Tuesday, June 22, 2010

Tuesday Watch

Posted by Gary .....at 12:11 AM

Evening Headlines
Bloomberg:
  • Banks Must Keep Stake in Safest Loans in House Plan. Mortgage lenders would have to keep a financial stake in even the safest loans they offer under a U.S. House plan to amend legislation that would curb risk-taking by financial firms.
  • As Chinese Wages Rise, Machines Replace Migrant Workers. New minimum wage laws, a looser yuan and worker strikes like those at Honda Motor Co. are raising costs at factories in China’s Pearl River Delta, prompting companies to increase automation of assembly lines. Foxconn Technology Group, Nissan Motor Co.’s Chinese venture and VTech Holdings Ltd. said they are investing in factory equipment to reduce their reliance on labor. Wages in the region called the world’s factory floor increased 17 percent in the past six months, according to a survey by the government- backed Hong Kong Trade Development Council. Factory owners in China face declining profit margins from a rising yuan as the government drops a two-year policy that curbed the currency’s gain. Labor costs will probably bloat to 30 percent of gross domestic product in the next decade from 15 percent now, Morgan Stanley estimated this month. Higher wages in urban areas may cost companies about $1.5 trillion by 2015, according to Credit Suisse Group AG. “Factories need to think seriously about how they produce more with less,” said Ian Spaulding, Hong Kong-based managing director at INFACT Global Partners, which advises plant owners on China work practices. “Factories need to begin to enhance their productivity so that they are in a position to remain competitive.”
  • Central Banks Show Euro Losing Reserve Status as Loonie Gains. The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan. Reserve managers are joining private-sector investors including Pacific Investment Management Co., which runs the world’s biggest bond fund, in boosting allocations to nations with improving economies and the ability to reduce budget deficits after the European Union was forced to commit almost $1 trillion to prevent a sovereign default by Greece. The failure to coordinate fiscal policy among the 16 nations making up the euro increases the risk a country may leave the currency union, according to Andrew Balls, head of European portfolio management at Pimco, and Jim Rogers, chairman of Rogers Holdings. “The range of possible outcomes includes the preservation of the current euro-zone, albeit as a weaker entity unless urgent progress is made on a deeper fiscal union, or one or more euro-zone members restructuring their debt and also the possible exit of a current member country,” Balls wrote in a research report dated June 14. For reserve managers, the euro-area sovereign debt market has essentially shrunk to 20 percent of its previous size, with primarily German debt meeting central bank standards, said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford Connecticut. “The shrinkage in high quality euro assets that reserve managers can buy does significant damage to euro pretensions to be the largest reserve currency,” Ruskin said. “It puts a ceiling on how large a share the euro can gain as a reserve currency.”
  • Wall Street Is Close to Stiffing Overhaul: Roger Lowenstein. Backroom trading in Congress has put meaningful financial overhaul in jeopardy at the 11th hour. In two key aspects of the legislation, the Senate has refused to go along with the House version, undermining leverage limits on big, risky financial firms in the first instance and driving a knife through shareholder democracy in the second. One clause in the House bill would be singularly effective in preventing a repeat of the 2008 banking collapse. The other would close a 75-year-old loophole in American corporate governance, forcing boardrooms to, finally, become accountable to shareholders. Now, both are at risk.
  • Shell Pays Up for Bond Sale as Energy Debt Extends Losses: Credit Markets. Royal Dutch Shell Plc was penalized by the bond market in a $2.75 billion debt offering and Anadarko Petroleum Corp.(APC) notes tumbled on concern that the worst oil spill in U.S. history will depress profits across the industry. Investors demanded an extra 1.1 percentage points in yield over U.S. Treasuries to buy the five-year notes from Shell, compared with 0.89 percentage point for existing debt of similar maturity from the company, which is based in The Hague. Debt of Anadarko, owner of a 25 percent stake in BP Plc’s leaking well in the Gulf of Mexico, fell the most since June 9.
  • Goldman Sachs(GS) cuts 3-month copper target to $6,800 from $8,125 a ton. Goldman lowered its three-month price forecasts for copper, aluminum and zinc on weaker near-term fundamentals.
  • Korea's Sovereign Wealth Fund to Invest $200 Million in Chesapeake(CHK) Energy. Korea Investment Corp. will invest $200 million in Chesapeake Energy Corp. , the third-largest U.S. natural-gas producer, as the South Korean sovereign wealth fund seeks to diversify its portfolio. KIC joined other sovereign wealth funds Temasek Holdings Pte of Singapore and China Investment Corp., as well as private equity firms Hopu Investment Management Co. and Li Ka Shing (Canada) Foundation in the investor group that bought a total of $900 million of 5.75 percent convertible preferred stock on June 18, Chesapeake said today in a statement.
  • Bets Against U.S. Materials Companies Surge in Options Market. Trading of bearish options on U.S. materials and chemicals companies surged after an investor bet that the industry’s shares will fall in the next month. More than 73,000 puts on the Materials Select Sector SPDR Trust changed hands, seven times the four-week average and the most since May 4. An investor bought 30,000 of the July $32 puts while selling the same amount of July $30 puts, a spread trade that pays the most if the stock falls below the lower strike price by July 16. “The trading implies that the investor is speculating on near-term weakness,” options strategists at Susquehanna International Group LLP in Bala Cynwyd, Pennsylvania, said in a report sent to clients today.
  • California Senate Budget Plan Calls for Oil-Production Tax, Prisoner Shift. California would move some of its prisoners to county jails and increase the share of welfare payments made by the counties under a proposal by Senate Democrats to plug the state’s $19.1 billion budget deficit. The funding for those services would come from sources including $1.2 billion annually from a levy on oil production in the state and $1.75 billion saved by delaying corporate tax breaks. Both of those revenue streams would go to the counties. The Senate Democrats introduced their initial budget plan, which called for the higher taxes, last month.
  • China's Restrictions on Rare Earths Said to Be Targeted by U.S. China’s restrictions on the export of rare earths used in the manufacture of cell phones and radar are being targeted by the U.S. Trade Representative for a potential trade case, according to industry representatives. The U.S. has asked business groups and unions to provide evidence that China is hoarding these elements for a case that may be filed at the World Trade Organization, according to the people, who asked not to be identified because the talks were confidential. China controls 97 percent of production of the materials, known as rare earth elements, giving it “market power” over the U.S., the Government Accountability Office said in a report in April. China restricts exports of the elements through quotas and export taxes of as much as 25 percent, the GAO said. “The export restraints can artificially lower China’s domestic prices for the raw materials due to significant domestic oversupply,” the U.S. trade office said in its annual report on overseas trade barriers in March. Rare earths are a group of 17 chemically similar metallic elements, including lanthanum, cerium, neodymium and europium. The U.S. was self-sufficient in these materials until the mid- 1980s, when lower labor and regulatory costs helped China’s climb to dominance, the U.S. Geological Survey said in a report. The elements are used in radar, high-powered magnets, mini hard-drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines.
  • Wal-Mart(WMT) Plans to Work With Chicago to Build Dozens of Stores. Wal-Mart Stores Inc. said it plans to work with the city of Chicago to build several dozen stores in the area over the next five years as it seeks new avenues for growth in the U.S.
  • Korea Keeps Emerging Market Status as MSCI Skips Upgrade for Second Year. South Korea was kept as an emerging market at MSCI Inc. as the index provider skipped the nation for an upgrade for a second year. Taiwan, also under a similar review, also retained its status as a developing market.
