Friday, March 11, 2011

Friday Watch

Posted by Gary .....at 12:11 AM

Evening Headlines
Bloomberg:
  • Saudi King Counters Protests With $36 Billion as Tension Mounts. As unrest escalated across the Middle East, activists in Saudi Arabia demanded a political voice as well. Rather than promises of democracy, they got a $36 billion handout and a slap down from Islamic clerics. Saudi academics, writers and representatives of the minority Shiite Muslim population called on King Abdullah, the sixth monarch in the Arab world’s largest economy, to move the country toward a constitutional monarchy. Anti-government demonstrators are advocating a “Day of Rage” today. “Demands for political reform will inevitably increase in the kingdom as democracy takes root in the region,” said Thomas Hegghammer, a senior research fellow at the Norwegian Defense Research Establishment in Oslo and author of “Jihad in Saudi Arabia.” “If the regime does nothing, tension will grow between conservative and progressive factions.” “The monarchy is trying hard to absorb demands for political change and cast them as economic demands,” Madawi Al- Rasheed, a professor of Anthropology of Religion at King’s College London, said in response to e-mailed questions. “Political reform is an urgent matter.” “If the news flow deteriorates further, and Saudi Arabia can’t prove that it can move more oil into the market, prices will continue to rise,” said Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore. Saudi Arabia’s Interior Ministry said March 5 that demonstrations, marches and sit-ins are “strictly” prohibited under the kingdom’s laws, according to the Saudi Press Agency. A day later, the Council of Senior Islamic Scholars warned reforms cannot be realized through protests and “means that cause division,” the news service said. The unemployment rate is as high as 43 percent for Saudis between the ages of 20 and 24. The Saudi monarchy has experienced violent opposition to its rule in the past from militants calling for a more Islamic state, not greater political openness.
  • Bond Market Anticipates Greece Defaulting as EU Leaders Meet: Euro Credit. As European Union leaders haggle over their second plan to stem the financial crisis, traders are betting Greece won’t be able to pay its debts. Greek 10-year bond yields rose to a record this week and it costs more than ever to insure against a default, even though the nation received a 110 billion euro ($153 billion) bailout from the EU and the International Monetary Fund last year. Two- year yields exceed 10-year levels, suggesting a restructuring may come before the three-year aid program expires. “The onus is on EU officials to dissuade the market from the notion that a debt restructuring is inevitable,” said Robin Marshall, director of fixed-income at London-based Smith & Williamson Investment Management, which oversees $20 billion. “They’ve lost investor confidence in any resolution that doesn’t involve some form of restructuring.” EU leaders gather today in Brussels, aiming to agree to a blueprint to improve competitiveness, a plan Germany demanded as a condition for expanding the bailout effort. Investors will also be looking for signs that differences over how to solve the debt crisis are narrowing ahead of a second meeting on March 24-25 that German Chancellor Angela Merkel has said will produce a comprehensive package of measures. Greek securities plunged this week after Moody’s Investors Service cut the nation’s rating, already at junk, by an additional three levels, saying the probability of default had increased due to “implementation risks” in the budget cuts it is making as a condition of receiving aid. A restructuring of Greek debt is “a possibility” and investors may recover between 30 percent and 50 percent of the total value if that happens, said Moritz Kraemer, managing director of European sovereign ratings at Standard & Poor’s, on March 8. Credit-default swaps imply a 58 percent probability the nation will default within five years, according to CMA. Yields on the bonds of the euro region’s most indebted nations have jumped in the last two months as Germany, Finland and Austria rebuffed calls from Greece and Ireland to lower the interest rates on rescue loans. Disagreements also persist over the remit of the 440 billion-euro European Financial Stability Facility, which provided loans to Ireland, including whether it should be allowed to buy euro-region government bonds. Portuguese 10-year bond yields reached 7.70 percent on March 9, the highest since at least 1997, when Bloomberg began collecting the data. On the same day, equivalent-maturity Italian yields climbed above 5 percent for the first time since November 2008, while Irish 10-year yields touched the most since February 1993. “It doesn’t seem like a solution or compromise is around the corner,” said Orlando Green, assistant director of capital markets strategy at Credit Agricole SA in London. “We could see more spread widening if they are slow in coming up with a plan. It’s not all priced in yet.” Swaps insuring Greek government bonds rose five basis points to an all-time high of 1,037 basis points yesterday, meaning that it costs $1.04 million annually to insure $10 million of debt for five years. The spread between Greek two- and 10-year securities widened to 171 basis points yesterday, the most since May, when the creation of the EFSF convinced markets that EU government wouldn’t let the euro fail. Greece cut spending and raised taxes last year to bring down the budget deficit to 9.4 percent of gross domestic product from 15.4 percent in 2009. The government is due to announce steps for 2012 to 2014 this month as it seeks to bring the shortfall below the EU’s 3 percent limit. Its ability to boost revenue is constrained by an economy entering a third year of recession. GDP may shrink 3 percent this year, according to the EU and the IMF, after falling 4.5 percent in 2010. Such measures may not be enough to keep Greece solvent, according to Ben May, an economist at Capital Economics Ltd. in London, who estimates that the economy will contract by 4.5 percent this year, and 2 percent next year, causing public debt to spiral to 170 percent of GDP and making debt restructuring is “virtually inevitable.”
  • Emerging Inflation 'Danger' as Brazil's Fraga Assails Controls on Capital. Emerging markets face a “definitive danger” from accelerating inflation and should resist the temptation to impose capital controls to stem currency gains, said Arminio Fraga, the head of Brazil’s stock exchange and a former central bank president. The Bank of Korea raised interest rates for the second time this year yesterday after inflation exceeded its target ceiling for two consecutive months, joining Thailand and Vietnam in lifting borrowing costs this week amid a surge in oil prices. Brazil boosted rates five times in the past year after annual inflation quickened to the fastest pace since November 2008. “There is a definitive danger and I think we have to watch it,” Fraga, 53, told investors at an event at JPMorgan Chase & Co. in New York yesterday. Inflation is picking up after crude oil in New York jumped about 25 percent in the past year and futures touched $106.95 on March 7, the highest intraday price since Sept. 26, 2008. In developing nations, growing domestic demand and increased foreign inflows lured by higher yields at a time when U.S. and European interest rates are near zero are also fueling price increases. Investors withdrew $2.5 billion from emerging-market stock mutual funds in the week ended March 2, the sixth straight week of outflows, according to a March 4 Citigroup Inc. report that cited data from research firm EPFR Global. Investors are paring bets on shares in the fastest-growing economies after pouring more than $90 billion into emerging-market stock funds last year, the biggest-ever annual inflows, according to EPFR data. Banco Central do Brasil raised its benchmark overnight rate on March 2 by a half-point to 11.75 percent to cool inflation that accelerated to 6.01 percent in February on a year-on-year basis, from 5.99 percent in January. The central bank has an inflation target of 4.5 percent, plus or minus 2 percentage points.
  • China February Consumer Prices Rise 4.9%, Exceeding Target. China’s consumer prices rose 4.9 percent in February from a year earlier, exceeding the government’s 2011 target for a fifth month. The advance was more than the 4.8 percent median forecast in a Bloomberg News survey of 22 economists. Investors are concerned that monetary tightening to tame inflation may slow the Chinese economy, weakening a global expansion already hampered by elevated unemployment in the U.S. and sovereign debt woes in Europe. “Inflation and overheating are still a bigger risk in China than a sharp economic slowdown,” Yao Wei, a Hong Kong- based economist with Societe Generale SA said before today’s release. Producer prices rose 7.2 percent in February after a 6.6 percent gain in the previous month, today’s report showed. A decline in vegetable prices after the Lunar New Year holiday may have trimmed the inflation number for last month. Inflation may rebound to 5 percent in March, according to Bank of America-Merrill Lynch.
  • Oil Heads for First Weekly Decline in Four on U.S. Economy, Demand Concern. Oil headed for its first weekly decline in four as signs of weakening demand in the U.S. countered concern that Libyan supply cuts will spread through the Middle East. Futures were little changed today and have dropped 1.6 percent this week after U.S. crude inventories increased more than projected and unemployment rose, bolstering concern the country’s economic recovery will slow. Saudi Arabian security forces yesterday broke up a rally a day before what anti- government demonstrators have called a “Day of Rage.” “If we weren’t seeing this Middle Eastern conflict, the abundance of stocks in the U.S. would be having a significant damping effect on the price,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “We don’t see any sustained bounce-back in activity to above average growth rates for a long period of time in the U.S. It’s going to be a prolonged recovery.” An Energy Department report on March 9 showed crude stockpiles rose to the highest level since 2004 at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the U.S. benchmark grade. Inventories increased 1.69 million barrels to 40.3 million last week, the highest since the department began gathering data at the hub.
  • U.S., NATO Allies Say They Lack Authority to Impose No-Fly Zone Over Libya. The U.S. and its NATO allies said they lacked the authority to impose a no-fly zone over Libya to ground Muammar Qaddafi’s air force, as European governments squabbled over the best response to the intensifying conflict. The North Atlantic Treaty Organization’s 28 defense ministers agreed to deploy ships off Libya and said more planning and a United Nations mandate were needed to establish a no-fly zone.
  • Bill Clinton Says U.S. Should Support a No-Fly Zone in Libya. The U.S. should support a no-fly zone over Libya to help underequipped insurgents fighting to topple well-armed and well-paid troops loyal to dictator Muammar Qaddafi, former U.S. president Bill Clinton said.
  • Sudan, Yemen Ranked Near Top of Bloomberg Combustibility Index. Sudan, Yemen and Syria are among the nations most prone to unrest in the Middle East and North Africa, trailing only Libya in a ranking of 20 countries in the Bloomberg Combustibility Index. Qatar, Kuwait and United Arab Emirates are rated by the index as least likely to experience the kind of turmoil that has threatened Libyan leader Muammar Qaddafi’s rule and toppled regimes in Egypt and Tunisia. The index is based on variables including gross domestic product adjusted for purchasing power parity, unemployment, median age, income inequality, access to information and repression. The repression factor accounts for 50 percent of the weight of the variables. It was calculated from the size of a country’s military per capita, length of tenure of the head of state, whether the head had a military background, whether the head is also commander-in-chief of the armed forces, whether the head came to power in a military coup or following an assassination, military spending as a percentage of GDP and absolute military spending. The 20 countries on the list, from most prone to unrest to least, are Libya, Sudan, Yemen, Syria, Egypt, Oman, Djibouti, Iran, Iraq, Tunisia, Bahrain, Algeria, Mauritania, Lebanon, Jordan, Saudi Arabia, Morocco, United Arab Emirates, Kuwait and Qatar.
  • Goldman Sachs(GS) Weighs Competing Liquidation Plan for Lehman, Creditors Say. Goldman Sachs Group Inc. (GS), seeking to get more money from bankrupt Lehman Brothers Holdings Inc., may propose a liquidation plan for the defunct company that would compete with two rival plans, two creditors said.
  • Philippine Stocks Rally Unlikely to Last on Rising Crude, Union Bank Says. Philippine stocks, Asia’s best performers this month, have a “very low” chance of sustaining their rally as Middle East turmoil pushes up oil prices, according to Union Bank of the Philippines’s Michael Garcia. “Nobody knows when the political unrest will end and as a tactical measure we have taken money off the table,” Garcia, who manages the Philippines’ best-performing fund, said in a phone interview in Manila yesterday. “We quadrupled the proportion of cash we hold,” he said, declining to provide exact figures.
  • Loomis Bets on Asian Currency 'Surrender' as Central Banks Fight Inflation. Loomis Sayles & Co. is betting that food and energy inflation will prompt central banks in emerging markets including Indonesia and South Korea to raise interest rates and “surrender” the fight against currency gains. “We’re seeing a greater likelihood of stronger currency appreciation in a lot of the emerging markets, including in non- Japan Asia markets,” said David Rolley, co-head of global fixed income at Loomis, which manages $152 billion in assets. “If you’re going to fight the inflation war, maybe you have to surrender the currency war,” he said in an interview in Sydney yesterday.
  • Florida, 25 States Appeal Some Portions of Ruling Tossing Health-Care Law. Florida and 25 other states, after winning a ruling that President Barack Obama’s health-care law was unconstitutional, told a judge they will appeal unfavorable portions of that decision and earlier ones in the case as the U.S. government pursues its appeal.
Wall Street Journal:
  • Threat of Trial Keeps Gadhafi Fighting. When Nigeria delivered exiled Liberian leader Charles Taylor to an international court in 2006, Libya's Col. Moammar Gadhafi, whose regime had armed and funded Mr. Taylor, called it an "immoral act" and warned that "every head of state could meet a similar fate."
  • Wisconsin Curbs Unions. Wisconsin lawmakers sent a bill eliminating most collective-bargaining rights for the state's public-employee unions to Gov. Scott Walker on Thursday, setting a precedent other states could follow in the broadest move in decades to curb union rights. The bill's passage by the state's Republican-controlled Assembly in a 53-42 vote ended a three-week stalemate that saw the state's 14 Senate Democrats flee to Illinois in a bid to stymie the measure and tens of thousands of people protest at the Capitol.
  • Banks May Cap Debit Purchase Amounts To Combat New Rules. Banks discussing limiting caps on debit-card transaction sizes may have a standard bearer in J.P. Morgan Chase & Co. (JPM), which is mulling a $100 cap to help combat new rules. Limiting the size of a debit-card purchase could force consumers toward credit or charge cards, helping the banks recoup debit-card revenue that will be lost to the new rules. Banks earn higher fees from credit- and charge-card swipes; these fees were excluded from rules curbing debit-card fees.
  • Families Slice Debt to Lowest in 6 Years. U.S. families—by defaulting on their loans and scrimping on expenses—shouldered a smaller debt burden in 2010 than at any point in the previous six years, putting them in position to start spending more. Total U.S. household debt, including mortgages and credit cards, fell for the second straight year in 2010 to $13.4 trillion, the Federal Reserve reported Thursday. That came to 116% of disposable income, down from a peak debt burden of 130% in 2007, and the lowest level since the fourth quarter of 2004.
  • Jury Hears Galleon Wiretaps. The U.S. government played two of its best cards on Thursday in the insider-trading trial of Galleon Group founder Raj Rajaratnam: testimony from its star witness and secretly taped telephone recordings of the former hedge-fund manager allegedly receiving inside information.
  • Ready for Unionized Airport Security? As payback for union support, the Obama administration greases the wheels for the largest federal organizing effort in history.
  • Taxpayers Win in Wisconsin. The monopoly power of government unions can be broken.
CNBC:
  • US Fed's Balance Sheet Grows to Record Size. The U.S. Federal Reserve's balance sheet expanded to a new record size in the latest week, as the central bank continued to purchase bonds, Fed data released on Thursday showed. The increase came as the central bank bought U.S. Treasurys as a part of its $600 billion program in an effort to help the economy. The balance sheet — a broad gauge of Fed lending to the financial system — expanded to $2.561 trillion in the week ended March 9 from $2.528 trillion the prior week.
MarketWatch:
  • GM(GM) Keeps Churning With Big CFO Shift. The Microsoft guy who brought his much-needed financial chops to General Motors Co. when the Detroit auto maker needed them the most is on his way out after just a year on the job.
Business Insider:
Zero Hedge:
New York Times:
Forbes
  • Illinois Governor Signs Amazon(AMZN) Internet Sales Tax Law. After two-months of fence-sitting, Illinois Governor Pat Quinn today signed controversial legislation requiring Internet retailers like Amazon.com and Overstock.com to collect Illinois’ 6.25% sales tax if they have affiliate sellers in the state.
  • Energy Conversion Devices(ENER) To Slash Production as France, Italy Chop Solar Incentives. Energy Conversion Devices this afternoon warned that it will have to reduce production of its thin-film solar products as a result of changes in the solar incentive regimes in France and Italy, “two of the company’s key markets.” “The dramatic and abrupt shift in the French and Italian solar incentive structures has impacted our business and forced us to reconsider our near-term financial outlook,” CEO Mark Morelli said in a statement. “Recent events have injected disruptive uncertainty into the markets which is causing financing sources to put projects on hold and may impact as much as 50% of this quarter’s forecasted revenue.”
