Tuesday, February 10, 2009

Today's Headlines


- The U.S. Senate approved an $838 billion economic stimulus package, clearing the way for negotiations with the House over a compromise plan lawmakers said they want to send to President Barack Obama quickly. The chamber today voted 61-37 to approve the measure.

- Treasury Secretary Timothy Geithner pledged government financing for as much as $2 trillion of efforts to spur new lending and address banks’ toxic assets, seeking to end the credit crunch hobbling the economy.

- U.S. regulators sued Finvest Asset Management LLC, Finvest Fund Management LLC and Grant “Gad” Grieve, the New York investment advisory firms’ managing principal, for allegedly defrauding investors in two hedge funds.

- Alcoa Inc.(AA), the largest U.S. aluminum producer, had its long-term debt ratings cut two levels by Standard & Poor’s to BBB-, the lowest investment grade, as falling metal prices make it more difficult to renew loans.

- Yields on Fannie Mae and Freddie Mac mortgage-backed securities held near the lowest since July 2007 relative to government notes, as the Federal Reserve’s buying pushes spreads lower and investors consider the latest U.S. government efforts to fix the financial system. The difference between yields on Washington-based Fannie’s current-coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries today rose 1 basis point to 129 basis points as of 10:30 a.m. in New York, according to data compiled by Bloomberg.

- The emerging-market corporate bond rally so far this year will reverse as the global recession and tight credit markets increase defaults, JPMorgan Chase said. Default rates for high-yield corporate bonds in developing nations may rise to 5.9%, compared with an earlier forecast of 2.8%, JPMorgan strategists Warren Mar and Victoria Miles wrote in a research note dated Feb. 6.

- Crude oil fell on skepticism that the U.S. government’s bank rescue plan will revive the economy, and on speculation that a report tomorrow will show U.S. inventories climbed for the 18th time in 20 weeks.

- The US dollar and the yen rose versus most of their major counterparts on bets Treasury Secretary Timothy Geithner’s financial recovery plan will fall short of reviving lending, increasing demand for a haven. The yen gained more than 3 percent versus the Australian dollar on speculation Japanese investors will repatriate funds after Geithner pledged financing for programs that may grow to as much as $2 trillion. The dollar increased for the first time in three days against a gauge of the currencies of six major U.S. trading partners. “It’s classic risk aversion as the market expresses its disappointment to the Treasury’s plan,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world’s largest foreign-exchange trader. “Geithner’s plan lacks a lot of details.”

- Intel Corp.(INTC), the world’s largest maker of computer chips, will spend $7 billion on new plants in the U.S. over the next two years, an effort to extend its lead in manufacturing technology. The investment will boost production of so-called 32- nanometer chips at sites in Oregon, Arizona and New Mexico, Intel said in an e-mailed statement. Chief Executive Officer Paul Otellini will talk about the plans at an event today at the Economic Club of Washington.

- Earnings estimates for small-stock companies are being revised upward at the slowest rate since at least 1988, a sign that analysts’ expectations are starting to bottom out, according to Citigroup Inc.(C). Positive revisions fell to 16% at the end of October 2008, less than half as much as a year earlier, according to Citigroup data. Since 1988, the figure has been below 20% only twice before, in October 2001 at 17% and at 19% in October 1990. The peak, 67%, came in November 1997.

Wall Street Journal:

- The early verdict on the Geithner plan: Too little, too little. Markets are down, having had an adverse reaction to Treasury Secretary Tim Geithner’s presentation detailing the Obama Administration’s plan to pull the financial system out of its current morass, which many say is still too light on specifics. Certain facets of the plan resemble those that were entertained in the previous administration — with the exception of a stress-testing mechanism to determine which financial firms need assistance.

- SanDisk Corp.(SNDK) is disclosing new details of what it believes is a big leap for data-storage chips, using an approach that may be difficult to emulate. The Silicon Valley company, working with manufacturing partner Toshiba Corp., has been racing with other companies to store more information on chips known as flash memory.

- The global economic downturn is squeezing Russian natural-gas giant OAO Gazprom as falling demand for energy forces it to cut gas sales to Europe and deprives the company of valuable export revenue. In an interview, Alexander Medvedev, Gazprom's deputy chief executive, said the price its European customers pay for gas will fall 32% to $280 per thousand cubic meters this year from $409 per thousand cubic meters last year. Exports to Europe will decline 5% to 170 billion cubic meters.

- Disease philanthropy has entered the for-profit world. Until recently, groups like the Juvenile Diabetes Research Foundation and the National Multiple Sclerosis Society spent the money they raised from donors on counseling patients, advocacy in Washington and funding university researchers in the hopes they would discover cures. But charities, increasingly frustrated with the slow emergence of new disease treatments, are pouring millions of dollars into pharmaceutical start-ups to bring new drugs to market. Starting with a $76 million partnership between Vertex Pharmaceuticals Inc.(VRTX) and the Cystic Fibrosis Foundation, the practice has become an important new source of capital for small drug companies.

- In an effort to boost sales in a tough economic environment, Dell Inc.(DELL) on Tuesday plans to announce 0% financing terms on certain personal computers and servers for small and midsize businesses. The offer, described in a Dell news release, will be available for customers buying at least $25,000 worth of equipment.

- UBS AG's (UBS) financial chief Tuesday expressed cautious optimism that the Zurich-based bank's capital ratios will improve as it returns to profitability in 2009.

- The incoming chief investment officer for Calpers, the nation's largest public pension fund, may be one of the most powerful investors in the U.S. But in choosing Joseph Dear last month, the California fund is breaking from its own past and the industry norm. Calpers's previous "CIO"s were almost always investment whizzes who papered their walls with diplomas for advanced degrees in finance. Mr. Dear's background is primarily in government, managing staff rather than managing money. Most recently, he was the executive director of the organization that invests Washington state's pension funds. His selection worries those who say the $175 billion fund could stumble further under the reign of anyone not steeped in markets.

- Hedge funds started the year on a positive note but saw net redemptions of $30 billion in January, according to private-equity company EurekaHedge.


- On a forward price-to-earnings basis, P&G(PG) is now cheaper than it's been in 20 years.

NY Times:

- A plan to raise income taxes on wealthy New Yorkers is gaining momentum in the State Legislature as lawmakers continue to grapple with the state’s gaping budget deficit. A group of Senate Democrats plans to introduce a bill on Tuesday that would impose an income tax of 10.3 percent on the highest-earning New Yorkers, a rise of 3.45 percentage points, and increase taxes on all households that earn more than $250,000 a year.

- Federal investigators have raided the offices of the PMA Group, one of Washington’s biggest lobbying firms, as part of an investigation into potentially improper campaign contributions, a person briefed on the investigators’ questions said Monday night. The firm specializes in helping its clients obtain multimillion dollar earmarks, the pet items inserted by a single lawmaker into major spending bills that have played a role in several recent Washington scandals. While the firm lobbies other congressmen, it is best known for its ties to Representative John Murtha, the Pennsylvania Democrat who for decades has dominated the House defense spending subcommittee. The firm’s founder, Paul Magliochetti, previously worked for Mr. Murtha, and PMA’s executives and clients are one of Mr. Murtha’s biggest sources of campaign contributions.

Seeking Alpha:

- China and the Baltic Dry Index – What’s Really Going On? I'd like to write a comprehensive entry about the recent love for all things China and commodities in the past few days.

Google Blog:

- Over the last several months, Google’s(GOOG) engineers have developed a software tool called Google PowerMeter, which will show consumers their home energy information almost in real time, right on their computer. Google PowerMeter is not yet available to the public since we're testing it out with Googlers first. But we're building partnerships with utilities and independent device manufacturers to gradually roll this out in pilot programs. Once we've had a chance to kick the tires, we'll make the tool more widely available.

Boston Herald:

- Top White House economic adviser Larry Summers hooked a freebie flight on a posh Citigroup corporate jet mere months before he began weighing the bank’s fate with other policymakers trying to save the banking system. Summers’ decision to accept the freebie raises questions about his ability to remain impartial in those crucial deliberations, critics said. One source said Summers took a number of flights on Citi aircraft.


- These are good times to be selling cellphone, Internet and cable TV service, and not so good to be selling luxury handbags or high-end cosmetics, according to a survey released today by the National Retail Federation. The study found at least 60.5 percent of Americans surveyed consider cellphone service, Internet service and cable TV to be “untouchables” or off limits when they are trimming spending. Haircuts and coloring, eating out at fast-food restaurants and discount shopping for apparel also scored high on the “won’t give up” list. “The big three were the Internet, text messaging and basic cable,” said Susan Reda, executive editor of Stores magazine, an NRF publication that sponsored the survey, in a telephone interview.

LA Times:

- The collapse of the construction industry and a slump in the restaurant and food service sector have sent thousands of people back to looking for work on California farms, which not so long ago were hurting for workers.

The Detroit News:

- Automakers planning future products are trying to appease many masters, not all of whom agree. The companies are being told to build fuel-efficient models to meet federal and state conditions. Yet consumers have shown they won't buy expensive hybrids or tiny cars if gasoline prices remain reasonable. "People only change when they are hit in the pocketbook," said Aaron Bragman, an auto analyst with IHS Global Insight in Troy, "not because Congress legislates demand." But that's what Detroit's automakers are up against: Congress versus consumers. Federal legislators are mulling a number of regulations that would cost automakers billions of dollars to meet at a time when General Motors Corp. and Chrysler LLC seek federal aid to simply stay afloat. The rules, which range from potential state jurisdiction over emissions standards, to increased federal corporate average fuel economy standards (CAFE) and other conditions attached to the company's loans, increase the pressure to invest in smaller and greener vehicles. That means splitting limited resources between efficiency improvements to existing gasoline engines and new technology involving batteries, electric motors and fuel cells. But with U.S. auto sales starting the year at the weakest level in 27 years and most major automakers reporting financial losses in their North American operations, it is hard to invest in expensive technology that doesn't sell well.

Washington Post:

- Rather than engage in a spirited dialogue with members of the press corps, Obama filibustered. After an eight-minute opening statement, he got through only 13 questions in an hour -- and allowed no follow-up questions. His answers were an oddly unexciting combination of familiar talking points and wonky dissertations. It wasn't particularly good TV, and it wasn't necessarily what Obama needed, either. Worst of all, Obama engaged in one of the most frustrating rhetorical techniques: The straw-man argument. It wasn't fair for Obama to repeatedly suggest that the core opposition to his stimulus plan comes from people "who just believe that we should do nothing." The basic Republican position is considerably more nuanced than that, favoring tax cuts and opposing big-government spending. Obama told a town hall audience in Elkhart, Ind., that without a stimulus bill, "our nation will sink into a crisis that at some point we may be unable to reverse." Loven asked: "Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent, when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that?"


- The global economic storm is hitting what once was the most profitable part of the airline industry: international travel. With demand for international trips in free fall, most U.S. and foreign airlines are cutting international service to and from the USA. They're reducing the number of scheduled flights or parking big jets and putting passengers on smaller ones to avoid flying money-losing, half-empty flights. In March, there will be about 466,000 fewer seats — about 15,000 seats a day — on scheduled non-stop flights from the Lower 48 states to foreign destinations, according to OAG-Official Airline Guide flight schedules analyzed by USA TODAY. Industrywide, that's a 5.3% March reduction year over year. Some carriers have cut capacity to and from the USA by a third.


- A coalition of Canadian and U.S. environmental groups has launched a cross-border campaign ahead of Barack Obama's visit to Canada, urging the U.S. president to stick to his new energy plan amid possible pleas for him to support oil production from the Alberta oilsands. Toronto-based Environmental Defence, Washington-based Earthworks and 14 other groups have produced a newspaper advertising campaign that will start running Tuesday. They are also launching Obama2Canada.org and urging supporters to sign petitions to Prime Minister Stephen Harper and Obama, who will visit Ottawa on Feb. 19. One ad — aimed at lawmakers and running in Roll Call, a prominent Capitol Hill newspaper in Washington — says: "On February 19 Canadian Prime Minister Stephen Harper will try to sell President Obama on a North American climate pact that gives special treatment to the tarsands in Alberta, the source of the dirtiest oil on earth. Tarsands don't fit into the new energy economy."

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