Thursday, December 13, 2012

Thursday Watch

Evening Headlines 
  • Euro Rebuilding Vision Fades as Germany’s Vote Looms Over Crisis. Europe has lost the vision thing. The word “vision” appeared seven times in a June outline for transforming the euro zone into an American or Swiss-style economic union. It dropped out of an October follow-up and is absent from a final roadmap to be discussed at a summit in Brussels today. The scaled-back ambitions reflect ebbing pressure from financial markets, pre-election politics in Germany, a hardening of the ideological divide between northern and southern Europe, and the recognition that an overhaul of economic governance won’t work without a banking-system fix. “EU leaders might as well stay home,” Guy Verhofstadt, a former Belgian prime minister who is now in the European Parliament, said in Strasbourg, France, yesterday. “The political reality is that we are all waiting for the German elections before taking the crucial steps to end the crisis.
  • Foreclosed G-8 Venue Mirrors N. Irish Economy as Riots Escalate.
  • Tory Skeptics Raise Rebel Flag as Cameron Pressured on EU. In the London mansion where Benjamin Franklin negotiated American independence, British rebels gathered to toast their own fight against the European Union and deliver a warning shot to Prime Minister David Cameron. More than 100 people, including two Conservative Cabinet ministers, descended on the Lansdowne Club last month to celebrate the 20th anniversary of the Maastricht rebellion, when Tory lawmakers defied Prime Minister John Major and voted against the treaty that created the EU. 
  • Kiehl’s Cucumber Toner at 18 Euros Shows Luxury Weakness: Retail. When Ilse Morgan lived in New York, she often bought cosmetics from Kiehl (OR)’s, a 161-year-old pharmacy on the Lower East Side that has grown into a global brand. Since moving to Amsterdam, Morgan has found Kiehl’s products but rarely buys. The prices, she says, are just too far above what she paid in New York. “If it was the same, then I would happily make purchases here,” said the 42-year-old advertising manager who has lived in the Netherlands for a decade. “They lose my business with the pricing.”
  • Made-by-Obama Fiscal Cliff Debate Hides Jobless Toll. President Barack Obama and House Speaker John Boehner are engaged in negotiations over shrinking the budget deficit even as high unemployment is taking a greater human and financial toll on the nation’s economic health. By depressing tax revenue and inflating mandatory social spending, unemployment is costing the government more than twice the $220 billion taxpayers will spend this year paying interest on the debt, according to data compiled by Bloomberg. Chronic joblessness is also leaving scars on society, crippling the earning power of millions and hamstringing future growth. Less than 59 percent of working-age Americans are employed, near a three-decade low, while the cost of servicing the debt as a percentage of economic output is no greater than in 1970. “The labor market crisis has been going on for some years now, is still with us, is receding only slowly and is doing damage every single minute,” said former Federal Reserve Vice Chairman Alan Blinder.
  • More CEOs Plan Capital-Spending Cuts as U.S. Nears Fiscal Cliff. The number of U.S. chief executive officers planning to trim capital expenditures has risen amid the political standoff over more than $600 billion in federal tax increases and spending cuts, the Business Roundtable said. A survey conducted by the Washington-based CEO group from Nov. 12 to Nov. 30 found that 23 percent expect their companies to reduce capital spending during the next six months, according to a statement today. That increased from 19 percent in a survey completed in September. “The uncertainty about the fiscal and monetary environment and the budget environment that we find ourselves in is putting a damper on investment,” Jim McNerney, chairman of the Business Roundtable and CEO of aircraft manufacturer Boeing Co. (BA), told reporters today on a conference call. 
  • Aetna(AET) CEO Sees Obama Health Law Doubling Some Premiums. Health insurance premiums may as much as double for some small businesses and individual buyers in the U.S. when the Affordable Care Act’s major provisions start in 2014, Aetna Inc. chief executive officer said. While subsidies in the law will shield some people, other consumers who make too much for assistance are in for “premium rate shock,” Mark Bertolini, who runs the third-biggest U.S. health-insurance company, told analysts today at a conference in New York. The prospect has spurred discussion of having Congress delay or phase in parts of the law, he said. “We’ve shared it all with the people in Washington and I think it’s a big concern,” the CEO said. “We’re going to see some markets go up as much as as 100 percent.” 
  • China’s Stocks Drop Most in More Than a Week as Brokerages Slide. China’s stocks fell, driving the benchmark index down the most in more than a week, as waning investor interest in equities drove brokerages down and lower metal prices dragged on materials producers. Industrial Securities Co. (601377) and Soochow Securities Co. sank at least 2 percent. Zhongjin Gold Corp. paced losses by gold producers after the price of the precious metal slid below $1,700 an ounce. The Shanghai Composite Index (SHCOMP) declined 0.7 percent to 2,068.54 at the 11:30 a.m. local-time break, heading for the biggest retreat since Dec. 3.
  • Oil-to-Metals Bank Staff Retreating for Second Year: Commodities. Investment banks are cutting commodity staff for a second year and pay will probably drop for a third time as revenue declines, bonuses shrink and new regulations limit how much money traders can risk.
Wall Street Journal: 
  • Spending-Cut Proposals Drawing Democratic Flak. One big question in Washington's budget talks is whether Republicans will make more concessions on taxes. This week, the counterpoint has started to come into play: What will Democrats swallow on spending cuts? The prospect of cuts to Medicare and other entitlement programs is making many Democrats anxious. Of particular concern is Republicans' call for increasing the eligibility age for Medicare from 65 to 67, an idea that could split Democrats.
  • The Fiscal Cliff: Live Stream
  • U.S. Terrorism Agency to Tap a Vast Database of Citizens. Top U.S. intelligence officials gathered in the White House Situation Room in March to debate a controversial proposal. Counterterrorism officials wanted to create a government dragnet, sweeping up millions of records about U.S. citizens—even people suspected of no crime. Not everyone was on board. "This is a sea change in the way that the government interacts with the general public," Mary Ellen Callahan, chief privacy officer of the Department of Homeland Security, argued in the meeting, according to people familiar with the discussions. A week later, the attorney general signed the changes into effect.
  • Rocket Success Shows North Korea's Advance. Long-Range Missile Puts Pressure on Washington to Contain Pyongyang's Arsenal and Raises Worries Over Iran. 
  • Barclays Is Set to Join Cost-Cutting Crowd. U.K. Bank to Eliminate Investment-Banking Jobs as Part of Overall Restructuring; an Effort to Patch Up Reputation.
  • The Fed's Contradiction. Easier money hasn't led to more growth, so we need still easier money. Four years ago this month the Federal Reserve began its epic program of monetary easing to rescue an economy in recession. On Wednesday, Chairman Ben Bernanke declared that this has worked so well that the Fed must keep easing money for as long as anyone can predict in order to save a still-sputtering recovery. That's the contradiction at the heart of the Fed's latest foray into "unconventional policy," which is a euphemism for finding new ways to print money: The economy needs more monetary stimulus because it is still too weak despite four years of previous and historic amounts of monetary stimulus. In the words of the immortal "Saturday Night Live" skit: We need "more cowbell."
  • El-Erian: Historic Fed Announcement Yet Unchanged Markets?
  • Europe Deepens Union With ECB as Chief Bank Watchdog. Europe clinched a deal on Thursday to give the European Central Bank new powers to supervise euro zone banks, embarking on the first step in a new phase of closer integration to help underpin the euro. After more than 14 hours of talks and following months of tortuous negotiations, finance ministers from the European Union's 27 countries agreed to hand the ECB the authority to directly police the euro zone's biggest banks and intervene in smaller banks at the first sign of trouble.
Zero Hedge:
Business Insider:
NY Times:
  • Study Shows a Pattern of Risky Loans by F.H.A. A new and extensive analysis of 2.4 million loans insured by the Federal Housing Administration in recent years shows a pattern of risky lending that could generate $20 billion in losses and harm thousands of the nation’s most vulnerable borrowers. By ignoring risks in loans it insured in 2009 and 2010, the study concludes, the F.H.A. is imperiling both borrowers and taxpayers who stand behind the agency.

