Monday Watch

Weekend Headlines
Bloomberg:

• Papandreou Faces Showdown on Austerity. Greek Prime Minister George Papandreou faces his second survival test in a week as lawmakers vote on a five-year austerity plan that must pass for the cash- strapped nation to secure more international aid. Failure to pass Papandreou’s plan may lead to the euro area’s first sovereign default as Greece needs to cover 6.6 billion euros ($9.4 billion) of maturing bonds in August. The week begins with governments and banks jostling over how private investors can support Greece and will end with another round of crisis talks as Europe’s finance ministers meet in Brussels. With 155 votes in the 300-seat legislature, Papandreou needs to unite his lawmakers in two votes this week on a 78 billion-euro package of cost-cuts and asset sales before Greece can tap a fifth loan payment from last year’s 110 billion-euro European Union-led rescue. Ruling-party lawmaker Thomas Robopoulos said June 24 he may vote against the government, joining Alexandros Athanasiadis, who opposes plans to sell a stake in Public Power Corp SA (PPC), the former electricity monopoly. “There is a deep awareness of the seriousness of the situation,” said Gikas Hardouvelis, chief economist at EFG Eurobank Ergasias SA, Greece’s second-biggest bank. “The program will pass as the government members of parliament are lined up behind the prime minister. Political uncertainty is out.”
• European Banks May Need to Raise More Capital. Deutsche Bank AG (DBK), Germany’s biggest lender, and UniCredit SpA (UCG) are among European banks that may have to raise additional capital after regulators dismissed lenders’ threats that stiffer rules may stunt economic growth. Regulators meeting in Basel this weekend agreed to make as many as 30 of the world’s largest, or systemically important, banks hold as much as 2.5 percentage points more capital than the 7 percent core Tier 1 capital required. They also blocked European banks’ requests to use hybrid capital, such as contingent convertible bonds, to meet the target. The biggest banks will use mostly retained earnings and ordinary shares. “It’s likely to be the catalyst for the last wave of capital raisings, with UniCredit, Deutsche Bank and the top three French banks needing to boost capital,” said Christopher Wheeler, a banking analyst at Mediobanca SpA in London. “Europeans were pushing for a mix of common equity and contingent capital and they lost at a global level,” said Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc., a bank consulting firm. “The capital requirements for the biggest banks have now gone from as low as 2 percent before the crisis to well north of 10 percent. The banks are going to have to constrain activities both by reducing risk and denying credit.” The Basel committee didn’t identify which banks will be subject to the capital charges. About 28 to 30 banks, including as many as eight in the U.S., may face the surcharge, according to a person familiar with the situation, who declined to be identified because the talks are private. “The vote ignores the total failure of the QE2 thrust in the United States to stimulate this country’s economy, a failure caused by the stringent capital and liquidity ratios already in place on American banks,” Lutz, Florida-based Richard Bove, an analyst at Rochdale Securities LLC, said in a note to clients.
• Central Banks Need to Raise Rates: BIS. Central banks need to start raising interest rates to control inflation and may have to act faster than in the past, the Bank for International Settlements said. “Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks,” the BIS said in its annual report published yesterday in Basel, Switzerland. “Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes.” “Global inflation pressures are rising rapidly as commodity prices soar and as the global recovery runs into capacity constraints,” said the BIS, which acts as a central bank for the world’s central banks. “These increased upside risks to inflation call for higher policy rates.” The BIS said that in “some advanced economies” policy tightening still needs to be balanced against the “vulnerabilities” associated with balance-sheet adjustment and financial sector fragility. Still, “undue delay in the normalization of the monetary policy stance entails the risk of creating serious financial- market distortions,” it said. Furthermore, a “timely tightening” of policy in both emerging-market and advanced economies will be needed “to preserve a low-inflation environment globally and reinforce central banks’ inflation- fighting credibility.” “Nowhere is the link between fiscal sustainability and financial health more apparent than in parts of Europe today,” Caruana said. “There is no easy way out, no shortcut, no painless solution.” The BIS warned that a failure of the U.S. to tackle its budget deficit could become a source of instability, with potentially “far-reaching ramifications for the global economy” should a rapid depreciation of the dollar result. “The current ability of the United States to easily finance its deficit cannot be taken for granted,” the report said.
• Oil Falls on Outlook for Slowing Demand; IEA May Release More Stockpiles. Oil fell in New York on concern the economic expansion in the U.S. is slowing and as the International Energy Agency said it’s prepared to release more stockpiles to stabilize prices. Futures dropped as much as 0.7 percent before reports this week that may show U.S. consumer spending climbed at the slowest pace in almost a year and manufacturing cooled. “Leading into the IEA’s decision to release stockpiles, we had a global economy that was slowing and we already had concerns over Greece,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. The IEA’s move suggests “there is more urgency for lower oil prices than the market thought,” he said. Crude oil for August delivery declined as much as 65 cents to $90.51 a barrel on the New York Mercantile Exchange, and was at $90.77 at 8:14 a.m.
• Soros Says a Euro Exit Mechanism Is 'Probably Inevitable' Amid Debt Crisis. Billionaire investor George Soros said it’s “probably inevitable” that a mechanism will have to be put in place to allow weaker euro-region economies to exit the single currency. “We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread,” Soros, 80, said at a panel discussion in Vienna today on whether liberal democracy is at risk in Europe. “The financial system remains extremely vulnerable.” “I think most of us actually agree that” Europe’s crisis “is actually centered around the euro,” said Soros. “It’s a kind of financial crisis that is really developing. It’s foreseen. Most people realize it. It’s still developing. The authorities are actually engaged in buying time. And yet time is working against them,” he said.
• China's National Audit Office warned of debt repayment risks in some regions and industries, Liu Jiayi, the country's auditor-general said today. Some local governments offered non-compliant guarantees or issued debt directly, Liu said. Some local governments' debt repayments rely heavily on land incomes, Liu said.
  

Wall Street Journal:

• Goldman's(GS) Paperwork Flub. Goldman Sachs Group Inc. had no standard contracts in place to protect itself when it made $1.3 billion in options trades for Libya's sovereign-wealth fund controlled by Col. Moammar Gadhafi, according to people familiar with the situation. While such contracts aren't required by law, they are routine operating procedure at banks and securities firms around the world when structuring derivatives transactions in opaque markets such as credit-default swaps, futures and options.
• Ex-German Banker: Guarantee Greek Debt. Former Bundesbank chief Axel Weber said Europe needs to consider guaranteeing all Greece's outstanding debt because Athens's only viable alternative is a messy default that would be more costly and risk sparking broader financial turmoil. Mr. Weber, in his first interview since leaving the Bundesbank and the governing council of the European Central Bank at the end of April, said Europe's response to the crisis so far addressed Greece's immediate funding needs without offering the country a credible, long-term resolution for paring its growing mountain of debt.
• Tighter Lending Crimps Housing. The percentage of mortgage applications rejected by the nation's largest lenders increased last year, spotlighting how banks' cautious lending practices are hampering the nascent housing market recovery. In all, the nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators. Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder. "As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile," says Laurie Goodman, senior managing director at Amherst Securities Group LP.
• Costly Rush Away From Risk. A tumble in mortgage-bond prices set off a race by Wall Street to exit from money-losing trades in recent months, depriving banks of a source of profit and leaving some firms potentially nursing losses. The reversal of fortune illustrates how investment banks are struggling to find their footing, and sources of profitability, in the postcrisis regulatory and market environment.
• Iran Woos U.S. Allies as Troops Withdraw. Iran is moving to cement ties with the leaders of three key American allies—Afghanistan, Pakistan and Iraq—highlighting Tehran's efforts to take a greater role in the region as the U.S. military pulls out troops.
• Overlapping Health Plans Are Double Trouble for Taxpayers. As the U.S. wrestles with rising health expenses, one group of patients stands out for government-paid care that is both ultra-costly and plagued with problems. They are the people who receive both Medicare, the program for those 65 and older or disabled, and Medicaid, the one for the poor. Statistics on these 9.7 million "dual eligibles" are stark. They account for 16% of Medicare's enrollees, but 27% of its spending. And they make up 15% of Medicaid's enrollment, but 39% of Medicaid spending, according to the Centers for Medicare and Medicaid Services.
• Chipotle(CMG) Will Raise Its Prices Regionally.
  
• Debt Hamstrings Recovery. The Federal Reserve is just days away from ending one of the major steps to aid the U.S. economy—but the effort has done little to solve the original problem: The government and individuals alike are still heavily in debt.
• The Local Government Pension Squeeze. Annual retiree costs in Providence, R.I., now amount to an astounding 50% of city tax collections.

