For all the hand-wringing over the dollar’s slide, the expanding U.S. deficit and the nation’s AAA credit rating, the bond market shows international demand for American financial assets is as high as ever. The Federal Reserve’s holdings of Treasuries on behalf of central banks and institutions from China to Norway rose by $68.8 billion, or 3.3 percent, in May, the third most on record, data compiled by Bloomberg show. The Treasury said bidding from foreigners was above average at its $101 billion of note auctions last week.
AstraZeneca Plc’s Zactima, the experimental lung cancer drug that failed in two small studies, helped slow the advance of tumors in a bigger test the drugmaker will use to seek U.S. marketing approval. Adding Zactima to treatment with chemotherapy shrank tumors and reduced disease symptoms, the research found. It also lengthened the time before the cancer progressed to 17.3 weeks, compared with 14 weeks for those on chemotherapy only.
- French President Nicolas Sarkozy and German Chancellor Angela Merkel said they favor business people and employees over financial speculators, in a joint commentary they wrote for a French newspaper and a German newspaper.
- Fortress Investment Group LLC, Crestview Partners LP and Lightyear Capital LLC agreed to inject as much as $150 million each into First Southern Bancorp, part of the Boca Raton, Florida-based bank’s plan to increase assets.
- Australia’s oil and gas producers propose projects valued in excess of A$200 billion ($160 billion) that may help lead the country out of its first recession since 1991, the industry’s biggest lobby group says.
- Bristol-Myers Squibb Co.(BMY) is negotiating to buy a share of Elan Corp.(ELN), the Irish drugmaker seeking financing to repay debt and develop its experimental Alzheimer’s drug, a person familiar with the deal said.
- Total SA, Europe’s third-largest oil company, is calculating investment in North Sea fields will make it the U.K.’s biggest oil and gas operator within three years, challenging top-ranked BP Plc on its home turf. “Our strategy is more aggressive than other companies,” Roland Festor, managing director of Total E&P U.K. Ltd., said in an interview May 28 in Aberdeen, Scotland. “We don’t have a strategy to grow by acquisitions but by exploration in our hubs.”
- China suspended exchanges with North Korea after Kim Jong Il’s regime tested its second nuclear weapon and test-fired short-range missiles, Yonhap News reported, citing diplomatic sources in Beijing it didn’t identify. China has halted plans to send officials on visits to North Korea and won’t accept visits from North Korean officials either, the Korean-language news agency said today.
Wall Street Journal:
- General Motors Corp. will file for Chapter 11 bankruptcy early Monday, marking the humbling of an American icon that once dominated the global car industry and setting up a high-stakes gamble for U.S. taxpayers.
- Lawmakers Bill Taxpayers For TVs, Cameras, Lexus. Florida Rep. Alcee Hastings spent $24,730 in taxpayer money last year to lease a 2008 luxury Lexus hybrid sedan. Ohio Rep. Michael Turner expensed a $1,435 digital camera. Eni Faleomavaega, the House delegate from American Samoa, bought two 46-inch Sony TVs. The expenditures were legal, properly accounted for and drawn from allowances the U.S. government grants to lawmakers. Equipment purchased with office expense accounts must be returned to the House or the federal General Services Administration when a lawmaker leaves office. But as British politicians come under widening scorn for spending public money on everything from candy bars to moat-dredging, an examination of U.S. lawmakers' expense claims shows Washington's elected officials have also used public funds for eye-catching purchases.
- Senior Obama administration officials said Friday that policy adjustments necessary to contain soaring budget deficits would be made once an economic recovery takes hold, in response to growing concerns about a run-up in long-term interest rates. Treasury Secretary Timothy Geithner, National Economic Council chief Lawrence Summers and Office of Management and Budget director Peter Orszag said in separate interviews that the administration was acutely aware that rising interest rates pose a threat to the improving U.S. economy.
- In a move that could shake up the clubby business of exchange-traded funds, bond giant Pacific Investment Management Co. is poised to launch its first ETF early this week. The move by Pimco, a unit of Allianz SE co-founded by bond guru Bill Gross, marks the first time in years such a high-profile mutual-fund company has tried to muscle its way into the ETF business, long dominated by a handful of large-but-lesser-known asset managers that specialize in indexing, such as Barclays PLC and State Street Corp.
- The fast money is proving slow to jump on the market's bandwagon. Hedge funds, decried by many as quick traders, have played catch-up during the market rally since March. The average fund was 45% "net long" as of May 19, or had investment holdings valued at 45% more than its bearish "short" positions, according to Hedge Fund Research. That figure is up from 33% earlier this year, but still is far below its 55% level a year ago. Funds are less bullish now than they were just before the market crumbled last fall. Hedge-fund managers, and their investors, said many remain in a neutral position. If stocks keep surging, hedgies might have to jump in with two feet, giving the market another lift.
- Private-equity firm Carlyle Group and a group of investors are discussing an agreement to acquire Silverton Bank, the failed Atlanta "bank of banks" that serves small financial institutions throughout the U.S., according to people familiar with the situation. A deal for Silverton would be Carlyle's second major bank transaction with the federal government in two weeks, giving the large, politically connected buyout shop a banking beachhead in both Florida and Georgia.
- Potential Conflicts Abound in Government Role. Even after nine months of extraordinary government intervention, the scope and complexity of the General Motors Corp. rescue present a thicket of conflicts unlike any seen before in Washington. The federal government is likely within weeks to emerge as the principal owner of a storied U.S. corporation whose factories and products touch the lives of tens of millions of Americans. It will simultaneously serve as the company's regulator, tax collector, customer, pension backstop and lender.
- A bond default by a Chinese timber company is the latest example of trouble emerging from complex debt deals that foreign investors rushed to strike in China during the past few years. Investors and debt watchers say other defaults are likely to follow among Chinese companies that issued foreign debt, many of which are privately held ventures with ties to local government officials. Foreign creditors fear China's restructuring process will place the interests of equity holders, workers and Chinese lenders ahead of their own. Such problematic debt illustrates the potential pitfalls facing Western investors and bankers eager to profit from China's growth.
- A homemade bomb found aboard an Iranian plane Sunday follows a string of incidents in Iran that are raising concerns about rising sectarian violence between Sunnis and Shiites ahead of the June 12th presidential election. The recent violence, scattered along Iran's borders with Iraq and Pakistan, has revived longstanding fears among Iranian officials that sectarian violence within those countries could spill over into Shiite-majority Iran, which hasn't had a recent history of such strife.
- Back in December, in an economy far, far away, then-CEO Rick Wagoner tossed out the scary cost to taxpayers of $100 billion if General Motors wasn't saved by the government. Well, GM was saved in December and again in March, and as early as today the feds will rescue it a third time in a prepackaged bankruptcy that is already costing at least $50 billion, and that's for starters. Welcome to Obama Motors, and what is likely to be a long, expensive and unhappy exercise in political car making. Taxpayers have so far put up nearly $20 billion, which was supposed to be a loan at market rates but under Treasury's forced restructuring will mostly be converted into equity in the new GM. The feds are also putting up $30.1 billion in "debtor in possession" financing and will effectively nationalize the once-mighty auto maker by taking roughly 60% ownership. (That's not counting $12.5 billion to save GMAC, the company's financing arm.) The Canadian government will go along for the ride for 12% of the new GM, the UAW will get about 17.5%, and the hapless bond holders have to settle for 10%.
- While the U.S. government and electricity producers get ready to spend hundreds of billions to upgrade the nation's power lines and electricity infrastructure, the so-called smart grid may not be clever enough to escape economic uncertainty. After Congress OK'd $30 billion for the electric grid, advanced battery manufacturing and energy efficiency projects, much of the money included in the $787 billion economic stimulus bill signed into law on Feb. 18 remains unused.
- It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism. But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry. Nor, for that matter, had he given much thought to what ailed an industry that had been in decline ever since he was born. A bit laconic and looking every bit the just-out-of-graduate-school student adjusting to life in the West Wing — “he’s got this beard that appears and disappears,” says Steven Rattner, one of the leaders of President Obama’s automotive task force — Mr. Deese was thrown into the auto industry’s maelstrom as soon the election-night parties ended.
- When a new crop of future business leaders graduates from the Harvard Business School next week, many of them will be taking a new oath that says, in effect, greed is not good. Nearly 20 percent of the graduating class have signed “The M.B.A. Oath,” a voluntary student-led pledge that the goal of a business manager is to “serve the greater good.” It promises that Harvard M.B.A.’s will act responsibly, ethically and refrain from advancing their “own narrow ambitions” at the expense of others.
- The Obama administration is supporting efforts by the Saudi royal family to defeat a long-running lawsuit seeking to hold it liable for the Sept. 11, 2001, attacks. The Justice Department, in a brief filed Friday before the Supreme Court, said it did not believe the Saudis could be sued in American court over accusations brought by families of the Sept. 11 victims that the royal family had helped finance Al Qaeda. The department said it saw no need for the court to review lower court rulings that found in the Saudis’ favor in throwing out the lawsuit. The government’s position comes less than a week before President Obama is scheduled to meet in Saudi Arabia with King Abdullah as part of a trip to the Middle East and Europe intended to reach out to the Muslim world. Lawyers for the Saudi family said that they were heartened by the department’s brief and that it served to strengthen their hand before the court, which has not decided whether to hear the case. But family members of several Sept. 11 victims said they were deeply disappointed and questioned whether the decision was made to appease an important ally in the Middle East. The Saudis have aggressively lobbied both the Bush and Obama administrations to have the lawsuit dismissed, government officials say. “I find this reprehensible,” said Kristen Breitweiser, a leader of the Sept. 11 families, whose husband was killed in the attacks on the World Trade Center. “One would have hoped that the Obama administration would have taken a different stance than the Bush administration, and you wonder what message this sends to victims of terrorism around the world.” Bill Doyle, another leader of the Sept. 11 families whose son was killed in the attacks, said, “All we want is our day in court.”
- From TV to the Web to Your Phone. TECHNOLOGY evangelists and television aficionados want all their TV on the Web, and they are tired of waiting for Internet companies and content owners to make it happen. But such an entertainment nirvana already exists — at least for owners of a silver and black gadget called the Slingbox.
- As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions. Murmurs were already emanating from Washington about the need for a wide-ranging regulatory overhaul, and Wall Street executives girded for a fight. Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives — the sophisticated and profitable financial instruments that were intended to limit risk but instead had helped take the economy to the brink of disaster. The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.
- Cancer Drugs: News from ASCO.
- With the economy still lagging and corporate bottom lines under pressure, private-equity firms are expected to play an increasingly large role in shaping any recovery -- deciding whether or not to plow more money into their companies that are facing default.
- As Republicans continue to hammer Supreme Court nominee Sonia Sotomayor for a 2001 assertion that’s become known as the “wise Latina” remark, her backers are struggling to come up with a single coherent line of defense. In the past few days, supporters confronted with the remark have offered a range of divergent tactics and tones, offering explanations that span from apologetic to defiant to suggesting Sotomayor may have been joking. President Obama himself addressed the bubbling controversy, which is emerging as among the leading GOP lines of attack against Sotomayor, asserting on Friday Sotomayor “would have restated” the comment if given another chance.
- President Barack Obama and Michelle Obama landed in New York Saturday afternoon, and after taking a helicopter from JFK into Manhattan, drove up the West Side Highway, where the northbound lanes were shut down by police for their visit, past Ground Zero, into the Village for dinner at the Village's Blue Hill restaurant. From there, they went north to Times Square, where they went to to see a production of "Joe Turner's Come and Gone" at the Belasco Theater on West 44 Street. Deputy Press Secretary Josh Earnest read a statement from Obama: "I am taking my wife to New York City because I promised her during the campaign that I would take her to a Broadway show after it was all finished." Asked about the cost of the trip, which Republicans have criticized as indulgent, coming just ahead of the expected announcement of GM's bankruptcy filing on Monday, Josh Earnest told pool reporter Dave Michaels of the Dallas Morning News, that he "didn't anticipate being able to provide a cost estimate tonight."
- Since Obama took office, CNN’s prime-time audience has dropped sharply, raising doubts about whether the network’s middle-of-the-road strategy can be effective against more opinionated programming on Fox News and MSNBC.
- Senate Democrats late Saturday night approved a plan to raise personal income taxes by 67 percent and broaden the Illinois sales tax to include services such as cable TV, but the measure faces an uncertain future in the House with a late Sunday deadline to fix the state budget. The 31-27 vote shifted Statehouse dynamics after Democrats spent much of the day struggling to find support for a tax increase.
- Only 21% of voters nationwide support a plan for the government to bail out General Motors as part of a structured bankruptcy plan to keep the troubled auto giant in business. The latest Rasmussen Reports national telephone survey finds that 67% are opposed to a plan that would provide GM with $50 billion in funding and give the government a 70% ownership interest in the company. Even when presented with the stark choice between providing government funding or letting GM go out of business, only 32% of voters support the bailout. Most voters (56%) say it would be better to let GM go out of business.
- Home sales across San Bernardino and Riverside counties are rising fast, sending positive vibes through the community. Home prices are still falling, but at a much slower speed than the breakneck pace set over most of the past two years. Is this the bottom? Home sales in San Bernardino County have skyrocketed 88 percent from April 2008 to April 2009, while sales in Riverside County jumped 40 percent over the same period, according to MDA DataQuick, a La Jolla-based real estate data tracker.
- Hedge funds take aim at Florida real estate. Some consider them good capitalists. Others see them as opportunists. Still others call them vultures. Whatever the name, hedge fund investors likely will be major players in Florida real estate in the next few years, buying up mortgage notes — troubled or not — for a fraction of their original value.
Crain’s NY Business:
- For years, Dan Loeb was the hedge fund world's hanging judge, firing off blistering letters to hapless chief executives that condemned them for their shortcomings. “Do what you do best,” he hissed in a 2005 letter to a soon-to-be-gone CEO. “Retreat to your waterfront mansion in the Hamptons. ... The matter of repairing the mess you have created should be left to professional management.” How times change. After years of posting average gains of 27%, Mr. Loeb's Third Point hedge fund crashed to earth last year with a shattering 33% loss. In response, many investors grabbed their money and ran, driving assets under management to less than $2 billion from more than $5 billion previously. Now it's Mr. Loeb who's left to clean things up—or face oceanfront exile.
- Iraq’s Taq Taq oil field will boost exports of crude from the country’s autonomous Kurdistan region by half by October, citing an official. Flows of crude oil by pipeline to Turkey will rise to 60,000 barrels a day in the fall from 40,000 barrels at the start, citing field manager Okutan Mehmet.
- The central bank chief for the United Arab Emirates said he saw weakness in the dollar as a "temporary situation" and expressed support for the greenback, saying no other money could replace it as a reserve currency. "There is no other currency to replace the dollar, not the euro," Central Bank Governor Sultan Nasser al-Suweidi told reporters on Sunday at a regulatory event. "It is the currency for investment."
- Microsoft(MSFT) and Sony(SNE) are launching a video-game offensive against Nintendo this week, as the clear leader in console sales shows its first signs of flagging. Industry executives and analysts gathering in Los Angeles for the main show of the year – the Electronic Entertainment Expo (E3) – expect Microsoft to announce a new motion-sensing game controller on Monday, with more sophisticated capabilities than the one that has driven the success of Nintendo’s Wii. Then on Tuesday, Sony plans to show off a new version of its PlayStation Portable – the PSP Go – that does not require an optical disc drive. It is designed to take on the latest Nintendo DS handheld console, as well as tackle emerging competition from Apple’s(AAPL) games platform.
- China’s top steel negotiator has formally rejected iron ore price cuts negotiated between Rio Tinto, the Australian mining giant, and Japanese and South Korean steel mills, signaling a showdown between Beijing and the miners. Individual Chinese steelmakers signaled last week their dissatisfaction with price levels negotiated between Rio Tinto and leading steelmakers in Japan and South Korea, but Cisa’s statement is the first formal rejection of the deal. This indicates that the association, which this year has replaced China’s largest mill Baosteel to lead the price-setting talks for the first time, is taking a hard line. The miners have warned China that they will not settle benchmark prices below spot prices – which would be the result if they agreed to Beijing’s request for a cut of up to 50 per cent in benchmark prices. They had told the Chinese steelmakers that they would rather move iron ore transactions into the spot market, said executives involved in the talks.
- Barclays Capital has revealed that just 17.5 per cent of the 605 investors interviewed for its quarterly FX investor sentiment survey – including central banks, asset managers, hedge funds and international corporate customers – think risky assets have further to rise. The survey revealed that 91 per cent of investors were running positions that were “light” or “average” in terms of their risk limit or capacity. This leaves just 9 per cent whose positions are “large” or “at limit”. “This is consistent with a widely shared view that many investors have missed the rally,” said Mr Woo. “It is conceivable that some of these investors may be pressured to jump on the bandwagon if equities extend their gains.”
- North Korea has started moving a long-range missile towards a launch pad in possible preparation for another missile test, according to US officials. One told the Financial Times that Pyongyang may be gearing up for “additional activity” just days after it defied the world by conducting a nuclear test. American intelligence officials estimate that the Taepodong-2 could theoretically reach the west coast of the US. Mr Gates told the defense forum on Saturday that the US would not “stand idly by as North Korea builds the capability to wreak destruction on any target in Asia”. He added that while North Korea did not yet pose a direct threat to the US, the progress the regime had made on its nuclear and missile programs was a “harbinger of a dark future”.
- Hermes is calling for a post-credit-crunch shake-up of the secretive hedge-fund industry. The manager of the BT pension fund, handling more than £30 billion of funds in total, has set up an action committee to pressure hedge funds to hand over more financial information about their funds and better align their fee structures with investors.
- One of America's biggest fund management groups has tabled a $5bn (£3.1bn) bid for iShares, a division of Barclays' profitable asset management arm. Vanguard, which is headquartered in Pennsylvania and had about $1trillion under management at the end of last year, is understood to have lodged the offer with Barclays in recent weeks. It is being advised by William Blair & Company, a Chicago-based investment banking group.
Xinhua News Agency:
- Nintendo Co. plans to release an updated version of its “Wii Fit” game software this fall. The new version, “Wii Fit Plus,” measures body weight more precisely and has Internet connection so users can compare game data with people at remote locations.
- Semiconductor Manufacturing International Corp.,
- Made positive comments on (AAPL), (AMZN), (NKE), (BBBY), (CMG), (JCG), (URBN), (SWY), (TGT), (VAR), (RIMM), (BA), (SCHW) and (TM).
- Made negative comments on (GMCR).
- Reiterated Buy on (DVA), target $62.
Asian indices are +1.25% to +2.50% on avg.
S&P 500 futures +.73%.
NASDAQ 100 futures +.44%.
US AM Market Call
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Today in IBD
Earnings of Note
- None of note
8:30 am EST
- Personal Income for April is estimated to fall .2% versus a .3% decline in March.
- Personal Spending for April is estimated to fall .2% versus a .2% decline in March.
- The PCE Core for April is estimated to rise .2% versus a .2% gain in March.
10:00 am EST
- ISM Manufacturing for May is estimated to rise to 42.0 versus 40.1 in April.
- ISM Prices Paid for May is estimated to rise to 35.0 versus 32.0 in April.
- Construction Spending for April is estimated to fall 1.5% versus a .3% gain in March.
Other Potential Market Movers
- Geithner’s Visit to
BOTTOM LINE: Asian indices are higher, boosted by gains in financial and mining stocks in the region. I expect US stocks to open modestly higher and to build on gains into the afternoon, finishing higher. The Portfolio is 100% net long heading into the week.