Bear Radar

Style Underperformer:
Small-Cal Value (-1.03%)

Sector Underperformers:
Computer Hardware (-3.29%), Airlines (-2.83%) and Oil Service (-2.60%)

Stocks Falling on Unusual Volume:
IPGP, PVA, SM, OSIS, TNE, CMC, HITK, AIR, KNDL, VTIV, SPWRA, FUQI, PERY, RSTI, TISI, NEOG, SPWRB, STRL, WRLD, TESO, REXX, HWCC, LINE, IAAC, PANL, ADBE, LAYN, FFIV, KNDL, CRN, MTR, WHI, BPT and EBF

Stocks With Unusual Put Option Activity:
1) SWN 2) MTG 3) NBR 4) DAL 5) SPWRA

Western Europe Sovereign CDS Index Graph

(click on image to enlarge)

BOTTOM LINE: The Western Europe Sovereign Debt Credit Default Swap Index has risen about 11.0 basis points over past two days. The Euro Financial Sector CDS is also surging another 9.0% today. So far, today's equity market declines are orderly and relatively mild. However, the recent rise in cds is a red flag and, with the market in such a technically overbought state, should be closely monitored.

Bull Radar

Style Outperformer:
Large-Cap Value (-.69%)

Sector Outperformers:
HMOs (+2.28%), Defense (+.40%) and Biotech (+.19%)

Stocks Rising on Unusual Volume:
AET, GENZ, CNC, PCP, CTEL, VIP, TRMB, POL and PCP

Stocks With Unusual Call Option Activity:
1) HANS 2) LEAP 3) MDCO 4) AOL 5) AET

Friday Watch

Evening Headlines
Bloomberg:

• The global financial crisis and recession have triggered a deterioration in the credit profiles of AAA-rated countries, which includes the U.S. and U.K., Fitch Ratings said. The U.S. and the U.K. have moved "substantially" closer to losing their AAA credit ratings as the cost of servicing their debt rose, Moody's Investors Service said this week.
  
• Papandreou Racing to Cut Greek Interest Rates With Aid Pledge. Greek Prime Minister George Papandreou is racing to secure an explicit pledge of European aid and cut his country’s borrowing costs as 20 billion euros ($27 billion) of debt comes due in the next two months. With investors still demanding Greece pay three percentage points more than Germany on its 10-year debt, Papandreou says Greece can’t afford to hold out much longer at current market rates. His government still needs to raise another 10 billion euros to repay bonds maturing on April 20 and May 19. “Greece wants to bring down its funding costs fast,” said Holger Schmieding, chief European economist at Bank of America- Merrill Lynch in London, in a note to investors. If the spread doesn’t narrow in the next month, “Greece may ask for financial support.”
• Health Bill Would Add 3.8% Tax on Investment Income. Democratic congressional leaders would raise to 3.8 percent the Obama administration’s proposed new Medicare tax on investment income to generate an estimated $210 billion to help fund a health-care overhaul plan. The rate is higher than the 2.9 percent President Barack Obama proposed in February. The new tax would apply to income from interest, dividends, annuities, royalties, capital gains and rents for individuals who earn more than $200,000 annually and joint filers reporting more than $250,000, according to the legislation. “It’s a big deal,” said Clint Stretch, a tax analyst for the consulting firm Deloitte Tax LLC. “It extends dramatically the reach of the Medicare hospital insurance tax.” The first-time Medicare tax on investment income would start in 2013. It would push tax rates on capital gains and dividends that year to 23.8 percent for high-income people if Congress goes along with Obama’s proposal to let those rates rise to 20 percent in 2011 from the current 15 percent. Overall tax rates on income from interest, annuities and royalties would rise to as much as 43.4 percent. The final plan announced today delays the proposed 40 percent tax on high-value insurance plans until 2018, from 2013 in earlier proposals. It also increases the cost threshold affected by the tax, applying it to the portions of plans worth more than $10,200 for individuals and $27,500 for families. In further years, the tax on high-cost plans would affect more insurance plans than earlier proposed, as the plan would reduce the inflation index for that provision. Today’s proposals are “a radical change from U.S. tax policy without much debate at a time when we should shift the fundamental core of U.S. tax policy in a more pro-saving and investment” direction, said Mark Bloomfield, president of the American Council for Capital Formation, a Washington group that lobbies for lower taxes on capital.
• Rio Tinto Case Mixed Politics, Law in China's 'Scary' Courts. Foreign companies that do business in China will be tracking the criminal trial next week of Rio Tinto Group iron-ore chief Stern Hu and three colleagues to see if politics plays as big a role in any conviction as the evidence, lawyers said. The detentions of Hu, Liu Caikui, Ge Minqiang and Wang Yong for allegedly stealing state secrets -- later downgraded to taking bribes and infringing company secrets -- sharpened the focus on a judicial system largely avoided by foreign parties because of its lack of transparency, the lawyers said. Chinese judges openly say Communist Party politics influence their decisions, with Supreme People’s Court President Wang Shengjun encouraging jurists in December to prioritize the “causes of the party,” the “interests of the people” and “the constitution and laws.”
• Fed May Raise Discount Rate Before Next Meeting, Economists Say. The Federal Reserve may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28, economists said. “It’s going to happen at some point,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Whether it’s today, whether it’s next week or next month is hard to say.”
• Greenspan Says Banks May Need to Raise Reserve Capital by 40%. Former Federal Reserve Chairman Alan Greenspan said regulators may need to compel banks to raise capital levels by as much as 40 percent, saying that’s a more effective way to ensure stability than new regulatory rules targeting risk. “The most pressing reform that needs fixing in the aftermath of the crisis, in my judgment, is the level of regulatory risk-adjusted capital,” Greenspan said in a paper prepared for a Brookings Institution conference today. “Adequate capital eliminates the need for an unachievable specificity in regulatory fine-tuning.” Banks may need to hold capital equal to 14 percent of their assets, compared with about 10 percent in mid-2007 before the financial crisis, Greenspan said. The largest U.S. banks may also need to hold extra debt that can be converted automatically into equity capital if their capital levels dwindle, Greenspan said. “Should contingent capital bonds prove insufficient, we should allow large institutions to fail, and if assessed by regulators as too interconnected to liquidate quickly, be taken into a special bankruptcy facility,” he said. Bank capital cushions should be large enough to prevent failures similar to that of Lehman Brothers Holdings Inc., which went bankrupt, and Bear Stearns Cos., acquired by JPMorgan Chase & Co. with help from the Fed, Greenspan said. “Capital and liquidity, in my experience, address almost all of the financial-regulatory structure shortcomings exposed by the onset of crisis,” he said. “Moreover, capital has the regulatory advantage of not having to forecast which particular financial products are about to turn toxic.” Bolstering capital rules also has the benefit of not hindering economic growth, Greenspan said. “The notion of an effective ‘systemic regulator’ as part of a regulatory reform package is ill-advised,” he said. “The current sad state of economic forecasting should give governments pause on the issue.” “Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible,” Greenspan said. “Assuaging their aftermath seems the best we can hope for.”
• SEC Warns on Pay-to-Play After JPMorgan(JPM) Investigation. The U.S. Securities and Exchange Commission warned banks that a ban on using political donations to win municipal bond business applies to top executives after faulting a JPMorgan Chase & Co. vice chairman for fundraising for former California Treasurer Phil Angelides. The advisory from the SEC comes after an investigation of $9,000 of donations in 2002 to Angelides, now the head of a panel investigating the financial crisis, from JPMorgan, a vice chairman who oversaw the investment bank and three other senior officials from the New York-based company. Within two years, the bank was involved in more than 50 bond sales involving Angelides, earning about $37 million in fees, the SEC said. The case is meant to warn bank’s underwriting subsidiaries that they must monitor political donations to officials with influence over them. Securities rules bar banks from underwriting bond offerings within two years of donating to an elected official handling the debt issue.
• Euro Set for Worst Week Since Start of February on Greece Woes. The euro was set for its biggest weekly loss since the start of February on concern Greece will fail to secure financial assistance from the European Union. The euro slid this week versus 15 of its 16 major counterparts as Greece’s prime minister set a one-week deadline for the European Union to craft a financial aid mechanism for the nation, challenging Germany and damping appetite for the 16-nation currency. The Swiss franc traded near its strongest level in 17 months against the euro as an official said policy makers can’t prevent the currency’s advance indefinitely. “Reports on inter-governmental relations between Greece and Germany will be the major driver of the euro, and they’re likely to keep bickering,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “We can see euro falling down to the low $1.30s” within a week.
• Powell Says New Sanctions on Iran Won't Stop Nuclear Program. Former U.S. Secretary of State Colin Powell said new sanctions on Iran to persuade it to stop enriching uranium won’t work because the Islamic republic is “determined to have a nuclear program.” “I don’t see a set of sanctions coming along that would be so detrimental to the Iranians that they are going to stop that program,” Powell said in an interview with Bloomberg special contributor Judy Woodruff.

Wall Street Journal:

• There's No 'I' in 'Deem'. Dems pushing ObamaCare look increasingly desperate and creepy. Democrats trying to force through ObamaCare over the will of the voters are transforming the House of Representatives into a procedural funhouse hall of mirrors. "House Republicans announced a plan Tuesday that would force Democrats to vote on whether they should have a vote," the Washington Post reports. Let's try to explain.
• History's Case Against Naked CDS.
  
• $1.5 Billion CDO Auction To Test Market For Distressed Debt. A public auction of nearly $1.5 billion of collateralized debt obligations in New York next week will test whether a long-anticipated recovery of the distressed-debt market is taking hold. The liquidation sale encompasses five portfolios of assets from Grenadier Funding, a Citigroup (C) affiliate, issued in July 2003. The CDOs, managed by ACA Management LLC, contain 46% subprime residential mortgage securities, 22% prime residential mortgage securities, 14% CDOs, 13% asset-backed securities and 0.2% commercial mortgage securities, according to Fitch Ratings. Bank of New York Mellon, as trustee, filed a notice of default on the CDO on Dec. 28, 2009, and the trustees decided to liquidate the assets shortly afterward, according to public documents. This liquidation brings sales of distressed debt back into the forefront after a period of quiet that started toward the end of 2009. "As the world gets better, many of the controlling parties of these deals are taking the option to liquidate," said one person who closely follows CDO deals but spoke only on condition of anonymity. "The thought is, if one can get out now, the rate of recovery will be much higher.".
• Germany Open to Joint Europe-IMF Bailout for Greece. Germany signaled it is open to supporting a joint bailout of Greece by European governments and the International Monetary Fund should the country need assistance, as Greece pressed Europe for concrete help by next week. The German finance ministry had as recently as last week raised objections to an IMF program for Greece.
• Yale Sticks With Investment Model. Anyone expecting a mea culpa from Yale University's investment chief can forget it. Despite criticism of the "Yale model" of investing amid the financial crisis, the school stood by Chief Investment Officer David Swensen's methods in its 2009 endowment report, released Thursday. "Some observers questioned the University's investment philosophy, which rests on the principles of diversification and equity orientation," the report said. But it maintained that Yale's approach still lowered risks and diversified returns. The endowment in fact increased its allocations to illiquid, or hard to sell, assets that caused some funds trouble when markets cratered, such as private equity and real estate, according to the report, which wasn't signed by any single individual. Mr. Swensen, Yale's CIO since 1987, gained followers after he began investing heavily in non-traditional assets, which he said could produce higher returns than stocks and bonds with the right managers. Yale's endowment declined by 24.6% for the fiscal year that ended June 30, and many other schools with similar approaches, like Harvard University, also faced double-digit declines. That caused some observers to question Mr. Swensen's philosophy; some, like Harvard, are now reducing their exposure to real estate and are trying to increase liquidity.
• Shortcomings Exposed in Oil Data. DOE Documents, Consultants' Report Cite Outdated Methodology, Errors in EIA's Weekly Survey. Problems with EIA data underscore the hazards of depending on companies or other firms to self-report data. Internal emails and a report from a consulting firm prepared in September describe a process at the EIA that served the oil world well in 1983, the first year that oil futures traded, but hasn't kept up as the inventory data have become more influential and the nation's oil infrastructure has become more complex. The EIA, the statistical arm of the Department of Energy, didn't find most of SAIC's findings a surprise, said Stephen Harvey, director of the EIA's office of oil and gas, which puts out the weekly data. "Should you be concerned? Yes. Is it as good as we'd like it to be? No. Is it better or worse than some other countries where we'd like to know this information? It's probably a whole lot better," Mr. Harvey said. The internal documents obtained by Dow Jones Newswires cataloged several instances in the past three years in which companies misreported the amount of oil they had in storage, sometimes by over two million barrels in each weekly survey over the course of a year, a significant error considering that amount can account for the entire change in inventories from week to week. On Sept. 16, the EIA released data showing almost four million barrels of oil had vanished from the Cushing storage hub in Oklahoma during a single week. The market paid particular attention because Cushing is the nation's most important commercial storage facility. Its oil is used to fill orders from buyers on the New York Mercantile Exchange. Oil futures jumped 2.2% after the report. But out of the sizable drop at Cushing, 1.7 million barrels represented a correction made after the EIA discovered a previous error in one company's reporting, according to the emails. A second company's Cushing inventories also were off by a wide margin earlier in 2009, the emails indicate. None of the documents assert that the companies were deliberately reporting incorrect oil-inventory data, and the EIA was alerted to many of the errors by the firms themselves. The Federal Trade Commission last year implemented regulations punishing companies that put out intentionally misleading inventory data. Mr. Harvey of the EIA said a number of measures are being implemented to cut down on the number of errors, even in the absence of new funding. After a series of budget cuts in the mid-1990s, calls in recent years from the agency for additional funding largely have fallen on deaf ears. The study noted that some statistical methods used in the EIA report haven't been evaluated or tested since their inception three decades ago. The security of the weekly report also has become a bigger issue as the oil market has begun to treat the data's release as a major event. SAIC consultants also said security surrounding the data was too lax. EIA staff should be put on "lock down" prior to release, the SAIC said, to prevent information from leaking.
• The Dodd Status Quo. Too big to fail is alive and well in the Senate's financial reform. Once ObamaCare becomes law, the next big legislative rush is going to be for financial reform, but as we look at Senate Banking Chairman Chris Dodd's latest draft we can't help but wonder: Why the hurry? On the crucial issues of regulation and too big to fail, his bill is largely the current system, only more so. Much like the version that passed the House last year, Mr. Dodd's bill clings to the illusion that regulators in the future will know a financial mania when they see it.

BusinessWeek.com:

• Nemazee, Political Fundraiser, Pleads Guilty to Fraud. Hassan Nemazee, a top political fundraiser for U.S. President Barack Obama and Secretary of State Hillary Clinton, admitted he defrauded banks of millions of dollars. Nemazee pleaded guilty today to federal charges of defrauding Citigroup Inc., HSBC Holdings Plc and Bank of America Corp. After he was arrested in August, prosecutors said he cheated the banks out of $292 million. “I’m deeply ashamed of my conduct,” Nemazee told U.S. District Judge Sidney Stein in Manhattan federal court today. Nemazee was one of the leading fundraisers for the Democratic Party. In the 2008 presidential campaign, he raised at least $100,000 for Clinton, according to the Washington watchdog group Public Citizen. Nemazee brought in at least $500,000 for Obama after he defeated Clinton in the primary campaign, according to Public Citizen.
• Why Bank Stocks Could Vault Even Higher. Investing pros tell Bloomberg BusinessWeek where they're finding opportunities in the sector now.
• Verizon(VZ), AT&T(T), Google(GOOG) Partake of Broadband Speed Race. Plans by Google and others to provide ultrafast broadband may push Verizon, AT&T, and Comcast to accelerate their own deployments.

CNBC:

• Samsung Elec Eyes Double Digit Sales Growth in 2010.

IBD:

• Web Adds Restaurant Reservations To Online Menu.

CNNMoney:

• S&P Announces Changes to U.S. Indices. S&P MidCap 400 constituent Cerner Corp. (NASD: CERN) will replace BJ Services Co. (NYSE: BJS) in the S&P 500 index, S&P SmallCap 600 constituent MEDNAX Inc. (NYSE: MD) will replace Cerner in the S&P MidCap 400, and MicroStrategy Inc. (NASD: MSTR) will replace MEDNAX in the S&P SmallCap 600 index after the close of trading on a date to be announced.

Business Insider:

• Here's The Truth About That CBO Report(Hint: We're Still Headed For Fiscal Catastrophe). As fate would have it, on the day that the CBO report is released, I am in standby hell, and running low on laptop juice. So my thoughts on the CBO score, and the revised reconciliation bill, are necessarily somewhat preliminary. But here is what I've noticed so far:
• China Takes SEVERE Step Towards Cooling Bubble, After Record Property Auction Humiliates Leaders. Here's what looks like a fascinating development out of China in regards to the government's efforts at cooling its real estate bubble. From Waverly Advisors:

Forbes:

• REITs In The Spring Become The Rose. A bidding war for General Growth(GGP) illustrates how the seeds beneath the snow are starting to bloom again.
  

AppleInsider:

• Apple(AAPL) Preps 27-Inch LED Cinema Display, Dodeca-Core Mac Pro.

cnet news:

• Google's Fast Pipe to Asia Almost Ready. Google(GOOG) and a group of telecommunications companies are about ready to turn on a fast Internet cable running under the Pacific Ocean from the U.S. to Japan, increasing bandwidth by about 20 percent and giving Google its own connection to Asia. The Unity Consortium, which consists of Google, Bharti Airtel, Global Transit, KDDI, Pacnet, and SingTel, has nearly completed the testing of the $300 million project. Internet users in Asia will start seeing faster Internet speeds over the next several months from the new cable, which has the potential to create a 7.68Tbps (terabits per second) connection under the Pacific.

Real Clear Politics:

• Why the SEIU Wants Health Reform. The largest health care labor union in the United States, the Service Employees International, is using its 2.2 million members' hard-earned dues to finance an intense, expensive lobbying campaign in support of the pending health-insurance bill - in order to prop up its failing pension plans. It spent a significant fraction of its 2009 lobbying budget of $2.7 million on health, purchasing costly ads in major newspapers and on TV, such as one telling Indiana Representative Brad Ellsworth, a Democrat, "to keep standing up for us, not the insurance companies. Pass health insurance reform now." The union's president, Andy Stern, who is desperately committed to enactment of the bill, is reported to have been the most frequent visitor to the White House over the past year. The union's Web home page features "The Final Push for Health Care" and urges union members to phone their members of Congress in support of health "reform." The Web site coaches union members on what to tell Congressional staff and even offers a telephone number that will connect union members to their representatives in Congress. In contrast, the Labor Department's Web site lists pension plans that are in financial difficulty. Several SEIU pension plans are in critical status, meaning they have less than 65% of assets needed to fund financial obligations to future and current retirees, or in endangered status, with less than 80% of needed assets. What's the connection? The SEIU needs more new dues-paying members to pay for the retirement of current members if it is to rescue its pension plans from subpar performance. It's a Ponzi scheme that would make Bernie Madoff proud. With many of its members employed in health care, the union believes - not illogically - that if more Americans have health insurance, the demand for health care will expand and so will employment in the health sector.

Politics Daily:

• Obama's Job Approval Rating Reaches Lowest Point of His Presidency. President Obama is suffering the lowest job approval rating since he was elected, with more disapproving of his performance than approving, while the public regard for Congress has also worsened, according to a Gallup poll conducted March 15-17. Forty-eight percent disapprove of the job Obama is doing while 46 percent approved. This is also the first time the percentage of those disapproving was higher than those who approved. Congress still fares far worse with 80 percent disapproving of its performance and 16 percent approving. "Public support for President Obama and Congress -- both of which were running near their low points prior to the beginning of this month -- continues to slip," Gallup said. "That is an ominous sign heading into this year's midterm elections."
  

Reuters:

• Record Weekly Outflow From Money Market Funds - EPFR.
• Group Warns of Severe Shortage of Medical Isotopes. U.S. imaging experts warned of significant disruptions in the supply of a medical isotope used in scores of diagnostic tests in the coming weeks as a key nuclear reactor goes out of service for extended repairs.

Financial Times:

• JPMorgan(JPM) Also Used Accounting Gimmick. JPMorgan Chase recorded some repurchase trades as sales, the same accounting gimmick that spawned Lehman Brothers’ now-infamous “Repo 105s”, suggesting that the failed bank was not alone in its interpretation of a new accounting rule. Unlike Lehman, which never disclosed the effects of its repo deals on the firm’s balance sheet, JPMorgan detailed the year-end values of its repo sales and purchases in annual reports beginning in 2001, after a new accounting rule was introduced.

Economic Daily News:

• Broadcom Corp.(BRCM) may increase orders to Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. on optimism on the outlook for chip demand, citing Broadcom President and CEO Scott McGregor.

Evening Recommendations
Citigroup:

• Downgraded (TEG) to Sell, target $42
  

Oppenheimer:

• Rated (WFT) Outperform, target $23.
• Rated (SLB) Outperform, target $83.

CSFB:

• Reiterated Outperform on (PWR), target $24.
• Reiterated Outperform on (OI), raised target to $40.
  

Night Trading

• Asian indices are -.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 94.0 +4.0 basis points.
• S&P 500 futures +.01%
• NASDAQ 100 futures -.05%

Morning Preview Links

Earnings of Note
Company/Estimate

• (PERY)/.59

Economic Releases

• None of note

Upcoming Splits

• (NETL) 2-for-1
  

Other Potential Market Movers

• Quadruple witching option expiration, former Fed Chairman Greenspan speaking and the Baird Utility & Infrastructure Symposium could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Just Slightly Lower into Final Hour on Healthcare Reform Fears, Rising Sovereign Debt Angst, Fed Rate Hike Rumors

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.50 -2.42%
  
• ISE Sentiment Index 114.0 -17.39%
  
• Total Put/Call .77 -9.41%
  
• NYSE Arms 1.61 +44.40%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 83.89 bps +2.47%
  
• European Financial Sector CDS Index 74.16 bps +6.44%
  
• Western Europe Sovereign Debt CDS Index 73.31 bps +8.25%
  
• Emerging Market CDS Index 211.29 bps +.15%
  
• 2-Year Swap Spread 18.50 bps +1.0 bp
  
• TED Spread 12.0 bps unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 271.0 bps -1 bp
  
• Copper Days Demand 15.04 days -.19%
• Citi US Economic Surprise Index +37.70 +.7 point
  
• 10-Year TIPS Spread 2.24% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +31 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Slightly Lower: On weakness in my Financial and Tech long positions
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the major averages are mixed despite a meaningful rise in various cds, fed discount rate hike rumors, healthcare reform fears and declining commodity stocks. On the positive side, the Transports are substantially outperforming, rising 1.0%. Education, HMO, Hospital and Wireless shares are also strong, rising .75%+. US Economic data continue to show mostly improving trends. On the negative side, Gaming, Construction, Bank, Networking, Steel, Oil Service, Energy, Alt Energy and Coal stocks are under pressure, falling more than -1.0%. I am surprised at the market's resilience today, given the news. The NYSE Arms has been very high most of the day, yet the major averages are near session highs, indicating a lack of firepower from the bears. Market action tomorrow on option expiration and early next week should give us a better indication of the direction of the market's next meaningful move. (AAPL) is moving to session highs on volume today, reversing morning losses, after the WSJ reported they have sold hundreds of thousands of iPads in advance of its official release. I still view the shares as very attractive around current levels. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear and technical buying.

Today's Headlines

Bloomberg:

• Pelosi Tactic for Health-Care vote Would Raise Legal Questions. House Speaker Nancy Pelosi may be creating new grounds for a court challenge to the proposed U.S. health-care overhaul as she considers using a mechanism that would avoid a vote on the full legislation. Pelosi said this week she might use a parliamentary technique that would “deem” House members to have passed the Senate’s health-care plan by voting for a more politically palatable package of changes. Some legal scholars question whether that approach can be squared with the Constitution and the Supreme Court’s 1998 declaration that the two houses of Congress must approve “precisely the same text” before a bill can become a law. “Any process that does not result in the House taking of yays and nays on statutory text identical to what passed the Senate is constitutionally problematic,” said Jonathan Adler, a professor who runs the Center for Business Law & Regulation at Case Western Reserve University’s law school in Cleveland.
• Republicans Lose Bid to Force Up-or-Down Vote on Health Care. U.S. House Democrats defeated an effort by Republicans to curtail Democrats’ options in seeking to pass their $940 billion health-care overhaul. By a 222-203 vote, lawmakers headed off a Republican resolution that would have required a separate, recorded vote on the Senate’s health care plan. The Republicans were seeking to keep Democrats from using a parliamentary technique to avoid a direct vote on that bill. The House may hold a rare Sunday vote March 21 on the Senate health-care bill and a separate package of revisions. House Democratic leaders say they may use a parliamentary technique that would “deem” House members to have passed the Senate bill by voting for the more politically palatable measure containing the revisions. House Speaker Nancy Pelosi said earlier this week that bypassing a direct vote on the Senate measure was an option because there are “a lot of people who don’t want to vote for it.” Republicans, who unanimously oppose the health-care plan, say no bill or amendment has ever been deemed passed that related to an area affecting one-sixth of the economy, as does the health measure. Republicans said Democrats are trying to avoid taking responsibility for the health-care plan.
• Greece Leads Increase in Sovereign Credit Swaps on Bailout Woes. Credit-default swaps on Greek sovereign debt rose to the highest in almost three weeks as an aid plan for the nation’s debt crisis appeared to be unraveling. Contracts on the government’s borrowings jumped 28 basis points to 316, according to CMA DataVision prices. Investor concern that failure to resolve Greece’s deficit woes will trigger a wider debt crisis also drove up at the cost of default protection on German and French sovereign debt. Greek Prime Minister George Papandreou set a one-week deadline for the European Union to resolve internal disagreement and formulate an aid package. “Time is indeed running out for Greece with a huge amount of debt maturing in the coming month,” London-based analysts at BNP Paribas SA wrote in a note to investors. “It is not clear how much the Greek threats to go to the IMF are meant to put pressure on the EU to come up with aid.” Swaps on German government debt rose 3 basis points to 28.5 and contracts on France increased 3.5 to 40.5, CMA prices show. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 3 basis points to 71.5, the highest in almost two weeks. The cost of protecting European corporate bonds from default also rose, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 9 basis points to 416, according to JPMorgan Chase & Co.
• Commodities Attract $3.98 Billion, Barclays Estimates. Investors put $3.98 billion into commodities last month, almost 29 times the amount in January, favoring investments linked to indexes over exchange-traded products, Barclays Capital said. Total commodity assets under management, which were also bolstered by gains in prices, expanded to $255 billion in February, after dropping $12 billion to $245 billion in January, the bank said. Inflows in January were $139 million. “Commodity investments have resumed in February, primarily from institutional investors employing commodity indices to gain broad-based exposure, as retail investors still remain jittery,” Barclays said in a report, distributed today. Investments in exchange-traded products shrank $1 billion and those tied to indexes expanded by $4.5 billion, Barclays said. Medium-term notes, or products customized for investors, attracted $494 million. Energy got $2 billion of the additional investments, agriculture $1.18 billion, industrial metals $481 million and precious metals $251 million. A year earlier, gold exchange- traded products alone attracted $6 billion of investment, Barclays said.
• China, U.S. Trade War Risk Rising, Credit Suisse Says. China is closer to a trade war with the U.S. than any time in the last five years as the two trade barbs over the proper value of the Chinese currency, according to Credit Suisse Group AG economist Dong Tao. Five U.S. senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation this week to make it easier for the U.S. to declare currency misalignments and take corrective action. Chinese Premier Wen Jiabao rebuffed calls on March 16 for an end to the currency link, saying he doesn’t think the currency is “undervalued.” “In the near future, given the political tension between China and the U.S., it is unlikely that we will see much of an appreciation,” Tao told Bloomberg Television. “If the U.S. launches trade sanctions, China is likely to retaliate.”
• Euro Drops for Second Day on Concern Europe Split on Greece Aid. The euro weakened for a second day against the dollar and yen in the longest stretches of decline in almost a month on concern Greece will fail to secure financial assistance from the European Union. Brazil’s real dropped the most in more than a month after the central bank yesterday put off raising interest rates. The European currency declined versus 15 of its 16 major peers as Greece’s prime minister set a one-week deadline for the European Union to craft a financial aid mechanism for the nation, challenging Germany and damping appetite for the euro. “It’s political brinksmanship now,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “People are expressing their views on Greece and its issues by getting short euro-dollar.”
• Jobless Claims in U.S. Decreased By 5,000 Last Week. First-time jobless applications dropped by 5,000 to 457,000 in the week ended March 13, in line with forecasts, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance increased, and those getting extended benefits also rose. The four-week moving average of claims, a less volatile measure than the weekly figures, decreased to 471,250 last week from 475,500 the prior week, today’s report showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended March 6, today’s report showed. The percentage of Americans who can’t find work is likely to “remain elevated for an extended period,” Treasury Secretary Timothy F. Geithner, White House budget director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, said this week in a joint statement to lawmakers. The administration officials said unemployment may even rise “slightly” over the next few months as discouraged workers start job-hunting again. U.S. employers won’t hire enough workers this year to lower the jobless rate much below the level of 9.7 percent reached in February, they said.
• Central Bank Gold Holdings Expand at Fastest Pace Since 1964. Central banks added the most gold to their reserves since 1964 last year amid the longest rally in bullion prices in at least nine decades, data compiled by the World Gold Council show. Combined holdings rose 425.4 metric tons to 30,116.9 tons, an increase worth $13.3 billion at last year’s average price, according to the data. India, Russia and China said last year they added to reserves. The expansion was the first since 1988, the data from the London-based council show.
• Lehman Shows Auditors Fail Investors Eight Years After Reforms. Eight years after Congress passed the Sarbanes-Oxley Act to clean up the accounting industry, Ernst & Young LLP’s audit work for Lehman Brothers Holdings Inc. may show firms still put client interests ahead of investors. Lehman’s bankruptcy examiner said he found credible evidence of malpractice by Ernst & Young, the third-biggest U.S. accounting firm, stemming from its “failure to follow professional standards of care.” The examiner, Anton Valukas, said Ernst & Young never followed up after it was told about transactions Lehman used to hide billions of dollars of assets.

Wall Street Journal:

• Greece may seek financial aid from the International Monetary Fund over the April 2 to April 4 Easter Weekend, citing a senior Greek official. Greece has little hope for aid next week from the European Union's March 25 summit, the official said. Greece is likely to put on hold plans to raise 10 billion euros through one or two bond sales until after the EU summit, the official said.
• NYU Professor Edward Altman Tries His Hand At Credit Ratings. Finance professor and credit market guru Edward Altman is entering the ratings game. Altman, professor of finance at New York University's Stern School of Business, has partnered with RiskMetrics Group Inc. (RISK) to develop a new proprietary tool to evaluate the creditworthiness of nonfinancial companies, the company said Thursday. The initiative comes after burned investors and other critics excoriated established ratings agencies for assigning top-notch ratings to securities that in many cases ended up being worthless during the credit crisis.
• China Official Warns of Currency Risks. A senior Chinese trade official warned that any further appreciation of the Chinese currency risked driving exporters to the wall, underscoring the domestic political pressures on Beijing amid growing international calls for China to let the yuan rise. Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.

BusinessWeek:

• Dodd's Chief Counsel Bought Financial Stocks During 2008 Crisis. Senate Banking Committee Chairman Christopher Dodd’s chief counsel in 2008 traded stock in Morgan Stanley(MS), Wells Fargo & Co.(WFC), American International Group Inc.(AIG) and other rescued companies as the panel considered legislation to address the credit crisis, according to her financial disclosure form filed with the Senate. Amy Friend, 51, who is now leading the panel’s effort to write a bill overhauling Wall Street regulations, bought $1,000- to-$15,000 stakes in four banks, weeks after Dodd hired her in January 2008, the form shows. She also owned shares of Fannie Mae, Freddie Mac, AIG and other insurance firms, according to the disclosure document, which she signed on June 5, 2009. “This looks very bad,” said Melanie Sloan, the executive director for Citizens for Responsibility and Ethics in Washington and a former Democratic congressional aide. “At the very least it’s inappropriate and it gives the appearance of wrongdoing, even if there is none.” Friend’s counterparts on the banking panel’s Republican side and on the House Financial Services Committee didn’t own financial instruments, according to their 2008 disclosures. Senate rule 37 states that no lawmaker or employee “shall knowingly use his official position to introduce or aid the progress or passage of legislation, a principal purpose of which is to further only his pecuniary interest.”

Fox News:

• Fox News Poll: 55% Oppose Health Care Reform. As Americans wait for Congress to act on health care, a Fox News poll released Thursday finds 55 percent oppose the reforms being considered, while 35 percent favor them. In addition, just over half of voters think House Democrats are “changing the rules” to get their bill passed. About a third of voters (31 percent) think House Speaker Nancy Pelosi and the Democrats are “playing by the rules” to get health care through, while 53 percent think they are “changing the rules.” Looking at the results by political party, 53 percent of Democrats think their party is playing by the rules, about one in four think they are changing the rules (27 percent) and the rest are unsure (19 percent). Varying majorities of Republicans (78 percent) and independents (57 percent) think House Democrats are changing the rules to pass the bill. The level of public support for the health care overhaul has remained fairly steady since last July -- 35 percent favor it now and 36 percent favored it last summer. The number opposed -- 55 percent -- is up from 51 percent in January, and from 47 percent last July. Opposition hit a high of 57 percent in December. Among partisans, the president’s party faithful are alone in supporting the proposed reforms. Sixty-six percent of Democrats favor them, while 53 percent of independents and 88 percent of Republicans oppose them.

NY Post:

• Blackstone(BX) President to Host 'Private' Pelosi Fundraiser. Steve Schwarzman's right-hand man is mounting a campaign to win over House Speaker Nancy Pelosi. The longtime Republican is organizing a fundraiser for the Dems in an attempt to gain her support fighting a tax on private-equity earnings now under consideration on Capitol Hill, sources tell The Post. Blackstone Group President Hamilton "Tony" James, 58, is planning to host an event at his home at which Pelosi is scheduled to speak and which other private-equity bigwigs are expected to attend. The mission, according to a person familiar with the matter, is to convince Pelosi to slow down the momentum in Congress to take measures that could harm private-equity firms, with a particular focus on stopping legislation that would raise taxes on "carried interest."

Business Insider:

• The 20 Cities That Have Completely Missed the Recovery.
• The New York State Treasury Just Came Up $2 Billion Short, And Is Resorting To An Accounting Move To Avoid Insolvency.
  

Risk.net:

• Goldman Sachs(GS) Uses Scenarios to Study Reputation Risk. Goldman Sachs is using scenario analysis to study reputational risk, according to its global co-heads of operational risk management, Spyro Karetsos and Mark D'Arcy. "Franchise value is highly important within the organisation and managing reputational risk is a by-product of that," says Karetsos, who is based in New York. "While it is not our responsibility to quantify reputational risk, there is an internal process that measures our exposure to those risks that are difficult to quantify, one of which is reputational risk."

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (43%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -20. That’s just one point above the all-time low (see trends).

Politico:

• President Obama's Pitch: Fate of Presidency On the Line. President Barack Obama had exhausted most of his health care reform arguments with members of the Congressional Hispanic Caucus during a White House meeting last Thursday when he made a more personal pitch that resonated with many skeptics in the room. One caucus member told POLITICO that Obama won him over by “essentially [saying] that the fate of his presidency” hinged on this week’s health reform vote in the House. The member, who requested anonymity, likened Obama’s remarks to an earlier meeting with progressives when the president said a victory was necessary to keep him “strong” for the next three years of his term.

Reuters:

• EU's De Gaucht Questions U.S. Over Trade, Raps Yuan. The European Union wants more engagement by the United States to restart global trade talks and allay EU fears of U.S. protectionism, the bloc's trade commissioner said in newspaper interviews published on Thursday. On China, Belgian Karel De Gucht reiterated that Beijing was manipulating its yuan currency. "The yuan is under-priced. It certainly has an impact on their (U.S.) export and trade patterns. The complaint is legitimate," he told the Financial Times newspaper. De Gucht questioned U.S. President Barack Obama's recent choice of words when setting a goal of doubling U.S. exports over the next five years. "It is interesting to note ... that he speaks about 'exports' and not about 'trade'," De Gucht was quoted as saying. "Trade means also accepting that imports are doubling. I don't think it's by accident that the word export is used instead of trade."
• Broadcom(BRCM) Sees Sales Growth, More M&As. U.S. chipmaker Broadcom Corp (BRCM) expects to exceed the global semiconductor industry's sales growth this year on rising consumer appetite for new mobile devices and TVs, its chief executive said.

Financial Times:

• MEPs to Continue with Hedge Fund Revisions. European lawmakers pledged to forge ahead with their own efforts to revise controversial EU proposals to regulate hedge funds and private equity fund on a pan-European basis for the first time, in spite of an impasse amongst member states. On Tuesday, efforts to reach a compromise agreement amongst EU member states failed because of a refusal by the UK to concede on a couple of key issues. On Wednesday, MEPs, who must also approve new rules, said they would carry out hammering out their own amendments to the original, much-criticised proposals put forward by the European Commission. Jean-Paul Gauzes, the French MEP who is steering the package through the European Parliament, said the stalemate amongst member states “shouldn’t alter our schedule too much”. “We shouldn’t wait for the council (member states) to take a decision,” he added, a sentiment subsequently supported by MEPs from most of the big political groupings in the parliament. This means that the key parliamentary committee is likely to vote of proposed amendments in April.
• Commission to Back Curbs on Swaps. Brussels is to propose steps to tackle speculative trading, notably in relation to credit default swaps on sovereign debt - the financial instrument of choice for those who take bets against European governments, most recently in Greece. Michel Barnier, the EU internal market commissioner, said in a speech to European lawmakers he planned to propose a text that would provide a "framework" to cover purely speculative "naked" short selling: "Notably, where this relates to CDS on sovereign debt." "I hope, with these measures, we will have better and safer markets, without discouraging financial innovation," he told MEPs in the European parliament. Mr Barnier did not give details of planned measures. Commission officials indicated a whole range of possibilities would be considered.