Wednesday, January 13, 2010

Today's Headlines


- U.S. Secretary of State Hillary Clinton called on China to explain what Google Inc.(GOOG) described as a “highly sophisticated” attack on its Chinese web site aimed at e-mail accounts of human rights activists. “We look to the Chinese government for an explanation,” Clinton, who is in Hawaii on the first stop of an Asia-Pacific trip, said in a statement. The allegations “raise very serious concerns and questions.”

- The number of mortgage applications in the U.S. rose 14 percent last week, led by a rebound in refinancing activity. The Mortgage Bankers Association’s index of loan applications climbed to 528.1 in the week ended Jan. 8, from 462.2 a week earlier. The group’s refinancing gauge jumped 22 percent, while the purchase gauge advanced 0.8 percent.

- The cost of insuring against default by the Greek government surged to a record after Moody’s Investors Service said the country’s economy faces a “slow death” from deteriorating finances. Credit-default swaps on the nation’s debt rose 49 basis points to 328, the biggest one-day rise ever, according to CMA DataVision prices at 4:20 p.m. in London.

- Confidence in the world economy rose as an acceleration in manufacturing and service industries signaled a sustained recovery from last year’s recession, according to a Bloomberg survey of users on six continents. The Bloomberg Professional Global Confidence Index gained to 66.6 this month from 58.9 in December, reaching the highest level since the series began two years ago. The index exceeded 50 for a sixth month, which means there were more optimists than pessimists.

- The U.S. economy may expand 3 percent to 3.5 percent in 2010 with inflation remaining stable as bank lending and consumer spending pick up over the course of the year, Federal Reserve Bank of Chicago President Charles Evans said. “Looking ahead, restrictive bank credit, along with business and household caution, will continue to restrain the recovery’s strength,” Evans said today in the text of a speech in Coralville, Iowa. “Nevertheless I expect these headwinds to abate as we move through 2010.” “Unemployment will likely decline only modestly in 2010,” Evans said at the Corridor Economic Forecast Luncheon. “I think inflation will remain relatively stable.” “The 10 percent unemployment rate and the still very low rates of manufacturing capacity utilization are factors that reduce cost pressures and make firms less able to push through price increases,” he said.

- Crude oil fell for a third day after a U.S. government report showed gains in inventories of oil, gasoline and distillate fuel, including heating oil and diesel. Oil dropped as much as 3 percent as crude supplies rose 3.7 million barrels last week. Inventories were estimated to climb by 1.5 million barrels, according to the median of 17 analyst estimates in a Bloomberg News survey. “The distillate number was an absolute shocker,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “These are bearish numbers, with plus signs in front of the three major categories.”

- Former Vice President Al Gore joined a dozen Senate Democrats in opposing a Republican effort to block the Environmental Protection Agency from placing limits on greenhouse-gas emissions. The Republicans may soon try to “strip” the EPA of “its ability to regulate most carbon pollution, letting the worst polluters off the hook,” Gore, who won an Oscar and a Nobel Peace Prize for his efforts to publicize global warming, said yesterday in an e-mail to supporters. A Senate confrontation over the Obama administration’s move to limit emissions from cars, trucks and industrial sources may come as early as next week. Murkowski’s effort to block EPA regulation of greenhouse gases, which scientists have linked to global warming, “is not about the science of climate change,” Dillon said. “This is simply about the effect EPA regulation will have on the U.S. economy.” The Obama administration, which wants Congress to pass cap- and-trade legislation, is using proposed agency regulations “as a cudgel to try to beat the Senate into passing economically crippling climate legislation,” Dillon said.

- Record corn and soybean production in the U.S., the world’s largest grower and exporter, may extend a slump in prices this month to more than 20 percent before the next harvest in September, said Roy Huckabay at the Linn Group. Farmers will sow more of both crops this year on land used for winter wheat that was left vacant in late 2009 because of heavy rain, Huckabay said. The increase would add to corn output that the U.S. Department of Agriculture said yesterday jumped 8.8 percent last year as soybean production surged 13 percent.

- Domino's(DPZ), the second-largest U.S. pizza maker, said Internet orders make up the fastest-growing part of its business, accounting for as much as 30 percent of sales in some markets.

- High-frequency traders, whose lightning-fast stock and options tactics have been called unfair by senators, will learn how far U.S. regulators may go to rein them in. The Securities and Exchange Commission is asking brokerage firms, traders and exchanges to weigh in on the practice, which describes strategies that depend on high-speed executions, usually less than a millisecond.

- Google Inc.(GOOG) users in China gathered to place flowers and candles outside the Beijing office after the company said it may withdraw from the world’s biggest Internet market. “Life will be difficult without Google,” said Yao Lina, 30, an accountant working for a heavy industry company. “Google’s functions for translations and searching for pictures and video clips are very unique and helpful and I am afraid there’s no substitute for that.”

- Ford Motor Co.(F) Chief Executive Officer Alan Mulally, whose company gained market share in the U.S. last year while his domestic rivals went bankrupt, is the toast of the North American International Auto Show this week.

Wall Street Journal:

- International aid groups scrambled to deliver food, medicine and other supplies to Haiti, where the strongest earthquake in more than two centuries has toppled buildings and raised fears that thousands are dead. Haitian President Rene Preval described the devastation as "unimaginable," in an interview with the Miami Herald. He called for quick international action. "Parliament has collapsed. The tax office has collapsed. Schools have collapsed. Hospitals have collapsed,'' Mr. Preval told The Herald. "There are a lot of schools that have a lot of dead people in them.'' Other Haitian officials gave much higher estimates of the death toll -- though those estimates were based on the extent of the destruction rather than counts of the dead. Prime Minister Jean-Max Bellerive told CNN: "I believe we are well over 100,000,'' while leading senator Youri Latortue told the Associated Press that 500,000 could be dead. Both admit they have no way of knowing.

- Wall Street's biggest banks acted like used-car salesmen knowingly selling lemons to consumers, the head of a commission investigating the financial crisis said Wednesday, as top bank executives came under fire on Capitol Hill. Former California State Treasurer Phil Angelides kicked off the first of two-days of hearings with a heated exchange with Goldman Sachs Group Inc.(GS) Chairman and Chief Executive Officer Lloyd Blankfein.

- Hedge funds had a great year in 2009. But which managers passed the tougher test of making money in both 2008 and 2009? Soros Fund Management, Caxton Associates, Paulson & Co. and Brevan Howard are among that select group. Other firms that managed the feat include King Street Capital, Balyasny Asset Management, Bridgewater Associates and Tewksbury Capital Management, according to investors. The Quantum Endowment fund, run by George Soros, gained just over 8% in 2008 and had jumped 28% in 2009 through the end of November, according to a hedge fund investor.


- U.S. economic activity remained at a low level as 2010 began but was improving modestly and beginning to broaden out to include wider swaths of the country, the Federal Reserve said on Wednesday. "Reports from the 12 Federal Reserve districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report,'' according to the periodic Beige Book report compiled this time by the Philadelphia regional Fed bank.

NY Times:

- Google(GOOG) is far from alone among Western companies in its growing unhappiness with Chinese government policies, although it is highly unusual in threatening to pull out of the country entirely in protest. Western companies contend that they face a lengthening list of obstacles to doing business in China, from “buy Chinese” government procurement policies and growing restrictions on foreign investments to widespread counterfeiting. These barriers generally fall into two broad categories. Some relate to China’s desire to maintain control over internal dissent. Others involve its efforts to become internationally competitive in as many industries as possible.

The Business Insider:

- Short traders are piling onto Exxon Mobil, Host Hotels, Citi, Qwest, and Ford according to latest short interest data from the New York Stock Exchange (NYSE).

- Mike Mayo: How Banking Became An Industry On Steroids In 10 Steps.

- Why Shanghai Real Estate Is The Most Obvious Bubble Ever.


- I’ve written a few Apple (AAPL) articles in my time but none of them are as important to your portfolio as this one. Investors dream about finding obvious disconnects. Widespread misunderstanding leads to huge opportunity. We have such a scenario developing with Apple. Although Apple is the most widely followed stock on Wall Street it is clearly the most misunderstood. The current perception among traders is that Apple is expensive because of its 150% rally off of the March 2009 lows. The average forward P/E ratio for Apple since 2003 is 22.48. Any guesses what it is now? Based on the new accounting rules soon to be put in place, and the 37 billion in cash that Apple has on their books, Apple’s forward P/E is below 13. This stock has not been priced this cheaply since Steve Jobs came back to Apple in 1997.

Dallas Morning News:

- T. Boone Pickens cuts order for wind turbines, puts Panhandle wind farm on hold. T. Boone Pickens has cut his massive order for wind turbines from GE(GE) by more than half. The energy investor, who made wind power a key part of his plan to wean Americans off foreign oil, said Tuesday he will now take delivery of 300 turbines, which he will use for wind farms in Canada and Minnesota. None of the turbines will come to Texas, as originally planned.

Real Clear Markets:

- The Goldman Sachs(GS)-AIG(AIG) scandal may be worse than we think. Former New York Fed President and current Treasury Secretary Timothy Geithner is being castigated for paying off AIG's counterparties - Goldman foremost among them - 100 cents on the dollar and then keeping these payments secret. But it seems likely that Goldman actually got much more than 100%. What is worse, Goldman may have received this windfall by trading on information that was deliberately withheld from the public.


- For China's low-cost jewelry makers, it was an open trade secret: The metal cadmium is shiny, strong and malleable at low temperatures, regardless of its health hazards. And it's cheap. Despite the risks, manufacturers in factories ringing this city on China's east coast say their top priority is profit. So offering cut-rate goods often means using lower quality materials, including cadmium, which is known to cause cancer. "Business is business, and it's all up to our client," said He Huihua, manager of the Suiyuan Jewelry Shop at International Trade City in Yiwu, a sprawling wholesale mecca where sellers pitch their wares in hopes of landing a lucrative export contract. Asked what he thought about the health risks associated with cadmium and other toxic metals, He said: "I can't be overly concerned about that."

- Reporting from Sacramento - A proposal to legalize and tax marijuana in California was approved by a key committee of the Assembly on Tuesday, but it is not expected to get further consideration by the Legislature until next year. Despite a procedural glitch, backers hailed the committee's action as historic because it represented the first legislative approval of the proposal. "This vote marks the formal beginning of the end of marijuana prohibition in the United States," predicted Stephen Gutwillig, California state director of the Drug Policy Alliance, a pot legalization group.


- Support among Nevada voters for embattled Senate Majority Leader Harry Reid’s reelection has fallen even further following disclosure in a new book of remarks he made about Barack Obama during Election 2008. A new Rasmussen Reports telephone survey of likely voters in Nevada finds Reid earning just 36% of the vote against his two top Republican challengers. That’s a seven-point drop from 43% a month ago.


- At a time when as many as nine Republicans are queuing up for a shot at Sen. Blanche Lincoln (D-Ark.), a key Democratic constituency hasn’t entirely bought into the idea of her reelection to a third term: liberals. Even before Lincoln announced her opposition to the public health insurance option, she had frustrated Arkansas progressives with her opposition to the Employee Free Choice Act. Some in the African-American community, meanwhile, have complained that the senator hasn’t been aggressive enough in promoting black judges to the federal courts. While, according to some state political observers’ estimates, liberal voters account for only 15 percent to 25 percent of the voting public in Arkansas, their unrest has further imperiled her political standing as the sole Southern Democratic senator up for reelection in 2010.

- Republican senators are backing down from efforts to topple Sen. Harry Reid, having concluded that the Nevada Democrat has done more to hurt himself than they could do with an inevitably futile drive to oust him as Senate majority leader. In the immediate wake of news that Reid had referred to Barack Obama as a “light-skinned” African-American with no “Negro dialect,” a number of GOP leaders — including Republican National Committee Chairman Michael Steele — said the majority leader should resign. But Senate Minority Leader Mitch McConnell (R-Ky.) declined to join the chorus Wednesday. And immediately afterward, several other GOP senators decided not to jump into the fray. Republicans say Reid has done enough to embarrass himself — and to make his already tough bid for a fifth term even harder.

24/7 Wall St.:

- Short sellers sharply increased their bets against two of America’s most widely followed stocks. Shares sold short in Citigroup (C) rose 36% to 381 million. The short interest in Apple (AAPL) soared 34% to 15.6 million. Among Nasdaq stocks, other significant changes included a 13% increase in shares sold short in Nvidia (NASDAQ:NVDA) and 11% increase in the short interest in Qualcom (NASDAQ:QCOM).


- Did Goldman(GS) Sell Its $2.5 Billion AIG(AIG) CDS While In Possession Of Material, Non-Public Information?

- Hedge Fund Industry Trends From Heidrick & Struggles: Industry Re-Crosses $2 Trillion Mark, But 20% Of Hedge Funds Shut Down.


- BP Plc will spend $10 billion in Egypt on gas and oil exploration activities over the coming years, its chief executive officer was quoted on Wednesday as saying.

- TriQuint Semiconductor Inc (TQNT) raised its outlook for the fourth quarter, helped by increased holiday season demand, and said it continues to expect 'solid' revenue growth in 2010, sending its shares up 8 percent.

Financial Times:

- Demand for gold from investors last year overtook global jewellery demand for the first time since 1980, according to GFMS, the precious metals consultancy, which expected a “bumpy” return to record prices by the summer.


- Quanta Computer is expected to ship 3.5-3.7 million notebooks in January 2010 mainly benefiting from shipments of one million MacBooks to Apple(AAPL), according to industry sources. Apple shipped about seven million notebooks in 2009 with most of the orders placed to Quanta and some to Foxconn Electronics (Hon Hai Precision Industry). Apple's monthly order volume to Quanta has also grown from only 300,000-400,000 units in the first half of 2009 to one million units in the fourth quarter of 2009, the sources noted. Despite the first quarter being the traditional slow season, Apple is expected to continue placing orders for about one million units to Quanta in January to cover the Lunar New Year period. However, Quanta's notebook shipments in the first quarter of 2010 are still expected to drop 5% sequentially due to the Lunar New Year causing February to have less working days, as well as shortages of components such as DRAM and optical drives.

Aswat al-Iraq:
- Iraq Drilling Co. plans to double the number of oil wells it drills this year to more than 100 in different parts of the country, citing Idris al-Yasiri, the state-run company’s director general.

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