Monday, February 18, 2008

Tuesday Watch

Weekend Headlines
Bloomberg:

- Exxon Mobil(XOM) earned more in 2007 than any public company ever. Profit at Eli Lilly(LLY) this year may climb by the most this decade, while Corning(GLW) is forecast to make more per dollar of sales than at any time in 20 years. All three companies also are trading at cheaper valuations than the S&P 500, which itself is the least expensive in 18 years. Fourth-quarter net income for the S&P 500’s 412 members that have reported dropped an average 19%, hurt by more than $146 billion in bank credit losses. Take out financials and profits climbed 18%. The earnings growth and low prices make non-bank stocks including energy companies, pharmaceuticals and consumer-electronics suppliers attractive, say BlackRock, the Hartford and Wells Capital Management, which oversee more than $1 trillion. “Fear has taken control of valuations more than fundamentals, which are pretty good,” said James Paulson, chief investment strategist at Wells Capital, which oversees $220 billion and is recommending industrial companies, metals producers and retailers. Companies in the S&P 500 trade at 13.71 times estimated 2008 profit. Non-financial companies are on track to post their biggest quarterly profit increase in almost two years. “Incorporated in consensus estimates for ’08 is a sharp snapback in profits in the second half,” said Henry Herrmann, president of Waddell & Reed, which oversees $65 billion. Bank of NY Mellon’s Christopher Sheldon says current multiples may underestimate the potential for Federal Reserve interest-rate cuts and the government’s $168 billion economic stimulus measure to reignite consumer demand. “It’s time to begin to go fishing,” said Sheldon, who helps oversee about 4150 billion as director of investment strategy at Bank of NY Mellon.
- Qatar is accumulating shares in Credit Suisse Group and plans to spend as much as $15 billion on European and US bank stocks over the next year, the Gulf state’s prime minister said in an interview.
- President bush chastised Congress for refusing to pass electronic surveillance legislation, saying it had made Americans more vulnerable to terrorists.
- OAO Rosneft, Russia’s largest oil producer, plans to spend as much as $24.4 billion through 2020 to boost oil production in eastern Siberia, CEO Sergei Bogdanchikov said. The state-owned company will spend 50 billion rubles this year and 600 billion rubles over the 12-year period as it seeks to raise annual oil output to 170 million tons by 2020. The company produced 102 million tons of oil last year.
- Africa’s coffee production may rise 67% by 2015 as growing global demand drives increased plantings on the continent, the Inter-Africa Coffee Organization said.
- Democratic presidential candidate Hillary Clinton said her rival Barack Obama was offering “speeches vs. solutions” and portrayed herself as the candidate best able to spur the US economy.
- Democratic presidential candidate Barack Obama delivered a populist message in Wisconsin today as he shot back at rival Hillary Clinton’s claim that he’s all talk and no action.
- Abbott Labs(ABT) won US approval for Simcor, a combination pill to lower harmful cholesterol and increase the beneficial type.

- President Bush said the US will urge a political compromise in Kenya to end tribal fighting that has claimed more than 1,000 lives since a disputed election in December.

- OPEC may agree to cut oil output when it meets in Vienna March 5, Iran’s Oil Minister Gholamhossein Nozari said.
- Record platinum prices may slash jewelry demand by almost two-thirds, Blue Oar Securities said. Platinum demand for auto catalysts, the biggest use, will also decline as manufacturers seek substitutes, helping to bring consumption and supplies into balance.
- The Baltic Dry Index, a measure of shipping costs for commodities, advanced to a one-month high and may rise further on speculation that demand for ships will accelerate as coal-supply backlogs are cleared.
- Copper rose to a four-month high in London as imports of the metal into China, the world’s largest users, advanced to the most since April.
- Bayer AG, Germany’s biggest drugmaker, and Onyx Pharmaceuticals(ONXX) stopped a study of the Nexavar cancer drug against lung tumors because the product failed to help patients live longer than standard treatment.

- Pakistan President Pervez Musharraf urged defeated political parties to accept the results of parliamentary elections as private television channels predicted opposition gains.
- The US Toy Industry Association, whose members include Mattel Inc.(MAT) and Lego A/S, said its board unanimously approved a plan for a new testing system following the recall of tens of millions of Chinese-made toys last year.
- Motorola Inc.(MOT) and BlackBerry maker Research In Motion Ltd.(RIMM) sued one another over mobile-phone patents, each claiming their competitor is using handset technology without permission.
- Former President George H.W. Bush endorsed Republican presidential candidate John McCain today, saying he is best prepared to succeed his son and has the “right values and experience to guide our nation forward.”
- Euro Declines Against Dollar as Noyer Sees Weaker EU Growth.
- The US market for auction-rate securities that failed to draw enough buyers last week is luring new investors as interest rates soar to as much as 20%, Bank of America(BAC) analysts said.

