Wednesday, February 18, 2009

Thursday Watch

Late-Night Headlines

- U.S. stocks are poised to rise because economic indicators are starting to improve, said Barton Biggs, managing partner at Traxis Partners LLC in New York. “There’s too much bearishness and the market is poised for a big, big rally,” said Biggs, whose Jan. 8 prediction that stocks would gain came two days after the Standard & Poor’s 500 Index reached its highest level this year. “We’re in the process of testing the lows.” Biggs said in an interview with Bloomberg Television that investors will continue to pull their money from hedge funds. Customers withdrew $74 billion last month from the largely unregulated investment vehicles that cater to wealthy individuals and institutions, according to a report from TrimTabs Investment Research. “Public and institutional investors are deeply wounded and are discouraged about equity investments,” Biggs said. Hedge funds “are going to be in a redemption mode for a considerable period of time.”

- Brazil stocks may drop in the “next few weeks” because valuations climbed too high given the outlook for a “very sharp” recession in Latin America’s biggest economy, according to Citigroup Inc.Brazilian shares trade for about 9.5 times estimated profits, above the long-term average price-to-earnings of 9, after the market rallied more than its developing-country peers since November, Citigroup strategist Geoffrey Dennis wrote in a research note dated yesterday. Investors should wait for the Bovespa to drop below 35,000 before they buy Brazilian stocks, he wrote.

- Kazakhstan’s credit risk is unjustifiably high and investors should instead buy “less expensive” Russian credit-default swaps to hedge against a default by the former Soviet republic’s government, UBS AG says.

- Hewlett-Packard Co.(HPQ), the world’s largest personal-computer maker, reported sales that missed analysts’ estimates and reduced its earnings forecast for the year. Hewlett-Packard, based in Palo Alto, California, fell 5.5 percent in extended trading to $32.22.

- Inc.(BIDU), operator of China’s most-used online search engine, posted a 31 percent increase in fourth-quarter profit after more of the nation’s citizens began using the Internet. The company’s ADRs rose $1.91, or 1.5 percent, to $130 in late trading.

- China’s stocks rally that’s made the Shanghai Composite Index the world’s best performer this year will falter as profits are “non-existent,” according to independent economist Andy Xie. The index is valued at 17.4 times earnings, the most expensive among the so-called BRIC markets of Brazil, Russia, India and China. The rally will run out of steam as “profits are non- existent and valuations are still expensive,” Xie, former chief Asian economist at Morgan Stanley, said in an interview yesterday. He correctly predicted in April 2007 that China’s stock market was a “bubble” and would burst. The Shanghai Composite peaked on Oct. 16 that year and tumbled more than 70 percent to its trough on Nov. 4, 2008, as the nation’s exports shrank and economic growth slowed. The rally has fueled concern that companies are using loans to speculate in stocks after new lending rose by a record 1.62 trillion yuan ($236 billion) in January as part of a government drive to boost the world’s third-largest economy. As much as 660 billion yuan of new lending may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview this week. “It’s a rampant practice,” said Xie. “Here you are borrowing at 1.5 percent and the stock market rises, so you put your money into stocks and hope to get out after making 20 percent.”

- UBS AG(UBS), Switzerland’s largest bank, will pay $780 million to avoid U.S. prosecution and settle regulatory claims that it helped thousands of wealthy Americans use Swiss bank accounts to evade taxes. The Justice Department filed a criminal charge accusing UBS of conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service. The government will drop the charge in 18 months if UBS makes reforms, helps prosecutors, and makes payments under accords with the Justice Department and Securities and Exchange Commission.
- Hong Kong luxury-home rents fell to a 2 1/2-year low last month because supply increased as owners opted to lease their apartments rather than sell, real estate agent Ricacorp Properties Ltd. said. Rents at 35 luxury apartment buildings dropped 22 percent from a year earlier to an average HK$25.70 ($3.30) a square foot per month, the lowest since June 2006, Ricacorp said in an e- mailed statement yesterday. The average rent fell 4.8 percent from December, the seventh straight month-on-month drop, it said.

- Indian earnings estimates for the next fiscal year may be cut another 25 percent, led by revisions for banks, as the economy weakens, Credit Suisse Group said. Analysts will probably double the one-quarter reduction in forecasts since November for the year starting April 1, as profit growth at banks, brokerages and developers falters, Credit Suisse analysts Nilesh Jasani and Arya Sen wrote in a report.

- U.S. brokerage regulators fined R. Allen Stanford’s firm more than a year ago for misleading investors while selling certificates of deposit, raising new questions about watchdogs already under scrutiny for missing Bernard Madoff’s alleged $50 billion Ponzi scheme. Stanford Group Co. was fined $10,000 by the Financial Industry Regulatory Authority in November 2007 for distributing marketing material that “failed to present fair and balanced treatment” of the risks associated with CDs. The U.S. Securities and Exchange Commission yesterday filed a civil lawsuit calling the sales by the Houston-based firm a “massive, ongoing fraud.” “From what we know, the problem that led to the fine was a red flag,” said Robert Hillman, a securities law professor at the University of California, Davis. “If you have a red flag of this nature, then you have to do something more than simply levy a fine and close the file.” SEC Chairman Mary Schapiro last month said she would “reinvigorate” the agency’s enforcement unit after it failed for more than a decade to detect that Madoff was paying off old investors with money raised from new ones. Schapiro was chief executive officer of Finra when the private regulator fined Stanford’s firm in 2007.

Wall Street Journal:

- Cisco Systems Inc. (CSCO) appears to be teaming up with VMware Inc. (VMW) for a plan to offer servers and expand its presence in the data-center market, an analyst said Wednesday.

- New research at Genentech Inc.(DNA) is challenging conventional thinking about Alzheimer's disease, providing a provocative theory about its cause and suggesting potential new targets for therapies to treat it.

- Descendants of John D. Rockefeller are leading a new shareholder campaign demanding Exxon Mobil Corp.(XOM) loosen its embrace of fossil fuels.

- A group representing General Motors Corp. bondholders fears that the auto maker's latest restructuring plan fails to address all the challenges facing the company and doesn't cut costs enough in light of the deteriorating economy, a person familiar with the bond negotiations said Wednesday.

NY Times:

- Gov. Kathleen Sebelius of Kansas, an early Obama ally with a record of working across party lines, is emerging as the president’s top choice for secretary of health and human services, advisers said Wednesday.
- Netflix(NFLX) defies the naysayers.


- Sen. Roland Burris is rapidly losing any political support he once had among colleagues, with Democrats from the statehouse to the White House raising questions about his entanglements with ousted Illinois Gov. Rod Blagojevich.

- The UK government's multi-billion pound insurance scheme to ring-fence British banks' toxic assets and reboot lending to the recession-hit economy has run into a wall of opposition in the EU, the Guardian has learned. The European commission and several leading EU countries are understood to have objected that the UK proposals are a serious threat to competition and to the much-prized single market.

International Herald Tribune:

- North Korea said on Thursday it was ready for war with the South, just hours before U.S. Secretary of State Hillary Clinton was set to arrive in Seoul for talks on defusing the North's military threat. North Korea has repeatedly threatened in recent weeks to reduce the South to ashes. Pyongyang is thought to be readying its longest-range missile for launch in what analysts say is a bid to grab the new U.S. administration's attention and pressure Seoul to ease up on its hard line. "(The South Korean president's) group of traitors should never forget that the (North) Korean People's Army is fully ready for an all-out confrontation," the North's KCNA news agency quoted an unnamed military official as saying.

Sidney Morning Herald:

- Australia’s once-triumphant iron ore and coal miners face price cuts of between 30 and 50 per cent, which would slash export income by the equivalent of 4 per cent of gross domestic product and increase the likelihood of recession. Zou Jian, a director of the China Iron & Steel Association and head of the China Metallurgical Mines Association, told the Herald that benchmark iron ore price cuts of between 30 and 50 per cent would be "reasonable" - on top of eliminating a large "freight premium" handed to Australian miners last year.

The Standard:

- New World Development Ltd. and other Hong Kong builders are slashing prices of new residential projects as the economic recession reduces demand for new homes, citing the companies. New World has cut prices at its Wylie Court project in the Ho Man Tin district by as much as 40%. Asia Standard International Group sold 12 flats at its Jadewater project in Aberdeen last weekend after cutting prices by 40%.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.50% to +1.0% on average.
S&P 500 futures +.51%.
NASDAQ 100 futures +.11%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (HRL)/.51

- (B)/.11

- (PDE)/1.06

- (EXPE)/.24

- (PDCO)/.44

- (NBL)/.79

- (WMB)/.31

- (NEM)/.24

- (S)/-.04

- (CVS)/.69

- (APA)/1.26

- (RS)/.64

- (WBMD)/.29

- (MYL)/.14

- (OSIP)/.46

- (CECO)/.24

- (BUCY)/.91

- (INTU)/.27

- (XTO)/.78

Economic Releases

8:30 am EST

- The Producer Price Index for January is estimated to rise .3% versus a 1.9% decline in December.

- The PPI Ex Food & Energy for January is estimated to rise .1% versus a .2% gain in December.

- Initial Jobless Claims for last week are estimated to fall to 620K versus 623K the prior week.

- Continuing Claims are estimated to rise to 4830K versus 4810K prior.

10:00 am EST

- Leading Indicators for January are estimated unch. versus a .3% gain in December.

- The Philly Fed for February is estimated at -25.0 versus -24.3 in January.

11:00 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,200,000 barrels versus a +4,717,000 barrel increase the prior week. Gasoline supplies are expected to fall by -500,000 barrels versus a -2,662,000 barrel decline the prior week. Distillate inventories are expected to fall by -1,500,000 barrels versus a -1,026,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall -.25% versus a -1.94% decline the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking, weekly EIA natural gas inventory report, (PVTB) Investor Day, (AIPC) shareholders meeting, (SAFM) annual meeting(CBE$) annual outlook, Oppenheimer REITs/Real Estate Forum, CSFB Paper Conference, Piper Clean Tech Conference, (CR) analyst conference, Oppenheimer Semi Summit and CIBC Institutional Investor Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology stocks 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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