McAfee goes on the offensive

John McAfee, the antivirus software pioneer, is tired and stressed. But this week, as he continued to evade Belizean authorities searching for him in connection with the recent murder of a US citizen, the multimillionaire mathematician and “technologist” went on the offensive.
In a telephone interview with the Financial Times, he railed against the government of the tiny Caribbean country that he now calls home, and he vowed to uncover the “injustices” to which he claims he and other residents have been subjected. 
“I feel an obligation to try to . . . expose the abuses that have occurred to myself, to other foreigners and to Belizeans,” he said. “There is a history of governments changing when spotlights are placed on their actions.”
Disenchanted with what he calls the “sensationalism” of the press coverage his saga has attracted since going into hiding, he has turned to what arguably he does best: the internet.

Japan's shrinking economy

Japan’s economy shrank 0.9 per cent between July and September, the steepest decline since the earthquake hit in the first quarter of 2011, as exporters suffered a 5 per cent fall in shipments to key markets such as China and Europe.

Growth in the world’s third largest economy had been relatively strong in the first half of the year, as output was boosted by the redevelopment of parts of the northeast affected by the tsunami and by a revival of consumer spending, assisted by state subsidies to buy fuel-efficient cars.

Yet in the third quarter, as manufacturers cut production amid a steady worsening in their profit outlook, the economy slipped once more, according to Monday’s initial estimate from the Cabinet Office. Increases in public spending and a small rise in private residential investment were not enough to offset the export slump, which contributed to a 0.5 per cent fall in private consumption.

On an annualised basis, gross domestic product fell 3.5 per cent in the quarter, slightly more than consensus estimates, following a revised 0.3 per cent gain in the previous quarter.

The UK's Nuclear Program

Why is the future of Britain's nuclear deterrent being debated at themoment ?This is a rare opportunity to make a radical change to the UK's nuclear weapons system. Since 1994, the country's deterrent has been provided by four Vanguard submarines, each of which carries the Trident D5 missile, plus warheads. In 2016 - one year after the expected date of the next election - the UK must take a decision on whether to commit around £20bn in capital expenditure to replace these four submarines, which are approaching the end of their service. Is there a good reason to question the replacement of Trident witha like-for-like system?There are two reasons for the questions about Trident.  First, the £20bn capital cost is high. It could take up at least 30 per cent of the Ministry of Defence's equipment budget after 2020, according to experts. This may make it hard for the UK to pay for other items, such as the F35 Joint Strike Fighter.A second issue is changing nuclear doctrine. Trident is powerful enough to destroy a major capital city like Moscow - overcoming its air defences - in retaliation against any act of aggression against Britain. But this "Moscow Criterion" is coming into question. Does the UK really need such capability? Would it not be enough to threaten a potential aggressor with damage to less well protected cities? The Liberal Democrats believe this would be enough and that a less elaborate deterrent might be sufficient.Are there any cheaper options to Trident that would do the trick?The Lib Dems clearly believe there are cheaper options. But thereis no obvious alternative. A deterrent based on launching a cruise missilefrom a conventional submarine like the Astute is one possibility.But this has numerous practical difficulties. For example, an Astutefiring a nuclear warhead on a medium range missile would have to get muchcloser to its target than the current Vanguards that carry Trident. So itlacks the smack of being an ultimate guarantee of retaliation in the eventthat the UK were destroyed.Some have suggested that the UK could have a very minimal capability whichinvolved dropping a bomb from an aircraft. The UK possessed gravitybombs - the WE.177D - until they were scrapped in 1998. These couldbe carried by a Typhoon aircraft. But would such an aircraft be absolutelyguaranteed to get to its target? That is the question asked by critics.How will this debate develop ?A Cabinet Office report into alternatives will be completed at the end of this year. This will be a balanced report with no explicit recommendations to ministers about any one option. But hopefully it will provide much more analysis from withinthe secret world of Whitehall than we have seen before of the financialand strategic pros and cons of each alternative and enable a broader political discussion.Will this debate see a major clash between the Conservatives and LiberalDemocrats?The Tories and Lib Dems are clearly on different paths. The Tories will back full Trident replacement as the ultimate guarantee of UK sovereignty. The Lib Dems want something else, a policy that is distinct and radical.But there is no substantive decision to be taken this side of anelection. Where this debate is heading is for both parties tomake contrasting arguments in their election manifestos.What about Labour?Many in Labour are haunted by the damage that their commitment tounilateral disarmament did to their performance in the disastrous 1983election. Since Tony Blair's day, Labour's instinct has been to be toughon defence. But Ed Miliband has not conclusively shown his hand on thisissue since becoming leader - and some wonder whether he could explorecheaper alternatives.The margins for policy change here look pretty slim, don't they ?It seems so. It is hard to see any UK party advocating unilateraldisarmament while Iran and North Korea are pressing ahead with nuclearprogrammes. Nor is there any blindingly obvious alternative to Trident.That said, it is important to see what comes out of the Cabinet Officereview. Much of its material will be top secret but experts hope as much as possible can be published to allow an informed debate.

History of Public Debt

What happens if a large, high-income economy, burdened with high levels of debt and an overvalued, fixed exchange rate, attempts to lower the debt and regain competitiveness? This question is of current relevance, since this is the challenge confronting Italy and Spain. Yet, as a chapter in the International Monetary Fund's latest World Economic Outlook demonstrates, a relevant historical experience exists: that of the UK between the two world wars. This proves that the interaction between attempts at "internal devaluations" and the dynamics of debt are potentially lethal. Moreover, the plight of Italy and Spain is, in many ways, worse than the UK's was. The latter, after all, could go off the gold standard; exit from the eurozone is far harder. Again, the UK had a central bank able and willing to reduce interest rates. The European Central Bank may not be able and willing to do the same for Italy and Spain.

More bad news from China?

What should one make of the indicators coming out of Beijing that have regularly fallen short of market expectations; the most recent being an August PMI — further revised downwards this morning – showing manufacturing intentions hitting a nine-month low?

GDP growth for this year could fall short of Beijing’s target of 7.5 per cent, which would be a two-decade low. At one extreme, bears foresee a long-anticipated collapse while others feel that a more benign landing is underway. Some argue for letting this cycle play itself out, rather than risk incurring distortions from another stimulus. Yet another group is focused on long-standing concerns about rebalancing the economy.

Sorting through this morass of advice, one is reminded that China’s slowdown is a mix between a longer-term structural transition and a frenetic cycle of expand-contract-expand policies in the wake of the 2008 financial crisis.

Apple vs. Samsung

Apple Inc. on Monday gave a federal judge a list of eight Samsung Electronics Co. products it wants pulled from shelves and banned from the U.S. market, including popular Galaxy model smartphones.

U.S. District Judge Lucy Koh asked for the list after a jury in San Jose last week slammed Samsung with a $1.05 billion verdict, finding that the South Korean technology giant had "willfully" copied Apple's iPhone and iPad in creating and marketing the products. Samsung plans an appeal.

The products Apple wants out are all smartphones: Galaxy S 4G, Galaxy S2 AT&T, Galaxy S2, Galaxy S2 T-Mobile, Galaxy S2 Epic 4G, Galaxy S Showcase, Droid Charge and Galaxy Prevail.

Koh on June 26 banned the Galaxy Tab 10.1 from the U.S. market after finding it likely violated a "design patent." Samsung is now asking for that ban to be lifted after the jury found the computer tablet didn't infringe that particular patent, but it did find it infringed three Apple's software patents that cover the popular "bounce-back" and pinch-to-zoom features.

The judge has scheduled a Sept. 20 hearing to discuss Apple's demands for the sales bans. She asked Apple on Friday to submit the list of products its wants removed from U.S. stores after Samsung complained that it doesn't have enough time to prepare for the scheduled hearing.

The judge is deciding whether to reschedule the hearing to give Samsung more time to prepare. Samsung plans to ask the judge to toss out the jury's verdict as unsupported by the evidence. Failing that, the company says it will appeal the verdict to higher courts, including the U.S. Supreme Court.

In addition to the sales bans, Apple also plans to ask the judge to triple the damages to $3.15 billion because of the jury's finding that Samsung "willfully" copied Apple.

The Banks

Congress, lobbyists and editorial writers have been engaged in an intense debate over how to provide effective governance for the US banking system in the wake of the 2008 financial crisis and, more recently, JPMorgan Chase's billion-dollar derivatives losses. It is a complex subject and, not surprisingly, the language has been at times as opaque as the derivatives themselves - and the inability of the public to understand the system is contributing to a decline in trust and confidence. I believe the real solution lies in formulating a simpler, not a more complex, set of regulations.

The Fiscal Cliff

President Barack Obama and Congress face the question of whether to step back from the fiscal cliff by not allowing the current tax rates to expire at year end and by postponing the spending curbs mandated by last summer’s Budget Control Act.

Before year end, Congress must also decide whether to allow a 27 percent cut in Medicare payments to doctors to take effect – as required by a 1997 budget law -- or whether to put it off, as it has done for the past several years.

“We think that economic growth right now is being held back by the anticipation of this fiscal tightening, both in terms of the possibility of a sharp downturn, but also just uncertainty about what will happen,” Elmendorf told reporters at a CBO briefing.

“The sooner that uncertainty is resolved – especially if it is resolved in the direction of less fiscal tightening next year, then the stronger we think the economy would be” for the rest of this year and next year.

Social Security

As millions of baby boomers flood Social Security with applications for benefits, the program's $2.7 trillion surplus is starting to look small.
 
For nearly three decades Social Security produced big surpluses, collecting more in taxes from workers than it paid in benefits to retirees, disabled workers, spouses and children. The surpluses also helped mask the size of the budget deficit being generated by the rest of the federal government.
 
Those days are over.
 
Since 2010, Social Security has been paying out more in benefits than it collects in taxes, adding to the urgency for Congress to address the program's long-term finances.
 
"To me, urgent doesn't begin to describe it," said Chuck Blahous, one of the public trustees who oversee Social Security. "I would say we're somewhere between critical and too late to deal with it."
 
The Social Security trustees project the surplus will be gone in 2033. Unless Congress acts, Social Security would only collect enough tax revenue each year to pay about 75 percent of benefits, triggering an automatic reduction.
 
Lawmakers from both political parties say they want to avoid such a dramatic benefit cut for people who have retired and might not have the means to make up the lost income. Still, that scenario is more than two decades away, which is why many in Congress are willing to put off changes.
 
But once the surplus is spent, the annual funding gaps start off big and grow fast, which could make them hard to rein in if Congress procrastinates.
 
The projected shortfall in 2033 is $623 billion, according to the trustees' latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security's number crunchers because it covers the retirement years of just about everyone working today.
 
Add up 75 years' worth of shortfalls and you get an astonishing figure: $134 trillion. Adjusted for inflation, that's $30.5 trillion in 2012 dollars, or eight times the size of this year's entire federal budget.
 
In present value terms, the Social Security Administration says the shortfall is $8.6 trillion. That means the agency would need to invest $8.6 trillion today, and have it pay returns of 2.9 percent above inflation for the next 75 years, to produce enough money to cover the shortfall.
 
That's the rate of return Social Security expects to get from its trust funds. The problem, of course, is that Social Security doesn't have an extra $8.6 trillion to invest.
 
Social Security Commissioner Michael J. Astrue said he is frustrated that little has been done to solve a problem that is only going to get harder to fix as 2033 approaches. If changes are done soon, they can be spread out over time, perhaps sparing current retirees while giving workers time to increase their savings.
 
"It won't be easy but it's just going to get harder the longer they wait," Astrue said.
 
There is no consensus in Washington on how pressing the problem is.
 
President Barack Obama created a deficit-reduction commission in 2010 but didn't embrace its plan for Social Security: raising the retirement age, reducing benefits for medium- and high-income workers and raising the cap on the amount of wages subject to the payroll tax, all very gradually.
 
The issue has been largely absent from this year's presidential election. Neither Obama nor his Republican opponent, Mitt Romney, has made it a significant part of the campaign.
 
Blahous, a Republican, warns that the magnitude of the problem is becoming so great that "Social Security's days as a self-financing program are numbered" if Congress doesn't act in the next few years. Democrat Robert Reischauer, Social Security's other public trustee, is less dire in his predictions but has told Congress that it needs to act within five years.
 
Others express less urgency.
 
"I would like to see Congress move on this tomorrow but we do have 22 years before there is any cut in Social Security benefits," said Sen. Bernie Sanders, a liberal independent from Vermont who heads the Senate Social Security caucus. "Compared to other crises — the collapse of the middle class, real wages falling for American workers, 50 million people having no health insurance — how would I rate the Social Security situation? Nowhere near as serious as these and many other problems."
 
AARP, the nation's most powerful lobbying group for older Americans, agrees.
 
"I'm not suggesting we need to wait 20 years but we do have time to make changes to Social Security so that we can pay the benefits we promised," said David Certner, AARP's legislative policy director. "Let's face it. Relative to a lot of other things right now, Social Security is in pretty good shape."
 
Social Security is financed by a 12.4 percent tax on wages. Workers pay half and their employers pay the other half. Self-employed workers pay the full amount.
 
The tax is applied to the first $110,100 of a worker's wages, a cap that rises each year with inflation. For 2011 and 2012, the tax rate for employees was reduced to 4.2 percent but is scheduled to return to 6.2 percent in January.
 
Social Security's finances are being hit by a wave of demographics as aging baby boomers reach retirement, leaving relatively fewer workers behind to pay into the system. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.
 
About 56 million people collect Social Security benefits, and that is projected to grow to 91 million in 2035. Monthly benefits average $1,235 for retired workers and $1,111 for disabled workers.

RBS - Reluctant Businesses Save

The state of business lending in Britain is proof of the adage that you can lead a horse to water but you cannot make it drink. Only, in this case, the government has not just sugared the water but is also serving it in a gilded cup. Despite a raft of new lending schemes - most recently Funding for Lending - companies are unwilling to visit their banks to drink from the well of extra debt. According to data from the Bank of England, businesses were paying an average of more than 7 per cent to borrow money five years ago. It now costs 2.6 per cent. But Friday's first half numbers from RBS showed that total assets in the corporate lending business were flat at about £114bn against the same period last year. It was a similar story at other banks.

US Economy continues at a snails pace

The U.S. economy grew at the slowest pace in almost a year between April and June as consumers and businesses succumbed to a raft of worries about jobs, wages, Washington and Europe.

The Commerce Department reported that Gross Domestic Product expanded at a 1.5 percent annual rate in the second quarter, after rising at an upwardly revised 2.0 percent pace from January to March. Output for the fourth quarter was raised to a 4.1 percent rate from 3.0 percent.

Corporate bonds - go figure

Evoking the sympathy of absolutely no one, the world's financial companies are grappling with balance sheet strains, regulatory scrutiny, uncertainty over exposures to the eurozone crisis, rating downgrades and now, a Libor scandal. For industrial companies, on the other hand, the recent story has largely been one of strong balance sheets, high stockpiles of cash and revenue and earnings growth. Based on those widely different risk assessments, there has been a marked shift in the capital markets of late. Historically, industrial companies yielded about 100 basis points more than financials, a US Barclays index shows. Since 2008, however, it has been the reverse.

A rapid fall in the euro can save Spain

The possible breakup of the eurozone is now openly discussed by policy officials and financial executives. The interest rate on Spanish government debt has soared above 7 per cent, reflecting its lack of progress in reducing its fiscal deficit and those of Valencia and other regional governments. Greece is likely to fail its inspection by the "troika", bringing it closer to a eurozone exit by the autumn. Even Germany is under financial pressure because the Bundesbank has so much explicit and potential exposure to peripheral European countries.

Hubris is a Greek word. It should resonate in Spain, which is learning what it feels like to be Greece. When the eurozone sovereign debt crisis began, ministers in Madrid proudly affirmed that Spain was not Greece. Yet, in its first six months, Mariano Rajoy's government has had to pull out all the stops to avoid asking for a Greek-style sovereign bailout. It is not winning. Austerity measures imposed on a frail economy are too pro-cyclical, and the EU's relaxation of Spain's deficit target to 6.3 per cent of output this year brings little relief. Yet, seemingly the stronger Madrid's policy responses to Brussels' commands, the greater the disconnect with investors. The yield on Spain's 10-year bond remains around 7 per cent, and the spread over Bunds is at an all-time high.

Capital One $210mm fine

Capital One Financial agreed to pay $210 million to resolve charges by U.S. banking regulators that its call-center representatives misled consumers into paying for extra credit card products.

The enforcement action, announced on Wednesday, is the first by the Consumer Financial Protection Bureau, which said it unearthed the activities through an examination of the bank.

The CFPB was created by the 2010 Dodd-Frank financial reform law and is nearing its one-year anniversary.

The government said $150 million of the sanctions will go to reimburse affected customers, while the remaining penalty will be split between the Office of the Comptroller of the Currency, which fined the bank $35 million, and the CFPB, which will collect $25 million.

"We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," said CFPB Director Richard Cordray.

The regulators alleged that employees at call centers used by Capital One pressured and misled consumers into paying for "add-on products" such as payment protection and credit monitoring when they activated their credit cards.

In a briefing with reporters, Cordray said he anticipated actions against other banks over similar tactics but declined to name any targets.

"We know these deceptive tactics are not unique to a single institution ... weexpect announcements about other institutions as our ongoing work continues to unfold," Cordray said.

In a statement, the president of Capital One's credit card business, Ryan Schneider, apologized to customers who were affected and said the bank is committed to "making it right."

The charges come just months after Capital One battled concerns about its record on consumer issues to win approval from the Federal Reserve to buy ING Group NV's U.S. online banking unit.

That approval came in February after a series of hearings, in which civic groups accused the bank of improper lending practices.

On Wednesday the group that led the charge against the merger, the National Community Reinvestment Coalition, said it felt vindicated by the enforcement action.

"Though the merger was approved, it is clear that the scrutiny brought to bear from NCRC's objections has born results for consumers," said the group's president, John Taylor.

The CFPB said employees at call centers used by Capital One misled customers by saying these add-on products would improve their credit scores or falsely telling them that the products were free.

Capital One blamed the problem on vendors who did not adhere to the company's sales scripts and said the bank did not adequately monitor their activities.

"We are accountable for the actions that vendors take on our behalf," Capital One's Schneider said. "These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold."

McLean, Virginia-based Capital One gets over half of its revenue from credit cards and acquired access to about $80 billion in deposits and 7 million new customers from ING.

Eurozone Debate

There are eerie parallels between the euro debates in the UK in the late 1990s and in the northern eurozone today. Back then, the anti-euro campaigners in the UK highlighted the shortcomings in the construction of the eurozone - an analysis that turned out to be correct - and also correctly predicted the euro would require a political union to succeed in the long run. There was also emotional stuff about the Queen on banknotes. But it was an internally consistent position. I did not share that view but I recall admitting back then that if you do not accept political union, logically you should not accept the euro either. There was never a purely economic case for the currency.

Peregrine Financial Group Update

Peregrine Financial Group has filed for liquidation in a US bankruptcy court in Chicago, just one day after the chief executive of the futures trading house apparently attempted suicide.
The bankruptcy petition was signed by Russell Wasendorf Jr, chief operating officer and the son of Peregrine’s chief executive and founder. An accompanying statement said that Russell Wasendorf Sr gave his son power of attorney to act for him and on his behalf in the event of his incapacitation on July 3, just six days before police reported that he tried to take his own life.

Spain & Banking

I'm sorry, I haven't a clue. Spain's weakest banks look to be a step closer to receiving their promised EU bailout. Early on Tuesday morning eurozone finance ministers agreed the basics of a €30bn payment on account by the end of the month, of the €100bn approved last month. That should give Madrid wiggle room in case the funds are needed before bank stress tests can be completed in September. Even so, neither EU nor Spanish government officials yet have details of the likely structure of the payout.

Libor Update

Banks are under attack from all quarters. The manipulation of interbank offered rates - on the basis of which gigantic sums are lent and borrowed - has prompted a rabid response from politicians. Regulators and central bankers have joined in the hue and cry with free-ranging judgments about what is socially acceptable banking. Calls for "culture change" have echoed around London and beyond. Once again, smashing the banks into tiny and ostensibly safer pieces is the idea of the moment. Before politicians get the hammer out, however, they should take pause.

Reality Check Time

In descending order of understanding on the subject, regulators, the man on the street and politicians all want banks to shrink. Reality in Europe, however, is that banks should be cutting themselves down to size. Investment banking revenues are expected to be about 30 per cent lower in the second quarter than in the first, and down 15 per cent from a year ago. Some European banks have scale in enough areas to compete with big American rivals. Others need to be brutally honest about their strengths - with themselves and investors. If they are not in the top three in, say, fixed income, currencies and commodities, they should quit and stick to what they do best.

Eurozone & US Outlook

If the eurozone did not exist, the world would be focused on the US recovery issues. The US is not on the brink of a potential downward spiral - at least not until Washington arrives at its self-imposed "fiscal cliff" later this year. But, by any measure, the US is in the middle of a partially self-inflicted growth crisis.  So all eyes will once again be turning to the Federal Reserve for answers.

Manufacturing Slow Down

US manufacturers are set to report their slowest growth in earnings since 2009, hit by the European crisis and a slowdown in emerging economies. Analysts are forecasting that industrial companies will fall well short of last year's growth rates reported in the first quarter of 2012 despite being the fastest-growing sector in the US for second-quarter earnings.

Train Bankers like Athletes

What happens on a trading floor when an important piece of news flashes across the wire? At that very instant, traders' senses are placed on high alert, allowing them to hear the faintest noise, see the slightest movement. Their world morphs from an impressionistic background into a scene of hyperrealism. Breathing accelerates, muscles tense, stomachs knot, and they feel the thump, thump of a heart gearing up for action. Their reaction, in fact, is just like that of an Olympic athlete preparing for a big race.

June Jobs Data

The US economy added 80,000 jobs in June, disappointing hopes of an acceleration in payroll formation. The lower-than-expected figure points to a continuation of the slowdown in the world's biggest economy seen in recent months amid eurozone turmoil. The unemployment rate was unchanged at 8.2 per cent.

The fight against crony capitalism

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary."

Asian Stocks

Asian stocks rose Wednesday on growing hopes for fresh stimulus measures from central banks to support the slowing global economy, amid expectations the European Central Bank will cut interest rates to a record low this week.

Bank update

Nine of the world's largest banks doing business in the US have told regulators how they should be broken up in the event that one of them nears failure.

JP Morgan in the middle of energy probe

The US electricity regulator has subpoenaed JPMorgan Chase twice in the past three months as it investigates whether the bank manipulated power markets in California and the Midwest region, court filings show.

The filings mark the first time the Federal Energy Regulatory Commission has revealed its formal probe into JPMorgan bidding practices, which it says may have inflated electricity costs by at least $73m. 

Healthcare Debate

I actually agree with the majority of the previsions within Obamacare.  It's how we are paying for it that is a concern.  Our debt is mounting at nightmare proportions.  As long as interest rates remain low the government can continue to borrow nearly 40% of every dollar used to run the government on a daily basis.  However, when those rates begin to increase (and they will) how does washington propose to make the minimum interest payments due?  One word TAX!

Chief justice John Roberts, who wrote the courts ruling said:  "The only effect of the individual mandate is to raise taxes on those who do not do so, and thus the law may be upheld as a tax"

This will also increase insurance cost for everyone regardless of qualification.  There must be a better way!

Everbank Purchase

General Electric, the US industrial group, has sold a commercial property lending business to Florida-based EverBank for $2.51bn, as it continues the reshaping of its GE Capital finance arm.

US corporate defaults nearly double

More missed payments by US corporations helped to nearly double the total amount of global corporate defaults this year amid signs of an economic slowdown and higher market volatility.

Global defaults have risen to 39 so far this year versus 21 in the same period a year ago with plastics maker Kloeckner Holdings and media company Central European Media Enterprises the latest to default, according to Standard & Poor’s.

Big Week Ahead

A week packed with important data releases and central bank meetings ends on Friday with US non-farm payrolls.

The May payrolls report published last month was the latest in a series of disappointments. It showed that a paltry 69,000 jobs were created in the US during the month, undershooting expectations by a wide margin. Furthermore, the unemployment rate rose to 8.2 per cent from 8.1 in the previous month.

Worries over the creditworthiness of governments have overtaken fears of a sharp drop in equity markets among European institutional investors, according to Allianz Global Investors’ semi-annual RiskMonitor.

Almost 74 per cent of the 138 institutions, with combined assets of €880bn, surveyed said they regarded sovereign debt as either a “huge” or “considerable” risk, ahead of the 70 per cent similarly worried about a sharp equity market sell-off. This was a reversal of the results of the previous survey in 2011.

Several US banks want to tap the value of the intellectual property holdings of their borrowers as a way of trimming their capital requirements, which are to be made tougher under Basel III rules.

Under the terms of many loans, banks have the right to seize a borrower’s patents and trademarks as part of a foreclosure proceeding. But these intangible assets cannot generally be counted towards the loan’s security for regulatory capital assets because they are considered too difficult to value.

The banks seek deals in which an insurer agrees to buy a borrower’s intellectual property – anything from a mobile phone patent to a logo or recipe – for a fixed price in case of default. 

That price could then be counted against the expected losses, in the same way the expected proceeds from a credit default swap can be used today.Now some banks – faced with tougher safety rules that begin to take effect in January – are exploring whether they can use the assets to reduce their estimates of expected losses in case of a default, in turn reducing the risk weight of the loan and overall capital requirements.

US equity markets are at a crucial juncture. Slowing growth, financial stress and uncertainty are framing the investment backdrop as the second half of the year beckons.

A strong end to June on Friday, saw the S&P 500 retreat 3.3 per cent in the second quarter, with the benchmark up 8.3 per cent on the year, making it one of the better-performing global equity markets since January.

Meanwhile, US Treasuries are ending the second quarter with a total return of more than 3 per cent, according to the Barclays Treasury index. After touching a 65-year low of 1.45 per cent in May, the yield on 10-year notes is closing out June camped at about 1.65 per cent.

The question for investors as the second half of the year gets underway is whether bonds or equities are correctly priced and more importantly how they may react should macro economic fears subside or the Fed is compelled to launch a thrid round of quantitative easing, or QE3.

Moody's Bank Ratings

SWAP Updates

Interest rates are in consolidation mode leaving the 10yr treasury stuck in an ever-narrowing range.  With the Fed done and on hold until the next FOMC meeting on Aug. 1and with the Moody’s bank downgrades proving to be a non-event, the market is once again at the mercy of Europe and the 2-day EU Summit that begins tomorrow.  Investors are cautiously optimistic, but given recent pre-summit statements, even mild optimism seems generous.  German Chancellor Merkel reiterated that Germany cannot be overburdened and said "I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures."  On the agenda, Spain is expected to formally request aid to recapitalize their ailing banking sector and also ask the EU leaders to allow bailout funds or the ECB to stabilize financial markets through bond purchases.  Spanish 10yr notes trade perilously close to 7% and Italian 10yr trades firmly above 6%.  Also not unexpected, but the country of Cyprus has become the fifth Eurozone country to seek a bailout due to their heavy exposure to Greece.