Monday, January 23, 2012

Monday Watch

Weekend Headlines

  • Euro Leaders Seek Crisis Fix as Greek Talks Drag On. European officials will forge ahead today with crafting a long-term plan to tackle the region’s debt crisis, as banking and government negotiators continue trying to reach an agreement that will lighten Greece ({GDBR10)’s debt burden. European Union finance ministers will meet in Brussels to discuss new budget rules, a financial firewall to protect indebted states and a Greek debt swap, with EU leaders racing to cobble together a firm rescue response in the coming weeks. Meanwhile, cash-strapped Greece and private bondholders said they had made progress in talks over the weekend in Athens. As investors ignored this month’s euro-area downgrades by Standard & Poor’s and last week sent the single currency to its first gain in seven weeks, leaders including German Chancellor Angela Merkel are set on exploiting the momentum to lock in a final response to the crisis and hold the euro-area together.
  • EU Banks May Deepen Dependence on Central Bank's Unlimited Loans. European banks, shunned by investors and each other, may borrow as much next month from the European Central Bank as they did in a record offering in December as they seek refuge from frozen funding markets. The ECB last month lent banks an unprecedented 489 billion euros ($630 billion) for three years. Analysts said they expect demand to be just as high at a second auction on Feb. 29 because the stigma associated with using the facility is dissipating and the list of what assets can be used as collateral in exchange for the loans will be extended. ECB President Mario Draghi said last week he expects demand for loans next month to be “still very high,” though “probably lower than in December.”
  • Thousands of Pro-Government Hungarians Urge Resistance to EU. Tens of thousands of Hungarians joined a protest to support Prime Minister Viktor Orban as the European Union pressed the country’s government to change laws that have blocked talks on an international bailout. Demonstrators marched through the center of Budapest to parliament yesterday in an event organized by a group including Zsolt Bayer, a journalist with Magyar Hirlap newspaper and a founding member of Orban’s Fidesz party. The Interior Ministry said almost 400,000 people attended, while news website Index estimated the turnout at more than 100,000. “We say yes to Europe but no to what Europe is doing to Hungary and the Hungarian government,” Bayer said in a video message posted on the Internet before the rally. Organizers marching at the front of the crowd carried a banner saying “We won’t become a colony,” a slogan Bayer repeated outside Hungary’s neo-gothic parliament.
  • Europe Debt Crisis Still Likely to End Badly: Simon Johnson.
  • France Considers Europe-Wide Stamp Tax, Financial Times Reports. France may back a U.K.-style stamp duty on share purchases as an initial step for a financial transaction tax that covers the European Union, the Financial Times newspaper said. France considers the tax a potential option as the levy already exists in the U.K., according to the report, citing an unidentified French official. It follows comments from German Economy Minister Philipp Roesler that the stamp duty is an alternative to the financial transaction tax and a way to overcome resistance from the U.K., the FT said.
  • Spain Calls For Bigger European Bailout Fund, More ECB Action, Pais Says. The European Stability Mechanism should probably have greater capacity than its 500 billion euros, and the European Central Bank “can do much more” to support bond markets, Spanish Foreign Minister Jose Manuel Garcia-Margallo was quoted as saying in El Pais today. The euro region needs to move towards a “federal Europe” and “the mutualization of debt,” he was quoted as saying by the newspaper. Stronger European nations should stimulate internal demand while the European Investment Bank could increase spending to bolster the economy, he said.
  • Italian Premier, ECB Chief Support Bigger ESM, Spiegel Reports. Italian Prime Minister Mario Monti and European Central Bank President Mario Draghi both support enlarging the capacity of Europe’s permanent financial rescue mechanism, Der Spiegel reported, without saying where it got the information. The news magazine said Monti is pushing for the European Stability Mechanism’s capacity to be doubled to 1 trillion euros ($1.29 trillion), and had made the suggestion to the German government. Der Spiegel added that Draghi supports the view that unused funds from Europe’s temporary rescue fund should be added to the ESM’s firepower when it comes into force.
  • ECB Cuts Make Euro Favorite for Most-Profitable Carry Trades. Betting against the euro may be the most profitable trade in the foreign-exchange market as policy efforts to stave off a European recession debases the currency. Borrowing in euros and investing in the currencies of Australia, Brazil, Mexico, South Africa and South Korea has returned 8 percent since the European Central Bank cut its benchmark interest rate on Nov. 3 for the first time in more than two years, according to data compiled by Bloomberg. So- called carry trades funded with yen have lost 0.3 percent and gained 1 percent when financed with dollars.
  • Crude Declines as European Union Meets on Iran Oil Sanctions, Debt Crisis. Oil dropped a fourth day in New York as investors bet that sanctions against Iran may be delayed while Europe’s debt crisis may slow commodity demand. Crude for March delivery declined as much as 93 cents to $97.40 a barrel in electronic trading on the New York Mercantile Exchange. It was at $98.06 at 3:09 p.m. Sydney time. The contract slid $2.21 to $98.33 on Jan. 20. Front-month prices are at the lowest level in almost five weeks, and are 12 percent higher the past year.
  • Nigeria's Jonathan Must Contain Islamists After Attacks Kill 176. Nigerian President Goodluck Jonathan’s government struggled to contain an escalating Islamist insurgency in Africa’s top oil producer after attacks that killed at least 176 people over the weekend. The militant Muslim group Boko Haram, which is fighting for rule by Islamic law in the country’s mainly Muslim north, claimed responsibility for blasts that struck eight government buildings on Jan. 20, killing at least 165 people. Another 11 people were killed when suspected Islamist gunmen attacked a bank, a police station and a hotel in the northeastern town of Tawafa Balewa yesterday, police said. “They seem to be able to do whatever they want to do, wherever they want to do it, which means the government is not safe,” Jubrin Ibrahim, director of the Abuja-based Center for Democracy and Development, said by phone. The government’s “own survival is at risk as this thing spreads.” Authorities in Africa’s most populous country blame Boko Haram, whose name means “Western education is a sin,” for bombings and gun attacks in the north and the capital Abuja over the past year. The group claimed the Christmas Day bombing of a church near Abuja that killed 43 people and the Aug. 26 suicide- bombing of the United Nations building in the capital that killed 24 people. Islamic militants pose a worse threat to the country than the 1967-1970 Biafra civil war, Jonathan said on Jan. 8.
  • Corn Prices Rise Worldwide Euro to U.S. Ethanol Policy, FAO Says. The use of corn to make ethanol in the U.S. is helping to lift the grain price worldwide, said Jose Graziano da Silva, the new director general of the United Nations’ Food and Agriculture Organization. “FAO has been raising its voice against using food to produce bio energy,” Graziano da Silva told 64 agriculture ministers in Berlin yesterday. That’s “especially” the case for corn in the U.S. and oilseeds in Europe, he said.
  • RIM(RIMM) Replaces CEOs as it Struggles to Answer Apple(AAPL). Research In Motion Ltd. (RIMM) shook up its top management, replacing co-Chief Executive Officers Jim Balsillie and Mike Lazaridis, who guided the BlackBerry maker for two decades and struggled to compete against Apple Inc. (AAPL).

Wall Street Journal:
  • Gingrich Reshapes Landscape. Newt Gingrich's surprise thumping of Mitt Romney in the South Carolina Republican primary sets the stage for a prolonged and potentially messy fight to determine who will lead the party's campaign to defeat President Barack Obama.
  • China's Oil Imports From Iran Jump. China's crude-oil imports from Iran last year were up 30% from 2010, to 27.76 million metric tons, China's General Administration of Customs reported Saturday. That works out to about 557,000 barrels a day. China's overall crude imports were up just 6.1%. Beijing has steadfastly defended its relationship with Iran, the No. 3 supplier of crude to its energy-hungry economy, as the U.S. and Europe try to increase pressure on Iran over its nuclear activities.
  • Wall Street Pay Gets Even Trickier to Figure. Pay is down on Wall Street. But the changing nature of compensation means today's payouts could yet haunt big firms if financial markets don't snap out of their funk. Since the financial crisis, banks have lessened short-term incentives. Base salaries have risen, while bonuses have fallen. And a bigger portion of incentive compensation is now paid in stock that typically vests over three years.
  • A Sears(SHLD) Wager Stings at Goldman(GS). Edward Lampert and shareholders of Sears Holdings Corp. aren't the only ones hoping for a turnaround of the big retailer. Goldman Sachs Group Inc. and some of its clients are sweating it out, too. Clients of Goldman invested about $3.5 billion in Mr. Lampert's hedge fund through a special deal more than four years ago. Goldman invested about $75 million of its own money as part of the arrangement.
  • How the U.S. Should Handle the Islamist Rise in Egypt. From an American perspective, the situation in Egypt is a nightmare. One year after Tahrir Square triumphantly toppled a tyrant, Islamists are poised to profit from Egyptian "people power."
  • California's Millionaire Tax Mirage. A new report says Jerry Brown's revenue projections are fanciful.
Business Insider:
Zero Hedge:

Wall Street All-Stars:

Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).
  • Arab League Proposes New Plan for Syrian Transition. Arab League foreign ministers proposed on Sunday that Syria's embattled President Bashar al-Assad hand over power to a deputy and set up a new unity government, after their earlier peace plan failed to end 10 months of bloodshed.
  • Hedge Fund Exit Requests at Record Low - GlobeOp. Redemption requests by hedge fund clients have fallen to the lowest monthly level on record as improving market sentiment combined with a typical seasonal lull in asset re-allocation, data shows. The GlobeOp Forward Redemption Indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of GlobeOp's assets under administration, measured 1.85 percent in the January report, down from 4.58 percent in the December report, which shows requests to redeem funds in January, which is typically a period of heavy re-allocation. That is the lowest recorded since the January report in 2008, when GlobeOp began compiling the index. January report notifications were also substantially lower than the same time last year, when requests stood at 2.79 percent.
Financial Times:
  • Paris and Berlin Seek to Dilute Bank Rules. France and Germany are to call for a relaxation of global bank capital rules to prevent lending to the real economy being choked off, setting them at odds with the UK’s stricter approach to banks.
  • China Investors Set Their Sights On Hollywood. A consortium led by Chinese media entrepreneur Bruno Wu is scouring Hollywood for film companies to acquire, in a sign of China’s growing interest in the US entertainment industry. Mr Wu, Harvest Global Investment, and Pacific Alliance Group, the fund run by former TPG China head Shan Weijian, held preliminary talks with Summit Entertainment, the company behind the blockbuster Twilight vampire films, and Colony Capital, which owns Miramax, about a proposed deal to merge the two companies and then acquire the new entity, according to people familiar with the situation.
Weekend Recommendations

  • Made positive comments on (PBY), (CCL), (KRA) and (ATK).
  • Made negative comments on (JCP).
Night Trading
  • Asian indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 192.25 +1.25 basis points.
  • Asia Pacific Sovereign CDS Index 153.0 unch.
  • FTSE-100 futures +.41%.
  • S&P 500 futures -.30%.
  • NASDAQ 100 futures -.20%.
Morning Preview Links

Earnings of Note
  • (HAL)/.99
  • (PETS)/.16
  • (VMW)/.60
  • (KSU)/.79
  • (ZION)/.33
  • (WDC)/.71
  • (TXN)/.23
  • (PKG)/.37
  • (CSX)/.44
  • (TUES)/.36
Economic Releases
  • None of note
Upcoming Splits
  • (COG) 2-for-1
Other Potential Market Movers
  • The (SLH) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial 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 week.

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