General News

The US House of Representatives has finally agreed on a bill to raise the country’s debt ceiling $2.1 trillion and cut federal spending by $2.4 trillion, a mere one day ahead of the threat of a default. The House of Representatives voted 269 in favor and 161 against the plan agreed upon by members of Congress and President Barack Obama the previous weekend. Ninety five democrats voted in favor of the plan and 66 republicans voted against it. Now the bill will go to the Senate for a final vote which is scheduled for tomorrow. Amid signs that economic growth slowed almost to a complete standstill earlier this year, Michael Feroli, head economist at JPMorgan Chase & Co, expects next year’s spending cuts to “add modestly” to the stalled growth together with expiring economic stimulus measures and the scheduled December 31 end of a temporary payroll tax cut. US stock markets rallied at opening yesterday due to the news on the debt...

Democratic Senate Majority Leader Harry Reid approved a preliminary agreement with Republican leaders and the Obama administration to raise the US government’s debt ceiling and expect it to also receive approval from Democrats in the Senate, according to Reid’s press-secretary. Congressional leaders and the Obama administration held negotiations over the weekend to finalize details on the agreement to increase the debt limit. The plan was presented to the Senate for a vote Sunday evening and today will be sent to the Republican-majority ruled House of Representatives for approval, which will no doubt bring a sense of calm to the market. Congressional leaders are currently working on the details of a preliminary, two-party agreement to raise the debt limit by $2.1 trillion, which will be enough to sustain the country’s requirements until 2013. They are preparing to submit a plan to cut $917 billion in spending over 10 years for approval; the plan calls for first raising the limit by $900 billion and...

Cutting a credit rating is significantly different that placing it on ‘watch’ or ‘under review’. Most readers are likely fully aware that Standard and Poor’s and Moody’s have sent out serious warning signals about the potential downgrade of the United States AAA credit rating. That said, another SEC officially recognized ratings entity has gone one step further and actually lowered Uncle Sam’s standing by one notch. What firm is so bold and brazen to send this volley across Capitol Hill and down Pennsylvania Avenue? Egan-Jones. Unlike the supposed brand name rating agencies which did little to help ordinary investors going into our economic crisis, Egan-Jones’ business model differs markedly from the industry incestuous nature of its counterparts. The resulting lack of inherent conflict allows Egan-Jones to speak freely and boldly. What a novel concept. What does Egan-Jones have to say about Uncle Sam?  Let’s review a commentary in this morning’s Financial Times which highlights, Debt Fears Lead to U.S. Downgrade, Egan-Jones has become the first US rating agency...

  Markets rallied strongly today on the revival of the “Gang of Six” deficit reduction plan and better earnings, but the countdown clock to Friday continues. U.S. markets staged a powerful looking but low volume relief rally based on positive earnings reports and the new found hope that the “Gang of Six” deficit reform package is back on the table. IBM, Apple and Wells Fargo all checked in with good results while Bank of America had its worst quarterly loss ever and Goldman Sachs disappointed. Housing starts were stronger than expected while five AAA rated states were put on review by Moody’s due to their reliance on the Federal government revenue. On Thursday, the European leaders convene their emergency summit to try to cure their ongoing “Greek” problem that the IMF says could spread “contagion” even if a default by Greece is avoided, and a huge chasm still seperates the ECB and German Chancellor Angela Merkel over private participation in any fix. And then, most incredibly,...

We have estimated a version of Okun’s law for the USA, France, Spain, Canada and Australia. We have applied a LSQ technique to the integral version of Okun’s law: u(t) = u(t0) + bln[G/G0] + a(t-t0) (1) Where u(t) is the predicted rate of unemployment at time t, G is the level of real GDP per capita, a and b are empirical coefficients. For the United Kingdom, we have estimated a similar model with a structural break somewhere between 1980 and 1990. The best-fit (dynamic) model minimizing the RMS error of the cumulative model (1) is as follows: du = -0.63dlnG + 1.75, t<1988 du = -0.39dlnG + 0.63, t>1987 (2) This model suggests a significant drop in slope and a big change in the intercept around 1988. (All coefficients are close to those for Australia.) Figure 1 depicts the observed and predicted curves of the unemployment rate, the latter is predicted by (1) with coefficients from (2). The agreement is very...

