Tuesday, March 06, 2012

Tuesday Watch


Evening Headlin
es
Bloomb
erg:
  • Greek Debt Private Investors Join Swap. The private investors that so far declared their participation in Greece’s debt restructuring hold about 20 percent of the bonds involved in a swap required for an international bailout. The 12 members of the creditors’ steering committee that said yesterday they would join in the exchange have debt with a face value of at least 40 billion euros ($53 billion), compared with the 206 billion euros of Greek bonds in private hands, according to data compiled by Bloomberg from company reports.
  • Portugal in Crosshairs as Yields Fuel Bailout Talk: Euro Credit. Portuguese bond yields are rising as investors are busy putting cheap money from the ECB to work elsewhere. The increase in 10-year borrowing costs by almost two percentage points in the past two weeks is stocking concern among investors that the nation will struggle to resume bond sales in 2013. Portugal has been unable to see debt due in more than a year since it was given a $103 billion bailout in May 2011, following Greece and Ireland. "The ECB's cash provides liquidity, but not solvency," said Stuart Thomson, who helps oversee the equivalent of $110 billion as a portfolio manager at Ignis Asset Management in Glasgow. "If the perception is that a country is already bankrupt, these liquidity measures won't work. There is growing concern that Portugal may need a second bailout."
  • Goldman(GS) Secret Greece Loan Shows Two Sinners as Client Unravels. Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start. On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said. Papanicolaou and his predecessor, Christoforos Sardelis, revealing details for the first time of a contract that helped Greece mask its growing sovereign debt to meet European Union requirements, said the country didn’t understand what it was buying and was ill-equipped to judge the risks or costs. “The Goldman Sachs deal is a very sexy story between two sinners,” Sardelis, who oversaw the swap as head of Greece’s Public Debt Management Agency from 1999 through 2004, said in an interview. Goldman Sachs’s instant gain on the transaction illustrates the dangers to clients who engage in complex, tailored trades that lack comparable market prices and whose fees aren’t disclosed. Harvard University, Alabama’s Jefferson County and the German city of Pforzheim all have found themselves on the losing end of the one-of-a-kind private deals typically pitched to them by securities firms as means to improve their finances.
  • Netanyahu Vows to Prevent Iran From Gaining Atomic Bomb After Obama Talks. Israeli Prime Minister Benjamin Netanyahu, capping a day he started in White House talks with President Barack Obama, told Jewish leaders he won’t allow his nation to be threatened by an Iranian nuclear bomb. Iran would be more reckless and dangerous with a nuclear weapon, Netanyahu said tonight in a speech in Washington to the American Israel Public Affairs Committee. He said he wouldn’t let Israel live in the “shadow of annihilation.” While Netanyahu praised Obama for leading a campaign to toughen economic sanctions on Iran, he said such actions haven’t led Iran to curtail its nuclear program and Israel must be able to defend itself against a threat to its existence. “None of us can afford to wait much longer,” Netanyahu said.
  • China's Stocks Decline Most in a Month on Slowing Economic Growth Concern. China’s stocks fell, sending the benchmark index down the most in a month, on concern slowing growth will curb demand for building materials and dent profits. Anhui Conch Cement Co., the nation’s biggest maker of the building material, slid 3 percent as property developer China Vanke Co.’s sales slumped. Vanke dropped 0.5 percent. Poly Real Estate Group Co. sank 1.2 percent after the 21st Century Business Herald cited a legislator as saying home prices need to fall as much as 30 percent. Industrial Bank Co. (601166) retreated the most in almost four months amid plans to sell new shares. The Shanghai Composite Index (SHCOMP) fell 27.71 points, or 1.1 percent, to 2,417.29 at the 11:30 a.m. local-time break, set for the biggest loss since Feb. 7. Anhui Conch fell 3 percent to 17.45 yuan. Gansu Qilianshan Cement Group Co. tumbled 5.2 percent to 11.40 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., dropped 3 percent to 15.94 yuan. Sales at China Vanke, the nation’s biggest listed property developer, dropped 27 percent in the first two months of 2012 from a year earlier to 19.05 billion yuan ($3.02 billion). Sales last month slumped 40 percent from January, the company said.
  • Goldman Sachs's Soured Stock Bets Led to Asia Unit's 2011 Loss. Goldman Sachs Group Inc. lost money in Asia last year for the first time since 2008 as the Wall Street firm's stock investments in the region, led by a holding in China's biggest bank, backfired. A 46 percent decline in Asia revenue compared with 2010 was driven by markdowns on the company's stakes in public equities, the firm disclosed in its annual 10-K filing with the U.S. Securities and Exchange Commission. The bank lost $103 million in the region, compared with a $2.08 billion profit a year earlier, according to the New York-based company. The figures illustrate how losses in Goldman Sachs's Investing & Lending unit, which makes so-called principal investments with the company's own money, can surpass the bank's revenue from working with clients.
  • The Children of Fukushima Wait for UN Radiation Study. As five-year-olds charge through the corridors of a kindergarten in northeast Japan at lunchtime, teacher Junko Kamada says she is still unsure if their food is safe a year after the Fukushima nuclear accident.
  • Paulson's Advantage Plus Fell 1.5% Last Month, Bringing 2012 Gain to 3.5%. John Paulson lost 1.5 percent in February in one of his largest hedge funds, according to an investor update, even as the Standard & Poor’s 500 Index gained 4.1 percent during the month. Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, has gained 3.5 percent this year, according to the update, a copy of which was obtained by Bloomberg News. The S&P 500 Index rose 8.6 percent during the same period.
  • Oil Trades Near Two-Day High as Tension With Iran Counters Economy Outlook. Oil traded near the highest price in two days as concern that tension with Iran will disrupt crude supplies countered concern the global economy will slow. Futures were little changed after rising as much as 0.6 percent. Israel reserves the right to defend itself and keep Iran from acquiring a nuclear weapon, Prime Minister Benjamin Netanyahu said in Washington. The world economy will grow at a below-trend pace this year, according to the Reserve Bank of Australia. South Korea’s finance ministry said uncertainty over the nation’s economic outlook has increased because of higher oil prices. Oil for April delivery was at $106.68 a barrel, down 4 cents, in electronic trading on the New York Mercantile Exchange at 11:38 a.m. Singapore time. The contract yesterday advanced 2 cents to $106.72, the highest settlement since March 1. Brent oil for April settlement rose 7 cents to $123.87 a barrel on the London-based ICE Futures Europe exchange.
Wall Street Journal:
  • New Sites Unleash Pets.com 2.0. The economics of Internet commerce have changed so much that Alex Zhardanovsky is now taking on the once-seemingly impossible challenge of selling pet food online. Mr. Zhardanovsky in 2010 co-founded PetFlow.com Inc., a Manhattan start-up that has raised $10 million in venture capital and that now ships one million pounds of pet food a month. "We want to prove that the pet category can be successful online," said the 34-year-old entrepreneur, who said he expected his company to break even by the second quarter and have sales of $30 million this year, up from $13 million in 2011.
  • Tech Titans Aid Undocumented Students. A group of Silicon Valley technology leaders, impatient with attempts to rewrite immigration laws, is funding efforts to help undocumented youths attend college, find jobs and stay in the country despite their illegal status.
  • Money-Fund Plan Hits Resistance. A Securities and Exchange Commission plan to shore up the $2.7 trillion U.S. money-market mutual-fund industry is struggling to overcome opposition within the agency. SEC Chairman Mary Schapiro is leading the push for stricter money-fund regulation, which would follow a round of rule tightening in 2010. The effort is aimed at avoiding a repeat of 2008, when the collapse of Lehman Brothers Holdings Inc. sparked a financial panic and threatened the savings of millions of investors.
  • Companies' Pension Plea. Business groups are urging Congress to let employers put less money into their pension funds, saying that exceptionally low interest rates are forcing them to set aside too much cash. A provision attached to the Senate highway bill would change the formula many large companies, including General Electric Co., Boeing Co. and Lockheed Martin Corp., must use to calculate how much to add to their pension funds, potentially shrinking their combined contributions by billions of dollars a year.
  • China Foothold in U.S. Energy. Fu Chengyu's first attempt to buy a piece of the U.S. oil industry kicked up a storm of protest and ended in failure. Seven years later, the Chinese executive is pouring billions of dollars into the oil patch without even a whisper of trouble. His new recipe for success: Seek minority stakes, play a passive role and, in a nod to U.S. regulators, keep Chinese personnel at arm's length from advanced U.S. technology.
  • Clock Ticks on Buyout Debt. A wave of leveraged-buyout debt is beginning to crash down on Europe's shores. Over the next five years, some $550 billion of loans made to European companies taken over in leveraged buyouts will mature, according to data crunched by Dealogic for U.K. law firm Linklaters LLP, in a study to be published Tuesday. The scale of the maturing debt is daunting in itself, but a number of additional factors—including weak economies in Europe and tightening capital requirements for banks—could make it particularly acute for lenders and borrowers, according to the report, titled "Negotiating Europe's LBO debt mountain." In a worst-case scenario, default rates, already rising sharply, could surge further, resulting in additional pain for both banks and private-equity firms, whose returns have been hampered by economic head winds and the absence of robust markets for deals and initial public offerings that they rely on for selling their investments.
  • Limbaugh and Our Phony Contraception Debate by Cathy Cleaver Ruse. Ms. Fluke's crusade for reproductive justice is simply a demand that a Catholic institution pay for drugs that make it possible for her to have sex without getting pregnant. It's nothing grander or nobler than that. Georgetown's refusal to do so does not mean she has to have less sex, only that she has to take financial responsibility for it herself. Should Ms. Fluke give up a cup or two of coffee at Starbucks each month to pay for her birth control, or should Georgetown give up its religion? Even a first-year law student should know where the Constitution comes down on that.
MarketWatch:
Business Insider:
Zero Hedge:
CNBC:
  • India Bans Cotton Exports, Global Prices Jump. India banned cotton exports with immediate effect on Monday to ensure supplies for domestic mills, boosting global prices some 4.5 percent as the absence of shipments from the world's second-largest producer might tighten a market facing weak demand.

NY Times:

  • Dykstra Given Three Years in State Prison. The former Mets outfielder Lenny Dykstra was sentenced to three years in a California state prison on Monday after pleading no contest to grand theft auto and providing a false financial statement.
  • As New iPad Debut Nears, Some See Decline of PCs. The chief executive of Apple, Timothy D. Cook, has a prediction: the day will come when tablet devices like the Apple iPad outsell traditional personal computers.
  • Signs of Slowing in China. The nights are a little darker now here in the main metropolis of southeastern China, at the center of one of the country’s largest export hubs. It is but one sign of the slightly dimmer economic outlook for China that Premier Wen Jiabao forecast on Monday, when he reduced the government’s minimum growth target for 2012 to what would be, if growth fell that far, the lowest rate in more than two decades. Construction sites across Guangzhou used to be floodlit, so that work could continue through the night on the forests of new residential and office towers reaching toward the stars. But now, during a nationwide real estate downturn, builders are not starting projects or scrambling to finish ones already under way, so there is little need for night-work illumination.
  • Texas Teacher Pension Buys Stake in Hedge Fund Giant Bridgewater. The Teacher Retirement System of Texas just went from hedge fund investor to hedge fund owner. Last month, the Texas pension took a $250 million stake in Bridgewater Associates, the giant money manager. Now, rather than plowing money into specific portfolios, it can claim a piece of the whole operation.
Forbes:
Chicago Tribune:
  • G-8 Summit to be Held at Camp David, Not Chicago. President Obama is moving one of two major world summits from Chicago to the presidential retreat near Washington, with an aide saying the president has decided he wants a more "intimate" setting than his hometown for the May gathering. Chicago police estimated that 2,000 to 10,000 demonstrators were expected to show up for the overlapping G-8 and NATO summits. At least two major demonstrations were already planned for downtown during the summit, and organizers said they wanted to send crowds of marchers down Michigan Avenue in the middle of the day. Police sources said the department has already sent about 8,400 of its roughly 12,000 sworn officers through some form of crowd-control training.
Real Clear Politics:
AP:
  • Riot Police Break Up Anti-Putin Protest in Moscow. (videos) An attempt by Vladimir Putin's foes to protest his presidential election victory by occupying a Moscow square ended Monday with riot police quickly dispersing and detaining hundreds of demonstrators — a stark reminder of the challenges faced by Russia's opposition. The harsh crackdown could fuel opposition anger and bring even bigger protests of Putin's 12 years in power and election to another six, but it also underlined the authorities' readiness to use force to crush such demonstrations.

Reuters:

  • Romney, Santorum Hunt For Super Tuesday Votes in Ohio. Rivals Mitt Romney and Rick Santorum made their final pitch for support in the vital battleground state of Ohio on Monday, the day before 10 states hold Super Tuesday nominating contests that could be pivotal in an unpredictable Republican presidential race. Romney has been gaining on Santorum in polls in Ohio all week, erasing a double-digit lead for the former senator from Pennsylvania. Three new surveys on Monday showed a tight race: one gave Romney a slight edge, one had Santorum with a small lead and the third showed a dead heat.
  • Venezuela to Ship More Fuel to Syria as Crackdown Spreads. Venezuela is readying a third shipment of diesel to the government of Syria even as President Bashar al-Assad intensifies a crackdown against protesters, said a Venezuelan lawmaker on Monday. Last month, Venezuela's government confirmed it had sent at least two shipments of fuel to Syria, potentially undermining Western sanctions as a rare supplier to the increasingly isolated Assad regime.
  • US Forecaster Sees Average 2012 Atlantic Hurricane Season. The 2012 Atlantic hurricane season will likely see average storm activity with sea surface temperatures forecast to be cooler than last year, the director of the U.S. National Hurricane Center said on Monday.
The Economist Intelligence Unit:
  • Greece passed a law making it a crime for doctors to prescribe brand-name drugs rather than the generic version.
Telegraph:
  • Dutch Freedom Party Pushes Euro Exit as €2.4 Trillion Rescue Bill Looms. The Dutch Freedom Party has called for a return to the Guilder, becoming the first political movement in the eurozone with a large popular base to opt for withdrawal from the single currency. "The euro is not in the interests of the Dutch people," said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. "We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on."

South China Morning Post:
People's Daily:
  • The Chinese economy faces quality and efficiency problems and no longer speed of development, citing Yao Jingyuan, a researcher at the State Council counselors' office.
China Securities Journal:
  • Chinese bank lending to local government financing vehicles won't be extended and loan policies haven't changed, citing China Banking Regulatory Commission Assistant Chairman Yan Qingmin. The pace of China's interest-rate liberalization will quicken, lowering banks' interest margins and earnings, citing Yan.
Evening Recommendations
Morgan Stanley:
  • Rated (A) Overweight, target $54.
  • Rated (AFFX) Underweight, target $4.
  • Rated (WAT) Overweight, target $105.
Night Trading
  • Asian equity indices are -1.5% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 162.0 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 132.50 +2.0 basis points.
  • FTSE-100 futures -.30%.
  • S&P 500 futures -.34%.
  • NASDAQ 100 futures -.34%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (MTN)/1.38
  • (UNFI)/.44
  • (DKS)/.88
  • (SSI)/1.07
  • (P)/-.02
  • (AVAV)/.43
Economic Releases
  • None of note

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The weekly retail sales reports, ISI Industrial Conference, Susquehanna Semi Summit, Stifel Nicolaus Consumer Conference, BofA Merrill Consumer/Retail Conference, (CHS) Analyst Day and the (PCL) Analyst Day 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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