Late-Night Headlines
Bloomberg:
- Dell Inc.(DELL), the second-largest maker of personal computers, reported sales and profit that beat estimates after cutting manufacturing costs and attracting buyers with low-priced notebooks. The shares rose 6.7 percent. Excluding some costs, second-quarter profit was 28 cents a share in the second quarter. Analysts had predicted 22 cents on average, according to a Bloomberg survey. Dell, based in Round Rock, Texas, rose as much as 60 cents to $16.25 in extended trading after climbing 98 cents to $15.65 on the Nasdaq Stock Market. Dell accidentally posted the earnings report on its Web site early, causing the shares to climb before the market closed. Dell said it’s seeing “seasonal demand improvements” this quarter in its consumer and federal-government businesses, though it expects slower orders from business customers in the U.S. and Europe. Business spending likely won’t pick up until 2010, with information-technology buyers in the U.S. showing the first signs of recovery, the company said. Demand for Microsoft Corp.’s new Windows operating system, due Oct. 22, may help drive new PC purchases, especially among customers who skipped Vista, Dell said. PCs account for more than half of Dell’s sales. Faster new processors from Intel Corp. -- used in PCs and servers -- may also spur corporate spending next year, he said. “The size of the installed base of old hardware has never been greater,” Michael Dell said. “I’m here to tell you there’s going to be a refresh cycle next year. It’s not all going to come in the first month or the second month, but over the course of the year.” “Corporations cannot defer IT spending forever,” said Dinesh Moorjani, an analyst with Broadpoint AmTech in San Francisco. He recommends buying the shares and this week boosted his estimates for Dell’s fiscal year revenue, betting that PC orders will rebound.
- J.Crew Group Inc.(JCG), the U.S. clothing retailer, reported second-quarter profit that exceeded analysts’ estimates after the company added stores and controlled costs. J.Crew added $1.49, or 4.5 percent, to $34.25 in extended trading.
- New regulation of the derivatives market that regulators failed to rein in nine years ago has wide political support thanks to the financial crisis, Commodity Futures Trading Commission Chairman Gary Gensler said. Gensler said in an interview today he is encouraged the financial industry recognizes “that there’s a consensus in Washington, both in the administration and on Capitol Hill that we have to bring the full over-the-counter derivatives marketplace under regulation.” That market has swelled to $592 trillion from $95 trillion in 2000, according to industry data. Gensler, 51, said there was little support in Congress to enact regulatory changes in 2000, when he was working at the Treasury Department during the Clinton administration. The political climate then led to a law exempting most derivatives from regulation. Gensler, who spent 18 years working at Goldman Sachs Group Inc. before joining the Treasury in 1997, became CFTC chairman in May after being nominated by President Barack Obama. Gensler said the CFTC isn’t going to need to revoke any more “no-action” letters that the agency’s staff had granted index investors from limitations on holdings in agriculture markets. On Aug. 19, the agency said it was revoking exemptions for two Deutsche Bank AG PowerShares commodity index funds and Gresham Investment Management LLC. “Those are the only two so-to-speak no-action letters that I’m aware of,” Gensler said. He rejected the idea that by limiting index fund holdings he might prevent smaller investors from participating in commodity markets. The commission is also considering whether to impose new federal limits on holdings in energy markets. The agency is preparing “shortly” to expand its reporting of large trader holdings, breaking out what hedge funds and swap dealers hold, he said. The agency will also release updated data showing the holdings of index investors.
- Wholesale electricity in the U.S. Northeast dropped to the lowest level in almost six years as the cost of natural gas fell and the recession cut demand. At the PJM Interconnection, a benchmark for the mid- Atlantic region, power fell $3.68, or 10 percent, to $32.31 a megawatt-hour on the Atlanta-based Intercontinental Exchange. That’s the lowest for the region, which stretches from Washington to Chicago, since Dec. 31, 2003. Mild summer weather and a weak economy have reduced industrial and residential demand for electricity as offices and factories shut and consumers cut back spending. Natural gas, a power plant and heating fuel that supplies about a fifth of U.S. electricity, dropped to the lowest price in more than seven years on Columbia’s TCO pipeline that delivers supplies to the mid-Atlantic region. In cash market trading today, the price fell 6.4 cents, or 2.2 percent, to $2.81 per million British thermal units. Cooling demand in the Northeast tomorrow will drop to 48 percent below normal for late August, said forecaster Weather Derivatives of Belton, Missouri. “Air conditioning usage will fall out of bed across the greater share of the U.S. population over the next few days,” said David Salmon of Weather Derivatives. Demand has declined so much in the Midwest that the grid operator there forecast a supply surplus unless generators cut back.
