Thursday, April 22, 2010

Thursday Watch

Posted by Gary .....at 12:45 AM

Evening Headlines
Bloomberg:
  • Greek Workers to Strike Today as Papandreou Faces Bond Rout. Greek civil servants will strike today in their fourth national walkout this year as surging bond yields put pressure on the government to activate a European Union bailout and accept more spending cuts. The strike will shutter hospital and schools and also affect ministries and government offices, according to an e- mailed statement from Athens-based ADEDY, the umbrella group for more than 500,000 state workers. It will hold a rally in central Athens at 11 a.m. local time.
  • Moody's(MCO) Dowgrades Toyota(TM) to Aa2; Outlook Negative. Moody’s Investors Service has downgraded to Aa2 from Aa1 its senior unsecured ratings of Toyota Motor Corp. and its supported subsidiaries. The rating outlook is negative.
  • Crude Oil Declines on U.S. Stockpile Increase, Gain in Imports. Crude oil declined after a U.S. Energy Department report showed supplies surged at the delivery point for the U.S. benchmark grade as imports climbed to the highest level since September. Inventories of crude at Cushing, Oklahoma, where New York- traded West Texas Intermediate oil is stored, rose 5.8 percent to 34.1 million barrels, the highest since the week ended Jan. 8. “We’re still yet to see a substantial recovery in the U.S. oil market fundamentals and that inventory report overnight was along those lines,” said Toby Hassall, a commodity analyst at CWA Global Markets Pty in Sydney. “The market reacted to the DOE numbers, which were pretty soft across the board.”
  • The world’s biggest oilfield contractors are building bases in the deserts of Iraq in a bet they’ll profit as the country strives to boost crude oil output to rival Saudi Arabia. Schlumberger Ltd.(SLB), Halliburton Co.(HAL) and Baker Hughes Inc.(BHI) are among companies this past week that said they’re expanding operations in Iraq. Weatherford International Ltd., the fourth- largest oilfield-services provider by market value, will expand staff in Iraq to more than 1,000 by July, Chief Executive Officer Bernard Duroc-Danner told investors yesterday on a conference call. The prize is a share of the billions of dollars to be spent as the war-torn country seeks within seven years to increase crude-oil production capacity to 12 million barrels a day, on a par with the world’s largest oil exporter, Saudi Arabia. Iraq’s current production is about 2.4 million. “It’s all becoming more real, in that contract awards are getting closer,” said Jeff Tillery, an analyst at investment bank Tudor, Pickering, Holt & Co. in Houston. If anything, service companies are late in positioning themselves for the “upcoming surge” in oil contracts, said Nansen Saleri, CEO at Quantum Reservoir Impact in Houston and former reservoir-management chief at Saudi Arabia’s state oil company. “Iraq is pregnant for huge growth,” Saleri said yesterday. The country has potential reserves of 200 billion to 300 billion barrels of oil, Saleri said, and “the early movers will be the big winners.”
  • Senators Back Plan to Make Banks Spin Off Swaps Desk. The Senate Agriculture Committee approved derivatives legislation that would require U.S. lenders such as JPMorgan Chase & Co.(JPM) and Bank of America Corp.(BAC) to spin off their swaps trading desks. The panel voted 13-8 to back a bill drafted by Committee Chairman Blanche Lincoln, an Arkansas Democrat. Senator Charles Grassley, an Iowa Republican, joined Democrats in approving the measure.
  • China Property Stocks Fall on Citigroup Forecast, Cancellations. China’s property stocks fell, led by China Vanke Co., after Citigroup Inc. predicted real estate prices may drop as much as 20 percent and China Business News reported record home-purchase cancellations in Guangzhou. A “turning point” in the China property market is “unavoidable,” Citigroup analysts Oscar Choi and Marco Sze wrote in a report today. They predicted home prices may fall as much as a fifth from current levels by the end of the year, as tightening measures and increased land supply take effect. The implementation of a property tax in China is “inevitable,” the only question is when and where, said Michael Klibaner, head of research at Jones Lang LaSalle Inc. in Shanghai. China has introduced “the most draconian” measures in the past week, according to Deutsche Bank AG’s Greater China chief economist Jun Ma, after earlier steps including raising the amount of bank reserves failed to prevent a record surge in property prices in March.
  • Fed Said to Press Largest Banks to Reduce Incentives. Federal Reserve supervisors are telling about two dozen of the largest U.S. banks they must do more to end pay practices that encourage excessive risk-taking and are ordering boards to step up scrutiny of incentives, according to three people briefed on the discussions.
Wall Street Journal:
  • Obama to Keep Goldman(GS) Funds. President Barack Obama won't return about $1 million that employees of Goldman Sachs Group Inc. donated to his 2008 presidential campaign, according to a spokesman for the Democratic National Committee. Lawmakers in several states who received donations from Goldman are being challenged by political opponents to return the campaign funds. In New York's Senate race, primary challenger Jonathan Tasini called on Sen. Kirsten Gillibrand, a fellow Democrat, to return donations from Goldman. Mrs. Gillibrand has accepted about $30,000 from Goldman's political action committee and from employees so far in the 2010 election, making her the third-largest recipient of donations from the firm among candidates for Congress, according to the nonpartisan Center for Responsive Politics. Mrs. Gillibrand will keep the Goldman money for now but will return donations from Goldman employees if they are later found guilty, according to her spokesman, Matt Canter. Two Senate candidates-Sen. Arlen Specter (D, Penn.) and Rep. Paul Hodes (D, N.H.)-said they would consider returning their Goldman donations if the guilty charges resulted from the government's allegations. Rep. Jim Himes (D, Conn.) faces a different political challenge. Mr. Himes has received $15,150 from Goldman-and is also a former employee of the company. No one has received more Goldman donations this election cycle than Rep. Mike McMahon (D., N.Y.). On Wednesday, Republican candidate Michael Grimm called on him to return the $51,000 he has received. "This is the time for all elected officials to stop dancing to Washington's familiar go-along-to-get-along tune," Mr. Grimm said. Mr. McMahon's office said that it didn't have any comment. Since 1989, no company has donated more to Democrats than Goldman. The company was the fourth-largest corporate source of campaign cash to Republicans during the same period. Overall, Goldman has made $31.6 million in donations from its PAC and employees since 1989, according to the Center for Responsive Politics. About two-thirds of those donations have gone to Democrats, including about $1 million given to Mr. Obama's presidential campaign.
  • The Busted Homes Behind a Big Bet. The government's civil-fraud allegation against Goldman Sachs Group Inc. centers on a deal the firm crafted so that hedge-fund king John Paulson could bet on a collapse in U.S. housing prices. It was a dizzyingly complex transaction, involving 90 bonds and a 65-page deal sheet. But it all boiled down to whether people like Stella Onyeukwu, Gheorghe Bledea and Jack Booket could pay their mortgages. They couldn't, and Mr. Paulson made $1 billion as a result.
  • Israel Rebuffs U.S. on Building. Prime Minister Netanyahu Says He Won't Freeze Home Construction in East Jerusalem.
Marketwatch.com:
  • Moore Capital Warns of Euro-Zone 'Breakdown'. Moore Capital, a leading global macro hedge-fund firm run by Louis Moore Bacon, warned of a "potential breakdown" of the European Monetary Union and criticized plans to bail out Greece, according to a recent investor letter obtained by MarketWatch on Wednesday. "Perhaps the most interesting area for the foreseeable future is in the potential breakdown of the European Monetary Union," Bacon wrote in the letter, dated April 16. "Instead of punishing the Greeks for their free-rider and fraudulent gaming of the Maastricht rules -- either by ejecting Greece from the Union to propel them to reform and come back at a competitive exchange rate or by forcing them to restructure their debt within the confines of monetary union, either of which would have eventually strengthened and solidified the euro -- the European leaders have decided to reward the prodigal Greeks with a bailout, socializing their ills and taxing once again the prodigious Northern European workers," he said. The bailout could have "disastrous consequences" for the European Union and Europe, Bacon warned. Sovereign-wealth funds have bought trillions of euros to diversify away from U.S. dollars. That's supported the euro and allowed European investors to "flee their debauched currency," he wrote. When sovereign-wealth funds "finally realize what they own, they may stand aside," Bacon went on. Bacon noted in February that tensions between better-performing economies in the euro zone and "laggards" such as Greece may signify larger issues in the region. Bacon said he's "wary of long-term investment commitments." The U.S. economy could reach "escape velocity" this summer, but markets could be worrying about "stall speed" by the end of the year, he wrote. "We should see a resumption of a bearish market amid the secular softening of U.S. economic might. The fiscal erosion in the developed markets will be a constant market negative that will upend any strong recoveries."
IBD:
Business Insider:
Forbes:
  • No More Entitlements. The great irony in the Obama administration's latest expansion of entitlements, its massive commitment to health care, is that it has created one that most Americans don't want. Poll after poll demonstrate that most Americans oppose the Democrats' radical change to the U.S. healthcare system. Not only do they find it too expensive, but they dislike the specific adjustments that shift power and control away from the individual and place them in the hands of the federal government. The plan radically changes health care in the U.S., imposing the federal government into perhaps the most personal of all segments of American life.
CNNMoney:
Washington Examiner:
  • Goldman Sachs(GS) Wants Regulation, Not Laissez-Faire. Goldman Sachs, accused of civil fraud by the Securities and Exchange Commission, may be Washington's favorite whipping boy right now as both Democrats and Republicans try to run against Wall Street in the 2010 elections. But Goldman stockholders can take heart: As indicated by their embrace of some key proposed regulations and their hiring of key Obama administration personnel, the firm is poised to come out ahead in this regulatory fight. There's a rule of thumb in Washington: Whenever politicians open up a legislative or regulatory debate, the side with the best lobbyist usually wins.
McClatchy:
  • Goldman's(GS) White House Connections Raise Eyebrows. While Goldman Sachs' lawyers negotiated with the Securities and Exchange Commission over potentially explosive civil fraud charges, Goldman's chief executive visited the White House at least four times. White House logs show that Chief Executive Lloyd Blankfein traveled to Washington for at least two events with President Barack Obama, whose 2008 presidential campaign received $994,795 in donations from Goldman's political action committee, its employees and their relatives. He also met twice with Obama's top economic adviser, Larry Summers. No evidence has surfaced to suggest that Blankfein or any other Goldman executive raised the SEC case with the president or his aides. SEC Chairwoman Mary Schapiro said in a statement Wednesday that the SEC doesn't coordinate enforcement actions with the White House or other political bodies. Meanwhile, however, Goldman is retaining former Obama White House counsel Gregory Craig as a member of its legal team. In addition, when he worked as an investment banker in Chicago a decade ago, White House Chief of Staff Rahm Emanuel advised one client who also retained Goldman as an adviser on the same $8.2 billion deal. Goldman's connections to the White House and the Obama administration are raising eyebrows at a time when Washington and Wall Street are dueling over how to overhaul regulation of the financial world.
Politico:
  • Lincoln Cancels Goldman(GS) Fundraiser as Firm Turns Toxic. Sen. Blanche Lincoln, under fire for keeping a $4,500 contribution from Goldman Sachs’s political action committee, has canceled a fundraising lunch with Goldman executives that was scheduled for Monday and would have netted many times that amount for the Arkansas Senator’s reelection campaign. The cancelled fundraiser, which was to have been held at Goldman’s Lower Manhattan headquarters, is emblematic of the investment bank’s swift fall from well-connected fundraising powerhouse to political pariah – a fate sealed Friday when the Securities and Exchange Commission charged the firm with defrauding investors. In light of the S.E.C. lawsuit against Goldman Sachs, Sen. Lincoln will schedule no future campaign-related events with the firm and will accept no further contributions from the firm's political action committee or its employees,” Lincoln’s campaign spokeswoman Katie Laning Niebaum said in a statement to POLITICO. Lincoln – whose campaigns have accepted more than $30,000 in contributions from Goldman’s PAC and executives since 2002, according to Federal Election Commission records – is far from the only politician feeling the heat from connections to Goldman’s fundraising machine, which has primarily benefitted Democrats and has given its executives regular access to some of the most powerful politicians in the country. Republicans have highlighted President Barack Obama’s connections to Goldman executives, who – according to FEC records – donated $1.2 million to his presidential campaign committee and a joint account benefitting the campaign and the Democratic National Committee. That made the Goldman Obama’s top source of Wall Street contributions, and one of his top overall sources of campaign cash.
Huffington Post:
Financial Times:
  • Bad Loans Could Take Their Toll on China's Growth. Will China have a banking crisis? Beijing’s massive credit stimulus will almost certainly lead to a future surge in bad loans, but so what? As the more optimistic of China analysts have pointed out many times, the last jump in non-performing loans a decade ago was also widely cited as a sign of impending doom, and yet nothing happened. China grew its way out of the loan mess at little apparent cost. But did it? The optimists have almost certainly failed to understand how Beijing paid for its earlier banking crises. In fact, the cost of resolving the previous surges in non-performing loans exacerbated China’s domestic imbalances. The current build-up of bad debt may very well do the same. The danger is that the cost of cleaning up the banking system will fall, as in the past, on the household sector. China must reduce its excessive reliance on exports and investment to fuel its continued growth, and the only way that can happen is if household consumption rises as a share of GDP. But since growth in household consumption has always been constrained by growth in household income, it may be unreasonable to expect a surge in consumption when households are also required to clean up a sharp increase in bad loans. Over the next few years, as trade tensions increase and the world finds it increasingly difficult to absorb China’s rising capacity, the country’s growth will rely more than ever on the growth of household consumption. If the worriers are right and non-performing loans surge, China can nonetheless easily avoid a banking collapse. But that does not mean the cost of cleaning up the banks will be negligible. On the contrary, it will put even more pressure on low-consuming Chinese households and will make the inevitable rebalancing of China’s economy much more difficult than many expect. Japan showed how difficult. Since 1990 Japanese consumption growth has limped along at between 1 and 2 per cent annually as households have been forced indirectly to clean up their own bad loans. The economy grew much more slowly. Just as Japan slowly rebalanced its economy towards consumption, so must China. If future Chinese consumption growth also slows because households are forced to foot the new bad-debt bill, we may see the real cost of the current explosion in bad loans – several years of sub-par growth.
  • US Opens Inquiry into China Metal Exports. The US launched a probe into Chinese exports of aluminium products on Wednesday night but postponed a decision on whether to include the country’s exchange rate policy in its inquiry. The investigation, announced by the commerce department, will unfold over the next few months, with an initial determination scheduled for May 17. It threatens to reignite tensions between the US and China over the value of the renminbi after a period of relative calm between the two countries on the issue. The US said the probe would centre on aluminium “extrusions”, which are used in the construction and car industries to make components of windows and doors, as well as furniture and solar panels. Investigators at the International Trade Commission, an independent agency, and the commerce department will be conducting an anti-dumping inquiry, looking into whether Chinese exports were sold below their value, as well as a countervailing duty inquiry, examining whether the exports were benefiting from unfair government subsidies. If the ITC finds that American producers have been damaged, the US could impose stiff penalties on the products.
  • Greed is Not Good for Goldman(GS). There are various ways to describe the synthetic collateralised debt obligation that Goldman Sachs constructed for John Paulson, the hedge fund manager who bet on the collapse of the mortgage bubble. Goldman itself terms it “nothing unusual or remarkable”. The US Securities and Exchange Commission describes the Abacus deal that closed in April 2007 as securities fraud. I call it short-term greedy. Goldman rose to its dominant position on Wall Street through the dictum of Gus Levy, its former senior partner, that it should be “long-term greedy”. He meant that it should forgo quick gains for enduring profits. The bank’s expression of that principle on its website is: “Whether a mid-size employer in Kansas, a larger school district in California, a pension fund for skilled workers, or a start-up technology firm, our clients’ interests come first.”
Telegraph:
  • Iran Exports 'Revolutionary Principles' to Venezuela, Report Claims. Iran has stepped up its military presence in Venezuela as part of a programme to export its "revolutionary principles" to America's enemies, according to a Pentagon report. The report on Iran's military states that paramilitaries from the Quds Force, a special paramilitary unit attached to Iran's Islamic Revolutionary Guards Corps, have "an increased presence in Latin America, particularly Venezuela". It also alleges that Iran is continuing to supply weapons and explosives to the Taliban to help them kill American and British troops in Afghanistan. Iranian-backed terrorists have conducted few attacks in the region but American intelligence officials told The Washington Times that Quds Force operatives are developing networks of terrorists in Latin America who could be activated to attack the US if there was a conflict over Iran's nuclear programme. The Quds force is said to support US enemies by giving them arms, funding and paramilitary training and is not constrained by Islamist ideology. "Many of the groups it supports do not share, and sometimes openly oppose, Iranian revolutionary principles, but Iran supports them because they share common interests or enemies," the report states Qods force operatives are stationed in Iranian embassies, charities and religious and cultural institutions that support Shia Muslims.
  • IMF and Bundesbank Fear Contagion from Greece as Bond Spreads Soar to Fresh Records. The International Monetary Fund has warned that Greece’s debt crisis risks spinning out of control, threatening to spill over across the region unless action is taken soon to restore confidence. "In the near term, the main risk is that – if left unchecked – market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion," said the Fund in its World Economic Outlook. Bundesbank chief Axel Weber echoed the concerns, saying the financial system was still very fragile and subject to a "significant risk of contagion effects. A possible default by Greece would most likely be a severe economic blow for other countries in monetary union".
21st Century Business Herald:
  • Some banks in Beijing are requiring down payments equal to 60% of a property's value for loans to buy third homes, citing an Agricultural Bank of China official. A portion of banks in the Chinese capital are also imposing interest rates that are 20% higher than the benchmark rate for third-home mortgages.
China Securities Journal:
  • China must deflate its property bubble if the country is to urbanize and develop a healthy economy, the China Securities Journal said in an editorial. The bubble could hurt social as well as financial stability, the editorial said.
China Business News:
  • The southern Chinese city of Guangzhou had a record high 804 canceled new home sales in one day on April 19, citing an official Web site under the Guangzhou Municipal Land Resources and Housing Administrative Bureau. Most of the canceled new homes are houses or high-end apartments. The main reason for the cancelations is that banks stopped approving loans, citing people from the Guangzhou Real Estate Transaction Center.
China Ministry of Commerce:
  • China will levy anti-dumping duties on "nylon6" imports from the U.S., European Union, Russia and Taiwan after an investigation found shipments from those areas had harmed local producers. The duties became effective today and will last 5 years.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (EMC), raised estimates, boosted target to $24.
  • Reiterated Buy on (ELS), target $64.
  • Reiterated Buy on (OKS), raised target to $70.50.
Night Trading
  • Asian indices are -1.0% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 96.50 +4.0 basis points.
  • S&P 500 futures -.26%.
  • NASDAQ 100 futures -.22%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (GR)/.90
  • (SHW)/.40
  • (LLL)/1.77
  • (MAR)/.20
  • (ESI)/2.29
  • (CAL)/-.86
  • (UNP)/.95
  • (ABC)/.55
  • (RTN)/1.11
  • (ZMH)/1.01
  • (PM)/.93
  • (AN)/.32
  • (PEP)/.75
  • (VZ)/.56
  • (AMZN)/.61
  • (COF)/.57
  • (CAKE)/.25
  • (CB)/.97
  • (FII)/.43
  • (MSFT)/.42
  • (AXP)/.63
  • (WDC)/1.55
  • (NUE)/.06
  • (BX)/.22
  • (HSY)/.47
  • (BAX)/.93
  • (DO)/1.94
  • (DECK)/.91
  • (KMB)/1.11
  • (DV)/1.03
  • (BTU)/.41
  • (IGT)/.20
Economic Releases
8:30 am EST
  • The Producer Price Index for March is estimated to rise +.5% versus a -.6% decline in February.
  • The PPI Ex Food & Energy for March is estimated to rise +.1% versus a +.1% gain in February.
  • Initial Jobless Claims for last week are estimated to fall to 450K versus 484K the prior week.
  • Continuing Claims are estimated to fall to 4600K versus 4639K prior.
10:00 am EST
  • Existing Home Sales for March are estimated to rise to 5.28M versus 5.02M in February.
  • The House Price Index for February is estimated to fall -.2% versus a -.6% decline in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

1 comment:

Guava said...

The content posted above is really appreciable and worth a read. Night trading is must.Good job done!!

Friday, April 23, 2010 at 5:00:00 AM EDT

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