BETWEEN THE HEDGES

Monday, June 25, 2012

Monday Watch

Posted by Gary .....at 12:26 AM

Weekend Headlines
Bloomberg:

Germany to Confront United Euro Bloc as Leaders Head to Summit. Germany will confront an increasingly united bloc of euro-area nations demanding more ambitious policies to save the currency union this week, as European leaders prepare for a summit setting the course for the currency’s preservation or ultimate demise. As concern mounts over their banking systems and finances, Spanish and Italian leaders have added their voices to those calling for more decisive action, a counterpoint to Germany’s more incremental approach to solving the 2 1/2-year-old crisis. European Union leaders will attend pre-summit meetings as they work to to narrow differences before the June 28-29 gathering in Brussels. “We are too close to the edge of the cliff for comfort, and the time to make big changes is awfully short,” Erik Nielsen, chief economist at UniCredit SpA (UCG) in London, wrote in a note to clients yesterday. Chancellor Angela Merkel last week resisted attempts by the leaders of France, Italy and Spain to persuade Germany to accept faster action to ease sovereign-debt worries in the financial markets, delineating divisions on greater euro-area integration. The friction between Germany and the rest of Europe was illustrated on June 22 by the Bundesbank’s opposition to European Central Bank plans to help ailing banks.
Germans Show Lowest Support for Keeping Euro in Four-Nation Poll. Germans showed the lowest support for the euro among the four largest nations using the currency, according to a poll published in four European newspapers today. The poll shows 39 percent of Germans favor leaving the euro, versus 28 percent of Italians, 26 percent of French and 24 percent of Spaniards, according to the survey, conducted by Ifop-Fiducial and published in Madrid-based ABC, Germany’s Bild, Italy’s Corriere della Sera and Le Journal du Dimanche. In all four countries, majorities said that loans to Greece will never be paid back, even as most said that not saving Greece would increase the euro region’s difficulties “dangerously,” ABC said. In France and Germany, most of those polled said Greece should leave the euro if it can’t pay back its loans, while in Italy and Spain about half shared that view. The surveys were carried out from June 18 to June 21 and questioned 976 people in Spain, 1001 in France, 1003 in Germany and 967 in Italy, ABC said.
Merkel Woos German States to Back Fiscal Pact, Spiegel Says. Chancellor Angela Merkel is offering federal aid to Germany’s states in a bid to win their parliamentary support for the European Union’s fiscal pact, Der Spiegel reported, without saying how it got the information. Merkel proposed this month that the federal government pick up all of any fine that’s due if Germany’s total public deficit exceeds limits set in the pact, the magazine said today. The federal government normally pays just 65 percent of such fines with the rest falling to the states. Merkel lacks a majority in the upper house of parliament, or Bundesrat, which groups delegates of Germany’s 16 states. Two-thirds majorities in both houses are needed for Germany to ratify the fiscal pact.
VW Finance Arm Hedges Against Euro Breakup, Automobilwoche Says. Volkswagen AG (VOW)’s finance arm is making risk provisions for the possible exit of some euro-area countries from the currency union, Automobilwoche quoted Frank Witter, the unit’s head, as saying in an interview. Braunschweig, Germany-based VW Financial Services AG is running possible scenarios and aims to protect itself against major turmoil in the euro area, Witter, the unit’s chief executive officer, was quoted as saying in comments on the magazine’s website. While the euro wouldn’t necessarily collapse if Greece left the currency union, the contagion risks can’t be forecast reliably, Witter was quoted as saying.
HP Plans 8,000 Job Cuts in Europe by the End of 2014, WiWo Says. Hewlett-Packard Co. (HPQ) plans to cut 8,000 jobs in Europe, including as many as 1,000 German positions, as part of a restructuring it announced in May, WirtschaftsWoche said, citing an unnamed worker representative. Hewlett-Packard confirmed the European cuts, saying that it told executives two weeks ago the restructuring would affect workforces in the region, Africa and the Middle East, WirtschaftsWoche said. The company declined to comment on losses in Germany, the magazine said.
Soros on the EU Summit, a Greek Exit, and Merkel. (video)
U.S. Banks Aren’t Nearly Ready for Coming European Crisis. The euro area faces a major economic crisis, most likely a series of rolling, country-specific problems involving some combination of failing banks and sovereigns that can’t pay their debts in full. This will culminate in systemwide stress, emergency liquidity loans from the European Central Bank and politicians from all the countries involved increasingly at one another’s throats.
Central Banks Face Power Limit as Debt Persists, BIS Says. Central banks in developed nations are confronting the limits of their ability to aid economic recovery as government efforts to strengthen their finances fall short, the Bank for International Settlements said. “Central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed,” the Basel, Switzerland-based BIS said in its annual report, published yesterday. “Both conventionally and unconventionally accommodative monetary policies are palliatives and have their limits.” While central banks’ actions were key to limiting damage from the collapse of Lehman Brothers Holdings Inc., interest rates are now “as low as they can go” and debt purchases have swollen central bank balance sheets, the BIS said. “In the middle of all this we find the overburdened central banks, pushed to use what power they have to contain the damage,” Stephen Cecchetti, BIS economic adviser, said on a conference call. “There are very clear limits to what central banks can do. It’s critical for the health of the global economy to break the vicious cycles and reduce the pressure on central banks.”
