Sunday, June 17, 2007

Monday Watch

Weekend Headlines
- Shares in Saudi Arabia fell to their lowest in more than 31 months, as investors sold stock to raise funds before the listing of Saudi Kayan Petrolechemical Co. The benchmark Tadawul All Share Index fell 3%, the lowest since October 2004. The index has lost almost 14% this year, the second-worst performance among 90 indexes tracked worldwide by Bloomberg after Venezuela’s IBC Index. The Tadawul plunged 53% last year.
- General Motors(GM) is reassigning 500 engineers to speed up the creation of the Chevrolet Volt, an electric car designed to close the automaker’s technology gap with Toyota Motor(TM).
- Durham county District Attorney Mike Nifong was disbarred by the North Carolina State Bar for breaking rules of professional conduct while handling rape allegations against Duke University lacrosse players.
- North Korea invited UN nuclear inspectors into the country for the first time since 2002, days after some frozen funds were transferred to the cash-strapped nation.
- The yen slumped the most against the US dollar since January as Bank of Japan Governor Toshihiko Fukui said the central bank needed to be “more confident” about price increases before raising rates.
- European Union leaders face “serious” obstacles to a deal on the bloc’s constitution after Poland stood firm in objecting to a proposed new voting system, German Chancellor Angela Merkel said.
- French President Nicolas Sarkozy intends to press ahead with his $14.6 billion tax-cut package even after an unexpected setback left him with a narrowed parliamentary majority.
- Airbus SAS is running out of tie. Six months after unveiling its latest long-range 300-seat jetliner, the most lucrative part of the commercial plane market, the company has received only 13 firm orders for the A350 XWB. Boeing’s(BA) Dreamliner has 584.
- The sliding dollar has made it cheaper for expatriates to work in US cities such as NY and LA, according to a cost of living index. Moscow topped the list as the most expensive city for a second year.
- Watch That Slump in Asia’s Pricing Power Abroad. Asian exporters are struggling to climb a slippery slope of rising costs and falling prices.
- Friendly Ice Cream(FRN), the 72-year-old chain that began exploring a sale in March, will be acquired for roughly $337.2 million by an affiliate of buyout firm Sun Capital Partners.
- Never in the history of Wall Street have analysts been so bearish.

Wall Street Journal:
- An internal hedge fund at Bear Stearns(BSC) may dissolve after Merrill Lynch, one of its top lenders, seized $400 million of its assets.
- General Electric(GE) and Pearson PLC, publisher of the Financial Times, may offer a joint bid for Dow Jones(DJ) that would allow the controlling family to retain a minority interest.

Business Week:
- Telecom: Back From The Dead All those YouTube videos and MySpace pages zipping back and forth on the Net have revived the telecom industry and charged up the economy.

NY Times:
- Lexicon Pharmaceuticals(LXRX), a developer of treatments for diseases like irritable bowel syndrome, is expected to announce today that it has signed deals with two private equity firms that will invest nearly $300 million into the 12-year-old publicly held company.
- Kohl’s Corp.(KSS) is changing its image by offering designer Vera Wang’s cut-rate collections in September.
- Restaurant Reservations Go Online.

San Francisco Chronicle:
- PeopleSoft Inc. founder David Duffield is hiring more staff at his Workday Inc. startup software company, which aims to challenge Oracle Corp.(ORCL) and SAP AG(SAP) in the business-software industry, citing Duffield.

- Here’s a good reason for believing that the bull market will continue: Journalists don’t think it will. Business commentators keep trying to see a peak or to imply that the market is high. Since this bull market began in 2003 they have been bearishly biased. And that’s bullish. They are fighting the last war.

Energy Information Administration:
- The latest Short-Term Energy Outlook expects gasoline prices to decline in June and much of July, before increasing again toward the latter part of the summer.

- Iraqi Prime Minister Nuri al-Maliki said any US imposition of timetables for political change could backfire. Maliki said Iraq is a sovereign nation and draft laws for revenue sharing of oil wealth and local elections would be submitted to the parliament next week.
- A new study finds that American universities are luring technology entrepreneurs from overseas, fueling a $52 billion startup boom.

Financial Times:
- Cerberus Capital Management LP, the private equity firm that bought Chrysler Corp. last month for $7.4 billion, may bid for Ford Motor’s(F) Jaguar and Land Rover units.
- French President Nicolas Sarkozy is pushing for outgoing UK Prime Minister Tony Blair to be made the first full-time president of the European Union, citing EU officials.
- An unprecedented coalition of large companies, pension funds, and trade unions will on Monday urge corporate America to scrap quarterly earnings guidance in an attempt to curtail the influence of hedge funds and other short-term investors.

Daily Telegraph:
- BP Group Plc is in talks with D1 Oils Plc about starting a biodiesel fuel joint venture.

London-based Times:
- BHP Billiton(BHP) may consider a $40 billion takeover of US aluminum producer Alcoa Inc.(AA).

Economic Daily News:
- Quanta Computer expects to sell 20% more computers than previously estimated on new software and chips, citing company President Michael Wang. Thanks to Microsoft’s(MSFT) new Windows Vista operating system and Intel’s(INTC) Santa Rosa processor, laptop delivery this year may reach as many as 30 million units, after an earlier projection of 25 million.

Xinhua News Agency:
- China’s wheat harvest may rise for a fourth year, boosted by improved production technology and higher government subsidies to help farmers get record-high unit yield.

Shanghai Securities News:
- China Petrochemical Corp., the nation’s largest oil refiner, is planning bio-diesel projects in the western and northern parts of the country. Sinopec Group, as China Petrochemical is known, will build a plant able to produce 100,000 tons of diesel from biomass every year in Panzhihua in southwestern Sichuan province.

China Business News:
- China’s securities regulator summoned managers and chief investment officers of 57 mutual funds for a two-day meeting last week to warn them about the risks of speculating in the stock market.

Weekend Recommendations
- Made positive comments on (Y) and (LEH).

- Reiterated Buy on (EBAY), target $41.
- Reiterated Buy on (FISV), target raised to $68.

Morgan Stanley:
- There are a number of reasons to expect US inflation to moderate in the second half of the year despite May’s punchy headline number. This is important for investors because it would reduce the risk, at least the domestic risk, of another major step-up in US treasury yields. The first, and most obvious, reason for expecting inflation to moderate is that energy prices are unlikely to keep rising at their recent pace. A moderate pullback in energy prices is expected to cut headline inflation to below 1% annualized in the December quarter. The second, and arguably more import point, is that slower growth should curb core inflation. Even though growth seems set to rebound from the March quarter low, in four-quarter change terms we expect it to remain at below-trend levels in the second half of this year. Given the usual lags, the run of sub-trend growth should see core inflation moderate, as Friday’s data suggest is occurring. A third reason to expect inflation to moderate is the turn in the housing market. Housing is the largest single item in the CPI regiment. Shelter, which is a sub-component of housing, accounts for 33% of the CPI, and 42% of the core CPI. A final reason to be moderately optimistic on the inflation outlook is that goods prices in the US continue to fall. They are not falling by much, but considering the rise in raw material costs, the weakness in the US dollar, and the strength in global growth, I think it’s noteworthy that there have been no sustained price gains for core goods at the consumer level. All this seems like goods news, particularly for bonds.

Night Trading
Asian indices are +1.0% to +1.75% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
- (BAX)/.67
- (CMED)/.39

Upcoming Splits
- (PVA) 2-for-1
- (SEIC) 2-for-1
- (AGN) 2-for-1
- (ESRX) 2-for-1

Economic Releases
1:00 pm EST
- The NAHB Housing Market Index for June is estimated at 30 versus 30 in May.

Other Potential Market Movers
- The Fed’s Minehan speaking and (UTX) analyst meeting could also impact trading today.

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

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