Washington DC Water Cooler Chatter-“Pentagon’s next mission – cutting spending”-Drilling Ban

Washington

· Treasury publishes the delayed semi-annual report to Congress on int’l FX trends; the report doesn’t name anyone as a currency manipulator; there has been a lot of talk that this report could label China a manipulator (although no one really thought the Treasury would up actually doing this); the report does say that the yuan is undervalued and that the Treasury will closely monitor the appreciation of the yuan going forward; the report is prob. a non-event and if anything it may antagonize those in Congress who are calling for more action on the part of the PBOC (Thurs night Sen Schumer repeated that China needs to do more and Sen Baucus urges more US pressure on the PBOC) http://www.treasury.gov/press/releases/tg772.htm

· Obama/Pelosi “lame duck strategy” – WSJ oped – party leaders are planning to embark on a major and ambitious lame-duck session before breaking for recess a week earlier than normal on Jul 30.  Card check, cap-and-trade, and “so much more”, could be on the table.  WSJ   http://online.wsj.com/article/SB10001424052748704293604575343262629361470.html?mod=ITP_opinion_0

· the U.S. Chamber of Commerce will host a “Jobs for America: Summit 2010” during which Chamber CEO Thomas J. Donohue will issue an open letter to President Obama and Congress “urging immediate action to address the new regulatory stranglehold placed on America's job creators.”  http://www.freeenterprise.com/jobs-summit/

· Defense Spending – “Pentagon’s next mission – cutting spending” – WSJ article Fri morning – the article doesn’t really break any “new news” but highlights the growing pressure on Capital Hill to limit defense spending increases (WSJ)   http://online.wsj.com/article/SB10001424052748703609004575354892818874712.html?mod=ITP_pageone_1

· Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their “big guns” (i.e. the resumption of QE); Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. – Washington Post (this article was out Thurs morning).  http://www.washingtonpost.com/wp-dyn/content/article/2010/07/07/AR2010070705100.html?nav=hcmoduletmv

· Washington - West Virginia clears way to name Byrd successor (West Virginia Attorney General Darrell McGraw said state law permits Democratic Governor Joe Manchin to set a special election to select a replacement who would serve through the remainder of Byrd's term; Manchin had said he was waiting for this decision before naming a sucessor); Congress comes back into session next week and big topics will be fin reg reform and unemployment benefits - w/Byrd's seat settled, both should pass  (Reuters) 

· Fin reg reform – Grassley, one of the original 4 Republicans to vote for reform back in May, expresses concern as vote nears – Grassley on Thurs says he was “very concerned” about a provision in the bill designed to help pay for the implementation of the legislation; Democrats need two of the original 4 Republicans to vote “yay” (indications are that Maine’s Snowe and Collins will vote in favor while Brown remains on the fence)  (WSJ)  http://online.wsj.com/article/SB10001424052748703609004575355273372451944.html?mod=WSJ_hps_LEFTWhatsNews

· Drilling Ban - a court of appeals in New Orleans ruled against the administration's request to ban deepwater oil drilling; the White House is said to be preparing a new moratorium that wouldn’t run afoul of the law (Reuters) 

· Gulf oil spill investigation – AG Holder says the ongoing probe isn’t confined just to BP – Holder hints that his DOJ may be conducting a “sweeping” criminal investigation into the spill (Politico)  http://www.politico.com/news/stories/0710/39515.html

· White House launching reach-out campaign to business (this was first reported by Fox Business late on Wed and Politico picked it up late on Thurs) – the White House has launched an initiative to combat the perception that it’s anti-business; “Obama’s aides believe confidence in the general direction of White House policy has an effect on the willingness of corporations to hire, invest and push the economy toward a more solid recovery”   Politico.  http://www.politico.com/news/stories/0710/39495.html

· Clean energy - Obama will urge the U.S. Congress on Friday to extend a manufacturing tax credit by $5 billion to foster private investment in clean energy (Reuters) 

· Taxes – Geithner offers hope on 20% tax rate for dividends and capital gains – WSJ article (citing an interview Geithner did w/Larry Kudlow on CNBC Wed night) – Geithner says he hopes to hold the dividend and capital gains rates @ 20% next year (which had been the WH’s original goal; the current rate stands at 15% cut Congressional Dems have signaled they were planning on imposing a 39.6% rate for top earners) – WSJ   http://blogs.wsj.com/washwire/2010/07/08/geithner-offers-hope-on-20tax-rate-for-capital-gains-dividends/

· US Equity Strategy Update – from JPMorgan’s T Lee - Two elements are key for us to maintain a constructive intermediate view on risky assets: (i) sufficient economic growth to support earnings growth (above cost of capital); (ii) variant relative value to validate risk/reward of equities. In our view, the US consumer has seen substantial balance sheet repair (debt service ratios approaching those seen in late-80s and mid-90s) and corporates are healthier than anytime since the 50s, thus in a position to sustain the current expansion. Thus, the recent string of soft readings in economic data are consistent with typical growth scares (rather than double dip), of which, we can point to seven such episodes since 1950 (see “…Lessons from prior growth scares” dated 6/17/10) against only one double dip (1982, and that was policy engineered).