Monday Watch

Weekend Headlines
Bloomberg:

• Schaeuble Opposes 'Unlimited Support' for States, Spiegel Says. German Finance Minister Wolfgang Schaeuble said he is against unlimited aid for indebted countries in the euro zone, Der Spiegel reported, citing an interview. “There is no collectivization of debt or unlimited support,” he told the German magazine. “There are certain support mechanisms that we develop under strict conditions,” it cited him as saying. Schaeuble also rejected euro bonds, saying that as long as members of the euro zone have their own financial policies and as long we need to use different interest rates, there are incentives and possibilities of sanctions to ensure fiscal solidity, Spiegel said. When asked if help would be suspended if some members do not meet conditions, Schaeuble said “there is no rescue at any cost,” Spiegel reported. He said the government will be prepared for any eventuality even the most unlikely, the magazine said.
• Thousands Protest Against Chinese Chemical Plant. Authorities in a northeastern Chinese port city ordered a petrochemical plant be shut down after more than 12,000 people demonstrated Sunday over pollution concerns, state media said. Officials also pledged to relocate the Fujia chemical plant from Dalian city, the Xinhua News Agency said. Earlier Sunday, scuffles broke out between riot police and more than 12,000 protesters who were demanding that the plant, which produces the chemical paraxylene, be moved after a tropical storm raised fears of a toxic spill, Xinhua said. No injuries were reported in the confrontations. Calls to relocate the plant grew after waves from Tropical Storm Muifa broke a dike guarding it last week and raised fears that flood waters could release toxic chemicals.
• Margin Calls Push Leverage Down Most in Year as S&P 500 Tumbles. Investor credit at Wall Street brokerages is falling by the most in a year as the Standard & Poor’s 500 Index suffers its biggest losses since the bull market began. Borrowed money in accounts at 61 New York Stock Exchange firms has fallen 4.6 percent, the biggest drop since June 2010, according to a July 22 statement from New York-based NYSE Euronext. The decline at NYSE firms followed a 36 percent increase to $320.7 billion in eight months, the biggest expansion since 2007. Leverage slipped to the lowest level of 2011 last week, according to Morgan Stanley’s prime brokerage. Lenders have been calling in loans since April, when the benchmark gauge for American equities began a plunge that has wiped out more than $2 trillion in value.
• Funds Slash Commodity Bets by Most in 18 Months. Funds reduced bets on rising commodity prices by the most in any week since February 2010 on mounting concern that a weakening global economy will slow demand for raw materials. In the week ended Aug. 9, speculators cut their net-long positions in 18 commodities by 19 percent to 989,110 futures and options contracts, government data compiled by Bloomberg show. Copper holdings plunged 61 percent, the most since June 2010, and bullish gold bets fell to a five-week low.
• Rice Set to Climb as Thailand Imposes Curbs. The smallest increase in rice stockpiles in five years means global grain inventories will extend a decline that already drove food costs to a record. Combined global stores of wheat, corn and rice will drop 2.5 percent to a four-year low as farmers fail to keep pace with demand, the U.S. Department of Agriculture estimates. Rice prices will rise more than 20 percent by December as inventories expand 1.1 percent, compared with a 29 percent gain in the past four years, a Bloomberg survey of 13 millers and traders showed. While wheat and corn prices as much as doubled last year, rice retreated as the United Nations’ global food-inflation index jumped 25 percent. Rice advanced 15 percent since May, potentially worsening the lives of the 1.1 billion the World Bank says live on less than $1 a day. Wheat fell 20 percent since the middle of February on prospects for a bigger crop.
• Mushrooms Join Radiation Threats to Japan Food. Mushrooms joined the threats to Japan’s food chain from radiation spewed by Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant, as the country expands efforts to limit the effects of the disaster. Japan is under pressure to enhance food inspections as it has no centralized system for detecting radiation contamination.
• Money Managers Dumping Debt Drive Record Spreads: China Credit. International money managers are cutting their holdings of Chinese dollar bonds, driving risk premiums to the highest in more that a year on concern slowing global growth will reduce exports. The extra yield investors demand to hold dollar-denominated bonds in China over U.S. Treasuries rose to 579 basis points, the highest since July 2010 and the most compensation for dollar debt in Asia, according to JPMorgan Chase & Co. indexes. That compares with spreads of 406 basis points on similar securities in India and 282 in Indonesia, the data show.
• Citigroup(C), Goldman(GS) Boosted French Bank Ties Before Rout. Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) increased gross exposures to French banks in the year’s first half before the European nation’s financial stocks plunged amid perceived dependence on short-term funding. Citigroup, the third-biggest U.S. lender, boosted gross “cross-border outstandings” with French banks 40 percent to $15.7 billion from Jan. 1 through June 30, according to the company’s quarterly report. Goldman Sachs increased claims by 31 percent to $38.5 billion in the first half, its report shows. The filings don’t disclose collateral the banks received or hedges, which curb potential losses on existing bets. “There is a great cloud of uncertainty that’s hanging over the U.S. banks about the full extent of the exposures they have to French and other European banks,” said Andrew Karolyi, a finance professor at Cornell University in Ithaca, New York. “The market is clearly not reacting well to what they’re seeing.”
• Japan Economy Contracted Less Than Expected. Japan Economy Contracted Less Than Estimated. Japan’s economy contracted less than economists estimated in the second quarter as companies increased spending, signaling that the nation is rebounding from a slump after a record earthquake and tsunami. Gross domestic product shrank at an annualized 1.3 percent rate in the three months ended June 30, marking three consecutive quarters of declines, the Cabinet office said today in Tokyo. The median forecast of 25 economists surveyed by Bloomberg News was for a 2.5 percent drop.
• Traders Slash Bets Against Dollar by Record Amount as U.S. Treasuries Soar. Foreign-exchange traders slashed their bets against the dollar by the most on record as demand for U.S. Treasuries soared amid concern the global economic recovery is faltering. Aggregate bets the greenback will weaken against the euro, the yen, the Australian, Canadian and New Zealand dollars, the pound, the Swiss franc and the Mexican peso plunged by 154,105 contracts to 153,216 in the week ended Aug. 9, the biggest drop ever in Commodity Futures Trading Commission data compiled by Bloomberg beginning in November 2003. The data show that for the first time since January traders are betting the currency will appreciate versus the 17-nation euro on speculation Europe’s sovereign-debt crisis is spreading.
• Hong Kong Apartment Sellers Cut Asking Prices as Surge Ends. Derek Ma and his family in May sold two of their eight properties in Hong Kong, doubling their money in four years. They’re struggling to sell the other six. “We have been trying to offload more, but many sellers are now cutting prices,” said Ma, 36, whose portfolio includes units mainly in the upscale Mid-levels and Island South districts. “There’s definitely a softening in prices.”
• Hong Kong to Enter Recession: Forecaster. Hong Kong’s export-led economy, a barometer of global growth, is sinking into a recession that is likely to last for a year, said Daiwa Capital Markets economist Kevin Lai. Of nine economists in a Bloomberg News survey, Lai came closest to predicting a 0.5 percent contraction in the city’s economy in the second quarter. Only two of the analysts expected gross domestic product to decline from the previous three months.

