Late-Night Headlines
Bloomberg:
- Wall Street banks have agreed to create credit-default swap indexes tied to U.S. prime-mortgage securities, in a move that may risk driving down prices for the bonds after a record rally. The benchmark contracts, similar to ABX index swaps linked to subprime loans, may begin trading as soon as the first quarter of 2010, Michael Gormley, a Markit Group Ltd. spokesman, said today in an e-mailed statement. ABX indexes were last year dubbed “Frankenstein’s monster” by Glenn Schultz, a debt analyst now with Wells Fargo & Co., after they helped create a financial crisis by both highlighting the falling value of subprime debt in 2007 and weakening banks by allowing speculators to drive down prices by more than some investors thought reasonable, constraining credit and harming housing. The new indexes may be called ABX. Prime. “At first it will be the rage and you will have plenty of guys that I think will want to short this all day,” Jesse Litvak, a mortgage-bond trader at Jefferies & Co. in New York, said in a note to clients today. After “a lengthy consultation period,” dealers have also agreed to create so-called total return indexes called IOX, and linked to mortgage securities guaranteed by Fannie Mae, the government-supported mortgage-finance company, Markit’s Gormley said in the e-mail. London-based Markit is owned by banks including Goldman Sachs Group Inc.(GS), Bank of America Corp. and JPMorgan Chase & Co. and administers credit-default swap indexes, including CMBX indexes tied to commercial-mortgage securities. Typical prices for the most-senior fixed-rate prime-jumbo mortgage bonds have risen to 83 cents on the dollar from 63 cents in mid-March, according to Barclays Capital data.
- Americans have grown gloomier about both the economy and the nation’s direction over the past three months even as the U.S. shows signs of moving from recession to recovery. Almost half the people now feel less financially secure than when President Barack Obama took office in January, a Bloomberg National Poll shows. “The recession may be over, but the administration seems to be losing the battle when it comes to winning the hearts and minds of Americans,” says Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This is important because the spending of consumers is the main factor that will turn the economic recovery into a self- sustaining one.” The economy is the country’s top concern, with persistently high unemployment the greatest threat the public sees. Eight of 10 Americans rate joblessness a high risk to the economy in the next two years, outranking the federal budget deficit, which is cited by 7 of 10. An increase in taxes is named as a high risk by almost 6 of 10. Fewer than 1 in 3 Americans think the economy will improve in the next six months. They are pessimistic that the government will succeed in reducing unemployment or lowering the budget deficit. A year into Obama’s presidency, only 32 percent of poll respondents believe the country is headed in the right direction, down from 40 percent who said so in September. The mood among members of Obama’s own Democratic Party has shifted most dramatically: While Democrats remain the most positive, the proportion saying the country is on the right track dropped to 58 percent from 71 percent in September. Among independents, 26 percent say the country is on the right track, down from 29 percent in September. The country has grown increasingly skeptical of the centerpiece of Obama’s economic agenda, the $787 billion economic-stimulus package, with 60 percent of Americans saying it hasn’t helped the economy, up from 49 percent who said that three months ago. Michele Crawford, 37, a Las Vegas health-care worker who identified herself as a Democrat, says the stimulus plan put too much money in the hands of corporations rather than sending it directly to families through tax cuts. “I think that was the wrong approach,” Crawford says. Some of the malaise may stem from middle-class households bracing for the expectation of greater burdens ahead, says J. Ann Selzer, president of Selzer & Co. Almost 9 in 10 poll respondents say they believe middle-class Americans will have to make sacrifices to decrease the deficit.
- Treasury Secretary Timothy Geithner plans to tell Congress that the Obama administration will extend the $700 billion financial-rescue program until next October, people familiar with the matter said. While the Troubled Asset Relief Program expires on Dec. 31, Geithner can extend it by notifying Congress.
- Japan’s economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending. Gross domestic product rose at an annual 1.3 percent pace, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The revision was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News.
- The U.S. Senate refused to add stricter limits on abortion funding to health-care legislation, jeopardizing Nebraska Democrat Ben Nelson’s support for the overall plan. The Senate voted 54-45 to reject Nelson’s amendment. “This is not the right place for this debate,” Reid said before lawmakers voted to take the amendment from consideration on the Senate floor. “We have to get on with the larger issue at hand” and work on the health-care plan, he said. After the vote, Nelson said the amendment’s defeat makes it harder for him to support the legislation, although he’ll listen to compromises on abortion if someone offers them. “We’ll just have to see what develops,” Nelson told reporters. “I don’t have a Plan B. I don’t know if anyone else has a Plan B. But I don’t see much room for compromise.” Anti-abortion activists criticized the vote and called on Democrats who oppose abortion to vote against the larger bill. “The vote reflects a callous disregard for the protection of innocent human life,” said Jay Sekulow, chief counsel of the American Center for Law & Justice, a Washington-based group that describes itself as focusing on constitutional law. Senator Dianne Feinstein, a California Democrat, called the vote a victory for women’s health and said it sent a message to lawmakers who supported Nelson’s amendment.
- Legislation pending in the U.S. Congress to cut greenhouse-gas emissions may reduce imports of Chinese goods by 20 percent, a World Bank study said. The provision, included in the measure passed by the U.S. House in June, would tax imports from countries that don’t enact curbs on carbon-dioxide emissions. Senator Sherrod Brown of Ohio and Representative Sander Levin of Michigan, both Democrats, say any legislation in the U.S. to limit pollutants must include the so-called border measures to tax imports. The Senate hasn’t yet acted on the greenhouse-gas measure. “People haven’t thought through the full implications of those measures,” Aaditya Mattoo, a World Bank economist and one of the paper’s authors said in an interview. Advocates say the fees are needed to prevent price- undercutting by manufacturers in countries that won’t match U.S. or European Union climate-change standards. The World Bank study said U.S. and EU manufacturers of steel, cement, plastics, paper and chemicals have reason to be worried. If the U.S. follows through on a pledge to cut emissions by 17 percent, “producers of energy-intensive” goods “will witness erosion in their competitiveness, reflected in export and output declines,” the paper says. Their output could fall 4 percent and exports by 12 percent, the report says. The prospect of that decline will prompt “tremendous pressure to address the competitiveness issue,” Mattoo said in an interview. Depending on how the U.S. and EU calculate taxes on imports, the effect on China and India would be that of a 20 percent tariff, the World Bank analysis says. That new tax would cut 20 percent from Chinese exports to the U.S., and 8 percent from other developing nations, the report said. “It would be a ‘nuclear option’ in terms of trade consequences,” according to the World Bank paper.
- China plans to require all the nation’s steel mills to have at least 1 million tons of capacity, according to draft regulations posted today to the Web site of the Ministry of Industry and Information Technology. The plan aims to curb overcapacity in the steel industry, according to the statement.
Wall Street Journal:
- The biggest risk to global economic recovery is the likely prospect that interest rates will have to rise before banks' balance sheets have been repaired, Mario Draghi, chairman of the Financial Stability Board, warned Tuesday. Several leading central banks already have begun to withdraw some of the programs that were put in place to counter the most severe downturn since World War II. While officials are expected to be cautious in raising rates, the International Monetary Fund estimates that close to half of global bank losses have yet to be disclosed. "The biggest risk is that for various reasons, interest rates might have to rise again when banks' balance sheets have not been repaired yet," Mr. Draghi said at The Wall Street Journal Future of Finance Initiative. "They may rise for monetary policy reasons, and if you think [about it], it's going to be very likely, because the process whereby banks will repair their balance sheets is a lengthy one," he said. "It's going to take several years."
MarketWatch:
CNBC.com:
IBD:
CNNMoney.com:
- Cash for Caulkers could seal $12,000 a home. President Obama proposed a new program Tuesday that would reimburse homeowners for energy-efficient appliances and insulation, part of a broader plan to stimulate the economy. The administration didn't provide immediate details, but said it would work with Congress on crafting legislation. Steve Nadel, director at the American Council for an Energy-Efficient Economy, who's helping write the bill, said a homeowner could receive up to $12,000 in rebates.
Politico:
- Republican National Committee Chairman Michael Steele urged President Barack Obama to push back health care reform on Tuesday, arguing that Obama should be solely focused on a still lagging economy. “Congress can’t afford to throw the American people further in debt now and splurge on a risky health care bill when we may need all the resources at our disposal next year to rebuild a sagging economy,” Steele wrote in a letter than will be sent to the White House on Tuesday. “We are asking you to delay your efforts to push your health care bill through Congress by the end of the year,” Steele continued. “Until we are sure job creation has begun in earnest, we should put aside our differences on health care. We should watch our spending. We've got an economy to rebuild and restore.”
- Senate Democrats have reached a "broad agreement" on a health reform bill, Majority Leader Harry Reid said Tuesday night — a plan that negotiators have said would create a new national health-care plan with private insurers, and a chance for older Americans to “buy in” to Medicare. Democrats on Tuesday night took a major step forward on a plan by agreeing to ask congressional scorekeepers to give them cost estimates on a possible compromise that would break the impasse on the public option in the Senate bill. The broad outlines of the deal had been discussed for days, but Democrats emerged from a closed-door session about 8 p.m. with news of the breakthrough. Some were reluctant to call it a deal until hearing back from the Congressional Budget Office about how much the proposed new provisions would cost.
Rasmussen:
CNN:
The Business Insider:
- USA TODAY's John Fritze reports from Capitol Hill that Senate Majority Leader Harry Reid isn't about to back down from his comments yesterday comparing health care critics to slavery apologists. The Nevada Democrat came out of caucus luncheon this afternoon without saying anything about health care. He did defend himself from critics, including Republican National Committee Chairman Michael Steele, who urged Reid to apologize for his comments.
Reuters:
- Hedge fund manager John Paulson said on Tuesday he still sees compelling long-term returns in equities even after their sharp run-up this year, while holding no short positions in the credit markets. "Today our net long exposure is perhaps the highest it has ever been in our portfolio," Paulson said during a luncheon presentation at the Japan Society. "We still find a lot of compelling long investments on the equity side," he said, citing specifically Bank of America (BAC), U.S. cable-television giant Comcast Corp (CMCSA), and Germany's HeidelbergCement AG (HEIG.DE).
- A hedge fund is paying $5 million to settle a long-running lawsuit filed by online retailer Overstock.com (OSTK), the Salt Lake City-based company said Tuesday. The settlement comes some four years after Overstock sued the hedge fund, once known as Rocker Partners, claiming it waged a campaign to drive down the company's share price. The lawsuit was championed by Overstock CEO Patrick Byrne, who has been an outspoken and controversial critic of short sellers, or traders who bet on a stock's decline.
- Chip maker Texas Instruments Inc (TXN) raised its current-quarter profit forecast and said revenue would reach the high end of its target, disappointing some investors who had hoped for a stronger outlook on signs of improving demand in the wider chip market. Shares of TI fell 2 pct after its mid-quarter update, following a 12 percent rally since late October on high hopes that chip sales would recover more quickly as the economy improves. But TI, which makes chips for everything from cars to computers, said demand was increasing so quickly, particularly for analog chips, that it was having a hard time keeping up. Ron Slaymaker, TI's head of investor relations, told analysts on a conference call that TI was unlikely to lose clients as a result of the shortages because its rivals are also facing the same supply bottlenecks. "The pressures that the rapid increase in demand have placed on us are not dissimilar from what many of our competitors are seeing as well," Slaymaker said. "October and November were both strong months. We're not depending on an exceptionally strong December to meet our guidance, but not seeing anything to lead us to believe December would be exceptionally weak either," the executive said.
Financial Times:
Telegraph:
TimesOnline:
- Bankers across the City are trying to change the terms of their pay deals to avoid Alistair Darling’s threatened bonus tax on their earnings. Financiers are in frantic talks with their employers, having moved swiftly over the past few days to try to avoid punitive taxes on their bonuses. The City is scared that Mr Darling will use today’s Pre-Budget Report to announce such a one-off levy. And high earners have rushed to make contingency plans with their employers, lawyers and accountants. Schemes to reduce a heavy tax bill include:
- Markets tell Darling: it's time to end the spending.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (PG), target $66.
- Upgraded (MMM) to Buy, target $92.
Night Trading
Asian Indices are -1.50% to unch. on average.
Asia Ex-Japan Inv Grade CDS Index 104.50 +4.0 basis point.
S&P 500 futures +.24%.
NASDAQ 100 futures +.27%.
Morning Preview
BNO Breaking Global News of Note
Yahoo Most Popular Biz Stories
MarketWatch Pre-market Commentary
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar
Who’s Speaking?
Upgrades/Downgrades
Politico Headlines
Rasmussen Reports Polling
Earnings of Note
Company/EPS Estimate
- (HITK)/.32
- (JTX)/-.74
- (PLL)/.40
- (CRI)/.67
Economic Releases
10:00 am EST
- Wholesale Inventories for October are estimated to fall -.5% versus a -.9% decline in September.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +250,000 barrels versus a +2,091,000 barrel increase the prior week. Gasoline supplies are expected to rise by +1,600,000 barrels versus a +3,996,000 barrel gain the prior week. Distillate inventories are estimated to fall by -750,000 barrels versus a -1,170,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.2% versus a -.59% decline the prior week.
Upcoming Splits
- None of note
Other Potential Market Movers
- The Fed's Duke speaking, Treasury's 10-Year Auction, weekly MBA mortgage applications report, (BDC) analyst day, (ENOC) analyst meeting, (VRGY) analyst meeting, (EHTH) analyst meeting, BofA Industrials Conference, UBS Media/Communications Conference, Wells Fargo Real Estate Conference, Goldman Sachs Financial Services Conference and the Barclays Tech Conference could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.