Tuesday, December 07, 2010

Tuesday Watch

Evening Headlines


  • European Union Rules Out Immediate Aid Boost, Banks on ECB to Fight Crisis. European finance ministers ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro ($1 trillion) crisis fund, counting on European Central Bank bond purchases to calm debt-spooked markets. A week after handing Ireland an 85 billion-euro lifeline, the finance chiefs voiced confidence that Spain and Portugal will tame their budget deficits and said the existing credit line is enough to defend them in an emergency. “It’s very difficult to calm the financial markets, but we repeated today one more time that we do everything to secure the financial stability in the euro zone,” Luxembourg Prime Minister Jean-Claude Juncker told Bloomberg News late yesterday after chairing the ministers’ meeting in Brussels.
  • ECB's Wellink Says 'It's Not Up To' Central Bank to Save Euro-Area Nations. European Central Bank Governing Council member Nout Wellink said it is not the central bank’s task to rescue euro-area countries with funding problems. “It’s not up to the ECB to save countries where governments run the risk of becoming insolvent,” Wellink, who also heads the Dutch central bank, said at a panel discussion in Amsterdam today. “We are not here to take over, on our balance sheet, the risks of the national economies of Europe.”
  • Ireland's Lenihan to Present Budget as 'Political Risk' on Bailout Mounts. Irish Finance Minister Brian Lenihan will outline 6 billion euros ($8 billion) worth of spending cuts and tax increases today, seeking to seal an international bailout to rescue the state’s finances and banks. Lenihan will lay out the 2011 budget in parliament in Dublin at 3:45 p.m., adding to measures of about 14 billion euros over the last two years.
  • Buyout Bets Wane as Swaps Show Economy Keeps LBOs in Check: Credit Markets. Buyout speculation that sent credit derivatives on companies from Cardinal Health Inc. to Dell Inc. soaring two months ago is waning as rising unemployment keeps the takeover revival in check. The average cost of credit-default swaps on 15 companies including the Dublin, Ohio-based drug distributor and the computer maker founded by Michael Dell has dropped 33 basis points to 148 basis points, compared with a decline of 2.5 basis point for a benchmark swaps index. Swaps on Cardinal Health have plunged to 60 basis points from as high as 148.3 on Oct. 25. Bets on a surge in leveraged buyouts are being foiled as the sluggish recovery limits private-equity and bank deals. While the LBO pace has more than tripled to $133 billion this year from 2009, that compares with the record $1.6 trillion in announced deals from 2005 to 2007, according to data compiled by Bloomberg.
  • China Outstrips Fed With Liquidity Risking 2011 Inflation Spike. China’s reluctance to allow a stronger exchange rate has hamstrung its efforts to rein in inflation and endangered a campaign to shift the economy toward domestic demand. The central bank continues to add liquidity, with money supply rising 19 percent in November from a year ago, according to the median estimate of 29 analysts in a Bloomberg News survey before a government release this month. That needs to be curbed to 15 percent to 16 percent to rein in inflation, said Fred Hu, the former Goldman Sachs Group Inc. chief China economist who has founded financial advisory firm Primavera Capital Group. China has held off executing a series of interest-rate increases in part because that would put pressure on a currency officials have kept down to shelter exports. The strategy will leave inflation accelerating past 4 percent for 2011, a three- year high, according to a separate survey. The cost: diminished consumer spending and narrower margins for domestic industries. “China is behind the curve” on reining in the monetary measures adopted during the global financial crisis, said Hu, 47, who is based in Beijing and gives talks to Communist Party members on the economy. “Policy makers have been complacent and failed to anticipate the inflationary consequences of the massive stimulus program.”
  • Citigroup(C) to Shed Government 'Handcuffs' as Treasury Starts Selling Stake. Citigroup Inc., recipient of a $45 billion taxpayer-funded bailout in 2008, came a step closer to severing government ties as the U.S. Treasury Department began selling its remaining stake in the third-biggest U.S. bank. The 2.4 billion Citigroup shares, valued at $10.7 billion at yesterday’s closing price of $4.45 each, may be sold as early as today, according to Bloomberg data. Morgan Stanley, which since April has sold 5.3 billion Citigroup shares on behalf of the government in open-market sales, will underwrite the offering, the Treasury Department said yesterday in a statement.
  • Renewable Energy Credits Prove Inflated With Green Claims Seen as Hot Air.
  • Obama Brings CEOs to White House Huddle as 44th President Changes Himself. The president who promised change for a country that was brought to the brink of depression is seeking advice from business leaders two years later for what may be his own makeover as he tries to find jobs for 15 million unemployed Americans.

