Weekend Headlines
Bloomberg:
- Germany Readies Surrender in Fight to Save Greece. Germany may be getting ready to give up on Greece, as measures in the credit markets signal growing concern about the smaller nation’s ability to repay investors. Yields on Greek two-year notes rose 1.93 percentage points to 57 percent on Sept. 9, according to data compiled by Bloomberg. Credit-default swaps to insure the country’s five- year bonds and to speculate on government securities jumped 475 basis points to a record 3,500 basis points, according to CMA. The contracts are the highest in the world and more than three times the 1,134 basis points on Portugal’s debt. After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, German Chancellor Angela Merkel is laying the groundwork for what markets say is almost a sure thing: a Greek default. “It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.” Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won’t get the money unless it meets fiscal targets, and as investors raised bets on a default. Ring-fencing their banks and a hardening of rescue terms risk isolating Germany and unnerving global policy makers already fretting that the region’s political tussles are roiling markets and threatening growth. European bank credit risk surged last week to an all-time high, according to the Markit iTraxx Financial Index of credit- default swaps on 25 banks and insurers, and the euro fell by the most against the dollar in a year. Investors have doubts about whether Greece will implement austerity moves fast enough to get a sixth payment from last year’s 110 billion-euro ($150 billion) bailout. “Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” said Julian Callow, chief European economist at Barclays Capital in London. “This could complicate Germany’s involvement in additional bailout programs.” BNP Paribas (BNP) SA, Societe Generale (GLE) SA and Credit Agricole SA (ACA), France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said on Sept. 10. The aim of the contingency plan is to shield German banks from losses from a possible Greek default, which has a more-than 90 percent chance of happening within five years, prices for insurance against default show. The plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next portion of Greece’s bailout is withheld, said the three officials, who declined to be identified because the deliberations are being held in private. The successor to the government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said. Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said Germany’s concern is broader than Greece, which is in its third year of a deepening recession, and centers on how its banks and economy would cope if the debt crisis spreads. “Germany is preparing for the worst, which is that the crisis in the euro zone is going to be much bigger for everyone,” Erixon said. With a loss in her home state of Mecklenburg-Western Pomerania, Merkel’s coalition has been defeated or lost votes in all six state elections this year as voters reject putting more taxpayer money on the line for bailouts. Fifty-three percent of Germans oppose further aid for Greece and wouldn’t save the country from default unless it fulfills terms of the rescue agreement, Bild am Sonntag reported, citing an Emnid poll of 503 respondents conducted Sept. 8. French Budget Minister Valerie Pecresse her nation would halt its loans to Greece if the country doesn’t keep to its bail-out pledges, the Wall Street Journal reported, citing a television interview on French channel M6.
- Biggest French Banks May Have Ratings Cut by Moody's on Greek Holdings. BNP Paribas (BNP) SA,
Societe Generale SA and Credit Agricole SA (ACA), France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said. Moody’s placed the three banks’ ratings on review in June to examine “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the rating company said at the time. Cuts are likely as the review period concludes, said the people, who declined to be identified because the matter is confidential. - Papandreou OKs More Taxes, Spending Cuts to Dodge Default. Prime Minister George Papandreou, vowing to avoid a default and keep Greece in the euro, approved new measures to help plug a yawning budget gap as resistance builds at home and in Europe to extending more aid to the European Union’s most-indebted nation. The Cabinet yesterday voted to cut one month’s wages from all elected officials and impose an annual charge on all property for two years, to be levied through electricity bills to ensure rapid collection, Finance Minister Evangelos Venizelos told reporters in the northern Greek city of Thessaloniki. The government now expects the economy to shrink 5 percent this year, worse than the June estimate of 3.8 percent from the EU and International Monetary Fund, and a deeper contraction than in the past two years. The forecast damps hopes that Greece will meet its pledge to lower its budget deficit to 7.5 percent of gross domestic product in 2011, with the government blaming the slump for a budget gap that widened 25 percent in the first seven months of the year.
- Europe May Need to Bail Out, Nationalize Some Banks, Westpac's Jones Says. European officials may have to bail out and nationalize some private banks to avoid another global recession, said Russell Jones, global head of fixed-income strategy at Australia’s second-biggest lender. “The last thing really the global economy needs now is a major banking crisis in the euro zone,” Jones, of Sydney-based Westpac Banking Corp., said in an interview yesterday on the Australian Broadcasting Corp.’s “Inside Business” program. “The governments are going to have to put their hands in their pockets.” A European banking collapse is “the sort of shock to the system when things are very fragile, as they are at the moment, that could really push us back into the sort of downturn we experienced in 2008 and 2009,” Jones said, according to a transcript of the interview. Nationalization is possible, “at least temporarily so,” he said.
- Draghi's Hands May Be Tied on ECB Stimulus. Mario Draghi may find it harder to keep the European Central Bank in the vanguard of the battle against the euro region’s debt crisis after Juergen Stark resigned in protest at the bank’s bond purchases. With speculation of a Greek default heaping pressure on the ECB to step up its bond buying and reverse interest-rate increases to ease market tensions, Stark’s shock move has publicly exposed a rift among policy makers that may undermine its ability to act quickly, economists said. German opposition to further ECB stimulus may also make Draghi less inclined to ease policy when he takes over from ECB President Jean-Claude Trichet on Nov. 1, said Marco Valli, chief euro-area economist at UniCredit Group in Milan. “It would be very easy for Germans to say here comes the Italian, he’ll cut rates and buy government bonds in massive amounts,” Valli said. Draghi “will probably prefer to err on the side of hawkishness on standard measures, which means he may be reluctant to go for a rate cut.”
- Euro May Waken Against Dollar as German Exports Decline: Chart of the Day. The euro is poised to weaken against the dollar as falling German exports add to evidence that the region’s largest economy is losing momentum, according to FxPro Financial Services Ltd. The CHART OF THE DAY shows seasonally adjusted German exports grew 16 percent in the year through April, while the euro gained 11 percent. They slid 1.8 percent in July from June, when they dropped 1.2, according to the Federal Statistics Office in Wiesbaden on Sept. 8. The 17-nation currency was little changed against the dollar in the period. The decline in exports increases the likelihood that the euro will decline, FxPro said. “Should the German export machine continue to lose traction, then this is likely to place further pressure on the euro,” Michael Derks, chief strategist at FxPro in London, said by telephone on Sept. 9. “Germany relies on foreign demand to prosper, so with the rest of Europe and the U.S. hunkering down, it will suffer. A weakened Germany cannot be good for the euro at such an incredibly uncertain time.”
- Taxing Rich Alone Won't Balance Budget, Schwarzman Writes in FT. Blackstone Group LP (BX) Chairman and Chief Executive Officer Stephen Schwarzman said raising taxes on the wealthiest 2 percent of Americans alone won’t be enough to curb the U.S. budget deficit and called for an end to “targeted class warfare.” “For any future budget adjustments to be effective, we cannot exempt any group or special interest, except for the poor and disadvantaged,” Schwarzman wrote in an op-ed article in the Financial Times posted on the newspaper’s website today. “Unless we end targeted class warfare in the U.S., we cannot solve our economic problems or stop a long period of potential decline.” Schwarzman called for “a united front” of business leaders, hourly wage earners, retirees, farmers and small business owners to help restore fiscal balance.
- Home-Shortage Myth Pits Blogs Versus Banks in Call Australia Set for Downturn. Australia, where home prices are falling at the fastest rate in more than two years, may have a glut of properties.
- Funds Boost Bullish Commodity Bets on Outlook for Economic-Stimulus Plans. Funds increased bullish bets on raw materials for a fourth straight week, the longest series of gains this year, on speculation that economic-stimulus programs will lift demand for metals, grains and energy. In the week ended Sept. 6, speculators raised their net- long positions in 18 commodities by 0.2 percent to 1.28 million futures and options contracts, government data compiled by Bloomberg show. That’s the highest level since June 14. Funds became bullish on copper for the first time in three weeks, and wagers on a gold rally increased for the first time since early August. The Standard & Poor’s GSCI Index of 24 commodities has surged 27 percent in the past year as the Fed kept U.S. borrowing costs near zero percent and bought Treasuries in a bid to stimulate growth. “The printing presses of various governments running overtime is likely to keep the commodity markets hot and volatile for quite some time,” Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey, said in a telephone interview on Sept. 9. Investors poured $240 million into commodity funds in the week ended Sept. 7, the first inflow in four weeks, according to EPFR Global, a Cambridge, Massachusetts-based research company.
