Late-Night Headlines
Bloomberg:
- The cost of protecting corporate bonds in the U.S. from default dropped to the lowest in almost 16 months as investor confidence in an economic recovery increased. Credit swaps on General Electric Co.’s finance unit declined the most in more than four months as the company offered debt without a U.S. guarantee. An index of credit- default swaps tied to U.S. investment-grade bonds fell below 100 basis points for the first time since May 20, 2008, while contracts linked to high-yield debt in Europe declined for a 10th straight day. Credit-default swaps on General Electric Capital Corp. fell 42.7 basis points, the biggest drop since May 7, to 186 basis points, CMA data show, as the company’s parent erased its 2009 share loss and financing concerns eased. That’s the lowest since Sept. 11, 2008, the week before Lehman collapsed, CMA data show. GE Capital today sold $600 million of notes not guaranteed by the government, its first such issue in more than a month. “Once the ball gets rolling it becomes easier and easier for a company that needs access to the credit markets to do so,” said Richard Familetti, who helps oversee $3 billion of bonds at Ryan Labs Inc., a money-management and research firm in New York. “Companies like GE and Citigroup that need constant access have gotten it, and that in itself has created its own bullish sentiment.” Contracts on American Express Co. declined 22.5 basis points to 120 basis points, the lowest level since June 2008, as Sandler O’Neill raised the New York-based credit-card issuer’s shares to “hold” from “sell.” Credit-default swaps on the Markit iTraxx Crossover Index of 44 companies with mostly junk credit ratings dropped 23 basis points to 522 basis points, the lowest since July 2008, according to JPMorgan Chase & Co. prices.
- Nickel is set to decline in coming weeks as China, the world’s biggest consumer, imports less of the metal after building up stockpiles, researcher CRU said. Imports into China probably will fall in the fourth quarter because domestic production has kept the local market supplied, Maartje Collignon, an analyst at CRU in London, said by telephone. The Asian nation has estimated stockpiles of nickel totaling 140,000 metric tons, she said. Nickel for three-month delivery on the London Metal Exchange has slid 19 percent from this year’s high of $21,325 a ton on Aug. 13. “There are massive nickel stocks in China,” Collignon said. “There is more weakness for the price of nickel during the second half of September and October.”
- The head of Goldman Sachs Group Inc.’s(GS) Washington lobbying office has been barred from communicating with the Democratic majority on the House Financial Services Committee as the panel seeks to overhaul financial regulations. Representative Barney Frank, chairman of the committee, issued the edict in a memo yesterday. Michael Paese, the Goldman lobbyist, was a top staffer on the committee until last September; he was hired by the New York-based bank in April. “As we move through the regulatory reform process, making sure that former members of our staff here don’t have undue influence is very important to us,” said Frank’s spokesman, Steve Adamske. “He wanted to make things as clear as possible.” The ban comes as the Financial Services Committee begins next month to put together legislation that would set out the most sweeping changes of Wall Street oversight in 75 years. Banks, including Goldman, have become a target for lawmakers critical of the excessive risk taking that helped lead to the financial crisis. “Neither I, nor full committee nor subcommittee staff, will meet, or otherwise communicate with, Michael on any issues related to committee business or jurisdiction,” wrote Frank, a Massachusetts Democrat. “I ask that subcommittee chairs abide by this same rule.” After leaving the Financial Services panel as deputy staff director, and before joining Goldman, Paese worked at the Securities Industry and Financial Markets Association as a lobbyist.
- Paul Volcker, the former Federal Reserve chairman who’s an economic adviser to U.S. President Barack Obama, today renewed his call for a limit on the activities of banks that are considered “too big to fail.” “I do not think it reasonable that public money -- taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization,” Volcker, 82, said at a financial conference in Los Angeles. Since January, Volcker has advocated that regulators should prohibit financial companies whose collapse would pose a risk to the economy -- those considered “too big to fail” -- from engaging in certain types of trading and investing activities. “Extensive participation in the impersonal, transaction- oriented capital market does not seem to me an intrinsic part of commercial banking,” Volcker said. “Substantial involvement in heavily leveraged finance and heavy proprietary trading almost inevitably entails risks.” “I want to question any presumption that the Federal safety net, and financial support, will be extended beyond the traditional commercial banking community,” Volcker said at the conference.