- Senator Charles Grassley of Iowa, one of three Senate Republicans negotiating on health care, said the soaring federal budget deficit “puts a stake in the heart” of $1 trillion measures being debated in Congress. Grassley, the top Republican on the finance committee, said a bipartisan plan being discussed by panel members will have to be scaled back to have any chance of passing in the wake of new deficit projections released this week. He also said he may not agree to a compromise on health care unless he’s sure his state’s hospitals won’t be harmed. “It’s going to have a big impact on whether I’ll even support something,” he said at a town-hall meeting yesterday in Le Mars, Iowa. He voiced concern that rural hospitals will be hurt by a pledge last month by hospital trade groups to produce $155 billion in cost savings over 10 years as part of an Obama administration drive to curb health-care expenditures. Grassley’s opinion matters because his talks with two other Republicans and three Democrats on the finance panel offer the last chance for a bipartisan accord to remake the $2.5 trillion medical-care system. Democrats are threatening a party-line vote if they can’t agree, a move that Republicans warn will undercut public support for any plan. His comments came during a month-long recess dominated by town-hall meetings across the U.S. that have highlighted the unease among many voters that a revamp of the health-care system may jeopardize their current coverage. Grassley said in an interview that he remains committed to negotiations with Finance panel chairman Max Baucus and the other four lawmakers -- Democrats Kent Conrad of North Dakota and Jeff Bingaman of New Mexico, and Republicans Mike Enzi of Wyoming and Olympia Snowe of Maine. Still, he said, a forecast by the Congressional Budget Office that deficits between 2010 and 2019 will total $7.1 trillion calls for a more-limited measure than the $900 billion bill the bipartisan group was discussing last month. “We’re going to be looking at smaller numbers,” he said. The deficit projection also dooms $1 trillion measures already moving through the House and approved by the Senate health committee, Grassley said.
- The Federal Reserve’s balance sheet expanded for a third straight week, the longest streak since April, as the central bank’s holdings of Treasuries and mortgage-related securities increased. The Fed’s assets rose $14.4 billion, or 0.7 percent, to $2.08 trillion in the week ended yesterday, the central bank said today in Washington. Its portfolio of Treasury securities rose $8.8 billion to $744.9 billion, mortgage-backed securities gained $13.3 billion to $622.9 billion and federal agency debt advanced $5.6 billion to $117.4 billion.
- The Commodity Futures Trading Commission will move ahead with regulation of the Chicago Climate Exchange Inc.’s voluntary carbon credit trading program for farms, factories and power plants, the regulatory body’s chairman, Gary Gensler, said today in an interview. The CFTC will use the same “significant price discovery” authority it invoked July 27 to impose position limits and reporting requirements on the IntercontinentalExchange Inc. Henry Hub natural gas swap, Gensler said in an interview today. “These markets and the carbon markets in the future will benefit by having a market regulator overseeing it to protect the market from manipulation and fraud,” Gensler said. CFTC’s move to regulate the trading of carbon financial instruments on the Chicago Climate Exchange comes as Congress debates a “cap-and-trade” program in which the federal government would create pollution credits that could be bought and sold. How to regulate the trading and picking an agency to enforce the rules are in dispute.
- Toyota Motor Corp. said it will shut a California auto-assembly plant that operated as a joint venture with General Motors Corp. for 25 years, the first time Japan’s largest carmaker has closed a factory at home or abroad. New United Motor Manufacturing Inc. in Fremont, California, will end production of Corolla cars and Tacoma pickups in March 2010, Toyota said in a statement. GM in June said it would end assembly of Pontiac Vibes at the plant, known as Nummi, and quit the venture as part of its bankruptcy reorganization.
- Japan’s consumer prices fell at a record pace in July, adding to signs that deflation will hamper a rebound from the nation’s worst postwar recession. Consumer prices excluding fresh food declined 2.2 percent from a year earlier after dropping 1.7 percent in the previous month, the statistics bureau said today in Tokyo. It was the sharpest decrease since the survey began in 1971. Japan is once again facing deflation, a sustained bout of falling prices that plagued the economy for a decade until 2005.
Wall Street Journal:
- A resurgence of terrorist violence across Southeast Asia has exposed links between various Islamist terror organizations that have proved resilient despite a yearslong U.S.-funded crackdown by authorities in the region. The rise of terrorism has come into focus in the wake of a series of attacks in the Philippines, southern Thailand and, most recently, the suicide bombing here July 17 on the JW Marriott and Ritz-Carlton hotels that killed nine people including the two bombers. The terror resurgence comes after years when authorities appeared to be gaining the upper hand. As the terror groups expand their activities, investigators are uncovering connections that show how the main organizations across Southeast Asia, many of them inspired by al Qaeda, are providing militants, training and shelter to each other. That has increased their effectiveness and made them especially difficult for authorities to crack.
