Monday, March 14, 2011

Monday Watch

Weekend Headlines

  • Quake Toll May Top 10,000 as Japan Battles to Prevent Nuclear Meltdown. Japan worked to contain its worst nuclear accident in at least 33 years at a plant north of Tokyo as local media said the death toll from the nation’s biggest earthquake and ensuing tsunami may top 10,000. Radiation levels around the Tokyo Electric Power Co. station in Fukushima, 135 miles north (217 kilometers) of the capital, rose after cooling systems at a second reactor failed, heightening concerns about a possible meltdown following an explosion there over the weekend. Water levels fell at a third reactor, raising the possibility of a hydrogen explosion there, Japan’s top government spokesman said yesterday. The 8.9-magnitude temblor and subsequent tsunami may have killed 10,000 in Miyagi prefecture north of Tokyo, national broadcaster NHK reported, citing local police. The official toll reached 1,597, with 1,481 more missing and 1,683 injured, the National Police Agency said. More than 350,000 people are in emergency shelters.
  • Japanese Stocks Plunge After Nation's Strongest Earthquake; Honda, Toyota Decline. Japanese stocks tumbled the most in two years after the nation’s strongest earthquake on record snarled production lines and shut down factories, raising concern economic growth will stall. Orders to sell overwhelmed the Tokyo Stock Exchange, leaving many shares untraded at the open. Tokyo Electric Power Co., Asia’s biggest power company battling to avoid a meltdown at its Fukushima nuclear plant, was untraded and set to tumble 23 percent. Tokio Marine Holdings Inc., the nation’s largest property and casualty insurer by market value was set to fall 20 percent. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. retreated at least 5 percent after Japan’s three-largest carmakers said thousands of new vehicles were damaged. Canon Inc., the No. 1 camera maker, plunged 9.1 percent. The Nikkei 225 Stock Average fell 4.7 percent to 9,771.07 as of 9:49 a.m. in Tokyo, set for the biggest drop since January 2009. The broader Topix index declined 6.6 percent to 855.32, the most since October 2008.
  • Qaddafi Presses Rebels in Oil Port as Allies Debate No-Fly Zone. Muammar Qaddafi’s forces pushed toward the rebel-held oil port of Brega as Western nations grappled with measures that would halt the Libyan leader’s advance. Qaddafi’s soldiers moved on Brega after seizing Ras Lanuf, about 410 miles (660 kilometers) east of the capital, Tripoli, rebel fighter Adel Idriss, 31, said yesterday by telephone from the frontline. The city was being bombarded by air, sea and land, Al Jazeera television said, citing its correspondent.
  • Saudi Stocks Advance After 'Day of Rage' Fails to Occur, Led by Al Rajhi. Saudi stocks rose for a sixth day as investors looked for bargains after the world’s biggest oil producer survived a so-called Day of Rage. Saudi Basic Industries Corp., the world’s biggest petrochemical maker, climbed 1 percent, and Al Rajhi Bank, the kingdom’s biggest lender, jumped 3.3 percent. The Tadawul All Share Index climbed 3 percent, the steepest gain since March 7, to 6,297.
  • Hedge funds' bullish oil bets rose to an all-time high for a third straight week as concerns about supplies increased amid fighting in Libya and threats of protests in Saudi Arabia. Large speculators and funds increased net-long positions, or wagers on higher prices, by 2 percent in the seven days ended March 8 to 311,632 futures and options, the most in records dating back to june 2006, according to the CFTC. The total has jumped 68% since Feb. 15.
  • Oil Falls for a Fifth Day in New York as Japanese Quake May Limit Demand. Oil fell in New York to the lowest in two weeks amid concern an earthquake in Japan will limit demand in the world’s third-largest economy and crude user. Oil has dropped 5.6 percent since March 7, the worst losing streak since the period up to Jan. 25. “With the closure of the factories and refineries in Japan we can expect the oil price to take a hit,” said Ben Le Brun, an analyst at CMC Markets based in Sydney. “It’s not good for their near-term growth prospects.” Oil for April delivery fell as much as $1.98, or 2 percent, to $99.18 a barrel on the New York Mercantile Exchange, the lowest intraday price since March 1.
