Weekend Headlines
Bloomberg:
- Dubai Index Falls Most Since May, Leads Mideast Drop, on Egypt. Middle East shares dropped, sending Dubai’s index down the most in eight months, amid ongoing protests demanding the ouster of Egyptian President Hosni Mubarak. Israeli stocks and bonds declined. Emaar Properties PJSC, which says it’s the largest foreign- direct investor in Egypt’s real-estate industry, lost 8.3 percent. Air Arabia PJSC fell the most since March. The DFM General Index plunged 4.3 percent, the most since May 25, to 1,543.02 at the 2 p.m. close in Dubai. The Bloomberg GCC 200 Index lost 0.3 percent. Egypt’s market was closed today after sliding 16 percent last week. It will remain shut tomorrow, Al Arabiya said. “International investors are fleeing Middle East stock markets with justified risk aversion across the board,” said Mahdi Mattar, head of research at Abu Dhabi-based CAPM Investment PJSC, an investment banking company. “Due to panic from local and international investors, there is no discrimination between stocks with exposure or non-exposure to Egypt, though we expect that in coming sessions.”
- Egypt Spurs Jump in Developing Money-Market Rates. Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt may destabilize the Middle East. The yield on JPMorgan Chase & Co.’s ELMI+ Index of short- term debt in emerging markets rose to 2.5 percent on Jan. 28 from a record-low of 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a four-month high of 2.79 percentage points, according to JPMorgan’s EMBI+ Index. Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities toward the highest level since September 2008.
- Egypt Is Reaching a 'Tipping Point,' ElBaradei Tells Monocle. Egypt is reaching a “tipping point,” opposition campaigner Mohamed ElBaradei said in an interview with Monocle. “People are desperate and anxious for change to happen overnight,” ElBaradei, the former chief of the International Atomic Energy Agency, said in the London-based monthly’s February edition. “I see that approaching. People say Egyptians are patient, but you go around the streets of Cairo and you’ll see that the tipping point coming.” The West is “losing every ounce of credibility when it comes to convincing people here that it is serious about their basic values: democracy, freedom, justice, rule of law,” said ElBaradei, 68. “That fuels extremism. The West doesn’t realize that stability is not based on shortsighted security measures; stability will only come when people are empowered, when people are able to participate.” ElBaradei has said he may run for president if the government eases constitutional rules that make it difficult for independent candidates. Egyptian President Hosni Mubarak is set to name a new government today after ignoring demands to resign from protesters who clashed with security forces for a fifth day, setting buildings and vehicles alight.
- Oil Gains a Second Day Amid Concern Egyptian Unrest Will Spread. Oil rose for a second day in New York after unrest in Egypt prompted concern that protests may spread to crude-producing parts of the Middle East. Futures increased 4.3 percent on Jan. 28, the most since September 2009, after clashes between police and protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. Any disruption to Middle East oil supplies “could actually bring real harm,” U.S. Energy Secretary Steven Chu said on a conference call. Crude for March delivery gained $1.53, or 1.7 percent, to $90.87 a barrel, in electronic trading on the New York Mercantile Exchange at 11:14 a.m. Sydney time.
- Goldman Sachs(GS) Boosts CEO Blankfein's Stock Bonus by 40% to $12.6 Million. Goldman Sachs Group Inc. gave Chairman and Chief Executive Officer Lloyd Blankfein a $12.6 million stock bonus for 2010, an increase from $9 million in restricted stock a year earlier. Blankfein, 56, received 78,111 shares on Jan. 26, according to a filing yesterday with the U.S. Securities and Exchange Commission. At the closing price of $161.31 that day, the shares would be valued at $12.6 million. New York-based Goldman Sachs also raised Blankfein’s base salary to $2 million this year from $600,000, according to a separate filing. Goldman Sachs, the fifth-largest U.S. bank by assets, reported 2010 earnings dropped 38 percent from a record in 2009 as revenue from trading stocks and bonds fell from an all-time high. The firm set aside 39 percent of revenue to pay employees in 2010, up from 36 percent in 2009, the lowest ratio ever.
- Shanghai Official Warns Against 'Hot Money'. Shanghai should monitor cross-border yuan settlement to prevent “hot money” from entering local property and stock markets, Zheng Yang, a deputy head at the Shanghai branch of the State Administration of Foreign Exchange, wrote in China Finance magazine. China needs to guard against so-called hot money, or “abnormal” capital inflows by investors seeking to profit from exchange-rate differentials, Zheng wrote. The government is seeking to counter the fastest inflation in more than two years and limit asset bubbles in real estate after record lending drove the nation’s economic recovery.
- Lonely Analyst Warns of 2015 Bank Crisis Amid 'Upbeat' Davos. As politicians, executives and financiers networked at parties and panels last week in Davos, Switzerland, Barrie Wilkinson was in a nearby hotel, warning that a 2015 financial catastrophe may be looming. “The fundamentals haven’t been addressed at all,” Wilkinson, a London-based partner at consulting firm Oliver Wyman, said in an interview at the Hotel Morosani Schweizerhof. “The things that caused the previous crisis -- loose monetary policy and trade imbalances -- they’re actually bigger now than they were then.”
- Hedge Fund Bears Blindsided by Oil Surge on Egypt Protest. Hedge funds cut bullish bets on oil last week by the most in two months before political protests erupted in Egypt, igniting a rally that sent prices up by the most since 2009. The funds and other large speculators reduced net-long positions, or wagers on rising oil prices, by 18 percent in the seven days ended Jan. 25, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. That turned into a losing bet as prices surged at the end of the week. Oil jumped 4.3 percent Jan. 28, erasing the week’s losses.
- Baht Set for Worst Monthly Fall in Almost 10 Years on Protests. Thailand’s baht is set for its biggest monthly slide since March 2001 on speculation global funds will trim holdings as nationalists block a Bangkok street to pressure the government in a border dispute with Cambodia. The currency dropped to its weakest level since September after overseas investors sold $81 million more Thai stocks than they bought last week, taking this month’s net sales to $904 million, according to exchange data. Political turmoil in Egypt also weighed on the baht, spurring investor appetite for safe-haven assets such as the dollar.
- Rice Rebounds From Two-Year Drop as U.S. Crop Falls to 1989 Low. U.S. farmers are planting the fewest acres with rice since 1989 just as global demand surpasses production for the first time in four years, driving prices as much as 12 percent higher by December. Plantings in the U.S., the third-biggest shipper, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers.
- Alpha Natural(ANR) Agrees to Buy Massey Energy(MEE) for $7.1 Billion in Cash, Stock. Alpha Natural Resources Inc., the third-biggest U.S. coal producer, agreed to buy Massey Energy Co. for about $7.1 billion in cash and stock, gaining the largest coal company in the U.S. Central Appalachian region. Massey shareholders will receive 1.025 Alpha Natural shares plus $10 cash for each share held, the companies said in a statement yesterday. The bid values Massey at $69.33 a share, 21 percent more than Massey’s price at the close of trading Jan. 28.
- Boehner Says U.S. Default Would Be 'Disaster,' Isn't 'Even on the Table'. U.S. Speaker of the House John Boehner said today that a U.S. default would be a “financial disaster” and that the issue is not “even on the table.” Boehner said in an interview on “Fox News Sunday” that the Obama administration must be willing to work with Republicans to cut spending if it seeks an increase in the government’s debt ceiling. “I don’t think the American people will tolerate increasing the debt limit without serious reductions in spending and changes to the budget process so we can make sure this doesn’t happen again,” Boehner said.
- Egypt's Banks Risk Deposit Run as Week of Violence Hits Economy. Egypt’s banks may risk a surge in customer withdrawals when they open for business, placing them among companies worst hit by the nationwide uprising against President Hosni Mubarak. “A run on the banks would be the biggest concern, which is possible in the current situation,” Robert McKinnon, chief investment officer at ASAS Capital in Dubai, said in a telephone interview. Authorities are likely to keep the financial system closed to avert the risk, he said. Egypt’s banks and markets stayed shut yesterday after six days of clashes in the most populous Arab country that left as many as 150 people dead. Tanks are guarding banks and government buildings in Cairo that are vulnerable to looting, state television said.
- CNOOC Pays $570 Million for Stake in Chesapeake(CHK) U.S. Shale Play. Cnooc Ltd., China’s largest offshore energy producer, agreed to pay $570 million in cash for a one- third stake in Chesapeake Energy Corp.’s Niobrara shale project, adding to its U.S. holdings in crude oil production. The Chinese explorer also agreed to pay 66.7 percent of Chesapeake’s costs up to $697 million to drill and complete wells in the area, the companies said in a statement yesterday. The deal follows Chinese President Hu Jintao’s first state visit to the U.S. this month to expand economic ties, and would give Cnooc its second U.S. energy asset, five years after political opposition derailed its $18.5 billion bid for Unocal Corp. The Hong Kong-listed explorer will pay about $2,140 an acre for the one-third stake in Chesapeake’s 800,000 Niobrara acres and has the right to a 33.3 percent stake in future acquisitions in the formation in Colorado and Wyoming.
- Opposition Unites in Egypt. Islamists, Secularists Back Moderate ElBaradei as Army Lets Protests Rage. Egypt's opposition groups lined up behind a moderate leader comfortable on the world stage as their best chance to oust President Hosni Mubarak Sunday, while the nation's military closed ranks with the government leadership but allowed protests to continue raging in the streets. The moves continued to sharpen the country's clash over whether Mr. Mubarak would resign. Events here present difficult choices for the U.S., which has been attempting to push for both the stability that the military offers and the sweeping political changes demanded by the opposition. There was no indication that the two sides would meet or hold discussions.
- Syria Strongman: Time for 'Reform'. Syrian President Bashar al-Assad, who inherited a regime that has held power for four decades, said he will push for more political reforms in his country, in a sign of how Egypt's violent revolt is forcing leaders across the region to rethink their approaches. In a rare interview, Mr. Assad told The Wall Street Journal that the protests in Egypt, Tunisia and Yemen are ushering in a "new era" in the Middle East, and that Arab rulers would need to do more to accommodate their people's rising political and economic aspirations.
- Unrest Rattles U.S. Approach in Region. Events Threaten to Weaken Other American Allies in Mideast, Imperils Strategy on Israel and Ira. Egypt's political turmoil risks setting off shifts that undermine broad American foreign-policy goals—and, say some U.S. and Arab strategists, could put Washington in its weakest position in the region in half a century.
- Beijing Blocks Protest Reports. Chinese authorities have blocked the word "Egypt" from searches on Twitter-like microblogging sites in an indication of concern among Communist Party leaders that the unrest there could encourage similar calls for political reform in China. Internet censors also appeared Sunday to have deleted almost all of the comments posted beneath the few limited reports on the unrest—mostly from the state-run Xinhua news agency—that have been published on Chinese news sites in the past few days. The strict online controls illustrate the party's concern that the Internet is providing China's citizens with a new means of information and organization that could challenge its monopoly on power, as has happened with other authoritarian governments in recent years.
- Hoarding Cotton. (Pics) Chinese cotton farmers may be stockpiling 1.94 million metric tons of cotton after a jump in prices, citing the government-funded China National Cotton Information Center.
- Interview: PBOC Zhou: Must Be Vigilant On Inflation. The People's Bank of China must be vigilant on inflation and may need to tighten reserve requirements further to address rapid capital inflows, the central bank's governor warned Sunday. Speaking to Dow Jones Newswires on the sidelines of meetings in Kyoto, Zhou Xiaochuan pointed out that Chinese price growth slowed slightly in December, but he said it was stronger than many had forecast and signalled it had more room to climb. Rising consumer prices have prompted Beijing to launch a series of monetary-tightening measures, including two interest-rate increases and a number of bank reserve requirement ratio increases since the beginning of last year. "Inflation is still higher than many people expected. It may be still going up a little, so we should keep vigilant on that," Zhou said. Asked whether China needed to tighten banks' reserve requirements further to tackle rapid capital inflows, amid already excessive liquidity conditions, Zhou said: "Maybe we need to continue our efforts." Zhou declined to comment directly on the view by some economists that Chinese inflation could climb to around 6% in the first quarter of this year, but he agreed that it was still "to some extent going up."
- China Opens a Door on Currency Swaps. China will allow banks to trade currency swaps for corporate clients starting March 1, extending the use of the financial derivative beyond the interbank market—a move that facilitates corporate foreign hedging as Chinese trade continues to expand and cross-border investments accelerate.
- A Fund Manager Ensnared. A former Citigroup Inc. hedge-fund manager has been drawn into the government's insider-trading investigation as a co-conspirator in the case, and his firm has been raided by Federal Bureau of Investigation agents, according to people familiar with the matter. The hedge-fund manager—Samir Barai, the 39-year-old founder of New York-based Barai Capital Management—didn't return calls for comment.
