Tuesday, February 01, 2011

Tuesday Watch


Evening Headlines

Bloomberg:

  • Netanyahu Says Islamists May Exploit Egyptian 'Chaos'. Israeli Prime Minister Benjamin Netanyahu said he’s concerned that radical Islamic groups will seek to take advantage of the mass demonstrations rocking Egypt in order to seize control of the country. “The sources of the instability, the central source, does not stem from radical Islam, not in Tunisia or Egypt,” Netanyahu said today in Jerusalem at a joint press conference with German Chancellor Angela Merkel. “But it is true that in a situation of chaos, an organized Islamist entity can take over a country. It’s happened in Iran, and at other places as well.” Israel is watching closely as the protests against Egyptian President Hosni Mubarak show no sign of waning.
  • Fitch's Fox Tells Sky Egypt Turmoil Could Deteriorate Further. Fitch Ratings Ltd.’s Senior Director Richard Fox told Sky News in an interview the longer the political turmoil in Egypt goes on, the more likely it is that the country’s economy is damaged, which could affect its ability to pay its debts. Today, the ratings service downgraded Egypt’s outlook to “negative” from “stable” because of the uncertainty caused by the political protests in the country’s main cities.
  • China's Housing Market Nears U.S., Japan Bubble Levels: Chart of the Day. China’s property market may be heading into a bubble as the economy’s reliance on real estate reaches a level close to the housing peaks in the U.S. and Japan, according to Citigroup Inc. The CHART OF THE DAY shows investment in residential property accounted for 6.1 percent of China’s gross domestic product last year, the same level as the record in the U.S. in 2005 that was followed by the subprime crisis, said Shen Minggao, Citigroup’s China research head. It’s also about 2 percentage points away from Japan’s 1970s housing boom, he said. “China’s property market is entering into a bubble stage,” Shen said in a phone interview. “It’s evident that property prices are no longer sustainable once the residential investments achieve above 8 percent of nominal GDP, and China may not be an exception.” A 10 percent drop in China’s property investment translates to a 1 percentage point decline in nominal GDP, Shen said. Adding investments indirectly related to the real estate industry, nominal GDP will fall 2 percentage points to 2.5 percentage points, he said. China’s property prices will fluctuate within a 10 percent range this year, Shen said, adding that the country “may only avoid the bubble burst if current property tightening is effective.”
  • China's January Home Prices Rise Most in 6 Months, SouFun Says. China’s January home prices rose 1 percent, the biggest month-on-month gain in six months, according to SouFun Holdings Ltd., as homebuyers defied the government’s property curbs.
  • East Europe Slows Rate Increases as Russia Shows Growth Concern. Central banks in eastern Europe, the region hardest hit by the global financial crisis, will raise interest rates less than other emerging markets as policy makers signal greater concern about growth, economists said.
  • Copper, Tin Surge to Records on Outlook for Supply Shortages. Copper and tin jumped to records as as a drop in global stockpiles signaled demand is improving amid expectations for a shortage in supplies. Nickel climbed to a nine-month high. Three-month copper on the London Metal Exchange gained as much as 0.8 percent to $9,823.50 a metric ton, surpassing the previous peak of $9,782 reached yesterday, and was at $9,816 at 9:44 a.m. in Singapore. The metal capped a seventh monthly gain in January, the best run since the eight months to August 2009.
  • Europe has been buying crude from Iran at a record rate, even as it imposes sanctions against the Middle East country for its nuclear program. Iranian crude imports by developed economies in Europe jumped 39% in the first nine months of last year compared with 2009's total, according to the IEA. Purchases were 1 million barrels a day in the third quarter, the highest quarterly average since at least 2005.
  • Bank of America(BAC) Gives Moynihan $9.05 Million 2010 Stock Bonus. Bank of America Corp. gave Chief Executive Officer Brian T. Moynihan a $9.05 million bonus for his first year as leader of the largest U.S. lender by assets, less than the company awarded to its investment banking head. Moynihan, 51, received the bonus in restricted stock, the Charlotte, North-Carolina based bank said today in a regulatory filing. Thomas K. Montag, who leads global banking and markets, got $14.3 million in restricted stock and $900,000 in cash awards. Bank of America earned $6.3 billion from Montag’s division last year while the parent company was unprofitable as Moynihan took $12.4 billion in impairments at operations purchased by his predecessor, Kenneth D. Lewis. The bank’s shares “did underperform” in 2010, when they dropped 11 percent amid losses tied to repurchasing faulty mortgages from investors including Fannie Mae and Freddie Mac, Moynihan told analysts Jan. 21.
  • One in Five Mortgages Default Against After Modification. One in five U.S. homeowners whose loans were modified under a federal government program to help reduce foreclosures were at least 60 days late in their payments a year after their mortgages were reworked. The re-default rate for the Making Home Affordable Program averaged 20.4 percent after 12 months, 15.9 percent after nine months, 10.7 percent after six months and 4.6 percent after three months, according to a report released today by the Treasury Department. The program has been criticized by housing advocates, lawmakers and watchdog groups.
  • Delta Air Lines(DAL) Cancels 550 Flights for Tomorrow on Winter Storm.
  • U.S. Issues Travel Warning on U.K. Public Transport. The U.S. State Department issued a travel warning for the U.K. today, citing “the continuing high level of terrorist threat.” The alert followed the State Department’s release today of an updated “worldwide caution” to add new information about the “continuing threat” of terrorist attacks against U.S. citizens and interests throughout the world. The caution says that current information “suggests” that al-Qaeda and its affiliates continue to plan attacks against U.S. interests in multiple regions, including Europe, Asia, Africa and the Middle East. Attacks could come in the form of suicide bombs, hijackings, bombings and assassinations, the warning said.
  • Rockefeller Seeks to Suspend EPA Carbon Regulations. Democrat, introduced legislation that suspends for two years U.S. carbon-dioxide regulations for power plants and other industrial polluters. The bill is aimed at stopping the Senator Jay Rockefeller, a West VirginiaEnvironmental Protection Agency rules that took effect on Jan. 2, Rockefeller said today in an e-mailed statement. Co-sponsors of the EPA Stationary Source Regulations Delay Act include Democratic Senators Jim Webb of Virginia and Claire McCaskill of Missouri. Rockefeller has led an effort among Senate Democrats to suspend EPA rules that he said will burden businesses and hurt the economy. The Democrat has said the two-year delay is needed to give Congress time to craft a new energy bill. President Barack Obama will veto any attempt to block rules to regulate carbon, EPA Administrator Lisa Jackson has said. “Many of us agree that Congress, not the EPA, must be the decision-maker on such a challenging issue,” Rockefeller said in the statement.
  • Queensland Braces for 'Huge, Life-Threatening' Cyclone. Australia’s Queensland state, already recovering from its worst floods on record, is preparing for a tropical cyclone expected to disrupt mining, tourism and the sugar industry and bring destructive winds.

Wall Street Journal:
  • Mubarak Offers to Negotiate. Egyptian President Hosni Mubarak, seeking to salvage his 29-year rule, made his first offer to discuss reforms with opposition groups, as protesters gathered for a massive march to force him to resign and his Western allies discussed plans for his exit. Opposition parties said they wouldn't negotiate as long as Mr. Mubarak remains in office. Mr. Mubarak's army, long the final arbiter of power in Egypt, vowed not to harm protesters descending on central Cairo for what they billed as a "million-man march" on his palace.
  • Judge Rejects Health Law. A federal judge ruled that Congress violated the Constitution by requiring Americans to buy insurance as part of the health overhaul passed last year, and said the entire law "must be declared void." With his ruling, U.S. District Judge Roger Vinson set up a clash over whether the Obama administration still has the authority to carry out the law designed to expand insurance to 32 million Americans. David Rivkin, an attorney for the plaintiffs, said the ruling meant the 26 states challenging the law must halt implementation of pieces that apply to states and certain small businesses represented by plaintiffs.
  • The Constitutional Moment. Federal Judge Roger Vinson opens his decision declaring ObamaCare unconstitutional with that citation from Federalist No. 51, written by James Madison in 1788. His exhaustive and erudite opinion is an important moment for American liberty, and yesterday may well stand as the moment the political branches were obliged to return to the government of limited and enumerated powers that the framers envisioned.
  • Even the Rothschilds Are Weather Obsessed. Evelyn de Rothschild and Lynn Forester de Rothschild said they are buying a majority stake in weather-data service Weather Central L.P., marking a significant expansion of the Rothschilds’ investments into media and information.
  • SEC Probes Harrisburg's Muni Disclosures. The Securities and Exchange Commission is examining whether officials in Pennsylvania's cash-strapped capital city, Harrisburg, provided enough information to bond investors. While the SEC doesn't have the authority to regulate issuers directly, it requires securities dealers marketing issues of $1 million or more to review and disseminate official statements prepared by issuers for new offerings.
CNBC:
  • China PMI Points to Slowing Growth, Rising Inflation. The official purchasing managers' index fell to 52.9 in January from 53.9 in December, the China Federation of Logistics and Purchasing said on Tuesday. The reading was the lowest in five months and below a median forecast of 53.5 in a Reuters poll. Input prices jumped to 69.3 from 66.7 in December, suggesting that inflationary pressure was still on the rise.
  • Arab Anger Triggers Asian Angst. Turmoil in the Arab world equals an inflationary spike in oil prices equals the risk of social unrest. That is the unappetizing political economy equation facing governments across Asia, including China, as they seek lessons from a popular uprising in Tunisia and deadly clashes in Egypt. "What you will have is a greater focus on social and political risk in the coming year," said Bob Broadfoot of Political & Economic Risk Consultancy in Hong Kong.
Business Insider:
  • The Financial Crisis of 2015. Oliver Wyman Group has released a very interesting piece about the potential for a future financial crisis (thanks to the FT). They make the case that the next great financial crisis will occur around 2015 and will be the result of a massive bubble in commodity markets that results in widespread economic collapse and sovereign defaults.
Zero Hedge:
New York Times:
  • How a Hedge Fund Can Land a Whale. Ash Williams, the hedge fund manager turned pension titan, has a host of suggestions for those firms hoping to land some big pension money. His most important advice: do your homework.
  • New Suspect Emerges in Insider Trading Inquiry. A New York hedge fund manager has emerged as a suspected co-conspirator in the government’s widening investigation of insider trading. Samir Barai, who runs Barai Capital Management, is thought to have received illegal tips about publicly traded companies from a technology-industry consultant, according to people with knowledge of the investigation who were not authorized to speak about it publicly.
  • Gas Drilling Technique Is Labeled Violation. Oil and gas service companies injected tens of millions of gallons of diesel fuel into onshore wells in more than a dozen states from 2005 to 2009, Congressional investigators have charged. Those injections appear to have violated the Safe Water Drinking Act, the investigators said in a letter to the Environmental Protection Agency on Monday.
CNN Money:
Dealbreaker:
  • Bonus Watch '11: Citi(C) to Pay Cash at Some Point in Future. Charlie Gasparino is hearing that senior bonuses at Citi this year will be paid out half in stock that vests in five years and half in cash that only 20 percent of which is immediately available (30% of the cash portion will supposedly be awarded in two years). For those who don’t know you’re supposed to stop pushing the Q-tip when there’s resistance who may be having trouble figuring out why some people wouldn’t be so happy about being paid in such a structure, Chaz’s source explains: “Just do the math,” this person said. “You get a bonus of $1 million, just 20% of it you receive on the pay date. You’re left with $200,000 cash and half of that is taken in taxes. That’s why these guys are so pissed.”
Politico:
  • Florida Health Ruling Gives Republicans Firepower. A Florida federal court ruling against the health care law gave renewed life Monday to Republican efforts to repeal President Barack Obama’s signature domestic achievement — a campaign stalled by the Democratic-controlled Senate. But even with the sweeping ruling, there’s no sign that Senate Majority Leader Harry Reid (D-Nev.) is going to allow a repeal vote on the floor — and no Democrats have committed to joining the full slate of Senate Republicans who now back the repeal. Still, Judge Roger Vinson’s opinion, which rejected the entire health care law as unconstitutional, gave Republicans an unmistakable feeling of political momentum. Within minutes of the ruling, House and Senate Republicans called once again on Senate Democrats to grant an up-or-down vote on the repeal bill that passed the House earlier this month. Senate Minority Leader Mitch McConnell (R-Ky.) had already vowed to press for a vote — and the legal opinion Monday only boosted that push — but privately, Republicans said it would force some moderate Democrats, including those in tough reelection fights, to join their cause. “It’s a very serious event,” said Alabama Sen. Jeff Sessions, a former ranking member of the Senate Judiciary Committee. “It’s going to give further momentum to a challenge to this bill.”
Reuters:
  • CFTC Rules to Add to Dodd-Frank Cost Burden - Funds. Hedge funds are concerned that compliance with reporting regulations proposed by the U.S. futures regulator last week will require too much time and money, creating an unnecessary cost burden for the industry.
  • Novellus(NVLS) Q4 Beats Wall Street as Shipments Rise. Chip-gear maker Novellus Systems Inc posted a quarterly profit that handily beat expectations, as shipments jumped 15 percent sequentially and revenue surged. Shares of the San Jose, California-based company that closed at $36.07 on Monday on Nasdaq, were up 4.4 percent at $37.66 in trading after the bell.
Telegraph:
China Securities Journal:
  • China new loans may be from 2.6 trillion yuan to 3 trillion yuan in the first quarter, accounting for 35% to 40% of the full-year target, citing analysts.
Shanghai Daily:
  • Industrial & Commercial Bank of China Ltd. has stopped offering discounted mortgage rates for first-time homebuyers, citing a credit officer in the city. The bank stopped offering the 15% discount on Jan. 31, on orders from the Beijing head office.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (ITW), target $65.
  • Downgraded (MASI) to Sell, target lowered to $28.
Night Trading
  • Asian equity indices are -.25% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 109.50 -7.5 basis points.
  • Asia Pacific Sovereign CDS Index 124.0 -.75 basis point.
  • S&P 500 futures +.22%.
  • NASDAQ 100 futures +.39%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (WWW)/.46
  • (LSTR)/.47
  • (BIIB)/1.22
  • (CMI)/1.71
  • (PFE)/.46
  • (EMR)/.65
  • (ENR)/1.92
  • (COCO)/.22
  • (AMG)/1.93
  • (MHP)/.53
  • (ADM)/.78
  • (LXK)/1.12
  • (KLIC)/.21
  • (UPS)/1.05
  • (CHRW)/.62
  • (BSX)/.10
  • (BRCM)/.74
  • (MEE)/-.29
  • (APKT)/.22
  • (JLL)/1.69
  • (AFL)/1.35
  • (ERTS)/.57
  • (ADS)/1.41
  • (LEA)/1.78
  • (PCAR)/.47
Economic Releases
10:00 am EST
  • Construction Spending for December is estimated to rise +.1% versus a +.4% gain in November.
  • ISM Manufacturing for January is estimated to rise to 58.0 versus 57.0 in December.
  • ISM Prices Paid for January is estimated to rise to 73.5 versus 72.5 in December.
  • Total Vehicle Sales for January are estimated to rise to 12.6M versus 12.53M in December.
Upcoming Splits
  • (FCX) 2-for-1
Other Potential Market Movers
  • The weekly retail sales reports, weekly ABC consumer confidence reading and the Morgan Stanley Financials Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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