Weekend Headlines
Bloomberg:
- Vigilantes Sidelined as Treasury Swaps Show Growth Tops Deficit. The worst performance by Treasuries since the second quarter of 2009 reflects prospects for faster U.S. economic growth rather than concern that rising budget deficits will drive investors away from government debt. While the average yield on Treasuries rose to 1.89 percent from 1.42 percent at the end of September, according to the Bank of America Merrill Lynch Treasury Master index, the price of credit-default swaps tied to U.S. debt declined to 41.5 basis points from 48.4 basis points at the end of September, according to Bloomberg data. The dollar rose 1.5 percent against an index of currencies of six major U.S. trading partners. The drop in swap prices and the greenback’s strength shows bond vigilantes aren’t ready to punish the U.S. for its spending. Pacific Investment Management Co. and JPMorgan Chase & Co. raised their growth forecasts after President Barack Obama agreed to extend George W. Bush-era tax cuts as reports show gains in retail sales, manufacturing and consumer confidence.
- U.S. Yield Spreads Fall Below Rest of the World. For the first time on record, investors are demanding a smaller premium to own U.S. corporate bonds than global company debt. Bondholders require 166 basis points more yield to hold U.S. investment-grade company debt instead of Treasuries, compared with an average 169 basis-point spread worldwide, according to Bank of America Merrill Lynch data. At the height of the credit crisis in December 2008, companies had the disadvantage of having to pay about 150 basis points more to lure U.S. investors to their bonds than borrowers seeking buyers elsewhere in the world. The shift highlights confidence in North America’s economic recovery as companies across the Atlantic in Europe contend with bailing out Greece and Ireland while waiting to see whether the fiscal crisis ensnares more countries. The U.S. economy is forecast to grow faster this year than either the euro region or Japan, according to Bloomberg surveys. “In the U.S. you have a little more optimism while in Europe you have more concerns about the sovereigns,” said Greg Venizelos, a credit strategist at BNP Paribas SA in London. “The sovereign issues are holding back spreads in Europe.”
- Dollar Rises Versus Euro as Data Shows Slower China Manufacturing Growth. The dollar rose against the euro for the first time in four days after a Chinese report showed manufacturing expanded at a slower-than-forecast pace in December, boosting demand for safer assets. The U.S. currency gained versus 13 of 16 major counterparts after China’s logistics federation and statistics bureau said on Jan. 1 its purchasing managers’ index fell to 53.9 from 55.2 in November. The euro fell by the most in more than two weeks against the dollar as concern Europe’s sovereign debt crisis will linger damped demand for securities in the region, which added Estonia as the 17th member nation on Jan. 1.
- Copper Gains to Record For Third Straight Session on Tight Supply Concern. Copper jumped to a record in New York, extending a second annual advance, on speculation that supply will lag behind demand as the global economic recovery gathers pace. Copper for March-delivery on the Comex in New York gained as much as 0.7 percent to $4.4795 a pound, the highest ever for a most-active contract, before trading at $4.46 a pound. The metal surged 33 percent in 2010, a second annual increase, as the global economy recovered from the worst recession since World War II. The London Metal Exchange and Shanghai Futures Exchange are closed today for holidays. “We’re expecting the Chinese come back into the market in early 2011, leading to a rebound in demand and driving a deficit in the global market balance,” said Xin Yi Chen, a Singapore- based analyst at Barclays Capital.
- Feinberg Says Half of $20 Billion Fund Should Cover BP(BP) Oil-Spillage Claims. Kenneth Feinberg, the lawyer paying victims of BP Plc’s Gulf of Mexico oil spill, said he anticipates about half the $20 billion fund set up by the company should be adequate to cover claims for economic losses.
- Russian Oil Output Hits Post-Soviet Record in 2010. Russia, the world’s largest oil producer, set a post-Soviet record for yearly crude output in 2010, even as the country’s production in December slipped from the previous month. Russian output last year rose 2.2 percent to 10.15 million barrels a day, the highest annual average since the collapse of the Soviet Union in 1991, the Energy Ministry’s CDU-TEK statistics unit said in a statement today. Russia produced 9.93 million barrels a day in 2009.
