Tuesday, December 30, 2008

Wednesday Watch

Late-Night Headlines

- The Federal Reserve chose BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Co. to manage a $500 billion purchase of mortgage-backed securities it plans to complete by June. “They picked the crème de la creme of the money managers,” said Art Frank, head of mortgage-bond research at Deutsche Bank AG in New York. “By doing $500 billion by June, no question they’re doing their best to try to hold down mortgage rates.” The Fed’s program is intended to lower rates by reducing the supply of outstanding agency mortgage bonds, boosting their prices and thus lowering their yields. Lower yields in turn reduce the interest rates banks need to charge on new mortgages to ensure profitable sales of the securities. “It looks like they’re really going to ramp this up and it’s going to be done very quickly,” said Credit Suisse analyst Mahesh Swaminathan. Thirty-year mortgage rates could fall to an average 4.75 percent, he said, and “this is going to take it down sooner rather than later.” The average rate on a typical U.S. fixed-rate mortgage fell to 5.22 percent early yesterday, the lowest since 2005, from as high as 6.46 percent in October, according to Bankrate.com data.

- Developing nations plan to sell the most dollar-denominated bonds since 2005, reversing a shift into local debt, as commodities prices fall, foreign reserves diminish and emerging-market currencies weaken. International sales may rise 68 percent to $65 billion next year, according to estimates by ING Groep NV. Mexico raised $2 billion in a Dec. 18 offering. Peru’s Finance Minister Luis Valdivieso met with investors in New York, Boston, London and Madrid this month to drum up interest for the country’s first foreign sale in almost two years. Governments are growing more dependent on international markets after the six-month drop in raw materials reduced earnings from exports and caused budget deficits to widen. Dollar borrowing will increase foreign-exchange risk, a pattern that led countries across Latin America to default in the 1980s, said Ricardo Hausmann, director of the Center for International Development at Harvard University in Cambridge, Massachusetts. “Countries will be forced to issue in dollars,” said Hausmann, a former Venezuelan planning minister who called developing nations’ reliance on foreign markets the “original sin” in a 1998 article in Foreign Policy magazine. “Debt structures will deteriorate again.”

- Federal Communications Commission Chairman Kevin Martin is dropping a requirement that the provider of a proposed free Internet network block adult content from the service. Martin’s plan calls for the FCC to sell 25 megahertz of airwaves and then require the buyer to use a quarter of that spectrum to provide free wireless Internet access. Originally, he wanted the winning bidder to install filters that would block children under 18 from accessing pornography.

- The U.S. Securities and Exchange Commission rejected calls by banks to suspend an accounting rule blamed for exacerbating the financial crisis, saying the “fair- value” standard should instead be improved. “Fair-value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008,” the regulator said in a statement today. The study, ordered by Congress, recommends changes in the accounting for so-called impaired securities and helping companies in determining the value of investments in inactive markets.

- Israeli ministers are weighing a French proposal for a 48-hour cease-fire even as tanks massed on the Gaza Strip border and the defense minister spoke of expanding the offensive. The army will continue military operations until a decision is made on the proposal, which was offered by French Foreign Minister Bernard Kouchner, said an Israeli defense official, speaking on condition of anonymity.

Wall Street Journal:

- A Washington lobbyist sued the New York Times for $27 million Tuesday over an article that she says gave the false impression she had an affair with Sen. John McCain in 1999. Vicki L. Iseman filed the defamation suit in U.S. District Court in Richmond. It also names as defendants the Times' executive editor, its Washington bureau chief and four reporters.

- The Lessons to Be Learned from the Madoff Scandal.

- Illinois Gov. Rod Blagojevich picked a former state attorney general Tuesday to fill the Senate seat that federal prosecutors allege the governor had tried to sell to the highest bidder. But opposition was so widespread to Mr. Blagojevich's appointment that it was unclear whether his appointee, Roland Burris -- a lobbyist and Blagojevich campaign donor -- would actually get the job. Senate Democrats said they wouldn't seat Mr. Burris, who in 1978 was the first African-American to win statewide office here. They told Mr. Blagojevich in a statement that anyone he selected would "serve under a shadow and be plagued by questions of impropriety."

- Pakistan's own investigation of terror attacks in Mumbai has begun to show substantive links between the 10 gunmen and an Islamic militant group that its powerful spy agency spent years supporting, say people with knowledge of the probe. At least one top leader of militant group Lashkar-e-Taiba, or "Army of the Pure," captured in a raid earlier this month in Pakistani-controlled Kashmir, has confessed the group's involvement in the attack as India and the U.S. have alleged, according to a senior Pakistani security official.

- The editor of the average gold-timing newsletter is more bullish today than he has been in nearly six months. That is not encouraging from a contrarian point of view.

- Most Americans who adjusted their driving habits in a big way when gasoline prices surged are sticking with their economizing ways, according to a Gallup poll released Tuesday. Even though prices at the pump are now about 45% lower than they were a year ago and significantly below $2 a gallon, 52% of Americans told Gallup that they have not gone back to their old gas-guzzling ways.

- Dow Chemical Co.(DOW) may try to renegotiate its pending acquisition of Rohm & Haas Co.(ROH) at a lower price after a recent financing setback that could force it to tap a $13 billion bridge loan to complete the deal, analysts said Tuesday.

- Jobs’, Cancer Rumors and a Whole Lot of ‘Here We Go Again’ It's a classic case of "no news is good news." Stop the rumors. And stop believing them. Until Apple says something different, or I get my hands on something tangible and trustworthy, I'm taking the company at its word. All the rest is noise and manipulation. And since the SEC doesn't feel the need to investigate any of this -- which is too bad; and since Apple is doing exactly what it should, Apple shareholders are wise to consider this ongoing madness as a risk factor in this stock. At some point, Apple's massively strong fundamentals will eclipse this garbage.

NY Times:

- With gas prices below $2 a gallon, it would seem an inopportune time for the Ford Motor Company(F) to introduce a hybrid sedan. But at 41 miles per gallon in city driving and 36 miles per gallon on the highway, Ford is confident that its Fusion Hybrid will make an impression in the marketplace.

- An army of ironworkers, masons, carpenters and laborers are swarming the campus of the University of Michigan these days, as the university undertakes a construction campaign budgeted at $2.5 billion, ranking it among the largest university building programs in the United States. Nine major buildings for science, medicine, health, art, business, sports, food service and student housing are in various stages of construction here. They encompass nearly three million square feet, at a cost of about $1.66 billion. Five others are in the design stage.


- Closing the Door to Microsoft(MSFT) Vista. A number of companies are opting not to embrace Redmond’s latest operating system and , like GM, are waiting for Windows 7 instead.

- A daily survey of gas station credit-card swipes shows that gas prices are dropping to the lowest levels in nearly five years. Regular unleaded gas fell for the 11th consecutive day Tuesday to an average of $1.616 a gallon, down 3 tenths of a cent from the previous day's price of $1.619, according to motorist group AAA. That's the lowest price since gas hit $1.6027 a gallon in January 2004. Prices are down nearly $2.50, or more than 60%, since hitting a record average high of $4.114 a gallon this July.

Seeking Alpha:

- Google’s(GOOG) Momentum Continues. Sifting through data from Web site ranking firm ComScore (SCOR) about November’s search-engine results, released Monday night, Thomas Weisel analyst Christa Quarles concludes that “Google (GOOG) continues to gain audience market share from its competitors and dominates the rankings globally while both Yahoo! (YHOO) and Microsoft (MSFT) continue on a downward trend.

USA Today.com:

- 5 stock experts foresee 2009 rebound. A review of year-end '09 targets for the Standard & Poor's 500 index by five top market strategists found that nearly all expect double-digit percentage gains, despite another year of sharp swings. The most bullish projections call for a 24% gain from current levels. Stocks have snapped back sharply after past historic declines. After stocks bottomed out after an 89.2% drop in July 1932, for example, the Dow Jones industrials rallied 93.9% the next two months, Dow Jones Indexes says. Similarly, the S&P 500 rebounded 25.2% in 1938 after falling 38.6% in 1937, S&P says. After the 2000-02 bear market bottomed, the S&P 500 rebounded 26.4% in 2003.


- We’ve got this from three independent sources close to Apple(AAPL): expect a large screen iPod touch device to be released in the Fall of ‘09, with a 7 or 9 inch screen. Prototypes have been seen and handled by one of our sources, and Apple is talking to OEMs in Asia now about mass production. Combine the App Store, iTunes and a browser and you have one heck of a device.


- General Motors Corp(GM) and its GMAC funding affiliate launched programs on Tuesday to lure U.S. car and truck buyers back into showrooms, as the nation's largest automaker tries to revive its sagging fortunes. GMAC modified its credit criteria so that it could lend to a wider range of potential customers, two-and-a-half months after significantly curbing lending. Meanwhile, GM is offering zero-percent financing on several vehicles, and rates no higher than 5.9 percent on more than three dozen 2008 and 2009 models. The offer expires on January 5. Many eligible vehicles also carry cash discounts of $500 to $4,250.

Financial Times:
- Investors pulled a net $32bn from hedge funds last month, making 2008 the first year in their recorded history that the funds have had significant outflows and ending the industry’s 18 years of asset growth. Money has been taken out of funds following every strategy, even those – such as macro funds – which were showing returns, according to data from fund trackers Hedge Fund Research. Conrad Gann, chief operating officer of TrimTabs, said: “We estimate outflows in November were $32bn, and there is an additional pipeline of redemptions that have not been filled, there could be $80bn [of redemptions] in December. “There are $57bn of redemptions that we know are in, that are not reflected yet,” he said. Mr Gann said it was difficult to estimate outflows for coming months because hedge funds had different redemption cycles. In recent months funds have also tried to halt outflows by limiting or suspending investor withdrawals. This means that data on outflows, which reflect actual repayments to investors, understates the true picture.

- The US Treasury’s decision to throw a $6 billion (£4.1 billion) lifeline to GMAC, the finance unit of General Motors (GM), could be enough to halt the slump in the American car industry, it was suggested last night. The surprise bailout gave markets a boost, overriding the impact of a barrage of depressing economic data. GM and GMAC, which offers loans to the carmaker’s customers and dealers, immediately promised to ease lending conditions for vehicle buyers. Economists and industry experts said that the impact on sales was likely to be evident by the second quarter and may lift overall confidence in the economy.


- The Iraqi government signed a military agreement with the UK and Australia, giving their troops a legal mandate to stay in the country until June 30, 2009, citing an Iraqi defense ministry spokesman.

Economic Times:

- Hewlett-Packard Co.(HPQ) may purchase a stake in Satyam Computer Services Ltd.(SAY).

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are unch. to +1.50% on average.
S&P 500 futures +.25%.
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
- None of note

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to fall to 575K versus 586K the prior week.

- Continuing Claims are estimated to rise to 4400K versus 4370K prior.

10:35 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,450,000 barrels versus a -3,101,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,700,000 barrels versus a +3,336,000 barrel increase the prior week. Distillate inventories are estimated to rise by +1,500,000 barrels versus a +1,814,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to rise +.5% versus a +.56% gain the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report and NAPM-Milwaukee report could also impact trading today.

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

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