Evening Headlines
Bloomberg:
- Junk Sets October Record, Mortgage Bonds Rally: Credit Markets. Sales of junk bonds in the U.S. set a record for October as returns topped investment-grade debt and more borrowers were raised than cut. Government-backed mortgage bonds may beat Treasuries by the most in at least 10 years.
- Irish, Spanish Banks Failing to Kick ECB Habit: Euro Credit. Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds. Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. Overall, the region’s banks cut their funding to 514.1 billion euros ($716 billion), the least since Lehman Brothers Holdings Inc.’s collapse in September 2008, according to ECB figures. “The ECB is going to have to support these smaller banks for many years to come,” said Simon Maughan, an analyst at MF Global Ltd. in London, who has tracked the industry for more than 15 years. “The ECB has to keep these banks alive and hope and pray that the local regulators force them to restructure and make them profitable again.”
- Potash(POT) in 'Active' Talks on Alternatives to BHP's(BHP) Bid. Potash Corp. of Saskatchewan Inc. Chief Executive Officer Bill Doyle said anyone who thinks BHP Billiton Ltd. will be the only qualified bidder for the Canadian fertilizer maker should “be patient.” Potash Corp. is engaged in “very active conversations” about alternatives to BHP’s $40 billion hostile offer and is pursuing “all options,” Doyle said yesterday from Potash Corp. offices in Saskatoon, Saskatchewan. “I laugh when I see people presume or assume a certain outcome,” Doyle said in a telephone interview. “I just say, ‘Please be patient.’” He declined to elaborate.
- Southwest(LUV) Sees Atlanta as Its Largest City on AirTran(AAI) Deal. Atlanta, home to the world’s busiest airport, may become Southwest Airlines Co.’s largest city in the coming years when the low-fare carrier buys AirTran Holdings Inc., an executive said. AirTran has 202 daily departures from Atlanta, and Southwest may “do well north of that,” Bob Jordan, Southwest’s executive vice president for strategy and planning, said today at a media event at the carrier’s Dallas headquarters.
- EU Bows to Germany's Call for Permanent Debt Mechanism, Snubs Vote Curbs. German Chancellor Angela Merkel won European Union backing for a rewrite of EU treaties to create a permanent debt-crisis mechanism by 2013 to prevent a repeat of the Greece-led shock that jolted the euro. At a summit in Brussels, Merkel made less headway with calls to bar high-deficit countries from voting on EU decisions, dramatizing the limits of Germany’s power over the 27-nation bloc. “All agreed that there has to be a permanent crisis mechanism,” Merkel told reporters early today after the summit’s first session. “All agreed that a limited treaty change will be necessary.”
- Japan Output Slide, Deeper Deflation Are 'Negative Surprise' for Economy. Japanese factory production slumped by more than double the pace economists forecast and deflation deepened in September, adding to signs that a stronger yen is causing the economy’s expansion to lose momentum. Industrial output fell 1.9 percent in September from August and core consumer prices declined 1.1 percent from a year earlier after a 1 percent drop in August, government reports showed today in Tokyo. The median forecast of 27 economists surveyed by Bloomberg News was for output to drop 0.6 percent. Companies plan deeper cuts in production this month, a survey released in today’s report showed, as a slowing global expansion and the yen’s surge to a 15-year high against the dollar are prompting companies to scale back. “This was a real negative surprise,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “It’s highly likely that Japan’s economy will contract in the current quarter.”
- Samsung Third-Quarter Profit Rises as Chip Sales Gain. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, said third-quarter profit increased 17 percent to a record, driven by gains in sales of computer-memory chips. Net income climbed to 4.46 trillion won ($4 billion), the Suwon, South-Korea based company said in a statement today. The average of 10 analyst estimates compiled by Bloomberg was 4.5 trillion won. Sales increased 12 percent to 40.2 trillion won, in line with a preliminary earnings estimate on Oct. 7.
- Sengoku Says No Sign China Has Resumed Exports of Rare-Earth Minerals. Japan said it has no evidence China resumed exports of rare-earth metals, which were disrupted last month during a territorial dispute that soured relations between Asia’s two largest economies. “As of yesterday, there is no information about new cargo movements,” Chief Cabinet Secretary Yoshito Sengoku told reporters in Tokyo. “The Japanese government intends to use every opportunity to ask China to improve the situation regarding export restrictions.”
- Clinton Asked Democrat to Quit Florida Senate Race. Former President Bill Clinton tried to persuade Florida Democratic Rep. Kendrick Meek to drop out of his U.S. Senate race and support Gov. Charlie Crist's independent candidacy in hopes of thwarting a victory by Republican Marco Rubio. People familiar with the matter said the former president and other top national Democrats worry a win by the charismatic Mr. Rubio, a 39-year-old Cuban-American, would make him a political phenomenon capable of boosting the GOP's chances with Hispanic voters.
- The Tax Me More State. Two initiatives that would further punish California. The Tax Foundation announced this week that California has the second worst business tax climate of the 50 states, with only New York more hostile to employers. Congratulations, but it gets worse. If a pair of ballot measures pass next week, the Golden State could soon take the tax lead and make even Albany look like Hong Kong. Proposition 24 would raise $1.3 billion of new taxes on businesses, while Proposition 25 would allow the state legislature to pass budgets and tax increases with a simple majority vote, instead of the current mandated two-thirds supermajority.
- Prop 23 and the Green Jobs Myth. Californians could protect a million or so jobs by overturning the state's self-imposed carbon dioxide limits.
- Tokyo Hit by Claims of Insider Trading. Japan’s financial regulator and the Tokyo Stock Exchange are investigating recent trading activity following allegations of widespread insider trading ahead of new share issues by Japanese companies.
- Microsoft(MSFT) Earnings, Revenue Easily Beat Estimates. Microsoft shares popped in late trading Thursday as the company turned in a profit and sales that both topped Street targets, helped by higher sales of its flagship Windows and Office software and the launch of the latest blockbuster Halo video game. The world's biggest software company said it earned $5.4 billion, or 62 cents a share in its fiscal first quarter, up 51 percent from $3.6 billion, or 40 cents a share last year. Sales for the most recent quarter jumped to $16.2 billion, from $12.92 billion last year. Wall Street analysts who monitor Microsoft estimated on average that the Redmond, Wash., company would report a profit of 55 cents a share on sales of $15.8 billion, according to data accumulated by Thomson Reuters.Shares of Microsoft were changing hands about 2 percent higher in extended trading Thursday.
- Roubini: The Obama Presidency is Heading for a Fiscal Trainwreck. The risk, however, is that something on the fiscal side will snap, and the bond vigilantes will wake up. The trigger could be a debt rollover crisis in a major US state government, or perhaps even the realization that congressional gridlock means bipartisan solutions to our medium-term fiscal crisis is mission impossible. Only then will our politicians suddenly remember that, on top of our federal debt, the US suffers from unfunded social security and Medicare liabilities, state and local government debt, and public pension bills that add up to many multiples of US GDP.
- What Percentage of U.S. Equity Trades Are High Frequency Trades?
- Exclusive: 4 Dealers Respond With "$1+ Trillion" to Fed Reverse Inquiry into How Much QE2 is Necessary.
- Debt Fuels Private Equity Revival. and the demonstrated on Thursday that the industry is thriving amid a weak economy — but they did so in nearly opposing ways.
- It's Time to Pardon Carbon. CO-2's Bad Rep Is Undeserved. It's high time we recognize that carbon dioxide has been treated unfairly. Not only have the good deeds of that wonderful molecule so essential to rain forests, begonias and plants that feed God's creatures been ignored, it has even come to be demonized as an endangering pollutant and climate-ravaging menace. What real evidence has been offered up to support these defamatory charges? Absolutely none.
- Why Everybody Should Pray The Foreclosure Bans End.
- The Fed's 'Tax on the Consumer'. Investors have been cheering about the prospect of the Federal Reserve pumping more money into the economy, but some experts warn that move may wind up hurting consumers' wallets. Since Bernanke's comments in August, the dollar index has dropped 7%, while commodities -- which are priced in dollars -- have surged. Crude oil has jumped 14%, while gold has spiked 8%. Prices for cotton, corn, sugar, wheat and coffee also have all hit new highs during the past two months. Ultimately, those lofty prices will trickle down to consumers in the form of higher prices for coffee, bread, pizza, gas, clothing and more. "The problem I have with QE2, is it behaves like a tax on the consumer," said David Giroux, a fund manager at T. Rowe Price. "People want to believe it's a free lunch for the economy, but it's definitely not. Next year, we're going to be paying more at the gas pump and the grocery store." American households already spend $340 billion a year on gasoline, according to U.S. economist Paul Dales of Capital Economics. Since late August, the price of a gallon of gas has jumped 4.8%. All it would take is another 10% increase, and the average cost per gallon would rise above $3, adding $51 billion a year to your household tab, he said. Even a modest 5% rise in food prices would force a family to add about $350 a year to their grocery budget.
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
- Tech Start-Ups Like Facebook, Twitter Aren't Eager for IPOs. "Today, it is easier to be a private company than a public one." Public companies "have become enslaved by the expectations of analysts and shareholders," he says.
Reuters:
- First Solar(FSLR) Profit Up, But Margins Weaken. First Solar (FSLR), the top photovoltaic solar maker, posted a 16 percent increase in third-quarter profit and raised its full-year profit forecast, but weaker margins and rising costs pushed its shares down more than 6 percent.
- Monster(MWW) Raises FY Outlook on Strong Bookings, Shares Up. Monster Worldwide Inc, which runs the Monster and HotJobs recruiting websites, raised its full-year outlook on strong bookings as economies around the world showed signs of improvement, sending its shares up 10 percent in extended trade.
- Coinstar(CSTR) Up on Redbox DVD Growth, Outlook. Coinstar Inc, the electronic kiosk company, raised its full-year outlook on Thursday after posting a big jump in sales at its DVD rental unit Redbox, sending its shares up more than 10 percent after the market's close.
- UGG Sales Boost Deckers(DECK) Q3; Co Ups FY View. UGG boots maker Deckers Outdoor Corp topped third-quarter estimates on Thursday as demand for its popular sheepskin boots remained strong, prompting the company to raise its full-year outlook. Shares of the company rose 6 percent after market.
- BMC Software(BMC) Q2 Profit Tops Street, Ups 2010 View. Business software maker BMC Software Inc posted quarterly results above Wall Street expectations, helped by strong bookings, and raised its profit outlook for 2010. The Houston, Texas-based company's shares were up 3 percent at $45.15 in extended trade.
- Maxim Integrated(MXIM) Q1 Tops Street View, Sees Strong Q2. Chipmaker Maxim Integrated Products Inc posted first-quarter results above Wall Street expectations, helped by design wins and continued demand, and forecast a strong second quarter. Shares of the company were up 6 percent at $20.85 in extended trade.
The Economist:
- Labor and the Left. The president has done little to change his party's relationship with organized labor. And that is because the Democrats, more so than ever perhaps, are dependent on union support. On top of the hefty financial backing the unions are providing, a recent Pew study showed that, unlike independents, unions are holding firm in their support for the Democrats. But the favorability rating of unions has fallen sharply in recent years, especially among independents (dropping from 54% in 2007 to 38% this year), and the public's appetite for smaller, more efficient government has grown quite large. Bad policy is turning into bad politics, which may finally compel the Democrats to change the tenor of their dealings with the unions at both the state and federal level. Unions, facing alternatives like Mr Christie, might also be more amenable to compromise. Or perhaps this all just so much wishful thinking. Regardless, as Mr DiSalvo notes, even the recent state efforts to cut union pensions and limit benefits "deal only with the symptoms of the looming state fiscal crisis—not with its underlying causes." It may take a state default before the very existence of public-sector unions is debated more vigorously.
- China may introduce a stockpiling system for rare-earth metals nationwide after a successful test by Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., citing people close to the Ministry of Land and Resources. Accumulating reserves has made prices easier to maintain through control of supply.
- Chinese banks effectively raised lending rates by cutting mortgage rate discounts for first homes to 85%, from 70%, citing bankers.
- China is preparing to classify molybdenum as a so called national mining resource to limit the mining of the minor metal starting next year.
- China may set new requirements for banks within two years as part of the nation's "macro prudent policy," citing a person familiar with the situation. The requirements may involve banks' capital adequacy ratio, provision coverage ratio, leverage ratio and liquidity ratio.
- Preventing inflation should be made the Chinese government's top priority, Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary. Credit expansion has continued this year on a "a large scale," fueling excess liquidity, Yi wrote. That's led to increases in property prices and will "inevitably" also fuel gains in consumer prices, Yi wrote.
Citigroup:
- Upgraded (CPO) to Buy, target $51 .
- Reiterated Buy on (LEA), target $105.
- Reiterated Buy on (NIHD), target $55.
- Asian equity indices are -1.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 104.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 97.0 +1.25 basis points.
- S&P 500 futures -.31%
- NASDAQ 100 futures -.21%.
Earnings of Note
Company/Estimate
- (AXL)/.39
- (ACI)/.37
- (B)/.28
- (CVX)/2.15
- (CI)/1.06
- (CMC)/.09
- (CEG)/.64
- (D)/1.07
- (EL)/.77
- (ITT)/.99
- (MRK)/.82
- (QSII)/.49
- (COL)/.94
- (SNE)/.06
- (WY)/.10
8:30 am EST
- Advance 3Q GDP is estimated to rise +2.0% versus a +1.7% gain in 2Q.
- Advance 3Q Personal Consumption is estimated to rise +2.5% versus a +2.2% gain in 2Q.
- Advance 3Q GDP Price Index is estimated to rise +1.8% versus a +1.9% gain in 2Q.
- Advance 3Q Core PCE is estimated to rise +1.0% versus a +1.0% gain in 2Q.
- The Employment Cost Index for 3Q is estimated to rise +.5% versus a +.5% gain in 2Q.
- The Chicago Purchasing Manager for October is estimated to fall to 58.0 versus a reading of 60.4 in September.
- Final Univ. of Mich. Consumer Confidence for October is estimated to rise to 68.0 versus a reading of 67.9 in September.
- None of note
- The Bloomberg FCI Monthly and the NAPM-Milwaukee could also impact trading today.
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