Tuesday, March 02, 2010

Tuesday Watch

Posted by Gary .....at 12:31 AM
Evening Headlines
Bloomberg:
  • EU Sets Clock Ticking on Greece as Merkel Talks Near. The European Union set the clock ticking on Greece’s attempts to cut the bloc’s largest budget deficit. As Prime Minister George Papaconstantinou prepares to meet Germany’s Angela Merkel on March 5, EU Monetary Affairs Commissioner Olli Rehn said today Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short. Merkel and other EU leaders want Greece to do more so they can justify any aid package to taxpayers and political opponents who say that the country shouldn’t be bailed out after living beyond its means. Failure to satisfy Rehn’s demand before the Berlin talks may dash hopes of a German-led lifeline, spurring investors to reverse today’s rally in Greek bonds. Papandreou will address his governing Pasok party tomorrow and the cabinet will meet on March 3 to discuss further “decisions on the economy,” an e-mail from the government said. Papandreou’s efforts to give the EU what it wants are being complicated by strikes, a deteriorating economic outlook and higher borrowing costs. Options include another increase in the fuel levy, raising sales tax and a luxury tax on cars and yachts. It could also raise duties on alcohol and tobacco products again and abolish the “14th wage”, a payment received twice a year that’s equivalent to one month’s wage. “It appears that the Greek government has reasonably broad support across the political spectrum and with the population as a whole,” Mackie said. “Too much pressure from the rest of the EU could change this and introduce a political crisis, the consequence of which would be hard to gauge.” The government has already raised the retirement age and frozen salary increases for public-sector workers.
  • Russia, Canada Keep Data, 'Climategate' School Says. Canada and Russia are among nations that won’t allow the U.K. university at the center of the “climategate” leaked-e-mail dispute to release their temperature data, researchers at the school said. Seven of 59 nations asked to allow the University of East Anglia to release weather station data have declined, according to testimony given to a U.K. parliamentary committee today by Phil Jones, director of the school’s Climatic Research Unit, and UEA Vice Chancellor Edward Acton. The data is of interest because it’s used by the school and the Met Office, the government’s forecaster to produce one of the three main global average temperature datasets used by the United Nations to show the Earth is warming. Skeptics of climate change have been pushing for the data to be published to allow them to reproduce the series themselves. “Several of these countries impose conditions saying ‘no, you can’t pass it on’,” Acton told the U.K. Parliament’s multi- party Science and Technology Committee in London today. “Canada and Poland are among those countries saying ‘no you can’t.’ Also Sweden. And Russia is reluctant.” Jones, the author of many of the leaked e-mails, stepped aside from his post in December, pending completion of an investigation. In one e-mail, he spoke of deleting files rather than handing data to skeptics.
  • American Funds Rank Highest for Wealth Creation, Janus Lowest. American Funds, the biggest active manager of stock and bond mutual funds, created the most wealth for investors in the past decade, while Janus Capital Group Inc. destroyed the most, Morningstar Inc. said today. American, owned by Los Angeles-based Capital Group Cos., added $191 billion in net wealth for clients from 2000 through 2009, according to a Morningstar study of the 50 largest U.S. asset managers. Denver’s Janus wiped out $58.4 billion, the Chicago-based research firm said.
  • Bristol-Myers(BMY) Transplant Drug Wins U.S. Panel Backing. Bristol Myers Squibb Co.’s experimental drug belatacept should be allowed on the market, a committee of U.S. regulatory advisers recommended. The outside panel voted 13-5 today that the Food and Drug Administration approve the drug for the prevention of kidney transplant rejection because the benefits of the medicine outweigh the risks when compared with the older generic drug cyclosporine.
  • SEC Should Adopt Wall Street-Like Bonus System, Markopolos Says. The U.S. Securities and Exchange Commission should emulate Wall Street’s “eat what you kill” ethos and pay investigators bonuses for uncovering frauds, Harry Markopolos said today in a Bloomberg Television interview. “You need to change the culture,” said Markopolos, the former money manager who tried for years to alert the agency to Bernard Madoff's Ponzi scheme. “Right now it’s a 40-hour work week. You need to put them on Wall Street’s compensation system. You need to pay them a higher base comp, and you need to incentivize them.”
