Late-Night Headlines
Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion of the central bank’s power in its 95-year history to avert a second Great Depression, will be nominated to a second term by President Barack Obama, according to an administration official. Obama will make the announcement tomorrow on Martha’s Vineyard, Massachusetts, where he is vacationing with his family, and Bernanke is expected to join him, said the official, who spoke on the condition of anonymity. The nomination requires Senate approval. Bernanke’s four-year term as chairman expires Jan. 31.
- The global economy is showing “clear” signs of a rebound and central banks are unlikely to raise borrowing costs for many months, the International Monetary Fund’s No. 2 official said. “The signs are clear -- if still tentative -- of renewed growth,” John Lipsky, the IMF’s first deputy managing director, wrote today on its Web site. “With inflation threats distant, there is little doubt that central bankers intend to keep policy interest rates very low for some time to come.”
- China Construction Bank Corp. said excess cash in the banking system has led to asset bubbles, underscoring concern that the nation’s lenders will rein in credit after the Shanghai Composite Index’s 64 percent rally. “There are uncertainties in the economy and bubbles in the capital market,” Guo Shuqing, chairman of the nation’s second- largest bank, told reporters in Beijing yesterday. “China’s banking system still has excessive liquidity.” Chinese banks handed out a record $1.1 trillion of new loans in the first half to support the nation’s $585 billion economic stimulus package. Chinese stocks briefly entered a so- called bear market last week on concern the government would curb new loans to reduce speculation in stocks and real estate. “Given the extraordinary loan expansion in the first half, there’s no doubt that some part of it has been diverted to equities and property,” said She Minhua, a Shanghai-based analyst at Haitong Securities Co.
- The Federal Reserve must make public reports about recipients of emergency loans from U.S. taxpayers under programs created to address the financial crisis, a federal judge ruled.
- Barclays Global Investors (BGI) announced today that it has temporarily suspended further creation of new shares of iShares S&P GSCI Commodity-Indexed Trust (the “Trust”). The Trust is listed and trades on the NYSE Arca under the ticker GSG. As disclosed in the Trust’s prospectus, a suspension may cause the market price of the Trust’s shares to vary more from the Trust’s net asset value than historically. Redemptions by eligible shareholders of the Trust will not be affected by this suspension.
- Senator Russ Feingold, a Democrat on the Foreign Relations Committee, criticized President Barack Obama’s strategy of sending more U.S. troops to Afghanistan and called today for a timetable to bring forces home. “After eight years, I am not convinced that simply pouring more and more troops into Afghanistan is a well-thought-out strategy,” Feingold told the editorial board of the Appleton Post-Crescent, a newspaper in his home state of Wisconsin. Feingold has expressed concern in the past that sending more U.S. forces to battle the Taliban insurgency in Afghanistan could destabilize neighboring Pakistan. Today, he went further than he has in the past to register his dissatisfaction with Obama’s approach.
- An increasing number of delinquent U.S. mortgage holders are failing to bring their loans current, in part because falling home prices leave borrowers owing more than their properties are worth, Fitch Ratings said today. The share of prime borrowers who catch up with late payments, known as the cure rate, fell to 6.6 percent from an average 45 percent from 2000 through 2006, the New York-based ratings company said in a report. The cure rate for Alt-A mortgages declined to 4.3 percent and for subprime loans it fell to 5.3 percent. About 85 percent of the mortgages surveyed were for $417,000 or more, said Fitch Managing Director Roelof Slump. “Prime had previously been distinct for its relatively high level of delinquency recoveries,” Slump said in a statement. “By this measure, prime is no longer significantly outperforming other sectors.”
- Unused US The 52-week moving average of spare capacity is at 2.93 million barrels, the highest level since at least 1989. Refiners used 84% of operable capacity in the week ended Aug. 14, the Energy Dept. reported. Distillate stockpiles are up 23% from a year earlier and exceeded 160 million barrels in July for the first time since 1985. Demand for distillates is down 9.1%.
Wall Street Journal:
- Securities regulators are examining weekly meetings at Goldman Sachs Group Inc.(GS) in which research analysts gave tips to traders and to big clients, as the Wall Street giant considers disclosing these so-called trading huddles to its clients. The Wall Street Journal reported Monday that analysts at Goldman sometimes shared with traders and key clients short-term trading tips that sometimes differed from the firm's long-term research. Examiners at the Financial Regulatory Authority, the industry self-regulatory body known as Finra, and the Securities and Exchange Commission intend to ask Goldman for more information on these weekly get-togethers, people familiar with the matter said. Internal documents show that at times, these short-term trading tips differed from Goldman's long-term research. Critics complain that Goldman's distribution of the trading ideas to Goldman traders and major clients hurts other Goldman customers who aren't given the opportunity to trade on the information, and may be relying on the firm's longer-term research to make investment decisions. Goldman hasn't been accused of violating any securities laws in its distribution of the trading tips.
- The federal government has hired tens of thousands of temporary workers to prepare for the 2010 Census -- a population count that could remake the political map even as the foreclosure crisis makes it more difficult to account for millions of dislocated Americans. Early analysis indicates that Texas will likely be the biggest winner since the prior count a decade ago, picking up three or four seats in the U.S. House of Representatives, according to the National Conference of State Legislatures and Election Data Services Inc., a political-consulting firm. Other states poised to gain at least one seat include Arizona, Nevada, Georgia, Florida and Utah. Census employees recently spent months scouring every corner of the U.S. -- on horseback and by boat when necessary -- in a quest to identify all the places "where people live or could live," said Gabriel Sanchez, who directs the bureau's efforts in Texas, Louisiana and Mississippi. Mr. Sanchez's job includes counting residents of the most remote shanty towns along the Texas-Mexico border -- places with no streets, let alone addresses -- and communities populated mostly by illegal immigrants "who do not want to be found by the government," he said. The 2010 Census will cost a record $14 billion, which includes some unprecedented steps to reach immigrants, both legal and not. For the first time, the bureau will mail census forms in Spanish to 13 million households. It is buying television, radio, print or online ads in 28 languages (up from 17 in 2000), among them Dinka, spoken in south Sudan; Khmer, spoken in Cambodia; Teochew, spoken in parts of China and other Asian nations; and Wolof, spoken in Senegal. This year's form will be among the shortest in history, with just 10 questions, to make it less intimidating. No questions will address respondents' legal standing to live in the U.S. In decades past, citizenship status was asked on the long-form census, which went to a sampling of households, but that form was discontinued this year because the Census Bureau already gathers much of the information in separate community surveys. Some critics of the census are angry about the lack of any attempt -- this year or in years past -- to classify undocumented immigrants separately. They carry the same weight as anyone else when congressional districts are redrawn even though they can't vote. "United States citizens in one state should not be losing representation in Congress to illegal aliens in another state," said Ira Mehlman, a spokesman for the Federation for American Immigration Reform, which advocates tougher measures to stem illegal immigration. His group calculates that if the undocumented were left out in 2010, California, Texas, Arizona and Florida would all lose seats while Midwestern states such as Indiana, Iowa, Michigan and Missouri would gain.
- The Justice Department on Monday appointed a special prosecutor to investigate alleged CIA mistreatment of terror suspects, a move representing a sharp break from the president's early determination to move beyond Bush-era controversies. Attorney General Eric Holder named longtime Connecticut prosecutor John Durham to lead the investigation. Mr. Durham is already examining the destruction of 92 videotapes that recorded certain Central Intelligence Agency interrogations of detainees, part of an investigation launched in early 2008 under the Bush administration. He will now also be probing whether CIA officers or contractors broke any laws with their use of harsh tactics. CIA Director Leon Panetta wrote in a memo to agency employees Monday that the allegations in the report are "in many ways an old story." He said past Justice Department probes of the material were exhaustive. CIA and Justice Department lawyers met prior to the decision, and Mr. Panetta spoke with Mr. Holder Monday, said one official familiar with the matter. The official described the CIA's position as "the president wants us to look forward not backward. A backwards-looking inquiry is inconsistent with that vision." The official added that CIA officials made that view "abundantly clear." CIA officials have stated repeatedly that while some interrogators may have been out of bounds the program produced useful intelligence. At the agency, the decision to open an investigation has already "had a very dramatic [negative] impact" on morale, said former CIA Director Michael Hayden, based on communications with his former agency.
- 'It would be unfair to prosecute dedicated men and women working to protect America for conduct that was sanctioned in advance by the Justice Department." –Attorney General Eric Holder, April 2009 "Justice Department Names Prosecutor to Reopen CIA Abuse Cases" –Wall Street Journal, yesterday Mr. Holder had it right the first time. His about-face yesterday, compounded by his release of a 2004 internal CIA report on that agency's handling of terrorists, opens a political war that President Obama, the CIA and above all the country will live to regret. This is a trap the Administration set for itself. Mr. Obama and his team have attempted to appease their political left by publicly denouncing the Bush Administration's national security policies, even as they claimed to want to forget the past. Their disparagement has only fed the liberal demand for Bush prosecutions and increased the pressure on Mr. Holder to appoint a prosecutor. Justice threw kerosene on those politics yesterday with its release of findings compiled by the CIA's inspector general in 2004 about the agency's detention and interrogation of terrorists. The ACLU had won a court order for their release. We were still reading its hundreds of pages at deadline, but most of the supposedly damning details had already been leaked. The new bits include the fact that interrogators threatened terrorists with a gun shot in a nearby room, with a power drill and cigarette smoke, and against Khalid Sheikh Mohammed's family. We suspect millions of Americans will be shocked to learn that these unshocking details are all that the uproar over "torture" is about.
- A stream of hedge-fund managers and other financial-services professionals are quitting the U.K., following plans to raise top personal tax rates to 51%. Lawyers estimate hedge funds managing close to $15 billion have moved to Switzerland in the past year, with more possibly to come. David Butler, founder of professional-services firm Kinetic Partners, said his company had advised 23 hedge funds on leaving the U.K. in the 15 months to April. An additional 15 are close to quitting the U.K., he said.
- Just a few months after Steve Jobs had a liver transplant, the Apple Inc.(AAPL) chief executive is once again managing even the smallest details of his company's products, this time focused on a new tablet device. Since his return in late June, the 54-year-old has been pouring almost all of his attention into a new touch-screen gadget that Apple is developing, said people familiar with the situation. Those working on the project are under intense scrutiny from Mr. Jobs, particularly with regard to the product's advertising and marketing strategy, said one of these people. The people familiar with the matter declined to give details on the tablet or disclose when the device would come out. Mr. Jobs's involvement is a sign of how important the new gadget is for Apple. In the months before Apple launched the iPhone in 2007 -- now its fastest-growing product -- the CEO was also on top of every detail, such as the curvature of the phone's back, said people familiar with the matter. People close to Apple said Mr. Jobs is still thin as he recovers from the liver transplant, but his health has improved significantly. Analysts say how well an Apple tablet sells will depend on price, which most believe will be between $399, the price of a high-end iPod touch, and $999, the price of the cheapest MacBook laptop.
- Amid chaotic markets, indexing giant Vanguard Group is touting its low-cost mutual funds and ETFs, and investors are responding.
CNBC.com: Now comes the hard part for the auto industry—luring customers without big Cash for Clunkers discounts.
NY Times:
- Is China Hiding Its Purchases of Treasuries?
IBD:
- The fallout created a hiring boom for many small to midsize investment banks. This was especially true for Jefferies Group (JEF), which puts a lot of emphasis on strengthening its expertise through key industry hires to attract more clients.
Forbes:
- The U.S. Equal Employment Opportunity Commission has filed a discrimination lawsuit against Target Stores Inc.(TGT), alleging the retailer failed to make reasonable accommodations for a California employee with cerebral palsy.
Wealth Bulletin:
- The roster of Europe’s largest funds of hedge funds continues to comprise the familiar names of yesteryear, but investors have shown their loss of faith in even the most established names by removing $200bn (€140bn) in assets since September last year. Only two of the top 10 managers grew their assets under management.
Rasmussen:
- Sixty-three percent (63%) of voters in the home state of the Big Three automakers say Ford will be the most successful of the companies in five years’ time. A new Rasmussen Reports telephone survey of voters in Michigan finds that just 17% say General Motors will be the most successful of the three at the end of that period, while five percent (5%) say Chrysler will come out on top. Sixty-eight percent (68%) of Republicans and 70% of voters not affiliated with either major party say Ford will be the most successful in five years. A majority of Democrats (54%) agree, but they have more confidence in General Motors that Republicans and unaffiliateds do. Ford is the only one of the Big Three not to get a federal government bailout to stay in business and has consistently been viewed more favorably by most Americans as a result.
DailyNews:
- The founder of two Beverly Hills hedge funds who bilked investors out of $44 million and spent some of the money on Porsches, poker and a summer rental in Malibu pleaded guilty today to federal charges. Brad Ruderman, 46, of Beverly Hills -- a reputed financial expert quoted in national media outlets -- entered the plea in Los Angeles to five counts of wire fraud, investment adviser fraud and failure to file a tax return before U.S. District Judge John F. Walter.
Financial Times:
- Gordon Brown has been attacked for a “cowardly” refusal to condemn the release of the Lockerbie bomber and accused of undermining relations with the US, as the Scottish government stood firm behind its decision. Condemnation of the UK prime minister comes as criticism of Edinburgh’s decision to fly Abdelbaset Ali Mohmed al-Megrahi increased in the US. Mr Brown will come under intense pressure on Tuesday to break his silence over the affair, amid claims from US supporters of the Lockerbie victims that the release from jail of the convicted bomber was linked to British oil interests in Libya. As Mr Brown prepared to face the press in Downing St, Buckingham Palace confirmed that the Duke of York will not make a planned trip to Libya next week. There were also signs of a backlash in Scotland over the harsh criticism of the decision from the US. Alex Salmond, the Scottish first minister, said the country had “nothing to be ashamed of”. The Archbishop of Glasgow, Mario Conti, said: “Despite contrary voices I believe it is a decision which will be a source of satisfaction for many Scots and one which will be respected in the international community.”
TimesOnline:
- Jim Chanos, one of the world’s best-known and most successful short sellers, who made a fortune betting against banks and brokers, said yesterday that he was targeting big pharmaceuticals companies. The billionaire founder and president of Kynikos, an American hedge fund, said: “The US healthcare system is probably the most interesting large group of companies that are heading for major problems that we’ve seen in a long, long time.” Mr Chanos is estimated by Trader Monthly , an American trade magazine, to have made up to $350 million personally in 2007. He profited from the collapse of Enron and in April 2007 warned finance ministers of the Group of Eight leading economies that banks and brokerages were heading for a calamity. Pharmaceuticals companies worldwide face the prospect of receiving a significant dent to their bottom lines from President Obama’s proposed US healthcare reforms, which could reduce prices sharply in the world’s biggest market. At the same time, many companies face the loss of patents on key blockbuster drugs in the next few years and appear to have few replacements in the pipeline.
China Daily:
- The demand for high-end hotels in China is sinking in a financial downturn that is showing no fast signs of recovery. "There isn't enough demand for top hotels in front-line cities such as Beijing, Shanghai and Guangzhou, as these markets are saturated," said Lily Ng, senior vice-president of Jones Lang LaSalle Hotels. "And the concern in the second-tier cities is whether local consumption can cover the high investment," Ng said. Transaction volumes of Chinese hotels sank from $1.6 billion in 2006 to $1 billion in 2007 to $0.3 billion in 2008, according to statistics from Jones Lang LaSalle Hotels. Four-star and five-star hotels apparently are faring worse. According to the global hotel consulting company HVS, the top five luxury hotel markets at the Chinese mainland - Sanya, Beijing, Shanghai, Lijiang and Tianjin - reached a supply-and-demand balance in 2006 and 2007 and an oversupply in 2008. During the past four years, the supply of five-star hotels in these cities increased by 15 percent, while demand only grew by 10 percent. Through May, the occupancy rate at Shanghai's five-star hotels dropped to 44.9 percent from 56.3 percent at the end of last year.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CTL), target $37.
- Reiterated Buy on (ENDP), target raised to $27.
Thomas Weisel:
- Rated (CSTR) Overweight, target $38.
- Rated (OXGI) Overweight, target $60
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10:00 am EST
- Consumer Confidence for August is estimated to rise to 47.9 versus 46.6 in July.
- The House Price Index for June is estimated to rise .4% versus a .9% gain in May.
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BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US equities to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
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