Wall Street Journal:

• News Corp.(NWS/A) Probes Advance in U.S. Investigators haven't found hard evidence so far in probing whether News Corp.'s U.K.-based journalists might have hacked the phones of 9/11 victims, but U.S. authorities have expanded their query to see whether they can establish a broader pattern of more recent misconduct at the company's U.S. operations, say people familiar with the matter. British police investigating the sweeping phone-hacking scandal at the company's now-closed News of the World tabloid have told the Federal Bureau of Investigation there are no names or telephone numbers of Sept. 11 victims among the evidence they have gathered to date, according to people familiar with the case.
• Weaker Exports, Markets Weigh on Hong Kong's GDP. Economy Suffers in Quarter as Global Demand for Exports Wanes and Financial Markets See Sharp Downturn. Softening demand for exports and weakness in the financial sector threaten a deeper slowdown for Hong Kong after a surprise contraction in the territory's economy in the second quarter. Waning global demand and supply-chain disruptions following the March earthquake and tsunami in Japan led to a 11.1% drop in exports from the first quarter, a dramatic reversal from a 14.4% rise in the previous quarter. That caused Hong Kong's gross domestic product for the three months ended June 30 to contract 0.5% from the first quarter on a seasonally adjusted basis.
• Microsoft(MSFT) Faces the Post-PC World. Microsoft Corp. is confronting the biggest challenge to its Windows franchise so far: a world where mobile phones and tablets are handling more of the computing chores once only done on personal computers.
• GOP Gains Focus as Pawlenty Says Goodbye. The departure Sunday of former Minnesota Gov. Tim Pawlenty brought clarity to the campaign for the Republican presidential nomination, leaving social conservatives Michele Bachmann and Rick Perry as the main challengers to front-runner Mitt Romney. A pivotal campaign weekend for Republicans also made plain that the pathway to the nomination remains treacherous. Mrs. Bachmann's convincing victory in the Ames, Iowa, straw poll on Saturday ended Mr. Pawlenty's quest to be the "anti-Romney" just as another, Mr. Perry, threw his hat into the ring for that title.
• Suit Alleges Favoritism by BNY Mellon. Bank of New York Mellon Corp., facing increasing allegations it improperly charged public pension funds for currency trades, favored other clients with red-carpet treatment and better pricing, a state attorney general alleges.

CNBC:

• Global Commercial Property Prices Surge. Commercial real estate values have been spurred by a “lack of caution” on the back of an “astonishing” rebound in lending to the sector, according to one of the largest global fund managers.
• Sales of Gold Up on eBay Amid Stock Market Turmoil.
• Time Warner to Buy Insight for $3 Billion.
  

Business Insider:

• George Soros Used to Make His 28-Yr Old Ex-Girlfriend Sit at the Kids Table.
  
• How Socio-Economics Makes China a Bigger Credit Risk Than The US.
• White House Press Secretary Claims "Unemployment Benefits Could Create Up to 1 Million Jobs".
  

Zero Hedge:

• Italy Is The New Greece, As Strikes Shift From Syntagma Square To Rome.
• At 50x Leverage and 2% Tier 1 Capital, Is Socgen Truly a Paragon of Balance Sheet Invincibility?
  

IBD:

• Global Obesity Drives Growth For Herbalife(HLF).

NY Times:

• Al-Qaeda Trying to Harness Toxin for Bombs, U.S. Officials Fear. American counterterrorism officials are increasingly concerned that the most dangerous regional arm of Al Qaeda is trying to produce the lethal poison ricin, to be packed around small explosives for attacks against the United States. For more than a year, according to classified intelligence reports, Al Qaeda’s affiliate in Yemen has been making efforts to acquire large quantities of castor beans, which are required to produce ricin, a white, powdery toxin that is so deadly that just a speck can kill if it is inhaled or reaches the bloodstream.
• Starved Budgets Inspire New Look at Web Gambling.
• Tribal Rifts Threaten to Undermine Libya Uprising. Saddled with infighting and undermined by the occasionally ruthless and undisciplined behavior of its fighters, the six-month-old rebel uprising against Col. Muammar el-Qaddafi is showing signs of sliding from a struggle to overthrow an autocrat into a murkier contest between factions and tribes. The increase in discord and factionalism is undermining the effort to overthrow Colonel Qaddafi, and it comes immediately after recognition of the rebel government by the Western powers, including the United States, potentially giving the rebels access to billions of dollars in frozen Libyan assets, and the chance to purchase more modern weaponry.
• Setbacks May Push Europe Into a New Downturn. Economists may still be debating whether Europe is headed for a sharp slowdown or even a recession, but Steve Knott, who installs home heating systems in Barrow-in-Furness, a port town in northwest England once known for its iron mills, is convinced he already knows the answer.

CNN:

• Booming Business of Fear: Sales of Safes Soar. Amid the market turmoil, sales of security safes and vaults have spiked. While some shoppers sought to protect whatever valuables they had left, others needed a place to stash their newly-acquired safe haven assets such as gold and cash.

LA Times:

• Gallup: Obama Job Rating Sinks Below 40% for First Time. President Obama's summer woes have dragged his approval rating to an all-time low, sinking below 40% for the first time in Gallup's daily tracking poll. New data posted Sunday shows that 39% of Americans approve of Obama's job performance, while 54% disapprove. Both are the worst numbers of his presidency.

NYDailyNews.com:

• NYC Snubs Finest: Victims' kin, pols invited but 'no room' for first responders at 9/11 anniversary. The cops, firefighters and rescue workers who toiled at Ground Zero will not be invited to take part in the 10th anniversary ceremony, a city official told the Daily News Friday. First responders will instead be asked back to the site at another day for a separate commemorative ceremony, city officials said. Space and security logistics were at the heart of the decision, those involved said. Family of the nearly 3,000 killed receive first priority at an event with maximum security. President Obama's appearance will make the day even more of a security concern. For many first responders, though, the news was a bitter pill.

Washington Examiner:

• Why 11th Circuit Struck Down Obamacare's Mandate. It’s important to reflect on how far we’ve come. When the legal challenges against the health care law were first launched, liberals dismissed them as “frivolous.” Now, a Clinton-appointed federal appeals judge has struck down the individual mandate, agreeing that: “The federal government’s assertion of power, under the Commerce Clause, to issue an economic mandate for Americans to purchase insurance from a private company for the entire duration of their lives is unprecedented, lacks cognizable limits, and imperils our federalist structure.”

AP:

• 11 People Slain in Acapulco, Mexico. Nearly a dozen people were shot to death over the weekend in the Pacific coast resort of Acapulco, police said Sunday.

Financial Times:

• Germany and France Rule Out Eurobonds. Germany and France are ruling out common eurozone bonds to solve the bloc’s current debt crisis, in spite of renewed pressure ahead of a meeting of chancellor Angela Merkel and president Nicholas Sarkozy on Tuesday. Wolfgang Schäuble, German finance minister, made clear in an interview with Der Spiegel, that Berlin remains opposed to such a policy. “I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity,” he said. Senior French officials also played down speculation that any firm announcement on jointly issued bonds would be issued after meetings when Ms Merkel comes to Paris on Tuesday. “Eurobonds would require a much more determined integration of budgetary policy,” one said. “We do not have that today. It could be a long-term project, but you cannot have eurobonds and at the same time national economic and budgetary policies.”

Telegraph:

• Pakistan 'gave China access to bin Laden raid helicopter'. Pakistan reportedly gave China access to the American "stealth" helicopter that crashed during the raid which led to the death of Osama bin Laden. The CIA had explicitly requested that technology from the helicopter not be shared but Chinese military officials were said to have been allowed to take photographs of it and to obtain samples of its special "skin" that allowed it to evade radar. If confirmed the disclosure will further shake relations between the United States and Pakistan which hit their lowest point in decades following the raid on May 2.
• ECB is Euroland's Last Hope as Bail-Out Machinery Fails to Resolve Crisis. The leaders of Germany and France have three bad choices as they decide whether to save EMU this week, or pretend to do so.

Guardian:

• Financial Burden of Debt Crisis Could Lead Countries to Opt Out of the Euro. If Italy and Spain are in the firing line and could eventually need bailing out, as bond markets have been signalling, then Germany's taxpayers won't be the only ones on the hook – France will have to pay its share of the price too. Nothing in the latest rescue deal, to increase the powers of the European financial stability facility (EFSF) and arrange a bond-swap for Greece, provided an answer to the wider sovereign debt crisis. Leaders hoped it would buy them enough time to go on holiday; in the event, the peace deal with the markets lasted little more than days. Clearly, something more radical is needed – and it's not banning the short-selling of bank shares. George Osborne's blithe insistence in the Commons on Thursday that our European neighbours should examine the idea of issuing "eurobonds": joint debts, guaranteed by all the governments in the single currency, glossed over deep issues of democracy. The eurobond may be what you get if you take the founding principles of the eurozone to their logical conclusion; but it involves a wholesale surrender of economic sovereignty. That sounds anodyne in theory, but in fact, as the Greeks have already discovered, it means your creditors – in this case eurozone partners – combing through every penny of your public spending plans, raising objections to how much you're paying teachers, how many civil servants you're prepared to sack, and which treasured national assets you put up for sale at knockdown prices. That might be the consequence of living beyond your means during the boom years, but it's still an affront to national democracy.

Der Spiegel:

• Interview with George Soros. 'You Need This Dirty Word, Euro Bonds'. In a SPIEGEL interview, billionaire investor George Soros criticizes Germany's lack of leadership in the euro zone, arguing that Berlin must dictate to Europe the solution to the currency crisis. He also argues in favor of the creation of euro bonds as a way out of the turbulence.

Wirtschaftswoche:

• Morgan Stanley's(MS) co-chief economist, Joachim Fels, reckons there's a 50% chance of the global economy going into a recession, citing an interview. America's expansive monetary policy is causing inflation to soar worldwide, it cited the economist as saying.

