Thursday, December 18, 2008

Friday Watch

Late-Night Headlines

- The euro will fall some 12% against the US dollar in the coming three months, UBS AG analysts wrote. “The European economy is in very poor condition to deal with the recent appreciation” of the euro, Steven Englander, a currency strategist at Barclays in New York, wrote in a report yesterday. “The outlook for Russia and Eastern Europe remains the most important downside risk to the euro.”

- General Motors Corp.(GM) and Chrysler LLC would get U.S. loans to stay afloat until March under a Bush administration rescue plan that may be unveiled as soon as today, people familiar with the talks said. The government could take back the money should the automakers not comply with federal restrictions as a condition of receiving the funds, said the people, who asked not to be identified because the discussions are private. The plan isn’t final and may change, the people said.

- California lawmakers approved a plan that would raise $9.3 billion in taxes and fees to help ease the state’s record budget deficit, using a loophole Democrats said would avoid a required two-thirds vote. The Senate approved the measure, 23-15, while the Assembly passed it, 46-27. Democrats control both chambers. The bill taxes oil withdrawn within the state, puts a 2.5 percent surcharge on income taxes and replaces gasoline taxes with a flat 39-cent-a-gallon fee. Democrats said it needed only a simple majority because it cut some taxes while increasing others in equal amount and raised fees that don’t require the two-thirds approval requirement that Republicans used to thwart tax increases.

- Liz Ann Sonders, chief investment strategist at Charles Schwab, says deleverging may be nearing an end. (video)

- Copper futures on the Shanghai Futures Exchange plunged by the daily limit to the lowest in five years after global inventories climbed, signaling waning demand during the recession. Copper fell to a four-year low yesterday on the London Metal exchange after the exchange-monitored stockpiles rose to 324,175 metric tons, the highest level since Feb. 12, 2004. Canceled warrants, or metal booked for withdrawal, totaled 4,775 tons. “The unrelenting gains in London inventory and the extremely low ratio of cancelled warrants to total stockpiles indicate weak fundamentals are here to stay,” Wang Lei, an analyst at Haitong Futures Co., said from Shanghai.

- Crude oil headed for the second- biggest weekly decline in more than five years as a deepening global recession saps demand, countering efforts by OPEC to boost prices. Oil has dropped 33 percent this month even as OPEC agreed to its largest production cut in more than a decade because traders speculated that falling demand would outweigh the reduction. Global oil use may decline the most since 1983, Deutsche Bank analyst Adam Sieminski said yesterday. ``Everyone is revising back demand forecasts and OPEC is desperately cutting in order to catch up to where the market is,'' said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``There is a feeling that OPEC isn't in control.'' Oil companies have booked 25 supertankers to store crude, enough to supply France for almost a month. The vessels, equal to about 5 percent of the global fleet, can carry as much as 50 million barrels. ``In the short term the price can be pretty much anything because of all the crude in storage on the water,'' said Mitsubishi's Nunan.

- Research In Motion Ltd.(RIMM), maker of the BlackBerry smart phone, forecast fourth-quarter sales that topped analysts’ estimates, buoyed by demand for new handsets. Revenue in the period ending Feb. 28 will be as much as $3.5 billion, the Waterloo, Ontario-based company said today in a statement. That compares with the average analyst estimate of $3 billion in a Bloomberg survey. Research In Motion gained 50 cents to $38.94 in extended trading, after dropping $2.23 to $38.44 at 4 p.m. New York time in Nasdaq Stock Market trading.

- Oracle Corp.(ORCL), the world’s second- largest software maker, met analysts’ estimates with its second- quarter profit and third-quarter forecast as support contracts made up for slumping orders of new programs. Second-quarter net income was $1.3 billion, or 25 cents a share, the same as a year earlier, Redwood City, California-based Oracle said today in a statement. Excluding costs from acquisitions and stock-based compensation, profit was 34 cents a share in the period ended Nov. 30, matching the average estimate of analysts in a Bloomberg survey. Oracle rose 64 cents, or 3.9 percent, to $17.25 in late trading after closing at $16.61 on the Nasdaq Stock Market.

- Citigroup Inc., the U.S. bank that got $65 billion in government funds to replenish capital after four straight quarterly losses, had its senior debt rating cut two grades by Moody’s, the first downgrade in a year.

- A blast of wintry weather across the U.S. that left a record-breaking snowfall in Las Vegas threatens to drop as much as 5 inches (12.7 centimeters) of sleet and snow on New York City tomorrow and disrupt travel across the country.

- Japan’s government will buy as much as 20 trillion yen ($223 billion) of shares held by banks to boost their capital and support a sagging stock market. The amount is part of a stimulus package totaling 75 trillion yen that also includes 10 trillion yen for capital injections into banks, the Cabinet Office said in a statement.

Wall Street Journal:

- Standard & Poor's Ratings Services lowered its long- and short-term counterparty credit ratings on Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC to just a notch above junk and then withdrew the ratings at the company's request. S&P, which cut the ratings a notch to BBB-, said the funds' business model is under pressure in the current operating environment. S&P affirmed their A-3 short-term credit rating, but said the outlook was negative before the withdrawal. The two funds, run by hedge-fund operator Citadel Investment Services, are down 51% this year as of last Friday, according to investors.

- President-elect Barack Obama said Thursday that remaking the nation's financial regulatory system will be one of his first initiatives, and he pledged to streamline authority, consolidate agencies and spread financial oversight far beyond the banking system. New regulations are likely to fall on financial institutions currently seeking federal assistance that are either lightly regulated or not regulated at all, Obama aides said. Mortgage brokers are under particular scrutiny, as are hedge funds and private-equity firms.

