Evening Headlines
Bloomberg:
- Greece Default Swaps Trade Higher Than Iceland's for First Time. Credit-default swaps linked to Greece sovereign debt rose higher than those tied to Iceland for the first time, helping propel a benchmark indicator of U.S. corporate credit risk to its biggest jump in eight weeks. The Markit CDX North America Investment Grade Index Series 14 rose 3.4 basis points to a mid-price of 87.5 basis points, according to Markit Group Ltd. Swaps tied to Greece rose to 415 basis points today while those on Iceland traded at about 400 basis points, according to Markit data. The North American Markit index increased for a second day amid investor concern that contagion from a Greece default may spread to other assets, said Gavan Nolan, an analyst at Markit Group in London. “The whole EU response to Greece has been quite fragmented,” Nolan said in a telephone interview.
- Goldman Sachs(GS) Trader Hedayat Said to Leave Firm. Ali Hedayat, co-head in the Americas of Goldman Sachs Group Inc.’s largest internal hedge fund, has left the firm, the second senior departure from the unit in less than a month, said three people familiar with the matter. Hedayat’s departure follows last month’s exit by Pierre Henri Flamand, who ran the Goldman Sachs Principal Strategies division from London. Ed Canaday, a spokesman for Goldman Sachs in New York, declined to comment. Hedayat, 35, who was promoted to managing director in October 2006, also declined to comment. Goldman Sachs, the most profitable securities firm in Wall Street history, generates about 10 percent of its revenue from proprietary trading, or bets with the firm’s own money, Chief Financial Officer David Viniar has said.
- How $1 Trillion Time Bomb Posts a Phony Profit: Jonathan Weil. The Federal Home Loan Banks are a frequently overlooked band of government-chartered cooperatives whose name screams systemic risk with every word. Federal means Uncle Sam. Homes are a declining asset. A loan is money out the door. And banks are the things that get taxpayer bailouts when they’re too big to fail and enough of their loans go bad. So perhaps it shouldn’t come as a surprise that these 12 regional lenders collectively suffered massive losses last year. What’s astonishing is that you wouldn’t know it by looking at their bottom-line earnings or from the strange way their regulator measures their capital cushions. Last week, the FHLBs, which is pronounced “flubs,” published their combined audited financial statements for 2009. And at first glance, it might seem like they had a profitable year. Net income was about $1.9 billion, the banks said, up 54 percent from the year before. The most striking part about that dollar figure was what it didn’t include: About $8.8 billion of paper losses from their portfolios of mortgage-backed securities. By the banks’ own description, these losses were “other than temporary,” meaning the values of the investments aren’t expected to recover soon. The reason those losses weren’t included in earnings? The Financial Accounting Standards Board rewrote its rules a year ago so they wouldn’t have to count, following an intense campaign by the banking industry and its friends in Congress. One thing the rule change couldn’t do, though, was make those losses go away in real life.
- Japanese Machinery Orders Unexpectedly Fall 5.4%. Japanese machinery orders unexpectedly fell for a second month in February, a sign that the resurgence in overseas demand isn’t enough to compel companies to spend on plant and equipment. Orders, an indicator of business investment in three to six months, declined 5.4 percent from January, the Cabinet Office said today in Tokyo. The median estimate of 31 economists surveyed by Bloomberg was for a 3.7 percent gain.
- Revamped ECB Lending Rules May Give Greece More Pain Than Gain. The European Central Bank’s decision to change its lending rules may end up hurting debt-laden Greece more than helping it. While President Jean-Claude Trichet last month assisted Greece by extending the ECB’s emergency collateral rules into next year, the move may come at a cost. The new framework will make it more expensive for banks to exchange Greek bonds for central bank funds because of their lower credit rating.
- Indonesia Stocks in Bubble, Central Bank Study Shows. Indonesia’s stocks are in a bubble and officials are prepared to put controls on capital inflows if needed to maintain financial stability, the head of the central bank’s economic research and monetary policy division said. Indonesia’s experience is echoed across emerging markets that are benefiting from international capital flows shunning slow-growing advanced economies. Brazil imposed a tax on foreign funds last year, while central banks from China to India have ordered their banks to hold more of their assets in reserve, and India and Malaysia have raised interest rates. “There is a bubble going on,” Warjiyo said in the interview in his office yesterday. Bank Indonesia’s analysis shows the peak of the overvaluation was in July, with part of the deceleration owing to improved economic fundamentals, he said. The market has a “tendency of self-correction but we are” continuing to monitor it, he said.
- UAL's United(UAUA), US Airways(LCC) Said to Be in Merger Talks.
- Shanghai Plans Property Tax to Curb Gains, News Says. Shanghai, China’s wealthiest city, may impose a property tax to curb price gains, the Shanghai Securities News reported, citing unidentified people. The city government has already completed a basic plan for the tax, which would affect ownership of investment properties, the Shanghai-based newspaper reported. The tax is likely to be applied to existing homes as well as new properties, the report said, without saying when the charge may be levied. “The introduction of new taxation will curb speculative demand for properties and bring down prices,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
- Bernanke, Dudley Say Recovery Is Yet to Produce Major Job Gains. Federal Reserve Chairman Ben S. Bernanke and a top lieutenant said the U.S. economic rebound has yet to produce a significant recovery in jobs, signaling there’s no need yet to consider raising interest rates. Bernanke, speaking to businesspeople in Dallas yesterday, said the labor market contains “some of the toughest problems” for the economy and that he’s “particularly concerned” about the number of people out of work for at least six months. New York Fed President William Dudley said in a separate speech that “we are not getting the job gains we would like to get.”
- NAACP Will Drop Lawsuit Against Wells Fargo(WFC). The National Association for the Advancement of Colored People agreed to drop a predatory-lending lawsuit against Wells Fargo & Co. in exchange for access to loan data. The pact, set to be announced on Thursday, marks a more conciliatory approach from the fourth-largest U.S. bank in assets as it works to eliminate legal headaches resulting from the housing bust.
- Investors Playing Defense Heighten Greek Debt Woes. The market pummeling of Greece continued Wednesday, and many European politicians are quick to blame "traders and speculators," as Greek Prime Minister George Papandreou recently put it. They are missing a big part of the picture. Quick-trigger traders have certainly been active players, but the hammering of Greece and the euro reflects far more than a quest for fast profits, a Wall Street Journal review of trading records and securities filings, plus interviews with bankers, executives and traders, shows. Many of the bearish wagers have come not from hedge funds but from traditional asset managers, banks and corporate treasurers, seeking not to profit but to protect themselves. Coca-Cola Co. and Dole Food Co., for instance, bet on a weakening euro in recent months to shield the dollar value of euros they earn abroad. Asset managers sold Greek bonds, and banks bought default insurance on those they hold in their portfolios.
- Joblessness: The Kids Are Not Alright. Will the U.S. accept youth unemployment levels like Europe's? Unemployment today doesn't look like any unemployment in the recent American experience. We have the astonishing and dispiriting new reality that the "long-term jobless"—people out of work more than six months (27 weeks)—was about 44% of all people unemployed in February. A year ago that number was 24.6%. This is not normal joblessness. As The Wall Street Journal reported in January, even when the recovery comes, some jobs will never return. But the aspect of this mess I find more disturbing is the numbers around what economists call "youth unemployment." The U.S. unemployment rate for workers under 25 years old is about 20%.
- Kyrgyz Opposition Claims Power as President Ousted. Kyrgyzstan’s opposition said it has taken power and the government has resigned after deadly protests in the capital, Bishkek, that forced President Kurmanbek Bakiyev to flee the city. Prime Minister Daniyar Usenov tendered his resignation to Roza Otunbayeva, appointed by opposition leaders as head of the new government, RIA Novosti reported, citing Otunbayeva. The opposition is “in full control,” the news agency said. Bakiyev left in his plane to an unknown destination, the Fergana.ru news service reported. The U.S. is “deeply concerned” about violence in the former Soviet republic, State Department official Philip J. Crowley said in Washington, noting that there is no sign the government has ceased to function. At least 65 people were killed in the protests, Agence France-Presse cited Kyrgyzstan’s Health Ministry as saying today.
- ISI's DeGraaf Sees Setback for U.S. Stocks: Technical Analysis. The Standard & Poor’s 500 Index may fall as low as 1,150 this quarter before resuming the advance that pushed it to an 18-month high on April 6, said Jeffrey deGraaf, a top-ranked technical analyst. Complacency in the options market and fewer stocks rising relative to those falling are signs a retreat is coming, he said in an interview. DeGraaf, a senior managing director at ISI Group Inc. in New York, was the No. 1 technical analyst in Institutional Investor’s annual survey for the past five years.
- Obama Official Opposes Exemption for Derivatives End Users. A key Obama administration official said Wednesday that he opposes efforts on Capitol Hill to automatically exempt end users, such as manufacturers or airlines, from new derivatives-trading transparency measures included in bank-reform legislation.
- Would a National Sales Tax Really Work in the US? Would a European-style "value-added tax" really work in the US? Paul Volcker, a White House advisor and former Federal Reseve chairman, is pushing the idea of a national sales tax to help cut the soaring US deficit. Though the proposal faces major obstacles, it is being seriously discussed in Congress.
- Business Is Back For Houseware And Home Furnishings Chain. As consumers kept a tight lid on spending, Williams-Sonoma (WSM) felt the pressure. Profit and sales sank like a souffle gone bad.
CNNMoney:
- Diplomat Taken into Custody After Airliner Disturbance. A passenger with diplomatic credentials of Qatar was detained Wednesday night after a disturbance aboard a United Airlines flight en route to Denver, Colorado, federal authorities said. Initial reports were that the incident involved an attempt to set a shoe on fire, but there were later indications that the situation may have resulted from a misunderstanding involving smoking during the flight. The passenger was in a lavatory and may have been smoking, a U.S. official said. He also may have made an "unfortunate comment" referring to a shoe bomb when questioned on the plane, the official said.
- Essential Reading: Fed's Hoenig Plays Cassandra And Blasts Our Persistent 0% Interest Rates.
- Remember That Huge Gift Obama Gave To The Auto Unions? Now We're About To Pay For It Dearly. The Government Accountability Office has a report out today on the unfunded liabilities of the GM and Chrysler pensions. The most controversial aspect of the bankruptcy reorganizations orchestrated by the Obama administration is that the companies reaffirmed their obligation to their retirement plans, which are often terminated when a company undergoes a bankruptcy.
Forbes:
- Who's Visiting The President? Among the most frequent nongovernmental guests at the White House: union chiefs, a banker and a Chicago billionaire. President Barack Obama has worked closely with House Speaker Nancy Pelosi to pass health care reform and other measures, but there are a number of private-sector figures whose names appear more frequently in White House visitor records. They include labor leaders, an executive for a Swiss bank and a Chicago billionaire.
- Where Oil and Gas Can be Recovered At Home. Barack Obama made a big fuss over his plan to open more U.S. acreage to exploratory oil and gas drilling. But wildcatters aren't overly excited about the prospects. Though the plan added acreage in Alaska for possible leasing, some choice sites there were yanked. Drillers still have to wait for environmental studies before a lease sale may be held. Even then, they'd need to do seismic surveys and get federal air permits before touching drill bit to earth. Expect environmentalists' lawsuits, too.
- Bank of America Corp.(BAC) plans to support the stricter consumer-protection provisions sought in the U.S. regulatory reform legislation. The company had previously stayed neutral on a consumer-protection agency.
- Obama Administration Removing Terms Like 'Islamic Extremism' From National Security Document. The Obama administration is working on changing the language of the National Security Strategy to more politically-correct terminology. Counterterrorism officials say the goal of the new version is to emphasize that the United States does not view Muslim nations through the lens of terrorism. The National Security Strategy document, which outlined the Bush Doctrine of preventive war, currently states: "The struggle against militant Islamic radicalism is the great ideological conflict of the early years of the 21st century." The revisions to the document are part of a larger effort by the White House to change how the U.S. talks to Muslim nations. During a visit to Cairo last year, President Obama promised a ‘new beginning’ in the relationship between the United States and the Muslim world. Peter Feaver, a Duke University political scientist and former Bush adviser, said Obama, in his engagement efforts, runs the risk of seeming to adopt politically correct rhetoric abroad while appearing tone-deaf on national security issues at home.
- Rumor: Apple(AAPL) to Enter the Mobile Advertising Market on Thursday? Can you remember back at the beginning of the year when we heard the news that Apple had acquired the mobile advertisement company, Quattro Wireless? Well, the rumor mill is heating up once again, as all signs lead to Apple unveiling a mobile advertising system for the iPhone OS during tomorrow’s media event.
- Nearly Half of U.S. Households Escape Federal Income Tax. Tax Day is a dreaded deadline for millions of Americans, but for nearly half of U.S. households, it's simply somebody else's problem. About 47% will pay no federal income taxes for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.
- US FDIC to Meet on Crisis-Era Guarantee, Bank Fees. U.S. bank regulators will meet next week on whether to extend a crisis-era guarantee designed to help small banks, and whether to change how it charges for deposit insurance, possibly making banks pay more if they have risky compensation schemes. The Federal Deposit Insurance Corp on Wednesday posted the agenda for the meeting next Tuesday, saying it will also discuss the "reporting and planning" of large banks.
- Thai PM Faces Hard Choice After Emergency Declared. Thai Prime Minister Abhisit Vejjajiva faces a difficult choice -- compromise and call an election he could easily lose or launch a crackdown on tens of thousands of protesters that could stir up even more trouble.
- Bed Bath & Beyond(BBBY) Beats Street, Shares Up 4%.
- Eastern Europe Won't Pay What it Can't Pay. Greece is just the first in a series of European debt bombs about to go off. Mortgage debts in the post-communist economies and Iceland are more explosive. Although most of these countries are not in the eurozone, their debts are largely denominated in euros. Some 87 per cent of Latvia’s debts are in euros or other foreign currencies, and are owed mainly to Swedish banks, while Hungary and Romania owe euro-debts mainly to Austrian banks. These governments have been borrowing not to finance a budget deficit, as in Greece, but to support their exchange rates and thereby prevent a private-sector default to foreign banks. All these debts are unpayably high because most of these countries are running deepening trade deficits and are sinking into depression. Now that property prices are plunging, trade deficits are no longer financed by an inflow of foreign-currency mortgage lending. For the past year, these countries have supported their exchange rates by borrowing from the European Union and the International Monetary Fund. The terms of this borrowing are politically unsustainable: sharp public sector budget cuts, higher tax rates on already over-taxed labour, and austerity plans that shrink economies and drive more workers to emigrate. Bankers in Sweden and Austria, Germany and Britain are about to discover that extending credit to nations that cannot (or will not) pay may be their problem, not that of their debtors. No one wants to accept the fact that debts that cannot be paid, will not be. Someone must bear the cost as debts go into default or are written down, to be paid in sharply depreciated currencies, and many legal experts find debt agreements calling for repayment in euros unenforceable. Every sovereign nation has the right to legislate its own debt terms, and the coming currency re-alignments and debt write-downs will be much more than mere “haircuts”.
- Global Computer Server Sales See Rare Boom. The global computer-server industry is witnessing a once-in-decade sweet spot of sales growth, boosted by a rare alignment of economic recovery, big technological advances and soaring data-handling needs.
- UK Needs 'Drastic Austerity Measures' to Prevent Debt Explosion. Bank for International Settlements issues stark warning on debt as OECD cuts growth forecast for British economy. Britain will need "drastic" austerity measures to prevent public debt exploding out of control, the Bank for International Settlements (BIS), has declared. Interest payments on the UK's public debt will double from 5pc of GDP to 10pc within a decade under the bank's "baseline scenario" before spiralling upwards to 27pc by 2040 – by far the highest among the OECD club of developed countries. Greece fares better, while Britain's interest burden is far worse than Italy's.
- Greece Pins Hopes on Luring Investors in US and Far East. As country slips further into debt crisis, ministers plan visits to the US and China to secure funds and calm markets.
- The Bundesbank, Germany's central bank, has criticized the way European Union leaders agreed to help Greece in an emergency, including the envisaged role of the International Monetary Fund, citing an internal Bundesbank document. The IMF would require Greece to adopt less of a budgetary discipline than euro region governments would. Leaders have taken decisions, without consulting relevant central banks, that may threaten the stability of the region, Rundschau said. The involvement of the IMF would violate the Maastricht Treaty's no-bailout clause and force the Bundesbank to provide some of the funds the IMF needs to help Greece, citing the document.
- Yao Jian, spokesman for the Chinese Ministry of Commerce, said the U.S. shouldn't politicize the yuan's exchange rate and shouldn't have "unrealistic" expectations. China's stance on its exchange rate policies is firm and the U.S. government should stop pressing China on the issue, Yao said.
- China Rights Lawyer Quits Activism. A crusading mainland China rights lawyer who disappeared more than a year ago says he is abandoning his once prominent role as a government critic in the hope of reuniting with his family. In his first meeting with the media since he resurfaced two weeks ago, Gao Zhisheng said he did not want to discuss his disappearance. He appeared thinner and more subdued than in the past. But he says the ordeal took a toll on him and his wife and two children, who secretly fled China early last year. Mr Gao was a dauntless campaigner for human rights.
- Next Fab Wave: LEDs. Needless to say, fewer semiconductor fabs are being built these days, and even the solar market has cooled a bit. So what's the next big thing for fabs? Try LEDs. Rising LED demand for lighting apps and TVs has semiconductor titans like Samsung and TSMC jumping into the market, and is fueling sales growth for equipment makers from Aixtron(AIXG) to Veeco(VECO). An investment banking firm has just upgraded its forecast for Veeco, and Applied Materials Inc. is looking to enter the LED tool market.
Citigroup:
- Rated (MDAS) Buy, target $29.
- Rated (MDSO) Buy, target $21.
- Rated (MCK) Buy, target $79.
- Upgraded (ABC) to Buy, target $34.
- Reiterated Buy on (ESRX), raised target to $122.
- Reiterated Buy on (MHS), raised target to $82.
- Rated (MSFT) Buy, target $34.
- Rated (NUAN) Buy, target $21.
- Rated (ORCL) Buy, target $30.
- Rated (SYMC) Buy, target $23.
- Asian indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 97.0 +4.5 basis points.
- S&P 500 futures -.25%
- NASDAQ 100 futures -.16%
Earnings of Note
Company/Estimate
- (PIR)/.32
- (ISCA)/.53
8:30 AM EST
- Initial Jobless Claims for last week are estimated to fall to 435K versus 439K the prior week.
- Continuing Claims are estimated to fall to 4630K versus 4662K prior.
- None of note
- The Fed's Bernanke speaking, Fed's Kohn speaking, Fed's Tarullo speaking, Fed's Duke speaking, Fed's Kocherlakota speaking, $13 Billion 30-year Treasury auction, monthly retail same-store-sales before the open, BOE rate decision, ECB rate decision, EIA weekly natural gas inventory report, (ACN) analyst conference, (SCG) analyst meeting and the (TLVT) analyst meeting could also impact trading today.
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