Monday, February 27, 2012

Monday Watch

Weekend Headlines

  • Germany Rejects 'Ever Bigger' Firewalls, Schaeuble Says. German Finance Minister Wolfgang Schaeuble rejected calls to make rescue funds “ever bigger” and reiterated the opposition of Europe’s biggest economy to joint euro-area debt issuance as means to fight the debt crisis. Writing in an op-ed in Mexican newspaper El Universal published on Feb. 24 and distributed to German reporters today, Schaeuble said that debt burdens can’t be lowered “by inflating it away,” and that debt-based strategies “stunt” growth in the long term. “Should we also mutualise sovereign debt in the euro zone?” Scaheuble said in the article. “Should the European Central Bank print money to finance the member states’ budgets? Should we make the firewalls ever bigger? The answer is an empathic no.” Schaeuble’s comments harden Germany’s stance going into a meeting in Mexico City beginning today of Group of 20 finance ministers and central bank governors that is dominated by efforts to stem Europe’s debt crisis. G-20 officials gather less than a week after Europe agreed to a second bailout for Greece in a bid to avert the euro-area’s first sovereign default. “I dare to say that Europe has done its homework,” Schaeuble said in a speech in Mexico City today, referring to a range of measures endorsed by European leaders in October. “The tightening of the interest spreads within the euro zone in recent weeks shows that we’re on the right course.” Schaeuble said that budget consolidation and more flexible labor markets and wages are necessary “if euro-zone countries want to grow in the long run, if we want the euro to be a stable and lasting currency,” Schaeuble said. “That’s the only way we’ll be able to restore confidence.”
  • G-20 Snubs Germany on IMF Funding. Germany was left to dig deeper to combat the euro-area debt crisis after the Group of 20 nations told Europe to come up with more financial firepower before they consider lending outside support. The decision by G-20 officials to rebuff European calls for assistance in their crisis-fighting effort pending an increase in its own financial backstop puts the onus on Germany, already the biggest national contributor to bailouts, to overcome its resistance to doing more. With a parliamentary vote on a second Greek aid package looming in Berlin today, Chancellor Angela Merkel’s government must now decide whether to back plans at a March 1-2 European Union summit to combine rescue funds and produce a potential firewall of 750 billion euros ($1 trillion). Europe “doesn’t really need any outside money,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an e-mail. “It needs their own policy makers, especially Germany, to show leadership.”
  • Spanish Economy Minister to Meet John Paulson, Expansion Says. Spanish Economy Minister Luis De Guindos will meet Paulson & Co. hedge-fund founder John Paulson as he seeks investor support for government reforms, Expansion said, citing unidentified people familiar with the matter. Guindos’s finance-industry meetings on Feb. 27, to promote initiatives such as Spain’s bank-overhaul plan, include sessions with Richard Axilrod, a managing director at Moore Capital Management LLC hedge fund, and Derek Kaufman, head of global fixed income at Citadel Asset Management, the Madrid-based newspaper reported. The minister will also meet Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc. (GS), which is organizing Guindos’s road show along with Citigroup Inc. (C) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Expansion said.
  • The bailout that rescued Greece from a looming default has failed to restore confidence in credit markets, where traders are paying nine times more to insure European government bonds than they are for Treasuries. While European stocks are off to their best start since 1998, the relative cost of credit default swaps has risen to a record, more than double the July levels, according to CMA.
  • Paulson Said to Tell Clients Gold Fund Will Top Others. John Paulson, the hedge fund manager seeking to rebound from record losses in 2011, told investors his Gold Fund will outperform his other strategies over five years, according to a person with knowledge of the matter. The billionaire, at a meeting yesterday at the Metropolitan Club in New York, said the metal is the best hedge against currency debasement as countries inject money into their economies, said the person, who attended the event and asked not to be named because the information is private. Paulson also cited gold as a hedge against the euro currency, as a breakup may occur, and an eventual increase in inflation. The manager told clients his own money comprises 55 percent of the Gold Fund’s $1.2 billion in assets, the person said.
  • SEC Reviewing Trading Practices After Shift to Automation. The U.S. Securities and Exchange Commission is examining equity trading practices that gained dominance in the past decade amid a shift to automation, according to an official in the agency’s enforcement division. Daniel Hawke, head of the market-abuse unit, said at an event yesterday that the SEC is looking into techniques such as co-location, in which exchanges let traders place computers close to the market’s systems to shave time off executions. He said other practices under examination include the rebates that venues pay to spur transactions, direct market access where brokers let investors send orders to venues themselves, and whether the types of orders exchanges offer are being misused. Regulators are evaluating U.S. markets after rules since the 1990s boosted competition and spread stock trading across 13 exchanges and dozens of private, broker-run venues. While the shift cut investors’ costs, it made trading more complex, and scrutiny increased after a May 2010 rout erased $862 billion from equities in less than 20 minutes. Several practices Hawke highlighted are used by firms engaged in high-speed trading.
  • Murdoch Says Sunday Sun Sold 3 Million Copies as Hacking Anger Wanes. Rupert Murdoch said News Corp.’s first Sunday edition of the Sun sold 3 million copies, topping the circulation of its News of the World predecessor that he closed in the wake of a phone-hacking scandal last July.
  • BP(BP) Said to Consider $14B Spill Settlement. BP Plc (BP/) and plaintiffs suing over the 2010 Gulf of Mexico oil spill are discussing a $14 billion accord that would be funded with money originally set aside by the U.K.-based energy company for out-of-court settlements, according to three people familiar with the talks. BP would agree to close down its $20 billion Gulf Coast Claims Facility and shift the remaining $14 billion to plaintiffs who contend the spill harmed their businesses and properties, the people said. BP set up the claims fund in August 2010 to allow spill victims to receive compensation more quickly than they would by waiting for lawsuits to proceed. The fund has paid out about $6 billion so far, according to its website. The discussions between the plaintiffs and London-based BP are nearing completion, said the people, who declined to be identified because they weren’t authorized to speak publicly.
  • Warren Buffett Says Banks Victimized by Excesses of Evicted Homeowners. Warren Buffett, who controls the biggest shareholding of the No. 1 U.S. mortgage lender, said banks were victimized by some homeowners who refinanced their loans before getting evicted. “Large numbers of people who have ‘lost’ their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said Feb. 25 in his annual letter. “In these cases, the evicted homeowner was the winner, and the victim was the lender.”
  • No Company Follows Apple's(AAPL) Expanded China Audits. Apple Inc. (AAPL)’s rivals aren’t rushing to emulate the iPhone maker’s decision to subject supplier factories to audits by a labor group. Instead, they’re sticking to internal checks that may leave room for violations -- and negative public relations fallout.
  • China's Billionaire Congress Makes Capitol Hill Look Poor. The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices. The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy. That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.

