Friday, January 20, 2012

Friday Watch

Evening Headlines

  • EU Toughens Fiscal Pact Bowing to ECB Objections, Draft Shows. European Union governments set tougher rules on budget deficits in the latest draft of a planned fiscal treaty, bowing to some objections raised by the European Central Bank. The pact will require a centralized “correction mechanism” to be triggered “automatically” in cases of “significant” deviations from a target structural deficit of 0.5 percent of gross domestic product, according to the draft, which was obtained by Bloomberg News. It is dated Jan. 19. The blueprint, to be discussed Jan. 23 by EU finance ministers, also empowers the European Commission to set deadlines for budgetary convergence. It gives the European Court of Justice the power to fine countries whose balanced-budget laws don’t pass muster, while stopping short of the ECB’s request that the court more broadly enforce the budget rules.
  • Europe's ESM Foresees Bond Clauses, IMF Restructuring Standards. Europe’s planned permanent rescue fund may require clauses in new bond issues that would leave the door open for debt restructurings, while deeming writeoffs “exceptional” and subject to International Monetary Fund standards, according to a draft text. European Union finance ministers meet Jan. 23 to discuss the draft, which waters down earlier provisions on restructuring after EU-mandated losses for Greek bondholders helped exacerbate the sovereign debt crisis. The treaty, which is not final and could change, still calls for clauses in bond contracts that would prevent small clusters of investors from blocking a restructuring. “Collective action clauses shall be included, as of one month after the entry into force of the present treaty, in all new euro area government securities, with maturity above one year, in a way which ensures that their legal impact is identical,” according to the draft, which was obtained by Bloomberg News. European governments have redoubled efforts to set up the 500 billion-euro ($647 billion) European Stability Mechanism by July, a year ahead of schedule, after a credit rating downgrade raised concerns over the strength of the temporary aid fund created at the outset of the crisis.
  • Greek Debt Agreement Falls Far Short of What's Needed to Save Euro: View. At some point, possibly in the next several weeks, Europe will run into a major flaw in its plan to shore up the region’s finances: Some euro-area governments, such as Greece, simply aren’t going to be able to pay their debts. The sooner Europe’s leaders recognize this and take appropriate action, the less expensive the solution will be.
  • China Home Market 'Should Come Down,' Hang Lung's Chan Says. China’s home market, bracing for the most severe slowdown in three years, should retreat after “extraordinarily tough” measures by the government, said Ronnie Chan, chairman of Hang Lung Properties Ltd. Home purchase limits and tighter mortgage requirements imposed by the government “just choked the market,” Chan, whose Hong Kong-based developer is investing more than HK$40 billion ($5.2 billion) building shopping malls in China, said in a Bloomberg Television interview today. The nation’s home transactions will fall 10 percent this year, according to Daiwa Securities Capital Markets, while UBS AG says the curbs may boost supply to the highest in a decade. Chan, whose company has been developing real estate in China since early 1990s, said he’s “not sure” when the government will start easing its property measures. “If I were them, I’d be cautious too,” he said. The measures “have loosened a bit. But on the other hand, what assurance will they have that prices will come down on a sustainable basis.”
  • BofA(BAC) Says Loan Repurchase Claims Rise to Record $14.3 Billion. Bank of America Corp., the second- biggest U.S. lender by assets, said unresolved demands from investors who accuse the company of selling defective mortgages rose to a record. Outstanding claims jumped 22 percent in three months to $14.3 billion as of Dec. 31, the Charlotte, North Carolina-based bank said today in a presentation. The increase was fueled by disputes with Fannie Mae and private investors who are submitting demands for compensation on the grounds that they were misled about the quality of mortgage securities.
  • Oil Near One-Week Low as Fuel Demand Declines to Lowest in 10 Years. Oil traded near a one-week low as investors bet that fuel demand may falter after gasoline stockpiles rose and consumption fell to the lowest level in 10 years in the U.S., the world’s biggest crude consumer. Futures were little changed after slipping 0.2 percent yesterday. Gasoline use dropped to the lowest since September 2001, while supplies of the motor fuel increased to the highest level in 10 months, according to data from the U.S. Energy Department. U.S. gasoline consumption dropped 2.2 percent to 8 million barrels a day last week, the lowest since the week ended Sept. 21, 2001, when it slid to 7.8 million barrels, according to data from the Energy Department. Motor fuel stockpiles rose 3.72 million barrels last week to 227.5 million, the highest since the week ended March 4.
  • Korean Shipyards to Buy 12% Less Steel Plate as Slump Hits Posco. South Korean shipyards plan to buy 12 percent less steel plate this year, worsening a demand slump that has hit prices at Posco, the world’s biggest producer. Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. will cut purchases to a combined 6.5 million metric tons from 7.4 million tons, according to company figures. The yards are the world’s biggest buyer of steel plate, which is used for making hulls and in construction. “Steelmakers are in for a tough year,” said Bang Minjin, an analyst at HI Investment & Securities Co. in Seoul. “Their one bright spot is about to fade.”
  • Icahn Said to Buy LightSquared Debt in Bet on Falcone Venture's Collapse. Billionaire Carl Icahn has purchased debt from Philip Falcone’s LightSquared Inc.’s bondholders as the satellite-broadband-service provider struggles to start service, two people familiar with the transaction said. Icahn, along with investors Andrew Beal and David Tepper purchased $300 million in LightSquared debt sold by Farallon Capital Management LLC. last month, said the people, who declined to be named because they weren’t authorized to speak. The move may give Icahn control of LightSquared’s radio spectrum for less than Falcone originally paid.
  • China's Goldwind Buys Two 10-Megawatt Montana Wind Farms From Volkswind. Xinjiang Goldwind Science & Technology Co., China’s second-largest wind-turbine maker, is seeking to become a bigger supplier in the U.S. by purchasing two 10-megawatt wind farms in Montana to showcase its equipment. The two farms jointly comprise the Musselshell Project in Shawmut, Montana, and were acquired from the U.S. unit of Germany’s Volkswind GmbH, the Xinjiang-based company said yesterday in an e-mailed statement. Goldwind’s turbines are already operating in Minnesota and Iowa, and with the Musselshell project they’re due to be installed at sites in six more states, the company said. The deal shows growing momentum for the Chinese supplier in the U.S., said Amy Grace, a wind analyst for Bloomberg New Energy Finance.
Wall Street Journal:
  • NYSE(NYX) May Appeal If Deutsche Boerse Deal Blocked. The head of NYSE Euronext (NYX) said the exchange may appeal if European regulators block its planned merger with Deutsche Boerse AG (DBOEF, DB1.XE).
  • BNP Considers Greek-Debt Outcomes, Chances For CDS Triggers. Three out of four possible outcomes of the Greek-debt crisis described by BNP Paribas SA (BNP.FR, BNPQY) strategists in a client note Thursday would likely trigger the net $3.2 billion of credit-default swaps covering the country's sovereign debt for payouts.
  • Hedge-Fund Investors Pull Cash. Hedge-fund investors, rattled by lackluster performance, yanked more money from the industry than they added during the final months of 2011, data released Thursday showed. The $2 trillion hedge-fund industry saw net investor withdrawals of about $127 million in the fourth quarter, according to data by Hedge Fund Research Inc. It was the first time investors had collectively pulled out more money than they put in since the second quarter of 2009, when the markets were still digging out of the worst of the financial crisis.
  • Homeowners Stop Waiting to Spruce Up. Americans are stepping up spending on home improvements for the first time in years, giving a small lift to the beleaguered construction sector. Economists forecast that spending by homeowners and landlords on everything from minor sprucing up to full-scale remodeling rose modestly in 2011. That would mark the first year since 2006 that such spending increased. Forecasting firm IHS Global Insight is predicting a 3.3% increase to $152.4 billion in 2011, not adjusted for inflation, and an additional 5.7% in 2012.
  • Fewer Debaters, Plenty of Heat. Republican presidential candidate Newt Gingrich kicked off Thursday's final debate before the South Carolina primary by taking the media to task for asking a question about one of his marriages, setting the tone for a combative debate among the four remaining GOP candidates.
  • Fed Holds Off for Now on Bond Buys. Federal Reserve officials are waiting to see how the economy performs before deciding whether to launch another bond-buying program. The Fed meets again next Tuesday and Wednesday, and officials are preparing to roll out a new communications strategy that is on track to include two key elements: their interest-rate projections and a statement explaining their objectives for inflation and employment. Clarifying the central bank's objectives could make easier the tasks of deciding whether to buy more bonds and explaining their reasons.
  • The Greece Next Door. Run up spending and debt, raise taxes in the naming of balancing the budget, but then watch as deficits rise and your credit-rating falls anyway. That's been the sad pattern in Europe, and now it's hitting that mecca of tax-and-spend government known as Illinois.
Business Insider:
Zero Hedge:
  • "Don't Frack Me Up". So next time someone says that America should put an end to fracking, ask them how they plan to ensure America's energy security over the next 30 to 50 years. If the answer involves alternative or renewable energies, ask for some hard facts and numbers to support it. Like it or not, none of our alternative energies are as yet even close to stepping up as a major energy pillar for America. Natural gas is ready to step up.
  • Obama's Keystone Pipeline Nix Worries Small Business. The hopes of some small business owners in the Nebraskan towns of Fairbury and Steele City were crushed when the Obama administration rejected a proposed expansion of the Keystone oil sands pipeline. Extending the Canadian pipeline 1,179 miles to the area promised both towns another chance to bounce back from the ongoing economic crisis.
The Hill:
  • Dems Propose 'Reasonable Profits Board' To Regulate Oil Company Profits. Six House Democrats, led by Rep. Dennis Kucinich (D-Ohio), want to set up a "Reasonable Profits Board" to control gas profits. The Democrats, worried about higher gas prices, want to set up a board that would apply a "windfall profit tax" as high as 100 percent on the sale of oil and gas, according to their legislation. The bill provides no specific guidance for how the board would determine what constitutes a reasonable profit. The Gas Price Spike Act, H.R. 3784, would apply a windfall tax on the sale of oil and gas that ranges from 50 percent to 100 percent on all surplus earnings exceeding "a reasonable profit." It would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms. Unlike other bills setting up advisory boards, the Reasonable Profits Board would not be made up of any nominees from Congress.
Financial Times:
  • Italy’s banks tap ECB for €50bn. Italy’s banks, led by UniCredit, were the biggest users of the special three-year funding mechanism launched by the European Central Bank in December, according to a new research report.
  • The IMF Is No Longer Serving Its Purpose. To save the eurozone, the International Monetary Fund needs to dispense tough love, not endless bail-outs.
  • IMF Slashes global Forecast On Eurozone Crisis, With Drastic Falls In Italy And Spain. "The global recovery is threatened by the growing tensions in the euro area," the Fund said, according to a leaked draft of its World Economic Outlook which is due to be published next week. Global GDP growth is to be cut from 4pc to 3.3pc, with drastic revisions for an arc of countries in Southern Europe. Italy's economy will contract by 2.2pc and Spain's by 1.7pc as fiscal austerity measures bite harder and banks curtail lending, playing havoc with debt dynamics. The eurozone as a whole will shrink by 0.5pc, down from growth of 1.1pc in the Fund's last forecast in September, an even grimmer outlook for the region than growth revisions released by the World Bank earlier this week. The new figures are an admission that the IMF has been caught badly off guard by fast-moving events. It appears to misjudged the gravity of the crisis in Southern Europe. The new forecasts explain why the Fund is requesting a $600bn (£388bn) boost to its firepower.
  • Portugal To Need "Debt Haircut" as Economy Tips Into Grecian Downward Spiral. Portugal's borrowing costs have jumped to record highs and are tracking the moves seen in the culminating phase of Greece's debt crisis, dashing hopes that the country will be able to stave off contagion by embracing drastic austerity. Yields on Portugal's 10-year bonds climbed to 14.39pc on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years.
Globe and Mail:
  • Canadian Banks Warn Proposed Volcker Rule Could Violate NAFTA. Canada’s Big Five banks have sent a stern letter to U.S. regulators, warning that proposed rules designed to limit the risks major financial institutions take may violate the two countries’ free trade agreement. The banks say the legislation in question – known as Volcker rule – will also have serious, unintended consequences in the Canadian mutual fund market if changes aren’t made.

The Australian:
  • Hackers Take Out US Site In Retaliation For Arrests. HACKERS aligned with the global cyber-collective known as Anonymous have claimed responsibility for taking down at least six prominent websites. They include those of the US Department of Justice and Universal Music Group, acts done in retaliation for charges levied against principals of content-sharing site Both and have crashed in the US and remained down as of 10:50am AEST. The group also said it brought down the websites of the Recording Industry Association of America (RIAA), the Motion Picture Association of America (MPAA), the US Copyright Office and the Utah Chiefs of Police Association. As of 10:50am AEST, only the MPAA website remained functional. The RIAA site and the Copyright Office sites were both down, while the Utah Chiefs of Police site had been altered to show the logo for The group also threatened that the FBI's website would be hacked next. "Word has it that is next to go down... will report when it is," a Twitter account affiliated with the group said.
  • Chinese Premier Wen Jiabao said the country will target "basically stable" consumer prices, citing comments he made while visiting Chinese citizens in Qatar. The global financial crisis is deepening and spreading, Wen said.
National Business Daily:
  • China's power demand growth may fall by 2 percentage points this year from 2011, citing Wei Zhaofeng, deputy director at the China Electricity Council.
Evening Recommendations
  • Reiterated Outperform on (FCX), lowered estimates, target $55.
Night Trading
  • Asian equity indices are +.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 191.0 -6.5 basis points.
  • Asia Pacific Sovereign CDS Index 153.0 -4.25 basis point.
  • FTSE-100 futures -.12%.
  • S&P 500 futures -.01%.
  • NASDAQ 100 futures +.22%.
Morning Preview Links

Earnings of Note
  • (PH)/1.63
  • (CMA)/.51
  • (SLB)/1.09
  • (STI)/.27
  • (FITB)/.35
  • (GE)/.38
  • (HTLD)/.18
Economic Releases
10:00 am EST
  • Existing Home Sales for December are estimated to rise to 4.65M versus 4.42M in November.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • None of note
BOTTOM LINE: Asian indices are higher, boosted by technology 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.

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