- Federal Reserve supervisors are examining the vulnerability of medium-sized lenders to falling commercial real estate values to gauge the size of potential losses across the banking system. The Fed is focusing on banks smaller than the 19 largest lenders examined in detail in May, a central bank official said on condition of anonymity, without providing more detail about the banks’ size. Those 19 institutions held assets exceeding $100 billion. The process involves gathering data from individual banks and comparing it to their peers, an approach known internally as a “horizontal review.”
- Union leaders denounced a proposed overhaul of the U.S. health system introduced today by Senator Max Baucus, saying it fails to pressure insurance companies for savings and would tax health plans. Delegates at the AFL-CIO’s convention in Pittsburgh chanted “bullshit” in response to the plan from the Senate Finance Committee’s chairman. They were led in the chant by Gerald McEntee, president of the American Federation of State, County and Municipal Employees. He said the labor federation’s members should lobby against the proposal because it doesn’t mandate that employers provide health insurance and “taxes our health plans.” Baucus, without support he had sought from a group of Senate Republicans, offered an $856 billion plan that would require almost all Americans to have insurance or pay a penalty, expand Medicaid for the poor and provide subsidies to help low- income people get coverage through an online exchange. The Montana Democrat would pay for his plan through savings in Medicare, the federal insurance program for the elderly, and by taxing so-called Cadillac health plans that provide high-end benefits. He also would impose about $13 billion in fees on insurers, medical-device makers, drugmakers and clinical laboratories beginning in 2010. He dropped union-backed proposals for a government-funded “public option” as an alternative to private health insurance, proposing instead to give $6 billion in seed money to nonprofit cooperatives.
- A penny-per-ounce tax on soda and other sugary drinks would raise about $150 billion over a decade while slimming Americans’ waistlines, according to a report from public health and economic researchers.
- Oracle Corp.(ORCL), the world’s second- largest software maker, reported first-quarter sales that missed analysts’ projections after orders remained slow overseas. The shares fell as much as 4.9 percent in late trading.
- An extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million. “I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson, a Georgia Republican, said in an interview today. The former real estate executive says he is “talking to everybody and anybody.” Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: “Don’t Let America’s Real Estate Recovery Expire.”
- Senator Maria Cantwell is proposing to change the legal standard the Commodity Futures Trading Commission must meet to prove market manipulation, bringing its rules in line with other federal regulators. Cantwell, a Washington Democrat, will introduce the legislation tomorrow, spokeswoman Ciaran Clayton said in an e- mail. “Current law makes it very difficult for the Commodities Futures Trading Commission (CFTC) to effectively meet its mandate to enforce and deter market manipulation,” according to a summary of the measure prepared by Cantwell’s office. The commission’s “specific intent” requirement for proving manipulation would be changed under the measure to the “recklessness” standard used by the Securities and Exchange Commission, the Federal Energy Regulatory Commission and the Federal Trade Commission.
- Finally a judge has dared say no to the once-venerable Securities and Exchange Commission and one of its cozy corporate settlements. If that wasn’t novel enough, this fellow first had the nerve to ask the SEC a bunch of questions about the way it does its business. Turns out, he got a lot of embarrassing answers about the government’s investigation of Bank of America Corp. that the SEC hadn’t planned to tell the rest of us about. This jurist gone wild, now a folk hero of sorts, is U.S. District Judge Jed Rakoff. But before we go further, let me tell you a quick story about another judge, this one at the U.S. District Court in Hartford, Connecticut. His name is Robert Chatigny. On Aug. 4, he was assigned a settled complaint the SEC filed that day against General Electric Co. Under the deal, GE agreed to pay $50 million of its shareholders’ money to resolve the agency’s claims that it had committed accounting fraud. The SEC didn’t name any actual people as defendants. We don’t know if it ever will. Chatigny approved the agreement six days later, with no hearing and no questions asked. GE neither admitted nor denied the allegations. That’s how SEC cases usually go. And just think how much more we the public -- and certainly GE shareholders -- deserve to know about this supposed fraud. Who at the company committed it? Why hasn’t the SEC sued them? Doesn’t the SEC know who they are? Why aren’t they paying fines out of their own pockets? And why wasn’t Chatigny asking these kinds of questions? I tried calling Chatigny yesterday to ask him. His law clerk said he couldn’t be reached for comment. It seems our man Rakoff is a different kind of judge. He has the SEC and Bank of America in an awful spot.
- U.S. Steel Corp.(X) asked the U.S. Commerce Department to impose dumping and anti-subsidy duties of as much as 90 percent on some steel pipe imports from China, five days after the Obama administration set tariffs on Chinese tires. The petition was filed today with the U.S. International Trade Commission against $400 million in imports of pipes used in chemical, petrochemical, refineries and related operations, according to Roger Schagrin, a lawyer for the U.S. producers. The U.S. imposed tariffs this month on a different type of steel pipe from China in a separate case. Analysts in recent days have said that Obama’s decision to impose safeguard duties on Chinese tires might encourage more industries to seek penalties against overseas rivals. “What the tires decision has done is say that the White House door is open to protectionism,” Gary Hufbauer, a fellow at the Peterson Institute for International Economics, said at the Carnegie Endowment in Washington yesterday. Chinese officials responded to the tariffs Obama announced Sept. 11 by filing a complaint to the World Trade Organization and saying they will probe whether U.S. exports of automobile parts and chicken are unfairly subsidized. “The Chinese are saying with their actions: If you do it again, we’ll hit you again,” Hufbauer said.
Wall Street Journal:
- Senate Finance Chairman Max Baucus finally unveiled his health-care plan yesterday to a chorus of bipartisan jeers. The reaction is surprising given that President Obama all but endorsed the outlines of the Baucus plan last week. But the hoots are only going to grow louder as more people read what he's actually proposing. The headline is that Mr. Baucus has dropped the unpopular "public option," but this is a political offering without much policy difference. His plan remains a public option by other means, imposing vast new national insurance regulation, huge new subsidies to pay for the higher insurance costs this regulation will require and all financed by new taxes and penalties on businesses, individuals and health-care providers. Other than that, Hippocrates, the plan does no harm.
- Toyota Motor Corp. plans a $1 billion marketing drive in the US
- The U.S. Securities and Exchange Commission said Wednesday it met with British financial regulators to discuss ways to impose comparable regulations both in the U.S. and overseas. The United Kingdom's Financial Services Authority has been in Washington, D.C. this week meeting with key policymakers, including the chairmen of the SEC and the Commodity Futures Trading Commission. In an announcement, the SEC said that Chairman Mary Schapiro and FSA Chief Executive Hector Sants intend to explore common approaches to imposing new regulations for hedge funds and their advisers, and agreed to push for a "coherent set of data to collect from hedge fund advisers/managers to help the SEC and FSA identify risks to their regulatory objectives and mandates." Other topics discussed at the meeting this week included over-the-counter derivatives, central clearing, accounting issues, regulatory reform, credit-rating agency oversight, short-selling and corporate governance and compensation practices.
- Regulators of some of the biggest bond buyers in the world are considering cutting credit-ratings firms' role in the market in response to botched ratings of complicated mortgage securities. Ratings firms including Standard & Poor's and Moody's Investors Service are facing fresh dissent from state insurance regulators, who are considering moving away from the firms ratings' as a way of measuring the health of insurer portfolios of mortgage-backed bonds.
- A Gallup poll this week found that 38% of Americans say their representative should vote for ObamaCare 40% want their member to vote against it. It was 37%-39% on the same question the day before Mr. Obama spoke. Part of Mr. Obama's problem is his language. His speech contained little new information and his tone was unpresidential. Instead of binding Americans to his cause, he called legitimate concerns "misinformation," "false," "demagoguery," "distortion" or "tall tales." Earlier in the week he declared them "lies." This was like calling people with concerns stupid, and it's not the way to win them over.
- President Barack Obama, seeking to make a case for health-insurance regulation, told a poignant story to a joint session of Congress last week. An Illinois man getting chemotherapy was dropped from his insurance plan when his insurer discovered an unreported gallstone the patient hadn't known about. "They delayed his treatment, and he died because of it," the president said in the nationally televised address. In fact, the man, Otto S. Raddatz, didn't die because the insurance company rescinded his coverage once he became ill, an act known as recission. The efforts of his sister and the office of Illinois Attorney General Lisa Madigan got Mr. Raddatz's policy reinstated within three weeks of his April 2005 rescission and secured a life-extending stem-cell transplant for him. Mr. Raddatz died this year, nearly four years after the insurance showdown. Obama aides say the president got the essence of the story correct.
MarketWatch.com: World Trade Organization chief Pascal Lamy said Wednesday he has concerns about U.S. President Barack Obama's decision to impose punitive tariffs on Chinese tires, reports said.
- The U.S. stock market, which on Wednesday finished higher for a third straight day, is benefiting in part by the belief that money now collecting dust in the observation deck will eventually find a home in equities. "As you look at the cash-on-the-sidelines argument, it hypothetically represents pent-up demand for equities," said Art Hogan, chief market strategist at Jefferies & Co. U.S. money market fund assets most recently stood at $3.56 trillion, down from their March peak of $3.8 trillion, but still about double the amount of funds typically held, Hogan said.
- Just weeks away before the end of government hearings on how to best curb speculation in commodities markets, futures-exchange operator the CME Group Inc.(CME) on Wednesday put out its own recommendations.
NY Times:
- A Christian man detained on blasphemy charges was found dead in his jail cell on Tuesday in eastern Pakistan. Human rights groups here said he appeared to have been killed , perhaps in collusion with the authorities. The death of the Christian, Robert Fanish, 20, is part of a rising trend of violence against minorities in Pakistan, a panel of Pakistani human rights groups said in a news conference on Wednesday. It follows the burning deaths of six Christians in July, and mob attacks against Christian houses and a church in March and June. “This is a pattern,” said Asma Jahangir, the chairwoman of the Human Rights Commission of Pakistan, a prominent watchdog group that is independent of the government.
- Offering the lure of cheap government-guaranteed financing, the Federal Deposit Insurance Corporation moved on Wednesday to push its efforts to have private investors buy distressed mortgages from troubled banks. Agency officials announced that they had reached a deal to sell $1.3 billion in mortgages from Franklin Bank, a Houston-based lender that failed last November and was taken over by the F.D.I.C. It was the first deal reached under an Obama administration program announced this spring to help banks sell their problem loans, clean up their balance sheets and get credit flowing again.But even though the F.D.I.C. is providing generous subsidies that could cost taxpayers heavily in the future, banks have generally refused to sell their troubled mortgages at the steeply discounted prices that bargain-hunting investors have demanded. The deal announced on Wednesday is an effort to break that logjam, but it does not involve a solvent bank selling its assets and might not offer enough taxpayer-financed sweeteners to bridge the gap between the prices banks want and the prices investors will pay.
- Utah is the nation’s unlikely capital of industrial banks — niche institutions that primarily make loans to businesses. Corporations like Goldman Sachs, Target and General Electric have been attracted to the state to set up such institutions. While they have brought billions of dollars in deposits, thousands of jobs and millions in charitable donations to Salt Lake City, the banks have also drawn fire from Washington. The Obama administration argues that the banks pose a threat to the economy because their parent companies can engage in risky practices but are often exempt from routine scrutiny by the Federal Reserve. Treasury officials want to require the corporate owners of the nation’s 41 industrial banks to accept more rigorous regulation or be forced to sell or shut them down.
ABCNews:
- FBI agents have raided the suburban Denver home of the man authorities say is at the center of an alleged al Qaeda plot to carry out attacks in New York. The agents arrived at the home of 24-year old Najibullah Zazi late this afternoon. One of the agents told ABC News the squad was carrying out a search warrant but declined to comment further. Zazi's travels to New York last weekend triggered a round of highly publicized raids in the New York area. Authorities told members of Congress the raids had helped to disrupt a plot to carry out a major attack on New York. Law enforcement officials tell ABC News that agents discovered 14 brand new black backpacks in the New York raids, leading to concern the men may have been planning to use the backpacks to carry suicide bombs.
Forbes:
- America’s 20 Most Promising Young Companies.
Politico:
- Jimmy Carter is 84 years old and three decades removed from the White House, but he still has the power to make Democrats run. Away from him, that is. From the White House to Capitol Hill on Wednesday, Democrats raced to distance themselves from the former president’s claim that racism was behind Rep. Joe Wilson’s “You lie” outburst and other attacks on President Barack Obama. “Listen, he’s the former president, and he’s entitled to his point of view,” said Senate Majority Whip Dick Durbin (D-Ill.). “I personally believe President Obama and his administration are focused on the issues, and I agree with that.” “I don’t see this as a racial issue,” added Sen. Jim Webb (D-Va.). “There are a lot of people upset about how we on the Democratic side can engage like we have been, and there’s a lot of anger out there. So, I don’t see it as a racial issue.” “I didn’t agree with it,” Sen. Kay Hagan (D-N.C.) said of Carter’s remarks. Congressional Democrats have no interest in starting a racial argument that could turn off swing district voters whose support the party will need if it plans on keeping its grip on Congress in 2010.
Gallup :
- Business owners have the highest overall well-being of any occupational group according to Gallup-Healthways Well-Being Index data collected in the first eight months of 2009, followed closely by professionals and managers. Transportation and manufacturing workers have the lowest overall well-being.
TechCrunch:
- Fast growing startup Twitter will soon be joining a select group of startups with private venture round valuations of $1 billion, we’ve heard from multiple sources. CEO Evan Williams disclosed the round to employees at a recent all hands meeting.
USA Today.com:
- No wonder Goldman's recent feats, which in any other environment would have drawn applause, this year are attracting derision and suspicion. As the economy struggled to shake off the recession and unemployment approached 10%, Goldman did some of the best investment banking of its 140-year history, posting record quarterly revenue of $13.8 billion and 65% growth in profits. Just months after many on Wall Street debated whether the investment banking industry it dominated was dead, Goldman has proved the naysayers wrong. Shareholders have chalked up big gains from the bank's banner performance in the first half of the year. Goldman's stock has doubled since January. Goldman's profits stand in sharp contrast to what the rest of the country is facing, hobbled with hundreds of thousands of job losses each month and hundreds of businesses shuttering on Main Street. Goldman also set aside $11.4 billion in the first half of this year for compensation and benefits for its employees, a 33% increase from last year. At a time when there has been intense focus on bankers' compensation, including congressional hearings, Goldman's decision has been hard to swallow on Main Street. After all, the belief is that Goldman and some of the other Wall Street banks might not still be around if they hadn't gotten government help. And the plight of taxpayers who are funding the bailout of financial institutions stands in stark relief to bankers' stratospheric pay. CEO Blankfein, for instance, earned in excess of $100 million in the past three years, even though he didn't take a bonus last year. Last fall, Goldman, along with eight large banks, was given billions in taxpayer dollars to boost confidence in the financial system. critics accuse the investment bank of greed and profiting from others' weak spots, and they haven't been kind in characterizing Goldman. Nobel laureate economist Joseph Stiglitz at Columbia University likens Goldman's business to gambling, because in the last two quarters the largest growth came from its trading desks. In the second quarter, its revenue from trading and investing in stocks, bonds and currencies nearly doubled to $10.8 billion. "Goldman's activity is of negative social value. Its recent profits came from trading, which basically amounts to profiting from insider information at the expense of others," says Stiglitz. Eight days after Lehman failed and Blankfein was still figuring out a survival strategy, billionaire investor Warren Buffett called saying he would invest $5 billion in Goldman's preferred shares for a 10% annual dividend. That same night, Goldman raised another $5 billion from the global markets by selling shares. Though that helped Goldman's capital position considerably, the market turmoil continued. A few weeks later, Treasury Secretary Henry Paulson called Blankfein along with eight other CEOs of the largest U.S. financial institutions and asked them to take government money to shore up the system. Goldman was given $10 billion.
