Thursday, September 18, 2008

Friday Watch

Late-Night Headlines
- The cost of protecting Australian corporate bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Australia index fell 23 basis points to 175 basis points as of 9:42 a.m. in Sydney, Credit Suisse Group prices show.
- Oracle Corp.(ORCL), the world's second- largest software maker, said earnings topped analysts' projections last quarter after clients bought more database programs and renewed contracts for upgrades. The stock rose 6.3 percent after Oracle said today that first-quarter profit, excluding costs such as stock-based compensation, rose to 29 cents a share, beating the 27-cent average of estimates compiled by Bloomberg. Sales for support surged 23 percent and accounted for more than half the total.
- Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke pledged to work through the weekend on a plan requiring legislation aimed at alleviating the financial market turmoil.
- The US dollar gained versus the yen for a second day on U.S. government plans to revive credit markets and prevent further finance industry collapses. ``The plan is likely to be welcomed by the markets and will probably safeguard the U.S. financial system,'' said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France's largest bank by market value. ``This is dollar- supportive.'' ``The last 12 to 18 hours have been an unambiguous good for the financial world and the global economy,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane, Australia. ``The first response is the yen isn't an attractive asset now.''
- The U.S. House of Representatives approved legislation that would set speculation limits on agriculture and energy markets and require foreign exchanges to file daily reports on trading activities. The measure would need to pass in the Senate and most likely would need to have a veto-proof majority. Congress is planning to leave at the end of next week to campaign before November elections, which leaves enactment of the measure uncertain. Investment banks, hedge funds and the futures industry association have lobbied hard for the bill's defeat.
- Demand for commodities, which fell into a bear market amid a ``confidence crunch,'' will slow as global growth cools, according to Standard Chartered Plc. ``Commodities will likely trend lower,'' analysts including Helen Henton, the London-based head of commodity research at the bank, said today in a report. The economies of Asia won't be able to ``decouple'' as financial losses and tighter credit markets weigh on growth in China, India and other countries, the Standard Chartered analyst said. Economic weakness and a stronger dollar will pressure commodity prices in the near term, Henton said. ``Global macro-conditions have become less supportive'' for commodity prices, she said. ``Investment demand will be curbed.''

Wall Street Journal:
- Morgan Stanley(MS) CEO John Mack is lobbying lawmakers and regulators to restrain short sellers of the bank’s stock after losing clients in its prime-brokerage unit. The unit, which works with hedge funds, has lost 15 to 20% of the balance it held. Mack has lobbied the SEC, White House Chief of Staff Joshua Bolton and Senator Charles Schumer to halt investors trying to profit if Morgan Stanley’s(MS) stock declines.
- Citigroup Inc.(C), moving to take advantage of the turmoil that is hobbling banks throughout the U.S., is considering making a bid for Washington Mutual Inc.(WM), according to people familiar with the situation. "People view us today as being a source of the solution, instead of part of the problem," Gary Crittenden, Citigroup's chief financial officer, said in an interview.
- Number of funds falls as credit crunch takes toll. Industry on course for 700 liquidations in 2008, HFR estimates. A total of 147 new single-manager funds were launched in the second quarter, while 157 were liquidated. That brought down the total number of funds for a second quarter in a row - the first time that's happened since HFR began tracking the industry more than a decade ago.
- Republican presidential candidate Sen. John McCain on Thursday called for the firing of Securities and Exchange Commission Chairman Christopher Cox, saying he has "betrayed the public's trust." In an attempt to beef up his economic credentials after taking a few hits earlier this week for saying the nation's "fundamentals are strong" while the stock markets were suffering huge losses, McCain got more aggressive, saying that the SEC was "asleep at the switch" and reiterated his call for tougher oversight of Wall Street. McCain castigated the SEC for letting speculators "turn our markets into a casino," allowing naked short selling and eliminating the uptick rule to protect investors. "Speculators pounded the shares of even good companies into the ground," McCain said. "The chairman of the SEC serves at the appointment of the President and, in my view, has betrayed the public's trust. If I were President today, I would fire him." McCain also called for a Mortgage and Financial Institutions trust, similar to the Resolution Trust Corp. created after the savings and loan scandals of the early 1990s to regulate the industry. Reports said he would release a more detailed economic plan on Friday.
- Regulators, law enforcement and major pension funds declared war on short-sellers Thursday as they try to put a stop to the panic gripping Wall Street. New York Attorney General Andrew Cuomo said he would use the state's Martin Act to pursue criminal fraud charges against short-sellers found to be manipulating shares in major financial institutions, including Lehman Brothers (LEH), American International Group (AIG), Goldman Sachs (GS) and Morgan Stanley (MS). His office opened a broad investigation of trading in shares of those companies, which have been badly beaten in the last 10 days. "The markets need to be stabilized," Cuomo said. "One way is to root out short sellers who spread false information." Meanwhile, New York's comptroller's office, joining a growing number of major pension funds, said Thursday it wouldn't lend out shares of Morgan Stanley, Goldman or 17 other financial stocks from its retirement fund's securities lending program. Pensions and other institutions are major sources of stock borrowed by short- sellers to take their trading positions. Big California pensions Calpers and Calsters have also refused to lend out Goldman and Morgan holdings. Calpers is also not lending out Wachovia (WB). The support for Morgan Stanley and Goldman Sachs, in particular, and banks in general, comes a day after Morgan's chief executive John Mack blamed shorts for his firm's faltering stock price. "It's very clear to me that we're in the midst of a market downturn that's controlled by fear and rumor and short-sellers driving down our stock," he said in a memorandum to employees Wednesday. Britain's Financial Services Authority said Thursday it would suspend the ability of traders to short financial company stocks starting at midnight. Starting Tuesday, traders will have to disclose net short positions that make up more than one-quarter of a percent of a company's shares, including positions held as of Friday. The Securities and Exchange Commission is preparing a fresh wave of subpoenas to try to ferret out rumor-mongering, conspiracy or manipulation in financial stocks. Late Wednesday it also said it would try to force hedge funds and investment managers with greater than $100 million under management to disclose their daily short positions. Naturally, the fund industry isn't too keen on that. James Chanos, founder of short-selling oriented Kynikos Associates and head of a fund-lobbying group, said any rule requiring the disclosure of short positions "is akin to the government suddenly requiring Coca-Cola (KO) to disclose their secret formula for free to all their competitors."

- to offer content delivery service.

Seeking Alpha:
- Hedge Funds May Have Gone Too Far. You simply do not attack Goldman Sachs (GS). Goldman has too many people placed in government. CNBC said Thursday morning, Morgan Stanley (MS) CEO was livid Wednesday and had the ears of people in various arms of the government (he was once considered for SEC commissioner) - essentially if Morgan Stanley goes down, this is blood on your hands. In the end it still comes down to who you know. And I think the government is now fully engaged.

Financial Times:
- US securities regulators were on Thursday night considering a ban on short selling as part of a group of new initiatives to restore calm to the stricken financial markets, people familiar with the situation said. The US Securities and Exchange Commission was discussing a short-selling ban on some or all stocks and an announcement could come as early as Friday, these people said.
- Morgan Stanley (MS) is in talks to sell a stake of up to 49 per cent to China Investment Corp, the state-owned investment fund, as part of the Wall Street firm's efforts to ensure its survival and reverse a slump in investor confidence. People close to the discussions said the investment bank was exploring the stake sale to CIC as an alternative to a merger with Wachovia, the troubled US lender that approached Morgan Stanley on Wednesday.

- Speculators and hedge funds have been banned from betting on British banks going bust in a dramatic move by the City’s regulator. The Financial Services Authority hopes that the temporary crackdown will prevent the downward spirals of bank share prices, reduce the likelihood of another Northern Rock-style run and encourage banks to start lending again on better terms.

Late Buy/Sell Recommendations

- Reiterated Buy on (ORCL), target $25.
- Reiterated Buy on (CRM), target $70.
- Reiterated Buy on (CELG), target $86.
- Reiterated Buy on (CAG), target $29.

Thomas Weisel:
- Rated (SONC) Overweight, target $18.
- Rated (YUM) Overweight, target $44.

Night Trading
Asian Indices are +2.50% to +5.75% on average.
S&P 500 futures +2.30%.
NASDAQ 100 futures +2.01%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories

Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- None of note

Economic Releases
- None of note

Upcoming Splits
- None of note

Other Potential Market Movers
- The DA Davidson Engineering/Construction Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by technology and financial shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

No comments: