Friday, January 27, 2012

Friday Watch

Evening Headlin
  • Ackermann Says Greece Solution Still ‘Open Question’ as Debt Talks Resume. Resolving the Greek sovereign-debt crisis is crucial to avoiding contagion in Europe, said Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann, as private bondholders met Prime Minister Lucas Papademos to seek an accord to cut the nation’s borrowings. “I’m confident that we can get our act together in Greece and avoid a major contagion, but that is still a very open question,” Ackermann told Bloomberg News in an interview at the World Economic Forum in Davos, Switzerland yesterday. “That will have a very decisive impact on what is happening in the economy.” Ackermann chairs the Institute of International Finance, the Washington-based industry group that’s leading the debt-swap talks on behalf of private bondholders. “Some progress” was made at a meeting last night in Athens between Charles Dallara, the IIF’s managing director, and Papademos after European finance ministers demanded this week that bondholders take bigger losses on their Greek holdings. Work is set to continue today, the IIF said in an e-mailed statement. Ackermann, 63, said the cost of allowing Greece to fail would stretch beyond sovereign debt to investments in the country and the collapse of its economy. “On top of that you have contagion -- Portugal is already under scrutiny, Italy, Ireland, Spain and so on,” he said in a CNBC interview.
  • Schaeuble Says Greek Government Must Act, Stuttgarter Reports. The Greek government must fulfill promises attached to earlier aid packages before expecting more money, the Stuttgarter Zeitung reported, citing an interview with German Finance Minister Wolfgang Schaeuble. “We have enough proclamations; now the government in Athens must act,” the newspaper quoted Schaeuble as saying in an e-mailed preview of an interview to be published today. “We insist that Greece fulfill the requirements of the initial aid program,” which it hasn’t fully implemented, the newspaper cited him as saying. Greece must meet those conditions before another aid package can be considered, the newspaper said, quoting Schaeuble as saying that there’s still enough capacity in the current European Financial Stability Facility rescue package. The newspaper also cited Schaeuble as saying there is “frustration” that the U.S. hasn’t addressed its “debt problems.”
  • Euro Falls as Greece, Creditors Wrangle Over Debt-Swap Agreement. The euro fell, snapping a four-day gain against the dollar amid concern Greece is struggling to reach agreement with its creditors on a debt-swap arrangement. The yen rose against all of its 16 major peers as Asian stocks halted an advance, boosting demand for safer assets. The dollar’s appreciation was limited before U.S. data forecast to show an acceleration in economic growth and after the Federal Reserve pledged to keep interest rates low until late 2014. “I see the euro testing lower,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo. “Uncertainties remain in Europe as there are lingering concerns about the Greek debt-swap deal being delayed.”
  • Fed Easing May Harm Long-Term Economic Growth, Warsh Says. Former Federal Reserve Governor Kevin Warsh said the central bank’s record monetary easing may set back the U.S. economic expansion and that he’s concerned policy makers are pushing investors into riskier assets. “Recent policy activism -- measures that go beyond a central bank’s capacity or traditional remit -- threatens to forestall recovery and harms long-term growth,” Warsh said in a speech today in Stanford, California. The former governor said he hopes the Fed’s pledge to hold rates low until at least late 2014 isn’t seen as a “guarantee” that “reacquaints consumers with bad habits.” The former policy maker said he’s not “terribly comfortable with the idea of pushing consumers into riskier assets,” which is the impression left by the Fed’s decision yesterday to keep the benchmark U.S. interest rate near zero through at least late 2014. He also criticized the Fed for unveiling policy makers’ projections for the path of interest rates, and voiced doubt about the central bank’s new inflation target. While Warsh voted for the central bank’s large-scale asset buying programs, he questioned the $600 billion in Treasury purchases announced in November of 2010. He said the purchases posed “nontrivial risks” in a speech and opinion article a few days after the Fed’s announcement. Today, he went further and challenged the idea that new asset purchases would help the economy. “I don’t believe balance-sheet expansion at this moment passes the benefit-cost test,” Warsh said in response to audience questions. The former Fed governor also said that while the central bank has done a “reasonable job” of holding down long-term bond yields, he would be “more comfortable” if private market participants were setting long-term interest rates. The speech constitutes Warsh’s first public comment since he retired from the central bank in April.
  • Gold Bulls Ascendant Amid Best Start to Year in Three Decades: Commodities. Gold traders are bullish for a fourth consecutive week, betting that the Federal Reserve’s pledge to keep interest rates low until late 2014 will extend the metal’s best start to a year in more than three decades. Nine of 15 surveyed by Bloomberg expect prices to gain next week. The value of gold held in exchange-traded products jumped $3.9 billion on Jan. 25, the most since October, as the central bank laid the groundwork for a possible third round of asset purchases, data compiled by Bloomberg show. Lower interest rates increase the appeal of bullion because it generally earns investors returns only through price gains.
  • South Korean Manufacturers' Confidence Index Is Near Lowest Since July '09. South Korean manufacturers’ confidence is near a 30-month low as Europe’s debt crisis dims the outlook for exports. An index measuring expectations for February was at 81 from January’s 79, the lowest level since July 2009, a statement from the Bank of Korea showed in Seoul today. A measure of expectations at non-manufacturing companies was unchanged at 79.
  • Mumbai's Home Sales Decline to Three-Year Low as Record Prices Dent Demand. Mumbai’s residential home sales dropped to a three-year low in the quarter ended December as record home prices and higher interest rates crimped demand, according to Liases Foras Real Estate Rating & Research Pvt. Sales in Mumbai, India’s most expensive property market, fell 17 percent from the previous quarter to 7.59 million square feet, said Pankaj Kapoor, founder of Liases Foras. The city’s unsold inventory, or the number of months needed to clear stock at the existing absorption rate, climbed to 44 months. A “healthy market” normally maintains about eight months of inventory, according to Kapoor. “The likely scenario looks like we will see a dip in prices seeing the dismal sales and as liquidity remains tight,” Kapoor said in a phone interview from Mumbai yesterday. The city’s unsold inventory climbed to a record 119.85 million square feet, according to Liases Foras, a Mumbai real estate research company whose clients include Housing Development Finance Corp. (HDFC), India’s largest mortgage lender. The weighted average selling price in Mumbai climbed to a record 10,558 rupees ($210) a square foot, the data showed.
  • GM(GM) Seen Accelerating Opel Restructuring as Sales Plunge: Cars. The financial crisis in Europe is adding new urgency to General Motors Co.'s attempt to turn around its money-burning Opel unit. GM, which has already trimmed its European work force by 5,800, is considering a variety of additional steps to stem the losses. The company is looking to find greater cost savings between Opel and Chevrolet operations in Europe, Tim Lee, president of GM's international operations, told reporters this month at the Detroit auto show.
Wall Street Journal:
  • Investors Abandoning Copper, Cotton, Crude. The commodities market is shrinking. Amid plunging prices and soaring volatility, investors and traders reduced bets on 13 key commodity contracts by 19% in 2011, according to a Wall Street Journal/Dow Jones Newswires analysis of U.S. Commodity Futures Trading Commission data. The data show so-called open interest, or the number of futures and options contracts outstanding in each commodity. The exodus was the biggest in at least 12 years, outpacing the flight seen in 2008 during the financial crisis, the data show. And it came from a range of commodities—from crude oil to copper to cotton. Investors of all stripes bolted for the exits, including hedge funds and producers and consumers of raw materials. Index funds and other investment products often used by retail investors also showed outflows in the last months of the year, according to Barclays Capital.
  • Rig Owner Spared Some Spill Costs. The owner of the Deepwater Horizon drilling rig won't have to pay compensatory damages related to oil spilled under the ocean in the worst offshore spill in U.S. history, a judge ruled Thursday. BP PLC is required to indemnify Transocean Ltd.(RIG), the owner of Deepwater Horizon, against compensatory damages related to the 2010 spill in the Gulf of Mexico, U.S. District Judge Carl Barbier in New Orleans ruled.
  • Central Banks Diversify Their Arsenals. Deploying Unconventional Balance-Sheet Techniques From Bank Loans to Securities Purchases. For the world's largest central banks, the balance sheet has been the weapon of necessity in a crisis-riddled global economy—a weapon they appear likely to keep using in 2012. Before the 2008 crisis, most central banks managed credit, inflation and economic growth by moving short-term interest rates up or down in small increments. More recently, with rates near zero in the U.S., U.K. and Japan, and not far from zero in the euro zone, the world's largest central banks have resorted to making unconventional loans and ramping up the size of their portfolios of securities, actions that economists call balance-sheet expansion because it means the banks' stockpiles of assets are growing.
  • EU Red-Flags 'Volcker'. Planned U.S. Rule on Banks' Bets Is Seen as Threat to Worsen Debt Crisis. The European Commission will complain to Treasury Secretary Timothy Geithner that proposed U.S. regulations could discourage banks from trading European sovereign bonds, potentially increasing funding costs for the continent's governments. Michel Barnier, the European commissioner for the internal market, said in an interview that he will raise objections with Mr. Geithner next month about the potential impact of the planned "Volcker rule," which is aimed at restricting banks from trading with their own capital.
  • Gingrich, Romney Take Off Gloves. Mitt Romney and Newt Gingrich sought both to settle old scores and unfurl new attacks Thursday night in the final high-stakes debate before Florida's pivotal primary.
  • In Standoff, Egypt Blocks Americans From Leaving. Egypt banned six American pro-democracy workers from leaving the country, including the son of a U.S. cabinet secretary, as relations between the country's military leaders and their longtime benefactors in Washington plumbed new lows. The move came despite a personal appeal by President Barack Obama, who last Friday phoned Egypt's top general to underscore the importance of civil society. The next day, Cairo Airport immigration officials told Sam LaHood, son of U.S. Transportation Secretary Ray LaHood, that he was barred from leaving Egypt because he was the subject of an investigation for his work as the director of the Cairo office of the International Republican Institute, a U.S.-funded pro-democracy organization. "Our attorney tells me this is like a hostage situation, and we're the hostage," the younger Mr. LaHood said Thursday. "Nobody wants a hostage to die, but they're playing hardball and they want to get something out of it."
  • Banks Face Bind Over Cash Pile. After receiving nearly half a trillion euros in cheap loans from the European Central Bank last month, the Continent's banks face a dilemma: to invest the money in lucrative but potentially risky government bonds or hoard the cash at a loss. The choice reflects the uncertainty surrounding Europe's financial system at a time when dark clouds continue to hover over the euro-zone economy and its common currency. Regardless of whether banks use the money to buy bonds or simply stash it at the central bank for safekeeping, consumers and businesses are unlikely to see much of the funds.
Zero Hedge:
NY Times:
  • In Punishing Year for Hedge Funds, Biggest One Thrived. The world’s biggest hedge fund is also one of the best performers. Bridgewater Associates, which manages nearly $120 billion, posted returns of 23 percent in 2011 — a year when the average hedge fund portfolio lost 5 percent. Against the backdrop of fear over European debt and stagnant global growth, the hedge fund, led by one of Wall Street’s more enigmatic titans, Ray Dalio, sidestepped the mess. The fund did it with bets on United States Treasuries, German bonds and the Japanese yen, according to people familiar with the firm’s investment strategy, who spoke on condition of anonymity because the information is private.
  • For Greece, the Outlook Is Still Grim. Even as Greece tries to convince creditors that its debt-reduction efforts are on track, gloomy new International Monetary Fund forecasts about its long-term economy are threatening to derail talks meant to secure the nation’s next big installment of bailout funds.
Chicago Tribune:
  • Juniper's(JNPR) Weak Q1 Forecast Stings Shares. Juniper Networks Inc reported lower-than-expected quarterly revenue hurt by weak demand from service providers, and the network equipment maker forecast a first quarter well below analyst estimates, sending its shares down 8 percent after the bell. "They (Juniper) continued to suffer from carrier capex, which is weak, and their end markets are becoming more competitive ... especially from HP," ThinkEquity Analyst Rajesh Ghai told Reuters. "They are losing share and that has been exacerbated by a soft quarter and you are starting to see that in the gross margins, and that is also evidence that competition has intensified," Mizuho Securities USA analyst Joanna Makris told Reuters. Gross margins fell sequentially to 11.9 percent from 12.4 percent in the third quarter. Juniper's shares, which closed at $22.37 on Thursday on the New York Stock Exchange, were down 8 percent to $20.55 in extended trade.
  • Cliffs Natural(CLF) Cuts 2011 Outlook For Iron Ore Volumes. Mining company Cliffs Natural Resources Inc forecast weak full-year sales volumes at its Eastern Canadian and Asia Pacific iron ore businesses, hurt by lower sales of pellets and delayed shipments. Cliffs forecast 2011 sales volume of 7.4 million tons in its Eastern Canadian iron ore segment, down from its prior forecast of 8 million tons. The company also slightly trimmed its sales volumes outlook for its Asia Pacific iron ore unit, citing the timing of two shipments. However, Cliffs said volumes at its U.S. iron ore business would be in line with its previous expectations.
  • Riverbed(RVBD) Forecasts Weak Q1, Shares Fall. Riverbed Technology Inc forecast a bleak first quarter as the network equipment maker expects disruption in product sales, sending its shares down more than 14 percent in trading after the bell.
Financial Times:
  • JPMorgan(JPM) Admits It Weighed Euro Exit. Jamie Dimon, the straight-talking chief executive of JPMorgan, has admitted the bank considered pulling out of the eurozone’s most troubled periphery on economic grounds, but ultimately opted instead to stay for the long term. “We have about $15bn exposure across the euro five,” Mr Dimon said, referring to Ireland, Portugal, Italy, Greece and Spain.
  • Investors Fear Mounting Losses in Portugal as Second Rescue Looms. Portugal is fighting a losing battle to contain its public debt and may be forced to impose haircuts of up to 50pc on private creditors, according to a top German institute. A report for the Kiel Institute for the World Economy said Portugal would have to run a primary budget surplus of over 11pc of GDP a year to prevent debt dynamics spiralling out of control, even in a benign scenario of 2pc annual growth. "Portugal's debt is unsustainable. That is the only possible conclusion," said David Bencek, the co-author, warning that no country can achieve a primary budget surplus above 5pc for long. "We won't know what the trigger will be but once there is a decision on Greece people are going to start looking closely and realise that Portugal is the same position as Greece was a year ago." Yields on Portugal's five-year bonds surged on Thursday to a record 18.9pc, reflecting fears that the country will need a second rescue from the EU-ECB-IMF Troika. Three-year yields hit 21pc.
  • Barclays(BCS) Warns EU Capital Plan Will Hurt Small Businesses. Barclays has attacked European Union plans to impose a single capital charge on trade finance loans, saying they will "disproportionately" hit smaller businesses, damaging growth and stifling job creation.
The Standard:
  • Soros Doubts China Growth Momentum. Billionaire hedge fund manager George Soros - who opted out of the game some time ago - is doubtful China's economy will chug along at a resilient pace again this year. "China's central government has released signals to help the public prepare for slow growth this year," Soros said at the World Economic Forum in Davos, Switzerland, yesterday. "Weak exports make it difficult to reach 8 percent GDP growth."
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 180.50 -5.0 basis points.
  • Asia Pacific Sovereign CDS Index 145.75 -3.5 basis points.
  • FTSE-100 futures -.60%.
  • S&P 500 futures -.27%.
  • NASDAQ 100 futures -.17%.
Morning Preview Links

Earnings of Note
  • (AOS)/.64
  • (MO)/.49
  • (AEP)/.40
  • (IDXX)/.63
  • (CVX)/2.94
  • (D)/.64
  • (DHI)/.05
  • (F)/.26
  • (HON)/1.05
  • (LM)/.25
  • (NWL)/.38
  • (PG)/1.08
  • (TROW)/.69
  • (SCCO)/.66
Economic Releases
8:30 am EST
  • Advance 4Q GDP is estimated to rise +3.0% versus a +1.8% gain in 3Q.
  • Advance 4Q Personal Consumption is estimated to rise +2.4% versus a +1.7% gain in 3Q.
  • Advance 4Q GDP Price Index is estimated to rise +1.9% versus a +2.6% gain in 3Q.
  • Advance 4Q Core PCE is estimated to rise +.9% versus a +2.1% gain in 3Q.

9:55 am EST

  • Final Univ. of Mich. Consumer Confidence for January is estimated at 74.0 versus a prior estimate of 74.0.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Fed's Dudley speaking and the ECB's Draghi speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

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