BETWEEN THE HEDGES

Tuesday, October 19, 2010

Tuesday Watch

Posted by Gary .....at 12:39 AM

Evening Headlines
Bloomberg:

Mortgage Securities Show U.S. Foreclosure Crisis Overblown: Credit Markets. The mortgage-bond market shows investors shrugging off speculation that the U.S. is in the throes of a foreclosure-document crisis. Typical prices for bonds tied to home loans on which borrowers often failed to document their incomes or didn’t plan to live in their properties ended last week up 1 cent from a month earlier at 64 cents on the dollar, according to Barclays Capital. The most-senior securities backed by so-called Alt-A mortgages with a few years of fixed rates, which were unchanged last week, have climbed 31 cents from a record low last March. Federal officials including Treasury Secretary Timothy Geithner say delays in foreclosures, as attorneys general in 50 states investigate allegations of falsified documents, won’t lead to a moratorium on property seizures. Lenders eventually will be able to take back houses in almost all cases because homeowners have missed payments and the records aren’t that seriously flawed, according to TCW Group Inc.’s Bryan Whalen. “Maybe it’s going to take a few extra months to shore up the paperwork, but let’s not take our eyes off the reality of the situation,” said Whalen, co-head of the mortgage-backed bond group at Los Angeles-based TCW, which oversees $115 billion in assets. “These aren’t people, by and large, who deserve to be in their homes.”
World Bank Cuts East Asia Growth Outlook, Sees Seeds of Asset Price Bubble. The World Bank lowered its outlook for growth next year in China and across East Asia, urging officials in the region to curb inflation and ward off asset bubbles to avoid a repeat of the Asian financial crisis. “Larger inflows combined with ample domestic liquidity and rising confidence have boosted stock markets, real-estate prices and other asset valuations in some countries, precipitating fears of a new bubble,” the report said. “Authorities in East Asia need to take adequate precautions to ensure that they do not repeat the same mistake twice in slightly over a decade.” Across East Asia, expansions will slow “as spare capacity becomes scarce, fiscal and monetary measures are gradually unwound and economic growth in the advanced economies remains relatively flat,” the report said. “Governments will now need to rethink the most appropriate mix of fiscal and monetary policies to curb inflation while supporting the recovery in growth.” While the outlook for the global economy has “brightened” in the past six months, “risks are mostly on the downside this year for growth in advanced economies, especially in the United States,” the bank’s report said. The World Bank said government finances in the euro area remain a concern, and the U.S. economy is still stricken with elevated unemployment, a weak housing market and slow progress restoring the banking industry to full health. “While the probability of a double-dip recession in advanced countries has receded, there remains a high probability that their growth rates will continue to be muted for a few years to come,” the report said. “This presents a difficult medium-term global environment for East Asia.”
Four New York Men Convicted in Plot to Bomb Synagogues. Four men who plotted to bomb New York City synagogues and fire heat-seeking missiles at military planes were convicted by a federal court jury in Manhattan. The defendants, James Cromitie, 44, David Williams, 29, Onta Williams, 34, and Laguerre Payen, 29, face as long as life in prison when they are sentenced on the charges, which include conspiracy to use weapons of mass destruction within the U.S. and conspiracy to kill U.S. employees.
Geithner Says China Currency Policy 'Unfair' to Trade Partners. Treasury Secretary Timothy F. Geithner said China’s exchange-rate policy is unfair to trading partners and the yuan is more undervalued than other emerging market currencies. “It’s significantly undervalued, more so than is true of any major significant emerging-market currency,” Geithner said today in a panel discussion in Palo Alto, California. “It’s unfair to all of China’s trading partners, Americans and others, because it just creates a playing field that’s unbalanced” and gives Chinese companies a “huge” short-term advantage, Geithner said.
Spain's Solar Deals on Edge of Bankruptcy as Subsides Founder. Vilimelis and more than 50,000 other Spanish solar entrepreneurs face financial disaster as the policy makers contemplate cutting the price guarantees that attracted their investment in the first place. “You feel cheated,” he says. “We put our money in on the basis of a law.”
Brazil Steps Up Action in 'Currency War,' Pleads for Ceasefire. Brazil stepped up efforts to curb gains in the real by raising inflow taxes and said it may be forced to take additional measures as Finance Minister Guido Mantega called for an end to the worldwide “currency war.” “This currency war needs to be deactivated,” Mantega told reporters. “We have to reach some kind of currency agreement.”
NYSE Breaks Trades of S&P 500 ETF at 9.6% Below Opening Price. A software update at NYSE Euronext’s Arca platform triggered what appeared to be a 9.6 percent plunge in an exchange-traded fund that tracks the Standard & Poor’s 500 Index, a drop that would have erased $7.9 billion from one of the most popular securities in the U.S. Data published by the electronic venue at 4:15 p.m. New York time showed the SPDR S&P 500 ETF Trust at $106.46 compared with its opening price of $117.74. The apparent plunge in price involved 7.2 million shares in the closing auction on NYSE Arca, according to data compiled by Bloomberg at 4:30 p.m. The S&P 500 rose 0.7 percent to close at 1,184.71 today. The glitch in the exchange-traded fund, which has a market value of $83.3 billion, comes as federal regulators are trying to restore confidence to equity markets following the May 6 crash that erased $862 billion of share value in 20 minutes. Data showing the decline appeared just as Apple Inc. and International Business Machines Corp. were releasing quarterly profit statements. “It was a mess and it was alarming that it could happen,” said Andrew Ross, a partner and global equity trader for First New York Securities LLC, who trades ETFs. “People were very focused on after-market trading because of IBM and Apple earnings so it was very confusing when the price discrepancy happened. But people quickly recognized it was a bad print.”

Wall Street Journal:

Banks Restart Foreclosures. BofA and GMAC Lift Their Freeze in a Counterattack Against Allegations of Fraud. Bank of America Corp. reopened more than 100,000 foreclosure actions, declaring that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer, said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure. Monday's moves are part of a growing counterattack by lenders scrambling to stem a financial and political threat over allegations that certain employees signed hundreds of documents a day without carefully reviewing their contents when foreclosing on homes.
Massey's(MEE) Directors Mull Sale, Options. Massey Energy Co.,the nation's sixth-largest coal miner, is exploring strategic alternatives, including a possible sale, according to people familiar with the matter. Massey's board of directors last week formed a committee to assess the future of the Richmond, Va., company, said one person familiar with the situation. By mid-November, it could "be in detailed due diligence with one of the multiple options," that person predicted.
Long-Term Care Premiums Soar. People with long-term-care insurance polices are getting hit with a new round of steep premium increases.
How the Fed is Holding Back Recovery by David Malpass. By promising to print more money, it's giving Congress an excuse to avoid critical tax and spending cuts. Congress will face a runaway train on taxes and spending when it reconvenes after the elections. The solution is to restrain both—especially to stop the $6 trillion tax increase scheduled to take place on Jan. 1—in order to restore business confidence and help job growth. Instead, Congress is more likely to do nothing and count on the central bank to flood the economy with more money.
Washington State's Union Tax. Bill Gates Sr. supports a state income tax on wealthy Washingtonians, but public unions are the real muscle behind the initiative.

CNBC:

Apple(AAPL) Profit Beats Forecasts, But iPad Sales Light. Apple surpassed quarterly earnings expectations again with the help of strong sales of its iPhone, but iPad sales and margins disappointed, and its shares sank. The company said it earned $4.31 billion, or $4.64 a share, in its fiscal fourth quarter, against $1.82 a share last year. Revenue for the quarter was reported at $20.34 billion, versus $9.87 billion last year. Equity analysts who follow Apple expected the company to turn in a profit of $4.08 a share on sales of $18.90 billion, according to Thomson Reuters. Apple shares dropped 7 percent in late trading after initially being halted. Sales of Apple's popular iPhone jumped 91 percent to 14.1 million units in the quarter. The company sold 3.89 million Macs, an increase of 27 percent. Apple sold 9.05 million iPods, marking a decline of 11 percent year over year. The company sold 4.19 million iPads in the quarter. "Iphones continue to steal the show. Well over a million units of upside relative to whisper," said Gleacher & Co. analyst Brian Marshall. "Ipad, a little bit disappointing there. Street was expecting closer to 5 million units," he said. "The problem is supply, they can't make enough of them. iPad will shine in the December quarter. I believe it will be the holiday gift of choice." Gross margins in the fiscal fourth quarter came to 36.9 percent, a tad below Wall Street's average forecast of 38.2 percent. "It's an incredible phenomenon—not only did they beat our heightened expectations but they've blown past forecasts, and it's primarily driven by the iPhone," said BGC's Colin Gillis.
IBM(IBM) Profit Grows, Tops Wall Street Expectations. IBM reported a higher-than-expected profit and raised its outlook for the full year, helped by sales of new hardware products, but its shares retreated on sluggish sales of technology services. The technology giant said it earned $2.82 a share in the third quarter, against $2.40 a share in the same period last year. Revenue for the quarter was reported at $24.27 billion, versus $23.56 billion last year. Equity analysts who follow IBM expected the company to turn in a profit of $2.75 a share on sales of $24.13 billion, according to Thomson Reuters. The company said it expects earnings of "at least $11.40 per share" for the full year, up from its previous forecast of "at least $11.25." Shares of IBM fell more than 3 percent in extended trading Monday.

Business Insider:

Steve Jobs Steals The Show On Apple's(AAPL) Earnings Call. Apple crushed revenue and earnings estimates, as expected, and the company's guidance looks strong for its holiday quarter. But the iPad business posted a huge miss: 4.19 million shipments versus the Street's consensus at 4.7 million and many estimates above 5 million. On the earnings call, Apple hinted that this was at least in part a supply issue, noting that supply and demand weren't balanced until September, the last month of the quarter.
Violent French Protests Show Why A New Debt Crisis is Inevitable.
Chris Christie Made the Right Call Halting New Jersey's Incredibly Expensive New Tunnel.

New York Post:

Killing Marcus Welby. How ObamaCare Stifles Private Practices. If ObamaCare really called for the creation of "death panels," the first victim of these in vented tribunals would have been Marcus Welby MD, the character in the hit 1960s television show that followed the daily dramas of a small-town family doctor. The health legislation doesn't call on government tribunals to euthanize seniors, as some fanciful critics claim, but the bill does kill off private-practice medicine. ObamaCare envisions that doctors will fold their private offices to become salaried hospital employees, making it easier for the federal government to regulate them and centrally manage the costly medical services they prescribe. To get this control, ObamaCare creates "Accountable Care Organizations," which are basically hospitals coupled with local doctor networks that the hospital owns.

NY Times:

A Hedge Fund Soared, Controlled by Women, or So It Claimed. Jane Buchan is a rarity in the big-money boys’ club of hedge funds. Amid the testosterone-fueled trading floors of Wall Street, Ms. Buchan has not only built a hugely successful hedge fund investment firm but also one that is, on paper, owned and run by women. But questions have surfaced about whether her firm, Pacific Alternative Asset Management Company, is now — or ever was — controlled by women at all.

CNNMoney.com:

Sources: U.S. Finalizing Aid Package to Help Pakistan Fight Extremists. The United States is putting the final touches on a security assistance package totaling as much as $2 billion to help Pakistan fight extremists on its border with Afghanistan, senior U.S. officials and diplomatic sources tell CNN.
Credit Still Tight on Main Street - New York Fed Report. Small businesses are not getting access to the credit they need, and as a result, they are struggling to generate the jobs needed to lead the nation toward recovery. "Small firms employ nearly half of all Americans, account for about 60 percent of gross job creation, and historically have created more jobs than larger firms at the start of economic recoveries," according to a report from the Federal Reserve Bank of New York released Monday. "Yet recent contractions in business borrowing may be limiting the capacity of small businesses to play this critical role." More than three-quarters of small businesses that applied for a loan during the first half of 2010 received only "some" or "none" of the credit they desired, the report finds. Of the 426 small business owners polled by the New York central bank between June and July of 2010, 59% applied for credit during the period. This suggests that there is still demand for credit among Main Street businesses -- despite many banks' claims that lending to small businesses is down because they haven't been asking for loans. $40 billion in lending disappears: Since the start of the recession, loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to bank financial reports submitted to the government.

Rasmussen Reports:

Voters Trust Republicans More on 8 of 10 Key Issues. With two weeks to go until Election Day, voters trust Republicans more than Democrats on eight out of 10 important issues regularly tracked by Rasmussen Reports including the economy and health care.

Reuters:

VMware(VMW) Cash Flow Disappoints; Shares Fall. VMware Inc's sluggish software sales growth and disappointing quarterly cash flow pummeled shares, casting a shadow on one of the technology sector's most richly valued stocks.
Institutional Investors Step Into US Weekly Options. Short-term options known as Weeklys on Monday accounted for an usually large amount of daily option volume in several stocks and exchange-traded funds during the busiest week of the earnings reporting season. The product is quickly gaining favor among institutional investors who populated many equity positions in the options expiring on Oct. 22, according to figures from Web information site optionMonster.
CFTC - SEC 'Flash Crash' Study Draws Another Skeptic. A single trader alone could not have caused the "flash crash," a report by Instinet said on Monday, adding its voice to those casting doubt on a landmark regulator report that sought to explain the May market plunge. Instinet, a brokerage and alternative trading venue operator owned by Nomura Holdings Inc, said the big sell order "could not be the singular cause" of the crash."However, the interconnection among markets, the order and the method with which it was executed likely served as a catalyst for the reduction in liquidity and the 'erroneous' stock trades experienced seconds later," it said."Based on our research, we do not find pinning the only cause of the 'flash crash' to a single order satisfying."

Financial Times:

Companies in Appeal for US Tax Amnesty. US multinational companies are clamouring for a tax holiday to repatriate billions of dollars “trapped” overseas but are being rebuffed by Barack Obama’s administration. JPMorgan research estimates that 30-40 per cent of the almost $1,000bn in cash held by non-financial S&P 500 companies is in foreign jurisdictions. The treatment of “cash on the sidelines” is becoming an increasingly pointed political and economic issue in the sluggish recovery, with Republicans blaming uncertainty created by Democratic healthcare and financial reforms for companies’ reluctance to invest and create jobs. JPMorgan estimated that for some companies, so-called trapped cash amounts to more than 75 per cent of cash balances. To use the cash domestically, they would have to pay tax, typically of 25-35 per cent. “We do have overseas cash and we would be very supportive of a repatriation holiday,” said Keith Sherin, chief financial officer of General Electric. “If you think about it, there is a lot of cash trapped overseas. If companies could bring that back at more competitive tax rates, I think it would be good for the US economy.”
Geithner Denies US Bid to Weaken Dollar. Finance ministers have tried to calm tensions in foreign exchange markets, with the US Treasury secretary denying that Washington is deliberately weakening the dollar and Brazil increasing blocks on inflows of capital. The interventions come amid concerns among policymakers that disputes over exchange rate policy could escalate into a full-blown currency war.

China Daily:

China to Reduce Rare Earth Export Quotas. China will further reduce quotas for rare earth exports by 30 percent at most next year to protect the precious metals from over-exploitation, said an official from the Ministry of Commerce. He added that the country is now facing the possibility that reserves of medium and heavy rare earths might run dry within 15 to 20 years if the current rate of production is maintained. Export quotas will continue to be axed in the first half of next year, said the source who declined to be named.
China should "tolerate" slower economic growth as the country needs to adjust the structure of its economy after 30 years of high growth, Zhu Baoliang, chief economist for the State Information Center, wrote. China's economy may slow next year and in the second half of this year, Zhu wrote.

Shanghai Securities:

China aims to reduce energy use per unit of gross domestic product by 17.3% from 2011 to 2015 and by 16.6% from 2016 to 2020, citing Huang Li, an official at the National Energy Administration.

Evening Recommendations
Citigroup:

Reiterated Buy on (NKE), target $91.

CSFB:

Rated (H) Outperform, target $50.
Rated (HOT) Outperform, target $67.
Rated (IGT) Outperform, target $19.
Rated (MAR) Outperform, target $47.
Rated (BYD) Outperform, target $11.
Rated (BYI) Outperform, target $45.
Rated (WMS) Outperform, target $52.
Rated (PENN) Outperform, target $42.
Rated (MHGC) Outperform, target $10.

Barclays:

Rated (VECO) Overweight, target $50.

Night Trading

Asian equity indices are -.25% to +.50% on average.
Asia Ex-Japan Investment Grade CDS Index 105.5 +.5 basis point.
Asia Pacific Sovereign CDS Index 99.0 +3.25 basis points.
S&P 500 futures -.54%.
NASDAQ 100 futures -1.37%.

Morning Preview Links

Earnings of Note
Company/Estimate

(HOG)/.36
(UNH)/.85
(JNJ)/1.15
(OXY)/1.36
(FRX)/.93
(AEP)/1.04
(PH)/1.06
(BTU)/.91
(LMT)/1.54
(STT)/.83
(EMC)/.30
(KO)/.89
(OMC)/.58
(BK)/.54
(BAC)/.14
(ITW)/.82
(GS)/2.25
(SYK)/.77
(CREE)/.58
(GILD)/.87
(ALTR)/.65
(YHOO)/.15
(JNPR)/.32
(WDC)/.81
(BSX)/.06
(ISRG)/2.10
(DPZ)/.25

Economic Releases
8:30 am EST

Housing Starts for September are estimated to fall to 580K versus 598K in August.
Building Permits for September are estimated to rise to 575K versus 569K in August.

Upcoming Splits

None of note

Other Potential Market Movers

The Fed's Bernanke speaking, Fed's Duke speaking, Fed's Kocherlakota speaking, Fed's Fisher speaking, Fed's Lockhart speaking, Fed's Dudley speaking, Fed's Evans speaking, weekly retail sales reports and the weekly ABC Consumer Confidence reading could also impact trading today.

