Friday Watch

Evening Headlines
Bloomberg:

• Junk Bonds Reach Par For First Time Since '07 on Upgrades: Credit Markets. Investors in U.S. junk bonds are wagering they’ll be fully repaid for the first time since before the credit market seizure, dismissing concern the economy will go back into recession and trigger a rise in corporate defaults. Average prices on high-yield debt rose above 100 cents on the dollar today for the first time since June 2007 after falling as low as 55 cents in December 2008, Bank of America Merrill Lynch index data show.
• Consumers Resist Smart Meters After $3.4 Billion Stimulus Push. PG&E Corp., Cisco Systems Inc. and General Electric Co. are all betting that energy-monitoring devices will catch on in homes. Convincing consumers that they’re a good thing is turning out to be a tough sell. Power companies have traditionally relied on workers walking house to house to monitor electricity use. Smart meters are designed to give utilities a real-time picture of electricity consumption, eventually allowing them to create pricing plans that will encourage conservation during peak hours. About 43 percent of U.S. homes will have the new meters by 2014, up from 14 percent at the end of last year, according to Dallas-based market researcher Parks Associates. Even with $3.4 billion in U.S. stimulus funds behind it, the race to install smart meters is starting to lose momentum, Bloomberg Businessweek reports in its Sept. 20 issue. “The meters don’t benefit the consumer; they cost a lot of money, and we can’t opt out,” says Joshua Hart, the California- based director of Scotts Valley Neighbors Against Smart Meters.
• Hewlett-Packard(HPQ) Said to Be Near Decision on Hurd's Successor.
  

Wall Street Journal:

• Aide to Re Ackerman Leaves Capitol Hill to Lobby for ISE. The International Securities Exchange has hired one of Rep. Gary Ackerman's (D., N.Y.) aides as its lobbyist in an effort to raise the exchange's profile on the Hill and shine more attention on issues affecting the options industry.
• IMF Would Consider Extending Greece More Aid. The International Monetary Fund hasn't ruled out putting together more aid for Greece to help the country stave off an unlikely default, if ever needed, a person familiar with the matter said.
• Moody's Downgrades Billions More of Alt-A RMBS. Moody's Investors Service downgraded most of $10.7 billion of securities backed by Alt-A residential mortgages as the loans continue to sour.
• EU's Derivatives Proposal Carries Risks of Its Own.
• A Risky-Loan Market Is Back in Gear. One of the markets at the heart of the credit bubble has surged back with surprising speed as investors chasing yield are increasingly willing to finance riskier companies.
• Sarkozy Blasts EU as Flap Over Gypsies Grows. French President, at Brussels Summit, Denounces European Official's Comparison of His Deportation Plan to Nazi Horrors.
• Warren's Role, Powers Could Be Loosely Defined. Elizabeth Warren's job as assistant to the President and a special adviser to Treasury Secretary Timothy Geithner will allow her to play a central role in building the Bureau of Consumer Financial Protection. But the job description appears loosely defined and open to interpretation.
• BlackBerry Gets Squeezed by Rivals. BlackBerry maker Research In Motion Ltd. posted a surge in quarterly profit and revenue, though it added fewer new subscribers than it had expected amid intensifying competition in the U.S.

Bloomberg Businessweek:

• China Is Set to Lose 2% of GDP Cleaning Up Decades of Pollution. China, the world’s worst polluter, needs to spend at least 2 percent of gross domestic product a year -- 680 billion yuan at 2009 figures -- to clean up 30 years of industrial waste, said He Ping, chairman of the Washington-based International Fund for China’s Environment. Mun Sing Ho, a senior economist at Dale W. Jorgenson Associates and a visiting scholar at Harvard University in Cambridge, Massachusetts, put the range at 2 percent to 4 percent of GDP. Failure to spend that much -- equivalent to the annual GDP of Vietnam -- may cost the Chinese economy half as much again in blighted crops, health costs and pollution-related expenses, He said: “The cleanup can’t catch up with the speed of pollution” if spending is less.
• Noda Defends Intervention Step Amid U.S., European Criticism. Japanese Finance Minister Yoshihiko Noda defended his decision to intervene in currency markets for the first time since 2004 after the move spurred criticism from policy makers in the U.S. and Europe. “I’m aware of the various comments, but with deflation, our economy is in a severe situation and it’s undesirable that the strong yen be prolonged,” Noda told reporters in Tokyo today.

IBD:

• Data Manager Sees Big Opportunity in Health Care. Informatica (INFA) is happy to focus on one thing: data.

Business Insider:

• Thank Heavens For All Those Foreigners Who Keep Lending Us Money. (graph) International holdings of Treasury bonds have nearly doubled since the start of the financial crisis, Asha Bangalore at Northern Trust notes--from $2.2 trillion to $4.1 trillion. On behalf of the debtor-nation US, we thank you, world. That's another $2 trillion we owe you. On top of the original $2 trillion.
• The West Is Losing Its Grip On A Key Middle East Lynchpin. The west may be losing its appeal to a key Middle East ally, if the new Transatlantic Trends is correct. The report suggest Turkey is moving away from its traditional pro-Europe, pro-U.S. stance, in favor of a renewed focus in its own backyard.

NY Times:

• Hedge Fund Managers Set Up for Next Acts.

CNNMoney.com:

• What's Hot for the Holiday's? Google(GOOG) Knows.

The Detroit News:

• On Obamacare, Wilson Was Rude But Right. The president, who told Congress and the American people his bill would, "slow the growth of health care costs for our families, our businesses, and our government," now admits this isn't true. "As a consequence of us getting 30 million additional people health care, at the margins that's going to increase our costs -- we knew that," Obama said last week. Of course he knew, but he wasn't saying so as he lobbied for the bill's passage. In his 2009 speech, Obama assured Americans the expense of extending coverage to the uninsured would be covered through cost cutting reforms.

Daily Finance:

• CNBC's Dennis Kneale Set to Exit, Say Sources.

LA Times:

• Home Sales in California Fall a Second Straight Month. Purchases were down 2.7% in August from July and 14% from a year earlier. The median price last month was $260,000, down 3% from July but up 4.4% from August 2009. California home sales stumbled for a second consecutive month in August and home prices slipped from July, according to data released Thursday. The housing market's softening reflects the expiration of a popular federal tax credit and consumer concern that the economy is weakening, experts said. "The magnitude of the sales slowdown suggests that, among other things, many would-be buyers are holding off for further price cuts," said John Walsh, president of MDA DataQuick, the San Diego research firm that released the data.

The Daily Beast:

• Why The Gulf Misses BP(BP). Locals thought it was hard getting money out of the oil giant—until they had to deal with the government. Rick Outzen on the Gulf’s cash flow crisis—and anger with the federal “claims czar.”

Rasmussen Reports:

• Only 25% Say Current Government Policies Have Country on Right Course.

Politico:

• Dem Hopeful Asks Pelosi to Step Down. Tennessee congressional candidate Brett Carter is taking what has become a move typical of Democrats this election season – distancing oneself from party leaders – and taking it a step further by calling on House Speaker Nancy Pelosi to step down. In an interview with POLITICO Thursday evening, Carter slammed Pelosi as a polarizing figure whose leadership of the Democratic caucus imperiled the party’s House majority, and said it was time for someone else to take her place.

USA Today:

• USA's Poverty Rate Reaches Highest Level in 51 Years.

Reuters:

• China Must Confront Risks of Yuan Rise - China Economist. China risks "negative shocks" if its yuan currency appreciates, threatening a "hollowing out" of export-driven industry, a Chinese economist said in an official newspaper on Friday, following rising pressure from Washington.The warning about an abrupt rise in the yuan appeared in the overseas edition of the People's Daily, a day after U.S. Treasury Secretary Timothy Geithner told Congress he would press Beijing to let the yuan strengthen faster. In a commentary for the Chinese paper, Sun Lijian, a professor of economics at Fudan University in Shanghai, said Beijing should ready for a yuan appreciation by accelerating domestic reforms and considering curtailing stimulus spending. Sun said that moving too fast on the yuan could be a shock to Chinese manufacturers. "The negative shock from an appreciation of the renminbi exchange rate following an increase in its elasticity is something the Chinese government and central bank must consider," Sun said in the paper, which serves as the chief mouthpiece of China's ruling Communist Party.
• Oracle(ORCL) Profit Beats Street Forecasts, Stock Jumps. Oracle Corp (ORCL) posted a 25 percent surge in software sales that sharply beat forecasts and a pickup in its new hardware business, underscoring robust tech spending by corporations and boosting its shares more than 4 percent.
• North America August Chip-Gear Orders Fall 1.1% vs. July. North American semiconductor equipment makers posted $1.82 billion in average worldwide bookings in August, down 1.1 percent from July, its first fall since October 2009.
• TI(TXN) Plans $7.5 Billion Buyback, Raises Dividend. Shares in Texas Instruments (TXN) rose 3.5 percent after the company said on Thursday that it had authorized a buyback of $7.5 billion worth of its stock and was increasing its dividend by 8 percent.

Financial Times:

• Hedge Funds Hit by Yen Intervention. Japan’s surprise intervention in currency markets has caught some of the world’s largest hedge funds by surprise, with big names suffering sharp reversals as the yen tumbled. London-based hedge funds such as AHL, the $21bn fund run by the FTSE 100-listed Man Group, the $5bn Winton Capital Futures fund and the $1bn Aspect Diversified fund all suffered on their bullish yen positions, according to people familiar with the funds’ performances. All three funds use computer models to automatically spot and ride market trends, making them vulnerable to unexpected events including surprise action by governments and central banks. Other funds understood to have been hit by the intervention include several large global macro hedge funds and currency trading specialists.
• US Banks Braced for Further Bad News. Big US banks are nearing the end of another disappointing quarter for their trading businesses that has deepened fears over job losses on Wall Street. The first two weeks of September failed to deliver a meaningful pick-up in trading activity on markets, hitting bank profits at a time when they are already under pressure from a sluggish economy. Analysts’ expectations have started to reflect the more difficult conditions. The average earnings estimate for Goldman and Morgan Stanley have each slipped 2 cents a share in the past month, according to data compiled by Bloomberg. “The third quarter is shaping up to be another very slow period for client activity across most markets,” Richard Staite, an analyst with Atlantic Equities, wrote in a client note this month as he slashed his earnings estimates on Goldman and Morgan Stanley. “July and August were particularly weak and September is unlikely to make up for the shortfall.” A surge in bond market volume, as measured by Finra’s Trace data, has not materialised. Daily trading on the New York Stock Exchange has slowed since late August. In a presentation to investors this week, Jamie Dimon, JPMorgan chief executive, said trading “has been fairly stable for us”, and “not that dissimilar” to the second quarter, when the bank reported a drop in revenue from a year earlier. Senior bankers said the third-quarter showing, coming after poor trading results in the previous three months, underlined how the boom of a year ago was unlikely to be repeated. At the time, banks capitalised on pent-up investor demand following the crisis and higher prices due to less competition.
• Impact of Bank Rules Likely to be 30% Tougher. The full impact of the new global bank capital rules announced at the weekend is likely to be 30 per cent tougher than the headline ratio suggests, according to regulators and industry participants who have studied private banking data. The data submitted to the committee suggest the real impact of the change could be equivalent to raising the minimum capital requirement from 2 per cent to 10 per cent for many banks. The deductions are likely to cut many banks’ equity totals by between 30 per cent and 40 per cent, according to people who have seen the data. That compares with estimates of 10-15 per cent projected by many banking analysts based on publicly available data. The difference lies in the fact that many banks do not break out some statistics critical for calculating the full impact of the deductions. Most big international banks can meet the 8 per cent standard with relative ease, but an effective 10 per cent ratio is much more of a stretch for some institutions. “The deductions are definitely the iceberg here. The impact is going to vary colossally from country to country and bank to bank,” said Bob Penn, attorney at Allen & Overy, who has not seen the data.

Telegraph:

• US-China Clash Over Yuan Escalates, Risking Superpower Stand-Off. US Treasury Secretary Tim Geithner has issued his harshest attack to date on China’s currency policy, the latest move in an escalating superpower clash across the gamut of commercial and strategic relations.

Yonhap News Agency:

• U.S. Not to Accept North Korea as Nuke Weapons Power: Campbell. The United States Thursday reiterated it will not accept North Korea as a nuclear weapons state, urging the North to cease provocations and abide by its denuclearization pledge.
  

The Standard:

• Weak Tone to Grip Hong Kong Exports. The SAR's export growth momentum is slowing, the Hong Kong Trade Development Council said after the export index for the third quarter fell for the first time in 1 year. The index - which reflects the city's confidence in export prospects - dropped to 56.2 in the third quarter, from 59.1 in the previous quarter. "The decline in export confidence was mainly due to rising labor costs in the mainland and weak spending in the United States and Japan," said Edward Leung, TDC chief economist. He warned export growth in the fourth quarter is likely to be the slowest this year. A TDC survey last month found that 79 percent of 500 traders polled raised wages in the previous three months - nearly half of them by more than 10 percent. To offset cost hikes, 64 percent of local manufacturers boosted their average selling price, while 54 percent rejected orders.

Securities Daily:

• People's Bank of China may raise interest rates after consumer prices rise more than 3 for at least three months, citing a person familiar with the situation.

Edaily:

• Samsung Electronics Co. Chairman Lee Kun Hee said he's concerned about possible weakness in the chip and liquid-crystal display industry next year, he said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (STZ), target $21.
• Reiterated Buy on (M), target $33.

Piper Jaffray:

• Rated (PWR) Overweight, target $24.

Night Trading

• Asian equity indices are unch. to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 117.5 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 113.25 unch.
  
• S&P 500 futures +.37%.
  
• NASDAQ 100 futures +.51%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• The Consumer Price Index for August is estimated to rise +.3% versus a +.3% gain in July.
• The CPI Ex Food & Energy for August is estimated to rise +.1% versus a +.1% gain in July.

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence is estimated to rise to 70.0 versus a reading of 68.9 in August.
  

Upcoming Splits

• (SXCI) 2-for-1
  

Other Potential Market Movers

• The (AGP) Analyst Meeting and the Stifel Nicolaus Healthcare Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.