Weekend Headlines
- Treasury 10-year notes and 30-year bonds fell the most in three months as stocks and the dollar rose, signifying a growing appetite for risk among investors, and the U.S. prepared to sell more debt next week. Yields increased as the gap between what the government and banks pay to borrow money for three months, a gauge of banks’ reluctance to lend known as the TED spread, shrank to the narrowest since before Lehman Brothers Holdings Inc. collapsed. Rates on three- and one-month bills rose the most since October. Stocks soared, and the dollar strengthened versus the yen. “We have seen some improvement in the credit markets, and we saw equities rise,” said Colin Lundgren, head of institutional fixed income for RiverSource Institutional Advisors in Minneapolis, which manages about $85 billion in bonds. “It partly explains the lessening of fear in the market and the take-away of the quality premium in Treasuries.”
- Wall Street’s biggest bond firms say Treasuries will fall for the first time in a decade as efforts to spur the economy gain traction and the flight to safety that drove the best returns in government debt since 1995 wanes. Benchmark 10-year notes may lose 3.1% this year, the first loss since declining 8.3% in 1999, based on the median forecast of the 17 primary government security dealers that trade with the Federal Reserve. “We could start to see stability sooner than the market would otherwise expect,” said William O’Donnell, a US This year, 10-year notes will rise to 2.95% after ending at 2.21% in 2008, according to the survey.
- Global cotton consumption will fall more than forecast in December as textile mills in China, the biggest consumer, buy less fiber to weave into clothing and bedding, the International Cotton Advisory Committee said. Worldwide use will drop 7.1 percent in the year ending July 31 to 24.5 million metric tons from a year earlier on lower use in China, India and Pakistan, the three largest consumers, the committee said today in a report. That was down from 24.9 million tons projected last month. Chinese consumption may fall 10 percent to 9.8 million tons this year, the group said. Exports will drop 17 percent to 6.9 million tons, the lowest in six seasons, the committee said. Last month, global exports were forecast at 7.3 million. Chinese imports will tumble 40 percent to 1.5 million tons, the group said.
- Ron Burkle and his Yucaipa Cos. private-equity firm reported an 8.3 percent stake in Barnes & Noble Inc.(BKS), the world’s largest bookseller, and may seek talks with the company.
- China is putting greater emphasis on vocational education in rural areas this year to ensure migrant workers who have lost their jobs in cities have access to practical skills-training programs when they return home. China aims to provide as many as 90 million continuing training courses for adults, many of them related to rural skills transfers and techniques, the education ministry said today in a statement on China’s central government Web site. A cooling economy is forcing companies to cut jobs and as many as 20 million rural residents who had moved to cities to work may have return home this year, economists estimate.
- European Central Bank Vice President Lucas Papademos said an economic recovery may not begin until next year and that policy makers have the scope to cut interest rates if inflation slows further. “The economic outlook is unusually uncertain,” Papademos said in an interview with Germany’s WirtschaftsWoche magazine published today. “It is quite possible that the recovery will not start until the beginning of 2010.” Having reduced their key interest rate by 175 basis points since early October to 2.5 percent, ECB policy makers enter the new year under pressure to cut more deeply amid Europe’s first recession in 15 years. The economy may be even weaker in 2009 than the ECB’s prediction of last month for a contraction of about 0.5 percent, Papademos said. The Frankfurt-based central bank will “act appropriately” and has room to do so if the slowdown threatens price stability, which the ECB defines as inflation just below 2 percent in the medium term, he said. “If, in our assessment, the risks to price stability change further in the coming months, monetary policy could be eased further and we will act appropriately,” Papademos said. Although deflation, a sustained period of falling prices, isn’t likely in the euro-area, inflation may “fall considerably” in the middle of 2009 before accelerating toward levels consistent with price stability by the end of the year, Papademos said. Papademos said the ECB had “absolutely not” lagged behind counterparts such as the Federal Reserve in combating the economic fallout from the financial crisis. The Fed last month cut its main interest rate to as low as zero for the first time.
- China’s total trade growth may slow for “quite some time” and will likely expand less than 5 percent for the full year because of the economic situation at home and abroad, the nation’s customs agency said.