- US Corporate Profits Surge. With about 50% of companies already reporting, fourth-quarter profits for the biggest U.S. corporations have been exceptionally strong and 2010 is poised to deliver the third-best full-year gain since 1998—with sharp advances in the telecommunications and energy sectors and a rebound in financial services. Excluding financial companies, whose losses in 2009 skewed results, weighted earnings for the companies in the Standard & Poor's 500 Index are up 17% on an as-reported basis for companies representing 54% of the group's market value.
- Inflation Stalks Emerging Markets. The political turmoil in Tunisia and Egypt is a reminder of the days when emerging markets were the Wild West of investing. While it is easy to dismiss events in those countries as unlikely to be repeated elsewhere, especially in Asian and Latin American nations with strong economic growth, investors in emerging markets are facing a much riskier landscape as a result of inflation.
- The Two Likeliest Political Outcomes for Mubarak. Egyptian society needs time to prepare for free elections and to remediate years of government oppression.
- Hedge-Fund Clones Attack. New mutual funds using hedge-fund strategies but with much lower fees, more transparency and lots of liquidity–and no lock-ups—are entering the market at a feverish pace, stepping up the competition with real hedge funds. Alternative-investment mutual funds enjoyed net inflows of $18.8 billion last year, reports Morningstar, up from $12.7 billion in 2009 and $4.6 billion in 2008—a horrendous year when Treasury-bond mutual funds and money markets were the only other entities attracting new money.
- China Auditor: Illegal Activities at Top Insurers. China's audit office said Monday it uncovered "improper and illegal activities" involving CNY3.02 billion ($458 million) at two of the country's largest insurers, People's Insurance Co. (Group) of China Ltd. and China Life Insurance (Group) Co., during an audit of their 2009 books.
- China Central Bank Says Fed Easing Ineffective and Dangerous. Quantitative easing by the Federal Reserve and other central banks cannot address fundamental economic problems but may lead to excessive global liquidity and competitive currency depreciation, China's central bank said on Sunday. The central bank said the Fed's monetary easing was pushing up international commodity prices and asset prices in emerging markets, including China. "It is creating imported inflation and short-term capital inflows, pressuring emerging markets," it said.
- Inflation Slowing China's Export Engine. Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific. Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.
NY Times:
- For Governors, Medicaid Looks Ripe for Slashing. Hamstrung by federal prohibitions against lowering eligibility, governors from both parties are exercising their remaining options in proposing bone-deep cuts to the program during the fourth consecutive year of brutal economic conditions. Because states confront budget gaps estimated at $125 billion, few essential services — schools, roads, parks — are likely to escape the ax.
- Bet on Gold Nets Paulson $5 Billion. made $4 billion betting against newfangled mortgage investments. But he made even more betting on an old-fashioned investment: gold. Mr. Paulson, a hedge fund manager who sprang to fame when the housing market collapsed, personally made about $5 billion in 2010, according to two investors in his company. How? Mr. Paulson bought gold — lots of it. His firm, Paulson & Company, owns securities that represent the rough equivalent of 96 metric tons of the metal. It is an outsize wager by almost any standard. Mr. Paulson’s firm does not actually own all that gold. But if it did, it would be sitting atop more gold than the Australian government. Mr. Paulson himself would be holding more gold than Bulgaria.
- Losses at Afghan Bank Could Be $900 Million. Fraud and mismanagement at ’s largest bank have resulted in potential losses of as much as $900 million — three times previous estimates — heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to American, European and Afghan officials.
Zero Hedge:
- The Quant Delusion. The state of financial markets is in no better shape today, than it was before the emergence of this crisis. Most of the basic assumptions are still considered true, most of basic modeling techniques are still used same as before. Until that is changed, we continue to dance on the verge of a cliff with no safety net protecting us from the consequences if we fall.
- Step Aside The Bernank Here Comes Timothy Jeethner: The Bears Explain Banker Bailouts. (video)
- Headwinds at Year's End Slowed State Economy. The Massachusetts economy slowed significantly in the fourth quarter of 2010, lagging behind the US economy for the first time in a year, the University of Massachusetts reported yesterday. After a burst of growth in the first half of last year, the recent slowdown reflected a state economy that has “paused to catch its breath, rather than one that is about to slow to a stop,’’ analysts said in the report. Still, the weak performance was another reminder of what has been a difficult and sluggish economic recovery. “I expected a slowdown — maybe not quite this much — compared to the US rate of growth,’’ said Alan Clayton-Matthews, an economics professor at Northeastern University who prepared the estimates of state economic growth for the UMass report. “We still have a high unemployment rate and the econ omy still has a long way to go before it is in a sense ‘normal.’ ’’The Massachusetts economy grew at an annual rate of 1.8 percent in the fourth quarter, down from 3.6 percent in the third quarter, UMass said in its quarterly economics journal, MassBenchmarks.
- Credit Card Rates at Record Highs Near 15%. Interest rates are now hovering near record highs, at an average rate of 14.72%. And if your credit is bad enough, you could even end up with a rate as high as 59.9% APR. That's because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn't cap every credit card holder's worst enemy: interest rates.
- Is Regime Change Ahead in Mideast? With the current protests in Egypt, following on the stunning events in Tunisia, it is worth considering whether the Arab Middle East is at a transformational moment. Could Egypt or Tunisia turn out to be the Poland of the Arab world? Could these secular, public protests be the first of many? Could they be setting in motion regime change throughout a region where the current governments have long been viewed as immutable and intransigent?
- Cyber Raids Threaten British, US Stock Markets: Report. Stock exchanges in Britain and the United States have enlisted the help of the security services after finding out they were the victims of cyber attacks, The Times newspaper reported Monday. The London Stock Exchange (LSE) is investigating a terrorist cyber-attack on its headquarters last year while US officials have traced an attack on one of its exchanges to Russia, according to the British newspaper. Officials suspect the attacks were designed to spread panic among markets and destabilise western financial institutions. Cyber attacks on governments and companies increased more than 500 percent over the last two years and a raid on the European Emissions Trading Scheme ten days ago shut down the carbon market. A leading UK cyber security expert told the newspaper: "Make no mistake, the UK?s critical infrastructure is under attack. The threat is advanced and persistent."
- Lars Feld, a member of German Chancellor Angela Merkel's council of economic advisers, said a restructuring of Greek debt is "necessary," citing an interview. Giving Greece more time to repay its loans would be the "best solution" as creditors wouldn't lose "too much money," Feld was quoted as saying. Europe needs an insolvency mechanism for states, he said. "We can't save half the euro area without consequences on our own refinancing costs," Feld said. The recent increase in German borrowing costs is an "alarm," he added.
- Gary Cohn, president and chief operating officer of Goldman Sachs Group Inc.(GS), said the economic recovery is "relatively unstable," citing an interview. Europe's fiscal crisis, zero-interest-rate policies in "more than one" of the Group-of-Eight countries and uncertainty about future banking regulation weigh on the outlook, Cohn said. Supervisors need to be more flexible, he added.
- China should not ignore the possibility of an "overheated" economy this year, citing Ba Shusong, a researcher at the State Council's Development Research Center. Consumer prices may remain high in the first quarter, Ba said. The strength of current tightening measures is"limited" and lags consumer price changes, citing Ba.
- China's consumer prices may rise more than 4% this year, Zhang Qianrong, a researcher with the State Information Center, wrote in a commentary.
- China's Kunming city will ban residents owning two homes from buying more property, citing Yunnan province's housing bureau vice chief Chen Xicheng. Residents from outside the Kunming region with one home will also not be allowed to make a second purchase. Kunming will issue more strict housing curbs soon, citing Chen.
- China should raise interest rates to release a "stronger signal" on managing inflation expectations, Wang Jun, a researcher at the China Center for International Economic Exchanges, wrote in a commentary.
Barron's:
- Made positive comments on (TYC).
- Asian indices are -2.0% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 117.0 +7.5 basis points.
- Asia Pacific Sovereign CDS Index 124.75 +5.25 basis points.
- S&P 500 futures +.20%.
- NASDAQ 100 futures +.18%.
Earnings of Note
Company/Estimate
- (XOM)/1.63
- (GCI)/.81
- (ITW)/.80
- (IRF)/.49
- (MCK)/1.11
- (NVLS)/.94
- (APC)/.21
8:30 am EST
- Personal Income for December is estimated to rise +.4% versus a +.3% gain in November.
- Personal Spending for December is estimated to rise +.5% versus a +.4% gain in November.
- The PCE Core for December is estimated to rise +.1% versus a +.1% gain in November.
- Chicago Purchasing Manager for January is estimated to fall to 64.5 versus 66.8 in December.
- Dallas Fed Manufacturing Activity for January is estimated to rise to 15.0 versus a reading of 12.8 in December.
- (PRGS) 3-for-2
- (FCX) 2-for-1
- The Fed's Lockhart speaking, NAPM-Milwaukee report, (MO) Investor Day and the (DRI) Investor Day could also impact trading today.