- Oil Drops a Third Day on Europe Concern; Gulf Storm Threat to Output Eases. Oil slid for a third day in New York as investors bet demand for fuel may falter amid signs European policy makers are struggling to contain the region’s debt crisis. Gulf of Mexico producers resumed production as the threat of storms eased. Futures slipped as much as 1.3 percent as speculation that Germany is preparing for a Greek default sent the euro lower against the dollar, limiting the appeal of commodities. About 6 percent of oil output remains shut after Tropical Storm Lee passed, compared with 27 percent a week ago. Nate weakened to a depression as it moved further inland over Mexico, according to the U.S. National Hurricane Center. Crude for October delivery fell as much as $1.15 to $86.09 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.15 at 11:15 a.m. Sydney time. The contract slipped $1.81 to $87.24 on Sept. 9. Prices are 12 percent higher the past year. Brent oil for October settlement decreased 98 cents, or 0.9 percent, to $111.79 a barrel on the London-based ICE Futures Europe Exchange. The European benchmark contract was at a premium of $25.62 to U.S. futures, compared with the record settlement of $26.87 on Sept. 6.
- UAW Said to Seek Record $10,000 Signing Bonuses in Talks With Automakers. The United Auto Workers, bargaining a new contract with U.S. automakers, is seeking a signing bonus of as much as $10,000, more than three times higher than the payment workers received for endorsing the current accord, according to four people familiar with the proposal.
- G-8, International Lenders Mobilize $38 Billion for Arab Spring. Western and Middle Eastern governments pledged to help Egypt, Tunisia, Morocco and Jordan make the transition to democracy, mobilizing $38 billion of financing, mostly through international lending organizations. The four countries presented national action plans to develop their economies at a meeting yesterday in Marseille, France. Libya sent representatives to the gathering, hoping eventually to join the so-called Deauville Partnership. The aid is intended to support economies and create jobs as the countries undertake the delicate process of opening up their political systems and holding free elections.
- Egypt Declares Emergency After Attack on Israeli Embassy. Egypt’s ruling military council declared a state of emergency to restore order after protesters attacked the Israeli embassy in Cairo. Israel’s Prime Minister Benjamin Netanyahu told his nation last night that the incident had damaged “the fabric of peace” between the two countries while declaring his commitment to the 32-year alliance. Egyptian commandos rescued embassy security personnel and civil security forces dispersed protesters gathered outside the embassy for a second day. One person outside the embassy died of a heart attack and 448 people were injured in both incidents, Egypt’s state-run Nile News said. At least two people died in the embassy protests, the BBC reported, citing unidentified officials.
- Carry Trades Lose Most in a Year as Dollar Gains on Slow Growth. Slowing economic growth around the world is punishing investors who bet on Australian and Brazilian assets using money borrowed in dollars and yen with the biggest losses in more than a year. A UBS AG index tracking the performance of carry trades where investors sell currencies with low interest rates to buy ones in 24 markets with higher yields has tumbled 2.6 percent this month after losing 2.2 percent in August and 3.1 percent in July, the biggest back-to-back monthly drop since May and June 2010. The dollar has appreciated 5.5 percent against a basket of nine developed-nation peers from its low this year on Aug. 1, with the yen up 4.1 percent from the same day, according to Bloomberg Correlation-Weighted Currency Indexes.
