Weekend Headlines
Bloomberg:
- Ireland Faces 'Outsized' Problem, Seeks EU, IMF Bailout. Ireland sought international aid, becoming the second euro country to need a rescue as the cost of saving its banks threatened a rerun of the Greek debt crisis that destabilized the currency. Ireland will channel some of the money from the European Union and International Monetary Fund to lenders through a “contingent” capital fund, Irish Finance Minister Brian Lenihan told reporters late yesterday. The rest of the package, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($130 billion), would help Ireland avoid selling bonds. “The banks were too big a problem for the country,” Lenihan said in Dublin. “The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector.”
- European Default Swaps Index Converges With Emerging Markets: Euro Credit. The cost of insuring western European government debt against default is converging with that of emerging markets. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 countries, including Germany and Ireland, climbed this month to within 18.25 basis points of a similar gauge for emerging-market risk, the closest ever, according to CMA. The spread was 160 basis points as recently as February.
- Obama Considers Chamber Visit, CEO Summit to Counter Anti-Business Image. President Barack Obama is preparing new overtures to business that may start with a walk into the headquarters of the U.S. Chamber of Commerce and a retreat with corporate chief executive officers, according to people familiar with his plans. The Obama administration has been at odds with the Chamber, which fought Obama’s health-care and financial regulatory overhauls and committed $75 million to political ads in the midterm congressional elections, mainly directed against Democrats. The CEO summit would be a way to address complaints from some executives the Democratic administration is anti- business.
- German Export Growth to Slow, Wiwo Says, Citing Ifo Institute. German export growth will slow in the fourth quarter from the prior three months, Wirtschaftswoche magazine reported, citing an index it commissioned from the Munich-based Ifo economic institute. Ifo’s October export climate index fell for a sixth straight month to 1.0, the lowest reading since December 2009, the magazine said in an e-mailed release. The index includes the euro’s exchange rate as well as business and consumer confidence indicators in Germany’s main export markets, it said.
- Al-Qaeda Plans German Parliament Attack in Berlin, Spiegel Says. Al-Qaeda and linked extremist groups planned to attack Germany’s lower house of parliament in Berlin next year, taking hostages and killing people, Spiegel magazine said, citing calls to investigators by an informant. The attack was planned for February or March, it said. The U.S. Federal Bureau of Investigation warned Germany two weeks ago that an attack was being prepared, Spiegel said.
- German Police Chief Sees Highest Threat of an Extremist Attack. Germany faces a greater threat of an extremist attack than at any time in the past, more than during elections last year or the 2006 soccer World Cup, according to Matthias Seeger, the country’s federal police chief. Germany has indications of pending attacks from different sources, he said in an advance copy of an interview that will be published in tomorrow’s Frankfurter Allgemeine Sonntagszeitung.
- Fair-Value Fight in Finance Making Volcker Rue FASB Dissonance. A dispute between U.S. and international accounting groups about how to value financial instruments is threatening to derail efforts to converge global standards, affecting how trillions of dollars of assets are marked on bank balance sheets. The debate pits the U.S. Financial Accounting Standards Board, which wants to expand the use of fair-value accounting to all financial assets, including loans and deposits, against the London-based International Accounting Standards Board, which opposes such a wide usage. The outcome also will determine how much capital banks have to hold to meet new rules. FASB’s proposal, announced in May, could cause 26 of the largest U.S. banks to write down the value of about $4 trillion of loans on their books by as much as $138 billion, estimated Jason Goldberg, an analyst at Barclays Plc. Lenders, regulators and some investors have taken IASB’s side, leaving the U.S. standard-setter isolated in its battle.
- Hedge Funds Cut Oil Bets as Ireland, china Sap QE2 Gains. Hedge funds cut bullish bets on oil by the most in almost three months amid speculation fallout from the Irish debt crisis and China’s efforts to curb inflation will slow economic growth, sapping demand for fuel. The funds and other large speculators reduced so-called long positions, or wagers on rising prices, by 15 percent in the seven days ended Nov. 16, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report, released Nov. 19. It was the first drop in four weeks and the largest decline since the seven days ended Aug. 24. Net-long positions dropped by 30,518 futures and options combined to 178,397 the week ended Nov. 16, according to the commission report.
