Sunday, January 13, 2013

Monday Watch

Posted by Gary .....at 11:59 PM

Weekend Headlines 
Bloomberg: 
  • Euro Leaders Declaring Worst Is Over Turn to Economy Woes. European leaders declaring they’ve gained the upper hand in the three-year-old debt crisis are sharpening efforts to channel a rebound in financial markets to an economic recovery to chip away at soaring unemployment. Even as euro-area chiefs call for more time to lock in a bailout package for Cyprus and elections loom next month in Italy, German Finance Minister Wolfgang Schaeuble said Jan. 11 that the single currency is “over the worst of the crisis.”
  • China Export Surge Spurs Data Skepticism at Goldman(GS), UBS(UBS). China’s unexpected surge in exports last month renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) that statistics from the nation can be unreliable. The 14.1 percent gain from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn’t match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index. “China’s influence on the global economy has become bigger, so not only Chinese policy makers but also business people and the rest of the world need better data,” said Liu, Hong Kong- based chief Greater China economist, who formerly worked for the World Bank. “Unreliable data could have a negative impact on resource allocation and business planning.” The Beijing-based customs administration, which reported the December trade figures on Jan. 10, said it couldn’t immediately respond to a faxed request from Bloomberg News for comment on the banks’ skepticism. Li Keqiang, who may succeed Wen Jiabao as premier in March, was quoted in 2007 as saying he watched data on power, rail cargo and loans because gross domestic product numbers were “man-made.” Li’s remarks were in a U.S. diplomatic cable published by WikiLeaks in late 2010. “It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs’ Beijing- based economists Yu Song and Yin Zhang wrote the same day. Rushed shipments and even faked exports to secure tax refunds may have contributed to the stronger growth data, according to Alistair Thornton and Ren Xianfang, Beijing-based analysts at IHS Inc. (IHS) UBS economists led by Hong Kong-based Wang Tao pointed to a “quite obvious discrepancy” in the growth of China’s exports to Taiwan and South Korea and those economies’ reported imports from China in recent months, even as historically they have tracked each other well. UBS and ANZ also highlighted a surge in shipments into and out of special trade zones within China that would be classified as imports and exports. “This anomaly has raised some suspicions as to whether some exports have been inflated to take advantage of tax rebates,” the UBS economists wrote on Jan. 10.
  • Hedge-Fund Leverage Most Since 2004 in New Year as Margin Grows. Hedge funds are borrowing more to buy equities just as loans by NYSE brokers reach the highest in four years, signs of increasing confidence after professional investors trailed the market since 2008. Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year wince at least 2004, according to data compiled by Morgan Stanley. Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show. Gross leverage, a measure of hedge fund borrowing that shows how much their holdings exceed the cash invested by clients, was 153% in the week ended Jan. 4, up from an average of 152% in 2012 and 143% a year ago, according to Morgan Stanley. While leverage shows increased optimism, it multiples losses when investors are wrong, according to Peter Sorrentino, who helps manage about $14.6 billion of assets at Huntington Asset Advisors in Cincinnati. "If you want to speed up a loss, put some leverage on it," he said in an interview. "There's a fair amount of leverage being used at this juncture, maybe there's a little too much optimism out there. It indicates investors are bullish, but if you loo at the fundamentals, earnings growth has started to slow and it's real tough to defend that." S&P 500 profits will increase 1% for the first three months of 2013, according to analyst estimates compiled by Bloomberg. Professional investors abandoned bets that stocks would decline last month, as the most-shorted shares staged the best rally in a year relative to the S&P 500. The 20 stocks with the highest short sales rose an avg. of 5.1 percent in December, compared with .7% for the full gauge, the widest gap since January 2012. A gauge of hedge-fund bullishness, which measures how much they're betting on rising shares, rose to 47.3 at the end of 2012 from 43.9 a year ago and is near the one-year high of 48.1 in August, according to a survey by Washington-based ISI.
  • The New (Old) Payroll Tax Is Starting to Hit Hard. Shortly after Congress passed legislation to avoid the fiscal cliff, with headlines touting that rates had been raised only on those making more than $400,000 per year, some buzz-killing news for the less-wealthy emerged. Workers’ share of the Social Security payroll tax, which had been temporarily cut from 6.2 percent to 4.2 percent for two years, was immediately snapping back to the higher level. The result is smaller paychecks for all wage earners, with the country’s economic recovery still sluggish and unemployment stubbornly high. A worker making $50,000 in 2013 will take home $38.46 less per two-week paycheck, or $1,000 per year.
  • French Airstrikes Counter Northern Mali Islamist Insurgency. French airstrikes sought to halt an offensive by Islamist rebels in northern Mali as west African nations pledged to send about 2,000 soldiers to oust the militants fully. France’s intervention in its former colony will last “as long as is needed” President Francois Hollande said yesterday in a televised speech in Paris. Separately, in Somalia, French special forces failed to free a French intelligence officer who had been held hostage for three years, resulting in his death. In Mali “France has no other objective than to safeguard a country that is a friend,” Hollande said. “It doesn’t have another goal than fighting terrorism,” and it has the backing of the international community, he said.
  • HSBC Said to Advise Wealthy Against More SAC Investments. HSBC Holdings Plc (HSBA)’s private bank advised clients to not add money to Steven A. Cohen’s SAC Capital Advisors LP amid a U.S. government insider-trading investigation into the hedge fund, according to a person with knowledge of the matter.
  • French Anti-Gay Marriage Protests Draw Hundreds of Thousands. Protests against French President Francois Hollande’s proposal to allow same-sex marriage drew hundreds of thousands of people into the streets in Paris. “There are many people who are worried about this law,” Laurent Wauquiez, a minister under former President Nicolas Sarkozy, said today on Europe 1 radio. “Do we have to destroy the family and the place of children in it? We must pay attention to the place of children.” Wauquiez joined the demonstration. About 340,000 people joined today’s marches, according to police estimates, while organizers indicated a turnout of more than 800,000.
  • Hedge Funds Cut Bets to Six-Month Low Before Rally: Commodities. Hedge funds cut bullish commodity wagers to the lowest since June before prices rallied to a two- month high on signs of a rebound in Chinese economic growth. Speculators trimmed net-long positions across 18 futures and options by 5.4 percent to 654,443 contracts in the week ended Jan. 8, the lowest since June 19, U.S. Commodity Futures Trading Commission data show. Wagers on a corn rally dropped for a fifth week before a reduction in U.S. stockpile data sparked the biggest jump in prices in five months. Gold holdings fell to the lowest since August as the metal snapped a six-week slump.
Wall Street Journal: 
  • Ugly Choices Loom Over Debt Clash. The showdown over the nation's debt ceiling could force the government to consider drastic steps to manage its limited cash, including delaying trillions of dollars of payments to employees, Social Security recipients, contractors and others. The Obama administration has said it has no backup plan to pay the government's bills if Congress refuses to raise the $16.4 trillion federal borrowing limit. The White House said Saturday in a statement that "there are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default." The Treasury could be forced to revisit proposals it considered during the 2011 borrowing-limit crisis, most of which it said were unworkable. Those included selling assets such as gold or mortgage-backed securities to raise funds, cutting all spending by 40% or prioritizing some payments over others—for example, paying Social Security recipients before military contractors. The proposal considered most viable was to pay the government's bills only as tax revenue became available, delaying many payments. There are important unanswered questions about this approach, including whether it would include delaying interest payments on government debt.
  • Top Japan General Calls for Beefed-Up Defenses. When a Japanese coast guard cutter spotted a small Chinese aircraft flying above disputed East China Sea islands in December, Japan's air force scrambled eight F-15 fighter jets, but they reached the scene only after the intruder had left. Japan's radar or surveillance planes had missed the low-flying aircraft entering what the nation considers its airspace, causing a delay in scrambling. The embarrassing incident underscores the need for Japan to beef up the defense of air, sea and land in its southwest, said Gen. Shigeru Iwasaki, the top uniformed official of Japan's military, known as the Self-Defense Forces. He said China's navy and air force have been gradually shifting activities closer to the waters and skies near Japan's southwestern islands and "establishing a tenacious presence" in what's becoming an increasingly contentious part of Asia-Pacific.
  • 'Whale' Is Threat to Dimon Bonus. J.P. Morgan Chase & Co.'s(JPM) board is expected to dock the 2012 bonuses of Chief Executive James Dimon and another top executive because of the "London Whale" trading debacle, said people close to the company. An internal report, scheduled to be issued Wednesday, takes to task senior executives for the trade that cost J.P. Morgan $6.2 billion in losses and led to the departure of Chief Investment Officer Ina Drew, a confidant of Mr. Dimon. If the board does reduce Mr. Dimon's pay, he could surrender a crown he has worn for several years as Wall Street's best-compensated top executive. 
  • France Says U.S. Is Ready to Back Up Mali Mission. France said Sunday that the U.S. was set to back up its military intervention against Islamist rebel groups in Mali, while the U.K. said it would provide logistical assistance to the French deployment. Responding to a call for help by the Malian president, France engaged its troops in central Mali on Friday and conducted more airstrikes over the weekend to block the southern progression of rebel groups that control the northern half of the African country. "The Americans are going to back up our operation in terms of intelligence and in terms of a support both for logistics and provisions," French Defense Minister Jean-Yves Le Drian said in a televised interview.
  • Options Traders Discard Safety Net as Stocks Rise. In the new year, options traders seem to have settled on a resolution: no more hedging for the worst. Fearless trading has left the number of active “put” options protecting against declines in the broader market on the brink of a multi-year low, as budget worries fade. “Investors don’t see much need for buying protection, which is a sign they are fairly bullish,” said Joe Kinahan, chief derivatives strategist at TD Ameritrade. “Once we reached a settlement on the budget stuff, we saw people weren’t seeing the need to buy protection.
  • Apple(AAPL) Cuts Order for iPhone Parts on Weak Demand. Apple Inc. has cut its component orders for the iPhone 5 due to weaker-than-expected demand, people familiar with the situation said Monday. Apple's orders for screens for the January-March quarter, for example, have dropped to roughly half of what it had previously planned to order, two of the people said. The U.S. company has also cut orders for components other than screens, according to one of the people. Apple notified the suppliers of the order cut last month, they said.
  • Neighbors Grow More Wary of China. Entertainer Linn Linn sings about love, the environment and freedom. But his fans keep asking for a different song—the one about Chinese immigrants taking over his hometown.
  • Promise of China Fades for Banks. In June 2005, when Bank of America Corp.'s(BAC) then-Chief Executive Ken Lewis flew to Beijing to sign a $3 billion pact to acquire a 9% stake in one of China's biggest state-run banks, he hailed the deal as "a long-term investment." The deal yielded a tidy profit but little else for Bank of America. The U.S. bank sold down its holding to about 1% as of November 2011.
  • ObamaCare's Health-Insurance Sticker Shock. Thanks to mandates that take effect in 2014, premiums in individual markets will shoot up. Some may double. Health-insurance premiums have been rising—and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act, aka ObamaCare. The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it.
Marketwatch.com:
  • Iron-ore prices may soon melt. The sudden recent increase in the iron-ore price likely reflects temporary market influences of restocking taking place in China at a time of subdued supply, they believe. Supply is expected to increase in the second half of the year, they said, and the present demand from China is unlikely a function of a widespread uplift in Chinese economic activity, given that coking coal and Chinese steel prices have fallen since last July.
Fox News:
  • Obama administration shoots down platinum coin idea as debt ceiling solution. The Obama administration ended speculation Saturday that it would mint a trillion-dollar platinum coin as a way to avoid the debt ceiling. Treasury Department spokesman Anthony Coley said the agency wouldn't mint one and the Federal Reserve would not accept the coin. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” Coley said. His statement was followed by one from White House Press Secretary Jay Carney. “There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default," Carney said.  
  • Obama to push for one-step, comprehensive immigration reform early in second term. President Obama seems ready to tackle the illegal immigration issue in the coming months and push Congress to act promptly on comprehensive reform of U.S. policy, perhaps laying out his plan in the coming weeks. The president and Senate Democrats will propose the changes in a comprehensive bill, compared to some Republicans who want a more step-by-step reform, according to The New York Times. Democrats purportedly want a plan that includes a path to citizenship for most of the 11 million illegal immigrants in the country. 
  • Businessman in fraud case ties Harry Reid to scheme. A Utah businessman accused of running a fraudulent $350 million software scheme says the state attorney general arranged a deal to pay Senate Majority Leader Harry Reid to make a federal investigation into the software business disappear.
Zero Hedge:
  • Macro Polo. From Qbamco's Paul Brodsky: The absence of meaningful negative market responses to debt ceiling dramas, Japanese inflation targeting, trillion dollar coins, and other odd and dubious politically-oriented market meddling seems to be sending reflexive signals back to capitals: all clear, continue self-destructing.
Business Insider: 
IBD:
AllAboutAlpha.com:
Reuters:
  • Oracle Corp(ORCL) to fix Java security flaw 'shortly'. Oracle Corp said it is preparing an update to address a flaw in its widely used Java software after the U.S. Department of Homeland Security urged computer users to disable the program in web browsers because criminal hackers are exploiting a security bug to attack PCs. "A fix will be available shortly," the company said in a statement released late on Friday.
  • Hedge fund exits at 3-year high in December-data. Hedge funds suffered their biggest month of withdrawals for more than three years in December, data showed on Friday, after a year of mediocre returns prompted disatisfied investors to move their money out. Hedge fund administrator SS&C GlobeOp's Capital Movement Index, which tracks monthly net subscriptions to and redemptions from funds, measured minus 2.58 percent last month, representing the biggest monthly outflow of cash seen since October 2009.
  • Greece raises electricity prices by up to 15 pct. They come after a 9.2 percent average increase in prices last year. 
  • Syrian forces kill dozens in bombardments: opposition. Government forces killed at least 36 people, 14 of them children, in a bombardment of rebel-held areas on the outskirts of Damascus on Sunday, Syrian opposition activists said. Video footage showed women weeping over the dismembered bodies of children strewn across a field in the Eastern Ghouta region, near an air defense base on the edge of the town of Muleiha, 5 km (3 miles) east of Damascus.
Financial Times: 
  • Cameron’s policy on Europe ‘creates uncertainty’. David Cameron’s Europe policy could drive away inward investment and leave a cloud of uncertainty hanging over the British economy for years, Lord Heseltine, the prime minister’s adviser on growth, has warned. Speaking to the Financial Times, Lord Heseltine warned that Mr Cameron’s desire to renegotiate Britain’s EU membership and put the outcome to a referendum would start a process which could inadvertently lead to an exit.
  • Big banks on thin ground with rate margins. Big US banks are set to report the thinnest margins between the rates at which they borrow and lend since the 1950s, as profits are squeezed by the Federal Reserve’s policy of ultra-low interest rates.
Telegraph:
BBC: 
  • Greek parliament passes new tax increases. The Greek parliament has approved a series of unpopular tax rises aimed at boosting revenue in line with Athens' commitments to international creditors. The measures, approved overnight, introduce a new top tax rate of 42% for Greeks earning more than 42,000 euros (£34,700; $56,000) a year. Corporate rates also go up and the tax base now includes low-earning farmers. The changes are part of an overall package approved in November to allow Greece to qualify for further bailout funds. But the opposition say the tax rises will increase hardship for ordinary Greeks. The main opposition Radical Left Coalition says austerity has "demolished the country's middle classes"
Frankfurt Allgemeine Sonntagszeitung:
  • While the world economy is doing reasonably well, Europe is "the problem" as the single currency doesn't create prosperity for Europeans, Heidelberg Cement CEO Bernd Scheifele said. "Politicians have to finally realize that the costs of the currency union are just too high," he said.
Kyodo:
  • Japanese Minister for Economic and Fiscal Policy Akira Amari says if the yen exceeds 100 yen to the dollar, it will raise prices of imports and weigh down people's lives. Amari says the yen has come to a "pretty good level" at the current exchange rate.
Nikkei:
  • Japan May Increase the Top Income Tax Rate to 45%. The government and Liberal Democratic Party are discussing increasing Japan's top income tax rate to 45% from 40% starting Jan. 1, 2015. The inheritance tax may be increased to 55% from 50% at the same time.
Chosun Ilbo:
  • South Korea's finance ministry is skeptical of its earlier economic growth forecast of 3% for this year because of global economic uncerainty, citing a ministry briefing.
Weekend Recommendations
Barron's:
  • Bullish commentary on (LLY), (ACN), (AA), (CKEC), (CNK), (EPR), (RGC), (ESV), (KEY) and (CMCSA).
Night Trading
  • Asian indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.0 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 84.75 +1.75 basis points.
  • FTSE-100 futures +.46%.
  • S&P 500 futures +.24%.
  • NASDAQ 100 futures +.15%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PPG)/1.53
Economic Releases 
  • None of note
Upcoming Splits
  • (LO) 3-for-1
Other Potential Market Movers
  • The Fed's Bernanke speaking, Fed's Lockhart speaking and the Fed's Williams speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and consumer 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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