Late-Night Headlines
Bloomberg:
- Fewer companies in the U.S. plan to begin cutting jobs, signaling efforts to slash costs during the recession may have peaked, a private survey found. The share of companies planning initial staff cuts in the next 12 months fell to 5 percent in April from 13 percent in February, according to a report today by Watson Wyatt Worldwide Inc., an Arlington, Virginia-based workforce consulting firm. Seventy-two percent of the 141 employers surveyed have already trimmed their workforces, up from 52 percent two months earlier. “Companies have started to move into the next stage of their cost-cutting actions, but are also looking ahead to an eventual recovery,” Laura Sejen, global director of strategic rewards for Watson Wyatt, said in a statement. Employers recognize that “continuing some cost-cutting measures such as reductions in force can put them at a disadvantage once the economy improves,” she said.
- Treasury Secretary Timothy Geithner said banks found to need additional capital at the conclusion of regulators’ stress tests will have a range of options for shoring up their balance sheets. The Treasury chief, testifying before a congressional oversight panel today, said lenders will be able to take taxpayer money, raise funds from private investors or convert previous government investments from preferred to common shares. Each bank can chose the “best mix” of alternatives and will likely make different choices, Geithner said.
- The Markit iTraxx Australia index fell 5 basis points to 330 as of 11:16 am in Sydney The Markit iTraxx Japan index was 5 basis points lower at 335 as of 10:12 am in Tokyo
- Elpida Memory Inc., Japan’s largest maker of computer-memory chips, said it plans to raise prices as much as 50 percent next month after industry-wide production cuts eased the glut that drove chipmakers to record losses. “The left-over inventory at personal-computer and module makers that was skewing the demand-supply balance is finally gone,” President Yukio Sakamoto, 61, said in an interview in Tokyo yesterday. Elpida plans to charge customers about $1.50 per gigabit of memory starting next month to bring prices in line with production costs, he said. Elpida jumped as much as 18 percent in Tokyo trading on mounting speculation that the industry is rebounding from a glut that forced Qimonda AG to seek bankruptcy protection. Computer- memory chipmakers may remove excess supply this quarter and face a shortage in the second half after they slashed capital spending 58 percent last year, according to Barclays Capital.
- Japan’s export slump slowed in March, ending a four-month streak of record drops and adding to signs the recession may start to ease.
- BHP Billiton Ltd.(BHP), the world’s largest mining company, said buyers of its Western Australian iron ore asked to defer long-term sales accords, forcing the company to sell it at cheaper spot rates. All the deferred ore was sold on the spot market, reducing the share of the more profitable contract sales to 72 percent, Melbourne-based BHP said in a statement. The spot market for the steelmaking raw material is currently trading at about 35 percent less than annual contract prices set last year. Chinese steelmakers are pushing for the first iron ore price cut in seven years as the global recession crimps sales to carmakers and builders. Slower demand for steel will have a “pronounced impact” and a weak outlook for the global economy will affect earnings this half, Chief Executive Officer Marius Kloppers said Feb. 4. “In the medium term, we expect that market conditions will remain uncertain,” the company said in today’s statement. “All our operations will remain under review.”
- House Speaker Nancy Pelosi pledged to push legislation through the chamber this year that would for the first time place a cap on carbon dioxide emitted from power plants and factories. The measure will be the most complex Congress will face and “will pass,” Pelosi, a California Democrat, told reporters at a press conference. Climate change is a “national security issue, it is an environmental health issue, it is an economic issue and it is a moral issue,” she said. The Energy and Commerce Committee is holding a hearing today on draft legislation by Chairman Henry Waxman, a California Democrat, and Democrat Edward Markey of Massachusetts to establish a cap-and-trade system. Some Republicans, including Representative Ralph Hall, a Texas Republican, say such a system would increase energy costs to businesses and consumers and harm the economy. The draft legislation lacks detail and “leaves American businesses and consumers in the dark as to just how much this bill is going to cost,” Hall said today.
