- Spanish Yields at 6% Show Risks of Banking Bailout: Euro Credit. As Spain's recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6% as investors speculate the government will be forced to bailout out the financial system. The nation's 10-year borrowing costs have climbed about 70 basis points this yer as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier's efforts as bad loans reach the highest levels in almost two decades. "Spain is likely to need support in both the banking and government sectors," said Jamie Stuttard, head of international bond portfolio management at Fidelity Investments, which has $1.2 trillion of assets. "Government bond market developments hold the key."
- Swedish CDS Surge Tops Spain's as Crisis Spreads: Nordic Credit. Sweden's credit-default swaps soared more than debt derivatives for any other European government this month as Scandinavia's biggest economy succumbs to crisis contagion via its export markets. The cost of protecting Swedish debt against default rose about 36% in April, the biggest increase in western Europe. Swaps on Germany advanced 19% in the same period while the cost of protecting Spanish debt against default grew 9%.
- Three Reasons Japan's Economic Pain Is Getting Worse. Japan’s economic problems are serious and getting worse. Foremost among them is the crushing burden of government debt. Japan’s ratio of government debt to gross domestic product, currently about 2.28, is by far the highest in the industrial world, almost double that of even Greece and Italy, and steadily growing. Already, the combined costs of interest on that debt and social security are approximately equal to total government tax revenue. Japan’s trade balance is about to go negative for the first time since 1980. Land values and Nikkei stock values have fallen to about 30 percent of 1989 levels. Now, educated young Japanese women are emigrating, Japanese companies are shifting production overseas (even to the U.S.), national politics are in gridlock (six prime ministers in the past five years), and last year Japan experienced its first mass street protests in decades. The economic troubles are symptoms of at least three sets of deeper social problems.
- Buffett-Backed BYD Says First-Half Net May Fall Up to 95%. BYD Co. (1211), the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), said first-half profit may fall as much as 95 percent because of reduced earnings from solar energy and mobile handsets. Net income for the six months ended June 30 may drop to between 13.8 million yuan ($2.2 million) and 68.8 million yuan, the Shenzhen-based manufacturer said in a statement to the Hong Kong stock exchange yesterday. Demand for BYD’s cars slowed after the government ended buying incentives and the popularity of its top-selling F3 sedan waned. First-quarter sales fell 8 percent on year to 108,755 vehicles, the company said. China’s total passenger-car sales fell for the first time since 2005, dropping 1.3 percent from a year earlier, as the slowing economy and rising fuel costs curbed buying. BYD blamed the forecast decline in profit mainly on a “great loss” in its solar cell business. “The whole solar industry has a tremendous amount of excess capacity,” said Theodore O’Neill, an analyst at Wunderlich Securities in New York. “If you’re in an industry that’s borderline profitless and you’re a smaller player like BYD, it’s maybe going to be worse than profitless.”
- Is 'Fiscal Cliff' a Keynesian Topography Mistake? by Caroline Baum.
- Brazil Puts Reach Record High on China, Europe Concern: Options. Options traders are paying record prices to protect against Brazilian equity losses as growth slows in China, its biggest trading partner, and concern increases that Europe's debt crisis will worsen. Puts priced 10% below the iShares MSCI Brazil Index Fund cost 1.38 times more than calls betting on a 10% gain, data on three-month options compiled by Bloomberg show. The price relationship known as skew rose to an all-time high of 1.42 on April 20. Contracts that profit should the ETF lose 10% by June were the most-owned, the data show.
- Car Dealers Fight On. Auto Dealers Cut in 2009 Bailout Continue to Take on Constitutionality Issue. U.S. government bailouts of General Motors(GM) and Chrysler became a constitutional battleground when they were pushed through bankruptcy court in 2009. Turns out the battle isn't over just yet. More than 220 former car dealers are pressing their case that the Obama administration violated the U.S. Constitution when the car makers terminated franchise agreements while in bankruptcy restructuring.
- TSA Screeners Charged in Los Angeles Drug Trafficking Probe. Two former and two current Transportation Security Administration employees have been arrested and indicted on drug conspiracy charges for allegedly allowing large amounts of cocaine and other drugs to pass through security screening at Los Angeles International Airport last year. Seven people face drug-related charges in a 22-count indictment unsealed Wednesday in Los Angeles federal court. Other charges include paying and receiving bribes by a government official.
- You'll Feel Differently About George Zimmerman And The Trayvon Martin Shooting After You Read This.
- Meredith Whitney: State Finances Are Still Doomed, And These Three States Are In The Most Trouble.
- The 12 Startups Everyone Is Talking About In Silicon Valley.
- NYT: Bo Xilai Was Wiretapping The Chinese President.
- Caterpillar(CAT) Answered 5 Burning Questions About China Today.
- Hedge Fund Managers See Tough Year for Industry. Hedge fund managers are predicting a tough year for the sector in 2012. A report by the consulting firm Rothstein Kass found about half of the 400 hedge fund managers who responded believed that 2012 would be a “a difficult or somewhat difficult” year for the industry. Almost 40 percent expressed concerns that the United States would enter a double-dip recession. Only about 32 percent of those who responded in 2011 thought it would be a rough year for hedge funds. Political and economic uncertainty, tougher requirements by the Securities and Exchange Commission and brutal competition for investment dollars are among the challenges facing the industry in 2012, said Howard Altman, co-chief executive of the Financial Services Group at Rothstein Kass. “Less people are optimistic; they’re thinking about the economy, the way the markets have behaved post-crisis, and the regulatory environment that’s facing them,” he said.
- YouTube Is 27% Of Mobile Video Traffic In North America, Netflix(NFLX) Just 2%. YouTube is the largest source of mobile video traffic, according to a new report from Sandvine, and now accounts for as much as 25% of network data, and no less than 12% at any given time. The report examined traffic across a selection of Sandvine’s 200+ customers in North America, Europe, the Middle East, Africa, the Caribbean, Latin America, and the Asia-Pacific. Combined with other services like Pandora and Netflix, audio and video streaming make up more than half of mobile data traffic in North America, and it’s on track to reach 60% by 2014, the company says.
- Two Years On, Health Care Bill Is Like A Plague. Democrats are regretting the passage of the Patient Protection and Affordable Care Act. Now that we know it is nothing if not unaffordable, the act is itself the main danger from which they seek political protection and shelter. Why now? Perhaps to get a jump on things before the act is ruled unconstitutional, or before it causes even more Democrats to lose in November, or before President Romney repeals it in 2013. "I think that the manner in which the issue was dealt with ... cost Obama a lot of credibility as a leader," said Sen. James Webb, D-Va. Webb, who voted for passage and is retiring after one term, added that if Obama had gone for a small, simple measure, he could have won some Republican votes. Rep. Brad Miller, D-N.C., who is also retiring, remarked that "[w]e would all have been better off if we had dealt first with the financial system" and said Democrats wasted time and political capital creating problems that dragged the economy down. Rep. Dennis Cardoza, D-Calif., who is also retiring, said the bill should have been done in "digestible pieces," and they should have 'figure[d] how they were going to pay for the bill, and then figure[d] out what they could afford." Rep. Barney Frank, D-Mass., of all people, says the Democrats should have stopped after Scott Brown won his election. Former Rep. Artur Davis, D-Ala., who lost a gubernatorial primary after voting against it, got it right when he said "the Affordable Care Act is the single least popular piece of major domestic legislation in the past 70 years."
- Daily Presidential Tracking Poll. (graph) The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney earning 49% of the vote, while President Obama attracts support from 44%. Three percent (3%) would vote for a third party candidate, while another four percent (4%) are undecided.
- Xilinx(XLNX) 4th-quarter beats, sees upbeat Q1. Chipmaker Xilinx Inc posted better-than-expected quarterly results and it guided first-quarter revenue well above market estimates, signaling a faster recovery in its communications business. Shares of the company rose 8 percent in after-market trading.
- Akamai(AKAM) forecast weak Q2, shares down. Internet content delivery company Akamai Technologies Inc's outlook for second-quarter profit fell short of analysts' estimates, sending its shares down 10 percent in aftermarket trade.
- Europe Faces Japan Syndrome as Credit Demand Implodes. (graph) Europe (minus Germany) looks more like post-bubble Japan each month. The long-feared credit crunch has mutated instead into a collapse in DEMAND for loans. Households and firms are comatose, or scared stiff, in a string of countries. Demand for housing loans fell 70pc in Portugal, 44pc in Italy, and 42pc in the Netherlands in the first quarter of 2012. Enterprise loans fell 38pc in Italy. The survey took place in late March and early April, and therefore includes the second of Mario Draghi’s €1 trillion liquidity infusion (LTRO). The ECB said net demand for loans had fallen "to a significantly lower level than had been expected in the fourth quarter of 2011, with the decline driven in particular by a further sharp drop in financing needs for fixed investment." Demand fell 43pc for household loans, and 30pc for non-bank firms.
- None of note
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 161.50 -4.5 basis points.
- Asia Pacific Sovereign CDS Index 134.50 -1.25 basis points.
- FTSE-100 futures -.03%.
- S&P 500 futures +.10%.
- NASDAQ 100 futures +.11%.
Earnings of Note
8:30 am EST
- Initial Jobless Claims are estimated to fall to 375K versus 386K the prior week.
- Continuing Claims are estimated to fall to 3293K versus 3297K prior.
10:00 am EST
- Pending Home Sales for March are estimated to rise +1.0% versus a -.5% decline in February.
11:00 am EST
- The Kansas City Fed Manufacturing Activity Index for April is estimated to fall to 7.0 from 9.0 in March.
- None of note
Other Potential Market Movers
- The Chicago Fed National Activity Index, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (CBRL) Analyst Day and the 7-Year Treasury-Note Auction could also impact trading today.