Wall Street Journal:
  • Deal Struck on Tax Package. Grand Bargain Includes One-Year Drop in Wage Levy, Estate Tax of 35%. President Barack Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favorable treatment to business investments. Other elements of the deal include a temporary reinstatement of the estate tax at 35%—the level favored by most Republican lawmakers—as well as an extension of jobless benefits for the long-term unemployed.
  • Merger of Bookstore Giants Is Pushed. A major shareholder of Borders Group Inc. proposed that the bookseller acquire much bigger rival Barnes & Noble Inc., in a gamble to unite the two giant but struggling retailers at a time of major tumult in the book industry.
  • China's Bright Food Nears Purchase of GNC. China's Bright Food Group Co. is close to a deal to buy U.S. vitamin retail chain GNC Holdings Inc. for between $2.5 billion to $3 billion, people familiar with the matter said, the latest sign of growing Chinese appetite for U.S. companies. A deal for Pittsburgh-based GNC, which is owned by Ares Management and the Ontario Teachers' Pension Plan Board, could be announced in the next few days, the people added.
  • Spill Panel Accuses Varco of Hindering Inquiry. The top lawyer for the presidential panel investigating the BP PLC oil spill has accused a Houston-based, oilfield-services firm of hindering the panel's inquiry by refusing to turn over software that could be used to determine what crew members on the doomed Deepwater Horizon rig were seeing on their computer screens the night of the deadly blast.
  • Chrysler Financial Bidding Begins. Two banking giants are in negotiations to purchase Chrysler Financial Corp., the auto lender owned by Cerberus Capital Management LP, according a person close to the matter. A deal valued at several billion dollars could be reached in the next few weeks, though there is no assurance the talks will lead to a sale.
  • U.S. Steps Up Push on Korea Crisis. In a Phone Call, Obama Urges China's Hu to Rein In Ally; Clinton Rules Out Talks With North Until Provocations Stop. President Barack Obama and China's President Hu Jintao spoke about the continuing crisis on the Korean peninsula, with the Chinese leader calling for calm and Mr. Obama urging Beijing to rein in its neighbor and ally.
  • Prosecute Assange Under the Espionage Act by Dianne Feinstein. Just as the First Amendment is not a license to yell 'Fire!' in a crowded theater, it is also not a license to jeopardize national security.
  • Schwarzenegger Declares Fiscal Emergency in California. Governor Arnold Schwarzenegger declared a fiscal emergency in California today and called the legislature into a special session to address the state’s budget deficit. Schwarzenegger also presented a package of solutions, worth a total $9.9 billion, to help solve it. These include program reductions, alternate funding solutions and shifting funds. Among the governor’s proposals is a plan to lower the deficit by $6.2 million in 2010-11 and $25 million in 2011-12 by increasing monthly health care premiums in families with incomes from 150% to 250% of the federal poverty level.
Business Insider:
Zero Hedge:
  • Watch as David Einhorn Makes a Mockery of One-Man Fed "Expert Network" Larry Meyer. (video) One of the Fed's more arrogant former apparatchiks (of the "100% confidence" interval) Larry Meyer, currently at expert network Macroeconomic Advisors which is used by the likes of Pimco to get inside information on what the Fed will do at its upcoming meetings, appeared on CNBC earlier and attempted to school David Einhorn on "Economics 101."
CNN Money:
  • The 'Tax' You Can't Avoid: Oil Prices Rising. The price of crude is perilously close to $90 a barrel and the average cost for a gallon of gas is inching toward $3 nationwide. If they keep climbing, that could put a serious dent in economic recovery hopes for 2011. A spike in oil and gas prices is often referred to as a tax on consumers. That's because people have little choice but to suck it up and pay higher prices. As a result, consumers may spend less on other things that are not considered as vital. Part of the problem is that the Federal Reserve may be fueling (pardon the pun) the rise in oil with its controversial plan to buy $600 billion in long-term Treasury bonds. Fed critics argue that this quantitative easing program, the second since the onset of the financial crisis two years ago, may weaken the dollar further and lead to higher commodity prices.
LA Times:
  • Near Death, Elizabeth Edwards Quits Cancer Treatment. Elizabeth Edwards, the political wife whose name was hurled into the gossip scene when it was revealed her husband had had a love child with another woman, has only a few days to a few weeks to live, according to a friend of the family.
  • Dems Aim For 100+ Bills in 1 Swoop. Democratic efforts to push through more than 100 public lands and water bills in the lame duck session are reaching a fever pitch, with the recognition this is the last chance many of them have to become law. Senate Majority Leader Harry Reid (D-Nev.) has tasked Democratic leaders on at least three committees to come up with a list of bills that could get past a GOP filibuster.
  • US Jobs Outlook Improves, Europe's Worsens - Manpower. Job seekers in the United States face better prospects in the coming quarter compared with three months ago, but the hiring outlook has worsened in much of Europe, notably in countries like Ireland and Spain where debt problems have eroded employer confidence. Of 36 countries and territories included in Manpower Inc's quarterly poll of hiring intentions, 15 showed improved job prospects for the first quarter, four were unchanged and 17 showed weaker hiring plans than three months ago.
  • Congress Likely to Cut US Ethanol Aid, Not End It. Congress is likely to extend the major U.S. ethanol incentive, rather than let it expire at the end of the month, but it will cut the tax credit by 20 percent or so, an analyst and an industry spokesman said on Monday.
The Guardian:
  • Greece seeks longer to repay €110bn IMF bailout loan as austerity bites. IMF team flies in to Athens amid fears over economic recovery and reforms as EU predicts public debt at 160% of GDP by 2013. Like some visiting potentate, the head of the International Monetary Fund, Dominique Strauss-Kahn, will be given a red carpet welcome when he visits Greece tomorrow but the pomp and circumstance will not be able to hide lingering fears over the debt-choked country's economic future.
China Daily:
  • China's inflation cycle is at a "critical point," requiring "disciplined and comprehensive policies," citing Stephen Roach, non-executive Asia chairman at Morgan Stanley. The Asia nation needs to convince the market that its shift to a "prudent" monetary policy "has teeth" by adopting tougher anti-inflationary measures, Roach said.
China Securities Journal:
  • The period around this weekend may be a "window" for China to raise interest rates, citing analysts at domestic banks and brokerages. The central bank may raise rates around the time set for the release of November's inflation data, which has been scheduled for Dec. 13, citing Li Huiyong, an analyst at Shenyin & Wanquo Securities, who forecast consumer prices may rise 6.1% last month. Lu Zhengwei, an economist at Industrial Bank Co., sees a rate increase as being likely between today and Dec. 18.
Financial News:
  • China should avoid breaking asset bubbles as it may lead to a "hard landing" for the country's economy, citing Liu Yuhui, a researcher with the Chinese Academy of Social Sciences.
Evening Recommendations
Morgan Stanley:
  • Reiterated Overweight on (GOOG), added to Best Ideas List, boosted estimates, raised target to $730.
BMO Capital Markets:
  • Rated (GOOG) Outperform, target $700.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 107.50 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 107.75 +.25 basis point.
  • S&P 500 futures +.18%
  • NASDAQ 100 futures +.22%.
Morning Preview Links

Earnings of Note
  • (AZO)/3.44
  • (MTN)/-1.09
  • (TTC)/.04
  • (CASY)/.78
  • (MW)/.48
  • (COO)/.87
  • (HRB)/-.38
  • (AVAV)/-.06
  • (TLB)/.25
Economic Releases
3:00 pm EST
  • Consumer Credit for October is estimated at -$1.0B versus $2.1B in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The JOLTs Job Openings report for October, IBD/TIPP Economic Optimism Index for December, weekly retail sales reports, ABC Consumer Confidence reading, Goldman Sachs Financial Services Conference, CSFB Holiday Conference, UBS Media/Communications Conference, Morgan Stanley Clean Tech Conference, (LLL) investor conference, (MMM) analyst meeting, (ARM) analyst meeting, (RBC) analyst meeting, (CAH) analyst day, (NVLS) mid-quarter update, (SHOR) analyst meeting and the (TXN) mid-quarter update could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

No comments: