“Buy when others are despondently selling and sell when others are greedily buying” — Mark Mobius

1. Spanish bond yields surge past 7% on bad-loan data — Yields on Spain’s 10-year bonds rose 24 basis points to an unsustainable 7.11% following data showing that non-performing loans held by the country’s banks hit an 18-year high of 8.72% in April. Italian yields were +10.6 bps at 6.03%.
2. U.S. housing starts fall in May, but permits surge (XHB) — housing starts fell 4.8% last month to an annual rate of 708,000 — below the 720,000 forecast of economists surveyed by MarketWatch. New construction in April was revised sharply higher to the fastest rate since October 2008. Starts in April totaled 744,000, up from an initial reading of 717,000. Starts are running 28.5% higher compared to one year ago.
3. Companies put spending on hold ahead of “fiscal cliff” — companies have started to delay recruitment and investment on fears that Congress won’t act to stop the $600B of automatic spending cuts and tax hikes that are due in January.
4. Antonis Samaras sworn in as new Greece prime minister — Antonis Samaras, the leader of the New Democracy party, has been sworn in as the country’s new prime minister. The ceremony came shortly after he agreed a coalition government with the Socialists (Pasok) and the smaller leftist party, the Democratic Left.
5. Fed continues ‘Twist’; Bernanke hints at more — As expected, the FOMC said that it will extend Operation Twist through the end of the year, adding $267B to the total purchased. The Fed is prepared to take additional steps as necessary. The Fed also lowered its GDP growth forecasts for 2012, and said it sees significantly lower inflation.
6. Moody’s cuts ratings on 15 financial firms — as expected, Moody’s downgraded the ratings of 15 financial firms with global capital-markets operations from one to three notches. Among those affected were Bank of America Corp, Barclays, Citigroup Inc. ,Credit Suisse Group , Goldman Sachs Group Inc., HSBC Holdings PLC, J.P. Morgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group PLC, Credit Agricole SA, BNP Paribas, Deutsche Bank, Royal Bank of Canada , Societe Generale and UBS.
7. Supreme Court ruling on 2010’s Affordable Care Act — The Supreme Court is set to rule on the Obama health-care law on June 29th. The ruling will have major political ramifications headed into the November election.

The week ahead — Economic data from Econoday.com:

“There is only one side of the market and it not the Bull side nor the Bear side, but the Right side” — Jesse Livermore

1. EU Rescues Spanish Banks with €100B fund — EU agreed to provide Spain with €100B to rescue its banking system.
2. Spanish, Italian yields At Record High — Yields on 10-year Spanish and Italian bonds have continued to climb, which came after the euphoria over Spain’s bank bailout dissipated. Spain was +15 bps to 6.65% and Italy +10 bps to 6.13%.
3. Greek banks see outflows pickup as election nears — according to Reuter, combined daily deposit outflows from the major Greek banks have reached 500-800 million euros over the past few days, with the pace picking up as the election draws closer and rising noticeably on Tuesday, two bankers said. Deposit outflows at smaller and medium sized banks were running at 10-30 million euros. One banker noted “This includes cash withdrawals, wire transfers and investments into money market funds, German Bunds, U.S. Treasuries and EIB bonds,”
3. Spain enters danger zone as yields near 7% — The yield on Spain’s 10-year government bond rose as high as 6.96%, a new euro-era record and dangerously close to levels considered as unsustainable. Moody’s Investors Service downgraded three-notch left Spain’s rating just one level above junk.
4. Greece’s “Pro-bailout” parties win enough seats for majority — Greece’s New Democracy party is attempting to form a coalition after winning 129 seats in the 300-seat parliament, although the socialist Pasok group hasn’t decided whether to join the government or just offer parliamentary support.
5. French Elections Go to Hollande’s Socialists — per Reuter, French President Francois Hollande’s Socialists won an absolute parliamentary majority on Sunday, strengthening his hand as he presses Germany to support debt-laden euro zone states hit by austerity cuts and ailing banks.

Annual Notable “All-Star Team” Discussion — June 9 issue of Barron’s annual All-Stars (Mark Faber, Brian Rogers, Abby J. Cohen, etc…)Roundtable discussion worth reading. Three major themes:
1.Europe’s sovereign debt crisis continues to be the single biggest threat to both the global economy and the capital markets.
2.China’s slowdown is also a major concern.
3.The United States — while healthy by comparison — faces the “fiscal cliff” of tax hikes and spending cuts next year barring a deal between the White House and Congress.

The week ahead — Economic data from Econoday.com:

“When I have to depend upon hope in a trade, I get out of it” — Jesse Livermore

1. Spanish government sends out mayday signal — Spanish Treasury Minister Cristobal Montoro announced because of the risk premium, Spain is shut out of the markets to finance its bond.
2. JPMorgan’s loss could hit $4.2B estimate — International Strategy & Investment Group reported JPMorgan (JPM) may report a $4.2B trading loss.
3. G7 to hold emergency call to discuss EU problems — with fears that a capital flight from Spain could turn into a full bank run, G7 finance minsters and central bank governors have arranged an emergency conference call to discuss the eurozone crisis.
4. Portugal to inject over €6.6B in three banks — the Portuguese government is using more than €6.6B of its international bailout money to inject €1.65B into state-controlled Caixa Geral de Depositos, up to €3.5B into Banco Comercial Portugues, and €1.5B into Banco BPI (BBSPY.PK). The rescue comes as the banks face fast-rising loan losses.
5. China’s PBOC cuts interest rates — The People’s Bank of China lowers benchmark one-year lending and deposit rates by 0.25 percentage point on loans and deposits, and moved to allow rates to float more freely, in a bid to support economic growth and advance reform of the financial system.
6. Fed moves forward with Basil III capital rules — banks will be required to hold the strictest form of common-equity capital at 7% of their risk-based assets, up from 2% currently. The regulation will be phased in between January 2013 and January 2019. America’s 19 biggest banks are at least $50B short of meeting Basel III requirements under new rules that the Fed approved.

The week ahead — Economic data from Econoday.com: