Late-Night Headlines
Bloomberg:
- Arthur Samberg, founder of Pequot Capital Management Inc., plans to liquidate his main hedge funds because a federal insider-trading investigation has “cast a cloud over the firm.” “With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment adviser,” Samberg wrote today in a letter to clients. Pequot, started in 1986, managed $3.47 billion as of May 15, according to a regulatory filing, down from $4.3 billion in November. Pequot’s assets peaked at about $15 billion in 2001, making it the world’s largest hedge-fund manager at the time. The firm said in April 2001 that No. 2 executive Daniel Benton was leaving to start his own hedge fund, taking about half of Pequot’s assets. Benton ran Andor Capital Management LLC until deciding in August 2008 to shut.
- Exxon Mobil Corp.(XOM), the world’s largest refiner, said the transition away from oil-derived fuels is probably 100 years away. Petroleum-based fuels including gasoline and diesel, as well as hydrocarbons such as coal and natural gas, will remain the dominant sources of energy for factories, offices, homes and cars for decades because there are no viable alternatives, Chief Executive Officer Rex Tillerson told reporters today after Exxon Mobil’s annual shareholders meeting in Dallas. In the U.S., which burns a quarter of global oil supplies, consumers probably face higher fuel prices if lawmakers impose greenhouse-gas rules that inflate fuel-production costs, Tillerson said. A plan introduced by Democrats this month would allocate a limited number of emission credits to refiners and electricity producers, with the aim of curbing greenhouse gases. “The oil-gas-refining side of the business received a very, very small amount of the allocations, which means that sector will bear more of the costs more immediately,” Tillerson said. “If we’re going to place a price on carbon, let’s do that in the most efficient way. A carbon tax is more efficient than a tax that’s applied by way of a cap-and-trade mechanism.” Tillerson, 57, said lawmakers are hurrying to restrict greenhouse gases when many scientific questions surrounding the global warming issue remain unresolved.
- Steven Rattner, head of the U.S. Treasury Department’s automotive team, has a net worth of at least $188 million and held shares in an investment fund run by the majority owner of Chrysler LLC, according to his financial- disclosure statement. Rattner, co-founder of Quadrangle Group LLC, also sold guarantees of as much as $15 million on a credit-default swaps index tied to the secured debt of 100 companies, including General Motors Corp.’s senior secured loans, the filing shows. He reported holdings of between $500,000 and $1 million in Cerberus Institutional Partners LP Series 2. The fund is managed by Cerberus Capital Management LP, the parent of Auburn Hills, Michigan-based Chrysler. Cerberus Institutional Partners has invested in two auto-parts and equipment companies and a car-rental company, all privately owned. Rattner has since sold all those holdings, according to an official at the Treasury. He was “required to comply with financial conflict-of- interest rules, including divestitures where needed, and he has done so fully,” said Jenni Engebretsen, a Treasury spokeswoman, who responded on Rattner’s behalf. The filing is for the period between Jan. 1, 2008, and Feb. 20, 2009. Rattner, 56, has directed the Treasury’s auto team since February. Chrysler, which filed for bankruptcy protection on April 30, received $4 billion from the government in January. The company, the third-largest U.S. automaker, will get $500 million more from the Treasury’s Troubled Asset Relief Program, TARP’s special inspector general said in a report. Rattner owned at least $105 million in various Quadrangle investments. He also reported holdings of between $500,000 and $1 million in Goldman Sachs Group Inc. stock, and less than $1,001 apiece in Bear Stearns Cos., Citigroup Inc., and Lehman Brothers Holdings Inc. Rattner sold $3 million to $15 million in credit-default swaps to a unit of Goldman Sachs Group Inc. on the equally weighted index known as the Markit LCDX Series 10, according to the filing. The index includes the senior secured loans of 100 companies including GM and Ford, according to the filing. An investor that sold such protection on the index would have to pay as much as $150,000 in the event of a company bankruptcy, less the value of the underlying loans. Rattner and his wife, Maureen White, raised between $100,000 and $250,000 for Barack Obama’s presidential campaign.
- Type 1 diabetes cases in young children will double by 2020, and countries should prepare for the deluge, researchers said. The number children under 15 with Type 1 diabetes will rise to about 160,000 across Europe in 2020 from 94,000 in 2005, according to a study in the U.K. journal The Lancet. Lead researcher Chris Patterson from the Queen’s University in Belfast expects the cases in children younger than 5 to double. The gain is so rapid that it can’t be explained by genetic links alone, the researchers said.
- The AFL-CIO, the largest U.S. union organization, used “creative accounting” to disguise “a crippling cash-flow situation,” according to a report by a union leader. Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, said the labor federation masked its financial difficulties heading into last year’s presidential election campaign. Net assets of the 11 million-member AFL-CIO declined to a negative $2.3 million as of June 30, 2008, from a $66 million surplus on July 1, 2000. “A new leadership -- leaders chosen by our members, leaders held accountable by our members -- is needed,” wrote Buffenbarger, who is a member of the AFL-CIO’s finance committee and the president of one of the nation’s largest unions.
- OPEC is likely to leave production quotas unchanged at today’s meeting in Vienna in a bet that demand will recover, pushing prices as high as $75 a barrel by year’s end, ministers said.
Wall Street Journal:
- President Barack Obama wants to make a million houses a year more energy efficient as part of his goal to create thousands of "green" jobs and reduce U.S. carbon emissions. But the administration's push to expand an obscure antipoverty program into a centerpiece of that initiative is stirring debate over the best way to use a flash flood of federal stimulus dollars.
- Expedia.com(EXPE) said Wednesday it will stop charging fees when customers book airline tickets over the Internet, upping the ante in the competition among online travel agencies.
- A government program designed to rid banks of bad loans, part of a broader effort once viewed as central to tackling the financial crisis, is stalling and may soon be put on hold, according to people familiar with the matter. The Legacy Loans Program, being crafted by the Federal Deposit Insurance Corp., is part of the $1 trillion Public Private Investment Program the Obama administration announced in March as a way to encourage banks to sell securities and loans weighing on their balance sheets to willing investors. But prospective buyers and sellers have expressed reticence to the FDIC about participating for fear the program's rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.
- Amid tighter budgets, more people are trying to save money by cutting their cable cords. In response, cable companies are beginning to experiment with new Internet services. In what's shaping up as the home-entertainment equivalent of severing a landline phone service, more people are joining the ranks of "cord cutters" by forgoing cable subscriptions that can run $60 or more a month. Instead, they're turning to free over-the-air high-definition television channels and video-game consoles, such as Playstation 3 and XBox 360. They're also watching Internet-connected TV sets, paying a basic high-speed Internet fee of about $45, as well as set-top boxes from companies like Netflix Inc. Some are also using media browsers that they can download free and run on PCs, providing access to TV shows, movies and other content directly from the Web. The number of cable cutters remains too small to threaten the pay-television industry. Still, large cable companies such as Comcast Corp. and Time Warner Cable Inc. are noticing that people are spending more time online.
- Marking a new front for Pakistan's Islamist insurgency, the Taliban and its militant allies are moving into the heartland -- targeting the nation's undertrained and poorly equipped police. In Punjab province, home to more than 50% of Pakistan's 175 million people and its major industries, insurgents have struck the police during four major attacks and a handful of smaller ones since February. An assault Wednesday was the deadliest. Suspected Islamic militants decimated a police emergency center and the office of Pakistan's military intelligence agency in the eastern city of Lahore. They killed at least 21 people, including nine police officers, and wounded hundreds more.
NY Times:
- Chinese legal authorities have threatened to delay or deny the renewal of legal licenses for 18 top civil rights lawyers, escalating use of a tactic they have used to put pressure on attorneys they consider troublesome, two human-rights advocacy groups have charged.
- Worried about heavy reliance on imported oil, Chinese officials have drafted automotive fuel economy standards that are even more stringent than those outlined by President Obama last week, Chinese experts with a detailed knowledge of the plans said on Wednesday. The new plan would require automakers in China to improve fuel economy by an additional 18 percent by 2015, said An Feng, a leading architect of China’s existing fuel economy regulations who is now the president of the Innovation Center for Energy and Transportation, a nonprofit group in Beijing. Cars with small fuel-sipping engines are now subject to a 1 percent tax, while sports cars and sport utility vehicles with the largest engines are subject to a 40 percent tax. The average new car, minivan or sport utility vehicle in China already gets the equivalent of 35.8 miles a gallon this year based on the American measurement system of corporate averages and will be required to get 42.2 miles a gallon in 2015, Mr. An said. The details of China’s new fuel economy standards may favor domestic automakers at the expense of multinationals, several auto industry officials said.
IBD:
- Last month, Defense Secretary Robert Gates proposed some serious changes to the Pentagon's spending priorities. Out with big-ticket aircraft like the F-22. In with stealthy new options like unmanned aerial vehicles. Either way, aircraft parts supplier TransDigm (TDG) has it covered.
Business Week: Good News on the Mortgage Mess. Mortgage bond prices have rebounded and refinancing is reducing problem securities. Now improved disclosure is identifying the worst loans.
- GPS doesn't just keep us from getting lost. From practical business applications to social-networking fun, it's transforming our lives.
CNNMoney:
- Here’s a pie chart that should warm Steve Jobs’ heart. That big blue slice covering 59% of the pie represents Apple’s (AAPL) share of the U.S. smartphone traffic in April as measured by AdMob, the world’s largest purveyor of ads on mobile apps and websites. By the same measure, Apple also had the lion’s share — 43% — of the mobile Web traffic worldwide.
Forbes:
- China’s Debt Bomb
South Florida.com:
- Bargain hunters are having their way with South Florida's depressed housing market. Big price declines are driving sales as buyers scoop up a bevy of bank-owned properties. Broward County's median price for existing homes in April was $191,300, down 36 percent from $298,100 a year ago, the Florida Association of Realtors said Wednesday. Sales countywide jumped 33 percent, to 690 from 518. Meanwhile, few areas in the state boast cheaper condominiums than Broward. The median price for existing condos tumbled 47 percent to $79,900. Condo sales shot up 39 percent.
Washington Post:
- The government would retain significant control over the restructured General Motors under an Obama administration plan that would allow U.S. officials to directly name or influence the appointments of the vast majority of a new 13-member board that would oversee the company, sources familiar with the discussions said. The plan calls for federal officials to directly appoint five or six members to the board after GM emerges from its expected bankruptcy, the sources said. Another six would roll over from GM's existing board, but even these directors would reflect the government's influence since GM is reconstituting its board under government direction. The United Auto Workers' health-care trust would name one director to the company board, the sources said, adding that Canada is likely to appoint a board seat as well.
Reuters:
- News Corp(NWS/A) hopes to sell Google Inc access to a greater swathe of its media properties, its executives said, as an advertising deal between the two companies comes up for renewal. Senior executives at News Corp and its MySpace online service said at the All Things Digital conference on Wednesday that the company was working with Google to try and make their existing advertising deal better for both parties.
- U.S. Treasury Secretary Timothy Geithner has a chance next week to persuade anxious Chinese authorities their investments in huge and growing volumes of U.S. debt securities are safe and sound. His visit to Beijing must deal with tough economic realities: the United States is issuing new debt in record volumes as it seeks to finance an array of programs to right its economy, while China is growing nervous about whether its U.S. "nest egg" is secure.
- The Obama administration is weighing a plan that would put the Federal Reserve in charge of monitoring systemic risk and give the Federal Deposit Insurance Corp authority to unwind insolvent bank holding companies, sources familiar with the proposal said on Wednesday. The idea, which is being circulated to U.S. lawmakers as they embark upon an overhaul of financial regulation, could be announced soon after June 8, the two sources said.
- Chrysler is on the verge of a Motor City miracle: a make-over in bankruptcy that will bring in new management under Italy's Fiat SpA and its highly touted small car technology. Rescued from liquidation with $8.6 billion of emergency U.S. government loans and bankruptcy financing, Chrysler has been given a new lease on life. But what's next? The new Chrysler will be up against formidable and entrenched competitors in the small vehicle market like Honda Motor Co. It will also struggle with the aftermath of freezing product development to conserve cash, analysts said. But in what could be its biggest challenge, the No. 3 U.S. automaker has to break free of a reliance on aggressive discounting and a reputation for poor quality.
Financial Times:
- A senior European business representative has accused Beijing of deliberately locking foreign suppliers out of contracts under its Rmb4,000bn ($586bn, €421bn, £365bn) stimulus package. “All the foreigners are out of the race” for a package of 25 wind turbine orders worth more than €5bn, said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “It seems that the central government has decided that this must be awarded to Chinese manufacturers and not foreigners who have invested big in China.” The complaint is a significant contrast to the message Beijing has sought to convey, that it is making a contribution to help salvage the sagging global economy.
- US Treasury yields rose to their highest level in six months on Wednesday, raising concern that rising mortgage rates could damp a nascent recovery in the economy. The yield on the benchmark 10-year Treasury note rose 24 basis points to 3.74 per cent, a level last seen in mid-November. The 10-year note has climbed from lows of 2.1 per cent in December. The S&P 500 stock index fell 1.9 per cent. Long-term yields have been rising as investors respond to evidence of “green shoots” in the economy, the increasing US debt burden, the risk of a revival in inflation and a flood of new Treasury issuance. While short-term yields remain stable, longer-term yields have been volatile for several days, raising questions about whether the US Federal Reserve will have to increase its planned purchases to Treasuries.
The Telegraph:
- A list of Europe's biggest 50 hedge funds compiled by New York-based trade publication Alpha Magazine shows that GLG Partners has been hit the hardest, with assets under management falling 52pc from $23.9bn (£14.9bn) in 2008 to $11.5bn this year. The fund, run by former Goldman Sachs stars Noam Gottesman and Manny Roman, has dropped from being the second biggest hedge fund in Europe to eighth position. Other long-established funds were also hit hard. Sloane Robinson, founded by Tory party donor Hugh Robinson, saw assets drop by nearly 40pc last year. The Children's Investment Fund (TCI), the famously aggressive active investor run by the philanthropist Chris Hohn, has lost nearly 28pc of its assets. Lansdowne Partners, which called the collapse of the Northern Rock and generated returns of 13pc this year, saw its assets drop by 37pc to $12bn. RAB Capital slid down the rankings from 21st to 42nd biggest fund, while Toscafund fell from 19th to 39th.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SPLS), target $24.
- Reiterated Buy on (AEO), target $17.
- Reiterated Buy on (MYGN), target $42.
- Reiterated Buy on (BAC), target $20.
Night Trading
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Earnings of Note
Company/EPS Estimate
- (PERY)/.23
- (BIG)/.40
- (COST)/.53
- (HNZ)/.55
- (NOVL)/.06
- (OVTI)/-.33
- (DELL)/.22
- (JCG)/.11
- (SAFM)/.54
- (GCO)/.05
- (FRED)/.21
Economic Releases
8:30 am EST
- Durable Goods Orders for April are estimated to rise .5% versus a -.8% decline in March.
- Durables Ex Transports for April are estimated to fall -.3% versus a -.7% decline in March.
- Initial Jobless Claims for last week are estimated to fall to 628K versus 631K the prior week.
- Continuing Claims are estimated to rise to 6745K versus 6662K prior.
10:00 am EST
- New Home Sales for April are estimated to rise to 360K versus 356K in March.
11:00 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -150,000 barrels versus a -2,105,000 barrel decline the prior week. Gasoline supplies are expected to fall by -1,300,000 barrels versus a -4,337,000 barrel decrease the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +672,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.4% versus a -1.89% decline the prior week.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are lower, weighed down by automaker and mining stocks in the region. I expect US
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