What’s the Story? Greece is the Word

by CC June 15, 2012 9:13 am • Commentary


Manufacturing in the New York region expanded in June at the slowest pace in seven months as orders and sales cooled.

The Federal Reserve Bank of New York’s general economic index dropped to 2.3 this month, less than the lowest forecast of economists surveyed by Bloomberg News and down from 17.1 in May. Readings greater than zero signal expansion in the so- called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October.


Britain’s goods trade deficit unexpectedly widened in April as exports plunged, raising the threat of a third quarter of economic contraction and adding urgency to new measures to foster growth as trading partners in the euro zone weaken.

The country slid back into recession around the turn of this year, and more pain looms as a relentless debt crisis in the euro zone – the main market for Britain’s exports – hits trade and makes companies reluctant to invest and hire.

The Office for National Statistics said on Friday the goods trade deficit grew to 10.1 billion pounds ($15.70 billion) – the second-largest gap since records began in January 1998. That compared to a deficit of 8.7 billion pounds in March and confounded forecasts for a reading of 8.5 billion pounds.


Sterling stole the show in an otherwise quiet session ahead of the Greek elections, diving against other major currencies as the Bank of England announced a new liquidity facility to help shield the U.K. from euro-crisis fallout, fanning suspicions the central bank is preparing for a rate cut.

The pound shed some 0.3% against the dollar, trading to a low $1.5477 and the euro surged to the day’s high of £0.8152 as London traders digested the news that the Bank of England will launch its first auction as part of a series of emergency liquidity measures that will offer six-month loans to U.K. banks in exchange for a wide range of collateral.

Calculated Risk

At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for May. The consensus is for no change in Industrial Production in May, and for Capacity Utilization to be unchanged at 79.2%.

• At 9:55 AM, the Reuter’s/University of Michigan’s Consumer sentiment index (preliminary for June) will be released. The consensus is for sentiment to decline to 77.5 from 79.3 in May.

• At 10:00 AM, the BLS will release the Regional and State Employment and Unemployment report for May 2012


From Martin Lueck and team at UBS:

Who’s winning?

Too close to call.

Is the election a vote on Greece’s euro membership?


Can Greece be out of the eurozone as early as next week?

Technically yes, but very unlikely.

Will the election remove uncertainty about Greece?


What is the ideal election result – from an investor’s perspective?

There is a two-step answer to this question. First, there is no ideal outcome because in the immediate aftermath of the election, any possible coalition (if there is one) could potentially announce that it may seek to renegotiate the MOU…Second, there could be a development later on, in which inability to form a coalition leads to a caretaker government.

Will they pull the plug?

The question whether the troika, ie, the EU, the ECB and the IMF, will really stop payments in case of a Syriza win and Mr Tsipras’ refusal to comply with the commitments made in the MOU is very hard to answer. To be honest, so little can be said on this that it would be pure speculation to suggest any potential outcome.

Can Greece survive once its primary balance is zero?

We see several problems here. The first is that Greece is not as close to a balanced primary budget as many think.

Would Greece be better off without the euro?

We believe that whatever the election outcome is and no matter if the country remains a euro member or not, Europeans should know that they will likely need to keep paying for Greece.

What if there is another post-election deadlock?

The bottom line is that, in the event of an unclear election result and no government formed by 26 June (ie, in the nine days following the election), there would probably be a national unity/technocrat government, supported by a coalition of major parties, rather than another round of new elections.

What’s the medium-term perspective?

In the medium term, even if this Sunday does not produce a result which ends up in Greece leaving the euro area, there will be a lot of uncertainty about the country’s euro membership.

What’s your conclusion on all this?

We know very little about the likely outcome of this Sunday’s election in Greece. Opinion polls show conflicting results, and can they be trusted at all? There may well have been even more posturing than usual on the part of all parties, especially Syriza and Nea Dimocratia. Voters appear impressed, but may completely change their mind on election day.

The second important conclusion is that, on Monday morning, we will likely still know very little. Even in the rather unlikely event of a straightforward election result, ie, a clear majority for one of the contenders, we would not know what this means for renegotiation of the MOU, which all parties have now announced. There might be even more fog, instead of less, next week.

Lastly, if this election produces an unclear result (which we expect), ends up in some kind of coalition, potentially a technocrat government (which we find likely), but does not produce a Greek exit from the euro area (which is our core scenario), this would not necessarily remove uncertainty around Greece. If anything can be predicted ahead of this election with a reasonable degree of confidence, it is that the Greek tragedy is most likely set to continue.


Human Genome Sciences [HGSI  13.10        ] – The company has set a July 16 deadline for takeover bids. It’s also urging hostile bidder GlaxoSmithKline [GSK  45.31        ]— which has a $2.6 billion offer on the table — to join a friendly bidding process. Human Genome has already rejected the $13 a share offer as inadequate.

Electronic Arts [EA  12.32        ], Activision Blizzard [ATVI  11.53        ] – NPD Group reports video hardware and software sales down 28 percent in May compared to the same month a year ago. NPD cites a shortage of new software titles as a primary reason for the drop.

Wynn Resorts [WYNN  100.49        ] – The battle between Wynn and Japanese tycoon Kazuo Okada is escalating, as Okada files a preliminary injunction to protect his stake in the casino operator. Earlier this year, Wynn forcibly bought back the stake at a steep discount, after claiming Okada had engaged in improper activities.

Microsoft [MSFT  29.34        ] – Business software producer Yammer has agreed to sell itself to Microsoft for more than $1 billion, according to The Wall Street Journal, which says it’s not yet clear when the deal will be finalized. It was reported earlier in the week that Microsoft and Yammer were in discussions about a deal.

Facebook [FB  28.29        ] – The company is reportedly set to file a motion to consolidate shareholder lawsuits against it over its troubled initial public offering, according to The New York Times. The paper says Facebook is expected to place at least some of the blame against Nasdaq.

Navistar [NAV  27.83        ] – Hedge fund MHR Management has disclosed a new 13.6 percent stake in the truck and engine maker, according to an SEC filing.

Amazon.com [AMZN  214.45        ] – DigiTimes reports Amazon may cut the price of the 7-inch Kindle Fire model as it introduces new products during the third quarter.

Nokia [NOK  2.35        ] – The company’s battered stock is the subject of several analyst comments this morning: It’s been upgraded to “perform” from “underperform” at Oppenheimer; upgraded to “neutral” from “sell” at Citi; and downgraded to “neutral” from “outperform” at Credit Suisse.

AOL [AOL  25.57        ] – Activist shareholder Starboard Value has cut its AOL stake to 4.9 percent from 5.3 percent, according to an Securities and Exchange Commission filing. Starboard lost a proxy fight this week, as all eight incumbent AOL directors were re-elected to the board.

YPF [YPF  10.45        ] – Mexican billionaire Carlos Slim has acquired an 8.4 percent stake in Argentina’s biggest oil and gas producer. YPF was nationalized last month by the Argentine government, as it expropriated a 51 percent stake owned by Spanish oil company Repsol.

Sprint Nextel [S  3.10        ] – Deutsche Bank has removed Sprint from its “short-term buy” list on a valuation basis, following a more than 5 percent jump in the shares Thursday. It maintains long term “hold” rating.