Tuesday, June 28, 2011

Tuesday Watch


Evening Headlines


Bloomberg:

  • Papandreou Pleads for Support, Unions Strike. Greek Prime Minister George Papandreou called on lawmakers to obey their “patriotic conscience” and back tougher austerity measures, as they began to debate a five-year budget plan that will determine whether the cash-strapped nation can avoid default. “Voting for the medium-term plan means we can close this chapter of uncertainty for the Greek people,” Papandreou said at the start of a three-day debate on the program in Parliament in Athens yesterday. “From the brink of catastrophe we are securing, colleagues, the great opportunity to change our country.” Papandreou faces his second survival test in a week tomorrow when lawmakers vote on the package of budget cuts and asset sales that’s needed before Greece can tap a fifth loan payment from last year’s 110 billion-euro ($157 billion) rescue. Failure to pass Papandreou’s 78 billion-euro plan may lead to the euro area’s first sovereign default.
  • Single Trade Lifts Oil, Gas ETF Put Volume to Six-Week High. A single options bet that oil and gas companies will extend losses lifted put volume for an exchange-traded fund tracking the industry to a six-week high. Almost 38,000 puts to sell the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) changed hands as of 4 p.m. in New York, 3.4 times the four-week average, as the fund fell 0.1 percent to $55.08. An investor sold 10,000 September $59 puts to purchase 20,000 September $54 puts, according to a report from today Susquehanna Financial Group LLLP in Bala Cynwyd, Pennsylvania. “They’re extending a winning bet,” according to Frederic Ruffy, a senior options strategist at WhatsTrading.com, a New York-based provider of options-market analytics. “They made a substantially bearish bet earlier this month and now they’re extending it and positioning themselves for further losses.”
  • The euro-region debt crisis is undermining investor trust in banks' creditworthiness, driving a measure of credit risk to the highest in more than two years. The 10-year euro swap spread rose to about 44 basis points yesterday, the most since March 2009. The spread "reflects bank-funding concern," said Robert Crossley, a fixed-income strategist at Citigroup Inc. in London. "Being long swap spreads is a way to express periphery worries without getting involved in those markets," he said. For banks in these nations, "if they can't get funding from the European Central Bank then they're in trouble."
  • China Yurun Isn't Aware of a Short Seller's Report. China Yurun Food Group Ltd. fell for the fourth day in Hong Kong trading amid speculation short seller Muddy Waters LLC may issue a report on the company. The pork producer fell 6.8 percent to HK$19.20 as of 9:53 a.m. in Hong Kong, after earlier gaining as much as 7.8 percent.
  • Hedge Funds Eye Japan Pensions Post-Quake. Global hedge funds are vying for allocations from Japan’s corporate pension fund managers, who oversee about $740 billion and are seeking alternatives to stocks following the March earthquake.
  • Money Funds in U.S. Unfazed by Greek Crisis Watch Out for Spain Contagion. The European debt crisis would pose a threat to U.S. money-market mutual funds if a rash of sovereign defaults caused big banks to fail to meet obligations within the next three months. “It would take a very rapid decline and not just in the smaller European countries” for the debt crisis to threaten U.S. money funds, George “Gus” Sauter, chief investment officer at Vanguard Group Inc. in Valley Forge, Pennsylvania, said in an interview. “You’d probably have to see Spain and Italy get into difficult shape.”
  • Tepco Faces Protests at Shareholder Meeting. Tokyo Electric Power Co. faces shareholders for the first time since the March 11 earthquake and tsunami caused meltdowns at its Fukushima Dai-Ichi plant, wiping about $36 billion off its market value. “We want you to make a courageous decision so that there will not be another Fukushima,” said Haruna Takita, 33, who came from Koriyama City, west of the plant. “Think about children and their future,” she said to shareholders standing in lines about 200 meters (660 feet) long outside the meeting venue nine minutes before it was due to start.
Wall Street Journal:
  • Ailing Greece Tries National Tag Sale. Debt-strapped Greece is about to hold an epic yard sale. For the taking: four wide-body Airbus jets, a state lottery, a state horse-racing concession and sports book, stakes in a casino, several ports, a national post office, two water companies, a nickel miner and smelter, a munitions maker, electricity and gas monopolies, a telecommunications operator, shares in a half dozen banks, hundreds of miles of roads, a defunct airport, old Olympic venues and thousands of acres of land, including magnificent stretches of Greece's famed coast.
  • SEC Broadens Probe Into Stifel Financial. U.S. securities regulators have broadened their probe of mortgage bonds sold by Stifel Financial Corp. to include whether the securities were suitable for five Wisconsin school districts that suffered steep losses on them, according to people familiar with the situation. The Securities and Exchange Commission is trying to determine if the schools should have been sold three different collateralized debt obligations pitched to them by a unit of the St. Louis company, these people said.
  • China Firms Face Research Armies. In a rundown block in an industrial section of Hong Kong, rows of researchers at a two-year-old firm called Blue Umbrella are trawling through documents such as corporate records, blogs and government watch lists. Their goal: to look for accounting discrepancies or investigate the financial claims of Chinese businesses. It is a growth industry. Investors around the world eager to profit from China's fast-growing economy want to know the risks. And hedge funds are circling over more and more Chinese stocks they want to bet against.
  • Beijing Backs Lagarde for IMF Post. Key Endorsement By Emerging Nation Comes as Fund's Board Nears Decision.
  • The Deficit Is Worse Than We Think by Lawrence B. Lindsey. Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal. Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. There are at least three major reasons for concern. It is increasingly clear that the long-run cost estimates of ObamaCare were well short of the mark because of the incentive that employers will have under that plan to end private coverage and put employees on the public system.
MarketWatch:
CNBC:
  • Nike(NKE) Shares Jump After Big Earnings Beat. The sports-gear maker reported its earnings rose to $1.24 a share in its fiscal fourth quarter from $1.06 a year earlier. Revenue climbed to $5.8 from $5.08 billion a year earlier. Analysts had expected the company to report earnings of $1.16 a share on revenue of $5.53 billion. Net income rose 14 percent to $594 million. The stock jumped nearly 5 percent in extended trade.
Business Insider:
  • Obama Proposes $600 Billion In Tax Hikes. The White House announced today that it is seeking to raise $600 billion in revenue through new taxes and the elimination of corporate subsidies as part of a deal to lower the deficit and raise the debt ceiling. President Barack Obama is trying to ensure that any spending cuts agreed to are also offset by tax increases — something Republicans have said they will oppose at all costs.
  • Goldman Sachs(GS) Is Firing Employees In The US So It Can Hire 1,000 In Singapore. Goldman Sachs is going to fire employees in the U.S. and some other countries so that it can hire 1,000 in Singapore, where it's cheaper. Charlie Gasparino heard the news from people who were briefed on the hiring in Washington. He says Goldman gave Washington the heads up because hiring offshore is likely to cause a backlash.
  • For The Next 48 Hours, Greek Life Will Be Thrown Into "Disarray". There were no major developments from the first day of the Greek austerity debate. The debate will go through Wednesday, at which point there will be two votes.
  • Italy Can't Like The Looks Of This. (graphs) This week is all about Greece, we get that. Gun to our head, our guess is that the Greek Parliament manages to pass (barely) the austerity bill that will allow it to get another hand out and avoid default. And then when that happens, you have Greece, Portugal, and Ireland all safely ensconced (for now) under IMF-regimes that shield them from private credit markets. The problem then turns to the other two PIIGS: Spain and Italy.
Zero Hedge:
Forbes:
Department of Justice:
Chicago Tribune:
  • Blagojevich Convicted. 'I, frankly, am stunned,' former governor says after jury convicts him on 17 counts. In its 10th day of deliberations, the 11-woman, one-man jury convicted Blagojevich of several shakedown attempts, including allegations that he brazenly tried to sell President Barack Obama's old U.S. Senate seat in 2008. The decisive verdict came less than a year after the first jury to hear the case found him guilty of one criminal charge but deadlocked on the rest.
Politico:
  • Nancy Pelosi, Harry Reid Raise Money for Super PACs. House Minority Leader Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) have started raising money for Democratic “super PACs,” diving into the world of outside groups after condemning this type of fundraising in the most recent election cycle. Both Pelosi and Reid are limiting their solicitations to $5,000 or less for House Majority PAC and Majority PAC, which will spend money in House and Senate races, respectively. Liberal financier George Soros has already given tens of thousands of dollars to House Majority PAC. Pelosi’s fundraising for House Majority PAC has not been previously disclosed.
Reuters:
  • Too Soon to Judge Impact of Greek Package - S&P Exec. It is too soon to judge the ratings impact of a debt relief package involving the private sector being put together for Greece, a senior official at the Standard & Poor's rating agency told Austrian television. "I can tell you only that we cannot give a judgment on something we have not even seen," Moritz Kraemer, S&P's head of European sovereign ratings, said in an interview on Monday. Asked if he could imagine a solution in which private creditors voluntarily contribute to a Greek rescue package and S&P would not downgrade its credit rating for the country, he said: "It is conceivable depending on the situation. That is why I say that it is not possible at all to draw a final conclusion on this in the current situation." He stressed that S&P had not commented on whether a private-sector contribution to Greece's debt package could trigger a default "because we simply don't have the details." "There has been an aid package for Greece since April 2010 and one thought the problem was solved. In restrospect we can see, of course -- and we anticipated that at the time with an appropriate downgrade -- that this was not the case," he said. "We also don't think that what is being discussed now is a sustainable solution to Greece's debt problem."
Sky News:
  • Greek lawmaker Alexandros Athanasiadis, a member of the ruling Socialist party, said he told Prime Minister George Papandreou he would vote against the government's austerity measures unless plans to sell state-owned energy company PPC and the Athens Water and Sewage Treatment Company are dropped.
Kyodo News:
  • North Korea ordered universities to close until April next year as almost all students will be required to work for the nation's economic recovery, such as by providing construction labor.
Shanghai Securities News:
  • Shanghai's housing inventory is about 8.5 million square meters so far this year, compared with about 6.5 million square meters at the end of 2010, citing Shanghai Deovolente Realty.
National Business Daily:
  • China's banking regulator has ordered banks to check each discounted bill financing transaction, citing a personal familiar with the situation. Banks must check how the discounted funds are used and whether they use the discounted bills to get around lending limits. They need to report the results by July 4.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (ACN), target $66.
BMO Capital:
  • Downgraded (MMI) to Underperform, target $19.
Night Trading
  • Asian equity indices are -.50% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 119.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 126.75 -.25 basis point.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.14%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PRGS)/.38
  • (SHAW)/.69
  • (SNX)/.80
Economic Releases
9:00 am EST
  • S&P/CS 20 City MoM% Sa for April is estimated to fall -.2% versus a -.23% decline in March.
10:00 am EST
  • Consumer Confidence for June is estimated to rise to 61.0 versus 60.8 in May.
Upcoming Splits
  • (MMS) 2-for-1
  • (AMX) 2-for-1
Other Potential Market Movers
  • The weekly retail sales reports, Richmond Fed Manufacturing Index, 1-Yr T-Bill auction, 5-Yr T-Note auction, Oppenheimer Consumer Conference, CSFB Basic Materials Conference, (CLF) analyst day and the (SMSC) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by mining and financial 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 day.

No comments: