Late-Night Headlines
Bloomberg:
- The cost of protecting corporate bonds in the U.S. from default fell to levels last seen three months before Lehman Brothers Holdings Inc. filed for the biggest U.S. bankruptcy one year ago. Credit-default swaps on the Markit CDX North America Investment-Grade Index tied to 125 companies in the U.S. and Canada declined 2 basis points to 104 basis points as of 3:34 p.m. in New York, according to broker Phoenix Partners Group. That the lowest level since May 30, 2008, according to CMA DataVision.
- Airline stocks rallied for a ninth day, the longest streak since 1995, following forecasts from JPMorgan Chase & Co. and Delta Air Lines Inc. that the economic rebound will boost travel spending. The AMEX Airline Index jumped 3.8 percent to 28.63 in New York, bringing its climb since Sept. 2 to 26 percent. The measure, which includes companies from Alaska Air Group Inc. to AMR Corp., has soared 125 percent since reaching a low on March 9. JPMorgan analysts upgraded UAL Corp. and US Airways Group Inc. in a Sept. 10 report that said the industry’s revenue in the last two months has beaten estimates. Delta, the world’s largest carrier, increased its profit margin estimate yesterday as customers scooped up lowered fares for summer vacations.
- Ken Griffin started trading convertible bonds 22 years ago from his Harvard University dorm room. Now he’s moving away from the investments that made him a billionaire hedge-fund manager -- and unraveled last year, leaving clients with a 55 percent loss, almost three times the industry average. Citadel Investment Group LLC, Griffin’s $13.5 billion firm, is reducing its two biggest funds’ holdings of convertible bonds and other so-called relative-value trades that try to profit from small price differences in related securities, and amplify the gains with debt. At last year’s peak in May, the firm used borrowings of nine times net assets to hold $145 billion in gross assets. That was triple the average leverage ratio of hedge funds, according to a report from JPMorgan Chase & Co.
- Lawmakers pushed back today against a U.S. presidential panel’s conclusion that NASA can’t afford to return astronauts to the moon by 2020 with a new rocket and spacecraft and should instead consider another plan. “I’m pretty angry,” said Representative Gabrielle Giffords, an Arizona Democrat who chairs a House space subcommittee. “We’ve been given a set of alternatives that almost look like cartoons.”
- U.S. House Republicans are seeking to sell government stakes in companies including Citigroup Inc., American International Group Inc., General Motors Corp. and Chrysler LLC. Legislation being drafted would create an independent trust to sell the U.S. ownership, Representative Spencer Bachus, the top Republican on the House Financial Services Committee, said today at a Washington news conference. The measure covers firms with U.S. ownership that exceeds 15 percent. “We think that we ought to wind down the government ownership of these corporations,” said Bachus of Alabama, identifying the four companies. “That’s not what the American people want.”
- Federal Deposit Insurance Corp. Chairman Sheila Bair and two U.S. Securities and Exchange Commission chairmen will be questioned by lawmakers over their roles in Bank of America Corp.’s takeover of Merrill Lynch & Co. The House Oversight and Government Reform Committee at a Sept. 30 hearing will seek “to better understand the nature and extent of their involvement,” committee Chairman Edolphus Towns said today in a statement. The New York Democrat’s panel also will probe Bank of America’s proposed settlement with the SEC on claims the bank misled investors about Merrill Lynch bonuses.
- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased holdings of government debt last month to the most in five years and cut mortgage securities. Gross boosted the $177.5 billion Total Return Fund’s investment in government-related bonds to 44 percent of assets, the most since August 2004, from 25 percent in July, according to Pimco’s Web site. The fund cut mortgage debt to 38 percent from 47 percent. Officials at Pimco have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower economic growth.
Wall Street Journal:
- America's top military officer endorsed sending more U.S. troops to Afghanistan, a shift in Pentagon rhetoric that heralds a potential deepening of involvement in the Afghan war despite flagging support from the public and top Democrats in Congress. Addressing a Senate panel, Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, offered no new details about how many American reinforcements will be needed in Afghanistan. But his comments mean that both Adm. Mullen and Defense Secretary Robert Gates, who spoke on the subject last week, now appear willing to order more forces to Afghanistan despite their earlier skepticism about expanding the American military presence there. Their support makes it easier for President Barack Obama to approve the plans of Gen. Stanley McChrystal -- whom the Obama administration installed as the top American commander in Kabul -- when he submits a formal request later this month for as many as 40,000 new troops, in addition to 62,000 now there.
- On Monday, the U.S. Senate voted 83-7 to strip Acorn, the premier community organizing group on the left, of more than $1.6 million in federal housing money meant to assist low-income people obtain loans and prepare tax forms. This dramatic step followed last Friday's decision by the U.S. Census Bureau to sever its ties with the organization, one of several community groups it was partnering with to conduct the nation's head count. Both of these actions came after secretly recorded videos involving employees in Acorn's Brooklyn, N.Y., Washington, D.C., Baltimore, Md. and San Bernardino, Calif. offices were televised on Fox News. The videos were recorded by two independent filmmakers who posed as a prostitute and a pimp and said they were planning to import underage women from El Salvador for the sex trade. They asked for and received advice on getting a housing loan and evading federal taxes. In response, Acorn has so far fired four of the employees seen on the videos. But it claimed the videos were "doctored" and accused critics of a smear campaign and "racist coverage" of the incidents. Such rhetoric in the past has deflected scrutiny of Acorn tactics, such as street demonstrations and boycotts against banks to force lower credit standards for home loans, which a congressional report found contributed to the subprime loan mess. But now Acorn may be finally running off the rails.
- Tough times are reshaping some executive M.B.A. programs. Enrollment in many of these programs is slipping, as companies looking to cut costs scale back—and in some cases eliminate—their financial support for employees' executive M.B.A. studies.
- The Securities and Exchange Commission has set up an agencywide task force to examine a financial product in which people collect cash for selling their existing life-insurance contracts. The product, known as a life-insurance settlement, has come under greater scrutiny following the financial crisis. In recent months, Wall Street firms have begun securitizing the products by slicing them up and selling bundled pieces to investors. Regulators are concerned about the securitization of these products and whether those who are selling their life-insurance policies and those buying them know exactly what they are getting, according to people familiar with the matter. Some see echoes of the residential-mortgage market, in which pieces of mortgage-backed assets became widely distributed among financial firms and few people had a good grasp of the value of the underlying mortgages. "There are many questions raised by life settlements -- from sales practices to privacy rights to the role of securitizations," Ms. Schapiro said. "And the answers could help determine where more oversight is needed. This is a growing market and we want to be ahead of it."
- Moving into high gear this year is the issuance of bonds backed by auto loans. That is significant for two reasons: It shows that with lots of help from the Federal Reserve, the securitization markets are slowly reviving, helping to restore the flow of credit to the broader economy. And it also shows that despite all the talk that risk is back, investors remain cautious and are sticking with the tried and tested -- straightforward structures and easy-to-analyze collateral. Notwithstanding the fragile state of the U.S. consumer, auto loans have held up well. Default rates are relatively low.
- Thirty senior bankers from Société Générale's alternative asset management team have left to set up their own hedge fund business amid growing pressures at French banks to curtail the bonuses of top employees. The team - including the head of SocGen's $12.7bn global hedge funds business, Arié Assayag, and several of his most senior colleagues - have left in a move backed by an American private equity firm. The French government has recently clamped down on bankers' compensation in response to public outcry, and hopes to persuade fellow G20 economies to follow suit at the Pittsburgh Summit next week. Both Société Générale and rival BNP Paribas, France's two largest investment banks, have promised to curtail payouts to employees. So-called "golden hellos" - signing on bonuses for new staff - have already been mothballed. Nexar Capital - the name for the new hedge fund venture - will be headed by Mr Assayag, with Eric Attias, the former chief executive of Société Générale's New York Asset Management business, as its chief investment officer. The firm will be based in Paris with an office in New York. Nexar has been backed with seed capital by US private equity firm Aquiline partners - set up by Jeffrey Greenberg, the former chairman of Marsh & McLennan, the American insurance group, and son of Hank Greenberg, the former AIG chief.
CNBC.com:
Not too many people can honestly say they saw the Wall Street crisis coming. Hear from someone who can! Sean Egan president of Egan-Jones Ratings Company was among the first to warn of troubles lurking in subprime mortgage-backed bonds. “The storm has passed,” says Egan. The federal government has taken unprecedented steps to intervene in the market. With the government standing behind the major financial institutions, investors should consider them “downside protected” and instead focus on the upside. "In real estate, the worst has also passed," adds Egan.
- 5 Banks to Own Now, Says Bove.
- The S&P 500 will rise to 1200 or 1250 before there's a meaningful correction, so although stocks aren't as cheap as they were a few months ago, they're still worth buying, said Barton Biggs of Traxis Partners. "Everybody thinks it's gone too far. We're getting all kinds of advice that we ought to cut back and lock in some gains," Biggs told CNBC. "It takes courage to be a pig, and I'm a pig here." Biggs recommended the following sectors and markets to investors:
- What if they planned a stock market correction and nobody came? Although investors were widely expected to return after the Labor Day holiday, volume has remained surprisingly light. The reason: so many people are worried about a big selloff that they're staying out of stocks—at least for now.
- Warren Buffett tells CNBC he has no regrets about any of the decisions he made over the weekend one year ago in September, 2008, when the financial crisis was at its worst.
NY Times:
- Even though the White House has signaled that a so-called public option may not be necessary for a health-care overhaul, some interest groups are trying to pressure Democrats to keep it in play. Health Care for America Now, made up of more than 1,000 labor unions and Democratic groups, is one of them. It started a new advertising campaign on Tuesday in which it advocates for a government-run health insurance plan by demonizing the health insurance industry, which opposes one.
- Anadarko , of the US, with partners Woodside , Repsol , and Tullow , the UK-listed oil company, will reveal as early as Wednesday that they have established a new oil frontier that stretches 1,100km along the coast from Ghana to Sierra Leone. The announcement will be made off the back of discoveries made by the Venus well Anadarko has been drilling off Sierra Leone, people close to the US company said. Peter Hitchens, analyst at Panmure Gordon, the financial services group, said before the official announcement: “If Venus comes in, they are into a grand slam.” That is because Venus-B lies off the shores of Sierra Leone and is at the western edge of a geological system that includes the large discoveries off Ghana’s shores. Anadarko and Tullow have made a bet on the coastline, snapping up rights to explore the area at low prices when their oil reserves were unknown. Woodside and Repsol, which each hold 25 per cent of the Sierra Leone asset, will also benefit. Anadarko owns a 40 per cent share, while Tullow has 10 per cent. The Venus well does not prove that the area is full of oil, but it makes it more likely and will sharpen bigger companies’ interests.
Business Week: The Employee Free Choice Act—the embattled bill that would make it easier for unions to organize—may have gotten new life on Sept. 15 when Senator Arlen Specter (D-Pa.) announced that he had reached a compromise with labor representatives on a bill that could pass later this year.
CNNMoney.com:
- Where are the perp walks for the subprime mortgage executives that dragged us into this mess? Three years after the housing bubble popped, federal prosecutors have yet to bring a case against the executives whose firms took part in some of the worst excesses of the subprime mortgage market.
Politico:
- Texas Rep. Lamar Smith, the top Republican on the House Judiciary Committee, on Tuesday called on the Federal Bureau of Investigation and the Department of Justice to open investigations into the embattled Association of Community Organizations for Reform Now, better known by the acronym ACORN. “For years, ACORN has been the subject of allegations of fraud, misconduct and possible criminal activity. In fact, voter registration fraud allegations have led ACORN to be subject to investigation in 15 states,” Smith wrote in a statement attached to letters sent to FBI Director Robert Mueller and Glenn Fine, the Justice Department’s inspector general. “Despite these serious concerns, Congress and the Administration continue to provide federal funding to a corrupt organization,” Smith continued. “Our democracy depends on the integrity of our election process. ACORN’s efforts to swing election results through voter registration fraud undermine the integrity of our elections and shake the American people’s faith in their government.”
Vanity Fair:
- 100 to Blame: Barney Frank, Richard Fuld, and More .
Reuters:
- Chipmaker Silicon Laboratories Inc (SLAB) raised its outlook for the third quarter, citing better-than-expected demand for its chips used in FM radio tuners. The strength in the radio business was a result of better-than-seasonal demand in handsets at the company's largest customer, which is expected to moderate in the fourth quarter, Silicon Laboratories said. "Audio broadcast, that is FM tuners, is seeing strength at their largest handset customer, Samsung, we believe," Ian Ing, an analyst with Broadpoint Amtech, said. The company said a faster-than-expected roll-out at a new consumer audio customer also helped the business. The analyst said the new customer could be Apple Inc (AAPL), which recently launched iPods with FM radio tuners.
- Rambus Inc (RMBS) shares rose 3.6 percent in after-hours trading on Tuesday after the company announced current quarter revenue will be better than expected because of brisk computer sales. The company, which licenses patents for use by chip makers, said revenues for the quarter ending September 30 will be between $27 million and $28 million, up from its earlier prediction of $22 million to $25 million. The stock rose to $18.69 in after-hours trading, up from its close of $18.03. "Semiconductor shipments rose to meet current OEM (computer maker) demand, after an overcorrection earlier this year, driving an increase in our variable royalty payments and consequently higher expected revenue for the quarter," Chief Executive Harold Hughes said in a statement.
- Adobe Systems Inc (ADBE) plans to pay $1.8 billion for fast-growing business software maker Omniture Inc (OMTR) as the maker of Photoshop and Acrobat looks to turn around declining sales. Omniture shares soared 25 percent to $21.74 in after-hours trading, while Adobe shares slid 4.5 percent to $34.06.
- Chinese electric car maker Tianjin Qingyuan Electric Vehicle Co is in talks with Daimler AG to develop an electric version of a van made at the German automaker's joint venture in southeast China, a source said on Tuesday.
- Citigroup Inc(C) is slowly regaining favor among institutional investors, a development that could help the U.S. government unload its 34 percent stake in the still-troubled bank.
- U.S. crude oil futures pared gains in post-settlement trading on Tuesday after industry data showed a surprise increase in domestic crude stocks last week. Heating oil and gasoline futures trimmed gains as the data showed distillate and gasoline stocks rose more than expected. The American Petroleum Institute, in a weekly inventory report, said that crude stocks rose 631,000 barrels in the week
to Sept. 11, against the forecast in a Reuters poll of analysts for a 2.4-million-barrel drawdown. The industry group said gasoline stocks rose 1.3 million barrels, more than twice the forecast for a 600,000 barrel build in the poll. Most stunning for analysts, distillate stocks, which include heating oil and diesel fuel, jumped 5.2 million barrels, against the forecast for a 1.3 million barrel rise. "What strikes me the most in the API report is the incredible build in distillates, even with our current surplus in supplies already above the five-year average," said Phil
Flynn, analyst at PFGBest Research in Chicago. "This is very bearish and tells you that we still have demand issues that probably reflect some of the problems we
still have in the economy. Of course, we'll have to wait for tomorrow's EIA data to see if these industry numbers will stick," he added.
Financial Times:
- The US government should help revive the moribund market for big mortgages by getting Fannie Mae and Freddie Mac to buy large home loans from banks, the chief executive of the lender Wells Fargo urged on Tuesday. In an interview with the Financial Times, John Stumpf, whose bank originates a quarter of all US mortgages, called for an increase in the size of loans purchased by Fannie and Freddie, the troubled finance groups controlled by the authorities. Mr Stumpf said such a move would help reduce the interest rates charged by banks on so-called “jumbo” mortgages and revive a market for higher-end housing that has been devastated by the credit crunch. Fannie and Freddie can currently buy or guarantee mortgages worth up to $417,000. The stimulus plan approved last year set the companies higher limits of up to $729,750 in certain high-cost areas such as California until the end of 2009. Congress has to approve any extension of those higher limits. “I would like to see Fannie and Freddie increase the size of mortgages [they buy],” Mr Stumpf said. “It would be good for housing and good for the economy”.
ORF:
- European Central Bank council member Ewald Nowotny sees the economy stabilizing at a “low level” in 2010. “The clear decline has been stopped,” Nowotny said. This means growth rates next year will be positive, but will be too low to – for instance – stop an increase in unemployment.”
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (WMG) to Buy, target $6.
- Downgraded (MIR) to Sell, target $13.
- Downgraded (PPS) to Sell, target $15.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 118.50 -5.0 basis points.
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Economic Releases
8:30 am EST
- The Consumer Price Index for August is estimated to rise .3% versus unch. in July.
- The CPI Ex Food & Energy for August is estimated to rise .1% versus a .1% gain in July.
- The 2Q Current Account Deficit is estimated to widen to -$92.0B versus -$101.5B in 1 Q.
9:00 am EST
-.Net Long-term TIC Flows for July are estimated at $60.0B versus $90.7B in June.
9:15 am EST
- Industrial Production for August is estimated to rise .6% versus a .5% gain in July.
- Capacity Utilization for August is estimated to rise to 69.0% versus 68.5% in July.
9:30 am EST
- The NAHB Housing Market Index for September is estimated to rise to 19.0 versus 18.0 in August.
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BOTTOM LINE: Asian indices are mostly higher, boosted by mining and technology 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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