Late-Night Headlines
Bloomberg:
- The steepest rally in the Standard & Poor’s 500 Index sine the 1930s is restoring Byron Wien’s reputation as a stock picker. Wien, hired by Blackstone Group LP last month, said he’s keeping his January forecast for a 33% annual gain in the benchmark index for US equities, implying a 13% advance from yesterday’s close. More than six months ago, the S&P 500 needed to rise 77% to reach Wien’s year-end prediction of 1,200. Wien says an economic recovery and earnings that exceed analysts’ forecasts will spur the stock market during the next three months. “To some extent it’s overbought, but I still think it has further to go,” he said. “You have to say that if investors were very pessimistic in March, they are much more optimistic now, but not at extreme levels. I don’t think we’ll have a 10% correction before the end of the year.” “T do think that M&A will be strong over the next few months,” Wien said. “Investors are confident and businessmen are confident, too. They see some attractive companies out there at attractive prices. And they’re willing to buy them.
- Copper fell in New York to the lowest price in more than five weeks as an increase in inventories sparked mounting concern that demand is dwindling. Stockpiles in warehouses monitored by the London Metal Exchange rose 1.1 percent to 344,350 metric tons, the highest since May 19. They have climbed 15 percent in September. Copper prices are heading for the first monthly decline this year. “Inventories keep rising, and it’s taking a toll on copper,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “People are getting more and more worried about the demand situation. Copper is looking tired.”
- The photographs commemorate atrocity, depicting men and women clinging to babies and bundles of clothes as they flee Iraq along the rugged trails of the Zagros Mountains into Iran. The visual record I found at the Halabja Memorial in Kurdish Iraq bears witness to the events of March 16, 1988, when Saddam Hussein unleashed a genocidal chemical attack of sarin, mustard and other gases on the town. It was part of Anfal, the Iraqi president’s campaign against the Kurdish rebellion that arose during the Iran-Iraq War. As many as 180,000 Kurds were killed. My guide Mahmud Mahmud, 44, a victim of the 1988 assault, led me through a room filled with massacre vignettes using mannequins and based on the photos.
- Falling prices for flat-screen televisions may spur holiday sales this year, said Dennis May, chief executive officer of electronics retailer Hhgregg Inc. The Indianapolis-based company, which runs 118 stores in the Southeast and Midwest, is adding more small-screen flat- panel TVs, netbook computers, GPS navigational devices and digital cameras to attract holiday shoppers, May, 41, said in an interview. The company will also put more microwave ovens and Blu-ray players on the sales floor to spur traffic, he said. “Flat panels will lead the bunch,” May said by telephone Sept. 25. “You’ll see 32-inch flat-panel TVs for $299. You’ve got high-tech products that everybody wants at a price that everyone can afford.” On average, an LCD flat-panel TV cost $680 in the first eight months of 2009, compared with $928, or 27 percent more, in the same period in 2007, according to NPD Group Inc., a market research firm based in Port Washington, New York. Lower prices helped boost sales to 10.6 million flat-panel TVs this year through August compared with 6.7 million units two years ago, NPD said.
- Sequenom Inc.(SQNM) dismissed its chief executive officer and a senior research executive after finding the company mishandled development of a prenatal test for Down syndrome. The disclosures pushed the shares down by almost half.
Wall Street Journal:
- Big Wall Street firms from Vanguard Group Inc. to Goldman Sachs Group Inc.(GS) are lining up against new rules to restrict short-selling under consideration by the Securities and Exchange Commission. In several letters filed last week with the SEC over the proposed restrictions, the firms raised objections to a number of proposed limits on short-selling, in which investors borrow a stock to sell it, often hoping to profit from a decline. Charles Schwab, founder of Charles Schwab Corp., in a December 2008 editorial in The Wall Street Journal called for reinstatement of the uptick rule "to avoid a needless future repeat of a bad situation." Baltimore money manager T. Rowe Price Group Inc. also supports a new uptick rule, arguing in a letter to the SEC that short sellers have used the strategy "to manipulate stock prices in an abusive manner and has negatively impacted investor confidence." Under pressure from politicians as well as angry investors on Main Street, the SEC proposed several new rules to curb short-selling activities earlier this year. More recently, the agency requested comments on a modified uptick rule. This week, the SEC is hosting a roundtable discussion on other issues surrounding short selling. The new uptick rule would allow traders to sell a stock short only at a price higher than the lowest price at which investors are willing to buy a stock. Essentially, stock would need to rise before it could be sold short. Large trading firms say the new rule would introduce harmful frictions into the regular trading by investors. John Nagel, a managing director at Citadel Investment Group, wrote that a new uptick rule would "lead to greater disruption of legitimate trading activity and even greater market costs." A number of high-frequency trading companies, including Getco and Hudson River Trading, also voiced objections to a new uptick rule.
- Eliminating defensive medicine could save upwards of $200 billion in health-care costs annually, according to estimates by the American Medical Association and others. The cure is a reliable medical malpractice system that patients, doctors and the general public can trust. But this is the one reform Washington will not seriously consider. That's because the trial lawyers, among the largest contributors to the Democratic Party, thrive on the unreliable justice system we have now. Almost all the other groups with a stake in health reform—including patient safety experts, physicians, the AARP, the Chamber of Commerce, schools of public health—support pilot projects such as special health courts that would move beyond today's hyper-adversarial malpractice lawsuit system to a court that would quickly and reliably distinguish between good and bad care. The support for some kind of reform reflects a growing awareness among these groups that managing health care sensibly, including containing costs, is almost impossible when doctors go through the day thinking about how to protect themselves from lawsuits. The American public also favors legal overhaul. A recent Common Good/Committee for Economic Development poll found that 83% of Americans believe that "as part of any health care reform plan, Congress needs to change the medical malpractice system." Congress now realizes it can't completely stonewall legal reform. But what has unfolded so far is a series of vague pronouncements and token proposals—all of which assiduously avoid any specific ideas that might offend the trial bar. Here are some examples:
- Guillermo Loaiza, a loan officer for a unit of J.P. Morgan Chase & Co.(JPM) in Phoenix, has resigned from the board of Acorn Housing, a spokesman for J.P. Morgan said. Acorn Housing is an affiliate of the community-organizing group Acorn, the full name of which is the Association of Community Organizations for Reform Now. Both Acorn and Acorn Housing have been under fire since the recent release of secretly recorded videos that depicted Acorn employees offering advice on evading taxes, setting up brothels and smuggling illegal immigrants.
- Arab and Western officials worry that al Qaeda is securing a stronghold in Yemen, where the government's focus on quelling a tribal insurgency is allowing the terror group to strengthen its ability to destabilize neighbors in East Africa and the Mideast. Yemen's government, which has long struggled to assert control over the country's far-flung tribes and Islamic militant groups, launched a new offensive this summer against a rebellious tribe living near its northern border with Saudi Arabia. Escalating battles have killed dozens of soldiers on each side as well as hundreds of civilians. The fighting, now in its seventh week, has shaken a fragile humanitarian situation. United Nations officials warned recently that food aid in the region is running low. A report released this month by the Carnegie Endowment for International Peace warned that Yemen is facing "unprecedented" levels of instability. The ancestral homeland of Osama bin Laden, Yemen has long been a top U.S. security concern. For years, al Qaeda militants—including at least one Saudi released from U.S. custody in Guantanamo Bay, Cuba—have taken refuge here. One complication surrounding the closing of the U.S. military prison at Guantanamo is what to do with the more than 200 Yemeni detainees there. U.S. intelligence officials say they have little confidence in the Yemeni government's ability to keep them in prison back in their home country. Since the 2000 al Qaeda attack on the USS Cole in the Yemeni port of Aden, U.S. officials have reported mixed results from the Yemeni government in the fight against terrorism. President Ali Abdullah Saleh established a rehabilitation program for jailed Islamic militants, but hasn't curbed the growing network of al Qaeda fighters who have flocked to lawless parts of Yemen and are using the country as a launching pad for attacks.
- Thousands of students defied threats by security officials and demonstrated against Iran's government at Tehran University on Monday, the first day of the academic year, signaling the opening of a new front in the opposition's battle against the government. With pressure increasing both at home and abroad, President Mahmoud Ahmadinejad's government, concerned about the university's influence and reach, has been systematically cracking down on students. Security officials have called in hundreds of students across Iran for interrogation in the past month and warned them they would be banned from higher education if they brought the opposition movement of Mir Hossein Mousavi and Mehdi Karroubi to school.
- The Treasury has announced new "capital cushion" requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies. One place to start is the Federal Housing Administration, the nation's insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year. At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years. The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages.
MarketWatch.com: Looks like the gold bugs had reason to be wary when gold broke through $1000. But now it's back down, they're not particularly worried.
CNBC.com: Wall Street will quickly shift its focus to corporate earnings news once the books are closed on the third quarter this week. oe Quinlan, for one, thinks investors are in for some good news. "I'm encouraged that there's a skepticism about the earnings potential for third quarter. A lot of investors are underestimating how productive U.S. companies have become," said Quinlan, who is the chief market strategist at Bank of America Merrill Lynch. "I think final demand is picking up."
Business Week: MBA Pay: Riches for Some, Not All.
CNNMoney.com:
- With Wall Street continuing to recover, so are the prospects for this year's bonus season. As early as June, experts were speculating that incentive payments for U.S. banks and securities firms could rebound sharply given the resurgence in certain parts of their business. Now with analysts predicting impressive third-quarter numbers from some of the nation's largest financial firms, big bonuses for top Wall Street talent seems increasingly certain.
Chicago Sun-Times:
- On the heals of a congressional vote to de-fund ACORN, U.S. Rep. Mark Kirk (R-Ill.) is calling on the U.S. Census to sever all ties to Illinois' largest union, the Service Employees International Union, because that union, Kirk says, is too close to ACORN. Kirk also urged the firing of the National Intelligence Officer for the Middle East, who he blames for under-estimating Iran's nuclear capabilities. U.S. Rep. Peter Roskam (R-Ill.) and U.S. Rep. Patrick McHenry (R-Va.) joined Kirk in raising the red flags about SEIU because of what Kirk called, "the close inter-relationship in management, location, leadership, and financing between [ACORN and SEIU.] SEIU Local 880 used to boast it was founded by ACORN. ... I think the integrity of the Census is in danger if [SEIU] so closely linked to [ACORN] is still involved in the federal census." The Census Bureau uses SEIU to recruit people to go out and be census-takers, Kirk said.
Politico:
- President Barack Obama has decided it’s time to leverage his international popularity to try to bring home a global goodie: the 2016 Olympics for his hometown of Chicago. But now that he’s traveling to Copenhagen personally to make the pitch Friday, some experts say he better not come home empty-handed. The White House knows that the decision to go before the International Olympic Committee is fraught with political risk: The president could be embarrassed on a world stage if he doesn’t land the games. Plus, more than a few Americans are surely scratching their heads — with his inbox crowded with a troop request for Afghanistan, a new secret nuclear site in Iran, sky-high unemployment and a health care bill in Congress, does the president really have time for this?
Miami Herald:
- The Obama administration's task force has cleared a third of the Guantánamo detainees for release, and the military has posted notices in the camps in a bid to signal that, for some war-on-terror captives, an end of their days in Cuba may be on the horizon.
Forbes:
- Rich Bernstein’s Bullish Side. Inflation should be kept in check by China's overproduction of everything, and Treasuries are still a good bet too.
USA Today.com:
- The average retail price for gasoline dipped below $2.50 a gallon for the first time in two months Monday as swelling oil supplies and slumping demand overshadowed even a fire at a major U.S. refinery.
AP:
- Investigators have identified possible accomplices of an Afghan immigrant accused of plotting a terrorist attack on New York, a law enforcement official said Monday, but the whereabouts of the helpers or any bomb-making materials they procured are unclear.
Financial Times:
- UBS aims to cut its ties with the Swiss government by buying its way out of a "bad bank" deal and to return to health in a year, says Oswald Grübel, chief executive, who has likened its battering in the financial crisis to a "15-round boxing match".
- A Chinese state-owned oil company is in talks with Nigeria to buy large stakes in some of the world’s richest oil blocks in a deal that would eclipse Beijing’s previous efforts to secure crude overseas. The attempt could pitch the Chinese into competition with western oil groups, including Shell , Chevron , Total and ExxonMobil , which partly or wholly control and operate the 23 blocks under discussion. Sixteen licences are up for renewal. CNOOC , one of China’s three energy majors, is trying to buy 6bn barrels of oil, equivalent to one in every six barrels of the proven reserves in Nigeria, sub-Saharan Africa’s biggest crude producer and a major supplier to the US.
- Angela Merkel, the German chancellor, promised swift income tax cuts and a reform of corporate and inheritance tax on Monday but warned her Free Democratic partners in Germany’s next government not to expect a more radical shift towards free-market economic policies.
- GLG Partners, one of London’s largest hedge funds, has launched a new fund to invest in the debt of troubled UK and European companies. The fund will be one of the most significant launches in London so far this year, as a growing number of hedge fund managers and investors turn to so-called distressed strategies in pursuit of potentially huge returns.
- Unlike other markets, FX did not break down during the crisis. In fact, it kept working steadily, providing one of the essential cogs that kept the financial system going through one of its darkest periods. Yet regulatory initiatives in the US and elsewhere, designed to address problems in other corners of the trading world, are threatening to sweep up FX in ways that market watchers warn could change how a whole range of market participants do business. “We’ve really had to work to alert our clients,” says one banker. “Many customers didn’t understand that they were being lumped together with the AIGs and monoline insurers of this world and they’re only now seeing the risks.” The most immediate danger to the FX world comes from US legislative proposals to push all standardised derivatives through clearing systems. This would potentially require higher collateral for non-standard trades in an effort to dissuade participants from dealing outside the closely regulated exchange world.
Yonhap News:
- North Korea will respond to dialogue with the US while strengthening its nuclear deterrent if the US Pak made the comments in a keynote speech at the UN headquarters.
The Australian:
- A SPLIT has emerged in Coalition ranks over the risk of a climate change election, with Nationals leader Warren Truss declaring that outright rejection of an emissions trading scheme could prove a vote-winner. As the Liberal leadership continues attempts to cut a deal with the Nationals and avoid a potential double dissolution election trigger, Mr Truss again warned that any scheme would require radical change to win his support. Liberal frontbencher Ian Macfarlane warned the Nationals yesterday that Coalition-held coastal seats could be lost to Labor in the event of an early election fought on the issue of climate change.
Late Buy/Sell Recommendations
Citigroup:
- Our eps estimates for (DO), (ESV), (HERO) and (RDC) are lowered on reduced dayrate expectations for the US Gulf of Mexico. Recent contract signings by HERO and ESV suggest jack-up dayrates have or soon will approach breakeven. This is meaningfully below our prior expectations. A recovery is not yet foreseeable and dayrates are expected to remain depressed next year.
Oppenheimer:
- Rated (CPLA) Outperform, target $78.
- Rated (STRA) Outperform, target $250.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 115.50 +6.0 basis points.
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10:00 am EST
- Consumer Confidence for September is estimated to rise to 57.0 versus 54.1 in August.
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BOTTOM LINE: Asian indices are higher, boosted by technology and energy shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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