Monday, June 25, 2012

Markets decline as euro crisis threatens earnings

Dow dropped 138 (but off the lows), decliners over advancers better than 3-1 & NAZ fell 54.  Bank stocks led the sell-off, with the Financial Index down 3+ to the 189s.  The MLP index fell almost 5 to the 359s & the REIT index was down 1 to 251.  Junk bond funds were weak & Treasuries rose with the falling stock market.  Oil fell below $80 a barrel for a 3rd day on concern that a meeting of EU leaders this week will fail to check the region’s debt crisis, leading to a reduction in fuel demand.  Oil is off more than $30 from recent highs, good on the inflation front but also a sign of ailing global economies.  Safe haven money finally discovered gold, taking it up $17 but still near its 12 month lows.

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CLQ12.NYM...Crude Oil Aug 12...78.89 ...Down 0.87  (1.1%)

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Cyprus Requests EU Funds, Becoming 5th Euro Nation to Seek Aid

Photo:   Bloomberg

Cyprus applied for a bailout.  Its banking sector hit by exposure to Greece & its budget deficit make it the 5th euro zone country to turn to the bloc's rescue funds for help.  Cyprus has just 4 days left to raise at least €1.8B (equivalent to 10% of GDP) to satisfy European regulators about the health of Cyprus Popular Bank, its 2nd largest lender which saw its balance sheet hurt by bad Greek debt.  The Finance Minister said the country would also seek enough money to help with its budget deficit. The full amount would be decided over the course of weeks.  "The amount will be as much as it may be needed to cover the recapitalization and fiscal requirements," he said.  "These will be established after careful review during the next few weeks."  With its coffers emptying rapidly & hurtling towards an immovable deadline, the island suffered a further sovereign credit rating cut by Fitch, to the non-investment, or junk, BB+ grade.  Cyprus has already been shut out from raising new funds on capital markets, with yields on its existing bonds well into double digits.  Officials said the bailout request did not specify how much they need.  An island with just 1M residents, Cyprus has a disproportionately large financial sector that is heavily exposed to Greece, a neighbor more than 10X the size with which it shares a language, culture & close political links.  A gov statement said: "The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure in the Greek economy."

Cyprus Requests Funds Becoming Fifth Euro Nation to Seek Aid

  • Vassilis Rapanos takes part in a meeting under the newly appointed Prime Minister Antonis Samaras (not pictured) at the parliament in Athens June 20, 2012. REUTERS/Yorgos Karahalis
Photo:   Yahoo

The new Greek finance minister resigned because of ill health, throwing the gov drive to soften the terms of an intl bailout into confusion days before a European summit.  Vassilis Rapanos, 64, was rushed to hospital on Fri, before he could be sworn in, complaining of abdominal pains.  Greek media said he had a history of ill-health.  The office of Prime Minister Antonis Samaras, who himself only took office on Wed said Rapanos had sent a letter of resignation because of his health problems & it had been accepted.  Samaras himself has only just emerged from hospital after undergoing eye surgery to repair a damaged retina.  Both he & Rapanos had already said they would not be able to attend the Jun 28-29 European summit.  The medical problems had also forced a postponement of the first meeting between the new gov & Greece's "troika" of intl lenders, originally slated for Mon.  This is a chaotic start for any new gov.

Greek Finance Minister Resigns, Crisis Deepens

  • <p>               FILE- In this Monday, June 18, 2012, file photo, Microsoft CEO Steve Ballmer unveils its"Surface", a new tablet computer to compete with Apple's iPad at Hollywood's Milk Studios in Los Angeles. Microsoft announced Monday, June 25, 2012, that is paying $1.2 billion to buy Yammer, an Internet startup that has built a social network similar to Facebook for the business world. (AP Photo/Damian Dovarganes, File)
Photo:   Yahoo

Microsoft, a Dow stock, will buy Yammer for $1.2B, an Internet startup that has built a social network similar to Facebook (FB) for the business world.  Yammer provides ways for companies to create private social networks for their employees & has more than 5M corp users.  This is MSFT latest attempt to adapt to a major shift in the technology industry that is fueling demand for more internet services & social-networking tools.  That shift is threatening to weaken the MSFT position as the world's largest software maker.  Last year, it bought internet video chat service Skype for $8.5B.  Yammer plans to continue offering a standalone service, while MSFT will encourage its use alongside its other business products, including Office & SharePoint.  MSFT fell 86¢.

Microsoft Agrees to Acquire Yammer for $1.2 Billion in Cash

Miocrosoft (MSFT)

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It was hard to find a silver lining in today;s glum news.  MSFT is buying an internet company, which should have been encouraging, but it wasn't.  The euro debt mess keeps going from bad to worse.  Cyprus had been shaky, so a bailout was not much of a surprise.  But it's another kick in the head that doesn't make life easier for the EU.  Q2 is almost over & there will be more downward revisions of earnings for Q2 & Q3.  Dow finished 2011 at 12,217.  After an outstanding Q1, it's up only 300 YTD & short term momentum will take it lower.  Thurs the Supreme Court will issue its ruling on Obamacare, before going on summer holiday.

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