Thursday, December 22, 2011

Thursday Watch

Evening Headlines

  • Greece's Creditors Said to Resist Push From IMF for More Losses. Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the indebted nation’s government bonds, said three people with direct knowledge of the discussions. Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said the people, who declined to be identified because the negotiations are private. The IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio to 120 percent by 2020, a key element of the Oct. 27 agreement by European Union leaders, the people said. Greece’s debt will balloon to almost twice the size of its economy next year without a write-off accord with investors, the IMF said on Dec. 13. The IMF and EU leaders are trying to bring the country’s debt down to a sustainable level. As part of Greece’s 130 billion-euro second bailout, investors would take a 50 percent hit on the nominal value of 206 billion euros of privately owned debt. Exchanging bonds for securities with a 5 percent coupon would leave investors with a 65 percent loss in the net present value of their holdings of Greek government debt, the people said.
  • U.S. Faces ’13 Fitch Downgrade Without Cuts. The U.S.’s AAA rating will probably be cut by Fitch Ratings by the end of 2013 unless lawmakers are able to formulate a plan to reduce the budget deficit after next year’s congressional and presidential elections. “Without such a strategy, the sovereign rating will likely be lowered,” New York-based Fitch said in a statement today. “Agreement will also have to be reached on raising the federal debt ceiling, which is expected to become binding in the first half of 2013.” Fitch assigned a negative outlook on the U.S. in November after a congressional committee failed to agree on budget cuts. The rating firm forecast federal public-debt will exceed 90 percent of gross-domestic-product by the end of the decade unless the government addresses rising health and social security spending.
  • GM(GM) Said to Hire Hackett Group to Find North America Job Cuts. General Motors Co. has hired management consultant Hackett Group to help identify areas to cut an undetermined number of white-collar jobs, said two people familiar with the matter. Hackett Group, based in Miami, will help identify opportunities for cuts and efficiency improvements at headquarters and elsewhere in North America, said the people, who asked not to be identified revealing private plans.
  • China's Stocks Decline for Fourth Day on Cash Crunch, Europe Debt Concern. China’s stocks fell for a fourth day as investors speculated Europe’s debt crisis will worsen and lending to small companies may drop as banks hoard cash to meet year-end reserve-ratio requirements. Yunnan Copper Industry Co. and Shandong Gold Mining Co. dropped more than 3 percent as material producers added to losses that made them the worst performing group in 2011. Stocks fell after Europe’s lenders sought to borrow more cash from the European Central Bank than economists had expected, increasing concern the crisis won’t be contained. Focus Technology Co. and Anhui Gujing Distillery Co. led a gauge of small-company stocks to their lowest level in two years as money market rates jumped. “There’s no confidence in the market and the worry is focused on the economic slowdown and a poor export outlook,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors are worried the government doesn’t have many tools to bolster growth now as debt levels are now higher than a couple of years ago.” The Shanghai Composite Index (SHCOMP) dropped 21 points, or 0.9 percent, to 2,170.56 at 1:22 p.m., the lowest since March 2009. The Shanghai Composite has fallen 7.1 percent in December, adding to a 23 percent slump this year, after the central bank raised interest rates three times to cool inflation and exports to Europe slowed because of the region’s debt crisis. The CSI smallcap gauge (SH000905) has tumbled 34 percent this year. The ChiNext measure of start-up companies slid 2.7 percent today, adding to a 35 percent slide in 2011.
  • Corn Crop Heads for Sixth Record Year to Feed 1 Billion Cows: Commodities. Farmers will reap a record corn crop for a sixth consecutive season in 2012, slowing a slump in stockpiles of livestock feed as global meat demand approaches a quarter of a billion metric tons. Production will rise 4.8 percent to 867.5 million metric tons in 2011-12, curbing the drop in inventories to 0.8 percent, the smallest decline in three years, the U.S. Department of Agriculture estimates. With harvests expanding from Argentina to China, prices will fall as much as 30 percent to $4.305 a bushel in Chicago trading next year, according to the median of 24 analyst estimates compiled by Bloomberg News.
  • India Drops Plans to Allow FDI in Pensions, Singh Ally Says. Indian Prime Minister Manmohan Singh has shelved plans to allow foreign direct investment in pension funds in the second major policy setback this month, according to one of the government’s largest parliamentary allies. Trinamool Congress leader Mamata Banerjee objected to a bill to overhaul the pensions sector, leading to it being dropped for now, Sultan Ahmed, a lawmaker from Banerjee’s party, said by phone without elaborating. India’s cabinet had approved the plans last month in what would have been the first major change to foreign ownership rules in five years.
Wall Street Journal:
  • European Banks Rush to Grasp Lifeline. Hundreds of euro-zone lenders took out €489.19 billion ($640 billion) in low-interest loans from the European Central Bank on Wednesday, as the currency area extended a massive financial lifeline to its struggling banking industry. The unexpectedly heavy demand from 523 banks for the three-year loans highlighted the severity of Europe's financial crisis, while also stirring some hopes that the action could help defuse it, or at least prevent it from getting worse. Investors didn't seem convinced that the loans would drastically improve banks' prospects.
  • Funds Sue Deutsche Over Deal On Claims. Two hedge funds filed a lawsuit accusing a Deutsche Bank AG unit of reneging on a $1 billion deal to buy their claims for losses in Bernard L. Madoff's Ponzi scheme. The suit, filed in a New York federal court by Kingate Global Fund Ltd. and Kingate Euro Fund Ltd., is a sign of the negative consequences of recent court decisions against the trustee overseeing the bankruptcy of Mr. Madoff's firm.Courts have handed down recently a series of unfavorable decisions to Irving Picard that limit his ability to further recover money.
  • What Fannie and Freddie Knew. The SEC shows how the toxic twins turbocharged the housing bubble. Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis.
  • What Ron Paul Thinks of America. It seemed improbable that the best-known American propagandist for our enemies could be near the top of the pack in the Iowa contest, but there it is.
Business Insider:
Zero Hedge:
  • Asia-Pacific Stock Sales at 3-Year Low in 2011. Stock sales in Asia Pacific plunged to a three-year low in 2011 and the downturn is expected to last well into 2012 as weak performance by most of the IPOs in the region makes it harder to attract investors to new deals.
  • China Hedge Fund Bears Look Good in Shorts. Hedge funds betting against China have earned outsized returns this year by shorting mainly property and auto stocks and positioning their portfolios to benefit from a feared hard-landing by the world's second-biggest economy.
  • Rio Police Seek to Indict Chevron(CVX), Transocean(RIG) Officials. Federal police in Brazil on Wednesday recommended the indictment of several Chevron and Transocean officials involved in an oil spill in early November for environmental crimes and withholding information in an investigation.
  • Collapse in M&A Amid Debt Turbulence. Mergers and acquisitions activity collapsed in the fourth quarter as the sovereign debt crisis and market volatility put the brakes on dealmaking and equity sales, pushing European investment banking fees to their lowest level in more than a decade.
  • French Banks Won't Be Able To Handle Inevitable Italian Restructuring. Despite the latest attempt by the European Central Bank to kick the proverbial can far down the road, the Eurozone remains under heavy pressure, and France’s AAA credit rating hangs from a thread. According to research by Nomura, France’s exposure to peripheral Europe tops €680 billion ($887 billion), more than 25% of its GDP, putting its banks at substantial risk in the event of another debt restructuring or an outright default among the PIIGS.
  • CES 2012: 5 Trends to Watch.
  • Goldman(GS) Preps for New Age of Regulation. “In the end, Goldman Sachs is still going to be Goldman Sachs,” Lloyd Blankfein recently remarked during a wide-ranging dinner conversation with Larry Fink, the chief executive of money management outfit Blackrock (BLK), according to people with direct knowledge of the matter. Fink, seated next to Blankfein at a tony New York City eatery, didn’t disagree, but some in the firm that Blankfein runs are now taking issue with that statement.
  • Extremist Teachings Remain in Saudi Textbooks Despite Kingdom's Claims of Reform. Despite Saudi Arabia's promises to clean up textbooks in the kingdom, recent editions continue to raise alarms in the West over jihadist language. The recent editions were obtained by the Institute for Gulf Affairs in Washington, D.C., and the translations were first provided to Fox News. “This is where terrorism starts, in the education system.” Ali Al-Ahmed, director of the Institute for Gulf Affairs, told Fox News. Al-Ahmed, a Saudi national, said the textbooks, made and paid for by the Saudi government, were smuggled out of the kingdom through confidential sources.
Real Clear Markets:
  • The Slow, Agonizing Death of Europeanism. What do the endlessly repeating cycle of futile Eurozone rescue talks and the endlessly repeating cycle of futile annual UN climate summits have in common? Put more plainly, what accounts for the unreality of both efforts, such that "breakthrough" agreements are soon recognized to be ineffective, if not fraudulent?
  • Bed Bath(BBBY) sales miss estimates; outlook soft. Bed Bath & Beyond Inc reported slightly weaker-than-expected third-quarter sales and gave a conservative profit outlook for the current quarter, sending shares in the home goods chain down 4 percent in after-hours trading.
  • Tepid PC sales weigh on Micron's results. Micron Technology (MU.O) posted quarterly results below expectations and said weak prices for DRAM memory chips are making industry consolidation inevitable. The top U.S. memory manufacturer's poor showing lent weight to recent warnings from both Intel (INTC.O) and Texas Instruments (TXN.N) about weak chip market conditions, and came after Oracle's first earnings miss in a decade stoked fears that corporate America may be pulling back on tech spending. Given that the reports from Micron and Oracle were for the quarter that ended in November, they may signal what to expect when more technology companies report after their quarters end in December.
Sky News:
  • RBS Chairman Warns Of Euro Split In 2012. (video) The head of Britain's biggest state-controlled bank has warned that a eurozone country could leave the single currency during 2012, sending shockwaves around Europe's banking system. Royal Bank of Scotland chairman Sir Philip Hampton made the prediction during Jeff Randall's Christmas Dinner, a seasonal discussion between business leaders on Sky News. He said: "I think it's likely that one country, a small country will drop out. "It could be any of them because I think that some of these things will be driven by political events, as much as by economic circumstances and social unrest, and all of those sorts of things. But I think there is a very good chance that one country will fall out." Sir Philip said such an event would "produce massive strains" in Europe's banking system. "At the more extreme levels of that you would get a wave of recapitalisations of banks by governments throughout Europe," he added.
La Tribune:
  • French new car sales plunged by almost 60% from Dec. 1 to Dec. 21 versus the year-earlier period, citing a person speaking in an official capacity.
China Daily:
  • Chinese households that prefer real estate investments declined to 16.5%, down 7.1 percentage points vs. 3Q, China's central bank said in its 4Q survey. 73% of respondents deem China home prices as "too high". 19% of respondents expect a further rise in home prices, 19 percentage points less than in 3Q. 14% of households may buy a home within 3 months, close to a record low.
Evening Recommendations
Citigroup Global Markets:
  • Reiterated Buy on (SHOO), target $45.

Night Trading

  • Asian equity indices are -1.0% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 206.50 -3.5 basis points.
  • Asia Pacific Sovereign CDS Index 158.0 unch.
  • FTSE-100 futures +.04%.
  • S&P 500 futures -.25%.
  • NASDAQ 100 futures -.15%.
Morning Preview Links

Earnings of Note
  • (AM)/.81
  • (DMND)/.72
Economic Releases
8:30 am EST
  • Chicago Fed Nat Activity Index for Nov. is estimated to fall to -.17 versus -.13 in October.
  • Final 3Q GDP is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
  • Final 3Q Personal Consumption is estimated to rise +2.3% versus a prior estimate of a +2.3% increase.
  • Final 3Q GDP Price Index is estimated to rise +2.5% versus a prior estimate of a +2.5% gain.
  • Final 3Q Core PCE is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
  • Initial Jobless Claims are estimated to rise to 380K versus 366K the prior week.
  • Continuing Claims are estimated to fall to 3600K versus 3603K prior.

9:55 am EST

  • Final Univ. of Mich. Consumer Confidence for December is estimated to rise to 68.0 versus a prior estimate of 67.7.

10:00 am EST

  • Leading Indicators for November are estimated to rise +.3% versus a +.9% gain in October.
  • The House Price Index for October is estimated to rise +.2% versus a +.9% gain in September.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Dec. Bloomberg Economic Expectations Index could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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