Monday, September 15, 2008

Tuesday Watch

Late-Night Headlines
Bloomberg:
- European Union officials regard the dollar's advance against the euro as welcome respite for their economies at a time when several countries are close to a recession, according to a draft of an internal EU document. The euro has fallen more than 10 percent since reaching a record $1.6038 on July 15. The ``near-term outlook for growth remains relatively weak'' and inflationary pressures should ease ``in the next few months,'' according to the document, which is a summation of the talks on Sept. 12-13 in Nice and will be the basis for discussions at the finance ministers' next meeting in early October in Luxembourg. ``The depreciation of the euro is welcome even if the euro remains overvalued,'' Luxembourg Finance Minister Jean-Claude Juncker, who chairs the group of counterparts from the euro region, said on Sept. 12 in Nice.
- Bank of America’s(BAC) acquisition of Merrill Lynch(MER) will help to narrow credit-default swap spreads linked to the debt of both companies, CreditSights Inc. analysts said. Bank of America, the biggest US consumer bank by assets, has the capital to handle Merrill’s “hot stove” shortfalls related to investments in real estate, asset-backed securities and collateralized-debt obligations, the analysts wrote.
- Criterion Investments Ltd. is converting to cash the assets in its commodities hedge fund that are linked to notes issued by a unit of American International Group Inc. The move is ``a result of uncertainty regarding the note issuer,'' Toronto-based Criterion said today in a statement. The move to cash is not related to losses in commodity markets, Fisher said. The Reuters/Jefferies CRB Index of 19 raw materials fell 3.3 percent today and is down 27 percent from a July 3 record, putting it in a bear market.
- Crude oil for October delivery fell $2, or 2.1 percent, to $93.71 a barrel at 8:06 a.m. Sydney time on the New York Mercantile Exchange, the lowest intraday price since Feb. 14. Oil on the exchange is down $2.27 this year. Prices have fallen 36 percent from a record $147.27 a barrel on July 11. ``Prices went beyond what the fundamentals justified on the upside and the same may occur as we move lower,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. CME Group Inc., the world's largest futures market, and its Nymex unit, said Lehman ``continues to meet all of its obligations'' and is operating as normal. Options Clearing Corp., which guarantees all trades in the $1.6 trillion U.S. options market, also said Lehman remains in good standing. Lehman Brothers was suspended from energy and commodities trading in London.

- S&P reduced its rating on Seattle-based WaMu to BB- from BBB-, leaving it three levels below investment grade, the ratings firm said today in a statement.
- American International Group Inc.’s(AIG) long-term counterparty rating was cut three levels to A- from AA- by Standard & Poor's, and its senior unsecured debt rating was downgraded by Moody's Investors Service to A2 from Aa3.
- The Bank of Japan added 1.5 trillion yen ($14.4 billion) to the financial system and China cut interest rates as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy. The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its benchmark rate for the first time in six years late yesterday and may act again.

Wall Street Journal:
- T-Mobile USA plans to begin selling the first telephone powered by Google Inc.'s(GOOG) new mobile software late next month, according to people familiar with the matter, facing off against Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry with a device that blends aspects of both.
- American International Group Inc.(AIG), its shares in free-fall, struggled Monday to pull off a tangled deal that involved placating state and federal regulators, convincing banks to give it a huge loan and staving off the credit-rating agencies that hold the giant insurer's fate in their hands.

CNBC.com:
- Goldman Sachs(GS) Preview: Setting the Tone.
- Lehman Brothers(LEH) was in talks for a deal to sell parts of the company to Barclays with the potential for an agreement to be reached as early as Tuesday, the Wall Street Journal reported on its Web site on Monday night.

CNNMoney.com:
- The high price of gasoline is voters' top economic concern, according to a poll released Friday.

IBD:
- Vocus(VOCS): PR Software Helps Companies Polish Their Image With Efficiency.

comScore:
- comScore, Inc. (SCOR), a leader in measuring the digital world, today announced that mobile search is gaining in both popularity and frequency of use in the U.S. and Western Europe. comScore M:Metrics reports that in June 2008, 20.8 million U.S. mobile subscribers and 4.5 million European mobile phone subscribers accessed search during the month, an increase of 68 and 38 percent from June 2007, respectively. The U.K. had the highest penetration(GOOG) is the preferred brand for browser-based searches with a 60 percent share of mobile searchers (“mobile searcher penetration”) in all countries measured by comScore M:Metrics.

Reuters:
- The bankruptcy filing of Lehman Brothers (LEH) is another blow for the hedge fund industry, though the writing has been on the wall long enough for many to have reduced their exposure to the U.S. investment bank. Legendary fund manager George Soros, who runs around $18 billion in assets, looks likely to have had his fingers burned after raising his stake in Lehman to 9.5 million shares in the second quarter. Dealings through Lehman's prime brokerage business were also suspended on Monday, which will have caused problems for some hedge funds, though the industry has been seeking to increase the number of banks they deal with to spread risk.

Financial Times:
- Investors in Royal Dutch Shell and BP are facing increasing risks as a result of the companies' involvements in Canada's oil sands, fund managers and campaign groups will tell a meeting in London on Tuesday. Environmental groups such as Greenpeace and the WWF, as well as some socially responsible investment funds including Co-operative Asset Management, are warning that developing the oil sands is not only environmentally damaging but also financially risky. They argue it is increasingly likely that there will be a price put on carbon dioxide emissions in North America, threatening the economic viability of oil sands projects, which generally have much higher emissions than conventional oil developments. Paul Monaghan of the Co-op, which urged the UKSIF to call the meeting, says the oil sands and oil shale - similar deposits where oil can be extracted from rock - will be its "number one campaign" and adds: "We are calling for a moratorium on new investment." A group of British and American investors, including Calpers and Calstrs, the Californian public employees' retirement funds, and F&C Management of the UK, has written to the US Securities and Exchange Commission urging it to push companies to disclose the potential liabilities created by their oil sands reserves. In a letter to the SEC, the investors wrote that oil sands "could be subject to potentially enormous risks associated with their extraction and development, including litigation-related risks and higher carbon taxes". Mark Hoskin of Holden & Partners, an environmental investment fund with about £200m under management, says companies that do not recognize the threat of climate change, and the likelihood of action to combat it, are making poor strategic decisions. He says: "It might not happen this year, or next year, or in the next five years. But at some point it is going to break, and Shell is going to have a share price shock".
- US securities regulators are expected to adopt new measures against abusive short-selling as early as this week in response to financial market turmoil, according to people briefed on the situation. It was unclear what impact, if any, naked short-selling had on the acceleration of the fall in Lehman's share price in the past week. But the latest market developments "should move the SEC to do more about naked short-sellers," said John Coffee, professor of law at Columbia University. Lehman, which has been one of the most heavily-shorted stocks, had 18.5 per cent of its stock shares held by short-sellers as of last Thursday, according to the latest available data from Data Explorers. That is almost double the level of the week before, though shy of the record 22 per cent held by short-sellers in July.
- The Federal Reserve is likely to hold fire on interest rates at its policy meeting today, while establishing flexibility to cut rates later on if financial turbulence runs out of control or the economy weakens dramatically.
- Investors' immediate reaction to the Lehman collapse was to sell the dollar against the euro and sterling as confidence in US assets was undermined. However, the US currency rallied sharply after hitting a one-week low of $1.4479 against the euro and trading down to $1.8128 against the pound. Analysts said recent evidence suggested that any weakness in the dollar would be short-lived as investors turned their attention to the growth implications for the rest of the world from the financial markets turmoil. Indeed, the dollar has benefited in recent weeks as US investors cut positions in asset markets across the globe and repatriated funds.
- India’s economy will experience a marked slowdown in the 2008 and 2009 financial years, ending its run of five consecutive years of very high growth, according to the Asian Development Bank.

Munhwa Ilbo:
- KT Freetel Co. plans to start offering Apple’s(AAPL) iPhone in South Korea in November. KT Freetel will have exclusive rights to distribute the iPhone in the Asian nation, helping it compete against SK Telecom Co.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (WW), target $66.

Night Trading
Asian Indices are -5.0% to -2.0% on average.
S&P 500 futures -1.55%.
NASDAQ 100 futures -1.07%.

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

Earnings of Note
Company/EPS Estimate
- (BBY)/.57
- (KR)/.41
- (CBRL)/.93
- (GS)/1.71
- (DRI)/.63
- (ADBE)/.46

Economic Releases
8:30 am EST

- The Consumer Price Index for August is estimated to fall -.1% versus a +.8% gain in July.
- The CPI Ex Food & Energy for August is estimated to rise +.2% versus a +.3% gain in July.

9:00 am EST
- Net Long-term TIC Flows for July are estimated to rise to $55.0 billion versus $53.4 billion in June.

1:00 pm EST
- The NAHB Housing Market Index for September is estimated to rise to 17.0 versus 16.0 in August.

2:15 pm EST
- The FOMC is expected to leave the benchmark fed funds rate at 2.0%.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, (AIQ) investor day, (ATR) analyst day, (MNKD) analyst day, (CSCO) financial analyst conference, (TOT) mid-year review, CSFB Chemical Conference, BB&T Consumer Softlines Conference, Bank of America Investment Conference, Jeffries Shipping/Logistics/Offshore Services Conference, RBC Financial Institutions Conference and UBS Global Paper/Forest Products Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial shares in the region. I expect US equities to open sharply lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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