Friday, November 19, 2010

Today's Headlines

  • Junk Bond Spreads Drop Most in Four Weeks as Irish Worries Wane. Relative yields on junk bonds in Europe dropped the most in four weeks after Irish officials signaled they may accept a bailout. The extra yield investors demand to own European speculative-grade bonds rather than government debt fell 9 basis points yesterday to 572 basis points, or 5.72 percentage points, according to Barclays Capital’s Pan-European High-Yield Index. That’s the biggest decline since Oct. 21. “A combination of optimism regarding an Irish bailout and a stronger-than-expected Philly Fed helped push risk assets higher,” Gary Jenkins, a strategist at Evolution Securities in London, said today in a note to clients. Yesterday’s spread tightening brings the week’s decline to 13 basis points, following 39 basis points of widening over the previous two weeks, Barclays Capital data show.
  • Irish Bonds Drop as Allied Irish Says it Lost 17% of Deposits. Irish bonds fell, reversing earlier gains, after Allied Irish Banks Plc said customer deposits shrank 17 percent this year amid the debt crisis. The decline pared the bonds’ first weekly gain in five as European Union, International Monetary Fund and European Central Bank officials spent a second day in Dublin before a possible bailout of the nation’s banks. Deposits dropped by about 13 billion euros ($17.8 billion) since the start of the year, Allied Irish said in a statement today. “The risk of a bank run in Ireland is still at the back of people’s minds and reminds investors that a bailout needs to happen soon,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London.
  • China Will 'Inevitably' Raise Rates in Battle Against Inflation. China’s reserve-ratio increases for banks and threats of price controls on essential goods are likely to prove insufficient to tame inflation, and the central bank will have to raise interest rates further, economists said. The People’s Bank of China yesterday ordered a 50 basis point increase in the amount of money that lenders must set aside, two days after the cabinet announced measures to tackle inflation.
  • Cisco(CSCO) Adds $10 Billion to its Stocks Buyback Program. Cisco Systems Inc., the largest maker of networking equipment, added as much as $10 billion to its stock repurchase program, giving a boost to investors after the shares fell 17 percent last week.
  • Obama Health Law Attacked by 63 U.S. Representatives. Minnesota congresswoman Michelle Bachmann and 62 other members of the U.S. House of Representatives filed a brief in Florida supporting a lawsuit by 20 states attacking the Obama administration’s health care legislation, calling it unconstitutional. Requiring people to buy health insurance or pay a penalty “would constitute an unprecedented expansion of Congress’s commerce power that would threaten Americans’ individual economic liberty,” the representatives and the American Center for Law & Justice said today. “Congress cannot pass any law that seems to most efficiently address a national problem,” the representatives said. “Every federal law must derive from one of the grants of authority found in the Constitution.” U.S. District Judge Roger Vinson in Pensacola will hear further arguments next month after ruling in October that the case could go forward. The government’s expansion of powers is “simply without prior precedent,” Vinson said in October.
  • NATO Says Europe Risk 'Paper Tiger' Status on Military Cuts. NATO’s chief warned that crisis- driven cuts in European defense spending threaten to turn the continent into a “paper tiger” in military matters and saddle the U.S. with an excessive burden. U.S. defense spending makes up 73 percent of the alliance total, up from 49 percent a decade ago, Secretary General Anders Fogh Rasmussen said. “This is a clear message to my dear European colleagues,” Rasmussen told a youth forum before a summit of the 28 North Atlantic Treaty Organization leaders in Lisbon today. “The Europeans should also invest a sufficient amount of money in defense. Otherwise the common European defense and security policy will just be a paper tiger, to speak bluntly.”
  • SEC Weighs Rules for Hedge-Fund Registration, Swap Repositories. The U.S. Securities and Exchange Commission is scheduled to vote today on proposed rules requiring the registration of large hedge funds, one of the provisions of the financial regulatory overhaul enacted in July. The SEC is considering two rules expanding the threshold of SEC registration to investment advisers of private funds. The proposals would subject registered funds to periodic inspections by the SEC and require them to employ chief compliance officers. Other private funds were exempted by the Dodd-Frank regulatory law, including venture-capital funds, advisers of funds with less than $150 million in U.S. assets and those without significant U.S. investor numbers and “no place of business” within the country.
  • Oil Heads for Biggest Weekly Decline in Three Months as China Drains Cash. Oil declined, headed for its biggest weekly loss in three months, following China’s decision to raise banks’ reserve ratios. Futures reversed a 1.1 percent gain after China ordered lenders to set aside larger reserves for the fifth time this year to rein in inflation, potentially crimping demand in the world’s fastest-growing major economy and biggest energy user. “The Chinese are fearful of inflation, and that’s causing a bit of risk reduction in the market,” said Robert Montefusco, a senior broker with Sucden Financial in London. Crude has dropped 3.8 percent this week, the most since the seven days ended Aug. 13, as Ireland grappled with its deficit and China’s Premier Wen Jiabao said the government was drafting measures to counter inflation.
  • Oldest Truck Fleet Since 1979 May Mean 56% Jump in North American Output. North American commercial truck production may climb as much as 56 percent in 2011 as owners refresh the oldest U.S. fleet in at least 31 years, boosting sales at Paccar Inc.(PCAR) and partsmakers such as Eaton Corp(ETN). Output of Class 8 trucks, the workhorses of interstate hauling, may reach as many as 235,000 units in the U.S., Canada and Mexico next year from an estimated 151,000 in 2010, said Kenny Vieth, partner at market forecaster ACT Research Co. Rising freight rates and volumes are helping rekindle demand. “My members are saying they desperately need to replace trucks,” Bob Costello, chief economist for the American Trucking Associations, said in an interview. U.S. trucks now average 6.7 years of age, about 11 months older than the historical average and the oldest in ACT data going back to 1979, according to the Columbus, Indiana-based company. Class 8 truck orders for October rose 24 percent from September, the second-highest monthly total since April 2008, ACT said in a statement. North American output in 2011 matching ACT’s forecast or Robert W. Baird & Co.’s projection of 230,000 units would add to evidence of a recovery in shipments and vehicle purchases. Typical replacement demand is about 220,000 trucks, said Kristine Kubacki, an Avondale Partners LLC analyst in St. Louis. “The replacement cycle is kicking in,” David Leiker, a Milwaukee-based analyst for Baird, said in an interview. He recommends buying Paccar and rival Navistar International Corp. and holding shares of Sweden’s Volvo AB.
  • Wells Fargo(WFC) Pays Citigroup(C) $100 Million Over Wachovia. Wells Fargo & Co. agreed to pay Citigroup Inc. $100 million to settle claims that the San Francisco-based bank improperly won bidding to acquire Wachovia Corp. during the financial crisis. “We are glad to put this matter behind us, and we look forward to our two institutions working together constructively in the future,” Wells Fargo said today in a joint statement with New York-based Citigroup.

Wall Street Journal:
  • Google(GOOG) Turns Its Local Eyes to Groupon - But Who Else Could Enter Bidding? Sources said the price being considered is certainly no discount–well above the $2 billion to $3 billion that Yahoo offered Groupon in acquisition talks that took place earlier this year. But sources cautioned that the talks are not complete, and could also end up without any result, as the Yahoo discussions did.
  • Hong Kong Imposes More Property Curbs. Hong Kong's government on Friday took some of its toughest measures yet to cool the city's red-hot real-estate market by significantly raising transaction costs for speculators. Financial Secretary John Tsang said the moves, which include additional stamp duties for properties sold within two years of purchase as well as lower mortgage ratios, underscore the government's commitment to ensuring stability in Hong Kong's property market as apartment prices continue to soar amid ample liquidity and rock-bottom interest rates.
  • Glenn Hubbard: Fiscal Policy Overhaul Needed. (video) Columbia University professor Glenn Hubbard says an overhaul of fiscal policy is needed to help fix the U.S. economy. "I don't think quantitative easing is the answer to the country's problems," he said in an interview with Simon Constable.
Business Insider:
Zero Hedge:
New York Post:
  • New York in Need of a $10 Billion Belt Tightener. New York's budget chief warned New Yorkers yesterday to prepare for massive cuts next year as the economy sputters and money runs out. Budget Director Robert Megna said Gov.-elect Andrew Cuomo will have no choice but to enact deep spending cuts to close a $9.2 billion to $10.6 billion budget gap next year, even if the economy suddenly takes off. "Very, very difficult decisions are going to be made, have to be made," Megna said. "Quite honestly, we're in a position now where the state is going to have to decide that there are certain things it's not going be able to do anymore the way that it has been done in the past. "The numbers just don't allow it."
  • Appliance Has-Been. Sears(SHLD) Loses Market Share to Lowe's(LOW), Home Depot(HD).
New York Times:
Atlanta Journal Constitution:
Hot Air:
  • Subprime Mortgage Profiteers Angle for an Education Bubble. Of course, the administration is not operating without the influence of it’s friends on Wall Street. Last March, when Deputy Undersecretary of Education Robert Shireman attacked for-profit colleges in a speech, the colleges’ stock values tumbled, losing the companies around $1.6 billion in a single day. The cause and effect of whispers of government regulations causing markets to tumble didn’t go unnoticed. In May, short seller king Steven Eisman, who made billions betting against the market as Wall Street banks bought billions in bad loans, called for-profit education the next ripe area to profit from short selling.Regardless of whether or not Eisman’s analysis is accurate, if government regulations force losses to the for-profit education industry, people like Eisman — who bet against success — stand to make millions.
  • Senate Democrats Vent Anger With Barack Obama. Senate Democrats — including typically mild-mannered Bill Nelson of Florida — lit into President Barack Obama during an unusually tense air-clearing caucus session on Thursday, senators and staffers told POLITICO. Nelson told colleagues Obama’s unpopularity has become a serious liability for Democrats in his state and blamed the president for creating a toxic political environment for Democrats nationwide, according to two Democrats familiar with his remarks.
  • ECRI US Economic Growth Gauge Rises to 25-Week High. A measure of future U.S. economic growth rose to a 25-week high in the latest week, while the index's annualized growth rate rose to a 23-week high, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 124.3 in the week ended Nov. 12 from 124.2 the previous week. That was the highest level since May 21, when it was 125.3. The index's annualized growth rate rose to minus 4.5 percent from minus 5.5 percent a week earlier. That was the highest since June 4, when it was minus 3.9 percent.
Financial Times:
  • QE2-As-Bank-Bailout. QE2-as-bank-bailout continues with a Friday op-ed by Andy Kessler,a former hedge-fund manager and author of “Eat People—And Other Unapologetic Rules for Game-Changing Entrepreneurs”. As we’ve noted before, there’s something odd about the Federal Reserve’s second round of quantitative easing. Instead of trying to flatten the US yield curve, the Fed’s Treasury purchases look like they’re almost aimed at steepening it. Why? Here’s Kesslar’s theory via the Wall Street Journal:
Cinco Dias:
  • Spain may reduce subsidized rates for power from new photovoltaic solar generators during a cabinet meeting today. Plants built on open land will receive 45% less than the current price they're paid. Rates will decline 25% for large rooftop solar panels installations and by 5% for small ones, typically homes.

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