The Business Insider:
- Want to see the disastrous result of Keynesian policies? Ex-Morgan Stanley economist Andy Xie reminds us to look no further than Japan where evidence becomes starker by the day. Japan's government debt runs at 200% of GDP, far higher than that of the US, but at a level the US could potentially achieve should Keynesians take the country down a similar path. Despite years of massive stimulus, the country's 2009 GDP is set to be lower, in nominal terms, than what it achieved way back in 1993. Even corporate debt still stands at 180% of GDP since companies were prevented from going bankrupt and failed to earn their way out of debt. Where did all the stimulus money go? Down a funnel of inefficient waste whereby bad companies were supported, asset prices were kept from bottoming, and good money was thrown after useless projects.
Reuters:
- China snapped up $24.1 billion worth of U.S. treasury bonds in July, pushing its total holdings to $800.5 billion by the end of that month, the China Securities Journal on reported Thursday, quoting a U.S. announcement. China is the single-biggest holder of U.S. government debt -- it held $768 billion in Treasuries as of March -- and has watched uneasily as Washington has spent lavishly to try to haul the U.S. economy out of its deepest recession in 80 years.
Financial Times:
- The push by regulators for increased public information about credit default swaps and other over-the-counter derivatives will be extended to demands for more information about derivatives prices. The continued widespread use of credit default swaps as a measure of creditworthiness means that more detail needs to be available on prices at which CDS contracts trade, according to a regulator. Theo Lubke, senior vice-president at the Federal Reserve Bank of New York, said there had been “some improvements” on CDS price transparency but that “a lot more can be done”.“CDS are used in the markets as a reference benchmark,” Mr Lubke said, adding that the Fed itself watched CDS prices closely to assess risks. “The more CDS is used as a reference tool, the more important it is that market participants understand [the pricing process].”
- Hedge Funds Forced to Rethink Customer Base.
- Twitter is resurrecting in cyberspace the teeming trading pits of yesteryear as traders sign up with the the social networking site to reconnect with global counterparts. StockTwits is one of the most popular ways for traders to track relevant discussions on Twitter, including stock trends. Traders tweet their opinions about a stock with its ticker and a dollar sign which is then picked up and displayed by StockTwits’ own website. About 90,000 people have signed up to the site, many of them day traders. Some 15,000 actively contribute while the rest listen in.
Shanghai Securities News:
- China may announce retaliatory trade measures covering vehicles imported from the US China and the US
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (NUE) to Buy, target $57.
- Reiterated Buy on (EXPE), boosted target to $29.
- Reiterated Buy on (RIMM), target $100.
- Reiterated Buy on (PCLN), boosted target to $200.
Morgan Stanley:
- Reiterated Overweight on (COH), boosted estimates, raised target to $37.
Needham :
- Rated (SYNA) Buy, target $35
Oppenheimer:
- Rated (STI) Outperform, target $26.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 110.0 -8.5 basis points.
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- (FDX)/.58
- (ZLC)/-.72
- (CMTL)/.18
- (HIS)/.60
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Economic Releases
8:30 am EST
- Housing Starts for August are estimated to rise to 598K versus 581K in July.
- Building Permits for August are estimated to rise to 583K versus 564K in July.
- Initial Jobless Claims for last week are estimated to rise to 555K versus 550K the prior week.
- Continuing Claims are estimated to rise to 6100K versus 6088K prior.
10:00 am EST
- Philly Fed for September are estimated to rise to 8.0 versus 4.2 in August.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares in the region. I expect US
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