  • Volcker Defends 'Volcker Rule," Optimistic on Chances. Former Federal Reserve Chairman Paul Volcker, a top adviser to President Barack Obama, defended his proposal to restrict proprietary trading at U.S. banks, saying such financial institutions shouldn’t operate as they do now, according to the chief executive officer of CLSA Asia-Pacific Markets. “He made quite a convincing case that if there is no implication to the financial crisis, and in fact U.S. investment banks and commercial banks are able to continue as though nothing happened, then we’ve missed a terrible opportunity to fix a broken system,” said Jonathan Slone, chairman and CEO of CLSA Asia-Pacific Markets. Obama’s plan to limit the size and trading activities of financial firms, known as the “Volcker Rule,” has been met with criticism from lawmakers and some in banking, including Goldman Sachs Group Inc.’s(GS) E. Gerald Corrigan. The proposal would bar commercial banks from engaging in trading solely for their own profit and from sponsoring hedge funds or private-equity funds. “What he made very clear was that what he’s not looking to do is break up existing banks,” Slone said after Volcker spoke at the CLSA AsiaUSA Investor Forum. “What he’s looking to do is separate deposit-taking institutions from taking on risk that could create situations where the government is going to have to bail things out.” “He seemed optimistic that the ‘Volcker Rule’ was still very much in play,” said Slone, who appeared on stage with Volcker and chaired the session, which was not open to reporters.
  • Qualcomm(QCOM) Plans $3 Billion Buyback, Boosts Dividend.
  • Bank of America's(BAC) Moynihan Plans to Vote for Barney Frank in November. Bank of America Corp.(BAC) Chief Executive Officer Brian Moyihan said he plans to vote for U.S. Representative Barney Frank in November, praising the House Financial Services Committee chairman for balancing concerns of lenders and consumers. “He knows the issues that the industry is facing, he knows the issues consumers are facing and he has an amazing ability to see how those fit together,” Moynihan said in an interview yesterday on the New England Cable Network.
  • OSI(OSIP) Board Rejects Astellas's $3.5 Billion Hostile Bid. OSI Pharmaceuticals Inc. rejected a $52-a-share hostile takeover bid from Astellas Pharma Inc. as investors anticipated a higher offer and possible bidding war. OSI “is not interested in undertaking a sale” at that price, the Melville, New York-based company said yesterday in response to the $3.5 billion cash offer from Astellas, Japan’s second-largest drugmaker. If successful, the tender offer starting today would help Astellas gain treatments for cancer, a key growth area the Tokyo-based company has identified to cope with falling sales of its biggest drug Prograf. The takeover attempt follows Astellas’ failed $1.1 billion offer last year for CV Therapeutics Inc.(CVTX) and analysts say it may face a rival bid from Roche Holding AG, OSI’s partner for the Tarceva cancer drug.
  • British Pound Extends Drop Amid Political, Financial Concerns. The pound dropped for a sixth day versus the dollar amid concerns that political uncertainties will hamper efforts to reduce the U.K.’s debt. The British currency weakened against all 16 of its most- active counterparts after polls showed Britain may have its first minority government since 1974 and ahead of a report forecast to show that a recovery in consumer confidence stalled in February. “Concerns over politics and the debt situation in the U.K. are growing,” said Toshiya Yamauchi, manager of foreign- exchange margin trading at Ueda Harlow Ltd. in Tokyo. “If forthcoming data confirms the deterioration in sentiment, the pound may extend its decline.” The dollar rose for a second day against the yen after Philadelphia Federal Reserve Bank President Charles Plosse told the Wall Street Journal that the central bank should back away from its pledge to keep interest rates low for an “extended period.” “I don’t like that language,” Plosser said in an interview with the newspaper, referring to the “extended period” wording. “What is troubling about the words is that it ties our hands, or people believe that it ties our hands.”
  • Australia Raises Benchmark Interest Rate by Quarter Point to 4%.
  • GM to Recall 1.3 Million Cars to Fix Power Steering. General Motors Co. plans to recall 1.3 million Chevrolet and Pontiac vehicles in North America to fix power steering systems, after the U.S. started an investigation spurred by consumer complaints.
Wall Street Journal:
  • After Quake, Focus Turns to Reconstruction.
  • Q&A: Philly Fed's Plosser Takes On 'Extended Period' Language.
  • Regulators' Reforms' Fall Flat. The financial system is still broken. Too bad Washington is fixing the wrong things. Last week the Securities and Exchange Commission unveiled what appeared its strongest reforms yet: a rule limiting short-selling of stocks after they had already fallen 10% during the trading day. The rule was lauded as a triumph for SEC chief Mary Schapiro, who in passing it against the wishes of two Republican commissioners, said that falling stock prices, "accompanied by the fear of unconstrained short selling, can destabilize our markets and undermine investor confidence." On Wall Street, which fought against these and other reform measures, the rule was dismissed as comically ineffective, a kind of regulatory vaporware that would do little to stop stock declines. "It's crazy and bad," said one big market player. It also reminds just how fitful reform efforts have become nearly two years since the demise of Bear Stearns.
  • Bearish Bets on Greece: Short-Lived? The short bet against Greece might not be around for long. The increasing possibility that European nations will come to the rescue of Greece is upending what had been a highly successful trade—betting that Greece would struggle or be unable to pay off its debt. The two main winning bets were buying credit default swaps, which rise as the risk of default increases, and shorting Greek bonds, which fall in value when the borrower is in trouble. In both cases, investors made big profits in recent months. Now, with a bailout plan for Greece emerging, some investors are moving out of those now money-losing trades. A key factor hurting these trades is that if a plan goes through, there would be little doubt Greece could pay off the bonds it has issued that mature in April and May. "You've already had a scramble to close out the short positions," said Gary Jenkins, head of fixed-income research at Evolution Securities in London. European officials, meanwhile, have unnerved some investors in recent days with calls for tighter regulation of the sovereign credit-default-swap markets. German market regulator BaFin is preparing a report for Germany's Finance Ministry on speculation in Greek debt, an agency spokesman said Monday. BaFin analysts are searching public trading data for signs of speculation in the trading of Greek credit default swaps. "It is important to know if speculators are betting against Greek national debt," said BaFin spokesman Ben Fischer. Given the cross-border nature of such trading, many politicians believe any regulation would have to be global in scope to be effective. Germany has been pushing other major economic powers, including the U.S., to endorse a regulatory framework for sovereign CDS trading. Berlin already has the support of most European countries. French Finance Minister Christine Lagarde said in a Sunday radio interview that the derivatives should be "at least very rigorously regulated" or even "forbidden." The fear of regulatory intervention may also be sparking a decrease in the price of the credit insurance. Hedge funds might have bought protection against Greek default in what would be a short position. Now, to avoid detection by regulators, hedge funds are selling credit insurance to cancel out the short position, a London banker said. To be sure, a bailout of Greece could end up a short-term solution. Within months, the country could end up struggling to cover its maturing debt.
  • New Momentum for Iran Sanctions. The new head of the International Atomic Energy Agency said Iran isn't cooperating with U.N. inspectors, and Russia appeared to move closer to supporting sanctions, adding momentum to efforts at the U.N. Security Council to pressure Tehran to rein in its nuclear program.
  • Deal Near on Banking Rules. Key senators were close to a deal on legislation to overhaul financial regulations, people familiar with the matter said, bringing the U.S. a step closer to sweeping changes to the way banks interact with consumers and the markets alike. Top senators from each party were near a breakthrough agreement to create a new consumer-protection division within the Federal Reserve. This has been a contentious point due to heavy criticism of the Fed's past handling of its consumer-protection powers. Senators Christopher Dodd (D., Conn.) and Bob Corker (R. Tenn.) were conferring with other members of their parties last night in an effort to sell that agreement to them, Senate aides said. The two senators have also reached a deal that would let the federal government break up large, failing financial companies.
  • Goldman(GS) Lists New 'Risk': Bad Press. Company Sees Negative Media Coverage as a Potential Threat to Its Business; Aggressive Responses. Goldman Sachs Group Inc. added something new to the laundry list of financial risks it faces: unflattering attention. In its annual report, the New York company said "adverse publicity" could have "a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations." The unusual disclosure in a 12-page section of "risk factors" ranging from rocky financial markets to natural disasters is the latest sign of Goldman's whipping-boy status among rivals, lawmakers and angry Americans because of the firm's giant profits. "Goldman has become one giant pinata to whack," said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, adding that he couldn't recall a previous instance where a company cited bad publicity as a risk to its business. "It's reflective of the rather bizarre political climate in which we operate."
BusinessWeek:
CNBC:
CNNMoney:
  • Al Gore Gets 10,387 More Apple(AAPL) Options. Al Gore took his lumps at Apple's (AAPL) shareholders meeting Thursday. Sitting in the front row with the other outside directors, he had to bite his tongue as two pro-environment proposals were voted down and a gadfly named Shelton Ehrlich took the mic to call him a "laughingstock." "The glaciers have not melted," Ehrlich said, referring to Gore's frequent warnings about the effects of global warming. "If his advice he gives to Apple is as faulty as his views on the environment then he doesn't need to be re-elected." (link) But Gore is amply rewarded for serving on Apple's board. Last year he received in cash and stock options the equivalent of $436,372. The 10,000 options he was granted in 2008 are now worth nearly $750,000. And according to an SEC filing published Friday, he has just received another 9,397 options — more than any other director — in addition to 990 restricted shares. Net value of last week's haul, including those restricted shares: more than $227,000 at Apple's closing price of $204.62.
NPR:

  • Warren Buffett: Health Care Bill Needs Redo Focused On Costs. Warren Buffet, the oracle of Omaha, suggested President Barack Obama and his fellow Democrats go back to the drawing board on health-care overhaul legislation and work with Republicans to come up with new legislation that deals with the "cost, cost, cost," that he calls a "tapeworm eating at American competitiveness." In comments made during a lengthy CNBC appearance where he talked about the economy and financial markets, he criticized the Democratic legislation as not doing enough to slow the cost increases that are making health care an ever larger share of the U.S. economy and making American companies less competitive globally. While he didn't say the Democrats should "scrap" the bill in response to a question to that effect from interviewer Becky Quick, he clearly suggested as much. Buffet's comments are likely to draw wide notice since Obama was fond of dropping the mega-billionaire's name as one of his informal advisers earlier in his presidency. Buffet's position certainly doesn't help the president as he tries to push his plan through Congress in coming weeks. Meanwhile, Republicans wasted little time seizing on Buffet's comments. House Minority Leader Rep. John Boehner's office posted the clip of Buffet on CNBC along with a transcript to its website and e-mailed it far and wide. Here's the transcript:

Politico:
Reuters:
Financial Times:
  • Climate Expert Admits 'Awful E-Mails'. The scientist at the centre of the “climategate” scandal has made his strongest admission yet of errors in sending e-mails that were subsequently seized on as evidence of malpractice. “I have obviously written some very awful e-mails,” Phil Jones, director of the climatic research unit at the University of East Anglia, told a parliamentary select committee on Monday. Prof Jones was the author of hundreds of the e-mails hacked from UEA servers last November, some of which show him and some other scientists refusing to release information and apparently manipulating data. The furore surrounding the e-mails has been heightened by a scandal involving the United Nations International Panel on Climate Change. It said earlier this year that the IPCC erroneously stated in its landmark 2007 report that Himalayan glaciers were likely to melt by 2035. Sceptics cite the two incidents as evidence of a lack of credibility of climate science.
  • Lack of Fiscal Credibility Hurts Sterling. Sterling has been weak and jittery recently, falling below $1.50 yesterday. Even with the euro weakening amid the sovereign debt tsunami about to engulf Greece - barring a rescue - the pound has dropped against the single currency. There are good reasons for the weakness and volatility of sterling. Among industrial countries, Britain's economic fundamentals are uniquely awful. As regards public debt and deficits, Britain's true fiscal circumstances are about as bad as Greece's reported situation, once we allow for the understatement of UK public debt through the off-balance-sheet accounting tricks of the past decade (the private finance initiative, unfunded pensions, student loans and other Enron-like constructs). The fiscal weakness of the UK is largely government-inflicted, rather than a result of the financial crisis and global contraction. During the long boom preceding the crisis, fiscal policy was relentlessly pro-cyclical, with public spending rising steadily as a share of gross domestic product. The size of the bank bail-out reflected failures of UK regulation that permitted the financial system's balance sheet to pass 400 per cent of GDP.
21st Century Business Herald:
  • Chinese provincial governments may be allowed to sell bonds as concerns mount about local fundraising through existing vehicles. The State Council is drafting rules for local-government debt and financing. While local-government financing "platforms" have been important in boosting domestic demand, problems include the excessively rapid growth of debt, rising repayment risks and irregular financing, the newspaper reported.
China Daily:
  • Urban-Rural Income Gap Widest Since Opening Up. BEIJING: China recorded its widest rural-urban income gap last year since the country launched its reform and opening-up policy in 1978. Think tank researchers warned the gap will continue to widen in the coming years if effective measures to narrow the difference are not implemented soon. The urban per capita net income stood at 17,175 yuan ($2,525) last year, in contrast to 5,153 yuan in the countryside, with the urban-to-rural income ratio being 3.33:1, according to the latest figures from the National Bureau of Statistics.
EastDay.com:
  • New Home Sales in Shanghai Dive 54%. New home sales in Shanghai plunged more than 50 percent in February, its second consecutive month of decline, as sluggish sentiment continued to prevail among buyers while average prices remained almost flat despite record low transaction volume. Sales of new homes, excluding those designated for relocated residents under urban redevelopment plans, plunged 54 percent last month from January to 320,000 square meters, the lowest monthly volume registered by Shanghai Uwin Real Estate Information Services Co since it began to track the local market in 2005. The February drop followed a monthly tumble of 51 percent in January when about 700,000 square meters of new homes were sold across the city. "Policies implemented by the government to curb speculation in the overheated real estate market, traditional slack momentum during the Spring Festival as well as growing wait-and-see sentiment among buyers dragged the city's monthly volume to a record low although they didn't impact the housing prices," said Lu Qilin, a researcher at Uwin.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (NGLS), target raised to $31.50.
Raymond James:
  • Upgraded (APSG) to Outperform, target $23.50.
  • Upgraded (BXS) to Outperform, target $23.
  • Upgraded (BRY) to Outperform, target $37.
Night Trading
  • Asian indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.0 unch.
  • S&P 500 futures +.01%
  • NASDAQ 100 futures +.18%
Morning Preview
Earnings of Note
Company/Estimate
  • (TECD)/1.00
  • (AZO)/2.35
  • (CPRT)/.40
  • (HOV)/-.28
  • (KCP)/.21
  • (DPZ)/.25
  • (SPLS)/.38
  • (PAY)/.23
Economic Releases
5:00 pm EST
  • Total vehicle sales for February are estimated to fall to 10.4M versus 10.82M in January.
Upcoming Splits
  • (ARO) 3-for-2
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, weekly retail sales reports, BoC rate decision, API energy inventory report, RBC Healthcare Conference, ABC consumer confidence reading, (A) annual meeting, (CHS) analyst day, (EEP) analyst meeting, (SD) analyst meeting, (APC) investor conference, (BP) conference call, (TSCO) investment meeting, (WBSN) analyst breifing, BMO Metals & Mining Conference, Citi Property Conference and the Morgan Stanley Tech/Telecom/Media Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology stocks in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

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