Former Fed Governor, Hedge Fund Billionaire Slam Fed: “Government Fiat Does Not Create Wealth”

“Balance-sheet wealth is sustainable only when it comes from earned success, not government fiat,” is the ugly truth that former Fed governor Kevin Warsh (amazing what truths come out after their terms are up) and hedge fund billionaire Stan Druckenmiller deliver in the following WSJ Op-Ed. The aggregate wealth of U.S. households, including stocks and real-estate holdings, just hit a new high of $81.8 trillion. No wonder most on Wall Street applaud the Fed’s unrelenting balance-sheet recovery strategy.The Fed’s extraordinary tools are far more potent in goosing balance-sheet wealth than spurring real income growth. Corporate chieftains rationally choose financial engineering – debt-financed share buybacks, for example – over capital investment in property, plants and equipment. The country needs an exit from the 2% growth trap. There are no short-cuts through Fed-engineered balance-sheet wealth creation. The sooner and more predictably the Fed exits its extraordinary monetary accommodation, the sooner businesses can get back to business and labor can get back to work.


Originally posted at WSJ

The Asset-Rich, Income-Poor Economy

By Kevin Warsh and Stanley Druckenmiller,

Economist Richard Koo diagnosed Japan’s crash in the early 1990s and subsequent two decades of economic malaise as a “balance-sheet recession.” That conclusion wasn’t lost on the Federal Reserve during the financial crisis of 2008-09. The Fed engineered an emergency response to craft what can best be described as a balance-sheet recovery.

At its policy meeting earlier this week, the Fed made clear that it’s scarred, if no longer scared, by the crisis. Extraordinarily loose monetary policy will continue in force. While the Fed’s monthly asset purchases will decline, short-term interest rates will remain pinned near zero. And long-term rates need not move higher—the Fed assures us—even with improving inflation dynamics, credit markets priced-for-perfection, and stock prices at record levels.

The aggregate wealth of U.S. households, including stocks and real-estate holdings, just hit a new high of $81.8 trillion. That’s more than $26 trillion in wealth added since 2009. No wonder most on Wall Street applaud the Fed’s unrelenting balance-sheet recovery strategy. It’s great news for those households and businesses with large asset holdings, high risk tolerances and easy access to credit.

Yet it provides little solace for families and small businesses that must rely on their income statements to pay the bills. About half of American households do not own any stocks and more than one-third don’t own a residence. Never mind the retirees who are straining to make the most of their golden years on bond returns.

The Fed’s extraordinary tools are far more potent in goosing balance-sheet wealth than spurring real income growth. The most recent employment report reveals the troubling story for Main Street. While 217,000 jobs were created in May, incomes for most Americans remain under stress, with only modest improvements in hours worked and average hourly earnings.

It’s taken a full 76 months for the number of people working to get back to its previous peak, a discomfiting postwar record. Unfortunately, during the same period the U.S. working-age population increased by more than 15 million people. That’s why the share of the working-age population out of work is now at a 36-year low. There are now more Americans on disability insurance than are working in construction and education, combined.

Meanwhile, corporate chieftains rationally choose financial engineering—debt-financed share buybacks, for example—over capital investment in property, plants and equipment. Financial markets reward shareholder activism. Institutional investors extend their risk parameters to beat their benchmarks. And retail investors belatedly participate in the rising asset-price environment.

All of this lifts balance-sheet wealth, at least for a while. But real economic growth—averaging just a bit above 2% for the fifth year in a row—remains sorely lacking.

Higher asset prices are not translating into meaningful increases in capital expenditures, and the weak growth in business investment is proving to be an opportunity-killer for workers. Those with jobs have some job security. But they are less willing to run the risk of finding a better opportunity, or negotiating for higher wages.

Those without jobs, especially in the younger cohorts without a post-high school education, do not attach to the workforce, thus never gaining the entry-level skills and discipline to build a career. The malaise in the labor markets—and muted business investment—help explain why productivity measures are a full percentage point below historical norms.

The Fed’s latest forecast has the economy growing above 3% during the balance of this year and next, and the unemployment rate falling to about 5.5% by the end of 2015. If the Fed’s sanguine scenario finally comes to pass, interest rates are likely to move meaningfully higher across the yield curve. The money pouring into the financial markets may be redirected, in part, to the real economy. Stocks, leveraged loans and real estate are likely to re-price in a higher interest-rate environment. If rates move quickly or unexpectedly, the vaunted balance-sheet recovery could suffer a blow.

What if there is an unexpected shock that causes the economy to slow in the next year or two? The Fed would surely be called upon to bolster asset prices and stimulate the real economy. But would a return to $85 billion per month of bond-buying really be effective? We are skeptical that either Wall Street or Main Street would be comforted by quantitative-easing redux.

Balance-sheet wealth is sustainable only when it comes from earned success, not government fiat. Wealth creation comes from strong, sustainable growth that turns a proper mix of labor, capital and know-how into productivity, productivity into labor income, income into savings, savings into capital, capital into investment, and investment into asset appreciation.

The country needs an exit from the 2% growth trap. There are no short-cuts through Fed-engineered balance-sheet wealth creation. The sooner and more predictably the Fed exits its extraordinary monetary accommodation, the sooner businesses can get back to business and labor can get back to work.

What is the difference between 2% growth and 3% growth in the U.S. economy? As the late economist Herb Stein recounted, the answer is 50%. And the real difference is one between a balance-sheet recovery that helps the well-to-do and an income-statement recovery that advances the interests of all Americans.

via Zero Hedge Tyler Durden

In Post-Soviet World, Town Pisses on Lenin with Irreverent Statue

Tina Nguyen
reports on a district in Krakow, Poland that is
celebrating the death of communism with an irreverent, neon-green
statue of Lenin entitled “Fountain of the Future.”

There’s a little bit of backstory to why this district is so
happy that communism is over: Nowa Huta, an industrial community,
was built by the Polish post-war government specifically to “combat
the influence of what authorities deemed to be ‘bourgeois’
Krakow,” according
to the Independent.
 (The town was such a
propaganda village that a popular song was written extolling its
Socialist virtues, and was literally titled “This
Song Is About Nowa Hute”
.) However, the plan backfired and Nowa
Huta instead became a hotbed of dissent, with protestors attempting
to blow up the bronze Lenin statue at least twice.

And now that Socialist Realism is dead, everyone in Nowa Hute
wants to keep it that way. Artist Bartosz Szydlowski told
the Telegraph that he wanted the world to see the town’s sense of
humor, and also wanted to stir debate over what should take the
place of the statue.

More here.

How do irreverent American leftists remember Lenin, the
architect of one of the most oppressive regimes in human history?
The folks at Mother Jones used
to sell ha-ha funny “Bowlshevik” bowling
shirts featuring Lenin
dishing out a strike. Because nothing is hipper than a guy who knew
how to pull off Red Terror and
worse like a real pro.

from Hit & Run

A.M. Links: CDC Scientists Botch Anthrax Transfer, New York Approves Some Medical Marijuana, Americans Don’t Trust Media

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from Hit & Run

Kurt Loder Says Jersey Boys Was Better on Broadway

Anyone who saw the original Broadway production
of Jersey Boys, or one of its many satellite
offshoots, may have a problem with Clint Eastwood’s attempt to turn
this unusual musical into a movie. The problem is, you can’t un-see
the show. In the theatre, director Des McAnuff supercharged the
story of the Four Seasons – the New York vocal group whose hits
bridged the beginning of the British Invasion era – with
sensational staging. In one scene, with the group performing live
in concert, we saw the four members only from behind, facing the
back of the stage, where spotlights and crowd cheers erupted and
blasted past them out into the audience. It was a spectacular
showbiz effect. Eastwood’s movie contains faint echoes of McAnuff’s
theatrical flourishes, but that’s all they are, writes Kurt Loder.
It’s a picture filled with faint echoes.

View this article.

from Hit & Run

Heading Into Midterm Elections, Confidence In Congress Hits Record Low 7%

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

It’s no surprise to anyone that Americans have zero faith in their so-called “Representatives.” The vast majority of these folks are lying, thieving, white-collar criminals, and we all know it. The real question is what, if anything, are we going to do about it?

I’m not someone who believes in centralized power, and I question whether in a world with the technological connectivity we have today, if we actually need to vote for someone else to vote for us. This seems like an extremely inefficient and outdated process. I haven’t yet come to my own conclusions on what specifically might be a preferable system, but I am certainly a proponent of decentralizing government and the political process itself. For more on this concept, I suggest, reading the following post from last week: The Coming Digital Anarchy.

While I do think our current system of government is overly centralized and outdated, I still think it’s important to send these corrupt political cronies a message as long as this system remains in place. This is already happening, as we saw with Dave Brat’s stunning victory over corporatist kingpin Eric Cantor. Furthermore, it appears Democrats are also at serious risk from the public’s disdain, as 22-term Rep. Charlie Rangel is finding out now (for more of my thoughts on this read, Is Charlie Rangel the Next to Go? 22-Term New York Democrat Faces Serious Primary Threat).

Moving along, the latest article from Gallup contains some stunning revelations as well as a shocking statement. First of all, it reports how only 7%  of Americans say they have “a great deal” or “quite a lot” of confidence in Congress. This is a record low since the question was first asked in 1974, and handily beats the prior low of 10% in 2010. Moreover, it was the lowest Gallup has recorded for any institution in the 41-year trend.” If you don’t think this is hugely important, think again. The 4th Turning is alive and well.

We learn from Gallup that:

WASHINGTON, D.C. — Americans’ confidence in Congress has sunk to a new low. Seven percent of Americans say they have “a great deal” or “quite a lot” of confidence in Congress as an American institution, down from the previous low of 10% in 2013. This confidence is starkly different from the 42% in 1973, the first year Gallup began asking the question.


Americans’ current confidence in Congress is not only the lowest on record, but also the lowest Gallup has recorded for any institution in the 41-year trend. This is also the first time Gallup has ever measured confidence in a major U.S. institution in the single digits. Currently, 4% of Americans say they have a great deal of confidence in Congress, and 3% have quite a lot of confidence. About one-third of Americans report having “some” confidence, while half have “very little,” and another 7% volunteer that they have “none.”


Screen Shot 2014-06-19 at 10.13.28 AM


So how do Americans view many of the other institutions in society?


Screen Shot 2014-06-19 at 10.14.45 AM


The most interesting aspect of the above is the fact “news on the internet” is more trusted than “television news.” The most disturbing part of the above is that the popularity of the military makes come sort of coup a serious concern down the road if we have a serious collapse.

Now here’s the most shocking line from Gallup:

The dearth of public confidence in their elected leaders on Capitol Hill is yet another sign of the challenges that could face incumbents in 2014′s midterm elections – as well as more broadly a challenge to the broad underpinnings of the nation’s representative democratic system.

Gallup seems to believe that the corruption in D.C. poses an existential threat to the nation itself. I agree. This is why we cannot settle for small cosmetic changes at the edges of the current system, which as academics from Princeton and Northwest proved, is an oligarchy. We need wholesale systemic change, preferably a radical shift into decentralized political, social and economic structures. The more centralized power is, the more ripe for corruption. As we are seeing today.

Full article here.

via Zero Hedge Tyler Durden

Iraq Update: Fighting Continues, Battle For Refinery, PM On The Rocks

Here are all the latest news and updates from the rapidly-changing situation in Iraq, courtesy of Bloomberg.



  • Iraqi govt troops retain control of 310k b/d Baiji refinery, but facility surrounded by territory held by ISIL-led militants
  • Aerial photos yday showed some storage tanks on fire
  • Fierce battles near Baiji and Tal Afar airport: BBC
  • Fighting continues around Tal Afar, halfway between Mosul and Syrian border
  • Clashes reported between ISIL and Kurds south of Kirkuk


  • U.S. to send 300 military advisors to Baghdad; lack sufficient intelligence for imminent air strikes: Gen. Dempsey
  • Saudi Arabia warns against outside intervention in Iraq, blames “exclusionary policies” of Iraqi cabinet: Saudi ambassador writes in Telegraph
  • ISIL hands over captured foreign workers to police



  • Obama declines to endorse Maliki, but stops short of calling for him to step down
  • Challengers emerging to replace Iraq PM: NYT



  • Current output from Iraq’s northern fields cut to 30k b/d; supplying Kirkuk refinery
  • Northern fields were producing ~650-700k b/d before March 2 closure of export pipeline to Turkey



  • Exports from Iraq’s northern fields cut since March 2 when the Iraq-Turkey pipeline was bombed
  • Exports of Kirkuk crude from Turkish port of Ceyhan fell to 24k b/d in March, zero in April: Oil Ministry
  • NOTE: Iraq still exports crude from southern fields via Persian Gulf


  • Kurdish forces have taken control of Kirkuk oil field and city after central govt forces fled
  • Kurds fighting ISIL forces at Bayshir, south of Kirkuk
  • Ashti Hawrami, Kurdish Regional Govt’s natural resources minister, offered to export Kirkuk via Kurdish pipelines, but was rebuffed
  • Kurds to boost exports to 200k-250k b/d in July from 125k b/d now; targeting 400k b/d by end-2014



  • Sprawling complex of storage tanks, processing units
  • Primary source of products for N Iraq; also supplies Baghdad
  • Linked power plant provides electricity to region
  • Represents ~40% of Iraq’s refining capacity; processes      crude delivered by pipeline and rail from Kirkuk, Ajeel (formerly Saddam) and other fields operated by North Oil Co.
  • Lies on Iraq-Ceyhan pipeline; important source of fuel for both govt and ISIL
  • Storage tanks full: Iraq Oil Ministry
  • Capture would provide immediate source of fuel for insurgents’ vehicles and for sale in N Iraq.


  • Production in south unaffected by fighting so far
  • Iraq plans to ship 2.79m b/d from Basrah Oil Terminal in July; most since before 1980-88 Iran-Iraq War
  • BP, Exxon, CNPC and Petronas started to evacuate non- Iraqi staff from nation
  • Shell ’monitoring the situation very carefully’: Andy Brown, head of Shell Upstream International
  • Lukoil has increased security at West Qurna field, where it started production in March
  • Southern oil facilities not beyond ISIL’s reach: Barclays



  • Islamic State in Iraq and the Levant (ISIL) is also known as Islamic State in Iraq and al-Sham (ISIS)
  • A Sunni jihadist group led by Abu Bakr al-Baghdadi
  • Broke away from al-Qaeda in 2013
  • Want to create a Sunni caliphate across Iraq, Syria and neighboring countries
  • Control large parts of northern Syria
  • Well funded through sales of Syrian oil and antiquities
  • Vowed to attack Baghdad and Shiite holy cities of Karbala and Najaf



  • ISIL insurgents have overrun large parts of northern and central Iraq; Prime Minister Nouri al-Maliki’s Shiite Muslim-led govt now seeking to regain control
  • 2003 U.S. invasion of Iraq and subsequent rise to power of Shiite-Muslim majority alienated Sunni Muslims; Sunnis felt marginalized under Maliki; some support ISIL
  • Maliki accuses ISIL of an alliance with Saddam Hussein’s Ba’ath party
  • Shiites constitute majority in southern Iraq

Source: BBG

via Zero Hedge Tyler Durden

Frontrunning: June 20

  • Must be an early winter: Housing Falters as Forecasters See U.S. Sales Dropping  (BBG)
  • China Property Failures Seen as $33 Billion in Trusts Due (BBG)
  • Iraqi forces ready push after Obama offers advisers (Reuters)
  • Priorities: U.S. cuts aid to Uganda, cancels military exercise over anti-gay law (Reuters)
  • Kurds’ Takeover of Iraqi City of Kirkuk Strengthens Their Hand (WSJ)
  • U.S. says government lab workers possibly exposed to anthrax (Reuters)
  • Netflix Up 21% With Tesla: The best U.S. stocks this month are ones that just a few months ago were the biggest losers (BBG)
  • Architects of Iraq Invasion Return to Blame Obama (BBG)
  • Nato claims Moscow funding anti-fracking groups (FT)
  • Lawmakers Skeptical GM Bosses Were Unaware of Defect (WSJ)
  • Corinthian Colleges Warns of Possible Shutdown (WSJ)
  • Taiwan’s Quanta to start mass production of Apple’s smartwatch in July (Reuters)
  • China Miners’ Loss Is BHP’s Gain as Iron Prices Slump 44% (BBG)
  • Icahn Urges Family Dollar CEO to Seek Sale ‘Immediately’ (BBG)
  • ValueAct’s Ubben Has a New Target: His Hedge-Fund Peers (WSJ)
  • Sex Workers Protest as Soho Swaps Sleaze for Champagne  (BBG)
  • Regulatory Scrutiny Transforms Washington’s Political-Intelligence Business (WSJ)


Overnight Media Digest


* Washington’s political-intelligence business is going through a wrenching transformation in the face of heightened legal and regulatory scrutiny, including insider-trading probes. In recent months, a number of lobbyists have left the political-intelligence business, and several lobbying and law firms have created new internal procedures and protocols to guard against violating insider-trading rules. (

* Corinthian Colleges Inc, one of the country’s largest for-profit education companies, warned Thursday that it may have to shut down after the Obama administration moved to restrict the company’s access to federal funding. (