  • The Road to Socialized Medicine is Paved With Preexisting Conditions - Part 2.
  • Skyscrapers Are A Great Bubble Indicator. According to Skyscraperpage.com, five of the 10 tallest buildings now under construction are in China. By 2015 the website estimates that Chinese skyscrapers will occupy spots Nos. 2, 3, 5, 9 and 10 of the tallest buildings in the world. Might the booming Chinese economy be susceptible to a bust? Is the skyscraper indicator describing a state of overconfidence and/or easy money?
CNN Money:
Politico:
  • Exclusive: McCaskill Billed Taxpayers for Political Flights. Senator Claire McCaskill's spokeswoman this evening confirmed that the Missouri Senator billed taxpayers for a purely political travel on a private plane co-owned by her family, a violation of Congressional ethics rules that deepens questions around her use of the plane. POLITICO's John Bresnahan and Scott Wong reported yesterday that McCaskill billed taxpayers for almost $76,000 for official travel on the twin-engine Piper aircraft, which she co-owns with her husband and other investors. Lawmakers routinely accept reimbursement from the government for their travel, but after the revelation that she used official public dollars to partially subsidize a private aircraft, McCaskill refunded taxpayers -- citing appearances, not any violation of ethics rules.
  • O'Keefe Releases Another NPR Video. (video) Betsy Liley, the other NPR executive at the infamous video taped lunch with Ron Schiller at Café Milano, is the target of a second video released by James O’Keefe’s Project Vertas today. The video shows Liley telling a member of the fake Muslim charity that NPR could, by accepting the proposed $5 million gift anonymously, shield the charity from a government audit of NPR's books. “[The government has] audited our program, at times, and they have, I think as part of that, they have looked at our audited financials,” she tells the undercover activist by phone. “If you were concerned in any way about that, that’s one reason that you may want to be an anonymous donor. And we would certainly, if that was your interest, want to shield you from that.” UPDATE: NPR released a statement condemning Liley’s statements in the video.
Rasmussen Reports:
  • Consumer Confidence Falls to 2011 Low. The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, fell more than two points on Thursday to 75.4, the lowest level measured since September 2010. Consumer confidence is down two points from last week and is down 14 and a half points from a month ago.
USA Today:
  • American Airlines(AMR) Again Bumps Up Airfares. American Airlines has bumped up domestic fares by $10 per round trip, which could trigger the seventh fare increase this year by U.S. airlines.
  • Federal Funding of Public Media Under Fire. Critics of the federal government's $460 million a year outlay to the Corporation for Public Broadcasting (CPB) — which contributes to NPR and PBS— call the expenditure an unneeded luxury at a time when most households are awash in media.
Reuters:
  • Equity Funds Take in $6.2 Billion, Driven by ETFs - Lipper.
  • Higher Cotton Cost Weighs on Aeropostale(ARO) Forecast. Clothing retailer Aeropostale Inc gave a weaker-than-expected forecast on Thursday, hurt by higher cotton costs, sending its shares down more than 6 percent. Soaring costs for commodities from cotton to grains to oil are squeezing many consumer product makers, forcing them to gamble with raising prices, even as consumers remain fickle with their spending. Aeropostale, whose profit margins have been hurt by deep discounting to lure shoppers, said it plans to raise prices this year on some products. It aims to offset costs expected to rise 3 to 5 percent in the first half of the year and 10 to 15 percent in the second half, but does not expect to recoup the entire increase.
  • Rising Costs to Hurt Zumiez(ZUMZ) Q1; Shares Fall. Specialty apparel retailer Zumiez Inc warned it could post a loss in the first quarter on rising input costs, sending its shares down as much as 8 percent in extended trade. "The cost pressures are real and it appears they are here to stay, at least for the foreseeable future," Chief Executive Rick Brooks said on a conference call with analysts. The weak forecast comes as a surprise after Zumiez, which has been outperforming peers for a long time now, posted a 12.8 percent jump in same-store sales in February, trouncing analysts' estimates of a rise of 4.2 percent.
