Late-Night Headlines
Bloomberg:
- President Barack Obama’s plan to end tax breaks for U.S.-based multinational companies drew a skeptical response from fellow Democrats on Capitol Hill, indicating that his proposal may face obstacles in Congress. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, called for “further study” of Obama’s proposals within minutes of the president’s announcement yesterday. Joseph Crowley, a Democrat on the tax-writing House Ways and Means Committee, said he doesn’t want any tax changes to “harm” Citigroup Inc., his New York district’s largest private-sector employer. Natalie Ravitz, a spokeswoman for Senator Barbara Boxer, a California Democrat, said that any tax overhaul should not lead to “unintended consequences.” The U.S. has “a broken tax system” that is “full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share,” Obama said as he outlined his plan with Treasury Secretary Timothy Geithner at the White House. Obama called most of the breaks “unjustifiable” and likened some company practices to a “tax scam.” That rhetoric stung some executives. Carl Guardino, chief executive of the Silicon Valley Leadership Group, told Treasury officials on a conference call after the speech that Obama’s “word choices were a bit troubling” because chief executives in his organization are “proud Americans.” In an interview after the call, Guardino said he and 52 other top executives of companies such as Hewlett-Packard Co., Intel Corp. and Oracle Corp., meeting in Washington this week found it “surprising to be construed in the same way as tax cheats.” Obama’s plan drew immediate criticism from the U.S. Chamber of Commerce and the Business Roundtable, a group of chief executives at some of the biggest U.S. companies. Roundtable President John Castellani said Obama is pushing “the wrong idea at the wrong time for the wrong reasons.”
- Federal Reserve Chairman Ben S. Bernanke offered lawmakers a “cautious” prediction that the U.S. gross domestic product will grow by 2 percent next year and 4 percent in 2011, Senator John Ensign said.
- Hertz Global Holdings Inc.(HTZ) Chief Executive Officer Mark Frissora said the rental-car market and pricing are starting to show signs of improvement. “We’re seeing light at the end of the tunnel,” Frissora said today in a Bloomberg television interview. “The fleets within our industry are tighter and we are able to manage a better pricing structure.”
- Investors should brave the risk of “economic chaos” and buy stocks and real estate, said Yale University professor Robert Shiller, whose 2000 book “Irrational Exuberance” predicted the market’s collapse. “I’m less pessimistic than I was a few months ago,” Shiller said of U.S. equities in an interview in New York. “The price-earnings ratio is about average, and by that you might say it sounds like one should be in the market and have a balanced portfolio that has a good share of stocks.” The Standard & Poor’s 500 Index trades for 13.9 times its companies’ annual profits, up from a 24-year low of 10.1 in March, after the gauge rallied 33 percent since March 9. Its average price-earnings ratio for this decade is 19.4, according to data compiled by Bloomberg. Shiller, who helped create the S&P/Case-Shiller home price index, warned in an August 2006 interview that there was a “significant probability” that housing market declines would accelerate and push the U.S. economy into a recession. He said today that an increase in pending home sales in March and February’s drop in properties on the market are “positive” signals for U.S. housing prices. “Having a good fraction of your portfolio in stocks, not zero, is probably sensible now,” he said. “People should be in real estate as well because that has a chance of rebounding. It has to be about diversification, about spreading risks.”
- Stocks worldwide may rally for “several” more months as faster Chinese economic growth eases concern over the global recession and prompts investors holding cash to buy equities, said Stanley Shopkorn, the former head of equities trading at Louis Bacon’s Moore Capital Management LLC. Falling inventories will bolster demand for Chinese exports and boost the Asian country’s second-quarter economic growth to as much as 9 percent, said Shopkorn, partner at Hilltop Park Fund LP, a New York-based hedge fund that invests a quarter of its assets in emerging markets. There is a 50 percent chance that earnings for companies on the S&P 500 may be revised upward, he said. “The old adage of ‘sell in May and go away’ should be met with a douse of skepticism this year,” said Shopkorn. “Any near-term pullbacks should be extremely containable.”
- Goldman Sachs Group Inc. said U.S. bank debt is “attractive” and boosted its rating on Bank of America Corp.(BAC) and Capital One Financial Corp.(COF) bonds to “outperform.” Yields relative to benchmark rates on bonds of many U.S. banks remain at or near their record highs even after a rally in the debt caused spreads to narrow, analysts led by Louise Pitt wrote in a note. “We believe there is demand for senior paper from investors, which we view as a positive development for the sector,” Pitt said in the report. “U.S. banks also look like a better value than their European counterparts.”
- 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 17.5 basis points to 227.5 as of 8:28 am in Hong Kong , according to ICAP Plc. The Markit iTraxx Australia Sydney
- Brazil may hold the world’s third- largest potash reserves, following discoveries in the northern and eastern parts of the country, Agriculture Minister Reinhold Stephanes said. Large potash deposits were found in the Amazon region and in Bahia and Espirito Santo states, in eastern Brazil, Stephanes said today in Sao Paulo, citing data from state-controlled Petroleo Brasileiro SA. The resources may help the country become self-sufficient in fertilizer within 10 years, Stephanes said, without saying how much each deposit may hold.
- Corn fell for a second day after Environmental Protection Agency head Lisa Jackson called grain- based ethanol a bridge “to the next generation of biofuels,” potentially slowing demand for the crop. President Barack Obama announced plans to spend almost $2 billion on improving the production of biofuels, including expedited spending on developing non-grain based ethanol, to make the U.S. less dependent on oil imports. The EPA also took a step toward making corn less attractive as a biofuel feedstock, saying it has a “carbon footprint” that exceeds a required standard. Congress passed a renewable-fuels standard in 2007 that quadrupled the requirement for blending ethanol and other biofuels into gasoline supplies, to 36 billion gallons by 2022. Cellulosic ethanol, made from switchgrass, wood chips and agricultural waste such as corn cobs, is slated to comprise 20 billion gallons of that amount. The country must use 10.5 billion gallons of renewable fuels such as ethanol this year. Cellulosic ethanol is considered to have a smaller carbon footprint than biofuel made from corn because there are fewer incentives for cutting down trees or plowing up prairies to create cropland.
- Chrysler LLC dissident lenders must reveal their identities by 10:00 a.m. tomorrow, a bankruptcy judge ruled, rejecting claims that their safety was at risk. U.S. Bankruptcy Judge Arthur Gonzalez in New York forced the group to file a list of its members publicly, denying their request to reveal their identities only to the bankruptcy court. Thomas Lauria, a lawyer for the dissidents, told Gonzalez today that the group has been exposed to “undue reputational damage, and threats of violence.” He said criticism of the group was exceptional, because it came from U.S. President Barack Obama.
- A peak in the number of jobless claims signals the worst US recession in half a century may end in June, according to Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore The previous three recessions all ended within weeks after the number of applications for unemployment benefits started to wane. In his calculations, Lam smoothes the weekly claims figures using a proprietary weighted-average formula that more closely correlates with economic turning points. The graph shows the smoothed figures reached a high of 664,000 in the week ended April 4, indicating the economic slump will probably end by next month, he said. With 95% confidence, the model signals the recession will be over at the latest by the end of September, he said.
- Regulators have determined that Bank of America Corp.(BAC) has the largest need for new capital among the 19 biggest U.S. banks subjected to stress tests, according to people familiar with the matter. Citigroup Inc.’s shortfall is more limited because the company already plans to convert government preferred shares to common stock, the people said. JPMorgan Chase & Co. doesn’t need a deeper reserve against potential losses over the coming two years, according to people familiar with that company’s result.
- Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc. and Target Corp., is working on “plenty” of possible deals in the U.S. as the world’s biggest economy shows some signs of improving. “We see a lot of opportunities in the U.S. right now to buy things that we’ve always wanted, at prices that we feel are very reasonable,” Company President Bruce Rockowitz said in a Bloomberg TV interview late yesterday. “The whole U.S. is in a bottoming out phase that’s going to last, probably till the end of this year, and then start to see a pickup into next year.”
Wall Street Journal:
- Banks that want to return Troubled Asset Relief Program funds will have to demonstrate their ability to wean themselves off another major federal program, according to senior government officials, making it less attractive for some banks to return the money. The other program, a guarantee of debt issuance offered by the Federal Deposit Insurance Corp., allows firms to borrow money relatively inexpensively. Banks have $332.5 billion of debt outstanding under this program, which began last fall. Regulators are expected to detail the complete set of guidelines on how banks can repay TARP as early as Wednesday. The guidelines signal a potential turning point in the financial crisis, with the government and some banks beginning to unwind federal involvement in the industry. Several banks have been chomping at the bit to return their TARP funds, in part to prove their financial health, but also to escape from tough rules governing executive compensation, dividend payments and stock repurchases.
- In the race to shed debt, several real-estate investment trusts have come up with a new approach: They are buying back their public bonds at steep discounts. While bond buybacks are just one of many deleveraging methods REITs are pursuing, analysts said the bond buying can provide the biggest impact per dollar. "If the bond market perceives that there is high credit risk and they're willing to sell bonds back to the company at 50% of face value, then the company can use $1 to retire $2 of debt," said David Loeb, a REIT analyst with R.W. Baird & Co.
- Law-enforcement officers have long criticized Craigslist for not doing enough to prevent illegal activity among its users. The popular classified-ad Web site went on the defensive again last month after a 22-year-old medical student was charged with murdering a woman who advertised massage services on Craigslist. The 14-year-old company says it wants to work with public officials to improve the site. It took a step on Tuesday by meeting with the attorneys general of Connecticut, Illinois and Missouri. Some have called on Craigslist to shut down its “erotic services” section, which they say facilitates prostitution.
- Prices for U.S. leveraged loans have rebounded to levels unseen since Lehman Brothers Holdings collapsed last autumn, providing yet another sign that sentiment among debt investors is starting to recover, even on some of the most stressed assets. Barclays Capital's U.S. leveraged-loan index, which tracks the price of U.S. loans, ended April at $71.38, a gain of 20% this year and putting it at a level last recorded before Lehman filed for bankruptcy in September.
- Surveyor: Polachi Inc. Release Date: May 5 Sample: Distributed in mid-April and completed by 122 senior executives at small to medium-sized technology companies through out the U.S. Results: More than half of the respondents (54%) in the Polachi survey indicated they are either currently hiring or are planning to hire over the next three months. Of the executives hiring or planning to hire, 93% predicted that demand for senior talent at their organization will either remain steady or increase over the next three to six months.
- A key measure of risk reached its lowest level since last fall as investors snapped up the biggest junk-bond issue of the year, further signs companies can now borrow to meet their cash needs but still have to pay above-normal rates. Confidence that the economy is on the verge of recovery and optimism that bank stress-test results this week will be better than initially feared helped drive investors away from the safety of Treasury debt into corporate bonds and securities backed by consumer loans.
- The 12 regional Federal Reserve banks have conflicting practices regarding directors who are board members of banks and own shares of bank-holding companies, heightening calls to overhaul the policies at these financial institutions. Corporate-governance practices at the regional Fed bank system faced criticism this week following a page-one article Monday in The Wall Street Journal detailing how Stephen Friedman, chairman of the Federal Reserve Bank of New York and a Goldman Sachs Group Inc. director, was granted a waiver that allowed him to hold Goldman shares even after Goldman became a Fed-regulated bank-holding company in September.
CNBC.com: It's the right time to invest in technology stocks, said Noah Blackstein, portfolio manager at Dynamic Mutual Funds. “The valuations are exceptionally low, and these [technology] companies have managed their business as if we were in a recession since 2002,” Blackstein told CNBC. “So the balance sheets are very strong and they’re very defensive.”
