Late-Night Headlines
Bloomberg:
- Greenlight Capital Inc., the hedge- fund firm run by David Einhorn, added to its holdings of Ford Motor Co.(F) debt in the first quarter and invested in EMC Corp., Harman International Industries Inc. and Pfizer Inc. The hedge fund bought Ford’s high-yield, high-risk bank loans at an average price of 37 cents on the dollar starting in the fourth quarter of 2008, according to a May 1 letter the New York-based Greenlight sent to investors. The debt rose to 45 cents on the dollar when the first quarter ended, said the letter, a copy of which was obtained by Bloomberg News. “It does not appear that Ford will need a government loan any time soon, if ever,” the letter said. Ford, the only U.S. automaker to forgo federal aid, “had the foresight to borrow money when the debt markets were accommodating,” the hedge fund said.
- The cost of protecting Asia-Pacific corporate and government bonds from default fell, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 20 basis points to 240 as of 8:33 am in Hong Kong , according to ICAP Plc. The Markit iTraxx Australia index was quoted 28 basis points lower at 265 as of 10:44 am in Sydney
- The rally in US financial shares may continue in the near term as investors betting against banks close their bearish positions, Bank of America’s Mary Ann Bartels said. Financial stocks in the S&P 500 have jumped 86% since March 6th , while the number of shares sold short for the group increased 61% to 3.47 billion between Feb. 27 and April 15, the date of the most recent data available from US exchanges. The rise in short interest that accompanied the stock rally shows the advance in banks, insurers and real-estate companies has been driven by fresh purchases, rather than forced buying from short sellers, who have to return the borrowed shares to exit their positions, Bartels wrote today. “Financials are still the locus of shorting activity,” wrote Bartels, who ranked second among analysts who study price charts in Institutional Investor magazine’s most recent survey. “Shorts should help provide a floor on prices in this volatile sector.”
- KB Home(KBH) Chief Executive Officer Jeffrey Mezger said home prices in Southern California have begun to stabilize, allowing his company’s newly built houses to compete with existing homes, including foreclosures. “If you go to Southern Cal, as an example, we’re seeing a floor on pricing,” Mezger said today in a conference call with analysts organized by J.P. Morgan Securities Inc. “We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”
- U.S. Senator Tom Harkin, who sponsored legislation to make it easier for workers to join unions, said the proposal’s main provision may have to be dropped so that the rest of the measure can pass. There isn’t enough support for a provision called card- check that would allow workers to bypass an election and form a union when a majority of employees signs cards requesting one, Harkin said today in an interview. “Compromises are going to be made,” said Harkin, an Iowa Democrat. “It probably won’t be card-check because too many people are opposed to it now.”
- A group of Chrysler LLC’s secured lenders is seeking to block the bankrupt company’s plan to sell its business at auction this month, arguing that the U.S. government is violating federal law in order to preserve the automaker. The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, seeks to block the proposed sale to an alliance led by Fiat SpA, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization. The group said secured lenders who agreed to the Fiat deal, such as JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., were conflicted because they had also accepted TARP funds. The process is “tainted” because it was dominated by the government, the lenders argued in papers filed today in U.S. Bankruptcy Court in Manhattan.
- Wells Fargo & Co.(WFC) led a rally in bank stocks today after billionaire Warren Buffett said he would be buying shares at these prices, overshadowing concern that the stress test is going to force companies to raise capital. The 24-member KBW Bank Index jumped 15 percent, the most in almost a month. Wells Fargo, the largest U.S. originator of home loans, was the biggest contributor, climbing 24 percent. Fifth Third Bancorp, Regions Financial Corp. and SunTrust Banks Inc. each jumped more than 25 percent.
- Toyota Motor Corp., having reduced North American output about half this year, will ease cuts in Camry and RAV4 sport-utility-vehicle production in anticipation of a market slump stabilizing. The automaker will boost the speed of a Camry assembly line in Georgetown, Kentucky, in early June, and schedule overtime at a plant building RAV4s in Woodstock, Ontario, from later this month, said Mike Goss, a company spokesman.
- MGM Mirage(MGM), the biggest casino owner on the Las Vegas Strip, reported a first-quarter profit from the sale of a casino. The shares extended gains after the company said occupancy recovered and convention cancellations slowed. Las Vegas occupancy recovered to 97 percent in April, allowing MGM and competitors to begin raising rates “slightly,” Murren said today on a conference call. That compared with occupancy in the “high 70s” in January when “we were giving rooms away,” he said.
Wall Street Journal:
- The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, according to several people familiar with the matter, a move that officials hope will quell fears about the solvency of the financial sector. The exact number of banks affected remains under discussion. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days.
- A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas. Even conservative estimates suggest the Louisiana discovery -- known as the Haynesville Shale, for the dense rock formation that contains the gas -- could hold some 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production. Some industry executives think the field could be several times that size. "There's no dry hole here," says Joan Dunlap, vice president of Petrohawk Energy Corp., standing beside a drilling rig near a former Shreveport amusement park. Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand. The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels.
