Evening Headlines
Bloomberg:
- Pimco, Loomis Favor Convertible Bonds as Stocks Rise. Pacific Investment Management Co. and Loomis Sayles & Co. are betting convertible debt will rally further this year as stocks rise and Treasuries fall. Bonds that may be exchanged for shares returned 16.8 percent last year, beating Treasuries, benchmark U.S. stock indexes, high-yield and investment-grade corporate notes and municipal debt, Bank of America Merrill Lynch index data show. Fixed-income investors are turning to convertibles amid signs the U.S. economy is improving.
- U.S. Treasury Said to Plan Sale of $2.5 Billion in Ally TruPS This Month. The U.S. Treasury Department may sell as much as $2.5 billion of Ally Financial Inc. trust-preferred securities this month as it looks to recoup bailout funds for taxpayers, a person with direct knowledge of the plan said. Treasury will look to sell at least $1 billion of the securities to investors in January or “shortly after” fourth- quarter earnings are announced in February, said the person, who asked not be named because the plans are private. Timing of a sale depends on the state of capital markets, the person said.
- Hedge Funds Increase Bullish Crude Bets to Four-Year High: Energy Markets. Hedge funds raised bullish bets on crude oil to the highest level in more than four years on speculation that futures will climb as the U.S. recovers from the deepest recession since the 1930s. The funds and other large speculators increased net-long positions, or wagers on rising prices, by 4.6 percent in the seven days ended Dec. 28, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the top total in records going back to June 2006.
- Australia Predicts More Rains as Floods Cut Off Towns. Flooding is set to worsen in the Australian state of Queensland in the next 48 hours, cutting off tens of thousands of people as the military is mobilized to airlift supplies and the U.S. offers assistance. Rockhampton, home to 75,000 people about 500 kilometers (300 miles) north of the state capital, Brisbane, will lose its last road access as the Fitzroy river peaks, according to the state government. Towns across Queensland have been evacuated, at least two people have died and about 73 percent of the state’s coal output is disrupted as flooding spreads over an area the size of France and Germany.
- CIC Backs Carlyle-Owned Manhattan Tower in U.S. Property Push. China Investment Corp. helped refinance a Manhattan office tower co-owned by Carlyle Group last year, another sign that the $300 billion sovereign wealth fund is stepping up its U.S. real estate investments. The fund, known as CIC, joined forces with AREA Real Estate Finance Corp. of New York to buy an unspecified preferred equity stake in 650 Madison Ave., the 27-story building that is headquarters to Polo Ralph Lauren Corp., said Bradford Wildauer, AREA’s president. CIC also owns 35 percent of Industrial & Commercial Bank of China Ltd., one of two lenders that provided Carlyle with a new first mortgage on the property in June. “CIC is very bullish on investing in real estate in the U.S.,” as are major Chinese banks, Jeffrey Lenobel, chairman of the real estate group at the New York law firm Schulte Roth & Zabel LLP, said in a telephone interview. “There is every reason to think you will see them together more often.” Chinese purchases jumped to $127 million last year from $18 million in 2009, Real Capital says, including a $46 million deal by SouFun Holdings Ltd. of Beijing to buy a Lower Manhattan building once owned by insurer American International Group Inc. The report doesn’t include purchases through property funds, a route that Chinese buyers prefer, said Ben Carlos Thypin, a senior market analyst at Real Capital. “They are investing through conduits a lot of the time,” Thypin said. “The fund investment market is much more opaque.” CIC acquired a 7.6 percent stake in General Growth Properties Inc. in November through a fund manager that participated in the bankruptcy reorganization for the second- largest U.S. mall owner. A CIC subsidiary holds a controlling stake in Beijing’s Bank of China Ltd., which agreed in November to lend investors $800 million to refinance an office building on Manhattan’s Park Avenue. The Madison Avenue property may represent CIC’s first publicly disclosed direct investment in a North American office building, according to Thypin.
- Goldman(GS) Investment in Facebook May Draw SEC Scrutiny. Goldman Sachs Group Inc.’s plan to offer clients up to $1.5 billion in Facebook Inc. equity may invite U.S. regulators to take a closer look at whether the owner of the world’s most popular social-networking site is circumventing disclosure rules, securities lawyers said. The Securities and Exchange Commission, whose rules require any company with more than 499 investors to disclose financial information, is already scrutinizing the market for trading shares of closely held companies including Facebook, according to a person familiar with the inquiry, who declined to be identified because the matter isn’t public. Goldman Sachs invested $450 million in Facebook and is planning to create a special purpose vehicle for its clients to make additional investments worth as much as $1.5 billion, according to two people familiar with the matter who spoke on condition of anonymity because the deal is private. Some private companies avoid crossing the disclosure threshold when investors’ funds are channeled through a single entity, such as a private equity firm or hedge fund.
- Obama Said to Consider William Daley for Top White House Post. President Barack Obama is considering naming William Daley, a JPMorgan Chase & Co. executive and former U.S. Commerce secretary, to a high-level White House post, possibly as his chief of staff, people familiar with the matter said. Such a move, which is still under discussion and which White House officials wouldn’t confirm, would bring a Washington veteran -- and someone with strong business ties -- into the administration as Obama enters the second half of his term.
- Coptic Pope Says Egypt Must Address Christians' Complaints, Ease Tensions. Pope Shenouda III, the leader of Egypt’s Coptic Church, pleaded for calm among his followers as riots raged for the third straight day after a bomb attack outside a church killed 21 people. The pope, in an interview with Egypt’s state-run television late yesterday, also called on the government of the Muslim- dominated country to address the grievances of Copts, the largest religious minority in the Middle East. Thousands of Copts have taken to the streets of Egypt in the aftermath of the Jan. 1 attack in the Mediterranean city of Alexandria, demanding government protection and protesting what they describe as the state’s negligence of their rights.
- Moynihan Fights Fires at Bank of America(BAC) Amid Investor Doubt in Book Value.
- Bank of America(BAC) Deal on Loan-Repurchase Demands Sets 'Template' for Banks. Bank of America Corp.’s agreement to settle Fannie Mae and Freddie Mac’s demands it buy back billions of dollars in faulty loans may pave the way for U.S. lenders to resolve similar disputes with the government-sponsored entities, easing investors’ concerns that costs may surge.
- Fresh Signs of Life in Office Market. The amount of occupied U.S. office space increased for the first time in nearly three years during the fourth quarter of 2010 as more companies that had been postponing real-estate decisions got back into the leasing market. Average office rents also rose by 0.2%, to $22.09 per square foot, registering their first uptick since the second quarter of 2008, according to property-research firm Reis Inc. While the 79 metropolitan areas tracked by Reis vary greatly, the national trend means that in many regions the balance of power is shifting to landlords from tenants.
- Fed Likely to Add New Dealers for Treasury Market. After a hiatus of more than one year, the Federal Reserve is likely to expand a select group of dealers to help with hefty Treasury debt sales and the central bank’s monetary-policy operations, according to traders and dealers familiar with the matter. Demand for safe-haven Treasurys has eased over the past couple of months as optimism over the economic outlook sparked more buying interest in riskier assets such as stocks. That means dealers need to play a bigger role in underwriting Treasury sales to avoid the risks of weak auctions. Lackluster participation by primary dealers could force the government to pay higher interest rates to issue debt, which in turn would hurt the broader economy by raising rates for consumers and companies.
- Goldman(GS) Clients Jockey for Shot at Facebook Shares. Wealthy clients of Goldman Sachs Group Inc. began jockeying for a piece of the deal struck by the securities firm to invest in social-networking company Facebook Inc., according to people familiar with the situation. The agreement by Goldman to invest $500 million in Facebook along with Digital Sky Technologies of Russia ignited a frenzy of phone calls and email by clients in the private wealth-management division at Goldman. Those clients got a memo from Goldman offering them the opportunity to buy equity in Facebook, with a minimum investment of $2 million, these people said.
- Cuomo Targeting Medicaid Spending. Gov. Andrew Cuomo is aiming to reduce the state's Medicaid spending by billions of dollars, exceeding the size of cuts to the program proposed in past years, according to individuals with knowledge of his budget. The Cuomo administration is considering a cut of about $2.1 billion out of the state's projected spending on Medicaid in the upcoming fiscal year. With federal matching funds, the cut comes to more than $4 billion. That's close to twice the reduction in spending proposed by Gov. Eliot Spitzer in 2007. Such a cut would effectively freeze Medicaid spending at the current year's level. But because the state is set to receive far less in federal funds, as the stimulus expires, its share of Medicaid costs would still grow by more than $3 billion, a 30% increase. To further alleviate the burden, the Cuomo administration is likely to lobby for more federal aid, possibly through a waiver agreement, according to an individual familiar with the governor's health-care agenda.
- Lenders Shift Some Loan Costs to Big Borrowers. Banks feeling squeezed by rising regulatory costs are trying to pass along the pain to big corporate borrowers. In the past several weeks, lenders such as J.P. Morgan Chase & Co. and Bank of America Corp. have begun including in loan documents language that will help banks shift to their large borrowers additional costs triggered by the Dodd-Frank financial-overhaul law. The changes, disclosed in securities filings by companies from insurer American International Group Inc. to refinery and convenience-store owner Western Refining Inc., reflect guidelines by a trade group of banks and loan investors called the Loan Syndications and Trading Association that might be finalized by February but already are appearing in deal documents. Under the guidelines, likely to be followed by most banks making corporate loans, lenders can require borrowers to take a financial hit for costs resulting from the Dodd-Frank law "regardless of the date" when the cost-triggering change occurs. The clause doesn't specify whether the new costs would be passed along as a fee or added interest costs, but it says borrowers would pay the lender "such additional amount" to "compensate" that institution.
- Illinois Attempts to Link Teacher Tenure to Results. Illinois lawmakers are considering sweeping legislation that would link teacher tenure to student test scores, make it easier to fire ineffective teachers and curb teachers' right to strike. The measure, debated during a Senate panel hearing Monday, moves Illinois to the forefront of states' efforts to hold teachers more accountable for student performance, while taking on the powerful teacher unions, which often oppose such changes.
- Auto-Bailout Planner in Line for Post. President Barack Obama is considering naming one of the architects of the Detroit auto industry bailout, Ron Bloom, to a new manufacturing policy post at the White House. The position would report to the White House chief of staff and to the director of the National Economic Council, according to people familiar with the deliberations. The creation of the post will likely be announced soon, possibly when Mr. Obama names his next NEC director.
- New Investment Fund Values Twitter At $4.1 Billion.
- Mining Firms Dig Deeper As Worker Costs Escalate. Demand for commodities has boosted demand for miners around the world, prompting warnings from companies that a shortage could slow growth and increase costs.
- New Speaker Vows to Share Power - a Tricky Proposition. When John Boehner takes over one of the most powerful jobs in Washington this week, he says his first order of business is to make himself less powerful.
- Labor's Coming Class War. Private-sector union workers begin to notice that their job prospects are at risk from public-employee union contracts.
- Congress Rediscovers the Constitution. The House Republican majority has said it will require members to cite the specific authority for any bill they introduce.
- Cramer: Dow to Climb 15% in 2011.
- Obama Eyes Ex-Clinton Aide as Top Economic Adviser. A trusted aide with first-hand experience negotiating with Republicans has emerged as the favorite to become President Barack Obama's new top economic policy adviser, Democratic sources said on Monday. Several sources close to the deliberations said Gene Sperling, a Clinton administration veteran, has gained traction in the last few weeks as a potential successor to Larry Summers, who is departing as director of the National Economic Council.
- David Einhorn's Greenlight Capital L.P. Returned 15.9% in 2010.
- Brazil Is About to Take Washington's Side in the Currency War. Despite the symbiotic relationship between China and Brazil (the latter being a major exporter to the former), the matter of currency intervention is creating a rift.
- Why This Breakout in Financial Stocks is Huge.
IBD:
- Department Store Excess Inventory Good News For Value Retailer. All of this is good news for off-price retailer Ross Stores (ROST).
- Iran Invites Some Nations, Not U.S., for Nuclear Tour. has invited Russia, China and several members to visit its nuclear facilities this month, but pointedly snubbed the United States, European diplomats said on Monday. The invitation — which seemed calculated to divide the alliance of nations opposed to Iran’s nuclear ambitions before the next round of negotiations over the program — was swiftly dismissed by the United States. “It’s a clever ploy, but it’s not a substitute for Iran’s responsibilities to the I.A.E.A.,” said the State Department spokesman, Philip J. Crowley, referring to the , which has been locked in an increasingly tense standoff with the Iranian government over its enrichment of uranium. “It won’t draw international attention away from the issues regarding ,” Mr. Crowley added, noting that its enrichment activities violated six resolutions. The European diplomats said the invitation was not likely to be accepted, if at all, until after the next round of negotiations, expected to be held in Istanbul at the end of this month.
Detroit Free Press:
- UAW Reveals Ideas to Try to Level Playing Field. The UAW released a set of principles today that it plans to use as it renews its effort to organize assembly plants in the U.S. operated by Asian and German automakers. The document, called “UAW Principles for Fair Union Elections,” outlines 11 ideals that are designed to level the playing field between the UAW and an employer during a union campaign and election. By signing the principles, both the union and the employer would “demonstrate their openness to change by agreeing to the framework established in these principles,” the UAW said in the document released today. The principles include an agreement that the ability to join a union is a “fundamental human right.” In addition, they say that during a campaign both the union and the employer would agree to refrain from intimidation or threats and commit the employer to allowing equal access to employees to discuss union representation.
- House GOP Seeks Ford(F), Toyotal Input on Cutting Red Tape. The incoming chairman of the House Oversight and the Government Reform committee wants help from two automakers in cutting government red tape. Rep. Darrell Issa, R-Calif., sent a letter to more than 150 companies, trade associations and think tanks, asking for their help in looking at "proposed regulations that negatively impact the economy and jobs."The issue is of particular interest to the auto industry.
- House GOP to Vote on Health Repeal Next Week. The House will vote next week to repeal the new health care law, making good on a top-tier GOP campaign promise and setting up a showdown with President Barack Obama over his signature domestic policy achievement.Majority Leader-elect Eric Cantor (R-Va.) announced Monday the timeline for considering the repeal legislation: The bill posted Monday, the Rules Committee will meet Thursday, and the rule for the debate will be considered on the House floor Friday. The repeal vote will follow on Wednesday, Jan 12. The GOP repeal bill is only two pages long – a stark contrast to the 2,000-plus pages in the final health care legislation, a number that was cited repeatedly by Republicans as evidence the bill amounted to a massive government overreach. Aiming to link the rollback effort to job creation, Republicans named the bill “Repealing the Job-Killing Health Care Law Act.”
- Companies Stash More Cash as Profits Increase. Companies are doing everything they can do to get rid of cash — short of hiring people — but the moola just keeps mounting. The typical ways companies burn off excess cash, such as boosting dividends, buying back their own stock and buying other companies, are rising. But none of these standard uses of cash are keeping up with swelling corporate earnings, resulting in an ever-increasing pile of cash. The largest U.S. companies in the Standard & Poor's 500 index are sitting on a record $902.4 billion in cash, up 10% from a year earlier, S&P says. That's expected to rise to another record when the sum is tallied for the end of 2010.
- Web and Other Options Are Shaking Up How We Watch TV. If you gave or got a TV set, game console, Blu-ray player or DVR for the holidays, you might become the kind of person who scares executives who run movie and television production studios, broadcast and cable channels, and cable and satellite systems. Many of these devices now make it easy for people with home broadband networks to feed content from the Internet, including Hollywood movies and TV shows, onto their TVs.
Reuters:
- U.S. to Detail Pentagon Savings, Cuts: Sources. Defense Secretary Robert Gates is expected to announce as early as Thursday about $100 billion in savings for the Pentagon and cuts to some weapons programs, sources said on Monday.
- Some southern Chinese cities including Fuzhou, Xiamen, Haikou and Wenzhou have extended limits on home purchases beyond the end of 2010. The cities had previously limited the number of homes residents could buy until the end of last year after the central government stepped up measures to cool prices, without saying when the measures might end.
- China may delay a property tax because because of disputes among government departments, citing an unidentified official close to the Ministry of Finance and state tax bureau.
Citigroup:
- Reiterated Buy on (DO), target $80.
- Rated (DKS) Buy, target $44.
- Rated (FIRE) Outperform, target $35.
- Rated (FTNT) Outperform, target $40.
- Asian equity indices are unch. to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 99.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 99.5 -3.5 basis points.
- S&P 500 futures +.06%
- NASDAQ 100 futures +.10%.
Earnings of Note
Company/Estimate
- (NEOG)/.26
- (MOS)/.92
10:00 am EST
- Factory Orders for November are estimated to fall -.1% versus a -.9% decline in October.
- Minutes of FOMC Meeting
- Total Vehicle Sales for December are estimated to rise to 12.3M versus 12.26M in November.
- None of note
- The weekly retail sales reports, weekly ABC consumer confidence reading and the Citi Entertainment/Media/Telecom Conference could also impact trading today.
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