Monday, July 25, 2011
WHAT TO WATCH: Stocks declined, Treasuries fell and gold rallied to a record as Obama and Congress failed to reach a deal on raising the U.S. debt ceiling. Greece�s credit rating was cut three steps to Ca by Moody�s, which said the EU�s rescue will cause �substantial� losses for investors. Turkey�s central bank suspended daily purchases of dollars and cut the cost of long-term deposits in foreign exchange. The Bank of Israel will probably keep its benchmark interest rate unchanged for a second month, 10:30 a.m.
US Weekly Kickstart: Rising profits despite faltering economy: Both EPS and
margins will reach new high in 2Q 1
Americas: Retail: Supermarkets: Cyclical tailwinds moderating and inflation
rising; KR/SWY to Sell 2
Whole Foods Market, Inc. (WFM): 3Q to demonstrate sustained momentum,
Reiterate CL-Buy 3
United States: Utilities: Still cautious utilities before 2Q; upgrading DUK,
downgrading SO 4
Americas: Technology: IT Services-Consulting & Outsourcing: Earnings preview;
Downgrade CSC to Sell on high DoD exposure; Upgrade WNS to Neutral 5
Americas: Specialty Finance: Diversified: Rating agency 2Q preview - what to
look for in results; Buy MHP 6
General Electric Co. (GE): Outlook remains favorable, reiterate Buy 7
PepsiCo, Inc. (PEP): Downgrading to Neutral as our thesis no longer intact
July 25 (Bloomberg) -- U.S. debt downgrade would lead to
rising interest rates, higher inflation, decline in value of
financial assets including housing, says Rochdale�s Dick Bove.
U.S. cost of funds will rise, driving up the deficit, leading to cuts in entitlement programs, higher taxes
Housing costs will rise, driving prices down further, re- igniting default problems if Fannie, Freddie, Ginnie can�t raise monies at reasonable rates
Municipalities will face rising borrowing costs
Inflation will rise as value of dollar falls
Holders of treasury debt (China, Japan) will see decline in asset values, lowering desire to hold, increasing desire to sell
Up up and away � indicators point to continued rally
The S&P 500 held support at 1295-1300 and is set up to test resistance at 1350-
1370. The indicators are positioning the equity markets to make new recovery
highs. Similar to September 2010, the 30-day TRIN has generated an oversold
buy signal, suggesting higher stock prices ahead. Also the VIX index remains in a
downtrend, which we view as constructive for the market. A break of 1370 on the
S&P 500 points to a test of resistance at 1400-1440. Our target remains 1400. @ ML
Moody's Investors Service slashed the Greek government's debt ratings three notches further into junk territory, citing the likelihood that private creditors will suffer "substantial" losses on their holdings of government debt.
The credit-rating agency cut Greece's foreign- and local-currency bond ratings to Ca from Caa1, assigning them a developing outlook due to uncertainty over the exact market value of the securities that creditors will receive in a debt exchange.
Moody's said the program announced by the European Union indicated that the likelihood of a distressed exchange and a default on Greek government bonds was �virtually 100%."
It is now becoming a real possibility that the United States debt may be downgraded. If the debt is downgraded, the following entities are expected to pay more for money: The United States will pay more for funds and this will increase the deficit increasing the need to cut entitlement programs and increase taxes. Any recipient of funds from the United States will receive less. Government agencies will lose access to the money markets at reasonable rates. This means that Fannie Mae, Freddie Mac, and Ginnie Mae among many government agencies tied to housing will have difficulty raising new monies at reasonable rates. This will increase the costs of owning a house. It will drive housing prices down further, re-igniting the housing default problem. Municipalities who have tied a number of the debt issuances to base Treasury rates will see their cost of borrowing rise. This will increase their financial problems and could drive local taxes higher across the country as state and municipal governments seek new monies to pay for the higher interest rates. The Federal Reserve itself will be powerless to impact the cost of money in the United States. The value of the dollar will fall/is falling. This increases the cost of goods purchased from overseas. This drives inflation higher.
? DODD-FRANK BILL-- Dodd-Frank Reducing Bank Revenues by $9B Spawns New Fees. BAC, JPM & WFC are among the 10 largest U.S. banks that may lose more than $9B in annual revenue from two parts of the Dodd-Frank regulatory overhaul.
? EL-ERIAN-- The U.S. government may lose its AAA credit rating even if lawmakers reach a plan to avoid a default, said Mohamed A. El-Erian.
? GS-- Succeeding Blankfein at Goldman May Be Hurdle Too High for Cohn
? IRE�Bank of Ireland to Avoid State Control With Sale of Stake
? MERGER & DEAL NEWS�
1. U.K., India in $1.6B Trade Accords After BP-Reliance Deal
2. TD Ameritrade directors to meet Tuesday to discuss pursuit of ETFC, WSJ
3. Dunkin� Brands Seeks Premium to Starbucks in IPO on Expansion
4. Dow, Saudi Aramco Approve $20B Joint Petrochemical Plant
1. Funds boosted bets on rising commodity prices by the most in almost a year on speculation that the global economic recovery will prove resilient.
2. Gold Advances to Record
3. Oil Declines
4. Wheat Slumps
5. Sugar Rises
6. Coffee Advances
7. North Dakota Soggy Wheat Fields Dimming Prospects for Harvest
8. Food Prices to Stay High, IFAD Says
9. Food Costs Rising as Coke, Chipotle Pass on Commodity Increases
? BP-- could unlock $100B for BP investors by following ConocoPhillips and splitting up Europe�s second-biggest oil producer.
? NFLX� DreamWorks Animation said to be talks to offer Netflix exclusive streaming rights to its films, replacing HBO pact
1. maker of the Galaxy mobile phone, may have surpassed NOK & AAPL in smartphone sales for the first time on demand for devices that run on Android software.
2. Samsung Denies Report It Hired Former Acer Chief Lanci
? RIMM -- plans to cut about 2,000 jobs, or about a tenth of its workforce, as sales slow amid market share losses to AAPL�s iPhone.
? AAPL-- Fake Apple Stores Ordered by Chinese City to Close After Probe
? FUTURES�1330.90, DOWN 9.10.
? NEW HIGHS: 190.
? NEW LOWS: 26.
? OVERBOUGHT: 144.
? OVERSOLD: 112.
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No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.