Wednesday, March 02, 2011

Wednesday Watch

Posted by Gary .....at 12:29 AM

Evening Headlines
Bloomberg:
  • Libya Rebels Dig in After Qaddafi Attacks as UN Rebukes Regime. Libyan rebels dug in for battle after repulsing attacks by forces loyal to Muammar Qaddafi that fueled talk of a civil war, as the full membership of the United Nations rebuked the regime. Rebels in Zawiyah, a rebel outpost 28 miles (45 kilometers) west of Tripoli, the capital, held their ground yesterday at the entrances to the city, Ibrahim al-Hajj, a 58-year-old resident, said by telephone. Many were armed with machine guns and rocket- propelled grenades taken from Libyan military depots, said Belgassem al-Zawee, a 50-year-old protester in the city. Forces loyal to Qaddafi had taken control of Libya’s western border with Tunisia Feb. 28 before attacking and failing to recapture Zawiyah. They also attacked Misratah, a city 115 miles east of the capital, according to the Associated Press. “Libya is essentially split into two, an eastern and a western part,” Mohammed Dangor, South Africa’s ambassador to Libya, who left Tripoli on Feb. 27, told reporters in Cape Town. “This is moving toward civil war, that’s the danger.”
  • Crude Oil Rises a Second Day, Exceeds $100 in New York on Supply Concerns. Oil advanced for a second day in New York, exceeding $100 a barrel amid speculation turmoil in the Middle East may spread from Libya to Iran, the second-largest producer in the Organization of Petroleum Exporting Countries. Futures rose to the highest since September 2008 yesterday as Libyan rebels braced for renewed clashes with forces loyal to leader Muammar Qaddafi. Saudi Arabia’s benchmark stock index plunged the most since November 2008 on concern regional unrest may extend to the kingdom. Iranian protesters clashed with security forces in Tehran, Al Arabiya television reported. “The unrest is threatening to spread to Iran, OPEC’s second-largest producer,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today. “Given the speed at which events are unfolding, we do not rule out a further spike of $10 a barrel or beyond in the coming weeks.” Oil for April delivery gained as much as $1.01, or 1 percent, to $100.64 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $100.30 at 11:26 a.m. Sydney time. Political turmoil has spread to Saudi Arabia’s neighbors, with protests erupting in Oman and Bahrain. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and 20, according to Human Rights Watch.
  • Raw-Sugar Deliveries for March Futures in N.Y. Surge to JPMorgan(JPM). Almost 1 million metric tons of raw sugar was delivered to JPMorgan Chase & Co. to settle the expiring futures contract in New York, the most for the commodity since 2009, exchange data show. JPMorgan Futures, a unit of the second-largest U.S. bank by assets, took delivery on 18,748 sugar contracts, or the equivalent of 952,398 tons, ICE Futures U.S. said today in a report on its website. That’s 9.2 percent of what the government expects the U.S. to use this year. Prices have rallied 75 percent in the past 11 months.
  • Short sellers are increasing bets against emerging market stocks at the fastest pace in four years after wagers on a tumble in U.S. stocks backfired. Short interest in the iShares MSCI Emerging Markets Index ETF(EEM) jumped to 21% of shares outstanding as of Feb. 15, from 11% two weeks earlier, according to NYSE data compiled by Bloomberg. While the S&P 500 has climbed 3.9% this year and reached a 32-month high on Feb. 18 amid evidence the U.S. economy is strengthening, the emerging market index retreated 3.5% as surging inflation prompted countries including China and Brazil to raise interest rates.
  • CFTC Warned Algorithm Rules 'Virtually Impossible' to Enforce. It would be “virtually impossible” for the U.S. Commodity Futures Trading Commission to enforce rules governing how traders use algorithms before they complete transactions, an advisory subcommittee told the agency. “The only way to independently enforce any sort of specific regulations on quality assurance for trading firms would be to have a virtual army of CFTC employed quality assurance professionals who have complete access to all trading firms’ intellectual property,” the CFTC Technology Advisory Committee’s pre-trade functionality unit said in a report. Exchanges should require trading firms to have measures in place that can disable algorithms, including a “kill button” that could simultaneously cancel all existing orders and prevent a firm from placing new orders, said the group, which met in Washington today.
