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Daily News Briefing: Tuesday, July 31, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • FEDERAL RESERVE - According to analysts at Moody's Analytics, the most likely outcome of this week's Federal Open Market Committee meeting will be a statement that the U.S. Federal Reserve expects to hold the federal funds rate near zero until mid-2015, rather than late 2014 as projected.
  • HOUSING MARKET - Real-estate website Trulia figures that the national housing market is 32% of the way back to normal, according to its most recent monthly housing barometer.
  • WHITE HOUSE - The White House gave a positive welcome on Monday to Democratic legislation that would effectively ban online or mail-order purchases of ammunition in the aftermath of the mass shooting at an Aurora, Colorado, movie theater.
  • WHITE HOUSE - The Obama administration on Monday said it expects that U.S. states will eventually join its planned expansion of the Medicaid healthcare program as they evaluate the benefits of providing health coverage to more low-income people.
  • U.S. POSTAL SERVICE - The U.S. Postal Service is bracing for a first-ever default on billions in payments due to the U.S. Treasury, adding to widening uncertainty about the mail agency's solvency as first-class letters plummet and Congress deadlocks on ways to stem the red ink.
  • IRAN - U.S. Defense Secretary Leon Panetta acknowledged Monday that increasingly stiff international sanctions have yet to compel Iran to give up its nuclear ambitions. But he argued that more pressure eventually would lead Iran to "do what's right."
  • EURO ZONE - The European Central Bank is thinking the unthinkable to save the euro, including resuming its controversial bond-buying program and possibly even pursuing quantitative easing - in effect printing money.

WHAT WE KNOW

ECONOMIC NEWS

  • FEDERAL RESERVE - According to analysts at Moody's Analytics, the most likely outcome of this week's Federal Open Market Committee meeting will be a statement that the U.S. Federal Reserve expects to hold the federal funds rate near zero until mid-2015, rather than late 2014 as projected.
    • The Fed's outlook is dimming as job creation softens and inflation remains below the central bank’s 2% target. Risks to the outlook have also grown more threatening, led by the federal fiscal cliff and Europe's debt crisis.
    • Lengthening the projection for near-zero interest rates carries little cost and will draw less criticism, so it will appeal to more FOMC members than would a new round of quantitative easing. The Fed will use its two-day meeting that ends Wednesday, August 1, 2012 to review its policy options.
  • HOUSING MARKET - Real-estate website Trulia figures that the national housing market is 32% of the way back to normal, according to its most recent monthly housing barometer.
    • Construction starts rose 7% in June, compared with the month before and 24%, compared with the year before; Kolko figures that starts are about 28% of the way back to normal. But sales of existing homes fell to an annualized 4.37 million in June, down from 4.62 million in May; that brings sales about 35% of the way back to normal from their worst point during the housing bust, according to Trulia.
    • Trulia isn’t the only real-estate website to make observations about the market this week. Zillow declared earlier this week that home prices have found their bottom, and predicted price increases for the year ahead. Read more about that in this week’s Real Estate pages, plus learn why it may be time to consider a 15-year fixed-rate mortgage and read a Realty Q&A about why a 40-year mortgage might not be the best idea.
  • The Dow Jones Industrial Average lost 2.7 points, or 0.02%, to 13,073.
  • The S&P 500 fell less than 1 point, or 0.1%, to 1,385.
  • The Nasdaq Composite fell 12 points, or 0.4%, to 2,946.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.50.
    • When President Obama was inaugurated, in January 2009, the U.S. national average for a gallon of regular gasoline was $1.85. Average gasoline prices are currently 89 percent higher than they were when Mr. Obama became president.
  • Crude oil for September delivery ended 35 cents lower, or 0.4%, to $89.78 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery rose $1.70, or 0.1%, to $1,619.70 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

  • PROTESTORS – The Occupy Wall Street protests continue around the world, now in their 314th day.
  • FAST & FURIOUS - Republican investigators pinned the failures of “Operation Fast and Furious” on five officials in the Bureau of Alcohol, Tobacco, Firearms and Explosives in a scathing joint congressional draft report issued Monday evening.
    • The report announced that the U.S. House will move “soon” to “commence legal proceedings” to enforce the resolutions that placed Holder in contempt of Congress.
    • The report determined that five officials in the ATF were responsible, ranging from a former low-ranking special agent to the former acting head of the agency. Congressional investigators called attention to the weak leadership at the ATF and pushed for the agency to be strengthened.
  • CONGRESS - U.S. House and U.S. Senate negotiators announced an agreement late Monday on a bill that would significantly tighten sanctions against Iran and companies that help Iran develop its energy resources or advance its nuclear program.
    • The new Iran Threat Reduction and Syria Human Rights Act was developed in bipartisan, bicameral discussions over the last several weeks, after both the House and Senate had passed separate bills calling for tougher sanctions. With the agreement in place, the House is set to vote on the bill, H.R. 1905, as early as Wednesday, and the Senate will also follow with quick consideration and passage this week.
    • The United States already imposes a range of sanctions against companies that do business with Iran, but the new bill would broaden and deepen those sanctions more than ever before.
  • WHITE HOUSE - The White House gave a positive welcome on Monday to Democratic legislation that would effectively ban online or mail-order purchases of ammunition in the aftermath of the mass shooting at an Aurora, Colorado, movie theater.
    • The proposal, crafted by Democratic U.S. Senator Frank Lautenberg and Democratic Representative Carolyn McCarthy, aims to restrict the ability of Americans to buy unlimited quantities of ammunition over the Internet, or by mail order, anonymously.
    • President Obama has called for a common sense response to the slaughter in Aurora. But the White House has played down his appetite for new legislation as opposed to tightening or toughening existing measures—such as background checks—to keep firearms out of the hands of criminals or the mentally ill. And the president has underlined his support for the Second Amendment to the Constitution.
  • WHITE HOUSE - The Obama administration on Monday said it expects that U.S. states will eventually join its planned expansion of the Medicaid healthcare program as they evaluate the benefits of providing health coverage to more low-income people.
    • U.S. Medicaid director Cindy Mann said states will likely spend the next several months analyzing the plan, which under President Barack Obama's healthcare law, would extend health coverage to about 16 million uninsured people based on new criteria that broadens eligibility to people with incomes of up to 133 percent of the federal poverty line.
    • A U.S. Supreme Court ruling that upheld the law in June also allowed individual states to decide whether to accept the Medicaid expansion, sparking an election-year revolt among Republican governors who have opposed the entire reform. The law takes full effect in 2014.

PRESIDENT’S SCHEDULE

  • In the morning, President Obama will receive the Presidential Daily Briefing at the White House.

HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

  • The U.S. Senate is in session today.

U.S. HOUSE OF REPRESENTATIVES

  • The U.S. House is in session today.

TOPICS OF INTEREST

FEDERAL GOVERNMENT

  • U.S. POSTAL SERVICE - The U.S. Postal Service is bracing for a first-ever default on billions in payments due to the U.S. Treasury, adding to widening uncertainty about the mail agency's solvency as first-class letters plummet and Congress deadlocks on ways to stem the red ink.
    • With cash running perilously low, two legally required payments for future postal retirees' health benefits — $5.5 billion due Wednesday, and another $5.6 billion due in September — will be left unpaid, the mail agency said Monday. Postal officials said they also are studying whether they may need to delay other obligations. In the coming months, a $1.5 billion payment is due to the U.S. Labor Department for workers compensation, which for now it expects to make, as well as millions in interest payments to the U.S. Treasury.
    • The defaults won't stir any kind of catastrophe in day-to-day mail service. Post offices will stay open, mail trucks will run, employees will get paid, current retirees will get health benefits.

FOREIGN POLICY

MIDDLE EAST

  • SYRIA - According to the American Enterprise Institute, the tipping point in Syria is near. Earlier this month, an attacker managed to penetrate Bashar al-Assad’s inner circle and detonate a bomb, killing several senior members of the regime. Rebels have launched their first concerted campaign into the Syrian capital, Damascus. Some reports indicate Assad may be considering an escape, as the U.N. expressed concern Friday that a showdown between Syrian and rebel forces may be imminent.
    • Despite the heightened violence, Russia and China teamed up this month to block any substantive action through the U.N. Security Council.
    • As the world sits on the sidelines, the United States has yet to lead from the front. As Danielle Pletka, AEI’s vice president for foreign and defense studies, said recently, the “Obama administration has fussed and fluttered, blabbed and gabbed and … ultimately done nothing for the people of Syria.” It’s not too late for the U.S. to show leadership, stand up to Vladimir Putin and Hu Jintao, hasten Assad’s downfall and gain some say in how a post-Assad Syria unfolds.
    • According to the American Enterprise Institute, the U.S. could lead in Syria using the following methods:
      • ARM REBELS: New Western weapons may give the opposition the advantage they need and may cause more soldiers and officers to defect from the Syrian army.
      • TRANSITION PLAN: A U.S.-assisted democratic transition would do much to head off the possibility of an Egypt-style Islamist ascendancy in a post-Assad government.
      • SAFE ZONES: Syrian civilians fleeing the violence have headed in large numbers to Jordan, Lebanon and Turkey. Safe corridors along the borders would not only facilitate the escape of innocent civilians, but would also make it easier for defectors to switch sides. Providing air cover over liberated areas would help the opposition consolidate control.
      • WMDs: Syria has both an advanced chemical weapons program and is believed to have a nuclear weapons program. AEI scholar John Bolton argues that the US must tell the opposition that it is expected to secure or turn over all WMD-related facilities and materials.
  • IRAN - U.S. Defense Secretary Leon Panetta acknowledged Monday that increasingly stiff international sanctions have yet to compel Iran to give up its nuclear ambitions. But he argued that more pressure eventually would lead Iran to "do what's right."
    • Iran's disputed nuclear program, which Tehran contends is only for peaceful purposes, is a prominent backdrop to Panetta's five-day tour of the Middle East and North Africa. On Wednesday he'll be in Israel, whose leaders have said they are contemplating a military attack on Iran to stop Iran from developing nuclear weapons, a step they view as a threat to Israel's very existence.
    • The Obama administration wants Israel to give sanctions and diplomacy more time to steer Iran off its nuclear course, although Panetta repeated the administration's standard line that "all options" are on the table in the event that non-military pressure does not work.

EUROPE

  • EURO ZONE - The European Central Bank is thinking the unthinkable to save the euro, including resuming its controversial bond-buying program and possibly even pursuing quantitative easing - in effect printing money.
    • Bold action is probably at least five weeks away, insiders say, though some more clues may come when the ECB reveals its latest interest rate decision on Thursday.
    • Several other pieces have to fall into place before the ECB will act decisively, insiders say. These include a request for assistance from Spain, which Madrid is still resisting, a decision by euro zone leaders to let their bailout fund buy bonds at auction, and a German court ruling on the legality of the euro zone's permanent rescue fund, due on September 12.