Thursday, August 11, 2011

Thursday Watch

Evening Headlines


  • Tremonti to Present New Austerity Plan as Unions Threaten General Strike. Italian Finance Minister Giulio Tremonti will present a new austerity plan that has prompted threats of strikes from unions as he seeks to eliminate the budget deficit and secure continued European Central Bank support for the country’s bonds. Tremonti will testify before bicameral committees in Parliament on the measures at 11 a.m. in Rome. The package seeks to bring down the deficit next year to between 1.5 percent and 1.7 percent of gross domestic product before eliminating it in 2013, Tremonti told business and labor leaders at a meeting yesterday. “If the measures that end up in the budget adjustment are those that have been circulated in the newspapers and that the government hasn’t denied, the only response will be a general strike,” Susanna Camusso, head of Italy’s biggest federation of unions, the CGIL, said after the talks.
  • SocGen Denies Credit Rumors as Shares Tumble. Societe Generale (GLE) SA, France’s second-largest bank, denied “all market rumors” and asked the nation’s market watchdog for an investigation after speculation France’s creditworthiness was in doubt sent the shares tumbling. The lender’s performance in July and early August shows it will be able to post “solid” results in the future, Paris- based Societe Generale said in a statement after the market closed yesterday. The bank asked France’s Autorite des Marches Financiers to open a probe into the origin of speculation that is “extremely harmful to the interests of its shareholders.” Societe Generale led European bank stocks to the lowest since the aftermath of the credit crisis yesterday, tumbling 15 percent to 22.18 euros in Paris, the biggest drop since Oct. 27, 2008.
  • Fed Said to Follow Basel Capital Rules for Biggest U.S. Banks. Federal Reserve officials are drafting rules for the biggest U.S. banks that won't be more stringent than international capital standards agreed to in Basel, Switzerland, according to a person familiar with the discussions. Federal Reserve Governor Daniel Tarullo cited a "goal of congruence" between the Basel standards and the Fed's work on rules under the Dodd-Frank Act, which overhauls banking regulation, in a June 3 speech. The central bank hasn't veered from that, according to the person, who declined to be identified because the rules are still being drafted. The Basel Committee on Banking Supervision, which includes regulators from the U.S. and Europe, set an additional capital buffer standard for the largest international banks in June that will range from 1 percentage point to 2.5 percentage points of risk-weighted assets. That comes on top of a requirement of 7 percent of common equity for all banks.
  • Koschyk Backs Call for Euro 'Stability Council,' Passauer Says. German Deputy Finance Minister Hartmut Koschyk supports Economy Minister Philipp Roesler’s call for a “stability council” for the euro area, Passauer Neuen Presse reported, citing an interview. Koschyk also called for the introduction of a “debt limit” among European Union members in order to help to regain market confidence, the newspaper reported. The U.S. should also introduce a debt limit policy, the newspaper cited Koschyk as saying, according to an e-mailed preview of an interview to appear in tomorrow’s edition.
  • Central Bankers Worldwide Race to Save Growth in 72 Hours of Policymaking. Central bankers are racing to shield their economies from fiscal tightening and lopsided currency swings that threaten a new global recession. In the 72 hours after a Group of Seven conference call on Aug. 7, the Federal Reserve pledged to keep interest rates near zero through at least mid-2013, the European Central Bank intervened in bond markets and the Bank of England indicated it’s ready to add more stimulus if needed. Japan signaled renewed concern about the yen and Switzerland yesterday stepped up its fight to curb an “overvalued” franc.
  • Gold Exceeds $1,800 as Investors Seek 'Ultimate Collateral' on Debt Crisis. Gold extended a rally to an all-time high, topping $1,800 an ounce, on increased demand for a haven investment as global equities plunged amid escalating European and U.S. debt woes. Immediate-delivery metal rallied as much as 1.2 percent to $1,814.95 an ounce, and traded at $1,802.60 at 8:55 a.m. in Singapore.
  • Junk Fund Outflows Soar to Record. Investors pulled an unprecedented $2.1 billion from high-yield bond funds globally yesterday. The outflows exceed the previous record of $1.43 billion on May 10, 2010, and followed $1.18 billion of redemptions on Aug. 8, said Cameron Brandt, director of research at Cambridge, Massachusetts-based EPFR Global.
  • Paulson Loses 31% in Main Hedge Fund After August Rout. John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, lost 11 percent in the first week of August in his largest hedge fund, according to a person familiar with the firm. The decline leaves the Advantage Plus Fund, which tries to profit from corporate events such as takeovers and bankruptcies, down 31 percent since the start of the year, said the person, who asked not to be named because the fund is private. "He's in an awkward position because he doesn't have a lot of time to restore that capital," said Geoff Bobroff, who runs a money management consulting firm in East Greenwich, Rhode Island. "The only way to do it is to make significant bets, and he has to hope they are right."
  • Ford(F) Says It's Feeling 'Pricing Pressure' as China Market Slows. Ford Motor Co. (F), seeking to accelerate its growth in China, said it’s encountering pricing pressure as that auto market slows. “In the last three or four months, the auto industry clearly is not growing at the rate it was last year or even in the first quarter,” Joe Hinrichs, Ford’s group vice president and Asia chief, said today at the JP Morgan auto conference in Detroit. “We have seen some pricing pressure.” Ford is spending $1.6 billion to build four factories in China, where it plans to triple its lineup by offering 15 models by mid-decade, Hinrichs said. “The growth rate is not nearly as aggressive” in China as it has been, Hinrichs said.
  • Cooperman's Omega Sells Stakes in Bank of America(BAC), Citigroup(C), Filing Says. Leon Cooperman, chief executive officer of New York-based hedge fund Omega Advisors Inc., sold all of his Bank of America Corp. (BAC) and Citigroup Inc. (C) holdings in the second quarter as he reduced his financial stakes. Cooperman sold 794,000 Citigroup shares and 2.54 million Bank of America shares, according to a document filed today with the U.S. Securities and Commission. He sold 247,000 shares of Blackstone Group LP (BX), reducing his position to about 2 million shares as of June 30. The fund’s equity weighting in financial stocks decreased by 3.6 percent, according to data compiled by Bloomberg.
  • North, South Korea Trade Artillery Salvos. South Korea said North Korea fired artillery salvos near a disputed sea border that was the scene of a deadly shelling in November, a charge North Korea denied. South Korea returned fire after North Korea lobbed three shells into the waters near Yeonpyeong Island about 1 p.m. yesterday and shot back again around 7:46 p.m. when two more shells landed in the ocean, said an official from the defense ministry in Seoul who declined to be identified, citing military policy. North Korea denied firing any artillery and accused its neighbor of using construction blasting in nearby Hwanghaenam Province as a pretext for confrontation, according to a report from the state-run Korean Central News Agency.
  • China's Ban on U.S. Professors Elicits Silence. They call themselves the “Xinjiang 13.” They have been denied permission to enter China, prohibited from flying on a Chinese airline and pressured to adopt China- friendly views. To return to China, two wrote statements disavowing support for the independence movement in Xinjiang province. They aren’t exiled Chinese dissidents. They are American scholars from universities, such as Georgetown and Massachusetts Institute of Technology, who have suffered a backlash from China unprecedented in academia since diplomatic relations resumed in 1979. Their offense was co-writing “Xinjiang: China’s Muslim Borderland,” a 484-page paperback published in 2004. “I wound up doing the stupidest thing, bringing all of the experts in the field into one room and having the Chinese take us all out,” said Justin Rudelson, a college friend of U.S. Treasury Secretary Timothy Geithner and former senior lecturer at Dartmouth College, who helped enlist contributors to the book and co-wrote one chapter.
