Jun 17, 2011

Kicking the Can Down the Greek Road

June 17, 2011

Markets in the US and Europe are getting a bid this morning after the EU and the IMF agreed to release to Greece more of the rescue package, assuming the Greek government pushes through additional austerity measures. German Chancellor Angela Merkel backed down from her stance that bondholders be forced to shoulder a substantial share of the rescue. She is now looking for a voluntary participation by private investors. After seeing their yields peak at over 30%, 2 year Greek debt rallied today to just under 29%.

Yesterday initial jobless claims were slightly better than expected at 414K, but still well above the 375K level considered to be acceptable. Housing starts came in better than expected for May at 560K vs. expectations of 545K. Building permits were also better than expected at 612k. The Philadelphia Fed Business Outlook Survey came in at -7.7 vs. expectations of an increase to 7.0. The Michigan Consumer Sentiment Indicator came in at 71.8 vs. expectations of 74.0 and last month’s 74.3. The best upside economic report in a number of weeks hit this morning as the Index of Leading Economic Indicators came in at 0.8% vs. expectations of 0.3%.

Showing the market may not be as irrational as the LinkedIn IPO suggested, Pandora’s IPO broke deal price and is now trading at $12.75 (it priced at $16) after peaking at $26 on the first day of trading. The company now boasts a market cap in excess of the entire radio industry it hopes to replace. Rich Greenfield of BTIG launched coverage yesterday with a sell rating and a $5 price target.

A day after rejecting a Republican measure to repeal ethanol tax breaks, the Senate approved a measure introduced by Democrats repealing the $6 billion annual break. The measure is not expected to take effect because it has been attached to a bill that isn’t expected to pass. The President has said he supports eliminating the tax break, but would veto any bill that cuts it off. If you understand any of that, please respond with an “aye”. Just another day in Washington I suppose. It certainly seems more and more apparent that if we are relying on these guys to lead us anywhere we will be sorely disappointed.

Better late than never-the SEC is considering bringing a civil fraud suit against the rating agencies in connection with their role in mortgage-securitization deals that triggered the financial crisis.

Research in Motion (RIMM) missed earnings and guided down again last night after the close. The stock is down 16% today and now sits 58% below its February high.

In an interview with The Wall Street Journal, Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute, said that over the last few months key indicators of long-term economic growth have all begun pointing in one direction: downward. “We’re talking about a cyclical turn that’s pronounced, pervasive and persistent, not a one or two month affair,” Achuthan said. He added that the slowdown is likely to last a couple of quarters at least.

China’s Dagong credit rating agency says the U.S has already defaulted. “In our opinion, the United States has already been defaulting….Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies – eroding the wealth of creditors including China,”

The China comments follow the German credit rating agency Feri’s downgrade of U.S. bonds a full notch – from AAA to AA – saying: “The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see that there is sufficient attention being paid to other measures,“ said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG. “Our rating system shows a deterioration in economic health, so the downgrading of the credit ratings of U.S. is warranted.”

Oil has pulled back over the past month, with WTI now trading just under $94 per barrel after topping $113 at the end of April. The chart below shows the price of oil over the past decade.

99 Cent Only Stores (NDN) has a weekly discount ad. This week’s ad takes a shot at Miami Heat player LeBron James, offering a discount to $.75 “when you don’t have a fourth quarter.” James has faced criticism for failing to lead the Heat to the NBA title against the Dallas Mavericks, being criticized for his lackluster 4th quarter performance. The offer is only valid in Texas stores-home of the Mavericks.
Have a great weekend

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