- The Obama administration on Tuesday will step up efforts to increase the availability of ethanol at filling stations and to speed up subsidies to struggling biofuel producers. But the trade-off is that the administration is also expected to propose a rule that could make certain biofuels look less climate-friendly. At a news conference led by the heads of the Agriculture Department, Energy Department and Environmental Protection Agency, the administration is expected to announce the creation of an interagency group that will be charged with forging a plan to encourage the production of more automobiles that can run on high-level ethanol blends, and increase the availability of high-level ethanol blends at gasoline stations. President Barack Obama is also expected to direct the Agriculture Department to expedite the awarding of loan guarantees to support the development and construction of more biofuel refineries. But at the same time, the EPA is expected to propose measuring the greenhouse-gas emissions associated with biofuel production -- including emissions that result overseas when farmers world-wide respond to higher food prices by converting forest and grassland to cropland. The EPA decision could undercut the environmental rationale the ethanol industry has used to sustain support for its government subsidies.
- Encouraged by signs that a new influenza virus may pose fewer dangers than originally feared, health officials began ratcheting back some initial measures taken to halt its spread. The U.S. Centers for Disease Control and Prevention may scale back its current recommendation to close for up to 14 days any schools attended by, or in areas near, a child who tests positive for the new H1N1 virus as growing evidence suggests most cases of the disease are relatively mild.
- Amazon.com Inc.(AMZN) on Wednesday plans to unveil a new version of its Kindle e-book reader with a larger screen and other features designed to appeal to periodical and academic textbook publishers, according to people familiar with the matter. Beginning this fall, some students at Case Western Reserve University in Cleveland will be given large-screen Kindles with textbooks for chemistry, computer science and a freshman seminar already installed, said Lev Gonick, the school's chief information officer. The university plans to compare the experiences of students who get the Kindles and those who use traditional textbooks, he said. Amazon has worked out a deal with several textbook publishers to make their materials available for the device, Mr. Gonick added. The new device will also feature a more fully functional Web browser, he said. The Kindle's current model, which debuted in February, includes a Web browser that is classified as "experimental." Five other universities are involved in the Kindle project, according to people briefed on the matter. They are Pace, Princeton, Reed, Darden School at the University of Virginia, and Arizona State.
- Many small-business lenders are seeing signs of a thaw in the secondary market for loans backed by the Small Business Administration. That is spurring more lenders to originate new loans -- and more small companies to apply for them.
Washington Post:
- Murtha’s Nephew Got Defense Contracts. Millions in Work Came Without Competition. Murtech received $4 million in Pentagon work, all of it without competition, for a variety of warehousing and engineering services. With its long corridor of sparsely occupied offices and an unmanned reception area, Murtech's most striking feature is its owner -- Robert C. Murtha Jr., 49. He's the nephew of Rep. John P. Murtha, the Pennsylvania Democrat who has significant sway over the Defense Department's spending as chairman of the House Appropriations Committee's defense subcommittee. Robert Murtha said he is not at liberty to discuss in detail what his company does, but for four years it has subsisted on defense contracts, according to records and interviews.
MarketWatch.com: ‘Goldman Conspiracy:’ Bogle’s ‘pathological mutation?’ Machinations on Wall Street, in government give rise to 13-episode TV plot.
NY Times:
- The top arms control negotiator for the United States said on Monday that the government was willing to agree to count both nuclear warheads and their delivery vehicles when renegotiating the 1991 Strategic Arms Reduction Treaty, or Start — addressing one of Russia’s longstanding concerns. In an interview with the Russian news service Interfax, the negotiator, Assistant Secretary of State Rose Gottemoeller, also said the United States was open to a Russian proposal to use radar based in Azerbaijan or Southern Russia, rather than Eastern Europe, for the proposed missile defense system.
- SACRAMENTO — Is this what a bottom looks like? This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety. Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing. Similar indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year. This is what passes for wild-eyed optimism: a belief that things have finally stopped getting worse. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said.
- India, Suddenly Starved for Investment
The Detroit
- Creditors objecting to Chrysler LLC's efforts to speed the company's move through bankruptcy won a delay in a key hearing today, and a lawyer said some had received death threats. The major proposal on tap for today was winning approval of the company's plan to establish bidding procedures -- in an effort to quickly allow the "good" assets of Chrysler to be auctioned off so the company can quickly emerge from bankruptcy. A lawyer for the objecting creditors, Thomas Lauria, told Gonzales that some creditors had received death threats -- and those had been referred to the FBI and local police. Lauria wants court permission to keep the identities of some of those creditors secret. The biggest obstacle Chrysler faces to a quick exit from bankruptcy is the objections of secured creditors, who hold roughly 10 percent -- or $700 million of its $6.9 billion in first-lien debt. The Treasury Department convinced the four major banks holding 70 percent of Chrysler's secured debt to accept $2 billion in cash for the $6.9 billion.
Business Week: The 10 Most Promising New Drugs
Google Mobile Blog:
- If your employer has provided you with a BlackBerry smartphone, you may be accustomed to its built-in email, calendar, and address book applications. The Google Apps Enterprise team has just announced that we will soon release Google Apps Connector for BlackBerry Enterprise Server, which enables you to use these familiar applications with Google Apps. Google Apps is our hosted solution for enterprise messaging and collaboration. It includes Gmail, Google Calendar, and more. Google Apps Connector for BlackBerry Enterprise Server connects your BlackBerry Enterprise Server directly to the Google cloud, and creates a seamless experience between Google Apps and the built-in BlackBerry smartphone applications for mail, calendar, and address book. The Google Enterprise blog has more details about the offering.
Newsday.com:
- Eight in 10 New Yorkers don't think Gov. David Paterson is doing a good job and they'd rather have disgraced Gov. Eliot Spitzer back. But at this point, Paterson says he doesn't much care. His 19 percent approval rating in a recent Marist College poll is a 7-point drop since March.
Morningstar:
- Citadel Investment Group hired two traders and a former head of equity sales at Bank of America Corp. (BAC), according to a person familiar with the situation. The new hires underscore the continued push by hedge funds to attract top talent from troubled Wall Street firms. Citadel, a Chicago hedge fund, recruited James Boyle, global head of equity- linked trading, and Brad Kurtzman, head of equity index trading. Brennan Warble, who served as head of equity sales for the Americas, also joined Citadel. Warble retired from Bank of America in March. With the financial crisis, many banks have seen the defection of employees to boutiques and private firms over the past year. On Thursday, Morgan Stanley (MS) Chief Executive John Mack said one hedge fund manager told him he could hire " anybody he wants" from the firm and Goldman Sachs Group Inc. (GS).
Forbes.com:
- 10 Cool Gadgets for New Moms
Reuters:
- American International Group Inc is expected to post a first-quarter loss on Thursday, but the insurer's results will not trigger a new capital injection from the U.S. government, a source familiar with the matter said on Monday.
TimesOnline:
- The speed at which Chinese state-owned companies have been able to increase their capital spending — flying in the face of market signals — and the quality of those investments could create problems for the region, Eric Fishwick, chief economist at CLSA, said. This kind of countercyclical investment is nothing new, but its scale and scope in China may create problems, for capacity will increase in areas where market forces would normally force it to contract. “Building additional industrial capacity in the face of falling prices is value-destructive — and not just for Chinese businesses,” Mr Fishwick said. “China has the scale to generate profitdestructive deflationary pressures across Asia.” He added that the global downturn may force many companies to fail, but as long as politics — rather than economics — influences Beijing's decision to bankroll wild investment by state-owned enterprises, these failures will be outside China. Heavy industry in the rest of Asia is “acutely at risk,” Mr Fishwick said.
Livemint.com:
- India’s merchandise exports continued to contract in April this year for the seventh month in a row, possibly indicating the continued impact of the global slowdown on the country’s exporters. So-called quick estimates from the ministry of commerce and industry show that exports contracted to $11 billion (Rs54,670 crore) in April, down by 23.6% compared with a year ago. The updated figures will be released on 1 June. After growing by 30.9% in the first half of 2008-09, India’s exports entered the negative territory and plunged 33.3% in March this year, the worst in at least 14 years. In dollar terms, exports stood at $11.5 billion in March. India’s merchandise exports for the year ended March touched $168.7 billion, recording a 3.4% growth and falling short of the government’s revised target of $175 billion. Commerce secretary G.K. Pillai has said he expects a flat or modest contraction in merchandise exports growth in 2009-10.Exports has shown an absolute month-on-month decline since July last year till April this year—from $16.9 billion to $11 billion. Provisional data from the commerce and industry ministry shows that imports contracted, for the fourth successive month, to $15 billion in April, by 37.5% compared with a year ago on account of weak domestic demand and lower crude oil prices.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (TREE) to Buy, target $13.
- Reiterated Buy on (Q), target $5.50.
- Reiterated Buy on (MYGN), target $42.
- Reiterated Buy on (RIMM), target $100. Verizon’s Buy One Get One free promotion has been extended beyond its planned end this past weekend due to the success of this promotion which is a positive for RIMM. Subsidies continue to go to smart phones & away from feature phones & supportive of our industry thesis that Smart Becomes Average as mainstream users now adopt smart phones vs. high end niche segment previously.
- Reiterated Sell on (N), target $9.
Oppenheimer:
- Rated (WFC) Outperform.
Night Trading
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Earnings of Note
Company/EPS Estimate
- (AVP)/.32
- (CEG)/.61
- (DBD)/.17
- (PER)/.24
- (CVS)/.54
- (JOE)/-.03
- (FCL)/.00
- (WY)/-.79
- (DNR)/.19
- (EMR)/.53
- (HEW)/.56
- (MVL)/.37
- (ADM)/.49
- (ICE)/.97
- (DUK)/.31
- (LM)/-2.33
- (WBMD)/.14
- (CEPH)/1.27
- (CTX)/`1.32
- (PHM)/-.55
- (PBI)/.64
- (DIS)/.40
- (ERTS)/-.42
- (LVS)/-.02
- (JCOM)/.44
- (WYNN)/.02
Economic Releases
10:00 am EST
- The ISM Non-Manufacturing Index for April is estimated to rise to 42.2 versus 40.8 in March.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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