Opening Bell: 07.28.11

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Credit Suisse Q2 profit falls by more than half (MarketWatch)
The Swiss bank's April-June net profit fell to 768 million Swiss francs ($958 million) from 1.6 million francs in the year-earlier quarter, with the lender citing poor trading results and a strong Swiss currency. The profit result missed an median forecast of 1 billion Swiss francs in a Reuters survey.

Treasury to Weigh Which Bills to Pay (NYT)
Officials said Wednesday that the department would address the issue later this week unless it became clear that Congress would vote by Aug. 2 to let the government borrow more money… Officials have said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral or economic considerations…The implication is that the government will need to pay bills in the order that they come due.

Fed under fire over default talks (FT)
With days until the Treasury’s August 2 deadline to raise the debt ceiling, bankers say they are not getting a response to efforts to discuss the market impact of a failure to reach a deal in Washington or if credit ratings agencies cut the US triple A rating. They want to address contingency planning for a run on money market funds that hold Treasury bonds, the impact on capital and liquidity ratios if there are large inflows or outflows of deposits and the potential effect on short-term financing from any problems in the repurchase, or “repo”, market.

TV’s ‘West Wing’ Explains the Debt Ceiling (YouTube via MorningMoney)
"So this debt ceiling thing is routine or the end of the world?” Toby Ziegler: "Both."

Roach Says China ‘Appalled’ by U.S. Debt Impasse, May Curb Treasury Buying (Bloomberg)
“Coming so shortly on the heels of the subprime crisis, the debate over the debt ceiling and the budget deficit is the last straw” for China, Roach said in an e-mailed note today. He said his assessment was based on visits to Beijing, Shanghai, Chongqing and Hong Kong. In another sign of concern within the nation that is the biggest foreign owner of Treasuries, the official China Securities Journal said today that the U.S. stand-off signals long-term dollar weakness that will push up commodity prices and pose inflation risks for the world.

Credit Suisse cuts 2,000 jobs as poor trading hurts results (Reuters)
Switzerland's second biggest bank said it planned to cut about 4 percent of its staff of 50,700, about the same number it added in a post-crisis hiring spree focused on fixed income, the area hit most by current sluggish markets.

Traders and financiers expect coffee crash (FT)
In a new report, Rabobank says that Brazil, the world’s largest coffee producer, could boost its output by around 27 per cent by the 2014-15 crop year. If that happens, the cost of the commodity could plunge, as was the case after previous rallies in the 1980s and 1990s. The bank estimates that the 50 per cent increase in the average price received by Brazilian growers in the crop year 2010-11 over 2009-10 could cause a rise in Brazil’s total area harvested from 2.09m hectares to as much as 2.45m hectares in four years.

A Hedging Tool Loses Its Edge (WSJ)
European leaders went to great lengths to ensure their planned Greek restructuring doesn't constitute a default that would trigger CDS payouts, even though holders of Greek bonds are likely to lose money on their investments. That is leading some to question the effectiveness of CDS in protecting against a sovereign default.

Macquarie Scraps Forecast for Trading Unit (Bloomberg)
Macquarie Group Ltd. scrapped its profit growth forecast for the fixed income, currency and commodities division, which accounted for 70 percent of trading income at Australia’s biggest investment bank last year, as volatile markets sap market confidence. The unit’s earnings in the year ending March 31, 2012, will be “broadly in line” with the previous fiscal year, Sydney-based Macquarie said today, cutting its April prediction that profit will grow.

Goldman's new money machine: warehouses (Reuters)
Analysts question why London's metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity. Robin Bhar, a veteran metals analyst at Credit Agricole in London says the conflict of interest is so acute he wants U.S. and European anti-trust regulators to weigh in.

Cash Flow Discounting Leads to “Astronomically” Large Mistakes Over the Long Term (Bloomberg via Naked Capitalism)
And this finding comes after the publication of a paper by Andrew Haldane and Richard Davies of the Bank of England, which proves what many have long surmised: that businesses use overly high discount rates, which is how you build short-termism into financial models. Needless to say, that assures underinvestment, particularly in infrastructure. Projects with paybacks beyond the 30 to 35 year time frame are treated as having no value at all.

White House rickrolls people on Twitter (Daily Caller)
Responding to an unnamed person, the official White House Twitter feed wrote: “@wiggsd Sorry to hear that. Fiscal policy is important, but can be dry sometimes. Here’s something more fun: http://t.co/ca31My7 #WHChat”. The link, of course, redirects viewers to the music video of Rick Astley’s 1987 pop hit, “Never Gonna Give You Up.”

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