Friday, March 09, 2012

Friday Watch


Evening Headlin
es
Bloomb
erg:
  • Investors Agree to Swap About 85% of Greek Debt. Private investors agreed to swap about 85 percent of their Greek government bonds for new securities in the biggest sovereign debt restructuring in history, according to a banker briefed on the results. Preliminary indications showed that as much as 155 billion euros ($205 billion) of the 177 billion euros of Greek-law bonds were offered, said the banker, who declined to be identified. Twelve billion euros of debt not under Greek law was also tendered, as was 7 billion euros of bonds from state-owned companies guaranteed by the government, the banker said.
  • Greece's New Bond Yields May Reach 20% After Exchange, Morgan Stanley Says. Yields on Greece’s new bonds may climb to as high as 20 percent amid “material risks” stemming from implementation of terms for the biggest sovereign restructuring in history, according to Morgan Stanley. Traders are offering to buy and sell the potential new bonds at yields on 11-year securities of 22 percent, according to a person familiar with the prices who declined to be identified. Yields on exchanged Greek debt may be about 13 percent to 17 percent “in the medium term” as the nation faces an election and seeks to comply with terms of its bailout and debt-reduction programs, New York-based Morgan Stanley said yesterday in a research report.
  • Draghi's Oil Dilemma Risks Exacerbating Recession: Euro Credit. ECB President Mario Draghi is trapped between accelerating inflation and slowing growth, making it hard for him to defend countries such as Italy and Spain from the ravages of recession. The central bank yesterday revised its inflation forecast for the euro area to an average rate of 2.4% this year, up from a December prediction for prices to rise by 2%. The new projections show the economy may contract .1%, down from a previous forecast for .3% growth. With at least six of the 17 euro nations in recession, the latest forecasts may mean Draghi, who cut interest rates at his first two monthly meetings as head of the central bank, won't be able to reduce borrowing costs further as efforts to resuscitate growth by lending unlimited funds to banks lose steam.
  • China Should Maintain Property Curbs to Prevent Chaos, Developer Lo Says. China should maintain its property curbs as any relaxation may result in a “chaotic” housing market, said billionaire developer Vincent Lo, also a member of the government’s advisory board. Home prices may post a “single-digit” decline this year, said Lo, chairman of Shui On Land Ltd. (272), a Shanghai-based developer. Property values in the nation’s city centers will hold up, he said, adding that he doesn’t expect a property crash this year. “Unless something dramatic happens in the international economy, these more restrictive measures will remain for at least another 18 months,” Lo said. The nation’s developers will probably face more credit rating downgrades over the next six months as refinancing risks increase, according to Standard & Poor’s. Home prices may fall 10 percent by June from a year earlier, according to an S&P report yesterday that said “the worst is yet to come” for developers.
  • China's Economy a Bigger Worry Than Yuan: Samual Sherraden. Domestic and foreign economic pressures are causing cracks to emerge. Domestically, over-investment and excess capacity weigh on China’s economy. The housing market is deflating and the local-government debt on banks’ balance sheets will limit future fiscal stimulus. Monetary authorities are constrained from further easing for fear of inflation. And China’s major export markets -- the U.S. and Europe -- are facing slow growth at best.
  • Texas Instruments Cuts Forecasts on Lower Demand for Its Wireless Products. Texas Instruments Inc. (TXN), the world’s largest maker of analog semiconductors, reduced its first- quarter sales and profit forecasts, citing lower demand for products that let wireless devices connect and run applications. Revenue will be $2.99 billion to $3.11 billion, the Dallas- based company said today in a statement. Analysts on average had estimated $3.16 billion, according to data compiled by Bloomberg. Net income will be 15 cents to 19 cents a share, Texas Instruments said, compared with projections of 21 cents. Texas Instruments is the top supplier of chips that provide key functions in electronic devices ranging from missiles to mobile phones, making the company’s earnings an indicator of demand across the economy. Vice President Ron Slaymaker said the weakness in wireless was in connectivity products and OMAP processors, which run programs in smartphones and tablets. Some clients have cut their expectations for demand and reduced inventory, he said on a conference call. “Everybody in the tablet and handset market will overestimate the success they’re having, then end up eating inventory,” said Cody Acree, an analyst at Williams Financial Group in Dallas. Slaymaker declined to identify which Texas Instruments customers, or how many, had cut back orders.
  • 'Anonymous' Hacker Sabu Worked Around the Clock to Aid U.S. Hector Xavier Monsegur, a member of the Anonymous, Internet Feds and LulzSec hacker groups, began working "around the clock" to inform on his colleagues immediately after his arrest, prosecutors told a judge. Monsegur, who pleaded guilty Aug. 15, began cooperating with U.S. authorities, including Federal Bureau of Investigation agents, after he was arrested June 7, Assistant U.S. Attorney James Pastore told U.S. District Judge Loretta Preska at a court hearing in August, an unsealed transcript shows. Monsegur, who used the nickname Sabu and is described as an "influential member" of all three groups, admitted to staging cyber attacks against the websites of the governments of Algeria, Yemen and Zimbabwe, according to a criminal information unsealed March 6. He also said he conducted hacks on Tribune Co. and News Corp.'s Fox television, prosecutors said.
  • Oil Rises a Third Day. Oil for April delivery advanced as much as 37 cents to $106.95 a barrel in electronic trading on the New York Mercantile Exchange and was at $106.90 at 1:51 p.m. Sydney time. The contract yesterday climbed 0.4 percent to $106.58, the highest close since March 5. Prices are up 20 cents this week and have gained 8.2 percent this year. Brent oil for April settlement was at $125.50 a barrel, up 6 cents, on the London-based ICE Futures Europe exchange.
  • Chinese Politburo Member Signals Wealth Gap Breached Unrest Trigger Point. China’s wealth gap has now exceeded the point that triggers widespread social unrest, according to figures revealed by Politburo member Bo Xilai, in a rare disclosure of the country’s income disparity. China’s Gini coefficient, an index of the income gap, has exceeded 0.46, Bo, the Communist Party Secretary for Chongqing Municipality, told reporters in Beijing today, without giving specifics. The index ranges from 0 to 1 and the 0.4 mark is used as a predictor by analysts for social disturbances. Bo, 62, has reintroduced slogans and songs from the late Chairman Mao Zedong in a bid to re-instill a Communist spirit in a country that still officially adheres to the principles espoused by Karl Marx. So-called mass incidents in China -- strikes, riots and other disturbances -- doubled from 2006 to 2010 as China’s wealth gap rose, according to Sun Liping, a professor at Beijing’s Tsinghua University. China’s Gini coefficient -- and hence its wealth gap -- has risen more than any other Asian economy in the last two decades, according to Murtaza Syed, the International Monetary Fund’s resident representative in Beijing, citing World Bank data. Syed told reporters in Beijing last month that the high wealth gap may hurt China’s long-term growth prospects. “If China becomes more and more unequal, it may find it very hard to keep growing at anywhere near the rates it’s been growing,” Syed said on Feb. 22.
Wall Street Journal:
  • CBOE(CBOE) Executive Put on Leave Amid SEC Probe. The largest U.S. options exchange has put its most senior compliance officer on leave in the wake of an investigation by U.S. market regulators into the company's oversight of traders, according to people familiar with the matter.
  • Deutsche Bank(DB) Bank Took ECB Loans. Deutsche Bank AG took between €5 billion and €10 billion ($6.6 billion and $13.1 billion) as part of the European Central Bank's lending program last week, according to a person familiar with the matter.
  • European Commission Raises Hungary Deficit Forecasts - Agency. A background analysis by the European Commission obtained by Hungarian news website Portfolio.hu late Thursday raised Hungary's budget deficit outlook for 2012 and 2013.
  • U.S., Jordan Discuss Securing Syria Cache. Fears Mount Over Suspected Chemical, Biological Weapons. The American and Jordanian militaries are jointly developing plans to secure what is believed to be Syria's vast stockpile of chemical and biological weapons, said U.S. and Arab officials briefed on the discussions. The groundwork comes amid mounting concerns about Damascus's arsenal of nerve agents and mustard gas at a time of growing instability in the country. One plan would call for Jordanian Special Operations units, acting as part of any broader Arab League peacekeeping mission, to go into Syria to secure nearly a dozen sites thought to contain weapons, these officials said.
  • BofA(BAC) Makes a Deal on Side. More than 200,000 financially strapped households will have a chance to sharply reduce their mortgage balances under a side deal negotiated by Bank of America Corp. that could allow the bank to avoid as much as $850 million in penalties. Under the arrangement, part of the recent $25 billion settlement of alleged foreclosure abuses between government officials and five large lenders, Bank of America will make deeper and broader cuts in balances than other banks. The plan will offer qualifying borrowers a chance to cut their mortgage balances to their home's current market value.
  • IMF Chief: Warns Against 'Shorting' Italy Given Rome's Economic Reforms.
  • MF Global Executives Still Set to Get Bonuses. Three top executives of MF Global Holdings Ltd. when it collapsed could get bonuses of as much as several hundred thousand dollars each under a plan by a trustee overseeing the securities firm's bankruptcy case, people familiar with the matter said. Louis Freeh, the former Federal Bureau of Investigation director now in charge of unwinding what is left of the New York company, is expected to ask a bankruptcy-court judge as soon as this month to approve performance-related payouts for the chief operating officer, finance chief and general counsel at MF Global, these people said.
  • FBI Traces Trail of Spy Ring to China. Federal agents were searching Walter and Christina Liew's home here last July for evidence of corporate espionage when a safe deposit box key caught their attention. They asked Ms. Liew if she knew where the bank was located. Her husband told her in Chinese to say she didn't, according to an account later given by federal prosecutors. An agent who understood Chinese picked up on the exchange and followed Ms. Liew as she left the house, drove to an Oakland bank and tried to empty a safe deposit box the key fit.
  • Exxon(XOM) Rips U.S. Push on Fracking Oversight. Federal efforts to expand oversight of oil and gas drilling are threatening to derail development of U.S. energy without necessarily improving safety, Exxon Mobil Corp. Chief Executive Rex Tillerson said Thursday. The push by the Environmental Protection Agency and a handful of other agencies to have a say in the controversial drilling technique known as hydraulic fracturing, or "fracking," has had little impact so far on energy giant Exxon, Mr. Tillerson said in an interview following the company's analysts meeting in New York on Thursday.
  • Spain Tests Europe's Resolve on Devicits. It hasn't taken long for the euro zone's new tough budget rules to face their first big test. Spain's stand-off with Brussels over the size of its 2012 budget deficit has presented officials in the city with a dilemma: How do they preserve the credibility of the tighter fiscal rules without triggering a Greece-style downward economic spiral by forcing Spain to slash its deficit too vigorously? Spanish Prime Minister Mariano Rajoy formally opened the issue last week when he announced that Spain's new budget-deficit target would not be the 4.4% that his predecessor agreed last year with the European Commission in Brussels—but 5.8%. The reason: last year's deficit turned out to be 8.5%-not the 6% target that this year's goal was based on. Hitting the agreed 2012 target would cut domestic demand by four percentage points, further squeezing Spain's already shrinking economy. It wasn't only Mr. Rajoy's unilateral decision that upset the Brussels bureaucracy. It was the way he framed it, telling reporters: "This is a sovereign decision made by Spain that I am announcing now, to you."
MarketWatch:
  • Videogame Sales Slide Again in February. Videogame sales fell sharply in February, worse than analysts’ had expected, and making for a third straight month of declines for a sector suffering from a lack of compelling new releases. According to data from NPD Group late Thursday, sales of game software in the U.S. slid by 23% during the month compared to the same period last year. That was an improvement over the stunning 38% drop in January, but still deeper than the 8% to 19% drop modeled by analysts. NPD data only includes sales made through traditional retail outlets and not those made over digital channels.
Business Insider:
Zero Hedge:
CNBC:
  • EU Debt Issue to Rile Markets for 'Many More Years'. Wall Street may breathe a sigh of relief with the apparent success of the Greek bond swap, but the European debt issue will continue to rile the markets for “many more years to come.” “Even if we band aid this Greek situation right now, they’re going to default down the road or write down 100 percent of the debt,” said Scott Wren, senior equity strategist at Wells Fargo Advisors. Wren projects that Greece will likely require further bailouts and other European nations such as Portugal and Spain may even jump on the bandwagon. In addition, Wren said he would not be surprised to see the market take a breather in the near-term, following the recent rally and expected slowdown in the global economy this year.
  • China Inflation Rate Hits 20-Month Low as Economy Slows. China's annual rate of consumer inflation slowed sharply to a 20-month low of 3.2 percent in February, comfortably within Beijing's 2012 target of 4 percent. "The latest CPI number is mainly because of the dissipation of the Chinese New Year effect. Prices came down after the holiday, especially food prices," said Kevin Lai, economist at Daiwa in Hong Kong.
  • Fisker Karma Car Dies in Consumer Reports Testing. A $100,000-plus Fisker Automotive luxury sports car died during Consumer Reports speed testing this week for reasons that are still unknown, leaving the struggling electric car startup with another blow to its image. "It is a little disconcerting that you pay that amount of money for a car and it lasts basically 180 miles before going wrong," David Champion, senior director for the magazine's automotive test center, told Reuters, on Thursday.

IBD:

USA Today:
  • Gas Prices Must Come Down, Consumers Say. Consumers fretting about soaring gasoline prices say President Obama and Congress must act to keep them from rising further, a Gallup Poll finds. An overwhelming number of consumers — 85% — say Obama and Congress should take "immediate" action to keep a lid on prices. After nearly four weeks of daily price increases, regular gasoline averages $3.76 a gallon nationwide. Industry analysts still expect a $4 top by Memorial Day, although prices could rise to $5 a gallon if escalating tensions in the Middle East disrupt crude oil shipments. At $5, about 30% of those surveyed by Gallup say they would have to make major changes in their lives and significant cutbacks in spending. About 28% say $4 gas would prompt similar changes.
Reuters:
  • Starbucks(SBUX) to Sell Single-Serve Coffee Brewers. Starbucks Corp (SBUX.O) said it will launch its own single-cup coffee and espresso drink machine later this year, putting it in direct competition with partner Green Mountain Coffee Roasters Inc (GMCR.O), seller of the popular Keurig home brewers. Shares of Green Mountain plunged as much as 24 percent in after-hours trade, but regained some ground after Starbucks said on a conference call that it would continue to supply Green Mountain with Starbucks-branded single-serve coffee pods called K-cups. Starbucks shares rose 3 percent to $51.87.
  • Banks Foreclosing on US Churches in Record Numbers. Banks are foreclosing on America's churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data. The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance. Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group. In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before.
Telegraph:
  • Legal Skull-Duggery in Greece May Doom Portugal. Europe has ring-fenced Greece's debt crisis for now but its escalating recourse to legal legerdemain has shattered the trust of global bond markets and may ultimately expose Portugal, Spain, and Italy to greater danger. "The rule of law has been treated with contempt," said Marc Ostwald from Monument Securities. "This will lead to litigation for the next ten years. It has become a massive impediment for long-term investors, and people will now be very wary about Portugal."
  • Germany's Monetary Doyen Slams ECB's 'Shocking' Balance Sheet. The doyen of German monetarism has denounced the stimulus policies of the European Central Bank as a dangerous leap into the unknown, giving voice to growing misgivings among the German policy elite. Jurgen Stark, the ECB's former chief economist and Germany's board member until two months ago, said the blitz of lending had corrupted collateral standards and risked inflation. "The balance sheet of the euro system isn't just gigantic in size but also shocking in quality," he said. Unlimited lending to banks for three years has pushed the ECB's balance sheet to over €3 trillion (£2.5 trillion), overtaking the US Federal Reserve to become the world's most activist bank.

Shanghai Securities News:
  • China Won't Relax Property Curbs Soon. The Chinese government will continue real estate curbs "resolutely" in 2012, citing China's housing minister Jiang Weixin. Jiang is confident in home price drops in tier 1 cities.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.25% to +2.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 156.0 -8.5 basis points.
  • Asia Pacific Sovereign CDS Index 126.75 -6.75 basis points.
  • FTSE-100 futures +.27%.
  • S&P 500 futures +.09%.
  • NASDAQ 100 futures +.06%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ANN)/.08
  • (CCL)/-.01
  • (HIBB)/.56
  • (PNY)/1.20
Economic Releases
8:30 am EST
  • The Trade Deficit for January is estimated to widen to -$49.0B versus -$48.8B in December.
  • The Change in Non-Farm Payrolls for February is estimated at 210K versus 243K in January.
  • The Unemployment Rate for February is estimated at 8.3% versus 8.3% in January.
  • Average Hourly Earnings for February are estimated to rise +.2% versus a +.2% gain in January.

10:00 am EST

  • Wholesale Inventories for January are estimated to rise +.6% versus a +1.0% gain in December..

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The EuroGroup Conference Call on Greece could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and industrial 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.

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