“Only when the tide goes out do you discover who’s been swimming naked” — Warren Buffett

1. Debt Deal Search Intensifies — as the debt talks continue to go nowhere, President Obama has accepted that a grand $4T plan is out of reach. The most likely option now appears to be a Senate-hatched plan to let Obama raise the debt ceiling by $2.4T in three increments but to give the House “ownership” of the program so that it has a better chance of passing.
2. Gang of six plan offers hope — politicians from both sides have given varying endorsement to a revived $3.75T deficit-reduction plan from a bipartisan group of senators. The “gang of six” proposes immediate spending cuts of $500B and to raise $1.2T in revenues through ending tax breaks, but they also envision tax cuts of $1.5T through broad reform.
3. Fed planning for debt default — the Fed and the Treasury have been preparing for a U.S. default, FOMC voting member Charles Plosser said. Some of the planning is operational and some policy related, such as whether the Fed could treat Treasurys as collateral for loans.
4. Euro leaders agree on easing lending for Greece — The new aid plan for Greece, tagged at 109 billion euros ($157 billion), counts on participation from private investors, who would agree to swap their Greek bonds for longer maturities. The European Union estimated a private-sector contribution of around 50 billion euros when counting a debt buyback that’s still not fully formed.
5. Senate rejects House budget-cutting plan — the Senate rejected a House-passed plan that would raise the U.S. debt ceiling and make deep cuts in government spending. Senators voted 51-46 to kill further consideration of the House bill, which would also require passage of a balanced budget amendment.
6. Bullish sentiment rises to 39.9 — according to the latest figure from the AAII. Below is the chart courtesy from the Bespoke Investment Group.

The week ahead — Economic data from Econoday.com:

“The worse a situation becomes the less it takes to turn it around, the bigger the upside.” — George Soros

1. News Corp. contagion spreading — U.K. MPs have been listening to police testimony about the hacking scandal at News Corp. (NWSA), which has widened to include other problematic practices and spread to The Sun and The Times newspapers.
2. China economic growth slows to 9.5% — China’s economy expanded a fraction faster than expected in the April-to-June quarter, while other data released last Wednesday suggested domestic conditions remain relatively upbeat, even as concerns spread over the resilience of the global economy.
3. Moody’s downgrades Ireland to “junk” — Moody’s Investors Service on Tuesday lowered Ireland’s foreign- and local-currency government bond ratings by one notch to non-investment grade of Ba1 from Baa3.
4. Moody’s Investors Service put the U.S. credit rating on review for possible downgrade — Moody’s has become the first ratings agency to place the U.S.’s AAA rating on review for a possible downgrade, citing the “rising possibility” that the $14.29T borrowing limit won’t be raised.

The week ahead — Economic data from Econoday.com:

“Markets are constantly in a state of uncertainty and flux and money is make by discounting the obvious and betting on the unexpected” — George Soros

1. NY AG probes life insurers — New York AG Eric Schneiderman issued subpoenas to at least nine life insurers in an investigation into payouts for deceased customers, sources say, as the scrutiny of the industry grows. The insurers include MetLife (MET), Genworth Financial (GNW), Manulife Financial (MFC) and Prudential (PRU).
2. Moody’s: China’s bank ratings threatened on muni debt — Moody’s may go negative on its outlook for China’s banking system after it identified $540B of loan exposure to local governments beyond the $1.6T discovered by a national audit.
3. China raises interest rates — People’s Bank of China hikes lending and deposit rates by 0.25%, the third such tightening seen this year.
4. Portugal downgrade stokes contagion fears — a downgrade of Portugal’s credit rating to junk status put fears of another adverse turn in the euro-zone’s long-running debt crisis back on display.
5. ECB delivers rate hike — The European Central Bank delivered its second rate hike in three months, as expected, lifting its refi rate to 1.5% from 1.25% as investors seek clues on the pace of further moves and the central bank’s response to the euro zone’s ongoing debt crisis.
6. IMF to OK €3B tranche for Greece — the IMF is set to approve today transferring just over €3B ($4.3B) in loans to Greece to help it avoid a default, and is expected to discuss whether a second bailout should be dependent on private sector participation.
7. Deal could end ethanol tax break — a bipartisan trio of senators, including two from ethanol-producing states, agreed to repeal the $6B/year ethanol tax credit by the end of July. The deal, which must now be passed by Congress, could raise costs for ethanol blenders such as Valero Energy (VLO) and Marathon Oil (MRO), although it’s unlikely to reduce demand for corn.

The week ahead — Economic data from Econoday.com:

“In the short-run, the market is a voting machine; in the long-run, the market is a weighing machine” — Benjamin Graham.

1. Lagarde named as new IMF chief — the IMF’s appointed French Finance Minister Christine Lagarde as the fund’s first ever female Managing Director.
2. Congress may increase self-regulation of investment advisors — Congress is considering replacing the SEC with the Financial Industry Regulatory Authority in overseeing almost 12,000 investment advisers who manage about $40T.
3. Greece passes austerity implementation law — the Greek parliament passed legislation implementing added austerity measures, the Associated Press reported, clearing the way for the debt-strapped nation to receive bailout funds seen as necessary to avoid a default.
4. B. of A. settlement — blue-chip bank agrees to settle mortgage-backed securities claims for $8.5 billion while making a $5.5 provision that will mean a second-quarter net loss.
5. Regulators to evaluate banks’ risk models — global banking regulators are preparing to assess how banks set risk weightings amid criticism that the firms’ calculations are inconsistent, a source said. The news comes a few days after regulators decided that the world’s largest banks will have to hold core Tier 1 capital of as much as 9.5% of their total risk-weighted assets.
6. Fed capped debit-card fees at $0.21 per transaction — this amount is almost double the original proposal of $0.12. The Fed will also give banks until Oct. 1 to comply with the new rules, instead of July 21.
7. ECB signals rate rise — the ECB signalled again it will begin raising interest rates next week from 1.25% after June CPI came in at 2.7%, well above the bank’s target of below 2% – ending speculation it might delay a hike in light of the Greek crisis and fears of contagion.
8. QE2 ends June 30 — the Fed ends its $600B bond-buying program with opinions mixed as to whether it was a success and whether another round of easing is likely to follow. The end of QE2 comes as growth has slowed, inflation has risen and unemployment remains above 9%, and leaves the Fed as the largest holder of Treasurys with around 17% of U.S. marketable debt.
9. China manufacturing growth slows further — China’s official Purchasing Managers’ Index slipped to 50.9 in June from 52.0 in May, just above the 50 mark that separates expansion from contraction, according to data released by the China Federation of Logistics and Purchasing and National Bureau of Statistics.

The week ahead — Economic data from Econoday.com: