Monday, March 19, 2012

Monday Watch

Posted by Gary .....at 12:41 AM

Weekend Headlines
Bloomberg:
  • Lagarde Warns Against False Sense of Security. International Monetary Fund Managing Director Christine Lagarde urged policy makers to be vigilant as oil prices, debt levels, and the risk of slowing growth in emerging markets threaten global economic stability. “Optimism should not give us a sense of comfort or lull us into a false sense of security,” Lagarde said today at a speech in Beijing at the China Development Forum. “We cannot go back to business as usual.” The IMF last week approved a 28 billion-euro ($36.6 billion) loan for Greece as part of a 130 billion euro second bailout by the European Union that requires more austerity and an overhaul of its economy. Greece completed the world’s largest sovereign-debt overhaul and agreed to deeper spending cuts to obtain new funds as it faces a fifth year of recession. “The measures that were proposed are ambitious and it will be important to focus on steady rigorous implementation of the situation on the ground,” Lagarde said about Greece. “We have made important steps forward.” Brent crude oil futures have rising 18 percent this year on concern Iran’s standoff with the West over its nuclear program will escalate into military action in a region that holds 54 percent of global petroleum reserves. Increased gasoline prices threaten to slow consumer spending in the U.S., tempering the recovery in the world’s largest economy. Oil prices are “becoming a threat to global growth,” Lagarde said. “I think it’s a major threat.”
  • IMF Staff Sees Potential Need for More European Aid to Greece. Greece remains “accident prone” and may require further debt restructuring or additional financing from euro countries if it struggles to implement measures attached to a new 130 billion-euro ($171 billion) bailout, staff at the International Monetary Fund said. The loan package is based “on ambitious fiscal and privatization targets and above all on a reinvigoration of structural reforms,” IMF staff wrote in a report released yesterday. “In the event of slower progress in policy implementation, or failure of the economy to respond rapidly enough to reforms, completion of reviews may require additional support from Greece’s European partners on yet more concessional terms than currently envisaged, and-or another restructuring of bonded debt,” according to the report. The Washington-based IMF, which is already lending to Portugal and Ireland, has reduced its share in the second Greek bailout as it sees its exposure to the euro region posing what the staff called “unprecedented financial risks” to its finances. It has also pushed European governments to boost their own bailout fund in an effort to protect Spain and Italy from contagion.
  • Monti to Meet Labor Unions Amid Warning of Continued Euro Crisis. Italy’s Prime Minister Mario Monti will press ahead with efforts to revise labor laws this week, amid fresh warnings that the three-year-old European debt crisis is far from over. Monti will lead talks with unions and employers in a final round of negotiations beginning tomorrow. Decision makers meanwhile warned against complacency after delivery of the final element of Greece’s 130 billion-euro ($171 billion) bailout package and the completion of the world’s largest sovereign-debt restructuring last week.
  • Greece Auction to Settle $3.2 Billion of Credit-Default Swaps. Credit-default swaps dealers will hold an auction today to settle as much as $3.2 billion of Greek bond insurance triggered by the nation’s debt restructuring. The auction will be held under the rules of the International Swaps & Derivatives Association and will determine the amount that sellers of protection must pay by setting a recovery price for Greek bonds. An initial rate will be set at 11 a.m. London time with a final value determined at 3:30 p.m.
  • Federal Reserve Stress Tests Make Us All Muppets. The Fed has an imperfect view of the future, as do we all. It has repeatedly demonstrated a limited ability to control economic outcomes. In light of this, the Fed could have required banks to build up shareholder capital on their balance sheets in case their aggressive risk-taking again becomes reckless and creates enormous losses. Instead, the Fed is allowing big banks to reduce capital levels, increasing the likelihood of another financial and fiscal crisis and endangering the broader U.S. economy. We are all muppets now.
  • Japan May Ship More Copper to Make Up for Dwindling Local Demand. Japan’s copper producers may increase exports in coming years to make up for shrinking domestic demand as manufacturers head overseas to avoid higher costs and the impact on sales of a stronger yen, according to Pan Pacific Copper Co. Exports are expected to rise 16 percent to 505,000 metric tons this year, after slumping 17 percent to 437,000 tons in 2011 following the March 11 earthquake and tsunami, said Akira Miura, executive officer of the marketing department at Pan Pacific, Japan’s top producer.
