Thursday, August 09, 2012

Thursday Watch


Evening Headlin
es
Bloomb
erg:
  • Blink! U.S. Debt Just Grew by $11 Trillion. Republicans and Democrats spent last summer battling how best to save $2.1 trillion over the next decade. They are spending this summer battling how best to not save $2.1 trillion over the next decade. In the course of that year, the U.S. government’s fiscal gap -- the true measure of the nation’s indebtedness -- rose by $11 trillion. The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.
  • Most Chinese Stocks Drop After Economic Data; PetroChina Falls. Most Chinese stocks fell as investors awaited the release of industrial production data for more signals on the outlook for the economy. PetroChina Co. dropped after the Shanghai Securities News said the oil producer may post a “big” first-half refining loss. Energy and material companies led declines after a government report today showed producer prices posted a steeper decline than economists’ had forecast even as inflation cooled for a fourth month.
  • Global Food Reserves Falling as Drought Wilts Crops: Commodities. Stockpiles of the biggest crops will decline for a third year as drought parches fields across three continents, raising food-import costs already forecast by the United Nations to reach a near-record $1.24 trillion. Combined inventories of corn, wheat, soybeans and rice will drop 1.8 percent to a four-year low before harvests in 2013, the U.S. Department of Agriculture estimates. Crops in the U.S., the biggest exporter, are in the worst condition since 1988, heat waves are battering European crops and India’s monsoon rainfall already is 20 percent below normal. The International Grains Council began July by forecasting record harvests. It ended with a prediction for a 2 percent drop in output.
  • Standard Chartered CEO Says ‘No Grounds’ to Revoke License. Standard Chartered Plc (STAN) Chief Executive Officer Peter Sands hit back at a New York regulator’s claims the bank broke U.S. sanctions, and said he saw “no grounds” for revoking the lender’s license. Standard Chartered has tumbled about 16 percent in London trading this week after New York regulator Benjamin Lawsky threatened to strip the London-based bank of its license to operate in the state, alleging it processed $250 billion of deals with Iranian banks subject to sanctions.
  • Rubber Market Poised for Third Surplus in 2013, RCMA Forecasts. Global natural-rubber supply will exceed demand for a third straight year in 2013 and the price of the commodity used to make tires and gloves is set to extend declines, according to RCMA Commodities Asia Group. Production will exceed usage by 299,000 metric tons in 2013, compared with a surplus of 321,000 tons estimated for this year and 4,000 tons in 2011, the Singapore-based trading company said in a presentation e-mailed to Bloomberg. Global stockpiles may gain 26 percent to 1.57 million tons this year, it showed. Rubber fell to the lowest level since 2009 yesterday amid lower consumption in China, the largest user, and Europe. Demand in China may drop 5 percent this year as slumping truck sales cut heavy-duty tire sales, Hangzhou Zhongce Rubber Co., the country’s biggest maker, said last month. Lower prices will hurt growers in Thailand, Indonesia and Malaysia, the three largest producers, while aiding tiremakers such as Bridgestone Corp.
  • North Korea Able to Test Nukes in Two Weeks, Study Says. North Korea is technically capable of conducting a nuclear test in as little as two weeks, according to a study published by the Bulletin of the Atomic Scientists.
  • Singapore Trims Growth Forecast on Global Slowdown Risks. Singapore cut the upper end of its economic growth forecast for 2012 as a global slowdown from Europe to China weighs on the island’s expansion. The Southeast Asian country’s gross domestic product will probably rise 1.5 percent to 2.5 percent this year, Prime Minister Lee Hsien Loong said in a televised message yesterday on the eve of the city state’s National Day. The government previously predicted growth of 1 percent to 3 percent. The economy grew 1.7 percent in the first half, he said. “Europe and the U.S. face serious economic problems,” Lee said. “Asia is doing better than other regions, but China and India are slowing down.
  • Japan Machinery Orders Rebounded Less Than Forecast in June. Japan’s machinery orders rebounded less than forecast in June, underscoring concerns the world’s third-largest economy’s recovery will slow in the second half of this year. Bookings, an indicator of capital spending, rose 5.6 percent, after slumping 14.8 percent in May, the biggest drop in more than a decade, the Cabinet Office said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 12 percent increase.
  • Busson Talking Tie-Ups Shows Decline of Hedge-Fund Middlemen.
  • Monster Beverage(MNST) Shares Fall After Profit Trails Estimates. Monster Beverage Corp. fell in late trading after second-quarter profit and sales trailed analysts’ estimates as costs increased. The shares tumbled 10 percent to $61 at 5:32 p.m. in New York.
Wall Street Journal:
  • Reports of Our (Low) Debt Have Been Greatly Exaggerated. We knew law school came with a heavy debt load, but in some cases it’s heavier than many supposed. U.S. News & World Report, whose law schools rankings are widely followed by prospective law students, said it is reviewing its data on law student debt load, after several institutions misreported their figures to the magazine.
  • Knight(KCG) Held $7 Billion of Stocks Due to Glitch. Knight Capital Group Inc. was holding about $7 billion of stocks at one point on Wednesday last week—a far bigger figure than previously known—as a result of errant trades that forced it to seek emergency funding, according to people familiar with the matter. Knight's traders worked frantically Aug. 1 to sell shares while trying to minimize losses due to a software problem, ultimately paring the total position to about $4.6 billion by the end of the trading day, the people said.
  • The Afridi Dossier. The doctor who helped the CIA find bin Laden is still in jail in Pakistan. Perhaps somewhere at CIA headquarters at Langley is a medal of honor for Shakil Afridi, the Pakistani doctor whose bogus hepatitis vaccination scheme helped the agency locate Osama bin Laden in Abbottabad. As things now stand, however, it may be a long while before Dr. Afridi sees that medal.
  • Currency-Focused Hedge Funds Rebound in July -Survey. Currency-focused hedge funds showed a monthly investment gain of 0.98% in July, reversing a loss from the previous month, as bets that the euro would decline against a handful of more-attractive currencies paid off, according to a survey released Wednesday. The euro slid 2.8% during the month.
  • Hedge Funds Elliott, Baupost, York Capital Lag Broad Market. Several of the hedge-fund industry's biggest names have been underperforming the broad market, underlining the difficulties investment managers--even experienced ones--faced in the second quarter as they grappled with recurring concerns over Europe and sputtering global economic health.
  • Bet on Platinum's Fall Is Anti-Euro Wager. Some hedge funds have found a new venue to wager on a worsening outlook for Europe: the platinum market. In recent months, a number of money managers have ratcheted up their bets on a decline in platinum prices to the highest level ever in the futures market. The rationale is simple: Platinum's main use is to scrub pollutants from the tailpipe emissions of diesel-fueled cars, and Europe is by far the world's largest market for those cars.

MarketWatch:

Business Insider:

Zero Hedge:

CNBC:

  • Treasury's Secretive $2.4 Trillion Mutual Fund Guarantee. Details about a secretive government program to bail out money-market mutual funds are finally coming to light. Acting without any explicit Congressional authority, the U.S. Treasury guaranteed in excess of $2.4 trillion of money market funds after the giant Reserve Primary Fund "broke the buck" following the bankruptcy of Lehman Brothers.
  • As Glitches Mount, Cyber Safety Net for Businesses Shrinks. It is shaping up to be the year of the glitch. Days after the massive software failure which nearly put Knight Capital Group out of business, exchanges in Tokyo and Spain were forced to suspend some trading due to glitches, while a software bug caused Southwest Airlines to charge online customers several times over for the same flight.

IBD:

NY Times:

  • With Rate Twist, Banks Increase Mortgage Profit. Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans. Banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage. “The banks may say, ‘We are offering you record low interest rates, so you should be as happy as a clam,’ ” said Guy D. Cecala, publisher of Inside Mortgage Finance, a home loan publication. “But borrowers could be getting them cheaper.”
  • U.S. and Gulf Allies Pursue a Missile Shield Against Iranian Attack. The United States and its Arab allies are knitting together a regional missile defense system across the Persian Gulf to protect cities, oil refineries, pipelines and military bases from an Iranian attack, according to government officials and public documents. It is an enterprise that is meant to send a pointed message to Tehran, and that becomes more urgent as tensions with Iran rise. But it will require partner nations in the gulf to put aside rivalries, share information and coordinate their individual arsenals of interceptor missiles to create a defensive shield encompassing all the regional allies.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy
Washington Post:
  • E-Mails Show President Obama's Involvement in Clean-Energy Loans. President Obama’s staff arranged for him to be personally briefed last summer on a loan program to help clean-energy companies, two months before the program was thrust into headlines by the collapse of its flagship, the solar company Solyndra, records show. About the same time, then-White House Chief of Staff William Daley resolved a dispute among administration officials over another project in the program, clearing the way for a $1.4 billion loan, according to documents and sources familiar with the situation. The documents, a series of e-mails among Energy Department staff members involved in managing the program, provide new details about the level of White House involvement in the controversial initiative. White House officials have said in the past that final decisions about which companies would receive the loan guarantees were made by career staff members at the Energy Department, not political appointees.
Rasmussen Reports:
Reuters:
  • Mobile app sparks Obama camp voter drive, privacy fears. President Barack Obama's re-election campaign has taken its digital infrastructure to the streets, arming its ground troops with mobile software that maps Democratic voters and canvassing strategies - and raising the blood pressure of privacy activists who worry about possible misuse.
  • U.S. IRS allowed bogus taxpayer IDs -watchdog report. The U.S. Internal Revenue Service has recently issued thousands of tax identification numbers to ineligible people and, in some cases, IRS managers condoned the practice, the tax collection agency's watchdog said on Wednesday. The accusation by the Treasury Inspector General for Tax Administration, or TIGTA, comes at a time of intense national debate about illegal immigrants, many of whom apply for and get taxpayer ID numbers instead of Social Security numbers. After the report was released, a handful of Republican lawmakers slammed the IRS over its management of the Individual Taxpayer Identification Number (ITIN) program. "The appalling management of the ITIN program is a clear example of failed leadership and the buck must stop with you," Republican Congressman Sam Johnson said in a letter to IRS commissioner Doug Shulman on Wednesday.
  • Syrian troops push back rebels in Aleppo offensive. Syrian troops and rebels fought over the country's biggest city Aleppo as President Bashar al-Assad's key foreign backer Iran gathered ministers from like-minded states for talks on Thursday about how to end the conflict. Assad's troops assaulted rebel strongholds in Aleppo on Wednesday in one of their biggest ground attacks since rebels seized chunks of Syria's biggest city three weeks ago. Late in the day, each side gave conflicting accounts of how they stood.
Telegraph:
Globe and Mail:
  • China’s hot savings products raise concern about U.S.-style problems. The explosive growth of wealth management products in China is sounding alarms for observers who see a parallel between the opaque investments and the subprime mortgages that sunk the U.S. economy. The products consist of packages of high-risk business loans that are sliced into pieces small enough to appeal to average consumers. They are sold through banks and carry attractive rates of interest – although poor disclosure means that most buyers have little idea what assets underpin their investment.

Macrobusiness.com:
  • Australia's Sub-Prime Lending. Let’s hope the issues highlighted in the above articles are not just the tip of the iceberg. It is not only the obvious fraud that is the problem, but that lending risk is granular. If misrepresentation of income was commonplace, then how many more bad loans are out there that we don’t yet know about? Like in the US, sub-prime lending was not a problem whilst home prices were increasing. But once prices began falling, delinquencies, foreclosures and recriminations exploded.
China Securities Journal:
Financial News:
  • The growth of lending by China's banks may continue to slow in the second half of this year, according to a front-page commentary. China faces larger downward economic pressure in 2H.
Shanghai Securities News:
  • China's home purchase restrictions are part of a long-term policy to control the property market and the government is unlikely to scrap policies within the next two years, Wang Juelin, a researcher at the Ministry of Housing and Urban-Rural Development, said in an interview.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.25% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 148.50 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 127.25 -.25 basis point.
  • FTSE-100 futures +.42%.
  • S&P 500 futures +.28%.
  • NASDAQ 100 futures +.47%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (WEN)/.05
  • (ATK)/1.42
  • (AAP)/1.39
  • (EAT)/.58
  • (KSS)/.96
  • (DV)/.44
  • (JWN)/.74
  • (NVDA)/.22
  • (SMG)/1.98
Economic Releases
8:30 am EST
  • The Trade Deficit for June is estimated at -$47.5B versus -$48.7B in May.
  • Initial Jobless Claims are estimated to rise to 370K versus 365K the prior week.
  • Continuing Claims are estimated to rise to 3275K versus 3272K prior.

10:00 am EST

  • Wholesale Inventories for June are estimated to rise +.3% versus a +.3% gain in May

Upcoming Splits

  • None of note

Other Potential Market Movers

  • The China Fixed Asset Investment/Industrial Production reports, 2Q Mortgage Delinquencies report, 2Q MBA Mortgage Foreclosures, BOJ rate decision, Greece Industrial Production/Jobs reports, 30Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial 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 day.

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