German Free Democratic Party lawmaker Frank Schaeffler said Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble should make the case for a ‘temporary’ exit of Greece from the Eurozone, Handelsblatt has reported. Schaeffler, criticizing the German government’s handling of the Greek crisis, said Greece should be given the option of temporarily leaving monetary union as this is the only “sensible way” to make the southern European country’s economy competitive again, according to the German newspaper. German Chancellor Angela Merkel said that the euro debt crisis CANNOT be solved in one step “tomorrow” and that there won’t be a single “spectacular” step at the July 21st European Union summit in Brussels to deal with the problem. Speaking to reporters today in Hanover, Merkel said the euro region’s problems must be solved “from the core,” which means reducing debt and increasing competitiveness.

Optimism spread through financial markets in Europe and the United States after strong earnings from U.S. companies and better than expected U.S. housing data, which boosted confidence among investors, as they targeted higher yielding assets against lower yielding ones, which pushed the U.S. dollar to drop against majors. Several U.S. banks and companies reported their earnings for the second quarter of 2011, where IBM, Coca-Cola Co, Wells Fargo, Johnson & Johnson, Bank of New York Mellon, and Bank of America posted results that topped estimates, which provided stock indexes with strong momentum to rise, although Goldman Sachs, the giant U.S. bank reported disappointing results, however, traders were still focused on the bigger picture, since most U.S. firms reported strong earnings so far. Meanwhile, U.S. housing starts and building permits rose in June above expectations, which boosted confidence among investors, and increased demand for higher yielding assets, where housing starts rose by 14.6% to reach 629,000, well above expectations of 575,000, and building...

Disagreement among European policymakers on Greece and the handling of the Eurozone's debt crisis helped push 18-month Spanish Treasury-bill yields to 9-year highs today. Spain sold €4.4bn of 12- and 18-month T-bills. Concerns that little progress would be made at a Eurozone meeting on Thursday has spooked fixed-income investors, sending debt costs for large peripheral economies Spain and Italy to euro-era highs on Monday. Spain will face a still tougher test of investor appetite when it seeks to borrow over a much longer term on Thursday, issuing up to €2.75bn in 10- and 15-year bonds. Ten-year bond yields in Spain fell back slightly on the secondary market Tuesday, though held near the peak of 6.31%t with a move above 7.0% unsustainable for the Eurozone's fourth largest economy. The Treasury sold €3.8bn of the 12-month T-bill, paying an average yield of 3.702% v 2.695% at the previous auction last month. The marginal yield of 3.76% was the highest level in a primary auction...

      Investors targeted higher yielding assets during the European session on Tuesday after some companies reported earnings that beat estimates. Those good earnings shifted the attention from Europe's and US's debt worries. Now markets will be eyeing the earnings from the big U.S. financial institutions. The dollar weakened today against its major counterparts as the worries about the U.S. debt situation persist. Officials must come to an agreement about the debt ceiling till August 2, deadline. The European leaders will meet in a summit later this week to further discuss Greece's new rescue plan. Pessimism will continue to dominate markets and caution may increase demand on safe heaven any moment as long as debt problems in the United States and Europe continue to weigh down on overall confidence. This keeps high demand on gold which today rose to a record high at $1609.97 level. Today the German ZEW economic sentiment survey showed current conditions being better than expected. This managed to give an extra...

Market Summary:   Global markets continued to sell off today over ongoing concerns regarding the debt crisis in Europe and the ongoing budget ceiling debate in Washington, D.C. The White House plans to veto the budget bill due to come to vote on Tuesday and still opposes the “cut, cap, and balance” proposal put forward from the other side of the aisle. Still, work continues on “Plan B,” a fallback plan to avoid default on the August 2nd deadline, and a “secret” meeting apparently was held at the White House to pursue these ongoing discussions. Gold reached a new record while the U.S. Dollar and Oil climbed. Market Numbers Summary:   Dow Jones Industrials (DIA): -95pts; -0.8% S&P 500 (SPY):                    -11 points; -0.8% NASDAQ (QQQ)                   -25 points: -0.9% Russell 2000 (IWM):             -13 points; -1.6% Tomorrow’s Action:   Economic Reports: June Housing Starts June Single Family Permits Notable Earnings Reports: Coca Cola Wells Fargo Bank of America Goldman Sachs Johnson and Johnson Yahoo! Have a great evening, John Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change...