- Senate Approves $4.6 Billion for Claims by Black Farmers, American Indians. The U.S. Senate yesterday approved spending $4.6 billion to settle two lawsuits: one by black farmers who alleged racial discrimination by government lenders and the other by 300,000 American Indians who said they had been cheated out of land royalties dating to 1887. Passage of the measure, by voice vote, unblocks a legislative logjam that has thwarted payouts, negotiated by the Obama administration, of $1.15 billion to the black farmers and $3.4 billion to the American Indians. “We are one step closer to ensuring that the black farmers and Native Americans in these suits are fully compensated for past failures of judgment by the government,” U.S. House Speaker Nancy Pelosi, a California Democrat, said in a statement after the Senate vote.
- Hong Kong Increases Tax on Property Resold Within Two Years to Cool Market. Hong Kong intensified a yearlong battle to curb surging home prices with additional taxes and higher down payments a day after the International Monetary Fund warned that asset inflation may derail the city’s economy.
- Saudi King Abdullah to Seek Treatment in U.S. for Hernated Disc, SPA Says. Saudi Arabia’s King Abdullah Bin Abdulaziz will travel to the U.S. tomorrow to receive medical treatment for a herniated spinal disc.
- India's Smaller Micro-Lenders Likely to Fail, Srinivasan Says. A quarter of Indian microfinance companies may fail after a clampdown last month in their biggest market pared debt payments and curtailed bank financing, said N. Srinivasan, who consults on the industry for the World Bank. As many as 60 to 70 of the nation’s 260 microfinance institutions are likely to collapse in coming months as banks halt lending to them to curb risks, Srinivasan said in an interview last week. That would have a “devastating effect” on the poorest customers in remote regions, he said.
- 'Harry Potter' Sets Series Record With $125 Million Oopening. “Harry Potter and the Deathly Hallows -- Part 1” opened with $125.1 million in U.S. and Canadian ticket sales, a record for the boy-wizard series from Time Warner Inc.’s Warner Bros.
- I'd Sign Any Letter to Avert Inflation Crisis: Kevin Hassett. Last week, I joined a number of economists and others in signing an open letter to Federal Reserve Chairman Ben Bernanke, urging him to discontinue the second round of so-called quantitative easing, or QE2.
- New Zealand Dollar Slides as S&P Changes Credit Rating Outlook to Negative. New Zealand’s dollar dropped, erasing earlier gains, after Standard & Poor’s Ratings Services revised its outlook on the nation’s foreign currency sovereign credit rating to negative from stable. New Zealand’s currency fell to 77.81 U.S. cents as of 4:07 p.m. in Wellington, having reached as high as 78.37 cents earlier today, from 77.87 cents on Nov. 19 in New York.
- U.S. in Vast Insider Trading Probe. Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter. The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say. The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say. One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge. Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, Calif., firm that connects experts with investors seeking information in the technology, health-care and other industries. In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc.(GS) bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation. "Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said. "(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web." The email, which Mr. Kinnucan confirms writing, was addressed to traders at, among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management. Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms, including First New York Securities LLC, improperly gained nonpublic information about pending health-care, technology and other merger deals, according to the people familiar with the matter. Key parts of the probes are at a late stage. A federal grand jury in New York has heard evidence, say people familiar with the matter. But as with all investigations that aren't completed, it's unclear what specific charges, if any, might be brought.
- Tax-Writing Panel's Chief Set to Call for Lower Rates. Republican firebrands are set to assume most of the top House chairmanships in January. But one of the most powerful posts will go to Rep. Dave Camp, a no-drama lawyer from Midland, Mich., who is expected to take over the mighty Ways and Means Committee. Few doubt Mr. Camp's conservative credentials. He is keen to slash spending and extend the current tax breaks. At the same time, Mr. Camp is known as a dealmaker who sometimes favors a government role in the economy. Recent statements suggest he may be open to a bargain with Democrats to curb the deficit and expand the tax base.
- China Blogger Conference Is Canceled Under Pressure. Organizers were forced to cancel an annual blogging conference in Shanghai this weekend under pressure from authorities, the latest sign of tightening limits in China on free expression. The Chinese Blogger Conference has attracted dozens of prominent online commentators, entrepreneurs, digital artists and others each year since it was started in Shanghai in 2005. Many of the attendees are critical of government censorship, so the event is considered potentially sensitive. It couldn't be determined which arm of the government was responsible. China's government has steadily stepped up efforts in recent years to curb free expression on the Internet, which has more than 420 million users in China—the most of any nation. Earlier this month, a Chinese court handed down a prison sentence of two-and-a-half years to Zhao Lianhai for using the Internet to organize support for parents of children sickened in a tainted-milk scandal. The court found him guilty of inciting social disorder. The winner of this year's Nobel Peace Prize, Liu Xiaobo, was sentenced last Christmas to 11 years in prison for helping write a manifesto calling for political reforms that was circulated over the Internet.
- Higher Taxes Won't Reduce the Deficit. History Shows That When Congress Gets More Revenue, The Pols Spend It. The draft recommendations of the president's commission on deficit reduction call for closing popular tax deductions, higher gas taxes and other revenue raisers to drive tax collections up to 21% of GDP from the historical norm of about 18.5%. Another plan, proposed last week by commission member and former Congressional Budget Office director Alice Rivlin, would impose a 6.5% national sales tax on consumers. The claim here, echoed by endless purveyors of conventional wisdom in Washington, is that these added revenues—potentially a half-trillion dollars a year—will be used to reduce the $8 trillion to $10 trillion deficits in the coming decade. If history is any guide, however, that won't happen. Instead, Congress will simply spend the money.
- Banks Face Another Mortgage Crisis. The government may have bailed out the nation's biggest banks, but now the courts will sort out who gets stuck with mortgage losses. Banks could lose more than $100 billion. JUST WHEN AMERICA'S MAJOR BANKS seem to be back on their feet, having paid back federal bailout money and cranked up their employee bonus programs, a new threat has emerged that could seriously affect their earnings power over the next few years.
- Consumer Risks Feared as Health Law Spurs Mergers. Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.
- Can QVC Translate Its Pitch Online?
- Google(GOOG) is Close to Buying Groupon. Google is in advanced talks to buy coupon site Groupon for around $2.5 billion, The Post has learned. “It will probably happen in the next month,” a source close to the talks said.
- The FBI is Trying to Nail SAC Capital. One goal of the government's huge investigation into institutional insider trading appears to be to nail SAC Capital, the giant, wildly successful hedge fund run by Steve Cohen.
- JPMorgan(JPM) Private Bank on the "Quixotic" End to Europe's Latest (Failed) Grand Experiment.
- Goldman's(GS) Take on the Irish Bailout. For what it's worth, here is Goldman's take on the Irish bailout. Since it was Goldman's endless currency swaps that allowed Europe to lie about their deficits and true debt levels, this should certainly be required spin.
- Robert Gates Warns of Korean Nukes. A newly revealed North Korean nuclear facility could speed up that unpredictable nation's ability to make and deliver viable nuclear weapons, the Pentagon's top leaders said Sunday. U.S. Defense Secretary Robert Gates said he doesn't believe the facility is part of a peaceful nuclear energy program.
- TSA Chief: Screening May Evolve. Heeding a sudden furor, John Pistole, administrator of the Transportation Security Administration, said in a Sunday afternoon statement to POLITICO that airport screening procedures “will be adapted as conditions warrant,” in an effort to make them “as minimally invasive as possible, while still providing the security that the American people want and deserve.”
- Chinese central bank adviser Xia Bin said the nation should further tighten monetary policy next year because of pressure of excess liquidity at home and abroad. China should also tighten capital control and change real interest rates to positive from negative at an appropriate time, Xia said.
- China has room to further raise reserve ratios for banks, citing Wu Xiaoling, a lawmaker and former People's Bank of China deputy governor.
- U.S. policy that weakens the dollar may lead to continued volatility in the global economy and new crises in emerging markets, Liu Yuhui, a researcher at the Chinese Academy of Social Sciences, wrote.
- Chinese inflation may reach 6.3% sometime next year, citing Tao Dong, a Credit Suisse Group AG economist in Hong Kong. China may raise interest rates and the reserve requirement ratio by at least 150 basis points each over the next year to fight inflation, Tao said.
Weekend Recommendations
Barron's:
- Made positive comments on (GME) and (WMT).
- Upgraded (TER) to Buy, boosted target to $17.
- Upgraded (AMKR) to Buy, boosted target to $10.
- Reiterated Buy on (CMI), raised estimates, target $110.
- Asian indices are -.25% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 102.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 101.25 +1.0 basis point.
- S&P 500 futures +.46%.
- NASDAQ 100 futures +.55%.
Earnings of Note
Company/Estimate
- (TSN)/.58
- (TECD)/.95
- (PSUN)/-.09
- (NUAN)/.32
- (ADI)/.70
- (JACK)/.37
- (HPQ)/1.27
- (BRCD)/.13
8:30 am EST
- The Chicago Fed National Activity Index for October is estimated to rise to -.24 versus -.58 in September.
- None of note
- The Fed's Kocherlakota speaking and the $35 Billion 2-Year Treasury Notes Auction could also impact trading today.
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