Weekend Headlines
Bloomberg:
- The US dollar rose to the highest in 13 months against the euro as European governments rushed to support financial institutions in the region hit by the widening global credit crisis. The greenback strengthened for a sixth day as German Chancellor Angela Merkel said the government will guarantee personal bank deposits to shore up confidence in the banking system. Germany, the euro region's largest economy, will also join with banks and insurers to bail-out property lender Hypo Real Estate Holding AG, while Belgium announced a deal to rescue Fortis, the largest Belgian financial-services firm. ``Everything coming out has been fairly euro-negative,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland.
- Futures measured by the Reuters/Jefferies CRB Index of 19 raw materials tumbled 10 percent this week, the most since at least 1956. UBS AG, the European bank hardest hit by the credit crisis, said today it scaled down its commodities business and cut jobs, retaining only the precious-metals operations, the commodity indexing unit, and exchange-traded commodity derivatives trade. Commodities also fell as the euro slumped 5.8 percent against the dollar, the biggest one-week drop since the 15- nation currency was created in 1999, on signs that Europe's economy is slowing. Manufacturing contracted in the U.K. at the fastest pace in 16 years last month, while European retail sales fell an annual 1.8 percent rate in August and France slipped into a recession in the third quarter, the first in 15 years.
- Crude oil fell for a fourth day in New York on signs slowing global economic growth will reduce demand. World markets are oversupplied and the Organization of Petroleum Exporting Countries may review output levels for the first quarter of 2009, Iranian Oil Minister Gholamhossein Nozari said Oct. 4. Saudi Aramco, the world's largest state-owned oil company, yesterday cut its official selling prices for light crude exports to the U.S., the world's largest consumer. ``There are certainly brokers making downgrades to both U.S. growth and commodity prices generally,'' said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``The market is really going to slow pretty sharply over the next six to nine months.'' New York oil prices declined 12 percent last week as reports showed U.S. fuel demand the previous four weeks was the lowest in almost seven years and manufacturing shrank in September at the fastest pace since the last recession in 2001.
- Leaders of the European Union's four largest economies agreed to support their own nation's banks ``when faced with a crisis,'' while coordinating with their counterparts, seeking a consensus approach to the credit crunch. The officials, meeting in Paris at a summit today convened by French President Nicolas Sarkozy, also called for regulations on hedge funds, credit-rating firms and investment banks.
- Credit Swaps Show Fear, Not Reality, Executives Say
- CNN's plunge into online citizen- journalism backfired yesterday when the cable-news outlet posted what turned out to be a bogus report claiming that Apple Inc. Chief Executive Officer Steve Jobs had suffered a heart attack. Apple shares fell as much as 5.4 percent after the post on CNN's iReport.com and rebounded after the Cupertino, California- based company said the story was false. Atlanta-based CNN, owned by Time Warner Inc., disabled the user's account and said it tried unsuccessfully to contact the individual. The event underscores the need for news organizations to verify content generated by users before it is published, William Grueskin, dean of academic affairs at Columbia University Graduate School of Journalism, said in an interview from New York. The Securities and Exchange Commission's enforcement unit is trying to determine whether the posting was intended to push down Apple's stock price. CNN is cooperating with the probe. CNN describes iReport as a place for ``unedited, unfiltered news'' and said it ``makes no guarantee about the content or coverage.'' CNN has no plans to review its procedures for placing content on the iReport Web site, Martin said. User-generated information is vetted before it is broadcast on CNN, she said.
- Yahoo! Inc.(YHOO) and Google Inc.(GOOG) will postpone implementing their Internet-advertising partnership until U.S. regulators complete a review on whether the deal will hurt competition. The companies agreed to a ``brief'' delay while discussions with the Justice Department continue, Yahoo and Google said yesterday in e-mailed statements.
- General Motors Corp. and Fiat Spa's Brazilian units will cut vehicle output in the country in October and November after asking some workers to take vacations early. Automakers are cutting production after four central bank interest rates increases pushed car-loan costs higher and sapped demand. Auto registrations rose 4 percent to 244,800 units in August, the slowest pace in two years, according to Brazil's Automakers Association. That compares to a 33 percent increase in July
- Honeywell International Inc.(HON), the world's largest maker of airplane instruments, said it won a $4 billion order to provide engines for General Dynamics Corp.'s(GD) new Gulfstream G250 executive jet.
- European Central Bank council member Ewald Nowotny said stimulation of the economy is the central bank’s main mission at the moment.
