Monday, September 22, 2008

Tuesday Watch

Late-Night Headlines
- Short-term pressure on the US dollar will subside as the government’s efforts to prevent a prolonged recession support the currency amid a slowing global economy, wrote Morgan Stanley currency strategist Stephen Jen. The currencies of countries participating in banking system bailouts since the late 1980s have not depreciated from the efforts, Jen wrote, citing the US Savings & Loan Crisis, Japan during the early and late 1990s and Norway in the early 1990s.

- The U.S. hedge-fund industry's biggest lobbying group urged regulators to revise new rules that crack down on short selling, saying the measures unfairly blame traders for the financial crisis. The Securities and Exchange Commission should scrap plans to make hedge funds publicly reveal new short positions and instead require private disclosure, the Washington-based Managed Funds Association said in a Sept. 21 letter to the SEC. A temporary ban on bets that financial stocks will fall should be adjusted to permit hedging, the MFA added.

- Morgan Stanley(MS) and Goldman Sachs Group Inc.(GS) led a drop in the cost of protecting bank bonds from default as the U.S. government broadened the scope of its plan to stem the financial crisis. Credit-default swaps on the securities firms fell to the lowest in a week after the Federal Reserve approved their bids to become banks and Mitsubishi UFJ Financial Group Inc. said it may buy as much as a fifth of Morgan Stanley. Contracts on banks including Wachovia Corp. and Bank of America Corp. also fell as U.S. Treasury Secretary Henry Paulson submitted a plan to Congress to buy $700 billion of devalued assets.

- Gareth Lewis-Davies, a research analyst at Dresdner Kleinwort, sees oil at $80 on weaker demand. (video)

- China, the world's largest cotton grower and consumer, may not boost imports in the new marketing year because domestic supplies are ample and demand for textile products is sluggish, the China Cotton Association said. With the bulk of the new crop hitting the market soon, textile mills are ``more cautious'' with buying and domestic cotton prices will fall further, the group said. Last month, the country imported 186,900 tons of cotton, down 28 percent from a year earlier, the cotton association said.

- The Commodity Futures Trading Commission is ``closely monitoring'' the biggest ever gain in oil prices on the New York Mercantile Exchange for potential manipulation, the agency's acting chairman said. ``We are working closely with Nymex compliance staff to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain,'' Acting Chairman Walter Lukken said today in a statement. Crude oil futures contracts rose more than $25 a barrel during trading on the Nymex. Oil settled at $120.92 a barrel, up 17 percent for the day. ``CFTC enforcement staff will scour today's trading activity to determine whether anyone engaged in illegal manipulative activity,'' Stephen Obie, acting director of enforcement for the agency, said in the same statement.

- Private-equity firms raised a record $324.4 billion in the first half of the year as investments in funds that buy distressed assets increased, according to a report released today. Firms including Carlyle Group and Oaktree Capital Management LLC exceeded the $323.8 billion gathered in the year- earlier period, according to data compiled by London-based Preqin Ltd.

Wall Street Journal:
- Asian hedge funds, already struggling with underperforming Asian stock markets this year, are bracing for another blow after Australia and Taiwan moved to ban short selling in their markets. Following actions taken in the U.K. and the U.S. last week, regulators in Australia and Taiwan instituted bans on short selling. The action helped buoy stock markets around the region. But hedge-fund managers, scrambling to assess how the moves will affect funds, are anticipating volatility while still awaiting clarity from authorities on the implementation of the rules.

- Some Investment Banks May Prosper.
- Oil’s jump makes history, but true test is yet to come. Some of what's going on really doesn't make any sense. A worrisome economy and financial market should translate into lower demand for oil, some analysts said. "The oil market is caught up in the same hysteria of the rest of the financial markets," said Anthony Sabino, a professor of law at St. John's University, whose legal practice includes oil and gas law. "If the economy is so bad and uncertain and panicky, [the] price per barrel should be deflating like crazy because demand is cratering," Sabino said. The same insane speculation that drove investors into "toxic investments" such as subprime lending and collateralized debt obligation has infected the oil market, "so for no good reason at all they are driving oil up to unsustainable prices," he said. It's a "wholly illogical disconnect," Sabino said. With the U.S. stock market down by so much and money tight, logic says oil demand will "continue to drop like a stone, so prices should be back at $90 and heading south to $80."

NY Times:
- Enlisted Recruits More Likely from Middle, Upper Class Families. Isn’t the modern military full of men and women from low-income backgrounds, with a far higher minority representation than in the general population, who join up only because they have no other viable career possibilities? That is certainly a piece of conventional wisdom that I have heard voiced; which is why a new report titled “Who Serves in the U.S. Military? The Demographics of Enlisted Troops and Officers” is so surprising. 50 percent of the enlisted recruits (i.e., not including the officers’ corps) come from families in the top 40 percent of the income distribution, while only 10 percent come from the bottom 20 percent.
- America’s 100 Fastest-Growing Companies.

Financial Times:
- Moves to regulate the $62,000bn credit derivatives market escalated on Monday, with New York state planning to bring parts of the sector under the control of its insurance supervisors from January.

The Independent:

- Hedge funds could have an unprecedented level of cash pulled out by investors this quarter, according to insiders, just as they faced millions of pounds of losses from last week's shocking regulation of short selling. It has been a tough year for the industry with high-profile funds blowing up, clients increasing redemptions, as well as public fury over short selling and increased threats of regulation. One market analyst said: "I know even the good hedge funds have been suffering withdrawals recently. Investors are very nervous." Stuart McLaren, financial services partner at Deloitte, said: "When the dust has settled, I expect the regulators to look at the role that hedge funds have played in the current issues. I expect there will be increased calls for regulation, but I doubt much will come from it."

The Economic Times:

- India May See Institutional Investors Exit. With the US Federal Reserve approving the conversion of two major global investment firms into bank holding companies, Indian market is likely to witness more pullouts by foreign institutional investors (FIIs), fear BSE traders. The conversion of Goldman Sachs and Morgan Stanley into banks may see more winding down of structured investments vehicles which these entities had built in India and other Asian countries. Now, there could be a curb on their investment portfolios with much tighter regulatory norms, traders said.

Late Buy/Sell Recommendations
- Reiterated Buy on (MFE), target $45.

Night Trading
Asian Indices are -2.0% to unch. on average.
S&P 500 futures +.35%.
NASDAQ 100 futures +.49%.

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
- (LEN)/-.60

- (FDS)/.64

- (FUL)/.35

- (WOR)/.55

Economic Releases
10:00 am EST

- The July House Price Index is estimated to fall .2% versus unch. in June.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, Richmond Fed Manufacturing Index, (PSS) analyst meeting, (SEE) investor day, (JOYG) analyst day, (ARAY) analyst meeting, (SQNM) analyst day, Thomas Weisel Consumer Conference, UBS Global Life Sciences Conference and Merrill Lynch Global Power/Gas Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by airline and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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