Monday, May 14, 2012

Monday Watch

Posted by Gary .....at 12:23 AM

Weekend Headlines
Bloomberg:
  • Euro Officials Begin to Weigh Greek Exit. Greece’s possible exit from the euro area moved to the center of Europe’s debt-crisis debate, with officials beginning to weigh the fallout of a withdrawal even as authorities in Athens struggled to form a government. Meetings brokered by Greek President Karolos Papoulias are set to continue today after Syriza, the largest anti-bailout party, rejected a unity government following last week’s inconclusive elections. The country where the 2 1/2-year-old crisis began moved closer to a new vote, and to the possibility of a euro-area exit that was once a taboo among policy makers. Greek withdrawal “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said in Tallinn on May 12. An exit was “technically” possible yet would damage the euro, he said. German Finance Minister Wolfgang Schaeuble reiterated in an interview in Sueddeutsche Zeitung that member states seeking to hold the line on austerity for Greece could not force the country to stay. The debate between growth and austerity will form the centerpiece of talks tomorrow between the newly installed French President Francois Hollande and German Chancellor Angela Merkel, who has championed an agenda of spending cuts. Euro finance ministers meet today and may discuss the international bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up the country’s banks. The euro-area finance ministers will convene in Brussels at 5 p.m. local time.
  • Merkel's CDU Defeated in Worst Postwar Result in Biggest State. Chancellor Angela Merkel's party was defeated in Germany's most populous state in an election that helped the Social Democrats tighten their grip on the country's regional governments. The SPD, the main opposition party nationally, increased its vote share in yesterday's ballot in North Rhine-Westphalia, enabling Prime Minister Hannelore Kraft to return to power at the head of a government with the Greens in the state capital Dusseldorf. Merkel's Christian Democratic Union fell to its worst score since World War II. The result is a setback for Merkel after she headlined nine campaign rallies in 27 days in North Rhine-Westphalia in a bid to regain the state, the first her CDU lost in 2010 as the debt crisis erupted and voters rebelled against bailing out Greece. The SPD is now in power in 11 of Germany's 16 states.
  • Syriza Says It Won’t Join Greek National Unity Government. Greece’s biggest anti-bailout party, Syriza, said for the second time in as many days that it won’t join a unity government, pushing the country closer to new elections that have sparked concerns about a euro-area exit. “Syriza won’t betray the Greek people,” leader Alexis Tsipras said in statements televised on state-run NET TV after a meeting brokered by President Karolos Papoulias between the party and the leaders of the New Democracy and Pasok parties. “We are being asked to agree to the destruction of Greek society.” Papoulias began a final bid to coax the three biggest parties into a coalition today after a week of talks which failed to deliver on mandates to form governments. He will meet later today the leaders of the four other parties to probe the likelihood of forming a national-unity government. If Papoulias’s efforts fail, new elections will need to be called.
  • As European Austerity Ends, So Could the Euro. The problem isn’t just the region’s lack of competitiveness or its budget deficits or the high stock of existing government debt, which the International Monetary Fund now puts at 90 percent of the euro area’s gross domestic product. It is all of the above, compounded by five years of complete political denial.
  • Weidmann Sees More Aid for Greece as Possible, Sueddeutsche Says. European Central Bank council member Jens Weidmann said further financial support for Greece can be considered if the country sticks to its promises, Sueddeutsche Zeitung reported, citing an interview. “If Greece isn’t keeping its word then it is a democratic decision,” Weidmann, who also heads Germany’s Bundesbank, is quoted as saying. “Consequently, it misses the basis for further financial support.” Weidman also said that it is still not time to drop the extended credit support measures, Sueddeutsche said.
  • Spain May Need to Inject $6.4 Billion in Bankia, Expansion Says. Spain may need to pump 5 billion euros ($6.4 billion) into Bankia Group to boost the lender’s capital, Expansion reported, citing unidentified people close to the government. The cash injection will be implemented through the purchase of capital contingent notes to be issued by the nationalized lender, Expansion said. Previously the government was expecting to inject 2.5 billion euros of new capital, Expansion said. The measure will be on top of the conversion of 4.5 billion euros of subordinated debt sold two years ago by the bank to the government-run bank bailout fund, or Frob, into new stock, Expansion said.
  • The European Commission isn't considering easing the terms of a joint bailout for Greece from the European Union and the IMF, an EU spokesman said, denying a report by Athens-based Real News. "I'm not aware of any discussions within the commission to grant new provisions, new concessions in the program" for Greece, Amadeu Altafaj Tardio, a spokesman for the Brussels-based commission, said today.
  • Kuoni Is Preparing for Possible Greek Exit, SonntagsZeitung Says. Kuoni Reisen Holding AG (KUNN) is holding talks with its Greek business partners to prepare for a possible exit of the country from the euro area, Chief Executive Officer Peter Rothwell told SonntagsZeitung in an interview. The company might introduce special clauses in contracts with Greek hotels so it doesn’t end up paying in euros if the nation uses a cheaper currency, Rothwell told the newspaper.
  • Bank Regulation to Boost Retail Costs, RBS Chief Tells Telegraph. Lenders may have to charge customers more because of the cost of separating investment banking and retail operations, the Royal Bank of Scotland Group Plc (RBS) Chairman Philip Hampton told the Sunday Telegraph. The banks will probably pass on the cost to customers as the government forces lenders to split their “risky” investment banking from retail units, Hampton said in an interview, the newspaper reported.
  • JPMorgan(JPM) Rating Cut by Fitch as S&P Reduces Outlook to Negative. JPMorgan Chase & Co., the largest and most profitable U.S. bank, had its credit grade lowered one level by Fitch Ratings and Standard & Poor's said it may follow after the bank revealed a $2 billion trading loss. The lender's long-term issuer default rating was cut to A+ from AA-, and the short-term grade was lowered to F1 from F1+, Fitch said yesterday in a statement. Fitch placed all parent and subsidiary long-term ratings on rating watch negative.
  • JPMorgan’s(JPM) Trading Loss May Call for More Fed Supervision. JPMorgan Chase & Co. (JPM)’s trading position that led to a $2 billion loss may call for increased Federal Reserve scrutiny of risk management as the central bank steps up its post-crisis supervision of lenders. Fed officials are gathering more information about the trading position, which they have known about for several weeks, according to a person familiar with the matter. They don’t view it as their role to approve or reject individual trades, the person said. Rather, their job is to ensure firms have enough capital to withstand losses, said the person, who wasn’t authorized to discuss the matter and asked not to be identified.
  • Hedge Funds Are Shadow Banks in Need of Regulation, Bafin Says. Hedge funds act as shadow banks and should be added to the list of organizations in need of regulation, according to Raimund Roeseler, head of banking supervision at Germany’s financial regulator Bafin. Shadow-banking definitions by the Financial Stability Board and the Basel Committee are too narrow, Roeseler said. Bafin is working on its own proposals to regulate the sector and will provide them for the discussion at the FSB, he said. “We probably won’t be able to fix every loophole, but we’ll get a good chunk -- and make dodging rules more tedious and expensive,” Roeseler, 50, said in an interview at his Bonn- based office last week. “Anything already calling itself a hedge fund should be covered, that’s for sure.”
  • Bullish Wagers Plunge Most in 2012 on Greek Impasse: Commodities. Speculators cut bets on a rally in commodities by the most since November as Greece’s struggle to form a new government and weaker-than-expected industrial output in China erased this year’s gains in raw materials. Money managers reduced net-long positions across 18 U.S. futures and options by 19 percent to 723,239 contracts in the week ended May 8, the biggest decline since Nov. 22, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 6.5 percent in eight sessions, the longest slide since December 2008.
  • Ex-GE(GE) Bankers Convicted of Municipal Bond Bid-Rig Scheme. Three former General Electric Co. (GE) bankers were convicted of defrauding cities and the U.S. Internal Revenue Service in a bid-rigging scheme involving municipal bonds. Dominick Carollo, Steven Goldberg and Peter Grimm were found guilty by a federal jury in Manhattan yesterday of conspiracy to commit fraud by manipulating auctions for municipal bond investment contracts. The government claimed that from August 1999 to November 2006 the men gave kickbacks to brokers hired by local governments to solicit bids, to win auctions and to increase their profits.
  • The number of Hong Kong-listed companies that postponed the release of earnings statements has risen to a record high this year, fueling concerns about corporate governance among some Chinese businesses.
  • Aussie Falls Below U.S. Dollar Parity on Greek Concerns. The Australian dollar declined to less than parity with its U.S. counterpart for the first time this year amid concern that Greece will leave the euro bloc, curbing demand for higher-yielding currencies.
  • Investment, the Engine of U.S. Prosperity, Is Underrated.
  • Rusal's Quarter Profit Falls 84% on Weaker Aluminum Prices. United Co. Rusal (486), the world’s largest aluminum producer, posted a 84 percent slump in first quarter earnings as prices of the lightweight metal declined. Net income was $74 million for the three months ended March 31, the Moscow-based company said today in a statement. That compares with a restated $451 million a year earlier. Earnings before interest, tax, depreciation and amortization fell 65 percent to $237 million, missing the $261.8 million average estimate of six analysts compiled by Bloomberg.

Wall Street Journal:
  • Bank Order Led to Losing Trades. J.P. Morgan's Efforts to Shield Itself From European Market Fallout Prompted Disastrous Bets. J.P. Morgan Chase & Co. told traders several months ago to make bets aimed at shielding the bank from the market fallout of Europe's deepening mess. But instead of shrinking the risk, their complicated bets backfired into losses of as much as $200 million a day in late April and early May, people familiar with the situation said. Regulators in the U.S. and U.K. are examining what went wrong, who is responsible and whether J.P. Morgan should have told investors about the losses sooner, according to people familiar with the matter.
  • Three to Exit JPMorgan(JPM) After Losses. Three high-ranking people are expected to leave J.P. Morgan Chase & Co. this week, said people familiar with the situation, in the latest fallout from a trading blunder that has cost the bank at least $2 billion. The departures involve three of the highest-ranking executives with direct connections to the losses, according to the people familiar.
  • Exclusive: Yahoo’s(YHOO) Thompson Out; Levinsohn In; Board Settlement With Loeb Nears Completion. Yahoo’s embattled CEO Scott Thompson (pictured here) is set to step down from his job at the Silicon Valley Internet giant, in what will be a dramatic end to a controversy over a fake computer science degree that he had on his bio, according to multiple sources close to the situation.
  • LightSquared Moves Toward Bankruptcy. Hedge-fund manager Philip Falcone's LightSquared Inc. venture was preparing Sunday to file for bankruptcy protection after negotiations with lenders to avoid a potential debt default faltered, said people familiar with the matter.
  • Missing: Stats on Crisis Convictions. It is a question that has been asked time and again since the financial crisis: How many executives have been convicted of criminal wrongdoing related to the tumultuous events of 2008-2009? The Justice Department doesn't know the answer. That is because the department doesn't keep count of the numbers of board-level prosecutions. In a response earlier this month to a March request from Sen. Charles Grassley (R.,Iowa), the Justice Department said it doesn't hold information on defendants' business titles.
  • The Dimon Principle. J.P. Morgan's(JPM) failed trades may well have passed the Volcker rule.
Business Insider:
Zero Hedge:

CNBC:

Wall Street All-Stars:

Forbes:

  • China Crashes in April, Shows Signs of Contraction. Yesterday, the People’s Bank of China lowered the reserve requirement ratio by 50 basis points. Now, China’s banks will have an extra 400 billion yuan—about $63.5 billion—to lend. It was the central bank’s third reduction in the ratio since November. In April, new renminbi-denominated lending fell 8.2% from the same month last year and 32.6%—329.6 billion yuan—from this March. In short, the amount freed up by yesterday’s action is just a little more than the decline in new lending last month. As analysts noted, the cut in the ratio was too little and too late. As a consequence, it will have little effect.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney earning 48% of the vote and President Obama attracting 44% support. Four percent (4%) would vote for a third party candidate, while another three percent (3%) are undecided.
Reuters:
  • Interview - Egypt's Brotherhood Sees Years of Friction Ahead. Egypt is destined for up to eight years of friction between reformists and the powerful military seeking to safeguard its interests after handing power to a civilian president, a senior member of the Muslim Brotherhood said on Sunday. In an interview with Reuters, deputy Brotherhood leader Mahmoud Ezzat forecast victory for the group's candidate Mohamed Mursi in the vote that gets underway this month. The generals are due to hand power to an elected leader on July 1 or sooner.
  • Brown Pushes Tax Hike as California's Money Woes Deepen. California Governor Jerry Brown was elected in 2010 on a promise to fix the state's chronic fiscal crisis. His weekend announcement of a much bigger-than-expected shortfall in the state budget signals how far he still has to go. In an unusual move that underscored the highly politicized nature of the state budget, Brown took to YouTube on Saturday to deliver the bad news: the state's projected budget deficit for the fiscal year starting July 1 is now $16 billion, up from the $9 billion anticipated in January. The Democratic governor also warned of further cuts to an already-battered public education system if voters rejected a tax increase in a ballot initiative this fall. On Monday, Brown will hold a news conference to detail the new budget deficit and how he intends to close it.
  • Spain short-term debt costs to stay high after bank plan. Spain will pay high premiums to sell short-term debt on Monday, after the government's latest attempt to fix the banking sector failed to allay concerns about the burden of the clean-up on the country's finances.
  • Italy Tests Markets In First Post-Elections Bond Sale. Italy will sell three-year bonds on Monday after a solid bill auction last week, in a new test of demand for lower-rated euro zone debt among investors concerned about Greece'e euro membership and the bloc's crisis-fighting strategy.
Financial Times:
  • Greek Exit From Eurozone 'Possible'. Greece’s exit from the eurozone “would be possible,” even if not in Europe’s interest, and countries should have a democratic right to quit, according to a member of the ECB’s governing council. The comments from Luc Coene, the central bank governor of Belgium, in a Financial Times interview highlight how eurozone policy makers are losing patience with Athens after an inconclusive election threw into doubt Greece’s commitment to reforms demanded under its international bailout.
  • JPMorgan(JPM) Probe into London Role in Loss. JPMorgan Chase is investigating whether London-based traders hid the extent of losses on credit derivatives positions, according to people familiar with an internal probe following last week’s revelation of $2bn losses. The investigation comes as Jamie Dimon, chief executive, took to US television to say he was “dead wrong” to have dismissed questions over the risk-taking of his chief investment office.
The Telegraph:
Frankfurter Allgemeine Sonntagszeitung:
  • ECB council member Jens Weidmann said Greece won't get neither long-term aid from euro countries nor ECB support without saving measures, citing an interview. Weidmann reiterated that if Greece isn't sticking to its promises, it won't get the financial aid. This also includes the refinancing of Greek banks through the euro system, he said.
Der Spiegel:
  • Greece would receive further aid from the EFSF if it exited the euro, German Finance Minister Wolfgang Schaeuble said.
WirtschaftsWoche:
  • Greece's exit of the euro area, including stopping its debt service, would cost euro countries EU276b, citing own calculation. Honohan says a Greece exit can be managed, but sees confidence hit.

Bild am Sonntag:

  • Some 78% of Germans are in favor of halting aid for Greece as long as a new government hasn't committed itself to the agreed savings, citing an Emnid poll.

Welt am Sonntag:

  • German Finance Minister Wolfgang Schaeuble said he is confident that lawmakers will vote on Europe's debt-reducing fiscal pact in German parliament before the summer break, citing an interview. Germany isn't willing to make changes to the fiscal pact, contracts are valid even after elections, Schaeuble said.

Tagesspiegel:

  • The euro area is prepared for a possible exit of Greece, citing German lawmaker Michael Meister, the finance spokesman for Chancellor Angel Merkel's ruling CDU bloc. The imminent risk of infection if Greece goes insolvent isn't as high as two years ago due to EFSF, ESM, citing Meister. Meister said he is against renegotiating financial aid for Greece.
Politiken:
  • Denmark will not support newly elected French President Francois Hollande's plan for a growth package for Europe, citing an interview with Danish Prime Minister Helle Thorning-Schmidt. Danes don't want to increase debt further to get the economy going, she said.
Weekend Recommendations
Barron's:
  • Made positive comments on (WDC), (CAH) and (IMOS).
  • Made negative comments on (FB), (HLF), (TPX) and (NUS).
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 183.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 145.50 unch.
  • FTSE-100 futures -.81%.
  • S&P 500 futures -.21%.
  • NASDAQ 100 futures -.13%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (A)/.73
  • (GRPN)/.01
Economic Releases
  • None of note

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The EU Finance Minister Meeting and the Deutsche Bank Clean Tech/Utilities/Power Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial 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 week.

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