The Dawn Patrol – 26.09.12 – RCUBE warns you on Equities vs Credit. Spain is under pressure (again), Germans are putting pressure (again). Martin Wolf on the Euro exit.

Gmar H’atima tova

Asian markets down on fear that all those great stimulus measures by the central bankers of the world may not be enough. European futures are heading down this morning. We’ll monitor the German CPI, the US new home sales and the Italian bills auction. In the wonderful world of European politics, Van Rompuy and Monti will speak to the UN.

Walk at least 30 minutes a day!

JBL (Apple supplier): Jabil Circuit shares dropped 3.9% as it sees 1Q adj. EPS 51c-62c, est. 67c; sees rev. $4.3b-$4.5b, est. $4.52b. CEO says expects earnings to rise 5%-10% in 2013.
At 4.30pm: Five SAC Traders Implicated In Insider Trading Case.

S&P down in the red for the 4th sessions. Investors locked some gains in for Q3 especially on the financials.

CGG VERITAS Sells New Stock at EU17 to Fund Fugro Unit Takeover
MAERSK to Reduce Capacity and Raise Rates, CEO Says
Oddo thinks THALES/FINMECCANICA merger is bound to happen

Ups and Down

PHILIPS Rated New Hold At ABN, NOVO NORDISK Raised To Buy VS Neutral at UBS, RANDGOLD RESOURCES Raised To Overweight at Morgan Stanley, CASINO Cut To Equalweight VS Overweight at Morgan Stanley, SODEXO Cut to Underweight from Equalweight at Barclays, REXAM Rated New Overweight at Barclays; PT 550p, DRAX Raised To Neutral VS Underperform at Credit Suisse, EASYJET Added to Morgan Stanley’s Best Ideas List, INFINEON Cut To Underperform From Hold at Jefferies, TELENOR Raised to Outperform from Market Perform at Bernstein, ATOS Cut To Neutral VS Buy at UBS

RCUBE

Although RCUBE has already started the shift from credit to equities (being long credit when spreads went to peak levels). This is evidence that the inflection point is upon up. Many investors, if not all, are overweight in credit and underweight in equities. So this piece is important in this respect. The time to shift won’t be in the next 6 to 12 months. The credit characteristics of today are not the same. They look relatively expensive and set to underperform equities on a relative basis.

CURRENT STUFF

Greece on strike today for 24h.

On Spain
Tension is high now. Spain will present its budget tomorrow and it could be the opportunity to seek European aid. However in this morning’s WSJ, Rajoy continues on the same line (retirement age, efforts etc…). Asked if the govt would ask for a bailout he replied “At the moment, I cannot tell you.” but reckons that rates are too high.
Spanish Leader Outlines Fresh Overhauls – WSJ.com http://on.wsj.com/RWXOb8

On Germany
In the Neue Zürcher Zeitung (I though I could read German, but broking kills the brain), Weidmann continues to oppose Draghi and the OMT. He keeps on saying that the ECB is going beyond its mandate. “If the ECB measures relieve the pressures on the euro-region politicians to solve their problems, then they are not advancing the reform process in the region”. He actually has more or less the speech Bernanke used a few months ago when he said that monetary policy was not all…

On a Euro exit by Germany
Martin Wolf in another smart paper in the FT this morning argues that, yes, Germany could leave the Euro. The fact that Merkel supports Draghi against Weidmann (head of the BBank) makes a Euro exit a pertinent question. He uses Paul de Grauwe study (see link below) to analyse the situation. In a word: Germans export surplus causes import of financial claims in other countries. In case of a break up all other countries would want some New Deutsche Mark except if Germany restricts the conversion to Germans only…
On the other hand, Charles Dumas (from Lombard Street Research) estimates that the strict fiscal grip and high interest rates have made German real wages stagnant, but the new EU QE policy will push inflation up.. which they hate. However, a new Deutsche Mark could increase German incomes and living standards.

So no real answer except that continuing to run external surpluses is painfful in the end for Germany…

Why exit is an option for Germany – FT.com http://on.ft.com/PmwUnR
What Germany should fear most is its own fear: An analysis of Target2 and current account imbalances | The Centre for European Policy Studies http://bit.ly/UGnzg5

STRATEGY

BlackRock raises S&P price target but thinks near-term rally over. They have raised its expectations for the U.S. stock market in 2012 but believes this year’s equity rally has run its course. The Standard & Poor’s 500 index will finish 2012 at 1,450 and rise to 1,525 by mid−2013. The new targets are the first from Leavy, who took over management of the firm’s large-cap series funds in June from Bob Doll, the firm’s chief equity strategist.

Max Kamir

Louis Capital Markets UK,LLP

Authorised and regulated by the FSA and Banque de France

39-41 rue Cambon

75001 Paris

T +33 (0)1 53 45 10 74

E mkamir
I http://www.louiscapital.com

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