Wall Street Journal:
- General Motors Corp.(GM), still unable to meet demand for fuel-efficient small cars, will keep its sole U.S. compact-car factory running on overtime for the remainder of 2008, the auto maker said Friday. GM is running short on Chevrolet Cobalt cars despite adding a third shift this summer at its Lordstown, Ohio, assembly plant.
- Mexico's homebuilders are being viewed as increasingly vulnerable to the global credit crisis following years of solid growth, as inflation rises, the economy slows and risk appetite evaporates.
- Republican Party officials said they will file a complaint with the Federal Election Commission Monday asking for an audit of Barack Obama's campaign contributions. In announcing the move Sunday, they said they were concerned that the Democratic presidential candidate may be accepting donations from foreign nationals, and may also be taking a large number of donations that exceed federal limits for individuals.
- Treasury Secretary Henry Paulson is expected to tap Neel Kashkari, a key adviser on whom he has come to rely heavily during the financial crisis, to oversee Treasury's $700 billion program to buy distressed assets from financial institutions, according to people familiar with the matter.
MarketWatch.com:
- Amazon.com Inc.(AMZN) is planning a new version of its Kindle electronic-book reader, including a number of improvements over the original, according to Boygeniusreport.com.
- To find out how recent volatility stacks up historically, I analyzed the Dow's daily closing values back to 1896, when this benchmark was created. I looked in particular for any six-day period in which the total of daily swings (in percentage points) was greater than what we've experienced lately. It turns that that there have been no fewer than 123 such days over the past 112 years, or more than once a year on average. Most of these historical instances came more than a decade ago, however, which is another reason why we might think that recent volatility is historically unique.
NY Times:
- Obama and ‘60s Bomber: A Look Into Crossed Paths. At a tumultuous meeting of anti-Vietnam War militants at the Chicago Coliseum in 1969, Bill Ayers helped found the radical Weathermen, launching a campaign of bombings that would target the Pentagon and United States Capitol. Twenty-six years later, at a lunchtime meeting about school reform in a Chicago skyscraper, Barack Obama met Mr. Ayers, by then an education professor. Their paths have crossed sporadically since then, at a coffee Mr. Ayers hosted for Mr. Obama’s first run for office, on the schools project and a charitable board, and in casual encounters as Hyde Park neighbors. In a televised interview last spring, Senator John McCain, Mr. Obama’s Republican rival, asked, “How can you countenance someone who was engaged in bombings that could have or did kill innocent people?” A review of records of the schools project and interviews with a dozen people who know both men, suggest that Mr. Obama, 47, has played down his contacts with Mr. Ayers, 63. Mr. LaBolt, an Obama campaign spokesman, said the men first met in 1995 through the education project, the Chicago Annenberg Challenge, and have encountered each other occasionally in public life or in the neighborhood. He said they have not spoken by phone or exchanged e-mail messages since Mr. Obama began serving in the United States Senate in January 2005 and last met more than a year ago when they bumped into each other on the street in Hyde Park. In the stark presentation of a 30-second advertisement or a television clip, Mr. Obama’s connections with a man who once bombed buildings and who is unapologetic about it may seem puzzling. But in Chicago, Mr. Ayers has largely been rehabilitated. Steve Chapman, a columnist for The Chicago Tribune, defended Mr. Obama’s relationship with the Rev. Jeremiah A. Wright Jr., his longtime pastor, whose black liberation theology and “God damn America” sermon became notorious last spring. But he denounced Mr. Obama for associating with Mr. Ayers, whom he said the University of Illinois should never have hired. “I don’t think there’s a statute of limitations on terrorist bombings,” Mr. Chapman said in an interview, speaking not of the law but of political and moral implications. “If you’re in public life, you ought to say, ‘I don’t want to be associated with this guy,’ ” Mr. Chapman said. “If John McCain had a long association with a guy who’d bombed abortion clinics, I don’t think people would say, ‘That’s ancient history.’ ” In 1997, after Mr. Obama took office, the new state senator was asked what he was reading by The Chicago Tribune. He praised a book by Mr. Ayers, “A Kind and Just Parent: The Children of Juvenile Court,” which Mr. Obama called “a searing and timely account of the juvenile court system.” In an article that by chance was published on Sept. 11, 2001, The New York Times wrote about Mr. Ayers and his just-published memoir, “Fugitive Days,” opening with a quotation from the author: “I don’t regret setting bombs. I feel we didn’t do enough.” A 1970 pipe bomb in San Francisco attributed to the group killed one police officer and severely hurt another. An accidental 1970 explosion in a Greenwich Village town house basement killed three radicals; survivors later said they had been making nail bombs to detonate at a military dance at Fort Dix in New Jersey. And in 1981, in an armed robbery of a Brinks armored truck in Nanuet, N.Y., that involved Weather Underground members including Kathy Boudin and David Gilbert, two police officers and a Brinks guard were killed. In his memoir, Mr. Ayers was evasive as to which bombings he had a hand in, writing that “some details cannot be told.”