- The campaign for mayor of this city, which has long promoted its racial tolerance, veered into controversy Thursday with the release of a memo urging black voters to unite around an African-American candidate and block the election of a white mayor. A local group known as the Black Leadership Forum called for African-Americans to consolidate their support around Lisa Borders, president of the Atlanta City Council and one of several African-American candidates, according to a memo circulated on the Web and to local media. The group said Ms. Borders had the best chance of winning support from white business leaders and defeating Mary Norwood, a white city councilwoman and a leading candidate for the Nov. 3 election, according to polls. "For the last 25 years Atlanta has represented the breakthrough for black political empowerment in the South," read the memo. "In order to defeat a Norwood (white) mayoral candidacy we have to get out now and work in a manner to defeat her without a runoff, and the key is a significant Black turnout." The memo was the sharpest signal yet of overt racial politics creeping into the competition to replace Shirley Franklin, elected as the city's first female mayor in 2001.
- In the game of political football that is today national security, spare a thought for CIA Director Leon Panetta. Quarterbacking is hard enough without getting sacked by your own team. President Barack Obama fought hard for the former California congressman during his uncertain February confirmation fight. That's about the last thing the president has done for his spy chief. Quite the opposite: If the latest flap over CIA interrogations shows anything, it's that Mr. Panetta has officially become the president's designated fall guy. The title has been months in the making. Mr. Obama is contending with an angry left that's riled by his decisions to retain some Bush-era counterterrorism policies. He's facing Congressional liberals still baying for Bush blood. He's hired Attorney General Eric Holder, who is giving the term "ideological purity" new meaning. Mr. Obama's way to appease these bodies? Hang the CIA and Mr. Panetta out to dry.
- As shares of American International Group Inc. continued to ascend Thursday, newly minted Chief Executive Robert Benmosche said he is taking a far more patient approach than his predecessor toward selling assets to repay the government. He is willing to wait as long as three years, he said, to offer stakes in two multibillion-dollar foreign units that the insurer had been racing to spin off. The comments underscore Mr. Benmosche's departure from the intentions of AIG before his arrival at the company in early August. AIG had previously hoped to spin off the businesses through initial public offerings starting next year to help pay back the government, which has committed as much as $173 billion in aid to the company. After analyzing all of AIG's businesses, Mr. Benmosche said, he determined the company wouldn't be able to repay the government even if it sold everything. But he suggested that if he can bolster the businesses before selling off units, the situation might improve. "The sum of the parts are a little below the whole. The whole has to be big enough to pay back the government, and with a little hard work there will be something left called AIG," he said. His remarks Thursday were among a number he has made to the media during his stay here; the comments, which have helped drive big stock moves, largely suggest he is focused on building value in the company rather than quickly breaking it apart. Since July 9, AIG shares are up more than 400%. AIG's share price rose 27% on Thursday, to $47.84 in 4 p.m. composite trading on the New York Stock Exchange.
- The U.S. Commodities Futures Trading Commission, or CFTC, Thursday authorized trading of derivatives in Brazil's benchmark Ibovespa stock index by U.S. residents, a BM&FBovespa exchange official said. The much-anticipated approval allows U.S. residents to trade the Ibovespa futures and options contracts via the CME Group's Globex trading system. "We anticipate that this approval will lead to a substantial increase in trading volumes of Ibovespa derivatives," said Edemir Pinto, the chief executive of the BM&FBovespa exchange. The derivatives will be available for trading immediately, Pinto added.
CNBC.com: Health Care Reform: How Democrats May Push Passage.
NY Times:
- A year after its war with Georgia, Russia is engaging in an increasingly hostile standoff with another pro-Western neighbor, Ukraine.Relations between the two countries are more troubled than at any time since the Soviet collapse, as both sides engage in provocations and recriminations. And it is here on the Crimean peninsula, home to a Russian naval base, where the tensions are most likely to burst into an open conflict.
CNNMoney.com:
- A $9 trillion federal deficit over 10 years may be too hard to comprehend. But this part is easy: Such unwieldy amounts of debt could have an impact on Americans' bottom line one way or the other -- if not tomorrow, then the day after. The U.S. government has been spending a great deal more than it has been taking in, and it is on track to do so well beyond the next 10 years. It has been borrowing money to make all that spending possible and it has to pay the money back with interest. How, you ask? By borrowing more. The solution is straightforward if unpleasant: Shy of finding a fairy willing to leave trillions under Uncle Sam's pillow, lawmakers will have to raise taxes and cut spending.
Forbes:
- Interactive Map: Most Expensive Zip Codes.
- Apple’s(AAPL) China Move. China Unicom to discuss Apple relationship in upcoming earnings call .
LA Times:
- President Obama, who won the White House with an electoral college landslide and enjoyed soaring public approval for the job he was doing in the weeks following his inauguration, has fallen to a 50% job approval rating in the newest daily tracking of the Gallup Poll released just now. The new low for Obama in the Gallup Poll, which measured the president's public job approval at a peak of 69% after his inauguration in January, tracks other national polls, which recently have gauged his approval ratings at 51%. It also coincides with apparent growing public concern about a protracted debate over healthcare in Washington, Gallup and other pollsters have found. Should the slide continue, Obama will by no means be the first president to slide below 50% in the Gallup Poll, which has been tracking public approval of presidents since Harry S. Truman. But Obama has reached his new low more quickly than most of his predecessors did, according to Gallup. Slipping below 50% before November of the first year in office would represent "the third-fastest drop" since World War II, Gallup reports. Republican Gerald Ford slipped below 50% in his third month as president, Democrat Bill Clinton during his fourth month. It took Republican President Eisenhower five years to fall below 50% in the public's eye, Gallup notes. It took both Republican George Bushes about three years. It took Democrat Lyndon Johnson and Republican Richard Nixon more than two years.
USA Today.com:
- Cash for clunkers ended this week — for cars. But old energy-hogging refrigerators and freezers qualify for recycling and cash from more than 60 utilities across the nation. And the federal government is making money available to states so consumers could get rebates of $50 to $200 for new, more energy-efficient appliances later this year in a so-called "cash for appliances" program. Combined, the appliance initiatives have a goal similar to the cash-for-clunker program for autos: They get less-efficient appliances off the nation's energy grid in favor of newer efficient ones. The government's rebate program, in which the Department of Energy is providing states with $300 million approved earlier this year as part of President Obama's $787 billion stimulus plan, serves another goal similar to the cash-for-clunker program: It's designed to boost the economy.
Reuters:
- The U.S. Federal Reserve should be careful not to over-stimulate the economy and stay focused on an exit from its aggressive monetary expansion as growth resumes, two senior Fed officials said on Thursday. St. Louis Federal Reserve Bank President James Bullard said the central bank would need to think about scaling back its economic support in the months ahead, while Richmond Fed chief Jeffrey Lacker said it should weigh whether to carry through with all of its current stimulus plans. "As we head to 2010, the Fed will shift its focus to implementing an exit strategy in order to avoid any potential inflation threats to the economy," Bullard said in prepared remarks. "Monetary policy is still very accommodative and the (Fed) intends to keep the fed funds target near zero for an extended period," he said, according to a summary of his presentation on the economic outlook at the College of Business at the University of Arkansas-Little Rock. Bullard emphasized that the exit ought to mean allowing the Fed balance sheet to shrink, perhaps by selling assets that it purchased this year to counter the worst recession since the Great Depression, rather than speedy rate hikes. Lacker, speaking earlier at an event in Danville, Virginia, suggested the Fed should consider now whether its planned purchases of mortgage securities might give the economy more of a boost than it needs. "Recent data suggest the economy is stabilizing, and there should be positive economic growth in the second half of 2009," said Bullard. Their comments were somewhat at odds with remarks on Wednesday by Atlanta Federal Reserve President Dennis Lockhart, who said there should be no hasty move toward raising rates and who urged policy-makers to show patience before withdrawing monetary policy stimulus, to ensure the recovery take holds.
- OmniVision Technologies Inc (OVTI), which makes semiconductor image sensor devices, reported a narrower-than-expected quarterly loss, helped by lower expenses, and forecast second-quarter results above Wall Street expectations. The company forecast second-quarter earnings, excluding items, of 10 cents to 20 cents, a share, on revenue of $155 million to $170 million. Analysts were looking for a loss of 8 cents a share, excluding items, on revenue of $108.3 million. "We are also encouraged that our flagship OmniBSI(TM) and CameraCube(TM) products are both gaining momentum with multiple Tier-1 customers globally," Chief Executive Shaw Hong said in a statement. Shares of Santa Clara, California-based OmniVision were at $15.35 in after-market trade. They closed at $13.30 Thursday on Nasdaq.
- Microchip designer Marvell Technology Group Ltd (MRVL) posted stronger-than- expected quarterly profits due to tighter cost controls and forecast earnings ahead of expectations, pushing its shares up 9 percent after hours.
- Micros Systems Inc (MCRS), which provides information systems to the hospitality industry, posted a better-than-expected quarterly profit, helped in part by lower expenses. Shares of Columbia, Maryland-based Micros were up 3 percent in trading after the bell.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (JCG) to Buy, target $40.
Piper Jaffray:
- Rated (BDX) Overweight, target $82.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 135.0 + 2 basis points.
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- Personal Income for July is estimated to rise .1% versus a 1.3% decline in June.
- Personal Spending for July is estimated to rise .2% versus a .4% gain in June.
- The PCE Core for July is estimated to rise .1% versus a .2% gain in June.
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BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares 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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