Late-Night Headlines
Bloomberg:
- Corn fell the most in two weeks and soybeans dropped after the government said crop conditions improved, signaling higher yields in the U.S., the world’s biggest grower and exporter. About 70 percent of the corn crop was in good or excellent condition on Aug. 23, up from 68 percent a week earlier and 64 percent a year earlier, the Department of Agriculture said yesterday. An estimated 69 percent of soybeans got the top ratings, up from 66 percent a weak earlier and 61 percent last year. “The health of the U.S. crops is very good, and that’s an indication to expect bigger yields,” said Joe Victor, a vice president of marketing at Allendale Inc. in McHenry, Illinois.
- U.S. crude oil futures gave up some more ground in post-settlement trading on Tuesday after industry data from the American Petroleum Institute showed an
unexpectedly large increase in crude inventories last week. Earlier, October crude futures settled more than 3 percent lower as traders booked profits after the contract failed to break through resistance at $75. Prices fell as sell stops were triggered by a slew of long liquidations, traders said, despite positive home prices and consumer confidence reports, which had lifted Wall Street earlier. The API said that for the week to Aug. 21, domestic crude stocks shot up 4.3 million barrels to 346.7 million barrels as imports rose sharply, defying a forecast in a Reuters poll of
analysts for a 1.1 million barrel drawdown. "The API's report of a big build in crude stocks is obviously based on higher imports. This proves that the sharp decline in imports in the week to Aug. 14 was an aberration as it looks like shipments that were held either because of pricing considerations or because of weather fears finally got onshore last week," said Phil Flynn, analyst at PFGBest
Research in Chicago.
- Google Inc.’s(GOOG) YouTube will let users get a portion of the site’s advertising revenue when a video goes “viral” and draws a wide audience. A clip will qualify for the program if it meets certain criteria, including the number of views and its so-called virality, the company said today. Users who regularly produce content can already make money through YouTube’s ad-partnership program. The new policy would apply to one-off hits. Running more ads on viral videos will increase revenue for both users and YouTube, helping bring the site closer to its goal of turning a profit.
- Investors should buy March Fed funds futures, betting the Federal Reserve won’t raise interest rates until at least six months after dropping the phrase “extended period” from its policy meeting statement, according to RBC Capital Markets. “Extended period” is the current version of “considerable period,” a phrase the central bank used earlier this decade to describe how long it intended to keep rates low, RBC market economist Tom Porcelli and strategist Christian Cooper wrote in a note to clients dated yesterday. The Fed removed it from a statement in January 2004 and in June 2004 it began raising rates, they wrote. The central bank used “extended period” in the statement it issued Aug. 12 after its last policy meeting. It next meets Sept. 23. “This analog seems a useful guide for the current ‘it’ phrase ‘extended period,’” New York-based Porcelli and Cooper wrote. “This general six-month rule aside, we continue to believe the economic backdrop will warrant a significant additional period of low rates.” Investors should also buy the March fed funds futures contract because it is “aggressively priced,” they wrote.
- Japan’s export slump deepened in July, indicating the boost in demand that helped pull the country out of its recession last quarter may be short-lived. Shipments abroad fell 36.5 percent from a year earlier, steeper than June’s 35.7 percent drop, the Finance Ministry said today in Tokyo.
Wall Street Journal:
- Hedge funds made an outsize bet on financial stocks in the second quarter, according to a closely watched report on hedge-fund holdings. During the quarter, hedge funds increased their ownership in financial stocks by 55% to $70 billion, compared with the previous quarter. The funds now own 3.7% of the sector's market capitalization, according to a Goldman Sachs research report released Monday. That's an all-time high, the report said. Among their favorites were the big banks, including Bank of America Corp.(BAC) and J.P. Morgan Chase & Co(JPM). The number of funds holding Bank of America more than doubled, while 38 hedge funds took first-time positions in J.P. Morgan. Net short exposure of financials rose only 8% to $63 billion, while long exposure increased 55% to $70 billion. Hedge funds were net long financials at the end of the second quarter, after being net short in the first.
- On Monday the Obama administration released a 2004 CIA inspector general's report on the agency's detention and interrogation program. Yesterday, the New York Times reported some gruesome abuses on its front page, above the fold: "Excessive physical force was routinely used, resulting in broken bones, shattered teeth, concussions, and dozens of other serious injuries over a period of less than two years, a federal investigation has found. . . . [D]espite rules allowing force only as a last resort. 'Staff at the facilities routinely used uncontrolled, unsafe applications of force, departing from generally accepted standards,' said the report." Actually, these abuses were not committed by the CIA. They were committed by officials at four juvenile residential detention centers in New York state. The details came from a Justice Department report that recounted how "workers forced one boy, who had glared at a staff member, into a sitting position and secured his arms behind his back with such force that his collarbone was broken."
- Federal air-safety regulators have launched an investigation into how unauthorized parts were installed on at least 42 Southwest Airlines Co.(LUV) jets, and why the carrier's maintenance control procedures failed to flag the problem, according to people familiar with the details.
- Overleveraged private real-estate funds are gasping for money, but public property companies have been chugging down cash from the capital markets. Now, they are poised to emerge as more-dominant players when the commercial-property-market starts to recover. Many expect the landscape change to be as profound as it was in the early 1990s, when many real-estate developers went public to avoid bankruptcy and helped turn real-estate investment trusts into a major force in the property market. Most of the leading private real-estate funds during that time vanished from the scene. REITs are poised once again to pick up the pieces.
MarketWatch.com: Goldman’s(GS) town hall. Commentary: How Wall Street’s ‘vampire squid’ might face the public. Town-hall meetings have been flashpoints for America's debate over health care, but what if a certain Wall Street firm accused of gaming the system faced its critics in public ...
CNBC.com:
Discussing how a crackdown on commodity speculation could impact traders, with Gary Gensler, CFTC chairman and CNBC's Maria Bartiromo. (video)
- With a September deadline from the White House on Iran's nuclear program only weeks away, it remains unclear whether the United States can impose sanctions against the Islamic state in the face of possible opposition from Iran's economic allies. If proposed negotiations between the U.S. and Iran lead nowhere—and at this point the sides aren't talking—the Obama administration, and Secretary of State Hillary Clinton in particular, have promised Iran would be hit with new and crippling sanctions. Supporters of tougher sanctions against Iran believe Asia and Europe hold an enormous amount of power over Iran because they invest so heavily in Iran's energy infrastructure. They point out that, despite its proclaimed aim of developing nuclear energy, Iran is in the process of developing nuclear weaponry."It is quite clear Iran is developing nuclear weapons, and that we are at a crucial junction," said Gabriela Shalev, Israel's ambassador to the United Nations. "Nobody should doubt it." A new round of sanctions could target Iran's gasoline imports. Despite being the world's fourth largest oil producer, Iran imports 40 percent of its gasoline and sanctions against Iranian gasoline imports would cripple the country's economy. Iran's government subsidizes the price of gasoline, capping it right now at about 40 cents a gallon. A bulk of that refined gasoline comes from France, Switzerland, Holland, Great Britain and Russia's Lukoil.
Forbes:
- Here's a look at some key points in Bernanke's first term as Fed chairman:
- Top 20 Franchises To Start .
Washington Post:
- Many of the lenders eligible to receive billions of dollars from the government's massive foreclosure prevention program helped fuel the housing crisis by issuing risky subprime loans, according to a report to be issued Wednesday by the Center for Public Integrity. Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers. Of the top 25 participants in the program, at least 21 specialized in servicing or originating subprime loans, according to the center, a nonprofit investigative reporting group funded largely by charitable foundations. Much "of this money is going directly to the same financial institutions that helped create the sub-prime mortgage mess in the first place," Bill Buzenberg, executive director of the center, said in a statement. For example, J.P. Morgan Chase(JPM), Wells Fargo and Countrywide, which has been purchased by Bank of America(BAC), are eligible to receive billions of dollars under the program, according to the report.
Politico:
- New financial disclosure reports filed by Rep. Charlie Rangel (D-N.Y.) show that the veteran lawmaker failed to report more than $660,000 in assets during 2007, a potential violation of House ethics rules. Rangel, chairman of the powerful House Ways and Means Committee, also had previously stated that he sold a Florida condominium in 2007, but an amended report covering that year – filed in mid-August – now makes no mention of that transaction. It appears that Rangel no longer owns the condo as it is not listed on his 2008 financial report, filed last month. The latest revelations on Rangel’s personal finances may prove problematic for the New York Democrat, who is already the target of a wide-ranging ethics investigation. That probe, which Rangel and House Democratic leaders had hoped would last a few months, is now coming up on its one-year anniversary. The ethics panel is looking into Rangel’s use of several rent-stabilized apartments in a luxury Harlem apartment building, his failure to fully pay taxes on a vacation home in the Dominican Republic, and the lawmaker’s fundraising on behalf of the Charles B. Rangel Center for Public Service at City College in New York City. The ethics committee recently broadened the Rangel investigation to include Caribbean trips taken by Rangel and four other lawmakers.
- The mayor of the North Jersey town where Libyan leader Muammar al-Qadhafi might stay next month during a diplomatic visit to nearby New York City blasted federal officials on Tuesday, from members of Congress all the way up to President Barack Obama, for not doing enough to stop the visit. “The truth is that it seems like they’re just going through the motions and it’s a fait accompli,” Englewood Mayor Michael Wildes told POLITICO. “I’m disappointed that nobody’s got moxie.” “If this is the change that our president has endorsed and is directing our country where we’re reaching out to countries like Iran, Syria and Libya,” he added, “I would have bargained for another one.” Wildes, a Democrat who supported Obama, said he continues to “have great confidence in his leadership. It’s just that there’s collateral damage that is unfathomable.”
Federal Reserve Bank of NY:
- The Federal Reserve considers the record rate of mortgage delinquencies, foreclosures and their impacts on communities an urgent problem. The Federal Reserve Bank of New York has therefore used its expertise and knowledge to provide detailed data on US credit conditions to the public in order to establish a strong body of factual data for use in forming policy decisions and developing mortgage foreclosure mitigation efforts. (US Credit Conditions Map)
Home Textiles Today:
- The final days of the “Cash for Clunkers” program may have diverted consumers’ attention during the third week of August, sending comp sales down 4.4% over last year, the Johnson Redbook reported today. “Back-to school fundamentals will be easier to assess in September, when the summer-to-fall seasonal transition is largely complete,” said Catlin Levis, Redbook analayst. Month-over-month showed a 0.7% drop for the week ended Aug. 22 compared to July as consumers’ retail spending remained focused on food and household supplies. Comps at department stores fell 7.1% following a 6.6% decline the previous week. Comps at discounters slipped 2.9%, improving on a 3.4 drop a week earlier. With back-to-school off to a halting start, retailers are becoming more aggressive, said Levis. “Stores are rolling out buy-one/get-one-free and penny promotions on school suppliers,” she added. Reuters:
- Paper and packaging producer International Paper Co(IP) said demand for its products has stagnated, and it sees no immediate signs of the U.S. economy improving. "I don't think we've seen anything that could be called a trend other than the flat market," Chief Financial Officer Timothy Nicholls told the Reuters Paper and Packaging Summit on
- The U.S. national debt will nearly double over the next 10 years, government forecasts showed on Tuesday, challenging President Barack Obama's economic and healthcare overhaul agenda. The White House midsession budget forecast and the non-partisan Congressional Budget Office both forecast that government revenues will be crimped by a slow recovery from the worst recession since the 1930s Great Depression, while spending on retirement and medical benefits soars. The White House projected a cumulative $9 trillion deficit between 2010 and 2019, while the CBO pegged the total at $7.1 trillion because it assumed higher revenues as tax cuts expire. The spending blitz could push the national debt, now more than $11 trillion, to close to $20 trillion. The debt is the total sum the government owes, while the deficit is the yearly gap between revenues and spending. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone," said Senate Republican leader Mitch McConnell, adding that economic stimulus funds should be diverted to pay down U.S. debt
- A major fund-raiser for Barack Obama, Hillary Clinton and other Democrats was charged by federal prosecutors in New York in connection with a scheme to defraud Citigroup Inc. Hassan Nemazee, 59, was accused of one count of bank fraud for allegedly seeking a fraudulent $74 million loan from Citigroup's banking unit, U.S. Attorney Preet Bharara and the Federal Bureau of Investigation said on Tuesday. Nemazee will be released Wednesday on $25 million bond and be confined to his apartment on Park Avenue in Manhattan, with no access to computers. The bond is secured by the apartment and another home in Katonah, New York. Nemazee was a national finance chair of Hillary Clinton's 2008 presidential campaign, and a supporter of Sen. John Kerry's run for the White House in 2004. He typically donates more than $100,000 annually to Democratic political candidates, including Senate Majority Leader Harry Reid and Sen. Charles Schumer, and sits on the board of the Iranian American Political Action Committee. Bill Clinton, when he was president, had nominated Nemazee to be U.S. ambassador to Argentina. Nemazee is listed as having been among the top "bundlers" of contributions to Obama's presidential campaign, according to OpenSecrets.org, a website maintained by a nonpartisan research group, the Center for Responsive Politics.
- Short interest on U.S. stock markets edged up in the first half of August, the exchanges said on Tuesday, suggesting bearish sentiment was creeping back after a prolonged rally. The rally has put the squeeze on short investors and forced them to buy back the borrowed shares at a higher price and swallow losses. Some analysts have pointed to this short squeeze as fueling the stock market's ascent. As of Aug. 14, short interest on the New York Stock Exchange rose 1.3 percent to about 14.2 billion shares from 14.02 billion shares as of the end of July. The short interest was equal to 3.71 percent of total shares outstanding. On the Nasdaq, for the same time period, short interest rose 0.4 percent to about 6.80 billion shares from 6.78 billion shares. The Nasdaq said the short interest represents 2.92 days' average daily volume, compared with an average of 3.09 days for the previous period. Banks were among companies that saw an increase in short interest, including Citigroup (C) ,whose short position jumped 81 percent.
Financial Times:
- A federal judge on Tuesday raised fresh questions about the US Securities and Exchange Commission’s settlement with Bank of America (BAC) over bonus disclosures, calling the regulator’s explanation for why it did not charge individuals “puzzling”. The SEC, in a court filing on Monday, said BofA’s alleged failure to disclose bonuses paid to Merrill Lynch employees before the companies merged was largely the work of attorneys who advised the banks. The regulator said it was constrained by the fact that the bank had not waived attorney-client privilege. But Judge Jed Rakoff questioned why the SEC accepted the statements by bank executives that they relied on lawyers’ advice. “If the SEC is right in this assertion, it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel . . . and the culpability of both the corporate officer and the company counsel will remain beyond scrutiny,” he wrote. “This seems so at war with common sense.” The settlement did not require BofA to admit or deny the commission’s allegations that BofA failed to tell the public at the time it bought Merrill that the Wall Street firm would pay $5.8bn in year-end bonuses. Mr Rakoff demanded to know why BofA agreed to pay $33m if it believed it had properly disclosed bonuses. If the bank did so “to curry favor with the SEC or to avoid retaliation by the SEC, the court needs to know the specifics”, he said.
China Daily:
- China is expected to take retaliatory measures if US President Barack Obama agrees next month to a plan to impose tariffs on some Chinese-made tires, experts said yesterday. "The prospect is not very positive, and we have to be ready for the worst," said He Weiwen, a council member of the China Society for American Economy Studies. "China's government should not tolerate unreasonable and unfair behavior by the US and must fight back firmly and quickly," He said. If approved by the president, duties of up to 55 percent will be imposed on Chinese-made tires exported to the United States, which could lead to a loss of 100,000 jobs in Chinese manufacturing sectors. Last Wednesday, under the leadership of Vice-Minister of Commerce Zhong Shan, a team headed for the US to consult with authorities. The results were not positive, an unnamed official from the ministry's bureau of fair trade of imports and exports said. "The Obama administration is under great pressure from labor unions and other groups," the official said. Experts said China should prepare to retaliate if the US approves the tariffs. "If the US says no to tires from China, China could take measures to limit automobile imports from the US," He said.
Late Buy/Sell Recommendations
Citigroup:
- Rated (FISV) Buy, target $57.
- Reiterated Buy on (MYGN), target $34.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 133.50 -1.5 basis points.
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- (WSM)/-.09
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Economic Releases
8:30 am EST
- Durable Goods Orders for July are estimated to rise 3.0% versus a 2.2% decline in June.
- Durables Ex Transports for July are estimated to rise .9% versus a 1.6% gain in June.
10:00 am EST
- New Home Sales for July are estimated to rise to 390K versus 384K in June.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -1,150,000 barrels versus a -8,397,000 barrel decline the prior week. Gasoline supplies are expected to fall by -800,000 barrels versus a -2,177,000 barrel decline the prior week. Distillate inventories are estimated to rise by +400,000 barrels versus a -650,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.28% versus a +.52% gain the prior week.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and airline shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