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

Monday, October 18, 2010

Stocks Jumping into Final Hour on Less Financial Sector Pessimism, Buyout Speculation, Rising QE2 Expectations, Tax Policy/Election Optimism

Posted by Gary .....at 3:43 PM

Broad Market Tone:

Advance/Decline Line: Higher
Sector Performance: Most Sectors Rising
Volume: Below Average
Market Leading Stocks: Performing In Line

Equity Investor Angst:

VIX 19.31 +1.47%
ISE Sentiment Index 133.0 -22.22%
Total Put/Call .79 +11.27%
NYSE Arms .71 -40.15%

Credit Investor Angst:

North American Investment Grade CDS Index 98.99 bps +.55%
European Financial Sector CDS Index 98.08.0 bps -1.73%
Western Europe Sovereign Debt CDS Index 137.17 bps -1.20%
Emerging Market CDS Index 204.25 bps +1.61%
2-Year Swap Spread 19.0 +1bp
TED Spread 15.0 unch.

Economic Gauges:

3-Month T-Bill Yield .13% unch.
Yield Curve 213.0 -7 bps
China Import Iron Ore Spot $152.20/Metric Tonne -.33%
Citi US Economic Surprise Index -5.80 -2.5 points
10-Year TIPS Spread 2.08% -6 bps

Overseas Futures:

Nikkei Futures: Indicating +72 open in Japan
DAX Futures: Indicating +22 open in Germany

Portfolio:

Higher: On gains in my Medical, Tech and Biotech long positions
Disclosed Trades: None
Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite recent sharp equity gains, some weakness in Asia overnight and weaker US industrial production data. On the positive side, Education, REIT, Insurance, Hospital, Medical Equipment, Bank, I-Banking, Telecom, Computer Service, Energy, Oil Tanker and Utility shares are especially strong, rising 1.0%+. (XLF)/(IYR) have traded well throughout the day. Copper is rising +.69% and lumber is rising +.9% despite early euro weakness. The Portugal sovereign cds is falling another -3.91% to 344.47 bps, the Ireland sovereign cds is falling -2.34% to 394.57 bps, the UK sovereign cds is declining -2.38% to 54.17 bps and the US sovereign cds is plunging -8.17% to 36.47 bps. On the negative side, Contruction, Ag and Oil Service shares are under mild pressure, falling more than .5%. The 10-Year Yield is falling -7 basis points to 2.49%, despite today's equity strength and better housing data. The China sovereign cds is rising +11.4% to 62.78 bps. The broad market continues to trade very well as it continues to ignore most negatives and reward most positives. One of my longs, (AAPL), reports after the close today. I expect a very good report, once again. However, with the stock extended, combined with the company's typically conservative forward guidance, an initial kneejerk decline in the shares is possible. I would use any meaningful pullback in the stock from current levels as another buying opportunity. I still see significant upside over the intermediate/long-term on strong growth and multiple expansion. The stock still trades at a very reasonable 21.7x conservative forward estimates. In my opinion, AAPL deserves a forward multiple of 25-30 given its execution, product line-up and global prospects. I expect US stocks to trade modestly higher into the close from current levels on falling sovereign debt angst, diminishing financial sector pessimism, buyout speculation, rising QE2 expectations, short-covering, investment manager performance angst and tax policy/election optimism.

Today's Headlines

Posted by Gary .....at 2:07 PM

Bloomberg:

U.S. Homebuilder Confidence Rose to Four-Month High. Confidence among U.S. homebuilders rose in October to the highest level in four months, a sign residential construction is stabilizing at depressed levels. The National Association of Home Builders/Wells Fargo confidence index increased to 16, exceeding the most optimistic forecast in a Bloomberg News survey, from 13 the prior month, data from the Washington-based group showed today. The gauge was projected to rise to 14, according to the median estimate in the Bloomberg survey. The builders group’s index of current single-family home sales increased in October to 16 from 13, and the measure of sales expectations for the next six months rose to 23 from 18. The gauge of buyer traffic increased to 11 from 9. The measure of builder confidence rose in all four U.S. regions.
Fisher Says Fed Stimulus May Undercut Demand for Riskier Assets. Billionaire investor Kenneth Fisher said monetary stimulus from the Federal Reserve is unnecessary and could cause the dollar to weaken and reduce demand for riskier assets such as U.S. stocks. “There’s no reason for the United States to be doing quantitative easing,” said Fisher, who oversees more than $38 billion at Woodside, California-based Fisher Investments Inc. “It increases risk aversion for U.S. stocks. It’s got a slight tendency to want to motivate you to underweight U.S. stocks.” Policy makers should show more confidence that the recovery that began last year will eventually create jobs, and avoid sending signals that may derail it, Fisher said.
Euribor at ECB Benchmark Rate of 1% Signals Banks are Returning to Health. Euro-region interbank borrowing costs rose to the same level as the European Central Bank’s main interest rate for the first time in 15 months, signaling greater willingness by financial institutions to lend to one another. The euro interbank offered rate, or Euribor, for three- month loans increased almost one basis point to 1 percent, the highest level since July 10, 2009, data from the European Banking Federation showed today. The rate has risen from a low of 0.634 percent on March 31 as bank stress tests published on July 23 showed just 7 of 91 institutions in the region needed to raise more capital to withstand a new sovereign-debt crisis. The increase in Euribor suggests more lenders are weaning themselves off ECB liquidity programs that were started to fight the global recession and then extended as the Greek debt crisis fueled concern some nations in the region could default.
AMR(AMR), Delta(DAL) May Push U.S. Airlines to Biggest Profit Since 2007. Delta Air Lines Inc. and American Airlines parent AMR Corp. may help U.S. carriers report their biggest profit in three years this week, buoyed by higher fares and fuller planes. That would give the industry two consecutive profitable quarters for the first time since 2007, before the record-high jet fuel prices of 2008 and the recession.
Russia Risks Mass Unrest Under Current Regime, Gorbachev Says. Russia’s leadership should start listening to the people or risk mass protests and disorder, said Mikhail Gorbachev, the last leader of the Soviet Union. “The most dangerous thing is if the tension building up in society suddenly bursts onto the street with such a force that we’ll all be in trouble,” Gorbachev, 79, said in an interview with Moscow-based Snob magazine. “Without modernization of democratic institutions there can’t be any progress.”
St. Jude Medical(STJ) Agrees to Buy Devicemaker AGA Medical(AGAM) for $1.3 Billion. St. Jude Medical Inc. agreed to buy AGA Medical Holdings Inc. for about $1.08 billion to expand in heart devices. St. Jude will pay $20.80 a share in cash and stock, and also assume $225 million of Plymouth, Minnesota-based AGA Medical’s debt, according to a statement today. The price represents a premium of 41 percent over the Oct. 15 closing value of $14.71.
Quicksilver(KWK) Rises After Saying Darden Family, SPO Partners Consider Buyout. Quicksilver Resources Inc. said it was contacted by shareholders who are considering taking the natural-gas explorer private. Quicksilver Resources climbed $2.13, or 16.9 percent, to $14.74 at 10:47 a.m. in New York Stock Exchange composite trading.
U.S. Judge Pledges Constitutional Ruling on Obama Health-Care by Year-End. A federal judge in Virginia said he’ll rule by yearend whether President Barack Obama’s health care overhaul is constitutional, adding that his decision will be a “brief stop” in the case on its way to the Supreme Court.
Hasbro(HAS) Profit Rises on Sales of Preschool Products.

CNBC:

Fed's Lockhart Says Inclined to Ease Policy Further. The U.S. economy is weak enough to warrant further monetary easing by the Federal Reserve, though such a policy carries risks and should not be taken lightly, Atlanta Fed President Dennis Lockhart said on Monday.
JPMorgan(JPM): Foreclosure Process Can Be Fixed. Foreclosure-process errors that lead to putbacks of questionable home loans could cost the banking industry up to $120 billion, according to a note J.P. Morgan sent to clients late Friday.

Business Insider:

Zero Hedge:

Bearish VIX Bets Surge to 2010 Highs. (graph)

MarketWatch.com:

Industrial Production Dips in September. Industrial production slipped in September, the first drop after six months of gains, according to data released by the Federal Reserve on Monday. Production slipped 0.2% compared to August, though it was up 5.4% from the September 2009. Economists polled by MarketWatch had expected a 0.2% increase. “U.S. manufacturing output contracted by 0.2% in September, illustrating that the previously robust recovery in the factory sector is definitely behind us now and this could even be the start of a renewed downturn,” said Paul Ashworth, senior U.S. economist at Capital Economics.
Citi(C) Results Halt Bleeding in Financial Shares. Concerns about the foreclosure fraud investigation took a back seat Monday, as bank stocks reversed some of their recent losses after Citigroup Inc.’s quarterly profit beat forecasts. The SPDR KBW Bank exchange-traded fund rose more than 2% Monday.

New York Times:

YouTube Gains in Europe as It Agrees to Music Copyrights.

CNNMoney:

NATO Official: Bin Laden, Deputy Hiding in Northwest Pakistan.

Washington Post:

New Post Poll Finds Negativity Toward Federal Workers. More than half of Americans say they think that federal workers are overpaid for the work they do, and more than a third think they are less qualified than those working in the private sector, according to a Washington Post poll. Half also say the men and women who keep the government running do not work as hard as employees at private companies. The critical views of federal workers - just one in seven of whom works in the D.C. area - echo the anti-Washington sentiment roiling the midterm elections, as some Americans lose confidence in their government to solve the country's problems.
U.S. Says Chinese Businesses and Banks are Bypassing U.N. Sanctions Against Iran. The Obama administration has concluded that Chinese firms are helping Iran to improve its missile technology and develop nuclear weapons, and has asked China to stop such activity, a senior U.S. official said.

AOL News:

Just How Lousy is the Economic Recovery? (graphs)

Politico:

Poll: Support for Health Reform Drops. According to the Kaiser Family Foundation October Tracking Poll out Monday morning, overall support for the law has dropped to 42 percent – down seven points in a month. The percentage of those saying they have an unfavorable view of the bill rose four points to 44 percent.

Rasmussen Reports:

51% Expect Health Care Plan to Increase Deficit. Nineteen percent (19%) say the plan will reduce the deficit.

Reuters:

Defiant Marseille, Heart of France's Social Unrest. Garbage piled in the streets, oil tankers idling off the coast, lines of anxious drivers at petrol stations: the port of Marseille is making a name for itself as the capital of France's social unrest. As strikes against pension reform sweep France, the country's second city and biggest port has claimed centre stage with its three-week-old dockworker strike depleting fuel depots just as refinery workers joined nationwide strikes over pensions.

Naftemporiki:

The European Union's statistical service, Eurostat, will revise Greece's budget deficit for last year to 15.5% of GDP. The deficit figures for 2006 to 2009 will increase following the inclusion of losses at state-controlled companies, the value of currency swaps linked to government bonds in 2001 and to account for lower-than-reported surpluses at certain state-run insurance funds.

Folha de S. Paulo:

Petroleo Brasileiro SA(PBR) CEO Jose Sergio Gabrielli expects a victory of presidential runner-up Jose Serra could lead to the sale of government assets in the state-run oil producer.

Shanghai Daily:

Apple(AAPL) to Increase iPad Sales Outlets. APPLE Inc has signed an agreement with three Chinese distributors to provide more sites to sell the iPad, the world's most popular tablet personal computer, industry officials said yesterday. Up until now, iPads were sold only in a limited number of Apple-operated retail stores and authorized resellers in the largest cities. These retailers couldn't meet the huge demand for the 9.7-inch slate computer. The agreement is expected to help Apple, which now has only four retail stores in Beijing and Shanghai, to penetrate wider into smaller population centers in China. The three distributors are ECS Technology, Changhong IT and Highly Information Industry Co, a subsidiary of home-appliance giant TCL Corp, industry sources told Shanghai Daily yesterday.

Bear Radar

Posted by Gary .....at 1:54 PM

Style Underperformer:

Mid-Cap Growth (-.17%)

Sector Underperformers:

1) Semis -.95% 2) Oil Service -.95% 3) Construction -.91%

Stocks Falling on Unusual Volume:

CBD, HAL, PHG, EXXI, MICC, FFIV, FLR, MMR, NVO and AXR

Stocks With Unusual Put Option Activity:

1) ABK 2) HAL 3) XLU 4) MCP 5) INFN

Stocks With Most Negative News Mentions:

1) C 2) MAT 3) STU 4) TRB 5) EXPD

Bull Radar

Posted by Gary .....at 11:13 AM

Style Outperformer:

Large-Cap Value (+.60%)

Sector Outperformers:

1) Banks +1.81% 2) I-Banks +1.30% 3) Hospitals +.74%

Stocks Rising on Unusual Volume:

CME, MKTX, GNW, BK, CS, DB, BP, CSIQ, MLNX, SWY, RIG, TDW, AGAM, JST, SIGA, TSTC, GOOG, MOTR, MLNX, SMT, BIDU, SSRI, WXCO, FSLR, TRGL, SVVS, CELG, KWK, AGN, FUN, TOD and KCE

Stocks With Unusual Call Option Activity:

1) ODP 2) HAL 3) WHR 4) LNC 5) ISLN

Stocks With Most Positive News Mentions:

1) AAPL 2) HAS 3) RIMM 4) GOOG 5) BA

Monday Watch

Posted by Gary .....at 12:14 AM

Weekend Headlines
Bloomberg:

Yields on 30-Year Treasuries Rise Most in 14 Months on Inflation Prospects. Treasury 30-year bonds tumbled, pushing yields to the biggest weekly increase since August 2009, on speculation that Federal Reserve efforts to spur the economy will reignite inflation.
ECB's Trichet Rejects Weber's Call to End Bond Purchase Program. European Central Bank President Jean-Claude Trichet rejected Bundesbank President Axel Weber’s call to end the bond purchase program that has provided a lifeline for European governments and banks trying to shore up their finances. “This is not the position of the Governing Council, with an overwhelming majority,” Trichet said when asked to respond to Weber’s Oct. 13 call for an end to the program, according to the a transcript of an interview published yesterday in Italian newspaper La Stampa. “Trichet is sending a clear signal to Weber,” said Carsten Brzeski, an economist at ING Group NV in Brussels. “The majority seems to favor a safety belt option for the moment and isn’t comfortable with sending conflicting signals to the markets.”
Gold Declines for Second Day as Dollar's Increase Curbs Investment Demand. Gold declined for a second day, after reaching a record last week, as a strengthening dollar eased demand for the metal as an alternative investment. Bullion for immediate delivery dropped 0.6 percent to $1,360.75 an ounce at 12:02 p.m. Melbourne time.
BHP(BHP), Rio(RIO) Drop Iron Ore Venture as Regulators Oppose. BHP Billiton Ltd. and Rio Tinto Group abandoned a plan to create the world’s largest iron-ore exporter after opposition from regulators in Europe and Asia. “It has become increasingly apparent that regulatory approvals of the joint venture are unlikely to be achieved,” Melbourne-based BHP said today in a statement.
Rare Earths Deposits in China Forecast to Last 15-20 Years, Ministry Says. China’s medium and heavy rare earths reserves may last 15 years to 20 years at the current rate of production, possibly requiring imports, the Ministry of Commerce said today. Domestic rare earths deposits dropped to 27 million metric tons by the end of 2009, or just 30 percent of the world’s total known reserves, from 43 million tons, or 43 percent of the world total, in 1996, Chao Ning, section chief of foreign trade at the ministry said at a Beijing conference.
Guangzhou Limits New Home Purchases to One Unit a Household, Bureau Says. China’s southern city of Guangzhou limited new home purchases to one unit for each household, joining eight cities that have issued buying rules in an effort to curb property speculation in the country. The city also banned home purchases from non-Guangzhou residents who haven’t lived in the city for a full year, the Guangzhou Land Resources and House Management Bureau said in a statement posted on its website yesterday. “The government will firmly curb unreasonable home purchases demand and strictly limit speculation in property market,” the bureau said, adding that the new measures are aimed at “restraining the over-rapid growth of property prices.” The cities of Beijing, Shanghai, Shenzhen, Hangzhou, Nanjing, Ningbo, Fuzhou and Xiamen have already issued rules limiting the number of new homes that households can buy. China’s government has called for restrictions on the number of new home purchases by a household in cities with high property prices and tight supply. The central government will talk to local governments who fail to stabilize prices, according to a report from the Ministry of Land and Resources’ newspaper posted on the ministry’s website. China’s Ministry of Housing and Urban-Rural Development also warned home buyers against economic and legal risks if they purchase more new homes allowed under local government limits. Newly bought homes that exceed the limits won’t receive government registration, it said in a statement on its website yesterday. China Securities Regulatory Commission said yesterday it will suspend property developers’ restructuring plans in a move to support the State Council’s decision in April to curb rising residential prices.
French Refineries Shut for Fifth Day Amid Protests on Pension-Age Increase. France’s 12 oil refineries remained shut as unions planned a fifth day of protests to try to force President Nicolas Sarkozy’s government to drop plans to raise the retirement age. “All the refineries are shut and they will stay shut until Sarkozy listens,” Eric Sellini, a representative of the CGT union, said today by telephone. “No crude is arriving, no refined products are leaving.” About 230 demonstrations are planned across France today. Government leaders have repeatedly said they won’t back down on raising the minimum retirement age to 62 from 60, saying it’s necessary to cut losses at the state retirement system. The lower National Assembly has already passed the measure, which also raises the age for a full pension to 67 from 65. The Senate is due to approve it on Oct. 20. Unions have called for another day of protests on Oct. 19, accompanied by the fourth national strike since September.
Iraq's Ayad Allawi Tells CNN Iran Funds, Directs Terrorism in Middle East. Iran is trying to destabilize Iraq and its neighbors, former Iraqi Prime Minister Ayad Allawi said on CNN’s “Fareed Zakaria GPS” program. Allawi, a secular Shiite whose political party won the largest bloc in March 7 elections, said Iraq’s stalled political process and its faltering economy are breeding extremism, according to a transcript of the program, scheduled to be broadcast today. “We know Iran is trying to wreak havoc on the region and trying to destabilize the region by destabilizing Iraq and destabilizing Lebanon and destabilizing the Palestinian issue,” Allawi said. “We are entering into a kind of vicious circle,” Allawi said on CNN. “The extreme forces are trying to sabotage the stability of the environment to create more scope for themselves to operate in.”
Business-Jet Rebound Delayed by Economy, Honeywell(HON) Says. The business-jet industry’s recovery may take a year longer than forecast, picking up in late 2011 and accelerating in 2012, as companies defer purchases amid doubts about the economy, Honeywell International Inc. said.
Hedge Funds Cut Bullish Bets on Natural Gas to 2010 Low: Energy Markets. Hedge funds cut their bullish bets on natural gas to the lowest level this year as expanding stockpiles drove prices to a 13-month low. The funds and other large speculators cut wagers on rising prices by 36 percent in the seven days ended Oct. 12, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the third week of declines, bringing the reduction since Sept. 21 to 71 percent.
Cameron Aims to Outdo Thatcher as He Tackles U.K. Welfare State.
Morgan Stanley Reduces Weighting on Emerging Markets After Equities Surge. Investors should start to “scale back” their holdings of emerging-market stocks after a rally lifted valuations and as economic data points to a rising risk of a return to recession, Morgan Stanley said. The brokerage lowered its recommended “overweight” in developing-nation stocks to 4 percent from 6 percent and added to holdings of cash, Jonathan Garner wrote in a report today. Still, investors should reduce their holdings “gradually, rather than precipitately,” in part because of the outlook for liquidity and earnings, he said.
Obama's Foreclosure Inaction is Katrina Redux: Kevin Hassett.

Wall Street Journal:

Gleam Returns to Luxury-Goods Sales. In just a year, the luxury-goods industry has gone from bust to boom. Strong sales of bags, clothing and perfume during the crucial holiday season could boost the luxury-goods industry to near-record sales, according to a Bain & Co. study to be published Monday, as the sector rebounds from a 2009 decline that was the industry's worst since it began consolidating in the 1990s.
Corporate Market Ripe for Apple(AAPL). Apple Inc. will unveil Wednesday a new version of its computer operating software, a development that comes as the consumer-electronics giant makes a more aggressive move to expand in a market that has historically eluded it: corporate customers.
Facebook in Privacy Breach. Many of the most popular applications, or "apps," on the social-networking site Facebook Inc. have been transmitting identifying information—in effect, providing access to people's names and, in some cases, their friends' names—to dozens of advertising and Internet tracking companies, a Wall Street Journal investigation has found. The issue affects tens of millions of Facebook app users, including people who set their profiles to be completely private. The practice breaks Facebook's rules, and renews questions about its ability to keep identifiable information about its users' activities secure.
Ruling Imperils Sugar Production. U.S. sugar production will be cut by about 20% if farmers are banned from planting genetically modified beets next year, according to data prepared for the U.S. Department of Agriculture as part of a court case over whether to continue allowing the practice.
Pension Funds Flee Stocks in Search of Less-Risky Bets. After making the same kinds of investment blunders as many individuals, corporate pension funds now are seeking the same remedies: fleeing stocks for the perceived safety of bonds.
Boom in Emerging Markets Has Some Fearing Backlash. The Federal Reserve's latest effort to juice the U.S. economy is making many investors in emerging-market and commodity-producing nations confident the rally has longer to run. Others see trouble ahead, concerned too many investors are jumping into the rally and that these markets can't keep rising if the U.S. economy stays sluggish.

Bloomberg Businessweek:

Portugal Says Economic Growth Will Slow on Austerity. Portugal’s economy will barely expand next year as slowing growth in Europe and austerity measures to cut the euro-region’s fourth-biggest budget deficit choke the country’s economic recovery. The Finance Ministry said today the 2011 spending plan forecasts an expansion of 0.2 percent, down from the 0.5 percent it forecast in May.

Marketwatch.com:

Tablet Sales to Nearly Triple in 2011: Gartner.

CNBC:

Fast Yuan Rise Short-Lived as Surplus Will Peak: Chinese Media. The accelerated yuan appreciation of recent weeks will not last long because China's trade surplus will soon peak, an official state newspaper reported on Monday. An article in the overseas edition of the People's Daily said there had not been sufficient improvement in the economy at home or abroad to justify a speedy rise in the exchange rate.

IBD:

Smarter Phones Create Big Demand for Chipmaker's Products. That's what has set Skyworks Solutions (SWKS) apart from some of its rivals, analysts say.

NY Times:

How Countrywide Covered the Cracks. ON June 27, 2006, Countrywide Financial, the nation’s largest mortgage lender, was about to close its books on a record-breaking six-month run. The housing market was on fire and Countrywide’s earnings were soaring. Despite all the euphoria inside the company, some executives noticed that Angelo R. Mozilo, the company’s brash and imperious chief executive, seemed subdued.
Japan Goes From Dynamic to Disheartened. Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes. But his living standards slowly crumbled along with Japan’s overall economy.
Banks Shared Clients' Profits, but Not Losses.

NY Post:

EMC(EMC) in Exclusive Talks to Buy Isilon(ISLN). EMC Corp. is in exclusive talks to buy computer-storage company Isilon for more than $2 billion, The Post has learned. "The deal will be done this year," a source close to the situation said. It's the latest big deal in the tech world, where few areas are hotter than computer storage.
Feds Can Remedy Mortgage Me$$. It's a house divided that may not stand. A large proportion of the "fraudclosure" mess may lie at the feet of Fed Chief Ben Bernanke and Treasury Secretary Tim Geithner. There is currently a multi-bank nationwide moratorium on foreclosures as the banks wrestle with the fact that there has been widespread use or misuse of "robo-signing," the signing of an affidavit or attesting to the factual correctness of what was purportedly verified without actually having read it. So those who invented small print didn't have the time or chose not to take the time to read it. To further complicate matters, the banks seemingly have trouble producing the mortgage notes they are foreclosing on. This is required by evidentiary procedures in court-sanctioned foreclosures. In many circumstances they are unable to verify the owner of the mortgage bond or are unable to produce the actual note. So they are attempting to foreclose without actual proof of ownership of the mortgages. It gets better -- or worse, depending on how you look at it. The most under-discussed point in this debate is note ownership. Guess who is the likely owner of many of these mortgages? The federal government, through those fine institutions Fannie Mae and Freddie Mac. These entities, recently acquired under Treasury as part of their conservatorship, along with Ginnie Mae, control and own roughly 60 percent of the $10.6 trillion mortgage market. Moreover, Fannie alone purchased some $423 billion in mortgage-related loans, as measured by unpaid principal balances during the first six months of this year alone. No wonder Geithner has been silent on the matter. If only the feds had incentivized the private market to participate, their problem would be much smaller. This is what happens when government takes over an industry.

Zero Hedge:

Are Irish Taxpayers About to Bail Out Goldman(GS)?

The Huffington Post:

Crime Pays: The SEC's Slap on the Wrist for Angelo Mozilo. Let's say a business leader makes hundreds of millions of dollars through criminal practices that end up wiping out the wealth of myriad homeowners and contributing to the biggest economic crisis in 70 years. Then, as punishment, he is forced to fork over $67.5 million -- and yet faces no prison time. Has justice been done? Well, if you listen to the SEC -- and plenty of media commentators, too -- the settlement just reached with former Countrywide CEO Angelo Mozilo was tough stuff.

LA Times:

SEC Investigating $70 Million in Bonds Issued by Bell. The Securities and Exchange Commission is the latest agency to investigate Bell, launching a probe into the sale of three city bonds totaling $70 million. The investigation comes after California state auditors raised questions about how the bond money was being used, including one involving a sports park that has yet to be built. The SEC has asked for documents involving nine current and former Bell leaders, according to the subpoena, a copy of which was obtained by The Times. The subpoena also requires them to testify before the SEC.

Hussman Funds:

The Recklessness of Quantitative Easing. To assess whether QE is likely to achieve its intended objectives, it would be helpful for the Fed's governors to remember the first rule of constrained optimization - relaxing a constraint only improves an outcome if the constraint is binding. In other words, removing a barrier allows you to move forward only if that particular barrier is the one that is holding you back.

Rasmussen Reports:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

Politico:

Democrats on Health Reform: Let Us Fix It. Nervous Democrats are grasping for a new message on their party’s health care reform bill: Give us another shot, and we’ll get it right this time. “I want to reform it and fix it and make sure that it works for small businesses and their families,” Alexi Giannoulias, the Democrat seeking President Barack Obama’s old Senate seat, said on “Meet the Press” on Sunday.
The Democrats' Brutal Weekend. More bad polls. More bad fundraising numbers. More dreary talk on the Sunday shows. It added up to a brutal weekend for Democrats, as the consensus among election analysts, already bearish on the party’s prospects, took a turn for the worse over the past 48 hours.

USA Today:

Starbucks(SBUX) Remakes its Future With an Eye on Beer and Wine.

AP:

EU Debates New Debt Rules as Euro Surges. European finance ministers plan to hash out a deal on stricter budget rules to avoid another government debt crisis, as a surging euro casts doubt on the continent's fragile economic recovery. Two differing proposals spelling out penalties for overspending governments will be considered, after ballooning debt and deficit levels in countries like Greece, Ireland and Spain shook the foundations of the 16-nation eurozone earlier this year. The two-day gathering beginning Monday in Luxembourg comes amid the specter of a possible global currency war, as governments around the world try to boost their economies by pushing down the value of their currencies, thus making their exports more competitive.The U.S. Federal Reserve on Friday spurred expectations of a new round of asset purchases, in effect pumping dollars into the economy and further weakening the value of the greenback.

Telegraph:

China's Not the Villain if the West Tries to Debase its Debt Through QE.

The Guardian:

U.K. Is Mistaken to Spare NHS in Budget Cuts, Report Says. Pledges by Britain's political leaders to spare the National Health Service from budget cuts are mistaken and will put "enormous pressure" on other public spending, citing a research report. Including the NHS would allow the government to limit spending cuts at other government departments to 10% over the next four years instead of 25%, according to a report by the Institute for Public Policy Research.
Iran Brokers Behind-The-Scenes Deal for Pro-Tehran Government in Iraq. Exclusive: Fears over Iran's influence after secret talks involving Syria, Hezbollah and the highest authorities in Shia Islam. Iran has brokered a critical deal with its regional neighbours that could see a pro-Tehran government installed in Iraq, a move that would shift the fragile country sharply away from a sphere of western influence. The Guardian can reveal that the Islamic republic was instrumental in forming an alliance between Iraq's Nouri al-Maliki, who is vying for a second term as prime minister, and the country's powerful radical Shia cleric leader, Moqtada al-Sadr. The deal – which involved Syria, Lebanon's Hezbollah and the highest authorities in Shia Islam – positions Maliki as a frontrunner to return as leader despite a seven-month stalemate between Iraq's feuding political blocs. It also positions Iran as a potent buffer to US interests at a time when America is looking to change its relationship with Iraq from military overlords to civilian partners.

BBC:

Merkel Says German Multicultural Society Has Failed. The German Chancellor, Angela Merkel: "lmmigrants should learn to speak German." Attempts to build a multicultural society in Germany have "utterly failed", Chancellor Angela Merkel says. She said the so-called "multikulti" concept - where people would "live side-by-side" happily - did not work, and immigrants needed to do more to integrate - including learning German. The comments come amid rising anti-immigration feeling in Germany. A recent survey suggested more than 30% of people believed the country was "overrun by foreigners". The study - by the Friedrich Ebert Foundation think-tank - also showed that roughly the same number thought that some 16 million of Germany's immigrants or people with foreign origins had come to the country for its social benefits.

Vima:

Jean-Claude Juncker, head of the group of euro-area finance ministers, said discussing an extension of Greece's repayments of loans from the European Union and International Monetary Fund is premature, citing an interview. Greece has no alternative but to implement and meet the terms set out under the 110 billion euro EU and IMF bailout package, Juncker said. Now isn't the time to discuss extension of debt repayments, he said.

ABC:

Spanish Finance Minister Elena Salgado expects economists to change their growth forecasts in line with the government estimate of 1.3% expansion next year, she said. The government aims to present proposals for restructuring the pensions system by the end of the year and doesn't need a backup plan in case its strategy for cutting the budget deficit fails, Salgado said.

EE Times:

Consumer Electronics Rebounds, Says iSuppli. The consumer electronics equipment and semiconductor markets are rebounding in 2010, according to analyst firm iSuppli Corp.

Xinhua:

Zhang Guobao, head of China's National Energy Administration, said an American probe into China's clean-energy policies will hurt the U.S. The investigation will show the U.S. provides subsidies to its own alternative energy industries, citing Zhang. The U.S. won't win this "trade war", citing Zhang.

Weekend Recommendations
Barron's:

Made positive comments on (OI).
Made negative comments on (LULU).

Citigroup:

Reiterated Buy on (JPM), target $50.