Thursday, August 19, 2010

Thursday Watch


Evening Headlines

Bloomberg:

  • BHP's(BHP) $45 Billion Debt Commitment 'Tests' Limits of Rally: Credit Markets. BHP Billiton Ltd.’s ability to raise the most debt to finance a takeover since February 2008 underscores a credit-market rally that has pushed corporate bond yields to record lows even as the economic recovery sputters. BHP, the world’s biggest miner, got $45 billion of funding to back its hostile takeover bid for Potash Corp. of Saskatchewan Inc. in the largest debt issue since it agreed to a $55 billion loan to acquire Rio Tinto Group. The Melbourne-based miner will seek to refinance the loans in the corporate bond market, in which U.S. investment-grade yields have fallen to a record low.
  • Euro Weakens for Second Day on Concern Europe's Economic Recovery Slowing. The euro weakened for a second day against the dollar and the yen as speculation Europe’s economic recovery is waning damped demand for the single currency. The euro dropped against 15 of its 16 major counterparts after Germany’s Der Spiegel magazine reported that tensions are rising in Greece as austerity measures shrink every aspect of the economy. Traders said the euro extended its slide due to the triggering of so-called stop-loss orders, or automatic instructions to sell a currency if it reaches a certain level. “The fundamentals of most of the euro zone haven’t really improved,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. based in Tokyo. “The bias is for the euro to be sold.”
  • Bank of Japan May Expand Credit Program to Weaken Currency, Sankei Reports. The Bank of Japan may expand a bank lending program to lower interest rates and help weaken the yen, the Sankei newspaper reported, without saying where it got the information. The central bank may increase the credit facility for lenders to 30 trillion yen ($351 billion) from 20 trillion yen, the newspaper said. The duration of the loans may also be increased to six months from three months, possibly at an emergency policy meeting before Prime Minister Naoto Kan meets BOJ Governor Masaaki Shirakawa next week, the report said. Japanese policy makers are facing pressure to support the economy as the yen’s climb to a 15-year high against the dollar threatens to erode exporters’ earnings and fuel deflation.
  • Clinton to Urge Global Aid for Pakistan to Match Haiti Earthquake Response. U.S. Secretary of State Hillary Clinton speaks today on Pakistan’s increasing need for humanitarian assistance as donations trail the response to the Haiti earthquake. Clinton speaks at 4 p.m. at the United Nations General assembly in New York, a day after an Obama administration official said the U.S. will pledge more money to flood- devastated Pakistan in a bid to spur more financial aid from other nations.
  • North Korea Confirms Seizure of South's Fishing Boat as Tensions Increase. North Korea confirmed it seized a South Korean fishing boat last week off the communist country’s east coast for violation of the maritime border. North Korea is investigating the four South Korean and three Chinese crew members, who had “confessed that they intruded into the economic waters,” the state-run Korean Central News Agency reported. The North Korean navy captured the boat on Aug. 8 at around 10:15 a.m. local time, the report said. South Korea has sent a message to North Korea, urging a swift return of the 41-ton Daeseung and its crew.
  • Most Bush Tax Cuts Should Be Extended, Pimco's McCulley Says. President George W. Bush’s tax cuts should be extended except for the top two brackets to help bolster the fragile economic recovery, said Paul McCulley, a managing director at Pacific Investment Management Co. “Congress has to extend them or else the double-dip- recession risk will go up dramatically,” McCulley said in a Bloomberg Radio interview with Kathleen Hays on ‘The Hays Advantage.’ McCulley, based in Newport Beach, California, suggested making permanent the tax cuts on all but the top two income brackets, individuals earning between $500,000 and $1 million and those who earn more than $1 million. Cuts in the lower brackets should be renewed for a few years, and Congress can revisit the issue when the economy is more stable, he said.
  • California Budget Logjam May Spur IOUs Next Month, Chiang Says. California may begin paying bills with IOUs in September for a second year in a row as a legislative logjam over erasing a $19 billion deficit prevents passage of a budget. State Controller John Chiang said the IOUs may be issued in two to four weeks if the budget impasse persists. The warrants will pay for everything from contracted services to health-care clinics so California can preserve funds to make payments on priority items such as bonds.

Wall Street Journal:
  • States Will Be Hedge-Fund Police. Thousands of midsize and smaller hedge funds are about to fall under the sway of state overseers, and it isn't clear the states are ready. The new Dodd-Frank financial law seeks to tighten the leash on hedge-fund advisers, forcing all of them to register with regulators and undergo exams. But only hedge funds and other investment advisers managing more than $100 million will face oversight from the Securities and Exchange Commission. Those with smaller portfolios will be overseen by states. The old threshold, for those investment advisers that registered under earlier laws, was $25 million. The SEC estimates about 4,000 investment advisers will switch to the states. "Right now, as it is, the states don't have the budget or the manpower to even deal with the advisers that they have," said Bart Mallon, a lawyer who advises several hedge-fund advisers that have registered with states. "You're lucky if the states [examine firms] on a three-year basis. I've had certain clients who have never been audited." State budgets are strapped, and some regulators have had to take unpaid furloughs. Several states that have a big hedge-fund industry, such as Connecticut and California, say they are weighing options including boosting fees.
  • Motorola(MOT), Others Granted Net Funds. Motorola Inc. was among several companies to win millions in government funding Wednesday as the Obama administration announced $1.8 billion in new broadband stimulus grants and loans. Motorola, based in Schaumburg, Ill., received a $50.6 million award to build a new wireless-broadband network in the San Francisco area for police, firefighters and other public safety officials. It's the first time the government has given broadband grants to fund public safety wireless networks instead of new Internet networks for consumers.
  • 130,000 iPhone 4 Orders Crush Korea Telecom Servers. IPhone 4 mania is as strong in South Korea as it is in the States–perhaps even more so. Korea Telecom’s servers were overwhelmed by pre-orders for the September iPhone 4 launch, company officials said Wednesday. More than 130,000 people pre-ordered Apple’s (AAPL) latest smartphone in just nine hours, causing some nasty congestion. “Our online shop server was jammed instantly as too many clients placed orders simultaneously,” KT spokesman Jin Byung-Kwon told AFP. “We didn’t expect so many people to pre-order the iPhone 4 in such a short time.” But then, no one ever does. Right, AT&T? Incidentally, first-day pre-orders for the iPhone 4 easily broke the local record held by the iPhone 3G, which received 65,000 pre-orders over five days.
  • Mexico Under Siege. A surge of drug violence in Mexico's business capital and richest city has prompted an outcry from business leaders who on Wednesday took out full-page ads asking President Felipe Calderón to send in more soldiers to stem the violence. The growing violence in Monterrey, long one of Mexico's most modern and safe cities, is a sign that the country's war against drug gangs is spreading ever further from poorer battlegrounds along the border and into the country's wealthiest enclaves.
  • RIM(RIMM) Shops for Mobile Ad network. Under pressure in the increasingly competitive wireless market, BlackBerry maker Research in Motion Ltd. is shopping for a mobile advertising network, people familiar with the matter said.
  • Hedge Funds Tap ETF for Gold Bets as Stock Correlation Rises. Hedge funds managed by George Soros, John Paulson and other high-profile investors are using a $50 billion exchange-traded fund to buy gold, recent filings show, even as the ETF's growing clout may be chipping at gold's role as an asset that moves to its own beat.
  • Last U.S. Combat Brigade Leaves Iraq. As their convoy reached the barbed wire at the border crossing out of Iraq on Wednesday, the soldiers whooped and cheered. Then they scrambled out of their stifling hot armored vehicles, unfurled an American flag and posed for group photos. For these troops of the 4th Stryker Brigade, 2nd Infantry Division, it was a moment of relief fraught with symbolism. Seven years and five months after the U.S.-led invasion, the last American combat brigade was leaving Iraq, well ahead of President Obama's Aug. 31 deadline for ending U.S. combat operations there.
  • Deconstructing Harry Reid. The Senate majority leader's inexplicable desire to debate taxes in September.
  • Blagojevich 23, Fitzgerald 1. Chicago's jester politician humiliates the Justice Department.
  • Former H-P(HPQ) CEO Defends His Acts.
CNBC:
MarketWatch:
  • China's Crude Steel Production Rises. Major steel producers all announce price hikes for September. Amid a revival in steel prices, China's crude steel production has begun a rebound after a three-month decline. According to data from China Iron & Steel Association (CISA), its member companies reported total crude steel production of 14.13 million tons during the first 10 days of August. Average daily production was 1.41 million tons, up 29,000 tons from the last 10 days of July. This is the first daily crude steel output rise after a three-month decline.
  • H-P(HPQ) Succeeded in Spite of Hurd. Commentary: Why H-P is a buy after the CEO scandal.
IBD:
Business Insider:
  • The Implications of Facebook's "Places" We just finished watching the livestream of Facebook's "Places" announcement. Here are our initial impressions:
  • Forget Facebook: Bet On E-Commerce IPOs. Don’t scoff. Sure, after the dotcom bomb, e-commerce had a stench from Pets.com, Webvan, and other expensive duds. But savvy investors who looked past those failures and embraced true innovation have put hundreds of millions of dollars into rising stars. From Groupon to Etsy and FreshDirect to Diapers.com, a cunning new breed of e-commerce players should be ready to test the public markets soon.
ABC News:
LA Times:
  • Credit Default Swap Deals Unnerve California. Some say credit default swaps may influence the market for muni bonds. Is Wall Street profiting from California's misery? That's been a concern of state Treasurer Bill Lockyer, who takes a dim view of financial instruments — known as credit default swaps — that enable speculators to bet against California's ability to pay its debts. Like other giant Wall Street firms, JPMorgan Chase & Co. helps investors place such bets against California but also earns hefty fees from the state for helping it get the best prices on the bonds it sells to finance capital improvements and other expenses. So it was no small annoyance, Lockyer said, when JPMorgan Chief Executive Jamie Dimon publicly suggested in February that he was more concerned about California's budget problems than about Greece's.
Rasmussen Reports:
  • 28% Say U.S. Heading in Right Direction. Twenty-eight percent (28%) of Likely Voters say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey taken the week ending Sunday, August 15. Sixty-seven percent (67%) of all voters say the country is heading down the wrong track, up two points from last week. 77% of voters not affiliated with either political party feel the country is heading down the wrong track.
USA Today:
  • Companies are Boosting Their Spending: Could Jobs Be Next? Federal Express (FDX) is snapping up more airplanes. Caterpillar (CAT) is expanding factory capacity. And Wynn Las Vegas (WYNN) is remodeling all of its 2,716 rooms. Cash-rich U.S. corporations are sharply increasing their capital spending this year after scaling back drastically during the economic downturn. The trend has emerged as a bright spot in a recovery that lately has lost momentum and prompted worries that the U.S. could slip back into recession. Many economists believe business investment could help pick up the slack and eventually spark job growth that lifts the economy from its doldrums.
Reuters:
  • US Senator Baucus Urges US Case on Canada Lumber. The Obama administration should pursue a new trade case against Canadian softwood lumber practices, Max Baucus, the powerful Democratic chairman of the Senate Finance Commission, said on Wednesday. "The provincial government of British Columbia is selling government-owned timber used for softwood lumber production at firesale stumpage prices," Baucus said in a letter to U.S. Trade Representative Ron Kirk, arguing the fees contravene a bilateral softwood lumber deal.
  • India Finds a Way to Access BlackBerry Emails - Paper. India's telecoms ministry has suggested a formula by which security agencies can get access to corporate email on Research In Motion's(RIMM) Blackberry devices, the Economic Times reported on Thursday.
  • NetEase(NTES) Q2 Profit Up 4.5%, Misses Expectations. China's third-largest online game operator NetEase.com second-quarter net income rose 4.5 percent from a year earlier, missing analysts' expectations, amid a lack of new titles and stiff competition.
  • FACTBOX - IPO Could Lead to Payday for GM Employees.
  • NetApp(NTAP) Falls as Qtrly Revenue Beat Disappoints. U.S. data storage equipment maker NetApp Inc's quarterly profit more than doubled, but its revenue beat Wall Street estimates by the smallest margin in four quarters, sending its shares down 5 percent.
  • Applied Materials(AMAT) Sees Strong Q4, but Solar Wanes. Applied Materials Inc forecast quarterly results that beat Wall Street estimates, with demand for its chip-making gear holding up despite fears of weakening technology spending. But the world's top supplier of semiconductor manufacturing equipment warned that sales of solar and energy equipment -- a fast-growing business that accounts for about 15 percent of revenue -- would slide 10 percent to 20 percent this quarter. Executives blamed that slide on an unfavorable comparison with a strong fiscal third quarter ended Aug. 1, as well as a lowering of subsidies for solar power in Germany.
  • PetSmart(PETM) Sees Strong Full-Year Earnings, Shares Rise. PetSmart Inc posted a strong quarterly profit, helped by continued positive same-store sales in its higher-margin hardgoods business, and the pet products retailer raised its full-year earnings view, sending shares up 7 percent after the bell.
  • Move Over Skinny Jeans, Denim Goes Wide for Spring. Women who hate skinny jeans can rejoice this spring when the extra-tight denim that has dominated the market for more than two years makes way for wide-leg cuts. Bell-bottoms and boot-cut styles will appear in U.S. stores this spring. Many apparel watchers predict the eventual demise of the skinny that has spurred both adoration and revulsion. "The pendulum is swinging away from skinny," said Ryan Dziadul, a spokesman for VF Corp's (VFC) 7 For All Mankind. "There are millions of pairs out there. For spring, it's about bell-bottoms."
  • Canada Does Not Need Offshore Drilling Ban. Canada has no need for a moratorium on offshore drilling in the wake of the Gulf of Mexico spill because the current risk of an accident is low, according to a Senate report released on Wednesday.
Financial Times:
  • US Banks Receive Basel III Boost. Big US banks should be able to meet tighter global capital requirements without having to raise substantial amounts of new equity, according to calculations by Barclays Capital. The analysis by BarCap’s debt capital markets group estimates that the 35 largest US banks will have to come up with half as much new capital as had been expected following last month’s rewrite of proposed requirements by the Basel Committee on Banking Supervision. Analysts at Nomura calculated earlier this month that the top 16 European banks would also gain a sizeable, though slightly smaller, benefit. The numbers are likely to revive complaints that the reforms have been softened too much in the face of lobbying by banks.
Telegraph:
  • Western Profits Wilt on China's Surging Wages. Rising wage and production costs in China are eating into the profits of Western companies and may soonset off an exodus of multinational companies to cheaper locations. Credit Suisse's survey of executives found that 55pc of foreign firms in China could relocate plant to Bangladesh, Vietnam, Indonesia or other low-cost regions relatively easily, though it would be costly. Diana Choyleva from Lombard Street Research said China has a delicate task ahead. Rampant overheating has given way to a "sharp cyclical downswing", yet China cannot easily unleash another stimulus blitz without risking inflation. They are in the "nasty quadrant " of the economic cycle where all choices are hard, though China is not as far gone as over-cooked India. Beijing may have manoeuvred itself into a policy swamp by relying on tiger-style export growth for so long with a suppressed currency instead of boosting domestic demand. Consumption has fallen from 47pc of GDP in 1998 to 35pc, the flip-side of over-investment in excess capacity. Meanwhile, China Daily reports that 70pc of all flats in Hainan, 66pc in Beijing, and 51pc in Shanghai are empty, based on a survey of electricity use. They are presumably owned by investors and speculators. Given that the "cohort" of young people aged 20 to 30 currently joining the workforce is now contracting as China's demographic crunch starts to bite, this property glut looks all too like the bubble peaks in Taiwan, Hong Kong, and Singapore in the 1990s.
21st Century Business Herald:
  • China has begun making changes to its labor union law, including allowing migrant workers to join unions, citing Liu Jichen, head of the law department at the All-China Federation of Trade Unions. Changes to the law may also allow industry trade unions to participate in salary negotiations between companies and workers.
  • The Chinese government's push to clean up local government financing may double the balance of non-performing loans at the nation's banks, citing a commercial bank official. If the government forces banks to increase provisions for loans that may go bad, it could wipe out profit for China's banking industry this year.
  • China's government shouldn't set gross domestic product growth as the "final target" as the nation's resources and environment are under great pressure, citing Zhang Bin, a researcher at the Chinese Academy of Social Sciences. The nation should instead use the quality of life of its citizens as its target.
Oriental Morning Post:
  • Shanghai may raise the "cost of owning property" to curb speculative demand, according to a report from the city's Ministry of Land and Resources branch published in the Oriental Morning Post today. Shanghai may use a mix of financial, taxation and land measures to curb property market speculation, the report said.
Munwha Ilbo:
  • North Korea imported missile-related equipment from a Chinese company in April, citing a South Korean government official.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (DE), target $75.
Night Trading
  • Asian equity indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 120.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 115.25 -.75 basis point.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.11%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (SHLD)/-.18
  • (DLTR)/.54
  • (DKS)/.41
  • (TECD)/.79
  • (WSM)/.22
  • (TTC)/.78
  • (GPS)/.35
  • (CRM)/.27
  • (HPQ)/1.08
  • (INTU)/-.10
  • (DELL)/.30
  • (GME)/.27
  • (ARO)/.46
  • (PLCE)/-.34
  • (SPLS)/.20
  • (MRVL)/.40
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to fall to 478K versus 484K the prior week.
  • Continuing Claims are estimated to rise to 4500K versus 4452K prior.
10:00 am EST
  • Philly Fed for August is estimated to rise to 7.2 from 5.1 in July.
  • Leading Indicators for July are estimated to rise +.1% versus a -.2% decline in June.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bullard speaking, Fed's Evans speaking, (CAT) analyst meeting, weekly EIA natural gas inventory report and the (VSEA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

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