Monday, July 25, 2011

Monday Watch

Posted by Gary .....at 12:56 AM

Weekend Headlines
Bloomberg:
  • Boehner Pressing Ahead With Short-Term Debt Limit Increase. House Speaker John Boehner plans to press ahead with a shorter-term increase in the U.S. debt limit than President Barack Obama has requested, he told lawmakers today, defying a veto threat and signaling continued stalemate in the U.S. Congress as time runs short for a deal. Boehner told rank-and-file Republicans during a conference call this afternoon that they needed to pull together as a team to block Obama, who has asked for a $2.4 trillion borrowing boost in the $14.3 trillion debt ceiling, from obtaining the money all at once, without any guarantees of spending cuts. His remarks were described on condition of anonymity by a person familiar with the discussion. The speaker said that no one is willing to default on the full faith and credit of the U.S., according to the person. The comments indicated that Boehner plans to force action on his plan to provide only a temporary borrowing boost of about $1 trillion accompanied by spending cuts of at least as much, tying the remainder of the debt-ceiling increase Obama has requested to further cuts in the future. The White House says Obama would veto such a measure.
  • Bunds Lose to Treasuries as Swaps Count Cost of Merkel's Rescue. For the first time, the U.S. is at risk of defaulting, and derivatives show that it's riskier to hold German bunds than Treasuries. Credit-default swaps tied to bunds jumped about 39% this month, pushing the cost of insuring against losses above that for U.S. debt. All 20 strategists and economists surveyed by Bloomberg say yields on 10-year German securities will rise by year end, after falling as investors sought a haven from the region's debt turmoil. While Germany's economy is growing faster than the U.S. and the rest of the euro zone, bond traders are concerned about the spiraling costs the nation will face as Chancellor Angela Merkel leads the bailout of cash-strapped partners among the 17 nations that share the currency. Germany has failed to receive enough bids for all the bonds offered at auctions three times this year. "The solution to the peripheral crisis is Germany pillaging its balance sheet by lending more and more money to troubled countries," Stuart Thomson, a money manager in Glasgow at Ignis Asset Management, which oversees $120 billion, said. "That view is reflected in the CDS prices, but not bond yields. The idea of fiscal union will eventually undermine German sovereign credibility. We are more positive about Treasuries than bunds."
  • European Bank Stocks Avoid 'the Abyss' as Investors Remain Wary on Bailout. European bank stocks, which posted their best three-day rally in a year last week, may struggle to maintain those gains as investors expect more writedowns, capital raisings and more contagion from the debt crisis. The Stoxx 600 Banks Index jumped 5.7 percent last week after the European Union extended debt maturities for Greece and announced a plan to enhance a rescue fund to buy bonds and recapitalize lenders. The initiative didn’t spell out a way to avoid debt-crisis contagion outside of Greece, investors said. Making banks raise capital as governments cut spending will threaten economic growth, they said. “They made a huge patch, but it is still a patch,” Henrik Drusebjerg, a senior strategist at Nordea Investment Management in Copenhagen, which oversees $220 billion, said in a telephone interview. “We are not out of the woods yet.”
  • Dexia May Lose $662 Million in Greek Rescue Plan, L'Echo Reports. Dexia SA (DEXB), the bank that took the most Federal Reserve discount-window help in October 2008, may face losses of as much as 461 million euros ($662 million) on its holdings of Greek bonds if it joins a euro-area bailout plan, L’Echo reported, citing its own calculations. Dexia holds a maximum of 2.2 billion euros of Greek debt that matures before the end of 2020 and would fall under the voluntary private-sector component of the 159 billion euro rescue, the Brussels-based newspaper reported today, citing its own estimate. Given that participating banks will agree to write down the value of their Greek securities by 21 percent as part of the bond exchange and debt buyback program, according to the Institute of International Finance, Dexia would face as much as 461 million euros of losses, L’Echo said. Europe’s 90 biggest banks hold about 98 billion euros of Greek debt, according to the European Banking Authority. They stand to lose 20.6 billion euros on their Greek government bonds after lenders in the region pledged to contribute to a new rescue package. Dexia hasn’t committed to participate in the support measures for Greece. The bank is waiting for the European Banking Authority to issue conclusions on the plan, L’Echo said, citing spokesman Benoit Gausseron.
  • China Bullet-Train Crash May Show Problems With Fast Expansion. China’s rush to build the world’s biggest high-speed rail network in less than five years may be behind the crash two days ago that left at least 43 people dead, analysts including Beijing professor Zhao Jian said. A bullet train that broke down after it was struck by lightning was rear-ended by another locomotive two days ago near Wenzhou city, the state-run Xinhua News Agency said. The crash, which pushed four coaches off a viaduct, injured more than 200 people, Xinhua said, citing investigators. The collision is the latest setback for China’s fledgling bullet-train program. The $34 billion Beijing-Shanghai high- speed rail line, the world’s longest, has suffered major delays from storm-related electrical breakdowns at least three times since it opened on June 30. “China is building too quickly,” Zhao Jian, a professor of economics at Beijing Jiaotong University and long-time critic of China’s high-speed rail projects, said by telephone yesterday. “The result is this kind of accident.” The crash and other incidents expose the problems inherent in the scale of China’s infrastructure investments, Bill Barron, a visiting scholar at the Division of Environment at Hong Kong University of Science and Technology, said in an e-mail. “In so many areas, there is the lack of an adequately trained -- and perhaps more importantly, experienced -- workforce, along with tried-and-tested management oversight at the operational level,” he said. “Given the pace of expansion, how could there be?”
  • Oil at $120 Becomes Biggest Energy Bet as Futures Leave Forecasters Behind. The biggest bet in the oil market has become a 20 percent increase to $120 by the end of the year as global growth drives demand for raw materials. The number of contracts held by traders in options to buy West Texas Intermediate crude at $120 a barrel in December totaled 45,502 lots on the New York Mercantile Exchange as of July 21, 4,226 lots more than the next-highest wager, which is for $125. Open interest in the two contracts jumped 29 percent in the past four weeks, according to data compiled by Bloomberg.
  • Investors Raise Bullish Commodity Bets by Most in Year. Funds boosted bets on rising commodity prices by the most in almost a year on speculation that the global economic recovery will prove resilient. Speculators raised their net-long positions in 18 commodities by 16 percent to 1.26 million futures and options contracts in the week ended July 19, government data compiled by Bloomberg show. That’s the biggest gain since early August. Bullish silver holdings climbed to the highest since May 3. Hedge funds and other money managers lifted their net-long silver position by 19 percent to 24,740 futures and options contracts, the third straight gain, data from the U.S. Commodity Futures Trading Commissioned showed.
  • Gold Surges to Record as U.S. Debt Impasse Threatens Default, AAA Rating. Gold surged to a record as U.S. lawmakers failed at the weekend to reach an agreement on raising the federal debt limit, boosting haven demand on concern that the government of world’s largest economy may default. Immediate-delivery gold gained for a second straight day, climbing as much as 1.4 percent to $1,624.07 an ounce. Spot gold, which has rallied 13 percent this year, was at $1,611.45 at 9:59 a.m. in Singapore. Gold for August delivery in New York climbed to $1,624.30, the highest ever.
  • Apple(AAPL), Coke(KO) Defy Economy to Lead Earnings. Earnings per share jumped 19 percent from a year earlier for the 122 companies in the Standard & Poor’s 500 Index that reported second-quarter results as of July 22, according to data compiled by Bloomberg. That beat the 13 percent average growth estimate that analysts held at the start of the month, and about 82 percent of the companies reporting have exceeded forecasts.
  • Iranian Nuclear Scientist Is Assassinated in Tehran, Mehr News Agency Says. An Iranian scientist working in the nation’s nuclear program was assassinated in Tehran today, the state-run Mehr news agency reported, citing local police. Dariush Rezaei was killed and his wife was injured when assailants riding motorcycles opened fire in front of his home in the capital, the agency said. Razaei, a university professor, had a degree in neutron physics and worked in Iran’s nuclear plant’s department, the Mehr agency reported.
  • Netflix(NFLX) Said to Be in Talks on Streaming Rights With DreamWorks Animation(DWA). DreamWorks Animation SKG Inc. is in talks to offer Netflix Inc. exclusive streaming rights to its films, succeeding a pay-TV accord with HBO, a person with knowledge of the situation said. An agreement may be reached as soon as this week, said the person, who declined to be identified because the discussions are continuing. Both companies plan to report quarterly results this week and have scheduled conference calls with investors.