- President George W. Bush and leading European allies offered diplomatic recognition to Kosovo, pledging economic and political aid for the newly independent state in the face of Serbian and Russian protests.

Wall Street Journal:
- Democrats’ Attacks On Business Heat Up. As the Democratic presidential contest moves to the distressed industrial Midwest, Hillary Clinton and Barack Obama have ratcheted up their anti-trade, anti-corporate rhetoric.
- Continental Spoke to AMR Amid Airlines’ Merger Drive.

NY Times:
- Thousands of Apple Inc.’s(AAPL) iPhones are brought into China by tourists, entrepreneurs and smugglers, who help distribute the phone in a country where it hasn’t yet been released. This helps explain the difference between the 3.7 million iPhones Apple sold last year and the 2.3 million registered on the networks of Apple’s partners in the US and Europe.
- Former Vice President Al Gore and other senior Democratic Party officials have held talks in recent weeks seeking to avoid a possible split at the convention and what could be a deciding vote by superdelegates.
- If you can’t manage a trip abroad to learn a foreign language, the Internet and a broadband computer connection may do the job, too.
- Where the Heads No Longer Roll. In the wake of the Societe Generale scandal, France’s business aristocracy finds itself in a place it never wants to be: the spotlight.

CNBC.com:
- Manager Sees Real Upside In Real Estate.
- European Stocks Rally as Banks Surge.

MarketWatch.com:
- A merger of Microsoft Corp.(MSFT) and Yahoo!(YHOO) would have a curious impact on tens of millions of Internet users: Their email accounts would eventually be processed by a single tech behemoth.
- South Korea’s Hana Bank is considering buying a stake in Merrill Lynch(MER).
- UK government to nationalize Northern Rock.
- More and more children are turning, at increasingly younger ages, to Internet toys in a major shift in play habits.

Portfolio.com:
- Misleading Chart of the Day, CDS Edition. This graphic comes from Gretchen Morgenson’s front-page in the NYT yesterday. It shows the market in credit default swaps, at $45.5 trillion, dwarfing the markets in US stocks($21.9 trillion), mortgage securities($7.1 trillion) and US Treasuries($4.4 trillion).

TheStreet.com:
- EA Sees a Blockbuster in Spore.

Boston Globe:
- As hybrids come into their own, road ahead promises more eco-friendly technologies.
- TV signal switch may help cable business.

Washingtonpost.com:
- Struggling bond insurer FGIC said Friday that it would seek to split its business in two in a move that cold help settle jitters in the municipal bond market that have raised the cost of financing public projects.

San Francisco Chronicle:
- High-end home sales soar in Bay Area.

Atlanta Journal Constitution:
- Google’s(GOOG) big bucks back green ideas.

Business Week:
- Google(GOOG) Wins Japan’s Mobile Net Battle.

LA Times:
- Hedge funds and Hollywood. Hedge funds have been a major source of capital for Hollywood studios over the last three years.

USA Today:
- ‘Old-fashioned’ banks manage to avoid credit crisis.

GLG:
- US Can Become #1 in Global Wind Power Soon.

CNNMoney.com:
- GameStop(GME) said preliminary same-store sales for the quarter exceeded expectations, increasing 17.4% on “impressive” domestic and international sales.

SmartMoney.com:
- I’ll never cease to be amazed by Warren Buffett. No, not by his wealth. Not by his investment acumen. And not by his folksy wisdom. I’m amazed at the shameless greed of the man, and the fact that despite it, the media continues to treat him like a saint.
- The Economic Stimulus package signed by President Bush on Wednesday includes two significant tax breaks for small-business owners.

Reuters:
- Insurgent attacks in Baghdad have dropped by about 80% and concrete blast walls dividing the Iraqi capital could be removed, citing an Iraqi government official. An average of 43 bodies a day were found in Baghdad during the final six weeks of 2006. In the first six weeks of this year, that figure dropped to four per day. To demonstrate how life had improved, Prime Minister Nuri al-Maliki toured parts of the city on Saturday, visiting Iraqi forces and checkpoints. “He wanted…to send a message to the terrorists that security in Baghdad is prevailing now,” one official said. While Iraqi and US officials laud the security gains, humanitarian groups say it is still too early to encourage around 2 million refugees who fled Iraq to return home.
- Toshiba Corp. is planning to give up on its HD DVD format for high definition DVDs, conceding defeat to the competing Blu-Ray technology backed by Sony Corp.(SNE).
- Hedge fund Saracen Energy suffered heavy losses in natural gas futures this week, forcing it to liquidate some positions, the fund said.
- Merger talks between United Airlines and Continental Airlines have picked up pace, but a deal still hinges on the outcome of discussions between Delta Air Lines and Northwest Airlines people briefed on the situation said.
- Fed will continue to act decisively: Mishkin.

