Monday, May 14, 2012

Markets overwhelmed by Greek crisis

Dow sank 125 (close to its early AM lows), decliners over advancers almost 6-1 & NAZ fell 31.  Bank stocks led the way lower, taking the Financial Index down a very big 4 to 195 (last seen 3 months ago).

Major selling hit MLPs again & its index dropped 4+ to 379 (not seen since the middle of Dec).  The REIT index fell 3+ to 257 & junk bond funds were also weak.  Treasuries rose, driving the 10-year yield to a 7-month low, as Greece’s leaders prepared for more talks on forming a gov amid concern failure will force the nation from the euro area.  Oil continued depressed & the yearly chart for gold (below) is very dreary.  Financial uncertainties are not bringing more buyers for gold.

JPMorgan Chase Capital XVI (AMJ)

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CLM12.NYM...Crude Oil Jun 12...94.87 ...Down 1.26  (1.3%)

Live 24 hours gold chart [Kitco Inc.]

Greece In-or-Out Doubts Dominate Euro Talks Amid Athens Standoff

Photo:   Bloomberg

European finance ministers grappled with the costs of keeping Greece in the eurozone or letting it go, as its post-election political feud dragged on with little progress toward forming a gov. German Finance Minister Schaeuble said Europe has done the “utmost” to prop up the financially stricken country, limiting any further room for leniency after about €240B ($308B) of pledges.  “There’s no easy way for Greece, whatever the outcome will be,” Schaeuble said.  “It’s not about the question of being more or less generous toward Greece. It’s simply about what is still economically justifiable, what can be done that’s still convincing in economic terms, that still has credibility.”  The head of the biggest anti-bailout party, Alexis Tsipras, boycotted meetings in Athens to form a unity gov.  Party leaders will try again tomorrow afternoon to find common ground & Tsipras will attend.  A poll showed 39% of Greeks blaming Tsipras, more than any other politician, for the deadlock & some 66% want a new gov.  The caretaker gov also has yet to decide whether to repay €436M due tomorrow on a note held by investors who shunned its bond-loss accord.  Paying the holdouts in full would anger investors who took losses in this year’s debt restructuring, while withholding payment could be construed as default.  That makes tomorrow the first bridge to cross & it doesn't look good.

Greece Euro-Exit Debate Goes Public

China Growth Seen at 13-Year Low by Pimco as Banks Cut Forecast

People’s Bank of China
Photo:   Bloomberg

China's slowdown may deepen as it unwinds the excesses of a record credit boom while only gradually increasing stimulus, leaving 2012 growth at the weakest in 13 years, Pacific Investment Management said.  “The economy is unlikely to bottom until the third quarter,” according to Ramin Toloui, Pimco’s global co-head of emerging markets portfolio management in Singapore.  “Policy makers will progressively turn the dial toward more stimulus, but not in the aggressive manner of 2009,” restrained by the goal of tempering the credit-fueled property market, he said.  Pimco, which oversees the world’s largest bond fund, sees Chinese growth this year in the “mid-7% range,” a pace unseen since 1999.  Its call is lower than that of major banks which pared their forecasts after Apr economic data was released last week.  A more measured pace of stimulus now than the record fiscal package & lending boom of 2009 may help reduce the risk of an eventual credit bust.  China’s central bank has so far held off on lowering interest rates, opting on Sat to execute the 3rd reduction in banks’ reserves since Nov.  China’s growth rate slowed to 8.1% in Q1 from 11.9% 2 years ago.  During the global financial crisis, the weakest quarterly expansion was 6.2% in Q1 2009, compared with a full-year rate of 9.2%. Growth momentum has weakened in China. When China sneezes, the rest of the world could catch a cold.

China Growth Seen at 13-Year Low by Pimco

JPMorgan Chase CIO Ina Drew
Ina Drew
Photo:   Bloomberg

JPMorgan, a Dow stock, said CIO Ina Drew will retire after the firm suffered a $2B trading loss & Matt Zames, co-head of global fixed income in the investment bank, will succeed Drew.  The entire London staff of the bank’s chief investment office where the loss occurred is at risk of dismissal.  CEO Dimon announced the loss on Thurs, assailing his firm’s handling of trading in synthetic credit positions as “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”   Drew's office oversees $360B, the difference between money from deposits and what the bank lends.  Drew was named chief investment officer in 2005, reporting directly to Dimon.  It is reported that Dimon had encouraged her unit to boost earnings by buying higher-yielding assets, including structured credit, equities & derivatives.  That shifted the office from a role mitigating lending risks to becoming a profit center.  Dimon said that the unit made “egregious mistakes” by taking flawed positions on synthetic credit holdings & JPM could lose an additional $1B or more as it winds down the position.  Numerous gov agencies are investigating.  Until recently, Drew did well with her investments, with the corp division under which she reports earning a peak of $3.7B in 2009 & rewarded her with a $15M pay package for 2010 & $14M for her performance last year.  "Ina Drew has been a great partner over her many years with our firm,” Dimon said.  “Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events.”  So she just decided to "retire" on a moment's notice.  OK!  The stock fell another $1.17.(down $6 in the last week).

JPMorgan Says Investment Chief Ina Drew to Retire as Matt Zames Takes Over

J P Morgan Chase & Co (JPM)

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The markets have clearly lost their way.  Q1 was a stellar qtr when it looked liked there were hardly any worries out there.  But they stumbled early in earnings season followed by a recovery.  May is shaping up as a disaster.  The Greek debt mess has raised its ugly head & bailout III is not even whispered.  Right behind Greece is Spain, ready to ask for its bailout.  Growth in China is slowing & that will be felt around the world.  Relatively speaking, the US economy is doing well (although far short of great).  However there are  stories about not enough jobs for college grads, not a good indication about a strong recovery.  As bad as the JPM scandal is, some are wondering when the next financial institution will reveal  an ugly story.  Dow has already fallen 700 in May.  Not good for the rest of the month.

Dow Industrials

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