Thursday, January 26, 2012

Thursday Watch

Evening Headlin

  • Greek Debt Talks to Resume in Athens as Policy Makers Squabble Over Cost. Talks on a debt swap to avert a Greek default resume today as international policy makers squabble over the mounting cost of the rescue. Charles Dallara and Jean Lemierre, negotiating on behalf of private creditors, return to Athens today after European finance ministers insisted bondholders take bigger losses on their Greek debt. The International Monetary Fund further roiled the discussions by suggesting that public holders of Greek bonds might also have to increase support. The parties are groping for a solution three months after private bondholders agreed with European officials to implement a 50 percent cut in the face value of more than 200 billion euros ($262 billion) of debt by voluntarily swapping bonds for new securities. Since then, an economic contraction that exceeded estimates has made the goal of cutting Greece’s debt to 120 percent of gross domestic product by 2020 harder. An accord is tied to a second bailout for the country, which faces a 14.5 billion-euro bond payment on March 20. “The cost of postponing a solution is extremely high for Europe, but especially for the future of the euro,” said Giovanni Bossi, chief executive officer of Banca Ifis SpA, an Italian financial-services company that doesn’t own Greek debt. “The parties are very close to a deal -- it’s time to close.”
  • Gold Surges to Six-Week High on Fed's Forecast for Low Borrowing Costs. Gold futures surged to a six-week high after the Federal Reserve said it expects “exceptionally low” interest rates through at least late 2014. Silver, platinum and palladium also advanced. Fed Reserve Chairman Ben S. Bernanke said at a press conference after the central bank’s statement that the option of further large- scale bond purchases is still “on the table.” Gold has jumped 28 percent in the past 12 months, partly as record-low rates boosted the appeal of the metal as a hedge against inflation. “We saw an immediate reaction in gold” after the Fed’s announcement, Michael A. Gayed, the chief investment strategist who helps oversee $150 million at New York-based Pension Partners LLC, said in a telephone interview. “People are betting that at some point the economy will face inflationary pressures because of the low interest rate.”
  • CBOE Put-Call Ratio Hits Eight-Month Low on Stock Rally: Options.. The ratio of bearish versus bullish options changing hands on the CBOE slipped to the lowest level since May as traders piled into the S&P 500 Index's rally amid the measure's best start to a year since 1997. The CBOE Equity Put/Call Ratio's average over the past 20 days has dropped to .61 and on Jan. 19 the level fell to .47, according to data from the exchange compiled by Bloomberg.
  • U.S. Banks Face Pressure on Margins From Fed Policy on Rates. Bank of America Corp. and Citigroup Inc. are among lenders that may find it more difficult to boost profits and capital after the Federal Reserve pledged to keep its benchmark interest rate low until at least late 2014. “This hurts the banks, I don’t think there’s any question about that,” said Ralph Cole, a senior vice president of research at Ferguson Wellman Inc. in Portland, Oregon, which manages $2.9 billion. “Their cost of funds stays low but it makes it harder to earn a return.” The Federal Open Market Committee said yesterday that economic conditions are likely to warrant “exceptionally low levels for the federal funds rate at least through late 2014.” The policy may hurt lenders’ profits as they struggle to find loans or securities with yields high enough to support their net interest margins, a gauge of profitability that measures the difference between the cost of funds and what they earn on assets.
  • SanDisk(SNDK) Drops as Sales Forecast Misses Estimates on Lower Prices. SanDisk Corp. (SNDK) shares dropped in late trading after the biggest maker of flash-memory cards gave a first-quarter sales forecast that missed analysts’ estimates, citing lower prices for chips that store data in mobile phones. Sales in the current period will be $1.3 billion to $1.35 billion, Chief Financial Officer Judy Bruner said on a conference call today. Milpitas, California-based Sandisk was projected to have sales of $1.46 billion, the average estimate of analysts in a Bloomberg survey. The shares declined as much as 11 percent.
  • China Police Open Fire on Tibetans. Police in southwestern China opened fire on protesters in a Tibetan enclave during a clash Jan. 24, the second straight day of deadly protests in the area, the official Xinhua News Agency reported. The confrontation occurred after a crowd gathered two days ago near the Chengguan Police Station, Xinhua said yesterday, citing an unidentified police officer. The crowd refused to disperse and then stormed the station with knives, gasoline bottles and stones, according to the report. Police opened fire after attempts to disperse the crowd by non-lethal means failed, Xinhua reported. One protester was killed and another injured, in addition to 14 police wounded, according to the report. “The Tibetan people are unhappy and restive about their lot in China,” Mohan Guruswamy, chairman of the Centre for Policy Alternatives, a New Delhi-based research group, said in an e-mail. “There is ample evidence of it, and the acute Chinese sensitivity to any comment on Tibet is only proof.”
  • South Korea's Economy Grows at Slowest Pace in Years. South Korea’s economy grew the least in two years in the fourth quarter as exports sank because of Europe’s sovereign debt crisis and a faltering global expansion. Gross domestic product expanded 0.4 percent from the third quarter, when it gained 0.8 percent, the central bank said in Seoul today. That was less than the median 0.5 percent estimate of 10 economists surveyed by Bloomberg News.
  • Logitech Cuts Its Full-Year Forecasts. Logitech International SA (LOGN), the world’s biggest maker of computer mice, cut its forecasts for sales and operating income, citing the weaker euro and decreased demand for products such as web cameras and remote controls. The company changed its sales forecast for the fiscal year ending March 31 to $2.3 billion, with operating income estimated at $60 million. Logitech, which also produces gaming devices, in September cut its forecast for full-year operating profit to about $90 million on sales of about $2.4 billion. “The euro has weakened considerably during the last three months,” Chairman and interim Chief Executive Officer Guerrino De Luca said in the statement. “In addition, webcams and remotes continue to be impacted more than expected by product portfolio and market weakness.”
Wall Street Journal:
  • SEC Puts Private Equity Under the Enforcement Microscope. A panel of three members from the SEC’s asset management unit, which was created in 2010 within the agency’s enforcement division, pointed to an increased likelihood of enforcement actions against private equity firms in the coming years. “I think that private equity law enforcement today is where hedge fund law enforcement was five or six years ago,” Robert Kaplan, co-chief of the asset management unit said Wednesday during the Private Equity Analyst Outlook conference in New York. In the past 12 months, the SEC’s enforcement division brought about 50 cases against hedge fund managers, Kaplan said.
  • The Development Ladder, Post-Crisis. World Bank Chief Economist Lin Yifu on Industrialization and the Lessons to Learn From Financial Meltdowns.
  • How Green Became Obama's Albatross. The president is trapped by his own rhetoric amid America's energy boom. He knows China and India are opening a new coal plant every week. He knows the huge amounts of fossil energy lying at humanity's feet won't be abandoned just because an American president says so. He can't fail to notice that Canada's oil sands won't remain undeveloped; the oil will go to the Far East. Mr. Obama also seems enough of a free thinker to entertain the possibility at least that global warming theory may be wrong. In a telling exchange with interviewer Charlie Rose a few years ago, Al Gore was asked to describe the evidence of man's role in climate change. Each time Mr. Gore recurred to some version of a "consensus of scientists" or "the most respected scientists whose judgment I think is the best." The truth is, the theory may be popular, but the evidence has thus far eluded the tens of billions spent on climate science. The temperature data are so noisy that they reveal no pattern connecting rising CO2 in the industrial age with temperature trends. Some say because CO2 is a "greenhouse" gas, shut up, case closed. But the known relationship between carbon and climate doesn't actually indicate a big reason to worry.
  • Lam Research(LRCX) 2Q Profit Slumps 85% On Sharp Sales Drop. Lam Research Corp.'s (LRCX) fiscal second-quarter earnings slumped 85% as the semiconductor-equipment maker's revenue dropped sharply. The company anticipated near-term declines in spending on wafer-fabrication equipment amid an industry slowdown in the second half of last year.
  • Uphill Fight Awaits New Mortgage - Fraud Unit. The Justice Department's plan to create a new mortgage-crime unit in tandem with state authorities, announced by President Barack Obama in his State of the Union address, represents the latest move in an effort that so far has led to few prosecutions of bankers. The new unit may help push forward a broad settlement under which banks would pay billions of dollars to resolve charges about "robo-signing" documents and other alleged mortgage abuses. But when it comes to bringing criminal charges against individual executives, the unit is likely to face the same kind of difficulties earlier task forces have encountered.
  • Public Pensions Increase Private-Equity Investments. Large public pension plans are pouring more money into private-equity funds, deepening ties between government workers and an industry currently under the harsh glare of U.S. presidential politics. Big public-employee pensions had about $220 billion invested in private equity in September, or 11% of their assets, according to Wilshire Trust Universe Comparison Service, which tracks the holdings of pensions, foundations and endowments.
  • The Buffett Ruse. Obama's ploy means the highest capital gains tax rate since 1978. Remember the moment in 2008 when Charlie Gibson of ABC News asked Senator Barack Obama why he would support raising the capital gains tax even though "revenues from the tax increased" when the rate fell? Mr. Obama's famous reply: "I would look at raising the capital gains tax for purposes of fairness." Well, we were warned.
  • With EU Embargo on Iran Oil, Chinese Traders Poised to Profit. Europe’s decision to embargo Iranian oil exports is strategically sound, since a nuclear-armed Iran is in no one’s interest. Yet, policymakers are overlooking how an embargo may strategically reshape the global oil trade in China’s favor. Major Chinese oil traders are building businesses that are world class in terms of volumes traded. The latest oil embargo will help them further their ambitions.
Business Insider:
Zero Hedge:
  • Larry McDonald Calls Portugal CDS a Bear Signal. Action in Portugal’s credit-default swaps might be a telling bear signal, economic expert and author Larry McDonald said Wednesday. While Greece has “backup” private-sector involvement that could buoy its economy, the Portugal CDS 5-Year [PTCD5 1453.03 7.37 (+0.51%) ] was at record levels, McDonald said on “Fast Money.” “It’s decoupling from the rest of the group,” he said. McDonald likened the situation with Portugal and Greece to a financial event horizon in 2008. “The political will to save Lehman Brothers — and I talk about this in my book — was really taken away from Bear Stearns,” he said. McDonald called it a bearish signal in the intermediate term.
  • Government Trying to 'Cripple' Banks: Dick Bove. Between the Federal Reserve’s announcement that it will not raise interest rates until at least 2014 and President Obama’s mortgage refinancing plan, the government is trying to cripple the banking system, noted bank analyst Dick Bove told “The Kudlow Report” Wednesday. “What this government is doing is its attempting to restrict or cripple the banking system so it cannot perform the way it wants in terms of assisting the economy,” the Rochdale Securities analyst said.
  • Netflix(NFLX) Blows Past Expectations; Shares Jump 15%. Netflix's fourth-quarter earnings and revenue outpaced Wall Street's expectations as the video-rental website reversed subscriber losses to sign up more than 600,000 new U.S. customers in the period.
NY Times:
Washington Post:
Financial Times:
The Guardian:
  • Angela Merkel Casts Doubt On Saving Greece From Financial Meltdown. German chancellor speaks candidly to the Guardian and five other leading European newspapers as part of a unique collaboration to explore the EU's predicament. Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 185.50 -5.5 basis points.
  • Asia Pacific Sovereign CDS Index 149.25 +.5 basis point.
  • FTSE-100 futures +.59%.
  • S&P 500 futures -.06%.
  • NASDAQ 100 futures -.10%.
Morning Preview Links

Earnings of Note
  • (CL)/1.29
  • (ABC)/.63
  • (ETN)/1.12
  • (QSII)/.37
  • (AN)/.49
  • (MWW)/.11
  • (NUE)/.27
  • (ESI)/2.31
  • (RTN)/1.34
  • (UA)/.60
  • (ZMH)/1.34
  • (BMY)/.55
  • (MMM)/1.30
  • (CAT)/1.73
  • (LMT)/1.95
  • (T)/.43
  • (MXIM)/.32
  • (RHI)/.31
  • (SBUX)/.39
  • (KLAC)/.65
  • (RVBD)/.24
  • (RYL)/.09
  • (JNPR)/.28
  • (JBHT)/.58
  • (WMS)/.30
  • (CB)/1.60
  • (DV)/1.00
  • (BAX)/1.17
  • (CRR)/1.70
Economic Releases
8:30 am EST
  • The Chicago Fed National Activity Index for Dec. is estimated to rise to -.10 versus -.37 in November.
  • Durable Goods Orders for December are estimated to rise +2.0% versus a +3.8% gain in November.
  • Durables Ex Transports for December are estimated to rise +.9% versus a +.3% gain in November.
  • Cap Goods Orders Non-def Ex Air for December are estimated to rise +1.0% versus a -1.2% decline in November.
  • Initial Jobless Claims for last week are estimated to rise to 370K versus 352K the prior week.
  • Continuing Claims are estimated at 3500K versus 3432K prior.

10:00 am EST

  • Leading Indicators for December are estimated to rise +.7% versus a +.5% gain in November.
  • New Home Sales for December are estimated to rise to 321K versus 315K in November.

Upcoming Splits

  • None of note
Other Potential Market Movers
  • The Kansas City Fed Manufacturing Index for January, 7Y T-Note Auction, weekly EIA natural gas inventory data, (MOH) Investor Day and the weekly Bloomberg Consumer Comfort Index 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 day.

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