NY Times:
- Mr. Flowers, a private equity manager, has no particular love for rural Missouri; in fact, he has never set foot in Cainsville. Rather, he wants to use the national bank charter he picked up in this farm town to go on a nationwide buying spree. With that charter in hand, Mr. Flowers plans to take over a handful of large struggling banks, casualties of the economic crisis. In some cases, he hopes, the federal government will help. But Mr. Flowers, whose investments in banks overseas have made him one of the richest men in America, has run into a major obstacle in the United States: the Federal Reserve, and its very notion of what a bank should be.
Morningstar:
- Merrill Lynch is replenishing its thundering herd of retail brokers after many had charged out the door. After Bank of America Corp. (BAC) said it would acquire Merrill Lynch, the firm lost more than 800 financial advisers who left voluntarily (the firm also cut some rookie advisers). Some left due to dissatisfaction with BofA's culture, while others departed after the loss of several top Merrill executives. However, in recent weeks, Merrill Lynch has gone on a hiring spree. The firm is offering one of the highest-paying recruiting deals in the industry for top- producing advisers who join the firm. It's also benefiting from concerns, warranted or not, over potential redundancies at the pending joint venture between Morgan Stanley (MS) and Citigroup Inc.'s (C) Smith Barney.
Business Week: Companies Shed Initial Resistance to iPhone.
- Technology stocks are back, and IBM (IBM) is among those spearheading the stock market's recent advance. After tumbling to a 52-week low of 69.50 a share last Nov. 20, IBM has recovered nicely, closing at 105 on May 5.
CNNMoney:
- 8 Signs of hope for the economy
The Detroit News:
- A state of Michigan agency today objected to Chrysler LLC's proposed sale, warning that the state workers compensation fund could be forced to assume the automaker's obligation of more than $140 million -- a move that would bankrupt the fund.
ValleyPRBlog:
- As the news media struggles to find a new business model, and while industry giants like The Boston Globe and others appear to be nearing the end of their ropes, there is a trend that is gaining steam in the media world. A CNN story today suggests that the future of online news may be “hyperlocal.”
Politico:
- The 2008 AIG bonus pool just keeps getting larger and larger. In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year. And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date. AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.
- In the fall of 2006, John Edwards’ political high command began hearing disturbing reports from aides on the road. The candidate, they were told, was spending too much time with an eccentric filmmaker named Rielle Hunter. So when Edwards and Hunter returned from his trip to Africa in early October, his former campaign manager Peter Scher confronted him: If Edwards was having an affair, Scher told the candidate flatly, he couldn’t run for president. Edwards denied the affair, but Scher and other loyalists from his 2004 campaign doubted his word, made excuses and stayed out of the 2008 presidential race when Edwards launched his campaign after Christmas.
PCWorld:
- MySpace Expects Huge Growth in Mobile Social Network Users. Just about every application is going mobile, as the App Store for iPhone has shown with its 1 billion-plus downloads. Mobile banking, gaming, and messaging are among the broad categories of mobile applications available, so it is no wonder that creators of social networks have gravitated to the mobile platform.
Reuters:
- The United States economy remains in "a very deep hole" but there are signs that the downturn may finally be easing, Janet Yellen, President of the Federal Reserve Bank of San Francisco, said on Tuesday. "The good news is that, for the first time in a while, there is some good news to savor," Yellen said in remarks prepared for a speech to the Haas Business School of the University of California, Berkeley.
- ABC News on Tuesday released its weekly index on consumer confidence in the United States. In the latest report, the Consumer Comfort Index climbed to a seven-month high, rising to -43 from -45 in the previous week.
Financial Times Deutschland:
- Germany
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Sell on (ADM), target $22..
- Reiterated Buy on (GLW), target $19.
- Reiterated Buy on (ETR), target $83.50.
- Reiterated Buy on (HEW), target $45.
- Reiterated Buy on (ADP), target $44.
Night Trading
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- (MMC)/.43
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Economic Releases
8:15 am EST
- The ADP Employment Change for April is estimated at -645K versus -742K 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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