EU Said to Consider Requiring Collateral for Providing Extra Aid to Greece. European Union officials may require Greece to provide collateral for aid as policy makers struggle to prevent the euro area’s first sovereign debt restructuring, said a person with direct knowledge of the situation. Expanding the 110 billion-euro ($158 billion) lifeline Greece received last year may mean that assets or revenue from asset sales are used to secure extra funds, the person said. Demanding collateral, an idea floated last year by Finland, may help avoid a political backlash against bailouts. European Union finance officials, who held an unannounced meeting May 6 in Luxembourg, are preparing the help to ease a debt burden that some investors say will lead to a restructuring. Other steps may include lower interest rates or longer maturities on bailout loans, said Norbert Barthle, budget spokesman for German Chancellor Angela Merkel’s ruling party. “We’ll just have to bite the bullet,” Barthle said in an interview yesterday from his district in the state of Baden- Wuerttemberg. “We need to help Greece help itself. What’s the alternative? We don’t want to be pushed over the edge into restructuring.”
Geithner Will Urge China To Allow Higher Interest Rates, Stronger Currency. Treasury Secretary Timothy F. Geithner will urge China to allow higher interest rates when he meets with Chinese leaders this week, as the U.S. extends its push for a stronger yuan. Geithner will say China should relax controls on the financial system, give foreign banks and insurers more access and make it easier for investors to buy Chinese financial assets, said David Loevinger, the Treasury Department’s senior coordinator for China. Officials from both nations are meeting in Washington today and tomorrow as part of the annual Strategic and Economic Dialogue. The U.S. is pushing for greater market access for financial firms as part of its broader effort to persuade China to ease the restrictions blamed for fueling global imbalances. U.S. officials argue that a yuan kept artificially cheap to help exporters also makes it harder for China to lift interest rates and curb an inflation rate that hit a 32-month high in March. “It’s pretty clear that the current system is hurting them in their inflation fight,” said Dan Dorrow, head of research at Faros Trading LLC, a currency trading firm in Stamford, Connecticut. “The reason for that is the improperly-priced exchange rate.”
U.S. Seeks Access to Bin Laden Wives, Questions Pakistani Role. Pakistan hasn’t given the U.S. access to three of Osama bin Laden’s widows or other information collected following last week’s operation in Pakistan, creating more questions about the country’s role in hiding the late al- Qaeda leader. National Security Adviser Tom Donilon said the U.S. has requested -- and not yet received -- access to three of bin Laden’s wives and additional materials recovered by the Pakistanis after the May 2 raid in which bin Laden was killed in a compound in Abbottabad, Pakistan. The role, if any, of Pakistani government officials harboring bin Laden also remains a question, President Barack Obama said.
German Economists Warn Against Greek Exit From Euro, Welt Says. Commerzbank AG (CBK) Chief Economist Joerg Kraemer said it would be “economic suicide” for Greece to return to the drachma, which would prompt a run on local banks to withdraw euros, Welt reported, citing an interview. Thomas Mayer, chief economist at Deutsche Bank AG, said a Greek exit from the euro region would lead to a crisis in Europe’s political and currency union and could cause a bank run in some EU countries, the newspaper said. Thomas Straubhaar, head of the Hamburg-based HWWI economic institute, told the newspaper a euro exit could force Greece into bankruptcy and cause a “domino effect” like the collapse of Lehman Brothers Holdings Inc.
Hedge Funds Caught in Oil's 'Terrifying' Decline: Energy Markets. Hedge funds were caught with bullish oil bets near record highs last week as crude plunged 15%, the biggest decline in more than two years. While funds and other large speculators reduced so-called net-long positions by 2.4% to 293,823 futures and options in the seven days to May 3, that was still within 5.7% of the record, according to the CFTC's weekly Commitments of Traders report. Bullish bets rose 59% since Feb. 15, reaching an all-time high in March, the data show.
Ex-Mets Player Dykstra Indicted on Bankruptcy Fraud Charges. Lenny Dykstra, the former Major League Baseball player accused of removing, destroying and selling property from his $18.5 million mansion after filing for bankruptcy in 2009, was charged with fraud in an indictment. Dykstra, 48, a former Philadelphia Phillies and New York Mets outfielder, looted his Sherwood Estates mansion in Thousand Oaks, California, lied to the bankruptcy trustee about who stripped it, and denied selling items owned by the bankruptcy estate, according to the grand jury indictment issued yesterday. A lawyer for the bankruptcy trustee has estimated Dykstra stole or destroyed property worth more than $400,000, U.S. Attorney Andre Birotte in Los Angeles said in an e-mailed statement.
Syrian Tanks Storm Banias a Day After 40 Protesters Killed. Syrian tanks stormed the coastal city of Banias today, and protesters tried to keep them out by forming human chains amid deadly confrontations with security forces, according to Agence France-Presse. The U.S. called yesterday for a “strong international response” to Syria’s crackdown. Security forces killed as many as 40 people and arrested hundreds during demonstrations on Friday, according to the London-based Syrian Human Rights Committee.
Pakistan-U.S. Rift Widens. Pakistani media aired the name of a man they said is the Central Intelligence Agency's station chief, prompting questions about whether the Pakistani government tried to out a CIA operative in the wake of the killing of Osama bin Laden. The U.S. is looking into the matter. There are no plans at this time to withdraw the station chief. If the government had attempted to publicize the name, that would be the second such outing in the past six months, a sign of how deeply U.S.-Pakistan relations have soured.
Christians Blame Islamists for Deadly Egypt Clash. Christians blamed Saturday's deadly sectarian clash at two churches near Cairo on Egypt's ultraconservative Salafis, a radical Islamist group whose growing influence is worrying both secularists and the country's Christian minority. Residents of the low-income neighborhood of Imbaba said hundreds of Muslim men armed with small weapons and guns attacked the churches, killing at least 12 people and injuring 210. The attackers, many of whom were wearing the long gowns and beards characteristic of Salafis, torched the Coptic Church of the Holy Virgin and set fire to two apparently Christian-owned homes behind another church in the neighborhood, witnesses said. Saturday's attacks mark the latest incident in a worsening rash of sectarian violence between Egypt's Muslims and its Christian minority since street protests ousted Egypt's former president in February. The rise in sectarianism has appeared in parallel with an increasingly vocal Salafi movement—a fundamentalist form of Islam widely practiced in Saudi Arabia—and is posing a significant challenge for the military leadership that assumed power after President Hosni Mubarak stepped down. "The military council didn't prosecute the people who burned down the church in Sol," said Ramon Shehatta, referring to a previous church-burning in a Cairo suburb in early March. Mr. Nasser was standing in the burnt-out interior of the Church of the Holy Virgin, where hundreds of Christians had gathered for a tearful Mass on Sunday afternoon. "That allowed them to come and burn this church. This won't end. The Christians' hearts are on fire. They will not be quiet." Muslim Brotherhood members have said in the past that despite sharing a few political goals with Salafis, such as the desire to see Sharia law incorporated into the Egyptian legal system, the Brotherhood's conservative ideology shouldn't be confused with the Salafists' fundamentalist views. While many Egyptians had anticipated that the once-illegal Muslim Brotherhood would become more powerful in a democratic Egypt, few had predicted the growing prominence of the Salafis, a catchall term used to describe those Muslims who believe that only the Prophet Muhammad, his contemporary companions and the three generations of believers who followed them practiced Islam in its purest form.
Gingrich's Secret Weapon: Newt Inc. In the 13 years since he suffered a string of political setbacks and quit the third most powerful job in Washington, Newt Gingrich has been busily laying the foundation for a comeback to an even grander perch.
Schumer Floats High-Frequency Fees. Sen. Charles Schumer told regulators that sophisticated electronic traders should bear the cost of monitoring their dealings, with special fees assessed to firms that issue and then rapidly cancel securities orders. The New York Democrat said that such charges could defray the expense of building a new system to track in real time the orders that high-frequency traders pump into U.S. markets.
Renewal of Pacts Eases Fear for Munis. The municipal-bond market appears to be surmounting one of its most urgent challenges of the year as banks renew billions of dollars worth of expiring credit agreements with state and local governments, avoiding a costly scramble to refinance.
Guidance Is Sought on Private Trading of Closely Held Companies. SecondMarket Holdings Inc., one of the biggest players in the booming "shadow market" for trading shares of closely held companies such as Facebook Inc. and Twitter Inc., is seeking U.S. approval for how it handles those transactions.
Reports of 'Suspicious Trading' at SAC Being Sought by Senator. SAC Capital Advisors LLP, one of the nation's most prominent hedge funds, is facing heightening regulatory and legislative heat. Iowa Sen. Charles Grassley, the top Republican on the Senate Judiciary Committee, sent a letter to Wall Street's major self-regulatory organization asking for any reports reflecting "suspicious trading" involving SAC Capital that it had received from exchanges since 2000.
CEO Pay in 2010 Jumped 11%. Chief executives at the biggest U.S. companies saw their pay jump sharply in 2010, as boards rewarded them for strong profit and share-price growth with bigger bonuses and stock grants. The median value of salaries, bonuses and long-term incentive awards for CEOs of 350 major companies surged 11% to $9.3 million, according to a study of proxy statements conducted for The Wall Street Journal by management consultancy Hay Group.
On Spending Cuts, Democrats Give Voters the Brush Off. Obama says he'll 'check under the cushions.' But neither he nor his allies on Capitol Hill have initiated any net reductions in spending since last fall's election. Not once.
Marketwatch.com:
Oil Gains, But Analysts tip Fall to $90 a Barrel. Oil futures recovered some lost ground in early electronic trading on Monday, but analysts said prices could drop as low as $90 a barrel later this month on concerns about global growth and an unwinding of speculative positions.
Hedge Funds Gain in April, But Lag Equities. Hedge funds were up more than 1% in April, but the $2 trillion industry lagged a strong rally in equity markets that made it tough for managers to short, or bet against stocks.
Nasdaq(NDAQ) CEO to Meet With 'Arbs' to Push Hostile Bid for NYSE(NYX). The FOX Business Network has learned that Nasdaq CEO Robert Greifeld plans to meet with a group of 60 investors on Monday as he continues to push his hostile bid to buy the New York Stock Exchange directly with NYSE shareholders.
Buffett's Berkshire(BRK/A) Reluctantly Writes Down $506 Million in Stock 'Losses'. The basic headlines from tonight's quarterly earnings report by Berkshire Hathaway weren't a surprise. Warren Buffett previewed the numbersat last weekend's annual meeting. There is, however, an interesting revelation we didn't know. After discussions with the SECon the subject, Berkshire Hathaway is recording $506 million in "other-than-temporary impairment losses" on two stock holdings: $169 million for Kraft Foods(KFT) and $337 million for a portion of its Wells Fargo stake(WFC). That's not because Berkshire sold the shares at a loss. It's due to accounting rules that require write-downs for unrealized losses when they've been around for awhile. The rules, however, do not include a clear, unambiguous definition of "temporary."
Fed Has Power to Pop Commodity Bubble. Last week the margin requirements for silver — a relatively minor commodity — were changed and triggered a widespread sell off. The evidence of a speculator driven bubble was unmistakable by the end of the week — crude oil was down almost 15%, corn down about 10% and wheat down almost 8%. If margin rule changes for a minor commodity can trigger a general price run, imagine what would happen if a series of broad based rule changes were implemented. Well I have a suggestion for our economic leadership in Washington — go crazy — change the rules for all commodities. I guarantee that the commodities price bubble will instantly pop.
Business Insider:
Hold On -- Is THIS Why Commodities Got Slammed Last Week? The Dodd Frank OTC FX derivatives exemption only looks like a "win" for traders. Upon closer examination, the exemption might be a defeat. And one of the reasons commodities got slammed this week. Many on Wall Street seem to consider the exemption of FX swaps and forwards (derivatives) a major defeat because of what the Dodd Frank regulation didn't exempt: all other OTC derivatives, namely energy derivatives, but also interest rate swaps. Just because the media reported the exemption as a win doesn't make it so.
Professor: Here's The REAL Conspiracy Behind Reports of Greece Leaving The Euro. Greek economics professor Yanis Varoufakis expounds more on this theory: It is my considered opinion that Der Spiegel, in consultation with certain circles within the German government (in particular the Finance Ministry) was trying to send a message to the German Chancellor but also the Greek Prime Minister. And what is this message? That there are far worse things than a debt restructure, the worst being a step-by-step dismantling of the euro that will begin once a country like Greece is forced into an impossible situation. And that continuing to live in denial, and to peddle blatant lies about the sustainability of the present course will no longer be tolerated.
Taliban Renew Attacks in Kandahar; Death Toll Hits 25. Fighting erupted for a second day Sunday between Taliban gunmen and Afghan security forces in the southern city of Kandahar, demonstrating the insurgents' determination to maintain a foothold in the city they consider their spiritual home. Afghanistan's Interior Ministry said Sunday that the death toll in clashes that broke out a day earlier had risen to 25 -- all but two of them Taliban fighters. The Taliban brushed aside the lopsided toll, instead boasting that the fighting had all but paralyzed the country's second-largest city.
Washington Post:
J.P. Morgan(JPM) in Talks With SEC to Settle CDO Probe. J.P. Morgan Chase said Friday that it may be close to settling an SEC investigation focused on its role in the sale of complex financial instruments tied to mortgages.
Reuters:
Libyan Forces Destroy Misrata Fuel Tanks - Rebels. Libyan government forces destroyed four fuel storage tanks and set several others ablaze in rebel-held Misrata, dealing a blow to the port city's ability to withstand a government siege, rebels said on Saturday. The bombardment of the western city came as artillery rounds fired by forces loyal to Muammar Gaddafi fell in Tunisia in an escalation of fighting near the border with rebels trying to end Gaddafi's rule of more than four decades. Misrata, the last remaining city in the west under rebel control, has been under siege for more than two months and has witnessed some of the war's fiercest fighting. Rebels gave varying accounts of the bombardment but said the attack hit fuel used for export as well as domestic consumption.
Iraq Won't Cut 12 Million Bpd Oil Output Capacity Goal. Iraq does not plan to lower its 12 million barrel per day oil output capacity goal or to redo contracts with oil firms over their plateau targets, Deputy Prime Minister for energy Hussain al-Shahristani said on Sunday. "Absolutely not. There is no intention at all to renegotiate the contracts," Shahristani told Reuters at the launch of a power plant project outside the city of Kerbala. Shahristani's comment followed market speculation that Iraq might have to officially slash its longstanding production capacity target of 12 million bpd and renegotiate contracts with international oil companies to reduce their individual output targets. "We are contracted for announced production capacity of around 12 million barrels per day," he said. "But how much we will produce, really, this depends on the international market situation and the market demand." Shahristani also said the oil ministry had reached a final draft contract on a $12 billion project to capture associated gas at southern oilfields and sent the deal to Iraq's cabinet for approval.
BHP Billiton(BHP) Sees Fragile Global Economy Near-Term. BHP Billiton , the world's biggest miner, sees the global economy remaining fragile in the near term and economic growth possibly slowing in the medium term, its chairman said on Monday. "In the short term, although many economies are recovering, the world remains in a fragile state with persistent levels of unemployment and threats of inflation," BHP Chairman Jacques Nasser said in remarks prepared for a business lunch.
Financial Times:
SEC Reform Proposal Threatens 'Dark Pools'. The US Securities and Exchange Commission is considering a proposal to move more trading back on to exchanges from alternative venues such as “dark pools”, which has drawn sharp criticism from banks and many trading firms. David Shillman, associate director of the SEC’s division of trading and markets, told the Financial Times that a so-called “trade at” rule is “very much in play. There’s interest in it”. The “trade at” rule, which would require non-exchange venues to improve on the displayed market price, is a response to concerns among some academics and market participants that a rising share of trading happening outside of exchanges is making trading more expensive and difficult.
Biggest Commodity Hedge Fund Loses $400M In Oil Slide. Clive Capital, the world’s largest commodity hedge fund, has been left nursing losses of more than $400m as a result of the dramatic collapse in the price of oil last week. London-based Clive – which manages an estimated $5bn of client money – is the biggest of several big hedge funds believed to be reeling after the unexpected sell-off hit markets late last week. Others, including Astenbeck Capital, the Phibro-owned fund run by Andrew Hall, are thought to have taken double-digit percentage point losses to their portfolios, according to investors. The scale of the losses demonstrates that even the savviest investors in commodities were wrongfooted by the correction, one of the sharpest one-day falls on record. In a letter sent to investors on Friday and seen by the Financial Times, Clive said it was down 8.9 per cent on the week after what it called “extraordinary” price movements on Thursday. Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”. Most managers remain bullish, however, and expect commodity prices to continue to rise. “Physical markets are quite strong,” said Clive in its letter. “We remain positioned in a number of markets.”
Commodity Prices Threaten Africa's Recovery. The head of the African Development Bank has said that rising oil and food prices are combining to create a “Molotov cocktail” for Africa as the continent attempts to push ahead with its recovery from the economic crisis.
Forty-seven percent of Germans are opposed to providing financial aid to Greece, citing a survey conducted by GfK SE. Only 20% of those surveyed support helping the government in Athens.
Deutschlandfunk Radio:
German lawmakers Carsten Schneider and Wolf Klinz are in favor of a restructuring of Greece's debt.
Frankfurter Allgemeine Sonntagszeitung:
Hans-Werner Sinn, president of Germany's Ifo economic institute, said Greece would be better off if it left the euro, citing an interview. Greece's exit from the euro zone would be "the lesser of two evils," Sinn said. Greece could devalue its currency and improve its competitiveness without the common currency, he said.
Irish Times:
Ireland's Future Depends on Breaking Free From Bailout. Ireland is heading for bankruptcy, which would be catastrophic for a country that trades on its reputation as a safe place to do business, writes MORGAN KELLY. WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed. Ireland is facing economic ruin. While most people would trace our ruin to to the bank guarantee of September 2008, the real error was in sticking with the guarantee long after it had become clear that the bank losses were insupportable.
Focus:
German Free Democratic Party lawmaker Frank Schaeffler said Germany should support any Greek with to leave the euro region, citing an interview with the politician. Debt restructuring for Greece is "inevitable," Schaeffler said. Some 19 lawmakers of Chancellor Angela Merkel's coalition are decided to vote against the planned European Stability Mechanism, or ESM, the magazine also said in the e-mailed preview of a report to be published May 9. At least another 36 members of parliament are also considering refusing approval for the ESM.
China Times:
China may increase the resource tax the nation imposes on rare earths, citing an official at the Ministry of Finance.
China Business News:
China's economic growth is expected to slow in the second half of this year, citing Fan Jianping, director of economic forecasting at the State Information Center. As global commodities prices drop, companies may start destocking, Fan said.
China National Radio:
China's April inflation may have been about 5%, citing market expectations. Inflationary pressure remains relatively large.
Weekend Recommendations Barron's:
Made positive comments on (X) and (PFE).
Citigroup:
Reiterated Buy on (SNI), target $63.
Night Trading
Asian indices are -.50% to +1.0% on average.
Asia Ex-Japan Investment Grade CDS Index 107.0 -1.5 basis points.
Asia Pacific Sovereign CDS Index 114.25 -.75 basis point.
The 3-Month and 6-Month Treasury Bills Auctions, JMP Securities Research Conference, (CROX) analyst meeting and the (ATML) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week mixed as growing Mideast unrest, global growth concerns, rising eurozone debt angst and emerging market inflation fears offset mostly positive earnings reports, bargain-hunting, lower food/energy prices and buyout speculation. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.
North American Investment Grade CDS Index 88.97 -1.69%
European Financial Sector CDS Index 88.08 +.72%
Western Europe Sovereign Debt CDS Index 189.58 +1.61%
Emerging Market CDS Index 207.74 +.91%
2-Year Swap Spread 19.0 +1 bp
TED Spread 26.0 unch.
Economic Gauges:
3-Month T-Bill Yield .00% unch.
Yield Curve 260.0 +2 bps
China Import Iron Ore Spot $180.70/Metric Tonne -.99%
Citi US Economic Surprise Index -31.30 -4.6 points
10-Year TIPS Spread 2.48% unch.
Overseas Futures:
Nikkei Futures: Indicating -39 open in Japan
DAX Futures: Indicating -61 open in Germany
Portfolio:
Slightly Higher: On gains in my Biotech, Medical and Tech sector longs
Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite more commodity sector weakness, a mixed jobs report, rising eurozone debt angst, more Mideast unrest and heightened terrorism worries. On the positive side, Construction, HMO and Biotech shares are especially strong, rising more than 1.0%. Cyclicals are outperforming. The US dollar is building on recent gains. The UBS-Bloomberg Ag Spot Index is falling another -.66% and oil is down another -1.22%. The 10-year yield is unch. at 3.16%. The US Muni CDS Index is is falling another -3.98% to 122.88 bps and the Greece sovereign cds is declining -3.82% to 1,336.13 bps despite today's rumors. On the negative side, Oil Service, Networking, REIT, Retail and Education shares are down on the day. (IYR) has been heavy throughout the day. Commodity-related equities continue to trade poorly. The US price for a gallon of gas is falling -.01/gallon today to $3.98/gallon. It is up .86/gallon in 80 days. Copper is dropping another -.59% and is still sitting right near its 200-day moving average. The Spain sovereign cds is rising +2.17% to 241.49 bps, the Belgium sovereign cds is climbing +2.44% to 142.83 bps and the US sovereign cds is rising +2.18% to 43.2 bps. The commodity complex does not trade like a meaningful bottom is yet in place. Moreover, leadership changes are messy and more forced selling is likely over the coming weeks as many funds were heavily-weighted long commodity-related securities. The CDS market is not confirming the currency market's worries over a Greek pullout of the eurozone. I suspect this story is related to Greek bargaining rather than preparations for a real pullout. However, longer-term the eurozone is highly unlikely to exist in its current form, in my opinion. Today's equity rally is of poor quality, but early next week, after the market's digest the Greek news over the weekend, will provide a better indication of whether or not the major averages can make another stab at 52-week highs. I expect US stocks to trade mixed-to-lower into the close from current levels on profit taking, more shorting, technical selling, global growth concerns, Mideast unrest, terrorism concerns, commodity sector weakness, rising eurozone debt angst and emerging markets inflation fears.
