Yen, Dollar Rise on Terrorist Concerns After Bin Laden's Death. The yen rose against all its major counterparts as Asian stocks declined amid signs global economic growth is losing momentum, spurring demand for safer assets. The dollar also strengthened versus most of its major peers after the U.S. and Australia boosted security at their embassies around the world on concern this week’s killing of Osama bin Laden will lead to revenge attacks.
Return on Equity at 10-Year High Fails to Drive Valuations. U.S. companies, earning more from investments in plants and labor than any time in the last decade, have yet to reap the benefits in their stock valuations. Return on equity at International Business Machines Corp. (IBM) has risen to 68 percent this year from 24 percent in 2005 after the Armonk, New York-based company sold its personal-computer business and reorganized staff. Net income per employee rose to $34,758 in 2010, the highest since at least 1987, according to data compiled by Bloomberg. The stock, up 108 percent since the end of 2005 through last week, trades 16 percent below its average price-earnings ratio during the past decade. IBM’s example mirrors the Standard & Poor’s 500 Index, where return on equity has risen six quarters to 23 percent and may reach 27 percent next year, the highest annual level since 2000, analyst estimates compiled by Bloomberg show.
Financing China Costs Poised to Rise With Decision on CDB Debt. China Development Bank Corp.’s private-equity unit sports three bronze busts of Communist Party leaders in its Beijing lobby. Chairman Mao Zedong is there, and so is his eventual successor as leader, Deng Xiaoping. Then there’s Chen Yun, once China’s top economic planner. The state-owned policy bank, created in 1994 to support the government’s economic and infrastructure goals, has been led since 1998 by Chen’s son, 66-year-old Chen Yuan. His father, like Deng, is among the Communist Party’s so-called eight immortals, who wielded power in the 1980s and 1990s, Bloomberg Markets magazine reports in its June issue. The younger Chen, who led CDB through the Chinese banking crisis more than a decade ago by offloading 100 billion yuan ($15.3 billion) in bad debt, has made the bank the engine of the national government’s economic development policies. CDB had $687.8 billion in loans on its books at the end of 2010, more than twice as much as the World Bank.
Oil Drops on Economic Growth Concern as Bin Laden Death Boosts Volatility. Oil dropped for a second day in New York on signs U.S. economic growth may slow, while price swings intensified on concern the death of Osama bin Laden will lead to retaliatory attacks. Oil for June delivery slipped as much as 77 cents to $112.75 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $112.97 at 12:07 p.m. Sydney time. Yesterday, it lost 41 cents, or 0.4 percent, to $113.52, after earlier rising as high as $114.83. Prices are up 31 percent the past year. Brent crude for June settlement traded at $124.41 a barrel, down 71 cents, on London’s ICE Futures Europe Exchange.
Morgan Stanley(MS) Aligned With Commodity Bulls as Goldman Says Sell. Money managers are making near-record bets on higher commodity prices, aligning themselves with Morgan Stanley after Goldman Sachs Group Inc. said investors should reduce most of their holdings. Funds held a net 1.49 million futures and options in 18 commodities by April 26, 57 percent more than a year earlier, according to U.S. Commodity Futures Trading Commission data compiled by Bloomberg. The Standard & Poor’s GSCI Total Return Index of 24 commodities beat bonds, stocks and the dollar every month since December, the longest in at least 14 years. It rose in April for an eighth month, the best stretch since 2004. Investors held a record $412 billion of raw-material assets by the end of March, almost 50 percent more than a year earlier, Barclays Capital estimates. Net-long positions held by managed-money funds are within 4.8 percent of the record 1.56 million contracts reached in October, CFTC data show. Open interest in 17 of 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index reached 8.2 million contracts, data from the CFTC show. That compares with an all-time high of 8.6 million on Feb. 18.
Wall Street Journal:
Pakistan's Bin Laden Connection Is Probed. Obama administration officials said Monday they would probe whether Pakistani authorities helped al Qaeda leader Osama bin Laden stay in hiding for years, one day after he was killed by U.S. special forces at an outsize mansion complex located in the same city as Pakistan's top military academy. Emerging details of the U.S. raid immediately raised questions about how bin Laden, the most wanted man in American history, had eluded a manhunt that dates back more than a decade. The al Qaeda leader was cornered not in a remote border hideout but in a three-story mansion complex in Abbottabad, a city roughly 40 miles north of Islamabad that is thick with active and retired Pakistani military personnel.
Tornadoes Leave Many Missing. In Tuscaloosa, Ala., Police Don't Know Whereabouts of 340 People; Some Haven't Called Relatives Yet. For the friends and relatives of the hundreds who died in the tornadoes that pounded Alabama and other Southern states last week, there are funerals and wakes. For the families of the hundreds more still believed missing, there are only questions and fear. Over the weekend, officials lowered the death toll in Alabama to 236 from 250. State officials said Monday they were verifying death tolls county by county. The number of injured and hospitalized is 2,219.
Hedge Funds Crowd Emerging Markets, Silver. “Hedge funds are fully committed to emerging markets again,” said Mary Ann Bartels, head of U.S. Technical Analysis at Bank of America Merrill Lynch. Bartels issued a research report on Monday suggesting that broad-ranging macro hedge funds have continued to pile into a “crowded long” trade in emerging markets. If the current hedge-fund interest in emerging markets builds to a tipping point, investors could be looking at a correction that leaves many of them on the losing side of this trade.
CNBC:
Cramer: Why It's Not Too Late to Buy Apple(AAPL). Although trading at roughly $345 a share, Cramer said Monday Apple's stock is "way too cheap." After all, the "Mad Money" host thinks the technology stock could soon go to $400.
Bin Laden's Death Likely to Deepen Suspicions of Pakistan. The killing of Osama bin Laden deep inside Pakistan in an American operation, almost in plain sight in a medium-sized city that hosts numerous Pakistani forces, seems certain to further inflame tensions between the United States and Pakistan and raise significant questions about whether elements of the Pakistani spy agency knew the whereabouts of the leader of Al Qaeda.
Costs of Rare Earth Rise With Demand. World prices have doubled in the last four months for rare earths — metallic elements needed for many of the most sophisticated civilian and military technologies, whether smartphones or smart bombs. And this year’s increases come atop price gains of as much as fourfold during 2010. The reason is basic economics: demand continues to outstrip efforts to expand supplies and break China’s chokehold on the market.
Osama Was My Neighbor. Residents from the upscale neighborhood where bin Laden spent his last days talk to Newsweek/Daily Beast about hearing the firefight, living next to bin Laden, and mourning the loss of a leader.
Reuters:
Citadel's Griffin Assails Too-Big-To-Fail. Banks with close ties to Washington would be favored under new liquidation rules meant to avoid "the too big to fail" taxpayer rescues seen in the recent financial crisis, Kenneth Griffin, head of giant hedge fund Citadel LLC, warned on Monday. "Companies connected to Washington that curry political favor will be favored" by the new rules "at the expense of those that do not have their business model built around appeasing politicians," Griffin told the 2011 Milken Institute Global Conference in Beverly Hills, California. "It will deeply entrench crony capitalism in the middle of our financial system," he said of the liquidation authority included in last year's Dodd-Frank financial law. Griffin said the law gives regulators too much authority and discriminates against banks that do not have enough clout in Washington. "It opens the door to crony capitalism unlike what we've ever seen before in this country," he told a panel discussion at the conference. Jim Millstein, the former chief restructuring officer of the U.S. Treasury Department, agreed with Griffin that the legislation was flawed but said there is a need for government to provide liquidity to the financial system in times of strain. "My own estimation is that if we hit close to the edge again, we will see a repeat of the drama played out in September, October 2008," Millstein said. Thomas Wilson, chief executive of insurer Allstate Corp (ALL.N) and deputy chairman of the Federal Reserve Bank of Chicago, said the law gives the FDIC too much power. "When you ask the FDIC to come do an O.L.A. (orderly liquidation authority) with rules that they make up, it will work to the disadvantage of the markets," Wilson told panelists.
Libyan Rebels in Loan Talks to Avert Cash Crunch. Rebels controlling Libya's east are in talks for loans from the United Arab Emirates and Qatar, a spokesman said, as they scramble to avoid running out of funds as the Libyan conflict drags on.
US Group Urges Focus on China State-Owned Companies. The United States should focus less on China's currency practices and more on the threat to U.S companies posed by Beijing's support for state-owned enterprises, a U.S. business group said on Monday.
Chesapeake(CHK), Anadarko(APC) Results Hurt by Hedging. Quarterly results from Anadarko Petroleum Corp and Chesapeake Energy Corp were hurt by quarterly accounting for natural gas prices, but excluding those changes, the companies topped expectations as they produced more oil.
Financial Times:
Glencore Has Bigger Risk Appetite Than Wall Street Banks. The research reveals that Glencore could have lost a daily $42.5m last year on average when measured by the so-called “value-at-risk” measure, much more than the average $25.7m put at risk each day in 2010 in commodities trading by Goldman Sachs, Morgan Stanley, Barclays Capital and JPMorgan. The four banks are the largest commodities dealers by revenues in the financial sector.
Economic Daily News:
Apple Inc.(AAPL) will ship over seven million iPad tablets in the second quarter, up at least 50% from the first quarter, citing people in the industry.
Shanghai Securities News:
First-quarter net income for non-financial companies listed in China decline 10% from the fourth quarter.
China Business News:
Home prices and sales in some Chinese cities rose last month, indicating the government may have failed to curb the property market.
Gulf News:
Compound in Pakistan Was Once a Safe House. The compound in Abbottabad where Osama Bin Laden was killed was once used as a safe house by Pakistan's premier intelligence agency ISI, Gulf News has learnt."This area had been used as ISI's safe house, but it was not under their use any more because they keep on changing their locations," a senior intelligence official confided to Gulf News. However, he did not reveal when and for how long it was used by the ISI operatives. Another official cautiously said "it may not be the same house but the same compound or area used by the ISI". The official also confirmed that the house was rented out by Afghan nationals and is not owned by the government. The house is located just 800 metres away from the Pakistan Military Academy and some former senior military officials live nearby.
Evening Recommendations Citigroup:
Reiterated Buy on (ADP), raised target to $59.
Night Trading
Asian equity indices are -1.25% to unch. on average.
Asia Ex-Japan Investment Grade CDS Index 103.50 -.25 basis point.
Asia Pacific Sovereign CDS Index 109.0 -1.5 basis points.
Factory Orders for March are estimated to rise +2.0% versus a -.1% decline in February.
Afternoon
Total Vehicle Sales for April are estimated to fall to 13.0M versus 13.06M in March.
Upcoming Splits
(MMSI) 5-for-4
Other Potential Market Movers
The 1-Year Treasury Bills Auction, weekly retail sales reports, (DHR) analyst meeting, (SVU) investor day, (AHC) investor day and the (ALB) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 87.57 -1.11%
European Financial Sector CDS Index 84.85 -.19%
Western Europe Sovereign Debt CDS Index 187.16 -.05%
Emerging Market CDS Index 197.88 -1.08%
2-Year Swap Spread 17.0 unch.
TED Spread 24.0 unch.
Economic Gauges:
3-Month T-Bill Yield .03% -1 bp
Yield Curve 267.0 -1 bp
China Import Iron Ore Spot $181.50/Metric Tonne n/a
Citi US Economic Surprise Index -4.20 -5.2 points
10-Year TIPS Spread 2.56% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -24 open in Japan
DAX Futures: Indicating +10 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical, Retail and Biotech sector longs
Disclosed Trades: None
Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite the Bin Laden news and gains in overseas stocks. On the positive side, Computer Service, Medical Equipment, Biotech, Drug, HMO and Education shares are especially strong, rising more than +.50%. Copper is rising +.34%. The US Muni CDS Index is falling -9.6% to 122.55 bps, the Israeli sovereign cds is falling -4.93% to 128.50 bps and the Saudi sovereign cds is declining -8.49% to 101.81 bps. On the negative side, Homebuilding, Networking, Disk Drive, Steel, Oil Service, Energy and Alt Energy shares are under pressure, falling more than -1.0%. Small-caps are underperforming. Commodity-related equities have traded heavy throughout the day despite more US dollar weakness. The US price for a gallon of gas is rising .04/gallon today to $3.95/gallon. It is up .83/gallon in 76 days. Oil is just -.38% lower and lumber is falling -1.1%. Rice futures are rising another +1.77% after Friday's technical breakout. The US dollar continues to trade very poorly. The "sell in May" psychology, worries over the US debt ceiling debate, the ongoing surge in gasoline prices, recent stock gains and extreme US dollar weakness are likely resulting in some mild profit-taking today. I suspect stocks will trade better later this week. I expect US stocks to trade mixed-to-lower into the close from current levels on profit taking, more shorting, technical selling, emerging markets inflation fears.
Pakistan-Jihadist Ties May Have Led U.S. to Hit Bin Laden Alone. The U.S. decision to strike alone in killing al-Qaeda leader Osama bin Laden at his Pakistani hideout may underscore American concerns over the decades-old links between the Pakistani military and Islamic militants. U.S. officials said they didn’t inform their Pakistani counterparts of the attack on the compound, just a mile from the Pakistan Military Academy in Abbottabad, the country’s equivalent of West Point. Located 50 kilometers (30 miles) north of the capital, Islamabad, the city is surrounded by army installations and weapons factories. “It is inconceivable that bin Laden was hiding in a place that is the alma mater of Pakistan’s army without some people in our security establishment -- either military, intelligence or police -- being aware that he was there,” Imtiaz Gul, director of the Islamabad-based Center for Research and Security Studies, said in a phone interview from his office.
Terror Threat Remains as Bin Laden Likely to Inspire Attacks Even in Death. Hamas leader Ismail Haniyeh denounced the U.S. killing of al-Qaeda leader Osama Bin Laden, while a Palestinian Authority spokesman said his death will be “good for peace.” “This is a continuance of the U.S. policy of atrocities,” Haniyeh told reporters today in Gaza City. Hamas, which is considered a terrorist group by the U.S., European Union, and Israel, is scheduled to sign a reconciliation agreement with Palestinian Authority President Mahmoud Abbas of the Fatah faction this week in Cairo.
Breast Cancer Survival May Be Hurt by U.S. Guideline, Data Show. Women under 50 who follow advice of a U.S. panel to forgo annual mammograms are risking more severe forms of breast cancer because of it, three studies led by radiologists suggest. Failing to get regular breast screenings left women more likely to discover cancer at an advanced stage, retrospective research at hospitals in Ohio and Missouri found. The delay resulted in larger tumors and a worse prognosis once the cancer was uncovered, the data found. A study in Colorado suggests 62% of doctors changed their advice to match the U.S. guideline and 16% few women got the test.
Teva(TEVA) to Buy Cephalon(CEPH) in $6.8 Billion Transaction. Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest generic-drug maker, agreed to buy Cephalon Inc. (CEPH) for $6.2 billion, trumping a hostile offer from Valeant Pharmaceuticals International Inc. (VRX) The boards of Teva and Cephalon approved the deal, the companies said in a statement today. Petah Tikvah, Israel-based Teva will pay $81.50 a share in cash, 12 percent above Valeant’s offer. Including assumed debt, the purchase values Cephalon at $6.8 billion. Valeant dropped its plan to buy Cephalon.
Arch Coal(ACI) to Acquire International Coal(ICO) for $3.4 Billion. Arch Coal Inc. (ACI) agreed to buy International Coal Group Inc. (ICO) for $14.60 a share in an all-cash transaction valued at $3.4 billion to become the second-largest U.S. metallurgical coal producer. Arch expects pro forma metallurgical sales to reach 11 million tons in 2011 and 14 million tons over the next three years from the combined operations, the St. Louis-based company said in a statement. The offer price is 32 percent more than International Coal’s closing price of $11.03 on April 29.
Fed Says Banks Eased Lending Terms, Loan Demand Increased. Banks eased lending terms in the first quarter as they forecast improvement in the U.S. economy and companies sought more loans, according to a Federal Reserve survey. “The April survey indicated that, on net, bank lending standards and terms generally had eased somewhat further during the first quarter of this year,” the central bank said today in its quarterly survey of senior loan officers. The looser standards for business loans reflected more competition among banks and some banks “also pointed to a more favorable or less uncertain economic outlook,” the Fed said.
Nasdaq(NDAQ), ICE(ICE) Go Hostile in Bid for NYSE(NYX). Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. are making their $11 billion takeover offer for NYSE Euronext hostile, taking it directly to shareholders after twice being rejected by the company as the firms look to scuttle NYSE Euronext's merger with Deutsche Börse AG.
Fox Business:
SEC Disputes Buffett's View of Solol Inquiry. The Securities and Exchange Commission is disputing Warren Buffett's interpretation of the inquiry regarding former Berkshire Hathaway Inc. (BRKA, BRKB) executive David Sokol, Fox Business Network's Charles Gasparino reported Monday, citing regulatory officials.
Silver Drops As Cost of Speculation Increases. Silver prices fell sharply Monday after a U.S. futures exchange increased the amount of cash needed to hold speculative positions in the metal for the second time in a week. Silver for July deliveryfell $2.04, or 4.3%, to $46.24 an ounce on the Comex division of the New York Mercantile Exchange. It earlier fell as much as 13% to $42.20 an ounce.
Manufacturing Index Up, Construction Spending Rebounds. U.S. manufacturing activity index rose to 60.4 percent in April, its highest level since July, while construction spending rebounded in March. The pace of growth in the U.S. manufacturing sector slowed in April for a second straight month but input prices were at their highest in nearly three years, according the Institute for Supply Management. The industry group said its index of national factory activity fell to 60.4 in April from 61.2 the month before. The figure topped economists' forecasts for a reading of 60. The index for prices paid rose to 85.5 from 85, the highest since July 2008.
Teen Joblessness May Hit Record in Summer 2011. As a consequence, urban studies experts said cities like Chicago—where summer unemployment among African-Americans aged 16 to 19 years approaches 90 percent—could experience a rise in street violence.
'Free Money' About to Cause Big Problem: Welch. "Free money in the hands of very smart people for too long is going to create something that's not very pleasant," Welch said. "I don't know what it exactly is. But every time we get free money to lots of people who are very, very smart and know how to use it you end up with a bubble or a problem that we don't quite see in front of us."
Gaddafi Shells Misrata Amid Chemical Weapons Fears. Muammar Gaddafi's forces used tanks to shell the besieged western town of Misrata on Monday, as rumors fueled fears that the Libyan leader was preparing to use chemical weapons. Hundreds have been killed in Misrata over the past two months as Gaddafi has attempted to seize the only major rebel bastion in the western part of the country.
Shortages of Key Drugs Endanger Patients. Doctors, hospitals and federal regulators are struggling to cope with an unprecedented surge in drug shortages in the United States that is endangering cancer patients, heart attack victims, accident survivors and a host of other ill people. A record 211 medications became scarce in 2010 — triple the number in 2006 — and at least 89 new shortages have been recorded through the end of March, putting the nation on track for far more scarcities. The paucities are forcing some medical centers to ration drugs — including one urgently needed by leukemia patients — postpone surgeries and other care, and scramble for substitutes, often resorting to alternatives that may be less effective, have more side effects and boost the risk for overdoses and other sometimes-fatal errors.
Reuters:
U.S. Lawmaker Has "Questions" for Pakistani Security. A top U.S. lawmaker said on Monday that Pakistani security services have questions they need to answer following the killing of al Qaeda leader Osama bin Laden in an affluent area of Pakistan. "I think the Pakistani Army and intelligence have a lot of questions to answer given the location, the length of time and the apparent fact that this facility was actually built for bin Laden and its closeness to the central location of the Pakistani army," Senate Armed Services Committee Chairman Carl Levin said at a news conference.
Greek Debt Maturity Extension Possible - ECB's Wellink. European central banker Nout Wellink said on Monday he opposed a debt restructuring for struggling Greece but was open to the idea of a possible extension of maturities. In the first public comments from a member of the ECB's Governing Council pointing to a possible rescheduling of repayments for the debt-mired euro zone state, Wellinck said: "Restructuring is essentially saying: 'Send me the bill. We feel sorry for you.' You shouldn't do that. Paying the bill hurts."It may sometimes take longer than expected. It can sometimes lead to a restructuring -- but not in the way some advocate it to be -- that ... leads to a longer maturity of debt." Wellink, taking questions from students at Tilburg University in the south of the Netherlands, said that if Greece did not repay borrowed funds in full, it could stay frozen out of the financial markets. "You also have to say: 'If you don't pay the bills you never have to knock on our doors again. That your access to financial markets is closed... "That you will come in a downward spiral, whose negative effects are even bigger than the pain you suffer and have to suffer on the short term.' You have to explain that it (restructuring) is not an option," Wellink said.
The Portuguese government on May 4 will present the memorandum of understanding on the aid package that was negotiated with officials of the IMF, European Commission and ECB, citing an European Union official.
Radioactive leakage from fuel rods at a nuclear power plant in the city of Tsuruga in Fukui prefecture on Honshu island of Japan are believed to be the cause of a surge in the density of toxic substances detected in coolant water, the prefectural government said Monday. Japan Atomic Power Company, owner and operator of the potentially faulty nuclear plant, has said it will attempt to manually override the plant's No. 2 reactor's system in an effort to contain the leak and conduct further investigation into its critical cooling systems. The utility firm operating the 1,160-megawatt No.2 reactor at its Tsuruga nuclear plant cited "technical difficulties" at the reactor and while claiming there had been no radiation leak did confirm a possible leak of iodine from the reactor's nuclear fuel assemblies into its coolant system, adding a new saga to the nation's ever-unfolding nuclear crisis.
The Media Line:
For Many Arabs, Bin Laden Was a Has-Been. Osama Bin Laden may have topped the United States' most wanted list, but in his birthplace of Saudi Arabia he was regarded Monday as little more than an historic figurehead whose ideological sway has dwindled to near nothingness.“Bin Laden is history. He died a long time ago when he went into hiding," Eman Al-Nafjan, an influential Riyadh-based blogger told The Media Line. "Saudis are quite indifferent to the news about his death. There is neither mourning nor excitement.” "Today people are discussing whether Bin Laden was a Shaheed [martyr] or a criminal who deserved to die," Abdullah Jaber, a political cartoonist for the Saudi daily Al-Jazirah told The Media Line. "The man is dead but his worldview of bloodshed and terror live on.” Jaber added, however, that since the Al-Qa’ida attack in 9/11, Saudi popular support for Al-Qa’ida has gradually decreased and is today at an all-time low.
Taliban militants threatened to attack Pakistan's President Asif Ali Zardari to avenge the death of al-Qaeda founder Osama bin Laden, citing the group's spokesman.
