Monday, February 06, 2012

Monday Watch

Weekend Headlines

  • Europe Leaders Maintain Pressure on Greece. European leaders maintained pressure on Greece to accept terms demanded by international lenders during a weekend of talks to avert a financial collapse. Interim Greek Prime Minister Lucas Papademos struck a tentative deal with party leaders to boost economic competitiveness and extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro ($170 billion) aid package wasn’t forthcoming. “If we determine that it’s all going wrong in Greece, then there won’t be a new program -- and that means in March you’ll have a declaration of bankruptcy,” Luxembourg’s Jean-Claude Juncker, who chairs euro finance meetings, told Der Spiegel magazine in an interview published yesterday. The effort to keep Greece from tumbling into default presents what Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann this weekend called a “make or break” moment. While Greek leaders reached their framework agreement yesterday, New Democracy leader Antonis Samaras said he would “fight” demands made by the so-called troika of international creditors that could deepen a recession. The leaders in Athens will meet today aiming to complete an accord as international creditors imposed an 11 a.m. deadline in Athens for a final deal. Greek Finance Minister Evangelos Venizelos told reporters Feb. 4 that negotiations in Athens for more funding hung “on a razor’s edge.” In Paris, German Chancellor Angela Merkel and French President Nicolas Sarkozy meet today for a joint Cabinet meeting.
  • Merkel Ally Opposes Marshall Plan for Greece, Tagesspiegel Says. Peter Altmaier, the chief whip for Chancellor Angela Merkel’s Christian Democrats, opposes a Marshall Plan for Greece, Tagesspiegel reported, citing an interview. The idea of buying growth with government money was adopted in the 2008 financial crises and accelerated the outbreak of the debt crisis, the newspaper cited him saying in a preview of an article for tomorrow’s edition. Such a stimulus plan isn’t possible now because there is no money left to spend, Altmaier said, according to Tagesspiegel.
  • EU, IMF Insist on Greek Minimum Wage, Bonus Cuts, Mega TV Says. Greece’s international creditors insist the country cut its minimum wage as a condition of the second financing package for it being discussed in Athens, Mega TV reported, citing unidentified ministers who met with Finance Minister Evangelos Venizelos earlier today. Officials from the European Commission, European Central Bank and International Monetary Fund, the so-called troika, demanded the minimum wage be cut to less than 600 euros ($790) a month and that at least one holiday allowance, the so-called 13th and 14th wages, be abolished, Mega TV said. Pensions paid by supplementary funds should be cut by 35 percent, the Athens- based channel said. Of 4.4 billion euros of measures needed to meet targets for 2011 and 2012, 1.5 billion euros will come from cuts in health- care and defense spending, Mega said. None of the measures should be from tax increases or new levies, it reported.
  • Spain Economy May Shrink 1.5% in 2012, de Guindos Tells El Pais. The Spanish economy may shrink about 1.5 percent this year, prompting the government to agree with the European Union on new targets for the country’s budget deficit reduction, Economy Minister Luis de Guindos told El Pais. Spain’s current 2012 deficit target of 4.4 percent was set based on gross domestic product growth of 2.3 percent and is in agreement with the European Union, de Guindos told El Pais. “The deficit reduction should generate confidence but not a negative impact on the economic evolution,” de Guindos told El Pais. “The circumstances have changed, but we have commitments with our communitarian partners so we can’t unilaterally decide.”
  • Hedge Funds Underestimating Europe's Will to Force Greek Losses. Hedge funds seeking to wring profits from a Greek debt restructuring are underestimating the will of policy makers to impose losses on them, according to investors who say trying to beat the politicians is too risky. “It’s hard for us to come up with an investment thesis that makes it interesting,” said Robert Rauch, a partner at New York-based Gramercy Advisors LLC, a $2.7 billion hedge fund that has avoided investments in Greek debt. “It’s not clear to us that out of this process you can make any money.”
  • China's Economy May Face 'Rough' Landing, Singapore's Lee Says. China's economy may be headed for a "rough landing," Singapore Prime Minister Lee Hsien Loong said. "They've built a lot of infrastructure. They have built a lot of capacity in many industries, autos, some of the electronics industries," Lee said, according to a transcript of an interview airing today on CNN's" Fareed Zakaria GPS" program. "There may be a rough landing, but they will get through it." A Chinese government report on Feb. 1 showed that export orders fell last month even as manufacturing expanded. The stronger manufacturing boosted concern that that the world's second-largest economy will decelerate further as the government refrains from loosening monetary policy to tame inflation and curb property prices.
  • China Suffers From Lowest Lunar Sales Growth Since 2009: Retail. Chinese shoppers on their Lunar New Year holiday were less lavish than expected at Hong Kong jewelers, curbed spending on beauty brands and slowed spending at South Korean stores. They may keep that pace in the coming year of the dragon. Holiday sales on the mainland grew 16 percent to 470 billion yuan ($75 billion), according to data from the Ministry of Commerce, the slowest pace since the 2009 financial crisis and three percentage points below last year’s increase. China is finding it is not immune to global economic forces and the slowdown is hitting Chinese consumers, who may increase this year’s spending at a slower pace than in 2011. This may mean trouble for the growing number of foreign companies rushing into China, especially luxury brands, said Jason Yuan, an analyst at UOB Kay Hian in Shanghai. “This year is going to be tough, probably the toughest year for many foreign luxury brands since they entered into China,” he said. “Sales of jewelry and valuable watches during Chinese New Year were quite disappointing,” said Caroline Mak, chairman of the Hong Kong Retail Management Association. “Sales growth of over 30 percent last year is unsustainable against a worsening macro-economic backdrop.” Some member jewelers reported customers buying smaller diamonds than they used to, she said.
  • China May See Deeper Slowdown on Crisis: IMF. China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund said. Based on the IMF’s “downside” forecast for the global economy, China’s growth could drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent this year, the organization said in a report released today by its China office in Beijing. The outlook expands on the IMF’s warning last month that the world could plunge into another recession if Europe’s woes deepen. Premier Wen Jiabao reiterated last week his government will “fine-tune” policies to support growth amid the region’s debt crisis and the cooling domestic property market. “China’s growth rate would drop abruptly if the euro area experiences a sharp recession,” the Washington-based IMF said.
  • Bullard Says Fed Bond Purchases Not Needed as U.S. Unemployment Rate Falls. A new round of Federal Reserve bond purchases isn’t warranted because the U.S. job market and broader economy are strengthening faster than expected, according to St. Louis Fed President James Bullard. “The economic news and economic data, including today’s data, has been surprising to the upside,” Bullard said yesterday, referring to employment gains. “I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before” backing more bond buying by the Fed, he said in a Bloomberg News interview. Bullard, who doesn’t vote on monetary policy this year, was the first Fed official in 2010 to call for a second round of asset purchases. Unlike then, the U.S. isn’t at risk of a broad decline in prices similar to what beset Japan, he said. “Inflation is coming down, but at least for now it is above our inflation target” of 2 percent, Bullard said. “We will see how things develop. But I am also more bullish on the economy as a whole. I do think we have momentum coming out of 2011.” The Federal Open Market Committee pledged Jan. 25 to keep the benchmark interest rate at a record low at least until late 2014. Bullard said he would have dissented from the decision because he opposes tying policy to a calendar date. The committee has “almost no ability to forecast that far in the future,” he said. “My own guess is we will have to move before” late 2014 and begin removing accommodation, Bullard said. The FOMC will continue to debate the date over coming meetings, he said. “When the economy does change, the economic outlook changes significantly, then the committee is going to come under pressure to change the date,” he said. The 2014 pledge by the FOMC “does send a very pessimistic signal about the U.S. economy,” he said. “The truth is, what basis do we have to send such a pessimistic signal?
