Monday, October 17, 2011

Monday Watch

Weekend Headlines


  • Bankers Balk at EU Push for Bigger Greek Losses, Higher Capital. Josef Ackermann, the head of Deutsche Bank AG and chief lobbyist for the world's largest financial firms, has pressed European leaders for months to devise a strategy to stamp out the sovereign debt crisis. Now that European Union officials are moving toward an agreement that may include bigger losses on Greek debt holdings and the forced recapitalization of lenders, the Deutsche Bank chief executive officer and Washington-based Institute of International Finance he chairs are pushing back. He travels to Brussels this week for talks with policy makers. Forcing lenders to boost capital would be counterproductive, and getting investors to accept larger losses on Greek holdings difficult, Ackermann said on Oct. 13. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. “What's most depressing about this whole thing is the squabbling between politicians, regulators and banks,” said Christopher Wheeler, a London-based analyst with Mediobanca SpA. “Banks have to take positive action alongside the EU to find a solution, which is a combination of dealing with sovereigns as well as capital concerns.”
  • G-20 Gives EU One Week to Fix Debt Crisis. European leaders have one week to settle differences and flesh out a strategy to terminate their sovereign debt crisis as global finance chiefs warn failure to do so would endanger the world economy. Group of 20 finance ministers and central banks concluded weekend talks in Paris endorsing parts of the emerging plan to avoid a Greek default, bolster banks and curb contagion. They set an Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered. “The risk of a recession would be increased dramatically were the Europeans to fail to accomplish goals that they’ve set for themselves,” Canadian Finance Minister Jim Flaherty said after the G-20 meeting, which ended Oct. 15. Two years to the week since Greece triggered the turmoil by revising its budget math, the inability of policy makers to stamp it out has pushed the Greek government to the edge of default and the European economy close to recession. The euro weakened from near its highest in a month as traders speculated European leaders may struggle to meet the deadline. The euro fell 0.2 percent to $1.3853 as of 11:21 a.m. in Tokyo from $1.3882 in New York on Oct. 14, when it completed a 3.8 percent weekly advance, the biggest since March 2009.
  • Ackermann Says Bigger Rescue Plans May Be Illegal. Increasing the size of financial rescue packages for troubled countries in Europe may be illegal and people won’t allow it, Bild am Sonntag reported, citing Josef Ackermann, Chief Executive Officer of Deutsche Bank AG. Increasing such funds “may be right from an investor’s point of view, but won’t solve the problem,” the publication cited Ackermann as saying at a conference in Berlin on Oct. 13. He added that the only solution to the current crisis is for countries in trouble to step-by-step reduce their debt, a process that will slow future economic growth, the newspaper said. Banks and countries remain unable to refinance themselves on financial markets and the situation needs to be resolved, Bild cited Ackermann as saying. Ackerman also said the euro can only be saved by a closer political and economic integration of Europe, a process that may force the creation of a “new Europe,” Bild reported.
  • Brazil's Mantega Says 'War of Currencies' Ongoing, Euro Reports. The expansive monetary policies of some industrial nations help keep the value their currencies low, creating problems for the economies of countries including Brazil in a “war of currencies,” Euro magazine said, citing Brazil’s Finance Minister Guido Mantega. Some countries are devaluating their currencies to increase competitiveness of their export industries in light of weak national demand, Mantega said in the interview, calling such behavior “manipulation” and “unfair practices in international trade.” Mantega said he has turned to the World Trade Organization for help on the matter, without being more specific.
  • Republicans Expand Solyndra Probe to Investor Role on Navy Work. U.S. House Republicans expanded the investigation of Solyndra LLC., which received federal backing two years before it collapsed, to include the role an investor played in getting the company close to winning Navy work. “It is being looked at,” Representative Joe Barton, a Texas Republican, said yesterday after a House Energy and Commerce panel hearing on Solyndra’s $535 million U.S. loan guarantee. “The primary focus is on the Department of Energy, but it goes throughout the government.”
