Wednesday, September 24, 2008

Thursday Watch

Late-Night Headlines
- President George W. Bush warned that the nation faces the prospect of a ``long and painful recession'' unless Congress acts quickly to pass a sweeping plan to stabilize U.S. financial markets.

- Crude oil was little changed after dropping 3.3 percent in the last two days following a government report yesterday that showed U.S. fuel demand declined to the lowest in almost five years. Consumption averaged 19.5 million barrels a day during the past four weeks, down 6.6 percent from a year earlier, and the lowest since October 2003, the Energy Department said in a weekly report. U.S. energy producers still have about 62 percent of oil production idled in the Gulf, the U.S. Minerals Management Service said in a statement on its Web site. The area accounts for about 26 percent of U.S. oil output. U.S. oil and gasoline supplies dropped as refineries cut operating rates to the lowest in at least 19 years. Crude- oil imports tumbled 16 percent to 7.14 million barrels a day, the lowest since January 2000. Gasoline stockpiles dropped 5.9 million barrels to 178.7 million barrels, the lowest since 1967. Refineries operated at 66.7 percent of capacity last week, the lowest since the department began compiling weekly figures in 1989. The previous low was 69.8 percent of capacity, touched in September 2005, when refineries along the Gulf Coast were shut after hurricanes Katrina and Rita battered the region.

- The credit-default swap market, used to hedge against bond losses and speculate on corporate credit risk, shrank for the first time as efforts to eliminate duplicate trades cut contracts outstanding by 12 percent. ``This decrease primarily reflects the industry's efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry's ongoing commitment to reduce risk and enhance operational efficiency,'' ISDA Chief Executive Officer Robert Pickel said in the statement. ``We expect to see more effects of this over time.''

- Mitsui O.S.K. Lines Ltd., Japan's largest operator of iron-ore ships, dropped in Tokyo trading, leading domestic rivals lower, as rates for carrying commodities tumbled the most in three months. The Baltic Dry Index, a measure of commodity-shipping rates, yesterday dropped 6.1 percent to the lowest in 19 months.

Wall Street Journal:
- The short-selling ban is taking the "hedge" out of hedge funds. The Securities and Exchange Commission has banned short sales of roughly 950 financial-related stocks until Oct. 2, a list that ranges from Goldman Sachs Group Inc. to International Business Machines Corp., which was added Wednesday. With their hands tied on those stocks and the algorithms that do much of their trading running into technical hitches, many quantitative and other "market-neutral" hedge funds are significantly reducing trading activity, according to people on Wall Street. Once major buyers and sellers on the stock market, these funds may have to reinvent their models in the event the rule is stretched beyond the Oct. 2 deadline. Such an extension is expected. The top executive at New York Stock Exchange parent NYSE Euronext said Wednesday he believes the emergency short-selling ban on the U.S.-listed financial stocks will be extended. Duncan Niederauer, chief executive of the trans-Atlantic exchange operator, said the industry also was working with regulators on a "broader solution" to concerns about the practice that could extend beyond financial stocks. That would be continued bad news for most hedge funds.

- The Securities and Exchange Commission has subpoenaed more than two dozen hedge funds as it ramps up its investigation into whether traders were spreading rumors to manipulate shares, according to people familiar with the matter.

- The strike that has idled Boeing Co.'s commercial-airplane factories for almost three weeks is showing signs of becoming a protracted standoff between the company and its largest labor union.

- De-Coupling Bet Will Again Fail. One of the most debunked ideas of 2008 was the idea that the global economy and its financial markets would de-couple from the U.S. and remain buoyant.
- Hopes of a rapid recovery in the health of the Chinese economy after the Olympic Games are fading fast on weakening commodity as well as property prices, Citigroup said in a report released Wednesday. "All signs are pointing towards an across-the-board slowdown in the Chinese economy. The particular worrying signs are rapid cuts in steel prices, surging steel exports, deceleration in electricity consumption growth and weakening coal prices," Citigroup Lan Xue wrote in the report.
- Even though the House voted to let the ban on offshore drilling expire at the end of September, and the Senate looks likely follow suit, it will still take years before even the first lease is granted. And in the meantime, a new President could reinstate the ban with the stroke of a pen.

- Gas prices retreated for the seventh day in a row, nearing pre-Ike levels, according to a nationwide survey of credit card swipes at gasoline stations. The average price of unleaded regular dropped 1.1 cents to $3.715 a gallon, from $3.726 a gallon, according to the survey released Wednesday by motorist group AAA.

- Oracle(ORCL) has teamed with HP(HPQ) to launch the HP Oracle Database Machine to penetrate deeper into the data warehousing space.


- Democrat Barack Obama on Wednesday rejected opponent John McCain's call to postpone the first U.S. presidential debate to work on legislation dealing with the worst U.S. financial crisis since the Great Depression. Obama made the statement shortly after McCain, a Republican senator from Arizona, called for Friday's debate to be postponed and said he would suspend his campaign to help work out agreement among lawmakers on a proposed $700 billion financial bailout plan. "What I'm planning to do now is debate on Friday," Obama said from the hotel where he has been preparing for the debate.

- Nobel Peace Prize winner and environmental crusader Al Gore urged young people on Wednesday to engage in civil disobedience to stop the construction of coal plants without the ability to store carbon. The former U.S. vice president, whose climate change documentary "An Inconvenient Truth" won an Academy Award, told a philanthropic meeting in New York City that "the world has lost ground to the climate crisis." "If you're a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration," Gore told the Clinton Global Initiative gathering to loud applause.

- Pfizer Inc's(PFE) research chief said he foresees more collaborations with other pharmaceutical companies in an effort to share the cost and risk of drug development and potentially get more experimental medicines into expensive late stage testing.

Financial Times:
- US hedge funds are scrambling to remodel their trading strategies as they explore ways to regain the potential benefits taken away from them by new rules restricting short selling on financial stocks. The Securities and Exchange Commission enacted new rules last week designed to prevent the short selling of certain listed financial stocks. The initial list of stocks on which short selling is now forbidden has since grown. Several traders are concentrating on the over-the-counter derivatives market, which is unaffected by the new rules, as a way of taking implicit bets on the financial sector.

- Hedge funds charging hefty fees for sophisticated trading strategies aimed at outperforming the wider market have collectively parked $100bn in simple money market funds typically used by investors seeking safe rather than spectacular returns. Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds, normally seen as some of the safest places to invest cash. US mutual fund managers are also holding near to record levels of cash. The average actively managed stock fund has 5.4 per cent of its portfolio in cash, according to Morningstar.

- The City's regulator has threatened to impose unlimited fines on investors that breach its new rules on betting against UK bank shares amid a flurry of late disclosures by hedge funds. The warning came yesterday as Gordon Brown promised new permanent rules to curb short-selling once the Financial Services Authority (FSA) ban expires in January. The Prime Minister said: “We'll be reviewing over the next four months and I think you will find new rules for the future.” Such a move could further threaten the hedge funds industry, which has grown explosively in London.

The Guardian:

- Man Group, the world's biggest listed hedge fund, was battling last night to persuade the Financial Services Authority to protect it from short-sellers after the City regulator rebuffed its initial claim. Man shares jumped almost 3% on the London Stock Exchange on rumors that it would receive the backing of the FSA. And yesterday Man said it was continuing to lobby the FSA with what it said was a strong argument in favor of joining UK banks and insurers on a list of 34 firms whose shares cannot be shorted.

The Economic Times:

- The latest round of the ET-NCAER Business Confidence Survey reveals a serious deterioration in India Inc’s sales and production forecast, along with a weak profitability outlook. This is in contrast to the previous round of the survey, when sales and production forecasts were normal, and only the profit forecast was weak due to rising inflation. If high inflation was the first stage, then we are surely in the second stage, wherein rising prices have started affecting the overall demand. This was expected, as the Reserve Bank of India (RBI) has been continuously increasing key interest rates to curb growth and cool inflation.

Late Buy/Sell Recommendations
- Reiterated Buy on (MET), target $70.
- Reiterated Buy on (OI), target $55.

Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 futures -.02%.
NASDAQ 100 futures -.06%.

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
- (MKC)/.48

- (CHTT)/1.03

- (SCHL)/-1.00

- (ALOG)/.54

- (CBK)/.02

- (FINL)/.17

- (MTN)/-.21

- (TXI)/.78

Economic Releases
8:30 am EST

- Durable Goods Orders for August are estimated to fall 1.9% versus a 1.3% gain in July.

- Durables Ex Transports for August are estimated to fall .5% versus a .7% gain in July.

- Initial Jobless Claims for last week are estimated to fall to 450K versus 455K the prior week.

- Continuing Claims are estimated to rise to 3510K versus 3478K prior.

10:00 am EST

- New Home Sales for August are estimated to fall to 510K versus 515K in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Fisher speaking, Fed’s Warsh speaking, Fed’s Evans speaking, weekly EIA natural gas inventory report, (ORCL) analyst meeting, (NSM) analyst meeting, (EHTH) analyst day and UBS Global Life Sciences Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

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