Late-Night Headlines
Bloomberg:
- The U.S. Securities and Exchange Commission may seek more feedback on whether to limit short- selling, people familiar with the matter said, prolonging a debate between hedge funds and banks whose shares slid during the financial crisis. The SEC is considering re-opening the comment period on proposals that include reviving the so-called uptick rule, said the people, who declined to be identified before a public announcement.
- Goldman Sachs Group Inc.(GS), the most profitable trader of fixed-income securities in the U.S., said it’s cooperating with government inquiries relating to the credit-default swaps market. The U.S. Justice Department last month confirmed it was investigating the $27 trillion market for trading credit default swaps. The Department is trying to determine whether the banks that own Markit Group Ltd.., a London-based data provider, received advantages as owners and providers of prices and trading patterns for the contracts, according to two people familiar with the matter. Goldman Sachs is one of the shareholders in Markit, along with New York-based JPMorgan Chase & Co., Bank of America Corp. of Charlotte, North Carolina, and Edinburgh’s Royal Bank of Scotland Group Plc, filings show. The investigation is looking at possible anticompetitive practices related to clearing, trading and processing contracts in the market, the Justice Department said July 15. The government also is focused on potential anticompetitive practices by Markit related to negotiations with clearinghouse owners that have set up services to guarantee trades, people familiar with the matter said this week.
- Treasuries declined for a third day after the U.S. announced it will sell a record $75 billion of notes and bonds at next week’s auctions and Goldman Sachs Group Inc boosted its forecast for U.S. economic growth. Thirty-year bond yields touched their highest levels in a week as the government signaled it’s considering the introduction of 30-year Treasury Inflation Protected Securities and ending 20-year TIPS as it finances unprecedented budget deficits. Goldman Sachs, one of the 18 primary dealers that trade with the Federal Reserve, said GDP will grow at an annual rate of 3 percent in the second half of 2009, an increase over its previous forecast of 1 percent growth.
- President Barack Obama warned Republicans that he may soon consider abandoning efforts to get a bipartisan deal on a health-care overhaul and try to push legislation through Congress without their help. “At some point, sometime in September, we are just going to have to make an assessment” about continuing to seek a bipartisan agreement with Republican senators, Obama said in an interview with MSNBC. “I would prefer Republicans working with us on that because I think it’s in the interest of everybody.” Obama said he may consider an alternative course to working with the other party because “failure is not an option” in attempting to pass a health-care bill Earlier this week, New York Senator Charles Schumer, a member of the Senate Democratic leadership team, said his party would consider other ways to get health-care legislation through the Senate if a deal isn’t reached by Sept. 15. Schumer said one option might be to use the budget- reconciliation mechanism, which would allow the Senate to pass the legislation by a simple 51-vote majority. Under Senate procedures, it usually takes 60 votes to bring up contentious legislation and complete debate on it. House Republican leaders have argued that Democrats excluded them from the process of writing health-care legislation that three House committees have approved.
- Hazan Capital Management LLC and owner Steven Hazan agreed to pay $4 million to settle Securities and Exchange Commission claims the firm made naked-short sales, the agency’s first enforcement against the abusive practice. Hazan and the New York-based company were accused of betting that share prices would fall without borrowing and delivering the shares, the SEC said in a statement today. “We’re looking at the conduct of a number of other firms and that part of the investigation is continuing,” Scott Friestad, associate director of the SEC’s enforcement division, said in an interview. “These violations are not limited to smaller broker dealers.”
- American Express Co.(AXP) said write-offs tied to uncollectible credit-card debts fell to 9.2 percent in July, and the economic slump may be easing. The decline from 9.9 percent in June on managed holdings may represent real improvement, since seasonal boosts have worn off, Chief Executive Officer Kenneth Chenault said during an investor presentation today. American Express had also reported fewer write-offs in the two previous months. The company said fourth-quarter defaults will probably stay below 10 percent. While the company isn’t ready to “declare victory,” the economic environment is “stabilizing,” Chenault said. Bankruptcies are rising more slowly than forecast, and the role of the federal stimulus is unclear, the company said.
- The U.S. Securities and Exchange Commission is forming five specialty units of investigators, taking steps to speed subpoenas and giving people more incentive to cooperate with investigations, the enforcement director said. The groups will investigate cases in asset management, structured products, municipal securities and public pensions, foreign corrupt practices and market abuse, Robert Khuzami, SEC director of enforcement, said in a speech today in New York. Supervisors will have authority to issue subpoenas without a vote of commissioners.
- Cisco Systems Inc.(CSCO), the largest maker of networking equipment, predicted that revenue will drop for a fourth straight quarter as the recession crimps orders of networking equipment. Cisco, based in San Jose, California, fell 74 cents to $21.43 in late trading after giving the forecast. The shares, up 36 percent this year, closed at $22.17 today on the Nasdaq Stock Market.
- Lenovo Group Ltd., China’s biggest personal-computer maker, reported a smaller-than-estimated loss as improved domestic sales helped compensate for a slump in demand from the U.S. and Europe. The net loss in the fiscal first quarter ended June 30 was $16 million, compared with a $110.5 million profit a year earlier, Lenovo said in a statement today. The company was expected to post a $54 million loss, according to the median of five analysts’ estimates in a Bloomberg survey.
- China’s stocks fell, with the Shanghai Composite Index posting its first back-to-back losses in three weeks, as investors speculated the central bank may rein in lending and commodity prices declined. Citic Securities Co. and Baoshan Iron & Steel Co. retreated more than 3 percent after the People’s Bank of China said it will fine-tune monetary policy where necessary and guide “appropriate” lending growth. Jiangxi Copper Co., the nation’s biggest producer of the metal, slumped 5 percent and PetroChina Co., the world’s most valuable company, slipped 2 percent as copper and crude oil prices dropped. “The ‘fine-tune tone’ is spooking investors who are worried that the central bank will follow up with tightening measures, such as hiking the reserve ratio,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. “With the market at a highflying level, investors are very sensitive to any news related to liquidity.”
Wall Street Journal:
- This just in: former representative William Jefferson (D-LA), has been convicted on 11 of 16 criminal counts. The jury returned its verdict late Wednesday afternoon. The eight-woman, four-man jury convicted Jefferson on 11 of 16 counts that included bribery, racketeering and money laundering.
- Who doesn't like the government's "cash for clunkers" program? Your mechanic, for one. Owners of automotive repair shops say the program to help invigorate sales of new cars is succeeding at their expense. Bill Wiygul, whose family owns four repair shops in Virginia, said he has already had five or six customers decide against repairs. A man who sits on the board of Mr. Wiygul's bank traded in his car rather than repair it. "He'd been a customer at our Reston store since it opened," Mr. Wiygul said.
- Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group Inc. to help manage and break apart the insurer, according to a Wall Street Journal analysis. That would represent one of Wall Street's biggest paydays -- four times the fees paid to break up AT&T Corp. in 1996, and nearly double those paid for Visa USA's 2008 initial public offering, the largest U.S. IPO ever. The federal government's bailout of AIG has left it with a nearly 80% ownership stake. The government has a multiyear plan to recoup the more than $100 billion in taxpayer money it put at risk in the rescue. Among the biggest beneficiaries is Morgan Stanley, which has earned about $10 million assisting the Fed, but could collect as much as $250 million from various AIG-related deals, according to some banking experts and documents released by the New York Fed. Goldman Sachs Group Inc., Bank of America Corp. and J.P. Morgan Chase & Co. have all gotten assignments in recent months to help dismantle AIG. The situation puts the government in the potentially uncomfortable position of employing some of the same firms it regulates. In theory, actions the government takes in connection with those firms, for example, could affect how effective the firms are at handling their AIG assignments. "I'm confident we can separate the two" issues, said a spokesman for the Treasury.
- Federal Reserve officials could move in the coming weeks to extend the life of a program aimed at reviving consumer and business lending markets. The program -- called the Term Asset-Backed-Securities Loan Facility, or TALF -- will be one of several issues on the table at the Fed's next policy meeting Aug. 11 and 12, when Fed governors meet with presidents of the Fed's 12 regional banks to set a path for interest rates. They also will consider whether to extend a program due to expire in September to purchase $300 billion worth of long- and medium-term U.S. Treasury securities. Officials could decide at the meeting to let that program run its course and stop buying Treasury bonds, though the issue isn't settled.
- Hedge-fund manager Leda Braga posted gains of 43.4% last year, even as many of her peers reported steep losses. But this year, as many markets have rallied, Ms. Braga's roughly $7 billion BlueTrend Fund is down about 5.5%. Others trend-followers experiencing similar problems include Man Group PLC's $20.4 billion AHL Fund and Winton Capital Management Ltd.'s $11 billion fund, both of the U.K. AHL and Winton are down 12.5% and 8.4% this year, respectively.
MarketWatch.com:
Toyota Motor Corp. President Akio Toyoda said Thursday the Japanese auto maker will launch an electric vehicle in the U.S. by 2012, with the auto market there expected to fully recover soon, reports said.
- Following an uproar earlier this year over indications the Obama administration might strip companies of their ability to defer U.S. taxes on their overseas profits, the topic has receded from the political spotlight. But according to second-quarter lobbying reports, large technology firms -- which tend to keep large portions of their profits tucked away overseas to avoid U.S. taxes -- have continued pressing Washington, D.C. lawmakers and regulators on the issue. Their persistence underlines the high stakes still at play, as companies such as Oracle Corp.(ORCL) and Microsoft Corp.(MSFT) eye a threat to significant amounts of income made and held offshore. "Clients are still very anxious," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP, even as many now see it as "a next-year issue."
NY Times:
- Lloyd C. Blankfein has a story about the cataclysm that nearly brought down all of Wall Street. It goes something like this: One by one, lesser banks were swept away by the financial storm of 2008. And as the floodwaters rose, no one, not even Goldman Sachs(GS), seemed safe. The question, in Mr. Blankfein’s eyes, was how high the water would rise. But Washington stepped in with all those bailouts before the surge reached Goldman. The story, which was recounted by several friends and colleagues, represents a sobering private admission from Mr. Blankfein, Goldman’s chief executive. Publicly, it is a different story. Now that Goldman is minting money again, the bank insists that it was never in any real danger.
Politico:
- With the fight over health care reform absorbing all the bandwidth on Capitol Hill, Democrats fear a major climate change bill may be left on the cutting-room floor this year. A handful of key senators on climate change are almost guaranteed to be tied up well into the fall on health care. Democrats from the Midwest and the South are resistant to a cap-and-trade proposal. And few if any Republicans are jumping in to help push a global warming and energy initiative. As a result, many Democrats fear the lack of political will and the congressional calendar will conspire to punt climate change into next year.
Rasmussen:
- One-in-three likely voters (33%) now say the United States is heading in the right direction, according to the latest Rasmussen Reports national telephone survey. Most voters (60%) continue to believe the nation is heading down the wrong track.
The Washington
- The Obama administration launched a broad government effort this week to overhaul mortgage giants Fannie Mae and Freddie Mac and is considering splitting the companies and putting their troubled assets in a new federally backed corporation, administration officials said. Such an approach would keep the government on the hook for losses into the indeterminate future but would also clear the way for the revamped companies to play a critical role of financing home loans throughout the country. The move would dispense with one of the biggest burdens created by the financial crisis: the hundreds of billions of dollars in money-losing home loans owned by District-based Fannie Mae and Freddie Mac. The government has already pledged nearly $2 trillion, including $85 billion in direct aid, to keep the mortgage market working through the firms. The companies' regulator, James B. Lockhart III, director of the Federal Housing Finance Agency, who announced he is resigning Wednesday, confirmed that the administration is discussing the "good bank bad bank" model.
Reuters:
- Shares of battered financial companies including insurer American International Group Inc (AIG) and lender CIT Group (CIT) soared on Wednesday, as investors rushed to buy shares to cover short positions in the companies. AIG shares closed up 62.7 percent on the New York Stock Exchange, ahead of its quarterly earnings report due on Friday and as a new chief executive prepares to take up his position on Monday. "It seems like the short sellers were hoping that these financial institutions would show some signs of insolvency," said Joseph Cusick, senior market analyst at online brokerage optionsXpress in Chicago. "Over the last couple of days we have seen money flow into these stocks because of the perception of their cheap valuation ... now we are seeing shorts being squeezed and potentially covering their positions," he said. Dick Bove, a bank analyst with Rochdale Securities, said AIG and CIT Group were also benefiting from a growing appetite for risk. "Money is now pouring into the junk bonds, the high grades, commercial paper and everything financial," Bove said. The broader KBW Banks index .BKX rose 3.54 percent.
- Flat-screen maker LG Display Co Ltd said on Thursday its computer monitor panel sales in July rose 75 percent from a year earlier to a record 4.2 million units, helped by its recent capacity expansion. South Korea-based LG Display, the world's No. 2 maker of liquid crystal display (LCD) screens, said in a statement that replacement demand was helping the monitor panel market despite the global downturn. Global LCD monitor shipments are expected to resume growth to increase by 3 percent in 2010 and 8 percent in 2011, after contracting by 5 percent in 2009, according to DisplaySearch forecasts provided by LG.
- Bank supervision and consumer protection should not be separated, said Federal Reserve Chairman Ben Bernanke in a letter to a U.S. lawmaker obtained by Reuters on Wednesday regarding the Obama administration's proposal to create a Consumer Financial Protection Agency. "We believe that prudential supervision and consumer compliance supervision are complementary and should not be separated," Bernanke wrote to Republican Representative Spencer Bachus in the letter dated July 28. Bernanke's statement was one of the clearest signals so far of the Fed's position on the administration's proposal to strip the central bank and other bank regulators of consumer protection duties and centralize them in a new agency.
Financial Times:
- The US Securities and Exchange Commission should fund itself directly from industry fees, a system that would allow it to tackle more complex investigations and invest more in technology and skilled people, Mary Schapiro, its chairman, told the Financial Times. The SEC rakes in more than $1bn annually in registration and transaction fees but, unlike other US financial regulators, cannot spend any of it without going to Congress each year to have its budget approved. That has made it difficult to plan ahead and invest in multi-year information technology projects.
- Google(GOOG) is set to go head-to-head with Apple(AAPL) in China as the country’s largest mobile operator prepares to launch a range of customized smartphones based on Google’s Android operating system. China Mobile, the world’s largest mobile operator by subscribers, will fire the opening shot in a battle for high-value subscribers with the launch of the 3G OPhone, which runs the Android source code. The launch of the OPhone by China Mobile comes as smaller rival China Unicom is nearing an exclusive agreement with Apple to sell the iPhone in China for three years. A deal with Apple would give China Unicom a powerful tool to poach young mobile users from the market leader. The OPhone, the first of China Mobile’s 3G smartphones, is made by Lenovo Mobile . The OPhone could launch as early as next week provided the marketing is ready, sources close to Lenovo Mobile said. China Mobile will also launch a version of HTC’s Android-based Magic smartphone simultaneously. The device will trade under the Dopod brand used by Taiwan’s HTC in China, industry sources said. According to industry sources, China Mobile is expected to offer a subsidy of up to Rmb2,000 on the OPhone, almost half the price of the device, to its pre-paid and contract customers.
- Investment banking, an industry that was on life support as recently as last autumn, is booming again as companies and governments raise vast amounts of fresh capital to shore up their finances. The top 12 investment banks have raked in total revenues of $136bn before expenses in the first half of the year, according to new research compiled by analysts at Morgan Stanley. Goldman, JPMorgan Chase, Credit Suisse, Deutsche Bank and BarCap have emerged as winners amid the fallout from the credit crunch. With many of its other competitors on Wall Street now under strict government oversight, Goldman, which has earned nearly $22bn in the first half of 2009, is expected to solidify its position as liquidity returns to the market and mergers and acquisitions activity finally picks up. The firm, recently dubbed a "great vampire squid wrapped around the face of humanity," by Rolling Stone magazine, has already set aside $11.4bn to pay staff for the first six months of the year. If its second-half earnings stay on track, it would pay out an average of $770,000 to each of its 29,400 employees.
- Rupert Murdoch has vowed to charge for all the online content of his newspapers and television news channels, going well beyond his prediction in May that the company would test pay models on one of its stronger papers within the year. The comments by News Corp ’s chairman came as he predicted a “high single digit” rebound in the group’s operating profits next year. The worst of the media sector slump might be behind the company, he said, as he reported “some good signs of life” in advertising. The sweeping decision by the owner of titles including The News of the World and The Australian to abandon the practice of giving away news in exchange for attracting a large audience for advertisers could embolden other publishers warily examining paid content models. “We intend to charge for all our news websites,” Mr Murdoch said. “If we’re successful, we’ll be followed by all media,” he added, predicting “significant revenues” from charging for differentiated news online.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (RIG), target $100.
CSFB:
- Reiterated Outperform on (PWR), target $27.
Night Trading
Asia Ex-Japan Inv Grade CDS Index unch.
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/EPS Estimate
- (WEN)/.06
- (GBE)/-.35
- (BX)/.09
- (CKP)/.12
- (ATK)/1.96
- (WMB)/.17
- (MXIM)/.06
- (CSC)/.51
- (VRSN)/.31
- (SQNM)/-.27
- (ASEI)/.88
- (IPI)/.23
- (BZH)/-1.84
- (HANS)/.60
- (DTV)/.43
- (NILE )/.19
- (MCHP)/17
- (ACS)/.97
- (PSA)/1.20
- (EP)/.20
- (CBS)/.07
- (CMCSA)/.26
- (NVDA)/-.02
- (KCP)/-.27
Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 580K versus 584K the prior week.
- Continuing Claims are estimated to rise to 6250K versus 6197K prior.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly lower, weighed down by energy and shipping shares in the region. I expect US
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