Monday, December 17, 2012

Monday Watch

Weekend Headlines

  • Mario Monti’s Resignation May Slow Year of Euro Agreement. Italian Prime Minister Mario Monti’s looming resignation this week may threaten progress in fighting the three-year debt crisis even as European leaders wrap up the year with newly won breathing room. Monti, under pressure from euro-area and business leaders to enter the Italian election campaign, plans to quit once parliament passes his budget this week. Former Prime Minister Silvio Berlusconi withdrew support from Monti’s government of non-politicians Dec. 6. The Italian upper house starts debate today on the budget, which will then pass to the lower house.
  • Moscovici Says 2013 Will Be ‘Very Difficult,’ JDD Reports. French Finance Minister Pierre Moscovici said 2013 will be a “very difficult year” of weak economic growth, according to an interview published in Le Journal du Dimanche. The end of this year will be “especially” difficult, the minister was quoted as saying by the weekly newspaper. France will still keep its growth and deficit targets and focus on lowering debt, he said. 
  • China Signals Tolerance of Slower Growth After Meeting. China said it will seek a higher “quality and efficiency” of growth next year, signaling new leaders may accept a reduced pace of expansion in exchange for a more sustainable model. There was no mention of seeking “relatively fast” growth, a policy in place since 2006, in a report yesterday by the state-run Xinhua News Agency after the annual central economic work conference in Beijing. Leaders vowed to target “sustained and healthy development” as they maintain a “prudent” monetary policy and “proactive” fiscal stance, Xinhua said. Chinese leaders assuming power in a once-a-decade handover to be completed in March must decide the pace of market-driven change to boost consumer demand and rein in the role of exports and investment. Communist Party chief Xi Jinping, who made the case for restructuring during a visit to the southern Guangdong province this month, faces an economy likely to have grown this year at the weakest rate since 1999.
  • China Potential Economic Growth Cut by Population, Academy Says. Potential economic growth rate to drop to an average 7.2% in 2011-2015 and 6.1% in 2016-2020, according to Cai Fang, director of the Institute of Population and Labor Economics at the China Academy of Social Sciences
  • Singapore’s Exports Unexpectedly Fell on Slump in Electronics. Singapore’s exports unexpectedly fell for the third time in four months in November as shipments of electronics slumped and companies sold fewer goods to U.S. customers. Non-oil domestic exports fell 2.5 percent from a year earlier, after a 7.9 percent gain in October, the trade promotion agency said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 1.7 percent increase. “We expect electronics exports to underperform in 2013,” Chester Liaw, a Singapore-based economist at Forecast Pte, said before the report. “We only expect a 2 percent rise in non-oil domestic exports over 2013, and that’s coming on the back of a series of low base effects in electronics.” Singapore’s exports are forecast by the Trade Ministry to rise 2 percent to 3 percent in 2012, and as much as 4 percent next year. Electronics shipments by companies such as Venture Corp. fell 16.5 percent in November from a year earlier, after slipping 0.8 percent the previous month, according to the report.
  • LDP Reclaims Power in Japan in Landslide With Abe Stimulus Plans. Japan’s Liberal Democratic Party reclaimed power in a landslide victory three years after surrendering half a century of control. Shinzo Abe’s LDP yesterday captured 294 seats in the 480- member lower house of parliament, while Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-fourths of its lawmakers, according to public broadcaster NHK’s vote count. Abe, 58, is set to replace Noda, returning to the office he left five years ago for health reasons. The yen fell to a 20-month low against the dollar and stocks rose to an eight-month high on expectations Abe will expand monetary and fiscal stimulus in a bid to defeat deflation. Japan’s seventh leader in six years, he inherits a country in recession, still reeling from the 2011 earthquake and nuclear crisis, and embroiled in a diplomatic dispute with China, with an upper house election only seven months away. “Abe’s popularity will disappear very quickly if he does something wishy-washy or overreacts and leads Japan into a real crisis with China,” said Aiji Tanaka, a political science professor at Waseda University in Tokyo.
  • Dubai Project Dreams Evoke 2008 Crash at Banks: Mortgages. Dubai, gearing up for a new development boom, will need to prove to lenders and investors that this one won’t end like the last. With the same bravura that turned the desert sheikhdom into a hub for finance, tourism and real estate, the government is pitching massive projects in the hope of inspiring investment even as banks and builders remain buried under debt from the property-market collapse in 2008
  • Hedge Funds Reduce Bullish Bets by Most in a Month: Commodities. Hedge funds cut bullish commodity bets by the most in a month as the Federal Reserve warned the U.S. budget impasse may damage the economy, increasing concern about demand just as prices head for the first loss since 2008. Speculators and money managers decreased net-long positions across 18 U.S. futures and options by 11 percent to 802,817 contracts in the week ended Dec. 11, U.S. Commodity Futures Trading Commission data show. Sugar holdings tumbled 68 percent, the most in five years, and those for wheat dropped to the lowest since June. Wagers on higher crude-oil prices tumbled 21 percent, the most since May.
  • Google(GOOG) Said to End FTC Probe With Letter Promising Change. Google Inc. is poised to offer voluntary concessions that will end a 20-month antitrust probe of the company’s business practices by U.S. regulators without any enforcement action being taken, two people familiar with the matter said. 
  • IPhone 5 Sets China Record With 2 Million Sales in Three Days
Wall Street Journal: 
  • Profiles of the Victims.
  • Updates on School Shooting. 
  • GOP Poses Millionaire Tax-Rate Increase.
  • The Fiscal Cliff: Live Coverage
  • Debt Loads Climb in Buyout Deals. Private-equity firms are using almost as much debt to fund acquisitions as they did before the financial crisis, as return-hungry investors rush to buy bonds and loans backing those takeovers. The rise in borrowed money, or leverage, heralds the possibility of juicy returns for buyout groups. Ominously, the surge also brings back memories of the last credit binge around six years ago, which saddled dozens of companies with huge levels of debt. Some companies laden with debt by private-equity firms in the mid 2000s foundered during the recession.
  • Hospital Systems Branch Out as Insurers. A growing number of hospital systems are moving to start their own insurance plans, aiming to broaden their roles and prepare for the changes coming under the federal health-care overhaul. Piedmont Healthcare and WellStar Health System, both in the Atlanta area, are set to announce a jointly owned insurance arm, with the goal of marketing coverage to employers and Medicare recipients in 2014. They also will consider selling coverage on a health exchange, one of the online insurance marketplaces required in each state by the health-overhaul law.
  • Warren Buffett Knows That Tax Rates Matter by Cliff Asness. The bond market shows that people focus on after-tax cash flows when making investments.
Business Insider:
Wall Street All-Stars:
New York Post:
  • Bad trip for guru in 2012. Dalio losing bets. Ray Dalio, who runs the world’s largest hedge-fund firm, the $130 billion Bridgewater Associates, is in danger of losing his hard-won serenity. Dalio, known for practicing transcendental meditation and creating a cult-like atmosphere at the Westport, Conn., firm, is just weeks away from stumbling to a loss for the year. The loss comes just 12 months after Dalio achieved near-genius status for doing what few hedge-fund titans have done: chalking up two back-to-back years of huge double-digit gains in his main macro fund. Now, looking to make a comeback, Dalio this week predicted that interest rates would rise in the latter part of 2013, while suggesting any fiscal deal would depress the economy.
  • Clinton sustains concussion; Benghazi testimony postponed. Secretary of State Hillary Clinton, who canceled an overseas trip last weekend because of illness, suffered a concussion after fainting due to dehydration, prompting the postponement of her scheduled congressional testimony on the attack on a U.S. mission in Libya, officials said on Saturday. "While suffering from a stomach virus, Secretary Clinton became dehydrated and fainted, sustaining a concussion," State Department spokesman Philippe Reines said in a statement. "She has been recovering at home and will continue to be monitored regularly by her doctors. At their recommendation, she will continue to work from home next week, staying in regular contact with department and other officials. She is looking forward to being back in the office soon," Reines added.
