“I never buy at the bottom and I always sell too soon.” — Baron Rothschild

1. China imports disappoint, exports slow — Imports grew 6.3% in June from a year earlier, versus expectations for an 11.3% rise tipped in a Dow Jones Newswires poll, and below a 12.7% gain in May. Export shipments grew 11.3% for the month, ahead of the 9% rise expected in the Dow Jones Newswires survey, but down from May’s 15.3% rise.
2. Spain unveils €65 billion in new austerity — Spanish Prime Minister Mariano Rajoy announced €65 billion ($79 billion) of new austerity measures in an effort to meet new budget-deficit targets agreed with euro-zone partners. The additional austerity includes an increase in the standard rate of value-added tax to 21% from 18%, and the lower rate to 10% from 8%.
3. Third California city to file for bankruptcy — San Bernadino is set to become the third California city to file for bankruptcy protection in the last month after officials said it faced an imminent financial crisis. San Bernadino, which will join Stockton and Mammoth Lakes, hopes to restructure its finances while in Chapter 9, but a concerned municipal bond market may have other plans.
4. China second-quarter growth slows to 7.6% — Expansion marks slowest pace of growth in more than three years; Recent data meant China’s economy had cooled for six straight quarters, exceeding the five consecutive quarters of cooling seen in a financial crisis during the late 1990s that ended a rapid period of growth for the Asian region.
5. Moody’s downgrades Italy’s government bond rating — Moody’s Investors Service stated that it has cut Italy’s government bond rating to Baa2 from A3 with a negative outlook. The ratings firm said that Italy is more likely to experience a further sharp increase in its funding costs, or the loss of market access, than five months ago “due to increasingly fragile market confidence.” Also, Italy’s near-term economic outlook has deteriorated.
6. Banks could be hit for $22B in Libor penalties — Twelve global banks publicly linked to the Libor scandal face up to $22B in combined regulatory penalties and damages to investors and counterparties, according to admittedly “crude” Morgan Stanley estimates.

The week ahead — Economic data from Econoday.com:

“It’s a buy when the 10-week moving average crosses the 30-week moving average and the slope of both averages is up” – Victor Sperandeo

1. June ISM manufacturing gauge turns below 50% — Manufacturing activity in the U.S. dropped in June into contraction territory for the first time since July 2009, the Institute for Supply Management reported.
2. EU embargo on Iranian oil takes effect — EU oil sanctions on Iran came into full force July 1st as exemptions on some contracts and tanker insurance – which has been key in enforcing the embargo – expired. The IEA has forecast that the measures will remove around 1M bpd from oil markets.
3. Price-fixing suit would put potash industry on trial — according to FinancialPost, U.S. Court of Appeals has ruled that an antitrust suit against potash producers can proceed. Potash Corp. (POT), Agrium (AGU) and Mosaic (MOS) could face total damages of $2B-$6.5B if they lose.
4. ECB cut its benchmark lending rate by a quarter of a percentage point to a record-low 0.75% — European Central Bank President Mario Draghi said further downside risks to euro-area growth have materialized and indications for the second quarter point to weakened growth. lowered the deposit and marginal lending-facility rates.
5. China Cuts Interest Rates for Second Time This Year — per cnbc, China unexpectedly cut rates for the 2nd time in a month suggesting heightened fears about slowing growth.
6. Rate-Rigging Inquiry Widens — Barclay (BCS) Chairman, CEO and COO quit after the bank was fined $453 mil by the US and UK for rigging Libor, a benchmark rate underpinning $350 tril in global financial products. Investigators globally are probing more than a dozen big banks for rate manipulation.

Barron bearish article on investing in China — click here for more details

The week ahead — Economic data from Econoday.com:

“Buy low, sell high, cut your losses, let your profits run.” — Leon Cooperman

1. Sale of new U.S. homes rise to 2-year high in May — Sales of new single-family homes rose to an annual rate of 369,000 in May to mark the highest level in more than two years. The supply of new homes on the market, at current sales pace, fell to 4.7 months from 5.0 in April.
2. Spain makes formal request for bank bailout — Spain has formally asked the Eurogroup for a bank rescue of up to €100B, which, says Economy Minister Luis De Guindos, should be enough to cover all the needs of the country’s banks and provide a security buffer.
3. Stockton, California, to File for Bankruptcy Protection — Stockton, California, said it will file for bankruptcy after talks with bondholders and labor unions failed, making the agricultural center the biggest U.S. city to seek court protection from creditors. Stockton becomes one of the biggest U.S. cities to file for bankruptcy with debts of $700M. Stockton, which has already defaulted on three sets of bonds, got into trouble due to high retiree costs for municipal workers, spending on a revitalization effort, and falling property-tax revenue.
4. Cyprus requests European bailout — Cyprus, with its banking system ravaged by exposure to Greek sovereign debt, became the latest victim of Europe’s debt crisis by requesting aid from its euro-zone partners.
5. News Corp.’s Murdoch Said to Consider Splitting Company — Rupert Murdoch may reportedly split News Corp. (NWS) into two companies, one focused on publishing and the other on entertainment. Internal discussions are said to be at an advanced stage.
6. U.S. grapples with natural gas exports — the question, with exports of natural gas, is how much is too much? Both sides of the debate are wary of a public brawl, either for not wanting to be seen as opposing exports in general.
7. Obamacare’s Insurance Rule Is Upheld by Supreme Court — per CNBC, the Supreme Court, in a landmark ruling last Thursday, upheld the individual insurance requirement at the heart of President Barack Obama’s health care overhaul. The court, however, found problems with the law’s expansion of Medicaid, but even there said the expansion could proceed as long as the federal government does not threaten to withhold states’ entire Medicaid allotment if they don’t take part in the law’s extension.
8. EU Summit agrees to create single bank regulator in bid for banking union — EU leaders agreed that once a bank supervisor is in place, Europe’s permanent rescue fund — the European Stability Mechanism — will be able to directly recapitalize banks.

The week ahead — Economic data from Econoday.com:

“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:

There will not be any re-cap for the week of May 25 2012. We are away for some needed R&R.

Have a good week.

The staffs at EGS.

“Wide diversification is only required when investors do not understand what they are doing” — Buffett

1. Greek Politicians Fail to Agree on Government, Talks End — CNBC reported Greek politicians failed to agree on a government, nine days after an inconclusive election.
2. Moody’s Downgrades Italian Banks, Outlook Negative — Moody’s Investors Service downgraded the long-term debt and deposit ratings for 26 Italian banks, citing the country’s recession and rising bad debt levels.
3. Feds crack down on “pump and dump” scamsters — Regulators halted trading in nearly 400 microcap stocks in one of the SEC’s biggest efforts yet to crack down on potential fraudsters using “pump and dump” tactics before they occur.
4. Industrial production rebound strongly in April — Overall production at the nation’s factories, mines and utilities rose 1.1% in April, the strongest gain since December 2010 and well above expectations. Also, the government reported that housing starts climbed in April and beat expectations.
5. Moody’s hits Spain banks — Moody’s Investors Service downgraded 16 Spanish banks and Santander UK PLC, a U.K.-domiciled subsidiary of Banco Santander SA (STD, SAN.MC), the latest blow for a country already facing economic recession, surging unemployment and a five-year property bust. Also, Customers of troubled Spanish bank Bankia, nationalized last week, have taken out over 1 billion euros ($1.3 billion) from their accounts over the past week, El Mundo newspaper reported .
6. Facebook IPO with record $104B market cap — Facebook (FB) debuted on Nasdaq last Friday with a market cap of $104B, the highest ever for a firm at the time of its IPO.
7. JPM’s CIO holds $100B of risky bonds — the FT reports JPMorgan’s (JPM) Chief Investment Office has built up over $100B of positions in complex, risky bonds and structured products, with the CIO’s “non-vanilla” portfolio now over $150B.

The week ahead — Economic data from Econoday.com:

“THE STOCK MARKET IS A NO-CALLED-STRIKE GAME. YOU DON’T HAVE TO SWING AT EVERYTHING – YOU CAN WAIT FOR YOUR PITCH. THE PROBLEM WHEN YOU’RE A MONEY MANAGER IS THAT YOUR FANS KEEP YELLING, ‘SWING, YOU BUM!’”— Warren Buffett

1. U.S. set to make profit on AIG bailout — the taxpayer could make a profit of $15.1B on the $182B bailout of AIG (AIG) in 2008, the Government Accountability Office has estimated. The latest return will come from the Treasury’s sale of $5.8B worth of AIG shares for $30.50 each, above its break-even price of $28.72
2. Spanish Bank Worries — Spain will require its banks to raise an additional 35 billion euros ($45.5 billion) in provisions against property loans, Reuters reported. The amount is in addition to the €54 billion banks must already raise to protect against exposure to property loans in the wake of the country’s burst housing bubble.
3. Chinese Trade Data Show Surprising Weakness — according to MarketWatch, Chinese trade data showed a sharp drop in activity in April, with both export and import growth falling well short of expectations. Exports rose 4.9% in April from a year earlier, while imports rose just 0.3%, data released by China’s General Administration of Customs showed.
4. Spain nationalizes Bankia bank — The Bank of Spain confirmed the partial nationalization of Bankia after it was unable to repay €4.47B it owed the government. The loan will instead be converted into shares.
5. J.P. Morgan Chase & Co. announced $2 billion trading loss — JPMorgan (JPM) held discussions with U.K. regulators after revealing that its Chief Investment Office, headed by “London Whale” Bruno Iksil, took $2B in losses from a failed hedging strategy and could take another $1B in Q2.
6. AAII Sentiment Survey — survey of bullish sentiment from the American Association of Individual Investors (AAII), bullish sentiment dropped from 35.4% down to 25.4%. This puts bullish sentiment at the lowest level since September.

The week ahead — Economic data from Econoday.com:

“Pullbacks near the 30-week moving average are often good times to take action” — Michael Burke

1. Spain enters recession, S&P downgrades banks — Spain entered recession in Q1 for the second time since the financial crisis as GDP shrank 0.3% on quarter, although that was better than forecasts of -0.4%.
2. Growth among U.S. manufacturers expanded in April at the fastest pace in 10 months — Institute for Supply Management (ISM) rose to 54.8% from 53.4% in March, the highest reading since June 2011. The new-orders index, an indication of future demand, jumped to 58.2% from 54.5% in March. The production index also rose, up 2.7 percentage points to 61.0%.
3. Chinese factory activity sends out positive signal — China’s official PMI rose to a 13-month high of 53.3 in April from 53.1 in March and was well above last week’s HSBC “flash” PMI of 49.1, although the reading fell short of expectations of 53.5.
4. Facebook IPO valued at almost 100X profit — Facebook (FB) may sell up to $13.6B in stock, including with the over-allotment option, after pricing its IPO at $28-$35 a share. That would give it a market cap of $77B-$96B, or as much as 96X its 2011 net profit of $1B.
5. Hollande ousts Sarkozy in French vote — French President Nicolas Sarkozy on Sunday became the latest in a long line of European leaders to lose his job in the wake of the euro-zone debt crisis, conceding defeat to Socialist challenger François Hollande.

The week ahead — Economic data from Econoday.com: