Tuesday, February 10, 2009

Wednesday Watch

Late-Night Headlines

- President Barack Obama said financial markets reacted negatively to his administration’s plan to unlock credit and deal with banks’ toxic assets because Wall Street was looking for a quick and painless solution. “Wall Street, I think, is hoping for an easy out on this thing and there is no easy out,” Obama said in an interview recorded for ABC’s “Nightline” program. “You can prolong the agony and shareholders will be happy until they’re not happy, and that could be a year from now or two years from now, or in the case of Japan, eight years later,” Obama said, according to a transcript released by ABC. “Or you can just go ahead and acknowledge that yeah, there’s, there’s a lot of work that has to be done to put these banks back on a firmer footing.” Obama declined to provide an estimate on the eventual price tag for the bank rescue. He discussed the tension between sounding dire warnings about the economy to goad Congress into action and not wanting depress consumer confidence.

- Banks receiving US government aid have stepped up purchases of prime-jumbo mortgage bonds, said Matthew Lambiase, chief executive officer of Chimera Investment Corp. “So far this year, we’ve seen a much more pronounced bid from banks” for prime mortgage-backed securities, Labbiase said today. “Prices have increased accordingly.”

- U.S. Interior Secretary Ken Salazar said he will delay a proposal made in the last days of the Bush administration to expand drilling for oil and natural gas in the Outer Continental Shelf. Bush in July lifted a presidential ban on drilling in the Outer Continental Shelf, a federally controlled area that extends from about 3 miles (5 kilometers) offshore to as much as 230 miles. Congress followed suit in October by allowing its own moratorium on drilling to expire. The actions were spurred in part by demands for more access for drilling on federal land as crude oil futures prices rose to a record high of $147.27 a barrel in July. “I’m really puzzled” at the prohibition against coastal drilling, Jeroen van der Veer, chief executive of Royal Dutch Shell Plc, said today at a Houston energy conference. “Companies can work very responsibly even in sensitive environments.” It “would be an easy win-win to get access to all of those areas,” said van der Veer, who runs the world’s third-largest oil company by market value. Coastal areas of the continental U.S. not currently available to drilling hold about 76 trillion cubic feet of natural gas and 18 billion barrels of oil, according to the Minerals Management Service. “We need to act quickly and aggressively to develop domestic energy resources that could provide energy, jobs and needed revenues for states,” Barry Russell, president of the Independent Petroleum Association of America, said in a statement. His organization’s members hold 90 percent of the leases in the Gulf of Mexico. “We hope that this decision to extend the comment period is not used to buy the administration time to close off energy exploration far off our coasts,” Antonia Ferrier, spokeswoman for House Republican Leader John Boehner of Ohio, said in an e- mail. “Any comprehensive energy plan by the administration must utilize American resources.” “We were hoping that they would slow down the implementation of the Bush timeline more than they did here,” said Athan Manuel, director of Sierra Club’s land protection program. “But this is going to come out on the side of keeping our coasts off limits to drilling.”

- Crude oil traded near $38 a barrel after falling yesterday on skepticism that the U.S. government’s bank rescue plan will revive the economy. Oil dropped more than 5 percent after Treasury Secretary Timothy Geithner said he is “exploring a range of different structures” to bail out lenders. Global oil demand will average 84.7 million barrels a day this year, down 1.17 million barrels from 2008, the U.S. Energy Department said in a report yesterday.

- Saudi Arabia, the world’s largest oil exporter, will have more than 4.5 million barrels a day of spare capacity by mid-year, more than double its previous goal of 1.5 million to 2 million barrels, Oil Minister Ali al-Naimi said. The capacity will come from Saudi Arabia’s Khurais project, which will bring on stream 1.2 million barrels a day of oil, more than the output of OPEC nations Qatar or Ecuador, al-Naimi told the Cambridge Energy Research Associates conference in Houston today. “There is no doubt in my mind that increased speculative interest in oil contributed to the extreme price volatility of the past few years,” he said. “Now that market sentiment has flipped, I expect continued volatility with exaggerated price weakness.”

- China’s exports fell by the most in almost 13 years as demand dried up in the U.S. and Europe, worsening the outlook for jobs and industrial production in the world’s third-biggest economy. Shipments declined 17.5 percent in January from a year earlier, the customs bureau said on its Web site today. That was more than the 2.8 percent decline in December. The median estimate in a Bloomberg News survey of 14 economists was for a 14 percent drop. China’s economic slide has already cost the jobs of 20 million migrant workers. Imports declined 43.1 percent in January from a year earlier, the biggest decline since Bloomberg data began in 1995, on the nation’s waning demand for raw materials for manufacturing and lower commodity prices, leaving a trade surplus of $39.11 billion. Imports fell 21.3 percent in December.

- Applied Materials Inc.(AMAT), the largest maker of chip-production machinery, forecast sales that missed analysts’ estimates as a plunge in semiconductor demand forces the company to halt production for weeks at a time. Applied, based in Santa Clara, California, fell 28 cents, or 2.9 percent, to $9.41 in late trading after closing at $9.69 on the Nasdaq Stock Market.

- Dongfeng Automobile Co., which makes diesel engines, light trucks and spare parts, said its vehicle sales fell 50% in January to 7,858 units. Sales of light-duty trucks dropped 52% to 5,601 units and sales of SUV and MPV vehicles dropped 42% to 2,257 units, the company said in a statement to the Shanghai stock exchange today.

- The number of residents leaving Dubai soared by 86% in January due to job cuts caused by the financial crisis. The emirate canceled 54,684 residency visas in January compared with 29,418 a year ago, Dubai’s Naturalization and Residency Department said yesterday.

Wall Street Journal:

- The stimulus package the Senate approved Tuesday may technically be free of "earmarks," but it nonetheless includes several provisions that would likely benefit only a handful of specific corporations. President Barack Obama said in his news conference Monday that the legislation contains no earmarks, the funds for pet projects that lawmakers often slip into bills -- and which were a big issue during the presidential campaign. But several sections of the Senate bill direct billions of dollars in spending that would benefit a limited number of big firms. One example: The Senate added $200 million for a "virtual fence" along the nation's Southwestern border, a project headed by Chicago-based Boeing Co.(BA) The bill directs that stimulus money for the program be spent by the end of September 2010. Boeing is the prime vendor under a contract that runs through this year and includes three one-year options ending in 2012. The government has approved at least $933 million of funding for Boeing on the project so far, but the project has stalled. Total costs are expected to reach about $8 billion. In an email exchange, a Boeing spokeswoman said she doesn't know how many jobs would be created through the $200 million of proposed stimulus funding. Another provision in the legislation would provide hundreds of millions of dollars to build a satellite system to monitor climate change. That would be a boon to Northrop Grumman Corp.(NOC) and Raytheon Co.(RTN), which have been working on such a satellite for a decade.

- The White House is seeking to restore funding cut by the Senate for schools, health insurance and computerizing health records as the economic-stimulus plan heads for a final round of negotiations in Congress this week. The Senate passed the $838.2 billion plan Tuesday by a 61-37 vote. As lawmakers meet to reconcile the House and Senate versions of the legislation, the White House's effort to reshape it is likely to lead to skirmishes among House and Senate Democrats, as well as with moderate Republicans and Democrats who pushed to cut the size of the original Senate package. To make room for added spending, the White House, joined by House Democratic leaders, is pressing to scale back certain Senate-passed tax breaks, including measures intended to boost auto and home sales. But in pushing for more generous spending, the White House risks alienating moderate Republicans and Democrats in the Senate, who supported the package only after more than $110 billion was trimmed from it. The three Republicans who voted for the plan -- Sen. Collins, Sen. Arlen Specter of Pennsylvania and Sen. Olympia Snowe of Maine -- are monitoring negotiations.

- Treasury Secretary Timothy Geithner promised forceful action to get credit flowing again in the economy, but the lack of detail in his much-anticipated speech helped drive stocks down nearly 5%, the worst selloff since President Barack Obama assumed office. Announcing the Obama administration's financial-rescue plan in the Treasury's ornate Cash Room, Mr. Geithner described a mix of efforts that were mostly already known in their outlines. They included a fresh round of capital injections into banks, an expansion of a Federal Reserve lending program and a public-private effort to relieve banks of soured assets. The steps are aimed at getting $1 trillion to $2 trillion in financing flowing through the economy to kick-start both consumer and business lending. The other prong of the administration's economic program advanced Tuesday as the Senate passed a $838 billion stimulus bill, setting up a conference with the House to reach a final bill, possibly by the end of this week.

- "We're lending," chief executives of major banks plan to tell Congress Wednesday, according to prepared remarks. In testimony prepared for the House Committee on Financial Services, bank chieftains including J.P. Morgan Chase & Co.'s Jamie Dimon, Bank of America Corp.'s Kenneth Lewis and Citigroup Inc.'s Vikram Pandit vigorously assert that they are lending despite economic headwinds, and are lending more because of the government capital they had received.

- Latin America Gets Squeezed by Dive in Commodity Prices.

- Warren Buffett Steadily Selling Constellation Energy(CEG).

- Stimulus Plan: Ranking Its Scale Against Other Spending. President Barack Obama is pressing an $800 billion economic recovery package to restore growth and end a year-long U.S. recession despite Republican reservations about the balance of new spending and tax cuts. The Democratic-controlled Senate passed an $838 billion version Tuesday after the House earlier approved an $819 billion plan. Negotiators from the two sides must now fashion a single, final package. Here are a few markers to compare the scale of the rescue proposal against the size of the U.S. economy, current federal budget and past stimulus plans: An $800 billion stimulus plan would represent 5.6 percent of the $14.3 trillion U.S. economy -- the size of U.S. gross domestic product last year measured in current, not inflation-adjusted, dollars. It is 1.8 times the size of the largest U.S. budget deficit in history -- $455 billion -- recorded in fiscal 2008. It also represents 27 percent of the $2.979 trillion in total outlays by the federal government in fiscal 2008, or 32 percent of total federal receipts. If it were given directly to Americans, rather than through a mixture of tax cuts and spending to upgrade infrastructure, it would be $2,622 for every man, woman and child in the United States. Obama's $800 billion plan is roughly 1.3 times the cost of the Iraq war so far, based on a bill that now stands at $595 billion, according to the National Priorities Project, a private non-profit group.

Pension & Investments:

- There were 18,396 hedge funds operating at the end of 2008 — much greater than the 10,000-fund figure commonly used to describe the size of the global industry, said a speaker at the Managed Funds Association’s Network 2009 conference today. Meredith Jones, managing director and head of global marketing for hedge fund analytics provider PerTrac Financial Solutions, told attendees her analysis also showed 1,400 new hedge funds or funds of funds opened in 2008 — 960 single-manager funds and 440 funds of funds. The 1,400 total was well below the annual average of 5,000 new funds.

Google Mobile Blog:

- Today, we're happy to announce a new AdSense product for both mobile network operators and mobile website owners across the globe. AdSense for mobile search is a quick and easy way for carriers and mobile publishers to embed a Google(GOOG) search box on their mobile portals and web sites.

The Detroit News:

- General Motors Corp.(GM) chairman and CEO Rick Wagoner said the company is conducting an intensive review of most aspects of its business, saying the company is in a "crisis." Wagoner didn't rule out more plant closures or eliminating additional vehicles when it sends the U.S. Treasury its restructuring plan on Tuesday.


- China's passenger car sales in January fell 7.76 percent from a year earlier, hit by a slowing economy. China, the world's fastest growing major auto market, had posted car sales growth above 20 percent for three years in a row until slowing economic growth began to erode demand last year. Demand for commercial vehicles remained weak, with sales for the month totaling 125,100 units, down 20.35 percent from December and 36.46 percent from a year earlier. That pulled down the growth of overall vehicle sales from buses to trucks, which came to 735,500 units in January, down 14.35 percent from a year earlier. China's consumer confidence index fell to 87.3 in December from 90.2 in November. It was the fifth consecutive monthly fall in the index, leaving it 9.6 points lower than a year earlier.

- Short interest edged higher on the Nasdaq and New York Stock Exchange in late January, the exchanges said on Tuesday, suggesting a slight increase in bearish sentiment in the stock market. On the NYSE, short interest rose 0.6 percent from mid-January to late January, while short interest was up 1.1 percent on the Nasdaq during the same period. Short interest had also edged higher on both exchanges in mid-January. The following list shows stocks that saw increased interest from short sellers, who bet that a certain stock's price will fall, and key recent news events for those stocks.