  • Australian Jobless Rate Rises Most Since 2010. Australia’s jobless rate unexpectedly rose to an eight-month high last month as employers cut full-time staff, prompting investors to increase bets the central bank will lower the developed world’s highest interest rates. Unemployment jumped to 5.1 percent in July from 4.9 percent a month earlier, the first increase since October, the statistics bureau said in Sydney today. The number of workers fell by 100 after a revised 18,200 gain in June. That compares with the median estimate for 10,000 additional jobs in a Bloomberg News survey of 25 economists.
  • Turkey Scrutinizes Short Sales Amid Rout After Bans in Greece, South Korea. Turkey is increasing scrutiny of short sales, joining countries from Greece to South Korea that have sought to prevent bearish bets from fueling declines in stocks after the worst global tumble since 2008.
Wall Street Journal:
  • Dissents Pose New Test for Bernanke. Regional Bank Presidents Fisher, Kocherlakota Say Their No Votes Not a Sign of Decisive Break With the Fed Chairman. Ben Bernanke's decision to open the door to easier monetary policy Tuesday marked another watershed moment in his 5½-year odyssey as chairman of the Federal Reserve. This time, it wasn't just the policy that raised eyebrows, but also the manner in which it was decided. For the first time in Mr. Bernanke's tenure, three colleagues formally dissented from the Fed's move, a new sign of deep internal opposition that contrasts with the chairman's oft-stated desire for consensus. Since the financial crisis, Mr. Bernanke has labored with mixed success to manage divisions within the central bank.
  • Among Hedge Funds, Big Winners, Losers. Yes, some investors are making money in this difficult market. Some are making a lot of money. Ray Dalio's Bridgewater Associates LP has scored gains of more than $3.5 billion, or about 5%, in its flagship hedge fund just in the past week, according to investors. The $71 billion fund now is up more than 20% this year, investors said, making it among the best performers in the hedge-fund business. The gains are partly due to a spike in safe-haven investments, such as gold, Treasury bonds and the Swiss franc, in which Bridgewater has sizable positions.
  • FTC Focuses Probe on Android, Web Search. U.S. antitrust regulators are focusing their investigation of Google Inc.(GOOG) on key areas of its business, including its Android mobile-phone software and Web-search related services, people familiar with the probe say. Six weeks after serving Google with broad subpoenas, Federal Trade Commission lawyers, in conjunction with several state attorneys general, have been asking whether Google prevents smartphone manufacturers that use its Android operating system from using competitors' services, these people said.
  • Deere & Co.(DE) Under Investigation For Possible Foreign Bribery. Deere & Co., the world’s largest manufacturer of farm equipment, is under investigation by U.S. authorities for possible violations of foreign bribery laws, according to two people familiar with the matter. Investigators are looking at whether payments made in Russia and elsewhere fell foul of the FCPA.
  • Verizon(VZ) Sues Union Over Workers' Strike in East. Verizon says striking workers have taken their demonstrations too far, and the telecommunications company is suing in five Eastern states to limit picketing and stop what it claims is harassment, sabotage and blocking access to its facilities. The company sued Communications Workers of America leaders Wednesday in New York and got a court order Monday in Pennsylvania.
  • Treasurys Extend Rally As US Sells Debt At Record Low Yields. The United States is no longer a purely triple-A rated borrower, but that fact hasn't done anything to stop the country from raising debt this week at the lowest yields on record.
  • Riots Stoke British Ethnic Tensions. Race Relations Come to Fore After Birmingham Car Attack Kills Three Asian Men; 'An Eye for an Eye'.
  • China Flexes Naval Muscle. China sent its first aircraft carrier to sea, a defining moment in its effort to become a top-tier naval power that seeks to challenge U.S. military supremacy in Asia and protect Chinese economic interests that now span the globe.
  • TV Buoys News Corp.(NWSA) Results. Murdoch Dismisses Criticism of Board; Media Giant Raises Dividend as Operating Profit Rises 8.9%.
  • Oil Surplus Seen if Recession Re-Emerges.
  • America as Less Than No. 1. So this is a taste of what it will be like when the American superpower starts shrinking. Enjoying it yet?
  • CME(CME) Hikes Gold Margins, But Prices Still Rising. U.S. exchange operator CME Group said late Wednesday it is raising the margin requirements for trade in a wide range of gold products, effective Thursday. The speculative margin requirement for a new position in Comex 100 gold futures will rise to $7,425 from $6,075, or to $5,500 from $4,500 for existing "current maintenance" margins.
  • China Widens Access to Shale Gas.
Business Insider:
Zero Hedge:
  • Obama Set to Raise Money in New York. President Obama is scheduled to attend two fundraisers in New York on Thursday to benefit his re-election effort, two Democratic sources tell CNN. One is a reception for 15 people at a hotel. Following that he’ll attend a dinner for approximately 50 people hosted by film producer Harvey Weinstein and Vogue Editor Anna Wintour, according to the sources. The dinner will be held at Weinstein’s apartment, one of the sources said. Tickets for both events are $35,800 with proceeds going to the Obama Victory Fund, whose proceeds are shared by the re-election campaign and the Democratic National Committee. Earlier this week the President attended two separate events in Washington. He attended a fundraiser with approximately 140 guests at a private residence with its proceeds also going to the Victory Fund. He also went to a reception that night which was a donor outreach event.
  • Inside a Hedge Fund. (video) As stock markets brace themselves for more turmoil, Nina Dos Santos gets a glimpse inside a hedge fund.
NY Times:
  • Hedge Funds Gets Unfamiliar Taste of Losing. For hedge funds, just one week can change their entire year. With the stock market shedding billions of dollars in value and uncertainty in Europe stoking fear, some funds are watching their returns sink by double digits while others are shooting the lights out. August, in less than two weeks, has brought a 13 percent decline in the Standard & Poor’s 500-stock index and roughly 12 percent drop in the Dow Jones industrial average.The turmoil has whipsawed some of the biggest names in hedge funds.
  • In U.S. Stress Tests, a Tool to Gauge Contagion in Europe.

Seeking Alpha:
Rasmussen Reports:
USA Today:
  • Economic Woes Offer Awkward Backdrop for Obama's Vacation. Fourteen million people are out of work. Millions more are losing fortunes in the stock market. America's AAA bond rating has slipped. So should President Obama be vacationing next week in Martha's Vineyard, off the coast of Massachusetts, where the average home costs $650,000? Yes, says White House press secretary Jay Carney. Obama, like most Americans, needs down time to recharge his batteries for the battles ahead. And besides, he says, "The presidency travels with you." Maybe not, say some academics, authors and political pundits. While Obama deserves a break, they say, this might not be the time, and Martha's Vineyard might not be the place.
  • BofA(BAC) Negotiates to Sell Big China Bank Stake - Sources. Bank of America Corp has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its stake in China Construction Bank, sources with direct knowledge of the talks told Reuters. Bank of America, which owns about 10 percent of CCB's Hong Kong-listed shares and is scurrying to raise capital for its mortgage-scarred balance sheet, will be contractually free to sell the bank shares after Aug. 29. They are valued at about $17 billion.
  • Weaker Euro States Could Lose Local Banks. Weaker eurozone members face the prospect of being left with no domestic banks in future as market resistance to funding lenders in peripheral countries grows.
  • Commerzbank Takes €760m Greek Hit. The results knocked its profits for the second quarter down more than 90pc, as it became the latest European lender to take a hit on its exposure to the indebted Southern European country.

  • French President Nicolas Sarkozy Gathers Ministry to Battle Possible Credit Downgrade. PRESIDENT Nicolas Sarkozy cut short his holiday to announce new moves to slash France's massive debt amid fears it might be next after the United States to suffer a credit-rating downgrade. Sarkozy gave his finance and budget ministers one week to come up with new ideas for keeping France's promises to slash its public deficit, it said, adding that the measures would then be decided on on August 24. The announcement came after ministers battled this week to head off speculation that France will be the next country to lose its top AAA status after the United States was stripped of the prized credit rating last week. Shares in French banking giant Societe Generale briefly crashed more than 20 per cent on the ratings speculation and concern over its exposure to Greek debt amid renewed concern about Athen's implementation of a rescue plan. If France, the eurozone's second-largest economy, lost its AAA rating the effects would stretch far beyond its borders. France provides the second-largest contribution, after Germany, to the eurozone's temporary rescue fund, the European Financial Stability Facility, which enjoys an AAA rating to borrow at low rates and lend to states under bailout programmes. Markets are wondering whether France and Germany can continue to underwrite the debts of troubled eurozone countries without losing their own top credit ratings and thus falling victim to the crisis themselves. French debt has faced pressure on the markets as the cost of credit default swaps - insurance policies against a default -- hit record highs this week, suggesting investors were starting to look at the country more closely. After the United States, "the other AAA-rated G7 sovereigns are all at risk of a downgrade, with the markets focusing particularly on France," said London-based Citi economist Willem Buiter. Jennifer McKeown, senior economist at Capital, said: "Growing concerns about France's fiscal position have underlined the breadth of the eurozone's debt crisis." The International Monetary Fund said last month that France would probably need extra action to cut its deficit in 2012 and 2013 as falling growth threatened to complicate economic recovery.
South China Morning Post:
  • Industrial Bank Chief Economist Lu Zheungwei said China should work with developing countries through the G20 to limit countries' net sovereign debt as a proportion of GDP. Emerging economies are "victims" of high inflation caused by easy credit in developed countries, especially the U.S., says Wang Jun, senior economist at the Beijing-based China Centre for International Economic Exchanges.
Beijing News:
  • Chinese central bank adviser Li Daokui said a third round of quantitative easing in the U.S. may increase imported inflationary pressure in China, citing comments he made in an interview.
Evening Recommendations
Raymond James:
  • Upgraded (CCOI) to Strong Buy, target $17.
  • Upgraded (TWTC) to Strong Buy, target $25.
  • Upgraded (JBL) to Strong Buy, target $26.
  • Upgraded (PLXS) to Strong Buy, target $37.
  • Upgraded (ARW) to Strong Buy, target $50.
  • Upgraded (AVT) to Strong Buy, target $45.
  • Upgraded (DELL) to Strong Buy, target $20.
  • Upgraded (IM) to Strong Buy, target $23.
  • Upgraded (NTAP) to Strong Buy, target $60.
Night Trading
  • Asian equity indices are -1.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 135.50 +15.5 basis points.
  • Asia Pacific Sovereign CDS Index 147.50 +4.75 basis points.
  • FTSE-100 futures +1.25%.
  • S&P 500 futures +1.28%.
  • NASDAQ 100 futures +1.29%.
Morning Preview Links

Earnings of Note
  • (EAT)/.47
  • (WEN)/.05
  • (RGLD)/.40
  • (KSS)/1.08
  • (SLE)/.20
  • (NVDA)/.31
  • (BYI)/.56
  • (MCP)/.41
  • (RRGB)/.36
  • (JWN)/.74
  • (DV)/1.04
  • (BGG)/.38
Economic Releases
8:30 am EST
  • The Trade Deficit for June is estimated at -$48.0B versus -$50.2B in May.
  • Initial Jobless Claims are estimated to rise to 405K versus 400K the prior week.
  • Continuing Claims are estimated to fall to 3725K versus 3730K prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The 30-Year Treasury Bond Auction, Fed's weekly balance sheet report, M1/M2 reports, weekly EIA natural gas inventory report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

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