  • Pimco's Gross Tells Clients 2011 a 'Stinker' as Main Fund Trails. Bill Gross, manager of the world’s biggest mutual fund, sought to reassure clients that he hasn’t lost his touch after he misjudged the extent of the economic slowdown, causing his Pimco Total Return Fund to trail rivals this year. “This year is a stinker,” Gross wrote in an October letter to clients titled “Mea Culpa,” a copy of which was obtained yesterday by Bloomberg News. “There is no ‘quit’ in me or anyone else on the Pimco premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of the global financial markets.” Gross’s $242.2 billion Total Return Fund returned 1.3 percent this year through Oct. 13, lagging behind 82 percent of peers, according to data compiled by Bloomberg. That’s his worst performance relative to rivals since at least 1995, the earliest year for which Bloomberg has rankings for Newport Beach, California-based Pimco’s flagship.
  • Merkel Says U.S. Reluctance on Financial Transaction Tax 'Not Acceptable'. German Chancellor Angela Merkel criticized governments including President Barack Obama’s administration for refusing to make the financial sector pay for the global financial crisis, and vowed to push for a financial transaction tax until it applies at least in Europe. “It’s not acceptable that especially those outside the euro region, who are time and again pushing us to take broad- based action to manage the debt crisis, are at the same time flatly refusing to impose a financial transactions tax,” Merkel said at a labor union congress in the city of Karlsruhe yesterday. “I think this is not okay. We want, and we have to make, financial market participants contribute to the costs of crisis management.” Merkel said she will continue to push for a levy because “reasonable regulation” is needed for economic confidence to return. Trust in the reliability and competence of many financial market participants has been damaged, she said. Her comments were published by the government press office. A European Commission proposal for a financial transactions tax, set to take effect in 2014 and raise about 57 billion euros ($79.1 billion) a year, would set minimum tax rates for financial transactions throughout the 27-nation the European Union, the commission said on Sept. 28. European Central Bank President Jean-Claude Trichet has said a levy on financial transactions should be global.
  • Kinder Morgan(KMI) to Buy El Paso(EP) for $21 Billion in Cash and Stock. Kinder Morgan Inc.’s agreement to buy El Paso Corp. for $21.1 billion, the energy industry’s biggest transaction in more than a year, would create the largest natural-gas pipeline network in the U.S. The cash and stock offer is valued at $26.87 per El Paso share, or 37 percent more than the Oct. 14 closing price, Houston-based Kinder Morgan said in a statement yesterday. The combined company would have 67,000 miles (107,000 kilometers) of gas lines and eclipse Enterprise Products Partners LP as the biggest U.S. pipeline operator.
  • Singapore's Exports Unexpectedly Decline as Electronics Slump. Singapore’s exports unexpectedly fell in September as weakening expansion in the world’s biggest economies eroded demand for electronics and petrochemicals. Non-oil domestic exports fell 4.5 percent from a year earlier, after a revised 3.9 percent increase in August, the island’s trade promotion agency said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 3.5 percent gain. “We expect a rough patch ahead for the economy,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report. “Against the backdrop of a deteriorating external outlook and judging from the broad-based decline in global purchasing managers’ indices, ex-biomedical manufacturing production will most likely continue to decline.” Electronics shipments by companies such as contract manufacturer Venture Corp. dropped 13.6 percent in September from a year earlier, after declining 19.4 percent the previous month. Singapore’s non-oil exports dropped a seasonally adjusted 9.3 percent last month from August, when they rose a revised 7.2 percent, today’s report showed.
Wall Street Journal:
  • Investors Balking at New Ross Fund. Wilbur Ross Jr. is one of the world's richest and best-known investors on Wall Street. But that hasn't been enough to win over some firms that looked at his latest private-equity fund. As of August, the 73-year-old Mr. Ross's eponymous firm, WL Ross & Co., had raised a little more than one-tenth of the $4 billion it set out to attract last year. The firm has told people it has cut its fund-raising target to between $2 billion and $2.5 billion, according to people familiar with the conversations. WL Ross's difficulties reflect the fund-raising challenges facing many private-equity firms as the financial markets seesaw and some investors conclude that they already have enough exposure to buyout shops or distressed strategies in their portfolios. Also, some people who decided against investing in Mr. Ross's latest fund said they also were concerned about succession planning at WL Ross.
  • MF Global(MF) Told to Boost Capital. Regulators ordered MF Global Holdings Ltd., the brokerage firm led by former New Jersey Gov. Jon Corzine, to boost its net capital in August after they grew concerned about its exposure to European debt.
  • Tiny Kingdom's Huge Role in Libya Draws Concern.
  • Optimism Ahead of Earnings. Analysts See Blue-Chip Firms Reporting Quarterly Revenue Growth of 10.6%.
  • ObamaCare Starts to Unravel. The real story behind the Class program failure, and what to do now.
  • Hong Kong's Property-Hoarding Problem. As Hong Kong’s chief executive delivered his farewell policy address last week, revelations about the extent of apartments lying empty in the territory grabbed the headlines, rather than a new subsidized-housing initiative.
  • December Deadline Won't Market End of US Debt Fight. December looms as the deadline for tackling a U.S. fiscal mess punctuated by a $14.8 trillion national debt. But it's December 2012, not 2011, that is really worth keeping an eye on.
  • Higher Greek Debt Writedown Needed: German Official. Greece's debt crisis cannot be solved without a debt write-down which will most likely exceed that agreed this summer, German Finance Minister Wolfgang Schaeuble said on Sunday, adding that he hoped Europe's banks would work with governments on a plan.
Business Insider:
Zero Hedge:
Las Vegas Review-Journal:
  • Exploding the Promise of 'Green Jobs'. There is simply no spinning or distorting the failure of one of President Obama's biggest initiatives and campaign promises. "Hope" and "Change" hinged on creating 5 million green jobs in 10 years. As a down payment, the stimulus abomination set aside billions of dollars, including a $500 million grant to train 125,000 people for the noble work of the future. As of this summer, of the nearly 53,000 people who had completed the training at a cost of $163 million, barely 8,000 had found work. Only 1,000 had held a job for more than six months, according to a report released this month by the Labor Department's inspector general.
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).
  • EU aid for Tunisia is 4 bln euros up to 2013:report. The European Union has allocated a total of four billion euros in loans and grants to Tunisia for the period 2011-2013 to help economic recovery, the official TAP news agency quoted the EU ambassador as saying on Friday. The cash comes from several EU institutions including the European Investment Bank, the news agency quoted ambassador Adrianus Koetsenruijter as saying. The EU promised to support Tunisia after its revolution in January which inspired the "Arab Spring" uprisings.
  • Allianz exposure to UniCredit around 8 bln euros-paper. German insurer Allianz has an exposure of around 8 billion euros ($11.1 billion) to Italian bank UniCredit , an Allianz board member told Italian weekly MilanoFinanza on Saturday, confirming a press report. Italian newspaper MF, the daily edition of the same publication, had earlier reported the 8 billion euro exposure, which it said had created tension between the two groups. When asked for a comment, an Allianz spokesman had said relationships with the bank were excellent. Asked if the 8 billion euro figure was credible, Allianz board member Enrico Cucchiani said: "I don't have the data handy, but I believe it is a correct ballpark figure." The insurer owns 2.04 percent of UniCredit, Italy's biggest bank by assets. Asked whether Allianz would take part in a possible capital increase at UniCredit, Cucchiani said: "If and when it will be announced, we'll consider it with great attention."
  • German private banks call Greece bankrupt -magazine. Germany's private banks called for euro zone policymakers to finally accept that Greece is insolvent and also pressed for rules that would force lenders to set aside capital on their balance sheets for government bonds, a magazine reported. "Greece is not able to pay back its current debts even over the course of generations," said Andreas Schmitz, the head of German bank lobbying group BdB, in an interview with the WirtschaftsWoche. Schmitz called for a change in Basel III regulations, which spell out the amount of capital reserves that banks must set aside for so-called risk-weighted assets. Under the current Basel II rules and EU guidelines, all euro zone sovereign debt can be assigned zero risk, which has provided a strong incentive for banks to buy and hold government bonds. "The current situation shows that zero (risk weighting) accounting doesn't accurately reflect reality," Schmitz said. "Politicians are not tackling this issue, since it concerns them," he added, explaining that this exemption has helped sovereign borrowers market their debt to banks. Hesse, the German federal state home to the country's banking centre of Frankfurt, said late in September it would push for an end to the exemption of capital reserves for central government debt. "The exemption distorts investment markets and sweeps under the carpet the actual inherent risks," said Hesse's finance minister, Thomas Schaefer, and its economy minister, Dieter Posch, at the time. At the same time, Schmitz opposed a forced recapitalisation of German banks, because it would only cause further uncertainty in the markets. "Compulsory recapitalisations do not solve the political crisis of confidence," he said.
  • SEC Wrestling With "Conflict Minerals" Disclosure. Securities regulators are struggling to craft a rule that sheds light on companies that use certain African "conflict minerals" but avoids a compliance nightmare that hurts manufacturers. The Securities and Exchange Commission is six months behind schedule in finalizing the rule that is required by last year's Dodd-Frank financial oversight law. The rule, which was tucked into the legislation at the last minute, will require companies to disclose whether they use tantalum, tin, gold or tungsten from the war-torn Democratic Republic of the Congo.
Financial Times:
  • EU Faces 20 Years of Rising Energy Bills. European businesses and consumers face at least 20 years of electricity price rises, according to a leaked European Commission report on how the region can meet its green energy targets. It also forecasts a huge growth in the number of wind farms, which would push up prices even higher.
  • US and Europe 'may be in recession'. The US and much of Europe may already be in recession while demand is dropping sharply in emerging markets, the head of one of the US’s biggest manufacturers has warned. In an interview with the Financial Times, Tom Linebarger, who will take over as chief executive of Cummins(CMI), one of the world’s biggest engine-makers, in January, said he expected the next six to nine months to be a highly uncertain time for the global economy.
  • Europe's Lost Decade as $7 Trillion Loan Crunch Looms. Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade. The risk is "Japanisation" without the benefits of Japan, without a single government, or a trade super-surplus, or 1pc debt costs, or unique social cohesion. Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.
  • Lack of ECB Firepower Weakens Europe's Grand Plan. Top officials from the US Treasury and the International Monetary Fund are privately worried that Europe’s `Grand Plan’ to overcome the debt crisis is fundamentally deficient and may fail to restore market confidence.
  • German Foreign Minister Hits Out at U.S. Over Debt Crisis. Germany's foreign minister today lashed out at the United States over criticism the eurozone is not doing enough to solve its economic woes, noting that US debt had also contributed to the current crisis. Guido Westerwelle told the Bild am Sonntag weekly: "Let us not forget that the cause of the current crisis is too much debt in Europe, but also too much debt worldwide. "Therefore, I cannot understand some of the critical comments from our American friends regarding our policy of reducing debt." Westerwelle's remarks were the latest in a series of barbs between Berlin and Washington over Europe's perceived dithering over the crisis.
Der Spiegel:
  • Sigmar Gabriel, leader of Germany's main opposition Social Democratic Party, said German banks should separate investment banking and commercial banking business. Gabriel said banks' investment banking business should receive no government help, citing an interview with the politician.
  • German politicians want caps on salaries for bankers whose companies may need government help, citing comments by lawmakers. Cem Oezdemir, the Greens co-leader, demands a salary cap and wants no dividend payouts or bonus payments until potential government aid has been repaid. Carsten Schneider, budget spokesman for Germany's main opposition Social Democratic Party, wants a salary cap and a higher tax on bonus payments.
  • Germany may veto requests from countries seeking funds from the EFSF that have not tried to help their banks first, citing an interview with lawmaker Rainer Bruederle. Europe must prepare for writedowns on Greek bonds "in the foreseeable future" in order to avoid the danger of contagion, Bruederle, leader of the German Free Democrats group in the lower house of parliament, was cited as saying.
Frankfurter Rundschau:
  • German millionaires could contribute as much as $138 billion in additional tax revenue to help improve social justice and the country's budget, citing an interview with Gert Wagner, chief executive of Berlin's DIW economic institute.
Cinco Dias:
  • Making banks recapitalize to cover latent losses in their holdings of European Union sovereign debt would be an error that could have "devastating" consequences, Angel Ron, Chairman of Banco Popular Espanol SA, said in an interview.
  • EADS CEO Louis Gallois said Spain had $833 million in debt related to the Eurofighter combat-jet project. Gallois called on Spain to settle the payment, saying it was a "very worrying problem" and that the size of the debt would increase in coming months, citing comments he made to reporters.
CBC News:
  • Italy Tallies Damage From 'Occupy' Violence. Violence that broke out at what began as a peaceful protest in Rome against economic inequality is a “worrying signal for civil society,” and rioters will be identified and punished, Italian Prime Minister Silvio Berlusconi says. About 100 people were taken to hospital for injuries suffered in Saturday's violence in the Italian capital. Police arrested about 20 people, but that number is expected to rise as investigators examine surveillance cameras. Thousands turned up to protest in Rome — one of hundreds of cities across the globe where activists held protests inspired by the Occupy Wall Street movement — but the peaceful march was quickly hijacked by hundreds of hooded and masked protesters who hurled rocks and bottles at the police. Some used clubs and sticks to smash shop and bank windows. Dumpsters and cars were set on fire. Police in anti-riot gear used tear gas and water cannons to try to disperse the rioters.
  • Brazil's economic situation may change "radically" and the central bank may have to resume interest-rate increases unless inflation slows further, former central bank President Arminio Fraga said. He said the global economic situation is "scary".
  • Tokyo Electric Power Co. measured radiation levels of 4,700 millisieverts per hour inside the No.1 reactor building of its Fukushima Dai-Ichi nuclear plant, citing the utility company.
  • The Bank of Japan may cut its projection for the nation's fiscal 2012 economic growth to less than 2.1% from 2.9%.
Economic Observer:
  • China has no need to abandon its prudent monetary policy now because money supply is already high compared to the economy, citing People's Bank of China adviser Zhou Qiren. The real interest rate remains negative and loosening up monetary controls won't give much support to small companies, whose biggest problem is high production costs rather than funding difficulties, citing Zhou's comments in an interview.
Xinmin Evening News:
  • Some banks in Shanghai have raised loan rates for individuals buying first homes, citing people at banks.
China National Radio:
  • Nearly 20% of Chinese cities have a debt ratio exceeding 100%, citing Jia Kang, head of the research institute for fiscal science under the Ministry of Finance. Jia made the remarks at a conference in Beijing yesterday.
Economic Information Daily:
  • Banks in more Chinese cities have increased mortgage rates for first time home loans, citing people in the industry. Cities include Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Jinan, Qingdao, Zhengzhou, Wuhan, Changsha and Suzhou. Higher rates may last till the first quarter of 2012, the report cities Zong Liang, deputy general manager at Bank of China's strategic management department.
Weekend Recommendations
  • None of note
Night Trading
  • Asian indices are -.25% to +1.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 198.0 -16.0 basis points.
  • Asia Pacific Sovereign CDS Index 150.0 -5.5 basis points.
  • FTSE-100 futures +1.10%.
  • S&P 500 futures +.59%.
  • NASDAQ 100 futures +.48%.
Morning Preview Links

Earnings of Note
  • (SCHW)/.19
  • (HAL)/.91
  • (GCI)/.44
  • (HAS)/1.30
  • (MMR)/-.16
  • (C)/.81
  • (WFC)/.72
  • (STLD)/.21
  • (VMW)/.49
  • (IBM)/3.22
  • (SWK)/1.31
  • (BRO)/.30
  • (PKG)/.43
Economic Releases
8:30 am EST
  • Empire Manufacturing for October is estimated to rise to -4.0 versus a reading of -8.82 in September.
9:15 am EST
  • Industrial Production for September is estimated to rise +.2% versus a +.2% gain in August.
  • Capacity Utilization for September is estimated to rise to 77.5% versus 77.4% in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, Fed's Evans speaking, EC Meeting and China's GDP/Fixed Asset Inv./Industrial Production/Retail Sales reports 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.

No comments: