Monday, October 18, 2010

Monday Watch

Posted by Gary .....at 12:14 AM

Weekend Headlines
Bloomberg:
  • Yields on 30-Year Treasuries Rise Most in 14 Months on Inflation Prospects. Treasury 30-year bonds tumbled, pushing yields to the biggest weekly increase since August 2009, on speculation that Federal Reserve efforts to spur the economy will reignite inflation.
  • ECB's Trichet Rejects Weber's Call to End Bond Purchase Program. European Central Bank President Jean-Claude Trichet rejected Bundesbank President Axel Weber’s call to end the bond purchase program that has provided a lifeline for European governments and banks trying to shore up their finances. “This is not the position of the Governing Council, with an overwhelming majority,” Trichet said when asked to respond to Weber’s Oct. 13 call for an end to the program, according to the a transcript of an interview published yesterday in Italian newspaper La Stampa. “Trichet is sending a clear signal to Weber,” said Carsten Brzeski, an economist at ING Group NV in Brussels. “The majority seems to favor a safety belt option for the moment and isn’t comfortable with sending conflicting signals to the markets.”
  • Gold Declines for Second Day as Dollar's Increase Curbs Investment Demand. Gold declined for a second day, after reaching a record last week, as a strengthening dollar eased demand for the metal as an alternative investment. Bullion for immediate delivery dropped 0.6 percent to $1,360.75 an ounce at 12:02 p.m. Melbourne time.
  • BHP(BHP), Rio(RIO) Drop Iron Ore Venture as Regulators Oppose. BHP Billiton Ltd. and Rio Tinto Group abandoned a plan to create the world’s largest iron-ore exporter after opposition from regulators in Europe and Asia. “It has become increasingly apparent that regulatory approvals of the joint venture are unlikely to be achieved,” Melbourne-based BHP said today in a statement.
  • Rare Earths Deposits in China Forecast to Last 15-20 Years, Ministry Says. China’s medium and heavy rare earths reserves may last 15 years to 20 years at the current rate of production, possibly requiring imports, the Ministry of Commerce said today. Domestic rare earths deposits dropped to 27 million metric tons by the end of 2009, or just 30 percent of the world’s total known reserves, from 43 million tons, or 43 percent of the world total, in 1996, Chao Ning, section chief of foreign trade at the ministry said at a Beijing conference.
  • Guangzhou Limits New Home Purchases to One Unit a Household, Bureau Says. China’s southern city of Guangzhou limited new home purchases to one unit for each household, joining eight cities that have issued buying rules in an effort to curb property speculation in the country. The city also banned home purchases from non-Guangzhou residents who haven’t lived in the city for a full year, the Guangzhou Land Resources and House Management Bureau said in a statement posted on its website yesterday. “The government will firmly curb unreasonable home purchases demand and strictly limit speculation in property market,” the bureau said, adding that the new measures are aimed at “restraining the over-rapid growth of property prices.” The cities of Beijing, Shanghai, Shenzhen, Hangzhou, Nanjing, Ningbo, Fuzhou and Xiamen have already issued rules limiting the number of new homes that households can buy. China’s government has called for restrictions on the number of new home purchases by a household in cities with high property prices and tight supply. The central government will talk to local governments who fail to stabilize prices, according to a report from the Ministry of Land and Resources’ newspaper posted on the ministry’s website. China’s Ministry of Housing and Urban-Rural Development also warned home buyers against economic and legal risks if they purchase more new homes allowed under local government limits. Newly bought homes that exceed the limits won’t receive government registration, it said in a statement on its website yesterday. China Securities Regulatory Commission said yesterday it will suspend property developers’ restructuring plans in a move to support the State Council’s decision in April to curb rising residential prices.
  • French Refineries Shut for Fifth Day Amid Protests on Pension-Age Increase. France’s 12 oil refineries remained shut as unions planned a fifth day of protests to try to force President Nicolas Sarkozy’s government to drop plans to raise the retirement age. “All the refineries are shut and they will stay shut until Sarkozy listens,” Eric Sellini, a representative of the CGT union, said today by telephone. “No crude is arriving, no refined products are leaving.” About 230 demonstrations are planned across France today. Government leaders have repeatedly said they won’t back down on raising the minimum retirement age to 62 from 60, saying it’s necessary to cut losses at the state retirement system. The lower National Assembly has already passed the measure, which also raises the age for a full pension to 67 from 65. The Senate is due to approve it on Oct. 20. Unions have called for another day of protests on Oct. 19, accompanied by the fourth national strike since September.
  • Iraq's Ayad Allawi Tells CNN Iran Funds, Directs Terrorism in Middle East. Iran is trying to destabilize Iraq and its neighbors, former Iraqi Prime Minister Ayad Allawi said on CNN’s “Fareed Zakaria GPS” program. Allawi, a secular Shiite whose political party won the largest bloc in March 7 elections, said Iraq’s stalled political process and its faltering economy are breeding extremism, according to a transcript of the program, scheduled to be broadcast today. “We know Iran is trying to wreak havoc on the region and trying to destabilize the region by destabilizing Iraq and destabilizing Lebanon and destabilizing the Palestinian issue,” Allawi said. “We are entering into a kind of vicious circle,” Allawi said on CNN. “The extreme forces are trying to sabotage the stability of the environment to create more scope for themselves to operate in.”
  • Business-Jet Rebound Delayed by Economy, Honeywell(HON) Says. The business-jet industry’s recovery may take a year longer than forecast, picking up in late 2011 and accelerating in 2012, as companies defer purchases amid doubts about the economy, Honeywell International Inc. said.
  • Hedge Funds Cut Bullish Bets on Natural Gas to 2010 Low: Energy Markets. Hedge funds cut their bullish bets on natural gas to the lowest level this year as expanding stockpiles drove prices to a 13-month low. The funds and other large speculators cut wagers on rising prices by 36 percent in the seven days ended Oct. 12, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the third week of declines, bringing the reduction since Sept. 21 to 71 percent.
  • Cameron Aims to Outdo Thatcher as He Tackles U.K. Welfare State.
  • Morgan Stanley Reduces Weighting on Emerging Markets After Equities Surge. Investors should start to “scale back” their holdings of emerging-market stocks after a rally lifted valuations and as economic data points to a rising risk of a return to recession, Morgan Stanley said. The brokerage lowered its recommended “overweight” in developing-nation stocks to 4 percent from 6 percent and added to holdings of cash, Jonathan Garner wrote in a report today. Still, investors should reduce their holdings “gradually, rather than precipitately,” in part because of the outlook for liquidity and earnings, he said.
  • Obama's Foreclosure Inaction is Katrina Redux: Kevin Hassett.
Wall Street Journal:
  • Gleam Returns to Luxury-Goods Sales. In just a year, the luxury-goods industry has gone from bust to boom. Strong sales of bags, clothing and perfume during the crucial holiday season could boost the luxury-goods industry to near-record sales, according to a Bain & Co. study to be published Monday, as the sector rebounds from a 2009 decline that was the industry's worst since it began consolidating in the 1990s.
  • Corporate Market Ripe for Apple(AAPL). Apple Inc. will unveil Wednesday a new version of its computer operating software, a development that comes as the consumer-electronics giant makes a more aggressive move to expand in a market that has historically eluded it: corporate customers.
  • Facebook in Privacy Breach. Many of the most popular applications, or "apps," on the social-networking site Facebook Inc. have been transmitting identifying information—in effect, providing access to people's names and, in some cases, their friends' names—to dozens of advertising and Internet tracking companies, a Wall Street Journal investigation has found. The issue affects tens of millions of Facebook app users, including people who set their profiles to be completely private. The practice breaks Facebook's rules, and renews questions about its ability to keep identifiable information about its users' activities secure.
  • Ruling Imperils Sugar Production. U.S. sugar production will be cut by about 20% if farmers are banned from planting genetically modified beets next year, according to data prepared for the U.S. Department of Agriculture as part of a court case over whether to continue allowing the practice.
  • Pension Funds Flee Stocks in Search of Less-Risky Bets. After making the same kinds of investment blunders as many individuals, corporate pension funds now are seeking the same remedies: fleeing stocks for the perceived safety of bonds.
  • Boom in Emerging Markets Has Some Fearing Backlash. The Federal Reserve's latest effort to juice the U.S. economy is making many investors in emerging-market and commodity-producing nations confident the rally has longer to run. Others see trouble ahead, concerned too many investors are jumping into the rally and that these markets can't keep rising if the U.S. economy stays sluggish.
Bloomberg Businessweek:
  • Portugal Says Economic Growth Will Slow on Austerity. Portugal’s economy will barely expand next year as slowing growth in Europe and austerity measures to cut the euro-region’s fourth-biggest budget deficit choke the country’s economic recovery. The Finance Ministry said today the 2011 spending plan forecasts an expansion of 0.2 percent, down from the 0.5 percent it forecast in May.
Marketwatch.com:
CNBC:
  • Fast Yuan Rise Short-Lived as Surplus Will Peak: Chinese Media. The accelerated yuan appreciation of recent weeks will not last long because China's trade surplus will soon peak, an official state newspaper reported on Monday. An article in the overseas edition of the People's Daily said there had not been sufficient improvement in the economy at home or abroad to justify a speedy rise in the exchange rate.
IBD:
NY Times:
  • How Countrywide Covered the Cracks. ON June 27, 2006, Countrywide Financial, the nation’s largest mortgage lender, was about to close its books on a record-breaking six-month run. The housing market was on fire and Countrywide’s earnings were soaring. Despite all the euphoria inside the company, some executives noticed that Angelo R. Mozilo, the company’s brash and imperious chief executive, seemed subdued.
  • Japan Goes From Dynamic to Disheartened. Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes. But his living standards slowly crumbled along with Japan’s overall economy.
  • Banks Shared Clients' Profits, but Not Losses.
NY Post:
  • EMC(EMC) in Exclusive Talks to Buy Isilon(ISLN). EMC Corp. is in exclusive talks to buy computer-storage company Isilon for more than $2 billion, The Post has learned. "The deal will be done this year," a source close to the situation said. It's the latest big deal in the tech world, where few areas are hotter than computer storage.
  • Feds Can Remedy Mortgage Me$$. It's a house divided that may not stand. A large proportion of the "fraudclosure" mess may lie at the feet of Fed Chief Ben Bernanke and Treasury Secretary Tim Geithner. There is currently a multi-bank nationwide moratorium on foreclosures as the banks wrestle with the fact that there has been widespread use or misuse of "robo-signing," the signing of an affidavit or attesting to the factual correctness of what was purportedly verified without actually having read it. So those who invented small print didn't have the time or chose not to take the time to read it. To further complicate matters, the banks seemingly have trouble producing the mortgage notes they are foreclosing on. This is required by evidentiary procedures in court-sanctioned foreclosures. In many circumstances they are unable to verify the owner of the mortgage bond or are unable to produce the actual note. So they are attempting to foreclose without actual proof of ownership of the mortgages. It gets better -- or worse, depending on how you look at it. The most under-discussed point in this debate is note ownership. Guess who is the likely owner of many of these mortgages? The federal government, through those fine institutions Fannie Mae and Freddie Mac. These entities, recently acquired under Treasury as part of their conservatorship, along with Ginnie Mae, control and own roughly 60 percent of the $10.6 trillion mortgage market. Moreover, Fannie alone purchased some $423 billion in mortgage-related loans, as measured by unpaid principal balances during the first six months of this year alone. No wonder Geithner has been silent on the matter. If only the feds had incentivized the private market to participate, their problem would be much smaller. This is what happens when government takes over an industry.
Zero Hedge:
The Huffington Post:
  • Crime Pays: The SEC's Slap on the Wrist for Angelo Mozilo. Let's say a business leader makes hundreds of millions of dollars through criminal practices that end up wiping out the wealth of myriad homeowners and contributing to the biggest economic crisis in 70 years. Then, as punishment, he is forced to fork over $67.5 million -- and yet faces no prison time. Has justice been done? Well, if you listen to the SEC -- and plenty of media commentators, too -- the settlement just reached with former Countrywide CEO Angelo Mozilo was tough stuff.
LA Times:
  • SEC Investigating $70 Million in Bonds Issued by Bell. The Securities and Exchange Commission is the latest agency to investigate Bell, launching a probe into the sale of three city bonds totaling $70 million. The investigation comes after California state auditors raised questions about how the bond money was being used, including one involving a sports park that has yet to be built. The SEC has asked for documents involving nine current and former Bell leaders, according to the subpoena, a copy of which was obtained by The Times. The subpoena also requires them to testify before the SEC.
Hussman Funds:
  • The Recklessness of Quantitative Easing. To assess whether QE is likely to achieve its intended objectives, it would be helpful for the Fed's governors to remember the first rule of constrained optimization - relaxing a constraint only improves an outcome if the constraint is binding. In other words, removing a barrier allows you to move forward only if that particular barrier is the one that is holding you back.
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-five percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).
Politico:
  • Democrats on Health Reform: Let Us Fix It. Nervous Democrats are grasping for a new message on their party’s health care reform bill: Give us another shot, and we’ll get it right this time. “I want to reform it and fix it and make sure that it works for small businesses and their families,” Alexi Giannoulias, the Democrat seeking President Barack Obama’s old Senate seat, said on “Meet the Press” on Sunday.
  • The Democrats' Brutal Weekend. More bad polls. More bad fundraising numbers. More dreary talk on the Sunday shows. It added up to a brutal weekend for Democrats, as the consensus among election analysts, already bearish on the party’s prospects, took a turn for the worse over the past 48 hours.
USA Today:
AP:
  • EU Debates New Debt Rules as Euro Surges. European finance ministers plan to hash out a deal on stricter budget rules to avoid another government debt crisis, as a surging euro casts doubt on the continent's fragile economic recovery. Two differing proposals spelling out penalties for overspending governments will be considered, after ballooning debt and deficit levels in countries like Greece, Ireland and Spain shook the foundations of the 16-nation eurozone earlier this year. The two-day gathering beginning Monday in Luxembourg comes amid the specter of a possible global currency war, as governments around the world try to boost their economies by pushing down the value of their currencies, thus making their exports more competitive.The U.S. Federal Reserve on Friday spurred expectations of a new round of asset purchases, in effect pumping dollars into the economy and further weakening the value of the greenback.
Telegraph:
The Guardian:
  • U.K. Is Mistaken to Spare NHS in Budget Cuts, Report Says. Pledges by Britain's political leaders to spare the National Health Service from budget cuts are mistaken and will put "enormous pressure" on other public spending, citing a research report. Including the NHS would allow the government to limit spending cuts at other government departments to 10% over the next four years instead of 25%, according to a report by the Institute for Public Policy Research.
  • Iran Brokers Behind-The-Scenes Deal for Pro-Tehran Government in Iraq. Exclusive: Fears over Iran's influence after secret talks involving Syria, Hezbollah and the highest authorities in Shia Islam. Iran has brokered a critical deal with its regional neighbours that could see a pro-Tehran government installed in Iraq, a move that would shift the fragile country sharply away from a sphere of western influence. The Guardian can reveal that the Islamic republic was instrumental in forming an alliance between Iraq's Nouri al-Maliki, who is vying for a second term as prime minister, and the country's powerful radical Shia cleric leader, Moqtada al-Sadr. The deal – which involved Syria, Lebanon's Hezbollah and the highest authorities in Shia Islam – positions Maliki as a frontrunner to return as leader despite a seven-month stalemate between Iraq's feuding political blocs. It also positions Iran as a potent buffer to US interests at a time when America is looking to change its relationship with Iraq from military overlords to civilian partners.
BBC:
  • Merkel Says German Multicultural Society Has Failed. The German Chancellor, Angela Merkel: "lmmigrants should learn to speak German." Attempts to build a multicultural society in Germany have "utterly failed", Chancellor Angela Merkel says. She said the so-called "multikulti" concept - where people would "live side-by-side" happily - did not work, and immigrants needed to do more to integrate - including learning German. The comments come amid rising anti-immigration feeling in Germany. A recent survey suggested more than 30% of people believed the country was "overrun by foreigners". The study - by the Friedrich Ebert Foundation think-tank - also showed that roughly the same number thought that some 16 million of Germany's immigrants or people with foreign origins had come to the country for its social benefits.
Vima:
  • Jean-Claude Juncker, head of the group of euro-area finance ministers, said discussing an extension of Greece's repayments of loans from the European Union and International Monetary Fund is premature, citing an interview. Greece has no alternative but to implement and meet the terms set out under the 110 billion euro EU and IMF bailout package, Juncker said. Now isn't the time to discuss extension of debt repayments, he said.
ABC:
  • Spanish Finance Minister Elena Salgado expects economists to change their growth forecasts in line with the government estimate of 1.3% expansion next year, she said. The government aims to present proposals for restructuring the pensions system by the end of the year and doesn't need a backup plan in case its strategy for cutting the budget deficit fails, Salgado said.
EE Times:
Xinhua:
  • Zhang Guobao, head of China's National Energy Administration, said an American probe into China's clean-energy policies will hurt the U.S. The investigation will show the U.S. provides subsidies to its own alternative energy industries, citing Zhang. The U.S. won't win this "trade war", citing Zhang.
Weekend Recommendations
Barron's:
  • Made positive comments on (OI).
  • Made negative comments on (LULU).
Citigroup:
  • Reiterated Buy on (JPM), target $50.
Night Trading
  • Asian indices are -1.0% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 105.0 +2.0 basis points.
  • Asia Pacific Sovereign CDS Index 95.75 +1.75 basis points.
  • S&P 500 futures -.59%.
  • NASDAQ 100 futures -.48%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (MMR)/-.22
  • (C)/.05
  • (HAL)/.55
  • (BRO)/.28
  • (AAPL)/4.10
  • (LNCR)/.47
  • (IBM)/2.75
  • (STLD)/.09
  • (VMW)/.35
  • (CCK)/.83
  • (ZION)/-.50
  • (HAS)/1.04
Economic Releases
9:00 am EST
  • Net Long-Term TIC Flows for August are estimated at n/a versus $61.2 Billion in July.
9:15 am EST
  • Industrial Production for September is estimated to rise +.2% versus a +.2% gain in August.
  • Capacity Utilization for September is estimated to rise to 74.8% versus 74.7% in August.
10:00 am EST
  • The NAHB Housing Market Index for October is estimated to rise to 14 versus 13 in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lockhart speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the week.
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