  • UnitedHealth(UNH) Wins $21 Billion U.S. Military Health Contract. UnitedHealth (UNH) Group Inc. wrested a military health contract valued at as much as $20.5 billion from TriWest Healthcare Alliance Corp. (1893Q), a closely held company that has had the work since 2003. UnitedHealth, the nation’s biggest health insurer by revenue, in April persuaded the Pentagon to reconsider a 2009 decision to award the five-year contract for the western region to TriWest. The U.S. Defense Department announced the decision in favor of UnitedHealth after markets closed yesterday, sending the company’s shares higher in after-market trading. The win gives UnitedHealth, based in Minnetonka, Minnesota, access to the military health-care market, which the company has aggressively pursued.
  • Fukushima Farmers Face Decades of Tainted Crops as Fears Linger. Farmers in Japan’s Fukushima face years of additional losses as consumers continue to doubt the safety of produce from the region devastated a year ago by the tsunami and nuclear fallout, which may taint crops for decades.
  • China Home Prices Post Worst Performance in a Year on Curbs. China's February home prices posted the worst performance in a year with almost half of the cities monitored by the government falling from a year ago as the country maintained curbs on the property market. New home prices fell in 27 of 70 cities last month from a year earlier and prices were unchanged in six cities, the national statistics bureau said in a statement on its website yesterday. That is the worst since the government began at the start of 2011 releasing individual data for 70 cities instead of a national average. Premier Wen Jiabao said last week housing prices remain far from a reasonable level and called on the government not to slacken efforts to regulate the home sector. Relaxing the curbs could cause "chaos" in the market, Wen said. "China's home prices fell further, but it doesn't mean there will be a policy loosening any time soon," said Qu Hongbin, a Hong Kong-based economist at HSBC Holdings Plc in a phone interview. Home prices will need to see a "meaningful correction" by falling 20 percent to 30 percent from last year's peak before the government relaxes policies on property, Qu said. Among major cities, home prices in both Beijing and the financial center of Shanghai fell 0.4 percent last month from a year ago. In the south, Shenzhen declined 0.2 percent, while Guangzhou rose by 0.3 percent from 2011.
  • Oil Trades Near One-Week High in New York as Saudi Output Climbs. Oil for April delivery was at $107.36 a barrel, up 30 cents, in electronic trading on the New York Mercantile Exchange at 11:47 a.m. Sydney time. The contract, which expires tomorrow, climbed 1.9 percent to $107.06 a barrel on March 16, the highest close since March 9. The more active May future rose 32 cents to $107.90 a barrel today. Prices are up 8.6 percent this year. Brent oil for May settlement was at $125.98 a barrel, up 17 cents, on the London-based ICE Futures Europe exchange.
  • Oprah Helps Obama to Raise $5 Million. President Barack Obama, turning full attention to his re-election campaign, aimed to raise more than $5 million today with fundraisers in his adopted hometown of Chicago and then Atlanta, where Oprah Winfrey joined with other wealthy donors.
  • Goldman Sachs(GS) Board Must Act on Smith Op-Ed, Ex-Partner Writes. Goldman Sachs Group Inc.'s directors must investigate a former employee's allegations about a change in the firm's culture, Jacki Zehner, who was a partner when she left the firm in 2002, wrote on her blog. Zehner said she doesn't know Greg Smith, the derivatives salesman whose New York Times op-ed piece blamed Chief Executive Officer Lloyd C. Blankfein and President Gary D. Cohn for fostering a "toxic and destructive" environment, causing Smith to quit last week. Zehner, who worked at Goldman Sachs for 14 years, wrote that she's heard from "many people" in the past few years that the firm is emphasizing profits over character. "These are very serious accusations from a credible person in my view and I hope it does indeed provide a 'wake-up' call to the board of directors," wrote Zehner, who was the first female trader promoted to partner and is married to a former partner. She is now CEO and president of Women Moving Millions, a non- profit supporting the advancement of women and girls worldwide. "It is the board that is accountable to shareholders and before they take another paycheck I hope they ask a heck of a lot of questions and get honest answers," Zehner, 47, wrote in her March 16 commentary.
  • Latin American Nations in Worse Shape for Crisis, IDB Says. Most Latin American nations, in the event of another global crisis, are in worse shape to implement stimulus than in 2007 as a result of lower budget surpluses before interest payments, the Inter-American Development Bank said. Mexico, Chile, Colombia and the Dominican Republic are among nations less prepared to face a potential crisis, the IDB said in a report released at the bank’s annual meetings in Montevideo, Uruguay, today. Brazil and Argentina are in positions similar to those in 2007, while Uruguay and Jamaica are better prepared, the Washington-based lender said. “The main reason for the deterioration is the widespread reduction in structural primary balances,” the report said.

Wall Street Journal:
  • The U.S. Cruises Toward a 2013 Fiscal Cliff by Alan S. Blinder. As tax cuts expire and spending falls, the economy will be hit with a 3.5% decline in gross domestic demand. At some point, the spectacle America is now calling a presidential campaign will turn away from comedy and start focusing on things that really matter—such as the "fiscal cliff" our federal government is rapidly approaching. The what? A cliff is something from which you don't want to fall. But as I'll explain shortly, a number of decisions to kick the budgetary can down the road have conspired to place a remarkably large fiscal contraction on the calendar for January 2013—unless Congress takes action to avoid it.
  • Ex-China Central Bank Adviser Calls for Interest-Rate Reform. China needs to push ahead with interest-rate reform and it no longer needs to protect big state banks that are now like "dinosaurs," a former adviser to the country's central bank said Saturday.
  • Japan Premier Warns About Chinese Military. Japan's prime minister issued a new warning about Beijing's military build-up Sunday, two days after his government made a fresh protest over a Chinese ship's entering waters near a chain of islands claimed by both countries. In an address to graduating cadets of the Self Defense Forces, Prime Minister Yoshiko Noda cited China and North Korea as the main military challenges Japan faces in Asia.
  • Iraq Unveils Contingency-Plan Details In Case Hormuz Shut - Spokesman. The Iraqi government Sunday revealed details of a contingency plan, including reopening a pipeline that connects to the Red Sea through Saudi Arabia, in case current political tensions with Iran lead to the closure of the strategic Strait of Hormuz, an Iraqi government spokesman said Sunday. Eighty percent of Iraq's crude-oil exports pass through the strait.
  • Survey Shows Dollar Optimism, Less Euro Fear. A majority of investors believe another euro-zone member will follow Greece and restructure its debt in the next year, according to a Barclays Capital survey, and many expect relatively strong U.S. economic growth to boost the dollar against the euro in the next quarter. While concerns about a country leaving the 17-nation euro bloc have ebbed since last fall, when Greece appeared at risk for a messy default, four in 10 still see at least one country splintering off, the Barclays survey found. But that is down from nearly 50% in the bank's November survey.
  • Karzai Call for U.S. Pullout From Villages Is Tempered. The Afghan government qualified President Hamid Karzai's demand for an immediate withdrawal of U.S.-led coalition forces from Afghan villages, saying it will be the subject of negotiations that could take months. Mr. Karzai stunned the U.S. and its coalition allies last week by demanding that foreign forces pull out from villages and into bases, a move that would cripple U.S. military strategy.
  • U.S. Readies for Spring Clash With Taliban. In Afghan War's Last Fighting Season, Strategy Is Aimed at Protecting Kabul.
  • Insurers Set Plans in Case Mandate Is Quashed. The insurance industry and advocates of the health-care overhaul are sketching out contingency plans in case the Supreme Court strikes down a central part of the law in the coming months.
  • With Gas Prices Rising, Smog Rules May Stall. The Obama administration, facing political heat over high gasoline prices, may delay new rules that would cut pollution from cars but also could bring higher prices at the pump, environmental and industry leaders said. The rules would require refiners to make cleaner-burning gasoline and auto makers to build cars that emit fewer smog-forming pollutants. The Environmental Protection Agency was scheduled to roll out the rules before April, but it hasn't yet submitted them for White House review.
  • Wall Street Keys On Landlord Business. Some of the biggest names on Wall Street are lining up to become landlords to cash-strapped Americans by bidding on pools of foreclosed properties being sold by Fannie Mae. The idea is that the new owners would rent out the homes at first rather than reselling—potentially aiding a housing-market recovery by reducing the number of properties clogging the market.
  • Biotech Funding Gets Harder to Find. Biotechnology firms are coming around to a harsh reality: The gravy days are over. These small, innovative drug companies were once an investment darling, able to secure millions of dollars from venture capitalists and even more later through public offerings. But in recent years, venture financing for biotech has been in decline, due to the tough economic environment and poor returns from stock offerings.
  • Greek Deal Highlights Flaws in Default Swaps. A group of financial-market players on Monday will determine that holders of $3.2 billion in Greek credit-default swaps will receive around $2.5 billion in compensation for Greece's debt restructuring—a payout that mirrors the loss that creditors suffered. But the happy outcome owes much to mere chance. It masks flaws in the contracts, say some market participants and legal experts, that have rattled investors and are leading to calls to revamp how the swaps are handled for defaulting sovereign nations. Credit-default swaps, or CDS, are insurance-like contracts designed to pay off when creditors aren't paid back. The issue arises because Greece used so-called collective-action clauses to force a debt exchange on the vast bulk of its bondholders. It gave a package of new securities to its creditors and then tore up the old bonds.
Business Insider:
Zero Hedge:
  • "We Are This Far From A Turnkey Totalitarian State" - Big Brother Goes Live September 2013. In its April cover story, Wired has an exclusive report on the NSA's Utah Data Center, which is a must read for anyone who believes any privacy is still a possibility in the United States: "A project of immense secrecy, it is the final piece in a complex puzzle assembled over the past decade. Its purpose: to intercept, decipher, analyze, and store vast swaths of the world’s communications as they zap down from satellites and zip through the underground and undersea cables of international, foreign, and domestic networks....Flowing through its servers and routers and stored in near-bottomless databases will be all forms of communication, including the complete contents of private emails, cell phone calls, and Google searches, as well as all sorts of personal data trails—parking receipts, travel itineraries, bookstore purchases, and other digital “pocket litter.”
  • Morgan Stanley(MS), Italy, Swaps and Misplaced Outrage. In this case, don’t blame Morgan Stanley, blame Italy, and be very afraid of what else Italy has done.
  • The Rebirth of the Actively Managed U.S. Stock Fund.

CNBC:

  • Chinese Writers' Group Sues Apple(AAPL), Reports State Media. A group of 22 Chinese authors have filed a claim against U.S. technology group Apple, alleging its App Store sells unlicensed copies of their books, Chinese state media reported on Sunday.
  • China Cannot Delay Tough Reforms: Vice Premier. China cannot delay tough economic reforms, Vice Premier Li Keqiang said on Sunday, underscoring the top leadership's push for market-based change after the sacking last week of an ambitious provincial leader who wanted a bigger state role in the economy.
  • Apple(AAPL) Likely to Declare 2.5% Annual Dividend on Monday Call: Analysts, Investors. It seems investors will finally get the answer to one of the biggest questions that had been the talk of Wall Street this year: What is Apple going to do with all that cash? The company, in an announcement released Sunday evening, said that it will be holding a conference call Monday at 9 am EDT to “announce the outcome of the company’s discussions concerning its cash balance.”

Wall Street All-Stars:

Forbes:

CNN:

  • More Pain at the Pump. Gas Prices Rise for 9th Straight Day.
  • Obama's Budget Will Add $6.4 Trillion to Debt - CBO. Lawmakers on Friday were handed the official score card on President Obama's proposed budget for 2013. The president's budget would add $6.4 trillion in deficits between 2013 and 2022, the CBO said. Under the so-called alternative fiscal scenario, where Congress simply extends a number of favored policies, cumulative deficits would reach nearly $11 trillion. The president's proposals would bring debt held by the public to 76% of GDP at the end of the period measured, up from 68% last year. Debt held by the public includes U.S. bonds bought by investors, but excludes money owed to government trust funds, such as Social Security and Medicare. Independent deficit watchdogs have been urging lawmakers to put in place a debt-reduction plan to lower public debt to at least 60% by the end of the decade.

Washington Post:

  • US Prepares to Approve Aid to Egypt Despite Democracy, Rights Concerns. The Obama administration is preparing to approve the release of at least a portion of $1.5 billion in aid to Egypt despite concerns that Cairo is not complying with conditions to receive the assistance, U.S. officials said Friday. Secretary of State Hillary Rodham Clinton must soon determine if Egypt is meeting the criteria by supporting the country’s transition to democracy and upholding human rights. The State Department said Friday that could happen as early as the middle of next week. But instead of certifying to Congress that Egypt’s military rulers are in compliance, officials said Clinton is likely to waive the criteria in the interest of national security, which would free up all of the aid at stake.

US News:

  • Why President Obama's Approval Ratings Are Going Down. The people I've spoken with lately—both Republicans and Democrats—about the 2012 election have stopped talking about the president's re-election chances, the horserace on the right, or even the latest primaries. They talk about being worried. They're worried about the massive expansion and sprawling reach of the federal government over the last four years.
Reuters:
The Telegraph:
  • China Angers the World as Battle for Rare Earth Metals Escalates. Last week, the EU, US and Japan formally asked the World Trade Organisation (WTO) to look at China’s export restriction on rare earth metals. Lawyers believe the case will run and run.
  • PIMCO Chief Mohamed El-Erian Expects 'Second Greece' in Portugal. Mohamed El-Erian, PIMCO’s chief executive, said Portugal will need a second rescue as the original package of €78bn (£65bn) falls short, setting off a political storm over EU rescue costs. “Unfortunately, that is how it will be. It will make the financial markets nervous because they are worried about a participation of the private sector,” he told Der Spiegel over the weekend.

El Pais:

  • Spain's ruling People's Party is studying scrapping some tax deducting and accelerating payments in preparation for the 2012 budget to be presented March 30, citing unnamed officials the Budget Ministry.
Kathimerini:
  • Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, said Germany and the Netherlands wanted the IMF to provide financial support to Greece, citing an interview. "The Dutch and German parliaments would be very reluctant to provide Greece with assistance if there were no support from the IMF," Juncker said. Juncker also said Greece's partners insisted primarily on fiscal consolidation and didn't put enough emphasis on promoting the nation's growth.

Dong-A Ilbo:

  • North Korea may launch "a more vicious attack" on the Korean peninsula's east or rear areas after drawing attention to the Yellow Sea on the peninsula's west, citing an interview with South Korea's navy chief. South Korea is seeing a lot of North Korean activity and is preparing for provocation, Admiral Choi Yoon Hee said.

The Australian:

  • Japan May Shoot Down North Korean Rocket. JAPAN is considering shooting down the rocket North Korea has threatened it will launch next month if the missile, or parts of it, falls into Japanese territory. The move comes as the US all but declared the recent food-for-denuclearisation dead if the North went ahead with the launch. Even China, the north's sole significant political and economic supporter, said it was concerned by the plan. Japanese Defence Minister Naoki Tanaka revealed on the weekend that his ministry was considering deploying ground-based Patriot missiles and Japan's Aegis-equipped destroyers to activate its missile shield.
Xinhua:
  • China asks senior management of financial firms under the central government to strengthen risk controls, citing a document from the CPC Central Committee.
  • Chinese Vice Premier Li Keqiang said the sovereign debt crisis for some countries will be "hard to resolve" in the short term. The global economic and financial markets face more risks and challenges, Li said.
WAM:
  • About 8,000 companies owned by Iranians operate in the United Arab Emirates, citing a statement from the Iranian Business Council in Dubai. UAE Economy Minister Sultan Bin Saeed Al-Mansouri and his Iranian counterpart Shamsddin Hosseini discussed ways to promote economic relations at a meeting yesterday in Abu Dhabi.
Weekend Recommendations
Barron's:
  • Made positive comments on (QCOM) and (BATS).
  • Made negative comments on (THC).
Night Trading
  • Asian indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 132.0 -7.0 basis points.
  • Asia Pacific Sovereign CDS Index 113.50 -5.5 basis points.
  • FTSE-100 futures +.15%.
  • S&P 500 futures +.21%.
  • NASDAQ 100 futures +.37%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ADBE)/.57
Economic Releases
10:00 am EST
  • The NAHB Housing Market Index for March is estimated to rise to 30 versus a reading of 29 in February.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking, EFSF Investor Conference Call, Sidoti Emerging Growth Forum, JPMorgan Gaming/Lodging/Restaurant/Leisure Forum and the Goldman Luxury Goods Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by energy 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 week.

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