  • Saudi King's $15 Billion Housing Grant Won't Eliminate Shortage. Saudi King Abdullah’s pledge to increase spending on housing by 55 billion riyals ($15 billion) probably will do little to relieve the country’s home shortage unless it’s coupled with long-delayed changes in mortgage financing laws. “This is largely symbolic,” said Jarmo Kotilaine, chief economist at National Commercial Bank, Saudi Arabia’s largest lender by assets. “We have a significant structural issue that can never be solved through government spending alone.” Saudi Arabia, the world’s largest oil exporter, needs 2 million homes by 2014 to keep up with the demands of a population that quadrupled over 40 years, Credit Suisse Group AG estimates.
  • San Francisco Fed Names Researcher John Williams President. John C. Williams, research director for the Federal Reserve Bank of San Francisco, was named as the bank’s new president to succeed Janet Yellen, who became the Fed board’s vice chairman in October.
  • JPMorgan's(JPM) Commercial-Mortgage Bonds Set to Sell as Spreads Widen in U.S. JPMorgan Chase & Co. sold a $1.5 billion commercial-mortgage bond as Middle East turmoil slows a three-month rally for the debt. Top-rated securities tied to skyscraper, shopping mall and hotel loans are yielding 1.95 percentage points more than Treasuries, up from a spread of 1.88 percentage points on Feb. 18, the lowest level in at least three years, according to a Barclays Plc index.
  • Former Senator Chris Dodd Is Appointed to Lead Motion Picture Association. The Motion Picture Association of America, lobbyist for Hollywood’s largest studios, named former U.S. Senator Christopher Dodd as chairman and chief executive officer.
  • Highbridge Said to Shut Asia Fund After Huttenlocher Resigned. Highbridge Capital Management LLC, the hedge-fund firm owned by JPMorgan Chase & Co., is liquidating its $1.4 billion Asia Opportunities Fund after manager Carl Huttenlocher resigned, according to two people with knowledge of the matter.
  • China's aluminum market will continue to be oversupplied in the next few years as production capacity grows in the west and demand drops, said Hu Changping, director of the aluminum department at the China Nonferrous Metals Industry Association. "The expansion will continue, as some market players will try to grab a bigger market share with low-cost products," HU said. Still, "huge unrecorded commercial stocks at home and abroad and increasing recycling will curb an increase in demand."
  • Copper, Corn May Drop on Mideast Unrest as Gold Jumps, UBS Says. Copper, corn and rubber may tumble in the next six months, while gold climbs to a record $1,500 an ounce as turmoil in the Middle East boosts oil, fuels inflation and weakens Chinese raw-material demand, according to UBS AG. “There’s more potential for a correction in most of the commodities,” Peter Hickson, global commodities strategist at Switzerland’s largest bank, said by phone yesterday. “There’s a risk. And the risk is driven by concerns over inflation, rising oil prices and uncertainty the Middle East represents.” “There’s a fear that China confidence has been damaged by rising oil prices and the uncertainty,” said Hickson, who joined UBS in 1996 and moved to Hong Kong from London in January. Chinese demand for commodities may be waning, hurt by the civil uprisings in the Middle East and accelerating inflation, Hickson said. China is the world’s largest metals user. “We’re seeing inventories rising in steel, iron ore and coal prices in China haven’t shown a lot of life,” he said.
Wall Street Journal:
  • Libya Rebels March West as Fronts Firm. Gadhafi Opponents Are Seen Moving Out of Benghazi; Pentagon Orders Two Warships to Mediterranean. A ragtag army of opponents to Col. Moammar Gadhafi began moving west toward Tripoli from the east and the U.S. ordered two warships to the Mediterranean Sea, as the prospect of an extended war loomed over Libya.
  • Celgene(CELG) Discloses Justice Dept Probe Into Drug Marketing. Celgene Corp. (CELG) received notice that federal prosecutors are investigating its marketing practices for top-selling blood cancer drug Revlimid.
  • Actually, AOL's(AOL) Mark Ellis Is Headed to Yahoo(YHOO). As AOL CEO Tim Armstrong works to integrate his $315 million purchase of the Huffington Post into the Internet portal, one of its top advertising leaders is departing for a big job at Yahoo.
  • Amazon.com(AMZN) Threatens to Sever Affiliate Ties in California. Ramping up its battle against Internet sales taxes, Amazon.com Inc. (AMZN) has warned it will sever ties with thousands of California-based advertising affiliates if the state government passes legislation requiring the ecommerce giant to collect taxes on items sold to residents.
  • Fed, FTC Call for Lenders to Share Credit Scores. Free credit scores could be easier to obtain under a rule U.S. federal regulators proposed Tuesday. Starting in July, lenders would be required to disclose credit scores to consumers when the scores are used to set certain credit terms. The Federal Reserve and Federal Trade Commission proposed the rules to comply with a provision included in the sweeping Dodd-Frank financial overhaul Congress passed last summer. Lenders frequently review credit reports to determine a loan applicant's creditworthiness. Low credit scores and negative information on credit reports can leave a consumer paying higher interest rates. Under the proposal, a lender would be required to provide free credit scores to borrowers when the lender uses a credit report to set high interest rates or other loan terms that aren't the best available. Lenders would also need to provide credit scores when they deny credit, change the terms of an existing credit arrangement or refuse to grant credit in the amount or on the terms requested. John Ulzheimer, president of consumer education for SmartCredit.com, said the new regulations would be "hugely empowering" for consumers. This means that "any financial-services product you apply for where you're denied or adversely approved based on a score, you're going to get the score, which is historical," he said.
  • States Fumble Revenue Forecasts. Many of the budget deficits that blindsided states—and sparked emergency tax increases and spending cuts—stem in part from the states' unduly rosy revenue forecasts, a new study said.
  • States Make Play for Web Gambling. Efforts to legalize online gambling in the U.S. are moving to the states as lawmakers roll the dice on bills that aim to steer around federal laws effectively prohibiting Internet wagering. The first real test of the state efforts comes this week in New Jersey, where Gov. Chris Christie is expected to decide the fate of a bill that would let Atlantic City casino companies run gambling websites for state residents.
  • Gingrich Laces Up for Presidential Run.
  • Fed Chief Discusses Exit From Stimulus. Federal Reserve Chairman Ben Bernanke, after spending much of the past six months formulating and then defending a new central-bank effort to stimulate the economy, is turning his eyes toward an eventual exit from the program. Mr. Bernanke faced repeated questions from Republicans and Democrats Tuesday on Capitol Hill about when he would begin to pull back the flood of money the Fed has pumped into the economy in recent months. While not indicating any timetable, he did answer lawmakers' concerns by spelling out in more detail than previously what would get him to take his foot off the accelerator. "Once we see the economy is in a self-sustaining recovery and employment is beginning to improve and labor markets are improving, and meanwhile that inflation is stable, approaching roughly 2% or so," Mr. Bernanke said at a Senate Banking Committee hearing, "at that point we'll need to begin withdrawing."
Bloomberg Businessweek:
  • Railway Yield Gap at Six-Month High as Debt Mounts: China Credit. China’s state-owned railroad is increasing debt sales by 50 percent, driving yield premiums on its bonds to the highest levels in more than six months, as the world’s biggest high-speed network is rolled out. The yield on the railway ministry’s 3.88 percent September 2020 bonds exceeded the rate for similar-maturity government notes by 115 basis points yesterday, almost double the 59-point gap when the security began trading in September, according to Chinabond prices. “A lot of investors believe the ministry’s debt is too much,” said Fan Wei, a Beijing-based senior vice president of fixed income at Hong Yuan Securities Co., a unit of the nation’s sovereign wealth fund. Spending on China’s railways totaled 1.42 trillion yuan over the last two years, 33 percent more than was invested in the previous five, and the government predicts a further 700 billion yuan will be used to fund construction in 2011. Investors looking into the history of rail expansion have reason to be concerned about China’s growth, which will result in the nation having almost as much high-speed track by the end of next year as the entire rest of the world. Railroads led a collapse in the U.S. corporate bond market in the late 1800s after a flood of defaults on debt sold to extend networks into the American West. China replaced Minister of Railways Liu Zhijun after the ruling Communist Party said he was under investigation for “severe” disciplinary violations, the official Xinhua News Agency reported Feb. 25. The “blind pursuit” of high-speed rail is “highly likely to develop into a debt crisis,” wrote Zhao Jian, a professor of economics at Beijing Jiaotong University, in an April 2010 commentary in the China Daily newspaper. The Beijing-based railway ministry has sold the equivalent of $339 billion of debt since January 1997, according to data compiled by Bloomberg. Indian Railway Finance Corp. raised $11.4 billion-equivalent since March 1996, while Russian Railways has sold $10.6 billion since December 2004, the data show. Five-year credit default swaps on Chinese government debt are 7.5 basis points higher this year on concern three interest rate rises in four months may threaten economic growth.
Business Insider:
Zero Hedge:
IBD:
New York Times:
  • Hedge Fund Case Takes Aim at Side Pockets. The Securities and Exchange Commission on Tuesday charged a Bay Area hedge fund manager with “concealing” more than $12 million of investors’ money — a case that casts a harsh spotlight on the controversial accounts known as side pockets.
Forbes:
  • How ObamaCare Is Putting Medical Innovation In The Hospital. How will we know if ObamaCare is successful? One way is if it keeps the country from driving off a fiscal cliff. Supporters of the law think it will, critics think it won’t; time will tell. Another way to judge ObamaCare’s success or failure is its effect on medical care innovation. Odds are rising it will be deadly to innovation. Here’s why.
Platts:
  • US Energy Head Chu Says Libya Unrest Not Enough to Tap Oil Reserve Yet. US Energy Secretary Steven Chu on Tuesday reiterated President Barack Obama's stance that the US has no plans to tap the Strategic Petroleum Reserve despite unrest in Libya and the Middle East causing oil prices to rise. "The strategic reserve is there for a serious disruption of supply," Chu said on the sidelines of the US Department of Energy's Energy Innovation Summit. "As the president has pointed out, the events in Libya are a very small disruption, and so far it's manageable." Chu said the administration continues to monitor oil prices and will act if necessary. He noted that the reserve has only been tapped twice before. "It's an emergency fund," he said. "We want to keep it that way."
Reuters:
  • Two U.S. Amphibious Assault Ships Head to Med Via Suez. Two U.S. amphibious assault ships, the USS Kearsarge, which can carry 2,000 Marines, and the USS Ponce, will pass through Egypt's Suez Canal on Wednesday morning, an Egyptian official said on Tuesday. The United States said on Monday it was moving ships and planes closer to Libya, where a rebellion against Muammar Gaddafi's rule is underway.
  • Hedge Funds Took in Nearly $11 Billion in January. Investors poured nearly $11 billion into hedge funds in January, according to a new report which suggests that investors are ready to take fresh risks on these loosely regulated portfolios. Total hedge fund assets stood at $2.5 trillion at the end of January, marking a $17.7 billion in increase from the end of December, HedgeFund.net said on Tuesday. "Performance accounted for a small part of the increase and net investor flows were positive and significantly above January 2010," the group wrote in its monthly report. The group said performance accounted for a $6.8 billion gain while net inflows accounted for $10.9 billion.
  • Sina(SINA) Q1 Revenue Forecast is Tepid, Shares Fall. Sina Corp , China's largest Internet portal, forecast first-quarter revenue largely below estimates after posting quarterly earnings that exceeded expectations, and its shares fell sharply. Sina reported a fourth-quarter net loss of $100 million, or $1.51 a share. Mobile-related revenue dropped 26 percent to about $21 million.
  • Weatherford(WFT) to Adjust 2007-10 Results by $500 Million. Oilfield services company Weatherford Ltd is adjusting its results for the past four years by a total of about $500 million because of a "material weakness" in its income tax reporting. Weatherford shares, which fell 2.7 percent in regular trading, fell another 2.8 percent to $22.87 after-hours on the New York Stock Exchange, as the company also spelled out the risks from Libya to its $236 million tied to the country.
  • Cal Dive Sees Slow Recovery in US Gulf Activity. Oilfield services provider Cal Dive International said it expects activity levels in the U.S. Gulf of Mexico to recover slowly in 2011 as the issuance of permits in the region has not picked up since last year's oil spill. The permitting process in the U.S. Gulf has slowed down since the Macondo blowout triggered the massive oil spill in April last year, which led to stringent regulations in permits being handed out.
  • Watchdog Takes Last Jab at US Housing Rescue Effort. The U.S. Treasury's outgoing bailout watchdog took his last shot at the Obama administration's program to keep Americans in their homes and questioned whether taxpayer funds should continue to be used for an ill-conceived housing plan. There is "near universal agreement that the program failed to meet its goals" and the current debate centers "mostly on whether the program should be terminated, replaced or revamped," said Neil Barofsky, the top government auditor for the $700 billion bank bailout fund, in prepared remarks to Congress.
  • Jump in World Factory Costs Raises Inflation Risk. Factory input costs rose across the globe in February, the latest sign of brewing inflation pressures, as manufacturing in the United States and the euro zone grew at the fastest pace in years.
Financial Times:
  • Top 10 Hedge Funds Make $28 Billion. The top 10 hedge funds made $28bn for clients in the second half of last year, $2bn more than the net profits of Goldman Sachs, JPMorgan, Citigroup, Morgan Stanley, Barclays and HSBC combined, according to new data.Even the biggest of the hedge funds have only a few hundred employees, while the six banks employ 1m between them.
  • Alarm Over Plans for Libya No-Fly Zone. US and British moves to consider military action against Muammer Gaddafi in Libya triggered international alarm on Tuesday, with Turkey and Russia opposing the idea and France and Germany expressing deep unease.
Nong Thon Ngay Nay:
  • Vietnam's economic growth will be de-emphasized this year as the country puts curbing inflation and stabilizing the economy as its top priorities, citing Finance Minister Vu Van Ninh. Ninh placed economic growth in fourth place among Vietnam's national objectives.
Shanghai Securities News:
  • China's management of inflation expectations cannot only rely on mopping up excess liquidity, Wang Yong, a professor at the training school of the People's Bank of China, wrote in a commentary. The People's Bank of China still faces difficulty in managing liquidity, he wrote, citing the impact of quantitative easing in the U.S., turbulence in the Middle East, rising global agricultural commodity prices and drought in China. The task of managing inflation expectations remains "grim," Wang said.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (CBE), target $74.
Night Trading
  • Asian equity indices are -2.0% to -.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 110.0 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 119.25 -2.25 basis points.
  • S&P 500 futures -.28%.
  • NASDAQ 100 futures -.29%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (JOYG)/1.07
  • (CRI)/.57
  • (COST)/.78
  • (CPRT)/.44
  • (CQB)/-.01
  • (FL)/.37
  • (SPLS)/.40
Economic Releases
8:15 am EST
  • ADP Employment Change for February is estimated to fall to 180K versus 187K in January.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of 750,000 barrels versus a +822,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,500,000 barrels versus a -1,333,000 barrel decline the prior week. Gasoline inventories are expected to fall by -350,000 barrels versus a -2,798,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a -1.8% decline the prior week.
2:00 pm EST
  • Fed's Beige Book
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Bernanke speaking, Fed's Hoenig speaking, Challenger Job Cuts for February, weekly MBA Mortgage Applications report, RBC Healthcare Conference, (IR) investor meeting, (AEIS) analyst meeting and the (TAP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and real estate shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

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