Monday, April 08, 2013

Monday Watch

Weekend Headlines

  • Liquidity Carpet Bombs Fueling Asset Bubbles, Rohde Says. Policy makers steering the global economy have pumped the financial system with so much liquidity that any exit risks popping potential asset bubbles or stunting a recovery, Danish central bank Governor Lars Rohde said. “The risk is we stay in this climate too long and that the carpet bombing of liquidity spurs inflation,” Rohde, 59, said in an April 5 interview from his office in Copenhagen. Though there are no current signs of consumer price inflation “there is inflation, perhaps a bubble, in some asset classes,” he said. “Equities (MXWO) are trading close to all-time highs. Segments of property markets across the globe, for example London, also display symptoms of this. How do we exit this without killing whatever nascent recovery there might be at that time?” The warning from the head of Denmark’s central bank, which has kept its deposit rate below zero since July, comes as policy makers in Japan, the euro area and the U.S. deliver unprecedented monetary stimulus to drag the global economy out of the worst crisis since the Great Depression. Easy money has fueled equity prices, helping send the Standard & Poor’s 500 Index to an all-time high on April 2. The yield on Japan’s benchmark 10-year bond hit its lowest on record last week. “We’re in a landscape where we’ve never been before, with regard to extreme monetary accommodation over a very, very long period of time,” said Rohde, who took over as the head of Denmark’s central bank in February. “What does that end up doing to a society? It’s been a necessary policy, but I have my concerns about what the long-term risks are.” 
  • Portugal Plans More Spending Cuts After Court Ruling on Salaries. Portugal will carry out more spending cuts this year after the Constitutional Court blocked a plan to suspend a monthly salary payment to state workers and pensioners. “I will give instructions to the ministries to proceed with the necessary reductions in operating expenses to compensate for what was blocked by the Constitutional Court’s ruling,” Prime Minister Pedro Passos Coelho said in Lisbon yesterday. “The government does not accept more tax increases, which seems to be the solution that the Constitutional Court favors in its interpretation.” Passos Coelho is battling rising joblessness and lower demand from European trading partners as he cuts spending and raises taxes to meet the terms of the country’s 78 billion-euro ($101 billion) aid plan from the European Union and the International Monetary Fund. The government on March 15 announced wider deficit targets as it forecast the economy will shrink twice as much as previously estimated this year. The Constitutional Court’s ruling delays completion of the seventh review of the aid plan, and the corresponding disbursement of 2 billion euros won’t be paid until that review is concluded, Passos Coelho said.
  • Cyprus Woes Threaten East Europe Growth, Development Bank Says. Cyprus’s bailout threatens slowing eastern European growth through trade and banking links if it sparks capital flight from the most indebted euro-area nations, the European Bank for Reconstruction and Development said. Another bout of uncertainty in Europe’s debt crisis may boost financing costs for banks and potentially trigger an outflow of “large” deposits and funding in countries with weaker lenders or sovereigns, EBRD Deputy Chief Economist Jeromin Zettelmeyer said in an April 5 interview in London. Eastern Europe relied on foreign capital flows and easy access to credit and export markets to fuel growth of more than 5 percent a year before the global crisis of 2008. The Cyprus bailout, where international creditors forced losses on large depositors in exchange for a 10 billion-euro ($12.8 billion) aid package, may lead to capital flight and weaker growth in countries such as Italy and Spain, Zettelmeyer said. “These are very important countries and they are very large and so if there’s a slowdown in the EU as a result of this it would certainly affect” the 29 eastern European countries where the EBRD lends, he said. “The risks are higher than we thought and they are further to the downside than what we thought.” 
  • Slovenia Bailout Signaled by Worsening Debt Swaps: Euro Credit. Slovenia’s creditworthiness is deteriorating at the fastest pace in the world after Cyprus as investors speculate a banking crisis will force it to follow the island nation and become the sixth euro country to need aid. Credit-default swaps insuring Slovenian debt for five years soared as much as 66 percent to a six-month high of 414 basis points on March 28 from 250 on March 15, the last trading day before Cyprus announced plans for its rescue. It’s now up 35 percent at 338 basis points, compared with a 54 percent increase for Cyprus and 13 percent for Portugal in the period. Slovenia’s two-week old government is struggling to prop up banks hit by recession and saddled with bad loans worth about a fifth of the country’s economic output.
  • Chinese President Xi Jinping says nation will firmly uphold its sovereignty and territorial integrity. Stability in Asia faces huge challenges, he said. The global economy has entered a period of profound readjustment, protectionism is rising and economic recovery remains elusive, Xi says.
  • Local Chinese government debt may be more than 20t yuan, Xiang Huaicheng, former minister of finance, says at the Boao Forum for Asia. China's National Audit Office said in 2011 report that local government debt was 10.7 trillion yuan
  • IPO Bankers Become Frogs in Hot Water Amid China’s Market Freeze. Shen Wei, one of the first 600 investment bankers authorized to sign off on initial public offerings in China, said the license that made him one of the “golden collared” has lost its magic. The teacher’s son studied 14-hours a day for a month in 2004 to qualify after China’s securities regulator mandated that two so-called baodai, or sponsor representatives, conduct due diligence and sign off on every IPO to curb fraud. Demand for such bankers is now being eroded by a freeze on IPOs, a surge in people getting licensed and an easing of underwriting rules. 
  • China’s Stocks Fall 10% From February High on Bird Flu Concern. China’s stocks fell after a two-day holiday, dragging the benchmark index down 10 percent from a February high, amid concern a bird flu outbreak and property market curbs will hurt the nation’s economic recovery. A gauge of property shares in Shanghai slid the most in a month and China Vanke Co. slumped 4 percent after Beijing increased the minimum downpayment on purchases of second homes. Air China Ltd. and China Southern Airlines Co. dropped at least 5 percent on speculation flu deaths may deter people from traveling. Hualan Biological Engineering Inc. (002007) led gains for health-care companies. The Shanghai Composite Index (SHCOMP) tumbled 1.9 percent to 2,183.97 at 9:43 a.m. local time, heading for the biggest loss since March 28. The CSI 300 Index slid 2 percent to 2,434.93.
  • China Pressure Key to Ease North Korea Tension, McCain Says. China should use its economic and political clout to calm tensions with North Korea and help guard against an accidental escalation into armed conflict, Arizona Republican Senator John McCain said. “China does hold the key to this problem,” McCain said yesterday on CBS’s “Face the Nation” program. “China can cut off their economy if they want to.” 
  • BHP(BHP) Sees Copper Surplus on Weaker Demand, Growing Mine Supply. BHP Billiton Ltd. (BHP), the world’s largest mining company, said copper supplies may exceed demand this year and next on growing stockpiles and as the Melbourne- based company ramps up output at its Escondida mine in Chile. It’s “possible” that the market may have a “small surplus” of supply in 2013 and 2014, Peter Beaven, head of the company’s base metals operations, told reporters in Santiago April 4. Escondida’s output will grow 10 percent a year through 2015 when it reaches a record 1.3 million metric tons, he said. As copper executives gather in Santiago this week for an annual dinner organized by industry group Cesco, Chile, the top producer, sees slowing demand growth in China, the largest consumer of the metal, Mining Minister Hernan de Solminihac said in an April 4 interview. Global copper usage will trail supplies by 97,000 metric tons this year, Barclays Plc said April 4. 
  • Fisker’s Job Cuts Fuel Political Debate on Green Energy Projects. Fisker Automotive Inc.’s mass firings after receiving federal loans to build luxury plug-in cars is adding to the political debate over the U.S. government’s funding of clean-energy programs. Most of the assets of Fisker’s battery supplier that received a $249.1 million federal grant, the former A123 Systems Inc., were acquired last year by a Chinese company. Now Fisker, awarded $529 million in U.S. loans, is firing 75 percent of its workforce after failing to secure a deal with an automotive partner to fund operations. The debacle is reviving questions over whether the government should be funding makers of alternative energy ventures. Fisker and A123, whose bankruptcy halted Fisker’s output, have drawn Republican criticism of President Barack Obama’s support of green-energy programs intended to spur more fuel-efficient cars. “The Department of Energy has never owned up to its mistakes and acknowledged it didn’t do a good job of choosing Fisker and A123 as worthy of taxpayer investment,” Senator Chuck Grassley, an Iowa Republican, said in an e-mailed statement. Another Republican, Senator John Thune of South Dakota, predicted “the company could go bankrupt and cost millions of taxpayer dollars.”
Wall Street Journal:
  • China Fund Chief Raps U.S. CIC's Gao Xiqing Says Some Politicians 'Look at Chinese Investment as Suspect'. The U.S. is telling China's $500 billion sovereign-wealth fund to "go away," according to the fund's top executive, in the latest sign of strained investment ties between the world's two largest economies. During the financial crisis, "we were sort of welcome" in America, said Gao Xiqing, head of China Investment Corp., in a panel discussion on Sunday at the Boao Forum for Asia. Since then, "somehow we've become stigmatized," he said, adding that "there have been quite a few cases where the U.S. says 'go away.'" 
  • Hedge-Fund Star Gets a Hip Check. Jeffrey Vinik's Tampa Bay Lightning are struggling, but the performance of his National Hockey League team isn't the only worry for the veteran stock-picker. Investors have asked to pull around $1.5 billion from his hedge-fund firm after a period of poor performance, according to people briefed on the matter. The withdrawal requests amount to around 18% of the roughly $8 billion that was run by Vinik Asset Management. Vinik Offshore Fund, which bets on and against stocks, gained just 0.3% from July last year through February, according to a March investor presentation viewed by The Wall Street Journal.
  • Disability Fund to Be Depleted by 2016. Even as more people in the U.S. rely on disability benefits, the program that pays them is running into a problem: there isn’t enough money coming in to cover the amount that’s going out.
  • Syria's Escalating War Bleeds Into Lebanon. Sectarian Tensions Prompt Resignation of Prime Minister in Beirut, as Rival Sunni, Shiite Factions Back Foes Next Door. Syria's civil war, two years in the making, has come to neighboring Lebanon. Assassinations, firefights and skirmishes are pulling rival Sunni and Shiite factions here into a confrontation that threatens to tear Lebanon apart.
  • Investors Bankroll Lawsuits. Law would seem to be the furthest thing from a growth industry these days. But a certain class of investors sees one aspect—big commercial lawsuits—as an increasingly good bet. A new generation of investors is plunging into "litigation finance," putting up millions of dollars to fund lawsuits in hopes of collecting when verdicts come down. Established financiers are expanding into new areas, including loans to law firms, and finding clients among the biggest American companies. Law firms themselves are starting to jump on the bandwagon, too. They are seeking funding arrangements for clients who need help going after opponents with deeper pockets, or simply want to keep litigation costs off their balance sheets.
  • Big Question in U.S. vs. S&P. Why is the U.S. government trying to obtain billions of dollars in damages from Standard & Poor's Ratings Services for allegedly slipshod work on mortgage-linked securities, but nothing from rival Moody's
  • Reflections of a Medical Ex-Practitioner. The glow of the personal relationship with patients is being extinguished. A fundamental principle in medicine is that if you get the diagnosis wrong, you'll probably apply the wrong therapy. A corollary is that if the therapy isn't working, increasing the dose may make things worse. That's where we are with ObamaCare. There are shortcomings aplenty in the health-care field, and changes and improvements are required. But never have I seen so many good intentions leading irreversibly to hell.
Fox News:
  • Family mourns 25-year-old US diplomat killed in Afghanistan. Anne Smedinghoff had a quiet ambition and displayed a love of global affairs from an early age, joining the U.S. Foreign Service straight out of college and volunteering for missions in perilous locations worldwide. So when the 25-year-old suburban Chicago woman was killed Saturday in southern Afghanistan — the first American diplomat to die on the job since last year's attack in Benghazi, Libya — her family took solace in the fact that she died doing something she loved.
Zero Hedge:
Business Insider:  
New York Times:
  • Pension underfunding grows despite U.S. market rally: study. The gap between what major corporations will owe retired workers and how much they have put aside grew last year despite a strong stock market rally, according to a study set to be released on Monday by Wilshire Associates. The cumulative liability among defined benefit pension plans sponsored by companies in the benchmark Standard and Poor's 500 index increased to $1.56 trillion in 2012 from $1.38 trillion the year before, outpacing the growth in assets. As a result, the overall funding ratio - a measure of a plan's assets divided by its commitments - for all plans fell from 79.7 percent to 78.1 percent, the study found. Low interest rates - which are used to calculate future benefits - were a significant factor behind the increase in pension liabilities, said Russell Walker, a vice president at Wilshire and one of the authors of the report. Mergers and acquisitions also increased pension funding liabilities.
  • Hedge funds' bullish commodity bets down most since Feb. Hedge funds and other big speculators have cut their bullish bets on commodities by the most since February, trade data showed on Friday, amid signs of stagnating U.S. economic recovery and uncertainty over raw materials demand. Money managers slashed by $9.7 billion their net-long holdings across 22 commodities to $59.7 billion during the week to April 2, according to Reuters calculations of data released by the Commodity Futures Trading Commission (CFTC). The last time net-long managed money in those markets fell by more was during the week to Feb. 19, when there was a drop of $12.9 billion. Corn, gold and soybeans accounted for nearly 80 percent of the latest decline.
  • Italy's centre left divided over nemesis Berlusconi. Two months after placing first in a vote but falling short of winning power, Italy's main centre-left party is still divided over whether to swallow its animosity and consider a government with its scandal-plagued nemesis, Silvio Berlusconi.
Welt am Sonntag: 
  • Central banks in Italy and Spain may be excessively liberal in applying ECB collateral rules. Central banks systemically applied sovereign rating to government-guaranteed bank bonds instead of rating for bank that issued the bonds. Banks using government-backed bank bonds as collateral in Italy and Spain have theoretical financing advantage of as much as EU12.4b using that interpretation of which ratings apply.
  • France Crisis Risk Underestimated, Economist Mayer Says. French financial securities could be valued with a higher risk premium than Italian ones, based just on fundamental data, Thomas Mayer, an economic adviser to Deutsche Bank AG, writes. Market reaction to risk still small, not putting on "necessary pressure for reforms," he said. Following analysis of current-account balances, national debt, budget deficits, bank industries, France lags behind in all areas apart from size of financial sector.
  • Weidmann Sees EU Crisis Lasting 'Awhile'. Economic crisis build up over a very long period, and addressing structural causes will also take time, Bundesbank President Jens Weidmann said today. Bond-purchasing programs only treat symptoms of crisis. "Chain of liability" should be established to protect taxpayer. The crsis will be solved by politicians by addressing structural causes and no through monetary policy.
Der Spiegel: 
  • ILO Warns Against Growing Social Unrest in EU. International Labor Organization to present study at Oslo conference tomorrow on possible public reaction to EU economic crisis. ILO sees 12 percentage point higher risk of social unrest than before sovereign debt crisis emerged, with increases particularly pronounced in Cyprus, Greece, Portugal and Italy.
Jiji Press:
  • Japan Issues N. Korea Missile Interception Order. Japanese Defense Minister Itsunori Onodera ordered the Self-Defense Forces on Sunday to shoot down what is thought to be a North Korean ballistic missile or its debris threatening Japanese territory, government officials said. Following the order, issued on the basis of the SDF law, the SDF is now authorized to carry out an interception operation above Japanese territory or the high seas.
  • Soros Says Investment in China Properties 'Risky' Now. Apartments in China are now a risky investment, George Soros, the retired chairman of Soros Fund Management and founder of Quantum Fund, was quoted as saying. A lot of empty apartments in China will have to be sold, or maybe taxed, Soros said. Imposing a property tax would be "very effective" and may create a crash, Soros was cited as saying.
China Daily:
  • China shouldn't loosen regulations on Apple Inc.(AAPL) because the company has issued an ap0logy to Chinese consumers, citing an official from the State Administration for Industry and Commerce.
China Securities Journal:
  • China should impose taxes on existing homes to ease the impact of unequal wealth distribution after rapid rise in property prices, according to a commentary published today written by Jia Kang and Su Jingchun
  • Beijing will likely raise the down payment requirement to 70% for buyers taking bank loans for buying second homes, citing people familiar with the matter.
Weekend Recommendations
  • Bullish commentary on (UTX).
Night Trading
  • Asian indices are -.75% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 121.0 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 98.0 +.75 basis point.
  • FTSE-100 futures +.47%.
  • S&P 500 futures +.09%.
  • NASDAQ 100 futures +.14%.
Morning Preview Links

Earnings of Note

  • (AZZ)/.49
  • (AA)/.08
  • (SHLM)/.39
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bernanke speaking, Fed's Pianalto speaking, German industrial production data and China inflation data could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

1 comment:

AMathLover said...

Interesting to see that the Disability Program will be depleted in the near future. Maybe if we had better data on 'real' unemployment we would have more options for people. This blog takes a look at the problem with data.