Monday Watch

Weekend Headlines
Bloomberg:

• Merkel Warns Government Allies to ‘Weigh Their Words’ on Greece. Responding to criticism over sovereign debt purchases made by Bundesbank President Jens Weidmann, Merkel said she welcomed input from Germany’s central bank. “I think it’s a good thing that Jens Weidmann continues to make demands on policy makers,” Merkel told ARD. Weidmann told today’s Der Spiegel magazine that a proposed new wave of sovereign bond purchases by the ECB may increase governments’ reliance on such funding and won’t help solve the euro-area debt crisis. “We shouldn’t underestimate the danger that central bank financing can become addictive like a drug,” Weidmann said in an interview with Spiegel. “Such policy is too close to state financing via the money press for me.”
• Spanish Yields Vulnerable to Opacity of ECB Plans: Euro Credit. The rally that's driven Spain's two-year funding cost to below 4% from more than 7% is vulnerable to the ECB's plans to buy bonds arriving a day late and a euro short. "We have concerns that the market is beginning to expect too much from the upcoming ECB meeting," said Jack Kelly, who helps oversee $250 billion at Standard Life Investments in Edinburgh. "We have not been participating in the recent observed buying of peripheral sovereign debt."
• Spain Deficit Pain Bites Consumers in Prelude to Rajoy Austerity. Spanish Prime Minister Mariano Rajoy’s austerity drive will intensify this week as a sales-tax increase tightens the squeeze on consumers whose spending is already plummeting. The move to raise the value-added tax Sept. 1 will follow a flurry of data showing the pressure building on household finances in the euro area’s fourth-biggest economy, home to a third of its unemployed. Reports due include mortgage lending today, a breakdown of second-quarter gross domestic product tomorrow, inflation on Aug. 30 and retail and current-account data on Aug. 31. Spain’s government will also release public finance figures illustrating the extent of Rajoy’s challenge as he tries to curb the euro region’s third-largest budget deficit and considers whether to seek further international aid. Consumers have already endured a recession lasting three quarters as a prelude to his tax increase due this week and an annual cut in public wages for the month of December. “I expect a fairly dramatic weakening of GDP in the third and fourth quarters and further ahead as all components of domestic demand fall,” Ebrahim Rahbari, a London-based Citigroup Inc. economist, said by telephone. “Fiscal tightening will hurt substantially in Spain, and most of its effects are still to come.”
• China’s Stocks Drop to 2009 Low as Slowdown Spurs Profit Concern. China’s stocks fell, dragging the benchmark index to a three-year low, as weaker profit from China Petroleum & Chemical Corp. to Haitong Securities Co. underscored concern that the nation’s economic slowdown is deepening. China Petroleum, Asia’s biggest oil refiner and also known as Sinopec, slid 0.8 percent after posting the lowest half-year profit since 2008. Haitong dropped 2.9 percent, pacing losses by brokerages, after saying six-month profit declined. Xinjiang Goldwind Science & Technology Co., the country’s second-largest maker of wind turbines, dropped to its lowest level on record after reporting first-half profit slumped 83 percent. The Shanghai Composite Index (SHCOMP) dropped 0.8 percent to 2,077.05 as of 9:40 a.m. local time, heading for the lowest close since March 2009. The CSI 300 Index declined 0.9 percent to 2,255.32.
• Chinese Industrial Companies’ Profits Drop for Fourth Month. Chinese industrial companies’ profits fell for a fourth month in July, a government report showed today, adding to evidence the nation’s economic slowdown is deepening. Income dropped 5.4 percent last month from a year earlier to 366.8 billion yuan ($57.7 billion), the National Bureau of Statistics said in a statement on its website today. That compares with a 1.7 percent decline in June and a 5.3 percent drop in May.
• Japan Contraction Risk Rises on Faltering Global Demand: Economy. JPMorgan Securities Japan Co. forecasts a 0.3 percent annualized decline in gross domestic product in the three months through September after previously seeing 1 percent growth. BNP Paribas SA estimates a 0.9 percent fall after earlier predicting no change. Japan will downgrade its assessment of the domestic economy for the first time in 10 months in a report to the cabinet tomorrow, according to the Nikkei newspaper. The nation had a wider-than-estimated trade deficit in July as shipments to the European Union fell 25 percent from a year earlier and those to China slid 12 percent.
• Kloppers Sees Long-Term Price Decline for BHP’s Commodities. BHP Billiton Ltd. (BHP), the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said. “We go through a pretty rigorous process to pick those long-term prices,” Kloppers told the Inside Business program on the Australian Broadcasting Corp. “They are, by and large, lower. Some products are going to more attractive than others.”
• GM(GM) Said to Hold Initial Talks With Banks to Expand Credit. General Motors Co., the largest U.S. automaker, is in early stages of talks with banks about expanding its credit line by as much as $5 billion, a person familiar with the discussions said. GM, based in Detroit, may seek $4 billion to $5 billion in additional revolving credit from some of the lenders that provided its current line of credit, said the person, who asked not to be identified because the matter is private. GM, in an e- mail yesterday, declined to comment. The automaker has “substantial cash requirements going forward,” including pension obligations and reinvesting in operations, according to an Aug. 3 regulatory filing. GM had $32.6 billion in cash and marketable securities on hand on June 30. It also has a $5 billion revolving credit line that was set up in October 2010, according to the filing.
• Summary of Apple's(AAPL) $1 billion verdict. THE FALLOUT:
• Rubio Says Obama’s Record Results in Negative Campaign Rhetoric. President Barack Obama is resorting to negative rhetoric in his political campaign because he doesn’t have a record of achievements to run on, Senator Marco Rubio said. “Barack Obama can’t run by saying, ‘Vote for me because things have gotten better,’” Rubio, a Florida Republican, said in an interview on CBS’s “Face the Nation,” according to a transcript. “I think you’re going to see more and more of this type of rhetoric on his behalf.”
• Syrian Forces Kill Hundreds in Attack Near Damascus. Syrian forces loyal to President Bashar Al-Assad stormed a town outside Damascus, leaving dead bodies piled on the streets and in a mosque during the single bloodiest day of fighting in the 17-month conflict. Syrian forces killed 320 people during their assault in Dariya last week, the opposition Syrian Observatory for Human Rights said in a statement. Across the country, Assad’s forces killed 440 people Aug. 25, “the largest number of people killed in a single day,” the opposition Local Coordination Committees said in an e-mailed statement. Assad yesterday vowed to win the fight “no matter the cost” and reiterated his charge that a “foreign plot” was behind the violence in the country, according to the SANA state news agency. International efforts have failed to halt a conflict that, according to the opposition Syrian Observatory, has claimed more than 23,000 lives.
• Oil Rises as Isaac Shuts Output; Gasoline Gains on Refinery Fire. Oil rose the most in a week and gasoline climbed to the highest level in four months as Tropical Storm Isaac reduced output in the Gulf of Mexico and a fire in Venezuela shut part of the world’s second-biggest refinery. West Texas Intermediate futures climbed as much as 1.6 percent in New York and gasoline surged 4.1 percent. About 24 percent of U.S. oil production and 8.2 percent of natural-gas output from the Gulf is shut because of Isaac, the Bureau of Safety and Environmental Enforcement said yesterday. Firefighters in Venezuela are working to extinguish two storage tanks after a gas explosion at the Amuay plant, part of the Paraguana complex, that killed at least 39 people. Oil for October delivery increased as much as $1.57 to $97.72 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.44 at 12:13 p.m. Sydney time.
• Hedge Fund Bullish Commodity Bets Jump to 15-Month High. Money managers’ net-long position across 18 U.S. raw materials rose 10 percent to 1.32 million futures and options in the week ended Aug. 21, U.S. Commodity Futures Trading Commission data show. Holdings doubled in two months to the highest since May 2011. Bets on corn are the most bullish in 15 months amid the worst U.S. drought in 56 years, while wagers on gold rebounded and platinum more than doubled.
• Hertz(HTZ) Said to Be Close to Cash Deal for Dollar Thrifty(DTG). Hertz Global Holdings Inc. may strike a deal to acquire Dollar Thrifty Automotive Group Inc. for about $2.56 billion in cash as soon as today, people familiar with the negotiations said. Hertz is in talks to pay $87.50 a share, said the people, who asked not to be identified because the discussions are private.
• Singapore Sees Taxes Rising on Social Spending as Nation Ages. Singapore will need to raise taxes in the next two decades as the government boosts social spending to support an aging population, Prime Minister Lee Hsien Loong said as he proposed measures to boost the country’s birth rate. The prime minister pledged to ensure sufficient affordable housing for citizens, invest in pre-school education and add nursing homes for the elderly. He urged Singaporeans to build a more compassionate society, reject anti-foreigner sentiment and have more babies, saying the nation needs to re-invent itself to progress as the economy faces slower growth after years of rapid expansion.
• Isaac to Drench Florida on Way to Northern Gulf Coast. Tropical Storm Isaac may drop as much as 10 inches (25 centimeters) of rain on Florida as it moves into the Gulf of Mexico on a course that is expected to take the system through oil and gas fields and then onto land near the Louisiana-Mississippi line. Isaac passed just south of Key West, Florida, with winds of 60 miles (97 kilometers) per hour as of 5 p.m. New York time, the National Hurricane Center said in an advisory. An earlier forecast that called for Isaac to become a hurricane when it struck the Keys didn’t materialize.
• U.S. Taxpayers Are Gouged on Mass Transit Costs.
• BMW to Nissan Pump Figures With Extra Sales to Dealers. Bayerische Motoren Werke AG (BMW) and Nissan Motor Co. have turned to unconventional buyers of their vehicles at times this year: their dealers. BMW, locked in a U.S. luxury sales race with Daimler AG (DAI)’s Mercedes-Benz, began offering dealers allowances of as much as $7,000 a car on July 31 to boost sales to their demo fleets that are used for test drives. Nissan, pushing to pass Honda Motor Co. in U.S. market share, sells vehicles to dealers for use as rentals, as it did in March at the fiscal year-end.

Wall Street Journal:

• Samsung Looks to Damage Control as Patent Bet Turns Bad. A U.S. jury's $1.05 billion verdict against Samsung Electronics Co. in its patent fight with Apple Inc. was a vivid example of strategic gamble gone wrong.
• States Review Insurers' Assets. State insurance regulators are considering changes that would require U.S. insurers to hold more capital against some of the riskier mortgage bonds they have been scooping up lately as high-yielding investments. The moves under discussion could increase by billions of dollars the total amount industrywide that insurers including American International Group Inc., MetLife Inc. and others must hold to protect policyholders, estimate some analysts.
• ECB Weighs Flexible Targets on Bond Yields. European Central Bank officials are considering steps to keep government bond yields in struggling euro members from rising too high, without committing to explicit caps that could threaten the central bank's balance sheet and independence, according to a person familiar with the matter. The central bank wants to help bring down government financing costs through targeted purchases of government bonds, while preserving their flexibility to change course when needed and to maintain pressure on governments to rein in budget deficits and revamp stagnant economies.
• New York Times(NYT) to Sell About.com to IAC(IACI). In the battle for About.com, Ask.com appears to have trumped Answers.com. New York Times Co. has agreed to sell how-to website About.com to Barry Diller's IAC/InterActiveCorp for $300 million in cash, according to people familiar with the deal.
• Cheesecake(CAKE) Factory Medicine. Paul Ryan's critics and the architects of ObamaCare reveal their real vision for health care: coercion.
• Suits Mount In LIBOR Scandal.

Marketwatch.com:

• New records for Hong Kong real estate. As Hong Kong property again sets new highs, it’s getting harder to find any conventional yardstick to make sense of these stretched prices.

Business Insider:

• Not Even Bernanke Knows What'll Happen When The Fed Sell Trillions Of Dollars Worth Of Bonds.
• The US Job Market Is Just Awful For College Graduates.

Zero Hedge:

• Goldman(GS) Explains "Where To Invest Now".
• The Circular Logic And Prayer Tactics Of Draghi Queens, Sinomaniacs, And Other Orwellians.
• For Dexia, Third Bailout Will Be The Charm. They Promise.
• The Up-To-The-Minute Guide For Understanding Europe.

IBD:

• Wall Street Eats Up B&G Foods'(BGS) Steady Financial Growth.

Wall Street All-Stars:

• Indicator Update: Expecting too Much from Jackson Hole?

New York Times;

• Spain Expects to Use €60 Billion of Rescue Funds. Spain expects to use about €60 billion of the €100 billion of banking rescue financing offered by European finance ministers in June, Economy Minister Luis de Guindos has said during an interview. He also has said that Madrid could make stronger, although unspecified, fiscal commitments in return for the European Central Bank’s easing the pressure on Spain’s borrowing costs by buying its government bonds.

LA Times:

• More than 70 earthquakes hit California border; buildings damaged. More than 70 earthquakes hit Imperial County on Sunday -- including several that registered stronger than magnitude 4.0. The strongest measured 5.4. The USGS's "Do You Feel It" system shows the quakes were felt as far away as San Diego, Temecula and San Clemente. The 5.3 quake was felt in Moreno Valley, Indio, National City and Palm Desert, and in Yuma, Ariz., and Mexico.

CNN:

• Police: All Empire State shooting victims were wounded by officers.

NRO:

• More Obamacare Fiction. Health insurance: “If you like your health insurance, you will be able to keep your health insurance” — when at least 20 million people are likely to lose their job-based health insurance, according to the CBO, and as many as 80 million people could be forced to switch plans to comply with Obamacare, according to McKinsey. The deficit: “We will not add one dime to the deficit.” If the president wants to use the Medicare-savings provisions to extend the life of the Medicare trust fund and not to fund the new entitlements created by the law CBO estimates the fiscal impact would be “a net increase in federal deficits of $260 billion” through 2019. Health-care costs: Mr. Obama promised during the 2008 campaign that, under his health reform plan, health-insurance premiums would go down by $2,500 a year for every family by the end of his first term. But they actually have gone up by nearly as much — from $12,680 in 2008 to $15,073 in 2011. Senator Jim DeMint released a report from the Republicans’ Joint Economic Committee quantifying the cost of President Obama’s broken promise to reduce premiums. The report finds the cumulative cost (through 2012) of Obama’s broken promise on premiums is $805 billion. During the past four years, the average family has spent a total of $12,230 more on private health insurance, while the average individual has spent $4,163 more.
  

Reuters:

• Isaac storm surge could put $36 bln worth of homes at risk. The latest track of Tropical Storm Isaac puts more than $36 billion in Gulf Coast residential property at risk of flooding from storm surges, with southeastern Louisiana at greatest peril of huge losses, residential data analysis company CoreLogic said on Sunday.
• Venezuela struggles with refinery blaze after deadly blast. Venezuelan firefighters struggled on Sunday to put out a blaze at the country's biggest refinery sparked by an explosion that killed 41 people in one of the global oil industry's deadliest accidents. Officials at the 645,000 barrel-per-day Amuay refinery are trying to stop the fire still raging at two storage tanks from spreading to other nearby fuel storage facilities. That would delay Amuay's restart beyond the current estimate of two days.
• Bentleys and wine swell China inventory overhang. Chinese auto dealer Dah Chong Hong Holdings amassed so much inventory this year that it would take 63 days to sell all of its Bentleys, Toyotas and Isuzus, up from the 42 days' supply it carried in December. For rice wine maker Shanghai Jinfeng Wine Co, a 14 percent inventory increase plus slowing demand means it would take 22 months to clear stockpiles at the current sales pace, compared with nine months at the end of last year, Thomson Reuters data shows. As China's economic growth cooled to a three-year low, inventories swelled at consumer firms such as auto dealers, food makers, liquor companies and department stores, according to a Reuters analysis of balance sheets from 350 Chinese companies. The bloated inventory complicates Beijing's efforts to shore up growth as it prepares for a once-a-decade government leadership transition later this year. If China pours in more stimulus money when demand is weak, it could just make the inventory overhang worse by encouraging companies to produce more goods than the market can digest. About one in three consumer firms recorded inventory growth of at least 10 percent between December 2011 and June 2012.
• Iran, defying Western isolation, opens developing nations summit. Iran welcomed a group of 120 developing nations on Sunday to a summit it says proves that Washington has failed to isolate it from the rest of the world. Opening the Non-Aligned Movement (NAM) meeting in Tehran, Foreign Minister Ali Akbar Salehi said he hoped for a show of solidarity against sanctions the West has imposed to punish Iran for its nuclear activities.

Financial Times:

• Insurers face big agriculture losses. The insurance industry faces its biggest ever loss in agriculture as the worst drought to hit the US in more than half a century devastates the country’s multibillion-dollar corn and soyabean crops, triggering large claims.

The Telegraph:

• The will for austerity is waning and crisis may not be far away. Recently a number of economists have started to say that George Osborne should end cuts to capital spending (government investment in capital projects) and perhaps even raise it – maybe spending some more money on housing or roads or airports.

The Guardian:

• Eurozone crisis: German central bank boss warns against more ECB loans. Jens Weidmann said a wave of bond buying by the European Central Bank could become 'addictive like a drug'. European Central Bank plans to increase lending to struggling eurozone members risks becoming "addictive like a drug", Germany's central bank chief warned on Sunday. Jens Weidmann said printing billions of euros and offering them at low interest rates would make life too easy for indebted countries and deter them from making cuts in public expenditure and pushing through economic reforms. "Such a policy is for me close to state financing via the printing press," Weidmann told Der Spiegel magazine. "We should not underestimate the risk that central bank financing can become addictive like a drug." Deep divisions among the eurozone's 17 nations are coming to the fore in response to special pleading by Greece for a relaxation in the terms of its bailout. Germany's Finance Ministry is concerned the new ECB plan could endanger the bank's independence, Der Spiegel said. Weidmann, who reflects the broad antagonism inside Angela Merkel's right wing coalition against further bailouts, said: "In democracies, it is parliaments and not central banks that should decide on such a comprehensive pooling of risks." He did not see an immediate inflation threat from the new bond-buying programme, but added: "If monetary policy allows itself to become a comprehensive political problem solver, its real goal risks moving further and further into the background." Weidmann warned against tieing the ECB "to guarantee keeping member states in the eurozone at any price." On Greece's position in the bloc, he said it was important that "no further damage to trust in the framework of the currency union arises, and that the economic policy requirements of the aid programme retain their credibility."

Der Spiegel:

• Greek Request for 'More Time Equals More Money'. Greek Prime Minister Antonis Samaras, who met with German Chancellor Angela Merkel on Friday, says his country needs more time to meet its obligations. German editorialists argue that asking for more time amounts to asking for more money and insist that Greece should stick to the schedule.

Bild am Sonntag:

• Alexander Dobrindt, a general secretary of the Christian Social Union, said he sees no way around Greece leaving the euro area, citing an interview.

Focus:

• TNS Emnid survey finds 52% of Germans have little confidence in the European Central Bank's policy to tackle the sovereign debt crisis. 28% have no confidence, while only 10% fully trust the ECB.
  

Welt am Sonntag:

• Former European Central Bank Chief Economist Juergen Stark said he opposed the purchase of sovereign debt by the ECB because it would subsidize individual states, citing an interview. Such purchases would redistribute funds within Europe and would be magnified if states are unable to serve the purchased debt and the central bank is forced to carry the losses on it.
  

Tagesspiegel am Sonntag:

• German Finance Minister Wolfgang Schaeuble says new aid package "isn't the right path" for solving the debt crisis, citing an interview. "More time generally means more money. That very quickly means a new program," citing Schaeuble. The need for another package six months after the last one would "not be a trust-building measure," he said.

Der Tagesspiegel:

• Rainer Bruederle, the parliamentary caucus leader of Germany's Free Democratic Party, said he opposes giving Greece more time to meet requirements tied to its rescue, citing an interview with him. "It isn't about a few days or weeks but about discipline and the serious will to reform," he said.
  

Ansa:

• Italy may introduce a tax on sodas, drinks with a certain percentage of sugar, for 3 years, citing the health ministry.
  

El Pais:

• Spain, EU are seeking an agreement on a method to calculate losses for preferred shares issued by nationalized banks, citing people familiar with the matter.

Expansion:

• Spain wants to use government-guaranteed bonds to pay banks selling assets to a so-called bad bank, citing people close to negotiations between government and the European Commission. Banks could use the bonds as collateral to raise financing from the ECB, according to the report.

Hong Kong Economic Times:

• Hong Kong Chief Executive Leung Chun-ying met top officials in his cabinet yesterday about new measures to cool housing prices, citing people familiar with the matter.
  

Weekend Recommendations
Barron's:

• Made positive comments on (WY), (CW), (KBR) and (SPRT).

Night Trading

• Asian indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 148.50 -.5 basis point.
• Asia Pacific Sovereign CDS Index 121.50 -8.5 basis points.
• FTSE-100 futures n/a.
  
• S&P 500 futures +.12%.
• NASDAQ 100 futures +.33%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DCI)/.47
• (TIF)/.73
• (PVH)/1.21
  

Economic Releases
10:30 am EST

• Dallas Fed Manufacturing Activity for August is estimated to rise to -6.5 versus -13.2 in July.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Pianalto speaking, Germany Business Climate Index and the German/French Finance Ministers meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.