Marketwatch.com:

• Beijing: Hong Kong Has Property Problem. Property has had a renewed focus in Hong Kong in the past week as a bubble in prices has officially been recognized as a problem. Hong Kong’s Chief Executive Donald Tsang went as far as to describe property prices as “quite frightening,” raising expectations of a new round of measures to stem price rises.
• China Real-Estate Concerns Keep Rising. A recent decline in Chinese real-estate prices is starting to shake confidence in the country's economic vitality and open a debate about whether the country's economy is over-leveraged. That's what made the real-estate bubble's aftermath so painful for the U.S. and Japan.
• Lampert Sells Shares of AutoZone(AZO).
  

Fox Business:

• Mack Likely to Leave Morgan Stanley(MS) by End of Year. The FOX Business Network has learned that Mack is telling friends that he will likely leave the firm at the end of the year. People at Morgan Stanley confirm to FOX Business that while they would like him to remain in some capacity, possibly as chairman emeritus or as a senior adviser, his career as a day-to-day executive is coming to an end.
  

NY Times:

• Stealth Survey To Test Access To Physicians. Alarmed by a shortage of primary care doctors, Obama administration officials are recruiting a team of “mystery shoppers” to pose as patients, call doctors’ offices and request appointments to see how difficult it is for people to get care when they need it. The administration says the survey will address a “critical public policy problem”: the increasing shortage of primary care doctors, including specialists in internal medicine and family practice. It will also try to discover whether doctors are accepting patients with private insurance while turning away those in government health programs that pay lower reimbursement rates. Federal officials predict that more than 30 million Americans will gain coverage under the health care law passed last year. “These newly insured Americans will need to seek out new primary care physicians, further exacerbating the already growing problem” of a shortage of physicians in the United States, the Department of Health and Human Services said in a description of the project prepared for the White House. Plans for the survey have riled many doctors because the secret shoppers will not identify themselves as working for the government.

Forbes:

• Migrant Workers' Anger Boils Over in South China. Emboldened by the tightening labor market, workers are lashing out over brutal working conditions and corruption.

Business Insider:

• Two Charts For ANYONE Who Thinks Skipping College is a Good Idea.
  
• Here Are More Details On Obama's Secret Hedge Fund Meeting At The White House.
• GREECE: 4 Ruling Party Politicians May Vote Against Austerity, As Cushion of Safety Dwindles to 1 Vote. Folks, there is a real chance that Greece will not be able to pass a new austerity bill this week, which would mean (in theory) that it won't get more bailout money, which would mean an imminent default.
• Richard Bernstein Explains Why Investors are Way Too Bullish on the BRICs, And Way Too Bearish on the US. (graphs).
• Bachmann Surges in Iowa Poll.
• Economist Charles Gave: The Euro Will Not Exist In One Year! Charles Gave is the French economist whose research firm GaveKal is fairly well known, and read in some hedge fund circles.
• A Change to America's Power Grid Could Make Your Electric Clock Run Up To 20 Minutes Fast.
  

Zero Hedge:

• Peak "Portfolio Manager Frustration": Goldman(GS) Weekly Chartology Update. It must come as music to every fundamental analyst's ears to learn that, as Goldman's David Kostin puts it in the his latest weekly chartology, "Frustration is clearly evident across the portfolio manager community. The S&P 500 has returned 3.0% YTD compared with 2.7% for the typical large cap core mutual fund and 1% for the average hedge fund." It gets worse: "Investors of all styles are lagging their benchmarks.
• Le Figaro Reports French Banks Propose "Voluntary" 30 Year Debt Rollover, However With DOAing 30%-50% Implied Haircut.
• Floodwaters Surge at Fort Calhoun Nuclear Power Plant After Floodwall Fails. (pic)
• Lawsuit Contesting Greek Bailout to Be Heard by German Constitutional Court Imminently.
  

Politico:

• For Dems, Health Law is Chronic Pain.

The Blaze:

• 'Disgrace': U.S. Soccer Team Faces Boos and Spanish-Language Ceremony In Loss To Mexico...In Los Angeles. (video)

Reuters:

• ECB's Stark - Aid Plan Gives Greece a "Last Change". Greece's rescue package gives Athens a "last chance" in its debt crisis as aid programmes cannot be continued endlessly, European Central Bank policymaker Juergen Stark said in a newspaper interview released on Friday. Stark also called for "deep-reaching regime change" in the euro zone's debt-stricken countries, urging them to pursue structural reforms to improve their competitiveness and reduce their public debts. "The aid programmes cannot be continued endlessly," Stark, who holds the economic portfolio on the ECB's Executive Board, told the Frankfurter Allgemeine Zeitung. "The programme gives Greece a chance, a last chance." Euro zone governments are discussing a new bailout package for Greece, which could include up to 30 billion euros from the private sector, but which will only flow if Athens enacts spending cuts and tax hikes to cut its mountainous debt. Stark said the ECB could no longer accept Greek bonds as collateral if there was a "credit event", if ratings agencies downgraded the paper to "selective default" or lower, or if the private sector was forced to take part in a restructure.
• Greek Central Banker Warns Time Running Out for Greece. Time is running out for Greece which needs to end debate and move ahead with concrete actions to overhaul its debt-strained economy and reassure its partners and financial markets, the country's central bank chief told the daily Kathimerini on Saturday. "Now we have to convince with actions that Greece does not want to destroy itself, to get away from rhetoric and move to reformist action," Bank of Greece Governor George Provopoulos told the newspaper. He said it was an illusion to believe there was an easy way out of the crisis and dismissed suggestions there was any alternative to the austerity measures agreed under a bailout deal with the European Union and International Monetary Fund. But Provopoulos said the package of spending cuts, tax hikes and privatisations due to be voted in parliament next week did not put enough emphasis on curbing spending and that the burden on taxpayers had reached its limits.
• Copper Falls on China Inflation Concern, Euro Zone Debt. Copper lost its footing on Monday on continued concern that inflation pressures may prompt top buyer China to tighten credit further along with demand worries linked to the euro zone debt crisis and a stronger dollar.
  
• Madoff Trustee Seeks $19 Billion From JPMorgan(JPM).

AFP:

• BIS Warns of New Emerging Markets Debt, Property Market Bubbles. Emerging economies are at risk of building up debt levels and property bubbles similar to those in advanced economies that triggered the recent financial crisis, the Bank for International Settlements warned Sunday. "Emerging market economies managed to escape the worst of the crisis, but many now run the risk of building up imbalances very similar to those seen in advanced economies in the lead up to the crisis," said the bank for central banks. "For example, property prices in a number of emerging market economies are advancing at staggeringly rapid rates, and private sector indebtedness is rising fast," it said. "Emerging market policymakers should recognise that the lessons from the financial crisis do not appply only to advanced economies," it added. The BIS warning echoed the International Monetary Fund's in mid-June. The IMF's research director Olivier Blanchard warned then that some emerging economies in Asia and Latin America were running the risk of overheating. While the IMF did not cite specific countries, the BIS said that Brazil, China and India all recorded credit growth of more than 20 percent annually between 2006 and 2010.

Financial Times:

• The volume of luxury items sold to pawnbrokers in the U.K. has doubled since 2008 as the wealthy sought alternative ways of tapping short-term credit.
• Monaco Fund Defies Goldman. Lee Robinson, the outspoken hedge fund manager, has thumbed his nose at Goldman Sachs, the investment banking group that once backed him, with the launch of a new venture. Mr Robinson is raising money for a new hedge fund project in Monaco in defiance of the bank, which owns a significant minority stake in his existing firm Trafalgar Asset Managers, the London-based risk arbitrage fund. He has already secured the approval of the UK’s FSA for his new firm, Altana, to trade.
• More Pain Than Gain in Funds Innovation. The phrase "financial innovation has be­come a dirty one in many circles, with shadow banks, sub-prime loans and the alphabet soup of CDOs, CLOs and ABS playing a starring role in fomenting the financial crisis. The investment industry may not have engineered such egregious excesses, yet innovation was a key theme of the past decade, and not always for the better.
• Mid-Sized Hedge Funds Expanding Fastest.
  

Telegraph:

• Has John Paulson Lost His Magic Touch? John Paulson, the hedge fund manager who made billions betting on a collapse in US house prices, has suffered heavy losses at Sino-Forest, a Chinese timber company, and people are wondering if he still has the magic touch.

Guardian:

• Greek Reforms May be Hard to Deliver, Warns Deputy Prime Minister. Theodoros Pangalos told Spanish newspaper El Mundo that the parliament may reject parts of the €78bn austerity package. Greece may be unable to implement the full range of budget cuts and privatisations needed to qualify for international aid, the country's deputy prime minister has admitted. Theodoros Pangalos predicted that the Greek parliament may reject certain key reforms which are part of the government's €78bn (£69bn) austerity package, such as fiscal reforms and state asset sales. "That's where we may have problems. I don't know whether some of our members of parliament will vote against it. It's possible," Pangalos told Spanish newspaper El Mundo.

Eitb:

• European Union Competition Commissioner Joaquin Almunia said the deficits in Spain's regions are "worrisome" and officials should start making decisions about how to reduce them. "If Greece isn't able to move forward with the aid provided, the consequences will come," Almunia said, referring to the rest of the euro-zone countries. "The financial markets transmits those risks in a matter of seconds."
  

Wirtschaftswoche:

• Greece is experiencing a flight of capital, with the amount of money being transferred out of the country doubling to about $5.7 billion in May from April, citing industry estimates.

Tagesspiegel:

• Bondholders participating in a European effort to reduce Greek debt must be given assurances that the country will be stabilized and that any debt rollover be done at a "high quality standard," Michael Kemmer, general manager of the Association of German Banks, said in an interview.

Bild am Sonntag:

• German finance minister Wolfgang Schaeuble said rejection of Prime Minister George Papandreou's austerity plan by the Greek parliament this week could result in the country foregoing its next loan under a European bailout, according to an interview. The Greek parliament is expected to approve the austerity plan, he said.

Japan Times:

• Fukushima Residents' Urine Now Radioactive. More than 3 millisieverts of radiation has been measured in the urine of 15 Fukushima residents of the village of Iitate and the town of Kawamata, confirming internal radiation exposure, it was learned Sunday. Both are about 30 to 40 km from the Fukushima No. 1 power plant, which has been releasing radioactive material into the environment since the week of March 11, when the quake and tsunami caused core meltdowns.

Mint:

• India generated 400,000 jobs in the first year of Prime Minister Manmohan Singh's administration, down from 12 million a year under the previous government, citing official statistics.

RTHK:

• China will find it difficult to meet its official inflation target of 4% this year, Chinese Premier Wen Jiabao said.

Phoenix:

• Chinese Premier Wen Jiabao said inflation, combined with corruption, may be enough to affect political stability. Chinese economic growth is generally good and inflation must not be overlooked, citing Wen.

China Daily:

• Small and medium-sized companies in China's southern Guangdong province are facing shortages of capital and higher borrowing costs although there have been no "significant" bankruptcies, Zhang Wenxian, director of the province's bureau overseeing such businesses, was quoted as saying. Some companies aren't accepting orders, while some industries have experienced a drop in profits and see business suspending their operations, Zhang said. Guangdong province is China's biggest export hub.

Gulf Times:

• 'IEA May Release More Oil Stockpiles'. The International Energy Agency is monitoring energy markets after its members’ decision to release oil stockpiles and will act again if needed to stabilise prices, Nobuo Tanaka, the agency’s executive director, said in Beijing. “We are waiting for market reaction and assess the situation and decide further action after 30 days,” Tanaka told reporters at a conference in the Chinese capital yesterday. “If necessary we’ll continue.”

Weekend Recommendations
Barron's:

• Made negative comments on (RDN), (PMI) and (MTG).
  

Night Trading

• Asian indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 122.0 +3.5 basis points.
• Asia Pacific Sovereign CDS Index 126.0 -1.0 basis points.
  
• S&P 500 futures -.13%.
• NASDAQ 100 futures -.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NKE)/1.16
• (SMSC)/.28

Economic Releases
8:30 am

• Personal Income for May is estimated to rise +.4% versus a +.4% gain in April.
• Personal Spending for May is estimated to rise +.1% versus a +.4% gain in April.
• The PCE Core for May is estimated to rise +.2% versus a +.2% gain in April.
  

10:30 am est

• Dallas Fed Manufacturing Activity for June is estimated to rise to -3.2 versus -7.4 in May.

Upcoming Splits

• (SIX) 2-for-1
  

Other Potential Market Movers

• The Fed's Hoenig speaking, Fed's Kocherlakota speaking, 2-Year Treasury Note auction and the 3-Month/6-Month Treasury Bill auctions could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.