Thursday, January 06, 2011

Thursday Watch


Evening Headlines

Bloomberg:

  • Soros Mistrusts EU Aid as Irish Default Risk Soars. Ireland’s bailout money starts to arrive next week, with investors expressing skepticism about the country’s ability to repay its debts by driving the cost of insuring against default to a record. The government was forced in November to accept 85 billion euros ($113 billion) to bolster its finances and inject 10 billion euros into Irish banks, with another 25 billion euros in reserve. Assessing the aid plan, billionaire George Soros wrote in the Financial Times last month that the country will have to renegotiate the accord. Finance Minister Brian Lenihan said a default would “destroy” the country. “If the government doesn’t have to put more than the 10 billion-euro initial capital injection into the banks, the package is doable,” said Brian Devine, an economist at NCB Stockbrokers in Dublin. “But there’s a higher probability a government would have to renegotiate on sovereign debt if the bank costs move beyond that.”
  • Goldman Sachs(GS) May Sell, Hedge Facebook Stake Without Warning to Investors. Goldman Sachs Group Inc. clients considering whether to buy shares in closely held Facebook Inc. should take heed: Wall Street’s most profitable securities firm could unload its own holdings without letting them know. In the last sentence of a one-page investment profile sent to private wealth clients, the firm explains: “GS Group may at any time further reduce its exposure to its investment in Facebook (through hedging arrangements, sales or otherwise), without notice to the fund or investors in the fund.” The offering document, obtained by Bloomberg News, shows that $75 million of the $450 million investment in Facebook by Goldman Sachs is coming from Goldman Sachs Investment Partners, a hedge fund that handles client money. The firm’s own $375 million investment will probably be cut to $300 million because Goldman Sachs expects to sell $75 million to third parties or to the fund it created so clients could buy a stake in Facebook. “There may be conflicts of interest relating to the underlying investments of the fund and Goldman Sachs,” according to the Facebook offering document’s disclosures section. Material in the documents “is not guaranteed as to accuracy or completeness.”
  • China Rare Earths Leave Toxic Trail to Toyota, Vestas. Rare earth metals are key to global efforts to switch to cleaner energy -- from batteries in hybrid cars to magnets in wind turbines. Mining and processing the metals causes environmental damage that China, the biggest producer, is no longer willing to bear. China’s rare earth industry each year produces more than five times the amount of waste gas, including deadly fluorine and sulfur dioxide, than the total flared annually by all miners and oil refiners in the U.S. Alongside that 13 billion cubic meters of gas is 25 million tons of wastewater laced with cancer-causing heavy metals such as cadmium, Xu Xu, chairman of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, said at a Beijing conference on Dec. 28. “China supplied the world with very cheap and good-quality rare earths for more than a decade at the cost of depleting its resources and damaging its environment,” Wang Caifeng, who heads the government-affiliated China Association for Rare Earths, said at the conference. “The world should thank China.” With China now shutting down unregulated rare earth mines and slashing exports, users from Toyota Motor Corp. to Vestas Wind Systems A/S, the world’s biggest maker of wind turbines, are concerned that supplies may be constrained.
  • LNG Demand Increase in Asia Signals Price Rebound in 2011: Energy Markets. Liquefied natural gas demand in Asia is poised to rise for a second year in 2011, signaling a rebound in spot prices for the fuel after a 32 percent drop in November. The region’s imports may increase by 5 percent this year, after jumping almost 12 percent in 2010 and falling 2.9 percent the previous year, according to Sook Ching Wong and Alexis Aik of FACTS Global Energy, a Singapore-based energy consultant.
  • China is home to almost half of all skyscrapers being erected around the world, underscoring concerns that excessive investment will lead to a sharp economic slowdown, according to Barclays Plc. Investment in real estate development in China reached $649 billion in the first 11 months of last year, more than triple the amount of the same period in 2005. China accounts for 44% of the 50 skyscrapers scheduled for completion worldwide in the next six years, Barclays analysts led by Andrew Lawrence said in a report this week. "For investors, this concentration of skyscraper building should raise concerns," the analysts wrote. "History implies that this is a sign of economic over-expansion and a misallocation of capital, which will result in an economic correction within the next five years." Over the last 140 years, completion of the tallest buildings has coincided with periods of economic turmoil such as the Great Depression, the Asian financial contagion and the global credit crisis, Barclays said.
  • Malawi to Get $350.7 Million Electricity Grant. Secretary of State Hillary Clinton and a public-private board of directors, including Treasury Secretary Timothy Geithner and venture capitalist Alan Patricof, today approved a $350.7 million grant for Malawi to boost economic growth by improving its electric power system. The board of the Millennium Challenge Corp., an agency created by President George W. Bush to promote growth and reward democratic governance in poor countries, said the grant will help the southern African nation improve its electric supply by renovating power stations and improving distribution networks.
  • CBOE Will Create Volatility Indexes for Companies Including Apple(AAPL), Google(GOOG). The gauges will measure expected stock-price swings for the companies starting Jan. 7, according to a statement today from CBOE Holdings Inc. Values also will be published for International Business Machines Corp., Goldman Sachs Group Inc. and Amazon.com Inc., with possible expansion later, CBOE said.
  • Microsoft(MSFT) Says Next Windows to Run on ARM Chips as Company Targets Tablets. Microsoft Corp. said the next version of its Windows personal-computer operating system will run on ARM Holdings Plc’s(ARMH) chip technology for the first time, making a deeper push into the market for tablet computers. Windows will work with ARM-based chips made by Nvidia Corp., Qualcomm Inc. and Texas Instruments Inc., Redmond, Washington-based Microsoft said today at the Consumer Electronics Show in Las Vegas.
  • Sengoku Says Japan's Finances Near 'Edge of a Cliff'. Japan’s top government spokesman said the country’s fiscal situation is “approaching the edge of a cliff,” underscoring Prime Minister Naoto Kan’s call for a national debate on raising the 5 percent sales tax.
  • India Aims to Fight Inflation as It Withdraws Stimulus Further, Basu Says. India’s government will further withdraw stimulus measures and reduce the budget deficit as it strives to tame inflation in an economy set to return to 9 percent growth, according to top economic adviser Kaushik Basu. “We want to roll back the stimulus” and take steps to reduce inflation, Basu, 58, said in an interview in New Delhi yesterday. “So you will see steps being taken this year, next year and may be the year after.”

Wall Street Journal:
  • Momentum Builds for Corporate-Tax Overhaul. The White House and congressional Republicans are moving from different directions toward a consensus that the U.S. corporate tax code needs a fundamental overhaul, a goal high on corporate leaders' agenda. Specific proposals for retooling the complex corporate-tax system aren't on the table and the debate over the issue is sure to be lengthy and difficult. But President Barack Obama and Republican congressional leaders are separately sounding the same broad theme that corporate tax rates should be lower. "Tax reform could be a significant boost to our competitiveness," Rep. Eric Cantor (R., Va.), the new House majority leader, said this week. "I'm hopeful and expect the president to put some action behind his statements."
  • Goldman(GS) Flooded With Facebook Orders. Inundated with demand, Goldman Sachs Group Inc. plans to stop taking orders for shares of Facebook Inc. on Thursday, and has told some would-be investors to expect just a small fraction of the shares they requested, according to people familiar with the situation. The interest, amounting to several billion dollars in an equity offering likely to be no more than $1.5 billion, is a sign of investor fascination with the closely held social-networking company despite a dearth of available information about its operations and financial condition. Goldman has provided some potential investors with little more than a snapshot of Facebook's online traffic, advertisements and other basic measurements, with no disclosure of the Palo Alto, Calif., company's bottom line, people familiar with the matter said.
  • Head of EMS Fired Over Storm Response. FDNY Commissioner Sal Cassano fired the head of Emergency Medical Services following the city's poor response to the post-Christmas Day storm, an administration official confirmed late Wednesday. Mr. Cassano relieved John Peruggia, FDNY's chief of EMS command, of his duties and plans to replace him with Abdo Nahmod, the official said. Mr. Peruggia is the first person to lose his job following widespread criticism of the city's sluggish and inadequate response to the blizzard. Last week, Mayor Michael Bloomberg voiced enormous dismay with the performance of the 911 system during the storm.
  • BofA(BAC) to Test New Account Structure, Fees. Bank of America Corp. told employees Wednesday how it intends to restructure the way it charges customers, though the company avoided any detailed discussion of new consumer banking fees. But according to a person familiar with the plan, the bank will soon begin testing fees of roughly $6 a month on its most basic account. Customers will have no options to waive that monthly fee.
  • U.S. Boosts Afghan Surge. Pentagon Plans to Send 1,400 Extra Marines to Supplement Spring Campaign.
  • Chips Makers Target Everything But Kitchen Sink. Chip makers, already competing to get their products into computers and cellphones, are preparing for a wider battle as more devices connect to the Internet.
  • Health Spending Eats Up Record Chunk of GDP. Health spending rose to a record 17.6% of the U.S. economy in 2009, as the overall economy shrank and higher federal Medicaid spending helped to push up health costs.
  • ObamaCare Rewards Friends, Punishes Enemies. The administration waives allies through the health law's onerous restrictions. In September, HHS Secretary Kathleen Sebelius began granting waivers to companies that provided workers "mini-med" coverage—low-cost plans with low annual limits on what the insurance will pay out. This followed announcements by some employers that they would have to drop these plans because they did not meet the new health law's requirement that 85% of premium income be spent on medical expenses. By early December, HHS had granted 222 such waivers to provide mini-med policies for companies including AMF Bowling and Universal Forest Product, as well as 43 union organizations. According to the department's website, the waivers cover 1,507,418 employees, of which more than a third (525,898) are union members. Yet unionized workers make up only 7% of the private work force. Whatever is going on here, a disproportionately high number of waivers are being granted to administration allies.
CNBC:
Business Insider:
Zero Hedge:
Forbes:
CNN Money:
Jim Hamilton's World of Securities Regulation:
Politico:
USA Today:
  • IRS Tax Liens Jump by 60%, but How Effective Are They? IRS liens filed against taxpayers jumped 60% since the start of the national recession, according to a new federal report that urges the tax agency to moderate the collection policy and study its effectiveness.
Reuters:
  • Volcker to Step Down From White House Panel. Former Federal Reserve Chairman Paul Volcker plans to leave his role as head of a panel of experts advising President Barack Obama on the economy, sources familiar with the decision said on Wednesday. The decision to leave the board was Volcker's.
  • Osborne Says Europe Needs Tough Bank Stress Tests. Europe needs to "put its house in order" in 2011 by restoring confidence in the euro and sorting out its fragile banking system that is holding back growth and recovery, Chancellor George Osborne said. Writing in an opinion piece published in the Financial Times' Thursday edition, Osborne said Europe needed to agree a "comprehensive package" early this year to allay market concern about sovereign debt. "The sense of crisis may have eased, but wide spreads and high market interest rates still stalk several European economies," he wrote. "The euro zone must follow the logic of the single currency and stand more convincingly behind the euro." Europe needs to "put its house in order" in 2011 by restoring confidence in the euro and sorting out its fragile banking system that is holding back growth and recovery, Chancellor George Osborne said. Osborne also warned Brussels about "badly thought through regulation" that might harm Britain's competitiveness as a global financial centre. Britain, the bloc's biggest financial hub, has clashed for months with Brussels over EU plans to crack down on hedge funds, saying they could deprive investors of choice. "No one should doubt that Britain is determined to remain a global financial centre serving Europe and the world," he wrote.
  • LinkedIn Plans to go Public in 2011: Sources. LinkedIn, the social networking site for professionals, plans to go public in 2011 and has selected its financial underwriters, three sources familiar with the process told Reuters.
Telegraph:
SkyNews:
  • Stock Markets 'Could Soar by 20% in 2011'. Speaking on Jeff Randall Live, Jim O'Neill, chairman of Goldman Sachs Asset Management, gave his prediction for share prices in 2011 by saying: "Another 15-20% rally in major stock markets." "I think it might be more led by the developed markets with the momentum we've got around the world economy, particularly with the US, I think valuations are pretty cheap." Mr O'Neill also said he did not agree with warnings that China's rapidly expanding economy is in imminent danger of imploding and believes America's struggling economy will bounce back in the coming months. "I think the risk of a double-dip recession is receding dramatically. I think one of the big surprises for this year is the US. It looks to me as though it's on its way back and it's going to surprise people."
Shanghai Securities News:
  • China won't set a "clear" target for bank lending this year and will instead use economic growth and inflation as references for controlling loans, citing a person.
People's Daily:
  • China should start a trial for property taxes as soon as possible, citing Qin Hong, deputy research head of the Ministry of Housing and Urban-Rural Development. Cities facing pressure from increasing property prices should continue limits on home purchases this year, citing Qin. The country must also stick to different money policies for first-time, second-time and third-time home buyers to curb speculation, citing Qin.
The Financial Express:
  • Shale Gas in India is 300 Times KG D-6. The future of India’s energy sector does not look that bleak after all. Schlumberger, a global leader in oilfield services, has pegged the reserves of gas in shale deposits across the country at 300 times higher than Reliance’s Krishna Godavari (D6) basin, by far the largest gas field in the country.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (WCC), raised estimates, boosted target to $61.
  • Downgraded (CMA) to Sell, target $40.
  • Reiterated Buy on (MOS), boosted target to $92.
Night Trading
  • Asian equity indices are -.50% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 102.0 +3.5 basis points.
  • Asia Pacific Sovereign CDS Index 101.50 +2.0 basis points.
  • S&P 500 futures -.08%
  • NASDAQ 100 futures -.01%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (MON)/.00
  • (STZ)/.61
  • (SHAW)/.13
  • (BLUD)/.26
  • (LWSN)/.12
  • (IHS)/.79
  • (GPN)/.67
  • (SCHN)/.71
  • (PPC)/.19
Economic Releases
8:30 am EST
  • Initial Jobless Claims for last week are estimated to rise to 408K versus 388K the prior week.
  • Continuing Claims are estimated to fall to 4080K versus 4128K prior.
  • ICSC Chain Store Sales for December are estimated to rise +4.0% versus a +5.8% gain in November.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The weekly EIA natural gas inventory report, Goldman Sachs Healthcare Conference, CES and the JPMorgan Tech Forum 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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