Thursday, August 28, 2008

Friday Watch

Late-Night Headlines
- The biggest rally in MBIA Inc.(MBI) in seven months put the squeeze on speculators who had placed record bets against the shares of the largest bond insurers. MBIA jumped 35 percent in New York trading after it agreed yesterday to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co. in a deal brokered by New York State Insurance Superintendent Eric Dinallo, signaling it may be able to salvage its business of insuring bonds. Investors such as William Ackman have sold short as many as 86.1 million shares of MBIA, or 31 percent of the outstanding stock, anticipating the company wouldn't weather record losses on securities it guaranteed. A year ago, the short interest in MBIA was 29.3 million shares. MBIA's role for FGIC bondholders casts the Armonk, New York-based company as a rescuer rather than a victim, demonstrating it can win new business after losing its AAA rating. ``The New York State Insurance Department is saying that this company is a long-term survivor, adequately capitalized and part of the solution,'' said Charles Lemonides, chief investment officer of New York-based ValueWorks, which owns shares of MBIA and Ambac. Ackman and others bet losses may be so great that the insurers' holding companies may file for bankruptcy. His Pershing Square Capital Management LP continues to maintain a short position on MBIA, he said today in a telephone interview, declining to specify its size. Ambac may be able to get similar deals, said Jim Ryan, an insurance analyst with Morningstar Inc. in Chicago. ``If you judge them by their last quarterly report, both companies have tremendous amounts of excess capital,'' he said.

- Iraq's bonds are delivering the biggest returns in emerging markets as oil export revenue bolsters government finances and violence declines. The country's $2.7 billion of 5.8 percent bonds due 2028 gained 45 percent since August 2007, according to Merrill Lynch & Co. indexes. Investors demand 4.84 percentage points more in yield to own the debt instead of Treasuries, down from 7.26 percentage points a year ago. A reduction in bloodshed has allowed the Bush administration to consider a ``general timeline horizon'' for troop reductions. Oil exports will climb as high as $86 billion this year, more than double the $30 billion annual average from 2005 to 2007. Iraq, which has the world's third-largest oil reserves, sold the debentures in January 2006 as part of a settlement with creditors who agreed to forgo claims on debt issued under the regime of Saddam Hussein. ``The political situation has improved substantially,'' said Jonathan Binder, who began buying Iraqi bonds for the more than $2 billion of emerging-market assets he manages at INTL Consilium LLC in Fort Lauderdale, Florida.
- Petroleo Brasileiro SA(PBR), Brazil’s state-controlled oil company, and Potash Corp. of Saskatchewan Inc.(POT), the world’s largest producer of the crop nutrient, were added to Goldman Sachs Group Inc.’s(GS) list of the 50 most popular stocks held by hedge fund managers.
- Corn and soybeans fell the most this week on speculation that rain improved growing conditions for crops that farmers will begin harvesting next month in the U.S., the world's largest grower and exporter. The last U.S. corn harvest, completed in November, was 24 percent larger than the prior year at 332.1 million metric tons (13.1 billion bushels), according to the Department of Agriculture. U.S. stockpiles as of Aug. 31, before this year's harvest, are expected to rise 21 percent from 12 months earlier, government data show.
- Hogs fell to the lowest price since early April on signs that U.S. meatpackers are increasing pork supplies and overwhelming demand from grocers.
- Toyota Motor Corp., working to keep a lead in advanced autos over General Motors Corp., is developing an electric-powered small car and will speed up testing of plug-in Prius hybrids with new battery technology. The all-electric car will be ``mass-produced'' in the early 2010s, President Katsuaki Watanabe said today in Tokyo without elaborating. Tests of rechargeable Priuses, previously set for 2010, were moved up to late 2009, the automaker said. The shift by the world's largest seller of hybrid autos reflects rising demand for fuel-efficient cars amid record oil prices. Toyota's new timetable for the plug-in Prius mirrors GM's planned schedule for tests of its rechargeable Volt.
- FirstFed Financial Corp.(FED), the parent of First Federal Bank of California, surged to the highest in 12 weeks in New York trading after an analyst said short interest in the company exceeded the number of publicly traded shares. Short interest climbed to 12.6 million shares, or 108 percent of the 11.7 million shares available for trading, according to Bloomberg data. ``We question whether or not this level of shares has actually been borrowed and sold short under stock exchange rules,'' Keefe, Bruyette & Woods analyst Frederick Cannon said in a note to investors yesterday. The short positions may prompt a review by the stock exchange or by the U.S. Securities and Exchange Commission, Cannon said.
- ‘Committee to Save the Dollar’ May Not Be Needed.
- Republican presidential candidate John McCain is preparing to name his running mate, who will appear with McCain tomorrow at a rally in Dayton, Ohio. The Arizona senator and his choice for a vice presidential candidate will make their joint appearance at an event scheduled for 11 a.m. local time, McCain spokesman Taylor Griffin said.
- Dell Inc.(DELL), the world's second-largest personal-computer maker, posted a profit that trailed analysts' projections and said a slowdown in technology spending is expanding into Europe and Asia. The stock fell 10 percent in late trading after Dell reported earnings, excluding some costs, of 33 cents a share.
- Russia looked East in its standoff with the West. It didn't get much help. A summit of the Shanghai Cooperation Organization, a seven- nation security alliance that includes China and four former Soviet republics, yesterday declined to back its recognition of two breakaway Georgian regions. China expressed ``concern,'' said Qin Gang, a Foreign Ministry spokesman. The U.S. highlighted Russia's isolation. ``I would just say that it wasn't what I would call an endorsement,'' U.S. State Department spokesman Robert Wood said in Washington. ``The fact that you haven't seen countries come forth and recognize these two parts of Georgia's territory is a significant sign.''

- The Australian dollar fell, headed for the biggest monthly loss in 22 years, on speculation the nation's interest-rate advantage over the U.S. will narrow. New Zealand's dollar headed for a third monthly loss. The currencies weakened after a government report showed yesterday the U.S. economy grew faster than economists expected in the second quarter.
- Harm Bandholz, an economist at UniCredit Markets and Investment Banking, sees ‘stabilization’ in US housing. (video)
- South Korea's won headed for its biggest monthly loss since August 1998 as overseas investors sold local stocks and refiners bought dollars to pay import bills. Government bonds rose. The won was the worst performing currency in Asia outside Japan today as the central bank said the current-account balance returned to a deficit in July due to costlier oil prices. Attempts by officials to halt the won's slide failed to keep the currency from reaching its lowest since 2004 this week.
- Democratic Sen. Barack Obama, saying the nation was at a "defining moment," turned a page in the history books Thursday night and vowed to "keep the American promise alive" if elected president. Obama became the first person of African-American descent to accept a major party's nomination for president, 45 years to the day after Rev. Martin Luther King Jr. declared in his landmark "I Have A Dream" speech that members of his race were "still languishing in the corners of American society."
- Chicken Littles and the US Banks. Today's turmoil "just doesn't strike me as anything coming close to the period of 1982 to 1993, when thousands of S&Ls and banks had to be closed," said Lawrence White, who served on the Federal Home Loan Bank Board from 1986 to 1989. That period witnessed the failure of more than 1,000 banks or savings and loans with close to $200 billion in assets on the books. Let's put the current period in perspective. Nine banks have failed. Three banks failed last year. None failed in 2006 and 2005. Three of the four banks that failed in 2004 were attributed to bank insurance fraud. But you get the point. There are more than 7,200 banks in the U.S. market. Not many are failing.
- Google Inc.(GOOG) on Thursday cited a legal victory by online video-sharing service Veoh Networks Inc. as an indication that it can prevail in its own high-profile litigation with Viacom Inc.
- US Economy is Far from Dead. The bottom line is that the U.S. saw growth during one of the worst credit crunches in history says Jack Bouroudjian, Chairman of Capital Markets Technology. He tells CNBC's Martin Soong, Amanda Drury and Sri Jegarajah why his outlook for U.S. markets is bright. (video)

NY Times:
The city of Austin, Tex., approved plans on Thursday for a huge plant that will burn waste wood to make electricity, the latest sign of rising interest in a long-dormant form of renewable energy.

- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows hints of a modest convention bounce building for Barack Obama. The Democrat gained a point from yesterday and now attracts 45% of the vote nationwide while John McCain earns 44%.

- Boeing(BA) could face a revenue drain of $3 billion to $3.5 billion a month and could see its high-profile 787 Dreamliner and two other new aircraft programs delayed if a threatened strike by production workers occurs next week. The company also could be required to pay late delivery penalties to at least some of its customer airlines. Boeing (BA) also could end up covering some costs incurred by subcontractors forced to slow or shut down their operations while Boeing's assembly lines are stopped.
- 30-year mortgages fall to 6.4%, lowest level in 6 weeks.
- A Law That Could Give Big Labor Some Brawn. If the Democrats take over in Washington, a bill is likely to pass that would allow workers to unionize if a simple majority sign authorization cards.

- The upcoming holiday season at upscale jeweler Tiffany & Co (TIF) could be the beginning of renewed growth at its established U.S. stores, its chief executive told Reuters on Thursday. Despite moderating sales expectations, Tiffany said it expects a "modest increase" in fourth-quarter same-store sales in the lackluster U.S. market. "That, perhaps, is the beginning of a return to greater consumer confidence that would build throughout 2009," Chief Executive Michael Kowalski said in an interview after the company reported better-than-expected quarterly earnings.
- China crossed the line first in the race for big oil contracts in post-Saddam Iraq and has gained a head start over Western oil majors in the competition for future energy deals. China's biggest oil company, state-run CNPC, agreed a $3 billion service contract with Iraq on Wednesday. The deal could set a precedent for terms that fall far short of the lucrative contracts the oil majors had hoped for as they jostled for access to the world's third largest oil reserves.
- Oil prices fell more than $2 on Thursday after the U.S. government and the International Energy Agency pledged to release emergency stockpiles if Tropical Storm Gustav disrupted U.S. oil production. Forecaster Planalytics said that any damage to offshore platforms would not be long-lasting, after predicting on Wednesday that up to 85 percent of the Gulf's oil and natural gas production could be shut in by Gustav. "The big natgas storage build is lending a bearish tone to the market, even as everyone is still watching Gustav closely," said Phil Flynn, an analyst at Alaron Trading in Chicago.

- The UK housing slump appears to be getting rapidly worse as ministers prepare to give councils extra money to intervene in the market. House prices fell at the fastest rate in 18 years this month and a leading estate agent said that multimillion-pound homeowners were feeling the pain of the downturn for the first time.

Financial Post:
- Banks may soon put subprime behind them.

Globe and Mail:
- Consumers to test hydrogen cars.

Korea Economic Daily:
- Woori Finance Holdings Co. is considering buying a regional US bank, citing Chairman Lee Pal Seung.

Business Inquirer:
- Philippine Businesses Turn Pessimistic.

Late Buy/Sell Recommendations

- Reiterated Buy on (MRVL), target $22.
- Reiterated Buy on (WFR), target $65.

Morgan Stanley:
- Reiterated Overweight on (DELL), target $28.

- Rated (ONNN) Buy, target $14.

Night Trading
Asian Indices are +.25% to +1.50% on average.
S&P 500 futures -.23%.
NASDAQ 100 futures -.10%.

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

Earnings of Note
Company/EPS Estimate
- (VLCCF)/.61

Economic Releases
8:30 am EST

- Personal Income for July is estimated to fall .2% versus a .1% gain in June.
- Personal Spending for July is estimated to rise .2% versus a .6% gain in June.
- The PCE Core for July is estimated to rise .3% versus a .3% gain in June.

9:45 am EST
- Chicago Purchasing Manager for August is estimated to fall to 50.0 versus 50.8 in July.

10:00 am EST
- The Final Univ. of Mich. Consumer Confidence reading for August is estimated to rise to 62.0 versus a prior estimate of 61.7.

Upcoming Splits
- (ISYS) 2-for-1
- (ATVID) 2-for-1

Other Potential Market Movers
- The NAPM-Milwaukee could also impact trading today. Financial futures & options close early for Labor Day.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and financial shares 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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