Monday, August 22, 2011

Monday Watch

Posted by Gary .....at 12:57 AM

Weekend Headlines
Bloomberg:
  • Merkel Says She'll Resist Pressure for Euro Bonds. German Chancellor Angela Merkel attempted to shut the door on common euro-area bonds as a means to solve the debt crisis, saying that she won’t let financial markets dictate policy. Joint euro bonds would require European Union treaty changes that would “take years” and might run afoul of Germany’s constitution, Merkel said. While common borrowing might arrive at some point in the “distant future,” bringing in euro bonds at this time would further undermine economic stability and so they “are not the answer right now.” “At this time -- we’re in a dramatic crisis -- euro bonds are precisely the wrong answer,” Merkel said in an interview with ZDF television in Berlin yesterday. “They lead us into a debt union, not a stability union. Each country has to take its own steps to reduce its debt.” Merkel has stepped up her opposition to euro bonds since returning from her summer vacation last week, making resistance to common European borrowing a campaign theme of Sept. 4 elections in her home state of Mecklenburg-Western Pomerania. “Politicians can’t and won’t simply run after the markets,” Merkel said in the chancellery interview, her first since returning from a three-week summer break. “The markets want to force us to do certain things. That we won’t do. Politicians have to make sure that we’re unassailable, that we can make policy for the people.” Merkel’s stance risks bringing her into conflict with the European Commission, the European Union’s executive body, which said Aug. 19 that it may present draft legislation on joint euro-area bonds after completing a feasibility report.
  • Qaddafi's 42-Year Rule Crumbling: NATO. Libyan rebels said they captured two of Muammar Qaddafi’s sons as they swept through the capital Tripoli in a drive to force Qaddafi out after 42 years of near- absolute power. Qaddafi’s forces offered little resistance and celebrations broke out in the center of the city. Regime spokesman, Moussa Ibrahim said Qaddafi was ready to negotiate with Mustafa Abdel Jalil, the head of the rebel council, and asked for an immediate cease-fire. Anders Fogh Rasmussen, secretary-general of the North Atlantic Treaty Organization, which has backed the rebels with aerial bombing since March, said in an online statement that the “regime is clearly crumbling” and “the sooner Qaddafi realizes that he cannot win the battle against his own people, the better.”
  • Van Rompuy Opposes Common Bonds Until Euro-Region Budgets Converge Further. European Union President Herman Van Rompuy ruled out issuing common bonds as a cure for the debt crisis, saying any joint borrowing should wait until European economies and budgets are better aligned. With three countries drawing financial aid and national debts ranging from 6.6 percent of gross domestic product in Estonia to 142.8 percent in Greece, this is the wrong time to set up a single borrowing agency, Van Rompuy, 63, said in an interview broadcast on Belgium’s RTBF radio today. “We could have euro bonds on the day when there is genuine budgetary convergence, the day when everyone is in balance or virtually in balance,” he said. Van Rompuy sided with Germany and France in damping down the euro bond debate, saying the answer to the crisis lies in executing plans like last month’s decision to give more flexibility to the bloc’s 440 billion-euro rescue fund. He urged governments to quickly ratify the plan so the fund can buy bonds in the secondary market.
  • Schaeuble Says Common Bonds Would Create 'Inflation Community'. The euro region would become an “inflation community” if member countries decide to sell bonds jointly without unifying their fiscal policies, German Finance Minister Wolfgang Schaeuble said today. “Unless there is a single financial policy in the euro area, there won’t be a single rate of interest” on debt sold, Schaeuble said at the finance ministry in Berlin. Selling common bonds with a single interest rate would spark inflation and destabilize the currency as long as the euro area doesn’t have a single budget policy, Schaeuble said in his first public engagement since returning from a summer break.
  • Spain Confident EU Won't Need to Buy Its Bonds, Salgado Says. Finance Minister Elena Salgado said she’s confident Spain’s deficit-reduction efforts will restore investor trust and end the need for European authorities to support the nation’s bonds. Even though the global slowdown threatens the country’s growth target for this year, the government’s commitment to cutting the region’s third-biggest deficit will shore up demand for its bonds, she said. “I don’t take it for granted” the euro-region’s rescue fund will have to backstop Spain’s debt when it takes over bond-buying from the European Central Bank after September. “The position of the Spanish government is to continue with the reforms and the austerity programs,” Salgado, 62, said in an interview in Madrid on Aug. 19. “We trust the markets will give us that vote of confidence so that by our own means we will be capable of stabilizing the Spanish debt market.”
  • Wall Street Aristocracy Got $1.2 Trillion in Fed Secret Loans. Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits. By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret. Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress. “These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.” It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees. The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default. The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg. The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.