- Snowplow Slowdowns Might Become American Way: Kevin Hassett. Europeans have grown accustomed to seeing government workers shut down their countries when provoked. At this time of huge deficits from Washington to the smallest towns, government workers in the U.S. also face significant cutbacks. Americans may have had their first taste of what that will mean. New York City Mayor Michael Bloomberg and New York Governor David Paterson are both calling for an investigation of allegations that city workers intentionally dragged out the cleanup of the Dec. 26 blizzard as a way to protest cuts in the city budget. The New York Post, citing City Councilman Dan Halloran, reported that some snow-plow drivers skipped streets on their routes or kept their plows too high to clear streets.
- Insurers Sued Over Death Bets. Scrutiny on Secondary-Market Policies That Paid Investors When Others Died. New investor lawsuits are emerging amid the wreckage of an investment boom in life-insurance policies that spectacularly collapsed. The suits involve the secondary market in life policies, which boomed from 2004 to 2008 as thousands of old people sought to make fast cash by taking out multimillion-dollar policies on their own lives to sell to investors. Tens of billions of dollars worth of insurance changed hands. Under the deals, the investors pay the premiums until the insured person dies, at which point they collect the death benefit.
- Drilling Is Stalled Even After Ban Is Lifted. More than two months after the Obama administration lifted its ban on drilling in the deep-water Gulf of Mexico, oil companies are still waiting for approval to drill the first new oil well there. Experts now expect the wait to continue until the second half of 2011, and perhaps into 2012. The delay is hurting big oil companies such as Chevron Corp. and Royal Dutch Shell PLC, which have billions of dollars in investments tied up in Gulf projects that are on hold and are paying hundreds of thousands of dollars a day for rigs that aren't allowed to drill. Smaller operators such as ATP Oil & Gas Corp., which have less flexibility to focus on projects in other regions, have been even harder hit. The impact of the delays goes beyond the oil industry. The Gulf coast economy has been hit hard by the slowdown in drilling activity, especially because the oil spill also hurt the region's fishing and tourism industries. The Obama administration in September estimated that 8,000 to 12,000 workers could lose their jobs temporarily as a result of the moratorium; some independent estimates have been much higher. The slowdown also has long-term implications for U.S. oil production. The Energy Information Administration, the research arm of the Department of Energy, last month predicted that domestic offshore oil production will fall 13% this year from 2010 due to the moratorium and the slow return to drilling; a year ago, the agency predicted offshore production would rise 6% in 2011. The difference: a loss of about 220,000 barrels of oil a day. Drilling in waters of less than 500 feet also has been snared by the government's increased scrutiny. Regulators requested modifications to 101 shallow-water drilling plans in 2010, compared with 59 such requests in 2009 and just 31 in 2008. Rig operators say drilling permits once approved in a matter of weeks have taken up to five months to process as the government introduced new rules. Some companies are shifting investments out of the Gulf. Erik Milito, a senior official at the American Petroleum Institute, the oil industry's main lobbying group, said more rigs will leave soon if drilling isn't allowed to resume. "They're doing everything they can to keep the contracted rigs in the Gulf," said Mr. Milito. "But they're idle, they're not able to do the work they intended to be out there doing, and that can only go on so long." ATP Oil & Gas, one of the smallest deep-water operators in the Gulf, has seen its share price fall 27% since the Deepwater Horizon exploded, a sign investors are concerned about lost revenue from its delayed wells. ATP's chairman, Paul Bulmahn, has said the company is now looking for projects in other countries. In a letter to President Barack Obama last month, Mr. Bulmahn pleaded for a drilling permit. The slow pace of permitting has drawn fire even from some Congressional Democrats, especially Louisiana Sen. Mary Landrieu, who has said the policy is hurting the region's economy. Louisiana Department of Natural Resources Secretary Scott Angelle pushed for a return to drilling last month. "It's time to get the men and women of this industry back to work, as well as the other industries that are dependent upon drilling activity for survival—the welders, the boat captains, the pipefitters and caterers," he said. "There is a multitude of individuals on the coast who want to get back to work finding the fuel to energize America."
- Hedge Funds Extend Gains, but Insider Probe Swirls. Hedge funds notched another run of gains in 2010. But as the year closed, a wide-ranging insider-trading investigation spooked the industry and cast a cloud that will loom in the months ahead. In 2010, hedge funds on average returned 7.11% through November, according to the latest data from Hedge Fund Research Inc. The Dow Jones Industrial Average climbed 11% in 2010, with December being particularly strong.
- Cooking Oil's Surge Shows How Inflation Hits Chinese. These days, Liu Chuansheng nervously scouts five locations before he buys cooking oil, illustrating how a sudden spike in the price of the Chinese kitchen's most vital ingredient has become close to a national crisis.
- Investors' Forecast: Sunny With Chance of Overheating. Investor optimism is almost as much of a New Year's tradition as hangovers and resolutions: This January, like last, forecasters see the U.S. economy growing at a rate that is neither too hot nor too cold. For many Americans, with unemployment hovering near 10%, it's hard to feel optimistic in the midst of the current recovery, but investors see things differently: They believe the economy has more to fear from growing too quickly rather than too slowly.
- Big Firms Poised to Spend Again. Big U.S. companies have cleaned up their balance sheets and, flush with cash, appear open to using it in 2011 on factories, stores and even hiring. "We preserved cash" over the past few years, said Jim Flaws, chief financial officer of Corning Inc. "Now we're turning around and feeling comfortable about our outlook and spending it."
- The EPA's War on Texas. The Environmental Protection Agency's carbon regulation putsch continues, but apparently abusing the clean-air laws of the 1970s to achieve goals Congress rejected isn't enough. Late last week, the EPA made an unprecedented move to punish Texas for being the one state with the temerity to challenge its methods.
- New York Real Estate 'Green Shoots' Cheer Developers.
- No. 2 U.S. Automaker's Engine Revved By Positive Consumer View. Ford(F), also benefiting from increasing U.S. auto sales, isn't ready to let GM outshine it.
- Boomers Hit New Self-Absorption Milestone: Age 65. In keeping with a generation’s fascination with itself, the time has come to note the passing of another milestone: On New Year’s Day, the oldest members of the Baby Boom Generation will turn 65, the age once linked to retirement, early bird specials and gray Velcro shoes that go with everything.
- Public Workers Face Outrage as Budget Crises Grow. “The mantra is that the problem is the unions, the unions, the unions.” Across the nation, a rising irritation with public employee unions is palpable, as a wounded economy has blown gaping holes in state, city and town budgets, and revealed that some public pension funds dangle perilously close to bankruptcy. In California, New York, Michigan and New Jersey, states where public unions wield much power and the culture historically tends to be pro-labor, even longtime liberal political leaders have demanded concessions — wage freezes, benefit cuts and tougher work rules. It is an angry conversation.
- Real Estate Developers Prosper Despite Defaults. Industry lore has it that New York is one of the toughest, most unforgiving real estate markets in the world. The costs are so high, the unions so ornery, the politicians so demanding and the rivalries so fierce, that one false move invites financial disaster. But the truth is that there have been surprisingly few career fatalities among New York developers, even though they have lost billions of investor dollars on overpriced real estate and have littered the city with unfinished apartment buildings. While a homeowner who lost a house to foreclosure would find it difficult to borrow for years, developers who defaulted on enormous loans have still been able to attract money. The reasons, experts say, are that there is still plenty of money floating around and that the market has a very short memory.
- Computers That See You and Keep Watch Over You.
- Europe's Young Grow Agitated Over Future Prospects.
- The New Speed of Money Reshaping Markets. A SUBSTANTIAL part of all stock trading in the United States takes place in a warehouse in a nondescript business park just off the New Jersey Turnpike. Few humans are present in this vast technological sanctum, known as New York Four. Instead, the building, nearly the size of three football fields, is filled with long avenues of computer servers illuminated by energy-efficient blue phosphorescent light. Countless metal cages contain racks of computers that perform all kinds of trades for Wall Street , hedge funds, brokerage firms and other institutions. And within just one of these cages — a tight space measuring 40 feet by 45 feet and festooned with blue and white wires — is an array of servers that together form the mechanized heart of one of the top four stock exchanges in the United States. The exchange is called Direct Edge, hardly a household name. But as the lights pulse on its servers, you can almost see the holdings in your zip by. “This,” says Steven Bonanno, the chief technology officer of the exchange, looking on proudly, “is where everyone does their magic.”
- Goldman(GS) Invests in Facebook at $50 Billion Valuation. Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. The deal makes Facebook now worth more than companies like eBay, Yahoo and Time Warner.
Business Insider:
LA Times:
- When Will Housing Come Back in California? Five Experts Offer Their Views.
- An Unlikely Duo's Auto Safety Quest. A college professor and a former federal transportation official team up to seek standard installation of black boxes in cars — a system they hoped would do for traffic safety what it's done for aviation.
- Rep. Darrell Issa Pledged to Find $200 Billion in Government Waste. As the new head of the House oversight committee, Republican Darrell Issa of Vista says the Obama administration has 'played fast and loose with the money Congress gave them.'
- Feds Wind Plan May Zap Massachusetts. Massachusetts electric ratepayers could get jolted by plans to open up huge swaths of federal waters south of Martha’s Vineyard and Nantucket for more offshore wind farms. About a million National Grid ratepayers are already expected to get hit with a 2 percent hike in their electric bills due to the planned Cape Wind project in Nantucket Sound. But if 3,000 square miles of additional federal waters are fully developed, as envisioned by the U.S. Interior Department and the Patrick administration, then ratepayers could see double-digit rate hikes valued at tens of billions of dollars, business and industry experts warn.
- Amazon.com(AMZN) in Talks to Buy Out UK's Lovefilm. Amazon is reportedly looking to buy U.K.-based video rental firm Lovefilm in a deal that would value it at £200 million ($312 million), according to a report in the Sunday Times (cited by Reuters). Buying Lovefilm could give Amazon a stronger position in the U.K. and also give it some expertise to go up against Netflix’s(NFLX) subscription DVD-by-mail and video rental business.
Politico:
- House GOP Plans Two-Pronged Assault on Health Law. The new Republican-controlled House plans to schedule a vote to repeal the sweeping health care overhaul before President Barack Obama delivers his annual State of the Union address late this month, incoming House Energy and Commerce Chairman Fred Upton (R-Mich.) said Sunday. “We have 242 Republicans,” he said on “Fox News Sunday.” He added, “There will be a significant number of Democrats, I think, that will join us. You will remember when that vote passed in the House last March, it only passed by seven votes.” Upton, whose committee will play a key role in the GOP's effort to roll back the law, said that he believes the House may be near the two-thirds majority required to override a presidential veto. “If we pass this bill with a sizeable vote, and I think that we will, it will put enormous pressure on the Senate to do perhaps the same thing,” he said. “But then, after that, we're going to go after this bill piece by piece.”
- Experts: Gas Could Climb to $3.75 Per Gallon. Drivers in the USA could be paying as much as $3.75 a gallon for gas this spring, oil experts predict. Prices at the gas pump have inched up all year as the cost of crude oil neared $100 a barrel. On Christmas Day, the average nationwide price of self-serve regular hit $3, a record for that day. By year's end, the average price reached $3.06. Prices creeping toward $4 a gallon could have dire consequences for some industries and slow the economic recovery, analysts say. The record price is $4.11 a gallon on July 17, 2008. "We learned in 2008 that $4-a-gallon gas is a deal-breaker for the economy," says Joel Naroff, president of Naroff Economic Advisors. "If it happens, it's not sustainable. There's only so much the consumer will bear." He says drivers who need gas to get to work will buy it, but they'll cut spending elsewhere, sucking money out of the recovering economy. Consumers react when the price reaches $3.50, says Tom Kloza, chief oil analyst for the Oil Price Information Service. People living paycheck to paycheck will cut back on other spending to compensate for higher gas prices, he says, and gas at $4 a gallon "throws us into a consumer slowdown." "Oil prices ripple through every part of the economy," Kloza says. "I think it'll be the second highest year for oil prices on record." He predicts the price of a gallon of gas will range from $3.25 to $3.75 in the spring and crude oil will exceed $100 a barrel for a short time. He attributes much of the increase to speculation in oil futures. Last week, former Shell CEO John Hofmeister caused a stir when he predicted $5-a-gallon gas in 2012 as worldwide demand for oil grows while U.S. production shrinks. Developing wind, solar and biofuel alternatives will not generate enough power to meet the demand, Hofmeister says.
- There is mounting evidence that the economic recovery is sustainable, Swiss Reinsurance Co. Chairman Walter Kielholz said. The situation in the U.S. has improved recently, Kielholz said in an interview. The risk of a double dip is "very small," he said.
- Egyptian Church Bomb Victims Mourned. Dozens of grieving Christians attended mass at the Saints Church in Egypt's Mediterranean port city of Alexandria on Sunday, the day after 21 worshippers were killed there in an apparent suicide bombing. The service was marked by the grief and anger felt by a congregation devastated by the attack, which took place outside the church's door about 30 minutes into the new year as churchgoers were leaving. Many sobbed while others cried hysterically and screamed in anger. Some lamented that attacks on Christians and churches often happen during usually happy occasions like Christmas. Others complained that the government was not doing enough to protect churches. Riot police backed by armoured vehicles were deployed outside the church on Sunday, however many felt it was too little, too late. "There is a lack of security in Egypt. The Interior minister must be removed," said one man who had lost a relative in the attack. Rev. Maqar, who led the service, did not give a sermon, preferring to express his grief with silence. "Is it possible that what happened is even remotely human? We were carrying dead bodies, but in pieces. Who can fathom such a thing? Who can tolerate it?" he said on Sunday. Saturday's attack, which left nearly 100 people injured, was the worst violence against Egypt's Christian minority in a decade. The Interior ministry blamed the bombing on "foreign elements." The Alexandria governor has accused al-Qaeda, pointing to the network's branch in Iraq, which has attacked Christians there and threatened Egypt's Coptic Orthodox Christian community.
- Two Dead as Flood Chaos Hits 22 Queensland Towns. Two people are dead and one other is feared drowned in Queensland as northern Australia's devastating flood emergency continues to wreak havoc. More than 1000 people were sheltering in evacuation centres across Queensland last night. Twenty-two towns in the state's centre are either under water or isolated and 900 houses have been abandoned.
Barron's:
- Made negative comments on (AIG).
- Rated (WR) Buy, target $27.
- Rated (ANAC) Buy, target $9.
- Reiterated Buy on (AMD), raised estimates, boosted target to $12.50, added to Top Picks Live list.
- Asian indices are +.50% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 102.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 103.0 unch.
- S&P 500 futures +.21%.
- NASDAQ 100 futures +.53%.
Earnings of Note
Company/Estimate
- None of note
10:00 am EST
- ISM Manufacturing for December is estimated to rise to 57.0 versus a reading of 56.6 in November.
- ISM Prices Paid for December is estimated to rise to 71.3 versus a reading of 69.5 in November.
- Construction Spending for November is estimated to rise +.2% versus a +.7% gain in October.
- None of note
- None of note
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