  • China wealth fund warns of bleak eurozone outlook. China's sovereign wealth fund China Investment Corp said it is "not optimistic" about the outlook for the debt crisis in the eurozone, but will consider investing more in the region if countries create a more friendly environment. Jesse Wang, an executive vice president at CIC, said Europe needed more time to increase fiscal revenues to lift itself out of the crisis. "I think the outlook for the European debt crisis is not optimistic yet," Wang said on Sunday at a forum in Sanya in the southern tropical Hainan island.
  • UN chief alarmed by escalating violence in Syria. U.N. Secretary-General Ban Ki-moon expressed alarm on Sunday at the worsening violence in Syria, including the reported mass killing of Alawites and alleged firing of long-range missiles on Syrian territory, Ban's spokesman said. 
  • Japan's war on deflation runs into psychology of hard times. The war against deflation in Japan will start with a battle for the pocketbooks of recession-hardened consumers like Kumiko Kuramochi. The Liberal Democratic Party, which stormed to an election victory on Sunday, hopes to persuade Kuramochi and other Japanese that an aggressive monetary policy is going to fire up inflation. The message: buy now before prices start rising again. The problem though is that a bargain-hunting psychology is so entrenched after two decades of stop-start economic growth, 15 years of falling wages and nearly 15 years of deflation that the government will struggle to convince people their incomes will improve enough for them to buy more expensive goods.
  • Disputes over small islands pose big conundrum for U.S. Far away from the United States and usually far down the list of things Washington worries about, the obscure islets at the center of bitter spats between China and its neighbors have become a flashpoint that could get hotter and embroil America. This week served up fresh evidence that 2013 likely will bring no pause in tensions rippling the seas around China. Japan on Thursday scrambled fighter jets after a Chinese government plane entered what Japan considers its airspace over disputed islets in the East China Sea, just one of many contested sites.
  • Japan election winner fires early warning to China. Nationalist parties have seized power in Japan, as the country's new prime minister-in-waiting immediately firing a warning to China over the ownership of islands that have caused months of diplomatic tension.
Welt am Sonntag:
  • Frank-Walter Steinmeier, German opposition SPD's chief in parliament, says Chancellor Angela Merkel won't be able to keep promises that her policies won't lead to a writedown on Greek debt. The German government wants to spare voters "uncomfortable truths" until after the 2013 federal election, Steinmeier said.
  • K+S Hedges Euro-Dollar at About $1.30 Next Year. Europe's largest potash maker is hedged at $1.28/$1.29 on average for this year, citing CFO Burkhard Lohr in an interview.
  • European leaders have done about half the work needed to end the sovereign debt crisis, Focus quoted Klaus Regling, CEO of the ESM rescue fund, as saying in an interview. The ESM probably won't be allowed to recapitalize lenders until the euro-area has functioning bank supervisor, which is scheduled to happen by March 2014, he said. Italian spreads may widen if the country drops its reform program.
El Pais:
  • Prime Minister Mariano Rajoy told union leaders German Chancellor Angel Merkel is opposed to a sovereign bailout for Spain because she is reluctant to submit the decision to the Bundestag.
Weekend Recommendations
  • Bullish commentary on (TROX) and (JNJ).
  • Downgraded (AAPL) to Neutral, target lowered to $575. 
Night Trading
  • Asian indices are -.75% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.0 -2.0 basis points.
  • Asia Pacific Sovereign CDS Index 84.25 unch.
  • FTSE-100 futures +.07%.
  • S&P 500 futures +.33%.
  • NASDAQ 100 futures +.30%.
Morning Preview Links

Earnings of Note

  • (SHFL)/.21
Economic Releases
8:30 am EST
  • Empire Manufacturing for December is estimated to rise to -1.0 versus -5.22 in November.
9:00 am EST
  • Net Long-term TIC Flows for October is estimated to rise to $25.0B versus $3.3B in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, 2Y T-Note auction and the (GE) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.

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