Late-Night Headlines
Bloomberg:
- European leaders closed ranks to defend Greece from the punishment of investors in a pledge of support that may soon be tested. German Chancellor Angela Merkel and her counterparts yesterday pledged “determined and coordinated action” to support Greece’s efforts to regain control of its finances. They stopped short of providing taxpayers’ money or diluting their own demands for the country to cut the European Union’s biggest budget deficit. While bonds rallied, the euro slipped and pressure is now on the governments to show how they would back up their words with action. The attention of investors now turns to a meeting of finance ministers in Brussels on Feb. 15-16. “They’ve got to deliver next week,” said Andrew Bosomworth, head of portfolio management at Pacific Investment Management Co., which oversees the world’s largest mutual fund. “They’ve expressed the principle of solidarity and now they need to explain and quantify it.”
- Investors may be too optimistic about emerging-market stocks as 10 years of outsized gains mask a longer-term record of lower returns than advanced-nation shares, according to the London Business School. While emerging market stocks outpaced advanced shares by about 10 percentage points a year during the past decade, returns since 1975 show emerging shares were a less-profitable investment, according to a report by Elroy Dimson, Paul Marsh and Mike Staunton of LBS. $100 invested in emerging market stocks at the end of 1975 grew at a rate of 9.5% a year to $2,215 by the end of 2009. The same amount invested in developed market shares climbed 10.6% a year to $3,037, the authors wrote, using indexes compiled by Standard & Poor's, the International Finance Corp. and MSCI Inc. "The case for emerging markets is often oversold" to investors, Dimson, Marsh and Staunton wrote in a report titled "Global Investment Returns Yearbook 2010" that was distributed by CSFB on Feb. 9. "Their longer term returns have been less stellar than many imagine."
- Dallas-Fort Worth has received 5.3 inches of snow today, making this the region’s eighth-snowiest winter on record, according to the National Weather Service. The season total so far is 8.5 inches, shy of the record 17.6 inches set in 1977-78, and snow will fall until midnight, said Bill Bunting, chief meteorologist in charge of the National Weather Service’s Fort Worth office. “This is unusual,” Bunting said in a telephone interview. “This is going to be a significant snow event in our history.” “From Texas to the Southeast we are not breaking records with this cold but we are seeing it persist,” Rogers said in a telephone interview. “To me, the more impressive aspect is the durability of this cold. It is a pattern that is really stuck.” The pattern will continue from Texas to Atlanta, Rogers said. Temperatures throughout the region will be 4 to 8 degrees below normal, he said.
- China’s inflation slowdown in January may provide only temporary respite for policy makers after property prices and lending surged in the world’s fastest- growing major economy. “Weaker inflation is a temporary blip and consumer prices may resume rising more quickly in February and peak at about 6 percent in August,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd., a research and trading company in Hong Kong. He said causes will include credit growth, raw- material costs, property-price gains, and low bases for comparison in 2009.
- Traders are driving relative yields on Fannie Mae and Freddie Mac mortgage bonds that most influence the interest rates consumers pay to the lowest in 17 years, speculating cash the companies use to buy delinquent loans will be recycled back into the securities. The difference between yields on Fannie Mae’s current- coupon 30-year securities, which trade closest to face value, and 10-year Treasuries narrowed to as little as 0.66 percentage point yesterday, matching the lowest since 1992, according to data compiled by Bloomberg.
- Investors pulled the most money from emerging-market equity funds in 19 months as Greece’s debt crisis escalated and the Federal Reserve laid the groundwork for exiting its record credit expansion. Outflows from emerging-market equity funds reached $2.9 billion in the week to Feb. 10, the highest since the period ended July 9, 2008, according to Cambridge, Massachusetts-based research firm EPFR Global in an e-mailed release. “Investors fretted that Greece’s sovereign debt woes could drive up yields, and hence credit costs, worldwide,” EPFR said. “Further talk by U.S. Federal Reserve officials about an ‘exit strategy’ also weighed on sentiment.”
- Snowstorms shut 30 highways across China, disrupting travel on a day when more than 66 million people were expected to take to the roads for the nation’s biggest festival of the year. As many as 43 highways were closed last night, according to the Ministry of Transport. Ordos in Inner Mongolia has had as much as 13 centimeters of snow in the past three days, according to the weather bureau.
Wall Street Journal:
- About a quarter of the 8.4 million jobs eliminated since the recession began won't be coming back and will ultimately need to be replaced by other types of work in growing industries, according to economists in the latest Wall Street Journal forecasting survey. While the job market is constantly shifting as some sectors fade and others expand, this recession threw that process into overdrive. Thousands of workers lost jobs as companies automated more tasks or moved whole assembly lines to places like China. As growth returns, so will job creation—just with a different emphasis in the mix of jobs being created.
- The balance in the Iranian uprising is shifting in the regime's favor. Iran dealt a blow to the opposition Thursday, rallying tens of thousands of pro-regime marchers and disrupting, sometimes violently, protests long-planned to show continuing dissatisfaction with the regime on the 31st anniversary of the Islamic republic's founding. The show of force came as President Mahmoud Ahmadinejad told a pro-government crowd in Tehran that Iran had successfully enriched uranium to higher levels than before. Iranian officials also said Thursday they could enrich uranium further still, though Mr. Ahmadinejad said Iran had no intention of producing a nuclear bomb.
- Last fall Lloyd Blankfein, reportedly with tongue firmly in cheek, told the Times of London that Goldman Sachs does “God’s work.” By “God’s work” Blankfein was referring to Goldman’s role in helping companies raise money and grow — traditional investment banking activities. More than a year after the government injected $10 billion, Goldman turned in the most profitable year in Wall Street history. But it didn’t do it by performing “God’s work.” Goldman generated its profits through trading. Paul Solman on PBS NEWSHOUR tonight examines whether Goldman is actually a hedge fund. Solman looks at the issue and practice of front-running and risk management at the investment bank. Here are some excerpts from the piece: NARRATOR: So that’s how Goldman Sachs is making money: as a traditional investment bank. Well, not according to Nomi Prins, a former Goldman Sachs trading strategist — now a senior fellow at Demos, a progressive think tank. NOMI PRINS: the classical investment banking function is a very small portion of their revenues. I think it’s about 10% or so. So if he’s doing God’s work he’s only doing it at 10% capacity. NARRATOR: Most of the rest, says Prins, is so-called “proprietary” trading, for the firm’s own profit, rather than its clients’. NARRATOR: But consider HOW they’re making those bucks, says Nomi Prins. On knowledge that, as when she was there, comes in with every trade a client asks Goldman to make. NOMI PRINS: And just by evidence from the profits they make and where they make them, what divisions they make them in, they’re not sitting on that knowledge. They are trading on that knowledge. PS REASK: so they know somebody is going to buy a commodity or currency so they either buy that commodity or currency first or a commodity and currency very much like it. NOMI PRINS: any information that you get, particularly if it’s going to move the markets a lot, is going to filter into the trading positions you take. NARRATOR [NYSE B-roll]: But isn’t this “front running” — trading ahead of your clients (to profit from the price changes that will come from the clients’ trades) for your OWN firm’s benefit? And isn’t that, strictly speaking, illegal? DAVID STOCKMAN: the long and ancient secret of Wall Street is they’ve always been front running their clients!
NY Times:
Business Week:
- Yum! Brands (YUM) has done remarkably well in the battle to win Chinese hearts and bellies, but some investors are now wondering whether the fast-food giant is faltering. Fears that Chinese tastes may be shifting away from Yum's KFC and Pizza Hut chains have hobbled the company's shares. Yum earned $216 million on global sales of $3.36 billion in the fourth quarter, with China revenue up by 8%. Sales at Chinese outlets that have been open for more than a year, though, were off for a third consecutive quarter, dropping 3%. Jitters about what Deutsche Bank (DB) describes as "stubbornly weak sales in China" helped send Yum stock down more than 6% in the two days after the company announced its results on Feb. 3. Yum Chairman David C. Novak says he's not worried: "If this is a problem, it's a Class A problem." Novak points to the company's many successes in China and blames the same-store sales decline on the lousy global economy. Today, Yum is China's top restaurant operator, with more than 3,400 outlets, and the country accounts for 36% of total sales, just behind the U.S. "When the consumer rebounds [in China]," Novak says, "we're well placed."
Politico:
- Rhode Island Democratic Rep. Patrick Kennedy, the last member of his legendary family currently serving in Congress, will announce on Friday that he is retiring, according to Democratic insiders. Kennedy, 42, was first elected to Congress in 1994. He did a stint as chairman of the Democratic Congressional Campaign Committee in the 1999-2000 cycle but has not served in the House Democratic leadership beyond that. His congressional tenure was marked by repeated substance abuse problems, including a drunk-driving incident in 2006. He entered a rehab facility at that time and again in 2009. Sen. Ted Kennedy (D-Mass.), the congressman's father, passed away last year. Democrats unexpectedly lost his seat last month to Republican Scott Brown.
Rasmussen Reports:
- State Attorney General Tom Corbett continues to hold big leads over three potential Democratic rivals in this year’s race for governor in Pennsylvania. The latest Rasmussen Reports telephone survey in the state shows Corbett leading former Congressman Joe Hoeffel 51% to 29%. Against Allegheny County Chief Executive Dan Onorato, he leads 52% to 26%. When State Auditor Jack Wagner is his Democratic opponent, Corbett is ahead 49% to 28%.
zerohedge:
- Guest Post: Will Obama Destroy Any Hope Of US Energy Independence? The U.S. consumes nearly three times the amount of oil that it produces domestically on a daily basis. How can this statistic get any worse, you might ask? Imagine in 2010 the Obama administration persuades Congress to pass a budget that results in a reduction of domestic oil production by 10% - 20%, making the supply/demand imbalance even more lopsided. Foreign oil companies will gain a distinct advantage over American domestic operators as an unintended consequence of these proposals. Sound farfetched? It’s closer to reality than you may think… If it comes to pass, it will likely be the biggest structural change in the U.S. domestic oil and gas industry in decades and have far-reaching implications for investors and for the entire country. In early 2009, the Obama administration proposed to eliminate significant tax incentives for the oil and gas industry. These tax benefits were put in place decades ago to incentivize oil and gas producers to develop domestic sources of energy, while recognizing that oil and gas exploration entailed special risks. Two of the proposed repeals with the most potential impact relate to what the industry refers to as “percentage depletion” as well as “intangible drilling costs” (IDC).
Weekly Standard:
- Kristol: I agree with Paul Krugman. Obama cozies up to too-big-to-fail bankers. Paul Krugman is, I think, right to be amazed by Obama's embrace of the $17 million bonus given to JPMorgan Chase Chief Executive Officer Jamie Dimon and the $9 million issued to Goldman Sachs CEO Lloyd Blankfein. If Obama's idea of moving to the middle politically is to embrace Wall Street's too-big-to-fail banks, he's crazy. Usually Republicans are the party of Big Business and Democrats of Big Government, and the public's hostility to both more or less evens the politics out. But if Obama now becomes the spokesman for Big Government intrusiveness and the apologist for Big Business irresponsibility all at once--good luck with that. Conservatives and Republicans should not--as some seem to be tempted to do--praise Obama for being friendlier to business in this interview than he has been in the past. They should point out that he's friendly to big businessmen who are friendly to him, and to businessmen whose businesses are enmeshed in an unhealthy way with big government--and that he remains hostile to markets and indifferent, at best, to businessmen who are actually trying to make it without depending on the goodwill of politicians and favors from the government.
Arizona Republic:
- Arizona will no longer participate in a groundbreaking attempt to to limit greenhouse-gas emissions across the West, a change in policy by Gov. Jan Brewer that will include a review of all the state's efforts to combat climate change. Brewer stopped short of pulling Arizona out of the multistate coalition that plans to regulate greenhouse gases starting in 2012. But she made it clear in an executive order that Arizona will not endorse the emission-control plan or any program that could raise costs for consumers and businesses. State officials said the policy shift was rooted in concerns that the controversial emissions plan would slow the state's economic recovery. Brewer says the state should focus less on regulations and more on renewable energy and investments by businesses that can create green jobs. The governor also ordered the Arizona Department of Environmental Quality to take another look at stricter vehicle-emissions rules set to take effect in 2012. Automakers said the rules, based on those adopted by California, would raise the cost of a new car significantly. The governor's order is another blow to the Western Climate Initiative, a group of seven states and four Canadian provinces that joined forces in 2007 after growing impatient with the federal government to address climate change. The coalition agreed to implement a regional "cap and trade" system, which limits how much pollution companies can emit, then allows them to buy and sell pollution credits. "Arizona needs a green-and-grow approach rather than a cap-and-trade approach," ADEQ Director Benjamin Grumbles said. "It's very important for the state to stay engaged, to be at the table, but it's also important to convey clearly our position on how to make progress," Grumbles said. "Right now, given the economic downturn, given the complexity of the cap-and-trade scheme being developed, we're not going to be supportive of it." Arizona joined the effort under its previous governor, Janet Napolitano.
Financial Times:
- Greece’s budgetary and economic policies will be subjected to an unprecedented degree of surveillance by European Union authorities as the price of a promise of support agreed on Thursday by Germany and other EU governments. Pensions and healthcare policies, the public administration, labor and product markets, the use of EU structural funds, financial sector supervision and official statistics will all be rigorously monitored by the European Commission to ensure that Greece is not let off the hook. The measures are more intrusive than anything adopted in the EU’s 53-year history and, if applied to the letter, will amount to a significant curtailment of Greece’s fiscal sovereignty in return for its right to continue sharing the euro currency with Germany, France and the other 13 eurozone nations. Experts from the European Central Bank and the International Monetary Fund will be brought in to back up the Commission, but on the insistence of eurozone leaders the IMF will stay largely in the background and will not be asked to provide credit lines for Greece, EU officials said. All these initiatives are expected to be approved by eurozone and EU finance ministers at meetings next Monday and Tuesday. “If the Greek government shows signs of being unable to implement the required conditions, then market pressures could remain high or intensify again,” one investment bank analyst said. Greece’s track record, not just as a member of the eurozone since 2001 but throughout its modern history, does not inspire complete confidence. The country had been in a state of default for about 50 per cent of the time since its recognition as an independent country in 1832, according to calculations in a book published last year by Kenneth Rogoff and Carmen Reinhart, two Harvard economics professors. Prof Rogoff perceives a risk that many Greeks will seek to evade their government’s attempt to boost tax collection and slash the budget deficit by shifting their wealth abroad or disappearing into the underground economy – which is already estimated to be about 30 per cent of gross domestic product. EU officials say the bloc’s recently adopted Lisbon treaty gives them concrete powers to influence Greek behavior and enforce Greek compliance with the Commission’s policy recommendations, once EU finance ministers have approved them next week. The Commission’s recommendations include a reduction in Greece’s public sector wage bill, to be achieved partly by the replacement of only one in five retiring civil servants, the establishment of a contingency fund for budgetary emergencies amounting to 10 per cent of current expenditure, increases in tax and excise duties, and reform of the tax administration. Greece will also be required to submit a report as early as mid-March, spelling out the timetable according to which it will implement its deficit-cutting measures this year. Quarterly reports will be required from mid-May on how it is implementing the broader reform program.
- Goldman Sachs(GS) has been chosen as one of the banks that will manage the $10bn-plus listing of AIG’s Asian unit – in spite of the political controversy over Goldman’s actions during the insurer’s near-collapse in 2008. Goldman’s selection underlines its strength as an equity underwriter in Asia and the fact that the political storm in the US over its role during AIG’s crisis has not soured its relations with the insurer and its government paymasters. The US government owns 80 per cent of AIG after bailing it out in September 2008. Goldman’s role, alongside Citigroup, Credit Suisse, Bank of America Merrill Lynch and UBS, as well as two Chinese lenders, will ensure that the Wall Street firm shares in the estimated $300m in fees the giant IPO is expected to generate. Competition for bookrunner roles had been particularly fierce because of the IPO’s size. It is expected to be the world’s largest this year. Members of Congress have attacked the government’s decision to rescue AIG and pay its counterparties, including Goldman, billions of dollars owed under derivatives contracts without demanding a discount, as a back-door rescue of the banks. Goldman’s critics have also questioned its aggressive stance in demanding collateral on derivatives from AIG before the insurer ran into deep trouble in 2008.
- Transcript: Video interview with Paul Volcker. FT: One of the criticisms of the Volcker rule has been that it doesn’t address the direct causes of this latest financial crisis. What’s your response to that? PV: Well my response first of all, is we’re looking ahead; not backwards, but certainly proprietary trading in all its forms was an important part of the crisis and people say the specifics of this plan apply to banks. There was a lot of problem in non-banks. That’s not directly addressed by these proposals. What is addressed by these proposals is a combination of what banks can do, which are protected, that have the safety net, they have deposit insurance, they have access to the Federal Reserve and what non-banks can do. Non-banks in my view by and large are not regulated as tightly as banks, but they’re going to be subject to this resolution procedure. If they got in trouble, the theory is they will not be rescued, but they will have an orderly demise where I think of as euthanasia rather than life support and that’s a big difference. We have to kind of embed this in consciousness. So much of the early part of this crisis was the non-banks were actively engaged in trading and proprietary activity, which in some sense was at the heart of the crisis. But you remember back with Société Générale and Moralli I guess it was, they had one rogue trader that cost them how much? I think the threat was several billion dollars from one rogue trader. Had a rogue trader in Barings some years ago that brought down the whole organization. Those are kind of one-off things where you see the damage that one trader can do in purely proprietary trading. In those cases, for their own interests as well as the banks’ interests I’m afraid. It’s the kind of things you don’t want banks doing.
National Post:
Daily Telegraph:
- Goldman Sachs(GS) faces 'Robin Hood tax' vote-rigging claims. Goldman Sachs is investigating claims that one of its computers was used to rig a public vote on the introduction of a so-called “Robin Hood tax” on bankers. The Robin Hood Tax campaign alleged that a Goldman computer was one of two computers that allegedly “spammed” the internet poll with more than 4,600 “no” votes in less than 20 minutes on Thursday. Technical staff for the Robinhoodtax.org.uk website said the “no” counter increased at a “dramatic rate” from 3.41pm. The number of “no” votes jumped from 1,400 to 6,000 before campaigners – who are calling for the introduction of 0.05pc tax on banking transactions – tightened the site’s security. Robin Hood’s security team claimed it traced the erroneous votes to two computers, one of which is allegedly registered as belonging to Goldman.
Oriental Daily:
- China Petroleum and Chemical Corp. said it discovered 100 million tons of oil in a field in Urumqi, Xinjiang province, citing a company spokesman. The new discovery will help the field reach its output target of 10 million tons of crude oil a year by 2015, the spokesman said.
Xinhua:
- China urges the US to "immediately withdraw" a decision for President Barack Obama to meet with the Dalai Lama, citing Chinese Foreign Ministry spokesman Ma Zhaoxu.
Evening Recommendations
Citigroup:
- Reiterated Buy on (BWA), target $42.
Night Trading
Asian indices are +.25% to +1.0% on avg.
S&P 500 futures -.11%.
NASDAQ 100 futures -.21%.
Morning Preview
BNO Breaking Global News of Note
Yahoo Most Popular Biz Stories
MarketWatch Pre-market Commentary
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WSJ Intl Markets Performance
Commodity Futures
IBD New America
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Rasmussen Reports Polling
Earnings of Note
Company/Estimate
- (A)/.32
- (IR)/.53
- (DUK)/.25
Economic Releases
8:30 am EST
- Advance Retail Sales for January are estimated to rise +.3% versus a -.3% decline in December.
- Retail Sales Less Autos for January are estimated to rise +.5% versus a -.2% decline in December.
9:55 am EST
- Preliminary Univ. of Mich. Consumer Confidence for February is estimated to rise to 75.0 versus a reading of 74.4 in January.
10:00 am EST
- Business Inventories for December are estimated to rise +.2% versus a +.4% gain in November.
Upcoming Splits
- None of note
Other Potential Market Movers
- The Fed's Tarullo speaking could also impact trading today.