Sunday, March 30, 2008

Monday Watch

Weekend Headlines
- The rates on three-month Treasury bills posted the biggest weekly jump in 26 years as the Fed’s steps to add liquidity to financial markets diminished demand for the safest assets.

- Lehman Brothers(LEH) said it plans to sue Marubeni Corp., Japan’s fifth-biggest trading company, to recover “fraudulently misappropriated” funds that newspaper reports say may amount to more than $250 million.
- Burger King Holdings(BKC) said it plans to set up a new, smaller restaurant called the Whopper Bar that will be focuses on its top-selling sandwich.
- Petroleo Brasileiro SA(PBR) found oil and natural gas off the coast of Brazil. The MB-S-8 offshore basin is south of the Tupi field, which may hold 8 billion barrels of oil.
- BlackRock Inc.(BLK), the largest publicly traded money manager in the US, plans to raise as much as $500 million in an IPO of shares in BlackRock Absolute Return Strategies Ltd. they closed-end fund of hedge funds known as BARS will be listed on the London Stock Exchange.
- Thornburg Mortgage(TMA) has received an extension through March 31 to raise $948 million in new capital.
- Soybeans tumbled more than 4%, and wheat fell on forecasts that US farmers will plant more this year to take advantage of surging prices. When seeding starts in May, growers will plant 12% more soybeans than a year ago, according to a Bloomberg survey before a government report on March 31.

- Argentine farmers began talks with cabinet ministers after suspending a strike that led to food shortages and confronted President Cristina Fernandez de Kirchner with the biggest anti-government protests since 2001.
- Japan’s five-year notes rose this week on speculation signs of an economic slowdown will back the case for the central bank to cut interest rates this year.

- “Japan’s economy is being pulled down by a combination of the US subprime lending problem, stock market instability and energy prices,” Japanese Prime Minister Yasuo Fukuda said.
- Venezuelan President Hugo Chavez said he’ll take more land from private owners that he says is being left idle in a bid to increase production of food stables.

- Fed Actions Defuse Subprime ARM Rate Reset Bomb. Many analysts and public officials have said that foreclosures of subprime adjustable-rate mortgages would soar this year as owners’ monthly payments jumped when interest rates reset to a higher level. Not only is that unlikely to happen, this year’s resets of earlier vintages of subprime mortgages may even reduce some payments that increased in 2007.
- China voiced “strong dissatisfaction” with the European Union after the bloc’s foreign ministers called on the government in Beijing to hold talks with the Dalai Lama after three weeks of unrest in Tibet.

- Elpida Memory, Japan’s largest computer-memory maker, plans to raise prices 20% in April, CEO Yukio Sakamoto said. Elpida will inform computer makers that it plans to increase prices 10% in the first half of next month and another 10% in the second half of April after demand rose and inventory levels fell, Sakamoto said in a Bloomberg TV interview. Shares of Elpida climbed as much as 8.9%.

- UBS AG, the European bank with the highest losses from the US subprime crisis, may ask shareholders to approve a capital increase of as much as $16.1 billion.

Wall Street Journal:
- US Treasury Secretary Henry Paulson plans Monday to call for sweeping structural changes in the way the government monitors financial markets, capping a broad review aimed at revamping a system of regulatory oversight built piecemeal since the Civil War.

- Overall commodity prices may decline by half as the value of products such as corn, wheat and copper tend to “overshoot” on speculative buying, citing independent analyst Steven Briese, editor of the Website CommitmentsOfTraders.Org. Thanks to the proliferation of mutual funds and exchange-traded funds tied to commodities indexes, speculative buying has gone way beyond anything the domestic commodities markets have ever seen. Index funds now account for 40% of all bullish bets on commodities. The speculative juices are even more plentiful – nearly 60% of bullish positions – if you count the bets placed by traditional commodity “pools.” If the speculators were to follow the commercial players or “smart money” – the farmers, the food processors, the energy producers and others who trade the physical commodities – they’d be heading for the exits. The commercial players are betting on price declines more heavily than ever before. In soybeans, the index funds and commodity pools have effectively purchased 59.1% of the 2007 domestic crop. In wheat, 83.6% of the domestic 2007 crop has effectively been purchased by these speculators. Societe Generale analyst Albert Edwards says that the “commodity bubble is nonsense on stilts” and holds the very strong conviction that before the end of the year, “commodity prices… will be unraveling.” Potential catalysts for a 50% plunge in commodity prices include a slowdown in China, a US dollar rally, an asset allocation switch back to stocks from commodities, less inflation hedging, falling US demand or the CFTC rescinding its exemption on position limits given to index funds.
- Commodities Bubble Burst? Big Clue Comes Monday.
- US Treasury Secretary Henry Paulson said on Friday that an economic stimulus program that will put $168 billion into consumers’ hands this year and next could help create 600,000 jobs.
- Top 10 College Degrees in Highest Demand.
- Dow 16,000? Index could be at 16,000 by year end, Richard Band says.

NY Times:
- A federal judge ruled that Superman co-creator Jerome Siegel’s family has the right to reclaim his share of the comic-book character’s US copyright.
- Governments in some of the world’s largest rice-producing countries including Vietnam and India moved to limit exports of the grain in an effort to avoid civil unrest.

- Online Chat, as Inspire by Real Chat.

- Honeywell(HON) Takes Off As Airlines Make Fleets More Efficient, Safer.
- Investors In Chinese Stocks Eye Tibet. Blackouts of YouTube and video-sharing Web sites in China. And the Chinese government blocking all coverage of clashes between its police and Tibetan protestors. All this just five months before China’s big showcase, the Beijing Olympics.
- Microsoft(MSFT) Hoping Fixes Will Spark Vista’s Sales.
- Google’s(GOOG) Next Conquest: The Airwaves. (video)
- Cramer: Reinstate the Uptick Rule. (video)

Chicago Sun-Times:
- Trinity United Church of Christ is building a $1 million home for Reverend Jeremiah Wright, the former pastor of presidential candidate Barack Obama. The home, which building plans show will have a whirlpool, elevator and a four-car garage, will be next to the Odyssey Country Club gold course in the Tinley Park suburb.
- Signs of Liquidity Starting to Emerge. Moves by Fed, regulators improve liquidity in mortgage-backed securities.

Washington Post:
- James Carville, former President Bill Clinton’s 1992 campaign manager, defended his comparison of Bill Richardson to the Bible’s Judas Iscariot after the New Mexico Governor switched allegiances and endorsed Hillary Clinton’s rival for the Democratic presidential nomination.
- The Bush administration is finalizing details of a plan to rescue thousands of homeowners at risk of foreclosure by helping them refinance into more affordable mortgages backed by public funds, government officials said.
- Democratic presidential candidate Hillary Clinton said she may keep challenging rival Barack Obama right up to their party’s national convention in August.

Business Week:
- The 50 Best Corporate Performers.
- Contrarians to Watch. Who are the maverick fund managers of the future?
- Stocks: The Next Hot Sectors. Amid the volatility, Gene Marcial talks with stockpicking pros about the market sectors they see leading the next major advance.

Advertising Age:
- Spending on alternative media hit $73.43 billion in 2007, a 22% increase over the previous year, and will continue to grow, according to PQ Media’s Alternative Media Forecast: 2008-2012. The forecast predicts a 20.2% increase over the next year, to a total of $88.24 billion, and a compounded annual growth rate of 17% for 2007-2012, reaching $160.82 billion. By then, alternative media will represent 26.6% of all advertising and marketing dollars.

USA Today:
- 6 home renovations with major payoffs.
- iPhone vs. BlackBerry 9000: The keyboard wars, round 2. The folks who designed Apple’s(AAPL) iPhone bet that touchscreen keys would be good enough for most users, and based on a February survey of iPhone owners that found 72% “very satisfied”(versus 55% for RIM), Apple’s gamble seems to have paid off.
- Why tech stocks have a glorious future.

- Citing ambitious production plans, observers eye a big June debut of Apple’s(AAPL) next generation iPhone.
- What if Wall Street Starts Attacking Wall Street? So, from your perch at Big Investment Bank, you decide that it’s time to start circulating a few rumors about your competitor. If you have any cash on deposit with Competitor to Big Investment Bank, you withdraw it. Your brokers start talking to your customers(who are also your competitor’s customers). Your traders start talking to traders at other firms, so soon their brokers are calling their customers(who are also your competitor’s customers.) Pretty soon there’s a run on Competitor to Big Investment Bank, just like there was at Bear Stearns(BSC).

Financial Times:
- The Indian government said it would sacrifice blistering economic growth in order to tame inflation as latest figures reached a 13-month high of 6.7% on the back of spiraling global fuel and commodity prices.
- Sovereign wealth funds grew 18% last year as commodity prices surged and the foreign exchange reserves of some Asian countries continued to rise.
- Investors worldwide pulled close to $100 billion out of equity funds in the first three months of this year – a record shift that accelerates a longer-term trend away from US and western European stock markets.

- George W. Bush, US president, and Gordon Brown, UK prime minister, have agreed to step up co-operation over the crisis in financial markets. They are setting up a joint working group which will develop plans to monitor and regulate the banking systems.

Daily Telegraph:
- Hedge fund legends hit by financial crisis. The credit crunch is exposing the masters of the universe as mere mortals after all, reports Louise Armitstead.

De Tijd:
- The International Monetary Fund will pare its forecast for 2008 economic growth in the euro area to below 1.4% next month, citing Luc Everaert, who heads the IMF’s regional studies unit in Europe.

- European Union External Affairs Commissioner Benita Ferrero-Waldner wants the EU to wait to see how China acts in the coming weeks in Tibet before deciding whether to boycott the Olympics, citing an interview with the commissioner. Ferrero-Waldner said that the EU should only participate in an Olympics in which the internal situation in China mirrors the spirit of the games, which includes respect for human rights.

- As the last rites were administered, the question many were asking in the golden triangle of St. James’s, Mayfair and Knightsbridge – spiritual home of London-based hedgies – was who will be next?
- Corporate credit markets have staged their biggest rally this year in the two weeks since the bailout of Bear Stearns(BSC), easing the pressure on the global financial system and economy. Over the past two weeks, many global indicators show that fears are receding in the bond market. The cost of buying insurance against corporate bond defaults has fallen, the panicked flight to US Treasury bills has abated and the giant clot of unsold debt in areas such as the market for buyout loans is starting ever so slowing to dissolve. At the beginning of the year, there was about $156 billion of unsold buyout loans. That number is now down to $123 billion, according to S&P.

Weekend Recommendations
- Made positive comments on (MO) and (FISV).
- Made negative comments on (JOSB).

- Reiterated Buy on (MDCO), target $29
- Reiterated Buy on (TXT), target $62.
- Reiterated Buy on (GOOG), lowered estimates and lowered target to $600. Long Thesis: 1) Robust outlook for ‘Net advertising; 2) GOOG=share gainer in search; 3) Display/Video & Mobile are 2 large growth opportunities; 4) Risk-reward now bordering on extremely favorable.

Night Trading
Asian indices are -1.25% to +.25% on avg.
S&P 500 futures +.23%.
NASDAQ 100 futures +.22%.

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
Daily Stock Events
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
- (FUL)/.34

Upcoming Splits
- (HOLX) 2-for-1

Economic Data
9:45 am EST

- The Chicago Purchasing Manager report for March is estimated to rise to 46.0 versus 44.5 in February.

Other Potential Market Movers
- The Fed’s Yellen speaking, NAPM-Milwaukee and CTIA Wireless Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

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