Tuesday, February 21, 2012

Wednesday Watch

Evening Headlin
  • BOE's Bean Says Greek Deal Doesn't Eliminate Risk of Disorderly Outcomes. Bank of England Deputy Governor Charlie Bean said agreement on a second bailout for Greece may not be enough to end the debt crisis and countries in the euro- area periphery must reduce debt and improve competitiveness. “While this morning’s agreement between the Greek government and the euro-area authorities is certainly welcome, there still remains a possibility that events could unfold in a disorderly and damaging fashion at some stage in the future,” Bean said in a speech late yesterday in Glasgow, Scotland. The euro crisis “represents the biggest downside risk” to the U.K.
  • A Holldande Win in France Would Rattle Europe: George Magnus. If, as opinion polls suggest, the French Socialist Party’s presidential candidate, Francois Hollande, ousts Nicolas Sarkozy in elections this spring, the euro area may be in for a new wave of instability with far- reaching consequences for financial markets and the euro system itself.
  • Record Nickel Supply Expanding Glut Thwarts Bull Market Rally: Commodities. Mining companies and refineries are producing more nickel than at any time in history, expanding a glut that threatens to reverse this year’s rally. Production will exceed demand by 45,000 metric tons, a 73 percent jump from 2011, Barclays Capital estimates. That’s equal to 46 percent of stockpiles tracked by the London Metal Exchange. Refined output will rise 12 percent, the most in at least eight years, according to Morgan Stanley. Prices, which rose 8 percent to $20,230 a ton this year, may fall as much as 13 percent to $17,630 a ton by Dec. 31, the median of 11 analyst estimates compiled by Bloomberg shows. With new supply expected from Australia to Madagascar to Brazil, consumption still won’t expand fast enough to absorb the extra metal. Most markets for stainless steel, accounting for 76 percent of nickel demand, remain “depressed,” Deutsche Bank AG said in a report Feb. 15. “We’ll get more and more supply over the course of the year,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “We expect huge surpluses for nickel not only this year, but next year, and probably in 2014. It’s mainly due to an increase in supply, but on the other side the stainless steel industry is facing a tough time.”
Wall Street Journal:
  • Greece Gets a Stay, With Trouble on the Way. Pact Staves Off Immediate Concerns, but Many Problems Remain Even Under Best-Case Scenarios. No triumphalism accompanied Greece's bailout and debt-restructuring deal hammered out early Tuesday; the euro zone's two-year debt crisis has seen too many false dawns. Financial markets were somewhat cheered that months of negotiations aimed at cutting Greece's heavy debt had reached a resolution, largely putting to rest fears of a chaotic debt default next month. It also removed—at least for the immediate future—the gnawing anxiety that some policy makers in Germany and elsewhere are trying to oust Greece from the euro.
  • Plan B for China's Wealthy: Moving to the U.S., Europe. Surveys and visa numbers show that members of China's wealthy elite are heading for the exits in search of things money can't buy in China: cleaner air, safer food, better education for their children. This time last year, Shi Kang considered himself a happy man. Writing 15 novels had made him a millionaire. He owned a luxury apartment and a new silver Mercedes. He was so content with his carefree life in Beijing that he never even traveled overseas. Today, a year later, Mr. Shi is considering emigrating to the U.S.—one of a growing number of rich Chinese either contemplating leaving their homeland or already arranging to do it.
  • Citigroup(C) Faces Smith Barney Hit. Citigroup Inc. is facing a potential multibillion-dollar write-down as it begins unwinding its minority investment in the Morgan Stanley Smith Barney brokerage. Morgan Stanley has the right this spring to start buying Citigroup out of the joint venture, which was formed in 2009, when the sides combined Citigroup's Smith Barney with Morgan Stanley's wealth-management unit. Price is likely to be one of the main points under discussion when negotiations begin this spring, people familiar with the situation said.
  • Obama's Dividend Assault. A plan to triple the tax rate would hurt all shareholders. President Obama's 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets. Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate. Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.
Business Insider:
Zero Hedge:
  • China Factory Activity Shrinks for 4th Month: HSBC. China's manufacturing sector contracted in February for the fourth straight month as new export orders dropped sharply in the face of the euro area debt crisis, the HSBC flash purchasing managers index showed on Wednesday. The new export orders sub-index dropped to 47.4 in February from 50.4 in January as the European debt crisis cast a shadow over Chinese exports.
NY Times:
  • Meredith Whitney Lands Book Deal. Ms. Whitney has signed a deal with Portfolio, an imprint of Penguin Group, to write a book about the growing problems in the municipal bond market, according to a statement from the publisher. The book, tentatively titled “Downgraded: Why the Next Economic Crisis Will Be Local,” is expected to hit bookstore shelves in November.
  • Greek Crisis Raises New Fears Over Credit-Default Swaps. With Europe’s $172 billion aid package for Greece, it appears that the nation is going to take a step that substantially increases the likelihood that its swaps take effect.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).
  • UN Nuke Agency Reports Failed Iran Talks. The U.N. nuclear agency says its experts have again failed to dent Iran's refusal to cooperate in probing allegations that Tehran covertly worked on an atomic arms program. An International Atomic Energy Agency statement says Iran refused an IAEA request for access to a site where the agency suspects explosives testing related to a nuclear weapon took place. It also says that despite "intensive efforts," no agreement was reached on how to relaunch the probe, which has been stalled for nearly four years.
  • Dell(DELL) Shares Fall On Earnings Miss, Outlook. Dell Inc forecast fiscal first-quarter revenue below Wall Street's expectations, stoking fears the PC industry has not fully emerged from its downturn and sending the company's shares more than 4 percent lower. The world's No. 3 personal computer maker projected sales would be down 7 percent this quarter from the previous quarter, when it posted revenue of $16 billion. That translates into about $14.9 billion, below the average forecast for roughly $15.2 billion.
  • Shanghai Court Hears Apple(AAPL) iPad Trademark Case. A Shanghai court began hearing on Wednesday a case brought by a Chinese technology firm seeking to halt the sale of Apple Inc's iPads across the affluent Chinese city, accusing the U.S. firm of trademark infringement.
  • CIA to Software Vendors: A Revolution Is Coming. The U.S. Central Intelligence Agency told software vendors on Tuesday that it plans to revolutionize the way it does business with them as part of a race to keep up with the blazing pace of technology advances.

