Wednesday, February 24, 2010

Wednesday Watch

Late-Night Headlines
  • Doctor's Hours Fall for a Decade, Adding to U.S. Shortage. Work hours for U.S. doctors dropped steadily for more than a decade, mirroring a decline in inflation-adjusted fees and worsening a nationwide physician shortage, a study said. Doctors’ hours per week fell to an average of 51 in 2008 from 55 in 1996, after two decades of being almost unchanged, according to research published today in the Journal of the American Medical Association. The report showed the slide was linked to a falloff in fees paid to physicians. The charges declined 25 percent after inflation from 1995 to 2006, according to an index measure of fees going to doctors. The U.S. is suffering a nationwide shortage of practitioners that has left some Americans without a primary-care doctor and has caused hospital emergency rooms to be overcrowded, said the American College of Physicians. Pressure may mount if the federal government is successful in extending medical insurance to another 31 million Americans in the proposed health overhaul, said the authors of today’s report. “You would be hard-pressed to find a profession that has experienced such a drop in hours over a decade,” said Douglas O. Steiger, one of the study’s authors who is an economist at Dartmouth College in Hanover, New Hampshire. “We concluded that doctors weren’t seeing either the financial or nonfinancial rewards that made it worth working that last hour.” The stagnant number of doctors has already left parts of the U.S. with 16,787 too few physicians to meet a federally set, “medically appropriate” ratio of one doctor for every 2,000 residents, according to the U.S. Health Resources and Services Administration. Some cite mounting evidence from Massachusetts, where health-insurance expansion has enabled some 97 percent of residents to have medical coverage and patients are waiting longer to get an initial doctor’s appointment, or having trouble getting one at all. The average waiting time to see a family-medicine doctor in Boston, a city with 14 teaching hospitals, is 63 days, the longest among 15 cities in a 2009 survey by Merritt Hawkins & Associates, a recruiting and research firm in Irving, Texas.
  • Commercial Mortgage Default Rate in U.S. More Than Doubles. The default rate for commercial property mortgages held by U.S. banks more than doubled in the fourth quarter and may reach a peak of 5.4 percent at the end of next year, according to Real Capital Analytics Inc. The default rate for loans on office, retail, hotel and industrial properties surged to 3.8 percent from 1.6 percent a year earlier, the New York-based real estate research firm said yesterday in a report. The default rate for loans on apartment buildings climbed to 4.4 percent from 1.8 percent. “The level of distress continues to rise irrespective of improving economic trends,” Sam Chandan, Real Capital’s global chief economist, said in a telephone interview.
  • Gold's rally to the highest level in a month should end "soon" after it reached a resistance level, Commerzbank AG said, citing trading patterns.
  • 'Monster Storm' May Pound U.S. Northeast This Week. As a winter storm threatens to leave more than 12 inches of snow across upstate New York and parts of New England, forecasters are warning of an even more powerful system arriving Feb. 25. “You may hear it called a ‘snow hurricane’ because blizzard may not even do it justice,” said Alex Sosnowski an expert senior meteorologist with AccuWeather Inc. in State College, Pennsylvania. “It is like we’re getting a decade’s worth of storms all in one season.”
Wall Street Journal:
  • Obama's New Investment Tax. A sneaky Medicare levy on dividends and capital gains. The White House's new health-care proposal promises the "largest middle class tax cut for health care in history," which is a creative way of describing a vast taxpayer-subsidized insurance entitlement. Naturally, the fine print goes on to describe one of the largest tax increases for health care in history, too. This new ObamaCare bargain would for the first time apply the 2.9% Medicare payroll tax to "interest, dividends, annuities, royalties and rents," so-called passive income that we are told includes capital gains, though the latter wasn't explicitly mentioned in the proposal. The rate hike on investment income would presumably take effect at the same time the 2001 and 2003 Bush tax cuts are due to expire next year, bringing the top rate to 22.9% as the current top capital gains rate would also rise to 20% from 15%. That's a 52% jump.
  • EU Opens Antitrust Probe of Google(GOOG).
  • Citi in Talks to Sell Hedge-Fund Business. SkyBridge Capital, a New York alternative-asset manager led by two alumni of Goldman Sachs Group Inc., is in advanced talks to buy Citi's fund-of-funds business, the same people said.
  • Backlash Hits Calpers Property Deals. Calpers took a hit last year when its investment in Manhattan's Peter Cooper Village and Stuyvesant Town apartment complex collapsed. But Stuyvesant Town wasn't the huge pension fund's only foray into real-estate investments that involved ousting low-rent tenants. The California Public Employees' Retirement System has partnered with firms that have bought and converted rent-regulated buildings in East Palo Alto, Calif., and in other New York City neighborhoods, including Harlem and Manhattan's Upper East Side. Some deals have led to losses; at least one has paid off. But whatever the investment result, the conversion of low-rent properties to market-rent apartments—and ejection of some tenants in the process—is raising concerns within and beyond Calpers about its role in these deals.
  • 'Volcker Rule' Stalls in Senate. Key senators are expected to scrap President Barack Obama's proposal to prohibit commercial banks from certain risky trading activities, people familiar with the matter said, a setback for the administration's bid to limit the size and scope of the largest U.S. banks. The proposal, dubbed the "Volcker rule" after former Federal Reserve Chairman Paul Volcker, would have essentially prevented any commercial bank with federally insured deposits from owning a division that makes speculative bets with its own capital. But after resistance from lawmakers from both parties, Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and other legislators are expected to introduce a plan next week that would give regulators more discretion to limit and potentially ban risky trading at banks, especially if it poses a risk to the broader economy. The measure would stop short of banning such trading outright. The Senate bill is expected to direct regulators to pay particular attention to "proprietary trading"—whereby a bank trades stocks, bonds or other financial instruments with its own money—which the White House wants to ban at commercial banks. Under the proposal, regulators would examine banks on a case-by-case basis and would be able to direct them to limit or halt certain activities they felt were a systemic risk.
  • How a Texan Bagged Europe. Mark Hart III Has Raked in Million Wagering Against the Likes of Greece. A little-known hedge-fund manager in Fort Worth, Texas, has racked up hundreds of millions of dollars in profits betting on the debt crisis roiling Europe. Rather than celebrate his two-year bet, however, Mark Hart III is lying low, as some policy makers lash out against those wagering against the debt of various countries. Mr. Hart is one of several investors who for years have been betting on fiscal woes in Europe. Unlike many other managers, he runs a fund dedicated to making this trade. Recently, the fund returned a chunk of profits to investors.
  • S&P Downgrades $6.84 Bln Of CDOs Amid Subprime RMBS Cuts. Standard & Poor's Ratings Services downgraded another $6.84 billion of U.S. collateralized debt obligations of asset-backed-securities transactions, reflecting credit deterioration and ratings cuts on subprime residential mortgage-backed securities.
  • Jittery Shoppers Dim Stores' Hopes. Americans show little sign of regaining the confidence that once made them world-champion shoppers, and that caution has retailers leery about the prospects for the economy in 2010. Several top store chains this week reported stronger results and lingering doubts. On Tuesday, Target Corp., Home Depot Inc. and Macy's Inc. joined a parade of consumer-focused companies in warning that sales gains will continue to be slow, especially in the year's first half. Consumers remain reluctant to open their wallets with unemployment stubbornly high and home prices falling and unlikely to turn up soon, executives and economists say.
NY Times:
Business Insider:
  • Here's Why Today's Consumer Confidence Number Was Exceptionally Scary. Here's some more color on this morning's weak consumer confidence data courtesy of our friends at Waverly Advisors. As you can see, it's the 55+ over set losing hope the fastest while youth are on the rebound. The problem is that the 55+ are the most likely to make big-ticket purchases that are crucial to a spending rebound. And just to clarify, young folks are generally more optimistic than those older, but the divergence is a surprise (especially in light of high youth unemployment).
San Francisco Chronicle:
  • The United States of Chicago. The Obama administration is tanking, and Democrats and their media flacks are blaming everyone but themselves. Talk-show host Bill Maher zeroes in on the basic theme: Americans "are not bright enough to really understand the issues." "The biggest culprit in our current predicament," as Jacob Weisberg sees it in Slate, is "the childishness, ignorance and growing incoherence of the public at large." In other words, the same voting public that fell for "hope and change" and put Barack Obama in office a year ago suddenly is too stupid to notice the genius at work in the White House.
LA Times:
  • ABC News Prepares Major Restructuring; Between 300 and 400 Staffers Could be Cut. ABC News is poised to make a major round of cuts that will reduce the size of the news division by as much as 20% and radically reorder the network’s traditional approach to news gathering. Forced to belt-tighten by the weak advertising market, network executives have opted to restructure the labor-heavy newsroom from top to bottom in favor of a leaner, more nimble operation, according to multiple sources. Many of those remaining in the pared-down news division will be expected to both produce and shoot their own stories, acting as “one-man bands,” a model increasingly being adopted in television news.
  • L.A.'s Financial Rating Downgraded by Standard & Poor's. The last of the nation’s top financial credit agencies took action Tuesday to downgrade Los Angeles’ credit rating, which will almost assuredly increase the city’s cost for borrowing money.
  • California Delays Muni Bond Sale, Awaiting Assembly Move. California Treasurer Bill Lockyer’s plan to sell up to $2 billion of tax-free municipal bonds next week has been postponed by the Assembly’s delay in passing a budget-related bill. The legislation, which passed the Senate on Monday, would give state finance officials more flexibility in dealing with short-term cash-flow problems, by allowing them to temporarily delay payments to government entities owed money from the general fund.
Lloyd's List:
  • U.S. Slammed Over 100% Box Scanning Plans at EU Ports. The European Commissioner for Taxation and Customs Union has released a strongly-worded report condemning US government plans to introduce 100% scanning of containers at the ports of export, and claimed that the European Union “does not contemplate implementing 100% scanning of containers at export”.
Rasmussen Report:
  • Generic Ballot: Republicans 44%, Democrats 35%. For the second straight week, 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 44% would vote for their district’s Republican congressional candidate while 35% would opt for his or her Democratic opponent.
  • Senate Dems Warm to Reconciliation. An idea that seemed toxic only weeks ago — using a parliamentary tactic to ram health reform through the Senate — is gaining acceptance among moderate Democrats who have resisted the strategy but now say GOP opposition may force their hands. The implications of the subtle shift among this small group of centrist senators could mean the difference between success and failure for health care reform — giving Democrats a potential road map for passing a bill that had been left for dead after the Massachusetts Senate defeat. That mood in the Senate was matched Tuesday by a growing momentum for President Barack Obama’s health care proposal in the House, where Democrats were beginning to coalesce around the view that passing a flawed bill is better than passing none at all. These shifts couldn’t come at a better time for Obama ahead of Thursday’s health care summit. The White House has signaled he’s prepared to use reconciliation, which would require just 51 votes to pass health reform. The comments also seemed to reflect the early soundings of a Democratic strategy for selling the public on the tactic, especially if no Republicans sign on to Obama’s plan after the summit: The GOP made us do it. “Obviously, if the minority is just frustrating the process, that argues for taking steps to get the public’s business done,” said Sen. Evan Bayh (D-Ind.), who was one of the leading voices against the procedure after the Massachusetts election, calling it “very ill-advised.”
  • Your White House Summit Agenda. By the looks of it, the White House health reform summit has been designed to preserve President Obama's home court advantage. The president, Vice President Biden and Health and Human Services Secretary Kathleen Sebelius will get the first word on every topic during Thursday's meeting.
  • Jobs Bill Set to Pass Wednesday.
  • Bernie Sanders Compares Climate Skeptics to Nazi Deniers. Vermont Senator Bernie Sanders is comparing climate change skeptics to those who disregarded the Nazi threat to America in the 1930s, adding a strident rhetorical shot to the already volatile debate over climate change. "It reminds me in some ways of the debate taking place in this country and around the world in the late 1930s," said Sanders, perhaps the most liberal member of the Senate, during a Senate hearing Tuesday. "During that period of Nazism and fascism's growth-a real danger to the United States and democratic countries around the world- there were people in this country and in the British parliament who said 'don't worry! Hitler's not real! It'll disappear!"
  • SEC Short-Sale Curb May Apply to Market Makers-Sources. U.S. securities regulators are considering new short-sale restrictions with no exemptions for market makers, people familiar with the regulators' plans said on Tuesday. The Securities and Exchange Commission is due to meet on Wednesday to vote on rules that would restrict short-selling in a company's stock if that stock fell by more than a certain percentage, such as 10 percent, the sources said. The SEC is considering allowing legitimate hedging during the short-sale curb but no general exemption for market makers, the sources said.
  • STEC Continues to See Inventory Impact, Shares Sink. Stec Inc(STEC), which makes flash memory storage products, posted quarterly earnings in line with estimates, but an inventory overhang at its top customer EMC Corp(EMC) dampened first-quarter forecast and sent the company's shares down 30 percent in extended trade.
  • Top Yemen al-Qaeda Leader Threatens U.S. Attacks.
Financial Times:
  • Brussels Optimistic Over Hedge Fund Regulation. European Union lawmakers said on Tuesday that they were optimistic about reaching a compromise deal on controversial hedge fund and private equity fund legislation. The new rules would regulate managers of hedge funds and private equity funds on an EU-wide basis for the first time.“Things are looking much brighter than a few months ago,” said Wolf Klinz, the German MEP and a member of the Alliance of Liberals and Democrats for Europe. Mr Gauzes himself said that, in spite of the huge volume of amendments, he was “quite optimistic” that it would be possible to draw up a “pragmatic, efficient text” ahead of the scheduled committee vote on April 12. “If we wait too long, we store up risks for the future,” he stressed. The lawmaker added that outright opposition from the fund management industry to any regulation appeared to have diminished, and that the sector’s more positive approach was allowing a sensible exchange of views on technical issues. He also signaled a personal shift on the fraught issue of whether fund mangers from outside the EU should be allowed to market within the 27-country bloc. He favored a transitional period – the length to be determined – in which the current patchwork of member state rules would continue to apply. But during that time, Brussels would decide which regimes had equivalent standards and thereafter, managers from those countries would have full access to the EU market. There were broader calls for a ban on “naked short-selling” – that is, the sale by traders of securities or financial instruments they do not own in the hope that prices will fall – with Socialist MEPs maintaining that this was an issue on which they would be “intransient”. However, others suggested that the short-selling issue could be dealt with in the context of the upcoming review of EU’s rules for markets in financial instruments – an approach understood to be supported by policymakers at the European Commission.
  • Fed Efforts Boosted by Treasury's $200 bln Debt Plan. The Federal Reserve's ability to drain excess liquidity from the financial system received a boost yesterday when the Treasury revived a plan to sell $200bn in short-term debt and store the proceeds at the central bank. The move comes as the Fed lays the groundwork to shrink its balance sheet in preparation for the time when the economy is sufficiently strong to require a tightening of monetary policy. By bolstering its Supplementary Financing Programme, the Treasury would help the Fed remove $200bn in reserves from the financial system. Some economists said that this would help bring the Fed's main interest rate closer to the upper end of its current 0-0.25 per cent target. "This move does mean there will be $200bn fewer reserves in the banking system, which could provide a little bit of lift to the effective fed funds rate, " said Michael Feroli of JPMorgan. "As such, it could be seen as a first step in putting the Fed in position to raise rates."

Telegraph: 21st Century Business Herald:
  • Beijing Scraps Incentives for Home Purchases. The Beijing city government halted policy incentives for property purchases as a move to control prices in the city, citing a statement from the local housing commission. The city will strictly implement a minimum 40% down payment policy and scrap incentives for foreigners to buy properties.
Yonhap News:
  • N.K. Leader Anxious Over Pending State Matters: Seoul Spy Chief. North Korean leader Kim Jong-il has recently shown increasing signs of anxiety over "pending issues," Seoul's spy agency chief said Tuesday, as the communist nation grapples with food shortages, prolonged economic problems and an international standoff over its nuclear programs. "(We) believe that he is expressing a lot of anxieties regarding resolving pending issues, such as lamenting for not being able to uplift the teachings" left by his late father, Won Se-hoon, head of the National Intelligence Service, was quoted as telling the parliament's intelligence committee, according to lawmakers that were present in the meeting.
  • China Unlikely to Buy Gold From IMF. Contrary to much speculation China may not buy the International Monetary Fund's (IMF) remaining 191.3 tons of gold which is up for sale as it does not want to upset the market, a top industry official told China Daily yesterday. "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility," said the official from the China Gold Association, on condition of anonymity.
Shanghai Securities News:
  • China's Trusts Told to Tighten Property Lending. The China Banking Regulatory Commission told the nation's trust companies to tighten lending requirements for real estate developers and banned them from offering loans for land-reserve purchases, citing a notice from the agency.
Evening Recommendations
  • None of note
Night Trading
  • Asian indices are -1.25% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 114.0 +3.5 basis points.
  • S&P 500 futures +.01%
  • NASDAQ 100 futures +.06%
Morning Preview
Earnings of Note
  • (TOL)/-.29
  • (CHS)/.05
  • (AMT)/.18
  • (EV)/.36
  • (TJX)/.91
  • (FLS)/2.30
  • (LTD)/.98
  • (DCI)/.38
  • (ESRX)/.90
  • (GMR)/-.10
  • (CRM)/.15
  • (DLTR)/1.43
  • (SJM)/1.04
  • (SKS)/-.02
Economic Releases
10:00 am EST
  • New Home Sales for January are estimated to rise to 353K versus 342K in December.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,900,000 barrels versus a +3,085,000 barrel gain the prior week. Gasoline supplies are expected to rise by +600,000 barrels versus a +1,620,000 barrel increase the prior week. Distillate supplies are estimated to fall by -1,500,000 barrels versus a -2,937,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.2% versus a +.64% gain the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Treasury's $45B 5-Year Note Auction, Fed Chairman Bernanke's testimony before the House Financial Services Committee, Geithner's testimony before the House Budget Committee, SEC's vote on short-selling rules, Merrill Insurance Conference, weekly MBA mortgage applications report, Baird Business Solutions Conference, Lazard Medical Device Conference, Keefe Bruyette Regional Bank Conference and the Goldman Tech Conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity stocks in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

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