Wednesday, April 30, 2008

Wednesday Watch

Late-Night Headlines
- Government of Singapore Investment Corp. may add more bank assets to its $18 billion of investments in UBS AG(UBS) and Citigroup(C) as it chases stable returns over periods as long as 30 years, Minister Mentor Lee Kuan Yew said.
- Matsushita Electric Industrial Co., the world’s largest maker of consumer electronics, rose 11%, the most in more than eight years in Tokyo trading after the company’s profit and earnings forecast beat analysts’ estimates.

- Merrill Lynch(MER), Goldman Sachs(GS) and UBS AG(UB S) are among seven securities firms that helped design an index for investors to make creditworthiness bets in the $2.5 trillion municipal bond market.
- Gold fell to the lowest in more than three months as the US dollar climbed against the euro, eroding the appeal of precious metals and commodities as alternative investments.
- Japan Factory Output Falls More-Than-Expected 3.1%.
- Citigroup Inc.(C) is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.
- The Bank of England need to take “aggressive action” and cut interest rates soon to avert a recession, policy maker David Blanchflower said.

- Argentine bonds show growing speculation that the country will default for the second time this decade as inflation and anti-government protests swell. The nation’s $10.8 billion of floating-rate dollar bonds due in 2012 yield 7.52 percentage points more than Treasuries of similar maturity. That implies an almost 20% chance of Argentina halting payments in the next two years, according to CSFB.

Wall Street Journal:
- Barack Obama angrily broke with his longtime former pastor Tuesday and, more broadly, with the minister’s discordant views of race in America, as the persistent controversy threatened to derail his bid for the presidency.
- Bush Prods Lawmakers on Economy, Energy Prices.
- Smart Money Leaving Commodities for Tech?
- McCain’s Health-Care Proposal. The idea: More competition among insurers, spurred by a tax credit that helps consumers buy their own insurance, would lead to universal coverage.
- Hedge Fund Women.

Washington Post:
- The latest global financial bubble is in commodities – everything from oil and natural gas to gold, copper, wheat and rice. Like the credit bubble, this speculative bubble in commodities has badly distorted the workings of key markets and sectors of the global economy. And as with the other, this bubble is creating vast new wealth for some, including brokers, traders and investment houses who have gorged on fees and trading profits. What turned a bull market into a bubble was the sudden arrival of large numbers of new investors and an array of new investment vehicles, many of them involving derivative instruments traded outside the confines of regulated markets. Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. But perhaps the biggest push came from pension funds, foundations and university endowments whose managers had all gone to the same conferences and read the same academic papers, suggesting that a basket of commodity futures would provide a good hedge against stock and bond market declines. To meet the needs of these investors, Wall Street and Chicago’s commodities houses came up with all sorts of new vehicles, including ETFs, index funds and structured investment vehicles – the commodities equivalent of mortgage pools and asset-backed securities. Perhaps the best proof of all that there’s a speculative bubble in commodities that may be about to burst: ConAgra(CAG), the 147 year-old food processor, last month sold its commodity trading division to a hedge fund for $2.1 billion. Cash. The only people who don’t believe speculation is driving a commodities bubble are the big commodity traders and the commodities exchanges, which are profiting handsomely from the soaring prices and trading volumes, and the regulators at the CFTC.
- Fed could burst oil’s bubble. “If the dollar appreciates, then that will give crude leeway to move downward and drive a stick into this bubble,” said Stephen Schork, publisher of the Schork Report. OPEC president said on Monday that if the US dollar begins to gain back some significant group, crude prices may fall off a cliff. “If the dollar strengthens 10%, there is a good bet that oil prices will fall by $40,” said Khelil.
- When the 3G iPhone is introduced this summer, AT&T(T), the exclusive US iPhone sales partner with Apple(AAPL), will cut the price by as much as $200. AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts.
- 20 most profitable tech companies.
- Paying for gasoline easily tops the list of economic woes facing families in the US, according to a survey on how changes in the economy have affected people’s lives. In a distant fourth place was difficulty paying rent or mortgages.

- Shifting Gears at Ford(F). CEO Alan Mulally is ushering in big changes – which could bring long-term growth.
- Masters of the Universe, Ranked. Private Equity International releases its annual ranking of the 50 top firms, according to capital raised over the last five years. Here is the list, followed by each firm’s rank last year in parentheses.
- This is entirely anecdotal, but there’s no doubt what the single most popular laptop is at the Milken Global Conference: the MacBook Air.

- Oil prices fell more than $3 a barrel Tuesday as the market absorbed data showing that demand is falling even as supplies are rising. A monthly Energy Dept. report said demand for finished petroleum products dropped 8.5% in February from January, and demand for gasoline fell 6.2%. “That’s a dramatic drop,” said Linda Rafield, senior oil analyst at Platts, an energy research arm. “The two combined(rising supplies and falling demand) do not bode well for $120 oil,” Rafield said.

- The Weather Channel may get bids of $3.5 billion to $4 billion from CBS Corp.(CBS) and NBC Universal.

Financial Times:
- US retailers are waging a promotional battle to win a share of the billions of dollars in tax rebates destined for US households as part of the $170 billion federal stimulus package.
- In more than 2,000 meters of water off the coast of Brazil, Petrobras(PBR), the Brazilian national oil company, is drilling what could become one of the most important oil wells of recent years.
- A $683 million fund headed by Al Gore to invest in young environmental companies is now closed to investors. The Climate Solutions Fund is one of the biggest in the environmental investing field and may grow to $5 billion in two years. The fund will invest in small companies in four industries: renewable energy; energy efficient technologies; energy from biofuels and biomass; and carbon trading.

- China will become the world’s largest gold producer this year, overtaking South Africa, citing Hou Huimin, vice chairman of the China Gold Assoc. Production may reach 300 metric tons this year, up from 270.5 tons in 2007, citing data from the assoc. China added 650 tons of proven underground gold deposits in 2006, and has established five big gold mines since 2007.
- China needs to strengthen and improve macroeconomic controls and stabilize prices, citing President Hu Jintao.

Late Buy/Sell Recommendations

- Commodity strength driven by global infrastructure growth theme. The demands of developing economies primarily in Asia, Latin America and the Middle East have been key factors in commodity price strength as the supply response has been more limited thus far. Yet, one should be concerned about the effect of the US slowdown’s lagged impact on production trends, not to mention weakening economic data in Europe and Japan. The week dollar has contributed to the commodities story too. Any reversal in the greenback’s fortunes also could roil the generally bullish commodity price outlooks that we see around the investment community, with energy and agricultural products being the areas with the most dedicated investors/supporters. Certain commodities have slipped in a somewhat stealth-like manner. While the broad picture for commodity prices still shows upward trajectory, a few commodities such as milk, cotton, gold and wheat have been slipping. Yet, this has been offset by oil strength alongside powerful rice and stainless steel prices. The infrastructure/global growth theme marks about 30% of the stock market’s value. In the latter 70s, the Energy sector soared to more than 30% of the S&P 500 total market capitalization and the same thing happened in the Information Technology sector in the late 1990s. Moreover, some investors were worried in the 2005-06 period when Financials got to more than 20% of the S&P 500’s market cap. Yet, global growth theme is bordering on 30% now and few seem to be concerned, which raises our anxiety levels. The ag stocks strength, in particular, is reminiscent of the Internet craze. Investors have become so thoroughly fascinated by the rising agricultural commodity prices, given the reactive nature of farmers looking to cash in on the associated profit potential. There are some scary similarities to the stock price activity of fertilizer and seed stocks relative to names back in the late 1990s. We remain very worried about these incredibly “crowded trades” that could unwind quickly.
- Reiterated Buy on (MHP), target $51.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 futures +.23%.
NASDAQ 100 futures +.28%.

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
Company/EPS Estimate
- (SPW)/.99
- (OMX)/.69
- (ADVNA)/.10
- (TWX)/.23
- (JNY)/.36
- (STRA)/1.58
- (IACI)/.31
- (IP)/.51
- (GRMN)/.74
- (FPL)/.80
- (BEC)/.686
- (DF)/.18
- (COCO)/.15
- (HES)/2.01
- (CL)/.88
- (CMI)/.89
- (IR)/.73
- (PG)/.82
- (TRW)/.61
- (KFT)/.41
- (GM)/-1.52
- (SO)/.42
- (K)/.77
- (FSLR)/.49
- (ITRI)/.69
- (MCRS)/.33
- (AVB)/.60
- (CTX)/-2.78
- (JDSU)/.13
- (PRU)/1.82
- (OI)/.79
- (OMTR)/.08
- (SBUX)/.16
- (PSYS)/.43
- (LVS)/.34
- (EQR)/.08
- (MUR)/1.89
- (BCO)/.79
- (SEE)/.39
- (SYMC)/.34
- (AKAM)/./39
- (WCG)/1.61

Upcoming Splits
- None of note

Economic Releases
8:30 am EST

- ADP Employment Change for April is estimated at -60K versus +8K in March.
- Advance 1Q GDP is estimated to rise .5% versus a .6% gain in 4Q.
- Advance 1Q Personal Consumption is estimated to rise .7% versus a 2.3% increase in 4Q.
- Advance 1Q GDP Price Index is estimated to rise 3.0% versus a 2.4% gain in 4Q.
- Advance 1Q Core PCE is estimated to rise 2.2% versus a 2.5% gain in 4Q.
- The 1Q Employment Cost Index is estimated to rise .8% versus a .8% gain in 4Q.

9:45 am EST
- Chicago Purchasing Manager for April is estimated to fall to 47.5 from 48.2 in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of 950,000 barrels versus a 2,421,000 barrel build the prior week. Gasoline supplies are expected to fall by -1,000,000 barrels versus a -3,179,000 barrel decline the prior week. Distillate inventories are estimated to fall by -400,000 barrels versus a -1,377,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise .25% versus a 4.22% increase the prior week.

2:15 pm EST
- The FOMC is expected to reduce the benchmark fed funds rate 25 basis points to 2.0% from 2.25%.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, NAPM-Milwaukee report, Morgan Stanley Global Healthcare Conference and Lehman Brothers Retail Conference could also impact trading today.

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

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