Tuesday, February 16, 2010

Wednesday Watch

Late-Night Headlines

- ConocoPhillips(COP), BP Plc(BP) and Caterpillar Inc.(CAT) won’t renew their memberships in the U.S. Climate Action Partnership, a coalition of companies and environmental groups seeking legislation to reduce greenhouse- gas emissions. Proposals in the U.S. Congress “unfairly penalized” domestic refineries, ConocoPhillips Chief Executive Officer Jim Mulva said today in a statement. The role of natural gas in lowering greenhouse-gas emissions has been ignored, he said. “We believe greater attention and resources need to be dedicated to reversing these missed opportunities, and our actions today are part of that effort,” Mulva said.

- A mortgage on a Tennessee shopping mall coming due in June may show Wall Street is ready to resume bundling real estate loans into bonds, part of a $700 billion debt market shuttered for almost two years.

- China, which ordered banks to set aside more deposits as reserves for a second time in a month, will probably raise the requirement further and boost interest rates by the end of 2010, Credit Suisse Group AG said. The People’s Bank of China said on Feb. 12 the reserve requirement will increase 50 basis points effective Feb. 25, a move that is “symbolically significant but probably has only limited impact on the real economy,” Credit Suisse economist Dong Tao said in a note today. The ratio will probably rise another 100 basis points while both lending and deposit rates may rise 81 basis points by end-2010, he wrote. China’s benchmark Shanghai Composite Index has dropped 7.9 percent this year as policy makers aim to avert asset bubbles and restrain inflation after banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January and property prices climbed the most in 21 months. The stock market is closed this week for the Lunar New Year holidays and will reopen on Feb. 22.

- To hear Harry Reid or Mitch McConnell, you would think that the future of the American workforce depends on whether they can agree on temporary payroll tax holidays, highway funding, biodiesel subsidies and supplying teachers with enough cash to acquire new pencils. None of these, or just about anything else in the various versions of the jobs legislation, gets at the big question about jobs. That question is whether Senate Majority Leader Reid or his Republican counterpart are even considering what might be called the jobscape -- the overall outlook for jobs, and especially how a job creator, the entrepreneur, fits in that picture. In recent years that jobscape has shifted in subtle ways that discourage enterprise, and so prospects for the economic recovery.

- New York’s evening rush hour may be disrupted after more than 3 inches of snow were dumped on the city on top of an overnight snowfall, according to the National Weather Service. The snow comes as the latest government forecasts predict cooler weather will dominate the eastern two-thirds of the U.S., with the exception of Maine, until at least March. The lowest temperatures are likely to be in the mid-Atlantic states, according to the U.S. Climate Prediction Center in Camp Springs, Maryland.

- Goldman Sachs Group Inc.(GS) managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit. No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.

Wall Street Journal:

- President Barack Obama's 2011 budget calls for an array of regulations, subsidies and taxes aimed at cutting emissions of greenhouse gases, even as a sweeping climate bill sits on ice in the Senate. Mr. Obama's budget calls for $39 billion in tax increases on fossil-fuel producers over 10 years. It also includes an estimated $1.4 billion to help developing countries address the impacts of climate change, reduce deforestation and shift to low-carbon energy sources.

- Bulk of Stimulus Spending Yet to Come. Most Cash So Far Has Gone to Services, Government Jobs; Infrastructure Surge Unlikely to Put Big Dent in Unemployment.

- Investors who fled from stock mutual funds in the market meltdown now appear to be carefully tiptoeing back. In January, they put $2.7 billion into U.S. stock funds, reversing four consecutive months of outflows, and placed more than $8.1 billion into international stock funds, the most since December 2007, according to investment research firm Morningstar Inc.

- One possible outcome of Greece crisis: Only splitting the Euro will save it. Europe now has a Black Swan Event—high impact, hard-to-predict and rare—every bit as bad to match that of America's sub-prime crisis. The euro is in crisis thanks to the old continent's oldest nation, Greece, statistically lying its way in, criminally failing to make income match expenditure and now we have just learned, loading up on undisclosed off-balance-sheet debt to keep the Hellenic big government show going. Commentators and some politicians are not unjustifiably baying for Greek blood. Yet be under no illusion; the ejection of Greece and the economic collapse and hyperinflation that will ensue will be Europe's ugliest moment of the postwar period. No one should take it lightly. And turning Greece into the Admiral Byng of the euro zone (pour encourager les autres) will do nothing to address the deepest underlying flaw of the euro: One size will never fit all, but two currencies just might.

- The real reason Evan Bayh wants out of Washington.


- Corporate managers at small cap U.S. companies are buying their own stock at a pace not seen in a year, a sign they see the recent pullback in equities as an opportunity.

- With technology one of the few bright spots in an otherwise bleak market, what will Dell(DELL) and H-P(HPQ) earnings reveal.

Business Insider:

- It Looks Like We're Going To Have To Blow Up Another Continent To Realize The Effect Of Wall Street's Destructiveness. Surprise, surprise: Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece, Spain, Portugal, and undermined the euro by enabling European governments to hide their mounting debts.

- Here's What REALLY Happened Between CNBC And Charlie Gasparino.


- 5 Ways to Lose the Senate Majority.

Rasmussen Reports:

- Republican candidates lead Democrats by nine points in the latest edition of the Generic Congressional Ballot. The new Rasmussen Reports national telephone survey shows that 45% would vote for their district’s Republican congressional candidate while 36% would opt for his or her Democratic opponent.

- President Obama may have to go back on his campaign promise against raising taxes on Americans making less than $250,000 a year in order to reduce the country’s record budget deficit. But a new Rasmussen Reports national telephone survey shows that even if the president and Congress raise taxes to reduce the federal deficit, 58% of voters think they are more likely to spend the money on new government programs. Just 23% believe they are more likely to use the new tax money for deficit reduction.

Real Clear Politics:

- CNN: 52% Say Obama Doesn't Deserve to be Reelected.

- Climate alarmists conjured a world where nothing was certain but death, taxes, and catastrophic global warming. They used this presumed scientific certainty as a bludgeon against the skeptics they deemed "deniers," a word meant to have the noxious whiff of Holocaust denial. All in the cause of hustling the world into a grand carbon-rationing scheme. Any questions about the evidence for the cataclysmic projections, any concerns about the costs and benefits, were trumped by that fearsome scientific "consensus," which had "settled" the important questions. A funny thing happened to this "consensus" on the way to its inevitable triumph, though. Its propagators have been forced to admit fallibility. For the cause of genuine science, this is a small step forward; for the cause of climate alarmism, it's a giant leap backward. The rush to "save the planet" cannot accommodate any doubt, or it loses the panicked momentum necessary for a retooling of modern economic life. Phil Jones is the director of the Climate Research Unit at the University of East Anglia, a key "consensus" institution that has recently been caught up in an e-mail scandal revealing a mindset of global-warming advocacy rather than dispassionate inquiry. Asked by the BBC what it means when scientists say "the debate on climate change is over," the keeper of the flame sounded chastened. "I don't believe the vast majority of climate scientists think this," Jones said. "This is not my view. There is still much that needs to be undertaken to reduce uncertainties, not just for the future, but for the . . . past as well." Jones discussed the highly contentious "medieval warming period." If global temperatures were warmer than today back in 800-1300 A.D. - about a thousand years before Henry Ford's assembly lines began spitting out automobiles - it suggests that natural factors have a large hand in climate change, a concession that climate alarmists are loath to make. Jones said we don't know if the warming in this period was global in extent since paleoclimatic records are sketchy. If it was, and if temperatures were higher than now, "then obviously the late-20th-century warmth would not be unprecedented." Jones also noted that there hasn't been statistically significant warming since 1995, although the cooling since 2002 hasn't been statistically significant either. All of this is like a cardinal of the Catholic Church saying the evidence for apostolic succession is still open to debate.


- John Horseman Joins The China Skeptics. Corriente, Chanos, SocGen, and now John Horseman. The China skeptics are multiplying. From Horseman Global's latest letter.


- Goldman-John Paulson CDO Scheme Stinks of Fraud. There were, essentially, two superstars of the subprime meltdown — investors that not only won big on bets that the subprime market would crash, but got a lot of media attention for it: John Paulson and Goldman Sachs(GS). Of course, plenty of other investors bet that the market would crash, but none of the trades were as big, and, for whatever reason, they didn’t get as much media attention as Paulson and Goldman. But while it is frequently noted in the press that Paulson and Goldman profited from the subprime crash, the revelation that they worked together to place these bets has gotten basically zero attention.

LA Times:

- Cargo traffic at the nation's busiest seaport complex increased in January, the second straight month in which cargo levels improved at the ports of Los Angeles and Long Beach compared with a year earlier. The two ports are the No. 1 and No. 2 ports in the nation for cargo containers, making them a bellwether for the strength of the U.S. economy. Overall traffic for the two ports in January, including empty containers bound for Asia, climbed 1.6% to slightly more than 1 million containers, compared with 986,299 in January 2009. It followed a year in which overall volume at the two ports fell 17.4% compared with 2008. The increases were largely driven by exports, which rose by a combined 31.8% to 254,427 containers.


- Billionaire hedge fund manager John Paulson bought more than 200,000 Citigroup shares in the fourth quarter and increased his stake in several other banks, according to a regulatory filing. Paulson ended the year with 506.7 million shares of Citi (C), valued at $1.67 billion, up from up from 300 million shares worth $954 million at the end of the third quarter. The fund's stake in Bank of America Corp (BAC) was trimmed, though, to 151 million worth $2.2 billion, from 159 million worth $2.3 billion three months earlier. Paulson took stakes in commercial lender CIT Group (CIT) and Wells Fargo & Co (WFC) and upped its stake in JPMorgan Chase & Co (JPM), State Street Corp (STT) and the Milwaukee bank Marshall & Isley (MI). Paulson & Co.'s total holdings at the end of the quarter were worth $19.8 billion, up from $16.7 billion as of Sept. 30.

- Billionaire investor George Soros' hedge fund more than doubled its bet on the price of gold during the fourth quarter, a portion of the firm's total U.S.-listed equity holdings of $8.8 billion at the end of 2009. The New York-based firm also disclosed in a filing on Tuesday with the U.S. Securities and Exchange Commission that it bought almost 95 million shares of Citigroup (C) during the quarter, worth $313 million by the end of the year. Soros reported no holdings of the troubled bank's shares at the end of the third quarter.

- Activist hedge fund manager William Ackman, who has invested heavily in retailers, made new bets on Hyatt Hotels (H) and restaurant chain Landry's Restaurants during the fourth quarter, according to a regulatory filing released on Tuesday. During the last three months of the year, Pershing Square Capital Management, Ackman's hedge fund firm, bought 2.76 million shares in the hotel group. It also boosted its stake in Corrections Corporation of America (CXW) to 10.9 million after buying 7.4 million shares in the third quarter.

- Whole Foods Market Inc (WFMI) boosted its fiscal 2010 sales and earnings forecasts after smarter pricing helped lure back customers and drove quarterly profit above expectations. Shares jumped 8 percent on the results.

- Warren Buffett’s Berkshire Hathaway Inc.(BRK/A) increased its stake in Wells Fargo & Co.(WFC), the biggest bank on the U.S. West Coast. Buffett’s company had about 320 million shares as of Dec. 31, compared with 313.4 million on Sept. 30, Omaha, Nebraska- based Berkshire said today in a filing disclosing U.S. equity investments at the end of 2009.

Financial Times:

- Big US banks including Bank of America, Wells Fargo, JPMorgan Chase and Citigroup are moving to clear their books of troubled mortgages by embracing "short sales", in which homeowners settle debts by selling their properties for less than the mortgage value. Short sales are expected to climb sharply this year as home values continue to fall in some parts of the US, leaving many borrowers owing more on their mortgages than their homes are worth. As moratoriums on mortgage payments and temporary loan modifications expire in coming months, the number of homes entering, or in, foreclosure is also expected to climb to a record 4.3m, from 3.4m in 2009. The appeal of short sales for banks is smaller losses. Compared with foreclosures, banks say they lose 20 per cent less on short sales. After spending most of the past year focusing on largely ineffective loan modification plans, BofA, Wells Fargo, JPMorgan Chase and other lenders said they were ramping up short sales as a means of dealing with the housing crisis. The moves come as the Obama administration prepares to launch a program in April that encourages homeowners, lenders and investors to complete short sales by providing up to $3,500 in incentives.

- A hedge fund launched by Renaissance Technologies with grand ambitions to be an industry colossus suffered further declines last year, compounding a lackluster record. Renaissance, the group founded by mathematician James Simons, had hoped the Renaissance Institutional Equities Fund (Rief) could grow to up to $100bn in assets - an unheard of amount for a single fund. Analysts at the time of launch five years ago said it could become the hedge fund industry's answer to Pimco, the $1,000bn bond giant. But Rief has been a rare disappointment for Renaissance, one of the highest-rated hedge fund groups in the world. The fund, which trades across asset classes and securities using computer programs, closed 2009 down 6 per cent, according to investors, missing out on the hedge fund industry's best year in over a decade. The fund fell a further 1.5 per cent in January, according to performance figures seen by the Financial Times, but is understood to have recouped those losses this month. In spite of beating its benchmark, the S&P 500, by 2 per cent since its launch five years ago, Rief remains a loss-making investment for many clients. Its assets rocketed from $600m in 2005 to $26bn within the space of two years and it currently manages $6bn, with about 40 per cent of that amount comprising an investment from Mr Simons. Rief's difficulties highlight problems faced by many other quantitative hedge funds, some of which continue to flounder in the wake of the financial crisis. For Rief, however, the problem appears to be longer term. In all, the fund has lost 4.42 per cent since it was set up in July 2005. Although it has fulfilled its mandate and beaten the S&P 500, Rief's low returns have puzzled some outsiders.


- Even as the 27 finance minsters of the European Union gathered in Brussels yesterday and ordered Greece, again, to impose yet more hardship on its people in order to slash the national deficit, some may have been eyeing their colleagues around the Brussels meeting room warily. For all are concerned about which nation might next suffer from the dreaded "contagion". The fear is that the next member of the so-called "PIIGS" – Portugal, Ireland, Italy, Greece and Spain – to suffer a crisis of confidence will be Spain.

Globe and Mail:

- Canada will bring in new mortgage rules to cool the country's red-hot housing sector, citing the need to prevent a property price bubble even as it gives assurances the market is stable. Finance Minister Jim Flaherty said on Tuesday he was concerned that home buyers, tempted by record low interest rates, may overextend themselves and that he also wanted to discourage the "tendency by some to use their homes as an ATM machine".

South China Morning Post:

- General Electric(GE) is in talks with China's Ministry of Railways to use the nation's technology in President Barack Obama's plan to build a high-speed rail network across America, citing the company's China president of transportation. Obama's plan involves the construction of 13 high-speed rail routes across 31 states in the US. China is interested in participating as a partner in the project with US companies, GE's Tim Schweikert said.

Evening Recommendations


- Reiterated Buy on (STR), target $54.

- Rated (ADBE) Buy, target $39.

- Rated (CHKP) Buy, target $40.

- Rated (CTXS) Sell, target $35.

- Rated (VRSN) Buy, target $29.50.

Night Trading
Asian indices are +.75% to +2.0% on avg.

Asia Ex-Japan Inv Grade CDS Index 116.50 +1.0 basis point.
S&P 500 futures +.22%.
NASDAQ 100 futures +.17%.

Morning Preview
BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

U.S. Equity Preview

TradeTheNews Morning Report

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
- (DE)/.19

- (GENZ)/.28

- (MSO)/.31

- (OMX)/-.06

- (DVN)/1.25

- (XTO)/.86

- (PFCB)/.41

- (ITRI)/.57

- (ADI)/.38

- (NVDA)/.19

- (JACK)/.45

- (CECO)/.51

- (CHK)/.69

- (SNPS)/.38

- (NTAP)/.38

- (AAP)/.46

- (HPQ)/1.06

- (PCLN)/1.68

- (LVS)/.03

- (AMAT)/.13

- (CLF)/.39

Economic Releases

8:30 am EST

- The Import Price Index January is estimated to rise +1.0% versus unch. in December.

- Housing Starts for January are estimated to rise to 580K versus 557K in December.

- Building Permits for January are estimated to fall to 620K versus 653K in December.

9:15 am EST

- Industrial Production for January is estimated to rise +.7% versus a +.6% gain in December.

- Capacity Utilization for January is estimated to rise to 72.6% versus a reading of 72.0% in December.

2:00 pm EST

- Minutes of FOMC Meeting.

- The Monthly Budget Deficit for January is estimated at -$46.0B versus -$63.5B in December.

Upcoming Splits

- None of note

Other Potential Market Movers
- The BoJ rate decision, BoE minutes, Fed's Plosser speaking, weekly API energy inventory report, weekly MBA mortgage applications report, Barclays Industrial Conference, (TEG) analyst meeting, (SMG) analyst meeting, (DRI) analyst meeting and the (AIV) investor day
could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and financial stocks in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

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