- Russia's oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response. Gloom deepened over the outlook for oil-export revenue, Russia's main earner, as prices plunged Thursday despite OPEC's move this week to deeply cut production. Oil hit a 4½ year low on anxiety about falling global demand, with crude closing at $36.22 a barrel in New York, down $3.84. This could spell trouble for Russia, which has pegged its 2009 budget on much higher oil prices, meaning it will have to trim spending.
- Barton Biggs, of hedge fund Traxis Partners, is bullish because he thinks the economy won’t be as sick as people think. He says with headline inflation in negative territory, real incomes are rising which will support consumer spending. He thinks the markets have already discounted a significant decline in future earnings and that US treasuries are in a bubble. He said the bottom in bear markets always occurs at a point of maximum pessimism when the news is at its worst. (video)

NY Times:

- Federal prosecutors on Thursday accused a Barclays Wealth employee of helping run a $4.8 million insider-trading ring based on information illegally obtained from his wife, a public relations executive involved in several deals.

- How many clients of Bernard L. Madoff Investment Securities profited unwittingly on what Mr. Madoff described as a big Ponzi scheme isn’t known. But given the structure of Ponzi schemes, which use money from later investors to pay early investors, many longtime clients may actually have wound up ahead. “In a Ponzi scheme, not all investors lose,” said Tamar Frankel, a law professor at Boston University who has written on Ponzi schemes. “Those who manage to get out in time retain their investments and some of their gains.” But previous court rulings regarding financial frauds suggest the winners could be forced to give up some of their gains to losers.
- Mortgage rates fell this week, with the 30-year fixed mortgage sinking to its lowest rate in 37 years as the Federal Reserve cut interest rates to historic lows. Government-sponsored mortgage lender Freddie Mac (FRE) said Thursday that fixed rates on 30-year mortgages averaged 5.19% for the week ending Dec. 18. That's down from 5.47% last week and below the year-ago rate of 6.14%.

- A record number of hedge funds went bust during the third quarter, a report showed Thursday, as shaky markets and tight credit drove investors away from risky investments. Hedge Fund Research, a Chicago-based information company, said the number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006. The data also showed that 693 hedge funds were closed in the first nine months of the year versus 409 in the same period last year. That's an increase of 70% and represents nearly 7% of all hedge funds, according to HFR.

Financial Times:
- Leading banks from Britain, France and Japan helped investors treble or quadruple bets on Bernard Madoff by lending billions of dollars to “feeder” funds, which placed their money with the alleged fraudster. HSBC, Royal Bank of Scotland, Nomura and BNP Paribas lent the money without spotting a fraud, and in at least one case without due diligence teams visiting Mr Madoff’s brokerage, which held the assets. Banks including Nomura and Spain’s BBVA also helped create special “notes”, structured products that allowed small investors or those barred from investing in offshore vehicles to put as little as $50,000 into Madoff feeder funds. BBVA – which raised €300m ($429m) through these products – offered a guaranteed return of capital, while Nomura provided leverage.

- The Taiwanese government and a host of Middle Eastern donors are among the leading supporters of Bill Clinton’s philanthropic foundation, according to figures released on Thursday. The full list of contributors to the former US president’s William J. Clinton Foundation, made public after protracted negotiations with president-elect Barack Obama, highlights the delicate diplomatic path Hillary Clinton could face as Mr Obama’s choice for secretary of state.


- France will enter recession in 2009, according to Insee, the country's national statistics agency. The agency says the French economy has shrunk by 0.8% in the last three months of 2008 and will contract by another 0.4% in the first quarter of 2009. The figures are worse than predictions, which said the economy would shrink by just 0.1% from October and December.

Straits Times:

- Singapore’s property auction sales have slumped to the lowest in 10 years, citing Colliers International. The value of properties sold through an auction dropped 79% to S$83.7 million in 2008 from S$4047.4 million a year earlier, citing Colliers.

China Times:

- Taiwan’s central bank bought large amounts of US dollars yesterday to slow gains by the island’s currency, citing traders it didn’t identify.

Late Buy/Sell Recommendations

- We do not waver from our positive stance on the semiconductor sector. We continue to advise that investors overweight select stocks in the sector. We reiterate our “buy the dips” not “sell the rallies” strategy in this light. Our Buy-rated names are: NVDA, QCOM, ALTR, INTC, IDTI, STM and TXN.

- Downgraded (FLR) to Sell, target $37.

- comScore released US qSearch data for Nov-08. The data shows that total search queries in Nov. from the core search engines were 12.3 billion, up 22.3% Y/Y versus 20.1% Y/Y growth in October and 21.0% Y/Y in Q3. GOOG gains query share and growth accelerated – Nov. queries grew 32.3% Y/Y, which marked a reacceleration versus 29.6% Y/Y growth in October and 35.0% in Q3. In Nov., GOOG had 63.5% share, up 42 bps versus October share of 63.1%, and up about 77 bps versus Q3 share. This represents a new record high query share for GOOG. We view the qSearch results as incrementally positive for our Q4 GOOG estimates.


- Rated (SCOR) Outperform, target $13.

Night Trading
Asian Indices are -50% to +75% on average.
S&P 500 futures -.57%.
NASDAQ 100 futures -.67%.

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
- (KMX)/.01

- (CTAS)/.54

- (JBL)/.32

Economic Releases
- None of note

Upcoming Splits
- None of note

Other Potential Market Movers
- The (CA) Analyst Day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by airline and technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

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