- Drivers for FedEx Corp.’s(FDX) small- package delivery unit are independent contractors, not employees, a federal appeals court said, in a victory for the carrier over the National Labor Relations Board.
- Gilead Sciences Inc.(GILD), the biggest U.S. supplier of AIDS drugs, said first-quarter profit rose 21 percent on increased demand for its medicines. Net income was $589.1 million, or 63 cents a share, compared with $488.3 million, or 51 cents a share, a year earlier, the Foster City, California-based company said today in a statement. Earnings beat analysts’ estimates by 4 cents. Revenue rose 22 percent to $1.53 billion, led by increased use of AIDS drugs, which accounted for about 85 percent of revenue last year, according to the company. Gilead’s shares rose as much as $1.87, or 4.3 percent, to $45.60 in extended trading on the Nasdaq Stock.
- SanDisk Corp.(SNDK), the biggest maker of flash-memory cards, reported sales that topped analysts’ estimates in the first quarter after demand rebounded, sending the shares up 7.9 percent. Revenue was $659.5 million, Milpitas, California-based SanDisk said today in a statement. That compared with the $536.3 million average of analysts’ estimates in a Bloomberg survey. Demand for flash memory, which stores data in cameras and other portable devices, increased last quarter after a slow Christmas season, said Edwin Mok, an analyst at Needham & Co. in San Francisco. SanDisk’s storage sales, measured in megabytes, rose 9 percent from the previous three months.
- Yahoo! Inc.(YHOO), owner of the second- most popular U.S. search engine, reported profit and sales that met analysts’ estimates. The company will cut almost 700 jobs, or 5 percent of its workforce, after online-ad sales dropped. Yahoo, based in Sunnyvale, California, rose 74 cents, or 5.1 percent, to $15.12 in extended trading after closing at $14.38 on the Nasdaq Stock Market. The shares have gained 18 percent this year.
- Banks’ reluctance to lend has dropped to the lowest since before the collapse of Lehman Brothers Holdings, signaling efforts by the Federal Reserve Chairman Ben S. Bernanke to thaw credit markets are working. The Libor-OIS spread narrowed to .90 percentage4 point yesterday, the least since the difference was .87 percentage point on Sept. 12. Lehman filed for bankruptcy protection on Sept. 15, prompting the spread to widen to 3.64 percentage points on Oct. 10. Former Fed Chairman Alan Greenspan said in June that the measure was the best way to tell when lending returned to “normal.”
- China’s stock market rally has driven valuations too high and increased the risks of an asset “bubble,” the nation’s largest fund manager said. “Valuations have overshot corporate fundamentals with the help of ample liquidity,” Wang Yawei, who oversees more than $29 billion as chairman of the investment committee at China Asset Management Co., said in a fund report released yesterday. “Speculative trading is now driving the market.” The benchmark Shanghai Composite Index has rallied 39 percent this year, driving valuations to 22.4 times reported earnings from 12.78 times on Oct. 31. The stocks are now valued the highest among the biggest emerging economies including Brazil, Russia and India. Wang, who has increased his cash allocation more than threefold this year and pared equities, joined an expanding group of skeptics on China’s rally. George Hoguet, Boston-based global investment strategist at State Street Global Advisors Inc., last week advised caution after a “sustained run.” “Liquidity will remain loose and the market lively in the second quarter, but it’s worth guarding against risks of the formation of an asset bubble,” Wang said in the report. “The strong rally in the stock market has fairly reflected investors’ optimistic expectations for a rapid economic recovery.” Profits of companies on the CSI 300 Index, measuring stocks in Shanghai and Shenzhen, will tumble an average 15.4 percent in 2009, Morgan Stanley said last month. Goldman Sachs Group Inc. ended its recommendation last week to be “long” on China’s local-currency shares as the Shanghai Composite was nearing its 2,600-point target set when the bank initiated the strategy in December.