Financial Times:
- Shorting is back in vogue after private equity calls it a day. The shift by many hedge funds in recent months away from using indices to provide generic hedges back to picking losers follows the evaporation of private equity bids – and the losses they can create for short sellers. Short-selling touches raw nerves – and has long raised the ire of politicians. Criticism of short sellers dates back at least to the Wall Street crash of 1929, which many in Congress blamed speculators selling short. Similar concerns are again being raised, this time by MPs on the influential Treasury select committee who are considering an inquiry into hedge funds. Such an inquiry could subject the industry to a repeat of the pain private equity was put through by MPs last year. Bill Ackman, head of Pershing Square Capital, a US hedge fund, has for years set his research to regulators, politicians and ratings agencies as part of a campaign against MBIA(MBI), the troubled bond insurer. Other short sellers operate in a more underhand way, bombarding journalists with documents in an effort to generate negative publicity for companies, which could drive down share prices, or circulating negative research to other investors.
- The US Pension Benefit Guaranty Corp. plans to double the number of equity investments it makes. About $55 billion worth of assets will be invested under the new policy.
- Ambac(ABK), the bond insurer, is seeking to raise capital to support a split of its operations in an attempt to avoid a sharp cut in its credit rating.
- The world’s leading engineers have proposed 14 “grand challenges” that would do the most to protect and enhance life during the 21st century. They range from engineering better medicines to making solar energy affordable.

- NY’s insurance regulator will hold talks this weekend with sovereign wealth funds, Warren Buffett and other investors in an urgent effort to stabilize credit ratings on $220 billion of municipal bonds guaranteed by FGIC, the troubled insurer.
- Delta Air Lines(DAL) board plans to meet on Wednesday to approve the US carrier’s merger with rival Northwest Airlines(NWAC).
- Wal-Mart(WMT) puts Blu-ray on brink of victory.

- The South Korean stem cell scientists who produced a cloned Afghan hound have received the world’s first commercial order to clone a dog. RNL Bio will help Seoul National Univ. recreated Booger, a pitbull terrier from California for $50,000. The scientists hope to produce as many as 500 cloned pets a year.
- Allies of Barack Obama have warned of chaos if unelected “super delegates” overturn the will of grassroots Democrats when the party’s presidential candidate is chosen at its national convention in August.

TimesOnline:
- Two of Britain’s biggest banks, Barclays and Lloyds TSB, will this week attempt to lift the climate of fear surrounding Britain’s financial institutions by declaring an unexpected increase in dividend payments.

Figaro Magazine:
- France’s Prime Minister Francois Fillon said growth of Europe’s third-largest economy in 2008 will be “close to 2%.”

Neue Zuercher Zeitung:
- The ongoing crisis in the banking industry could bottom out “in a few months” rather than in a few quarters, Credit Suissee Group CEO Brady Dougan said.

El Universal:
- Venezuela’s consumer protection agency seized a half ton of chicken and a similar amount of milk from the restaurant at a Caracas hospital, saying the food had been diverted from the state-run subsidized supermarket chain.

Xinhua:
- China’s 2007 winter was the coldest in 20 years.

ANP:
- Dutch politician Geert Wilders is making a movie critical of Islam. The Dutch government in November asked Wilders to consider the risks of making the movie after film director Theo van Gogh was murdered in 2004 following the release of a movie he made on the topic.

Shana:
- Iran will start to build at least 30 industrial projects worth $4 billion in Venezuela this year, citing the Minister of Industries and Mines. Contracts valued at more than $6 billion are under negotiation.

Weekend Recommendations
Barron's:
- Made positive comments on (WFC) and (AIG).

Night Trading
Asian indices are +.50% to +1.0% on avg.
S&P 500 futures +.98%.
NASDAQ 100 futures +1.53%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
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Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (OMX)/.52
- (MHS)/.41
- (MSO)/.63
- (MVL)/.29
- (JOE)/.08
- (MDT)/.61
- (CROX)/.44
- (JCOM)/.34
- (CQB)/-.49
- (WFMI)/.35
- (GPC)/.76
- (HPQ)/.81
- (AES)/.33
- (ONXX)/-.10
- (FOSL)/.68
- (WMT)/1.01

Upcoming Splits
- None of note

Economic Data
1:00 pm EST

- The NAHB Housing Market Index for February is estimated at 19 versus 19 in January.

Other Potential Market Movers
- The Fed’s Stern speaking, (EDS) analyst meeting, (KMT) analyst meeting, Morgan Stanley Basic Materials Conference and Roth Capital Growth Stock Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the week.