* General Motors Co’s pinning of a decade-long failure to recall defective cars on a lone engineer is running into skepticism from lawmakers who say GM documents show dozens of people were alerted to ignition-switch defects during the past decade. (

* Two years after a bruising battle with unions, Fiat Chrysler Automobiles Chief Executive Sergio Marchionne on Thursday canceled plans to shift 500 furloughed workers from a mostly idle Fiat plant in Turin to a nearby Maserati factory, according to a person familiar with the situation. Fiat has also shelved plans to use overtime at the same Maserati factory to meet booming demand for the luxury brand, the person said. (

* Harley-Davidson Inc, known for gasoline-powered motorcycles thundering with machismo, is testing a battery-powered model that it hopes will appeal to younger people concerned about the environment. (

* An Apple Inc “kill switch” to disable stolen iPhones appears to be reducing thefts, law-enforcement officials in New York and California said. Google Inc and Microsoft Corp are following Apple’s lead, planning to put similar technology into devices using their software. (



A stronger than expected demand from investors has led the Lloyds Banking Group to increase the amount of shares it is selling in its newly created TSB offshoot by about 40 percent.

The United States will be sending up to 300 “military advisers” to Iraq to help its embattled government fight back against Sunni insurgents who have pushed the country to the brink of a sectarian civil war.

The head of NATO has claimed Russian intelligence agencies are covertly funding and working with European environmental groups to campaign against fracking and maintain EU dependence on Russian gas.

British cabinet ministers have told the Prime Minister that “shambolic” IT provision by smaller firms has brought their departments to a virtual standstill in recent weeks.



* General Electric Co announced on Thursday a revised $13.5 billion bid for the energy business of the French conglomerate Alstom SA aimed at easing concerns of the Socialist government of President Francois Hollande. (

* Shares in Tianhe Chemicals Group rose on Friday in their trading debut in Hong Kong after the company raised about $650 million last week in an initial public offering. (

* Federal prosecutors and financial regulators have subpoenaed Congress in an investigation that could test the limits of federal insider trading laws. The investigation focuses on a Washington research company, Height Securities. Last year, it correctly predicted a change in government health care policy, prompting a surge in the stock prices of health insurance companies. (

* Microsoft Corp and Google Inc said Thursday that phones using their operating systems – including handsets produced by big names like Samsung, Nokia and Motorola – will have a so-called kill switch that can render the devices unusable after they have been reported stolen. Apple’s iPhone has had a kill switch, called Activation Lock, since September. (

* Computer security experts say hedge funds, with their vast pools of money and opaque nature, have become perfect targets for sophisticated cyber criminals. Over the past two years, experts say, hedge funds have fallen victim to targeted attacks. What makes them such ripe targets is that even as hedge funds expend millions in moving their trading operations online, they have not made the same investment in security. (




* The Conservative government will cap the number of low-wage temporary foreign workers that employers can bring to Canada as part of sweeping policy reforms that will be announced on Friday. The government will limit the number of foreign workers that companies, such as restaurants, can have at any location based on a percentage of their work force. The measure is expected to cut in half the number of people brought into the country each year for low-wage positions, which was 31,000 last year. (

* Changes to the way federal transfers to provinces are calculated since the Stephen Harper government took power appear to have made Ontario a big loser under equalization programs and Alberta the big winner, according to Canada’s budget watchdog. (

* Conservatives – including the Speaker of the House of Commons – have been feting Nigel Wright as Stephen Harper’s former chief of staff leaves behind Ottawa and a brutal year to return to the private sector. Wright resigned his post a little over a year ago following the revelation he had secretly paid $90,000 of Senator Mike Duffy’s contested expenses. The prime minister repudiated Wright publicly, calling him responsible for the “deception” and saying he was dismissed. (

Reports in the business section:

* The chief executive of Canada’s best-known technology company was afforded a rare chance to boast on Thursday, as BlackBerry Ltd reported better-than-expected quarterly results. Although the smartphone maker still lost money in its fiscal first quarter on an adjusted basis, the loss was far less severe than most analysts expected. (

* Approaching July 1 when the first aspects of the anti-spam law come into effect, companies have been taking advantage of their last days in which unsolicited emails are permitted to ask customers, prospective customers, recipients of newsletters, and others for consent to contact them in the future. (

* Most of Canada’s largest public companies have done little to improve their disclosure to shareholders about their gender diversity practices, despite facing pending new regulations on the issue. A review of companies in the S&P/TSX 60 index show few are improving their diversity disclosure practices in advance of new disclosure rules expected to be finalized later this year by the Ontario Securities Commission, according to Sylvia Groves, president of Calgary-based consulting firm Governance Studio. (

* British Columbia Investment Management Corp, which manages money for public sector pension plans and public trusts in British Columbia, said its assets climbed to $114 billion as of March 31 from $102.8 billion a year earlier, due to strong 14.7 percent returns that outpaced passive benchmarks. BCIMC is Canada’s fourth-largest pension fund manager. (


* Some labor leaders so feared a Progressive Conservative victory in the June 12 election they “sold their souls” to back the Liberals, the president of the Ontario Public Service Employees Union said on Thursday. “The labor movement was so afraid of Tim Hudak being elected that they sold their souls to the Liberals,” said OPSEU president Smokey Thomas. (

* The Council of Canadians and the Canadian Federation of Students announced on Thursday they would challenge the Stephen Harper government’s new election bill, hours before Governor General David Johnston was to grant royal assent, making it law. The two groups intend to challenge voter-ID provisions that critics say will make it harder for students, aboriginals and seniors to vote, and changes that limit the mandate of the chief electoral officer to promote voting. (


* The Petronas-sponsored Pacific Northwest liquefied natural gas project is seeking debt-financing, reportedly for as much as $10 billion-$15 billion, for its LNG project on the West Coast. It would be the biggest debt financing deal in Canada. (

* BlackBerry Ltd Chief Executive John Chen recognizes the turnaround is still a work in progress. “Whether we get back to an iconic state, I don’t know, but we certainly will try. Certainly there are a lot of opportunities and assets in the company,” Chen said. (

* Statistics Canada said on Thursday that private non-financial corporations increased their cash holdings to $630 billion in the first quarter of this year – up from $621 billion at the end of 2013. Corporations have been singled out by the Bank of Canada for not contributing more to the economic recovery, which has relied heavily on consumer spending for growth since the 2008-09 recession. (




– SAIC Motor Corporation Limited will invest more funds to develop vehicles carrying its own brand, said Chairman Chen Hong.


– The prolonged effects of the slowdown in China’s property market could hurt economic growth, but reforms to balance the economy will offset the negative impact, Moody’s Investors Service said in Shanghai.

– Polluters face harsher penalties under a draft amendment to an air pollution prevention law reviewed by the Shanghai legislative body. Anyone found guilty of discharging major air pollutants without a licence faces a fine of up to 500,000 yuan ($80,645) compared to the current 100,000 yuan.


– Two provincial-level officials from China’s northern Shanxi province, Ling Zhengce and Du Shanxue, are under investigation for suspected serious discipline and law violations – an euphemism for corruption – China’s anti-graft authority said on Thursday.

– China should consider flexible grain imports from international markets and take steps to ensure sustained growth in domestic output of staple grains for long-term food security, government officials and foreign exporters said on Thursday.


– Mainland China and Hong Kong should strive hard towards implementing the “one country, two systems” policy and work together for prosperity, the newspaper said in its commentary.



The Telegraph



Lloyds Banking Group will sell a significantly bigger percentage of TSB than it had intended, after strong demand for shares in the challenger bank.



Demand for UK manufacturing strengthened in June, amid concerns that the strengthening of sterling could put exports in jeopardy.

The Guardian



Britain’s 10 million mortgage payers have been warned to ready themselves for dearer borrowing costs after a Bank of England policymaker said stronger-than-expected growth meant the era of ultra-cheap money was drawing to a close.



Sir Richard Branson’s cumulative dividends from Virgin Trains are set to pass 300 million pounds after the government gave the firm a revised deal to run the west coast main line until 2017, with a probable one-year extension.

The Times



A recovery in manufacturing on the back of rising exports could be in jeopardy after the pound broke the key $1.70 barrier for the first time in almost six years.



Soaring house prices have earned the government nearly 1 billion pounds in extra stamp duty payments every year, research suggests.

The Independent



Board votes unanimously to remove founder Dov Charney and says company is ‘larger than any one individual’



Rolls-Royce, the troubled aero-engine manufacturer, has moved to win back the support of investors with a 1 billion sweetener as it shelved plans for major acquisitions.


Fly On The Wall 7:00 AM Market Snapshot

No major domestic economic reports scheduled today.



Autonation (AN) upgraded to Buy from Neutral at Goldman
Domtar (UFS) upgraded to Neutral from Sell at Citigroup
Entegris (ENTG) upgraded to Overweight from Equal Weight at First Analysis
Esterline (ESL) upgraded to Buy from Hold at Canaccord
Kinder Morgan Energy (KMP) upgraded to Buy from Neutral at UBS
Kroger (KR) upgraded to Neutral from Sell at Goldman
Molson Coors (TAP) upgraded to Equal Weight from Underweight at Morgan Stanley
Penske Automotive (PAG) upgraded to Neutral from Sell at Goldman


Cleco (CNL) downgraded to Hold from Buy at KeyBanc
Coach (COH) downgraded to Market Perform from Outperform at BMO Capital
Coach (COH) downgraded to Market Perform from Outperform at William Blair
Coach (COH) downgraded to Neutral from Overweight at HSBC
FXCM (FXCM) downgraded to Neutral from Buy at Citigroup
Idenix (IDIX) downgraded to Neutral from Buy at UBS
Oracle (ORCL) downgraded to Neutral from Buy at Citigroup
PS Business Parks (PSB) downgraded to Neutral from Overweight at JPMorgan
PetSmart (PETM) downgraded to Neutral from Outperform at Wedbush
Pier 1 Imports (PIR) downgraded to Hold from Buy at Deutsche Bank
Sonic Automotive (SAH) downgraded to Sell from Neutral at Goldman
Targa Resources Partners (NGLS) downgraded to Hold from Buy at Wunderlich


Carter’s (CRI) initiated with a Market Perform at Wells Fargo
Deckers Outdoor (DECK) initiated with an Outperform at Wells Fargo
International Flavors (IFF) initiated with a Neutral at UBS
Kinder Morgan (KMI) initiated with a Buy at UBS
Spectra Energy Partners (SEP) initiated with a Neutral at UBS
Spectra Energy (SE) initiated with a Neutral at UBS
Trulia (TRLA) initiated with a Perform at Oppenheimer
Veracyte (VCYT) initiated with an Overweight at Piper Jaffray
Zillow (Z) initiated with a Perform at Oppenheimer


Shire (SHPG) confirmed rejection of ‘highly conditional’ AbbVie (ABBV) proposal
Carl Icahn sent letter to Family Dollar CEO Howard Levine urging an ‘immediate sale’ of the company
Family Dollar (FDO) said board of directors and management team ‘committed to acting in the best interests of the company and our shareholders’
Corinthian Colleges (COCO) warned on its ability to continue as going concern
Targa (TRGP), Targa Resources Partners (NGLS) terminated talks with Energy Transfer Equity (ETE)
Siemens (SIEGY), Mitsubishi raised cash portion of Alstom (ALSMY) offer to EUR8.2B (GE)
Nike (NKE) named eBay (EBAY) CEO John Donahoe to its board
Cubist (CBST) said the FDA accepted its NDA for its investigational antibiotic ceftolozane/tazobactam with Priority Review
Merrimack Pharmaceuticals (MACK) regained worldwide rights to commercialize MM-121
Molycorp (MCP) downgraded to Caa2 from Caa1 by Moody’s, outlook stable


Companies that beat consensus earnings expectations last night and today include:
Smith & Wesson (SWHC)

Companies that missed consensus earnings expectations include:
Oracle (ORCL)

Companies that matched consensus earnings expectations include:

Oracle (ORCL) sees Q1 adjusted EPS 62c-66c, consensus 64c
Oracle (ORCL) sees Q1 software license, cloud revenue up 6%-8% in U.S. dollars
TIBCO (TIBX) sees Q3 adjusted EPS 15c-19c, consensus 24c


Apple (AAPL) targeting 50M ‘iWatch’ shipments in first year, Reuters says
Apple (AAPL) planning multiple designs for iWatch, WSJ reports
GKN (SKNLY) likely buyer for Spirit (SPR) Oklahoma plants, The Deal reports
Twitter sales leader Bain to take over business development, Re/code says
Judge says Justice Dept effort against Bank of America (BAC) to move forward, WSJ reports
Celgene (CELG) looks like a buy, Barron’s says
Carlyle (CG), TPG aiming for $2.4B Healthscope IPO, Reuters reports


CyrusOne (CONE) 13.9M share Secondary priced at $23.25
Eclipse Resources (ECR) 30.3M share IPO priced at $27.00
Emerge Energy (EMES) files to sell 3.52M common units for holders
Excel Trust (EXL) files to sell 10M shares of common stock
Kindred Healthcare (KND) 9M share Secondary priced at $23.75
Kite Pharma (KITE) 7.5M share IPO priced at $17.00
Performance Sports Group (PSG) 7.097M share Secondary priced at $15.50
StoneMor Partners (STON) files to sell 1M common units for holders
Sunstone Hotel (SHO) files to sell 18M shares of common stock
Teekay Tankers (TNK) files to sell $200M in common stock

via Zero Hedge Tyler Durden

Proposed Campus Crime Rules Require Reporting of Stalking, Dating Violence; Expand Hate Crime Categories

U.S. Education Department has released
new draft rules for how colleges must handle campus sexual assault
 and some other crimes. It’s part of an ongoing
effort from the Obama administration to make less of a mess of the
rape crisis

Released yesterday, the proposed rules are part of efforts to
implement the 2013 Campus Sexual Violence Elimination (SaVE) Act,
an update on the Jeanne Clery Act of 1990. The Clery act
established for the first time that colleges must disclose
information about crime on campus if they want to participate in
federal student financial aid programs.

The Clery Act is one of two federal laws governing how schools
must respond to reports of sexual assault,
explains the 
Science Monitor

The other key law is Title IX, which bans sex discrimination and
requires action on sexual violence and harassment because they
interfere with victims’ access to equal education. The Education
Department has taken a number of steps in recent years to
strengthen those aspects of Title IX.

The new
Clery Act rules
 are open for public comment until July 21,
with final rules scheduled for Nov. 1. Here are some of their key

  • Require colleges and universities to report annual statistics
    on dating violence, domestic violence, and stalking, in addition to
    sexual assault.
  • Define sexual assault as “an offense that meets the definition
    of rape, fondling, incest, or statutory rape.” 
  • Change the definition of “rape” to match the FBI’s current
    definition, so it now will include sodomy and sexual assault with
    an object.
  • Define “hate crime” to mean a crime “that manifests evidence
    that the victim was intentionally selected because of the
    perpetrator’s bias” against the victim based on race, religion,
    gender, sexual orientation, ethnicity, disability status and, now,
    gender identity or national origin. 
  • Provide domestic violence and sexual assault complainants with
    a written explanation of their rights and options. 
  • Establish “comprehensive, intentional, and integrated
    programming, initiatives, strategies, and campaigns intended to end
    dating violence, domestic violence, sexual assault, and stalking
    that are culturally relevant, inclusive of diverse communities and
    identities, sustainable, responsive to community needs, and
    informed by research or assessed for value, effectiveness, or
  • Require colleges to submit an annual report on their procedures
    for institutional disciplinary action in cases of alleged dating
    violence, domestic violence, sexual assault, or stalking.

The department declined to weigh in on the meaning of sexual
consent, as “several
negotiators strongly urged
.” Though earlier draft regulations
had included language similar to those
currently being considered in California
, the agency has since
removed it.

from Hit & Run

Equity Futures Unchanged Ahead Of Today’s Quad-Witch

As of this moment, US equity futures are perfectly unchanged despite what has been an almost comical reactivation of the 102.000 USDJPY tractor beam. Considering the pair has been trading within a 75 pips of the 102.000 level for the past month, one has to wonder when and what the next BOJ Yen equilibrium level will be reset to. Oddly enough, even as the USDJPY is very much unchanged, the Nikkei continues to rise suggesting that, as Nikkei reported, the GPIF is already investing Japanese pension funds in stocks. Which is great for the Nikkei catching up with the global bond bubble, what is not so great is what happens when the market realizes that the largest holder (excluding the BOJ) of JGBs is dumping, and the world’s most illiquid major sovereign bond market rushes for the exits. Just recall the daily halts of Japanese bond trading from the summer of 2013 – we give it 3-6 months before it returns with a vengeance.

In other news, there have been no material geopolitical updates, which added with the fact that it is Friday, means there will be a now traditional VIX slam into the last minutes of trading to close stocks out at the day’s, and a new record, highs. Unfortunately for the NY Fed (in conjunction with Citadel) trading team, the VIX will enter single digits soon: how much lower it can be pushed from there becomes a critical issue. Under normal (as in not centrally planned) circumstances today’s quad witching and S&P rebalance would mean volatility would rise as would volume. Which likely means that both vol and volume will tumble, thanks to aunt Janet, converting the market into something only a central-planner/banker could love.

Asian equities trade weaker paced by the KOSPI (-1.1%) and ASX200 (-0.4%). The Nikkei (+0.3%) is outperforming and has continued its strong run, led by reflation favourites such as real estate (+1.7%) and consumer services (+1.7%) stocks. Dollar-yen was largely unchanged for much of the session, then ground higher as the 102 tractor beam was activated. The Nikkei newspaper notes that Japanese stock prices have been rising while USDJPY remains within a narrow band around 102, fuelling chatter that the GPIF’s funds are already flowing into domestic equities as a part of early portfolio rebalancing. On the topic of reflation, the same newspaper reported that the number of Japanese millionaires surged by over 20% in 2013, nearly five times the annualised growth in the previous six years, citing the latest World Wealth Report.

European shares mixed with the basic resources and health care sectors outperforming and banks, telcos underperforming. The Swiss market is the best-performing larger bourse, Italian the worst. Swedish, Finnish markets closed for Midsummer holiday. The euro is little changed against the dollar. German 10yr bond yields rise; U.K. yields increase.

Commodities little changed, with gold, soybeans underperforming and zinc outperforming.

There is nothing on today’s US event calendar, no POMO either.

Market Summary

  • S&P 500 futures up 0.1% to 1951.5
  • Stoxx 600 up 0.2% to 348.8
  • US 10Yr yield up 0bps to 2.62%
  • German 10Yr yield up 2bps to 1.34%
  • MSCI Asia Pacific down 0.4% to 144.8
  • Gold spot down 0.7% to $1311.2/oz

US Event Calendar

  • Nothing
  • No POMO

Bulletin Headine Summary from RanSquawk and Bloomberg

  • Profit taking related flow following yesterday’s FOMC inspired gains dominated the price action in Europe this morning.
  • Gold remains above USD 1,300 level, with analysts at UBS noting that yesterday’s surge was short-term trend.
  • No tier-1 data releases on tap later, but today marks the quadruple witching day and the S&P rebalance.
  • Treasury yields little changed; FX, bond and stocks volatility remain near FOMC inspired lows, supporting higher-yielding assets; no U.S. data due today.
  • U.S. is sending as many as 300 special operations personnel as well as reconnaissance planes to help repel Sunni insurgency in Iraq for at least several weeks, giving country’s Shiite leaders time to form a new government that can command support across sectarian lines
  • Fighting between Ukrainian troops and insurgents cast a pall over government efforts to declare a cease-fire in the east as NATO condemned Russia for once again massing soldiers on the two nations’ border; Russia said it’s strengthening border security, not building up troops
  • Russia central bank chairman said economic slowdown is structural, cannot be solved by monetary policy; spent >$40b in 1H on intervention vs $27b total last year
  • China’s Premier Li, on a visit to Greece, says country opposes behaviors that disturb peace on sea
  • A second Chinese oil rig is due to arrive at a location closer to Vietnam today, two days after the end of high- level talks aimed at defusing tensions between the two countries over a current drilling operation
  • U.K. budget deficit was little changed in May compared with a year earlier, when figures were flattered by a tax payment related to a deal with Switzerland; net borrowing was GBP13.3b vs GBP12.6b a year ago; excl. Swiss tax deal, gap narrowed by GBP200m; median est. was for GBP12.2b
  • BOE’s Haldane said BOE is not under pressure to raise rates
  • BOJ’s Kuroda sees CPI gains picking up in 2H2014, will keep policy easy until inflation stable at 2%; adjust  as needed
  • Japan cabinet office raises view on consumption, maintains overall assessment of “moderate recovery trend” in June economic report
  • Bank of America Corp. must face the DOJ’s lawsuit accusing  it of misleading investors about the quality of loans tied to $850m in RMBS, judge ruled
  • The swift Republican election of a  new U.S. House leadership team won’t heal the party’s divisions though lawmakers say it does provide insulation from a challenge to Speaker John Boehner after the midterm election
  • German and Dutch finance ministers said more information was needed on proposed euro-area bank levy; E.U. finance ministers agreed on closing a tax loophole but delayed talks on a more general anti-abuse rule
    FDI into E.U. was EU326b in 2013, led by U.S. with EU313b, Eurostat said
  • Sovereign yields mostly higher. EU peripheral spreads little  changed. Chinese stocks gain, while most other Asian stock markets decline; European equity markets, U.S. stock futures higher. WTI crude, copper higher, gold lower after yday’s 3.3% jump


  • 14 out of 19 Stoxx 600 sectors rise; basic resources, health care outperform, banks, telcos underperform; index up 0.5% this week
  • 58.2% of Stoxx 600 members gain, 38.8% decline
  • Eurostoxx 50 +0.1%, FTSE 100 +0.3%, CAC 40 +0.1%, DAX +0.3%, IBEX -0.1%, FTSEMIB -0.5%, SMI +0.3%


  • Asian stocks fall with the Shanghai Composite outperforming and the Kospi underperforming.
  • MSCI Asia Pacific down 0.4% to 144.8
  • Nikkei 225 down 0.1%, Hang Seng up 0.1%, Kospi down 1.2%, Shanghai Composite up 0.1%, ASX down 0.9%, Sensex down 0.4%
  • 0 out of 10 sectors rise with utilities, consumer  outperforming and materials, tech underperforming


With little in terms of tier 1 macroeconomic releases, meant that profit taking related flow following yesterday’s FOMC inspired gains dominated the price action in Europe this morning. At the same time, policy divergence between the BoE and the ECB ensured that Gilts underperformed Bunds, with 10y UK/GE bond yield spread touching on its widest level since mid-1997.


Stocks recovered off the lowest levels of the session, but remain mixed, with financials among the worst performing sector. Italian banks are in focus this morning, with Banca Monte dei Paschi shares under pressure as it is last day of trading for the company’s rights issue. In terms of other equity specific news, Shire shares surged in London after AbbVie confirmed that it made an indicative offer to the Co. of GBP 46.26/Shire Shr. Although it was subsequently confirmed by Shire that it rejected the offer and that talks between the two companies are off.

Of note, today marks the quadruple witching day and the S&P rebalance as well as EU index changes and expiries.


Police divergence between the BoE and the ECB ensured that GBP outperformed EUR. Elsewhere, USD/JPY moved above the 102.00 level, which was also yesterday’s high but the upside was not sustained and instead the price action was capped by good sized option expiries at 102.00 level.


Gold prices declined today after rallying over 3% yesterday on touted short-covering, with silver prices also lower having advanced 5% yesterday following somewhat dovish FOMC decision late Wednesday. Elsewhere, WTI and Brent crude futures reside in minor negative territory, with little related news flow to guide price action and no notable updates from Iraq.

* * *

DB’s Jim Reid concludes the overnight recap

As European markets played catch up with the post-FOMC gains yesterday, the tone of the US session was largely dictated by the strength of the US data. Indeed, the release of the Philly Fed manufacturing survey pretty much marked the session low for treasury yields. From there yields increased almost 6bp which effectively unwound all of the gains post-FOMC on Wednesday. The UST curve steepened led by 2s/30s (+5bp) and there was talk that a dovish Fed today would lead to higher rates down the track. The S&P500 managed a small gain of 0.13% but spent most of the day within a 3pt trading range. Gold added 3.35% with Reuters saying that there was “frantic short covering” after the Fed but it’s also fair to say that geopolitical headlines contributed to the rally. Spot gold managed to close above $1300/oz for the first time in a month. Looking more closely at the data, the US Philly Fed index for June rose +2.4pts to +17.8 (against 14.0 expected), which is the highest reading since September 2013. There were several interesting aspects to this month’s report. Notably, there was a sizeable increase in the price paid subindex which rose to 35.0 in June from 23.0 in May. In addition, the outlook for capital expenditures (+31.0 vs. +24.4) picked up significantly, and is near its post-recession high of 33.3 reached in March 2011. The six-month outlook increased +14.6 points to +52.0 — the highest level since last October. A number of other components such as new orders (+16.8 vs. +10.5 prev), shipments (+15.5 vs. +14.2 prev), order backlogs (+11.5 vs. -2.5 prev) and employment (+11.9 vs. +7.8 prev) all improved.

So the Philly Fed report indicated that perhaps there was pickup in capex during the month of June. More broadly the issue of capital investment is becoming increasingly topical and Yellen has been making a point including at this week’s FOMC that a “diminished contribution from capital formation” has been something that has been holding back US growth. In DB’s latest Global Economic Perspectives our economists including Chief Economist Peter Hooper write that questions about the potential pace of Fed exit increasingly focus on whether business fixed investment (BFI) will begin to contribute substantially to the expansion of demand. They think that BFI growth has slowed and its share of GDP remains well below levels consistent with this stage of the recovery. They write that prospects appear good for a rebound: Survey indicators of business spending, along with orders for capital goods, have picked up nicely. From a top-down perspective, factors such as the aging of the existing capital stock, rising capacity utilization, the ample funding available in the corporate sector, and reduced uncertainty about economic policy and macro growth prospects all point to a healthy climate for increased BFI. They conclude that BFI spending is likely to accelerate in the near term, helping to drive a solid upturn in GDP growth, though not a booming one. Because the pickup in BFI they envision would tend to confirm that the recovery has reached a self-sustaining stage, they believe that it will help move the Fed toward signalling a more hawkish policy stance later this year.

At least up until recently however, US corporates appeared happy to return excess cash to shareholders and we noted yesterday that data to the end of March showed that the level of share buybacks and dividends reached a new record in Q1 2014.

Taking a look at overnight markets, UST yields are basically unchanged at around 2.65% while Asian equities trade weaker paced by the KOSPI (-1.1%) and ASX200 (-0.4%). The Nikkei (+0.3%) is outperforming and has continued its strong run, led by reflation favourites such as real estate (+1.7%) and consumer services (+1.7%) stocks. Dollar-yen is unchanged however. The Nikkei newspaper notes that Japanese stock prices have been rising while USDJPY remains within a narrow band around 102, fuelling chatter that the GPIF’s funds are already flowing into domestic equities as a part of early portfolio rebalancing. On the topic of reflation, the same newspaper reported that the number of Japanese millionaires surged by over 20% in 2013, nearly five times the annualised growth in the previous six years, citing the latest World Wealth Report.

In terms of other headlines, Ukrainian government bonds underperformed briefly yesterday after a Reuters report said that the government was in talks with creditors about a possible debt restructure. However the article clarified that “it was too soon to say whether it would need to change the terms of its debt”, citing an official from IIF. Another article published (WSJ) towards the US market close said that no debt restructuring is planned or being negotiated, but discussions so far “were an exploration to determine what type of bond restructuring might be possible if Ukraine’s economic crisis worsened”.

Meanwhile, the Ukraine finance ministry confirmed yesterday that Ukraine had made a $73m coupon payment on Eurobonds issues to Russia in December (BBG). The White House confirmed yesterday that it was sending 300 military advisers to Iraq to assist with the fight against Sunni militants, but it did not rule out further military intervention. Brent prices soared another 0.7% to $115/bbl after reports of fighting between ISIS and the Iraq government for control of the Baiji refinery. The Iraq army released a statement that it had managed to recapture the Baiji refinery from insurgents. The Iraq North Oil Company said that crude oil shipments from Kirkuk to Baiji refinery have been halted this month.

Looking at today’s calendar, there is little in terms of economic data. In Europe, there is German PPI and an update on Euroarea consumer confidence. The ECB’s Mersch speaks at a panel discussion in Brussels. In EM, Colombia’s rates decision is scheduled for today and there are central bank meeting minutes from Mexico and Poland.

via Zero Hedge Tyler Durden