Late-Night Headlines
Bloomberg:
- Traders in the U.S. credit-default swaps market are paying the least in more than 16 months to protect corporate bonds from default as signs of an improving economy and almost-zero interest rates boosts demand for higher- yielding assets. The Markit CDX North America Investment-Grade Index, a benchmark credit swaps index tied to 125 companies in the U.S. and Canada, is trading at the lowest level since May 2008. The cost to protect junk bonds from default using a benchmark index is the lowest since June 2008. “There’s still a lot of money out there, and it makes it very difficult except for the really brave and foolhardy, to short the market,” said Scott MacDonald, head of research at Stamford, Connecticut-based Aladdin Capital Management LLC. “You had a slowdown at the end of August, but not the end of the rally, and people came back in September ready to work.”
- Bove Calls Bank of America’s Stock ‘Incredibly Cheap’ Richard Bove, an analyst at Rochdale Securities LLC, talks with Bloomberg's Matt Miller about his decision to raise his price target for Bank of America Corp. stock to $25 a share from $19.
- Italian Prime Minister Silvio Berlusconi and Australian Prime Minister Kevin Rudd wrote to U.S. President Barack Obama urging him to lead the fight against financial speculation and make it the center of the Group of 20 nations summit in Pittsburgh this week. “We would like to bring financial speculation and market manipulation, particularly for raw materials, to the center of the debate,” Berlusconi and Rudd said in their letter, a copy of which was posted on the Italian leader’s Web site.
- President Barack Obama will have Chinese and Russian support at the United Nations tomorrow for his bid to put the world body on record against the spread of nuclear weapons. That doesn’t mean those nations are ready to get tough with Iran or North Korea. Obama, as the first U.S. president to preside over a UN Security Council meeting, will call for a vote on a draft resolution to curb the proliferation and testing of nuclear arms and to safeguard fissile materials. On those goals, he likely will have the unanimous backing of leaders gathered in New York, according to interviews with Security Council diplomats. The resolution nonetheless avoids mentioning Iran and North Korea by name, reflecting disagreement among the U.S., China and Russia over how to deal with countries that are shirking their nuclear obligations.
- Banks with savings and securities- trading divisions should voluntarily abandon structured products that have little social value even if they are profitable, the head of Britain’s financial regulator said. Investors in banks may get lower returns as a result, Financial Services Authority Chairman Adair Turner said in a speech yesterday, which rebutted criticism he had received for questioning the U.K. financial sector’s size. The FSA will judge on “behalf of society” whether banks are efficient, and those with activities and products “of little value” will have to hold more capital to weigh against added risk, he said. “Top management of banks -- and in particular of any banks which are involved both in complex trading activities and in retail banking activities -- need to operate within limits,” Turner told 300 financial-services executives and lawmakers late yesterday in London. “There are some profitable activities so unlikely to have a social benefit, direct or indirect, that they should voluntarily walk away from them.”
- Assets held by exchange-traded funds backed by gold bullion jumped 55 percent in 2009 as financial turmoil and inflation concerns boosted the metal’s appeal as an alternative investment, the World Gold Council said. The value of the assets climbed to $51.4 billion as of Aug. 31, said Jason Toussaint, the council’s managing director of exchange-traded bullion. That compares with $33.1 billion on Dec. 31. The SPDR Gold Trust, the world’s biggest bullion-backed ETF, jumped 50 percent to $32.6 billion this year through August.
- House Financial Services Committee Chairman Barney Frank will exempt retailers and non-financial companies from oversight by the Consumer Financial Protection Agency, scaling back the Obama administration’s proposal. Financial institutions won’t have to offer “plain vanilla” products and services or assess whether consumers understand the products they offer, according to an outline of Frank’s proposal sent today to committee Democrats and confirmed by a spokesman. The committee is holding hearings on regulatory overhaul legislation starting tomorrow.
- The U.K. is drawing up plans to send additional forces to Afghanistan in the event the U.S., which leads the military effort, decides to proceed with a stepped-up campaign, the nation’s army chief said. The British military may expand beyond the approximately 9,000 troops it has in Afghanistan, said General David Richards, who took over last month as chief of the general staff. The U.K. has the second-biggest contingent in Afghanistan, behind the 68,000 personnel the U.S. will have by the end of the year. The Times of London reported today without attribution that the U.K. is considering adding as many as 1,000 troops in response to U.S. Army General Stanley McChrystal’s assessment that more forces are needed to fight the Taliban insurgency.
Wall Street Journal:
- Luxury builder Toll Brothers Inc.(TOL) is planning a nationwide housing sale, the company said Tuesday. The move shows that, while buyers might be tiptoeing back into the market, even strong builders with ample cash still have to work for deals as the housing market looks towards recovery from the worst downturn in decades.
- American International Group Inc.(AIG), a symbol of the financial crisis, has morphed into a playground for speculators. At a traders meeting before the market opened on Monday, Scott Redler, chief strategist at hedge fund T3 Capital Management, noted that AIG's stock hadn't moved much for days and was ripe for a breakout. Whether it headed up or down, he said, the traders should be ready.
- Senior Republicans challenged Democratic plans to require nearly all people to carry health insurance, sharpening attacks on the first day of Senate Finance Committee debate over legislation to overhaul the nation's health-care system. The criticism underscored Republican concerns that the legislation represents unwarranted government intrusion into private matters, and highlighted the partisan divide over the White House's top domestic priority. Put on the defensive, the committee's chairman, Sen. Max Baucus (D., Mont.), cut in half the maximum penalty for families that don't have health coverage to $1,900 from $3,800 per year.
- Bed makers are manning up. After years of catering to women, manufacturers are setting their sights on men. The new macho mattresses they're introducing have "muscle-recovery properties" and cooling technology, on the theory that men are more likely to feel too hot in bed. The bed frames feature built-in TVs, iPod docking stations, wine coolers, safes and other guy-friendly gadgetry.
- The Pentagon is rebuffing congressional calls for the top U.S. commander in Afghanistan to personally make the case for the war, amid the growing political tumult over the Obama administration's handling of the conflict. An array of powerful lawmakers from both parties, including the Democratic chairman of the House Armed Services Committee, want Gen. Stanley McChrystal to testify about the challenges confronting the U.S. and its allies in Afghanistan and his plan for beating back the resurgent Taliban. The calls to testify come as the Pentagon has asked Gen. McChrystal to delay his request for more troops while the administration rethinks strategy in the wake of last month's Afghan elections.
- Iran and Russia put Obama to the test last week, and he blinked twice.
MarketWatch.com: Seagate Technology(STX) said late Tuesday that its sales for its current fiscal quarter should be better than expected due to anticipated increases in the worldwide demand for hard-disk drives around the world. After the market closed, Seagate(STX) said it expects its fiscal first-quarter sales to be at the high end of its previously forecast range of $2.4 billion to $2.6 billion. Seagate said sales could be even higher if demand continues to grow over the remaining 11 days in the quarter, which ends Oct. 3. Seagate said that it expects the total addressable market [TAM] for disk drives during the current quarter to be greater than the 135 million to 140 million units as previously forecast. The company also expects the worldwide TAM for the December quarter to be between 145 million and 155 million.
- The World Bank said Tuesday it has approved more than $4.3 billion worth of projects designed to boost India's infrastructure and economic stimulus program. "This is a crucial time to support India," World Bank Country Director for India Roberto Zagha said in a statement.
NY Times:
- With a Receptive White House, Labor Begins to Line Up Battles. When China’s president, Hu Jintao, attends the G-20 summit meeting this week in Pittsburgh, he will no doubt complain about the punitive tariffs that the Obama administration recently slapped on Chinese tires and steel. While Mr. Hu is certain to make his displeasure known to President Obama, the man responsible for pressuring the administration to act on those disputes will be elsewhere, sitting in his office a few hundred yards from where the meeting is taking place. That man is Leo W. Gerard, the president of the United Steelworkers, often viewed as the No. 1 scourge of free traders. And the leaders of the G-20 should take note: Mr. Gerard and his fellow labor leaders are just getting started.
- In a provocative new study, a pair of Nobel prize-winning economists, Joseph E. Stiglitz and Amartya Sen, urge the adoption of new assessment tools that incorporate a broader concern for human welfare than just economic growth.
IBD:
- Teen clothier Aeropostale (ARO) is one player that keeps bucking the trend. In terms of same-store sales growth, it has outpaced rivals Abercrombie & Fitch (ANF) and American Eagle (AEO) each month since December 2007, according to Perkins.
Business Week: As legislators and officials in the Obama Administration debate and potentially draw closer to passing new rules regarding health care, carbon emissions, and financial services, hedge fund managers are awakening to the need to reexamine the assumptions they have long held about government's role in the private sector. This renewed focus on all things macro—from economic policy to regulatory regimes—is spurring hedge fund managers to seek the counsel of policy experts who can help them better grasp the broader context required to make investment decisions in the years ahead.
CNNMoney.com:
- More than a million people could receive an additional 13 weeks of unemployment benefits under a bill approved by the House on Tuesday. The bill extends benefits for those living in states with jobless rates higher than 8.5%. Some 27 states, plus the District of Columbia and Puerto Rico, fall into this category. The national unemployment rate hit 9.7% in August, the highest in 26 years.
Institutional Investor:
- Sovereign Wealth Funds Embrace Hedge Funds
The Business Insider:
- Don't cry for ACORN, the left-wing group that stands to lose all federal funding after some investigative pranksters busted volunteers for giving tax and housing advice to a "pimp" The group is set to reap a windfall from real estate developer Bruce Ratner, who bought off the group in order to clear the path for his big stadium/residential/commercial plans in downtown Brooklyn.
Politico:
- The Obama administration sought to distance itself Tuesday from a simmering controversy swirling around a National Endowment for the Arts conference call that appeared to urge artists to endorse White House positions. The administration’s response followed a renewed assault from conservatives on Monday after the right-leaning blog Big Hollywood posted a full transcript and audio recording of the call.
Rasmussen:
- Republican congressional candidates have once again expanded their lead over Democrats in the latest edition of the Generic Congressional Ballot. The new Rasmussen Reports national telephone survey shows that 42% would vote for their district’s Republican congressional candidate while 38% would opt for his or her Democratic opponent.
Washington Post:
- The U.S. securities regulator warned Congress on Tuesday that parts of the $450 trillion private swaps market could still fall through regulatory cracks under the Obama administration's financial reform plan. Securities and Exchange Commission Chairman Mary Schapiro said stricter rules were needed to prevent market participants from shopping for the weakest rules, and said regulators needed more tools to enforce anti-fraud authority. The administration's proposal "unfortunately does not currently provide the tools needed to adequately police all these swaps," Schapiro told the House Agriculture Committee hearing.
- To Bob Woodward, it was the modern-day equivalent of the Pentagon Papers. But to Obama administration officials, the classified assessment of the deteriorating situation in Afghanistan, if disclosed by The Washington Post, represented a potential threat to the safety of U.S. troops. The result was that The Post agreed to a one-day delay in publicizing the report by Gen. Stanley A. McChrystal, the top U.S. and NATO commander in Afghanistan, and that the paper's top editor engaged in a lengthy discussion Sunday with three top Defense Department officials in a meeting at the Pentagon. The Post published the report, which Woodward had obtained, on Monday.
Philly.com:
- One of Gov. Corzine's personal investments has become the latest fodder for attacks in an increasingly bitter race between the Democratic incumbent and Republican candidate Christopher J. Christie. Accusing Corzine of a "colossal error in judgment," Christie says the governor is invested in a hedge fund related to funds that have interests in four Atlantic City casinos and do business with the state pension system.
Philly Business Journal:
- The College Football Hall of Fame, long sought after as a crown jewel tourist attraction for the capital of the South, will touchdown in downtown Atlanta, multiple sources have told Atlanta Business Chronicle.
Reuters:
- Some investors believe Goldman Sachs Group Inc (GS) may try to shed its commercial banking charter to sidestep U.S. government efforts to rein in exorbitant Wall Street pay.
- Treasury Secretary Timothy Geithner said in testimony prepared for delivery on Wednesday that the United States would not identify in advance financial firms that it views as systemically important.
- The near collapse of the global financial system, which wiped out trillions in corporate value and personal savings, may be giving way to a new "golden age" for private equity investment, Silver Lake Co-CEO Glenn Hutchins said in an interview on Tuesday.
- Health insurers accused the U.S. Medicare agency on Tuesday of political interference in a battle over whether the industry can lobby its customers directly over healthcare legislation. The Centers for Medicare & Medicaid Services (CMS), which oversees the Medicare program for the elderly and disabled as well as privately run Medicare alternatives, said on Monday it was investigating a letter Humana Inc (HUM) sent enrollees about efforts to overhaul the nation's healthcare system. Humana's letter, sent in an envelope citing important plan information, told customers the Democrats' bills could hurt "millions of seniors and disabled individuals could lose many of the important benefits and services that make Medicare Advantage health plans so valuable," according to CMS. America's Health Insurance Plans, the industry lobby group, called the CMS action a "gag order." The group argued that any cuts, including those in various Democratic proposals, would raise costs and reduce benefits for those who want private plans. "Seniors have a right to know how the current reform proposals will affect the coverage they currently like and rely on," said AHIP spokesman Robert Zirkelbach. Republicans seized on the spat. "It looks likes CMS is engaged in government intimidation, pure and simple," said Representative Dave Camp, the ranking Republican on the U.S. House of Representatives Ways and Means Committee. Senate Republican Leader Mitch McConnell of Kentucky, where Humana is based, also blasted the CMS "effort to squelch free speech." Medicare Advantage plans are already under scrutiny because they cost more than traditional Medicare. An advisory group has urged Congress to curb payments to help lower the overall costs of Medicare, which could run out of money as early as 2017. Representative Camp said AARP, the nation's largest lobby group for older Americans which offers its own Medicare plan with UnitedHealth Group Inc (UNH), touts Democratic healthcare reform efforts on its website. "CMS may be selectively and inappropriately using its regulatory powers," he wrote in a letter to CMS.
- Brocade Communications Systems Inc (BRCD) forecast revenue for fiscal 2010 that would exceed Wall Street's expectations as more customers resume spending on network equipment as the economy stabilizes. Brocade also said on Tuesday that its integration of Foundry Networks, acquired last year, was going as planned and its sales partnership with International Business Machines Corp (IBM) was beginning to yield more benefit.
Financial Times:
- Chinese state companies this month began supplying petrol to Iran and now provide up to one-third of its imports in a development that threatens to undermine US-led efforts to shut off the supply of fuel on which its economy depends. The sales come in spite of moves over the past year by international companies, including BP and Reliance of India, to stop selling petrol to Iran, and highlight the difficulties of implementing sanctions aimed at curbing Iran’s nuclear ambitions. Traders and bankers familiar with Iran’s purchasing said the gap left by the withdrawal of such long-standing suppliers had been filled by Chinese petrol this month. Lawrence Eagles, head of commodities research at JPMorgan, said: “We estimate, based on what we are hearing in the market, that 30,000-40,000 barrels a day of Chinese petrol is making its way from the Asian spot market to Iran via third parties.” His comments reflect the view of several leading traders supplying Iran with petrol. The US and some of its allies want to shut off Tehran’s petrol imports, which have long been depicted as the Iranian economy’s most vulnerable point.
- German officials warned on Tuesday of a “widening of differences” ahead of the G20 summit, as US proposals attracted criticism in Europe for concentrating too heavily on global imbalances instead of reforming financial regulation. The US has expressed the hope that there is “a narrowing of differences” between the positions of the delegations. A German official said: “Actually, this shows a widening of differences.” “The language on the financial regulatory system, on capital requirements, on preventing banks from becoming too big to fail is very disappointing and not nearly compact enough,” one German official said.
O Estado de S. Paulo:
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (RCL), boosted estimates, raised target to $34.
- Reiterated Buy on (CCL), raised estimates, boosted target to $41.
- Reiterated Buy on (OMX), target $18.
- Reiterated Buy on (YHOO), target $21.
- Reiterated Buy on (BAC), target $20.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 109.0 -5.0 basis points.
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- (AZO)/4.43
- (PAYX)/.34
- (CTAS)/.39
- (BBBY)/.47
- (CPRT)/.43
- (RHT)/.15
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Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -1,400,000 barrels versus a -4,729,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a +547,000 barrel increase the prior week. Distillate supplies are estimated to rise by +1,450,000 barrels versus a +2,237,000 barrel gain the prior week. Finally, Refinery Utilization is expected to fall by -1.0% versus a -.26% decline the prior week.
2:15 pm EST
- The FOMC is expected to keep the benchmark fed funds rate at .25%.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity 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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