  • National Semi(NSM) Quarterly Revenue Below Street. National Semiconductor posted fiscal third-quarter revenue below estimates as it worked through an inventory pileup but its forecast for higher current quarter sales was in line with expectations. The Santa Clara, California-based company's shares fell a little more than 1 percent in extended trading after closing down 2.14 percent at $14.16 on the New York Stock Exchange.
Financial Times:
  • BofA(BAC) Under Fire Over Staff Home-Loss Subsides. The Securities and Exchange Commission has ordered Bank of America to include a proposal in its proxy statement that calls for eliminating a form of compensation that protects executives from falling house prices when they relocate. Bank of America is not the only company to come under fire for protecting executives against a downturn in the housing market during one of the worst real estate slumps in recent history. But according to the shareholder group that is trying to get the policy repealed, the bank has been one of the more recalcitrant.
The Independent:
  • EU Leaders Shift Focus of Rescue Plans to the Euro. The whiff of contagion swept through the eurozone once again yesterday. On the eve of a crucial summit of EU leaders in Brussels supposedly focused on averting a humanitarian catastrophe in Libya, the fate of the euro has provided an unwelcome distraction. In a move that may have fateful ramifications for the eurozone, the credit ratings agency Moody's downgraded Spain yesterday by one notch to Aa2, with a "negative" outlook, estimating that restructuring the savings banks will cost more than double the government's €20bn (£17bn) forecast. Referring to the cost of rescuing Spain's cajas, smaller regional banks heavily exposed to the property crash, the agency said it "believes there is a meaningful risk that the eventual cost of the recapitalisation effort could considerably exceed the government's current projections", putting the cost at €110bn to €120bn. Spain's highly autonomous provinces are also said to be an obstacle to fiscal discipline.
The Jakarta Post:
  • US Intel Official in Trouble Over Libya Remarks. The government's top intelligence official fumbled the Obama administration's message Thursday about embattled Moammar Gadhafi's fate, telling Congress that the Libyan leader will prevail in his fight with rebel forces there. It was the latest in a series of public gaffes for James Clapper, the director of national intelligence. Hours later, the White House distanced President Barack Obama from Capper's remarks.
China Securities Journal:
  • China Construction Bank Corp.'s new lending may be below 15% this year, citing the bank's Chairman Guo Shuqing. The government may increase banks' reserve ratio requirement further to control liquidity, citing Guo.
China Business News:
  • Wang Jianxi, deputy general manager and chief risk officer of the China Investment Corp., said the sovereign wealth fund supports banks to cut dividends so as to have more funds for development, citing Wang.
Shanghai Securities News:
  • China's Ministry of Land and Resources issued a notice to local governments calling on them to curb land price increases.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (JCP), raised estimates, boosted target to $50, added to Top Picks Live list.
  • Reiterated Buy on (CBE), target $74.
BMO Capital:
  • Rated (ORCL) Outperform, target $42.
Night Trading
  • Asian equity indices are -1.0% to -.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.0 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 119.0 +3.5 basis points.
  • S&P 500 futures +.28%.
  • NASDAQ 100 futures +.23%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ANN)/.17
  • (HIBB)/.43
  • (CTRN)/.51
Economic Releases
8:30 am EST
  • Advance Retail Sales for February are estimated to rise +1.0% versus a +.3% gain in January.
  • Retail Sales Less Autos for February are estimated to rise +.7% versus a +.3% gain in January.
  • Retail Sales Ex Autos & Gas for February are estimated to rise +.5% versus a +.2% gain in January.
9:55 am EST
  • Preliminary Univ. of Mich. Consumer Confidence for March is estimated to fall to 76.3 versus a reading of 77.5 in February.
10:00 am EST
  • Business Inventories for January are estimated to rise +.8% versus a +.8% gain in December.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, JOLTs Job Openings for January, (CI) investor day and the UBS Metals/Materials conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)