And The First Half Of 2013

Here are the best and worst performing assets broken down by the three key time periods as we leave the first half of 2013 (it’s not been a good year for wheat).


  • Best: Silver
  • Worst: Wheat


  • Best: Russia’s MICEX stock market
  • Worst: Wheat

First Half

  • Best: Italy’s FTSE-MIB stock market and Spain’s IBEX – thanks Draghi TLTRO
  • Worst: Wheat

Some additional commentary from Deutsche Bank:

In YTD terms, of the main indices we track the FTSE-MIB (+14.5%) and the IBEX (+12.8%) have been the star performers. Spanish, Portuguese and Italian bonds have not been far behind. Interestingly commodities make up quite a few of the other top ten places (with the CRB index, Gold, Silver and Oil returning between 7-11%), but also 2 of the worst 3 with Wheat and Copper both down more than 6%. Also negative was Chinese equities (-1.5%) after disappointing growth in H1 which may explain some part of the weakness for certain commodities. The Nikkei (-6.1%) was the only other asset lower YTD in our sample. Apart from these four all the other assets saw a positive 2014 total return. Credit has put in a good performance in 2014 so far with most major indices returning between 4-7% which is impressive in the low yield, low spread environment.

Source: DB

via Zero Hedge Tyler Durden

Frontrunning: July 1

  • Ceasefire over, Ukraine forces attack rebel positions (Reuters)
  • No Good Iraq Options for Obama as Russia, Iran Jump In (BBG)
  • Japan’s Cabinet Agrees to Allow Military to Help Defend Allies (BBG)
  • Obama says to reform immigration on his own, bypassing Congress (Reuters)
  • South Stream Pipeline Project in Bulgaria Is Delayed (NYT)
  • Foreign Banks Still in the Dark About Missing Metals in China (WSJ)
  • Quelle indignity: several bankers at French bank BNP Paribas will face demotions and cuts to their pay and bonuses (FT)
  • Symantec Warns of Hacker Threat Against Energy Companies (BBG)
  • Shrinking Office Spaces Slow Recovery (WSJ)
  • Rand Paul Slams ‘Fat Cats’ With Hedge Fund in Top Donors (BBG)
  • After BNP, U.S. targets range of firms in crackdown on illicit money flows (Reuters)
  • Singer Says Argentina Won’t Negotiate as Default Looms (BBG)
  • Singapore Home Prices Post Longest Losing Streak in 5 Years (BBG)
  • Threat of Costly West Coast Port Shutdown Spurs Pay Talks (BBG)
  • Israel bombs Gaza sites hours after bodies of Israeli teens found (Reuters)
  • Richest Ukrainian Walks $13 Billion Tightrope (BBG)
  • Fear, suspicion undermine West Africa’s battle against Ebola (Reuters)


Overnight Media Digest


* President Barack Obama said Monday he would begin using his authority to bolster border security and consider taking other steps on his own to change the nation’s immigration policy, after angrily declaring that Republicans had finally killed off any chances for immigration legislation this year. (

* BNP Paribas SA agreed to pay nearly $9 billion and plead guilty to violating U.S. sanctions against Sudan, Iran and other countries, an unprecedented settlement that includes a year-long ban on the French bank’s ability to transact in U.S. dollars. (

* The U.S. Supreme Court in a 5-4 split said private companies can on religious grounds opt out of a federal health-care law requirement that companies provide contraception coverage for employees. (

* General Motors’ compensation plan for victims of 2.6 million defective small cars would offer payments for any accidents in which the air bags in the cars failed to deploy, and may offer increased payouts to victims who accepted out-of-court settlements before the auto maker recalled the vehicles. GM also said it will recall an additional 8.45 million vehicles in North America from the 1997 to 2014 model years, most due to an unintended ignition key rotation. (

* Hewlett-Packard said it reached a settlement in three shareholder lawsuits related to its 2011 acquisition of software firm Autonomy, in another sign the personal-computer maker is seeking to put the costly deal behind it. (

* To fix Nestlé’s sagging U.S. business, Paul Grimwood has been slashing the number of product variations, and deciding which brands need attention, like Lean Cuisine. (

* Argentina will send a delegation to meet with a court-appointed lawyer on July 7 as it tries to resolve a dispute with a small group of creditors that could see the South American country default for a second time in 13 years. (

* Inc has recruited an executive from Autodesk Inc as its new chief financial officer. The San Francisco-based company, which offers online software to automate sales and other functions, said Mark Hawkins will start as finance chief on Aug. 1. He has served for five years as CFO of Autodesk, whose software is used for tasks that include designing buildings, cars and other consumer products. (

* Amherst Securities Group LP and Pierpont Securities LLC are set to merge in a deal aimed at creating a bigger player in underwriting and trading mortgage-related securities, businesses that some larger banks have retreated from in recent years. The companies plan to announce the tie-up on Tuesday morning, they said, declining to disclose terms. (



Several bankers at French bank BNP Paribas will face demotions and cuts to their pay and bonuses, according to sources, following the payment of a record $8.9 billion fine to U.S. federal and state authorities.

China’s investment firm Citic Group, which is in the midst of a broad restructuring, is considering giving up its U.S. bank branches, according to several of its senior executives.

Europe’s biggest defence contractor BAE Systems said it would reorganise its interests in Saudi Arabia to reap the benefits of a government programme meant to help the world’s largest oil producer expand its industrial base in the country.

General Motors recalled a further 8.23 million cars on Monday over faulty ignition switches and said three people might have died because of the problems, deepening the automaker’ s ongoing safety crisis.

The U.S. Supreme Court has shielded HSBC, UniCredit and UBS from legal claims in excess of $10 billion relating to the Bernard Madoff Ponzi scheme.

Pension consultants in the UK should be regulated in order to rein in the power of a group of investment advisory firms, Britain’s Law Commission said in a report on Monday



* General Motors on Monday announced the recall of 8.4 million more vehicles worldwide – most of them for an ignition defect similar to the flaw that the company failed to disclose in other models for more than a decade. The announcement came hours after Kenneth Feinberg, a compensation expert hired by GM, unveiled a plan to pay victims of accidents involving GM vehicles, promising more than $1 million for families of those who died. (

* BNP Paribas SA on Monday admitted to doing billions of dollars in deals with Iran and other countries blacklisted by the United States and agreed to pay a record $8.9 billion penalty to state and federal authorities. (

* Russian hackers have been systematically targeting hundreds of Western oil and gas companies, as well as energy investment firms, according to private cyber security researchers. The motive behind the attacks appears to be industrial espionage – a natural conclusion given the importance of Russia’s oil and gas industry, the researchers said. (

* More than a million people risk losing their federally insured pensions in just a few years despite recent stock market gains and a strengthening economy, a new government study said on Monday. The people at risk have earned pensions in multi-employer plans, in which many companies band together with a union to provide benefits under collective bargaining. (

* Regulatory filings posted on Monday night show that Dov Charney, the recently ousted founder of American Apparel , bought 27 million shares of American Apparel stock last week, which gives him a total stake of about 43 percent. If he can persuade an additional 7 percent or so of shareholders to support him, he might be able to get his company back. (

* The U.S. Supreme Court on Monday allowed a case accusing Google of wire-tapping to proceed, undermining the search company’s efforts to put a troublesome episode to rest even as it plans to become more deeply embedded in consumers’ lives. Google maintains it was not wire-tapping as part of Street View. Its failure to persuade the Supreme Court to hear its appeal means the case will go forward in the lower court. (

* Cosmetics maker L’Oréal USA, a subsidiary of L’Oréal SA, has agreed to settle complaints in the United States that advertisements for its skin care products Lancôme Génifique and L’Oréal Paris Youth Code were deceptive, the Federal Trade Commission said on Monday. (

* A California prosecutor on Monday charged General Motors with unfair business practices and deceptive marketing for concealing ignition-related defects and others in order to boost its bottom line. The lawsuit, filed by District Attorney Tony Rackauckas of Orange County, accuses G.M. of “half-truths and omissions.” (




** Justin Trudeau’s Liberal Party emerged victorious in Monday’s by-election races, stealing a seat from the New Democratic Party and boosting its vote share across the board. Liberal candidate Adam Vaughan, a former city councillor and broadcaster, nabbed the Toronto riding of Trinity-Spadina from the NDP, while Liberal Arnold Chan boosted the party’s vote in holding the long-time stronghold of Scarborough-Agincourt, another Toronto riding. (

** Sixty days after Rob Ford took a leave from city hall under the pall of fresh drug allegations, Toronto’s controversial leader marched back into the spotlight, his voice catching as he acknowledged the damage his alcohol and drug use has done and pledging an “unwavering” commitment to “clean living” and a change in the company he keeps. (

Reports in the business section:

** Alberta has turned the corner following the global economic meltdown of 2008, according to budget numbers released on Monday. According to the final report, the province brought in more than $45 billion in revenue in the fiscal year that ended March 31. That’s 17 percent more than expected, credited mainly to higher than forecast energy and tax revenues. (


** Journalists and columnists at the Globe and Mail refused to attach their names to their work on Monday, as negotiations between the union and the paper’s management neared a breaking point. With the Globe’s union, Unifor’s Southern Ontario Newsmedia Guild, backed with a 97 percent strike mandate, the byline strike came just hours before the collective agreement for editorial, advertising and circulation staff reached its Tuesday expiry date. (

** Prosecutors are seeking 15 years in prison for a Canadian businessman Cy Tokmakjian, who was arrested in a high-profile crackdown on corruption, Cuban authorities said on Monday. (


** It could be just the impact of all those home-renovation television programs, but Canadians are fixing up their properties like never before, according to a new report. Renovation spending has been rising for 15 straight years and reached a record $63.4 billion in 2013, which accounted for 3.7 percent of total Canadian gross domestic product, Toronto-based real estate consultants Altus Group said. (

** Growth in the Canadian economy stalled in April, edging up just 0.1 percent – the same pace as the previous month – with wholesale and retail activity contributing only meager growth, while mining and construction output weakened. Economists had forecast gross domestic product – the largest measure of economic health – to advance by 0.2 percent in April. (




– The Chinese economy will continue to face downward pressure in the second half of 2014, according to industry sources. The front-page article also said liquidity is expected to remain loose and the possibility that the central bank would cut interest rates cannot be ruled out if third- and fourth- quarter economic data remain weak.

– China plans to speed up a batch of major energy projects and may start a nuclear power project soon, said Wu Xinxiong, director of National Energy Administration.


– A total of 633.5 billion yuan ($102.12 billion) worth of real-estate trust will mature in 2014, Haitong Securities calculated.


– Short-term measures by Chinese local governments to boost the housing market will not be beneficial for the local economy, and officials should focus on supporting the real economy, the newspaper said in an editorial.


– The expulsion of former Vice Chairman of the Central Military Commission, Xu Caihou, reflects the policy of the Chinese Communist Party and shows its determination to fight corruption.



The Telegraph


SSP Group Ltd, the owner of Upper Crust and Caffe Ritazza, is expected to become the latest company to float in London at the lower end of expectations.

The Guardian


“It could be one of the biggest and best turnarounds in corporate history,” says Steve Murrells, head of Co-operative Group’s retail arm, as he contemplates the companies rising phoenix-like from the ashes of controversy and financial mismanagement.

The Times


The Franco-Japanese consortium planning to build the next generation of nuclear power stations at Sellafield has claimed that three new reactors at the Cumbrian site will be ready to be switched on by 2024.

The Independent


Mortgage approvals fell to an 11-month low in May, confirming that the lending market was already losing some steam before the Bank of England announced new curbs last week.

Sky News


Fever-Tree, the maker of premium drinks mixers, is preparing to toast a change of ownership that could involve a London Stock Exchange flotation.


Fly On The Wall 7:00 AM Market Snapshot


Domestic economic reports scheduled for today include:
Markit’s final manufacturing PMI for June at 9:45–consensus 57.5
ISM manufacturing index for June at 10:00–consensus 55.6
Construction spending for May at 10:00–consensus up 0.5%



Amicus Therapeutics (FOLD) upgraded to Buy from Neutral at Janney Capital
Amicus Therapeutics (FOLD) upgraded to Outperform from Market Perform at Leerink
Endurance Specialty (ENH) upgraded to Buy from Neutral at BofA/Merrill
H&E Equipment (HEES) upgraded to Buy from Hold at KeyBanc
iGATE (IGTE) upgraded to Buy from Hold at Jefferies
Nabors Industries (NBR) upgraded to Outperform from Market Perform at Raymond James
Netflix (NFLX) upgraded to Buy from Neutral at Goldman
comScore (SCOR) upgraded to Buy from Neutral at Goldman
iGATE (IGTE) upgraded to Buy from Hold at Jefferies


21st Century Fox (FOXA) downgraded to Buy from Conviction Buy at Goldman
Franklin Resources (BEN) downgraded to Neutral from Buy at UBS
Goldman Sachs (GS) downgraded to Market Perform from Outperform at Bernstein
Heritage-Crystal Clean (HCCI) downgraded to Neutral from Outperform at RW Baird
MannKind (MNKD) downgraded to Hold from Buy at MLV & Co.
Midstates Petroleum (MPO) downgraded to Market Perform from Outperform at Northland
Sunstone Hotel (SHO) downgraded to Market Perform from Outperform at Wells Fargo
Symantec (SYMC) downgraded to Market Perform from Outperform at BMO Capital
Time Warner (TWX) downgraded to Neutral from Buy at Goldman
Triumph Group (TGI) downgraded to Underperform from Sector Perform at RBC Capital
Xerox (XRX) downgraded to Neutral from Buy at Citigroup


ARC Group (ARCW) initiated with an Outperform at Imperial Capital
Agios Pharmaceuticals (AGIO) initiated with a Buy at Citigroup
Arista Networks (ANET) initiated with a Buy at BofA/Merrill
Arista Networks (ANET) initiated with a Buy at Deutsche Bank
Arista Networks (ANET) initiated with a Hold at Stifel
Arista Networks (ANET) initiated with an Outperform at RBC Capital
Arista Networks (ANET) initiated with an Outperform at Wells Fargo
Arista Networks (ANET) initiated with an Overweight at Barclays
BPZ Resources (BPZ) initiated with a Buy at Brean Capital
Coty (COTY) initiated with an Outperform at BMO Capital
Expedia (EXPE) initiated with an Outperform at Oppenheimer
Intercept (ICPT) initiated with an Outperform at RBC Capital (JD) initiated with a Buy at Jefferies (JD) initiated with a Buy at SunTrust (JD) initiated with a Neutral at BofA/Merrill (JD) initiated with a Neutral at Piper Jaffray (JD) initiated with an Overweight at Barclays
Kona Grill (KONA) initiated with an Outperform at Raymond James
NorthStar Asset Management (NSAM) initiated with a Buy at Deutsche Bank
Orbitz (OWW) initiated with a Perform at Oppenheimer
Priceline (PCLN) initiated with an Outperform at Oppenheimer
Synageva (GEVA) initiated with a Neutral at Citigroup
TechTarget (TTGT) initiated with a Buy at Jefferies


Actavis (ACT) receives FTC clearance for proposed acquisition of Forest Labs (FRX)
Autodesk (ADSK) CFO Hawkins resigns to become CFO of (CRM)
BNP (BNPQY) pleads guilty to sanctions and faces $8.9B fine
Cooper Companies (COO) to acquire Saulfon Pharmaceuticals for $1.2B
GE (GE) water business to acquire Monsal
Gentiva (GTIV) board rejects unsolicited offer from Kindred (KND)
HP (HPQ) agrees to settle shareholder litigation over Autonomy deal
Hormel Foods (HRL) to acquire maker of Muscle Milk sports nutrition products for $450M
Pinnacle Foods (PF) terminates merger agreement with Hillshire Brands 
Sport Chalet (SPCHA) to be acquired by Vestis Retail for $1.20 per share
Transcept Pharmaceuticals (TSPT), Paratek Pharmaceuticals sign merger agreement
Twitter (TWTR) confirms acquisition of TapCommerce


Bulgaria blocking major natural gas pipeline, NY Times says
Microsoft’s (MSFT) new smartband to be released in October, says
Morgan Stanley (MS) mulls financial adviser pay reductions, Reuters says
Nestle (NSRGY) U.S. CEO cutting products to simplify operations, WSJ reports
Novartis (NVS) faces charges in Japan over data manipulation, Financial Times says
Wells Fargo (WFC) looks pricey, Barron’s says


Investar Holding (ISTR) 2.875M share IPO priced at $14.00
Minerva (NERV) 5.455M share IPO priced at $6.00
TECO Energy (TE) files to sell 15.5M shares of common stock 
US Antimony (UAMY) 1.45M share Secondary priced at $1.40
Unilife (UNIS) files to sell 600,000 shares for holders
Unity Bancorp Inc (UNTY) commences $6.2M rights offering
Western Gas Equity (WGP) 5M share Spot Secondary offered at $60.19, last sale $62.70

via Zero Hedge Tyler Durden

For School Kids in California, A Fight is Just a Fight—Not a Crime

Juvenile Detention CenterGreat news out of California: An appeals court
there just ruled that when two students get into a fight on school
grounds, it isn’t a crime for the courts to rule
it’s merely something the principal has to handle.
In other words, a blow has been struck against

 in the SFGate has
more on the specific details of the determination, which was
reached by the First District Court of Appeals:

The case comes from Ukiah, where 15-year-old Fernando C. got
into a fistfight with a fellow high school student behind a shed
near the football practice fields one day in December 2012. Neither
student was hurt, Fernando’s lawyer said, but police
referred the case to the Mendocino County district attorney, who
charged the youth with the misdemeanor crime of fighting on school

It turned out that fighting on school grounds is a crime
only for a non-student, and doesn’t apply under state law to a
student enrolled at the school. A juvenile court judge agreed
to substitute the charge of fighting in a “public place.”
The judge found that Fernando had committed that crime and placed
him on probation.

The First District Court of Appeals in San
Francisco disagreed Thursday and threw the case

A panel of three judges reasoned that student fights on school
grounds should be subject to school discipline, not the juvenile
justice system.

As Fernando’s court-appointed lawyer said, “It’s something
that society at large is starting to recognize, that not every
mistake a child makes in life is chargeable as a criminal

Amen to that.

For more stories like this one, check out Lenore
Skenazy’s Free-Range

from Hit & Run

Second Half Kicks Off With Futures At Record High On Lethargic Yen Carry Levitation

BTFATH! That was the motto overnight, when despite a plethora of mixed final manufacturing data across the globe (weaker Japan, Europe; stronger China, UK) the USDJPY carry-trade has been a one-way street up and to the right, and saw its first overnight buying scramble in weeks (as opposed to the US daytime trading session, when the JPY is sold off to push carry-driven stocks higher). Low volumes have only facilitated the now usual buying at the all time highs: The last trading day of 1H14 failed to bring with it any volatility associated with month-end and half-end portfolio rebalancing – yesterday’s S&P 500 volumes were about half that compared to the last trading day of 1H13.

As we start H2, Asian markets are trading with a stronger tone this morning. The official Chinese manufacturing PMI printed at 51.0, in line with consensus and at a six month high. The final HSBC Chinese manufacturing PMI came in at 50.7, slightly below the flash reading of 50.8, but this is also the highest print of the year. The PMIs for other Asian bellwethers including Indonesia and Taiwan were also up on a month-to-month basis. The Nikkei (+1.2%) is the clear outperformer today, on decent volumes and despite a drop in the Japanese Q2 tankan manufacturing index to 12 from 17 previously and 15 expected. This has boosted the USDJPY today. Outside of Japan, activity has been subdued with Hong Kong markets shut for July 1st holidays. The Indonesian rupiah is poised to record its strongest three-day rally in about fourth months – spurred by comments last week from the Bank of Indonesia that the country’s trade balance returned to surplus in May. The AUDUSD is also poised for a solid gain (+0.25%) after the RBA maintained its neutral tone in today’s policy meeting.

Stocks in Europe traded higher this morning, lead higher by basic materials sector after analysts at Bank of America raised Rio Tinto (+2.7%) to buy from neutral. At the same time, financials were supported by BNP Paribas (+4.1%), with FT Lex column noting that the USD 8.9bln settlement may prove a catalyst for recovery. This also saw other French based banks such as SocGen (+3.2%) and Credit Agricole (+1.9%) post decent gains.

In a nutshell: European shares rise, close to intraday highs, with the basic resources and telco sectors outperforming and retail, construction underperforming. Euro- Area  manufacturing slowed more than initially estimated in June, China manufacturing expansion quickens to fastest 2014 pace. The Italian and French markets are the best-performing larger bourses, Swedish the worst. The euro is little changed against the dollar. U.K. 10yr bond yields rise; Japanese yields decline.
Commodities little changed, with zinc, soybeans underperforming and silver outperforming.

Turning to the day ahead, the US manufacturing ISM is expected to show a small bump up to 55.9 (vs 55.4 in May) which would mark a six month high. Other highlights on the US data docket are May construction spending, and the IBD/TIPP economic optimism index and vehicle sales due later. Watch for GM to park ever more cars on vacant dealer lots as it hopes end buyers will quickly forget the recall scandal that has made its quality control process into the worst joke in US carmaking history.

Market Wrap

  • S&P 500 futures up 0.2% to 1957.1
  • Stoxx 600 up 0.5% to 343.4
  • US 10Yr yield up 2bps to 2.55%
  • German 10Yr yield up 2bps to 1.26%
  • MSCI Asia Pacific up 0.3% to 146.1
  • Gold spot down 0% to $1326.7/oz


  • 16 out of 19 Stoxx 600 sectors rise; basic resources, bank outperform, retail, personal & household underperform
  • 62.7% of Stoxx 600 members gain, 34.7% decline
  • Eurostoxx 50 +0.6%, FTSE 100 +0.5%, CAC 40 +0.7%, DAX +0.3%, IBEX +0.4%, FTSEMIB +0.8%, SMI +0.3%


  • Asian stocks rise  with the Nikkei outperforming and the ASX underperforming.
  • MSCI Asia Pacific up 0.3% to 146.1
  • Nikkei 225 up 1.1%, Kospi down 0.2%, Shanghai Composite up 0.1%, ASX down 0.4%, Sensex up 0.4%
  • 9 out of 10 sectors rise with industrials, materials outperforming and financials, utilities underperforming

Bulletin headline summary from Bloomberg and RanSquawk

  • Stocks traded higher in Europe (Eurostoxx 50, +0.52%), with volumes light given the usual summer trading conditions and basic materials outperforming after Rio Tinto was upgraded at Bank of America.
  • GBP/USD rose to its highest level since Oct’08, following the release of better than expected UK Manf PMI.
  • In terms of the upcoming releases, focus will be on the US ISM Manufacturing and API oil inventories data.
  • Treasuries decline within recent ranges to begin the second half of 2014; trading may be cautious before ECB, June payrolls and early close on Thursday. *10Y yields have fallen ~50bps since the start of the year, 5/30 curve flattening by around the same amount
  • China’s manufacturing expanded in June at the fastest pace this year, with the official PMI rising to 51 from 50.8 in May
  • U.K. manufacturing growth accelerated to the fastest pace in seven months as demand surged, adding to signs of a broadening recovery
  • Manufacturing in the euro area slowed more than initially estimated in June as a deepening of France’s downturn offset a rise in Spanish activity to a seven-year high
  • Australia’s central bank kept its benchmark rate at a record low as an elevated currency combines with government cutbacks and a slowdown in mining investment to  constrain growth
  • Ukrainian government forces resumed their campaign against pro-Russian rebels in the country’s violence-torn east after President Petro Poroshenko ended a cease-fire and vowed to retake territory from the separatists
  • Iraqi lawmakers failed to bridge differences on filling key posts, including appointing a prime minister; parliament adjourned until July 8, citing a lack of quorum and disagreements among leading political blocs
  • As Russia and Iran step in to bolster the government in Baghdad, Obama has no good options to help defeat the al-Qaeda splinter group that’s proclaimed an Islamic caliphate in Iraq and Syria
  • Obama said he’ll go it alone on changing U.S. immigration rules because House Republicans are “unwilling to stand up to the Tea Party to do what’s best for the country”
  • Sovereign yields mostly higher. EU peripheral spreads narrow. Asian stocks mostly higher, European stocks, U.S. stock futures rise. WTI crude higher, gold little changed, copper falls

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, June final, est. 57.5 (prior 57.5)
  • 10:00am: ISM Manufacturing, June., est. 55.9 (prior 55.4)
  • ISM Prices Paid, June, est. 60 (prior 60)
  • 10:00am: Construction Spending m/m, May, est. 0.5% (prior 0.2%)
  • 10:00am: IBD/TIPP Economic Optimism, July, est. 48.0 (prior 47.7)
  • Domestic Vehicle Sales, June., est. 13m (prior 13.11m)
  • Total Vehicle Sales, June., est. 16.38m (prior 16.70m)
  • 11:00am: POMO – Fed buys $2.50 – $3.25 billion in the 04/30/2020 – 06/30/2021


Asian equity markets traded mixed amid a slew of data releases including the quarterly BoJ Tankan survey which was impacted by tax hike and Chinese PMI releases, with Chinese official PMI at a 6-month high (as exp.) but HSBC PMI release was revised lower.