Read more here:
  • Wall Street critic Warren to join Banking Committee.
  • Google's(GOOG) maps app back on iPhone. Three months, an apology from Apple's CEO and an ousted high-ranking executive later, Google Maps made a triumphant return Wednesday night, and it is now available for download on the iTunes App Store. The app features turn-by-turn navigation, live traffic information, and public transportation directions -- all of which were missing or problematic on Apple's new maps app. Google took the opportunity to call attention to its superior mapping data.
  • Opposing camps dig in on Internet treaty talks. Most countries at a conference on telecommunications oversight agreed Wednesday that a United Nations agency should play an "active" but not dominant role in Internet governance as they struggled to reach a worldwide compromise. As a marathon session at the UN's World Conference on International Telecommunications concluded at about 1:30 a.m. local time in Dubai (2130 GMT), the chairman asked for a "feel of the room" and then noted that the nonbinding resolution had majority support, while denying it was a vote.
  • U.S. lawmakers to push tax code change for renewable energy in 2013. A group of U.S. lawmakers said on Wednesday that they plan to push ahead in the new year to change the tax code so renewable energy projects could qualify for beneficial tax structures commonly used by pipelines and other energy-related companies. 
  • Clinton to testify on Benghazi report on Dec. 20. U.S. Secretary of State Hillary Clinton will testify on Dec. 20 before the House of Representatives Foreign Affairs Committee on a report on the deadly attack on the U.S. diplomatic post in Benghazi, Libya, the committee said on Wednesday. The attack on Sept. 11 killed U.S. Ambassador Christopher Stevens and three other Americans, and raised questions about the adequacy of security in far-flung posts. They have also criticized shifting explanations of why talking points given to U.S. Ambassador to the United Nations Susan Rice were changed to delete a reference to al Qaeda. Some Republicans have used that criticism to question Rice's suitability as a candidate to replace Clinton, if Obama were to nominate her. Republicans have criticized Democratic President Barack Obama's administration for its flawed early public explanations of the attack..
  • Syria fires Scud missiles at rebels -U.S., NATO officials. Syrian President Bashar al-Assad's forces have fired Scud-style ballistic missiles against rebels in recent days, U.S. and NATO officials said on Wednesday, in what U.S. officials described as an escalation in the 20-month civil war. The United States, European powers and Arab states bestowed their official blessing on Syria's newly-formed opposition coalition on Wednesday, despite increasing signs of Western unease at the rise of militant Islamists in the rebel ranks.
  • Berkshire(BRK/A) buyback seen clashing with estate tax push. Warren Buffett's $1.2 billion share buyback from a single unnamed investor likely helped that person's estate save substantially on taxes, just one day after the Berkshire Hathaway CEO said the rich should actually be paying more, not less, when they die. 
  • Bernanke: Fed's ability to support U.S. economy is limited. There are limits to how much aid the Federal Reserve can provide to the U.S. economy, Fed Chairman Ben Bernanke warned on Wednesday as he urged politicians to tackle a year-end fiscal cliff that could derail the country's gradual recovery. "We have innovated quite a bit in the last few years, and (it) is always possible we could find new ways to provide support for the economy," he told a news conference after the Fed announced another round of bond buying to spur growth. "But it is certainly true ... that with interest rates near zero and the (Fed's) balance sheet already large, that the ability to provide additional accommodation is not unlimited."
  • Britain poised to secure bank union safeguards. Britain has moved a step closer to securing safeguards to protect its banks from a new eurozone banking union, as European finance ministers neared a deal to give the European Central Bank new powers over lenders.
  • Germany's central bank has warned the government coalition against pledging surplus interest-rate profit from the ECB and Bundesbank to aid Greece, citing e-mail from Claus Tigges, president of the bank's regional office, to parliamentary budget officials. Tigges says Bundesbank will decide on risks provisions and profit distribution. Says there is no requirement to turn profit over to the federal budget.
Evening Recommendations 
Keefe Bruyette:
  • Downgraded (CMA) to Underperform, target $28.
  • Upgraded (FRME) to Outperform, target $16.
Night Trading
  • Asian equity indices are -.50% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 112.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 85.0 -.75 basis point.
  • FTSE-100 futures -.08%.
  • S&P 500 futures +.13%.
  • NASDAQ 100 futures +.22%.
Morning Preview Links

Earnings of Note

  • (HOV)/-.05
  • (PIR)/.25
  • (CIEN)/-.06
  • (ZQK)/.10
  • (NDSN)/1.03
  • (ADBE)/.56
  • (PAY)/.76
Economic Releases
 8:30 am EST
  • Advance Retail Sales for November are estimated to rise +.5% versus a -.3% decline in October.
  • Retail Sales Less Autos for November are estimated unch. versus unch. in October.
  • Retail Sales Ex Auto & Gas for November are estimated to rise +.4% versus a -.3% decline in October.
  • The Producer Price Index for November is estimated to fall -.5% versus a -.2% decline in October.
  • The PPI Ex Food & Energy for November is estimated to rise +.1% versus a -.2% decline in October.
  • Initial Jobless Claims are estimated to fall to 368K versus 370K the prior week.
  • Continuing Claims are estimated to rise to 3210K versus 3205K prior.    
10:00 am EST
  • Business Inventories for October are estimated to rise +.4% versus a +.7% gain in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The IMF/ECB press conference, 30Y T-Bond auction, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Bloomberg US Economic Survey for Dec., (CVS) analyst day, (HI) investor day and the (UTX) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial 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 day.

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