  • Commodity Gains on Changes to Yuan May Be 'Knee-Jerk' Move, StanChart Says. The biggest jump in commodities in a week after China signaled it will relax the yuan’s peg to the dollar is a “knee-jerk” reaction and investors should focus on prospects for slower growth, Standard Chartered Bank said. “People’s knee-jerk reaction is always: a yuan appreciation will lead to more imports of bulk commodities, but our analysis of empirical data showed there’s no firm causal relation between the two,” Judy Zhu, an analyst at Standard Chartered Bank, said in a phone interview from Shanghai yesterday. China growth, the engine of the global economic recovery, will slow to 9.6 percent in the third quarter and 9 percent in the following three months, from 10.5 percent in the second quarter, according to as many as 21 economists surveyed by Bloomberg. The government wants to cool real-estate speculation and imports of copper, aluminum and nickel fell in May from a year earlier, customs data yesterday showed. “As the yuan appreciation is also a tightening policy for the economy, the initial enthusiasm will likely fade” in commodities, Wang Tao, an analyst at UBS AG in Beijing, said in a report June 20. “Some commentators say this move is positive for commodities. We disagree,” Qu Hongbin, chief China economist at HSBC Holdings Plc, said in a June 20 note. Refined-copper imports by China declined 9.7 percent in May from April, falling for a second month, according to Bloomberg data. “China is still an economy in transition which relies on exports as its main driver, so a revaluation may hurt the economy and affect the government’s efforts to fine-tune growth,” said Dong Shuzhi, an analyst at Jinshi Futures Co., said by phone from Shanghai yesterday.
  • Existing U.S. home sales climbed in May for a third month as buyers took advantage of the remaining weeks of a tax incentive, says economist Ian Shepherdson at High Frequency Economics Ltd. Judging from the recent drop in mortgage applications, sales may plunge in coming months. Financing requests for home purchases plunged 42% from late April through early June, to levels last seen at the start of 1997. Purchases may hold up in June because buyers still had time to make the June 30 closing date to qualify for the credit. Then, beginning in July, sales will tumble, Shepherdson said. "The summer is going to be dreadful because the tax credit pulled activity from the summer into the spring," Shepherdson, the chief U.S. economist at the Valhalla, NY-based research group, said. "New lows do seem entirely possible," he wrote in a note to clients.
Wall Street Journal:
  • Shahzad Admits Trying to Bomb Times Square. A Pakistani-born U.S. citizen, calling himself "a Muslim soldier" avenging U.S. attacks in Muslim countries, admitted Monday that he tried to detonate a crudely made car bomb in New York's Times Square in May. Faisal Shahzad, of Shelton, Conn., pleaded guilty in federal court in Manhattan to a 10-count indictment that included charges of conspiracy to use a weapon of mass destruction, attempting an act of terrorism and transportation of an explosive. He faces life in prison when he is sentenced.
  • The Obama Speech We're Waiting For. Fannie Mae and Freddie Mac Need to Get the BP Treatment.
  • France, Germany Seek Global Pact on Financial-Market Tax. The French and German governments Monday reiterated calls for an international agreement on a tax on financial transactions and a levy on financial institutions in a joint letter to Canadian Prime Minister Stephen Harper. Ahead of the meeting of the Group of 20 industrial and developing nations in Canada this week, French President Nicolas Sarkozy and German Chancellor Angela Merkel said both countries are also in favor of stricter regulations for over-the-counter derivatives and credit-default-swap markets.
  • A Tale of Two Disasters. Bush was blamed for local failures after Katrina. Obama got a free ride for weeks as federal failures mounted during the Gulf spill.
Bloomberg Businessweek:
  • Christie, N.J. Lawmakers in $29.3 Billion Budget Deal. New Jersey lawmakers reached agreement with Governor Chris Christie on a $29.4 billion budget that doesn’t boost the highest U.S. property-tax bills in the U.S. “This budget stays true to the principles I originally outlined, keeping spending within our means and restoring fiscal order without raising taxes,” Christie, a Republican who took office in January, said in a statement today.
NY Post:
  • Obama's Climate Rx: All Pain, No Gain. The cap-and-trade bill that the House passed last summer aims to force Americans to reduce those dreaded carbon emissions by 83 percent in less than four decades -- to the same per-capita level as 1867. Yet, even under the Al Gore-approved climate-science models, the bill would do nothing to stop global warming. The bill is 1,000-plus pages of rules, regulations, handouts, subsidies and whatever else House leaders deemed necessary. Not one of the 435 members read the whole monstrosity -- because the leadership dropped 300 new pages on their desks the night before they voted. Yet the central point is clear enough: The bill simply drives up the price of fossil-fuel based energy so high that the nation will have to somehow get along with only 17 percent of the gasoline and fossil-fuel-powered electricity that it uses today. Don't ask how much it will cost. No one really knows, since you can't put a price on something that has yet to be defined. Last Tuesday, President Obama cited the BP blowout as reason for the Senate to pass its version of the House bill. But senators know that expensive emission reductions are profoundly unpopular. Congress members found this out last summer when protests erupted nationwide within 24 hours of the bill's passage. Polls also suggest that a vote for the warming bill (especially on top of a vote for the health-care bill) is not a good way to keep a job in Congress this November. And, again, the bills (neither the House-like Kerry-Lieberman tome, nor the climate-change lite by Indiana's Sen. Richard Lugar) would do nothing measurable about climate change. The median guess from the United Nations is that, if we do nothing to change our ways, the average world surface temperature will rise about 5 degrees Fahrenheit this century. (In fact, the trends in recent decades strongly suggest that this is an overestimate -- but let's accept it for the sake of the argument.) Now, if only the United States does change its ways, by adopting something like the House bill, we'd prevent about two-tenths of a degree of that warming, according to the UN's climate calculator. That is, the temperature in 2100 gets reduced to what it would otherwise be in 2096. All pain, no gain. In eight years, China's annual totals will be equal to what they emit now plus everything we emit. So if we stopped emitting completely, China completely counters our effort. Add to that a simple fact which no cap-and-trade bill admits: That legislation would push even more of our industry into migrating to China, India and other nations that have no intention of reducing emissions by making energy more expensive. Bottom line: This legislation won't lower global temperatures -- but merely make life more expensive. It'll force you to buy things you don't want, like much more expensive cars, and to use energy sources you'd normally bypass, like ethanol, solar and windmills. All have to be massively subsidized -- with your tax dollars -- to compete with today's mix of coal, gasoline and natural gas.
NY Times:
  • The Tremors From a Coding Error. Investing is always an act of faith, but perhaps never more so than when you entrust your money to a quant fund, Jeff Sommer writes in his latest column in The New York Times. When you put your money into one of them, you are trusting not only that the overall strategy is sound, but also that its algorithms make sense and, furthermore, that they have been translated properly into computer code. But quants are humans. They make mistakes. When errors are embedded in computer code, they may go undetected for weeks, maybe even years. And once an error is discovered, it may take months to fix and even longer to determine its financial impact. This is precisely the headache faced by people who put their money in portfolios run by AXA Rosenberg, a quant subsidiary of AXA S.A., the French financial services giant.
  • Poll Finds Deep Concern About Energy and Economy. The latest New York Times/CBS News poll, which examines the public’s reaction to the oil leak in the Gulf of Mexico, highlights some of the complex political challenges the Obama administration faces. For instance, despite intense news coverage and widespread public concern about the economic and ecological damage from the gulf disaster, most Americans remain far more concerned about jobs and the nation’s overall economy. And in that regard, President Obama does not fare well: 54 percent of the public say he does not have a clear plan for creating jobs, while only 34 percent say he does, an ominous sign heading into this fall’s midterm elections. Respondents were nearly evenly split on the president’s handling of the economy — 45 percent approve, 48 percent disapprove. His job approval rating remains just below 50 percent. And by a nearly 2-to-1 margin, Americans think the country is on the wrong track. They are also impatient with Mr. Obama’s response to the oil disaster in the gulf, by a large margin.
