Tuesday, November 30, 2010

Tuesday Watch

Evening Headlines


  • Bond Sales Tumbling in Worst Month Since Lehman Aftermath: Credit Markets. Corporate bond sales worldwide are tumbling on concern Ireland’s debt crisis will spread across Europe as returns on the notes approach their worst month since credit markets froze two years ago. Issuance has slumped 31 percent since Nov. 15, compared with the same period a year earlier, after surging 34 percent in the first half of the month, according to data compiled by Bloomberg. Plunging returns on debt of borrowers from France’s Credit Agricole SA to Bentonville, Arkansas-based Wal-Mart Stores Inc. are dragging bonds to a 1.08 percent loss in November, Bank of America Merrill Lynch index data show.
  • Hedge Funds Raise Natural Gas Wagers to Four-month High: Energy Markets. Hedge funds increased bullish bets on natural gas to the highest level in four months on speculation that lower-than-normal temperatures will bolster heating demand and trigger withdrawals from record stockpiles. The funds and other large speculators increased so-called net-long positions, or wagers on rising prices, by 50 percent in the seven days ended Nov. 23, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report.
  • Forged Comment Letters Sent to Regulators Writing Swaps Rules. Forged comment letters purportedly from an H.J. Heinz Co. executive, a Burger King Co. franchise and at least five other Arkansas-based officials or businesses were sent to the Commodity Futures Trading Commission, which is considering rules for the $583 trillion swaps market. The letters, some of which contain identical passages, criticize banks for their “cartel-like control of the derivatives market.” They include signatures from a circuit court judge, a county sheriff, a lawyer and a mental health counselor. All were forgeries, according to interviews conducted by Bloomberg News.
  • U.S., EU Expect Limited Progress at Climate Talks, No Treaty. U.S. and European Union envoys said they expect progress on forming a $100 billion fund to fight global warming and on protecting forests at climate talks in Cancun, Mexico, though no treaty will be agreed.
  • Emerging Equity Fund $84.3 Billion Inflows Exceed 2009 Record, EPFR Says. Emerging-market equity funds have taken in $84.3 billion this year, exceeding the record $83.3 billion received last year, EPFR Global said in an e-mailed statement.
  • Japan Unemployment Rises, Output Falls, Showing Risk Economy May Contract. Japan’s industrial production decreased and the unemployment rate unexpectedly climbed in October, providing early signs that the country’s economy will likely shrink this quarter. Factory output declined 1.8 percent from September, the sharpest drop since February 2009, the Trade Ministry said in Tokyo today. The jobless rate increased to 5.1 percent from 5 percent and the economy lost 180,000 jobs, the most since May, according to the statistics bureau. Bond prices rose. The figures add to evidence that Japan’s economy may contract for the first time in five quarters, as the expiration of stimulus measures and weak exports prompt companies such as Toyota Motor Corp. to reduce production. Japan’s central bank may face pressure to ease policy further as sluggish demand fuels deflation, according to economist Yuichi Kodama.
  • Banks in U.S. Resisting Calls to Repurchase Fannie Mae, Freddie Mac Loans. Fannie Mae and Freddie Mac are facing growing resistance as they attempt to push failed home loans off their books and onto the balance sheets of banks including Bank of America Corp. and JPMorgan Chase & Co.

Wall Street Journal:
  • WikiLeaks Using Amazon(AMZN) Servers After Attack. WikiLeaks, the website that published a quarter-million sensitive diplomatic cables on Sunday, is using Amazon.com Inc. servers in the U.S. to help deliver its information. It sounds like an odd choice, but it could make sense. The site cablegate.wikileaks.org, which WikiLeaks is using for the diplomatic documents, is linked to servers run by Amazon Web Services in Seattle, as well as to French company Octopuce. Wikileaks.org, the site’s front page, links back to Amazon servers in the U.S. and in Ireland. Several Internet watchers, including technologist Alex Norcliffe, reported earlier on WikiLeaks’ use of Amazon services.
  • Consultant of 'Expert Network' Is Probed. The nation's largest "expert-network firm" could be drawn into the government's insider-trading investigation.
  • Russian Missiles Fuel U.S. Worries. The U.S. believes Russia has moved short-range tactical nuclear warheads to facilities near North Atlantic Treaty Organization allies as recently as this spring, U.S. officials say, adding to questions in Congress about Russian compliance with long-standing pledges ahead of a possible vote on a new arms-control treaty. U.S. officials say the movement of warheads to facilities bordering NATO allies appeared to run counter to pledges made by Moscow starting in 1991 to pull tactical nuclear weapons back from frontier posts and to reduce their numbers. The U.S. has long voiced concerns about Russia's lack of transparency when it comes to its arsenal of tactical nuclear weapons, believed to be many times the number possessed by the U.S.
  • 'Cyber Monday' Sales Show Strength. Even Following a Weekend With Solid Online Shopping, Heavy Promotions Help Produce Double-Digit Gains for the Day. Early estimates indicated overall sales gains of about 20% from a year earlier for "Cyber Monday," the nickname for the Monday after Thanksgiving. That comes on top of strong online sales growth on Thanksgiving Day and Black Friday. For those two days combined, comScore Inc. reported that online shoppers spent about $1.1 billion, up more than 15% from $913 million a year earlier.
  • Attack by WikiLeaks. For all of his self-justification as an agent of "pure" transparency, Mr. Assange is not serving the interest of free societies. His mass, indiscriminate exposure of anything labeled secret that he can lay his hands on is a hostile act against a democracy that is fighting a war against forces bent on killing innocents. Surely, the U.S. government can do more to stop him than send a stiff letter.
  • ABB to Acquire Baldor(BEZ) for $3 Billion. Switzerland conglomerate ABB Group plans to announce Tuesday that it is acquiring electric motor manufacturer Baldor Electric Co. for about $3 billion, the companies said. ABB planned to pay about $63.50 per share in cash for Fort Smith, Ark.-based Baldor. The deal would mark ABB's first major acquisition in the U.S. and retain Baldor's headquarters in Arkansas and the brand name. The Baldor sale would give ABB a foundation to establish a presence in the U.S. while the deal would also allow Baldor to take advantage of ABB's global distribution. Shares of Baldor closed at $45.11 on Monday on the New York Stock Exchange, giving the company a market capitalization of $2.12 billion.
  • North Korea Says It Has 'Thousands of Centrifuges'. Secretive North Korea detailed for the first time its expanded nuclear program on Tuesday, saying it had thousands of centrifuges as pressure built on China to rein in its ally amid heightened tensions on the peninsula.
  • Seagate(STX) Halts Talks With Private Equity Firms. A potential takeover of Seagate Technology, which could have been worth about $9 billion, fell apart on Monday and the hard drive disk maker will instead pursue a share buyback plan.
Zero Hedge:
NY Times:
  • Splits in Euro Zone Emerge Amid Debt Crisis. Even as Europe struggles to contain its latest debt crisis, fresh fissures are emerging that show the euro zone diverging into two — or even three — different economic parts that threaten to compound the problems even further.
  • Drugmaker Diversifies Its Product Lineup Through Acquisitions. To diversify its asset portfolio, Endo Pharmaceuticals (ENDP) went shopping this year. In cutting three deals, Endo convinced many investors and analysts that it could survive the slowing growth and generic competition that inevitably threaten all branded drugs.
Washington Post:
  • US Senate Fails to Repeal Unpopular Tax Provision. Efforts to repeal what is widely seen as a burdensome tax provision in the new federal healthcare law failed in the U.S. Senate on Monday despite broad support to drop it.
  • Barclays(BCS) Attracts Unusual Flurry of Put Trading. Unusual put activity on the U.S.-listed shares of British bank Barclays Plc on Monday grabbed a lot of attention among traders due to the massive amount of trading and the unusual order size. In all, about 161,000 puts changed hands in Barclays, well above their average daily volume of 1,167 contracts versus only 3,050 calls, according to option analytics firm Trade Alert.
  • Hedge Fund Manager Mark Hart Bets on China as the Next 'Enormous Credit Bubble' to Burst. Mark Hart, an American hedge fund manager who has made millions predicting the crises in US sub-prime market and European debt, has launched a fund to bet on the imminent implosion of China. Mr Hart, who runs Corriente Advisors from Fort Worth Texas, has told potential investors in a presentation that China is in the "late stages of an enormous credit bubble". When this bursts, the financier said he expects an "economic fall-out" that will be as "extraordinary as China's economic out-performance over the last decade".
The Australian:
  • Hillary Clinton Condemns WikiLeaks Cable Release as 'Attack'. THE WikiLeaks release of diplomatic memos was an "attack on the international community", US Secretary of State Hillary Clinton said today. Ms Clinton vowed to prevent future leaks, as other Obama administration officials warned of a criminal investigation against website founder Julian Assange. "This disclosure is not just an attack on America's foreign policy interests. It is an attack on the international community," Ms Clinton said after meeting Turkish Foreign Minister Ahmet Davutoglu. "I want you to know that we are taking aggressive steps to hold responsible those who stole this information.
Financial News:
  • China's central bank should clearly state that it is shifting to a "prudent" monetary policy and allow further yuan appreciation to combat rising inflation, Sheng Songcheng wrote. Sheng is head of the central bank's Shenyang branch. China may see inflation quicken this month from October's price rises driven by food costs, making it "almost certain" that inflation will top 3% for the full year, Sheng wrote. There is still room for further increases in reserve requirement ratios for banks, Sheng said. The People's Bank of China should also relax a ceiling on the benchmark deposit rate and allow rates to float higher to help narrow the current negative real rate, Sheng said.
China Daily:
  • China needs to raise interest rates by another 200 basis points to curb inflation given existing excess liquidity, Zhong Jiyin, an economist with the Chinese Academy of Social Sciences, wrote.
  • China's Guangdong province may raise the minimum wage early next year to help ease the region's labor shortage, citing Ge Guoxing, deputy director-general of the province's labor department.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.75% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 118.0 +7.5 basis points.
  • Asia Pacific Sovereign CDS Index 113.50 +1.75 basis points.
  • S&P 500 futures -.31%
  • NASDAQ 100 futures -.36%.
Morning Preview Links

Earnings of Note
  • (BKS)/-.10
  • (OVTI)/.53
  • (CPRT)/.45
Economic Releases
9:00 am EST
  • S&P/CS 20 City House Price Index MoM% SA for September is estimated to fall -.4% versus a -.28% decline in August.
9:45 am EST
  • Chicago Purchasing Manager for November is estimated to fall to 59.9 versus a reading of 60.6 in October.
10:00 am EST
  • Consumer Confidence for November is estimated to rise to 53.0 versus a reading of 50.2 in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Kocherlakota speaking, NAPM-Wilwaukee Index, Bloomberg FCI Monthly, weekly retail sales reports, weekly ABC consumer confidence reading, (LOW) analyst meeting, (BIIB) analyst meeting, Barclays Lodging Conference, Citi Basic Materials Conference, Piper Jaffray Healthcare Conference and the Canaccrod Genuity Energy Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and real estate 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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