Today's Headlines

Bloomberg:

- Ford Motor Co.(F), working to avoid a federal bailout, posted a first-quarter loss that beat analysts’ estimates as it cut cash use almost in half. The shares soared to the highest since September. “This is a fantastic performance,” John Wolkonowicz, an IHS Global Insight analyst in Lexington, Massachusetts, said today. “They’re burning cash at a much lower rate. They’re going to come out of this OK. I now believe they won’t need a government handout.” Ford chopped cash consumption 49 percent to $3.7 billion from the previous three months. It cited $1.9 billion in savings, including more-efficient manufacturing and engineering, and $700 million in price improvements in part because it offered fewer sales incentives. Ford jumped 73 cents, or 16 percent, to $5.22 at 11:20 a.m. in New York Stock Exchange composite trading.

- Orders for U.S.-made durable goods fell less than forecast in March, adding to signs the economic slump is easing. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 1.5 percent after a 4.3 percent gain the prior month that was also smaller than previously estimated.

- Microsoft Corp.(MSFT) and Amazon.com Inc.(AMZN) climbed in Nasdaq trading after reporting earnings yesterday that reassured investors, capping a week of reports by technology companies that showed the worst may be over. “A lot of the big negative surprises are behind us,” said David Rudow, an analyst with Thrivent Asset Management in Minneapolis. The company oversees about $65 billion, including Microsoft shares. “We’ve seen the worst. It’s just a question of when we see return to growth and normal spending again.”

- President Barack Obama has “100 percent” confidence in Federal Reserve Chairman Ben S. Bernanke, White House Chief of Staff Rahm Emanuel said. Emanuel made the comments in an interview with Bloomberg Television to be aired later today.

- US GDP contracted much less in the first quarter than most economists believe, according to Charles H. Blood Jr., a managing director at Brown Brothers Harriman. “There are signs that downside momentum has begun to diminish,” Blood wrote in a report yesterday. He estimated that GDP shrank at a 2% annual rate, a smaller decline than any of the 29 economists in a Bloomberg survey anticipate. “GDP should turn positive by the second half,” Blood wrote. After shrinking at a .4% pace this quarter, the economy will grow at rates of .8% in the third quarter and 2.2% in the fourth, he estimated.

- Al-Qaeda has threatened attacks on the European Union and its allies in a new video posted on the Internet, German ARD television said in an e-mailed statement. According to ARD, in the 80 minute video, a short section of which is in German, a masked man says: “The Mujahedeen are on their way to you and, god willing, will kill all of you. Foremost, of course, Denmark and Holland, which insult our prophet.”

- OPEC Secretary-General Abdalla El-Badri wants the group to fully implement supply cuts agreed last year before it discusses any further reductions.

- Cisco Systems’(CSCO) CEO John Chambers said the company will buy “a lot more” companies this year and that he is optimistic about the US. Cisco will invest aggressively in the U.S. and the US economy will recover in December-January timeframe, he said.

- General Motors Corp.(GM), facing the threat of a bankruptcy filing if it can’t meet a June 1 U.S. deadline, will preserve the GMC truck line and drop its 83-year- old Pontiac brand as part of a government-led recalibration of its business plan, people familiar with the decision said. The Detroit automaker will keep the GMC, Chevrolet, Cadillac and Buick brands, after a review that included profitability with the Obama administration’s automotive task force, said the people, who asked not to be named because the decisions have not been announced. GM may reveal next week the end of the make that produced the Grand Prix, Bonneville and Firebirds, they said.

- Taliban militants who took control of a district about 100 kilometers (60 miles) from Pakistan’s capital have begun pulling back to the northwestern Swat valley, a spokesman for the group said. Shortly before the pullback was announced, Prime Minister Yousuf Raza Gilani said the country will fight back against extremists.

- Investors stand to gain more than 80 percent betting that Bank of America Corp.(BAC) will convert some of its preferred shares into common stock, according to Jefferies Group Inc. Bank of America’s 6.204 percent preferred shares may be converted into equities worth 80 percent more after trading costs than their closing price of $11.26 yesterday, Patrick Neal, a Jefferies strategist, wrote in a note today. The 8.2 percent preferred could yield returns of about 59 percent if the Charlotte, North Carolina-based lender decides to convert them into common stock, Jefferies estimated.

- Credit-default swaps dealers and investors are planning a so-called Small Bang Protocol to create a standard for settling contracts in the event of debt restructurings. The protocol will allow trades to be moved to a central clearinghouse, according to Athanassios Diplas, global head of the counterparty portfolio management group at Deutsche Bank AG, one of the dealers involved in the discussions.

Wall Street Journal:

- Morgan Stanley(MS) is considering changes to its biggest proprietary-trading desk, including spinning it out into a hedge fund or opening up the unit to outside investors, according to people familiar with the discussions.

- Chrysler LLC is facing "no pending bankruptcy," Vice Chairman Jim Press told the company's auto dealers in a conference call Friday, according to three people who listened in on the call.

CNBC:

- The US government, releasing details of how it conducted "stress tests" on the nation's 19 largest financial institutions, said “most banks currently have capital levels well in excess of the amounts needed to be well capitalized." The report said the tests are a “forward-looking exercise designed to estimate losses, revenues and reserve needs” under two different macroeconomic scenarios, including an adverse one.

- General Motors(GM) has received another $2 billion loan from the Treasury for working capital but Chrysler has not received any new working capital, a transaction report for the Treasury's Troubled Asset Relief Program showed on Friday. The Obama administration has said it plans to provide up to $5 billion in working capital for GM and $500 million for Chrysler as they race to meet restructuring deadlines to qualify for additional government funds.

- Ford Motor(F) CEO Mulally told CNBC in an interview that he expects the automaker will start coming back in the third and fourth quarters.

NY Times:

- Jack Yang, a managing partner at Highland Capital Management, which manages $30 billion in debt investments, offers his views on the current state of the bank loan market. The fall in the loan market has far outpaced the deterioration in fundamentals, even assuming that global economic fundamentals continue to worsen. Measured by implied default rates, loan valuations are cheap. With the average price of loans around 65 at the end of March, the implied default rate, according to S&P Leveraged Commentary & Data, is roughly 45 percent, far exceeding the previous actual default peak of 8.2 percent in 2000 and the current 4.8 percent default rate, as measured by the number of issuers. While it is anticipated that defaults will rise above previous peaks, we believe it is highly unlikely they will come close to the level implied by current prices and spreads. This record disparity between actual and implied defaults means loans’ current risk premium should offer a sizable cushion against rising defaults. Loan prices are now trading about five points below their historical recovery rates of 70 percent (1990‐2008) 30 days after default, and well below their 80 percent historical recovery rate after a workout. By both measures, today’s levels are difficult to justify based on fundamentals.

Boston Globe:

- House Speaker Robert A. DeLeo has begun to seriously consider a plan to increase the sales tax from 5 percent to 7 percent, which would give Massachusetts one of the highest sales taxes in the country, said a State House official who has been briefed on the speaker's deliberations.

The Detroit News:

- In deciding to dramatically slash production this summer, General Motors Corp.(GM) is bracing for possible liquidation of bankrupt parts supplier Delphi Corp. and the resulting inability to build vehicles from a shortage of parts, industry experts said Thursday. GM's decision to idle 13 factories in the U.S. and Mexico for up to nine additional weeks -- a move impacting about 40 percent of the automaker's assembly plants -- might force other suppliers into filing for bankruptcy protection as work dries up. More than 22,000 workers will be affected by the closures.

- Congressional sponsors of two competing bills to offer cash vouchers to retire older vehicles and spur auto sales said Thursday they are nearing agreement on a compromise.

Seeking Alpha:

- Why High Inflation Will Not Take Hold.

Rick Bookstaber:

- If the calls I am getting from headhunters are any indication, the hot area now is high frequency trading. And no wonder. There are two areas that were spared in the 2008 debacle: macro and high frequency trading. Macro funds on average were up ten percent or so last year because most of them skirted the edge of the major dislocations; their strategies focus on liquid instruments and are not oriented toward credit. High frequency trading did well because it thrives in an environment of high volatility and demand for liquidity, and 2008 was a hot house for both. Every year, people pile on to whatever strategy did well the previous year – this tendency is worth a book or two on its own – and so this year high frequency is destined to be the darling of the fund of funds. But I think the days for high frequency trading are numbered.

Reuters:
- The inventory of new U.S. homes for sale at the end of the March plummeted at a record pace, government data showed on Friday, bringing a glimmer of hope of improvement in the housing market even as data on durable goods sales showed weakness in the economy as a whole. "Housing is probably forming a bottom, because even the supply of homes, the inventories, declined," said Asha Bangalore, an economist with Northern Trust in Chicago. "I think the housing market is stabilizing." The stock of new homes shrank to 311,000 from 328,000 in February. That left the supply of homes available for sale at 10.7 months' worth, compared to February's 11.2 months. The Commerce Department said the monthly change in inventories, of 5.2 percent, was the largest drop in more than 45 years and the year-on-year plunge of 33.7 percent was the largest on record. Builders appear to be burning through their supply and holding off on adding to their stocks. Sales of new homes dropped 0.6 percent in March, according to the Commerce Department, but February sales were much stronger than originally thought, with the report showing they rose 8.2 percent, compared to the 4.7 percent gain previously registered.

- A weekly measure of U.S. future economic growth remained unchanged, while its annualized growth rate rose to levels last seen in early October 2008, suggesting economic recovery for the near future, a research group said Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index was flat at 107.2 for the week ending April 17 . The index's annualized growth rate -- continuing its six-month upswing -- rose to negative 18.6 percent from the prior week's rate of negative 19.7 percent. It was the highest yearly growth reading since Oct. 10, 2008, when the rate was minus 17.0 percent, according to ECRI data. "With WLI growth rising to a 27-week high, U.S. economic growth, which is now at a record low, will soon begin to improve," said Lakshman Achuthan, managing director at ECRI.

- Finance leaders meeting on Friday see some signs that recession-fighting efforts are finally starting to work, but patience is wearing thin over the slow progress in cleansing bank balance sheets. The message from officials of the Group of Seven nations and the larger G20 club of advanced and emerging economies is likely to be at least somewhat optimistic, reflecting evidence that the pace of global recession is beginning to ease.

Financial Times:
- Chrysler has received a further setback in its struggle for survival after one of its biggest private-sector customers placed a sizeable order for new cars from Ford Motor(F), Chrysler's healthier Detroit-based rival. Dollar Thrifty, the car-rental group, said the proportion of Ford vehicles in its fleet would grow from a "small percentage" today to 15 per cent.

- The Obama administration should seize the political opportunity offered by Goldman Sachs’ and JPMorgan’s request to repay $45bn in troubled asset relief funds, says Barney Frank, the influential Democratic lawmaker. In an interview with the FT, Mr Frank said the Obama administration was missing a political chance to showcase the return of taxpayer money. “Geithner says I worry about it from the political standpoint,” Mr Frank said. “It’s the one argument for which I have no sympathy: If people could see, some people are taller than other people. Of course there are different levels of strength between the banks...compensation restrictions were a necessity to win support for Tarp.” “Loads of my liberal friends were a month ago demanding significant intervention (nationalisaton),” he said. “It was premature.” Mr Frank said that there were other ways for Mr Geithner to boost bank capital if next week’s stress tests revealed a big shortfall – for example by imposing a “haircut” on bondholders by mandating debt-for-equity swaps, a step the administration has been unwilling so far to take.

- Spain’s army of unemployed swelled to a record 4m in the first quarter of this year as hundreds of thousands of workers in services and construction fell victim to economic recession and the collapse of the country’s housing market. Jobless numbers jumped by more than 800,000 in the quarter to reach 4.01m or 17.4 per cent of the workforce, double the European Union average, according to the National Statistics Institute.

Interfax:

- Russia’s Economy Ministry expects the unemployment rate to average between 10.4% and 10.7% this year, compared with a previously forecast 8.2%. The unemployment rate advanced to 9.5% in March, as the total number of unemployed rose to 7.1 million people.