  • Hedge Funds Buying Corn to Silver to Soy as Commodities Tumble. The rout that drove commodities to a nine-month low is proving irresistible to speculators anticipating that even slowing economic growth will cause shortages of raw materials. While mounting concern about the economy wiped more than $8 trillion off the value of global equities in four weeks, Commodity Futures Trading Commission data show hedge funds and other speculators increased bullish commodity bets by 2.5 percent in the week ended Aug. 16, the most in a month. Net-long positions, or bets on higher prices, held by speculators in 18 commodities rose to more than 1 million futures and options in the week through Aug. 16, according to the CFTC in Washington.
  • Deutsche Bank(DB) Says Four Employees, Securities Unit Indicted in South Korea. Four Deutsche Bank AG (DBK) employees and its South Korean brokerage face a trial at a South Korean court after they were charged by prosecutors for causing a one-day rout in stocks in November that wiped off $27 billion in value.
  • Jackson Hole Bankers Reflect on QE2 Amid Pressure for Stimulus. Chairman Ben S. Bernanke has big shoes to fill this week when he speaks at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming: His own.
  • China Developers Turning to Informal Loans Amid Tight Credit: Credit Suisse. - Some developers are willing to take out 6-month loan from informal market at annualized rate of 36% in order to complete their projects, CS says, citing a contact in property guarantee business. - Jan. - July actual amount of funds available for investment only up 23.1% vs. 33.6% rise in property investment, CS says, citing NDRC economists. - Property developers raise most funds in informal markets. - Developers delay payment to suppliers on fund tightening. - Current strong property investment may become unsustainable this year if sales don't improve.
Wall Street Journal:
  • Rebels Sweep Into Tripoli. Libyan Insurgents Push to Heart of Capital, Gadhafi Son Captured. Libyan rebels poured into Tripoli on Sunday after seizing a nearby military base, as fears of a bloody battle largely gave way to scenes of jubilant opposition fighters surging into the city's center and meeting little resistance from Col. Moammar Gadhafi's defenses.
  • Live Blog: Libyan Rebels Pour Into Tripoli.
  • My Response To Buffet and Obama by Harvey Golub.Before you ask for more tax money from me, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely.
  • As Investors Get Bit, States Feel Pain. State-budget officials from around the U.S. were huddled in Utah earlier this month for an annual meeting when someone glanced at a BlackBerry and announced that the Dow Jones Industrial Average had fallen 500 points. "It was one of the worst moments of the week," said Scott Pattison, executive director of the National Association of State Budget Officers.
  • Foreclosure Talks Snag on Bank Liability. Efforts to reach a settlement that would end the long-running probe of foreclosure practices are snagged over whether banks will get broad legal immunity from state officials for mortgage-related claims. Federal and state officials are seeking penalties of $20 billion to $25 billion from Bank of America Corp., J.P. Morgan Chase & Co. and other financial firms under investigation since last fall. The banks are pushing hard for a deal, but they have insisted on a wide-ranging legal release from state attorneys general.
  • Business Economists Split On U.S. Fiscal Tightening. Business economists are split on whether more austerity or more stimulus is the best path forward for U.S. fiscal policy, according to a new survey, highlighting the dilemma facing policy makers eager to shore up the nation’s economy and long-term fiscal position. The National Association for Business Economics said roughly 49% of the economists surveyed in late July and early August favor a more restrictive fiscal path forward over the next two years, while 37% chose the other direction, supporting more efforts to stimulate the economy through fiscal measures. More than seven in 10 economists who took part in the survey said they expect fiscal policy will be tightened regardless of whether that is the best approach.
Marketwatch.com:
CNBC:
  • Stock Market Begins to Feed Economic Fear.
  • China Paper Warns of Impact From Euro Crisis 'Black Death'. The "Black Death" of debt crisis across the Euro zone will hurt China by sapping demand for exports, although Beijing's relatively small holdings of euro assets will limit any damage to foreign exchange reserves, the nation's top official newspaper said on Monday. The bleak diagnosis for the euro's prospects appeared in the overseas edition of the People's Daily, the top newspaper of China's ruling Communist Party, in a commentary by a former central bank official and an economist for the state-owned China Development Bank. Although the commentary in the People's Daily does not reflect a definitive view from China's top leaders, it suggests that the euro zone's successive crises have stirred anxiety and debate in Beijing about the impact on China.
  • Layoffs Sweep Wall Street, Along With Low Morale.
Business Insider:
Zero Hedge:
NY Times:
  • Laser Advances in Nuclear Fuel Stir Terror Fear. Scientists have long sought easier ways to make the costly material known as enriched uranium — the fuel of nuclear reactors and bombs, now produced only in giant industrial plants. One idea, a half-century old, has been to do it with nothing more substantial than lasers and their rays of concentrated light. This futuristic approach has always proved too expensive and difficult for anything but laboratory experimentation. Until now.
  • Large Zone Near Japanese Reactors to Be Off Limits. Broad areas around the stricken Fukushima Daiichi nuclear plant could soon be declared uninhabitable, perhaps for decades, after a government survey found radioactive contamination that far exceeded safe levels, several major media outlets said Monday.
Forbes:
LA Times:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).
Politico:
  • Will Ritzy Vacation Trip Obama Up? President Barack Obama is keeping a low profile on the isle of liberal affluence that is Martha’s Vineyard — hoping to avoid the grapes of political wrath in 2012.
USA Today:
  • Stunted Corn Crop Could Lead to Higher Food Prices. Smaller-than-expected corn harvests are likely to keep corn prices elevated into next year, economists say, driving up retail food prices. That could further dampen consumer spending in an economy hobbled by high unemployment and modest wage increases.
Reuters:
  • Obama Says He Will Be Judged in 2012 Over Economy. U.S. President Barack Obama said on Sunday he expects to be judged in the 2012 election over his governance of the American economy, which he said was still not growing fast enough. "For me to argue, look, we've actually made the right decisions, things would have been much worse has we not made those decisions -- that's not that satisfying if you don't have a job right now," Obama told CBS in an interview taped last week and aired during his annual vacation in Martha's Vineyard, an island near Boston. "I understand that and I expect to be judged a year from now on whether or not things have continued to get better," he said.
Financial Times:
  • Senator's Leak Sparks Commodities Debate. A US senator’s public release of confidential data on energy traders has sparked debate over how much should be disclosed about commodity markets, where positions are usually a closely guarded secret. Last week Bernie Sanders, a Vermont independent, leaked and later posted on his website lists of trading positions in oil, natural gas and other commodity markets as part of a campaign to force a clampdown on commodity speculation.
Independent on Sunday:
  • ICAP Plc, a UK interdealer broker, will leave the UK if the European Union endorses Franco-German plans for a tax on financial transactions, citing an interview with chief executive, Michael Spencer. Spencer added that it would be "economic suicide" if the UK agreed to the tax and said it would "destroy the city of London," the newspaper reported.
Sky News:
  • The Financial Services Authority increased scrutiny of "major" Euro-Area banks operating in the U.K. on concern they may struggle to secure enough funding to meet financial obligations amid declining stock markets. The U.K. regulator has been in daily conversations with some of the largest banks. It's also seeking more detailed and more frequent information about the banks' funding and liquidity positions, the report said.
BBC:
  • US Senators Call for Extradition of Lockerbie Bomber. Two US senators have demanded the extradition of the Lockerbie bomber from Libya, on the second anniversary of his release from prison in Scotland. Terminally-ill Abdelbasset al Megrahi was freed by Scottish ministers on compassionate grounds. New Jersey senators Robert Menendez and Frank Lautenberg want the rebel-led transitional Libyan government to send Megrahi to the US. Megrahi was jailed in 2001 for the plane bombing in 1988. He returned home to Tripoli following his release from Greenock Prison, after medical experts said he may only have three months to live.
Der Spiegel:
  • The German Finance Ministry calculates that common euro bonds would cost Germany billions of euros as interest rates increase. Higher interest payments would cost as much as $3.6 billion in the first year and double in the second, finance ministry said. In the tenth year, the extra costs would reach 20 billion euors to 25 billion euros.
Wirtschaftswoche:
  • Horst Seehofer, head of the CSU party that's in a governing coalition with German Chancellor Angela Merkel's party, said he opposes issuing common euro bonds, citing an interview with the minister. While the CSU "turned a blind eye" to bond repurchases by the European Central Bank, it won't take the next step towards the collectivization of debt, Seehofer said.
Euro am Sonntag:
  • Christoph Schmidt, a member of German Chancellor Angela Merkel's council of economic advisers, rejected the idea of issuing common euro bonds because they would bring short-term relief and create long-term problems, citing an interview with the economist. The governments of countries in crisis need external pressure to help push through the correct economic measures, Schmidt said. Join euro bonds would cost Germany's taxpayers a "two-digit billion sum," Schmidt said.
Bild am Sonntag:
  • Germany Economy Minister Philipp Roesler ruled out issuing euro bonds as long as the current coalition government is in power, citing an interview with the minister. Selling the bonds would lead to higher interest rates in Germany and threaten the country's economic growth, citing Roesler.
Passauer Neue Presse:
  • Volker Bouffier, premier of the German state of Hesse and a member of Chancellor Angela Merkel's party, said his support of a planned financial transaction tax depends on the levy also being applied in the U.K. The tax may threaten more than 70,000 jobs in Frankfurt, which is located in Hesse, citing an interview with the lawmaker.
Handelsblatt:
  • Hans-Werner Sinn, head of the Munich-based Ifo economic institute, rejected common euro bonds as a way of supporting countries in crisis. Pooling debt doesn't make the burden smaller and there is no alternative to everyone paying their own debt, Sinn wrote.
La Stampa:
  • Umberto Bossi, leader of Italy's governing coalition-member Northern League party, said he won't consider any changes to the country's pension system. Bossi, speaking in Alzano Lombardo, near Bergamo, said he told Prime Minister Silvio Berlusconi in a phone call not to touch pensions and that "we'll find another way," he newspaper reported.
Le Figaro:
  • French Prime Minister Francois Fillon called for national unity as the country faces the euro area's debt crisis in comments published today. "In the face of all the challenges, I call for unity and the sense of responsibility of all the parties," Fillon wrote in an editorial. Harlem Desir, the interim Socialist Party leader, rejected his call for unity. Fillon, "with his editorial, is trying to impart to the French a lesson of economy by Mr. Bankruptcy," Desir said in a statement posted on the Socialist Party's Web site today. He "is the head of a government and of a majority that have led France to bankruptcy."
Il Sole 24 Ore:
  • European rules on carbon dioxide emissions may undermine the finances of airlines, citing Alitalia SpA CEO Rocco Sabelli. The rules may increase costs for Alitalia by as much as $115.2 million over three years starting in 2012 depending on the price of European carbon permits, Sabelli said.
Il Messaggero:
  • The wealth tax included in the Italian austerity package in "madness," Emma Marcegaglia, head of employers association Confindustria, said in an interview. The plan has to be adjusted to stimulate growth, gathering resources from pensions and through an increase in VAT, Marcegaglia said, adding that a reduction in public spending is also needed.
Sydney Morning Herald:
  • Gold Surges to Record High on Economic Woes. Spot gold surged 1.4 per cent to an all-time high on Monday, setting the 10th record so far this month, as fears of another US recession and euro zone's debt crisis continued to send nervous investors to the safety of bullion. Spot gold struck an all-time high above $US1878 an ounce, after staging its biggest weekly gain in two-and-a-half years last week. It recently stood at $US1871.85. US gold jumped 1.6 per cent to a record high of $US1881.90, and eased to $US1875.50.
Korea Herald:
  • Korea Sovereign Risk Rises, Credit Default Swap Shows. Investors see South Korea’s bond and stock markets still highly vulnerable to external shocks despite improved economic fundamentals, data showed on Sunday. The country’s cost of insuring eight-year sovereign debt shot up to a nine-month high Friday to 122 basis points, the highest level since Nov. 30 last year when the North’s attack on Yeonpyeong Island sent the figure soaring to 129 basis points.
Asian Investor:
Kyodo News:
  • Japanese economy and trade minister Banri Kaieda says coordinated yen intervention was a possible course of action this morning.
Caijing:
  • The risks of China's so-called shadow banking system are controllable, China Citic Bank Corp. Vice President Cao Tong said today. Regulators should control the amount of leverage allowed in the system, Tong said. Market risk can spread quickly because shadow banks deal with commercial banks as their counterparties and base prices on the market, he said.
Sina.com:
  • The sovereign debt crisis in Europe caused by the 2007 global financial meltdown is still evolving with the outlooks for sovereign debt in Japan and U.S. are also worrying, said Wu Xiaoling, a former deputy China central bank governor.
  • China still has room to use quantitative tools to control inflation, Fan Gang, a former academic adviser to the country's central bank said today. The central bank could issue more bills, a tool that has not been adequately used by the bank, Fan, a former member of the People's Bank of China's monetary policy committee, said in Beijing. China must continue to sterilize the foreign-exchange inflow to control the amount of money, said Fan, now the head of the National Economic Research Institute of the China Reform Foundation.
Financial News:
  • China should raise deposit rates and keep lending rates unchanged to eliminate current negative rates and improve inflation expectations, the Financial News newspaper said in a commentary attributed to Yang Ziqiang. The country should continue increasing banks' reserve requirements and conducting open market operations to control liquidity.
Press TV:
  • Russia offered to cooperate with Iran on building new nuclear power plants in the Middle Eastern country, citing Fereydoun Abbasi, the chairman of the Iranian Atomic Energy Organization.
Weekend Recommendations
Barron's:
  • Made negative comments on (SAFM).
Night Trading
  • Asian indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 154.0 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 146.50 -4.75 basis points.
  • FTSE-100 futures -.91%.
  • S&P 500 futures -.12%.
  • NASDAQ 100 futures -.07%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (STP)/.18
  • (FMCN)/.38
  • (PWRD)/.61
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for July is estimated to fall to -.48 versus a reading of -.46 in June.
Upcoming Splits
  • (RYN) 3-for-2
Other Potential Market Movers
  • The 2Q Mortgage Delinquencies report, 2Q MBA Mortgage Foreclosures report and the 3 & 6 Month Treasury Bill Auctions could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

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