Weekend Headlines
Bloomberg:
- The United Nations Security Council agreed in an emergency session to condemn the nuclear test North Korea said it conducted and the communist nation’s launch of three short-range missiles. “The members of the Security Council voiced their strong opposition to and condemnation” of the nuclear detonation and missile launch, Ambassador Vitaly Churkin of Russia, which holds the rotating presidency of the panel this month, told reporters after the meeting in New York. The Security Council also demanded that North Korea fully comply with previous UN resolutions and agreed to work on a new one, Churkin said.
- Iranian President Mahmoud Ahmadinejad, who faces re-election next month, said he considers the dispute over his country’s nuclear program “over.” The Iranian people “won’t allow negotiations to take place outside the framework of the IAEA” the United Nations atomic energy watchdog, Ahmadinejad said today at a Tehran press conference when asked about talks with world powers seeking a suspension of Iran’s uranium enrichment program.
- The Markit iTraxx Australia index dropped 10.5 basis points to 198.5 as of 10:51 am in Sydney The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 7.5 basis points to 182.5 as of 8:45 am in Hong Kong , according to ICAP Plc prices. The Markit iTraxx Japan was quoted 3 basis points lower at 177 as of 9:43 am in Tokyo
- Federal Reserve Board Vice Chairman Donald Kohn said the U.S. economy may get a $1 trillion boost in coming years from the central bank’s purchases of government and mortgage debt, along with $175 billion in extra tax revenue. Kohn defended the central bank’s response to the financial crisis and worst recession in 50 years while saying the central bank “needs a framework” for tightening credit when the economy rebounds. Some economists and Fed officials, including Philadelphia Fed President Charles Plosser, say adding the assets to the balance sheet risks spurring inflation. “The preliminary evidence suggests that our program so far has worked,” Kohn, 66, said yesterday in a speech during a panel discussion at a conference on monetary and fiscal policy at Princeton University in New Jersey. He cited reductions in longer-term interest rates.
- Iran may be able to retain its disputed nuclear energy program with international inspections, President Barack Obama’s top military adviser said today. Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, said “that’s certainly a possibility” when asked on ABC’s “This Week” program whether it would be acceptable for Iran to have a nuclear program similar to Japan’s. Japan enriches uranium for use in reactors and reprocesses spent fuel under international supervision. Iran isn’t allowing sufficient scrutiny of its nuclear facilities, inspectors say. The International Atomic Energy Agency, in a February report, said inspectors checking into the construction of an Iranian nuclear reactor at Arak are no longer able to rely on satellite surveillance of the site since the completion of a dome over the plant.
- President Barack Obama said one of the “biggest problems” in shutting down the U.S. prison at Guantanamo Bay, Cuba, may be how to deal with terror suspects who pose too great a threat to be released. “It’s a messy situation. It’s not easy,” Obama told C- SPAN in an interview.
- Venezuelan Finance Minister Ali Rodriguez said that OPEC is seeking an oil price of $70 a barrel in order to maintain new investments in the industry. Venezuela’s Oil and Energy Minister Rafael Ramirez, also speaking in Quito, said he’s “worried” about high oil inventories and that it’s too early to begin thinking about raising OPEC output quotas again, while a decision on another cut would hinge on the development of demand. “Inventories are 8 percent higher than the average of the past five years,” Ramirez said. “It’s a very bad sign, which we will review carefully at the OPEC meeting as it means that oil is being accumulated.”
- General Motors Corp.(GM), facing rising cash needs before a June 1 bankruptcy deadline, tapped $4 billion more in U.S. aid to push its total to $19.4 billion. GM’s latest loan from the Treasury exceeded a forecast of $2.6 billion, according to a regulatory filing yesterday by the largest U.S. automaker. Detroit-based GM said it needed $1.4 billion more in cash this month than it expected.
- Saudi Arabian Oil Minister Ali al- Naimi said he’s “absolutely fine” with the adherence to OPEC production quotas by member states as the group meets in Vienna this week to discuss output policy. “I’m happy with compliance,” al-Naimi told reporters today in Rome. “When it’s around 80, this is the best we can expect,” he said, referring to the percentage rate of compliance. The 11 members of the Organization of Petroleum Exporting Countries bound by targets implemented 77 percent of planned output cuts of 4.2 million barrels a day, down from a revised 82 percent for March, the Vienna-based organization said on May 13. The group cut its 2009 forecast and now estimates daily oil demand will fall by 1.57 million barrels, or 1.8 percent, to 84.03 million barrels of oil a day this year. Naimi said industrial oil stockpiles are too high and wants them to drop to between 52 and 54 days. Crude inventories in the industrial economies of the Organization for Economic Cooperation and Development are at their highest since 1993, at 62 days of consumption, according to the International Energy Agency.
- Ukraine’s economy probably shrank as much as 23 percent in the first quarter of the year as the global financial crisis took its toll on the eastern European nation, President Viktor Yushchenko said. “The economic contraction is expected between 20 percent to 23 percent in the first three months of the year,” said Yushchenko today, according to a statement posted on his Web site. “The pace of the decline is one of the fastest in Europe.”
- Chrysler LLC pressured dealers to buy cars in the months before filing for bankruptcy and a Florida dealer claims it is losing the franchise because it refused, according to court documents. Jim Boast Dodge Inc. of Bradenton, Florida, asked a New York judge in a May 23 filing to block Chrysler’s attempt to terminate its franchise agreement with the dealership, saying the automaker is breaking Florida law and doesn’t have a reasonable business case for the decision.
Wall Street Journal:
- Nations around the world voiced alarm and frustration about what could be done to rein in the growing security threat from North Korea after the isolated regime set off what it said was its most powerful nuclear test yet. Along with an underground detonation that registered on seismic stations as far away as Texas, North Korea tested three short-range missiles, including one from the same site from which it fired a long-range missile over Japan in April.
- Chiefs of some of the world's largest companies are urging global leaders to cut a strong deal this December to curb pollution, saying they need certainty on emissions targets to be able to make long-term investment decisions. The World Business Summit on Climate Change, which brought together more than 500 business leaders, is being seen as a crucial milestone on the road to December's meeting here, at which governments will try to hammer out a successor agreement to the United Nations' Kyoto Protocol. Many of them said a global deal would provide the regulatory certainty and price signals they need to invest in renewable fuels and low-carbon technologies. Business leaders said they were working on a draft statement that would call for emissions to be cut by at least 50% by 2050, an ambitious target also endorsed by the U.N.
- From his perch high atop the palatial Dallas Federal Reserve Bank, overlooking what he calls "the most modern, efficient city in America," Richard Fisher says he is always on the lookout for rising prices. But that's not what's worrying the bank's president right now. His bigger concern these days would seem to be what he calls "the perception of risk" that has been created by the Fed's purchases of Treasury bonds, mortgage-backed securities and Fannie Mae paper. Mr. Fisher acknowledges that events in the financial markets last year required some unusual Fed action in the commercial lending market. But he says the longer-term debt, particularly the Treasurys, is making investors nervous. The looming challenge, he says, is to reassure markets that the Fed is not going to be "the handmaiden" to fiscal profligacy. "I think the trick here is to assist the functioning of the private markets without signaling in any way, shape or form that the Federal Reserve will be party to monetizing fiscal largess, deficits or the stimulus program."
- Few people rode the hedge-fund boom better than Clifford Asness, whose AQR Capital Management LLC once managed nearly $40 billion in assets and generated billions in profits. Today, Mr. Asness is running a much smaller firm, grappling with the future of the hedge-fund industry and nursing wounds from a year whose low points included smashed computer screens and a Web-site tirade that became the talk of Wall Street. He was forced to fend off rumors that the firm he founded 10 years earlier was near collapse, and to explain money-losing bets on a wide variety of markets, including U.S. stocks, convertible bonds and commodities, that surprised some investors used to steady gains. "For a long time, it's been a seller's market for hedge funds," he said. "But now the average fee is going to come way down. There's going to be a lot of changes." The market's chaos last year made a hash of the mathematical models used by quantitative hedge funds such as AQR. Its losses were severe in late 2008 after Lehman Brothers Holdings Inc. collapsed, sending markets around the globe into turmoil. AQR's flagship Absolute Return Fund, or ARF, fell about 45% in 2008, according to people familiar with the matter, compared with a 39% drop by the Standard & Poor's 500-stock index.
- The Cleveland Cavaliers have signed an agreement with an investment group from China to become minority owners of the NBA franchise and its arena, a partnership that could affect superstar LeBron James' future with the team.
- The Obama administration's push to boost fuel-efficiency standards could complicate its bid to revive two of the country's largest auto makers, making the task both riskier and more costly. Under a plan announced this week, the administration intends to impose rules mandating that U.S. car makers raise overall fuel economy to 35.5 miles per gallon by 2016, up from about 25 mpg. Pulling that off could be particularly hard for General Motors Corp. and Chrysler LLC, the two companies the administration is trying to save. Both have for years drawn most of their profits from large sport-utility vehicles and pickup trucks, while having less success marketing the sort of cars envisioned under the stricter efficiency rules. In the short term, GM and Chrysler need to generate cash flow by building and selling many more of the comparatively fuel-thirsty vehicles -- pickups such as the Chevrolet Silverado and Dodge Ram, and family haulers such as the Chrysler minivan and Chevrolet Traverse. GM warned last month in a government filing that the tightened standards -- then meant to take effect in 2020, instead of 2016 -- could significantly disrupt its operations, leading it to cut sales of its more profitable models and ramp up production of hybrid and electric cars. GM said in the same filing that complying with the new standards would cost the U.S. auto industry at least $100 billion.
- Quantitative fund managers, who use computer models rather than human judgment to pick securities, have seen their world turned upside down by the credit crisis. The first generation of managers and their models have moved on: Their inheritors are having to accommodate a changed landscape full of skeptical investors. In reaction, quant managers have spent 2008 making adjustments to their models, finding new sources of data and tightening secrecy. Asset managers, in general, are facing tough times, but stock-picking is at least a familiar and well-worn concept for investors. They may not always be happy with their human asset managers, but they are continuing to talk to them. The so-called black boxes that carry out the complex strategies of quantitative funds, on the other hand, are increasingly out of favor with investors and investment consultants. During a bout of volatility in July and August 2007, the models came unglued. Price drops in certain securities automatically led to further declines as computers sold en masse. The use of leverage added to the snowball effect. Goldman Sachs's Global Alpha fund had shrunk by about 80% from its peak to the end of last year, thanks to a combination of client withdrawals and negative market returns. One of the biggest problems in 2007 was of quantitative funds "crowding," or all getting stuck in the same bad trades. That happened because their models factored in publicly available information from companies' reports and, in many cases, used it in the same way to make the same bets.
- HTC Corp. plans next month to start selling in China a smart phone based on Google Inc.'s Android operating system, the first Google-based phone in the world's biggest wireless market, HTC Chief Executive Peter Chou said in an interview.
- High-tech start-ups are increasingly setting up shop in places previously not known for attracting high-tech firms. A number of cities, such as Kalamazoo, Mich., and Toledo, Ohio, are offering grant money and tax breaks to high-tech start-ups, just as the usual venture-capital hot spots, such as Silicon Valley and Boston, continue to see a pullback in venture lending.
MarketWatch.com:
- A fight between Chrysler LLC and the state of Indiana heated up Monday, as the bankrupt automaker argued that a legal review demanded by the state would do harm to both parties. Attorneys for a pair of Indiana state pension funds and a state construction fund are slated to appear at a U.S. district court Tuesday to challenge the legality of Chrysler's plan to exit bankruptcy protection. The funds, which hold a combined $42.5 million of Chrysler's total $6.9 billion in secured debt, have said that the unprecedented role of the Treasury Department makes a legal review of the automakers protection from its creditors necessary, according to an Associated Press report.
IBD: J2 Global Communications (JCOM) has kept the fax from petering out by making technological improvements. Its core business is a fax service that uses proprietary software to convert paper faxes into digital files that can be sent by e-mail.
NY Times:
- Stocks and the euro fell Monday in Europe after a report from Germany showed a gloomy environment for manufacturers. Asian shares held up well despite the shock of a North Korean nuclear test. European markets faltered after the Ifo research institute at the University of Munich said its German business climate index rose to 84.2 from 83.7 in April, below the consensus reading of 85 that economists polled by Bloomberg and Reuters had expected. In the Ifo survey, firms are asked to give their assessments of the current business situation and their expectations for the next six months.
- The State Department will offer equal benefits and protections to same-sex partners of American diplomats, according to an internal memorandum Secretary of State Hillary Rodham Clinton sent last week to an association of gay and lesbian Foreign Service officers. Mrs. Clinton said the policy change addressed an inequity in the treatment of domestic partners and would help the State Department recruit diplomats, since many international employers already offered such benefits.
- The most attention-grabbing element of Intel’s software push is a version of the open-source Linux operating system called Moblin. It represents a direct assault on the Windows franchise of Microsoft, Intel’s longtime partner.
- US Hospitals Use Youtube, Web to Market Surgeries.
Washington Post: The Pakistani army has retaken control of key parts of the contested Swat Valley in recent days, but the Taliban has kept its grip on some of the area's largest towns nearly a month into a massive military offensive, army commanders said Friday during a visit near the front lines. Speaking at a rudimentary base in the heart of this verdant valley, the commanders acknowledged that regaining full control of Swat will probably take months and involve intense combat with the well-trained, well-funded Taliban militia. Highlighting the difficulty, some extremists are simply melting back into the civilian population so they can fight another day, as they have during previous clashes over the past 18 months in Swat.
- Justice Dept. Investigates Pa. Contractor Tied to Democrat John Murtha
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CNNMoney.com:
- Here are the places where B-school students most want to work, according to a survey by research firm Universum, for an exclusive Fortune.com list. Not only are these top 15 employers popular, but even in this economy most are looking for talent.
Business Week:
Say goodbye to PINs and photo IDs. Say hello to digital fingerprints and iris scans—and to new opportunities for security businesses.
- Spending on Fido and Fluffy is holding up well even as their owners tighten their belts.
- The debate over business schools' culpability in the financial crisis rages on, with no clear end in sight.
LA Times:
- As bad as California's budget crisis is for the state's $1.8-trillion economy, just wait. It could get worse. The spectacle that played out in the national media this week of a state unable to get its fiscal act together is reinforcing the notion that the Golden State is a rotten place to do business, experts say. Corporate leaders and Wall Street investors, watching the daily festival of seeming incompetence, political partisanship and governmental dysfunction, could be persuaded to limit or eliminate their investments here. "We lose competitive advantage by being the state that can't solve its problems," economist Stephen Levy said. "Regardless of what we think the solution is, the fact is we can't find a solution."
Politico:
- House Speaker Nancy has flown from one human rights controversy (waterboarding) right into another one (the fight for democracy in China). Pelosi -- who has clashed with China's leadership over human rights for decades -- has remained mum (as far as we know) during the first couple of days of her week-long trip to the mainland, which is focused on global warming issues. But her presence has inspired protesters who well remember a very different Pelosi visit back in 1991, when she spoke out strongly against the Tiananmen crackdown, when she unfurled a pro-democracy banner surreptitiously in the square before speeding away in a taxi.
Forbes.com:
- East Asians Hardest Hit in World Crisis
- Will the next iPhone come in blue? Will it get more flash memory ? Who cares. What the iPhone really needs is a new processor. Now it seems it might get one. Apple (AAPL) is looking for iPhone programmers familiar with the NEON extended instruction set used by the next-generation ARMv7 processors, according to an Apple job listing spotted first by Macrumors.com.
- Shifting health care from paper to electronic records could be one of the most important efficiency gains in our lifetimes, affecting everything from how quickly we can check into a clinic or hospital to how many specialists are available to monitor patients.
- With stability creeping back into the economy, the burning question is just how much the big IT vendors will step up their acquisitions and where the new battle lines will be drawn.
Reuters:
- European Union Monetary Affairs Commissioner Joaquin Almunia said European banks have a greater need for recapitalization than those in the US Almunia also said about European bank balance sheets that “not all the implicit losses in the balances are known.”
Financial Times:
- The challenge facing Fiat in reviving Chrysler has been underlined by a report that concludes only two of the Detroit carmaker’s vehicle lines are going concerns. The popular Jeep Wrangler and the high-powered Dodge Viper sports car are singled out in the report, compiled by Capstone, one of Chrysler’s financial advisers, commissioned to provide an analysis of creditors’ recoveries in a possible liquidation. Fiat will initially have a 20 per cent stake and aims to use its small car technology and global distribution network to rectify Chrysler’s two main weaknesses: its heavy dependence on pick-up trucks, sports utility vehicles and minivans; and its limited business outside North America. George Magliano, director of automotive research at IHS Global Insight, a consultancy, said: “Even with Fiat, Chrysler must still prove they can survive prior to the recovery in light vehicle sales in late 2010.” He puts the odds on the carmaker going under at 20-30 per cent.
- China’s official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing’s increasingly vocal fear of a dollar collapse, according to officials and analysts. Senior Chinese officials, including Wen Jiabao, the premier, have repeatedly signaled concern that US policies could lead to a collapse in the dollar and global inflation. But Chinese and western officials in Beijing said China was caught in a “dollar trap” and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases. In March alone, China’s direct holdings of US Treasury securities rose $23.7bn to reach a new record of $768bn, according to preliminary US data, allowing China to retain its title as the biggest creditor of the US government. “Because of the sheer size of its reserves Safe [China’s State Administration of Foreign Exchange] will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many dollars,” said a western official, who spoke on condition of anonymity. The composition of China’s reserves is a state secret but dollar assets are estimated to comprise as much as 70 per cent of the $1,953bn total and China owns nearly a quarter of the US debt held by foreigners, according to US Treasury data.
