Late-Night Headlines
Bloomberg:
- The Federal Reserve asked a judge to delay enforcement of her decision requiring the central bank to identify companies in its emergency lending programs. Chief U.S. District Judge Loretta Preska in Manhattan said on Aug. 24 that the Fed had until Aug. 31 to disclose daily reports on borrowing by banks and other financial institutions. The central bank wants Preska to stay her order, made in a Freedom of Information Act lawsuit, until the U.S. Court of Appeals in New York can act on an appeal that the Fed said it intends to file. The Fed and U.S. banks would suffer irreparable harm if details of the loan programs were made public, according to the central bank’s senior counsel, Yvonne Mizusawa. The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company that’s majority- owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit. Bloomberg News opposes the Fed’s request for a stay.
- A federal court rejected an attempt by two Ohio residents to use the so-called TurboTax defense that Timothy Geithner relied on to help win Senate confirmation as U.S. Treasury Secretary. The U.S. Tax Court in Washington rejected an appeal of accuracy-based penalties assessed by the Internal Revenue Service on Kenneth and Linda Hopson, who claimed they relied on tax-return preparation software that failed to detect income they had omitted from their 2006 federal tax returns. “Petitioners were not permitted to bury their heads in the sand and ignore their obligation to ensure that their tax return accurately reflected their income,” the court said in an opinion issued yesterday. “In the end, reliance on tax return preparation software does not excuse petitioners’ failure to review their 2006 tax return.” Geithner, who now oversees the IRS, testified during his confirmation hearing in January that he prepared his own returns when he worked at the International Monetary Fund in 2001 and 2002, using TurboTax, an Intuit Inc. product. He said his failure to pay taxes owed on some income during those years was not flagged by the software.
- President Barack Obama will create a federal task force to oversee restoration of the Louisiana and Mississippi coastlines, replacing the U.S. Army Corps of Engineers as the agency in charge. The move will overhaul decades of federal management of the Gulf Coast by the Corps, which has been criticized by lawmakers and New Orleans residents for building levees that couldn’t withstand the force of Hurricane Katrina four years ago. The new interagency effort will be led by the Obama administration’s budget and environmental offices, said Nancy Sutley, head of the White House Council on Environmental Quality, in an interview today.
- SAP AG(SAP), the world’s biggest maker of business-management software, must pay $138.6 million to Versata Software Inc. for violating its patents, a federal jury decided.
- TiVo Inc.(TIVO), the pioneer in digital video recording services, sued Verizon Communications Inc. and AT&T Inc. claiming infringement of patents used in their DVR systems.
- China China China
Wall Street Journal:
- A prominent fund-raiser for President Barack Obama, Hillary Rodham Clinton and other top Democrats left jail Wednesday for his $20 million New York City apartment, where he will remain under house arrest. Investment banker Hassan Nemazee, 59, left U.S. District Court in Manhattan shortly after noon. He spent one night at the Metropolitan Correctional Center next to the courthouse after his Tuesday arrest on a bank fraud charge.
- A statewide corruption investigation that has entangled dozens of New Jersey politicians had its origins a decade ago inside a dingy trailer office in Monmouth County, where federal agents overheard talk about bribes to local officials, some involving real-estate deals. The wiretaps of phones in the trailer eventually led to the arrests and convictions of a half-dozen public officials and sparked two other probes that have since ensnared nearly 80 politicians, fixers, businessmen and others. The key figure in last month's dramatic arrests of 44 people, real-estate developer Solomon Dwek, first came to investigators' attention through his connections with officials ultimately convicted in Monmouth County, according to a person in law enforcement familiar with the case.
- Tax deadbeats are finding someone actually reads their MySpace and Facebook postings: the taxman. State revenue agents have begun nabbing scofflaws by mining information posted on social-networking Web sites, from relocation announcements to professional profiles to financial boasts. In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home town to work as a real-estate broker and gave his employer's name.
- The Obama administration's pay czar is expected to formally approve the $10.5 million pay package for American International Group Inc.'s new chief executive as early as next week, according to people familiar with the matter. AIG had received "approval in principle" from Kenneth Feinberg, the Treasury Department's special master for compensation, to pay AIG CEO Robert Benmosche an annual salary of $7 million and as much as $3.5 million in incentive pay. But Mr. Benmosche wanted formal written assurance that his pay would be honored and had been pushing for a speedy sign-off on his compensation. Mr. Feinberg is expected to approve Mr. Benmosche's pay ahead of making any other rulings about pay at AIG or any of the other companies under his purview. Mr. Feinberg is reviewing compensation packages for the top 25 highest-paid employees at AIG and six other firms receiving significant amounts of government aid. Earlier this month, a person close to Mr. Benmosche said the CEO was "ready to walk" if the pay issue wasn't resolved. Mr. Benmosche, a former CEO of insurer MetLife Inc., was pressing for a quick resolution in large part to energize AIG employees and show them that AIG employees could be well-compensated, according to people familiar with the matter. A furor earlier this year over bonus payments made to some AIG employees demoralized some employees and prompted some to quit.
- Apple Inc.(AAPL) is getting closer to clearing the hurdles to start selling iPhones in China, one of the last major phone markets Apple has yet to tap. The release of the iPhone in China could turbocharge overseas growth for what is already Apple's fastest-growing product. China is the world's largest mobile market by subscribers, with some 687 million subscribers. That compares with more than 270 million subscribers in the U.S. Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., calculates Apple can sell 2.9 million iPhones in China by the end of 2011. "Ultimately, it will probably be the fastest-growing overseas market," he said. Apple's iPhone, which launched two years ago, has so far sold more than 26 million units world-wide in more than 80 countries, but the majority of its sales have come from the U.S. According to research firm IDC, only 7% of total iPhone sales in the second quarter, ended in June, came from the Asia Pacific, where it is sold in countries like Australia, Hong Kong and India, compared with 49% from the U.S. and 25% from Western Europe. Apple must still complete negotiations with state-owned wireless operator China Unicom (Hong Kong) Ltd., which is expected to carry the iPhone, but analysts say those talks are nearing conclusion. Beijing-based research firm BDA China Ltd. said in a report this month that the iPhone is "now finally set to make its official debut in China in October," citing interviews with companies including Unicom. Competing products are already in the works in China, adding urgency to the iPhone's launch. China Mobile Ltd., the country's largest carrier by subscribers, plans to start selling smart phones with similar functions to the iPhone this year based on Google Inc.'s Android operating system. On Monday, Taiwanese phone maker HTC Corp. announced it plans to launch seven third-generation phones, including at least one Android phone, with China Mobile by next year.
- One of the biggest players in the hot area of high-frequency trading is one of the least known. Getco LLC, a private company with fewer than 250 employees, often accounts for 10% to 20% of the daily trading volume of many U.S. stocks, the company has said, including highly traded names such as General Electric Co., Oracle Corp. and Google Inc. Since its founding a decade ago, the firm has risen to become one of the five biggest traders measured by volume in stocks and other instruments that trade electronically on exchanges, such as Treasury bonds and currency futures, according to the firm and other people in the industry. "They are probably the biggest market maker in the U.S. stock market," said Justin Schack, a vice president at Rosenblatt Securities Inc. who closely tracks high-frequency trading. The Securities and Exchange Commission has increased its scrutiny of high-frequency trading, even as exchanges rush to attract the high volumes the trading firms bring. In turn, Getco has increased its contact with the SEC and others as it seeks to influence policy decisions on matters such as rules governing options markets. One day last October, Getco juggled about two billion shares, representing more than 10% of the volume in U.S. equities, according to a person familiar with the firm. All this has been profitable for Getco, which earned about $400 million in 2008, trading mostly with its own money, people familiar with its finances say. Getco depends on the success of its proprietary complex algorithms to help it make money on the transactions more often than not. It also can pick up tiny rebates that some exchanges offer to firms willing to take the other side of trading orders.
CNBC.com: Northern Trust(NTRS) said on Wednesday it repurchased warrants issued to the U.S. Treasury for $87 million, becoming the latest bank to free itself from the government bailout program.
NY Times:
- For solar shoppers these days, the price is right. Panel prices have fallen about 40 percent since the middle of last year, driven down partly by an increase in the supply of a crucial ingredient for panels, according to analysts at the investment bank Piper Jaffray.
IBD:
- Sourcefire (FIRE) has become the new darling of Wall Street — and the U.S. government. During its second-quarter conference call July 30, Sourcefire said sales of its cybersecurity software to the feds jumped 233% over the prior year to $6.9 million. And there should be more where that came from, says CEO John Burris.
Forbes:
- Google(GOOG) hasn't yet finished previewing its new Wave collaboration tool, let alone given consumers full-blown access to it. But on Wednesday, Lars Rasmussen--one of the principle engineers behind Wave--hinted at how Google might monetize the tool.
Politico:
- “Let’s win one for Teddy” became the new health care reform rallying cry Wednesday, as Democrats hoped an emotional outpouring over Sen. Ted Kennedy’s death would give reform efforts a badly needed boost. But the political reality is more stark – as insiders predict the impact of Kennedy’s death is likely to be felt most in the legislative math. Democrats no longer have the 60 votes they need to pass a reform bill. And without the 60-vote margin, Democrats are hard-pressed to move legislation without picking up at least one Republican, diminishing their power to negotiate a bill that includes the coverage-for-all that Kennedy long championed. Even before Kennedy’s death, Democrats would have had a hard time wrestling their 60 members together to pass reform, which is why Senate Democratic leadership has toyed with the idea of passing chunks of the reform measures by using a procedural move that only requires 51 votes. It’s an idea that’s likely to get more attention now.
Rasmussen:
- For the second straight week, just one-third (34%) of likely voters believe the United States is heading in the right direction, according to the latest Rasmussen Reports national telephone survey.
gdgt:
- You know I like to keep my ear close to the ground when it comes to new gadgets, and I just got the scoop via a very reliable source about a new portable digital TV that Qualcomm(QCOM) is going to be introducing soon. Called the FLO TV Personal Television, or PTV, this thing will be an iPhone-sized device for tuning into broadcasts on Qualcomm's FLO TV terrestrial digital TV service.
USA Today.com:
- The USA TODAY/IHS Global Insight economic outlook index predicts GDP growth starting in September, the first increase since July 2008. Helping fuel the growth was improvement in financial indicators, such as the stock market, and increases in non-capital goods orders and light-vehicle sales. The rate of decline in the number of hours worked continued to stabilize. Seven of the eleven leading indicators in the Economic Outlook Index were positive contributors in August: hours worked, building permits, real non-defense capital goods orders, stock prices, ISM export orders, light-vehicle sales and the corporate bond spread. Four indicators had a negative effect on the index, including the money supply, crude oil prices, the real federal funds rate and the interest rate yield curve.
Reuters:
- Medco Health Solutions Inc (MHS) is seen as the lead bidder for Aetna Inc's pharmacy benefit manager in an auction that has drawn scant interest, sources familiar with the situation said on Wednesday. Aetna (AET) hired Bank of America Corp (BAC) and Credit Suisse Group AG to run the sale of the business, sources previously told Reuters.
- Massachusetts' top securities regulator said on Wednesday his office is demanding information from Goldman Sachs Group Inc (GS) on how the investment bank passes on analysts' short-term trading tips to top clients. William Galvin, Massachusetts' Secretary of State, said the subpoenas were sent recently and that Goldman has until around Sept. 7 to respond. "We thought we solved this problem with the preferred customers years ago when we settled with Goldman Sachs on Wall Street research, but now we don't know," Galvin said.
- Jo-Ann Stores Inc (JAS) posted a narrower-than-expected quarterly loss as cost cuts boosted margins and improved merchandise attracted shoppers to its stores, and raised its outlook for the year, sending its shares up 8 percent. The fabric and crafts retailer also said it expects the improvement in gross margins to continue in the third quarter.
Financial Times:
- Toyota(TM) is poised to slash production by as much as 580,000 vehicles – nearly 6 per cent of global capacity – in an effort to stem losses amid the sharp downturn in vehicle sales. The world’s largest carmaker, which is forecasting its second consecutive net loss this year, said it would shut a production line in western Japan from next spring through to the second half of 2011, reducing output by 220,000 vehicles. The Japanese company is also looking to pull out of Nummi, its manufacturing joint venture with General Motors in California, where it produced 359,000 vehicles last year.
- Two energy traders have been charged with breaking United Nations sanctions against Saddam Hussein’s Iraq in the long-awaited first prosecutions of individuals over the so-called “oil-for-food” scandal. Aftab al-Hassan, a businessman based in London, is due to appear in court on Thursday to face allegations he funneled about $1.6m of payments into Middle Eastern accounts controlled by Iraq’s state oil marketing body. The case – along with a similar prosecution launched this month against another man, Riad el-Taher – is one of the first public signs of movement in an epic Serious Fraud Office probe that has pulled in several leading multinational companies. The SFO declined to give further details about either case. The SFO launched its Iraq investigation after a committee headed by Paul Volcker, a former US Federal Reserve chairman, alleged in 2005 that more than 2,000 companies were involved in paying $1.8bn of illicit surcharges and kickbacks around a UN program set up to allow the sanctions-hit country to exchange its oil for food.
- The head of Britain’s City watchdog supports the idea of new global taxes on financial transactions, warning that a “swollen” financial sector paying excessive salaries has grown too big for society. Adair Turner, chairman of the Financial Services Authority, says the debate on bankers’ bonuses has become a “populist diversion” and that more drastic measures may be needed to cut the financial sector down to size. He also says the FSA should “be very, very wary of seeing the competitiveness of London as a major aim”, claiming the City has become a destabilising factor in the British economy. His comments, floated in an interview in Prospect magazine published on Thursday, may be read in other financial centres, including New York, as a sign that Britain is becoming increasingly sceptical about the perceived advantages of being a leading financial centre. Lord Turner’s suggestion that a “Tobin tax” – named after the economist James Tobin – should be considered for financial transactions is also likely to reverberate around the world. The proposed tax, which has previously been championed by development economists and the French government as a means of funding the developing world, has been fiercely opposed by the finance industry. “If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit,” he says. Lord Turner says higher capital requirements will be the FSA’s main tool to eliminate excessive activity and profit, but that a tax on transactions on a global level may be an additional option. The FSA chairman also claims that parts of the financial services sector had grown “beyond a socially reasonable size”, including derivatives and hedging and aspects of the asset management industry and equity trading.
- Half of the planned assistance pledged by the US to Pakistan is likely to be wastefully spent on administrative costs, Islamabad’s most senior finance official has said. Shaukat Tarin, Pakistan’s finance minister, has urged the US to channel its assistance through Pakistani agencies instead to save on high intermediation costs incurred by US counterparts. Pakistan has become one of the largest recipients of US aid as Washington seeks to help stabilise the country threatened by a Taliban insurgency. US President Barack Obama plans to raise economic assistance to about $1.5bn a year, or $7.5bn over the next five years. “Whatever aid [the US is] giving must have full impact on the ground which is why they should route as much of this aid through our agencies than their own agencies,” Mr Tarin said in an interview with the Financial Times. “Frankly, we only receive almost 50-55 per cent of the aid, 40-45 per cent becomes expenses [because of intermediation costs by the US].” Mr Tarin added that Pakistan would resist any linkage of financial assistance to the country’s nuclear programme or confidence-building measures with arch-rival India. he said aid would be “unacceptable” if it was tied to greater monitoring of the country’s nuclear arsenal. US aid is intended to win public goodwill across Pakistan where anti-Americanism is widespread. US administrations have in the past been viewed as generous with military support, but stinting on civilian partnership.
- General Motors and Chrysler sales under the US “cash-for-clunkers” car scrappage incentives fell well below the two Detroit carmakers’ recent market shares, according to the government’s final summary of the scheme, which ended earlier this week. Underscoring the challenges facing the two companies in the wake of their recent bankruptcy restructurings, the transportation department said that GM models made up 17.6 per cent of the 690,100 vehicles sold under the scheme, while Chrysler accounted for 6.6 per cent of sales. By contrast, GM’s market share in the first seven months of 2009 was 19.6 per cent, and Chrysler’s 9.6 per cent, according to Autodata, a market-research company. Toyota was the biggest beneficiary of the subsidies, with a 19.4 per cent market share. Chrysler ended in seventh place behind Nissan and South Korea’s Hyundai . Erich Merkle, an analyst who runs the autoconomy.com website, said that “regardless of the cash-for-clunkers programme, Chrysler was going to lose market share and will continue to lose market share”. GM and Chrysler offer relatively few of the small models that were most in demand among cash-for-clunkers buyers. Jeremy Anwyl, chief executive of Edmunds.com, an online car-pricing service, said that “cash-for-clunkers distorted the market in a way that benefited the industry for four weeks. Now the payback begins”. Edmunds estimates that, based on visits to its websites, “purchase intent” is down 11 per cent from the average in June, before the cash-for-clunkers programme began. A sizeable number of “cash-for-clunkers” participants already have buyers’ remorse as they contemplate hefty payments on their new car loans, according to CNW, an Oregon-based market research company. Those payments “could negatively impact the total family budget more than expected prior to buying the new vehicle”, CNW reported.
TimesOnline:
- GM Europe, the owner of Vauxhall and Opel, has sought professional insolvency advice to prepare for the possibility that it may not attract a firm buyer in time to rescue the carmaker, The Times has learnt. Vauxhall executives believe that if a firm offer for GM Europe is not made within days, the carmaker faces three scenarios, one of them bankruptcy. There are also doubts over whether the White House would sanction General Motors (GM) keeping its European business, because such a move could flout the spirit of a US taxpayer bailout agreement in February.
Sydney Morning Herald:
- REAL damage is being done to the political capital of the charismatic American President, and the latest damage is being caused by the fraught moral issue of torture. While Barack Obama remains personally popular, his approval rating with the public is tipping rapidly towards negative territory for the first time since he swept into office on a wave of euphoria 10 months ago. Until a few months ago the President enjoyed a two-to-one approval rating, but that is eroding rapidly. The latest blow came on Monday when the US Attorney-General, Eric Holder, announced that a special prosecutor had been appointed to investigate the interrogation methods used by agents or contractors working for the Central Intelligence Agency in Iraq and Afghanistan during the previous Bush administration. The special prosecutor, John Durham, a senior Justice Department lawyer, will respond to a recommendation by the Justice Department's ethics watchdog that prosecution be considered for CIA employees or contractors who exceeded the guidelines of the US Army's field manual, which preclude torture. The decision has also opened a wound, and an issue the American public believed had already been investigated. Even Obama's director of the CIA, Leon Panetta, has expressed unease about the process. Obama's problem is that he is closely linked to his suddenly politically hot Attorney-General. They are friends, and Holder was the President's personal choice for the job. Both are the first African-Americans to hold their respective posts. Obama's reputation is thus linked to Holder, who is now in the eye of a domestic political storm. The President himself has said it was time to look forward and improve the CIA's performance, rather than engage in litigation that could damage the capabilities of the intelligence community. That is exactly the prospect now in store, and the American public has a right to be concerned.
Late Buy/Sell Recommendations
Citigroup:
- Rated (BBBY) Buy, target $44.
- Rated (WSM) Buy, target $21.
CSFB:
- Upgraded (AMG) to Outperform, target $69.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 133.0 -.5 basis points.
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Economic Releases
8:30 am EST
- Preliminary 2Q GDP is estimated at -1.5% versus a prior estimate of -1.0%.
- Preliminary 2Q Personal Consumption is estimated at -1.3% versus a prior estimate of -1.2%.
- Preliminary 2Q GDP Price Index is estimated at .2% versus a prior estimate of a .2%.
- Preliminary 2Q Core PCE is estimated at 2.0% versus a prior estimate of 2.0%.
- Initial Jobless Claims for last week are estimated to fall to 565K versus 576K the prior week.
- Continuing Claims are estimated to rise to 6242K versus 6241K prior.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
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