Wall Street Journal:
- The Obama administration plans to create a new military command to coordinate the defense of Pentagon computer networks and improve U.S. offensive capabilities in cyberwarfare, according to current and former officials familiar with the plans. The initiative will reshape the military's efforts to protect its networks from attacks by hackers, especially those from countries such as China and Russia. The new command will be unveiled within the next few weeks, Pentagon officials said.
- The Obama administration's nascent proposals to tax offshore profits could have an impact on the likes of Pfizer Inc., Cisco Systems Inc., Coca-Cola Co. and Hewlett-Packard Co., which shelter tens of billions in income offshore annually. Under current law, U.S. companies can defer taxes indefinitely on the profits they say they have earned overseas until they "repatriate" that money back to the U.S. The administration has proposed changing this law, and has already baked in the new tax receipts into its budget figures for 2011.
- Regulators will begin briefing banks Friday about how they fared in government-performed "stress tests," giving lenders an opportunity to debate the findings before they're made public a week later, according to government officials. The discussions will signal to some banks whether they'll need to seek additional capital, either from private investors or the Treasury Department. The stress tests seek to measure a bank's ability to continue lending under extreme economic conditions. To help shore up confidence in the banking sector, the government is expected to distinguish between banks that need more capital and those able to withstand a worse and prolonged economic downturn. On Tuesday, Treasury Secretary Timothy Geithner said "the vast majority" of banks could be considered well-capitalized. But he also said the impact of the government's efforts to ease the financial crisis so far had been "mixed."
- For the first time since the recession began more than a year ago, a host of major companies on Tuesday said the economy is approaching a bottom. But their tentative optimism triggered a debate with other firms that say it's far too early to call a floor.
- President Barack Obama raised the possibility of prosecuting Bush administration lawyers who approved so-called enhanced interrogation techniques on terror suspects. Mr. Obama, speaking to reporters Tuesday in the Oval Office, also laid out the parameters for a bipartisan commission to examine government tactics used in the wake of the Sept. 11, 2001, terrorist attacks, although he was careful to say he wasn't endorsing such a panel. Together, the remarks put the president squarely in the center of a growing battle between liberals, who want to hold Bush administration officials accountable for what they call torture, and conservatives, who say Mr. Obama has damaged national security by revealing interrogation secrets.
- The images of that trip, in which Mr. Obama dazzled ecstatic Europeans with citations of the offenses against international goodwill and humanity committed by the nation he leads, are now firmly imprinted on the minds of Americans. That this is so, and that it is not good news for him, is truth of a kind not quite fathomable to this president and his men.
- Nintendo(NTDOY) Freshens a Game Player
- The banking industry is aggressively lobbying the Treasury Department to make it less costly for financial institutions to get out of the Troubled Asset Relief Program. The move could prove controversial for the banking industry, which is busy deflecting criticism about higher fees it is charging consumers for credit cards and other products and services.
Marketwire:
- “Alpha” Magazine Announces 2009 Hedge Fund 100, the World’s Largest Hedge Funds.
MarketWatch.com: Investors in actively managed mutual funds the last five years have reason to wonder what they've been paying for: A new study from Standard & Poor's finds that 70% of large-cap fund managers who use the S&P 500 as a benchmark for comparison have failed to match the performance of the index over that time.
