Monday, February 09, 2009

Tuesday Watch

Late-Night Headlines

- Treasury Secretary Timothy Geithner is seeking to draw investors into the U.S. financial-rescue program, aiming to add private funding as a new component of proposals to address the toxic debt clogging banks’ balance sheets. Aides worked through the weekend to complete the package that Geithner will announce tomorrow in Washington, which was delayed by a day. Aspects of the plan that have been settled include a new round of injections of taxpayer funds into banks, targeted at those identified by regulators as most in need of new capital, people briefed on the matter said. The toughest issue has been the one Geithner’s predecessor failed to address: the illiquid assets that caused the credit crunch. A leading proposal is a so-called aggregator bank, featuring investors such as hedge funds and private equity, that may issue Federal Deposit Insurance Corp.-backed debt, the people said. It’s unclear how big a role there will be for guarantees of securities that stay on banks’ balance sheets.

- Asian material and consumer stocks fell after President Barack Obama said the U.S. faces a “full- blown crisis.” Utility companies gained as oil traded near a three-week low. Futures on the Standard & Poor’s 500 Index dropped 0.7 percent after Obama’s comments, which were made at a news conference just hours after the Senate held a procedural vote that cleared the way for passage of its stimulus bill tomorrow.

- Private companies in Asia risk being crowded out of debt markets this year as governments in the region boost bond sales to fund economic stimulus measures, according to the Asian Development Bank.

- The euro fell, halting a three-day gain against the yen, after the Nikkei newspaper reported that Russian banks and businesses may ask foreign lenders to reschedule loans worth $400 billion. The yen gained for a second day versus the dollar on speculation the financial turmoil in Europe is worsening, prompting investors to sell higher-yielding assets. The 16-nation euro also dropped against the dollar after European finance ministers signaled increasing concern that some governments are finding it harder to borrow in financial markets.

- China’s inflation cooled to the weakest pace in more than two years and producer prices fell as growth slumped in the world’s third-largest economy. Consumer prices rose 1 percent in January from a year earlier, the statistics bureau said today, after gaining 1.2 percent in December. Producer prices fell 3.3 percent, the steepest decline in almost seven years. “This puts more pressure on the central bank to cut interest rates further,” said Peng Wensheng, head of China research at Barclays Capital in Hong Kong. “In the short term, the downward pressure is on prices.” The key one-year lending rate stands at 5.31 percent after 2.16 percentage points of reductions in 2008 that followed the collapse of Lehman Brothers Holdings Inc. The central bank is yet to make a reduction this year. Peng expects the rate to be cut a further 81 basis points this year after the economy grows as little as 5 percent this quarter.

- Roche Holding AG said it started a hostile $86.50-a-share bid for Genentech Inc.(DNA) after talks in which the biotechnology company said it wanted $112 a share, or 29 percent more.

- Chevron Corp., BP Plc and other oil producers are locked into drilling offshore wells that cost as much as $200 million each because of rig contracts that were signed when crude was soaring above $140 a barrel. Even as energy companies slash billions of dollars in spending to cope with the lowest prices in five years, deep-sea exploration continues unabated because canceling rig contracts would cost as much as finishing the projects, said Candida Scott, a senior director at Cambridge Energy Research Associates who tracks oil-development costs.

Wall Street Journal:

- Many U.S. banks will be subjected to rigorous examinations to see if they are healthy enough to lend before receiving additional federal rescue funds, according to people familiar with the matter. The "stress tests" will be part of the bailout revamp to be announced Tuesday by Treasury Secretary Timothy Geithner. The administration intends to invest between $100 billion and $200 billion more in banks.

- As the economic slump deepens and more companies teeter at the edge of bankruptcy, a number of junk-fund managers are buying riskier bonds. How to explain this paradox? They are essentially betting that the junk-bond market overshot when it plummeted in December. Now, by buying discriminately, junk-fund managers think they can scoop up debt that won't default in a shrinking economy. Managers are starting to add bonds in previously shunned sectors such as autos, retail and gambling.

- The drug and medical-device industries are mobilizing to gut a provision in the stimulus bill that would spend $1.1 billion on research comparing medical treatments, portraying it as the first step to government rationing. Mr. Obama supported research into comparative effectiveness during his campaign. Administration officials and leading Democrats in Congress say the idea will help government programs direct their dollars to treatments that are worth the money. Officially, drug and device makers don't object to that sentiment. But they warn of a slippery slope where the government ends up axing useful treatments just because they cost too much. They have lined up patient groups that get industry funding to lobby Capitol Hill. A coalition called the Partnership to Improve Patient Care includes the lobbying arms of the drug, device and biotechnology industries as well as patient-advocacy groups and medical-professional societies. Coalition spokesman David Di Martino says the research envisioned in the House bill may be used "in an inappropriate manner that may limit treatment options for patients."

- A growing number of big companies are taking advantage of the thawing credit markets to raise large sums of money at low interest rates, with Cisco Systems Inc.(CSCO) Monday selling $4 billion in bonds to bolster its war chest for acquisitions. The big Cisco offering follows a string of successful efforts just in the past five weeks to tap the market for corporate debt. The size of the offering -- and the relatively low risk premiums attached to the bonds -- indicate that investors are hungry for debt from highly rated companies that issue infrequently.

- The global downdraft is hitting the world's emerging economies with a speed and ferocity few imagined possible just months ago. The pace of the turnaround has caught policy makers and investors off guard. In a matter of months, gauges of growth in trade and industrial production in a number of countries went from passable to falling off a cliff; even domestic demand is suffering. Asia's economies have posted the starkest declines, but the slide is evident from Latin America to Eastern Europe.


- Financial Executives have responded to the gloomy economy and grim global outlook by making a number of high-profile stock purchases in recent weeks. But while insiders at other banks are shelling out for shares, a Goldman Sachs Group (GS) vice chairman pocketed $3.7 million from selling the company's stock. On Friday, Michael Sherwood sold 45,000 shares for $3.7 million, an average of $83.12 a share.

NY Times:

- To rally support for his administration’s economic recovery bill last week, President Obama invited about a dozen chief executives, seven of them from technology and energy companies, to the Oval Office. Some of their industries’ top lobbyists, meanwhile, gathered in another office where Jason Furman, a top White House economic adviser, delivered a private briefing for groups expected to benefit most from the stimulus bill. While much of the sprawling $800 billion legislation consists of tax cuts and broad spending increases for existing programs, like $27 billion on highways and $8.4 billion on public transit, the biggest outlay on new initiatives is essentially a technology industry wish list: in the Senate version, about $7 billion for expanding high-speed Internet access, some $20 billion for building a so-called smart grid power network and $20 billion for digitizing health records. To many on K Street, the stimulus bill was the clearest guide to the new administration’s closest friends in the business world. What oil was to President Bush, some say, clean energy and technology are to the Obama White House.


- An $838 billion economic stimulus bill backed by the White House survived a key test vote in the Senate on Monday despite strong Republican opposition, and Democratic leaders vowed to deliver legislation for President Barack Obama's signature within a few days. The vote was 61-36, one more than the 60 needed to advance the measure toward Senate passage on Tuesday. That in turn, will set the stage for possibly contentious negotiations with the House on a final compromise on legislation the president says is desperately needed to tackle the worst economic crisis in more than a generation. Moments before the vote, the Congressional Budget Office issued a new estimate that put the cost at $838 billion, an increase from the $827 billion figure from last week. Ironically, the agency said provisions in the bill intended to limit bonuses to executives at firms receiving federal bailout money would result in lower tax revenues for the government.