The release of somewhat mixed EU based final manufacturing PMI readings failed to weigh on sentiment, with Bunds and Gilts trading lower amid better bid stocks, as well as better than expected UK Manufacturing PMI which marked 16th month of expansion and highest reading since Nov 2013. The release resulted in further bear steepening of the Short-Sterling curve, while the Euribor curve was little reactive to an uptick in Euro-area excess liquidity, which rose to EUR 166.85bln vs. EUR 138.67bln.


Stocks in Europe traded higher this morning, lead higher by basic materials sector after analysts at Bank of America raised Rio Tinto (+2.7%) to buy from neutral. At the same time, financials were supported by BNP Paribas (+4.1%), with FT Lex column noting that the USD 8.9bln settlement may prove a catalyst for recovery. This also saw other French based banks such as SocGen (+3.2%) and Credit Agricole (+1.9%) post decent gains.


GBP outperformed EUR and USD this morning, with GBP/USD rising to its highest level since October 2008, following the release of better than expected UK Manufacturing PMI. Looking elsewhere, AUD/USD rose to its highest level since November, after the RBA signalled no changes to its monetary policy, which analysts note indicates that the RBA has a very high pain threshold.


Despite spiking overnight to its highest level since March after a high volume of trades went through as stops were broken above the USD 1330 level, spot gold gradually retraced the move and the price action was range-bound ever since. Also spot copper hit a 4-month high, with zinc hovering within reach of it highest in almost 3-years both supported by tight supply and after the Chinese data. Elsewhere, WTI and Brent Crude futures trade marginally higher, partly supported by the uncertainty surrounding Ukraine, where Ukrainian President Poroshenko said Ukraine is to end cease-fire in eastern regions and pledged to move against rebels.

* * *

DB’s Jim Reid concludes the overnight news recap

The second half has now begun for markets and in our H1/Q2/ June performance review today we show that most assets have had a positive year so far. So much so that if the year eventually goes to penalties it will end up being a very poor second half showing in line with many of England’s in recent years!! We briefly review the numbers at the end but all the data and charts are in the pdf of this document. Its pretty rare to have almost all main global assets in positive territory this far into a year. Central bank liquidity continues to drive markets in our opinion which has helped this synchronised uplift in valuations. However we can’t help sensing that there’s less joy over these returns than might be expected. Investors are worried about valuations in numerous assets and worried that the Fed might become more hawkish soon. There’s little chance of the ECB following suit anytime soon though and European Government bonds have had a very good 2014 so far.

Over the last month we’ve again highlighted how many European Government bond markets have hit multi-century, all time yield lows. Well yesterday it was the turn of the Dutch 10 year yield to go through it’s all time low again. The Dutch series is where we have our longest history of any government bond market with data going back to 1517 spanning almost half a millennia. The graph is in the pdf today and further shows just how unique the current situation is. The level of uncertainty about how this all ends must by definition be very high given this.

So as we start H2, Asian markets are trading with a stronger tone this morning helped by a solid start to the global manufacturing PMIs. The official Chinese manufacturing PMI printed at 51.0, in line with consensus and at a six month high. The final HSBC Chinese manufacturing PMI came in at 50.7, slightly below the flash reading of 50.8, but this is also the highest print of the year. The PMIs for other Asian bellwethers including Indonesia and Taiwan were also up on a month-to-month basis. The Nikkei (+1.2%) is the clear outperformer today, on decent volumes and despite a drop in the Japanese Q2 tankan manufacturing index to 12 from 17 previously and 15 expected. The capex component of the Tankan survey was above expectations however (+7.4% vs 6.0%) expected, which is strongest rate of growth since 2007. This has helped USDJPY (+0.1%) today. Outside of Japan, activity has been subdued with Hong Kong markets shut for July 1st holidays. The Indonesian rupiah is poised to record its strongest three-day rally in about fourth months – spurred by comments last week from the Bank of Indonesia that the country’s trade balance returned to surplus in May. The AUDUSD is also poised for a solid gain (+0.25%) after the RBA maintained its neutral tone in today’s policy meeting.

The last trading day of 1H14 failed to bring with it any volatility associated with month-end and half-end portfolio rebalancing. Indeed, yesterday’s S&P 500 volumes were about half that compared to the last trading day of 1H13. Adding to that, the S&P 500 closed virtually unchanged at -0.04%, and for the record the last time we saw a gain or loss of more than 1% in the index was April 16th. One theme to note though was the continued underperformance of European banks across the equity and credit spectrum. Yesterday’s underperformance was sparked by a 17% fall in the stock of Banco Espirito Santo which is Portugal’s largest bank. The price action was dictated by reports that regulators were concerned over corporate governance between the bank and other related companies and there were also reports that Luxembourg justice authorities had launched an investigation into one of the bank’s holding companies (Reuters). Portuguese securities regulator banned naked short selling on the bank’s stock for one day. The news weighed on Portuguese bond yields which added 8bp, and also on European banking stocks in general (-0.75% vs Stoxx 600 -0.09%). Peripheral bank credit traded about 3-5bp wider yesterday – and the European senior financials index (+2bp) underperformed Main (+1.375bp). The two credit indices were trading flat to each other in the middle of June but the recent underperformance of banks has pushed the basis back to nearly 6bp. We still think its likely that Fin Senior will trade through Main in H2 though.

Across the Atlantic, there was focus on the Chicago PMI and home sales data, following which treasury yields spiked up briefly before retracing the move to be largely unchanged on the day. The US Chicago PMI was slightly below expectations 62.6 (vs 63.0 expected) and also below last month’s 65.5. Still, our economists note that the PMI was consistent with a large snapback in growth in Q2, and they noted the three-month to June average was 63.7 which is the highest since the three months to April 2011. The other regional activity indicator, the Dallas Fed manufacturing outlook rose to 11.4 (vs 8.5 expected and 8.0 prior). Pending home sales rose 6.1% MoM (1.5% expected) which benefited US homebuilders on the equity side (+1.5% yesterday). In terms of Fed speak, the SF Fed’s Williams commented that a first rate hike in 2H15 will be appropriate, but he also reiterated that it may be optimal for the Fed to let inflation run above target in order to balance the Fed’s dual mandate.

Perhaps one of the key themes of 1H14 was the surging M&A activity globally. With 1H14 books closed, the final M&A tally was $2.2trillion according to Bloomberg which is a YoY increase of 77%. By region, leading the way was the resurgence of corporate activity in Europe (+109% YoY), though this was coming off a low base, followed closely by North America (+79%). In terms of industry the biggest pickup in activity came in pharma (+677%) and healthcare (+140%). One reason for the surge in M&A has been the accommodative capital markets. We saw an example of that yesterday with a jumbo bond deal from Oracle who priced $10bn in bonds (the second largest USD offering in the year-to-date according to Bloomberg) to fund the purchase of Micros Systems. The deal was sufficiently large to drag other TMT bonds several basis points wider on the day.

Looking at some of the geopolitical headlines, Ukrainian President Poroshenko said late on Tuesday that we would end the cease-fire with pro-Russian rebels and vowed to intensify military operations in the country’s east. However the president also made some concessions including guaranteeing Russian-language rights and more regional autonomy. Russia also offered some concessions yesterday including allowing Ukrainian and international observers in its own border posts along the border with Ukraine. In Iraq, semi autonomous Kurds plan a referendum for independence according to a regional government spokeperson (Reuters). The Kurds plan to keep  control of the Kirkuk oil fields.

There are some mixed headlines elsewhere in China. Firstly China’s banking regulator announced a small change in the way that Loan-to-deposit ratios are calculated which our banking analysts think will reduce the system regulatory LDR ratio by 410bp based on end 2013 data. Our analysts think that this will pave the way for more relaxation of Chinese bank liquidity requirements. Secondly, the latest Macau gaming numbers were reported which showed June casino revenues fell 3.7% YoY in June. This is the first drop since 2009, but some are attributing this to the effects of the World Cup.

Turning to the day ahead, the rest of the global manufacturing PMIs/ISMs will be released starting with the final PMIs for Europe. The US manufacturing ISM is expected to show a small bump up to 55.9 (vs 55.4 in May) which would mark a six month high. DB is expecting a print of 55.0. Other highlights on the US data docket are May construction spending and the IBD/TIPP economic optimism index.

via Zero Hedge Tyler Durden