NY Times:
- They say they could have opted for Dubai, Saudi Arabia or even Europe. But Baghdad is the destination of choice for a rising number of foreign workers, a jarring sight in a city where, not long ago, they were unlikely to keep their freedom or lives long enough to collect a paycheck. “Sometimes I hear loud booms, but I don’t care,” said Zahandwir Aloui, a 25-year-old waiter with a wife and two children at home in Bangladesh. “I like working here.” Recently he was clearing dishes at the upscale restaurant where he works, one of scores of better restaurants, homes and hotels where the waiters, cooks, clerks and housekeepers and attendants are increasingly likely to be from India, Uganda, Bangladesh, Nepal and Ethiopia
Newsweek:
- The Rise of the ‘Empty Creditor’. They’d rather drive good companies into bankruptcy than save them. Why? One key economic assumption is that people act to preserve their economic interests. Those who have lent money to troubled companies, for example, generally prefer the company remain solvent; otherwise, they can't get paid back. Similarly, lenders to troubled firms frequently favor swift, out-of-court restructuring deals, in which they swap debt for stock, instead of pushing companies into Chapter 11 bankruptcy. That's because companies in Chapter 11 can languish there for years and waste scarce company assets on huge fees to lawyers, consultants, and accountants. But if a lender or creditor believes it can profit more from a complete failure—i.e., if it has an insurance policy that pays off only in the event of utter devastation—that creditor might be more inclined to push a company toward bankruptcy. And thanks to the financial innovations of recent years—the rampant use of hedging and credit-default swaps, the ability of investors to purchase insurance on debt—that's exactly what seems to be happening. Creditors are acting to protect their economic self-interest by encouraging companies to destroy themselves. For Hu, Exhibit A was the case of Goldman Sachs(GS) and the troubled insurer AIG. Goldman, it was reported this spring, was one of the AIG counterparties to whom government money was funneled last fall. AIG posted $2.5 billion in collateral to Goldman under credit-default-swap obligations and made payments of more than $10 billion to the firm to settle credit-default and securities-lending obligations. Hu notes that forcing a troubled company like AIG to pony up billions of dollars in cash as collateral would have been a contributing factor to further erosion of AIG's financial situation, which, in turn, would have rendered many of the financial arrangements Goldman had entered with AIG worthless. But Goldman didn't care that it would wipe out its AIG arrangements, because it had already hedged its exposure to AIG—through contracts, credit-default swaps, or other derivatives. In the words of Goldman's CFO, the firm was "fully protected and didn't have to take a loss." In other words, although Goldman was a significant creditor to AIG, it appeared to have nothing to lose from AIG's demise and potential failure to make good on debt, which is why it was happy to force AIG to disgorge billions of dollars in collateral.
Investors.com:
- Companies Without Much Debt Are Hammering Levered Rivals.
Restaurant News:
- McDonald’s Corp.(MCD) would neither confirm nor deny on Tuesday the reported national introduction this summer of its long-tested Angus Third Pounder, a product rollout that sources say could spark some franchisee tension.
Politico:
- The Pentagon’s senior military leaders are worried that the security situation in Afghanistan is stalemated or deteriorating, and now are preparing a far-reaching plan that would prepare the U.S. military for a war that could last three to five more years, officials said.
Boston Globe:
- There's still gold in California's Sierra Nevada foothills and a new rush to find it. Not since the Great Depression have so many hard-luck people been lured by prospecting, hoping to find their fortune tumbling down a mountain stream. The recession and high gold prices are helping to fuel the latest gold craze, especially among workers who have lost jobs. "I guess there's always hope. At home, I don't have any right now," said Steve Biorck, a concrete finisher who headed west because construction work dried up in Tennessee. Now he spends days standing knee-deep in an icy creek coaxing gold flakes from a swirling pan of gravel.
Reuters:
- U.S. scientists have combined a discovery from a French garbage dump with breakthroughs in synthetic biology to come up with a novel method for turning plant waste into gasoline, without the need of any food sources. A synthetic biology lab at the University of California San Francisco identified a compound able to use biomass to produce a gas that can be converted into a gasoline chemically indistinguishable from fossil-fuel based petroleum. Their method allows for a variety of feedstocks to be used that are nonfood sources, such as agricultural waste products like corn stover and sugar cane bagasse. The scientists said gasoline they were able to produce carried the same chemical and molecular makeup as gasoline from oil refineries. "You could fill your car up with it right now, so there's no difference in engine technology or anything like that," said Chris Voigt, who led the research. Voigt added that the United States could look to biological sources for a large percentage of its gasoline when oil prices are high. "Then if the sugar price goes high and the oil price goes down, you could flip it and the consumer would not know any difference," he said. "You can't do that with ethanol." With improvements in the rate of production from genetic engineering, Voigt estimates that gasoline could be produced at $1.65 per gallon from sugar cane bagasse. He expects fuel from cellulosic sources like poplar would be cheaper at $1.10 to $1.30 a gallon.
- Some top executives said they saw signs of parts of the global economy stabilizing, when they reported their companies' earnings on Tuesday, but they are mostly declining to predict a full-fledged recovery. Here is a compilation of comments:
- New York City's pension funds are probing whether private equity fund Quadrangle "intentionally misled" it about placement agents used to win pension fund business, a spokesman for the city's comptroller said Tuesday. New York City's pensions invested $85 million with Quadrangle in 2005 and $40 million in 2006, Jeff Simmons, the spokesman for Comptroller William Thompson, said by email. Quadrangle was formerly led by Steven Rattner, who is now the U.S. auto bailout chief.
- After one of the worst slumps in memory, the housing market in the Northeast United States is stirring to life with more buyers on the prowl and bigger crowds at home showings.
Financial Times: Managers of some of the world’s leading hedge funds say they are reaping a benefit from the financial crisis in the form of substantially less competition from the once-mighty proprietary trading desks of investment banks. Daniel Och, founder of publicly traded Och-Ziff Capital Management , said in an interview with the Financial Times that his company is currently seeing less competition for investments, making it easier to capitalize on opportunities. “The proprietary trading desks at banks are substantially less active,” he said. Mr Och added that bank cutbacks were also expanding the talent pool for established hedge funds. “There is no doubt the number of incoming calls we are getting from senior people across the world has increased,” he said.
Shanghai Securities News:
- China
Kyodo News:
- Japan In December, the government forecast zero economic growth for the year that began April 1.
ISDA:
- At its Annual General Meeting in Beijing today, the International Swaps and Derivatives Association, Inc. (ISDA) announced the results of its Year-End 2008 Market Survey of privately negotiated derivatives. The notional amount outstanding of credit default swaps (CDS) was $38.6 trillion at year-end, down 29 percent from $54.6 trillion at mid-year 2008. CDS notional outstanding for the whole of 2008 was down 38 percent from $62.2 trillion at year-end 2007.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (COH), target $24.
- Reiterated Buy on (NYT) 5-year credit default swaps.
- Reiterated Buy on (MAN), target $42.
- Reiterated Buy on (LXK), target $32.
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Night Trading
Morning Preview
US AM Market Call NASDAQ 100 Pre-Market Indicator/Heat Map Pre-market Commentary Pre-market Stock Quote/Chart Global Commentary WSJ Intl Markets Performance Commodity Futures Top 25 Stories Top 20 Business Stories Today in IBD In Play Bond Ticker Economic Preview/Calendar Earnings Calendar
Conference Calendar
Who’s Speaking? Upgrades/Downgrades Rasmussen Business/Economy Polling
Earnings of Note
Company/EPS Estimate
- (GENZ)/1.04
- (SY)/.42
- (FCX)/.12
- (MS)/-.08
- (KMB)/.97
- (MCD)/.82
- (NOC)/1.08
- (TIN)/.05
- (WLP)/1.24
- (PFCB)/.33
- (MO)/.39
- (STJ)/.58
- (BA)/.92
- (T)/.49
- (R)/.234
- (WFC)/.42
- (CAL
- (RHI)/.06
- (QCOM)/.40
- (CMG)/.55
- (FFIV)/.38
- (STLD)/-.40
- (NE)/1.46
- (XLNX)/.18
- (AB)/.30
- (ADS)/1.10
- (VMW)/.20
- (NVLS)/-.51
- (YUM)/.40
- (EBAY)/.34
- (AAPL)/1.07
- (LRCX)/-.65
Economic Releases
10:00 am EST
- The House Price Index for February is estimated to fall .7% versus a 1.7% gain in January.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,500,000 barrels versus a +5,671,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -700,000 barrels versus a -944,000 decline the prior week. Distillate inventories are expected to fall by -1,000,000 barrels versus a -1,170,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.65% versus a -1.47% decline the prior week.
Upcoming Splits
Other Potential Market Movers
weekly MBA mortgage applications report,
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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