  • Crude Declines on Greek Debt Concern. Oil fell from a three-day high on concern Greece’s steps to avert a financial collapse may fall short, threatening Europe’s economy and demand for fuel. Futures dropped as much as 0.8 percent before a deadline for Greece to accept terms demanded by international lenders on a bailout package.
  • Paulson's Advantage Plus Hedge Fund Said to Rise 5% in January. John Paulson, the billionaire money manager who had his worst year on record in 2011, posted a 5 percent gain in January in one of his largest hedge funds as all strategies rose, according to a person briefed on the returns. Paulson & Co., which is based in New York and manages about $24 billion, lost money in what he called an “aberrational year” on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp. (TRE), the Chinese forestry company accused by short-seller Carson Block of overstating timberland holdings. Paulson’s Advantage Plus Fund had a 51 percent loss in 2011. The gold share class of the Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, increased 7.4 percent in January.
  • JPMorgan(JPM), BofA(BAC) Sued by New York Over Use of Mortgage Database. JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. were sued by New York Attorney General Eric Schneiderman over the use of a mortgage database that the state said led to improper foreclosures. The banks’ use of the database, known as MERS, misled homeowners, undermined foreclosure proceedings and created uncertainty about ownership interests in properties, the state said in the complaint filed yesterday in New York State Supreme Court in Brooklyn.
  • Blankfein Gets $7 Million in Stock for 2011. Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, gave Chairman and Chief Executive Officer Lloyd Blankfein a $7 million restricted-stock bonus for 2011, a decrease from $12.6 million a year earlier. Blankfein, 57, received 61,702 shares on Feb. 1, according to a filing with the U.S. Securities and Exchange Commission. The stock closed at $113.45 in New York that day. Goldman Sachs raised Blankfein’s salary to $2 million last year from $600,000. Goldman Sachs’s 2011 earnings dropped 47 percent to the lowest level since 2008 on a second consecutive annual decline in fixed-income trading revenue. The New York-based firm reduced compensation 21 percent and eliminated 2,400 jobs. The stock fell 46 percent in 2011, more than the 18 percent drop in the S&P 500 Financials Index.
  • Team Obama Shows Dangerous Penchant for Hubris: Albert R. Hunt. President Barack Obama is headed for political turbulence. That prediction isn’t based on any private polling data or inside information. It’s just common sense: National political campaigns are cyclical, and after an especially good cycle, the Democratic president is due for some downtime. On re-election prospects, the Obamaites are confident when they look at the state of the race, especially the Republicans. They’re showing signs of cockiness. The Bushes were in town for the annual black tie dinner the next night at the Alfalfa Club, a gathering of business and political elites. The two featured speakers, both intended to be brief and humorous, were Obama and Jeb Bush. The president spoke to good reviews. He left before Bush spoke. Obama hates such dinners. Some of his aides, in particular his political adviser David Plouffe, urged him not to spend an evening mingling with the 1 percent. Yet he chose to go, and attendees said it was the first time they could recall a speaker leaving before the other side had its fun. In addition, Obama’s 87-year-old predecessor was present. Imagine the criticism five years ago if President George W. Bush had walked out on a dinner before Hillary Clinton spoke, with Bill Clinton in the audience.

Wall Street Journal:
  • Romney Builds Momentum. Mitt Romney, buoyed by a fresh victory in Nevada, appears to be shoring up support among the conservative voters who once appeared tempted by his rivals, putting the former Massachusetts governor in the strongest position since Republicans began voting a month ago.
  • China's Export Pain May Be Mexico's Gain. Buying stuff from China isn't such a bargain anymore. One consequence of that: Companies that move freight from Mexico are getting busier. China has long been the destination for companies looking to cut costs. A huge population of untapped workers, along with a leadership keen to build out the country's manufacturing infrastructure, made it the world's best place to make things cheaply. But nothing lasts forever. The pool of Chinese workers is getting shallower. China's one-child policy and cultural preference for boys have led to a shrinking population of young people.
Business Insider:
Zero Hedge:


  • China Cuts Dividend Payouts for State Banks. China's Central Huijin Investment Co, the state parent of the country's "Big Four" state banks, said it would cut the dividend payout ratio for three lenders to help relieve their capital strains.
  • Regulator to Challenge European Banks' Capital Plans. The European Banking Authority is to challenge a significant proportion of the capital restructuring plans put forward by the continent’s leading banks to meet tough new capital requirements, say three people familiar with the process. The regulator said in December that 30 banks needed to boost capital by an aggregate €115 billion to reach a 9 percent target for core tier one capital, a key measure of financial strength. The banks were given until January 27 to submit plans to the EBA, via national regulators, outlining how they would meet the requirement. The plans will be discussed by the EBA board next week. According to one person close to the process, as much as half of the measures outlined in those plans do not look credible. There are two particularly contentious tactics being employed — shifting the way in which a bank calculates the risk-weighting of its assets; and promising asset sales that are unlikely to attract buyers. Projected profits for the period to June also appeared over-confident in some cases, given the worsening outlook for the eurozone economy.
LA Times:
  • Egypt Says 19 Americans Will Be Ordered To Stand Trial. Relations between Washington and Cairo plummeted further Sunday when Egypt's military-controlled government announced that 19 Americans working for pro-democracy groups, including the son of a Cabinet official, would be ordered to stand trial on licensing and financial charges. The provocative decision by investigating judges comes as the U.S. has threatened to suspend $1.3 billion in annual aid to Egypt's military. It highlights the widening divide between Washington and one of its closest allies over democratic reforms at a time of sweeping political upheaval across North Africa and the Middle East. State media reported judges have referred 43 people, including 19 Americans, to be prosecuted on charges of violating foreign funding laws for nongovernmental organizations working in Egypt. One of them is reported to be Sam LaHood, the Egypt director of the Washington-based International Republican Institute, or IRI, and son of U.S. Transportation Secretary Ray LaHood.
NY Times:
  • A Mortgage Tornado Warning, Unheeded. YEARS before the housing bust — before all those home loans turned sour and millions of Americans faced foreclosure — a wealthy businessman in Florida set out to blow the whistle on the mortgage game.


Huffington Post:

  • Anger After Russia, China Block U.N. Action on Syria. Western and Arab states voiced outrage Sunday after Russia and China vetoed a U.N. resolution that would have backed an Arab plan urging Syrian President Bashar al-Assad to give up power, and Washington vowed harsher sanctions against Damascus. U.S. Secretary of State Hillary Clinton called the veto a "travesty." It came a day after activists say Syrian forces bombarded a district of Homs, killing more than 200 people in the worst night of bloodshed of the 11-month uprising.Russia said the resolution was biased and would have meant taking sides in a civil war. Syria is Moscow's only big ally in the Middle East, home to a Russian naval base and customer for its arms. China's veto appeared to follow Russia's lead.Washington's U.N. ambassador Susan Rice said she was "disgusted" by Russia and China's vetoes Saturday, and "any further bloodshed that flows will be on their hands. "British Foreign Secretary William Hague said Moscow and Beijing had turned their backs on the Arab world. France's Alain Juppe said they "carried a terrible responsibility in the eyes of the world and Syrian people."
  • Goldman's(GS) Blankfein Campaigns for Gay Marriage.
Financial Times:
  • Greek Politicians Oppose Government Austerity Cuts. Greece's coalition government has opposed proposals that seek to cut state-funded jobs and reduce salaries. Representatives from the Pasok, New Democracy and Laos parties won't support the measures sought by the members of the so-called troika: the European Commission, the European Central Bank and the IMF.
  • Iran Softens Line on Cutting Oil to Europe. Iran has indicated that its threat to cut oil supplies to European states in order to pre-empt a European Union oil embargo that comes into effect in July may be only a symbolic one.
The Telegraph:
  • French Socialists' Latin Revolt Against Germany. The half-century habits of Franco-German condominium die hard. It is a painful process for French elites to admit that monetary union is asphyxiating their economy and must inevitably trap France in mercantilist subordination to Germany.
  • Equity Markets Sing a Different Tune From IMF. Global investor sentiment is now not only split down the middle, but the split is getting deeper and wider. The optimists and pessimists are further apart than ever.
  • US Hedge Funds Capitalise On Lehman Collapse. It may sound impossible but one of the best financial investments of the past three years has been a collapsed bank. And not just any bank but Lehman Brothers, the world’s biggest bankruptcy.
  • Iran is intimidating some of the BBC staff working for the Persian service. Families of those working outside of Iran are also being targeted, citing Mark Thompson, its director general.


  • Syrian Forces 'torture children as young as 13'. Children as young as 13 are a particular target in the "rampant" use of torture by Syrian government forces battling opposition protests, Human Rights Watch said in a report released Friday. The United Nations says hundreds of children have been killed in the crackdown over the past 10 months, and the rights group highlighted cases of children shot in their homes or on the street, or grabbed from schools. It documented 12 cases of children tortured in detention centres and said many more may have suffered similar treatment. "In many cases, security forces have targeted children just as they have targeted adults," said Lois Whitman, children?s rights director at the New York-based Human Rights Watch. The group's report said more than 100 people who had been held by security forces "described rampant use of torture in detention centres against even the youngest detainees, even beyond the 12 cases specifically documented." "Children, some as young as 13, reported to Human Rights Watch that officers kept them in solitary confinement, severely beat and electrocuted them, burned them with cigarettes, and left them to dangle from metal handcuffs for hours at a time, centimetres above the floor," the report said.The parents of one 13-year-old boy from Latakia said he was detained for nine days in December after being accused of burning photos of Syrian president Bashar al-Assad, inciting protests and vandalizing security forces? cars.Security officers burned the boy with cigarettes on his neck and hands and threw boiling water on him, the parents were quoted as saying.Another 13-year-old told Human Rights Watch that security forces tortured him for three days at a military security branch after he was detained in May.He said he fell unconscious after being electrocuted on the stomach."When they interrogated me the second time, they beat me and electrocuted me again. The third time they had some pliers, and they pulled out my toenail," the boy was quoted as saying.

Yonhap News:

  • North Korea Developing Unmanned Attack Aircraft From U.S. Drones: Source. North Korea is developing unmanned attack aircraft using U.S. target drones purchased from the Middle East, a military source in Seoul said Sunday, indicating the aircraft will likely target the South. "North Korea recently bought several U.S. MQM-107D Streakers from a Middle Eastern nation that appears to be Syria, and is developing unmanned attack aircraft based on them," the source said on condition of anonymity.
Weekend Recommendations
  • Made positive comments on (TIVO), (ICON) and (MET).
  • Made negative comments on (BWLD).
Night Trading
  • Asian indices are -.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 161.50 -8.0 basis points.
  • Asia Pacific Sovereign CDS Index 137.75 -3.75 basis points.
  • FTSE-100 futures +.06%.
  • S&P 500 futures -.31%.
  • NASDAQ 100 futures -.16%.
Morning Preview Links

Earnings of Note
  • (SYY)/.44
  • (HCA)/.76
  • (CNA)/.70
  • (HUM)/1.20
  • (L)/.90
  • (HAS)/1.05
  • (CSTR)/.65
  • (DNB)/2.11
  • (APC)/.63
  • (YUM)/.74
  • (ADVS)/.14
  • (NCR)/.56
  • (VECO)/.65
  • (PPS)/.42
  • (SPF)/.02
Economic Releases
  • None of note

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The RBA Rate Decision could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

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