- By giving his most detailed speech so far on terrorist detainees on Thursday, Barack Obama was hoping to persuade others to drop the subject. Unfortunately for Mr Obama, who wants to direct the conversation to more forward-looking topics, such as healthcare reform and a possible Arab-Israeli peace process, the turmoil surrounding treatment of alleged terrorists is likely to persist. That is partly because he has adopted a messy position himself. On the one hand Mr Obama has said he will close the Guantánamo detention centre by next January. On the other, his administration continues to use George W. Bush’s definition of the “war on terror” to detain the most dangerous ones indefinitely – just not on Cuban soil, or American, if Congress continues to get its way. Mr Obama is unlikely to get much help from his Democratic colleagues. From the left, he faces a growing cry of betrayal. His decision to “look forward, not back” means that the Bush lawyers who drafted the memos reclassifying torture as legal are unlikely to be prosecuted. Nor does Mr Obama want to set up a “truth commission” to investigate post 9/11 torture. Such a move might put the politics on ice for a few months. Then it would return squared. Mr Obama would be faced with a dilemma: choose again to “look forward” and be branded a traitor to the high ideals on which he campaigned; or prosecute those found culpable and risk igniting a real backlash against his presidency. It is worth remembering that half the American people believe “waterboarding” is justified, according to polls – a far higher number than those who do not. A small majority also believe it is wrong to close Guantánamo. These are not diehard conservatives. Many are Democrats.
- The Obama administration faces mounting pressure to wind back Buy American measures passed by Congress this year amid growing concerns that they hurt some US workers they were designed to help. The measures, which were in the $787bn US stimulus bill, require any project funded with stimulus money to use only US-made steel, iron and manufactured goods. An outcry from the US’s trading partners saw the bill amended at the last minute as the White House urged that it not contravene existing trade agreements. Some businesses and officials say that amendment is proving virtually meaningless in practice. More than a third of the stimulus money is being disbursed by states and local authorities, which are not party to free trade accords such as the North American Free Trade Agreement. Canadian manufacturers complain that their goods are being shut out of contracts funded by the US stimulus even though Canada is party to NAFTA, which prohibits discrimination. In retaliation, some Canadian municipalities have passed “Do Not Buy American” resolutions to shut out US-made goods. That has rattled some exporters. Texas manufacturer JCM Industries told the Financial Times that it might have to lay off workers if the situation worsened.
TimesOnline: Professor Robert Shiller warns Britain may suffer a double recession. Britain’s banks still hold large pools of toxic assets, and rising unemployment, mortgage defaults and corporate bankruptcies still threaten the UK economy, Shiller said. He also believes house prices in Britain may continue to decline for a “number of years,” the report said.
Telegraph:
- Germany's financial regulator BaFin has warned that the toxic debts of the country's banks will blow up "like a grenade" unless they take advantage of the government's bad bank plans to prepare for the next phase of the crisis.
Excelsior:
- Petroleos Mexicanos , Mexico Mexico
China Business News:
- China
Yonhap News:
- North Korea told China beforehand of the nuclear test it conducted on Saturday, citing a diplomatic source in China
National Business Daily:
China Steel prices are at the lowest since 1994.
Yomiuri:
- Toyota Motor Corp. may provide General Motors Corp. with hybrid-vehicle technology. Toyota The move may help Toyota
Shanghai Securities News:
- China Zhou said apart from hydropower, the nation is aiming to raise the consumption of renewable energy to more than 6% of China
- New loans offered by China
Bangkok Post:
- Thailand
The National:
- Commercial rents in the Dubai International Financial Centre, a tax-free business park, dropped 40% in the past six months, citing a report by CB Richard Ellis Group Inc.
Weekend Recommendations
Barron's:
- Made positive comments on (LEN), (FCX), (B), (FLEX), (CHE), (TMO) and (SEB).
Citigroup:
- Reiterated Buy on (ALTR), raised estimates, target $21.
Night Trading
Asian indices are -.50% to +.50% on avg.
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/Estimate
- (DCI)/.30
Upcoming Splits
- None of note
Economic Releases
9:00 am EST
- The S&P/Case-Shiller US HPI for 1Q is estimated at 140.7 versus 139.1 in 4 Q.
10:00 am EST
- Consumer Confidence for May is estimated at 42.8 versus 39.2 in April.
Other Potential Market Movers
- The Richmond Fed Manufacturing Index, Dallas Fed Manufacturing Index and the (DB) annual meeting could also impact trading today.
BOTTOM LINE: Asian indices are mixed, as gains in technology stocks offset losses in financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.
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