Washington- Con Men and Pieces of Shit Daily… Senate fails for 3rd time to pass jobs bill;-Lincoln amendment compromise reached $XLF $BAC $PNC

ashington

· Bernanke needs fresh monetary blitz as US recovery falters – Bernanke and his close allies at the Fed are worried that the US economy is running out of steam….however, he is waging battle w/a group of hawks who are against any further monetary stimulus.  Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion.  London Telegraph.  http://www.telegraph.co.uk/finance/economics/7852945/Ben-Bernanke-needs-fresh-monetary-blitz-as-US-recovery-falters.html

· House/Senate reconciliation process wraps up after compromise reached on Lincoln derivatives amendment; sets stage for vote to take place next week & for Obama to sign into law by Jul 4 weekend break.  Democratic members of the House and Senate committees agreed at ~5:30amET this morning on a Lincoln compromise; no Republicans voted in favor of the reform package.  The Lincoln language was softened slightly. 

· Lincoln amendment compromise reached - banks can trade in-house foreign exchange and interest rate swaps, gold and silver swaps, and derivatives designed to hedge their own risk.  But banks will need to spin off dealing desks to affiliates to handle agricultural, energy and metals swaps, equity swaps, and uncleared credit default swaps.  Non-financial companies "using swaps to hedge or mitigate commercial risk" are exempt from clearing the trades, as long as they explain to regulators how they are meeting financial obligations.  The financing arms of manufacturers do not have to clear swaps when they assist in selling the parent company's products.  Clearinghouses will not be forced to accept credit risk from other clearinghouses.  Capital and margin requirements for uncleared swaps done by non-bank swap dealers and major players will be set at "appropriate" levels (somewhat softer language than prior).  Regulators will have at least a year after the time of passage to implement the legislation.  Reuters 

· Volcker Rule compromise reached - would limit a bank’s investment in private-equity or hedge funds to 3 percent of a fund’s capital. Total investment in private-equity and hedge funds wouldn’t be able to exceed 3 percent of a company’s tangible common equity.  Dodd proposed adding language to curb conflicts of interest by preventing firms that underwrite an asset-backed security from placing bets against the security.  Bloomberg 

· Banks & HFs hit w/surprise new fee in last minute negotiations in reconciliation process - Banks with more than $50bn in assets and hedge funds with more than $10bn will be required to pay into the fund as a proportion of their assets.  FT  http://www.ft.com/cms/s/0/ace38f1e-8001-11df-91b4-00144feabdc0.html

· Banks – global financial institutions win slight reprieve from Basel committee re Basel III liquidity standards; new proposals to be outlined at this weekend’s G20 summit; according to the FT – “the committee is likely to shelve the idea that banks should be forced to maintain a longer term “net stable funding ratio” that aligns the maturity of their assets and liabilities” (FT)   http://www.ft.com/cms/s/0/96ca4a38-7fbb-11df-91b4-00144feabdc0.html

· Senate fails for 3^rd time to pass jobs bill; Majority Leader Reid says another attempt will not be made & Senate will move onto other business; the bill would have extended unemployment benefits and imposed new higher taxes on carried interest (WSJ) 

· Estate tax – Sen Sanders and three other Dem Senators proposed an estate tax plan that would impose higher taxes on wealthier estates than the current plan on the table (WSJ) 

· Jobs markets showing some signs of improvement – could help Dems heading into the mid-terms – some of the key battleground states are showing improvement faster than other parts of the country, a pos. for Dems (NYT)    http://www.nytimes.com/2010/06/25/us/politics/25memo.html?hp

· Housing & Mortgages – amid all the worry around housing given a slew of neg. data points (new home sales, housing starts, etc), mortgage rates have plunged to the lowest levels in 40+ yrs as investors rush to buy Treasuries (on which home loans are benchmarked)  The average rate on 30-year fixed-rate mortgages dropped to 4.69% in the week ending Thursday, down from 4.75% a week earlier and 5.42% at this time last year; some analysts think rates need to fall to 4.5% for there to be a meaningful pickup in refinancing activity (which is ironic b/c that was the stated goal of the Fed’s mortgage purchase program of ‘09/’10 and we are going to achieve the rates despite the Fed no longer making purchases); banks are still being strict w/their lending standards, which is hurting both new home sales and refinancings – DJ

· Firms are ramping up their capital spending according to the WSJ in order to take advantage of the economy recovery; FDX is one company on the offensive when it comes to spending (something the firm discussed on its recent earnings call) – WSJ  http://online.wsj.com/article/SB10001424052748704911704575326952730163936.html?mod=WSJ_hps_LEFTWhatsNews

· Muni Update - Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities; “States are going to have to cut back spending and raise taxes the same way Greece and Spain are,”  – Bloomberg 

· Muni Update – CDS costs for US muni debt has been widening of late - the premium for credit-default swaps linked to 50 U.S. municipal bonds has jumped to the highest in 14 months while Treasury swamps are little changed.  Bloomberg 

· Muni Update - Build America weekly issuance more than doubled to $3.34 billion, the most since December – Bloomberg 

· Health Care – AET becomes second insurer to withdraw rate request after finding error; AET said it would withdraw its request to raise rates for individual policyholders in CA by an average of 19% after finding an error in its submission to state regulators; WLP had a similar incident a while back although the co could soon refile in CA according to a spokesman (WSJ)   http://online.wsj.com/article/SB10001424052748704227304575327372208943044.html?mod=WSJ_hps_LEFTWhatsNews

· China Yuan – Obama says he is happy w/this Sat’s announcement on the Yuan but too early to judge the full impact (Reuters) 

· Accounting - IASB and FASB Propose a New Joint Standard for Revenue Recognition – “The core principle of the draft standard is that an entity should recognise revenue from contracts with customers when it transfers goods or services to the customer in the amount of consideration the entity receives, or expects to receive, from the customer” 

· JPMorgan equity strategy – from T Lee - Clarity improving in coming weeks given (i) Financial reform passage; (ii) June ISM and labor report next week; (iii) European stress test results in mid-July, and (iv) 2Q earnings for US companies.  The S&P 500 has declined 8% in the past 3 months. We decided to look at the 1-standard (or nearly) laggards, those industries whose 3-mo performance was 1-std below long-term averages and had an absolute underperformance (vs. S&P 500) of at least 750bp.  we see opportunities in these 11 industries: Specialty Finance, Temp Employment, Aluminum, Medical Supplies, Specialty Consumer Svcs, Asset Managers, Steel, Consumer Electronics, Real Estate Holding, Coal, and Investment Svcs. We also identified 23 stocks from these groups: (i) JPM-rated OW; (ii) positive EPS revision in past 3 mos; (iii) P/E NTM < 20X. The tickers are: MT, APOL, FCX, THC, CLF, KAR, ACI, NICE, DV, STJ, OZM, CME, SIRO, TIBX, ZMH, SLH, TROW, MENT, RSG, HSP, MCK, CAH, and AMMD