  • Threat to Japanese Food Chain Multiplies as Cesium Contamination Spreads. Radiation threats to Japan’s food chain are multiplying as cesium emissions from the crippled Fukushima Dai-Ichi nuclear power plant spread more widely, moving from hay to cattle to beef. Hay contaminated with as much as 690,000 becquerels a kilogram, compared with a government safety standard of 300 becquerels, has been fed to cattle. Beef with unsafe levels of the radioactive element was detected in four prefectures, the health ministry said July 23. Agriculture Minister Michihiko Kano has said officials were unaware of the risk that rice farmers might ship tainted hay to cattle growers. That highlights the government’s inability to think ahead and to act, said Mariko Sano, secretary general for Shufuren, a housewives organization in Tokyo. “The government is so slow to move,” Sano said. “They’ve done little to ensure food safety.” Prolonged exposure to radiation in the air, ground and food can cause leukemia and other cancers, according to the London- based World Nuclear Association. A growing concern is that the release of radiation into waters near the Fukushima plant may multiply through the seafood chain. Levels of cesium-134 in seawater near the Fukushima plant’s No. 3 reactor rose to levels 30 times the allowed safety standards last week, according to tests performed by Tokyo Electric Power Co, national broadcaster NHK reported.
  • Vietnam's Inflation Accelerates to 22%, Highest Among Economies in Asia. Vietnamese inflation accelerated for an 11th month in July after the central bank cut a key interest rate even as the nation faces the fastest price gains in Asia. Consumer prices rose 22.16 percent from a year earlier, compared with June’s 20.82 percent pace, data released by the General Statistics Office in Hanoi showed today. Prices climbed 1.17 percent from June. The central bank reduced its repurchase rate to 14 percent from 15 percent on July 4 after a spate of increases since November to fight inflation, leading the International Monetary Fund to say the cut may confuse investors. The benchmark VN Index of stocks is down 16 percent this year, on concern price gains will hurt the economy.
  • S&P 500 Profit Pain Ends in Greece as Sales From Europe Decline. For all the anxiety about Europe's sovereign debt crisis, U.S. companies depend on the region for a shrinking portion of sales. Europe accounts for about 21 percent of Standard & Poor's 500 Index revenue, according to data compiled by Bloomberg from 185 companies that disclose results for the region. That's down from 23 percent in 2008. The companies posted a 10 percent drop in their European sales during that period, the data show.
Wall Street Journal:
  • Norway Mourns Its Dead as Harsh Rhetoric Spreads. A Norwegian man confessed to killing nearly 100 people in a pair of attacks on Friday, calling his rampage "atrocious" but "necessary."
  • Gridlock for Debt Talks. Republicans and Democrats on Capitol Hill moved along separate tracks Sunday toward a deal to increase the U.S. government's borrowing authority, setting America's gridlocked political system on a collision course with jittery financial markets around the world. The two camps remained split over how much to increase the debt limit—enough to get past the 2012 election or not—and how much to cut spending. A break in the impasse is needed to ensure the government won't run out of cash to pay its bills after Aug. 2.
  • Live Blog: The US Debt Battle.
  • UAW Focuses on VW's Tennessee Facility. Volkswagen AG's gleaming new auto plant in Tennessee is becoming a focal point in union efforts to gain a foothold among foreign auto makers' U.S. manufacturing operations. An unusual nexus of German labor rules and U.S. law has raised union officials' hopes in a region that has long resisted their overtures. The United Auto Workers union and labor officials at Volkswagen in Wolfsburg last week held talks about VW labor efforts to establish a German-style system of worker representation at the Tennessee plant.
  • Crop Prices Erode Farm Subsidy Program. Business is humming in this typical Midwestern farm town, with its bronze statue of Lincoln overlooking the courthouse square. Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives. At Sloan Implement, which sells John Deere tractors, "This could be our best year ever," says chief executive Tom Sloan.
  • Business Abroad Drives U.S. Profits. While the U.S. economy is struggling, U.S. corporations aren't. A third of the way through the second-quarter reporting season, earnings at companies in the Standard & Poor's 500-stock index are the highest in four years, according to S&P analyst Howard Silverblatt, who predicts the second half will be even stronger. Yet there is little indication that the strong results will jump-start the U.S. economy and get the millions of Americans idled by the recession back to work.
  • Cairo Clashes Show Backlash. Residents Frustrated With Protests Fight Demonstrators; 'Revolution Is Over'. Weekend clashes between protesters and residents of a lower-class Cairo neighborhood that injured nearly 300 people illustrate the growing isolation of demonstrators whose continued activism is antagonizing both Egypt's military leaders and the public they claim to represent. Initial chatter by the protesters on social-networking sites such as Twitter blamed thugs they said were hired by the Ministry of the Interior. Many likened the incident to the "Day of Camels" clashes in Tahrir Square on Feb. 2, when allegedly paid "baltagiya," or thugs—some of whom rode horses and camels—marauded through an antiregime rally in a last-ditch effort to violently break up demonstrations without using official force. But interviews with residents of the Abbasiyah neighborhood reveal that Saturday's skirmishes were mostly the work of locals who resented intruding demonstrators, who many say they believe have taken the revolution too far.
  • Copycat Apple(AAPL) Store Prompts China Investigation. Chinese authorities in the southwestern city of Kunming have launched a sweeping investigation of electronics stores after media reports said one retail outlet seemed to be copying Apple Inc.'s store format. The inspection will cover business licenses, authorized permits of brand use, and the purchasing channels of each store, said China's state-run Xinhua news agency, citing a worker with the city's industrial and commercial department.
  • Toying With Default. The President isn't serious about real spending cuts. Barack Obama was in full-scold mode Friday night, summoning Congressional leaders to the White House to "explain to me how it is that we are going to avoid default." It's a terrific question, albeit one the President refuses to answer. He remains far more interested in maneuvering to blame a default or credit downgrade on Republicans than in making himself part of any plausible solution to a crisis he insists is imminent.
CNBC:
  • FBI Says Hacking Attack on IMF Started in China. US authorities investigating a hacking attack on the International Monetary Fund have concluded it originated in China and was probably connected to the government.
  • More Red Flags for Carlyle's China Portfolio. Two more companies in the Carlyle Group's China portfolio have had questions raised about potential weaknesses in their accounting practices or financial controls, bringing further scrutiny to the private equity firm's investments across the country.
Business Insider:
Zero Hedge:
IBD:
NY Times:
CNNMoney:
  • Europe's Big Debt Deal Leaves Plenty of Room for Worry. The big challenge, economists say, is how to revive growth in troubled European economies so that debts and deficits can be resolved organically. Jonathan Loynes, an economist at Capital Economics, said the new measures include "some significant advances" in the policy response to the debt crisis."But once the dust settles, the markets will surely return to the question of whether the package really addresses the fundamental economic and fiscal challenges facing both Greece and the euro zone in general," he said. "They will probably conclude that the answer is no."
  • Obama Cancels Fundraisers Amidst Debt Situation. A campaign official for President Barack Obama tells CNN the president has cancelled two political fundraising appearances Monday night because of the debt-ceiling situation.
Forbes:
UPI.com:
  • More Suspects in Norway? Police are looking into whether more than one person was involved in Friday's terror attacks that left at least 92 dead in Norway, officials said Saturday. Acting National Police Chief Sveinung Sponheim said, "We're not sure it's just one person ... based on statements from witnesses, we think there may be more," CNN reported. Only one suspect has been arrested so far. "It's very difficult at this point to say whether he was acting alone or whether he was acting as part of a larger network," Sponheim said.
Rasmussen Reports:
Politico:
  • David Wu's Job In Doubt Over Sex Reports. Embattled Rep. David Wu’s political career hangs in the balance as party leaders in Washington and Oregon consider ways to force the veteran Democratic lawmaker to step down. House Minority Leader Nancy Pelosi of California and other top Democrats are reviewing their options on Wu, which include outright calls for him to resign or to seek an Ethics Committee investigation into allegations that he had an “unwanted sexual encounter” last Thanksgiving with the teenage daughter of a longtime friend.
USA Today:
Financial Times:
  • French and Italian consumers are among the most pessimistic about their economies, citing an Ipsos-Mori poll of 24 countries. The U.K. ranked as sixth most pessimistic, with only one in eight rating the economy as "good," the newspaper said. Japan , Hungary and Spain also ranked among the most gloomy.
  • Quant Methods Creep Into Fundamental Houses.
  • Money Market Funds Cut Euro Bank Exposure. US money market funds have sharply cut their exposure to banks in the eurozone over the past few weeks and reduced the availability of credit, even in stronger countries such as France. The money market funds, historically crucial providers of short term financing to European banks, have withdrawn from all but extremely short-term lending as concerns about sovereign debt have mounted.
Morning Star:
  • 'Indignant' Activists Get to Madrid. Tens of thousands of protesters thronged Madrid's central Sol square today to press the government to "make the rich pay for their crisis" and reverse welfare cuts. Many of the "indignant" activists had marched hundreds of miles from cities across Spain, some from as far away as Cadiz on the country's south coast. Marchers said their protest aims to show young people's anger at high unemployment and the government, which is widely seen as corrupt and beholden to big business. Austerity measures and two years of recession have left Spain with an official unemployment rate of 21 per cent - the highest in the 17-country eurozone. More than a third of people aged 16 to 29 are out of work. Earlier this month Mr Zapatero's administration attempted to calm public anger by imposing new limits on the amount of money that banks can reclaim from people who default on their mortgage. But protesters said today that this was a case of too little, too late and announced their intention to continue their march to the European Union headquarters in Brussels. Ms Puerta said: "We want to arrive there in early October, to keep our cause in the public eye."
Welt am Sonntag:
  • European Central Bank Executive Board Member Lorenzo Bini Smaghi warned against provided a Greek-style debt-relief package to other euro-area countries. Bini Smaghi said he was "surprised" by former ECB chief economist Otmar Issing's comment that Greece should quit the euro area after a debt restructuring.
  • Germans expect the euro-area debt crisis to have "serious consequences" for the currency, citing a survey by market research company GfK. Altogether, 71% of the 1,068 surveyed see "serious consequences" for the euro, while 47% expect the euro to lose value through inflation. 31% of those surveyed expect some countries to have to exit the euro zone, while 20% believe the euro zone will fall apart entirely, citing the survey.
Tagesspiegel am Sonntag:
  • The European Union's latest aid package for Greece is "incomplete," according to Germany's opposition leader Frank-Walter Steinmeier. Steinmeier said the measures for reconstruction of the Greek economy and the "initiation of investments" are "at best vague," the newspaper said.
Bild am Sonntag:
  • About 53% of Germans oppose debt relief for Greece, citing a survey carried out by Emnid on July 22. Bild am Sonntag said 39% of Germans are in favor of debt alleviation for Greece, the paper said in an e-mailed preview of the report. In addition, 72% of Germans don't believe the euro has been "saved" by the decisions made at the euro-zone leaders' summit in Brussels this week.
Ansa:
  • Umberto Bossi, the leader of the Northern League party and a key ally of Italian Prime Minister Silvio Berlusconi, said the adoption of the euro was one of the two biggest "mistakes" in Italy's history, citing comments by the politician.
Weekend Recommendations
Barron's:
  • Made positive comments on (WFT), (IBM) and (AAPL).
Citigroup:
  • Reiterated Buy on (SLB), raised estimates, boosted target to $125.
Night Trading
  • Asian indices are -1.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 116.50 -2.75 basis points.
  • S&P 500 futures -.93%.
  • NASDAQ 100 futures -1.07%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (BEAV)/.51
  • (BHI)/.91
  • (ETN)/.95
  • (LO)/2.01
  • (KMB)/1.14
  • (HCA)/.59
  • (PCL)/.29
  • (NFLX)/1.12
  • (APC)/.94
  • (TXN)/.53
  • (MAS)/.07
  • (OMI)/.49
  • (BRCM)/.39
  • (ADVS)/.12
  • (BXS)/.04
  • (SLAB)/.46
  • (JEC)/.70
  • (AAN)/.41
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for June is estimated to fall to -.40 versus -.37 in May.
10:30 am EST
  • The Dallas Fed Manufacturing Activity Index for July is estimated to rise to -5.2 versus -17.5 in June.
Upcoming Splits
  • (CLH) 2-for-1
Other Potential Market Movers
  • The 3 & 6-Month T-Bill Auctions could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by transportation and commodity shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 100% net long heading into the week.

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