BRICs Biggest Currency Depreciation Since 1998 to Worsen. The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone from central bankers to Procter & Gamble Co. (PG) as their currencies post the biggest declines since at least 1998. For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation. P&G, the world’s largest consumer-goods maker, cut its profit (PG) forecast for the second time in two months last week in part because of currency losses. Brazil’s Fibria Celulose SA (FIBR3), the biggest pulp producer, asked banks to loosen restrictions on dollar loans after the real hit a three-year low. Investors are fleeing the four biggest emerging markets, known as the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows. “I am quite bearish,” Stephen Jen, a managing partner at hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund, said in a phone interview from London. “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.”
Publicis Hit by Stagnant China Budgets as Europe Crisis Spreads. Publicis Groupe SA (PUB) Chief Executive Officer Maurice Levy said advertisers in China, a market that has helped France’s biggest marketing company to make up for slower growth in Europe, aren’t increasing their budgets from last year. Publicis has made more than a dozen acquisitions this year in countries such as China, India and the Middle East as high unemployment and austerity programs by European governments crimp spending by consumers and companies at home. The economic slowdown in China, where Publicis’s first-quarter sales excluding purchases grew by 15.3 percent, is now one of his top concerns as the European crisis is spreading to the industry’s more stalwart growth regions, Levy said. “What we have seen in the market are some profit warnings,” the CEO said in an interview last week at the Cannes advertising conference when asked about his clients’ marketing spending. “When you have clients facing some difficulties, this is a little bit worrisome.”
India Prepares to Counter Rupee’s Slide. India plans to unveil measures today to support the rupee as its slump to a record low against the dollar threatens to intensify price pressures and boost the cost to companies of repaying foreign debt. The government and central bank will make the announcement, Finance Minister Pranab Mukherjee told reporters in Kolkata on June 24. The ruling Congress party’s nominee for president, Mukherjee told the Press Trust of India he will resign from his current post tomorrow. A group of federal and state legislators elects the next president July 19.
Bulls Proven Wrong as Prices Slump Into Bear Market: Commodities. Speculators increased bets on a rally in commodities for a second consecutive week, just as prices tumbled into a bear market after the Federal Reserve refrained from expanding monetary stimulus. Hedge funds and other money managers raised net-long positions across 18 U.S. futures and options by 7 percent to 628,560 contracts in the week ended June 19, Commodity Futures Trading Commission data show. That’s the highest in four weeks and the first consecutive gain since the end of February. Commodities slumped into a bear market June 21, a day after the Fed extended its Operation Twist program while refraining from a third round of debt buying known as quantitative easing. Reports last week showed that Americans filed for more jobless claims than forecast, sales of previously owned U.S. homes fell in May and manufacturing in the Philadelphia region contracted this month at the fastest pace in almost a year. “People were thinking that we’d see the next stimulative event, and they started to front-run the trade, and that got reversed quickly,” said Jeffrey Sherman, who helps manage $37 billion of assets for DoubleLine Capital in Los Angeles. “We’re in for a volatile time in commodities as people try to ascertain what’s going to drive growth.”
UN Reaps Sustainability Pledges Worth $513 Billion in Rio. The United Nations obtained pledges worth $513 billion from governments and companies for projects aimed at reducing the strain on the planet’s resources, the biggest accomplishment at a meeting that world leaders and environmentalists assailed for not setting strong enough goals. The 692 individual commitments from governments are for projects that cut fossil fuel use, boost renewable energy, conserve water and alleviate poverty, Sha Zukang, secretary- general of the UN Conference on Sustainable Development, said yesterday in Rio de Janeiro.
Issa Says ‘Clearly a Cover-Up’ on Fast and Furious Operation. U.S. House Oversight and Government Reform Committee Chairman Darrell Issa said the Justice Department’s refusal to turn over documents related to a failed gun-smuggling operation was “clearly a cover-up” by Attorney General Eric Holder and the Obama administration. “It was deny, delay and recuse,” Issa, a California Republican, said on ABC’s “This Week” of his panel’s clash with the administration. “Lying to Congress is a crime,” he said. “We have every right to see documents that say, did you know, when did you know, what did you know, including even the president.”
Coal-Plant Plunge Threatens Billions in Pollution Spend. The coal-fired power industry is facing the biggest plunge in asset values in a decade, putting at risk billions in pollution-control spending by Exelon Corp. (EXC), American Electric Power Co. (AEP) and other U.S. utilities. An indication of how much new emissions rules and cheaper natural gas have hammered the value of coal-burning generation will come when Exelon announces the results of the first big sale of U.S. coal-fired power plants in four years. Exelon, the largest U.S. power company, may have to take a 40 percent discount for three Maryland plants it’s seeking to sell by the end of August. Bidders including NRG Energy Inc. (NRG) have offered $600 million to $700 million for the units, which have a fair value of $1 billion, said Travis Miller, Chicago- based director of utilities research for Morningstar Inc.
Hong Kong Puts at Highest Since 2007 on China Concern: Options. China's longest manufacturing slump since the global financial crisis and the broadest deterioration in housing on record are driving the cost of protecting Hong Kong shares from losses to a five-year high. Puts priced 10% below the Hang Seng Index cost 1.41 times more than calls betting on a 10% rally, according to data on three-month options compiled by Bloomberg. The price relationship known as skew touched 1.5 on May 30, its highest level since March 2007, the data show.

Wall Street Journal:

Islamist Wins Egyptian Vote. Egyptian election officials declared the Muslim Brotherhood's Mohammed Morsi the country's first freely elected president on Sunday, propelling an Islamist to power and marking another milestone in the Arab world's tumultuous democratic transition. It sets up what is likely to be an uneasy ruling alliance between two longtime rivals, the Muslim Brotherhood and the Egyptian military, which has been the country's backbone of power and has ruled Egypt since former President Hosni Mubarak stepped down last year.
A Spanish Leader Emerges as a Crusader for Austerity. Thrown a lifeline to shore up its banks, Spain must now show it can fix its public finances—or face an even bigger bailout. In the trenches of that struggle is Maria Dolores de Cospedal, an up-and-comer in Spain's ruling party who inherited the deepest deficit of the country's 17 regional governments when she became president of Castilla-La Mancha a year ago.
Bunds Lose Some Standing As Haven. Yields Rise on One of the Few Remaining Havens as Big-Name Investors Become Sellers. Investors are breaking free of their bunds. After flocking to the safety of German government debt since the onset of the European debt crisis, some of the biggest names in the bond market have started cutting back. Among their concerns: whether Germany can continue to provide shelter should the European crisis deepen. A change in sentiment would signal the loss of one of the few remaining havens for investors. Central banks in Switzerland and Japan are trying to deter investors from plowing money into their countries to keep the value of their currencies from escalating. And while some money is finding its way to Denmark and other northern European countries, those markets aren't big enough to provide true havens. In many cases, investors would likely send their money into U.S. Treasurys.
J.P. Morgan(JPM) Unit Shifts Operations. J.P. Morgan Chase & Co. will improve risk management of the unit that racked up more than $2 billion of trading losses, while avoiding big bets on derivative and private-equity investments. But the unit intends to stick with a strategy permitting a wide variety of other, potentially risky investments, according to people close to the bank.
Law Grads Face Brutal Job Market. Members of the law-school class of 2011 had little better than a 50-50 shot of landing a job as a lawyer within nine months of receiving a degree, according to a Wall Street Journal analysis of new data that provides the most detailed picture yet of the grim market for law jobs. Under pressure from disillusioned graduates and some professors, the American Bar Association for the first time released a tally of the previous year's graduates who have secured full-time, permanent jobs as lawyers.
Fund Chiefs Grow Gloomier. Euro-Zone Crisis, Increased Regulation Darken Mood of Industry CEOs, Survey Finds. Chief executives of fund-management companies are far more pessimistic than last year, weighed down by the euro-zone debt crisis and increasing regulation, according to a the annual CEO Snapshot Survey by Financial News, a sister publication of The Wall Street Journal.

Marketwatch.com:

China steel sector slows, profits down: report. Growth of China's crude-steel output slowed in the first five months as demand dropped amid a cooling domestic economy, according to data from the country's top economic planner. Crude-steel output increased by 2.2% year-on-year to 296.26 million tonnes during the January-May period, down from 8.5% growth during the same period last year, data with the National Development and Research Commission showed. In May, crude-steel output rose 2.5% from a year earlier, 5.3 percentage points lower than last year. Aside from output, the sector's profits also slipped. Steel producers had profit drop 49.5% from a year earlier to 39.5 billion yuan (6.27 billion U.S. dollars) in the first four months.
China retailer C.P. Lotus dives on profit warning. Shares of mainland China hypermarket chain C.P. Lotus Corp. dropped 3.8% in Monday morning trade in Hong Kong after the company's board announced a record loss for the January-June half, citing slowing sales, rising wage costs and costs associated with the opening of new stores.

Business Insider:

Zero Hedge:

CNBC:

Some in US See Shades of 2008 in Euro Crisis. While growth has been slowing in China and the United States and companies warn about the effect on earnings, there is a mounting sense among the financial community that politicians and markets are operating on two completely different timelines.
Bank Chiefs Enjoy Double-Digit Pay Rises. Top U.S. and European bankers, including JPMorgan Chase’s Jamie Dimon and Citigroup’s Vikram Pandit, have enjoyed double-digit annual pay rises averaging almost 12 percent, despite widespread falls in profits and share prices, Financial Times research shows.

Wall Street All-Stars:

Indicator Update: Chance for an Upside Surprise?

NY Times:

Chinese Data Mask Depth of Slowdown, Executives Say. As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles. Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said. Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries. Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist. The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad. The executives and economists requested anonymity for fear of jeopardizing their relationship with the Chinese authorities, on whom they depend for data and business deals.
Hedge Fund Manager to Pay $405 Million in Madoff Settlement. Clients of J. Ezra Merkin, a prominent Wall Street hedge fund manager who invested his clients’ money in Bernard L. Madoff’s epic Ponzi scheme, will recover more than $400 million under a civil settlement negotiated by the New York State attorney general’s office.

Forbes:

Spain: Liar, Liar, Pants On Fire. Do they think we’re stupid? In theory all is well. We received the jubilant news from Roland Berger Strategy Consultants barely 48 hours ago. The Spanish banks need a “maximum” of only $78 billion and their funding crisis will be over. Methinks this estimate puny by $200 billion or so.
Harder Times Coming For Brazil, Says Bank For International Settlements. Brazil is not going to escape the onrushing collapse of the developed economies, warns the Central Bank of Central Banks, known as the Bank for International Settlements. In its 214 page annual report released over the weekend, BIS said that Brazil and India, in particular, would suffer an accentuated decline in economic growth due to the problems in the Western powers, most notably in Europe.

The Detroit News:

GM(GM) Salaried Retirees Still Protesting Pension Shift. General Motors executives held an hour-long conference call Friday with salaried retirees to answer questions about a planned pension buyout offer to 42,000 salaried retirees. GM is off-loading $26 billion of its $134 billion in pension obligations to Prudential Insurance Co., which means about 118,000 retirees will see their pensions swapped for lump-sum payments or paid by Prudential - and not GM. GM's decision to terminate its salaried pensions and transfer them has drawn anger from many retirees - and some have threatened to stop buying GM vehicles.

Rasmussen Reports:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney attracting 48% of the vote, while President Obama earns 43%. Five percent (5%) prefer some other candidate, and three percent (3%) are undecided.

Reuters:

Rating Agencies Under New Pressure In Italy. Italian state auditors are investigating whether downgrades of Italy by the three major rating agencies last year hurt the debt-laden country's finances by making it accelerate austerity measures that have deepened its recession. European policymakers, struggling to shore up state finances, have accused analysts of being too quick to cut euro zone sovereign ratings despite bailouts and their spending cuts and tax increases. The rating agencies already face a separate criminal probe in a southern Italian town. "It is not right for agencies to speak so irreverently about Italian sovereign debt, causing economic consequences that everybody can see," Angelo De Dominicis, who heads the prosecutors' office of the Rome state audit court, told Reuters on Friday.
Asia's investment banks launch round of job cuts. Investment banks and brokerages across Asia have launched a sweeping round of job cuts as Europe's debt crisis and China's economic slowdown bite into the region's financial activity. Speaking to bankers and other industry sources, Reuters was able to confirm at least 50 people were let go in the past three weeks, a cull that includes senior expatriates as well as junior bankers. The cuts mainly target the equities business, with more layoffs expected in coming weeks. CLSA , Deutsche Bank, Goldman Sachs, and UBS were among the banks and brokerages that cut jobs, the sources said.
Wells Fargo's(WFC) Mushrooming Mortgage Risk. The new center of U.S. mortgage lending is a nondescript office building in the American heartland, far from the California subprime lenders and the New York investment banks that drove the housing market into a bust. One out of every three home loans in the United States is now funded by Wells Fargo & Co, whose mortgage operation sits in a business park next door to a country club on the outskirts of Iowa's capital city.
Storm Debby shifts east, may miss U.S. Gulf oil patch. U.S. companies shut in roughly 23 percent of the nation's oil and natural gas production in the Gulf of Mexico on Su nday as a precaution due to Tropical Storm Debby, even as forecasters revamped projections to show the storm could head north and miss the vital offshore energy facilities. The U.S. National Hurricane Center reported late Sunday afternoon that the storm's expected path toward Florida, away from the U.S. Gulf waters that are home to about 20 percent of U.S. oil and 6 percent of natural gas output. The latest forecast showed Debby failing to gain hurricane strength moving due north to landfall on Thursday at Port St Joe, Florida. Debby is the first storm of the 2012 Atlantic hurricane season forecast to threaten the Gulf.
U.S. gas prices drop 14 cents in two weeks - survey.
Credit boom stokes risks in emerging markets -BIS. Loose global monetary conditions are stoking credit and asset price booms in some emerging markets that could lead to a new financial crisis, the Bank for International Settlements warned on Sunday. Such a boom-and-bust cycle might have severe global repercussions, not least due to the increased weight of emerging markets in the world economy and in investment portfolios, the BIS said in its annual report. It urged central banks to pay more attention to the global spillovers from their domestic policies, an echo of complaints from Brazil and others that the ultra-loose monetary stance in older economies has touched off large, destabilising flows of capital into emerging markets in search of higher yields. "This creates risks of rising financial imbalances similar to those seen in advanced economies in the years immediately preceding the crisis," the BIS said.
Hollande may lose euro battle as Merkel holds firm. French President Francois Hollande may have set himself up for a fall this week, as Germany's Angela Merkel shows no sign of yielding to his push to provide more financing guarantees to stabilise the euro zone. The Socialist leader has raised the stakes for a June 28-29 European Union summit with his drive for a bank deposit guarantee scheme to protect euro zone savers and governments and for steps towards mutualising debt and reviving growth.

Financial Times:

Compliance costs of €33bn loom for EU financial industry. The EU financial services industry is on track to spend €33.3bn over the next three years simply to comply with new regulatory demands, a study by the JWG regulatory think-tank has found. The projected costs, which will be spread across 8,500 institutions in the 27-nation bloc, could balloon to €50bn once Basel III bank capital requirements and Solvency II insurance safety rules kick in, the think-tank said, based on a detailed survey of 87 financial services groups in 10 countries.
US earnings warnings cast shadow over shares outlook. A string of earnings warnings from US companies that are a barometer of the broader economy is casting a shadow over the outlook for equities. Worries of a slowing global economy are resonating more strongly with investors after Procter & Gamble, FedEx and Bed, Bath & Beyond last week saw their shares hit hard by downward revisions to their growth outlook for the remainder of 2012.

The Telegraph:

Eurozone nations are stuck in a 'doom loop’. The euro was a very bad idea yet fiscal union is far worse and will fail, but not before it spreads bitterness across Europe.
Germany tells Greece to stop asking for help and start cutting budgets. Germany has told Greece to stop asking for more help and get on with implementing the reforms it has already promised as tensions mount before this week’s crucial summit of European Union leaders.

The Guardian:

Bric nations rocked by aftershocks of eurozone crisis. The devastating slowdown in the European economies has shown that 'decoupling' – the idea that developing nations would go on growing despite problems in the west – is a myth.

ORF:

European Central Bank Governing Council member Ewald Nowotny said a financial transaction tax makes sense, according to a radio interview. "Very simple models" that don't tax long-term transactions and instead focus on speculative short-term transactions would be reasonable, Nowotny said.
ECB Governing Council member Ewald Nowotny said there no longer are joint goals in the second part of the crisis, according to a radio interview. "At the start of the crisis we really had clear joint actions that worked," Nowotny said when asked whether the impression was right that decision makers didn't have common goals. "Now in the second phase, where we have much more differentiated problems, this no longer is the case."

Bild am Sonntag:

A delay in Germany's ratification of Europe's permanent bailout fund would send a "fatal signal" to makers, Bavarian Prime Minister Horst Seehofer said in an interview.

WirtschaftsWoche:

Germany and its banking system don't have enough capital to rescue southern Europe's banks, Hans-Werner Sinn, president of the Munich-based Ifo economic institute, wrote in a commentary. Sinn proposed compensating banks' creditors with debt-equity swaps, according to an e-mailed preview of his commentary.

China Securities Journal:

China should impose a "reasonable" property tax to ensure the sustainable development of the housing market, according to a State Information Center report published today. China should expand the property tax base while reducing tax rates to help ease high prices, the report said.

Weekend Recommendations

Barron's:

Made positive comments on (RLD), (AMBO) and (CXW).
Made negative comments on (WAG).

Night Trading

Asian indices are -1.25% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 180.5 -.5 basis point.
Asia Pacific Sovereign CDS Index 145.75 +2.25 basis points.
FTSE-100 futures +.17%.
S&P 500 futures -.41%.
NASDAQ 100 futures -.26%.

Morning Preview Links

Earnings of Note
Company/Estimate

(FUL)/.55
(APOL)/.97
(SNX)/.90

Economic Releases
8:30 am EST

The Chicago Fed National Activity Index for May is estimated to fall to -.40 versus .11 in April.

10:00 am EST

New Home Sales for May are estimated to rise to 346K versus 343K in April.

10:30 am EST

Dallas Fed Manufacturing Activity for June is estimated to rise to -1.0 versus -5.0 in May.

Upcoming Splits

(DLTR) 2-for-1

Other Potential Market Movers

None of note

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

Sunday, June 24, 2012

Weekly Outlook

Posted by Gary .....at 3:02 PM

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, rising Eurozone debt angst, more shorting, profit-taking, earnings worries and technical selling. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.

Friday, June 22, 2012

Market Week in Review

Posted by Gary .....at 8:14 PM

S&P 500 1,335.02 -.58%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 7:59 PM

Indices

S&P 500 1,335.02 -.58%
DJIA 12,640.75 -.99%
NASDAQ 2,892.42 +.68%
Russell 2000 775.16 +.50%
Value Line Geometric(broad market) 336.73 +.14%
Russell 1000 Growth 624.76 -.47%
Russell 1000 Value 654.85 -.62%
Morgan Stanley Consumer 780.63 -.77%
Morgan Stanley Cyclical 897.50 -1.12%
Morgan Stanley Technology 637.38 +.47%
Transports 5,083.22 -.16%
Utilities 472.06 -2.27%
Bloomberg European Bank/Financial Services 73.04 +1.71%
MSCI Emerging Markets 37.90 -1.85%
Lyxor L/S Equity Long Bias 998.58 +1.02%
Lyxor L/S Equity Variable Bias 796.55 -.34%
Lyxor L/S Equity Short Bias 539.29 unch.

Sentiment/Internals

NYSE Cumulative A/D Line 142,112 +1.33%
Bloomberg New Highs-Lows Index -159 +43
Bloomberg Crude Oil % Bulls 15.0 -60.5%
CFTC Oil Net Speculative Position 123,908 -5.31%
CFTC Oil Total Open Interest 1,432,126 -1.80%
Total Put/Call 1.0 unch.
OEX Put/Call 1.26 +34.04%
ISE Sentiment 63.0 -46.61%
NYSE Arms 1.11 +91.38%
Volatility(VIX) 18.11 -14.21%
S&P 500 Implied Correlation 69.18 -1.62%
G7 Currency Volatility (VXY) 10.06 -8.04%
Smart Money Flow Index 10,900.95 -1.54%
Money Mkt Mutual Fund Assets $2.533 Trillion -.8%
AAII % Bulls 32.9 -3.38%
AAII % Bears 35.9 +.25%

Futures Spot Prices

CRB Index 67.97 -1.56%
Crude Oil 79.76 -5.59%
Reformulated Gasoline 256.99 -4.82%
Natural Gas 2.62 +6.62%
Heating Oil 253.37 -4.24%
Gold 1,566.90 -3.80%
Bloomberg Base Metals Index 191.0 -3.72%
Copper 331.50 -3.08%
US No. 1 Heavy Melt Scrap Steel 399.0 USD/Ton unch.
China Iron Ore Spot 137.4 USD/Ton +1.78%
Lumber 262.20 -2.53%
UBS-Bloomberg Agriculture 1,453.93 +3.35%

Economy

ECRI Weekly Leading Economic Index Growth Rate -3.50% -50 basis points
Philly Fed ADS Real-Time Business Conditions Index -.2024 +6.38%
S&P 500 Blended Forward 12 Months Mean EPS Estimate 110.98 -.1%
Citi US Economic Surprise Index -64.40 -3.8 points
Fed Fund Futures imply 70.0% chance of no change, 30.0% chance of 25 basis point cut on 8/1
US Dollar Index 82.26 +.81%
Yield Curve 137.0 +7 basis points
10-Year US Treasury Yield 1.67% +9 basis points
Federal Reserve's Balance Sheet $2.854 Trillion +.06%
U.S. Sovereign Debt Credit Default Swap 49.21 +1.67%
Illinois Municipal Debt Credit Default Swap 216.0 -5.11%
Western Europe Sovereign Debt Credit Default Swap Index 294.73 -6.76%
Emerging Markets Sovereign Debt CDS Index 303.29 -1.12%
Saudi Sovereign Debt Credit Default Swap 130.08 -.21%
Iraq Sovereign Debt Credit Default Swap 431.45 -4.12%
China Blended Corporate Spread Index 550.0 -10 basis points
10-Year TIPS Spread 2.08% -4 basis points
TED Spread 38.5 +.25 basis point
2-Year Swap Spread 23.75 -4.0 basis points
3-Month EUR/USD Cross-Currency Basis Swap -54.50 -4.25 basis points
N. America Investment Grade Credit Default Swap Index 115.71 -3.26%
Euro Financial Sector Credit Default Swap Index 276.14 -1.03%
Emerging Markets Credit Default Swap Index 290.79 +1.65%
CMBS Super Senior AAA 10-Year Treasury Spread 204.0 unch.
M1 Money Supply $2.261 Trillion +.83%
Commercial Paper Outstanding 998.20 -.90%
4-Week Moving Average of Jobless Claims 386,300 +4,300
Continuing Claims Unemployment Rate 2.6% unch.
Average 30-Year Mortgage Rate 3.66% -5 basis points
Weekly Mortgage Applications 941.50 -.83%
Bloomberg Consumer Comfort -37.9 -1.5 points
Weekly Retail Sales +2.5% unch.
Nationwide Gas $3.45/gallon -.07/gallon
U.S. Cooling Demand Next 7 Days 1.0% above normal
Baltic Dry Index 978.0 +5.84%
Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 30.0 unch.
Rail Freight Carloads 249,975 +1.44%

Best Performing Style

Small-Cap Growth +.67%

Worst Performing Style

Large-Cap Value -.62%

Leading Sectors

Airlines +5.66%
Alt Energy +4.36%
Biotech +3.01%
Homebuilders +2.46%
Hospitals +2.28%

Lagging Sectors

Utilities -2.28%
Computer Services -2.45%
Energy -3.02%
Gold & Silver -4.75%
Oil Services -5.11%

Weekly High-Volume Stock Gainers (13)

ARNA, OSIR, ONXX, LGND, IDCC, PRAA, EGOV, IDIX, BABY, MCP, CHH, TOWN and ALGN

Weekly High-Volume Stock Losers (10)

MAIN, WAG, HCSG, BKI, DSW, IIVI, LZB, ETH, BBBY and LQDT

Weekly Charts
ETFs

Stocks

*5-Day Change

Posted by Gary .....at 3:40 PM

Broad Market Tone:

Advance/Decline Line: Higher
Sector Performance: Most Rising
Volume: Light
Market Leading Stocks: Performing In Line

Equity Investor Angst:

VIX 18.14 -9.66%
ISE Sentiment Index 53.0 -35.37%
Total Put/Call 1.07 -3.60%
NYSE Arms .99 -71.08%

Credit Investor Angst:

North American Investment Grade CDS Index 115.31 -2.3%
European Financial Sector CDS Index 276.06 -.04%
Western Europe Sovereign Debt CDS Index 295.20 -1.13%
Emerging Market CDS Index 290.36 -1.45%
2-Year Swap Spread 23.75 -2.0 basis points
TED Spread 38.50 -.5 basis point
3-Month EUR/USD Cross-Currency Basis Swap -54.50 -1.25 basis points

Economic Gauges:

3-Month T-Bill Yield .08% unch.
Yield Curve 136.0 +5 basis points
China Import Iron Ore Spot $137.40/Metric Tonne unch.
Citi US Economic Surprise Index -64.40 +.4 point
10-Year TIPS Spread 2.08 +1 basis point

Overseas Futures:

Nikkei Futures: Indicating a +32 open in Japan
DAX Futures: Indicating +17 open in Germany

Portfolio:

Slightly Higher: On gains in my tech, medical and biotech sector longs
Disclosed Trades: None
Market Exposure: 50% Net Long

Today's Headlines

Posted by Gary .....at 3:09 PM

Bloomberg:

Merkel Parries Push For Debt Plan As Chiefs Agree On Growth Pact. German Chancellor Angela Merkel parried attempts to get her to accept more flexible use of the euro-region’s rescue funds and collectively financing debt, while agreeing with leaders of Italy, Spain and France on a proposal to spur economic growth. In a meeting in Rome, Merkel, Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy said they would lobby their European Union partners to accept a growth plan worth as much as 130 billion euros ($162 billion), or about 1 percent of the euro- region’s economic output. They didn’t give specifics about the plan or how it would be financed. European leaders are looking for a way out of their almost three-year-old debt crisis that has forced four countries to seek bailouts. Leaders are racing to come up with a plan by a summit on June 28-29 to convince the investors that they can salvage the region’s monetary union. In an interview today with a group of European newspapers including Le Monde and El Pais, Monti said the weeklong run up to the summit may prove critical to the survival of the euro. Should leaders fail to produce a blueprint for a tighter fiscal and financial union, there will “be progressively greater speculative attacks” on the currency bloc’s “weaker” nations.
Bundesbank Swipes at Draghi as European Fault Lines Deepen. The Bundesbank opposition to the European Central Bank’s plan to help ailing financial institutions is its latest swipe at the crisis-fighting efforts of Mario Draghi’s central bank. As Spanish banks scramble for collateral to use in the refinancing operations that are keeping them afloat, the ECB said today it will cut the rating thresholds and amend eligibility requirements for some asset-backed securities. While the move will give stressed banks greater access to ECB liquidity, it may also increase the amount of risk on the central bank’s balance sheet. “We’re critical of this,” Bundesbank spokesman Michael Best said. In terms of collateral, “we won’t accept what we don’t have to accept,” he said. The criticism highlights one of the fault lines dividing European officials as they struggle to end a crisis threatening to rip the currency union apart. As Draghi’s officials scramble to put together policies that will fight the latest stage of the turmoil, German policy makers are emphasizing the dangers of pursuing unorthodox policies that potentially put taxpayers on the hook for future losses. “It’s almost the usual game: the ECB has to do something to alleviate a liquidity crisis and the Bundesbank isn’t very happy about it,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a telephone interview. “The Bundesbank being critical doesn’t fully counteract what the ECB is doing, but possibly makes it a little less effective.”
German June Business Confidence Drops To Two-Year Low. German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Economists predicted a decline to 105.6, according to the median of 39 estimates in a Bloomberg News survey. Italian consumer confidence fell to a record low, a separate report showed. “The euro area is clearly on the downward turn,” said Stella Wei Wang, an economist at Nomura International Plc in London. “If there is no quick political response to the crisis, the confidence shocks we see now in Europe will worsen the situation.”
Italy Consumer Confidence Falls Amid Rising Taxes, Unemployment. Italian household confidence fell this month to a record low as joblessness rose and Prime Minister Mario Monti’s fiscal measures deepened the country’s fourth economic recession since 2001. The confidence index fell to 85.3, the lowest since the data series began in 1996, from 86.5 in May, national statistics office Istat said in Rome today. Economists forecast a reading of 86, according to the median of 15 estimates in a Bloomberg News survey. Italy’s new property tax, known as IMU, made its debut this month with the first of three payments due on June 18. The IMU, which marked the return of taxation on primary residences after four years, was part of the 20 billion-euro ($25.1 billion) package that the government passed to cut the country’s deficit. That plan and other measures that have pushed gasoline prices to record levels helped push the economy deeper into the recession. Italy’s joblessness rose in April to a seasonally adjusted 10.1 percent, the highest in 12 years.
Ghost of Nazi Past Haunts Austerity-Gripped Europe: Euro Credit. The specter of the 1930s financial crisis that culminated in the rise of Adolf Hitler’s Nazi party and the Second World War is stalking Europe.
Spain Said To Weigh Imposing Losses On Junior Bank Bondholders. Spanish policy makers are considering forcing investors who hold equity and junior debt in banks to absorb losses in a restructuring, according to a person with knowledge of the plan. Such burden sharing is among conditions being negotiated with the European Union in a 100 billion-euro ($126 billion) rescue for Spain’s financial industry, said the person, who asked not to be named as the conversations are private. Depositors who bought subordinated instruments such as preferred stock may be partially shielded from losses through a compensation plan being considered, the person said. Spain is poised to make a formal request for bank aid after asking for the credit line on June 9. The country’s lenders, rocked by the end of a real estate boom, would need as much as 62 billion euros in capital to withstand a worst-case economic scenario, according to Roland Berger and Oliver Wyman, consulting firms hired by the government to conduct stress tests.
Bernanke’s Twist Sharpens Year-End Anxiety Over Stimulus. Federal Reserve Chairman Ben S. Bernanke has repeatedly warned lawmakers that a fiscal cliff threatens the economy. Now he’s created a precipice of his own. The Fed on June 20 extended its Operation Twist program to swap $267 billion in short-term securities with longer-term debt through December. That end date coincides with reductions in federal spending, a halt to payroll-tax cuts and expiration of income-tax cuts enacted under President George W. Bush. The timing of Bernanke’s easing raises the stakes for the Fed’s four remaining policy meetings this year as investors focus on whether the central bank will provide stimulus for 2013 to help the economy overcome the impact of the fiscal tightening due to take hold in January, said Vincent Reinhart, chief U.S. economist at Morgan Stanley. “They create their own monetary cliff to match the fiscal cliff,” said Reinhart, former head of the Fed board’s Division of Monetary Affairs. That may mean “a world of hurt” for the central bank because there would be a perception the Fed allows fiscal politics to influence its actions.
Fed's Bullard Says QE3 Would Have 'High Hurdle'. Federal Reserve Bank of St. Louis President James Bullard said today a possible third round of quantitative easing would face a “pretty high hurdle.” “We can do that and I think it would be effective,” Bullard said in a television interview on Bloomberg Surveillance with Tom Keene. “But we’d be taking a lot more risk on our balance sheet. We’d be going further into uncharted territory.” Bullard said that “Treasury yields have gone to extraordinarily low levels. That took some of the pressure off the FOMC since a lot of our policy actions would be trying to get exactly that result.”
JPMorgan(JPM) CDS Position Rose 400% Against Bank Rivals, Data Show. JPMorgan Chase & Co., whose losses from credit swaps will top $2 billion, amassed a trading position in the contracts last quarter at least four times as large as that of its closest U.S. competitor, a government report showed. Comparing purchases and sales of credit swaps in the first quarter and the fourth quarter last year, JPMorgan bought $148 billion more in notional value of the swaps and sold $232 billion more of the contracts, the Office of the Comptroller of the Currency said today. That compared with Citigroup Inc. (C) buying $36 billion more in credit swaps quarter-on-quarter and selling $46 billion more, while Goldman Sachs Group Inc. (GS) purchased $15 billion more and sold $16 billion more from one quarter to the next, the OCC data show. Bank of America Corp. (BAC) reduced the amounts of credit- default swaps it bought by $589 billion and sold by $587 billion quarter-on-quarter, OCC said. JPMorgan lost $761 million in revenue from trading credit derivatives and securities in the three months ended in March, the OCC said. It earned $2.5 billion in interest-rate derivatives and securities and $545 million in foreign exchange positions, OCC said. All U.S. commercial banks earned $7 billion in revenue by trading over-the-counter derivatives and securities in the first quarter, down 5 percent from the year-earlier period as credit trading slowed, the OCC said in the report. The U.S. agency said its main measure of credit risk in derivatives markets, the so- called net current credit exposure, fell 12 percent, or $53 billion, to $377 billion.
Syrian Army Kills 144 as 54 Soldiers Also Die, Group Says. Syrian security forces killed 144 people yesterday, a rights group said, making it one of the bloodiest days in recent weeks in President Bashar al-Assad’s crackdown on opposition groups. More than 30 of the deaths came in the central region of Homs, and another 29 in Daraa in the south, the U.K.-based Syrian Observatory for Human Rights said in an e-mailed statement today. It said at least 54 soldiers also died. The Observatory said that Syrian forces shelled towns in the northern Idlib region today, while protests were held in Aleppo, the second-biggest city, which is near the Turkish border. Homs also came under heavy artillery fire again, Al Arabiya television reported.
Wash Trading by High-Frequency Firms Said To Face Scrutiny. High-frequency trading firms are drawing scrutiny from U.S. regulators seeking evidence that they may be distorting market prices by conducting transactions with themselves, said two people with knowledge of the matter. So-called wash trades, in which a party buys a contract from itself, could be executed inadvertently by firms with multiple algorithms active in the same stock or derivative, said the people, who requested anonymity because the review isn't public. Such trades, which can alter the price of shares if they are executed above or below market rates, would be illegal if deemed intentional efforts to manipulate stocks.
GM(GM) Recalls 413,418 Chevrolet Cruzes on Engine Fires. General Motors Co. (GM) is recalling 413,418 Chevrolet Cruzes, its best-selling car model in the U.S. last year, following engine-compartment fires. GM is recalling the compact cars from model years 2011 and 2012 in the U.S. because liquids can be trapped near the engine and catch fire, the Detroit-based company said today in an e- mailed statement.

Wall Street Journal:

Spain to Make Official Aid Request Monday. Spain's government said Friday it plans to make its official request for European Union aid for its banking sector Monday, and expects to have the terms for such aid set by July 9, as discussions continue on ways to inject European aid funds directly into ailing Spanish banks.
Strassel: Axelrod's ObamaCare Dollars. Emails suggest the White House pushed business to the presidential adviser's former firm to sell the health-care law.

CNBC.com:

Auditor: Total Illinois Deficit Nears $44 Billion. The state's overall deficit climbed to nearly $44 billion last year, easily the worst in the nation, the Illinois auditor general reported Thursday. The red ink grew by 16.8 percent in a single year, Auditor General William Holland said. The new report includes all of Illinois' assets and liabilities and gives a broader picture of the state's financial condition than simply reviewing the annual budget — one of steady deterioration. With no cash available, more state payments were late and for larger amounts, the audit found. Illinois ended the fiscal year with $4.7 billion in unpaid bills. The state fell further behind in paying tax refunds. Bookkeeping was slow and disorganized. The deficit stood at $43.8 billion as of June 30, 2011, the auditor said. That's $10 billion more than the deficit of the next-highest state, New Jersey, and $33 billion higher than the deficit in California, another state that has been plagued by financial problems.
IMF Sowing Seeds of the Crisis It Helped Plant - Opinion.

Business Insider: