Weekend Headlines
Bloomberg:
- Euro-Area Debt Crisis Isn't Over, Finland's Urpilainen Says. Finnish Finance Minister Jutta Urpilainen said the economic situation in many Western countries remains "exceptionally challenging." "Resolving the challenges requires an ability to see further; short-term solutions to quell panic won't resole the situation." Europe is headed for a social crisis of high unemployment, Urpilainen said. "Finland won't co-operate on any terms" in the EU. "It's our job to defend Finnish taxpayers."
- Euro Ministers Seek New Crisis Momentum as Unrest Returns. European finance chiefs will seek to win back crisis-management momentum to navigate the currency area through emerging political pitfalls after markets signaled last week that the three-year crisis is far from over. Ministers from the 17-member euro area meet in Brussels today to discuss aid to Cyprus and Greece as a tightening election contest in Italy and a political scandal in Spain disrupt market calm. Group of 20 finance chiefs and central bankers will gather in Moscow Feb. 15-16. “We don’t know yet how we’re going to get out of the crisis,” Wolfgang Franz, the chairman of Chancellor Angela Merkel’s council of economic advisers, told Welt am Sonntag. “If the crisis is a marathon, we’ve got two-thirds of the course behind us. But the last third is always the hardest.”
- ECB’s Visco Says Some Italian Lenders Still Need More Capital. European Central Bank council member Ignazio Visco said some medium to large Italian banks need more capital as the country’s recession drags on. “Some large- and medium-sized groups still must make progress on the road to broadening their resources,” Visco, also head of Italy’s central bank, said in a speech today in Bergamo, Italy. Increasing capital “allows a reduction of financial leverage without cutting credit support to the real economy. The strengthening is in the interests of shareholders.” Italy is mired in its fourth recession since 2001 as Prime Minster Mario Monti’s policies to contain the budget deficit curb domestic demand. Unemployment was at the highest in more than 13 years in December and consumer confidence fell in January to the lowest level since at least 1996.
- Urpilainen Sees No Direct Bank Recaps From ESM in 'Near Future'. Finnish Finance Minister Jutta Urpilainen said using the European Stability Mechanism for direct recapitalization of banks won't happen "in the near futures." Says stance on direct recapitalization hasn't changed; says any direct recapitalization requires the banking union to be in operation. Urpilainen also said talks to allow regulators to force senior bondholders of failing banks to take on losses are "entirely open."
- Delighted by EU Budget, U.K. Tories Demand More Rows With Europe. David Cameron will appear before U.K. lawmakers today to report on his negotiation of a reduction in the European Union budget, with euro-skeptics in his party congratulating him, and urging more confrontations in Brussels. “I would like to congratulate the prime minister for securing a cut in the EU budget,” Mark Reckless, who organized a record-breaking Conservative lawmaker rebellion over the budget, said in a telephone interview. “The diplomats, the Liberal Democrats all said the best he could hope for was a freeze, but he delivered for Britain.” Reckless said the prime minister’s speech last month promising a renegotiation of EU membership terms and then a referendum “hugely increases leverage in Brussels -- they know if they don’t give us what we want, we’ll leave.”
- Australia December Home-Loan Approvals Fall for Third Month. Australian home-loan approvals fell in December for a third month and the proportion to first-home buyers slumped to an eight-and-a-half year low as central bank interest-rate cuts failed to lure buyers into the market. The number of loans granted to build or buy houses and apartments declined 1.5 percent from November, when they dropped a revised 0.7 percent, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 16 economists was for approvals to remain unchanged.
- Fed Joining in Alarm Over Distortion It Enabled: Credit Markets. A Federal Reserve governor is joining those warnings that junk-debt investors are poised for losses, while his institution's policies spur them to keep buying the debt. Yields on a record 38% of the $1.1 trillion of notes sold by the neediest U.S. borrowers were trading below the 10-year average rate for investment-grade debentures last month, Barclays Plc data show. Investors poured a record $1.3 billion into U.S. leveraged loans funds last week as covenants on the debt weaken the most ever. The central bank's policy of keeping benchmark borrowing costs at about zero for a fifth year is pushing investors into riskier debt, even as Fed Governor Jeremy Stein warns that the market for speculative-grade debt may be overheating. While U.S. prosecutors are suing S&P with deliberately failing to provide warnings against losses on collaterialized debt obligations before the credit crisis, the government's stimulus is fueling demand for similar products now. "No matter how loud the chorus gets that this is crazy, the bulls are going to continue to run because there's nowhere else to put money in fixed income," said David Tawil, the co-founder of Maglan Capital LP, a distressed-debt hedge fund that manages about $50 million. "If I'm saying now that the deals are getting laughable, if things don't change, six months from now the deals are going to be stupid."
- Egyptians Demonstrate, Vent Anger on Presidential Palace. Demonstrators threw Molotov cocktails and rocks at the main presidential palace in Cairo yesterday, as thousands rallied against President Mohamed Mursi and his Muslim Brotherhood in protests that ignited clashes across the country. The army put up barbed wire, and the Republican Guard fanned around the palace. Police used tear gas to disperse protesters armed with the Molotov cocktails that set parts of the palace on fire, the official Middle East News Agency reported, citing an interior ministry official. Security forces also clashed with protesters around President Mohamed Mursi’s house and Freedom and Justice Party headquarters in al-Sharqiya, MENA said.
- Ambani Says U.S. Will Be Energy Independent in 5-7 Years. Mukesh Ambani, the billionaire chairman of Reliance Industries Ltd., said that the U.S.’s development of shale oil and gas will make the country energy independent as early as 2018. “For many decades, we have heard that the U.S. will be independent of foreign imports of energy,” Ambani, whose company operates the largest oil refining complex in the world, said in an interview to be aired today on CNN’s “Fareed Zakaria GPS” program. “Realistically, I can now tell you that it is my judgment this will happen in the next five to seven years.”
- Gates Backs Independent Review of Drone Strikes on Americans. Former Defense SecretaryRobert Gates said drone strikes against U.S. citizens should be subject to independent review, throwing his support behind an effort to restrict presidential action when it comes to killing American citizens. Gates said on today’s CNN’s “State of the Union” program that he believes the Obama administration has applied stringent safeguards in the targeted killing of American citizens suspected of terrorism “but who is to say about a future president?” The issue, which received little attention during President Barack Obama’s first term, became a central focus during the Senate confirmation hearing of John O. Brennan, nominated to be the new chief of the Central Intelligence Agency. Both Republicans and Democrats continued to press the issue on the Sunday morning talk shows. “The president, a politician, Republican or Democrat, should never get to decide someone’s death by flipping through some flashcards,” Senator Rand Paul, a Kentucky Republican, said on the CNN program.
- Putin Turns Black Gold Into Bullion as Russia Out-Buys World. Not only has Putin made Russia the world’s largest oil producer, he’s also made it the biggest gold buyer. His central bank has added 570 metric tons of the metal in the past decade, a quarter more than runner-up China, according to IMF data compiled by Bloomberg.
- Hedge Funds’ Fourth Bullish Week Boosts Copper Bets: Commodities. Hedge funds increased bullish commodity bets for the fourth straight week and became the most bullish on copper since December as signs of faster growth in the U.S. and China fueled the best start to the year since 2005. Speculators boosted net-long positions across 18 U.S. futures and options in the week ended Feb. 5 by 11 percent to 885,655 contracts, marking the longest stretch of gains in more than six months, U.S. Commodity Futures Trading Commission data show. Traders lifted bullish wagers on everything from copper to platinum, corn and soybeans.
- Chavez Devaluation Puts Venezuelans to Queue Before Price Raise. Venezuelans lined up to purchase airline tickets and TVs this weekend in a bid to protect themselves from price increases after ailing President Hugo Chavez devalued the bolivar for a fifth time in nine years.
- Companies Fret Over Uncertain Outlook. Sensing better times ahead, investors have pushed the Dow Jones Industrial Average up this year near its record high. But a different mood is pervading U.S. companies, where executives are less optimistic about the global economy and their own prospects, and many are lowering financial forecasts. Fourth-quarter operating earnings topped diminished expectations, rising 7.3% at the 339 members of the Standard & Poor's 500-stock index that have reported results, while revenue rose 5.9%, according to Thomson Reuters. But the companies warn that the current quarter will be more challenging, and analysts project first-quarter earnings at S&P companies will rise just 1.7%, Thomson Reuters says, or less than half what they were predicting at the beginning of the year. Sixty-three S&P companies have lowered their forecasts for first-quarter earnings, according to FactSet Research, while 17 have raised them, the largest disparity since the firm began tracking the data in 2006.
- Apple(AAPL) Is Testing Watch-Like Device. Apple Inc. is experimenting with designs for a watch-like device that would perform some functions of a smartphone, according to people briefed on the effort. The company has discussed such a device with its major manufacturing partner Hon Hai Precision Industry Co., one of these people said, as part of explorations of potentially large product categories beyond the smartphone and tablet. Apple's efforts come as companies have introduced various kinds of wearable gadgets, mainly designed to measure physical activity. More sophisticated devices face big technical challenges, but also are attracting investments from large technology companies.
- U.S., Europe Seek to Cool Currency Jitters. Amid Worries Over Japan Policy, Some G-7 Officials Discuss Underlining Commitment to Market-Driven Exchange Rates. U.S. and European financial policy makers are discussing issuing a joint message designed to head off a potentially destabilizing round of currency devaluations, according to people familiar with the talks. The discussions follow comments in recent months from Japanese Prime Minister Shinzo Abe and his aides implying they were targeting a specific exchange rate. This rhetoric, and a sharp drop in the yen, have sparked warnings from Latin America to Europe about a looming currency war in which nations devalue their currencies to boost exports. The question of currency devaluations is an awkward one for industrialized nations, many of which have embarked on monetary policies designed to boost their economies that have the side effect of lessening the value of their currencies. The U.S. Federal Reserve's bond-buying policy has previously sparked world-wide concern given its impact on the dollar.
- President to Push His Economic Vision in State of Union. In his second inaugural address, President Barack Obama laid out a roster of social policies that cheered his base and infuriated Republicans. In Tuesday's State of the Union, the president is expected to do the same as he pushes to complete the unfulfilled pieces of his economic vision.
- A Cliff Congress May Go Over. As Congress comes up on the latest budget deadline, lawmakers seem less daunted by the prospect of going over the "cliff" this time, as partisan positions remain far apart with only three weeks remaining before big cuts hit.
- Back in Fashion: China's Bad Debt. Foreign and domestic investors are preparing to pounce on bad debts held by Chinese banks—a potentially lucrative but risky area that has disappointed investors in the past. The experience of last time might give some investors pause. Local government politics, an opaque legal system and often patchy paperwork frustrated many investors. Given the market has been dormant for more than four years, many of the people with experience of negotiating China's bad-debt bureaucracy have moved on. "A lot of the institutional knowledge is gone," said Mr. Blomquist. "People will make the same mistakes as last time."
- Too Much Cheering Over Stocks. The Shiller P/E—a price-to-earnings ratio based on the average of real or inflation-adjusted earnings over the last 10 years—is above 22. Real annual returns have averaged under 1% in the following decade at similar junctures, says fund manager Clifford Asness. They often were negative.
- Gun Control and the Constitution. The courts would no more allow government to undermine the Second Amendment than the First.
Marketwatch.com:
- Disputes Hit China-Japan Tourism. (video) Chinese demand for tour packages to Japan during the Lunar New Year holiday has fallen by about half compared with last year. The WSJ's Jeffrey Ng explains why Chinese tourists are avoiding what was once the season's most popular international destination.
Fox News:
Business Insider: - Graham: White House stonewalling on Benghazi means 'no information, no confirmation’. Republican Sen. Lindsey Graham suggested Sunday that he would try to hold up the appointment of President Obama’s nominees to run the CIA and the Defense Department until the White House provides more details about what the president and other top administration officials were doing the night of the Benghazi terror attacks. The South Carolina senator is among congressional Republicans most critical of Defense Department nominee Chuck Hagel and the White House’s handling of the Sept. 11, 2012, attacks on a U.S. outpost in Benghazi, Libya. The attacks killed Ambassador Christopher Stevens and three other Americans.
- SURVEY: Tons Of Fund Managers Have Already Dumped All Their US Treasuries. According to BAML strategists Ralf Preusser and Richard Cochinos, 66 percent of investors are no longer holding Treasuries, and 11 percent are thinking of selling. The two write in a note to clients that with such bearish sentiment toward U.S. government debt, "the sell-off in Treasuries may be running out of steam."
New York Times:
LA Times:- Longtime Wall Street Deal Maker Expands Advisory Firm. During his 29-year career on Wall Street, Robert Wolf has amassed a contact list full of boldface names from the worlds of finance and politics, up to and including President Obama. Now the deal maker is drawing upon that list as he expands the advisory shop he formed last summer. Mr. Wolf was expected to formally announce on Monday several hires for his firm, 32 Advisors, including former members of the Obama administration. Among them are Austan D. Goolsbee, the former chairman of the Council of Economic Advisers; Barry Johnson, who headed a White House initiative to encourage foreign investment in the United States; and Kevin Varney, until recently the senior vice president and chief of staff of the Export-Import Bank.
- California lacks doctors to meet demand of national healthcare law. Lawmakers are working on proposals that would enable physician assistants, nurse practitioners, optometrists and pharmacists to diagnose, treat and manage some illnesses. As the state moves to expand healthcare coverage to millions of Californians under President Obama's healthcare law, it faces a major obstacle: There aren't enough doctors to treat a crush of newly insured patients. Some lawmakers want to fill the gap by redefining who can provide healthcare. They are working on proposals that would allow physician assistants to treat more patients and nurse practitioners to set up independent practices. Pharmacists and optometrists could act as primary care providers, diagnosing and managing some chronic illnesses, such as diabetes and high-blood pressure. "We're going to be mandating that every single person in this state have insurance," said state Sen. Ed Hernandez (D-West Covina), chairman of the Senate Health Committee and leader of the effort to expand professional boundaries. "What good is it if they are going to have a health insurance card but no access to doctors?" Hernandez's proposed changes, which would dramatically shake up the medical establishment in California, have set off a turf war with physicians that could contribute to the success or failure of the federal Affordable Care Act in California.
Washington Post:
- Iran and Hezbollah build militia networks in Syria in event that Assad falls, officials say. Iran and Hezbollah, its Lebanese proxy, are building a network of militias inside Syria to preserve and protect their interests in the event that President Bashar al-Assad’s government falls or is forced to retreat from Damascus, according to U.S. and Middle Eastern officials. The militias are fighting alongside Syrian government forces to keep Assad in power. But officials believe Iran’s long-term goal is to have reliable operatives in place in the event that Syria fractures into separate ethnic and sectarian enclaves.
- U.S. said to be target of massive cyber-espionage campaign. A new intelligence assessment has concluded that the United States is the target of a massive, sustained cyber-espionage campaign that is threatening the country’s economic competitiveness, according to individuals familiar with the report. The National Intelligence Estimate identifies China as the country most aggressively seeking to penetrate the computer systems of American businesses and institutions to gain access to data that could be used for economic gain.
- Remember the Democrats' Outrage Over Waterboarding? Remember how outraged liberals said they were when they learned that three al-Qaida bigwigs were waterboarded? If so, you may wonder why liberals haven't been more vocal about the vague criteria the Obama administration uses to justify killing American citizens suspected of terrorism.
Financial Times:
- Radical rescue proposed for Cyprus. A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign bonds, according to a confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers. The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential elections in Cyprus later this month.
- Brussels fights US data privacy push. Europe’s most senior justice official is adamant she will fight US attempts to water down a proposed EU data protection and privacy law that would force global technology companies to obey European standards across the world.
- Merkel Adviser Warns Against Calling Euro Crisis Over. European remains in crisis because the recent improvement builds on a pledge by the ECB to buy unlimited bonds of distressed countries, Wolfgang Franz, who heads German Chancellor Angela Merkel's council of economic advisers, said in an interview with the German newspaper. "I don't dare say yet the worse is behind us in the crisis:" Franz says. The situation remains fragile, he said. Italian elections, Cyprus's future, Spain's problems and uncertainty about reform progress in Greece and Portugal are "considerable factors of uncertainty".
- German
Export Association Worries About Yen Weakness. Japan needs structural
reforms if it wants to be competitive in global markets in the long
term, Anton Boerner, president of Germany's BGA exporters' association, said. "We see the risk that Japanese companies will be able
to take away market share from German exporters because of changed
exchange rates," said Boerner. "The German trade industry disapproves of
the Japanese government's policy that essentially skirts the independence of the central bank and floods markets with yen," he said.
- Spain's Ruling Party Salaries Rose by 22% in 3-Years. According to statements from 2008-2011 posted on Spain's ruling People's Party website. Between 2008-2011 the party earned EU427m, of which 86% came from public subsidies.
- Spain's Linde Says Corruption Claims Unhelpful for Recovery. Bank of Spain Governor Luis Maria Linde said allegations of corruption in the government won't be helpful to the economy, though they won't have a decisive impact. The economy is fragile and it is difficult to make predictions, he said. Petrobras may sell assets outside Brazil to raise cash, may seek partners for projects to reduce its own investments.
- Petrobras(PBR) CEO Alerts Brazil's Mantega About Debt Levels. Maria das Gracas Foster, CEO of Brazil's state-controlled oil company, told Finance Minister Guido Mantega that Petrobras's leverage ratio will rise, citing a person familiar with the situation. The leverage ratio may increase to 3.5x Ebitda in 4Q if conditions don't change; would result in the co. losing its investment-grade ratings.
Weekend Recommendations
Barron's:- Bullish commentary on (CSX), (CAM), (NTAP), (FLR), (WEN), (KLAC) and (HSP).
- Bearish commentary on (DELL) and (HCA).
- Asian indices are -.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 114.0 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 88.0 -.5 basis point.
- FTSE-100 futures +.07%.
- S&P 500 futures +.06%.
- NASDAQ 100 futures +.09%.
Earnings of Note
Company/Estimate
- (L)/.29
- (CNA)/.05
- (DNB)/2.40
- (OMI)/.47
- (FWRD)/.50
- (MAS)/.00
- (BNNY)/.14
- (ASEI)/.57
- None of note
- None of note
- The Fed's Yellen speaking, EU Finance Ministers Meeting, UK PPI data, (SNCR) analyst meeting and the BIO investor conference could also impact trading today.
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