Zero Hedge:
CNNMoney:
Institutional Investor:
StarTribune.com:
  • Hedge Fund Manager to Host Hamptons Fundraiser for Franken. First there was Aykroyd. Then there was Conan. The latest name on the Al Franken fundraising tour? Rosenstein. Not exactly a Hollywood legend, Barry Rosenstein is nonetheless a billionaire hedge fund manager who is slated to host a fundraiser for Franken at his home in the Hamptons on July 30. Rosenstein manages JANA Partners LLC, a fund based in San Fransisco and New York. He and his wife Lizanne (co-host of the fundraiser) have given generously to Democrats over the years, including about $2,600 to Franken's Senate bid. Like several similar fundraisers in recent months, the Rosenstein event will benefit "Franken MVPs," a joint fundraising political action committee that splits funds between Franken's campaign and his leadership PACs. The minimum donation to attend is $500, though giving $5,000 nets guests the title of "co-chair."
Politico:
  • Climate Trial Balloon Proves Explosive. The latest trial balloon for passing climate change legislation appears to be just as explosive as the others. Electric utilities are divided over the prospect of a bill that caps their heat-trapping emissions while shunning mandatory limits on transportation and heavy domestic manufacturers, like pulp and paper mills and chemical plants. Environmentalists also are concerned about the prospect of a more limited global warming bill than what they first envisioned, fearful it won’t come anywhere close to tackling the climate problem while still forcing Senate Democrats to make painful compromises that allow higher levels of traditional air pollutants like smog, soot and mercury. For now, the idea of a power plant-only bill is only in its infant stages. Senate aides are trying to count the votes for the alternative while gauging interest from downtown lobbyists and activists.
USA Today:
Reuters:
Financial Times:
  • Trichet's Fiscal Stance to Raise Hackles in US. Jean-Claude Trichet, the European Central Bank president, has put himself on a collision course with the US by arguing strongly that tighter fiscal policies are the best way to foster growth in industrialised economies. Firm control of government spending and tax policy was essential to restore the confidence of households, business and investors, Mr Trichet told the European parliament. “We are in a situation where a lack of confidence is operating against recovery,” he said. “A budget policy which from a certain point of view you might describe as restrictive is in fact a policy which we would call confidence building.” In London, Jürgen Stark, an ECB executive board member, said the bond purchases would be temporary and pledged that the ECB would not buy bonds on the same scale as the US Federal Reserve or the Bank of England. On fiscal policy, Mr Trichet reflected the ECB’s conviction that the beneficial effects of an expansionary stance were often exaggerated. If public finances were on an unsustainable path, Mr Trichet told the European parliament, “then households are going to be frightened. They are not going to spend or consume as much and companies will not prepare for the future and investors will know that they are going to have difficulty in getting a return on their money and will ask for higher interest rates”.
Telegraph:
  • Battered Eurozone Left Vulnerable to Crisis, Warns Fitch. The global crisis has revealed weaknesses in the eurozone's economic framework which left it particularly vulnerable to the downturn, Fitch has warned. The ratings agency said that although the risk of a eurozone break-up was low over the short to medium term, further episodes of "extreme market volatility" were likely to persist until the recovery and deficit reduction were secured in the region. A report by Fitch said the crisis in the eurozone and investor concerns over the sustainability of the region had arisen because of the existence of the following:
SkyNewsHD:
  • Banks Braced For Budget Crackdown. From what I’m hearing, the austerity Budget that George Osborne will present to parliament tomorrow is also going to be pretty austere for Britain’s banking industry. The most conspicuous manifestation of this will be through the introduction of a new £2.5bn annual levy that will target the biggest banks by taxing their balance sheets (minus their insured deposits and assets that count towards their core tier-one capital ratios). This will be along the lines of the model deployed in Sweden, a banking system for which the Chancellor has expressed admiration in the past. The banks are also expecting at least one measure targeted at the politically hot potato of industry bonuses, possibly through an extension of the Bank Payroll Tax announced by Osborne’s predecessor as Chancellor, Alistair Darling, in last December’s pre-budget report.
Russia Industry Ministry:
  • Russia may tax Chinese steel at 39%.
Yonhap News:
Securities Times:
  • China's property loans should be watched because the government has implemented intensive policies to control the market after rapid gains in home prices, citing an official with the China Banking Regulatory Commission. One prices have "settled", more consumers will buy homes.
China Daily:
  • China may allow the yuan to appreciate by as much as 3% if the country's exports rise by 20% next year and the global recovery continues, citing Zhou Shijian, an economist at Tsinghua University. A rapid rise in the Chinese currency would be a "death knell" for exporters, Zhou said. Yuan appreciation between October 2007 and July 2008 caused about 67,000 bankruptcies in the export sector, Zhou said.
China Securities Journal:
  • China's property tax reform may curb local government dependence on land auctions as a source of income, citing a research report from the State Information Center. Local governments would augment income through the tax as an alternative to seeking high prices at land auctions, the report said.
The Australian:
  • Mortgage Windfall Will End, Says NAB's Mark Joiner. A GOLDEN era of mortgage lending that helped Australia's top two banks earn "super profits" is destined to end, says a top banker. National Australia Bank chief financial officer Mark Joiner, in comments bound to create discord in the cosy banking industry oligopoly, said the financial crisis had removed effective competition in home lending, enabling Commonwealth Bank and Westpac to keep windfall gains arising from the transition to a new global accord on bank capital. Mr Joiner said adoption of the Basel II accord in 2008 had doubled the industry's average return on equity (ROE) for a home loan from about 22 per cent to a stunning 45 per cent. The sudden windfall arose because Basel II enabled banks to hold less capital against more secure home lending due to lower historical loss rates. "I find the national sport of bank bashing a bit ironic because it tends to focus on fees and the passing on of higher funding costs, when the real windfall relates to neither of those issues," Mr Joiner told The Australian. He predicted home lending ROEs would revert to past levels, helped by planned federal government reforms to cut expensive mortgage exit fees, making it easier for clients to switch banks. NAB's critics will say Mr Joiner's blunt commentary directly serves the bank's interests, and invites government intervention to reinvigorate competition. But NAB's numbers man further raised the stakes, endorsing BHP Billiton chairman (and former NAB chief executive) Don Argus's criticism in March that the nation's top banks had become giant building societies. "If you get a 45 per cent ROE in home lending, why would you do anything else, particularly when the industry is looking at a period of constrained balance sheet growth?" Mr Joiner said. "Australia should have a balanced economy; not a big skew to mortgage or business lending."
Evening Recommendations
Citigroup:
  • Upgraded (FTI) to Buy, target $69.
  • Reiterated Buy on (AMZN), target $175.
Night Trading
  • Asian equity indices are -.75% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 121.0 +.5 basis point.
  • Asia Pacific Sovereign CDS Index 117.75 -7.5 basis points.
  • S&P 500 futures +.05%.
  • NASDAQ 100 futures +.14%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (GRB)/.05
  • (CCL)/.29
  • (CMC)/-.11
  • (WAG)/.57
  • (JEF)/.34
  • (JBL)/.33
  • (PRGS)/.35
  • (FUL)/.38
  • (ADBE)/.43
  • (RHT)/.18
Economic Releases
10:00 am EST
  • Existing Home Sales for May are estimated to rise to 6.12M versus 5.77M in April.
  • The House Price Index for April is estimated to rise +.3% versus a +.4% gain in March.
  • Richmond Fed Manufacturing Index for June is estimated to fall to 20.0 versus a reading of 26.0 in May.
Upcoming Splits
  • (DLTR) 3-for-2
Other Potential Market Movers
  • The weekly retail sales reports, Geithner's testimony before the Congressional Oversight Panel on TARP, ABC Consumer Confidence index, Jefferies Consumer Conference, (FSL) analyst meeting, (RENT) investor day and the $40 Billion 2-Year Treasury Note Auction could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
1 comments

Monday, June 21, 2010

Stocks Reversing Lower into Final Hour on Rising Sovereign Debt Agnst, Regulatory Fears, US Housing Worries, Profit-Taking

Posted by Gary .....at 3:53 PM

Broad Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 23.91 +2.21%
  • ISE Sentiment Index 122.0 +7.02%
  • Total Put/Call .90 +4.65%
  • NYSE Arms .82 -14.28%
Credit Investor Angst:
  • North American Investment Grade CDS Index 105.82 bps -3.88%
  • European Financial Sector CDS Index 132.86 bps -1.04%
  • Western Europe Sovereign Debt CDS Index 133.0 bps +6.26%
  • Emerging Market CDS Index 251.78 bps -.05%
  • 2-Year Swap Spread 33.0 -2 bps
  • TED Spread 43.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .10% +1 bp
  • Yield Curve 253.0 +2 bps
  • China Import Iron Ore Spot $144.30/Metric Tonne +.14%
  • Citi US Economic Surprise Index -15.10 +.7 point
  • 10-Year TIPS Spread 2.04% +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating -68 open in Japan
  • DAX Futures: Indicating -36 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Technology and Retail long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows despite large gains in overseas stocks. On the positive side, Coal, Ag and Steel stocks are outperforming, rising .75%+ on the day. Oil is falling slightly, despite the morning rise in the euro, Iran saber-rattling, China's currency move, the ramifications of the oil spill, an upgrade to hurricane season expectations and overseas equity gains. Copper is rising another +1.6%. On the negative side, Airline, Retail, Hospital, Internet and Gold shares are especially weak, falling 1.5%+. The tech sector, which had been a leadership group is also under pressure today, with leaders especially weak. It is a big negative to see Greece sovereign debt angst remain stubbornly high despite Europe's recent actions. The Greece sovereign cds is rising another +4.4% to 853.5 bps. I disagree with the market's initial bullish interpretation of China's overnight yuan move. I think the move was mainly related to Chinese fears of a significant slowdown in export growth related to US job/housing weakness and European austerity measures. With wages rising meaningfully and protectionism rampant in China, the currency move will only make China even less attractive for multi-national manufacturing operations. I also suspect Chinese consumer spending will be much less robust than most analysts expect as a result of recent developments. I expect US stocks to trade modestly lower into the close from current levels on profit taking, regulatory fears, technical selling, rising US housing worries, increasing sovereign debt angst and more shorting.

2 comments

Today's Headlines

Posted by Gary .....at 3:10 PM

Bloomberg:
  • Bond Sales Make Comeback as Swap Spreads Narrow: Credit Markets. Corporate bond sales are back to levels not seen since April as interest-rate swap spreads show investors are gaining confidence that Europe’s debt crisis is contained. Investors put $164 million in high-yield bond funds in the week ended June 16 after withdrawing $6.27 billion in the five previous periods, according to EPFR Global, a Cambridge, Massachusetts-based research firm that tracks asset allocations. One measure of investor fear, two-year interest-rate swap spreads, fell to 33.93 basis points today, the narrowest since May 13 and down from 52.25 on May 24. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, declined 4.5 basis points to a mid-price of 105.4 basis points as of 11:48 a.m. in New York, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings fell 5.1 basis points to 112.5, Markit prices show.
  • Corn Falls as Push Below Technical Levels Triggers Sell Orders. Futures for July delivery dropped below the 50-day moving average of $3.6175 a bushel and the 40-day moving average of $3.60375 a bushel, said analyst Jerry Gidel. The price then dropped through the 30-day moving average of $3.58 a bushel. As prices declined past each technical level, automatic sell orders were triggered, Gidel said. “Pulling back below Friday’s close is surprising to me,” said Gidel, a market analyst at North American Risk Management Service in Chicago. “Maybe we were a little optimistic and got overenthusiastic this morning” after China said on June 19 that it would end the yuan’s peg to the dollar, he said. Corn futures for July delivery fell 7 cents, or 1.9 percent, at $3.5375 a bushel at 11:45 a.m. on the Chicago Board of Trade.
  • Democrats Use Oil Spill to Push Energy Bill, McConnell Says. President Barack Obama and Democratic lawmakers are trying to “seize on a crisis” to pass a “national energy tax,” Senate Republican Leader Mitch McConnell said. Legislation that charges power plants, factories and oil refineries for carbon dioxide and other greenhouse gases released into the atmosphere “doesn’t have anything to do with an oil spill in the Gulf,” McConnell, a Kentucky Republican, said yesterday on the “Fox News Sunday” program. Senate Democrats plan to bring up legislation next month that responds to the BP Plc oil spill in the Gulf of Mexico and boosts alternative energy sources such as windmills and solar panels.
  • Louisiana Governor Asks Judge to Lift Drilling Ban. in papers filed yesterday in federal court in New Orleans. Louisiana Governor Bobby Jindal and state Attorney General Buddy Caldwell asked a U.S. judge to lift a six-month moratorium on deepwater drilling in the Gulf of Mexico within 30 days to avoid “turning an environmental disaster into an economic catastrophe.” The drilling ban may cost Louisiana’s economy, “which was already weakened by Katrina and is now crippled by the Deepwater Horizon disaster,” almost 11,000 direct and indirect jobs in five months, Caldwell saidDeepwater rigs probably will ship out for work overseas during the U.S. ban, Caldwell said, so “there will likely be no deepwater rigs available to resume drilling in the Gulf of Mexico. Having to wait an additional year or more for available rigs will turn the short-term adverse effects of the moratorium into a long-term economic disaster for Louisiana.”
  • Brazil's Petrobras(PBR) Will Invest $224 Billion 2010-2014. Petroleo Brasileiro SA, the Brazilian state-controlled oil company, plans to invest $224 billion through 2014 as it seeks to develop the Americas’ largest discovery in three decades and more than double output. About 95 percent of the plan will be invested in Brazil, the Rio de Janeiro-based company said today in a regulatory filing. Petrobras said it expects to raise $58 billion through debt and equity sales over the five-year period, including a planned share sale this year. It plans to spend about $118 billion on oil exploration and production. Petrobras is looking to fund the development of offshore reserves in the so-called pre-salt region off Brazil’s coast, home to discoveries including Tupi, the largest find since Mexico’s Cantarell in 1976. Chief Executive Officer Jose Sergio Gabrielli plans to double output to 5.38 million barrels a day by 2020, compared with 2.7 million barrels in 2010.
  • SEC Sues ICP Asset Management, Priore, for Triaxx CDO. ICP Asset Management LLC and its founder were sued by U.S. regulators for their role in selling mortgage-backed securities to vehicles insured by American International Group Inc. as the housing market declined. Thomas Priore, 41, and New York-based ICP directed more than $1 billion of trades starting in 2007 by multibillion- dollar collateralized-debt obligations known as Triaxx at artificially high prices to protect other clients from losses or generate profits for ICP, the Securities and Exchange Commission said in a lawsuit filed today at federal court in New York.
  • FAA's Aviation Revamp Puts Taxpayer Dollars at Risk, U.S. Says. A $40 billion overhaul of the U.S. aviation control network may put tax dollars at risk as regulators have so far failed to set realistic goals and coordinate with other agencies, a government report said.
  • States Probe Google(GOOG) Data-Gathering, Blumenthal Says. Connecticut Attorney General Richard Blumenthal said his office will lead a multistate investigation into Google Inc.’s unauthorized collection of personal data from wireless computer networks.
  • Germany Rejects Obama's Call on Growth, Stoking G-20 Conflict. Chancellor Angela Merkel’s government rebuffed U.S. calls to focus on bolstering growth over debt reduction, setting a course for conflict at the Group of 20 summit in Canada this week. “Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” Finance Minister Wolfgang Schaeuble told reporters in Berlin today alongside Merkel. “That’s why they have to be reduced.”

Wall Street Journal:
  • Anadarko(APC) Would Take Huge Hit If Forced To Pay Into BP's(BP) $20 Billion Oil Spill Fund.
  • Cost To Insure Anadarko(APC) Debt Rises On Downgrade, Sparring With BP(BP). The cost of protecting Anadarko Petroleum Corp. (APC) debt from nonpayment rose Monday after the company accused BP PLC (BP, BP.LN), its partner in the leaking Gulf of Mexico oil well, of gross negligence and saw its long-term debt rating from Moody's Investors Service cut to junk. Protection in the form of credit default swaps rose to 4 points upfront from 3 points Friday, meaning someone buying insurance on $10 million of Anadarko debt for five years would have to pay $400,000 upfront on top of annual payments of $500,000. The upfront payment Monday was $100,000 more than it was on Friday. Moody's downgraded Anadarko on Friday to Ba1 from Baa3, citing its nonoperating stake in the well and therefore its share in the escalating cleanup costs and potential fines.
Barron's:
CNBC:
Business Insider:
Zero Hedge:
Rasmussen Reports:
  • Congress Still Receives Poor Ratings From Voters. Though voters see more action from Congress, they continue to give the legislature poor ratings. The latest Rasmussen Reports national telephone survey of Likely Voters shows only 12% give Congress’ performance good or excellent ratings. The majority (56%) gives Congress a poor rating.
Reuters:
  • Baltic Index Fall Further, China Demand Soft. The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, fell for an 18th day to its lowest level in over three months on Monday as sluggish demand weighed on sentiment. The index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertiliser, fell 3.45 percent, or 93 points, to 2,601 points in its 18th consecutive fall to reach its lowest since Feb. 16. "Higher raw material costs on iron ore and lower selling prices for steelmakers are dampening importers' demand for iron ore, thus the level of fixtures is being reduced negatively, impacting dry bulk rates," Lorentzen & Stemoco said in a report. Analysts said easing port congestion could also put pressure on freight rates especially in the absence of stronger demand. More broadly, industry concerns over the pace of global economic recovery could hit shipping, given that about 90 percent of the world's traded goods by volume are transported by sea. Analysts said freight rates also could be dampened this year by concerns over the rising number of new ships set to enter the market in 2010 and 2011, despite indications of some vessel cancellations and delays. SSY's Langston estimated net fleet growth at 68 million deadweight tonnes (dwt) this year, versus 38 million dwt in 2009 and 27 million dwt in 2008. 85 capesize ships had already been delivered this year compared with 112 for the whole of 2009. "This year we think we are going to see over 200 capes."

Financial Times:
  • US Housing 'Double Dip' Fears Grow. Steve Romeyn, a builder in the northern suburbs of Atlanta, Georgia, is feeling increasingly alone in his industry. “There are many, many builders who have gone out of business . . . a lot of them are working at Home Depot now,” says Mr Romeyn, managing partner at Windsong Properties in Woodstock, Georgia. Fortunately for Mr Romeyn, his company has been somewhat insulated from the problems facing its rivals, as Windsong builds communities for adults over the age of 55, who tend to be more financially stable. Windsong’s fortunes have also been helped by an $8,000 (€6,460, £5,400) tax credit for first-time homebuyers put in place last year and extended to the end of last April. Before the deadline, Mr Romeyn’s business benefited as retirees were able to sell their homes more easily, allowing them to move into his adult communities. Now the tax credit has run out, that momentum has slowed dramatically. “In the last four weeks I’ve seen very weak traffic and weaker activity,” says Mr Romeyn. “It’s not encouraging and it means we’ll have to work even harder to convince people to move forward with their purchases.” In May, new residential home construction in the US fell by 10 per cent to a seasonally adjusted rate of 593,000 units, its lowest level in five months, the commerce department said last week. Economists expected to see an impact from the ending of the tax credit, but not such a steep drop. If the weakness continues, the likely conclusion will be that the tax credit brought forward demand from aspiring homeowners but failed to spur a more fundamental improvement in the housing market. One of the biggest restraints on the housing sector is persistently high unemployment. With joblessness at 9.7 per cent, and expectations that it will improve only gradually over the course of this year and next, homeownership will remain an elusive goal for many Americans. This is particularly true given that credit conditions for home loans remain tight, with many buyers expected to pay at least 20 per cent in equity up front – a huge difference compared to the boom years when mortgages were easy to secure. Meanwhile, home prices have continued to drop as many houses are being sold out of foreclosure or at distressed values. According to the widely followed Standard and Poor’s/Case-Shiller index, home prices across the US actually rose by 2 per cent over the year to March. However, they fell in the fourth quarter of last year by 1 per cent, and the pace of decline accelerated to 3.2 per cent in the first quarter of this year. Mr Logan says falling prices remove one of the main motivations for people to buy a house, which is the chance to own a home that is also a good investment.
Handelsblatt:
  • Germany's support for renewable energy is "breaking" the nation's ability to pay for power and threatens the competitiveness of electricity producers, citing a former industry group leader. Guaranteed prices for solar and wind power, paid for by consumers, are threatening the renewable-energy industry's ability to compete, citing Johannes Lackmann, the former head of Germany's BEE renewable-energy lobby group.
Cinco Dias:
  • Spain's Development Ministry will cut 40 public works contracts as it tries to reduce spending on government projects by $4 billion this year and next. The Ministry will have the list of contracts to be suspended ready in coming weeks.
0 comments

Bear Radar

Posted by Gary .....at 2:13 PM

Style Underperformer:
  • Small-Cap Growth (+.09%)
Sector Underperformers:
  • Gold (-2.39%), Hospitals (-.96%) and Retail (-.65%)
Stocks Falling on Unusual Volume:
  • PSEC, TLB, PSS, ECLP, TLK, PANL, CPKI, GIII, RIMM, OPEN, ULTA, OVTI, AGAM, MNRO and MDAS
Stocks With Unusual Put Option Activity:
  • 1) NKE 2) LLY 3) TRV 4) GIS 5) SLW
Stocks With Most Negative News Mentions:
  • 1) BP 2) RIG 3) APC 4) HOS 5) GS
0 comments

Bull Radar

Posted by Gary .....at 11:14 AM

Style Outperformer:
  • Small-Cap Value (+1.02%)
Sector Outperformers:
  • Coal(+4.36%), Steel (+3.33%) and Papers (+2.17%)
Stocks Rising on Unusual Volume:
  • IVN, AA, CHU, AIXG, AIPC, HMIN, ISLN, CTRP, NTES, SINA, CENX, AMGN, BIDU, SYNA, BVF, BAP and SHI
Stocks With Unusual Call Option Activity:
  • 1) XRX 2) HNZ 3) AFFY 4) EMC 5) STEC
Stocks With Most Positive News Mentions:
  • 1) AAPL 2) HJZ 3) ITT 4) BKS 5) JOSB
0 comments

Monday Watch

Posted by Gary .....at 12:10 AM

Weekend Headlines
Bloomberg:
  • China's Hu Buys Time on Yuan Valuation by Announcement Before G-20 Summit. Chinese President Hu Jintao may have succeeded in removing the yuan’s valuation from debate at this week’s Group of 20 leaders’ summit, economists and political analysts say. How much time he’s bought depends on how flexible the currency will become.
  • Chinese Exporters Unable to Take Big Yuan Gains, Newspaper Editorials Say. China’s exporters are unable to withstand large fluctuations in the yuan, Chinese newspapers including the China Securities Journal and China Daily wrote today after the central bank pledged greater flexibility for the currency. External demand remains “uncertain,” and shipments may fall in the second half because of the European debt crisis, the China Securities Journal, the nation’s largest financial newspaper, wrote in an editorial. Large yuan gains against the dollar combined with the European crisis would create a “double whammy” for exports, it wrote. The possible effects of the European debt crisis shouldn’t be overlooked because of better-than-expected export data for May, the China Securities Journal wrote. Weak global demand and rising labor costs will increase the difficulty Chinese exporters have in dealing with yuan appreciation, the China Daily wrote in an editorial.
  • Toyota, Honda Raise China Wages as Yuan's Flexibility to Threaten Profits. Toyota Motor Corp. and Honda Motor Co. sacrificed earnings in China by raising wages to end strikes last week, and the government’s decision to allow greater flexibility in the yuan’s exchange rate may further erode profit if the move leads to an appreciation of the currency. Foreign manufacturers in China, including the Japanese carmakers and Taiwan’s Foxconn Technology Group, are spending more on labor. Foxconn, which makes iPhones for Apple Inc., said it will double salaries for its lowest-paid workers after at least 10 Chinese employees killed themselves this year. A stronger Chinese currency will add to operating costs for foreign businesses, whose margins are already under pressure from rising wages, said David Cohen, director for economic forecasting at Singapore-based Action Economics.
  • Bond Sales Stage Comeback as Interest-Rate Swaps Decline: Credit Markets. Corporate bond sales are back to levels not seen since April as interest-rate swap spreads show investors are gaining confidence that Europe’s debt crisis is contained.
  • Fitch Says Next Two Months to Test Kan's Will to Cut Record Japanese Debt. Japanese Prime Minister Naoto Kan’s debt-fighting credentials will be tested over the next two months as he releases a fiscal strategy and his party contests mid-term elections, Fitch Ratings said. “It’s early days for his government, so the intention is there, but it remains to be seen how strong the consensus is” among politicians and the electorate, Andrew Colquhoun, Hong Kong-based director at the company’s Asia-Pacific sovereign group, said in an interview in Tokyo today. “The next two months is quite an important period.” Kan, who took office this month, is scheduled to unveil his plan for containing the world’s biggest public debt this week before facing upper house elections on July 11. He has indicated that he may raise the nation’s consumption tax to 10 percent, a statement surveys show has hurt his approval ratings and signals he may meet resistance to his debt-cutting plans. The outcome of the ballot and release of Kan’s fiscal road-map “will give us information about what political appetite is in Japan for fiscal consolidation, or if it’s there,” Colquhoun said. Colquhoun said today that while the outlook on Japan’s AA- credit rating, the fourth highest, remains stable, it could come “under downward pressure” if the government doesn’t achieve a “credible” fiscal plan. Kan will not only need fiscal targets but also a detailed roadmap of how he intends to achieve them, he said.
  • Chinese Turbine Makers Face 'Tough Situation' After Goldwind Shares Slump. Investors’ interest in Chinese wind companies may be slowing after Xinjiang Goldwind Science & Technology Co., China’s second-largest wind turbine maker, shelved a share sale in Hong Kong, analysts said. Goldwind shares declined 4.9 percent to 18.09 yuan at 11:12 a.m. in Shenzhen. The stock slumped by the daily limit of 10 percent on June 18, the first day of trading after the company canceled a plan to raise as much as HK$9.09 billion ($1.2 billion) in Hong Kong, citing poor market conditions. Global investment in wind power eased during the economic slump in the U.S. and Europe, lowering the prices paid for wind farms, according to Bloomberg New Energy Finance. Turbine makers are most at risk of a slowdown as overcapacity narrows margins, said Justin Wu, an analyst for the research group.
Wall Street Journal:
  • BP(BP) Blunted U.S. Demand. BP PLC, despite being put under pressure by the U.S. government to pay for the oil-spill aftermath, has succeeded in pushing back on two White House proposals it considered unreasonable, even as it made big concessions, said officials familiar with the matter.
  • Global Grain Surplus Sows Trouble. Two years after the global food crisis peaked, grain shortages are turning into surpluses that could create their own problems. Some traders and economists are speculating that if the U.S. and world economies don't heat up soon, surpluses could turn into price-depressing gluts.
  • The New Bank Fees: How to Fight Back. Bank on it: Higher fees, and more of them, are coming soon to a financial institution near you.
  • ObamaCare and the Independent Vote. Voter opposition hasn't changed, and it could be decisive in November. The Democrats made a strategic choice to pass health reform even though they knew it did not have majority support. They assumed passage would generate a positive initial response from the media—which it did. They also hoped that, with time, voters would see reform in a more favorable light, and that health care would not pose an issue in the midterm elections. Were the Democrats right? If our polling is correct, they were not.
IBD:
NY Times:
  • Cost of Seizing Fannie and Freddie Surges for Taxpayers. Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords. For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix. The Congressional Budget Office predicts that the final bill could reach $389 billion.
CNNMoney:
  • Docs' Win on Medicare Too Late to Stop 21% Cut. Doctors who receive Medicare payments won a round Friday in their bid for a raise - but first they'll suffer a big cut in their government reimbursements. The Centers for Medicare & Medicaid Services said that after waiting since May for congressional approval, it can't wait any longer. So it is processing all claims from June 1 up till now. "This is the largest reduction that the doctors' payment has ever experienced," said centers spokesman Peter Ashkenaz. With their future payments still uncertain, physicians found little reason to rejoice over the Senate approval.Heim said she knows physicians who "already decided that they could no longer continue to see Medicare patients if the cut went through. There are other physicians that I've heard from who have decided to stop taking Medicare patients." "This is really outrageous," she added. The American Medical Association also weighed in. "Congress is playing Russian roulette with seniors' health care," said AMA President Dr. Cecil B. Wilson. "Congress has finally taken its game of brinkmanship too far, as the steep 21% cut is now in effect and physicians will be forced to make difficult practice changes to keep their practice doors open." More than 43 million Americans receive medical care through Medicare.
  • Wall Street Reform Comes Down to the Wire. With one week down and one week to go on negotiations melding the two Wall Street reform bills, lawmakers have a lot of tough decisions ahead.
Business Insider:
  • Apple(AAPL): FaceTime Video Calls Won't Use Your Carrier Minutes. Good news: Apple's new FaceTime video calls won't use up your allotment of carrier minutes, even if they're initiated from within a voice call, an Apple rep tells us. "The voice call ends as soon as the FaceTime call connects," Apple tells us. "The FaceTime call is over Wi-Fi so does not use carrier minutes."
  • David Kotok: BP Oil Spill Will Cause 1 Million Permanent Lost Jobs. David Kotok of Cumberland Advisors is out with the latest in his sobering, but must-read OIl Slickonomics series. This time he does some math on the direct economic impact on Gulf States. We estimate that an extended moratorium, which we now expect to continue because of Obama political calculus, will cost up to 200,000 higher-paying jobs in the oil drilling and oil service business and that the employment multiplier of 4.7 will put the total job loss at nearly 1 million permanent employment shrinkage occurring over the next few years. Five states have a regional recession/depression development underway. Alaska could become the sixth state on the damaged list.
Zero Hedge:
Washington Post:
LA Times:
  • Congress to Weigh Regulation of Financing by Auto Dealers. Dealers say that they're just trying to help customers secure loans and that they're already covered by anti-fraud regulations. Heading into the final stages in overhauling financial regulations, a joint congressional committee is ready next week to tackle one of the thornier issues — whether car dealers will be regulated by a proposed consumer protection agency. The joint conference committee is wrestling with the role dealers play in auto financing and the discretion they have to set terms.
Pittsburgh Tribune-Review:
  • Invisible Stimulus. Lots of spending, very little stimulus. President Obama may parachute in sporadically for invitation-only town hall meetings to promote "Recovery Summer," but that doesn't count as real in flyover country. The administration's six-week push to reinvigorate its stimulus narrative will showcase jobs in stimulus-funded projects to improve highways, parks and other public works. Yet stimulus dollars never hit the ground here. "We didn't receive any of the stimulus money," says Leadville Mayor Bud Elliot. "We weren't eligible because we are considered too poor of a community." Elliott, a Democrat, says the American Recovery and Reinvestment Act was "designed to help large cities, not small-town America."
Boston Globe:
  • Summers Cites Recovery, Risks. He offers cautious view of conditions. The US economy has probably begun a lasting recovery, but the outlook has become more uncertain in recent weeks in the face of the European debt crisis, gyrating stock markets, and weaker-than-expected job growth, said Lawrence Summers, President Obama’s top economic adviser.
Christian Science Monitor:
  • Jones Act: Maritime Politics Strain Gulf Oil Spill Cleanup. Pressure is building for President Obama to lift a 1920 protectionist law so that high-tech foreign oil skimmers can help with the Gulf oil spill. Why are 1,500 available US oil skimmers not on the scene? The Coast Guard Friday "redoubled" efforts to keep the Deepwater Horizon oil spill from impacting Gulf states by calling in more skimming boats and equipment from the Netherlands, Norway, France, and Spain after previously telling one Dutch official "Thanks, but no thanks," to an offer of help. That revelation comes as Florida lawmakers beg for more skimmers to ward off Gulf spill oil approaching the state's white sand beaches and the Unified Command – led by Coast Guard Adm. Thad Allen – struggles with chain-of-command issues as BP changes its on-scene leadership. The news of more foreign ships steaming toward the Gulf also comes amidst a heated political debate over the role of the 1920 Jones Act, a protectionist law that prohibits foreign-flagged boats and crews from doing port-to-port duty within 3 miles of the US coast. On Friday, Sen., Kay Bailey Hutchinson (R) of Texas filed legislation to waive the Jones Act to welcome more high-tech foreign clean-up boats, saying the Jones Act is standing in the way. White House spokesman Robert Gibbs said last week "that we have not had [a] problem" with the Jones Act. At the same time, US marine interests complain that up to 1,500 US-flagged skimmers sit idle, and should be used first.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
Politico:
  • Chances Dim for Swift 9/11 Decision. Attorney General Eric Holder said the decision over where to hold the trial for alleged 9/11 plotter Khalid Sheikh Mohammad was “weeks away” — three months ago. Now advocates on both sides of the issue say they expect the Obama administration to punt the decision until after the November midterm elections— when the controversial plan could do less damage to the political fortunes of endangered Democrats and might face less resistance on Capitol Hill.
  • Gates Downplays Biden Pledge, Afghan Violence. Defense Secretary Robert Gates on Sunday contradicted Vice President Joe Biden’s pledge that in July 2011 “a whole lot” of U.S. forces will be leaving Afghanistan. “That absolutely has not been decided,” Gates said on "Fox News Sunday," adding, “I also haven’t heard Vice President Biden say that, so I’m not accepting at face value that he said those words.”
St. Petersburg Times:
  • Florida Rolls the Dice With Chunk of Pension Funds. Chasing bigger investment returns, the agency that manages Florida's $113.8 billion public pension fund wants to make far riskier investment bets. The state wants to reduce the pension fund's holdings in publicly traded stocks and bonds and triple its allocation to hedge funds and other private investments that are less liquid and harder to value. Earlier this month, the head of the State Board of Administration told his bosses that rearranging the state's portfolio would benefit the nearly 1 million public employees and retirees who depend on the fund, as well as the taxpayers who underwrite the system.
Financial Times:
  • More of Europe's Banks Face Stress Test. More European banks face stress tests to assess their health, officials acknowledged on Friday amid warnings that publishing detailed test results for the continent’s biggest financial institutions may not fully quell investor concerns. European Union leaders have agreed to publish stress test results for 26 banks next month – an unprecedented attempt to restore market confidence battered by weeks of worry about high levels of eurozone sovereign debt. Concern also surrounds the health of Europe’s large number of smaller banks not covered by stress tests. José Manuel Barroso, president of the European Commission, said in Florence on Friday that authorities would persist with bank stress tests involving “much more” than the 26 banks being examined by European regulators. Germany was understood to have wanted to widen stress-testing to include other public-sector banks, seen as a weak link in its system. But Germany said its laws meant it could not compel banks to reveal stress test results. It made clear it would rely on peer pressure to herd banks into line and to publish results. There was also doubt about how the tests to be made public would deal with banks’ holdings of European sovereign debt. That has been one trigger for the waning market confidence in banks, as concerns have intensified about the possibility of a default by a eurozone member. The EU-wide stress test is not understood to have encompassed specifics about banks’ sovereign debt exposure, but an assessment of sovereign risks “will be captured” in other ways, says one person involved in the process. People close to the testing process also suggested it was less draconian than tests conducted last year. Ralf Preusser, head of European rates research at BofA Merrill Lynch Global Research, said: “Publishing stress tests is a good thing – but we do need to know what they have actually stressed. Will they stress the possible outcome of a Greek default on its bonds, for example?” Banks to be tested now were “not really the concerns”, Mr Preusser said. “Concerns surround the second-tier institutions. We need information on these banks.”
  • European Stress Tests Spread Debt Jitters. Fears are rising over French and German banks’ exposure to weaker economies in the eurozone such as Greece, Portugal and Spain after moves to publish bank stress tests in Europe. Investors warn the tests could expose the European banking system’s interdependence and spread contagion, which started with Greece, to the continent’s two biggest economies. Elisabeth Afseth, fixed-income strategist at Evolution, said: “The stress tests have focused some investors’ minds on the exposure of France and Germany to the peripheral economies. This could put the French and German bond markets under pressure.” The Bank for International Settlements published figures last week showing that French and German banks were particularly exposed to Greece, Ireland, Portugal and Spain. French and German banks could suffer heavy losses in the event of a country defaulting on its bonds. Most investors expect Greece to default, while the chances of the others following are increasing. Although many investors fear European policymakers will stop short of testing the banks over the possibilities of a Greek or sovereign default, they warn that this is becoming an issue, particularly in France. People close to the tests have signalled that publication is set to contain some disclosure of sovereign exposures.
  • More Turmoil Looms in CDO Market. The recent cancellation of so-called monoline insurance contracts on $16bn of collateralised debt obligations backed by subprime mortgages is raising the prospect of more turmoil for one of the most beleaguered corners of the financial markets. Insurers that guaranteed CDOs – complex securities backed by pools of mortgages, loans or other assets – have suffered heavy losses, leading to widespread efforts to unwind, or “commute”, CDO insurance contracts. Earlier this month, Ambac Assurance struck a deal to wipe out insurance contracts – called credit default swaps – on $16.4bn of CDOs as the insurer hovered on the brink of bankruptcy. This means “controlling rights” to the underlying assets will pass from the insurer to the holders of the securities, mostly banks. Analysts said this could lead to a wave of selling of the securities, which could depress prices in markets still struggling to recover from the financial crisis. This, in turn, could have knock-on effects for banks and financial institutions still holding toxic mortgage-backed debts, potentially forcing another round of writedowns.
Telegraph:
  • Oil Spill: BP(BP) to Sue Partner in Gulf Oil Well. BP is preparing to sue its main partner in the leaking Gulf of Mexico oil field for its share of clean-up costs after the company, Anadarko(APC), said BP's behaviour revealed "gross negligence" and that the ­accident was preventable. In a fundamental split between the two companies with lead responsibility for the well, a senor BP source told The Sunday Telegraph that Anadarko was "shirking its responsibilities", not accepting its liabilities and that legal action in the US was now likely to follow. Anadarko, which has a 25pc stake in the well, signalled this weekend that it will refuse to pay up.
  • £30bn taxes and cuts package to be announced in Budget. The Chancellor is expected to strip millions of middle-income families of child-related benefits as well as targeting the pay packets of public sector workers in an Emergency Budget billed as the most significant and hardest hitting for a generation. VAT is expected to rise from its current level of 17.5 per cent – although it was unclear this weekend whether an increase would come in immediately or be deferred. Treasury officials were preparing the ground for a budget which will cause pain across the economy as the planned spending cuts and tax rises bite into Britain's fragile recovery. One source said that Mr Osborne was attempting to get as much bad news as possible out of the way in the early weeks of the coalition government. "We're putting everything in there – we're kitchen sinking it," he added. The package will be so severe that official forecasts for Britain's economic growth next year – already cut from 3.25 per cent to 2.6 per cent earlier this month – will be cut again, The Sunday Telegraph has learned.
  • Barclays(BCS) President Bob Diamond to Defend Lehman Brothers Purchase in Court. Bob Diamond, Barclays' president, will take the stand in New York on Monday to defend the bank's acquisition of Lehman Brothers against claims the the deal was done on the cheap.
TimesOnline:
  • Obama Harms Special Relationship. A poll carried out in Britain and American reveals Obama's handling of the BP oil spill crisis is damaging relations between the two countries. The YouGov poll, which questioned nearly 1,500 people in Britain and almost 600 in America, shows overwhelmingly that Obama’s strident attacks on BP are hurting the special relationship. By 64% to 2% in Britain and by 47% to 5% in America, people believe the president’s handling of the crisis has damaged relations. For British respondents, Obama’s attacks have changed for the worse their attitude to America. Only 54% said they now had a favourable attitude towards America, compared with 66% when the question was asked before the oil spill. More than a fifth of people in both Britain and America, 22% in each case, think Obama is anti-British.
  • Macondo Well May Contain 1 Billion Barrels of Oil - And May Flow For a Decade. BP’s ruptured Macondo oil well could contain as much as 1 billion barrels of oil, making it one of the largest oil discoveries in the world in recent years and meaning that it could keep flowing for more than a decade if left unchecked, industry experts claimed last night. Rick Mueller, an oil industry expert at Energy Security Analysis, in Massachusetts, said that the well’s powerful flow rate, which has been estimated by the US Government at up to 60,000 barrels a day and shows no sign of abating, suggested that the well could be far bigger than previously thought. BP previously estimated that the field contained 50 million to 100 million barrels of oil. Mr Mueller said that it was possible that the Macondo field could be of a comparable size to other “super-giant” fields found in the same Mississippi Canyon area of the Gulf of Mexico, 100 miles (160km) to 150 miles southeast of New Orleans. These include BP’s vast Thunderhorse and Tiber discoveries, both of which are believed to contain more than 1 billion barrels of crude and were found in similar water depths of 4,000ft (1,220m) to 6,000ft. BP has said that it will donate all of the income from the oil collected at the Macondo well to a compensation fund. The largest offshore oil discoveries in the world in recent years have been made in Brazil. The Tupi field, off the coast of Rio de Janeiro, is thought to contain 5 billion to 8 billion barrels. Another discovery in India, Mangala, is believed to contain 3.6 billion barrels. Before drilling the Macondo well the Deepwater Horizon rig had made a giant discovery at the Tiber prospect. This was an incredibly deep well, about as far below the Earth’s crust as a passenger jet flies above it. The multiple reservoirs found at Tiber were BP’s second discovery in the so-called Lower Tertiary Play, which spans 300 miles across the Gulf and was deposited between 65 million and 23 million years ago. If the Macondo field is larger than BP initially claimed it could have a dual significance for the company. The well could keep flowing at a rapid rate for many months or years, but it could also be highly valuable in the long term. However, BP is unlikely to return to the well for a number of years. It emerged yesterday that BP is assembling a war chest of up to $25 billion (£17 billion) to help to pay off the mounting compensation bill for the oil spill. The oil company needs ready cash to prove that it can meet its liabilities. BP has hired Standard Chartered to sell off assets worth more than $10 billion and the company is believed to have secured an emergency funding line of $5 billion from a bank consortium led by HSBC. BP has also saved more than $7.5 billion by scrapping its dividend and cutting back on capital expenditure.
  • Google(GOOG) Launches Cloud-Based Assault on Microsoft(MSFT). Google is making its most direct assault yet on Microsoft with the launch of its Chrome operating system. The search giant and computer makers will soon release the first laptops loaded with the new system, potentially heralding the start of a new era of online, “cloud-based” personal computing after nearly three decades in which it has been dominated by Microsoft’s Windows.
NZZ am Sonntag:
  • Economic recovery in Switzerland will probably be slowed by fiscal austerity programs in the European Union, Jean-Daniel Gerber, the Swiss government's head of economic affairs said.
Welt am Sonntag:
  • European Central Bank President Jean-Claude Trichet said Europe will not allow member states of the euro region to go bankrupt, adding the bloc can't go back to the times before the establishment of the Maastricht Treaty on European economic and monetary union.
Les Echos:
  • France plans to raise the question of the regulation of commodity derivatives with G-20 nations, French Finance Minister Christine Lagarde wrote. France will seek progress on the subject during its presidency of the G-20, Lagarde wrote. Europe should regulate commodity derivatives, including those based on carbon dioxide quotas, and France plans to send a "reflexion document" to the European Commission in coming months, Lagarde wrote.
Globe and Mail:
  • California on 'verge of system failure'. Golden State, like many others, is nearly bankrupt and desperately needs a bailout. Arnella Sims has seen a lot in her 34 years as a Los Angeles County court reporter, but nothing like this. Case files piling up by the thousands, phones ringing off the hook, forced midweek courthouse closings and occasional brawls as frustrated citizens queue for hours to pay parking fines. “People think we’re becoming a Third World country,” said Ms. Sims, 55. “They don’t understand.” It’s a story that’s being repeated all across California – and throughout the United States – as cash-strapped state and local governments grapple with collapsed tax revenues and swelling budget gaps.
BusinessMirror:
  • India's Subprime Crisis? Threat of microfinance defaults rises as SKS plans IPO. Savita Ramesh Rathore stood at the door to her dimly lit workshop in Mumbai’s Dharavi slum, filled floor-to-ceiling with bundles of old clothes, and tallied up the cost of her son’s wedding last year. “Jewels, clothes, food, the town hall,” said Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($645) from moneylenders charging 60-percent interest and took additional loans from friends to pay for the wedding. Three months ago, she got a 10,000-rupee loan from urban lender Hindusthan Microfinance Pvt. to repay some of that debt. Rathore is one of 25 million Indians who have taken so-called microfinance loans, often without adequate documentation or collateral, according to Micro-Credit Ratings International Ltd. As Hyderabad-based SKS Microfinance Pvt. plans to become the first such lender to go public in the country, an industry credited with helping alleviate poverty may come under pressure to tighten loan standards to avoid a pile-up of bad debts. “Globally, microfinance is showing characteristics of the western financial markets before the collapse,” said Sanjay Sinha, managing director at Micro-Credit Ratings in New Delhi. “In the US, homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises.”
Caijing:
  • A decline in property investments in China will impact the nation's economic growth, Ba Shusong, a researcher at the State Council's Development and Research Center, wrote. Property industry adjustments will also impact local government land revenues, Ba wrote. Local governments may cut their investments as a result, he said.
Weekend Recommendations
Barron's:
  • Made positive comments on (BP), (MET), (SF), (AKS), (X), (NUE), (STLD), (POT), (BDX), (SWN) and (PTRY).
  • Made negative comments on (NFLX).
Citigroup:
  • Reiterated Buy on (LLY), target $41.
  • Reiterated Buy on (AEP), target $41.
Night Trading
  • Asian indices are +1.0% to +2.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 120.5 -5.5 basis points.
  • Asia Pacific Sovereign CDS Index 125.25 -1.75 basis points.
  • S&P 500 futures +1.32%.
  • NASDAQ 100 futures +1.30%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (SONC)/.19
  • (SCS)/-.06
Economic Releases
  • None of note
Upcoming Splits
  • (DLTR) 3-for-2
Other Potential Market Movers
  • The (CVE) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the week.
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