Welt am Sonntag:

• German solar power companies employ fewer workers than industry bodies report, citing research by Berlin's HTW University of Applied Sciences. There are currently about 80,000 jobs in the German photovoltaic industry, some 40% less than the 133,000 positions reported by industry associations, citing the university's calculations.
• The ECB is buying Italian and Spanish bonds with a maximum maturity of 10 years to minimize risk, citing people in the financial industry. The longer the duration of the bonds the longer those bonds are a risk in the balance sheet of the central bank and the bigger the danger of writedowns, Welt said. The ECB declined to comment.
• German banks may struggle with the same problems as their French counterparts, citing Barry Eichengreen, who teaches economics and political sciences at the University of California, Berkeley. In Germany, as in France, banks lack sufficient capital, citing the economist. "If growth in Germany gets weaker, those problems could become visible very quickly," Eichengreen said.
  

Tagesspiegel:

• Rainer Bruederle, floor leader of Chancellor Angela Merkel's Free Democratic Party coalition partner, said his party's backing for an expanded European Union rescue facility at the end of September will depend on clear debt-limit rules in the euro zone. Euro-bonds would be "dangerous" because they wouldn't motivate individual countries to manage their economies responsibly, the newspaper quoted Bruederle as saying in an interview.

FAS:

• Germany's lower house of parliament needs more than "a few days" to debate any measures regarding a euro-zone rescue fund, citing Bundestag President Norbert Lammert. The Bundestag should be fully consulted on resolutions concerning a bailout, as well as on the budget, and it will be almost impossible to approve a decision in the three days through Sept. 23, Lammert said of the government's current timetable.
• Lars Fed, a member of German Chancellor Angela Merkel's council of economic advisers, said France's AAA credit rating is at risk of a downgrade in the medium term, according to an interview. France's debt ratio to its gross domestic product is too high, Feld said. The European Union rescue fund would have to be restructured if France's rating was cut, probably resulting in higher costs for Germany, the German economic adviser said in the interview.
  

FAZ:

• Munich Re has almost halved its holdings in stocks in recent weeks because of the debt crisis, citing an interview with CFO Joerg Schneider.

Handelsblatt:

• The automobile industry faces a "significant slowdown" next year because of economic conditions, citing a study by the CAR-Center Automotive Research unit at the University of Duisburg-Essen.
• German Economy Minister Philipp Roesler said he's firmly opposed to the introduction of euro bonds, citing an interview. Countries that use the euro should take individual responsibility, Roesler said. The introduction of euro bonds would also mean higher interest rates in Germany, citing the minister.
• European Union Energy Commissioner Guenther Oettinger said an Italian default would probably break the euro zone because the country would stop contributing to the rescue fund, citing an interview. Oettinger is against increasing the 440 billion-euro European Financial Stability Facility fund.
  

The Economic Times:

• George Soros Suggests Greece, Portugal Quit Euro-Zone. George Soros, the US speculator turned billionaire philanthropist, has suggested both Greece and Portugal quit the European Union and the euro-zone because of their massive debts. "One has so mishandled the Greek problem that the best way forward at present might be an orderly exit" with Greece leaving both the EU and the euro common currency, he said in an interview published Sunday by the German magazine Spiegel. He suggested the same might go for Portugal.
  "The EU and the euro would survive it," he added.

Shanghai Securities News:

• Chinese equity mutual funds cut their average stock holdings to 75.85% in their portfolio last week from 79.96% the previous week, citing Shenyin & Wanguo Securities Co.

Haaretz:

• Tens of thousands take to Israel's streets as social protests move out of Tel Aviv. Mass demonstrations take place in Haifa, Be’er Sheva and Afula with smaller protests taking place elsewhere throughout Israel.

Weekend Recommendations
Barron's:

• Made positive comments on (BAC).

Night Trading

• Asian indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 147.0 -4.0 basis points.
• Asia Pacific Sovereign CDS Index 148.0 +3.25 basis points.
• FTSE-100 futures +.75%.
  
• S&P 500 futures +.71%.
• NASDAQ 100 futures +.72%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SYY)/.57
• (LOW)/.66
• (EL)/.25

Economic Releases
8:30 am EST

• Empire Manufacturing for August is estimated at 0.0 versus -3.76 in July.

9:00 am EST

• Net Long-term TIC Flows for June are estimated to rise to $32.6B versus $23.6B in May.

10:00 am EST

• The NAHB Housing Market Index for August is estimated at 15.0 versus a reading of 15.0 in July.

Upcoming Splits

• (HMSY) 3-for-1
• (OZRK) 2-for-1
• (EDU) 4-for-1
  

Other Potential Market Movers

• The Fed's Lockhart speaking and the 3 & 6 Month T-Bill Auctions could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.