North American Investment Grade CDS Index 86.28 bps +.27%
European Financial Sector CDS Index 73.09 bps -.95%
Western Europe Sovereign Debt CDS Index 76.10 bps +2.48%
Emerging Market CDS Index 226.41 bps -3.0%
2-Year Swap Spread 15.0 bps -1.0 bp
TED Spread 15.0 -2 bps
Economic Gauges:
3-Month T-Bill Yield .14% +2 bps
Yield Curve 281.0 bps -2 bps
China Import Iron Ore Spot $153.60/Metric Tonne +1.39%
Citi US Economic Surprise Index +35.90 +1.4 points
10-Year TIPS Spread 2.22% -1 bp
Overseas Futures:
Nikkei Futures: Indicating +43 open in Japan
DAX Futures: Indicating +21 open in Germany
Portfolio:
Slightly Higher: On gains in my Retail, Medical and Tech long positions
Disclosed Trades: Added slightly to (GOOG) long, took profits in another long
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as stocks move slightly higher after the bears again failed to gain meaningful traction this morning despite rising sovereign debt angst. On the positive side, HMO, Wireless, Semi, Software, Internet, Oil Service and Alt Energy stocks are especially strong, rising .5%+. The 10-year TIPS spread is slightly lower and the 10-year yield is stable again today. US scrap steel prices have surged another 15.4% over the last five days. Weekly retail sales rose +3.6% this week versus a +3.4% gain the prior week and up from a +1.8% increase during the last week of February. On the negative side, Airline, Homebuilding, Disk Drive, Gold and Coal shares are falling .75%+ on the day. (XLF) is underperforming again and hovering just off session lows. The Greece sovereign debt cds is surging another +4.3% today, which is beginning to pressure the euro again. We could see some early morning weakness tomorrow on a sell-the-news reaction to the ADP jobs report and quarter-end profit-taking. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and less economic fear.
Greece Leads Rise in Sovereign Credit Risk as Bonds Struggle. Greece led a rise in the cost of credit-default swaps on sovereign debt as a poor reception for the country’s new bonds triggered concern that Europe’s most indebted nations could struggle to fund their budget deficits. Contracts on Greek government debt climbed 20 basis points to 335.5 in London, the highest in more than a week, according to CMA DataVision. Swaps on Spain, Portugal, Italy and Ireland also climbed and the Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose 3.5 basis points to 82, the widest level in a month. Greece’s new 5 billion euros ($6.7 billion) of seven-year bonds fell after the European country with the biggest budget deficit failed to offer investors a premium over existing debt. Bondholders are concerned the country may struggle to borrow the 30 billion euros it needs, part of the more than 2 trillion euros that countries in the region have to raise this year. “The Greek debt crisis is far from over,” said Tim Brunne, a credit strategist at UniCredit SpA in Munich. “The fundamental problems are still the same.” Contracts on Spain increased 3.5 basis points to 114, Portugal widened 6 basis points to 141 and Italy gained 4 basis points to 113. Ireland widened 4 basis point to 138.
Downtown New York Towers Empty as Best Market Falters. Downtown Manhattan, where demand for office space began to surge three years after the 9/11 terrorist attacks, is about to lose its spot as the best- performing U.S. market. Vacancies may exceed 14 percent of the area’s 87 million square feet by late 2011, empty space that’s equivalent to four Empire State Buildings and the highest rate since 1997, according to property broker Cushman & Wakefield Inc. That doesn’t include the 4.4 million square feet of offices in two towers now under construction at the World Trade Center site. Those are scheduled for completion in 2013. “The amount of space that’s potentially going to come to the market will increase availabilities and put pressure on pricing,” said Kenneth McCarthy, Cushman’s head of New York- area research. “It will be quite awhile before it can be absorbed.”
Fed's Evans Says Jobless May Exceed 9% at Year-End. Federal Reserve Bank of Chicago President Charles Evans said the U.S. jobless rate may remain higher than 9 percent at the end of this year, underscoring the potential need to keep interest rates low into 2011. The unemployment rate may be “nine and a quarter” at the end of 2010, and higher than 7 percent at the end of 2011, Evans said in an interview with Bloomberg Television today in Hong Kong. A government report this week may show the rate was 9.7 percent in March, according to the median forecast in a Bloomberg News survey.
Prime Brokerages Should Give Clients Daily Reports. Prime Brokerages Should Give Clients Daily Reports. Investment firms must give hedge- fund clients daily reports on how their money is being held and if it has been reinvested, a U.K. regulator said in proposals responding to the collapse of Lehman Brothers Holdings Inc. Around 35 U.K. prime brokerages will be able to invest a maximum of 20 percent of client deposits in their group’s bank accounts and will have to give clients daily updates on whether their money has been re-used as collateral for loans, under the proposals published today by the Financial Services Authority.
Ireland's 'Worst Fears Surpassed' as Banks Need $42.7 Billion. Ireland’s banks may need at least 31.8 billion euros ($42.7 billion) in new capital after a real- estate slump left them crippled by mounting bad loans. The fundraising requirement was announced after the National Asset Management Agency, the country’s so-called bad bank, said it will apply an average discount of 47 percent on the first block of loans it is taking over from lenders and the country’s financial regulator set new capital targets. The discount compares with the government’s initial 30 percent estimate. “Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin today. “The detailed information that has emerged from the banks in the course of the process is truly shocking.”
Wall Street Journal:
Best Buy(BBY) Announces First U.K. Store. U.S.-based Best Buy Co., the world's biggest consumer-electronics company, said Monday it will open its first U.K. store in May--a move that ups competition in the retailing of computers, home-entertainment and audio systems. The 50,000-square-foot flagship megastore in Thurrock, East London, will be the first of five so-called big-box stores Best Buy plans open in the U.K. this year.
Hedge Fund Group Spent $1.1 Million Lobbying in 4Q. A trade group representing hedge funds spent nearly $1.1 million in the fourth quarter lobbying federal officials on proposed financial regulations, including a measure that would require hedge funds to register with the Securities and Exchange Commission. The $1.08 million that the Managed Funds Association spent on lobbying in the latest quarter was about double the $520,000 it spent in the period a year earlier. The group's lobbying total for the latest quarter also tops the $910,000 it spent the previous quarter.
The Tax Attack on America. We are facing an across-the-board tax-hike assault from federal, state, and local sources. This, despite a precarious outlook of a return to long-term economic prosperity after an especially deep and painful recession.
Business Insider:
Goldman(GS): CDS Traders Getting Aggressive On U.S. Banks. Goldman's Equity, Credit, and Options Market Monitor, part of their cross-product research platform argues that the fixed income market, via credit default swaps, is pushing a bullish case for U.S. financial stocks. Thus they're part of the recent excitement over U.S. banks from Wall St.:
Your Health Insurer's Next Move: Tell You To Take A Hike To A Mexican Hospital. The Medical Tourism Association predicts increased use of international treatment among insurers, as expanded coverage pushes up costs. "Companies could not bear the cost of health insurance as it is, and they certainly won't be able to once cost skyrockets," said association CEO John Edelheit. Indeed, major insurers like Aetna have already launched medical tourism pilot programs, so they can cover you while also saving a buck.
OPEC Dying To Convince The World It Can Still Maintain $80 Oil. OPEC member states' compliance with production quota's has fallen to a dismal 54%, something Secretary-General Abdalla El-Badri isn't too happy with. At the same time, its traditional power structure with Saudi Arabia as undisputed production king is under attack by the rise of Iraqi oil production potential. Now, to make matters even more uncertain for the cartel, the non-OPEC world is increasing its production relatively quickly as well. According to OPEC's latest March report, even though their production levels remain well below mid-2008 levels, total world supply is already back up there. (shown below) Thus non-members are becoming more significant, Iraq wants to let loose production, and even many OPEC members aren't even listening to the quotas from central command.
Electronic Arts(ERTS) Reboots. The video game stock has been a laggard – but fund managers and analysts say it will bounce back soon.
Lloyd's List:
Shanghai Slowdown Sees Profits Drop. CHINA’s largest port operator, Shanghai International Port (Group), succumbed to an 18.6% decrease in net profit last year to Yuan3.7bn ($553m) from Yuan4.7bn in 2008, as a result of substantial declines in container throughput.
UN Climate Change Group to Debate Levy on Shipping. SHIPPING could face a further challenge regarding its contribution to climate change as the UN-sponsored Advisory Group on Climate Change Financing holds its first meeting in London tomorrow, co-chaired by British Prime Minister Gordon Brown and his Ethiopian counterpart Meles Zenawi.
Rasmussen Reports:
National Sales Tax Still Unpopular. A new Rasmussen Reports national telephone survey finds that 37% of voters nationwide favor a national sales tax if the money is used to pay for health care for all Americans, but 51% oppose that idea. These findings are unchanged from December. Take health care out of the equation, however, and opposition to a national sales tax on all goods and services is higher. Only 22% favor a national sales tax as a way for the government to raise more money, while 60% are opposed.
Health Care Law Too Costly, Most Say. Nearly two-thirds of Americans say the health care overhaul signed into law last week costs too much and expands the government's role in health care too far, a USA TODAY/Gallup Poll finds, underscoring an uphill selling job ahead for President Obama and congressional Democrats. Those surveyed are inclined to fear that the massive legislation will increase their costs and hurt the quality of health care their families receive. The risk for them is that continued opposition will fuel calls for repeal and dog Democrats in November's congressional elections. The bill was enacted without a single Republican vote. Obama's approval rating was 47%-50% — the first time his disapproval rating has hit 50%. In the survey:
Reuters:
Majority of Germans Against Aid for Greece - Poll. More than two-thirds of Germans oppose their country's participation in any EU aid package for debt-ridden Greece, a poll taken just before last week's euro zone agreement on a last-resort financial safety net showed. The Forsa survey for Stern magazine, conducted on March 24 and 25 and released on Tuesday, highlighted the risks for Chancellor Angela Merkel if a rescue becomes necessary. Some 68 percent of Germans said they were against aid and only 28 percent thought Berlin should help Greece.
Consensus for Financial Regulations Fading: IMF. An international drive to impose new regulations in the wake of the financial crisis is fading and global cooperation is diminishing, the managing director of the International Monetary Fund said on Tuesday. Dominique Strauss-Kahn said world powers had worked well during the height of the crisis in 2008 and 2009, but as the immediate danger passed so did the will to re-write cross border regulations." One of the lessons of the crisis is that facing global challenges we need to have global answers," Strauss-Kahn told the Romanian parliament during a flying visit to Bucharest." This lesson is about to be lost," he said.
Gold Slips, Market Eyes Currencies. Gold slipped in afternoon trade on Tuesday, coming under pressure after the euro surrendered earlier gains against the dollar on worries about euro zone fiscal health. The dollar rose against the euro on renewed worries about the ability of Greece and other euro zone countries to fund their deficits. " Activity is mostly to do with the dollar, there is a lot of concern about the euro zone," said Andrey Kryuchenkov, analyst at VTB capital. "However, we still anticipate fairly anemic retail demand for the remainder of the year." "Clearly, a pullback in prices tempted some retail investors to return to the market, which was also reflected in improved sales of gold coins, VTB Capital said. "However, we still anticipate fairly anemic retail demand for the remainder of the year."
Economist Johnson Urges Breakup of Big Banks. America's big banks must be broken up and their risk-taking curtailed or the world's richest economy will face another massive financial crisis, former IMF chief economist Simon Johnson says in a new book. In "13 Bankers, The Wall Street Takeover and the Next Financial Meltdown," published on Tuesday, Johnson and his co-author James Kwak describe Wall Street as an oligarchy holding the country hostage to its risk-taking. "The crisis exacerbated the problem by allowing the largest banks to get bigger at precisely the moment that the government should have been doing everything in its power to make them smaller," Johnson told Reuters in an interview."The process of saving them ... has allowed them to build themselves up so that their balance sheets are now bigger than they were before the crisis. That doesn't make any sense, the too big to fail problem has become worse."The notion certain banks are too big to fail is the central perception lawmakers in Washington must overcome if they are to undertake meaningful reform, said Johnson, who believes reforms now before Congress will not address systemic problems.Specifically, he says the six biggest banks -- Citigroup (C.N), JP Morgan Chase (JPM.N), Morgan Stanley (MS.N), Goldman Sachs (GS.N), Wells Fargo (WFC.N) and Bank of America (BAC.N) -- should all be cut down to size, Johnson says."We should make them all smaller and safer so that if somebody does fail ... we can let them go through some sort of bankruptcy," he said.
Financial Times:
China Invited to Join IEA as Oil Demand Shifts. The head of the International Energy Agency, the developed world’s energy watchdog, has called for China to join the agency and warned that the institution risked losing relevance as energy demand shifted eastward away from its current members. Nobuo Tanaka, executive director of the IEA, told the Financial Times: “Our relevance is under question because half of the energy consumption already is in non-Organisation of Economic Cooperation and Development countries. And for oil it is soon coming that the majority of consumption is happening in non-OECD countries.”
Handelsblatt:
The U.S. will likely widen corruption investigations into European companies, citing Aaron Marcu, a NY-based partner with Freshfields Bruckhaus Deringer. U.S. authorities are investigating 111 cases under the Foreign Corrupt Practices Act, a record level.
Die Zeit:
White House economic adviser Lawrence Summers said inflation isn't a threat to the U.S. because the economy is growing below its capacity and many people are without a job, citing an interview. That's curbing wage and price pressures, Summers said. Generous liquidity provisions at the height of the financial crisis would only lead to inflation "if we were to see excessive credit supply," he said. However, "the money the government spends or supplies as loans doesn't even balance out the sum of what's disappearing in the deleveraging of companies and people."
DigiTimes:
TSMC, UMC Set to Raise Prices, Sources Say. Taiwan Semiconductor Manufacturing Company (TSMC) plans to raise its prices by 2-6%, whereas United Microelectronics Corporation (UMC) is also mulling a 1-2% price hike, according to industry sources. The price increases may occur in the second quarter of 2010 at the earliest.
California Treasurer Asks Six Banks for Swap Details. California’s treasurer asked six investment banks that underwrite the state’s bonds to explain why they also market credit-default swaps on them, saying such contracts may cost taxpayers by exaggerating credit risk. Treasurer Bill Lockyer asked JPMorgan Chase & Co.(JPM), Bank of America(BAC) Merrill Lynch, Barclays Plc(BCS), Citigroup Inc.(C), Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS) to detail the extent to which they market the insurance contracts and to explain how trading in them affects the interest cost on the state’s general-obligation bonds, according to letters he released today. The cost of California 5-year credit-default swaps has risen 28 percent since Oct. 26 to $204,000 to protect $10 million of bonds, according to data compiled by Bloomberg. California sold $5.9 billion of taxable and tax-exempt general- obligation bonds this month. “Lockyer’s concerned about the general effect on our bond prices,” said Tom Dresslar, a spokesman for Lockyer. “It’s taxpayer money at stake. They have a right to know.”
China Missed Chance for Open Rio Trial, Rudd Says. executives in secret, Australian Prime Minister China “missed an opportunity” to be transparent and give companies more confidence by hearing charges of industrial espionage against four Rio Tinto GroupKevin Rudd said. China had the chance “to demonstrate to the world at large transparency that would be consistent with its emerging global role,” Rudd said in Melbourne today. There are “serious unanswered questions” about the conviction of Stern Hu, the Australian executive who led Rio’s iron ore unit in China.
Ford(F) Credit Risk Drops to Almost Three-Year Low on Volvo Deal. An indicator of Ford Motor Co.’s credit risk fell to the lowest in almost three years as the automaker agreed to sell its Volvo Cars unit to China’s Zhejiang Geely Holding Co. for $1.8 billion. Credit-default swaps on Dearborn, Michigan-based Ford dropped 23 basis points to 515 basis points, the lowest since June 2007, according to CMA DataVision.
Japan's Factory Output Falls for First Time in a Year. Japan’s industrial production retreated in February, snapping an 11-month winning streak that helped to secure a recovery from the country’s worst postwar recession. Factory output declined 0.9 percent from January, when it rose 2.7 percent, the most in eight months, the Trade Ministry said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.5 percent drop.
Moscow Metro Attacks Saddle Medvedev With Putin's War on Terror. The Moscow metro terror attacks that killed at least 38 people yesterday show Russian President Dmitry Medvedev is no closer to uprooting homegrown terrorism than his predecessor, Prime Minister Vladimir Putin. The dual bombings linked to Islamist terrorists in the North Caucasus region were the deadliest in the capital since 2004, when Russia grappled with the aftermath of two wars in Chechnya. “This is perhaps more serious for Putin than for Medvedev, as Putin gained popularity by fighting terrorism,” said Nikolai Petrov, an analyst at the Carnegie Moscow Center. “The terrorists understand that the closer we get to the 2014 winter Olympics, the more painful this is for the government.”
Danaher(DHR) Boosts First-Quarter Forecast; Shares Rise. Danaher Corp., the maker of Craftsman tools, increased its first-quarter profit forecast, pushing shares higher in after-hours trading in New York. Profit will be 90 cents or more, the Washington-based company said today in a statement. The company previously anticipated earnings at or above the high end of a range of 77 cents to 82 cents. The average estimate of 15 analysts surveyed by Bloomberg was 83 cents. Chief Executive Officer Lawrence Culp said Dec. 16 that “modest sequential end-market improvements across Danaher” were encouraging. Danaher rose $2.88, or 3.7 percent, to $80.25 at 4:49 p.m.
SEC Quizzes Wall Street About Lehman-Like Accounting. The U.S. Securities and Exchange Commission is questioning Wall Street firms about whether they employed accounting strategies like those Lehman Brothers Holdings Inc. was accused of using to hide leverage. The SEC wants finance chiefs at about two dozen firms to say whether they used repurchase agreements to move assets off their balance sheets in the past three years and how they accounted for them, according to a letter released today. The letter also asks if dealings are concentrated with specific counterparties or countries. The SEC intends to make the responses public after the review, spokesman John Nester said. “We are looking at the Lehman activities very, very carefully,” SEC Chairman Mary Schapiro said today in a CNBC interview. The agency plans to review “every major financial institution very thoroughly” in coming weeks, she said.
Saudi Arabia's Al-Naimi Awaits Recovery Before Boosting Output. Saudi Arabian oil Minister Ali Al- Naimi said the nation could boost output by as much as 4.5 million barrels-a day once demand recovers from recession. The world’s largest oil producer is “waiting” for usage to rise after increasing capacity to 12 million barrels a day, Al-Naimi told reporters today in Cancun, Mexico, where he’s attending an oil conference. Prices in the $70-a-barrel to $80- a-barrel range are “as close to perfect as possible,” he said. OPEC plans to add 12 million barrels to its daily production capacity by 2015, equal to Saudi Arabia’s capacity. The gains would exceed the expected growth in demand, according to the International Energy Agency.
OPEC, IEA, IEF To Unveil Measure to Combat Oil-Price Volatility. OPEC, the International Energy Agency and the International Energy Forumwill announce a “joint action plan” this week to combat oil-market volatility, IEA Executive Director Nobuo Tanaka said. The plan will tackle “volatility of the price and other issues like the outlook of the energy market,” he told reporters today before the biennial IEF ministerial meeting that starts tomorrow in Cancun, Mexico. “We’ll have closer dialogue with our organizations and we’ll see what we can do.” The accord involves pooling expertise and sharing data to improve transparency, two people with direct knowledge of the plan said.
Wall Street Journal:
New iPhone Could End AT&T's(T) U.S. Monopoly. Apple Inc.(AAPL) is developing a new iPhone to debut this summer and also appears to be working on a model for U.S. mobile phone operator Verizon Wireless, say people briefed on the matter. While Apple has unveiled a new iPhone every June or July since launching the product in 2007, the new model with CDMA capability, the cellular technology used by Verizon, is notable because Apple and AT&T Inc. have long had an exclusive relationship with the iPhone. That has given AT&T a competitive edge over other carriers including Verizon for the last three years. The people briefed on the matter said one of the new iPhones is being manufactured by Taiwanese contract manufacturer Hon Hai Precision Industry Co., which produced Apple's previous iPhones. The model that has CDMA capability, used by Verizon Wireless, is being manufactured by Pegatron Technology Corp., the contract manufacturing subsidiary of Taiwan's ASUSTeK Computer Inc., said these people. One person familiar with the situation said Pegatron is scheduled to start mass producing the CDMA iPhones in September, but it was unclear when Apple might make the model available.
GE(GE) Faces Hurdles in the Oil Patch. General Electric Co. aims to double the revenue of its oil-services business to $15 billion in the next four years, but its ambitions for the growing unit face hurdles. GE, which has long prided itself on being No. 1 or No. 2 in its markets, is a middleweight in the oil patch. Industry leaders, such as Schlumberger Ltd.(SLB) and Baker Hughes Inc.(BHI), are rapidly consolidating, signing multibillion-dollar acquisition deals to gain scale and land large contracts. By contrast, GE executives, including Chief Executive Jeffrey Immelt, say they think GE Oil & Gas can grow from within by focusing on niche products and markets where its larger rivals aren't a factor. On its Web site, the unit says it provides equipment and services "across all segments of the global oil and gas industry." But what GE has assembled so far, through a series of small acquisitions over the past 15 years, is a loosely related collection of specialties in growth areas such as drilling equipment and compressors. Analysts are doubtful GE Oil & Gas can achieve enough heft without acquisitions to be a major player in the industry.
Moody's, S&P Win Dismissal of Investors' Fraud Suit. Moody’s Investors Service Inc., Standard & Poor’s and Fitch Ratings won dismissal of a negligence and fraud lawsuit by two California investors who lost money on highly rated bonds. U.S. Magistrate Judge Dale A. Drozd in Sacramento threw out the case in a ruling filed today, saying the investors’ complaint wasn’t specific enough about the alleged fraud. He said they could refile the lawsuit within 30 days if they can include more detail, such as misleading statements by the companies.
CNBC:
Half of Commercial Mortgages to Be Underwater. By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday. “They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."
CNN Fails to Stop Fall in Ratings. CNN continued what has become a precipitous decline in ratings for its prime-time programs in the first quarter of 2010, with its main hosts losing almost half their viewers in a year. The trend in news ratings for the first three months of this year is all up for one network, the Fox News Channel, which enjoyed its best quarter ever in ratings, and down for both MSNBC and CNN. CNN had a slightly worse quarter in the fourth quarter of 2009, but the last three months have included compelling news events, like the earthquake in Haiti and the battle over health care, and CNN, which emphasizes its hard news coverage, was apparently unable to benefit. The losses at CNN continued a pattern in place for much of the last year, as the network trailed its competitors in every prime-time hour. (CNN still easily beats MSNBC in the daytime hours, but those are less lucrative in advertising money, and both networks are far behind Fox News at all hours.) Fox News, which had its biggest year in 2009, continues to add viewers. Greta Van Susteren’s show was up 25 percent from a year earlier. Bill O’Reilly, whose show commands the biggest audience in prime time with 3.65 million viewers, was up 28 percent, and Glenn Beck was up 50 percent from a year earlier.
Companies Push to Repeal Provision of Health Law. An association representing 300 large corporations urged President Obama and Congress on Monday to repeal a provision of the health care overhaul that prompted AT&T, Caterpillar and other companies to announce substantial charges for the current quarter.The association, the American Benefits Council, said the provision — which reduces the tax deductions for companies with drug coverage for their retired employees — would deal a significant blow to corporate profits and would discourage companies from hiring more workers. AT&T announced last week that it was taking a $1 billion charge because of the provision. Deere & Company announced a $150 million charge, Caterpillar a $100 million charge, and 3M a $90 million charge. Many companies said they were taking these charges now, before the current quarter ended, to comply with accounting rules. James A. Klein, the president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.” In a telephone news conference on Monday, Mr. Klein cited a study by Towers Watson, a consulting firm, saying the loss of the deduction would cost companies $14 billion in future years. “Particularly in this economic environment, it makes no sense to impose this type of a hit on companies’ financial statements,” Mr. Klein said. The provision takes effect in 2013, but accounting rules require companies to take immediate charges equal to the current value of any known hit to future profits. About 6.3 million retirees — an estimated two-thirds of them from the private sector — are covered by employer drug plans. Mr. Klein cited a study by the Moran Company, a health care consulting group, estimating that as a result of the legislation, drug coverage would be altered for 1.5 million to 2 million retirees. Many companies, he said, will stop providing drug coverage to retirees and will instead push them into Medicare Part D, causing the government to pay for their coverage. Henry A. Waxman, a California Democrat who is chairman of the House Energy and Commerce Committee, criticized the charges by the companies, asserting that the health reform would save companies more money than it cost them. Mr. Waxman sent AT&T, Caterpillar and Deere a sharp letter, questioning the charges and saying he wanted top officials from those companies to testify at an April 21 hearing he has scheduled on the issue. Responding to such criticism, Mr. Klein said: “These announcements are required under accounting rules, and we should all expect more of such announcements in coming days and weeks. We’re very troubled that these announcements have been challenged by officials in Obama administration and Congress.” Gerry Shea, the A.F.L.-C.I.O.’s chief strategist on health care, stopped short of calling for a repeal of the provision. “We’re very concerned about the disruption that could be caused because of this, with people being pushed out of employer plans,” he said. “With all the changes we’re looking at because of the new health legislation, we feel you don’t need this.” Mr. Klein argued that the provision would undercut Mr. Obama’s job creation plans. “If companies are going to take a hit like this on their financial statements that will certainly hurt their ability to borrow in the marketplace and make the type of investments that will retain and create jobs,” he said.
State Debt Woes Grow Too Big to Camouflage. California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay. And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis.
Spurt of Home Buying as End of Tax Credit Looms. After several disastrous months for home sales across the country, when volume dropped by 23 percent, the pace appears to be picking up again.
US Hedge Fund to Build Wholesale LTE Network. US hedge fund Harbinger Capital Partners has announced plans to build a new nationwide LTE network using terrestrial spectrum owned by satellite networks. The New York-based firm filed its plans with US regulators on Friday after earlier being given approval to acquire SkyTerra, a leading North American satellite network operator. The new network will be an open access platform but current regulations restrict usage by large incumbent operators, which means the network could emerge as a serious competitor to LTE networks from the likes of AT&T and Verizon Wireless. “The company intends to be a wholesale only, data only network operator, providing a competitively-priced 4G option, including network, operations and spectrum,” Harbinger said in its filing.
LA Times:
California Lawmakers Are the Highest Paid in the Nation, Survey Finds. California state lawmakers remain the highest paid in the nation by far, according to a survey by a state panel that is considering a 10% reduction in their salary. Despite an 18% pay cut last year, the $95,291 salary of California lawmakers is still higher than the $79,650 paid to their counterparts in Michigan, the $79,500 that goes to legislators in New York and the $78,315 salary in Pennsylvania, according to the survey conducted by the California Citizens Compensation Commission.
Politico:
Q Poll: 4% Favor Tax Hikes to Slash Deficit. Quinnipiac is out with a new poll on voter preferences to attack the deficit and reports — surprise, surprise — that very few people want to have their taxes hiked. Four percent (!) favor income tax increases as the sole way of plugging the gap, estimated well north of $1 trillion this year. But 42 percent would tolerate some hikes if they were coupled with spending cuts; 49 percent favor spending cuts only. An overwhelming majority believe the middle class will get fleeced either way. The conventional wisdom on the deficit is that it's fodder for C-SPAN but a nonissue in November. The sheer magnitude of the debt now could alter that logic.
Barack Obama Struggles to Capitalize in Polls. Democrats who held out hopes that President Barack Obama’s health reform win would mean a quick boost to the party’s political fortunes are getting a reality check – a reminder that it takes more than one good week to shake up a year of sliding polls. Obama and his health reform plan did get a bump in several surveys immediately after the House vote eight days ago – but the numbers in some of those polls flattened out, showing how difficult it will be for Obama to capitalize on reform, even after his top legislative goal cleared Congress. “It helped a little bit, but I think it’s within the margin of error,” said Peter Brown of the Quinnipiac Poll, which recorded a slight drop in disapproval of Obama after the bill passed. “The Democrats said the American people will grow to love this. We’ll find out. At this point, they’re not exactly jumping up and down.” The most prominent political prognosticator who predicted a post-reform bump for Obama was President Bill Clinton – who told reporters last year that Obama would add 10 points to his approval rating “the minute health reform passed.” But Obama’s approval in the Gallup daily tracking poll stands at 48 percent – near his all-time low of 46 percent in the three-day rolling average.
USA Today:
Gov't to Give $600 Million in Housing Aid to 5 States. The Obama administration unveiled Monday $600 million in financial aid for five more states with high unemployment that have been slammed by the housing bust.The funding is for North Carolina, Ohio, Oregon, South Carolina and Rhode Island.
Reuters:
KKR, CVC Teamed Up for Interactive Data - Sources. Private equity firms Kohlberg Kravis Roberts & Co (KKR.AS) and CVC have teamed up to bid for Interactive Data Corp (IDC.N), adding to other private equity teams that have formed in recent weeks as an auction for the financial market data provider progresses, two sources familiar with the matter said.
Obama: Healthcare Will Need Adjustments to Cut Costs. President Barack Obama said on Monday that a U.S. healthcare overhaul is a "critical first step" but that adjustments will be needed in the new law to further reduce costs. Critics of the ten-year, $940 billion overhaul have complained the revamp does not go far enough in reducing healthcare costs. Obama, in an NBC News interview to air on Tuesday on the "Today" show, said adjustments will be needed to the law. "I think it is a critical first step in making a healthcare system that works for all Americans. It is not going to be the only thing. We are still going to have adjustments that have to be made to further reduce costs," he said.
Financial Times:
Business Chiefs Fear Impact of Debt Crisis. European business leaders are becoming worried that the debt problems of countries such as Greece and Portugal will weaken already sluggish growth, putting Europe further behind Asia and the US. Greece and Portugal are insignificant markets for most large European groups in terms of sales but, in a series of interviews with the Financial Times, some of Europe’s leading executives expressed worries about the broader economic impact. Bodo Uebber, chief financial officer of Daimler, the German carmaker, is one of the most pessimistic: “Is there a direct risk [to Daimler]? No . . . It is the European financial system that feels the impact. That is the biggest risk when you look at the revenues and profits of Daimler.” Perhaps the biggest worry centres on the consequences of most countries suffering from large budget deficits, with cuts in public spending looking inevitable across the continent. Larry Rosen, finance director of Deutsche Post, said: “One of the biggest problems is that in Europe there will be more austerity measures that will depress growth.” Rupert Stadler, chief executive of Audi, the German carmaker, agreed: “The budget figures show that many countries in Europe, and the US, are completely over-indebted. It is clear that this will have consequences for the economy.” He added: “The potential for economic setbacks is still existing. We can see what is happening in Greece and we don’t know what this will mean for the future of the euro.”
21 Century Business Herald:
China's finance ministry may require banks to set aside more of their risk-weighted assets as reserves. The Ministry of Finance is soliciting banks' feedback on raising the general reserve requirement to 1.5% of their new risk-weighted assets, up from the current 1%, the report said.
The Industrial & Commercial Bank Ltd. and China Construction Bank Co. reduced their discounts on mortgage rates, forcing borrowers to pay more in down payments for their home loans.
Evening Recommendations Citigroup:
Reiterated Buy on (AVT), target $37.
Reiterated Buy on (CELG), raised target to $72.
Rated (BF/B) Buy, target $67.
Night Trading
Asian indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 96.0 unch.
The S&P/CaseShiller Home Price Index for January is estimated to fall to 145.0 versus a reading of 145.9 in December.
10:00 AM EST
Consumer Confidence for March is estimated to rise to 51.0 versus a reading of 446.0 in February.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Evans speaking, Fed's Fisher speaking, (AMAT) analyst day, (F) analyst meeting, (GRS) analyst day, ABC Consumer Confidence reading, weekly retail sales reports and the weekly API energy inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 86.05 bps -.56%
European Financial Sector CDS Index 73.46 bps +.74%
Western Europe Sovereign Debt CDS Index 74.34 bps -1.01%
Emerging Market CDS Index 233.67 bps +.01%
2-Year Swap Spread 16.0 bps +2.0 bps
TED Spread 17.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .12% -1 bp
Yield Curve 283.0 bps +4 bps
China Import Iron Ore Spot $151.50/Metric Tonne +.26%
Citi US Economic Surprise Index +34.50 -1.8 points
10-Year TIPS Spread 2.23% -1 bp
Overseas Futures:
Nikkei Futures: Indicating +99 open in Japan
DAX Futures: Indicating +5 open in Germany
Portfolio:
Slightly Higher: On gains in my Biotech, Medical and Tech long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as stocks stabilize modestly higher after mid-day selling. On the positive side, Construction, Steel, Gold, Oil Service, Energy and Coal stocks are especially strong, rising +1.5%+. Despite a jump in commodity prices on dollar weakness, the 10-year TIPS spread is slightly lower and the 10-year yield is stable. On the negative side, Homebuilding, Restaurant, Bank, Computer Service and Software shares are lower on the day. Gauges of investor angst are relatively muted again. (XLF) is mildly underperforming. The Greece sovereign debt cds is surging +8.81% today, despite a bounce in the euro. Moreover, the Japan sovereign debt cds is up another +3.6% today and has risen +17.38% over the last 5 days. Given the recent surge in government hiring related to the census and trading holiday on Friday, I suspect the ADP Employment report, released on Wed., will take on added significance. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, tax hike fears, technical selling, rising energy prices and China bubble/trade concerns.
