Tuesday, November 23, 2010

Tuesday Watch

Evening Headlines


  • Irish Rescue Plan Turns Focus to Southern Europe: Euro Credit. Ireland’s plan to seek a European rescue risks escalating, rather than alleviating, the sovereign debt crisis as investors turn their focus to the high budget- deficit nations of southern Europe. Ireland’s Nov. 21 decision to request emergency aid from the European Union and the International Monetary Fund did little to reverse the jump in borrowing costs. The extra yield investors demand to hold Spanish and Portuguese 10-year debt rather than German bunds rose yesterday. The spread between Spanish and Italian yields also widened, indicating investors see increasing threats for Spain compared with Italy. Even as EU leaders said Ireland’s bailout will stem contagion in the euro region, investors are turning their attention to Portugal, which hasn’t cut government spending and has barely grown for a decade. A rescue of Portugal may increase pressure on its high budget-deficit neighbor Spain, whose gross domestic product is almost twice the size of Portugal, Greece and Ireland combined. After Portugal “the next question would be Spain and then Italy and then France and then the EU,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “Spain is bit too big to be bailed out, the size of a rescue required would use up all the funds available and then you have Italy with contagion as well,” prompting “a situation where the euro itself is put into question.”
  • U.S. Commercial Property Prices Jump Most on Record. U.S. commercial property prices rose 4.3 percent in September from the previous month, the biggest gain in a decade of records, Moody’s Investors Service said. The Moody’s/REAL Commercial Property Price Index climbed 0.3 percent from a year earlier as a small number of high-priced deals drove up values, Moody’s said in a statement today. The measure had fallen to an eight-year low in August. “Each of the summer months this year recorded declines in the 3 percent to 4 percent range, followed by this month’s sizeable uptick,” Nick Levidy, a Moody’s managing director in New York, said in the statement. “The relatively large swings seen in the index recently are due in part to the uncertain macroeconomic environment and the effects of a thin market with low transaction volumes.”
  • Medtronic(MDT) to Buy Ardian for $800 Million to Gain Novel Hypertension Device. Medtronic Inc., the world’s largest heart device maker, said it will acquire Ardian Inc., a closely held company developing a hypertension device that destroys nerves near the kidney, for $800 million. Medtronic, based in Minneapolis, said it will pay $800 million in cash plus milestones based on Ardian’s revenue through 2015. Medtronic already owns 11 percent of the Mountain View, California, device company.
  • China Inflation May Prove Too Hot for Controls Amid Cash Glut. Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent. “I’m struggling to make ends meet with costs going up like this,” said Liu, a native of Sichuan province who pays his workers as much as 1,800 yuan ($271) a month, or 88 percent more than the Beijing minimum wage, to serve up a staple Chinese meal. “Raising prices is the only way out,” he said, predicting he won’t be able to hold out beyond two months. “They are just not addressing the fundamental problem at all,” said Patrick Chovanec, an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.
  • China's State-Planned Economy is Doomed to Flop: David Pauly. The biggest obstacle to China becoming the world’s No. 1 economy is China. The communist nation’s determination to keep as tight a rein on its economy as it has on its citizens will lead to failure -- just as it has for other countries that embraced central planning schemes. China is reversing its flirtation with a type of quasi- capitalism that allowed entrepreneurs to thrive and propelled the economy forward at an annual rate of about 10 percent. The Chinese now follow the so-called Beijing consensus, a belief that concentrating more control of industry in government hands will avoid the financial debacles caused by free markets. The nation’s state-owned companies are buying up independent businesses in the auto, steel and energy industries. A government-run company even plans its own Internet search business to compete with Baidu Inc., whose shares trade on stock exchanges.
  • China's Rare Earth Exports Dropped 77% in October After Export Quota Cut. Rare earth exports from China, the world’s biggest supplier, dropped 77 percent in October from a month earlier, the General Administration of Customs said.

Wall Street Journal:
  • White House Loses Two Top Economic Advisors. Two more of the Obama administration's top economic advisers are departing, at a time when the White House is facing growing opposition to its economic policies on Capitol Hill. White House National Economic Committee Deputy Director Diana Farrell and Treasury Department Assistant Secretary for financial institutions Michael Barr are both planning to leave within weeks, people familiar with the matter said. Both played central roles in the Obama administration's response to the financial crisis, acting as lead architects of the financial regulation overhaul law that President Barack Obama signed into law in July.
  • J&J(JNJ) Recalls 4 Million Packages of Children's Benadryl.
  • Assembly Pushes to Oust Iran President. Iran's parliament revealed it planned to impeach President Mahmoud Ahmadinejad but refrained under orders from the Supreme Leader Ayatollah Ali Khamenei, exposing a deepening division within the Iranian regime. Lawmakers also launched a new petition to bring a debate on the president's impeachment, conservative newspapers reported Monday. The reports of impeachment efforts came as a retort to a powerful body of clerics that urged Mr. Khamenei to curb the parliament's authority and give greater clout to the president. In a report released Sunday and discussed in parliament Monday, four prominent lawmakers laid out the most extensive public criticism of Mr. Ahmadinejad to date.
  • The Just-in-Time Consumer.
  • With New Power, GOP Takes on Consumer Agency. Republican Reps. Spencer Bachus of Alabama, the leading contender to take the reins of the House Financial Services Committee, and Illinois Rep. Judy Biggert, the top Republican on the panel's oversight and investigations subcommittee, sent letters to the inspectors general of both the Treasury Department and the Federal Reserve, directing them to conduct an investigation into the work being done to establish the new bureau. The lawmakers wrote that the agency warrants "rigorous" oversight by the inspectors general because it will play a significant role in credit availability for consumers and small businesses. GOP lawmakers have also sent letters to regulators on the legal bills incurred by former executives of government-controlled mortgage finance giants Fannie Mae and Freddie Mac and the economic impact of the financial-overhaul rules being written by the Securities and Exchange Commission. The letters are the strongest signals yet of how the new House Republican majority plans to use its oversight powers to hobble elements of the Obama agenda.
  • Velma Hart, Who Questioned Obama's Policies, Loses Job. Velma Hart, who told President Obama she was "exhausted" of defending him and became the face of disappointed Americans this fall, has lost her job. In another casualty of a weak national economy, Ms. Hart learned late last week that she'd been laid off as chief financial officer of AmVets, a non-profit veterans service organization based outside of Washington, D.C.
  • Hewlett-Packard(HPQ) Results Beat Forecasts; Outlook Positive. Hewlett-Packard raised its fiscal 2011 revenue and earnings forecasts after strong computer and storage sales led to stronger-than-expected quarterly results.
Business Insider:
  • It's Crazy How Inbred the Hedge Funds in This Huge Insider Trading Scandal Are. Everyone involved in the insider trading scandal that's blowing up the hedge fund world right now seems to have ties to each other - and to Steve Cohen's SAC Capital. Three funds were raided on Monday, and Charlie Gasparino says that up to twelve hedge funds will be named in the huge investigation, so we're anticipating that more will be raided in the days to come. What's happened, it seems, is that the government has discovered a huge "ring" of friends or acquaintances who all know each other. They seem to have found a number of witnesses, one of whom is Nicos Stephanou, who are aware of an advanced networking scheme that the feds suspect amounts to insider trading.
  • What to Expect From Tuesday's Fed Minutes and Outlook Revision.
NY Times:
  • J.Crew(JCG) Nears a Sale to Chairman and Buyout Firms. J. Crew, the trendy clothier of choice for the likes of Michelle Obama, is near a deal to sell itself for about $2.8 billion to the buyout firms TPG Capital and Leonard Green & Partners, people with direct knowledge of the matter told DealBook on Monday. Under the terms of the proposed deal, TPG — a former owner of the retailer — and Leonard Green would work with the company’s chairman and chief executive, Millard S. Drexler, these people said. The buyout firms are expected to pay about $43.75 a share, a 16 percent premium to Monday’s closing price of $37.65.
Rasmussen Reports:
  • Two-Thirds Favor Cutting Federal Payroll by 10%. Sixty-six percent (66%) of voters nationwide favor a proposal to cut the federal payroll by 10% over the coming decade. A new Rasmussen Reports telephone survey found that just 22% are opposed and 12% are not sure.
  • EU's Barnier Vows to Apply Bank Pay Curbs in Full. No member state will escape the European Union's stringent curbs on excessive bank pay, the bloc's financial services chief said on Monday.
  • Best Buy(BBY) Sees Better Black Friday Sales. U.S. consumer electronics chain Best Buy Co Inc anticipates higher sales on "Black Friday," the kick-off to the all-important holiday selling season, a top executive said. The news boosted its shares by about 2 percent. "There is pent-up demand out there," Shari Ballard, executive vice president of Best Buy, told Reuters in an interview on Monday, adding that the retailer is planning for better holiday sales this year versus 2009. "We are actually enormously excited about the holidays," Ballard said, adding: "From a year perspective, it has been a little bit lumpy in terms of customer demand."
  • BP's(BP) $20 Billion Compensation Fund Should be Enough - FT. A $20 billion fund for the economic victims of the BP Plc Gulf oil spill should be enough to compensate those affected, the Financial Times reported, citing the lawyer administering claims. Fund administrator Kenneth Feinberg, appointed by the Obama administration to handle the compensation, told the newspaper he had paid $2 billion to 125,000 people, but had approved fewer than half of the claims made. "Based on what I've seen so far I'm cautiously optimistic that $20 billion is more than enough," the newspaper quoted Feinberg as saying.
  • Ireland Set for Nervy Two Weeks Until Budget Vote. Ireland begins two nervous weeks of political manoeuvring on Tuesday as the government dares the opposition to block an austerity budget on which a multi-billion euro EU/IMF bailout is riding. Irish Prime Minister Brian Cowen defied mounting pressure to quit on Monday, saying he would stay in office until parliament passed the budget, then call an early election.
  • Analog Devices(ADI) Sees Revenue Growth Resuming in Q2. Microchip maker Analog Devices Inc forecast a sequential revenue drop in the first quarter, but expects growth to resume in the second quarter on helped by the industrial segment. "Typically second quarter is very strong for us. Usually the industrial business has its strongest sequential improvement in the second quarter," Chief Financial Officer Dave Zinsner told Reuters. Analogue Devices expects its industrial segment -- the company's biggest unit -- to "grow nicely" in 2011 and beyond, driven by growth in the Asian markets.
  • Raided Hedge Funds Slammed by Departures, Outflows. The three hedge funds raided by U.S. authorities on Monday have faced investor outflows or seen some high profile staff departures in the past year.
  • U.S. Truck Tonnage Up .8% in October - ATA. An index that tracks the tonnage hauled by U.S. trucks rose in October, its second gain in two months and a sign of a strengthening economy. The American Trucking Association's advance seasonally adjusted For-Hire Truck Tonnage Index rose 0.8 percent in October, after rising a revised 1.8 percent in September. Year-on-year, tonnage hauled climbed a seasonally adjusted 6 percent, well above the 5.3 percent gain in September. October tonnage levels were the highest in three months, even after seasonal changes were accounted for, according to the ATA. "This is a pleasant surprise. It shows the economy has legs, even if it's not strong yet," said Bob Costello, ATA's chief economist.
China Business News:
  • Chinese banks still face "severe" risks because of the "difficult" global economic recovery and the "arduous" task of domestic structural adjustments, citing a circular that the China Banking Regulatory Commission issued to its local branches and banks.
Evening Recommendations
  • Rated (TGT) Positive, target $67.
  • Rated (WMT) Positive, target $66.
Night Trading
  • Asian equity indices are -1.75% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 103.50 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 99.50 -.75 basis point.
  • S&P 500 futures -.39%
  • NASDAQ 100 futures -.30%.
Morning Preview Links

Earnings of Note
  • (BWS)/.38
  • (CPB)/.82
  • (CBRL)/.92
  • (PDCO)/.45
  • (EV)/.39
  • (MDT)/.81
  • (DSW)/.75
  • (GES)/.59
  • (JCG)/.54
  • (FRED)/.17
  • (PPC)/.06
Economic Releases
8:30 am EST
  • Preliminary 3Q GDP is estimated to rise +2.4% versus a prior estimate of a +2.0% gain.
  • Preliminary 3Q Personal Consumption is estimated to rise +2.5% versus a prior estimate of a +2.6% gain.
  • Preliminary 3Q GDP Price Index is estimated to rise +2.3% versus a prior estimate of a +2.3% increase.
  • Preliminary Core PCE is estimated to rise +.8% versus a prior estimate of a +.8% gain.
10:00 am EST
  • Existing Home Sales for October are estimated to fall to 4.48M versus 4.53M in September.
2:00 pm EST
  • Release of Nov.2-3 FOMC minutes.
Upcoming Splits
  • (MGA) 2-for-1
Other Potential Market Movers
  • The Treasury's Geithner speaking, $35 Billion 5-Year Treasury Notes Auction, Richmond Fed Manufacturing Index, weekly retail sales reports, weekly ABC consumer confidence report, (JEC) analyst day, (PRE) investor day and the (SLF) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by real estate 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 day.

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