- America Grieves, Reflects. America paused Sunday to remember what was lost and how it has changed forever a decade after four hijacked jetliners felled New York City's twin towers, split open the Pentagon and bore into the ground in a quiet Pennsylvania meadow. The anniversary of the Sept. 11, 2001, terror attacks provided a moment to take stock of 10 years of war and worry, while at the same time paying tribute to honorable deeds performed not only in the earliest moments of the attack, but in the years since as well. In New York, thousands of guests visited for the first time a monument that pierces Manhattan's bedrock where the World Trade Center towers formerly stood. President Barack Obama read from Psalm 46, chosen, a spokesman said, for its message of perseverance. "God is our refuge and strength," Mr. Obama said. "He breaks the bough and cuts the spear in two." Former President George W. Bush read from a letter written by President Abraham Lincoln to a mother who had lost five sons in the Civil War. "I feel how weak and fruitless must be any words of mine," he said. "I cannot refrain from tendering to you the consolation that may be found in the thanks of the republic they died to save."
- A Decade Later. (pics)
- Treasury Weighs New Tax Scheme. The Treasury Department is considering a proposal to eliminate some but not all taxes on the overseas profits of U.S. multinational companies, a central element of the administration's broader plans to overhaul the corporate-tax code, according to two people familiar with the deliberations. U.S. businesses have pushed hard to exempt all overseas earnings from U.S. taxes, claiming the current system puts them at a disadvantage to foreign competitors. The taxation of overseas income is a political hot potato. Liberals and trade unions have warned that eliminating U.S. taxes on overseas earnings could encourage even more businesses to shift operations and jobs overseas.
- Fed Scrutinizes Capital One - ING Deal. The Federal Reserve asked Capital One Financial Corp. to respond to questions that appear aimed at determining whether the proposed acquisition of ING Groep NV's U.S. online-banking business would create a bank so large and complex that its failure would pose a risk to the financial system. Capital One, the ninth-largest bank in the U.S. by deposits, was pressed by the Fed in an Aug. 29 letter for details about "the nature and dollar volume" of financial activities in which both companies are involved.
- IMF Likely to Re-Activate $580B Resource Pool Amid Europe Crisis - Sources. The International Monetary Fund will likely re-activate a $580 billion resource pool in coming weeks to ensure it has funds to help cover Europe's worsening sovereign-debt crisis, according to several people close to the matter. The IMF activated the so-called New Arrangements to Borrow in April of this year for a six-month period. The IMF's board, which met informally on the issue late Friday afternoon, would have to approve re-activation of the resource pool if the fund wants to tap it beyond September. "A large majority of the board members are in favor of re-activating the NAB," as a precautionary measure, one of the people said. The board is scheduled to formally approve activation next Friday, the person said. David Lipton, first deputy managing director at the IMF, said recently in a private meeting that keeping the NAB available may be necessary in coming months given Europe's debt meltdown, people familiar with the matter said. The crisis is entering a dangerous new phase as the risk of Greece defaulting rises and Italy and Spain's sovereign debt has come under attack. Lipton didn't specify whether the facility needed to be tapped for a specific country, the people said. According to the IMF, the pool of supplementary resources are only to be activated when "needed to forestall or cope with a threat to the international monetary system." The pool can only be activated by the board after IMF managing director makes a special request. IMF Managing Director Christine Lagarde said in a speech earlier Friday that increased risk in the global economy means "a heightened readiness to respond" is required. So far, the IMF has already allocated nearly $7 billion from the NAB. In total, the NAB can provide up to about $580 billion in supplemental resources to the IMF, but only around $331 billion is currently available for use. Based on how much cash the fund can commit to within the next year--around $394 billion--without the special kitty, the IMF would only have around $60 billion on hand. The board of governors agreed in December to roughly double quotas from around $375 billion to around $750 billion. But out of the 187 member countries, only 17 have legally accepted the increase, including Japan, the U.K. and Korea. Most of the countries with the biggest quotas, such as the U.S., China and Germany, haven't yet gone through the legal process, such as parliamentary or congressional approval, need to hand over their promised dues. In the meantime, the NAB ostensibly gives the fund enough firepower to continue to finance its European programs, including a possible but increasingly unlikely second Greek bailout. It could even help Europe finance a bailout of Spain, should the country need it. But, says Domenico Lombardi, a former representative for Italy to the IMF and now a Brookings Institution economist, the IMF doesn't have nearly enough resources to bail out Italy. The current political consensus, however, is for Europe to continue to provide the lion's share of bailout cash for its own sovereign-debt crisis. One new element of that is increased concern from Asian countries that believe the IMF is already too invested in Europe and needs to preserve resources for potential emerging market needs if the global economy continues to weaken. Additionally, it's politically unlikely the IMF's biggest funder, the U.S., would be able to get more financing through Congress. Although it's not expected to be get full support in both chambers, the House appropriations committee has passed legislation that would de-fund the $108 billion NAB contribution to the NAB, and there is marginal support for similar legislation in the Senate.
- Amazon.com(AMZN) in Talks to Launch Digital-Book Library. Amazon.com Inc. is talking with book publishers about launching a Netflix Inc.-like service for digital books, in which customers would pay an annual fee to access a library of content, according to people familiar with the matter.
- French Budget Minister Valerie Pecresse said France would halt its loans to Greece if the country doesn't keep to its bail-out pledges, citing a television interview on French channel M6. Greece, which promised to stick to a program including spending cuts, the sale of state-owned companies and raising tax revenues, "must make efforts, otherwise we won't lend to them," Pecresse said.
- As Middle Class Shrinks, P&G(PG) Aims High and Low. For generations, Procter & Gamble Co.'s growth strategy was focused on developing household staples for the vast American middle class. Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.
- A Long-Term Case for Stocks. Prof. Sylla is a financial historian at New York University's Stern School of Business, studying market behavior all the way back to 1790. By analyzing patterns detected years ago with two colleagues, he accurately predicted in 2000 the decade of overall declines that haunted investors. Now, Prof. Sylla has made a new forecast at the request of The Wall Street Journal. Better days lie ahead, he says.
- How to Fight Black Unemployment. The tragedy of the failed stimulus is felt hard in minority communities. There's a better way.
- Canada's Oil Sands Are a Jobs Gusher.
- Crucial Italy Austerity Package Enters Home Stretch. Italy's often revised 54-billion-euro austerity package enters the final stretch on Monday when cuts aimed at balancing the budget by 2013 go before the lower house of parliament, with approval due later in the week.
- Hedge Funds In Trouble, Waiting for the Rally of a Lifetime. Hedge Funds are at risk of ending two of the past four years in the red. In an attempt to avoid that fate, they cling to a hope that core holdings in equity markets will rebound in the coming months. "Barring a rapid rebound in the final months of the year, traders are now staring at the prospect of another negative year, after a loss of some 27 percent in 2008 according to HFRI, and of no lucrative performance fee for some time to come."
- Goldman's(GS) Complete Economic Outlook From Now Through 2012.
- A Big, Bullish Argument for the US Dollar.
Zero Hedge:- The Two Year Anniversary of "China's Ghost Cities" Epic Keynesian Fail. (video)
- German Economy Minister: "Greek Default Can't Be Ruled Out" and "We Need A Bankruptcy Procedure.
- Goodbye Euro, Hello Drachma.
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).
- 77 Americans Wounded in Afghan Truck Bombing. Nearly 80 American soldiers were wounded and five Afghans civilians were killed in a Taliban truck bombing targeting an American base in eastern Afghanistan, NATO said Sunday, a stark reminder that the war in Afghanistan still rages 10 years after the Sept. 11 terror attacks against the United States.
- Thai rice subsidy scheme to push up world prices. What's good for Thai farmers, who have long complained of being shortchanged by middlemen, is proving less popular elsewhere in Asia. The effects of the rice policy are rippling through the region, where many countries are already struggling with fast rising food prices. Thailand's rice exporters say they will ship less overseas because they will be unable to compete with the price the government pays. That in turn will tighten the global rice market, forcing up the staple's price in other countries.
Barron's:
- Made positive comments on (JAH), airlines and semis.
- Asian indices are -3.25% to -1.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 175.0 +16.0 basis points.
- Asia Pacific Sovereign CDS Index 157.0 +10.0 basis points.
- FTSE-100 futures -1.48%.
- S&P 500 futures -.97%.
- NASDAQ 100 futures -.67%.
Earnings of Note
Company/Estimate
- (PCYC)/-.13
- None of note
- (PII) 2-for-1
- The Fed's Fisher speaking, Keybanc Basic Materials/Packaging Conference and the Barclays Capital Financial Services Conference could also impact trading today.
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