Financial Times:
- Don’t expect to see this in the classified ads, but the quiet trade in second-hand hedge funds is growing fast as investors desperate to raise cash offer to sell at far below the face value of the funds. Holdings in some of the biggest-name hedge funds are for sale at hefty discounts to their assets, after restrictions on withdrawals left many clients unable to raise the cash they want by redeeming. Multi-million dollar stakes in Citadel’s flagship Kensington fund, Harbinger Capital’s flagship and the Children’s Investment Fund are being hawked by investors on a new online trading facility set up by Cogent Alternative Strategies, a US hedge fund sales group. Meanwhile, Hedgebay Trading, until December the only platform for buying and selling second-hand holdings in hedge funds, says trades doubled to $1bn past year and are continuing to rise. Even some banks are getting in on the game, helping to link buyers and sellers of frozen funds, in deals that should help everyone involved. On Hedgebay, discounts have soared, with the average now at about 14 per cent, from zero a year ago.


- Nissan’s India plans under review; vendors told to cut supplies 30%.

Beijing News:

- Some real estate developers in Beijing cut unit prices by more than 30% after last month’s Lunar New Year holiday to attract buyers. Home prices in China’s capital may keep falling this year as developers try to boost transaction volumes. China’s average home prices dropped in December, the first decline since data was released in August 2005.

Gulf Times:

- Credit Default Swaps (CDS) on sovereign debt of economies in the Gulf Cooperation Council region have risen to record high levels as investors pay more for protection against defaults, a report said yesterday. Sovereign CDS spreads, or premiums, are rising sharply for countries which are perceived to face difficulties in issuing fresh debt, said Kuwait’s Global Investment House. According to CMA Datavision prices, CDS linked to Bahrain touched a record high of 474.2 basis points, or bps, on January 23, 2008, the highest among the GCC countries, Global said. The CDS on Abu Dhabi ended the week at 283.4 bps, again the highest for the state, however much lower in comparison to Bahrain. Similarly, Qatar and Saudi Arabia too were at their peaks of 278.3 bps and 267.7 bps respectively.

The News:

- The local Taliban leadership has decided to send its fighters to Islamabad as a reaction to the operations in Darra Adamkhel and Swat Valley and in this regard chalkings on the walls of Islamabad are already appearing, forcing the Islamabad administration to whitewash these messages quickly. Many religious scholars in Islamabad have also received messages from the Taliban that they have only two options, either to support the Taliban or leave the capital or they will be considered collaborators of the pro-American Zardari government which, they claim, is not different from the previous Musharraf regime.

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

- Reiterated Buy on (CVH), raised target to $20.

Night Trading
Asian Indices are -1.50% to -.75% on average.
S&P 500 futures +.19%.
NASDAQ 100 futures +.16%.

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
- (CCE)/.19

- (AYE)/.53

- (DF)/.39

- (PFCB)/.26

- (CMG)/.48

- (TEX)/.54

- (PPS)/.39

- (NTAP)/.28

- (SQNM)/.18

- (MAS)/-.06

- (JNY)/-.05

- (GENZ)/1.02

- (MMC)/.32

- (LVS)/.03

- (BWLD)/.38

- (AIPC)/.43

Economic Releases

8:30 am EST

- The Trade Deficit for December is estimated to shrink to -$35.7B versus -$40.4B.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,750,000 barrels versus a +7,170,000 barrel increase the prior week. Gasoline supplies are expected to rise by +500,000 barrels versus a +362,000 barrel increase the prior week. Distillate inventories are estimated to fall by -1,500,000 barrels versus a -1,361,000 decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +1.03% increase the prior week.

2:00 pm EST

- The Monthly Budget Deficit for January is estimated to widen to -$73.0B versus $17.8B in December.

Upcoming Splits
- (LPHI) 5-for-4

Other Potential Market Movers
- The weekly MBA mortgage applications report, (BCE) analyst meeting, (BBT) investor & analyst day, (NYX) investor day, (DVA) capital markets day, the Fed’s Duke speaking, the Fed’s Evans speaking, Barclays Industrial Conference, UBS Global Healthcare Conference, BB&T Transports Conference, Deutsche Bank Growth Conference and Thomas Weisel Tech/Telecom Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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