Thursday, March 29, 2012

Thursday Watch

Evening Headlin
  • Spanish General Strike Looms as Rajoy Corned by Deficit Crisis. Spanish Prime Minister Mariano Rajoy will today face down the first general strike against his three-month old government as pressure from investors and European peers trumps demands from unions. The People’s Party government “will not cede” as the economic situation is at the “limit,” Budget Minister Cristobal Montoro said yesterday. Spain’s two biggest unions are predicting broad support for the strike against changes to labor laws and austerity, even as a poll by El Pais showed just 30 percent of workers would join the walkout. While Rajoy’s measures have angered unions and undermined support for the party in a regional election on March 25, the government is still struggling to convince investors its policies are enough to restore the public finances and reduce a 23 percent jobless rate. Spanish 10-year borrowing costs have surged almost 50 basis points since the start of March. “He has no choice,” said Antonio Barroso, a political analyst at Eurasia Group in London and a former government pollster. “If he gives in the markets will punish Spain. Rajoy has his back against the wall.” Unions have organized a demonstration in central Madrid at 6:30 p.m. In the El Pais poll, published on March 25, 51 percent of those surveyed said the strike was justified. Comisiones Obreras and Union General de Trabajadores have agreed with the government to run 35 percent of rush-hour suburban train services and 20 percent of high-speed trains today.
  • Espirito Santo Among Five Portugal Lenders Downgraded by Moody’s. Banco Espirito Santo SA (BES) was among five banks in Portugal to have credit ratings cut by Moody’s Investors Service, which cited asset risks and a “poor economic outlook” in a nation whose own grade was reduced last month. Espirito Santo, Portugal’s largest publicly traded bank by market value, had its debt rating lowered one level to Ba3, Moody’s said yesterday in a statement. It took the same action for Caixa Geral de Depositos SA and Banco BPI SA. (BPI) Banco Internacional do Funchal was downgraded to B1 from Ba3.
  • China's Stocks Poised to Extend Drop on Profit, Says Julius Baer. Chinese stocks are poised to extend their slump as the slowing economy hurts earnings, according to Bank Julius Baer & Co., which has about $286 billion in client assets worldwide. Chinese equities will probably retreat unless there is “significant” easing of monetary policy, Alan Lam, a Hong Kong-based analyst at Julius Baer, said by phone yesterday. His comments came after the Shanghai Composite Index (SHCOMP) fell 2.7 percent, the most in four months, as Societe Generale SA said Chinese corporate profits won’t grow at all this year. “In the coming three months, the rally has ended,” Lam said. “The economic slowdown will continue for a while and there are overexpectations on policy. It’s a fact that the economic slowdown in China is negative on profitability.” The Shanghai Composite has slumped 7.2 percent from this year’s high on March 2 on concern the world’s second-biggest economy is stalling as government property curbs and tight monetary policies reduce profits. The Hang Seng China Enterprises Index (HSCEI) of Hong Kong-listed Chinese stocks has tumbled 9.5 percent this month, the second-biggest slump among 93 primary indexes tracked by Bloomberg.
  • Californians Love Taxes, Not Government Reform. A funny thing happened after California officials announced the shutdown of 70 state parks in the face of an estimated $33 million in budget cutbacks: Private companies, wealthy donors, nonprofit organizations and local governments came up with ways to keep many parks open. Eleven parks have already been dropped from the closing list, and the parks agency is holding workshops to teach community groups how to run a state park. Unfortunately, such creative solutions -- where government officials privatize services or find other ways to stretch the taxpayer’s dollar -- appear less likely as Californians express support for tax increases.
  • 4 Numbers Add Up To An American Debt Disaster. 1) 2.2 percent is the average interest rate on the U.S. Treasury’s marketable and non-marketable debt (February data). 2) 62.8 months is the average maturity of the Treasury’s marketable debt (fourth quarter 2011). 3) $454 billion is the interest expense on publicly held debt in fiscal 2011, which ended Sept. 30. 4) $5.9 trillion is the amount of debt coming due in the next five years.
  • BofA(BAC) Says Monynihan Received $7 Million in Compensation Package. Bank of America Corp., the second- biggest U.S. lender, said Chief Executive Officer Brian T. Moynihan's 2011 compensation package was $7 million for 2011, a 30 percent cut, as the company's stock slumped. The CEO's salary was unchanged at $950,000, with the rest of his package consisting of $1.82 million in "cash-settled restricted stock units" and $4.24 million of restricted stock units tied to performance, according to a regulatory filing yesterday. A separate calculation conforming to U.S. Securities and Exchange Commission standards showed Moynihan's compensation quadrupled to $8.09 million. Moynihan, 52, spent his second year as CEO selling more than $33 billion in assets and targeting $8 billion of cost savings as revenue stagnated. Profit rebounded to $1.4 billion in 2011 from a $2.2 billion loss a year earlier, and capital levels rose in the fourth quarter. The stock plunged 58 percent last year, the worst in the Dow Jones Industrial Average.
  • MF Global Treasurer Provides No Answers on Missing Funds. A U.S. House investigations subcommittee ended a third hearing into the collapse of MF Global Holdings Ltd. with the same problem they had four months ago: No answers from the woman said to have the most information about what happened to $1.6 billion in missing client money. Edith O’Brien, assistant treasurer at the firm’s brokerage, invoked her constitutional right against self-incrimination yesterday at a congressional hearing, disappointing lawmakers seeking answers to questions about frantic money transfers during the company’s final days in October.
Wall Street Journal:
  • Health Case Ripples Outword. After three days of historic Supreme Court debate, the political world and health-care companies confronted the prospect of President Barack Obama's health law being wiped away, a decision that would upend years of planning by businesses and roil the November elections.
  • Iran Oil Slows as Price Concerns Rise. Iran's oil exports appear to have dropped this month as buyers prepare for tough new sanctions, market observers say, and shipments are likely to shrink further if President Barack Obama determines by Friday, as expected, that markets can adjust to fewer barrels of Iranian oil.
  • For Portugal, Moment of Truth Nears. Politicians in Lisbon and policy makers in Brussels insist that Portugal isn't like Greece. This spring, the country will have to prove it. The European Central Bank's injection of money into the Continent's banking system has, for now, pulled Italy and Spain away from the edge of the sovereign-debt crisis. But that medicine hasn't soothed Portugal. Though its government-bond yields have improved this week, they remain at elevated levels that suggest distress.
  • AIG's Death-Bet Team Departs. A team who helped run American International Group Inc.'s $18 billion portfolio of "life-settlement" investments has left the company to launch a firm that advises investors on the controversial holdings. The departures signal that AIG, one of the largest financial conglomerates to fall victim to the financial crisis, remains committed to retreating from ancillary businesses to focus on its core property-casualty and life operations.
  • Facebook(FB) Targeting May IPO. Facebook Inc. is preparing its initial public offering for May, according to people familiar with the matter, in what is shaping up to be the largest-ever U.S. Internet offering. The Menlo Park, Calif., social network halted trading of its shares on the secondary market this week, as it sets about nailing down its shareholder count, according to a person familiar with the matter.
  • Survey Finds Americans Staying Put. A scant 10% of Americans plan to move to a new residence this year, while 70% plan some sort of home improvement, showing that consumers continue staying put as they wait for the housing crisis to finish playing out. Of those looking to move, some 44% expect to buy, while 42% are looking to rent, according to the latest American Express Spending & Saving Tracker survey released Wednesday. (The questions related to moving are new this year, so no previous comparison is available.) Not surprisingly, the survey found a lack of confidence in the housing market is hampering buying and selling activity. More than half of those surveyed are “not very/not at all confident” that they would get their asking price. Most respondents are also willing to make concessions to help sell their home — including paying for buyer’s closing costs (15%), offering to make requested repairs (29%), offering to include appliances (41%) and offering to include furniture (12%).
  • Chaos Over a Plunging Note. Regulators are examining volatile trading in a complex exchange-traded note that caused it to lose 60% of its value in the past week. The Securities and Exchange Commission is looking into the VelocityShares 2x Long VIX Short Term Exchange note(TVIX), managed by Credit Suisse Group AG, which had about $700 million in assets before the decline, according to people familiar with the matter. The SEC review is preliminary, the people said.
  • We're Not France, Yet. Maybe the United States dodged a bullet this week. Make that a deep-penetration bunker buster into the original idea of America. On Tuesday, the justices of the Supreme Court sounded, on balance, to be disposed against affirming the Obama health-care law's mandate.
Fox News:
  • Lenders Opening Up To Borrowers With Shaky Credit. The amount of new credit extended last year to U.S. consumers grew more than 10% to $782 billion, spurred in part by more loans to "subprime" borrowers, according to new data from credit bureau Equifax. The total includes credit cards, auto loans, personal loans, home-equity lines of credit and student loans but excludes mortgages. Growth in subprime-loan originations was especially prevalent in the credit-card and auto-loan markets, a stark contrast from the recession, during which banks cut off lending to all but the most credit-worthy borrowers.
  • Rubio endorses Romney, saying he's 'earned' it. (video) Sen. Marco Rubio, R-Fla., endorsed Mitt Romney for president Wednesday night on Fox News' "Hannity," saying Romney offers "a very clear alternative" to President Obama's vision for the future of the country. Rubio, a young, first-termer who has been discussed as a possible vice presidential candidate, criticized talk of a fight for the Republican nomination on the convention floor, a possibility that is keeping alive the campaigns of Rick Santorum and Newt Gingrich.
Dow Jones:
  • S&P Says Greece May Need Another Restructuring. Greece will likely have to restructure its new bonds at some point in the future, said the head of sovereign ratings for Europe, Middle East and Africa at Standard & Poor's Corp. Earlier this month Greece pushed through the largest sovereign-debt restructuring in history in order to avoid defaulting on its bonds. Speaking on a panel at the London School of Economics, S&P head Moritz Kraemer said the CCC rating on Greece's new bonds is "extremely low," factoring in the large risk of another sovereign debt restructuring.
Business Insider:
Zero Hedge:


The Detroit News:
  • Patterson Fears Detroit Is Headed For Bankruptcy, Unrest. Oakland County Executive L. Brooks Patterson said Wednesday he is concerned that harsh comments against a possible consent agreement to solve Detroit's financial crisis could foster economic chaos and even civil unrest. In an interview, Patterson expanded on remarks he made before a Chamber of Commerce breakfast Wednesday morning at Oakland University. During the event, he described Detroit as a "tinderbox" and criticized a minister's comments made at a Detroit town hall meeting. The outspoken Patterson also predicted Detroit couldn't survive without an emergency manager "yet continues to borrow money in an effort to get out of debt." "Detroit is in a desperate economic struggle and appears headed towards the cliff we call bankruptcy," said Patterson. "An emergency manager may be the only way out of it. We have seen that in Flint, Pontiac, other cities, struggling with money problems. In Pontiac, we went from hundreds of employees and eliminated police and fire departments, much of city hall, and will probably be down to about 20 before it is all done."
  • Mosaic(MOS) Profit Misses Street On Potash(POT) Sales Drop. Mosaic Co posted a stark drop in quarterly profit as farmers bought less potash fertilizer and costs jumped in the phosphate fertilizer segment. High prices for potash kept many customers from buying ahead of the spring planting season, which begins shortly in North America. Chief Executive Jim Prokopanko blamed global economic concerns during the company's December to February fiscal quarter for the weak results, but said sales are already on the rebound.
  • Red Hat(RHT) Profit Beats, To Buy Back Stock. Red Hat Inc's quarterly profit beat analysts' expectation for the fifth straight quarter on the back of higher subscription revenue, and the business software maker said it would buy back $300 million of its shares. The stock of the world's largest distributor of the Linux operating system rose more than 8 percent after the bell.

Sueddeutsche Zeitung:
  • Greece still needs to implement several measures which may be "painful" for its population to restore the country's fiscal health and remain in the euro, citing the European Commission's Matthias Mors. European Union member states will probably insist on Greece not becoming accustomed to being a recipient of aid, the newspaper cited the member of the so-called troika of the commission, IMF and ECB as saying.
Fuji TV:
  • North Korea fired two missiles toward the Yellow Sea around 4pm local time yesterday, citing a Japanese govt official.
  • China's "major" steelmakers incurred combined losses of 2.8b yuan in Jan.-Feb., citing the China Iron and Steel Association.
Shanghai Securities News:
  • The National Energy Administration told local governments not to "arrange" new wind power projects in areas where more than 20% of wind farm output is lost because of limited grid capacity, citing a notice.
Evening Recommendations
  • Rated (GOOG) Buy, target $714.
  • Rated (AMZN) Buy, target $230.
  • Rated (EBAY) Buy, target $43.
  • Rated (Z) Buy, target $40.
Night Trading
  • Asian equity indices are -1.50% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 155.0 +4.5 basis points.
  • Asia Pacific Sovereign CDS Index 127.25 -.75 basis point.
  • FTSE-100 futures -.32%.
  • S&P 500 futures -.06%.
  • NASDAQ 100 futures -.07%.
Morning Preview Links

Earnings of Note
  • (SHAW)/.45
  • (BBY)/2.15
  • (TIBX)/.19
Economic Releases
8:30 am EST
  • 4Q GDP is estimated to rise 3.0% versus a prior estimate of a +3.0% gain.
  • 4Q Personal Consumption is estimated to rise 2.1% versus a prior estimate of a +2.1% gain.
  • 4Q GDP Price Index is estimated to rise +.9% versus a prior estimate of a +.9% gain.
  • 4Q Core PCE is estimated to rise +1.3% versus a prior estimate of a +1.3% gain.
  • Initial Jobless Claims are estimated to rise to 350K versus 348K the prior week.
  • Continuing Claims are estimated to fall to 3350K versus 3352K prior.

Upcoming Splits

  • (CPRT) 2-for-1

Other Potential Market Movers

  • The Fed's Bernanke speaking, Fed's Plosser speaking, Fed's Lacker speaking, Fed's Lockhart speaking, Italian bond auction, 7Y Treasury Auction, weekly Bloomberg Consumer Comfort Index, Kansas City Fed Manufacturing Activity Index for March, weekly EIA natural gas inventory report, JPMorgan Insurance Conference and the (SRE) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology 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 day.

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