Monday, March 24, 2008

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Investors should buy agency mortgage-backed securities because the Federal Reserve has created new financing options for holders that will support the market and demand may be improving, according to Citigroup(C). New Fed lending programs, including facilities for investment banks announced this month, “increase the efficiency of the MBS market and are likely to stem the tide of forced liquidations,” analyst Brett Rose wrote in a report. He said demand amid higher-than-average yield premiums may come from: government-chartered Fannie Mae, Freddie Mac and Federal Home Loan Banks; US banks; and Japanese financial companies. “The headwinds against MBS have been swirling furiously but may have finally shifted to a tailwind,” Rose wrote.
- Top-rated securities backed by auto-loan and credit-card payments may be able to withstand a US unemployment rate of almost 20% without sustaining losses, according to Fitch Ratings. Unemployment would have to rise fourfold from the current rate of 4.8% for debt backed by auto-loan and credit-card payments with a AAA rating to take any losses, according to a report from Fitch analysts Kevin Duignan, Donald Powell and Ebru Demir in NY.
- Crude oil is falling for a fourth day in NY on signs that the slowing US economy will cut fuel demand in the world’s biggest energy-consuming country. Oil is likely to slide further this spring as lower economic growth encourages traders to exit commodity markets, Goldman Sachs Group(GS) said in a recent report. A government report on March 19 showed that US fuel demand in the four previous weeks was down 3.2% from a year earlier. US crude-oil inventories probably rose 1.5 million barrels last week. It would market the 10th gain in 11 weeks. The Supreme Council of Petroleum and Mineral Affairs, chaired by King Abdullah, agreed to work with OPEC and non-OPEC countries to ensure oil-market stability and “prevent the effects of harmful speculation,” the government body said in a statement posted on its Web site.
- General Electric(GE) is in talks with Boeing(BA) to buy 40 to 50 of its 737 jetliners to meet demand from airlines upgrading their fleets.
- Valero Energy(VLO), the largest US refiner, said it expects first-quarter net income to plunge to as little as 10 cents a share as profit margins on gasoline and other fuels narrow. Per-share profit will be in the range of 10 cents to 35 cents. That would compare with net income of $1.86 a share in 2007’s first quarter. Valero was expected to net 96 cents a share in the current quarter, according to the average of two analyst estimates.
- CB Richard Ellis Group(CBG), the world’s biggest commercial real estate company by market value, rose 14% after hedge fund manager Stephen Mandel increased his stake to 6.6%.
- McCain Says Democrats Won’t Acknowledge Gains in Iraq.

- The US dollar is falling against the euro as a rally in Asian stocks encouraged investors to buy higher-yielding assets with loans in the US currency.
- A French court this month upheld a magazine’s right to print a Danish cartoon of the prophet Muhammad with a bomb in his turban. At the same time, it affirmed a lower court’s finding that the image, published two years ago, could be “shocking, even hurtful” for devout Muslims. The split decision illustrates how France, like the Netherlands, Denmark and Germany, is struggling to accommodate its growing Muslim minority without sacrificing principles such as separation of church and state and free speech, which form the heart of a cultural identity forged by Voltaire and other 18th-century philosophers.

MarketWatch.com:
- Sirius-XM deal clears major regulatory hurdle. Department of Justice ends probe, says combination won’t hurt competition.
- Some stocks more vulnerable to commodities rout. Citigroup sees possible end to current ‘craze,’ putting several sectors at risk. “The notion of unwinding ‘crowded trades’ could make the declined sharper than probably is justified,” said Tobia Levkovich, chief US equity strategist at Citigroup. Levkovich said past sector booms, such as technology in the late 1990s and housing at the start of this decade, all started with robust growth stories that got overly dramatized. “The impressive economic development of Brazil, Russia, India and China has spawned a sense of never-ending growth that has stoked speculative juices,” he said. The sell-off could spread overseas, where stock markets dominated by natural resources companies have enjoyed steep runs. Citigroup noted a correlation between Brazil’s Bovespa and the Reuters/Jeffries CRB Index. “Some of the money that has been flowing to international markets could reverse and come back to the US,” Levkovich said.

CNBC.com:
- Investors wondering whether the agricultural commodities bubble has burst will get some important clues in next week’s annual crop plantings report, considered a bellwether for the direction of farming activity for the year.
- Which Tech Stocks Are Cheapest Right Now?

BusinessWeek.com:
- Gaming Trends: 2008. In a sea of economic woes, the US video game industry is thriving.
- BusinessWeek.com asked undergrads to rate their schools’ business specialties. Here are the results.

CNNMoney.com:
- ‘You’re working for gas now’ The people of Camden, Ala.., pay a bigger chunk of their income for fuel than anyone else in the country.

Portfolio.com:
- Google(GOOG): Consumers Could Use Broadband Devices by 2009.

USA Today.com:
- Plug-in prototype goes 80 miles on one charge, Mercedes says.

Reuters:
- China’s $200 billion sovereign wealth fund has invested more than $100 million in Visa Inc.’s(V) IPO.

Dow Jones:
- The amount of money that Federal Home Loan Banks will inject into the stifled mortgage-backed securities market under a new program is uncertain, but bank officials and analysts said Monday that the psychological benefit alone could be enough to help the housing market.

Financial Times:
- Ford Motor(F) is due to announce a long-awaited agreement to sell Jaguar and Land Rover to India’s Tata Motors on Wednesday.
- Fiat is talking to Detroit’s carmakers about sharing production of Alfa Romeos in the US as part of a three-pronged assault on the world’s largest market for vehicles. The weakness of the dollar is compelling Eurpean companies to manufacture in the US.

TimesOnline:
- World rice supplies are reaching dangerously tight levels as stores of South Asia’s staple food fall to 25-year lows and governments strive to stabilize domestic markets.

International Herald Tribune:
- The money management firm BlackRock(BLK) and a hedge fund, Highfields Capital Management, said Monday they were forming a new company that would buy up distressed US mortgages, betting that investors were ready to snap up bargains in the beaten down sector.

Late Buy/Sell Recommendations
Citigroup:

- Rated (PKX) Buy.
-Upgraded (THQI) to Buy, target $29.
- Reiterated Buy on (MCHP), (ISIL) and (SMTC).
- Upgraded (YHOO) to Buy, target $34.

Raymond James:
- Upgraded (CPA) to Outperform, target $45.
- Downgraded(DRL) to Underperform.

Night Trading
Asian Indices are +1.0% to +3.0% on average.
S&P 500 futures -.04%.
NASDAQ 100 futures +.05%.

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
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (CMC)/.58
- (FIG)/.17
- (JBL)/.18

Upcoming Splits
- (STLD) 2-for-1

Economic Releases
10:00 am EST

- Consumer Confidence for March is estimated to fall to 73.5 versus 75.0 in February.

Other Potential Market Movers
- The weekly retail sales reports, S&P/CaseShiller Home Price Index, Richmond Fed Manufacturing Index, (ADP) analyst meeting, CSFB Global Leveraged Finance Conference, Sidoti Emerging Growth Conference and Edward Jones Mid-cap Utility Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

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