STOCKS FIGHT OFF LOTS OF BAD NEWS: Here's What You Need To Know

July 12 (Bloomberg) -- Hong stocks fell, sending the Hang Seng Index to its biggest drop in seven weeks, as Europe's worsening debt crisis dimmed the outlook for exporters, and after Moody's Investors Service said some Chinese companies are engaging in potentially risky business practices.

Esprit Holdings Ltd., which gets most of its revenue from Europe, sank 4.1 percent, while Cosco Pacific Ltd., which operates container facilities at Greece's Piraeus port, dropped 4.3 percent. West China Cement Ltd. tumbled by a record 9.5 percent after Moody's said the producer of the building product faced the biggest risk on governance or accounting standards of 61 Chinese companies it analyzed.

" Renewed worries about the Euro debt crisis is putting a negative impact on fund flows to the equity market, making investors risk-averse," said Ben Kwong, chief operating officer at KGI Asia Ltd. " There is lack of positive news that can drive up the market."

The Hang Seng Index fell 2.1 percent to 21,887.84 as of 11:18 a.m. in Hong Kong, the biggest drop since May 23. All but one stock declined on the 46-member gauge. The Hang Seng China Enterprises Index of Chinese companies' H shares sank 2.3 percent to 12,211.14.

Esprit dropped 4.1 percent to HK$23.25, while Cosco Pacific sank 4.3 percent to HK$13.36.

Euro-area countries may have to double their bailout fund to 1.5 trillion euros ($2.1 trillion) to cover a crisis in Italy, the European Central Bank said, according to German newspaper Die Welt, citing unidentified " high-ranking" people at central banks.

'No Discussions'

German Finance Minister Wolfgang Schaeuble said " there's no discussion whatsoever" of doubling the European Union's rescue facility after the Die Welt report. The Financial Times cited unidentified senior officials as saying European leaders are prepared to accept that Greece should default on some of its bonds.

The spreads investors demand to hold Italian, Portuguese and Spanish debt over German bunds widened to euro-era records.

The Hang Seng Index has fallen 3 percent this year through yesterday on concern Greece's debt and China's monetary-policy tightening will slow global economic growth. Shares in the gauge traded at 12.1 times forecast earnings on average at the previous close, compared with about 14.4 times at the end of last year, according to data compiled by Bloomberg.

West China Cement tumbled 9.5 percent to HK$2.54, the biggest drop on record, according to data compiled by Bloomberg. Moody's said the company was among Chinese companies triggering " red flags" for potentially risky business practices.

Governance Risks

Moody's looked at criteria that " highlight issues meriting scrutiny to identify possible governance or accounting risks for non-financial corporate issuers in emerging markets," analysts led by Elizabeth Allen in Hong Kong wrote in a report dated yesterday.

Winsway Coking Coal Holdings Ltd., which operates in Mongolia and transports coal to China, sank 7.1 percent to HK$2.99, and China Lumena New Materials Corp., a manufacturer of natural thenardite products, sank 6.3 percent to HK$2.85. Hidili Industry International Development Ltd., a coal miner, retreated 6 percent to HK$6.11. The companies raised at least nine red flags of 20 criteria examined, according to the Moody's report.

" Recently, investors have already been nervous about this kinds of news, and it's making them lose confidence in some private Chinese companies," said KGI Asia's Kwong. " In the short term, investors will be more prudent in investing in them."

Futures on the Hang Seng Index fell 2.2 percent to 21,881. The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, surged 15 percent to 19.75, indicating options traders expect a swing of 5.7 percent in the Hang Seng Index in the next 30 days.

Italy moves to quell Short-Selling on market anxiety

With indecision over a 2nd Greek rescue provoking new fears of the debt crisis spreading in the EuroZone, finance ministers sought Monday to speed an agreement over private-sector contributions to the rescue that could include the buyback of some of Greece’s debt.

2 days of talks in Brussels began with Italian and Spanish bonds under assault on World markets and the 17 EuroArea governments still in disarray over whether to run the risk of a selective default by pressing for private-investor contributions to a new rescue of Greece.

One sign of the continuing confusion at the heart of policy making was renewed discussion about reducing the burden on Greece by financing a buyback of its debt.

That idea, which was rejected by finance ministers several months ago, is supported by the European Central Bank. The bank argues that a buyback would satisfy calls for private-sector contribution because Greek bonds would be sold at below their face value.

Discussion on the role of the private sector in the new Greek bailout has been so difficult that most policy makers expected a decision to be postponed until September.
That idea, which was rejected by finance ministers several months ago, is supported by the European Central Bank. The bank argues that a buyback would satisfy calls for private-sector contribution because Greek bonds would be sold at below their face value.

Discussion on the role of the private sector in the new Greek bailout has been so difficult that most policy makers expected a decision to be postponed until September.

But with the spread, or risk premium, on Italy’s bonds over their German equivalents widening amid fears that Italy will be swept into the sovereign debt crisis, ministers debated on Monday whether to set a month-end deadline for agreement.

They were encouraged in their efforts by the German chancellor, Angela Merkel, who said Monday in Berlin that “Germany and all euro partners are steadfastly determined to defend the stability of the euro.”

“Regarding Greece,” she said, “I would like to say it must get a new program very quickly, within a very short time frame.”

A European diplomat who was not authorized to speak publicly said the Greek question “is a political problem, not a technical one, and because of the lack of unity, it has now become urgent.

Under pressure from countries like Germany, the Netherlands and Finland, European leaders have called for substantial private sector contributions to a new rescue estimated at €85B, or US$119B. But the leaders also said the contributions should be voluntary so that the aid would not be classified by rating agencies as a selective default, potentially destabilizing markets further.

Technical negotiations in recent weeks have led several governments to believe that those objectives, a bond rollover and avoidance of a selective default, are incompatible, though, said an official who was not authorized to speak publicly, “different governments draw different conclusions.”

Last week, a French plan for a voluntary rollover of Greek debt, designed to satisfy the ratings agencies, was rejected by one of them, Standard & Poor’s. That prompted Germany to revive its earlier idea of bond swaps.

Germany remains skeptical of bond buyback plans, though it has not ruled out the idea, said a government official with knowledge of the discussions. Once such a plan was established, the official said, Greek bond prices would immediately rise, making the buybacks more costly and canceling out the amount effectively contributed by investors.

“You need to mobilize quite a lot of money for relatively little impact in terms of private sector involvement or debt reduction,” the official said

Such a plan could also require a revision of the current legislation authorizing the European rescue fund, which was established last year and has already provided aid to Ireland and Portugal. That would add more even political complications than already exist, the official noted.

“It raises a number of question marks,” he said. “I don’t want to rule it out.”

The issue of private sector involvement remains the main obstacle to agreement on a new aid package for Greece, he said.

On Monday, the Netherlands continued to press for a substantial private sector contribution, while Austria’s finance minister, Maria Fekter, said that any plan to include banks and other investors “must be expressly voluntary.”

The central bank argues that such a move would provide the private-sector participation that Germany, the Netherlands and other countries have sought because bondholders would be selling holdings of Greek or other debt at the steep discount now demanded by markets. But by being voluntary, such a program would not prompt further downgrades by the ratings agencies.

The E.C.B. has already bought Greek, Portuguese and Irish bonds on the open market for €74 billion. But it has not made any purchases since March and is not expected to make any more purchases for fear of taking on too much risk. The bank is pushing the European Union to take on that task instead.

Several European governments remain reluctant to allow Greek rescue funds to buy bonds, a step that would require parliamentary approval in some countries and might appear to voters as a direct bailout of Greece.

The European commissioner for economic and monetary affairs, Olli Rehn, is believed to favor a solution that would accept that private sector involvement provokes a selective default. That could mean extra measures to support the Greek banking sector and to try to prevent contagion spreading to other vulnerable economies like Italy and Spain.

But Jean-Claude Trichet, the president of the ECB, last week rejected any plan that would trigger a selective default. The plans being discussed by governments are frightening markets and are counterproductive, said the person with knowledge of the ECB’s thinking.

After convening a meeting of senior officials ahead of Monday’s gathering of finance ministers, Herman Van Rompuy, president of the European Council, said in a statement that the group had discussed the issues related to “a new program for Greece, and we also exchanged views on recent developments in the euro area.”

On the Commodities Front

Crude Oil settles lower on concerns about Global demand

The latest readings on Chinese inflation and renewed worries about European debt pushed Crude Oil lower.

Benchmark West Texas Intermediate (WTI) Crude Oil fell 1.05 to finish at 95.15 bbl Monday on the New York Merc.

Brent Crude, which is used to price many International Crude Oil varieties, fell 1.09 to settle at 117.24 bbl on the ICE Futures exchange in London.

Crude Oil started falling after a weekend announcement that inflation in China hit a 3-yr high in June. China has been raising interest rates in an attempt to control inflation and cool off its economy, but Saturday the government said consumer prices continued to increase, jumping 6.4% last month.

Gold prices extended last week’s gains as investors fled into the safe haven assets after a spate of weak global economic news.

Gold for August delivery added 7.60 to 1,549.20 oz at the Comex division of the New York Merc. The Gold price has traded as high as 1,557.60 and as low as 1,542.10 while the spot Gold price was up 4.60, according to Kitco’s Gold index. Gold retreated from intra-day highs as some investors took advantage of higher prices to take profits.

Silver price fell 0.84 to 35.69 oz as Global industrial demand worries dragged on the metal. The USDollar index was adding 1.07% at 75.99 and the Euro was tanking 1.81% against the Greenback.

Paul Ebeling on Wall Street: what to expect this week and down the line

There is a lot of important economic data the week. .

So far the data has not indicated a Strong recovery in the USA. Last Friday was a disappointment from the June jobs report. The DJIA sold off 152 pts on the news, recovered nicely to close off 62 pts.

If I am right, this is just not a relief rally, but a set up a test the overhead resistance, and break to the Northside.

Most analyst did not believe the markets would bounce this high, but you know a Cardinal Rule is to always to be ready for change aka be nimble.

Both Shayne and I agree that there should be a further test in here to complete the set up for a Bull run to new highs. It will not happen in 1 day though, it might take as many as 5 sessions or as few as 3.

Savvy players are using the pull backs to add positions in the leaders

The retrace on the S& P 500 should come down the 1330 mark, if it holds there in is then in shape to make a break to the Northside, and try to take out old highs.

The Key is to be patient, and when the leaders pull back and hold, do like Shayne does take some positions for exposure when the market starts to break to the Northside, taking more positions going up

Earnings season on us officially next week, and if there is a pullback just before, and then a Strong break to new highs that calls for Champagne.

Remember, always take what the market gives.

Death or Communism

If the massive public debt in Europe and the USA is not brought under control in the short term, taxes to fund bail-outs will rise to such a level that the western world will resemble the communist sates of the 1970’s.

Like the USA, Europe in general is suffering from and over supply of politicians, and under supply of conviction to the chosen path to extract Europe from the debt crisis.

The paradox is, Corporations are producing solid earnings at the cheapest P/E level in decades.

So what do investors do?

Many have turned to Gold

The Gold price last Friday marked its largest weekly rise since November 2009, made after a weak US labor market report renewed fears about the health of the World’s biggest economy, fueling safe-haven buying.

US payrolls growth slowed to a trickle in June, as employers hired the fewest workers in 9 months, frustrating hopes that economic growth would pick up pace in 2-H of the year.

Instead, some analysts and investors, we here at LTN among them, began speculating in earnest about how soon the next US government stimulus plan might be put up in the United States, triggering more safe-haven purchases.

Warren Buffett Jumps to Equities

Warren Buffett said his Berkshire Hathaway Inc. spent about $4 billion acquiring stocks since February as new portfolio manager Todd Combs added two holdings.

“We bought some equities that we probably spent $4 billion on,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today, in an interview from Sun Valley, Idaho. “They’re in the space of common stocks.”

Buffett, 80, is overseeing changes in Omaha, Nebraska-based Berkshire’s portfolio after a switch in investment managers last year. He’s also wagering on continued economic expansion, even as the U.S. unemployment rate climbs. Buffett said he doesn’t expect a second recession.

“I would bet very heavily against that,” Buffett. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

Most Importantly be well hedged.

The Paris-based international economic organisation of 34 advanced nations OECD warns that disruptive shocks are likely to occur with increasing frequency and cause greater “economic and societal hardship” to the international community.
These types of reports serve as a reminder that investors must be vigilant as to their exposure, diversity and hedge positions, for those who need help contact www.heffcap.com

Pandemics, cyber attacks, financial crises, civil unrest and geomagnetic storms are the top 5 in what the OECD paint as a reason for government and people to be prepared.
The new OECD report, entitled “Future Global Shocks”, says the potential for wide-ranging and destructive consequences transcend national boundaries, given the increased inter-connectivity and the speed with which people, goods and data travel between various countries.