Monday, June 11, 2012

Monday Watch

Posted by Gary .....at 12:32 AM

Weekend Headlines
Bloomberg:
  • Spain's Bailout Defeat Weakens Rajoy's Deficit Goal. Prime Minister Mariano Rajoy’s surrender to European officials on taking a bailout for Spain’s banks may weaken his political authority and his credibility in financial markets. Rajoy’s June 9 request for as much as 100 billion euros ($126 billion) after stating two weeks ago that Spain wouldn’t need a rescue marks a swift reversal for the premier who won the biggest majority in 30 years in November. It may fuel skepticism he can meet his deficit-cutting promises. “The emperor’s clothes are tattered,” Simon Maughan, financial strategist at Olivetree Securities Ltd., said in a telephone interview yesterday. “Unless he uses this money to attack the regions and control the failed cajas what threads he has left will be stripped off him.”
  • Italy Moves Into Debt-Crisis Crosshairs After Spain. The 100 billion-euro ($125 billion) rescue for Spain’s banks moves Italy to the frontline of Europe’s debt crisis, putting pressure on Mario Monti’s unelected government to avoid succumbing to a market rout. “The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said in an interview. “This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds.” Italy has more than 2 trillion euros of debt, more as a share of its economy than any advanced economy after Greece and Japan. The Treasury has to sell more than 35 billion of bonds and bills per month -- more than the annual GDP of each of the three smallest euro members, Cyprus, Estonia and Malta. Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros in emergency loans from the euro area to shore up a banking system hobbled by more than 180 billion euros of bad assets. Mounting concern about the state of Spain’s banks and public finances drove the country’s borrowing costs to near euro-era records last month, dragging up Italian rates in the process. “The problem for Italy is that where Spain goes, there’s always the perception that Italy could follow,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London said in an interview. ’’There is insufficient differentiation within the financial markets. It is clear as the light of day and has been that Spain’s fundamentals are a lot direr than Italy’s. That hasn’t stopped Italy suffering from Spanish contagion.’’
  • Spanish Bondholders May Rank Behind Official Loans After Bailout. Investors holding bonds issued by Spain and its banks will probably rank behind official creditors in the queue for payment after the nation asked for a bailout of as much as 100 billion euros ($125 billion). The funds will be channeled through the state-run FROB bank-rescue fund and Spain will “retain the full responsibility of the financial assistance and will sign” the agreement with the other partners, according to the statement issued June 9. The document did not make clear whether the European Stability Mechanism, the region’s permanent support fund, which is likely to start operating in July, or the temporary European Financial Stability Facility, will make the loan. “This is state financing, and the risks of an equity injection into the banks will stay with Spain,” said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. “Spain needs a systematic restructuring of its banking system, which could entail haircuts to subordinated bank debt. Official lenders on the other hand are likely to demand seniority.”
  • Euro Bloc Faces Greek Vote Giving First Test of Spanish Firewall. The future of the euro may be determined in the coming weeks, as Greek voters decide whether to honor the country’s international bailout and create a first test for Spain’s newly built 100 billion-euro ($125 billion) banking firewall. With Greece going to the polls in six days, the last surveys of elector intentions showed the main party opposing the terms of its bailout vying for first place. The government in Athens has “a few weeks” before exhausting its funds, making this is “a make-or-break period,” former Greek Prime Minister George Papandreou told Bloomberg Television in a June 8 interview. The European debt crisis, now in its third year, reached a new milestone after Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil.
  • Merkel Ally Kauder Rejects Debt-Sharing Fund, Allgemeine Says. Volker Kauder, parliamentary leader of German Chancellor Angela Merkel’s ruling Christian Democrats, rejected setting up a debt-sharing fund for euro-area nations, the Frankfurter Allgemeine Sonntagszeitung reported. “We cannot agree with” proposals for a debt redemption fund that would pool part of the debt on the books of individual governments, Kauder said in an interview, according to the newspaper. That would amount precisely to the debt sharing “that we don’t want,” he was quoted as saying.
  • Ireland Seeks Debt Gain From Spain's Banking Pain: Euro Credit. Ireland, locked out of the bond market since 2010, says its may use any leeway won by Spain to seek partial restitution for the $79 billion it spend shoring up its financial system during the past three years. Ireland is "perversely hoping for a further worsening of the situation in other countries in a bid to progress its own cause," said Dermot O'Leary, an economist at Dublin-based Goodbody Stockbrokers. With Spain becoming the fourth euro member to need aid, "Ireland will be directly in the queue behind it to get the same concessions," O'Leary said.
  • Weidmann Says Euro Area Need Changes, Welt am Sonntag Reports. Changes need to be made to the euro area if it is to become sustainable, European Central Bank council member Jens Weidmann was quoted by Germany’s Welt am Sonntag as saying. “The currency union can’t function sustainably the way it is at the moment,” Weidmann, who’s also Bundesbank president, was cited by the Berlin-based paper as saying. “We need more clarity if we want to go down the route to a fiscal union, or if we want to keep relying on self-responsible national budget policies. In the latter case, the common liabilities need to be narrowly limited.” Germany should stay in the single-currency zone because of the high costs and risks linked to leaving, Weidmann was quoted as saying. “A disintegration of the currency union would be linked to extremely high costs and risks,” he said. “That’s why such a scenario can’t be the goal of politicians.” This “should not mean that Germany becomes open to blackmail and promises guarantees without control,” Weidmann was quoted as saying. “That would erode the stability basis of the currency union.”
  • Italy Extends Deadline for Tax Payments to July 9 From June 18. Italy’s government extended the deadline for the payment of taxes to July 9 from June 18, according to the Ministry of Finance. Payment of the new property tax known as IMU must still be made by June 18, the ministry said in a statement yesterday. Italy expects to raise about 21 billion euros ($26.3 billion) from the new levy that was passed in December, Prime Minister Mario Monti’soffice said on May 18.
  • Socialists Set to Take Largest Number of French Parliament Seats. French President Francois Hollande’s Socialist Party is set to win the largest number of seats in parliament, exit polls for the first round of the country’s legislative elections yesterday showed. Hollande will have to wait until the June 17 second round to know if he has an absolute majority or will need allies in parliament.
  • Developers Face Cash Crunch as Dollar Bonds Drop: China Credit. Chinese property companies are facing a cash crunch, with record payments on short-term debt looming just as real-estate prices slide and funding costs rise. Moody's Investors Service estimates the 29 developers on its rating list need to repay $25 billion of such debt this year, the most in data going back to 2008, according to a May 23 report. Eleven of the companies face "weak forecasted liquidity," up from four at the end of December, Moody's said.
  • McDonald’s(MCD) Sales Drop in Asia Signals Fast-Food Slowdown. On June 8, McDonald’s Corp. (MCD) reported that same-store sales fell 1.7 percent in Asia Pacific, the Middle East and Africa in May, the biggest decline since at least 2004.
  • China Auto Glut Builds as Plant Shipments Outstrip Sales. Carmakers are giving Chinese dealers no relief in their effort to reduce a glut of unsold automobiles in a slowing economy, as factories pump passenger vehicles into showrooms faster than distributors can sell them. Wholesale deliveries, including multipurpose and sport- utility vehicles, climbed 23 percent from a year earlier to 1.28 million units in May, the China Association of Automobile Manufacturers said June 9 in Beijing. That exceeded the 1.2 million average estimate of seven analysts in a Bloomberg survey, the third straight month that deliveries beat forecasts.
  • Moral Advice Can’t ‘Tame’ Jobless Iranians, Shargh Cites Cleric. Iran’s youth needs prospects and jobs amid high unemployment and poverty fed by the government’s “weak management,” the Shargh newspaper reported senior religious leader Ayatollah Abdollah Javadi-Amoli as saying. The country is rich in assets while suffering extensive poverty, Javadi-Amoli said, according to the Tehran-based newspaper. “We will one day be punished for it,” Shargh quoted him as saying. Unemployment and poverty shouldn’t be underestimated, and moral and religious advice can’t be expected to “tame” poor and unemployed young people, Shargh reported Javadi-Amoli as saying at a meeting with politicians. Javadi-Amoli also criticized infighting and the existence of cliques within the government, according to the report.
  • Ryan Predicts No Break in Fiscal Impasse Until Election. U.S. House Budget Committee Chairman Paul Ryan said November’s election may determine whether Congress is able to break a partisan stalemate over taxes and spending. “We have an impasse on economics, and it seems to me that it might take the election to break this impasse,” the Wisconsin Republican said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend. Lawmakers are facing a fiscal collision at the end of this year when tax cuts enacted under President George W. Bush expire and $1.2 trillion in automatic spending cuts triggered by last year’s debt ceiling agreement will begin to take effect. “A lot of this will depend on who wins the election,” Ryan said. “The president is dead set against, you know, letting these taxes stay where they are.”

Wall Street Journal:
  • GE(GE) Weighs Cuts to Lending Unit. General Electric Co. is considering breaking off big chunks of its lending business, heeding the wishes of investors who are uncomfortable that the conglomerate owns what amounts to one of the country's largest banks.
  • Nasdaq(NDAQ) CEO Lost Touch Amid Facebook(FB) Chaos. At the end of Facebook Inc.'s disastrous first day of trading May 18, the phone in Robert Greifeld's New York office rang. It was Mary Schapiro, head of the Securities and Exchange Commission, wanting an explanation from the chief executive of Nasdaq OMX Group Inc. for the epidemic of glitches and delays in one of the most anticipated initial public offerings ever.
  • Foreign Revenue Could Be Lost in Translation.
  • Bailout for Banks Figures Into Campaigns in Greece. Greece's two main party leaders used the Spanish bank-bailout deal Sunday to support their opposing messages to the Greek electorate ahead of next week's national vote. New Democracy leader Antonis Samaras said the deal showed how important it is for the country to remain inside the European Union, negotiate with its partners over the country's problems and not isolate itself, while the radical leftist Syriza party said it showed that the only prosperous route for Greece is to reject the terms of the country's own massive bailouts.
Business Insider:
 Zero Hedge:

CNBC:

Wall Street All-Stars:

IBD:
 NY Times:
  • South Carolina’s Pension Push Into High-Octane Investments. Like other pension funds across the country, South Carolina’s faces a shortfall — in its case, an estimated $14.4 billion. But, as in other states, the scary thing is that no one really knows how bad this could get. A firestorm over pensions and other benefits for public workers is raging nationwide.
Forbes:

Washington Post:

  • Obama Aides Helped Plan Ads to Back Health Bill, GOP Says. President Barack Obama’s aides helped plan a $150 million advertising campaign paid for by drug companies to support passage of the 2010 U.S. health-care system overhaul, according to memos provided by Republican lawmakers. The drugmakers, along with lobbying groups for seniors and consumers, helped fund independent political groups to run the television ads while health-care legislation was being debated in Congress. The groups coordinated with Democratic strategists who worked with Obama’s staff on the effort, according to memos and e-mails among those involved that were released today by Republican members of the House Energy and Commerce Committee.
Chicago Tribune:

The Boston Globe:

  • Young adults put buying a home on backburner. With many struggling, market rebound at risk. Interest rates have hit historic lows and home prices have fallen, making real estate a buyers’ market. But one important segment of potential buyers is not ready to sign on the dotted line: young adults.
Reuters:
  • German opposition fumes before fiscal pact talks. A media report that German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax threatens to undermine an initial deal struck last week with the opposition over the EU's planned fiscal pact. Der Spiegel weekly reported on Sunday that Merkel's Chief of Staff, Ronald Pofalla, had said such a tax would not get passed in the current legislative period so the centre-right coalition could support the idea in principle knowing it would not have to act on it any time soon.
  • Indian retailers retrench as reform hopes dashed. India's largest supermarket operator, Future Group, is having a clearance sale: its financial service business and flagship clothing brand are gone, and more deals are in the pipeline. Six months after the government backtracked on plans to allow foreign retail giants such as Wal-Mart Stores and Carrefour to form joint ventures, cash-starved domestic chains are selling assets, shutting stores, and scaling back expansion plans. It seems improbable that retailers could be in such trouble in India. They have the world's second-largest population, increasingly affluent consumers, and limited competition. But things are tough for supermarkets, a relatively new business sector in India, with every major chain losing money. The economy has lost momentum, compounding problems of high food inflation and low retail prices, and expensive real estate.
  • Sceptical Spaniards pour scorn on Rajoy over rescue. Confused and anxious Spaniards heaped scorn on Prime Minister Mariano Rajoy on Sunday for portraying a 100 billion euro European rescue of the country's zombie lenders as a triumph, expressing scepticism about whether the plan will work. With the economy contracting, one in four workers out of a job, and Greek elections next weekend overshadowing the entire euro zone, Spaniards accepted that Saturday's announcement of the bank rescue was necessary but many doubted it would solve the problems of Spain or the euro.
  • IMF: UAE May Face Risks From Deepening Euro Debt Crisis. The United Arab Emirates and other Gulf countries could face major financial repercussions if the euro zone debt crisis spreads from the bloc's peripheral states to its core and infects global markets, the International Monetary Fund said. Risks are particularly serious for economies that depend on foreign financing and have financial links to Europe, the IMF said.
  • China's growth flags in May, more policy support seen. China's inflation, industrial output and retail sales all flagged in May for a second straight month of sluggish growth that galvanised policymakers last week into taking their boldest action yet to combat a sharpening slowdown. A flurry of data over the weekend explained China's surprise cut in interest rates on Thursday - its first since the global financial crisis - by showing the extent of the domestic economy's weakness.
  • Spain bank deal may not work, bolder reforms needed: Stiglitz. Europe's plan to lend money to Spain to heal some of its banks may not work because the government and the country's lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said. "The system ... is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government," Stiglitz said in an interview.
  • UnitedHealth(UNH) to keep reform provisions, regardless of Court ruling. UnitedHealth Group Inc , the largest U.S. health insurer by market value, said it would maintain the health coverage protections included in President Barack Obama's healthcare law regardless of how the Supreme Court rules on the legislation.
  • Vestas CEO sees US market down 80 pct in 2013. The head of the world's biggest wind turbine maker, Vestas, said on Sunday that the U.S. wind turbine market is likely to fall by 80 percent next year because of the expected expiry of an important tax credit.
Financial Times:
  • Goldman Sachs(GS) Near Sale of Hedge-Fund Administration Unit. Goldman is close to reaching agreement with State Street(STT) that would create the world's largest hedge-fund administrative-service provider. The combined business would have almost $700B in funds under administration, passing current market leader Citco.
The Telegraph:

Welt am Sonntag:

  • German Firms Preparing for Greek Euro Exit. German companies are preparing for a possible Greek exit from the euro by removing money from nations most affected by the region's debt crisis, citing law firm Linklaters LLP. "Advice for a Greek euro exit or other intensification of the crisis are extremely in demand at the moment," citing Andreas Steck, a partner at Linklaters in Frankfurt. "Some companies are trying to remove as far as possible their liquid assets out of crisis countries to avoid the danger that they're converted to Greek drachma, for example," he said. German companies are also looking to minimize their risks in countries including Italy and Spain, Daniel Stelter, a senior partner at Boston Consulting Group in Berlin, was quoted by the newspaper as saying.

Neue Zuercher Zeitung:

  • Josef Ackermann, the former Deutsche Bank AG chief, said compensation for investment bankers is likely to decline further. An oversupply of eligible bankers due to standardization of the industry and pressure from regulators, politicians and investors will reduce their pay, Ackermann said in an interview. Cutting costs will be "a very important lever" for the companies to increase their profitability, said Ackermann, who is currently chairman of Zurich Insurance Group AG.
Kathimerini:
  • Greek bank deposit outflows reached 5 billion euros to 6 billion euros in May, citing Greek banking officials.
Sunday Telegraph:
Weekend Recommendations
Barron's:
  • Made positive comments on (UNH), (WLP), (BDX), (ESRX) and (TWX).
  • Made negative comments on (Z).
Night Trading
  • Asian indices are +.50% to +1.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 187.0 -7.5 basis points.
  • Asia Pacific Sovereign CDS Index 160.75 +3.5 basis points.
  • FTSE-100 futures +1.94%.
  • S&P 500 futures +1.04%.
  • NASDAQ 100 futures +1.09%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (FNSR)/.21
Economic Releases
  • None of note

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Pianalto speaking, Fed's Lockhart speaking, Fed's Williams speaking, China M2/Loan Growth, Italian GDP, CSFB Software/Internet Conference, (TXN) mid-quarter update, (CBST) investor day and the (CIEN) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and financial shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.

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