Evening Headlines
Bloomberg:
- Kokusai Says Europe Rescue Debt 'Hot' as Asian Funds Follow Central Banks. The pledge by Japan and China to buy European debt is encouraging Asian funds to follow suit as agencies start selling bonds to finance Ireland’s bailout. A 5 billion euro ($6.84 billion) auction yesterday drew 44.5 billion euros in orders as the Japanese government snapped up more than 20 percent of the issue. Asian investors bought about 38 percent and government agencies 43 percent, according to two people familiar with the transaction. State institutions took 38.5 percent of the securities at a similar sale on Jan. 5, according to the European Commission in Brussels. “I heard these issues will be hot,” said Masataka Horii, one of four managers in Tokyo of the $33.9 billion Kokusai Global Sovereign Open Fund, Asia’s largest bond fund. “Investors may see the new bonds as safe because central banks are buying.”
- Obama Backs Corporate Rate Cut Only If It Won't Affect Deficit. President Barack Obama will call on Congress to cut the top U.S. corporate tax rate for the first time in 25 years “without adding to our deficit,” signaling that businesses will have to give up cherished tax breaks in exchange for lower rates. The president also will press for simplifying the tax system for individuals, which would restructure how more than $1 trillion in revenue is collected annually. “The best thing we could do on taxes for all Americans is to simplify the individual tax code,” he said in the prepared text of the State of the Union address he gives tonight. “This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.”
- Bernanke Gets 66% Approval From Investors Disapproving of QE2. Investors love Federal Reserve Chairman Ben S. Bernanke. It’s just his policies they don’t like so much. Sixty-six percent of investors have a favorable view of the 57-year-old former Princeton University economist, compared with 31 percent unfavorable, according to a quarterly global poll of 1,000 Bloomberg customers who are investors, traders or analysts conducted Jan. 21-24. Bernanke is more popular than his European counterpart, Jean-Claude Trichet, and scores higher than all other world political and economic leaders in the poll with the exception of German Chancellor Angela Merkel. Investors don’t have the same positive regard for the Federal Reserve’s actions, particularly the decision in November to inject $600 billion of stimulus into the financial system. A plurality of respondents, 35 percent, say that policy, know as quantitative easing, hasn’t had any significant effect on the economy; another 33 percent say the asset purchases risk a rise in inflation to dangerous levels. Just 27 percent say the plan to buy Treasuries is working as intended to help reduce unemployment and boost growth.
- Greece Default With Ireland Breaks Euro by 2016 in Global Poll. Most global investors predict at least one nation will leave the euro-area within five years and that Greece and Ireland will default, sentiment that is intensifying pressure on policy makers to strengthen their response to the debt crisis. As the World Economic Forum’s annual meeting gets underway, 59 percent of respondents in a Bloomberg Global Poll said one or more of the 17 euro nations will quit by 2016, including 11 percent who see an exit within 12 months. Respondents were divided over whether Portugal would default, while a majority expressed confidence in Spain. Such pessimism underscores the urgency German Chancellor Angela Merkel and French President Nicolas Sarkozy face in their hunt for new ways to placate investors after almost $1 trillion in emergency financial support failed to calm markets. Europe’s plight ranks high on the agenda for the conference in the Swiss ski resort of Davos, where Merkel, Sarkozy and European Central Bank President Jean-Claude Trichet are among the 2,500 officials, bankers and economists attending. “The problems in Europe have been addressed, but only with a band aid,” said Ted Jarvis, senior vice president at the Indiana Trust Company in Anderson, Indiana, who participated in the survey. “Several euro members have not followed the correct policies and dug themselves a deep hole.”
- Wheat Set for Longest Rally in 14 Months as Protests Spread. Wheat futures gained, heading for the longest winning streak since November 2009, as food protests spread, raising speculation importers will boost purchases to contain food inflation as dry weather threatens global harvests. March-delivery wheat advanced as much as 1.2 percent to $8.4825 a bushel, the highest price for a most-active contract in Chicago since Aug. 6. The contract traded at $8.475 a bushel at 10:38 a.m. Singapore time. Russia’s wheat-growing areas in the Black Sea region, which account for 28 percent of the nation’s output, are “struggling” with dry conditions that may curb yields, Martell Crop Projections said. Russia, the world’s third-largest grower in the 2009-2010 season, banned exports last year after the worst drought in at least half a century slashed grain harvests. “Importers are rushing into the market,” because they expect the U.S. will remain the only reliable supplier as competing exporters struggle to boost output, Ker Chung Yang, an analyst at Phillip Futures Pte., said by phone from Singapore today. “What happened in Egypt, Tunisia and Jordan will prompt neighboring countries to import more wheat to contain food inflation.” In Egypt, the world’s biggest wheat importer, three people set themselves on fire and thousands of Egyptians protesting against President Hosni Mubarak’s government clashed with police in Cairo and other cities, inspired by the revolt that toppled Tunisia’s President Zine El Abidine Ben Ali. The annual inflation rate in Egypt’s urban areas rose 10.3 percent in December, after gaining 10.2 percent a month earlier.
- Heroin Use by U.S. Workers Five Times Higher Than Thought, Quest Reports. Heroin use is more widespread among U.S. workers than previously thought, including among pilots and nuclear power plant employees, according a report today from Quest Diagnostics Inc. New testing methods using saliva found heroin use is five times more common in the general workforce than experts thought, according to Quest, the nation’s largest provider of diagnostic testing. Heroin was found in 0.04 percent of 320,000 employees screened with spit tests that are harder to tamper with and easier for companies to collect than the older urine tests, the Madison, New Jersey-based company said. Heroin use is also more prevalent among those with the nation’s most sensitive jobs, according to tests run since the U.S. Department of Transportation introduced stricter rules in October.
- Obama: U.S. Must Compete. President Barack Obama used his State of the Union address Tuesday to ask the nation to meet the challenges of a global economy, framing what he called a competitiveness agenda that includes traditional Democratic proposals like increased education spending, alongside gestures to Republicans seeking deep budget cuts. Mr. Obama said the nation needs to address its rising budget deficit but couldn't afford to back away from new spending on programs that he said would allow the U.S. to compete with rising powers like China and India—an approach Republicans were quick to reject as unaffordable. Mr. Obama also laid out areas of potential cooperation between the parties, such as a call to rewrite the corporate tax code.
- Text of Rep. Ryan's Republican Response.
- Rep. Bachmann's Response to the State of the Union.
- Deutsche Bank Economist Hooper Sees Dollar Rebound By Yr End. The euro has more room to rise against the dollar in coming months, but the U.S. currency will rebound by the end of the year, said Peter Hooper, chief economist at Deutsche Bank, the world's biggest currency trading bank by volume. In an interview with Dow Jones Newswires on Tuesday, Hooper also said he doesn't expect the U.S. economy to head into stagflation--a scenario of high inflation and negligible economic growth that roiled the world's biggest economy in the 1970s.
- Calpers, After Losses, Plays It Safe. After losing more than $10 billion on real-estate investments, Calpers, the giant California pension fund, is returning to the property market with a new strategy and fewer investment managers, seeking steady, modest gains rather than blockbuster returns. After investing relatively small amounts in real estate during the past two years, the $226 billion California Public Employees' Retirement System is gearing up to commit as much as $2 billion to property deals in 2011, the fund said.
- The Great Misallocators. What Barack Obama and General Electric(GE) have in common. President Obama on Tuesday night stressed U.S. economic competitiveness as a new policy theme, accentuating the point he made last week by naming General Electric CEO Jeffrey Immelt to lead his new jobs council. This is welcome, though not solely because it may signal less Administration hostility to business. The pairing is also instructive because both Mr. Obama and GE symbolize a major reason the U.S. has become less competitive—the misallocation of resources.
- Brazil Inflation to Quicken to 6.5% in 2011, Leme Says. Brazil’s annual inflation will quicken to the fastest in seven years and the real will continue to appreciate as the government fails to contain spending and banks boost lending, said Paulo Leme, the chief Latin America economist at Goldman Sachs Group Inc. Inflation will accelerate to 6.5 percent this year, the fastest since 2004, Leme said today at an event in New York. His estimate exceeds the median forecast of 5.53 percent among 100 economists polled for a Jan. 21 central bank survey. President Dilma Rousseff’s planned budget cuts are focused on future spending, not current expenditures, and therefore won’t be enough to cut inflation as public banks lend to promote development, Leme said. Brazil’s central bank last week raised its benchmark overnight rate by half a percentage point to 11.25 percent and signaled it will rely on administrative steps to curb the growth of credit to fight inflation. “Policy tightening will not be enough,” Leme said at a panel held by the Brazilian-American Chamber of Commerce. “Something will have to give. What will give will be inflation.”
- Overseas Investors Sell Indonesian Stocks Amid Delay on Rates. Indonesian stocks are posting Southeast Asia’s biggest declines this year as concern the central bank has moved slower than peers in curbing inflation prompts the biggest month of selling by overseas investors since 2005. The Jakarta Composite Index has fallen 7.3 percent since the start of the year, compared with the MSCI Asia Pacific Index’s 0.7 percent advance, led by a drop in PT Astra International and PT Bank Central Asia. The Jakarta gauge, which rose to a record on Dec. 9, may slump 6.8 percent to 3,200 in coming weeks, according to PT Bahana TCW Investment Management, PT Mandiri Manajemen Investasi and PT Manulife Asset Management, which manage a combined $6.7 billion in Jakarta.
NY Post:
- 'Skins' Slumps Week 2. All that "Skins" contro versy was ratings poison for the controversial MTV show. Monday night's "Skins" episode snared only 1.6 million viewers -- shedding over half of its premiere audience (3.3 million). The news wasn't much better in the show's target audience of 18- to 34-year-olds -- dropping from 1.7 million to 680,000 viewers.
- Mixed-Party Seating At State of the Union Kills the Excitement.
- Watch This Incredible Video of Protesters Chasing Egyptian Riot Police.
- A Clear Sign of How Weak The Oil Market Is Right Now...Serious threats of destabilization in Egypt (and thus by implication elsewhere in the Arab World), and yet... absolutely no bid for oil at all.
- Dirty Little Secrets About Goldman's(GS) Collateral Calls on AIG. When it comes to AIG's liquidity crisis, Wall Street's conventional wisdom absolves Goldman from blame. Goldman's people, so the story goes, were smart and therefore prescient about the declining values of CDOs. So their demands for cash margin from AIG, which insured billions of toxic CDOs for Goldman's benefit, were legitimate. By contrast, AIG's people, the poster boys for financial incompetence, kept flailing about because they were in denial until everything reached a crisis point in September 2008. Yes Goldman was smart, and yes, the people at AIG were clueless, which is why Goldman could pull off such an audacious scam. Goldman's demands for margin were made in bad faith, and possibly under fraudulent pretenses. The conventional wisdom overlooks a critical point: The legal documents had no teeth and might have been impossible to enforce.
- Xtranormal Cartoon Explains POMO. It was only a matter of time before someone finally explained it for the masses.
- It's Semi Official: Egyptian President's Son and Family Have Fled to the UK.
- How a Sweeping "New York Only" Trade Caused a 19,600 Share Flash Smash In IBM(IBM), And Sent The DJIA Surging.
- Chris Whalen On The Zombie IPO: Is American International Group(AIG) the "Blood Doll" of Wall Street?
- Merrill Lynch Is The Real Winner In $10 Million SEC Settlement. Don’t feel bad for Bank of America. Yes, it’s been through a lot this week with the new Countrywide suit, another halt on foreclosure notices and now an SEC settlement- and it’s only Tuesday. But this SEC settlement feels like gift. $10 million dollars. That’s what the SEC is getting from Bank of America/Merrill Lynch on allegations that Merrill misused customer order information to make unlawful gains for the firm. $10 million- that’s it.
- Obama Not Bold Enough on Debt. Last summer President Obama promised to call the bluff of anyone who talks a good game on reducing the national debt but doesn't act. In his State of the Union address on Tuesday, he offered a few ideas, but didn't spell out a comprehensive plan.
- TARP Watchdog Blasts Obama's Foreclosure Program. The Obama Administration's main foreclosure-prevention program continues to fall short, and last year's Wall Street reform act does not adequately address the threat that big financial firms pose to the broader economy, the top federal bailout watchdog said Tuesday. In a quarterly report released to Congress, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, said the program has been a success financially, but that programs "designed to help Main Street rather than Wall Street" have been failures.
- Hedge Funds Coming of Age, According to New Institutional Investor Survey. According to SEI’s annual global study in collaboration with Greenwich Associates, institutional investors are finally looking at hedge funds as having passed the maturity marker and worthy of more serious consideration. The report, entitled “Institutional Hedge Fund Investing Comes of Age: A New Perspective on the Road Ahead” (click here to download a summary of the report; the complete report can also be downloaded after a brief survey), certainly indicates that the hedge fund industry collectively still has a lot of growing up to do.
Institutional Investor:
- Banks Look to Socialize Mortgage Risk. Not to put too crude a point on it, but the willingness of big banks to assume the role of Fannie Mae and Freddie Mac — securitizing residential mortgages, but this time, with an explicit government guarantee — is just the sort of socialist utopia that only Wall Street could invent. While bankers like to espouse their love of the free market, what they are really committed to is making money. And what could be more ideal than a business model in which the profits are private and the risks are socialized among the taxpayers? That is the essence of the plan reported in The New York Times, which says Wells Fargo and other big banks have made clear their desires through the use of lobbying groups.
Daily Caller:
- Rep. Loretta Sanchez Sparks Outrage From Fellow Dems With Proposal to Boot Giffords From Armed Services Committee. Behind closed doors, California Democratic Rep. Loretta Sanchez has proposed removing Arizona Rep. Gabrielle Giffords from the House Armed Services Committee (HASC) until she recovers from injuries sustained after being shot in the head on Jan. 8 in Tucson, The Daily Caller has learned. The proposal sparked an outrage, according to those in the room — including from those in Sanchez’s own party. “It’s not appropriate,” Texas Democratic Rep. Silvestre Reyes told The Daily Caller, adding that there was outrage among some members in the room when Sanchez made the suggestion. “It’s bad for morale during her recovery period.”
Reuters:
- IRS Slaps Lien on Goldman(GS) Derivatives Partnership. A Goldman Sachs Group Inc partnership that specializes in selling derivatives to U.S. municipalities owes $1.55 million in unpaid federal taxes. The U.S. Internal Revenue Service filed a federal tax lien against the Goldman partnership earlier this month for an unpaid balance of taxes from 2009. Although the tax assessment is a drop in the bucket for Goldman, which earned $8.35 billion in 2010, it's another dose of unwelcome attention for a partnership that has already attracted unwanted scrutiny over its dealings with municipalities and state agencies.
- China Banks Ratchet Up Lending Rates to Ration Credit. Some Chinese banks have drastically raised interest rates on loans to comply with government orders to rein in credit growth after another lending surge at the start of the year, state media reported on Wednesday. Instructions have come down from head offices to some bank branches, saying they must strictly abide by credit quotas this month, the China Securities Journal reported, with regulators keeping a closer eye than normal on lending activity as part of their campaign against inflation. Although consumer price inflation dipped to an annual rate of 4.6 percent in December, many analysts expect it to rebound this month to its fastest in more than two years and warn that excessive lending by banks would compound the problem. The China Business News said that banks had already lent 1.2 trillion yuan ($182 billion) as of January 24, putting them well on track to blow past limits that regulators had wanted to set for the first month of the year. In its front-page article, the China Securities Journal said that banks were now trying to row back from excesses. "To ensure that loan issuance does not overshoot the quota, the head office has now sent out an order that all branches raise lending rates," the newspaper paraphrased an unnamed official at a large state-owned bank as saying. The article did not say whether banks also felt pressure to raise lending rates because of a spike in their own funding costs. The banking system has been bit by an unprecedented liquidity squeeze ahead of the Lunar New Year, driving money market rates skyward and compelling the central bank to inject cash in the economy despite its tightening bias. For less-favoured industries, such as heavy polluters or energy guzzlers, some banks are setting lending rates 45 percent higher than the benchmark, which is now 5.81 percent for one-year loans, the newspaper said. For ordinary industries, lending rates are about 30 percent higher than the benchmark, though top clients can still access loans at a 5 percent discount to the benchmark rate, it added. The newspaper also cited a separate bank official as saying that overall lending in January cannot exceed 12 percent of the full-year target, which is said to be about 7.5 trillion yuan. Yi Gang, deputy governor of the central bank, said that the effectiveness of Chinese monetary policy was increasingly limited, the China Securities Journal reported in a separate article on Wednesday.
- Nielsen, Demand Media IPOs Above Targets. Two tech companies raised more than expected in their initial public offerings on Tuesday, in a sign that investors are again paying attention to the market for new issues. Nielsen Holdings, the consumer measurement firm known for its dominance in TV ratings, raised 9.5 percent more than expected, while Demand Media, the online company that relies on an army of freelance writers to churn out search engine-friendly articles, raised 34.5 percent more.
- Century Exploration Sues U.S. Over Drill Ban Changes. Century Exploration New Orleans Inc. sued the U.S. over changes in offshore drilling rules that it said made development of its $23 million Gulf of Mexico lease “commercially impractical.” The Louisiana oil company filed suit in the U.S. Court of Federal Claims in Washington today over a series of regulatory changes the Interior Department imposed on offshore exploration after the BP Plc oil spill.
- U.S. Construction to Recover in 2012, Led by Hotels - AIA. U.S. nonresidential construction activity will decline this year but recover in 2012, led by hotel and retail sectors, according to a twice-yearly forecast by an architects' trade group. Overall nonresidential construction spending is expected to fall by 2 percent this year before rising by 5 percent in 2012, adjusted for inflation, the American Institute of Architects (AIA) said on Wednesday. The projected decline marks a deteriorating outlook compared to the prior survey in July 2010, when a 2011 recovery was expected.
- Yahoo(YHOO) Warns of Weak Q1, More Cost Cuts Planned. Yahoo Inc warned that revenue will again slide this quarter as it bleeds traffic to Google and Facebook and as a much-touted search partnership with Microsoft Corp (MSFT) fails to deliver quick results.
- DeVry(DV) Expects Earnings Growth to Slow in H2 2011. DeVry Inc, the second-biggest U.S. for-profit education provider by market value, said it expects earnings growth to ease in the second-half of 2011, especially in the third quarter, hurt by slowing enrollment growth. Shares of DeVry, which closed at $47.38 on the New York Stock Exchange on Tuesday, were up 4 percent in trading after the bell on strong second-quarter results that beat estimates, helped by its diverse program offering.
- Keynote's(KEYN) Q1 Earnings Beats Street; Sees Growth in Q2. Keynote Systems posted quarterly earnings that blew past Wall Street estimates, and the internet monitoring systems maker said it expects further growth in the second quarter, sending shares up 21 percent in trading after the bell.
- 'Wave and Pay' Technology for iPhone 5. Apple(AAPL) is expected to install “wave and pay” technology for the next version of its iPhone, boosting mobile commerce and potentially giving the company a big piece of the multibillion-dollar transaction industry.
- China has set repayment rules for non-bank financial institutions requiring them to make progressive payment on medium to long-term loans, citing a person close to the banking regulator. Non-banking firms include local government financing vehicles, trust firms and financial leasing companies.
- The Chinese city of Chongqing's property tax will be split into 10 categories, citing Mayor Huang Qifan. Huang said in general that at a property tax rate of 3%, no one would speculate on real estate.
- The minimum wages in 30 Chinese provinces were raised last year by an average of 22.8%, citing labor ministry spokesman Yi Chengji.
- China will extend a resource tax nationwide over the next five years, citing Finance Minister Xie Xuren. The tax is currently being levied in the country's northwest Xinjiang region.
- A property tax trial is an "indispensable" part of China's new round of real estate controls, Jia Kang, head of the Ministry of Finance's research institute, wrote.
Citigroup:
- Reiterated Buy on (DD), raised target to $65.
- Reiterated Buy on (ALK), raised target to $80.
- Reiterated Buy on (NSC), target $76.
- Reiterated Buy on (DOX), target $35.
- Rated (SMG) Outperform, target $60.
- Asian equity indices are -.50% to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 108.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 120.0 +1.5 basis points.
- S&P 500 futures +.33%.
- NASDAQ 100 futures +.27%.
Earnings of Note
Company/Estimate
- (ADP)/.61
- (EXC)/.91
- (HES)/1.23
- (PX)/1.23
- (ATI)/.29
- (ROK)/.88
- (VLO)/.34
- (LCC)/.06
- (UAL)/.23
- (PJC)/.43
- (TXT)/.26
- (UTX)/1.29
- (ABT)/1.29
- (WLP)/1.22
- (LM)/.46
- (EK)/.05
- (STJ)/.74
- (SO)/.18
- (BA)/1.11
- (GD)/1.85
- (OXY)/1.54
- (COP)/1.31
- (QCOM)/.72
- (CVD)/.44
- (RHI)/.16
- (SBUX)/.39
- (NFLX)/.71
- (CTXS)/.60
- (MMI)/.37
- (TER)/.24
- (TSCO)/.62
- (OI)/.47
- (LRCX)/1.57
- (SYMC)/.33
- (MUR)/1.00
- (RYL)-.36
- (CCI)/.08
10:00 am EST
- New Home Sales for December are estimated to rise to 300K versus 290K in November.
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,200,000 barrels versus a +2,617,000 barrel gain the prior week. Distillate inventories are estimated to fall by -500,000 barrels versus a +1,038,000 barrel gain the prior week. Gasoline supplies are expected to rise by +2,300,000 barrels versus a +4,443,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a -3.4% decline the prior week.
- The FOMC is expected to leave the benchmark fed funds rate unch. at.25%.
- None of note
- The World Economic Forum, $35 Billion Treasury Notes Auction, weekly MBA mortgage applications report and the (MOH) investor day could also impact trading today.
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