Tuesday, December 16, 2008

Wednesday Watch

Late-Night Headlines

- The cost of protecting Asia-Pacific bonds from default declined after the Federal Reserve cut the main U.S. interest rate to as low as zero for the first time and shifted its focus to the amount and type of debt it buys. The Markit iTraxx Australia index of credit-default swaps plunged 45 basis points to 360 as of 11:24 a.m. in Sydney, Citigroup Inc. data show. The Markit iTraxx Japan index was 25 basis points lower at 305 at 9:30 a.m. in Tokyo, according to BNP Paribas SA. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 37.5 basis points to 382.5 at 9:05 a.m. in Hong Kong, while the benchmark for Asia high-yield borrowers was quoted at 1,275 basis points, Morgan Stanley prices show. Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada dropped 20 basis points yesterday to 244, according to broker Phoenix Partners Group. In London, contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 12 basis points to 195, according to JPMorgan Chase & Co.

- Bernard Madoff’s alleged Ponzi scheme, which might have cost investors $50 billion, couldn’t have been carried out alone, said Arpad ‘Arki’ Busson, chairman and founder of Swiss investment firm EIM SA. “For the amount of money and number of accounts, it’s practically impossible that he was doing this alone,” said Busson, whose $11.5 billion fund of hedge funds had about $230 million invested with Madoff. “What’s mind-boggling is the amount of assets and the amount of time he was doing it.”

- Yields on Fannie Mae and Freddie Mac mortgage bonds declined to record lows after the Federal Reserve said it may increase purchases of the securities, indicating home-loan rates may also soon fall to records. Yields on Washington-based Fannie’s current-coupon 30-year fixed-rate mortgage bonds slid 30 basis points, or 0.30 percentage point, to 3.86 percent as of 4:42 p.m. in New York, according to Bloomberg calculations. The difference between the yields on the bonds and 10-year Treasuries narrowed 6 basis points to 158 basis points.

- Goldman Sachs Group Inc.(GS) said its value at risk in commodities fell to $38 million in its fiscal fourth quarter from $51 million in the previous quarter.

- Rio Tinto Group(RTP), the world’s second- largest iron ore producer, more than halved shipments from Western Australia’s Dampier Port last month amid plunging demand from steelmakers in Asia. “There is a big oversupply of iron ore at the moment,” James Wilson, a resources analyst at DJ Carmichael & Co., said by phone from Perth.

- Adobe Systems Inc.(ADBE), the world’s biggest maker of graphic-design programs, forecast first-quarter profit that met analysts’ estimates, sending the shares up 11 percent in extended trading. Profit will be 43 cents to 47 cents a share in the period, excluding some costs, the San Jose, California-based company said today. Analysts had estimated 44 cents on average, according to a Bloomberg survey. Adobe also posted fourth-quarter profit and sales at the top end of a preliminary range given this month.

- Toyota Motor Corp., the world's second-largest automaker, plans to cut production in India this month by 20 percent from November's output as the squeeze in consumer lending saps demand, spokesman Hideaki Homma said today.

- Treasury Secretary Henry Paulson said U.S. automakers will receive a federal aid package as soon as the government can draft a suitable plan that ensures the companies’ long-term survival. “The autos will get the money as quickly as we can prudently do it,” Paulson said today in a CNBC interview. “Right now what I’m thinking about is autos.”

- OPEC is asking Russia and other countries outside the group to curb production by 600,000 barrels a day to reduce excess supply as demand shrinks because of the global recession. “Russia is an important country and we expect it to reduce 400,000 barrels a day to support OPEC’s decision,” Abdalla el- Badri, OPEC’s secretary general, told today reporters in Oran, Algeria. Another 100,000 to 200,000 barrels a day is expected to be cut by other countries that aren’t in OPEC, el-Badri said.

- Yale University estimated its endowment had fallen 25 percent, to $17 billion, since the end of June because of the global financial crisis, leading the school to restrict pay raises and cut spending to close a projected $100 million budget deficit.

- California Democrats Push Tax-Increase Vote, Threaten Lockdown.

Wall Street Journal:

- The Obama administration is considering a series of initiatives to combat the financial crisis, including some efforts to help banks that the Bush administration has tried with limited success. Among the plans being discussed are injecting more capital into banks, creating a market for illiquid assets clogging the books of financial institutions and helping borrowers who are having trouble making their mortgage payments.

- At the height of the property bubble, California's giant pension fund, Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it's one of the biggest owners of undeveloped residential land in America. Partly because of these investments, California Public Employees' Retirement System is struggling to avoid one of its worst annual declines since its 1932 inception. Calpers has lost almost a quarter of its assets since July 1, the start of the current fiscal year.

- Bush Abortion Rules Face Possible Reversal. A swath of abortion and other reproductive-health issues are under review by the Obama team, which is preparing to reverse a variety of Bush measures.

- The Federal Reserve cut its target interest rate Tuesday to historic lows between zero and a quarter percentage point and said it could expand a program of unorthodox lending and securities purchases. After two days of discussion among Fed officials, the central bank said it would use every weapon from its arsenal to lift the U.S. from recession. It began by reducing its target interest rate -- an overnight bank-lending rate called the federal-funds rate -- from 1%. Another Fed lending rate, the discount rate, will go to half a percentage point, a level last seen in the 1940s. The cut was more than many economists expected, and the statement that came with it marked the latest signal by the Fed and its chairman, Ben Bernanke, that the central bank was prepared to take aggressive steps to revive the economy.

- 10 Best and Worst Stocks of 2008.

- Securities and Exchange Commission Chairman Christopher Cox has asked the agency's inspector general to investigate the SEC's conduct with regard to the alleged Ponzi-scheme linked to money manager Bernard Madoff, CNBC has learned. In a statement issued by the SEC, Cox said the review would "cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the Commission level, whether those policies were followed, and whether improvements to those policies are necessary." The investigation will also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by SEC staff regarding the firm.

- The news that Steve Jobs would not deliver the keynote at this year's Macworld Expo in San Francisco next month was hardly a surprise to those of us covering this company. Rumors had been swirling for weeks that Jobs wouldn't attend and when Macworld officials wouldn't confirm his attendance, so close to the event itself, rumors only grew louder. Also not a surprise: swirling rumors that Jobs was pulling out of the conference, the last Macworld, because of health concerns. I can tell you that sources inside the company tell me that Jobs' decision was more about politics than his pancreas. Sources tell me that if Jobs for some reason was unable to perform any of his responsibilities as CEO because of health reasons, which would include the Macworld keynote, I should "rest assured that the board would let me know." So I'm inclined to believe it. Especially as I look at the history of Macworld and Apple's relationship to it. Apple shares took a hit on the Steve Jobs news after-hours, which make sense in the bizarro world of sell-first-ask-questions-later dominating Wall Street nowadays. Which once again is too bad. Steve Jobs is fine. It's Macworld the expo that's on its last legs.

- OPEC oil producers are likely to announce their biggest-ever supply cut this week in a bold attempt to stem a collapse in oil prices, a Reuters poll suggested on Tuesday. All 14 banks, companies and research groups surveyed on Dec. 15 thought the Organization of the Petroleum Exporting Countries would reduce output by at least 1.5 million barrels per day (bpd) when it meets in the Algerian city of Oran on Wednesday. The average forecast was for an even bigger cut -- probably around 2 million bpd, which would be the deepest cut in production to be agreed since the group, which pumps more than a third of the world's oil, was established almost 50 years ago.

NY Times:
- It’s a $138 billion mystery. In the early hours of Sept. 15, after the government refused to rescue the foundering Lehman Brothers(LEH), something odd happened. The Federal Reserve lent tens of billions of dollars to a subsidiary of the newly bankrupt bank. In other words, government officials who had refused to risk taxpayers’ money on Lehman before it collapsed did just that after it collapsed. No one, least of all government officials, has fully explained why Lehman, one of the grand old names of Wall Street, was allowed to fail while so many others were rescued.

- President-elect Barack Obama has selected former Gov. Tom Vilsack of Iowa to serve as his agriculture secretary, according to officials familiar with the decision, and will make the announcement on Wednesday as he works to round out his remaining cabinet nominations. Both Mr. Obama and Mr. Vilsack are regarded as staunch advocates of ethanol and other bio-fuels as a way to reduce the nation’s reliance on foreign oil. One of the first major decisions Mr. Obama and Mr. Vilsack may have to make is whether to grant the ethanol industry’s requests for billions in federal aid in the stimulus bill, which Mr. Obama has said he hopes to sign into law quickly, perhaps on his first day in office. Mr. Vilsack, like the president-elect, is a strong advocate of combating global warming and developing alternative sources of energy.


- Since 1991, Bernard L. Madoff Investment Securities spent $372,100 in campaign contributions – mostly to Democrats – and $590,000 in lobbying – mostly to the firm of Arlington, Va.-based Lent, Scrivner & Roth, which has represented oil, telecom and pharmaceutical companies. As noted elsewhere, there’s nothing quite like the popping of an asset bubble to expose investment scams. But not everybody lost money along the way; beneficiaries of Madoff’s political contributions over the years (assuming they didn’t also invest with Madoff) included U.S. senators such as Hillary Clinton, Charles E. Schumer, and Charles Rangel, as well as the Securities Industry Association, records show.

- Companies benefiting from Obama’s massive proposed spending may include broadband, infrastructure, and environmental outfits.

- The combination of lower prices and large-scale government stimulus could trigger a self-sustaining economic rebound.


- America’s Best Long-Term Housing Bets.


- Gilead Sciences(GILD): Biotech Company Strengthens Its Lead In Anti-HIV Treatments.

USA Today.com:

- In an effort to slow the rate of foreclosures, the IRS announced Tuesday that it will make it easier for financially distressed homeowners who are behind on their taxes to refinance or sell their homes. The IRS issues more than 600,000 tax liens a year against taxpayers who are delinquent on their taxes. When these liens are attached to homes, they can make it difficult for homeowners to refinance or sell their homes, IRS Commissioner Doug Shulman said.

- After years of steep increases, costs to build power plants and transmission lines have started to fall, promising to temper electricity rate increases for consumers, according to a report out Wednesday. The development is notable because the nation is poised to build the biggest wave of plants in a generation to meet rising electricity demand, and capital costs make up 50% of utility rates, says Larry Makovich, a managing director of Cambridge Energy Research Associates. CERA conducted the study. Construction costs have dipped 5% the past year and will likely drop an additional 7% to 10% next year, says Candida Scott, CERA's senior director of cost and technology.


- Lockheed Martin Corp (LMT) will look at assets for possible acquisitions in 2009, funded mostly by cash, even as the world's largest aerospace and defense manufacturer remains "unconstrained" by the credit crisis, the company's chief executive said on Tuesday.

- Defense electronics group Thales SA is continuously looking for acquisitions in the United States and Britain, a senior executive said on Tuesday.

- Sony Electronics and Fox Sports on Tuesday said they will beam the national college football championship game to 80 theaters in 3-D next month in the latest example of the sports world tapping into this new viewing technology.

- The California Public Employee Retirement System has hired consultants to help boost returns from commodities investments, and may consider investment strategies beyond sticking to the S&P GSCI Index .SPGSCITR, a spokesman for the largest U.S. pension fund said on Tuesday. The tendency among pensions, university endowments and other institutional funds to consider long-only commodity indexes like S&P GSCI as their main source of commodities exposure has come under scrutiny after oil, metals and grains prices fell along with stocks in recent months. Until this year's credit crisis, there had been little correlation between commodities and equities earnings. So, many institutions like CalPERS expected to benefit from investing in a basket of futures tied to indexes like the S&P GSCI, which basically required them to be bullish about commodities over the long-term. But the credit crisis showed the flaw to that approach, with long-only commodity indexes down 40 percent or more for the year. Commodity strategists say the best performers in the asset class this year were trend-followers. These investors combined long and "short" strategies, enabling them to quickly adopt a bearish strategy during market downturns. "Definitely, the long-only approach is not as attractive in these volatile type of market conditions," said Emanuel Balarie, managing director at Chicago's Balarie Capital Management.

Financial Times:
- The German government is radically to reduce its official economic growth prediction for 2009, when the country could experience the worst recession since the end of the second world war, say people familiar with the forecasts. Government economists think the forecast, to be issued in late January, will be in line with current private-sector predictions pointing to a contraction of up to 2.5 per cent. Most economists consider the government’s current target of 0.2 per cent growth as grossly over-optimistic. Of the four years of economic contraction Germany has experienced since the war, the sharpest took place in 1975, when output dropped by 1 per cent.

- Citigroup(C) is to merge its investment and commercial banking operations in yet another attempt by the troubled US financial conglomerate to break down barriers between its businesses. The move, which could be announced internally as early as this week, is part of efforts by Vikram Pandit, the chief executive, to restore Citi’s fortunes after it was hit by $50bn-plus in credit-related losses and had to be rescued by the government. People close to the situation said the creation of the new unit was aimed at increasing Citi’s ability to sell products ranging from loans and trading services to advice on takeovers and financing to large companies.

China Daily:

- More than 2.4 million people found new jobs in China’s Guangdong province in the first 11 months of the year, but the situation will worsen over the next three months as the economic slowdown starts to bite, the provincial labor authority said on Tuesday. The healthy jobs market is set to experience hard times in the New Year, it said. The number of unemployed will increase in the first quarter of next year, with the manufacturing sector being the worst hit, it said. More factories are forecast to close, which will be bad news for migrant workers, it said. Unskilled workers, migrant or otherwise, and college and vocational school graduates who lack experience will find it most difficult to find work, the department said. Li Xiaolu, director of the Guangdong education department, said the financial crisis has created the worst jobs market for three decades.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.50% to +1.25% on average.
S&P 500 futures -1.22%.
NASDAQ 100 futures -1.05%.

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
- (JOYG)/1.09

- (MS)/.34

- (CAG)/.37

- (GIS)/1.23

- (NKE)/.77

- (PAYX)/.40

- (MLHR)/.59

- (CMC)/.37

- (NDSN)/.82

Economic Releases
8:30 am EST

- The Current Account Deficit for 3Q is estimated to shrink to -$179.0 Billion versus -$183.1 Billion in 2Q.

10:35 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +600,000 barrels versus a +392,000 barrel increase the prior week. Gasoline supplies are expected to rise by +1,275,000 barrels versus a +3,722,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,500,000 barrels versus a +5,614,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a +3.1% gain the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report, (LII) Community Meeting and (AZO) Shareholders Meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and financial 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.

No comments: