Is it really a 'zombie' economy? Yeah, pretty much - New tax cut war? - China inflation slows - GOP plans tough votes for Dems

(bwhite@politico.com; Twitter: @morningmoneyben)

IS IT REALLY A ?ZOMBIE? ECONOMY? YEAH, PRETTY MUCH - Tough weekend for the White House after yet another gloomy jobs number (just 80K) with no change to the brutal 8.2% unemployment rate. The economy quickly picked up the zombie tag (including on top of M.M.?s story Friday afternoon). It?s a harsh description but it?s not unfair. It may not be President Obama?s fault (you can argue it mostly isn?t). But no matter who you blame, the president is stuck with an economy that feels like a character out of the ?Walking Dead,? stumbling around dumbly both dead and (sort of, technically, kind of) alive. And there is little reason to think things will improve in a significant way before Election Day.

WHY WE ARE STUCK - The jobs numbers and other data don?t seem bad enough to warrant another big Fed move. In fact, if the Fed were to crank up the printing presses and announce a huge new round of asset purchases, it would get absolutely hammered on the right for playing politics. The numbers are not weak enough (yet) to blow out the political threat. And the slow grinding housing recovery and household debt reduction process means little juice will flow into the economy through increased consumer spending. ... And the Euro crisis, while not blazing at the moment, has not gone away. And the prospect of a dramatic China slow-down is pretty spooky as well. M.M. talked to one Wall Streeter over the weekend who said of the BLS report, ?People are just going to have to start getting used to these numbers. This is what we?ve got.?

MORE ON THE FED - Cumberland Advisors? David Kotok in a Sunday client note: ?[P]lus 80 thousand nonfarm jobs is better than minus 80 thousand.?We see nothing to alter this slow but marginally positive growth outlook.?The Fed?s additional ?Twist? is a whimper, not a shout. In fact, that is probably a good thing, since monetary policy has its limits, and we are near them. We expect no more from the Fed for the rest of this year unless there is a seriously negative event.?

EVEN PERMA-BULLS NOT SO HOPEFUL - HFE?s Ian Shepherdson, one of the most bullish analysts out there, finally got the gloomies from Friday?s report.? In addition to the dismal BLS number, Shepherdson noted the NFIB hiring intentions index for June dropped three points, meaning employers are a bit less likely to add workers. The portion of NFIB members reporting hard to fill jobs, according to Shepherdson, also dropped sharply. That tends to mean less upward pressure on wages which means less consumer spending which means ... well, nothing good.

ROMNEY COULD STILL LOSE IT - FT?S Edward Luce: ?It is an electoral truth universally acknowledged that if the economy is doing badly the incumbent will lose. In the last 14 months more than half the eurozone?s governments have been ejected. History tells us the same fate ought to be awaiting?... Obama? ... Most Americans are worse off than they were four years ago. Why then do most pundits expect Mr Obama to win? Look no further than Mitt Romney. If there is anything we can be sure will remain weaker than the US labour market between now and November it is Mr Romney?s electoral skills. Supporters of Mr Romney point out that his business experience should inspire voter confidence. Yet it is worth remembering that in almost two decades of campaigning, Mr Romney has only once been elected to public office - in 2002 when he became governor of Massachusetts. Even his recent victories in the Republican primaries were begrudging. ?... In an economy - and thus an?election?- defined by middle class pain, Mr Romney comes from the wrong side of the tracks.? http://on.ft.com/Nhg8TX

NEW TAX CUT WAR? - NYT?s Mark Landler on pg. A1: ?With a torpid job market and a fragile economy threatening his re-election chances ... Obama?is changing the subject to tax fairness, calling for a one-year extension of the?Bush-era tax cuts?for people making less than $250,000. Mr. Obama plans to make his announcement in the Rose Garden on Monday, senior administration officials said. ?... House Republicans plan to vote this month to extend permanently all of the Bush tax cuts ...

?The president?s proposal could also put him at odds with Democratic leaders like Representative Nancy Pelosi of California and Senator Charles E. Schumer of New York, who have advocated extending the cuts for everyone who earns up to $1 million. ... White House officials insisted that Monday?s move was more than politics. They said it would ease anxiety over the ?fiscal cliff?? http://nyti.ms/NAHYwq

M.M. TWO-WORD ANALYSIS - Re easing concern over the fiscal cliff: No chance.

CHINA INFLATION SLOWS -Bloomberg/Beijing: ?China?s consumer-price?inflation?eased to a 29-month low in June, giving Premier Wen Jiabao more room to relax economic policies after the second interest-rate cut in a month. The?consumer price index?rose 2.2 percent ?... That compares with the 2.3 percent median estimate ?... Today?s inflation report marks a fifth month of price gains below Wen?s 4 percent target and may encourage the government to take further steps to aid growth that probably decelerated for a sixth quarter? http://bloom.bg/LI5xmt

TRANSITIONS: LITAN TO BLOOMBERG - Per release off embargo at 5 a.m.: ?Robert Litan will join Bloomberg Government as Director of Research. Litan is currently the Vice President for Research and Policy at the Kauffman Foundation in Kansas City and a Senior Fellow in Economic Studies at the Brookings Institution, where his research includes topics in regulation, financial institutions, telecommunications, entrepreneurship and general economic policy? Full release: http://bit.ly/Nad8dq

TREASURY TOUTS SMALL BUSINESS FUND - Per a Treasury official: ?Treasury today will send Congress a new report with strong evidence that the Small Business Lending Fund (SBLF) is helping small businesses access the capital they need to create jobs and expand operations. The SBLF Quarterly Use of Funds report will show that, in total, small business owners have secured $5.2 billion in needed capital due to a substantial increase in lending by banks participating in SBLF. This also represents a $433 million increase over the last quarter of 2011. These loans?such as those for new glass recycling equipment for a bottling company in Montana and family farms in Florida?are supporting hundreds of small businesses and local economies across the nation.?

GOOD MONDAY MORNING - Welcome to the All Star break! In baseball, not politics. For those keeping score at home, Yankees have the best record in the game at the break, 52-33. Home run derby tonight at 8:00 p.m.

** A message about What Works: Mid-market companies are critical to America?s competitiveness and economic future. GE Capital provides smart financing and the know-how of GE to help businesses grow. Not just imagining. Doing. GE works. **

DRIVING THE WEEK - Congress is back in D.C. this week, not to actually do much of anything except take a bunch of politically provocative votes (more below). Obama will greet them with his Rose Garden event calling for a (not going to happen) one-year extension of the Bush tax cuts for those earning under $250,000 ... After the event, Obama heads out to campaign on the tax gambit in Iowa on Tuesday ... Consumer credit out at 3:00 p.m. today expected to rise $8 billion ... Fed minutes out Wednesday at 2:00 p.m. could give some color on how close the FOMC is to more quantitative easing ...

Initial jobless claims on Thursday expected to dip to 370K from 374K ... Consumer sentiment on Friday at 9:55 a.m. expected to rise slightly to 73.5 form 73.2 ... House Financial Services subcommittee and House Judiciary both have Dodd-Frank anniversary seasons hearings on Tuesday. ... House OGR has an auto-bailout hearing Tuesday ... Alcoa kicks off second quarter earnings season this morning. It?s not expected to be very good (more below) ... JPMorganChase reports second quarter earnings on Friday and will be under heavy pressure to give specific detail on the maximum possible loss from the failed London whale trades ...

GOP PLANS TOUGH VOTES FOR DEMS - POLITICO?s Jake Sherman and Seung Min Kim: ?As the spotlight shifts unmistakably from Washington to the campaign trail, House Republicans have planned a series of hot-button votes over the next four weeks to contrast the party?s agenda with that of Democrats and put ... Obama and Democratic candidates on the defensive. Very little ? if any ? of it will become law. The main goal is to boost the party?s prospects on Election Day. The carefully planned effort, detailed by Republicans inside and outside the Capitol, has buy-in from ... Romney?s campaign, aides say ... House Republicans will kick off the effort this week with another quixotic attempt to repeal Obama?s health care law.

?Next week, they will turn to defense, passing the Defense Department?s funding bill while trying to put the Obama administration on record as having no plan to avoid deep cuts to the Pentagon next year. After that, Republicans intend to take up a slew of regulatory relief bills. And before the House breaks in August ?... GOP leaders plan to hold a vote on tax rates and principles for future tax reform? http://bit.ly/M9fhEv

NEW WORRY: FLAGGING CORPORATE PROFITS - WSJ?s Jonathan Cheng on pg. A1: ?Investors already fretting about the health of the world's biggest economies now face another worry: disappointing earnings. Companies begin reporting second-quarter earnings this week, starting with?Alcoa [today]? ... Already, 42 companies ... have warned investors that profits will be lower than initially expected, in large part because of slowing demand from customers around the world, particularly in Europe. Analysts say the darkening outlook is only partly baked into current share prices. Adam Parker, Morgan Stanley's chief stock strategist, predicts Standard & Poor's 500-stock index will finish the year at 1167, about 14% below where it is now.

??The pillar of strength is U.S. corporate earnings, and now we're seeing signs that that is cracking,? he says. It was shaping up to be a closely watched quarter even before the economic outlook toughened.? ... J.P. Morgan Chase ... also will post its first results since disclosing huge trading losses. The company has said it expects to be ?solidly profitable? for the second quarter, but is expected to provide an update on the losses, which could total roughly $5 billion? http://on.wsj.com/NeyNn6

ROMNEY IN THE HAMPTONS: ?WE ARE VIP? - NYT?s Michael Barbaro and Sarah Wheaton: ?A woman in a blue chiffon dress poked her head out of a black Range Rover here on Sunday afternoon and yelled to an aide to ... Romney. ?Is there a V.I.P. entrance? We are V.I.P.? No such entrance existed. The line of cars waiting to enter a Romney fund-raiser on a waterfront estate here had reached 30 deep, a gridlocked testament to the Republican candidate?s financial might on a weekend when he [was] expected to haul in close to $4 million in the Hamptons? ... [W]hat was billed as a day of elegant campaign events at the homes of the ultrarich turned out to be an afternoon of curious and clashing tableaus: protesters with their bandannas and Occupy Wall Street-inspired chants ?... standing amid multimillion-dollar mansions, where live bands played ?Margaritaville? and donors dined on prosciutto-wrapped melon ball

?In remarks to about 250 donors inside a giant white tent ... Mr. Romney pointedly acknowledged the financial comfort of those around him. ?If you are here, by and large, you are doing just fine,? he said, his voice audible to a reporter standing on a public street not far away. ?I don?t spend a lot of time worrying about those here. I spend a lot of time worrying about those that are poor and those in the middle class that are finding it hard to make a bright future for themselves.?? http://nyti.ms/Nd9yB2

?I DON?T THINK THE COMMON PERSON IS GETTING IT? - LATimes? Maeve Reston: ?The line of Range Rovers, BMWs, Porsche roadsters and one gleaming cherry red Ferrari began queuing outside of?Revlon Chairman Ronald Perelman's estate off Montauk Highway long before Romney arrived ... A New York City donor ?... who ... would not give her name, said Romney needed to do a better job connecting. ?I don't think the common person is getting it," she said from the passenger seat of a Range Rover stamped with East Hampton beach permits.

?Nobody understands why Obama is hurting them. We've got the message,? she added. ?But my college kid, the baby sitters, the nails ladies -- everybody who's got the right to vote -- they don't understand what's going on. I just think if you're lower income -- one, you're not as educated, two, they don't understand how it works, they don't understand how the systems work, they don't understand the impact.???http://lat.ms/N8Gr38

M.M. FIVE WORD ANALYSIS - Re the above quote: You can?t make it up.

OBAMA ADS HIT HARD IN SWING STATES - USATODAY?s Susan Page: ?In a new USA TODAY/Gallup Poll of swing states, an overwhelming majority of voters remember seeing campaign ads over the past month ... At this point, Obama is the clear winner in the ad wars. Among swing-state voters who say the ads have changed their minds about a candidate, rather than just confirmed what they already thought, 76% now support the president, vs. 16% favoring Romney ... To be sure, Obama's ads have done more to win back Democrats than to win over independents or Republicans ... In the 12 battleground states, the race is all but tied. Obama leads Romney 47%-45% among 1,200 registered voters in the poll June 22-29 ? a tick closer than Obama's 48%-44% lead among 2,404 voters in the rest of the USA over the same period? http://usat.ly/Nhh9LV

BRUSSELS STEPS INTO LIBOR SCANDAL - FT?s Alex Barker in Brussels, Brooke Masters in London and Kara Scannell in New York in the page 1 splash: ?Brussels is wading into the interest rate-rigging?scandal ... with a proposal to outlaw attempts to manipulate market indices across the EU and a fundamental review of the rules on how Libor is set. Michel Barnier, the EU commissioner overseeing financial services, will amend reforms to EU market abuse rules so that potential ?loopholes? are closed and criminal sanctions specifically cover tampering with indices such as Libor and Euribor.? Mr Barnier called the falsification of such benchmark rates a ?betrayal? with potentially ?systemic consequences?. His intervention comes amid the first signs of a?political backlash in Washington?over an affair that has already forced the resignation of Bob Diamond from?Barclays.

?Barney Frank, the US Congressman who drove through an eponymous financial regulation overhaul, told the Financial Times that banks ?monkeying? with Libor for their own benefit was ?outrageous?. While the US already makes it illegal to put false prices into the markets, the Democratic congressman called for hearings in the House and Senate that should ?call the whole structure of Libor into account?.? http://on.ft.com/PD14re

ALSO FOR YOUR RADAR -

NYSE ON DARK POOLS - Per the ?Kid Dynamite? blog, closely watched around Wall Street: ?This actually isn?t a post about dark pools.?I?ve already written?more than one?post about dark pools- several years ago in fact, and I?d recommend them as background reading on the subject.? This post, however, is about the NYSE?s delightful hypocrisy / flip-flopping. On Wednesday, July 4th,?NYSE CEO Duncan Niederauer penned a Financial Times Op-ed about dark pools. Cliff notes: dark pools are bad. Fast forward to Friday, July 6th: ?Regulators Approve NYSE Plan For Its Own Dark Pool.???Cliff notes:? We?re opening our own dark pool.?? http://bit.ly/OnuuTQ

NEW INEQUALITY: CREDIT SCORES - WP?s Ylan Q. Mui: ?The implosion of the subprime lending market has left?a scar on the finances of black Americans?? one that not only has wiped out a generation of economic progress but could leave them at a financial disadvantage for decades. At issue are the largely invisible but profoundly influential three-digit credit scores that help determine who can buy a car, finance a college education or own a home. The scores are based on consumers? financial history and suffer when they fall behind on their bills. For blacks, the picture since the recession has been particularly grim.

?They disproportionately held subprime mortgages during the housing boom and are facing foreclosure in outsize numbers ... [S]tudies have shown a persistent gap between the credit scores of white and black Americans, and many worry that it is only getting wider ... Banks and industry groups often cited low credit scores as one of the main reasons black consumers were denied loans at higher rates than whites? http://wapo.st/RK2gq6

NEW EURO BANK AUTHORITY TAKES SHAPE - WSJ?s Matina Stevis and Stephen Fidler on pg. A1: ?Senior euro-zone finance officials, moving ahead on a plan to create a single overarching bank supervisor for all the countries in the 17-nation currency bloc, are settling on a framework that would create a new agency reporting to the [ECB] to police the largest banks in the currency union, people involved in the discussions said. Euro-zone leaders mandated the regional supervisor's creation at a summit here in June ... The establishment of a single authority, with a single set of rules for the region's banks, is seen by Germany and other strong economies as an essential condition before they will consider sharing resources with other euro-zone countries? http://on.wsj.com/Py3I0c

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