  • EU Puts Burden on Bailout States to Stop Crisis: Euro Credit. European leaders are betting their retooled bailout plan can defuse the region’s debt crisis as they reject costlier remedies and put the onus for stopping the turmoil on cash-strapped governments. In a pact struck in the early hours of the weekend and two weeks sooner than investors expected, officials broadened the size and scope of their 440 billion-euro ($614 billion) bailout fund and eased the terms of Greek rescue loans. They resisted calls to buy bonds in the open market or finance buybacks. The test of the accord will be whether investors reverse a slump that sent yields on Greek and Portuguese debt to euro-area records last week. Greece is fighting to show it can remain solvent and Portugal may be the next to seek aid. Further selling may force policy makers back to the drawing board when they reconvene March 24-25. “Policy makers understand that market sentiment is crucial, and at least in the near-term, these measures are likely to improve sentiment,” said John Stopford, head of fixed income at Investec Asset Management Ltd. in London, which manages $80 billion. “I need to see how they are implemented. I’m happy to stay away from peripheral bonds for now.”
  • Metals Demand in Japan May Tumble as Quake Damage, Power Cuts Halt Plants. Demand for industrial metals in Japan, Asia’s biggest importer of aluminum, may decline as factories shut because of damage or power shortages after the country’s strongest earthquake on record, analysts said. “You’ve got some production decline and certainly a consumption decline as well,” Jim Lennon, a senior analyst at Macquarie Group Ltd., said in a phone interview today. Japan is the world’s second-largest buyer of copper ore after China. The northern Tohoku region most affected by the 8.9- magnitude temblor and subsequent tsunami represents about 8 percent of gross domestic product, and is host to factories making products from cars to beer.
  • BHP Billiton(BHP) to Resume Gulf of Mexico Drilling After Permit Win. BHP Billiton Ltd. (BHP), the world’s biggest mining company, will resume drilling of a production well at its Shenzi oil field in the Gulf of Mexico after winning the second U.S. deep-water permit since BP Plc’s spill last year.
  • Fannie Mae Ex-CEO Mudd May Face Claims in SEC Subprime Loans Investigation. Daniel Mudd, the former head of Fannie Mae, became the latest target in a probe by U.S. regulators of whether financial institutions were honest with investors about their exposure to subprime loans. Mudd, now chief executive officer of Fortress Investment Group LLC (FIG), confirmed in a statement to Bloomberg News that the Securities and Exchange Commission notified him yesterday the agency intends to pursue civil claims against him.
  • Netanyahu Seeks Palestinian Condemnation for Murder of 5 Israeli Settlers. Prime Minister Benjamin Netanyahu urged the international community and Palestinian Authority to issue “strong, unequivocal condemnations” of a West Bank settlement attack that killed five members of an Israeli family. Dismissing Palestinian statements as “stuttering and weak,” Netanyahu said today in Tel Aviv that he wouldn’t “allow acts of terror to determine the map of Jewish settlement” in the West Bank. The parents of the family from the West Bank settlement of Itamar were stabbed to death along with three of their children aged 11, 4, and 4 months, Netanyahu said. Three other children survived including the oldest, 14, who was at a youth group meeting at the time of the attack.
  • LinkedIn Says China Blocking Website Poses New Risk to Potential Investors. LinkedIn Corp., the largest professional-networking portal, said the possibility that China may bar access to its website poses a new risk to investors in its initial public offering. A block by China is among circumstances under which “the value of our network could be negatively impacted,” LinkedIn said in an updated prospectus filed March 11. The company’s Jan. 27 offering document contained no such reference to China. “The government of the People’s Republic of China recently blocked access to our site in China for a short period of time,” the latest filing said. “We cannot assure you that the Chinese government will not block access to one or more of our features and products or our entire site in China for a longer period of time or permanently.”
Wall Street Journal:
  • Lehman Probe Stalls; Chance of No Charges. The U.S. government's investigation into the collapse of Lehman Brothers Holdings Inc. has hit daunting hurdles that could result in no civil or criminal charges ever being filed against the company's former executives, people familiar with the situation said. In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels. SEC officials also aren't confident they could win any lawsuit accusing former Lehman employees, including former Lehman Chief Executive Richard Fuld Jr., of failing to adequately mark down the value of the large real-estate portfolio acquired in Lehman's takeover of apartment developer Archstone-Smith Trust or to disclose the resulting losses to investors, according to people familiar with the matter.
  • Officials Struggle to Prevent Meltdown at Two Japanese Reactors. Japanese officials battled into early Monday to prevent meltdowns at two damaged nuclear reactors, saying their fuel rods may have been critically damaged by overheating. Japanese officials battled into early Monday to prevent meltdowns at two damaged nuclear reactors, saying their fuel rods may have been critically damaged by overheating.
  • To Avert Criticism, Fed Avoids Saying 'Core'. As gasoline prices surge, Federal Reserve Chairman Ben Bernanke is changing his tune when discussing inflation in public—in part to avert criticism that central bankers are out of touch with consumers. Fed officials have for years cited "core inflation," a measure that excludes food and energy prices. That is because core inflation tends to be a useful predictor of inflation over a couple of years, which they call the medium term, a period that is key to monetary-policy decisions. But this focus has drawn criticism that Fed officials aren't facing economic reality, as if they don't eat or drive. Now, Mr. Bernanke is taking another tack in his public communications. In two days of testimony on Capitol Hill earlier this month, the Fed chairman never uttered the words "core inflation" while explaining the central bank's aims and policies. Instead of citing a specific measure, he emphasized the Fed's time frame. "Inflation can vary considerably in the short run," he told the House Financial Services Committee. "Our objective is to hit low and stable inflation in the medium term."
  • EPA Tangles With New Critic: Labor. The Obama administration's environmental agenda, long a target of American business, is beginning to take fire from some of the Democratic Party's most reliable supporters: Labor unions. Several unions with strong influence in key states are demanding that the Environmental Protection Agency soften new regulations aimed at pollution associated with coal-fired power plants. Their contention: Roughly half a dozen rules expected to roll out within the next two years could put thousands of jobs in jeopardy and damage the party's 2012 election prospects. "If the EPA issues regulations that cost jobs in Pennsylvania and Ohio, the Republicans will blast the President with it over and over," says Stewart Acuff, chief of staff to the president of the Utility Workers Union of America. "Not just the President. Every Democratic [lawmaker] from those states."
  • RIM(RIMM) Hits India's Email Demands. A top executive of BlackBerry-maker Research in Motion Ltd. said Indian security agencies are making "rather astonishing" demands for increased powers to monitor email and other data traffic, raising serious privacy issues that threaten to harm the country's reputation with foreign investors.
  • The Federal Reserve Faces an Oil Dilemma.
NY Times:
  • Supply Disruptions of Power and Water Threaten Japan's Economy. As the humanitarian and nuclear crises in Japan escalated after the devastating earthquake and tsunami, the impact on the country’s economy appeared to be spreading as well.
  • New Worries for Buyers Seeking Mortgages. The dread of not finding a lender after the market collapsed in 2009 has been replaced by uncertainty, confusion and frustration. According to brokers and lenders, the list of demands that stand between finding a place to buy and signing on the dotted line simply never stops morphing.
  • Investigation of NY Bus Crash Proceeds on Several Fronts. Federal investigators and the State Police spent Sunday studying the wreckage of a tour bus and the stretch of Interstate 95 where the vehicle flipped and skidded nearly 500 feet into a signpost, killing 14 passengers in the Bronx the day before.
Business Insider:
Zero Hedge:
  • iPad's Grip on Hedge Funds Tightens. In a terrific marketing coup, hedge fund IT provider Agio Technology hosted what it called its iPad Challenge. It gave iPads to 14 hedge fund managers who evaluated the impact of Apple's iPad on their jobs in real time. The iPad came pre-loaded with Agio's recommended top 10 financial apps for hedge funds. The results, which generated a bit of a buzz, bode well for the iPad as a mission critical technology at hedge funds. Some are now suggesting the iPad has the potential to muscle laptops out of the picture at many funds.
Rasmussen Reports:
  • GOP Hugs Bill Clinton to Slam Obama on Oil Drilling. Republican leaders are turning to former President Bill Clinton to pummel President Barack Obama over his energy policies. Both House Majority Whip Kevin McCarthy (R-Calif.) and Senate Minority Whip Jon Kyl (R-Ariz.) used a joint Sunday show appearance to seize on Clinton's comments last week calling delays in issuing drilling permits "ridiculous."
USA Today:
  • White House Urges Cuba to Release US Contractor. An outraged White House said Saturday it wants the Cuban government to immediately release an American international development worker sentenced to 15 years in prison for crimes against the state. National Security Council spokesman Tommy Vietor said the prison term "adds another injustice" to Alan Gross's ordeal. Vietor said Gross, a Maryland native arrested in December 2009 while on a U.S.-backed democracy-building project, has already spent too many days in detention and "should not spend one more."
  • Clegg Unleashes Tirade Against Bankers. Deputy Prime Minister Nick Clegg said on Friday he wanted to "wring the neck" of bankers who award themselves big bonuses so soon after being bailed out by the government during the financial crisis. Clegg, leader of the Liberal Democrats and the son of a banker, also called financial market players "terrifying people in pinstripe suits" and said Britain needed "to look at the basic structure of banking."
  • Portugal Opposition Won't Back New Cuts But Ready to Talk. Portugal's main opposition Social Democrats said they would not back additional budget consolidation measures unless the government amends them, meaning they may block some of the steps, deepening the country's debt crisis.
  • Interview - Libyan Rebel Chief Says More Fighters Available. The head of Libya's rebel council said on Saturday there were plenty of fighters to attack the forces of Muammar Gaddafi, but said without restrictions on his ships and planes, civilians would suffer. In the east, Gaddafi forces have retaken the oil port of Ras Lanuf, and in the west, the revolt in Zawiyah has been crushed after days of fierce attacks by government forces. Asked if parts of the rebel army are being held back from the front line, Libyan National Council chief Mustafa Abdel Jalil said: "The volunteers now at the front are less than 30 percent of the people who are willing to go and fight, our people are ready and determined to fight Gaddafi's forces." On the question of securing arms supply from abroad, the former justice minister said in the interview with Reuters: "Some people (in the revolution) in their capacity are making efforts to get some weapons. If a no-fly zone and restrictions on Gaddafi's ships are not imposed, Libya's civilians are going to suffer."
Financial Times:
  • Funds of Funds Curb Returns. Accessing hedge funds via fund of funds vehicles reduces annual returns by almost 3 percentage points, according to research by the Universities Superannuation Scheme, the UK’s second-largest pension fund. The findings coincide with a poll of 60 pension fund managers, with $56bn invested in hedge funds, showing that 63 per cent plan to increase their allocations to direct hedge funds, while just 2 per cent are looking to augment exposure to funds of funds. Simon Ruddick, managing director of Albourne Partners, which conducted the survey, said: “I don’t think funds of hedge funds add more value than they charge”.
Sunday Independent:
  • Irish banks may need between 15 billion euros and 25 billion euros more in capital. The requirement for additional funds emerged during stress tests of the banks. The funds would be in addition to a 10 billion-euros capital injection deferred by former finance minister Brian Lenihan.
  • Moody's Investors Service may lower its ratings on Spanish lenders and savings banks in coming days after it downgraded Spain's sovereign rating earlier this week, citing Moody's analyst Kathrin Muehlbronner. Moody's put 30 banks under watch on Dec. 20 and set a three-month time limit to make a decision on their ratings.
Welt am Sonntag:
  • Stephen Roach, non-executive chairman of Morgan Stanley Asia Ltd., said China and India must do more to halt inflation before it "gets out of control" with "devastating consequences," citing an interview. If the central banks in the two countries wait too long to halt inflation, they may be forced to raise interest rates faster and steeper than if they move now, which could lead to a "hard landing," Roach said.
  • Members of the Chinese People's Political Consultative Conference, the nation's top political advisory body, urged the country to maintain "basic" price stability, citing the conference.
Beijing Times:
  • China needs to pay "high attention" to the relatively large inflation pressure, citing Su Ning, former deputy governor of the People's Bank of China. The country should limit the growth in fixed-asset investments, Su said.
  • China central bank adviser Xia Bin suggested a "relatively large" one-time yuan revaluation when necessary to reflect the development of the real economy, according to a commentary he wrote.
China's Securities Journal:
  • China's "main" state-owned banks may need to raise $22.8 billion of capital in the next five years based on their current pace of lending, citing estimates by Jesse Wang, an executive vice president at China Investment Corp.
  • Libyan rebels will receive weapons from friendly countries as they battle troops loyal to leader Muammar Qaddafi, Gen. Abdel-Fattah Younis, Libya's interior minister before joining the rebels, said in an interview. Persian Gulf countries were very supportive of the rebels' cause and the foreign minister of the UAE called them and offered help, Younis said. Younis said the U.S. had a very "conflicted" position with regard to the conflict in Libya.
Weekend Recommendations
  • Made positive comments on (HPQ).
Night Trading
  • Asian indices are -1.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 111.50 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 119.50 +.5 basis point.
  • S&P 500 futures -.55%.
  • NASDAQ 100 futures -.73%.
Morning Preview Links

Earnings of Note
  • (EBIX)/.33
  • (GEOY)/.36
Economic Releases
  • None of note
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Citi Property Conference, CSFB Services Conference, Lazard Tech/Media Conference, (XLNX) analyst meeting, (CVX) analyst meeting and the $32 Billion 3-Month/$30 Billion 6-Month Treasury Bills Auctions could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

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