Wednesday, June 29, 2011

Wednesday Watch

Evening Headlines


  • Papandreou Bids to Avert Greek Default. Greek Prime Minister George Papandreou’s bid to avert the euro region’s first sovereign default will culminate today with a budget vote in a Parliament besieged by protesters amid a wave of national strikes. Papandreou may scrape through approval by quelling dissent from the 155 votes he commands in the 300-seat Parliament and recruiting opposition allies to deliver a 78 billion-euro ($112 billion) austerity package that will determine if his indebted nation can receive further rescue funds. Rallying lawmakers might be easier than enacting the plan as Greek discontent deepens on higher taxes and so-called “crisis wage levies.” “The odds favor the government and a parliamentary approval,” said Wolfango Piccoli, an analyst at Eurasia Group in London. “But this will be a Pyrrhic victory and an early election later this year or early 2012 is almost certain. It is difficult to see how the current government can implement the required measures to meet the bailout conditionalities.”
  • Greek 'Indignants' Face Down Politicians. His face covered in white powder to stop the tear gas from stinging, George Styliatis is into his second month of trying to topple Greece’s leadership. “We need this government to fall, we need a new constitution, a new Greece,” Styliatis, 41, an unemployed former ambulance driver, said as he mingled in central Athens during a general strike yesterday. “They wanted us divided, but at this time, as you see around us, all the people are here.” Nowhere in Europe are politicians facing the wrath of the people who put them in power more than in Greece. As Prime Minister George Papandreou tries to unite his party behind a package of cuts, increased taxes and asset sales, protesters are galvanizing their opposition to the politicians they blame for needing it in the first place.
  • Morgan Stanley(MS) Said to Suffer Trading Loss. Morgan Stanley (MS), the firm targeting a 2 percent market-share gain in fixed-income trading this year, was burned by a wager on U.S. inflation expectations in the second quarter, three people informed of the dealings said. The bank’s interest-rates trading group lost at least tens of millions of dollars on the trade, which the firm has been unwinding, two of the people said, declining to be identified because the transaction isn’t public.
  • Emerging Markets Will Press Lagarde. Christine Lagarde won the support of emerging-market nations for her successful bid to become managing director of the International Monetary Fund by promising them greater influence at the global lender. Now she’ll be under pressure to deliver.
  • Basel Regulators Said to Scrutinize Banks' 'Flawed' Risk-Weighting Methods. Global banking regulators are moving their attention to disparities in the way firms measure the riskiness of their assets on concern lenders may be using their internal models to mitigate rules aimed at making them boost capital. The Basel Committee on Banking Supervision agreed on June 25 to make systemically important financial institutions hold core Tier 1 capital of as much as 9.5 percent of total risk- weighted assets. Now regulators are preparing to assess how banks set risk weightings amid criticism firms’ calculations are inconsistent, said a person with direct knowledge of the matter who declined to be identified because the talks are private. “There is no question that the weightings can be manipulated,” said Charles Goodhart, a former Bank of England policy maker and professor at the London School of Economics. “They are light years away from being scientific. The idea that risk can be captured and then not adjusted to reflect dynamic markets is absolutely flawed.”
  • Shilling: China Heading for a Hard Landing, Pt. 3. China is hoping to cool its white- hot economy without precipitating a recession. Doing so will be extremely difficult: Inflation fears are growing, the government’s ability to respond is quite limited, and China’s economic model, which leaves bureaucrats guessing about the market effects of their directives, is ultimately untenable.
Wall Street Journal:
  • NATO Copter Ends Kabul Hotel Siege. A helicopter from the coalition led by the North Atlantic Treaty Organization fired on and killed three militants on the roof of Kabul's InterContinental Hotel, ending the nearly six-hour siege by gunmen and suicide bombers that demonstrated the Taliban's ability to stage dramatic attacks in Afghanistan's capital.
  • Wall Street Wielding the Ax. The trading slump on Wall Street has battered profits and is about to cost some people their jobs.
  • BofA(BAC) Nears Huge Settlement. Bank of America Corp. is close to an agreement to pay $8.5 billion to settle claims by a group of high-profile investors who lost money on mortgage-backed securities purchased before the U.S. housing collapse, said people familiar with the matter. The payment would be the largest such settlement by a financial-services firm to date, exceeding the total profits of the Charlotte, N.C., bank since the onset of the financial crisis in 2008.
  • UAW, Car Makers Gear Up for Talks. The United Auto Workers union plans to kick off contract negotiations next month with Detroit auto makers, the industry's first labor talks since the U.S. bailout gave union trusts stakes in General Motors Co. and Chrysler LLC.
  • Fed Extends Lending Program for Central Banks. The Federal Reserve, amid persistent worries about Europe's sovereign debt crisis, last week quietly approved the extension of a crisis-lending program that allows the European Central Bank to tap the U.S. for dollars, Federal Reserve Bank of St. Louis President James Bullard said. The Fed's dollar-lending agreements with the ECB—as well as the central banks of England, Canada, Japan and Switzerland—were scheduled to expire Aug. 1. The Fed and other central banks haven't yet disclosed renewal of the agreements, known as swap lines.
  • A Stealth Tax Hike. The White House wants Republicans to agree to tax increases that no one wants to call tax increases, and for an insight into this political method let's focus on one proposal in particular—the phase-out of itemized deductions for upper-income taxpayers. We hope the tea party is paying attention, because this kind of maneuver is why people hate Washington.
  • IEA Move Sees Spread Bets Turn Sour for Oil Traders. Many traders and hedge funds are nursing losses after a whiplash reversal in one of the biggest commodity trading trends of the year – a bet on a widening spread between different types of crude oil. Traders say the unexpected release of the Western countries’ petroleum strategic stocks last week left many in the oil market wrong-footed, particularly those that had traded on the relative price differential of Brent crude and Dubai crude. The price difference has narrowed sharply between the lower quality, heavy sour Dubai crude, the benchmark for Middle East supplies, and the premium quality, light sweet Brent, the North Sea’s benchmark. The spread has plunged to a six-month low, dropping nearly 50 per cent in just four days, traders said. So far companies have not disclosed any losses but given how widespread the bet on widening spreads had been, the move would have hit many traders hard.
  • Top States For Business - 2011 Overall Rankings.
  • BYD Says Quarterly Profit Falls 84% On Year. BYD, the Chinese automaker backed by U.S. billionaire Warren Buffett, said its net profit for the first quarter of 2011 fell 84.4 percent year-on-year.
Business Insider:
Zero Hedge:
  • 1 Sievert Water Leaking From Fukushima As Full Body Radiation Checks Begin Across Prefecture.
  • Greek Debt Rollover - Who Is Getting Rolled Over? The analysis clearly demonstrates that the Troika is put into more risk sooner, and with less control than it would be without the rollover. Greece will be paying a higher coupon over the next 3 years by offering the SPV rates in line with its existing long bonds. The banks get immediate risk relief from a combination of cashing out 20% of their short dated Greek bonds and structuring the SPV to ensure maximum recovery. The banks have also made a proposal that ensures they will be receiving a good rate of interest in spite of the relatively low headline coupon mentioned. It is no wonder why the banks are falling all over themselves to agree to the plan. It sounds like they are being kind, but they are much better off with the plan by shifting near term risk to the Troika and longer term rate risk to Greece.
Seeking Alpha:
The New York Review of Books:
USA Today:
  • Future of Federal Solar Programs in Doubt. The solar power industry is facing a double threat from a Congress that may turn off the flow of federal subsidies and take a pass on mandating renewable-energy standards that would increase demand.
  • SEC On Lookout for Bubble-Era IPO Practices. Some recent red-hot initial public offerings have the Securities and Exchange Commission concerned that Wall Street's underwriters may be tempted to revive some troubling tech bubble practices. "You can't help but be concerned by IPO valuations," Robert Khuzami, the SEC's enforcement chief, told an audience of Wall Street lawyers and compliance officers in New York on Tuesday.
  • Gas, Oil Abundant in Alaska's Cook Inlet - Report. Alaska's Cook Inlet basin still has potential for abundant natural gas and oil discoveries even after five decades of production, according to a federal report issued on Tuesday, signaling potential revenue for the state and more interest from developers. In the first resource assessment issued since 1995, the U.S. Geological Survey said the inlet area likely holds 19 trillion cubic feet of recoverable natural gas -- nearly nine times the last estimate -- and 600 million barrels of recoverable crude oil. The new report is much more optimistic about remaining natural gas in the inlet than the assessment issued 16 years ago, a difference the USGS attributed to improved data, new geologic information and better technology for recovering the oil and gas.
  • Nearly Half US States Close Budget Gaps With Cuts - CBPP. A majority of U.S. states have passed their budgets for the fiscal year starting July 1, according to the Center on Budget and Policy Priorities. As of Monday, 32 states had enacted their budgets, with at least 24 slashing spending on public services, as they are still gripped by the effects of the recession, the think-tank that tracks states' fiscal conditions said on Tuesday.
  • Shaw Group(SHAW) Forecast Weak Q4 Earnings, Shares Down. Shaw Group Inc, which provides engineering, construction and technology services, posted quarterly results that missed market estimates, partly hurt by accounting impairments, and forecast a weak fourth-quarter profit. Shares of the company fell more than 13 percent in after-market trade.
Financial Times:
  • Greece's Asset Sale May Fall Short, Milan Study Says. Greece's planned sale of state assets, which is intended to raise $72 billion for the country by 2015, may not bring in more than a quarter of that amount, unless more prime land and cultural heritage are added to the sales list, citing a report by Privatisation Barometer, a Milan-based institute backed by Frondazione Eni Enrico Mattei and KPMG.
Sueddeutsche Zeitung:
  • Germany's Bundesbank placed conditions on involving German banks in a Greek rescue, citing the institute's board member Joachim Nagel. In no way must "the participation of private creditors lead to a higher burden for public budgets," citing Nagel. The banks' involvement must be completely voluntary and shouldn't be viewed as a payment shortfall by the ratings agencies.

Apple Daily:
  • Cheung Kong (Holdings) Ltd. expects "downward pressure" on Hong Kong home prices in the second half of this year because property values are beyond the reach of most residents, citing Justin Chiu, executive director of the developer.
Hong Kong Economic Journal:
  • Shanghai city government's investment vehicle for property and highway construction, may not be able to repay current loans from this month and has asked for an extension of its repayment period.
Dong-a Ilbo:
  • South Korea discovered deposits of rare-earth elements in two local regions, citing the Korea Institute of Geoscience and Mineral Resources. The deposits found in Chungju and Hongcheon may be enough to meet Korea's consumption for at least 30 years.
Yonhap News:
  • South Korea's finance ministry called for a meeting with officials from local banks and foreign bank branches today to express the government's concerns about rising short-term external debt, citing the finance ministry.
Economic Information Daily:
  • China's inflation is likely to average 5.3% this year, citing Li Jianwei, director of the macro economy research institute under the State Council's Development Research Center. Consumer-price gains may stabilize in the third quarter before accelerating in the fourth quarter, driven by rising wages and imported inflation, citing Li. Inflation may reach 7.1% in the third quarter of next year partly due to higher commodity prices, he said.
  • China has "indisputable" rights to islands in the South China Sea and surrounding waters, citing Yang Li, a spokesman for the State Council's Taiwan Affairs Office.
Evening Recommendations
  • Reiterated Buy on (CLF), target $127.
Night Trading
  • Asian equity indices are -.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 116.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 124.0 -2.75 basis points.
  • S&P 500 futures -.21%.
  • NASDAQ 100 futures -.12%.
Morning Preview Links

Earnings of Note
  • (KBH)/-.33
  • (FDO)/.95
  • (GIS)/.52
  • (AYI)/.63
  • (MON)/1.10
  • (AM)/.80
Economic Releases
10:00 am EST
  • Pending Home Sales for May are estimated to rise +3.0% versus an -11.6% decline in April.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -1,711,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,050,000 barrels versus a +1,173,000 barrel gain the prior week. Gasoline inventories are expected to rise by +775,000 barrels versus a -464,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +3.1% gain the prior week.
Upcoming Splits
  • (MMS) 2-for-1
  • (AMX) 2-for-1
Other Potential Market Movers
  • The Greece austerity vote, Fed's Raskin speaking, 7-Year Treasury Notes Auction, weekly MBA mortgage applications report, (DELL) analyst meeting and the (TDG) analyst day 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 day.

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