Wednesday, January 25, 2012

Wednesday Watch

Evening Headlin

  • Merkel Becomes Master of Markets With Euro Austerity Mollifying Investors. German Chancellor Angela Merkel has declared a truce in her campaign to master financial markets. Merkel, who began the euro crisis seeing politicians and investors locked in a battle for supremacy, is now using markets’ judgments to support her calls for austerity to rescue the single currency. At the same time, she backed off from her demand that bondholders contribute to bailouts. The shift underscores Merkel’s journey from scientist to dominant crisis manager amid unprecedented economic and financial turmoil that has thrust her to the fore of Europe’s policy response. Delivering the opening speech today at the World Economic Forum’s annual meeting in Davos, Switzerland, she’ll be addressing critics who say her conversion may be too late to stop woes from splintering the 17-nation euro.
  • Spanish Cleanup Plan May Backfire on Banking System: Euro Credit. Spanish Prime Minister Mariano Rajoy's proposal to force banks to recognize further losses from real estate holdings may backfire by saddling healthy lenders with the bill. "The plan is for a massive effort in provisioning of real estate and consolidation, and that has to be paid for," said Daragh Quinn, a Madrid-based analyst at Nomura International. By refusing to use public funds to help purge a system burdened with $228 billion of what the Bank of Spain calls "troubled" assets linked to real estate, Rajoy may not do the job properly or he may hurt solvent banks by leaving them with teh costs, said David Moss, director of European equities at F&C Investments in London.
  • Greek Economy on Track to Implode, Hanke of Johns Hopkins Says. Whether or not Greece is able to reach an agreement on the restructuring of its debt, the country is set to "implode" as the economy contracts, according to Johns Hopkins University's Steve Hanke. "The game is completely over," Hanke, professor of applied economics, said at the Bloomberg Sovereign Debt Crisis Conference in New York hosted by Bloomberg Link. "All the calculations are nonsense and have been since day one. Since the crisis began the money supply has been shrinking and the economy is going to implode, no matter what they do in the short run." Money supply is shrinking at an annual rate of about 16 percent in Greece, meaning there won't be growth needed to support debt payments, Hanke said. Greece is pursuing talks on a debt swap with private creditors that would lower Greece's debt to 120 percent of gross domestic product by 2020. European governments have sought to fill a deeper-than-expected gap in Greece's finances by having investors accept a lower interest rate on exchanged bonds. The International Monetary Fund cut its forecast for global growth today and warned that the European debt crisis threatens to derail the world economy. The fund, in an update of its World Economic Outlook report, lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent.
  • Obama Claiming Credit for Energy Gains Angers Industry. President Barack Obama is taking credit for higher U.S. oil and gas production and lower imports, angering industry groups and Republicans who say he is working against domestic energy production. Republicans say the numbers are misleading. Onshore oil and gas production on federal lands directly under Obama’s control is down 40 percent compared to 10 years ago, according to Spencer Pederson, a spokesman for Representative Doc Hastings, a Washington Republican and chairman of the House Natural Resources Committee. In 2010, the U.S. signed the fewest number of offshore drilling leases since 1984.
  • Japan Exports Fall for Third Month as Global Demand Slows. Japan’s exports fell for the third consecutive month in December, capping the first annual trade deficit in 31 years, figures underscoring the toll slower global growth and March’s earthquake have taken on the economy. Shipments dropped 8 percent in December from a year earlier, the Ministry of Finance said today in Tokyo. In addition to the export slump, higher energy needs in the aftermath of the the nuclear accident in Fukushima increased energy imports, resulting in an annual deficit of 2.49 trillion yen ($32 billion), the report showed. A yen near postwar highs against the dollar is cutting into profits of exporters from Nippon Steel Corp. to Toyota Corp. by making Japanese products more expensive abroad, hampering the nation’s rebound from March’s temblor. The first annual trade deficit since 1980 shows how exports are weakening, robbing the economy of what has traditionally been its main driver of growth. “The decline in exports is directly related to slow GDP growth in Japan,” Masayuki Kichikawa, chief economist at Merrill Lynch Japan Securities Co., said in Tokyo before the report. “The European crisis is reflected in weak demand from China, which directly affects the triangular trade relationship between Asia, Japan, and Europe.”
  • Common Chemicals in Products May Harm Kids' Immune Systems. Chemicals used in consumer products, including rain gear, stain-resistant carpeting, microwave popcorn bags and fast-food packaging, appear to limit children’s disease-fighting immune responses, a study found. The research by Danish investigators, is one of the first to examine the effects of perfluorinated compounds, or PFCs, on the immune system. It showed that children with the highest levels in their blood had the weakest responses to childhood vaccines. Higher chemical exposure also led to less infection- fighting antibodies to keep disease at bay, the study reported.
Wall Street Journal:
  • Obama Makes Populist Pitch. President Barack Obama offered Americans a sharply populist economic vision in his State of the Union address Tuesday, seeking to draw a contrast with his eventual Republican rival and demonstrating the widening policy gulf between the two political parties.
  • The State of His Policies. Obama has done nearly everything he wanted. That's the problem.
  • Fortress(FIG) Chief Daniel Mudd Resigns Amid SEC Suit. Fortress Investment Group LLC said Chief Executive Daniel Mudd resigned from the hedge-fund company and its board Tuesday, little more than a month after regulators sued him over alleged civil securities fraud. Mr. Mudd had taken a leave of absence from Fortress in December, days after the Securities and Exchange Commission named him as a defendant in connection with his role as CEO of government-backed mortgage company Fannie Mae.
Fox News:
  • Debt Ceiling to Rise by Week's End. By week's end, the nation's debt ceiling will be increased by $1.2 trillion to $16.4 trillion, as the Senate is expected to vote down a symbolic resolution objecting to the hike. Senate Majority Leader Harry Reid, D-Nev., with little fanfare, set up a Thursday NOON vote on the House-passed measure, which expresses opposition to raising the U.S. government's borrowing limit.
  • Yahoo(YHOO) Earnings Drop 5% as Sales Wane. Yahoo Inc. on Tuesday reported a fiscal fourth-quarter profit that fell by 5% from the year-ago period, with sales also down for the Internet company that is in the middle of an ongoing turnaround effort.
Business Insider:
Zero Hedge:
NY Times:
  • Warren Buffett, Champion of Bank Bailout, Is Also Leading Beneficiary. (April 5, 2009) Billionaire investor Warren Buffett has been lauded for his plainspoken denunciation of the greed and foolishness behind the economic crisis. He's pushed the massive federal bailout of imploding banks as the essential response to an "economic Pearl Harbor." A Sacramento Bee examination of regulatory records has found that his extensive holdings in financial firms have made Buffett, the world's second-wealthiest person behind Microsoft Chairman Bill Gates, one of the top beneficiaries of the banking bailout. Just 28 companies received more than 90 percent of the funds so far disbursed to financial firms by the $700 billion Troubled Asset Relief Program. Buffett's company, Berkshire Hathaway, hasn't received any of that federal aid, but Berkshire, based in Omaha, Neb., owns stock valued at more than $13 billion in the top recipients of TARP funds, including Goldman Sachs Group, US Bancorp, American Express and Bank of America, which analysts all thought were in deep trouble before TARP was approved in October. That total, The Bee found, ranks Berkshire fifth among all investors in TARP-assisted companies. Berkshire's TARP holdings constitute 30 percent of its publicly disclosed stock portfolio, and that proportion reflects at least twice as much dependence on bailed-out banks as any other large investor. Berkshire, for instance, is the largest shareholder in San Francisco-based Wells Fargo, which got $25 billion — 91 percent of the TARP funds invested in institutions headquartered in California. Buffett increased his bank holdings in September, while he was arguing in the media that Congress should approve the bailout to prevent the collapse of the global financial system.

    Read more here:

    Read more here:
The Hill:
  • Roche offering to buy Illumina(ILMN) for about $5.7 bln. Swiss drugmaker Roche Holding AG said it is offering about $5.7 billion in cash to buy U.S. gene sequencing device maker Illumina Inc, in what could potentially become a hostile takeover bid. Roche said it would offer to acquire all shares of Illumina for $44.50 per share in cash, an 18 percent premium to Illumina's Tuesday close price of $37.68 on the Nasdaq.
  • Altera(ALTR), sees weak wireless market, shares slip. Altera Corp forecast weak first-quarter revenue on soft demand in its biggest markets, underscoring concerns about a shaky rebound in the semiconductor industry. The programmable chipmaker said it sees first-quarter revenue declining 5 percent to 9 percent sequentially on weakness in its wireless and military segments.
  • CA(CA) ups FY outlook, boosts dividend; shares jump. Business software maker CA Inc posted quarterly results above Wall Street estimates on stronger subscription revenue, raised its full-year outlook and boosted its annual dividend, sending its shares up 18 percent in extended trading.
  • EU to clamp down on derivatives trading. The European Union came a step closer to overhauling regulations for the $700 trillion derivatives market on Tuesday, one of the most opaque sectors in finance.
Financial Times:
  • US Treasury Failed to Cap Rewards at Bailed-Out Groups. The US Treasury Department failed to rein in excessive compensation for executives at bailed-out companies including AIG, despite a White House pledge to cap pay-outs, a federal audit has determined. Since President Barack Obama promised in February 2009 to cap salaries at $500,000 and limit additional compensation to "stock that can’t be paid up until taxpayers are paid back for their assistance", the Treasury has approved pay packages of $5m or more for 49 executives, according to the Special Inspector General for the Troubled asset relief programme.
  • ECB Under Pressure Over Greek Bond Hit. The International Monetary Fund has turned up pressure on European officials to take on more of the burden of filling a widening gap in Greece’s budget by pressing the European Central Bank to take a hit on its €40bn in Greek bond holdings, eurozone officials said.
Stuttgarter Zeitung:
  • German Economy Minister Philipp Roesler opposes combining Europe's two rescue funds, saying the existing instruments are sufficient, citing an interview. "Rescue packages that get bigger and bigger aren't the correct means of stemming the crisis," Roesler said.
Globe and Mail:
  • Global Regulator Proposes Standards To Allow Bank Comparisons. Investors and regulators faced a near impossible challenge during the financial crisis trying to compare the health of banks in one country to their counterparts in another – a problem global regulators are now attempting to fix. The Basel Committee on Banking Supervision, which is responsible for drawing up new rules that will affect the world’s largest financial institutions, is proposing a set of standards that would create a universal method for reporting capital levels at banks around the globe.

Evening Recommendations
Citigroup Global Markets:
  • Reiterated Buy on (ALB), raised target to $74.
  • Reiterated (BUY) on (SHOO), target $45.
Night Trading
  • Asian equity indices are -.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 191.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 149.75 +.75 basis point.
  • FTSE-100 futures +.43%.
  • S&P 500 futures +.31%.
  • NASDAQ 100 futures +1.03%.
Morning Preview Links

Earnings of Note
  • (UTX)/1.46
  • (PJC)/.18
  • (GLW)/.32
  • (PX)/1.37
  • (ABT)/1.44
  • (ROK)/1.21
  • (ADP)/.68
  • (WLP)/1.11
  • (BA)/1.00
  • (STJ)/.84
  • (COP)/1.80
  • (CVD)/.73
  • (NFLX)/.54
  • (CTXS)/.76
  • (SWK)/1.29
  • (JEC)/.70
  • (OI)/.46
  • (SYMC)/.41
  • (CCI)/.17
  • (SNDK)/1.26
  • (GD)/1.99
  • (LCC)/.03
  • (MUR)/1.41
  • (LRCX)/.30
  • (HES)/1.26
  • (DELL)/.38
  • (MSTR)/.92
Economic Releases
10:00 am EST
  • The Home Price Index for November is estimated unch. versus a -.2% decline in October.
  • Pending Home Sales for December are estimated to fall -1.0% versus a +7.3% gain in November.

10:30 am EST

  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,450,000 barrels versus a -3,438,000 barrel decline the prior week. Distillate inventories are estimated to fall by -125,000 barrels versus a +438,000 barrel gain the prior week. Gasoline supplies are estimated to rise by 2,000,000 barrels versus a +3,717,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.6% versus a -1.9% decline the prior week.
12:30 am EST
  • The FOMC is expected to leave the benchmark fed funds rate at .25%.

Upcoming Splits

  • (COG) 2-for-1
Other Potential Market Movers
  • The Germany 30Y Bond Auction, 5Y T-Note Auction, World Economic Forum Meeting and the weekly MBA mortgage applications report 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 higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.

1 comment:

Anonymous said...

Hedge Funds Scramble to Unload Greek Debt