- The cost of protecting investors from defaults on Asia-Pacific corporate and government bonds declined, according to traders of credit-default swaps. The Markit iTraxx Japan index of credit-default swaps fell 10 basis points at 276 at 9:50 a.m. in Tokyo The Markit iTraxx Australia index was down 10 basis points at 325 as of 11:52 a.m. in Sydney
Wall Street Journal:
- President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion in tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs. The size of the proposed tax cuts -- which would account for about 40% of a stimulus package that could reach $775 billion over two years -- is greater than many on both sides of the aisle in Congress had anticipated, and may make it easier to win over Republicans who have stressed that any initiative should rely relatively heavily on tax cuts rather than spending. The largest piece of the overall tax relief would involve cuts for people who pay income taxes or who claim the earned-income credit. It would serve as a down payment on the "Making Work Pay" proposal Mr. Obama outlined during his election campaign, providing a credit to offset Social Security and Medicare payroll taxes of $500 per individual or $1,000 per family. As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. In effect, this would entitle companies to receive cash from the government that they otherwise couldn't have claimed. A second provision would entice firms to plow that money back into new investment. The investment write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don't sit on their money until after Congress passes the measure. A separate element would offer a one-year tax credit for companies that make new hires or reverse layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.
- 2009 Could Be Better Than You Think. Five reasons why you can be financially optimistic when looking forward to the coming year.
- After suffering through 2008, some big pension funds are having second thoughts about their exposure to private-equity firms, hedge funds and other nontraditional investments. Across the U.S., pension-fund managers and investment officers have been scrutinizing their asset allocations, especially toward alternative investments. In addition to wilted returns, pension funds are leery because some hedge funds have made it hard to cash out, including by postponing redemption requests from investors. It is doubtful that retirement behemoths with billions in assets will retreat completely from alternative investments, partly because returns should improve once the economy pulls out of the recession. Still, some pension funds are likely to reduce their positions or put the brakes on plans to invest more.
- Israeli tanks and troops pushed deep into the Gaza Strip Sunday, committing to a large-scale ground invasion that risks significant casualties on both sides, but also departs sharply from the playbook used in Israel's largely unsuccessful war against Hezbollah in Lebanon two years ago.
- New Mexico Gov. Bill Richardson withdrew his nomination as President-elect Barack Obama's commerce secretary Sunday, citing a federal grand-jury investigation into a "pay to play" scheme in his home state, Obama transition officials said. Just days ago, Republican Senate aides said they didn't believe the investigation of CDR Financial Products would be a major impediment to Mr. Richardson's confirmation. But the probe appears to be heating up. Mr. Richardson hired a personal lawyer last month and in mid-December, the grand jury began taking testimony from a slew of witnesses.
- Illinois Gov. Rod Blagojevich's pick to fill President-elect Barack Obama's Senate seat battled Friday to win certification amid doubts over whether he will take office when Congress convenes Tuesday. Roland Burris on Friday filed an emergency request urging the Illinois Supreme Court to demand that Illinois Secretary of State Jesse White certify Mr. Blagojevich's appointment.
- Struggling Big Three auto makers, accustomed to intense competition from their Japanese rivals, face a new challenge from European auto makers. Sensing opportunity in Detroit's weakness, Volkswagen AG and BMW AG of Germany are gearing up to expand market share in the U.S. in the next few years. VW is investing in its first U.S. factory in two decades and expects to triple U.S. sales to one million vehicles by 2018. BMW is introducing a new small car and expanding its distribution network. "The U.S. will be the growth engine of the future," Jim O'Donnell, BMW's U.S. chief, said in a recent interview. "This is where we will continue to focus our efforts."
Barron’s:
- Many hedge funds won't survive 2009. But there could be some good investment opportunities for those still standing later this year.
MarketWatch.com:
- While most investors panicked or were forced to sell, Berkshire Hathaway Chairman Warren Buffett put more than $20 billion to work last year, positioning his insurance-focused conglomerate to profit if the economy and markets recover in coming years.
- Although the euro is now 10 years old, it is about to face its biggest challenge as Europe's economy weakens, the Harvard University economist Martin Feldstein said on Saturday. "In my judgment, the next few years will clearly be an important testing time for the [European economic and monetary union] and the euro," Feldstein told a panel at the American Economics Association meeting here.
Since 1992, Feldstein has been consistently skeptical about the need for a unified currency in Europe. He has said that the euro was motivated by politics and not economics and has predicted that the disadvantages would eventually outweigh the advantages. In its first decade, the euro has seen only relatively good economic times, Feldstein said. "But that may be about to change," as conditions in Europe are deteriorating rapidly, Feldstein said.
CNBC.com: A consortium of private equity and hedge fund firms, including J.C. Flowers and Dune Capital Management, has agreed to buy the assets of failed mortgage lender IndyMac, the Federal Deposit Insurance said Friday.
- Microsoft(MSFT) will embark on a significant cost-cutting initiative in 2009, which might begin as early as this month, to offset a global slowdown in sales. However, sources tell me the cuts will largely be handled through attrition and the non-renewal of contract employees, rather than through a rumored, sweeping layoff.
- The Federal Reserve will use all of its tools, including unconventional policy measures, to support the U.S. economy and financial markets, Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday. In a bookend to an earlier speech in which Yellen threw her support behind a huge fiscal stimulus package to boost economic growth, the policy-maker said the Fed was far from out of ammunition on the monetary side.
- China's manufacturing sector contracted for the third month in a row in December, but the pace of deterioration slowed as output and new orders improved slightly, an official survey showed on Sunday. The official purchasing managers' index (PMI) rose to 41.2 in December from the record low of 38.8 plumbed in November, the China Federation of Logistics and Purchasing (CFLP) said. Yu Song with Goldman Sachs in Hong Kong said in a research note that the official PMI reading suggested annual industrial output growth could slow to around 3 percent in December, down from November's record low of 5.4 percent. That would add pressure on authorities to take further steps to stem a rise in factory layoffs.
NY Times:
- On April 21, 2008, Representative Charles B. Rangel met with officials of the American International Group, the now-troubled insurance giant, to ask for a donation to a school of public service that City College of New York was building in his honor. Mr. Rangel had already helped secure a $5 million pledge for the project from a foundation controlled by Maurice R. Greenberg, one of the company’s largest shareholders and its former chief executive. And C.C.N.Y. officials, according to the school’s own records, had high hopes for A.I.G. — a donation of perhaps as much as $10 million. The company has never made a contribution. But less than a month after Mr. Rangel met with its officials, the company turned to the congressman for help: A senior A.I.G. executive who had attended the fund-raising meeting wrote a letter directly to Mr. Rangel, chairman of the powerful House Ways and Means Committee, urging him to support a provision of a tax bill that would save A.I.G. millions of dollars a year, according to Joseph M. Norton, a company spokesman.
- An upstate New York developer donated $100,000 to former President Bill Clinton’s foundation in November 2004, around the same time that Senator Hillary Rodham Clinton helped secure millions of dollars in federal assistance for the businessman’s mall project. Mrs. Clinton helped enact legislation allowing the developer, Robert J. Congel, to use tax-exempt bonds to help finance the construction of the Destiny USA entertainment and shopping complex, an expansion of the Carousel Center in Syracuse. Mrs. Clinton also helped secure a provision in a highway bill that set aside $5 million for Destiny USA roadway construction.
- President-elect Barack Obama and Congressional Democrats are considering major expansions of government-assisted health care insurance and unemployment compensation as they begin intensive work this week on a two-year economic recovery package. One proposal, as described by Democratic advisers, would extend unemployment compensation to part-time workers, an idea that Congressional Republicans have blocked in the past.
- Consumers love the large, bright color displays on smartphones, but not the power-hungry way the screens drain the batteries. Now Pixtronix, Qualcomm(QCOM) and other companies are developing technologies intended to conserve battery life on handhelds as people spend ever more time not just talking and texting on them, but also browsing the Web and watching TV.
- Should Congress Put a Cap on Executive Pay? One popular proposal would cap the chief executive’s pay at each company at 20 times its average worker’s salary. But while Congress may well have compelling reasons to limit executive pay in companies seeking bailout money, voter anger is not a good reason to extend pay caps more generally.
Washington Post: Hedge funds, the highflying darlings of the investment industry, have fallen to earth. These funds meant for sophisticated, rich investors just endured their worst year ever.
TheStreet.com:
- Top 2009 Biotech Stocks. (video)
Econbrowser:
- The oil shock and recession of 2008: part 2. In my previous post, I presented evidence that the oil price increase over 2007:H2-2008:H1 made a significant contribution to the slowdown in consumption spending in general and decline in spending on domestic automobiles in particular. Here I discuss why this should be regarded as a key development that turned the slowdown in growth into a recession.
Business Week: Mortgage rates are at historic lows and may be poised to go even lower next year. It's a great time to buy a home—if you can.
Baltimore Sun:
- One out of ten people browsing the Web in December were using a version of Mac OS X, according to the monthly statistics from Web services company Net Applications. Of greater concern to Microsoft might be the relatively small adoption rate of Windows Vista. More than 65 percent of Windows users are still on XP, with only 21.12 percent on Vista. The next version of Windows, Windows 7, is expected in early 2010, so many users may bypass Vista altogether. And if Microsoft chief Steve Ballmer wants yet something else to stew over, he can check the browser usage numbers. Internet Explorer, which had 84.11 percent share in June 2006, now has only 68.15 percent, a nearly 16 point fall; IE lost 1.62 percent just from November. Safari has taken some share, having risen from 3.19 percent in June 2006 to 7.93 percent in December 2008, but Firefox has emerged as a significant threat. As of December Firefox has a share of 21.34 percent, nearly twice the 10.77 percent it had in June 2006. Methinks the era of Microsoft hegemony is crumbling fast.
USA Today:
- Expert predictions: Stock market could be good in 2009.
Boston Globe:
- Here's an optimistic thought for the new year: Stocks might go up. So say a number of professional investors and economists, who argue that stock markets have probably hit bottom .
CNNMoney.com:
- Top 10 Macworld rumors for 2009.
International Herald Tribune:
- This was well before it became obvious that the risks taken by the largest banks and investment firms in the United States - and, indeed, in much of the Western world - were so foolhardy that they threatened to bring down the financial system itself. On the contrary: This was back when the major investment firms were assuring investors that all was well - assurances based in part on their fantastically complex mathematical models for measuring risk, models whose role in the crisis is now a matter of fierce debate. Some say those models abetted the meltdown by obscuring real, if rare, risks. Others say that Wall Street looked to them for more certainty than they were meant to give.
Reuters:
- Chrysler LLC on Friday received an initial $4 billion emergency loan from the U.S. government, two days after the government completed a parallel payout to its larger rival General Motors Corp. "This initial loan will allow the company to continue an orderly restructuring," Chrysler Chief Executive Bob Nardelli said in a statement.
- Bank of Japan Governor Masaaki Shirakawa said on Sunday that a rising yen would have a big negative impact on Japan short term, but he gave few clues on how he might mitigate the worsening effects of the global credit crunch.
- China's office workers are tightening their belts, cutting back spending on everything from clothes to fast food, despite government efforts to boost consumption to stave off the worst effects of a global recession. Websites and blogs popular among young Chinese professionals are extolling the virtues of frugality as the global financial crisis bites China's economy.
Financial Times:
- Pfizer Inc.(PFE) is “open” to mergers with “big, small and in-between” rivals to increase revenue, citing an interview with Jeff Kindler, the NY-based drugmaker’s CEO. Investors have said Pfizer could build on its extension into biological medicines by buying Amgen(AMGN), the largest listed, independent biotech group in the US, the report said.
- Pared down airlines plot course back to profitability. The unprecedented surge in oil prices, which peaked in July, gave carriers little choice but to retire dozens of older, less efficient aircraft. Ed Bastian, president of Delta Air Lines , predicted recently that 2009 industrywide domestic capacity will be 14 per cent below where it was last year. A stunning reversal in fuel costs, capacity cuts and a spate of new passenger fees are expected to return US airlines to profitability in 2009 even as the industry confronts what may be the steepest downturn in its history.
- Large companies in Europe and the US are having the terms of their credit facilities tightened more quickly and more severely than smaller companies – in contradiction of received wisdom. Possible reasons put forward for this shift in attitude include smaller companies enjoying a better relationship with their banks, and financial institutions shying away from making large loans and preferring to deal with local groups, rather than multinationals.
TimesOnline: New EU President: Climate Change Is a Myth. The European Union's new figurehead believes that climate change is a dangerous myth and has compared the union to a Communist state.
AFP:
- The first passenger flight from Europe in 18 years landed at Baghdad The Nordic Leisure airliner carried 150 people, most of them Iraqis, resuming air links between Iraq and Europe for the first time since the UN imposed sanctions on Iraq after Saddam Hussein’s 1990 invasion of Kuwait More international flights are expected in the next two days, including one from Hong Kong .
- Australia today formally declined a US request to help resettle former inmates of the Guantanamo Bay
Business Standard:
- ONGC Videsh Ltd (OVL), the overseas investment arm of India’s largest oil producer Oil and Natural Gas Corporation (ONGC), is planning to bid for a “few” of the 19 exploration blocks being offered under two bidding rounds by Iraq, which has the world’s third-largest oil reserves. Iraq opened the second round of bidding on December 31, 2008, under which it is offering 11 oil and gas exploration blocks to global oil companies. It had put on auction eight oil and gas fields in the middle of last year. Oil prices have tumbled over 70 per cent since Iraq had announced the first round of auctions.
China Securities Journal:
China
China Daily:
- Apple(AAPL) bites into China. Apple loyalists aren't interested in the best price or even what functions the gadgets have, they buy them because they're cool. A newfound passion for lifestyle products among many young Chinese executives and professionals has made Apple the most-recognizable American brand in China, according to marketing experts.
Sankei:
- Toyota Motor Corp. will freeze construction plans for new factories in Russia and Thailand
Weekend Recommendations
Barron's:
- Made positive comments on (TBT), (HYG), (F), (GE), (AMZN), (BIIB), (DO) and (C).
Night Trading
Asian indices are +1.0% 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
- (MOS)/1.52
Upcoming Splits
- None of note
Economic Releases
10:00 am EST
- Construction Spending for November is estimated to fall 1.4% versus a 1.2% decline in October.
- Total Vehicle Sales for December are estimated to fall to 10.0M versus 10.2M in November.
Other Potential Market Movers
- The Fed’s Yellen Speaking could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US The Portfolio is 100% net long heading into the week.
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