Friday, December 31, 2010

Friday Watch

Evening Headlines


  • Corporate Bonds Signal Recovery as Junk Leads. Corporate bonds capped their best two-year global performance ever as signs of an accelerating U.S. recovery outweighed concern the European Union will fail to contain its fiscal crisis. Company debt returned 7.1 percent this year, following a record 16.3 percent in 2009, according to Bank of America Merrill Lynch index data. Bonds issued by the neediest borrowers led the rally, with junk-rated debt in the U.S. gaining 15 percent in 2010. “Corporate balance sheets are exceptionally strong,” said Mark Kiesel, the global head of corporate bond portfolio management at Newport Beach, California-based Pimco, manager of the world’s biggest bond fund. “That’s been the story of 2009 and 2010, the amazing deleveraging of corporate America and the free-cash-flow generation.” The extra-yield investors demand to own speculative-grade debt instead of Treasuries narrowed 107 basis points this year to 532 basis points, following a record 11.73 percentage points of tightening in 2009, Bank of America Merrill Lynch data show.
  • PIMCO to Pay $92 Million to Settle Futures Lawsuit. Pacific Investment Management Co., manager of the world’s biggest bond fund, agreed to pay $92 million to settle a private class action lawsuit that accused it of manipulating the price of Treasury futures contracts. Pimco, which manages about $1.2 trillion, was accused of cornering the market for contracts on the 10-year notes in May and June 2005 on the Chicago Board of Trade. The lawsuit, which sought as much as $600 million in damages, alleged that Pimco used its holdings to drive up the price for traders who had sold the securities short, betting they would fall.
  • New Drug Approvals Fall in 2010 as Safety Concerns Slow U.S. FDA Decisions. Twenty-one new drugs were approved in the U.S. this year, the fewest since 2007, as the Food and Drug Administration showed more willingness to delay or reject medicines with potential safety risks. The tally, compiled by Bloomberg from an FDA database, compares with 25 approvals last year and 24 in 2008, according to the FDA’s website. Nineteen new drugs were cleared in 2007, the fewest in 24 years.
  • China Ministries to Assess Foreign Property Investments, China Daily Says. China’s housing ministry will regularly assess foreign capital’s entry into the property market with the Ministry of Commerce and the nation’s currency regulator, the China Daily reported, citing unidentified industry people. China will enhance regulation of foreign institutions’ investment in the country’s property market and home purchases by non-Chinese citizens as part of its efforts to curb the inflow of hot money and tightening of the real estate sector, the China Daily reported, citing Jiang Weixin, minister of Housing and Urban-Rural Development.
  • China's Stocks Rise, Paring World's Worst Annual Loss in 2010. The Shanghai gauge’s advance for a third day narrowed its decline for the year to 15 percent, the worst performer among the 14 biggest world benchmark indexes, according to data compiled by Bloomberg. A measure tracking property developers, brokerages and banks in the CSI 300 Index fell 28 percent this year, the most among the 10 industry groups.
  • Bloomberg's North Says Dodd-Frank Creates 122 New Panels: Video.

Wall Street Journal:
  • Bumpy Climb for Stocks in 2010. Investors Endured a Year of Wobbles and Worries, but Market Rewarded Them. Stocks turned in another solid year, the Dow Jones Industrial Average gaining nearly 11% and the Nasdaq doing better still.
  • Housing Pain Pits Neighbor Against Neighbor in Florida. Few things agitate Sid Schulman, who often shoots the breeze with other retirees and flirts with women friends at their condominium complex here. But it galls him when neighbors stop paying their mortgages and maintenance fees, and leave the cost of community upkeep to others.
  • Retailers Swipe at Credit-Card Plan. Fed Rule Would Restrict Credit Cards for Some Consumers; Women's Rights Issue. The Credit Card Act signed into law last year was supposed to stop financial institutions from sleazy antics. But instead, some retailers say, it may restrict stay-at-home moms. Dress Barn Inc., Home Depot Inc., Citigroup Inc. and other companies are urging the Federal Reserve to drop a proposed rule that would require credit-card issuers to consider only a borrower's "independent" income rather than household income. The new standard, which would apply to new credit-card accounts and requests to increase limits on existing accounts, could make it difficult for some customers to get credit on the spot, especially stay-at-home moms.
  • China Ministry Blacklists 18 Developers For Leaving Land Idle.
  • China Clamps Down on Internet-Phone Use: Report. Chinese regulators are clamping down on Internet telephony that isn't provided by one of the country's two state-owned telecommunications companies, a move that could make services like Skype SA unavailable in the world's most populous country, according to a report in The People's Daily on Thursday.
  • Wave of Tablets Could Give Chipmaker ARM a Hand. At next week's Consumer Electronics Show, Microsoft (MSFT) is widely expected to announce its own tablet operating system to compete with Apple's (AAPL) iPad and other products that run on Google's (GOOG) Android operating system. Who might win in that fight? ARM Holdings (ARMH).
CNN Money:
USA Today:
  • Investors Are Beginning to Turn Away From Bonds, Embrace Stocks. It appears investors are beginning to get comfortable with risk again. Not only are they pulling money out of bond mutual funds at the fastest pace in two years, but they're slowly starting to embrace stocks again.
  • Skype Adds Video-Calling to iPhone App. Internet phone company Skype is bringing live video calls to iPhone and iPad screens in an aggressive bid to cash in on the popular devices and build momentum for its imminent public stock offering.
  • Medicare to Swell With Baby Boomer Onslaught. Baby Boomers are about to create a record population explosion in the nation's health care program for seniors. Starting on Saturday, Baby Boomers begin turning 65 and qualifying for Medicare — one every eight seconds. A record 2.8 million will qualify in 2011, rising to 4.2 million a year by 2030, projections show. In all, the government expects 76 million Boomers will age on to Medicare. Even factoring in deaths over that period, the program will grow from 47 million today to 80 million in 2030. At the same time, health care costs are projected to outpace inflation, and medical advances will extend lives, straining the program's finances. It's expected to cost $929 billion by 2020, an 80% increase over 10 years. The prospect of a growing senior population that's living longer and costing more is the biggest fiscal problem facing the government, budget and health experts say. It will put more pressure on President Obama and Congress to reduce Medicare benefits, increase co-payments or raise the qualifying age. "We're at the beginning of the age wave, which will bring a tsunami of spending associated with the Medicare program," says David Walker, a former U.S. comptroller general now heading the Comeback America Initiative, a fiscal watchdog group. "It serves to reinforce the need to reform existing entitlement programs and restructure existing health care promises in order to make them affordable and sustainable."
China Securities Journal:
  • China's first round of rare earth export quotas for next year were actually cut by about half from first round quotas for 2010, citing an official.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 103.0 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 103.0 -.5 basis point.
  • S&P 500 futures +.04%
  • NASDAQ 100 futures +.08%.
Morning Preview Links

Earnings of Note
  • None of note
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Bloomberg FCI Monthly could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

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