JoongAng Ilbo:
  • North Korea recently developed a 170-kilometer range rocket launcher, citing an official in the South Korean government. The range is almost double the shooting scope of its existing rocket launcher.
Shanghai Securities News:
  • CBRC has been warning banks against possible credit risks associated with the real estate market as the government continues its strict property curbs. CBRC has ordered banks to control loans to developers in areas with "overheating" property markets. CBRC has asked banks to check each developer's liquidity, solvency against a list. The Land and Resource Ministry will announce rules to guard against illicit land sales by local governments.
  • Non-Local residents are now qualified to buy 2nd homes once they have held residence permits for 3 years, citing the city's housing regulator.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 160.0 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 131.25 -2.25 basis points.
  • FTSE-100 futures -.07%.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.17%.
Morning Preview Links

Earnings of Note
  • (PWR)/.36
  • (DLTR)/1.58
  • (TOL)/.03
  • (CHS)/.11
  • (DCI)/.71
  • (LAMR)/.00
  • (RRD)/.43
  • (ZLC)/.77
  • (MGM)/-.20
  • (EV)/.43
  • (TJX)/.63
  • (ADI)/.48
  • (FLR)/.82
  • (LTD)/1.46
  • (ESRX)/.85
  • (FLS)/2.29
  • (WMB)/.41
  • (RGR)/.46
  • (JACK)/.25
  • (HPQ)/.87
  • (SNPS)/.51
  • (DDS)/2.02
Economic Releases
10:00 am EST
  • Existing Home Sales for January are estimated to rise to 4.66M versus 4.61M in December.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The 5Y T-Note Auction, weekly retail sales reports, weekly MBA Mortgage Applications Report, China Flash Manufacturing PMI, CSFB Paper/Packaging Conference, Barclays Industrial Select Conference, Jefferies Clean Tech Conference, (GCI) Analyst Meeting, (TPX) Investor Day and the (DBD) Investment Community Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

No comments: