Sunday, September 19, 2010

Monday Watch

Posted by Gary .....at 11:46 PM

Weekend Headlines
Bloomberg:
  • Fed Will Retain Policy on Assets, Low-Rate Pledge, Survey Shows. The Federal Reserve next week is likely to affirm its pledge to keep interest rates low for an “extended period” and maintain the floor on its holdings of securities, say economists surveyed by Bloomberg News. The Fed’s Open Market Committee at its Sept. 21 meeting will hold off from expanding the balance sheet by purchasing securities, according to 60 of 64 analysts surveyed Sept. 16-17. Fifty-four of 63 economists said the Fed will leave unchanged a sentence saying high unemployment and low inflation warrant “exceptionally low” rates for an “extended period.” The survey indicates that even with the economy slowing for two quarters and unemployment persisting at 9.5 percent or higher for the past year, Fed Chairman Ben S. Bernanke may need more time to decide if additional stimulus is needed to support a rebound in growth. A few respondents said the Fed may say next week it’s prepared to take action as needed.
  • German Banks Need $60 Billion in Capital to Meet Basel Rules, Spiegel Says. Germany’s 10 biggest banks need about 50 billion euros ($60.3 billion) in additional capital to meet the Basel Committee’s stricter capital rules, Der Spiegel reported, citing a confidential Bundesbank study. Banks examined in the German central bank’s study include Deutsche Bank AG, Commerzbank AG and state banks such as WestLB AG, Landesbank Baden-Wuerttemberg and Bayerische Landesbank, the weekly magazine reported in an advance copy of an article for its Sept. 20 edition. The study concluded that, based on historical data, the banks could come up with “somewhat more than 40 billion euros” through 2019 by retaining profit and raising capital, Der Spiegel said. The gap would have to be financed from other sources, placing particular strain on the Landesbank state banks, the magazine said.
  • Oil Trades Near Lowest in Almost Three Weeks on Economic Recovery Concerns. Oil traded near its lowest in almost three weeks after falling amid speculation the U.S. economic recovery is slowing, reducing fuel use in the world’s biggest crude consumer. U.S. gasoline consumption in August averaged 9.23 million barrels a day, down from 9.3 million in August 2009, the American Petroleum Institute said. The October contract traded at $73.55 a barrel, down 11 cents, in electronic trading on the New York Mercantile Exchange at 9:53 a.m. Sydney time.
  • Gillard's Dollar Peaking as Tax Proves Aussie 27% Overvalued. Australia’s dollar, this quarter’s best performing major currency, is now the most overvalued. Purchasing power parity, a measure of the cost of goods relative to other countries, shows the so-called Aussie is 27 percent too expensive, according to data compiled by Bloomberg. The median estimate of strategists and economists is for it to weaken 6 percent by year-end, the fourth-worst performance of 31 currencies tracked by Bloomberg. While Australia’s dollar has soared 11.4 percent since June, benefitting from its ties to China’s economy, traders speculate new Prime Minister Julia Gillard’s planned tax on mining companies will damp demand for the nation’s assets at the same time global economic growth decelerates. “If I were to pick a currency to have my money in for the next month, it would be Australia’s, but after a month I’d pick something else, like the U.S.,” said John Taylor, who oversees about $9 billion as chairman of FX Concepts LLC in New York.
  • NYSE, Nasdaq Plan to End Market Maker Stub Quotes Blamed in May 6 Crash. NYSE Euronext, Nasdaq OMX Group Inc. and Bats Global Markets sought permission from regulators yesterday to eliminate stub quotes, or bids and offers as low as pennies or as high as thousands of dollars provided by market makers that were blamed for worsening the May 6 crash.
  • Escaping Double Dip to Growth Recession Means No Job Relief. Federal Reserve Chairman Ben S. Bernanke pulled out all the stops to avert a depression last year. Now he and his colleagues must decide how to respond to the risk of a growth recession in 2011. The possibility of a sub-par expansion poses a dilemma for the central bank’s policy-making Federal Open Market Committee when it meets tomorrow. While the economy isn’t so weak that it’s clearly in need of more monetary stimulus, it may not be strong enough to keep unemployment from increasing.
  • UBS's Asia Hedge Fund Clients Raise Short Bets 30% on Mixed Economic Signs. UBS AG’s hedge fund clients in Asia have increased short bets on stocks three times as fast as their long holdings this year amid conflicting views about the global economic recovery. Outstanding stock shorts of local and global hedge funds trading in Asia have grown by 30 percent in 2010 and their long holdings have expanded by about 10 percent, said Lynden Howie, the largest Swiss bank’s head of equity finance in the region.
Wall Street Journal:
  • GOP Aims to Erode White House Agenda. Preparing for a Potential Congressional Majority, Republican Leaders Say Repeal of Health-Care Law Tops Their Priorities. Eyeing a potential Congressional win in November, House Republicans are planning to chip away at the White House's legislative agenda—in particular the health-care law—by depriving the programs of cash. The emerging plan has been devised in part to highlight the policy differences between the two main parties, especially over legislative achievements of the Obama administration that have proven unpopular with voters.
  • New Fed Rules Are Being Questioned. J.P. Morgan Chase & Co.(JPM) Chief Executive James Dimon, already frustrated with some aspects in the Dodd-Frank law, is questioning whether the Federal Reserve Bank of New York's implementation of a provision will allow him to perform his duties on the Fed board. The issue came to a head Thursday, when Mr. Dimon raised the issue at a New York Fed board meeting, said people with knowledge of the meeting. Mr. Dimon and other bank representatives on the board could end up resigning, though the issue remains unresolved, these people said.
  • The Slow Death of Fund of Funds. The fund of hedge funds industry is facing a slow death as investors bypass their services in favour of investing directly in hedge funds. Investors have turned their backs on funds of funds and their extra layer of fees. John Casey, co-founder of management consultant Casey Quirk and an adviser to the asset management industry for more than four decades, said: "It is the end of an era for fund of funds managers." Funds of hedge funds' assets under management have fallen by almost a third since 2007, while direct investment in hedge funds has grown 1%.
  • Shaping Ads for Web-Connected TV. Technology companies racing to deliver video to the living room over the Web are exploring the idea of offering ads on their services, seeking to capture some of the billions of ad dollars that flow to television.
  • Bond Markets Get Riskier. Demand for High-Yield Junk Bonds Boosts Prices; Investor Protections Decline. Last week, prices on high-yield, or junk, bonds hit their highest level since 2007, nearly double their lows of the credit crisis. Nine months into the year, companies have sold $172 billion in junk bonds, already an annual record, according to data provider Dealogic. To some extent, the bull case for junk bonds is based on a declining rate of corporate defaults lately and a belief that, as long as the economy doesn't relapse into recession, default rates will continue to decline.
  • Republicans Gain Ground Among Independents by Douglas E. Schoen and Heather R. Higgins. A new comprehensive national survey shows that independent voters—who voted for Barack Obama by a 52%-to-44% margin in the 2008 presidential election—are now moving strongly in the direction of the Republican Party. The survey, conducted by Douglas E. Schoen LLC on behalf of Independent Women's Voice in late August, raises the possibility of a fundamental realignment of independent voters and the dominance of a more conservative electorate. Today, independents say they lean more toward the Republican Party than the Democratic Party, 50% to 25%, and that the Republican Party is closer to their views by 52% to 30%.
CNBC:
IBD:
NY Times:
CNNMoney:
Business Insider:
Zero Hedge:
EETimes:
  • Regulations Rise As Venture Capitalists Exit Health Care. Medical electronics companies face increasing hurdles getting funding and regulatory approval to bring new technologies to market, according to executives at a medical device event here. "We're in a bit of a perfect storm right now with some of the worst things I've seen in 30 years," said Eamonn Hobbs, chief executive of DelCath Systems and chairman of the Medical Device Manufacturers Association (MDMA), host of the event. As many as three-quarters of venture capitalists are exiting the health care field as the total pool of venture capital decreases and regulatory hurdles increase, said Kevin Wasserstein, managing director of Versant Ventures (Menlo Park, Calif.) which focuses on health care."Even entrepreneurs have started to retreat from pursing big ideas [in health care], and we risk as an industry evolving to incrementalism and safer projects," said Wasserstein.
PIMCO:
Washington Post:
  • As Midterms Approach, Democrats Are Reaching Out to Black Voters. One thing is for sure this election year for many Democrats: They are not making it about President Obama. The man who was so popular two years ago is not in their stump speeches and certainly not in their ads. If he shows up in town, they happen to have a prior commitment. Some even boast of opposing him. But there is one group for whom Democrats want to make it all about Obama: African Americans. In the past week, party leaders launched a drive to stoke enthusiasm among black voters, dusting off the president's 2008 campaign logo, lingo and grass-roots strategy to get them to the polls in November. The party has backed a $2 million ad buy targeted at urban newspapers and radio stations with a simple message: "Stand With President Obama. Vote November 2."
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
Politico:
  • Colin Powell Critical of President Obama. Former Secretary of State Colin Powell, who endorsed Democrat Barack Obama for president in 2008 despite serving three Republican presidents, said Sunday that Obama needs to change his approach in the White House because voters are feeling overwhelmed by sweeping new laws that expand the scope of government. “The president also has to ... shift the way in which he has been doing things,” Powell said on NBC’s “Meet the Press.” “The American people feel that too many programs have come down. There are so many rocks in our knapsack now that we’re having trouble carrying it.”
AP:
  • Twin Baghdad Car Bombs Kill 31, Wound Dozens. Two car bombs exploded in Baghdad Sunday morning, killing at least 31 people, breaking what has been a period of relative calm since the end of the Muslim holy month of Ramadan. The biggest blasts in the Iraqi capital in a month occurred as commuters were starting their work week, underlining the challenges facing Iraqi security officials in stabilizing Baghdad as the U.S. forces end combat operations and Iraq's police and military assume responsibility for protecting the capital.
Financial Times:
  • ECB Intervenes in Irish Bond Markets. The European Central Bank intervened to stabilise the Irish bond markets on Friday after a report by a leading UK bank triggered investor fears that the country might turn to the international community for a multibillion-euro bail-out. The renewed bout of jitters sparked a half a percentage point jump in two-year Irish bond yields and pushed 10-year yields and the cost of insuring the country’s debt against default to record highs. Although investors said Dublin would only need financial help in the event of more unexpected banking losses and a deterioration of its economy, the Irish sell-off highlighted the continued fragility of eurozone bond markets. Traders said the intervention by the ECB was small – in the tens of millions of euros but the report by Barclays Capital still prompted the International Monetary Fund to state it did not envision that Ireland would need financial assistance. The Irish government will test investor sentiment on Tuesday with an auction of four-year and eight-year bonds that bankers warn could see the country having to pay high yields to attract demand. Domenico Crapanzano, head of euro rates trading at Jefferies, said: “There are just no buyers out there for Ireland because of worries over its banks and economy. Ireland and also Portugal are very much the worry for investors.” Irish two-year bond yields rose half a percentage point to 3.54 per cent, while 10-year bond yields jumped to 6.17 per cent a record high since the launch of the eurozone in January 1999.
  • EU Hedge Fund Plans Under Fire. New proposals to regulate hedge funds and private equity funds in Europe could be a “catastrophe” for the venture capital sector, industry figures warn. The concerns stem from a move by Belgian diplomats to break the deadlock that has surrounded the proposals since summer. Belgium holds the rotating EU presidency and is spearheading compromise talks between member states and the European Parliament, both of which must approve the rules, which would regulate hedge funds and private equity funds on a pan-European basis for the first time. As part of this process, it is being suggested that managers of funds under €500m ($652m, £417m), which are not seen to pose a systemic threat to financial markets, should be exempted from the rules. But, paradoxically, the European Private Equity and Venture Capital Association is strongly opposed to an exemption based on size alone, saying it would cut across the sector’s ability to raise funds internationally. “Small funds invest in local innovative businesses but must raise money worldwide from institutional investors who will demand compliance with the EU directive,” says Uli Fricke, EVCA chair. She argues that, as a result, a blanket exemption would either force venture funds to voluntarily opt into the burden of full compliance with new directive or cut their scope for international capital raising.
  • Greek Bank Stress Tests Delayed. The international community has postponed bank stress tests for Greece to give the country breathing space as Athens prepares to test the success of its European roadshow last week by raising more money in the capital markets. The so-called “troika” – the International Monetary Fund, European Commission and European Central Bank – has agreed with Greece’s central bank to delay testing the solvency of the country’s struggling bank sector by one month to the end of October. The delay means that the banks’ nine-month results could be assessed, as well as the outcome of a €1.7bn capital raising by National Bank of Greece, the country’s largest lender, which is due to be completed next month. A short-term auction of three-month bills on Tuesday will test whether the Greeks and troika officials have made any headway in convincing overseas investors that they should buy the country’s debt. One investor said of the meeting in London on Wednesday last week: “The IMF official was particularly impressive and convincing, although there are still big question marks over whether Athens can avoid defaulting on their bonds.”
Telegraph:
  • New Fears Over UK Bank Break-Ups. The Government inquiry into UK banks is to go much further than the issue of splitting the banks apart and look at the lack of competition in the retail sector.
Expresso:
  • Portugal's government plans to provide an outline of the 2011 budget proposal earlier than normal to reassure investors of its commitment to meet deficit targets. The outline may be issued as early as this week. The government normally announces budget proposals in October.
Irish Times:
  • Irish Bank Bailout May Cost EU 40 Billion, Ex-NTMA Head Says. Michael Somers, former chief executive officer of Ireland's National Treasury Management Agency, said the cost of bailing out the country's banks could reach 40 billion euros ($52 billion). "We have an immediate problem that we have got to get out of," Somers is quoted as saying. The Irish government so far has injected almost 33 billion euros into banks and building societies, with two-thirds of that going to Anglo Irish Bank Corp.
Business Line:
The Standard:
  • China banks' capital-adequacy ratios may need to exceed requirements set by the Basel committee for them to control risks better, Guo Shuqing, chairman of the China Construction Bank Corp, said.
Weekend Recommendations
Barron's:
  • Made positive comments on (AMTD), (ITT) and (LOV).
  • Made negative comments on (OPEN) and (LOGM).
Night Trading
  • Asian indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 125.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 110.50 -2.75 basis points.
  • S&P 500 futures +.05%.
  • NASDAQ 100 futures +.05%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (DFS)/.38
Economic Releases
10:00 am EST
  • The NAHB Housing Market Index for September is estimated to rise to 14 versus a reading of 13 in August.
Upcoming Splits
  • (SXCI) 2-for-1
Other Potential Market Movers
  • The UBS Life Sciences Conference and (CBST) Investor Day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and commodity 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 week.

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