- Frank Words from a Battered Hedge Fund Manager. TPG-Axon has floundered this year, and September did its funds no favors. A growing list of hedge funds are down more than 10 percent for September alone and more than 20 percent for the year. If the situation does not turn around by year end, these funds will risk losing their investors. Mr. Singh analyzed the conundrum that he and so many others find themselves in. Too many investors believed in the global decoupling theory, he wrote, meaning that the rest of the world would not suffer even as the United States did. This belief drove many funds to pour money into commodities, he wrote. In July, those funds suffered when commodities prices began sinking, and many of them were forced to start selling their positions in a variety of investments.
- Media Pave the Way to 3rd Term for Bloomberg
- Financial Crises Spread in Europe. The growing crisis has underlined the difficulty of taking concerted action in Europe because its economies are far more integrated than its governing structures.
NY Post: With the ink barely dry on the $700 billion bank bailout, some on Wall Street are buzzing that Treasury Secretary Hank Paulson will make a huge statement to the financial community by cobbling together a sizeable purchase of toxic assets as soon as this week.
The Economist:
- Chinese capitalism. The long march backwards. A surprising new book argues that China is becoming less, not more, of a capitalist economy.
Crain’s Chicago
- Citadel Investment Group LLC is moving to capitalize on financial chaos even as the turmoil batters its main hedge fund business. Despite steep trading losses, Chicago's biggest hedge fund is hiring while rivals slash payroll and expanding while others retrench. The moves reflect Citadel founder and CEO Kenneth Griffin's ambition to create a broad-based financial services firm on par with the giants of Wall Street. Citadel has been hit harder than its peers by collapsing financial markets. Its largest fund is off 17% for the year, having lost 14% in September alone. That compares with a 6.9% drop for the wider industry last month, according to HFR. Citadel sees a new chance for profit in credit-default swaps, a $58-trillion market that seized up in September as defaults rose on subprime mortgages and other debt. The firm is backing Chicago-based CME in its bid to pull trading of the swaps onto its futures exchanges and away from over-the-counter dealers on Wall Street such as Goldman Sachs and Morgan Stanley.
Reuters:
- Hedge funds are preparing for a fresh battle with U.S. regulators, who want to make large investors reveal their bearish stock bets on a regular basis. Fund managers have already won some concessions on emergency short-sale measures announced by the U.S. Securities and Exchange Commission last month to steady sinking financial markets. While the SEC has started collecting data on the number and value of stocks shorted by managers who invest more than $100 million, the agency said this week it would keep the data secret, reversing an earlier promise to let the public see it. Still the loosely regulated $1.9 trillion hedge fund industry, which relies on selling stocks short to beat its mutual fund cousins' returns, is chafing at having to report any positions at all. Now, for the first time, regulators can see the short positions that thousands of hedge funds have on their books. That frightens managers, who say anyone could copy their secret strategies if the information were made public. Hedge fund managers hoped the SEC's disclosure requirement would disappear along with the short-selling ban when the emergency order ends, which is scheduled to occur by October 17. That now appears unlikely. The SEC intends the order to continue without interruption in the form of an interim final rule. The SEC has not said how it would craft a permanent disclosure rule. Many questions remain about how often short positions must be reported and whether the data might become public after all. Under the current emergency rule, managers must list their largest intraday short positions and when they held them, and also disclose their short positions at the end of the day. Hedge fund managers complain that is unfair, because mutual fund managers are required to report their holdings only once each quarter. Mutual fund managers traditionally do not sell stocks short and hold only so-called long positions on stocks they expect will rise in price. But some large investors, who blame hedge funds for having accelerated the worst financial crisis since the Depression by targeting weak bank stocks, say details on short positions is the only way to put a tighter leash on these powerful traders.
- SanDisk Corp (SNDK) could be worth $34 to $36 a share if Samsung Electronics Co. Ltd. were to sweeten its offer to reflect the value of royalties it pays to the U.S. flash memory maker, according to people familiar with the matter.
Financial Times:
- The Federal Reserve and US Treasury were on Sunday night under increasing pressure to follow passage of the $700bn financial rescue plan with further measures to shock the ailing credit markets back to life. Among the options available to policymakers are additional liquidity operations and an emergency rate cut - possibly in co-ordination with other central banks. A combination of the two is also possible.
- The credit derivatives markets will today set the price tag for settling up to $500bn of contracts related to Fannie Mae (FNM) and Freddie Mac(FRE), the US mortgage lenders whose seizure by the US government had the unexpected knock-on effect of triggering defaults on derivatives deals.
TimesOnline: Details buried in the small print of the US government’s $700 billion bail-out could scupper a controversial takeover bid for American banking giant Wachovia(WB). Wachovia, America’s sixth-biggest bank, revealed on Friday it had struck a controversial deal to sell itself to rival Wells Fargo(WFC) for $15 billion. However, the deal came just four days after Wachovia reached a $2.2 billion agreement with Citigroup© over a sale of its banking assets - supported by $312m of government guarantees.
- Battle for business begins as military hostilities in Iraq take peaceful turn
- JP Morgan(JPM) has been accused by its Wall Street rivals of dealing the final hammer blow that forced Lehman Brothers(LEH) into collapse in a sensational claim that threatens to spark a colossal legal battle. The giant American bank is alleged to have frozen $17 billion (£9.6 billion) of cash and securities belonging to Lehman on the Friday night before its failure. According to Lehman’s biggest creditors, this was what precipitated the liquidity crisis that embroiled the firm, forcing it into Chapter 11 bankruptcy protection on the morning of Monday, September 15.
The Independent:
- Lehman Brothers' administrators are this week expected to put numbers on the value of assets tied up in the bankrupt bank, giving hope of clarity to hedge funds and other creditors whose assets held at Lehman are frozen. Counterparties to Lehman scrambled to get their assets out as the investment bank headed towards bankruptcy. But many hedge funds did not have enough time, and could face months of uncertainty over how much they can recover.
Toronto Star:
- With the passage of the $700 billion (dollar figures U.S.) rescue package, the financial industry will face greater congressional scrutiny in coming weeks and months. Further-reaching regulation is almost certain. Previously obscure corners of the industry now subject to few rules, such as complex derivatives and hedge funds, could face federal supervision for the first time.
AFP:
- No Depression Or Major Recession From US Crisis – Bill Gates. The richest man in America, Bill Gates, said in a television interview broadcast Sunday that the US financial crisis does not spell the end of capitalism and will not lead to a depression. The slump triggered by the collapse of the subprime housing market requires "some type of correction," Gates added, "but fundamentally ... companies' willingness to invest, right now we haven't seen a huge disruption in that." "It looks like the economy may go down somewhat, but nothing like a big recession or a depression," he added. On some experts' misgivings about the US bailout plan, Gates said: "it doesn't look like fixing these problems is going to derail the economy in some dramatic way." Gates, who last month topped Forbes magazine's list of the richest men in the United States with an estimated 57 billion dollar fortune, said the future of the US and the global economies lies in the resilience and innovative spirit of businessmen and scientists around the world. "The amount of innovation taking place, the amount of investment is actually greater today than ever," Gates said. "Because you not only have more American companies with more scientists and engineers and innovators, but now you have ... people from all over, including lots of people in India and China, now contributing to new drug design, new software design, new energy generation design."
China Securities Journal:
- Hebei Iron & Steel Group, Shougang Corp. and two other steelmakers in northern China The four mills will also slow the purchase of raw materials and fuel and use inventories, the report said.
Singtao Daily:
- The impact of the global credit crisis will be more severe than the 1997 Asian financial crisis, citing Peter Wong, executive director at HSBC Holdings Plc’s Asia-Pacific unit. Hong Kong ’s exports would be affected while sentiment has been hit by declines in the stock market, Wong said. The financial system will take longer to recover than a decade ago, he said.
Weekend Recommendations
Barron's:
- Made positive comments on (BHI), (HPQ), (AAPL), (MET), (STD) and (CME).
Night Trading
Asian indices are -3.75% to -2.50% on avg.
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 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/Estimate
- (IDT)/-.32
- (ARTC)/.39
Upcoming Splits
- None of note
Economic Releases
- None of note
Other Potential Market Movers
- The Johnson & Rice Energy Infrastructure 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 stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.
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