Tuesday, September 11, 2012

Tuesday Watch

Evening Headlin
  • China’s Stocks Drop Most This Month on Concerns About Economy. China’s stocks fell, dragging down the benchmark index by the most this month, on concern the economic slowdown is deepening after auto sales missed analysts’ estimates and Macquarie Group Ltd. (MQG) cut its growth estimates. Anhui Conch Cement Co. (600585) and Sany Heavy Industry Co. led declines for infrastructure-related companies on speculation the shares are overvalued after both companies rallied 16 percent in three days. FAW Car Co., which makes passenger cars in China with Volkswagen AG, sank 2.2 percent after passenger-vehicle sales trailed analysts’ estimates for a second month in August and the government increased gasoline and diesel prices for the second time in about a month. The Shanghai Composite Index (SHCOMP) dropped 0.9 percent to 2,115.39 at the 11:30 a.m. local-time break, heading for the biggest decline since Aug. 29.
  • Euro Weakens From 3-Month High as Crisis Optimism Wanes. “We had a fairly sizable rally in the euro late last week,” Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, said in a telephone interview. “There’s still significant event risk this week, and markets are understandably in a more cautious mode.”
  • Billionaire Arnault’s Belgian Kerfuffle Boosts Hollande Tax Plan. The decision by France’s richest man, Bernard Arnault, to seek Belgian citizenship has created a media frenzy over tax exiles, giving the increasingly unpopular Socialist President Francois Hollande a chance to grandstand. Arnault, the chief executive officer of LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s biggest luxury-goods company, said his “personal action” is not aimed at sending a political message or escaping Hollande’s 75 percent tax on earnings of more than 1 million euros ($1.28 million). Still, Liberation newspaper yesterday ran a front-page headline that said “Get lost, rich bastard,” and Hollande in a televised interview on Sept. 9 said it’s patriotic to pay taxes.
  • Big Banks Hide Risk Changing Collateral for Traders. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) are helping clients find an extra $2.6 trillion to back derivatives trades amid signs that a shortage of quality collateral will erode efforts to safeguard the financial system. Starting next year, new rules designed to prevent another meltdown will force traders to post U.S. Treasury bonds or other top-rated holdings to guarantee more of their bets. The change takes effect as the $10.8 trillion market for Treasuries is already stretched thin by banks rebuilding balance sheets and investors seeking safety, leaving fewer bonds available to backstop the $648 trillion derivatives market. The solution: At least seven banks plan to let customers swap lower-rated securities that don’t meet standards in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” That’s raising concerns among investors, bank executives and academics that measures intended to avert risk are hiding it instead. “The dealers look after their own interests, and they won’t necessarily look after the systemic risks that are associated with this,” said Darrell Duffie, a finance professor at Stanford University who has studied the derivatives and securities-lending markets. “Regulators are probably going to become aware of it once the practice gets big enough.
  • Consumer Credit in U.S. Unexpectedly Falls $3.28 Billion. Consumer borrowing in the U.S. unexpectedly decreased in July for the first time in almost a year, restrained by a second straight decline in credit-card debt. The $3.28 billion drop followed a revised $9.8 billion jump the previous month that was bigger than first estimated, the Federal Reserve said today in Washington. Economists projected a $9.2 billion rise, according to the median forecast in a Bloomberg survey. Revolving credit, which includes credit card spending, decreased $4.82 billion, the most since April 2011. The drop in credit-card borrowing coincides with a slowdown in hiring this year and a rise in consumer pessimism that indicate households are wary of taking on debt. Employers added fewer workers to payrolls than forecast in August, while a gain in average hourly earnings from a year earlier matched the smallest increase since records began in 2007. “Households are definitely still in deleveraging mode, they’re hesitant to take on new debt,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “I think credit card debt is going to be flat to up slightly, and mortgage balances are still falling.”
  • Harrisburg Plans to Skip Payment for Second Bond Default. Harrisburg, Pennsylvania’s insolvent capital, says it will miss general-obligation bond payments for the second time this year, preserving cash to cover workers’ salaries. The city will miss $3.4 million in payments due Sept. 15 on $51.5 million of bonds issued in 1997, William B. Lynch, Harrisburg’s receiver, said today by telephone. It skipped paying $5.27 million that was due March 15 on the same bonds. “We don’t have enough money to make the payment,” he said. “High finance.”
  • Japan Banking Minister Matsushita Found Dead at His Home. Japanese Financial Services Minister Tadahiro Matsushita, who since taking the post in June led a crackdown on insider trading that triggered resignations of the top two executives at Nomura Holdings Inc. (8604), has died. He was 73.
Wall Street Journal:


  • U.S. to mark somber anniversary of 9/11. The nation will remember those killed by the Sept. 11, 2001, terrorist attacks on the World Trade Center and the Pentagon on Tuesday, an event never far from the minds of New Yorkers, Washingtonians and all Americans.

Business Insider:

Zero Hedge:


  • Ad Growth Slows Dramatically in Second Quarter. The ad market screeched and skidded in the second quarter — U.S. ad spending grew just .9 percent from April to June compared to a year earlier.
  • Documents Show Former SEC Official Aided Former Targets. A former regional enforcement official at the Securities and Exchange Commission who was sanctioned in May over alleged conflicts of interest in the multi-billion dollar Allen Stanford Ponzi case has a history of such allegations, according to documents obtained by CNBC.
  • No Need to Import OPEC Oil: Pickens. The U.S. has the natural resources to one day stop importing OPEC crude oil, Boone Pickens, founder of BP Capital, told CNBC’s "Street Signs" on Monday. “There are 30 U.S. states producing oil and gas, the highest we’ve ever had,” Pickens said. Interestingly, many of these are the very swing states that could help decide the upcoming presidential election, he noted.
  • Kudlow: Fiscal Cliff Won’t Resolve for Months After Election. CNBC’s Larry Kudlow and his Washington colleagues are all hearing that lawmakers won’t attempt to seriously bridge this pressing issue until after the election.

NY Times:

  • In Rush to Build, Property Stumbles. At least 10 percent of China’s gross domestic product comes directly from the construction and real estate sectors — far more when the industries that supply them and the consumption linked to the purchase of homes are taken into account, analysts at GK Dragonomics, a research firm in Beijing, wrote in a recent report. Internationally, they added, construction in China has accounted for more than 40 percent of the growth in global demand for steel and 10 percent for copper. No wonder, then, that any signs of weakness in the sector send shivers down the backs of analysts, industry executives and policy makers alike. “The property sector is a pillar industry for the Chinese economy,” said Li-Gang Liu, an economist in Hong Kong for Australia & New Zealand Banking Group. But now, he added, it is “the weakest link in the Chinese economy.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy
  • Palo Alto Networks'(PANW) Q4 beats Street amid slower growth. Security software maker Palo Alto Networks, which went public in July, promised shareholders continued revenue growth after it beat fourth-quarter revenue and earnings estimates on rising demand for protection against network security attacks. Despite beating fourth-quarter expectations, company shares fell 6.7 percent in after-hours trading after they closed with a gain of 1.43 percent to $71.75 on Monday. Some analysts noted that while revenue growth was strong, the company had not doubled revenue as it had in the past quarters.
  • U.S. burger chains aim to scoop up patrons with boozy milkshakes. Gourmet hamburger chains are spiking milkshakes with everything from beer to red wine in a bid to steal customers from "dry" rivals like McDonald's Corp . Red Robin Gourmet Burgers Inc on Tuesday will debut a Samuel Adams Octoberfest milkshake, made with vanilla ice cream, beer and caramel, at its roughly 460 restaurants around the country.
Financial Times:
  • For True Stimulus, Fed Should Drop QE3. The first two rounds of quantitative easing fuelled a commodity bubble, increased income inequality and set a bad example for the rest of the world. During the 16 months of round one, up to March 2010, the CRB commodity price index rose 36 per cent, while food prices rose 20 per cent and oil prices surged 59 per cent. During round two, in the eight months up to June last year, the CRB rose 10 per cent, with food up 15 per cent, while oil prices rose a further 30 per cent.
  • China in transition: Ascent of the bureaucrat. The incoming leadership appears more focused on factionalism than on much-needed reform.


Passauer Neue Presse:
  • German Lawmaker Says ESM Brings Risks to German Budget. Peter Gauweiler, a conservative lawmaker from Merkel's CDU, calls for new deliberations of Germany's Federal Constitutional Court on the ESM, Europe's permanent rescue fund, citing Gauweiler.

Jerusalem Post:
  • Lieberman to 'Post': Obama should define how to stop Iran. US Senator Joseph Lieberman encouraged President Barack Obama on Monday to clearly define America's red lines when it comes to dealing with Iran's nuclear program."I hope he can find a way to really spell out with just a little more detail" what the US is willing to do to prevent Iran from become a nuclear power, Lieberman told The Jerusalem Post following an appearance at a B'nai B'rith conference.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.0% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 132.50 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 108.50 -6.0 basis points.
  • FTSE-100 futures -.60%.
  • S&P 500 futures -.23%.
  • NASDAQ 100 futures -.17%.
Morning Preview Links

Earnings of Note
  • (UNFI)/.51
Economic Releases
7:30 am EST
  • The NFIB Small Business Optimism Index for August is estimated to rise to 91.4 versus 91.2 in July.

8:30 am EST

  • The Trade deficit for July is estimated to widen to -$44.0B versus -$42.9B in June.

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The weekly retail sales reports, JOLTs Job Openings report for July, 3Y T-Note auction, EU commissioner speaking on banking union, (TXN) Mid-Quarter Update, IBD/TIPP Economic Optimism Index for Sept, BofA Merrill Healthcare Conference, CSFB Chemical/Ag Science Conference, RBC Industrials Conference, BMO Media/Telecom Conference, Intel Developer Forum and the Deutsche Bank Tech Conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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