- Best Buy(BBY), Other Retailers Tap Tech to Boost Sales. Retailers are using analytics, a new breed of tracking software, to exploit how customers behave.
- Ford Motor Co.(F) will introduce its first all-electric vehicle in 2010, but it will be intended for business owners - not families. The electric Transit Connect, a small van, will be offered in "select" U.S. Ford dealerships. "The new Transit Connect light commercial vehicle with battery electric power represents the next logical step in our pursuit of even greater fuel economy and sustainability," said Derrick Kuzak, Ford's group vice president for global product development in a company announcement. The van will able to to travel about 100 miles on a fully charged battery, according to Ford.


- The federal bailout of General Motors and Chrysler, intended to help speed the restructuring of the ailing auto industry, might be doing just the opposite. With a week to go before the companies must submit new restructuring plans to the government under terms of their $17.4 billion taxpayer loans, negotiations with bondholders and the United Auto Workers union to reduce the companies' huge debt burden seem to be going nowhere. "Everybody is just looking at each other," said Sen. Bob Corker, R-Tenn., who has been briefed on the companies' progress. "There's no real action happening as it relates to restructuring."


- With money to spare in credit-challenged times, nursing home operator Ensign Group (ENSG) is taking advantage of a buyer's market.


- Barack Obama has a tough act to pull off. He must simultaneously petrify people and also restore their confidence. He must scare us to death and calm our fears. He must convince the nation that the times are so dire we must carry out his bold plans immediately, and then he must persuade us to be patient and give his plans time to work. He used phrases like "full-blown crisis" and "vicious cycle." And he said that unless we do something quickly, "we may be unable to reverse" the crisis we face. Nor should his stimulus and bailout plans, as massive as they are, be considered a complete fix. "Given the magnitude of the challenges we have, any single thing we do is going to be part of solution and not all of the solution," he said.


- What ever happened to President Barack Obama's promise of "hope over fear" under his leadership? With public support for his $800-plus billion economic stimulus bill dwindling, Obama and his supporters have been predicting an economic meltdown if Congress doesn't shut off debate and quickly approve the massive spending package. "A failure to act, and act now, will turn crisis into a catastrophe," the Democratic president said last week. Missouri Sen. Claire McCaskill took the rhetoric to the next level, telling the right-of-center Washington Times: "If we don't pass this thing, it's Armageddon." The nonpartisan Congressional Budget Office has said the stimulus bill may do more long-term damage to America's economy than short-term good by burdening the nation with more debt, requiring more money to be taken out of the economy to pay the creditors. The rhetoric to pass the stimulus bill is a whole lot different than the platitudes of hope and promise Americans were hearing from Obama just 21 days ago. "On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord," Obama said during his Jan. 20 inaugural address.


- U.S. life insurers Principal Financial (PFG), Lincoln National (LNC) and Genworth (GNW) on Monday posted fourth-quarter losses, hurt by soured investments.

Financial Times:
- Quantitative investment managers suffered a net outflow of $9.3bn in the third quarter last year as they ran for cover from the financial sector in favor of information technology and materials stocks. The activities of quantitative funds, which trade using statistical models designed to identify patterns in financial markets, are increasingly important because they account for such huge trading volumes. Tabb Group, the US consultancy, predicts that by next year algorithmic trading, one aspect of quant-investing, will account for half of all US equity trading. However, “quants” have endured a torrid few years, with their reputation taking a battering after their funds lost a third of their value in days in the early stages of the credit crisis.

- It was perhaps inevitable that protectionist tendencies and raw nationalistic instincts would resurface with the deepest economic crisis in Europe since the 1930s. The key now is to ensure these dangers do not spin out of control. It is particularly worrying that the first signs of this should occur in the UK, a country that has for so long championed the open market and free flow of capital and labor. The sight of protesters outside the Lindsey oil refinery, railing against Italian and Portuguese workers, is an amber warning light that the veneer of cross-Continent consensus for single-market principles may be thinner than we had assumed.

- Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system. The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007. Other countries’ mints have also reported strong sales. “Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying,” said John Reade, a precious metals strategist at UBS. Inflows into gold-backed exchange traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tons. Last month’s flows of 105 tons were above September’s previous record of 104 tons, and absorbed about half the world’s gold mine output for January, said Barclays Capital. Traders and analysts said jewelry demand, historically the backbone of gold consumption, had collapsed under the weight of the high prices. Sharp falls in demand in the key markets of India, Turkey and the Middle East have capped the potential of any price rally. But the lack of jewelry demand has not discouraged investors.

Calgary Herald:
- A fortnight is a long time in politics. It corresponds most recently to the time between Barack Obama's inauguration as the 44th president of the United States, on the final crest of the "politics of hope," and his definitive exploitation of the "politics of fear" to get a near trillion-dollar stimulus package through the U. S. Senate. In an article he at least signed, for the Washington Post on Thursday, Obama supplied a memorable quote: "This recession might linger for years. Our economy will lose five million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse." Compare, if you will, another Democrat president, Franklin Delano Roosevelt, who took office under considerably grimmer circumstances --at the very bottom of the Depression--in 1933: "This great nation will endure as it has endured, will revive and will prosper. "So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself-- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." While President Obama threatens, Democrats and Republicans tussle in the Senate over tankerloads of irrelevant pork. It is massive beyond reliable quantification. It consists on the one side of panic money thrown at ill-considered public works projects; and on the other of tax breaks for various vested interests. It would seem that for every $100 billion of controversial bailout, another $100 billion of "sweeteners" must be added to make the medicine go down. When he turns to the American people, the president or his pollsters will only see lines of division already written through Congress. Obama demands non-partisanship to get the bill passed. But opposition to the bill is huge, growing, and itself essentially non-partisan. Americans themselves are deeply troubled by the proposal that they should mortgage their children's future for a constantly growing bailout scheme that must, of necessity, reward the undeserving. Obama's political problem is not with the Senate Republicans, but with "blue dog Democrats" who represent the centre of the left-right political dial. They do not like the stimulus bill for the plausible reason that their affiliation with it could lead to their annihilation at the next election.


- Russian banks and businesses may ask foreign banks to reschedule loans worth $400 billion, citing Anatoly Aksakov, the head of the Russian Assoc. of Regional Banks.

21st Century Business Herald:

- China Unicom Ltd. is in talks with Apple Inc.(AAPL) about offering the iPhone in mainland China as early as May 17.

Late Buy/Sell Recommendations
- Reiterated Buy on (NUAN), target $14.

- Reiterated Buy on (HEW), target $47.

- Reiterated Buy on (GILD), target $59.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures -1.24%.
NASDAQ 100 futures -.74%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
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Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
- (CVH)/.60

- (DTV)/.34

- (ICE)/.83

- (PBG)/.25

- (UIS)/.08

- (OMC)/.82

- (EXPD)/.35

- (TAP)/.71

- (ARW)/.59

- (MDC)/-1.23

- (PER)/.25

- (Q)/.10

- (CSC)/1.01

- (MANH)/.24

- (N)/.00

- (CBG)/.27

- (NVDA)/-.11

- (CF)/.34

- (CERN)/.61

- (AMAT)/.00

- (VFC)/1.34

- (TRA)/1.09

- (ETP)/.68

Economic Releases

10:00 am EST

- Wholesale Inventories for December are estimated to fall .7% versus a .6% decline in November.

Upcoming Splits
- (LPHI) 5-for-4

Other Potential Market Movers
- The Fed’s Dudley speaking, Geithner’s testimony on financial rescue program, Bernanke testimony, IDP/TIPP Economic Optimism, weekly retail sales reports, Deutsche Bank Growth Conference, BIO Investor Conference, UBS Global Healthcare Conference, Barclays Industrial Conference, Sterne Agee & Leach Financial Services Symposium, Goldman Ag Conference and Thomas Weisel Tech/Telecom Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and consumer stocks in the region. I expect US equities to open modestly lower and to maintain losses into the afternoon. The Portfolio is 100% net long heading into the day.

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