Monday, December 06, 2010

Monday Watch

Posted by Gary .....at 12:38 AM

Weekend Headlines
Bloomberg:
  • Bernanke Says Fed May Take More Action to Curb Joblessness. Federal Reserve Chairman Ben S. Bernanke said U.S. unemployment may take five years to fall to a normal level and that Fed purchases of Treasury securities beyond the $600 billion announced last month are possible. “At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate” of about 5 percent to 6 percent, Bernanke said. The purchase of more bonds than planned is “certainly possible,” said Bernanke, 56. “It depends on the efficacy of the program” and the outlook for inflation and the economy. The economy, which grew 2.5 percent in the third quarter, is so weak that Bernanke said growth could fizzle out without support. “It’s very close to the border,” he said. “It takes about 2.5 percent growth just to keep unemployment stable and that’s about what we’re getting. We’re not very far from the level where the economy is not self-sustaining.” Bernanke said a return to a recession “doesn’t seem likely” because sectors of the economy such as housing can’t become much more depressed. Still, a long period of high unemployment could damage confidence and is “the primary source of risk that we might have another slowdown in the economy.” Bernanke said he is “100 percent” confident that, when necessary, the central bank can control inflation and reverse its accommodative monetary policy. “We’ve been very, very clear that we will not allow inflation to rise above 2 percent,” he said. “We could raise interest rates in 15 minutes if we have to,” he said. “So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.” The yield on the 10-year Treasury note increased 44 basis points to 3.01 percent on Dec. 3 from a month before, while the 30-year Treasury yield climbed 27 basis points to 4.31 percent.
  • Parnassus Beats 85% of Peers as Top Funds Stay Bullish for 2011. For Jerome Dodson at Parnassus Investments, growing public pessimism about the economy in 2010 convinced him to purchase stocks. Allianz RCM Technology Fund’s Walter Price ruled out a recession after executives told him business was improving. At Columbia Management Investment Advisers LLC, Tom Galvin said record cash made equities impossible to pass up. Unemployment close to 10 percent and falling home sales failed to deter the best-performing U.S. fund managers this year, handing them average gains of 28 percent, data compiled by Bloomberg show. They’re bullish on 2011, boosting stakes in oil producers, temporary-help providers and Internet companies. “When everybody’s depressed is absolutely the best time to buy stock,” said Dodson, who oversees $4.5 billion as president of Parnassus in San Francisco.
  • Bond Yields at 4% Draw Janney, Northern Trust as Sales Hop: Credit Markets. Investment-grade U.S. corporate bonds are attracting investors betting a struggling labor market will help contain inflation after yields rose above 4 percent for the first time since early August. The extra yield investors demand to own investment-grade corporate bonds rather than Treasuries shrank to 179 basis points, or 1.79 percentage points, as of Dec. 3 from 182 at the end of November as the U.S. reported that the unemployment rate jumped to 9.8 percent, Bank of America Merrill Lynch index data show.
  • Euro's Worst to Come as Best Forecasters See Crisis Spreading. The most accurate foreign-exchange strategists say the euro’s worst annual performance since 2005 will extend into next year as the region’s sovereign-debt crisis saps economic growth. Standard Chartered Plc, the top overall forecaster in the six quarters ended Sept. 30 based on data compiled by Bloomberg predicted the euro may weaken to less than $1.20 by mid-2011 from $1.3414 last week. Westpac Banking Corp., the second most accurate, is “bearish in the short term,” and No. 3 Wells Fargo & Co. cut its outlook at the end of last week.
  • Euro Finance Chiefs Meet as Belgium Seeks Bigger Crisis Fund. European finance ministers travel to Brussels today as Belgium argues that the region’s 750 billion- euro ($1 trillion) bailout fund could be increased to fight contagion from the sovereign crisis.
  • Hedge Funds Decline in November Amid Europe Debt Crisis, Stock Market Drop. Hedge funds declined the most in six months in November as the European debt crisis pushed stock markets lower across the globe. The Bloomberg aggregate hedge fund index fell 1.5 percent, the most since May, when a sudden selloff in stocks known as the “flash crash” prompted investors to cut risk. Long-short equity funds, whose managers can bet on rising and falling stocks, dropped 1.6 percent last month and gained 6.1 percent since the start of the year.
  • Hedge Funds Increase Bullish Oil Bets Most in Eight Weeks: Energy Markets. Hedge funds increased bullish bets on oil by the most in eight weeks as signs that the global economic recovery is gaining pace stoked speculation demand for crude will rise. The funds and other large investors boosted so-called net- long positions, or wagers that oil prices will climb, by 18 percent in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest increase since the week ended Oct. 5.
  • Copper Stockpiles Slumping Makes Metal a Favorite for Goldman(GS). The biggest slump in copper inventories in six years is compounding shortages as prices head toward record highs, making the metal a top pick for Goldman Sachs Group Inc. and Morgan Stanley. Demand will outpace supply by 367,500 metric tons next year, enough for wires, pipes and appliances in about 1.8 million U.S. homes, according to the median forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an all-time low of less than one week’s usage, said Michael Widmer, a London-based metals analyst at Bank of America Merrill Lynch. Global exchange inventories have dropped 22 percent this year, heading for the largest slide since 2004, data compiled by Bloomberg show.
  • Wal-Mart(WMT), Carrefour Face Temporary Price Controls in Southwest China City. The southwestern Chinese city of Kunming, where Wal-Mart Stores Inc. and Carrefour SA have operations, has imposed temporary price ceilings on daily necessities to counter inflation. Kunming’s government asked five retailers -- three non- Chinese, one Chinese and one based in Hong Kong -- to report any price adjustments and give reasons for the changes two days in advance of making any alterations, the National Development and Reform Commission’s local branch said on its website yesterday. Besides the five companies, other food, cooking-oil and beverage producers are requested to apply for government approval 10 working days before making price changes, the statement said. The city government also imposed temporary price ceilings on daily necessities in major parts of the city starting from yesterday to the end of February, according to the statement. Prices of grain, cooking oil, meat, eggs, milk and noodles are to be kept at levels before Nov. 17, the statement said. The city limited retail prices of vegetables, depending on type, to 40 percent to 100 percent higher than wholesale prices, the statement said.
  • North Korea Says Tensions 'Extreme' as South Korea Plans Drills. North Korea said South Korea is raising tension on the Korean peninsula to an “uncontrollable extreme phase” by holding military exercises with the U.S. and live-firing drills close to disputed waters. The South Korean government “is so hell-bent on the moves to escalate the confrontation and start a war that it is recklessly behaving bereft of reason,” the state-run Korean Central News Agency said in a commentary yesterday. North Korea is “now maintaining a maximum self-possession and self- control,” it said.
  • BofA(BAC) Tells Fed It Fulfilled Final TARP Exit Condition, FT Says. Bank of America Corp. told U.S. regulators that it has sold enough assets this year to meet the final condition set as part of its repayment of a $45 billion government bailout, the Financial Times reported. The bank told the Federal Reserve the sale of BlackRock Inc. shares and the sale of the right to buy China Construction Bank Corp. stock would bring it near the $3 billion requirement, the newspaper said. The balance will come from a tax gain from holding a smaller stake in BlackRock, according to the report.
Wall Street Journal:
  • New Debt Ceiling Part of Tax Talks. An increase to the federal government's borrowing limit is being considered in talks on extending the Bush-era tax cuts, people familiar with the situation said Friday. They warned, however, that the issue could be too politically toxic to be part of a final deal.
  • Ex-USTR Not So Diplomatic About China. Now that Susan Schwab, who was U.S. Trade Representative under President George W. Bush, has left public life, she’s free to say what she really thinks about the state of trade relations with China. “Foreign firms are in fact discriminated against in this market,” Ambassador Schwab, now a professor at the University of Maryland’s School of Public Policy, declared at a panel discussion Saturday hosted by the Italian Embassy in Beijing. Schwab referred to her own experience negotiating deals in China for Motorola in the early 1990s. At the time, “the message we got from the government was that there was technology transfer for market share,” she said. Based on those signals, Motorola and other companies decided to invest for the long term in China, expecting treatment to improve over time. “The outcome for major multinationals that took this approach has been very mixed,” Ms. Schwab said.
  • China Clones, Sells Russian Fighter Jets. A year after the collapse of the Soviet Union, a cash-strapped Kremlin began selling China a chunk of its vast military arsenal, including the pride of the Russian air force, the Sukhoi-27 fighter jet. For the next 15 years, Russia was China's biggest arms supplier, providing $20 billion to $30 billion of fighters, destroyers, submarines, tanks and missiles. It even sold Beijing a license to make the Su-27 fighter jet—with imported Russian parts. Today, Russia's military bonanza is over, and China's is just beginning. After decades of importing and reverse-engineering Russian arms, China has reached a tipping point: It now can produce many of its own advanced weapons—including high-tech fighter jets like the Su-27—and is on the verge of building an aircraft carrier. Not only have Chinese engineers cloned the prized Su-27's avionics and radar but they are fitting it with the last piece in the technological puzzle, a Chinese jet engine. In the past two years, Beijing hasn't placed a major order from Moscow. Now, China is starting to export much of this weaponry, undercutting Russia in the developing world, and potentially altering the military balance in several of the world's flash points.
  • Iran Touts Nuclear Advance Ahead of U.S. Talks. As the U.S. and Iran prepare for Monday's first diplomatic meeting between the two sides in more than a year, Tehran announced delivery of its first shipment of homemade "yellowcake" uranium—a troubling sign for Western governments seeking to contain the nation's nuclear ambitions. At the same time, significant differences have emerged over such basics as the terms and substance of the discussions on Tehran's nuclear program set for Monday and Tuesday in Geneva.
  • As Bonds Flag, Stocks Beckon. After a stellar two-year run, the bond market is stumbling and a number of investors are betting that stocks will post better returns in the coming months. Among the signs being held up as evidence: Investors in the past two weeks pulled money from bond funds for the first time in almost two years, and there are indications of a growing move toward stocks.
  • No Longer Tiny, Netflix(NFLX) Gets Respect - and Creates Fear. After years as a bit player in entertainment, Netflix Inc. is being eyed for a new role by Hollywood: industry hulk.
  • Julian Assange, Information Anarchist. WikiLeaks founder Julian Assange hopes to hobble the U.S. government. Whatever else WikiLeaks founder Julian Assange has accomplished, he's ended the era of innocent optimism about the Web. As wiki innovator Larry Sanger put it in a message to WikiLeaks, "Speaking as Wikipedia's co-founder, I consider you enemies of the U.S.—not just the government, but the people." The irony is that WikiLeaks' use of technology to post confidential U.S. government documents will certainly result in a less free flow of information. The outrage is that this is Mr. Assange's express intention.
CNBC:
IBD:
NY Times:
  • Jamie Dimon: America's Least-Hated Banker.
  • Mounting State Debts Stock Fears of a Looming Crisis. The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week. While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years. “It seems to me that crying wolf is probably a good thing to do at this point,” said Felix Rohatyn, the financier who helped save New York City from bankruptcy in the 1970s. Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.
Business Insider:
Zero Hedge:
Washington Post:
  • A Fateful Step for a Banking Giant. When Bank of America agreed to buy Countrywide Financial for $4 billion in January 2008, the bank's chief executive, Kenneth D. Lewis, called it a "one-time opportunity." When this opportunity knocked, however, it blew the door down. More than two years after the acquisition, Bank of America has taken write-offs of $5.5 billion because of troubles at Countrywide. And the losses are still mounting. Now, instead of celebrating its improved profits and stronger capital base, the bank is trapped in a "Groundhog Day"-style routine of fending off crisis.
Chicago Tribune:
  • Groupon Rejects Google's(GOOG) Offer; Will Stay Independent. The two companies had been engaged in talks, with speculation about the marriage reaching a fever pitch over the last week. Mountain View, Calif.-based Google reportedly had offered between $5 billion and $6 billion for the daily deal start-up. Groupon still may choose to pursue an initial public offering but will not make a decision about going public until 2011, a source said.
Politico:
  • GOP: Doc Fix Can Break Health Reform. The idea of tying the doc fix to a partial health reform repeal has legs because it comes with a clear rhetorical message: Congress should not start creating new entitlements without the necessary funding to uphold existing ones.
  • Dems Dreading Pending Tax Deal. The deal that Democrats, Republicans and the White House appear to be stepping gingerly but inexorably toward to wrap up the lame-duck congressional session is generating some grumbling from Democrats that they won't be particularly pleased with the likely outcome. "We're only moving there against my judgment and my own particular view of things,” Senate Majority Whip Dick Durbin (D-Ill.) said Sunday on CBS's "Face the Nation."
  • Kyl Blasts Administration for Foot-Dragging on WikiLeaks. Sen. Jon Kyl (R-Ariz.) is accusing the Obama administration of being too slow to respond to the security threat posed by the troves of classified information published by the online information hub WikiLeaks. "What troubles me is this is the third dump and the administration didn’t seem too concerned about the first two dumps," Kyl said Sunday on CBS's "Face the Nation," referring to the recent release of a collection of diplomatic cables and earlier releases of hundreds of thousands of classified U.S. military reports from Iraq and Afghanistan. "It’s only when it starts to embarrass the State Department because they have cables that are very ..revealing about what some of our diplomats have said about other world leaders that we appear to be all that exercised about it," Kyl said.
USA Today:
  • Jobless Rate Up Among Those With at Least Bachelor's Degree. Last month's increase in unemployment was especially discouraging for the well-educated. The jobless rate for Americans with at least a bachelor's degree rose to 5.1%, the highest since 1970 when records were first kept, reports the Bureau of Labor Statistics. October's 4.7% rate was up from 4.4% in September. Meanwhile, the national unemployment rate last month rose to 9.8% from 9.6%. Joblessness among those with advanced educations probably drove the overall rate higher, as that group makes up 30% of the labor force, the single biggest sector, says Mark Zandi, chief economist of Moody's Analytics. The government's figures show there were 2.4 million unemployed people last month with bachelor's degrees and higher.
Financial Times:
  • Europe's Leaders at Odds Over Bond Plan. Germany’s Wolfgang Schäuble – on Monday named as the FT’s European finance minister of the year – said in a video interview that jointly guaranteed bonds would require “fundamental changes” in European treaties. He added that it was also key that governments had incentives to maintain discipline over finances – and faced sanctions when they did not. “Otherwise the euro would fail,” he warned. Germany also fears the issuance of joint bonds would raise its borrowing costs.
Telegraph:
  • China's Credit Bubble on Borrowed Time as Inflation Bites. The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is a new twist. "Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief. Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.
  • Bernanke's QE3 Faces Stiff Resistance. Ben Bernanke, chairman of the Federal Reserve, was expected to open the way for a third blast of bond purchases in a 60 Minutes interview, but any such move is likely to face resistance from Fed hawks and mounting criticism in Congress. Mr Bernanke faces a shift in the balance of power as hard-liners join the Fed’s voting body this year. Jeffrey Lacker from the Richmond Fed said he was “not well-disposed” to bond purchases, suspecting that the “risks exceeed the benefits.” Kevin Warsh from the Fed board has raised doubts, as have the Fed chiefs from Dallas, Philadephia, Minneapolis, and Kansas. Mr Bernanke’s stated purpose is to force down borrowing costs, yet inflation fears have instead pushed up yields on 10-year Treasuries by 60 basis points to 3pc since early October. Long rates are used to price mortgages and company debt. Oil has shot up to $90 a barrel. This acts as a tax on US consumers.
  • JPMorgan(JPM) Revealed as Mystery Trader That Bought £1bn-worth of copper on LME. The American investment bank JP Morgan is the mystery trader that grabbed more than half the copper on the London Metal Exchange, The Daily Telegraph has learned.
The Guardian:
Efe:
  • China and Venezuela signed a memorandum of understanding to place a further $6 billion in a joint development fund, citing members of a delegation accompanying Finance Minister Jorge Giordani on a visit to the Asia country. China will contribute $4 billion and Venezuela $2 billion into the fund that will be used to finance development projects in bother countries.
China Securities Journal:
  • China must curb "excessive" trading and speculation in its futures markets to curb risks and rein in inflation expectations, citing Jiang Yang, an assistant to chairman of the China Securities Regulatory Commission.
  • China will end a preferential purchase tax for vehicles with engines no larger than 1.6 liters next year, citing a person at the National Development and Reform Commission.
Weekend Recommendations
Barron's:
  • Made positive comments on (WHR) and (SJM).
Citigroup:
  • Reiterated Buy on (GLW), target $22.
  • Reiterated Buy on (ITW), boosted estimates, raised target to $60.
Night Trading
  • Asian indices are unch. to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.50 -2.5 basis points.
  • Asia Pacific Sovereign CDS Index 107.50 -1.75 basis points.
  • S&P 500 futures -.15%.
  • NASDAQ 100 futures -.07%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (DG)/.35
  • (SPB)/.33
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Lacker speaking, UBS Media/Communications Conference and the (FIS) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology 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 week.

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)