Wall Street Journal:
  • U.S Bulks Up Iran Defenses. Pentagon Plans New Sea, Land Measures to Counter Any Attempt to Close Persian Gulf Oil Gateway. The Pentagon is beefing up U.S. sea- and land-based defenses in the Persian Gulf to counter any attempt by Iran to close the Strait of Hormuz. The U.S. military has notified Congress of plans to preposition new mine-detection and clearing equipment and expand surveillance capabilities in and around the strait, according to defense officials briefed on the requests, including one submitted earlier this month. The military also wants to quickly modify weapons systems on ships so they could be used against Iranian fast-attack boats, as well as shore-launched cruise missiles, the defense officials said.
  • Race Tightens as Michigan Vote Nears. Mitt Romney and Rick Santorum moved Sunday to try to prove that each is more conservative than the other ahead of a pivotal primary election here Tuesday. With polls showing the two running neck-and-neck in Michigan, Mr. Santorum was playing heavily on his working-class roots while Mr. Romney again tried to dispel conservatives' concerns about his time as governor of Massachusetts.
  • Builders Feel Bite in China. Along this city's historic canal, in a location picked for its good feng shui, a 59-acre complex of commercial and residential towers not long ago looked like a sure winner. Artists' renderings showed a forest of gleaming glass buildings, including a 40-story hotel-anchored skyscraper, overlooking yacht-bearing waterways. Even though Wuxi isn't generally considered among China's marquee cities, the country's property-mad investors were hooked. When the first 303 apartments went for sale in 2009, they sold out within four hours. Today, the Xi Shui Dong development stands less than half complete, hamstrung by its parent company's high debt.
  • Behind Corn's Squeeze Play: Farmers. A new phenomenon is underpinning corn prices: prosperous farmers. Having benefited from high prices last year, farmers are becoming more choosy about when they sell their corn. Right now, some are opting to stockpile some of their harvest, rather than sell it, a decision analysts say is helping keep corn prices relatively high. Farmers now hold about 64% of the nation's corn in storage, up from 62.7% a little over a year ago and the highest in two years, according to the latest quarterly government survey.
  • Citigroup(C) Wants Foreign Sovereign Debt Exempt From Volcker Rule. Foreign sovereign debt should be exempt from a proposed U.S. ban on proprietary trading, Citigroup Inc.'s head of global consumer banking said Saturday. "We see some risks to our financial system" from the so-called Volcker rule as it stands, Manuel Medina-Mora said in a speech at a conference of the Institute of International Finance here.
  • SEC Official Outlines Money Fund Proposals. Regulators sought to shed greater light Saturday on their controversial push to shore up the $2.7 trillion money-market mutual fund industry, while acknowledging industry concerns that overhauls could backfire and cause investors to flee for less regulated markets. Robert Plaze, a top official in the SEC's division of investment management, for the first time publicly defended part of a proposal the SEC is expected to float in the coming months that would require money funds to temporarily hold back 3% to 5% of investors' cash when they sell all their holdings at once.
  • Ford(F) Faces China Hurdles. Even With a New $490 Million Chongqing Plant, Further Expansion Could Prove Difficult. Ford Motor Co. is facing stiff industrywide regulatory obstacles to future growth in China, even as the auto maker launches a $490 million plant to boost its presence there.
  • Berkshire(BRK/A) Profit Falls 30% on Insurance, Derivatives. Warren Buffett's Berkshire Hathaway Inc. said fourth-quarter profit fell 30% as the conglomerate's insurance units struggled and derivatives bets added less to the bottom line. Mr. Buffett, who serves as Omaha, Neb.-based Berkshire's chairman and chief executive, has urged investors to evaluate the firm by how it is growing in relation to the broader market. He often draws attention to Berkshire's book value, a measure of assets and liabilities that he says understates the company's actual value but can serve as an objective indicator of the company's performance over time.
  • America's Iranian Self-Deception. Let's admit the facts about its nuclear program and then have an honest debate about what to do. Those who oppose military action against Iran under any circumstances must say so, and must accept the consequences of that statement. Those who advocate military action must also accept and consider the consequences—regional and possibly global conflict and all of the associated perils of war. But neither American nor Israeli nor any Western interest is served by lying to ourselves and pretending the predicament will go away.
  • China's Massive Property Supply Threatens Market. A virtual shutdown of China’s new home sales during the Lunar New Year holiday week could signal a major crack in buyer confidence, with some analysts seeing prices heading lower as cash-strapped real-estate developers become more aggressive in their selling.
Business Inside:
Zero Hedge:


  • WikiLeaks to Publish STRATFOR Emails. The anti-secrecy group WikiLeaks said it would begin publishing more than five million emails Monday from a US-based global security think tank, apparently obtained by hackers. In its latest high-profile disclosure, WikiLeaks said in a statement it had acquired access to a vast haul of internal and external correspondence of Strategic Forecasting Inc (Stratfor), based in Austin Texas.
  • Greek Debt Deal Merely Buys Time: World Bank's Zoellick. The latest Greek bailout totaling 130 billion euros would merely buy time, outgoing World Bank President Robert Zoellick said in an interview in Singapore with Reuters. "It's too early to know, partly it depends on the actions the Greeks have to take," he said. "I think that the European Union has dealt with Greece as one element but the core elements are really going to be the success of some of the bigger countries, such as Italy and Spain."

Wall Street All-Stars:

  • On PIGS on Drugs. An interesting article in the Swiss press this morning regarding the big Swiss drug companies, Roche and Novartis. Apparently the PIGS are not paying their drug bills. The numbers are big. The bills have been unpaid for years. Some excerpts from the article:
NY Times:
  • Auto Workers Tap Network for Obama. The United Automobile Workers union, a primary beneficiary of President Obama’s decision to rescue domestic carmakers, is now trying to return the favor.
  • Syrian Conflict Poses the Risk of Wider Strife. Now it is nearly spring again, and there is Syria. As the dead pile up and diplomacy fails to stem the violence, it is clear that this conflict is unique in significant ways, difficult to predict and far riskier to the world. Unlike Libya, Syria is of strategic importance, sitting at the center of ethnic, religious and regional rivalries that give it the potential to become a whirlpool that draws in powers, great and small, in the region and beyond.
  • Scramble Is On to Find Deal for 16 Americans in Egypt. American diplomats scrambled on Saturday to work out a deal to resolve the criminal charges against 16 Americans here on the eve of their scheduled trial in a case that has threatened to upend the 30-year alliance with Egypt. As late as Saturday evening, United States officials said they still could not predict what would happen when the trial opens Sunday.

Boston Herald:

  • North Korea Threatens Attack on Eve of US-South Korea Military Exercise. SEOUL, South Korea-North Korea’s newly installed leader Kim Jong Un threatened Sunday to launch a powerful retaliatory strike against South Korea if provoked. It was the second such threat in recent days. North Korean state media said Pyongyang’s forces would deal harshly with any threat posed by Monday’s scheduled annual South Korean-U.S. military drills, which North Korea characterize as a dress rehearsal to an invasion.
The Telegraph:
  • Spanish Revolt Brews as National Economic Rearmament Begins in Europe. Spain's new prime minister has looked into the abyss and recoiled. What is needed to save the South must endanger the North. Germany would overheat, pushing its inflation to 4pc or 5pc until Bild Zeitung erupts in Teutonic fury. It is impossible to reconcile the conflicting imperatives. My guess is that Germany's refusal to countenance any form of EU subsidies, debt-pooling, or fiscal union -- other than policing the budgets of captive states -- has definitively broken the EMU spell. Latin nations by increasingly regard talk euro of solidarity as humbug. It has been a nasty shock. The era of national economic rearmament in Europe has begun.
  • It May Well Turn Out That We Are Watching Not A Greek But A Euro Tragedy. Another week, another euro "solution". According to last week's plan, by 2020 the ratio of Greek national debt to GDP will be down to 120.5pc. You don't really need to know much more to see that we are in cloud cuckoo land.
  • European Central Bank Executive Board member Joerg Asmussen said the ECB can't commit to offering more three-year cash to euro-area banks after its second batch of loans planned this week, citing an interview.
Der Spiegel:
  • German Interior Minister Hans-Peter Friedrich said Greece would have better chances of overhauling its economy and storing growth if it left the euro area, citing an interview. Friedrich, a member of the Bavaria-based Christian Social Union that's allied with German Chancellor Angela Merkel's larger Christian Democratic Union, is her first Cabinet member to suggest Greece's exit from the euro.
  • European central banks may be unable to make a profit on Greek sovereign bonds that euro-area governments want to use in the country's second bailout, European Central Bank council member Jens Weidmann said. Weidmann said it's "not certain at all" that the bonds will make a profit, citing an interview. Risks on the central banks' balance sheets have actually increased, Weidmann said.
Die Welt:
  • Banks in Greece, Spain, Italy, Portugal and Ireland have issued $72.6 billion of bonds this year and most will probably be used as collateral for loans from the European Central Bank, citing its own research.

Bild am Sonntag:

  • Sixty-two percent of Germans want lawmakers to reject renewed aid for Greece in a parliamentary vote scheduled for tomorrow in Berlin, citing a poll. Thirty-three percent said parliament should approve German participation in Greece's second bailout, citing the Emnid poll of 500 people.
China Daily:
  • China property investment growth will slow down this year and industry adjustments will continue, citing Qin Hong, head of policy research at the country's Ministry of Housing and Urban-Rural Development. Qin said now is not an "appropriate" time to remove limits on property purchases.
China Radio:
  • China's property market is its biggest economic uncertainty, the country's state radio reported on its website, citing li Daokui, an adviser to the People's Bank of China. It is "unrealistic" to expect a rebound in property prices this year, Li said.
Weekend Recommendations
  • Made positive comments on (DAR), (TBNK), (LLY), (ELN), (PFE), (JNJ) and (VPFG).
Night Trading
  • Asian indices are -1.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 161.0 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 131.75 -1.5 basis points.
  • FTSE-100 futures -.25%.
  • S&P 500 futures -.15%.
  • NASDAQ 100 futures -.07%.
Morning Preview Links

Earnings of Note
  • (DNDN)/-.60
  • (EP)/.30
  • (AES)/.22
  • (KWK)/.00
  • (LOW)/.23
  • (VC)/.79
  • (PCLN)/5.05
  • (JOE)/-2.42
  • (SLXP)/.93
  • (CECO)/.26
Economic Releases
10:00 am EST
  • Pending Home Sales for January are estimated to rise +1.0% versus a -3.5% decline in December.

10:30 am EST

  • Dallas Fed Manufacturing Activity Index for February is estimated to rise to 15.5 versus 15.3 in January.

Upcoming Splits

  • None of note
Other Potential Market Mover7s
  • The Italian/Belgian Bond Auctions, German Lower House Vote on Greek Bailout, Morgan Stanley Tech/Media/Telecom Conference, Citi Global Healthcare Conference, Deutsche Bank Media/Telecom Conference and the GSMA Mobile World Congress could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the week.


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theyenguy said...

Of the stocks listed in the linked chart, GE, CAT, XOM, INTC, are trading lower in overnight trading.

Perhpas this will finally be the week that stocks trade lower